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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-9029
TRUMP'S CASTLE FUNDING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 11-2739203
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE CASTLE BOULEVARD
ATLANTIC CITY, NEW JERSEY 08401
(609) 441-6060
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
TRUMP'S CASTLE ASSOCIATES, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-2608426
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE CASTLE BOULEVARD
ATLANTIC CITY, NEW JERSEY 08401
(609) 441-6060
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
REGISTERED
11 3/4% Mortgage Notes due 2003
American Stock Exchange, Inc.
Increasing Rate Subordinated Pay-In-
Kind Notes due 2005 American Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrants (1) have 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) have been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrants' 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]
Indicate by check mark whether the Registrants have filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
--- ---
Trump's Castle Funding, Inc. meets the conditions set forth in General
Instructions J(1)(a) and (b) of Form 10-K and is therefore filing this form
with the reduced disclosure format.
As of March 21, 1997, there were 200 shares of Trump's Castle Funding,
Inc.'s Common Stock outstanding. The aggregate market value of the voting
stock of Trump's Castle Funding, Inc. and Trump's Castle Associates, L.P. held
by non-affiliates as of March 21, 1997 of the Registrants was $0.
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FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
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<C> <S> <C>
PART I
ITEM 1. BUSINESS................................................. 1
General.................................................. 1
Trump's Castle........................................... 2
Trademark/Licensing...................................... 6
Certain Indebtedness of the Partnership.................. 6
Atlantic City Market..................................... 7
Competition.............................................. 9
Gaming and Other Laws and Regulations.................... 11
ITEM 2. PROPERTIES............................................... 17
ITEM 3. LEGAL PROCEEDINGS........................................ 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...... 19
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS................................................. 20
ITEM 6. SELECTED FINANCIAL DATA.................................. 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................... 22
Results of Operations for the Years Ended December 31,
1996 and 1995........................................... 22
Results of Operations for the Years Ended December 31,
1995 and 1994........................................... 23
Liquidity and Capital Resources.......................... 24
Seasonality.............................................. 26
Inflation................................................ 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............. 26
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................... 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS......................... 27
ITEM 11. EXECUTIVE COMPENSATION................................... 30
Employment Agreements.................................... 31
Compensation of the Board of Directors................... 32
Compensation Committee Interlocks and Insider
Participation........................................... 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................. 34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........... 34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K............................................. 35
IMPORTANT FACTORS RELATING TO FORWARD LOOKING STATEMENTS.............. 38
SIGNATURES
SIGNATURE--TRUMP'S CASTLE FUNDING, INC. ........................... 39
SIGNATURE--TRUMP'S CASTLE ASSOCIATES, L.P. ........................ 39
</TABLE>
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PART I
ITEM 1. BUSINESS.
GENERAL
Trump's Castle Funding, Inc. ("Funding") was incorporated under the laws of
the State of New Jersey in May 1985 and is wholly owned by Trump's Castle
Associates, L.P. (the "Partnership"). Funding was formed to serve as a
financing corporation to raise funds for the benefit of the Partnership. Since
Funding has no business operations, its ability to service its indebtedness is
completely dependent upon funds it receives from the Partnership. Accordingly,
the discussion in this Form 10-K relates primarily to the Partnership and its
operations.
The Partnership is owner and operator of Trump's Castle Casino Resort in
Atlantic City, New Jersey ("Trump's Castle"), a luxury casino hotel located in
the Marina District of Atlantic City, New Jersey (the "Marina"). Prior to the
acquisition of Trump's Castle (the "Castle Acquisition") on October 7, 1996 by
Trump Hotels & Casino Resorts Holdings, L.P. ("THCR Holdings"), the partners
in the Partnership were TC/GP, Inc., currently known as Trump Casinos II, Inc.
("TCI-II"), which had a 37.5% interest in the Partnership, Donald J. Trump
("Trump"), who had a 61.5% interest in the Partnership, and Trump's Castle
Hotel & Casino, Inc. ("TCHI"), which had a 1% interest in the Partnership.
Trump, by virtue of his ownership of TCI-II and TCHI, was the beneficial owner
of 100% of the common equity interest in the Partnership, subject to the right
of holders of warrants for 50% of the common stock of TCHI (the "Castle
Warrants") to acquire an indirect beneficial interest in 0.5% of the common
equity interest in the Partnership. Subsequent to the Castle Acquisition, the
partners in the Partnership are THCR Holdings, which has a 99% limited
partnership interest in the Partnership, and TCHI, which has a 1% general
partnership interest in the Partnership. THCR Holdings, by virtue of its
ownership of TCHI, is the beneficial owner of 100% of the common equity
interest in the Partnership.
The Castle Acquisition has further strengthened the position of Trump Hotels
& Casino Resorts, Inc. ("THCR") as an industry leader. The Castle Acquisition
has provided THCR with a significant presence in the Marina, the principal
focus of expansion in the Atlantic City gaming market (the "Atlantic City
Market"), and positioned THCR as the only casino operator in Atlantic City
with facilities both on The Boardwalk and in the Marina. In addition, the
Castle Acquisition has provided further opportunities for operational
efficiencies and economies of scale and eliminated the perceived conflict of
interest caused by the differing ownership of Trump's Castle and the other
THCR properties in Atlantic City. Ownership of Trump's Castle will enable THCR
to retain patrons that may be drawn from The Boardwalk to the Marina by new
casino development at the Marina. The Castle Acquisition has also enabled THCR
to benefit from (i) the excellent condition of the current facilities at
Trump's Castle, which have been designed to accommodate additional development
with minimal disruption to existing operations, (ii) the proximity of Trump's
Castle to the "H-Tract," an approximately 150-acre parcel of land proposed to
be Atlantic City's newest area of casino hotel development (the "H-Tract"),
and (iii) the proposed expansion at Trump's Castle expected to be completed by
July 1, 2000 (the "Trump's Castle Expansion"), which would, among other
things, enable THCR to capitalize on the expected increase in gaming activity
at the Marina. In 1997, the Partnership commenced a project to retheme Trump's
Castle with a nautical emphasis and rename it the "Trump Marina." Management
is in the process of re-evaluating the plans for the Trump's Castle Expansion.
On October 23, 1996, Trump Casino Services L.L.C., ("TCS"), Trump Plaza
Associates ("Plaza Associates"), Trump Taj Mahal Associates ("Taj Associates")
and the Partnership entered into an Amended and Restated Services Agreement
pursuant to which TCS provides each of Plaza Associates, Taj Associates and
the Partnership certain management, financial and other functions and services
necessary and incidental to the respective operations of each of their casino
hotels. Management believes that TCS's services to the Partnership will result
in cost savings and operational synergies. Trump Communications, L.L.C., a New
Jersey limited liability company and a subsidiary of TCS, was formed on
January 31, 1997 for the purpose of realizing cost savings and operational
synergies by consolidating advertisement functions of, and providing certain
services to, each of Plaza Associates, Taj Associates and the Partnership.
The Partnership operates in only one industry segment. See "Selected
Consolidated Financial Data" below.
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TRUMP'S CASTLE
The Partnership owns and operates Trump's Castle, a luxury casino hotel
located on 14.7 acres in the Marina approximately two miles from The
Boardwalk. Trump's Castle is approximately one-quarter mile from the H-Tract.
Trump's Castle consists of a 27-story hotel tower with 728 rooms, including
185 suites, 99 of which are oversized luxury suites, and an approximately
76,100 square feet of gaming space. Trump's Castle offers 2,339 slot machines,
93 table games (including 6 poker tables), 8 restaurants, approximately 58,000
square feet of convention, ballroom and meeting space, a 9-story parking
garage, which can accommodate approximately 3,000 cars, a 460-seat cabaret
theater, two cocktail lounges, a swimming pool, tennis courts, a health club
and a roof-top helipad. In addition, Trump's Castle operates a 645-slip marina
which is adjacent to the casino hotel. An elevated enclosed walkway connects
Trump's Castle to a two-story building which contains offices, a nautically
themed retail store, a cocktail lounge and a 240-seat gourmet restaurant that
overlooks the Marina and the Atlantic City skyline. As a result of its high
quality amenities, its exceptional customer service and its geographical
location, Trump's Castle distinguishes itself as a desirable alternative to
the Atlantic City casinos located on The Boardwalk.
MARKETING STRATEGY
Service. By providing and maintaining a first-class facility and exceptional
service, Trump's Castle has earned the American Automobile Association's "Four
Diamond" rating to complement its previously existing "Four Star" Mobil Travel
Guide rating. Trump's Castle provides a broadly diversified gaming and
entertainment experience consistent with the "Trump" name and reputation for
quality amenities and first-class service.
Gaming Environment. The Partnership continuously monitors the configuration
of the casino floor and the games it offers to patrons with a view towards
making changes and improvements. Trump's Castle casino floor was the first in
Atlantic City to feature live poker.
In recent years, there has been an industry trend in the Atlantic City
market towards fewer table games and more slot machines. For the Atlantic City
Market, revenue from slot machines increased from 54.6% of the industry gaming
revenue in 1988 to 68.8% of the industry gaming revenue in 1996. Trump's
Castle experienced a similar increase, with slot revenue increasing from 52.5%
of gaming revenue in 1988 to 73.4% of gaming revenue in 1996. In response to
this trend, Trump's Castle has devoted more of its casino floor space to slot
machines and between 1994 and 1996 has replaced approximately 1,000 of its
slot machines with newer machines. Under the present plans of the management
of Trump's Castle, the computerized slot tracking and marketing system will
continue to be upgraded and a variety of improvements will be made to the
casino floor to enhance customer service.
"Comping" Strategy. In order to compete effectively with other Atlantic City
casino hotels, Trump's Castle offers complimentaries primarily to patrons with
a demonstrated propensity for gaming at Trump's Castle. The policy at Trump's
Castle is to focus promotional activities, including complimentaries, on
middle and upper middle market "drive-in" patrons who visit Atlantic City
frequently and have proven to be the most profitable market segment.
Entertainment and Special Events. The Partnership pursues a coordinated
program of headline entertainment and special events. Trump's Castle offers
headline entertainment approximately ten times a year and a series of revue-
style shows which generally run from six to eight weeks at various dates
throughout the year.
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As a part of its marketing plan, Trump's Castle offers special events aimed
at its core, middle and upper-middle market segments. In addition, Trump's
Castle hosts special events on an invitation-only basis in an effort to
attract existing targeted gaming patrons and build loyalty among existing
targeted patrons. These special events include golf tournaments, theme parties
and gaming tournaments. Headline entertainment is scheduled so as not to
overlap with any of these special events.
Player Development and Casino Hosts. The Partnership has contracts with
sales representatives in New Jersey, New York and other states to promote
Trump's Castle. Trump's Castle has sought to attract more middle market slot
patrons, as well as premium players, through its "junket" marketing
operations, which involve attracting groups of patrons by providing airfare,
gifts and room accommodations. Player development personnel host special
events, offer incentives and contact patrons directly in an effort to attract
high-limit table game patrons.
The casino hosts at Trump's Castle assist table game patrons, and the slot
sales representatives at Trump's Castle assist slot patrons on the casino
floor, make room and dinner reservations and provide general assistance. Slot
sales representatives also solicit Castle Card (the frequent player
identification slot card) sign-ups in order to increase the Partnership's
marketing base.
Promotional Activities. The Castle Card constitutes a key element in the
direct marketing program of Trump's Castle. Slot machine players are
encouraged to register for and utilize their personalized Castle Card to earn
various complimentaries based upon their level of play. The Castle Card is
inserted during play into a card reader attached to the slot machine for use in
computerized rating systems. These computer systems record data about the
cardholder, including playing preferences, frequency and denomination of play
and the amount of gaming revenues produced. Slot sales and management personnel
are able to monitor the identity and location of the cardholder and the
frequency and denomination of the cardholder's slot play. They also use this
information to provide attentive service to the cardholder on the casino floor.
Trump's Castle designs promotional offers, conveyed via direct mail and
telemarketing, to patrons expected to provide revenues based upon their
historical gaming patterns. Such information is gathered on slot wagering by
the Castle Card and on table wagering by the casino games supervisor. Trump's
Castle conducts slot machine and table game tournaments in which cash prizes
are offered to a select group of players invited to participate in the
tournament based upon their tendency to play. Such players tend to play at
their own expense during "off-hours" of the tournament. At times, tournament
players are also offered special dining and entertainment privileges that
encourage them to remain at Trump's Castle.
Credit Policy. Historically, Trump's Castle has extended credit on a
discretionary basis to certain qualified patrons. Credit play, as a percentage
of total dollars wagered, was approximately 31.4% for 1996.
Bus Program. Trump's Castle has a bus program which transports approximately
600 gaming patrons per day during the week and 650 per day on the weekends.
The Partnership's bus program offers incentives and discounts to certain
scheduled and chartered bus customers. Based on historical surveys, the
Partnership has determined that gaming patrons who arrive by special charters
as opposed to scheduled bus lines or who travel distances of 60 miles or more
are more likely to create higher gaming revenue for Trump's Castle.
Accordingly, Trump's Castle's marketing efforts are focused on such bus
patrons.
TRUMP'S CASTLE EXPANSION
The Trump's Castle Expansion is estimated to be completed by July 1, 2000.
The plans for the Trump's Castle Expansion, which are preliminary in nature
and subject to modification, may include (i) the addition of a new hotel tower
consisting of 780 rooms and suites, (ii) a 430-foot luxury yacht to be moored
in the Marina, which will be physically connected to the casino-hotel and
accessible to the main casino and will feature 40,000 square-feet of casino
space with 1,300 slot machines and 40 table games; (iii) a 7,000 square-foot
expansion of the existing coffee shop; and (iv) a 17,000 square-foot expansion
of the existing casino. In addition, during 1997,
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the Partnership commenced a project to retheme the property with a nautical
emphasis and rename it the "Trump Marina". Management is in the process of re-
evaluating the plans for the Trump's Castle Expansion.
The Trump's Castle Expansion is dependent upon a number of factors,
including the availability and terms of financing and the consent of the
Partnership's debtholders to the incurrence of additional indebtedness. The
Trump's Castle Expansion will also require various licenses and approvals,
including the approval of the New Jersey Casino Control Commission (the
"CCC"). Furthermore, the New Jersey Casino Control Act (the "Casino Control
Act") requires that additional guest rooms be put into service within a
specified time period after any such casino expansion. If the Partnership
completed any casino expansion and subsequently did not complete the requisite
number of additional guest rooms within the specified time period, the
Partnership might have to close all or a portion of the expanded casino in
order to comply with regulatory requirements, which could have a material
adverse effect on the Partnership. In addition, in order to operate the
additional casino space contemplated by the Trump's Castle Expansion, the
Partnership must obtain, among other regulatory approvals, the determination
of the CCC that the operation of this additional casino space by the
Partnership will not constitute undue economic concentration of Atlantic City
casino operations. There can be no assurance that the Partnership will be able
to obtain all the necessary financing, consents, licenses and regulatory
approvals to complete the Trump's Castle Expansion.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1996, the Partnership employed approximately 3,200 full-
and part-time employees, of whom approximately 1,100 were subject to
collective bargaining agreements. The Partnership's collective bargaining
agreement with Local No. 54 expires on September 15, 1999. Such agreement
extends to approximately 900 employees. In addition, four other collective
bargaining agreements, which expire in the year 2000, cover approximately 200
maintenance employees. The Partnership believes that its relationships with
its employees are satisfactory. Funding has no employees.
Certain employees of the Partnership must be licensed by or registered with
the CCC, depending on the nature of the position held. Casino employees are
subject to more stringent licensing requirements than non-casino employees,
and must meet applicable standards pertaining to such matters as financial
responsibility, good character, ability, casino training, experience and New
Jersey residency. Such regulations have resulted in significant competition
for employees who meet these requirements.
HISTORICAL BACKGROUND
General. Funding was incorporated under the laws of the State of New Jersey
in May 1985 and is wholly owned by the Partnership. Funding was formed to
serve as a financing corporation to raise funds as an agent of the
Partnership. Since Funding has no business operations, its ability to service
its indebtedness is completely dependent upon funds it receives from the
Partnership. Accordingly, the following discussion is related primarily to the
Partnership and its operations.
1992 Recapitalization. On May 29, 1992, TCI-II, Funding and the Partnership
restructured their indebtedness through a prepackaged plan of reorganization
to alleviate certain liquidity problems (attributable, in part, to the overall
deterioration in the Atlantic City Market experienced prior to such time,
aggravated by an economic recession in the Northeast and the Persian Gulf
War), to improve the amortization schedule and to extend the maturity of the
Partnership's indebtedness (the "Plan"). In December 1993, the Partnership,
Funding and certain affiliated entities completed a recapitalization of their
debt and equity capitalization (the "Castle Recapitalization"). The purpose of
the Castle Recapitalization was (i) to improve the debt capitalization of the
Partnership and, initially, to decrease its cash charges, (ii) to provide the
holders of the Units (comprised of $1,000 principal amount of Funding's 9 1/2%
Mortgage Bonds due 1998 (the "Bonds") and one share of TCI-II's common stock
(collectively, the "Units")), who participated in the exchange offer in
connection with the Castle
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Recapitalization with a cash payment of $6.19 and securities having a combined
principal amount of $905 for each Unit and (iii) to provide Trump with
beneficial ownership of 100% of the common equity interests in the Partnership
(subject to the rights of holders of the Castle Warrants).
As a result of the Castle Recapitalization, TCI-II had a 37.5% equity
interest in the Partnership, Trump had a 61.5% equity interest in the
Partnership and TCHI had a 1% equity interest in the Partnership; accordingly,
through his ownership of 100% of TCI-II and TCHI, Trump was the beneficial
owner of 100% of the equity interests in the Partnership (subject to the
rights of the holders of the Castle Warrants). Also as a consequence of the
Castle Recapitalization, the principal amount of the Partnership's debt was
reduced, and, initially, the Partnership's cash charges were reduced. Upon
consummation of the Castle Recapitalization, the Partnership's outstanding
debt, on a consolidated basis, consisted of the $38 million outstanding on a
term loan with a bank (the "Term Loan"), $27 million principal amount
outstanding of its Senior Notes (as defined), the approximately $242 million
principal amount outstanding of the Mortgage Notes (as defined) (which are
subordinated to the Senior Notes) and the approximately $50 million principal
amount outstanding of its Increasing Rate Subordinated Pay-in-Kind Notes due
2005 of Funding (the "PIK Notes") (which are subordinated to both the Senior
Notes and the Mortgage Notes).
PIK Note Acquisition. On June 23, 1995, the Partnership entered into an
agreement with Hamilton Partners, L.P. ("Hamilton") which granted the
Partnership an option (the "Option") to acquire the PIK Notes owned by
Hamilton (the "Option Agreement"). The Option was granted to the Partnership
in consideration of $1.9 million of aggregate payments to Hamilton. The Option
was exercisable at a price equal to 60% of the aggregate principal amount of
the PIK Notes delivered by Hamilton, with accrued but unpaid interest, plus
100% of the PIK Notes issued to Hamilton as interest subsequent to June 23,
1995. Pursuant to the terms of the Option Agreement, upon the occurrence of
certain events within 18 months of the time the Option is exercised, the
Partnership was required to make an additional payment to Hamilton of up to
40% of the principal amount of the PIK Notes. On May 21, 1996, the Partnership
assigned the Option to THCR Holdings, which, on that same date, exercised the
Option and acquired approximately 90% of the then outstanding PIK Notes for
approximately $38.7 million, in exchange for which THCR Holdings received an
aggregate of approximately $59.3 million principal amount of PIK Notes.
Castle Acquisition. On October 7, 1996, THCR Holdings acquired from Trump
all of the outstanding equity of the Partnership. The following transactions
were effected in connection with the Castle Acquisition:
(i) Trump contributed to THCR Holdings his 61.5% equity interest in the
Partnership, in consideration of which he received a 9.52854% limited
partnership interest in THCR Holdings, exchangeable into 3,626,450 shares
of THCR's Common Stock, par value $.01 per share (the "THCR Common Stock")
(valuing each such share at $30.00 (the "THCR Stock Contribution Value"));
(ii) TCI-II contributed to THCR Holdings its 37.5% equity interest in the
Partnership in consideration of which it received a 5.81009% limited
partnership interest in THCR Holdings, exchangeable into 2,211,250 shares
of THCR Common Stock (valuing each such share at the THCR Stock
Contribution Value); and
(iii) THCR-TCHI Merger Corp., a Delaware corporation and a wholly owned
subsidiary of THCR Holdings ("Castle Merger Sub"), merged (the "TCHI
Merger") with and into TCHI (holder of a 1% equity interest in the
Partnership) whereupon (x) each share of common stock of TCHI, par value
$.01 per share (the "TCHI Common Stock"), outstanding immediately prior to
the TCHI Merger was converted into the right to receive $.8845 in cash (the
"TCHI Consideration") and each share of common stock of Castle Merger Sub
was converted into the right to receive one share of common stock of the
surviving corporation of the TCHI Merger and (y) each holder of the Castle
Warrants issued under a warrant agreement, dated as of December 30, 1993,
between TCHI and First Bank National Association, as warrant agent, became
entitled to receive, for each former share of TCHI Common Stock for which
each Castle Warrant was exercisable, an amount in cash equal to the TCHI
Consideration.
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In the aggregate, Trump received (i) a limited partnership interest in THCR
Holdings convertible into 5,837,700 shares of THCR Common Stock and (ii)
$884,550 in cash. On October 7, 1996, the closing sale price of the THCR
Common Stock on the New York Stock Exchange was $22.625 per share.
As a result of the Castle Acquisition, on October 7, 1996, THCR's and
Trump's beneficial equity interest in THCR Holdings was approximately 63.4%
and 36.6%, respectively, and Trump's beneficial equity interest in THCR
Holdings was exchangeable into 13,918,723 shares of THCR Common Stock. The
Castle Acquisition was approved by the stockholders of THCR on September 30,
1996.
Other Events. On January 20, 1997, THCR and THCR Holdings executed a letter
of intent (the "Letter of Intent") with Colony Capital, Inc. ("Colony
Capital"), which contemplated, among other things, that an institutional fund
(or an affiliate thereof) for which Colony Capital would act as the investment
advisor would invest $125 million in Castle Associates. On March 27, 1997,
THCR announced that negotiations with respect to the transactions contemplated
by the Letter of Intent have been terminated. See "Legal Proceedings--Castle
Acquisition."
TRADEMARK/LICENSING
Subject to certain restrictions, THCR has the exclusive right to use the
"Trump" name and likeness in connection with gaming and related activities
(the "License") pursuant to a trademark license agreement between Trump and
THCR (the "License Agreement"). Pursuant to the License Agreement, Trump
granted to THCR the world-wide right and license to use the names "Trump,"
"Donald Trump" and "Donald J. Trump" (including variations thereon, the "Trump
Names") and related intellectual property rights (collectively, the "Marks")
in connection with casino and gaming activities and related services and
products. The License is exclusive, subject to existing licenses of the Marks
to the Partnership, which expire on August 15, 1998. The License Agreement
does not restrict or restrain Trump from the right to use or further license
the Trump Names in connection with services and products other than casino
services and products.
The License is for a term of the later of: (i) June 2015; (ii) such time as
Trump and his affiliates no longer hold a 15% or greater voting interest in
THCR; or (iii) such time as Trump ceases to be employed or retained pursuant
to an employment, management, consulting or similar services agreement with
THCR. Upon expiration of the term of the License, Trump will grant THCR a non-
exclusive license for a reasonable period of transition on terms to be
mutually agreed upon between Trump and THCR. Trump's obligations under the
License Agreement are secured by a security agreement (the "Trademark Security
Agreement"), pursuant to which Trump granted THCR a first priority security
interest in the Marks for use in connection with casino services, as well as
related hotel, bar and restaurant services.
CERTAIN INDEBTEDNESS OF THE PARTNERSHIP
Funding's Mortgage Notes bear interest, payable semi-annually in cash, at 11
3/4% and mature on November 15, 2003 (the "Mortgage Notes"). In the event the
PIK Notes (discussed below) are redeemed prior to November 15, 1998, the
interest rate on the Mortgage Notes will be reduced to 11 1/2%. The Mortgage
Notes may be redeemed at Funding's option at a specified percentage of the
principal amount commencing in 1998.
The Mortgage Notes are secured by a promissory note of the Partnership to
Funding (the "Partnership Note") in an amount and with payment terms necessary
to service the Mortgage Notes. The Partnership Note is secured by a mortgage
on Trump's Castle and substantially all of the other assets of the
Partnership. The Partnership Note has been assigned by Funding to the trustee
of the indenture under which the Mortgage Notes were issued to secure the
repayment of the Mortgage Notes. In addition, the Partnership has guaranteed
the payment of the Mortgage Notes (the "Guaranty"), which is secured by a
mortgage on Trump's Castle and substantially all of the assets of the
Partnership. The Partnership Note and the Guaranty are expressly subordinated
to the indebtedness of the Senior Notes (as defined) and the Term Loan
(collectively, the "Senior Indebtedness") and the liens of the mortgages
securing the Partnership Note and the Guaranty are subordinate to the liens
securing the Senior Indebtedness.
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The PIK Notes bear interest payable, at Funding's option in whole or in part
in cash and through the issuance of additional PIK Notes, semi-annually at the
rate of 7% through September 30, 1994 and 13 7/8% through November 15, 2003.
After November 15, 2003, interest on the PIK Notes is payable in cash at the
rate of 13 7/8%. The PIK Notes mature on November 15, 2005. The PIK Notes may
be redeemed at Funding's option at 100% of the principal amount under certain
conditions, as described in the indenture governing the PIK Notes, and are
required to be redeemed from a specified percentage of any equity offering
which includes the Partnership. Interest has been accrued using the effective
interest method. On May 15, 1996 and November 15, 1996, the semi-annual
interest payments of $4,292,000 and $4,589,000, respectively, were paid by the
issuance of additional PIK Notes.
The PIK Notes are secured by a subordinated promissory note of the
Partnership to Funding (the "Subordinated Partnership Note"), which has been
assigned to the trustee for the PIK Notes, and the Partnership has issued a
subordinated guaranty (the "Subordinated Guaranty") of the PIK Notes. The
Subordinated Partnership Note and the Subordinated Guaranty are expressly
subordinated to the Senior Indebtedness, the Partnership Note and the
Guaranty.
Funding's Senior Notes bear interest, payable semi-annually in cash, at 11
1/2% and mature on November 15, 2000 ("Senior Notes"). Similar to the Mortgage
Notes, the Senior Notes are secured by an assignment of a promissory note of
the Partnership (the "Senior Partnership Note") which is in turn secured by a
mortgage on Trump's Castle and substantially all of the other assets of the
Partnership. In addition, the Partnership has guaranteed (the "Senior
Guaranty") the payment of the Senior Notes, which Senior Guaranty is secured
by a mortgage on Trump's Castle and substantially all of the assets of the
Partnership. The Senior Partnership Note and the Senior Guaranty are
subordinated to the Term Loan.
In the event that the PIK Notes are redeemed prior to November 15, 1998, the
interest rate of the Senior Notes will be reduced to 11 1/4%. The Senior Notes
are subject to a required partial redemption commencing on June 1, 1998 at
100% of the principal amount of the amount redeemed.
The Partnership also has the Term Loan with an outstanding principal balance
of $34,833,000 at December 31, 1996. The Term Loan has a maturity date of May
28, 2000. Interest is at a rate of 3% above the bank's prime rate, which was
8.25% at December 31, 1996, but in no event can be less than 9% per annum. The
outstanding principal amount of the Term Loan is being repaid at $158,000 per
month through May 28, 2000, at which time the entire outstanding principal
balance will be due. The Term Loan is secured by a mortgage lien on Trump's
Castle and substantially all of the other assets of the Partnership. The lien
is senior to the lien securing the Mortgage Notes and the Senior Notes. In
addition, Funding has guaranteed the payment of the Term Loan.
The terms of Term Loan, the Mortgage Notes, the PIK Notes and the Senior
Notes include limitations on the amount of additional indebtedness the
Partnership may incur, distributions of the Partnership's capital, investments
and other business activities.
ATLANTIC CITY MARKET
The Atlantic City Market has demonstrated continued growth despite the
recent proliferation of new gaming venues across the country. The 12 casino
hotels in Atlantic City generated approximately $3.81 billion in gaming
revenues in 1996, an approximately 1.7% increase over 1995 gaming revenues of
approximately $3.74 billion. From 1991 to 1996, total gaming revenues in
Atlantic City have increased approximately 29.2%, while hotel rooms increased
only slightly during that period. Although total visitor volume to Atlantic
City remained relatively constant in 1996, the volume of bus customers dropped
to 9.8 million in 1996, continuing a decline from 11.7 million in 1991. The
volume of customers traveling by other means to Atlantic City has grown from
20.1 million in 1991 to 34.0 million in 1996.
Casino revenue growth in Atlantic City has lagged behind that of other
traditional gaming markets, principally Las Vegas, for the last five years.
Management believes that this relatively slower growth is primarily
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attributable to two key factors. First, there were no significant additions to
hotel capacity in Atlantic City until 1996. Las Vegas visitor volumes have
increased, in part, due to the continued addition of new hotel capacity. Both
markets have exhibited a strong correlation between hotel room inventory and
total casino revenues. Secondly, the regulatory environment and infrastructure
problems in Atlantic City have made it more difficult and costly to operate.
Total regulatory costs and tax levies in New Jersey have exceeded those in
Nevada since inception, and there is generally a higher level of regulatory
oversight in New Jersey than in Nevada. The infrastructure problems,
manifested by impaired accessibility of the casinos, downtown Atlantic City
congestion, and the condition of the areas surrounding the casinos have made
Atlantic City less attractive to the gaming customer.
Total Atlantic City slot revenues increased 2.1% in 1996, continuing a trend
of increases over the past five years. From 1991 through 1996, slot revenue
growth in Atlantic City has averaged 7.4% per year. Total table revenue
increased 4.3% in 1996, while table game revenue from 1991 to 1996 has
decreased on average 0.4% per year. Management believes the slow growth in
table revenue is primarily attributable to two factors. First, the slot
product has been significantly improved over the last five years. Bill
acceptors, new slot machines, video poker and blackjack and other improvements
have increased the popularity of slot play among a wider universe of casino
patrons. Casino operators in Atlantic City have added slot machines in favor
of table games due to increased public acceptance of slot play and due to slot
machines' comparatively higher profitability as a result of lower labor and
support costs. Since 1991, the number of slot machines in Atlantic City has
increased 61%, while the number of table games has decreased by 5.9%. Slot
revenues increased from 58% of total casino revenues in 1991 to 69% in 1996.
The second reason for historic slow growth in table revenue is that table game
players are typically higher end players and are more likely to be interested
in overnight stays and other amenities. During peak season and weekends, room
availability in Atlantic City is currently inadequate to meet demand, making
it difficult for casino operators to aggressively promote table play.
The regulatory environment in Atlantic City has improved recently. Most
significantly, 24-hour gaming has been approved, poker and keno have been
added and regulatory burdens have been reduced. In particular, comprehensive
amendments to New Jersey gaming laws were made in January 1995, which have
eliminated duplicative regulatory oversight and channeled operator's funds
from regulatory support into uses of the New Jersey Casino Reinvestment
Authority (the "CRDA"). Administrative costs of regulation will be reduced
while increasing funds available for new development. In addition, on July 25,
1996, legislation was enacted which eliminated the requirement that a casino
consist of a "single room" in a casino hotel. A casino may now consist of "one
or more locations or rooms" approved by the CCC for casino gaming.
Atlantic City's new convention center, as currently planned, would hold
approximately 500,000 square feet of exhibit and pre-function space, 45
meeting rooms, food-service facilities and a 1,600-car underground parking
garage. When completed, the new convention center, which is estimated to cost
approximately $268 million, would be the largest exhibition space between New
York City and Washington, D.C. It will be located at the base of the Atlantic
City Expressway and is currently planned to open in May 1997. The old
convention center, built in the late 1920s and located on The Boardwalk, will
receive an approximately $58 million facelift following the opening of the new
convention center and will continue to be used for special events. The State
of New Jersey has commenced a long-term capital plan to upgrade and expand the
Atlantic City International Airport. To date, approximately $18.0 million have
been spent on renovation of the airport terminal and upgrades of the airport's
access roads and parking facilities.
In addition to the planned casino expansions, major infrastructure
improvements have begun. The CRDA is currently overseeing the development of
the "tourist corridor" that will link the new convention center with The
Boardwalk. The tourist corridor is scheduled to be completed in conjunction
with the completion of the new convention center.
Management believes that recent gaming regulatory reforms will serve to
permit future reductions in operating expenses of casinos in Atlantic City and
to increase the funds available for additional infrastructure
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development through the CRDA. Due principally to an improved regulatory
environment, general improvement of economic conditions and high occupancy
rates, significant investment in the Atlantic City market has been initiated
and/or announced. Management believes that these increases in hotel capacity,
together with infrastructure improvements, will be instrumental in stimulating
future revenue growth in the Atlantic City Market. See "--Competition."
COMPETITION
Atlantic City. Competition in the Atlantic City casino hotel market is
intense. Trump's Castle competes with other casino hotels located in Atlantic
City, including with the Trump Plaza Hotel and Casino ("Trump Plaza") and the
Trump Taj Mahal Casino Resort (the "Taj Mahal") which are under the common
ownership of THCR Holdings and with each other. At present, there are 12
casino hotels located in Atlantic City, including Trump's Castle, Trump Plaza
and the Taj Mahal, all of which compete for patrons. Trump's Castle primarily
competes with other Atlantic City casinos by, among other things, providing
superior products and facilities, premier locations, name recognition and
targeted marketing strategies. In addition, there are several sites on The
Boardwalk and in the Marina area on which casino hotels could be built in the
future and various applications for casino licenses have been filed and
announcements with respect thereto made from time to time. Substantial new
expansion and development activity has recently been completed or has been
announced in Atlantic City, which may intensify competitive pressures in the
Atlantic City Market. While management believes that the addition of hotel
capacity would be beneficial to the Atlantic City Market generally, there can
be no assurance that such expansion would not be materially disadvantageous to
Trump's Castle. There also can be no assurance that the Atlantic City
development projects which are planned or underway will be completed.
Trump's Castle also competes, or will compete, with facilities in the
northeastern and mid-Atlantic regions of the United States at which casino
gaming or other forms of wagering are currently, or in the future may be,
authorized. To a lesser extent, Trump's Castle faces competition from gaming
facilities nationwide, including land-based, cruise line, riverboat and
dockside casinos located in Colorado, Illinois, Indiana, Iowa, Louisiana,
Mississippi, Missouri, Nevada, South Dakota, Ontario (Windsor and Niagara
Falls), the Bahamas, Puerto Rico and other locations inside and outside the
United States, and from other forms of legalized gaming in New Jersey and in
its surrounding states such as lotteries, horse racing (including off-track
betting), jai alai, bingo and dog racing, and from illegal wagering of various
types. New or expanded operations by other persons can be expected to increase
competition and could result in the saturation of certain gaming markets. In
September 1995, New York introduced a keno lottery game, which is played on
video terminals that have been set up in approximately 1,800 bars, restaurants
and bowling alleys across the state. In December 1996, Bay Cruises began
operation of a gambling cruise ship where patrons are taken from a pier in
Sheepshead Bay in Brooklyn, New York to international waters to gamble. The
City of New York allowed the cruises to continue after the operators agreed to
pay city taxes and submit employees to background checks. Similar gambling
cruises are expected in the near future. In Delaware, slot machines were
installed at horse tracks in 1996, and track owners in several other states
are seeking to do the same. In December 1996, Casino Niagara opened in Niagara
Falls, Ontario. Ontario officials expect that two-thirds of Casino Niagara's
patrons will come from the United States, predominantly from western New York.
In addition to competing with other casino hotels in Atlantic City and
elsewhere, by virtue of their proximity to each other and the common aspects
of certain of their respective marketing efforts, including the common use of
the "Trump" name, Trump's Castle competes directly with Trump Plaza and the
Taj Mahal for gaming patrons.
Other Competition. In addition, Trump's Castle faces competition from casino
facilities in a number of states operated by federally recognized Native
American tribes. Pursuant to the Indian Gaming Regulatory Act ("IGRA"), which
was passed by Congress in 1988, any state which permits casino-style gaming
(even if only for limited charity purposes) is required to negotiate gaming
compacts with federally recognized Native American tribes. Under IGRA, Native
American tribes enjoy comparative freedom from regulation and taxation of
gaming operations, which provides them with an advantage over their
competitors, including Trump's Castle.
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In March 1996, the United States Supreme Court struck down a provision of IGRA
which allowed Native American tribes to sue states in federal court for
failing to negotiate gaming compacts in good faith. Management cannot predict
the impact of this decision on the ability of Native American tribes to
negotiate compacts with states.
In 1991, the Mashantucket Pequot Nation opened Foxwoods Casino Resort
("Foxwoods"), a casino facility in Ledyard, Connecticut, located in the far
eastern portion of such state, an approximately three-hour drive from New York
City and an approximately two and one-half hour drive from Boston, which
currently offers 24-hour gaming and contains over 4,000 slot machines. The
Mashantucket Pequot Nation has announced various expansion plans, including
its intention to build another casino in Ledyard together with hotels,
restaurants and a theme park. In addition, in October 1996, the Mohegan Nation
opened the Mohegan Sun Resort in Uncasville, Connecticut, located 10 miles
from Foxwoods. Developed by Sun International Hotels, Ltd., the Mohegan Sun
has 75% of the gaming capacity of Foxwoods. In addition, the Eastern Pequots
are seeking formal recognition as a Native American tribe for the purpose of
opening a casino. There can be no assurance that any continued expansion of
gaming operations by the Mashantucket Pequot Nation or that the commencement
of gaming operations by the Mohegan Nation or the Eastern Pequots would not
have a materially adverse impact on the operations of the Atlantic City
Properties.
A group in Cumberland County, New Jersey calling itself the "Nanticoke Lenni
Lenape" tribe has filed a notice of intent with the Bureau of Indian Affairs
seeking formal federal recognition as a Native American tribe. Also, it has
been reported that a Sussex County, New Jersey businessman has offered to
donate land he owns there to the Oklahoma-based Lenape/Delaware Indian Nation
which originated in New Jersey and already has federal recognition, but does
not have a reservation in New Jersey. The Lenape/Delaware Indian Nation has
signed an agreement with the town of Wildwood, New Jersey to open a casino;
however, the plan requires federal and state approval in order to proceed. In
July 1993, the Oneida Nation opened a casino featuring 24-hour table gaming
and electronic gaming systems, but without slot machines, near Syracuse, New
York, and has announced an intention to open expanded gaming facilities.
Representatives of the St. Regis Mohawk Nation signed a gaming compact with
New York State officials for the opening of a casino, without slot machines,
in the northern portion of the state close to the Canadian border. The St.
Regis Mohawks have also announced their intent to open a casino at the
Monticello Race Track in the Catskill Mountains region of New York; however,
any Native American gaming operation in the Catskills is subject to the
approval of the Governor of New York. The Narragansett Nation of Rhode Island,
which has federal recognition, is seeking to open a casino in Rhode Island.
The Gay Head Wampanoag Tribe is seeking to open a casino in New Bedford,
Massachusetts. Other Native American nations are seeking federal recognition,
land and negotiation of gaming compacts in New York, Pennsylvania, Connecticut
and other states near Atlantic City.
State Legislation. Legislation permitting other forms of casino gaming has
been proposed, from time to time, in various states, including those bordering
New Jersey. Six states have presently legalized riverboat gambling while
others are considering its approval, including New York and Pennsylvania, and
New York City is considering a plan under which it would be the embarking
point for gambling cruises into international waters three miles offshore.
Several states are considering or have approved large scale land-based
casinos. Additionally, since 1993, the gaming space in Las Vegas has expanded
significantly, with additional capacity planned and currently under
construction. The operations of Trump's Castle could be adversely affected by
such competition, particularly if casino gaming were permitted in
jurisdictions near or elsewhere in New Jersey or in other states in the
Northeast. In December 1993, the Rhode Island Lottery Commission approved the
addition of slot machine games on video terminals at Lincoln Greyhound Park
and Newport Jai Alai, where poker and blackjack have been offered for over two
years. Currently, casino gaming, other than Native American gaming, is not
allowed in other areas of New Jersey or in Connecticut, New York or
Pennsylvania. On November 17, 1995, a proposal to allow casino gaming in
Bridgeport, Connecticut was voted down by that state's Senate. On January 28,
1997, the New York State Senate rejected a constitutional amendment to
legalize casino gambling in certain areas of New York State, effectively
postponing any new gambling constitutional amendment until 1999. To the extent
that legalized gaming becomes more prevalent in New Jersey or other
jurisdictions near Atlantic
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City, competition would intensify. In particular, proposals have been
introduced to legalize gaming in other locations, including Philadelphia,
Pennsylvania. In addition, legislation has from time to time been introduced
in the New Jersey State Legislature relating to types of statewide legalized
gaming, such as video games with small wagers. To date, no such legislation,
which may require a state constitutional amendment, has been enacted.
Management is unable to predict whether any such legislation, in New Jersey or
elsewhere, will be enacted or whether, if passed, it would have a material
adverse impact on the Partnership.
GAMING AND OTHER LAWS AND REGULATIONS
The following is only a summary of the applicable provisions of the Casino
Control Act and certain other laws and regulations. It does not purport to be
a full description thereof and is qualified in its entirety by reference to
the Casino Control Act and such other laws and regulations.
NEW JERSEY GAMING REGULATIONS
In general, the Casino Control Act and its implementing regulations contain
detailed provisions concerning, among other things: the granting and renewal
of casino licenses; the suitability of the approved hotel facility, and the
amount of authorized casino space and gaming units permitted therein; the
qualification of natural persons and entities related to the casino licensee;
the licensing of certain employees and vendors of casino licensees; the rules
of the games; the selling and redeeming of gaming chips; the granting and
duration of credit and the enforceability of gaming debts; management control
procedures, accounting and cash control methods and reports to gaming
agencies; the security standards; the manufacture and distribution of gaming
equipment; the simulcasting of horse races by casino licensees; equal
employment opportunities for employees of casino operators, contractors of
casino facilities and others; and advertising, entertainment and alcoholic
beverages.
Casino Control Commission. The ownership and operation of casino/hotel
facilities in Atlantic City are the subject of strict state regulation under
the Casino Control Act. The CCC is empowered to regulate a wide spectrum of
gaming and non-gaming related activities and to approve the form of ownership
and financial structure of not only a casino licensee, but also its entity
qualifiers and intermediary and holding companies and any other related entity
required to be qualified ("CCC Regulations").
Operating Licenses. In June 1995, the CCC renewed the Partnership's casino
license and approved Trump as a natural person qualifier through May 1999.
This license is not transferable and its renewal will include a financial
review of the Partnership. Upon revocation, suspension for more than 120 days
or failure to renew a casino license, the Casino Control Act provides for the
appointment of a conservator to take possession of the hotel and casino's
business and property, subject to all valid liens, claims and encumbrances.
Casino License. No casino hotel facility may operate unless the appropriate
license and approvals are obtained from the CCC, which has broad discretion
with regard to the issuance, renewal, revocation, and suspension of such
licenses and approvals, which are non-transferable. The qualification criteria
with respect to the holder of a casino license include its financial
stability, integrity and responsibility; the integrity and adequacy of its
financial resources which bear any relation to the casino project; its good
character, honesty, and integrity; and the sufficiency of its business ability
and casino experience to establish the likelihood of a successful, efficient
casino operation. The casino license currently held by the Partnership is
renewable for periods of up to four years. The CCC may reopen licensing
hearings at any time, and must reopen a licensing hearing at the request of
the Division of Gaming Enforcement (the "Division").
Each casino license entitles the holder to operate one casino. Further, no
person may be the holder of a casino license if the holding of such license
will result in undue economic concentration in Atlantic City casino operations
by that person. On May 17, 1995, the CCC adopted a regulation defining the
criteria for determining undue economic concentration which codifies the
content of existing CCC precedent with respect to the subject.
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To be considered financially stable, a licensee must demonstrate the
following ability: to pay winning wagers when due; to achieve an annual gross
operating profit; to pay all local, state, and federal taxes when due; to make
necessary capital and maintenance expenditures to insure that it has a
superior first-class facility, and; to pay, exchange, refinance or extend
debts which will mature or become due and payable during the license term.
In the event a licensee fails to demonstrate financial stability, the CCC
may take such action as it deems necessary to fulfill the purposes of the
Casino Control Act and protect the public interest, including: issuing
conditional licenses, approvals, or determinations; establishing an
appropriate cure period; imposing reporting requirements; placing restrictions
on the transfer of cash or the assumption of liability; requiring reasonable
reserves or trust accounts; denying licensure; or appointing a conservator.
See "--Conservatorship".
Management believes that it has adequate financial resources to meet the
financial stability requirements of the CCC for the foreseeable future.
Pursuant to the Casino Control Act, CCC Regulations and precedent, no entity
may hold a casino license unless each officer, director, principal employee,
person who directly or indirectly holds any beneficial interest or ownership
in the licensee, each person who in the opinion of the CCC has the ability to
control or elect a majority of the board of directors of the licensee (other
than a banking or other licensed lending institution which makes a loan or
holds a mortgage or other lien acquired in the ordinary course of business)
and any lender, underwriter, agent or employee of the licensee or other person
whom the CCC may consider appropriate, obtains and maintains qualification
approval from the CCC. Qualification approval means that such person must, but
for residence, individually meet the qualification requirements as a casino
key employee. Pursuant to a condition of the Partnership's casino license,
payments by the Partnership to or for the benefit of any related entity or
partner, with certain exceptions, are subject to prior CCC approval and, if
the Partnership's cash position falls below $5.0 million for three consecutive
business days, it must present to the CCC and the Division evidence as to why
it should not obtain a working capital facility in an appropriate amount.
Control Persons. An entity qualifier or intermediary or holding company,
such as Funding, is required to register with the CCC and meet the same basic
standards for approval as a casino licensee; provided, however, that the CCC,
with the concurrence of the Director of the Division, may waive compliance by
a publicly-traded corporate holding company with the requirement that an
officer, director, lender, underwriter, agent or employee thereof, or person
directly or indirectly holding a beneficial interest or ownership of the
securities thereof, individually qualify for approval under casino key
employee standards so long as the CCC and the Director of the Division are,
and remain, satisfied that such officer, director, lender, underwriter, agent
or employee is not significantly involved in the activities of the casino
licensee, or that such security holder does not have the ability to control
the publicly-traded corporate holding company or elect one or more of its
directors. Persons holding five percent or more of the equity securities of
such holding company are presumed to have the ability to control the company
or elect one or more of its directors and will, unless this presumption is
rebutted, be required to individually qualify. Equity securities are defined
as any voting stock or any security similar to or convertible into or carrying
a right to acquire any security having a direct or indirect participation in
the profits of the issuer.
Financial Sources. The CCC may require all financial backers, investors,
mortgagees, bond holders and holders of notes or other evidence of
indebtedness, either in effect or proposed, which bear any relation to any
casino project, including holders of publicly-traded securities of an entity
which holds a casino license or is an entity qualifier, subsidiary or holding
company of a casino licensee (a "Regulated Company"), to qualify as financial
sources. In the past, the CCC has waived the qualification requirement for
holders of less than 15% of the Mortgage Notes and the PIK Notes so long as
the bonds remained widely distributed and freely traded in the public market
and the holder had no ability to control the casino licensee. The CCC has, in
the past, ruled that the publicly-traded Mortgage Notes and PIK Notes are
widely-distributed and freely-traded in the public market. The CCC may require
holders of less than 15% of a series of debt to qualify as financial sources
even if not active in the management of the issuer or the casino licensee.
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Institutional Investors. An institutional investor ("Institutional
Investor") is defined by the Casino Control Act as any retirement fund
administered by a public agency for the exclusive benefit of federal, state or
local public employees; any investment company registered under the Investment
Company Act of 1940, as amended; any collective investment trust organized by
banks under Part Nine of the Rules of the Comptroller of the Currency; any
closed end investment trust; any chartered or licensed life insurance company
or property and casualty insurance company; any banking and other chartered or
licensed lending institution; any investment advisor registered under the
Investment Advisers Act of 1940, as amended; and such other persons as the CCC
may determine for reasons consistent with the policies of the Casino Control
Act.
An Institutional Investor may be granted a waiver by the CCC from financial
source or other qualification requirements applicable to a holder of publicly-
traded securities, in the absence of a prima facie showing by the Division
that there is any cause to believe that the holder may be found unqualified,
on the basis of CCC findings that: (i) its holdings were purchased for
investment purposes only and, upon request by the CCC, it files a certified
statement to the effect that it has no intention of influencing or affecting
the affairs of the issuer, the casino licensee or its holding or intermediary
companies; provided, however, that the Institutional Investor will be
permitted to vote on matters put to the vote of the outstanding security
holders; and (ii) if (x) the securities are debt securities of a casino
licensee's holding or intermediary companies or another subsidiary company of
the casino licensee's holding or intermediary companies which is related in
any way to the financing of the casino licensee and represent either (A) 20%
or less of the total outstanding debt of the company or (B) 50% or less of any
issue of outstanding debt of the company, (y) the securities are equity
securities and represent less than 10% of the equity securities of a casino
licensee's holding or intermediary companies or (z) the securities so held
exceed such percentages, upon a showing of good cause. There can be no
assurance, however, that the CCC will make such findings or grant such waiver
and, in any event, an Institutional Investor may be required to produce for
the CCC or the Antitrust Division of the Department of Justice upon request,
any document or information which bears any relation to such debt or equity
securities.
Generally, the CCC requires each institutional holder seeking waiver of
qualification to execute a certification to the effect that (i) the holder has
reviewed the definition of Institutional Investor under the Casino Control Act
and believes that it meets the definition of Institutional Investor; (ii) the
holder purchased the securities for investment purposes only and holds them in
the ordinary course of business; (iii) the holder has no involvement in the
business activities of and no intention of influencing or affecting, the
affairs of the issuer, the casino licensee or any affiliate; and (iv) if the
holder subsequently determines to influence or affect the affairs of the
issuer, the casino licensee or any affiliate, it shall provide not less than
30 days' prior notice of such intent and shall file with the CCC an
application for qualification before taking any such action. If an
Institutional Investor changes its investment intent, or if the CCC finds
reasonable cause to believe that it may be found unqualified, the
Institutional Investor may take no action with respect to the security
holdings, other than to divest itself of such holdings, until it has applied
for interim casino authorization and has executed a trust agreement pursuant
to such an application. See "--Interim Casino Authorization."
Ownership and Transfer of Securities. The Casino Control Act imposes certain
restrictions upon the issuance, ownership, and transfer of securities of a
Regulated Company, and defines the term "security" to include instruments
which evidence a direct or indirect beneficial ownership or creditor interest
in a Regulated Company including, but not limited to, mortgages, debentures,
security agreements, notes, and warrants. Currently, each of Funding and the
Partnership is deemed to be a Regulated Company, and instruments evidencing a
beneficial ownership or creditor interest therein, including partnership
interest, are deemed to be the securities of a Regulated Company.
If the CCC finds that a holder of such securities is not qualified under the
Casino Control Act, it has the right to take any remedial action it may deem
appropriate, including the right to force divestiture by such disqualified
holder of such securities. In the event that certain disqualified holders fail
to divest themselves of such securities, the CCC has the power to revoke or
suspend the casino license affiliated with the Regulated Company which issued
the securities. If a holder is found unqualified, it is unlawful for the
holder (i) to exercise,
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directly or through any trustee or nominee, any right conferred by such
securities or (ii) to receive any dividends or interest upon any such
securities or any remuneration, in any form, from its affiliated casino
licensee for services rendered or otherwise.
With respect to non-publicly-traded securities, the Casino Control Act and
CCC Regulations require that the corporate charter or partnership agreement of
a Regulated Company establish a right in the CCC of prior approval with regard
to transfers of securities, shares and other interests and an absolute right
in the Regulated Company to repurchase at the market price or the purchase
price, whichever is the lesser, any such security, share, or other interest in
the event that the CCC disapproves a transfer. With respect to publicly-traded
securities, such corporate charter or partnership agreement is required to
establish that any such securities of the entity are held subject to the
condition that, if a holder thereof is found to be disqualified by the CCC,
such holder shall dispose of such securities.
Under the terms of the indentures pursuant to which the Senior Notes, the
Mortgage Notes, and the PIK Notes were issued, if a holder of such securities
does not qualify under the Casino Control Act when required to do so, such
holder must dispose of its interest in such securities and the Partnership and
Funding may redeem the securities at the lesser of the outstanding amount or
fair market value.
Interim Casino Authorization. Interim casino authorization is a process
which permits a person who enters into a contract to obtain property relating
to a casino operation or who obtains publicly-traded securities relating to a
casino licensee to close on the contract or own the securities until plenary
licensure or qualification. During the period of interim casino authorization,
the property relating to the casino operation or the securities is held in
trust.
Whenever any person enters into a contract to transfer any property which
relates to an ongoing casino operation, including a security of the casino
licensee or a holding or intermediary company or entity qualifier, under
circumstances which would require that the transferee obtain licensure or be
qualified under the Casino Control Act, and that person is not already
licensed or qualified, the transferee is required to apply for interim casino
authorization. Furthermore, except as set forth below with respect to
publicly-traded securities, the closing or settlement date in the contract at
issue may not be earlier than the 121st day after the submission of a complete
application for licensure or qualification together with a fully executed
trust agreement in a form approved by the CCC. If, after the report of the
Division and a hearing by the CCC, the CCC grants interim authorization, the
property will be subject to a trust. If the CCC denies interim authorization,
the contract may not close or settle until the CCC makes a determination on
the qualifications of the applicant. If the CCC denies qualification, the
contract will be terminated for all purposes and there will be no liability on
the part of the transferor.
If, as the result of a transfer of publicly-traded securities of a licensee,
a holding or intermediary company or entity qualifier of a licensee, or a
financing entity of a licensee, any person is required to qualify under the
Casino Control Act, that person is required to file an application for
licensure or qualification within 30 days after the CCC determines that
qualification is required or declines to waive qualification. The application
must include a fully executed trust agreement in a form approved by the CCC
or, in the alternative, within 120 days after the CCC determines that
qualification is required, the person whose qualification is required must
divest such securities as the CCC may require in order to remove the need to
qualify.
The CCC may grant interim casino authorization where it finds by clear and
convincing evidence that: (i) statements of compliance have been issued
pursuant to the Casino Control Act; (ii) the casino hotel is an approved hotel
in accordance with the Casino Control Act; (iii) the trustee satisfies
qualification criteria applicable to key casino employees, except for
residency; and (iv) interim operation will best serve the interests of the
public.
When the CCC finds the applicant qualified, the trust will terminate. If the
CCC denies qualification to a person who has received interim casino
authorization, the trustee is required to endeavor, and is authorized, to
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<PAGE>
sell, assign, convey or otherwise dispose of the property subject to the trust
to such persons who are licensed or qualified or shall themselves obtain
interim casino authorization.
Where a holder of publicly-traded securities is required, in applying for
qualification as a financial source or qualifier, to transfer such securities
to a trust in application for interim casino authorization and the CCC
thereafter orders that the trust become operative: (i) during the time the
trust is operative, the holder may not participate in the earnings of the
casino hotel or receive any return on its investment or debt security
holdings; and (ii) after disposition, if any, of the securities by the
trustee, proceeds distributed to the unqualified holder may not exceed the
lower of their actual cost to the unqualified holder or their value calculated
as if the investment had been made on the date the trust became operative.
Approved Hotel Facilities. The CCC may permit an existing licensee, such as
the Partnership, to increase its casino space if the licensee agrees to add a
prescribed number of qualifying sleeping units within two years after the
commencement of gaming operations in the additional casino space. However, if
the casino licensee does not fulfill such agreement due to conditions within
its control, the licensee will be required to close the additional casino
space, or any portion thereof that the CCC determines should be closed.
Persons who are parties to the lease for an approved hotel building or who
have an agreement to lease a building which may in the judgment of the CCC
become an approved hotel building are required to hold a casino
license unless the CCC, with the concurrence of the Attorney General of the
State of New Jersey, determines that such persons do not have the ability to
exercise significant control over the building or the operation of the casino
therein.
Unless otherwise determined by the CCC, agreements to lease an approved
hotel building or the land under the building must be for a durational term
exceeding 30 years, must concern 100% of the entire approved hotel building or
the land upon which it is located and must include a buy-out provision
conferring upon the lessee the absolute right to purchase the lessor's entire
interest for a fixed sum in the event that the lessor is found by the CCC to
be unsuitable.
Agreement for Management of Casino. Each party to an agreement for the
management of a casino is required to hold a casino license, and the party who
is to manage the casino must own at least 10% of all the outstanding equity
securities of the casino licensee. Such an agreement shall: (i) provide for
the complete management of the casino; (ii) provide for the unrestricted power
to direct the casino operations; and (iii) provide for a term long enough to
ensure the reasonable continuity, stability and independence and management of
the casino.
License Fees. The CCC is authorized to establish annual fees for the renewal
of casino licenses. The renewal fee is based upon the cost of maintaining
control and regulatory activities prescribed by the Casino Control Act, and
may not be less than $200,000 for a four-year casino license. Additionally,
casino licensees are subject to potential assessments to fund any annual
operating deficits incurred by the CCC or the Division. There is also an
annual license fee of $500 for each slot machine maintained for use or in use
in any casino.
Gross Revenue Tax. Each casino licensee is also required to pay an annual
tax of 8% on its gross casino revenues. For the years ended December 31, 1994,
1995, and 1996, the Partnership's gross revenue tax was approximately $20.9
million, $21.9 million and $19.9 million, respectively, and its license,
investigation and other fees and assessments totaled approximately $3.3
million, $3.8 million and $4.0 million, respectively.
Investment Alternative Tax Obligations. An investment alternative tax
imposed on the gross casino revenues of each licensee in the amount of 2.5% is
due and payable on the last day of April following the end of the calendar
year. A licensee is obligated to pay the investment alternative tax for a
period of 30 years. Estimated payments of the investment alternative tax
obligation must be made quarterly in an amount equal to 1.25% of estimated
gross revenues for the preceding three-month period. Investment tax credits
may be obtained by
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<PAGE>
making qualified investments or by the purchase of bonds issued by the CRDA
("CRDA Bonds"). CRDA Bonds may have terms as long as 50 years and bear
interest at below market rates, resulting in a value lower than the face value
of such CRDA Bonds.
For the first ten years of its tax obligation, the licensee is entitled to
an investment tax credit against the investment alternative tax in an amount
equal to twice the purchase price of the CRDA Bonds issued to the licensee.
Thereafter, the licensee (i) is entitled to an investment tax credit in an
amount equal to twice the purchase price of such CRDA Bonds or twice the
amount of its investments authorized in lieu of such bond investments or made
in projects designated as eligible by the CRDA and (ii) has the option of
entering into a contract with the CRDA to have its tax credit comprised of
direct investments in approved eligible projects which may not comprise more
than 50% of its eligible tax credit in any one year.
From the monies made available to the CRDA, the CRDA is required to set
aside $100 million for investment in hotel development projects in Atlantic
City undertaken by a licensee which result in the construction or
rehabilitation of at least 200 hotel rooms. These monies will be held to fund
up to 35% of the cost to casino licensees of expanding their hotel facilities
to provide additional hotel rooms, a portion of which will be required to be
available upon the opening of the new Atlantic City convention center and
dedicated to convention events. The CRDA has determined at this time that
eligible casino licensees will receive up to 27% of the cost of additional
hotel rooms out of these monies set aside and may, in the future, increase the
percentage to no greater than 35%.
Minimum Casino Parking Charges. As of July 1, 1993, each casino licensee was
required to pay the New Jersey State Treasurer a $1.50 charge for every use of
a parking space for the purpose of parking motor vehicles in a parking
facility owned or leased by a casino licensee or by any person on behalf of a
casino licensee. This amount is paid into a special fund established and held
by the New Jersey State Treasurer for the exclusive use of the CRDA. The
Partnership currently charges its parking patrons $2.00 in order to make its
required payments to the New Jersey State Treasurer and cover related
expenses. Amounts in the special fund will be expended by the CRDA for
eligible projects in the corridor region of Atlantic City related to improving
the highways, roads, infrastructure, traffic regulation and public safety of
Atlantic City or otherwise necessary or useful to the economic development and
redevelopment of Atlantic City in this regard.
Atlantic City Fund. On each October 31 during the years 1996 through 2003,
each casino licensee shall pay into an account established in the CRDA and
known as the Atlantic City Fund, its proportional share of an amount related
to the amount by which annual operating expenses of the CCC and the Division
are less than a certain fixed sum. Additionally, a portion of the investment
alternative tax obligation of each casino licensee for the years 1994 through
1998 allocated for projects in northern New Jersey shall be paid into and
credited to the Atlantic City Fund. Amounts in the Atlantic City Fund will be
expended by the CRDA for economic development projects of a revenue producing
nature that foster the redevelopment of Atlantic City other than the
construction and renovation of casino hotels.
Conservatorship. If, at any time, it is determined that TCHI, Funding, the
Partnership or any other entity qualifier has violated the Casino Control Act
or that any of such entities cannot meet the qualification requirements of the
Casino Control Act, such entity could be subject to fines or the suspension or
revocation of its license or qualification. If the Partnership's license is
suspended for a period in excess of 120 days or is revoked, or if the CCC
fails or refuses to renew such casino license, the CCC could appoint a
conservator to operate or dispose of the Partnership's casino hotel
facilities. A conservator would be vested with title to all property of the
Partnership relating to the casino and the approved hotel subject to valid
liens and/or encumbrances. The conservator would be required to act under the
direct supervision of the CCC and would be charged with the duty of
conserving, preserving, and, if permitted, continuing the operation of the
casino hotel. During the period of the conservatorship, a former or suspended
casino licensee is entitled to a fair rate of return out of net earnings, if
any, on the property retained by the conservator. The CCC may also discontinue
any conservatorship action and direct the conservator to take such steps as
are necessary to effect an orderly transfer
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<PAGE>
of the property of a former or suspended casino licensee. Such events could
result in an event of default under the indentures pursuant to which the
Senior Notes, the Mortgage Notes and the PIK Notes were issued.
Qualification of Employees. Certain employees of the Partnership must be
licensed by or registered with the CCC, depending on the nature of the
position held. Casino employees are subject to more stringent requirements
than non-casino employees and must meet applicable standards pertaining to
financial stability, integrity and responsibility, good character, honesty and
integrity, business ability and casino experience and New Jersey residency.
These requirements have resulted in significant competition among Atlantic
City casino operators for the services of qualified employees.
Gaming Credit. The Partnership's casino games are conducted on a credit as
well as a cash basis. Gaming debts arising in Atlantic City in accordance with
applicable regulations are enforceable in the courts of the State of New
Jersey. The extension of gaming credit is subject to regulations that detail
procedures which casinos must follow when granting gaming credit and recording
counter checks which have been exchanged, redeemed, or consolidated.
Control Procedures. Gaming at Trump's Castle is conducted by trained and
supervised personnel. The Partnership employs extensive security and internal
controls. Security checks are made to determine, among other matters, that job
applicants for key positions have had no criminal history or associations.
Security controls utilized by the surveillance department include closed
circuit video cameras to monitor the casino floor and money counting areas.
The count of moneys from gaming is also observed daily by representatives of
the CCC.
OTHER LAWS AND REGULATIONS
The United States Department of the Treasury (the "Treasury") has adopted
regulations pursuant to which a casino is required to file a report of each
deposit, withdrawal, exchange of currency, gambling tokens or chips, or other
payments or transfers by, through or to such casino which involves a
transaction in currency of more than $10,000 per patron, per gaming day. Such
reports are required to be made on forms prescribed by the Secretary of the
Treasury and are filed with the Internal Revenue Service (the "Service"). In
addition, the Partnership is required to maintain detailed records (including
the names, addresses, social security numbers and other information with
respect to its gaming customers) dealing with, among other items, the deposit
and withdrawal of funds and the maintenance of a line of credit.
In the past, the Service had taken the position that gaming winnings from
table games by nonresident aliens were subject to a 30% withholding tax. The
Service, however, subsequently adopted a practice of not collecting such tax.
Recently enacted legislation exempts from withholding tax table game winnings
by nonresident aliens, unless the Secretary of the Treasury determines by
regulation that such collections have become administratively feasible.
The Partnership is subject to other federal, state, and local regulations
and, on a periodic basis, must obtain various licenses and permits, including
those required to sell alcoholic beverages in the State of New Jersey as well
as in other jurisdictions. Management believes all required licenses and
permits necessary to conduct its business have been obtained for operations in
New Jersey.
ITEM 2. PROPERTIES.
The Casino Parcel. Trump's Castle is located in the Marina on an
approximately 14.7 acre triangular-shaped parcel of land, which is owned by
the Partnership in fee, located at the intersection of Huron Avenue and
Brigantine Boulevard directly across from the Marina, approximately two miles
from The Boardwalk.
Trump's Castle has approximately 76,100 square-feet of gaming space which
accommodates 93 table games (including 6 poker tables), 2,339 slot machines
and race simulcasting facilities. In addition to the casino, Trump's Castle
consists of a 27-story hotel with 728 guest rooms, including 185 suites, of
which 99 are "Crystal Tower"
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<PAGE>
luxury suites. Renovation of 300 of the guest rooms was completed in 1995 and
210 additional guest rooms were renovated in 1996. The facility also offers
eight restaurants, a 460-seat cabaret theater, two cocktail lounges, 58,000
square-feet of convention, ballroom and meeting space, a swimming pool, tennis
courts and a sports and health club facility. Trump's Castle has been designed
so that it can be enlarged in phases into a facility containing 2,000 rooms
and a 1,600-seat cabaret theater. Trump's Castle also has a nine-story garage
providing on-site parking for approximately 3,000 vehicles and a helipad which
is located atop the parking garage, making Trump's Castle the only Atlantic
City casino with access by land, sea and air.
During 1995 and 1996, Trump's Castle replaced over 46% of the slot machines
on its casino floor with new, more popular models and upgraded its
computerized slot tracking and slot marketing system. In 1994, Trump's Castle
added 153 slot machines, completed a 3,000 square-foot expansion to its casino
which enabled Trump's Castle to accommodate the addition of simulcast race
track wagering and expended in excess of $2 million on renovations to its
hotel facility. The casino expansion also increased casino access and casino
visibility for hotel patrons. In 1993, Trump's Castle completed the
construction of a Las Vegas-style marquee and reader board, the largest of its
kind on the East Coast.
The Marina. Pursuant to an agreement with the New Jersey Division of Parks
and Forestry (the "Marina Agreement"), the Partnership in 1987 began operating
and renovating the marina at the Marina, including docks containing
approximately 645 slips. An elevated pedestrian walkway connecting Trump's
Castle to a two-story building at the marina was completed in 1989. The
Partnership constructed the two-story building, which contains a 240-seat
restaurant and offices as well as a snack bar and a large nautical theme
retail store. Pursuant to the Marina Agreement and a certain lease between the
State of New Jersey, as landlord, and the Partnership, as tenant, dated as of
September 1, 1990 (the "Marina Lease"), the Partnership commenced leasing the
marina and the improvements thereon for an initial term of twenty-five years.
The Marina Lease is a net lease pursuant to which the Partnership, in addition
to the payment of annual rent equal to the greater of (i) a certain percentage
of gross revenues of the Partnership from operation of the marina during the
lease year and (ii) minimum base rent of $300,000 annually (increasing every
five years to $500,000 in 2011), is responsible for all costs and expenses
related to the premises, including but not limited to, all maintenance and
repair costs, insurance premiums, real estate taxes, assessments and utility
charges. Any improvements made to the marina (which is owned by the State of
New Jersey), excluding the elevated pedestrian walkway, automatically become
the property of the State of New Jersey upon their completion. It is
anticipated that the Marina Lease will be renegotiated in connection with the
Trump's Castle Expansion.
The Parking Parcel. The Partnership also owns an employee parking lot
located on Route 30, approximately two miles from Trump's Castle, which can
accommodate approximately 1,000 cars.
ITEM 3. LEGAL PROCEEDINGS.
The Partnership, its partners, certain members of the former Executive
Committee, Funding, and certain of their employees are involved in various
legal proceedings. Such persons and entities are rigorously defending the
allegations against them and intend to contest vigorously any future
proceedings. The Partnership and Funding have agreed to indemnify such persons
against any and all losses, claims, damages, expenses (including reasonable
costs, disbursements and counsel fees) and liabilities (including amounts paid
or incurred in satisfaction of settlements, judgments, fines and penalties)
incurred by them in said legal proceedings.
On August 14, 1996, certain stockholders of THCR filed two derivative
actions in the Court of Chancery in Delaware (Civil Action Nos. 15148 and
15160) (the "Delaware cases") against each of the members of the Board of
Directors of THCR, THCR, THCR Holdings, the Partnership and TCI-II. The
plaintiffs claim that the directors of THCR breached their fiduciary duties in
connection with the Castle Acquisition by purchasing those interests at an
excessive price in a self-dealing transaction. The complaint sought to enjoin
the transaction, and also sought damages and an accounting. The injunction was
never pursued.
On October 16, 1996, a stockholder of THCR filed a derivative action in the
United States District Court, Southern District of New York (96 Civ. 7820)
against each member of the Board of Directors of THCR, THCR,
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THCR Holdings, the Partnership, Trump Casinos, Inc. ("TCI"), TCI-II, TCHI and
Salomon Brothers Inc ("Salomon"). The plaintiff claims that certain of the
defendants breached their fiduciary duties and engaged in ultra vires acts in
connection with the Castle Acquisition and that Salomon was negligent in the
issuance of its fairness opinion with respect to the Castle Acquisition. The
plaintiff also alleges violations of the federal securities laws for alleged
omissions and misrepresentations in THCR's proxies, and that Trump, TCI-II and
TCHI breached the acquisition agreement by supplying THCR with untrue
information for inclusion in the proxy statement delivered to THCR's
stockholders in connection with the Castle Acquisition. The plaintiff seeks
removal of the directors of THCR, an injunction rescission and damages.
The Delaware cases were recently dismissed in Delaware and amended and
refiled in the Southern District of New York. These cases have subsequently
been consolidated with the federal action for all purposes, including pretrial
proceedings and trial. On or about January 17, 1997, the plaintiffs filed
their Consolidated Amended Derivative Complaint (the "First Amended
Complaint"), reflecting the consolidation. On or about March 24, 1997, the
plaintiffs filed their Second Consolidated Amended Derivative Complaint (the
"Second Amended Complaint"). In addition to the allegations made in the First
Amended Complaint, the Second Amended Complaint claims that certain of the
defendants breached their fiduciary duties and wasted corporate assets in
connection with the previously contemplated transaction with Colony Capital.
The Second Amended Complaint also includes claims against Colony Capital for
aiding and abetting certain of those violations. In addition to the relief
sought in the First Amended Complaint, the Second Amended Complaint sought to
enjoin the previously contemplated transaction with Colony Capital or, if it
was effectuated, to rescind it. On March 27, 1996 THCR and Colony Capital
mutually agreed to end negotiations with respect to such transaction. THCR and
at least certain other defendants intend to move to dismiss the action
shortly.
The Partnership believes that the suits are without merit and intend to
contest vigorously the allegations against them. At this early stage, however,
no opinion can be expressed as to the likely outcome of these actions.
On March 13, 1997, THCR filed a lawsuit in the United States District Court
for the District of New Jersey against Mirage Resorts Incorporated, the State
of New Jersey, the New Jersey Department of Transportation, the South Jersey
Transportation Authority, the CRDA, the New Jersey Transportation Trust Fund
Authority, and others. THCR is seeking declaratory and injunctive relief to
recognize and prevent violations by the defendants of the casino clause of the
New Jersey State Constitution and various federal securities and environmental
laws relating to proposed infrastructure improvements in the Marina. The
outcome of this action may affect management's decision to pursue and complete
the Trump's Castle Expansion.
Various legal proceedings are now pending against the Partnership. The
Partnership considers all such proceedings to be ordinary litigation incident
to the character of its business. Management believes that the resolution of
these claims will not, individually or in the aggregate, have a material
adverse effect on the financial condition or results of operations of the
Partnership.
From time to time, the Partnership may be involved in routine administrative
proceedings involving alleged violations of certain provisions of the Casino
Control Act. However, the Partnership believes that the final outcome of these
proceedings will not, either individually or in the aggregate, have a material
adverse effect on the Partnership or on its ability to otherwise retain or
renew any casino or other licenses required under the Casino Control Act for
the operation of Trump's Castle.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted by the Registrants to their security holders
during the fourth quarter of 1996.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for Funding's outstanding
common stock or for the Partnership's partnership interests.
As of December 31, 1996, the Partnership is the sole holder of the
outstanding common stock of Funding and THCR Holding is a 99% limited partner
of the Partnership and TCHI is a 1% general partner.
Funding has paid no cash dividends on its common stock, and except as set
forth under "Business--Trump's Castle--Historical Background", the Partnership
has made no general distributions with respect to its equity interests.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain selected consolidated financial
information from Funding's and the Partnership's Consolidated Statements of
Operations for the years ended December 31, 1992, 1993, 1994, 1995, for the
period from January 1, 1996 through October 6, 1996 and for the period from
October 7, 1996 (the date of the Castle Acquisition) through December 31,
1996, respectively, and the Consolidated Balance Sheets as of December 31,
1992, 1993, 1994, 1995, October 6, 1996 and December 31, 1996, respectively
(see note (4) below). All financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and the consolidated and condensed financial statements and
the related notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
YEARS ENDED DECEMBER 31, JANUARY 1, 1996 OCTOBER 7, 1996
---------------------------------------- THROUGH THROUGH
1992(1) 1993(2) 1994 1995 OCTOBER 6, 1996 DECEMBER 31, 1996(4)
--------- --------- -------- -------- --------------- ----------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Gross Revenues.............................. $296,919 $302,487 $313,125 $336,775 $245,537 $ 63,135
Less-Promotional Allowances................. 30,656 31,599 31,572 34,547 30,810 8,389
-------- -------- -------- -------- -------- --------
Net Revenues................................ 266,263 270,888 281,553 302,228 214,727 54,746
Total Costs and Expenses.................... 258,236 243,022 252,729 267,867 207,691 57,213
-------- -------- -------- -------- -------- --------
Income (Loss) from Operations............... 8,027 27,866 28,824 34,361 7,036 (2,467)
Other Income................................ -- -- -- -- 3,000 --
Interest Income............................. 499 675 636 504 386 217
Interest Expense............................ (45,360) (56,926) (44,173) (46,017) (36,949) (11,553)
Extraordinary Item(3)....................... 128,187 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net Income (Loss)........................... $ 91,353 $(28,385) $(14,713) $(11,152) $(26,527) $(13,803)
======== ======== ======== ======== ======== ========
BALANCE SHEET DATA
Cash and Cash Equivalents................... $ 23,610 $ 20,439 $ 19,122 $ 21,038 $ 19,373 $ 15,380
======== ======== ======== ======== ======== ========
Total Assets................................ $379,641 $375,935 $368,797 $370,581 $363,468 $548,011
======== ======== ======== ======== ======== ========
Current Liabilities......................... $ 39,397 $ 34,463 $ 34,084 $ 38,402 $ 47,427 $ 42,181
======== ======== ======== ======== ======== ========
Total Long-Term Debt, Net of Current
Maturities................................. $279,445 $309,794 $314,433 $323,015 $330,665 $335,584
======== ======== ======== ======== ======== ========
Total Capital............................... $ 60,799 $ 31,678 $ 16,965 $ 5,813 $(20,714) $166,592
- --------------------------------------------------
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------------
(1) On May 29, 1992, Funding, the Partnership and TCHI consummated the Plan,
which materially affects the comparability of the information set forth
above.
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<PAGE>
(2) On December 28, 1993, the Partnership and its affiliated entities
consummated the Castle Recapitalization, which materially affects the
comparability of the information set forth above.
(3) The extraordinary gain of $128,187,000 for year ended December 31, 1992
reflects a $96,896,000 accounting adjustment to carry the Bonds at fair
market value based on current rates of interest at the date of issuance,
$18,000,000 forgiveness of bank borrowings, $22,805,000 discharge of
accrued interest, and the write-off of $9,514,000 of unamortized Bond
issuance costs.
(4) Pursuant to the terms of the Agreement dated as of June 24, 1996, as
amended (the "Agreement") between THCR Holdings and entities owned by
Trump, THCR Holdings acquired on October 7, 1996, all of the outstanding
equity interest of the Partnership. This acquisition has been accounted
for as a purchase. For his equity interest in the Partnership, Trump
received a 15.33863% limited partnership interest in THCR Holdings valued
at $168,126,000, which is exchangeable into 5,837,700 shares of THCR
Common Stock (valuing each share at $28.80 based on the price of the THCR
Common Stock several days before and after the date of the Agreement). The
excess of the purchase price over the fair value of the net assets
acquired of $196,109,000 (including transaction costs, the purchase of the
outstanding TCHI warrants and the historical negative book value of the
Partnership of $20,714,000) has been recorded on the books of the
Partnership and has been allocated to property, plant and equipment based
upon a recent appraisal. As a result of the acquisition, a new basis of
accounting was established and financial statements prior to October 7,
1996 are presented as Predecessor financial statements. The financial
statements from October 7, 1996, are presented as Successor financial
statements.
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
1996
Net Revenues............. $66,944,000 $ 68,051,000 $72,907,000 $ 61,571,000
=========== ============ =========== ============
Income from Operations... $ 2,857,000 $ 1,549,000 $ 3,416,000 $ (3,253,000)
=========== ============ =========== ============
Net Income (Loss)........ $(8,810,000) $(10,122,000) $(5,937,000) $(15,461,000)
=========== ============ =========== ============
1995
Net Revenues............. $64,633,000 $ 69,929,000 $88,176,000 $ 79,490,000
=========== ============ =========== ============
Income from Operations... $ 4,762,000 $ 7,768,000 $15,548,000 $ 6,283,000
=========== ============ =========== ============
Net Income (Loss)........ $(6,251,000) $ (3,584,000) $ 3,990,000 $ (5,307,000)
=========== ============ =========== ============
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The financial information presented below reflects the financial condition
and results of operations of the Partnership. Funding is a wholly owned
subsidiary of the Partnership and conducts no business other than collecting
amounts due under certain intercompany notes from the Partnership for the
purpose of paying principal of, premium, if any, and interest on its
indebtedness, which Funding issued as a nominee for the Partnership.
THCR Holdings acquired the Partnership on October 7, 1996. For purposes of
this "Management's Discussion and Analysis of Financial Condition and Results
of Operations", the Partnership's results of operations for the year ended
December 31, 1996 include both the results of operations of the Partnership's
predecessor from January 1, 1996 through October 6, 1996 and the Partnership
from October 7, 1996 through December 31, 1996. The net effect of the Castle
Acquisition was to increase property, plant and equipment. The Partnership's
subsequent results of operations reflect such increased depreciation expense.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
The Partnership's net revenues (gross revenues less promotional allowances)
for the years ended December 31, 1996 and 1995 were approximately $269.5
million and $302.2 million, respectively. The $32.7 million (or 10.8%)
decrease is primarily the result of a decreased win percentage as described
below.
Gaming revenues provide the majority of the Partnership's revenues and
primarily consist of slot machine and table games win.
Slot machine win was approximately $182.3 million and $194.0 million (a
decrease of approximately $11.7 million or 6.0%) for the years ended December
31, 1996 and 1995, respectively. The total dollar amount wagered by customers
on slot machines decreased by approximately $35.1 million (1.5%) to $2,253.1
million for the year ended December 31, 1996 from $2,288.2 million for the
year ended December 31, 1995. However, a decrease in the slot win percentage
(slot win as a percentage of dollars wagered on slot machines) to 8.1% for the
year ended December 31, 1996 from 8.5% for the year ended December 31, 1995
was the primary reason for the decline in slot revenues. This slot win
percentage decrease was primarily due to a decreased volume of customer play
on lower denomination slot machines which, traditionally, have a higher win
percentage. This resulted from management's decision to reduce the level of
its bus marketing programs. These customers traditionally play the lower
denomination slot machines.
Table game win was approximately $66.1 million and $82.7 million (a decrease
of $16.6 million or 20.1%) for the years ended December 31, 1996 and 1995,
respectively. The total dollar amount wagered by customers on table games
increased by approximately $7.1 million (1.5%) to $494.8 million for the year
ended December 31, 1996 from $487.7 for the year ended December 31, 1995.
However, the table game win percentage (table game win as a percentage of
dollars wagered on table games) dropped 3.6% to 13.4% from 17.0% for the year
ended December 31, 1996 compared to the year ended December 31, 1995. This
decline in the table game win percentage had the effect of reducing table game
revenues by approximately $17.8 million. The table game win percentage is
outside the control of the Partnership, and although it is fairly constant
over the long-term, it can vary significantly from period to period, due in
part to the play of certain premium patrons who tend to wager substantial
dollar amounts on table games.
For the years ended December 31, 1996 and 1995, credit extended to the table
games customers was approximately 31.4% and 30.0% of overall table play,
respectively. This relatively high level of credit play continues a trend
which started in 1994 and is the result of an increased level of play by
individuals who wager relatively large sums. These premium patrons tend to use
a higher percentage of credit when they wager.
Nongaming revenues, in the aggregate, increased by approximately $300,000
(0.5%) to $60.3 million for the year ended December 31, 1996 from $60.0
million for the year ended December 31, 1995, primarily as the result of food
and beverage revenue (an approximate $1.8 million (5.9%) increase) which was
partially offset by lower room revenues. During the current year, marketing
programs designed to increase gaming revenues caused an increase in
complimentary rooms and food and beverage revenues (an approximate $4.7
million (14.9%) increase) as compared to the prior year.
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<PAGE>
Promotional allowances increased by approximately $4.7 million (13.6%) to
$39.2 million for the year ended December 31, 1996 from $34.5 million for the
year ended December 31, 1995. As discussed above, marketing programs
instituted during the current year designed to increase gaming revenues caused
an increase in complimentary rooms and food and beverage activity as compared
to the prior year.
Gaming costs and expenses decreased by approximately $2.7 million (1.7%) to
$159.6 million for the year ended December 31, 1996 from $162.3 million for
the year ended December 31, 1995. This decrease is primarily the result of a
decrease in promotional coupon costs, and, to a lesser extent, reduced gaming
tax expense.
Rooms and food and beverage costs and expenses for the years ended December
31, 1996 and 1995 decreased approximately $3.7 million (22.9%). This decrease
is primarily due to the increased level of complimentary food, beverage and
hotel services provided to patrons. The cost of such complimentaries have been
included in gaming costs and expenses.
Depreciation and amortization increased approximately $2.5 million (17.1%)
to $17.1 million for the year ended December 31, 1996 from $14.6 million for
the year ended December 31, 1995. The primary reason for this increase was due
to the additional depreciation expense related to the acquisition of the
Partnership by THCR Holdings.
Other costs and expenses increased approximately $987,000 (7.4%) to $14.4
million for the year ended December 31, 1996 from $13.4 million for the year
ended December 31, 1995. This increase is principally the result of an
increase in the real estate tax rate on the casino property.
Other income of $3.0 million during 1996 represents the non-refundable
license fee resulting from the Thermal Energy Service Agreement (see Note 10
to the Consolidated Financial Statements).
Interest expense increased approximately $2.5 million (5.4%) to $48.5
million for the year ended December 31, 1996 from $46.0 million for the year
ended December 31, 1995. This increase is the result of an increase in the
outstanding principal related to the PIK Notes.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
The Partnership's net revenues (gross revenues less promotional allowances)
for the years ended December 31, 1995 and 1994 were approximately $302.2
million and $281.6 million, respectively. The Partnership believes that the
$20.6 million (7.3%) increase is the result of aggressive marketing programs
and special events introduced during the current year as well as a continuing
emphasis on providing superior customer service.
Slot machine win was approximately $194.0 million and $175.2 million (an
increase of approximately $18.8 million or 10.7%) for the years ended December
31, 1995 and 1994, respectively. The total dollar amount wagered by customers
on slot machines increased by approximately $322.9 million (16.4%) to $2,288.2
million for the year ended December 31, 1995 from $1,965.3 million for the
year ended December 31, 1994. This increase in slot volume was partially
offset by a decrease in the slot win percentage (slot win as a percentage of
dollars wagered on slot machines) to 8.5% for the year ended December 31, 1995
from 8.9% for the year ended December 31, 1994. This win percentage decrease
was primarily due to an increased volume of customer play on higher
denomination slot machines which, traditionally, have a lower win percentage.
Table game win was approximately $82.7 million and $81.0 million (an
increase of $1.7 million or 2.1%) for the years ended December 31, 1995 and
1994, respectively. The total dollar amount wagered by customers on table
games increased by approximately $10.2 million (2.1%) to $487.7 million for
the year ended December 31, 1995 from $477.5 for the year ended December 31,
1994. The table game win percentage (table game win as a percentage of dollars
wagered on table games) remained at 17.0% for the year ended December 31, 1995
compared to the year ended December 31, 1994. The table game win percentage is
outside the control of the Partnership, and although it is fairly constant
over the long-term, it can vary significantly from period to period, due in
part to the play of certain premium patrons who tend to wager substantial
dollar amounts on table games.
23
<PAGE>
For the years ended December 31, 1995 and 1994, credit extended to the table
games customers was approximately 30.0% and 31.4% of overall table play,
respectively. This relatively high level of credit play continues a trend
which started in the last fiscal year and is the result of an increased level
of play by individuals who wager relatively large sums. These premium patrons
tend to use a higher percentage of credit when they wager.
Nongaming revenues, in the aggregate, increased by approximately $3.1
million (5.2%) to $60.0 million for the year ended December 31, 1995 from
$56.9 million for the year ended December 31, 1994, primarily as the result of
rooms revenue (an approximate $538,000 increase) and food and beverage revenue
(an approximate $2.4 million increase) activity. During the current year,
marketing programs designed to increase gaming revenues caused an increase in
complimentary rooms and food and beverage revenues (an approximate
$2.7 million increase) as compared to the prior year.
Promotional allowances increased by approximately $2.9 million (9.2%) to
$34.5 million for the year ended December 31, 1995 from $31.6 million for the
year ended December 31, 1994. As discussed above, marketing programs
instituted during the current year designed to increase gaming revenues caused
an increase in complimentary rooms and food and beverage activity as compared
to the prior year.
Gaming costs and expenses increased by approximately $13.5 million (9.1%) to
$162.3 million for the year ended December 31, 1995 from $148.8 million for
the year ended December 31, 1994. This increase is primarily the result of an
increase in promotional coupon costs associated with the new marketing
programs and special events introduced during the current year to stimulate
gaming revenues.
Food and beverage costs and expenses for the years ended December 31, 1995
and 1994 increased approximately $1.1 million (9.0%). This increase
corresponds to the increased food, beverage and gaming revenue activity for
the year.
Other costs and expenses increased approximately $790,000 (6.3%) to $13.4
million for the year ended December 31, 1995 from $12.6 million for the year
ended December 31, 1994. This increase is principally the result of increased
real estate taxes on the casino property.
Interest expense increased approximately $1.8 million (4.1%) to $46.0
million for the year ended December 31, 1995 from $44.2 million for the year
ended December 31, 1994. This increase is the result of an increase in both
the outstanding principal and the interest rate related to the PIK Notes as
well as an increase in the interest rate related to the amended Term Loan.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities is the Partnership's principal source of
liquidity. For the year ended December 31, 1996, the Partnership's net cash
flow provided by operating activities before cash debt service obligations was
$38.4 million and cash debt service was $40.0 million, resulting in net cash
used by operating activities of approximately $1.6 million.
In addition to cash needed to fund the day-to-day operations of Trump's
Castle, the Partnership's principal uses of cash are capital expenditures and
debt service.
Total capital expenditures for 1996 were $4.6 million and principally
consisted of (i) the purchase of slot machines, (ii) renovations to guest
rooms and the hotel tower and (iii) the construction of two new player clubs.
Management believes that these levels of capital expenditures are sufficient
to maintain the attractiveness of Trump's Castle and the aesthetics of its
hotel rooms and other public areas. Capital expenditures for 1997 are
anticipated to be approximately $7.0 million and principally consist of hotel
room renovations, as well as ongoing casino floor improvements, parking garage
upgrades and marina leasehold improvements. In addition, during 1997, the
Partnership commenced a $5.0 million project to retheme the property with a
nautical emphasis and rename it the Trump Marina. Funding for this project has
not been finalized, however, various funding options are being pursued.
24
<PAGE>
The Partnership's debt consists primarily of (i) the Term Loan, (ii) the
Senior Notes, (iii) the Mortgage Notes and (iv) the PIK Notes.
The Term Loan bears interest at the prime rate plus 3%, currently 11 1/4%,
and requires amortized monthly principal payments of approximately $158,000.
The Term Loan matures on May 28, 2000.
The Senior Notes have an outstanding principal amount of $27 million, and
bear interest at the rate of 11 1/2% per annum (which may be reduced to 11
1/4% upon the occurrence of certain events). The Senior Notes mature on
November 15, 2000 and are subject to a sinking fund which requires the
retirement of 15% of the Senior Notes on each of November 15, 1998 and 1999.
The Mortgage Notes have an outstanding principal amount of approximately
$242 million, and bear interest at the rate of 11 3/4% per annum (which may be
reduced to 11 1/2% upon the occurrence of certain events) and mature on
November 15, 2003.
The PIK Notes have an outstanding principal amount of approximately $70.7
million and mature on November 15, 2005. Interest is currently payable semi-
annually at the rate of 13 7/8%. On or prior to November 15, 2003, interest on
the PIK Notes may be paid in cash or through the issuance of additional PIK
Notes. During 1996, interest on the PIK Notes was paid through the issuance of
additional notes aggregating $8.9 million, and the Partnership anticipates
that additional interest due in 1997 of approximately $10.2 million will be
paid through the issuance of additional PIK Notes.
On June 23, 1995, the Partnership entered into the Option Agreement with
Hamilton which granted the Partnership the Option to acquire the PIK Notes
owned by Hamilton. The Option was granted to the Partnership in consideration
of $1.9 million of aggregate payments to Hamilton. The Option was exercisable
at a price equal to 60% of the aggregate principal amount of the PIK Notes
delivered by Hamilton, with accrued but unpaid interest, plus 100% of the PIK
Notes issued to Hamilton as interest subsequent to June 23, 1995. Pursuant to
the terms of the Option Agreement, upon the occurrence of certain events
within 18 months of the time the Option is exercised, the Partnership is
required to make an additional payment to Hamilton of up to 40% of the
principal amount of the PIK Notes. On May 21, 1996, the Partnership assigned
the Option to THCR Holdings which, on that same date, exercised the Option and
acquired approximately 90% of the PIK Notes for approximately $38.7 million in
exchange for which THCR Holdings received an aggregate of approximately $59.3
million of PIK Notes.
The Partnership's total cash debt service requirement was approximately
$40.0 million during 1996 and the Partnership anticipates that approximately
$40.4 million will be required during 1997 to meet its debt service
obligations. As a result of the Castle Acquisition and the Partnership's
designation as an unrestricted subsidiary under the indenture governing the 15
1/2% Senior Secured Notes due 2005 (the "THCR Senior Notes") of THCR Holdings
and its wholly owned subsidiary (the "THCR Senior Note Indenture"), the
Partnership has the ability to receive advances, subject to the limitations
and restrictions set forth in the THCR Senior Note Indenture, to the
Partnership for working capital, debt service and other purposes. During 1996,
THCR Holdings made a capital contribution in the amount of $5 million to the
Partnership for such purposes. In addition, the Partnership has the ability to
obtain a working capital facility of up to $10 million, although there can be
no assurance that such financing will be available on terms acceptable to the
Partnership.
The ability of Funding and the Partnership to pay their indebtedness when
due will depend on their ability to either generate cash from operations
sufficient for such purpose or to refinance such indebtedness on or before the
date on which it becomes due. The Partnership does not currently anticipate
being able to generate sufficient cash flow from operations to repay a
substantial portion of the principal amounts of the Mortgage Notes and the PIK
Notes. Thus, the repayment of the principal amount of this indebtedness will
likely depend primarily upon the ability of Funding and the Partnership to
refinance this debt when due. The future operating performance of
25
<PAGE>
the Partnership and the ability to refinance this debt will be subject to the
then prevailing economic conditions, industry conditions and numerous
financial, business, and other factors, many of which are beyond the control
of Funding or the Partnership. There can be no assurance that the future
operating performance of the Partnership will be sufficient to meet these
repayment obligations or that the general state of the economy, the status of
the capital markets generally or the receptiveness of the capital markets to
the gaming industry will be conducive to refinancing this debt or other
attempts to raise capital.
SEASONALITY
The gaming industry in Atlantic City is seasonal, with the heaviest activity
at Trump's Castle occurring during the period from May through September.
Consequently, the Partnership's operating results during the two quarters
ending in March and December would not likely be as profitable as the two
quarters ending in June and September.
INFLATION
There was no significant impact on the Partnership's operations as a result
of inflation during 1996, 1995 or 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
An index to financial statements and required financial statement schedules
is set forth in Item 14.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
26
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
All decisions affecting the business and affairs of the Partnership,
including the operation of Trump's Castle, are decided by the general partners
acting by and through a Board of Partner Representatives, which includes a
minority of Representatives elected indirectly by the holders of the Mortgage
Notes and PIK Notes (the "Noteholder Representatives"). As currently
constituted, the Board of Partner Representatives consists of Messrs. Donald
J. Trump, Chairman, Nicholas L. Ribis, John P. Burke, Robert M. Pickus, Asher
O. Pacholder, Thomas F. Leahy, and Arthur S. Bahr. TCHI's Board of Directors
will consist of the members of the Board of Partner Representatives.
The sole director of Funding is Trump. Trump also serves as its Chairman of
the Board, President, and Treasurer. Patricia M. Wild serves as its Secretary.
Set forth below are the names, ages, positions, and offices held with
Funding and the Partnership, and a brief account of the business experience
during the past five years of each member of the Board of Partner
Representatives, the executive officers of Funding and the Partnership, and
the director of Funding.
Donald J. Trump--Trump, 50 years old, has been Chairman of the Board of THCR
and Trump Hotels & Casino Resorts Funding, Inc. ("THCR Funding") since their
formation in 1995. Trump was a 50% shareholder, Chairman of the Board of
Directors, President and Treasurer of TP/GP, Inc. ("Trump Plaza GP") and the
managing general partner of Plaza Associates prior to June 1993. Trump was
Chairman of the Executive Committee and President of Plaza Associates from May
1986 to May 1992 and was a general partner of Plaza Associates until June
1993. Trump has been a director and President of Trump Atlantic City Holding,
Inc. ("Trump AC Holding") since February 1993 and was a partner in Trump
Atlantic City Associates ("Trump AC") from February 1993 until June 1995.
Trump has been Chairman of the Board of Directors of Trump Atlantic City
Funding, Inc. ("Trump AC Funding") since its formation in January 1996. Trump
has been Chairman of the Board of Directors of THCR Holding Corp. ("THCR
Holding Corp.") and THCR/LP Corporation ("THCR/LP") since October 1991;
President and Treasurer of THCR Holding Corp. since March 4, 1991; Chairman of
the Board of Directors, President and Treasurer of TCI since June 1988; sole
director, President and Treasurer of Trump Atlantic City Corporation ("TACC")
since March 1991; Chairman of the Executive Committee of Taj Associates from
June 1988 to October 1991; and President and sole Director of Trump Taj Mahal
Realty Corp. ("Realty Corp.") since May 1986. Trump has been the sole director
of Trump Indiana, Inc. ("Trump Indiana") since its formation. Trump has been
Chairman of the Board of Partner Representatives since May 1992; and was
Chairman of the Executive Committee of the Partnership from June 1985 to May
1992. Trump is the Chairman of the Board of Directors, President and Treasurer
of Funding. Trump is the Chairman of the Board and Treasurer of TCHI. Trump is
the President, Treasurer, sole director and sole shareholder of TCI-II. Trump
has been a Director of THCR Enterprises, Inc., a Delaware corporation ("THCR
Enterprises"), since its formation in January 1997. Trump is also the
President of The Trump Organization, which has been in the business, through
its affiliates and subsidiaries, of acquiring, developing and managing real
estate properties for more than the past five years. Trump was a member of the
Board of Directors of Alexander's Inc. from 1987 to March 1992.
Nicholas L. Ribis--Mr. Ribis, 52 years old, has been President, Chief
Executive Officer, Chief Financial Officer, and a director of THCR and THCR
Funding and Chief Executive Officer of THCR Holdings since their formation in
1995. Mr. Ribis has been the Chief Executive Officer of Plaza Associates since
February 1991, was President from April 1994 to February 1995, was a member of
the Executive Committee of Plaza Associates from April 1991 to May 29, 1992
and was a director and Vice President of Trump Plaza GP from May 1992 until
June 1993. Mr. Ribis has been Vice President of Trump AC Holding since
February 1995. Mr. Ribis has served as a director of Trump AC Holding since
June 1993. Mr. Ribis has been Chief Executive Officer, President and director
of Trump AC Funding since its formation in January 1996. Mr. Ribis is the Vice
President of TACC. Mr. Ribis has been the President and Chief Executive
Officer of Trump Indiana since its formation.
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<PAGE>
Mr. Ribis has been a Director of THCR/LP and THCR Holding Corp. since October
1991 and was Vice President of THCR/LP and THCR Holding Corp. until June 1995;
Chief Executive Officer of Taj Associates since February 1991; Vice President
of TCI since February 1991 and Secretary of TCI since September 1991; Director
of Realty Corp. since October 1991; and a member of the Executive Committee of
Taj Associates from April 1991 to October 1991. He has also been Chief
Executive Officer of the Partnership since March 1991; member of the Executive
Committee of the Partnership from April 1991 to May 1992; member of the Board
of Partner Representatives of the Partnership since May 1992; and has served
as the Vice President and Assistant Secretary of TCHI since December 1993 and
January 1991, respectively. Mr. Ribis is now a director of TCHI. Mr. Ribis has
served as Vice President of TCI-II since December 1993 and had served as
Secretary of TCI-II from November 1991 to May 1992. Mr. Ribis has been Vice
President of Trump Corp. since September 1991. Mr. Ribis has been the
President and a director of THCR Enterprises since January 1997. From January
1993 to January 1995 Mr. Ribis served as the Chairman of the Casino
Association of New Jersey and has been a member of the Board of Trustees of
the CRDA since October 1993. From January 1980 to January 1991, Mr. Ribis was
Senior Partner in, and from February 1991, to December 1995, was Counsel to,
the law firm of Ribis, Graham & Curtin (now practicing as Graham, Curtin &
Sheridan, A Professional Association), which serves as New Jersey legal
counsel to all of the above-named companies and certain of their affiliated
entities.
Robert M. Pickus--Mr. Pickus, 42 years old, has been Executive Vice
President and Secretary of THCR since its formation in 1995. He has also been
the Executive Vice President of Corporate and Legal Affairs of Plaza
Associates since February 1995. From December 1993 to February 1995, Mr.
Pickus was the Senior Vice President and General Counsel of Plaza Associates
and, since April 1994, he has been the Assistant Secretary of Trump AC
Holding. Mr. Pickus has been Secretary and director of Trump AC Funding since
its formation in January 1996. Mr. Pickus has been the Executive Vice
President and Secretary of Trump Indiana since its inception. Mr. Pickus has
been the Executive Vice President of Corporate and Legal Affairs of Taj
Associates since February 1995, and a Director of THCR Holding Corp. and
THCR/LP since November 1995. He was the Senior Vice President and Secretary of
Funding from June 1988 to December 1993 and General Counsel of the Partnership
from June 1985 to December 1993. Mr. Pickus is the Assistant Secretary of
TACC. Mr. Pickus was also Secretary of TCHI from October 1991 until December
1993. Mr. Pickus is a director of TCHI. Mr. Pickus has been the Executive Vice
President of Corporate and Legal Affairs of the Partnership since February
1995, Secretary of the Partnership since February 1996 and a member of the
Board of Partner Representatives since October 1995. Mr. Pickus is currently
the Secretary of THCR Holding Corp., has been the Vice President, Secretary
and Director of THCR Enterprises since January 1997 and has been Executive
Vice President of TCS since its inception.
John P. Burke--Mr. Burke, 49 years old, has been Senior Vice President of
Corporate Finance of THCR, THCR Holdings and THCR Funding since January 1996,
and has been the Corporate Treasurer of THCR, THCR Holdings and THCR Funding
since their formation in 1995. He has also been Corporate Treasurer of Plaza
Associates and Taj Associates since October 1991. Mr. Burke has been the
Treasurer of Trump Indiana since its formation. Mr. Burke has been Treasurer
of Trump AC since its formation in January 1996. Mr. Burke was a Director of
THCR/LP and THCR Holding Corp. from October 1991 to April 1996 and was Vice
President of THCR/LP until June 1995. Mr. Burke has been the Corporate
Treasurer of the Partnership since October 1991, the Vice President of the
Partnership, Funding, TCI-II and TCHI since December 1993, a member of the
Board of Partner Representatives since March 1997 and the Vice President-
Finance of The Trump Organization since September 1990. Mr. Burke was an
Executive Vice President and Chief Administrative Officer of Imperial
Corporation of America from April 1989 through September 1990. Mr. Burke has
been the Vice President and Secretary of THCR Enterprises since January 1997.
R. Bruce McKee--Mr. McKee, 51 years old, has served as President and Chief
Operating Officer of the Partnership since October 1996. Mr. McKee was acting
Chief Operating Officer of Taj Associates from October 1995 through October
1996; Senior Vice President, Finance of Taj Associates from July 1993 through
October 1996; Vice President, Finance of Taj Associates from September 1990
through June 1993. Mr. McKee has been
28
<PAGE>
the Assistant Treasurer of THCR/LP, THCR Holding Corp., Realty Corp. and TCI
since September 1991. Previously Mr. McKee was Vice President of Finance of
Elsinore Shore Associates, the owner and operator of the Atlantis Casino Hotel
in Atlantic City, from April 1984 to September 1990 and Treasurer of Elsinore
Finance Corp., Elsinore of Atlantic City and Elsub Corp. from June 1986 to
September 1990. The Atlantis Casino Hotel now constitutes the portion of Trump
Plaza known as Trump World's Fair.
John P. Belisle--Mr. Belisle, 43 years old, has been the Executive Vice
President of Operations of the Partnership since February 1997. Previously,
Mr. Belisle served as Executive Vice President and Chief Operating Officer of
Resorts International Hotel ("RIH") since November 1993, Senior Vice President
of Casino Operations of RIH from May 1993 to November 1993; and Vice President
of Marketing of RIH from June 1990 to May 1993. Mr. Belisle served as Vice
President of Marketing for Trump's Castle from January 1990 to June 1990.
Asher O. Pacholder--Dr. Pacholder, 59 years old, has been a partner
representative of the Board of Partner Representatives since May 1992. Dr.
Pacholder served as a director and the President of TCI-II from May 1992 to
December 1993. Dr. Pacholder has served as Chairman of the Board and Managing
Director of Pacholder Associates, Inc., an investment advisory firm, since
1987. In addition, Dr. Pacholder serves on the Board of Directors of The
Southland Corporation, United Gas Holding Corp., ICO, Incorporated, an oil
field services company, UF&G Pacholder Fund, Inc., a publicly traded closed
end mutual fund, U.S. Trails, Inc. a recreational facility company, and Forum
Group, Inc., a retirement community managerial company.
Thomas F. Leahy--Mr. Leahy, 59 years old, has been a partner representative
on the Board of Partner Representatives since June 1993. Mr. Leahy served as a
director and Treasurer of TCI-II from May 1992 to December 1993. From 1991 to
July 1992, Mr. Leahy served as Executive Vice President of CBS Broadcast
Group, a unit of CBS, Inc. Mr. Leahy retired from CBS, Inc. in 1992, having
served in various executive capacities over a 30-year period. Since November
1992, Mr. Leahy has served as President of The Theater Development Fund, a
service organization for the performing arts. Since July 1992, Mr. Leahy has
served as Chairman of VT Properties, Inc., a privately-held corporation which
invests in literary, stage, and film properties.
Arthur S. Bahr--Mr. Bahr, 65 years old, has been a partner representative on
the Board of Partner Representatives since June 1995 and previously served as
a director of TCI-II from August 1993 to January 1994. Mr. Bahr retired in
February 1994 after serving in various senior investment positions for General
Electric Investment Corporation since 1970. Mr. Bahr serves on the Board of
Directors of Renaissance Reinsurance and the Korean International Investment
Fund.
Mark A. Brown--Mr. Brown, 36 years old, joined the Partnership as Executive
Vice President of Operations in July 1995. Previously, Mr. Brown served as
Senior Vice President of Eastern Operations for Caesar's World Marketing
Corporation, National and International Divisions from 1993 until 1995. Prior
to that, Mr. Brown served as Vice President of Casino Operations at the Taj
Mahal from 1989 until 1993. From 1979 until 1989, Mr. Brown worked for Resorts
International Hotel Casino departing as Casino Shift Manager in December 1989.
Patricia M. Wild--Ms. Wild, 44 years old, has been the Assistant Secretary
of the Partnership since February 1996 and Vice President of Legal Affairs of
the Partnership since November 1996. Ms. Wild was Secretary of Funding and
Senior Vice President and General Counsel of the Partnership from December
1993 to November 1996 and Secretary of TCHI since December 1993. Ms. Wild
served as Vice President, General Counsel of Plaza Associates from February
1991 to December 1993, and Associate General Counsel of Plaza Associates from
May 1989 through January 1991. From December 1986 to April 1989, Ms. Wild
served as Deputy Attorney General on the Environmental Prosecutions Task Force
of the New Jersey Department of Law and Public Safety, Division of Criminal
Justice. From April 1983 to December 1986, Ms. Wild served as Deputy Attorney
General with the Division.
Each member of the Board of Partner Representatives, the Audit Committee and
all of the other persons listed above have been licensed or found qualified by
the CCC.
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<PAGE>
The employees of the Partnership serve at the pleasure of the Board of
Partner Representatives subject to any contractual rights contained in any
employment agreement.
Trump, Nicholas L. Ribis and R. Bruce McKee served as either executive
officers and/or directors of Taj Associates and its affiliated entities when
such parties filed their petition for reorganization under Chapter 11 of the
Bankruptcy Code on July 17, 1991. The Second Amended Joint Plan of
Reorganization of such parties was confirmed on August 28, 1991, and was
declared effective on October 4, 1991. Trump, Nicholas L. Ribis, John P. Burke
and Robert M. Pickus also served as Executive Committee members, officers
and/or directors of the Partnership and its affiliated entities at the time
such parties filed a petition for reorganization under Chapter 11 of the
Bankruptcy Code on March 9, 1992. The First Amended Joint Plan of
Reorganization of such parties was confirmed on May 5, 1992, and was declared
effective on May 29, 1992. Trump, Nicholas L. Ribis, John P. Burke and
Patricia M. Wild served as either executive officers and/or directors of Plaza
Associates and its affiliated entities when such parties filed their petition
for reorganization under Chapter 11 of the Bankruptcy Code in March 1992. The
First Amended Joint Plan of Reorganization of such parties was confirmed on
April 30, 1992, and was declared effective on May 29, 1992. Trump was a
partner of Plaza Operating Partners Ltd. when it filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code on November 2, 1992.
The plan of reorganization for Plaza Operating Partners Ltd. was confirmed on
December 11, 1992 and declared effective in January 1993.
ITEM 11. EXECUTIVE COMPENSATION.
Executive officers of Funding do not receive any additional compensation for
serving in such capacity. In addition, Funding and the Partnership do not
offer their executive officers stock option or stock appreciation right plans,
long-term incentive plans, or defined benefit pension plans.
Summary Compensation Table. The following table sets forth compensation paid
or accrued during the years ended December 31, 1996, 1995 and 1994 to the
Chairman of the Board of Representation, the Chief Executive Officer, all of
the executive officers of the Partnership whose cash compensation, including
bonuses and deferred compensation, exceeded $100,000 for the year ended
December 31, 1996, and two additional individuals who would have been among
the four most highly paid executive officers but for they were not employed on
December 31, 1996 by the Partnership. Compensation accrued during one year and
paid in another is recorded under the year of accrual. Information relating to
long-term compensation is inapplicable and has therefore been omitted from the
table.
30
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION
------------------ ---- -------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Donald J. Trump......... 1996 -- -- -- --
Chairman of the Board 1995 -- -- -- $2,087,000(2)
1994 -- $1,000,000 -- 2,111,000(2)
Nicholas L. Ribis....... 1996 $499,125 -- -- $ 594(3)
Chief Executive Officer 1995 531,895 -- -- 647(3)
1994 568,333 -- $69,000 770(3)
Mark A. Brown(4)........ 1996 $359,160 $ 75,000 -- $ 2,375(3)
Executive Vice President 1995 155,257 150,000 -- 2,187(3)
of Operations 1994 -- -- -- --
Patricia M. Wild........ 1996 $138,530 -- -- $ 3,420(3)
Assistant Secretary and 1995 126,368 -- -- 3,638(3)
Vice President 1994 115,498 $ 20,790 -- 2,856(3)
of Legal Affairs
Roger P. Wagner(5)...... 1996 $210,743 -- -- $ 4,750(3)
1995 591,709 $ 143,660 -- 4,620(3)
1994 501,610 114,670 $60,000 4,620(3)
Robert E.
Schaffhauser(6)....... 1996 $209,101 -- -- --
1995 202,172 -- -- --
1994 173,088 $ 31,156 -- --
</TABLE>
- ---------------------
(1) Represents the dollar value of annual compensation not properly
categorized as salary or bonus, including amounts reimbursed for income
taxes and director's fees. Following rules of the Securities and Exchange
Commission (the "Commission"), perquisites and other personal benefits are
not included in this table if the aggregate amount of that compensation is
the lesser of either $50,000 or 10% of the total salary and bonus for that
officer.
(2) Represents amounts paid under the Services Agreement (as defined). In
addition, Trump was reimbursed $273,000, $184,000 and $407,000 in 1996,
1995 and 1994, respectively, for expenses incurred pursuant to the
Services Agreement.
(3) Represents vested and unvested contributions made by the Partnership under
the Trump's Castle Hotel & Casino Retirement Savings Plan. Funds
accumulated for an employee, which consist of a certain percentage of the
employee's compensation plus Partnership contributions equalling 50% of
the participant's contributions, are retained until termination of
employment, attainment of age 59 12 or financial hardship, at which time
the employee may withdraw his or her vested funds.
(4) Mr. Brown became the Executive Vice President of Operations effective July
10, 1995.
(5) Former Chief Operating Officer. In October 1996, Mr. Wagner became the
Acting General Manager of Trump Indiana.
(6) Former Executive Vice President of Finance. Mr. Schaffhauser's employment
was terminated in October 1996.
EMPLOYMENT AGREEMENTS
Mr. Ribis had an employment agreement with the Partnership pursuant to which
Mr. Ribis acted as Chief Executive Officer of the Partnership. The agreement
provided that in the event the Partnership, or any entity which acquires
substantially all of the equity interests or assets of the Partnership,
proposes to engage in an offering of common shares to the public, the
Partnership and Mr. Ribis would agree to negotiate new compensation
arrangements which shall include equity participation for Mr. Ribis. This
agreement was terminated upon consumation of the Castle Acquisition and now
Mr. Ribis is compensated for his services to the Partnership under an
employment agreement with THCR and THCR Holdings (the "Ribis THCR Agreement").
Under the Ribis THCR Agreement, Mr. Ribis's annual salary is $1,996,500. Mr.
Ribis's annual salary is paid in equal parts by THCR, Taj Associates, Plaza
Associates and the Partnership.
The Partnership, on January 17, 1991, entered into an employment agreement
with Roger P. Wagner (the "Wagner Agreement"), with an amendment thereto dated
January 17, 1991, and a second amendment thereto dated July 18, 1992, pursuant
to which Mr. Wagner serves as the Partnership's and TCHI's President and Chief
Operating Officer. Mr. Wagner's employment agreement, which terminated on
January 16, 1997, provided for
31
<PAGE>
an annual salary beginning at a minimum of $400,000 until January 16, 1994,
thereafter $500,000 per year until January 16, 1995, thereafter $600,000 per
year until January 16, 1996, and thereafter $750,000 per year from January 17,
1996 until January 16, 1997 and, subject to CCC approval, 1% of the
Partnership's Income from Operations (as defined in such agreement) in excess
of $40.0 million. In November 1996, the Partnership assigned, with the consent
of Mr. Wagner, the Wagner Agreement to THCR Holdings.
Taj Associates had an employment agreement with R. Bruce McKee (the "McKee
Agreement") pursuant to which he served as Senior Vice President and Chief
Financial Officer of Taj Associates. The McKee Agreement, which expires on
September 30, 1997, provided for an annual salary of $175,000, a guaranteed
bonus of $25,000 and was terminable by Mr. McKee on each anniversary date of
the agreement. Taj Associates could terminate the employment agreement of Mr.
McKee in its sole discretion, without cause. If Mr. McKee's employment
agreement was terminated without cause, Taj Associates would be obligated to
pay Mr. McKee an amount equal to one year's then current salary. In October
1996, Mr. McKee became the Chief Operating Officer of the Partnership and the
Partnership agreed to assume all of Taj Associates' obligations under the
McKee Agreement. Mr. McKee could be considered for additional bonus
compensation at the Partnership's sole discretion. Factors considered by the
Partnership in the awarding of all discretionary bonuses generally are the
attainment by the Partnership of budgeted or forecasted goals and the
individual's perceived contribution to the attainment of such goals.
The Partnership, on July 10, 1995, entered into an employment agreement with
Mark A. Brown pursuant to which Mr. Brown serves as the Partnership's
Executive Vice President of Operations. The term of the agreement is three
years. This employment agreement provides for an annual base salary of
$350,000, a $75,000 bonus paid at the commencement of employment, and an
annual bonus of no less than $75,000 per year over the three year term of the
agreement.
The Partnership entered into an employment agreement with Patricia M. Wild
pursuant to which, effective December 6, 1993, Ms. Wild serves as the
Partnership's Senior Vice President and General Counsel. The term of the
agreement is one year and, in accordance with the terms of the agreement, is
automatically extended on a weekly basis so that at all times the term of the
agreement shall be an unexpired period of twelve months. This employment
agreement provides for an annual base salary of $115,000 reviewed on an annual
basis.
The Partnership, on June 16, 1995, had entered into a severance agreement
with Robert E. Schaffhauser. In October 1996, Mr. Schaffhauser's employment
with the Partnership was terminated and Mr. Schauffhauser became a consultant
to THCR. In connection therewith, Mr. Schaffhauser agreed to forfeit any
severance payment due to him under the severance agreement.
COMPENSATION OF THE BOARD OF DIRECTORS
Each Partner Representative of the Partnership (other than Messrs. Trump,
Ribis, Burke, and Pickus) receives an annual fee of $50,000. In addition, each
Partner Representative of the Partnership (other than Messrs. Trump, Ribis,
Pickus, and Burke) receives $2,500 per meeting attended, plus reasonable out-
of-pocket expenses incurred in attending any meeting of the Board of Partner
Representatives.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In general, the compensation of executive officers of the Partnership is
determined by the Board of Partner Representatives, which is composed of
Trump, Nicholas L. Ribis, John P. Burke, Asher O. Pacholder, Thomas F. Leahy,
Arthur S. Bahr, and Robert M. Pickus. The compensation of Nicholas L. Ribis
and R. Bruce McKee is set forth in their employment agreements. The
Partnership has delegated the responsibility over certain matters, such as the
bonus of Mr. Ribis, to Trump. Executive officers of Funding do not receive any
additional compensation for serving in such capacity.
32
<PAGE>
Castle Acquisition. On October 7, 1996, THCR Holdings acquired from Trump
all of the outstanding equity of the Partnership. See "Business--Trump's
Castle--Historical Background--Castle Acquisition."
Services Agreement. On December 28, 1993, the Partnership entered into a
Services Agreement with TCI-II (the "Services Agreement"). In general, the
Services Agreement obligates TCI-II to provide to the Partnership, from time
to time when reasonably requested, consulting services on a non-exclusive
basis, relating to marketing, advertising, promotional and other services (the
"Services") with respect to the business and operations of the Partnership, in
exchange for certain fees to be paid only in those years in which EBITDA
(EBITDA represents income from operations before depreciation, amortization,
restructuring costs and the non-cash write-down of CRDA investments) exceeds
prescribed amounts.
In consideration for the Services to be rendered by TCI-II, the Partnership
will pay an annual fee (which is identical to the fee which was payable under
the previously existing management agreement) to TCI-II in the amount of $1.5
million for each year in which EBITDA exceeds the following amounts for the
years indicated: 1993--$40.5 million; 1994--$45.0 million; 1995 and
thereafter--$50.0 million. If EBITDA in any fiscal year does not exceed the
applicable amount, no annual fee is due. In addition, TCI-II will be entitled
to an incentive fee beginning with the fiscal year ending December 31, 1994 in
an amount equal to 10% of EBITDA in excess of $45.0 million for such fiscal
year. The Partnership will also be required to advance to TCI-II $125,000 a
month which will be applied toward the annual fee, provided, however, that no
advances will be made during any year if and for so long as the Managing
Partner (defined in the Services Agreement as Trump) determines, in his good
faith reasonable judgment, that the Partnership's budget and year-to-date
performance indicate that the minimum EBITDA levels (as specified above) for
such year will not be met. If for any year during which annual fee advances
have been made it is determined that the annual fee was not earned, TCI-II
will be obligated to promptly repay any amounts previously advanced. For
purposes of calculating EBITDA under the Services Agreement, any incentive
fees paid in respect of 1994 or thereafter shall not be deducted in
determining net income. During the year ended 1996, there were no fees payable
by the Partnership under the Services Agreement. As the Partnership did not
meet the required level of EBITDA during 1996, the monthly advances to TCI-II
related to the Services Agreement were suspended and on October 6, 1996, the
Partnership recorded a receivable in the amount of $1.25 million which
represents the amounts advanced to TCI-II during the year. The Services
Agreement expires on December 31, 2005.
Trump has granted the Partnership a license to use the Marks in connection
with the operations of Trump's Castle since June 17, 1985. The license expires
on August 15, 1998. See "Business--Trademark/Licensing."
Other Relationships. The Commission requires registrants to disclose the
existence of any other corporation in which both (i) an executive officer of
the registrant serves on the board of directors and/or compensation committee,
and (ii) a director of the registrant serves as an executive officer. Messrs.
Ribis, Pickus, and Burke, executive officers of the Partnership, serve on the
Board of Directors of other entities in which members of the Board of Partner
Representatives (namely, Messrs. Trump, Ribis, Burke, and Pickus) serve and
continue to serve as executive officers. The Partnership believes that such
relationships have not affected the compensation decisions made by the Board
of Partner Representatives in the last fiscal year.
Trump serves on the Board of Directors of TACC, a general partner of Plaza
Associates, of which Messrs. Trump, Ribis and Pickus are executive officers.
Messrs. Trump and Ribis also serve on the Board of Directors of Trump AC
Holding, of which Messrs. Trump, Ribis and Burke are also executive officers.
Trump is the sole director of TACC, of which Messrs. Trump, Ribis and Pickus
are executive officers. Trump is not compensated by such entities for serving
as an executive officer, however, he has entered into a personal services
agreement with Plaza Associates and THCR. Messrs. Ribis and Burke are not
compensated by the foregoing entities, however, they are compensated by Plaza
Associates for their service as executive officers.
Messrs. Trump, Ribis, Pickus, and Burke serve on the Board of Directors of
THCR Holding Corp., which held, prior to April 17, 1996, an indirect equity
interest in Taj Associates, of which Trump is an executive officer.
33
<PAGE>
Such persons also serve on the Board of Directors of THCR/LP, the former
managing general partner of Taj Associates, of which Messrs. Trump and Ribis
are executive officers. Mr. Ribis is compensated by Taj Associates for his
services as its Chief Executive Officer.
Mr. Ribis also serves on the Board of Directors of Realty Corp. which, prior
to April 17, 1996, leased certain real property to Taj Associates, of which
Trump is an executive officer. Trump, however, does not receive any
compensation for serving as an executive officer of Realty Corp.
Messrs. Trump and Ribis serve on the Board of Directors of THCR, of which
Trump is Chairman of the Board. Messrs. Ribis, Pickus and Burke are executive
officers of THCR and are compensated for their services by THCR.
John Barry, Trump's brother-in-law, is a partner of Barry & McMoran, a New
Jersey law firm which provides, from time to time, legal services to the
Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information with respect to the amount of
Funding's Common Stock owned by beneficial owners of more than 5% of Funding's
Common Stock. Funding has no other class of equity securities outstanding.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT
TITLE OR CLASS BENEFICIAL OWNERS OF BENEFICIAL OWNERS OF CLASS
-------------- ------------------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock..... Trump's Castle Associates, L.P. 200 shares 100%
One Castle Blvd.
Atlantic City, New Jersey 08401
</TABLE>
As of the date of consummation of the Castle Acquisition, all of the equity
interests of the Partnership are beneficially owned by THCR Holdings. THCR
Holdings is a 99% limited partner of the Partnership and TCHI, a wholly owned
subsidiary of THCR Holdings, is a 1% general partner.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Affiliate party transactions are governed by the provisions of the
indentures pursuant to which the Mortgage Notes, the Senior Notes and the PIK
Notes were issued, which provisions generally require that such transactions
be on terms as favorable as would be obtainable from an unaffiliated party,
and require the approval of a majority of the Noteholder Representatives of
the Board of Partner Representatives for certain affiliated transactions.
Trump, Ribis and certain affiliates have engaged in certain related party
transactions with respect to the Partnership. See "Executive Compensation--
Compensation Committee Interlocks and Insider Participation--Services
Agreement" and "--Other Relationships."
The Partnership has joint insurance coverage with Taj Associates and Plaza
Associates, for which the annual premiums paid by the Partnership, Taj
Associates and Plaza Associates were approximately $5.2 million for the year
ending December 31, 1996.
Plaza Associates leased portions of its warehouse facility located in Egg
Harbor Township, New Jersey to the Partnership. Lease payments by the
Partnership to Plaza Associates totaled $5,000 in 1996.
The Partnership has entered into a services agreement with TCS pursuant to
which TCS provides the Partnership with certain management, financial and
other functions and services necessary and incidental to the operations of
Trump Castle.
34
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements. See the Index immediately following the signature
page.
(b) Reports on Form 8-K. The Registrants filed a Current Report on Form 8-K,
dated October 22, 1996, reporting under Item 5 thereto, the consummation of the
Castle Acquisition and the filing of the derivative action by a stockholder of
THCR in the United States District Court, Southern District of New York (96
Civ. 7820) against each member of the Board of Directors of THCR, THCR, THCR
Holdings, the Partnership, TCI, TCI-II, TCHI and Salomon.
(c) Exhibits. All exhibits listed below are filed with this Annual Report on
Form 10-K unless specifically stated to be incorporated by reference to other
documents previously filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
3(1) Amended and Restated Certificate of Incorporation of Trump's
Castle Funding Inc.
3.1(1) Bylaws of Trump's Castle Funding, Inc.
3.2-3.6 Intentionally omitted.
Second Amended and Restated Partnership Agreement of Trump's
3.7.1(2) Castle Associates.
3.7.2(12) Amendment to the Second Amended and Restated Partnership Agreement
of Trump's Castle Associates, dated as of October 7, 1996.
3.7.3(12) Third Amended and Restated Partnership Agreement of Trump's Castle
Associates, L.P., dated as of October 7, 1996.
4.1-4.10 Intentionally omitted.
4.11(2) Indenture, among Trump's Castle Funding, Inc. as issuer, Trump's
Castle Associates, as guarantor, and the Mortgage Note Trustee, as
trustee.
4.12(2) Indenture of Mortgage between Trump's Castle Associates, as
Mortgagor, and Funding, as Mortgagee.
Assignment Agreement between Trump's Castle Funding, Inc. and the
4.13(2) Mortgage Note Trustee.
4.14(2) Partnership Note of Trump's Castle Associates.
4.15 Form of Mortgage Note (included in Exhibit 4.11).
4.16 Form of Partnership Guarantee (included in Exhibit 4.11).
4.17(2) Indenture between Trump's Castle Funding, Inc., as issuer, Trump's
Castle Associates, as guarantor, and the PIK Note Trustee, as
trustee.
Pledge Agreement between Trump's Castle Funding, Inc. and the PIK
4.18(2) Note Trustee.
4.19(2) Subordinated Partnership Note.
4.20 Form of PIK Note (included in Exhibit 4.17).
Form of Subordinated Partnership Guarantee (included in Exhibit
4.21 4.17).
4.22(1) Letter Agreement between Trump's Castle Associates and the
Proposed Senior Secured Note Purchasers regarding the Senior
Secured Notes.
4.23(2) Note Purchase Agreement for 11 1/2% Series A Senior Secured Notes
of Trump's Castle Associates due 1999.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
4.24(2) Indenture, among Trump's Castle Funding, Inc., as issuer, Trump's
Castle Associates, as guarantor, and the Senior Secured Note
Trustee, as trustee.
4.25(2) Indenture of Mortgage and Security Agreement between Trump's
Castle Associates, as mortgagor/debtor, and Trump's Castle
Funding, Inc. as mortgagee/secured party (Senior Note Mortgage).
4.26(2) Registration Rights Agreement by and among Trump's Castle
Associates and certain purchasers.
4.27 Intentionally omitted.
4.28(2) Guarantee Mortgage.
4.29(2) Senior Partnership Note.
4.30(2) Indenture of Mortgage and Security Agreement between Trump's
Castle Associates as mortgagor/debtor and the Senior Note Trustee
as mortgagee/secured party (Senior Guarantee Mortgage).
4.31(2) Assignment Agreement between Trump's Castle Funding, Inc., as
assignor, and the Senior Note Trustee, as assignee (Senior
Assignment Agreement).
4.32(2) Amended and Restated Nominee Agreement.
10.1-10.2 Intentionally omitted.
10.3(3) Employment Agreement dated January 17, 1991, between Trump's
Castle Associates and Roger P. Wagner.
10.4(4) Second Amendment to Employment Agreement dated January 17, 1991
between Trump's Castle Associates, Trump's Castle Hotel & Casino,
Inc., and Roger P. Wagner.
10.5(5) Form of License Agreement between Trump's Castle Associates and
Donald J. Trump.
10.6-10.10 Intentionally omitted.
10.11(11) Employment Agreement between Trump Hotels & Casino Resorts
Holdings, L.P. and Nicholas L. Ribis (with exhibits).
10.12(6) Trump's Castle Hotel & Casino Retirement Savings Plan, effective
as of September 1, 1986.
10.13-10.18 Intentionally omitted.
10.19(3) Lease Agreement by and between State of New Jersey acting through
its Department of Environmental Protection, Division of Parks and
Forests, as Landlord, and Trump's Castle Associates, as tenant,
dated September 1, 1990.
10.20-10.26 Intentionally omitted.
10.27(1) Services Agreement.
10.28-10.31 Intentionally omitted.
10.32(7) Employment Agreement dated December 20, 1993, between Patricia M.
Wild and Trump's Castle Associates.
10.33 Intentionally Omitted.
10.34(7) Amended and Restated Credit Agreement, dated as of December 28,
1993, among Midlantic, Trump's Castle Associates and Trump's
Castle Funding, Inc.
10.35(7) Amendment No. 1 to Amended and Restated Indenture of Mortgage,
between Trump's Castle Associates, as Mortgagor and Midlantic, as
Mortgagee.
10.36(7) Amended and Restated Indenture of Mortgage, between Trump's Castle
Associates, as Mortgagor and Midlantic, as Mortgagee, dated as of
May 29, 1992.
10.37(7) Amendment No. 1 to Amended and Restated Assignment of Leases and
Rents, between Trump's Castle Associates, as assignor, and
Midlantic, as assignee.
10.38(7) Amended and Restated Assignment of Leases and Rents, between
Trump's Castle Associates, as assignor, and Midlantic, as
assignee, dated as of May 29, 1992.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
10.39(7) Amendment No. 1 to Amended and Restated Assignment of Operating
Assets, between Trump's Castle Associates, as assignor and
Midlantic, as assignee.
10.40(7) Amended and Restated Assignment of Operating Assets, between
Trump's Castle Associates, as assignor, and Midlantic, as
assignee, dated as of May 29, 1992.
10.41(7) Intercreditor Agreement, by and among Midlantic, the Senior Note
Trustee, the Mortgage Note Trustee, the PIK Note Trustee, Trump's
Castle Funding, Inc. and Trump's Castle Associates.
10.42(8) Option Agreement, dated as of June 23, 1995, between Hamilton
Partners, L.P. and Trump's Castle Associates.
10.43(9) Form of Amended and Restated Term Note, dated as of May 28, 1995,
between Midlantic Bank, N.A. and Trump's Castle Associates.
10.44(11) Severance Agreement dated June 16, 1995, between Robert E.
Schaffhauser and Trump's Castle Associates.
10.45(11) Employment Agreement dated July 10, 1995, between Mark A. Brown
and Trump's Castle Associates.
10.46(12) Thermal Energy Service Agreement, dated as of September 27, 1996,
by and between Atlantic Jersey Thermal Systems, Inc. and Trump's
Castle Associates.
10.47(12) Amended and Restated Services Agreement, dated as of October 23,
1996, by and among Trump Plaza Associates, Trump Taj Mahal
Associates, Trump's Castle Associates, L.P. and Trump Casino
Services, L.L.C.
10.48(13) Employment Agreement between R. Bruce McKee and Trump Taj Mahal
Associates, dated August 1, 1994.
21 List of Subsidiaries of Trump's Castle Associates, L.P. and
Trump's Castle Funding, Inc.
27.1 Financial Data Schedule of Trump's Castle Funding, Inc.
27.2 Financial Data Schedule of Trump's Castle Associates, L.P.
</TABLE>
- ---------------------
(1) Incorporated herein by reference to the Exhibit to Trump's Castle
Funding, Inc. and Trump's Castle Associates' Registration Statement on
Form S-4, Registration No. 33-68038.
(2) Incorporated herein by reference to the Exhibit to Amendment No. 5 to the
Schedule 13E-3 of TC/GP, Inc. and the Partnership, File No. 5-36825,
filed with the SEC on January 11, 1994.
(3) Incorporated herein by reference to the Exhibit to Trump's Castle
Funding, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1990.
(4) Incorporated herein by reference to the Exhibit to Trump's Castle
Funding, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June
30, 1992.
(5) Incorporated herein by reference to the Exhibit to Trump's Castle
Funding, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1991.
(6) Incorporated herein by reference to the Exhibit to Trump's Castle
Funding, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1986.
(7) Incorporated herein by reference to the identically numbered Exhibit to
Trump's Castle Funding, Inc.'s Registration Statement on Form S-4,
Registration Number 33-52309 filed with the SEC on February 17, 1994.
(8) Incorporated herein by reference to the identically numbered Exhibit to
Trump's Castle Funding, Inc.'s and Trump Castle Associates' Current
Report on Form 8-K dated as of June 23, 1995.
(9) Incorporated herein by reference to the identically numbered Exhibit to
Trump's Castle Funding, Inc.'s and Trump's Castle Associates' Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995.
(10) Incorporated herein by reference to the identically numbered Exhibit in
the Quarterly Report on Form 10-Q of Trump Hotels & Casino Resorts
Holdings, L.P. and Trump Hotels & Casino Resorts Funding, Inc. for the
quarter ended June 30, 1995.
(11) Incorporated herein by reference to the identically numbered Exhibit in
the Annual Report on Form 10-K of Trump's Castle Funding, Inc. and
Trump's Castle Associates for the year ended December 31, 1995.
(12) Incorporated herein by reference to the identically numbered Exhibit to
Trump's Castle Funding, Inc.'s and Trump Castle Associates' Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.
(13) Incorporated herein by reference to the Exhibit in the Quarterly Report
on Form 10-Q of Trump Taj Mahal Funding, Inc. for the quarter ended
September 30, 1994.
(d) FINANCIAL STATEMENT SCHEDULES. See "Financial Statements and
Supplementary Data--Index to Financial Statements and Financial Statement
Schedules" for a list of the financial statement schedules included in this
Annual Report.
37
<PAGE>
IMPORTANT FACTORS RELATING TO FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. In connection with
certain forward-looking statements contained in this Annual Report on Form 10-
K and those that may be made in the future by or on behalf of the Registrant,
the Registrant notes that there are various factors that could cause actual
results to differ materially from those set forth in any such forward-looking
statements. The forward-looking statements contained in this Annual Report
were prepared by management and are qualified by, and subject to, significant
business, economic, competitive, regulatory and other uncertainties and
contingencies, all of which are difficult or impossible to predict and many of
which are beyond the control of the Registrant. Accordingly, there can be no
assurance that the forward-looking statements contained in this Annual Report
will be realized or that actual results will not be significantly higher or
lower. The statements have not been audited by, examined by, compiled by or
subjected to agreed-upon procedures by independent accountants, and no third-
party has independently verified or reviewed such statements. Readers of this
Annual Report should consider these facts in evaluating the information
contained herein. In addition, the business and operations of the Registrant
are subject to substantial risks which increase the uncertainty inherent in
the forward-looking statements contained in this Annual Report. The inclusion
of the forward-looking statements contained in this Annual Report should not
be regarded as a representation by the Registrant or any other person that the
forward-looking statements contained in this Annual Report will be achieved.
In light of the foregoing, readers of this Annual Report are cautioned not to
place undue reliance on the forward-looking statements contained herein.
38
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THE REGISTRANTS HAVE DULY CAUSED THIS ANNUAL REPORT TO BE SIGNED ON
THEIR BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 28TH DAY OF
MARCH, 1997.
Trump's Castle Funding, Inc.
/s/ Donald J. Trump
By: __________________________________
BY: DONALD J. TRUMP
TITLE: PRESIDENT
Trump's Castle Associates, L.P.
/s/ Donald J. Trump
By: __________________________________
BY: DONALD J. TRUMP
TITLE: CHAIRMAN OF THE BOARD OF
PARTNER REPRESENTATIVES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS ANNUAL REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANTS AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
TRUMP'S CASTLE FUNDING, INC.
/s/ Donald J. Trump Chairman of the March 28, 1997
- ------------------------------------ Board, President
DONALD J. TRUMP (Principal
Executive
Officer),
Treasurer
(Principal
Financial Officer)
and sole Director
/s/ John P. Burke Assistant Treasurer March 28, 1997
- ------------------------------------ (Principal
JOHN P. BURKE Accounting Officer)
TRUMP'S CASTLE ASSOCIATES, L.P.
/s/ Donald J. Trump Chairman of the March 28, 1997
- ------------------------------------ Board of Partner
DONALD J. TRUMP Representatives
/s/ Nicholas L. Ribis Board of Partner March 28, 1997
- ------------------------------------ Representative
NICHOLAS L. RIBIS
/s/ Asher O. Pacholder Board of Partner March 28, 1997
- ------------------------------------ Representative
ASHER O. PACHOLDER
39
<PAGE>
SIGNATURE TITLE DATE
/s/ Arthur S. Bahr Board of Partner March 28, 1997
- ------------------------------------- Representative
ARTHUR S. BAHR
/s/ Thomas F. Leahy Board of Partner March 28, 1997
- ------------------------------------- Representative
THOMAS F. LEAHY
/s/ Robert M. Pickus Board of Partner March 28, 1997
- ------------------------------------- Representative
ROBERT M. PICKUS
/s/ John P. Burke Board of Partner March 28, 1997
- ------------------------------------- Representative,
JOHN P. BURKE Treasurer and Chief
Accounting Officer
of the Partnership
40
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
The Registrants have not sent (and do not intend to send) an annual report to
security holders covering the Registrants' last fiscal year and have not sent
(and do not intend to send) a proxy statement, form of proxy or other proxy
soliciting materials to security holders.
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Trump's Castle Associates, L.P. and Subsidiary
Reports of Independent Public Accountants............................... F-2
Consolidated Balance Sheets as of December 31, 1996, October 6, 1996 and
December 31, 1995...................................................... F-4
Consolidated Statements of Operations for the period from October 7,
1996 through December 31, 1996, the period from January 1, 1996 through
October 6, 1996 and for the years ended December 31, 1995 and 1994..... F-5
Consolidated Statements of Partners' Capital for the period from October
7, 1996 through December 31, 1996, the period from January 1, 1996
through October 6, 1996 and for the years ended December 31, 1995 and
1994................................................................... F-6
Consolidated Statements of Cash Flows for the period from October 7,
1996 through December 31, 1996, the period from January 1, 1996 through
October 6, 1996 and for the years ended December 31, 1995 and 1994..... F-7
Notes to Consolidated Financial Statements.............................. F-8
Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts for the period from
October 7, 1996 through December 31, 1996, the period from January 1,
1996 through October 6, 1996 and for the years ended December 31, 1995
and 1994............................................................... S-1
</TABLE>
Other Schedules are omitted for the reason that they are not required or are
not applicable, or the required information is included in the combined
financial statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trump's Castle Associates, L.P.
and Subsidiary:
We have audited the accompanying consolidated balance sheet of Trump's
Castle Associates, L.P. (a New Jersey limited partnership) and Subsidiary as
of December 31, 1996, and the related consolidated statements of operations,
partners' capital and cash flows for the period from October 7, 1996 through
December 31, 1996. These consolidated financial statements and the schedule
referred to below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Trump's Castle Associates,
L.P. and Subsidiary as of December 31, 1996, and the results of their
operations and their cash flows for the period from October 7, 1996 through
December 31, 1996, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements, and in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Roseland, New Jersey
February 7, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trump's Castle Associates, L.P.
and Subsidiary:
We have audited the accompanying consolidated balance sheets of Trump's
Castle Associates, L.P. (a New Jersey limited partnership) and Subsidiary as of
October 6, 1996 and December 31, 1995, and the related consolidated statements
of operations, partners' capital and cash flows for the period from January 1,
1996 through October 6, 1996 and the years ended December 31, 1995 and 1994.
These consolidated financial statements and the schedule referred to below are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trump's Castle Associates,
L.P. and Subsidiary as of October 6, 1996 and December 31, 1995, and the
results of their operations and their cash flows for the period from January 1,
1996 through October 6, 1996 and the years ended December 31, 1995 and 1994, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements, and in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Roseland, New Jersey
February 7, 1997
F-3
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(NOTE 2)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------ --------------------------
DECEMBER 31, OCTOBER 6, DECEMBER 31,
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................................ $ 15,380,000 $ 19,373,000 $ 21,038,000
Trade receivables, less allowance for doubtful accounts of $1,544,000, $2,007,000 and
$1,969,000, respectively (Note 3)................................................... 7,157,000 7,326,000 9,007,000
Accounts receivable, other........................................................... 539,000 2,779,000 1,252,000
Due from affiliates, net (Note 6).................................................... 1,970,000 1,250,000 1,146,000
Inventories (Note 3)................................................................. 1,298,000 1,445,000 1,567,000
Prepaid expenses and other current assets............................................ 1,560,000 2,525,000 4,961,000
------------ ------------ ------------
Total current assets............................................................... 27,904,000 34,698,000 38,971,000
------------ ------------ ------------
PROPERTY AND EQUIPMENT (Notes 2, 3, 4 and 5)
Land and land improvements........................................................... 90,911,000 62,822,000 62,706,000
Buildings and building improvements.................................................. 404,774,000 329,702,000 327,487,000
Furniture, fixtures and equipment.................................................... 17,582,000 123,359,000 114,253,000
Construction in progress............................................................. 1,428,000 785,000 5,436,000
------------ ------------ ------------
514,695,000 516,668,000 509,882,000
Less--Accumulated depreciation......................................................... 4,819,000 198,767,000 187,767,000
------------ ------------ ------------
509,876,000 317,901,000 322,115,000
------------ ------------ ------------
OTHER ASSETS........................................................................... 10,231,000 10,869,000 9,495,000
------------ ------------ ------------
Total assets....................................................................... $548,011,000 $363,468,000 $370,581,000
============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Current maturities--other borrowings (Note 5)........................................ $ 3,714,000 $ 4,085,000 $ 2,903,000
Trade accounts payable............................................................... 10,902,000 9,306,000 9,413,000
Due to affiliates.................................................................... 1,712,000 576,000 --
Accrued payroll and related expenses................................................. 5,861,000 6,097,000 7,358,000
Accrued interest payable (Note 4).................................................... 4,020,000 12,418,000 4,391,000
Gaming liabilities (Note 3).......................................................... 2,914,000 2,646,000 2,988,000
Self insurance reserves.............................................................. 6,723,000 6,072,000 4,141,000
Other................................................................................ 6,335,000 6,227,000 7,208,000
------------ ------------ ------------
Total current liabilities.......................................................... 42,181,000 47,427,000 38,402,000
MORTGAGE NOTES, due 2003 (Notes 4 and 9)
(Net of discount of $ 33,071,000, $33,689,000 and $35,572,000, respectively).......... 209,070,000 208,452,000 206,569,000
PIK NOTES, due 2005 (Notes 4 and 9)
(Net of discount of $7,509,000, $7,571,000 and $7,750,000, respectively).............. 63,231,000 58,580,000 54,110,000
OTHER BORROWINGS (Note 5).............................................................. 63,283,000 63,633,000 62,336,000
OTHER LONG TERM LIABILITIES............................................................ 3,654,000 6,090,000 3,351,000
------------ ------------ ------------
Total liabilities.................................................................. 381,419,000 384,182,000 364,768,000
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' CAPITAL (Notes 2, 4 and 6)
Contributed Capital.................................................................. 180,395,000 73,395,000 73,395,000
Accumulated Deficit.................................................................. (13,803,000) (94,109,000) (67,582,000)
------------ ------------ ------------
Total partners' capital............................................................ 166,592,000 (20,714,000) 5,813,000
------------ ------------ ------------
Total liabilities and capital...................................................... $548,011,000 $363,468,000 $370,581,000
- --------------------------------------------------
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
F-4
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(NOTE 2)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
----------------- ------------------------------------------
PERIOD PERIOD
FROM OCTOBER 7, FROM JANUARY 1, YEARS ENDED DECEMBER 31,
1996 THROUGH 1996 THROUGH --------------------------
DECEMBER 31, 1996 OCTOBER 6, 1996 1995 1994
----------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Gaming (Note 3).............................................. $ 50,460,000 $197,878,000 $276,789,000 $256,195,000
Rooms........................................................ 3,958,000 14,959,000 20,052,000 19,514,000
Food and beverage............................................ 7,011,000 25,615,000 30,804,000 28,447,000
Other........................................................ 1,706,000 7,085,000 9,130,000 8,969,000
------------ ------------ ------------ ------------
Gross Revenues............................................. 63,135,000 245,537,000 336,775,000 313,125,000
Less--Promotional allowances (Note 3)........................ 8,389,000 30,810,000 34,547,000 31,572,000
------------ ------------ ------------ ------------
Net Revenues............................................... 54,746,000 214,727,000 302,228,000 281,553,000
------------ ------------ ------------ ------------
COSTS AND EXPENSES
(Notes 2, 6 and 7)
Gaming....................................................... 32,662,000 126,947,000 162,344,000 148,776,000
Rooms........................................................ 434,000 1,267,000 2,534,000 2,533,000
Food and beverage............................................ 2,257,000 8,415,000 13,516,000 12,396,000
General and administrative................................... 14,259,000 47,201,000 61,431,000 61,974,000
Depreciation and amortization................................ 4,819,000 12,253,000 14,639,000 14,437,000
Other........................................................ 2,782,000 11,608,000 13,403,000 12,613,000
------------ ------------ ------------ ------------
57,213,000 207,691,000 267,867,000 252,729,000
------------ ------------ ------------ ------------
Income (loss) from operations.............................. (2,467,000) 7,036,000 34,361,000 28,824,000
OTHER INCOME (Note 10)......................................... -- 3,000,000 -- --
INTEREST INCOME................................................ 217,000 386,000 504,000 636,000
INTEREST EXPENSE............................................... (11,553,000) (36,949,000) (46,017,000) (44,173,000)
------------ ------------ ------------ ------------
Net Loss................................................... $(13,803,000) $(26,527,000) $(11,152,000) $(14,713,000)
- --------------------------------------------------
============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-5
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(NOTE 2)
<TABLE>
<CAPTION>
CONTRIBUTED ACCUMULATED
CAPITAL DEFICIT TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1993
(Predecessor)........................ $ 73,395,000 $(41,717,000) $ 31,678,000
Net loss............................ -- (14,713,000) (14,713,000)
------------ ------------ ------------
Balance at December 31,1994
(Predecessor)........................ 73,395,000 (56,430,000) 16,965,000
Net loss............................ -- (11,152,000) (11,152,000)
------------ ------------ ------------
Balance at December 31,1995
(Predecessor)........................ 73,395,000 (67,582,000) 5,813,000
Net loss for the period from January
1, 1996 through October 6, 1996.... -- (26,527,000) (26,527,000)
------------ ------------ ------------
Balance at October 6, 1996
(Predecessor)........................ 73,395,000 (94,109,000) (20,714,000)
Capital contributed by THCR
Holdings........................... 5,000,000 -- 5,000,000
Adjustment to reflect acquisition of
the Partnership by THCR Holdings... 102,000,000 94,109,000 196,109,000
Net loss for the period from October
7, 1996 through December 31, 1996.. -- (13,803,000) (13,803,000)
------------ ------------ ------------
Balance at December 31, 1996
(Successor).......................... $180,395,000 $(13,803,000) $166,592,000
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-6
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 2)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------ ----------------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 7, JANUARY 1,
1996 THROUGH 1996 THROUGH YEARS ENDED DECEMBER 31,
DECEMBER 31, OCTOBER 6, --------------------------
1996 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss............................................................ $(13,803,000) $(26,527,000) $(11,152,000) $(14,713,000)
Adjustments to reconcile net loss to net cash flows provided by
(used in) operating activities--
Noncash charges--
Depreciation and amortization..................................... 4,819,000 12,253,000 14,639,000 14,437,000
Accretion of bond discount........................................ 681,000 2,061,000 2,372,000 2,148,000
Provision for losses on receivables............................... 63,000 1,340,000 1,370,000 3,438,000
Amortization of CRDA tax credits.................................. 258,000 305,000 720,000 955,000
Valuation allowance--CRDA investments............................. 100,000 710,000 936,000 735,000
------------ ------------ ------------ ------------
(7,882,000) (9,858,000) 8,885,000 7,000,000
Decrease (increase) in receivables................................ 1,626,000 (1,290,000) (3,486,000) (2,461,000)
Decrease in inventories........................................... 147,000 122,000 223,000 525,000
Decrease (increase) in other current assets....................... 707,000 2,131,000 (2,800,000) (320,000)
Decrease (increase) in other assets............................... 935,000 182,000 (86,000) (881,000)
(Decrease) increase in current liabilities........................ (4,915,000) 7,626,000 2,527,000 2,112,000
Increase in other liabilities..................................... 2,192,000 6,711,000 7,802,000 3,315,000
------------ ------------ ------------ ------------
Net cash flows (used in) provided by operating activities........ (7,190,000) 5,624,000 13,065,000 9,290,000
------------ ------------ ------------ ------------
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchases of property and equipment, net............................ (362,000) (4,235,000) (6,874,000) (8,257,000)
Purchase of CRDA investments........................................ (397,000) (2,143,000) (2,805,000) (2,350,000)
------------ ------------ ------------ ------------
Net cash flows used in investing activities...................... (759,000) (6,378,000) (9,679,000) (10,607,000)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of other borrowings....................................... (1,044,000) (2,649,000) (1,470,000) --
Other borrowings.................................................... -- 1,738,000 -- --
Capital contribution................................................ 5,000,000 -- -- --
------------ ------------ ------------ ------------
Net cash flows provided by (used in) financing activities........ 3,956,000 (911,000) (1,470,000) --
------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents............. (3,993,000) (1,665,000) 1,916,000 (1,317,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 19,373,000 21,038,000 19,122,000 20,439,000
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 15,380,000 $ 19,373,000 $21,038,000 $ 19,122,000
============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-7
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND OPERATIONS
The accompanying consolidated financial statements include those of Trump's
Castle Associates, L.P., a New Jersey limited partnership (the "Partnership")
and its wholly owned subsidiary, Trump's Castle Funding, Inc., a New Jersey
corporation ("Funding"). All significant intercompany balances and
transactions have been eliminated in the consolidated financial statements.
The Partnership was formed in 1985 for the sole purpose of acquiring and
operating Trump's Castle Casino Resort ("Trump's Castle"), a luxury casino
hotel located in the Marina District of Atlantic City, New Jersey. A
substantial portion of Trump's Castle's revenues are derived from its gaming
operations. Competition in the Atlantic City gaming market is intense and the
Partnership believes that the competition will continue as new entrants to the
gaming industry become operational.
Prior to the Acquisition of the Partnership (Note 2), Donald J. Trump
("Trump") was the beneficial owner of 100% of the common equity interest in
the Partnership, subject to the right of holders of warrants for 50% of the
common stock of Trump's Castle Hotel & Casino, Inc. ("TCHI") (the "TCHI
Warrants") to acquire an indirect beneficial interest in 0.5% of the common
equity interest in the Partnership.
Funding was incorporated on May 28, 1985 solely to serve as a financing
company to raise funds through the issuance of bonds to the public (Note 4).
Since Funding has no business operations, its ability to repay the principal
and interest on the 11 1/2% Senior Secured Notes due 2000 (the "Senior
Notes"), the 11 3/4% Mortgage Notes due 2003 (the "Mortgage Notes"), and its
Increasing Rate Subordinated Pay-in-Kind Notes due 2005 (the "PIK Notes") is
completely dependent upon the operations of the Partnership.
On October 7, 1996, Trump Hotels & Casino Resort Holdings, L.P. ("THCR
Holdings") acquired from Trump all of the outstanding equity of the
Partnership (Note 2). THCR Holdings is a 64% owned subsidiary of Trump Hotels
& Casino Resorts, Inc. ("THCR").
(2) ACQUISITION OF THE PARTNERSHIP AND BASIS OF PRESENTATION
Pursuant to the terms of the Agreement dated as of June 24, 1996, as amended
(the "Agreement") between THCR Holdings and entities owned by Trump, THCR
Holdings acquired on October 7, 1996, all of the outstanding equity interest
of the Partnership. This acquisition has been accounted for as a purchase. For
his equity interest in the Partnership, Trump received a 15.33863% limited
partnership interest in THCR Holdings valued at $168,126,000, which is
exchangeable into 5,837,700 shares of THCR Common Stock (valuing each share at
$28.80 based on the price of the THCR Common Stock several days before and
after the date of the Agreement). The excess of the purchase price over the
fair value of the net assets acquired of $196,109,000 (including transaction
costs, the purchase of the outstanding TCHI warrants and the historical
negative book value of the Partnership of $20,714,000) has been recorded on
the books of the Partnership and has been allocated to property, plant and
equipment based upon a recent appraisal.
As a result of the acquisition, a new basis of accounting was established
and financial statements prior to October 7, 1996 are presented as Predecessor
financial statements. The financial statements from October 7, 1996, are
presented as Successor financial statements.
The following unaudited proforma information has been prepared assuming the
acquisition had occurred as of January 1, 1995. The proforma information is
presented for informational purposes only and is not necessarily indicative of
what would have occurred if the acquisition had been made in January 1, 1995.
In addition, the proforma information is not intended to be a projection of
future results.
F-8
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996
THROUGH YEAR ENDED
OCTOBER 6, 1996 DECEMBER 31, 1995
(UNAUDITED) (UNAUDITED)
--------------- -----------------
<S> <C> <C>
Net Revenues................................. $214,727,000 $302,228,000
============ ============
Income from Operations....................... $ 3,005,000 $ 29,103,000
============ ============
Net Loss..................................... $(30,558,000) $(16,410,000)
============ ============
</TABLE>
(3) ACCOUNTING POLICIES
Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires the Partnership 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 may differ from these estimates.
Revenue Recognition
Casino revenues consist of the net win from gaming activities, which is the
difference between gaming wins and losses. Revenues from hotel and other
services are recognized at the time the related services are performed.
The Partnership provides an allowance for doubtful accounts arising from
casino, hotel, and other services, which is based upon a specific review of
certain outstanding receivables and historical collection performance. In
determining the amount of the allowance, the Partnership is required to make
certain estimates and assumptions and actual results may differ from these
estimates and assumptions.
Promotional Allowances
Gross revenues include the retail value of the complimentary food, beverage,
and hotel services provided to patrons. The retail value of these promotional
allowances is deducted from gross revenues to arrive at net revenues. The cost
of such complimentaries have been included in gaming costs and expenses in the
accompanying consolidated statements of operations and consist of:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
----------------- -----------------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 7, JANUARY 1, YEARS ENDED DECEMBER 31,
1996 THROUGH 1996 THROUGH -------------------------
DECEMBER 31, 1996 OCTOBER 6, 1996 1995 1994
----------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Rooms......................................................... $1,355,000 $ 4,876,000 $ 6,261,000 $ 6,554,000
Food and Beverage............................................. 4,926,000 16,742,000 18,240,000 17,342,000
Other......................................................... 743,000 2,574,000 2,483,000 2,693,000
---------- ----------- ------------ ------------
$7,024,000 $24,192,000 $ 26,984,000 $ 26,589,000
========== =========== ============ ============
</TABLE>
Income Taxes
The accompanying consolidated financial statements do not include a
provision for Federal income taxes of the Partnership, since any income or
losses allocated to the partners are reportable for Federal income tax
purposes by the partners.
Under the New Jersey Casino Control Act (the "Casino Control Act") and the
regulations promulgated thereunder, the Partnership and Funding are required
to file a consolidated New Jersey corporation business tax return.
F-9
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1996, the Partnership had New Jersey State net operating
losses of approximately $213,300,000, which are available to offset taxable
income through the year 2003. The net operating loss carryforwards result in a
deferred tax asset of $19,200,000, which has been offset by a valuation
allowance of $19,200,000, as utilization of such carryforwards is not
considered to be more likely than not.
Inventories
Inventories of provisions and supplies are carried at the lower of cost
(first-in, first-out basis) or market.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line method over the estimated useful lives of the assets. Estimated
useful lives for furniture, fixtures, and equipment and buildings are from
three to eight years and forty years, respectively.
Long-Lived Assets
During 1995, the Partnership adopted the provisions of Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-
Lived Assets" ("SFAS 121"). SFAS 121 requires, among other things, that an
entity review its long-lived assets and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of an asset may not be fully recoverable. As a result of its review, the
Partnership does not believe that any impairment exists in the recoverability
of its long-lived assets.
Statements of Cash Flows
For purposes of the statements of cash flows, Funding and the Partnership
consider all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
The following supplemental disclosures are made to the statements of cash
flows:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------ -------------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 7, JANUARY 1,
1996 1996
THROUGH THROUGH YEARS ENDED DECEMBER 31,
DECEMBER 31, OCTOBER 6, -------------------------
1996 1996 1995 1994
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Cash paid during the period for interest (net of amounts capitalized)..... $18,278,000 $18,209,000 $ 35,338,000 $ 31,255,000
=========== =========== ============ ============
Issuance of debt in exchange for accrued interest......................... $ 4,589,000 $ 4,292,000 $ 7,766,000 $ 3,559,000
=========== =========== ============ ============
</TABLE>
The acquisition of the Partnership by THCR Holdings resulted in an increase
of $196,109,000 to property, plant and equipment, an increase to contributed
capital of $102,000,000 and an elimination of the accumulated deficit of
$94,109,000.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 financial
statements in order to conform to the classifications used in 1996.
F-10
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) MORTGAGE NOTES AND PIK NOTES
The Mortgage Notes bear interest, payable in cash, semi-annually, at 11 3/4%
and mature on November 15, 2003. In the event the PIK Notes, discussed below,
are redeemed prior to November 15, 1998, the interest rate on the Mortgage
Notes will be reduced to 11 1/2%. The Mortgage Notes may be redeemed at
Funding's option at a specified percentage of the principal amount commencing
in 1998.
The PIK Notes bear interest payable, at Funding's option in whole or in part
in cash and through the issuance of additional PIK Notes, semi-annually at the
rate of 7% through September 30, 1994 and 13 7/8% through November 15, 2003.
After November 15, 2003, interest on the PIK Notes are payable in cash at the
rate of 13 7/8%. The PIK Notes mature on November 15, 2005. The PIK Notes may
be redeemed at Funding's option at 100% of the principal amount under certain
conditions, as defined in the PIK Note Indenture, and are required to be
redeemed from a specified percentage of any equity offering which includes the
Partnership. Interest has been accrued using the effective interest method. On
November 15, 1996, May 15, 1996, November 15, 1995 and May 15, 1995, the semi-
annual interest payments of $4,589,000, $4,292,000, $4,013,000 and $3,735,000,
respectively, were paid by the issuance of additional PIK Notes.
On June 23, 1995, the Partnership entered into an Option Agreement with
Hamilton Partners, L.P. ("Hamilton") which granted the Partnership an option
(the "Option") to acquire the PIK Notes owned by Hamilton. The Option was
granted to the Partnership in consideration of $1,900,000 of aggregate
payments to Hamilton. The Option was exercisable at a price equal to 60% of
the aggregate principal amount of the PIK Notes delivered by Hamilton, with
accrued but unpaid interest, plus 100% of the PIK Notes issued to Hamilton as
interest subsequent to June 23, 1995. Pursuant to the terms of the Option
Agreement, upon the occurrence of certain events within 18 months of the time
the Option is exercised, the Partnership is required to make an additional
payment to Hamilton of up to 40% of the principal amount of the PIK Notes. On
May 21, 1996, the Partnership assigned the Option to THCR Holdings, which, on
that same date, exercised the Option and acquired approximately 90% of the PIK
Notes for approximately $38,700,000, in exchange for which THCR Holdings
received an aggregate of approximately $59,300,000 of PIK Notes.
The terms of both the Mortgage Notes and PIK Notes include limitations on
the amount of additional indebtedness the Partnership may incur, distributions
of Partnership capital, investments, and other business activities. In
November 1996, THCR Holdings made a capital contribution of $5,000,000 to the
Partnership for debt service purposes.
The Mortgage Notes are secured by a promissory note of the Partnership to
Funding (the "Partnership Note") in an amount and with payment terms necessary
to service the Mortgage Notes. The Partnership Note is secured by a mortgage
on Trump's Castle and substantially all of the other assets of the
Partnership. The Partnership Note has been assigned by Funding to the Trustee
to secure the repayment of the Mortgage Notes. In addition, the Partnership
has guaranteed (the "Guaranty") the payment of the Mortgage Notes, which
Guaranty is secured by a mortgage on Trump's Castle. The Partnership Note and
the Guaranty are expressly subordinated to the indebtedness described in Note
5 (the "Senior Indebtedness") and the liens of the mortgages securing the
Partnership Note and the Guaranty are subordinate to the liens securing the
Senior Indebtedness.
The PIK Notes are secured by a subordinated promissory note of the
Partnership to Funding (the "Subordinated Partnership Note"), which has been
assigned to the Trustee for the PIK Notes, and the Partnership has issued a
subordinated guaranty (the "Subordinated Guaranty") of the PIK Notes. The
Subordinated Partnership Note and the Subordinated Guaranty are expressly
subordinated to the Senior Indebtedness, the Partnership Note, and the
Guaranty.
The ability of Funding and the Partnership to pay their indebtedness when
due, will depend on the ability of the Partnership to either generate cash
from operations sufficient for such purposes or to refinance such indebtedness
on or before the date on which it becomes due. The Partnership does not
currently anticipate being
F-11
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
able to generate sufficient cash flow from operations to repay a substantial
portion of the principal amounts of the Mortgage Notes and the PIK Notes when
due. Thus, the repayment of the principal amount of this indebtedness will
likely depend primarily upon the ability of Funding and the Partnership to
refinance this debt when due. The future operating performance of the
Partnership and the ability to refinance this debt will be subject to the then
prevailing economic conditions, industry conditions, and numerous other
financial, business, and other factors, many of which are beyond the control
of Funding or the Partnership. There can be no assurance that the future
operating performance of the Partnership will be sufficient to meet these
repayment obligations or that the general state of the economy, the status of
the capital markets generally, or the receptiveness of the capital markets to
the gaming industry will be conducive to refinancing this debt or other
attempts to raise capital.
(5) OTHER BORROWINGS
Bank Borrowings
The Partnership has a term loan with a bank (the "Term Loan") with a balance
of $34,833,000 at December 31, 1996. The Term Loan has a maturity date of May
28, 2000. Interest is at a rate of 3% above the bank's prime rate, which was
8.25% at December 31, 1996, but in no event can be less than 9% per annum. The
outstanding principal amount of the Term Loan is being repaid at $158,000 per
month through the maturity date, at which time the balance of $28,500,000 is
due.
The Term Loan is secured by a mortgage lien on Trump's Castle that is prior
to the lien securing the Mortgage Notes (Note 4) and the Senior Notes
described below.
Senior Notes
On December 28, 1993, Funding issued $27,000,000 of Senior Notes. Similar to
the Mortgage Notes, the Senior Notes are secured by an assignment of a
promissory note of the Partnership (the "Senior Partnership Note") which is in
turn secured by a mortgage on Trump's Castle and substantially all of the
other assets of the Partnership. In addition, the Partnership has guaranteed
(the "Senior Guaranty") the payment of the Senior Notes, which Senior Guaranty
is secured by a mortgage on Trump's Castle. The Senior Partnership Note and
the Senior Guaranty are subordinated to the Term Loan described above.
Interest on the Senior Notes is payable semiannually at the rate of 11 1/2%;
however in the event that the PIK Notes are redeemed prior to November 15,
1998, the interest rate will be reduced to 11 1/4%. The Senior Notes mature on
November 15, 2000, and are subject to a sinking fund which requires the
retirement of 15% of the Senior Notes on each November 15, 1998 and 1999.
(6) RELATED PARTY TRANSACTIONS
Trump Management Fee
The Partnership has a Services Agreement (the "Services Agreement") with
Trump Casino II, Inc., formerly known as TC/GP, Inc. ("TCI-II"), a corporation
wholly-owned by Trump. Pursuant to the terms of the Services Agreement, TCI-II
is obligated to provide the Partnership, from time to time, when reasonably
requested, consulting services on a non-exclusive basis, relating to
marketing, advertising, promotional, and other similar and related services
with respect to the business and operations of the Partnership, including such
other services as the Managing Partner may reasonably request.
Pursuant to the Services Agreement, the Partnership is required to pay an
annual fee in the amount of $1,500,000 to TCI-II for each year in which
Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA"), as
defined, exceeds certain levels. In addition, beginning with the fiscal year
ended December 31, 1994, TCI-II is to receive an incentive fee equal to 10% of
the excess EBITDA over $45,000,000 for such fiscal year.
F-12
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For the period from October 7, 1996 through December 31, 1996 and the period
from January 1, 1996 through October 6, 1996 the Partnership incurred no fees
and expenses under the Services Agreement. For the years ended December 31,
1995 and 1994 the Partnership incurred fees and expenses of $2,087,000 and
$2,111,000, respectively, under the Services Agreement. As the Partnership did
not meet the required level of EBITDA during 1996, the monthly advances to
TCI-II related to the Services Agreement were suspended, and at October 6,
1996, the Partnership recorded a receivable in the amount of $1,250,000 which
represents the amounts advanced during the year. This amount is included in
Due From Affiliates in the accompanying balance sheet. The Services Agreement
expires on December 31, 2005.
Other Payments to Trump
During 1994, the Board of Partner Representatives approved a $1,000,000
bonus which was paid to Trump, based upon 1994 operating results. No bonus was
approved for 1996 or 1995.
Transactions with Affiliates
At December 31, 1996 and October 6, 1996 amounts due to affiliates were
$1,712,000 and $576,000 respectively. Amounts due from affiliates were
$1,970,000, $1,250,000 and $1,146,000 as of December 31, 1996, October 6, 1996
and December 31, 1995, respectively. The Partnership has engaged in limited
intercompany transactions with Trump Plaza Associates ("Plaza Associates"),
Trump Taj Mahal Associates ("Taj Associates"), and the Trump Organization,
which are affiliates of Trump. These transactions include certain shared
payroll costs as well as complimentary services offered to customers, for
which the Partnership makes initial payments and is then reimbursed by the
affiliates.
For the period from October 7, 1996 through December 31, 1996, the period
from January 1, 1996 through October 6, 1996 and for the years ended December
31, 1995 and 1994, the Partnership incurred expenses of approximately
$176,000, $978,000, $1,673,000, and $1,631,000, respectively, for corporate
salaries and $78,000, $495,000, $1,109,000, and $1,047,000, respectively, of
other transactions on behalf of these related entities. In addition, the
Partnership received payments totaling $0, $1,421,000, $1,401,000, and
$2,438,000, respectively, for services rendered and had $1,537,000,
$1,665,000, $580,000, and $441,000, respectively, of charges for similar costs
incurred by these related entities on behalf of the Partnership.
Partnership Agreement
Under the terms of the Partnership Agreement, the Partnership is required to
pay all costs incurred by TCI-II. For the period from October 7, 1996 through
December 31, 1996, the period from January 1, 1996 through October 6, 1996 and
for the years ended December 31, 1995 and 1994, the Partnership paid $72,000,
$1,572,000, $1,248,000, and $1,188,000, respectively, of expenses on behalf of
TCI-II which were charged to general and administrative expense in the
accompanying consolidated financial statements.
Trump Casino Services
Trump Casino Services, L.L.C. ("TCS"), a wholly owned subsidiary of THCR
Holdings, a New Jersey limited liability company, was founded on June 27, 1996
for the purpose of realizing cost savings and operational synergies by
consolidating certain administrative functions of, and providing certain
services to Plaza Associates, Taj Associates and the Partnership. Charges from
TCS for the period October 7, 1996 to December 31, 1996 were $1,369,000.
F-13
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES
Casino License Renewal
The Partnership is subject to regulation and licensing by the New Jersey
Casino Control Commission (the "CCC"). The Partnership's casino license must be
renewed periodically, is not transferable, is dependent upon the financial
stability of the Partnership, and can be revoked at any time. Due to the
uncertainty of any license renewal application, there can be no assurance that
the license will be renewed. Upon revocation, suspension for more than 120
days, or failure to renew the casino license due to the Partnership's financial
condition or for any other reason, the Casino Control Act provides that the CCC
may appoint a conservator to take possession of and title to the hotel and
casino's business and property, subject to all valid liens, claims, and
encumbrances.
On June 22, 1995, the CCC renewed the casino license of the Partnership
through 1999, subject to certain continuing reporting and compliance
conditions.
Self Insurance Reserves
Self insurance reserves represent the estimated amounts of uninsured claims
related to employee health medical costs, workers compensation, and other legal
proceedings in the normal course of business. These reserves are established by
the Partnership based upon a specific review of open claims as of the balance
sheet date as well as historical claims settlement experience. Actual results
may differ from these reserve amounts.
Employment Agreements
The Partnership has entered into employment agreements with certain key
employees which expire at various dates through February 17, 1999. Total
minimum commitments on these agreements at December 31, 1996 were approximately
$3,557,000.
Legal Proceedings
The Partnership is involved in legal proceedings incurred in the normal
course of business. In the opinion of management and its counsel, if adversely
decided, none of these proceedings would have a material effect on the
consolidated financial position of the Partnership.
Casino Reinvestment Development Authority Obligations
Pursuant to the provisions of the Casino Control Act, the Partnership must
either obtain investment tax credits, as defined in the Casino Control Act, in
an amount equivalent to 1.25% of its gross casino revenues, as defined in the
Casino Control Act, or pay an alternative tax of 2.5% of its gross casino
revenues. Investment tax credits may be obtained by making qualified
investments, as defined, or by depositing funds which may be converted to bonds
by the Casino Reinvestment Development Authority (the "CRDA"), both of which
bear interest at below market interest rates. The Partnership is required to
make quarterly deposits with the CRDA to satisfy its investment obligations.
From time to time the Partnership has elected to donate funds that it has on
deposit with the CRDA in return for tax credits to satisfy substantial portions
of the Partnership's future investment alternative tax obligations. Donations
in the amount of $375,000 and $6,440,000 were made in 1995 and 1994,
respectively. No donations were made in 1996. These donations, net of the tax
credits received, were charged against operations and resulted in CRDA tax
credits of $191,000 and $1,474,000 to be applied to the years ending December
31, 1995 and 1994, respectively. For the period from October 7, 1996 through
December 31, 1996, the period from January 1, 1996 through October 6, 1996 and
for the years ended December 31, 1995 and 1994 the Partnership charged to
operations $258,000, $305,000, $720,000, and $955,000, respectively, which
represents amortization of a portion of the tax credits discussed above.
F-14
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition, for the period from October 7, 1996 through December 31, 1996,
the period from January 1, 1996 through October 6, 1996 and for the years
ended December 31, 1995 and 1994, the Partnership charged to operations
$100,000, $710,000, $936,000, and $735,000, respectively, to give effect to
the below market interest rates of associated CRDA deposits and bonds.
(8) EMPLOYEE BENEFIT PLANS
The Partnership has a retirement savings plan for its nonunion employees
under Section 401(k) of the Internal Revenue Code. Employees are eligible to
contribute up to 15% of their earnings to the plan up to the maximum amount
permitted by law, and the Partnership will match 50% of an eligible employee's
contributions up to a maximum of 5% of the employee's earnings. The
Partnership recorded charges of approximately $212,000, $765,000, $1,013,000,
and $899,000 for matching contributions for the period from October 7, 1996
through December 31, 1996, the period from January 1, 1996 through October 6,
1996 and for the years ended December 31, 1995 and 1994, respectively.
The Partnership makes payments to various trusteed multi-employer pension
plans under industry-wide union agreements. The payments are based on the
hours worked by or gross wages paid to covered employees. It is not practical
to determine the amount of payments ultimately used to fund pension benefit
plans or the current financial condition of the plans. Under the Employee
Retirement Income Security Act, the Partnership may be liable for its share of
the plans' unfunded liabilities, if any, if the plans are terminated or if the
Partnership withdraws from participation in such plans. Based upon the most
recent information available, the withdrawal liability to the Partnership
related to one of the plans unfunded status approximates $1,600,000. Pension
expense for the period from October 7, 1996 through December 31, 1996, the
period from January 1, 1996 through October 6, 1996 and for the years ended
December 31, 1995 and 1994 were $109,000, $389,000, $497,000, and $455,000,
respectively.
The Partnership provides no other material post employment benefits.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the following financial instruments of the
Partnership and Funding approximate fair value, as follows: (a) cash and cash
equivalents and accrued interest receivables and payables based on the short-
term nature of the financial instruments, (b) CRDA bonds and deposits based on
the allowances to give effect to the below market interest rates.
The fair values of the Mortgage Notes and PIK Notes are based on quoted
market prices as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------
SUCCESSOR CARRYING AMOUNT FAIR VALUE
--------- --------------- ------------
<S> <C> <C>
11 3/4% Mortgage Notes......................... $209,070,000 $213,084,000
PIK Notes...................................... $ 63,231,000 $ 65,169,000
<CAPTION>
OCTOBER 6, 1996
----------------------------
PREDECESSOR CARRYING AMOUNT FAIR VALUE
----------- --------------- ------------
<S> <C> <C>
11 3/4% Mortgage Notes......................... $208,452,000 $251,827,000
PIK Notes...................................... $ 58,580,000 $ 68,043,000
<CAPTION>
DECEMBER 31, 1995
----------------------------
PREDECESSOR CARRYING AMOUNT FAIR VALUE
----------- --------------- ------------
<S> <C> <C>
11 3/4% Mortgage Notes......................... $206,569,000 $212,479,000
PIK Notes...................................... $ 54,110,000 $ 48,096,000
</TABLE>
F-15
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
There are no quoted market prices for the Partnership Term Loan and Senior
Notes. A reasonable estimate of their value could not be made without
incurring excessive costs.
(10) LICENSE REVENUE
On September 27, 1996 the Partnership entered into a Thermal Energy Service
Agreement with Atlantic Jersey Thermal Systems, Inc. ("Atlantic Thermal")
pursuant to which Atlantic Thermal was granted an exclusive license for a
period of 20 years to use, operate and maintain certain steam and chilled
water production facilities at Trump's Castle. In consideration of the
license, Atlantic Thermal paid the Partnership $3,000,000, which amount has
been included in other non-operating income for the period from January 1,
1996 through October 6, 1996.
(11) FINANCIAL INFORMATION OF FUNDING
Financial information relating to Funding as of and for the periods from
October 7, 1996 through December 31, 1996, January 1, 1996 through October 6,
1996 and for the year ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------ -------------------------
DECEMBER 31, OCTOBER 6, DECEMBER 31,
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Total Assets (including Mortgage Notes
Receivable of $242,141,000, net of
unamortized discount of $33,071,000,
$33,689,000 and $35,572,000 at
December 31, 1996, October 6, 1996 and
December 31, 1995; PIK Notes
Receivable of $70,740,000, net of
unamortized discount of $7,509,000 at
December 31, 1996, $66,151,000, net of
unamortized discount of $7,571,000 at
October 6, 1996 and $61,860,000, net
of unamortized discount of $7,750,000
at December 31, 1995, and Senior Notes
Receivable of $27,000,000 at December
31, 1996, October 6, 1996 and December
31, 1995.)............................ $299,301,000 $294,032,000 $287,679,000
============ ============ ============
Total Liabilities and Capital
(including Mortgage Notes Payable of
$242,141,000, net of unamortized
discount of $33,071,000, $33,689,000
and $35,572,000 at December 31, 1996,
October 6, 1996 and December 31, 1995,
PIK Notes Payable of $70,740,000, net
of unamortized discount of $7,509,000
at December 31, 1996, $66,151,000, net
of unamortized discount of $7,751,000
at October 6, 1996 and $61,860,000,
net of unamortized discount of
$7,750,000, at December 31, 1995 and
Senior Notes Payable of $27,000,000 at
December 31, 1996, October 6, 1996,
and December 31, 1995.)............... $299,301,000 $294,032,000 $287,679,000
============ ============ ============
Interest Income........................ $ 10,250,000 $ 32,945,000 $ 41,768,000
Interest Expense....................... $ 10,250,000 $ 32,945,000 $ 41,768,000
------------ ------------ ------------
NET INCOME............................. $ -- $ -- $ --
============ ============ ============
</TABLE>
F-16
<PAGE>
SCHEDULE II
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES CHARGES PERIOD
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
PERIOD FROM OCTOBER 7, 1996
THROUGH DECEMBER 31, 1996
Allowance for doubtful
accounts................... $2,007,000 $ 63,000 $ (526,000)(A) $1,544,000
========== ========== =========== ==========
Valuation allowance for
interest differential on
CRDA bonds................. $2,416,000 $ 100,000 $ (12,000)(B) $2,504,000
========== ========== =========== ==========
PERIOD FROM JANUARY 1, 1996
THROUGH OCTOBER 6, 1996
Allowance for doubtful
accounts................... $1,969,000 $1,340,000 $(1,302,000)(A) $2,007,000
========== ========== =========== ==========
Valuation allowance for
interest differential on
CRDA bonds................. $1,744,000 $ 710,000 $ (38,000)(B) $2,416,000
========== ========== =========== ==========
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful
accounts................... $3,704,000 $1,370,000 $(3,105,000)(A) $1,969,000
========== ========== =========== ==========
Valuation allowance for
interest differential on
CRDA bonds................. $ 933,000 $ 936,000 $ (125,000)(B) $1,744,000
========== ========== =========== ==========
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful
accounts................... $1,928,000 $3,438,000 $(1,662,000)(A) $3,704,000
========== ========== =========== ==========
Valuation allowance for
interest differential on
CRDA bonds................. $2,362,000 $ 735,000 $(2,164,000)(B) $ 933,000
========== ========== =========== ==========
</TABLE>
- ---------------------
(A) Write-off of uncollectible accounts.
(B) Write-off of allowance applicable to contribution of CRDA deposits.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
21 List of Subsidiaries of Trump's Castle Funding, Inc. and Trump's
Castle Associates, L.P.
27.1 Financial Data Schedule of Trump's Castle Funding, Inc.
27.2 Financial Data Schedule of Trump's Castle Associates, L.P.
</TABLE>
<PAGE>
Exhibit 21
----------
List of Subsidiaries of
------------------------
Trump's Castle Associates, L.P.
-------------------------------
Name of Subsidiary State of Organization/Incorporation
- ------------------ -----------------------------------
Trump's Castle Funding, Inc. New Jersey
List of Subsidiaries of
-----------------------
Trump's Castle Funding, Inc.
----------------------------
None.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information from Trump's Castle Funding,
Inc. This data has been extracted from the Consolidated Balance Sheets and
Consolidated Statements of Operations for the year ended December 31, 1996 and
is qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<CIK> 0000770618
<NAME> TRUMP'S CASTLE FUNDING, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 299,301
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 200
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 299,301
<SALES> 0
<TOTAL-REVENUES> 43,195
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (43,195)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information from Trump's Castle
Associates, L.P. This data has been extracted from the Consolidated Balance
Sheets and Consolidated Statements of Operations for the period from October 7,
1996 through December 31, 1996 and for the period from January 1, 1996 through
October 6, 1996 and is qualified in its entirety by reference to such Financial
Statements.
</LEGEND>
<CIK> 0000911534
<NAME> TRUMP'S CASTLE ASSOCIATES, L.P.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> OTHER OTHER
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> OCT-07-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 OCT-06-1996
<CASH> 15,380 19,373
<SECURITIES> 0 0
<RECEIVABLES> 7,157<F1> 7,326<F1>
<ALLOWANCES> 0 0
<INVENTORY> 1,298 1,445
<CURRENT-ASSETS> 27,904 34,698
<PP&E> 514,695 516,668
<DEPRECIATION> (4,819) 198,767
<TOTAL-ASSETS> 548,011 363,468
<CURRENT-LIABILITIES> 42,181 47,427
<BONDS> 272,301 267,032
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 548,011 363,468
<SALES> 0 0
<TOTAL-REVENUES> 54,746 214,727
<CGS> 0 0
<TOTAL-COSTS> 54,431 196,083
<OTHER-EXPENSES> 2,782 11,608
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (11,553) (36,949)
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (13,803) (26,527)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>Asset values represent net assets.
</FN>
</TABLE>
