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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
[Mark One] FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year ended December 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No.: 1-9029
__________________________
TRUMP'S CASTLE HOTEL & CASINO, INC.
(Exact name of registrant as specified in its charter)
New Jersey 11-2735914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 FUNDING, INC.
(Exact name of registrant as specified in its charter)
New Jersey 11-2739203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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)
New Jersey 22-2608426
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
11 3/4% Mortgage Notes due 2003 American Stock Exchange, Inc.
Increasing Rate Subordinated American Stock Exchange, Inc.
Pay-In-Kind Notes due 2005
__________________________
Securities registered pursuant to Section 12(g) of the Act: None
__________________________
Indicate by check mark whether the Registrants (1) have filed all Reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days. Yes X No. ____
___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants' knowledge, in definitive proxy 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 Hotel & Casino, Inc. and Trump's Castle Funding, Inc. meet the
conditions set forth in General Instructions J(1)(a) and (b) of Form 10-K and
are therefore filing this form with the reduced disclosure format.
As of March 23, 2000, there were 200 shares of Trump's Castle Funding, Inc.'s
Common Stock outstanding.
As of March 23, 2000 there were 100 shares of Trump's Castle Hotel & Casino,
Inc.'s Common Stock, no par value, outstanding. The aggregate market value of
the voting stock of Trump's Castle Hotel & Casino, Inc., Trump's Castle Funding,
Inc. and Trump's Castle Associates, L.P. held by non-affiliates of the
Registrants as of March 23, 2000 was $0.
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FORM 10-K
TABLE OF CONTENTS
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Page
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PART I.......................................................................................................1
ITEM 1. BUSINESS.........................................................................................1
General................................................................................................1
Trump Marina...........................................................................................2
Trademark/Licensing....................................................................................5
Certain Indebtedness of the Partnership................................................................5
Atlantic City Market...................................................................................6
Competition............................................................................................8
Gaming and Other Laws and Regulations.................................................................11
ITEM 2. PROPERTIES......................................................................................17
ITEM 3. LEGAL PROCEEDINGS...............................................................................18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................20
PART II.....................................................................................................21
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................................21
ITEM 6. SELECTED FINANCIAL DATA.........................................................................22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................................................27
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........................27
PART III....................................................................................................28
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS...............................................................28
ITEM 11. EXECUTIVE COMPENSATION.........................................................................32
Employment Agreements.................................................................................33
Compensation of the Board of Directors................................................................33
Compensation Committee Interlocks and Insider Participation...........................................33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................35
PART IV.....................................................................................................36
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................36
IMPORTANT FACTORS RELATING TO FORWARD LOOKING STATEMENTS.................................................41
SIGNATURES...............................................................................................42
TRUMP'S CASTLE HOTEL & CASINO, INC.......................................................................42
TRUMP'S CASTLE FUNDING, INC..............................................................................43
TRUMP'S CASTLE ASSOCIATES, L.P...........................................................................43
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE.............................................F-1
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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. Trump's Castle
Hotel & Casino, Inc. ("TCHI"), the general partner of the Partnership, was
incorporated under the laws of the State of New Jersey in April 1985, and is
wholly owned by Trump Hotels & Casino Resorts Holdings, L.P. ("THCR Holdings").
Since Funding and TCHI have no business operations, their ability to service
their indebtedness is completely dependent upon funds they receive 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 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 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, and (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").
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' services to the Partnership result in cost
savings and operational synergies.
The Partnership operates in only one industry segment, the gaming industry.
See "Financial Statements and Supplementary Data".
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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 153
suites, 97 of which are "Crystal Tower" luxury suites, and contains
approximately 75,900 square feet of gaming space. Trump Marina offers 2,159 slot
machines, 86 table games, 8 restaurants, two clubs for the exclusive use of
select customers, 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 (see "Properties"), 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 has built upon the casino's
established customer base by attracting a younger crowd to the facility. In
keeping with this initiative, management has differentiated Trump Marina from
other Atlantic City casinos by offering contemporary entertainment attractions
and its "Wild Side" marketing campaign. The "Wild Side" marketing program
consists of a coordinated advertising, entertainment and marketing campaign that
is geared towards younger affluent patrons but does 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 the Five Star Diamond Award from
the American Academy of Hospitality Sciences and the American Automobile
Association's "Four Diamond" 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 the continuing 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 table games and slot
revenue in 1988 to 71.7% of industry table games and slot revenue in 1999. Trump
Marina experienced a similar increase, with slot revenue increasing from 52.5%
of table games and slot revenue in 1988 to 73.2% of table games and slot revenue
in 1999. In response to this trend, starting in 1994 management devoted more of
its casino floor space to slot machines, and by 1999 has replaced substantially
all of its slot machines with newer machines.
"Comping" Strategy. In order to compete effectively with other Atlantic
City casino hotels, Trump Marina offers complimentaries primarily to patrons
with a demonstrated propensity to wager 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. A patron's propensity
to wager is determined by a review of the patron's prior gaming history at Trump
Marina as well as other gaming establishments in Atlantic City. Each patron is
analyzed to ensure that the
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patron's gaming activity, net of any complimentaries, is profitable.
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,
complemented by contemporary acts in the cabaret theater and nightclub. 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 theme parties and gaming tournaments. Headline entertainment is
scheduled to complement 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 performances have included Sting, Hootie and the Blowfish, Meatloaf, Bad
Company and George Carlin.
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. Table games credit play, as a
percentage of total dollars wagered, was approximately 32.4%, 30.1% and 32.6%
for 1997, 1998 and 1999, respectively. Trump Marina bases credit limits on each
individual patron's creditworthiness, as determined by an examination of the
following criteria: (i) checking each patron's personal checking account for
current and average balances; (ii) performing a credit check using a credit
agency specializing in casino credit 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 creditworthiness is
necessary. In addition, depositing of markers is regulated by the New Jersey
Casino Control Act, (the "Casino Control Act"). Markers of $1,000 or less are
deposited in a maximum of 7 days; markers of
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$1,001 to $5,000 are deposited in a maximum of 14 days; and markers 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
600 gaming patrons per day during the week and 700 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 Retheming
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.
Employee Relations
As of December 31, 1999, the Partnership employed approximately 3,300 full
and part-time employees, of whom approximately 1,200 were subject to collective
bargaining agreements. The Partnership's collective bargaining agreement with
Local No. 54 expires on September 15, 2004. Such agreement extends to
approximately 900 employees. In addition, four other collective bargaining
agreements cover approximately 300 maintenance employees. The Partnership
believes that its relationships with its employees are satisfactory. Funding and
TCHI have no employees.
Certain employees of the Partnership must be licensed by or registered with
the New Jersey Casino Control Commission (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. TCHI,
the general partner of the Partnership, was incorporated under the laws of the
State of New Jersey in April 1985, and is wholly owned by THCR Holdings. Since
Funding and TCHI have no business operations, their ability to service their
indebtedness is completely dependent upon funds they receive from the
Partnership. Accordingly, the following discussion is related primarily to the
Partnership and its operations.
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 Increasing Rate Subordinated
Pay-in-Kind Notes due 2005 of Funding (the "PIK Notes") (which are currently
subordinated to the Senior Notes (as defined), the Working Capital Loan (as
defined) and the Mortgage Notes (as defined)) owned by Hamilton (the "Option
Agreement"). The Option was granted to the Partnership in consideration of $1.9
million of aggregate payments to Hamilton. The Option was exercisable at a price
equal to 60% of the aggregate principal amount of the PIK Notes delivered by
Hamilton, with accrued but unpaid interest, plus 100% of the PIK Notes issued to
Hamilton as interest subsequent to June 23, 1995. Pursuant to the terms of the
Option Agreement, upon the occurrence of certain events within 18 months of the
time the Option is exercised, the Partnership was required to make an additional
payment to Hamilton of up to 40% of the principal amount of the PIK Notes. On
May 21, 1996, the Partnership assigned the Option to THCR Holdings, which, on
that same date, exercised the Option and acquired approximately 90% of the then
outstanding PIK Notes for approximately $38.7 million, in exchange for
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which THCR Holdings received an aggregate of approximately $59.3 million
principal amount of PIK Notes.
April 1998 Refinancing. On April 17, 1998, Funding refinanced a portion of
the Partnership's outstanding debt, on a consolidated basis, consisting of $38
million outstanding on a term loan with a bank (the "Term Loan") and its 11 1/2%
Senior Secured Notes due 2000 (the "Old Senior Notes") by issuing 10 1/4% Senior
Secured Notes due 2003 (the "Senior Notes"). The proceeds from the issuance of
the Senior Notes were used to redeem all of the issued and outstanding Old
Senior Notes at 100% of their principal amount and to repay the Term Loan in
full. In conjunction with this refinancing, TCHI obtained a working capital
credit facility (the "Working Capital Loan"). Both the Senior Notes and the
Working Capital Loan are guaranteed by the Partnership. The Senior Notes have
an outstanding principal amount of $62,000,000, bear interest at the rate of 10
1/4% per annum, payable semi-annually each April and October, and mature on
April 30, 2003. The Working Capital Loan has an outstanding principal amount of
$5,000,000, bears interest at the rate of 10 1/4% per annum, payable semi-
annually each April and October and matures on April 30, 2003.
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 and the amendments thereto
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
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
The 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 Working Capital Loan (collectively, the "Senior Indebtedness") and the
liens of the mortgages securing the Partnership Note and the Guaranty are
subordinate to the liens securing the Senior Indebtedness.
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The PIK Notes bear interest payable, at Funding's option in whole or in
part in cash and through the issuance of additional PIK Notes, semi-annually at
the rate of 137/8% through November 15, 2003. After November 15, 2003, interest
on the PIK Notes is payable in cash at the rate of 137/8%. 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, 1999 and November
15, 1999, the semi-annual interest payments of $6.4 million and $6.9 million,
respectively, were paid by the issuance of additional PIK Notes. In addition,
approximately 90% of the PIK Notes are owned by THCR Holdings.
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 Senior Notes bear interest, payable semi-annually in cash, at 10 1/4%
and mature on April 30, 2003. 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. The
Partnership has guaranteed the payment of the Senior Notes (the "Senior
Guaranty"), which Senior Guaranty is secured by a mortgage on Trump Marina and
substantially all of the assets of the Partnership. The Partnership has also
guaranteed the payment of the Working Capital Loan (the "TCHI Guaranty"), which
TCHI Guaranty is secured by a mortgage on Trump Marina and substantially all of
the assets of the Partnership.
The terms of 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 $4.18 billion in gaming revenues
in 1999, an increase of approximately 3.2% over 1998 gaming revenues of
approximately $4.05 billion. From 1995 to 1999, total gaming revenues in
Atlantic City have increased approximately 11.1%, while hotel rooms increased by
20.6% during that period. Although total visitor volume to Atlantic City
remained relatively constant in 1999, the volume of less profitable bus
customers decreased to 9.5 million in 1999 from 9.9 million in 1998, also
representing a decline from 9.6 million in 1995. The volume of customers
traveling by other means to Atlantic City has grown from 23.7 million in 1995 to
24.7 million in 1999.
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 than in Las Vegas. 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.
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Total Atlantic City slot revenues increased 4.6% in 1999 from 1998,
continuing a trend of increases over the past seven years. From 1995 through
1999, slot revenue growth in Atlantic City has averaged 5.2% per year. Total
table game revenue decreased 0.1% in 1999, while table game revenue from 1995 to
1999 has increased on average approximately 1.6% 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 seven
years. Bill acceptors, new slot machines, video poker, themed slot machines and
other improvements have increased the popularity in slot play to include a
larger number of guests interested in its entertainment value. 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 1995,
the number of slot machines in Atlantic City has increased by 19.4%, while the
number of table games has increased by 2.5%. Slot revenues increased from 68.4%
of total casino revenues in 1995 to 70.8% in 1999. 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 years.
Most significantly, 24-hour gaming has been approved, poker, simulcasting and
keno have been added and certain 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 a certain portion of operator's funds through 2003 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 Atlantic City. 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.
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. Atlantic City's original
convention center is located on The Boardwalk, physically connected to the Trump
Plaza Hotel and Casino ("Trump Plaza"), another indirect wholly owned subsidiary
of THCR. Its East Hall, which was completed in 1929 and is listed on the
National Register of Historic Places, is currently undergoing, with funding
approved by the CRDA in February 1999, a $72 million renovation to be completed
by the summer of 2001. These improvements, while preserving the historic
features of this landmark, will convert it into a modern special events venue
and will include new seating for 10,000 to 14,000 in its main auditorium, and
new lighting, sound and television-ready wiring systems.
In the fall of 1998, the South Jersey Transportation Authority ("SJTA")
began constructing a 2.2 mile roadway and tunnel system in Atlantic City which
will connect the Atlantic City Expressway to the Marina District and the City of
Brigantine and is scheduled to be completed in the spring of 2001. This $330
million roadway project, upon completion, will provide vehicles arriving in
Atlantic City on the Atlantic City Expressway with direct access to the Marina
District, including the Trump Marina and the marina at Trump Marina. On January
25, 2000, the Appellate Division of the New Jersey Superior Court reversed, in
part, the issuance of certain development permits which authorize the SJTA to
construct this roadway and granted THCR the right to a trial-type administrative
hearing in the New Jersey Department of Environmental Protection to determine
whether the approved roadway design unfairly and unreasonably either impedes
patron access to Trump Marina and the marina at Trump Marina from the proposed
H-Tract casino resort development or obscures the visibility of the Trump Marina
electronic reader board signage.
In addition to the planned casino expansions (see "Competition"), major
infrastructure improvements have been completed. The CRDA oversaw the
development of the $88 million "Grand Boulevard" corridor that links the new
convention center with The Boardwalk. The project was completed in early 1998.
Furthermore, as
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set forth in a November 1998 agreement with the CRDA, a $20.8 million
beautification project is now in progress for the five block Virginia and
Maryland Avenue corridors which connect the thirty acre Boardwalk site of the
Trump Taj Mahal Casino Resort (the "Taj Mahal") to Absecon Boulevard (Route 30),
one of Atlantic City's principal access roadways. This comprehensive project
includes the repair, resurfacing and resignalizing of these roads and the
installation of new roadside lighting, the acquisition and demolition of
deteriorated structures on Virginia Avenue and, to a lesser extent, Maryland
Avenue, and the installation and maintenance of roadside landscaping on those
sites, the construction of a twenty-six unit subdivision of two-story, single
unit and duplex residences which will front on opposing sides of Virginia
Avenue, and the improvement of the exterior facades of selected Virginia Avenue
and other structures, with consents of the owners, to achieve a harmony and
continuity of design among closely proximate properties. Construction of the
roadway and housing elements of this project is expected to be substantially
completed by the summer of 2000.
Management believes that these 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 Market is intense. Trump
Marina competes with other casino hotels located in Atlantic City, including the
Trump Plaza and the Taj Mahal. 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 joint venture (the "Mirage Joint
Venture") between Mirage and the Boyd Gaming Corporation to be built in the
Marina District which will contain approximately 1,200 rooms, and a casino
resort by MGM Grand, Inc. ("MGM") which may be built on The Boardwalk after MGM
purchases the land chosen as the site for the casino resort). Although
management is not aware of any current construction on such sites by third
parties, infrastructure improvements in the area have begun. Mirage intends to
build a casino resort called Le Jardin which will contain approximately 2,000
rooms and will be linked to the resort created as a result of the Mirage Joint
Venture. In March 2000, MGM announced an agreement to acquire Mirage, a
transaction which includes Mirage's property holdings in Atlantic City. At this
time, it is not possible to determine the impact this acquisition will have on
Mirage's planned development in the H-Tract or MGM's planned development on The
Boardwalk. 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. Also, in
December 1999, Park Place Entertainment, Inc. ("Park Place") completed the
acquisition of Caesar's Casino Hotels from Starwoods Hotel & Resorts Worldwide,
Inc. This acquisition included the Caesar's Atlantic City property, which is
adjacent to Bally's Park Place and Wild West casino hotel ("Bally's) owned by
Park Place. Park Place has announced plans to connect the Caesar's and Bally's
properties with a $24 million connector, which will include additional gaming
space, restaurants and retail shops. Announced completion is September 2000.
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.
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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 minimal 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 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. Bay Cruises is operating a gambling cruise ship where patrons
are taken from a pier in Sheepshead Bay in Brooklyn, New York to international
waters to gamble. In September 1997, another gambling cruise ship was launched
off the coast of Montauk, New York. On April 24, 1998, Freeport Casino Cruises
began operating a gambling ship in Long Island, New York. Manhattan Cruises, a
company offering gambling cruises departing from Manhattan, New York City since
January 28, 1998, suspended operations in early May 1998, but has announced
plans to resume operations shortly. Other companies (including South Shore
Cruise Lines, President Casino and Circle Line) are currently seeking permission
to operate similar cruises in the New York City area. 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 2,600 slot machines were installed at three horse racetracks in
1996. Initial legislation allowed a maximum of 1,000 slot machines at each of
the three racetracks. In 1998, the Delaware legislature approved a bill which
would more than double the number of slot machines allowed at the three
racetracks. At the end of 1999, there was a total of approximately 4,200 slot
machines installed and operational. West Virginia also permits slot machines at
racetracks, and track owners in several other states, including Maryland and
Pennsylvania, are seeking to do the same. In December 1996, the temporary 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 designated a consortium whose principal investor is Hyatt Hotels
Corporation as the preferred developer of the permanent Casino Niagara.
Moreover, Trump Marina may also face competition from various forms of internet
gambling.
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. Trump Marina also 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 approximately 5,900 slot machines. An expansion at Foxwoods, completed
in April 1998, includes additional hotel rooms, restaurants and retail stores. A
high-speed ferry operates seasonally between New York City and Foxwoods.
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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
approximately 3,000 slot machines. 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 in the spring of 2002. 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 gaming operations by the Eastern Pequots would not have a
materially adverse impact on the operations of Trump Marina.
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. In March
1998, the Oklahoma-based Lenape/Delaware Indian Nation, which originated in New
Jersey and already has federal recognition, filed a lawsuit against the city of
Wildwood claiming that the city is built on ancestral land. The city of
Wildwood, which supported the plan to build a casino, had entered settlement
negotiations, offering to deed municipal land to the tribe. The plan, which was
opposed by the State of New Jersey, required state and federal approval. In
early 1999, however, the Delaware Indian Nation's lawsuit was dismissed. 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 constructed a golf course and convention center. In April
1999, the St. Regis Mohawk Nation opened a casino, with slot machines, in the
northern portion of the state close to the Canadian border. In April 1999, the
St. Regis Mohawks 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 Seneca Nation plans to negotiate with New York State
to open a casino in Western New York; however, the proposed casino would be
subject to the purchase of additional property that is declared reservation
territory by the federal government. 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 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 over two years. Currently, casino
gaming, other than Native American gaming, is not allowed in other areas of New
Jersey or in Connecticut, New York or Pennsylvania. On November 17, 1995, a
proposal to allow casino gaming in Bridgeport, Connecticut was voted down by
that state's Senate. On June 18, 1998, the New York State Senate and General
Assembly failed to enact a constitutional amendment to legalize casino gambling
in certain areas of New York State, effectively postponing any referendum to
authorize such a constitutional amendment until not earlier than November 2001.
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 February 1999, the
Pennsylvania State General Assembly approved a bill allowing in May 1999 a non-
binding public referendum on a variety of legalized gaming issues including
riverboats, video poker in taverns and slot machines at racetracks, but the
Pennsylvania State Senate failed to enact the General Assembly Bill. In
addition, legislation has from time to time been introduced in the
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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, Indiana, Illinois or
elsewhere, will be enacted or whether, if passed, it would have a material
adverse impact on Trump Marina.
Gaming and Other Laws and Regulations
The following is only a summary of the applicable provisions of the Casino
Control Act and certain other laws and regulations. It does not purport to be a
full description thereof and is qualified in its entirety by reference to the
Casino Control Act and such other laws and regulations.
New Jersey Gaming Regulations
In general, the Casino Control Act and its implementing regulations contain
detailed provisions concerning, among other things: the granting and renewal of
casino licenses; the suitability of the approved hotel facility, and the amount
of authorized casino space and gaming units permitted therein; the qualification
of natural persons and entities related to the casino licensee; the licensing of
certain employees and vendors of casino licensees; the rules of the games; the
selling and redeeming of gaming chips; the granting and duration of credit and
the enforceability of gaming debts; management control procedures, accounting
and cash control methods and reports to gaming agencies; the security standards;
the manufacture and distribution of gaming equipment; the simulcasting of horse
races by casino licensees; equal employment opportunities for employees of
casino operators, contractors of casino facilities and others; and advertising,
entertainment and alcoholic beverages.
Casino Control Commission. The ownership and operation of casino/hotel
facilities in Atlantic City are the subject of strict state regulation under the
Casino Control Act. The CCC is empowered to regulate a wide spectrum of gaming
and non-gaming related activities and to approve the form of ownership and
financial structure of not only a casino licensee, but also its entity
qualifiers and intermediary and holding companies and any other related entity
required to be qualified ("CCC Regulations").
Operating Licenses. In June 1999, the CCC renewed the Partnership's casino
license and approved Trump as a natural person qualifier through May 2003. This
license is not transferable and its renewal will include a financial review of
the Partnership. Upon revocation, suspension for more than 120 days or failure
to renew a casino license, the Casino Control Act provides for the appointment
of a conservator to take possession of the hotel and casino's business and
property, subject to all valid liens, claims and encumbrances.
Casino License. No casino hotel facility may operate unless the
appropriate license and approvals are obtained from the CCC, which has broad
discretion with regard to the issuance, renewal, revocation and suspension of
such licenses and approvals, which are non-transferable. The qualification
criteria with respect to the holder of a casino license include its financial
stability, integrity and responsibility; the integrity and adequacy of its
financial resources which bear any relation to the casino project; its good
character, honesty and integrity; and the sufficiency of its business ability
and casino experience to establish the likelihood of a successful, efficient
casino operation. The casino license currently held by the Partnership is
renewable for periods of up to four years. The CCC may reopen licensing hearings
at any time, and must reopen a licensing hearing at the request of the Division
of Gaming Enforcement (the "Division").
To be considered financially stable, a licensee must demonstrate the
following abilities: 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
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conditional licenses, approvals or determinations; establishing an appropriate
cure period; imposing reporting requirements; placing restrictions on the
transfer of cash or the assumption of liabilities; 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 Casino Control Act 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.
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
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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, 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
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dispose of such securities.
Under the terms of the indentures pursuant to which the Senior Notes, the
Mortgage Notes and the PIK Notes were issued, if a holder of such securities
does not qualify under the Casino Control Act when required to do so, such
holder must dispose of its interest in such securities and the Partnership and
Funding may redeem the securities at the lesser of the outstanding amount or
fair market value.
Interim Casino Authorization. Interim casino authorization is a process
which permits a person who enters into a contract to obtain property relating to
a casino operation or who obtains publicly-traded securities relating to a
casino licensee to close on the contract or own the securities until plenary
licensure or qualification. During the period of interim casino authorization,
the property relating to the casino operation or the securities is held in
trust.
Whenever any person enters into a contract to transfer any property which
relates to an ongoing casino operation, including a security of the casino
licensee or a holding or intermediary company or entity qualifier, under
circumstances which would require that the transferee obtain licensure or be
qualified under the Casino Control Act, and that person is not already licensed
or qualified, the transferee is required to apply for interim casino
authorization. Furthermore, except as set forth below with respect to publicly-
traded securities, the closing or settlement date in the contract at issue may
not be earlier than the 121st day after the submission of a complete application
for licensure or qualification together with a fully executed trust agreement in
a form approved by the CCC. If, after the report of the Division and a hearing
by the CCC, the CCC grants interim authorization, the property will be subject
to a trust. If the CCC denies interim authorization, the contract may not close
or settle until the CCC makes a determination on the qualifications of the
applicant. If the CCC denies qualification, the contract will be terminated for
all purposes and there will be no liability on the part of the transferor.
If, as the result of a transfer of publicly-traded securities of a
licensee, a holding or intermediary company or entity qualifier of a licensee,
or a financing entity of a licensee, any person is required to qualify under the
Casino Control Act, that person is required to file an application for licensure
or qualification within 30 days after the CCC determines that qualification is
required or declines to waive qualification. The application must include a
fully executed trust agreement in a form approved by the CCC or, in the
alternative, within 120 days after the CCC determines that qualification is
required, the person whose qualification is required must divest such securities
as the CCC may require in order to remove the need to qualify.
The CCC may grant interim casino authorization where it finds by clear and
convincing evidence that: (i) statements of compliance have been issued pursuant
to the Casino Control Act; (ii) the casino hotel is an approved hotel in
accordance with the Casino Control Act; (iii) the trustee satisfies
qualification criteria applicable to key casino employees, except for residency;
and (iv) interim operation will best serve the interests of the public.
When the CCC finds the applicant qualified, the trust will terminate. If
the CCC denies qualification to a person who has received interim casino
authorization, the trustee is required to endeavor, and is authorized, to sell,
assign, convey or otherwise dispose of the property subject to the trust to such
persons who are licensed or qualified or shall themselves obtain interim casino
authorization.
Where a holder of publicly-traded securities is required, in applying for
qualification as a financial source or qualifier, to transfer such securities to
a trust in application for interim casino authorization and the CCC thereafter
orders that the trust become operative: (i) during the time the trust is
operative, the holder may not participate in the earnings of the casino hotel or
receive any return on its investment or debt security holdings; and (ii) after
disposition, if any, of the securities by the trustee, proceeds distributed to
the unqualified holder may not exceed the lower of their actual cost to the
unqualified holder or their value calculated as if the investment had been made
on the date the trust became operative.
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<PAGE>
Approved Hotel Facilities. The CCC may permit an existing licensee, such
as the Partnership, to increase its casino space if the licensee agrees to add a
prescribed number of qualifying sleeping units within two years after the
commencement of gaming operations in the additional casino space. However, if
the casino licensee does not fulfill such agreement due to conditions within its
control, the licensee will be required to close the additional casino space, or
any portion thereof that the CCC determines should be closed.
Persons who are parties to the lease for an approved hotel building or who
have an agreement to lease a building which may in the judgment of the CCC
become an approved hotel building are required to hold a casino license unless
the CCC, with the concurrence of the Attorney General of the State of New
Jersey, determines that such persons do not have the ability to exercise
significant control over the building or the operation of the casino therein.
Unless otherwise determined by the CCC, agreements to lease an approved
hotel building or the land under the building must be for a durational term
exceeding 30 years, must concern 100% of the entire approved hotel building or
the land upon which it is located and must include a buy-out provision
conferring upon the lessee the absolute right to purchase the lessor's entire
interest for a fixed sum in the event that the lessor is found by the CCC to be
unsuitable.
Agreement for Management of Casino. Each party to an agreement for the
management of a casino is required to hold a casino license, and the party who
is to manage the casino must own at least 10% of all the outstanding equity
securities of the casino licensee. Such an agreement shall: (i) provide for the
complete management of the casino; (ii) provide for the unrestricted power to
direct the casino operations; and (iii) provide for a term long enough to ensure
the reasonable continuity, stability and independence and management of the
casino.
License Fees. The CCC is authorized to establish annual fees for the
renewal of casino licenses. The renewal fee is based upon the cost of
maintaining control and regulatory activities prescribed by the Casino Control
Act, and may not be less than $200,000 for a four-year casino license.
Additionally, casino licensees are subject to potential assessments to fund any
annual operating deficits incurred by the CCC or the Division. There is also an
annual license fee of $500 for each slot machine maintained for use or in use in
any casino.
Gross Revenue Tax. Each casino licensee is also required to pay an annual
tax of 8% on its gross casino revenues. For the years ended December 31, 1997,
1998 and 1999, the Partnership's gross revenue tax was approximately $21.1
million, $21.1 million and $21.8 million, respectively, and its license,
investigation and other fees and assessments totaled approximately $3.5 million,
$3.7 million and $3.7 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"), which may have terms as long as 50 years and bear interest at below
market rates, resulting in a value lower than the face value of such CRDA Bonds.
For the first ten years of its tax obligation, the licensee is entitled to
an investment tax credit against the investment alternative tax in an amount
equal to twice the purchase price of the CRDA Bonds issued to the licensee.
Thereafter, the licensee (i) is entitled to an investment tax credit in an
amount equal to twice the purchase price of such CRDA Bonds or twice the amount
of its investments authorized in lieu of such bond investments or made in
projects designated as eligible by the CRDA and (ii) has the option of entering
into a contract with the CRDA to have its tax credit comprised of direct
investments in approved eligible projects which may not comprise more than 50%
of its eligible tax credit in any one year.
15
<PAGE>
From the monies made available to the CRDA, the CRDA is required to set
aside $175 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 27% of the
cost to casino licensees of expanding their hotel facilities to provide
additional hotel rooms, a portion of which has been required to be available
with respect to the new Atlantic City Convention Center.
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 any casino licensee 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 Partnership's indentures pursuant to which the Senior Notes,
the Mortgage Notes and the PIK Notes were issued.
Qualification of Employees. Certain employees of the Partnership must be
licensed by or registered with the CCC, depending on the nature of the position
held. Casino employees are subject to more stringent requirements than non-
casino employees and must meet applicable standards pertaining to financial
stability, integrity and responsibility, good character, honesty and integrity,
business ability and casino experience and New Jersey residency. These
requirements have resulted in significant competition among Atlantic City casino
operators for the services of qualified employees.
Gaming Credit. The Partnership's casino games are conducted on a credit as
well as a cash basis. Gaming debts arising in Atlantic City in accordance with
applicable regulations are enforceable in the courts of the State of New Jersey.
The extension of gaming credit is subject to regulations that detail procedures
which casinos must follow when granting gaming credit and recording counter
checks which have been exchanged, redeemed or consolidated. Gaming credit may
not be collectible in foreign countries.
16
<PAGE>
Control Procedures. Gaming at Trump Marina is conducted by trained and
supervised personnel. The Partnership employs extensive security and internal
controls. Security checks are made to determine, among other matters, that job
applicants for key positions have had no criminal history or associations.
Security controls utilized by the surveillance department include closed circuit
video cameras to monitor the casino floor and money counting areas. The count
of moneys from gaming also is 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 86 table games, 2,159 slot machines and race simulcasting
facilities. In addition to the casino, Trump Marina consists of a 27-story
hotel with 728 guest rooms, including 153 suites, of which 97 are "Crystal
Tower" luxury suites. Renovation of 90, 64 and 60 of the guest rooms was
completed in 1997, 1998 and 1999, respectively. The facility also offers eight
restaurants, two clubs for the exclusive use of select customers, a 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 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.
Trump Marina has commenced a slot room expansion project which is scheduled
to be completed during the second quarter of 2000. This expansion project will
increase Trump Marina's gaming space by approximately 5,600 square feet and is
expected to include approximately 250 additional slot machines. Between 1994 and
1999, 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 racetrack wagering and expended
17
<PAGE>
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 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)
an initial minimum base rent of $300,000 annually (increasing every five years
to $500,000 in 2010), 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 becomes the property of
the State of New Jersey upon their completion.
The Parking Parcel. The Partnership also owns an employee parking lot
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.
Steiner Action. On or about July 30, 1999, William K. Steiner, a
stockholder of THCR, filed a derivative action in the Court of Chancery in
Delaware (Civil Action No. 17336NC) against each member of the Board of
Directors of THCR. The plaintiff claims that the directors of THCR breached
their fiduciary duties by approving certain loans from THCR to Trump. The
complaint seeks to rescind the loans, and also seeks an order requiring the
defendants to account to THCR for losses and damages allegedly resulting from
the loans. The defendants believe that the suit is without merit and on October
1, 1999, the defendants moved to dismiss the complaint. On January 31, 2000 the
director defendants filed their opening brief in support of this motion to
dismiss.
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 THCR, THCR, THCR Holdings, the
Partnership, Trump Casinos, Inc. ("TCI"), TCI-II, TCHI and Salomon Brothers, Inc
18
<PAGE>
("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 those violations. In addition
to the relief sought in the First Amended Complaint, the Second Amended
Complaint sought to enjoin the previously contemplated transaction with Colony
Capital or, if it was effectuated, to rescind it. On March 27, 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 defendants' reply was served December 9, 1997. By letter
dated April 2, 1998, the plaintiffs sought the Court's permission to amend
further the Third Amended Complaint to add certain additional factual
allegations. The defendants opposed the motion and the Court has not yet ruled
on it.
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. On April 2, 1998, the United States
Court of Appeals for the Third Circuit affirmed the dismissal and THCR's
petition to the Third Circuit for a rehearing was denied. On May 14, 1997 the
State Court granted judgment in favor of the State and CRDA. On March 20, 1998,
the Appellate Division affirmed. On August 2, 1999, the State Supreme Court
affirmed with two justices dissenting.
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 sought 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 grounds, but entered
summary judgment dismissing this action on substantive grounds. This
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decision was affirmed at the appellate level on June 19, 1999. On November 23,
1999, the State Supreme Court denied THCR's petition for certification.
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 moved to dismiss this action on
procedural grounds and 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. On June 19, 1999, the
Appellate Division dismissed THCR's claims and on November 23, 1999, the State
Supreme Court denied THCR's petition for certification.
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 "New York Action"). The complaint sought 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
contended 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. On December 18, 1998 the Court denied the motion to
dismiss brought by Trump and THCR. On April 20, 1999, Mirage and an affiliate,
the Mirage Casino Hotel filed a complaint against THCR and other defendants in
Nevada State Court (the "Nevada Action"). The Nevada Action, which was
subsequently removed to the United States District Court for the District of
Nevada, sought damages and an injunction for an alleged misappropriation of
trade secrets, intentional interference with prospective economic advantage and
contractual relations and conspiracy to injure Mirage. On February 23, 2000,
THCR and Mirage entered into an agreement whereby the New York Action and the
Nevada Action against THCR and all of its officers and directors will both be
dismissed with prejudice. The parties exchanged mutual releases and no money
was paid by either side.
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 1999.
20
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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 or TCHI's
outstanding common stock or for the Partnership's partnership interests.
As of December 31, 1999, the Partnership is the sole holder of the
outstanding common stock of Funding, THCR Holdings is the sole holder of the
outstanding common shares of TCHI and THCR Holdings is a 99% limited partner of
the Partnership and TCHI is a 1% general partner.
Funding and TCHI have 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.
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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 year ended December 31, 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 years ended December 31, 1997,
1998 and 1999, respectively, and the Consolidated Balance Sheets as of December
31, 1995, October 6, 1996, December 31, 1996, 1997, 1998 and 1999, respectively
(see note (1) 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 financial statements and the related notes
thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Period from Period from
Year January 1, October 7, 1996
Ended 1996 through through
December 31, October 6, December 31, Years Ended December 31,
1995 1996 1996 (1) 1997 1998 1999
----------- ------------ ------------ ------------ ---------- ----------
Predecessor Successor
--------------------------- -----------------------------------------------------------------
(in thousands)
Income Statement Data
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues................... $ 339,943 $ 246,426 $ 63,032 $ 326,889 $ 323,042 $ 330,566
Less-Promotional Allowances...... 37,288 31,229 8,238 41,084 38,659 36,767
------------ ------------ ---------- ------------ ---------- ----------
Net Revenues..................... 302,655 215,197 54,794 285,805 284,383 293,799
Total Costs and Expenses......... 268,294 208,161 57,261 264,289 256,542 262,262
------------ ------------ ---------- ------------ ---------- ----------
Income (Loss) from Operations.... 34,361 7,036 (2,467) 21,516 27,841 31,537
Other Income..................... - 3,000 - - - -
Interest Income.................. 504 386 217 452 869 811
Interest Expense................. (46,017) (36,949) (11,553) (49,892) (52,264) (54,157)
------------ ------------ ---------- ------------ ---------- ----------
Net Loss......................... $ (11,152) $ (26,527) $ (13,803) $ (27,924) $ (23,554) $ (21,809)
============ ============ ========== ============ ========== ==========
Balance Sheet Data
<CAPTION>
As of As of As of
December 31, October 6, December 31, As of December 31,
1995 1996 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents........ $ 21,038 $ 19,373 $ 15,380 $ 14,472 $ 19,723 $ 21,413
============ ============ ========== ============ ========== ==========
Total Assets..................... $ 370,581 $ 363,468 $ 548,011 $ 541,406 $ 536,888 $ 533,368
============ ============ ========== ============ ========== ==========
Current Liabilities.............. $ 38,402 $ 47,427 $ 40,931 $ 61,665 $ 54,704 $ 52,470
============ ============ ========== ============ ========== ==========
Total Long-Term Debt, Net of $ 323,015 $ 330,665 $ 335,584 $ 341,343 $ 368,529 $ 389,045
============ ============ ========== ============ ========== ==========
Current Maturities...............
Total Capital.................... $ 5,813 $ (20,714) $ 166,592 $ 133,668 $ 110,114 $ 88,305
============ ============ ========== ============ ========== ==========
</TABLE>
___________
(1) 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. 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.
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 1998 1999
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Table Game Revenue................................. $ 76,128 $ 72,893 $ 72,911
(Decrease) Increase from Prior Period.............. $ (3,235) $ 18
Table Game Drop.................................... $ 498,536 $ 452,599 $ 459,007
(Decrease) Increase from Prior Period.............. $ (45,937) $ 6,408
Table Game Win Percentage.......................... 15.3% 16.1% 15.9%
Increase (Decrease) from Prior Period.............. .8 pts. (.2) pts.
Number of Table Games.............................. 91 92 86
Increase (Decrease) from Prior Period.............. 1 (6)
Slot Revenue....................................... $ 184,362 $ 187,198 $ 194,631
Increase from Prior Period......................... $ 2,836 $ 7,433
Slot Handle........................................ $ 2,266,988 $ 2,321,939 $ 2,475,984
Increase from Prior Period......................... $ 54,951 $ 154,045
Slot Win Percentage................................ 8.1% 8.1% 7.9%
Decrease from Prior Period......................... - (.2) pts.
Number of Slot Machines............................ 2,198 2,167 2,159
Decrease from Prior Period......................... (31) (8)
Poker Revenue...................................... $ 457 $ - $ -
Decrease from Prior Period......................... $ (457) $ -
Number of Poker Tables............................. 5 - -
Decrease from Prior Period......................... (5) -
Other Gaming Revenue............................... $ 1,621 $ 1,987 $ 1,779
Increase (Decrease) from Prior Period.............. $ 366 $ (208)
Total Gaming Revenue............................... $ 262,568 $ 262,078 $ 269,321
(Decrease) Increase from Prior Period.............. $ (490) $ 7,243
</TABLE>
23
<PAGE>
Results of Operations for the Years Ended December 31, 1998 and 1999
Table game revenues remained relatively constant at approximately $72.9
million for the year ending December 31, 1999 as compared to the year ended
December 31, 1998. This result reflects an increased table game drop offset by
a decreased table game win percentage. 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 the large wagers by "highrollers." The
Atlantic City industry table game win percentages remained constant at 15.3% for
the years ended December 31, 1998 and 1999.
Slot revenues increased by approximately $7.4 million (4.0%) to $194.6
million for the year ended December 31, 1999 from $187.2 million for the year
ended December 31, 1998, due primarily to an increased slot handle. The
increased slot handle is a result of sustained marketing programs and events
designed specifically for the slot customer. In addition, the Partnership
completed its slot machine renovation project during June 1999, and accordingly,
benefited from an improved slot product during the second half of 1999.
Nongaming revenues, in the aggregate, remained relatively constant for the
year ended December 31, 1999 as compared to the year ended December 31, 1998.
This result reflects the continued focus designed to control marketing costs and
to increase cash sales from nongaming operations. Accordingly, promotional
allowances decreased by approximately $1.9 million (4.9%) to $36.8 million for
the year ended December 31, 1999 from $38.7 million for the year ended December
31, 1998. In addition, cash sales from nongaming operations increased by
approximately $2.1 million (9.4%) to $24.4 million for the year ended December
31, 1999 from $22.3 million for the year ended December 31, 1998.
Gaming costs and expenses decreased by approximately $3.5 million (2.1%) to
$163.5 million for the year ended December 31, 1999 from $167.0 million for the
year ended December 31, 1998. This decrease is primarily the result of a
decrease in promotional and complimentary expenses achieved by eliminating less
profitable programs.
Room costs increased by approximately $0.9 million (27.3%) to $4.2 million
for the year ended December 31, 1999 from $3.3 million for the year ended
December 31, 1998. This increase is due primarily to associated costs incurred
related to the increased cash rooms revenues generated in 1999.
Food and beverage costs increased by approximately $1.2 million (12.5%) to
$10.8 million for the year ended December 31, 1999 from $9.6 million for the
year ended December 31, 1998. This increase is due primarily to associated
costs incurred related to the increased food and beverage cash revenues
generated in 1999.
General and administrative costs and expenses increased by approximately
$6.3 million (10.5%) to $66.4 million for the year ended December 31, 1999 from
$60.1 million for the year ended December 31, 1998. This increase is due
primarily to incremental costs incurred related to the Services Agreement (as
defined - see "Item 11"), employee incentive compensation and insurance costs.
Interest expense increased by approximately $1.9 million (3.6%) to $54.2
million for the year ended December 31, 1999 from $52.3 million for the year
ended December 31, 1998 primarily due to an increase in the outstanding
principal related to the PIK Notes.
Results of Operations for the Years Ended December 31, 1997 and 1998
Table game revenues decreased by approximately $3.2 million (4.2%) to $72.9
million for the year ended December 31, 1998 from $76.1 million for the year
ended December 31, 1997, primarily due to a reduced table game drop. The
reduced table game drop was partially offset by a higher table game win
percentage. The reduction in table game drop is a result of the increased
gaming capacity in the Atlantic City market as well as
24
<PAGE>
management's decision to reduce promotional gaming costs in an effort to
eliminate less profitable programs. 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 the large wagers by "highrollers." The
Atlantic City industry table game win percentages were 15.0% and 15.3% for the
years ended December 31, 1997 and 1998, respectively.
Slot revenues increased by approximately $2.8 million (1.5%) to $187.2
million for the year ended December 31, 1998 from $184.4 million for the year
ended December 31, 1997, due primarily to an increased slot handle. The
increased slot handle is due to a more aggressive marketing approach targeted
towards the slot customer.
Nongaming revenues, in the aggregate, decreased by approximately $3.3
million (5.1%) to $61.0 million for the year ended December 31, 1998 from $64.3
million for the year ended December 31, 1997, primarily as a result of a
decrease in rooms revenue due to a reduction in complimentary room rates. The
complimentary room rates were reduced by management to more closely conform to
current industry practice. Industry-wide room rates have recently decreased as
a result of increased room inventory in the Atlantic City market.
The majority of the decrease in nongaming revenues was offset by a
corresponding decrease in promotional allowances. Promotional allowances
decreased by approximately $2.4 million (5.8%) to $38.7 million for the year
ended December 31, 1998 from $41.1 million for the year ended December 31, 1997,
primarily as a result of a decrease in complimentary room rates related to
marketing activities.
Gaming costs and expenses decreased by approximately $4.8 million (2.8%) to
$167.0 million for the year ended December 31, 1998 from $171.8 million for the
year ended December 31, 1997. This decrease is primarily the result of a
decrease in promotional and complimentary expenses achieved by eliminating less
profitable programs.
General and administrative expenses decreased by approximately $2.6 million
(4.1%) to $60.1 million for the year ended December 31, 1998 from $62.7 million
for the year ended December 31, 1997 primarily due to reduced advertising
expenses and insurance costs. During 1998, self-insurance reserves decreased
due to an internally focused aggressive policy where potential lawsuits are
challenged immediately. Additionally, a more aggressive litigation policy was
pursued to deter present and future frivolous lawsuits. The Partnership also
retained an outside consultant to comprehensively review certain claims and to
assist the Partnership in establishing the estimated reserves at December 31,
1998.
Interest expense increased by approximately $2.4 million (4.8%) to $52.3
million for the year ended December 31, 1998 from $49.9 million for the year
ended December 31, 1997 primarily due to an increase in the outstanding
principal related to the PIK Notes.
Capital Resources and Liquidity
Cash flow from operating activities is the Partnership's principal source
of liquidity. For the year ended December 31, 1999, the Partnership's net cash
flow provided by operating activities was $11.5 million.
In addition to funding operations, the Partnership's principal uses of cash
are capital expenditures and debt service.
Capital expenditures for 1999 were approximately $8.6 million, with $4.5
million acquired for cash and $4.1 million through capitalized lease financing.
These capital expenditures consisted principally of a redesign of the casino
floor, purchases of slot machines, hotel room renovations, and ongoing property
enhancements.
25
<PAGE>
The Partnership's debt consists primarily of (i) the Mortgage Notes, (ii)
the PIK Notes, (iii) the Senior Notes, and (iv) the Working Capital Loan.
The Mortgage Notes have an outstanding principal amount of approximately
$242.1 million, bear interest at the rate of 11 3/4 per annum and mature on
November 15, 2003.
The PIK Notes have an outstanding principal amount of approximately $105.8
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 1999, interest in the amount of $13.3 million was paid through
the issuance of additional PIK Notes and the Partnership anticipates that
additional interest due in 2000 of approximately $15.2 million will be paid
through the issuance of additional PIK Notes. Also, approximately 90% of the
PIK notes are currently owned by THCR Holdings.
On April 17, 1998, Funding refinanced its Old Senior Notes and its Term
Loan by issuing the Senior Notes. The proceeds from this issuance were used to
redeem all of the issued and outstanding Old Senior Notes at 100% of their
principal amount and to repay the Term Loan in full. In conjunction with this
refinancing, TCHI obtained the Working Capital Loan and loaned the proceeds to
the Partnership.
The Senior Notes have an outstanding principal amount of $62.0 million and
bear interest at the rate of 10 1/4% per annum, payable semi-annually each April
and October. The entire principal balance of the Senior Notes matures on April
30, 2003.
The Working Capital Loan has an outstanding principal amount of $5.0
million and bears interest at the rate of 10 1/4% per annum, payable semi-
annually each April and October. The entire principal balance of the Working
Capital Loan matures on April 30, 2003.
The Partnership's total cash debt service requirement was approximately
$38.2 million during 1999 and the Partnership anticipates that approximately
$37.0 million in cash will be required during 2000 to meet its debt service
obligations. The Partnership has the authority to obtain a working capital
facility of up to $10.0 million (of which approximately $5.0 million is
outstanding), 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 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 the 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, TCHI 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.
Year 2000
The Partnership assessed the Year 2000 issue and implemented a plan to
insure its systems were year 2000 compliant. As a result of these efforts, the
Partnership was fully year 2000 compliant. The cost of addressing the Year 2000
issue was not material.
This Year 2000 disclosure constitutes Year 2000 readiness disclosure within
the meaning of the Year 2000 Information and Readiness Disclosure Act.
26
<PAGE>
Impact of New Accounting Standards
The Partnership has assessed the impact of newly issued accounting
standards expected to go into effect during 2000 in accordance with Staff
Accounting Bulletin No. 74 and, where applicable, disclosures have been provided
in the financial statements. Additionally, the Partnership has also reviewed
the impact of new accounting standards which went into effect during 1999 and,
where applicable, the Partnership has provided the required disclosures.
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, 1998 or 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Management has reviewed the disclosure requirements for Item 7A and, based
upon the Partnership, Funding and TCHI's current capital structure, scope of
operations and financial statement structure, management believes that such
disclosure is not warranted at this time. Since conditions may change, the
Partnership, Funding and TCHI will periodically review its compliance with this
disclosure requirement to the extent applicable.
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.
27
<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, 53 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 of
Funding and served as President and Treasurer of Funding until April 1998. 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, 55 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 from May 1992 until June 1993. Mr. Ribis served as
28
<PAGE>
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 and President
of the Partnership until April 1998; 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 until April 1998. Mr. Ribis is now a director of TCHI. Since April
1998 Mr. Ribis has served as President and Chief Executive Officer of TCHI and
Funding. 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, 45 years old, has been Executive Vice
President, General Counsel 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 has served as the
Secretary of Funding since April 1998. 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 from February 1998 until April 1998.
Since April 1998 Mr. Pickus has served as the Secretary of TCHI. Mr. Pickus has
been the Executive Vice President of Corporate and Legal Affairs of the
Partnership since February 1995, Secretary of the Partnership since February
1996 and a member of the Board of Partner Representatives 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
and its President since November 1998. He has been admitted to practice law in
the states of New York and New Jersey since 1980, and in the Commonwealth of
Pennsylvania since 1981.
John P. Burke--Mr. Burke, 52 years old, served as the Senior Vice President
of Corporate Finance of THCR from January 1996 until June 1997. Mr. Burke served
as the Senior Vice President of THCR, THCR Holdings and THCR Funding from June
1997 to January 1999. Mr. Burke has served as Executive Vice President
29
<PAGE>
of THCR, THCR Holdings and THCR Funding since January 1999. Mr. Burke 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 Assistant Treasurer of TCHI since April
1998, Treasurer of Funding since April 1998, 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.
Mark A. Brown--Mr. Brown, 39 years old, joined the Partnership as Executive
Vice President of Operations in July 1995 and, from November 1997 through
December 1999, served as President and Chief Operating Officer. Mr. Brown ended
his employment with the Partnership and transferred to the Taj Mahal in January
2000. Mr. Brown also served as Vice President of TCHI. 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.
Lawrence J. Mullin--Mr. Mullin, 37 years old, joined the Partnership as
Vice President of Slot Operations and Marketing in August 1995, and effective
January 2000, was promoted to and serves as President and Chief Operating
Officer. Mr. Mullin also serves as Vice President of TCHI as well as Vice
President and Assistant Secretary of Funding. Previously, Mr. Mullin served as
Senior Vice President of Marketing of the Partnership since June 1998. Prior to
that, Mr. Mullin served as Vice President of Slot and Casino Marketing from 1992
until 1995 at the Taj Mahal.
Joseph A. D'Amato--Mr. D'Amato, 52 years old, serves as Vice President of
Finance of the Partnership, as well as, Chief Financial Officer, Chief
Accounting Officer and Assistant Treasurer of Funding and Assistant Treasurer
and Chief Financial Officer of TCHI since November 1999. Previously, Mr.
D'Amato served as Chief Operating Officer of Trump Indiana since August 1997.
Prior to that, Mr. D'Amato was Senior Vice President of Finance and
Administration of Trump Indiana from April 1997 to August 1997. For the twelve
years prior to working with THCR, Mr. D'Amato held various financial and
administrative positions with Bally's (now Park Place) casino in Atlantic City.
Asher O. Pacholder--Dr. Pacholder, 62 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 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, 62 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,
30
<PAGE>
a unit of CBS, Inc. Mr. Leahy retired from CBS, Inc. in 1992, having served in
various executive capacities over a 30-year period. Since November 1992, Mr.
Leahy has served as President of The Theater Development Fund, a service
organization for the performing arts. Since July 1992, Mr. Leahy has served as
Chairman of VT Properties, Inc., a privately held corporation which invests in
literary, stage and film properties.
Arthur S. Bahr--Mr. Bahr, 68 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 also serves on the Board of
Directors of Renaissance Reinsurance.
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.
31
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
Executive officers of Funding and TCHI do not receive any additional
compensation for serving in such capacity. In addition, Funding, TCHI 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, 1999, 1998 and 1997 to the
Chairman of the Board of Partner Representatives, the Chief Executive Officer,
two executive officers of the Partnership whose cash compensation, including
bonuses and deferred compensation, exceeded $100,000 for the year ended December
31, 1999 and one executive officer whose cash compensation would have exceeded
$100,000 if he had been employed in his current position for the entire year of
1999. 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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(1)
----------------------
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensation
------------------ ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Donald J. Trump ........................................ 1999 -- -- -- $2,258,000(2)
Chairman of the Board 1998 -- -- -- --
1997 -- -- -- --
Nicholas L. Ribis ...................................... 1999 $399,300 $ 96,000(3) -- $ 960(4)
Chief Executive Officer 1998 399,300 -- -- 960(4)
1997 399,300 -- -- 950(4)
Mark A. Brown .......................................... 1999 $487,762 $109,410(6) -- $ 4,286(4)
Former President / Chief Operating Officer(5) 1998 436,323 75,000 -- 4,286(4)
1997 352,383 75,000 -- 2,375(4)
Lawrence J. Mullin ..................................... 1999 $245,000 $ 25,000 -- $ 4,286(4)
President / Chief Operating Officer 1998 207,746 -- -- 4,286(4)
1997 160,992 40,000 -- 2,375(4)
Joseph A. D'Amato (7) .................................. 1999 $ 17,885 -- -- $ --
Vice President of Finance 1998 -- -- -- --
1997 -- -- -- --
</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 recorded pursuant to the Services Agreement (as
defined).
(3) In January 1999, Mr. Ribis received a net bonus of $50,000 which resulted
in a before tax bonus of $96,000. It is anticipated that the tax portion of
the bonus will be paid back to the Company.
(4) Represents vested and unvested contributions made by the Partnership under
the Trump Capital Accumulation 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.
(5) Mr. Brown ended his employment with the Partnership and transferred to the
Taj Mahal in January 2000.
(6) In January 1999, Mr. Brown received a net bonus of $75,000 which resulted
in a before tax bonus of $109,410.
(7) Mr. D'Amato joined the Partnership as Vice President of Finance in November
1999.
32
<PAGE>
Employment Agreements
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.
The Partnership had an employment agreement with Mark A. Brown, (the "Brown
Agreement") pursuant to which Mr. Brown served as President and Chief Operating
Officer. The Brown agreement was terminated in January 2000 upon Mr. Brown's
transfer to the Taj Mahal.
The Partnership entered into an employment agreement with Lawrence J.
Mullin on July 24, 1995, as amended most recently in January 2000 (the "Mullin
Agreement"), pursuant to which Mr. Mullin serves as the Partnership's President
and Chief Operating Officer. The Mullin Agreement expires on January 2, 2003
unless terminated by Mr. Mullin upon the occurrence of a Change of Control (as
defined in the Mullin Agreement). The Mullin Agreement provides for an annual
base salary of $350,000 in 2000, $400,000 in 2001 and $450,000 in 2002.
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."
Certain Related Party Transactions. Beginning in late 1997, Castle
Associates has utilized certain facilities owned by Trump to entertain high-end
customers. Management believes that the ability to utilize these facilities has
enhanced Castle Associates' revenues. In 1997, 1998 and 1999, Castle Associates
incurred approximately $11,000, $239,000 and $636,000, respectively, for
customer costs associated with such utilization. In exchange for having Trump's
plane available to customers of Trump Marina, Castle Associates has incurred
pilot costs of approximately $53,000, $49,000 and $60,000 for the years ended
December 31, 1997, 1998 and 1999, respectively.
Services Agreement. On December 28, 1993, the Partnership entered into a
Services Agreement with TCI-II (the "Services Agreement"). In general, the
Services Agreement obligates TCI-II to provide to the Partnership, from time to
time when reasonably requested, consulting services on a non-exclusive basis,
relating to marketing, advertising, promotional and other services (the
"Services") with respect to the business and operations of the Partnership, in
exchange for certain fees to be paid only in those years in which EBITDA (EBITDA
represents income from operations before depreciation, amortization,
restructuring costs and the non-cash write-down of CRDA investments) exceeds
prescribed amounts.
In consideration for the Services to be rendered by TCI-II, the Partnership
will pay an annual fee (which is identical to the fee which was payable under
the previously existing management agreement) to TCI-II in the amount of $1.5
million for each year in which EBITDA exceeds the following amounts for the
years indicated: 1993-$40.5 million; 1994-$45.0 million; 1995 and thereafter-
$50.0 million. If EBITDA in any fiscal year does not exceed the applicable
amount, no annual fee is due. In addition, if the annual fee is attained, 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
33
<PAGE>
$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.
Pursuant to this agreement, Trump earned approximately $2.3 million based on the
Partnership's EBITDA for the year ended December 31, 1999. During the years
ended 1997 and 1998, 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 represented the amounts advanced to TCI-II
during the year. This amount was offset against the fees earned for the year
ended December 31, 1999. 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. 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.
Mr. Ribis also serves on the Board of Directors of Realty Corp. which,
prior to April 17, 1996, leased certain real property to Taj Associates, of
which Trump is an executive officer. Trump, however, does not receive any
compensation for serving as an executive officer of Realty Corp.
Messrs. Trump and Ribis serve on the Board of Directors of THCR of which
Trump is Chairman of the Board. Messrs. Ribis, Pickus and Burke are executive
officers of THCR and are compensated for their services by THCR.
John Barry, Trump's brother-in-law, is a partner of Tompkins, McGuire,
Wachenfeld & Barry, a New Jersey law firm which provides, from time to time,
legal services to the Partnership.
34
<PAGE>
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 and TCHI's Common Stock owned by beneficial owners of
more than 5% of Funding's Common Stock or 5% of TCHI's Common Stock. Neither
Funding nor TCHI have another class of equity securities outstanding.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Title or Class Name and Address of Beneficial Owners Beneficial Owners Class
-------------- ------------------------------------- -------------------- ----------
<S> <C> <C> <C>
Funding's Common Stock Trump's Castle Associates, L.P. 200 shares 100%
Huron Avenue and Brigantine Blvd.
Atlantic City, New Jersey 08401
TCHI's Common Stock Trump Hotels & Casino Resorts Holdings, L.P. 100 shares 100%
1000 Boardwalk
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 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.
In March 2000, the Board of Directors of THCR authorized and directed THCR
to cause Taj Associates, Plaza Associates, the Partnership and Trump Indiana
to enter into indemnification agreements with each of the Directors of THCR in
connection with the performance of their duties as Directors.
35
<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, 1999.
(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.
- -----------------
<C> <S>
3(1) Amended and Restated Certificate of Incorporation of Trump's Castle Funding, Inc.
3.1(1) Bylaws of Trump's Castle Funding, Inc.
3.2-3.6 Intentionally omitted.
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.
3.8(15) Restated Certificate of Incorporation of Trump's Castle Hotel & Casino, Inc.
3.9(15) By-Laws of Trump's Castle Hotel & Casino, Inc.
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 111/2% 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.
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.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
- -----------------
<C> <S>
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.
4.33(14) Note Purchase Agreement, dated as of April 17, 1998, for 10 1/4% Series A Senior Secured
Notes due 2003 of Trump's Castle Hotel & Casino, Inc.
4.34(14) Indenture, dated as of April 17, 1998, by and among Trump's Castle Hotel & Casino, Inc., as
issuer, Trump's Castle Associates, L.P., as guarantor, and U.S. Bank National Association,
as trustee.
4.35(14) Indenture, dated as of April 17, 1998, by and among Trump's Castle Funding, Inc., as issuer,
Trump's Castle Associates, L.P., as guarantor, and U.S. Bank National Association, as
trustee.
4.36(14) Registration Rights Agreement, dated as of April 17, 1998, between Trump's Castle Hotel &
Casino, Inc., Trump's Castle Associates, L.P., Trump's Castle Funding, Inc. and funds
managed by Putnam Investment Management.
4.37(14) Intercreditor Agreement, dated as of April 17, 1998, between Trump's Castle Associates,
L.P., Trump's Castle Funding, Inc., Trump, Trump's Castle Hotel & Casino, Inc. and U.S. Bank
National Association.
4.38(14) Indenture of Mortgage and Security Agreement, dated as of April 17, 1998, between Trump's
Castle Associates, L.P., as Mortgagor/Debtor, and Trump's Castle Funding, Inc., as
Mortgagee/Secured Party.
4.39(14) Indenture of Mortgage and Security Agreement, dated as of April 17, 1998, between Trump's
Castle Associates, L.P., as Mortgagor/Debtor, and U.S. Bank National Association, as
Mortgagee/Secured Party.
4.40(14) Senior Assignment Agreement, dated as of April 17, 1998, by Trump's Castle Funding, Inc., as
Assignor, to U.S. Bank National Association, as Assignee.
4.41(14) Indenture of Mortgage and Security Agreement, dated as of April 17, 1998, between Trump's
Castle Associates, L.P. as Mortgagor/Debtor, and Trump's Castle Hotel & Casino, Inc., as
Mortgagee/ Secured Party.
4.42(14) Indenture of Mortgage and Security Agreement, dated as of April 17, 1998, between Trump's
Castle Associates, L.P., as Mortgagor/Debtor, and U.S. Bank National Association, as
Mortgagee/Secured Party.
4.42(14) Indenture of Mortgage and Security Agreement, dated as of April 17, 1998, between Trump's
Castle Associates, L.P., as Mortgagor/Debtor, and U.S. Bank National Association, as
Mortgagee/Secured Party.
4.43(14) Senior TCHI Assignment Agreement, dated as of April 17, 1998, by Trump's Castle Hotel &
Casino, Inc., as Assignor, to U.S. Bank National Association, as Assignee.
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.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
- -----------------
<C> <S>
10.11(11) Employment Agreement between Trump Hotels & Casino Resorts Holdings, L.P. and Nicholas L.
Ribis (with exhibits).
10.12(6) Trump's Castle Hotel & Casino Retirement Savings Plan, effective as of September 1, 1986.
10.13-10.18 Intentionally omitted.
10.19(3) Lease Agreement by and between State of New Jersey acting through its Department of
Environmental Protection, Division of Parks and Forests, as Landlord, and Trump's Castle
Associates, as tenant, dated September 1, 1990.
10.20-10.26 Intentionally omitted.
10.27(1) Services Agreement.
10.28-10.31 Intentionally omitted.
10.32(7) Employment Agreement dated December 20, 1993, between Patricia M. Wild and Trump's Castle
Associates.
10.33 Intentionally omitted.
10.34(7) Amended and Restated Credit Agreement, dated as of December 28, 1993, among Midlantic,
Trump's Castle Associates and Trump's Castle Funding, Inc.
10.35(7) Amendment No. 1 to Amended and Restated Indenture of Mortgage, between Trump's Castle
Associates, as Mortgagor and Midlantic, as Mortgagee.
10.36(7) Amended and Restated Indenture of Mortgage, between Trump's Castle Associates, as Mortgagor
and Midlantic, as Mortgagee, dated as of May 29, 1992.
10.37(7) Amendment No. 1 to Amended and Restated Assignment of Leases and Rents, between Trump's
Castle Associates, as assignor, and Midlantic, as assignee.
10.38(7) Amended and Restated Assignment of Leases and Rents, between Trump's Castle Associates, as
assignor, and Midlantic, as assignee, dated as of May 29, 1992.
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.
10.49(16) Employment Agreement, dated July 24, 1995, as amended, between Lawrence J. Mullin and
Trump's Castle Associates, L.P.
10.49.1 Amendment, dated January 2000, to employment Agreement between Lawrence J. Mullin and
Trump's Castle Associates, L.P.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
- -----------------
<C> <S>
21 List of Subsidiaries of Trump's Castle Hotel & Casino, Inc., 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.
27.3 Financial Data Schedule of Trump's Castle Hotel & Casino, Inc.
</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.
(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.
(14) Incorporated herein by reference to the identically numbered Exhibit to
Trump's Castle Funding, Inc. and Trump's Castle Associates, L.P.'s
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
(15) Incorporated herein by reference to the Exhibit to Trump's Castle Hotel &
Casino, Inc., Trump's Castle Funding, Inc. and Trump's Castle Associates
L.P.'s Registration Statement on Form S-4, Registration No. 333-56865.
(16) Incorporated herein by reference to the identically numbered Exhibit in the
Annual Report on Form 10-K of Trump's Castle Hotel & Casino, Inc., Trump's
Castle Funding, Inc. and Trump's Castle Associates, L.P. for the year ended
December 31, 1998.
39
<PAGE>
(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.
40
<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.
41
<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 30th day of
March, 2000.
Trump's Castle Hotel & Casino, Inc.
By: /s/ Nicholas L. Ribis
----------------------------------------------
By: Nicholas L. RibisTitle: President
Trump's Castle Funding, Inc.
By: /s/ Nicholas L. Ribis
----------------------------------------------
By: Nicholas L. Ribis
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>
Signature Title Date
- -------------------------------------------------- ------------------------------------------ -------------------
<S> <C> <C>
Trump's Castle Hotel & Casino, Inc.
/s/ Donald J. Trump Chairman of the Board March 30, 2000
- --------------------------------------------------
Donald J. Trump
/s/ Nicholas L. Ribis Director, President (Principal Executive March 30, 2000
- -------------------------------------------------- Officer)
Nicholas L. Ribis
/s/ Asher O. Pacholder Director March 30, 2000
- --------------------------------------------------
Asher O. Pacholder
/s/ Arthur S. Bahr Director March 30, 2000
- --------------------------------------------------
Arthur S. Bahr
/s/ Thomas F. Leahy Director March 30, 2000
- --------------------------------------------------
Thomas F. Leahy
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Robert M. Pickus Director March 30, 2000
- --------------------------------------------------
Robert M. Pickus
/s/ John P. Burke Director, Vice President, Assistant March 30, 2000
- -------------------------------------------------- Treasurer (Principal Financial Officer)
John P. Burke
TRUMP'S CASTLE FUNDING, INC.
/s/ Donald J. Trump Chairman of the Board March 30, 2000
- --------------------------------------------------
Donald J. Trump
/s/ Nicholas L. Ribis President (Principal Executive Officer) March 30, 2000
- --------------------------------------------------
Nicholas L Ribis
/s/ John P. Burke Treasurer (Principal Financial Officer) March 30, 2000
- --------------------------------------------------
John P. Burke
TRUMP'S CASTLE ASSOCIATES, L.P.
/s/ Donald J. Trump Chairman of the Board of Partner March 30, 2000
- -------------------------------------------------- Representatives
Donald J. Trump
/s/ Nicholas L. Ribis Board of Partner Representatives March 30, 2000
- --------------------------------------------------
Nicholas L. Ribis
/s/ Asher O. Pacholder Board of Partner Representatives March 30, 2000
- --------------------------------------------------
Asher O. Pacholder
/s/ Arthur S. Bahr Board of Partner Representatives March 30, 2000
- --------------------------------------------------
Arthur S. Bahr
/s/ Thomas F. Leahy Board of Partner Representatives March 30, 2000
- --------------------------------------------------
Thomas F. Leahy
/s/ Robert M. Pickus Board of Partner Representatives March 30, 2000
- --------------------------------------------------
Robert M. Pickus
/s/ John P. Burke Board of Partner Representatives, March 30, 2000
- -------------------------------------------------- Treasurer and Chief Accounting Officer of
John P. Burke the Partnership
</TABLE>
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.
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Trump's Castle Associates, L.P. and Subsidiary
Report of Independent Public Accountants................................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999............................. F-3
Consolidated Statements of Operations for the years ended December 31, 1997, 1998
and 1999................................................................................ F-4
Consolidated Statements of Partners' Capital for the years ended December 31, 1997,
1998 and 1999........................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998
and 1999................................................................................ F-6
Notes to Consolidated Financial Statements............................................... F-7
Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts for the years ended December 31, 1997,
1998 and 1999........................................................................... 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, 1998 and 1999, and the related consolidated statements of
operations, partners' capital and cash flows for each of the three years in the
period ended December 31, 1999. 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 and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
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 4, 2000
F-2
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
-------- --------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents....................................... $ 19,723 $ 21,413
Trade receivables, less allowance for doubtful accounts of
$1,920 and $2,001, respectively (Note 2)...................... 7,098 9,167
Other receivables............................................... 1,303 1,460
Inventories (Note 2)............................................ 3,020 3,292
Prepaid expenses and other current assets....................... 1,884 1,825
-------- --------
Total current assets....................................... 33,028 37,157
-------- --------
PROPERTY AND EQUIPMENT (Notes 2 and 3)
Land and land improvements...................................... 92,204 92,190
Buildings and building improvements............................. 406,296 406,437
Furniture, fixtures and equipment............................... 28,559 37,674
-------- --------
527,059 536,301
Less-Accumulated depreciation and amortization.................. 38,314 54,570
-------- --------
488,745 481,731
-------- --------
DUE FROM AFFILIATE (Note 4)....................................... 1,250 0
-------- --------
OTHER ASSETS...................................................... 13,865 14,480
-------- --------
Total assets............................................... $536,888 $533,368
======== ========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES
Current maturities-long term debt (Note 3)...................... $ 1,277 $ 1,296
Trade accounts payable.......................................... 10,147 7,878
Due to affiliates (Note 4)...................................... 21,602 20,116
Accrued payroll and related expenses............................ 5,498 7,053
Accrued interest payable (Note 3).............................. 4,777 4,701
Self insurance reserves (Note 5)................................ 4,330 4,142
Other........................................................... 7,073 7,284
-------- --------
Total current liabilities.................................. 54,704 52,470
LONG-TERM DEBT, LESS CURRENT MATURITIES (Note 3).................. 368,529 389,045
OTHER LONG-TERM LIABILITIES....................................... 3,541 3,548
-------- --------
Total liabilities.......................................... 426,774 445,063
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 5)
PARTNERS' CAPITAL (Notes 3 and 4)
Contributed capital............................................. 175,395 175,395
Accumulated deficit............................................. (65,281) (87,090)
-------- --------
Total partners' capital.................................... 110,114 88,305
-------- --------
Total liabilities and partners' capital.................... $536,888 $533,368
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-3
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Gaming (Note 2)............................................. $262,568 $262,078 $269,321
Rooms....................................................... 19,055 16,121 16,197
Food and beverage........................................... 34,105 34,037 34,376
Other....................................................... 11,161 10,806 10,672
-------- -------- --------
Gross revenues........................................... 326,889 323,042 330,566
Less-Promotional allowances (Note 2)........................ 41,084 38,659 36,767
-------- -------- --------
Net revenues............................................. 285,805 284,383 293,799
-------- -------- --------
COST AND EXPENSES (Notes 2, 4, 5 and 6)
Gaming...................................................... 171,763 166,994 163,465
Rooms....................................................... 2,833 3,283 4,191
Food and beverage........................................... 9,882 9,599 10,846
General and administrative.................................. 62,722 60,054 66,420
Depreciation and amortization (Note 2)...................... 17,089 16,612 17,340
-------- -------- --------
264,289 256,542 262,262
-------- -------- --------
Income from operations................................... 21,516 27,841 31,537
INTEREST INCOME.............................................. 452 869 811
INTEREST EXPENSE (Note 3).................................... (49,892) (52,264) (54,157)
-------- -------- --------
Net loss................................................. $(27,924) $(23,554) $(21,809)
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-4
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands)
<TABLE>
<CAPTION>
Contributed Accumulated
Capital Deficit Total
-------- -------- --------
<S> <C> <C> <C>
Balance at December 31, 1996.............................. $180,395 $(13,803) $166,592
Reclassification of 1996 capital contributed by THCR
Holdings to debt (Note 4)............................... (5,000) - (5,000)
Net loss................................................. - (27,924) (27,924)
-------- -------- --------
Balance at December 31, 1997.............................. 175,395 (41,727) 133,668
Net loss................................................. - (23,554) (23,554)
-------- -------- --------
Balance at December 31, 1998.............................. 175,395 (65,281) 110,114
Net loss................................................. - (21,809) (21,809)
-------- -------- --------
Balance at December 31, 1999.............................. $175,395 $(87,090) $ 88,305
======== ======== ========
</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 CASH FLOWS
(in thousands)
(Note 2)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................................... $(27,924) $(23,554) $(21,809)
Adjustments to reconcile net loss to net cash flows provided by
operating activities --
Depreciation and amortization......................................... 17,089 16,612 17,340
Issuance of PIK debt in exchange for accrued interest................. 10,156 11,614 13,281
Accretion of bond discount............................................ 3,213 3,754 4,382
Provision for losses on receivables................................... 1,450 951 764
Valuation allowance - CRDA investments................................ 1,401 1,149 1,444
Increase in receivables............................................... (1,782) (1,324) (2,990)
(Increase) decrease in inventories.................................... (1,792) 70 (272)
(Increase) decrease in prepaid expenses and other current assets...... (153) 182 59
Decrease in due from affiliate........................................ 0 0 1,250
(Increase) decrease in other assets................................... (1,254) 111 (24)
Increase (decrease) in due to affiliates.............................. 19,557 123 (1,675)
(Decrease) increase in current liabilities............................ (5,781) 1,535 (239)
(Decrease) increase in other long-term liabilities.................... (174) (1,189) 7
-------- -------- --------
Net cash flows provided by operating activities...................... 14,006 10,034 11,518
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net.............................. (5,972) (2,761) (4,553)
Purchases of CRDA investments......................................... (3,273) (3,241) (3,368)
-------- -------- --------
Net cash flows used in investing activities.......................... (9,245) (6,002) (7,921)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of other borrowings......................................... (6,069) (64,480) (1,907)
Proceeds of other borrowings.......................................... 400 67,000 -
Cost of issuing debt.................................................. - (1,301) -
-------- -------- --------
Net cash flows (used in) provided by financing activities............ (5,669) 1,219 (1,907)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents................. (908) 5,251 1,690
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................ 15,380 14,472 19,723
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............................. $ 14,472 $ 19,723 $ 21,413
======== ======== ========
SUPPLEMENTAL INFORMATION:
Cash paid for interest................................................ $ 36,192 $ 35,962 $ 36,383
======== ======== ========
Purchase of equipment under capitalized lease obligations............. $ 891 $ 71 $ 4,059
======== ======== ========
</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
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"). The Partnership is 99% owned by Trump Hotels & Casino
Resorts Holdings, L.P., a Delaware limited partnership ("THCR Holdings") and 1%
by Trump's Castle Hotel & Casino, Inc., a New Jersey corporation ("TCHI") .
TCHI is wholly owned by THCR Holdings, and THCR Holdings is currently a 63.4%
owned subsidiary of Trump Hotels & Casino Resorts, Inc., a Delaware corporation
("THCR").
All significant intercompany balances and transactions have been eliminated
in the consolidated financial statements.
The Partnership operates the Trump Marina Hotel Casino ("Trump Marina"), a
luxury casino hotel located in the Marina District of Atlantic City, New Jersey.
The majority of Trump Marina's revenues are derived from its gaming operations.
Competition in the Atlantic City gaming market is intense and while no
significant expansion is expected in 2000, the Partnership believes that
competition will continue to intensify due to planned future expansion by
existing operators and as new entrants to the gaming industry become
operational.
Since Funding has no business operations, its ability to repay the
principal and interest on the $62,000,000 10 1/4% Senior Secured Notes due 2003
(the "Senior Notes"), the 11 3/4% Mortgage Notes due 2003 (the "Mortgage Notes")
and its Increasing Rate Subordinated Pay-in-Kind Notes due 2005 (the "PIK
Notes") is completely dependent upon the operations of the Partnership. (See
Note 3).
Since TCHI has no business operations, its ability to repay the principal
and interest on the $5,000,000 10 1/4% Senior Secured Notes due 2003 (the
"Working Capital Loan") is completely dependent on the operations of the
Partnership. (See Note 3).
(2) 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.
F-7
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 costs
of such complimentaries have been included in gaming costs and expenses in the
accompanying consolidated statements of operations and consist of:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Rooms...................................... $11,257,000 $11,258,000 $10,680,000
Food and Beverage.......................... 21,830,000 21,904,000 21,635,000
Other...................................... 5,618,000 5,082,000 3,668,000
----------- ----------- -----------
$38,705,000 $38,244,000 $35,983,000
=========== =========== ===========
</TABLE>
Income Taxes
The accompanying consolidated financial statements do not include a
provision for federal income taxes of the Partnership, since any income or
losses allocated to the partners are reportable for federal income tax purposes
by the partners.
Under the New Jersey Casino Control Act (the "Casino Control Act") and the
regulations promulgated thereunder, the Partnership and Funding are required to
file a consolidated New Jersey corporation business tax return.
As of December 31, 1999, the Partnership had New Jersey state net operating
loss carryforwards of approximately $144,500,000, which are available to offset
taxable income through the year 2006. The net operating loss carryforwards
result in a deferred tax asset of $13,005,000, which has been offset by a
valuation allowance of $13,005,000, as utilization of such carryforwards is not
considered to be likely.
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 are recorded at cost and depreciated on the
straight-line method over the estimated useful lives of the related assets.
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. The Partnership does
not believe that any such changes have occurred.
F-8
<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, the Partnership
considers all highly liquid debt instruments purchased with a maturity of three
months or less, at the time of purchase, to be cash equivalents.
Reclassifications
Certain reclassifications have been made to the prior period financial
statements in order to conform to the 1999 presentation.
(3) Long-Term Debt
Long-term debt consists of:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Mortgage Notes, due 2003 $215,334,000 $219,235,000
(Net of discount of $26,807,000 and $22,906,000, respectively)...........
PIK Notes, due 2005 85,704,000 99,466,000
(Net of discount of $6,806,000 and $6,325,000, respectively).............
Senior Notes, due 2003................................................... 62,000,000 62,000,000
Working Capital Loan, due 2003........................................... 5,000,000 5,000,000
Capital lease obligations................................................ 1,768,000 4,640,000
------------ ------------
Total debt............................................................. 369,806,000 390,341,000
Less-current maturities.................................................. 1,277,000 1,296,000
------------ ------------
Long-term debt......................................................... $368,529,000 $389,045,000
============ ============
</TABLE>
The Mortgage Notes bear interest at 11 3/4%, payable in cash semi-annually,
and mature on November 15, 2003. The Mortgage Notes may be redeemed at
Funding's option at a rate of 103.917% of the principal amount commencing on
December 31, 1999. In addition, the redemption rate declines to 101.958% at
December 31, 2000 and to 100% at December 31, 2001 and thereafter.
The PIK Notes bear interest at 137/8% 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 137/8%. 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 is required to be redeemed from the proceeds of any
equity offering of the Partnership. Interest payments of $10,156,000,
$11,614,000 and $13,281,000 in 1997, 1998 and 1999, respectively, were satisfied
by the issuance of additional PIK Notes. The Partnership anticipates that
interest due in 2000 will also be satisfied through the issuance of additional
PIK Notes. THCR Holdings owns approximately 90% of the 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.
F-9
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 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 of the Senior Notes and the Working Capital
Loan (collectively, the "Senior Indebtedness") and the liens on 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.
On April 17, 1998, Funding refinanced its 11 1/2% Senior Secured Notes
due 2000 (the "Old Senior Notes") and its term loan with a bank (the "Term
Loan") by issuing the Senior Notes. The Senior Notes have a priority mortgage
lien ahead of the Partnership's Mortgage Notes and are further secured by
virtually all of the Partnership's assets. The Senior Notes have an outstanding
principal amount of $62,000,000, bear interest at the rate of 10 1/4% per annum,
payable semi-annually and mature on April 30, 2003.
In connection with the refinancing discussed above, TCHI obtained a
$5,000,000 working capital loan, the proceeds of which were loaned to the
Partnership. The Working Capital Loan has an outstanding principal amount of
$5,000,000, bears interest at the rate of 10 1/4% per annum, and matures on
April 30, 2003. Both the Senior Notes and the Working Capital Loan are
guaranteed by the Partnership.
The Partnership has entered into various capital leases which are secured
by equipment. These leases mature on various dates during the years 2000
through 2002.
Future minimum payments under capital leases (principal portion included in
the table of debt maturities below) are as follows:
2000...................................................... $ 1,968,000
2001...................................................... 1,241,000
2002...................................................... 2,884,000
2003...................................................... --
2004...................................................... --
-----------
Total minimum payments.................................... 6,093,000
Less: amount representing interest....................... (1,453,000)
-----------
Present value of minimum lease payments................... $ 4,640,000
===========
The aggregate maturities of long-term debt as of December 31, 1999 are as
follows:
2000...................................................... $ 1,296,000
2001...................................................... 719,000
2002...................................................... 2,625,000
2003...................................................... 286,235,000
2004...................................................... --
Thereafter................................................ 99,466,000
------------
$390,341,000
============
F-10
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 the 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, TCHI 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.
(4) Related Party Transactions
Trump Management Fee
The Partnership has a Services Agreement (the "Services Agreement") with
Trump Casinos II, Inc. ("TCI-II"), a corporation wholly-owned by Donald J. Trump
("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 of the Partnership 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 $50,000,000. In addition, if the annual fee is attained TCI-II is to
receive an incentive fee equal to 10% of the excess EBITDA over $45,000,000 for
such fiscal years. The Services Agreement expires on December 31, 2005.
For the years ended December 31, 1997 and 1998, the Partnership incurred
no fees and expenses under the Services Agreement. For the year ended December
31, 1999, the Partnership incurred fees and expenses of $2,258,000 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 October 6, 1996, the Partnership recorded an
amount due from affiliate of $1,250,000, which represented the amounts advanced
during the year. This was offset against management fees earned during the year
ended December 31, 1999. The Partnership made no monthly advances to TCI-II
related to the Services Agreement during 1997, 1998 or 1999.
Transactions with Affiliates
At December 31, 1998 and 1999, amounts due to affiliates were $21,602,000
and $20,116,000, respectively. The Partnership has engaged in limited
intercompany transactions with Trump Plaza Associates ("Plaza Associates"),
Trump Taj Mahal Associates ("Taj Associates"), Trump Casino Services, L.L.C.
("TCS"), and the Trump Organization, all of which are affiliates of Trump.
Beginning in late 1997, Castle Associates has
utilized certain facilities owned by Trump to entertain
high-end customers. Management believes that the ability to utilize these
facilities has enhanced Castle Associates' revenues. In 1997, 1998 and 1999,
Castle Associates incurred approximately $11,000, $239,000 and $636,000,
respectively, for customer costs associated with such utilization. In
exchange for having Trump's plane available to customers of Trump Marina, Castle
Associates has incurred pilot costs of approximately $53,000, $49,000 and
$60,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
F-11
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
TCS, which was formed for the purpose of realizing cost savings and
operational synergies, provides certain administrative functions and certain
services to Plaza Associates, Taj Associates and the Partnership.
In 1997, the Partnership reclassified $5,000,000 of capital contributed in
1996 by THCR Holdings into a note payable. During June 1997, the Partnership
repaid $2,000,000 plus accrued interest on this note. In January 1998, the
Partnership repaid an additional $2,550,000. During 1999, the Partnership
repaid the balance of principal and interest outstanding 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 years ended December 31, 1997,
1998 and 1999, the Partnership paid no expenses on behalf of TCI-II.
(5) 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 23, 1999, the CCC renewed the casino license of the Partnership
through May 31, 2003, subject to certain continuing reporting and compliance
conditions.
Self Insurance Reserves
Self insurance reserves represent the estimated amounts of uninsured claims
related to employee health medical costs, workers' compensation, general
liability 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, with consideration of incurred but not reported claims as of the
balance sheet date. During 1998, self insurance reserves decreased due to an
internally focused aggressive policy where potential lawsuits are challenged
immediately. Additionally, a more aggressive litigation policy was pursued to
deter present and future frivolous lawsuits. The Partnership also retained an
outside consultant to comprehensively review certain claims and to assist the
Partnership in establishing certain estimated reserves at December 31, 1998. The
costs of the ultimate disposition of these claims may differ from these reserve
amounts.
F-12
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Employment Agreements
The Partnership has entered into employment agreements with certain key
employees which expire at various dates through December 31, 2000. Total
minimum commitments on these agreements at December 31, 1999 were approximately
$2,453,000.
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 rates. The Partnership is required to make
quarterly deposits with the CRDA to satisfy its investment obligations.
For the years ended December 31, 1997, 1998 and 1999 the Partnership
charged to operations $1,401,000, $1,149,000 and $1,444,000, respectively, to
give effect to the below market interest rates and valuation allowance
adjustments associated with CRDA deposits and bonds.
(6) 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 20% of their earnings (as defined) 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 approximately $937,000, $1,138,000
and $1,117,000 for matching contributions for the years ended December 31, 1997,
1998 and 1999, 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. Pension expense charged to
operations for the years ended December 31, 1997, 1998 and 1999 was $547,000,
$598,000 and $743,000, respectively.
The Partnership provides no other material post employment benefits.
F-13
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(7) 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, receivables and payables based on the short-term nature of these
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:
December 31, 1998
Carrying Amount Fair Value
--------------- ----------
Mortgage Notes.......................... $215,334,000 $198,556,000
PIK Notes............................... $ 85,704,000 $ 83,259,000
December 31, 1999
Carrying Amount Fair Value
--------------- ----------
Mortgage Notes.......................... $219,235,000 $199,766,000
PIK Notes............................... $ 99,466,000 $ 87,806,000
There are no quoted market prices for the Partnership's Senior Notes and
Working Capital Loan. A reasonable estimate of their value could not be made
without incurring excessive costs.
F-14
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(8) Financial Information of Funding
Financial information relating to Funding is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Total Assets (including Mortgage Notes Receivable of $242,141,000,
net of unamortized discount of $26,807,000 and $22,906,000 at
December 31, 1998 and December 31, 1999, PIK Notes Receivable of
$92,510,000, net of unamortized discount of $6,806,000 at
December 31, 1998 and $105,791,000, net of unamortized discount
of $6,325,000 at December, 31, 1999, Senior Notes Receivable of
$62,000,000 at December 31, 1998 and December 31, 1999).......... $363,038,000 $380,701,000
============ ============
Total Liabilities and Capital (including Mortgage Notes Payable of
$242,141,000, net of unamortized discount of $26,807,000 and
$22,906,000 at December 31, 1998 and December 31, 1999, PIK Notes
Payable of $92,510,000, net of unamortized discount of $6,806,000
at December 31, 1998 and $105,791,000, net of unamortized
discount of $6,325,000 at December 31, 1999, Senior Notes Payable
of $62,000,000 at December 31, 1998 and December 31, 1999)........ $363,038,000 $380,701,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1999
----------- -----------
<S> <C> <C>
Interest Income.................................................... $49,274,000 $52,525,000
Interest Expense................................................... 49,274,000 52,525,000
----------- -----------
Net Income......................................................... $ - $ -
=========== ===========
</TABLE>
F-15
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(9) Financial Information of TCHI
Financial information relating to TCHI is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
========== ==========
<S> <C> <C>
Total Assets (including Working Capital Loan Receivable of
$5,000,000 at December 31, 1998 and 1999)......................... $5,000,000 $5,000,000
========== ==========
Total Liabilities and Capital (including Working Capital Loan
Payable of $5,000,000 at December 31, 1998 and 1999).............. $5,000,000 $5,000,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1999
-------- --------
<S> <C> <C>
Interest Income.................................................... $362,000 $512,000
Interest Expense................................................... 362,000 512,000
-------- --------
Net Income......................................................... $ - $ -
======== ========
</TABLE>
F-16
<PAGE>
SCHEDULE II
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Other End of
Of Period Expenses Charges Period
--------- --------- ---------- ---------
YEAR ENDED DECEMBER 31, 1997
<S> <C> <C> <C> <C>
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
========== ========== =========== ==========
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts................. $1,479,000 $ 951,000 $ (510,000)(A) $1,920,000
========== ========== =========== ==========
Valuation allowance for interest differential
on CRDA bonds................................... $3,442,000 $1,116,000 $ - $4,558,000
========== ========== =========== ==========
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts................. $1,920,000 $ 764,000 $ (683,000)(A) $2,001,000
========== ========== =========== ==========
Valuation allowance for interest differential
on CRDA bonds................................... $4,558,000 $1,444,000 $ (183,000)(B) $5,819,000
========== ========== =========== ==========
</TABLE>
- -----------------
(A) Write-off of uncollectible accounts.
(B) Reversal of allowance applicable to contribution of CRDA deposits.
S-1
<PAGE>
EXHIBIT 10.49(1)
January 4, 2000
Larry J. Mullin
1108 Lavendar Lane
Absecon, New Jersey 08201
Re: Third Amendment of the Agreement dated July 24, 1995
between Larry J. Mullin and Trump's Castle Associates
("TCA") (the "Agreement")
-------------------------------------------------------
Dear Mr. Mullin:
This letter will confirm that the Agreement is hereby amended to provide
that you shall be employed by TCA in the capacity of President and Chief
Operating Officer effective as of January 3, 2000. This will also confirm our
agreement to amend the Agreement hereby by amending the Expiration Date to
January 2, 2003.
As consideration for these amendments, your annual base salary as
stated in Paragraph 3A of the Agreement shall be amended as follows (i) Three
Hundred Fifty Thousand ($350,000.00) Dollars for the calendar year 2000, (ii)
Four Hundred Thousand ($400,000.00) Dollars commencing January 1, 2001 and (iii)
Four Hundred Fifty Thousand ($450,000.00) commencing January 1, 2002. In
addition, the Agreement is also hereby amended to provide that you shall receive
a discretionary bonus based upon the profitability of Trump Marina Casino
Resort.
Except to the extent modified herein, you and TCA hereby ratify the
Agreement and agree that all other such terms, conditions and obligations
contained therein remain in full force and effect as stated in the Agreement.
Very truly yours,
/s/ Donald J. Trump
---------------------
DONALD J. TRUMP
Chairman
Trump's Castle Associates
Agreed to this 14th day of
January, 2000
/s/ Larry J. Mullin
- ---------------------------
LARRY J. MULLIN
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF TRUMP'S CASTLE HOTEL & CASINO, INC.
Trump's Castle Associates, L.P. (New Jersey limited partnership) -
1% ownership
Trump's Castle Funding, Inc. (New Jersey corporation) - wholly owned by
Trump's Castle Associates, L.P.
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>
The schedule contains summary financial information from Trump's Castle Funding,
Inc. This data has been extracted from the Consolidated Balance Sheets and
Consolidated Statements of Operations for the three and twelve month periods
ended December 31, 1999 and is qualified in its entirety by reference to such
Financial Statements.
</LEGEND>
<CIK> 0000770618
<NAME> TRUMP'S CASTLE FUNDING, INC.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> OCT-01-1999 JAN-01-1999
<PERIOD-END> DEC-31-1999 DEC-31-1999
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 380,701 380,701
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 380,701 380,701
<SALES> 0 0
<TOTAL-REVENUES> 13,164 52,525
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,164 52,525
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 0
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information from Trump's Castle
Associates, L.P. This data has been extracted from the Consolidated Balance
Sheets and Consolidated Statements of Operations for the three and twelve month
periods ended December 31, 1999 and is qualified in its entirety by reference to
such Financial Statements.
</LEGEND>
<CIK> 0000911534
<NAME> TRUMP'S CASTLE ASSOCIATES, L.P.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> OCT-01-1999 JAN-01-1999
<PERIOD-END> DEC-31-1999 DEC-31-1999
<CASH> 21,413 21,413
<SECURITIES> 0 0
<RECEIVABLES> 10,627<F1> 10,627<F1>
<ALLOWANCES> 0 0
<INVENTORY> 3,292 3,292
<CURRENT-ASSETS> 1,825 1,825
<PP&E> 536,301 536,301
<DEPRECIATION> 54,570 54,570
<TOTAL-ASSETS> 533,368 533,368
<CURRENT-LIABILITIES> 52,470 52,470
<BONDS> 389,045 389,045
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 533,368 533,368
<SALES> 0 0
<TOTAL-REVENUES> 70,108 293,799
<CGS> 0 0
<TOTAL-COSTS> 62,401 244,922
<OTHER-EXPENSES> 4,360<F2> 17,340<F2>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,822 54,157
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10,249) (21,809)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>Asset values represent net amounts.
<F2>Represents depreciation and amortization expenses.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information from Trump's Castle Hotel &
Casino, Inc. This data has been extracted from the Consolidated Balance Sheets
and Consolidated Statements of Operations for the three and twelve month periods
ended December 31, 1999 and is qualified in its entirety by reference to such
Financial Statements.
</LEGEND>
<CIK> 0001063882
<NAME> TRUMP'S CASTLE HOTEL & CASINO, INC.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> OCT-01-1999 JAN-01-1999
<PERIOD-END> DEC-31-1999 DEC-31-1999
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 5,000 5,000
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 5,000 5,000
<SALES> 0 0
<TOTAL-REVENUES> 128 512
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 128 512
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 0
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
