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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 JUNE 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 ____________
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 August 13, 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>
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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
June 30, 1999 and December 31, 1998 (Unaudited) 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1999 and 1998 (Predecessor)(Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 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 14
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
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 construction and opening by a subsidiary of JCC
Holding of a land-based casino in New Orleans, Louisiana (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 subsidiary to construct and open, and the timing of the construction
and opening of, the Casino 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
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JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
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ASSETS
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Current Assets:
Cash and cash equivalents (includes restricted
cash of $3,190 and $605, respectively) $ 9,537 $ 25,506
Prepaids and other assets 2,888 1,741
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Total current assets 12,425 27,247
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Property and Equipment:
Buildings 19,959 --
Property held for development 13,885 13,200
Construction in progress (includes restricted
cash of $13,893 and $9,218, respectively) 265,453 192,917
Furniture, fixtures and equipment 12,590 12,612
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Total 311,887 218,729
Less - accumulated depreciation (357) (71)
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Net property and equipment 311,530 218,658
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Deferred assets, net of amortization:
Deferred operating contract 68,676 68,676
Lease prepayments 16,985 16,985
Other 15,880 11,565
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Total deferred assets, net of amortization 101,541 97,226
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TOTAL ASSETS $ 425,496 $ 343,131
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 49 $ 643
Accrued expenses 15,704 14,659
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Total current liabilities 15,753 15,302
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Long-Term Debt 276,806 185,519
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
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 (13,128) (3,677)
Less - unearned compensation (387) --
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Total stockholders' equity 95,037 104,410
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 425,496 $ 343,131
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</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 SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
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JCC HOLDING HARRAH'S JAZZ JCC HOLDING HARRAH'S JAZZ
COMPANY COMPANY COMPANY COMPANY
(SUCCESSOR) (PREDECESSOR) (SUCCESSOR) (PREDECESSOR)
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THREE MONTHS ENDED SIX MONTHS ENDED
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1999 1998 1999 1998
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(IN THOUSANDS, EXCEPT SHARE DATA)
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Miscellaneous Revenues $ 4 $ 26 $ 10 $ 50
Operating Expenses:
General and administrative 6,465 5,036 9,289 7,918
Depreciation and amortization 236 144 407 293
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Total operating expenses 6,701 5,180 9,696 8,211
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Operating Loss (6,697) (5,154) (9,686) (8,161)
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Reorganization Items -- (1,885) -- (2,459)
Other income (expenses)
Interest expense, net of capitalized interest -- (761) -- (1,437)
Interest and other income 70 -- 235 --
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Total other income 70 (761) 235 (1,437)
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Net Loss $ (6,627) $ (7,800) $ (9,451) $ (12,057)
============ ============ ============ ============
Basic Loss Per Share $ (0.66) $ (0.94)
============ ============
Weighted Average Shares Outstanding 10,054,692 10,027,497
============ ============
</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 CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 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 $ (9,451) $ (12,057)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 407 293
Amortization of unearned compensation 77 --
Changes in operating assets and liabilities:
Prepaids and other assets (1,147) 1
Accounts payable (594) 4,338
Accrued expenses 404 --
Pre-confirmation contingencies (1,688) --
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Net cash flows used in operating activities (11,992) (7,425)
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Cash Flows From Investing Activities:
Capital expenditures (82,084) (477)
Proceeds from sale of property 42 --
Increase in other deferred assets (4,435) --
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Net cash flows used in investing activities (86,477) (477)
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Cash Flows From Financing Activities:
Proceeds from long-term borrowings 82,500 --
Proceeds from debtor-in-possession borrowings -- 7,871
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Net cash flows provided by financing activities 82,500 7,871
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Net decrease in cash and cash equivalents (15,969) (31)
Cash and cash equivalents, beginning of period 25,506 3,755
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Cash and cash equivalents, end of period $ 9,537 $ 3,724
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,558 --
Noncash investing and financing activities:
Increase in long-term debt for payment-in-kind interest payments $ 7,142 --
Amortization of debt discount $ 1,647 --
Capitalized interest $ 11,117 --
Issuance of restricted stock awards $ 464 --
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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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 is scheduled to open 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.C.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 B Common Stock under the Plan.
However, under certain settlement agreements entered into in connection with the
Plan, HCCIC
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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 June 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 second quarter
ended June 30, 1999, $77,357 was charged to expense related to these awards.
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 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
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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 Six
Months Ended Months Ended
June 30, 1999 June 30, 1999
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NET LOSS:
As reported $ 6,627 $ 9,451
Pro forma $ 7,326 $ 10,150
NET LOSS PER SHARE:
As reported $ 0.66 $ 0.94
Pro forma $ 0.73 $ 1.01
</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, is
constructing 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
As redesigned pursuant to the Plan of Reorganization, the Casino will
contain five themed areas named The Jazz Court, The Mardi Gras Court, The
Smuggler's Court, The Court of the Mansion and The Court of Good Fortune. The
remaining space will be used for additional gaming activities, a food service
area, casino support facilities, and multi-function, special event and
meeting-room space. The Jazz Court will have a raised domed ceiling and occupy
the center of the Casino. Parking for approximately 300 cars and approximately
145,000 square feet of back-of-house and support areas will be provided
underneath the main gaming floor. Across Poydras Street and connected to the
Casino by an underground tunnel (the "Poydras Tunnel Area") will be two newly
constructed parking facilities which will contain approximately 1,550 parking
spaces. One of the parking facilities, which contains 1,000 parking spaces, was
completed and opened on June 14, 1999. It is currently being used by employees
and is generating revenues from downtown commercial parking customers. The
second facility, which will contain 550 parking spaces, is scheduled to be
completed prior to October 1, 1999.
The Casino is scheduled to open and commence operations on October 28,
1999 and will include 100,000 square feet of gaming space, a 250-seat buffet,
two parking garages, the Poydras Tunnel Area and approximately 12,000 square
feet of multi-function, special event, food service and meeting-room space on
the first floor of the premises (the "Initial Casino Facilities"). Concurrently
with construction of the Initial Casino Facilities, the Company expects that
approximately 150,000 square feet of multipurpose non-gaming entertainment space
on the second floor of the Casino premises will be constructed to the point at
which the shell of the structure is 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 project was approximately $367.6 million. This
amount included, among other things, hard costs of completing construction of
the Casino, costs of obtaining gaming equipment and supplies, reorganization
costs related to the bankruptcy, payments to unsecured creditors and cure
payments in connection with the assumption of certain contracts. As of June 30,
1999, the remaining costs of completing the project were approximately $92
million, including $29 million in hard construction costs and $63 million for
gaming equipment and supplies and other pre-opening costs. Based upon the
Company's survey of gaming operations in the New Orleans and surrounding
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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
its competitive position in the New Orleans and surrounding marketplaces.
However, this change will require the Company to load the machines prior to
opening with approximately $4 million in coins, the financing for which has not
yet been obtained. The Company is currently exploring financing alternatives to
meet this obligation, but cannot assure that additional financing will be
available, or if available, that it will be on terms favorable to the Company.
In the event that such financing is not available, the Company will consider
further alternatives including, among other things, the use of token slot
machines.
The above estimate of total construction and other costs does not
include costs associated with the build-out of non-gaming tenant improvements on
the second floor of the Casino beyond the Second Floor Shell Construction and
the development of the 3CP Property and Fulton Property. The Company has not
obtained financing to fund this build-out or the development of the 3CP Property
and Fulton Property, and the Company cannot assure that it will obtain such
financing. Without financing, the Company will be unable to 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 funding of approximately $4
million in coins, 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 fails to commence or complete the Casino construction and to pay
JCC costs and expenses until the Casino opens prior to the Termination of
Construction Date.
JCC also has up to $25 million available for working capital purposes
under a working capital line of credit (the "Working Capital Facility").
However, subject to certain exceptions, JCC must repay any amounts outstanding
under the Working Capital Facility on the Termination of Construction Date (as
defined below), which generally will occur 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 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").
10
<PAGE> 12
Funded principal amounts and terms of the Company's indebtedness as of
June 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 7.75%(a), due 2006 60.0 61.5
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) 193.4 --
Unamortized Discount (97.6)
---------- ----------
Total Long-Term Debt $ 276.8 $ 81.5
========== ==========
</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 six months ended June 30, 1999, the Company borrowed $60
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 construction of the Casino, it will be
drawn to pay down Tranche A-1. 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.
JCC has the option to pay the first six semi-annual payments of fixed
interest on the New Notes in kind rather than in cash; provided, however, that
JCC must pay the first four semi-annual payments of fixed interest in kind if
Tranche A-1 and/or Tranche A-2 is outstanding when such payments are due. JCC
also has the option of 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.
After the opening of the Initial Casino Facilities, JCC expects that
its working capital needs will be funded by a combination of up to $25 million
of borrowing availability under the Working Capital Facility and any operating
cash flows remaining after application of the excess cash flow sweep required by
the Credit Agreement. The Completion Guarantors have agreed to ensure that, upon
the completion of the Casino construction, JCC will have $5.0 million in cash
and up to $25 million under the Working Capital Facility.
11
<PAGE> 13
The Company expects that the capital expenditures necessary to operate
the Casino after the Opening Date will be funded by a capital replacement fund
JCC is required to establish pursuant to:
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 will be required to fund monthly payments into the capital
replacement fund in an aggregate amount equal to $3 million for the first 12
months following the Opening Date, $4 million for the second 12 months following
the Opening Date, $5 million for the third 12 months following the Opening Date,
and 2% of the gross revenues of the Casino for each fiscal month thereafter.
Funds provided by a combination of these sources are expected to be
sufficient to satisfy the Company's financial obligations, other than the funds
required to load the slot machines with coins and 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 delays or construction cost overruns. The
Company is currently exploring alternatives to fund the approximately $4 million
required to load the slot machines prior to the Opening Date. 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.
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 six months ended June 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 six months
ended June 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 six months ended June 30, 1998, the Company believes that comparisons
between the three and six months ended June 30, 1999 and 1998 are not
meaningful.
Because the Casino is not expected to be open for operation until
October 1999, the Company's revenues of $4,000 and $10,000 during the three and
six months ended June 30, 1999, respectively, and the Predecessor's revenues of
$26,000 and $50,000 during the corresponding periods in 1998 were generated
primarily from the rental income generated from a parking lot located on the 3CP
Property. The revenues generated by, and expenses incurred in connection with,
the operation of the Casino parking facility that was opened on June 14, 1999,
were not material.
During the three and six months ended June 30, 1999, the Company
incurred general and administrative expenses of $6.5 million and $9.3 million,
respectively. These expenses consisted primarily of salaries and wages, legal
and professional fees, recruiting employees to work in the Casino and
pre-opening marketing. During the corresponding periods in 1998, the Predecessor
incurred general and administrative expenses of $5.0 million and $7.9 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 six months ended June 30, 1999, the Company
incurred depreciation and amortization expenses of $236,000 and $407,000,
respectively. During the corresponding periods in 1998, the Predecessor
12
<PAGE> 14
incurred depreciation and amortization expenses of $144,000 and $293,000,
respectively. These increases resulted primarily from the additional assets
being placed into service during 1999.
During the three and six months ended June 30, 1999, the Company
capitalized interest expense of $6.0 million and $11.1 million, respectively,
incurred on outstanding indebtedness and generated interest income of $55,000
and $220,000, respectively, on amounts funded in connection with the Plan of
Reorganization. During the three and six months ended June 30, 1998, the
Predecessor incurred interest expense of $761,000 and $1.4 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 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 third Year 2000 Report on July 31, 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. While the Manager has indicated that the majority of the Casino's
critical business systems are Year 2000 ready, it has not completed assessing or
testing certain items, including the slot machines that will be used in the
Casino and such facilities equipment as the emergency power system and the
heating ventilation and air conditioning systems. The Company anticipates that
the assessment, testing and measures required to ensure that such critical
business systems are Year 2000 ready will be completed in conjunction with the
construction and pre-opening activities prior to the Casino Opening Date.
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 and
will be 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. Certain of the Company's utility providers
have confirmed that their systems are Year 2000 ready. While the Company and the
Manager have collected many responses and other materials from such third
parties regarding Year 2000 readiness, the process is ongoing and is expected to
continue up to and through the date when the
13
<PAGE> 15
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 June 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. However, the Company and the Manager have not completed the testing of
those internal systems which are available for testing or which it can test
feasibly and practically, and since the Company and the Manager are still in the
process of choosing suppliers, finalizing bid proposals as well as collecting
responses regarding Year 2000 readiness from existing suppliers, the Company has
not fully assessed its potential Year 2000 exposure. Accordingly, the Company
has not yet completed its Year 2000 contingency plans. The Company expects that
it will complete developing these plans as it completes the installation and
testing of computer hardware and software and equipment in the Casino and
negotiates contracts with its remaining significant suppliers prior to the
Casino Opening Date. 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.
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 June 30, 1999, the aggregate amount
of the Company's outstanding indebtedness was $374.4 million, of which $130.0
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.
14
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of JCC Holding held on May 13,
1999, the following matters were brought before and voted upon by the
Stockholders:
1. A proposal to elect the following Group I Directors to the Board of
Directors to serve until the 2002 Annual Meeting of Stockholders:
<TABLE>
<CAPTION>
Withhold Broker
For Against Authority Abstain Non-Votes
--- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Colin V. Reed 4,302,623 -- -- -- --
Seth E. Lemler 4,405,205 -- 5,825 -- --
</TABLE>
The following members of the Board of Directors of JCC Holding will continue in
office after the Annual Meeting:
Eddie N. Williams (Group II Director to serve until the 2000 Annual
Meeting of Stockholders)
Edwin Jacobson (Group II Director to serve until the 2000 Annual
Meeting of Stockholders)
John M. Boushy (Group III Director to serve until the 2001 Annual
Meeting of Stockholders)
Rudy J. Cerone (Group III Director to serve until the 2001 Annual
Meeting of Stockholders)
2. A proposal to approve JCC Holding's 1998 Long-Term Incentive Plan:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
<S> <C> <C> <C>
6,948,142 107,928 2,833 1,773,730
</TABLE>
3. A proposal to approve JCC Holding's 1999 Non-Employee Director
Stock Option Plan:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
<S> <C> <C> <C>
6,998,557 58,210 2,136 1,773,730
</TABLE>
4. A proposal to ratify the selection of Deloitte & Touche, LLP as
independent accountants of JCC Holding for the fiscal year ended December 31,
1999:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
<S> <C> <C> <C>
8,828,034 4,108 491 --
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT
NO. DESCRIPTION
10.40 Employment Agreement, dated as of May 6, 1999, by and
between JCC Holding Company and Frederick W. Burford.
27.01 Financial Data Schedule (for SEC use only).
(b) On July 1, 1999, JCC Holding filed a Current Report on Form 8-K
describing and filing slides presented by Frederick W. Burford, JCC
Holding's President and Chief Executive Officer, at the Jeffries &
Company, Inc. High Yield Gaming Conference in Atlantic City, New Jersey
on June 28, 1999. The date of the earliest reportable event was June
28, 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: August 13, 1999 By: /s/ Frederick W. Burford
-----------------------------------------
Frederick W. Burford, President and Chief
Executive Officer (Principal Executive
Officer of the Registrant)
Date: August 13, 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
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ------------
<S> <C>
10.40 Employment Agreement, dated as of May 6, 1999, by and
between JCC Holding Company and Frederick W. Burford.
27.01 Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
FREDERICK W. BURFORD
EMPLOYMENT AGREEMENT
This EMPLOYMENT Agreement (this "Agreement") is made and entered into
this 6th day of May, 1999 by and between JCC Holding Company, a Delaware
corporation (hereinafter, the "Company"), and Frederick W. Burford (hereinafter,
"Executive").
BACKGROUND
Executive currently serves as the President of the Company. The Company
desires to retain Executive as the President and Chief Executive Officer 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 President and Chief
Executive Officer 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 his capacity as President and Chief Executive
Officer of the Company, Executive will report directly to the Board of
Directors.
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 his business time, attention, skill and efforts exclusively to
the faithful
<PAGE> 2
performance of his 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. $260,000 ("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
$95,335, 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 50% 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 145% of his 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
-2-
<PAGE> 3
Committee from time to time. The LTIP and awards to Executive thereunder will be
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
18-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 24-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) Prior Service Credit. Executive shall be given credit for 14
years of prior service with Harrah's Entertainment, Inc. ("Harrah's") for all
purposes (other than for financial benefit accrual purposes) under the plans,
programs, policies, agreements and practices covering Executive pursuant to this
Section 5, to the extent that any such plan, program, policy, agreement or
practice permits prior service credit.
(f) 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.
(g) 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.
(h) Automobile. During the Employment Period, the Company shall
lease or buy (at the Company's option) an automobile for the exclusive use by
Executive in and
-3-
<PAGE> 4
around New Orleans on Company business and for incidental personal use. The make
and model of such automobile, and the financial terms of the lease or purchase,
shall be as approved by the Chairman of the Board of the Company. It is intended
that the automobile will be a mid-sized four-door sedan or similar vehicle. The
Company will fully reimburse Executive for any income tax liability incurred
with respect to the foregoing benefit.
(i) Apartment Expenses. The parties acknowledge that, during the
Employment Period, Executive will maintain his primary family residence in
Memphis, Tennessee, and that he may be required to reside on an interim basis in
New Orleans, Louisiana in order to fulfill his obligations under this Agreement.
During the Employment Period, the Company shall reimburse Executive's rental and
related maintenance fees and expenses for an apartment in New Orleans, Louisiana
selected by Executive. In addition, during the Employment Period, the Company
shall reimburse Executive's expenses for travel between Memphis and New Orleans
and, if on any weekend Executive is unable for business reasons to return to
Memphis, the Company will reimburse Executive for the expenses of travel to New
Orleans for Executive's spouse and immediately family members. The Company will
fully reimburse Executive for any income tax liability incurred with respect to
the foregoing expense reimbursements (including income tax liability with
respect to the tax gross-up payments).
(j) 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 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
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(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 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
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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
his 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 Chairman or the Board of Directors of the Company
which specifically identifies the manner in which such Board or the Chairman
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
(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
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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
(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
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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.
(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
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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 200% (or 299% in the event the Date
of Termination occurs within two years after the occurrence of a Change
of Control) of 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 18 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 18-month period 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 24-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").
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(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 him 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:
(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 (or 299% of
such Base Salary in the event the Expiration Date occurs within two
years after the occurrence of a Change of Control); and
(B) for 12 months after the Expiration Date (or 18 months
after the Expiration Date if the Expiration Date occurs within two
years after the occurrence of a Change of Control), 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
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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.
(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
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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,
(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;
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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.
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
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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 his 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 his 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 his 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
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.
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(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.
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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.
(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: Corporate Secretary
-16-
<PAGE> 17
To Executive: Frederick W. Burford
350 Bluff Ridge Cove
Cordova, Tennessee 38018
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/ Colin V. Reed
---------------------------------------
Colin V. Reed
Title: Chairman of the Board of Directors
EXECUTIVE:
/s/ Frederick W. Burford
----------------------------------------------
Frederick W. Burford
-17-
<PAGE> 18
EXHIBIT A
INITIAL GRANT OF AWARDS TO EXECUTIVE UNDER THE
LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK AWARDS
NUMBER OF SHARES: 55,000 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: 115,000
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 JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 9,537
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,425
<PP&E> 311,887
<DEPRECIATION> 357
<TOTAL-ASSETS> 425,496
<CURRENT-LIABILITIES> 15,753
<BONDS> 276,806
0
0
<COMMON> 101
<OTHER-SE> 94,936
<TOTAL-LIABILITY-AND-EQUITY> 425,496
<SALES> 0
<TOTAL-REVENUES> 10
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,451)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,451)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,451)
<EPS-BASIC> 0.94
<EPS-DILUTED> 0.94
</TABLE>
