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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
( ) 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 0-11268
THE CLARIDGE HOTEL AND CASINO CORPORATION
(Exact name of registrant as specified in its charter)
New York 22-2469172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Indiana Avenue and the Boardwalk
Atlantic City, New Jersey 08401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 340-3400
__________________
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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First Mortgage Notes, due 2002 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class A Stock, $.001 par value
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes __X___ No _____
Indicate by check mark if disclosure of delinquent filers pursuant
to item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ( )
All issued and outstanding shares of the Corporation have been
offered and sold in reliance on exemptions from the registration
requirements of the Securities Act of 1933, as amended. Therefore,
there is no established trading market for any class of shares of
the Corporation. The Corporation did, in 1989, jointly with Atlantic
City Boardwalk Associates, L.P. ("Partnership") and Del Webb
Corporation ("Webb"), register certain Contingent Payment Rights.
As stated in the Prospectus dated May 5, 1989, Contingent Payment
Rights may or may not be securities. None of the Corporation, the
Partnership, or Webb has admitted that the Contingent Payment Rights
are securities or that any of them is the issuer of any such
securities.
Indicate the number of shares outstanding of each class of the
Registrant's Stock, as of the latest practicable date:
Number of Shares Outstanding
March 29, 1994
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Class A Stock 4,988,537 (After deducting 73,963 shares of
Treasury Stock)
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DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENT FORM 10-K PART
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Portions of the definitive Proxy Statement with III
respect to the Annual Meeting of Shareholders
scheduled to be held on June 7, 1994 (hereinafter
referred to as the "Proxy Statement"), but
specifically excluding the section titled "Report
on Executive Compensation" which shall not be
deemed to be incorporated by reference herein
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PART I
Item 1. BUSINESS
General Development of the Business
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The Claridge Hotel and Casino Corporation (the "Corporation"), a New
York corporation was formed on August 26, 1983, and qualified to engage
in business in New Jersey as a foreign corporation in September 1983.
The Corporation holds all of the shares of capital stock of The
Claridge at Park Place, Incorporated, a New Jersey corporation ("New
Claridge"), which was formed on August 29, 1983. On October 31, 1983,
New Claridge acquired certain assets of The Claridge Hotel and Casino
("Claridge"), including gaming equipment ("Casino Assets"), from Del E.
Webb New Jersey, Inc. ("DEWNJ") a wholly-owned subsidiary of Del Webb
Corporation ("Webb"); leased certain other of the Claridge's assets,
including the buildings, parking facility and non-gaming, depreciable,
tangible property of the Claridge ("Hotel Assets"), from Atlantic City
Boardwalk Associates, L.P., a New Jersey limited partnership
("Partnership"); subleased the land on which the Claridge is located
from the Partnership; assumed certain liabilities related to the
acquired assets; and undertook to carry on the business of the
Claridge.
These transactions were entered into in connection with the
private placement of equity interests in the Corporation and the
Partnership. The offering was structured to furnish the investors with
certain tax benefits available under the federal tax law then in
effect. Following the 1983 transactions, Webb and its affiliates
retained significant interests in the Claridge. The common stock of
the Corporation and the limited partnership interests of the
Partnership were sold together in the private placement as units, and
because there has been relatively little trading in the stock or
Partnership interests, there is a substantial similarity between the
equity ownership of the Corporation and the Partnership. Although the
Corporation and the Partnership are independent entities, over 93% of
the Corporation's common stock is owned by persons who also own limited
partnership interests in the Partnership. The Partnership does not
currently engage in any significant business activities other than
those relating to the Claridge.
In October 1988, the Corporation and New Claridge entered into an
agreement to restructure the financial obligations of the Corporation
and New Claridge (the "Restructuring Agreement"). The restructuring,
which was consummated in June 1989, resulted in (i) a reorganization of
the ownership interests in the Claridge; (ii) modifications of the
rights and obligations of certain lenders; (iii) satisfaction and
termination of the obligations and commitments of Webb and DEWNJ under
the original structure; (iv) modifications of the lease agreements
between New Claridge and the Partnership; and (v) the forgiveness by
Webb of substantial indebtedness (see Item 1. Business - "1989
Restructuring").
In October 1983, the Partnership granted to New Claridge the
Wraparound Mortgage which was inclusive of and subordinate to an $80
million first mortgage (the "First Mortgage") granted by the
Partnership to a group of banks and a $47 million purchase money second
mortgage (the "Purchase Money Second Mortgage") granted by the
Partnership to DEWNJ. The Purchase Money Second Mortgage was
subsequently cancelled upon satisfaction of certain conditions agreed
to in the Restructuring Agreement. (see Item 1. Business -"1989
Restructuring" and "Certain Transactions and Agreements").
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The current relationships of the Corporation, New Claridge and the
Partnership are described below.
The Casino Assets are owned by New Claridge. The Hotel Assets and
underlying land are owned by the Partnership and leased by the
Partnership to New Claridge. The lease obligations are set forth in a
lease (the "Operating Lease"), originally entered into on October 31,
1983, and an expansion operating lease (the "Expansion Operating
Lease"), covering additions to the Claridge made in 1986. Pursuant to
the Restructuring Agreement, the Operating Lease and Expansion
Operating Lease were amended to provide for the deferral by the
Partnership of $15.1 million of rental payments and the abatement by
the Partnership of $38.8 million of basic rent payable through 1998
(see Item 1. Business - "Certain Transaction and Agreements").
The Corporation maintains its executive and administrative offices
at Indiana Avenue and the Boardwalk, Atlantic City, New Jersey 08401,
telephone number (609) 340-3400.
Recent Business Developments
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On January 31, 1994, the Corporation completed an offering of $85
million of First Mortgage Notes (the "Notes") due 2002, bearing
interest at 11 3/4%. A portion of the net proceeds of $82.2 million,
after deducting fees and expenses, was used to repay in full the
Corporation's outstanding debt under the Revolving Credit and Term Loan
Agreement (the "Loan Agreement"), including the outstanding balance of
the Corporation's revolving credit line, which was secured by the First
Mortgage. In conjunction with the full satisfaction of the Loan
Agreement, the Corporation's revolving credit line arrangement was
terminated. The Corporation is currently seeking to obtain a new line
of credit arrangement; however, the Corporation believes that its
current resources are adequate to fund future obligations as they
become due.
The Notes are secured by a non-recourse mortgage granted by the
Partnership representing a first lien on the Hotel Assets, and by a
pledge granted by the Corporation of all outstanding shares of capital
stock of New Claridge. New Claridge's guarantee of the Notes is
secured by a collateral assignment of the second lien Wraparound
Mortgage, and by a lien on the Claridge's gaming and other assets,
which lien will be subordinated to liens that may be placed on those
gaming and other assets to secure any future revolving credit line
arrangement.
The balance of the net proceeds from the offering of the Notes will
be used (i) to fund internal improvements intended to expand the
Claridge's casino capacity, which will result in the addition of
approximately 550 slot machines, as well as a poker and simulcast area;
(ii) the possible acquisition of an adjacent parcel of land and
construction on that land of a self-parking garage facility; (iii) the
possible purchase of the Contingent Payment (see Item 1. Business -
"1989 Restructuring") granted in 1989 and now held in a trust for the
benefit of the United Way of Arizona; and (iv) the potential expansion
of the Corporation's activities into emerging gaming markets.
On December 30, 1992, the Corporation and Fitzgeralds Las Vegas,
L.P. ("Fitzgeralds") executed a Letter of Intent to combine the
business and assets of the two organizations. A definitive agreement
was not reached and the Letter of Intent expired by its own terms on
June 28, 1993.
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The Claridge
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The Claridge, located in the Boardwalk casino section of Atlantic
City, New Jersey, is a 26-story building that contains the
Corporation's casino and hotel facilities. The Claridge's casino
consists of approximately 43,600 square feet of casino space on three
main levels with various adjacent mezzanine levels. The casino
currently contains approximately 1,390 slot machines and 67 table
games, including 44 blackjack tables, ten craps tables, six roulette
tables, two mini-baccarat tables, one baccarat table, one big six
wheel, one red dog table, one sic bo table and one pai gow poker table.
The hotel with related amenities consists of 501 guest rooms (including
66 two- and three-room suites, 26 specialty suites and four tower
penthouse suites), five restaurants, a snack shop, a buffet area, three
lounges, a private player's club, a 600-seat theater, limited meeting
rooms, a gift shop, a beauty salon and a health club with an indoor
swimming pool.
Built in 1929 as a hotel, the Claridge was remodeled at a cost of
approximately $138 million prior to its reopening as a casino hotel in
1981. The Claridge was further renovated and expanded in 1986 at a
cost of approximately $20 million, which provided approximately 10,000
square feet of casino space together with a 3,600 square foot lounge
("Expansion Improvements"). Since 1991 the Claridge's exterior, lobby
and other public areas have been refurbished. The Claridge currently
is in the process of redecorating all of its guest rooms and has
completed the redecoration of over 125 rooms, with the remainder
scheduled for completion by 1995.
New Claridge experiences a seasonal fluctuation in demand, which is
typical of casino-hotel operations in Atlantic City. Historically,
peak demand has occurred during the summer season. New Claridge's
principal market is the Mid-Atlantic area of the United States. Casino
gaming in Atlantic City is highly competitive and is strictly regulated
under the New Jersey Casino Control Act ("Casino Control Act") and
regulations thereunder which affect virtually all aspects of casino
operations. (See Item 1. Business - "Competition" and "Gaming
Regulation and Licensing").
1989 Restructuring
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On October 27, 1988, the parties with an economic interest in the
Corporation and New Claridge, including the banks holding the First
Mortgage (the "First Mortgage Lenders"), executed the Restructuring
Agreement with respect to the restructuring of the financial
obligations of the Corporation and New Claridge. Had the Corporation
not entered into the Restructuring Agreement, New Claridge probably
would not have been relicensed by the New Jersey Casino Control
Commission (the "Commission") for the license period beginning October
31, 1988 and ending October 31, 1989, and would have had to consider
filing for bankruptcy protection. The Restructuring Agreement by its
terms was subject to approval by at least two-thirds in interest of the
limited partners of the Partnership and the holders of at least two-
thirds of the Class A Stock of the Corporation. These approvals were
received, and the restructuring was consummated in June 1989. The
restructuring resulted in (i) a reorganization of the ownership
interest in the Corporation; (ii) modifications of the rights and
obligations of certain lenders; (iii) satisfaction and termination of
the obligations and commitments of Webb and DEWNJ under the original
structure; (iv) modifications of the lease agreements between New
Claridge and the Partnership; and (v) the forgiveness by Webb of
substantial indebtedness. As a result of the restructuring, an
aggregate of $132 million of indebtedness was forgiven. The principal
amount secured by the First Mortgage was reduced by approximately $15
million to approximately $74.5 million outstanding at June 16, 1989,
and the Purchase Money Second Mortgage was subsequently cancelled upon
satisfaction of certain conditions agreed to in the Restructuring
Agreement.
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DEWNJ assigned to the First Mortgage Lenders all right, title and
interest of DEWNJ in, to and under the Purchase Money Second Mortgage
previously executed and delivered by the Partnership. New Claridge
retained the right to require the First Mortgage Lenders to cancel and
release the Purchase Money Second Mortgage and the obligations secured
thereunder upon the occurrence of one or more specified conditions.
New Claridge met one of these conditions, and accordingly, the First
Mortgage Lenders cancelled the Purchase Money Second Mortgage,
including interest which accrued at 14%, and released the obligations
secured thereunder.
At the closing of the restructuring on June 16, 1989, Webb
transferred all of its right, title, and interest to its Claridge land,
easements, and air rights to the Partnership, which had the effect of
eliminating the land lease between Webb and the Partnership and of
subjecting that land to a direct lease (rather than a sublease) from
the Partnership to New Claridge.
Pursuant to amendments to the Operating Lease and Expansion
Operating Lease, the Partnership agreed to deferrals and abatement of
basic rent (see Item 1. Business - "Certain Transactions and
Agreements").
In addition, the Partnership loaned $3.6 million to New Claridge.
That amount represented substantially all the cash and cash equivalents
remaining in the Partnership as of June 16, 1989 other than funds
needed to pay expenses incurred through the closing of the
restructuring. The Partnership paid to New Claridge $100,000 for the
cancellation of an option agreement relating to the land underlying the
Claridge.
The Restructuring Agreement provided that Webb would retain an
interest equal to $20 million plus interest from December 1, 1988 at
the rate of 15% per annum compounded quarterly (the "Contingent
Payment") in any proceeds ultimately recovered from the operations
and/or the sale or refinancing of the Claridge facility in excess of
the first mortgage loan and other liabilities. To give effect to this
Contingent Payment, the Corporation and the Partnership agreed not to
make any distributions to the holders of their equity securities,
whether derived from operations or from sale or refinancing proceeds,
until Webb had received the Contingent Payment.
In connection with the restructuring, Webb agreed to grant those
investors in the Corporation and the Partnership ("Releasing
Investors") from whom Webb had received written releases from all
liabilities rights ("Contingent Payment Rights") to receive certain
amounts to the extent available for application to the Contingent
Payment. Approximately 81% in interest of the investors provided
releases and became Releasing Investors. Payments to Releasing
Investors are to be made in accordance with the following schedule of
priorities:
(i) Releasing Investors would receive 81% of the first $10
million of any net proceeds from operations or a sale or a
refinancing of the Claridge facility pursuant to an agreement
executed within five years ("Five-Year Payments") after the
restructuring (i.e., the sum obtained by multiplying the
lesser of $10 million of, or the total of, any Five-Year
Payments by 81%, with the balance of any such funds to be
applied against the Contingent Payment), and
(ii) All distributions of funds other than Five-Year Payments, or
of Five-Year Payments in excess of the $10 million, would be
shared by Webb and Releasing Investors in the following
proportions: Releasing Investors will receive 40.5% (one-
half of 81%) of any such excess proceeds, with the balance of
any such funds to be applied against the Contingent Payment,
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until the Contingent Payment is paid in full ($20 million
plus accrued interest.)
On April 2, 1990, Webb transferred its interest in the Contingent
Payment to an irrevocable trust for the benefit of the United Way of
Arizona, and upon such transfer Webb was no longer required to be
qualified or licensed by the Commission. As a result, the Releasing
Investors and the Trustee for the United Way of Arizona share the
Contingent Payment granted to Webb.
The Corporation has recently offered to purchase the Contingent
Payment from the United Way of Arizona for the amount of $10 million;
this offer was not accepted. The Corporation is continuing its
negotiations with the Trustee for the United Way of Arizona in an
attempt to purchase the Contingent Payment. (See Item 1. Business -
"Recent Business Developments").
Certain Transactions and Agreements
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On October 31, 1983, the Corporation and/or New Claridge completed
the following transactions and entered into the following agreements.
On March 17, 1986, certain of these agreements were amended and certain
new agreements were entered into relating to the construction and
financing of the Expansion Improvements. On June 16, 1989, with the
closing of the restructuring, certain of these agreements were further
amended.
a. Closing of Offering of Class A Stock. The Corporation sold
4,500,000 shares of Class A Stock through a private offering, with net
proceeds to the Corporation after payment of selling commissions and
fees (but before payment of other expenses of the offering) of
$5,051,000.
b. Asset Purchase Agreement. Pursuant to an asset purchase
agreement (the "Asset Purchase Agreement"), New Claridge purchased the
Casino Assets from DEWNJ, as successor to Claridge Limited ("Old
Claridge") and assumed related liabilities and paid approximately $5
million. New Claridge assumed the collective bargaining contracts and
employment contracts of employees of Old Claridge employed in
connection with the operation of the Claridge other than those
providing maintenance and engineering services, which employees were
employed by DEWNJ.
c. Operating Lease/Expansion Operating Lease. New Claridge leased
from the Partnership the Hotel Assets and subleased from the
Partnership the land on which the Claridge is located for an initial
term of 15 years with three 10-year renewal options. Basic annual rent
payable during the initial term of the Operating Lease in equal monthly
installments was $34,940,000 in 1991, $36,055,000 in 1992, $37,080,000
in 1993 and escalates yearly thereafter up to $41,775,000 in 1997 and
$32,531,000 for the nine month period ending September 30, 1998. If
New Claridge exercises its option to extend the term of the Operating
Lease, basic rent during the renewal term will be calculated pursuant
to a formula, with such rent not to be more than $29,500,000 nor less
than $24,000,000 for the lease year commencing October 1, 1998 through
September 30, 1999, and, subsequently, not to be greater than 10% more
than the basic rent for the immediately preceding lease year in each
lease year thereafter. New Claridge is also required to pay as
additional rent amounts including certain taxes, insurance and other
charges relating to the occupancy of the land and Hotel Assets, certain
expenses and debt service relating to furniture, fixture and equipment
replacements and building improvements (collectively, "FF&E
Replacements") and the general and administrative costs of the
Partnership. The Partnership will be required during the entire term
of the Operating Lease to provide FF&E Replacements to New Claridge and
until September 30, 1998 will be required to provide facility
maintenance and engineering services to New Claridge.
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Under the Operating Lease, New Claridge is required to lend the
Partnership any amounts ("FF&E Loans") necessary to fund the cost of
FF&E Replacements, and if the Partnership's cash flow, after allowance
for certain distributions, is insufficient to provide the facility
maintenance and engineering services required of it, New Claridge is
also required to lend the Partnership the funds required to provide
those services. Any advances by New Claridge for either of the
foregoing will be secured. Under the terms of the Operating Lease,
New Claridge has an option to purchase, on September 30, 1998 and, if
it renews the Operating Lease, on September 30, 2003, the Hotel Assets
and the underlying land for their fair market value at the time the
option is exercised.
On March 17, 1986, New Claridge entered into the Expansion Operating
Lease Agreement with the Partnership under which New Claridge leased
the Expansion Improvements for an initial term beginning March 17, 1986
and ending on September 30, 1998 with three 10-year renewal options.
Basic annual rent payable during the initial term of the Expansion
Operating Lease was $3,870,000 in 1986 (prorated based on the day that
the Expansion Improvements opened to the public) and determined based
on the cost of the construction of the Expansion Improvements.
Annually thereafter the rental amount will be adjusted based on the
Consumer Price Index with any increase not to exceed two percent per
annum. Basic annual rent for 1993 was $4,445,000. If New Claridge
exercises its option to extend the term of the Expansion Operating
Lease, basic rent during the renewal term will be calculated pursuant
to a formula, with annual basic rent not to be more than $3 million nor
less than $2.5 million and, subsequently, not to be greater than 10%
more than the basic annual rent for the immediately preceding lease
year in each lease year thereafter.
New Claridge also is required under the Expansion Operating Lease
to pay as additional rent amounts equal to certain expenses and the
debt service relating to furniture, fixture and equipment replacements
and building improvements (collectively "Expansion FF&E Replacements")
for the Expansion Improvements. The Partnership will be required
during the entire term of the Expansion Operating Lease to provide New
Claridge with Expansion FF&E Replacements and until September 30, 1998,
will be required to provide facility maintenance and engineering
services to New Claridge. New Claridge will be obligated to lend the
Partnership any amounts necessary to fund the cost of Expansion FF&E
Replacements. Any advances by New Claridge for the foregoing will be
secured under the Wraparound Mortgage.
Effective with the consummation of the restructuring in June 1989,
the Operating Lease and the Expansion Operating Lease were amended to
provide for the deferral of up to $15.1 million of rental payments
during the period July 1, 1988 through the beginning of 1992, and to
provide for the abatement of $38.8 million of basic rent through 1998,
thereby reducing the Partnership's cash flow to an amount estimated to
be necessary only to meet the Partnership's cash requirements. During
the third quarter of 1991, the maximum deferral of rent was reached.
On August 1, 1991, the Operating Lease and Expansion Operating Lease
were amended further to revise the abatement provisions so that,
commencing January 1, 1991, for each calendar year through 1998, the
lease abatements may not exceed $10 million in any one calendar year,
and $38,820,000 in the aggregate.
If the Partnership should fail to make any payment due under the
Wraparound Mortgage, New Claridge may exercise a right of offset
against rent or other payments due under the Operating Lease and
Expansion Operating Lease to the extent of any such deficiency.
d. Expandable Wraparound Mortgage. On October 31, 1983, the
Partnership executed and delivered to New Claridge the Wraparound
Mortgage, which was subordinate to the First Mortgage and the Purchase
Money Second Mortgage. The Purchase Money Second Mortgage, which was
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due on September 30, 2000, was cancelled upon satisfaction of certain
conditions set forth in an agreement entered into at the time of the
restructuring. In conjunction with the offering of $85 million of
Notes on January 31, 1994, the outstanding debt under the Loan
Agreement, which included the First Mortgage and the revolving credit
line, was satisfied in full (see "Recent Business Developments"). By
its terms, the Wraparound Mortgage may secure up to $25 million of
additional borrowings by the Partnership from New Claridge to finance
FF&E Replacements and facility maintenance and engineering shortfalls.
The Wraparound Mortgage provides that, so long as the Partnership is
not in default on its obligations under the Wraparound Mortgage, New
Claridge is obligated to make payments required under any senior
mortgage indebtedness. The indebtedness secured by the Wraparound
Mortgage, which will mature on September 30, 2000, bears interest at an
annual rate equal to 14% with certain interest installments that
accrued in 1983 through 1988 totalling $20 million being deferred until
maturity. In addition, the Partnership is required under the
Wraparound Mortgage to make payments of principal and interest in
respect of any loans made to finance FF&E Replacements or facility
maintenance or engineering costs as described above. To the extent
those borrowings exceed $25 million in the aggregate outstanding at any
time, they will be secured under separate security agreements and not
by the lien of the Wraparound Mortgage.
On March 17, 1986, the First Mortgage was amended and assumed by New
Claridge. The amount of the amended and assumed First Mortgage was
increased to secure up to $96.5 million to provide financing for the
Expansion Improvements. Indebtedness secured by the Wraparound
Mortgage was increased by an amount up to $17 million to provide the
Partnership with the necessary funding.
Effective August 28, 1986, the Partnership commenced making level
monthly payments of principal and interest so as to repay on September
30, 1998, in full, the principal balance of this $17 million increase
in the Wraparound Mortgage. The Wraparound Mortgage was amended to
require that the $127 million aggregate principal amount secured by it
would be repayable in installments during the years 1988 through 1998
in escalating amounts totalling $80 million, with a balloon payment of
$47 million and the $20 million of deferred interest due on September
30, 2000.
Competition
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Competition in the Atlantic City casino-hotel market is intense.
At the present time, twelve casino-hotels are operating in Atlantic
City. The most recent property to open in Atlantic City was the Taj
Mahal Casino Hotel, which opened April 2, 1990 with a 120,000 square
foot casino, the largest in the Atlantic City marketplace. The opening
of the Taj Mahal further heightened the already intense competition
for casino patrons. For the years ended December 31, 1993 and 1992,
citywide gaming revenues, as reported, increased 2.7% and 7.5%,
respectively, over prior year levels.
The primary markets for Atlantic City casino patrons are
Philadelphia, New Jersey and New York City, together with the secondary
markets of central Pennsylvania, Delaware, Baltimore and Washington,
D.C. Many of the Atlantic City casino patrons arrive by bus and stay
for approximately six hours. Competitive factors in Atlantic City
require the payment of cash incentives in the form of coins to play
slot machines and coupons for use toward the price of meals to patrons
arriving under bus programs sponsored by the casino operators. During
1993, 8.4 million casino patrons arrived in Atlantic City by bus, a
10.6% decrease from 1992 figures. Casinos also offer cash incentives
to their drive-in customers based on their casino play. In recent
years competition for, and incentives offered to, drive-in customers
have increased significantly. Although New Claridge offers similar
promotional coin incentives to attract drive-in customers, it is at a
distinct disadvantage since it remains the only casino without a public
self-parking facility.
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All casinos in Atlantic City are part of hotels which offer dining,
entertainment and other guest facilities. Competition among casino
facilities is based primarily on such factors as promotional allowances
and incentives; the attractiveness of the casino area; advertising;
service, quality and price of rooms, food and beverage; restaurant,
parking and convention facilities; and entertainment. The Atlantic
City business is seasonal with the highest level of activity occurring
during the summer months and the lowest level of activity during the
winter months.
The Claridge has positioned itself as the "smaller, friendlier"
alternative to the other Atlantic City casinos. This strategy,
implemented in 1989, is designed to capitalize on the Claridge's unique
physical facility, which the Corporation believes retains an atmosphere
of Atlantic City's former grandeur, and on the Claridge's size relative
to the larger Atlantic City casinos. By emphasizing an environment
that is intimate, friendly and service-oriented, the Claridge targets
a market niche different than that of a majority of its competitors.
The Claridge seeks to attract and retain as customers the player whose
wagering, while significant, is below the high-wagering of patrons
targeted by several of the other larger Atlantic City casinos. The
Claridge's typical patron wagers less on credit and warrants fewer
complimentaries than the higher wagering player. The majority of the
Claridge's casino revenue is generated by slot machine play. In 1993,
74% of the Claridge's casino revenue came from slot play as compared to
67% reported for all Atlantic City properties.
The Claridge's positioning statement "Because Smaller is Friendlier"
conveys its operating and marketing strategy. In order to assure that
the advertising campaign is fulfilled, all Claridge employees are
required to attend extensive in-house training programs, which
emphasize courteous, customized service.
In common with other Atlantic City casinos, the Claridge operates
a direct marketing program. Through this program, customer loyalty is
encouraged with incentives including gifts, coupons for coins and
services, and complimentaries. A sophisticated computer database
marketing system is utilized to identify prospective customers, track
customers who meet the Corporation's target profile, and analyze the
effectiveness of promotional activities. Information for this database
is compiled through a customer's use of a Compcard Gold rating card
provided by the Claridge. All Claridge customers are encouraged to
request a Compcard Gold rating card and to use it when playing at table
games and slot machines. Use of the Compcard Gold rating card provides
the Claridge with data on the level, style and duration of casino play
of its customers.
In 1993, approximately 83% of the amounts wagered at the Claridge's
table games and approximately 61% of the amounts wagered at the
Claridge's slot machines were wagered by players who used the Compcard
Gold rating card. The database derived from use of the Compcard Gold
rating card furnishes the Corporation with a powerful marketing tool.
This database allows the Claridge to target identified players with
incentives. Incentives are tailored to the identified player's
potential for future play, thus assuring that direct marketing
expenditures are effective. Additionally, through analysis of
demographic and other information contained in the Compcard Gold
database, the value of customers with certain characteristics can be
assessed and used as a basis for identifying prospective customers.
The Claridge, as do all other Atlantic City casinos, maintains a bus
program. Customers arriving by bus generally stay in Atlantic City six
to eight hours before returning home. Bus customers are given coupons
for coins and/or other services. The Corporation continually monitors
the incentives offered to bus customers by other Atlantic City casinos
to assure that the Claridge's offerings are attractive.
<PAGE>
<PAGE> 12
Competition in Atlantic City also extends to the employment market.
The Commission has promulgated regulations which require staffing
levels at Atlantic City casinos which are sharply higher than those for
casino-hotels in Nevada. All of New Claridge's casino employees must
be licensed under the Casino Control Act. Casino employees and support
personnel are subject to more stringent requirements than non-casino
employees. Non-casino employees need only be registered with the
Commission, while each casino employee must meet applicable standards
pertaining to such matters as financial responsibility, good character,
ability, casino training and experience. Partly as a result of such
requirements, there is intense competition for experienced casino
employees in Atlantic City. Difficulties in hiring personnel licensed
by the Commission have elevated labor costs and licensed personnel
often leave their current positions for higher paying jobs in other
casinos. In addition, competition for experienced casino management
personnel has increased as a result of the expansion of casino gaming
into other jurisdictions.
In 1993, the gaming industry continued its rapid expansion, and now
includes casino gaming of some form in approximately twenty-two states.
The most significant growth has occurred in the riverboat and Indian
land gaming segments. To date, riverboats operate in Iowa, Illinois,
Louisiana and Mississippi; have been legalized in Indiana and Missouri;
and studies/action are pending in other states, including Connecticut,
New York, Pennsylvania and Virginia. In addition, under the Indian
Gaming Regulatory Act of 1988, unrestricted gaming is permitted on
Indian land in any state that already allows similar gaming. (For
example, if the state allows charitable gaming for non-profit
organizations, then Indians can run similar operations on their land
for profit.) Indian gaming is currently authorized in nineteen states
including New York, Connecticut, Michigan, Minnesota and California.
There are also efforts by Indian groups to negotiate gaming compacts in
other states. A number of commentators believe legalization of at
least limited forms of casino gaming in Philadelphia, Pennsylvania in
the relatively near future is a significant possibility. Management
believes that the effect on Atlantic City casinos and on the Claridge
of legalized gaming in Philadelphia will depend upon the form and scope
of such gaming.
On February 15, 1992, the Foxwoods High Stakes Casino and Bingo Hall
("Foxwoods"), operated by the Mashantucket Pequot Indian tribe in
Ledyard, Connecticut commenced operations. In addition to offering the
table games found in Atlantic City, Foxwoods offers bingo rooms. In
January 1993, approval was granted by the Connecticut government for
Foxwoods to offer slot machines. Currently, approximately 3,100 slot
machines are operational at Foxwoods; a total of over 4,000 slot
machines are expected to be operational once the new casino floor
configuration is complete. The continued expansion of casino gaming,
lotteries, including video lottery terminals (VLT's), and offtrack
betting in nearby states could have a negative effect on the Atlantic
City market.
Gaming Regulation and Licensing
- -------------------------------
a. The New Jersey Casino Control Commission and Division of Gaming
Enforcement. The ownership and operation of casino-hotel facilities in
Atlantic City are subject to extensive state regulation under the
Casino Control Act. No casino-hotel may operate in Atlantic City
unless necessary corporate and individual officer, director and
employee licenses are obtained from the Commission. The Commission is
authorized under the Casino Control Act to adopt regulations covering
a broad spectrum of gaming-related activities.
The Casino Control Act also establishes a Division of Gaming
Enforcement (the "Division") to investigate all applications for
licenses, enforce the provisions of the Casino Control Act and the
regulations thereunder, and prosecute before the Commission all
<PAGE>
<PAGE> 13
proceedings for violations of the Casino Control Act or any regulations
thereunder. The Division conducts audits and continually reviews
casino operations, maintains information with respect to any changes in
ownership of the casino-hotel and conducts investigations of casino
owners and investors when appropriate.
b. Licensing Requirements. The Casino Control Act provides that
various categories of persons or entities must hold casino licenses.
The Casino Control Act also provides that each officer, director and
person who directly or indirectly holds any beneficial interest or
ownership in a casino licensee; or any person who, in the opinion of
the Commission, has the ability to control a casino licensee or elect
a majority of the board of directors; or each principal employee or any
other employee of a casino licensee (and any lender to or underwriter,
agent or employee of the licensee) whom the Commission may consider
appropriate for approval or qualification, be qualified for approval
pursuant to the provisions of the Casino Control Act. In addition, all
contracts and leases entered into by the licensee may, upon request of
the Commission, have to be submitted to the Commission, are subject to
its review, and, if found unacceptable, are voidable. All enterprises
which provide gaming-related services to the licensee must be licensed.
All other enterprises dealing with the licensee must register with the
Commission, which may require that they be licensed if they do $75,000
or more per year in business with a single licensee, and $225,000 or
more per year if with more than one licensee.
New Claridge holds a casino license because it carries on the casino
business of the Claridge and owns the Casino Assets. As a result, New
Claridge's officers and directors are subject to Commission
qualification. The Corporation, as the sole owner of the stock of New
Claridge, is also required to be qualified. As a part of its
determination of the Corporation's qualification, the Commission will
require the qualification of each officer, each director, and each
person who directly or indirectly holds any beneficial interest or
ownership in the Corporation, and who the Commission requires to be
qualified, or any person who, in the opinion of the Commission, has the
ability to control the Corporation or elect a majority of its Board of
Directors; or each principal employee or any other employee whom the
Commission may consider appropriate for approval or qualification. The
Commission has determined that no stockholders of the Corporation
owning less than 5% of its stock will be required to be qualified
unless the Commission determines that such stockholder has the ability
to control the Corporation or elect a majority of its Board of
Directors. Prior to June 16, 1989, Webb was the only stockholder in
this category. The names and addresses of all stockholders have been
supplied to the Commission and any changes are reported when they
occur.
c. Licensing Status. The Commission issues casino licenses, which
are renewable every two years, subject to a series of requirements
including a requirement of demonstrating financial viability. In 1989,
and again in 1991, the First Mortgage Lenders agreed to modify the
schedule of principal payments under the Loan Agreement, in order in
part to allow New Claridge to demonstrate financial viability to the
Commission. In connection with the 1993 relicensing, for the period
ending in 1995, the First Mortgage Lenders agreed for the first time to
modify the schedule of principal payments required under the Loan
Agreement to beyond the two-year licensing period. On September 22,
1993, New Claridge was issued a two year casino license by the
Commission for the period commencing September 30, 1993. The
relicensing approval was based in part on the execution of this
amendment to the Loan Agreement.
d. Investigations and Disqualifications. The Commission may find
any holder of any amount of securities of the Corporation not qualified
to own securities of the Corporation. Further, as required by New
Jersey, the charter and the by-laws of the Corporation and New
Claridge provide that securities of the Corporation and New Claridge
are held subject to the condition that if a holder is found to be
disqualified by the Commission the holder must dispose of the
<PAGE>
<PAGE> 14
securities of the Corporation or New Claridge, as the case may be. The
Corporation will periodically report the names and addresses of owners
of record of Class A Stock to the Commission as is required for all
publicly traded holding companies that have wholly-owned subsidiaries
holding casino licenses.
e. Casino Fees and Taxes. The Casino Control Act provides for a
casino license issue fee of not less than $200,000, based upon the cost
of the investigation and consideration of the license application, and
an annual renewal fee of not less than $100,000, based upon the cost of
maintaining control and regulatory activities. In addition, a licensee
is subject to a tax of eight percent (8%) of gaming revenues, less the
provision for bad debt, and to an annual license fee of $500 on each
slot machine and an alcoholic beverage fee computed on the basis of the
cost of investigatory time spent monitoring each beverage outlet.
The Casino Control Act as amended in December 1984 further provides
for the imposition of an investment obligation pursuant to criteria set
forth in the Act or the payment of an alternative tax. The investment
obligation is 1.25% of the total gaming revenues for each calendar
year. Gaming revenues are the total revenues derived from gaming
operations less the provision for bad debt. If the casino licensee
opts not to make an investment, it is assessed an alternative tax of
2.5% of total gaming revenues less the provision for bad debt. The
licensee has two options in satisfying its investment obligation; it
can make a direct investment in a project approved by the Casino
Reinvestment Development Authority ("CRDA"), which is the agency
responsible for administering this portion of the Casino Control Act,
or it can buy bonds issued by the CRDA which will, if tax exempt, bear
interest at the rate of 66 and 2/3% of the average rate of the Bond
Buyer Weekly 25 Revenue Bond Index for the 26 weeks preceding the issue
of the bonds. If the bonds are not tax exempt they will bear interest
at the rate of 66 and 2/3% of the average rate of Moody's A Rated
Utility Index for the 26 weeks preceding the issue of the CRDA bonds.
The investment obligation must be paid on the 15th day of the first,
fourth, seventh, and tenth months of each year based on the estimated
gaming revenues for the three month period immediately preceding the
first day of those months. The alternative tax must be paid not later
than April 30 of the following year.
New laws and regulations as well as amendments to existing laws and
regulations relating to gaming activities in Atlantic City are
periodically adopted. Effective July 1, 1993, the New Jersey state
legislature passed a law requiring the payment of parking fees by
casinos in New Jersey in the amount of $2.00 per day for each motor
vehicle parked in a casino parking space. In 1992 the New Jersey state
legislature passed a law requiring the payment of a tourism marketing
fee of $2.00 per occupied room by casino hotels in Atlantic City.
While the Corporation believes that these fees have not had a
significant impact on its operations, there is no assurance that future
laws or changes in existing laws will not have an adverse effect.
Employees
- ---------
As of December 31, 1993, New Claridge employed approximately 2,300
persons of whom approximately 750 are represented by labor unions.
Approximately 600 of the 750 are represented by the Hotel, Restaurant
Employees and Bartender International Union, AFL-CIO, Local 54. During
the past two years, local unions have been active in their efforts to
organize non-union employees in Atlantic City.
<PAGE>
<PAGE> 15
The management of the Claridge believes that its employee relations
are generally satisfactory. All of the employees represented by labor
unions are covered by collective bargaining agreements which prohibit
work stoppages during their terms. The Corporation's collective
bargaining agreement covering the approximately 600 employees
represented by Local 54 is scheduled to expire in September 1994. The
collective bargaining agreements of all Atlantic City properties with
respect to Local 54 also expire at that time.
Item 2. PROPERTIES
The Claridge hotel was constructed in 1929 at the northeastern end
of Absecon Island, on which Atlantic City is located. After
remodeling, modernization and expansion at a cost of approximately $138
million, the Claridge opened as a casino-hotel in July 1981. Located
in the Boardwalk Casino section of Atlantic City on Brighton Park,
approximately 550 feet north of the Boardwalk, the Claridge occupies
three parcels of property.
The casino-hotel, situated on the main parcel (41,408 square feet
with 138 feet fronting the park and 300 feet deep), is a concrete steel
frame structure, 26 stories high at its highest point. The garage,
situated on an adjacent parcel of land (21,840 square feet) west of the
casino-hotel site, is an eight-level reinforced concrete ramp
structure, built in 1981. Including the bus drive-through area, a bus
patron waiting room and an electrical room, it totals an area of
197,100 square feet and provides parking for approximately 475
automobiles. The office building, situated on an adjacent parcel of
land (7,766 square feet), is a two-story reinforced concrete and brick
structure with a flat roof. Constructed about 50 years ago, its
interior has been modernized. The building is utilized as an
administration facility, and totals an area of 14,020 square feet. All
of these facilities are owned by the Partnership and are leased to New
Claridge under the Operating Lease and the Expansion Operating Lease.
Item 3. LEGAL PROCEEDINGS
The Corporation and New Claridge are not parties to any litigation
which is not in the ordinary course of business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
<PAGE> 16
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
All issued and outstanding shares of the Corporation have been
offered and sold in reliance on exemptions from the registration
requirements of the Securities Act of 1933 as amended (the "Securities
Act"). Therefore, there is no established trading market for any class
of shares of the Corporation. 562,500 shares of Class A Stock were
sold to Oppenheimer Holdings, Inc., and certain officers and employees
of Oppenheimer & Co., Inc., (placement agent for the Partnership and
the Corporation) at its par value, $.001 per share, and 4,500,000
shares of Class A Stock were privately offered and sold at $1.2336306
per share. 562,500 shares of Class B Stock were sold to Webb at its
par value, $.001 per share. The Contingent Payment Rights (see Item 1.
"1989 Restructuring") received by Releasing Investors may or may not be
securities. The Corporation, the Partnership and Webb filed a
registration statement under the Securities Act with respect to the
Contingent Payment Rights as if they were securities and each of the
Corporation, the Partnership and Webb were an issuer of such
securities. However, by such action none of the Corporation, the
Partnership or Webb admitted that the Contingent Payment Rights are
securities or that any of them is the issuer of any such securities.
There is no market for the Contingent Payment Rights. As of March 1,
1994, there were approximately 450 holders of record of the Class A
Stock.
On March 24, 1989, Oppenheimer Holdings, Inc. returned to the
Corporation all of its shares (273,938) of the Corporation's Class A
Stock.
On June 16, 1989, all of the outstanding shares of the Corporation's
Class B Stock, all of which was owned by Webb, was returned to the
Corporation and cancelled.
New Claridge was prohibited under the Cross Option Agreement from
paying dividends to the Corporation (other than for its operating
expenses) until the later of March 31, 1989 or, if Webb had exercised
its option to purchase the capital stock of New Claridge, the date of
closing of such purchase. As a result, the Corporation was effectively
precluded from the payment of dividends to its stockholders prior to
March 31, 1989. Webb did not exercise its option.
The Restructuring Agreement provided for Webb to retain an interest,
equal to $20 million plus interest from December 1, 1988 at the rate of
15% per annum compounded quarterly, in any proceeds ultimately
recovered from the operations and/or the sale or refinancing of the
Claridge facility in excess of the first mortgage loan and other
liabilities. To give effect to this Contingent Payment, the
Corporation and the Partnership agreed not to make any distributions to
the holders of their equity securities, whether derived from operations
or from sale or refinancing proceeds, until Webb had received the
Contingent Payment. Webb agreed to grant to Releasing Investors,
Contingent Payment Rights to receive certain amounts to the extent
available for application to the Contingent Payment (See Item 1.
Business - "1989 Restructuring").
On April 2, 1990, Webb, subject to the Corporation's consent,
transferred its interest in the Contingent Payment to an irrevocable
trust for the benefit of the United Way of Arizona, and upon such
transfer Webb was no longer required to be qualified or licensed by the
Commission.
<PAGE>
<PAGE> 17
Item 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated
financial data for the years ended December 31, 1993, 1992, 1991, 1990
and 1989.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data
- ---------------------
Net revenues $189,672 182,204 172,961 175,043 171,504
Income/(loss) before
extraordinary items $ 5,132 6,048 2,181 (1,825) (14,242)
Extraordinary income,
net of income taxes $ ----- ----- ----- 39,480 69,023
Net income $ 5,132 6,048 2,181 37,655 54,781
Income/(loss) before extra-
ordinary items, per share $ 1.02 1.21 .46 (.38) (2.79)
Net income per share $ 1.02 1.21 .46 7.86 10.73
Balance Sheet Data at Year End (1)
- ------------------------------
Total assets $146,338 148,305 154,355 161,972 169,613
Current assets $ 22,736 20,383 21,077 22,006 22,649
Current liabilities $ 34,270 34,298 34,285 31,727 30,440
Long-term debt, net of
note payable and
current installments
of long-term debt $ 35,259 40,301 50,867 59,971 102,692
Stockholders' equity/
(deficiency) $ 14,364 9,232 3,184 1,003 (36,652)
</TABLE>
(1) For 1993, refer to Note 17 of the Consolidated Financial Statements
regarding unaudited proforma effect on the Balance Sheet Data as of
December 31, 1993, resulting from the sale of $85 million of Notes on
January 31, 1994, and the repayment in full of the outstanding debt
under the Loan Agreement.
<PAGE>
<PAGE> 18
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations for the Year Ended December 31, 1993
- ----------------------------------------------------------
The Corporation had net income of $5,132,000 for the year ended
December 31, 1993, as compared to net income of $6,048,000 for the year
ended December 31, 1992. Net income in 1992 was favorably impacted by the
reversal of progressive slot liability of $2,437,000, as further discussed
below.
Casino revenue, which is the difference between amounts wagered by and
paid to casino patrons, was $154,615,000 for the year ended December 31,
1993, a 5.6% increase over 1992 casino revenue of $146,357,000, and a 14.2%
increase over 1991 casino revenues of $135,406,000. Citywide casino
revenue for 1993 increased 2.7% over 1992 revenues. These favorable
comparisons can be attributed to the first full year of unlimited twenty-
four hour gaming in 1993, as well as, improved economic conditions in the
Northeastern United States. In addition, the passage of live poker and
simulcast wagering in 1993 and other Commission policy changes (i.e.
extended hours of operation) have had a positive impact on casino revenues.
Citywide casino revenues in early 1993 were adversely affected by poor
weather conditions, most notably the March 13, 1993 storm, which covered
portions of the Northeastern United States with over a foot of snow.
For the year ended December 31, 1993, Claridge table games revenue was
$40,959,000, a slight increase over 1992 table games revenue of
$40,758,000. Table games drop, which represents the amount of gaming chips
purchased by patrons, increased 1.0% over 1992 levels. The 1993 hold
percentage (the ratio of win to drop) was 14.7%, compared to a hold
percentage of 14.8% in 1992. Citywide table games revenue and drop
decreased 1.4% and 3.1%, respectively, as compared to 1992 figures. This
decrease is attributed in part to the industry's continued shift in focus
from table games to slots. During 1993, citywide slot machine units
increased 10.4% over 1992, while citywide table game units, excluding the
addition of poker games, decreased 6.1% from 1992.
Claridge slot machine revenue for the year ended December 31, 1993 was
$113,656,000, a 7.6% increase over 1992 slot machine revenue. Citywide
slot machine revenue increased 4.8% over 1992 revenue. New Claridge offers
promotional incentives through its direct marketing program to its
customers based on their casino play, as well as to prospective customers
based on demographic models; coin incentives issued through these programs
totalled $10,912,000 and $6,959,000 for the years ended December 31, 1993
and 1992, respectively. In addition, New Claridge offers cash incentives
in the form of coin to play slot machines to patrons arriving by bus.
During 1993, 829,000 bus passengers were brought to the Claridge, and were
issued $7,772,000 in coin incentives; in 1992, $8,816,000 in coin
incentives was issued to 854,000 bus passengers. The increase in direct
marketing coin incentive costs reflects an increased focus on attracting
the more profitable drive-in patrons.
Hotel, food and beverage revenues for the year ended December 31, 1993
were $30,013,000, a slight decrease from 1992 revenues of $30,092,000. Net
of promotional allowances, hotel, food and beverage revenues in 1993
increased 3.1% over 1992 net revenues. Promotional allowances for the year
ended December 31, 1993 decreased as a result of eliminating food coupons
from the bus program incentive packages. The total number of covers (meals
served) in 1993 were 1,724,000, a 15.2% increase over the number of covers
in 1992 as a result of offering a $4.75 buffet in 1993 compared to a $9.95
buffet in 1992. Hotel occupancy for the years ended December 31, 1993 and
1992 was 93% and 87%, respectively, while the average room rate was $69 in
1993 compared to $71 in 1992. Other revenues for the year ended December
31, 1993 decreased from the prior year due primarily to revisions to New
<PAGE>
<PAGE> 19
Claridge's entertainment policy, from the presentation of daily Broadway-
style shows in 1992 to a headliner performance approximately one weekend
per month in 1993.
Total costs and expenses for the year ended December 31, 1993 were
$181,118,000, a 5.3% increase over 1992 expenses of $172,081,000. The
increase is primarily evident in the casino operating expenses, due to the
reversal of progressive slot liability in 1992 of $2,437,000, resulting
from the removal of certain progressive slot machines as approved by the
Commission, as well as higher labor costs resulting from increased levels
of business and the extended gaming hours, and higher coin redemption and
other marketing costs. In addition, general and administrative expenses
increased as a result of higher payroll costs. Other costs decreased as
a result of the reduced entertainment schedule as previously discussed.
As a result of the income earned for the year ended December 31, 1993,
income tax expense of $3,422,000 was recorded.
Results of Operations for the Year Ended December 31, 1992
- ----------------------------------------------------------
The Corporation had net income of $6,048,000 for the year ended
December 31, 1992, as compared to net income of $2,181,000 for the year
ended December 31, 1991.
Casino revenue for the year ended December 31, 1992 was $146,357,000,
an 8.1% increase over 1991 casino revenue of $135,406,000, and an 8.7%
increase over 1990 casino revenue of $134,686,000. Citywide casino
revenues for 1992 increased 7.5% over 1991 revenues. This favorable
comparison can be attributed to the following factors: 1991 revenues were
unfavorably impacted by the Persian Gulf War in the first quarter of the
year, as well as the depressed economic conditions in the Northeastern
United States; 1992 revenues were favorably impacted by the commencement
of unlimited twenty-four hour gaming, in July, as well as improved economic
conditions in the final quarter of the year. In addition, the Commission
enacted policies which have given casinos greater flexibility in managing
operations (i.e. increased percentage of casino floor allotted towards slot
machines).
For the year ended December 31, 1992, Claridge table games revenue was
$40,758,000, a slight increase over 1991 table games revenue of
$40,504,000. Table games drop for 1992 was $276,036,000, an increase of
1.0% over 1991 levels. The 1992 hold percentage was 14.8%, comparable to
the hold percentage in 1991. Citywide table games revenue and drop
decreased 3.4% and 2.3%, respectively, as compared to 1991 figures. This
decrease was attributed in part to the industry's continued shift in focus
from table games to slots.
Claridge slot machine revenue for the year ended December 31, 1992 was
$105,599,000, an 11.3% increase over 1991 slot machine revenue. Citywide
slot machine revenues increased 14.2% over 1991 revenues. Coin issued to
bus patrons for the year ended December 31, 1992 amounted to $8,816,000,
compared to $9,352,000 in 1991. This decrease was due in part to the
allocation of additional coin distribution from the bus program to the
direct marketing program; during 1992, $6,959,000 in coin was issued
through this program, as compared to $4,615,000 in 1991.
For the year ended December 31, 1992, hotel and food and beverage
revenues, including promotional allowances, were $30,092,000, a decrease
of 4.2% from 1991 revenues of $31,396,000. The decrease in revenues from
1991 was attributable to a reduction in covers (1,496,000 in 1992 as
compared to 1,559,000 in 1991), offset by an increase in hotel occupancy
(87% in 1992 as compared to 85% in 1991). The decrease in the number of
covers from 1991 was due primarily to the elimination of food incentives
issued to bus patrons in mid-1992. The average room rate in 1992 was $71,
compared to $72 in 1991.
<PAGE>
<PAGE> 20
Total costs and expenses increased 1.7% to $172,081,000 for the year
ended December 31, 1992 from 1991 expenses of $169,280,000 due primarily
to increased casino expenses relating to unlimited twenty-four hour gaming,
as well as the increased distribution of coin incentives. Casino expenses
in 1992 were reduced somewhat due to the elimination of $2,437,000 of
progressive slot liability, as previously discussed. In addition, general
and administrative expenses for 1992 of $25,026,000 increased 10.6% over
1991 expenses, primarily due to increases in payroll costs, legal and
professional fees relating to the negotiation of union
contract renewals, and costs associated with rejoining the Atlantic City
Casino Association. Interest expense for the year ended December 31, 1992
of $4,240,000 decreased 33.2% from 1991 due to the reduction in the average
outstanding principal balance, as well as a lower prime interest rate in
effect through 1992.
As a result of the income earned for the year ended December 31, 1992,
income tax expense of $4,075,000 was recorded.
Liquidity and Capital Resources
- -------------------------------
On October 27, 1988 the Corporation entered into the Restructuring
Agreement in an attempt to implement a plan pursuant to which it could
remain financially viable through at least October 1989. On June 16, 1989,
the restructuring was concluded pursuant to the terms of the Restructuring
Agreement. The implementation of this agreement resulted in a
reorganization of the ownership interests in the Corporation, modification
of the rights and obligations of the First Mortgage Lenders, satisfaction
and termination of the obligations and commitments of Webb and DEWNJ, and
modifications of the lease arrangements between New Claridge and the
Partnership. Had the parties not executed the Restructuring Agreement, New
Claridge would probably have exhausted its working capital resources by
December 1988, would probably not have been relicensed for the license
period beginning October 31, 1988 and ending October 31, 1989, and would
have had to consider filing for protection under the bankruptcy laws.
Upon the closing of the restructuring on June 16, 1989, the principal
amount of the First Mortgage was reduced by approximately $15 million and
the principal payment schedule was modified. The modification of principal
payments on the First Mortgage under the terms of the Restructuring
Agreement was sufficient, however, only to permit the New Claridge to
demonstrate to the Commission that New Claridge would remain financially
viable for the one year licensing renewal effective October 1988. As a
result, in connection with the two-year renewals of the casino license for
the Company in 1989, 1991 and 1993, it was necessary for New Claridge to
negotiate further modifications of the principal payment schedule under the
First Mortgage. In connection with the 1993 relicensing, the First
Mortgage Lenders agreed for the first time to modify the principal payment
schedule beyond the two-year relicensing period commencing in October 1993.
On September 22, 1993, New Claridge was issued a two-year casino license
effective September 30, 1993 and expiring September 30, 1995.
On January 31, 1994, the Corporation completed an offering of $85
million of Notes (see Item 1. "Recent Business Developments"). A portion
of the net proceeds of $82.2 million, after deducting fees and expenses,
was used to repay in full the Corporation's outstanding debt under the Loan
Agreement, including the outstanding balance of the Corporation's revolving
credit line, which was secured by the First Mortgage. In conjunction with
the full satisfaction of the Loan Agreement, the Corporation's revolving
credit line arrangement was terminated. The Corporation is currently
seeking to obtain a new line of credit arrangement; however, the
Corporation believes that its current resources are adequate to fund future
obligations as they become due.
The Notes are secured by a non-recourse mortgage granted by the
Partnership representing a first lien on the Hotel Assets, and by a pledge
<PAGE>
<PAGE> 21
granted by the Corporation of all outstanding shares of capital stock of
New Claridge. New Claridge's guarantee of the Notes is secured by a
collateral assignment of the second lien Wraparound Mortgage, and by a lien
on the Claridge's gaming and other assets, which lien will be subordinated
to liens that may be placed on those gaming and other assets to secure any
future revolving credit line arrangement.
Prior to the full satisfaction of the Loan Agreement on January 31,
1994, as discussed above, the terms of the First Mortgage as of December
31, 1993 required mandatory principal payments of $3 million annually,
payable in equal monthly installments, as well as a requirement for New
Claridge to pay quarterly, to the Bank, for permanent application to the
outstanding principal balance of the first mortgage loan any "excess cash
flow" as defined in the Loan Agreement. The maturity date of the first
mortgage loan was December 31, 1996. The Loan Agreement, as amended, also
provided for a revolving working capital facility of $7.5 million.
At December 31, 1993, the Corporation had a working capital deficit of
$11,534,000, as compared to a working capital deficit of $13,915,000 at
December 31, 1992. The decrease in the working capital deficit is
principally attributable to a decrease in the current installments of long-
term debt of $1,200,000, a decrease in the outstanding revolving credit
line borrowings of $1,000,000, increases in receivables of $1,065,000, in
prepaid expenses of $722,000, in cash and cash equivalents of $435,000, and
a decrease in progressive slot liability of $432,000, offset by increases
in the provision for federal income tax of $845,000, in accounts payable
of $659,000, in accrued payroll of $560,000 and in accrued interest of
$432,000. Current liabilities at December 31, 1993 and 1992 included
deferred rental payments of $15,078,000, and the $3.6 million loan from the
Partnership plus accrued interest thereon of $1,962,000 and $1,530,000 at
December 31, 1993 and 1992, respectively. The deferred rental payments and
$3.6 million loan will only be payable upon (i) a sale or refinancing of
the Claridge; (ii) full or partial satisfaction of the Wraparound Mortgage;
and (iii) full satisfaction of any first mortgage then in place. If these
amounts were not included in current liabilities, the Corporation's working
capital surplus at December 31, 1993 and 1992 would have been $9,106,000
and $6,293,000, respectively.
New Claridge is obligated under the Operating Lease to lend the
Partnership, at an annual interest rate of 14%, any amounts necessary to
fund the cost of furniture, fixtures and equipment replacements. The
Wraparound Mortgage, granted by the Partnership to New Claridge, by its
terms may secure up to $25 million of additional borrowings by the
Partnership from New Claridge to finance the replacements of furniture,
fixtures and equipment, facility maintenance, and engineering shortfalls.
The advances to the Partnership are in the form of FF&E Loans and are
secured by the Hotel Assets. One half of the principal is due on the 48th
month following advance, with the remaining balance due on the 60th month
following the date of issuance. In connection with the offering of $85
million of First Mortgage Notes on January 31, 1994, the Corporation agreed
to use not less than $8 million from the net proceeds of the offering to
finance internal improvements to the Claridge which will be funded through
additional FF&E Loans. In connection therewith, the Wraparound Mortgage
Loan agreement as well as the Operating Lease, and the Expansion Operating
Lease were amended to provide that the principal on these additional FF&E
Loans will be payable at final maturity of the Wraparound Mortgage. New
Claridge is obligated to pay as additional rent to the Partnership the debt
service on the FF&E Loans.
The Wraparound Mortgage requires monthly principal payments to be made
by the Partnership to New Claridge, commencing in the year 1988 and
continuing through the year 1998, in escalating amounts totalling $80
million. The Wraparound Mortgage, which will mature on September 30, 2000,
bears interest at an annual rate equal to 14% with the deferral until
maturity of $20 million of certain interest payments which accrued between
1983 and 1988. In addition, in 1986 the principal amount secured by the
Wraparound Mortgage was increased to provide the Partnership with funding
<PAGE>
<PAGE> 22
for the construction of an expansion improvement, which resulted in
approximately 10,000 square feet of additional casino space and a 3,600
square foot lounge. Effective August 28, 1986, the Partnership commenced
making level monthly payments of principal and interest calculated to
provide for the repayment in full of the principal balance of this increase
in the Wraparound Mortgage by September 30, 1998. Under the terms of the
Wraparound Mortgage, New Claridge is not permitted to foreclose on the
Wraparound Mortgage and take ownership of the Hotel Assets so long as a
senior mortgage is outstanding. The face amount outstanding of the
Wraparound Mortgage at December 31, 1993 (including the outstanding FF&E
Loans and the $20 million of deferred interest) was $138.3 million.
The Hotel Assets are owned by the Partnership and leased by the
Partnership to New Claridge under the terms of the Operating Lease
originally entered into on October 31, 1983, and the Expansion Operating
Lease, which covered the expansion improvements made to the Claridge in
1986. The initial terms of both leases are scheduled to expire on
September 30, 1998 and each lease provides for three 10-year renewal
options at the election of New Claridge. The Operating Lease requires
basic rental payments to be made in equal monthly installments escalating
annually up to $41,775,000 in 1997, and $32,531,000 for the remainder of
the initial lease term. Prior to the Corporation's 1989 restructuring,
basic rent expense (recognized on a leveled basis in accordance with
Statement of Financial Accounting Standards No. 13), was $31,902,000 per
year. Therefore, in the early years of the lease term, required cash
payments under the Operating Lease (not including the Expansion Operating
Lease) were significantly lower than the related expense recognized for
financial reporting purposes. Rental payments under the Expansion
Operating Lease are adjusted annually based on a Consumer Price Index with
any increase not to exceed two percent per year. Pursuant to the
Restructuring Agreement, the Operating Lease and the Expansion Operating
Lease were amended to provide for the abatement of $38.8 million of basic
rent payable through 1998 and the deferral of $15.1 million of rental
payments, thereby reducing the Partnership's cash flow to an amount
estimated to be necessary only to meet the Partnership's cash requirements.
Effective on completion of the 1989 restructuring, lease expense recognized
on a level basis was reduced prospectively, based on a revised schedule of
rent leveling based on the agreed rental abatements. At December 31, 1993,
the Corporation had accrued the maximum amount of $15.1 million of deferred
rent liability under the lease arrangements. The deferred rent liability
will become payable (i) upon a sale or refinancing of the Claridge; (ii)
upon full or partial satisfaction of the Wraparound Mortgage; and (iii)
upon full satisfaction of any first mortgage then in place. Also as of
December 31, 1993, $14.4 million of basic rent had been abated. The
remaining $24.4 million of available abatement is expected to be fully
utilized by the fourth quarter of 1996. Because the initial term of the
Operating Lease continues through September 30, 1998, rental payments after
the $38.8 million abatement is fully utilized will increase substantially
to approximately $41.8 million in 1997, as compared to $31.2 million (net
of projected abatement) in 1996. However, if New Claridge exercises its
option to extend the term of the Operating Lease, basic rent during the
renewal term will be calculated pursuant to a formula with annual basic
rent not to be more than $29.5 million or less than $24 million for the
twelve months commencing October 1, 1998, and subsequently, not to be
greater than 10% more than the basic rent for the immediately preceding
lease year in each lease year thereafter. If New Claridge exercises it
option to extend the term of the Expansion Operating Lease, basic rent also
will be calculated pursuant to a formula with annual basic rent not to be
more than $3 million or less than $2.5 million for the twelve months
commencing October 1, 1998, and subsequently, not to be greater than 10%
more than the basic rent for the immediately preceding lease year in each
lease year thereafter. If the term of both leases is extended under their
renewal options, the aggregate basic rent payable during the initial years
of renewal term will be significantly below the 1997 level.
If the Partnership should fail to make any payment due under the
Wraparound Mortgage, New Claridge may exercise a right of offset against
rent or other payments due under the Operating Lease and Expansion
Operating Lease to the extent of any such deficiency.
<PAGE>
<PAGE> 23
In February 1992, the Financial Accounting Standards Board issued
Statement No. 109, "Accounting for Income Taxes". Statement No. 109
requires a change from the deferred method of accounting for income taxes
to the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis.
Effective January 1, 1993, the Corporation adopted Statement No. 109
on a prospective basis. There is no effect on the Corporation's statement
of operations for the year ended December 31, 1993 as a result of the
adoption of Statement No. 109.
No valuation allowance has been provided on deferred tax assets since
management believes that it is more likely than not that such assets will
be realized through the reversal of existing deferred tax liabilities and
future taxable income.
The effective tax rate and components of income tax expense at December
31, 1993 did not change significantly from that at December 31, 1992.
Factors Which May Influence the Corporation's Future Operating Results
- ----------------------------------------------------------------------
The legalization of casino and other gaming ventures in states close
to New Jersey, particularly Delaware, Maryland, New York or Pennsylvania,
may have an adverse effect on the Corporation's future operating results.
A number of commentators believe legalization of at least limited forms of
casino gaming in Philadelphia, Pennsylvania in the relatively near future
is a significant possibility.
The future results of the Corporation's operations could be adversely
affected by certain proposed regulatory changes. In August 1988, the
United States Department of the Treasury (the "Treasury") proposed
amendments to Bank Secrecy Act ("BSA") regulations relating to financial
reporting and recordkeeping by casinos, which are treated as financial
institutions for BSA purposes. While the amendments would generally
clarify existing rules, several special requirements specific to casinos
have also been proposed.
The most significant proposed change to the BSA is a reduction in the
threshold at which additional information concerning the identity of
individuals engaging in reportable transactions would be sought, and
records would have to be maintained, from the present level of amounts
greater than $10,000 to a new $2,500 level. Additionally, the
proposed amendments would substantially increase the current
recordkeeping requirements imposed upon casinos relative to customer data,
currency and non-currency transactions. Management believes the proposed
regulations, if enacted in their current form, could result in a reduction
in the volume of play by certain customers while adding operating costs
associated with the more extensive recordkeeping requirements. However,
Treasury delayed the effective date (originally September 8, 1993) of the
regulations and has formed a study committee to revisit various issues
raised by the gaming industry including the shift of the $10,000 reporting
threshold to $2,500.
<PAGE>
<PAGE> 24
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Financial Statement Schedules are set
forth at pages F-1 to F-26 of the report.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
<PAGE> 25
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THIS REGISTRANT
Name Office Age
---- ------ ---
David W. Brenner Chairman, Director 58
Robert M. Renneisen President, Director 47
James W. O'Brien Director 58
Jean I. Abbott Director 38
Mark H. Sayers Director 44
John D. Feehan Director 64
Shannon L. Bybee Director 56
Gloria E. Soto Vice President, Assistant
Secretary 45
Raymond A. Spera Executive Vice President,
Treasurer, Assistant
Secretary 37
Albert T. Britton Vice President 37
Peter F. Tiano Vice President 58
Glenn S. Lillie Vice President 45
Frank A. Bellis, Jr. Vice President, Secretary 40
Business Experience
- -------------------
Mr. Brenner has served as a member of the Board of Directors of the
Corporation since February 1991, and became Chairman of the Board of
Directors in August 1993. He has served as President of the Philadelphia
Sports Congress since January 1987. Mr. Brenner served as Chairman of the
Hospital and Higher Education Facilities Authority of Philadelphia from
January 1986 to June 1992, and as Director of Commerce of the City of
Philadelphia from January 1984 to September 1986. He was with the
accounting firm of Arthur Young & Company from 1957 to September 1983. He
was managing partner of the Philadelphia office of Arthur Young from
November 1969 until March 1980.
Mr. Renneisen has served as President of the Corporation since June
1992, and as Chief Executive Officer of the Corporation and New Claridge
since July 1993. Mr. Renneisen was Executive Vice President of the
Corporation from June 1991 to June 1992. He has served as President of New
Claridge since January 1991. He was Chief Operating Officer of New
Claridge from January 1991 to July 1993. Mr. Renneisen was Executive Vice
President of New Claridge, responsible for marketing and later casino
operations from February 1988 to January 1991. Prior to joining New
Claridge, Mr. Renneisen served from January 1987 to December 1987 as Vice
President of Marketing of Treasure Island Hotel and Casino in St. Maarten.
From June 1986 to May 1987, he served as President of Renneisen, Kincade
& Associates, Inc. of Las Vegas, Nevada, a marketing consulting firm. He
was Senior Vice President of Marketing of the Tropicana Hotel and Casino
in Atlantic City from May 1982 to August 1984.
Mr. O'Brien has served as a member of the Board of Directors of the
Corporation since June 1988. Mr. O'Brien was the Corporation's Acting
Chairman of the Board from October 20, 1988 to November 22, 1988. Mr.
O'Brien served as Vice President of Human Resources of Genesco, Inc. of
Nashville, Tennessee from July 1987 to August 1993. He was Vice President
of Human Resources of Southwest Forest Industries of Phoenix, Arizona from
February 1986 to May 1987. He was President of Del E. Webb Hotel Group
from April 1982 to January 1986 and as Chief Executive Officer and a
Director of the Corporation from October 1983 to January 1986.
<PAGE>
<PAGE> 26
Ms. Abbott has served as a member of the Board of Directors of the
Corporation since August 1989, and served as a consultant to the Corporation
until March 26, 1994, at which time she became a Vice President of New
Claridge. From October 1992 to July 1993, Ms. Abbott was Finance
Director for the United Way of Atlantic County. She was Assistant
Professor at Stockton State College from September 1989 to June 1991. She
served as Senior Vice President, Treasurer of the Corporation and Senior
Vice President, Controller of New Claridge from May 1987 to September 1989.
She was Vice President, Controller of New Claridge from October 1985 to May
1987 and she was Director of Finance of New Claridge from April 1984 to
October 1985. From October 1980 through April 1984, Ms. Abbott held
various executive positions with New Claridge and Old Claridge.
Mr. Sayers has served as a member of the Board of Directors of the
Corporation since February 1990. Mr. Sayers has served as Vice President
of EMES Management Corporation, a real estate management and development
company, of New York, New York, since February 1976.
Mr. Feehan has served as a member of the Board of Directors of the
Corporation since April 1990. He served as Chairman of the Board of
Atlantic Energy, Inc. from 1983 until 1989 and Chairman, President and
Chief Executive Officer of Atlantic Energy from 1983 to 1985.
Mr. Bybee has served as a member of the Board of Directors of the
Corporation since July 1988. He presently serves as President and Chief
Operating Officer for United Gaming, Inc., a position he has held since
July 1993. Mr. Bybee was the Corporation's Chairman of the Board from
November 1988 to July 1993, and from August 1988 to October 1988. In June
1989, Mr. Bybee was appointed to serve as the Chief Executive Officer of
the Corporation and New Claridge, a position held through July 1993. Mr.
Bybee has been of counsel in the law firm of Schreck, Jones, Bernhard,
Woloson & Godfrey since 1978. From 1983 to 1987, he was Senior Vice
President of Golden Nugget, Incorporated which operated the Golden Nugget
Casino Hotel in Atlantic City. From 1981 to 1983, Mr. Bybee was President
of GNAC Corporation, which operated the Golden Nugget Casino Hotel in
Atlantic City.
Ms. Soto has served as Vice President of the Corporation since February
1987, and as Assistant Secretary of the Corporation since August 1993. She
served as Secretary of the Corporation from February 1987 to August 1993.
Ms. Soto has served as Vice President, Legal and Governmental Affairs of
New Claridge since December 1991. She was Vice President of Compliance and
Legal Affairs from November 1986 to December 1991 and Director of
Regulatory Affairs from August 1985 to November 1986. Prior to joining New
Claridge, Ms. Soto served as Associate General Counsel for Harrah's in
Atlantic City. In 1980, former Governor Byrne appointed Ms. Soto to the
New Jersey State Parole Board, where she served as member until 1983.
Mr. Spera has served as Executive Vice President of the Corporation
since August 1993. He served as Vice President of the Corporation from
December 1989 to August 1993, and as Assistant Secretary of the Corporation
since December 1991. He also has served as Executive Vice President of
Finance and Corporate Development of New Claridge since December 1992. Mr.
Spera was Senior Vice President of Finance and Corporate Development of New
Claridge from December 1991 to December 1992 and Vice President of Finance
of New Claridge from December 1989 to December 1991. From April 1982
through November 1989, Mr. Spera has held various accounting positions with
New Claridge and Old Claridge. Prior to joining New Claridge, he spent
three years with the accounting firm of KPMG Peat Marwick.
Mr. Britton has served as Vice President of the Corporation since June
1992, and as Executive Vice President of Operations of New Claridge since
<PAGE>
<PAGE> 27
December 1992. He was Senior Vice President of Operations of New Claridge
from December 1991 to December 1992, and Vice President of Casino
Operations from June 1990 to November 1991. From July 1981 through June
1990, Mr. Britton has held various positions in both accounting and casino
operations with New Claridge and Old Claridge.
Mr. Tiano has served as Vice President of the Corporation since June
1992, and as Executive Vice President of Administration of New Claridge
since December 1992. Mr. Tiano was Senior Vice President of Administration
of New Claridge from December 1991 to December 1992, Vice President of
Administration from September 1986 to December 1991, and Director of Human
Resources from June 1984 to September 1986. Prior to joining New Claridge,
he was Assistant Director of Human Resources for the Institute of
Scientific Information of Philadelphia, Pennsylvania from 1972 to 1984.
Mr. Lillie has served as Vice President of the Corporation since June
1992, and as Vice President of Public Affairs of New Claridge since
February 1990. He was Vice President of Marketing Communications of New
Claridge from April 1985 to February 1990, Director of Public Relations
from March 1982 to January 1983, and Training Manager from November 1980
to March 1982. From February 1983 to April 1985, Mr. Lillie was employed
as the Director of Public Relations of the Tropicana Hotel and Casino in
Atlantic City.
Mr. Bellis has served as Vice President, General Counsel and Secretary
to the Corporation since August 1993. He also has served as Vice President
and General Counsel of New Claridge since September 1992, and as Secretary
of New Claridge since August 1993. Previously, from May 1985 to August
1992, Mr. Bellis was Corporate Counsel and Secretary to Inductotherm
Industries, Inc., Rancocas, New Jersey. During 1984 and 1985, Mr. Bellis
was Associate General Counsel for New Claridge. Prior to joining New
Claridge, he was a Deputy Attorney General in the New Jersey Division of
Criminal Justice in the State Attorney General's office.
Further information regarding the directors and certain executive
officers of the Corporation and/or New Claridge is incorporated by
reference to the information contained under the caption "Voting"
in the Corporation's Proxy Statement.
Item 11. EXECUTIVE COMPENSATION
Information contained under the caption "Executive Compensation" in the
Corporation's Proxy Statement for the Annual Meeting of Shareholders to be
held on June 7, 1994 is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On March 24, 1989, Oppenheimer Holdings, Inc. returned to the
Corporation all of its shares (273,938) of the Corporation's Class A Common
Stock.
On June 16, 1989, in accordance with the terms of the Restructuring
Agreement, all of the outstanding shares of the Corporation's Class B
Stock, all of which was owned by Webb was returned to the Corporation and
cancelled.
As of December 31, 1993 there were no beneficial owners of more than
5% of the Corporation's Class A Stock.
On February 12, 1992, the Corporation's Board of Directors approved a
Long Term Incentive Plan which provided for the grant to certain key
officers of the Corporation and/or New Claridge of the 273,938 shares which
were held as treasury shares by the Corporation. These shares were issued
<PAGE>
<PAGE> 28
to the key employees upon approval by the Casino Control Commission on
April 15, 1992, and upon receipt the transfer of, and right to continue to
hold the shares, are subject to certain vesting restrictions.
On July 25, 1993, Shannon Bybee, resigned his position as Chairman and
Chief Executive Officer of the Corporation, resulting in the return to the
Corporation of 73,963 shares of the Corporation's Class A stock, which had
previously been awarded under the Plan. Mr. Bybee continues to serve as
a member of the Board of Directors of the Corporation.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership has a direct material interest in the Expandable
Wraparound Mortgage Loan Agreement, the Operating Lease and the Expansion
Operating Lease together with amendments thereto. See Item 1. Business -
"1989 Restructuring" and "Certain Transactions and Agreements."
<PAGE>
<PAGE> 29
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2): The response to this portion of Item 14 is
submitted as a separate section of this report
beginning on page F-1. All other schedules have
been omitted as inapplicable, or not required, or
because the required information is included in
the Consolidated Financial Statements or notes
thereto.
(a)(3) Exhibits. The exhibits required to be filed as part of
this annual report on Form 10-K are listed in the attached
Index to Exhibits.
(b) Reports on Form 8-K. The Corporation filed no reports on Form
8-K during the last quarter of the period covered by this report.
(c) Index to Exhibits and Exhibits filed as a part of this report.
3(a) Copy of Certificate of Incorporation of the Corporation.
Incorporated by reference to Exhibit 3.1 to Form 8
Amendment No. 1 to Form 10 dated February 21, 1984.
3(b) Copy of By-Laws of the Corporation as amended.
Incorporated by reference to Exhibit 3(b) to Form 10-K
for the period August 26, 1983 to December 31, 1983.
3(c) Copy of Certificate of Amendment of The Certificate of
Incorporation of the Corporation dated June 15, 1989,
incorporated by reference to Exhibit 3(c) to Form 10-K
for the year ended December 31, 1990.
3(d) Copy of Certificate of Amendment of The Certificate of
Incorporation dated June 26, 1991. Incorporated by
reference to Exhibit 3(d) to Form 10-K for the year
ended December 31, 1991.
4(a) Form of Indenture (including the Guarantee of The Claridge
at Park Place, Incorporated). Incorporated by reference to
Exhibit 4.1 to Pre-Effective Amendment No. 2 to Form S-1
Registration Statement (file number 33-71550) dated
January 18, 1994.
4(b) Form of 11 3/4% First Mortgage Note due 2002 certificate.
Incorporated by reference to Exhibit 4.2 to Pre-Effective
Amendment No. 2 to Form S-1 Registration Statement (file
number 33-71550) dated January 18, 1994.
10(a) Copy of Operating Lease Agreement between New Claridge and
Atlantic City Boardwalk Associates, L.P. Incorporated by
reference to Exhibit 2.2 to Form 8 Amendment No. 1 to Form
10 dated February 21, 1984.
10(b) Copy of Expandable Wraparound Mortgage and Security
Agreement between New Claridge and Atlantic City Boardwalk
Associates, L.P. Incorporated by reference to Exhibit
10(b) to Form 10-K for the period August 26, 1983 to
December 31, 1983.
<PAGE>
<PAGE> 30
10(c) Copy of Expandable Wraparound Mortgage Loan Agreement
between New Claridge and Atlantic City Boardwalk Associates,
L.P. Incorporated by reference to Exhibit 10(c) for Form
10-K for the period August 26, 1983 to December 31, 1983.
10(d) Copy of Management Agreement between New Claridge and Del
E. Webb New Jersey, Inc. Incorporated by reference to
Exhibit 2.3 to Form 8 Amendment No. 1 to Form 10 dated
February 21, 1984.
10(e) Copy of Casino Expansion Agreement among Atlantic City
Boardwalk Associates, L.P., New Claridge, the Corporation
and Del E. Webb New Jersey, Inc. Incorporated by reference
to Exhibit 10.1 to Form 8 Amendment No. 1 to Form 10 dated
February 21, 1984.
10(f) Copy of Cross Option Agreement between the Corporation and
Del E. Webb New Jersey, Inc. Incorporated by reference to
Exhibit 10.2 to Form 8 Amendment No. 1 to Form 10 dated
February 21, 1984.
10(g) Land Option Agreement between Del E. Webb New Jersey, Inc.,
and New Claridge. Incorporated by reference to Exhibit
10.3 to Form 8 Amendment No. 1 to Form 10 dated
February 21, 1984.
10(h) Copy of Expansion Operating Lease Agreement between New
Claridge and Atlantic City Boardwalk Associates, L.P.
Incorporated by reference to Exhibit 10(h) to Form 10-K
for the year ended December 31, 1985.
10(i) Copy of First Supplemental Amendment to Expandable
Wraparound Mortgage and Security Agreement between New
Claridge and Atlantic City Boardwalk Associates, L.P.
Incorporated by reference to Exhibit 10(i) to Form 10-K
for the year ended December 31, 1985.
10(j) Copy of First Supplemental Amendment to Expandable
Wraparound Mortgage Loan Agreement between New Claridge and
Atlantic City Boardwalk Associates, L.P. Incorporated by
reference to Exhibit 10(j) to Form 10-K for the year ended
December 31, 1985.
10(k) Copy of Fourth Amendment to Management Agreement between
New Claridge and Del E. Webb New Jersey, Inc. Incorporated
by reference to Exhibit 10(k) to Form 10-K for the year
ended December 31, 1985.
10(l) Copy of Amended and Restated Land Option Agreement between
New Claridge and Del E. Webb New Jersey, Inc. Incorporated
by reference to Exhibit 10(l) to Form 10-K for the year
ended December 31, 1985.
10(n) Copy of the Restructuring Agreement, among The Claridge
Hotel and Casino Corporation, The Claridge at Park Place,
Incorporated, Del Webb Corporation, Del E. Webb New Jersey,
Inc., Atlantic City Boardwalk Associates, L.P. and First
Fidelity Bank, National Association, New Jersey, dated
October 27, 1988. Incorporated by reference to Exhibit
10(n) to Form 10-Q for the quarter ended September 30, 1988.
<PAGE>
<PAGE> 31
10(v) Copy of Employment Agreement between Shannon L. Bybee and
The Claridge Hotel and Casino Corporation dated July 1,
1990. Incorporated by reference to Exhibit 10(v) to Form
10-Q for the quarter ended June 30, 1991.
10(w) Copy of Employment Agreement between Robert M. Renneisen
and The Claridge at Park Place, Inc. dated June 26, 1991.
Incorporated by reference to Exhibit 10(w) to Form 10-Q
for the quarter ended June 30, 1991.
10(x) Copy of Long Term Management Incentive Plan of The Claridge
Hotel and Casino Corporation effective January 1, 1992.
Incorporated by reference to Exhibit 10(x) to Form 10-K
for the year ended December 31, 1991.
10(y) Copy of Employment Agreement between Raymond A. Spera and
The Claridge at Park Place, Incorporated dated November 1,
1992. Incorporated by reference to Exhibit 10(y) to
Form 10-K for the year ended December 31, 1992.
10(z) Copy of Employment Agreement between Peter Tiano and
The Claridge at Park Place, Incorporated dated
November 1, 1992. Incorporated by reference to
Exhibit 10(z) to Form 10-K for the year ended
December 31, 1992.
10(aa) Copy of Employment Agreement between Albert T. Britton
and The Claridge at Park Place, Incorporated dated
November 1, 1992. Incorporated by reference to
Exhibit 10(aa) to Form 10-K for the year ended
December 31, 1992.
10(ab) Amendment to Operating Lease Agreement and Expansion
Operating Lease Agreement between New Claridge and
Atlantic City Boardwalk Associates, L.P., dated June
15, 1989. Incorporated by reference to Exhibit 10.5
to Form S-1 Registration Statement (file number 33-71550)
dated November 12, 1993.
10(ac) Second Amendment to Operating Lease Agreement and Expansion
Operating Lease Agreement between New Claridge and
Atlantic City Boardwalk Associates, L.P., dated
March 27, 1990. Incorporated by reference to
Exhibit 10.6 to Form S-1 Registration Statement
(file number 33-71550) dated November 12, 1993.
10(ad) Third Amendment to Operating Lease Agreement and Expansion
Operating Lease Agreement between New Claridge and Atlantic
City Boardwalk Associates, L.P., dated August 1, 1991.
Incorporated by reference to Exhibit 10.7 to Form S-1
Registration Statement (file number 33-71550) dated
November 12, 1993.
10(ae) First Amendment to Expandable Wraparound Mortgage Loan
Agreement between New Claridge and Atlantic City Boardwalk
Associates, L.P., dated March 17, 1986. Incorporated by
reference to Exhibit 10.8 to Form S-1 Registration
Statement (file number 33-71550) dated November 12, 1993.
10(af) Second Amendment to Expandable Wraparound Mortgage Loan
Agreement between New Claridge and Atlantic City Boardwalk
Associates, L.P., dated June 15, 1989. Incorporated by
reference to Exhibit 10.9 to Form S-1 Registration Statement
(file number 33-71550) dated November 12, 1993.
<PAGE>
<PAGE> 32
10(ag) Second Amendment to Expandable Wraparound Mortgage and
Security Agreement between New Claridge and Atlantic City
Boardwalk Associates, L.P., dated June 15, 1989.
Incorporated by reference to Exhibit 10.11 to Form S-1
Registration Statement (file number 33-71550)
dated November 12, 1993.
10(ah) The 1992 Claridge Management Incentive Plan. Incorporated
by reference to Exhibit 10.18 to Form S-1 Registration
Statement (file number 33-71550) dated November 12, 1993.
10(ai) The 1993 Claridge Management Incentive Plan. Incorporated
by reference to Exhibit 10.19 to Form S-1 Registration
Statement (file number 33-71550) dated November 12, 1993.
10(aj) Form of Mortgage, Assignment of Leases and Rents, Security
Agreement and Financing Statement. Incorporated by
reference to Exhibit 4.3 to Pre-Effective Amendment No. 2
to Form S-1 Registration Statement (file number 33-71550)
dated January 18, 1994.
10(ak) Form of Collateral Trust Agreement among the Corporation,
New Claridge, the Partnership and the Collateral Trustee.
Incorporated by reference to Exhibit 4.4 to Pre-Effective
Amendment No. 2 to Form S-1 Registration Statement
(file number 33-71550) dated January 18, 1994.
10(al) Form of Corporation Pledge Agreement between the
Corporation and the Collateral Trustee. Incorporated by
reference to Exhibit 4.5 to Pre-Effective Amendment No. 2
to Form S-1 Registration Statement (file number 33-71550)
dated January 18, 1994.
10(am) Form of New Claridge Pledge Agreement between New Claridge
and the Collateral Trustee. Incorporated by reference to
Exhibit 4.6 to Pre-Effective Amendment No. 2 to Form S-1
Registration Statement (file number 33-71550)
dated January 18, 1994.
10(an) Form of New Claridge Cash Collateral Pledge Agreement
between New Claridge and the Collateral Trustee.
Incorporated by reference to Exhibit 4.7 to Pre-Effective
Amendment No. 2 to Form S-1 Registration Statement
(file number 33-71550) dated January 18, 1994.
10(ao) Form of New Claridge Security Agreement between New
Claridge and the Collateral Trustee. Incorporated by
reference to Exhibit 4.8 to Pre-Effective Amendment No. 2
to Form S-1 Registration Statement (file number 33-71550)
dated January 18, 1994.
10(ap) Form of New Claridge Trademark Security Agreement between
New Claridge and the Collateral Trustee. Incorporated by
reference to Exhibit 4.9 to Pre-Effective Amendment No. 2
to Form S-1 Registration Statement (file number 33-71550)
dated January 18, 1994.
10(aq) Form of Collateral Assignment of Expandable Wraparound
Mortgage and Security Agreement. Incorporated by reference
to Exhibit 4.10 to Pre-Effective Amendment No. 2 to
Form S-1 Registration Statement (file number 33-71550)
dated January 18, 1994.
<PAGE>
<PAGE> 33
10(ar) Form of Collateral Assignment of Lessor's Interest in
Operating Leases. Incorporated by reference to Exhibit 4.13
to Pre-Effective Amendment No. 2 to Form S-1 Registration
Statement (file number 33-71550) dated January 18, 1994.
10(as) Form of Subordination Agreement among the Partnership,
New Claridge and the Collateral Trustee. Incorporated by
reference to Exhibit 4.14 to Pre-Effective Amendment No. 2
to Form S-1 Registration Statement (file number 33-71550)
dated January 18, 1994.
10(at) Form of Assignment of Leases and Rents and Other Contract
Rights. Incorporated by reference to Exhibit 4.15 to
Pre-Effective Amendment No. 2 to Form S-1 Registration
Statement (file number 33-71550) dated January 18, 1994.
12(a) Statement of Computation of Ratio of Earnings to Fixed
Charges. Incorporated by reference to Exhibit 12.1 to
Form S-1 Registration Statement (file number 33-71550)
dated November 12, 1993.
22(a) Subsidiaries of the Corporation. Incorporated by reference
to Exhibit 22.1 Form 8 Amendment No. 1 to Form 10 dated
February 21, 1984.
<PAGE>
<PAGE> 34
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.
CLARIDGE HOTEL AND CASINO CORPORATION
Dated: March 28, 1994 By:/s/ ROBERT M. RENNEISEN
- ---------------------- ----------------------------------
Robert M. Renneisen
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ DAVID W. BRENNER Chairman, Director March 28, 1994
- ---------------------------
David W. Brenner
/s/ ROBERT M. RENNEISEN President, Director March 28, 1994
- --------------------------- (Chief Executive Officer)
Robert M. Renneisen
/s/ JAMES W. O'BRIEN Director March 28, 1994
- ---------------------------
James W. O'Brien
/s/ JEAN I. ABBOTT Director March 28, 1994
- ---------------------------
Jean I. Abbott
/s/ MARK H. SAYERS Director March 28, 1994
- ---------------------------
Mark H. Sayers
/s/ JOHN D. FEEHAN Director March 28, 1994
- ---------------------------
John D. Feehan
/s/ SHANNON L. BYBEE Director March 28, 1994
- ---------------------------
Shannon L. Bybee
/s/ RAYMOND A. SPERA Executive Vice President March 28, 1994
- --------------------------- (Chief Financial Officer/
Raymond A. Spera Treasurer)
<PAGE>
<PAGE> 35
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
Reference In
Report on
Form 10-K
------------
Independent Auditors' Report............................... F-2
Consolidated Balance Sheets at December 31, 1993 and 1992.. F-3
Consolidated Statements of Operations and Accumulated Earnings
(Deficit) for the Years Ended December 31, 1993, 1992 and
1991..................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991......................... F-5
Notes to Consolidated Financial Statements................. F-7
Financial Statement Schedules:
Schedule VIII - Valuation and Qualifying Accounts..... F-25
Schedule X - Supplementary Income Statement
Information.............................. F-26
All other schedules for which provision is made in the
applicable accounting regulations promulgated by the
Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore
have been omitted.
<PAGE>
<PAGE> 36
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
The Claridge Hotel and Casino Corporation:
We have audited the consolidated financial statements of The
Claridge Hotel and Casino Corporation and subsidiary as listed
in the accompanying index. In connection with our audits of
the consolidated financial statements, we also have audited
the financial statement schedules as listed in the
accompanying index. These consolidated financial statements
and financial statement schedules are the responsibility of
the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements
and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
financial position of The Claridge Hotel and Casino
Corporation and subsidiary at December 31, 1993 and 1992, and
the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1993
in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement
schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick
Short Hills, New Jersey
March 4, 1994
<PAGE>
<PAGE> 37
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1993 and 1992
(dollars in thousands)
<TABLE>
<CAPTION>
Assets 1993 1992
- ------ -------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,193 4,758
Receivables, net (including $12,176 and $11,065 in 1993
and 1992, respectively, due from Partnership) (note 3) 13,339 12,274
Inventories 423 292
Prepaid expenses and other current assets 3,781 3,059
-------- -------
Total current assets 22,736 20,383
-------- -------
Gaming equipment 14,436 13,600
Less accumulated depreciation (10,211) (9,639)
-------- -------
Net gaming equipment 4,225 3,961
Long-term receivables due from Partnership (note 3) 115,494 121,713
Intangible assets and deferred charges at cost, less
accumulated amortization 651 297
Other assets (note 4) 3,232 1,951
-------- -------
$146,338 148,305
======== =======
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Revolving credit line borrowings (note 5) $ -0- 1,000
Current installments of long-term debt (note 8) -0- 1,200
Accounts payable 2,509 1,850
Loan from the Partnership (note 6) 3,600 3,600
Other current liabilities (note 7) 28,161 26,648
-------- -------
Total current liabilities 34,270 34,298
-------- -------
Long-term debt (note 8) 35,259 40,301
Deferred rent due to Partnership (note 12) 36,342 39,525
Deferred income taxes (note 11) 6,103 4,949
Other noncurrent liabilities (note 9) 20,000 20,000
Commitments and contingent liabilities (notes 12 and 13)
Stockholders' equity (notes 15 and 16):
Common stock
Class A, par value $.001, authorized and
issued 5,062,500 shares 5 5
Additional paid-in capital 5,048 5,048
Accumulated earnings 9,311 4,179
Treasury stock, 73,963 Class A shares at
cost in 1993 -0- -0-
-------- -------
Total stockholders' equity 14,364 9,232
-------- -------
$146,338 148,305
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE> 38
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations and Accumulated Earnings (Deficit)
For the Years Ended December 31, 1993, 1992 and 1991
(in thousands except per share data)
<TABLE>
<CAPTION>
1993 1992 1991
Revenue: -------- ------- -------
<S> <C> <C> <C>
Casino $154,615 146,357 135,406
Hotel 11,416 11,121 10,807
Food and beverage 18,597 18,971 20,589
Interest from the Partnership 17,974 18,774 19,554
Interest, other 168 157 207
Other 2,913 3,625 2,891
-------- ------- -------
205,683 199,005 189,454
Less promotional allowances (note 10) 16,011 16,801 16,493
-------- ------- -------
Net revenues 189,672 182,204 172,961
-------- ------- -------
Costs and expenses:
Casino 81,657 74,348 69,694
Hotel 3,228 3,162 3,340
Food and beverage 10,284 9,244 9,787
Other 3,923 5,106 4,925
Rent expense to the Partnership 34,580 34,658 36,645
Rent expense, other 1,645 1,776 1,836
General and administrative 26,951 25,026 22,621
Gaming taxes 12,360 11,669 10,790
Reinvestment obligation expenses (note 4) 665 977 1,465
Provision for uncollectible accounts 207 554 559
Depreciation and amortization 1,445 1,321 1,274
Interest expense, other 4,173 4,240 6,344
-------- ------- -------
Total costs and expenses 181,118 172,081 169,280
-------- ------- -------
Income before income taxes 8,554 10,123 3,681
Income tax expense (note 11) 3,422 4,075 1,500
-------- ------- -------
Net income 5,132 6,048 2,181
-------- ------- -------
Accumulated earnings (deficit) at
beginning of period 4,179 (1,869) (4,050)
-------- ------- -------
Accumulated earnings (deficit) at end
of period $ 9,311 4,179 (1,869)
======== ======= =======
Net income per share (note 2(g)) $ 1.02 1.21 .46
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE> 39
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1993, 1992 and 1991
(in thousands)
1993 1992 1991
---- ---- ----
Cash Flows from Operating Activities:
Net income $ 5,132 6,048 2,181
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,445 1,321 1,274
Deferred rent to the Partnership (3,183) (2,884) (4,282)
Deferred interest receivable and
discount from the Partnership (1,004) (873) (760)
Valuation reserve 665 977 1,465
Gain on disposal of assets (52) (18) (149)
Deferred income taxes - noncurrent 1,154 1,339 1,030
Change in assets and liabilities:
Receivables, net, excluding
current portion of long-term
receivables (36) 1,036 232
Inventories (131) (7) 7
Prepaid expenses and other
current assets excluding current
portion of reinvestment obligation
credit (722) 124 (296)
Accounts payable 659 248 (973)
Other current liabilities 1,513 (1,235) 3,731
-------- ------- -------
Net cash flows provided by
operating activities 5,440 6,076 3,460
-------- ------- -------
Continued
<PAGE>
<PAGE> 40
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows (Cont'd.)
For the Years Ended December 31, 1993, 1992 and 1991
(in thousands)
1993 1992 1991
---- ---- ----
Cash Flows from Investment Activities:
Increase in intangible assets
and deferred charges $ (529) (230) (248)
Additions to gaming equipment (1,535) (1,281) (1,213)
Additions to other assets, net (1,946) (1,296) (302)
Proceeds from disposition of property 53 87 149
Increase in long-term receivables (3,287) (2,295) (1,343)
Receipt of long-term receivables 9,481 8,625 8,367
-------- ------- -------
Net cash flows provided by investment
activities 2,237 3,610 5,410
-------- ------- -------
Cash Flows from Financing Activities:
Payment of long-term debt (7,942) (10,566) (8,404)
Payment of revolving credit line
borrowings (21,900) (6,000) (25,000)
Increase in revolving credit line
borrowings 22,600 7,000 24,100
-------- ------- -------
Net cash flows used in financing
activities (7,242) (9,566) (9,304)
-------- ------- -------
Increase (decrease) in cash and cash
equivalents 435 120 (434)
Cash and cash equivalents at beginning
of period 4,758 4,638 5,072
-------- ------- -------
Cash and cash equivalents at end of period $ 5,193 4,758 4,638
======== ======= =======
Supplemental cash flow disclosures:
Interest paid $ 3,741 3,808 5,912
======== ======= =======
Income taxes paid $ 1,393 2,841 220
======== ======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE> 41
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. THE CORPORATION
a) Organization
The Claridge Hotel and Casino Corporation (the "Corporation"),
was formed on August 26, 1983 to hold all of the shares of
capital stock of The Claridge at Park Place, Incorporated ("New
Claridge"), which was formed on August 29, 1983. On October 31,
1983, New Claridge acquired certain assets of The Claridge Hotel
and Casino (the "Claridge"), including gaming equipment (the
"Casino Assets"), from Del E. Webb New Jersey, Inc. ("DEWNJ"),
a wholly-owned subsidiary of Del Webb Corporation ("Webb");
leased certain other of the Claridge's assets, including the
buildings, parking facility and non-gaming, depreciable,
tangible property of the Claridge (the "Hotel Assets"), from
Atlantic City Boardwalk Associates, L.P. (the "Partnership");
subleased the land on which the Claridge is located from the
Partnership; assumed certain liabilities related to the acquired
assets; and undertook to carry on the business of the Claridge.
b) Recent Business Developments
On January 31, 1994, the Corporation completed an offering of
$85 million of First Mortgage Notes (the "Notes") due 2002,
bearing interest at 11 3/4%. A portion of the net proceeds of
$82.2 million, after deducting fees and expenses, was used to
repay in full the Corporation's outstanding debt under the
Revolving Credit and Term Loan Agreement (the "Loan Agreement"),
including the outstanding balance of the Corporation's revolving
credit line, which was secured by the First Mortgage. In
conjunction with the full satisfaction of the Loan Agreement,
the Corporation's revolving credit line arrangement was
terminated.
The Notes are secured by a non-recourse mortgage granted by the
Partnership representing a first lien on the Hotel Assets, and
by a pledge granted by the Corporation of all outstanding shares
of capital stock of New Claridge. New Claridge's guarantee of
the Notes is secured by a collateral assignment of the second
lien Wraparound Mortgage, and by a lien on the Claridge's gaming
and other assets, which lien will be subordinated to liens that
may be placed on those gaming and other assets to secure any
future revolving credit line arrangement.
The balance of the net proceeds from the offering of the Notes
will be used (i) to fund internal improvements intended to
expand the Claridge's casino capacity, which will result in the
addition of approximately 550 slot machines, as well as a poker
and simulcast area; (ii) the possible acquisition of an adjacent
parcel of land and construction on that land of a self-parking
garage facility; (iii) the possible purchase of the Contingent
Payment (see "1989 Restructuring") granted in 1989 and now held
in trust for the benefit of the United Way of Arizona; and (iv)
the potential expansion of the Corporation's activities into
emerging gaming markets.
<PAGE>
<PAGE> 42
c) 1989 Restructuring
On October 27, 1988, the parties with an economic interest in
the Corporation and New Claridge, including the banks holding
the First Mortgage (the "First Mortgage Lenders"), entered into
an agreement to restructure the financial obligations of the
Corporation and New Claridge (the "Restructuring Agreement").
Had the Corporation not entered into the Restructuring
Agreement, New Claridge probably would not have been relicensed
by the New Jersey Casino Control Commission (the
"Commission") for the license period beginning
October 31, 1988 and ending October 31, 1989, and would have had
to consider filing for bankruptcy protection. The Restructuring
Agreement by its terms was subject to approval by at least two-
thirds in interest of the limited partners of the Partnership
and the holders of at least two-thirds of the Class A Stock of
the Corporation. These approvals were received, and the
restructuring was consummated in June 1989. The restructuring
resulted in (i) a reorganization of the ownership interest in
the Corporation; (ii) modifications of the rights and
obligations of certain lenders; (iii) satisfaction and
termination of the obligations and commitments of Webb and DEWNJ
under the original structure; (iv) modifications of the lease
agreements between New Claridge and the Partnership; and (v) the
forgiveness by Webb of substantial indebtedness.
At the closing of the restructuring on June 16, 1989, Webb
transferred all of its right, title, and interest to its
Claridge land, easements, and air rights to the Partnership,
which had the effect of eliminating the land lease between Webb
and the Partnership and of subjecting that land to a direct
lease (rather than a sublease) from the Partnership to New
Claridge.
Pursuant to amendments to the Operating Lease and Expansion
Operating Lease, the Partnership agreed to deferrals of basic
rent (see Note 12, "Operating Lease").
In addition, the Partnership loaned $3.6 million to New
Claridge. That amount represented substantially all the cash
and cash equivalents remaining in the Partnership as of June 16,
1989 other than funds needed to pay expenses incurred through
the closing of the restructuring. The Partnership paid to New
Claridge $100,000 for the cancellation of an option agreement
relating to the land underlying the Claridge.
The Restructuring Agreement provided that Webb would retain an
interest equal to $20 million plus interest from December 1,
1988 at the rate of 15% per annum compounded quarterly (the
"Contingent Payment") in any proceeds ultimately recovered from
the operations and/or the sale or refinancing of the Claridge
facility in excess of the first mortgage loan and other
liabilities. To give effect to this Contingent Payment, the
Corporation and the Partnership agreed not to make any
distributions to the holders of their equity securities, whether
derived from operations or from sale or refinancing proceeds,
until Webb had received the Contingent Payment.
In connection with the restructuring, Webb agreed to grant those
investors in the Corporation and the Partnership ("Releasing
Investors") from whom Webb had received written releases from all
liabilities rights ("Contingent Payment Rights") to receive certain
<PAGE>
<PAGE> 43
c) 1989 Restructuring (Cont'd)
amounts to the extent available for application to the Contingent Payment.
Approximately 81% in interest of the investors provided releases
and became Releasing Investors. Payments to Releasing Investors
are to be made in accordance with the following schedule of
priorities:
(i) Releasing Investors would receive 81% of the first $10
million of any net proceeds from operations or a sale or a
refinancing of the Claridge facility pursuant to an
agreement executed within five years ("Five-Year
Payments") after the restructuring (i.e., the sum obtained by
multiplying the lesser of $10 million of, or the
total of, any Five-Year Payments by 81%, with the
balance of any such funds to be applied against the
Contingent Payment), and
(ii) All distributions of funds other than Five-Year Payments,
or of Five-Year Payments in excess of the $10 million,
will be shared by Webb and Releasing Investors in the
following proportions: Releasing Investors will receive 40.5%
(one-half of 81%) of any such excess proceeds, with the
balance of any such funds to be applied against the Contingent
Payment, until the Contingent Payment is paid in full ($20 million
plus accrued interest.)
On April 2, 1990, Webb transferred its interest in the
Contingent Payment to an irrevocable trust for the benefit of
the United Way of Arizona, and upon such transfer Webb was no
longer required to be qualified or licensed by the Commission.
As a result, the Releasing Investors and the Trustee for the
United Way of Arizona share the Contingent Payment granted to
Webb.
The Corporation has recently offered to purchase the Contingent
Payment from the United Way of Arizona for the amount of $10
million; this offer was not accepted. The Corporation is
continuing its negotiations with the Trustee for the United Way
of Arizona in an attempt to purchase the Contingent Payment.
(See Note 1(b) "Recent Business Developments").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The financial statements are prepared in accordance with
generally accepted accounting principles. The consolidated
financial statements include the accounts of the Corporation
and its wholly-owned subsidiary, New Claridge. All material
intercompany accounts and transactions have been eliminated in
consolidation.
<PAGE>
<PAGE> 44
b) Cash and Cash Equivalents
Cash and cash equivalents includes investments in interest
bearing repurchase agreements in government securities with
maturities of three months or less when purchased. Interest
income is recorded as earned.
c) Casino Receivables and Revenues
Credit is issued to certain casino customers and the
Corporation records all unpaid credit as casino receivables on
the date the credit was issued. Allowances for estimated
uncollectible casino receivables are provided to reduce these
receivables to amounts anticipated to be collected. The
Corporation recognizes as casino revenue, the net win (which
is the difference between amounts wagered and amounts paid to
winning patrons) from gaming activity.
d) Inventories
Inventories are stated at the lower of cost or market, cost
being determined principally on a first-in, first-out basis.
e) Gaming Equipment
Gaming equipment is stated at cost. Depreciation is provided
over the estimated useful lives (5 years) of the respective
assets using the straight line method.
f) Income Taxes
Deferred income taxes are provided for temporary differences
between financial statement reporting and income tax reporting
for rent levelling provisions, asset basis differences, and
various other expenses recorded for financial statement
purposes.
g) Earnings Per Share
Earnings per share is calculated based on the weighted average
shares outstanding (5,030,078 for the year ended December 31,
1993, 4,983,696 for the year ended December 31, 1992, and
4,788,562 for the year ended December 31, 1991).
<PAGE>
<PAGE> 45
3. RECEIVABLES
Receivables at December 31, 1993 and 1992 consists of the
following:
Current Receivables 1993 1992
------------------- ---- ----
(in thousands)
Casino, less allowance for doubtful accounts
of $1,243,000 and $1,424,000 at
December 31, 1993 and 1992, respectively $ 707 836
Hotel, less allowance for doubtful accounts
of $26,000 and $7,000 at December 31,
1993 and 1992, respectively 263 257
Interest receivable due from the Partnership 1,444 1,519
Current portion Expandable Wraparound
Mortgage due from the Partnership 8,000 7,000
Current portion of FF&E Promissory notes 975 1,146
Current portion of Expansion/Construction
promissory note 1,534 1,335
Other, less allowance for doubtful accounts
of $13,000 at December 31, 1993 and 1992 416 181
-------- -------
$ 13,339 12,274
======== =======
Long-Term Receivables
---------------------
$127,000,000 Expandable Wraparound
Mortgage 14%, maturities through
September 30, 2000 (net of $12,295,000
discount and $13,299,000 discount at
December 31, 1993 and 1992, respectively) $ 79,705 86,701
Deferred interest receivable, due
September 30, 2000 20,000 20,000
FF&E promissory notes, 14% 7,504 5,193
Expansion/Construction promissory note, 14% 8,285 9,819
-------- -------
$115,494 121,713
======== =======
The Expandable Wraparound Mortgage Loan Agreement ("Expandable
Wraparound Mortgage") was executed and delivered by the
Partnership to New Claridge and is secured by all property of
the Partnership. As part of the agreement, New Claridge will
service the First Mortgage and the Partnership's debt under the
Purchase Money Second Mortgage indebtedness (note 8). $20
million in interest was deferred between 1983 and 1988 and will
be due upon maturity. Principal payments required under the
Expandable Wraparound Mortgage commenced in 1988.
<PAGE>
<PAGE> 46
3. RECEIVABLES (Cont'd.)
The Expandable Wraparound Mortgage also includes a provision
whereby New Claridge will loan the Partnership up to $25 million
in the form of FF&E promissory notes, secured under the
Expandable Wraparound Mortgage, for the purchase of property and
equipment. One half of the principal is due in 48 months and
the remaining balance is due 60 months from the date of the
respective FF&E promissory note. During the year ended December
31, 1994, $975,000 of principal payments will become due.
The Expandable Wraparound Mortgage was increased up to $17
million to provide the Partnership with funding for the
construction of the expansion. Effective on the date that the
expansion opened to the public (August 28, 1986), the
Partnership commenced making level monthly payments of principal
and interest so as to repay on September 30, 1998, in full, the
principal balance of this increase in the Expandable Wraparound
Mortgage. The Expandable Wraparound Mortgage was amended to
require, in addition to the above, principal payments (in equal
monthly installments) due during the years 1988 through 1998 in
escalating amounts totalling $80 million and on September 30,
2000 a balloon payment of $67 million which includes $20 million
of deferred interest.
4. OTHER ASSETS
The Casino Control Act (the "Act") provides for the imposition
of an investment obligation, calculated at 1.25% of the total
revenues from gaming operations, less the provision for bad
debt. If a casino licensee opts not to make the investment as
required, it is assessed an alternative tax of 2.5% of total
gaming revenues less the provision for bad debt. The licensee
can satisfy its obligation by making a direct investment in a
project approved by the Casino Reinvestment Development
Authority ("CRDA"), the agency responsible for administering
this portion of the Act, or it can buy bonds issued by the CRDA.
These bonds bear interest at two-thirds of market rates, as set
forth in the Act.
New Claridge has opted to deposit its reinvestment obligation
funds with the State Treasurer. Through December 31, 1993, the
Corporation has deposited $12,733,000 of which $2,025,000 has
been used to purchase bonds issued by the CRDA. Since interest
on these bonds and funds deposited is paid at a discounted rate,
New Claridge records a valuation allowance of approximately one-
third of the reinvestment obligation. In addition, in January
1990, it was determined that certain bonds issued by the CRDA
had become impaired, and that the payment of principal and
interest was uncertain. As a result, New Claridge has recorded
a valuation allowance for the full amount of its investment in
these bonds, totalling $1,654,000.
In December 1989, and again in July 1990, New Claridge made to
the CRDA donations of funds, totalling $7,088,000 which had
previously been deposited with the State Treasurer. In
exchange for these donations, New Claridge received credits
from the CRDA equal to 51% of the donations, to be
applied to satisfy portions of the reinvestment obligations
<PAGE>
<PAGE> 47
4. OTHER ASSETS (cont'd.)
commencing after the date of the donations. At of December 31,
1993, $20,000 of these credits remained available.
5. WORKING CAPITAL LOANS
Pursuant to the terms of the Loan Agreement, First Fidelity
Bank, N.A., New Jersey ("Bank") established a revolving working
capital facility, which as of December 31, 1993 was in the
amount of $7.5 million. Interest on the working capital
facility borrowings, which was payable monthly in arrears,
accrued at a rate equal to the prime rate plus four percent, as
amended effective April 1, 1993 (see Note 8, Long-Term Debt).
New Claridge was also required to pay quarterly a commitment fee
equal to .5% per annum of the unused portion of the revolving
working capital facility.
New Claridge's outstanding borrowings on the revolving working
capital facility at December 31, 1993 and 1992 were $1,700,000
and $1,000,000, respectively.
The amount outstanding on the revolving working capital facility
at December 31, 1993 has been classified as long-term debt, due
to the repayment in full on January 31, 1994, in conjunction
with the full satisfaction of the Loan Agreement (see Note 17,
Subsequent Events). As a result of the full satisfaction of the
Loan Agreement, the Corporation's revolving credit line
arrangement was terminated.
6. LOAN FROM THE PARTNERSHIP
In accordance with the terms of the Restructuring Agreement, on
June 16, 1989 the Partnership loaned to New Claridge $3.6
million, which represented substantially all cash and cash
equivalents remaining in the Partnership other than funds needed
to pay expenses incurred through the closing of the
Restructuring. This loan is evidenced by an unsecured
promissory note and is not due and payable until such time as
the full or partial satisfaction of the Wraparound Mortgage and
the First Mortgage has been made in connection with a
refinancing or sale of all or a partial interest in the
Claridge.
Interest which accrues at 12% per annum is payable in full upon
maturity. As of December 31, 1993, such interest, which is
included in other current liabilities, amounted to $1,962,000.
<PAGE>
<PAGE> 48
7. OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 1993 and 1992 consist
of the following (in thousands):
1993 1992
---- ----
Deferred rent, current $15,078 15,078
Accrued payroll and related benefits 6,245 5,685
Progressive jackpots liability 51 483
Auto/General insurance reserves 1,404 1,425
Accrued interest due to Partnership 1,962 1,530
Other current liabilities 3,421 2,447
------- ------
$28,161 26,648
======= ======
The amount of deferred rent as of December 31, 1993 of
$15,078,000 represents the maximum deferral allowed in
accordance with the Operating Lease Agreement and Expansion
Operating Lease Agreement, as amended. The deferred rent
liability will become payable (i) upon a sale or refinancing of
the Claridge; (ii) upon full or partial satisfaction of the
Wraparound Mortgage; and (iii) upon full satisfaction of any
first mortgage then in place.
In September 1992, certain progressive slot machines were
removed from the casino, resulting in the reversal of $2,437,000
of progressive jackpot liability. In 1993, $432,000 of
progressive liability was reversed as a result of removing
additional progressive slot machines from the casino floor. The
removal of these units was made following receipt of approval
from the Commission.
8. LONG-TERM DEBT
Long-term debt at December 31, 1993 and 1992 consists of the
following:
1993 1992
---- ----
(in thousands)
First Mortgage Note, prime plus 4%,
effective April 1, 1993 $33,559 41,501
Revolving line of credit 1,700 -0-
------- ------
35,259 41,501
Less current installments -0- 1,200
------- ------
$35,259 40,301
======= ======
<PAGE>
<PAGE> 49
8. LONG-TERM DEBT (cont'd.)
On October 7, 1991, New Claridge was issued a two year license
by the Commission for the period commencing October 31, 1991.
The relicensing approval was based in part on the execution of
the second amendment to the Loan Agreement on April 23, 1991.
In addition, New Claridge was required to submit to the
Commission by April 30, 1993 a plan to satisfy the balloon
payment due on the term loan on January 1, 1994, pursuant to the
terms of the Loan Agreement, with implementation of the plan by
June 30, 1993. The third amendment to the Loan Agreement was
executed, effective April 1, 1993. The modifications resulting
from this amendment included (i) the extension of the maturity
date of the first mortgage loan from January 1, 1994 to December
31, 1996; (ii) an increase in the interest rate to the prime
rate of Marine Midland Bank, N.A. plus four percent (from the
previous prime rate plus one and one-half percent); (iii) an
increase in the mandatory principal payments from $1.2 million
to $3 million annually, payable in equal monthly installments;
(iv) an increase in the maximum annual capital expenditure
limitation from $3.5 million per year to $5 million per year;
and (v) an increase in the co-agent's fee to $70,000 per year.
Prior to this amendment, New Claridge was required to pay a co-
agent's fee equal to one-fortieth of one percent of the average
daily outstanding balance of the first mortgage loan. In
addition, New Claridge paid an extension fee of $200,000 upon
the execution of this amendment to the Loan Agreement.
In addition to the mandatory principal payments, New Claridge
was also required to pay quarterly, to the Bank, for permanent
application to the outstanding principal balance of the first
mortgage loan, any excess cash flow as defined in the Loan
Agreement.
The total principal balance outstanding on the first mortgage
loan at December 31, 1993 has been classified as long-term debt,
due to the repayment in full of the first mortgage on January
31, 1994, in conjunction with the full satisfaction of the Loan
Agreement (see Note 17, Subsequent Events).
9. OTHER NONCURRENT LIABILITIES
Pursuant to the Restructuring Agreement, Webb retained an
interest, which was assigned to the United Way of Arizona on
April 2, 1990, equal to $20 million plus interest at a rate of
15% per annum, compounded quarterly, commencing December 1,
1988, in any proceeds ultimately recovered from operations
and/or the sale or refinancing of the Claridge facility in
excess of the first mortgage loan ("Contingent Payment"), which
amount is payable under certain circumstances. Consequently,
New Claridge has deferred the recognition of $20 million of
forgiveness income with respect to the Contingent Payment
obligation. Interest on the Contingent Payment has not been
recorded in the accompanying financial statements since the
likelihood of paying such amount is not considered probable at
this time. As of December 31, 1993, accrued interest would have
amounted to approximately $22.3 million.
<PAGE>
<PAGE> 50
10. PROMOTIONAL ALLOWANCES
The retail value of complimentary rooms, food and beverages and
other complimentaries furnished to patrons is included in gross
revenue and then deducted as promotional allowances. The
estimated cost of providing such promotional allowances for the
years ended December 31, 1993, 1992 and 1991 has been allocated
to casino expenses as follows (in thousands):
1993 1992 1991
---- ---- ----
Hotel $ 2,251 1,972 1,540
Food and beverage 9,650 9,936 9,167
Entertainment 667 981 1,409
------- ------ ------
Total $12,568 12,889 12,116
======= ====== ======
11. INCOME TAXES
In February 1992, the Financial Accounting Standards Board
issued Statement No. 109, "Accounting for Income Taxes".
Statement No. 109 requires a change from the deferred method of
accounting for income taxes to the asset and liability method
of accounting for income taxes.
Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax basis.
Effective January 1, 1993, the Corporation adopted Statement No.
109 on a prospective basis. There is no effect on the
Corporation's statement of operations for the year ended
December 31, 1993 as a result of the adoption of Statement No.
109.
The provision for income taxes is comprised of the following (in
thousands):
1993 1992 1991
---- ---- ----
Current:
Federal $1,928 2,325 280
State 340 411 190
Deferred 1,154 1,339 1,030
------ ----- -----
$3,422 4,075 1,500
====== ===== =====
<PAGE>
<PAGE> 51
11. INCOME TAXES (Cont'd.)
The provision for income tax differs from the amount computed
at the statutory rate as follows (in thousands):
1993 1992 1991
Federal income tax at ---- ---- ----
statutory rates $2,908 3,442 1,251
State income tax less
Federal benefit 514 633 249
------ ----- -----
$3,422 4,075 1,500
====== ===== =====
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
at December 31, 1993 are presented below (in thousands):
Deferred tax asset/(liability):
Depreciation $ (699)
Rent leveling 14,015
Difference between book and tax basis of
receivables (1,772)
Accrued expenses 1,373
Difference between book and tax basis of Wraparound
Mortgage receivable (19,574)
Other differences between tax and financial
statement values 554
--------
Net Deferred Tax Liability $ (6,103)
========
No valuation allowance has been provided on deferred tax assets
since management believes that it is more likely than not that
such assets will be realized through the reversal of existing
deferred tax liabilities and future taxable income.
The principal items comprising the deferred tax provision in
1993 included rent levelling of $1,270,000, Wraparound Mortgage
discount expense of $402,000, bad debt expense of $42,000,
and income related to debt forgiveness of ($520,000).
The principal items comprising the deferred tax provision in
1992 included rent levelling of $1,150,000, Wraparound Mortgage
discount expense of $350,000, reversal of progressive jackpot
liability of $615,000, bad debt expense of ($66,000), and income
related to debt forgiveness of ($678,000).
The principal items comprising the deferred tax provision in
1991 included bad debt expense of $480,000, rent levelling of
$1,720,000, Wraparound Mortgage discount expense of $304,000,
and income related to debt forgiveness of ($1,538,000).
<PAGE>
<PAGE> 52
11. INCOME TAXES (Cont'd.)
As a result of the restructuring in 1989, the amount of debt
forgiven resulted in the loss or reduction of various tax
attributes including tax operating loss carryforwards of
$30,400,000, unused tax credits of $1,041,000 and reduction in
tax basis of assets by $89,178,000. As a result of the
reduction in tax basis of assets, cash payments for income taxes
will significantly exceed income tax expense for financial
statement purposes in future years. The above amounts have been
adjusted to reflect settlements of the IRS audits of the years
1983 through 1987.
12. OPERATING LEASE
New Claridge leases the Hotel Assets and subleased the land on
which The Claridge Hotel and Casino is located from the
Partnership under an Operating Lease for an initial lease term
of 15 years with three 10-year renewal options. If New Claridge
exercises its option to extend the term of the Operating Lease,
basic rent during the renewal term will be calculated pursuant
to a formula, with such rent not to be more than $29,500,000 nor
less than $24,000,000 for the lease year commencing October 1,
1998 through September 30, 1999 and, subsequently, not to be
greater than 10% more than the basic rent for the immediately
preceding lease year in each lease year thereafter. New
Claridge is also required to pay as additional rent amounts
including certain taxes, insurance and other charges relating
to the occupancy of the land and Hotel Assets, certain expenses
and debt service relating to furniture, fixture and equipment
replacements and building improvements and the general and
administrative costs of the Partnership. Under the terms of the
Operating Lease, New Claridge has an option to purchase, on
September 30, 1998 and, if it renews the Operating Lease, on
September 30, 2003, the Hotel Assets and the underlying land for
their fair market value at the time the option is exercised.
Minimum future basic lease payments under the initial term of
the Operating Lease, as amended, as of December 31, 1993 (net
of expected abatements, as discussed below) are as follows (in
thousands):
1994 $ 30,821
1995 30,762
1996 31,199
1997 41,775
1998 32,531
--------
Total Minimum $167,088
========
Also, additional rent payments are required based upon fixed
assets purchased by the Partnership (the FF&E Replacements, note
3) and then leased to New Claridge. For the years ended
December 31, 1993, 1992 and 1991, expense resulting from the
Operating Lease amounted to $34,580,000, $34,658,000 and
$36,645,000, respectively, of which ($3,183,000), ($2,884,000)
and ($4,282,000) of rental expense is attributable to the
<PAGE>
<PAGE> 53
12. OPERATING LEASE (Cont'd.)
requirement under Statement of Financial Accounting Standards
#13 to provide a level rent expense for those leases with
escalating payments. Under terms of the Operating Lease, the
Partnership is responsible for taxes, assessments, insurance,
maintenance and repairs and other costs related to use and
occupancy of the Hotel Assets.
New Claridge entered into an Expansion Operating Lease Agreement
with the Partnership whereby New Claridge leased the expansion
facility for an initial term beginning March 17, 1986 and ending
on September 30, 1998 with three 10-year renewal options. Basic
annual rent payable during the initial term of the Expansion
Operating Lease was $3,870,000 in 1986 (prorated based on
the day that the Expansion Improvements opened to the public)
and determined based on the cost of the construction of the
Expansion Improvements. Annually thereafter the rental amount
is adjusted based on the Consumer Price Index but any increase
may not exceed two percent per annum. Basic annual rent for
1993, 1992, and 1991 amounted to $4,445,000, $4,358,000, and
$4,273,000, respectively. If the term of the Expansion
Operating Lease is extended, basic annual rent will be
calculated pursuant to a formula, with such rent not to be more
than $3,000,000 nor less than $2,500,000 and not to be greater
than 10% more than the basic annual rent for the immediately
preceding lease year in each lease year thereafter.
New Claridge is also required to pay as additional rent certain
expenses and the debt service relating to Furniture, Fixture and
Equipment Replacements and building improvements (collectively
"Expansion FF&E Replacements") for the expanded facility. The
Partnership will be required during the entire term of the
Expansion Operating Lease to provide New Claridge with Expansion
FF&E Replacements and until September 30, 1998, will be required
to provide facility maintenance and engineering services to New
Claridge. New Claridge will be obligated to lend the
Partnership any amounts necessary to fund the cost of Expansion
FF&E Replacements. Any advances by New Claridge for the
foregoing will be secured under the Expandable Wraparound
Mortgage. New Claridge will have the option to purchase, on
September 30, 1998 and, if it renews the Expansion Operating
Lease, on September 30, 2003, the expansion facility (including
air rights) for their fair market value at the time the option
is exercised.
Effective with the consummation of the restructuring in June
1989, the Operating Lease Agreement and the Expansion Operating
Lease Agreement were amended to provide for the deferral of
$15,078,000 of rental payments during the period July 1, 1988
through the beginning of 1992, and to provide for the abatement
of $38.8 million of basic rent payable through 1998, thereby
reducing the Partnership's cash flow to an amount estimated to
be necessary to meet the Partnership's cash requirements.
During the third quarter of 1991, the maximum deferral of basic
rent allowable under the Operating Lease of $15,078,000 was
reached. On August 1, 1991, the Operating Lease Agreement and
Expansion Operating Lease Agreement were further amended to
revise the abatement provisions so that, commencing January 1,
1991, for each calendar year through 1998, the lease abatements
may not exceed $10 million in any one calendar year, and $38,820,000
<PAGE>
<PAGE> 54
12. OPERATING LEASE (Cont'd.)
in the aggregate. Effective with the closing of the Restructuring
on June 16, 1989, lease expense recognized on a level basis is
reduced prospectively, from the use of a revised schedule of rent
levelling relative to the abatement of certain rents beginning
in 1992.
If the Partnership should fail to make any payment due under the
Wraparound Mortgage, New Claridge may exercise a right of offset
against rent or other payments due under the Operating Lease and
Expansion Operating Lease to the extent of any such deficiency.
New Claridge also leases supplemental office, warehouse, and
surface parking spaces in nearby lots. For the years ended
December 31, 1993, 1992, and 1991, operating lease expense for
these facilities amounted to $1,645,000, $1,776,000 and
$1,836,000, respectively. The minimum future lease payments due
under these leases total $840,000 in 1994, $626,000 in 1995,
$600,000 in 1996, and $600,000 in 1997.
On March 8, 1991, New Claridge entered into an operating lease
agreement to lease certain computer equipment. For the years
ended December 31, 1993 and 1992, operating lease expense for
the computer equipment amounted to $308,000. The minimum future
lease payments due under this agreement are $76,950 in 1994.
New Claridge has an option to acquire the equipment at the end
of the lease term at the then fair market value of the
equipment. This option was exercised on February 28, 1994.
On June 11, 1991, New Claridge entered into an operating lease
agreement to lease one hundred slot machines for a period of
thirty-six months. For the years ended December 31, 1993 and
1992, operating lease expense for these slot machines amounted
to $170,000. The minimum future lease payments due under this
agreement are $86,000 in 1994. At the end of the three-year
lease term, New Claridge has the option to purchase the slot
machines for an amount as specified in the lease agreement, or
to extend the lease term for two additional one year periods.
On February 24, 1992, New Claridge entered into an operating
lease agreement to lease an additional one hundred slot
machines, under the same terms and conditions as the June 11,
1991 lease agreement. For the years ended December 31, 1993 and
1992, operating lease expense for these slot machines amounted
to $174,000 and $146,000, respectively. Minimum future lease
payments under this agreement are as follows: $174,000 in 1994,
and $28,000 in 1995.
<PAGE>
<PAGE> 55
13. CONTINGENCIES
a) Licensing
On September 22, 1993, New Claridge was issued a two-year
casino license by the Commission for the period commencing
September 30, 1993. The relicensing approval was based in
part on the execution of the third amendment to the Loan
Agreement on April 1, 1993 (as discussed in note 8, Long-
Term Debt).
b) Legal Proceedings
The Corporation and New Claridge are defendants in various
legal proceedings arising in the normal course of
business. In the opinion of management, it is not
reasonably likely that any such matters individually or
collectively would result in an outcome having a material
adverse effect on the consolidated financial statements.
14. OTHER EVENTS
On December 30, 1992, the Corporation and Fitzgeralds Las Vegas,
L.P. ("Fitzgeralds") executed a Letter of Intent to combine the
business and assets of the two organizations. A definitive
agreement was not reached and the Letter of Intent expired by
it own terms on June 28, 1993.
15. RELATED PARTY TRANSACTIONS
a. The Restructuring Agreement provided for Webb to retain an
interest, equal to $20 million plus interest at a rate of
15% per annum, compounded quarterly, commencing December
1, 1988, in any proceeds ultimately recovered from
operations and/or in the sale or refinancing of the
Claridge facility in excess of the first mortgage loan.
Webb was also entitled to retain a seat on the Board of
Directors of the Corporation and New Claridge (a right it
subsequently relinquished). Effective with the closing of
the Restructuring on June 16, 1989, all or substantially
all of the financial, contractual, ownership, guarantee
and other relationships of the Corporation and New
Claridge with Webb were terminated.
b. The Partnership has a direct material interest in the
Expandable Wraparound Mortgage Loan Agreement, the
Operating Lease and the Expansion Operating Lease together
with the amendments thereto as described in the preceding
notes. The ownership interests in the Partnership which
have a relationship to the Corporation are currently as
follows:
- Limited Partners representing approximately 98%
interest in the Partnership own approximately
4,500,000 shares of the Corporation's Class A Stock; and
<PAGE>
<PAGE> 56
15. RELATED PARTY TRANSACTIONS (cont'd.)
- Special Limited Partners (Oppenheimer Holdings, Inc.
and certain officers and employees of Oppenheimer &
Co., Inc.) represent approximately 1% interest in the
Partnership and prior to March 24, 1989 owned the
remaining 562,500 shares of Class A Stock. On March
24, 1989, Oppenheimer Holdings, Inc. returned to the
Corporation all of its shares (273,938) of the
Corporation's Class A Stock.
See footnote 1.b, "1989 Restructuring", for a summary of
the transactions consummated pursuant to the terms of the
Restructuring Agreement.
c. In February 1992, the Corporation's Board of Directors
adopted a Long-Term Incentive Plan (the "Plan") in which
certain key employees of the Corporation and/or New
Claridge participate. The Plan provides for the grant of
the 273,938 shares of the Corporation's Class A stock,
which were held as treasury shares of the Corporation, and
for the issuance of 100 Equity Units. The aggregate value
of the 100 Equity Units is equal to 5.41 percent of
certain amounts as further defined in the Plan. Specified
portions of the awarded treasury shares and Equity Units
held by participants vest upon the attainment of specific
goals as described in the Plan. The treasury shares and
Equity Units fully vest upon a further restructuring or
a change in control as defined in the Plan. Payment
with respect to the Equity Units will only be made (a)
upon the occurrence of a transaction in which
substantially all of the assets and business operations of
the Claridge entities are transferred to one or more
entities in a merger, sale of assets or other acquisition-
type transaction, (b) upon termination of employment of
any participant in the Plan within one year after any
change in control of the Corporation occurs, as defined in
the Plan, or (c) if the Corporation pays dividends to its
stockholders, if the Partnership makes distributions to
its partners, or if the Corporation or the Partnership
makes certain distributions under the Restructuring
Agreement. With respect to such Plan, no vesting has
occurred through December 31, 1993. On April 15, 1992,
the Casino Control Commission approved the Plan and the
treasury shares were delivered to the participants. A
participant is entitled to vote all awarded treasury
shares whether or not vested in such shares.
On July 25, 1993, Shannon Bybee, resigned his position as
Chairman and Chief Executive Officer of the Corporation,
resulting in the return to the Corporation of 73,963
shares of the Corporation's Class A stock, which had
previously been awarded under the Plan. In addition, the
Equity Units held by Mr. Bybee were returned to the
Corporation upon his resignation. Mr. Bybee continues to
serve as a member of the Board of Directors of the
Corporation.
<PAGE>
<PAGE> 57
16. PARENT COMPANY INFORMATION
The Corporation owns all of the outstanding common stock of New
Claridge, which it purchased for $5,000,000. Other than the
investment in its subsidiary at December 31, 1993 and 1992 the
balance sheet accounts of the Corporation include other assets
of $457,000 and $-0-, respectively, and related current
liabilities of $6,030,000 and $4,974,000, respectively.
Expenses amounted to $599,000, $611,000 and 321,000 for the years
ended December 31, 1993, 1992 and 1991, respectively. These
amounts represent the net loss of the Corporation for the respective
periods before equity in the results of New Claridge. For the
year ended December 31, 1993, New Claridge had net income of
$5,731,000 as compared to net income of $6,659,000 and $2,502,000
for the years ended December 31, 1992 and 1991, respectively.
17. SUBSEQUENT EVENT
On January 31, 1994, the Corporation completed an offering of
$85 million of Notes due 2002, bearing interest at 11 3/4%. A
portion of the net proceeds of $82.2 million, after deducting
fees and expenses, was used to repay in full the Corporation's
outstanding debt under the Loan Agreement, including the
outstanding balance of the Corporation's revolving credit line,
which was secured by the First Mortgage. In conjunction with
the full satisfaction of the Loan Agreement, the Corporation's
revolving credit line arrangement was terminated.
The balance of the net proceeds from the offering of the Notes
will be used (i) to fund internal improvements intended to
expand the Claridge's casino capacity, which will result in the
addition of approximately 550 slot machines, as well as a poker
and simulcast area; (ii) the possible acquisition of an adjacent
parcel of land and construction on that land of a self-parking
garage facility; (iii) the possible purchase of the Contingent
Payment (see "1989 Restructuring") granted in 1989 and now held
in trust for the benefit of the United Way of Arizona; and (iv)
the potential expansion of the Corporation's activities into
emerging gaming markets.
<PAGE>
<PAGE> 58
17. SUBSEQUENT EVENT (cont'd.)
The following table sets forth the condensed consolidated
financial position of the Corporation and New Claridge as of
December 31, 1993, and as adjusted to give unaudited proforma
effect to the net proceeds from the sale of the Notes and the
application of approximately $35 million of the proceeds to
repay in full the outstanding debt under the Loan Agreement:
At December 31, 1993
---------------------
Unaudited
Actual Proforma
------ ---------
(in thousands)
Cash and cash equivalents $ 5,193 $ 52,140
Total assets 146,338 196,079
Current liabilities 34,270 34,270
Long-term debt 35,259 85,000
Stockholders' equity 14,364 14,364
Total liabilities and
stockholders' equity 146,338 196,079
<PAGE>
<PAGE> 59
SCHEDULE VIII
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARY
Valuation and Qualifying Accounts
Years Ended December 31, 1993, 1992 and 1991
(in thousands)
<TABLE>
<CAPTION>
Balance Charged to Charged to Balance
Beginning Costs and Other at End of
Description of Period Expenses Accounts Deductions Period
- ----------- --------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1993
- -----------------
Allowance for
Doubtful Accounts $1,444 207 -0- 369 (a) 1,282
Year ended
December 31, 1992
- -----------------
Allowance for
Doubtful Accounts $1,278 554 -0- 388 (a) 1,444
Year ended
December 31, 1991
- -----------------
Allowance for
Doubtful Accounts $2,492 559 -0- 1,773 (a) 1,278
</TABLE>
(a) Accounts written-off.
<PAGE>
<PAGE> 60
SCHEDULE X
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARY
Supplementary Income Statement Information
Years Ended December 31, 1993, 1992 and 1991
(in thousands)
1993 1992 1991
---- ---- ----
Charged to Costs and Expenses:
Maintenance and Repairs (1) $ -0- -0- -0-
======= ======= ======
Depreciation and Amortization
of intangible assets, pre-
opening cost and similar
deferrals:
Intangible assets $ 175 $ 197 96
======= ======= ======
Taxes, other than payroll and
income taxes:
New Jersey casino gross
revenue tax $12,360 $11,669 10,790
Property taxes 3,789 3,575 3,876
------- ------- ------
$16,149 $15,244 14,666
======= ======= ======
Advertising Costs $ 2,709 $ 2,376 3,099
======= ======= ======
(1) In accordance with the terms of the Operating Lease Agreement between
New Claridge and Atlantic City Boardwalk Associates, L.P., the
Partnership is required to provide facility maintenance and engineering
services to New Claridge.
<PAGE>
