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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1997
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
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TRUMP'S CASTLE FUNDING, INC.
(Exact name of registrant as specified in its charter)
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NEW JERSEY 11-2739203
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) No.)
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HURON AVENUE AND BRIGANTINE 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)
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NEW JERSEY 22-2608426
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) No.)
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HURON AVENUE AND BRIGANTINE 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:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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11 3/4% Mortgage Notes due 2003 American Stock Exchange, Inc.
Increasing Rate Subordinated American Stock Exchange, Inc.
Pay-In-Kind Notes due 2005
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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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 30, 1998, 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 30, 1998 of the Registrants was $0.
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FORM 10-K
TABLE OF CONTENTS
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ITEM PAGE
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PART I
ITEM 1. BUSINESS................................................................................. 1
General.................................................................................. 1
Trump Marina............................................................................. 2
Trademark/Licensing...................................................................... 6
Certain Indebtedness of the Partnership.................................................. 7
Atlantic City Market..................................................................... 8
Competition.............................................................................. 9
Gaming and Other Laws and Regulations.................................................... 11
ITEM 2. PROPERTIES............................................................................... 18
ITEM 3. LEGAL PROCEEDINGS........................................................................ 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................... 21
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................. 22
ITEM 6. SELECTED FINANCIAL DATA.................................................................. 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.... 23
Results of Operations for the Years Ended December 31, 1997 and 1996..................... 23
Results of Operations for the Years Ended December 31, 1996 and 1995..................... 24
Liquidity and Capital Resources.......................................................... 25
Seasonality.............................................................................. 26
Inflation................................................................................ 26
Recently Issued Accounting Standards..................................................... 26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................... 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
39
IMPORTANT FACTORS RELATING TO FORWARD LOOKING STATEMENTS...................................................
SIGNATURES
40
SIGNATURE--TRUMP'S CASTLE FUNDING, INC...................................................................
40
SIGNATURE--TRUMP'S CASTLE ASSOCIATES, L.P................................................................
F-1
INDEX TO FINANCIAL STATEMENTS..............................................................................
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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 was formed in 1985 for the sole purpose of acquiring and
operating Trump's Castle Casino Resort, a luxury casino hotel located in the
Marina District of Atlantic City, New Jersey (the "Marina District"). During the
second quarter of 1997 the Partnership rethemed the property with a nautical
emphasis and renamed it Trump Marina Hotel Casino ("Trump Marina"). Prior to the
acquisition of Trump Marina (which at that time was Trump's Castle Casino
Resort) (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 District, the
principal focus of expansion in the Atlantic City gaming market (the "Atlantic
City Market"). 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
Marina and the other THCR properties in Atlantic City. Ownership of Trump Marina
will enable THCR to retain patrons that may be drawn from The Boardwalk to the
Marina District by new casino development in the Marina District. The Castle
Acquisition has also enabled THCR to benefit from (i) the excellent condition of
the current facilities at Trump Marina, which have been designed to accommodate
additional development with minimal disruption to existing operations, (ii) the
proximity of Trump Marina 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 Marina (the "Trump Marina
Expansion"), which would, among other things, enable THCR to capitalize on the
expected increase in gaming activity in the Marina District.
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., ("Trump
Communications"), 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
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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.
TRUMP MARINA
The Partnership owns and operates Trump Marina, a luxury casino hotel
located on 14.7 acres in the Marina District approximately two miles from The
Boardwalk. Trump Marina is approximately one-quarter mile from the H-Tract.
Trump Marina consists of a 27-story hotel tower with 728 rooms, including 185
suites, 99 of which are oversized luxury suites, and contains approximately
75,900 square feet of gaming space. Trump Marina offers 2,198 slot machines, 91
table games, 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 540-seat cabaret theater, two cocktail lounges, a
swimming pool, tennis courts, a health club and a roof-top helipad. In addition,
Trump Marina operates a 645-slip marina which is adjacent to the casino hotel.
An elevated enclosed walkway connects Trump Marina 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 Marina distinguishes itself as a
desirable alternative to the Atlantic City casinos located on The Boardwalk.
MARKETING STRATEGY
Management's recent retheming of Trump Marina is intended to build upon the
casino's established customer base by attracting a younger crowd to the
facility. In keeping with this initiative, management has aimed to differentiate
Trump Marina from other Atlantic City casinos by offering contemporary
entertainment attractions and introducing its current "Wild Side" marketing
campaign. The "Wild Side" marketing program consists of a coordinated
advertising, entertainment and marketing campaign that is geared toward a
younger generation of patrons but will not exclude Trump Marina's established
customer base. Management, which developed the "Wild Side" marketing program
after careful study of the Atlantic City market, seeks to accomplish its goals
via an advertising campaign with a fun and youthful appeal, as well as providing
varied and extensive contemporary entertainment in the Grand Cayman Ballroom,
"The Shell" (a cabaret style theater), "The Wave" (a night club), "The Deck"
(for outdoor summertime entertainment) and large outdoor performances billed as
"Rock the Dock" concerts.
SERVICE. By providing and maintaining a first-class facility and
exceptional service, Trump Marina has earned both the American Automobile
Association's "Four Diamond" rating and a "Four Star" Mobil Travel Guide rating.
Trump Marina provides a broadly diversified gaming and entertainment experience
consistent with the "Trump" name and reputation for quality amenities and
first-class service.
GAMING ENVIRONMENT. To stay abreast of current gaming trends in Atlantic
City, Trump Marina's management continuously monitors the configuration of the
casino floor and the games it offers to patrons with a view towards making
changes and improvements. A sophisticated computerized slot tracking and
marketing system is employed to perform this analysis. This monitoring has
confirmed a recent trend in the Atlantic City market towards fewer table games
and more slot machines. For example, slot machine revenue for the Atlantic City
market increased from 54.6% of the industry gaming revenue in 1988 to 70.4% of
industry gaming revenue in 1997. Trump Marina experienced a similar increase,
with slot revenue increasing from 52.5% of gaming revenue in 1988 to 70.1% of
gaming revenue in 1997. In response to this trend, management devoted more of
its casino floor space to slot machines between 1994 and 1997, and has replaced
substantially all of its slot machines with newer machines. Trump Marina has
also responded to this trend by introducing its Monte Carlo club for high-end
slot players.
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"COMPING" STRATEGY. In order to compete effectively with other Atlantic
City casino hotels, Trump Marina offers complimentaries primarily to patrons
with a demonstrated propensity for gaming at Trump Marina. The policy at Trump
Marina 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. Trump Marina pursues a coordinated
program of headline entertainment and special events. Trump Marina offers
headline entertainment approximately twenty times a year in its main ballroom,
complimented by contemporary acts each weekend in the cabaret theater. As a part
of its marketing plan, Trump Marina offers special events aimed at its core,
middle and upper-middle market segments. Trump Marina also hosts special events
on an invitation-only basis in an effort to attract existing targeted gaming
patrons and build loyalty among these 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. In addition, as
part of its "Wild Side" marketing campaign, Trump Marina features outdoor bands
nightly (in season) as well as outdoor concerts promoted under the "Rock the
Dock" theme. Recent performers have included The Wallflowers and comedian Chris
Rock.
PLAYER DEVELOPMENT AND CASINO HOSTS. Trump Marina has contracts with sales
representatives in New Jersey, New York and other states to promote the casino
hotel. Trump Marina 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 Marina assist table game patrons, and the slot
sales representatives at Trump Marina assist slot patrons on the casino floor,
make room and dinner reservations and provide general assistance. Slot sales
representatives also solicit Marina Card (the frequent player identification
slot card) sign-ups in order to increase Trump Marina's marketing base.
PROMOTIONAL ACTIVITIES. The Marina Card constitutes a key element in the
direct marketing program of Trump Marina. Slot machine players are encouraged to
register for and utilize their personalized Marina Card to earn various
complimentaries based upon their level of play. The Marina 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 Marina 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
Marina Card and on table wagering by the casino games supervisor. Trump Marina
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 Marina.
CREDIT POLICY. Historically, Trump Marina has extended credit on a
discretionary basis to certain qualified patrons. Credit play, as a percentage
of total dollars wagered, was approximately 32.4%, 31.4% and 30.0% for 1997,
1996 and 1995, respectively. As part of Trump Marina's business strategy, Trump
Marina has imposed stricter standards on applications for new or additional
credit. Trump Marina bases credit limits on each individual patron's
creditworthiness, as determined by an examination of the
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following criteria: (i) checking each patron's personal checking account for
current and average balances; (ii) performing a credit check on each domestic
patron; and (iii) checking each patron's credit limits and indebtedness at all
casinos in the United States as well as many island casinos. The above
determination of a patron's continued creditworthiness is performed for
continuing patrons on a yearly basis or more frequently if Trump Marina deems a
re-determination of credit worthiness is necessary. In addition, depositing of
markers is regulated by the State of New Jersey. Markers in increments of $1,000
or less are deposited in a maximum of 7 days; markers of increments of $1,001 to
$5,000 are deposited in a maximum of 14 days; and markers in increments of over
$5,001 are deposited in a maximum of 45 days. Markers may be deposited sooner at
the request of patrons or at Trump Marina's discretion.
BUS PROGRAM. Trump Marina has a bus program which transports approximately
700 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, management has
determined that gaming patrons who arrive by special charters as opposed to
scheduled bus lines or who travel distances greater than 60 miles are more
likely to create higher gaming revenue. Accordingly, Trump Marina's marketing
efforts are focused on such bus patrons.
TRUMP MARINA EXPANSION
In 1997, Trump Marina completed a project to retheme the casino hotel with a
nautical emphasis, targeting younger customers by offering contemporary
entertainment attractions and emphasizing Trump Marina's energetic, lively
atmosphere. In connection with this retheming, Trump Marina has developed an
expansion plan which would substantially increase the size of its facilities.
This plan includes the addition of a new hotel tower with 780 rooms and suites,
a 17,000 square foot expansion of the existing casino and a 430 foot luxury
yacht located in the marina, which would be physically connected to the main
casino and would feature 40,000 square feet of casino space. Management believes
that this proposed expansion could be completed at a minimum cost as Trump
Marina was designed to accommodate additional development with a minimal
disruption to existing operations.
The Trump Marina 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 Marina
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 may be required 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 Marina Expansion, the Partnership must obtain, among other regulatory
approvals, the determination of the CCC that the operations 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 Marina Expansion.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1997, the Partnership employed approximately 2,550
full-time equivalent 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.
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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 AND 1993 RECAPITALIZATIONS. On May 29, 1992, TCHI, 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. 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 and one share of TCI-II's common stock (collectively, the "Units")),
who participated in the exchange offer in connection with the Castle
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
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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.
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.
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
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
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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"). 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 Marina 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 Marina
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
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.
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, 1997 and November 15, 1997, the semi-annual interest payments
of $4,908,000 and $5,248,000, 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 Marina 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 Marina and substantially all of the assets of the Partnership. The
Senior Partnership Note and the Senior Guaranty are subordinated to the Term
Loan.
The Senior Notes are subject to an approximately $4.0 million sinking fund
payment due on each of May 31, 1998 and May 31, 1999. The Partnership is
currently in negotiations regarding the refinancing of the Senior Notes.
The Partnership also has the Term Loan with an outstanding principal balance
of $32,933,000 at December 31, 1997. 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
11 1/2% at December 31, 1997, 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 mortgage liens on Trump Marina
and substantially all of the other assets of the Partnership. The lien is
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senior to the liens securing the Mortgage Notes and the Senior Notes. In
addition, Funding has guaranteed the payment of the Term Loan.
The terms of the 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 $3.91 billion in gaming revenues
in 1997, an approximately 2.1% increase over 1996 gaming revenues of
approximately $3.83 billion. From 1992 to 1997, total gaming revenues in
Atlantic City have increased approximately 21.4%, while hotel rooms increased by
25.5% during that period. Although total visitor volume to Atlantic City
remained relatively constant in 1997, the volume of bus customers dropped to 9.4
million in 1997, continuing a decline from 11.7 million 1991. The volume of
customers traveling by other means to Atlantic City has grown from 20.4 million
in 1992 to 34.3 million in 1997.
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 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 3.6% in 1997, continuing a trend
of increases over the past five years. From 1992 through 1997, slot revenue
growth in Atlantic City has averaged 5.2% per year. Total table game revenue did
not increase in 1997, while table game revenue from 1992 to 1997 has increased
on average 0.8% per year. Management believes the slow growth in table game
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 1992, the number of slot machines in Atlantic City has increased by 54%,
while the number of table games has increased by 12.6%. Slot revenues increased
from 66% of total casino revenues in 1992 to 70% in 1997. The second reason for
historic slow growth in table game 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 over the past
several years. 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
Development Authority (the "CRDA"). Administrative costs of regulation will be
reduced while increasing funds will be available for new development. In
addition, in 1994, 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.
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Atlantic City's new convention center, with 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, is the largest exhibition
space between New York City and Washington, D.C. It is located at the base of
the Atlantic City Expressway and opened in May 1997. The old convention center,
built in the late 1920s and located on The Boardwalk, will receive an
approximately $50 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 million has 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
$88 million "Grand Boulevard" corridor that will link the new convention center
with The Boardwalk. The project has been substantially completed as of December
31, 1997.
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 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 Marina competes with other casino hotels located in Atlantic
City, including 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. At present, there are 12 casino hotels located in Atlantic
City, including Trump Marina, Trump Plaza and the Taj Mahal, all of which
compete for patrons. Trump Marina 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 District 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 (including a casino resort by Mirage to be build in the Marina
District and a casino resort by MGM Grand, Inc. to be build on The Boardwalk),
although management is not aware of any current construction on such sites by
third parties. Substantial new expansion and development activity has recently
been completed or has been announced in Atlantic City, including the expansion
at Harrah's, Hilton, Caesar's, Resorts, Tropicana and Bally's Wild West Casino,
which intensifies 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 Marina. There also
can be no assurance that the Atlantic City development projects which are
planned or are underway will be completed.
Trump Marina 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 Marina 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
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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. Bay Cruises temporarily ceased operations
pending the outcome of its appeal of a federal prosecutor's ruling that the
ships must travel 12, rather than 3, miles offshore to reach international
waters. On December 2, 1997, a federal judge overruled the prosecutor's ruling,
and Bay Cruises announced plans to resume operations. In September 1997, another
gambling cruise ship was launched off the coast of Montauk, New York. On January
28, 1998, Manhattan Cruises began offering nightly gambling cruises departing
from Manhattan, New York City and five other companies are currently seeking
permission to operate similar cruises. On December 5, 1997, the mayor of New
York City proposed the construction of a casino on Governors Island, located in
the middle of New York Harbor; however the proposal would require an amendment
to the New York State Constitution and the sale of the island to New York by the
federal government. In Delaware, a total of approximately 2,000 slot machines
were installed at 3 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 February 1998, the Ontario Casino Commission awarded the right to
develop and operate Casino Niagara to a consortium whose principal investor is
Hyatt Hotels Corporation ("Hyatt"). Hyatt expects to expand the gaming area and
build a hotel at the facility.
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 Marina competes directly with Trump Plaza and the Taj Mahal
for gaming patrons.
OTHER COMPETITION. In addition, Trump Marina 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 Marina. 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, 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 5,500 slot machines. An ongoing expansion at Foxwoods, due to be
completed in April 1998, will include additional hotel rooms, restaurants and
retail stores. A high speed ferry between New York City and Foxwoods is due to
begin service in March 1998. The Mashantucket Pequot Nation has also announced
plans for a high speed train linking Foxwoods to the interstate highway and an
airport outside Providence, Rhode Island. 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 Resort has 75% of the gaming capacity of Foxwoods. The Mohegan Nation has
announced plans for an expansion of the casino facilities and the construction
of a hotel, convention center and entertainment center to be completed by the
year 2000. In addition, the Eastern Pequots are seeking formal recognition as a
Native American tribe for the purpose of opening a casino in the North
Stonington area. There can be no assurance that any continued expansion of
gaming operations of the Mashantucket Pequot Nation, the gaming operations of
the Mohegan Nation or the commencement of
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gaming operations by the Eastern Pequots would not have a materially adverse
impact on the operations of the Partnership.
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 required 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. The Oneida
Nation opened a hotel in October 1997 that included expanded gaming facilities,
and has announced plans to construct a golf course and convention center.
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 Aquinnah Wampanoag
Tribe is seeking to open a casino in Fall River, 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. 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 Marina 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 other three 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 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,
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.
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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 operations 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 includes 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 contraction 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.
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;
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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.
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
publicity-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.
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.
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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, 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,
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any such security, share, or other interest in the event that the CCC
disapproves a transfer. With respect to the 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 a 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 interest 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 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
qualifications 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.
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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 durational term
exceeding 30 years, must concern 100% of the entire approved hotel building or
the land upon which it is located and 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 founded 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 lease 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, 1995,
1996 and 1997, the Partnership's gross revenue tax was approximately $21.9
million, $19.9 million and $21.1 million, respectively, and its license,
investigation and other fees and assessments totaled approximately $3.8 million,
$4.0 million and $3.5 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 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 designed as eligible by the CRDA and (ii) has the option of
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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 as 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 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
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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 Marina is conducted by trained and
supervised personnel. The Partnership employs extensive security and internal
controls. Security checks are make 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
the 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 Marina is located in the Marina District 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 Marina has approximately 75,900 square-feet of gaming space which
accommodates 91 table games, 2,198 slot machines and race simulcasting
facilities. In addition to the casino, Trump Marina consists of a 27-story hotel
with 728 guest rooms, including 185 suites, of which 99 are "Crystal Tower"
luxury suites. Renovation of 300, 210 and 90 of the guest rooms was completed in
1995, 1996 and 1997, respectively. The facility also offers eight restaurants,
540-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 Marina 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 Marina also has a nine-story garage
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providing on-site parking for approximately 3,000 vehicles and a helipad which
is located atop the parking garage, making Trump Marina the only Atlantic City
casino with access by land, sea and air.
Between 1994 and 1997, management replaced substantially all of its slot
machines with newer more popular models and upgraded its computerized slot
tracking and slot marketing system. During 1997 the property was rethemed with a
nautical emphasis and renamed Trump Marina. In 1994, management completed a
3,000 square-foot expansion to its casino which enabled Trump Marina 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
Marina 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 Trump Marina, including docks containing
approximately 645 slips. An elevated pedestrian walkway connecting Trump Marina
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 Marina Expansion.
THE PARKING PARCEL. The Partnership also owns an employee parking lot
located on Route 30, approximately two miles from Trump Marina, 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 vigorously 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 these 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. These
plaintiffs served a notice of dismissal in the Delaware cases on December 29,
1997. The Court of Chancery has not yet ordered the Delaware cases dismissed.
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
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THCR, THCR, THCR Holdings, the Partnership, 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, and an injunction, rescission and damages.
The Delaware cases were amended and refiled in the Southern District of New
York and 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 a previously contemplated transaction with Colony Capital, Inc.
("Colony Capital"). The Second Amended Complaint also includes claims against
Colony Capital for aiding and abetting certain of these 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, 1997, THCR and
Colony Capital mutually agreed to end negotiations with respect to such
transaction. On June 26, 1997, plaintiffs served their Third Consolidated
Amended Derivative Complaint (the "Third Amended Complaint"), which omitted the
claims against Colony Capital. THCR and the other defendants in the action moved
to dismiss the Third Amended Complaint on August 5, 1997. The plaintiffs opposed
the defendants' motions to dismiss the Third Amended Complaint by response dated
October 24, 1997. The defendant's reply was served December 9, 1997.
OTHER LITIGATION. On March 13, 1997, THCR filed a lawsuit in the United
States District Court, District of New Jersey, against Mirage, the State of New
Jersey ("State"), the New Jersey Department of Transportation ("NJDOT"), the
South Jersey Transportation Authority ("SJTA"), the CRDA, the New Jersey
Transportation Trust Fund Authority and others. THCR was 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 Atlantic City marina area. While this action was pending,
defendants State and CRDA then filed an action in the New Jersey State Court
seeking a declaratory judgment as to the claim relating to the casino clause of
the New Jersey State Constitution. On May 1, 1997, the United States District
Court dismissed the federal claims and ruled that the State constitutional
claims should be pursued in State Court. This decision is currently being
appealed. On May 14, 1997 the State Court granted judgment in favor of the State
and CRDA. On March 20, 1998, the Appellate Division affirmed. THCR intends to
seek review in the State Supreme Court.
On June 26, 1997, THCR filed an action against NJDOT, SJTA, Mirage and
others, in the Superior Court of New Jersey, Chancery Division, Atlantic County
(the "Chancery Division Action"). THCR is seeking to declare unlawful and enjoin
certain actions and omissions of the defendants arising out of and relating to a
certain Road Development Agreement dated as of January 10, 1997, by and among
NJDOT, SJTA and Mirage (the "Road Development Agreement") and the public funding
of a certain road and tunnel project to be constructed in Atlantic City, as
further described in the Road Development Agreement. THCR moved to consolidate
this action with other previously filed related actions. Defendants opposed
THCR's motion to consolidate the Chancery Division Action, initially moved to
dismiss this action on procedural grounds and subsequently moved to dismiss this
action on substantive grounds. On October 20, 1997, the Chancery Court denied
the defendants' motion to dismiss this action on procedural
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grounds, but entered summary judgment dismissing this action on substantive
grounds. This decision is currently being appealed.
On June 26, 1997, THCR also filed an action, in lieu of prerogative writs,
against the CRDA, in the Superior Court of New Jersey, Law Division, Atlantic
County, seeking review of the CRDA's April 15, 1997 approval of funding ($120
million principal amount plus interest) for the road and tunnel project
discussed above, a declaratory judgment that the said project is not eligible
for such CRDA funding, and an injunction prohibiting the CRDA from contributing
such funding to the said project. Defendants have moved to dismiss this action
on procedural grounds and have also sought to transfer this action to New
Jersey's Appellate Division. On October 3, 1997, the New Jersey Superior Court
transferred this action to the Appellate Division where it is currently pending.
On September 9, 1997, Mirage filed a complaint against Trump, THCR and
Hilton Hotels Corporation, in the United States District Court for the Southern
District of New York. The complaint seeks damages for alleged violations of
antitrust laws, tortious interference with prospective economic advantage and
tortious inducement of a breach of fiduciary duties arising out of activities
purportedly engaged in by defendants in furtherance of an alleged conspiracy to
impede Mirage's efforts to build a casino resort in the Marina district of
Atlantic City, New Jersey. Among other things, Mirage contends that the
defendants filed several frivolous lawsuits and funded others that challenge the
proposed state funding mechanisms for the construction of a proposed roadway and
tunnel that would be paid for chiefly through government funds and which would
link the Atlantic City Expressway with the site of Mirage's proposed new casino
resort. On November 10, 1997, THCR and Trump moved to dismiss the complaint.
Various other 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 Marina.
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 1997.
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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, 1997, the Partnership is the sole holder of the
outstanding common stock of Funding and THCR Holdings 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 Marina--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, 1993, 1994, 1995, the period from
January 1, 1996 through October 6, 1996, the period from October 7, 1996 (the
date of the Castle Acquisition) through December 31, 1996 and the year ended
December 31, 1997, respectively, and the Consolidated Balance Sheets as of
December 31, 1993, 1994, 1995, October 6, 1996, December 31, 1996 and December
31, 1997, respectively (see note (2) 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
JANUARY 1,
1996 PERIOD FROM
YEARS ENDED DECEMBER 31, THROUGH OCTOBER 7, 1996 YEAR ENDED
-------------------------------------- OCTOBER 6, THROUGH DECEMBER 31,
1993(1) 1994 1995 1996 DECEMBER 31, 1996(2) 1997
------------ ----------- ----------- ----------- -------------------- ------------
PREDECESSOR SUCCESSOR
--------------------------------------------------- ----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Gross Revenues...................... $ 305,418 $ 316,074 $ 339,516 $ 247,614 $ 63,690 $ 328,794
Less-Promotional Allowances......... 34,530 34,521 37,288 32,887 8,944 44,118
------------ ----------- ----------- ----------- -------------------- ------------
Net Revenues........................ 270,888 281,553 302,228 214,727 54,746 284,676
Total Costs and Expenses............ 243,022 252,729 267,867 207,691 57,213 263,160
------------ ----------- ----------- ----------- -------------------- ------------
Income (Loss) from Operations....... 27,866 28,824 34,361 7,036 (2,467) 21,516
Other Income........................ -- -- -- 3,000 -- --
Interest Income..................... 675 636 504 386 217 452
Interest Expense.................... (56,926) (44,173) (46,017) (36,949) (11,553) (49,892)
------------ ----------- ----------- ----------- -------------------- ------------
Net Loss............................ $ (28,385) $ (14,713) $ (11,152) $ (26,527) $ (13,803) $ (27,924)
------------ ----------- ----------- ----------- -------------------- ------------
------------ ----------- ----------- ----------- -------------------- ------------
BALANCE SHEET DATA
Cash and Cash Equivalents........... $ 20,439 $ 19,122 $ 21,038 $ 19,373 $ 15,380 $ 14,472
------------ ----------- ----------- ----------- -------------------- ------------
------------ ----------- ----------- ----------- -------------------- ------------
Total Assets........................ $ 375,935 $ 368,797 $ 370,581 $ 363,468 $ 548,011 $ 541,406
------------ ----------- ----------- ----------- -------------------- ------------
------------ ----------- ----------- ----------- -------------------- ------------
Current Liabilities................. $ 34,463 $ 34,084 $ 38,402 $ 47,427 $ 40,931 $ 61,665
------------ ----------- ----------- ----------- -------------------- ------------
------------ ----------- ----------- ----------- -------------------- ------------
Total Long-Term Debt, Net of Current
Maturities........................ $ 309,794 $ 314,433 $ 323,015 $ 330,665 $ 335,584 $ 341,343
------------ ----------- ----------- ----------- -------------------- ------------
------------ ----------- ----------- ----------- -------------------- ------------
Total Capital....................... $ 31,678 $ 16,965 $ 5,813 $ (20,714) $ 166,592 $ 133,668
------------ ----------- ----------- ----------- -------------------- ------------
------------ ----------- ----------- ----------- -------------------- ------------
</TABLE>
- ------------------------
(1) 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.
(2) 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. 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 an 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.
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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 the carrying value of property, plant and equipment. The Partnership's
subsequent results of operations reflect such increased depreciation expense.
Gaming revenues are the primary source of the Partnership's revenues and
primarily consist of slot machine and table game win. The following table
details activity for the major components of gaming revenue:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Table Game Revenue...................................................... $ 76,128 $ 64,207 $ 80,174
Increase (Decrease) from Prior Period................................... $ 11,921 $ (15,967)
Table Game Drop......................................................... $ 498,536 $ 494,778 $ 487,707
Increase from Prior Period.............................................. $ 3,758 $ 7,071
Table Game Win Percentage............................................... 15.3% 13.0% 16.4%
(3.4)
Increase (Decrease) from Prior Period................................... 2.3 ts. ts.
Number of Table Games................................................... 91 87 87
Increase from Prior Period.............................................. 4 --
Slot Revenue............................................................ $ 183,233 $ 182,287 $ 194,043
Increase (Decrease) from Prior Period................................... $ 946 $ (11,756)
Slot Handle............................................................. $ 2,266,988 $ 2,253,051 $ 2,288,246
Increase (Decrease) from Prior Period................................... $ 13,937 $ (35,195)
Slot Win Percentage..................................................... 8.1% 8.1% 8.5%
(0.4)
Increase (Decrease) from Prior Period................................... -- ts.
Number of Slot Machines................................................. 2,198 2,297 2,230
(Decrease) Increase from Prior Period................................... (99) 67
Poker Revenue........................................................... $ 457 $ 722 $ 1,048
Decrease from Prior Period.............................................. $ (265) $ (326)
Number of Poker Tables.................................................. 5 6 7
Decrease from Prior Period.............................................. (1) (1)
Other Gaming Revenue.................................................... $ 1,621 $ 1,122 $ 1,524
Increase (Decrease) from Prior Period................................... $ 499 $ (402)
Total Gaming Revenue.................................................... $ 261,439 $ 248,338 $ 276,789
Increase (Decrease) from Prior Period................................... $ 13,101 $ (28,451)
</TABLE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Table game revenues represent the amount retained by the Partnership from
amounts wagered at table games. The table game win percentage tends to be fairly
constant over the long term, but may vary significantly in the short term, due
to large wagers by "high rollers." The Atlantic City industry table game win
percentages were 15.0% and 15.4% for the years ended December 31, 1997 and 1996,
respectively.
23
<PAGE>
Nongaming revenues, in the aggregate, increased by approximately $4.4
million (7.0%) to $67.4 million for the year ended December 31, 1997 from $63.0
million for the year ended December 31, 1996, primarily as the result of
increases in food and beverage and entertainment revenues in connection with the
retheming of the property.
Promotional allowances increased by approximately $2.3 million (5.5%) to
$44.1 million for the year ended December 31, 1997 from $41.8 million for the
year ended December 31, 1996, primarily as a result of increases in
complimentary rooms and food and beverage related to marketing activities.
Gaming costs and expenses increased by approximately $5.9 million (3.6%) to
$170.6 million for the year ended December 31, 1997 from $164.7 million for the
year ended December 31, 1996. This increase is primarily the result of an
increase in promotional spending, gaming taxes, complimentary activity and
headline entertainment, in an effort to stimulate gaming revenues.
Rooms and food and beverage costs and expenses for the year ended December
31, 1997 as compared to the prior year decreased approximately $1.0 million
(7.6%). This decrease is primarily due to the increased level of complimentary
food, beverage and hotel services provided to patrons. The cost of such
complementaries have been included in gaming costs and expenses.
General and administrative expenses decreased approximately $6.7 million
(9.6%) for the year ended December 31, 1997 from the same period in 1996
primarily due to reduced salaries and employee benefits resulting from cost
containment measures and operational synergies from combining certain
administrative functions with affiliated entities (See Note 6 to the
Consolidated Financial Statements).
Other non-operating income of $3.0 million during 1996 represents the
non-refundable license fee resulting from an energy service agreement entered
into with Atlantic Thermal Systems, Inc. ("Atlantic Thermal") (See Note 10 to
the Consolidated Financial Statements).
Interest expense increased approximately $1.4 million (2.9%) to $49.9
million for the year ended December 31, 1997 from $48.5 million for the year
ended December 31, 1996 primarily due to an increase in the outstanding
principal related to the PIK Notes.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Table game revenues represent the amount retained by the Partnership from
amounts wagered at table games. The table game win percentage tends to be fairly
constant over the long term, but may vary significantly in the short term, due
to large wagers by "high rollers." The Atlantic City industry table game win
percentages were 15.4% and 15.8% for the years ended December 31, 1996 and 1995,
respectively.
Nongaming revenues, in the aggregate, increased by approximately $300,000
(0.5%) to $63.0 million for the year ended December 31, 1996 from $62.7 million
for the year ended December 31, 1995, primarily as the result of food and
beverage revenue (an approximate $1.7 million (5.1%) increase) which was
partially offset by lower room revenues.
Promotional allowances increased by approximately $4.5 million (12.1%) to
$41.8 million for the year ended December 31, 1996 from $37.3 million for the
year ended December 31, 1995. Marketing programs instituted during 1996 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 $2.4 million (1.4%) to
$164.7 million for the year ended December 31, 1996 from $167.1 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 $4.2 million (23.4%). This decrease is
primarily due to the increased level of complimentary food, beverage and hotel
services provided to patrons. The cost of such complementaries have been
included in gaming costs and expenses.
24
<PAGE>
General and administrative expenses increased approximately $1.2 million
(1.8%) to $69.4 million for the year ended December 31, 1996 from $68.2 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.
Depreciation and amortization expense 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 non operating income of $3.0 million during 1996 represents the
non-refundable license fee resulting from the energy service agreement entered
into with Atlantic Thermal (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.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities is the Partnership's principal source of
liquidity. For the year ended December 31, 1997, the Partnership's net cash flow
provided by operating activities before cash debt obligations was $56.3 million.
In addition to funding operations, the Partnership's principal uses of cash
are capital expenditures and debt service.
Capital expenditures for 1997 were $1.8 million and principally consisted of
hotel room renovations, as well as ongoing casino floor improvements, parking
garage upgrades and marina leasehold improvements. In addition, during 1997 the
Partnership completed a $4.2 million project to retheme the property with a
nautical emphasis.
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 1/2%,
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. 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 May 31, 1998 and 1999. The
Partnership is currently in negotiations regarding the refinancing of the Senior
Notes.
The Mortgage Notes have a face amount of approximately $242 million, and
bear interest at the rate of 11 3/4% per annum in addition to accretion of
discount, and mature on November 15, 2003.
The PIK Notes have an outstanding principal amount of approximately $80.9
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 1997, interest on the PIK Notes was satisfied through the issuance
of additional notes aggregating $10.2 million and the Partnership anticipates
that additional interest due in 1998 of approximately $11.6 million will be
satisfied through the issuance of additional PIK Notes.
The Partnership's total cash debt service requirement was approximately
$42.3 million during 1997 and the Partnership anticipates that approximately
$42.4 million (assuming waiver of the sinking fund payment previously discussed)
will be required during 1998 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. In addition, the
25
<PAGE>
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, or 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. Cash flow from operations may not be sufficient to
repay a substantial portion of the principal amount of their long-term debt at
maturity. 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 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.
The Partnership has assessed the Year 2000 Issue and has begun implementing
a plan to resolve the issue which is expected to be completed in early 1999.
Based upon management's assessment it is anticipated that associated costs
incurred to satisfactorily complete the plan will not be significant.
SEASONALITY
The gaming industry in Atlantic City is seasonal, with the heaviest activity
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 in 1997, 1996 or 1995.
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997. This
statement is effective for the Partnership's fiscal year ending December 31,
1998 and addresses the reporting and displaying of comprehensive income and its
components. Adoption of SFAS No. 130 relates to disclosure within the financial
statements and is not expected to have a material effect on the Partnership's
financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" was issued in June 1997. This statement is effective for the
Partnership's fiscal year ending December 31, 1998 and changes the way public
entities report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports. Adoption of SFAS No. 131 relates to disclosure within
the financial statements and is not expected to have a material effect on the
Partnership's financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the General Instructions to Rule 305 of Regulation S-K, the
quantitative and qualitative disclosures called for by this Item 7A and by Rule
305 of Regulation S-K are inapplicable to the Registrants at this time.
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 Marina, 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
consists 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.
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, 51 years old, has been Chairman of the Board of
Directors 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 of Trump Atlantic City Holding, Inc.
("Trump AC Holding") since February 1993 and was President of Trump AC Holding
from February 1993 until December 1997. Trump 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 and the Chairman of the Board
of Directors of Trump Atlantic City Funding II, Inc. ("Funding II") and Trump
Atlantic City Funding III, Inc. ("Funding III") since their formation in
November 1997. 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; 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
Atlantic City Corporation ("TACC") since March 1991. Trump was President and
Treasurer of TACC from March 1991 until December 1997. 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 of the Partnership 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, 53 years old, has been President, Chief
Executive 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
27
<PAGE>
from May 1992 until June 1993. Mr. Ribis served as Vice President of Trump AC
Holding from February 1995 until December 1997. Mr. Ribis has served as
President of Trump AC Holding since December 1997. Mr. Ribis has served as a
director of Trump AC Holding since June 1993. Mr. Ribis has been Chief Executive
Officer, President and a director of Trump AC Funding since its formation in
January 1996 and Chief Executive Officer, President and a director of Funding II
and Funding III since their formation in November 1997. Mr. Ribis served as Vice
President of TACC until December 1997. Mr. Ribis has served as the President of
TACC since December 1997. Mr. Ribis has been the President and Chief Executive
Officer of Trump Indiana since its formation. 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. Mr. Ribis has served as Vice President of THCR/LP and THCR
Holding Corp. since February 1998. 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, 43 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. Mr. Pickus served
as the Assistant Secretary of Trump AC Holding from April 1994 until February
1998. Since February 1998, Mr. Pickus has served as the Secretary of Trump AC
Holding. Mr. Pickus has been Secretary and a director of Trump AC Funding since
its formation in January 1996 and Secretary and a director of Funding II and
Funding III since their formation in November 1997. 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 served as the Assistant Secretary of
TACC until February 1998. Since February 1998, Mr. Pickus has served as the
Secretary of TACC. Mr. Pickus was also Secretary of TCHI from October 1991 until
December 1993. Mr. Pickus is a director of TCHI, and has served as the Assistant
Secretary of TCHI since February 1998. 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 of the Partnership 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.
R. BRUCE MCKEE--Mr. McKee, 52 years old, has served as the Senior Vice
President of Corporate Finance of THCR, Trump AC Funding and TACC since June
1997. Mr. McKee has served as the Chief Financial Officer of THCR since June
1997. Mr. McKee has served as the Senior Vice President of Corporate Finance of
Funding II and Funding III since December 1997. Mr. McKee served as President
28
<PAGE>
and Chief Operating Officer of the Partnership from October 1996 until June
1997. Mr. McKee acted as 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 and Vice President, Finance of Taj Associates
from September 1990 through June 1993. Mr. McKee has been the Assistant
Treasurer of THCR/LP, Realty Corp. and TCI since September 1991. Mr McKee served
as the Assistant Treasurer of THCR Holding Corp. from September 1991 until
February 1998. Previously, Mr. McKee was Vice President of Finance of Elsinore
Shore Associates, the owner and operator of the Atlantis Casino Hotel 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. BURKE--Mr. Burke, 50 years old, served as the Senior Vice President
of Corporate Finance of THCR from January 1996 until June 1997. Mr. Burke has
served as the Senior Vice President of THCR since June 1997. Mr. Burke has been
Senior Vice President of Corporate Finance of 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 Funding since its formation in January 1996 and Treasurer
of Funding II and Funding III since their formation in November 1997. Mr. Burke
has been Treasurer of TACC since February 1998. 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 served as the Assistant
Treasurer of THCR Holding Corp. and THCR/LP since February 1998. 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 of the Partnership 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 Treasurer of THCR Enterprises since
January 1997.
JOHN P. BELISLE--Mr. Belisle, 44 years old, served as President and Chief
Operating Officer of the Partnership from June 1997 through November 1997 and is
currently serving as President of Trump Communications. Mr. Belisle also served
as the Executive Vice President of Operations of the Partnership from February
1997 through June 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, 60 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. He has served as the Chairman of the Board of Directors and Chief
Financial Officer of ICO, Inc., an oil field services and petrochemicals
processing company, since February 1995 and Chief Operating Officer and a
director of Wedco Technology, Inc. since May of 1996. Dr. Pacholder has served
as Chairman of the Board and Managing Director of Pacholder Associates, Inc., an
investment advisory firm, since 1983. In addition, Dr. Pacholder is Chairman of
the Board of Directors of USF&G Pacholder Fund, Inc., a closed-end investment
company, and he serves on the Board of Directors of Southland Corporation, which
owns and operates convenience stores.
THOMAS F. LEAHY--Mr. Leahy, 60 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
29
<PAGE>
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, 66 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, 37 years old, joined the Partnership as Executive
Vice President of Operations in July 1995 and, effective November 1997, serves
as Acting President and Chief Operating Officer. 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.
The Partnership, on July 19, 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.
Each member of the Board of Partner Representatives and all of the other
persons listed above have been licensed or found qualified by the CCC.
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 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, 1997, 1996 and 1995 to the
Chairman of the Board of Partner Representatives, 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, 1997 and one additional individual who would have been among
the four most highly paid executive officers but for he was not employed on
December 31, 1997 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(1)
NAME AND --------------------------------- OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION
- --------------------------------------------- --------- ---------- ---------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Donald J. Trump.............................. 1997 -- -- -- --2,087,000(2)
Chairman of the Board 1996 -- -- -- --
1995 -- -- -- $
Nicholas L. Ribis............................ 1997 $ 399,300 -- -- $ 950(3)
Chief Executive Officer 1996 499,125 -- -- 594(3)
1995 531,895 -- -- 647(3)
John P. Belisle(4)........................... 1997 $ 380,776 -- -- $ 3,835(3)
Former President and Chief Operating Officer 1996 -- -- -- --
1995 -- -- -- --
Mark A. Brown(5)............................. 1997 $ 352,383 $ 75,000 -- $ 2,375(3)
President and Chief Operating Officer 1996 359,160 75,000 -- 2,375(3)
1995 155,257 150,000 -- 2,187(3)
R. Bruce McKee(6)............................ 1997 $ 262,949 $ 10,000 -- $ 2,969(3)
Senior Vice President of Corporate Finance 1996 62,926 -- -- --
1995 -- -- -- --
Patricia M. Wild(7).......................... 1997 $ 135,920 -- -- $ 3,375(3)
Assistant Secretary and Vice President of 1996 138,530 -- -- 3,420(3)
Legal Affairs 1995 126,368 -- -- 3,638(3)
</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 fee. Following rules of the Securities and Exchange Commission
(the "Commission"), perquisites and other personal benefits are not included
in this table of the aggregate amount if 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 and $184,000 in 1996 and 1995,
respectively, for expenses incurred pursuant to the Services Agreement. No
such reimbursements were made during 1997.
(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 equaling 50% of the
participant's contributions, are retained until termination of employment,
attainment of age 59 1/2 or financial hardship, at which time the employee
may withdraw his or her vested funds.
(4) Mr. Belisle commenced employment with the Partnership during February 1997
and served as President and Chief Operating Officer from June 1997 through
November 1997.
(5) Mr. Brown became the Executive Vice President of Operations effective July
1995 and has served as President and Chief Operating Officer effective
November 1997.
(6) Mr. McKee served as President and Chief Operating Officer of the Partnership
from October 1996 through June 1997. Effective June 1997, Mr. McKee has
served as Senior Vice President of Corporate Finance of THCR, Trump AC
Funding and TACC. Effective December 1997, Mr. McKee has served as Senior
Vice President of Corporate Finance of Funding II and Funding III.
(7) Ms. Wild resigned effective March 1998.
EMPLOYMENT AGREEMENTS
Mr. Ribis had an employment agreement with 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
31
<PAGE>
negotiate new compensation arrangements which shall include equity participation
for Mr. Ribis. This agreement was terminated upon consummation 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 on an allocation basis by THCR,
Taj Associates, Plaza Associates and the Partnership.
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 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
McKee Agreement expired on September 30, 1997.
The Partnership, on July 19, 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.
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 Partners 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 is set forth in
his employment agreement. 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.
CASTLE ACQUISITION. On October 7, 1996, THCR Holdings acquired from Trump
all of the outstanding equity of the Partnership. See "Business--Trump
Marina--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.
32
<PAGE>
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 1997, 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 Marina 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 the 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. 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 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.
33
<PAGE>
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>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
TITLE OR CLASS NAME AND ADDRESS OF BENEFICIAL OWNERS OWNERS CLASS
- ----------------------------------------- ---------------------------------------- ------------------- -----------
<S> <C> <C> <C>
Common Stock............................. Trump's Castle Associates, L.P. 200 shares 100%
Huron Avenue and Brigantine Blvd.
Atlantic City, New Jersey 08401
</TABLE>
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 $4.0 million for the year
ending December 31, 1997.
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 did not
make any lease payments to Plaza Associates in 1997.
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
Marina.
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 did not file any reports on Form
8-K during the quarter ended December 31, 1997.
(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 NO.
- -------------
<S> <C>
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.
3.7.1(2) Second Amended and Restated Partnership Agreement of Trump's 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.
4.13(2) Assignment Agreement between Trump's Castle Funding, Inc. and the 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.
4.18(2) Pledge Agreement between Trump's Castle Funding, Inc. and the PIK Note Trustee.
4.19(2) Subordinated Partnership Note.
4.20 Form of PIK Note (included in Exhibit 4.17).
4.21 Form of Subordinated Partnership Guarantee (included in Exhibit 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.
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.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -------------
<S> <C>
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.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -------------
<S> <C>
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.
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 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.
37
<PAGE>
(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.
38
<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.
39
<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 31ST DAY OF
MARCH, 1998.
TRUMP'S CASTLE FUNDING, INC.
By: /s/ DONALD J. TRUMP
------------------------------------------
BY: DONALD J. TRUMP
TITLE: PRESIDENT
TRUMP'S CASTLE ASSOCIATES, L.P.
By: /s/ DONALD J. TRUMP
------------------------------------------
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.
<TABLE>
<CAPTION>
DATE
SIGNATURE TITLE -
- ------------------------------------------------------ --------------------------------------
<C> <S> <C>
TRUMP'S CASTLE FUNDING, INC.
Chairman of the Board, President
/s/ DONALD J. TRUMP (Principal Executive Officer),
------------------------------------------- Treasurer (Principal Financial March 31, 1998
Donald J. Trump Officer) and sole Director
/s/ JOHN P. BURKE
------------------------------------------- Assistant Treasurer (Principal March 31, 1998
John P. Burke Accounting Officer)
TRUMP'S CASTLE ASSOCIATES, L.P.
/s/ DONALD J. TRUMP
------------------------------------------- Chairman of the Board of Partner March 31, 1998
Donald J. Trump Representatives
/s/ NICHOLAS L. RIBIS
------------------------------------------- Board of Partner Representatives March 31, 1998
Nicholas L. Ribis
/s/ ASHER O. PACHOLDER
------------------------------------------- Board of Partner Representatives March 31, 1998
Asher O. Pacholder
/s/ ARTHUR S. BAHR
------------------------------------------- Board of Partner Representatives March 31, 1998
Arthur S. Bahr
/s/ THOMAS F. LEAHY
------------------------------------------- Board of Partner Representatives March 31, 1998
Thomas F. Leahy
</TABLE>
40
<PAGE>
<TABLE>
<C> <S> <C>
/s/ ROBERT M. PICKUS
------------------------------------------- Board of Partner Representatives March 31, 1998
Robert M. Pickus
/s/ JOHN P. BURKE Board of Partner Representatives,
------------------------------------------- Treasurer and Chief Accounting March 31, 1998
John P. Burke Officer of the Partnership
</TABLE>
41
<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.
42
<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, 1997 and 1996............................................. F-4
Consolidated Statements of Operations for the year ended December 31, 1997, the period from October 7,
1996 through December 31, 1996, the period from January 1, 1996 through October 6, 1996 and the year
ended December 31, 1995................................................................................ F-5
Consolidated Statements of Partners' Capital for the year ended December 31, 1997, the period from
October 7, 1996 through December 31, 1996, the period from January 1, 1996 through October 6, 1996 and
the year ended December 31, 1995....................................................................... F-6
Consolidated Statements of Cash Flows for the year ended December 31, 1997, the period from October 7,
1996 through December 31, 1996, the period from January 1, 1996 through October 6, 1996 and the year
ended December 31, 1995................................................................................ F-7
Notes to Consolidated Financial Statements............................................................... F-8
Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts for the year ended December 31, 1997, the period from
October 7, 1996 through December 31, 1996, the period from January 1, 1996 through October 6, 1996 and
the year ended December 31, 1995....................................................................... 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 consolidated
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 sheets of Trump's
Castle Associates, L.P. (a New Jersey limited partnership) and Subsidiary as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, partners' capital and cash flows for the year ending December 31,
1997 and for the period from October 7, 1996 through December 31, 1996 (Note 2).
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 provide 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, 1997 and 1996, and the results of their
operations and their cash flows for the year ended December 31, 1997 and for the
period from October 7, 1996 through December 31, 1996, 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 5, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trump's Castle Associates, L.P.
And Subsidiary:
We have audited the accompanying consolidated statements of operations,
partners' capital and cash flows for the period from January 1, 1996 through
October 6, 1996 and for the year ended December 31, 1995 of Trump's Castle
Associates, L.P. (a New Jersey limited partnership) and Subsidiary (Note 2).
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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows for the
period from January 1, 1996 through October 6, 1996 and for the year ended
December 31, 1995 of Trump's Castle Associates, L.P. and Subsidiary, 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
(IN THOUSANDS)
(NOTE 2)
<TABLE>
<CAPTION>
SUCCESSOR
----------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................................................ $ 14,472 $ 15,380
Trade receivables, less allowance for doubtful accounts of $1,479
and $1,544, respectively (Note 3).............................................................. 7,465 7,157
Accounts receivable, other....................................................................... 563 539
Due from affiliate (Note 6)...................................................................... -- 720
Inventories (Note 3)............................................................................. 3,090 1,298
Prepaid expenses and other current assets........................................................ 1,713 1,560
------------- -------------
Total current assets....................................................................... 27,303 26,654
------------- -------------
PROPERTY AND EQUIPMENT (Notes 2, 3, 4 and 5)
Land and land improvements....................................................................... 90,918 90,911
Buildings and building improvements.............................................................. 405,290 404,774
Furniture, fixtures and equipment................................................................ 25,175 17,582
Construction in progress......................................................................... -- 1,428
------------- -------------
521,383 514,695
Less-Accumulated depreciation...................................................................... 21,870 4,819
------------- -------------
499,513 509,876
------------- -------------
DUE FROM AFFILIATE (Note 6)........................................................................ 1,250 1,250
------------- -------------
OTHER ASSETS....................................................................................... 13,340 10,231
------------- -------------
Total assets............................................................................... $ 541,406 $ 548,011
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Current maturities-long term debt (Note 5)....................................................... $ 7,954 $ 3,714
Trade accounts payable........................................................................... 7,360 10,902
Due to affiliates (Note 6)....................................................................... 23,949 1,712
Accrued payroll and related expenses............................................................. 5,568 5,861
Accrued interest payable (Note 4)................................................................ 4,020 4,020
Gaming liabilities............................................................................... 2,232 2,914
Self insurance reserves.......................................................................... 5,527 6,723
Other............................................................................................ 5,055 5,085
------------- -------------
Total current liabilities.................................................................. 61,665 40,931
MORTGAGE NOTES, due 2003
(Net of discount of $30,170 and $33,071, respectively) (Notes 4 and 9)........................... 211,971 209,070
PIK NOTES, due 2005
(Net of discount of $7,197 and $7,509, respectively) (Notes 4 and 9)............................. 73,699 63,231
OTHER BORROWINGS (Note 5).......................................................................... 55,673 63,283
OTHER LONG TERM LIABILITIES........................................................................ 4,730 4,904
------------- -------------
Total liabilities.......................................................................... 407,738 381,419
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' CAPITAL (Notes 2, 4 and 6)
Contributed Capital.............................................................................. 175,395 180,395
Accumulated Deficit.............................................................................. (41,727) (13,803)
------------- -------------
Total partners' capital.................................................................... 133,668 166,592
------------- -------------
Total liabilities and partners' capital.................................................... $ 541,406 $ 548,011
------------- -------------
------------- -------------
</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
(IN THOUSANDS)
(NOTE 2)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SUCCESSOR PREDECESSOR
--------------------------- --------------------------
PERIOD PERIOD
FROM OCTOBER FROM JANUARY YEAR
YEAR ENDED 7, 1, ENDED
DECEMBER 1996 THROUGH 1996 THROUGH DECEMBER
31, DECEMBER 31, OCTOBER 6, 31,
1997 1996 1996 1995
----------- -------------- ------------- -----------
REVENUES
Gaming (Note 3)..................... $ 261,439 $ 50,460 $ 197,878 $ 276,789
Rooms............................... 19,055 3,958 14,959 20,052
Food and beverage................... 37,139 7,566 27,692 33,545
Other............................... 11,161 1,706 7,085 9,130
----------- -------------- ------------- -----------
Gross revenues.................... 328,794 63,690 247,614 339,516
Less-Promotional allowances (Note
3).................................. 44,118 8,944 32,887 37,288
----------- -------------- ------------- -----------
Net revenues........................ 284,676 54,746 214,727 302,228
----------- -------------- ------------- -----------
COST AND EXPENSES
(Notes 2, 6, 7 and 8)
Gaming.............................. 170,634 33,741 130,932 167,080
Rooms............................... 2,833 781 2,303 4,451
Food and beverage................... 9,882 2,257 8,415 13,516
General and administrative.......... 62,722 15,615 53,788 68,181
Depreciation and amortization....... 17,089 4,819 12,253 14,639
----------- -------------- ------------- -----------
Total costs and expenses........ 263,160 57,213 207,691 267,867
----------- -------------- ------------- -----------
Income (loss) from operations..... 21,516 (2,467) 7,036 34,361
OTHER INCOME (Note 10)................ -- -- 3,000 --
INTEREST INCOME....................... 452 217 386 504
INTEREST EXPENSE (Notes 4 and 5)...... (49,892) (11,553) (36,949) (46,017)
----------- -------------- ------------- -----------
Net loss............................ $ (27,924) $ (13,803) $ (26,527) $ (11,152)
----------- -------------- ------------- -----------
----------- -------------- ------------- -----------
</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
(IN THOUSANDS)
(NOTE 2)
<TABLE>
<CAPTION>
CONTRIBUTED ACCUMULATED
CAPITAL DEFICIT TOTAL
----------- ------------ ----------
<S> <C> <C> <C>
Balance at December 31, 1994 (Predecessor)................................ $ 73,395 $ (56,430) $ 16,965
Net loss................................................................ -- (11,152) (11,152)
----------- ------------ ----------
Balance at December 31, 1995 (Predecessor)................................ 73,395 (67,582) 5,813
Net loss for the period from January 1, 1996 through
October 6, 1996....................................................... -- (26,527) (26,527)
----------- ------------ ----------
Balance at October 6, 1996 (Predecessor).................................. 73,395 (94,109) (20,714)
Capital contributed by THCR Holdings.................................... 5,000 -- 5,000
Adjustment to reflect acquisition of the Partnership by
THCR Holdings......................................................... 102,000 94,109 196,109
Net loss for the period from October 7, 1996 through
December 31, 1996..................................................... -- (13,803) (13,803)
----------- ------------ ----------
Balance at December 31, 1996 (Successor).................................. 180,395 (13,803) 166,592
Reclassification of 1996 capital contributed by THCR
Holdings to debt...................................................... (5,000) -- (5,000)
Net loss................................................................ -- (27,924) (27,924)
----------- ------------ ----------
Balance at December 31, 1997 (Successor).................................. $ 175,395 $ (41,727) $ 133,668
----------- ------------ ----------
----------- ------------ ----------
</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
(IN THOUSANDS)
(NOTE 2)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------------------------- -----------------------------
<S> <C> <C> <C> <C>
<CAPTION>
YEAR PERIOD PERIOD YEAR
ENDED FROM OCTOBER 7, FROM JANUARY 1, ENDED
DECEMBER 31, 1996 THROUGH 1996 THROUGH DECEMBER 31,
1997 DECEMBER 31, 1996 OCTOBER 6, 1996 1995
------------ ----------------- --------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss......................................... $ (27,924) $ (13,803) $ (26,527) $ (11,152)
Adjustments to reconcile net loss to net cash
flows provided by (used in) operating
activities--
Noncash charges--
Depreciation and amortization................ 17,089 4,819 12,253 14,639
Issuance of debt in exchange for accrued
interest................................... 10,156 4,589 4,292 7,766
Accretion of bond discount................... 3,213 681 2,061 2,372
Provision for losses on receivables.......... 1,450 63 1,340 1,370
Amortization of CRDA tax credits............. 33 258 305 720
Valuation allowance--CRDA investments........ 1,368 100 710 936
(Increase) decrease in receivables........... (1,782) 1,626 (1,290) (3,486)
(Increase) decrease in inventories........... (1,792) 147 122 223
(Increase) decrease in other current
assets..................................... (153) 707 2,131 (2,800)
(Increase) decrease in other assets.......... (1,254) 935 182 (86)
Increase in due to affiliates................ 19,557 1,136 576 --
(Decrease) increase in current liabilities... (5,781) (4,801) 7,050 2,527
(Decrease) increase in other liabilities..... (174) (3,647) 2,419 36
------------ ----------------- --------------- ------------
Net cash flows provided by (used in)
operating activities................... 14,006 (7,190) 5,624 13,065
------------ ----------------- --------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net......... (5,972) (362) (4,235) (6,874)
Purchases of CRDA investments.................... (3,273) (397) (2,143) (2,805)
------------ ----------------- --------------- ------------
Net cash flows used in investing
activities................................. (9,245) (759) (6,378) (9,679)
------------ ----------------- --------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of other borrowings.................... (6,069) (1,044) (2,649) (1,470)
Other borrowings................................. 400 -- 1,738 --
Capital contribution............................. -- 5,000 -- --
------------ ----------------- --------------- ------------
Net cash flows (used in) provided by
financing activities....................... (5,669) 3,956 (911) (1,470)
------------ ----------------- --------------- ------------
Net (decrease) increase in cash and cash
equivalents................................ (908) (3,993) (1,665) 1,916
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 15,380 19,373 21,038 19,122
------------ ----------------- --------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $ 14,472 $ 15,380 $ 19,373 $ 21,038
------------ ----------------- --------------- ------------
------------ ----------------- --------------- ------------
</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 operates Trump's Castle Casino Resort, a luxury casino hotel
located in the Marina District of Atlantic City, New Jersey. During the second
quarter of 1997, the Partnership rethemed the property with a nautical emphasis
and renamed it Trump Marina Hotel Casino ("Trump Marina"). The primary portion
of Trump Marina'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 due to expansion by existing operators and as new
entrants to the gaming industry become operational.
Prior to the Acquisition of the Partnership by Trump Hotels & Casino Resorts
Holdings, L.P. ("THCR Holdings") (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 formed 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 Notes due 2000 (the "Senior Notes"), the 11 3/4% Mortgage Notes
due 2003 (the "Mortgage Notes") and the 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, THCR Holdings acquired from Trump all of the outstanding
equity of the Partnership (Note 2). THCR Holdings is currently a 61.8% 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 (the "Acquisition"). The 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 Common Stock of THCR, par value $.01 per
share (the "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 an 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 pro forma information has been prepared assuming the
acquisition had occurred as of January 1, 1995. The pro forma information is
presented for informational purposes only
F-8
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and is not necessarily indicative of what would have occurred if the acquisition
had been made on January 1, 1995. In addition, the pro forma information is not
intended to be a projection of future results.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996
THROUGH
OCTOBER 6, YEAR ENDED
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 complementaries have been included in gaming costs and expenses in the
accompanying consolidated statements of operations and consist of:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SUCCESSOR PREDECESSOR
------------------------------ ------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 7, JANUARY 1,
YEAR ENDED 1996 THROUGH 1996 THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 6, DECEMBER 31,
1997 1996 1996 1995
-------------- -------------- -------------- --------------
Rooms........................ $ 11,257,000 $ 2,434,000 $ 8,862,000 $ 10,998,000
Food and Beverage............ 22,645,000 5,085,000 17,311,000 18,981,000
Other........................ 5,618,000 743,000 2,574,000 2,483,000
-------------- -------------- -------------- --------------
$ 39,520,000 $ 8,262,000 $ 28,747,000 $ 32,462,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
F-9
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
As of December 31, 1997, the Partnership had New Jersey state net operating
loss carryforwards of approximately $171,600,000, which are available to offset
taxable income through the year 2004. The net operating loss carryforwards
result in a deferred tax asset of $15,400,000, which has been offset by a
valuation allowance of $15,400,000, 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. During the
second quarter of 1997, the Partnership revised its estimates of the useful
lives of buildings, building improvements and furniture and fixtures which were
acquired in 1996. Buildings and building improvements were reevaluated to have a
forty year life and furniture and fixtures were determined to have a five to
seven year life. The Partnership believes these changes more appropriately
reflect the timing of the economic benefits to be received from these assets
during their estimated useful lives. During 1997, the net effect of applying
these new lives was to decrease the net loss by $4,226,000.
LONG-LIVED ASSETS
The provisions of Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets" 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 such change has occurred.
F-10
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Supplemental disclosures relating to the statements of cash flows are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SUCCESSOR PREDECESSOR
------------------------------ --------------------------
PERIOD FROM PERIOD FROM
OCTOBER 7, JANUARY 1,
YEAR ENDED 1996 THROUGH 1996 THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 6, DECEMBER 31,
1997 1996 1996 1995
-------------- -------------- ------------ ------------
Cash paid during the period for
interest......................... $ 36,192,000 $ 18,278,000 $18,209,000 $35,338,000
-------------- -------------- ------------ ------------
-------------- -------------- ------------ ------------
</TABLE>
The acquisition of the Partnership in 1996 by THCR Holdings resulted in an
increase of $196,109,000 to the carrying value of property, plant and equipment,
an increase to contributed capital of $102,000,000 and an elimination of the
accumulated deficit of $94,109,000. In 1997, $5,000,000 of capital contributed
by THCR Holdings in 1996 was reclassified as debt.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period financial
statements in order to conform to the 1997 presentation.
(4) MORTGAGE NOTES AND PIK NOTES
The Mortgage Notes bear interest at 11 3/4%, payable in cash semi-annually
on each May 15 and November 15, and mature on November 15, 2003. The Mortgage
Notes may be redeemed at Funding's option at a rate of 105 7/8 of the principal
amount commencing on December 31, 1998, and declines gradually thereafter.
The PIK Notes bear interest at 13 7/8% payable at Funding's option in whole
or in part in cash and through the issuance of additional PIK Notes 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 defined in the PIK Note Indenture, and a specified
percentage from the proceeds are required to be redeemed from any equity
offering of the Partnership. Interest has been accrued using the effective
interest method. Interest payments of $10,156,000 and $8,881,000 in 1997 and
1996, respectively, were satisfied by the issuance of additional PIK Notes. The
Partnership anticipates that interest due in 1998 will be satisfied through 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,
F-11
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
investments and other business activities of the Partnership.
The Mortgage Notes are secured by a promissory note of 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 Marina 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 Marina. 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. Cash flow from operations may not be
sufficient to repay a substantial portion of the principal amount of their long
term debt at maturity. 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 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 $32,933,000 at December 31, 1997. The Term Loan has a maturity date of May
28, 2000 and bears interest at the prime rate plus 3%, which was 11 1/2% at
December 31, 1997, 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 Marina that is prior to
the lien securing the Mortgage Notes (Note 4) and the Senior Notes described
below.
F-12
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Marina 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 Marina. The Senior Partnership Note and the
Senior Guaranty are subordinated to the Term Loan described above.
Interest on the Senior Notes is payable semiannually on each May 15 and
November 15 at the rate of 11 1/2%. 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 May 31, 1998, and 1999. The Partnership is currently in
negotiations regarding the refinancing of the Senior Notes.
CAPITAL LEASE OBLIGATIONS
Included in current maturities of long term debt are capital lease
obligations totaling $2,004,000 and $1,814,000 at December 31, 1997 and 1996,
respectively. Additionally, included in other borrowings are long term capital
lease obligations of $1,690,000 and $3,350,000 at December 31, 1997 and 1996,
respectively.
(6) RELATED PARTY TRANSACTIONS
TRUMP MANAGEMENT FEE
The Partnership has a Services Agreement (the "Services Agreement") with
Trump Casino II, 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, TCI-II is to receive an incentive fee equal
to 10% of the excess EBITDA over $45,000,000 for such fiscal year.
For the year ended December 31, 1997, 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 year ended December 31, 1995 the Partnership incurred fees
and expenses of $2,087,000 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 December 31,
1996, the Partnership recorded a receivable in the amount of $1,250,000, which
represents the amounts advanced during the year. The Partnership made no monthly
advances to TCI-II related to the Services Agreement during 1997. The Services
Agreement expires on December 31, 2005.
TRANSACTIONS WITH AFFILIATES
At December 31, 1997 and 1996 amounts due to affiliates were $23,949,000 and
$1,712,000, respectively. The Partnership has engaged in limited intercompany
transactions with Trump Plaza Associates
F-13
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
("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 year ended December 31, 1997, the period from October 7, 1996
through December 31, 1996, the period from January 1, 1996 through October 6,
1996 and the year ended December 31, 1995, the Partnership incurred expenses of
approximately $102,000, $176,000, $978,000 and $1,673,000, respectively, for
corporate salaries and $653,000, $78,000, $495,000 and $1,109,000, respectively,
of other transactions on behalf of these affiliates. In addition, the
Partnership received payments totaling $0, $0, $1,421,000 and $1,401,000,
respectively, for services rendered and had $5,129,000, $1,537,000, $1,665,000
and $580,000, respectively, of charges for similar costs incurred by these
related entities on behalf of the Partnership.
In 1997 the Partnership reclassified $5,000,000 of contributed capital in
1996 by THCR Holdings into a note payable. The note bears interest at the prime
rate plus 1%, which was 9 1/2% at December 31, 1997. During June 1997, the
Partnership repaid $2,000,000 plus accrued interest on this note.
PARTNERSHIP AGREEMENT
Under the terms of the Partnership Agreement, the Partnership is required to
pay all costs incurred by TCI-II. For the year ended December 31, 1997, the
period from October 7, 1996 through December 31, 1996, the period from January
1, 1996 through October 6, 1996 and the year ended December 31, 1995, the
Partnership paid $0, $72,000, $1,572,000 and $1,248,000, 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 year ended December 31, 1997 and for the period October 7, 1996 to
December 31, 1996 were $4,951,000 and $1,369,000, respectively.
(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.
F-14
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. The costs of the
ultimate disposition of these claims may differ from these reserve amounts.
EMPLOYMENT AGREEMENT
The Partnership has entered into employment agreements with certain key
employees which expire at various dates through February 2, 2000. Total minimum
commitments on these agreements at December 31, 1997 were approximately
$2,375,000.
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 1/4% of its gross casino revenues, as defined in the
Casino Control Act, or pay an alternative tax of 2 1/2% 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 $65,000 and $375,000 were made in 1997 and 1995, 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 $33,000 and
$191,000 to be applied to the years ending December 31, 1997 and 1995,
respectively. For the year ended December 31, 1997, the period from October 7,
1996 through December 31, 1996, the period from January 1, 1996 through October
6, 1996 and the year ended December 31, 1995, the Partnership charged to
operations $33,000, $258,000, $305,000 and $720,000, respectively, which
represents amortization of a portion of the tax credits discussed above.
In addition, for the year ended December 31, 1997, the period from October
7, 1996 through December 31, 1996, the period from January 1, 1996 through
October 6, 1996 and the year ended December 31, 1995, the Partnership charged to
operations $1,368,000, $100,000, $710,000 and $936,000, 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 6% of the employee's earnings. The Partnership
recorded charges of
F-15
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $937,000, $212,000, $765,000 and $1,013,000 for matching
contributions for the year ended December 31, 1997, the period from October 7,
1996 through December 31, 1996, the period from January 1, 1996 through October
6, 1996 and the year ended December 31, 1995, 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 1996 information the most
recent information available, the withdrawal liability to the Partnership
related to the most significant plans' unfunded status approximates $1,600,000.
Pension expense charged to operations for the year ended December 31, 1997, the
period from October 7, 1996 through December 31, 1996, the period from January
1, 1996 through October 6, 1996 and the year ended December 31, 1995, were
$547,000, $109,000, $389,000 and $497,000, 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, 1997
--------------------------------
CARRYING AMOUNT FAIR VALUE
---------------- --------------
<S> <C> <C>
11 3/4% Mortgage Notes......................................................... $ 211,971,000 $ 225,191,000
PIK Notes...................................................................... $ 73,699,000 $ 75,233,000
<CAPTION>
DECEMBER 31, 1996
--------------------------------
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
</TABLE>
There are no quoted market prices for the Partnership's Term Loan and Senior
Notes. A reasonable estimate of their value could not be made without incurring
excessive costs.
(10) LICENSE REVENUE
During 1996, the Partnership entered into an agreement with Atlantic Thermal
Systems, Inc. ("Atlantic Thermal") pursuant to which Atlantic Thermal was
granted an exclusive license to use, operate and maintain certain steam and
chilled water production facilities located at Trump Marina. In consideration of
the license, Atlantic Thermal paid the Partnership a $3,000,000 non-refundable
license fee. This amount has been included in other non-operating income in the
accompanying consolidated financial statements.
F-16
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) FINANCIAL INFORMATION OF FUNDING
<TABLE>
<CAPTION>
Financial information relating to Funding is as follows:
<S> <C> <C> <C>
SUCCESSOR
------------------------
DECEMBER DECEMBER
31, 31,
1997 1996 PREDECESSOR
----------- ----------- -----------
Total Assets (including Mortgage Notes Receivable
of $242,141,000, net of unamortized discount of
$30,170,000 and $33,071,000 at December 31, 1997
and 1996, PIK Notes Receivable of $80,896,000,
net of unamortized discount of $7,197,000 at
December 31, 1997 and $70,740,000 net of
unamortized discount of $7,509,000 at December
31, 1996 and Senior Notes Receivable of
$27,000,000 at December 31, 1997 and 1996)....... $312,670,000 $299,310,000
----------- -----------
----------- -----------
Total Liabilities and Capital (including Mortgage
Notes Payable of $242,141,000, net of unamortized
discount of $30,170,000 and $33,071,000 at
December 31, 1997 and 1996, PIK Notes Payable of
$80,896,000, net of unamortized discount of
$7,197,000 at December 31, 1997 and $70,740,000
net of unamortized discount of $7,509,000 at
December 31, 1996 and Senior Notes Payable of
$27,000,000 at December 31, 1997 and 1996)....... $312,670,000 $299,301,000
----------- -----------
----------- -----------
<CAPTION>
PERIOD FROM
OCTOBER 7, PERIOD FROM
1996 JANUARY 1,
YEAR ENDED THROUGH 1996
DECEMBER DECEMBER THROUGH
31, 31, OCTOBER 6,
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest Income.................................... $44,961,000 $10,250,000 $32,945,000
Interest Expense................................... 44,961,000 10,250,000 32,945,000
----------- ----------- -----------
Net Income......................................... $ -- $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------------------
F-17
<PAGE>
SCHEDULE II
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE
AT CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
OF PERIOD EXPENSES CHARGES END OF PERIOD
--------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts.......................... $1,544,000 $1,450,000 $(1,515,000)(A) $ 1,479,000
--------- ----------- ---------- -------------
--------- ----------- ---------- -------------
Valuation allowance for interest differential
on CRDA bonds.......................................... $2,504,000 $1,368,000 $ (430,000 (B) $ 3,442,000
--------- ----------- ---------- -------------
--------- ----------- ---------- -------------
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
--------- ----------- ---------- -------------
--------- ----------- ---------- -------------
</TABLE>
- ------------------------
(A) Write-off of uncollectible accounts.
(B) Write-off of allowance applicable to contribution of CRDA deposits.
S-1
<PAGE>
Exhibit 21
SUBSIDIARIES OF TRUMP'S CASTLE ASSOCIATES, L.P.:
- ------------------------------------------------
Trump's Castle Funding, Inc. (New Jersey corporation)
SUBSIDIARIES OF TRUMP'S CASTLE FUNDING, INC.:
- ---------------------------------------------
None
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This 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, 1997
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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 312,670
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 200
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 312,670
<SALES> 0
<TOTAL-REVENUES> 44,961
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,961
<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 Operation for the year ended
December 31, 1997 and is qualified in its entirety by reference to such
Financial Statements.
</LEGEND>
<CIK> 0000911534
<NAME> TRUMP'S CASTLE ASSOCIATES, LP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,472
<SECURITIES> 0
<RECEIVABLES> 7,465<F1>
<ALLOWANCES> 0
<INVENTORY> 3,090
<CURRENT-ASSETS> 27,303
<PP&E> 521,383
<DEPRECIATION> (21,870)
<TOTAL-ASSETS> 541,406
<CURRENT-LIABILITIES> 61,665
<BONDS> 285,670
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 541,406
<SALES> 0
<TOTAL-REVENUES> 284,676
<CGS> 0
<TOTAL-COSTS> 263,160
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (49,892)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,924)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Asset values represent net assets.
</FN>
</TABLE>
