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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER: 1-12095
JCC HOLDING COMPANY
(Exact name of registrant as specified in its charter)
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DELAWARE 62-1650470
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification Number)
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512 SOUTH PETERS STREET
NEW ORLEANS, LOUISIANA 70130
(Address of principal executive offices)
(504) 533-6000
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Class A Common Stock, par value $0.01 per share The American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Class A Common Stock held by
non-affiliates of the registrant was $17,335,553.125 at March 25, 1998, based on
the closing sale price of $3.125 per share for the Class A Common Stock on such
date on the American Stock Exchange.
The number of shares of the registrant's Class A Common Stock outstanding
at March 25, 1999 was 5,547,377.
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the Proxy Statement for the 1999 Annual
Meeting of Stockholders to be held on May 13, 1999 are incorporated by reference
in Part III.
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JCC HOLDING COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
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ITEM PAGE
NUMBER NUMBER
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PART I
1. Business.................................................... 1
2. Properties.................................................. 59
3. Legal Proceedings........................................... 60
4. Submission of Matters to a Vote of Security Holders......... 60
4(A). Executive Officers of the Registrant........................ 60
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 62
6. Selected Financial Data..................................... 63
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 64
7(A). Quantitative and Qualitative Disclosures about Market
Risk...................................................... 91
8. Financial Statements and Supplementary Data................. 91
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 133
PART III
10. Directors and Executive Officers of the Registrant.......... 133
11. Executive Compensation...................................... 133
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 133
13. Certain Relationships and Related Transaction............... 133
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 134
Signatures.................................................. 142
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PART I
ITEM 1. BUSINESS
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This report and the 1998 Annual Report of JCC Holding Company ("JCC
Holding") include forward-looking statements, including in particular the
statements about (1) the plans, objectives, expectations and prospects of JCC
Holding and its subsidiaries under the headings "Item 1. Business" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this document and (2) the construction and opening by a
subsidiary of JCC Holding of a land-based casino in New Orleans, Louisiana. The
words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate"
and similar expressions identify forward-looking statements. Although JCC
Holding believes that the plans, objectives, expectations and prospects
reflected in or suggested by such forward-looking statements are reasonable,
such statements involve uncertainties and risks, and JCC Holding cannot assure
that such plans, objectives, expectations and prospects will be achieved.
Important factors that could cause actual results to differ materially from the
results anticipated by the forward-looking statements are set forth in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Future Performance" and elsewhere in this
document. All written or oral forward-looking statements attributable to JCC
Holding and its subsidiaries are expressly qualified in their entirety by these
cautionary statements.
THE COMPANY
GENERAL
JCC Holding conducts its business through its wholly-owned subsidiaries,
Jazz Casino Company, L.L.C., a Louisiana limited liability company ("JCC"), 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"). JCC Holding, JCC, JCC Development, CP Development
and FP Development are collectively referred to herein as the "Company." JCC
Holding was incorporated on August 20, 1996 under Delaware law and, through JCC,
is constructing a land-based Casino (the "Casino") in downtown New Orleans,
Louisiana (the "City" or "Orleans Parish") at the foot of Canal and Poydras
Streets on the site of New Orleans' former convention center (the "Rivergate").
Pursuant to an agreement between JCC and an agency of the State of Louisiana
(the "State" or "Louisiana"), JCC has the exclusive right to operate a
land-based Casino in Orleans Parish. 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," Harrah's Jazz Company
("HJC"), Harrah's Jazz Finance Corp. ("Finance Corp.") and Harrah's New Orleans
Investment Company ("HNOIC") filed 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") with the
United States Bankruptcy Court for the Eastern District of Louisiana (the
"Bankruptcy Court"). The Plan of Reorganization 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, the holders of
HJC's and Finance Corp.'s 14 1/4% First Mortgage Notes due 2001 with Contingent
Interest (the "Old Bonds") acquired an aggregate of 5,197,377 shares of Class A
Common Stock, par value $0.01 per share, of JCC Holding (the "Class A Common
Stock"), which constituted approximately 93.7% of all of the issued and
outstanding
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Class A Common Stock. Also, on the Effective Date, HET, through an indirect
wholly-owned subsidiary, acquired beneficial ownership of the Class B Common
Stock, par value $0.01 per share, of JCC Holding (the "Class B Common Stock"
and, together with the Class A Common Stock and the Unclassified Common Stock,
$0.01 par value per share, of JCC Holding (the "Unclassified Common Stock"), the
"Common Stock") 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. In addition, pursuant to the Plan of Reorganization, HET, or its
affiliates, have 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 with a loan of 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. See
"-- Development Plans," "-- Recent Reorganization," "-- Material
Agreements -- Junior Subordinated Credit Facility," "-- Amended Management
Agreement," "-- HET/JCC Agreement," and "-- Amended Completion Loan Agreement."
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. Pursuant to the Plan of Reorganization, on the
Effective Date, HJC assigned to JCC an amended and renegotiated casino operating
contract, which gives JCC the right to operate 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 (i) an approximately 30-year lease, subject to
renewals (the "Ground Lease"), for the site in the City designated by law for
the Casino's development and (ii) a general development agreement relating to
the construction and development of the Casino (the "General Development
Agreement"). The Ground Lease was amended by the Amended and Restated Lease
Agreement dated October 29, 1998, among JCC, Rivergate Development Corporation,
as landlord (the "RDC"), and the City, as intervenor (the "Amended Ground
Lease"). The RDC is a public benefit corporation formed for the purpose of
subleasing the site on which the Casino will be located. Beginning on the
Effective Date, the Amended Ground Lease has a term of 30 years, 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 Rivergate
site.
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 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
12,000 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, the Company
expects that approximately 130,000 square feet of multipurpose non-gaming
entertainment space on the second floor of the premises will be constructed to
the point at which the shell of the structure is complete ("Second Floor Shell
Construction," and together with the Initial Casino Facilities, the "Casino
Construction"). A group consisting of representatives of the RDC, JCC
Development and JCC are developing a master plan for the initial build-out and
leasing of the second floor for non-gaming uses (the "Master Plan"). See
"-- Material Agreements -- Second Floor Sublease -- Master Plan." The Master
Plan, which must be approved by the City, 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 terms of a sublease dated
October 29, 1998 (the "Second Floor Sublease"), 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. The
Louisiana Gaming Control Board (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
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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. JCC will be entitled to convert any portion of the second floor in
the future to gaming use, subject to the approval of the LGCB and certain rights
of the RDC. See "-- Regulation." 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 "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Future Performance."
The completion and opening of the Casino is subject to, among other things,
receipt of the appropriate regulatory approvals, compliance with gaming laws and
rules and regulations, and the issuance of licenses and permits (which require,
among other things, suitability determinations by the State) to various vendors.
The Company has received all of the material State and City regulatory approvals
required to resume construction of the Casino and construction of the Casino has
resumed. 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, accounting controls and
other operational issues to ensure compliance with the Gaming Act and the Rules
and Regulations. In addition, employees of JCC and Harrah's New Orleans
Management Company, as the manager of the Casino (the "Manager"), are required
to obtain licenses and permits from the LGCB and the State Police before the
Casino's operations commence. 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 subsidiaries of
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 that support 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 do not generate any
material revenues for the Company. The principal executive offices of the
Company are currently located on the Fulton Property and the Company uses the
3CP Property for employee parking. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Factors Affecting
Future Performance -- The Company May Not be Able to Develop Certain of its
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
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and Plans"). HJC engaged 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 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 gaming revenues from the
Basin Street Casino averaged approximately $13 million per month for the months
of May through October 1995 and HJC suffered net losses totaling approximately
$81 million during this same period. In an attempt to reduce such losses, in
August 1995 HJC reduced the Basin Street Casino's (1) work force, (2) gaming
space and (3) number of slot machines. Gross gaming revenues were not adversely
affected by these changes. Operating results did not improve, however, and HJC
continued to post net losses.
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, 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
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State of Louisiana and other parties, the Proponents amended the plan of
reorganization several times during the reorganization process.
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. 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 had 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 of the State 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. 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
construction of the Casino has resumed. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Factors Affecting
Future Performance -- Gaming Laws and Regulations Could Adversely Affect the
Company's Operations."
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 an exchange of the Old Bonds by the holders of Old Bonds
("Bondholders") for such assets, and an exchange by the Bondholders of such
assets for the (i) Class A Common Stock, (ii) the Senior Subordinated Notes with
Contingent Payments due 2009 of JCC (the "New Notes") and (iii) the Senior
Subordinated Contingent Notes due 2009 of JCC (the "New Contingent Notes" and,
together with the New Notes, the "Notes"). Pursuant to the Plan of
Reorganization, the outstanding capital stock of JCC Holding consists of shares
of Class A Common Stock and Class B 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 below),
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.
However, prior to the Transition Date, (i) the maximum number of authorized
directors on JCC Holding's board of directors is six, three of which are to be
elected by the holders of the Class A Common Stock (each, a "Class A Director")
and three of which are to be elected by the holders of the Class B Common Stock
(each, a "Class B Director"), (ii) any amendment to the JCC Holding's Restated
Certificate of Incorporation and Bylaws which affects the rights of holders of
the Class A Common Stock or the Class A Directors or which affects the rights of
holders of the Class B Common Stock or the Class B Directors must be approved by
the affirmative vote of the holders of a majority of the affected class of
Common Stock and (iii) only certain entities may hold Class B Common Stock.
On the Transition Date, each share of Class A Common Stock and each share
of Class B Common Stock will automatically convert into one share of
Unclassified Common Stock. Accordingly, on and after the Transition Date,
directors will be elected by the affirmative vote of the holders of a plurality
of the shares of
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Unclassified Common Stock and the restrictions described in clauses (ii) and
(iii) of the preceding paragraph will no longer be applicable.
"Transition Date" means the date upon which the earliest of the following
events occurs: (i) the third anniversary of the date on which the Casino is open
to customers, (ii) the end of two consecutive 12-month periods in each of which
contingent payments under the New Notes and the New Contingent Notes equals or
exceeds $15 million and (iii) the end of a 30-day period during which the
average daily closing Minimum Market Value (as defined below) equals or exceeds
$435 million. "Minimum Market Value" means, for any trading day, the sum of (a)
the closing price of Class A Common Stock multiplied by the number of shares of
Class A Common Stock that were issued to holders of the Old Bonds on the
Effective Date pursuant to the Plan of Reorganization and (b) the closing price
for $1,000 of the New Notes and the New Contingent Notes divided by $1,000, and
then multiplied by the aggregate principal amount of the New Notes and the New
Contingent Notes outstanding.
Prior to the Effective Date, the Company had not issued any shares of
Common Stock. Pursuant to the Plan of Reorganization, JCC Holding issued an
aggregate of 10 million shares of Common Stock on the Effective Date. 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 for, among other things, an equity investment (the "New Equity
Investment") of $15 million in JCC Holding 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
during 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, upon the exercise of the HET Warrant in its entirety, HET and
its subsidiaries will own in the aggregate 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 Bank One, Louisiana, N.A., formerly known as
First National Bank of Commerce ("Bank One") and (iii) its right to receive
350,000 shares of Class B Common Stock 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 JCC Holding's Restated
Certificate of Incorporation, the 350,000 shares received by them were
automatically converted into shares of Class A Common Stock. Subsequent to the
Effective Date, Bank One exercised its options and on November 13, 1998 HCCIC
transferred 150,000 shares of its Class B Common Stock to Bank One. Accordingly,
HET, through 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 all of the
Class B Directors, 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 the JCC Holding's Restated Certificate of Incorporation requires
that, prior to the Transition Date, HET and any direct or indirect wholly-owned
subsidiary of HET (collectively, the "Harrah's Entities") 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 Directors and the Class B Directors). As a
result, the Harrah's Entities will continue to have the power to elect the Class
B Directors.
Also pursuant to the Plan of Reorganization, on the Effective Date (i)
3,710,115 shares of Class A Common Stock, or 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, or
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. This 1,487,262 shares of
Class A Common Stock included HCCIC's right to receive on the Effective Date
200,000
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shares of Common Stock under the Plan of Reorganization. Accordingly on the
Effective Date, the Bondholders received an aggregate of 5,197,377 shares of
Class A Common Stock, or approximately 93.7% and approximately 52.0% of the
issued and outstanding Class A Common Stock and Common Stock, respectively. In
addition, on the Effective Date each Bondholder received its pro rata share of
the aggregate principal amount of the New Notes and the New Contingent Notes.
See "-- Material Agreements -- New Notes and New Contingent Notes."
Also in connection with the Plan of Reorganization, JCC obtained (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 Harrah's Operating Company, Inc. ("HOCI") has
agreed to make available up to $22.5 million of subordinated indebtedness (the
"Junior Subordinated Credit Facility"). In addition, JCC issued to BTCo, Bank
One, Salomon Smith Barney Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and BT Alex. Brown Incorporated, approximately $27.3 million
aggregate principal amount of 8% Convertible Junior 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"). However, subject to certain exceptions, JCC must repay
any amounts outstanding under the Working Capital Facility on the Termination of
Construction Date (as defined herein under "Material Agreements -- Completion
Guarantees"). 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." Also, the lease among HJC, the City and the RDC for
the Basin Street Casino was terminated prior to the Effective Date.
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, the Class B Directors, as
members of the Gaming Committee of JCC Holding's the board of directors,
generally supervise the day-to-day activities of the Company, with the exception
of certain significant transactions. In addition, HET currently beneficially
owns approximately 96.6% of the issued and outstanding Class B Common Stock,
and, prior to the Transition Date, the JCC Holding's Restated Certificate of
Incorporation requires that the Harrah's Entities own not less than 51% of the
outstanding Class B Common Stock (unless a lesser percentage is approved by the
Class A Directors and the Class B Directors). 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 because 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. 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
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resumed on March 11, 1996 for the limited purpose of enclosing the structure,
which was completed on or about September 6, 1996.
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 a food service area, casino support facilities,
and multi-function, special event and meeting-room space. The second floor of
the Casino will be initially developed for non-gaming uses. Parking for
approximately 400 cars and approximately 145,000 square feet of back-of-house
and support areas will be provided under 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."
JCC has approximately 3,000 slot machines in inventory. Due to outdated
technology, limited vendor support and poor player appeal, approximately 1,400
of these owned machines require replacement. In order to open the Casino with
approximately 2,900 slot machines, JCC intends to acquire approximately 1,300
slot machines through a combination of operating leases and purchases.
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. As of March 15, 1999, construction of the Casino and its parking
garages was approximately 70% complete and construction of the Second Floor
Shell Construction was approximately 80% complete.
The gaming activities that may be conducted at the Casino, 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 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 "-- Regulation" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Factors Affecting Future
Performance -- Gaming Laws and Regulations Could Adversely Affect the Company's
Operations -- The interpretation of current regulations and the Gaming Act could
adversely affect the Company's operations."
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 destination which leverages New Orleans' unique music, food,
history, architecture and spirit. Additionally, under the terms of the Amended
Ground Lease, JCC agreed to pay the City $1 million per year for the 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."
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DESCRIPTION OF THE MANAGER
JCC has engaged the Manager to manage the 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, marketing and
promotion of the Casino; Casino-level accounting and budgeting 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 10 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 Native American lands near Phoenix,
Arizona, Cherokee, North Carolina and Topeka, Kansas; and a land-based casino in
Sydney, Australia. As of December 31, 1998, HET, through its operating
subsidiaries and other affiliates, operated a total of approximately 1,120,000
square feet of casino space, 30,162 slot machines, 1,167 table games and 11,685
hotel rooms or suites.
COMPETITION
Since the time the land-based Casino project was originally proposed in the
early 1990s, considerable competition has developed which may adversely impact
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 competition facing the Casino
has increased. In addition, negative publicity associated with HJC's bankruptcy
may materially and adversely impact the Casino's ability to attract gaming
patrons.
The Gaming Act and the Rules and Regulations prohibit the Company from
engaging in certain activities including, among others, the following:
- giving away or subsidizing food within the Casino;
- offering food services with direct table service or with seating in
excess of 250 persons;
- contracting with local restaurant owners to provide food at designated
areas within the Casino, except under certain circumstances;
- offering lodging within the Casino facility;
- 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; and
- selling products in the Casino that are not directly related to gaming.
In addition, licensees are prohibited from, among other things, giving away
or subsidizing food within the Casino or offering food services with direct
table service or with seating in excess of 250 persons. Also, the provisions
described above relating to food, lodging and retail activities apply to the
Company's operations on the second floor of the Casino. Under the terms of the
Second Floor Sublease, currently the Company is also prohibited from offering
facilities on the second floor of the Casino, the principal business purpose of
which is a restaurant. 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 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 "Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations -- Factors Affecting Future Performance -- The Casino is
Subject to Limits on Providing Lodging, Food Services, Entertainment and Retail
Operations That Could Impact Its Ability to Operate Profitably" and "-- The
Gaming Industry is Highly Competitive."
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 12 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 March 1999 Mirage Resorts Inc. opened Beau Rivage, an 1,800 room
hotel, resort and dockside casino in Biloxi that is larger than any hotel in New
Orleans. Approximately $700 million was spent to develop Beau Rivage and due to
its 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. Mississippi has recently promulgated a regulation,
however, that requires new entrants in the industry to expend certain amounts of
money on non-gaming facilities in addition to the casino boat itself. In
addition, unlike the Casino, gaming facilities in Mississippi operate without
restrictions on lodging, food and beverage service, and entertainment, and
several of such facilities have recently expanded to enhance such services. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Factors Affecting Future Performance -- The Gaming Industry is
Highly Competitive" and "-- The Casino is Subject to Limits on Providing
Lodging, Food Services, Entertainment and Retail Operations That Could Impact
Its Ability to Operate Profitably."
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 State 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 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, the Casino will still compete with gaming
operations in Louisiana, where 13 riverboats are operating, including:
- one riverboat in Orleans Parish;
- two 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.
The Casino may also compete with a fourteenth riverboat in Shreveport that
was conditionally awarded a license to operate and is in the development stages.
In addition, 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. The Company
cannot assure that the Riverboat Act will not be amended to permit unlimited
dockside gaming or to increase the number of
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permitted riverboats. The Casino will also compete with land-based gaming
facilities located in central Louisiana on Native American land. The
Tunica-Biloxi, Chitimacha and Coushatta Native American 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. The Casino 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,
the Casino 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. The Casino will compete for local customers
with other forms of legal wagering, including racetracks and off-track betting
parlors. In addition, under Louisiana law, certain parishes (including Orleans
Parish) permit:
- restaurants, taverns, hotels and licensed clubs to operate up to three
video draw poker devices per location;
- qualifying truck stops to operate up to 50 video draw poker devices per
location; and
- racetracks and off-track betting parlors to operate an unlimited number
of video draw poker devices per location
Louisiana law, however, limits video draw poker device 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 the 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 the 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 the use of slot machines, the Casino would
compete for patrons with slot machines at such race tracks.
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 sites of past spills,
disposals or other releases of hazardous or toxic substances or wastes and
certain damages resulting therefrom, 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 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.
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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 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 lease for the Basin Street Casino.
The Company does not anticipate that future expenditures for compliance
with environmental laws and regulations will materially and adversely affect the
Company. The Company cannot assure, however, that such matters, or that
compliance with environmental laws and regulations that may be enacted in the
future, will not materially adversely affect the Company. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Future Performance -- The Company May Be Subject
to Environmental Liabilities."
EMPLOYEES
As of March 15, 1999, the Company employed 58 people on a full-time basis
and two people on a part-time basis. JCC, through the Manager, is in the process
of recruiting and training employees to operate the Casino. To the extent
permitted by law and contract, JCC, in its 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. The Casino's executive staff will be comprised of
employees of the Manager and JCC. See "-- Material Agreements -- Amended GDA,"
"-- Amended Management Agreement," "-- Amended Open Access Program and Plans"
and "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors Affecting Future Performance -- JCC May Not be
Able to Retain Qualified Personnel to Staff its Operations."
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 HOCI, as Minimum Payment Guarantors (as defined herein
under "-- Material Agreements -- Bank Loans"), the Bank Lenders and the holders
of the Notes and owners' title insurance policies for the benefit of JCC, CP
Development and FP Development.
The owners' title insurance policy for the Casino Premises provides
coverage in the amount of $524 million. The lenders' title insurance policy for
the Casino Premises provides coverage equal to (i) $100 million in favor of HET
and HOCI, (ii) the total amount of indebtedness under the Bank Loans in favor of
BTCo, as administrative agent for the Bank Lenders (the "Administrative Agent"),
and (iii) the aggregate principal amount of the Notes in favor of Norwest Bank
Minnesota, National Association, as trustee (the "Trustee") under the indentures
governing the Notes.
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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 the Company's filings with the
Securities and Exchange Commission. 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 an agreement (the "HET/JCC Agreement") among JCC, HET and HOCI, a
wholly-owned subsidiary of HET, pursuant to which HET and HOCI have provided an
initial guaranty (the "Minimum Payment Guaranty") in favor of the State by and
through the LGCB of a $100 million annual payment due to the State under the
Amended and Renegotiated Casino Operating Contract (HET and HOCI, as the
providers of such guaranty, are referred to herein as the "Minimum Payment
Guarantors"). See "-- 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 a $30 million tranche ("Tranche B-1") and 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.
However, subject to certain exceptions, JCC must repay any amounts outstanding
under the Working Capital Facility on the Termination of Construction Date.
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 (as defined herein under
"-- Completion Guarantees") under the Completion Guarantees (as defined below)
remain guaranteed pursuant to the terms of such Completion Guarantees and in
accordance with the terms thereof, the HET applicable margin and (ii) at all
times from and after the first date on which the Carry Obligations are no longer
so guaranteed, 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 year. 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
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payment due at maturity. The amortization required under Tranche A-3 is
quarterly installments of principal, commencing July 31, 2000, with annual
amounts of $4.0 million the first year, $6.0 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, with annual amounts 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 under "-- New Notes and New Contingent Notes")
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
under "-- Amended Management Agreement -- Fees") for the corresponding interest
payment period, (iii) the Manager has deferred Incentive Fees (as defined herein
under "-- Amended Management Agreement -- Fees") 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 under "-- New Notes and New Contingent
Notes") 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 0.75%, the 0.75% 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
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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."
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 $22.5 million
Junior Subordinated Credit Facility will be funded prior to Tranche B-2, however
any portion of the Junior Subordinated Credit Facility which is not used for
construction related costs will be applied first to repay amounts outstanding
under Tranche A-1 and then to repay amounts outstanding under Tranche A-2. 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. 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. As of
March 25, 1999, $2.0 million had been drawn under the Junior Subordinated Credit
Facility and no amounts had been drawn under Tranche B-2 or Tranche A-2. The
Company anticipates that during April 1999, JCC will draw the remaining amounts
available under the Junior Subordinated Credit Facility after which JCC will
begin borrowing under Tranche B-2. The failure of the lenders to disburse funds
under Tranche A-2 or Tranche B-2 will not terminate the obligations of HET and
HOCI, as completion guarantees (collectively, the "Completion Guarantors"),
under the 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") of the
Completion Obligations, the Carry Obligations and the Preservation Obligations
(each as defined herein under "-- Completion Guarantees"). See "-- 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 under "-- Amended Ground Lease -- Transition
and Manager Subordination Agreement") and the Gross Gaming Revenue Share
Payments (as defined herein under "-- Amended and Renegotiated Casino Operating
Contract"), 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 for the New Notes and the New Contingent Notes (the "Indentures") and
HET and HOCI as Minimum Payment Guarantors, subject to the terms of the
Intercreditor Agreement entered into pursuant to the Plan of Reorganization
among JCC Holding, JCC, the Bank Lenders and the Administrative Agent (the
"Intercreditor Agreement"). 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 below) are senior to the Working Capital Facility and
the B Term Loan. The B Term Loan and the Senior Subordinated Permitted
Refinancings (as defined below) 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 conditions that,
among other things, at the time of each drawing: (i) 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
and (ii) all representations under the HET Loan Guaranty remain true and correct
in all material respects.
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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 distributions, investments, debt
prepayments, sale-leasebacks, capital expenditures, lease expenditures,
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.
JUNIOR SUBORDINATED CREDIT FACILITY
On the Effective Date, JCC entered into the Junior Subordinated Credit
Facility pursuant to which HOCI 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-2 and Tranche
B-2), 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-2 and Tranche B-2. 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.
As of March 25, 1999, $2.0 million had been drawn under the Junior
Subordinated Credit Facility and the Company anticipates that JCC will draw the
remaining amounts available under this facility by June 30, 1999. 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 will bear annual
interest at the rate of 8%. Subject to meeting certain restricted payment tests
contained in the Indentures 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 foregoing rate plus 2%.
CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES
On the Effective Date, JCC issued to BTCo, Bank One, Salomon Smith Barney
Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and BT Alex. Brown
Incorporated (the "Debenture Holders") $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 year 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 JCC 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."
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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. 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
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 and the Debenture Holders, 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, 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 among JCC, as
obligor, JCC Holding, JCC Development, CP Development and FP Development, as
guarantors, and Norwest Bank Minnesota, National Association, as Trustee, and
(ii) New Contingent Notes pursuant to an indenture dated as of the Effective
Date among JCC, as obligor, JCC Holding, JCC Development, CP Development and FP
Development, as guarantors, and the Trustee. See "-- The Company -- Recent
Reorganization."
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Fixed interest on the New Notes accrues at a rate of 5.867% per year,
increasing over the first three years to a rate of 6.214% per year in the fourth
and fifth years and increasing to 8% per year 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 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. Fixed Interest not paid in kind
is 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, and (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,
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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" means, 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 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,
whether paid or accrued, (vi) amortization expense with respect to deferred
refinancing fees, (vii) pre-opening expenses, (viii) any extraordinary loss
reflected in the calculation of consolidated net income, (ix) other non-cash
charges, and (x) solely for the purpose 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
House Bank 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 have irrevocably and unconditionally guaranteed 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
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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 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 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 JCC entered into the amended General Development
Agreement (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 certain force majeure ("GDA Force Majeure")
events. Failure to complete the Casino Construction by June 30, 2000, subject to
extension for a GDA Force Majeure event, will be an event of default under the
Amended Ground Lease. In general, "GDA Force Majeure" events include: (a)
strikes, lockouts, labor disputes, inability to procure materials (for which
there is no suitable substitute or alternative that can be timely obtained on
reasonable
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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) acts of
God, tornadoes, hurricanes, floods, sinkholes, fires and other casualties,
landslides, earthquakes, epidemics, quarantine, pestilence, abnormal inclement
weather; (d) 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 (e) any judgment, directive, ruling or order that substantially
restrains or substantially interferes with completion of Casino Construction.
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"). If the RDC has approved the construction documents for
a component or phase of the Casino Development, and 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
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 such bonds,
(ii) the affirmation by the parties that such bonds (as so supplemented) remain
in full force and effect and (iii) the addition of JCC as an additional obligee
under such 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 a surety bond (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 as of October 29,
1998. 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
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important exceptions and qualifications, are obligated to complete the Casino
Construction. See "-- Completion Guarantees."
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 a
revised and updated Open Access Program and Plans adopted pursuant thereto (the
"Amended Open Access Program and Plans.") See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Factors
Affecting Future Performance -- The Company May Not be Able to Comply with
Minority Hiring Requirements."
AMENDED GROUND LEASE
Term; Rent and Additional Charges. On October 29, 1998, JCC entered into
the Amended Ground Lease for the Rivergate site with the RDC and the City, as
intervenor. Beginning on the Effective Date, the Amended Ground Lease has a term
of 30 years, 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 December 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 a GDA Force Majeure event), the Pre-Opening Date Rent will increase
to an amount equal to the monthly Amended Ground Lease Minimum Payments (as
defined below).
The Amended Ground Lease provides that the minimum of all: (i) Rent
payments; (ii) Gross Gaming Payments, (iii) Audubon Payments, (iv) Gross
Non-Gaming Payments (each as defined below and collectively referred to herein
as 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 to a maximum of 8%. A portion of the Gross
Gaming Payments is payable monthly in advance as part of
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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.
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.
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 to
receive a payment of additional rent (the "MAR Payment") equal to 4.99% of the
amount, if any, 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 such written 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 under "-- Amended Management Agreement -- Termination of Amended
Management Agreement") 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 year; or (b) 14% per year. 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 and Plans;
(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 GDA 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 GDA 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 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 (as defined
herein under "-- Impositions; Amusement Tax"), School Board Payments, and
contingent payments (or the MAR Payment, if applicable)
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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 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.
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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
agreement entered into between JCC and the Completion Guarantors (the "Amended
Completion Loan Agreement"), the amended and restated construction lien
indemnity obligation agreement between HOCI and JCC (the "Amended and Restated
Construction Lien Agreement"), 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 -- Term, Fees and Impositions" and "-- Financing."
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.
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 the RDC 2.5% of the
profit realized by such entity from such transfer; provided that no such
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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 authorized 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 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.
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.
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 owed by JCC to the
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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 below), 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 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
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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 Renegotiated
Casino Operating Contract and is not meant to duplicate the capital replacement
obligations of JCC under the Amended Management Agreement and the Amended and
Renegotiated 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 and Plans. 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 and Plans in all hiring, employment and
contracting decisions. See "-- Amended GDA" and "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Factors
Affecting Future Performance -- The Company May Not be Able to Comply With
Minority Hiring Requirements."
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
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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
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Factors Affecting Future Performance -- The Company May Not be
Able to Satisfy Certain of Its Obligations if the Casino is Subject to
Additional Taxes."
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, a "COC Fiscal Year" is
defined to mean a 12-month period beginning April 1, provided that the first
Full COC Fiscal Year is defined to mean the period commencing on the Casino
Opening Date and ending on the first March 31st thereafter.
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 million; 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 event (as defined below under
"-- Completion Guarantees"). 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 materially
and adversely affect the Company's business, financial condition and results of
operations. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Factors Affecting Future
Performance -- The Casino May Not be Able to Commence Operations as Scheduled."
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 under "-- HET/JCC Agreement"), (y) an
event of default occurs causing termination of the Amended Ground Lease, or (z)
an event of default
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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.
If JCC fails to pay as and when due any amount due to 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 year.
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
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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 law
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) Native American 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 Renegotiated 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)
Permitted Riverboat's gaming area must not exceed 30,000 square feet in the
aggregate; (B) 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) 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 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."
In addition, the State has agreed 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 that (a) 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) 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
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the State of the obligations contained in the covenant and/or (ii) mandamus
against the LGCB or the appropriate governmental authority. Except for 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. However, 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 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
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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. The
Company cannot assure 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 by
October 30, 1999, 12 months after 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 vendors. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Factors Affecting Future
Performance -- The Casino is Subject to Limits on Providing Lodging, Food
Services, Entertainment and Retail Operations That Could Impact Its Ability to
Operate Profitably."
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. See "-- Amended Ground Lease -- Capital
Replacement Fund" and "Management Agreement -- Capital Replacement Fund."
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
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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; (x) other than as a result of certain excusable causes, JCC
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 lenders that meet certain availability criteria. As provided in
the Amended and Renegotiated Casino Operating Contract, certain lenders are
presumed to be suitable. 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.
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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. 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 causing 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 and supervising the Casino's employees, and establishing
labor policies for such employees; (b) gaming and entertainment policies and
operations, including security and internal control procedures for the Casino;
(c) advertising, marketing and promotions; (d) Casino-level accounting and
budgeting 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
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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 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 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 for the development of the Casino, 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, which is designated by the Manager, is operated by
HET or its affiliates and is similar in physical character to the Casino.
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 Renegotiated
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, to be submitted not
less than 60 days prior to year end. 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
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delivered to 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. JCC is
also required to pay the Manager a "marketing contribution" that as of December
31, 1998 was equal to 0.4% of the Casino's net revenues. This marketing
contribution may be used for advertising services, special promotions, public
relations and other marketing services and HET's affiliates may pool the
marketing contribution with contributions made by other participating casinos
owned or managed by HET's affiliates. The Manager may increase this marketing
contribution from time to time to ensure that it generally equals the fee
charged to 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 Interest in kind during such
semi-annual interest period, the
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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 below) 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 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.
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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 below). 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 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 (as 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 receive a Termination Fee as a result of such event of default
or 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 is subject to the imminent
risk of foreclosure (the proceeds of which indebtedness are used solely to
construct, improve, restore or repair the Casino, or to refinance any
indebtedness incurred in connection with such mortgage) 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.
If 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 below) occurs and the board
of directors of JCC Holding does not consist of Continuing Directors (as defined
below), 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. "Change of Control" means the acquisition of at least
20% of the outstanding shares of Class A Common Stock by an entity (including
certain affiliates of such entity and any entity of which such entity is an
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 (a "Conflicted Entity"). "Continuing Directors" means
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the directors of JCC Holding on the Effective Date and each other director, if
such director's nomination for election to the 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 below) 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, 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). 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
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
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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 below); 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 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 arise until 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
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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 event. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Factors Affecting Future
Performance -- The Completion Guarantees are Subject to Conditions and May be
Suspended or Terminated." 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
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.
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 parking area and bus staging area for the Casino plus
commercial space at the street level, 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"),
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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 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 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 are deemed unsecured limited recourse indebtedness (the "Completion
Loans") of JCC due and payable six months following the maturity of the New
Notes and New Contingent Notes. The Completion
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Loans bear annual interest at the rate of 8%. Subject to meeting certain
restricted payment tests contained in the Indentures and pursuant to the Credit
Agreement, 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,
currently JCC Holding. During any period in which (i) payment of the Completion
Loans is prohibited under the terms of the Credit Agreement 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 rate of 8.0% per
year 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 interest at the rate of 10%
per year. 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 and 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 Credit Agreement. Payments in excess of those permitted to be
paid under the Indentures or Credit Agreement 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 any demand, call, notice or requirement for performance under any
Completion Guarantee, or their good faith determination 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 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 also contains certain covenants of JCC,
representations and warranties by JCC and events of default.
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SECOND FLOOR SUBLEASE
General. On October 29, 1998, JCC entered into the Second Floor Sublease
with JCC Development, pursuant to which JCC subleases the second floor of the
Casino to JCC Development for the term described below. The second floor of the
Casino 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 the Second Floor Sublease is 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 City 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. The build-out of tenant space and tenant leasing may be done in
phases and is dependent on the Company obtaining funding for these purposes. The
Company has not obtained 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.
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.
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
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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.
AMENDED AND RESTATED CONSTRUCTION LIEN INDEMNITY AGREEMENT
JCC and HOCI entered into an 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 unsecured limited recourse
indebtedness ("Indemnity Obligations") of JCC due and payable on demand. The
Indemnity Obligations will bear interest at the rate of 8% per year. 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 Credit Agreement 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 rate of 8.0% per year 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 EBITDA for the period of operations ending January 31,
2000, provided, however there will be no 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 EBITDA for the 12 month period ending November 30 of
the prior calendar year in an amount equal to at least $15 million for the 12
month period ending November 30, 2000, $20 million for the 12 month period
ending November 30, 2001, and $25 million for 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
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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, For the purpose
of the HET/JCC Agreement, "EBITDA" means operating income determined according
to generally accepted accounting principles, excluding 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 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 (a) 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 (b) 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 if 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
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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 year guaranty fee
for the COC Fiscal Years ending March 31, 2000 and 2001 and a $5 million per
year 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 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. Under the terms of the Indentures, 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 year 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
HJC, Finance Corp., HNOIC, 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,
HJC, Finance Corp. and HNOIC 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 HJC, Finance Corp. and HNOIC, 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 is not renewed in accordance
with 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
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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 the Company cannot assure that
JCC will be able to locate a substitute guarantor on satisfactory terms. If JCC
fails to procure a Minimum Payment Guaranty before the first day of a new fiscal
year, it will result in a termination with no cure period of the Amended and
Renegotiated Casino Operating Contract. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Factors Affecting
Future Performance -- JCC May Not be Able to Renew Its Minimum Payment
Guaranty."
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, 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 below) is
subordinated to the prior payment in full in cash of all Senior Indebtedness (as
defined below). "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. "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.
Foreclosure. Under the Bank Lenders Subordination Agreement and the Notes
Subordination Agreement, 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 which date occurs, in either case, 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 described 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 the Termination Date has occurred), such Subordination
Beneficiary will have the right to terminate the Amended Management Agreement by
written notice to the Manager if an event of default
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under the Amended Management Agreement has occurred, the applicable cure periods
have expired, and JCC has the right to terminate the Amended Management
Agreement. 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 the State
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.
However, the termination provisions described in this paragraph 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 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 the Termination Fee
will have no effect on the effectiveness of any termination of the Amended
Management Agreement under the Bank Lenders Subordination Agreement or the Notes
Subordination Agreements.
Cure Period. Under the Bank Lenders Subordination Agreement and the 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 to the Subordination Beneficiaries
within five days after the Manager becomes aware of the existence thereof.
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, specifying the
basis for the termination and any defaults then existing under the Amended
Management Agreement. During the Cure Period, JCC and/or the Subordination
Beneficiaries may remedy the defaults specified in such notice 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 the default is capable
of being cured and a Subordination Beneficiary notifies the Manager that such
Subordination Beneficiary is proceeding to remedy the default, 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 default is 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 the 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 the 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 owing to the Administrative Agent and the
lenders thereunder or (ii) the termination of the Amended Management Agreement
and satisfaction of (a) all obligations owing to JCC and the Manager thereunder
and (b) all 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 Indentures and satisfaction of all obligations to the
Note holders thereunder or (ii) the termination of the Amended Management
Agreement and satisfaction of (a) all obligations owing to JCC and the Manager
thereunder and (b) all obligations of the Manager under the Notes Subordination
Agreement.
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
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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 -- Term, 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 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.
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On October 20, 1998, the LGCB approved the Amended and Renegotiated Casino
Operating Contract, and such contract was executed on October 30, 1998. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Factors Affecting Future Performance -- Gaming Laws and
Regulations Could Adversely Affect the Company's Operations -- The
interpretation of current regulations and the Gaming Act could adversely affect
the Company's operations."
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 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 of an
applicant requires that the applicant demonstrate 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
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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 5% or
more equity interest in a non-publicly traded, direct or indirect holding
company of the casino operator or casino manager or 10% 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
intend 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 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 such
companies. 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
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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 "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Future Performance -- Gaming Laws and
Regulations Could Adversely Affect the Company's Operations -- JCC and certain
of its affiliates must be found suitable."
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 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
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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 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, 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 that the holder is 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 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
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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. 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 "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Future Performance -- Gaming Laws and
Regulations Could Adversely Affect the Company's Operations."
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
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 a parish-by-parish referenda during the State
legislature's November 5, 1996 election to decide, on an item-by-item basis,
whether riverboat gaming, video poker gaming and, in Orleans Parish, the
land-based casino, should be permitted to operate in 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 "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Factors Affecting Future
Performance -- Gaming Laws and Regulations Could Adversely Affect the Company's
Operations -- The interpretation of current regulations and the Gaming Act could
adversely affect the Company's operations."
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 "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Future Performance -- Gaming Laws and
Regulations Could Adversely Affect the Company's Operations -- The Company may
not be able to enforce its contractual rights against the State." 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 "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Gaming Laws and Regulations Could Adversely Affect the Company's
Operations -- The interpretation of current regulations and the Gaming Act could
adversely affect the Company's operations."
Another law purports to, among other things, 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
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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 "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Factors Affecting Future
Performance -- Gaming Laws and Regulations Could Adversely Affect the Company's
Operations -- The interpretation of current regulations and the Gaming Act could
adversely affect the Company's operations."
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, the Company cannot assure 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 prior to the Opening Date. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Future Performance -- Gaming Laws and
Regulations Could Adversely Affect the Company's Operations -- The
interpretation of current regulations and the Gaming Act could adversely affect
the Company's operations."
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 Renegotiated
Casino Operating Contract were introduced in the State 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 began in 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 "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors Affecting Future Performance -- Gaming Laws and
Regulations Could Adversely Affect the Company's Operations -- The
interpretation of current regulations and the Gaming Act could adversely affect
the Company's operations" and "-- The Casino is Subject to Limits on Providing
Lodging, Food Services, Entertainment and Retail Operations That Could Impact
Its Ability to Operate Profitably."
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
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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
Certain conditional use approvals have been obtained from the City for the
Casino and the parking facilities for the Casino. Certain of these 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, the Company cannot assure that JCC will receive the
required approvals.
Because, absent certain waivers, the Casino does not fit within all
requirements of the City's zoning ordinances, the Proponents requested and
received a number of waivers from the City Council prior to consummation of the
Plan or Reorganization. For instance, in the fall of 1996 the Proponents
received waivers from the City Council for the Casino relating to such matters
as:
- the permissible size of retail space;
- the scope of cafeteria services that may be provided;
- 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. 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, if the waivers for the Casino are invalidated, it
could materially and adversely affect the Company by delaying or preventing the
construction or opening of the Casino, forcing the Casino to cease operations or
limiting its ability to operate once opened. In addition, the zoning ordinances
may be subject to differing interpretations. Under some interpretations, certain
waivers required by the Casino may not be requested or granted. Accordingly, the
Company cannot assure that the Casino will comply with the zoning ordinances in
all material respects. If the Company fails to comply with the zoning
ordinances, it could materially and adversely affect the Company's business,
financial condition and results of operations by delaying or preventing the
construction or opening of the Casino or forcing the Casino to cease operations
once opened. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Factors Affecting Future
Performance -- The Casino May Not be Able to Commence Operations as
Scheduled -- JCC may not be able to obtain necessary zoning and land use
approvals."
ITEM 2. PROPERTIES
Under the Plan of Reorganization, on the Effective Date, title to the 3CP
Property vested in CP Development and title to the Fulton Property vested in FP
Development. The 3CP Property and the Fulton Property currently do not generate
any material revenues for the Company. In addition, pursuant to the terms of the
Plan of Reorganization, as of the Effective Date, JCC succeeded to HJC's
interest in the approximately 30-year long-term Ground Lease for the Rivergate
site in New Orleans, Louisiana, the site designated by law
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for the development and location of the Casino. On October 29, 1998, the Ground
Lease was amended by the Amended Ground Lease. Beginning on the Effective Date,
the Amended Ground Lease has a term of 30 years, with three consecutive ten-year
renewal options. See "Item 1. Business -- Material Agreements -- Amended Ground
Lease."
The principal executive offices of the Company are located on the Fulton
Property, which contains approximately 48,300 square feet of usable office
space. The Company expects that its principal executive offices will remain on
the Fulton Property until the Fulton Property is developed, at which time the
Company will relocate its executive offices. The Company does not anticipate
that it will have difficulty securing substitute space for its executive
offices. The Company currently uses the 3CP Property for employee parking.
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. JCC has subleased the second floor to JCC Development pursuant
to the terms of the Second Floor Sublease 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. See "Item 1.
Business -- Material Agreements -- Second Floor Sublease."
Under a lease (the "Railroad Lease") that expires in July 2023, JCC leases
approximately 15 acres of land, including an unoccupied 15,000 square foot
building. When the Casino opens for operation, the Company expects that this
land will be used for parking for the Casino's employees and buses that service
the Casino. Pursuant to a master lease that expires in February 2004, the
Company also leases an aggregate of approximately 63,000 square feet of
warehouse space where it stores gaming equipment and supplies to be used in the
Casino.
To secure present and future indebtedness under certain of the agreements
the Company entered into in connection with the Plan of Reorganization, the
Company's interest in the Amended Ground Lease, the 3CP Property, the Fulton
Property, the Second Floor Sublease and the Railroad Lease described above are
subject to mortgages granted to the Collateral Agent.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will materially and adversely affect the Company's business,
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of JCC Holding stockholders during JCC
Holding's fourth fiscal quarter ended December 31, 1998.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information as of December 31, 1998 regarding
the executive officers of JCC Holding.
Frederick W. Burford, age 48, has served as the President of JCC Holding
and JCC since April 1998 and President of JCC Development, CP Development and FP
Development since September 1998. Mr. Burford was also the Secretary and
Treasurer of JCC Holding from December 1997 until September 1998. Mr. Burford
was a consultant to HET from May 1997 until October 1998 and served as Vice
President of JCC Holding from December 1997 to April 1998. During August 1997,
Mr. Burford served as President of TPI Enterprises, Inc., a restaurant holding
company ("TPI"). From November 1991 until September 1997 Mr. Burford served as a
director and the Executive Vice President and Chief Financial Officer of TPI.
From March 1990 to October 1991 Mr. Burford served as the Vice President,
Controller and Treasurer of The
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Promus Companies, Inc., a gaming and hotel holding company, and from August 1977
until February 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, age 44, has served as the Vice President -- Finance,
Treasurer and Secretary of JCC Holding, JCC, JCC Development, CP Development and
FP Development since September 1998. Ms. Fowler 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.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
CLASS A COMMON STOCK PRICE
JCC Holding's Class A Common Stock began trading on the American Stock
Exchange under the symbol "JAZ" during the fourth quarter of fiscal 1998 on
December 9, 1998. Prior to that time, JCC Holding's Class A Common Stock was not
listed or traded on any organized market. Each share of JCC Holding's Class B
Common Stock, which does not trade on any market and all of which are held by
two entities, and each share of JCC Holding's Class A Common Stock, will
automatically convert into one share of JCC Holding's Unclassified Common Stock
on the Transition Date. The table set forth below provides, on a per share basis
for the period indicated, the high and low sales prices of the Class A Common
Stock as reported on the American Stock Exchange.
<TABLE>
<CAPTION>
FISCAL 1998 HIGH LOW
- ----------- ---- ---
<S> <C> <C>
Fourth Quarter for the period from December 9, 1998 to
December 31, 1998......................................... $4 $3 3/8
</TABLE>
HOLDERS
As of March 25, 1999, there were approximately 557 record holders of the
Class A Common Stock, and the Company estimates that there were approximately
1,800 beneficial owners of the Class A Common Stock. As of March 25, 1999, there
were two beneficial owners and record holders of the Class B Common Stock.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. JCC
Holding does not intend to pay cash dividends on the Common Stock in the
foreseeable future. Further, pursuant to the terms of the Credit Agreement, for
as long as there are amounts outstanding thereunder no dividends will be paid.
See "Item 1. Business -- 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 "Item 1.
Business -- Material Agreements -- New Notes and New Contingent Notes." 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.
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 October
30, 1998, (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 1. Business -- Material Agreements -- New Notes and New
Contingent Notes," "-- 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
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Securities Act. All of the securities described above were issued without
underwriters and no commissions were paid in connection therewith.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated statements of
operations and balance sheet data of (i) JCC Holding for the two month period
ended and as of December 31, 1998 and (ii) HJC for the fiscal years ended, and
as of, December 31, 1994, 1995, 1996 and 1997 and for the ten month period ended
October 30, 1998. Although JCC Holding was incorporated on August 20, 1996,
prior to October 30, 1998, the Company had not (i) conducted any operations,
(ii) generated any revenues or (iii) issued any capital stock. Accordingly,
separate financial information with respect to the Company prior to the two
month period ended December 31, 1998 are omitted because the Company does not
believe that such separate financial information is material. On October 30,
1998, 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,
which are wholly owned subsidiaries of JCC Holding. Therefore, the following
historical financial statements include financial information of HJC. The
selected financial data for each of the four fiscal years ended and as of
December 31, 1997 and for the ten-month period ended October 30, 1998 have been
derived from HJC's audited financial statements. The selected financial data for
the two month period ended and as of December 31, 1998 have been derived from
the Company's audited financial statements. The selected financial data should
be read in conjunction with "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 8. Financial Statements
and Supplementary Data."
<TABLE>
<CAPTION>
JCC HOLDING
HJC (PREDECESSOR) (SUCCESSOR)
--------------------------------------------------------- ------------
TEN MONTH TWO MONTH
PERIOD ENDED PERIOD ENDED
FISCAL YEARS ENDED DECEMBER 31, OCTOBER 30, DECEMBER 31,
------------------------------------------ ------------ ------------
1994 1995 1996 1997 1998 1998
-------- --------- -------- -------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenues...................... $ 291 $ 95,257 $ 1,661 $ 1,679 $ 87 $ 14
Extraordinary item............ -- -- -- -- 267,706(a) --
Net income (loss)............. (29,201) (301,560) (20,900) (21,244) 169,993 (3,677)
Loss per share................ N/A N/A N/A N/A N/A (0.37)
</TABLE>
<TABLE>
<CAPTION>
JCC
HOLDING
HJC (PREDECESSOR) (SUCCESSOR)
----------------------------------------- -----------
FISCAL YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total assets................................ $665,391 $364,480 $359,469 $354,417 $343,131
Long-term debt.............................. 510,000 -- -- -- 185,519
Liabilities subject to compromise........... -- 519,360 523,483 523,468 --
</TABLE>
- ---------------
(a) See Note 1 to HJC's financial statements included in "Item 8. Financial
Statements and Supplementary Data."
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Item 6. Selected Financial Data" and "Item 8. Financial Statements and
Supplementary Data." This discussion contains forward-looking statements that
involve uncertainties and risks, such as statements of the Company's plans,
objectives, expectations and prospects. The Company's actual results could
differ materially from those discussed herein as a result of certain factors,
including but not limited to those discussed below in "-- Factors Affecting
Future Performance" and elsewhere in this document.
OVERVIEW
JCC Holding was incorporated under Delaware law on August 20, 1996 to
succeed to all of the assets and liabilities of HJC, a general partnership,
which filed for relief under the Bankruptcy Code on November 22, 1995. JCC
Holding conducts business through its wholly-owned subsidiaries, JCC, JCC
Development, CP Development and FP Development. On the Effective Date in
accordance with the Plan of Reorganization, which was confirmed by the
Bankruptcy Court on October 13, 1998, the Company became the successor to the
operations of HJC.
The following transactions, among others, were entered into on the
Effective Date in connection with the Plan of Reorganization:
- All of the assets of HJC vested in JCC, except for the 3CP Property
and the Fulton Property, which vested in CP Development and FP Development,
respectively.
- HJC's exclusive right set forth in the Casino Operating Contract to
operate a land-based casino in Orleans Parish, Louisiana revested in HJC,
and the Casino Operating Contract was then amended and assigned to JCC in
accordance with applicable State law and the agreement of the parties
thereto. As a result, the Company, through JCC, has the exclusive right to
operate a land-based casino in Orleans Parish, Louisiana.
- HCCIC, a wholly-owned subsidiary of HET, (i) acquired 100% of the
Class B Common Stock issued in consideration for, among other things, the
$15 million New Equity Investment in JCC Holding and the conversion to
equity and contribution to JCC Holding of $60 million in
debtor-in-possession financing that had been provided to HJC by HET or its
affiliates during the reorganization, and (ii) received the HET Warrant
entitling it to purchase additional shares of Unclassified Common Stock
such that, upon exercise of the HET Warrant in its entirety, HET and its
subsidiaries would own 50.0% of the then outstanding shares of Common
Stock, subject to certain adjustments. Also, under certain settlement
agreements executed in connection with the Plan of Reorganization, 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
Bank One and (iii) its right to receive 350,000 shares of Class B Common
Stock 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 JCC Holding's Restated Certificate of
Incorporation, the 350,000 shares received by them automatically converted
into shares of Class A Common Stock. Subsequent to the Effective Date, Bank
One exercised its option and on November 13, 1998 HCCIC transferred 150,000
shares of its Class B Common Stock to Bank One. Accordingly, HET, through
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.
- 3,710,115 shares of Class A Common Stock, or approximately 37.1% of
the Common Stock issued on the Effective Date, were distributed on a pro
rata basis to the Bondholders, and 1,487,262 shares of the Class A Common
Stock, or 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. This
1,487,262 shares of Class A Common Stock included HCCIC's right to receive
on the Effective Date 200,000 shares of Common Stock under the Plan of
Reorganization.
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Accordingly, on the Effective Date, the Bondholders received an aggregate
of 5,197,377 shares of Class A Common Stock, or approximately 93.7% and
approximately 52.0% of the issued and outstanding Class A Common Stock and
Common Stock, respectively. In addition, each Bondholder received its pro
rata share of (i) $187.5 million in aggregate principal amount of the New
Notes, and (ii) the New Contingent Notes.
- JCC issued approximately $27.3 million aggregate principal amount of
the Convertible Junior Subordinated Debentures and 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.
- 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.
FRESH-START REPORTING
As of the Effective Date, the Company applied "fresh start" reporting,
which included adjustments of approximately $75 million to certain noncurrent
assets. 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 are not comparable to the financial condition and results
of operations of either the Company or HJC as of any dates and for any periods
prior to the Effective Date. See "Item 8. Financial Statements and Supplementary
Data."
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. Parking for approximately 400 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 gaming space, a
250-seat buffet, two parking garages, the Poydras Tunnel Area and approximately
12,000 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. On October 30, 1998, instructions to proceed with resuming
construction of the Casino were given to the Casino construction contractors and
construction of the Casino has resumed.
LIQUIDITY AND CAPITAL RESOURCES
The Company estimates that from the date HJC filed for bankruptcy, the
total cost of completing the project was approximately $367.8 million. This
amount included, among other things, hard costs of completing construction of
the Casino, costs of obtaining gaming equipment and supplies, reorganization
costs related to the bankruptcy, payments to unsecured creditors and cure
payments in connection with the assumption of certain contracts. Approximately
$82.3 million of this amount was expended and paid prior to the consummation of
the Plan of Reorganization for hard construction costs to enclose the Casino,
administrative costs related to the reorganization process and various
obligations under HJC's agreements with the City. As of December 31, 1998, the
remaining costs of completing the project were approximately $189 million,
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including $101.9 million in hard construction costs and $87.1 for gaming
equipment and supplies and other pre-opening costs. 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
beyond the Second Floor Shell Construction and the development of the 3CP
Property and Fulton Property. The Company has not obtained financing to fund
this build-out or the development of the 3CP Property and Fulton Property, and
the Company cannot assure that it will obtain such financing. Without financing,
the Company will be unable to effect this build-out and development.
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) and
fund the Company's working capital needs during this time are expected to be
derived from a combination of the $15 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 of Convertible Junior
Subordinated Debentures. In addition, JCC has up to $25 million of borrowing
availability under the Working Capital Facility. However, subject to certain
exceptions, JCC must repay any amounts outstanding under the Working Capital
Facility on the Termination of Construction Date. The $10 million Tranche A-1,
the $30 million Tranche A-3, the $30 million Tranche B-1 and the $27.3 million
in Convertible Junior Subordinated Debentures were fully funded on the Effective
Date. The $22.5 million Junior Subordinated Credit Facility will be funded prior
to Tranche B-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-1 and Tranche A-2. 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. 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 Company anticipates
that during April 1999, JCC will draw the remaining amounts available under the
Junior Subordinated Credit Facility after which JCC will begin borrowing under
Tranche B-2. In addition, on the Effective Date, the Completion Guarantors
entered into the Completion Guarantees with respect to the completion of the
Casino and the payment of project costs owing prior to such completion.
After the opening of the Initial Casino Facilities, JCC expects that its
working capital needs will be funded by a combination of up to $25 million of
borrowing availability under the Working Capital Facility and any operating cash
flows remaining after application of the excess cash flow sweep required by the
Credit Agreement. The Completion Guarantors have agreed to ensure that, upon the
completion of the Casino Construction, JCC will have $5.0 million in cash and up
to $25 million under the Working Capital Facility.
The Company expects that the capital expenditures necessary to operate the
Casino after the Opening Date will be funded by a 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.
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.
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 the
event that the Company's sources of working capital are not sufficient to fund
the Company's working capital and other liquidity needs, under certain
circumstances JCC may (i) defer amortization payments under the Term Loans, (ii)
pay Fixed Interest on the New Notes in kind (thus deferring cash interest
payments) and (iii) defer Base Fees and Incentive Fees payable under the
Management Agreement. The Company cannot assure that additional financing, if
needed, will be available to JCC, or that, if available, the financing will be
on terms favorable to the Company. In addition, the Company cannot assure that
JCC's estimate of its reasonably anticipated
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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 averaged approximately $13 million per month for
the months of May through October 1995 and HJC suffered net losses totaling
approximately $81 million during this period. In an attempt to reduce such
losses, in August 1995 HJC reduced the Basin Street Casino's (i) workforce, (ii)
gaming space and (iii) number of slot machines. Gross gaming revenues were not
adversely affected by these changes. Operating results did not improve, however,
and HJC continued to post net losses.
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, provided 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 "-- Factors
Affecting Future Performance -- The Gaming Industry is Highly Competitive" and
"-- JCC May Have No Recourse if Additional Land-Based Casinos or Dockside
Riverboat Gaming is Permitted."
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. Prior to the Effective Date, HJC's activities consisted of
administering the bankruptcy case, preparing the Plan of Reorganization and
related Disclosure Statement, negotiating with interested parties with respect
to the Plan of Reorganization, and related issues. HJC's primary source of
operating funds was debtor-in-possession financing provided by HET and its
affiliates and its largest expenses were general and administrative expenses and
reorganization costs.
Prior to consummation of the Plan of Reorganization, the Company had not
(i) conducted any operations, (ii) generated any revenues or (iii) issued any
capital stock. During the two-month period ended December 31, 1998, the
Company's activities consisted primarily of administering the re-commencement of
construction of the Casino preparing for opening the Casino in October 1999.
Because the Casino is not expected to be open for operation until October 1999,
the Company's revenues of approximately $14,000 during the two-month period
ended December 31, 1998 were generated primarily from the rental income
generated from a parking lot located on the 3CP Property. During this period,
the Company also incurred general and administrative expenses of approximately
$3.8 million, consisting primarily of salaries and wages, legal and professional
fees and property taxes. The legal and professional fees were primarily incurred
in connection with the consummation of the transactions contemplated by the Plan
of Reorganization and the Company's commencement of development operations. Also
during the two-month period ended December 31, 1998, the Company incurred
depreciation and amortization expenses of approximately $233,000. In addition,
the Company capitalized approximately $3.5 million of interest expense incurred
on outstanding
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indebtedness and generated approximately $310,000 of interest income on amounts
funded in connection with the Plan of Reorganization which had not been spent
during this two-month period.
YEAR 2000 ISSUE
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. If not corrected, this could result in
system failures or miscalculations causing disruption of operations, including,
among other things, a temporary inability to process transactions, or perform
similar tasks, as well as an interruption of the Company's gaming operations.
The Company's Readiness Status. Following the consummation of the
transactions contemplated by the Plan of Reorganization, the Company commenced
development operations. Accordingly, the Company has not yet fully evaluated its
state of readiness with respect to Year 2000 issues, the costs that may be
incurred to address any Year 2000 issues which may arise or the effect on the
Company of any such Year 2000 issues.
The Company operates principally through JCC's construction and operation
of the Casino. Under the terms of the Amended Management Agreement, the Manager
has the sole and exclusive right to manage and operate the Casino. In connection
with its management of the Casino, JCC and the Manager entered into an agreement
pursuant to which the Manager is required to prepare and deliver to JCC Holding
reports ("Year 2000 Reports") regarding certain Year 2000 issues relating to the
operation of computer systems at the Casino, including, imbedded chips of any
nature, security systems, electrical systems, gaming equipment and heating,
ventilation and air conditioning systems. The Year 2000 Reports are required to
be delivered quarterly with a final report to be delivered no later than ten
days prior to the Opening Date, and are required to outline (i) the procedures
implemented by the Manager to assess whether any Year 2000 issues affect or are
reasonably likely to affect Casino operations, including the identity of any
independent consulting firm engaged by the Manager to evaluate Year 2000 issues,
(ii) the extent to which any Year 2000 issues are reasonably likely to exist
and/or have been identified by the Manager, together with a summary of any
written reports prepared and (iii) the remedial measures taken or proposed to be
taken by the Manager. The Company anticipates that it will rely primarily on the
Year 2000 Reports to evaluate the Casino's, JCC's and JCC Holding's Year 2000
state of readiness. JCC received the first Year 2000 Report on January 29, 1999
in which the Manager identified the critical business systems and leased
proprietary systems that it has evaluated, or is in the process of evaluating,
to determine such systems' Year 2000 readiness. The Manager has reported which
of these systems are ready, which are not ready, and for which systems it is
still evaluating Year 2000 readiness. The Manager has also identified the
measures that it will take, or has taken, to remedy systems that are not Year
2000 ready including, upgrades, replacement and renovation.
The Company and the Manager have also sought to identify those third
parties on which the Company's operations rely. This includes the contractors
who the Company has retained to complete the Casino construction (including
sub-contractors), and HET and its affiliates (from whom gaming equipment and
other systems have been and will be acquired), the Manager, financial
institutions that have provided financing and other services to the Company,
utility providers, and other suppliers. The Company and the Manager are
gathering written materials published by such third parties or are otherwise
communicating directly with such third parties in order to determine their Year
2000 readiness and the readiness of the products or services they supply to the
Company. While the Company and the Manager have collected many responses and
other materials from such third parties regarding Year 2000 readiness, the
process is ongoing and is expected to continue up to and through the date when
the Casino opens for operations. The Company is not certain that the Year 2000
issue will be properly and timely resolved with respect to all of these third
parties and, if not resolved by any such third party, this could materially and
adversely affect the Company's business, financial condition and results of
operations.
Costs to Address the Year 2000 Issue. As of December 31, 1998, the Company
had not incurred any costs to address the Year 2000 issue in addition to the
amounts previously budgeted for equipping and
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constructing the Casino. In its initial Year 2000 Report, the Manager indicated
that it had not identified any Year 2000 issues that will result in cost
increases over its current budget for equipping the Casino. However, because
this assessment is not complete, the Manager reported that Year 2000 issues may
arise that could result in additional expenditures by the Company, including
expenditures that may exceed the Manager's budget for equipping the Casino.
Accordingly, because neither the Company nor the Manager has fully evaluated the
Company's state of readiness with respect to the Year 2000 issue, the Company
cannot currently estimate the costs that may be incurred to address or remedy
any such Year 2000 issues. In addition, if the costs of addressing or remedying
the Company's Year 2000 issues or problems resulting from Year 2000 issues of
others prove to be significant, it may materially and adversely affect the
Company's business, financial condition and results of operations.
Risks. When open to the public, the Casino is expected to be heavily
dependent on the Manager, as well as financial institutions and the constant
availability of utilities. As a result, the Company currently believes that the
most reasonably likely worst case Year 2000 scenario would involve the Manager's
inability to operate the Casino, the inability of financial institutions to
supply the Casino funds and services, or the temporary interruption of electric
power, telephone or other utility supplied to the Casino due to a failure of the
Manager, a financial institution, or a utility supplier to be Year 2000
compliant. In addition, if the Company and/or its significant suppliers fail to
timely address and correct material Year 2000 issues, or if corrections made by
such suppliers to address Year 2000 issues are incompatible with the Company's
systems, the Year 2000 issue could materially and adversely affect the Company's
business, financial condition and results of operations.
Contingency Plans. The Company has not yet established a contingency plan
to address the most reasonably likely worst case scenarios described above.
Because the Company and the Manager have not completed the testing of those
internal systems which are available for testing or which it can test feasibly
and practically, and since the Company and the Manager are still in the process
of choosing suppliers as well as collecting responses regarding Year 2000
readiness from existing suppliers, the Company has not fully assessed its
potential Year 2000 exposure. Accordingly, the Company has not yet developed
specific Year 2000 contingency plans. The Company expects that it will develop
these plans as it installs computer hardware and software in the Casino and
negotiates contracts with its remaining significant suppliers.
INFLATION
To date, the Company believes inflation has not had a material impact on
the Company's operations.
RECENTLY ISSUED PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued a new
statement, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), effective for the fiscal years beginning after June 15, 1999. SFAS 133
requires, among other things, that derivatives be recorded on the balance sheet
at fair value. Changes in the fair value of derivatives may, depending on the
circumstances, be recognized in earnings or deferred as a component of
stockholders' equity until a hedged transaction occurs. The Company does not
believe the adoption of SFAS 133 will have a significant impact on its financial
position or results of operation.
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FACTORS AFFECTING FUTURE PERFORMANCE
GAMING LAWS AND REGULATIONS COULD ADVERSELY AFFECT THE COMPANY'S OPERATIONS
Future state legislation could adversely affect the Company's
operations. The Company cannot assure that the Louisiana state legislature will
not enact legislation that imposes 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 materially and adversely affect the Company. Because
legalized gaming is a relatively new industry in Louisiana, over the past few
years the Louisiana state legislature has given a significant amount of
attention to gaming related bills, many of which could impact the Casino. For
example, at various times, bills have been introduced to:
- constitutionally and/or legislatively repeal all forms of gaming
(including gaming at the Casino);
- increase taxes on casinos;
- limit credit that may be extended by casinos; and
- limit days and hours of casino operations.
In addition, in the spring of 1996, the State legislature passed
legislation that called for a parish-by-parish referendum to decide, on an
item-by-item basis, whether riverboat gaming, video poker gaming and, in Orleans
Parish, a land-based casino should be permitted to operate in the parish. This
law purported to eliminate land-based casino gaming in Orleans Parish if voters
in that parish voted to prohibit the operation of land-based casino gaming in
that parish. On November 5, 1996, voters in Orleans Parish elected to permit
land-based casino gaming, riverboat gaming and video poker gaming in Orleans
Parish. Although these voters decided to permit land-based casino gaming in that
parish, the law providing for the parish-by-parish referendum materially and
adversely affected HJC even prior to the vote in Orleans Parish by impairing
HJC's ability to obtain financing for the Plan of Reorganization and by
increasing costs related to the Plan of Reorganization. If similar legislation
is enacted in the future, it could lead to the Casino's gaming operations being
suspended or permanently prohibited.
The Amended and Renegotiated Casino Operating Contract was negotiated based
on the current terms of the Gaming Act. The Company cannot assure that Louisiana
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 Renegotiated Casino Operating Contract were introduced
in the State House of Representatives and the State Senate during 1998. Although
none of these bills and resolutions relating to the Casino have been enacted,
the Company cannot assure that the State will not subsequently enact new
legislation that modifies or revokes JCC's right to conduct gaming activities or
otherwise materially and adversely affects the Company's business and
operations. For example, the State could increase competition by authorizing
additional riverboats or other forms of gaming or it could authorize 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 of these three parishes to approve the use of slot machines.
Two parishes approved the use of slot machines at race tracks, but the State
legislature's authorization remains subject to further legislative action on
fees and taxes to be imposed on such slot machines. Legislation to impose such
fees and taxes was introduced in the State legislature's 1998 fiscal session,
but failed to receive legislative approval. The State legislature will likely
consider this issue again. If slot machines are ultimately permitted at these
race tracks, they could negatively impact JCC by increasing competition. For a
detailed description of the risks associated with the competition that the
Company faces, see "-- The Gaming Industry is Highly Competitive -- The Casino
will compete locally with other forms of legal wagering."
Two additional bills are also currently being considered by the State
legislature. 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. The Company cannot assure that it will be successful in preventing
these legislative changes or that the Company will be able to recover any losses
it suffers if these legislative changes are enacted. The repeal of the Gaming
Act would materially and adversely affect the Company's business, financial
condition and results of
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operations. In addition, other legislative changes, such as broadened food
service restrictions, and the introduction of new legislation could materially
and adversely affect the Company's business, financial condition and results of
operations. For a detailed description of certain risks associated with
legislative restrictions on JCC's operation of the Casino, see "-- The Casino is
Subject to Limits on Providing Lodging, Food Services, Entertainment and Retail
Operations That Could Impact Its Ability to Operate Profitably."
The interpretation of current regulations and the Gaming Act could
adversely affect the Company's operations. In May 1996, the State legislature
enacted a bill 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. Although the existing Rules and Regulations
promulgated by the LEDGC remain in force and effect at this time, the LGCB is
empowered to repeal these 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
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. The LGCB's or the State Police's
interpretation and implementation of the Gaming Act, the adoption of new Rules
and Regulations, or the repeal of existing Rules and Regulations could impose
additional 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 materially and adversely affect the Company. For a more detailed
description of the LGCB, see "Item 1. Business -- Regulation -- Louisiana Gaming
Act -- LGCB."
The interpretation of certain provisions of the Gaming Act and the
authority of the LGCB under the Gaming Act has also been the subject of multiple
lawsuits which delayed consummation of the Plan of Reorganization and increased
costs related to the Plan of Reorganization. If additional lawsuits are brought
in the future, it could materially and adversely affect the Company's business,
financial condition and results of operations, including its ability to open the
Casino. 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, conservatorship or a similar proceeding or status. In
the spring of 1996, the State legislature enacted a law under the Gaming Act
that purports to authorize the Governor, subject to legislative approval, or the
State legislature 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 a similar
proceeding or status. These provisions of the Gaming Act were the subject of a
substantial amount of litigation culminating in a ruling by the Louisiana
Supreme Court that the LGCB has the independent authority to renegotiate and
execute the casino operating contract without seeking gubernatorial or
legislative approval. However, the Louisiana Supreme Court reversed certain
lower courts' decisions that purported to interpret the law 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 decisions were impermissible advisory opinions. The
Louisiana Supreme Court's decision has since become final and non-appealable.
Because the Louisiana Supreme Court reversed such decisions as impermissible
advisory opinions, the State legislature's power to set aside or order the LGCB
to renegotiate the provisions of a casino operating contract of a casino
operator in bankruptcy has not been judicially determined. The Company could be
materially and adversely affected if the State legislature is determined to have
and/or attempts to exercise such power. Additional litigation challenging the
authority of the LGCB and its actions could materially and adversely affect the
Company's business, financial condition and results of operations.
JCC and certain of its affiliates must be found suitable under State
law. JCC is not permitted to operate the Casino unless and until certain
persons are found suitable by the LGCB. These persons include (1) JCC, (2) JCC
Holding, (3) HET, (4) the Manager and (5) certain members, officers and
directors of these companies.
In addition, before appointing additional officers and directors of JCC,
JCC Holding or the Manager, the LGGB must find these persons to be suitable. The
Company cannot assure that future candidates proposed to serve as officers and
directors of JCC, JCC Holding or the Manager will be found suitable on a timely
basis. If
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all required suitability findings are not received on a timely basis, it could
materially and adversely affect the Company's business, financial condition and
results of operations. Once found suitable, entities that are required to be
suitable have an ongoing obligation to maintain their suitability throughout the
term of the Amended and Renegotiated Casino Operating Contract. If these
entities and persons fail to maintain their suitability, JCC or the Manager may
be found unsuitable. JCC's and the Manager's suitability also may be adversely
affected by persons associated with them and their respective affiliates, over
whom JCC and the Manager have no control. If JCC or the Manager is found
unsuitable and, as a consequence, the Amended and Renegotiated Casino Operating
Contract is revoked, it would materially and adversely affect the Company's
business, financial condition and results of operations. For a more detailed
description of these suitability requirements, see "Item 1.
Business -- Regulation -- Louisiana Gaming Act" and "-- Material
Agreements -- Amended and Renegotiated Casino Operating Contract."
The Gaming Act, the Rules and Regulations, and the Amended and Renegotiated
Casino Operating Contract also impose certain suitability requirements on the
holders of Notes, Convertible Junior Subordinated Debentures and holders of
equity in JCC and its affiliates, including JCC Holding. If any holder of Notes,
Convertible Junior Subordinated Debentures or Common Stock is required to be
suitable and fails to be suitable, the holder may be required to sell or
otherwise divest such securities at substantially below-market prices. For a
description of these requirements, see "-- Holders of Common Stock, Notes or
Convertible Junior Subordinated Debentures May be Required to Divest These
Securities at Unfavorable Times or Costs" and "Item 1.
Business -- Regulation -- Louisiana Gaming Act."
The Casino could be the subject of regulatory enforcement actions. The
LGCB is empowered to sanction JCC and all persons that hold permits, licenses or
are required to be found suitable by the LGCB for violations of the Gaming Act
and the Rules and Regulations. If JCC, JCC's employees, JCC Holding or the
Manager fail to comply with the Gaming Act, the Rules and Regulations or
regulatory requirements in the Amended and Renegotiated Casino Operating
Contract, it could materially and adversely affect the Company. For example, the
Company could be subject to fines, suspension of its rights granted by the
Amended and Renegotiated Casino Operating Contract and, under certain
circumstances, revocation or termination of the Amended and Renegotiated Casino
Operating Contract. For a more detailed description of these matters, see "Item
1. Business -- Regulation -- Louisiana Gaming Act" and "-- Material
Agreements -- Amended and Renegotiated Casino Operating Contract."
The Casino's employees and vendors may not be able to obtain licenses and
permits. The Casino's employees are required to obtain certain licenses and
permits from the LGCB and the State Police before they may commence employment
at the Casino. In addition, certain of the Casino's manufacturers, distributors
and suppliers of gaming devices, junkets, goods or services to the Casino, as
well as any person furnishing JCC services or property in exchange for payments
based on earnings, profits or receipts from gaming operations, and other persons
required 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. This licensing and
permitting typically requires the submission of an application, the payment of
fees and investigation by the regulatory authorities. If these persons fail to
obtain on a timely basis the required licenses and/or permits, it could
materially and adversely affect the Company's ability to open and/or operate the
Casino. For a more detailed description of these licensing and permitting
matters, see "Item 1. Business -- Regulation -- Louisiana Gaming Act."
The Company may not be able to enforce its contractual rights against the
State. Under the Amended and Renegotiated Casino Operating Contract, JCC is
entitled to bring an action to compel specific performance or any other remedy
permitted or provided by law if the LGCB breaches the contract and fails to cure
the breach. In the spring of 1996, however, 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). The Company cannot assure 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. If the LGCB
fails to comply with the Amended and Renegotiated Casino Operating Contract, it
could materially and adversely affect the Company's business, financial
condition and results of operations. This adverse affect would be exacerbated if
a court applied the immunity statute and precluded JCC from seeking recourse in
a
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judicial forum. For a more detailed description of these matters, see "Item 1.
Business -- Material Agreements -- Amended and Renegotiated Casino Operating
Contract" and "-- Regulation -- Louisiana Gaming Act."
The Casino's operations could be subject to future federal legislation. In
August 1996, the U.S. Congress created the National Gambling Impact and Policy
Commission to study the economic and social impact of gaming on American society
and report its findings to Congress and the President. The National Gambling
Impact and Policy Commission is required to issue a report containing its
findings and conclusions, together with recommendations of the Commission for
legislation and administrative actions, by June 1999. Any recommendations which
may be made by the 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 Gambling Impact and Policy
Commission will make, or the ultimate disposition of any recommendations the
Commission may make.
THE POLITICAL ENVIRONMENT IN LOUISIANA COULD ADVERSELY AFFECT THE COMPANY'S
ABILITY TO DEVELOP, CONSTRUCT AND OPERATE THE CASINO
Louisiana state and local politics have affected, and will continue to
affect, the Casino's development and construction and may affect the Casino's
operation. 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 Casino's development 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, together with contract
negotiations with State and City governmental entities, have significantly
delayed the Casino's development. Additional lawsuits and the uncertain
political environment may result in further delays, all of which could
materially and adversely affect the Company's business, financial condition and
results of operations.
The State and City have used the additional governmental approvals that JCC
is required to be obtain to develop, construct and open the Casino as an
opportunity to request additional funds and other obligations from JCC, and they
may continue to do so. This could create funding shortfalls and/or delay the
Casino's development and opening. For example, the Casino may in the future be
subject to an amusement tax on wagers made at the Casino. If the State and the
City governments seek to raise additional funds from, or impose additional
obligations on, JCC or the Casino through such measures as an amusement tax, it
could materially and adversely affect the Company's business, financial
condition and results of operations. For a more detailed description of the
State amusement tax, see "-- The Company May Not be Able to Satisfy Certain of
Its Obligations if the Casino is Subject to Additional Taxes."
The Company may also be 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 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. The Company cannot presently assess
the degree to which this investigation had or may have an impact on the Company.
JCC MAY NOT BE ABLE TO RENEW ITS MINIMUM PAYMENT GUARANTY
JCC is required to pay at least $100 million per year to the State under
the Casino Operating Contract and to obtain a guarantee of this $100 million
payment obligation. On October 30, 1998 HET and HOCI agreed to guarantee this
$100 million payment until March 31, 2004, but not for the entire term of the
Amended and Renegotiated Casino Operating Contract. After March 31, 2004, HET
and HOCI have stated that at their sole discretion, they may decide not to renew
the guarantee. In making this decision, HET and
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HOCI have stated that they will consider only their own interests and will not
consider the interests of any other person, including the Company. In addition,
HET and HOCI may terminate their guarantee prior to March 31, 2004 under certain
conditions outlined in their agreement with JCC. For example, their guarantee
may terminate after April 1, 2000 and prior to March 31, 2004, if:
- JCC has declared bankruptcy;
- the Casino stops operating;
- JCC fails to pay certain guarantee fees;
- JCC does not make the required $100 million minimum payment to the State;
- JCC fails to meet certain EBITDA targets;
- HET or its affiliates are found unsuitable under the applicable gaming
laws;
- the Manager is removed as the manager of the Casino;
- the Amended and Renegotiated Casino Operating Contract is terminated;
- JCC breaches certain covenants under the HET/JCC Agreement; or
- an Excusable Temporary Cessation of Operations occurs and is continuing.
For a more detailed description of this guarantee and the circumstances
under which this guarantee may terminate, see "Item 1. Business -- Material
Agreements -- Amended and Renegotiated Casino Operating Contract" and
"-- HET/JCC Agreement."
On March 31, 2004, or at any earlier time that HET and HOCI terminate the
$100 million minimum payment guarantee to the State, JCC must find a substitute
guarantor to provide a minimum payment guaranty. If JCC cannot locate a
substitute guarantor on satisfactory terms, it would materially and adversely
affect the Company because the Amended and Renegotiated Casino Operating
Contract would terminate (with no cure period) and the Casino would have to
close.
THE CASINO MAY NOT BE PROFITABLE
The Company cannot predict the number of visitors to the Casino, their
propensity to wager or the success of land based gaming in New Orleans, a market
that has never supported significant land based gaming operations. For example,
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, however, 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 million per
month and, for those six months, the Basin Street Casino had significant
negative operating cash flows, and net losses in every month, averaging
approximately $13.5 million per month. In addition, JCC has no operating history
and has never been involved in constructing or operating a casino. Further, the
Casino will not have associated hotel or full-service food operations. Neither
JCC Holding's board of directors nor certain of the Manager's officers have
experience operating a land-based casino of the Casino's size without associated
hotel and full-service food operations. As a result, JCC may never be able to
operate the Casino in a profitable manner or generate positive net earnings. The
Company expects that it will sustain substantial net losses in the first two
years of operation of the Casino. For the ten-month period ended October 30,
1998, HJC experienced losses before extraordinary items of $97.7 million and for
the two-month period ended December 31, 1998, the Company experienced losses of
$3.7 million. These losses could be even greater if the Casino's construction
cannot be completed in accordance with the Company's construction schedule and
budget. For a description of certain other factors that could affect the
Casino's profitability, see "-- After the Termination of Construction Date the
Company May Not Have Sufficient Working Capital to Fund the Casino's
Operations," "-- The Casino is Subject to Limits on Providing Lodging, Food
Services, Entertainment and Retail Operations That Could Impact Its Ability to
Operate Profitably," "-- The Gaming Industry is Highly Competitive" and "-- The
Company May Not be Able to Service its Significant Debt and Other Payment
Obligations."
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THE COMPANY MAY NOT BE ABLE TO SERVICE ITS SIGNIFICANT DEBT AND OTHER PAYMENT
OBLIGATIONS
The Company incurred significant debt in connection with the transactions
described in the Recent Reorganization summary under the heading, "Item 1.
Business -- The Company" and, as a result, has significant debt service
obligations. As of December 31, 1998, JCC's total long-term indebtedness was
approximately $284.8 million and its debt to equity ratio was 2.7 to 1. For a
more detailed description of the agreements governing the Company's
indebtedness, see "Item 1. Business -- Material Agreements -- Bank Loans,"
"-- New Notes and New Contingent Notes," "-- Convertible Junior Subordinated
Debentures" and "-- Amended Completion Loan Agreement."
When the Casino opens, JCC will also have payment obligations to the RDC
and the LGCB. Under the Amended and Renegotiated Casino Operating Contract, each
year JCC must pay the LGCB at least $100 million. This amount may be increased,
but not decreased, based upon JCC's gross gaming revenues. In addition, under
the Amended Ground Lease, each year JCC must pay the RDC (1) at least $12.5
million plus (2) up to $3.25 million of other general annual payments plus (3)
certain one-time payments during the first two years after the Casino opens. JCC
also must make significant payments into a marketing fund and a capital
replacement fund for refurbishments to the Casino. For a more detailed
description of the terms of the Amended Ground Lease, see "Item 1.
Business -- Material Agreements -- Amended Ground Lease."
JCC's substantial indebtedness and significant payment obligations could
materially and adversely affect the Company's business, financial condition and
results of operations. Its indebtedness and payment obligations could:
- make it more difficult for the Company to satisfy its debt and other
payment obligations;
- increase the Company's vulnerability to general adverse economic and
industry conditions;
- limit the Company's ability to obtain additional financing on
satisfactory terms and to otherwise fund its future working capital,
capital expenditures and other general corporate requirements;
- require the Company to dedicate all or a substantial portion of any
cash flow its operations may generate to payments on indebtedness
and payments of other obligations, thereby reducing the availability
of this cash flow to fund its working capital, capital expenditures
and other general corporate purposes;
- limit the Company's flexibility in planning for, or reacting to,
changes in its business and the gaming industry;
- place the Company at a competitive disadvantage compared to
competitors that have less debt; and
- result in an event of default under one or more of the Company's
agreements which could materially and adversely affect the Company's
business, financial condition and results of operations.
The Casino may not achieve the level of gaming activity and operating cash
flow necessary to satisfy the Company's obligations described above. In
addition, the Company's future operating results are subject to significant
business, economic, regulatory, political and competitive uncertainties and
contingencies, many of which are outside the Company's control. If the Company's
operating cash flow is not sufficient to cover its expenses, including its
obligations to make payments on indebtedness (such as principal and interest)
and the other payments described above, as well as the expenses incident to
operating its business, the Company may be forced to reduce or delay planned
capital expenditures, sell assets, restructure debt or issue additional equity
to meet principal repayment and other obligations in later years. The Company
cannot assure that any of these remedies would be satisfactory or could be
effected on satisfactory terms, or at all, because of, among other things, the
special purpose nature of the Casino and the significant government regulation
to which the Company is subject. Alternative financings could further impair the
Casino's competitive position and reduce its cash flow.
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THE COMPANY MAY BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT, WHICH COULD INCREASE
THE RISKS DESCRIBED ABOVE
The Company may be able to incur substantial indebtedness in the future.
Through the opening of the Casino, the Company anticipates that JCC will borrow
$22.5 million under its Junior Subordinated Credit Facility and an additional
$141.5 million under the Term Loans. JCC can also borrow up to an additional $25
million under its Working Capital Facility. Accordingly, upon the opening of the
Casino, JCC's total long-term indebtedness is expected to be approximately
$448.8 million. The Company's total long-term indebtedness may also increase if:
- fixed interest on the New Notes is not paid in cash but is paid with
additional New Notes;
- interest on the Convertible Junior Subordinated Debentures is not paid in
cash but is paid with additional debentures;
- HET and HOCI are required to make payments under the Completion
Guarantee, for which the Company will be obligated to reimburse HET and
HOCI; or
- 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.
If new debt is added to the Company's current debt levels, the related
risks that it now faces could intensify. For a more detailed description of
these matters, see "-- The Company May Not be Able to Develop Certain of its
Properties," "Item 1. Business -- Material Agreements -- Bank Loans," "-- New
Notes and New Contingent Notes," "-- Convertible Junior Subordinated Debentures"
and "-- Amended Completion Loan Agreement."
AFTER THE TERMINATION OF CONSTRUCTION DATE THE COMPANY MAY NOT HAVE SUFFICIENT
WORKING CAPITAL TO FUND THE CASINO'S OPERATIONS
After the Termination of Construction Date the Company cannot assure that
its sources of working capital will be sufficient for JCC to operate the Casino.
HET and HOCI, as Completion Guarantors, have agreed to fund JCC's working
capital shortfalls until the Termination of Construction Date. They also have
agreed to guarantee that, at such time, JCC will have available for working
capital $5 million of cash and up to $25 million under the Working Capital
Facility. 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 its operations in excess of
its fixed charges and other payment obligations. However, 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 used
to repay the Bank Loans. If these sources of working capital are not sufficient,
or if HET and HOCI are not able to fund JCC's working capital short falls, JCC
may not be able to obtain new sources of working capital on satisfactory terms,
or at all. The Company's inability to obtain sufficient working capital would
materially and adversely affect the Company's business, financial condition and
results of operations. For a more detailed description of these sources of
working capital, see "Item 1. Business -- Material Agreements -- Bank Loans,"
"-- Completion Guarantees" and "-- Amended Completion Loan Agreement."
THE COMPLETION GUARANTEES ARE SUBJECT TO CONDITIONS AND MAY BE SUSPENDED OR
TERMINATED
The failure to complete and open the Casino on schedule would materially
and adversely affect the Company's business, financial condition and results of
operations. Although HET and HOCI, as the Completion Guarantor's, have agreed to
guarantee the Completion Obligations, the Carry Obligations and the Preservation
Obligations, the Completion Guarantees are subject to a number of important
conditions precedent. Even if these conditions are satisfied, the Completion
Guarantees may be suspended or terminated. The Completion Guarantors' obligation
to complete the Casino does not arise until 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;
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- fails timely to pay any of the Carry Obligations;
- files or has filed against it a petition for bankruptcy or similar
relief;
- is adjudged bankrupt or insolvent; or
- makes a general assignment for the benefit of its creditors.
Even if one of the foregoing conditions precedent is satisfied, if the
Completion Guarantees are terminated or if the Completion Guarantors are
required to perform under the Completion Guarantees but their performance is
suspended, the termination or suspension could significantly delay the
completion and opening of the Casino. The Completion Guarantors' obligations
under the Completion Guarantees are suspended during the pendency of a Force
Majeure event. 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 certain Force Majeure events render performance impossible during
the 18 months, the suspension will continue until this performance is no longer
impossible. For a detailed description of the Completion Obligations, Carry
Obligations, Preservation Obligations and Force Majeure events, refer to "Item
1. Business -- Material Agreements -- Completion Guarantees."
The Completion Guarantees terminate if:
- the Amended Ground Lease or Amended GDA terminates, other than as a
result of a breach by JCC or any Completion Guarantor or the voluntary
termination by JCC; or
- 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 of operating the Casino or the
gaming activities permitted to be conducted at the Casino under the
Gaming Act by reason of (1) a change in law, (2) the enactment of a new
law or (3) the termination in any material respect of JCC's rights under
the Amended and Renegotiated Casino Operating Contract, other than as a
result of a breach by JCC or any Completion Guarantor.
The Carry Obligations under the Completion Guarantees will terminate upon
the Termination of Construction Date. The Carry Obligations also will terminate
if a Force Majeure event has occurred and continues for more than one year after
the Completion Guarantor's obligations to complete the Casino have arisen, even
if the Completion Guarantors use their best efforts to remove the Force Majeure.
The Completion Obligations under the Completion Guarantees will terminate if:
- all required payments or satisfactory provisions for these 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.
For a more detailed description of the circumstances causing the Completion
Guarantees to terminate, see "Item 1. Business -- Material
Agreements -- Completion Guarantees."
THE CASINO MAY NOT BE ABLE TO COMMENCE OPERATIONS AS SCHEDULED
Development and construction could be delayed. The Company has materially
increased its estimate of the cost to complete construction of the Casino since
HJC filed for bankruptcy. The increased estimates were primarily due to the
following factors:
- increases in the general construction costs in the region;
- physical deterioration of the partially-completed Casino structure and
parking lot structures;
- the need to redesign the Casino's interior due to (1) the dedication of
the second floor of the Casino building to non-gaming uses and (2) other
changes in the configuration of the Casino; and
- the need to upgrade the interior of the Casino to compete effectively
with casinos in the Mississippi Gulf Coast.
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The Company has estimated the expected opening date and remaining costs for
the Casino based on budgets, conceptual design documents and schedule estimates
it has prepared with the assistance of contractors. However, the Company cannot
assure that the Casino will commence operations on schedule or that construction
costs for the Casino will not exceed budgeted amounts. The expected opening date
may be different from the Company's estimates due to a variety of factors which
may occur. These factors include:
- the occurrence of labor disputes;
- shortages of material and skilled labor;
- weather interference;
- 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 and equipment problems;
- the use of an accelerated construction schedule that includes using
multiple shifts, early ordering of materials, fast tracking and a
seven-day work week; and
- difficulties in obtaining any of the requisite licenses, permits
(including building permits), allocations and authorizations from
regulatory authorities.
Any delays in the opening of the Casino or increased costs of construction
could materially and adversely affect the Company's business, financial
condition and results of operations. For example, 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 may be forced to
draw upon Completion Guarantees provided by HET and HOCI. These Completion
Guarantees are subject to important conditions, and may be suspended or
terminated under certain circumstances. Drawings on the Completion Guarantees
would also increase the Company's outstanding indebtedness. In addition, if the
Casino does not open to the public by October 30, 1999, JCC is still required to
pay the LGCB the minimum daily payment 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
Casino is not opened for business to the general public by October 30, 1999
because of a Force Majeure event. The amount of the minimum daily payment is
approximately $274,000, with an end of year settlement, if any, of Gross Gaming
Revenue Share Payments in excess of $100 million. If JCC is required to pay the
LGCB this minimum daily payment prior to the date that the Casino actually opens
for operation, it would materially and adversely affect the Company's business,
financial condition and results of operations.
JCC may not be able to obtain necessary zoning and land use
approvals. Certain conditional use approvals have been obtained from the City
for the Casino and the parking facilities for the Casino. Certain of these
approvals, however, are subject to further review and additional approvals may
be required. The Company cannot assure that JCC will receive the required
approvals. If JCC fails to obtain the required approvals, it could materially
and adversely affect the Company's business, financial condition and results of
operations.
Because the Casino does not fit within all requirements of the City's
zoning ordinances, the Proponents requested and received a number of waivers
from the City Council prior to consummation of the Plan of Reorganization. For
instance, the Proponents received waivers from the City Council for the Casino
relating to such matters as:
- the permissible size of retail space;
- the scope of cafeteria food services that may be provided;
- 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. 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. If the waivers for the Casino are
invalidated it could
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materially and adversely affect the Company by delaying or preventing the
construction or opening of the Casino, forcing the Casino to cease operations or
limiting its ability to operate once opened. In addition, the zoning ordinances
may be subject to differing interpretations. Under some interpretations, certain
waivers required by the Casino may not be requested or granted. Accordingly, the
Company cannot assure that the Casino will comply with the zoning ordinances in
all material respects. If the Casino does not comply with the zoning ordinances,
it could materially and adversely affect the Company's business, financial
condition and results of operations by delaying or preventing the construction
or opening of the Casino or forcing the Casino to cease operations once opened.
THE COMPANY MAY NOT BE ABLE TO DEVELOP CERTAIN OF ITS PROPERTIES
The Company's anticipated build-out of the non-gaming tenant improvements
on the second floor of the Casino beyond the Second Floor Shell Construction
cannot be completed until, among other things, the Master Plan is approved,
tenant leases are obtained and the necessary financing is secured. In addition,
the Company will be unable to develop the 3CP Property and Fulton Property for
entertainment uses that support the Casino until, among things, it obtains the
necessary financing. The Company has not made any plans for the development of
these properties. However, the Company cannot assure that it will be able to
obtain the necessary financing and satisfy the other conditions to developing
the non-gaming tenant improvements on the second floor of the Casino, the 3CP
Property or the Fulton Property. The failure to develop these properties could
materially and adversely affect the Company's business, financial condition and
results of operations.
THE COMPANY MAY NOT BE ABLE TO BORROW UNDER THE CREDIT AGREEMENT
JCC has obtained the Bank Loans under the Credit Agreement to finance its
development of the Casino and to provide working capital. The $10 million
Tranche A-1 and $30 million Tranche A-3 of the A Term Loan and the $30 million
Tranche B-1 of the B Term Loan were funded on the Effective Date. The $20
million Tranche A-2 of the A Term Loan and the $121.5 million Tranche B-2 of the
B Term Loan will be funded as required to complete the construction of the
Casino. Prior to each borrowing under the Credit Agreement, certain conditions
must be satisfied, including that (1) there exists no default with respect to
payments, or due to bankruptcy or insolvency events, under the Completion
Guarantees, the HET Loan Guaranty or under the Credit Agreement and (2) all
representations under the HET Loan Guaranty remain true and correct in all
material respects.
If JCC cannot satisfy these conditions, JCC will not be able to borrow
funds under the Credit Agreement and will thus be deprived of its primary source
of construction and working capital financing. The Company cannot assure that
these conditions can be satisfied during the duration of the Credit Agreement.
If JCC is unable to obtain funds under the Credit Agreement, it would materially
and adversely affect the Company's business, financial condition and results of
operations. For a more detailed description of the Bank Loans and the Credit
Agreement, see "Item 1. Business -- Material Agreements -- Bank Loans."
THE HOLDERS OF CLASS A COMMON STOCK HAVE LIMITED CORPORATE CONTROL
The ability of holders of Class A Common Stock to influence the day-to-day
operations of the Company may be limited due to a number of factors. For
example, prior to the Transition Date, the Class B Directors, as members of the
Gaming Committee of JCC Holding's board of directors, generally supervise the
day-to-day activities of the Company, with the exception of certain significant
transactions. 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 at least 51% of the outstanding shares of Class B 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. In addition, JCC has engaged the Manager, an
indirect wholly-owned subsidiary of HET, to manage the operations of the Casino.
As a result of HET's ability to elect the Class B Directors and the Company's
engagement of the Manager to operate the Casino, the ability of the holders of
Class A Common Stock to influence the day-to-day operations of the Company is
limited. For a more detailed description of the HET
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Warrant and the Manager and its authority, see "Item 1. Business -- Material
Agreements -- HET Warrant" and "-- Amended Management Agreement."
JCC HOLDING HAS ADOPTED MEASURES, AND IS SUBJECT TO PROVISIONS, THAT HAVE
ANTI-TAKEOVER EFFECTS AND COULD LIMIT THE PRICE OF JCC HOLDING'S COMMON STOCK
JCC Holding's Restated Certificate of Incorporation and Bylaws, certain
provisions of the Gaming Act and the Rules and Regulations and certain
agreements to which the Company is a party include a number of provisions that
may (1) make it more difficult for a third party to acquire JCC Holding, (2)
discourage acquisition bids for JCC Holding, (3) discourage changes in JCC
Holding's management and (4) limit the price that investors are willing to pay
for shares of Common Stock. Certain of these provisions are described below.
JCC Holding's Restated Certificate of Incorporation and Bylaws contain
provisions that have anti-takeover effects. Prior to the Transition Date,
anti-takeover provisions in JCC Holding's Restated Certificate of Incorporation
and Bylaws include:
- classification of the Common Stock into Class A Common Stock and Class B
Common Stock, together with limitations on the entities that are
permitted to hold shares of Class B Common Stock and the requirement that
the Harrah's Entities own not less than 51% of the Class B Common Stock;
- classification of the board of directors where Class A Directors may be
elected only by holders of Class A Common Stock and the Class B Directors
may be elected only by holders of Class B Common Stock;
- a staggered board of directors;
- requirements for majority approval by the Class A Directors and the Class
B Directors of certain significant transactions set forth in the JCC
Holding's Restated Certificate of Incorporation;
- the increase of the number of Class B Directors upon certain change of
control events set forth in JCC Holding's Restated Certificate of
Incorporation;
- the requirement that any amendment to JCC Holding's Restated Certificate
of Incorporation or Bylaws that affects the rights of holders of the (1)
Class A Common Stock or Class A Directors or (2) 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
- the right of the Harrah's Entities to acquire and hold shares of Class A
Common Stock upon certain change of control events set forth in JCC
Holding's Restated Certificate of Incorporation.
After the Transition Date, these provisions will include:
- a staggered board of directors; and
- a requirement that the affirmative vote of 75% or more of the issued and
outstanding shares of Common Stock be obtained to approve an amendment to
JCC Holding's Restated Certificate of Incorporation or an amendment to
the Bylaws.
Certain provisions of the Gaming Act and the Rules and Regulations have
anti-takeover effects. The Gaming Act and the Rules and Regulations require that
officers, directors and certain persons holding an equity interest in JCC
Holding be found suitable under the Gaming Act and the Rules and Regulations.
The Gaming Act also prohibits, without prior approval of the LGCB, (1) certain
contractual transfers leading to a change of control of JCC Holding and (2) the
sale, transfer, assignment, pledge, alienation, disposition, public offering or
acquisition of securities that results in one person owning 5% or more of the
total outstanding equity securities issued by JCC. For a more detailed
description of these restrictions, see "Item 1. Business -- Regulation."
Agreements entered into in connection with the Plan of Reorganization
contain provisions that have anti-takeover effects. 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 make it more difficult for a third
party to acquire control of JCC Holding. Certain of the agreements entered into
in connection with the Plan of Reorganization also contain provisions
restricting the ability of the Company to enter into certain change of
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control transactions. 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 a change of control
would be favorable to the interests of the stockholders of JCC Holding. For a
more detailed description of these agreements, see "Item 1. Business -- Material
Agreements -- New Notes and New Contingent Notes," "-- Convertible Junior
Subordinated Debentures" "-- HET Warrant" and "-- Amended Management Agreement."
THE COMPANY'S REORGANIZATION VALUE MAY NOT BE AS EXPECTED BECAUSE IT WAS
CALCULATED BASED ON ESTIMATES OF FUTURE PERFORMANCE
The Company's 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 8. Financial
Statements and Supplementary Data."
THE COMPANY MAY NOT BE ABLE TO ACCURATELY PREDICT ITS FUTURE FINANCIAL POSITION
Prior to October 30, 1998, the Company did not (1) conduct any operations,
(2) generate any revenues or (3) issue any capital stock. Because JCC succeeded
to all of the assets of HJC except the 3CP Property, which vested in CP
Development, and the Fulton Property, which vested in FP Development, HJC's
historical financial statements are included in this annual report on Form 10-K.
The historical financial statements of HJC, however, do not purport to represent
what the Company's financial position or results of operations would have been
if the Plan of Reorganization had been consummated as of the dates indicated, or
at the beginning of the period indicated, in HJC's historical financial
statements. In addition, the historical financial statements of HJC do not
purport to project the financial position or results of operations of the
Company for any future date or period. Due to a number of factors, including the
application of "Fresh Start" reporting on the Effective Date, the Company
expects that its future financial position and results of operations will be
materially different from HJC's financial position and results of operations.
The Company cannot assure, however, that its future financial position and
results of operations will be materially different from HJC's historical
financial position and results of operations.
THE CASINO IS SUBJECT TO LIMITS ON PROVIDING LODGING, FOOD SERVICES,
ENTERTAINMENT AND RETAIL OPERATIONS THAT COULD IMPACT ITS ABILITY TO OPERATE
PROFITABLY
The Gaming Act and the Rules and Regulations prohibit the Company from
engaging in certain activities, including the following:
- giving away or subsidizing food within the Casino;
- offering food services with direct table service or with seating in
excess of 250 persons;
- contracting with local restaurant owners to provide food at designated
areas within the Casino, except under certain circumstances;
- offering lodging within the Casino facility;
- 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; and
- selling products in the Casino that are not directly related to gaming.
In addition, licensees are prohibited from other activities, including
giving away or subsidizing food within the Casino or offering food services with
seating in excess of 250 persons. Also, the provisions described above relating
to food, lodging and retail activities apply to the Company's operations on the
second floor of the
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Casino. Under the terms of the Second Floor Sublease, currently the Company is
also prohibited from offering facilities on the second floor of the Casino, the
principal business purpose of which is a restaurant.
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 majority of the Casino's competitors operate without
restrictions on lodging, food services and entertainment. This is a significant
competitive disadvantage for the Company. The Company cannot assure that JCC and
the Manager will be able to operate and manage the Casino on a profitable basis
without such amenities. For a detailed description of these restrictions and
competition affecting the Company, see "Item 1.
Business -- Regulation -- Louisiana Gaming Act" "-- Material
Agreements -- Second Floor Sublease," and "-- The Company -- Competition."
THE GAMING INDUSTRY IS HIGHLY COMPETITIVE
The gaming industry is highly competitive and contains companies that in
many instances have greater resources than the Company. In addition,
considerable competition has developed since HJC first proposed to establish a
land-based casino in New Orleans in the early 1990s. The Company believes that
the attraction of a land-based casino in New Orleans has decreased as a result
of the large number of casinos competing on local, regional and national levels,
as well as the continued development of other gaming markets. Negative publicity
associated with HJC's bankruptcy also may have an adverse impact on the Casino's
ability to compete. Further, the Casino will operate under significant
restrictions on its ability to provide lodging, food services and entertainment
imposed by the Gaming Act and the Rules and Regulations. The ability of the
Casino's competitors to provide these services without restriction is a
significant competitive disadvantage for the Company.
The Company anticipates that the Casino's principal competitors will be
gaming facilities located on the Mississippi Gulf Coast and the riverboats
located in Orleans Parish and in the New Orleans metropolitan area. To a lesser
degree, the Casino will also compete with riverboats in other areas of the State
and with casinos operated by Native American tribes in the central portion of
the State. The significant level of competition faced by the Casino could
materially and adversely affect the Company's business, financial condition and
results of operations. For a detailed description of competitive factors
affecting the Company, see "Item 1. Business -- The Company -- Competition."
The Casino will compete for visitors on a national, regional and local
scale with gaming operations located in Mississippi. The Mississippi Gulf Coast
has recently become a major gaming destination with 12 dockside casinos
currently operating within 100 miles of New Orleans. In addition, there is
substantial growth in Mississippi's Gulf Coast gaming industry, including
significant expansions of hotel and convention space, and the addition of golf
courses. For example, in March 1999 Mirage Resort's Inc. opened Beau Rivage, an
1,800-room hotel, resort and dockside casino in Biloxi that is larger than any
hotel in New Orleans. Due to its projected size, amenities and ownership, Beau
Rivage could provide significant competition to the Casino. There has also been
an increase in the number of applications filed with the Mississippi Gaming
Commission to operate casinos in Mississippi and plans to build new dockside
casinos have been announced. Mississippi law allows dockside gaming and does not
limit the number of casinos or the square feet of gaming space in these casinos.
In addition, unlike the Casino, gaming facilities in Mississippi operate without
restrictions on lodging, food and beverage services and entertainment.
The Casino will compete for visitors on a regional and local scale with
other gaming operations located in Louisiana. The Casino will compete with 13
riverboats currently operating in Louisiana, including:
- one riverboat in Orleans Parish;
- two 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.
The Casino may also compete with a fourteenth riverboat in Shreveport,
Louisiana that was conditionally awarded a license to operate and is in the
development stages, as well as one additional riverboat gaming
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operation whose license is pending. These riverboat gaming operations are
regulated by the Riverboat Act, which does not impose wagering or loss limits
and permits all forms of gaming except sports betting. Although the Riverboat
Act only permits dockside gaming at the facilities located in the Shreveport
area, the Riverboat Act has been administered to allow riverboats in other areas
to conduct gaming while the riverboats are not cruising under certain
circumstances. Riverboats that remain moored under these circumstances are
permitted to allow customers' unlimited ingress and egress. The Company cannot
assure that the Riverboat Act will not be amended to permit increased or
unlimited dockside gaming or to increase the number of permitted riverboats. The
Casino will also compete with land-based gaming facilities in central Louisiana
on Native American reservations. The Tunica-Biloxi, Chitimacha and Coushatta
Native American tribes each have opened a casino near the towns of Marksville,
Charenton and Kinder, respectively, each of which is located more than 105 miles
from New Orleans.
The Casino will compete for visitors on a national and international scale
with large casino hotel facilities in Las Vegas, Nevada and Atlantic City, New
Jersey. The Casino will 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 has increased the number of hotel rooms and gaming operations in these
two markets and has 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.
Gaming operations in other states may generate competition in the
future. Additional regional competition may be generated from land-based or
dockside casino facilities that may open in states that do not currently allow
casino gaming activities, including Alabama and Texas. Bills seeking to legalize
gaming in these states have been introduced in the past. Although these bills
were not enacted, similar bills may be introduced and passed in future
legislative sessions.
The Casino will compete locally with other forms of legal wagering. The
Casino will compete for local customers with other forms of legal wagering,
including off-track betting parlors, charitable gaming and a state lottery. In
addition, under Louisiana law, certain parishes, including Orleans Parish,
permit:
- restaurants, taverns, hotels and licensed clubs to operate up to three
video draw poker devices per location;
- qualifying truck stops to operate up to 50 video draw poker devices per
location; and
- racetracks and off-track betting parlors to operate an unlimited number
of video draw poker devices per location.
Further, in 1997, two parishes, not including Orleans Parish, approved the
use of slot machines at race tracks located in those parishes, but the
authorization remains subject to further legislative action on the fees and
taxes to be imposed on the slot machines. Legislation to impose these fees and
taxes was introduced in the State legislature's 1998 fiscal session, but failed
to receive legislative approval. The State legislature will likely reconsider
this issue in the future. If slot machines are ultimately permitted at these
race tracks, the Casino would face additional competition for patrons with slot
machines located at these race tracks.
JCC MAY HAVE NO RECOURSE IF ADDITIONAL LAND-BASED CASINOS OR DOCKSIDE RIVERBOAT
GAMING IS PERMITTED
The Gaming Act presently restricts land-based casino gaming in Orleans
Parish to the Rivergate site. However, the Company cannot assure that the State
will not enact future legislation that would permit competing land-based casinos
at other sites or in parishes other than Orleans Parish, including other
parishes in the New Orleans metropolitan area. If an additional land-based
casino gaming establishment is authorized to operate in Orleans Parish, JCC
would be relieved of its obligation to pay the LGCB the compensation required
under the provisions of the Amended and Renegotiated Casino Operating Contract,
although such obligation may resume pursuant to the terms of the Amended and
Renegotiated Casino Operating Contract. Additional land-based casino operations
could materially and adversely affect the Casino's operations by increasing the
amount of competition it faces.
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Additional dockside riverboat gaming could adversely affect the Casino's
ability to attract gaming patrons, without relieving JCC of its obligation to
remit to the LGCB the compensation required under the Amended and Renegotiated
Casino Operating Contract. However, because State laws requiring riverboats to
sail in accordance with safety conditions and within their schedules are
frequently unenforced, riverboats may be able to conduct gaming operations while
at dockside in violation of State laws. 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 receiving notice from JCC and having an opportunity to cure the
violation, JCC will be entitled to sue the LGCB and/or the State to seek to
compel them to perform under the Amended and Renegotiated Casino Operating
contract. JCC will also be entitled to seek the judicial remedy of mandamus
against the LGCB or any other appropriate governmental authority, which, if
granted, would compel the LGCB or other governmental authority not to permit
these violations to occur. However, JCC's obligation to pay the Gross Gaming
Revenue Share Payments will continue during the pendency of any such judicial
action through final non-appealable judgment. Thereafter, even if the court
finds that the LGCB permitted a riverboat to conduct dockside gaming, JCC will
not be relieved of its obligation to pay the Gross Gaming Revenue Share
Payments. In addition, an exception to the exclusivity provisions of the Amended
and Renegotiated Casino Operating Contract permits an amendment to the Gaming
Act to allow one riverboat to conduct dockside gaming on Lake Pontchatrain in
Orleans Parish. If such an amendment is adopted but the LGCB does not enforce
the limitations under which the riverboat is required to operate, JCC may seek
relief by way of specific performance and/or mandamus. However, it will not be
relieved of its obligation to pay the Gross Gaming Revenue Share Payments.
In addition, a state law enacted in 1996 purports to, among other things,
retroactively amend the Gaming Act to provide that conducting gaming operations
on riverboats while the riverboat is on a designated waterway and temporarily at
dockside does not constitute the authorization of additional land-based casino
gaming operations. As a result, it will not relieve JCC of its obligation to pay
compensation to the LGCB in accordance with the Amended and Renegotiated Casino
Operating Contract. The 1996 state law also provides that governmental inaction
that results in another land-based casino being operated in Orleans Parish will
not relieve JCC of its obligation to pay this compensation. In addition, the
1996 state law purports to provide that, in the event of litigation between JCC
and the State or any of its political subdivisions (including the LGCB), JCC
must continue to make all payments to the State and any of its political
subdivisions (including the LGCB) as required by law and the Amended and
Renegotiated Casino Operating Contract during the pendency of this litigation.
Although, the subject of this litigation could be related to a matter which
limits JCC's ability to make its required payments, any failure by JCC to make
the required payments will render JCC unsuitable, and thus unable to operate the
Casino.
As a result of these factors, dockside riverboat gaming operations in
Orleans Parish may compete against the Casino without relieving JCC of its
obligation to remit to the LGCB the compensation required under the Amended and
Renegotiated Casino Operating Contract. This could materially and adversely
affect the Company's business, financial condition and results of operations.
For a more detailed discussion of Permitted Amendments to the Gaming Act, see
"Item 1. Business -- Material Agreements -- Amended and Renegotiated Casino
Operating Contract -- Exclusive Contract." For a more detailed description of
JCC's remedies under the Gaming Act and the Amended and Renegotiated Casino
Operating Contract, see "-- Gaming Laws and Regulations Could Adversely Affect
the Company's Operations -- The interpretation of current regulations and the
Gaming Act could adversely affect the Company's operations," "Item 1.
Business -- Competition" and "-- Regulation -- Louisiana Gaming Act."
A DEFAULT UNDER ONE OF THE AGREEMENTS TO WHICH THE COMPANY IS A PARTY MAY CAUSE
DEFAULTS UNDER OTHER AGREEMENTS TO WHICH THE COMPANY IS A PARTY
Certain events of default under the Amended and Renegotiated Casino
Operating Contract, the Amended Ground Lease, the Amended Management Agreement,
the Indentures or the Credit Agreement could result in an event of default under
another of such agreements. For example, a default under the Amended Management
Agreement results in defaults under the Amended and Renegotiated Casino
Operating Contract and the Amended Ground Lease. Also, a default under the
Amended GDA or the
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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 these agreements and the effect
of any resulting default under another agreement of the Company would materially
and adversely affect the Company's business, financial condition and results of
operations.
SHARES OF JCC HOLDING'S COMMON STOCK ARE CURRENTLY ELIGIBLE FOR FUTURE SALE AND
CERTAIN HOLDERS OF THE COMPANY'S SECURITIES HAVE REGISTRATION RIGHTS
Sales of, or offers to sell, a substantial number of shares of Class A
Common Stock, or the perception by investors, investment professionals or
securities analysts of the possibility of such sales, could adversely affect the
market for, and prevailing prices of, the Class A Common Stock. These sales or
the prospects of these sales could also impair JCC Holding's ability to raise
needed funds in the capital markets at favorable times and prices. As of March
25, 1999, JCC Holding had a total of 5,547,377 shares of Class A Common Stock
outstanding, most of which are freely tradable without restriction under the
Securities Act of 1933. The remaining 4,452,623 shares outstanding are shares of
Class B Common Stock, 4,302,623 of which are beneficially owned by HET. Shares
of the Class B Common Stock automatically convert into shares of Class A Common
Stock if they are transferred to entities other than direct or indirect
wholly-owned subsidiaries of HET or certain entities specifically set forth in
JCC Holding's Restated Certificate of Incorporation, which generally include
Bank One and the former Partners of HJC, their affiliates and shareholders.
JCC Holding's board of directors has adopted a 1998 Long-Term Incentive
Plan and a 1999 Non-Employee Director Stock Option Plan pursuant to which JCC
Holding has issued, subject to stockholder approval of these plans, (1) options
to purchase an aggregate of 165,500 shares of Class A Common Stock at an
exercise price of $3.50 per share and (2) an aggregate of 79,000 shares of
restricted Class A Common Stock. JCC Holding has reserved an aggregate of
655,500 additional shares of Class A Common Stock that it may issue in the
future under these plans. If the stockholders of JCC Holding approve these plans
at JCC Holding's 1999 Annual Meeting of Stockholders, JCC Holding will be able
to issue these shares upon the exercise of options granted under these plans or
otherwise pursuant to these plans. Upon stockholder approval of these plans, JCC
Holding intends to file a registration statement under the Securities Act of
1933 covering its issuance of shares upon the exercise of any options granted
under these plans or otherwise pursuant to these plans. All of these shares will
be freely tradeable in the public market, except for shares held by affiliates
of JCC Holding, which will be eligible for public sale at various times pursuant
to Rule 144 of the Securities and Exchange Commission.
Pursuant to the Plan of Reorganization, JCC Holding has agreed that, 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
register the public resale of such shares of Class A Common Stock under the
Securities Act of 1933. In addition, beginning two years after the Casino opens,
HCCIC may require JCC Holding to register for public resale under the Securities
Act of 1933 all shares of Class B Common Stock, or, upon and after the
Transition Date, Unclassified Common Stock, held by it, HET and HET's
subsidiaries. Certain holders of the Convertible Junior Subordinated Debentures
also have demand registration rights for approximately 1.1 million shares of
Class A Common Stock or, after the Transition Date, Unclassified Common Stock,
issuable by JCC Holding after October 1, 2002 upon conversion of the Convertible
Junior Subordinated Debentures at a conversion price of $25.00 per share,
subject to dilution and other appropriate adjustments. The demand registration
rights permit the holders of these securities to require JCC Holding to register
the sale of this Common Stock under the Securities Act of 1933. For a more
detailed description of the Convertible Junior Subordinated Debenture holders'
registrations rights, see "Item 1. Business -- Material Agreements --
Convertible Junior Subordinated Debentures."
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THE COMPANY'S OPERATIONS DEPEND ON GAMING OPERATIONS IN A SINGLE MARKET
The Company does not anticipate having operations other than the Casino and
operations that support the Casino. Therefore, the Company will depend solely
upon visitors to New Orleans and New Orleans area residents for its revenue. As
a result, any of the following occurrences could negatively impact the Casino's
operations, which could materially and adversely affect the Company's business,
financial condition and results of operations:
- a downturn in the local or regional economy;
- a decline in tourism in New Orleans;
- a decline in the New Orleans gaming market;
- an increase in competition faced by the Company; or
- a reduction or cessation of activities at the Casino due to flooding,
severe weather, natural disasters or otherwise.
THE COMPANY MAY LOSE SUBSTANTIAL TAX BENEFITS DUE TO THE TAX TREATMENT OF THE
NOTES AND THE CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES
The Company treats the Notes and the Convertible Junior Subordinated
Debentures as debt for federal income tax purposes. However, the Internal
Revenue Service 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, the Internal Revenue Service 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, in 1997 may prohibit JCC Holding from deducting interest
payments 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. The Company cannot assure that the
Internal Revenue Service 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. JCC Holding would lose substantial interest deductions
and other tax benefits if the Internal Revenue Service recharacterizes any of
these instruments as equity for federal income tax purposes, or if it prohibits
JCC Holding from deducting interest paid on the Convertible Junior Subordinated
Debentures due to the amendments to the Internal Revenue Code of 1986, as
amended. The loss of such deductions and other tax benefits could materially and
adversely affect the Company's business, financial condition and results of
operations.
THE COMPANY MAY NOT BE ABLE TO SATISFY CERTAIN OF ITS OBLIGATIONS IF THE CASINO
IS SUBJECT TO ADDITIONAL TAXES
Gaming companies are typically subject to significant taxes and fees which
may be increased at any time. Periodically, federal and state legislatures have
also 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 materially and adversely affect the
Company's business, financial condition and results of operations. For example,
if additional taxes are imposed on wagers made at the Casino, JCC may be unable
to make required payments on its indebtedness.
New Orleans currently imposes a 5% amusement tax on "admission charges" to,
among other things, any game of skill and chance or any mechanical device that
is operated for pleasure or skill where there is:
- a fee charged for entrance or admission;
- a fee charged for the purpose of playing such a game or using such a
mechanical device; or
- any direct or indirect charge for or in connection with such a game or
mechanical device.
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<PAGE> 89
An admission charge is broadly defined to include any charge or fee for the
purpose of self-participation in any amusement activity as well as all amounts
paid for admission, season tickets, refreshments, service or merchandise.
The New Orleans City Attorney has opined that this amusement tax may not
legally be levied on gaming revenues derived from the Casino because these
revenues do not constitute taxable "admission charges." However, as applied to
riverboat gaming, the New Orleans City Attorney has opined that riverboat
cruises are "excursions" subject to the amusement tax and that admission charges
include all activities within the riverboat, including money spent on wagers.
Because opinions of the New Orleans City Attorney are not binding on the City or
any other person, the Company cannot assure that the City will not attempt to
subject the Casino's operations to this amusement tax. If this tax is levied,
the Company cannot predict whether it would be levied on wagers, gaming revenues
or some other measure. The Amended Ground Lease provides that in the event 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 by JCC under the Amended Ground Lease. However, the Company
cannot assure that the amount of the tax would not exceed the amount of the
payments that JCC is required to make under the Amended Ground Lease that it may
offset the tax against.
THE COMPANY'S CASINO CONTRACTS COULD BE NULLIFIED IF LOUISIANA'S PUBLIC WORKS
ACT APPLIES TO THE COMPANY
Louisiana's Public Works Act requires competitive bidding on public works
contracts. If Louisiana's Public Works Act is found to apply to contracts
entered in connection with the construction of the Casino, any contracts that
are not made in compliance with the bidding requirements of the act could be
nullified. This nullification could materially and adversely affect the
Company's business, financial condition and results of operations by causing
construction delays and potential damage claims from contractors. Certain groups
of business owners, including contractors, have claimed that the Public Works
Act should apply to the Casino's construction contracts and have previously
threatened to litigate their claims. The Company is not currently aware of any
such litigation pending. However, the Company cannot assure that the Casino's
construction contracts are not subject to the Public Works Act or that
litigation concerning the applicability of the act to the Casino's construction
contracts will not occur. If these contracts are subject to the Public Work Acts
or this litigation occurs, it could cause material delays in the construction of
the Casino and may materially and adversely affect the Company's business,
financial condition and results of operations.
THE COMPANY MAY BE SUBJECT TO ENVIRONMENTAL LIABILITIES
The Company 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. The Company's ownership and leasehold
interest in these properties could subject it to liability for the cleanup of
these hazardous substances or wastes or may adversely affect the Company's
ability to borrow money in the future using the real estate as collateral. The
Amended Ground Lease also requires the Company to indemnify the RDC and the City
for environmental liabilities that arise out of causes of action arising after
November 30, 1994, other than those caused by third parties, and to assume
responsibility for any environmental cleanup on or under the Casino, regardless
of when the environmental contamination occurred, unless known by various City
departments. In addition to all of its rights under the Bankruptcy Code as
successor to HJC under the Plan of Reorganization, the Company has been
indemnified for past activities, operations or occurrences at these properties.
However, if this indemnification is not sufficient to cover the costs of any
potential liability related to any of the Company properties, it could
materially and adversely affect the Company's business, financial condition and
results of operations. For a more detailed discussion of these matters, see
"Item 1. Business -- The Company -- Environmental Matters."
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<PAGE> 90
THE COMPANY IS A PARTY TO AGREEMENTS THAT RESTRICT ITS ABILITY TO OPERATE AND
OBTAIN ADDITIONAL FINANCING
The Amended Ground Lease and the Amended and Renegotiated Casino Operating
Contract limit the amount of secured indebtedness JCC may incur and the lenders
who may provide secured financing to JCC. 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 also subject to covenants
contained in the Indentures, the Credit Agreement, related collateral documents,
and agreements with the LGCB and the RDC. These covenants include, among others,
limitations on:
- making restricted payments;
- granting liens;
- incurring additional indebtedness;
- paying management fees;
- issuing dividends;
- selling assets;
- entering into transactions with affiliates; and
- entering into mergers and consolidations.
For a more detailed description of these restrictive covenants, see "Item
1. Business -- Material Agreements -- Bank Loans," "-- New Notes and New
Contingent Notes," "-- Amended Ground Lease," and "-- Amended and Renegotiated
Casino Operating Contract."
THE MANAGER AND CERTAIN DIRECTORS OF JCC HOLDING HAVE CONFLICTS OF INTERESTS
REGARDING THE CASINO
HET owns or controls (indirectly through one or more subsidiaries or
affiliates) dockside casinos in Vicksburg and Tunica, Mississippi and
Shreveport, Louisiana. These casinos, together with other casinos that HET (or
one or more of such subsidiaries or affiliates) may develop, will compete with
the Casino at a regional level. HET also owns or controls (indirectly through
one or more subsidiaries or affiliates), casinos in the five major Nevada and
New Jersey gaming markets, which casinos will compete with the Casino on a
national basis. Currently, the Chairman of JCC Holding's board of directors, Mr.
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 a Class B Director while also serving in these capacities with HET and
the Manager. In addition, John M. Boushy, an officer of HET, and Eddie N.
Williams, a director of HET, are Class B Directors. Under the Amended Management
Agreement, the Manager, a wholly-owned subsidiary of HET, is exclusively
responsible for supervising and managing the Casino. As a result of HET's
ownership of competing casinos, together with its ownership of the Manager and
the positions held by Messrs. Reed, Boushy and Williams as both Class B
Directors and officers or directors of HET and/or the Manager, a conflict of
interest may exist because they have access to the Company's information and
business opportunities, any or all of which could be useful to one or more of
HET's competing casinos. The Indentures, the Credit Agreement and the Management
Agreement each impose restrictions on the Company's ability to enter into
transactions with affiliates, including HET. In addition, JCC Holding's board of
directors has implemented procedures which require transactions with affiliates
to be approved by disinterested directors. The Company cannot assure, however,
that the restrictions in such agreements or these procedures will successfully
resolve conflicts of interest confronting, or which may confront, the Company.
HOLDERS OF COMMON STOCK, NOTES OR CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES MAY
BE REQUIRED TO DIVEST THESE SECURITIES AT UNFAVORABLE TIMES OR COSTS
If a holder of Common Stock, Notes or Convertible Junior Subordinated
Debentures fails to satisfy suitability requirements imposed by the Gaming Act,
the Rules and Regulations and the Amended and Renegotiated Casino Operating
Contract, the holder may be required to obtain certain qualifications or
approvals from the LGCB to continue to hold these securities. Failure to obtain
such qualifications or approvals may subject the holder to certain requirements,
limitations or prohibitions. For example, the holder may be required to
liquidate or otherwise divest these securities at a time or at a cost that is
otherwise
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<PAGE> 91
unfavorable for the holder. If the holder does not divest, JCC Holding will have
the right to redeem the Common Stock and JCC will have the right to redeem the
Notes and the Convertible Junior Subordinated Debentures, and, prior to such
redemption, the holder will forfeit all benefits of ownership. In the future,
the Gaming Act may be interpreted, additional rules and regulations may be
implemented, or new legislation may be enacted to (1) prohibit or impose
additional restrictions on certain persons from holding securities of JCC
Holding or JCC, including the Common Stock, the Notes and the Convertible Junior
Subordinated Debentures, or (2) require that certain persons sell or surrender
these securities at a time or at a cost that is unfavorable for them. In
addition, JCC Holding's Restated Certificate of Incorporation provides that
Class A Common Stock may, under certain circumstances, be redeemed by JCC
Holding if JCC Holding, or certain of its affiliates, believes redemption is
required to prevent the loss or impairment of a material gaming license of JCC
or such an affiliate. If JCC Holding does not have sufficient funds to redeem
Class A Common Stock under these circumstances, it could materially and
adversely affect the Company's business, financial condition and results of
operations. For a discussion of these matters, see "Item 1.
Business -- Regulation -- Louisiana Gaming Act."
JCC MAY LOSE ITS RIGHTS UNDER THE AMENDED GROUND LEASE IF THE CITY DECLARES
BANKRUPTCY
The RDC leases the Rivergate site from the City under a lease agreement,
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, pursuant to
Section 365(a) of the Bankruptcy Code:
- in the case of the City's bankruptcy, the City elects to "reject" the
City lease agreement; or
- in the case of the RDC's bankruptcy, the RDC elects to "reject" the
Amended Ground Lease.
Under Section 365(h) of the Bankruptcy Code, if a lessor files for bankruptcy
and elects to reject its lease, the 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
its right under Section 365(h) to remain in possession of the Rivergate site. If
the RDC asserts this right, JCC's right to remain in possession of the Rivergate
site should be unaffected by the City's bankruptcy. However, some courts have
held that Section 365(h) does not provide continuing possessory rights to a
sublessee (such as JCC) when the lessee-sublessor (such as the RDC) rejects its
lease with its lessor (such as the City). As a result, if the City files for
bankruptcy and rejects its lease with the RDC, and the RDC elects to treat the
lease as terminated by rejecting the lease, JCC could lose it rights under the
Amended Ground Lease. JCC's loss of these rights would materially and adversely
affect the Company's business, financial condition and results of operations.
THE COMPANY MAY BE SUBJECT TO THE LIABILITIES OF HJC
As the successor to HJC, the Company may be subject to certain liabilities
of HJC not provided for in the Plan of Reorganization. These liabilities may
arise in a number of circumstances, including where:
- 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 in the case;
- 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;
- a creditor did not timely file its claim in the bankruptcy case due to
excusable neglect; or
- the order of confirmation for the Plan of Reorganization was procured by
fraud.
If the Company becomes subject to any of these liabilities, it could materially
and adversely affect the Company's business, financial condition and results of
operations.
JCC MAY NOT BE ABLE TO RETAIN QUALIFIED PERSONNEL TO STAFF ITS OPERATIONS
As a result of a shortage of skilled and licensed labor in the gaming
industry, JCC may not be able to timely or cost effectively attract and train
qualified individuals to staff the Casino. In addition, the Gaming Act
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<PAGE> 92
requires that at least 50% of the Casino's employees be Louisiana residents for
at least one year prior to employment. The Amended Ground Lease also requires
that at least 55% of the employees of JCC and JCC Development live and reside in
Orleans Parish, subject to reduction to comply with applicable law. This minimum
percentage required under the Amended Ground Lease will increase by 2% on each
anniversary of the Opening Date until the residency requirement reaches 65%,
subject to reductions to comply with applicable law. JCC may not be able to both
hire qualified individuals and satisfy these criteria. Even if JCC is able to
hire qualified individuals and satisfy these criteria, the cost to JCC of doing
so could be significantly higher than if JCC was not required to satisfy these
criteria. If JCC does not satisfy these criteria and does not pursue curative
actions, the failure could result in a default under the Amended Ground Lease
and ultimately, the revocation of the Amended Ground Lease. For a description of
these matters, see "-- A Default Under One of the Agreements to Which the
Company is a Party May Cause Defaults Under Other Agreements to Which the
Company is a Party" and "Item 1. Business -- Material Agreements -- Amended
Ground Lease -- Residency Requirements."
THE COMPANY MAY NOT BE ABLE TO COMPLY WITH MINORITY HIRING REQUIREMENTS
Under the Gaming Act, JCC is required, as nearly as practicable, to employ
minorities in proportions consistent with the population of the State. However,
the Amended Open Access Program and Plans, which are designed to facilitate
participation by minorities, women, and disadvantaged persons and business
enterprises in developing, constructing and operating the Casino, 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 allows it to employ
a workforce with a higher percentage of minorities than the percentage of
minorities of the State's population. If the Gaming Act or the Amended and
Renegotiated Casino Operating Contract are not applied in a manner which permits
compliance with the Amended Open Access Program and Plans, 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 of
the State's minority population may be less than the Amended Open Access Program
and Plans' percentage minority hiring goals. JCC intends to comply with the
Amended Open Access Program and Plans unless they are found to be preempted by
the Gaming Act. If this conflict arises 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. This violation could materially and
adversely affect the Company's business, financial condition and results of
operations. In addition, JCC's failure to comply with the Amended Open Access
Program and Plans could result in fines, as well as a default under the Amended
Ground Lease, either of which could materially and adversely affect the
Company's business, financial condition and results of operations. JCC is also
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. If the
City and the RDC become subject to substantial damage awards related to the
Amended Open Access Program and Plans, this indemnification obligation could
materially and adversely affect the Company's business, financial condition and
results of operations.
FAILURE TO OBTAIN YEAR 2000 COMPLIANCE MAY HAVE ADVERSE EFFECTS ON THE COMPANY
Many existing computer hardware and software systems are designed to use
only two digits to identify a year in date fields (e.g., "98" for "1998"). These
systems may not properly recognize a year that begins with "20" instead of "19."
If not corrected, these systems could fail or could create erroneous results
when working with dates beyond the year 1999. This is commonly referred to as
the "Year 2000 issue."
When open to the public, the Casino is expected to be heavily dependent on
the Manager, as well as financial institutions and the constant availability of
utilities. As a result, the Company currently believes that the most reasonably
likely worst case Year 2000 scenario would involve the Manager's inability to
operate the Casino, the inability of financial institutions to provide the
Casino funds and services or the temporary interruption of electric power,
telephone or other utility supplies to the Casino due to a failure of the
Manager, a financial institution or a utility supplier to be Year 2000
compliant. The Company is also subject to a number
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of other risks from the Year 2000 issue. For example, if the Company and/or its
significant suppliers fail to timely address and correct material Year 2000
issues or if corrections made by such suppliers to address Year 2000 issues are
incompatible with the Company's systems, the Year 2000 issue could materially
and adversely affect the Company's business, financial condition and results of
operations. In addition, the systems used by the Company for its own operations,
some of which have been developed by others, may not be Year 2000 compliant
which could also materially and adversely affect the Company's business,
financial condition and results of operations.
The foregoing description of risks to the Company resulting from the Year
2000 issue are based on the Company's best current assessment. The Company
cannot assure that this assessment will prove to be accurate. The Company has
not completed its evaluation of its state of readiness with respect to Year 2000
issues. As a result, additional problems related to the Year 2000 issue which
the Company has not yet identified or fully understands may arise in the future.
These additional problems may cause the Company's current assessment of the Year
2000 issue to be incorrect. They may also materially and adversely affect the
Company's business, financial condition and results of operations. For a more
detailed description of the Year 2000 issue, see "-- Year 2000 Issue."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in trading market risk sensitive instruments.
The Company also does not purchase, for investment, hedging or for purposes
"other than trading," instruments that are likely to expose it to market risk,
whether interest rate, foreign currency exchange, commodity price or equity
price risk, except as discussed in the following paragraph. The Company has not
entered into any forward or futures contracts, purchased any options or entered
into any swaps. The Company has no foreign operations and currently does not
deal in foreign currencies. Thus, the Company does not believe that it has any
material exposure to foreign currency exchange rate risk.
The Company has a significant amount of indebtedness which accrues interest
at fixed and variable rates. As of December 31, 1998, the aggregate amount of
the Company's outstanding indebtedness was $284.8 million, of which $70.0
million accrued interest at variable rates and $214.8 accrued interest at fixed
rates. The interest rate of the Company's variable rate indebtedness will
fluctuate with changes in the base rate and the LIBOR rate applicable under the
Credit Agreement. A change in either the base rate or LIBOR under the Credit
Agreement will affect the interest rate at which indebtedness outstanding under
the Credit Agreement accrues. As a result, a significant increase in either the
base rate or LIBOR could materially and adversely affect the Company's business,
financial position and results of operations. See "Item 1. Business -- Material
Agreements -- Bank Loans," "-- Junior Subordinated Credit Facility," "
- -- Convertible Junior Subordinated Debentures," and "-- New Notes and New
Contingent Notes."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Although JCC was incorporated on August 20, 1996, prior to October 30,
1998, 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 prior to the two
month period ended December 31, 1998 are omitted as the Company does not believe
that such separate financial information is material. On the Effective Date, 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 following historical financial statements include audited
financial information of HJC prior to the two
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month period ended December 31, 1998. The following is a list of the
Consolidated Financial Statements and Supplemental Financial Information
appearing herein:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of JCC Holding Company and Subsidiaries
Report of Independent Public Accountants.................. 93
Consolidated Balance Sheet as of December 31, 1998........ 94
Consolidated Statement of Operations for the Period from
October 30, 1998 to December 31, 1998.................. 95
Consolidated Statement of Stockholder's Equity for the
Period from October 30, 1998 to December 31, 1998...... 96
Consolidated Statement of Cash Flows for the Period from
October 30, 1998 to December 31, 1998.................. 97
Notes to Consolidated Financial Statements.................. 98
Financial Statements of Harrah's Jazz Company and Subsidiary
Report of Independent Public Accountants.................. 117
Consolidated Balance Sheet as of December 31, 1997........ 118
Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1997 and for the Ten Month Period
Ended October 30, 1998................................. 119
Consolidated Statements of Partners' Capital (Deficit) for
the Years Ended December 31, 1996 and 1997 and for the
Ten Month Period Ended October 30, 1998................ 120
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1997 and for the Ten Month Period
Ended October 30, 1998................................. 121
Notes to Consolidated Financial Statements................ 122
</TABLE>
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
JCC Holding Company
New Orleans, LA
We have audited the accompanying consolidated balance sheet of JCC Holding
Company and subsidiaries (the "Company") (Successor to "Harrah's Jazz Company")
as of December 31, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the period from October 30, 1998 to
December 31, 1998. Our audit also included the financial statement schedule
listed in the Index at Item 14(a)2. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, on October 13, 1998,
the Bankruptcy Court entered an order confirming the plan of reorganization
which became effective after the close of business on October 29, 1998.
Accordingly, the accompanying financial statements have been prepared in
conformity with AICPA Statement of Position 90-7, "Financial Reporting for
Entities in Reorganization Under the Bankruptcy Code," for the successor company
as a new entity with assets, liabilities, and a capital structure having
carrying values not comparable with prior periods as described in Note 2.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of JCC Holding Company and
subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for the period from October 30, 1998 to December 31, 1998 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
March 25, 1999
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<PAGE> 96
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents (includes restricted cash of
$605 -- Note 1)........................................ $ 25,506
Prepaids and other assets................................. 1,741
--------
Total current assets.............................. 27,247
--------
Property and equipment (Note 1):
Property held for development............................. 13,200
Construction in progress (includes restricted cash of
$9,218)................................................ 192,917
Furniture, fixtures and equipment, net of accumulated
depreciation of $71.................................... 12,541
--------
Net property and equipment........................ 218,658
--------
Deferred assets, net of amortization:
Deferred operating contract costs (Notes 1 and 8)......... 68,676
Lease prepayments (Notes 1 and 7)......................... 16,985
Other..................................................... 11,565
--------
Total deferred assets, net of amortization........ 97,226
--------
$343,131
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 643
Accrued expenses (Note 3)................................. 14,659
--------
Total current liabilities......................... 15,302
--------
Long-Term Debt (Note 4)..................................... 185,519
--------
Deferred Income Taxes (Note 5).............................. 37,900
--------
Commitments and Contingencies (Notes 7 and 8)
Stockholders' Equity (Notes 9 and 10):
Common Stock:
Unclassified Common Stock (40,000 shares authorized;
none issued and outstanding; par value $.01 per
share)................................................ --
Class A Common Stock (20,000 shares authorized; 5,547
issued and outstanding; par value $.01 per share)..... 55
Class B Common Stock (20,000 shares authorized; 4,453
issued and outstanding; par value $.01 per share)..... 45
Additional paid-in capital................................ 107,987
Accumulated deficit....................................... (3,677)
--------
Total stockholders' equity........................ 104,410
--------
$343,131
========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 97
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
MISCELLANEOUS REVENUES...................................... $ 14
OPERATING EXPENSES:
General and administrative................................ 3,768
Depreciation and amortization............................. 233
-------
Total operating expenses.......................... 4,001
-------
Loss from operations.............................. (3,987)
-------
OTHER INCOME (EXPENSE):
Interest expense, net of capitalized interest (Note 1).... --
Interest income........................................... 310
-------
Total other income (expense)...................... 310
-------
NET LOSS.................................................... $(3,677)
=======
BASIC LOSS PER SHARE........................................ $ (0.37)
=======
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 98
JCC HOLDING COMPANY
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------
CLASS A CLASS B ADDITIONAL
--------------- --------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- October 30, 1998....... 5,547 $55 4,453 $45 $107,987 $ -- $108,087
Net loss.......................... -- -- -- -- -- (3,677) (3,677)
----- --- ----- --- -------- ------- --------
Balance -- December 31, 1998...... 5,547 $55 4,453 $45 $107,987 $(3,677) $104,410
===== === ===== === ======== ======= ========
</TABLE>
See notes to consolidated financial statements
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JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (3,677)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 71
Amortization........................................... 162
Changes in operating assets and liabilities:
Prepaids and other assets............................ (1,799)
Accounts payable..................................... 643
Accrued expenses..................................... 4,955
Preconfirmation contingencies........................ (68,750)
---------
CASH FLOWS USED IN OPERATING ACTIVITIES..................... (68,395)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (27,026)
Payments for other assets................................. (5,700)
---------
CASH FLOWS USED IN INVESTING ACTIVITIES..................... (32,726)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (101,121)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 126,627
---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 25,506
=========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 100
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
JCC Holding Company ("JCC Holding") was incorporated under Delaware law on
August 20, 1996 in contemplation of succeeding to all of the assets and
liabilities of Harrah's Jazz Company ("HJC"), a general partnership, which filed
for relief under the United States Bankruptcy Code on November 22, 1995. HJC's
general partners included a wholly-owned subsidiary of Harrah's Entertainment,
Inc. ("HET"). JCC Holding conducts business through its wholly-owned
subsidiaries, Jazz Casino Company, L.L.C., a Louisiana limited liability company
("JCC"), 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 Holding, JCC, JCC
Development and CP Development, the "Company").
On October 30, 1998 (the "Effective Date") in accordance with the Third
Amended Joint Plan of Reorganization (the "Plan" or the "Plan of
Reorganization") which was confirmed by the United States Bankruptcy Court on
October 13, 1998, the Company became the successor to the operations of HJC.
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, JCC Holding issued an aggregate of
10 million shares of its Common Stock consisting of both Class A and Class B
stock. The former bondholders of HJC received an aggregate of 5,197,377 shares
of Class A Common Stock which constitutes approximately 52% of the issued and
outstanding Common Stock. In addition, the former bondholders also received
their pro rata share of (i) $187.5 million in aggregate principal amount of
JCC's Senior Subordinated Notes With Contingent Payments due 2009 (the "New
Notes") and (ii) JCC's Senior Subordinated Contingent Notes due 2009 (the "New
Contingent Notes") (see Note 4). HET, through a wholly-owned subsidiary,
acquired beneficial ownership of the Class B Common Stock and currently is the
beneficial owner of 4,302,623 shares, which constitutes approximately 43% of the
issued and outstanding Common Stock. These shares were acquired in consideration
of, among other things, an 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-possession financing that had been provided to HJC by HET or its
affiliates over the course of the reorganization. Harrah's Crescent City
Investment Company, an indirect wholly-owned subsidiary of HET ("HCCIC"),
originally acquired 4,802,623 shares of Class B Common Stock under the Plan.
However, under certain settlement agreements entered into in connection with the
Plan, HCCIC transferred from its acquired shares of Class B Common Stock (i)
options to purchase 300,000 shares to the stockholders of New Orleans Louisiana
Development Company, (ii) options to purchase 150,000 shares to Bank One,
Louisiana, N.A., formerly known as First National Bank of Commerce ("Bank One")
and (iii) its right to receive 350,000 shares to the senior secured bond holders
of Grand Palais. Because the senior secured bond holders of Grand Palais are not
permitted to own Class B Common Stock under JCC Holding's Restated Certificate
of Incorporation, the shares received by them automatically converted into
shares of Class A Common Stock. Subsequent to the Effective Date, Bank One
exercised its options.
Nature of Business
The Company's purpose is to develop and operate an exclusive land-based
casino entertainment facility (the "Casino") in New Orleans, Louisiana (the
"City"), on the site of the former Rivergate Convention Center. The Casino is
scheduled to open by October 30, 1999 (the "Opening Date"). Through certain of
its subsidiaries, JCC Holding also plans to develop approximately 130,000 square
feet of multipurpose non-gaming entertainment space on the second floor of the
Casino premises and develop various adjacent
98
<PAGE> 101
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
properties for entertainment uses supportive of the Casino. Currently, the
Company has not obtained financing to fund these developments.
Reorganization Value and "Fresh Start" Accounting
The Company's financial statements have been prepared in accordance with
the American Institute of Certified Public Accountants' ("AICPA") Statement of
Position No.90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7").
Principles of Consolidation
The consolidated financial statements include the accounts of JCC Holding
and its wholly-owned subsidiaries JCC, JCC Development, CP Development and FP
Development. All significant inter-company accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows and consolidated
balance sheet, cash and cash equivalents include highly liquid investments with
original maturities of three months or less. Restricted cash of approximately
$605,000 as of December 31, 1998 represents an escrow account related to
retainage payments to the contractor of the Casino.
Property and Equipment
Property and equipment are stated at cost, except for adjustments related
to fresh start reporting (see Note 2). 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. Furniture, fixtures and
equipment, which have been placed in service, are being depreciated over a
three-year period.
Construction in progress includes restricted cash of approximately $9.2
million as of December 31, 1998 for use in the completion of the Casino, to be
paid according to the terms of various escrow agreements.
Capitalized Interest
Interest is capitalized on internally constructed assets at the Company's
overall weighted average rate of interest. For the period from October 30, 1998
to December 31, 1998, interest of $3.5 million was capitalized.
Deferred Operating Contract Cost
Deferred operating contract cost consists of payments, net of adjustments
related to fresh start reporting (see Note 2), to the Louisiana Economic
Development and Gaming Corporation ("LEDGC") (see Note 8) required under the
original casino operating contract between HJC and the LEDGC (the "Original
Casino Operating Contract"), which commenced on July 15, 1994, and will be
amortized on the straight-line basis over the life of the Amended and
Renegotiated Casino Operating Contract (the "Amended and Renegotiated Casino
Operating Contract") among HJC, JCC and the State of Louisiana (the "State"), by
and through the Louisiana Gaming Control Board (the "LGCB"), from the Opening
Date through July 2024.
99
<PAGE> 102
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
Lease Prepayment
Lease prepayment includes a non-refundable initial payment, net of
adjustments related to fresh start reporting (see Note 2), required under the
original ground lease for the site on which the Casino is being constructed (see
Note 7) and will be amortized on a straight-line basis over 25 years, the life
of the Amended and Renegotiated Casino Operating Contract.
Amortization of Note Discount
The discount associated with the New Notes (see Note 4) is amortized using
the interest method. The Company's interest expense for the period from October
30, 1998 to December 31, 1998 includes $506,000 of amortization of the note
discount.
Use of Estimates
Financial statements prepared in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Certain Significant Risks and Uncertainties
Construction Risks. Any construction project entails significant
construction risks, including, but not limited to, costs overruns, delays in
receipt of governmental approval, shortages of materials or skilled labor, labor
disputes, unforeseen environmental or engineering problems, work stoppages, fire
and other natural disasters, construction scheduling problems and weather
interferences, any of which, if it occurred, could delay construction or result
in a substantial increase in costs to the Company.
Competition. 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.
Long-Lived Assets
The Company 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, the Company
uses an estimate of undiscounted net cash flow over the shorter of the remaining
life of the related lease, contract, or asset, as applicable, in determining
whether the assets are recoverable.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments,"
requires certain disclosures regarding the fair value of financial instruments.
Cash and cash equivalents, prepaids and other current assets,
100
<PAGE> 103
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
accounts payable and accrued liabilities are reflected in the consolidated
financial statements at fair value because of the short-term maturity of these
instruments. The fair value of long-term assets and debt closely approximates
their carrying value. The Company uses quoted market prices, when available, or
discounted cash flows to calculate these fair values.
Net Income Per Share
The Company accounts for net income per share under the provisions of SFAS
No. 128, "Earnings Per Share." This standard requires dual presentation of net
income per common share and net income per share assuming dilution on the face
of the statement of operations. Basic net income per common share is computed by
dividing the net income attributable to common stockholders by the weighted
average number of shares outstanding during the period. Diluted earnings per
common share assume that any dilutive convertible debentures outstanding at the
beginning of each year were converted at those dates, with related interest and
outstanding common shares adjusted accordingly. JCC's 8% Convertible Junior
Subordinated Debentures due 2010 (the "Convertible Junior Subordinated
Debentures") (see Note 4) were not included in the computation of diluted
earnings per common share for 1998 because it would have resulted in an
antidilutive effect. Diluted earnings per common share also assumes that
outstanding common shares were increased by shares issuable upon exercise of
those stock warrants for which market price exceeds exercise price, less shares
which could have been purchased by the Company with related proceeds. Since the
exercise price associated with the HET Warrant (see Note 9) is above the market
price of the Class A Common Stock, it was not dilutive in the current year.
Segment Information
The Company's principal line of business is casino gaming.
Start-Up Activities
The Company accounts for start-up activities under provisions of the AICPA
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities"
which provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred.
NOTE 2. FRESH START REPORTING
In accordance with SOP 90-7, the Company established its reorganization
value and adopted "fresh start" accounting as of October 30, 1998. The Company
adopted fresh-start reporting because owners 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............................ $ 83,777
Liabilities deferred pursuant to Chapter 11 proceedings..... 523,468
--------
Total postpetition liabilities and allowed claims........... 607,245
Reorganization value........................................ 331,000
--------
Excess of liabilities over reorganization value............. $276,245
========
</TABLE>
101
<PAGE> 104
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
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 forecasted 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 Date based upon
independent appraisal..................................... $ 495,000
Financing to occur post bankruptcy but prior to opening..... (164,000)
---------
Reorganization value........................................ $ 331,000
=========
</TABLE>
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 lease prepayments. In addition, the
Company's accumulated deficit was eliminated.
The effect of the Plan of Reorganization and the application of "fresh
start" accounting to the Company's condensed (unaudited) balance sheet as of
October 30, 1998 is as follows:
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
HARRAH'S JAZZ JCC HOLDING
COMPANY COMPANY
PRE-FRESH START FRESH START
BALANCE SHEET PLAN OF BALANCE SHEET
OCTOBER 30, REORGANIZATION FAIR VALUE OCTOBER 30,
1998 ADJUSTMENTS(A) ADJUSTMENTS(B) 1998
--------------- -------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 14,339 $ 112,288 $ -- $126,627
Prepaids and other assets................. 65 -- -- 65
--------- --------- -------- --------
Total current assets............ 14,404 112,288 0 126,692
Property and equipment.................... 199,967 -- (11,795) 188,172
Deferred operating contract costs......... 122,222 -- (53,546) 68,676
Lease prepayments......................... 30,263 -- (13,278) 16,985
Other assets.............................. 2,084 -- 3,820 5,904
--------- --------- -------- --------
Total........................... $ 368,940 $ 112,288 $(74,799) $406,429
========= ========= ======== ========
Liabilities not subject to compromise..... $ 83,777 $ (8,348) $ -- $ 75,429
Liabilities subject to compromise......... 523,468 (523,468) -- --
Long-term debt............................ -- 185,013 -- 185,013
Other long-term obligations............... -- 37,900 -- 37,900
Partners' deficit/stockholders' equity.... (238,305) 421,191 (74,799) 108,087
--------- --------- -------- --------
Total........................... $ 368,940 $ 112,288 $(74,799) $406,429
========= ========= ======== ========
</TABLE>
102
<PAGE> 105
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
- ---------------
(A) To record the transactions consummated pursuant to the Plan of
Reorganization and eliminate partners' deficit. These adjustments include a
$15 million direct infusion of equity to JCC Holding from HCCIC.
(B) To record the adjustment to state assets and liabilities at fair value and
adjust for the difference between the assumed reorganization value and the
fair value of the identifiable tangible and intangible assets by reducing
the value assigned to deferred operating contract costs and lease
prepayments.
NOTE 3. ACCRUED EXPENSES
Accrued expenses as of December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Preconfirmation contingencies............................... $ 6,679
Interest.................................................... 3,025
Construction costs.......................................... 2,998
Legal fees.................................................. 530
Due to HET.................................................. 500
Payroll and related benefits................................ 430
Other....................................................... 497
-------
Total............................................. $14,659
=======
</TABLE>
Preconfirmation contingencies represent amounts owed to creditors of the
predecessor company, HJC, which were transferred to the Company under the Plan.
NOTE 4. LONG-TERM DEBT AND OTHER FINANCING AGREEMENTS
Long-term debt consists of the following as of December 31, 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Bank Loans:
A Term Loan............................................... $ 40,000
B Term Loan............................................... 30,000
--------
Total Bank Loans.................................. 70,000
--------
Senior Subordinated Notes With Contingent Payments Due
2009...................................................... 187,500
Less Unamortized Discount................................. (99,269)
--------
88,231
--------
Senior Subordinated Contingent Notes Due 2009............... --
Convertible Junior Subordinated Debentures Due 2010......... 27,288
--------
Total Long-Term Debt.............................. $185,519
========
</TABLE>
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 a syndicate
of lenders led by Bankers Trust Company ("BTCo") (the "Bank Lenders"), JCC
obtained a construction financing commitment from the Bank Lenders to provide
JCC with $211.5 million under various term loans (the "Term Loans") and up to
$25 million of available
103
<PAGE> 106
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
working capital (the "Working Capital Facility" and, collectively with the Term
Loans, the "Bank Loans"). The Term Loans and the Working Capital Facility are a
single combined credit facility.
The Term Loans consist of a $60 million A Term Loan (the "A Term Loan")
comprised 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") and a $151.5 million B Term Loan (the "B Term Loan") comprised of two
tranches (i) a $30 million tranche ("Tranche B-1"); and (ii) a $121.5 million
tranche ("Tranche B-2"). As of December 31, 1998, JCC had borrowed the amounts
available under the Tranche A-1, A-3 and B-1 loans. 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 Tranche A-1 and A-2 loans mature in April 2006 while the Tranche A-3 loan
matures in January 2006. Both the Tranche B-1 and B-2 loans mature in January
2006.
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 Working Capital Facility
is a $25 million revolving line of credit which terminates in January 2006. JCC
had no outstanding borrowings under this facility at December 31, 1998.
The interest rates on the bank loans assuming that they are maintained as
Eurodollar loans are as follows:
<TABLE>
<CAPTION>
INTEREST RATE
-------------
<S> <C>
Tranche A-1.......................... LIBOR plus 1%
Tranche A-2.......................... LIBOR plus 2.5% to LIBOR plus 3.5%
Tranche A-3.......................... LIBOR plus 1%
Tranche B-1.......................... LIBOR plus 2.5%
Tranche B-2:
Up to $10 Million.................. LIBOR plus HET applicable margin then in effect*
In Excess of $10 Million........... LIBOR plus 2.5% to LIBOR plus 3.5%
Working Capital Facility............. LIBOR plus 2.5% to LIBOR plus 3.5%
</TABLE>
- ---------------
* HET applicable margin represents HET's current interest rate on its credit
facility.
The interest rate on 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 Term Loans have the following repayment terms:
<TABLE>
<S> <C>
Tranche A-1 and A-2 (Combined)........... Quarterly installments of $100,000
beginning July 31, 2000 with a $27.8
million lump sum payment due at maturity.
Tranche A-3.............................. Quarterly installments of $1 million in
year one, $1.5 million in years two and
three and $1.75 million in years four and
five.
Tranche B-1 and B-2 (Combined)........... Quarterly installments beginning July 31,
2000 of $1.5 million in year one, $2.5
million in years two through five, $2.125
million in year six with a $97 million
lump sum payment due at maturity.
</TABLE>
104
<PAGE> 107
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
The scheduled quarterly repayments will be deferred for any of the first
six semi-annual interest payment periods if interest on the New Notes (see
below) is paid in kind and HET has deferred its fees under the terms of the
Amended Management Agreement (see Note 6) and the HET/JCC Agreement (as defined
below). Starting with the fourth year after the Effective Date, if JCC's
Consolidated EBITDA (as defined in the indenture under which the New Notes are
issued) 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 New Notes, interest under the Term
Loans will be deferred.
The A Term Loan generally ranks senior to all existing and future
indebtedness of JCC except certain obligations of JCC under an agreement (the
"HET/JCC Agreement") among JCC, HET and Harrah's Operating Company, Inc., a
wholly-owned subsidiary of HET ("HOCI"), pursuant to which HET and HOCI have
provided an initial guaranty (a "Minimum Payment Guaranty") in favor of the
State by and through the LGCB of a $100 million annual payment due to the State
under the Amended and Renegotiated Casino Operating Contract (the "Minimum
Payment").
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,
funds deposited in the house bank maintained at the Casino and the Gross Gaming
Revenue Share Payments (see Note 8) (the "Excluded Collateral")), JCC Holding,
JCC Development, CP Development and FP Development. 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 are guaranteed on a
senior basis by JCC Holding, JCC Development, CP Development and FP Development.
The Tranche A-2 and B-2 loans along with the Working Capital Facility are
also guaranteed by HET and HOCI. As consideration for this guarantee, HET will
receive an annual credit support fee from BTCo equal to 2%, and JCC will pay to
HET an annual credit support fee equal to approximately 0.75%, of the average
aggregate principal amount of loans and/or stated amount of letters of credit
outstanding 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 principal amount
thereof from time to time in excess of $10 million).
New Notes and New Contingent Notes
In connection with the Plan of Reorganization, 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 ("Norwest"), as Trustee, and (ii)
New Contingent 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, as Trustee.
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 therefore valued based on discounting concepts to
approximate their fair value (16% discount rate).
The fixed interest rate on the New Notes is 5.867% per annum, increasing
over the first three years to a rate of 6.214% in the fourth and fifth years and
increasing to 8% after the first five years ("Fixed Interest")
105
<PAGE> 108
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
and is payable semiannually in arrears on each May 15 and November 15, beginning
May 15, 1999. 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 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. At the present time, the Company anticipates that it will pay the first
six interest payments on the New Notes in kind rather than in cash.
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. Fixed Interest not paid in kind
is payable in cash.
Contingent payments with respect to the New Notes are generally based on a
measurement amount which is defined as the Consolidated EBITDA of JCC plus or
minus cash amounts advanced to or repaid by JCC Development, CP Development or
FP Development. Contingent payments are payable on each interest payment date as
follows:
<TABLE>
<S> <C>
May 15 37.5% of Consolidated EBITDA for the 12 month period ending
on the immediately preceding March 31 in excess of $65
million but less than $85 million
November 15 75% of Consolidated EBITDA for the 12 month period ending on
the immediately preceding September 30 in excess of $65
million and less than $85 million, less amounts paid on May
15
</TABLE>
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 are contingent and are based upon the same measurement amount as the
contingent payments required under the New Notes. Contingent payments are due on
each May 15 and November 15. Contingent payments with respect to the New
Contingent Notes are payable on each interest payment date as follows:
<TABLE>
<S> <C>
May 15 37.5% of Consolidated EBITDA for the 12 month period ending
on the immediately preceding March 31 in excess of $85
million but less than $109.425 million
November 15 75% of Consolidated EBITDA for the 12 month period ending on
the immediately preceding September 30 in excess of $85
million and less than $109.425 million, less amounts paid on
May 15
</TABLE>
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.
106
<PAGE> 109
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
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 JCC, JCC Holding,
JCC Development, CP Development and FP Development (excluding the Excluded
Collateral).
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 guaranteed to each holder of New
Contingent Notes the payment of contingent payments, if any, 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 to
redemption in the event the holders of these securities are required, but
unable, to obtain certain qualifications or approvals from the LGCB. 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.
Below is the summarized financial information for each of the entities
(guarantors) on a stand-alone basis:
<TABLE>
<CAPTION>
JCC JCC CP FP
HOLDING JCC DEVELOPMENT DEVELOPMENT DEVELOPMENT
-------- -------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets.................. $ -- $ 27,215 $ -- $ 13 $ 19
Non-current assets.............. 104,720 302,716 -- 4,662 8,506
Current liabilities............. 310 14,992 -- -- --
Non-current liabilities......... -- 223,419 -- -- --
Miscellaneous revenues.......... -- -- -- 14 --
Income (loss) from operations... (3,677) (3,691) -- 14 --
Net income (loss)............... (3,677) (3,381) -- 14 --
</TABLE>
All of the assets of JCC Holding's subsidiaries are restricted and may not
be transferred to JCC Holding in the form of loans, cash, or dividends without
the consent of a third party.
Junior Subordinated Credit Facility
On the Effective Date, JCC entered into a junior subordinated credit
facility with HET and HOCI (the "Junior Subordinated Credit Facility") whereby
HOCI agreed to make available to JCC 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-2 and Tranche B-2), the
proceeds from the sale of the Convertible Junior Subordinated Debentures and the
$15 million equity investment by HCCIC in JCC Holding on the Effective Date. As
of December 31, 1998, the Company has not drawn any amounts under the Junior
Subordinated Credit Facility.
The Junior Subordinated Credit Facility is unsecured. 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
107
<PAGE> 110
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
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. Outstanding
principal under the Junior Subordinated Credit Facility bears interest at the
rate of 8% per year. 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 interest at
the rate of 10% per year.
Convertible Junior Subordinated Debentures
On the Effective Date, JCC issued to BTCo, Donaldson, Lufkin & Jenrette
Securities Corporation, Salomon Smith Barney Inc., BT Alex. Brown Incorporated
and Bank One, $27,287,500 aggregate principal amount of the Convertible Junior
Subordinated Debentures. The Convertible Junior Subordinated Debentures mature
in May 2010. The Convertible Junior Subordinated Debentures bear interest at the
rate of 8% per year, 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 JCC did not
make contingent payments with respect to the New Contingent Notes on the
immediately preceding interest payment date for the New Contingent Notes.
The Convertible Junior Subordinated Debentures are unsecured obligations of
JCC. 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. 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 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.
108
<PAGE> 111
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
As of December 31, 1998, maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999........................................................ $ --
2000........................................................ 2,661
2001........................................................ 6,717
2002........................................................ 8,114
2003........................................................ 8,614
Thereafter.................................................. 159,413
--------
Total Long-Term Debt.............................. $185,519
========
</TABLE>
NOTE 5. FEDERAL INCOME TAXES
The effective income tax rate as of December 31, 1998 on income
attributable to continuing operations differs from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1998
------
<S> <C>
Statutory federal rate...................................... 38.00%
State income taxes, net of federal income tax benefit....... --
Valuation allowance......................................... (37.09)
Permanent items............................................. (0.91)
------
Effective Tax Rate.......................................... 0.00%
======
</TABLE>
The tax effects of the items comprising the Company's net deferred tax
liability as of December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
ASSETS LIABILITIES TOTAL
------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Accrued reserves.......................................... $ 122 $ -- $ 122
Valuation allowance....................................... (122) -- (122)
------- -------- --------
Total current..................................... -- -- --
------- -------- --------
Non-current:
Discount on debt.......................................... -- (37,722) (37,722)
Net operating loss........................................ 1,554 -- 1,554
Capitalized interest...................................... -- (559) (559)
Original issue discount................................... 54 -- 54
Valuation allowance....................................... (1,227) -- (1,227)
------- -------- --------
Total non-current................................. 381 (38,281) (37,900)
------- -------- --------
Total............................................. $ 381 $(38,281) $(37,900)
======= ======== ========
</TABLE>
To the extent the Company had net deferred tax assets as of December 31,
1998, a valuation allowance was established to reduce such net deferred tax
assets to zero. The corresponding charge to increase the valuation allowance
reduced the Company's 1998 income tax benefit.
109
<PAGE> 112
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
During the period from October 30, 1998 to December 31, 1998, the Company
incurred a net operating loss, resulting in a carryforward for federal income
tax purposes of approximately $1.6 million. For federal income tax purposes, the
net operating loss carryforward will expire in 2018.
NOTE 6. RELATED PARTY TRANSACTIONS
Management Agreement
The operations of the Casino are to be managed by Harrah's New Orleans
Management Company ("Harrah's Management" or "Manager"), a wholly-owned
subsidiary of HET, pursuant to the second amended and restated management
agreement (the "Amended Management Agreement"). The Amended Management Agreement
dated October 29, 1998, has a 20 year term expiring October 29, 2018, but may be
extended for four consecutive terms of ten years each at the option of Harrah's
Management, provided Harrah's Management is not in default under the agreement.
Under the terms of the Amended Management Agreement, Harrah's Management is
entitled to receive a management fee having two components. The first component
is equal to 3% of annual gross revenues of the casino. The second component (the
"Incentive Fee") is equal to 7% of Consolidated EBITDA above (i) $40 million for
the six month period ending on each March 31 after the Opening Date, and (ii)
$75 million for the applicable 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) if Consolidated EBITDA
does not exceed $75 million for the applicable 12 month period. In addition,
Harrah's Management 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," which as of December 31, 1998 was an amount equal to 0.4% of the
Casino's net revenues. The Manager may increase this marketing contribution from
time to time to ensure that it generally equals the fee charged to other
participating casinos owned or managed by HET's affiliates. For the period from
October 30, 1998 to December 31, 1998, the Company paid HET $3.7 million
consisting primarily of reimbursements for pre-Effective Date amounts.
As of December 31, 1998, due to HET of $500,000, which was included in
accrued expenses, consisted of non-interest bearing current payables for payroll
and other similar costs.
HET/JCC Agreement
On the Effective Date, JCC entered into the HET/JCC Agreement with HET,
under which HET and HOCI have provided an initial Minimum Payment Guaranty for
the benefit of the State by and through 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.
HET and HOCI have committed to provide a Minimum Payment Guaranty through
the COC Fiscal Year (as defined below) ending March 31, 2004, provided that
certain conditions are met by JCC. HET and HOCI will receive a $6 million per
year guaranty fee for the COC Fiscal Years ending March 31, 2000 and 2001 and a
$5 million per year guaranty fee for the COC Fiscal Years ending March 31, 2002,
2003 and 2004, all payable quarterly. HET 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. Under the Amended and Renegotiated Casino Operating Contract, a
"COC Fiscal Year" is defined to mean a 12-month period beginning April 1,
provided that the first Full COC Fiscal Year is defined to mean the period
commencing on the Casino Opening Date and ending on the first March 31st
thereafter.
110
<PAGE> 113
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
HET Loan Guarantee
HET and HOCI have provided a payment guarantee with respect to Tranche A-2,
Tranche B-2 and the Working Capital Facility (the "HET Loan Guarantee"). In
exchange for the HET Loan Guarantee, JCC will pay to HET an annual support fee
equal to 0.75% of the average aggregate principal amount of loans and/or stated
amounts of letters of credit outstanding 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 principal amount thereof from time to time in excess of $10 million).
As of December 31, 1998 there were no amounts borrowed under Tranche A-2,
Tranche B-2 and the Working Capital Facility.
Junior Subordinated Credit Facility
HET and HOCI have provided JCC with the $22.5 million Junior Subordinated
Credit Facility (see Note 4).
Completion Guarantee
HET and HOCI have entered into a series of completion guarantees pursuant
to which HET and HOCI have guaranteed, among other things, the completion of the
Casino and the payment of all obligations of JCC up to and through the
completion of the Casino construction. This includes the duty to complete, equip
and open the Casino if JCC fails to commence or complete the Casino construction
and to pay JCC costs and expenses until the Casino opens prior to the
termination of the construction date.
Amended Completion Loan Agreement
On the Effective Date, JCC and HET entered into an amended and restated
subordinated completion loan agreement under which any expenditures made by HET
under the Completion Guarantees, which are not also expenditures under an
amended and restated construction lien indemnity agreement between HOCI and JCC,
are deemed unsecured loans ("Completion Loans"). HET is required to make
Completion Loans to the extent that the total cost to complete the Casino
exceeds the budgeted cost to complete the Casino. The Completion Loans bear
interest at a rate of 8% per year and mature on April 30, 2010. The obligation
of JCC to repay amounts advanced by HET under the Completion Guarantees is an
unsecured obligation of JCC and is junior in the right of payment to the
principal and interest due and payable with regard to the New Notes, the New
Contingent Notes and the Bank Loans.
Except for the guarantee fees payable in connection with the HET Loan
Guarantee, no further fee may be paid by JCC to HET for issuing the Completion
Guarantees and advice in connection with arranging the financing for completion
of the Casino.
NOTE 7. LEASES
The Company 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. Real estate operating
leases range from 12 months to 30 years with options for extensions for up to an
additional 30 years. The average remaining term for non-real estate leases
extends approximately one year.
The Casino Site
JCC entered into an Amended and Restated Ground Lease Agreement dated
October 29, 1998 (the "Amended Ground Lease") with the Rivergate Development
Corporation ("RDC"), as landlord, and the
111
<PAGE> 114
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
City, as intervenor, for the site on which the Casino is being constructed. The
initial term of the Amended Ground Lease is for 30 years beginning October 29,
1998, with three consecutive ten-year renewal options.
Under the terms of the original ground lease, HJC was required to make an
initial payment of $30 million. The Amended Ground Lease requires payment of
$736,000 per month until the Casino opens. These monthly payments will be
capitalized during the construction of the Casino until opening and amortized
over the remaining life of the Ground Lease. Upon the Casino's opening, the
minimum lease payment increases to $12.5 million per year. The Amended Ground
Lease provides for additional rents based on various percentages of gross gaming
and non-gaming revenues. JCC is also required to make a $2.0 million annual
contribution to the Orleans Parish School Board as well as certain additional
one time rental payments totaling $2.25 million over the lease term. JCC is also
obligated to pay contingent rent in the event a dividend is declared or if the
Manager is paid a termination fee. Under certain conditions, the RDC has a
one-time right to receive additional rent based on the net market appreciation
of JCC Holdings' Common Stock as computed by a defined formula. JCC is also
required to contribute $1.0 million annually to the City for a joint marketing
fund and to make monthly payments after the Casino opens to a capital
replacement fund. The annual aggregate payments to the capital replacement fund
are $3.0 million in the first year of Casino operations and increase $1.0
million in year two and three and in each succeeding year the payments are based
on 2.0% of gross gaming and non-gaming revenues. In connection with the
development of the second floor of the Casino, JCC will also be required to pay
the RDC rent equal to 50% of net operating income generated from operations on
the second floor of the Casino.
The aggregate contractual future minimum rental commitments, excluding
contingent rentals as of December 31, 1998, is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999........................................................ $ 4,804
2000........................................................ 17,759
2001........................................................ 16,322
2002........................................................ 16,343
2003........................................................ 16,375
Thereafter.................................................. 407,109
--------
Total Minimum Lease Payments...................... $478,712
========
</TABLE>
Lease expense for the period from October 30, 1998 to December 31, 1998 was
approximately $139,000.
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company is involved in various inquiries and administrative proceedings
arising in the normal course of business. While any proceeding has an element of
uncertainty, the Company believes that the final outcome of these matters will
not have a material adverse effect upon the Company's consolidated financial
position or its results of operations.
Amended and Renegotiated Casino Operating Contract
Pursuant to the Original 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 Original Casino Operating Contract
revested in HJC, and the Original 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
112
<PAGE> 115
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
parties thereto. The term of the Amended and Renegotiated Casino Operating
Contract is 20 years, commencing in July 1994, with one automatic ten year
renewal option.
Under the Original 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 a casino operated by HJC in the City's
Municipal Auditorium on a temporary basis from May 1, 1995 to November 22, 1995
(the "Basin Street Casino"). Under the Amended and Renegotiated Casino Operating
Contract, during 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 (the "Gross Gaming Revenue Share
Payments"):
(A) 18.5% of gross gaming revenue up to and including $600 million
(B) 20% of gross gaming revenue in excess of $600 million up to and
including $700 million
(C) 22% of the gross gaming revenue in excess of $700 million up to and
including $800 million
(D) 24% of gross gaming revenue in excess of $800 million up to and
including $900 million
(E) 25% of gross gaming revenue in excess of $900 million
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.
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 Note 7).
General Development Agreement
The General Development Agreement ("GDA") entered into with the RDC 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. JCC is obligated to reimburse the RDC for certain costs incurred
during the construction of the Casino and certain of its parking facilities,
totaling approximately $280,000.
Amended Open Access Program and Plans
The Amended Open Access Program requires JCC to form a special purpose
corporation to interface with new and existing businesses owned and controlled
by minorities, women and disadvantaged persons. HJC was required to capitalize
this corporation with $500,000. JCC will underwrite its operations at a minimum
of $250,000 per year for five years. JCC must also contribute an additional
$500,000 per year for five years to
113
<PAGE> 116
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
similar public efforts, in accordance with standards to be established by the
Company. On the Effective Date $250,000 was funded for the first of the five
year commitment to fund operations.
Audubon Institute Agreement
Upon the Effective Date, JCC assumed the obligations related to a ticket
purchase agreement with the Audubon Institute whereby JCC has agreed to purchase
tickets from the Audubon Institute for a minimum of $375,000 per year for the
first six years of Casino operations. This amount is subject to increase based
on increasing gross gaming revenue levels achieved by JCC.
Construction Agreements
JCC has other commitments related to the construction of the Casino and
related parking facilities totaling approximately $46.7 million as of December
31, 1998.
Other Contingencies
The Company has various commitments to HET and its subsidiaries (see Note
6).
The enactment and implementation of gaming legislation in the State and the
development of the Casino, the Basin Street Casino and related 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 the
Company.
NOTE 9. STOCKHOLDERS' EQUITY
Capital Structure
Pursuant to the Plan of Reorganization, the outstanding capital stock of
JCC Holding consists of shares of Class A Common Stock and Class B 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 below), 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. However, prior to the Transition Date, (1) maximum number of
authorized directors on JCC Holding's board of directors is six, three of which
are to be elected by the holders of the Class A Common Stock (each, a "Class A
Director") and three of which are to be elected by the holders of the Class B
Common Stock (each, a "Class B Director"), (2) any amendment to the JCC
Holding's Restated Certificate of Incorporation and Bylaws which affects the
right of holders of the Class A Common Stock or the Class A directors or which
affects the rights of holders of the Class B Common Stock or the Class B
Directors must be approved by the affirmative vote of the holders of a majority
of the affected class of Common Stock and (3) only certain entities may hold
Class B Common Stock. On the Transition Date, each share of Class A Common Stock
and each share of Class B Common Stock will automatically convert into one share
of Unclassified Common Stock. Accordingly, on and after the Transition Date,
directors will be elected by the affirmative vote of the holders of a plurality
of the shares of Unclassified Common Stock and the restrictions described in
clauses (2) and (3) of the preceding sentence will no longer be applicable.
"Transition Date" means the date upon which the earliest of the following events
occurs:
114
<PAGE> 117
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
(1) the third anniversary of the date on which the Casino is open to customers,
(2) the end of two consecutive 12-month periods in each of which contingent
payments under the New Notes and the New Contingent Notes equals or exceeds $15
million and (3) the end of a 30-day period during which the average daily
closing Minimum Market Value (as defined below) equals or exceeds $435 million.
"Minimum Market Value" means, for any trading day, the sum of (a) the closing
price of Class A Common Stock multiplied by the number of shares of Class A
Common Stock that were issued to holders of the Old Bonds on the Effective Date
pursuant to the Plan of Reorganization and (b) the closing price for $1,000 of
the New Notes and the New Contingent Notes divided by $1,000, and then
multiplied by the aggregate principal amount of the New Notes and the New
Contingent Notes outstanding.
HET Warrant
Pursuant to a warrant agreement between JCC Holding and HCCIC dated October
30, 1998, HCCIC received warrants (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 million. However, the number of shares issuable under the HET
Warrant will be adjusted as necessary by JCC Holding's 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 HET of an election to redeem 75% of the warrants at $0.05 per
warrant unless HET 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) HET 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.
NOTE 10. EMPLOYEE AGREEMENTS AND BENEFIT PLANS
Jazz Casino Company, LLC Savings and Retirement Plan
On November 27, 1998 the Company established a savings and retirement plan
under Section 401(k) of the Internal Revenue Code ("401(k) Plan"). The 401(k)
Plan allows eligible employees to contribute up to 6% of their compensation on a
pre-tax basis. Under the terms of the Plan, the Company will match 100% of such
contributions and may elect to make an additional discretionary contribution in
any year. The Company's contribution expense for the period from October 30,
1998 to December 31, 1998 is approximately $4,400.
JCC Holding 1998 Long-Term Incentive Plan
On October 29, 1998, the Board of Directors adopted the JCC Holding 1998
Long-Term Incentive Plan (the "LTIP"), which is subject to stockholder approval.
Under the terms of the LTIP, the following can be awarded to employees,
officers, consultants and directors: stock options, stock appreciation rights,
performance
115
<PAGE> 118
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(CONTINUED)
units, restricted stock, dividend equivalents, other stock-based awards or any
other right or interest relating, prior to the Transition Date, Class A Common
Stock, or on or after the Transition Date, Unclassified Common Stock. JCC
Holding has reserved for issuance upon the grant or exercise of the above
awards, 750,000 shares of the authorized but unissued shares of Class A Common
Stock. At December 31, 1998, no awards have been granted under the LTIP.
116
<PAGE> 119
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 ("HJC") as of
December 31, 1997, and the related consolidated statements of operations,
partners' capital and cash flows for the ten-month period ended October 30, 1998
and for each of the two years in the period ended 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 the results of their operations and
their cash flows for the ten-month period ended October 30, 1998 and for each of
the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New Orleans, Louisiana
March 25, 1999
117
<PAGE> 120
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
1997
--------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents (includes restricted cash of
$3,335 -- Note 3)...................................... $ 3,755
Other..................................................... 561
--------
Total current assets.............................. 4,316
--------
Land, buildings and equipment
Property held for development............................. 13,200
Construction in progress.................................. 157,475
Furniture, fixtures and equipment, net of accumulated
depreciation of $6,598................................. 24,857
--------
195,532
Deferred assets, net of amortization
Deferred operating contract costs (Notes 2 and 8)......... 122,222
Lease prepayments (Notes 2 and 7)......................... 30,263
Other..................................................... 2,084
--------
$354,417
========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities not subject to compromise
Accounts payable.......................................... $ 1,170
Accrued expenses.......................................... 9,756
Debtor-in-possession loans (Notes 1 and 6)................ 32,230
--------
Total liabilities not subject to compromise....... 43,156
Liabilities subject to compromise (Note 5).................. 523,468
Commitments and contingencies (Notes 7 and 8)
Partners' deficit (Notes 1 and 4)
Partners' capital contributions........................... 167,000
Accumulated deficit....................................... (379,207)
--------
Total partners' deficit........................... (212,207)
--------
$354,417
========
</TABLE>
The accompanying notes are an integral part of this statement.
118
<PAGE> 121
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TEN-MONTH PERIOD ENDED OCTOBER 30, 1998
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
TEN-MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Other................................................... $ 87 $ 1,679 $ 1,661
OPERATING EXPENSES:
General and administrative.............................. 14,965 14,703 17,459
Depreciation............................................ 522 610 612
-------- -------- --------
Total operating expenses........................ 15,487 15,313 18,071
-------- -------- --------
Loss from operations............................ (15,400) (13,634) (16,410)
-------- -------- --------
REORGANIZATION ITEMS:
Costs and expenses (Note 2)............................. (7,643) (6,569) (8,117)
Adjust assets to reorganization value (Note 1).......... (74,799) -- --
Recovery of accounts receivable......................... 3 683 3,832
Interest income......................................... 126 251 416
-------- -------- --------
Total reorganization items...................... (82,313) (5,635) (3,869)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense, net of capitalized interest (Notes 2
and 6)............................................... -- (1,975) (621)
-------- -------- --------
NET INCOME/(LOSS) BEFORE EXTRAORDINARY ITEM............... (97,713) (21,244) (20,900)
EXTRAORDINARY ITEM -- gain on discharge of debt (Note
1)...................................................... 267,706 -- --
-------- -------- --------
Net Income/(Loss)............................... $169,993 $(21,244) $(20,900)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
119
<PAGE> 122
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE TEN-MONTH PERIOD ENDED OCTOBER 30, 1998
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL ACCUMULATED EQUITY AS A RESULT
CONTRIBUTIONS DEFICIT OF REORGANIZATION
----------------- ----------- ------------------
<S> <C> <C> <C>
Balance -- December 31, 1995........................ $ 167,000 $(337,063) $
Net loss............................................ -- (20,900) --
--------- --------- --------
Balance -- December 31, 1996........................ 167,000 (357,963) --
Net loss............................................ -- (21,244) --
--------- --------- --------
Balance -- December 31, 1997........................ 167,000 (379,207) --
Net Income.......................................... -- 169,993 --
Discharge of debt exchanged in part for equity...... -- -- 135,301
Reclassification of partners' capital contributions
and accumulated deficit as of effective date...... (167,000) 209,214 (42,214)
--------- --------- --------
Balance -- October 30, 1998......................... $ -- $ -- $ 93,087
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
120
<PAGE> 123
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TEN-MONTH PERIOD ENDED OCTOBER 30, 1998
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
TEN-MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 169,993 $(21,244) $(20,900)
Adjustments to reconcile net loss to net cash used in
operations
Adjust assets to reorganization value................ 74,799 -- --
Gain on discharge of debt............................ (267,706) -- --
Depreciation......................................... 522 610 612
(Increase) decrease in other current assets.......... -- 208 1,423
Increase (Decrease) in accounts payable and accrued
expenses........................................... 10,162 1,159 (5,416)
Increase (decrease) in accounts payable and accrued
expenses prior to Petition Date.................... -- (15) 4,123
Other................................................ -- (10) (235)
--------- -------- --------
Cash flows used in operating activities............ (12,230) (19,292) (20,393)
--------- -------- --------
Cash flows from investing activities:
Purchase of land, buildings and equipment............... (4,956) (2,125) (9,631)
Proceeds from sale of property.......................... -- 10 --
--------- -------- --------
Cash flows used in investing activities............ (4,956) (2,115) (9,631)
--------- -------- --------
Cash flows from financing activities:
Proceeds received from Debtor-in-Possession
borrowings........................................... 27,770 15,048 17,182
--------- -------- --------
Cash flows provided by financing activities........ 27,770 15,048 17,182
--------- -------- --------
Net increase (decrease) in cash and cash Equivalents...... 10,584 (6,359) (12,842)
Cash and cash equivalents, beginning of period............ 3,755 10,114 22,956
--------- -------- --------
Cash and cash equivalents, end of period.................. $ 14,339 $ 3,755 $ 10,114
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
121
<PAGE> 124
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION, BANKRUPTCY, BASIS OF PRESENTATION AND FACTORS AFFECTING
FUTURE PERFORMANCE
Organization
Harrah's Jazz Company ("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 comprised of (i) Harrah's New Orleans Investment Company ("HNOIC"),
an indirect wholly-owned subsidiary of Harrah's Entertainment, Inc. ("HET"),
(ii) New Orleans/Louisiana Development Corporation ("NOLDC"), and (iii) Grand
Palais Casino, Inc. ("Grand Palais" and, collectively with HNOIC and NOLDC, the
"Partners").
HJC 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 of New Orleans (the"City") and the Rivergate Development Corporation
(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.
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") 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 consolidated balance sheet 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.
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.
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 were consummated on
October 30, 1998.
122
<PAGE> 125
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JCC Holding Company ("JCC Holding") was incorporated under Delaware law on
August 20, 1996 in contemplation of succeeding to all of the assets and
liabilities of HJC. JCC Holding conducts its business through its wholly-owned
subsidiaries, Jazz Casino Company, L.L.C., a Louisiana limited liability company
("JCC"), JCC Development Company, a Louisiana limited liability company ("JCC
Development"), CP Development, L.L.C., a Louisiana limited liability company
("CP Development") and FP Development, a Louisiana limited liability company
("FP Development").
On October 30, 1998 (the "Effective Date") in accordance with the Third
Amended Joint Plan of Reorganization (the "Plan"), JCC Holding became the
successor to the operations of HJC. 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 reorganization, JCC Holding
issued an aggregate of 10 million shares of Common Stock consisting of both
Class A and Class B stock. The former bondholders of HJC received an aggregate
of 5,197,377 shares of Class A Common Stock, valued at $75.3 million, which
constitutes approximately 52% of the issued and outstanding Common Stock. In
addition, the former bondholders also received their pro rata share of $187.5
million in aggregate principal amount of New Notes and New Contingent Notes.
HET, through a wholly-owned subsidiary, acquired beneficial ownership of the
Class B Common Stock and currently is the beneficial owner of 4,302,623 shares,
which constitutes approximately 43% of the issued and outstanding common stock.
These shares were acquired in consideration of, among other things, an 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-possession financing
that had been provided to HJC by HET or its affiliates over the course of the
reorganization. HET originally acquired 4,802,623 shares of Class B Common
Stock. However, under certain settlement agreements entered into in connection
with the Plan of Reorganization, HET transferred from its acquired shares of
Class B Common Stock (i) options to purchase 300,000 shares to the shareholders
of NOLDC, (ii) options to purchase 150,000 shares to Bank One, Louisiana, N.A.,
formerly known as First National Bank of Commerce ("Bank One") and (iii) its
right to receive 350,000 shares to the senior secured bond holders of Grand
Palais. Because the senior secured bond holders of Grand Palais are not
permitted to own Class B Common Stock, the shares received by the senior secured
bondholders were automatically converted to Class A Common Stock.
Throughout most of the period in which HJC has been in reorganization, it
was able to continue in existence because of loans (the "DIP Financing") from
HET or one of its affiliates (the "DIP Lender"). (See Note 6).
As a result of the transactions described above, HJC's 14 1/4% First
Mortgage Notes due 2001 With Contingent Interest (the "Old Bonds") were
cancelled and certain other indebtedness was forgiven and/or cancelled (see Note
6). Accordingly, HJC recognized an extraordinary gain totaling $267.7 million in
its statement of operations for the ten month period ended October 30, 1998.
123
<PAGE> 126
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Fresh Start Reporting
In accordance with the AICPA Statement of Position No. 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7")
HJC established its reorganization value and adopted "fresh start" accounting as
of October 30, 1998. HJC adopted fresh-start reporting because owners
immediately before filing and confirmation of the Plan 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>
Post Petition Date current liabilities...................... $ 83,777
Liabilities deferred pursuant to Chapter 11 proceedings..... 523,468
--------
Total post Petition Date liabilities and allowed claims..... 607,245
Reorganization value........................................ 331,000
--------
Excess of liabilities over reorganization value............. $276,245
========
</TABLE>
Pursuant to SOP 90-7, the total reorganization value of the reorganized
entity'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 JCC's forecasted cash flows. The factors
considered by JCC 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. Under the principles of
"fresh start" accounting HJC's total net assets were recorded at this assumed
reorganization value, which resulted in a write-down of assets totaling $74.8
million.
Factors Affecting Future Performance
HJC has identified certain factors that may impact the development of the
Casino or HJC's successor's ability to achieve successful future operations:
a. Future state legislation could adversely affect the Casino's
operations. There can be no assurance that the Louisiana state legislature
will not enact legislation that imposes 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 materially and adversely
affect the Casino. Because legalized gaming is a relatively new industry in
Louisiana, over the past few years the Louisiana state legislature has
given a significant amount of attention to gaming related bills that could
impact the Casino.
b. The interpretation of current regulations and the Gaming Act could
adversely affect JCC's operations. In May 1996, the State Legislature
enacted a bill that, among other things, transferred regulatory authority
over the Casino from the LEDGC to the Louisiana Gaming Control Board (the
"LGCB") and provided that the LGCB would have the assistance of the State
Police. Although the existing Rules and Regulations promulgated by the
LEDGC remain in force and effect at this time, the LGCB is empowered to
repeal these 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 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. The
LGCB's or the State Police's interpretation and implementation of the
Gaming Act, the adoption of new Rules
124
<PAGE> 127
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
and Regulations, or the repeal of existing Rules and Regulations could
impose additional 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 materially and adversely affect the Casino.
c. The gaming industry is highly competitive, with companies that in
many instances have greater resources than JCC. In addition, considerable
competition has developed since the land-based Casino project was initially
proposed in the early 1990's. The attraction of a land-based casino in New
Orleans may have decreased as a result of the large number of casinos
competing on local, regional, and national levels as well as the continued
development of other gaming markets. Negative publicity associated with
HJC's bankruptcy also may have an adverse impact on the Casino's ability to
compete. Further, the Casino will operate under significant restrictions on
its ability to provide lodging, food services and entertainment. The
Casino's competitors' ability to provide these services without restriction
is a considerable competitive advantage.
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. Additional land-based casino operations could materially and
adversely affect the Casino's operations by increasing the amount of
competition it faces. 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 future legislation that would permit competing
land-based casinos at other sites or in parishes other than Orleans Parish,
including other parishes in the New Orleans metropolitan area.
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
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. Failure to timely receive all required
suitability findings could have material adverse consequences.
g. JCC incurred significant debt in connection with the transactions
described above, and, as a result, has significant debt service
obligations. When the Casino opens, JCC will also have payment obligations
to the RDC and the LGCB. The Casino may not achieve the level of gaming and
operating cash flow necessary to satisfy the JCC obligations described
above. 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.
h. Louisiana state and local political environments have affected, and
will continue to affect, the Casino's development and construction and may
affect the Casino's operation. 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 Casino's
development 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, together with contract negotiations
with State and City governmental entities, have significantly delayed the
Casino's development. Additional lawsuits and the uncertain political
environment may result in further delays, all of which could materially and
adversely affect the Casino.
125
<PAGE> 128
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. 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 with respect
to the reorganization value (see Note 1) of HJC's successor and 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 JCC's ability to achieve
successful future operations, as discussed in Note 1 above. The amount of
buildings and equipment, deferred operating contract costs and lease prepayments
considered realizable could be significantly reduced, if in HJC's or its
successor's judgment or a change in circumstances, the likelihood of achieving
successful future operations becomes remote.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows and consolidated
balance sheet, 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 3 and 6); however, the Court has
authorized HJC to use such funds to pay approved post Petition Date costs.
Land, Buildings and Equipment
Land, buildings and equipment are stated at cost, except for adjustments
related to fresh start reporting (see Note 1). 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 ultimately realizable from the property
could differ materially from the estimated fair value.
Other Assets
Deferred Operating Contract Cost
Deferred operating contract cost consists of payments to the LEDGC (see
Note 8) required by the Casino Operating Contract, and will be amortized over
the life of the contract.
Lease Prepayments
Lease prepayments include non-refundable initial payments required under
HJC's leases (see Note 7) and will be amortized on a straight-line basis over
the life of the related lease.
126
<PAGE> 129
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
Reorganization costs and expenses consisted primarily of professional fees
for the ten months ended October 30, 1998 and 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.
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 3. 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/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 certain
close-in work. Funds representing retainage earned were deposited weekly during
the close-in work. 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 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.
127
<PAGE> 130
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Other Amounts Held as Security
In addition to the amounts held in the escrow accounts described above,
$3.1 million in cash was 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 was being held by Norwest Bank
Minnesota, National Association ("Norwest") as successor trustee to FNBC, and
$104,000 was being held by FNBC at December 31, 1997.
Pursuant to a settlement agreement between FNBC and HJC (the "FNBC
Settlement Agreement"), which took 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 the Company'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 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
will be released to JCC.
The amount held by Norwest, less amounts dedicated to payment of
professional fees, was returned to JCC on the Effective Date.
NOTE 4. TRANSACTIONS WITH PARTNERS
Partners' Capital
The Partnership Agreement entered into by the Partners upon formation of
HJC 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.
The agreements discussed in the remainder of this Note are executory
contracts (see discussion in Note 1). Under the Plan, certain of these
agreements were amended and assumed, or rejected.
Management Agreement
The operations of the Casino were to be managed by Harrah's New Orleans
Management Company, an affiliate of HNOIC, pursuant to a management agreement
executed on March 15, 1994. At December 31, 1997, Due to Manager consisted of
non-interest bearing current payables for payroll and other similar costs and
management fees. At December 31, 1997, 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 5).
128
<PAGE> 131
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
On October 29, 1998, JCC and the Manager entered into a second amended and
restated management agreement granting the Manager the sole and exclusive right
to manage and operate the Casino and the management agreement with HJC was
terminated.
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 the Company's Chapter 11 proceeding, HET has stated that the
failure of the Company 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 7), all discovery and
pending litigation between the City and the Company 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. This litigation was dismissed upon
consummation of the Plan.
Debtor-in-Possession Financing
See Note 6.
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 a receivable from HET in the amount of $495,000 is included in other
current assets on the accompanying balance sheet. In connection with the Plan,
this receivable was forgiven and is included in reorganization costs in the
accompanying statement of operations.
NOTE 5. 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 was deferred until the
Plan was consummated (see Note 1). As of December 31, 1997, HJC's books and
records reflected unsecured and undersecured liabilities subject to settlement
under Chapter 11 proceedings as follows (in thousands):
<TABLE>
<CAPTION>
1997
--------
<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
Harrah's Entertainment, Inc., and affiliates................ 2,281
WARN Act Settlement......................................... 2,265
Others, individually less than $1,000,000................... 15,242
--------
$523,468
========
</TABLE>
129
<PAGE> 132
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The full amount of the Old Bonds were included in Liabilities Subject to
Compromise since they were an undersecured liability and the ultimate value of
the security was dependent upon future events, the outcomes of which were
uncertain at December 31, 1997.
As part of the bankruptcy process, creditors were 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 were subject to upward or downward adjustments and
approval by the Debtors and the Court.
NOTE 6. DEBT
On November 16, 1994, HJC issued $435 million of the 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 were secured by substantially all assets of HJC.
In connection with the Plan, the Old Bonds were cancelled (see Note 1).
In accordance with the provisions of the United States Bankruptcy Code,
payment on HJC's pre-petition debt was suspended and reclassified as
"Liabilities Subject to Compromise." HJC believed that all of its secured
creditors were undersecured; therefore, HJC stopped accruing interest on
unsecured and undersecured debt as of November 22, 1995. For the ten-month
period ended October 30, 1998 and the years ended December 31 1997, and 1996,
contractual interest on those obligations amounted to $51.7 million, $62.0
million and $62.0 million, respectively, which is $51.7 million, $62.0 million
and $62.0 million, respectively, in excess of reported interest expense in those
periods.
Based on market quotes of its Old Bonds, the fair value of HJC's long-term
debt was approximately $134.9 million at December 31, 1997.
As discussed in Note 1, HJC obtained DIP Financing. Interest on all
existing loans comprising the DIP Financing ("DIP Loans") accrued at the rate of
8% per annum, payable upon maturity.
In connection with the Plan, the principal balance outstanding under the
DIP Loans at the Effective Date were converted to equity in JCC Holding (see
Note 1) and the accrued interest on the DIP Loans was forgiven and is reflected
as an extraordinary gain in the accompanying statement of operations. At
December 31, 1997, HJC had no long-term post Petition Date debt.
NOTE 7. LEASES
HJC leased 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.
Under the Plan, all real estate and equipment leases or contracts with HJC
were either rejected or assumed by JCC.
130
<PAGE> 133
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.
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. Beginning on the Effective Date, the Amended Ground Lease has a
term of 30 years 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.
NOTE 8. COMMITMENTS AND CONTINGENCIES
HJC was 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 or its successor's consolidated financial
position or its results of operations.
See "Material Agreements" for a complete discussion of the treatment of the
agreements discussed in the balance of this note as a result of the consummation
of the Plan.
Operating Contract
HJC entered into the Casino Operating Contract with the LEDGC to operate
the Gaming Facilities for 20 years, with a 10-year extension 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.
Under the Plan, 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.
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").
General Development Agreement
On October 29, 1998, JCC entered into the amended General Development
Agreement (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
131
<PAGE> 134
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(PREDECESSOR TO JCC HOLDING COMPANY)
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
Open Access Program and Plans
The Open Access Program and Plans 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 the Company. As of the Petition Date, HJC had
paid $883,000 towards this obligation. Under the terms of the Plan, the Open
Access Program and Plans were amended and JCC assumed the obligations of HJC
under the Open Access Program and Plans, as so amended.
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 6, 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 delivered to the City a $1.5 million irrevocable letter of credit to secure
these payments. This obligation is now included in the Amended Ground Lease to
which JCC is a party. The letter of credit was cancelled upon the Effective
Date.
Construction Contracts
HJC's major construction contracts were assumed with certain modifications,
by JCC in accordance with the Plan.
Status of Litigation Existing Prior to the Effective Date
Settlement agreements were executed and took effect on the Effective Date
which resolved substantially all of the litigation outstanding with respect to
HJC. All costs associated with these settlement agreements were recorded by HJC
prior to the Effective Date.
Other Contingencies
JCC, as successor to HJC, will be subject to legal proceedings and claims
which arise in the normal course of business. While the outcome of these matters
cannot be predicted with certainty, management does not believe the outcome of
any of these legal matters will materially and adversely affect HJC or its
successor's business, financial condition or results of operations.
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.
132
<PAGE> 135
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors of the Company will be set forth
under the captions "Proposal 3 -- Election of Directors -- Nominees" and
"-- Information Regarding Nominees and Continuing Directors" in the Company's
Proxy Statement for its 1999 Annual Meeting of Shareholders to be held on May
13, 1999 (the "1999 Proxy Statement"). Such information is incorporated herein
by reference. Information relating to the executive officers of the Company is
set forth in Part I, Item 4(A) of this report under the caption "Executive
Officers of the Registrant." Information regarding compliance with Section 16(a)
of the Securities Exchange Act of 1934 by directors and executive officers of
the Company and beneficial owners of more than 10% of the Company's Common Stock
will be set forth under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the 1999 Proxy Statement. Such information is
incorporated herein by reference. The 1999 Proxy Statement will be filed with
the Securities and Exchange Commission within 120 days after December 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation will be set forth under the
captions "Proposal 3 -- Election of Directors -- Director Compensation,"
"Executive Compensation" and "Compensation Committee Interlocks and Insider
Participation" in the 1999 Proxy Statement. Such information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of the Company's Common Stock by certain
persons will be set forth under the caption "Stock Ownership" in the 1999 Proxy
Statement. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and transactions between the
Company and certain non-employee directors of the Company will be set forth
under the captions "Proposal 3 -- Election of Directors -- Director
Compensation" and "Compensation Committee Interlocks and Insider Participation"
in the 1999 Proxy Statement. Such information is incorporated herein by
reference.
133
<PAGE> 136
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)1. CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of JCC Holding Company and
Subsidiaries and of Harrah's Jazz Company and Subsidiary are set forth in Item 8
hereof:
Financial Statements of JCC Holding Company and Subsidiaries
Report of Independent Public Accountants
Consolidated Balance Sheet as of December 31, 1998
Consolidated Statement of Operations for the Period from October 30,
1998 to December 31, 1998
Consolidated Statement of Stockholder's Equity for the Period from
October 30, 1998 to
December 31, 1998
Consolidated Statement of Cash Flows for the Period from October 30,
1998 to December 31,
1998
Notes to Consolidated Financial Statements
Financial Statements of Harrah's Jazz Company and Subsidiary
Report of Independent Public Accountants
Consolidated Balance Sheet as of December 31, 1997
Consolidated Statements of Operations for the Years Ended December 31,
1996 and 1997 and for
the Ten Month Period Ended October 30, 1998
Consolidated Statements of Partners' Capital (Deficit) for the Years
Ended December 31, 1996
and 1997 and for the Ten Month Period Ended October 30, 1998
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996 and 1997 and for
the Ten Month Period Ended October 30, 1998
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
Except as set forth below, all schedules to the consolidated financial
statements are omitted as they are not required under the related instructions
or are inapplicable, or because the required information is included in the
consolidated financial statements or related notes thereto.
Schedule I -- Condensed Financial Information of Registrant
Condensed Balance Sheet as of December 31, 1998
Condensed Statement of Operations for the Period from October 30, 1998
to December 31, 1998
Statement of Stockholders' Equity for the Period from October 30, 1998
to December 31, 1998
Condensed Statement of Cash Flows for the Period from October 30, 1998
to December 31, 1998
Notes to Condensed Financial Statements
134
<PAGE> 137
3. EXHIBITS
The following exhibits either (i) are filed herewith or (ii) have
previously been filed with the Securities and Exchange Commission and are
incorporated herein by reference to such prior filings. Previously filed
registration statements and reports which are incorporated herein by reference
are identified in the column captioned "SEC Document Reference." The Company
will furnish any exhibit upon request to L. Camille Fowler, Vice
President -- Finance, Treasurer and Secretary of the Company, 512 South Peters
Street, New Orleans, Louisiana 70130. There is a charge of $.50 per page to
cover expenses of copying and mailing.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
- ------- ----------- ----------------------
<C> <S> <C>
2.01 Third Amended Joint Plan of Reorganization 022-22289
under Chapter 11 of the Bankruptcy Code as Exhibit T3E.27 to Post-Effective Amendment
Modified Through October 13, 1998 No. 1 to Jazz Casino Company, L.L.C.'s
Application For Qualification of Indentures
on Form T-3
3.01 Restated Certificate of Incorporation of JCC 1-12095
Holding Company Exhibit 3.02 to Pre-Effective Amendment No. 2
to JCC Holding Company's Registration
Statement on Form 10
3.02 Second Amended and Restated Bylaws of JCC 1-12095
Holding Company Exhibit 3.05 to Pre-Effective Amendment No. 2
to JCC Holding Company's Registration
Statement on Form 10
+3.03 Amendment No. 1 to Second Amended and Restated
Bylaws of JCC Holding Company
4.01 Indenture, dated as of October 30, 1998, among 022-22289
Jazz Casino Company, L.L.C., as Issuer, JCC Exhibit T3C.2 to Post-Effective Amendment No.
Holding Company, JCC Development Company, 1 to Jazz Casino Company, L.L.C.'s
L.L.C., CP Development, L.L.C. and FP Application for Qualification of Indentures
Development L.L.C., as Guarantors, and Norwest on Form T-3
Bank Minnesota, National Association, as
Trustee, with respect to the Senior
Subordinated Notes due 2009 with Contingent
Payments
4.02 Indenture, dated as of October 30, 1998, among 022-22291
Jazz Casino Company, L.L.C., as Issuer, JCC Exhibit T3C.2 to Post-Effective Amendment No.
Holding Company, JCC Development Company, 1 to Jazz Casino Company, L.L.C.'s
L.L.C., CP Development, L.L.C. and FP Application for Qualification of Indentures
Development L.L.C., as Guarantors, and Norwest on Form T-3
Bank Minnesota, National Association, as
Trustee, with respect to the Senior
Subordinated Contingent Notes due 2009
4.03 Notes Completion Guarantee among Harrah's 1-12095
Entertainment, Inc., Harrah's Operating Exhibit 4.03 to Pre-Effective Amendment No. 2
Company, Inc. and Norwest Bank Minnesota, to JCC Holding Company's Registration
National Association, as Trustee, dated Statement on Form 10
October 30, 1998
4.04 Indenture, dated as of October 30, 1998, among 1-12095
Jazz Casino Company, L.L.C., as Issuer, JCC Exhibit 4.04 to Pre-Effective Amendment No. 2
Holding Company, as Guarantor, and Norwest to JCC Holding Company's Registration
Bank Minnesota, National Association, as Statement on Form 10
Trustee, with respect to the 8% Convertible
Junior Subordinated Debentures due 2010
</TABLE>
135
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
- ------- ----------- ----------------------
<C> <S> <C>
4.05 Registration Rights Agreement among Jazz 1-12095
Casino Company, L.L.C., JCC Holding Company, Exhibit 4.05 to Pre-Effective Amendment No. 2
Salomon Smith Barney, Inc., Donaldson, Lufkin to JCC Holding Company's Registration
& Jenrette Inc., BT Alex. Brown Incorporated, Statement on Form 10
Bankers Trust Company and First National Bank
of Commerce, dated as of October 30, 1998
4.06 Registration Rights Agreement between JCC 1-12095
Holding Company and Harrah's Crescent City Exhibit 4.06 to Pre-Effective Amendment No. 2
Investment Company, dated as of October 30, to JCC Holding Company's Registration
1998 Statement on Form 10
4.07 Warrant Agreement between JCC Holding Company 1-12095
and Harrah's Crescent City Investment Company, Exhibit 4.07 to Pre-Effective Amendment No. 2
dated as of October 30, 1998 to JCC Holding Company's Registration
Statement on Form 10
4.08 Subordinated Loan Agreement among Jazz Casino 1-12095
Company, L.L.C., Harrah's Operating Company, Exhibit 4.08 to Pre-Effective Amendment No. 2
Inc. and Harrah's Entertainment, Inc., dated to JCC Holding Company's Registration
as of October 30, 1998 Statement on Form 10
4.09 Intercreditor Agreement among Harrah's 1-12095
Entertainment, Inc., Harrah's Operating Exhibit 4.09 to Pre-Effective Amendment No. 2
Company, Inc., Bankers Trust Company, as to JCC Holding Company's Registration
Administrative Agent, and Norwest Bank Statement on Form 10
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, 1-12095
Jazz Casino Company, L.L.C., the Banks party Exhibit 4.10 to Pre-Effective Amendment No. 2
hereto from time to time, and Bankers Trust to JCC Holding Company's Registration
Company, as Administrative Agent, dated as of Statement on Form 10
October 29, 1998
10.01 Amended and Restated Lease Agreement among 1-12095
Rivergate Development Corporation, as Exhibit 10.01 to Pre-Effective Amendment No.
Landlord, and Jazz Casino Company, L.L.C., as 2 to JCC Holding Company's Registration
Tenant, and the City of New Orleans, as Statement on Form 10
Intervenor, dated October 29, 1998
10.02 Amended and Restated General Development 1-12095
Agreement among Rivergate Development Exhibit 10.02 to Pre-Effective Amendment No.
Corporation, Jazz Casino Company, L.L.C. and 2 to JCC Holding Company's Registration
the City of New Orleans, as Intervenor, dated Statement on Form 10
October 29, 1998
10.03 Basin Street Casino Lease Termination 33-73370
Agreement among the City of New Orleans, the Exhibit 10.33 to Harrah's Jazz Company's
Rivergate Development Corporation and Harrah's Annual Report on Form 10-K for the fiscal
Jazz Company, dated January 15, 1997 year ended December 31, 1997
</TABLE>
136
<PAGE> 139
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
- ------- ----------- ----------------------
<C> <S> <C>
10.04 Casino Operating Contract between the 33-73370
Louisiana Economic Development and Gaming Exhibit 10.04 to Amendment No. 3 to Harrah's
Corporation and Harrah's Jazz Company, dated Jazz Company's and Harrah's Jazz Finance
March 14, 1994 Corp.'s Registration Statement on Form S-1
10.05 Amended and Renegotiated Casino Operating 1-12095
Contract among the State of Louisiana by and Exhibit 10.05 to Pre-Effective Amendment No.
through the Louisiana Gaming Control Board, 2 to JCC Holding Company's Registration
Harrah's Jazz Company, Jazz Casino Company, Statement on Form 10
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 1-12095
Agreement between Harrah's New Orleans Exhibit 10.06 to Pre-Effective Amendment No.
Management Company and Jazz Casino Company, 2 to JCC Holding Company's Registration
L.L.C., acknowledged and consented to by Statement on Form 10
Rivergate Development Corporation, as
Landlord, dated as of October 29, 1998
10.07 Second Floor Non-Gaming Sublease between Jazz 1-12095
Casino Company, L.L.C., as Sublessor, and JCC Exhibit 10.07 to Pre-Effective Amendment No.
Development Company, L.L.C., as Sublessee, 2 to JCC Holding Company's Registration
dated October 29, 1998 Statement on Form 10
10.08 City/RDC Completion Guarantee among Harrah's 1-12095
Entertainment, Inc., Harrah's Operating Exhibit 10.08 to Pre-Effective Amendment No.
Company, Inc., the Rivergate Development 2 to JCC Holding Company's Registration
Corporation and the City of New Orleans, dated Statement on Form 10
as of October 29, 1998
10.09 LGCB Completion Guarantee among Harrah's 1-12095
Entertainment, Inc., Harrah's Operating Exhibit 10.09 to Pre-Effective Amendment No.
Company, Inc., accepted and agreed to by the 2 to JCC Holding Company's Registration
Louisiana Gaming Control Board, dated as of Statement on Form 10
October 30, 1998
10.10 Amended and Restated Subordinated Completion 1-12095
Loan Agreement among Jazz Casino Company, Exhibit 10.10 to Pre-Effective Amendment No.
L.L.C., Harrah's Entertainment, Inc., Harrah's 2 to JCC Holding Company's Registration
Operating Company, Inc., and as to the Statement on Form 10
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 1-12095
Indemnity Obligation Agreement between Jazz Exhibit 10.11 to Pre-Effective Amendment No.
Casino Company, L.L.C. and Harrah's Operating 2 to JCC Holding Company's Registration
Company, Inc., dated October 30, 1998 Statement on Form 10
10.12 Bank Completion Guarantee among Harrah's 1-12095
Entertainment, Inc. and Harrah's Operating Exhibit 10.12 to Pre-Effective Amendment No.
Company, Inc., accepted and agreed to by 2 to JCC Holding Company's Registration
Bankers Trust Company, as Administrative Statement on Form 10
Agent, dated October 29, 1998
</TABLE>
137
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
- ------- ----------- ----------------------
<C> <S> <C>
10.13 Completion Guarantor Subordination Agreement 1-12095
(Senior Subordinated Notes) among Harrah's Exhibit 10.13 to Pre-Effective Amendment No.
Entertainment, Inc., Harrah's Operating 2 to JCC Holding Company's Registration
Company, Inc. and Norwest Bank Minnesota, Statement on Form 10
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) 1-12095
among Harrah's New Orleans Management Company, Exhibit 10.14 to Pre-Effective Amendment No.
the City of New Orleans and Rivergate 2 to JCC Holding Company's Registration
Development Corporation, dated as of October Statement on Form 10
29, 1998
10.15 Manager Subordination Agreement (Lenders) 1-12095
between Harrah's New Orleans Management Exhibit 10.15 to Pre-Effective Amendment No.
Company and Bankers Trust Company, as 2 to JCC Holding Company's Registration
Administrative Agent, acknowledged and agreed Statement on Form 10
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 1-12095
Subordinated Notes) between Harrah's New Exhibit 10.16 to Pre-Effective Amendment No.
Orleans Management Company and Norwest Bank 2 to JCC Holding Company's Registration
Minnesota, National Association, as Trustee, Statement on Form 10
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 1-12095
Agreement (Lenders) among Harrah's Exhibit 10.17 to Pre-Effective Amendment No.
Entertainment, Inc., Harrah's Operating 2 to JCC Holding Company's Registration
Company, Inc. and Bankers Trust Company, as Statement on Form 10
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 1-12095
Guarantee among Harrah's Entertainment, Inc., Exhibit 10.18 to Pre-Effective Amendment No.
Harrah's Operating Company, Inc., Jazz Casino 2 to JCC Holding Company's Registration
Company, L.L.C., and Harrah's New Orleans Statement on Form 10
Management Company, dated October 29, 1998
10.19 Performance Bond among Jazz Casino Company, 1-12095
L.L.C. as Principal, and Reliance Insurance Exhibit 10.19 to Pre-Effective Amendment No.
Company and United States Fidelity and 2 to JCC Holding Company's Registration
Guaranty Company, as Sureties, for the benefit Statement on Form 10
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 JCC Holding Company 1998 Long-Term Incentive
Plan
</TABLE>
138
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
- ------- ----------- ----------------------
<C> <S> <C>
10.21 Completion Guarantor Subordination Agreement 1-12095
(Lenders) among Harrah's Entertainment, Inc., Exhibit 10.21 to Pre-Effective Amendment No.
Harrah's Operating Company, Inc. and Bankers 2 to JCC Holding Company's Registration
Trust Company, as Administrative Agent, Statement on Form 10
acknowledged and agreed to by Jazz Casino
Company, L.L.C., dated as of October 29, 1998
10.22 Completion Guarantor Subordination Agreement 1-12095
(Convertible Junior Subordinated Debentures) Exhibit 10.22 to Pre-Effective Amendment No.
among Harrah's Entertainment, Inc., Harrah's 2 to JCC Holding Company's Registration
Operating Company, Inc. and Norwest Bank Statement on Form 10
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 1-12095
Agreement (Senior Subordinated Notes) among Exhibit 10.23 to Pre-Effective Amendment No.
Harrah's Entertainment, Inc., Harrah's 2 to JCC Holding Company's Registration
Operating Company, Inc. and Norwest Bank Statement on Form 10
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 1-12095
Agreement (Convertible Junior Subordinated Exhibit 10.24 to Pre-Effective Amendment No.
Debentures) among Harrah's Entertainment, 2 to JCC Holding Company's Registration
Inc., Harrah's Operating Company, Inc. and Statement on Form 10
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 1-12095
Casino Company, L.L.C. and Harrah's Operating Exhibit 10.25 to Pre-Effective Amendment No.
Company, Inc., dated October 29, 1998 2 to JCC Holding Company's Registration
Statement on Form 10
10.26 HET/JCC Agreement between Harrah's 1-12095
Entertainment, Inc., Harrah's Operating Exhibit 10.26 to Pre-Effective Amendment No.
Company, Inc. and Jazz Casino Company, L.L.C., 2 to JCC Holding Company's Registration
dated October 30, 1998 Statement on Form 10
10.27 Guaranty and Loan Purchase Agreement by 1-12095
Harrah's Entertainment, Inc. and Harrah's Exhibit 10.27 to Pre-Effective Amendment No.
Operating Company, Inc., acknowledged and 2 to JCC Holding Company's Registration
agreed to by Bankers Trust Company as Statement on Form 10
Administrative Agent, dated as of October 29,
1998
10.28 Act of Mortgage and Collateral Assignment by 1-12095
Jazz Casino Company L.L.C., in favor of The Exhibit 10.28 to Pre-Effective Amendment No.
Bank of New York, as Collateral Agent, for the 2 to JCC Holding Company's Registration
present and future holders of the Secured Statement on Form 10
Indebtedness, dated October 29, 1998,
effective as of October 30, 1998
10.29 Act of Mortgage and Collateral Assignment by 1-12095
CP Development, L.L.C., in favor of The Bank Exhibit 10.29 to Pre-Effective Amendment No.
of New York, as Collateral Agent, for the 2 to JCC Holding Company's Registration
present and future holders of the Secured Statement on Form 10
Obligations, dated October 29, 1998, effective
as of October 30, 1998
</TABLE>
139
<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
- ------- ----------- ----------------------
<C> <S> <C>
10.30 Act of Mortgage and Collateral Assignment by 1-12095
FP Development, L.L.C., in favor of The Bank Exhibit 10.30 to Pre-Effective Amendment No.
of New York, as Collateral Agent, for the 2 to JCC Holding Company's Registration
present and future holders of the Secured Statement on Form 10
Obligations, dated October 29, 1998, effective
as of October 30, 1998
10.31 Act of Mortgage and Collateral Assignment by 1-12095
JCC Development Company, L.L.C., in favor of Exhibit 10.31 to Pre-Effective Amendment No.
The Bank of New York, as Collateral Agent, for 2 to JCC Holding Company's Registration
the present and future holders of the Secured Statement on Form 10
Obligations, dated October 29, 1998, effective
as of October 30, 1998
10.32 Credit Enhancement Fee Agreement (Bank Credit 1-12095
Agreement) by and among Bankers Trust Company, Exhibit 10.32 to Pre-Effective Amendment No.
as Administrative Agent for Morgan Stanley 2 to JCC Holding Company's Registration
Prime Income Trust and Van Kampen American Statement on Form 10
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, 1-12095
1998, among JCC Holding Company, Jazz Casino Exhibit 10.33 to Pre-Effective Amendment No.
Company, L.L.C., CP Development, L.L.C., FP 2 to JCC Holding Company's Registration
Development L.L.C., and JCC Development Statement on Form 10
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, 1-12095
1998, among JCC Holding Company, Jazz Casino Exhibit 10.34 to Pre-Effective Amendment No.
Company, L.L.C., CP Development, L.L.C., FP 2 to JCC Holding Company's Registration
Development, L.L.C., and JCC Development Statement on Form 10
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, 1-12095
1998, among CP Development, L.L.C., FP Exhibit 10.35 to Pre-Effective Amendment No.
Development, L.L.C. and JCC Development 2 to JCC Holding Company's Registration
Company, L.L.C. (each a "Guarantor" and, Statement on Form 10
together with any other entity that become 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, 1-12095
dated as of October 30, 1998, among Jazz Exhibit 10.36 to Pre-Effective Amendment No.
Casino Company, L.L.C., Harrah's Operating 2 to JCC Holding Company's Registration
Company, Inc. and Harrah's Entertainment, Inc. Statement on Form 10
</TABLE>
140
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
- ------- ----------- ----------------------
<C> <S> <C>
10.37 Amended and Restated Open Access Plans of Jazz 1-12095
Casino Company, L.L.C., Submitted to the Exhibit 10.37 to Pre-Effective Amendment No.
Council of the City of New Orleans on October 2 to JCC Holding Company's Registration
15, 1998 Statement on Form 10
10.38 Open Access Program 1-12095
Exhibit 10.38 to Pre-Effective Amendment No.
2 to JCC Holding Company's Registration
Statement on Form 10
+10.39 1999 Non-Employee Director Stock Option Plan
21.01 List of Subsidiaries of JCC Holding Company 1-12095
Exhibit 21.01 to Pre-Effective Amendment No.
2 to JCC Holding Company's Registration
Statement on Form 10
+27.01 Financial Data Schedule
99.01 Opinion of New Orleans City Attorney regarding 33-73370
Home Rule Charter Exhibit 99.01 to Amendment No. 4 Harrah's
Jazz Company's and Harrah's Jazz Finance
Corp.'s Registration Statement on Form S-1
filed
99.02 Opinion of New Orleans City Attorney regarding 33-73370
Amusement Tax Exhibit 99.02 to Amendment No. 4 to Harrah's
Jazz Company's and Harrah's Jazz Finance
Corp.'s Registration Statement on Form S-1
filed
99.03 Opinion of Richard P. Ieyoub, Louisiana State 33-73370
Attorney General, regarding the Powers of the Exhibit 99.03 to Harrah's Jazz Company's
Louisiana Gaming Control Board Annual Report on Form 10-K for the fiscal
year ended December 31, 1997
99.04 Jordan vs. Louisiana Gaming Control Board and 33-73370
Murphy J. Foster and Bean vs. Louisiana Gaming Exhibit 99.04 to Harrah's Jazz Company
Control Board and Rivergate Development Current Report on Form 8-K filed May 19, 1998
Corporation, Nos. 98-C-1122, 98-C-1133 and
98-C-1134, (La. S. Ct., May 15, 1998)
</TABLE>
- ---------------
+ Filed herewith.
(B) REPORTS ON FORM 8-K
The Company filed no Current Reports on Form 8-K during the fourth fiscal
quarter ended December 31, 1998.
(C) SEE ITEM 14(A) 3. ABOVE.
(D) SEE ITEM 14(A) 2. ABOVE.
141
<PAGE> 144
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 29, 1999.
JCC HOLDING COMPANY
By: /s/ FREDERICK W. BURFORD
------------------------------------
Frederick W. Burford,
President
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on March 29, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ FREDERICK W. BURFORD President (principal executive officer)
- --------------------------------------------------------
Frederick W. Burford
/s/ COLIN V. REED Class B Director
- --------------------------------------------------------
Colin V. Reed
/s/ SETH E. LEMLER Class A Director
- --------------------------------------------------------
Seth E. Lemler
/s/ JOHN M. BOUSHY Class B Director
- --------------------------------------------------------
John M. Boushy
/s/ RUDY J. CERONE Class A Director
- --------------------------------------------------------
Rudy J. Cerone
/s/ EDDIE N. WILLIAMS Class B Director
- --------------------------------------------------------
Eddie N. Williams
/s/ EDWIN JACOBSON Class A Director
- --------------------------------------------------------
Edwin Jacobson
/s/ L. CAMILLE FOWLER Vice President -- Finance, Treasurer and
- -------------------------------------------------------- Secretary (principal financial and
L. Camille Fowler accounting officer)
</TABLE>
142
<PAGE> 145
SCHEDULE I
JCC HOLDING COMPANY
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<S> <C>
ASSETS
INVESTMENT IN SUBSIDIARIES.................................. $104,720
--------
TOTAL ASSETS................................................ $104,720
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITY
Accrued franchise taxes................................... $ 310
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock:
Unclassified Common Stock (40,000 shares authorized;
none issued and outstanding; par value $.01 per
share)................................................ --
Class A Common Stock (20,000 shares authorized; 5,547
issued and outstanding; par value $.01 per share)..... 55
Class B Common Stock (20,000 shares authorized; 4,453
issued and outstanding; par value $.01 per share)..... 45
Additional paid-in capital................................ 107,987
Accumulated deficit....................................... (3,677)
--------
Total stockholders' equity........................ 104,410
--------
LIABILITIES AND STOCKHOLDERS' EQUITY........................ $104,720
========
</TABLE>
See notes to condensed financial statements.
143
<PAGE> 146
SCHEDULE I
JCC HOLDING COMPANY
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
MISCELLANEOUS REVENUES...................................... $ --
OPERATING EXPENSES:
Equity in subsidiary losses............................... 3,367
General and administrative................................ 310
-------
Total operating expenses.......................... 3,677
-------
NET LOSS.................................................... $(3,677)
=======
</TABLE>
See notes to condensed financial statements.
144
<PAGE> 147
SCHEDULE I
JCC HOLDING COMPANY
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------
CLASS A CLASS B ADDITIONAL
--------------- --------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- October 30, 1998....... 5,547 $ 55 4,453 $45 $107,987 $ -- $108,087
Net loss.......................... -- -- -- -- -- (3,677) (3,677)
----- ------ ----- --- -------- ------- --------
Balance -- December 31, 1998...... 5,547 $ 55 4,453 $45 $107,987 $(3,677) $104,410
===== ====== ===== === ======== ======= ========
</TABLE>
See notes to condensed financial statements.
145
<PAGE> 148
SCHEDULE I
JCC HOLDING COMPANY
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(3,677)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Equity in subsidiary losses............................ 3,367
Changes in operating assets and liabilities:
Accrued franchise taxes.............................. 310
-------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES....... --
-------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ --
-------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. --
-------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ --
=======
</TABLE>
See notes to condensed financial statements.
146
<PAGE> 149
SCHEDULE I
JCC HOLDING COMPANY
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The investments in JCC Holding Company's ("JCC Holding") subsidiaries are
carried at JCC Holding's equity in the subsidiary which represents amounts
invested less JCC Holding's equity in losses to date.
Certain information and footnote disclosures normally included in financial
statements prepared in conformity with generally accepted accounting principles
have been condensed or omitted. Accordingly, these financial statements should
be read in conjunction with JCC Holding's consolidated financial statements.
147
<PAGE> 1
EXHIBIT 3.03
AMENDMENT NO. 1 TO
SECOND AMENDED AND RESTATED BYLAWS OF
JCC HOLDING COMPANY
RESOLVED, that JCC Holding Company's Bylaws are hereby amended by
deleting Section 6 of Article II in its entirety and inserting the following in
lieu thereof:
"SECTION 6. QUORUM. Except as provided by law or by the Certificate of
Incorporation, 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 thereat shall constitute a quorum at all meetings of
the stockholders for the transaction of business; provided, however,
that prior to the Transition Date, a quorum at any meeting of
stockholders shall consist of the presence, in person or by proxy, of
(a) the holders of a majority of the issued and outstanding shares of
Class A Common Stock entitled to vote thereat and (b) the holders of a
majority of the issued and outstanding shares of Class B Common Stock
entitled to vote thereat. 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 any such meeting shall
constitute a quorum of such class. If the required quorum shall not be
present or represented at any meeting of the stockholders, the holders
of a majority of the votes entitled to be cast by the stockholders
entitled to vote thereat, present in person or represented by proxy,
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or
represented by proxy. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed. If
the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting."
<PAGE> 1
EXHIBIT 10.20
JCC HOLDING COMPANY
1998 LONG-TERM INCENTIVE PLAN
ARTICLE I
PURPOSE
1.1 GENERAL. The purpose of the JCC Holding Company 1998
Long-Term Incentive Plan (the "Plan") is to promote the success, and enhance
the value, of JCC Holding Company (the "Company"), by linking the personal
interests of its employees, officers, consultants and directors to those of
Company stockholders and by providing such persons with an incentive for
outstanding performance. The Plan is further intended to provide flexibility to
the Company in its ability to motivate, attract, and retain the services of
employees, officers, consultants and directors upon whose judgment, interest,
and special effort the successful conduct of the Company's operation is largely
dependent. Accordingly, the Plan permits the grant of incentive awards from
time to time to selected employees, officers, consultants and directors;
provided, however, 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 Plan
until such time, if any, as the Stock shall be traded on a national securities
exchange or on the Nasdaq National Market.
ARTICLE 2
EFFECTIVE DATE
2.1 EFFECTIVE DATE. The Plan shall be effective as of the date
upon which it shall be approved by the Board. However, the Plan shall be
submitted to the stockholders of the Company for approval within 12 months of
the Board's approval thereof. No Incentive Stock Options granted under the Plan
may be exercised prior to approval of the Plan by the stockholders and if the
stockholders fail to approve the Plan within 12 months of the Board's approval
thereof, any Incentive Stock Options previously granted hereunder shall be
automatically converted to Non-Qualified Stock Options without any further act.
In the discretion of the Committee, Awards may be made to Covered Employees
which are intended to constitute qualified performance-based compensation under
Code Section 162(m). Any such Awards shall be contingent upon the stockholders
having approved the Plan.
ARTICLE 3
DEFINITIONS
3.1 DEFINITIONS. When a word or phrase appears in this Plan with
the initial letter capitalized, and the word or phrase does not commence a
sentence, the word or phrase shall generally be given the meaning ascribed to
it in this Section or in Section 1.1 unless a clearly different meaning is
required by the context. The following words and phrases shall have the
following meanings:
<PAGE> 2
(a) "Award" means any Option, Stock Appreciation Right,
Restricted Stock Award, Performance Unit Award, Dividend Equivalent
Award, or Other Stock-Based Award, or any other right or interest
relating to Stock or cash, granted to a Participant under the Plan.
(b) "Award Agreement" means any written agreement,
contract, or other instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" means and includes each of the
following:
(1) The acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the 1934 Act) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the 1934 Act) of
40% or more of the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for
purposes of this subsection (1), the following acquisitions
shall not constitute a Change of Control: (i) any acquisition
by a Person who is on the Effective Date the beneficial owner
of 40% or more of the Outstanding Company Voting Securities,
(ii) any acquisition directly from the Company, (iii) any
acquisition by the Company, (iv) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by
the Company, or (v) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (3) of this definition; or
(2) Individuals who, as of the Effective Date,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the Effective Date whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election
or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(3) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such
- 2 -
<PAGE> 3
Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners of
the Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or
indirectly, more than 66 2/3% of the combined voting power of
the then outstanding voting securities entitled to vote
generally in the election of directors of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of
the Outstanding Company Voting Securities, and (ii) no Person
(excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust)
of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or
indirectly, 40% or more of the combined voting power of the
then outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the
Business Combination, and (iii) at least a majority of the
members of the board of directors of the corporation
resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such
Business Combination; or
(4) Approval by the stockholders of the Company
of a complete liquidation or dissolution of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Committee" means the committee of the Board
described in Article 4.
(g) "Company" means JCC Holding Company, a Delaware
corporation.
(h) "Covered Employee" means a covered employee as
defined in Code Section 162(m)(3), provided that no employee shall be
a Covered Employee until the deduction limitation of Code Section
162(m) are applicable to the Company and any reliance period under
Code Section 162(m) has expired, as described in Section 16.15 hereof.
(i) "Disability" shall mean any illness or other
physical or mental condition of a Participant that renders the
Participant incapable of performing his customary and usual duties for
the Company, or any medically determinable illness or other physical
or mental condition resulting from a bodily injury, disease or mental
disorder which, in the judgment of the Committee, is permanent and
- 3 -
<PAGE> 4
continuous in nature. The Committee may require such medical or other
evidence as it deems necessary to judge the nature and permanency of
the Participant's condition.
(j) "Dividend Equivalent" means a right granted to a
Participant under Article 11.
(k) "Effective Date" has the meaning assigned such term
in Section 2.1.
(l) "Fair Market Value", on any date, means (i) if the
Stock is listed on a securities exchange or is traded over the Nasdaq
National Market, the closing sales price on such exchange or over such
system on such date or, in the absence of reported sales on such date,
the closing sales price on the immediately preceding date on which
sales were reported, or (ii) if the Stock is not listed on a
securities exchange or traded over the Nasdaq National Market, the
mean between the bid and offered prices as quoted by Nasdaq for such
date, provided that if it is determined that the fair market value is
not properly reflected by such Nasdaq quotations, Fair Market Value
will be determined by such other method as the Committee determines in
good faith to be reasonable.
(m) "Incentive Stock Option" means an Option that is
intended to meet the requirements of Section 422 of the Code or any
successor provision thereto.
(n) "Non-Qualified Stock Option" means an Option that is
not an Incentive Stock Option.
(o) "Option" means a right granted to a Participant
under Article 7 of the Plan to purchase Stock at a specified price
during specified time periods. An Option may be either an Incentive
Stock Option or a Non-Qualified Stock Option.
(p) "Other Stock-Based Award" means a right, granted to
a Participant under Article 12, that relates to or is valued by
reference to Stock or other Awards relating to Stock.
(q) "Parent" means a corporation which owns or
beneficially owns a majority of the outstanding voting stock or voting
power of the Company. For Incentive Stock Options, the term shall have
the same meaning as set forth in Code Section 424(e).
(r) "Participant" means a person who, as an employee,
officer, consultant or director of the Company or any Subsidiary, has
been granted an Award under the Plan.
(s) "Performance Unit" means a right granted to a
Participant under Article 9, to receive cash, Stock, or other Awards,
the payment of which is
- 4 -
<PAGE> 5
contingent upon achieving certain performance goals established by the
Committee.
(t) "Plan" means the JCC Holding Company 1998 Long-Term
Incentive Plan, as amended from time to time.
(u) "Restricted Stock Award" means Stock granted to a
Participant under Article 10 that is subject to certain restrictions
and to risk of forfeiture.
(v) "Stock" means the $0.01 par value Class A Common
Stock of the Company, and after the Transition Date, the $0.01 par
value Unclassified Common Stock of the Company, and such other
securities of the Company as may be substituted for Stock pursuant to
Article 14.
(w) "Stock Appreciation Right" or "SAR" means a right
granted to a Participant under Article 8 to receive a payment equal to
the difference between the Fair Market Value of a share of Stock as of
the date of exercise of the SAR over the grant price of the SAR, all
as determined pursuant to Article 8.
(x) "Subsidiary" means any corporation, limited
liability company, partnership or other entity of which a majority of
the outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Company. For Incentive Stock Options,
the term shall have the meaning set forth in Code Section 424(f).
(y) "Transition Date" has the meaning set forth in the
Restated Certificate of Incorporation of the Company.
(z) "1933 Act" means the Securities Act of 1933, as
amended from time to time.
(aa) "1934 Act" means the Securities Exchange Act of
1934, as amended from time to time.
ARTICLE 4
ADMINISTRATION
4.1 COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board or, at the discretion of the Board from time to time, by
the Board. The Committee shall consist of two or more members of the Board. It
is intended that the directors appointed to serve on the Committee shall be
"non-employee directors" (within the meaning of Rule 16b-3 promulgated under
the 1934 Act) and "outside directors" (within the meaning of Code Section
162(m) and the regulations thereunder) to the extent that Rule 16b-3 and, if
necessary for relief from the limitation under Code Section 162(m) and such
relief is sought by the Company, Code Section 162(m),
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respectively, are applicable. However, the mere fact that a Committee member
shall fail to qualify under either of the foregoing requirements shall not
invalidate any Award made by the Committee which Award is otherwise validly
made under the Plan. The members of the Committee shall be appointed by, and
may be changed at any time and from time to time in the discretion of, the
Board. During any time that the Board is acting as administrator of the Plan,
it shall have all the powers of the Committee hereunder, and any reference
herein to the Committee (other than in this Section 4.1) shall include the
Board.
4.2 ACTION BY THE COMMITTEE. For purposes of administering the
Plan, the following rules of procedure shall govern the Committee. A majority
of the Committee shall constitute a quorum. The acts of a majority of the
members present at any meeting at which a quorum is present, and acts approved
unanimously in writing by the members of the Committee in lieu of a meeting,
shall be deemed the acts of the Committee. Each member of the Committee is
entitled to, in good faith, rely or act upon any report or other information
furnished to that member by any officer or other employee of the Company or any
Parent or Subsidiary, the Company's independent certified public accountants,
or any executive compensation consultant or other professional retained by the
Company to assist in the administration of the Plan.
4.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive
power, authority and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted
to each Participant;
(c) Determine the number of Awards to be granted and the
number of shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award
granted under the Plan, including but not limited to, the exercise
price, grant price, or purchase price, any restrictions or limitations
on the Award, any schedule for lapse of forfeiture restrictions or
restrictions on the exercisability of an Award, and accelerations or
waivers thereof, based in each case on such considerations as the
Committee in its sole discretion determines;
(e) Accelerate the vesting or lapse of restrictions of
any outstanding Award, based in each case on such considerations as
the Committee in its sole discretion determines;
(f) Determine whether, to what extent, and under what
circumstances an Award may be settled in, or the exercise price of an
Award may be paid in, cash, Stock, other Awards, or other property, or
an Award may be canceled, forfeited, or surrendered;
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<PAGE> 7
(g) Prescribe the form of each Award Agreement, which
need not be identical for each Participant;
(h) Decide all other matters that must be determined in
connection with an Award;
(i) Establish, adopt or revise any rules and regulations
as it may deem necessary or advisable to administer the Plan;
(j) Make all other decisions and determinations that may
be required under the Plan or as the Committee deems necessary or
advisable to administer the Plan; and
(k) Amend the Plan or any Award Agreement as provided
herein.
4.4. DECISIONS BINDING. The Committee's interpretation of the
Plan, any Awards granted under the Plan, any Award Agreement and all decisions
and determinations by the Committee with respect to the Plan are final,
binding, and conclusive on all parties.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1. NUMBER OF SHARES. Subject to adjustment as provided in
Section 14.1, the aggregate number of shares of Stock reserved and available
for Awards or which may be used to provide a basis of measurement for or to
determine the value of an Award (such as with a Stock Appreciation Right or
Performance Unit Award) shall be 750,000, of which not more than 10% may be
granted as Awards of Restricted Stock or unrestricted Stock Awards.
5.2. LAPSED AWARDS. To the extent that an Award is canceled,
terminates, expires or lapses for any reason, any shares of Stock subject to
the Award will again be available for the grant of an Award under the Plan and
shares subject to SARs or other Awards settled in cash will be available for
the grant of an Award under the Plan.
5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award
may consist, in whole or in part, of authorized and unissued Stock, treasury
Stock or Stock purchased on the open market.
5.4. LIMITATION ON AWARDS. Notwithstanding any provision in the
Plan to the contrary, the maximum number of shares of Stock with respect to one
or more Options and/or SARs that may be granted during any one calendar year
under the Plan to any one Covered Employee shall be 750,000. The maximum fair
market value (measured as of the date of grant) of any Awards other than
Options and SARs that may be received
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<PAGE> 8
by a Covered Employee (less any consideration paid by the Participant for such
Award) during any one calendar year under the Plan shall be $2,000,000.
ARTICLE 6
ELIGIBILITY
6.1. GENERAL. Awards may be granted only to individuals who are
employees, officers, consultants or directors of the Company or a Parent or
Subsidiary; provided, however, that 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 Plan until such time, if any, as the Company's common stock
shall be traded on a national securities exchange or on the Nasdaq National
Market.
ARTICLE 7
STOCK OPTIONS
7.1. GENERAL. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of
Stock under an Option shall be determined by the Committee, provided
that the exercise price for any Option shall not be less than the Fair
Market Value as of the date of the grant.
(b) TIME AND CONDITIONS OF EXERCISE. The Committee shall
determine the time or times at which an Option may be exercised in
whole or in part. The Committee also shall determine the performance
or other conditions, if any, that must be satisfied before all or part
of an Option may be exercised. The Committee may waive any exercise
provisions at any time in whole or in part based upon factors as the
Committee may determine in its sole discretion so that the Option
becomes exerciseable at an earlier date.
(c) PAYMENT. The Committee shall determine the methods
by which the exercise price of an Option may be paid, the form of
payment, including, without limitation, cash, shares of Stock, or
other property (including "cashless exercise" arrangements), and the
methods by which shares of Stock shall be delivered or deemed to be
delivered to Participants; provided that if shares of Stock
surrendered in payment of the exercise price were themselves acquired
otherwise than on the open market, such shares shall have been held by
the Participant for at least six months.
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<PAGE> 9
(d) EVIDENCE OF GRANT. All Options shall be evidenced by
a written Award Agreement between the Company and the Participant. The
Award Agreement shall include such provisions, not inconsistent with
the Plan, as may be specified by the Committee.
(e) ADDITIONAL OPTIONS UPON EXERCISE. The Committee may,
in its sole discretion, provide in an Award Agreement, or in an
amendment thereto, for the automatic grant of a new Option to any
Participant who delivers shares of Stock as full or partial payment of
the exercise price of the original Option. Any new Option granted in
such a case (i) shall be for the same number of shares of Stock as the
Participant delivered in exercising the original Option, (ii) shall
have an exercise price of 100% of the Fair Market Value of the
surrendered shares of Stock on the date of exercise of the original
Option (the grant date for the new Option), and (iii) shall have a
term equal to the unexpired term of the original Option.
7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock
Options granted under the Plan must comply with the following additional rules:
(a) EXERCISE PRICE. The exercise price per share of
Stock shall be set by the Committee, provided that the exercise price
for any Incentive Stock Option shall not be less than the Fair Market
Value as of the date of the grant.
(b) EXERCISE. In no event may any Incentive Stock Option
be exercisable for more than ten years from the date of its grant.
(c) LAPSE OF OPTION. An Incentive Stock Option shall
lapse under the earliest of the following circumstances; provided,
however, that the Committee may, prior to the lapse of the Incentive
Stock Option under the circumstances described in paragraphs (3), (4)
and (5) below, provide in writing that the Option will extend until a
later date, but if Option is exercised after the dates specified in
paragraphs (3), (4) and (5) below, it will automatically become a
Non-Qualified Stock Option:
(1) The Incentive Stock Option shall lapse as
of the option expiration date set forth in the Award
Agreement.
(2) The Incentive Stock Option shall lapse ten
years after it is granted, unless an earlier time is set in
the Award Agreement.
(3) If the Participant terminates employment
for any reason other than as provided in paragraph (4) or (5)
below, the Incentive Stock Option shall lapse, unless it is
previously exercised, three months after the Participant's
termination of employment; provided, however, that if the
Participant's employment is terminated by the Company for
cause or by the
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<PAGE> 10
Participant without the consent of the Company, the Incentive
Stock Option shall (to the extent not previously exercised)
lapse immediately.
(4) If the Participant terminates employment by
reason of his Disability, the Incentive Stock Option shall
lapse, unless it is previously exercised, one year after the
Participant's termination of employment.
(5) If the Participant dies while employed, or
during the three-month period described in paragraph (3) or
during the one-year period described in paragraph (4) and
before the Option otherwise lapses, the Option shall lapse
one year after the Participant's death. Upon the
Participant's death, any exercisable Incentive Stock Options
may be exercised by the Participant's beneficiary, determined
in accordance with Section 13.6.
Unless the exercisability of the Incentive Stock Option is
accelerated as provided in Article 13, if a Participant exercises an
Option after termination of employment, the Option may be exercised
only with respect to the shares that were otherwise vested on the
Participant's termination of employment.
(d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair
Market Value (determined as of the time an Award is made) of all
shares of Stock with respect to which Incentive Stock Options are
first exercisable by a Participant in any calendar year may not exceed
$100,000.00.
(e) TEN PERCENT OWNERS. No Incentive Stock Option shall
be granted to any individual who, at the date of grant, owns stock
possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary unless
the exercise price per share of such Option is at least 110% of the
Fair Market Value per share of Stock at the date of grant and the
Option expires no later than five years after the date of grant.
(f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of
an Incentive Stock Option may be made pursuant to the Plan after the
day immediately prior to the tenth anniversary of the Effective Date.
(g) RIGHT TO EXERCISE. During a Participant's lifetime,
an Incentive Stock Option may be exercised only by the Participant or,
in the case of the Participant's Disability, by the Participant's
guardian or legal representative.
(h) DIRECTORS. The Committee may not grant an Incentive
Stock Option to a non-employee director. The Committee may grant an
Incentive Stock Option to a director who is also an employee of the
Company or Parent or Subsidiary but only in that individual's position
as an employee and not as a director.
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<PAGE> 11
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1. GRANT OF SARs. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(a) RIGHT TO PAYMENT. Upon the exercise of a Stock
Appreciation Right, the Participant to whom it is granted has the
right to receive the excess, if any, of:
(1) The Fair Market Value of one share of Stock
on the date of exercise; over
(2) The grant price of the Stock Appreciation
Right as determined by the Committee, which shall not be less
than the Fair Market Value of one share of Stock on the date
of grant.
(b) OTHER TERMS. All awards of Stock Appreciation Rights
shall be evidenced by an Award Agreement. The terms, methods of
exercise, methods of settlement, form of consideration payable in
settlement, and any other terms and conditions of any Stock
Appreciation Right shall be determined by the Committee at the time of
the grant of the Award and shall be reflected in the Award Agreement.
ARTICLE 9
PERFORMANCE UNITS
9.1. GRANT OF PERFORMANCE UNITS. The Committee is authorized to
grant Performance Units to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion to
determine the number of Performance Units granted to each Participant. All
Awards of Performance Units shall be evidenced by an Award Agreement.
9.2. RIGHT TO PAYMENT. A grant of Performance Units gives the
Participant rights, valued as determined by the Committee, and payable to, or
exercisable by, the Participant to whom the Performance Units are granted, in
whole or in part, as the Committee shall establish at grant or thereafter. The
Committee shall 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.
9.3. OTHER TERMS. Performance Units may be payable in cash, Stock,
or other property, and have such other terms and conditions as determined by
the Committee and reflected in the Award Agreement.
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<PAGE> 12
ARTICLE 10
RESTRICTED STOCK AWARDS
10.1. GRANT OF RESTRICTED STOCK. The Committee is authorized to
make Awards of Restricted Stock to Participants in such amounts and subject to
such terms and conditions as may be selected by the Committee. All Awards of
Restricted Stock shall be evidenced by a Restricted Stock Award Agreement.
10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock shall 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 on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, upon the satisfaction of performance
goals or otherwise, as the Committee determines at the time of the grant of the
Award or thereafter.
10.3. FORFEITURE. Except as otherwise determined by the Committee
at the time of the grant of the Award or thereafter, upon termination of
employment during the applicable restriction period or upon failure to satisfy
a performance goal during the applicable restriction period, Restricted Stock
that is at that time subject to restrictions shall be forfeited and reacquired
by the Company; provided, however, that the Committee may provide in any Award
Agreement that restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of terminations resulting
from specified causes, and the Committee may in other cases waive in whole or
in part restrictions or forfeiture conditions relating to Restricted Stock.
10.4. CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted
under the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing shares of Restricted Stock are
registered in the name of the Participant, certificates must bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Restricted Stock.
ARTICLE 11
DIVIDEND EQUIVALENTS
11.1 GRANT OF 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 shall entitle the
Participant to receive payments equal to dividends with respect to all or a
portion of the number of shares of Stock subject to an 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 Stock, or otherwise reinvested.
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<PAGE> 13
ARTICLE 12
OTHER STOCK-BASED AWARDS
12.1. GRANT OF OTHER STOCK-BASED AWARDS. The Committee is
authorized, subject to limitations under applicable law, to 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 Stock, as deemed
by the Committee to be consistent with the purposes of the Plan, including
without limitation shares of Stock 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 Stock, and Awards
valued by reference to book value of shares of Stock or the value of securities
of or the performance of specified Parents or Subsidiaries. The Committee shall
determine the terms and conditions of such Awards.
ARTICLE 13
PROVISIONS APPLICABLE TO AWARDS
13.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution for, any other Award
granted under the Plan. If an Award is granted in substitution for another
Award, the Committee may require the surrender of such other Award in
consideration of the grant of the new Award. Awards granted in addition to or
in tandem with other Awards may be granted either at the same time as or at a
different time from the grant of such other Awards.
13.2. EXCHANGE PROVISIONS. The Committee may at any time offer to
exchange or buy out any previously granted Award for a payment in cash, Stock,
or another Award (subject to Section 14.1), based on the terms and conditions
the Committee determines and communicates to the Participant at the time the
offer is made.
13.3. TERM OF AWARD. The term of each Award shall be for the period
as determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten years from the date of its grant
(or, if Section 7.2(e) applies, five years from the date of its grant).
13.4. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan
and any applicable law or Award Agreement, payments or transfers to be made by
the Company or a Parent or Subsidiary on the grant or exercise of an Award may
be made in such form as the Committee determines at or after the time of grant,
including without limitation, cash, Stock, other Awards, or other property, or
any combination, and may be made in a single payment or transfer, in
installments, or on a deferred basis, in each case determined in accordance
with rules adopted by, and at the discretion of, the Committee.
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<PAGE> 14
13.5. LIMITS ON TRANSFER. No right or interest of a Participant in
any unexercised or restricted Award may be pledged, encumbered, or hypothecated
to or in favor of any party other than the Company or a Parent or Subsidiary,
or shall be subject to any lien, obligation, or liability of such Participant
to any other party other than the Company or a Parent or Subsidiary. No
unexercised or restricted Award shall 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 Incentive Stock Option, pursuant to a domestic
relations order that would satisfy Section 414(p)(1)(A) of the Code if such
Section applied to an Award under the Plan; provided, however, that the
Committee may (but need not) permit other transfers where the Committee
concludes that such transferability (i) does not result in accelerated
taxation, (ii) does not cause any Option intended to be an incentive stock
option to fail to be described in Code Section 422(b), and (iii) 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.
13.6 BENEFICIARIES. Notwithstanding Section 13.5, 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. A beneficiary, legal
guardian, legal representative, or other person claiming any rights under the
Plan is subject to all terms and conditions of the Plan and any Award Agreement
applicable to the Participant, except to the extent the Plan and Award
Agreement otherwise provide, and to any additional restrictions deemed
necessary or appropriate by the Committee. If no beneficiary has been
designated or survives the Participant, payment shall be made to the
Participant's estate. Subject to the foregoing, a beneficiary designation may
be changed or revoked by a Participant at any time provided the change or
revocation is filed with the Committee.
13.7. STOCK CERTIFICATES. All Stock certificates delivered under
the Plan are subject to any stop-transfer orders and other restrictions as the
Committee deems necessary or advisable to comply with federal or state
securities laws, rules and regulations and the rules of any national securities
exchange or automated quotation system on which the Stock is listed, quoted, or
traded. The Committee may place legends on any Stock certificate to reference
restrictions applicable to the Stock.
13.8 ACCELERATION UPON DEATH OR DISABILITY. Notwithstanding any
other provision in the Plan or any Participant's Award Agreement to the
contrary, upon the Participant's death or Disability during his employment or
service as a consultant or director, all outstanding Options, Stock
Appreciation Rights, and other Awards in the nature of rights that may be
exercised shall become fully exercisable and all restrictions on outstanding
Awards shall lapse. Any Option or Stock Appreciation Rights Awards shall
thereafter continue or lapse in accordance with the other provisions of the
Plan and the Award Agreement. To the extent that this provision causes
Incentive Stock Options to exceed the dollar limitation set forth in Section
7.2(d), the excess Options shall be deemed to be Non-Qualified Stock Options.
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<PAGE> 15
13.9. ACCELERATION UPON A CHANGE IN CONTROL. Except as otherwise
provided in the Award Agreement, upon the occurrence of a Change in Control,
all outstanding Options, Stock Appreciation Rights, and other Awards in the
nature of rights that may be exercised shall become fully exercisable and all
restrictions on outstanding Awards shall lapse; provided, however that such
acceleration will not occur if, in the opinion of the Company's accountants,
such acceleration would preclude the use of "pooling of interest" accounting
treatment for a Change in Control transaction that (a) would otherwise qualify
for such accounting treatment, and (b) is contingent upon qualifying for such
accounting treatment. To the extent that this provision causes Incentive Stock
Options to exceed the dollar limitation set forth in Section 7.2(d), the excess
Options shall be deemed to be Non-Qualified Stock Options.
13.10. ACCELERATION UPON CERTAIN EVENTS NOT CONSTITUTING A CHANGE IN
CONTROL. In the event of the occurrence of any circumstance, transaction or
event not constituting a Change in Control (as defined in Section 3.1) but
which the Board of Directors deems to be, or to be reasonably likely to lead
to, an effective change in control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of the 1934
Act, the Committee may in its sole discretion declare all outstanding Options,
Stock Appreciation Rights, and other Awards in the nature of rights that may be
exercised to be fully exercisable, and/or all restrictions on all outstanding
Awards to have lapsed, in each case, as of such date as the Committee may, in
its sole discretion, declare, which may be on or before the consummation of
such transaction or event. To the extent that this provision causes Incentive
Stock Options to exceed the dollar limitation set forth in Section 7.2(d), the
excess Options shall be deemed to be Non-Qualified Stock Options.
13.11. ACCELERATION FOR ANY OTHER REASON. Regardless of whether an
event has occurred as described in Section 13.9 or 13.10 above, the Committee
may in its sole discretion at any time determine that all or a portion of a
Participant's Options, Stock Appreciation Rights, and other Awards in the
nature of rights that may be exercised shall become fully or partially
exercisable, and/or that all or a part of the restrictions on all or a portion
of the outstanding Awards shall lapse, in each case, as of such date as the
Committee may, in its sole discretion, declare. The Committee may discriminate
among Participants and among Awards granted to a Participant in exercising its
discretion pursuant to this Section 13.11.
13.12 EFFECT OF ACCELERATION. If an Award is accelerated under
Section 13.9 or 13.10, the Committee may, in its sole discretion, provide (i)
that the Award will expire after a designated period of time after such
acceleration to the extent not then exercised, (ii) that the Award will be
settled in cash rather than Stock, (iii) that the Award will be assumed by
another party to the transaction giving rise to the acceleration or otherwise
be equitably converted in connection with such transaction, or (iv) any
combination of the foregoing. The Committee's determination need not be uniform
and
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<PAGE> 16
may be different for different Participants whether or not such Participants
are similarly situated.
13.13. PERFORMANCE GOALS. The Committee may determine that any Award
granted pursuant to this Plan to a Participant (including, but not limited to,
Participants who are Covered Employees) shall be determined solely on the basis
of (a) the achievement by the Company or a Parent or Subsidiary of a specified
target return, or target growth in return, on equity or assets, (b) the
Company's, Parent's or Subsidiary's stock price, (c) the achievement by an
individual or a business unit of the Company, 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. If an Award is made on such basis,
the Committee shall 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) or the regulations thereunder) and the Committee may
for any reason reduce (but not increase) any Award, notwithstanding the
achievement of a specified goal. Any payment of an Award granted with
performance goals shall be conditioned on the written certification of the
Committee in each case that the performance goals and any other material
conditions were satisfied.
13.14. TERMINATION OF EMPLOYMENT. Whether military, government or
other service or other leave of absence shall constitute a termination of
employment shall be determined in each case by the Committee at its discretion,
and any determination by the Committee shall be final and conclusive. A
termination of employment shall not occur in a circumstance in which a
Participant transfers from the Company to one of its Parents or Subsidiaries,
transfers from a Parent or Subsidiary to the Company, or transfers from one
Parent or Subsidiary to another Parent or Subsidiary.
ARTICLE 14
CHANGES IN CAPITAL STRUCTURE
14.1. GENERAL. In the event a stock dividend is declared upon the
Stock, the shares of Stock then subject to each Award shall be increased
proportionately without any change in the aggregate purchase price therefor. In
the event the Stock shall be changed into or exchanged for a different number
or class of shares of stock or securities of the Company or of another
corporation, whether through reorganization, recapitalization,
reclassification, share exchange, stock split-up, combination of shares, merger
or consolidation, there shall be substituted for each such share of Stock then
subject to each Award the number and class of shares into which each
outstanding share of Stock shall be so exchanged, all without any change in the
aggregate purchase price for the shares then subject to each Award, or, subject
to Section 15.2, there shall be made such other equitable adjustment as the
Committee shall approve.
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ARTICLE 15
AMENDMENT, MODIFICATION AND TERMINATION
15.1. AMENDMENT, MODIFICATION AND TERMINATION. The Board or the
Committee may, at any time and from time to time, amend, modify or terminate
the Plan without stockholder approval; provided, however, that the Board or
Committee may condition any amendment or modification on the approval of
stockholders of the Company if such approval is necessary or deemed advisable
with respect to tax, securities or other applicable laws, policies or
regulations.
15.2 AWARDS PREVIOUSLY GRANTED. At any time and from time to time,
the Committee may amend, modify or terminate any outstanding Award without
approval of the Participant; provided, however, that, subject to the terms of
the applicable Award Agreement, such amendment, modification or termination
shall not, without the Participant's consent, reduce or diminish the value of
such Award determined as if the Award had been exercised, vested, cashed in or
otherwise settled on the date of such amendment or termination. No termination,
amendment, or modification of the Plan shall adversely affect any Award
previously granted under the Plan, without the written consent of the
Participant.
ARTICLE 16
GENERAL PROVISIONS
16.1. NO RIGHTS TO AWARDS. No Participant or eligible participant
shall have any claim to be granted any Award under the Plan, and neither the
Company nor the Committee is obligated to treat Participants or eligible
participants uniformly.
16.2. NO SHAREHOLDER RIGHTS. No Award gives the Participant any of
the rights of a stockholder of the Company unless and until shares of Stock are
in fact issued to such person in connection with such Award.
16.3. WITHHOLDING. The Company or any Parent or Subsidiary shall
have the authority and the right to deduct or withhold, or require a
Participant to remit to the Company, an amount sufficient to satisfy federal,
state, and local taxes (including the Participant's FICA obligation) required
by law to be withheld with respect to any taxable event arising as a result of
the Plan. With respect to withholding required upon any taxable event under the
Plan, the Committee may, at the time the Award is granted or thereafter,
require that any such withholding requirement be satisfied, in whole or in
part, by withholding shares of Stock having a Fair Market Value on the date of
withholding equal to the amount required to be withheld for tax purposes, all
in accordance with such procedures as the Committee establishes.
16.4. NO RIGHT TO CONTINUED SERVICE. Nothing in the Plan or any
Award Agreement shall interfere with or limit in any way the right of the
Company or any Parent or Subsidiary to terminate any Participant's employment
or status as an officer,
- 17 -
<PAGE> 18
director or consultant at any time, nor confer upon any Participant any right
to continue as an employee, officer, director or consultant of the Company or
any Parent or Subsidiary.
l6.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award Agreement shall give the Participant any rights that
are greater than those of a general creditor of the Company or any Parent or
Subsidiary.
16.6. INDEMNIFICATION. To the extent allowable under applicable
law, each member of the Committee shall be indemnified and held harmless by the
Company from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by such member in connection with or resulting from any
claim, action, suit, or proceeding to which such member may be a party or in
which he may be involved by reason of any action or failure to act under the
Plan and against and from any and all amounts paid by such member in
satisfaction of judgment in such action, suit, or proceeding against him
provided he gives the Company an opportunity, at its own expense, to handle and
defend the same before he undertakes to handle and defend it on his own behalf.
The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
16.7. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan
shall be taken into account in determining any benefits under any pension,
retirement, savings, profit sharing, group insurance, welfare or benefit plan
of the Company or any Parent or Subsidiary unless provided otherwise in such
other plan.
16.8. EXPENSES. The expenses of administering the Plan shall be
borne by the Company and its Parents or Subsidiaries.
16.9. TITLES AND HEADINGS. The titles and headings of the Sections
in the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
16.10. GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
16.11. FRACTIONAL SHARES. No fractional shares of Stock shall be
issued and the Committee shall determine, in its discretion, whether cash shall
be given in lieu of fractional shares or whether such fractional shares shall
be eliminated by rounding up.
16.12. GOVERNMENT AND OTHER REGULATIONS. The obligation of the
Company to make payment of awards in Stock or otherwise shall be subject to all
- 18 -
<PAGE> 19
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Company shall be under no obligation to
register under the 1933 Act, or any state securities act, any of the shares of
Stock paid under the Plan. The shares paid under the Plan may in certain
circumstances be exempt from registration under the 1933 Act, and the Company
may restrict the transfer of such shares in such manner as it deems advisable
to ensure the availability of any such exemption.
16.13. GOVERNING LAW. To the extent not governed by federal law, the
Plan and all Award Agreements shall be construed in accordance with and
governed by the laws of the State of Delaware.
16.14 ADDITIONAL PROVISIONS. Each Award Agreement may contain such
other terms and conditions as the Committee may determine; provided that such
other terms and conditions are not inconsistent with the provisions of this
Plan.
16.15 Code Section 162(m). The deduction limits of Code Section
162(m) and the regulation thereunder do not apply to the Company until such
time, if any, as any class of the Company's common equity securities is
registered under Section 12 of the 1934 Act or the Company otherwise meets the
definition of a "publicly held corporation" under Treasury Regulation
1.162-27(c) or any successor provision. Upon becoming a publicly held
corporation, the deduction limits of Code Section 162(m) and the regulations
thereunder shall not apply to compensation payable under this Plan until the
expiration of the reliance period described in Treasury Regulation 1.162-27(f)
or any successor regulation.
- 19 -
<PAGE> 1
EXHIBIT 10.39
JCC HOLDING COMPANY
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. The purpose of the JCC Holding Company 1999
Non-Employee Director Stock Option Plan (the "Plan") is to advance the
interests of JCC Holding Company (the "Company") by encouraging ownership of
the Company's $0.01 par value Class A common stock of the Company, and after
the Transition Date (as defined in the Company's Restated Certificate of
Incorporation), the $0.01 par value unclassified common stock of the Company,
and such other securities of the Company as may be substituted for such stock
pursuant to Section 6 hereof (the "Common Stock") by certain non-employee
directors of the Company, thereby giving such directors an increased incentive
to devote their efforts to the success of the Company.
2. Administration. Grants of options under this Plan are
automatic. This Plan is intended to be a "formula plan" as for purposes of
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and shall be interpreted accordingly. The Board of Directors of the
Company has authority to interpret the Plan and otherwise administer the plan
in accordance with its terms.
3. Eligibility. Except as provided otherwise in this Section 3,
options under the Plan shall be granted in accordance with Section 5 to each
Non-Employee Director (as defined below) of the Company; provided that shares
of the Company's Common Stock remain available for grant hereunder in
accordance with Section 4. For purposes of this Plan, prior to the Transition
Date, a "Non-Employee Director" shall mean each member of the Company's Board
of Directors who is not an employee of (i) the Company, (ii) Harrah's
Entertainment, Inc. ("HET"), or (iii) a Controlled Affiliate (as such term is
defined in the Company's Restated Certificate of Incorporation) of HET. Upon
the Transition Date and thereafter, a "Non-Employee Director" shall mean each
member of the Company's Board of Directors who is not an employee of the
Company or of HET. A Non-Employee Director to whom an option is granted under
the Plan shall be referred to hereinafter as a "Grantee."
4. Shares Subject to Plan. The shares subject to the Plan shall
be authorized but unissued or reacquired shares of the Company's Common Stock.
Subject to adjustment in accordance with the provisions of Section 6 of the
Plan, the maximum number of shares of Common Stock for which options may be
granted under the Plan shall be 150,000 and the initial adoption of the Plan by
the Board of Directors of the Company shall constitute a reservation of 150,000
authorized but unissued, or reacquired, shares of Common Stock for issuance
only upon the exercise of options granted under the Plan. In the event that any
outstanding option granted under the Plan for any reason expires or is
terminated prior to the end of the period during which options may be granted
under the Plan, the shares of Common Stock allocable to the unexercised portion
of such option may again be subject in whole or in part to any option granted
under the Plan.
<PAGE> 2
5. Terms and Conditions of Options. Options granted pursuant to
the Plan shall be evidenced by Stock Option Agreements in such form as shall
comply with and be subject to the following terms and conditions:
(a) Grant. Each Non-Employee Director of the Company shall be
granted an option to purchase 5,000 shares of the Company's Common Stock,
subject to adjustment as provided in Section 6, on the later of (i) the date of
approval of the Plan by the Company's shareholders, or (ii) the date such
person first becomes a Non-Employee Director. In addition, as of the day
following the first annual meeting of the Company's shareholders that occurs
more than one year after the person first becomes a Non-Employee Director and
on the day following each subsequent annual meeting of the Company's
shareholders, if such person is serving as a Non-Employee Director as of such
date, such Non-Employee Director shall be granted an option to purchase 5,000
shares of the Company's Common Stock, subject to adjustment as provided in
Section 6. Each such day that options are to be granted under the Plan is
referred to hereinafter as a "Grant Date."
If on any Grant Date, shares of Common Stock are not available under
this Plan to grant to Non-Employee Directors the full amount of a grant
contemplated by the immediately preceding paragraph, then each Non-Employee
Director shall receive an option (a "Reduced Grant") to purchase shares of
Common Stock in an amount equal to the number of shares of Common Stock then
available under the Plan divided by the number of Non-Employee Directors as of
the applicable Grant Date. Fractional shares shall be ignored and not granted.
If a Reduced Grant has been made and, thereafter, during the term of
this Plan, additional shares of Common Stock become available for grant (e.g.,
because of the forfeiture or lapse of an option), then each person who was a
Non-Employee Director both on the Grant Date on which the Reduced Grant was
made and on the date additional shares of Common Stock become available (a
"Continuing Non-Employee Director") shall receive an additional option to
purchase shares of Common Stock. The number of newly available shares shall be
divided equally among the options granted to the Continuing Non-Employee
Directors; provided, however, that the aggregate number of shares of Common
Stock subject to a Continuing Non-Employee Director's additional option plus
any prior Reduced Grant to the Continuing Non-Employee Director on the
applicable Grant Date shall not exceed 1,000 shares (subject to adjustment
pursuant to Section 6). If more than one Reduced Grant has been made, available
options shall be granted beginning with the earliest such Grant Date.
(b) Option Price. The option price for each option granted under
the Plan shall be the Fair Market Value (as defined below) of the shares of
Common Stock subject to the option on the date of grant of the option. For
purposes of the Plan, the "Fair Market Value" on any date, means (i) if the
Common Stock is listed on a securities exchange or is traded over the Nasdaq
National Market, the closing sales price on such exchange or over such system
on such date or, in the absence of reported sales on such date, the closing
sales price on the immediately preceding date on which sales were reported, or
(ii) if the Common Stock is not listed on a securities exchange or traded over
the Nasdaq National Market, the mean
- 2 -
<PAGE> 3
between the bid and offered prices as quoted by Nasdaq for such date, provided
that if it is determined that the fair market value is not properly reflected
by such Nasdaq quotations, Fair Market Value will be determined by such other
method as the Board of Directors determines in good faith to be reasonable.
(c) Medium and Time of Payment. The option price shall be payable
in full upon the exercise of an option in cash. To the extent permitted under
Regulation T of the Federal Reserve Board, and subject to applicable securities
laws, options may be exercised through a broker in a so-called "cashless
exercise" whereby the broker sells the option shares and delivers cash sales
proceeds to the Company in payment of the exercise price.
(d) Term. Each option granted under the Plan shall, to the extent
not previously exercised, terminate and expire on the date ten (10) years after
the date of grant of the option, unless earlier terminated as provided
hereinafter in Section 5(g).
(e) Exercisability. Each option granted under this Plan shall be
immediately exercisable, in whole or in part.
(f) Method of Exercise. All options granted under the Plan shall
be exercised by an irrevocable written notice directed to the Secretary of the
Company at the Company's principal place of business. Such written notice shall
be accompanied by payment in full of the option price for the shares for which
such option is being exercised. The Company shall make delivery of certificates
representing the shares for which an option has been exercised within a
reasonable period of time; provided, however, that if any law, regulation or
agreement requires the Company to take any action with respect to the shares
for which an option has been exercised before the issuance thereof, then the
date of delivery of such shares shall be extended for the period necessary to
take such action. Certificates representing shares for which options are
exercised under the Plan may bear such restrictive legends as may be necessary
or desirable in order to comply with applicable federal and state securities
laws. Nothing contained in the Plan shall be construed to require the Company
to register any shares of Common Stock underlying options granted under this
Plan.
(g) Effect of Termination of Directorship or Death.
(i) Termination of Directorship. Upon termination of any
Grantee's membership on the Board of Directors of the Company for any
reason other than for cause or death, the options held by the Grantee
under the Plan shall terminate ninety (90) days following the date of
termination of the Grantee's membership on the Board of Directors or,
if earlier, on the date of expiration of the options as provided by
Section 5(d) of the Plan. If the Grantee's membership on the Board of
Directors is terminated for cause, all options granted to such Grantee
shall expire upon such termination.
- 3 -
<PAGE> 4
(ii) Death. In the event of the death of a Grantee, the
Grantee's personal representatives, heirs or legatees (the "Grantee's
Successors") may exercise the options held by the Grantee on the date
of death, upon proof satisfactory to the Company of their authority.
The Grantee's Successors must exercise any such options within one (1)
year after the Grantee's death and in any event prior to the date on
which the options expire as provided by Section 5(d) of the Plan. Such
exercise otherwise shall be subject to the terms and conditions of the
Plan.
(h) Transferability of Options. Any option granted pursuant to
the Plan shall be assignable or transferable by the Grantee by will, by the
laws of descent and distribution, or pursuant to a domestic relations order
that would satisfy Section 414(p)(1)(A) of the Internal Revenue Code of 1986,
as amended, if such provision applied to an option under the Plan. In addition,
any option granted pursuant to the Plan shall be transferable by the Grantee to
any of the following permitted transferees, upon such reasonable terms and
conditions as the Board of Directors may establish: any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling,
niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships, any person
sharing the Grantee's household (other than a tenant or employee), a trust in
which these persons (or the Grantee) have more than fifty percent of the
beneficial interests, a foundation in which these persons (or the Grantee)
control the management of assets, and any other entity in which these persons
(or the Grantee) own more than fifty percent of the voting interests.
(i) Rights as Shareholder. Neither the Grantee nor the Grantee's
Successors shall have rights as a shareholder of the Company with respect to
shares of Common Stock covered by the Grantee's option until the Grantee or the
Grantee's Successors become the holder of record of such shares.
(j) No Options after Ten Years. No options shall be granted
except within a period of ten (10) years after the effective date of the Plan.
6. Adjustments. In the event a stock dividend is declared upon
the Common Stock, the shares of Common Stock then subject to each option shall
be increased proportionately without any change in the aggregate purchase price
therefor. In the event the Common Stock shall be changed into or exchanged for
a different number or class of shares of stock or securities of the Company or
of another corporation, whether through reorganization, recapitalization,
reclassification, share exchange, stock split-up, combination of shares, merger
or consolidation, there shall be substituted for each such share of Common
Stock then subject to each option the number and class of shares into which
each outstanding share of Common Stock shall be so exchanged, all without any
change in the aggregate purchase price for the shares then subject to each
option, or there shall be made such other equitable adjustment as the Board of
Directors shall approve.
- 4 -
<PAGE> 5
7. Effective Date and Termination of Plan.
(a) Effective Date. The Plan shall become effective upon approval
of the same by the Board of Directors of the Company, subject to approval of
the Plan by the shareholders of the Company no later than the first annual
meeting of shareholders held after approval of the Plan by the Board of
Directors.
(b) Termination. The Plan shall terminate on the second day
following the 2008 Annual Meeting, but the Board of Directors may terminate the
Plan at any time prior to such date. The Board of Directors may, at any time
and from time to time, amend or modify the Plan without stockholder approval;
provided, however, that the Board may condition any amendment or modification
on the approval of stockholders of the Company if such approval is necessary or
deemed advisable with respect to tax, securities or other applicable laws,
policies or regulations. No amendment modification or termination of the Plan
shall adversely affect the rights of the Grantees who have outstanding Options
without the consent of such Grantees.
8. No Obligation to Exercise Option. The granting of an option
shall impose no obligation upon the Grantee to exercise such option.
9. Amendment. The Board of Directors may, at any time and from
time to time, amend, modify or terminate the Plan without shareholder approval;
provided, however, that the Board of Directors may condition any amendment or
modification on the approval of shareholders of the Company if such approval is
necessary or deemed advisable with respect to tax, securities or other
applicable laws, policies or regulations. Any amendment to the Plan shall not,
without the written consent of the Grantee, affect such Grantee's rights under
any option theretofore granted to such Grantee.
- 5 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JCC HOLDING
COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT
OF OPERATIONS AS OF DECEMBER 31, 1998 AND FOR THE PERIOD FROM OCTOBER 30, 1998
TO DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> OCT-30-1998<F1>
<PERIOD-END> DEC-31-1998
<CASH> 25,506
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,247
<PP&E> 218,729
<DEPRECIATION> 71
<TOTAL-ASSETS> 343,131
<CURRENT-LIABILITIES> 15,302
<BONDS> 185,519
0
0
<COMMON> 100
<OTHER-SE> 104,310
<TOTAL-LIABILITY-AND-EQUITY> 343,131
<SALES> 0
<TOTAL-REVENUES> 14
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,001
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,677)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,677)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,677)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> 0
<FN>
<F1>EFFECTIVE DATE OF THE PLAN OF REORGANIZATION.
</FN>
</TABLE>
