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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
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[ ] 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
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(Exact name of registrant as specified in its charter)
Delaware 62-1650470
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(State or other jurisdiction (IRS employer
of incorporation) identification number)
512 South Peters Street
New Orleans, Louisiana
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(Address of principal executive offices)
Registrant's telephone number (504) 533-6000
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 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 whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of November 12, 1999 a total of 5,626,377 shares of Class A Common
Stock, par value $.01 per share, and a total of 4,452,623 shares of Class B
Common Stock, par value $.01 per share, of JCC Holding Company were outstanding.
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JCC HOLDING COMPANY AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 2
Condensed Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 (Unaudited) 3
Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1999 and 1998 (Predecessor) (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 (Predecessor) (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q which are not
historical fact, including in particular statements regarding (1) the plans,
objectives, expectations and prospects of JCC Holding Company ("JCC Holding")
and its subsidiaries and (2) the development by subsidiaries of JCC Holding of
non-gaming entertainment space on the second floor of the landbased casino in
New Orleans, Louisiana (the "Casino") operated by a subsidiary of JCC Holding
and of various adjacent properties for entertainment uses supporting the Casino,
are forward-looking statements made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions identify forward-looking statements. Important factors that could
cause actual results to differ materially from the results anticipated by the
forward-looking statements include, without limitation, the inability of JCC
Holding's subsidiaries to develop the second floor of the Casino or their
properties adjacent to the Casino, and the timing of such development, and the
other risks detailed in JCC Holding's Annual Report on Form 10-K under the
heading "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors Affecting Future Performance" and other filings
by JCC Holding with the Securities and Exchange Commission.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
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(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (includes restricted
cash of $3,801 and $605, respectively) $ 10,258 $ 25,506
Prepaids and other assets 979 1,741
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Total current assets 11,237 27,247
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Property and Equipment:
Buildings 19,959 --
Property held for development 14,670 13,200
Construction in progress (includes restricted
cash of $8,473 and $9,218, respectively) 305,923 192,917
Furniture, fixtures and equipment 12,601 12,612
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Total 353,153 218,729
Less - accumulated depreciation (666) (71)
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Net property and equipment 352,487 218,658
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Deferred assets, net of amortization:
Deferred operating contract 68,676 68,676
Lease prepayments 16,985 16,985
Other 18,026 11,565
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Total deferred assets, net of amortization 103,687 97,226
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TOTAL ASSETS $ 467,411 $ 343,131
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,600 $ --
Accounts payable 577 643
Accrued expenses 22,385 14,659
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Total current liabilities 25,562 15,302
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Long-Term Debt 320,066 185,519
Deferred Income Taxes 37,900 37,900
Commitments and Contingencies
Stockholders' Equity:
Common Stock:
Unclassified common stock (40,000,000 shares authorized; none
issued and outstanding; par value $.01 per share) -- --
Class A common stock (20,000,000 shares authorized; 5,626,377 shares
and 5,547,377 shares, respectively, issued and outstanding; par
value $.01 per share) 56 55
Class B common stock (20,000,000 shares authorized; 4,452,623 shares
issued and outstanding; par value $.01 per share) 45 45
Additional paid-in capital 108,451 107,987
Accumulated deficit (24,398) (3,677)
Less - unearned compensation (271) --
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Total stockholders' equity 83,883 104,410
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 467,411 $ 343,131
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
JCC HOLDING HARRAH'S JAZZ JCC HOLDING HARRAH'S JAZZ
COMPANY COMPANY COMPANY COMPANY
(SUCCESSOR) (PREDECESSOR) (SUCCESSOR) (PREDECESSOR)
------------ -------------- ------------ ------------
THREE MONTHS ENDED NINE MONTHS ENDED
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1999 1998 1999 1998
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(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Miscellaneous Revenues $ 93 $ 31 $ 103 $ 81
Operating Expenses:
General and administrative 11,053 3,092 20,342 11,010
Depreciation and amortization 371 138 778 431
------------ ------------ ------------ ------------
Total operating expenses 11,424 3,230 21,120 11,441
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Operating Loss (11,331) (3,199) (21,017) (11,360)
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Reorganization Items -- (1,443) -- (3,902)
Other income (expenses)
Interest expense, net of capitalized interest -- (886) -- (2,323)
Interest and other income 61 -- 296 --
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Total other income 61 (886) 296 (2,323)
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Net Loss $ (11,270) $ (5,528) $ (20,721) $ (17,585)
============ ============ ============ ============
Basic Loss Per Share $ (1.12) $ (2.06)
============ ============
Weighted Average Shares Outstanding 10,079,000 10,044,853
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
JCC HOLDING HARRAH'S JAZZ
COMPANY COMPANY
(SUCCESSOR) (PREDECESSOR)
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1999 1998
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(IN THOUSANDS)
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Cash Flows From Operating Activities:
Net loss $ (20,721) $ (17,585)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 778 431
Amortization of unearned compensation 193 --
Changes in operating assets and liabilities:
Prepaids and other assets 762 1
Accounts payable (66) 6,481
Accrued expenses 347 --
Pre-confirmation contingencies (1,998) --
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Net cash flows used in operating activities (20,705) (10,672)
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Cash Flows From Investing Activities:
Capital expenditures (115,443) (4,066)
Proceeds from sale of property 42 --
Increase in other deferred assets (6,642) --
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Net cash flows used in investing activities (122,043) (4,066)
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Cash Flows From Financing Activities:
Proceeds from long-term borrowings 127,500 --
Proceeds from debtor-in-possession borrowings -- 16,104
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Net cash flows provided by financing activities 127,500 16,104
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Net (decrease) increase in cash and cash equivalents (15,248) 1,366
Cash and cash equivalents, beginning of period 25,506 3,755
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Cash and cash equivalents, end of period $ 10,258 $ 5,121
=========== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,662 --
Noncash investing and financing activities:
Increase in long-term debt for payment-in-kind interest payments $ 7,142 --
Amortization of debt discount $ 2,505 --
Capitalized interest $ 19,024 --
Issuance of restricted stock awards $ 464 --
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nature of Business
JCC Holding's purpose is to develop and operate the Casino in downtown
New Orleans, Louisiana at the foot of Canal and Poydras Streets on the site of
New Orleans' former convention center. The Casino opened on October 28, 1999
(the "Opening Date"). Through certain of its subsidiaries, JCC Holding also
plans to develop approximately 150,000 square feet of multipurpose non-gaming
entertainment space on the second floor of the Casino premises and develop
various adjacent properties for entertainment uses supportive of the Casino.
Currently, financing has not been obtained to fund the second floor construction
or the development of these adjacent properties.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of JCC Holding, a Delaware Corporation, and its subsidiaries, have been prepared
in accordance with the instructions to Form 10-Q, and therefore do not include
all information and notes necessary for complete financial statements in
conformity with generally accepted accounting principles. The results for the
periods indicated are unaudited, but reflect all adjustments (consisting only of
normal recurring adjustments) which management considers necessary for a fair
presentation of operating results. Results of operations for interim periods are
not necessarily indicative of a full year of operations. These condensed
consolidated financial statements and related notes should be read in
conjunction with the financial statements and notes for the period from October
30, 1998 to December 31, 1998 included in JCC Holding's Annual Report on Form
10-K for the year ended December 31, 1998.
Organization
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" or "Predecessor"), 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"), JCC Canal Development L.L.C. (formerly CP Development,
L.L.C.), a Louisiana limited liability company ("Canal Development"), and JCC
Fulton Development, L.L.C. (formerly FP Development, L.L.C.), a Louisiana
limited liability company ("Fulton Development" and, together with JCC Holding,
JCC, JCC Development and Canal 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 (the
"Bankruptcy Court") on October 13, 1998, the Company became the successor to the
operations of HJC. Except for certain real property which vested in Canal
Development and Fulton 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"). 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
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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 bondholders 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.
NOTE 2. BUILDINGS
Buildings on leased land are stated at cost. The related depreciation
is calculated using the straight-line method over the remaining life of the
ground lease (or 25 years).
NOTE 3. STOCK-BASED COMPENSATION PLANS
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25 ("APB
Opinion No. 25"), "Accounting for Stock Issued to Employees." Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a
fair-value method of accounting for stock-based employee compensation plans. The
Company has elected to adopt APB Opinion No. 25 to account for the stock-based
compensation plans and has adopted the disclosure requirements of SFAS No. 123.
On October 29, 1998, the Board of Directors adopted the JCC Holding
1998 Long-Term Incentive Plan (the "LTIP"). The LTIP authorizes the granting of
awards to employees, officers, consultants and directors of the Company in the
following forms: stock options, stock appreciation rights, performance units,
restricted stock, dividend equivalents, other stock-based awards or any other
right or interest relating to, prior to the Transition Date (as defined below),
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 and, after the Transition Date, Unclassified Common Stock.
On April 29, 1999, the Company issued 79,000 shares of restricted Class
A Common Stock to certain officers of the Company under the LTIP. The restricted
shares have full voting and dividend rights during the restricted period;
however, the shares may not be sold, transferred or encumbered during the
restricted period. The restricted period will expire, and the restricted stock
will vest in full on January 1, 2003, or earlier upon the Company obtaining
certain performance goals. As of September 30, 1999, none of the restricted
shares had vested. The value of the stock was established at $5.88 per share,
the market price on the date of grant. Unearned compensation, representing the
market value of the restricted shares issued on the date of grant, was recorded
as a reduction in stockholders' equity. The unearned compensation is being
amortized ratably over the expected restricted period. During the three and nine
months ended September 30, 1999, the Company recorded expense related to these
awards of $116,000 and $193,000, respectively.
The Company also granted non-qualified options to purchase 165,500
shares of Class A Common Stock under the LTIP on March 4, 1999. These
non-qualified stock options will expire ten years from the date of grant, unless
previously exercised or terminated pursuant to the terms of the option
agreements. The exercise price for each option granted under the LTIP is
recommended by the Compensation Committee of the Board of Directors, provided
that the exercise price for any incentive stock option may not be less than the
fair market value of the Class A Common Stock or, after the Transition Date,
Unclassified Common Stock subject to the option on the date of the grant. The
exercise price for each option granted under the LTIP on March 4, 1999 was $3.63
per share, the fair market value of the Class A Common Stock on the date of
grant.
On March 4, 1999, the Board of Directors adopted the 1999 Non-Employee
Director Stock Option Plan (the "DSOP"), which received stockholder approval on
May 13, 1999. Under the terms of the DSOP, options to purchase Class A Common
Stock, and on or after the Transition Date, Unclassified Common Stock, may be
awarded to certain non-employee directors of JCC Holding. JCC Holding has
reserved for issuance upon the exercise of stock options granted under the DSOP
an aggregate of 150,000 shares of the authorized by unissued shares of Class A
Common Stock and, after the Transition Date, Unclassified Common Stock. JCC
Holding
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granted options to purchase 20,000 shares of Class A Common Stock under the DSOP
on May 13, 1999. Options granted under the DSOP can not have a term of more than
ten years from the date of grant. The exercise price for each option granted
under the DSOP must be the fair market value of the shares of Class A Common
Stock or, after the Transition Date, Unclassified Common Stock subject to the
option on the date of grant. The exercise price for each option granted under
the DSOP on May 13, 1999 was $7.56 per share, the fair market value of the Class
A Common Stock on the date of grant.
"Transition Date" means the date upon which the earliest of the
following events occurs: (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 (as adjusted to account for purchases of Common Stock by
JCC Holding or JCC Holding's issuance of additional shares of Common Stock).
"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 the former bondholders of HJC on the Effective
Date pursuant to the Plan of Reorganization and (b) the closing price for $1,000
of New Notes and New Contingent Notes divided by $1,000, and then multiplied by
the aggregate principal amount of the New Notes and New Contingent Notes
outstanding.
Under SFAS 123, compensation cost is measured at the grant date based
on the value of the award and is recognized over the service (or vesting)
period. Had compensation cost for the stock options granted above been
determined under SFAS 123, based on the fair market value at the grant dates,
the Company's pro forma net loss and net loss per share would have been
reflected as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1999 1999
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<S> <C> <C>
NET LOSS:
As reported $ 11,270 $ 20,721
Pro forma $ 11,456 $ 21,628
NET LOSS PER SHARE:
As reported $ 1.12 $ 2.06
Pro forma $ 1.14 $ 2.15
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black Scholes option pricing model with the following weighted average
assumptions used for those options granted in 1999: expected volatility of
39.57%, risk-free interest rate of 6.15%, expected lives of 10 years and no
dividend yield rate.
NOTE 4. 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.
The enactment and implementation of gaming legislation in the State of
Louisiana and the development of the 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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, Canal Development and Fulton Development and, through JCC,
constructed, and on October 28, 1999, opened the Casino in downtown New Orleans,
Louisiana at the foot of Canal and Poydras Streets on the site of New Orleans'
former convention center. On the Effective Date, the Company became the
successor to the operations of HJC in accordance with the Plan of Reorganization
as confirmed by the Bankruptcy Court.
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.
DEVELOPMENT ACTIVITIES AND CASINO OPENING
The Casino was opened and commenced operations on October 28, 1999 and
includes 100,000 square feet of gaming space consisting of approximately 2,900
slot machines and 120 table games including live poker, a 250-seat buffet, two
parking garages, 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 "Initial Casino Facilities"). The Casino contains 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. Each of the five distinctive courts is
uniquely designed and decorated to offer non-stop gaming in an atmosphere that
replicates the charms of the city of New Orleans - past and present. Parking for
approximately 300 cars and approximately 145,000 square feet of back-of-house
and support areas are provided underneath the main gaming floor. Across Poydras
Street and connected to the Casino by an underground tunnel (the "Poydras Tunnel
Area") are two newly constructed parking facilities which contain approximately
1,550 parking spaces. One of the parking facilities, which contains 1,000
parking spaces, was completed and opened in June 1999, while the second
facility, which contains 550 parking spaces, was opened in early October 1999.
Prior to the Casino opening, the activities of the Company consisted primarily
of administering the construction of the Casino and preparing for the opening of
the Casino.
Concurrently with construction of the Initial Casino Facilities,
approximately 150,000 square feet of multipurpose non-gaming entertainment space
on the second floor of the Casino premises was constructed to the point at which
the shell of the structure was complete as of the opening of the Casino (the
"Second Floor Shell Construction").
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 Canal 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 Fulton Development. The Company currently intends that Canal Development and
Fulton Development will develop the properties, possibly with the assistance of
a third party developer, for entertainment and other uses that support the
Casino.
LIQUIDITY AND CAPITAL RESOURCES
The Company estimates that from the date HJC filed for bankruptcy, the
total cost of completing the Initial Casino Facilities project will be
approximately $373.0 million. This amount includes, 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. As of September 30, 1999, the remaining costs to be paid in
connection with the Initial Casino Facilities project were approximately $43.9
million, including $10.2 million in hard construction costs and $33.7 million
for gaming equipment and supplies and other pre-opening costs. Based upon
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the Company's survey of gaming operations in the New Orleans and surrounding
marketplaces, most of which use coin slot machines, the Company has decided to
use coin slot machines rather than token machines, which the Company had
originally planned to use. Management believes this change in plans will enhance
the Casino's competitive position in the New Orleans and surrounding
marketplaces. However, this change required the Company to load the machines
prior to opening the Casino with approximately $6 million in coins. To finance
the loading of the slot machines, in a sale and leaseback transaction on October
20, 1999, JCC sold 1,085 of its slot machines to a subsidiary of HET. The HET
subsidiary is leasing the slot machines back to JCC and JCC is using the
proceeds from the sale to fill the slot machines with coins.
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 or the
development of the 3CP Property and Fulton Property. JCC has incurred
approximately $1.1 million to date in developing a master plan for the build out
and leasing of the second floor of the Casino for non-gaming uses. Additionally,
there was construction-related work that needed to take place on the second
floor of the Casino prior to the Opening Date in order to prevent disruption to
the Casino's gaming operations. JCC Development has arranged to borrow up to $2
million from a subsidiary of HET to fund these items. Borrowings under this loan
bear interest at 9% per year, and, at JCC Development's option, may be paid in
cash or in kind. Principal and interest under this loan from an HET subsidiary
must be paid out of the permanent financing ultimately obtained for the
completion of the second floor of the Casino. On October 27, 1999, JCC
Development borrowed $1.1 million under this loan in order to reimburse JCC for
costs incurred to date in connection with developing the master plan.
The Company has not obtained financing to fund the remainder of the
anticipated build-out of the second floor of the Casino beyond the Second Floor
Shell Construction 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 affect 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 being, and are
expected to continue to be, derived from a combination of the following:
o the $15 million new equity investment from HCCIC made on the
Effective Date in connection with the Plan of Reorganization;
o the $211.5 million of term loans (the "Term Loans") from a
syndicate of lenders led by Bankers Trust Company (the "Bank
Lenders") under the terms of a Credit Agreement ("Credit
Agreement") among JCC, as borrower, JCC Holding, as guarantor, and
the Bank Lenders;
o the $22.5 million of subordinated indebtedness under a credit
facility (the "Junior Subordinated Credit Facility") among JCC, HET
and Harrah's Operating Company, Inc. ("HOCI"); and
o the issuance of $27.3 million aggregate principal amount of 8%
Convertible Junior Subordinated Debentures due 2010 (the
"Convertible Junior Subordinated Debentures") of JCC.
In addition, on the Effective Date, HET and HOCI (the "Completion
Guarantors") 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 had failed to commence or complete the Casino construction and,
until the occurrence of the Termination of Construction Date, the duty to pay
JCC costs and expenses until the Casino opens. The Termination of Construction
Date occurred on November 1, 1999. The Termination of Construction Date
generally means when the Casino construction is complete, the Casino is fully
equipped and the Initial Casino Facilities have opened for business as a casino
gaming operation (the "Termination of Construction Date"). The Completion
Guarantors still have a duty to fund any costs to complete and equip the Casino
to the extent that JCC is unable to fund them.
10
<PAGE> 12
The Term Loans consist of the following:
o a $60 million A Term Loan (the "A Term Loan") comprised of:
(1) a $10 million tranche ("Tranche A-1");
(2) a $20 million tranche ("Tranche A-2"); and
(3) a $30 million tranche ("Tranche A-3").
o a $151.5 million B Term Loan (the "B Term Loan") comprised of:
(1) a $30 million tranche ("Tranche B-1") and
(2) a $121.5 million tranche ("Tranche B-2").
Funded principal amounts and terms of the Company's indebtedness as of
September 30, 1999 were (in millions):
<TABLE>
<CAPTION>
Remaining
Funded Available
Amount(d) Balance
--------- ---------
<S> <C> <C>
Bank Lenders Term Loans:
Tranche A-1, 6.06%(a), due 2006 $ 10.0 $ --
Tranche A-2, 6.06%(a), due 2006 -- 20.0
Tranche A-3, 6.06%(a), due 2006 30.0 --
Tranche B-1, 7.56%(a), due 2006 30.0 --
Tranche B-2, average rate 8.00%(a), due 2006 105.0 16.5
Junior Subordinated Credit Facility, 8.00%, due 2010 22.5 --
Convertible Junior Subordinated Debentures, 8.00%, due 2010 (b) 28.5 --
New Notes, 5.93%, due 2009 (b)(c) 193.5 --
Unamortized Discount (96.8)
--------- ---------
Total Long-Term Debt $ 322.7 $ 36.5
========= =========
</TABLE>
================================================================================
(a) Interest rates on the Term Loans are variable based on LIBOR plus
applicable percentage points.
(b) Outstanding principal balances include additional principal amounts
resulting from the May 15, 1999 payment-in-kind interest payments.
(c) The fixed interest rates on the New Notes is 5.87% per annum, increasing
over the first three years to 6.21% per annum in the fourth and fifth
years and increasing to 8% per annum after the first five years.
(d) Outstanding indebtedness does not include obligations under the New
Contingent Notes.
================================================================================
During the nine months ended September 30, 1999, the Company borrowed
$105 million under Tranche B-2 of the Bank Term Loans and $22.5 million under
the Junior Subordinated Credit Facility. Tranche A-2 and the remaining portion
of Tranche B-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 A-2
remains undrawn upon completion of the funding of the Casino construction
project, it will be drawn to pay down Tranche A-1.
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 are outstanding when such payments are due. JCC
also has the option of
11
<PAGE> 13
paying the interest on the Convertible Junior Subordinated Debentures, in whole
or in part, in kind rather than in cash (1) at any time on or prior to October
30, 2003, and (2) 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. On May 15, 1999, the Company paid the
first interest payments of $6.0 million on the New Notes and of $1.2 million on
the Convertible Junior Subordinated Debentures in kind rather than in cash.
No fixed interest is payable in respect of the New Contingent Notes.
Contingent payments with respect to the New Notes and the New Contingent Notes,
to the extent they are due and owing, are payable on each interest payment date
based on the Contingent Payment Measurement Amount, as such term is defined in
the indentures governing the New Notes and the New Contingent Notes and in the
Company's Annual Report on Form 10-K for the Year Ended December 31, 1998. For
the quarters ended March 31, 1999, June 30, 1999 and September 30, 1999, the
Contingent Payment Measurement Amount was $168,000, $31,000, and $9,000,
respectively. During these same periods, JCC's Consolidated EBITDA was $168,000,
$73,000 and $9,000, respectively. For the period from October 30, 1998 to
December 31, 1998, the Contingent Payment Measurement Amount and JCC's
Consolidated EBITDA were both $310,000 and were derived from audited financial
statements for such period. During such periods, no contingent payments accrued
or were paid with respect to either the New Notes or the New Contingent Notes.
JCC also has up to $25 million available for working capital purposes
under a working capital line of credit (the "Working Capital Facility"). The
Working Capital Facility requires that on the Termination of Construction Date,
which occurred on November 1, 1999, there could be a maximum of $10 million of
outstanding revolving credit loans and $2 million of outstanding letters of
credit. JCC satisfied that requirement. After November 1, 1999, the full amount
of the Working Capital Facility is available to JCC subject to the terms
thereof.
As of September 30, 1999, there were $8.2 million of letters of credit
outstanding under the Working Capital Facility. No revolving credit loans were
outstanding on that date. At November 1, 1999, $10 million of revolving credit
loans and $1.9 million of letters of credit were outstanding under the Working
Capital Facility. JCC's future working capital needs will be funded by a
combination of the 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 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:
o the Amended Ground Lease, among JCC, Rivergate Development
Corporation, as landlord, and the City of New Orleans, as
intervenor;
o the Amended Management Agreement (the "Management Agreement") among
JCC and Harrah's New Orleans Management Agreement (the "Manager");
and
o the Amended and Renegotiated Casino Operating Contract among HJC,
JCC and the State of Louisiana, by and through the Louisiana Gaming
Control Board (the "LGCB").
JCC is 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, other than paying
interest in cash on the New Notes and on the Convertible Junior Subordinated
Debentures, 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 construction
cost overruns. JCC intends to pay interest on the New Notes and on the
Convertible Junior Subordinated Debentures in kind rather than in cash (thus
deferring cash interest payments) for at least the next 12 months. 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 also defer amortization payments under the Term Loans and defer certain
fees payable under the Management Agreement. The Company cannot assure that
additional financing 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 liquidity needs
is accurate or that new business developments or other unforeseen events will
not occur resulting in the need to raise additional funds.
12
<PAGE> 14
RESULTS OF OPERATIONS
Prior to consummation of the Plan of Reorganization, the Company had
not conducted any operations, generated any revenues or issued any capital
stock. During the three and nine months ended September 30, 1999, the Company's
activities consisted primarily of administering the construction of the Casino
and preparing for opening the Casino in October 1999. In addition, prior to
consummation of the Plan of Reorganization and during the three and nine months
ended September 30, 1998, the Predecessor'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. The Predecessor'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. Due to the application of "fresh start" reporting and
because neither the Company nor the Predecessor had any gaming operations and
all of their activities were related to the Chapter 11 reorganization during the
three and nine months ended September 30, 1998, the Company believes that
comparisons between the three and nine months ended September 30, 1999 and 1998
are not meaningful.
Because the Casino did not open for operation until October 28, 1999,
the Company's revenues of $93,000 and $103,000 during the three and nine months
ended September 30, 1999, respectively, and the Predecessor's revenues of
$31,000 and $81,000 during the corresponding periods in 1998 were generated
primarily from revenues generated by the operation of the Casino parking
facility that was opened on June 14, 1999, and rental income generated from a
parking lot located on the 3CP Property.
During the three and nine months ended September 30, 1999, the Company
incurred general and administrative expenses of $11.1 million and $20.3 million,
respectively. These expenses consisted primarily of salaries and wages, legal
and professional fees, recruiting and training employees to work in the Casino
and pre-opening marketing. During the corresponding periods in 1998, the
Predecessor incurred general and administrative expenses of $3.1 million and
$11.0 million, respectively. These expenses consisted primarily of rent paid by
HJC to the City of New Orleans relating to the lease of the site on which the
Casino is located and salaries, wages and other costs associated with
safeguarding the assets of the bankrupt estate.
During the three and nine months ended September 30, 1999, the Company
incurred depreciation and amortization expenses of $371,000 and $778,000,
respectively. During the corresponding periods in 1998, the Predecessor incurred
depreciation and amortization expenses of $138,000 and $431,000, respectively.
These increases resulted primarily from the additional assets being placed into
service during 1999.
During the three and nine months ended September 30, 1999, the Company
capitalized interest expense of $7.9 million and $19.0 million, respectively,
incurred on outstanding indebtedness and generated interest and other income of
$61,000 and $296,000, respectively, on amounts funded in connection with the
Plan of Reorganization. During the three and nine months ended September 30,
1998, the Predecessor incurred interest expense of $886,000 and $2.3 million,
respectively, on borrowings under its debtor-in-possession financing.
YEAR 2000 ISSUES
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.
For a detailed description of the impact of the Year 2000 issue on the Company,
refer to the Company's Annual Report on Form 10-K for the year ended December
31, 1998 and the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
The Company's Readiness Status. For purposes of this document, "ready"
and "readiness" with respect to Year 2000 issues means that it is anticipated
that the product, process, or mechanism will operate during and after the Year
2000 in a manner that will not create a material and adverse impact on the
Company's operations or financial performance. Since commencing development
operations on the Effective Date, the Company has been evaluating 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, and 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
13
<PAGE> 15
operate the Casino. In connection with its management of the Casino, the Manager
prepares and delivers to JCC Holding quarterly 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. JCC received the fourth and final Year 2000 Report that
the Manager is required to deliver on October 15, 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. In this report, the Manager identified the progress that it
has made with respect to (1) the Year 2000 readiness on items that had not been
evaluated as of the prior Year 2000 Report, (2) the testing of its upgrades,
replacements and renovations, and (3) the testing of third party representations
that their systems impacting the Casino are Year 2000 ready. The Year 2000
Report 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 Manager has indicated that the Casino's critical business
systems are Year 2000 ready, including the slot machines that will be used in
the Casino, accounting, general ledger, and human resources software, and such
facilities equipment as the emergency power system and the heating ventilation
and air conditioning systems.
The Company and the Manager have also sought to identify those third
parties whose operations may be impacted by the Year 2000 issue and on which the
Company's operations rely. This includes the contractors who the Company has
retained to complete the Casino construction (including sub-contractors), HET
and its affiliates (from whom gaming equipment and other systems have been
acquired), the Manager, financial institutions that have provided financing and
other services to the Company, utility providers, vendors of equipment used in
the Casino (including gaming equipment, electronic surveillance, electronic
access and heating, ventilation and air conditioning) and other suppliers. The
Company and the Manager have incorporated Year 2000 certifications,
representations and warranties in their agreements, bids and purchase orders
from such third parties. In addition, the Company and the Manager also 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. Although the Company's utility, telecommunications, and financial
services providers have confirmed that their systems are Year 2000 ready, the
process is ongoing and the Company expects to continue collecting responses and
materials from third parties regarding Year 2000 readiness even after the date
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 September 30, 1999, the
Company had not incurred any costs to address the Year 2000 issue in addition to
the amounts previously budgeted for equipping and constructing the Casino. In
the 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. Although no incremental costs have been identified at this
time, until the Company's Year 2000 efforts are complete, there remains the
potential for incremental costs to be identified that may exceed the Manager's
budget for equipping the Casino. Accordingly, 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 interruption for an extended period
of time of electric power, telephone or other utilities 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 is in the process of establishing a
contingency plan to address the most reasonably likely worst case scenarios
described above, including the feasibility of leasing additional generator
capacity to provide back-up power to the entire Casino in the event of a power
failure. The Company expects that it will complete developing these plans by
November 1999 and the contingency plans will be reviewed and tested during
November and December of 1999. Although the Company and the Manager are taking
steps believed to be sufficient to address the Year 2000 issues, these issues
present risks that may not be entirely foreseen and eliminated and which could
significantly affect the Company's business, financial condition and results of
operations.
14
<PAGE> 16
ITEM 3. 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 September 30, 1999, the aggregate
amount of the Company's outstanding indebtedness was $419.4 million, of which
$175.0 million accrued interest at variable rates and $244.4 million 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 condition and results of operations.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT
NO. DESCRIPTION
------- -----------
10.41 Employment Agreement, dated as of August 25, 1999, by and
between JCC Holding Company and L. Camille Fowler.
27.01 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the quarter
ended September 30, 1999.
15
<PAGE> 17
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.
JCC HOLDING COMPANY
Date: November 12, 1999 By: /s/ Frederick W. Burford
--------------------------------------------
Frederick W. Burford, President and Chief
Executive Officer (Principal Executive Officer of
the Registrant)
Date: November 12, 1999 By: /s/ L. Camille Fowler
--------------------------------------------
L. Camille Fowler, Vice President-Finance,
Treasurer and Secretary
(Principal Financial Officer and Principal
Accounting Officer of the Registrant)
16
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.41 Employment Agreement, dated as of August 25, 1999, by and
between JCC Holding Company and L. Camille Fowler.
27.01 Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
EXHIBIT 10.41
L. CAMILLE FOWLER
EMPLOYMENT AGREEMENT
This EMPLOYMENT Agreement (this "Agreement") is made and entered into
this 25th day of August, 1999 by and between JCC Holding Company, a Delaware
corporation (hereinafter, the "Company"), and L. Camille Fowler (hereinafter,
"Executive").
BACKGROUND
Executive currently serves as the Vice President - Finance, Treasurer
and Secretary of the Company. The Company desires to retain Executive as the
Vice President - Finance, Treasurer and Secretary of the Company, in accordance
with the terms of this Agreement. Executive is willing to serve as such in
accordance with the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Effective Date. This Agreement is effective retroactively to
November 1, 1998 (the "Effective Date").
2. Employment. Executive is hereby employed as the Vice President -
Finance, Treasurer and Secretary of the Company. In such capacity, Executive
shall have such responsibilities in accordance with the policies and objectives
established by the Board of Directors of the Company, which shall be consistent
with the responsibilities of similarly situated executives of comparable
companies in similar lines of business. In her capacity as Vice President -
Finance, Treasurer and Secretary of the Company, Executive will report directly
to the President and Chief Executive Officer of the Company.
3. Employment Period. Unless earlier terminated herein in accordance
with Section 7 hereof, Executive's employment shall be for a term beginning on
the Effective Date and ending December 31, 2000 (the "Employment Period").
Beginning on December 31, 2000 and on each December 31 thereafter, the
Employment Period shall, without further action by Executive or the Company, be
extended by an additional one-year period; provided, however, that either party
may, by notice to the other given no later than the June 30 prior to the end of
the then-current Employment Period, cause the Employment Period to cease to
extend automatically. Upon such notice, the Employment Period shall terminate
upon the expiration of the then-current term, including any prior extensions.
4. Extent of Service. During the Employment Period, and excluding any
periods of vacation and sick leave to which Executive is entitled, Executive
agrees to devote her business time, attention, skill and efforts exclusively to
the faithful performance
<PAGE> 2
of her duties hereunder; provided, however, that it shall not be a violation of
this Agreement for Executive to (i) devote reasonable periods of time to
charitable and community activities and, with the approval of the Company,
industry or professional activities, and/or (ii) manage personal business
interests and investments, so long as such activities do not materially
interfere with the performance of Executive's responsibilities under this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by Executive prior to the Effective Date,
the continued conduct of such activities (or the conduct of activities similar
in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of Executive's
responsibilities hereunder.
5. Compensation and Benefits.
(a) Base Salary. During the Employment Period, the Company
will pay to Executive an annual base salary in an initial amount to be
determined by the Board of Directors, but in no event less than U.S. $145,000
("Base Salary"), less normal withholdings, payable in equal monthly or more
frequent installments as are customary under the Company's payroll practices
from time to time. The Compensation Committee of the Board of Directors of the
Company shall review Executive's Base Salary annually and in its sole
discretion, subject to approval of the Board of Directors of the Company, may
further increase Executive's Base Salary from year to year. The annual review of
Executive's salary by the Compensation Committee of the Board of Directors (the
"Committee") will consider, among other things, Executive's own performance and
the Company's performance. The first annual review will be no later than
December 31, 1999.
(b) Annual Bonus. Executive's annual cash bonus for 1998 shall
be $30,000, which amount was paid in March 1999. Executive's annual cash bonus
for 1999 and years thereafter shall be based on corporate and/or individual
performance criteria established annually by the Committee, with a target bonus
of 35% of Base Salary for target performance ("Target Bonus") and appropriate
collars to be established by the Committee for threshold or exceptional
performance.
(c) Incentive, Savings and Retirement Plans. During the
Employment Period, Executive shall be entitled to participate in all incentive,
deferred compensation, savings and retirement plans, practices, policies and
programs applicable generally to senior management personnel of the Company and
its subsidiaries ("Peer Executives") from time to time, and on the same basis as
such Peer Executives. Without limiting the foregoing, the Company will adopt a
long-term compensation plan (the "LTIP") under which Executive will be granted
each year during the Employment Period an equity-based award designed such that
there is a reasonable expectation, upon achievement of applicable vesting
criteria, of creating value for Executive over the life of the award in an
amount approximately equivalent to 75% of her Base Salary in the year of grant.
Such long-term incentive opportunity may be in the form of stock options,
restricted stock or such other long-term incentives related to Company common
stock as determined by the Committee from time to time. The LTIP and awards to
Executive thereunder will be
-2-
<PAGE> 3
based on the assumption that the common stock of the Company will appreciate at
an annual rate of 10% over the performance period, but no adjustment will be
made in granted awards if this appreciation rate is not actually achieved. The
LTIP will be designed and adopted by the Committee as soon as practicable after
the Effective Date.
To the extent that any incentive award to Executive consists
of stock options, restricted stock or other equity-based awards in the nature of
rights that may be vested and/or exercised ("Equity Awards"), the instruments
evidencing such Equity Awards shall provide that in the event Executive's
employment is terminated (i) by the Company for any reason other than for Cause,
or (ii) by the Executive for Good Reason, or (iii) by reason of Executive's
death, the award will continue to vest and/or become exercisable over the
12-month period immediately following Executive's Date of Termination (as
defined hereinafter) unless the Date of Termination occurs within two years
after the occurrence of a Change of Control, in which case such Equity Awards
shall vest immediately as of the Date of Termination and shall remain
exercisable over the 12-month period following the Date of Termination. The
initial grant of awards to Executive under the LTIP is described on Exhibit A
attached hereto.
(d) Welfare Benefit Plans. During the Employment Period,
Executive and Executive's family shall be eligible for participation in, and
shall receive all benefits under, the welfare benefit plans, practices, policies
and programs provided by the Company and its subsidiaries from time to time
(including, without limitation, medical, prescription, dental, disability,
employee life, group life, accidental death and travel accident insurance plans
and programs) ("Welfare Plans") to the extent applicable generally to Peer
Executives.
(e) Expenses. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable business travel,
entertainment and other expenses incurred by Executive in accordance with the
policies, practices and procedures of the Company and its subsidiaries to the
extent applicable generally to Peer Executives.
(f) Vacation. During the Employment Period, Executive shall be
entitled to up to four-weeks paid vacation in accordance with the plans,
policies, programs and practices of the Company applicable generally to Peer
Executives.
(g) Fringe Benefits. During the Employment Period, Executive
shall be entitled to all other fringe benefits in effect for Peer Executives in
accordance with the plans, practices, programs and policies of the Company and
its subsidiaries.
6. Change of Control. For the purposes of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as
-3-
<PAGE> 4
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange 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, which currently
consists of the Class A and Class B stock of the Company (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change of
Control under this subsection (a): (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 unless such acquisition results in such Person being the
beneficial owner of 60% or more of the Outstanding Company Voting Securities,
(ii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or the Company, or (iii) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c) of this Section 6; or
(b) Individuals who, as of the Effective Date, constitute the
Board of Directors of the Company (the "Incumbent Board") cease for any reason
to constitute at least a majority of such Board; provided, however, that any
individual becoming a director of the Company 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
(c) Consummation of a reorganization, merger, consolidation or
share exchange 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 Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 66 2/3% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, 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 Common Stock and Outstanding Company Voting Securities, as the case may
be, (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
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<PAGE> 5
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.
7. Termination of Employment.
(a) Death or Disability. Executive's employment shall
terminate automatically upon Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to Executive written notice in accordance with
Section 16(f) of this Agreement of its intention to terminate Executive's
employment. In such event, Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such written notice by
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, Executive shall not have returned to full-time performance
of Executive's duties. For purposes of this Agreement, "Disability" shall mean a
mental or physical disability as determined by the Board of Directors of the
Company in accordance with standards and procedures similar to those under the
Company's employee long-term disability plan, if any. At any time that the
Company does not maintain such a long-term disability plan, Disability shall
mean the inability of Executive, as determined by the Board of Directors of the
Company, to substantially perform the essential functions of her regular duties
and responsibilities due to a medically determinable physical or mental illness
which has lasted (or can reasonably be expected to last) for a period of six
consecutive months or longer.
(b) Termination by the Company. The Company may terminate
Executive's employment during the Employment Period with or without Cause. For
purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of Executive
to perform substantially Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness, and
specifically excluding any failure by Executive, after good faith efforts, to
meet performance expectations), after a written demand for substantial
performance is delivered to Executive by the President or the Board of Directors
of the Company which specifically identifies the manner in which such Board or
the President believes that Executive has not substantially performed
Executive's duties, or
(ii) the willful engaging by Executive in illegal
conduct; or
(iii) the willful engaging by Executive in gross
misconduct which is materially and demonstrably injurious to the Company; or
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<PAGE> 6
(iv) the breach by Executive of the covenants contain
in Section 11 of this Agreement.
For purposes of this provision, no act or failure to act, on the part
of Executive, shall be considered "willful" unless it is done, or omitted to be
done, by Executive in bad faith or without reasonable belief that Executive's
action or omission was in the best interests of the Company. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the
Board or based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by Executive in good faith and in
the best interests of the Company. The cessation of employment of Executive
shall not be deemed to be for Cause unless and until there shall have been
delivered to Executive a copy of a resolution duly adopted by the affirmative
vote of not less than a majority of the entire membership of the Board of
Directors of the Company at a meeting of such Board called and held for such
purpose (after 30 days' notice is provided to Executive specifying the reason
for termination hereunder and Executive is given an opportunity, together with
counsel, to be heard before such Board), finding that, in the good faith opinion
of such Board, Executive is guilty of the conduct described in subparagraph (i),
(ii), (iii) or (iv) above, and specifying the particulars thereof in detail.
(c) Termination by Executive. Executive's employment may be
terminated by Executive for Good Reason or no reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) without the written consent of Executive, the
assignment to Executive of any duties inconsistent with Executive's position
(including status, offices, titles and reporting requirements), authority,
duties or responsibilities as contemplated by Section 2 of this Agreement, or
any other action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly (not more than 30 days) after receipt of notice
thereof given by Executive; or
(ii) a reduction by the Company in Executive's Base
Salary and/or benefits as in effect on the Effective Date or as the same may be
increased from time to time, or the failure by the Company to increase
Executive's Base Salary each year during the Employment Period by an amount
which at least equals, on a percentage basis, the average percentage increase in
base salary for Peer Executives; or
(iii) the failure by the Company to honor all the
terms and provisions of this Agreement, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly (not more than 30 days) after receipt of notice
thereof given by Executive; or
(iv) the purported termination of Executive otherwise
than pursuant to the terms of this Agreement; or
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<PAGE> 7
(v) any failure by the Company to comply with and
satisfy Section 15(c) of this Agreement; or
(vi) any termination by Executive for any reason or
no reason during the 30-day period beginning on the first anniversary of a
Change of Control.
Good Reason shall not include Executive's death or Disability.
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason hereunder. Any
good faith determination of Good Reason made by Executive shall be conclusive,
but the Company shall have an opportunity to cure any claimed event of Good
Reason (other than under clause (vi) above) within 30 days of notice from
Executive and the Board's good faith determination of cure shall be binding. The
Company shall notify Executive of the timely cure of any claimed event of Good
Reason and the manner in which such cure was effected, and any Notice of
Termination delivered by Executive based on such claimed Good Reason shall be
deemed withdrawn and shall not be effective to terminate the Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 16(f) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than 60 days after
the giving of such notice). The failure by Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of Executive or the
Company, respectively, hereunder or preclude Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing Executive's
or the Company's rights hereunder at a later date.
(e) Date of Termination. "Date of Termination" means (i) if
Executive's employment is terminated by the Company for Cause or by Executive
for Good Reason, the date specified in the Notice of Termination (which shall
not be less than 30 days after the date of delivery of the Notice of
Termination), (ii) if Executive's employment is terminated by reason of death or
Disability, the date of death or the Disability Effective Date, as the case may
be, and (iii) if Executive's employment is terminated for any other reason, the
date of receipt of the Notice of Termination, or any later date specified
therein (which shall not be more than 60 days after the date of delivery of the
Notice of Termination).
8. Obligations of the Company upon Termination.
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<PAGE> 8
(a) Termination by Executive for Good Reason; Termination by
the Company Other Than for Cause or Disability. If, during the Employment
Period, the Company shall terminate Executive's employment other than for Cause
or Disability, or Executive shall terminate employment for Good Reason, then in
consideration of Executive's services rendered prior to such termination:
(i) the Company shall pay to Executive in a lump sum
in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) Executive's Base Salary
through the Date of Termination to the extent not theretofore paid, (2)
the product of (x) Executive's Target Bonus (as defined in Section 5(b)
for the year in which the Date of Termination occurs and (y) a
fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of
which is 365, (3) any accrued vacation pay to the extent not
theretofore paid, and (4) unless Executive has elected a different
payout date in a prior deferral election, any compensation previously
deferred by Executive (together with any accrued interest or earnings
thereon) to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), (3) and (4) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the sum of (1)
Executive's Base Salary in effect as of the Date of Termination, and
(2) Executive's Target Bonus for the year in which the Date of
Termination occurs (the "Severance Payment"); and
(ii) for 12 months after the Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue medical and health
insurance benefits to Executive and/or Executive's family at least equal to
those which would have been provided to them in accordance with Section 5(d) of
this Agreement if Executive's employment had not been terminated (and Executive
shall continue to be responsible for any cost thereof normally allocated to the
employee); provided, however, that (A) post-termination insurance coverage
provided pursuant to this provision shall offset any period of continuation
coverage provided under COBRA applicable to such benefits, and (B) if Executive
becomes re-employed with another employer and is eligible to receive medical and
health insurance benefits under another employer provided plan, the medical and
health insurance benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility; and
(iii) as shall be set forth in the instruments
evidencing such awards, all stock options and other equity-based awards in the
nature of rights that may be vested and/or exercised ("Equity Awards") that are
held by Executive as of the Date of Termination will continue to vest and/or
become exercisable over the 12-month period
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<PAGE> 9
immediately following the Date of Termination; provided, however that if the
Date of Termination occurs within two years after the occurrence of a Change of
Control, then all of Executive's Equity Awards shall vest immediately as of the
Date of Termination and shall remain exercisable over the 12-month period
following the Date of Termination; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to Executive any other amounts or
benefits required to be paid or provided or which Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company, including without limitation COBRA rights to the extent not fully
offset (such other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) Death or Disability. If Executive's employment is
terminated by reason of Executive's death or Disability during the Employment
Period, this Agreement shall terminate without further obligations to Executive
or Executive's legal representatives under this Agreement, other than for
payment of Accrued Obligations (as defined in Section 8(a)(i)(A) above) and the
timely payment or provision of Other Benefits (as defined in Section 8(a)(iv)
above). Accrued Obligations shall be paid to Executive or Executive's legal
representative, estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as used in this Section 8(b) shall
include, without limitation, and Executive or Executive's legal representative,
estate and/or beneficiaries shall be entitled to receive, benefits under such
plans, programs, practices and policies relating to death or disability, if any,
as are applicable to Executive on the Date of Termination.
(c) Cause or Voluntary Termination without Good Reason. If
Executive's employment shall be terminated for Cause during the Employment
Period, or if Executive voluntarily terminates employment during the Employment
Period without Good Reason, this Agreement shall terminate without further
obligations to Executive, other than for payment of Accrued Obligations (as
defined in Section 8(a)(i)(A) above, but excluding the pro-rata bonus described
in clause 2 thereof) and the timely payment or provision of Other Benefits (as
defined in Section 8(a)(iv) above).
(d) Expiration of Employment Period. If the Employment Period
expires by reason of the Company's giving notice of non-renewal pursuant to
Section 3 of this Agreement, this Agreement shall terminate upon the expiration
of the then-current term, including any prior extensions (the "Expiration
Date"), without further obligations to Executive, other than for (i) payment of
Accrued Obligations (as defined in Section 8(a)(i)(A) above, but excluding the
pro-rata bonus described in clause 2 thereof), (ii) the timely payment to
Executive of the actual bonus earned by her with respect to the last year of the
Employment Period, (iii) the timely payment or provision of Other Benefits (as
defined in Section 8(a)(iv) above), and (iv) payment or provision of the
following severance benefits:
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<PAGE> 10
(A) the Company shall pay to Executive in a
lump sum in cash within 30 days after the Expiration Date the amount
equal to 100% of Executive's Base Salary in effect as of the Expiration
Date; and
(B) for 12 months after the Expiration Date,
the Company shall continue medical and health insurance benefits to
Executive and/or Executive's family at least equal to those which would
have been provided to them in accordance with Section 5(d) of this
Agreement if Executive's employment had not been terminated (and
Executive shall continue to be responsible for any cost thereof
normally allocated to the employee); provided, however, that (A)
post-termination insurance coverage provided pursuant to this provision
shall offset any period of continuation coverage provided under COBRA
applicable to such benefits, and (B) if Executive becomes re-employed
with another employer and is eligible to receive medical and health
insurance benefits under another employer provided plan, the medical
and health insurance benefits described herein shall be secondary to
those provided under such other plan during such applicable period of
eligibility.
9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or its subsidiaries and for which
Executive may qualify, nor, subject to Section 16(d), shall anything herein
limit or otherwise affect such rights as Executive may have under any contract
or agreement with the Company or its subsidiaries. Amounts which are vested
benefits or which Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with the Company or
any of its subsidiaries at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
10. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company or the Company to or for the benefit of
Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 10) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by Executive with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.
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<PAGE> 11
(b) Subject to the provisions of Section 10(c), all
determinations required to be made under this Section 10, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by the Company's regular independent accounting firm at the expense of the
Company or, at the election and expense of Executive, another nationally
recognized independent accounting firm (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and Executive
within 15 business days of the receipt of notice from Executive that there has
been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, Executive shall
appoint another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 10, shall be paid by the Company to Executive within 15 business
days of the receipt of the Accounting Firm's determination. Any determination by
the Accounting Firm shall be binding upon the Company and Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 10(c) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive.
(c) Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than 15 business days after Executive is informed in
writing of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. Executive shall not
pay such claim prior to the expiration of the 30-day period following the date
on which it gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If the
Company notifies Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
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<PAGE> 12
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation of the foregoing provisions of
this Section 10(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced
by the Company pursuant to Section 10(c), Executive becomes entitled to receive
any refund with respect to such claim, Executive shall (subject to the Company's
complying with the requirements of Section 10(c)) promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 10(c), a determination is made that
Executive shall not be entitled to any refund with respect to such claim and the
Company does not notify Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
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<PAGE> 13
11. Confidential Information. Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company, Harrah's or any of their respective
affiliated companies, and their respective businesses, which shall have been
obtained by Executive during Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by Executive or representatives of Executive in violation of this
Agreement). After termination of Executive's employment with the Company,
Executive shall not, without the prior written consent of the Company or as may
otherwise be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it.
12. Full Settlement; Partial Security for Payment. The Company's
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against Executive or others. In no event shall Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not Executive obtains
other employment. As partial security for the Company's obligations under this
Agreement, and without limiting Executive's ability to enforce all of her rights
under this Agreement, the Company will purchase on or before the Effective Date
an irrevocable stand-by letter of credit (the "LOC") in favor of Executive in an
amount equal to one times her Base Salary as in effect on the Effective Date.
The LOC shall by its terms provide for prompt payment to Executive of any amount
due under this Agreement (up to the LOC limit) upon no condition other than
receipt (by facsimile or otherwise) by the LOC issuer of a signed notice from
Executive that such amount is past due.
13. Costs of Enforcement. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expenses which Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by Executive about the amount of
any payment pursuant to this Agreement).
14. Representations and Warranties. Executive hereby represents and
warrants to the Company that Executive is not a party to, or otherwise subject
to, any covenant not to compete with any person or entity, and Executive's
execution of this Agreement and performance of her obligations hereunder will
not violate the terms or conditions of any contract or obligation, written or
oral, between Executive and any other person or entity.
15. Assignment and Successors.
(a) This Agreement is personal to Executive and without the
prior
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<PAGE> 14
written consent of the Company shall not be assignable by Executive otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
16. Miscellaneous.
(a) Waiver. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in a writing signed by the party making the waiver.
(b) Severability. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
(c) Other Agents. Nothing in this Agreement is to be
interpreted as limiting the Company from employing other personnel on such terms
and conditions as may be satisfactory to it.
(d) Entire Agreement. Except as provided herein, this
Agreement contains the entire agreement between the Company and Executive with
respect to the subject matter hereof and, from and after the Effective Date,
this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof.
(e) Governing Law. Except to the extent preempted by federal
law, and without regard to conflict of laws principles, the laws of the State of
Tennessee shall govern this Agreement in all respects, whether as to its
validity, construction, capacity, performance or otherwise.
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<PAGE> 15
(f) Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered or three days after mailing if
mailed, first class, certified mail, postage prepaid:
To Company: JCC Holding Company
512 South Peters Street
New Orleans, Louisiana 70130
Attention: President
To Executive: L. Camille Fowler
1551 Calhoun Street
New Orleans, Louisiana 70118
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
(g) Amendments and Modifications. This Agreement may be
amended or modified only by a writing signed by both parties hereto, which makes
specific reference to this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Employment Agreement as of the date first above written.
JCC HOLDING COMPANY
By: /s/ Frederick W. Burford
----------------------------
Frederick W. Burford
Title: President and Chief Executive Officer
EXECUTIVE:
/s/ L. Camille Fowler
---------------------------------------
L. Camille Fowler
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<PAGE> 16
EXHIBIT A
INITIAL GRANT OF AWARDS TO EXECUTIVE UNDER THE
LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK AWARDS
NUMBER OF SHARES: 15,000 shares
VESTING SCHEDULE: Fully vested as of January 1, 2003, subject to earlier
vesting in accordance with the following schedule, where:
Goal #1 = completion of casino and garage on time and on budget;
Goal #2 = Phase I and Phase II completed for 2nd floor by November, 2000;
and
Goal #3 = construction and facility leasing of Fulton Street
substantially complete by November 1, 2001.
Percent of shares with respect to which restrictions lapse early upon attainment
of Goal:
<TABLE>
<CAPTION>
- ---------------------------- -------------------------- --------------------------
Goal #1 Goal #2 Goal #3
- ---------------------------- -------------------------- --------------------------
<S> <C> <C>
33% 33% 34%
- ---------------------------- -------------------------- --------------------------
</TABLE>
STOCK OPTION GRANTS
NUMBER OF OPTIONS: 31,500
EXERCISE PRICE: $3.625 (fair market value as of grant date)
VESTING SCHEDULE: January 1, 2003, subject to earlier vesting in accordance
with the following schedule (where Average Share Price means
the average price per share of JCC Holding Company common
stock over any 20 trading days in a 30 consecutive trading
day period)
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------------------------------
Cumulative Percentage
of Option Shares Vested Average Share Price
- ------------------------------------------------------- -----------------------------------------------------
<S> <C>
20% $5.00
- ------------------------------------------------------- -----------------------------------------------------
40% $6.00
- ------------------------------------------------------- -----------------------------------------------------
60% $7.00
- ------------------------------------------------------- -----------------------------------------------------
80% $8.00
- ------------------------------------------------------- -----------------------------------------------------
100% $9.00
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JCC HOLDING
COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED
STATEMENT OF OPERATIONS AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,258
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,237
<PP&E> 353,153
<DEPRECIATION> 666
<TOTAL-ASSETS> 467,411
<CURRENT-LIABILITIES> 25,562
<BONDS> 320,066
0
0
<COMMON> 101
<OTHER-SE> 83,782
<TOTAL-LIABILITY-AND-EQUITY> 467,411
<SALES> 0
<TOTAL-REVENUES> 103
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (20,721)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,721)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,721)
<EPS-BASIC> (2.06)
<EPS-DILUTED> (2.06)
</TABLE>
