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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K

                                 ANNUAL REPORT

(Mark One)

     [ X ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934

                        For the fiscal year ended    December 31, 1997
                                                     -----------------

     [   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
             THE SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from ___________to___________

                        Commission File Number 0-11268

                   THE CLARIDGE HOTEL AND CASINO CORPORATION
            (Exact name of registrant as specified in its charter)


               New York                                 22-2469172
  (State or other jurisdiction of                   (I.R.S. Employer
   incorporation or organization)                 Identification Number)

   Indiana Avenue and the Boardwalk
       Atlantic City, New Jersey                          08401
(Address of principal executive offices)               (Zip Code)

      Registrant's telephone number, including area code: (609) 340-3400
                              ------------------
Securities registered pursuant to Section 12(b) of the Act:

                                                Name of each exchange
         Title of each class                     on which registered
  ------------------------------               -----------------------
  First Mortgage Notes, due 2002               New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

                        Class A Stock, $.001 par value
                               (Title of Class)


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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
                                                  ---  ---

Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (X)

All issued and outstanding shares of the Corporation have been offered and
sold in reliance on exemptions from the registration requirements of the
Securities Act of 1933, as amended. Therefore, there is no established trading
market for any class of shares of the Corporation. The Corporation did, in
1989, jointly with Atlantic City Boardwalk Associates, L.P. ("Partnership")
and Del Webb Corporation ("Webb"), register certain Contingent Payment Rights.
As stated in the Prospectus dated May 5, 1989, Contingent Payment Rights may
or may not be securities. None of the Corporation, the Partnership, or Webb
has admitted that the Contingent Payment Rights are securities or that any of
them is the issuer of any such securities.

Indicate the number of shares outstanding of each class of the Registrant's
Stock, as of the latest practicable date:

               Number of Shares Outstanding
                    March 30, 1998
              ----------------------------

Class A Stock            4,970,730            (After deducting 91,770 shares of
                                                        Treasury Stock)


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                      DOCUMENTS INCORPORATED BY REFERENCE



                  DOCUMENT                                    FORM 10-K PART

Portions of the definitive Proxy Statement with                    III
respect to the Annual Meeting of Shareholders
scheduled to be held on June 16, 1998 (hereinafter
referred to as the "Proxy Statement"), but
specifically excluding the section entitled "Report
on Executive Compensation"  which shall not be
deemed to be incorporated by reference herein




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                                    PART I


Item 1. BUSINESS

General

      The Claridge Hotel and Casino Corporation (the "Corporation"), through
its wholly-owned subsidiary, The Claridge at Park Place, Incorporated ("New
Claridge"), operates The Claridge Hotel and Casino ("Claridge") in Atlantic
City, New Jersey. The Corporation was formed as a New York corporation on
August 26, 1983, and qualified to engage in business in New Jersey as a
foreign corporation in September 1983. New Claridge was formed as a New Jersey
corporation on August 29, 1983.

      The Corporation maintains its executive and administrative offices at
Indiana Avenue and the Boardwalk, Atlantic City, New Jersey 08401, telephone
number (609) 340-3400.

Corporate Structure

      On October 31, 1983, New Claridge acquired certain assets of the
Claridge including gaming equipment ("Casino Assets"), from Del E. Webb New
Jersey, Inc. ("DEWNJ"), a wholly-owned subsidiary of Del Webb Corporation
("Webb"); leased certain other of the Claridge's assets, including the
buildings, parking facility and non-gaming, depreciable, tangible property of
the Claridge ("Hotel Assets"), from Atlantic City Boardwalk Associates, L.P.,
a New Jersey limited partnership ("Partnership"); subleased the land on which
the Claridge is located from the Partnership; assumed certain liabilities
related to the acquired assets; and undertook to carry on the business of the
Claridge. In connection with these transactions, the Partnership granted the
Expandable Wraparound Mortgage (described below) to New Claridge. These
transactions were entered into in connection with the private placement of
equity interests in the Corporation and the Partnership. The offering was
structured to furnish the investors with certain tax benefits available under
the federal tax law then in effect. The common stock of the Corporation and
the limited partnership interests of the Partnership were sold together in the
private placement as units, and because there has been relatively little
trading in the stock or Partnership interests, there is a substantial
similarity between the equity ownership of the Corporation and the
Partnership. Although the Corporation and the Partnership are independent
entities, approximately 93% of the Corporation's common stock is owned by
persons who also own limited partnership interests in the Partnership. The
Partnership does not currently engage in any significant business activities
other than those relating to the Claridge.

       In October 1988, the Corporation and New Claridge entered into an
agreement to restructure the financial obligations of the Corporation and New
Claridge (the "Restructuring Agreement"). The restructuring, which was
consummated in June 1989, resulted in (i) a reorganization of the ownership
interests in the Claridge; (ii) modifications of the rights and obligations of
certain lenders; (iii) satisfaction and termination of the obligations and
commitments of Webb and DEWNJ under the original structure; (iv) modifications
of the lease agreements between New Claridge and the Partnership; and (v) the
forgiveness by Webb of substantial indebtedness.

       On January 31, 1994, the Corporation completed an offering of $85
million of First Mortgage Notes (the "Notes") due 2002, bearing interest at
11 3/4%. The Notes are secured by (i) a non-recourse mortgage granted by the
Partnership representing a first lien on the Hotel Assets, (ii) a pledge
granted by the Corporation of all outstanding shares of capital stock of New
Claridge, and (iii) a guarantee by New Claridge. New Claridge's guarantee of
the Notes is secured by a collateral assignment of the second lien

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Expandable Wraparound Mortgage, and by a lien on the Claridge's gaming and
other assets, which lien will be subordinated to liens that may be placed on
those gaming and other assets to secure any future revolving credit line
arrangement. On January 28, 1997, New Claridge entered into an agreement to
subject the new self-parking garage to the lien of the mortgage; such lien
will not be subordinated to any liens which may be placed on New Claridge's
gaming and other assets to secure any future revolving credit line
arrangements. Interest on the Notes is payable semiannually on February 1 and
August 1 of each year.

      The net proceeds of the Notes, totalling $82.2 million net of fees and
expenses, were used as follows: (i) to repay in full on January 31, 1994, the
then outstanding debt of the Corporation under the Revolving Credit and Term
Loan Agreement (the "Loan Agreement"), including the outstanding balance of
the Corporation's revolving credit line, which was secured by a first
mortgage; (ii) to expand the casino capacity of the Claridge by 12,000 square
feet in 1994, including the addition of approximately 500 slot machines and
the relocation of two restaurants and their related kitchens; (iii) to
purchase property in 1995 and construct on that property a self-parking
garage, which opened in mid-1996; and (iv) to acquire the Contingent Payment
Option (see Item 1. Business - "Contingent Payment").

Current Developments

      During 1995, the cash provided by operations of the Claridge was
sufficient to meet the Corporation's obligations to pay interest on the Notes,
as well as to make at least some moderate capital improvements. Commencing in
the latter part of 1995, however, competition in the Atlantic City casino
market for bus customers, a principal source of customers for the Claridge at
the time, increased; this competition intensified even more during 1996 as
additional casino square footage was added, principally due to the opening of
the Trump World's Fair casino. During 1996, the average coin incentive issued
per bus patron at the Claridge increased to approximately $19, from
approximately $13 in 1995. Total cash incentives issued to Claridge's casino
patrons (in the form of coin to play slot machines and gaming chips to play
table games) increased to approximately $30.5 million in 1996, from
approximately $25.2 million in 1995. While the Corporation's promotional costs
increased significantly, total casino revenues in 1996 actually decreased from
1995 levels. It had been the expectation of the Corporation that, upon the
opening of its new self-parking garage, the Corporation would be able to
reduce its reliance on the bus patron market; however, the Corporation was
forced to close the garage facility on July 10, 1996, only ten days after its
opening, following a fatal accident. Because the facility was not able to
reopen until the end of September 1996, the Corporation lost any possible
benefit of the facility during the normally busy summer season. In addition,
severe winter weather in the first quarter of 1996 adversely affected
revenues. As a result, the Corporation experienced a net loss for 1996 of
$15.4 million, compared to a net loss of $1.9 million in 1995.

      In late July 1996, management of the Corporation determined that due to
the serious deterioration in the Corporation's cash flow, without a
significant improvement in its operating results, it was unlikely that the
Corporation would be able to meet its obligations to pay interest on the Notes
beyond the August 1996 payment. In addition to taking steps to conserve cash
by reducing various operating expenses, the Corporation engaged a financial
advisor, Dillon, Read & Co., Inc., to assist in formulating a proposal to the
holders of the Notes to restructure the Corporation's obligations under the
Notes. At the same time, the Corporation was working with Dillon, Read & Co.,
Inc. to attempt to find a buyer of the Corporation or an investor that would
be in a position to inject additional capital into the Corporation to enable
the Corporation to meet its ongoing obligations. The Corporation did not
receive any acceptable proposals in regards to the possible sale of the
Corporation.

      In November 1996, while the sales efforts were continuing, the
Corporation announced that there was a strong likelihood that the Corporation
would be unable to pay the interest due on the Notes on February

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3, 1997. Accordingly, management, working together with financial and legal
advisors, formulated a plan for restructuring the Corporation's obligations.
The terms of the proposed plan were presented to the noteholders at a meeting
held on December 3, 1996.

      On January 12, 1997, management of the Corporation was contacted,
through an agent, by Hilton Hotel Corporation ("Hilton"), regarding a possible
sale of the Corporation to Hilton, and shortly thereafter, the Corporation
began negotiations with Hilton. On January 30, 1997, the Corporation issued a
press release indicating that the Corporation would not make the interest
payment due on the Notes on February 3, 1997, and that the Corporation had
entered negotiations with Hilton regarding acquisition of the Corporation by
Hilton through a prepackaged bankruptcy plan. At that time, a representative
of Hilton indicated that Hilton had acquired approximately 35% to 40% of the
Notes. On February 5, 1997, three holders of the Notes, who were members of
the unofficial committee which they had formed, filed a petition for
involuntary bankruptcy against the Corporation in the bankruptcy court for the
District of New Jersey.

      Contemporaneously, the same three holders of the Notes filed a related
state court lawsuit against the Corporation, New Claridge, the Partnership,
certain officers and directors of the Corporation, and the general partners of
the Partnership. On March 4, 1997, contrary to earlier expectations, the
Corporation was able to pay the interest that was due on the Notes on February
3, 1997, under the 30-day grace period allowed in accordance with the terms of
the indenture governing the Notes (the "Indenture"). In addition, the
Corporation reached agreement with the unofficial committee of noteholders, as
well as the three holders of the Notes, providing for the joint dismissal of
the involuntary bankruptcy petition and the related state court lawsuit. On
March 19, 1997, an order was entered dismissing the involuntary bankruptcy
petition; as part of that order, a settlement agreement was entered whereby
the state court lawsuit was also dismissed. Negotiations with Hilton regarding
acquisition of the Corporation terminated in April 1997. Management of the
Corporation believes that Hilton subsequently disposed of its ownership in the
Notes, and that a portion or all of these Notes are now owned by an entity or
entities which are controlled by Carl Icahn.

      The Corporation had sufficient cash to pay the interest on the Notes on
March 4, 1997 due to several events: (i) cash flow from operations for January
and February 1997 improved significantly over what had been expected; (ii)
effective March 1, 1997, the Operating Lease and Expansion Operating Lease
(defined below) were amended to provide for the deferral of basic rent of $1.3
million on March 1, 1997 (see Item 1. Business - "Certain Agreements between
the Corporation, New Claridge and the Partnership"); and (iii) on February 28,
1997, New Claridge entered into an agreement with Thermal Energy Limited
Partnership I ("Atlantic Thermal"), pursuant to which Atlantic Thermal was
granted an exclusive license for a period of twenty years to use, operate and
maintain certain steam and chilled water production facilities at the
Claridge. In consideration for this license agreement, Atlantic Thermal paid
New Claridge $1.5 million.

      In December 1997, New Claridge obtained a committment from PDS Financial
Corporation ("PDS") for a $2 million sale lease-back facility (the
"Facility"). Under the terms of the Facility, New Claridge may sell certain of
its slot machines to PDS under a sale lease-back arrangement, for a specified
amount per slot machine, for up to $2 million. In February 1998, New Claridge
sold 370 slot machines to PDS for approximately $1 million under this
Facility. The machines will be leased back to New Claridge under an operating
lease arrangement for two years. After two years, New Claridge has an option
to either purchase the machines, renew the lease arrangement for twelve
months, or return the equipment to PDS.


                                       3

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Certain Agreements between the Corporation, New Claridge and the Partnership

      The current relationships and agreements between the Corporation, New
Claridge and the Partnership are described below:

      Operating Lease/Expansion Operating Lease. The Casino Assets are owned
      by New Claridge. In addition, the new self-parking garage and the land
      on which it is located are owned by New Claridge. The Hotel Assets and
      underlying land are owned by the Partnership and leased by the
      Partnership to New Claridge. The lease obligations are set forth in a
      lease (the "Operating Lease"), originally entered into on October 31,
      1983, and an expansion operating lease (the "Expansion Operating
      Lease"), covering additions to the Claridge made in 1986.

      The Operating Lease has an initial term of 15 years with three 10-year
      renewal options. Basic annual rent payable during the initial term of
      the Operating Lease in equal monthly installments was $38,055,000 in
      1994, $39,030,000 in 1995, $39,906,000 in 1996, $41,775,000 in 1997 and
      will be $32,531,000 for the nine month period ending September 30, 1998.
      Basic rent during the renewal term will be calculated pursuant to a
      formula, with such rent not to be more than $29,500,000 nor less than
      $24,000,000 for the lease year commencing October 1, 1998 through
      September 30, 1999, and, subsequently, not to be greater than 10% more
      than the basic rent for the immediately preceding lease year in each
      lease year thereafter.

      New Claridge is also required to pay as additional rent amounts
      including certain taxes, insurance and other charges relating to the
      occupancy of the land and Hotel Assets, certain expenses and debt
      service relating to furniture, fixture and equipment replacements and
      building improvements (collectively, "FF&E Replacements") and the
      general and administrative costs of the Partnership. The Partnership is
      required during the entire term of the Operating Lease, and any
      subsequent renewal terms, to provide FF&E Replacements to New Claridge
      and to provide facility maintenance and engineering services to New
      Claridge. New Claridge is required to lend the Partnership any amounts
      ("FF&E Loans") necessary to fund the cost of FF&E Replacements, and if
      the Partnership's cash flow, after allowance for certain distributions,
      is insufficient to provide the facility maintenance and engineering
      services required of it, New Claridge is also required to lend the
      Partnership the funds required to provide those services. Any advances
      by New Claridge for either of the foregoing will be secured under the
      Expandable Wraparound Mortgage in an amount up to $25,000,000.
      Thereafter, such advances shall be secured under separate security
      agreements.

      On March 17, 1986, New Claridge entered into the Expansion Operating
      Lease Agreement with the Partnership under which New Claridge leased
      certain improvements (the "Expansion Improvements") made to the Claridge
      in 1986, for an initial term beginning March 17, 1986 and ending on
      September 30, 1998 with three 10-year renewal options. Basic annual rent
      payable during the initial term of the Expansion Operating Lease was
      $3,870,000 in 1986 (prorated based on the day that the Expansion
      Improvements opened to the public) and determined based on the cost of
      the construction of the Expansion Improvements. Annually thereafter the
      rental amount will be adjusted based on the Consumer Price Index with
      any increase not to exceed two percent per annum. Basic annual rent for
      1997 was $4,812,000. Basic rent during the renewal term will be
      calculated pursuant to a formula, with annual basic rent not to be more
      than $3 million nor less than $2.5 million and, subsequently, not to be
      greater than 10% more than the basic annual rent for the immediately
      preceding lease year in each lease year thereafter.

      New Claridge is also required under the Expansion Operating Lease to pay
      as additional rent amounts

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      equal to certain expenses and the debt service relating to furniture,
      fixture and equipment replacements and building improvements
      (collectively "Expansion FF&E Replacements") for the Expansion
      Improvements. The Partnership will be required during the entire term of
      the Expansion Operating Lease, and any subsequent renewal terms, to
      provide New Claridge with Expansion FF&E Replacements and to provide
      facility maintenance and engineering services to New Claridge. New
      Claridge will be obligated to lend the Partnership any amounts necessary
      to fund the cost of Expansion FF&E Replacements. Any advances by New
      Claridge for the foregoing will be secured under the Expandable
      Wraparound Mortgage in an amount up to $25,000,000. Thereafter, such
      advances shall be secured under separate security agreements.

      Effective with the consummation of the restructuring in June 1989, the
      Operating Lease and the Expansion Operating Lease were amended to
      provide for the deferral of up to $15.1 million of rental payments
      during the period July 1, 1988 through the beginning of 1992, and to
      provide for the abatement of $38.8 million of basic rent through 1998,
      thereby reducing the Partnership's cash flow to an amount estimated to
      be necessary only to meet the Partnership's cash requirements. During
      the third quarter of 1991, the maximum deferral of rent was reached. On
      August 1, 1991, the Operating Lease and Expansion Operating Lease were
      amended further to revise the abatement provisions so that, commencing
      January 1, 1991, for each calendar year through 1998, the lease
      abatements may not exceed $10 million in any one calendar year, and
      $38,820,000 in the aggregate. All of the $38.8 million of available rent
      abatements were fully utilized by the end of the first quarter of 1997.

      The Fifth Amendment to the Operating Lease and the Fourth Amendment to
      the Expansion Operating Lease, which were effective on March 1, 1997,
      provided for the abatement of $867,953 of basic rent and for the
      deferral of $1,300,000 of basic rent on March 1, 1997, and provide for
      additional abatements of basic rent, commencing on April 1, 1997, as
      necessary to reduce the Partnership's cash flow to an amount necessary
      only to meet the Partnership's cash requirements through December 31,
      1998. The $1.3 million of basic rent deferred on March 1, 1997 is to be
      paid to the Partnership in monthly installments of $25,000 for the
      period April 1, 1997 through December 31, 1997, and monthly installments
      of $50,000 for the year 1998 and thereafter until paid in full (subject
      to acceleration under certain circumstances). For the years 1999 through
      2003, additional abatements of basic rent will be reduced to provide the
      Partnership with amounts needed to meet the Partnership's cash
      requirements plus an additional amount ($83,333 per month in 1999 and
      2000, $125,000 per month in 2001, and $166,667 per month in 2002 and
      2003).

      In conjunction with the Fifth Amendment to the Operating Lease and the
      Fourth Amendment to the Expansion Operating Lease, as discussed above,
      the Corporation, New Claridge and the Partnership entered into a
      restructuring agreement, effective March 1, 1997, to modify certain
      terms of the Expandable Wraparound Mortgage (see below). In addition,
      under the March 1, 1997 restructuring agreement, New Claridge agreed to
      exercise the first of three ten-year renewal options extending the term
      of the Operating Lease and Expansion Operating Lease through September
      30, 2008.

      Under the terms of the Operating Lease, as amended effective March 1,
      1997, New Claridge has an option to purchase, on September 30, 1998, the
      Hotel Assets and the underlying land for their fair market value at the
      time the option is exercised, which in no event may be less than an
      amount equal to the amount then outstanding under the Expandable
      Wraparound Mortgage (see below) plus $2.5 million, plus any amount of
      the $1.3 million of rent deferred on March 1, 1997 not then paid. If New
      Claridge does not exercise this option on September 30, 1998, it may
      exercise an option, on September 30, 2003, to purchase the Hotel Assets
      and the underlying land on January 1, 2004, for their fair market value
      at the time the option is exercised.

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      If the Partnership should fail to make any payment due under the
      Expandable Wraparound Mortgage, New Claridge may exercise a right of
      offset against rent or other payments due under the Operating Lease and
      Expansion Operating Lease to the extent of any such deficiency.

      Expandable Wraparound Mortgage. On October 31, 1983, the Partnership
      executed and delivered to New Claridge the Expandable Wraparound
      Mortgage, which was subordinate to an $80 million first mortgage granted
      by the Partnership to a group of banks, and a $47 million purchase money
      second mortgage ("Purchase Money Second Mortgage"), granted by the
      Partnership to DEWNJ. The Purchase Money Second Mortgage, which was due
      on September 30, 2000, was cancelled upon satisfaction of certain
      conditions set forth in an agreement entered into at the time of the
      1989 restructuring. In conjunction with the offering of $85 million of
      Notes on January 31, 1994, the outstanding debt under the Loan
      Agreement, which included a first mortgage and the revolving credit
      line, was satisfied in full. By its terms, the Expandable Wraparound
      Mortgage may secure up to $25 million of additional loans to the
      Partnership from New Claridge to finance FF&E Replacements and facility
      maintenance and engineering shortfalls. The Expandable Wraparound
      Mortgage provides that, so long as the Partnership is not in default on
      its obligations under the Expandable Wraparound Mortgage, New Claridge
      is obligated to make payments required under any senior mortgage
      indebtedness. The indebtedness secured by the Expandable Wraparound
      Mortgage bears interest at an annual rate equal to 14%, with certain
      interest installments that accrued in 1983 through 1988 totalling $20
      million being deferred until maturity. In addition, the Partnership is
      required under the Expandable Wraparound Mortgage to make payments of
      principal and interest in respect of any FF&E Loans made to finance FF&E
      Replacements or facility maintenance or engineering costs as described
      above. To the extent these FF&E Loans exceed $25 million in the
      aggregate outstanding at any time, they will be secured under separate
      security agreements and not by the lien of the Expandable Wraparound
      Mortgage.

      On March 17, 1986, the first mortgage was amended and assumed by New
      Claridge. The amount of the amended and assumed first mortgage was
      increased to secure up to $96.5 million to provide financing for the
      Expansion Improvements. Indebtedness secured by the Expandable
      Wraparound Mortgage was increased by an amount up to $17 million to
      provide the Partnership with the necessary funding.

      Effective August 28, 1986, the Partnership commenced making level
      monthly payments of principal and interest so as to repay on September
      30, 1998, in full, the principal balance of this $17 million increase in
      the Expandable Wraparound Mortgage. On March 17, 1986, the Expandable
      Wraparound Mortgage was amended to require that the $127 million
      aggregate principal amount secured by it would be repayable in
      installments during the years 1988 through 1998 in escalating amounts
      totalling $80 million, with a balloon payment of $47 million and the $20
      million of deferred interest due on September 30, 2000.

      Effective March 1, 1997, the Corporation, New Claridge, and the
      Partnership entered into a restructuring agreement, pursuant to which
      New Claridge agreed to use its best efforts to cause a modification of
      the Expandable Wraparound Mortgage (the "Wraparound Modification") that
      is permitted by, or is in compliance with, the terms of the Indenture.
      The Wraparound Modification, if so permitted, will provide for an
      extension of the maturity date of the Expandable Wraparound Mortgage
      from September 30, 2000 to January 1, 2004. If the Wraparound
      Modification is not permitted by or in compliance with the terms of the
      Indenture, New Claridge has agreed to effect the Wraparound Modification
      at such time as the Notes are no longer outstanding.


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      In connection with the offering of the Notes on January 31, 1994, the
      Corporation agreed to use not less than $8 million from the net proceeds
      of the offering to finance certain internal improvements to the Claridge
      which were funded through additional FF&E Loans. In connection
      therewith, the Expandable Wraparound Mortgage Loan agreement as well as
      the Operating Lease, and the Expansion Operating Lease were amended to
      provide that the principal on these additional FF&E Loans will be
      payable at final maturity of the Expandable Wraparound Mortgage.

Contingent Payment

      Following the 1983 transactions, Webb and its affiliates retained
significant interests in the Claridge. Effective with the closing of the
restructuring in June 1989, all or substantially all of the financial,
contractual, ownership, guarantee and other relationships of the Corporation
and New Claridge with Webb were terminated. The Restructuring Agreement
provided that Webb would retain an interest equal to $20 million plus interest
from December 1, 1988 at the rate of 15% per annum compounded quarterly (the
"Contingent Payment") in any proceeds ultimately recovered from the operations
and/or the sale or refinancing of the Claridge facility in excess of the first
mortgage loan and other liabilities. To give effect to this Contingent
Payment, the Corporation and the Partnership agreed not to make any
distributions to their shareholders or partners, respectively, whether derived
from operations or from sale or refinancing proceeds, until Webb had received
the Contingent Payment.

      In connection with the 1989 restructuring, Webb agreed to grant those
investors in the Corporation and the Partnership ("Releasing Investors"), from
whom Webb had received written releases from all liabilities, rights
("Contingent Payment Rights") to receive certain amounts to the extent
available for application to the Contingent Payment. Approximately 84% in
interest of the investors provided releases and became Releasing Investors.
Payments to Releasing Investors are to be made in accordance with a schedule
of priorities, as defined in the Restructuring Agreement.

      On April 2, 1990, Webb transferred its interest in the Contingent
Payment to an irrevocable trust for the benefit of the Valley of the Sun
United Way, and upon such transfer Webb was no longer required to be qualified
or licensed by the New Jersey Casino Control Commission (the "Commission").

      On February 23, 1996, the Corporation acquired an option to purchase, at
a discount from the carrying value, the Contingent Payment. The purchase price
of the option was $1 million, and the option could have been exercised any
time prior to December 31, 1997. Upon exercise of the option, the purchase
price of the Contingent Payment would have been $10 million, plus interest at
10% per annum for the period from January 1, 1997 to the date of payment of
the purchase price if the purchase occurred after December 31, 1996. The
purchase price may also have increased in an amount not to exceed $10 million
if future distributions to Releasing Investors exceeded $20 million. It is
estimated that at December 31, 1997, the aggregate amount payable in respect
of the Contingent Payment was $76.2 million.

      Given the recent operating results (see Item 1. Business - "Current
Developments"), the Corporation was not able to exercise this Contingent
Payment option, and it expired in accordance with its terms on December 31,
1997.

The Claridge

      The Claridge, located in the Boardwalk casino section of Atlantic City,
New Jersey, is a 26-story building that contains the Corporation's casino and
hotel facilities. Built in 1929 as a hotel, the Claridge was remodeled at a
cost of approximately $138 million prior to its reopening as a casino hotel in
1981. The

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Expansion Improvements, which were completed in 1986 at a cost of
approximately $20 million, provided approximately 10,000 additional square
feet of casino space, together with a 3,600 square foot lounge. In 1994,
approximately $12.7 million was expended to expand the Claridge's casino
square footage by approximately 12,000 feet. In 1996, New Claridge constructed
a self-parking garage facility connected to its existing valet-parking garage,
at a cost of approximately $28 million. The combined garage facility provides
parking for approximately 1,200 vehicles.

      The Claridge's casino consists of approximately 59,000 square feet of
casino space on three main levels with various adjacent mezzanine levels. The
casino currently contains approximately 1,767 slot machines and sixty-four
table games, including thirty-two blackjack tables, eight craps tables, five
roulette tables, four Caribbean stud poker tables, four Pai Gow poker tables,
two mini-baccarat and two baccarat tables, and seven other specialty games.
The hotel with related amenities consists of 502 guest rooms (including 28
corner suites, 26 specialty suites and five tower penthouse suites), four
restaurants, a buffet area, three lounges, a private players club, a 600-seat
theater, limited meeting rooms, a gift shop, a beauty salon, and a health club
with an indoor swimming pool.

      New Claridge experiences a seasonal fluctuation in demand, which is
typical of casino-hotel operations in Atlantic City. Historically, peak demand
has occurred during the summer season. New Claridge's principal market is the
mid-Atlantic area of the United States. The casino gaming business in Atlantic
City is highly competitive and is strictly regulated under the New Jersey
Casino Control Act (the "Act") and regulations thereunder which affect
virtually all aspects of casino operations. (See Item 1. Business --
"Competition" and "Gaming Regulation and Licensing").

Competition

      Competition in the Atlantic City casino-hotel market is intense. As of
December 31, 1997, the twelve existing casino facilities offered approximately
1,173,000 square feet of gaming space, an 8.6% increase over the casino square
footage as of December 31, 1996 of approximately 1,080,000 square feet. In
July 1997, Bally's Wild Wild West Casino (located at the existing Bally's at
Park Place Casino) commenced operations, adding approximately 74,000 square
feet of gaming space to the existing market. The increase in casino square
footage in 1996 over 1995 was approximately 12.5%, resulting from the opening
of the Trump World's Fair casino and minor casino expansions at several other
properties. However, for the years ended December 31, 1997 and 1996, citywide
gaming revenues, as reported, increased only 2.4% and 1.8%, respectively, over
prior year levels.

      The Atlantic City gaming market is expected to experience significant
growth over the next several years as Atlantic City transforms itself from a
"day-trip" market to a "destination resort." As a result of current high room
occupancy rates, a more favorable regulatory climate, the reduced threat of
competition from potential new gaming jurisdictions, and significant
infrastructure developments making Atlantic City more accessible, over $4.6
billion of new investment has been announced or recently completed in the
Atlantic City gaming market. In addition to recent increases in casino space
and hotel rooms at the existing casinos, several Las Vegas casino operators
have announced plans to construct new casinos in Atlantic City.

      In addition to the major casino expansions and the announced new
casinos, major infrastructure improvements have begun. A new $268 million
convention center, which was completed in May 1997, contains approximately
500,000 square feet of exhibition space, 45 meeting rooms, food service
facilities, and a 1,600-car underground parking garage. The new convention
center is the largest exhibition space between Boston and Atlanta. A 500-room
non-casino hotel, which is linked to the new convention center by an elevated
walkway, opened in November 1997. The development of the corridor which links
the

                                       8

<PAGE>



convention center to the boardwalk area is nearing completion, and features a
wide, landscaped boulevard with a reflecting pool, an expanded park area, and
a 60-foot lighthouse which is intended to be illuminated each night by a light
show. In February 1997, construction of the new $7.5 million bus terminal,
which is a major component of this corridor, was completed. The State of New
Jersey is also implementing a capital plan of approximately $125 million to
upgrade and expand the Atlantic City International Airport.

      All casinos in Atlantic City are part of hotels which offer dining,
entertainment, and other guest facilities. As the size of the gaming
facilities continue to grow, the need for additional hotel rooms has become
evident. During 1996, the number of hotel rooms available citywide increased
with the opening of the Trump World's Fair casino (approximately 500 rooms)
and the Tropicana's new 600-room hotel tower. Several existing Atlantic City
casinos also increased their hotel space in 1997, including Harrah's
(approximately 400 rooms), Hilton (approximately 300 rooms), and Caesars
(approximately 600 rooms), for a total increase in 1997 of approximately 1,500
hotel rooms. Competition among the existing casino-hotels is based on factors
such as promotional allowances and incentives; the attractiveness of the
casino area; advertising; customer service; the availability, quality, and
price of rooms, food, and beverage; ease and availability of parking and
accessing the facility; and entertainment.

       The Atlantic City business is seasonal, with the highest level of
activity occurring during the summer months, and the lowest level of activity
during the winter months. The primary markets for Atlantic City casino patrons
are Philadelphia, New Jersey and New York City, together with the secondary
markets of central Pennsylvania, Delaware, Baltimore and Washington, D.C.
Casinos offer incentives, in the form of cash and complimentaries for rooms,
food and beverages, to their customers based on their casino play. In recent
years, competition for, and as a result, incentives offered to, customers has
increased significantly. Many Atlantic City casino patrons arrive by bus and
stay for approximately six hours. Competitive factors in Atlantic City require
the payment of cash incentives and coupons for use towards the price of meals
to patrons arriving under bus programs sponsored by the casino operators.
Competition for bus patrons intensified in 1996. During 1996, 9.8 million
casino patrons arrived in Atlantic City by bus, an 11% increase over 1995
levels. The increased competition took the form of higher coin incentives,
which New Claridge matched, thus increasing its per patron average coin cost
to approximately $19 in 1996 from approximately $13 in 1995. New Claridge has
relied heavily on attracting patrons who travel to Atlantic City by bus
because the Claridge previously lacked a self-parking facility, and has
therefore had to remain competitive with other casino operators in regards to
the incentives offered. Even with its 1,200-space parking facility, New
Claridge will continue to rely on its bus customers as a significant source of
business. In 1997, the total number of patrons arriving in Atlantic City by
bus decreased slightly, to approximately 9.4 million. In addition, bus package
pricing competition eased somewhat; the average coin cost per patron arriving
by bus to the Claridge decreased to $16 in 1997.

      The Claridge has positioned itself as the "smaller, friendlier"
alternative to the other Atlantic City casinos. This strategy, implemented in
1989, is designed to capitalize on the Claridge's unique physical facility,
which the Corporation believes retains the atmosphere of a grand hotel, and on
the Claridge's smaller, more intimate size relative to the larger Atlantic
City casinos. By emphasizing an environment that is intimate, friendly and
service-oriented, the Claridge targets a market niche different than that of a
majority of its competitors. The Claridge seeks to attract and retain a
customer base whose wagering spans the same market segments serviced by other
casino hotels, but primarily targets the middle, leaving the high-end business
to its competitors. New Claridge believes it is uneconomical to pursue the
high-end market as its core business because of the high maintenance cost and
potential volatility in table games "hold" percentages (the ratio of win to
the amount of gaming chips purchased by patrons). The majority of the
Claridge's casino revenue is generated by slot machine play, the fastest
growing segment of gaming play. In 1996, 75% of the Claridge's casino revenue
came from slot play as compared to 69% reported for all

                                       9

<PAGE>



Atlantic City properties. The trend has continued in 1997 with 76% of the
Claridge's casino revenue generated from slot play, compared to 69% for all
Atlantic City casinos.

      The key elements of New Claridge's marketing plan include the use of
complimentaries, promotional activities, entertainment events, player
development hosts, a bus program, and the use of commissioned agents to
attract groups from outside the company's traditional market areas. New
Claridge also operates a direct marketing program to attract and retain
customers. New Claridge's Compcard Gold program, which allows patrons to earn
various complimentaries, including coins for slot machine play and gaming
chips for table play, based on their levels of gaming activity, provides a
valuable database of information on playing preferences, frequency and
denominations of play, and the amount of gaming revenues produced by gaming
patrons. Because of the expanded facilities and amenities now offered at the
Claridge, the "Because Smaller is Friendlier" positioning statement was
changed to "Smaller, Friendlier and So Much More." This position retains the
equity in the intimacy-seeking patron, but extends it to communicate that the
Claridge now has a facility capable of comfortably servicing a larger customer
base, and offering the same amenities and entertainment found at larger
Atlantic City casino hotels.

      Competition in Atlantic City also extends to the employment market. The
Commission has promulgated regulations which require staffing levels at
Atlantic City casinos which are higher than those for casino-hotels in Nevada.
In addition, although the January 1995 amendments to the Act (see Item 1.
Business - "Gaming Regulation and Licensing" below) have eased the licensing
requirements for some employees, all of New Claridge's casino employees must
be licensed. Partly as a result of the licensing requirements, there has been
intense competition for experienced casino employees in Atlantic City.
Difficulties in hiring personnel licensed by the Commission have elevated
labor costs, and licensed personnel frequently leave their current positions
for higher paying jobs in other casinos. In addition, the expansion of casino
gaming into other jurisdictions has increased the competition for experienced
casino management personnel.

      Beginning in the fall of 1988, three events occurred that accelerated
the presence of casino gaming in the United States: (i) a statewide ballot
issue in South Dakota approved limited-stakes gaming in Deadwood; (ii) the
state legislature approved river boat gaming in Iowa in early 1989; and (iii)
Congress passed the Indian Gaming Regulatory Act of 1988, which permits
unrestricted gaming on Indian land in any state that already allows similar
gaming (for example, if the state allows charitable gaming for non-profit
organizations, then federally-recognized Indian tribes can run similar
operations on their land). Since these events occurred, the gaming industry
rapidly expanded; during 1996 and 1997, however, the expansion of gaming
slowed considerably. In 1996, although voters in Michigan approved casino
gaming for the city of Detroit, gambling measures were defeated in several
other states. In January 1997, the New York State Senate voted to deny a
statewide referendum to legalize casino gaming in that state. However, in 1997
the New York City Gambling Control Commission was established to regulate the
operation of cruises leaving out of New York harbor, which offer gambling once
the boat is beyond the three-mile limit of city jurisdiction and in
international waters ("cruises to nowhere"). Currently one company is
operating an overnight gambling cruise under these regulations, and several
more have applied to the New York City Gambling Control Commission for
licenses. Legislation to put the issue before Pennsylvania voters has been
introduced several times in the past few years, but none has so far succeeded.
The current Pennsylvania Governor, Tom Ridge, has indicated that he will
require a statewide vote on gaming, as well as local referendum; the
requirement for a statewide vote would make the legalization of casino gaming
in Pennsylvania a more difficult and expensive possibility than previously
anticipated. Management believes that, should casino gaming be legalized in
the future in Philadelphia, the effects on Atlantic City casinos and on the
Claridge would depend upon the form and scope of such gaming. In 1995, two
racetracks in Delaware began offering slot machines at their facilities, with
a third racetrack opening a slot machine

                                      10

<PAGE>



facility in August 1996. Total combined revenues for these three facilities in
1996 was reported to be $184.4 million, and in 1997 increased to a reported
$298.9 million. A bill is currently pending in the Delaware State Legislature
which proposes increasing the number of slot machines authorized at any of the
three licensed facilities from the current maximum of 1,000 machines to a new
maximum of 2,000 machines per facility.

      Indian gaming is currently authorized in many states including New York,
Michigan, Minnesota, California, and most notably, Connecticut. In February
1992, the Foxwoods High Stakes Casino and Bingo Hall ("Foxwoods"), operated by
the Mashantucket Pequot Indian tribe in Ledyard, Connecticut commenced
operations, offering the table games found in Atlantic City as well as bingo
rooms. In January 1993, approval was granted by the Connecticut government for
Foxwoods to offer slot machines; as of December 31, 1997, approximately 5,600
slot machines were reported to be operational at Foxwoods. In October 1996,
the Mohegan Sun Resort opened in Uncasville, Connecticut, near the Foxwoods
operation. As of December 31, 1997, this facility, owned by the Mohegan
Indians, had approximately 3,000 slot machines, as well as table games. In
1997, these two properties reported an average win per slot machine per day of
$326, compared to the Atlantic City average win per slot machine per day of
$220.

      The continued expansion of casino gaming, lotteries, including video
lottery terminals (VLTs), and offtrack betting in other nearby states could
also have a negative effect on the Atlantic City market.

Gaming Regulation and Licensing

      a. The New Jersey Casino Control Commission and Division of Gaming
Enforcement. The ownership and operation of casino-hotel facilities in
Atlantic City are subject to extensive state regulation under the Act. No
casino-hotel may operate in Atlantic City unless necessary corporate and
individual officer, director and employee licenses are obtained from the
Commission. The Commission is authorized under the Act to adopt regulations
covering a broad spectrum of gaming-related activities.

      The Act also establishes a Division of Gaming Enforcement (the
"Division") to investigate all applications for licenses, enforce the
provisions of the Act and the regulations thereunder, and prosecute before the
Commission all proceedings for violations of the Act or any regulations
thereunder. The Division conducts audits and continually reviews casino
operations, maintains information with respect to any changes in ownership of
the casino-hotel and conducts investigations of casino owners and investors
when appropriate.

      Since 1991, changes to the Act have been enacted which have reduced
regulation of the casino industry; such changes have included the
implementation of 24-hour gaming, the introduction of new types of games, and
the introduction of simulcast wagering. In January 1995, significant
amendments to the Act were signed into law, which were intended to further
reduce the regulation of the Atlantic City casino industry. These amendments
included changes regarding (i) the authority and responsibilities of the
Commission and the Division; (ii) the licensing requirements of employees,
casinos, and employees of industries which service the casinos; (iii) the
operation of the casinos; and (iv) the operation of the Casino Reinvestment
Development Authority (the "CRDA").

      b. Licensing Requirements. The Act provides that various categories of
persons or entities must hold casino licenses. The Act also provides that each
officer, director and person who directly or indirectly holds any beneficial
interest or ownership in a casino licensee; or any person who, in the opinion
of the Commission, has the ability to control a casino licensee or elect a
majority of the board of directors; or each principal employee or any other
employee of a casino licensee (and any lender to or underwriter, agent or

                                      11

<PAGE>



employee of the licensee) whom the Commission may consider appropriate for
approval or qualification, be qualified for approval pursuant to the
provisions of the Act. In addition, all contracts and leases entered into by
the licensee may, upon request of the Commission, have to be submitted to the
Commission, are subject to its review, and, if found unacceptable, are
voidable. All enterprises which provide gaming-related services to the
licensee must be licensed. All other enterprises dealing with the licensee
must register with the Commission, which may require that they be licensed if
they do $75,000 or more per year in business with a single licensee, and
$225,000 or more per year if with more than one licensee.

      New Claridge holds a casino license because it carries on the casino
business of the Claridge and owns the Casino Assets. As a result, New
Claridge's officers and directors are subject to Commission qualification. The
Corporation, as the sole owner of the stock of New Claridge, is also required
to be qualified. As a part of its determination of the Corporation's
qualification, the Commission will require the qualification of each officer,
each director, and each person who directly or indirectly holds any beneficial
interest or ownership in the Corporation, and who the Commission requires to
be qualified, or any person who, in the opinion of the Commission, has the
ability to control the Corporation or elect a majority of its Board of
Directors; or each principal employee or any other employee whom the
Commission may consider appropriate for approval or qualification. The
Commission has determined that no stockholder of the Corporation owning less
than 5% of its stock will be required to be qualified unless the Commission
determines that such stockholder has the ability to control the Corporation or
elect a majority of its Board of Directors. The names and addresses of all
stockholders have been supplied to the Commission and any changes known to the
Corporation are reported when they occur.

      c. Licensing Status. The Commission issues casino licenses, which, as
amended January 1995, are renewable every four years, subject to a series of
requirements including a requirement of demonstrating financial viability. On
September 22, 1995, New Claridge was issued a four-year casino license by the
Commission for the period commencing September 30, 1995.

      d. Investigations and Disqualifications. The Commission may find any
holder of any amount of securities of the Corporation not qualified to own
securities of the Corporation. Further, as required by New Jersey, the charter
and the by-laws of the Corporation and New Claridge provide that securities of
the Corporation and New Claridge are held subject to the condition that if a
holder is found to be disqualified by the Commission the holder must dispose
of the securities of the Corporation or New Claridge, as the case may be. The
Corporation will periodically report the names and addresses of owners of
record of Class A Stock to the Commission as is required for all publicly
traded holding companies that have wholly-owned subsidiaries holding casino
licenses.

      e. Casino Fees and Taxes. The Act provides for a casino license issue
fee of not less than $200,000, based upon the cost of the investigation and
consideration of the license application, and renewal fee of not less than
$200,000, as amended in January 1995, based upon the cost of maintaining
control and regulatory activities. The renewal fee is charged to the casino
licensee on a monthly basis, based on the cost of actual investigatory time
spent monitoring activities at the casino hotel. In addition, a licensee is
subject to (i) a tax of eight percent (8%) of gaming revenues, less the
provision for uncollectible accounts, (ii) an annual license fee of $500 on
each slot machine, and (iii) an alcoholic beverage fee computed on the basis
of the cost of investigatory time spent monitoring each beverage outlet.

      The Act as amended in December 1984 further provides for the imposition
of an investment obligation pursuant to criteria set forth in the Act, or the
payment of an alternative tax. The investment obligation is 1.25% of the total
gaming revenues (which are defined as the total revenues derived from gaming
operations less the provision for uncollectible accounts) for each calendar
year. If the casino licensee opts

                                      12

<PAGE>



not to make an investment, it is assessed an alternative tax of 2.5% of total
gaming revenues less the provision for uncollectible accounts. The licensee
has two options in satisfying its investment obligation; it can make a direct
investment in a project approved by the CRDA, which is the agency responsible
for administering this portion of the Act, or it can buy bonds issued by the
CRDA which will, if tax exempt, bear interest at the rate of 66 and 2/3% of
the average rate of the Bond Buyer Weekly 25 Revenue Bond Index for the 26
weeks preceding the issue of the bonds. If the bonds are not tax exempt they
will bear interest at the rate of 66 and 2/3% of the average rate of Moody's A
Rated Utility Index for the 26 weeks preceding the issue of the CRDA bonds.
The investment obligation must be paid on the fifteenth day of the first,
fourth, seventh, and tenth months of each year based on the estimated gaming
revenues for the three month period immediately preceding the first day of
those months. The alternative tax must be paid not later than April 30 of the
following year.

      New laws and regulations as well as amendments to existing laws and
regulations relating to gaming activities in Atlantic City are adopted from
time to time. Effective July 1, 1993, the New Jersey state legislature passed
a law requiring the payment of parking fees by casinos in New Jersey in the
amount of $2.00 per day for each motor vehicle parked in a casino parking
space. In 1992 the New Jersey state legislature passed a law requiring the
payment of a tourism marketing fee of $2.00 per occupied room by casino hotels
in Atlantic City. While the Corporation believes that these fees have not had
a significant impact on its operations, there is no assurance that future laws
or changes in existing laws will not have an adverse effect.

Employees

      As of December 31, 1997, New Claridge employed approximately 2,200
persons, of whom approximately 850 are represented by labor unions.
Approximately 700 of the 850 are represented by the Hotel, Restaurant
Employees and Bartender International Union, AFL-CIO, Local 54. In September
1994, the Corporation's collective bargaining agreement covering the employees
represented by Local 54 was renewed, together with the collective bargaining
agreements of all Atlantic City casinos with respect to Local 54, for a period
of five years. During the past three years, local unions have been active in
their efforts to organize non-union employees in Atlantic City.

      The management of the Claridge believes that its employee relations are
generally satisfactory. All of the employees represented by labor unions are
covered by collective bargaining agreements which prohibit work stoppages
during their terms.

Item 2. PROPERTIES

      The Claridge hotel was constructed in 1929 at the northeastern end of
Absecon Island, on which Atlantic City is located. After remodeling,
modernization and expansion at a cost of approximately $138 million, the
Claridge opened as a casino-hotel in July 1981. Located in the Boardwalk
Casino section of Atlantic City on Brighton Park, approximately 550 feet north
of the Boardwalk, the Claridge occupies three parcels of property.

      The casino-hotel, situated on the main parcel (41,408 square feet with
138 feet fronting the park and 300 feet deep), is a concrete steel frame
structure, 26 stories high at its highest point. The valet-parking garage,
situated on an adjacent parcel of land (21,840 square feet) west of the
casino-hotel site, is an eight-level reinforced concrete ramp structure, built
in 1981. Including the bus drive-through area, a bus patron waiting room and
an electrical room, it totals an area of 197,100 square feet and provides
parking for approximately 475 vehicles. In 1996, New Claridge completed the
construction of a self-parking garage,

                                      13

<PAGE>



located on a parcel of land (29,120 square feet) connected to the existing
valet-parking garage. The combined garage facility provides parking for
approximately 1,200 vehicles. The office building, situated on an adjacent
parcel of land (7,766 square feet), is a two-story reinforced concrete and
brick structure with a flat roof. Constructed about 50 years ago, its interior
has been modernized. The building is utilized as an administration facility,
and totals an area of 14,020 square feet. With the exception of the
self-parking garage, all of the facilities discussed are owned by the
Partnership and are leased to New Claridge under the Operating Lease and the
Expansion Operating Lease. The self-parking garage and the property on which
it is located are owned by New Claridge.

Item 3. LEGAL PROCEEDINGS

      On July 10, 1996, ten days after its opening, a fatal accident occurred
at New Claridge's self-parking garage, in which the vehicle of two patrons
breached a cable restraint system, permitting their vehicle to drive through
the side wall of the self-parking garage. The vehicle fell four stories to the
sidewalk and street below, killing both occupants. As a result, New Claridge's
self-parking garage was closed until the end of September 1996, while various
investigations sought to determine the cause of the accident. At the same
time, New Claridge determined to remove the exterior wall cable restraint
system and replace it with a rigid I-beam barrier system.

      New Claridge has retained the law firm of Zelle and Larson LLP of
Minneapolis, Minnesota to assist in the recovery of certain expenses incurred
in reopening the self-parking garage and potential lost profit claims. On July
22, 1997, New Claridge filed a Complaint and Demand for Arbitration in the
amount of $10 million against the general contractor and the architect for the
garage, alleging negligence, breach of warranty and breach of contract in the
design and construction of the garage. This proceeding is currently pending,
with arbitration scheduled to be held in April 1998.

      During 1995, the Corporation received notice from the Internal Revenue
Service ("IRS") asserting deficiencies in Federal corporate income taxes for
the Corporation's 1990 and 1991 taxable years. Many of the proposed
adjustments to the Corporation's consolidated tax returns have been settled
with no adverse impact to the Corporation's consolidated financial statements.
There is a remaining IRS asserted deficiency for the 1990 and 1991 taxable
years. In October 1996, the IRS sent the Corporation a statutory notice of
deficiency for the Corporation's 1990 and 1991 taxable years. On January 23,
1997, the Corporation filed a petition with the United States Tax Court
requesting a redetermination of the asserted deficiency. The United States Tax
Court has set a trial date for this case of June 1, 1998. The Corporation
believes the ultimate resolution of the case will not result in a material
impact on the Corporation's consolidated financial statements.

      The Corporation and its subsidiaries are not parties to any other
material litigation other than ordinary routine litigation which is incidental
to its business.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.

                                      14

<PAGE>



                                    PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

      All issued and outstanding shares of the Corporation have been offered
and sold in reliance on exemptions from the registration requirements of the
Securities Act of 1933 as amended (the "Securities Act"). Therefore, there is
no established trading market for any class of shares of the Corporation. In
October 1983, 562,500 shares of Class A Stock were sold to Oppenheimer
Holdings, Inc., and certain officers and employees of Oppenheimer & Co., Inc.,
(placement agent for the Partnership and the Corporation) at their par value,
$.001 per share, and 4,500,000 shares of Class A Stock were privately offered
and sold at $1.2336306 per share. At the same time, 562,500 shares of Class B
Stock were sold to Webb at their par value, $.001 per share. On March 24,
1989, Oppenheimer Holdings, Inc. returned to the Corporation all of its shares
(273,938) of the Corporation's Class A Stock. On June 16, 1989, all of the
outstanding shares of the Corporation's Class B Stock, all of which was owned
by Webb, was returned to the Corporation and cancelled. As of March 12, 1998,
there were approximately 489 holders of record of the Class A Stock. The
Contingent Payment Rights (see Item 1. Business - "Contingent Payment")
received by Releasing Investors may or may not be securities. The Corporation,
the Partnership and Webb filed a registration statement under the Securities
Act with respect to the Contingent Payment Rights as if they were securities
and each of the Corporation, the Partnership and Webb were an issuer of such
securities. However, by such action none of the Corporation, the Partnership
or Webb admitted that the Contingent Payment Rights are securities or that any
of them is the issuer of any such securities. There is no market for the
Contingent Payment Rights.

      The Indenture restricts the declaration or payment of dividends or
distributions or redemptions of capital stock by the Corporation and its
subsidiaries, other than (i) dividends or distributions payable in equity
interests of the Corporation or such subsidiaries, (ii) dividends or
distributions payable to the Corporation or any wholly-owned subsidiary, or
(iii) dividends by a subsidiary on its common stock if such dividends are paid
pro-rata to all holders of such common stock.

      In addition, the Corporation and the Partnership have agreed not to make
any distributions to the holders of their equity securities, whether derived
from operations or from sale or refinancing proceeds, until the Contingent
Payment has been satisfied (see Item 1. Business - "Contingent Payment").



                                      15

<PAGE>



Item 6. SELECTED FINANCIAL DATA

      The following table summarizes certain selected consolidated financial
data for the years ended December 31, 1997, 1996, 1995, 1994 and 1993.
<TABLE>
<CAPTION>

                                               1997             1996            1995             1994              1993
                                               -----            ----            ----             ----              ----
                                                            (in thousands except per share data)
<S>                                         <C>             <C>               <C>             <C>               <C>
Income Statement Data

Net revenues                                $ 192,753         193,311         203,348          190,755           189,672

Net (loss) income                           $  (5,979)        (15,389)         (1,908)          (6,901)            5,132

Net (loss) income per share                 $   (1.20)          (3.05)           (.38)           (1.37)             1.02

Balance Sheet Data at Year End

Total assets                                $ 150,380         164,163         189,074           190,484          146,338

Current assets                              $  37,096          31,753          55,542            59,426           22,736

Current liabilities                         $  41,234          39,027          40,420            37,003           34,270

Long-term debt, net of
 note payable and
 current installments
 of long-term debt                          $  85,023          85,000          85,000            85,000           35,259


Stockholders' (deficiency) equity           $ (15,813)         (9,834)          5,555             7,463           14,364
</TABLE>


                                      16

<PAGE>



Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

Results of Operations for the Year Ended December 31, 1997

        The Corporation had a net loss of $5,979,000 for the year ended
December 31, 1997, compared to a loss of $20,787,000 before an income tax
benefit of $5,398,000 for the year ended December 31, 1996. For the year ended
December 31, 1997, the Corporation recorded an income tax benefit of
$2,311,000, offset by an increase in the valuation allowance of $2,311,000.

        During 1997, New Claridge's casino revenues were $165,371,000, an
increase of 1.2% over total 1996 casino revenues of $163,369,000. Citywide
casino revenues, as reported, for the year ended December 31, 1997, increased
2.4% over 1996 revenues. As of December 31, 1997, the twelve existing casino
facilities offered approximately 1,173,000 square feet of gaming space
(including the addition of Bally's Wild Wild West Casino on July 1, 1997), an
8.6% increase over the casino square footage as of December 31, 1996 of
approximately 1,080,000. In addition, the number of hotel rooms available
citywide increased, resulting from additions at Harrah's (approximately 400
rooms), Caesars (approximately 600 rooms), and the Hilton (approximately 300
rooms), as well as the 500-room non-casino hotel linked to the new convention
center.

        New Claridge's table games revenue for 1997 was $39,256,000, a
decrease of 2.8% from 1996 table games revenue of $40,374,000. Although table
games drop (the amount of gaming chips purchased by patrons) during 1997
increased 1.2% over 1996 levels, the hold percentage (the percentage of win to
drop) decreased to 14.2% in 1997 from 14.8% in 1996. Citywide table games
drop, as reported, increased 3.0% during 1997 over 1996 levels, while citywide
table games revenue decreased slightly from 1996 revenues, resulting from a
reduction in the citywide hold percentage, to 15.5% in 1997, from 15.9% in
1996.

        New Claridge's slot machine revenue during 1997 was $126,115,000,
reflecting an increase of 2.5% over 1996 revenues of $122,995,000. Citywide
slot machine revenue during 1997, as reported, increased 3.6% over 1996
revenues. The number of slot machines available citywide increased 7.3%,
primarily as a result of the opening of Bally's Wild Wild West Casino on July
1, 1997, while the average number of slot machines available at the Claridge
decreased 6.0% from 1996 as a result of a reconfiguration of the casino floor
in early 1997 which provided a more comfortable atmosphere for casino patrons.
As a result, New Claridge's average win per slot machine per day was $197 in
1997, an increase of 8.8% over 1996, compared to a 3.1% decline in the 1997
citywide average win per slot machine per day, to $220.

        During 1997, competition for attracting bus passengers in Atlantic
City eased somewhat, as evidenced by reductions in the average coin packages
offered to patrons. In 1997, approximately 955,000 casino patrons arrived at
the Claridge by bus and were issued $15,023,000 in coin incentives, resulting
in an average coin incentive per passenger of $16. This compares to 1,015,000
bus passengers arriving at the Claridge in 1996, at an average coin incentive
per passenger of $19, for a total of $19,495,000 of coin incentives. In
addition to the bus program, New Claridge offers promotional incentives to its
customers through direct marketing programs, in the form of coin to play slot
machines and gaming chips to play table games based on their levels of gaming
activity. Promotional incentives issued through these direct marketing
programs in 1997 totalled $11,366,000, compared to $11,031,000 in 1996.

        Hotel revenues earned in 1997 of $9,456,000 were 3.3% higher than 1996
revenues of $9,150,000. Hotel occupancy in both 1997 and 1996 was 91%, while
the average room rate was $58 and $56, respectively. Food and beverage
revenues earned during 1997 were $19,609,000, reflecting a 4.8% decline from
1996 revenues. This decrease was due primarily to a reduction in the number of
covers (meals served) in 1997 to 1,364,000 from

                                      17

<PAGE>



1,735,000 covers in 1996, offset somewhat by an increase in the average price
per cover to $9.56 in 1997 from $8.08 in 1996. The decrease in volume was due
primarily to a decline in buffet business, as well as the outsourcing of New
Claridge's "fast food" restaurant in late 1996. Promotional allowances, which
represent the value of goods and services provided free of charge to casino
customers under various marketing programs, increased slightly during 1997 to
$19,272,000, from $19,241,000 in 1996.

        Total costs and expenses for the year ended December 31, 1997 were
$198,732,000, reflecting a 7.2% decrease from 1996 expenses. Casino expenses
of $96,760,000 were 3.5% lower than 1996 expenses as a result of the lower bus
program coin incentives paid, as well as lower payroll costs resulting from
reduced staffing levels initiated as part of New Claridge's cost containment
efforts. Food and beverage expenses of $9,811,000 were 10.3% lower than 1996
expenses, due to lower payroll and other operating costs as a result of the
reduced volume in the restaurants and cost containment efforts. General and
administrative expenses of $27,157,000 decreased 11.1% from 1996 levels, due
to lower advertising expenditures and decreased payroll costs resulting from
lower staffing levels; 1997 expenses included approximately $1.3 million for
financial and legal services related to the Corporation's attempted
reorganization early in the year. Interest expense in 1997 was higher than
1996 due to the capitalization of interest during the construction of the
self-parking garage facility in 1996.

        Rent expense to the Partnership in 1997 of $30,554,000 was lower than
1996 expense due to the abatement of rent pursuant to the March 1, 1997
amendments to the Operating Lease and Expansion Operating Lease (see
"Liquidity and Capital Resources"). Prior to these amendments, lease expense
(including the effect of the $38.8 million of rent abatements provided in
accordance with the 1989 Restructuring Agreement) was recognized on a leveled
basis over the initial lease term ending September 30, 1998. Since the amount
of abatements permitted in accordance with the March 1997 amendments will vary
depending on the Partnership's cash flow, the actual amount abated on a
monthly basis is recorded as a reduction to lease expense. For the year ended
December 31, 1997, the reduction to lease expense resulting from the abatement
of rent was approximately $9 million.

        For the year ended December 31, 1997, the Corporation recorded an
income tax benefit of $2,311,000,which represents the tax benefit likely to be
realized as a result of the carry forward of Federal net operating losses,
offset by an increase in the valuation allowance of $2,311,000. For the year
ended December 31, 1996, the Corporation recorded an income tax benefit of
$5,398,000, which represents the tax benefit likely to be realized as a result
of the carry forward of Federal net operating losses, net of an increase in
the valuation allowance of $2,460,000 and increased deferred tax credits.

Results of Operations for the Year Ended December 31, 1996

        The Corporation had a loss of $20,787,000 before an income tax benefit
of $5,398,000 for the year ended December 31, 1996, as compared to a loss of
$2,278,000 before an income tax benefit of $370,000 for the year ended
December 31, 1995.

        For the year ended December 31, 1996, casino revenue was $163,369,000,
a decrease of 3.7% from 1995 casino revenue of $169,607,000, and an increase
of 4.6% over 1994 casino revenue. Citywide casino revenues, as reported for
the year ended December 31, 1996, increased 1.8% over 1995 revenues. Citywide
casino revenues in the first quarter of 1996 were adversely affected by
several severe winter storms, most notably the January blizzard, which
blanketed the Northeastern United States with a record amount of snow, as
compared to the milder weather conditions experienced in the first quarter of
1995. In the second quarter of 1996, the Trump World's Fair casino commenced
operations, contributing to the 12.5% increase in citywide casino square
footage in 1996. In addition, the number of hotel rooms available citywide
increased in the second quarter of 1996 with the opening of the Trump World's
Fair casino (approximately 500 rooms) and the Tropicana's new

                                      18

<PAGE>



600-room hotel tower, adding to the already intense competition for casino
patrons. On July 10, 1996, the Claridge's self-parking garage, which had
opened on June 28, 1996, was closed due to a fatal accident, and was not
reopened until September 20, 1996, when certain structural enhancements were
completed. As a result of not having the use of the self-parking garage during
the busy summer season, the Claridge was unable to take full advantage of
certain promotional programs designed to capture the more profitable drive-in
casino patron. In addition, major infrastructure improvements in Atlantic City
related to the construction of the new convention center and the corridor
project linking the center to the boardwalk resulted in considerable traffic
congestion on roads leading into and around Atlantic City.

        New Claridge's table games revenue for 1996 was $40,374,000, an
increase of 2.9% over table games revenue earned during 1995. Although table
games drop during 1996 increased 6.5% over 1995, the hold percentage decreased
to 14.8% in 1996, from 15.3% in 1995. The increase in table games drop
activity in 1996 was a result of the introduction of several new player
development programs, including a junket/splinter program, and the offering of
gaming chip coupons, as well as the introduction of certain specialty table
games, such as "Caribbean Stud Poker" and "Let It Ride Poker". Citywide table
games revenue, as reported for 1996, increased 1.1% over 1995 revenue.

        New Claridge's slot machine revenue in 1996 totalled $122,995,000,
reflecting a 5.6% decrease from 1995 slot machine revenue. Citywide slot
machine revenue as reported for 1996 increased 2.1% over 1995 slot machine
revenue. The decrease experienced by the Claridge, and many of the other
Atlantic City casinos, resulted from the increased competition as a result of,
most notably, the opening of the Trump World's Fair casino in May 1996, as
well as minor expansions of existing casino space at other properties. The
average number of slot machines available citywide in 1996 increased 10.5%
over 1995, while the average number of slot machines available at the Claridge
in 1996 was consistent with 1995.

        Beginning in the latter part of 1995, competition for bus customers
began to increase, in the form of increased coin incentives offered to these
customers. Because of its lack of a self-parking garage at that time, and
therefore its dependency on the bus market, New Claridge had to remain
competitive with the incentives offered by other Atlantic City casinos in
order to maintain its share of this market. In 1996, the competition for bus
customers became even more intense, as the average cost of coin incentives
issued to patrons arriving by bus to the Claridge increased to approximately
$19 in 1996, from approximately $13 in 1995. In total, during 1996, New
Claridge issued $19,495,000 in coin incentives to 1,015,000 bus patrons,
compared to $12,502,000 of coin incentives issued to 976,000 bus patrons in
1995. Promotional incentives issued through the direct marketing programs in
1996 totalled $11,031,000, compared to $12,667,000 in 1995. Promotional
incentives in 1995 included incentives offered to new customers who were
identified based on demographic models; analysis of the results of this
program resulted in a reduction of these prospecting efforts, starting in late
1995.

        Hotel revenues earned in 1996 of $9,150,000 were in line with hotel
revenues earned during 1995. Hotel occupancy during 1996 was 91%, with an
average room rate of $56, comparable to the 92% occupancy in 1995, with an
average room rate of $55. For the year ended December 31, 1996, New Claridge
earned food and beverage revenues of $20,602,000, a 4.2% increase over 1995
revenues. The increase in food and beverage revenues was due to an increase in
the average price per cover to $8.08 in 1996, from $7.40 in 1995, primarily in
banquet functions. The total number of covers served during 1996 was
1,735,000, a decrease from the 1,775,000 covers in 1995. The decrease in
covers was primarily due to the closing of New Claridge's "fast food" outlet
in September 1996; this outlet was reopened later in the year as a "fast food"
Chinese restaurant, managed by an independent operator. Other revenues earned
during 1996 of $2,671,000 increased over 1995 other revenues of $2,136,000,
primarily due to an increase in showroom revenues resulting from a more
aggressive entertainment policy in 1996. Promotional allowances increased to
$19,241,000 in 1996, from $16,326,000 in 1995, due to the increased efforts to
maintain casino revenue market share. As a result, hotel,

                                      19

<PAGE>



food and beverage, and other revenues, net of promotional allowances, for the
year ended December 31, 1996 were $13,182,000, a decrease from those revenues
net of promotional allowances for the year ended December 31, 1995 of
$14,774,000.

        Total costs and expenses for the year ended December 31, 1996 of
$214,098,000 were 4.1% higher than 1995 expenses of $205,626,000, primarily as
a result of the increase in coin incentives issued through the bus program,
which are included in casino expenses. In addition, the increase in casino
expenses over 1995 was also due to the increase in the cost of providing
promotional allowances to casino patrons; these costs are allocated from the
hotel, food and beverage, and other expenses. General and administrative costs
in 1996 increased 6.6% over 1995 costs, primarily as a result of increased
advertising expenditures during the year. Depreciation and amortization
expense for 1996 increased over 1995 as a result of the opening of the
self-parking garage; the cost of the garage will be depreciated over 39 years.
Interest expense in 1996 was slightly lower than interest expense in 1995 due
to the capitalization of interest during the construction of the self-parking
garage.

        The Corporation recorded an income tax benefit of $5,398,000 for the
year ended December 31, 1996, which represents the tax benefit likely to be
realized as a result of the carry foward of Federal net operating losses, net
of an increase in the valuation allowance of $2,460,000 and increased deferred
tax credits. For the year ended December 31, 1995, the Corporation recorded an
income tax benefit of $370,000, which represented the tax refund likely to be
realized as a result of the carry forward of Federal net operating losses, net
of increased deferred tax credits.

Liquidity and Capital Resources

        On January 31, 1994, the Corporation completed an offering of $85
million of Notes (see Item 1. Business - "Corporate Structure"). The Notes are
secured by (i) a non-recourse mortgage granted by the Partnership representing
a first lien on the Hotel Assets, (ii) a pledge granted by the Corporation of
all outstanding shares of capital stock of New Claridge, and (iii) a guarantee
by New Claridge. New Claridge's guarantee of the Notes is secured by a
collateral assignment of the second lien Expandable Wraparound Mortgage, and
by a lien on the Claridge's gaming and other assets, which lien will be
subordinated to liens that may be placed on those gaming and other assets to
secure any future revolving credit line arrangement. On January 28, 1997, New
Claridge entered into an agreement to subject the new self-parking garage to
the lien of the mortgage; such lien will not be subordinated to any liens
which may be placed on New Claridge's gaming and other assets to secure any
future revolving credit line arrangement. Interest on the Notes is payable
semiannually on February 1 and August 1 of each year.

        The net proceeds of the Notes, totalling $82.2 million, were used as
follows: (i) to repay the then outstanding debt of the Corporation under the
Revolving Credit and Term Loan Agreement of approximately $35 million,
including the outstanding balance of the Corporation's revolving credit line,
which was secured by a first mortgage; (ii) to expand the casino capacity of
the Claridge by 12,000 square feet in 1994, including the addition of
approximately 500 slot machines and the relocation of two restaurants and
their related kitchens, at a cost of approximately $12.7 million; (iii) to
purchase property in 1995 and construct on that property a self-parking
garage, which opened in 1996, at a cost (excluding capitalized interest of
approximately $2.2 million) of approximately $28 million (of which
approximately $7.5 million represents the cost of acquiring the land and
approximately $20.5 million represents costs attributable to building the
garage facility); and (iv) to acquire the Contingent Payment Option (see Item
1. Business - "Contingent Payment") at a cost of $1 million. With the
completion of the construction of the self-parking garage, the proceeds of the
offering of the Notes had largely been expended.

        Beginning in 1995, and annually thereafter, the Corporation is required
to make an offer ("Excess Cash

                                      20

<PAGE>



Offer") to all holders of Notes, to purchase at 100% of par (plus accrued and
unpaid interest, if any, to the purchase date), the maximum amount of Notes
that may be purchased with 50% of the Corporation's "Excess Cash" (as defined
in the Indenture), from the preceding year. If less than $5 million is
available to make such payments (i.e. if Excess Cash is less than $10
million), no such offer needs to be made. The commencement date of any
required Excess Cash Offer must be not later than 30 days after the
publication of the Corporation's audited financial statements for the
immediately preceding fiscal year. For the year ended December 31, 1997, the
Corporation's Excess Cash was less than $10 million, and therefore the
Corporation is not required to make an Excess Cash Offer in 1998.

        At December 31, 1997, the Corporation had a working capital deficiency
of $4,138,000, as compared to a working capital deficiency of $7,274,000 at
December 31, 1996. The decrease in the working capital deficiency is
principally attributable to increases in cash and cash equivalents of
$3,892,000, an increase in receivables of $1,723,000 (primarily due to an
increase in the current portion of the Expandable Wraparound Mortgage due from
the Partnership), offset by an increase in other current liabilities of
$1,963,000 (primarily due to the deferral of basic rent on March 1, 1997), an
increase in accounts payable of $205,000, and a decrease in prepaid expenses
and other current assets of $264,000. Current liabilities at December 31, 1997
and 1996 included deferred rental payments of $15,078,000, and the $3.6
million loan from the Partnership plus accrued interest thereon of $3,690,000
and $3,258,000 at December 31, 1997 and 1996, respectively. The deferred
rental payments and $3.6 million loan will only be payable upon (i) a sale or
refinancing of the Claridge; (ii) full or partial satisfaction of the
Expandable Wraparound Mortgage; and (iii) full satisfaction of any first
mortgage then in place. If these amounts were not included in current
liabilities, the Corporation's working capital at December 31, 1997 and 1996
would have been $18,230,000 and $14,662,000, respectively.

        For the year ended December 31, 1997, cash flows used in operating
activities were $11,543,000, compared to cash flows used in operating
activities of $22,650,000 for the year ended December 31, 1996. The decrease
in cash used in operating activities was primarily due to the decrease in
pre-tax net loss. Cash flows provided by investment activities for the year
ended December 31, 1997 were $15,451,000, compared to cash flows used in
investment activities of $4,565,000 for the year ended December 31, 1996. Cash
flows used in investment activities for 1996 for additions to property and
equipment included expenditures for the construction of the self-parking
facility, while 1997 expenditures for property and equipment were minimal.
Expenditures for property and equipment in 1997 and 1996 were offset by
Expandable Wraparound Mortgage principal payments of $17,120,000 and
$13,845,000, respectively. Cash flows used by financing activities in 1997
represent payments of a capital lease obligation for certain gaming equipment.

        For the year ended December 31, 1997, the Corporation's "Adjusted
EBITDA" was $12,432,000, compared to $2,222,000 for the year ended December
31, 1996. "EBITDA" represents earnings before interest expense, income taxes,
depreciation, amortization, and other non-cash items. "Adjusted EBITDA" is
equal to "EBITDA" plus rent expense to the Partnership, less interest income
from the Partnership, less "Net Partnership Payments", which represent the
Corporation's net cash outflow to the Partnership. Adjusted EBITDA is used by
the Corporation to evaluate its financial performance in comparison to other
gaming companies with more traditional financial structures. Adjusted EBITDA
may be used as one measure of the Corporation's historical ability to service
its debt, but should not be considered as an alternative to operating income
(as determined in accordance with generally accepted accounting principles) as
an indicator of operating performance, or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) as a measure of liquidity, or to other consolidated income or cash
flow statement data, as are determined in accordance with generally accepted
accounting principles. For the year ended December 31, 1997, the ratio of
earnings (defined as pre-tax income (loss) from continuing operations,
adjusted to exclude fixed charges consisting of interest expense, interest
capitalized, and such portion of rental expense as can be demonstrated to be
representative of the interest factor) to fixed charges increased to .71, from
 .06 in 1996, and compared to .85

                                      21

<PAGE>



in 1995. The deficiency of earnings to fixed charges in 1997, 1996 and 1995
was $5,922,000, $21,828,000, and $3,416,000, respectively.

        During 1995, the cash provided by operations of the Claridge was
sufficient to meet the Corporation's obligations to pay interest on the Notes,
as well as to make at least some moderate capital improvements. Commencing in
the latter part of 1995, however, competition in the Atlantic City casino
market for bus customers, a principal source of customers for the Claridge at
the time, increased; this competition intensified even more during 1996 as
additional casino square footage was added, principally due to the opening of
the Trump World's Fair casino. During 1996, the average coin incentive issued
per bus patron at the Claridge increased to approximately $19, from
approximately $13 in 1995. Total cash incentives issued to Claridge's casino
patrons (in the form of coin to play slot machines and gaming chips to play
table games) increased to approximately $30.5 million in 1996, from
approximately $25.2 million in 1995. While the Corporation's promotional costs
increased significantly, total casino revenues in 1996 actually decreased from
1995 levels. It had been the expectation of the Corporation that, upon the
opening of its new self-parking garage, the Corporation would be able to
reduce its reliance on the bus patron market; however, the Corporation was
forced to close the garage facility on July 10, 1996, only ten days after its
opening, following a fatal accident. Because the facility was not able to
reopen until the end of September 1996, the Corporation lost any possible
benefit of the facility during the normally busy summer season. In addition,
severe winter weather in the first quarter of 1996 adversely affected
revenues. As a result, the Corporation experienced a net loss for 1996 of
$15.4 million, compared to a net loss of $1.9 million in 1995.

        In late July 1996, management of the Corporation determined that due
to the serious deterioration in the Corporation's cash flow, without a
significant improvement in its operating results, it was unlikely that the
Corporation would be able to meet its obligations to pay interest on the Notes
beyond the August 1996 payment. In addition to taking steps to conserve cash
by reducing various operating expenses, the Corporation engaged a financial
advisor, Dillon, Read & Co., Inc., to assist in formulating a proposal to the
holders of the Notes to restructure the Corporation's obligations under the
Notes. At the same time, the Corporation was working with Dillon, Read & Co.,
Inc. to attempt to find a buyer of the Corporation, or an investor that would
be in a position to inject additional capital into the Corporation to enable
the Corporation to meet its ongoing obligations. The Corporation did not
receive any acceptable proposals in regards to the possible sale of the
Corporation.

        In November 1996, while the sales efforts were continuing, the
Corporation announced that there was a strong likelihood that the Corporation
would be unable to pay the interest due on the Notes on February 3, 1997.
Accordingly, management, working together with financial and legal advisors,
formulated a plan for restructuring the Corporation's obligations. The terms
of the proposed plan were presented to the noteholders at a meeting held on
December 3, 1996.

        On January 12, 1997, management of the Corporation was contacted,
through an agent, by Hilton, regarding a possible sale of the Corporation to
Hilton, and shortly thereafter, the Corporation began negotiations with
Hilton. On January 30, 1997, the Corporation issued a press release indicating
that the Corporation would not make the interest payment due on the Notes on
February 3, 1997, and that the Corporation had entered negotiations with
Hilton regarding acquisition of the Corporation by Hilton through a
prepackaged bankruptcy plan. At that time, a representative of Hilton
indicated that Hilton had acquired approximately 35% to 40% of the Notes. On
February 5, 1997, three holders of the Notes, who were members of the
unofficial committee which they had formed, filed a petition for involuntary
bankruptcy against the Corporation in the bankruptcy court for the District of
New Jersey.

        Contemporaneously, the same three holders of the Notes filed a related
state court lawsuit against the Corporation, New Claridge, the Partnership,
certain officers and directors of the Corporation, and the general

                                      22

<PAGE>



partners of the Partnership. On March 4, 1997, contrary to earlier
expectations, the Corporation was able to pay the interest that was due on the
Notes on February 3, 1997, under the 30-day grace period allowed in accordance
with the terms of the Indenture. In addition, the Corporation reached
agreement with the unofficial committee of noteholders, as well as the three
holders of the Notes, providing for the joint dismissal of the involuntary
bankruptcy petition and the related state court lawsuit. On March 19, 1997, an
order was entered dismissing the involuntary bankruptcy petition; as part of
that order, a settlement agreement was entered whereby the state court lawsuit
was also dismissed. Negotiations with Hilton regarding acquisition of the
Corporation terminated in April 1997. Management of the Corporation believes
that Hilton subsequently disposed of its ownership in the Notes, and that a
part or all of these Notes are now owned by an entity or entities which are
controlled by Carl Icahn.

        The Corporation had sufficient cash to pay the interest on the Notes
on March 4, 1997 due to several events: (i) cash flow from operations for
January and February 1997 improved significantly over what had been expected;
(ii) effective March 1, 1997, the Operating Lease and Expansion Operating
Lease were amended to provide for the deferral of basic rent of $1.3 million
on March 1, 1997 (see Item 1. Business - "Certain Agreements between the
Corporation, New Claridge and the Partnership"); and (iii) on February 28,
1997, New Claridge entered into an agreement with Thermal Energy Limited
Partnership I ("Atlantic Thermal"), pursuant to which Atlantic Thermal was
granted an exclusive license for a period of twenty years to use, operate and
maintain certain steam and chilled water production facilities at the
Claridge. In consideration for this license agreement, Atlantic Thermal paid
New Claridge $1.5 million.

        As discussed, the Corporation experienced recurring losses and serious
deterioration in its cash flow in 1996. Since the Corporation does not have
substantial cash reserves or access to a line of credit, the Corporation
needed to experience significant improvement in operating results in 1997 over
1996 levels in order to meet its on-going obligations, including the interest
due on the Notes. Operating results in 1997 did improve over 1996 levels, due
primarily to the positive impact of the availability of the self-parking
garage, lower bus package pricing, limited capital expenditures, and other
cost containment initiatives. Although management of the Corporation believes
that operating results will continue to improve over 1996 levels, no
assurances as to the continuation of this improvement can be given. Management
will continue to conserve cash through various cost containment measures,
including limiting capital expenditures in 1998 to approximately $2 million.
Given the various improvements made to the property in recent years, including
the casino expansion in 1994, and the construction of the self-parking garage,
the current condition of the property is such that the above-mentioned level
of capital expenditures is deemed adequate. Management will also consider
various refinancing efforts, including a sale of the Corporation. In addition,
New Claridge has retained the law firm of Zelle and Larson LLP of Minneapolis,
Minnesota to assist in the recovery of certain expenses incurred in reopening
the self-parking garage and potential lost profit claims as a result of the
accident which occurred in the self-parking garage on July 10, 1996. On July
22, 1997, New Claridge filed a Complaint and Demand for Arbitration in the
amount of $10 million against the general contractor and the architect for the
self-parking garage; recovery of these claims would have a positive impact on
New Claridge's financial results and liquidity. However, there is no assurance
that the Corporation will be successful in realizing any recovery.

        New Claridge is obligated under the Operating Lease to lend the
Partnership, at an annual interest rate of 14%, any amounts necessary to fund
the cost of furniture, fixtures and equipment replacements. The Expandable
Wraparound Mortgage, granted by the Partnership to New Claridge, by its terms
may secure up to $25 million of additional loans to the Partnership from New
Claridge to finance the replacements of furniture, fixtures and equipment,
facility maintenance, and engineering shortfalls. The advances to the
Partnership are in the form of FF&E Loans and are secured by the Hotel Assets.
One half of the FF&E Loan principal is due in the 48th month following the
advance, with the remaining balance due in the 60th month following the date
of issuance. In connection with the offering of $85 million of First Mortgage
Notes on January 31, 1994, the Corporation agreed to use not less than $8
million from the net proceeds of the offering to finance internal improvements
to the

                                      23

<PAGE>



Claridge, which were funded through additional FF&E Loans. In connection
therewith, the Expandable Wraparound Mortgage Loan agreement as well as the
Operating Lease, and the Expansion Operating Lease were amended to provide
that the principal on these additional FF&E Loans will be payable at final
maturity of the Expandable Wraparound Mortgage. New Claridge is obligated to
pay as additional rent to the Partnership the debt service on the FF&E Loans.

        The Expandable Wraparound Mortgage requires monthly principal payments
to be made by the Partnership to New Claridge, commencing in the year 1988 and
continuing through the year 1998, in escalating amounts totalling $80 million.
The Expandable Wraparound Mortgage bears interest at an annual rate equal to
14% with the deferral until maturity of $20 million of certain interest
payments which accrued between 1983 and 1988. In addition, in 1986 the
principal amount secured by the Expandable Wraparound Mortgage was increased
to provide the Partnership with funding for the construction of an expansion
improvement, which resulted in approximately 10,000 square feet of additional
casino space and a 3,600 square foot lounge. Effective August 28, 1986, the
Partnership commenced making level monthly payments of principal and interest
calculated to provide for the repayment in full of the principal balance of
this increase in the Expandable Wraparound Mortgage by September 30, 1998.
Under the terms of the Expandable Wraparound Mortgage, New Claridge is not
permitted to foreclose on the Expandable Wraparound Mortgage and take
ownership of the Hotel Assets so long as a senior mortgage is outstanding. The
face amount outstanding of the Expandable Wraparound Mortgage at December 31,
1997 (including the outstanding FF&E Loans and the $20 million of deferred
interest) was $100.6 million.

        Effective March 1, 1997, the Corporation, New Claridge, and the
Partnership entered into a restructuring agreement, pursuant to which New
Claridge agreed to use its best efforts to cause the Wraparound Modification,
that is permitted by, or is in compliance with, the terms of the Indenture.
The Wraparound Modification, if so permitted, will provide for an extension of
the maturity date of the Expandable Wraparound Mortgage from September 30,
2000 to January 1, 2004. If the Wraparound Modification is not permitted by or
in compliance with the terms of the Indenture, New Claridge has agreed to
effect the Wraparound Modification at such time as the Notes are no longer
outstanding. In addition to the modification to the Expandable Wraparound
Mortgage, the Corporation, New Claridge, and the Partnership agreed to modify
certain terms of the Operating Lease and Expansion Operating Lease agreements,
as discussed below.

        The Hotel Assets are owned by the Partnership and leased by the
Partnership to New Claridge under the terms of the Operating Lease originally
entered into on October 31, 1983, and the Expansion Operating Lease, which
covered the expansion improvements made to the Claridge in 1986. The initial
terms of both leases are scheduled to expire on September 30, 1998 and each
lease provides for three 10-year renewal options at the election of New
Claridge. The Operating Lease requires basic rental payments to be made in
equal monthly installments escalating annually up to $41,775,000 in 1997, and
$32,531,000 for the remainder of the initial lease term. Prior to the
Corporation's 1989 restructuring, basic rent expense (recognized on a leveled
basis in accordance with Statement of Financial Accounting Standards No. 13),
was $31,902,000 per year. Therefore, in the early years of the lease term,
required cash payments under the Operating Lease (not including the Expansion
Operating Lease) were significantly lower than the related expense recognized
for financial reporting purposes. Rental payments under the Expansion
Operating Lease are adjusted annually based on a Consumer Price Index with any
increase not to exceed two percent per year. Pursuant to the Restructuring
Agreement, the Operating Lease and the Expansion Operating Lease were amended
to provide for the abatement of $38.8 million of basic rent payable through
1998 and the deferral of $15.1 million of rental payments, thereby reducing
the Partnership's cash flow to an amount estimated to be necessary only to
meet the Partnership's cash requirements. Effective on completion of the 1989
restructuring, lease expense recognized on a level basis was reduced
prospectively, based on a revised schedule of rent leveling based on the
agreed rental abatements. During the third quarter of 1991, the Corporation
had accrued the maximum amount of $15.1 million of deferred rent

                                      24

<PAGE>



liability under the lease arrangements. The deferred rent liability will
become payable (i) upon a sale or refinancing of the Claridge; (ii) upon full
or partial satisfaction of the Expandable Wraparound Mortgage; and (iii) upon
full satisfaction of any first mortgage then in place. All of the $38.8
million of available rent abatements had been fully utilized by the end of the
first quarter of 1997.

        The Fifth Amendment to the Operating Lease and the Fourth Amendment to
the Expansion Operating Lease, which were effective on March 1, 1997, provided
for the abatement of $867,953 of basic rent and for the deferral of $1,300,000
of basic rent on March 1, 1997, and provide for additional abatements of basic
rent, commencing on April 1, 1997, as necessary to reduce the Partnership's
cash flow to an amount necessary only to meet the Partnership's cash
requirements through December 31, 1998. The $1.3 million of basic rent
deferred on March 1, 1997 is to be paid to the Partnership in monthly
installments of $25,000 for the period April 1, 1997 through December 31,
1997, and monthly installments of $50,000 for the year 1998 and thereafter
until paid in full (subject to acceleration under certain circumstances). For
the years 1999 through 2003, additional abatements of basic rent will be
reduced to provide the Partnership with amounts needed to meet the
Partnership's cash requirements plus an additional amount ($83,333 per month
in 1999 and 2000, $125,000 per month in 2001, and $166,667 per month in 2002
and 2003). All abatements of rent in excess of the $38.8 million which was
allowed in accordance with the 1989 restructuring will be recognized as a
reduction to lease expense as abated.

        In addition, under the March 1, 1997 restructuring agreement between
the Corporation, New Claridge, and the Partnership, New Claridge agreed to
exercise the first of three ten-year renewal options extending the term of the
Operating Lease and Expansion Operating Lease through September 30, 2008.

        Under the terms of the Operating Lease, as amended effective March 1,
1997, New Claridge has an option to purchase, on September 30, 1998, the Hotel
Assets and the underlying land for their fair market value at the time the
option is exercised, which in no event may be less than an amount equal to the
amount then outstanding under the Expandable Wraparound Mortgage plus $2.5
million, plus any amount of the $1.3 million of rent deferred on March 1, 1997
not then paid. If New Claridge does not exercise this option on September 30,
1998, it may exercise an option, on September 30, 2003, to purchase the Hotel
Assets and the underlying land on January 1, 2004, for their fair market value
at the time the option is exercised.

        Basic rent during the renewal term of the Operating Lease will be
calculated pursuant to a formula with annual basic rent not to be more than
$29.5 million or less than $24 million for the twelve months commencing
October 1, 1998, and subsequently, not to be greater than 10% more than the
basic rent for the immediately preceding lease year in each lease year
thereafter. Basic rent during the renewal term of the Expansion Operating
Lease will also be calculated pursuant to a formula with annual basic rent not
to be more than $3 million or less than $2.5 million for the twelve months
commencing October 1, 1998, and subsequently, not to be greater than 10% more
than the basic rent for the immediately preceding lease year in each lease
year thereafter.

        If the Partnership should fail to make any payment due under the
Expandable Wraparound Mortgage, New Claridge may exercise a right of offset
against rent or other payments due under the Operating Lease and Expansion
Operating Lease to the extent of any such deficiency.

        In December 1997, New Claridge obtained a committment from PDS for a
$2 million sale lease-back facility. Under the terms of the Facility, New
Claridge may sell certain of its slot machines to PDS under a sale lease-back
arrangement, for a specified amount per slot machine, for up to $2 million. In
February 1998, New Claridge sold 370 slot machines to PDS for approximately $1
million under this Facility. The machines will be leased back to New Claridge
under an operating lease arrangement for two years. After two years, New
Claridge has an option to either purchase the machines, renew the lease
arrangement for twelve months, or return the

                                      25

<PAGE>



equipment to PDS.

        Management of the Corporation is aware of the issues associated with
the programming code in existing computer systems as the year 2000 approaches.
The "year 2000" problem is the result of computer programs which were written
using two digits rather than four to define the applicable year, which could
cause certain systems to recognize the year 2000 as the year 1900. The
Corporation's management anticipates using primarily internal staff to
identify, correct and test the systems for year 2000 compliance, which
therefore are not likely to result in incremental costs, but rather will
represent a redeployment of existing information technology resources.
Therefore, the Corporation does not expect the amounts required to be expensed
related to correcting this problem over the next two years to have a material
effect on its financial position or results of operations. Although managment
of the Corporation anticipates completion of this project by the end of 1999,
there can be no assurances of this, and if the modifications are not completed
timely, the "year 2000" problem could have a material impact on the
Corporation's ability to conduct its business.

        No tax benefit was recorded for the year ended December 31 1997, due
to an increase in the valuation allowance provided, resulting from the
uncertainty of realizing any tax benefit in future periods as a result of the
current financial condition of the Corporation (see Item 1. Business "Current
Developments"). The components of income tax expense did not change
significantly from the prior year except for the increase in the valuation
allowance of $2,311,000 which was provided against deferred tax assets as of
December 31, 1997. The effective tax rate for the year ended December 31, 1996
was (26%), caused by the ratio of the increased loss over disallowed
deductions and the increase in valuation allowance as compared to the prior
year loss and disallowed deductions. The increase in the valuation allowance
for the year ended December 31, 1996 was $2,460,000.

Recently Issued Accounting Pronouncements

        In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). SFAS 128, which is effective for financial statements for annual
and interim periods ending after December 15, 1997, changes the calculation of
earnings per share, and requires dual presentation of "basic" and "diluted"
earnings per share. The adoption of SFAS 128 did not have a material effect on
the Corporation's earnings per share.

        Statement of Financial Accounting Standards No. 130, "Comprehensive
Income" (SFAS 130), was issued in June 1997. SFAS 130 becomes effective for
the Corporation's fiscal year 1998, and requires reclassification of earlier
financial statements for comparative purposes. SFAS 130 requires that all
items defined as comprehensive income, including changes in the amounts of
certain items, foreign currency translation adjustments, and gains and losses
on certain securities, be shown in a financial statement. SFAS 130 does not
require a specific format for the financial statements in which comprehensive
income is reported, but does require that an amount representing total
comprehensive income be reported in that statement. Management of the
Corporation believes that the adoption of SFAS 130 will not have a material
effect on the consolidated financial statements.

Factors Which May Influence the Corporation's Future Operating Results

        The Atlantic City gaming market is expected to experience significant
growth beginning over the next several years, as Atlantic City transforms
itself from a "day-trip" market to a "destination resort." As a result of
current high room occupancy rates, a more favorable regulatory climate, the
reduced threat of competition from potential new gaming jurisdictions, and
significant infrastructure developments making Atlantic City more accessible,
significant new investments are planned, including the expansion of existing
casinos and the construction of several new casinos. As more of these
facilities are opened, it is possible that the increased casino

                                      26

<PAGE>



capacity will not be absorbed as quickly as it is opened, and competition for
gaming patrons will heighten.

        In addition to the expansion of the Atlantic City gaming market,
casino activity outside of Atlantic City could have an impact on the
Corporation's future operating results. Although the expansion of legalized
gaming throughout the United States slowed somewhat during 1996 and 1997,
current operations in certain markets, most notably Indian gaming in
Connecticut and slot machine facilities at the Delaware racetracks, may have
had, and may continue to have, an impact on the Atlantic City casino industry.
In 1997, the three racetracks in Delaware which offer slot machines reported
revenues of $298.9 million. A bill is currently pending in the Delaware State
Legislature which proposes increasing the number of slot machines authorized
at any of the three licensed facilities from the current maximum of 1,000
machines to a new maximum of 2,000 machines. This would allow the Delaware
facilities to rival the slot capacity of many of the casinos in Atlantic City.
The Foxwoods Casino and the Mohegan Sun Resort in Connecticut reported an
average win per slot machine per day of $326, compared to the Atlantic City
average win per slot machine per day of $220 in 1997. In 1997, the New York
City Gambling Control Commission was established to regulate the "cruises to
nowhere", which include gaming in international waters; currently one such
vessel is operating out of New York Harbor. In addition, although New York and
Pennsylvania have not, to date, been successful in legalizing casino gaming,
management believes that, should casino gaming be legalized in the future in
those states, the effects on Atlantic City casinos and on the Claridge would
depend on the form and scope of such gaming.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The Financial Statements and Financial Statement Schedules are set
forth at pages F-1 to F-29 of this report.

Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.


                                      27

<PAGE>



                                   PART III


Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THIS REGISTRANT

Name                         Office                                   Age
----                         ------                                   ---
David W. Brenner             Chairman, Director                        62
Robert M. Renneisen          President, Director                       51
Shannon L. Bybee             Director                                  60
A. Bruce Crawley             Director                                  52
Ned P. DeWitt                Director                                  58
James M. Montgomery          Director                                  58
Mark H. Sayers               Director                                  48
Jean I. Abbott               Executive Vice President                  42
Frank A. Bellis, Jr.         Senior Vice President,  Secretary         44
Albert T. Britton            Executive Vice President                  41
Glenn S. Lillie              Vice President                            49

Business Experience

        Mr. Brenner has served as a member of the Board of Directors of the
Corporation since February 1991, and became Chairman of the Board of Directors
in August 1993. He served as President of the Philadelphia Sports Congress
from January 1987 through June 1994. Mr. Brenner served as Chairman of the
Hospital and Higher Education Facilities Authority of Philadelphia from
January 1986 to June 1992, as Director of Commerce of the City of Philadelphia
from January 1984 to September 1986, and as Director of Finance from April
1991 through December 1991. He was with the accounting firm of Arthur Young &
Company from 1957 to September 1983. He was managing partner of the
Philadelphia office of Arthur Young from November 1969 until March 1980.

        Mr. Renneisen has served as President of the Corporation since June
1992, as Chief Executive Officer of the Corporation and New Claridge since
July 1993, and as Vice Chairman of New Claridge since June 1994. Mr. Renneisen
was Executive Vice President of the Corporation from June 1991 to June 1992.
He served as President of New Claridge from January 1991 to January 1996. He
was Chief Operating Officer of New Claridge from January 1991 to July 1993.
Mr. Renneisen was Executive Vice President of New Claridge, responsible for
marketing and later casino operations from February 1988 to January 1991.
Prior to joining New Claridge, Mr. Renneisen served from January 1987 to
December 1987 as Vice President of Marketing of Treasure Island Hotel and
Casino in St. Maarten. From June 1986 to May 1987, he served as President of
Renneisen, Kincade & Associates, Inc. of Las Vegas, Nevada, a marketing
consulting firm. He was Senior Vice President of Marketing of the Tropicana
Hotel and Casino in Atlantic City from May 1982 to August 1984.

        Mr. Bybee has served as a member of the Board of Directors of the
Corporation since July 1988. He currently is Associate Professor for Gaming
Management, Law & Regulation, at University of Nevada Las Vegas. From July
1993 to August 1994 Mr. Bybee served as President and Chief Operating Officer
for United Gaming, Inc. Mr. Bybee was the Corporation's Chairman of the Board
from November 1988 to July 1993, and from August 1988 to October 1988. In June
1989, Mr. Bybee was appointed to serve as the Chief Executive Officer of the
Corporation and New Claridge, a position he held through July 1993. From 1983
to 1987, he was Senior Vice President of Golden Nugget, Incorporated which
operated the Golden Nugget Casino Hotel in Atlantic City. From 1981 to 1983,
Mr. Bybee was President of GNAC Corporation, which operated the Golden Nugget
Casino Hotel in Atlantic City.

                                      28

<PAGE>



        Mr. Crawley has served as a member of the Board of Directors of the
Corporation since February 1995. He currently serves as President and Director
of Public Relations and Marketing Services for Crawley, Haskins & Rodgers, a
Philadelphia based public relations and advertising firm. Prior to
establishing his own firm in May 1989, Mr. Crawley was employed at First
Pennsylvania Bank and First Pennsylvania Corporation, where he served as
Senior Vice President and Director of Public and Investor Relations. He also
served, from 1976 to 1979, as Vice President and Director of Advertising for
First Pennsylvania Bank and First Pennsylvania Corporation.

        Mr. DeWitt has served as a member of the Board of Directors of the
Corporation since May 1995. Since July 1997, Mr. DeWitt has been Chairman and
Chief Executive Officer of U'Race Corporation. Mr. DeWitt served as President,
Chief Executive Officer, and a member of the Board of Directors of LBE
Technologies, Incorporated, in Saratoga, California, from November 1994 to
February 1997. From November 1993 to August 1994, he served as President of
SEGA Enterprises, (USA) in Redwood City, California. Mr. DeWitt also served as
President of the Entertainment Group of Madison Square Garden from July 1990
to August 1991, and as President of Source Service Corporation from December
1986 to April 1989. He also served, from 1973 through 1982, as President and
Chief Executive Officer of Six Flags Corporation.

        Mr. Montgomery has served as a member of the Board of Directors of the
Corporation since March 1995. Since 1978, he has served as President of Houze,
Shourds, and Montgomery, Inc., a management consulting firm located in Long
Beach, California. Prior to 1978, Mr. Montgomery held various managerial
positions with Rohr Industries, Inc. and Rockwell International.

        Mr. Sayers has served as a member of the Board of Directors of the
Corporation since February 1990. Mr. Sayers has served as Vice President of
EMES Management Corporation, a real estate management and development company,
of New York, New York, since February 1976.

        Ms. Abbott served as a member of the Board of Directors of the
Corporation from August 1989 to June 1994, and served as a consultant to the
Corporation until March 26, 1994, at which time she became a Vice President of
New Claridge. Currently, Ms. Abbott serves as Executive Vice President of
Finance and Corporate Development of New Claridge, a position she has held
since September 1997. From September 1996 to August 1997, she served as
Executive Vice President of Operations, and from July 1995 to August 1996, she
was Executive Vice President of Marketing and Casino Operations. From October
1992 to July 1993, Ms. Abbott was Finance Director for the United Way of
Atlantic County. She was Assistant Professor at Stockton State College from
September 1989 to June 1991. She served as Senior Vice President, Treasurer of
the Corporation and Senior Vice President, Controller of New Claridge from May
1987 to September 1989. She was Vice President, Controller of New Claridge
from October 1985 to May 1987 and she was Director of Finance of New Claridge
from April 1984 to October 1985. From October 1980 through April 1984, Ms.
Abbott held various executive positions with New Claridge and its corporate
predecessor.

        Mr. Bellis has served as Vice President, General Counsel and Secretary
to the Corporation since August 1993. He also has served as Senior Vice
President and General Counsel of New Claridge since February 1994, as Vice
President and General Counsel of New Claridge from September 1992 to February
1994, and as Secretary of New Claridge since August 1993. Previously, from May
1985 to August 1992, Mr. Bellis was Corporate Counsel and Secretary to
Inductotherm Industries, Inc., Rancocas, New Jersey. During 1984 and 1985, Mr.
Bellis was Associate General Counsel for New Claridge. Prior to joining New
Claridge, he was a Deputy Attorney General in the New Jersey Division of
Criminal Justice in the State Attorney General's office.

        Mr. Britton has served as Executive Vice President of the Corporation
since June 1994 and as President and Chief Operating Officer of New Claridge
since January 1996. He served as Executive Vice President and

                                      29

<PAGE>



General Manager of New Claridge from February 1994 through July 1995, and as
Executive Vice President from August 1995 through December 1995. He served as
a Vice President of the Corporation from June 1992 to June 1994, and as
Executive Vice President of Operations of New Claridge from December 1992 to
February 1994. He was Senior Vice President of Operations of New Claridge from
December 1991 to December 1992, and Vice President of Casino Operations from
June 1990 to November 1991. From July 1981 through June 1990, Mr. Britton has
held various positions in both accounting and casino operations with New
Claridge and its corporate predecessor.

        Mr. Lillie has served as Vice President of the Corporation from June
1992 and as Vice President of Marketing Communications of New Claridge since
December 1995. He served as Vice President of Public Affairs of New Claridge
from February 1990 to December 1995. He was Vice President of Marketing
Communications of New Claridge from April 1985 to February 1990, Director of
Public Relations from March 1982 to January 1983, and Training Manager from
November 1980 to February 1982. From February 1983 to April 1985, Mr. Lillie
was employed as the Director of Public Relations of the Tropicana Hotel and
Casino in Atlantic City.

        Further information regarding the directors and certain executive
officers of the Corporation and/or New Claridge is incorporated by reference
to the information contained under the caption "Voting" in the Corporation's
Proxy Statement for the Annual Meeting of Shareholders to be held on June 16,
1998.

Item 11. EXECUTIVE COMPENSATION

        Information contained under the caption "Executive Compensation" in
the Corporation's Proxy Statement for the Annual Meeting of Shareholders to be
held on June 16, 1998 is incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        As of December 31, 1997, there were no beneficial owners of more than
5% of the Corporation's Class A Stock.

        On February 12, 1992, the Corporation's Board of Directors approved a
Long Term Incentive Plan which provided for the grant to certain key officers
of the Corporation and/or New Claridge of the 273,938 shares which were held
as treasury shares by the Corporation. These shares were issued to the key
employees upon approval by the Commission on April 15, 1992, and upon receipt
the transfer of, and right to continue to hold the shares, are subject to
certain vesting restrictions.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The Partnership has a direct material interest in the Expandable
Wraparound Mortgage Loan Agreement, the Operating Lease and the Expansion
Operating Lease together with amendments thereto. See Item 1.
Business - "Corporate Structure."


                                      30

<PAGE>

                                    PART IV


Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

        (a)(1) and (2): The response to this portion of Item 14 is submitted
                        as a separate section of this report beginning on page
                        F-1. All other schedules have been omitted as
                        inapplicable, or not required, or because the required
                        information is included in the Consolidated Financial
                        Statements or notes thereto.

        (a)(3)   Exhibits.  The exhibits required to be filed as part of this
                 annual report on  Form 10-K are listed in the attached Index
                 to Exhibits.

        (b)      Reports on Form 8-K. The Corporation filed no reports on
                 Form 8-K during the last quarter of the period covered by
                 this report.

        (c) Index to Exhibits and Exhibits filed as a part of this report.

                   3(a) Certificate of Incorporation of the Corporation.
                        Incorporated by reference to Exhibit 3(a) to Form 10-K
                        for the year ended December 31, 1995.

                   3(b) By-Laws of the Corporation as amended. Incorporated by
                        reference to Exhibit 3(b) to Form 10-K for the year
                        ended December 31, 1995.

                   3(c) Certificate of Amendment of The Certificate of
                        Incorporation of the Corporation dated June 15, 1989.
                        Incorporated by reference to Exhibit 3(c) to Form 10-K
                        for the year ended December 31, 1995.

                   3(d) Certificate of Amendment of The Certificate of
                        Incorporation dated June 26, 1991. Incorporated by
                        reference to Exhibit 3(d) to Form 10-K for the year
                        ended December 31, 1995.

                   4(a) Form of Indenture (including the Guarantee of The
                        Claridge at Park Place, Incorporated). Incorporated by
                        reference to Exhibit 4.1 to Pre-Effective Amendment
                        No. 2 to Form S-1 Registration Statement (file number
                        33-71550) dated January 18, 1994.

                   4(b) Form of 11 3/4% First Mortgage Note due 2002
                        certificate. Incorporated by reference to Exhibit 4.2
                        to Pre-Effective Amendment No. 2 to Form S-1
                        Registration Statement (file number 33-71550) dated
                        January 18, 1994.

                  10(a) Operating Lease Agreement between New Claridge and
                        Atlantic City Boardwalk Associates, L.P. Incorporated
                        by reference to Exhibit 10(a) to Form 10-K for the
                        year ended December 31, 1995.

                  10(b) Expandable Wraparound Mortgage and Security Agreement
                        between New Claridge and Atlantic City Boardwalk
                        Associates, L.P. Incorporated by reference to Exhibit
                        10(b) to Form 10-K for the year ended December 31,
                        1995.



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<PAGE>



                  10(c)  Expandable Wraparound Mortgage Loan Agreement between
                         New Claridge and Atlantic City Boardwalk Associates,
                         L.P. Incorporated by reference to Exhibit 10(c) to
                         Form 10-K for the year ended December 31, 1995.

                  10(h)  Expansion Operating Lease Agreement between New
                         Claridge and Atlantic City Boardwalk Associates, L.P.
                         Incorporated by reference to Exhibit 10(h) to Form
                         10-K for the year ended December 31, 1995.

                  10(i)  First Supplemental Amendment to Expandable Wraparound
                         Mortgage and Security Agreement between New Claridge
                         and Atlantic City Boardwalk Associates, L.P.
                         Incorporated by reference to Exhibit 10(i) to Form
                         10-K for the year ended December 31, 1995.

                  10(j)  First Supplemental Amendment to Expandable Wraparound
                         Mortgage Loan Agreement between New Claridge and
                         Atlantic City Boardwalk Associates, L.P. Incorporated
                         by reference to Exhibit 10(j) to Form 10-K for the
                         year ended December 31, 1995.

                  10(n)  Restructuring Agreement, among The Claridge Hotel and
                         Casino Corporation, The Claridge at Park Place,
                         Incorporated, Del Webb Corporation, Del E. Webb New
                         Jersey, Inc., Atlantic City Boardwalk Associates,
                         L.P. and First Fidelity Bank, National Association,
                         New Jersey, dated October 27, 1988. Incorporated by
                         reference to Exhibit 10(n) to Form 10-K for the year
                         ended December 31, 1995.

                  10(x)  Long Term Management Incentive Plan of The Claridge
                         Hotel and Casino Corporation effective January 1,
                         1992. Incorporated by reference to Exhibit 10(x) to
                         Form 10-K for the year ended December 31, 1995.

                  10(ab) Amendment to Operating Lease Agreement and Expansion
                         Operating Lease Agreement between New Claridge and
                         Atlantic City Boardwalk Associates, L.P., dated June
                         15, 1989. Incorporated by reference to Exhibit 10.5
                         to Form S-1 Registration Statement (file number
                         33-71550) dated November 12, 1993.

                  10(ac) Second Amendment to Operating Lease Agreement and
                         Expansion Operating Lease Agreement between New
                         Claridge and Atlantic City Boardwalk Associates,
                         L.P., dated March 27, 1990. Incorporated by reference
                         to Exhibit 10.6 to Form S-1 Registration Statement
                         (file number 33-71550) dated November 12, 1993.

                  10(ad) Third Amendment to Operating Lease Agreement and
                         Expansion Operating Lease Agreement between New
                         Claridge and Atlantic City Boardwalk Associates,
                         L.P., dated August 1, 1991. Incorporated by reference
                         to Exhibit 10.7 to Form S-1 Registration Statement
                         (file number 33-71550) dated November 12, 1993.

                  10(ae) First Amendment to Expandable Wraparound Mortgage
                         Loan Agreement between New Claridge and Atlantic City
                         Boardwalk Associates, L.P., dated March 17, 1986.
                         Incorporated by reference to Exhibit 10.8 to Form S-1
                         Registration Statement (file number 33-71550) dated
                         November 12, 1993.



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<PAGE>



                  10(af) Second Amendment to Expandable Wraparound Mortgage
                         Loan Agreement between New Claridge and Atlantic City
                         Boardwalk Associates, L.P., dated June 15, 1989.
                         Incorporated by reference to Exhibit 10.9 to Form S-1
                         Registration Statement (file number 33-71550) dated
                         November 12, 1993.

                  10(ag) Second Amendment to Expandable Wraparound Mortgage
                         and Security Agreement between New Claridge and
                         Atlantic City Boardwalk Associates, L.P., dated June
                         15, 1989. Incorporated by reference to Exhibit 10.11
                         to Form S-1 Registration Statement (file number
                         33-71550) dated November 12, 1993.

                  10(ah) The 1992 Claridge Management Incentive Plan.
                         Incorporated by reference to Exhibit 10.18 to Form
                         S-1 Registration Statement (file number 33-71550)
                         dated November 12, 1993.

                  10(ai) The 1993 Claridge Management Incentive Plan.
                         Incorporated by reference to Exhibit 10.19 to Form
                         S-1 Registration Statement (file number 33-71550)
                         dated November 12, 1993.

                  10(aj) Form of Mortgage, Assignment of Leases and Rents,
                         Security Agreement and Financing Statement.
                         Incorporated by reference to Exhibit 4.3 to
                         Pre-Effective Amendment No. 2 to Form S-1
                         Registration Statement (file number 33-71550) dated
                         January 18, 1994.

                  10(ak) Form of Collateral Trust Agreement among the
                         Corporation, New Claridge, the Partnership and the
                         Collateral Trustee. Incorporated by reference to
                         Exhibit 4.4 to Pre-Effective Amendment No. 2 to Form
                         S-1 Registration Statement (file number 33-71550)
                         dated January 18, 1994.

                  10(al) Form of Corporation Pledge Agreement between the
                         Corporation and the Collateral Trustee. Incorporated
                         by reference to Exhibit 4.5 to Pre-Effective
                         Amendment No. 2 to Form S-1 Registration Statement
                         (file number 33-71550) dated January 18, 1994.

                  10(am) Form of New Claridge Pledge Agreement between New
                         Claridge and the Collateral Trustee. Incorporated by
                         reference to Exhibit 4.6 to Pre-Effective Amendment
                         No. 2 to Form S-1 Registration Statement (file number
                         33-71550) dated January 18, 1994.

                  10(an) Form of New Claridge Cash Collateral Pledge Agreement
                         between New Claridge and the Collateral Trustee.
                         Incorporated by reference to Exhibit 4.7 to
                         Pre-Effective Amendment No. 2 to Form S-1
                         Registration Statement (file number 33-71550) dated
                         January 18, 1994.

                  10(ao) Form of New Claridge Security Agreement between New
                         Claridge and the Collateral Trustee. Incorporated by
                         reference to Exhibit 4.8 to Pre-Effective Amendment
                         No. 2 to Form S-1 Registration Statement (file number
                         33-71550) dated January 18, 1994.

                  10(ap) Form of New Claridge Trademark Security Agreement
                         between New Claridge and the Collateral Trustee.
                         Incorporated by reference to Exhibit 4.9 to
                         Pre-Effective Amendment No. 2 to Form S-1
                         Registration Statement (file number 33-71550) dated
                         January 18, 1994.


                                      33

<PAGE>



                  10(aq) Form of Collateral Assignment of Expandable
                         Wraparound Mortgage and Security Agreement.
                         Incorporated by reference to Exhibit 4.10 to
                         Pre-Effective Amendment No. 2 to Form S-1
                         Registration Statement (file number 33-71550) dated
                         January 18, 1994.

                  10(ar) Form of Collateral Assignment of Lessor's Interest in
                         Operating Leases. Incorporated by reference to
                         Exhibit 4.13 to Pre-Effective Amendment No. 2 to Form
                         S-1 Registration Statement (file number 33-71550)
                         dated January 18, 1994.

                  10(as) Form of Subordination Agreement among the
                         Partnership, New Claridge and the Collateral Trustee.
                         Incorporated by reference to Exhibit 4.14 to
                         Pre-Effective Amendment No. 2 to Form S-1
                         Registration Statement (file number 33-71550) dated
                         January 18, 1994.

                  10(at) Form of Assignment of Leases and Rents and Other
                         Contract Rights. Incorporated by reference to Exhibit
                         4.15 to Pre-Effective Amendment No. 2 to Form S-1
                         Registration Statement (file number 33-71550) dated
                         January 18, 1994.

                  10(bb) Supplemental Executive Retirement Plan of The
                         Claridge at Park Place, Incorporated effective
                         January 1, 1994. Incorporated by referenece to
                         Exhibit 10(bb) to Form 10-K for the year ended
                         December 31, 1994.

                  10(bc) Amendment to Long-Term Management Incentive Plan of
                         The Claridge Hotel and Casino Corporation effective
                         June 5, 1995. Incorporated by reference to Exhibit
                         10(bc) to Form 10-K for the year ended December 31,
                         1995.

                  10(bd) Option Agreement between The Claridge Hotel and
                         Casino Corporation, Philip J. Dion, as Trustee for
                         the Valley of the Sun United Way, and Atlantic City
                         Boardwalk Associates, L.P., dated November 29, 1995.
                         Incorporated by reference to Exhibit 10(bd) to Form
                         10-K for the year ended December 31, 1995.

                  10(be) Escrow Agreement between The Claridge Hotel and
                         Casino Corporation, Philip J. Dion, as Trustee for
                         the Valley of the Sun United Way, and IBJ Schroder
                         Bank & Trust Company dated November 29, 1995.
                         Incorporated by reference to Exhibit 10(be) to Form
                         10-K for the year ended December 31, 1995.

                  10(bf) Side Agreement between The Claridge Hotel and Casino
                         Corporation, The Claridge at Park Place,
                         Incorporated, and Atlantic City Boardwalk Associates,
                         L.P. dated November 29, 1995. Incorporated by
                         reference to Exhibit 10(bf) to Form 10-K for the year
                         ended December 31, 1995.

                  10(bg) First Amendment to the Option Agreement between The
                         Claridge Hotel and Casino Corporation, Philip J.
                         Dion, as Trustee for the Valley of the Sun United
                         Way, and Atlantic City Boardwalk Associates, L.P.
                         dated January 30, 1996. Incorporated by reference to
                         Exhibit 10(bg) to Form 10-K for the year ended
                         December 31, 1995.


                                      34

<PAGE>




                  10(bh) First Amendment to the Side Agreement between The
                         Claridge Hotel and Casino Corporation, The Claridge
                         at Park Place, Incorporated, and Atlantic City
                         Boardwalk Associates, L.P. dated February 21, 1996.
                         Incorporated by reference to Exhibit 10(bh) to Form
                         10-K for the year ended December 31, 1995.

                  10(bj) Amended Employment Agreement between Robert M.
                         Renneisen and The Claridge at Park Place,
                         Incorporated effective January 1, 1997. Incorporated
                         by reference to Exhibit 10(bj) to Form 10-K for the
                         year ended December 31, 1996.

                  10(bk) Amended Employment Agreement between Albert T.
                         Britton and The Claridge at Park Place, Incorporated
                         effective January 1, 1997. Incorporated by reference
                         to Exhibit 10(bk) to Form 10-K for the year ended
                         December 31, 1996.

                  10(bm) Amended Employment Agreement between Jean I. Abbott
                         and The Claridge at Park Place, Incorporated
                         effective November 1, 1996. Incorporated by reference
                         to Exhibit 10(bm) to Form 10-K for the year ended
                         December 31, 1996.

                  10(bn) Employment Agreement between Frank A. Bellis, Jr. and
                         The Claridge at Park Place, Incorporated effective
                         November 1, 1996. Incorporated by reference to
                         Exhibit 10(bn) to Form 10-K for the year ended
                         December 31, 1996.

                  10(bo) Employment Agreement between Glenn Lillie and The
                         Claridge at Park Place, Incorporated effective
                         February 1, 1997. Incorporated by reference to
                         Exhibit 10(bo) to Form 10-K for the year ended
                         December 31, 1996.

                  10(bp) Spreader Agreement of a Certain Mortgage, Assignment
                         of Leases and Rents, Security Agreement and Financing
                         Statement by The Claridge at Park Place, Incorporated
                         in favor of IBJ Schroder Bank & Trust Company, as
                         Collateral Trustee, dated January 28, 1997.
                         Incorporated by reference to Exhibit 10(bp) to Form
                         10-K for the year ended December 31, 1996.

                  10(bq) Spreader Agreement and Modification of Spreader
                         Agreement of a Certain Mortgage, Assignment of Leases
                         and Rents, Security Agreement and Financing Statement
                         by The Claridge at Park Place, Incorporated in favor
                         of IBJ Schroder Bank & Trust Company, as Collateral
                         Trustee, dated February 18, 1997. Incorporated by
                         reference to Exhibit 10(bq) to Form 10-K for the year
                         ended December 31, 1996.

                  10(br) Fifth Amendment to Operating Lease Agreement and
                         Fourth Amendment to Expansion Operating Lease
                         Agreement between The Claridge at Park Place,
                         Incorporated and Atlantic City Boardwalk Associates,
                         L.P. effective March 1, 1997. Incorporated by
                         reference to Exhibit 10(br) to Form 10-K for the year
                         ended December 31, 1996.

                  10(bs) Restructuring Agreement between The Claridge Hotel
                         and Casino Corporation, The Claridge at Park Place,
                         Incorporated and Atlantic City Boardwalk Associates,
                         L.P. effective March 1, 1997. Incorporated by
                         reference to Exhibit 10(bs) to Form 10-K for the year
                         ended December 31, 1996.



                                      35

<PAGE>



                  12(a)  Statement of Computation of Ratio of Earnings to
                         Fixed Charges. Incorporated by reference to Exhibit
                         12.1 to Form S-1 Registration Statement (file number
                         33-71550) dated November 12, 1993.

                  12(b)  Statement of Computation of Ratio of Earnings to
                         Fixed Charges.

                  22(a)  Subsidiaries of the Corporation. Incorporated by
                         reference to Exhibit 22(a) to Form 10-K for the year
                         ended December 31, 1995.

                                      36

<PAGE>





                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                     CLARIDGE HOTEL AND CASINO CORPORATION
<TABLE>
<CAPTION>
<S>                            <C>                                  <C>
Dated:  March 30, 1998         By:/s/ ROBERT M. RENNEISEN           By:/s/ JEAN I. ABBOTT
----------------------         --------------------------           ---------------------
                                 Robert M. Renneisen                   Jean I. Abbott
                                 Chief Executive Officer               Chief Financial Officer and
                                                                       Principal Accounting Officer
</TABLE>
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

         Signature                 Capacity                          Date
         ---------                 --------                          ----

 /s/ DAVID W. BRENNER              Chairman, Director            March 30, 1998
---------------------
David W. Brenner

 /s/ ROBERT M. RENNEISEN           President, Director           March 30, 1998
------------------------           (Chief Executive Officer)
Robert M. Renneisen

/s/ SHANNON L. BYBEE               Director                      March 30, 1998
--------------------
Shannon L. Bybee

/s/ A. BRUCE CRAWLEY               Director                      March 30, 1998
---------------------
A. Bruce Crawley

/s/ NED P. DEWITT                  Director                      March 30, 1998
-----------------
Ned P. DeWitt

/s/ JAMES M. MONTGOMERY            Director                      March 30, 1998
------------------------
James M. Montgomery

/s/ MARK H. SAYERS                 Director                      March 30, 1998
-------------------
Mark H. Sayers

/s/ JEAN I ABBOTT                  Executive Vice President      March 30, 1998
------------------                 (Chief Financial Officer/
Jean I. Abbott                     Treasurer/Principal
                                   Accounting Officer)


                                      37

<PAGE>



          THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES




                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                       AND FINANCIAL STATEMENT SCHEDULE





                                                                       Page
                                                                   Reference In
                                                                    Report on
                                                                    Form 10-K
                                                                   -------------

Independent Auditors' Report........................................    F-2

Consolidated Balance Sheets at December 31, 1997 and 1996...........    F-3

Consolidated Statements of Operations and Accumulated (Deficit)
 Earnings for the Years Ended December 31, 1997, 1996 and 1995......    F-4

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1997, 1996 and 1995..................................    F-5

Notes to Consolidated Financial Statements..........................    F-7

Financial Statement Schedule:

         Schedule II - Valuation and Qualifying Accounts............    F-29


         All other schedules for which provision is made in the applicable
         accounting regulations promulgated by the Securities and Exchange
         Commission are not required under the related instructions or are
         inapplicable and therefore have been omitted.


                                      F-1

<PAGE>





                         Independent Auditors' Report


The Board of Directors and Stockholders
The Claridge Hotel and Casino Corporation:


We have audited the consolidated financial statements of The Claridge Hotel
and Casino Corporation and subsidiaries as listed in the accompanying index.
In connection with our audits of the consolidated financial statements, we
also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Claridge Hotel and Casino Corporation and subsidiaries at December 31, 1997
and 1996, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that the Corporation will continue as a
going concern. As discussed in Note 2 to the consolidated financial
statements, the Corporation has suffered recurring losses from operations and
has experienced diminishing liquidity as a result of a deterioration in its
cash flow and limited availability of working capital sources that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are discussed in Note 2. The
consolidated financial statements and financial statement schedule do not
include any adjustments that might result from the outcome of this
uncertainty.




                                             KPMG Peat Marwick LLP
Short Hills, New Jersey
March 4, 1998

                                      F-2

<PAGE>
          THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
                          Consolidated Balance Sheets
                          December 31, 1997 and 1996
                            (dollars in thousands)
<TABLE>
<CAPTION>
                                                                                 1997               1996
                                                                                ------             ------
<S>                                                                          <C>                  <C>
Assets
Current Assets:
     Cash and cash equivalents                                                 $ 12,424              8,532
     Receivables, net (including $19,878 and $18,392 in 1997
       and 1996, respectively, due from Partnership) (note 4)                    21,467             19,744
     Inventories                                                                    270                278
     Prepaid expenses and other current assets                                    2,935              3,199
                                                                               --------            -------
         Total current assets                                                    37,096             31,753
                                                                               --------            -------

Property and equipment (note 5)                                                  47,579             48,818
     Less accumulated depreciation and amortization                             (15,485)           (13,630)
                                                                               --------            -------
         Net property and equipment                                              32,094             35,188
                                                                               --------            -------

Long-term receivables due from Partnership (note 4)                              75,465             92,120
Deferred charges at cost, less accumulated amortization                           2,020              2,575
Other assets (note 6)                                                             3,705              2,527
                                                                               --------            -------
                                                                               $150,380            164,163
                                                                               ========            =======
Liabilities and Stockholders' Equity
Current Liabilities:
     Current maturities of long-term debt (note 9)                             $     39                -0-
     Accounts payable                                                             3,202              2,997
     Loan from the Partnership (note 7)                                           3,600              3,600
     Other current liabilities (note 8)                                          34,393             32,430
                                                                               --------            -------
         Total current liabilities                                               41,234             39,027
                                                                               --------            -------

Long-term debt (note 9)                                                          85,023             85,000
Deferred rent due to Partnership (note 13)                                       16,506             28,010
Deferred income taxes (note 12)                                                   2,580              2,581
Other noncurrent liabilities (note 10)                                           20,850             19,379

Commitments and contingent liabilities (notes 13 and 15)

Stockholders' equity (notes 16 and 17):
     Common stock
       Class A, par value $.001, authorized and
         issued 5,062,500 shares                                                      5                  5
     Additional paid-in capital                                                   5,048              5,048
     Accumulated (deficit) earnings                                             (20,866)           (14,887)
     Treasury stock, 91,770 and 16,436 Class A
       shares at cost in 1997 and 1996, respectively                                -0-                -0-
                                                                               --------            -------
         Total stockholders' (deficiency) equity                                (15,813)            (9,834)
                                                                               --------            -------
                                                                               $150,380            164,163
                                                                               ========            =======
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-3

<PAGE>
          THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
   Consolidated Statements of Operations and Accumulated (Deficit) Earnings
             For the Years Ended December 31, 1997, 1996 and 1995
                     (in thousands except per share data)
<TABLE>
<CAPTION>

                                                               1997                1996               1995
                                                            ---------            --------           --------
<S>                                                         <C>                  <C>                <C>
Revenue:
     Casino                                                  $165,371             163,369            169,607
     Hotel                                                      9,456               9,150              9,195
     Food and beverage                                         19,609              20,602             19,769
     Interest from the Partnership                             14,230              16,007             17,195
     Interest, other                                              439                 753              1,772
     Other                                                      2,920               2,671              2,136
                                                             --------            --------           --------
                                                              212,025             212,552            219,674
     Less promotional allowances (note 11)                     19,272              19,241             16,326
                                                             --------            --------           --------

         Net revenues                                         192,753             193,311            203,348
                                                             --------            --------           --------

Costs and expenses:
     Casino                                                    96,760             100,220             92,571
     Hotel                                                      2,570               2,673              3,224
     Food and beverage                                          9,811              10,938             11,783
     Other                                                      2,617               2,967              2,961
     Rent expense to the Partnership (note 13)                 30,554              38,561             37,638
     Rent expense, other (note 13)                              1,283               1,484              1,512
     General and administrative                                27,157              30,539             28,641
     Gaming taxes                                              13,215              13,053             13,583
     Reinvestment obligation expenses (note 6)                    684                 836              1,442
     Provision for uncollectible accounts                         218                 238               (160)
     Depreciation and amortization                              3,296               3,239              2,915
     Interest expense, other                                   10,567               9,350              9,516
                                                             --------            --------           --------

         Total costs and expenses                             198,732             214,098            205,626
                                                             --------            --------           --------

Loss before income taxes                                       (5,979)            (20,787)            (2,278)
Income tax benefit (note 12)                                      -0-              (5,398)              (370)
                                                             --------            --------           --------
Net loss                                                       (5,979)            (15,389)            (1,908)
                                                             --------            --------           --------

Accumulated (deficit) earnings  at beginning of period        (14,887)                502              2,410
                                                             --------            --------           --------

Accumulated (deficit) earnings at end of period              $(20,866)            (14,887)               502
                                                             ========            ========           ========

Net loss per share - basic (note 3(i))                       $  (1.20)              (3.05)              (.38)
                                                             ========            ========           ========
</TABLE>
          See accompanying notes to consolidatedfinancial statements.

                                      F-4

<PAGE>
          THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
                     Consolidated Statements of Cash Flows
             For the Years Ended December 31, 1997, 1996 and 1995
                                (in thousands)
<TABLE>
<CAPTION>
                                                                1997                 1996               1995
                                                              --------             --------           --------
<S>                                                           <C>                 <C>                <C>
Cash flows from operating activities:
     Net loss                                                  $(5,979)            (15,389)            (1,908)
     Adjustments to reconcile net loss to net cash
       (used in) provided by operating activities:

       Depreciation and amortization                             3,296               3,239              2,915
       Deferred rent to the Partnership                        (11,504)             (2,737)            (2,386)
       Deferred interest receivable and
         discount from the Partnership                          (1,752)             (1,524)            (1,326)
       Reinvestment obligation expenses                            684                 836              1,442
       Loss (gain) on disposal of assets                            30                (138)               (33)
       Deferred income taxes - noncurrent                           (1)             (4,542)              (762)

       Change in assets and liabilities:
         Receivables, net, excluding current portion
           of long-term receivables                               (228)                338               (629)
         Inventories                                                 8                   1                 45
         Prepaid expenses and other current
           assets excluding current portion of
           reinvestment obligation credit                          264                (491)             3,888
         Accounts payable                                          205                (883)             1,098
         Other current liabilities                               1,963                (510)             2,319
         Other noncurrent liabilities                            1,471                (850)               229
                                                               -------             -------             ------

Net cash flows (used in) provided by
     operating activities                                      (11,543)            (22,650)             4,892
                                                               -------             -------             ------
</TABLE>


                                  (Continued)

          See accompanying notes to consolidated financial statements

                                      F-5

<PAGE>

          THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
                Consolidated Statements of Cash Flows (Cont'd.)
             For the Years Ended December 31, 1997, 1996 and 1995
                                (in thousands)
<TABLE>
<CAPTION>

                                                                             1997                1996               1995
                                                                           --------            --------           -------
<S>                                                                     <C>                   <C>                <C>
Cash flows from investment activities:
     Increase in deferred charges                                         $      (7)               (195)               (59)
     Additions to property and equipment, net                                  (136)            (13,455)           (17,493)
     Additions to other assets                                               (1,905)             (1,436)             1,557
     Proceeds from disposition of property                                      587                 184                 75
     Increase in long-term receivables                                         (208)             (3,508)            (2,483)
     Receipt of long-term receivables                                        17,120              13,845             12,014
                                                                           --------             -------            -------

Net cash flows provided by (used in) investment activities                   15,451              (4,565)            (6,389)
                                                                           --------             -------            -------

Cash flows from financing activities:
     Payment of long-term debt                                                  (16)                -0-                -0-
                                                                           --------             -------            -------

Net cash flows used by financing activities                                     (16)                -0-                -0-
                                                                           --------             -------            -------

Increase (decrease) in cash and cash equivalents                              3,892             (27,215)            (1,497)

Cash and cash equivalents at beginning of period                              8,532              35,747             37,244
                                                                           --------             -------            -------

Cash and cash equivalents at end of period                                 $ 12,424               8,532             35,747
                                                                           ========            ========            =======


Supplemental cash flow disclosures:
     Interest paid, net of amounts capitalized                             $ 10,135               8,918              9,084
                                                                           ========            ========           ========

     Income taxes paid                                                     $    -0-                 -0-                677
                                                                           ========            ========           ========

Non-cash financing and investing activities:
     Capital lease obligation incurred to acquire
         Casino Assets                                                     $     78                 -0-                -0-
                                                                           ========            ========           ========

</TABLE>

          See accompanying notes to consolidatedfinancial statements.

                                      F-6

<PAGE>

          THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
                  Notes to Consolidated Financial Statements


1.      THE CORPORATION

        The Claridge Hotel and Casino Corporation (the "Corporation"), was
        formed on August 26, 1983 to hold all of the shares of capital stock
        of The Claridge at Park Place, Incorporated ("New Claridge"), which
        was formed on August 29, 1983. On October 31, 1983, New Claridge
        acquired certain assets of The Claridge Hotel and Casino (the
        "Claridge"), including gaming equipment (the "Casino Assets"), from
        Del E. Webb New Jersey, Inc. ("DEWNJ"), a wholly-owned subsidiary of
        Del Webb Corporation ("Webb"); leased certain other of the Claridge's
        assets, including the buildings, parking facility and non-gaming,
        depreciable, tangible property of the Claridge (the "Hotel Assets"),
        from Atlantic City Boardwalk Associates, L.P. (the "Partnership");
        subleased the land on which the Claridge is located from the
        Partnership; assumed certain liabilities related to the acquired
        assets; and undertook to carry on the business of the Claridge Casino
        Hotel, a facility operating in Atlantic City, New Jersey.

        In October 1988, the Corporation and New Claridge entered into an
        agreement to restructure the financial obligations of the Corporation
        and New Claridge (the "Restructuring Agreement"). The restructuring,
        which was consummated in June 1989, resulted in (i) a reorganization
        of the ownership interests in the Claridge; (ii) modifications of the
        rights and obligations of certain lenders; (iii) satisfaction and
        termination of the obligations and commitments of Webb and DEWNJ under
        the original structure; (iv) modifications of the lease agreements
        between New Claridge and the Partnership; and (v) the forgiveness by
        Webb of substantial indebtedness.

        On January 31, 1994, the Corporation completed an offering of $85
        million of First Mortgage Notes (the "Notes") due 2002, bearing
        interest at 11 3/4%. The Notes are secured by (i) a non-recourse
        mortgage granted by the Partnership representing a first lien on the
        Hotel Assets, (ii) a pledge granted by the Corporation of all
        outstanding shares of capital stock of New Claridge, and (iii) a
        guarantee by New Claridge. New Claridge's guarantee of the Notes is
        secured by a collateral assignment of the second lien Expandable
        Wraparound Mortgage, and by a lien on the Claridge's gaming and other
        assets, which lien will be subordinated to liens that may be placed on
        those gaming and other assets to secure any future revolving credit
        line arrangement. On January 28, 1997, New Claridge entered into an
        agreement to subject the new self-parking garage to the lien of the
        mortgage; such lien will not be subordinated to any lien which may be
        placed on New Claridge's gaming and other assets to secure any future
        revolving credit line arrangement. Interest on the Notes is payable
        semiannually on February 1 and August 1 of each year. (See Note 9,
        "Long-Term Debt".)

        The net proceeds of the Notes, totalling $82.2 million net of fees and
        expenses, were used as follows: (i) to repay in full on January 31,
        1994, the Corporation's outstanding debt under the Revolving Credit
        and Term Loan Agreement (the "Loan Agreement"), including the
        outstanding balance of the Corporation's revolving credit line, which
        was secured by a first mortgage; (ii) to expand New Claridge's casino
        capacity by 12,000 square feet in 1994, including the addition of
        approximately 500 slot machines and the relocation of two restaurants
        and their related kitchens; (iii) to purchase property in 1995, and
        construct on that property a self-parking garage, which opened in
        mid-1996; and (iv) to acquire the Contingent Payment option in 1996
        (see Note 10, "Other Noncurrent Liabilities").

                                      F-7

<PAGE>


                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


2.      CURRENT DEVELOPMENTS

        During 1995, the cash provided by operations of the Claridge was
        sufficient to meet the Corporation's obligations to pay interest on
        the Notes, as well as to make at least some moderate capital
        improvements. Commencing in the latter part of 1995, however,
        competition in the Atlantic City casino market for bus customers, a
        principal source of customers for the Claridge at the time, increased;
        this competition intensified even more during 1996 as additional
        casino square footage was added, principally due to the opening of the
        Trump World's Fair casino. During 1996, the average coin incentive
        issued per bus patron at the Claridge increased to approximately $19,
        from approximately $13 in 1995. Total cash incentives issued to
        Claridge's casino patrons (in the form of coin to play slot machines
        and gaming chips to play table games) increased to approximately $30.5
        million in 1996, from approximately $25.2 million in 1995. While the
        Corporation's promotional costs increased significantly, total casino
        revenues in 1996 actually decreased from 1995 levels. It had been the
        expectation of the Corporation that, upon opening of its new
        self-parking garage, the Corporation would be able to reduce its
        reliance on the bus patron market; however, the Corporation was forced
        to close the garage facility on July 10, 1996, only ten days after its
        opening, following a fatal accident. Because the facility was not able
        to reopen until the end of September 1996, the Corporation lost any
        possible benefit of the facility during the normally busy summer
        season. In addition, severe winter weather in the first quarter of
        1996 adversely affected revenues. As a result, the Corporation
        experienced a net loss for 1996 of $15.4 million, compared to a net
        loss of $1.9 million in 1995.

        In late July 1996, management of the Corporation determined that due
        to the serious deterioration in the Corporation's cash flow, that
        without a significant improvement in its operating results, it was
        unlikely that the Corporation would be able to meet its obligations to
        pay interest on the Notes beyond the August 1996 payment. In addition
        to taking steps to conserve cash by reducing various operating
        expenses, the Corporation engaged a financial advisor, Dillon, Read &
        Co., Inc., to assist in formulating a proposal to the holders of the
        Notes to restructure the Corporation's obligations under the Notes. At
        the same time, the Corporation was working with Dillon, Read & Co.,
        Inc. to attempt to find a buyer of the Corporation, or an investor
        that would be in a position to inject additional capital into the
        Corporation to enable the Corporation to meet its ongoing obligations.
        The Corporation did not receive any acceptable proposals in regards to
        the possible sale of the Corporation.

        In November 1996, while the sales efforts were continuing, the
        Corporation announced that there was a strong likelihood that the
        Corporation would be unable to pay the interest due on the Notes on
        February 3, 1997. Accordingly, management, working together with
        financial and legal advisors, formulated a plan for restructuring the
        Corporation's obligations. The terms of the proposed plan were
        presented to the noteholders at a meeting held on December 3, 1996.

        On January 12, 1997, management of the Corporation was contacted,
        through an agent, by Hilton Hotel Corporation ("Hilton"), regarding a
        possible sale of the Corporation to Hilton, and shortly thereafter,
        the Corporation began negotiations with Hilton. On January 30, 1997,
        the Corporation issued a press release indicating that the Corporation
        would not make the interest payment due on the Notes on February 3,
        1997, and that the Corporation had entered

                                      F-8

<PAGE>

                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


2.      CURRENT DEVELOPMENTS (cont'd.)

        negotiations with Hilton regarding acquisition of the Corporation by
        Hilton through a prepackaged bankruptcy plan. At that time, a
        representative of Hilton indicated that Hilton had acquired
        approximately 35% to 40% of the Notes. On February 5, 1997, three
        holders of the Notes, who were members of the unofficial committee
        which they had formed, filed a petition for involuntary bankruptcy
        against the Corporation in the bankruptcy court for the District of
        New Jersey.

        Contemporaneously, the same three holders of the Notes filed a related
        state court lawsuit against the Corporation, New Claridge, the
        Partnership, certain officers and directors of the Corporation, and
        the general partners of the Partnership. On March 4, 1997, contrary to
        earlier expectations, the Corporation was able to pay the interest
        that was due on the Notes on February 3, 1997, under the 30-day grace
        period allowed in accordance with the terms of the indenture governing
        the Notes (the "Indenture"). In addition, the Corporation reached
        agreement with the unofficial committee of noteholders, as well as the
        three holders of the Notes, providing for the joint dismissal of the
        involuntary bankruptcy petition and the related state court lawsuit.
        On March 19, 1997, an order was entered dismissing the involuntary
        bankruptcy petition; as part of that order, a settlement agreement was
        entered whereby the state court lawsuit was also dismissed.
        Negotiations with Hilton regarding acquisition of the Corporation
        terminated in April 1997. Management of the Corporation believes that
        Hilton subsequently disposed of its ownership in the Notes, and that a
        part or all of these Notes are now owned by an entity or entities
        which are controlled by Carl Icahn.

        The Corporation had sufficient cash to pay the interest on the Notes
        on March 4, 1997 due to several events: (i) cash flow from operations
        for January and February 1997 improved significantly over what had
        been expected; (ii) effective March 1, 1997, the Operating Lease and
        Expansion Operating Lease were amended to provide for the deferral of
        basic rent of $1.3 million on March 1, 1997 (see Note 13, "Operating
        Lease"); and (iii) on February 28, 1997, New Claridge entered into an
        agreement with Thermal Energy Limited Partnership I ("Atlantic
        Thermal"), pursuant to which Atlantic Thermal was granted an exclusive
        license for a period of twenty years to use, operate and maintain
        certain steam and chilled water production facilities at the Claridge.
        In consideration for this license agreement, Atlantic Thermal paid New
        Claridge $1.5 million.

        As discussed, the Corporation experienced recurring losses and serious
        deterioration in its cash flow in 1996. Since the Corporation does not
        have substantial cash reserves or access to a line of credit, the
        Corporation needed to experience significant improvement in operating
        results in 1997 over 1996 levels in order to meet its on-going
        obligations, including the interest due on the Notes. Operating
        results in 1997 did improve over 1996 levels, due primarily to the
        positive impact of the availability of the self-parking garage, lower
        bus package pricing, and other cost containment initiatives. Although
        management of the Corporation believes that operating results will
        continue to improve over 1996 levels, no assurances as to the
        continuation of this improvement can be given. Management will
        continue to conserve cash through various cost containment measures,
        and will continue to consider various refinancing alternatives,
        including

                                      F-9

<PAGE>
                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


2.      CURRENT DEVELOPMENTS (cont'd.)

        a sale of the Corporation. The financial statements do not include
        any adjustments relating to the recoverability and classification of
        recorded asset amounts or the amounts and classification of
        liabilities that might be necessary should the Corporation be unable
        to continue in existence.

        In December 1997, New Claridge obtained a committment from PDS
        Financial Corporation ("PDS") for a $2 million sale lease-back
        facility (the "Facility"). Under the terms of the Facility, New
        Claridge may sell certain of its slot machines to PDS under a sale
        lease-back arrangement, for a specified amount per slot machine, for
        up to $2 million. In February 1998, New Claridge sold 370 slot
        machines to PDS for approximately $1 million under this Facility. The
        machines will be leased back to New Claridge under an operating lease
        arrangement for two years. After two years, New Claridge has an option
        to either purchase the machines, renew the lease arrangement for
        twelve months, or return the equipment to PDS.

3.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        a)     Basis of Presentation

               The consolidated financial statements are prepared in
               accordance with generally accepted accounting principles. The
               consolidated financial statements include the accounts of the
               Corporation and its wholly-owned subsidiaries, New Claridge and
               Claridge Gaming Incorporated ("CGI"), which was formed in March
               1994 for the purpose of developing gaming opportunities in
               other jurisdictions. All material intercompany accounts and
               transactions have been eliminated in consolidation.

               The separate financial statements of New Claridge, which is a
               guarantor of the Notes, are not included because the aggregate
               assets, liabilities, operations and equity of New Claridge are
               substantially equivalent to the assets, liabilities, operations
               and equity of the Corporation on a consolidated basis, and
               because the separate financial statements and other disclosures
               concerning New Claridge are not deemed material to holders of
               Notes. There are no separate financial statements for CGI,
               which is the only other subsidiary of the Corporation and is
               not a guarantor of the Notes.

        b)     Use of Estimates

               The preparation of financial statements in conformity with
               generally accepted accounting principles requires management to
               make estimates and assumptions that affect the reported amounts
               of assets and liabilities and disclosure of contingent assets
               and liabilities at the date of the financial statements and the
               reported amounts of revenues and expenses during the reporting
               period. Actual results could differ from those estimates.



                                     F-10

<PAGE>

                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


3.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.)

        c)     Cash and Cash Equivalents

               Cash and cash equivalents include investments in interest
               bearing repurchase agreements in government securities and
               other investments as permitted in accordance with the terms of
               the indenture governing the Notes, with maturities of three
               months or less when purchased. Interest income is recorded as
               earned.

        d)     Casino Receivables and Revenues

               Credit is issued to certain casino customers and the
               Corporation records all unpaid credit as casino receivables on
               the date the credit was issued. Allowances for estimated
               uncollectible casino receivables are provided to reduce these
               receivables to amounts anticipated to be collected. The
               Corporation recognizes as casino revenue, the net win (which is
               the difference between amounts wagered and amounts paid to
               winning patrons) from gaming activity.

        e)     Inventories

               Inventories are stated at the lower of cost or market, cost
               being determined principally on a first-in, first-out basis.

        f)     Property and Equipment

               Property and equipment are recorded at cost, and are
               depreciated using the straight-line method over the following
               estimated useful lives:

                         Buildings and improvements       39 years
                         Gaming equipment                  5 years
                         Other equipment                   7 years

               Interest costs related to the construction of the garage
               facility were capitalized, and are being amortized over the
               estimated useful life of the garage.

        g)     Deferred Charges

               Deferred charges primarily relate to the January 31, 1994
               issuance of the Notes. These charges, which totaled
               approximately $3.7 million, are being amortized over the term
               of the Notes. Accumulated amortization of these charges as of
               December 31, 1997 and 1996 was $1,831,000 and $1,364,000,
               respectively.

                                     F-11

<PAGE>

                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


3.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.)

        h)     Income Taxes

               Deferred income taxes are provided for temporary differences
               between financial statement reporting and income tax reporting
               for rent leveling provisions, asset basis differences, and
               various other expenses recorded for financial statement
               purposes.

        i)     Earnings (Loss) Per Share

               Earnings (loss) per share is calculated by dividing net loss by
               the weighted average shares outstanding (4,995,219 for the year
               ended December 31, 1997, 5,046,064 for the year ended December
               31, 1996, and 5,050,792 for the year ended December 31, 1995).
               Basic and diluted net loss per share are the same for the years
               ended December 31, 1997, 1996, and 1995.



                                     F-12

<PAGE>
                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


4.      RECEIVABLES

        Receivables at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>

        Current Receivables                                                                   1997              1996
                                                                                              ----              ----
                                                                                                 (in thousands)
<S>                                                                                         <C>              <C>
                  Casino, less allowance for uncollectible accounts
                    of $717,000 and $846,000 at
                    December 31, 1997 and 1996, respectively                                $  1,312            1,097
                  Hotel, less allowance for uncollectible accounts
                    of $31,000 and $39,000 at December 31,
                    1997 and 1996, respectively                                                  102              133
                  Interest receivable due from the Partnership                                 1,014            1,212
                  Current portion Expandable Wraparound
                    Mortgage due from the Partnership                                         14,000           12,000
                  Current portion of FF&E Promissory notes                                     2,448            2,791
                  Current portion of Expansion/Construction
                    promissory note                                                            2,167            2,329
                  Other, less allowance for uncollectible accounts
                    of $10,000 and $14,000 at December 31,
                   1997  and 1996, respectively                                                  424              182
                                                                                            --------          -------
                                                                                            $ 21,467           19,744
                                                                                            ========          =======

         Long-Term Receivables

                  $127,000,000 Expandable Wraparound Mortgage 14%, maturities
                    through September 30, 2000 (net of $6,539,000 discount and
                    $8,291,000 discount at
                    December 31, 1997 and 1996, respectively)                               $ 40,461           52,709
                  Deferred interest receivable, due
                    September 30, 2000                                                        20,000           20,000
                  FF&E promissory notes, 14%                                                  15,004           17,244
                  Expansion/Construction promissory note, 14%                                    -0-            2,167
                                                                                            --------          -------

                                                                                            $ 75,465           92,120
                                                                                            ========          =======
</TABLE>

         The Expandable Wraparound Mortgage Loan Agreement ("Expandable
         Wraparound Mortgage") was executed and delivered by the Partnership
         to New Claridge and is secured by all property of the Partnership. As
         part of the agreement, New Claridge is obligated to make payments
         required under any senior mortgage indebtedness, so long as the
         Partnership is not in default on its obligations under the Expandable
         Wraparound Mortgage. $20 million in interest was deferred between
         1983 and 1988 and will be due upon maturity. Principal payments
         required under the Expandable Wraparound Mortgage commenced in 1988.


                                     F-13

<PAGE>

                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


4.       RECEIVABLES (cont'd.)

         The Expandable Wraparound Mortgage also includes a provision whereby
         New Claridge will loan the Partnership up to $25 million in the form
         of FF&E promissory notes ("FF&E Loans"), secured under the Expandable
         Wraparound Mortgage, for the purchase of property and equipment
         ("FF&E Replacements"). One half of the FF&E Loan principal is due in
         48 months and the remaining balance is due 60 months from the date of
         issuance of the respective FF&E Loan. During the year ended December
         31, 1998, $2,448,000 of principal payments will become due. In
         connection with the offering of $85 million of Notes on January 31,
         1994, the Corporation agreed to use not less than $8 million from the
         net proceeds of the offering to finance certain internal improvements
         to the Claridge which were funded through additional FF&E Loans. In
         connection therewith, the Expandable Wraparound Mortgage Loan
         agreement as well as the Operating Lease, and the Expansion Operating
         Lease were amended to provide that the principal on these additional
         FF&E Loans will be payable at final maturity of the Expandable
         Wraparound Mortgage.

         In 1986, the Expandable Wraparound Mortgage was increased up to $17
         million to provide the Partnership with funding for the construction
         of an expansion. Effective on the date that the expansion opened to
         the public (August 28, 1986), the Partnership commenced making level
         monthly payments of principal and interest so as to repay on
         September 30, 1998, in full, the principal balance of this increase
         in the Expandable Wraparound Mortgage. The Expandable Wraparound
         Mortgage was amended to require, in addition to the above, principal
         payments (in equal monthly installments) due during the years 1988
         through 1998 in escalating amounts totalling $80 million and on
         September 30, 2000 a balloon payment of $67 million which includes
         $20 million of deferred interest.

         Effective March 1, 1997, the Corporation, New Claridge, and the
         Partnership entered into a restructuring agreement pursuant to which
         New Claridge agreed to use its best efforts to cause a modification
         of the Expandable Wraparound Mortgage (the "Wraparound Modification")
         that is permitted by, or is in compliance with, the terms of the
         Indenture. The Wraparound Modification, if so permitted, will provide
         for an extension of the maturity date of the Expandable Wraparound
         Mortgage from September 30, 2000 to January 1, 2004. If the
         Wraparound Modification is not permitted by or in compliance with the
         terms of the Indenture, New Claridge has agreed to effect the
         Wraparound Modification at such time as the Notes are no longer
         outstanding.

                                     F-14

<PAGE>

                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


5.       PROPERTY AND EQUIPMENT

         Property  and  equipment at December 31, 1997 and 1996 consist of the
following:

                                                        1997             1996
                                                       -------         ------
                                                           (in thousands)

         Gaming equipment                              $18,366           19,153
         Land and land improvements                      7,598            8,100
         Building                                       20,070           20,100
         Leasehold improvements                            745              745
         Capital lease asset                               693              613
         Other equipment                                   107              107
                                                       -------          -------

                                                        47,579           48,818
         Less accumulated depreciation
           and amortization                             15,485           13,630
                                                       -------          -------

         Net property and equipment                    $32,094           35,188
                                                       -------          -------

6.       OTHER ASSETS

         The Casino Control Act (the "Act") provides for the imposition of an
         investment obligation, calculated at 1.25% of the total revenues from
         gaming operations, less the provision for uncollectible accounts. If
         a casino licensee opts not to make the investment as required, it is
         assessed an alternative tax of 2.5% of total gaming revenues less the
         provision for uncollectible accounts. The licensee can satisfy its
         obligation by making a direct investment in a project approved by the
         Casino Reinvestment Development Authority ("CRDA"), the agency
         responsible for administering this portion of the Act, or it can buy
         bonds issued by the CRDA. These bonds bear interest at two-thirds of
         market rates, as set forth in the Act.

         New Claridge has opted to deposit its reinvestment obligation funds
         with the State Treasurer. Through December 31, 1997, the Corporation
         has deposited $18,531,000 of which $3,026,000 has been used to
         purchase bonds issued by the CRDA. Since interest on these bonds and
         funds deposited is paid at a discounted rate, New Claridge records a
         valuation allowance of approximately one-third of the reinvestment
         obligation. In addition, in January 1990, it was determined that
         certain bonds issued by the CRDA had become impaired, and that the
         payment of principal and interest was uncertain. As a result, New
         Claridge has recorded a valuation allowance for the full amount of
         its investment in these bonds, totalling $1,654,000.

         From time to time, New Claridge has made donations to the CRDA of
         funds which had previously been deposited with the State Treasurer.
         In exchange for these donations, which have totaled $12,025,000
         through December 31, 1997, New Claridge received credits towards
         future obligations or cash credits, from the CRDA equal to 51% of the
         donations. As of December 31, 1997, all of these credits had been
         used.


                                     F-15

<PAGE>
                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


7.       LOAN FROM THE PARTNERSHIP

         In accordance with the terms of the Restructuring Agreement, on June
         16, 1989 the Partnership loaned to New Claridge $3.6 million, which
         represented substantially all cash and cash equivalents remaining in
         the Partnership other than funds needed to pay expenses incurred
         through the closing of the Restructuring. This loan is evidenced by
         an unsecured promissory note and is not due and payable until such
         time as the full or partial satisfaction of the Expandable Wraparound
         Mortgage and the First Mortgage has been made in connection with a
         refinancing or sale of all or a partial interest in the Claridge.

         Interest which accrues at 12% per annum is payable in full upon
         maturity. As of December 31, 1997, such interest, which is included
         in other current liabilities, amounted to $3,690,000.

8.       OTHER CURRENT LIABILITIES

         Other  current  liabilities  at December 31, 1997 and 1996 consist of
         the following:

                                                       1997            1996
                                                       ----           -----
                                                         (in thousands)

         Deferred rent, current                      $15,078           15,078
         Deferred rent, 03/01/97                       1,075              -0-
         Accrued payroll and related benefits          6,508            6,187
         Accrued interest, Notes                       4,161            4,161
         Auto/General insurance reserves               1,488            1,228
         Accrued interest due to Partnership           3,690            3,258
         Other current liabilities                     2,393            2,518
                                                     -------           ------

                                                     $34,393           32,430
                                                     =======           ======

         Deferred rent of $15,078,000 represents the maximum deferral allowed
         in accordance with the Operating Lease Agreement and Expansion
         Operating Lease Agreement, as amended. The deferred rent liability
         will become payable (i) upon a sale or refinancing of the Claridge;
         (ii) upon full or partial satisfaction of the Expandable Wraparound
         Mortgage; and (iii) upon full satisfaction of any first mortgage then
         in place.

         The Fifth Amendment to the Operating Lease and the Fourth Amendment
         to the Expansion Operating Lease, which were effective on March 1,
         1997 provided for the abatement of $867,953 of basic rent and for the
         deferral of $1.3 million of basic rent on March 1, 1997, and for
         additional monthly abatements of rent beginning April 1, 1997. The
         $1.3 million of basic rent deferred on March 1, 1997 is to be paid to
         the Partnership as additional rent of $25,000 per month for the
         period April 1, 1997 through December 31, 1997, and of $50,000 per
         month for the year 1998 and thereafter until paid in full (subject to
         acceleration under certain circumstances).


                                     F-16

<PAGE>
                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


9.       LONG-TERM DEBT

         Long-term debt at December 31, 1997 and 1996 consists of the
following:

                                                   1997            1996
                                                   ----           -----
                                                      (in thousands)
         11 3/4% Notes due 2002                 $ 85,000           85,000
         Capital lease obligation                     62              -0-
                                                --------           ------
                                                  85,062           85,000
         Less current installments                    39              -0-
                                                --------           ------
                                                $ 85,023           85,000
                                                ========           ======

         On January 31, 1994, the Corporation completed an offering of $85
         million of Notes due 2002, bearing interest at 11 3/4%. The Notes are
         secured by (i) a non-recourse mortgage granted by the Partnership
         representing a first lien on the Hotel Assets, (ii) a pledge granted
         by the Corporation of all outstanding shares of capital stock of New
         Claridge, and (iii) a guarantee by New Claridge. New Claridge's
         guarantee of the Notes is secured by a collateral assignment of the
         second lien Expandable Wraparound Mortgage, and by a lien on the
         Claridge's gaming and other assets, which lien will be subordinated
         to liens that may be placed on those gaming and other assets to
         secure any future revolving credit line arrangement. On January 28,
         1997, New Claridge entered into an agreement to subject the new
         self-parking garage to the lien of the mortgage; such lien will not
         be subordinated to any lien which may be placed on New Claridge's
         gaming and other assets to secure any future revolving credit line
         arrangement. Interest on the Notes is payable semiannually on
         February 1 and August 1 of each year. A portion of the net proceeds
         of $82.2 million was used to repay in full the Corporation's
         outstanding debt under the Loan Agreement, including the outstanding
         balance of the Corporation's revolving credit line, which was secured
         by a first mortgage. In conjunction with the full satisfaction of the
         Loan Agreement, the Corporation's $7.5 million revolving credit line
         arrangement was terminated.

         Beginning in 1995, and annually thereafter, the Corporation is
         required to make an offer ("Excess Cash Offer"), to all holders of
         Notes, to purchase at 100% of par (plus accrued and unpaid interest,
         if any, to the purchase date), the maximum amount of Notes that may
         be purchased with 50% of the Corporation's "Excess Cash" (as defined
         in the Indenture), from the preceding year. If less than $5 million
         is available to make such purchases (i.e., if Excess Cash is less
         than $10 million), no such offer needs to be made. The commencement
         date of any required Excess Cash Offer must be not later than 30 days
         after the publication of the Corporation's audited financial
         statements for the immediately preceding fiscal year. For the year
         ended December 31, 1997, the Corporation's Excess Cash was less than
         $10 million, and therefore the Corporation is not required to make an
         Excess Cash Offer in 1998.

         The Indenture restricts the declaration or payment of dividends or
         distributions or redemptions of capital stock by the Corporation and
         its subsidiaries, other than (i) dividends or distributions payable
         in equity interests of the Corporation or such subsidiaries, (ii)
         dividends or distributions payable to the Corporation or any
         wholly-owned subsidiary, or (iii) dividends by a subsidiary on its
         common stock if such dividends are paid pro-rata to all holders of
         such common stock.

                                     F-17

<PAGE>
                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


10.      OTHER NONCURRENT LIABILITIES

         Pursuant to the Restructuring Agreement, Webb retained an interest,
         which was assigned to the Valley of the Sun United Way on April 2,
         1990, equal to $20 million plus interest at a rate of 15% per annum,
         compounded quarterly, commencing December 1, 1988, in any proceeds
         ultimately recovered from operations and/or the sale or refinancing
         of the Claridge facility in excess of the first mortgage loan and
         other liabilities ("Contingent Payment"). Consequently, New Claridge
         has deferred the recognition of $20 million of forgiveness income
         with respect to the Contingent Payment obligation. Interest on the
         Contingent Payment has not been recorded in the accompanying
         consolidated financial statements since the likelihood of paying such
         amount is not considered probable at this time. As of December 31,
         1997, accrued interest would have amounted to approximately $56.2
         million.

         In connection with the restructuring, Webb agreed to grant those
         investors in the Corporation and the Partnership ("Releasing
         Investors"), from whom Webb had received written releases from all
         liabilities, rights ("Contingent Payment Rights") to receive certain
         amounts to the extent available for application to the Contingent
         Payment. Approximately 84% in interest of the investors provided
         releases and became Releasing Investors. Payments to Releasing
         Investors are to be made in accordance with a schedule of priorities,
         as defined in the Restructuring Agreement.

         On February 23, 1996, the Corporation acquired an option to purchase,
         at a discount from the carrying value, the Contingent Payment. The
         purchase price of the option of $1 million was recorded as an offset
         to the Contingent Payment liability which is included in other
         noncurrent liabilities on the Corporation's consolidated balance
         sheet. The option could have been exercised any time prior to
         December 31, 1997. Upon exercise of the option, the purchase price of
         the Contingent Payment would have been $10 million, plus interest at
         10% per annum for the period from January 1, 1997 to the date of
         payment of the purchase price if the purchase occurred after December
         31, 1996. As a result, if the option was exercised, any obligation to
         pay the accrued interest, as discussed above, would have been
         eliminated, except in respect of the obligation to the Releasing
         Investors. The purchase price may have also increased in an amount
         not to exceed $10 million if future distributions to Releasing
         Investors exceeded $20 million.

         Given the recent operating results (see Note 2, "Current
         Developments"), the Corporation was not able to exercise this
         Contingent Payment option, and it expired in accordance with its
         terms on December 31, 1997.

11.      PROMOTIONAL ALLOWANCES

         The retail value of complimentary rooms, food and beverages and other
         complimentaries furnished to patrons is included in gross revenue and
         then deducted as promotional allowances. The estimated cost of
         providing such promotional allowances for the years ended December
         31, 1997, 1996 and 1995 has been allocated to casino expenses as
         follows (in thousands):


                                     F-18

<PAGE>
                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


11.      PROMOTIONAL ALLOWANCES (cont'd.)

                                     1997           1996            1995
                                     ----           ----            ----

         Hotel                    $  3,828          3,339           2,944
         Food and beverage          11,815         12,001           9,655
         Entertainment               1,134          1,725             784
                                   -------         ------          ------
              Total                $16,777         17,065          13,383
                                   =======         ======          ======

12.      INCOME TAXES

         Income taxes are accounted for under the asset and liability method.
         Deferred tax assets and liabilities are recognized for the estimated
         future tax consequences attributable to temporary differences between
         the financial statement carrying amounts of existing assets and
         liabilities and their respective tax basis.

         The benefit for income taxes is comprised of the following (in
         thousands):

                                     1997            1996           1995
                                     ----            ----           ----
         Current:
           Federal                $    -0-            -0-            (285)
           State                       -0-            -0-             -0-
         Deferred                      -0-         (5,398)            (85)
                                  --------         ------          ------
                                  $    -0-         (5,398)           (370)
                                  ========         ======          ======

         The benefit for income taxes differs from the amount computed at the
         statutory rate as follows (in thousands):
                                                       1997      1996    1995
                                                       ----      ----    ----

         Computed "expected" tax benefit            $(2,033)   (7,068)   (775)
         Increase (reduction) in income taxes
           resulting from:
           Change in the valuation allowance          2,311     2,460     -0-
           State income tax, net of federal
             income tax benefit                        (359)   (1,247)   (137)
           Meals and entertainment                      454       550     550
           Contingent Payment option                   (400)      -0-     -0-
           Other                                         27       (93)     (8)
                                                   --------    ------   ------

                                                   $    -0-    (5,398)   (370)
                                                   ========    ======   =====

                                     F-19
<PAGE>
                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


12.      INCOME TAXES (cont'd.)

         The tax effects of temporary differences that give rise to
         significant portions of the deferred tax assets and deferred tax
         liabilities at December 31, 1997 and 1996 are presented below (in
         thousands):
                                                             1997       1996
                                                             ----       ----
         Deferred tax assets:
           Net operating loss                            $ 14,915      9,525
           Rent leveling                                    7,476     11,980
           Accrued expenses                                 1,460      1,413
           Deferred revenue                                   578        -0-
           Tax credit                                         940        940
           Other                                            1,922      1,323
                                                         --------    -------

                  Total gross deferred tax assets          27,291     25,181
                  Less valuation allowance                 (5,193)    (2,882)
                                                         --------    --------

                  Net deferred tax assets                  22,098     22,299
                                                         --------    -------

         Deferred tax liabilities:
           Gaming equipment, due to differences in
             depreciation                                  (1,019)    (1,178)
           Difference between book and tax basis of
             Expandable Wraparound Mortgage receivable    (22,745)   (22,832)
           Difference between book and tax basis of
             receivables                                     (912)      (868)
           Other                                               (2)        (2)
                                                         --------    -------

                  Total gross deferred tax liabilities    (24,678)   (24,880)
                                                         --------    -------

                  Net deferred tax liability             $ (2,580)    (2,581)
                                                         ========    =======

         The valuation allowance for deferred tax assets as of December 31,
         1996 was $2,882,000. The net change in the total valuation allowance
         for the year ended December 31, 1997 was an increase of $2,311,000.

         The Corporation recorded an income tax benefit of $-0-, $5,398,000,
         and $370,000 for the years ended December 31, 1997, 1996 and 1995,
         respectively, which represents the tax benefit expected from the
         carryforward of Federal net operating losses net of increased
         deferred tax credits.

         At December 31, 1997, the Corporation had net operating loss
         carryforwards for federal income tax purposes of approximately $35.2
         million. These net operating loss carryforwards are available to
         offset future federal taxable income, if any, in the amounts of $21.7
         million through 2016 and $13.5 million through 2017. The Corporation
         also has tax credit carryforwards for

                                     F-20

<PAGE>
                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


12.      INCOME TAXES (cont'd.)

         income tax purposes of approximately $940,000, which are available
         to reduce future federal income taxes, if any, through 2002.

         As a result of the restructuring in 1989, the amount of debt forgiven
         resulted in the loss or reduction of various tax attributes including
         tax operating loss carry forwards of $30,400,000, unused tax credits
         of $1,041,000 and reduction in tax basis of assets by $89,178,000. As
         a result of the reduction in tax basis of assets, cash payments for
         income taxes will significantly exceed income tax expense for
         financial statement purposes in future years. The above amounts have
         been adjusted to reflect settlements of the Internal Revenue Service
         ("IRS") audits of the years 1983 through 1987. During 1995 the
         Corporation received notice from the IRS asserting deficiencies in
         Federal corporate income taxes for the Corporation's 1990 and 1991
         taxable years. Many of the proposed adjustments to the Corporation's
         tax returns have been settled with no adverse impact to the
         Corporation's consolidated financial statements. There is a remaining
         IRS asserted deficiency for the 1990 and 1991 taxable years. In
         October 1996, the IRS sent the Corporation a statutory notice of
         deficiency for the Corporation's 1990 and 1991 taxable years. On
         January 23, 1997, the Corporation filed a petition with the United
         States Tax Court requesting a redetermination of the asserted
         deficiency. The United States Tax Court has set a trial date for this
         case of June 1, 1998. The Corporation believes the ultimate
         resolution of the case will not result in a material impact on the
         Corporation's consolidated financial statements.

13.      OPERATING LEASE

         New Claridge leases the Hotel Assets and the land on which the
         Claridge is located from the Partnership under an Operating Lease for
         an initial lease term of 15 years with three 10-year renewal options.
         As of December 31, 1997, basic rent for the remainder of the initial
         lease term, which ends September 30, 1998, is $32,531,000 (before any
         abatements, as discussed below). Basic rent during the renewal term
         will be calculated pursuant to a formula, with such rent not to be
         more than $29,500,000 nor less than $24,000,000 for the lease year
         commencing October 1, 1998 through September 30, 1999 and,
         subsequently, not to be greater than 10% more than the basic rent for
         the immediately preceding lease year in each lease year thereafter.
         New Claridge is also required to pay as additional rent amounts
         including certain taxes, insurance and other charges relating to the
         occupancy of the land and Hotel Assets, certain expenses and debt
         service relating to furniture, fixture and equipment replacements and
         building improvements, and the general and administrative costs of
         the Partnership. Also, additional rent payments are required based
         upon fixed assets purchased by the Partnership (the FF&E
         Replacements, Note 4) and then leased to New Claridge.

         New Claridge entered into an Expansion Operating Lease Agreement with
         the Partnership whereby New Claridge leased the expansion facility
         for an initial term beginning March 17, 1986 and ending on September
         30, 1998 with three 10-year renewal options. Basic annual rent
         payable during the initial term of the Expansion Operating Lease was
         $3,870,000 in 1986 (prorated based on the day that the Expansion
         Improvements opened to the public) and

                                     F-21

<PAGE>

                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


13.      OPERATING LEASE (cont'd.)

         determined based on the cost of the construction of the Expansion
         Improvements. Annually thereafter the rental amount is adjusted based
         on the Consumer Price Index but any increase may not exceed two
         percent per annum. Basic annual rent for 1997, 1996 and 1995 amounted
         to $4,812,000, $4,718,000, and $4,625,000, respectively. Basic annual
         rent during the renewal term will be calculated pursuant to a
         formula, with such rent not to be more than $3,000,000 nor less than
         $2,500,000 and not to be greater than 10% more than the basic annual
         rent for the immediately preceding lease year in each lease year
         thereafter.

         New Claridge is also required to pay as additional rent certain
         expenses and the debt service relating to Furniture, Fixture and
         Equipment Replacements and building improvements (collectively
         "Expansion FF&E Replacements") for the expanded facility. The
         Partnership will be required during the entire term of the Expansion
         Operating Lease, and any subsequent renewal terms, to provide New
         Claridge with Expansion FF&E Replacements and to provide facility
         maintenance and engineering services to New Claridge. New Claridge is
         obligated to lend the Partnership any amounts necessary to fund the
         cost of Expansion FF&E Replacements. Any advances by New Claridge for
         the foregoing will be secured under the Expandable Wraparound
         Mortgage, in an amount up to $25,000,000. Thereafter, such advances
         will be secured under separate security agreements.

         For the years ended December 31, 1997, 1996 and 1995, total expense
         resulting from the Operating Lease and Expansion Operating Lease
         amounted to $30,554,000, $38,561,000, and $37,638,000, respectively,
         of which ($11,504,000), ($2,737,000), and ($2,386,000), respectively,
         of rental expense is attributable to the requirement under Statement
         of Financial Accounting Standards No. 13 to provide a level rent
         expense for those leases with escalating payments.

         Effective with the consummation of the restructuring in June 1989,
         the Operating Lease Agreement and the Expansion Operating Lease
         Agreement were amended to provide for the deferral of $15,078,000 of
         rental payments during the period July 1, 1988 through the beginning
         of 1992, and to provide for the abatement of $38.8 million of basic
         rent payable through 1998, thereby reducing the Partnership's cash
         flow to an amount estimated to be necessary to meet the Partnership's
         cash requirements. During the third quarter of 1991, the Corporation
         had accrued the maximum amount of $15.1 million of deferred rent
         liability under the lease arrangements. On August 1, 1991, the
         Operating Lease Agreement and Expansion Operating Lease Agreement
         were further amended to revise the abatement provisions so that,
         commencing January 1, 1991, for each calendar year through 1998, the
         lease abatements may not exceed $10 million in any one calendar year,
         and $38,820,000 in the aggregate. All of the $38.8 million of
         available abatements had been fully utilized by the end of the first
         quarter of 1997. Effective with the closing of the Restructuring on
         June 16, 1989, lease expense recognized on a level basis was reduced
         prospectively, from the use of a revised schedule of rent leveling
         relative to the abatement of certain rents beginning in 1992.

         The Fifth Amendment to the Operating Lease and the Fourth Amendment
         to the Expansion

                                     F-22

<PAGE>

                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


13.      OPERATING LEASE (cont'd.)

         Operating Lease, which were effective on March 1, 1997, provided for
         the abatement of $867,953 of basic rent and for the deferral of
         $1,300,000 of basic rent on March 1, 1997, and provide for additional
         abatements of basic rent, commencing on April 1, 1997, as necessary
         to reduce the Partnership's cash flow to an amount necessary only to
         meet the Partnership's cash requirements through December 31, 1998.
         The $1.3 million of basic rent deferred on March 1, 1997 is to be
         paid to the Partnership in monthly installments of $25,000 for the
         period April 1, 1997 through December 31, 1997, and monthly
         installments of $50,000 for the year 1998 and thereafter until paid
         in full (subject to acceleration under certain circumstances). For
         the years 1999 through 2003, additional abatements of basic rent will
         be reduced to provide the Partnership with amounts needed to meet the
         Partnership's cash requirements plus an additional amount ($83,333
         per month in 1999 and 2000, $125,000 per month in 2001, and $166,667
         per month in 2002 and 2003). All abatements of rent in excess of the
         $38.8 million which was allowed in accordance with the 1989
         restructuring will be recognized as a reduction to lease expense as
         abated. In 1997, $9.0 million of rent in excess of the $38.8 million
         was abated.

         In conjunction with the Fifth Amendment to the Operating Lease and
         the Fourth Amendment to the Expansion Operating Lease, as discussed
         above, the Corporation, New Claridge and the Partnership entered into
         a restructuring agreement, effective March 1, 1997, to modify certain
         terms of the Expandable Wraparound Mortgage (see Note 4,
         "Receivables"). In addition, under the March 1, 1997 restructuring
         agreement, New Claridge agreed to exercise the first of three
         ten-year renewal options extending the term of the Operating Lease
         and Expansion Operating Lease through September 30, 2008.

         Under the terms of the Operating Lease, as amended effective March 1,
         1997, New Claridge has an option to purchase, on September 30, 1998,
         the Hotel Assets and the underlying land for their fair market value
         at the time the option is exercised, which in no event may be less
         than an amount equal to the amount then outstanding under the
         Expandable Wraparound Mortgage plus $2.5 million, plus any amount of
         the $1.3 million of rent deferred on March 1, 1997 not then paid. If
         New Claridge does not exercise this option on September 30, 1998, it
         may exercise an option, on September 30, 2003, to purchase the Hotel
         Assets and the underlying land on January 1, 2004, for their fair
         market value at the time the option is exercised.

         If the Partnership should fail to make any payment due under the
         Expandable Wraparound Mortgage, New Claridge may exercise a right of
         offset against rent or other payments due under the Operating Lease
         and Expansion Operating Lease to the extent of any such deficiency.

         New Claridge also leases supplemental office, warehouse, and surface
         parking spaces in nearby lots. For the years ended December 31, 1997,
         1996, and 1995, operating lease expense for these facilities amounted
         to $1,283,000, $1,484,000, and $1,512,000, respectively. The minimum
         future lease payments due under these leases total $757,000 in 1998,
         $736,000 in 1999, $612,000 in 2000, $600,000 in 2001, and $600,000 in
         2002.


                                     F-23

<PAGE>

                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


14.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
         "Disclosures about Fair Value of Financial Instruments" requires the
         Corporation to disclose estimated fair value for its financial
         instruments. The estimates of fair value are subjective in nature and
         involve uncertainties and matters of significant judgement, and
         therefore cannot be determined with precision; changes in these
         assumptions could significantly affect the estimates.

         The carrying amounts and estimated fair values of the Corporation's
         financial instruments as of December 31, 1997 and 1996 are as follows
         (in thousands):
<TABLE>
<CAPTION>
                                                               1997                       1996
                                                         ------------------         -----------------
                                                         Carrying     Fair          Carrying    Fair
                                                          Amount      Value          Amount     Value
                                                         --------     -----         --------    -----
<S>                                                      <C>         <C>           <C>         <C>
         Financial Assets:
           Cash and cash equivalents                      $ 12,424    12,424           8,532     8,532
           Long-term receivables
             due from the Partnership (including
             current portion)                               94,080     n/a           109,240     n/a
           Reinvestment obligation funds                     3,619     3,619           2,263     2,263

         Financial Liabilities:
           Loan from the Partnership                         3,600     n/a             3,600     n/a
           Long term debt                                   85,023    83,323          85,000    68,000
           Deferred rent due to the Partnership             16,506     n/a            28,010     n/a
           Contingent payment                               19,000     n/a            19,000     n/a
</TABLE>

         The following assumptions were used to estimate the fair value of
         each class of financial instruments:

         Cash and cash equivalents

         The carrying amounts reflected on the Corporation's Consolidated
         Balance Sheet approximate the fair value because of the short
         maturity (90 days or less) of these instruments.

         Reinvestment obligation funds

         The reinvestment obligation funds, which are included in Other assets
         on the Corporation's Consolidated Balance Sheet, consist of required
         investments imposed by the Casino Control Act. The reinvestment
         obligation funds are stated net of a valuation allowance reflecting
         the below market interest rates associated with the investments. As a
         result, the carrying values of these investments approximate their
         fair values.

                                     F-24

<PAGE>

                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


14.      FAIR VALUE OF FINANCIAL INSTRUMENTS (cont'd.)

         Long-term debt

         The fair value of the Corporation's long-term debt is estimated based
         on the quoted market price of the Notes as of December 31, 1997 and
         1996, respectively.

         Long-term receivables due from Partnership, Loan from the
         Partnership, Deferred rent due to the Partnership

         Due to the nature of the relationship between the Corporation and the
         Partnership, estimation of the fair value of the financial
         instruments due to and due from the Partnership is not practical as
         there is no trading market for these financial instruments. (See Note
         4, "Receivables", Note 7, "Loan from the Partnership" and Note 13,
         "Operating Lease", for a description of the terms of these
         instruments.)

         Contingent Payment

         There is no market for the Contingent Payment; therefore, estimation
         of the fair value of the Contingent Payment is not practical. (See
         Note 10, "Other Noncurrent Liabilities" for a description of the
         Contingent Payment and the option to purchase the Contingent
         Payment.)

15.      CONTINGENCIES

         a)       Licensing

                  On September 22, 1995, New Claridge was issued a four-year
                  casino license by the Commission for the period commencing
                  September 30, 1995.

         b)       Legal Proceedings

                  On July 10, 1996, ten days after its opening, a fatal
                  accident occurred at New Claridge's self-parking garage, in
                  which the vehicle of two patrons breached a cable restraint
                  system, permitting their vehicle to drive through the side
                  wall of the self-parking garage. The vehicle fell four
                  stories to the sidewalk and street below, killing both
                  occupants. As a result, New Claridge's self-parking garage
                  was closed until the end of September 1996, while various
                  investigations sought to determine the cause of the
                  accident. At the same time, New Claridge determined to
                  remove the exterior wall cable restraint system and replace
                  it with a rigid I-beam barrier system.

                  New Claridge has retained the law firm of Zelle and Larson
                  LLP of Minneapolis, Minnesota to assist in the recovery of
                  certain expenses incurred in reopening the self-parking
                  garage and potential lost profit claims. On July 22, 1997,
                  New Claridge filed a Complaint and Demand for Arbitration in
                  the amount of $10 million against the general contractor and
                  the architect for the garage, alleging negligence, breach of
                  warranty and

                                     F-25

<PAGE>

                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


15.      CONTINGENCIES (cont'd.)

                  breach of contract in the design and construction of the
                  garage. This proceeding is currently pending, with
                  arbitration scheduled to be held in April 1998.

                  The Corporation and New Claridge are also defendants in
                  various legal proceedings arising in the normal course of
                  business. In the opinion of management, it is not reasonably
                  likely that any such matters individually or collectively
                  would result in an outcome having a material adverse effect
                  on the consolidated financial statements.

16.      RELATED PARTY TRANSACTIONS

         a.       The Restructuring Agreement provided for Webb to retain an
                  interest, which was assigned to the United Way of Arizona on
                  April 2, 1990, equal to $20 million plus interest at a rate
                  of 15% per annum, compounded quarterly, commencing December
                  1, 1988, in any proceeds ultimately recovered from
                  operations and/or in the sale or refinancing of the Claridge
                  facility in excess of the first mortgage loan. Webb was also
                  entitled to retain a seat on the Board of Directors of the
                  Corporation and New Claridge (a right it subsequently
                  relinquished). Effective with the closing of the
                  Restructuring on June 16, 1989, all or substantially all of
                  the financial, contractual, ownership, guarantee and other
                  relationships of the Corporation and New Claridge with Webb
                  were terminated.

         b.       The Partnership has a direct material interest in the
                  Expandable Wraparound Mortgage Loan Agreement, the Operating
                  Lease and the Expansion Operating Lease together with the
                  amendments thereto as described in the preceding notes.
                  Approximately 93% of the Corporation's common stock is owned
                  by persons who also own over 90% of the limited partnership
                  interests in the Partnership.

         c.       In February 1992, the Corporation's Board of Directors
                  adopted a Long-Term Incentive Plan (the "Plan") in which
                  certain key employees of the Corporation and/or New Claridge
                  participate. The Plan provides for the grant of the 273,938
                  shares of the Corporation's Class A stock, which were held
                  as treasury shares of the Corporation, and for the issuance
                  of 100 Equity Units. The aggregate value of the 100 Equity
                  Units is equal to 5.41 percent of certain amounts as further
                  defined in the Plan. Specified portions of the awarded
                  treasury shares and Equity Units held by participants vest
                  upon the attainment of specific goals as described in the
                  Plan. The treasury shares and Equity Units fully vest upon a
                  further restructuring or a change in control as defined in
                  the Plan. Payment with respect to the Equity Units will only
                  be made (a) upon the occurrence of a transaction in which
                  substantially all of the assets and business operations of
                  the Claridge entities are transferred to one or more
                  entities in a merger, sale of assets or other
                  acquisition-type transaction, (b) upon termination of
                  employment of any participant in the Plan within one year
                  after any change in control of the Corporation occurs, as
                  defined in the Plan, or (c) if the Corporation pays
                  dividends to its stockholders, if the Partnership makes
                  distributions to its partners, or if the

                                     F-26

<PAGE>

                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


16.      RELATED PARTY TRANSACTIONS (cont'd.)

                  Corporation or the Partnership makes certain distributions
                  under the Restructuring Agreement. On April 15, 1992, the
                  Commission approved the Plan and the treasury shares were
                  delivered to the participants. Upon the issuance of the
                  Notes and the repayment in full of the Corporation's
                  outstanding debt under the Loan Agreement, 25% of the shares
                  and Equity Units awarded under the Plan vested. A
                  participant is entitled to vote all awarded treasury shares
                  whether or not vested in such shares.

                  On June 5, 1995, the Corporation's Board of Directors
                  amended the Plan by creating 100 Additional Equity Units to
                  be issued to certain key employees and 100 Director Equity
                  Units to be issued to the individual members of the Board of
                  Directors (the "Directors"). The aggregate value of the
                  Additional Equity Units is 5.59 percent and the aggregate
                  value of the Director Equity Units is 4 percent of certain
                  amounts as further defined in the Plan. Vesting of the
                  Additional Equity Units occurs if a Transaction results in
                  the Claimholders of the Claridge receiving cash or
                  marketable securities having a certain value all as further
                  defined and described in the Plan. Vesting of the Director
                  Equity Units occurs according to a vesting schedule stated
                  in the Plan and also is tied to the occurrence of a
                  Transaction having a certain value.

17.      PARENT COMPANY INFORMATION

         The Corporation owns all of the outstanding common stock of New
         Claridge, which it purchased for $5,000,000. The balance sheet
         accounts of the Corporation as of December 31, 1997 and 1996 include
         the following:
                                                   1997               1996
                                                   ----               ----
                                                       (in thousands)

         Cash                                  $    -0-                -0-
         Investment in New Claridge              87,206             87,206
         Other assets                            12,631             10,404
                                               --------            -------

                  Total assets                 $ 99,837             97,610
                                                =======            =======

         Long-term debt                        $ 85,000             85,000
         Other liabilities                       12,932             10,871
         Stockholders' equity                     1,905              1,739
                                               --------            -------

                  Total liabilities and
                   stockholders' equity        $ 99,837             97,610
                                               ========            =======

         For the years ended December 31, 1997, 1996, and 1995 the Corporation
         recorded income of $10,070,000, $9,987,500 and $15,009,000,
         respectively, representing dividends received from New Claridge to
         fund the payment of interest on the Notes; this income is eliminated
         in the consolidation with the financial statements of New Claridge.
         In addition, in 1997 the Corporation recorded interest income of
         $4,200 on a short-term investment. The Corporation's

                                     F-27

<PAGE>

                   THE CLARIDGE HOTEL AND CASINO CORPORATION
             Notes to Consolidated Financial Statements (Cont'd.)


17.      PARENT COMPANY INFORMATION (cont'd.)

         expenses for the years ended December 31, 1997, 1996 and 1995 amounted
         to $9,909,000, $8,943,000, and $6,225,000, respectively, including
         income tax benefit of $2,751,000, $1,868,000, and $4,235,000,
         respectively. These amounts represent the results of operations of the
         Corporation for the respective periods before equity in the results of
         New Claridge. For the year ended December 31, 1997, New Claridge had
         net income of $3,925,000, as compared to a net loss of $6,446,000 for
         the year ended December 31, 1996 and net income of $4,317,000 for the
         year ended December 31, 1995.

         Changes in the Corporation's financial position for the years ended
         December 31, 1997, 1996 and 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
                                                                     1997                 1996               1995
                                                                   --------             --------           ------
<S>                                                              <C>                   <C>                <C>
         Cash flows from operating activities:
              Net income (loss)                                    $    166                1,045              8,784
              Adjustments to reconcile net income
                (loss) to net  cash provided by (used in)
                operating activities:
                  Amortization                                          524                  496                468
                  Change in assets and liabilities:
                     Other assets                                    (2,751)              (2,683)            (1,466)
                     Other liabilities                                2,061                1,142             (7,788)
                                                                   --------               ------            --------

         Net cash flows used in operating activities                    -0-                  -0-                 (2)
                                                                   --------               ------            --------

         Decrease in cash and cash equivalents                          -0-                  -0-                 (2)

         Cash and cash equivalents at
            beginning of period                                         -0-                  -0-                  2
                                                                   --------               ------            --------

         Cash and cash equivalents at
            end of period                                          $    -0-                  -0-                -0-
                                                                   ========              =======            =======

         Supplemental cash flow disclosures:
           Interest paid, net of amounts capitalized               $ 10,075                8,918              8,850
                                                                   ========              =======            =======

           Income taxes paid                                       $    -0-                  -0-                -0-
                                                                   ========              =======            =======
</TABLE>

                                     F-28

<PAGE>

                                  SCHEDULE II



          THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
                       Valuation and Qualifying Accounts
                 Years Ended December 31, 1997, 1996 and 1995
                                (in thousands)
<TABLE>
<CAPTION>

                                  Balance           Charged to             Charged to                                  Balance
                                 Beginning          Costs and                Other                                    at End of
Description                      of Period           Expenses               Accounts            Deductions             Period
-----------                      ---------          ----------             ----------           ----------            ---------
<S>                              <C>                <C>                    <C>                  <C>                   <C>
Year ended
December 31, 1997


Allowance for
Uncollectible Accounts              $ 899              218                   -0-                  359 (a)                758

Year ended
December 31, 1996

Allowance for
Uncollectible Accounts             $  987              238                   -0-                  326 (a)                899

Year ended
December 31, 1995

Allowance for
Uncollectible Accounts             $1,445             (160)                  -0-                  298 (a)                987
</TABLE>



(a)   Accounts written-off.


                                     F-29

<PAGE>





                               INDEX TO EXHIBITS


Exhibit
-------

EX12(b)        Statement of Computation of Ratio of Earnings to Fixed Charges.