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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, 1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to___________
Commission File Number 0-11287
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
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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)
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
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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. (X)
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, 2000
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Class A Stock 5,062,500
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PART I
Item 1. BUSINESS
General
The Claridge Hotel and Casino Corporation (the "Corporation"), through its
wholly-owned subsidiary, The Claridge at Park Place, Incorporated ("New
Claridge"), operates The Claridge Hotel and Casino ("Claridge") in Atlantic
City, New Jersey. The Corporation was formed as a New York corporation on August
26, 1983, and qualified to engage in business in New Jersey as a foreign
corporation in September 1983. New Claridge was formed as a New Jersey
corporation on August 29, 1983.
The Corporation maintains its executive and administrative offices at
Indiana Avenue and the Boardwalk, Atlantic City, New Jersey 08401, telephone
number (609) 340-3400.
Corporate Structure
On October 31, 1983, New Claridge acquired certain assets of the 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. In connection
with these transactions, the Partnership granted the Expandable Wraparound
Mortgage (described below) to New 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. 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, approximately 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.
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%. The
Notes are secured by (i) a non-recourse mortgage granted by the Partnership
representing a first lien on the Hotel Assets; (ii) a pledge granted by the
Corporation of all outstanding shares of capital stock of New Claridge; and
(iii) a guarantee by New Claridge. New Claridge's guarantee of the Notes is
secured by a collateral assignment of the second lien Expandable 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
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credit line arrangement. On January 28, 1997, New Claridge entered into an
agreement to subject its new self-parking garage to the lien of the mortgage;
such lien will not be subordinated to any liens which may be placed on New
Claridge's gaming and other assets to secure any future revolving credit line
arrangements. Interest on the Notes is payable semiannually on February 1 and
August 1 of each year.
The net proceeds of the Notes, totalling $82.2 million net of fees and
expenses, were used as follows: (i) to repay in full on January 31, 1994 the
then outstanding debt of the Corporation under its Revolving Credit and Term
Loan Agreement (the "Loan Agreement"), including the outstanding balance of the
Corporation's revolving credit line, which was secured by a first mortgage; (ii)
to expand the casino capacity of the Claridge by 12,000 square feet in 1994,
including the addition of approximately 500 slot machines and the relocation of
two restaurants and their related kitchens; (iii) to purchase property in 1995
and construct on that property a self-parking garage, which opened in mid-1996;
and (iv) to acquire the Contingent Payment Option (see Item 1. Business -
"Contingent Payment"). With the completion of the construction of the
self-parking garage, the proceeds of the offering of the Notes had largely been
expended.
Current Developments
During 1995, the cash provided by operations of the Claridge was
sufficient to meet the Corporation's obligations to pay interest on the Notes,
as well as to make moderate capital improvements. Commencing in the latter part
of 1995, however, competition in the Atlantic City casino market for bus
customers, a principal source of customers for the Claridge at the time,
increased; this competition intensified even more during 1996 as additional
casino square footage was added, principally due to the opening of the Trump
World's Fair casino. During 1996, the average coin incentive issued per bus
patron at the Claridge increased to approximately $19, from approximately $13 in
1995. Total cash incentives issued to Claridge's casino patrons (in the form of
coin to play slot machines and gaming chips to play table games) increased to
approximately $30.5 million in 1996, from approximately $25.2 million in 1995.
While the Corporation's promotional costs increased significantly, total casino
revenues in 1996 actually decreased from 1995 levels. It had been the
expectation of the Corporation that, upon the opening of its new self-parking
garage, the Corporation would be able to reduce its reliance on the bus patron
market; however, the Corporation was forced to close the garage facility on July
10, 1996, only ten days after its opening, following a fatal accident. Because
the facility was not able to reopen until the end of September 1996, the
Corporation lost any possible benefit of the facility during the normally busy
summer season. In addition, severe winter weather in the first quarter of 1996
adversely affected revenues. As a result, the Corporation experienced a net loss
for 1996 of $15.4 million, compared to a net loss of $1.9 million in 1995.
The Corporation has experienced recurring losses and deterioration in its
cash flow since 1996. Since the Corporation does not have substantial cash
reserves or access to a line of credit, the Corporation needed to experience
significant improvement in operating results in 1997 over 1996 levels in order
to meet its on- going obligations, including the interest due on the Notes.
Operating results in 1997 did improve over 1996 levels, due primarily to the
positive impact of the availability of the self-parking garage, lower bus
package pricing, and other cost containment initiatives. However, operating
results in 1998 fell below 1997 levels due to increased competition for casino
customers. In 1998, the Corporation experienced a net loss of $9.4 million,
compared to a net loss of $6.0 million in 1997.
In view of the operating results of New Claridge in 1998, and in order to
meet its obligations, management of the Corporation took several steps to
enhance its cash position, through both operational changes, and certain
transactions with PDS Financial Corporation ("PDS") and the New Jersey Casino
Reinvestment Development Authority ("CRDA"). In addition, in February 1999, the
Corporation and New
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Claridge agreed to a settlement of approximately $2.3 million in the arbitration
proceedings concerning the accident which took place in New Claridge's
self-parking garage in July 1996. The settlement proceeds were received by New
Claridge in late February 1999.
As a result of these transactions, on March 2, 1999, New Claridge was able
to pay the interest due on the Notes on February 1, 1999, under the 30-day grace
period allowed in accordance with the terms of the indenture governing the Notes
(the "Indenture"). Operating results for the first half of 1999, however,
continued to lag behind prior year levels, which affected the Corporation's
ability to continue to meet its obligation to pay interest on the Notes. As a
result, the Corporation did not pay the interest due August 2, 1999 on the
Notes, and on August 16, 1999, the Corporation and New Claridge filed voluntary
petitions under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of New Jersey (the
"Bankruptcy Court"). The Partnership filed a voluntary petition under Chapter 11
of the Bankruptcy Code on October 5, 1999.
Management of the Corporation believes that this filing will permit the
Corporation to conserve its cash pending a restructuring of its financial
obligations in the Chapter 11 proceeding. As of December 31, 1999, the
Corporation had approximately $16.8 million of cash and cash equivalents,
including approximately $9.9 million of "bankroll" used in casino operations.
Management anticipates an increase in ongoing general and administrative
expenses, primarily for professional fees, during the pendency of the bankruptcy
proceeding. Through December 31, 1999, such expenses totalled approximately
$1,268,000.
The Corporation continues to operate the business, as set forth in the
Bankruptcy Code, under the supervision of the Bankruptcy Court, as a
debtor-in-possession. As debtor-in-possession, the Corporation is authorized to
operate its business, but may not engage in transactions outside of the normal
course of business without the approval of the Bankruptcy Court. Further, the
Corporation is subject to operating within certain weekly cash budgets which
have been approved by the Bankruptcy Court pursuant to certain orders
authorizing the use of its cash. As of the petition date, actions to collect
prepetition indebtedness are stayed, and other contractual obligations may not
be enforced against the Corporation. In addition, the Corporation may reject
executory contracts and lease obligations, and parties affected by these
rejections may file claims with the Bankruptcy Court in accordance with the
reorganization process. As part of the "first day orders," the Bankruptcy Court
approved the Corporation's payment of prepetition employee compensation,
benefits and reimbursable employee expenses, as well as to continue to honor all
existing employee benefit plans and policies. In addition, the Bankruptcy Court
approved the payment of certain prepetition vendor claims, certain prepetition
guest-related claims (such as outstanding direct mail coupons, progressive
jackpots, and safekeeping deposits), and prepetition payroll, gaming and other
taxes and fees.
Under the Bankruptcy Code, the Corporation had an exclusive period of 120
days to file a plan of reorganization with the Bankruptcy Court, which would
have expired on December 14, 1999. In November 1999, the Corporation petitioned
the Bankruptcy Court for, and was granted, an extension of this exclusivity
period to February 14, 2000; a further extension was subsequently granted,
extending the exclusivity period to May 14, 2000. On January 27, 2000, the
Corporation, New Claridge, and the Partnership filed a joint plan of
reorganization and disclosure statement (the "Plan") with the Bankruptcy Court.
While the Corporation and its subsidiaries have sustainable operations,
the cash generated by those operations are not sufficient to (i) permit the
Corporation to meet the debt service on the currently outstanding Notes; (ii) to
make significant capital improvements that management believes are necessary to
improve the Claridge's competitive position in the Atlantic City casino market;
and (iii) regularly make capital improvements in the future to maintain that
competitive position. Accordingly, the Plan proposes
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to reduce the Corporation's debt obligations to a level that it believes is
consistent with the sustainable level of cash to be generated by the Claridge.
At the same time, the Plan proposes to simplify the ownership structure of the
Claridge as between the Corporation, New Claridge and the Partnership. Any such
restructuring of the financial obligations of the Claridge and of its ownership
structure will be subject to the outcome of the Chapter 11 proceeding and, in
particular, the approval of the holders of the requisite percentage of the
outstanding Notes, as to which there can be no assurance.
In summary, the Plan, as proposed jointly by the Corporation, New
Claridge, and the Partnership on January 27, 2000, called for the following to
occur, subject to certain conditions contained in the Plan:
(i) the existing Class A Stock of the Corporation will be cancelled;
(ii) the holders of the Notes will be entitled to receive a pro rata
amount of new common stock in the reorganized Corporation ("New
Common Stock"). As an alternative to receiving only the New Common
Stock, the holders of the Notes may instead elect to receive new
first mortgage notes ("New Notes"), in a principal amount up to
the greater of $100,000 or 15% of the principal amount of their
Notes. Such New Notes, which will be issued by the reorganized
Corporation, will be guaranteed by New Claridge and secured by the
Hotel Assets. The New Notes will be issued in maximum principal
amount of $15 million, will have a term of 10 years and will bear
interest at a rate of 8% per year. To the extent that holders of
the Notes elect to receive New Notes, they will receive a reduced
amount of New Common Stock; and
(iii) the Partnership will transfer the Hotel Assets to New Claridge in
full satisfaction of its obligations under the Expandable
Wraparound Mortgage (see "Certain Agreements between the
Corporation, New Claridge, and the Partnership"). All debts owed
by New Claridge to the Partnership will be forgiven, and the
Partnership will liquidate.
On March 21, 2000, the Corporation filed an amendment to the Plan. This
amendment provides for the holders of the existing Notes to receive, on a pro
rata basis, (i) 100% of the equity of the reorganized Corporation, and (ii) debt
not to exceed $15 million. The Bankruptcy Court will issue its opinion in mid-
April regarding the adequacy of the Plan to be submitted to the creditors for a
vote.
The Corporation had previously announced that it had entered into a letter
of intent with Schottenstein Realty Corporation ("Schottenstein") regarding an
investment in the Claridge in connection with any such restructuring. The letter
of intent contemplated a $10 million investment by Schottenstein in the Claridge
in exchange for a substantial equity interest in a new entity that would own all
of the assets used by the Claridge, (including the assets currently owned by the
Partnership), except for the casino assets. The letter of intent contemplated
that this new entity would exchange new notes and equity in the entity for the
currently outstanding Notes. The new notes would have a substantially smaller
principal amount than the existing Notes, together with a lower interest rate
and a later maturity date. The letter of intent also called for providing a
limited amount of equity in the new entity to the Partnership and for setting
aside a portion of the equity in the new entity as incentive compensation for
the management of the Claridge. The above described terms of the letter of
intent were not binding on the Corporation or Schottenstein until reflected in a
definitive agreement, and, in any case, were subject to negotiation and approval
by holders of the Notes and the Partnership and to approval by the Bankruptcy
Court. On November 10, 1999, the Corporation announced that it would no longer
pursue the relationship contemplated by this letter of intent. The Board of
Directors of the Corporation, after careful consideration, determined that it
would be in the best interest of its creditors to file a separate and
independent "stand alone" plan of reorganization. However, management of the
Corporation will continue to consider alternate strategic initiatives.
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Certain Agreements between the Corporation, New Claridge and the Partnership
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The current relationships and agreements between the Corporation, New
Claridge and the Partnership, each of which would be terminated under the terms
of the proposed Plan, are described below:
Operating Lease/Expansion Operating Lease. The Casino Assets are owned by
New Claridge. In addition, the new self-parking garage and the land on
which it is located are owned by New Claridge. The Hotel Assets and
underlying land are owned by the Partnership and leased by the Partnership
to New Claridge under the terms of an operating lease (the "Operating
Lease") originally entered into on October 31, 1983, and an expansion
operating lease (the "Expansion Operating Lease"), which covered certain
expansion improvements made to the Claridge in 1986 (the "Expansion
Improvements"). The initial terms of both leases expired on September 30,
1998, and each lease provided for three ten-year renewal options at the
election of New Claridge. New Claridge exercised the first of the ten-year
renewal options, extending the term of the Operating Lease and Expansion
Operating Lease through September 30, 2008.
Basic rent during the renewal term of each lease is calculated pursuant to
a defined formula, with such rent for the lease year commencing October 1,
1998 through September 30, 1999 not to be more than $29.5 million nor less
than $24 million for the Operating Lease, and not to be more than $3
million nor less than $2.5 million for the Expansion Operating Lease. In
addition, in each subsequent year, rent will be calculated pursuant to a
defined formula, but may not exceed 10% more than the basic rent for the
immediately preceding lease year. Basic rent, as calculated pursuant to
the defined formula, for the lease year commencing October 1, 1998, was
$24 million for the Operating Lease and $2.5 million for the Expansion
Operating Lease, and will remain the same for the lease year commencing
October 1, 1999.
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 terms of the Operating Lease and Expansion Operating Lease have been
amended from time to time. The most recent amendment (the "Sixth
Amendment"), which was effective September 30, 1998, allowed for the
deferral of $1.1 million of rent in either February 1999 or March 1999,
dependent upon certain conditions being met. These conditions, which must
have occurred prior to March 2, 1999, include (i) New Claridge having
received the proceeds in connection with its settlement of the parking
garage litigation; and (ii) the Corporation or New Claridge having paid
the interest due on the Notes on February 1, 1999. New Claridge received
the proceeds from the settlement of the parking garage litigation in
February 1999, and paid the interest that was due on the Notes on March 2,
1999, within the 30-day grace period allowed in accordance with the terms
of the Indenture. The $1.1 million of basic rent deferred in 1999 is to be
paid to the Partnership in monthly installments of $25,000 commencing
January 1, 2000 until paid in full (subject to acceleration under certain
circumstances). This amendment also provides for additional abatements of
rent, through December 31, 2004, as necessary to reduce the Partnership's
cash flow to an amount necessary only to meet the Partnership's cash
requirements; these abatements, however, are to be reduced by specified
amounts for each period commencing January 1, 2000 and ending December 31,
2004 ($83,333 per month in 2000, $130,000 per month in 2001, $180,000 per
month in 2002 and 2003, and $130,000 per month in 2004).
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In addition to the deferral and abatements of rent provided for in the
Sixth Amendment, the amendment provides for the payment of $3.5 million of
additional basic rent on the earlier of (i) the maturity date of the
Expandable Wraparound Mortgage Note (see below); (ii) such earlier date,
if any, as the entire principal amount of the Expandable Wraparound
Mortgage becomes due and payable; or (iii) the date on which any merger,
consolidation, or similar transaction to which the Corporation or New
Claridge is a party, or any sale of all or substantially all of the assets
of the Corporation or New Claridge is consummated, or any change in
control of the Corporation or New Claridge occurs.
If the Partnership should fail to make any payment due under the
Expandable 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. As a
result of the Corporation's and New Claridge's Chapter 11 filing on August
16, 1999, under the terms of the Indenture, an "Event of Default" has
occurred (as defined in the Indenture). As a result of this Event of
Default, the Corporation and New Claridge are precluded from receiving any
further payments of principal or interest on the Expandable Wraparound
Mortgage. As a result, New Claridge has exercised this right of offset
against rental payments required to be made subsequent to August 16, 1999.
Prior to August 16, 1999, the Partnership was required, under the
Operating Lease, to provide FF&E Replacements to New Claridge, and to
provide facility maintenance and engineering services to New Claridge. New
Claridge was obligated under the Operating Lease, prior to August 16,
1999, to lend the Partnership, at an annual interest rate of 14%, any
amounts necessary to fund the cost of these FF&E Replacements. Such
advances by New Claridge ("FF&E Loans") were secured under the Expandable
Wraparound Mortgage, up to $25 million. One half of the principal amount
of each FF&E Loan is payable in the 48th month following the advance, with
the remaining balance due in the 60th month following the date of
issuance. New Claridge is required to pay, as additional rent to the
Partnership, the debt service on the FF&E Loans. As a result of the
Corporation and New Claridge's Chapter 11 filing on August 16, 1999, and
the Partnership's Chapter 11 filing on October 5, 1999, the Partnership no
longer provides furniture, fixture, and equipment replacements to the
Claridge; rather, New Claridge purchases these replacements directly.
Expandable Wraparound Mortgage. On October 31, 1983, the Partnership
executed and delivered to New Claridge the Expandable Wraparound Mortgage,
which was subordinate to an $80 million first mortgage granted by the
Partnership to a group of banks, and a $47 million purchase money second
mortgage ("Purchase Money Second Mortgage"), granted by the Partnership to
DEWNJ. The Purchase Money Second Mortgage, which was due on September 30,
2000, was cancelled upon satisfaction of certain conditions set forth in
an agreement entered into at the time of the 1989 restructuring. In
conjunction with the offering of $85 million of Notes on January 31, 1994,
the outstanding debt under the Loan Agreement, which included a first
mortgage and the revolving credit line, was satisfied in full. By its
terms, the Expandable Wraparound Mortgage may secure up to $25 million of
additional loans to the Partnership from New Claridge to finance FF&E
Replacements and facility maintenance and engineering shortfalls. The
Expandable Wraparound Mortgage provides that, so long as the Partnership
is not in default on its obligations under the Expandable Wraparound
Mortgage, New Claridge is obligated to make payments required under any
senior mortgage indebtedness. The indebtedness secured by the Expandable
Wraparound Mortgage 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 Expandable Wraparound Mortgage to make payments of
principal and interest in respect of any FF&E Loans made to finance FF&E
Replacements or facility maintenance or engineering costs as described
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above. To the extent these FF&E Loans exceeded $25 million in the
aggregate outstanding at any time, they would have been secured under
separate security agreements and not by the lien of the Expandable
Wraparound Mortgage.
The Expandable Wraparound Mortgage required monthly principal payments to
be made by the Partnership to New Claridge, commencing in 1988 and
continuing through 1998, in escalating amounts totalling $80 million. In
addition, in 1986 the principal amount secured by the Expandable
Wraparound Mortgage was increased to provide the Partnership with funding
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 Expandable Wraparound Mortgage by September 30, 1998.
In connection with the offering of the $85 million of the 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 were funded through additional FF&E Loans. In connection
therewith, the Expandable Wraparound Mortgage Agreement, as well as the
Operating Lease and Expansion Operating Lease, were amended to provide
that the principal amount on these additional FF&E Loans will be payable
at final maturity of the Expandable Wraparound Mortgage.
Under the terms of the Expandable Wraparound Mortgage, New Claridge is not
permitted to foreclose on the Expandable Wraparound Mortgage and take
ownership of the Hotel Assets so long as a senior mortgage is outstanding.
The Expandable Wraparound Mortgage has been amended from time to time. In
the most recent amendment, which was effective September 30, 1998, the
Corporation, New Claridge, and the Partnership agreed to amend the March
1997 restructuring agreement to provide for an extension of the maturity
date of the Expandable Wraparound Mortgage to January 1, 2005. In
addition, the Expandable Wraparound Mortgage Agreement and Note were
amended to defer the principal payments which were payable during the
fourth quarter of 1998 (totalling $3.5 million) to the earlier of (i) the
maturity date of the Expandable Wraparound Mortgage Agreement and Note;
(ii) such earlier date, if any, as the entire principal amount of the
Expandable Wraparound Mortgage becomes due and payable; or (iii) the date
on which any merger, consolidation, or similar transaction to which the
Corporation or New Claridge is a party, or any sale of all or
substantially all of the assets of the Corporation or New Claridge is
consummated, or any change of control of the Corporation or New Claridge,
occurs.
Contingent Payment
Following the 1983 transactions, Webb and its affiliates retained
significant interests in the Claridge. Effective with the closing of the
restructuring in June 1989, all or substantially all of the financial,
contractual, ownership, guarantee and other relationships of the Corporation and
New Claridge with Webb were terminated. 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
their shareholders or partners, respectively, whether derived from operations or
from sale or refinancing proceeds, until Webb had received the Contingent
Payment. It is estimated that at December 31, 1999, the
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aggregate amount payable in respect of the Contingent Payment was $102.3
million.
In connection with the 1989 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 84% in interest of the
investors provided releases and became Releasing Investors. Payments to
Releasing Investors are to be made in accordance with a schedule of priorities,
as defined in the Restructuring Agreement.
On April 2, 1990, Webb transferred its interest in the Contingent Payment
to an irrevocable trust for the benefit of the Valley of the Sun United Way, and
upon such transfer Webb was no longer required to be qualified or licensed by
the New Jersey Casino Control Commission (the "Commission").
On February 23, 1996, the Corporation acquired an option to purchase, at a
discount from the carrying value, the Contingent Payment. The purchase price of
the option was $1 million, and the option could have been exercised any time
prior to December 31, 1997. Given its operating results (see Item 1. Business -
"Current Developments"), the Corporation was not able to exercise this
Contingent Payment option, and it expired in accordance with its terms on
December 31, 1997.
Under the terms of the proposed Plan, the Contingent Payment and the
Contingent Payment Rights would be extinguished, and the holders of the
Contingent Payment and Contingent Payment Rights would not receive any
distributions in respect of these items.
The Claridge
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. 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 Expansion Improvements, which were completed in 1986 at a cost of
approximately $20 million, provided approximately 10,000 additional square feet
of casino space, together with a 3,600 square foot lounge. In 1994,
approximately $12.7 million was expended to expand the Claridge's casino square
footage by approximately 12,000 feet, and move and enlarge two restaurants. In
1996, New Claridge constructed a self-parking garage facility connected to its
existing valet-parking garage, at a cost of approximately $28 million. The
combined garage facility provides parking for approximately 1,200 vehicles.
The Claridge's casino consists of approximately 59,000 square feet of
casino space on three main levels with various adjacent mezzanine levels. The
casino currently contains approximately 1,750 slot machines and sixty-four table
games, including thirty-two blackjack tables, eight craps tables, five roulette
tables, three mini-baccarat and two baccarat tables, and fourteen other
specialty games. The hotel with related amenities consists of 502 guest rooms
(including 28 corner suites, 26 specialty suites and five tower penthouse
suites), five restaurants, three lounges, a private players club, a 600-seat
theater, limited meeting rooms, a gift shop, a beauty salon, and a health club
with an indoor swimming pool.
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. The casino gaming business in Atlantic
City is highly competitive and is strictly regulated under the New Jersey Casino
Control Act (the "Act") and regulations thereunder which affect virtually all
aspects of casino operations. (See Item 1. Business - "Competition" and "Gaming
Regulation and Licensing").
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Competition
Competition in the Atlantic City casino-hotel market is intense. As of
December 31, 1999, the twelve existing casino facilities offered approximately
1,171,000 square feet of gaming space, a 3.4% decrease from the casino square
footage as of December 31, 1998 of approximately 1,212,000 square feet. This
decrease was primarily due to the closing of the Trump World's Fair Casino in
the fourth quarter of 1999. The increase in casino square footage in 1998 over
1997 was approximately 3.3%, resulting primarily from a casino expansion at
Caesars Atlantic City Casino ("Caesars"), which added approximately 800 slot
machines to its existing casino in the second quarter of 1998. For the years
ended December 31, 1999 and 1998, citywide gaming revenues, as reported,
increased 3.1% and 3.6%, respectively, over prior year levels.
Consolidation of ownership in the casino industry has been evident in
recent years in Las Vegas and Atlantic City. The most recent example in Atlantic
City was the purchase of the Caesars World Incorporated by Park Place
Entertainment Corporation, which also owns and operates Bally's Park Place
Casino in Atlantic City and the Atlantic City Hilton. Currently, the twelve
Atlantic City casinos are owned and operated by seven companies, with Park Place
Entertainment Corporation owning three, Trump Hotels and Casinos owning three,
and Harrahs Entertainment, Incorporated owning two. These ownership structures
allow for the casinos under common ownership to reduce overhead costs by
consolidating certain administrative functions, thus increasing their
profitability even during periods of minimal revenue growth.
The Atlantic City gaming market is not expected to experience significant
growth over the next several years, until Atlantic City transforms itself from a
"day-trip" market to a "destination resort." As a result of current high room
occupancy rates, a more favorable regulatory climate, the reduced threat of
competition from potential new gaming jurisdictions, and significant
infrastructure developments making Atlantic City more accessible, over $4.6
billion of new investment has been announced or recently completed in the
Atlantic City gaming market. In addition to recent increases in casino space and
hotel rooms at the existing casinos, several Las Vegas casino operators have
announced plans to construct new casinos in Atlantic City.
In addition to the major casino expansions and the announced new casinos,
major infrastructure improvements have begun. A new $268 million convention
center, which was completed in May 1997, contains approximately 500,000 square
feet of exhibition space, 45 meeting rooms, food service facilities, and a
1,600-car underground parking garage. The new convention center is the largest
exhibition space between Boston and Atlanta. A 500-room non-casino hotel, which
is linked to the new convention center by an elevated walkway, opened in
November 1997. The development of the corridor which links the convention center
to the boardwalk area is complete, and features a wide, landscaped boulevard
with a reflecting pool, an expanded park area, and a 60-foot lighthouse which is
illuminated each night by a light show. In February 1997, construction of the
new $7.5 million bus terminal, which is a major component of this corridor, was
completed. The State of New Jersey is also implementing a capital plan of
approximately $125 million to upgrade and expand the Atlantic City International
Airport. Construction of a $300 million tunnel, which will provide access from
the Atlantic City Expressway to the marina casino district, began in late 1998.
All casinos in Atlantic City are part of hotels which offer dining,
entertainment, and other guest facilities. As the size of the gaming facilities
continue to grow, the need for additional hotel rooms has become evident. During
1996, the number of hotel rooms available citywide increased by approximately
1,100 rooms, with the opening of the Trump World's Fair casino (which was
subsequently closed in the fourth quarter of 1999) and the Tropicana's hotel
room tower. Several existing Atlantic City casinos also increased their hotel
space in 1997, including Harrah's (approximately 400 rooms), Hilton
(approximately
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300 rooms), and Caesars (approximately 600 rooms), for a total increase in 1997
of approximately 1,500 hotel rooms. Competition among the existing casino-hotels
is based on factors such as promotional allowances and incentives; the
attractiveness of the casino area; advertising; customer service; the
availability, quality, and price of rooms, food, and beverage; ease and
availability of parking and accessing the facility; 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 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.
Casinos offer incentives, in the form of cash and complimentaries for rooms,
food and beverages, to their customers based on their casino play. In recent
years, competition for, and as a result, incentives offered to, customers has
increased significantly. Many Atlantic City casino patrons arrive by bus and
stay for approximately six hours. Competitive factors in Atlantic City require
the payment of cash incentives and coupons for use towards the price of meals to
patrons arriving under bus programs sponsored by the casino operators.
Competition for bus patrons intensified in 1996, in the form of higher coin
incentives; New Claridge was forced to match the citywide increases, thus
increasing its per patron average coin cost to approximately $19 in 1996 from
approximately $13 in 1995. New Claridge relied heavily on attracting patrons who
travel to Atlantic City by bus because the Claridge previously lacked a
self-parking facility, and therefore had to remain competitive with other casino
operators in regards to the incentives offered. Even with its 1,200-space
parking facility, New Claridge continued to rely on its bus customers as a
significant source of business in 1997 and 1998. In 1997, citywide bus package
pricing competition eased somewhat; the average coin cost per patron arriving by
bus to the Claridge decreased to $16 in 1997. However, in 1998, bus package
pricing competition began to increase again, fueled by the expansion at Caesars
Atlantic City Casino (which added approximately 800 slot machines in early
1998), as well as the opening of Bally Park Place's bus transportation center in
the third quarter of 1998. During the fourth quarter of 1998, in response to
this acceleration of increasing bus coin incentives, New Claridge purposely
reduced its bus program volumes in order to reduce the related costs; the number
of bus passengers brought to the Claridge during the fourth quarter of 1998 was
approximately 37% lower than in the same period of 1997. To offset the decrease
in bus patrons, marketing programs such as double coin incentive bonuses and
one-day gift giveaways were increased, to focus on increasing the drive-in
segment of the business. This marketing strategy continued through the first
half of 1999. During the second half of 1999, while the drive-in promotions
continued, bus program volumes began to be increased slightly, although coin
incentives issued to bus patrons were in line with 1998 levels. During the
second half of 1999, 369,000 patrons arrived at the Claridge by bus, and were
issued an average of $18 in coin incentives per patron, in line with the second
half of 1998 levels of 377,000 patrons, also at an average of $18 per patron.
Management of the Corporation continues to monitor bus package pricing
competition, and efforts continue to be focused on maximizing the drive-in
segment of the business through advertising and direct marketing promotions.
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 the atmosphere of a grand hotel, and on
the Claridge's smaller, more intimate 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 a customer
base whose wagering spans the same market segments serviced by other casino
hotels, but primarily targets the middle, leaving the high-end business to its
competitors. New Claridge believes it is uneconomical to pursue the high-end
market as its core business because of the high maintenance cost and potential
volatility in table games win. The majority of the Claridge's casino revenue is
generated by slot machine play, although efforts have been taken in
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<PAGE>
recent years to increase table games play. In both 1999 and 1998, 74% of the
Claridge's casino revenue came from slot play as compared to 71% in 1999 and 70%
in 1998 reported for all Atlantic City properties.
The key elements of New Claridge's marketing plan include the use of
complimentaries, promotional activities, entertainment events, player
development hosts, a bus program, and the use of commissioned agents to attract
groups from outside the company's traditional market areas. New Claridge also
operates a direct marketing program to attract and retain customers. New
Claridge's Compcard Gold program, which allows patrons to earn various
complimentaries, including coins for slot machine play and gaming chips for
table play, based on their levels of gaming activity, provides a valuable
database of information on playing preferences, frequency and denominations of
play, and the amount of gaming revenues produced by gaming patrons. Because of
the expanded facilities and amenities now offered at the Claridge, the "Because
Smaller is Friendlier" positioning statement was changed to "Smaller, Friendlier
and So Much More." This position retains the equity in the intimacy-seeking
patron, but extends it to communicate that the Claridge now has a facility
capable of comfortably servicing a larger customer base, and offering the same
amenities and entertainment found at larger Atlantic City casino hotels.
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 higher than those for casino-hotels in Nevada. In
addition, although the January 1995 amendments to the Act (see Item 1. Business
- - "Gaming Regulation and Licensing" below) have eased the licensing requirements
for some employees, all of New Claridge's casino employees must be licensed.
Partly as a result of the licensing requirements, there has been intense
competition for experienced casino employees in Atlantic City. Difficulties in
hiring personnel licensed by the Commission have elevated labor costs, and
licensed personnel frequently leave their current positions for higher paying
jobs in other casinos. In addition, the expansion of casino gaming into other
jurisdictions has increased the competition for experienced casino management
personnel.
Casino competition outside of New Jersey includes land-based casinos,
river boat gaming, slot machines at racetracks, and Indian gaming. By far, the
most competitive threat to Atlantic City has been the Indian gaming operations
at Foxwoods and the Mohegan Sun casinos in Connecticut, and the slot machine
facilities at the Delaware racetracks. The two Indian gaming casinos in
Connecticut, with a combined total of approximately 8,900 slot machines as of
December 31, 1999, reported total slot win of $1.225 billion for 1999, an
increase of 9.9% over 1998 slot revenue of $1.115 billion. In Delaware, the
three tracks that are currently authorized to offer slot machine gaming had a
combined total of approximately 4,200 slot machines as of the end of 1999. These
machines generated $412.5 million of slot revenue during the year, an increase
of 17.6% over 1998 revenue. In early 1999, the Pennsylvania Senate voted against
a bill which would have allowed the state's voters to consider, in a non-binding
referendum, the authorization of riverboat casinos, slot machines at racetracks,
and video poker in drinking establishments. It is unlikely that Pennsylvania's
Legislature will consider another gambling bill while the current Governor,
whose term ends in January 2003, is in office. The effect of any future
legalization of casino gaming in Pennsylvania on the Atlantic City market would
depend on the form and scope of such gaming.
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 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
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the Act to adopt regulations covering a broad spectrum of gaming-related
activities.
The Act also establishes a Division of Gaming Enforcement (the "Division")
to investigate all applications for licenses, enforce the provisions of the Act
and the regulations thereunder, and prosecute before the Commission all
proceedings for violations of the 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.
Since 1991, changes to the Act have been enacted which have reduced
regulation of the casino industry; such changes have included the implementation
of 24-hour gaming, the introduction of new types of games, and the introduction
of simulcast wagering. In January 1995, significant amendments to the Act were
signed into law, which were intended to further reduce the regulation of the
Atlantic City casino industry. These amendments included changes regarding (i)
the authority and responsibilities of the Commission and the Division; (ii) the
licensing requirements of employees, casinos, and employees of industries which
service the casinos; (iii) the operation of the casinos; and (iv) the operation
of the CRDA.
b. Licensing Requirements. The Act provides that various categories of
persons or entities must hold casino licenses. The 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) who the Commission may consider appropriate for approval or
qualification, be qualified for approval pursuant to the provisions of the Act.
In addition, all contracts and leases entered into by the licensee, upon request
of the Commission, must 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 stockholder 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. The
names and addresses of all stockholders have been supplied to the Commission and
any changes known to the Corporation are reported when they occur.
c. Licensing Status. The Commission issues casino licenses, which, as
amended January 1995, are renewable every four years, subject to a series of
requirements including a requirement of demonstrating financial viability. On
September 22, 1999, New Claridge was issued a one-year casino license by the
Commission for the period commencing September 30, 1999. Although New Claridge
had reapplied for a four-year casino license, the filing of the voluntary
petition under Chapter 11 of the Bankruptcy Code on
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August 16, 1999 prompted the Commission to renew New Claridge's license for the
reduced period of time. Additionally, the casino license renewal contains
certain financial reporting conditions and requirements consistent with the
manner in which the Commission has relicensed other casino licensees who have
filed voluntary petitions under Chapter 11 in the past.
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 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 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 renewal fee of not less than
$200,000, based upon the cost of maintaining control and regulatory activities.
The renewal fee is charged to the casino licensee on a monthly basis, based on
the cost of actual investigatory time spent monitoring activities at the casino
hotel. In addition, a licensee is subject to (i) a tax of eight percent (8%) of
gaming revenues less a provision for uncollectible accounts; (ii) an annual
license fee of $500 on each slot machine; and (iii) an alcoholic beverage fee
computed on the basis of the cost of investigatory time spent monitoring each
beverage outlet.
The Act 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 (which are
defined as the total revenues derived from gaming operations less the provision
for uncollectible accounts) for each calendar year. 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 uncollectible accounts. The licensee has
two options in satisfying its investment obligation; it can make a direct
investment in a project approved by the CRDA, which is the agency responsible
for administering this portion of the 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 fifteenth 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 adopted from time
to time. For example, 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.
Employees
As of December 31, 1999, New Claridge employed approximately 2,110
persons, of whom approximately 760 were represented by labor unions.
Approximately 650 of the 760 are represented by the
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Hotel, Restaurant Employees and Bartender International Union, AFL-CIO, Local
54. In September 1999, the Corporation's collective bargaining agreement
covering the employees represented by Local 54 was renewed, together with the
collective bargaining agreements of all Atlantic City casinos with respect to
Local 54, for a period of five years.
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.
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 valet-parking 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
vehicles. In 1996, New Claridge completed the construction of a self-parking
garage, located on a parcel of land (29,120 square feet) connected to the
existing valet-parking garage. The combined garage facility provides parking for
approximately 1,200 vehicles. 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. With the exception of the self-parking
garage, all of the facilities discussed are owned by the Partnership and are
leased to New Claridge under the Operating Lease and the Expansion Operating
Lease. The self-parking garage and the property on which it is located are owned
by New Claridge.
Item 3. LEGAL PROCEEDINGS
On August 16, 1999, the Corporation and New Claridge filed voluntary
petitions under Chapter 11 of the Bankruptcy Code. In addition, on October 5,
1999, the Partnership filed a voluntary petition under Chapter 11 of the
Bankruptcy Code. The Corporation continues to operate the business of the
Claridge as a debtor-in-possession. See Item 1.Business - "Current Developments"
for a further discussion of these proceedings.
On July 10, 1996, ten days after its opening, a fatal accident occurred at
New Claridge's self-parking garage, in which the vehicle of two patrons breached
a cable restraint system, permitting their vehicle to drive through the side
wall of the self-parking garage. The vehicle fell four stories to the sidewalk
and street below, killing both occupants. As a result, New Claridge's
self-parking garage was closed until the end of September 1996, while various
investigations sought to determine the cause of the accident. At the same time,
New Claridge determined to remove the exterior wall cable restraint system and
replace it with a rigid I-beam barrier system.
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New Claridge retained the law firm of Zelle and Larson LLP of Minneapolis,
Minnesota to assist in the recovery of certain expenses incurred in reopening
the self-parking garage and potential lost profit claims. On July 22, 1997, New
Claridge filed a Complaint and Demand for Arbitration in the amount of $10
million against the general contractor and the architect for the garage,
alleging negligence, breach of warranty and breach of contract in the design and
construction of the garage. In February 1999, the Corporation and New Claridge
entered into a settlement agreement of approximately $2.3 million in the
arbitration proceedings.
A wrongful death action was commenced by the estates of the two patrons
who died in the July 1996 accident in the self-parking garage. New Claridge is
fully insured and indemnified for any financial liability that may have resulted
due to either an award to or a negotiated settlement with the plaintiffs in this
action. Subsequent to year end 1999, a settlement agreement and release was
signed among the parties settling all final outstanding claims. The settlement
with respect to New Claridge was within its general liability insurance.
During 1995, the Corporation received notice from the Internal Revenue
Service ("IRS") asserting deficiencies in Federal corporate income taxes for the
Corporation's 1990 and 1991 taxable years. Many of the proposed adjustments to
the Corporation's consolidated tax returns have been settled with no adverse
impact to the Corporation's consolidated financial statements. There was a
remaining IRS asserted deficiency for the 1990 and 1991 taxable years. In
January 1999, the Corporation reached a settlement agreement with the IRS
District Counsel, which was confirmed by the United States Tax Court on March 4,
1999. The amount of this settlement is included in "Liabilities Subject to
Compromise" on the Corporation's consolidated balance sheet. This settlement
agreement did not have a material impact on the Corporation's consolidated
financial statements.
The Corporation and its subsidiaries are not parties to any other material
litigation other than ordinary routine litigation which is incidental to its
business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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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. In
October 1983, 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 their par value, $.001 per
share, and 4,500,000 shares of Class A Stock were privately offered and sold at
$1.2336306 per share. At the same time, 562,500 shares of Class B Stock were
sold to Webb at their par value, $.001 per share. 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. As of March 2, 2000, there were approximately 494
holders of record of the Class A Stock. The Contingent Payment Rights (see Item
1. Business - "Contingent Payment") 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.
The Indenture restricts the declaration or payment of dividends or
distributions or redemptions of capital stock by the Corporation and its
subsidiaries, other than (i) dividends or distributions payable in equity
interests of the Corporation or such subsidiaries; (ii) dividends or
distributions payable to the Corporation or any wholly-owned subsidiary; or
(iii) dividends by a subsidiary on its common stock if such dividends are paid
pro-rata to all holders of such common stock.
In addition, the Corporation and the Partnership have agreed not to make
any distributions to the holders of their equity securities, whether derived
from operations or from sale or refinancing proceeds, until the Contingent
Payment has been satisfied (see Item 1. Business - "Contingent Payment").
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Item 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
data for the years ended December 31, 1999, 1998, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----- ---- ---- ---- ----
(in thousands except per share data)
Income Statement Data
<S> <C> <C> <C> <C> <C>
Net revenues $ 188,550 191,000 192,753 193,311 203,348
Income (loss) before
reorganization items $ 531 (9,415) (5,979) (15,389) (1,908)
Reorganization items $ (38,721) -0- -0- -0- -0-
Net loss $ (38,190) (9,415) (5,979) (15,389) (1,908)
Net loss per share $ (7.54) (1.89) (1.20) (3.05) (.38)
Balance Sheet Data at Year End
Total assets $ 102,522 131,776 150,380 164,163 189,074
Current assets $ 28,232 18,403 37,096 31,753 55,542
Current liabilities $ 17,280 42,088 41,234 39,027 40,420
Liabilities subject to compromise $ 145,259 -0- -0- -0- -0-
Long-term debt, net of
current installments $ 1 85,170 85,023 85,000 85,000
Stockholders' (deficiency) equity $ (63,418) (25,228) (15,813) (9,834) 5,555
</TABLE>
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations for the Year ended December 31, 1999
- ----------------------------------------------------------
The Corporation had a net loss of $38,190,000 for the year ended
December 31, 1999, compared to a net loss of $9,415,000 for the year ended
December 31, 1998. The net loss for 1999 includes a $37.6 million impairment
loss resulting from the write down of the Expandable Wraparound Mortgage
receivable.
Total Claridge casino revenues during 1999 were $163,833,000, reflecting
a 1.3% decrease from 1998 casino revenues of $166,010,000. Citywide casino
revenues for 1999, as reported, increased 3.1% over 1998 citywide revenues.
Total citywide casino square footage as of December 31, 1999 was 1,171,000, a
3.4% decrease from the available casino square footage as of December 31, 1998;
this decrease was primarily due to the closing of the Trump World's Fair Casino
in the fourth quarter of 1998. Trump had announced that this casino was closed
in preparation for the construction of a new "mega-resort" on the property
sometime in the future.
New Claridge's table games drop (the amount of gaming chips purchased by
patrons) for 1999 decreased 4.7% from the 1998 drop; however, due to a slight
increase in the "hold" percentage (the percentage of win to drop), 1999 table
games revenue of $42,274,000 was 3.4% lower than 1998 table games revenue of
$43,762,000. Table games revenue for 1998 reflected a significant 11.5% increase
over 1997 revenue. Citywide, table games drop and revenue for 1999, as reported,
remained in line with 1998 levels.
Slot machine revenues reported by New Claridge during 1999 were
$121,559,000, reflecting a slight decline from 1998 slot machine revenues of
$122,248,000. Citywide slot machine revenue, as reported, for 1999 increased
4.5% over 1998 revenues. The average number of slot machines available in 1999,
both at the Claridge and citywide, remained consistent with 1998 levels.
During the fourth quarter of 1998, in response to the acceleration of
increasing bus coin incentives, New Claridge purposely reduced its bus program
volumes in order to reduce the related costs; the number of bus passengers
brought to the Claridge during the fourth quarter of 1998 was approximately 37%
lower than in the same period of 1997. To offset the decrease in bus patrons,
marketing programs such as double coin incentive bonuses and one-day gift
giveaways were increased, to focus on increasing the drive-in segment of the
business. This marketing strategy continued through the first half of 1999.
During the second half of 1999, while the drive- in promotions continued, bus
program volumes began to be increased, although coin incentives issued to bus
patrons were in line with 1998 levels. During the second half of 1999, 369,000
patrons arrived at the Claridge by bus, and were issued an average of $18 in
coin incentives per patron, in line with the second half of 1998 levels of
377,000 patrons, also at an average of $18 per patron. In total during 1999,
677,000 casino patrons arrived at the Claridge by bus, and were issued
$12,038,000 of coin incentives, for an average of approximately $18 per patron.
This compares to 842,000 bus patrons in 1998, with total coin incentives of
$13,500,000, or an average of $16 per patron. In addition to the bus program,
New Claridge offers promotional incentives to its customers through its direct
marketing programs, based on their level of gaming activity. Promotional
incentives issued through this program (which includes coin and gaming chips)
totalled $11,845,000 in 1999, compared to $11,612,000 in 1998.
Hotel revenues in 1999 totalled $10,745,000, an increase of 12.2% over
1998 hotel room revenues. This increase was due to a higher rooms occupancy rate
(92% in 1999 compared to 89% in 1998), combined with a higher average room rate
($63 in 1999 compared to $59 in 1998). The higher rooms volume was reflected
primarily in the tour group segment of the business. Food and beverage revenues
during 1999 were $18,413,000,
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reflecting a 3.0% decrease from 1998 revenues of $18,989,000. This decrease was
primarily due to the closing of New Claridge's buffet in late 1998 as part of
the refocusing of marketing efforts to reduce bus program volumes. As a result,
the total number of covers (meals served) declined to 953,000 in 1999, from
1,163,000 in 1998; however, the average price per cover increased to $12.92 in
1999, from $11.22 in 1998. During August 1999, New Claridge opened "Pronto", a
self-service, fast food Italian eatery, to assist in servicing the increased
customer volumes as the bus program volumes began to increase. Promotional
allowances, which represent the value of goods and services provided free of
charge to customers under various marketing programs, increased 7.3% in 1999, to
$21,522,000, over 1998 levels. Other income for 1999 includes the $2.3 million
received by New Claridge in February 1999 as a result of the settlement of the
self-parking garage arbitration proceedings.
Total costs and expenses for 1999 were $188,019,000, a 6.2% decrease
from 1998 expenses of $200,415,000. This decrease was due, in part, to lower
interest expense; as a result of the Corporation's filing under Chapter 11 of
the Bankruptcy Code on August 16, 1999, interest expense on the Notes and the
$3.6 million loan from the Partnership ceased to accrue as of that date. Casino
operating expenses for 1999 were $100,576,000, slightly lower than 1998
expenses, primarily due to lower coin incentive expense, as previously
discussed. Food and beverage expenses of $5,556,000 in 1999 were significantly
lower than 1998 levels, primarily due to the closing of New Claridge's buffet in
late 1998. Rent expense to the Partnership declined from 1998 levels, primarily
due to higher abatements of rent in 1999 resulting from lower cash requirements
of the Partnership for servicing the debt under the Expandable Wraparound
Mortgage. General and administrative expenses of $26,211,000 in 1999 were 5.2%
lower than 1998 expenses, primarily due to decreased legal fees, which in 1998
resulted from the self-parking garage arbitration proceedings.
Reorganization expenses for 1999 includes professional fees incurred as
a result of the Corporation's filing for reorganization under Chapter 11 of
$1,268,000, offset by interest earned from the investment of accumulated cash
resulting from the Chapter 11 filing. In addition, as a result of the
Corporation's and New Claridge's Chapter 11 filing, as well as the Partnership's
Chapter 11 filing on October 5, 1999, the Expandable Wraparound Mortgage has
become impaired. As a result, the Corporation recorded an adjustment in 1999 to
write-down the balance of the Expandable Wraparound Mortgage, to an amount
estimated to be the realizable value of the Hotel Assets. The total amount of
this write-down was $37.6 million.
For the year ended December 31, 1999, the Corporation did not record any
income taxes. Since the Corporation was in a loss position, any resulting tax
benefit would be offset by a corresponding increase in the valuation allowance.
Results of Operations for the Year Ended December 31, 1998
The Corporation had a net loss of $9,415,000 for the year ended December
31, 1998, compared to a net loss of $5,979,000 for the year ended December 31,
1997.
Total Claridge casino revenues during 1998 were $166,010,000, a slight
increase over 1997 total casino revenues of $165,371,000. Citywide casino
revenues, as reported, for the year ended December 31, 1998 increased 3.6% over
1997 revenues. As of December 31, 1998, the twelve existing casino facilities
offered approximately 1,212,000 square feet of gaming space, a 3.3% increase
over the casino square footage as of December 31, 1997 of approximately
1,173,000 square feet. This increase was primarily due to a casino expansion at
Caesars, which added approximately 800 slot machines to its existing casino in
the second quarter of 1998.
New Claridge's table games revenue for 1998 was $43,762,000, reflecting
an 11.5% increase over 1997 table games revenue of $39,256,000. Table games drop
increased 16.1% in 1998 over the 1997 drop; however,
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the hold percentage declined, to 13.7% in 1998, from 14.2% in 1997. The increase
in table games drop was attributable to ongoing efforts to increase that segment
of New Claridge's casino business, through various marketing programs aimed at
domestic Asian table games business, junket business, and player development
programs. Citywide table games drop, as reported, decreased slightly in 1998
from 1997 levels; however, the citywide hold percentage increased to 15.8% (from
15.5% in 1997), resulting in an increase in citywide table games revenue of 1.9%
in 1998 over the prior year.
New Claridge's slot machine revenues during 1998 were $122,248,000, a
decrease of 3.1% from 1997 slot machine revenues. Citywide slot machine
revenues, as reported, increased 3.9% in 1998 over 1997 revenues. However, as a
result of the 4.9% increase in the average number of slot machines available
citywide (primarily resulting from the casino expansion at Caesars), the
citywide win per machine per day actually decreased 1.4% from 1997 levels. The
average number of slot machines at the Claridge in 1998 was in line with the
1997 average, while New Claridge's win per slot machine per day decreased 3.1%.
Citywide competition for attracting customers who arrive in Atlantic
City by bus continued to accelerate in the second half of 1998, as companies
struggled to increase revenues to support recently expanded properties, such as
the opening of Caesars and the new bus center at Bally's Park Place Casino. As a
result, coin incentives issued to bus customers increased. During the fourth
quarter of 1998, New Claridge redirected its bus program to reduce the number of
customers who arrive by bus, and, thereby, related costs. During 1998, 842,000
casino customers arrived at the Claridge by bus, and were issued $13,500,000 in
coin incentives, for an average incentive per passenger of $16. This compares to
the 955,000 bus customers who arrived at the Claridge in 1997 and were issued a
total of $15,023,000 of coin incentives, also an average of $16 per passenger.
Marketing efforts have been directed toward the mid-level slot customer through
the use of direct promotions and advertising. Promotional incentives issued
through New Claridge's direct marketing programs in 1998 totalled $11,612,000,
compared to $11,366,000 in 1997.
Hotel revenues in 1998 were $9,576,000, an increase of 1.3% over 1997
revenues of $9,456,000. Hotel occupancy in 1998 was 89%, slightly lower than the
91% occupancy in 1997; however, the average room rate in 1998 increased to $59,
from $58 in 1997. Food and beverage revenues in 1998 were $18,989,000,
reflecting a 3.2% decrease from prior year revenues of $19,609,000; this
decrease was primarily due to a reduction in complimentary beverages served on
the casino floor. Although food revenues in 1998 were in line with the prior
year, the number of covers decreased to 1,163,000, from 1,364,000 in 1997, while
the average price per cover increased to $11.22 in 1998 from $9.56 in 1997. The
reduction in the number of covers was reflected primarily in the buffet; this
outlet was temporarily closed in early 1998 for renovations, and was permanently
closed at the end of November 1998 as part of the refocusing of marketing
efforts away from the bus program. Promotional allowances increased 4.1 % in
1998 to $20,056,000, from $19,272,000 in 1997.
Total costs and expenses during 1998 of $200,415,000 were slightly
higher than 1997 expenses. Casino operating expenses of $102,150,000 increased
5.6% over 1997 expenses, resulting from higher payroll costs and marketing costs
related to the initiatives to increase table games business, higher costs of
providing promotional allowances, and higher slot equipment rental costs as a
result of the limited capital expenditure funding available and certain popular
varieties of slots being available for lease only. Hotel and food and beverage
expenses during 1998 decreased 15.9% from 1997 expenses, primarily due to lower
cash revenues. Rent expense to the Partnership of $26,374,000 is lower than 1997
expense of $30,554,000 resulting primarily from increased abatements of rent,
which are recorded as a reduction to rent expense; during 1998, approximately
$11.1 million of rent was abated, compared to approximately $9.0 million in
1997.
For the year ended December 31, 1998, the Corporation recorded an income
tax benefit of $4,391,000, which represents the tax benefit likely to be
realized as a result of the carry forward of Federal net operating
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losses, offset by an increase in the valuation allowance of $4,391,000. For the
year ended December 31, 1997, the Corporation recorded an income tax benefit of
$2,311,000, which represents the tax benefit likely to be realized as a result
of the carry forward of Federal net operating losses, offset by an increase in
the valuation allowance of $2,311,000.
Liquidity and Capital Resources
Financial Condition
On January 31, 1994, the Corporation completed an offering of $85
million of Notes (see Item 1. Business - "Corporate Structure"). The Notes are
secured by (i) a non-recourse mortgage granted by the Partnership representing a
first lien on the Hotel Assets; (ii) a pledge granted by the Corporation of all
outstanding shares of capital stock of New Claridge; and (iii) a guarantee by
New Claridge. New Claridge's guarantee of the Notes is secured by a collateral
assignment of the second lien Expandable 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. On January 28, 1997, New Claridge entered
into an agreement to subject the new self-parking garage to the lien of the
mortgage; such lien will not be subordinated to any liens which may be placed on
New Claridge's gaming and other assets to secure any future revolving credit
line arrangement. Interest on the Notes is payable semiannually on February 1
and August 1 of each year.
The net proceeds of the Notes, totalling $82.2 million, were used as
follows: (i) to repay the then outstanding debt of the Corporation under the
Revolving Credit and Term Loan Agreement of approximately $35 million, including
the outstanding balance of the Corporation's revolving credit line, which was
secured by a first mortgage; (ii) to expand the casino capacity of the Claridge
by 12,000 square feet in 1994, including the addition of approximately 500 slot
machines and the relocation of two restaurants and their related kitchens, at a
cost of approximately $12.7 million; (iii) to purchase property in 1995 and
construct on that property a self- parking garage, which opened in 1996, at a
cost (excluding capitalized interest of approximately $2.2 million) of
approximately $28 million (of which approximately $7.5 million represents the
cost of acquiring the land and approximately $20.5 million represents costs
attributable to building the garage facility); and (iv) to acquire the
Contingent Payment Option (see Item 1. Business - "Contingent Payment") at a
cost of $1 million. With the completion of the construction of the self-parking
garage, the proceeds of the offering of the Notes had largely been expended.
The Corporation has experienced recurring losses and deterioration in
its cash flow since 1996. Since the Corporation does not have substantial cash
reserves or access to a line of credit, the Corporation needed to experience
significant improvement in operating results in 1997 over 1996 levels in order
to meet its on-going obligations, including the interest due on the Notes.
Operating results in 1997 did improve over 1996 levels, due primarily to the
positive impact of the availability of the self-parking garage, lower bus
package pricing, and other cost containment initiatives. However, operating
results in 1998 fell below 1997 levels due to increased competition for casino
customers. In 1998, the Corporation experienced a net loss of $9.4 million,
compared to a net loss of $6.0 million in 1997.
In view of the operating results of New Claridge in 1998, and in order
to meet its obligations, management of the Corporation took several steps to
enhance its cash position, through both operational changes, and certain
transactions with PDS and the CRDA. In addition, in February 1999, the
Corporation and New Claridge agreed to a settlement of approximately $2.3
million in the arbitration proceedings concerning the accident which took place
in New Claridge's self-parking garage in July 1996. The settlement proceeds were
received by New Claridge in late February 1999.
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As a result of these transactions, on March 2, 1999, New Claridge was
able to pay the interest due on the Notes on February 1, 1999, under the 30-day
grace period allowed in accordance with the terms of the Indenture. Operating
results for the first half of 1999, however, continued to lag behind prior year
levels, which affected the Corporation's ability to continue to meet its
obligation to pay interest on the Notes. As a result, the Corporation did not
pay the interest due August 2, 1999 on the Notes, and on August 16, 1999, the
Corporation and New Claridge filed voluntary petitions under Chapter 11 of the
Bankruptcy Code in the Bankruptcy Court. The Partnership filed a voluntary
petition under Chapter 11 of the Bankruptcy Code on October 5, 1999.
Management of the Corporation believes that this filing will permit the
Corporation to conserve its cash pending a restructuring of its financial
obligations in the Chapter 11 proceeding. As of December 31, 1999, the
Corporation had approximately $16.8 million of cash and cash equivalents,
including approximately $9.9 million of "bankroll" used in casino operations.
Management anticipates an increase in ongoing general and administrative
expenses, primarily for professional fees, during the pendency of the bankruptcy
proceeding. Through December 31, 1999, such expenses totalled approximately
$1,268,000.
The Corporation continues to operate the business, as set forth in the
Bankruptcy Code, under the supervision of the Bankruptcy Court, as a
debtor-in-possession. As debtor-in-possession, the Corporation is authorized to
operate its business, but may not engage in transactions outside of the normal
course of business without the approval of the Bankruptcy Court. Further, the
Corporation is subject to operating within certain weekly cash budgets which
have been approved by the Bankruptcy Court pursuant to certain orders
authorizing the use of its cash. As of the petition date, actions to collect
prepetition indebtedness are stayed, and other contractual obligations may not
be enforced against the Corporation. In addition, the Corporation may reject
executory contracts and lease obligations, and parties affected by these
rejections may file claims with the Bankruptcy Court in accordance with the
reorganization process. As part of the "first day orders," the Bankruptcy Court
approved the Corporation's payment of prepetition employee compensation,
benefits and reimbursable employee expenses, as well as to continue to honor all
existing employee benefit plans and policies. In addition, the Bankruptcy Court
approved the payment of certain prepetition vendor claims, certain prepetition
guest-related claims (such as outstanding direct mail coupons, progressive
jackpots, and safekeeping deposits), and prepetition payroll, gaming and other
taxes and fees.
Under the Bankruptcy Code, the Corporation had an exclusive period of
120 days to file a plan of reorganization with the Bankruptcy Court, which would
have expired on December 14, 1999. In November 1999, the Corporation petitioned
the Bankruptcy Court for, and was granted, an extension of this exclusivity
period to February 14, 2000; a further extension was subsequently granted,
extending the exclusivity period to May 14, 2000. On January 27, 2000, the
Corporation, New Claridge, and the Partnership filed a joint plan of
reorganization and disclosure statement (the "Plan") with the Bankruptcy Court.
While the Corporation and its subsidiaries have sustainable operations,
the cash generated by those operations are not sufficient to (i) permit the
Corporation to meet the debt service on the currently outstanding Notes; (ii) to
make significant capital improvements that management believes are necessary to
improve the Claridge's competitive position in the Atlantic City casino market;
and (iii) regularly make capital improvements in the future to maintain that
competitive position. Accordingly, the Plan proposes to reduce the Corporation's
debt obligations to a level that it believes is consistent with the sustainable
level of cash to be generated by the Claridge. At the same time, the Plan
proposes to simplify the ownership structure of the Claridge as between the
Corporation, New Claridge and the Partnership. Any such restructuring of the
financial obligations of the Claridge and of its ownership structure will be
subject to the outcome of the Chapter 11 proceeding and, in particular, the
approval of the holders of the requisite percentage of the outstanding Notes, as
to which there can be no assurance.
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In summary, the Plan, as proposed jointly by the Corporation, New
Claridge, and the Partnership, calls for the following to occur, subject to
certain conditions contained in the Plan:
(i) the existing Class A Stock of the Corporation will be cancelled;
(ii) the holders of the Notes will be entitled to receive a pro rata
amount of new common stock in the reorganized Corporation ("New
Common Stock"). As an alternative to receiving only the New Common
Stock, the holders of the Notes may instead elect to receive new
first mortgage notes ("New Notes"), in a principal amount up to
the greater of $100,000 or 15% of the principal amount of their
Notes. Such New Notes, which will be issued by the reorganized
Corporation, will be guaranteed by New Claridge and secured by the
Hotel Assets. The New Notes will be issued in maximum principal
amount of $15 million, will have a term of 10 years and will bear
interest at a rate of 8% per year. To the extent that holders of
the Notes elect to receive New Notes, they will receive a reduced
amount of New Common Stock; and
(iii) the Partnership will transfer the Hotel Assets to New Claridge in
full satisfaction of its obligations under the Expandable
Wraparound Mortgage (see "Certain Agreements between the
Corporation, New Claridge, and the Partnership"). All debts owed
by New Claridge to the Partnership will be forgiven, and the
Partnership will liquidate.
On March 21, 2000, the Corporation filed an amendment to the Plan. This
amendment provides for the holders of the existing Notes to receive, on a pro
rata basis, (i) 100% of the equity of the reorganized Corporation, and (ii) debt
not to exceed $15 million. The Bankruptcy Court will issue its opinion in
mid-April regarding the adequacy of the Plan to be submitted to the creditors
for a vote.
At December 31, 1999, prior to the reclassification of liabilities
subject to compromise resulting from the Chapter 11 filing on August 16, 1999,
the Corporation would have had a working capital deficiency of $21,895,000, as
compared to a working capital deficiency of $23,685,000 at December 31, 1998.
The decrease in the working capital deficiency is principally attributable to an
increase in cash and cash equivalents of $7,036,000, offset by an increase in
accounts payable of $2,569,000, an increase in the interest payable on the Notes
of $1,279,000 (all primarily resulting from the Corporation's Chapter 11 filing
on August 16, 1999), as well as an increase in accrued payroll of $1,661,000.
Interest on the Notes ceased to accrue as of August 16, 1999. As a result of the
reclassification of certain items to liabilities subject to compromise, the
Corporation had working capital of $10,952,000 at December 31, 1999.
For the year ended December 31, 1999, cash provided by operating
activities was $8,698,000, compared to cash used in operating activities of
$16,735,000 for the year ended December 31, 1998. As a result of the Chapter 11
filing on August 16, 1999, the interest payment due on the Notes on August 2,
1999 was not made; therefore, interest payments in 1999 were approximately $5
million lower than in 1998. Cash provided by operating activities in 1999 was
also improved by the deferral, on March 1, 1999, of $1.1 million of basic rent
payable to the Partnership under the Operating Lease and Expansion Operating
Lease, as well as the $2.3 million received as a result of the settlement of the
garage arbitration proceedings. In addition, rental payments made to the
Partnership in 1999 were approximately $14.3 million lower than during 1998, due
to the decreased cash requirements of the Partnership for servicing the debt
under the Expandable Wraparound Mortgage. (This decrease in rental payments to
the Partnership was offset by a decrease in Expandable Wraparound Mortgage
payments received from the Partnership, which are included in cash provided by
investing activities.) Cash used in investment activities in 1999 was
$1,249,000, compared to cash provided by investment activities for 1998 of
$14,343,000. Cash provided by investment activities in 1998 was primarily from
the receipt of Expandable Wraparound Mortgage principal payments of
approximately $15.1 million, in addition to the approximately $1.8
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million in proceeds received from PDS for the sale of certain slot machines
under a sale lease-back arrangement, offset by new FF&E Loans made to the
Partnership and the payment of CRDA obligations. During 1999, cash receipts from
Expandable Wraparound Mortgage principal payments were $1.7 million. Cash used
in financing activities in 1999 and 1998 of $413,000 and $234,000, respectively,
represent payments of capital lease obligations for certain gaming equipment.
For the year ended December 31, 1999, the Corporation's "Adjusted
EBITDA" was $10,714,000, compared to $8,554,000 for the year ended December 31,
1998. "EBITDA" represents earnings before interest expense, income taxes,
depreciation, amortization, and other non-cash items. "Adjusted EBITDA" is equal
to "EBITDA" plus rent expense to the Partnership, less interest income from the
Partnership, less "Net Partnership Payments", which represent the Corporation's
net cash outflow to the Partnership. Adjusted EBITDA is used by the Corporation
to evaluate its financial performance in comparison to other gaming companies
with more traditional financial structures. Adjusted EBITDA may be used as one
measure of the Corporation's historical ability to service its debt, but should
not be considered as an alternative to operating income (as determined in
accordance with generally accepted accounting principles) as an indicator of
operating performance, or to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) as a measure of
liquidity, or to other consolidated income or cash flow statement data, as are
determined in accordance with generally accepted accounting principles. For the
year ended December 31, 1999, the ratio of earnings (defined as pre-tax income
(loss) from continuing operations, adjusted to exclude fixed charges consisting
of interest expense, interest capitalized, and such portion of rental expense as
can be demonstrated to be representative of the interest factor) to fixed
charges decreased to (1.58), from .52 in 1998, and compared to .71 in 1997. The
deficiency of earnings to fixed charges in 1999, 1998 and 1997 was $38,133,000,
$9,358,000, and $5,922,000, respectively. The reduction in this ratio in 1999
from 1998 was primarily due to the impairment loss on the Expandable Wraparound
Mortgage. (See "Relationship with the Partnership" below.)
Relationship with the Partnership
The current relationships and agreements between the Corporation, New
Claridge and the Partnership, each of which would be terminated under the terms
of the proposed Plan, are described in detail in Item 1. Business - "Certain
Agreements between the Corporation, New Claridge and the Partnership".
Under the terms of the Expandable Wraparound Mortgage, New Claridge is
not permitted to foreclose on the Expandable Wraparound Mortgage and take
ownership of the Hotel Assets so long as a senior mortgage is outstanding. The
face amount outstanding of the Expandable Wraparound Mortgage at December 31,
1999 (including the outstanding FF&E Loans and the $20 million of deferred
interest) was $84.8 million.
As a result of the Corporation's and New Claridge's filing for
reorganization under Chapter 11 on August 16, 1999, as well as the Partnership's
Chapter 11 filing on October 5, 1999, the Expandable Wraparound Mortgage has
become impaired. Therefore, during the fourth quarter of 1999, the Corporation
recorded an adjustment to write-down the balance of the Expandable Wraparound
Mortgage receivable, to an amount estimated to be the realizable value of the
Hotel Assets. The total amount of this write-down was $37.6 million.
Income Taxes
No tax benefit was recorded for the years ended December 31 1999 and
1998, due to the increase in the valuation allowance provided, resulting from
the uncertainty of realizing any tax benefit in future periods as a result of
the current financial condition of the Corporation (see Item 1. Business -
"Current Developments"). The components of income tax expense did not change
significantly from the prior years except for the increase in the valuation
allowance of $25,099,000 and $4,391,000, which was provided against deferred tax
assets as
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of December 31, 1999 and 1998, respectively.
Year 2000
The "year 2000" problem related to certain computer programs which were
written using two digits rather than four to define the applicable year, which
could have caused certain computer systems to recognize the year 2000 as the
year 1900. In preparation for the beginning of the year 2000, the Corporation
assessed its hardware, software, and other non-information technology ("IT")
systems. The process for addressing potential problems, which commenced in 1995,
included using internal staff to identify, correct, and test certain systems for
year 2000 compliance, as well as the replacement of certain other software
programs and hardware systems. In addition to addressing its internal systems,
the Corporation contacted its significant vendors concerning their year 2000
readiness, and formulated contingency plans, in the event that certain vendors
were not able to fulfill their obligations to the Corporation. Although
non-essential, non-year 2000 IT projects may have been delayed, adequate
resources were available to address essential non-year 2000 projects, such as
regulatory requirements and marketing programs. As a result of these efforts, no
disruption resulted from the beginning of the year 2000.
The total cost of addressing the year 2000 issue is estimated to be $1.9
million, which includes approximately $64,000 for certain follow-up work during
the first half of 2000. Approximately 65% of the total cost related to internal
labor, while the remaining 35% related to the cost of supplies, equipment,
software and hardware.
Factors Which May Influence the Corporation's Future Operating Results
The Atlantic City gaming market is not expected to experience
significant growth over the next several years, until Atlantic City transforms
itself from a "day-trip" market to a "destination resort." As a result of
current high room occupancy rates, a more favorable regulatory climate, the
reduced threat of competition from potential new gaming jurisdictions, and
significant infrastructure developments making Atlantic City more accessible,
significant new investments are planned, including the expansion of existing
casinos and the construction of several new casinos. As more of these facilities
are opened, it is possible that the increased casino capacity will not be
absorbed as quickly as it is opened, and competition for gaming patrons will
heighten.
In addition to the expansion of the Atlantic City gaming market (see
Item 1. Business - "Competition"), casino activity outside of Atlantic City
could have an impact on the Corporation's future operating results. Although the
expansion of legalized gaming throughout the United States in recent years has
slowed somewhat, current operations in certain markets, most notably Indian
gaming in Connecticut and slot machine facilities at the Delaware racetracks,
have had, and may continue to have, an impact on the Atlantic City casino
industry. In 1999, the three racetracks in Delaware which offer slot machines
reported revenues of $412.5 million, an increase of 17.6% over 1998 revenues of
$350.8 million. The Foxwoods Casino and the Mohegan Sun Resort in Connecticut
reported total slot win of $1.225 billion in 1999, an increase of 9.9% over 1998
slot revenues of $1.115 million. In addition, although New York and Pennsylvania
have not, to date, been successful in legalizing casino gaming, management
believes that, should casino gaming be legalized in the future in those states,
the effects on Atlantic City casinos and on the Claridge would depend on the
form and scope of such gaming.
Item 7(a).QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No effect.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Financial Statement Schedules are set forth
at pages F-1 to F-32 of this report.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THIS REGISTRANT
Name Office Age
---- ------ ---
James M. Montgomery Chairman, Director 60
David W. Brenner Director 64
Shannon L. Bybee Director 61
A. Bruce Crawley Director 54
Ned P. DeWitt Director 60
Mark H. Sayers Director 50
Robert M. Renneisen Director 53
Frank A. Bellis, Jr. Chief Executive Officer, Director 46
Jean I. Abbott Executive Vice President 44
Albert T. Britton Executive Vice President 43
Glenn S. Lillie Vice President 51
Business Experience
Mr. Montgomery has served as a member of the Board of Directors of the
Corporation (the "Board") since March 1995, and as Chairman of the Board since
November 1999. Since 1978, he has served as President of Houze, Shourds, and
Montgomery, Inc., a management consulting firm located in Long Beach,
California. Prior to 1978, Mr. Montgomery held various managerial positions with
Rohr Industries, Inc. and Rockwell International.
Mr. Brenner has served as a member of the Board since February 1991, and
was Chairman of the Board from August 1993 to June 1998. He served as President
of the Philadelphia Sports Congress from January 1987 through June 1994. Mr.
Brenner served as Chairman of the Hospital and Higher Education Facilities
Authority of Philadelphia from January 1986 to June 1992, as Director of
Commerce of the City of Philadelphia from January 1984 to September 1986, and as
Director of Finance from April 1991 through December 1991. 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. Bybee has served as a member of the Board since July 1988. He
currently is Associate Professor for Gaming Management, Law & Regulation, at
University of Nevada Las Vegas. From July 1993 to August 1994, Mr. Bybee served
as President and Chief Operating Officer for United Gaming, Inc. 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
he held through July 1993. 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.
Mr. Crawley has served as a member of the Board since February 1995. He
currently serves as President and Director of Public Relations and Marketing
Services for Crawley, Haskins & Rodgers, a Philadelphia based public relations
and advertising firm. Prior to establishing his own firm in May 1989, Mr.
Crawley was employed at First Pennsylvania Bank and First Pennsylvania
Corporation, where he served as Senior Vice President and Director of Public and
Investor Relations. He also served, from 1976 to 1979, as Vice President and
Director
27
<PAGE>
of Advertising for First Pennsylvania Bank and First Pennsylvania Corporation.
Mr. DeWitt has served as a member of the Board since May 1995. From July
1997 to November 1999, Mr. DeWitt was Chairman and Chief Executive Officer of
U'Race Corporation and a member of the Board of Directors of LBE Technologies,
Incorporated, in Saratoga, California. Mr. DeWitt served as President, Chief
Executive Officer of LBE Technologies, Incorporated from November 1994 to
February 1997. From November 1993 to August 1994, he served as President of SEGA
Enterprises, (USA) in Redwood City, California. Mr. DeWitt also served as
President of the Entertainment Group of Madison Square Garden from July 1990 to
August 1991, and as President of Source Service Corporation from December 1986
to April 1989. He also served, from 1973 through 1982, as President and Chief
Executive Officer of Six Flags Corporation.
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. Renneisen has served as a member of the Board since June 1991, and
presently serves as the President and Chief Executive Officer of the Miss
America Organization. He served as President of the Corporation from June 1992
until November 1999, and as Chief Executive Officer of the Corporation and New
Claridge from July 1993 until November 1999. He was Vice Chairman of New
Claridge from June 1994 until June 1998. Mr. Renneisen was Executive Vice
President of the Corporation from June 1991 to June 1992. He served as President
of New Claridge from January 1991 to January 1996. 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 a President of Renneisen, Kincade & Associates,
Inc. of Las Vegas, Nevada, 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. Bellis has served as Chief Executive Officer and Director of the
Corporation since November 1999. He has served as Senior Vice President, General
Counsel and Secretary to the Corporation from February 1994 until November 1999.
He also has served as Senior Vice President and General Counsel of New Claridge
since February 1994, as Vice President and General Counsel of New Claridge from
September 1992 to February 1994, 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.
Ms. Abbott has served as Executive Vice President of the Corporation
since June 1996, and as Executive Vice President of Finance and Corporate
Development of New Claridge since September 1997. Ms. Abbott has served as
Secretary to the Corporation since November 1999. From September 1996 to August
1997, she served as Executive Vice President of Operations, and from July 1995
to August 1996, she was Executive Vice President of Marketing and Casino
Operations. Ms. Abbott served as a member of the Board from August 1989 to June
1994, 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
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Claridge and its corporate predecessor.
Mr. Britton has served as Executive Vice President of the Corporation
since June 1994 and as President and Chief Operating Officer of New Claridge
since January 1996. He served as Executive Vice President and General Manager of
New Claridge from February 1994 through July 1995, and as Executive Vice
President from August 1995 through December 1995. He served as a Vice President
of the Corporation from June 1992 to June 1994, and as Executive Vice President
of Operations of New Claridge from December 1992 to February 1994. 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 its corporate
predecessor.
Mr. Lillie has served as Vice President of the Corporation from June
1992 and as Vice President of Marketing Communications of New Claridge since
December 1995. He served as Vice President of Public Affairs of New Claridge
from February 1990 to December 1995. 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 February 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.
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Item 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following summary compensation table sets forth the aggregate
compensation paid or accrued by New Claridge for services rendered during the
years ended December 31, 1999, 1998 and 1997 to the Chief Executive Officer and
the four most highly compensated executive offices of New Claridge.
<TABLE>
<CAPTION>
Annual Compensation
---------------------------- Other Annual Other
Name and Position Year Salary Bonus Compensation (1) Compensation (2)
- ----------------- ---- ------ ----- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Frank A. Bellis, Jr. 1999 $170,384 $ -0- $2,000 $ -0-
Chief Executive Officer 1998 151,634 -0- 1,466 -0-
of New Claridge 1997 131,306 -0- -0- -0-
Robert M. Renneisen 1999 297,676 -0- 2,000 27,406
Former Chief Executive 1998 330,000 -0- 923 217,881
Officer of New Claridge 1997 330,865 -0- -0- 52,251
Albert T. Britton 1999 205,000 -0- 2,000 8,557
President/Chief Operating 1998 205,000 -0- 1,284 53,816
Officer of New Claridge 1997 205,306 -0- -0- 20,262
Jean I. Abbott 1999 175,000 -0- 2,000 5,851
Executive Vice President 1998 171,469 -0- 1,491 39,051
of Finance/Corporate 1997 163,066 -0- -0- 24,673
Development of New
Claridge
Howard J. Klein 1999 160,500 -0- 1,327 -0-
Senior Vice President of 1998 160,500 -0- -0- -0-
Marketing of New Claridge 1997 162,607 -0- -0- -0-
Roy A. Young 1999 160,000 -0- 1,577 -0-
Senior Vice President of 1998 134,738 -0- -0- -0-
Hotel Operations of New 1997 -0- -0- -0- -0-
Claridge (3)
</TABLE>
(1) Amounts reported in this column were paid pursuant to the Retirement
Savings Plan of New Claridge.
(2) Amounts reported in this column represent amounts accrued with respect to
the Corporation's future liability pursuant to the Corporation's
Supplemental Executive Retirement Plan.
(3) Roy A. Young became an employee of New Claridge effective February 1998.
Employment Agreements
New Claridge is a party to employment agreements with its executive
officers, effective November 10, 1998. The agreements are for a term ending on
December 31, 2000 and may be extended upon specific action
30
<PAGE>
of the Board. In the event that any of the executive officers are terminated
without cause (as defined in the employment agreements), the executive officer
is entitled to receive a termination payment in an amount equal to 125% of his
or her current base annual salary.
The base annual salaries under the agreements will be as follows,
effective April 3, 2000: Frank A. Bellis, Chief Executive Officer, $275,000;
Albert T. Britton, President/Chief Operating Officer, $220,000; Jean I. Abbott,
Executive Vice President of Finance and Corporate Development, $185,000; John R.
Ceresani, Vice President of Human Resources and Security, $120,000; Howard J.
Klein, Senior Vice President of Marketing, $160,500; Glenn S. Lillie, Vice
President of Marketing Communications, $128,000; Arthur M. Lucchesi, Vice
President of Information Technology, $130,000; Laura L. Palazzo, Vice President
- - Controller, $120,000; and Roy A. Young, Senior Vice President of Hotel
Operations, $170,000.
Additionally, in the event of a change of control (as defined in the
employment agreements) of the Corporation and the subsequent termination of the
executive officer's employment consistent with the terms of the employment
agreement, the employment agreements provide for severance amounts equal to
three times the average of the executive officer's total compensation for the
preceding five years.
Mr. Renneisen terminated his employment with New Claridge on November
3, 1999. New Claridge agreed to honor Mr. Renneisen's employment agreement in
regards to his termination payment in the amount of 125% of his base annual
salary. In addition, in consideration for agreeing to the "non-compete" clause
included in his employment agreement, Mr. Renneisen will receive additional
compensation in the amount of 25% of his base annual salary. As a result of the
Chapter 11 proceeding, Mr. Renneisen has an administrative claim against the
Corporation and New Claridge, which is expected to be paid upon confirmation of
the Plan. Mr. Renneisen continues to serve as a member of the Board.
Compensation Plans
a. Senior Officer Medical Plan. New Claridge maintains a senior
officer medical plan, under which eligibility is limited to officers and certain
employees of New Claridge. The plan covers medical expenses of the participant
(up to a maximum of $7,500 per year) not paid by New Claridge's medical
reimbursement plan, which is available to all employees not covered by
collective bargaining agreements.
b. Retirement Savings Plan. New Claridge employees participate in a
profit-sharing plan named the "Retirement Savings Plan." This plan is intended
to be qualified under Section 401(k) of the Internal Revenue Code of 1986, as
amended. Under the Retirement Savings Plan, for up to the first 5% of an
employee's salary, which is contributed at the direction of the employee from
amounts he or she would otherwise have received as current compensation, New
Claridge contributed an amount equal to 25% of the employee's contribution in
1999. Employees could contribute a maximum of 20% of their base salary, but not
in excess of $10,000 in 1999. An employee's account may be paid out, at the
employee's election, in one cash payment or in installment payments over a
ten-year period.
c. Long-Term Management Incentive Plan. In February 1992, the
Corporation's Board of Directors adopted a Long-Term Incentive Plan (the
"Incentive Plan") in which certain key employees of the Corporation and/or New
Claridge participate. The Incentive Plan provided 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 Incentive 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 Incentive Plan. The treasury shares and Equity Units fully
vest upon a further restructuring or a change in control as defined in the
Incentive Plan.
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<PAGE>
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 Incentive Plan within
one year after any change in control of the Corporation occurs, as defined in
the Incentive 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. On April 15, 1992, the Commission approved the
Incentive Plan and the treasury shares were delivered to the participants. Upon
the issuance of the Notes and the repayment in full of the Corporation's
outstanding debt under the Loan Agreement, 25% of the shares and Equity Units
awarded under the Incentive Plan vested. A participant is entitled to vote all
awarded treasury shares whether or not vested in such shares.
On June 5, 1995, the Corporation's Board of Directors amended the
Incentive Plan by creating 100 Additional Equity Units to be issued to certain
key employees and 100 Director Equity Units to be issued to the individual
members of the Board of Directors (the "Directors"). The aggregate value of the
Additional Equity Units is 5.59 percent and the aggregate value of the Director
Equity Units is 4 percent of certain amounts as further defined in the Incentive
Plan. Vesting of the Additional Equity Units occurs if a Transaction results in
the Claimholders of the Claridge receiving cash or marketable securities having
a certain value all as further defined and described in the Incentive Plan.
Vesting of the Director Equity Units occurs according to a vesting schedule
stated in the Incentive Plan and also is tied to the occurrence of a Transaction
having a certain value. The Incentive Plan was further amended, on November 10,
1998, to modify the terms by which the Additional Equity Units and Director
Equity Units will vest. The modification adjusts the value that must be received
by the Claimholders of the Claridge resulting from the occurrence of a
Transaction, all as further defined and described in the Incentive Plan.
Under the proposed Plan, the Incentive Plan would be terminated, and
any benefits which had previously vested to the participants would have no
value.
d. Supplemental Executive Retirement Plan. In February 1995, New
Claridge adopted a Supplemental Executive Retirement Plan (the "SERP"), to
provide extra and additional retirement income security benefits to certain key
management employees as an inducement for outstanding future services. The SERP
is an unfunded supplemental retirement plan. Participants under the SERP are
entitled to annual payments for a period of fifteen years, commencing on the
later of the participant's termination from service with New Claridge or his or
her early retirement date (as defined in the SERP), in an amount equal to the
unit value assigned to that participant times the number of full years of
service of the participant, after January 1, 1994 for Robert M. Renneisen and
Albert T. Britton, and after January 1, 1996 for Jean I. Abbott. The SERP
provides for commencement of payments on an earlier date in the event of the
disability of the participant, or death of the participant (in which case
payments would be made to a survivor). In addition, the SERP provides for
forfeiture of benefits if a participant fails to comply with the noncompetition
or nondisclosure provisions set forth in his or her employment agreement with
New Claridge, or assumes a position within the gaming industry in Atlantic City,
voluntarily terminates his or her employment before the completion of five years
of service, or is terminated for cause (as defined in the SERP). The SERP also
provides for immediate payment of benefits in the event of a change of control
(as defined in the SERP) of New Claridge.
Effective November 11, 1998, additional accumulation of SERP benefits
ceased. Participants remain entitled to only those SERP benefits which had
accrued to that date. The participants in the SERP, the value of their units and
their early retirement ages are set forth below:
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<PAGE>
Unit Units Early
Name of Participant Age Value Accumulated Retirement
------------------- --- ----- ----------- ----------
Robert M. Renneisen 53 $10,000 5 55
Albert T. Britton 43 6,000 5 55
Jean I. Abbott 44 6,000 3 55
The participants in the SERP have an unsecured claim against New
Claridge for the present value of the future payments which were payable as of
August 16, 1999.
Compensation of Directors
Directors who are not employees of the Corporation or New Claridge
receive an annual retainer of $20,000 and a fee of $1,200 for attendance at each
meeting of the Board and for attendance at each meeting of a committee of the
Board. The Chairman of the Board receives an annual retainer of $100,000. There
are currently four committees of the Board: the Audit Committee, the Human
Resources and Compensation Committee, the Finance Committee, and the Governance
Committee. The chairman of each committee receives an annual retainer of $1,500
to serve in that capacity. In addition to the above stated retainer and meeting
attendance fees, each member of the Board is compensated for additional work
performed at a rate of $2,000 per day, as well as for time spent for
extraordinary travel related to the bankruptcy and reorganization at a rate of
$1,200 per day. During 1999, the firm of Crawley, Haskins and Rodgers, of which
A. Bruce Crawley is President and Director of Public Relations and Marketing,
was paid $8,139 for public relations and marketing research services provided to
New Claridge.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are A. Bruce Crawley,
Chairman, James M. Montgomery, and Mark H. Sayers. There is no insider
participation on the Compensation Committee, and there is no interlock between
any Compensation Committee member or executive officer of the Corporation or New
Claridge, on the one hand, and the compensation committees of other companies on
the other hand.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1999, 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 to the key
employees upon approval by the 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.
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 - "Corporate Structure."
33
<PAGE>
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) Certificate of Incorporation of the Corporation.
Incorporated by reference to Exhibit 3(a) to Form
10-K for the year ended December 31, 1995.
3(b) By-Laws of the Corporation as amended. Incorporated
by reference to Exhibit 3(b) to Form 10-K for the
year ended December 31, 1995.
3(c) 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, 1995.
3(d) 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, 1995.
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) Operating Lease Agreement between New Claridge and
Atlantic City Boardwalk Associates, L.P.
Incorporated by reference to Exhibit 10(a) to Form
10-K for the year ended December 31, 1995.
10(b) 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
year ended December 31, 1995.
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<PAGE>
10(c) Expandable Wraparound Mortgage Loan Agreement
between New Claridge and Atlantic City Boardwalk
Associates, L.P. Incorporated by reference to
Exhibit 10(c) to Form 10- K for the year ended
December 31, 1995.
10(h) 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, 1995.
10(i) 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, 1995.
10(j) 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, 1995.
10(n) 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-K for the
year ended December 31, 1995.
10(x) 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, 1995.
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.
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<PAGE>
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.
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.
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<PAGE>
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.
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.
10(bb) Supplemental Executive Retirement Plan of The
Claridge at Park Place, Incorporated effective
January 1, 1994. Incorporated by referenece to
Exhibit 10(bb) to Form 10-K for the year ended
December 31, 1994.
10(bc) Amendment to Long-Term Management Incentive Plan of
The Claridge Hotel and Casino Corporation effective
June 5, 1995. Incorporated by reference to Exhibit
10(bc) to Form 10-K for the year ended December 31,
1995.
10(bp) Spreader Agreement of a Certain Mortgage,
Assignment of Leases and Rents, Security Agreement
and Financing Statement by The Claridge at Park
Place, Incorporated in favor of IBJ Schroder Bank &
Trust Company, as Collateral Trustee, dated January
28, 1997. Incorporated by reference to Exhibit
10(bp) to Form 10-K for the year ended December 31,
1996.
10(bq) Spreader Agreement and Modification of Spreader
Agreement of a Certain Mortgage, Assignment of
Leases and Rents, Security Agreement and Financing
Statement by The Claridge at Park Place,
Incorporated in favor of IBJ Schroder Bank & Trust
Company, as Collateral Trustee, dated February 18,
1997. Incorporated by reference to Exhibit 10(bq)
to Form 10-K for the year ended December 31, 1996.
10(br) Fifth Amendment to Operating Lease Agreement and
Fourth Amendment to Expansion Operating Lease
Agreement between The Claridge at Park Place,
Incorporated and Atlantic City Boardwalk
Associates, L.P. effective March 1, 1997.
Incorporated by reference to Exhibit 10(br) to Form
10-K for the year ended December 31, 1996.
10(bs) Restructuring Agreement between The Claridge Hotel
and Casino Corporation, The Claridge at Park Place,
Incorporated and Atlantic City Boardwalk
Associates, L.P. effective March 1, 1997.
Incorporated by reference to Exhibit 10(bs) to Form
10-K for the year ended December 31, 1996.
37
<PAGE>
10(bt) Amended Employment Agreement between Robert M.
Renneisen and The Claridge at Park Place,
Incorporated effective November 10, 1998.
Incorporated by reference to Exhibit 10(bt) to Form
10-K for the year ended December 31, 1998.
10(bu) Amended Employment Agreement between Albert T.
Britton and The Claridge at Park Place,
Incorporated effective November 10, 1998.
Incorporated by reference to Exhibit 10(bu) to Form
10-K for the year ended December 31, 1998.
10(bv) Amended Employment Agreement between Jean I. Abbott
and The Claridge at Park Place, Incorporated
effective November 10, 1998. Incorporated by
reference to Exhibit 10(bv) to Form 10-K for the
year ended December 31, 1998.
10(bw) Amended Employment Agreement between Frank A.
Bellis, Jr. and The Claridge at Park Place,
Incorporated effective November 10, 1998.
Incorporated by reference to Exhibit 10(bw) to Form
10-K for the year ended December 31, 1998.
10(bx) Amended Employment Agreement between Glenn Lillie
and The Claridge at Park Place, Incorporated
effective November 10, 1998. Incorporated by
reference to Exhibit 10(bx) to Form 10-K for the
year ended December 31, 1998.
10(by) Sixth Amendment to Operating Lease Agreement and
Fifth Amendment to Expansion Operating Lease
Agreement between The Claridge at Park Place,
Incorporated and Atlantic City Boardwalk
Associates, L.P. effective September 30, 1998.
Incorporated by reference to Exhibit 10(by) to Form
10-K for the year ended December 31, 1998.
10(bz) Amendment to Restructuring Agreement between The
Claridge Hotel and Casino Corporation, The Claridge
at Park Place, Incorporated and Atlantic City
Boardwalk Associates, L.P. effective September 30,
1998. Incorporated by reference to Exhibit 10(bz)
to Form 10-K for the year ended December 31, 1998.
10(ca) Amendment to Wraparound Mortgage Agreement and Note
between The Claridge at Park Place, Incorporated
and Atlantic City Boardwalk Associates, L.P.
effective September 30, 1998. Incorporated by
reference to Exhibit 10(ca) to Form 10-K for the
year ended December 31, 1998.
10(cb) Amendment to Exhibit A to the Long-Term Management
Incentive Plan of The Claridge Hotel and Casino
Corporation effective November 10, 1998.
Incorporated by reference to Exhibit 10(cb) to Form
10-K for the year ended December 31, 1998.
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.
12(b) Statement of Computation of Ratio of Earnings to
Fixed Charges.
22(a) Subsidiaries of the Corporation. Incorporated by
reference to Exhibit 22(a) to Form 10- K for the
year ended December 31, 1995.
38
<PAGE>
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
<TABLE>
<CAPTION>
<S> <C> <C>
Dated: March 29, 2000 By:/s/ FRANK A. BELLIS, JR. By:/s/ JEAN I. ABBOTT
- ---------------------- --------------------------- ---------------------
Frank A. Bellis, Jr. Jean I. Abbott
Chief Executive Officer Chief Financial Officer and
Principal Accounting Officer
</TABLE>
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.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ JAMES M. MONTGOMERY Chairman, Director March 29, 2000
- ------------------------
James M. Montgomery
/s/ DAVID W. BRENNER Director March 29, 2000
- ---------------------
David W. Brenner
/s/ SHANNON L. BYBEE Director March 29, 2000
- --------------------
Shannon L. Bybee
/s/ A. BRUCE CRAWLEY Director March 29, 2000
- ---------------------
A. Bruce Crawley
/s/ NED P. DEWITT Director March 29, 2000
- -----------------
Ned P. DeWitt
/s/ MARK H. SAYERS Director March 29, 2000
- -------------------
Mark H. Sayers
/s/ ROBERT M. RENNEISEN Director March 29, 2000
- ------------------------
Robert M. Renneisen
/s/ FRANK A. BELLIS, JR. Chief Executive Officer, Director March 29, 2000
- ------------------------
Frank A. Bellis
/s/ JEAN I ABBOTT Executive Vice President March 29, 2000
- ------------------ (Chief Financial Officer/
Jean I. Abbott Treasurer/Principal
Accounting Officer)
</TABLE>
39
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Page
Reference In
Report on
Form 10-K
Independent Auditors' Report......................................... F-2
Consolidated Balance Sheets at December 31, 1999 and 1998............ F-3
Consolidated Statements of Operations and Accumulated Deficit
for the Years Ended December 31, 1999, 1998 and 1997............... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997................................... F-5
Notes to Consolidated Financial Statements........................... F-7
Financial Statement Schedule II - Valuation and Qualifying Accounts.. F-32
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.
F-1
<PAGE>
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 subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule 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 subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that the Corporation will continue as a
going concern. As discussed in Note 2 to the consolidated financial statements,
the Corporation has suffered recurring losses and has experienced diminishing
liquidity as a result of a deterioration in its cash flow and limited
availability of working capital sources, and in August 1999, commenced a
voluntary proceeding under Chapter 11 of the United States Bankruptcy Code.
These matters raise substantial doubt about the Corporation's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The consolidated financial statements and financial
statement schedule do not include any adjustments that might result from the
outcome of these uncertainties.
KPMG LLP
Short Hills, New Jersey
March 3, 2000
F-2
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Consolidated Balance Sheets
December 31, 1999 and 1998
(dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 16,834 9,798
Receivables, net (including $6,269 and $3,111 in 1999
and 1998, respectively, due from Partnership) (note 4) 7,977 5,561
Inventories 332 309
Prepaid expenses and other current assets 3,089 2,735
--------- ---------
Total current assets 28,232 18,403
--------- ---------
Property and equipment (notes 5 and 10) 42,041 41,785
Less accumulated depreciation and amortization (13,699) (12,408)
--------- ---------
Net property and equipment 28,342 29,377
--------- ---------
Long-term receivables due from Partnership (note 4) 41,831 79,593
Deferred charges at cost, less accumulated amortization 1,076 1,510
Other assets (note 6) 3,041 2,893
--------- ---------
$ 102,522 131,776
========= =========
Liabilities and Stockholders' Deficiency
- ----------------------------------------
Current Liabilities Not Subject to Compromise:
Current maturities of long-term debt (note 9) $ 125 351
Accounts payable 2,902 3,535
Loan from the Partnership (notes 7 and 9) -0- 3,600
Other current liabilities (note 8) 14,253 34,602
--------- ---------
Total current liabilities not subject to compromise 17,280 42,088
--------- ---------
Liabilities Subject to Compromise (note 9) 145,259 -0-
Long-term debt (notes 9 and 10) 1 85,170
Deferred rent due to Partnership (notes 9 and 14) -0- 5,827
Deferred income taxes (note 13) 2,046 2,579
Other noncurrent liabilities (notes 9 and 11) 1,354 21,340
Commitments and contingent liabilities (notes 14 and 16)
Stockholders' deficiency (notes 17 and 18):
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 deficit (68,471) (30,281)
--------- ---------
Total stockholders' deficiency (63,418) (25,228)
--------- ---------
$ 102,522 131,776
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Consolidated Statements of Operations and Accumulated Deficit
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
Revenue:
<S> <C> <C> <C>
Casino $ 163,833 166,010 165,371
Hotel 10,745 9,576 9,456
Food and beverage 18,413 18,989 19,609
Interest from the Partnership 11,632 12,039 14,230
Interest, other 360 757 439
Other 5,089 3,685 2,920
--------- --------- ---------
210,072 211,056 212,025
Less promotional allowances (note 12) 21,522 20,056 19,272
--------- --------- ---------
Net revenues 188,550 191,000 192,753
--------- --------- ---------
Costs and expenses:
Casino 100,576 102,150 96,760
Hotel 2,897 2,470 2,570
Food and beverage 5,556 7,948 9,811
Other 2,782 2,689 2,617
Rent expense to the Partnership (note 14) 24,028 26,374 30,554
Rent expense, other (note 13) 1,189 1,253 1,283
General and administrative 26,211 27,662 27,157
Gaming taxes 13,024 13,194 13,215
Reinvestment obligation expenses (note 6) 2,127 2,474 684
Provision for uncollectible accounts 1,043 1,128 218
Depreciation and amortization 1,819 2,554 3,296
Interest expense (contractual interest of $10,936 in 1999) 6,767 10,519 10,567
--------- --------- ---------
Total costs and expenses 188,019 200,415 198,732
--------- --------- ---------
Income (loss) before reorganization items 531 (9,415) (5,979)
Reorganization items:
Professional fees (1,268) -0- -0-
Interest earned from accumulated cash resulting
from Chapter 11 proceeding 142 -0- -0-
Provision for impairment loss (note 4) (37,595) -0- -0-
--------- --------- ---------
(38,721) -0- -0-
--------- --------- ---------
Net loss (38,190) (9,415) (5,979)
--------- --------- ---------
Accumulated deficit at beginning of year (30,281) (20,866) (14,887)
--------- --------- ---------
Accumulated deficit at end of year $ (68,471) (30,281) (20,866)
========= ========= =========
Net loss per share - basic and diluted (note 3(i)) $ (7.54) (1.89) (1.20)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $(38,190) (9,415) (5,979)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,819 2,554 3,296
Deferred rent to the Partnership 1,242 (10,679) (11,504)
Deferred interest receivable and
discount from the Partnership (2,314) (2,014) (1,752)
Reinvestment obligation expenses 2,127 2,474 684
Loss on disposal of assets -0- 133 30
Deferred gain on disposal of assets (159) (132) -0-
Deferred income taxes - noncurrent -0- (1) (1)
Reorganization items 1,126 -0- -0-
Change in assets and liabilities:
Increase in receivables, net, excluding
current portion of long-term receivables (1,293) (663) (228)
(Increase) decrease in inventories (23) (39) 8
(Increase) decrease in prepaid expenses and
other current assets (354) 200 264
Increase in accounts payable 2,569 333 205
Increase in other current liabilities 4,883 209 1,963
(Decrease) increase in other noncurrent liabilities (17) 305 1,471
-------- -------- --------
Net cash used in operating activities before
reorganization items (28,584) (16,735) (11,543)
Reorganization items:
Professional fees paid (455) -0- -0-
Interest earned on accumulated cash resulting from
Chapter 11 proceeding 142 -0- -0-
Impairment loss 37,595 -0- -0-
-------- -------- --------
Net cash provided by (used in) operating
activities 8,698 (16,735) (11,543)
-------- -------- --------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements
F-5
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Consolidated Statements of Cash Flows (Cont'd.)
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from investment activities:
Increase in deferred charges $ (93) (48) (7)
Additions to property and equipment, net (239) (228) (136)
Additions to other assets (2,276) (1,662) (1,905)
Proceeds from disposition of property -0- 1,826 587
Increase in long-term receivables (309) (660) (208)
Receipt of long-term receivables 1,668 15,115 17,120
-------- -------- --------
Net cash (used in) provided by
investment activities (1,249) 14,343 15,451
-------- -------- --------
Cash flows from financing activities -
Payment of long-term debt (413) (234) (16)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 7,036 (2,626) 3,892
Cash and cash equivalents at beginning of year 9,798 12,424 8,532
-------- -------- --------
Cash and cash equivalents at end of year $ 16,834 9,798 12,424
======== ======== ========
Supplemental cash flow disclosures:
Interest paid $ 5,218 10,087 10,135
======== ======== ========
Income taxes paid $ -0- -0- -0-
======== ======== ========
Non-cash financing and investing activities:
Capital lease obligation incurred to acquire
Casino Assets $ 18 693 78
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements
1. THE CORPORATION
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 Casino Hotel, a facility operating in
Atlantic City, New Jersey.
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.
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%. The Notes are secured by (i) a non- recourse mortgage
granted by the Partnership representing a first lien on the Hotel
Assets; (ii) a pledge granted by the Corporation of all outstanding
shares of capital stock of New Claridge; and (iii) a guarantee by New
Claridge. New Claridge's guarantee of the Notes is secured by a
collateral assignment of the second lien Expandable 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. On
January 28, 1997, New Claridge entered into an agreement to subject the
new self-parking garage to the lien of the mortgage; such lien will not
be subordinated to any lien which may be placed on New Claridge's gaming
and other assets to secure any future revolving credit line arrangement.
Interest on the Notes is payable semiannually on February 1 and August 1
of each year. (See Note 10, "Long-Term Debt".)
The net proceeds of the Notes, totalling $82.2 million net of fees and
expenses, were used as follows: (i) to repay in full on January 31,
1994, 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
a first mortgage; (ii) to expand New Claridge's casino capacity by
12,000 square feet in 1994, including the addition of approximately 500
slot machines and the relocation of two restaurants and their related
kitchens; (iii) to purchase property in 1995, and construct on that
property a self-parking garage, which opened in mid-1996; and (iv) to
acquire the Contingent Payment option in 1996 (see Note 11, "Other
Noncurrent Liabilities").
F-7
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT EVENTS
The Corporation has experienced recurring losses and deterioration in
its cash flow since 1996. Since the Corporation does not have
substantial cash reserves or access to a line of credit, the Corporation
needed to experience a significant improvement in operating results in
1997 over 1996 levels in order to meet its on-going obligations,
including the interest due on the Notes. Although operating results in
1997 did improve over 1996 levels, due primarily to the positive impact
of the availability of the self-parking garage, lower bus package
pricing, and other cost containment initiatives, operating results in
1998 fell below 1997 levels due to increased citywide competition for
casino customers. In 1998, the Corporation experienced a net loss of
$9.4 million, compared to a net loss of $6.0 million in 1997.
In view of the operating results of New Claridge in 1998, and in order
to meet its obligations, management of the Corporation took several
steps to enhance its cash position, through both operational changes,
and certain financial transactions with PDS Financial Corporation
("PDS") and the Casino Reinvestment Development Authority ("CRDA"). In
addition, in February 1999, the Corporation and New Claridge agreed to a
settlement of approximately $2.3 million in the arbitration proceedings
concerning the accident which took place in New Claridge's self-parking
garage in July 1996. The settlement proceeds were received by New
Claridge in late February 1999.
As a result of these transactions, on March 2, 1999, New Claridge was
able to pay the interest due on the Notes on February 1, 1999, under the
30-day grace period allowed in accordance with the terms of the
indenture governing the Notes (the "Indenture"). Operating results for
the first half of 1999, however, continued to lag behind prior year
levels, which affected the Corporation's ability to continue to meet its
obligation to pay interest on the Notes. As a result, the Corporation
did not pay the interest due August 2, 1999 on the Notes, and on August
16, 1999, the Corporation and New Claridge filed voluntary petitions
under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of New
Jersey (the "Bankruptcy Court"). The Partnership filed a voluntary
petition under Chapter 11 of the Bankruptcy Code on October 5, 1999.
Management of the Corporation believes that this filing will permit the
Corporation to conserve its cash pending a restructuring of its
financial obligations in the Chapter 11 proceeding. As of December 31,
1999, the Corporation had approximately $16.8 million of cash and cash
equivalents, including approximately $9.9 million of "bankroll" used in
casino operations. Management anticipates an increase in ongoing general
and administrative expenses, primarily for professional fees, during the
pendency of the bankruptcy proceeding. Through December 31, 1999, such
expenses totalled approximately $1,268,000.
The Corporation continues to operate the business, as set forth in the
Bankruptcy Code, under the supervision of the Bankruptcy Court, as a
debtor-in-possession. As debtor-in-possession, the Corporation is
authorized to operate its business, but may not engage in transactions
outside of the normal course of business without the approval of the
Bankruptcy Court. Further, the Corporation is subject to operating
within certain weekly cash budgets which have been approved
F-8
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT EVENTS (continued)
by the Bankruptcy Court pursuant to certain orders authorizing the use
of its cash. As of the petition date, actions to collect prepetition
indebtedness are stayed, and other contractual obligations may not be
enforced against the Corporation. In addition, the Corporation may
reject executory contracts and lease obligations, and parties affected
by these rejections may file claims with the Bankruptcy Court in
accordance with the reorganization process. As part of the "first day
orders," the Bankruptcy Court approved the Corporation's payment of
prepetition employee compensation, benefits and reimbursable employee
expenses, as well as to continue to honor all existing employee benefit
plans and policies. In addition, the Bankruptcy Court approved the
payment of certain prepetition vendor claims, certain prepetition
guest-related claims (such as outstanding direct mail coupons,
progressive jackpots, and safekeeping deposits), and prepetition
payroll, gaming and other taxes and fees.
Under the Bankruptcy Code, the Corporation had an exclusive period of
120 days to file a plan of reorganization with the Bankruptcy Court,
which would have expired on December 14, 1999. In November 1999, the
Corporation petitioned the Bankruptcy Court for, and was granted, an
extension of this exclusivity period to February 14, 2000; a further
extension was subsequently granted, extending the exclusivity period to
May 14, 2000. On January 27, 2000, the Corporation, New Claridge, and
the Partnership filed a joint plan of reorganization and disclosure
statement (the "Plan") with the Bankruptcy Court.
While the Corporation and its subsidiaries have sustainable operations,
the cash generated by those operations are not sufficient to (i) permit
the Corporation to meet the debt service on the currently outstanding
Notes; (ii) to make significant capital improvements that management
believes are necessary to improve the Claridge's competitive position in
the Atlantic City casino market; and (iii) regularly make capital
improvements in the future to maintain that competitive position.
Accordingly, the Plan proposes to reduce the Corporation's debt
obligations to a level that it believes is consistent with the
sustainable level of cash to be generated by the Claridge. At the same
time, the Plan proposes to simplify the ownership structure of the
Claridge as between the Corporation, New Claridge and the Partnership.
Any such restructuring of the financial obligations of the Claridge and
of its ownership structure will be subject to the outcome of the Chapter
11 proceeding and, in particular, the approval of the holders of the
requisite percentage of the outstanding Notes, as to which there can be
no assurance.
In summary, the Plan, as proposed jointly by the Corporation, New
Claridge, and the Partnership, calls for the following to occur, subject
to certain conditions contained in the Plan:
(i) the existing Class A Stock of the Corporation will be
cancelled;
(ii) the holders of the Notes will be entitled to receive
a pro rata amount of new common stock in the
reorganized Corporation ("New Common Stock"). As an
alternative to receiving only the New Common Stock,
the holders of the Notes may instead elect to receive
new first mortgage notes ("New Notes"), in a
principal amount up to the greater of $100,000 or 15%
of the principal amount
F-9
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT EVENTS (continued)
of their Notes. Such New Notes, which will be issued
by the reorganized Corporation, will be guaranteed by
New Claridge and secured by the Hotel Assets. The New
Notes will be issued in maximum principal amount of
$15 million, will have a term of 10 years and will
bear interest at a rate of 8% per year. To the extent
that holders of the Notes elect to receive New Notes,
they will receive a reduced amount of New Common
Stock (see Note 19, "Subsequent Events" for a
discussion of the amendment to the Plan which was
submitted to the Bankruptcy Court on March 21, 2000);
and
(i) the Partnership will transfer the Hotel Assets to New
Claridge in full satisfaction of its obligations
under the Expandable Wraparound Mortgage (see
"Certain Agreements between the Corporation, New
Claridge, and the Partnership"). All debts owed by
New Claridge to the Partnership will be forgiven, and
the Partnership will liquidate.
The Corporation had previously announced that it had entered into a
letter of intent with Schottenstein Realty Corporation ("Schottenstein")
regarding an investment in the Claridge in connection with any such
restructuring. The letter of intent contemplated a $10 million
investment by Schottenstein in the Claridge in exchange for a
substantial equity interest in a new entity that would own all of the
assets used by the Claridge, (including the assets currently owned by
the Partnership), except for the casino assets. The letter of intent
contemplated that this new entity would exchange new notes and equity in
the entity for the currently outstanding Notes. The new notes would have
a substantially smaller principal amount than the existing Notes,
together with a lower interest rate and a later maturity date. The
letter of intent also called for providing a limited amount of equity in
the new entity to the Partnership and for setting aside a portion of the
equity in the new entity as incentive compensation for the management of
the Claridge. The above described terms of the letter of intent were not
binding on the Corporation or Schottenstein until reflected in a
definitive agreement, and, in any case, were subject to negotiation and
approval by holders of the Notes and the Partnership and to approval by
the Bankruptcy Court. On November 10, 1999, the Corporation announced
that it would no longer pursue the relationship contemplated by this
letter of intent. The Board of Directors of the Corporation, after
careful consideration, determined that it would be in the best interest
of its creditors to file a separate and independent "stand alone" plan
of reorganization. However, management of the Corporation will continue
to consider alternate strategic initiatives.
The consolidated financial statements do not show (i) as to assets,
their realizable value on a liquidation basis or their availability to
satisfy liabilities; (ii) contingencies, or the status and priority
thereof; or (iii) as to stockholder accounts, the effect of any changes
that may be made in the Corporation's business. The eventual outcome of
these matters is not presently determinable.
F-10
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The consolidated 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 subsidiaries, New Claridge and Claridge Gaming
Incorporated ("CGI"). CGI was formed in March 1994 for the
purpose of developing gaming opportunities in other
jurisdictions. All material intercompany accounts and
transactions have been eliminated in consolidation.
The separate financial statements of New Claridge, which is a
guarantor of the Notes, are not included because the aggregate
assets, liabilities, operations and equity of New Claridge are
substantially equivalent to the assets, liabilities, operations
and equity of the Corporation on a consolidated basis, and
because the separate financial statements and other disclosures
concerning New Claridge are not deemed material to holders of
Notes. There are no separate financial statements for CGI, which
is the only other subsidiary of the Corporation and is not a
guarantor of the Notes.
b) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
c) Cash and Cash Equivalents
Cash and cash equivalents include investments in interest bearing
repurchase agreements in government securities and other
investments as permitted in accordance with the terms of the
indenture governing the Notes, with maturities of three months or
less when purchased. Interest income is recorded as earned.
d) 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.
F-11
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
e) Inventories
Inventories are stated at the lower of cost or market, cost being
determined principally on a first-in, first-out basis.
f) Property and Equipment
Property and equipment are recorded at cost, and are depreciated
using the straight-line method over the following estimated
useful lives:
Buildings and improvements 39 years
Gaming equipment 5 years
Computers and related equipment 5 years
Other equipment 7 years
Interest costs related to the construction of the garage facility
were capitalized in 1996, and are being amortized over the
estimated useful life of the garage.
g) Deferred Charges
Deferred charges primarily relate to the January 31, 1994
issuance of the Notes. These charges, which totaled approximately
$3.7 million, are being amortized over the term of the Notes. The
unamortized amount of these charges would be written off upon
confirmation of the proposed Plan. Accumulated amortization of
these charges as of December 31, 1999 and 1998 was $2,766,000 and
$2,298,000, respectively.
h) Income Taxes
Deferred income taxes are provided for temporary differences
between financial statement reporting and income tax reporting
for rent leveling provisions, asset basis differences, and
various other expenses recorded for financial statement purposes.
i) Loss Per Share
Loss per share is calculated by dividing net loss by the weighted
average shares outstanding (5,062,500 for the year ended December
31, 1999, 4,983,804 for the year ended December 31, 1998, and
4,995,219 for the year ended December 31, 1997). Basic and
diluted net loss per share are the same for the years ended
December 31, 1999, 1998, and 1997.
F-12
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
4. RECEIVABLES
Receivables at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
Current Receivables 1999 1998
------------------- ---- ----
(in thousands)
<S> <C> <C>
Casino, less allowance for uncollectible accounts
of $1,180,000 and $1,305,000 at
December 31, 1999 and 1998, respectively $ 1,092 1,571
Hotel, less allowance for uncollectible accounts
of $17,000 and $24,000 at December 31,
1999 and 1998, respectively 126 100
Interest receivable due from the Partnership 1,591 804
Current portion of FF&E Promissory notes 3,169 2,046
Other, less allowance for uncollectible accounts
of $10,000 and $10,000 at December 31,
1999 and 1998, respectively 1,999 1,040
-------- -------
$ 7,977 5,561
======== =======
Long-Term Receivables
$127,000,000 Expandable Wraparound Mortgage 14%, maturities
through September 30, 2000 (net of $2,211,000 discount and
$4,525,000 discount at
December 31, 1999 and 1998, respectively) $ 48,289 45,975
Deferred interest receivable, due
September 30, 2000 20,000 20,000
FF&E promissory notes, 14% 11,137 13,618
Allowance for impairment (37,595) -0-
------- -------
$ 41,831 79,593
======== =======
</TABLE>
The Expandable Wraparound Mortgage Loan Agreement ("Expandable
Wraparound Mortgage") was executed and delivered by the Partnership to
New Claridge in 1983, and is secured by all property of the
Partnership. Under the terms of the Expandable Wraparound Mortgage, New
Claridge is not permitted to foreclose on the Expandable Wraparound
Mortgage and take ownership of the Hotel Assets so long as a senior
mortgage is outstanding. $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,
and continued through 1998.
Under the terms of the Expandable Wraparound Mortgage, New Claridge was
obligated to loan the Partnership up to $25 million in the form of FF&E
promissory notes ("FF&E Loans"), secured under the Expandable
Wraparound Mortgage, for the purchase of property and equipment ("FF&E
Replacements"). One half of the FF&E Loan principal is due in 48 months
F-13
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
4. RECEIVABLES (continued)
and the remaining balance is due 60 months from the date of issuance of
the respective FF&E Loan. In connection with the offering of $85
million of Notes on January 31, 1994, the Corporation agreed to use not
less than $8 million from the net proceeds of the offering to finance
certain internal improvements to the Claridge which were funded through
additional FF&E Loans. In connection therewith, the Expandable
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 Expandable Wraparound Mortgage.
As a result of the Corporation and New Claridge's Chapter 11 filing on
August 16, 1999, and the Partnership's Chapter 11 filing on October 5,
1999, the Partnership no longer provides furniture, fixture, and
equipment replacements to the Claridge; rather, New Claridge now
provides such replacements.
The Expandable Wraparound Mortgage has been amended from time to time.
In the most recent amendment, which was effective September 30, 1998,
the Corporation, New Claridge, and the Partnership agreed to amend the
March 1997 restructuring agreement to provide for an extension of the
maturity date of the Expandable Wraparound Mortgage to January 1, 2005.
In addition, the Expandable Wraparound Mortgage Agreement and Note were
amended to defer the principal payments which were payable during the
fourth quarter of 1998 (totalling $3.5 million) to the earlier of (i)
the maturity date of the Expandable Wraparound Mortgage Agreement and
Note; (ii) such earlier date, if any, as the entire principal amount of
the Expandable Wraparound Mortgage becomes due and payable; or (iii)
the date on which any merger, consolidation or similar transaction to
which the Corporation or New Claridge is a party, or any sale of all or
substantially all of the assets of the Corporation or New Claridge is
consummated, or any change of control of the Corporation or New
Claridge occurs.
If the Partnership should fail to make any payment due under the
Expandable 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. As a
result of the Corporation and New Claridge's Chapter 11 filing, under
the terms of the indenture governing the Notes (the "Indenture"), an
"Event of Default" has occurred (as defined in the Indenture). As a
result of this Event of Default, the Corporation and New Claridge are
precluded from receiving any further payments of principal or interest
on the Expandable Wraparound Mortgage. As a result, the Corporation and
New Claridge have exercised this right of offset against rental
payments required to be made subsequent to August 16, 1999.
As a result of the Corporation's and New Claridge's filing for
reorganization under Chapter 11 on August 16, 1999, as well as the
Partnership's Chapter 11 filing on October 5, 1999, the Expandable
Wraparound Mortgage has become impaired. Therefore, during the fourth
quarter of 1999, the Corporation recorded an adjustment to write-down
the balance of the Expandable Wraparound Mortgage receivable to an
amount estimated to be the realizable value of the Hotel Assets. (As
previously noted, the Plan calls for the Partnership to transfer the
Hotel Assets to
F-14
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
4. RECEIVABLES (continued)
New Claridge in full satisfaction of its obligations under the
Expandable Wraparound Mortgage.) The total amount of this write-down
was $37.6 million.
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 consist of the
following:
1999 1998
-------- ------
(in thousands)
Gaming equipment $ 12,593 12,457
Land and land improvements 7,598 7,598
Building 20,070 20,070
Leasehold improvements 745 745
Capital lease assets 822 808
Other equipment 213 107
-------- --------
$ 42,041 41,785
======== ========
6. 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 uncollectible accounts. 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 uncollectible accounts. The licensee can satisfy its
obligation by making a direct investment in a project approved by the
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, 1999, the Corporation
has deposited $22.4 million, of which $3,160,000 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 and April 1999, it was
determined that certain bonds issued by the CRDA had become impaired,
and that the payment of principal and interest on these bonds was
uncertain. As a result, New Claridge has recorded a valuation allowance
for the full amount of its investment in these bonds, totalling
$1,670,000.
From time to time, New Claridge has made donations to the CRDA of funds
which had previously been deposited with the State Treasurer. In
exchange for certain of these
F-15
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
6. OTHER ASSETS (continued)
donations, New Claridge received credits towards future obligations or
cash credits, from the CRDA equal to 51% of the donations. As of
December 31, 1999, all of these credits had been used.
7. 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 Expandable 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 contractually accrues at 12% per annum, is payable in
full upon maturity. Interest on this loan ceased to accrue as a result
of the Corporation's filing for reorganization under Chapter 11 (see
Note 2, "Significant Events") on August 16, 1999. The loan and accrued
interest through August 16, 1999 are included in "Liabilities Subject
to Compromise" (see Note 9) as of December 31, 1999.
8. OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 1999 and 1998 consist of the
following:
1999 1998
---- -----
(in thousands)
Deferred rent, current $ -0- 15,078
Deferred rent 1,100 475
Accrued payroll and related benefits 8,232 6,571
Accrued interest, Notes -0- 4,161
Auto/general insurance reserves 228 1,424
Accrued interest due to Partnership -0- 4,122
Reorganization costs 813 -0-
Other current liabilities 3,880 2,771
-------- ------
$14,253 34,602
======= ======
Deferred rent 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 Expandable Wraparound Mortgage; and
(iii) upon full satisfaction of any first mortgage then in place.
F-16
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
8. OTHER CURRENT LIABILITIES (continued)
The Fifth Amendment to the Operating Lease and the Fourth Amendment to
the Expansion Operating Lease, which were effective on March 1, 1997
provided for the abatement of $867,953 of basic rent and for the
deferral of $1.3 million of basic rent on March 1, 1997, and for
additional monthly abatements of rent beginning April 1, 1997. The $1.3
million of basic rent deferred on March 1, 1997 was paid to the
Partnership as additional rent of $25,000 per month for the period
April 1, 1997 through December 31, 1997, and $50,000 per month for the
period January 1998 through October 1999.
Effective September 30, 1998, the Operating Lease and Expansion
Operating Lease were further amended, pursuant to a Sixth Amendment to
the Operating Lease and Fifth Amendment to the Expansion Operating
Lease (the "Sixth Amendment"). The Sixth Amendment provided for the
deferral of $1.1 million of rent in either February 1999 or March 1999,
dependent upon certain conditions being met. These conditions were met,
and the $1.1 million of rent was deferred in March 1999. The $1.1
million of basic rent deferred is to be paid to the Partnership in
monthly installments of $25,000, commencing January 1, 2000, until paid
in full (subject to acceleration under certain circumstances).
As of December 31, 1999, deferred rent, current; accrued interest,
First Mortgage Notes; accrued interest due to Partnership; and the auto
and general liability reserves incurred prior to August 16, 1999 are
included in "Liabilities Subject to Compromise" (see Note 9) as a
result of the Corporation's filing for reorganization under Chapter 11
(see Note 2, "Significant Events") on August 16, 1999.
9. LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise are subject to future adjustments
depending on Bankruptcy Court actions and further developments with
respect to disputed claims. Payment of these liabilities may not be
made except pursuant to an approved plan of reorganization or under the
order of the Bankruptcy Court while the Corporation continues to
operate as a debtor-in- possession. As of December 31, 1999,
liabilities subject to compromise consist of the following (in
thousands):
December 31,
1999
Accounts payable and accrued expenses $ 3,251
11 3/4% Notes (note 10) 85,000
Accrued interest (note 8) 9,832
Loan from the Partnership (note 7) 3,600
Deferred rent due to the Partnership (notes 8 and 14) 22,147
Contingent Payment (note 11) 19,000
Auto and general liability reserves (note 14) 1,086
Other (note 13) 1,343
----------
$ 145,259
==========
F-17
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
9. LIABILITIES SUBJECT TO COMPROMISE (continued)
Accrued interest as of December 31, 1999 of $9,832,000 consists of
$5,440,000 of interest due on the Notes and $4,392,000 of interest due
on the $3.6 million loan from the Partnership. Interest on both of
these items ceased to accrue as of August 16, 1999.
10. LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consists of the following:
1999 1998
---- -----
(in thousands)
11 3/4% Notes due 2002 $ -0- 85,000
Capital lease obligation 126 521
--------- -------
126 85,521
Less current installments 125 351
--------- -------
$ 1 85,170
========= =======
On January 31, 1994, the Corporation completed an offering of $85
million of Notes due 2002, bearing interest at 11 3/4%. The Notes are
secured by (i) a non-recourse mortgage granted by the Partnership
representing a first lien on the Hotel Assets; (ii) a pledge granted by
the Corporation of all outstanding shares of capital stock of New
Claridge; and (iii) a guarantee by New Claridge. New Claridge's
guarantee of the Notes is secured by a collateral assignment of the
second lien Expandable 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. On January 28, 1997, New
Claridge entered into an agreement to subject the new self-parking
garage to the lien of the mortgage; such lien will not be subordinated
to any lien which may be placed on New Claridge's gaming and other
assets to secure any future revolving credit line arrangement. Interest
on the Notes is payable semiannually on February 1 and August 1 of each
year. A portion of the net proceeds of $82.2 million 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 a first mortgage. In conjunction with the
full satisfaction of the Loan Agreement, the Corporation's $7.5 million
revolving credit line arrangement was terminated.
The Indenture restricts the declaration or payment of dividends or
distributions or redemptions of capital stock by the Corporation and
its subsidiaries, other than (i) dividends or distributions payable in
equity interests of the Corporation or such subsidiaries; (ii)
dividends or distributions payable to the Corporation or any
wholly-owned subsidiary; or (iii) dividends by a subsidiary on its
common stock if such dividends are paid pro-rata to all holders of such
common stock.
As of December 31, 1999, the principal amount due on the Notes is
included in "Liabilities Subject to Compromise" (see Note 9), as a
result of the Corporation's filing for reorganization under Chapter 11
(see Note 2, "Significant Events"), on August 16, 1999. In addition,
interest
F-18
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
10. LONG-TERM DEBT (continued)
on the Notes ceased to accrue as of August 16, 1999. The interest
payable on the Notes, as accrued through August 16, 1999 of $5,440,000,
is also included in "Liabilities Subject to Compromise" (see Note 9).
11. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities at December 31, 1999 and 1998 consist of
the following:
1999 1998
---------- -------
(in thousands)
Contingent Payment $ -0- 19,000
License agreement 1,294 1,369
Other 60 971
-------- ------
$ 1,354 21,340
======== ======
Pursuant to the Restructuring Agreement, Webb retained an interest,
which was assigned to the Valley of the Sun United Way 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 and other
liabilities ("Contingent Payment"). 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
consolidated financial statements since the likelihood of paying such
amount is considered remote at this time. As of December 31, 1999,
accrued interest would have amounted to approximately $82.3 million.
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 84% in interest of the investors provided
releases and became Releasing Investors. Payments to Releasing
Investors are to be made in accordance with a schedule of priorities,
as defined in the Restructuring Agreement.
On February 23, 1996, the Corporation acquired an option to purchase,
at a discount from the carrying value, the Contingent Payment. The
purchase price of the option of $1 million was recorded as an offset to
the Contingent Payment liability which, prior to the Corporation's
filing under Chapter 11, was included in other noncurrent liabilities
on the Corporation's consolidated balance sheet. The option could have
been exercised any time prior to December 31, 1997. Given its operating
results (see Note 2, "Significant Events"), the Corporation was not
able to exercise this Contingent Payment option, and it expired in
accordance with its terms on December 31, 1997.
F-19
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
11. OTHER NONCURRENT LIABILITIES (continued)
As of December 31, 1999, the Contingent Payment is included in
"Liabilities Subject to Compromise" (see Note 9), as a result of the
Corporation's filing for reorganization under Chapter 11 on August 16,
1999.
On February 28, 1997, New Claridge entered into an agreement with
Thermal Energy Limited Partnership I ("Atlantic Thermal"), pursuant to
which Atlantic Thermal was granted an exclusive license for a period of
twenty years to use, operate, and maintain certain steam and chilled
water production facilities at the Claridge. In consideration for this
license agreement, Atlantic Thermal paid New Claridge $1.5 million.
This amount will be recognized as income over the term of the
agreement, commencing April 1997.
12. 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, summarized below, for the years
ended December 31, 1999, 1998 and 1997 has been charged to casino
expenses (in thousands):
1999 1998 1997
---- ---- ----
Hotel $ 4,051 3,800 3,828
Food and beverage 13,434 13,716 11,815
Entertainment 1,000 1,073 1,134
------- ------- -------
Total $18,485 18,589 16,777
======= ======= ======
13. INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. No benefit for income taxes
was recorded for the reasons set forth below.
F-20
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
13. INCOME TAXES (continued)
The benefit for income taxes differs from the amount computed at the
statutory rate as follows (in thousands):
1999 1998 1997
-------- -------- --------
Computed "expected" tax benefit $(12,985) (3,201) (2,033)
Increase (reduction) in income taxes
resulting from:
Change in the valuation allowance 15,515 4,391 2,311
State income tax, net of federal
income tax benefit (2,291) (565) (359)
Meals and entertainment -0- (454) 454
Contingent Payment option -0- -0- (400)
Other (239) (171) 27
-------- -------- --------
$ -0- -0- -0-
======== ======== ========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below: thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
Deferred tax assets:
<S> <C> <C>
Net operating loss $ 19,220 21,566
Rent leveling 3,940 3,204
Accrued expenses 1,641 1,354
Deferred revenue 550 633
Tax credit 940 940
Difference between book and tax basis
of other liabilities 3,748 2,285
Other 619 637
-------- --------
Total gross deferred tax assets 30,658 30,619
Less valuation allowance (25,099) (9,584)
-------- --------
Net deferred tax assets 5,559 21,035
-------- --------
Deferred tax liabilities:
Gaming equipment, due to differences in depreciation (597) (852)
Difference between book and tax basis of
Expandable Wraparound Mortgage receivable (6,303) (20,683)
Difference between book and tax basis of receivables (705) (679)
Difference between book and tax basis of
Operating Lease expense -0- (1,400)
-------- --------
Total gross deferred tax liabilities (7,605) (23,614)
-------- --------
Net deferred tax liability $ (2,046) (2,579)
======== ========
</TABLE>
F-21
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
13. INCOME TAXES (continued)
The valuation allowance for deferred tax assets as of December 31, 1998
was $9,584,000. The net change in the total valuation allowance for the
year ended December 31, 1999 was an increase of $15,515,000.
At December 31, 1999, the Corporation had net operating loss
carryforwards for federal income tax purposes of approximately $48.5
million, none of which expire before the year 2016. These net operating
loss carryforwards are available to offset future federal taxable
income, if any. The Corporation also has tax credit carryforwards for
income tax purposes of approximately $940,000, which are available to
reduce future federal income taxes, if any, through 2002.
During 1995 the Corporation received notice from the Internal Revenue
Service ("IRS") asserting deficiencies in Federal corporate income
taxes for the Corporation's 1990 and 1991 taxable years. Many of the
proposed adjustments to the Corporation's tax returns were
settledresulting in no additional expense to the Corporation's
consolidated financial statements. There was a remaining IRS asserted
deficiency for the 1990 and 1991 taxable years. In January 1999, the
Corporation reached a settlement agreement with the IRS District
Counsel, which was confirmed by the United States Tax Court on March 4,
1999. This settlement agreement did not have a material impact on the
Corporation's consolidated financial statements. As of December 31,
1999, the amount of this settlement, including interest, has been
included in "Liabilities Subject to Compromise" (see Note 9), as a
result of the Corporation's filing for reorganization under Chapter 11
(see Note 2, "Significant Events") on August 16, 1999.
14. OPERATING LEASE
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 an Expansion Operating
Lease, which covered the expansion improvements made to the Claridge in
1986. The initial terms of both leases expired on September 30, 1998,
and each lease provided for three ten-year renewal options at the
election of New Claridge. New Claridge exercised the first of the
ten-year renewal options, extending the term of the Operating Lease and
Expansion Operating Lease through September 30, 2008.
Basic rent during the renewal term of each lease is calculated pursuant
to a defined formula, with such rent for the lease year commencing
October 1, 1998 through September 30, 1999 not to be more than $29.5
million nor less than $24 million for the Operating Lease, and not to
be more than $3 million nor less than $2.5 million for the Expansion
Operating Lease. In addition, in each subsequent lease year, rent will
be calculated pursuant to a defined formula, but may not exceed 10%
more than the basic rent for the immediately preceding lease year.
Basic rent, as calculated pursuant to the defined formula for the lease
year commencing October 1, 1998 was $24 million for the Operating Lease
and $2.5 million for the Expansion Operating Lease, and will remain the
same for the lease year which commenced October 1, 1999.
New Claridge is also required to pay, as additional rent, certain
amounts including certain taxes,
F-22
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
14. OPERATING LEASE (continued)
insurance, and other charges related to the occupancy of the land and
Hotel Assets, certain expenses and debt service related to furniture,
fixture and equipment replacements and building improvements, and the
general and administrative costs of the Partnership.
The terms of the Operating Lease and Expansion Operating Lease have
been amended from time to time. The most recent amendment (the "Sixth
Amendment"), which was effective September 30, 1998, allowed for the
deferral of $1.1 million of rent in either February 1999 or March 1999,
dependent upon certain conditions being met. These conditions, which
must have occurred prior to March 2, 1999, included (i) New Claridge
having received the proceeds in connection with its settlement of the
parking garage arbitration; and (ii) the Corporation or New Claridge
having paid the interest that was due on the Notes on February 1, 1999.
New Claridge received the proceeds from the settlement of the parking
garage litigation in February 1999, and paid the interest due on the
Notes on March 2, 1999, within the 30-day grace period allowed in
accordance with the terms of the Indenture. The $1.1 million of basic
rent deferred in 1999 is to be paid to the Partnership in monthly
installments of $25,000 commencing January 1, 2000 until paid in full
(subject to acceleration in certain circumstances). This amendment also
provided for additional abatements of rent, through December 31, 2004,
as necessary to reduce the Partnership's cash flow to an amount
necessary only to meet the Partnership's cash requirements; these
abatements, however, are to be reduced by specified amounts for each
period commencing January 1, 2000 and ending December 31, 2004 ($83,333
per month in 2000, $130,000 per month in 2001, $180,000 per month in
2002 and 2003, and $130,000 per month in 2004).
In addition to the deferral and abatements of rent provided for in the
Sixth Amendment, the amendment provides for the payment of $3.5 million
of additional basic rent on the earlier of (i) the maturity date of the
Expandable Wraparound Mortgage Note; (ii) such earlier date, if any, as
the entire principal amount of the Expandable Wraparound Mortgage
becomes due and payable; or (iii) the date on which any merger,
consolidation, or similar transaction to which the Corporation or New
Claridge is a party, or any sale of all or substantially all of the
assets of the Corporation or New Claridge is consummated, or any change
in control of the Corporation or New Claridge occurs.
If the Partnership should fail to make any payment due under the
Expandable 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. As a
result of the Corporation and New Claridge's Chapter 11 filing, under
the terms of the indenture governing the Notes (the "Indenture"), an
"Event of Default" has occurred (as defined in the Indenture). As a
result of this Event of Default, the Corporation and New Claridge are
precluded from receiving any further payments of principal or interest
on the Expandable Wraparound Mortgage. As a result, the Corporation and
New Claridge have exercised this right of offset against rental
payments required to be made subsequent to August 16, 1999.
For the years ended December 31, 1999, 1998, and 1997, total expense
resulting from the
F-23
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
14. OPERATING LEASE (continued)
Operating Lease and Expansion Operating Lease amounted to $24,028,000,
$26,374,000, and $30,554,000, respectively, of which $1,242,000,
($10,679,000), and ($11,504,000), respectively, of rental expense is
attributable to the requirement under Statement of Financial Accounting
Standards No. 13 to provide a level rent expense for those leases with
escalating payments.
New Claridge also leases supplemental office, warehouse, and surface
parking spaces in nearby lots. For the years ended December 31, 1999,
1998, and 1997, operating lease expense for these facilities amounted
to $1,189,000, $1,253,000, and $1,283,000, respectively. In addition,
New Claridge leases certain slot machines used on the casino floor
under various capital and operating leases. Future lease payments under
noncancellable operating leases (with initial or remaining lease terms
in excess of one year) and minimum capital lease payments as of
December 31, 1999 (in thousands) are as follows:
<TABLE>
<CAPTION>
Present Value of
Minimum Lease Operating
Payments Leases
<S> <C> <C>
2000 $ 129 2,268
2001 1 1,481
2002 -0- 873
2003 -0- 600
2004 -0- 600
-------- ------
Total minimum lease payments 130 5,822
======
Less amount representing interest
(at rates ranging from 11% to 12%) 4
--------
Present value of minimum lease payments 126
Less current portion of capital lease obligations 125
--------
Long-term portion of capital lease obligations $ 1
========
</TABLE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
"Disclosures about Fair Value of Financial Instruments" requires the
Corporation to disclose estimated fair value for its financial
instruments. The estimates of fair value are subjective in nature and
involve uncertainties and matters of significant judgement, and
therefore cannot be determined with precision; changes in these
assumptions could significantly affect the estimates. The carrying
amounts and estimated fair values of the Corporation's financial
instruments as of December 31, 1999 and 1998 are as follows (in
thousands):
F-24
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $16,834 16,834 9,798 9,798
Current receivables, net (excluding current
portion of long-term receivable due
from the Partnership) 4,808 4,808 3,515 3,515
Long-term receivables due from the
Partnership (including current portion) 45,000 45,000 81,639 n/a
Reinvestment obligation funds 2,730 2,730 2,823 2,823
Financial Liabilities:
Accounts payable 2,902 2,902 3,535 3,535
Loan from the Partnership 3,600 n/a 3,600 n/a
Long term debt 85,001 49,089 85,170 59,776
Deferred rent due to the Partnership 7,069 n/a 5,827 n/a
Contingent payment 19,000 n/a 19,000 n/a
</TABLE>
The following assumptions were used to estimate the fair value of each
class of financial instruments:
Cash and cash equivalents
The carrying amounts reflected on the Corporation's Consolidated
Balance Sheet approximate the fair value because of the short maturity
(90 days or less) of these instruments.
Current receivables, net and Accounts payable
The carrying amounts reflected on the Corporation's Consolidated
Balance Sheet approximate the fair value due to the short term nature
of these items.
Reinvestment obligation funds
The reinvestment obligation funds, which are included in Other assets
on the Corporation's Consolidated Balance Sheet, consist of required
investments imposed by the Casino Control Act. The reinvestment
obligation funds are stated net of a valuation allowance reflecting the
below market interest rates associated with the investments. As a
result, the carrying values of these investments approximate their fair
values.
Long-term debt
The fair value of the Corporation's long-term debt is estimated based
on the quoted market price of the Notes as of December 31, 1999 and
1998, respectively.
F-25
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Long-term receivables due from Partnership
As previously noted, the Plan calls for the Partnership to transfer the
Hotel Assets to New Claridge in full satisfaction of its obligations
under the Expandable Wraparound Mortgage. As a result of the
Corporation's and New Claridge's filing for reorganization under
Chapter 11 on August 16, 1999, as well as the Partnership's Chapter 11
filing on October 5, 1999, the Expandable Wraparound Mortgage has
become impaired. Therefore, during 1999, the Corporation recorded an
adjustment to write-down the balance of the Expandable Wraparound
Mortgage receivable, to an amount estimated to be the realizable value
of the Hotel Assets, or $45 million.
Loan from the Partnership, Deferred rent due to the Partnership
Due to the nature of the relationship between the Corporation and the
Partnership, estimation of the fair value of the financial instruments
due to and due from the Partnership is not practical as there is no
trading market for these financial instruments. (See Note 7, "Loan from
the Partnership" and Note 14, "Operating Lease", for a description of
the terms of these instruments.)
Contingent Payment
There is no market for the Contingent Payment; therefore, estimation of
the fair value of the Contingent Payment is not practical. (See Note
11, "Other Noncurrent Liabilities" for a description of the Contingent
Payment and the option to purchase the Contingent Payment.)
16. CONTINGENCIES
a) Licensing
On September 22, 1999, New Claridge was issued a one-year
casino license by the Commission for the period commencing
September 30, 1999. Although New Claridge had reapplied for a
four-year casino license, the filing of the voluntary petition
under Chapter 11 of the United States Bankruptcy Code on
August 16, 1999 prompted the Commission to renew New
Claridge's license for the reduced period of time.
Additionally, the casino license renewal contains certain
financial reporting conditions and requirements consistent
with the manner in which the Commission has relicensed other
casino licensees who have filed voluntary petitions under
Chapter 11 in the past.
b) Legal Proceedings
On August 16, 1999, the Corporation and New Claridge filed
voluntary petitions under Chapter 11 of the Bankruptcy Code.
In addition, on October 5, 1999, the Partnership filed a
voluntary petition under Chapter 11 of the Bankruptcy Code.
The Corporation
F-26
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
16. CONTINGENCIES (continued)
continues to operate the business of the Claridge as a
debtor-in-possession. See Note 2, "Significant Events" for a
further discussion of these proceedings.
On July 10, 1996, ten days after its opening, a fatal accident
occurred at New Claridge's self-parking garage, in which the
vehicle of two patrons breached a cable restraint system,
permitting their vehicle to drive through the side wall of the
self-parking garage. The vehicle fell four stories to the
sidewalk and street below, killing both occupants. As a
result, New Claridge's self-parking garage was closed until
the end of September 1996, while various investigations sought
to determine the cause of the accident. At the same time, New
Claridge determined to remove the exterior wall cable
restraint system and replace it with a rigid I-beam barrier
system.
New Claridge retained the law firm of Zelle and Larson LLP of
Minneapolis, Minnesota to assist in the recovery of certain
expenses incurred in reopening the self-parking garage and
potential lost profit claims. On July 22, 1997, New Claridge
filed a Complaint and Demand for Arbitration in the amount of
$10 million against the general contractor and the architect
for the garage, alleging negligence, breach of warranty and
breach of contract in the design and construction of the
garage. In February 1999, the Corporation and New Claridge
entered into a settlement agreement of approximately $2.3
million in the arbitration proceedings. This settlement amount
is included in "Other income" on the Corporation's
Consolidated Statement of Operations for 1999.
A wrongful death action was commenced by the estates of the
two patrons who died in the July 1996 accident in the
self-parking garage. New Claridge is fully insured and
indemnified for any financial liability that may have resulted
due to either an award to or a negotiated settlement with the
plaintiffs in this action. Subsequent to year end 1999, a
settlement agreement and release was signed among the parties
settling all final outstanding claims. The settlement with
respect to New Claridge was within its general liability
insurance.
The Corporation and New Claridge are also 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.
17. RELATED PARTY TRANSACTIONS
a. The Restructuring Agreement provided for Webb to retain 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 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
F-27
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
17. RELATED PARTY TRANSACTIONS (continued)
(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.
Approximately 93% of the Corporation's common stock is owned
by persons who also own over 90% of the limited partnership
interests in the Partnership.
c. In February 1992, the Corporation's Board of Directors adopted
a Long-Term Incentive Plan (the "Incentive Plan") in which
certain key employees of the Corporation and/or New Claridge
participate. The Incentive Plan provided 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 Incentive 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 Incentive Plan. The treasury shares and
Equity Units fully vest upon a further restructuring or a
change in control as defined in the Incentive 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 Incentive
Plan within one year after any change in control of the
Corporation occurs, as defined in the Incentive 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. On April 15, 1992, the
Commission approved the Incentive Plan and the treasury shares
were delivered to the participants. Upon the issuance of the
Notes and the repayment in full of the Corporation's
outstanding debt under the Loan Agreement, 25% of the shares
and Equity Units awarded under the Incentive Plan vested. A
participant is entitled to vote all awarded treasury shares
whether or not vested in such shares.
On June 5, 1995, the Corporation's Board of Directors amended
the Incentive Plan by creating 100 Additional Equity Units to
be issued to certain key employees and 100 Director Equity
Units to be issued to the individual members of the Board of
Directors (the "Directors"). The aggregate value of the
Additional Equity Units is 5.59 percent and the aggregate
value of the Director Equity Units is 4 percent of certain
amounts as further defined in the Incentive Plan. Vesting of
the Additional Equity Units occurs if a Transaction results in
the Claimholders of the Claridge receiving cash or marketable
securities having a certain value all as further defined and
described in the Incentive Plan.
F-28
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
17. RELATED PARTY TRANSACTIONS (continued)
Vesting of the Director Equity Units occurs according to a
vesting schedule stated in the Incentive Plan and also is tied
to the occurrence of a Transaction having a certain value. The
Incentive Plan was further amended, on November 10, 1998, to
modify the terms by which the Additional Equity Units and
Director Equity Units will vest. The modification adjusts the
value that must be received by the Claimholders of the
Claridge resulting from the occurrence of a Transaction, all
as further defined and described in the Incentive Plan.
Under the proposed Plan, the Incentive Plan would be
terminated, and any benefits which had previously vested to
the participants would have no value.
F-29
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
18. PARENT COMPANY INFORMATION
The Corporation owns all of the outstanding common stock of New
Claridge, which it purchased for $5,000,000. The balance sheet accounts
of the Corporation as of December 31, 1999 and 1998 include the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Cash $ -0- -0-
Investment in New Claridge 87,206 87,206
Other assets 11,939 12,138
-------- -------
Total assets $ 99,145 99,344
======== =======
Liabilities Subject to Compromise $ 90,440 -0-
Other liabilities 11,529 13,476
Long-term debt -0- 85,000
Stockholders' (deficiency) equity (2,824) 868
-------- ---------
Total liabilities and stockholders' (deficiency) equity $ 99,145 99,344
======== =========
</TABLE>
As of December 31, 1999, "Liabilities Subject to Compromise" include
the Notes and accrued interest thereon through August 16, 1999 of
$5,440,000.
The Statements of Operations for the Corporation for the years ended
December 31, 1999, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Dividend income from New Claridge $ 5,049 9,988 10,070
Interest income -0- 1 4
------- ------- -------
Total income 5,049 9,989 10,074
------- ------- -------
Costs and expenses:
General and administrative 621 545 2,065
Amortization 524 524 524
Interest (contractual interest of $10,335 in 1999) 6,328 9,988 10,070
------- ------- -------
Total costs and expenses 7,473 11,057 12,659
------- ------- -------
Loss before reorganization items and
income taxes (2,424) (1,068) (2,585)
Reorganization items:
Professional fees (1,268) -0- -0-
------- ------- -------
Loss before income taxes (3,692) (1,068) (2,585)
Income tax benefit -0- (31) (2,751)
------- ------- -------
Net (loss) income $(3,692) (1,037) 166
======= ======= =======
</TABLE>
F-30
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
18. PARENT COMPANY INFORMATION (continued)
The above amounts represent the results of operations of the
Corporation for the respective periods before equity in the results of
New Claridge. For the year ended December 31, 1999, New Claridge had a
net loss of $29,449,000, as compared to net income of $1,610,000 and
$3,925,000 for the years ended December 31, 1998 and 1997,
respectively.
Changes in the Corporation's financial position for the years ended
December 31, 1999, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------ ------
Cash flows from operating activities:
<S> <C> <C> <C>
Net (loss) income $ (3,692) (1,037) 166
Adjustments to reconcile net (loss)
income to net cash provided by operating
activities:
Amortization 524 524 524
Deferred income taxes - noncurrent -0- (31) (2,751)
Change in assets and liabilities:
Increase in other assets (325) -0- -0-
Increase in other liabilities 3,493 544 2,061
--------- ------ ------
Net cash provided by operating activities -0- -0- -0-
--------- ------ ------
Increase in cash and cash equivalents -0- -0- -0-
Cash and cash equivalents at beginning of period -0- -0- -0-
--------- ------ ------
Cash and cash equivalents at end of period $ -0- -0- -0-
========= ====== ======
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized $ 5,049 9,988 10,075
========= ====== ======
Income taxes paid $ -0- -0- -0-
========= ====== ======
</TABLE>
19. SUBSEQUENT EVENTS - UNAUDITED
On March 21, 2000, the Corporation filed an amendment to the Plan. This
amendment provides for the holders of the existing Notes to receive, on
a pro rata basis, (i) 100% of the equity of the reorganized
Corporation, and (ii) debt not to exceed $15 million. The Bankruptcy
Court will issue its opinion in mid-April regarding the adequacy of the
Plan to be submitted to the creditors for a vote. (See Note 2,
"Significant Events".)
F-31
<PAGE>
SCHEDULE II
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Valuation and Qualifying Accounts
Years Ended December 31, 1999, 1998 and 1997
(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, 1999
Allowance for
Uncollectible Accounts $ 1,339 1,043 -0- 1,175 (a) 1,207
Year ended
December 31, 1998
Allowance for
Uncollectible Accounts $ 758 1,128 -0- 547 (a) 1,339
Year ended
December 31, 1997
Allowance for
Uncollectible Accounts $ 899 218 -0- 359 (a) 758
</TABLE>
(a) Accounts written-off.
F-32
<PAGE>
INDEX TO EXHIBITS
Exhibit
EX12(b) Statement of Computation of Ratio of Earnings to
Fixed Charges.
<PAGE>
EXHIBIT 12(b)
THE CLARIDGE HOTEL AND CASINO CORPORATION
(Debtor-In-Possession effective August 16, 1999)
RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(Loss) income before income
taxes and extraordinary items $(38,190) (9,415) (5,979) (20,787) (2,278)
Add:
One-third of rent expense to
Partnership deemed
representative of interest 8,009 8,791 10,185 12,854 12,546
Interest expense 6,767 10,519 10,567 9,350 9,516
Amortization of capitalized
interest 57 57 57 28 -0-
-------- -------- -------- -------- --------
(Loss) income as adjusted $(23,357) 9,952 14,830 1,445 19,784
======== ======== ======== ======== ========
Fixed charges:
One-third of rent expense to
Partnership deemed
representative of interest $ 8,009 8,791 10,185 12,854 12,546
Interest expense 6,767 10,519 10,567 9,350 9,516
Capitalized interest -0- -0- -0- 1,069 1,138
-------- -------- -------- -------- --------
Fixed charges $ 14,776 19,310 20,752 23,273 23,200
======== ======== ======== ======== ========
</TABLE>
Earnings in 1999, 1998, 1997, 1996, and 1995 were insufficient to cover fixed
charges by $38,133,000, $9,358,000, $5,922,000, $21,828,000, and $3,416,000,
respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Claridge
Hotel and Casino Corporations Form 10-K for the year ended December 31, 1999 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000730409
<NAME> CLARIDGE HOTEL AND CASINO CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 16,834,000
<SECURITIES> 0
<RECEIVABLES> 9,184,000
<ALLOWANCES> 1,207,000
<INVENTORY> 332,000
<CURRENT-ASSETS> 28,232,000
<PP&E> 42,041,000
<DEPRECIATION> 13,699,000
<TOTAL-ASSETS> 102,522,000
<CURRENT-LIABILITIES> 17,280,000
<BONDS> 126,000
0
0
<COMMON> 5,000
<OTHER-SE> (63,423,000)
<TOTAL-LIABILITY-AND-EQUITY> 102,522,000
<SALES> 0
<TOTAL-REVENUES> 188,692,000
<CGS> 0
<TOTAL-COSTS> 111,811,000
<OTHER-EXPENSES> 107,261,000
<LOSS-PROVISION> 1,043,000
<INTEREST-EXPENSE> 6,767,000
<INCOME-PRETAX> (38,190,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (38,190,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,190,000)
<EPS-BASIC> (7.54)
<EPS-DILUTED> (7.54)
</TABLE>
