<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
TAJ MAHAL HOLDING CORP.
---------------------------------
(Name of the Issuer)
TRUMP HOTELS & CASINO RESORTS, INC.
-----------------------------------
TRUMP HOTELS & CASINO RESORTS HOLDINGS, L.P.
--------------------------------------------
DONALD J. TRUMP
---------------
TM/GP CORPORATION
-----------------
THCR MERGER CORP.
-----------------
TAJ MAHAL HOLDING CORP.
-----------------------
(Name of Persons Filing Statement)
Class A Common Stock,
---------------------
$0.01 par value
---------------
(Title of Class of Securities)
874049208
---------
(CUSIP Number of Class of Securities)
NICHOLAS L. RIBIS
c/o Trump Hotels & Casino Resorts, Inc.
Mississippi Avenue and The Boardwalk
Atlantic City, NJ 08401
(609) 441-6060
------------------------------------
(Name, Address and Telephone Number of Person(s) Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with
(check the appropriate box):
a. [ ] The filing of solicitation materials or an information statement
subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation
14C [17 CFR 240.14c-1 to 240.14c-101] or Rule 13e-3(c) [(S)
240.13e(c)] under the Securities Exchange Act of 1934.
b. [X] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or
information statement referred to in checking box (a) are
preliminary copies: [ ].
<PAGE>
Calculation of Filing Fee
-------------------------
Transaction Valuation: *$40,500,000
Amount of Filing Fee: $ 8,100
* For purposes of calculating filing fee only. This amount assumes the purchase
of 1,350,000 shares of Taj Mahal Holding Corp. Class A Common Stock, par value
$ .01 per share, at $30 per share. The amount of the filing fee calculated in
accordance with Rule 0-11 promulgated under the Securities Exchange Act of
1934, as amended, equals 1/50 of one percent of the value of shares to be
purchased.
[X] Check box if any part of the fee is offset as provided by Rule 0-
11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $15,188
Form or Registration No.: S-4
Filing Party: Trump Hotels & Casino Resorts, Inc.
Date Filed: January 11, 1996
<PAGE>
INTRODUCTION
------------
This Rule 13e-3 Transaction Statement (as it may be amended, the
"Statement") is being filed by Trump Hotels & Casino Resorts, Inc., a Delaware
corporation ("THCR"), Trump Hotels & Casino Resorts Holdings, L.P., a Delaware
limited partnership ("THCR Holdings"), Donald J. Trump, individually ("Trump"),
TM/GP Corporation, a New Jersey corporation ("TM/GP"), THCR Merger Corp., a
Delaware corporation ("Merger Sub") and Taj Mahal Holding Corp., a Delaware
corporation ("Taj Holding"), in connection with the proposed merger (the
"Merger") of Merger Sub with and into Taj Holding, pursuant to the Agreement and
Plan of Merger, dated as of January 8, 1996 (the "Merger Agreement"), among
THCR, Taj Holding and Merger Sub. THCR, THCR Holdings, Trump, TM/GP and Merger
Sub are each affiliates of Taj Holding and its affiliated entities.
The cross reference sheet below is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location of the information
required to be included in response to the items of this Statement in the Joint
Proxy Statement-Prospectus of THCR and Taj Holding (the "Proxy Statement-
Prospectus") which forms a part of the Registration Statement on Form S-4 (the
"Registration Statement"), filed concurrently herewith with the Securities and
Exchange Commission (the "SEC") in connection with the Merger. The information
in the Proxy Statement-Prospectus including all annexes thereto, a copy of which
is attached hereto as Exhibit (17)(d), is hereby expressly incorporated herein
by reference and the responses to each item are qualified in their entirety by
the provisions of the Proxy Statement-Prospectus and such annexes. A copy of the
Merger Agreement is included as Annex A to the Proxy Statement-Prospectus.
Capitalized terms used but not defined herein shall have the respective meanings
ascribed to them in the Proxy Statement-Prospectus.
<PAGE>
CROSS REFERENCE SHEET
---------------------
Item in Schedule 13E-3 Caption in Proxy Statement-Prospectus
- ---------------------- -------------------------------------
Item 1(a) Cover Page; SUMMARY - Corporate and Financial
Structure and Organization
Item 1(b) Cover Page; THE TAJ HOLDING SPECIAL MEETING;
MARKET PRICE AND DIVIDEND DATA - Taj Holding
Item 1(c)-(d) MARKET PRICE AND DIVIDEND DATA - Taj Holding
Item 1(e) Not Applicable
Item 1(f) Not Applicable
Item 2(a)-(d), (g) Cover Page; Available Information; SUMMARY;
BUSINESS OF THCR; BUSINESS OF TAJ HOLDING;
MANAGEMENT OF THCR; MANAGEMENT OF TAJ
HOLDING
Item 2(e)-(f) Not Applicable
Item 3(a)(1) CERTAIN TRANSACTIONS
Item 3(a)(2) SPECIAL FACTORS -
Background of the Merger Transaction;
THE MERGER AGREEMENT
Item 3(b) SPECIAL FACTORS -
Background of the Merger Transaction; SPECIAL
FACTORS - Related Merger Transactions
Item 4(a)-(b) SUMMARY; SPECIAL FACTORS - Background of the
Merger Transaction; SPECIAL FACTORS - Purpose
and Structure of the Merger Transaction;
SPECIAL FACTORS - Related Merger Transactions;
SPECIAL FACTORS - Interests of Certain Persons
in the Merger Transaction; THE MERGER
AGREEMENT; ANNEX A
Item 5(a)-(g) SUMMARY - The Merger Agreement; SPECIAL
FACTORS - Certain Effects
<PAGE>
Item in Schedule 13E-3 Caption in Proxy Statement-Prospectus
- ---------------------- -------------------------------------
of the Merger Transaction; Operations of Taj
Associates After the Merger Transaction; THE
MERGER AGREEMENT; MANAGEMENT OF TAJ
HOLDING - General
Item 6(a) SPECIAL FACTORS - Related Merger
Transactions; SPECIAL FACTORS - Sources and
Uses of Funds in the Merger Transaction
Item 6(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION;
THE TAJ HOLDING SPECIAL MEETING -
Solicitation of Proxies
Item 6(c) RISK FACTORS - Holding Company Structure;
Risk in Refinancing and Repayment of
Indebtedness; Need for Additional
Financing; SPECIAL FACTORS - Related Merger
Transactions
Item 6(d) Not Applicable
Item 7(a)-(c) SUMMARY - General; SPECIAL FACTORS -
Background of the Merger Transaction;
SPECIAL FACTORS - Recommendations of the
Board of Directors; Reasons for the Merger
Transaction; Fairness of the Merger
Transaction; SPECIAL FACTORS - Purpose and
Structure of the Merger Transaction
Item 7(d) SUMMARY; RISK FACTORS; SPECIAL FACTORS;
<PAGE>
Item in Schedule 13E-3 Caption in Proxy Statement-Prospectus
- ---------------------- -------------------------------------
COMPARISON OF STOCKHOLDER RIGHTS; CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS; SPECIAL
TAX CONSIDERATIONS FOR FOREIGN SHAREHOLDERS
Item 8(a) SPECIAL FACTORS - Recommendations of the
Board of Directors; Reasons for the Merger
Transaction; Fairness of the Merger
Transaction
Item 8(b) SPECIAL FACTORS - Recommendations of the
Board of Directors; Reasons for the Merger
Transaction; Fairness of the Merger
Transaction; SPECIAL FACTORS - Opinions of
the Financial Advisors; ANNEX C
Item 8(c) SUMMARY - The Special Meetings - Votes
Required; Record Date; SPECIAL FACTORS -
Recommendations of the Board of Directors;
Reasons for the Merger Transaction; Fairness
of the Merger Transaction; THE TAJ HOLDING
SPECIAL MEETING - Required Vote
Item 8(d) SPECIAL FACTORS - Background of the Merger
Transaction; SPECIAL FACTORS -
Recommendations of the Board of Directors;
Reasons for the Merger Transaction; Fairness
of the Merger Transaction
Item 8(e) SUMMARY - Recommendations of the Boards of
Directors; SPECIAL FACTORS - Background of
the Merger Transaction; SPECIAL FACTORS -
Recommendations of the Board of Directors;
Reasons for the Merger Transaction; Fairness
of the Merger Transaction
<PAGE>
Item in Schedule 13E-3 Caption in Proxy Statement-Prospectus
- ---------------------- -------------------------------------
Item 8(f) Not Applicable
Item 9(a)-(c) SUMMARY - Opinions of Financial Advisors;
SPECIAL FACTORS - Background of the Merger
Transaction; SPECIAL FACTORS -
Recommendations of the Board of Directors;
Reasons for the Merger Transaction; Fairness
of the Merger Transaction; SPECIAL FACTORS -
Opinions of the Financial Advisors
Item 10(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF TAJ HOLDING
Item 10(b) Not Applicable
Item 11 SUMMARY; SPECIAL FACTORS - Background of the
Merger Transaction; SPECIAL FACTORS -
Related Merger Transactions; SPECIAL
FACTORS - Interests of Certain Persons in
the Merger Transaction; THE TAJ HOLDING
SPECIAL MEETING - Required Vote; THE MERGER
AGREEMENT; BUSINESS OF TAJ HOLDING - Certain
Indebtedness; ANNEX A
Item 12(a) SUMMARY - The Special Meetings; THE TAJ
HOLDING SPECIAL MEETING - Required Vote
Item 12(b) SUMMARY - Recommendations of the Boards of
Directors; SPECIAL FACTORS - Recommendations
of the Board of Directors; Reasons for the
Merger Transaction; Fairness of the Merger
Transaction
<PAGE>
Item in Schedule 13E-3 Caption in Proxy Statement-Prospectus
- ---------------------- -------------------------------------
Item 13 (a) SUMMARY - Dissenting Stockholders' Rights of
Appraisal; DISSENTING STOCKHOLDERS' RIGHTS
OF APPRAISAL
Item 13(b) - (c) Not Applicable
Item 14(a) SUMMARY - Summary Financial Information of
Taj Holding; UNAUDITED PRO FORMA FINANCIAL
INFORMATION; SELECTED HISTORICAL FINANCIAL
INFORMATION OF TAJ ASSOCIATES; TAJ HOLDING'S
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO
Item 14(b) SUMMARY - Summary Financial Information of
Taj Holding; UNAUDITED PRO FORMA FINANCIAL
INFORMATION; SELECTED HISTORICAL FINANCIAL
INFORMATION OF TAJ ASSOCIATES
Item 15(a) - (b) SUMMARY - Recommendations of the Boards of
Directors; SUMMARY - Opinions of Financial
Advisors; SPECIAL FACTORS - Recommendations
of the Board of Directors; Reasons for the
Merger Transaction; Fairness of the Merger
Transaction; SPECIAL FACTORS - Opinions of
the Financial Advisors; SPECIAL FACTORS -
Certain Effects of the Merger Transaction;
Operations of Taj Associates After the
Merger Transaction; THE THCR SPECIAL
MEETING - Solicitation of Proxies; THE TAJ
HOLDING SPECIAL MEETING - Solicitation of
Proxies
Item 16 The information set forth in the
Proxy Statement-Prospectus is incorporated
herein by reference
Item 17(a) *Indenture, by and between Trump Taj Mahal
Funding, Inc., as issuer, Trump Taj Mahal
Associates, as guarantor and First Bank
National Association, as Trustee, in
connection with the issuance of $750,000,000
aggregate principal amount of Notes, due
20__
Item 17(b)(1) Opinion of Rothschild, Inc., dated January
8, 1996 (incorporated herein by reference to
Annex C to the Proxy Statement-Prospectus
included in Exhibit 17(d)
hereto)
Item 17(b)(2) Report by Rothschild, Inc. to the
- ---------------
* To be filed by amendment.
<PAGE>
Item in Schedule 13E-3 Caption in Proxy Statement-Prospectus
- ---------------------- -------------------------------------
Board of Directors of Trump Taj Mahal
Holding Corp., dated January 8, 1996
Item 17(b)(3) Opinion of Donaldson, Lufkin & Jenrette
Securities Corporation, dated January 8,
1996 (incorporated herein by reference to
Annex B to the Proxy Statement-Prospectus
included in Exhibit 17(d) hereto)
Item 17(b)(4) Report by Donaldson, Lufkin & Jenrette
Securities Corporation to the Board of
Directors of Trump Hotels & Casino Resorts,
Inc., dated January 4, 1996
Item 17(b)(5) Appraisal of the Trump Taj Mahal Casino
Resort, dated March 18, 1994, by Appraisal
Group International
Item 17(b)(6) Appraisal of the Specified Parcels, dated
December 21, 1995, by Appraisal Group
International
Item 17(c)(1) Agreement and Plan of Merger, dated as of
January 8, 1996, among Trump Hotels & Casino
Resorts, Inc., Taj Mahal Holding Corp. and
THCR Merger Corp. (incorporated herein by
reference to Annex A to the Proxy
Statement-Prospectus included in Exhibit
17(d) hereto)
Item 17(c)(2) Agreement, dated October 6, 1995, by and
among Hamilton Partners, L.P., Prudential
Securities, Inc., Putnam Investment
Management, Inc., Grace Brothers Ltd., SC
Fundamental Value Fund, L.P. and SC
Fundamental Value BVI Ltd. and Trump Taj
Mahal Associates, Trump Taj Mahal Funding,
Inc. and Trump Taj Mahal Holding Corp.
Item 17(c)(3) Letter of Donald J. Trump to Taj Mahal
Holding Corp., dated January 8, 1996
Item 17(d) Joint Proxy Statement - Prospectus of Trump
Hotels & Casino Resorts,
<PAGE>
Item in Schedule 13E-3 Caption in Proxy Statement-Prospectus
- ---------------------- -------------------------------------
Inc. and Taj Mahal Holding Corp., Subject to
Completion, dated January 11, 1996 (included
in the Registration Statement on Form S-4,
filed by Trump Hotels & Casino Resorts, Inc.
with the Securities and Exchange Commission
on January 11, 1996)
Item 17(e) Section 262 of the Delaware General
Corporation Law (incorporated herein by
reference to Annex D to the Proxy Statement-
Prospectus included in Exhibit 17(d) hereto)
Item 17(f) Not Applicable
<PAGE>
ITEM 1. Issuer and Class of Security Subject to the Transaction.
- -----------------------------------------------------------------------
(a) The information set forth in "Cover Page," and "SUMMARY -
Corporate and Financial Structure and Organization" in the Proxy
Statement-Prospectus is incorporated herein by reference.
(b) The information set forth in "Cover Page," "THE TAJ HOLDING
SPECIAL MEETING" and "MARKET PRICE AND DIVIDEND DATA - Taj
Holding" in the Proxy Statement-Prospectus is incorporated herein
by reference.
(c) - (d) The information set forth in "MARKET PRICE AND DIVIDEND DATA -
Taj Holding" in the Proxy Statement-Prospectus is incorporated
herein by reference.
(e) Not applicable.
(f) Not applicable.
ITEM 2. Identity and Background.
- ---------------------------------------
(a) - (d), (g) The information set forth in "Cover Page," "Available
Information," "SUMMARY," "BUSINESS OF THCR," "BUSINESS OF TAJ
HOLDING," "MANAGEMENT OF THCR" and "MANAGEMENT OF TAJ HOLDING" in
the Proxy Statement-Prospectus is incorporated herein by
reference.
(e) and (f) None of THCR, Trump, Merger Sub, TM/GP or Taj Holding or, to the
best of their knowledge, no executive officer, director or
controlling person of THCR, Merger Sub, TM/GP or Taj Holding (i)
has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii) has been a party to a
civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or
is subject to a judgment, decree or final order
<PAGE>
enjoining further violations of, or prohibiting activities
subject to, federal or state securities laws or finding any
violation with respect to such laws.
ITEM 3. Past Contacts, Transactions or Negotiations.
- -----------------------------------------------------------
(a)(1) The information set forth in "CERTAIN TRANSACTIONS" in the
Proxy Statement-Prospectus is incorporated herein by reference.
(a)(2) The information set forth in "SPECIAL FACTORS - Background of the
Merger Transaction" and "THE MERGER AGREEMENT" in the
Proxy Statement-Prospectus is incorporated herein by reference.
(b) The information set forth in "SPECIAL FACTORS - Background of the
Merger Transaction" and "SPECIAL FACTORS - Related Merger
Transactions" in the Proxy Statement-Prospectus is incorporated
herein by reference.
ITEM 4. Terms of the Transaction.
- ----------------------------------------
(a)-(b) The information set forth in "SUMMARY," "SPECIAL FACTORS -
Background of the Merger Transaction," "SPECIAL FACTORS - Purpose
and Structure of the Merger Transaction," "SPECIAL FACTORS -
Related Merger Transactions," "SPECIAL FACTORS -Interests of
Certain Persons in the Merger Transaction," "THE MERGER
AGREEMENT," and ANNEX A in the Proxy Statement-Prospectus is
incorporated herein by reference.
ITEM 5. Plans or Proposals of the Issuer or Affiliate.
- -------------------------------------------------------------
(a) - (g) The information set forth in "SUMMARY - The Merger Agreement,"
"SPECIAL FACTORS - Certain Effects of the Merger Transaction;
Operations of Taj Associates After the Merger Transaction," "THE
MERGER AGREEMENT" and "MANAGEMENT OF TAJ HOLDING - General" in
the Proxy Statement-Prospectus is incorporated herein by
reference.
<PAGE>
ITEM 6. Source and Amounts of Funds or Other Consideration.
- ------------------------------------------------------------------
(a) The information set forth in "SPECIAL FACTORS - Related Merger
Transactions" and "SPECIAL FACTORS - Sources and Uses of Funds in
the Merger Transaction" in the Proxy Statement-Prospectus is
incorporated herein by reference.
(b) The information set forth in "UNAUDITED PRO FORMA FINANCIAL
INFORMATION" and "THE TAJ HOLDING SPECIAL MEETING - Solicitation
of Proxies" in the Proxy Statement-Prospectus is incorporated
herein by reference.
(c) The information set forth in "RISK FACTORS - Holding Company
Structure; Risk in Refinancing and Repayment of Indebtedness;
Need for Additional Financing" and "SPECIAL FACTORS - Related
Merger Transactions" in the Proxy Statement-Prospectus is
incorporated herein by reference.
(d) Not applicable.
ITEM 7. Purpose(s), Alternatives, Reasons and Effects.
- -------------------------------------------------------------
(a) - (c) The information set forth in "SUMMARY - General," "SPECIAL
FACTORS - Background of the Merger Transaction," "SPECIAL
FACTORS - Recommendations of the Board of Directors; Reasons for
the Merger Transaction; Fairness of the Merger Transaction" and
"SPECIAL FACTORS - Purpose and Structure of the Merger
Transaction" in the Proxy Statement-Prospectus is incorporated
herein by reference.
(d) The information set forth in "SUMMARY," "RISK FACTORS," "SPECIAL
FACTORS,"
<PAGE>
"COMPARISON OF STOCKHOLDER RIGHTS," "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS" and "SPECIAL TAX CONSIDERATIONS FOR FOREIGN
SHAREHOLDERS" in the Proxy Statement-Prospectus is incorporated
herein by reference.
ITEM 8. Fairness of the Transaction.
- -------------------------------------------
(a) The information set forth in "SPECIAL FACTORS - Recommendations
of the Board of Directors; Reasons for the Merger Transaction;
Fairness of the Merger Transaction" in the Proxy Statement-
Prospectus is incorporated herein by reference.
(b) The information set forth in "SPECIAL FACTORS - Recommendations
of the Board of Directors; Reasons for the Merger Transaction;
Fairness of the Merger Transaction," "SPECIAL FACTORS - Opinions
of the Financial Advisors" and ANNEX C in the Proxy Statement-
Prospectus is incorporated herein by reference.
(c) The information set forth in "SUMMARY - The Special Meetings -
Votes Required; Record Date," "SPECIAL FACTORS - Recommendations
of the Board of Directors; Reasons for the Merger Transaction;
Fairness of the Merger Transaction" and "THE TAJ HOLDING SPECIAL
MEETING - Required Vote" in the Proxy Statement-Prospectus is
incorporated herein by reference.
(d) The information set forth in "SPECIAL FACTORS - Background of the
Merger Transaction" and "SPECIAL FACTORS - Recommendations of the
Board of Directors; Reasons for the Merger Transaction; Fairness
of the Merger Transaction" in the
<PAGE>
Proxy Statement-Prospectus is incorporated herein by reference.
(e) The information set forth in "SUMMARY - Recommendations of the
Boards of Directors," "SPECIAL FACTORS - Background of the Merger
Transaction" and "SPECIAL FACTORS - Recommendations of the Board
of Directors; Reasons for the Merger Transaction; Fairness of the
Merger Transaction" in the Proxy Statement-Prospectus is
incorporated herein by reference.
(f) Not Applicable.
ITEM 9. Reports, Opinions, Appraisals and Certain Negotiations.
- ----------------------------------------------------------------------
(a) - (c) The information set forth in "SUMMARY - Opinions of Financial
Advisors," "SPECIAL FACTORS - Background of the Merger
Transaction," "SPECIAL FACTORS - Recommendations of the Board of
Directors; Reasons for the Merger Transaction; Fairness of the
Merger Transaction" and "SPECIAL FACTORS - Opinions of the
Financial Advisors" in the Proxy Statement-Prospectus is
incorporated herein by reference.
ITEM 10. Interest in Securities of the Issuer.
- ----------------------------------------------------
(a) The information set forth in "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF TAJ HOLDING" in the Proxy
Statement-Prospectus is incorporated herein by reference.
(b) Not applicable.
ITEM 11. Contracts, Arrangements or Understandings with
Respect to the Issuer's Securities.
- -------------------------------------------------------------
<PAGE>
The information set forth in "SUMMARY," "SPECIAL FACTORS -
Background of the Merger Transaction," "SPECIAL FACTORS -
Related Merger Transactions," "SPECIAL FACTORS - Interests of
Certain Persons in the Merger Transaction," "THE TAJ HOLDING
SPECIAL MEETING - Required Vote," "THE MERGER AGREEMENT,"
"BUSINESS OF TAJ HOLDING - Certain Indebtedness" and ANNEX A in
the Proxy Statement-Prospectus is incorporated herein by
reference.
ITEM 12. Present Intention and Recommendation of Certain
Persons with Regard to the Transaction.
- --------------------------------------------------------------
(a) The information set forth in "SUMMARY - The Special Meetings" and
"THE TAJ HOLDING SPECIAL MEETING - Required Vote" in the
Proxy Statement-Prospectus is incorporated herein by reference.
(b) The information set forth in "SUMMARY - Recommendations of the
Boards of Directors" and "SPECIAL FACTORS - Recommendations of
the Board of Directors; Reasons for the Merger Transaction;
Fairness of the Merger Transaction" in the Proxy
Statement-Prospectus is incorporated herein by reference.
ITEM 13. Other Provisions of the Transaction.
- ---------------------------------------------------
(a) The information set forth in "SUMMARY - Dissenting Stockholders'
Rights of Appraisal" and "DISSENTING STOCKHOLDERS' RIGHTS OF
APPRAISAL" in the Proxy Statement-Prospectus is incorporated
herein by reference.
(b) - (c) Not applicable.
<PAGE>
ITEM 14. Financial Information.
- -------------------------------------
(a) The information set forth in "SUMMARY - Summary Financial
Information of Taj Holding," "UNAUDITED PRO FORMA FINANCIAL
INFORMATION," "SELECTED HISTORICAL FINANCIAL INFORMATION OF TAJ
ASSOCIATES" and "TAJ HOLDING'S CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO" in the Proxy Statement-Prospectus is
incorporated herein by reference.
(b) The information set forth in "SUMMARY - Summary Financial
Information of Taj Holding," "UNAUDITED PRO FORMA FINANCIAL
INFORMATION" and "SELECTED HISTORICAL FINANCIAL INFORMATION OF
TAJ ASSOCIATES" in the Proxy Statement-Prospectus is incorporated
herein by reference.
ITEM 15. Persons and Assets Employed, Retained or Utilized.
- -----------------------------------------------------------------
(a) - (b) The information set forth in "SUMMARY - Recommendations of the
Boards of Directors," "SUMMARY - Opinions of Financial Advisors,"
"SPECIAL FACTORS - Recommendations of the Board of Directors;
Reasons for the Merger Transaction; Fairness of the Merger
Transaction," "SPECIAL FACTORS - Opinions of the Financial
Advisors," "SPECIAL FACTORS - Certain Effects of the Merger
Transaction; Operations of Taj Associates After the Merger
Transaction," "THE THCR SPECIAL MEETING - Solicitation of
Proxies" and "THE TAJ HOLDING SPECIAL MEETING - Solicitation
of Proxies" in the Proxy Statement-Prospectus is incorporated
herein by reference.
ITEM 16. Additional Information.
- --------------------------------------
The information set forth in the Proxy Statement-Prospectus is
incorporated herein by reference.
ITEM 17. Material to be Filed as Exhibits.
- ------------------------------------------------
(a) *Indenture, by and between Trump Taj Mahal Funding, Inc., as
issuer, Trump Taj Mahal Associates, as guarantor and First Bank
National Association, as Trustee, in connection with the issuance
of $750,000,000 aggregate principal amount of Notes, due 20__.
(b)(1) Opinion of Rothschild, Inc., dated January 8, 1996 (incorporated
herein by reference to Annex C to the Proxy Statement-Prospectus
included in Exhibit 17(d) hereto).
- ---------------
*To be filed by amendment.
<PAGE>
(b)(2) Report by Rothschild, Inc. to the Board of Directors of Trump Taj
Mahal Holding Corp., dated January 8, 1996.
(b)(3) Opinion of Donaldson, Lufkin & Jenrette Securities Corporation,
dated January 8, 1996 (incorporated herein by reference to Annex
B to the Proxy Statement-Prospectus included in Exhibit 17(d)
hereto).
(b)(4) Report by Donaldson, Lufkin & Jenrette Securities Corporation to
the Board of Directors of Trump Hotels & Casino Resorts, Inc.,
dated January 4, 1996.
(b)(5) Appraisal of the Trump Taj Mahal Casino Resort, dated March 18,
1994, by Appraisal Group International.
(b)(6) Appraisal of the Specified Parcels, dated December 21, 1995, by
Appraisal Group International.
(c)(1) Agreement and Plan of Merger, dated as of January 8, 1996, among
Trump Hotels & Casino Resorts, Inc., Taj Mahal Holding Corp. and
THCR Merger Corp. (incorporated herein by reference to Annex A to
the Proxy Statement-Prospectus included in Exhibit 17(d) hereto).
(c)(2) Agreement, dated October 6, 1995, by and among Hamilton Partners,
L.P., Prudential Securities, Inc., Putnam Investment Management,
Inc., Grace Brothers Ltd., SC Fundamental Value Fund, L.P. and SC
Fundamental Value BVI Ltd. and Trump Taj Mahal Associates, Trump
Taj Mahal Funding, Inc. and Trump Taj Mahal Holding Corp.
(c)(3) Letter of Donald J. Trump to Taj Mahal Holding Corp., dated
January 8, 1996.
(d) Joint Proxy Statement - Prospectus of Trump Hotels & Casino
Resorts, Inc. and Taj Mahal Holding Corp., Subject to Completion,
dated January 11, 1996 (included in the Registration Statement on
Form S-4, filed by Trump Hotels & Casino Resorts, Inc. with the
Securities and Exchange Commission on January 11, 1996).
<PAGE>
(e) Section 262 of the Delaware General Corporation Law
(incorporated herein by reference to Annex D to the Proxy
Statement-Prospectus included in Exhibit 17(d) hereto).
(f) Not Applicable.
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: January 11, 1996
TRUMP HOTELS & CASINO RESORTS, INC.
By: /s/ Nicholas L. Ribis
------------------------------------------------
Name: Nicholas L. Ribis
Title: President, Chief Executive Officer and
Chief Financial Officer
TRUMP HOTELS & CASINO RESORTS HOLDINGS, L.P.
By: Trump Hotels & Casino Resorts, Inc.,
its general partner
By: /s/ Nicholas L. Ribis
------------------------------------------------
Name: Nicholas L. Ribis
Title: President, Chief Executive Officer and
Chief Financial Officer
THCR MERGER CORP.
By: /s/ Nicholas L. Ribis
------------------------------------------------
Name: Nicholas L. Ribis
Title: President, Chief Executive Officer and Treasurer
/s/ Donald J. Trump
------------------------------------------------
Donald J. Trump, Individually
TM/GP CORPORATION
By: /s/ Nicholas F. Moles
------------------------------------------------
Name: Nicholas F. Moles
Title: Secretary
TAJ MAHAL HOLDING CORP.
By: /s/ Nicholas F. Moles
------------------------------------------------
Name: Nicholas F. Moles
Title: Secretary
<PAGE>
Exhibit Index
Exhibit 17(b)(2) Report by Rothschild, Inc. to the
Board of Directors of Trump Taj Mahal
Holding Corp., dated January 8, 1996
Exhibit 17(b)(4) Report by Donaldson, Lufkin & Jenrette
Securities Corporation to the Board of
Directors of Trump Hotels & Casino Resorts,
Inc., dated January 4, 1996
Exhibit 17(b)(5) Appraisal of the Trump Taj Mahal Casino
Resort, dated March 18, 1994, by Appraisal
Group International
Exhibit 17(b)(6) Appraisal of the Specified Parcels, dated
December 21, 1995, by Appraisal Group
International
Exhibit 17(c)(2) Agreement, dated October 6, 1995, by and
among Hamilton Partners, L.P., Prudential
Securities, Inc., Putnam Investment
Management, Inc., Grace Brothers Ltd., SC
Fundamental Value Fund, L.P. and SC
Fundamental Value BVI Ltd. and Trump Taj
Mahal Associates, Trump Taj Mahal Funding,
Inc. and Trump Taj Mahal Holding Corp.
Exhibit 17(c)(3) Letter of Donald J. Trump to Taj Mahal
Holding Corp., dated January 8, 1996
Exhibit 17(d) Joint Proxy Statement - Prospectus of Trump
Hotels & Casino Resorts, Inc. and Taj Mahal
Holding Corp., Subject to Completion, dated
January 11, 1996 (included in the Registration
Statement on Form S-4, filed by Trump Hotels &
Casino Resorts, Inc. with the Securities and
Exchange Commission on January 11, 1996)
<PAGE>
EXHIBIT 17(B)(2)
[LOGO] [LOGO]
TRUMP
TAJ MAHAL
CASINO - RESORT (TM)
- --------------------------------------------------------------------------------
DISCUSSION MATERIALS
FOR
THE BOARD OF DIRECTORS
OF
TAJ MAHAL HOLDING CORP.
Confidential
The information contained herein has been prepared and compiled from publicly
available sources, Trump Hotels & Casino Rsorts, Inc., and Taj Mahal Holding
Corp. and is intended exclusively for discussion purposes. Neither Rothschild
Inc. nor any of its officers, directors, employees, affiates or agents makes any
representation or warranty as to the accuracy or completeness of any materials
contained herein.
January 8, 1996
- --------------------------------------------------------------------------------
ROTHSCHILD INC.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Table of Contents
- --------------------------------------------------------------------------------
Section 1 Transaction Summary
. Transaction Value
. Valuation Matrix
. Capitalization Summary
. Sources and Uses
. Dilution Analysis
Section 2 Transaction Considerations
Section 3 Market Considerations
Section 4 Gem Business Considerations
Section 5 Valuation Analysis
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Table of Contents
- --------------------------------------------------------------------------------
Exhibits
--------
A Market Capitalization Analysis
B Discounted Cash Flow Analysis
C Comparable Transaction Analysis
D Estimated Valuation of Realty Corp.'s
Specified Parcels and Lease
E Valuation of THCR Warrant
F Management Financial Projections - Base Case
G Management Financial Projections - Expansion Case
H Adjusted Management Financial Projections - Base Case
I Merger Transaction Summary
J Gem Excess Cash Analysis
K Market Multiple Analysis I
L Market Multiple Analysis II
M Analysis of Selected Comparable Acquisitions
N Cost of Capital Analysis
O Atlantic City Casino Stock Index
THCR Price/Volume Run
Price/Volume Run of Gem's 11.35% Mortgage Bonds
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Transaction Summary
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Merger of Gem into THCR ("Merger Transaction").
. Gem's Class A shareholders receive $30.00 per share in cash or in THCR shares.
. At a $21.75 THCR share price (1/5/96 market close), exchange ratio of 1.38
shares per Class A share.
. Donald Trump ("DJT") receives:
. Restricted shares which when valued at the full trading price of
unrestricted stock would equate to $30.00 per share in THCR shares and,
. Master warrant to purchase 1.8 million shares in THCR. This warrant will
not be transferable and will entitle DJT to purchase 600,000 shares at
$30.00 per share for 3 years, another 600,000 shares at $35.00 per share
for 4 years, and a third 600,000 shares at $40.00 per share for 5 years.
The warrant will be acquired "for investment" and DJT's registration
rights will be limited to the underlying shares of the common.
- Based on a $100.0 Equity Offering (at an assumed price of $21.75 per
share) and a Debt Offering of $750.0, and assuming the exercise of the
warrant, proforma ownership approximately 38%.
-1-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Transaction Summary
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Gem's Class B shareholders receive $0.50 per share in cash.
. Gem's First Mortgage Bonds redeemed at par plus accrued interest.
. NatWest Debt assumed by New Gem.
. First Fidelity receives $50.0 in cash and $10.0 in THCR shares in
consideration for the release of guarantee and the purchase of the Realty
Corp.'s specified parcels.
. Banker's Trust receives $10.0 in cash in consideration for its consent to the
Merger Transaction and release of its liens on (i) DJT's direct and indirect
equity investments in TTMA and, (ii) the TTMI note.
-2-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Transaction Value Analysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
Equity
Purchase of Class A, B, C Shares $81.4
======
Redemption of Debt and Other Obligations $853.7
Assumption of Debt 45.5
THCR Equity to First Fidelity 10.0
Transaction Expenses 40.0
Less: Excess Cash (71.5)
Total Transaction Value $959.1
======
Transaction Value as a multiple of:
----------------------------------------------------------
1995E Proforma EBITDA 141.3 (1) 6.79 x
1996F Proforma EBITDA 161.4 (1) 5.94
1995E Proforma EBIT $97.4 (1) 9.85 x
1996F Proforma EBIT $107.1 (1) 8.95
- ---------------
(1) Addback of Realty rent, Gem Services Agreement Fee and CRDA write down.
-3-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Valuation Matrix
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Transaction Value as a Multiple of:
-----------------------------------------------
Class A Class B Class C (a) (b)
Stock Stock Stock Offer Transaction LTM 1995E 1996F 1995E 1995E
Price Price Price Value Value EBITDA EBITDA EBITDA EBIT Revenues
------- ------- ------- ----- ---------- ------ ------ ------ ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$25.000 $0.500 $25.000 $67.9 $945.6 6.45 x 6.69 x 5.86 x 9.71 x 1.70 x
25.500 0.500 25.500 69.2 946.9 6.45 6.70 5.87 9.72 1.70
26.000 0.500 26.000 70.6 948.3 6.46 6.71 5.88 9.73 1.71
26.500 0.500 26.500 71.9 949.6 6.47 6.72 5.88 9.75 1.71
27.000 0.500 27.000 73.3 951.0 6.48 6.73 5.89 9.76 1.71
27.500 0.500 27.500 74.6 952.3 6.49 6.74 5.90 9.78 1.71
28.000 0.500 28.000 76.0 953.7 6.50 6.75 5.91 9.79 1.72
28.500 0.500 28.500 77.3 955.0 6.51 6.76 5.92 9.80 1.72
29.000 0.500 29.000 78.7 956.4 6.52 6.77 5.93 9.82 1.72
29.500 0.500 29.500 80.0 957.7 6.53 6.78 5.93 9.83 1.72
30.000 0.500 30.000 81.4 959.1 6.54 6.79 5.94 9.85 1.73
30.500 0.500 30.500 82.7 960.4 6.55 6.80 5.95 9.86 1.73
31.000 0.500 31.000 84.1 961.8 6.56 6.81 5.96 9.87 1.73
31.500 0.500 31.500 85.4 963.1 6.56 6.82 5.97 9.89 1.73
32.000 0.500 32.000 86.8 964.5 6.57 6.83 5.98 9.90 1.74
32.500 0.500 32.500 88.1 965.8 6.58 6.84 5.98 9.92 1.74
33.000 0.500 33.000 89.5 967.2 6.59 6.84 5.99 9.93 1.74
33.500 0.500 33.500 90.8 968.5 6.60 6.85 6.00 9.94 1.74
34.000 0.500 34.000 92.2 969.9 6.61 6.86 6.01 9.96 1.74
34.500 0.500 34.500 93.5 971.2 6.62 6.87 6.02 9.97 1.75
35.000 0.500 35.000 94.9 972.6 6.63 6.88 6.03 9.98 1.75
Gem's Proforma Results $146.7 $141.3 $161.4 $97.4 $555.9
</TABLE>
- ---------------
(a) After deducting proceeds from the exercise of options and warrants, if
applicable.
(b) Offer value + Net Debt and Other Consideration; includes estimated
transaction expenses.
-4-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Capitalization Summary
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
Scenario: Class A Share Purchase
<TABLE>
<CAPTION>
As of March 31, 1996
----------------------------------------------------
Proforma Proforma % of
THCR Gem Adjust. As Adjust. Capital.
------ ------ -------- --------- -------
<S> <C> <C> <C> <C> <C>
Excess Cash $8.5 $82.9 ($71.5) $19.9 -
Restricted Cash 5.5 25.0 30.5 -
------ ------ ------ --------
Total $14.0 $107.9 ($71.5) $50.4
====== ====== ====== ========
Debt
THCR 10.875% Mtg Bonds $330.0 $330.0 21.4%
THCR 15.500% Snr Sec Nts 155.0 155.0 10.1%
THCR Cap Lease & Other 45.2 45.2 2.9%
Gem 11.350% Mtg Bonds 793.7 (793.7) 0.0 0.0%
Gem NatWest Loan 45.5 0.0 45.5 3.0%
Gem New Mtg Bonds 0.0 750.0 750.0 48.7%
------ ------ ------ -------- -----
Total $530.2 $839.2 ($43.7) $1,325.7 86.0%
====== ====== ====== ======== =====
Shareholders' Equity $47.0 $29.0 $139.1 $215.1 14.0%
------ ------ ------ -------- -----
Total Capitalization $577.2 $868.2 $95.4 $1,540.8 100.0%
====== ====== ====== ======== =====
</TABLE>
-5-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Sources and Uses Summary
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sources Uses
---------------------------------- --------------------------------------------
<S> <C> <C> <C>
Cash on hand $71.5 Payment to First Fidelity $50.0
New Mortgage Bonds 750.0 Payment to Bankers Trust 10.0
New Common 191.0 (1) Redeem Mtg Bonds 793.7
Redeem NatWest Loan 0.0
Purchase/Exchange A & C shares 81.0
Purchase B shares 0.4
THCR Equity to First Fidelity 10.0
Accrued Interest 27.4
Transaction Expenses 40.0
------- -------
1,012.5 1,012.5
======= =======
</TABLE>
(1) Assumes $100.0 million of new equity is sold to the public.
-6-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
FY 1996 AND FY 1997 Pro Forma Accretion / (Dilution) Analysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
Scenario: Class A Share Purchase
<TABLE>
<CAPTION>
THCR
Standalone FY 1996 FY 1997
------- -------
<S> <C> <C>
Adjusted EPS $1.87 $2.90
</TABLE>
<TABLE>
<CAPTION>
1996 1997
------------------------------------------- -----------------------------------------
Pro Forma EPS (1) THCR Price per Share THCR Price per Share
----------------- Offer ------------------------------------------- -----------------------------------------
Value $21.750 $22.500 $25.000 $27.500 $30.000 $21.750 $22.500 $25.000 $27.500 $30.000
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$25.000 $1.45 $1.47 $1.52 $1.56 $1.60 $2.84 $2.87 $2.96 $3.04 $3.12
$30.000 1.41 1.43 1.48 1.52 1.56 $2.76 $2.79 $2.89 $2.97 $3.05
$35.000 1.37 1.38 1.44 1.48 1.52 $2.69 $2.72 $2.82 $2.90 $2.98
$ Accretion / (Dilution) Offer
------------------------ Value
-------
$25.000 ($0.41) ($0.40) ($0.35) ($0.31) ($0.27) ($0.06) ($0.03) $0.06 $0.14 $0.22
$30.000 (0.46) (0.44) (0.39) (0.35) (0.31) ($0.14) ($0.11) ($0.01) $0.07 $0.15
$35.000 (0.50) (0.48) (0.43) (0.39) (0.35) ($0.21) ($0.18) ($0.08) $0.00 $0.08
% Accretion / (Dilution) Offer
------------------------ Value
-------
$25.000 -22.22% -21.36% -18.77% -16.51% -14.53% -2.23% -1.16% 2.11% 4.94% 7.42%
$30.000 -24.52% -23.65% -21.00% -18.69% -16.66% -4.87% -3.77% -0.43% 2.48% 5.04%
$35.000 -26.72% -25.83% -23.14% -20.78% -18.70% -7.38% -6.26% -2.85% 0.13% 2.76%
</TABLE>
- ---------------
(1) Excludes the exercise of the THCR warrant.
-7-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Transaction Considerations
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Creates a multi-property gaming enterprise with a dominant presence in
Atlantic City.
. Eliminates DJT's potential conflict of interest among two of his largest
properties.
. Provides Gem's Class A shareholders liquidity through THCR shares or cash.
. A block of 300,000 shares of Gem's Class A common stock was recently traded at
$22.00 per share (net of transaction costs).
. A block of approximately 90,000 shares of Gem's Class A common stock is
currently being offered at $23.00 per share.
. Payment to Bankers Trust.
. "Cleans up" Gem's equity.
. THCR will not go forward with proposed transaction if Gem is subject to
secured lien on 50% of its equity.
. Bankers Trust will not release lien without being compensated as proposed
in Merger Transaction.
-8-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Transaction Considerations
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Termination of Taj Services Agreement.
. Elimination of fees which amounted to approximately $1.9 million, $1.4
million, and $1.6 million during the years ended 1995, 1994, and 1993,
respectively.
. Purchase of Realty Corp.'s parcels.
. Enables Gem to implement expansion plans on property essential to the
entire operation.
. Eliminates $2.7 million annual lease payment.
. Repayment of First Fidelity Loan at a significant discount.
. Gem gains title free and clear of liens and security interests.
. Upon redemption of the NatWest Loan, Realty Corp. would be entitled to
supplemental rent equal to $416,666.67 per month plus an amount equal to
16.5% of the remaining EACF Amount.
. Removes situation where Realty Corp. gains control of improvements on
specified parcels upon expiration of lease.
-9-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Transaction Considerations
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Purchase of Realty Corp.'s parcels (continued).
. According to First Fidelity's First Amendment to Amended and Restated Time
Loan Agreement, First Fidelity will release the specified parcels at the
following prices:
Hutt Parcel: $ 1.0 million
Social Security Parcel: 4.6 million
Consolidated Parcel: 5.0 million
Synagogue Parcel: 3.9 million
"3.7 acre" Tract: 18.1 million
"210" Strip: 33.8 million
Steel Pier: 10.0 million
Presbyterian Ave. Parcel: 1.8 million
Kramer Warehouse Parcel: 1.8 million
-------------
$80.1 million
=============
-10-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Transaction Considerations
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Purchase of Realty Corp.'s parcels (continued).
. Aggregate release value is significantly above the value being proposed to
First Fidelity in the Merger Transaction.
. Appraisal Group International's March 1994 appraisal indicated current
land prices for casino development ranging from $200 to $300 per square
foot.
- Rothschild estimates the present value of the First Fidelity payment
stream and the residual value of Realty Corp.'s land and improvements
ranging from approximately $64 million to $85 million.
. Termination Right - THCR Common Stock.
. THCR: market value of the THCR Common Stock shall be $20.00 or more.
-11-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Transaction Considerations
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Gem's First Mortgage Bonds taken out at par plus accrued.
. Refinancing provides extension of maturity.
. Provides flexibility for expansion of Gem, which otherwise would not be
allowed under the existing indenture unless a bondholder consent is given.
. Elimination of the cash sweep mechanism on the public bonds.
. Elimination of future payments in-kind.
. Reduce Gem's long-term debt from $839 million to $796 million.
. Obtain potential operational synergies between properties and possible cross-
marketing benefits.
. Administration and legal.
. Marketing.
. Purchasing.
. Entertainment.
. Project management.
. Warehousing and transportation.
. Human resources.
-12-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Market Considerations
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Atlantic City continues to experience an improved regulatory environment.
. For the year ended 1995, Atlantic City casino revenues were $3.7 billion, an
increase of approximately 10% compared to the year-ago period.
. At the end of 1994, the twelve Atlantic City casinos contained 9,227 guest
rooms. Over the next two years, approximately 3,600 rooms, excluding Gem, will
be constructed, resulting in approximately 40% increase in capacity.
- Expanded hotel accommodations should enhance future revenue growth in
the Atlantic City market as well as promote a destination weekend resort
atmosphere.
. Casino yields from overnight guests are approximately 3.0 to 3.5
times greater than that for a drive-in patron.
- Potential Mirage Resorts/Circus Circus project would be the single-
largest addition to the market since the opening of Gem and could
significantly increase the size of the Atlantic City market. Mirage
would effectively dilute existing property's fair share (based on casino
sq. ft.) by approximately 16%, assuming all properties will have
expanded their operations according to announced proposals. Excluding
Gem, six casinos plan to expand their casino space by approximately
160,000 square feet, resulting in an approximately 20% increase in total
floor space.
-13-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Market Considerations
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. The December 7, 1995 research report by Deutsche Morgan Grenfell/C.J. Lawrence
advanced the assumption that market revenues would grow approximately 11% in
1995, 4% in 1996, 5% in 1997, 18% in 1998, 13% in 1999, and 12% in 2000.
. Atlantic City is a regional market that competes with facilities in the
Northeastern and Mid-Atlantic regions and to a lesser extent with gaming
enterprises nationwide in addition to facilities operated by Native American
tribes.
. A proposal to allow casino operations in Bridgeport, Connecticut was
recently defeated by that state's senate
-14-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Gem Business Considerations
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Gem is considered the premier hotel casino in Atlantic City that focuses on
first class service and accommodations that has successfully responded to
industry trends and patron's preferences.
. Gem's estimated gross operating income for the fiscal year 1995 is up
approximately 12% compared to the year-ago period.
. 1995 fiscal year's estimated gross operating income is the highest in the
property's history.
. Management continues to expand its table and slots marketing programs to
differentiate the property from competing Atlantic City casinos.
. Since 1992, Gem has increased its relative market share of table wins.
. Gem should experience improved slots performance as a result of its recent
investment in new machines and expanded marketing programs.
-15-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Gem Business Considerations
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Gem's marketing initiatives :
. In 1995, Gem will have replaced 1,250 slot machines and expect to replace
an additional 1,050 in 1996. All machines will be equipped with state-of-
the-art technology and built-in bill changers.
. Recent opening of the "Dragon Room" in response to a growing Asian
clientele.
. Conversion of the Casbah Lounge into a high-end slot area and club.
. Expected opening of Sultan's Place which will provide the most exclusive
gaming area in Atlantic City.
. Expected additions of The Rain Forest, All Star, and Hard Rock Cafe
restaurants will provide additional entertainment opportunities to
complement the property's existing operation.
-16-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Valuation Analysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Key Assumptions to Financial Projections:
. Management Projections:
- 1996 based on Gem business plan.
- Gaming and other revenue growth of 5.0% in 1997, 5.5% in 1998, 4.0% in
1999, 4.5% in 2000.
- Promotional allowances growth of 5.0% in 1997, 5.5% in 1998, 4.0% in
1999, 4.5% in 2000.
- Operating expense growth of approximately 3.25% per year beginning in
1997.
- Realty Corp. lease expense of $2.7 million per year.
- Taj Services Agreement's fee as a percentage of revenues.
- Capital expenditures of $25.0 million per year.
- CRDA investment ranging from $7.0 to $8.0 million per year with a write
down equal to 50% of investment.
- Partnership capital distributions of approximately $1.7 million per
year.
- Additionally, Rothschild assumed working capital requirements of $1
million per year and assumed a blended tax provision of 42% on pre-tax
earnings.
. These forecasts do not reflect the expansion program because absent a
Transaction or consent by the public bondholders, Gem would be unable to
finance such a program.
-17-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Valuation Analysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Key Assumptions to Financial Projections (continued):
. Adjusted Management Projections:
- For purposes of our preliminary valuation analyses, we felt that it was
prudent to be slightly more conservative than management's financial
projections.
- In developing our financial projections for 1997 and beyond, we made the
following assumptions:
. Net revenue growth of 4% per year.
. Without any incremental competition, Atlantic City revenues should
be expected to grow at a pace of 3% to 4% per year, tracking the
level of anticipated inflation. Since 1989, market revenues have
grown at compounded annual growth rate of approximately 3.5% and
over past ten years, Atlantic City has experienced an annualized
rate of approximately 5.5%.
. All other assumptions were consistent with management's projections.
- Operating results are sensitive to small fluctuations in revenues; for
instance, a 1% divergence in revenues during the 1997-2000 time period
would have a cumulative change in EBITDA of approximately $20 million.
-18-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Valuation Analysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Valuation Analyses:
. Rothschild employed three valuation methodologies: (i) Market
Capitalization Analysis, (ii) Discounted Cash Flow Analysis, and, (iii)
Comparable Transaction Analysis. The range of values per Class A share is
unadjusted for the possible dilution from the 14% payment. These analyses
do not reflect the expansion program because absent a transaction or
consent by public bondholders, Gem would be unable to finance such a
program.
. Market Capitalization Analysis:
- Rothschild's analysis of current valuation multiples were based on the
seven publicly traded enterprises that have operations in Atlantic City:
Aztar, Bally Entertainment., Hollywood Casino, Harrah's Entertainment,
Griffin Gaming & Entertainment, Showboat, and THCR.
. These companies are currently trading at 5.5 times estimated 1996
and 6.0 times estimated 1995 EBITDA. Implied range of values are as
follows:
<TABLE>
<CAPTION>
Post-First Fidelity Post-First Fidelity Pre-First Fidelity
Guarantee (a) Guarantee (b) Guarantee
------------------- ------------------- ------------------
<S> <C> <C> <C>
Gem Equity Value
per Class A Share ($2.23) - $24.91 $2.41 - $29.56 $8.88 - $36.02
</TABLE>
- ----------------
(a) Guarantee valued at face amount.
(b) Guarantee valued at a discount to face amount.
-19-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Valuation Analysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Valuation Analyses (continued):
. Discounted Cash Flow Analysis:
- Based on Management's and Adjusted Management's projections, Rothschild
estimated the present value of (i) the future cash flows of Gem that
could be expected over a five-year time period without consideration to
any benefits from an expansion of the property, and (ii) the year 5
terminal value - determined by multiplying year 5 EBITDA by a range of
valuation multiples (4.5 to 5.5) - using discount rates ranging from 12%
to 15%. Implied range of values are as follows:
<TABLE>
<CAPTION>
Post-First Fidelity Post-First Fidelity Pre-First Fidelity
Guarantee (a) Guarantee (b) Guarantee
------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Gem Equity Value
per Class A Share
Management Projections 12% $22.11 - $67.40 $ 26.75 - $72.04 $33.22 - $78.51
15% ($11.93) - $27.76 ($7.28) - $32.40 ($0.82) - $38.87
Adjusted Projections 12% ($ 4.42) - $36.73 $ 0.23 - $41.37 $ 6.69 - $47.84
15% ($35.40) - $ 0.65 ($30.76) - $ 5.30 ($24.29) - $11.76
</TABLE>
- ----------------
(a) Guarantee valued at face amount.
(b) Guarantee valued at a discount to face amount.
-20-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Valuation Analysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
. Valuation Analyses (continued):
. Comparable Transaction Analysis:
- Rothschild analyzed ten selected acquisitions in the gaming industry
over the past five years. Two of the transactions consisted of companies
that operated properties in the Atlantic City market.
. Total enterprise value as a multiple of latest twelve months EBITDA
and EBIT ranged from approximately 4.5 to 9.5 and 5.0 to 13.0,
respectively. ITT Corporation acquired Caesar's World, Inc. at a 60%
premium over trading levels 30 days prior to the announcement of the
transaction. Based on Gem's estimated 1995 and 1996 EBITDA levels,
the implied range of values is as follows:
<TABLE>
<CAPTION>
Post-First Fidelity Post-First Fidelity Pre-First Fidelity
Guarantee (a) Guarantee (b) Guarantee
------------------- ------------------- -------------------
<S> <C> <C> <C>
Gem Equity Value
per Class A Share
Including Caesar's World $ 12.97 - $58.25 $ 17.61 - $62.89 $ 24.08 - $69.36
Excluding Caesar's World ($28.05) - $11.30 ($23.40) - $15.94 ($16.93) - $22.41
</TABLE>
- ----------------
(a) Guarantee valued at face amount.
(b) Guarantee valued at a discount to face amount.
-21-
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Market Capitalization Analysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
Management Projections
- ----------------------
<TABLE>
<CAPTION>
Valuation Multiple Market Capitalization
------------------ ------------------------
Low Mid High Low Mid High
---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1995E EBITDA $136.7 5.75 6.00 6.25 $785.9 $820.1 $854.3
1996E EBITDA $156.5 5.25 5.50 5.75 821.4 860.6 899.7
------ ------ ------
TEV Range $803.7 $840.3 $877.0
------ ------ ------
Plus: Excess Cash (a) $55.8 $55.8 $55.8
Less: Debt Outstanding (b) (c) (865.6) (865.6) (865.6)
Equity Value ($6.0) $30.6 $67.3
====== ====== ======
Taj Mahal Holding Distribution 50.00% ($3.0) $15.3 $33.6
Per Class A Share ($2.23) $11.34 $24.91
Memo:
----------------------------------
Unadjusted Book Value per Class A Share (d) $14.92
</TABLE>
(a) Represents estimated cash balances (12/31/95) net of reserves for cage cash,
working capital, and accrued cash interest on the Mtg. Bonds.
(b) Estimated as of December 31, 1995, including accrued interest on the Mtg
Bonds payable in kind.
(c) Includes $30.0 First Fidelity Guarantee.
(d) Book Value is unadjusted to the extent that the 11.35% bonds are net of
unamortized discount.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Market Capitalization Analysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
Management Projections
<TABLE>
<CAPTION>
Valuation Multiple Market Capitalization
Low Mid High Low Mid High
---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1995E EBITDA $136.7 5.75 6.00 6.25 $785.9 $820.1 $854.3
1996E EBITDA $156.5 5.25 5.50 5.75 821.4 860.6 899.7
------ ------ ------
TEV Range $803.7 $840.3 $877.0
------ ------ ------
Plus: Excess Cash (a) $55.8 $55.8 $55.8
Less: Debt Outstanding (b)(c) (853.0) (853.0) (853.0)
Equity Value $6.5 $43.2 $79.8
------ ------ ------
Taj Mahal Holding Distribution 50.00% $3.3 $21.6 $39.9
Per Class A Share $2.41 $15.98 $29.56
Memo:
-----------------------------------------------
Unadjusted Book Value per Class A Share (d) $14.92
</TABLE>
(a) Represents estimated cash balances (12/31/95) net of reserves for cage cash,
working capital, and accrued cash interest on the Mtg. Bonds
(b) Estimated as of December 31, 1995, including accrued interest on the Mtg
Bonds payable in kind.
(c) Includes First Fidelity Guarantee valued at a discount to face amount.
(d) Book Value is unadjusted to the extent that the 11.35% bonds are net of
unamortized discount.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Market Capitalization Analysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
Management Projections
<TABLE>
<CAPTION>
Valuation Multiple Market Capitalization
Low Mid High Low Mid High
---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1995E EBITDA $136.7 5.75 6.00 6.25 $785.9 $820.1 $854.3
1996E EBITDA $156.5 5.25 5.50 5.75 821.4 860.6 899.7
------ ------ ------
TEV Range $803.7 $840.3 $877.0
------ ------ ------
Plus: Excess Cash (a) $55.8 $55.8 $55.8
Less: Debt Outstanding (b)(c) (835.6) (835.6) (835.6)
Equity Value $24.0 $60.6 $97.3
====== ====== ======
Taj Mahal Holding Distribution 50.00% $12.0 $30.3 $48.6
Per Class A Share $8.88 $22.45 $36.02
------ ------ ------
Memo:
------------------------------------
Unadjusted Book Value per Class A Share (d) $14.92
</TABLE>
(a) Represents estimated cash balances (12/31/95) net of reserves for cage cash,
working capital, and accrued cash interest on the Mtg. Bonds.
(b) Estimated as of December 31, 1995, including accrued interest on the Mtg
Bonds payable in kind.
(c) Excludes $30.0 First Fidelity Guarantee.
(d) Book Value is unadjusted to the extent that the 11.35% bonds are net of
unamortized discount.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Discounted Cash Flow Analysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGEMENT PROJECTIONS
- ----------------------
Fiscal Year Ending December 31,
-------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $579.6 $608.5 $642.0 $667.7 $697.7
EBITDA (a) $156.5 $171.6 $190.8 $200.7 $215.5
Depreciation 48.2 35.3 33.5 35.2 37.1
CRDA Amortization 3.2 3.4 3.6 3.7 3.9
------ ------ ------ ------ ------
Operating Income 105.1 132.9 153.7 161.7 174.5
Tax Provision (42%) (44.1) (55.8) (64.5) (67.9) (73.3)
------ ------ ------ ------ ------
Net Income $60.9 $77.1 $89.1 $93.8 $101.2
====== ====== ====== ====== ======
Working Capital Req'd (1.0) (1.0) (1.0) (1.0) (1.0)
Capital Expenditures (28.6) (25.0) (25.0) (25.0) (25.0)
CRDA Investment (6.4) (6.8) (7.2) (7.5) (7.8)
Partnership Distribution (1.7) (1.7) (1.7) (1.7) (1.7)
------ ------ ------ ------ ------
Estimated After-Tax Free Cash $74.6 $81.3 $91.4 $97.6 $106.7
====== ====== ====== ====== ======
MAJOR Revenue Growth 4.3% 5.0% 5.5% 4.0% 4.5%
ASSUMPTIONs EBITDA Margin 27.0% 28.2% 29.7% 30.1% 30.9%
Net Income Margin 10.5% 12.7% 13.9% 14.0% 14.5%
Depreciation / Revenues 8.3% 5.8% 5.2% 5.3% 5.3%
Chg in Wkg Cap as % of Reve 4.2% 3.5% 3.0% 3.9% 3.3%
Capital Expenditures / Reve 4.9% 4.1% 3.9% 3.7% 3.6%
<CAPTION>
PRESENT VALUE A + B = C - D = E
Discounted Terminal Value as a Multiple of Total Enterprise Value as a Equity Value as a
Discount Unlevered 2000 EBITDA Multiple of 2000 EBITDA (b) Multiple of 2000 EBITDA
Rates Cash Flows 4.5 x 5.0 x 5.5 x 4.5 x 5.0 x 5.5 x Net Debt 4.5 x 5.0 x 5.5 x
------- --------- ----- ----- ------ ----- ----- ----- -------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12.0% $319.1 $550.3 $611.5 $672.6 $869.4 $930.5 $991.7 $809.7 $59.7 $120.8 $182.0
13.0% 310.8 526.4 584.9 643.4 837.2 895.7 954.2 809.7 27.5 86.0 144.5
14.0% 302.9 503.7 559.7 615.7 806.6 862.6 918.6 809.7 (3.1) 52.9 108.9
15.0% 295.3 482.2 535.8 589.3 777.5 831.1 884.7 809.7 (32.2) 21.4 75.0
<CAPTION>
ANALYSIS Terminal Value As An Imputed Terminal Value as a Percentage of Equity Value Per Class A
Multiple of 2000 Discount Enterprise Value (A + B) Multiple of 2000 EBITDA
4.5 x 5.0 x 5.5 x Rates 4.5 x 5.0 x 5.5 x 4.5 x 5.0 x 5.5 x
----- ----- ----- ------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 1.39 x 1.54 x 1.70 x 12.0% 63.3% 65.7% 67.8% $22.11 $44.75 $67.40
EBITDA 4.50 x 5.00 x 5.50 x 13.0% 62.9% 65.3% 67.4% $10.19 $31.86 $53.52
EBIT 5.56 x 6.17 x 6.79 x 14.0% 62.4% 64.9% 67.0% ($1.14) $19.59 $40.32
Net Incom 9.58 x 10.65 x 11.71 x 15.0% 62.0% 64.5% 66.6% ($11.93) $7.92 $27.76
</TABLE>
Valuation as of December 31, 1995
---------------------------------
(a) Earnings before interest, taxes, depreciation and
amortization; post Realty rent and Gem Services Agreement
Fee.
(b) Includes $30.0 First Fidelity Guarantee.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Discounted Cash Flow Anyalysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGEMENT PROJECTIONS
- ----------------------
Fiscal Year Ending December 31,
------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S>
Revenues $579.6 $608.5 $642.0 $667.7 $697.7
EBITDA (a) $156.5 $171.6 $190.8 $200.7 $215.5
Depreciation 48.2 35.3 33.5 35.2 37.1
CRDA Amortization 3.2 3.4 3.6 3.7 3.9
------ ------ ------ ------ -------
Operating Income 105.1 132.9 153.7 161.7 174.5
Tax Provision (42%) (44.1) (55.8) (64.5) (67.9) (73.3)
------ ------ ------ ------ -------
Net Income $60.9 $77.1 $89.1 $93.8 $101.2
====== ====== ====== ====== =======
Working Capital Req'd (1.0) (1.0) (1.0) (1.0) (1.0)
Capital Expenditures (28.6) (25.0) (25.0) (25.0) (25.0)
CRDA Investment (6.4) (6.8) (7.2) (7.5) (7.8)
Partnership Distribution (1.7) (1.7) (1.7) (1.7) (1.7)
------ ------ ------ ------ -------
Estimated After-Tax Free Cash Flow $74.6 $81.3 $91.4 $97.6 $106.7
====== ====== ====== ====== =======
MAJOR REVENUE GROWTH 4.3% 5.0% 5.5% 4.0% 4.5%
ASSUMPTIONS EBITDA Margin 27.0% 28.2% 29.7% 30.1% 30.9%
Net Income Margin 10.5% 12.7% 13.9% 14.0% 14.5%
Depreciation / Revenues 8.3% 5.8% 5.2% 5.3% 5.3%
Chg in Wkg Cap as % of Revenues C 4.2% 3.5% 3.0% 3.9% 3.3%
Capital Expenditures / Revenues 4.9% 4.1% 3.9% 3.7% 3.6%
<CAPTION>
PRESENT VALUE A + B = C - D = E
Discounted Terminal Value as a Multiple of Total Enterprise Value as a EQUITY VALUE AS A
Discount Unlevered 2000 EBITDA Multiple of 2000 EBITDA (b) MULTIPLE OF 2000 EBITDA
----------- -----------------------
Rates Cash Flows 4.5 x 5.0 x 5.5 x 4.5 x 5.0 x 5.5 x Net Debt 4.5 x 5.0 x 5.5 x
----- ---------- ----- ----- ----- ----- ----- ----- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12.0% $319.1 $550.3 $611.5 $672.6 $869.4 $930.5 $991.7 $797.2 $72.2 $133.4 $194.5
13.0% 310.8 526.4 584.9 643.4 837.2 895.7 954.2 797.2 40.1 98.5 157.0
14.0% 302.9 503.7 559.7 615.7 806.6 862.6 918.6 797.2 9.5 65.4 121.4
15.0% 295.3 482.2 535.8 589.3 777.5 831.1 884.7 797.2 (19.7) 33.9 87.5
<CAPTION>
ANALYSIS Terminal Value As An Imputed Terminal Value as a Percentage of EQUITY VALUE PER CLASS A SHARE
Multiple of 2000 Discount Enterprise Value (A+B) MULTIPLE OF 2000 EBITDA
4.5x 5.0x 5.5x Rates 4.5x 5.0x 5.5x 4.5x 5.0x 5.5x
---- ---- ---- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 1.39 x 1.54 x 1.70 x 12.0% 63.3% 65.7% 67.8% $26.75 $49.40 $72.04
EBITDA 4.50 x 5.00 x 5.50 x 13.0% 62.9% 65.3% 67.4% $14.84 $36.50 $58.16
EBIT 5.56 x 6.17 x 6.79 x 14.0% 62.4% 64.9% 67.0% $3.50 $24.23 $44.96
Net Incom 9.58 x 10.65 x 11.71 x 15.0% 62.0% 64.5% 66.6% ($7.28) $12.56 $32.40
</TABLE>
VALUATION AS OF DECEMBER 31, 1995
- ---------------------------------
(a) Earnings before interest, taxes, depreciation and amortization; post
Realty rent and Gem Services Agreement Fee.
(b) Includes First Fidelity Guarantee valued at a discount to face
amount.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Discounted Cash Flow Analysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGEMENT PROJECTIONS
- ----------------------
Fiscal Year Ending December 31,
------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $579.6 $608.5 $642.0 $667.7 $697.7
EBITDA (a) $156.5 $171.6 $190.8 $200.7 $215.5
Depreciation 48.2 35.3 33.5 35.2 37.1
CRDA Amortization 3.2 3.4 3.6 3.7 3.9
------ ------ ------ ------ -------
Operating Income 105.1 132.9 153.7 161.7 174.5
Tax Provision (42%) (44.1) (55.8) (64.5) (67.9) (73.3)
------ ------ ------ ------ -------
Net Income $60.9 $77.1 $89.1 $93.8 $101.2
====== ====== ====== ====== =======
Working Capital Req'd (1.0) (1.0) (1.0) (1.0) (1.0)
Capital Expenditures (28.6) (25.0) (25.0) (25.0) (25.0)
CRDA Investment (6.4) (6.8) (7.2) (7.5) (7.8)
Partnership Distribution (1.7) (1.7) (1.7) (1.7) (1.7)
------ ------ ------ ------ -------
Estimated After-Tax Free Cash Flow $74.6 $81.3 $91.4 $97.6 $106.7
====== ====== ====== ====== =======
MAJOR Revenue Growth 4.3% 5.0% 5.5% 4.0% 4.5%
ASSUMPTIONS EBITDA Margin 27.0% 28.2% 29.7% 30.1% 30.9%
Net Income Margin 10.5% 12.7% 13.9% 14.0% 14.5%
Depreciation / Revenues 8.3% 5.8% 5.2% 5.3% 5.3%
Chg in Wkg Cap as % of Revenues Chg. 4.2% 3.5% 3.0% 3.9% 3.3%
Capital Expenditures / Revenues 4.9% 4.1% 3.9% 3.7% 3.6%
<CAPTION>
PRESENT VALUE A + B = C - D = E
Discounted Terminal Value as a Multiple of Total Enterprise Value as a EQUITY VALUE AS A
Discount Unlevered 2000 EBITDA Multiple of 2000 EBITDA (b) MULTIPLE OF 2000 EBITDA
------------------------------- --------------------------- -----------------------
Rates Cash Flows 4.5 x 5.0 x 5.5 x 4.5 x 5.0 x 5.5 x Net Debt 4.5 x 5.0 x 5.5 x
----- ---------- ----- ----- ----- ----- ----- ----- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12.0% $319.1 $550.3 $611.5 $672.6 $869.4 $930.5 $991.7 $779.7 $89.7 $150.8 $212.0
13.0% 310.8 526.4 584.9 643.4 837.2 895.7 954.2 779.7 57.5 116.0 174.5
14.0% 302.9 503.7 559.7 615.7 806.6 862.6 918.6 779.7 26.9 82.9 138.9
15.0% 295.3 482.2 535.8 589.3 777.5 831.1 884.7 779.7 (2.2) 51.4 105.0
<CAPTION>
ANALYSIS Terminal Value As An Imputed Terminal Value as a Percentage of EQUITY VALUE PER CLASS A SHARE
Multiple of 2000 Enterprise Value (A+B) MULTIPLE OF 2000 EBITDA
---------------------------- Discount --------------------------------- ------------------------------
4.5x 5.0x 5.5x Rates 4.5x 5.0x 5.5x 4.5x 5.0x 5.5x
---- ---- ---- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 1.39 x 1.54 x 1.70 x 12.0% 63.3% 65.7% 67.8% $33.22 $55.86 $78.51
EBITDA 4.50 x 5.00 x 5.50 x 13.0% 62.2% 65.3% 67.4% $21.30 $42.97 $64.63
EBIT 5.56 x 6.17 x 6.79 x 14.0% 62.4% 64.9% 67.0% $9.97 $30.70 $51.43
Net Incom 9.58 x 10.65 x 11.71 x 15.0% 62.0% 64.5% 66.6% ($0.82) $19.03 $38.87
</TABLE>
VALUATION AS OF DECEMBER 31, 1995
- ---------------------------------
(a) Earnings before interest, taxes, depreciation and amortization; post
Realty rent and Gem Services Agreement Fee.
(b) Excludes $30.0 First Fidelity Guarantee.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Discounted Cash Flow Anyalysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTED MANAGEMENT PROJECTIONS
- -------------------------------
Fiscal Year Ending December 31,
------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S>
Revenues $579.6 $602.7 $626.8 $651.9 $678.0
EBITDA (a) $156.5 $165.8 $175.6 $184.9 $195.8
Depreciation 48.2 35.3 33.5 35.2 37.1
CRDA Amortization 3.2 3.4 3.6 3.7 3.9
------ ------ ------ ------ -------
Operating Income 105.1 127.1 138.5 146.0 154.8
Tax Provision (42%) (44.1) (53.4) (58.2) (61.3) (65.0)
------ ------ ------ ------ -------
Net Income $60.9 $73.7 $80.3 $84.7 $89.8
====== ====== ====== ====== =======
Working Capital Req'd (1.0) (1.0) (1.0) (1.0) (1.0)
Capital Expenditures (28.6) (25.0) (25.0) (25.0) (25.0)
CRDA Investment (6.4) (6.8) (7.2) (7.5) (7.8)
Partnership Distribution (1.7) (1.7) (1.7) (1.7) (1.7)
Estimated After-Tax Free Cash Flow $74.6 $77.9 $82.6 $88.5 $95.3
====== ====== ====== ====== =======
MAJOR REVENUE GROWTH 4.3% 4.0% 4.0% 4.0% 4.0%
ASSUMPTIONS EBITDA Margin 27.0% 27.5% 28.0% 28.4% 28.9%
Net Income Margin 10.5% 12.2% 12.8% 13.0% 13.2%
Depreciation / Revenues 8.3% 5.9% 5.3% 5.4% 5.5%
Chg in Wkg Cap as % of Revenues C 4.2% 4.3% 4.1% 4.0% 3.8%
Capital Expenditures / Revenues 4.9% 4.1% 4.0% 3.8% 3.7%
<CAPTION>
PRESENT VALUE A + B = C - D = E
Discounted Terminal Value as a Multiple of Total Enterprise Value as a EQUITY VALUE AS A
Discount Unlevered 2000 EBITDA Multiple of 2000 EBITDA (b) MULTIPLE OF 2000 EBITDA
----------- -----------------------
Rates Cash Flows 4.5 x 5.0 x 5.5 x 4.5 x 5.0 x 5.5 x Net Debt 4.5 x 5.0 x 5.5 x
----- ---------- ----- ----- ----- ----- ----- ----- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12.0% $297.8 $499.9 $555.5 $611.0 $797.8 $853.3 $908.9 $809.7 ($11.9) $43.6 $99.2
13.0% 290.3 478.2 531.3 584.5 768.5 821.6 874.8 809.7 $41.2) 11.9 65.1
14.0% 283.0 457.6 508.4 559.3 740.6 791.5 842.3 809.7 (69.1) (18.2) 32.6
15.0% 276.1 276.1 486.7 535.4 714.1 762.8 811.5 809.7 (95.6) (46.9) 1.8
<CAPTION>
ANALYSIS Terminal Value As An Imputed Terminal Value as a Percentage of EQUITY VALUE PER CLASS A SHARE
Multiple of 2000 Discount Enterprise Value (A + B) MULTIPLE OF 2000 EBITDA
4.5x 5.0x 5.5x Rates 4.5x 5.0x 5.5x 4.5x 5.0x 5.5x
---- ---- ---- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 1.30 x 1.44 x 1.59 x 12.0% 62.7% 65.1% 67.2% ($4.42) $16.15 $36.73
EBITDA 4.50 x 5.00 x 5.50 x 13.0% 62.2% 64.7% 66.8% $15.26 $4.42 $24.10
EBIT 5.69 x 6.32 x 6.96 x 14.0% 61.8% 64.2% 66.4% ($25.58) ($6.75) $12.08
Net Incom 9.81 x 10.90 x 11.99 x 15.0% 61.3% 63.8% 66.0% ($35.40) ($17.37) $0.65
</TABLE>
VALUATION AS OF DECEMBER 31, 1995
- ---------------------------------
(a) Earnings before interest, taxes, depreciation and amortization; post
Realty rent and Gem Services Agreement Fee.
(b) Includes $30.0 First Fidelity Guarantee.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Discounted Cash Flow Anyalysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTED MANAGEMENT PROJECTIONS
- -------------------------------
Fiscal Year Ending December 31,
------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S>
Revenues $579.6 $602.7 $626.8 $651.9 $678.0
EBITDA (a) $156.5 $165.8 $175.6 $184.9 $195.8
Depreciation 48.2 35.3 33.5 35.2 37.1
CRDA Amortization 3.2 3.4 3.6 3.7 3.9
------ ------ ------ ------ -------
Operating Income 105.1 127.1 138.5 146.0 154.8
Tax Provision (42%) (44.1) (53.4) (58.2) (61.3) (65.0)
------ ------ ------ ------ -------
Net Income $60.9 $73.7 $80.3 $84.7 $89.8
====== ====== ====== ====== =======
Working Capital Req'd (1.0) (1.0) (1.0) (1.0) (1.0)
Capital Expenditures (28.6) (25.0) (25.0) (25.0) (25.0)
CRDA Investment (6.4) (6.8) (7.2) (7.5) (7.8)
Partnership Distribution (1.7) (1.7) (1.7) (1.7) (1.7)
Estimated After-Tax Free Cash Flow $74.6 $77.9 $82.6 $88.5 $95.3
====== ====== ====== ====== =======
MAJOR REVENUE GROWTH 4.3% 4.0% 4.0% 4.0% 4.0%
ASSUMPTIONS EBITDA Margin 27.0% 27.5% 28.0% 28.4% 28.9%
Net Income Margin 10.5% 12.2% 12.8% 13.0% 13.2%
Depreciation / Revenues 8.3% 5.9% 5.3% 5.4% 5.5%
Chg in Wkg Cap as % of Revenues C 4.2% 4.3% 4.1% 4.0% 3.8%
Capital Expenditures / Revenues 4.9% 4.1% 4.0% 3.8% 3.7%
<CAPTION>
PRESENT VALUE A + B = C - D = E
Discounted Terminal Value as a Multiple of Total Enterprise Value as a EQUITY VALUE AS A
Discount Unlevered 2000 EBITDA Multiple of 2000 EBITDA (b) MULTIPLE OF 2000 EBITDA
----------- -----------------------
Rates Cash Flows 4.5 x 5.0 x 5.5 x 4.5 x 5.0 x 5.5 x Net Debt 4.5 x 5.0 x 5.5 x
----- ---------- ----- ----- ----- ----- ----- ----- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12.0% $297.8 $499.9 $555.5 $611.0 $797.8 $853.3 $908.9 $797.2 $0.6 $56.2 $111.7
13.0% 290.3 478.2 531.3 584.5 768.5 821.6 874.8 797.2 (28.7) 24.5 77.6
14.0% 283.0 457.6 508.4 559.3 740.6 791.5 842.3 797.2 (56.5) (5.7) 45.2
15.0% 276.1 276.1 486.7 535.4 714.1 762.8 811.5 797.2 (83.0) (34.4) 14.3
<CAPTION>
ANALYSIS Terminal Value As An Imputed Terminal Value as a Percentage of EQUITY VALUE PER CLASS A SHARE
Multiple of 2000 Discount Enterprise Value (A + B) MULTIPLE OF 2000 EBITDA
4.5x 5.0x 5.5x Rates 4.5x 5.0x 5.5x 4.5x 5.0x 5.5x
---- ---- ---- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 1.30 x 1.44 x 1.59 x 12.0% 62.7% 65.1% 67.2% $0.23 $20.80 $41.37
EBITDA 4.50 x 5.00 x 5.50 x 13.0% 62.2% 64.7% 66.8% ($10.62) $9.06 $28.74
EBIT 5.69 x 6.32 x 6.96 x 14.0% 61.8% 64.2% 66.4% ($20.94) ($2.10) $16.73
Net Incom 9.81 x 10.90 x 11.99 x 15.0% 61.3% 63.8% 66.0% ($30.76) ($12.73) $5.30
</TABLE>
VALUATION AS OF DECEMBER 31, 1995
- ---------------------------------
(a) Earnings before interest, taxes, depreciation and amortization; post
Realty rent and Gem Services Agreement Fee.
(b) Includes First Fidelity Guarantee valued at a discount to face
amount.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Discounted Cash Flow Anyalysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTED MANAGEMENT PROJECTIONS
- -------------------------------
Fiscal Year Ending December 31,
------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S>
Revenues $579.6 $602.7 $626.8 $651.9 $678.0
EBITDA (a) $156.5 $165.8 $175.6 $184.9 $195.8
Depreciation 48.2 35.3 33.5 35.2 37.1
CRDA Amortization 3.2 3.4 3.6 3.7 3.9
------ ------ ------ ------ -------
Operating Income 105.1 127.1 138.5 146.0 154.8
Tax Provision (42%) (44.1) (53.4) (58.2) (61.3) (65.0)
------ ------ ------ ------ -------
Net Income $60.9 $73.7 $80.3 $84.7 $89.8
====== ====== ====== ====== =======
Working Capital Req'd (1.0) (1.0) (1.0) (1.0) (1.0)
Capital Expenditures (28.6) (25.0) (25.0) (25.0) (25.0)
CRDA Investment (6.4) (6.8) (7.2) (7.5) (7.8)
Partnership Distribution (1.7) (1.7) (1.7) (1.7) (1.7)
Estimated After-Tax Free Cash Flow $74.6 $77.9 $82.6 $88.5 $95.3
====== ====== ====== ====== =======
MAJOR REVENUE GROWTH 4.3% 4.0% 4.0% 4.0% 4.0%
ASSUMPTIONS EBITDA Margin 27.0% 27.5% 28.0% 28.4% 28.9%
Net Income Margin 10.5% 12.2% 12.8% 13.0% 13.2%
Depreciation / Revenues 8.3% 5.9% 5.3% 5.4% 5.5%
Chg in Wkg Cap as % of Revenues C 4.2% 4.3% 4.1% 4.0% 3.8%
Capital Expenditures / Revenues 4.9% 4.1% 4.0% 3.8% 3.7%
<CAPTION>
PRESENT VALUE A + B = C - D = E
Discounted Terminal Value as a Multiple of Total Enterprise Value as a EQUITY VALUE AS A
Discount Unlevered 2000 EBITDA Multiple of 2000 EBITDA (b) MULTIPLE OF 2000 EBITDA
----------- -----------------------
Rates Cash Flows 4.5 x 5.0 x 5.5 x 4.5 x 5.0 x 5.5 x Net Debt 4.5 x 5.0 x 5.5 x
----- ---------- ----- ----- ----- ----- ----- ----- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12.0% $297.8 $499.9 $555.5 $611.0 $797.8 $853.3 $908.9 $779.7 $18.1 $73.6 $129.2
13.0% 290.3 478.2 531.3 584.5 768.5 821.6 874.8 779.7 (11.2) 41.9 95.1
14.0% 283.0 457.6 508.4 559.3 740.6 791.5 842.3 779.7 (39.1) 11.8 62.6
15.0% 276.1 276.1 486.7 535.4 714.1 762.8 811.5 779.7 (65.6) (16.9) 31.8
<CAPTION>
ANALYSIS Terminal Value As An Imputed Terminal Value as a Percentage of EQUITY VALUE PER CLASS A SHARE
Multiple of 2000 Discount Enterprise Value (A + B) MULTIPLE OF 2000 EBITDA
4.5x 5.0x 5.5x Rates 4.5x 5.0x 5.5x 4.5x 5.0x 5.5x
---- ---- ---- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 1.30 x 1.44 x 1.59 x 12.0% 62.7% 65.1% 67.2% $6.69 $27.27 $47.84
EBITDA 4.50 x 5.00 x 5.50 x 13.0% 62.2% 64.7% 66.8% ($4.15) $15.53 $35.21
EBIT 5.69 x 6.32 x 6.96 x 14.0% 61.8% 64.2% 66.4% ($14.47) $4.36 $23.19
Net Incom 9.81 x 10.90 x 11.99 x 15.0% 61.3% 63.8% 66.0% ($24.29) ($6.26) $11.76
</TABLE>
VALUATION AS OF DECEMBER 31, 1995
- ---------------------------------
(a) Earnings before interest, taxes, depreciation and amortization; post
Realty rent and Gem Services Agreement Fee.
(b) Excludes $30.0 First Fidelity Guarantee.
<PAGE>
Confidential
PROJECT WONDER
Analysis of Selected Comparable Acquisitions
(U.S. dollar amounts in millions, except per share data)
- --------------------------------------------------------------------------------
VALUATION MATRIX BASED ON ANALYSIS OF SELECTED ACQUISITION COMPARABLES
<TABLE>
<CAPTION>
--MKT. CAP. AS A MULTIPLE OF:--
NET 1995E 1996E 1995E 1996E 1995E 1996E
Management Projections DEBT EBIT EBIT EBITDA EBITDA Net Revenues Net Revenues
---------------------- ------ ----- ----- ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
GEM 809.7 $89.7 $105.1 $136.7 $156.5 $555.9 $579.6
VALUATION MULTIPLES
-------------------
Maximum 13.1 x 13.1 x 9.5 x 9.5 x 2.74 x 2.74 x
Mean (including Caesars) 8.4 8.4 6.2 6.2 1.58 1.58
Mean (excluding Caesars) 7.1 7.1 5.4 5.4 1.52 1.52
Median 7.3 7.3 5.5 5.5 1.54 1.54
Minimum 4.7 4.7 4.6 4.6 0.70 0.70
IMPUTED ENTERPRISE VALUE
------------------------
Maximum $1,175.9 $1,377.5 $1,294.9 $1,482.3 $1,522.0 $1,586.7
Mean (including Caesars) $750.6 $879.3 $844.7 $967.0 $879.7 $917.1
Mean (excluding Caesars) $636.8 $746.0 $734.0 $840.2 $845.0 $880.9
Median $654.8 $767.0 $751.8 $860.6 $856.1 $892.5
Minimum $418.7 $490.5 $627.9 $718.8 $386.6 $403.0
IMPUTED EQUITY VALUE (a) (b)
----------------------------
Maximum $366.1 $567.8 $485.2 $672.6 $712.3 $777.0
Mean (including Caesars) ($59.1) $69.6 $35.0 $157.3 $70.0 $107.4
Mean (excluding Caesars) ($172.9) ($63.7) ($75.7) $30.5 $35.3 $71.2
Median ($155.0) ($42.7) ($58.0) $50.8 $46.4 $82.8
Minimum ($391.0) ($319.2) ($181.8) ($90.9) ($423.2) ($406.7)
IMPUTED EQUITY VALUE PER CLASS A SHARE (a) (b)
----------------------------------------------
Maximum $135.61 $210.28 $179.70 $249.11 $263.80 $287.79
Mean (including Caesars) ($21.90) $25.76 $12.97 $58.25 $25.91 $39.78
Mean (excluding Caesars) ($64.04) ($23.60) ($28.05) $11.30 $13.06 $26.37
Median ($57.39) ($15.81) ($21.46) $18.83 $17.17 $30.66
Minimum ($144.82) ($118.23) ($67.33) ($33.67) ($156.73) ($150.63)
</TABLE>
(a) Imputed Equity Value = Imputed Market Capitalization + Cash & Marketable
Securities - Long-Term Debt - Short-Term Debt - Preferred Equity at
Liquidation Value - Minority Interest.
(b) Includes $30.0 First Fidelity Guarantee.
<PAGE>
Confidential
PROJECT WONDER
Analysis of Selected Comparable Acquisitions
(U.S. dollar amounts in millions, except per share data)
- --------------------------------------------------------------------------------
VALUATION MATRIX BASED ON ANALYSIS OF SELECTED ACQUISITION COMPARABLES
<TABLE>
<CAPTION>
--MKT. CAP. AS A MULTIPLE OF:--
NET 1995E 1996E 1995E 1996E 1995E 1996E
Management Projections DEBT EBIT EBIT EBITDA EBITDA Net Revenues Net Revenues
---------------------- ---- ----- ----- ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
GEM 797.2 $89.7 $105.1 $136.7 $156.5 $555.9 $579.6
VALUATION MULTIPLES
-------------------
Maximum 13.1 x 13.1 x 9.5 x 9.5 x 2.74 x 2.74 x
Mean (including Caesars) 8.4 8.4 6.2 6.2 1.58 1.58
Mean (excluding Caesars) 7.1 7.1 5.4 5.4 1.52 1.52
Median 7.3 7.3 5.5 5.5 1.54 1.54
Minimum 4.7 4.7 4.6 4.6 0.70 0.70
IMPUTED ENTERPRISE VALUE
------------------------
Maximum $1,175.9 $1,377.5 $1,294.9 $1,482.3 $1,522.0 $1,586.7
Mean (including Caesars) $750.6 $879.3 $844.7 $967.0 $879.7 $917.1
Mean (excluding Caesars) $636.8 $746.0 $734.0 $840.2 $845.0 $880.9
Median $654.8 $767.0 $751.8 $860.6 $856.1 $892.5
Minimum $418.7 $490.5 $627.9 $718.8 $386.6 $403.0
IMPUTED EQUITY VALUE (a) (b)
----------------------------
Maximum $378.7 $580.3 $497.7 $685.1 $724.8 $789.6
Mean (including Caesars) ($46.6) $82.1 $47.6 $169.8 $82.5 $119.9
Mean (excluding Caesars) ($160.4) ($51.2) ($63.2) $43.0 $47.8 $83.7
Median ($142.4) ($30.2) ($45.4) $63.4 $58.9 $95.3
Minimum ($378.5) ($306.7) ($169.3) ($78.4) ($410.6) ($394.2)
IMPUTED EQUITY VALUE PER CLASS A SHARE (a) (b)
----------------------------------------------
Maximum $140.25 $214.93 $184.34 $253.76 $268.45 $292.43
Mean (including Caesars) ($17.26) $30.40 $17.61 $62.89 $30.56 $44.42
Mean (excluding Caesars) ($59.39) ($18.95) ($23.40) $15.94 $17.70 $31.02
Median ($52.75) ($11.17) ($16.82) $23.48 $21.82 $35.31
Minimum ($140.18) ($113.59) ($62.69) ($29.03) ($152.08) ($145.99)
</TABLE>
(a) Imputed Equity Value = Imputed Market Capitalization + Cash & Marketable
Securities - Long-Term Debt - Short-Term Debt - Preferred Equity at
Liquidation Value - Minority Interest.
(b) Includes First Fidelity Guarantee valued at a discount to face amount.
<PAGE>
Confidential
PROJECT WONDER
Analysis of Selected Comparable Acquisitions
(U.S. dollar amounts in millions, except per share data)
- --------------------------------------------------------------------------------
VALUATION MATRIX BASED ON ANALYSIS OF SELECTED ACQUISITION COMPARABLES
<TABLE>
<CAPTION>
--MKT. CAP. AS A MULTIPLE OF:--
NET 1995E 1996E 1995E 1996E 1995E 1996E
Management Projections DEBT EBIT EBIT EBITDA EBITDA Net Revenues Net Revenues
---------------------- ---- ------ ------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
GEM 779.7 $89.7 $105.1 $136.7 $156.5 $555.9 $579.6
VALUATION MULTIPLES
-------------------
Maximum 13.1 x 13.1 x 9.5 x 9.5 x 2.74 x 2.74 x
Mean (including Caesars) 8.4 8.4 6.2 6.2 1.58 1.58
Mean (excluding Caesars) 7.1 7.1 5.4 5.4 1.52 1.52
Median 7.3 7.3 5.5 5.5 1.54 1.54
Minimum 4.7 4.7 4.6 4.6 0.70 0.70
IMPUTED ENTERPRISE VALUE
------------------------
Maximum $1,175.9 $1,377.5 $1,294.9 $1,482.3 $1,522.0 $1,586.7
Mean (including Caesars) $750.6 $879.3 $844.7 $967.0 $879.7 $917.1
Mean (excluding Caesars) $636.8 $746.0 $734.0 $840.2 $845.0 $880.9
Median $654.8 $767.0 $751.8 $860.6 $856.1 $892.5
Minimum $418.7 $490.5 $627.9 $718.8 $386.6 $403.0
IMPUTED EQUITY VALUE (a) (b)
----------------------------
Maximum $396.1 $597.8 $515.2 $702.6 $742.3 $807.0
Mean (including Caesars) ($29.1) $99.6 $65.0 $187.3 $100.0 $137.4
Mean (excluding Caesars) ($142.9) ($33.7) ($45.7) $60.5 $65.3 $101.2
Median ($125.0) ($12.7) ($28.0) $80.8 $76.4 $112.8
Minimum ($361.0) ($289.2) ($151.8) ($60.9) ($393.2) ($376.7)
IMPUTED EQUITY VALUE PER CLASS A SHARE (a) (b)
----------------------------------------------
Maximum $146.72 $221.39 $190.81 $260.22 $274.91 $298.90
Mean (including Caesars) ($10.79) $36.87 $24.08 $69.36 $37.02 $50.89
Mean (excluding Caesars) ($52.92) ($12.48) ($16.93) $22.41 $24.17 $37.48
Median ($46.28) ($4.70) ($10.35) $29.94 $28.29 $41.78
Minimum ($133.71) ($107.12) ($56.22) ($22.56) ($145.61) ($139.52)
</TABLE>
(a) Imputed Equity Value = Imputed Market Capitalization + Cash & Marketable
Securities - Long-Term Debt - Short-Term Debt - Preferred Equity at
Liquidation Value - Minority Interest.
(b) Excludes $30.0 First Fidelity Guarantee.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Estimated Valuation of Realty Corp.'s Specified Parcels and Lease
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
Assumptions
-----------
<TABLE>
<S> <C> <C>
Annual Lease Payments $2.7 Residual Value: Land Residual Value: Improvements
Expiration 2023 Land prices (1994) according to Appraisal Gem Associates
Group Int'l report: $200 - $300 per sq ft Unadjust. Book Value $31.3
Trump Service Agreement $0.6 Book Value 28.8
Expiration 2023 Specifed Parcels 11.9 acres
Steel Pier 3.5 acres Realty Corp.
Supplemental Rent (1) $5.0 Unadjust. Book Value $6.6
Steel Pier $300 sq ft Book Value 6.2
Real Rate of Growth 0.0% "210 Tract"/Block 13 250 sq ft
Inflation 4.0% All Other 100 sq ft Total
-----
Nominal Rate 4.0% Unadjust. Book Value $37.9
Capital improvements $0.3 per yr. Book Value 35.0
</TABLE>
- ----------
(1) Assume that NatWest Loan is redeemed in November 1999.
Present Value Analysis
----------------------
Assumed Discount Rate
---------------------
11.0% 11.5% 12.0% 12.5% 13.0%
----- ----- ----- ----- -----
Realty Corp Lease Payment $23.4 $22.6 $21.8 $21.0 $20.3
Trump Service Agreement 4.9 4.8 4.6 4.4 4.3
Supplemental Rent ("NatWest") 27.9 26.5 25.1 23.9 22.7
----- ----- ----- ----- -----
Sub-Total $56.3 $53.8 $51.5 $49.3 $47.3
===== ===== ===== ===== =====
Residual Value: Land $22.8 $20.1 $17.7 $15.6 $13.8
Improvements 5.5 4.9 4.3 3.8 3.3
Total $84.6 $78.8 $73.5 $68.7 $64.4
----- ----- ----- ----- -----
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Valuation of THCR Warrant
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Assumptions
- --------------------------------------------------------------------------------
Shares Strike Term Treasury
(mm) Price (yrs) Yield
Total 1.8
Tranche 1 0.6 $30.00 3.0 5.2%
Tranche 2 0.6 35.00 4.0 5.3%
Tranche 3 0.6 40.00 5.0 5.4%
--------------------------------------------------
Current THCR Stock Price $21.75
Trading Discount (1) 25.0%
Warrant Haircut (2) 35.0%
Volatility 0.37 (3)
Proforma Shares Outstanding 26.4 (4)
(1) Based on the warrant being exercisable into investment letter stock.
(2) Reflects the illiquidity of the warrant.
(3) Based on the trading of THCR stock for the past 30 days.
(4) Before exercise of warrants.
- --------------------------------------------------------------------------------
Warrant Valuation
- --------------------------------------------------------------------------------
per share basis Aggregate
Scenario Scenario
------------------- ------------------
I II III I II III
----- ----- ----- ---- ---- ----
Tranche 1 $4.08 $1.75 $1.13 $2.4 $1.0 $0.7
Tranche 2 $4.30 $1.95 $1.27 2.6 1.2 0.8
Tranche 3 $4.56 $2.18 $1.42 2.7 1.3 0.9
---- ---- ----
Total $7.8 $3.5 $2.3
==== ==== ====
Scenario I: Based on a hypothetical valuation basis assuming the warrants are
fully marketable.
Scenario II: Based on a discount to THCR's current share price.
Scenario III: Reflects a haircut to the values attributable in scenario II.
- --------------------------------------------------------------------------------
Implicit Control Premium
- --------------------------------------------------------------------------------
Scenario
-------------------------------
I II III
----- ---- ----
19.2% 8.7% 5.7%
===== ==== ====
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Proforma Gem Income Statement
-----------------------------
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Management Projections
No Gem Expansion
Proforma
-----------------------------------------------------------------------------
Forecast
Estimate For year end December 31,
Est/Act 9-Mos Ended --------------------------------------------------------
1995 12/31/96 1996 1997 1998 1999 2000
------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $557.7 $446.5 $579.6 $608.5 $642.0 $667.7 $697.7
Gross Operating Income $141.3 $129.0 $161.4 $176.8 $196.2 $206.3 $221.3
margin 25.3% 28.9% 27.8% 29.0% 30.6% 30.9% 31.7%
Taj Services Agreement Fee $1.9 0.0 0.5 0.0 0.0 0.0 0.0
Realty Rent 2.7 0.0 0.7 0.0 0.0 0.0 0.0
EBITDA $136.7 $129.0 $160.2 $176.8 $196.2 $206.3 $221.3
margin 24.5% 28.9% 27.6% 29.0% 30.6% 30.9% 31.7%
CRDA amortization $3.1 $2.5 $3.2 $3.4 $3.6 $3.7 $3.9
Depreciation & Amort. 43.9 42.6 54.3 43.4 41.7 43.4 45.2
EBIT $89.7 $83.9 $102.7 $129.9 $151.0 $159.2 $172.2
Interest Expense 76.9 71.8 102.0 94.2 94.1 94.1 90.0
Interest Income (3.7) (0.7) (0.7) (2.2) (3.8) (4.9) (6.3)
------- ----------- ------ ------ ------ ------ ------
Net Interest Expense $73.2 $71.0 $101.2 $92.0 $90.3 $89.2 $83.7
Pre-Tax Income $16.5 $12.9 $1.5 $37.9 $60.6 $70.0 $88.6
Tax Provision (@ 42%) 6.9 5.4 0.6 15.9 25.5 29.4 37.2
------- ----------- ------ ------ ------ ------ ------
Net Income $9.6 $7.5 $0.9 $22.0 $35.2 $40.6 $51.4
======= =========== ====== ====== ====== ====== ======
Credit Statistics:
EBITDA / Cash Interest 1.8 1.8 1.6 1.9 2.1 2.2 2.5
EBITDA-Capex / Cash Interest 1.4 1.5 1.3 1.6 1.8 1.9 2.2
Debt/EBITDA - - 5.0 4.5 4.0 3.6 3.4
</TABLE>
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Proforma Gem Balance Sheets
---------------------------
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Forecast
Management Projections For year end December 31,
No Gem Expansion Estimate --------------------------------------------------
3/31/96 Adjust. As Adjust. 1996 1997 1998 1999 2000
-------- ------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash $82.9 ($71.5) $11.4 $38.5 $71.9 $117.3 $126.1 $191.1
Cage Cash 25.0 25.0 25.0 25.0 25.0 25.0 25.0
Other Current Assets 27.3 27.3 28.0 29.0 30.0 31.0 32.0
-------- ------- -------- -------- -------- -------- -------- --------
$135.2 ($71.5) $63.7 $91.5 $125.9 $172.3 $182.1 $248.1
P, P & E, net $688.4 $209.0 $897.4 $875.0 $859.4 $845.4 $829.8 $812.4
Other 14.1 $27.5 $41.6 42.1 42.7 43.6 44.6 45.7
-------- ------- -------- -------- -------- -------- -------- --------
Total Assets $837.7 $165.0 $1,002.7 $1,008.6 $1,028.0 $1,061.3 $1,056.5 $1,106.2
======== ======= ======== ======== ======== ======== ======== ========
Liabilities & Shareholders Equity
Credit Facility $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Payables and accruals 69.7 (27.4) 42.3 42.3 42.3 42.3 42.3 42.3
-------- ------- -------- -------- -------- -------- -------- --------
Total Current Liabilities $69.7 ($27.4) $42.3 $42.3 $42.3 $42.3 $42.3 $42.3
Long-Term Debt
Mortgage Bonds $659.3 ($659.3) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
New Mortgage Notes 0.0 750.0 750.0 750.0 750.0 750.0 750.0 750.0
NatWest Loan & Other 45.5 45.5 45.3 44.4 44.2 0.5 0.5
Slot Machine Capitalized Lease 0.0 0.0 0.0 0.0 0.0 0.0 0.0
-------- ------- -------- -------- -------- -------- -------- --------
Total Long-Term Debt 704.8 90.7 795.5 795.3 794.4 794.2 750.5 750.5
Other Liabilities $34.3 ($27.4) $6.9 $6.9 $6.9 $6.9 $6.9 $6.9
Total Liabilities $808.7 $35.9 $844.6 $844.4 $843.5 $843.3 $799.6 $799.6
Shareholders Equity 29.0 129.1 158.1 164.2 184.5 218.0 256.9 306.5
-------- ------- -------- -------- -------- -------- -------- --------
Total Liabilties and Capital $837.7 $165.0 $1,002.7 $1,008.6 $1,028.0 $1,061.3 $1,056.5 $1,106.2
======== ======= ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Proforma Gem Cash Flow Statement
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
Management Projections
No Gem Expansion
<TABLE>
<CAPTION>
Estimate Forecast
9-Mos Ended For year end December 31,
-----------------------------------------
12/31/96 1997 1998 1999 2000
----------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Income $7.5 $22.0 $35.2 $40.6 $51.4
Addback:
Depreciation & Amortization 45.0 46.8 45.2 47.1 49.1
Working Capital Required (0.8) (1.0) (1.0) (1.0) (1.0)
Interest Payable 0.0 0.0 0.0 0.0 0.0
Capital Expenditures (a) (24.5) (33.5) (33.9) (34.2) (34.5)
----------- ------ -------- ------- -------
Free Cash Flow Before Debt Amortization $27.3 $34.4 $45.5 $52.5 $65.0
=========== ====== ======== ======= =======
Debt Amortization (0.2) (0.9) (0.2) (43.7) 0.0
----------- ------ -------- ------- -------
Free Cash Flow $27.1 $33.5 $45.3 $8.8 $65.0
=========== ====== ======== ======= =======
Beginning Cash Balance 11.4 38.5 71.9 117.3 126.1
Free Cash Flow 27.1 33.5 45.3 8.8 65.0
Credit Facility 0.0 0.0 0.0 0.0 0.0
----------- ------ -------- ------- -------
Ending Cash Balance $38.5 $71.9 $117.3 $126.1 $191.1
</TABLE>
(a) Includes CRDA Investment and Partnership distribution.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Proforma Gem Income Statement
-----------------------------
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Management Projections
With Gem Expansion
Proforma
--------------------------------------------------------------------------
Forecast
Estimate For year end December 31,
Est/Act 9-Mos Ended --------------------------------------------------------
1995 12/31/96 1996 1997 1998 1999 2000
-------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $557.7 $446.5 $579.6 $678.8 $773.6 $843.4 $916.7
Gross Operating Income $141.3 $129.0 $161.4 $210.4 $257.0 $286.9 $321.1
margin 25.3% 28.9% 27.8% 31.0% 33.2% 34.0% 35.0%
Taj Services Agreement Fee $1.9 $0.0 $0.5 $0.0 $0.0 $0.0 $0.0
Realty Rent 2.7 0.0 0.7 0.0 0.0 0.0 0.0
EBITDA $136.7 $129.0 $160.2 $210.4 $257.0 $286.9 $321.1
margin 24.5% 28.9% 27.6% 31.0% 33.2% 34.0% 35.0%
CRDA amortization $3.1 $2.5 $3.2 $3.8 $4.3 $4.7 $5.1
Depreciation & Amort. 43.9 42.8 54.5 50.0 53.5 57.4 61.4
EBIT $89.7 $83.7 $102.5 $156.5 $199.1 $224.8 $254.6
Interest Expense 76.9 71.8 99.5 110.4 113.0 108.4 96.3
Interest Income (3.7) (0.2) (0.2) 0.0 0.0 0.0 (1.4)
-------- ----------- ------ ------ ------ ------ ------
Net Interest Expense $73.2 $71.6 $99.2 $110.4 $113.0 $108.4 $94.9
Pre-Tax Income $16.5 $12.1 $3.2 $46.1 $86.1 $116.4 $159.6
Tax Provision (@ 42%) 6.9 5.1 1.4 19.4 36.2 48.9 67.0
-------- ----------- ------ ------ ------ ------ ------
Net Income $9.6 $7.0 $1.9 $26.7 $50.0 $67.5 $92.6
======== =========== ====== ====== ====== ====== ======
Credit Statistics:
EBITDA / Cash Interest 1.8 1.8 1.6 1.9 2.3 2.6 3.3
EBITDA-Capex / Cash Interest 1.4 0.4 0.6 0.9 1.6 2.1 3.1
Debt/EBITDA - - 5.0 3.8 3.1 2.6 2.3
</TABLE>
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Proforma Gem Balance Sheets
---------------------------
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION> Forecast
Management Projections For year end December 31,
With Gem Expansion Estimate As ----------------------------------------------------
3/31/96 Adjust. Adjusted 1996 1997 1998 1999 2000
-------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash $82.9 ($71.5) $11.4 $0.0 $0.0 $0.0 $0.0 $68.5
Cage Cash 25.0 25.0 25.0 30.0 30.0 30.0 30.0
Other Current Assets 27.3 27.3 28.0 29.0 30.0 31.0 32.0
-------- ------- -------- -------- -------- -------- -------- --------
$135.2 ($71.5) $63.7 $53.0 $59.0 $60.0 $61.0 $130.6
P, P & E, net $688.4 $209.0 $897.4 $956.0 $1,020.1 $1,041.1 $1,046.5 1,012.8
Other 14.1 $27.5 $41.6 43.1 44.2 45.8 47.7 50.0
-------- ------- -------- -------- -------- -------- -------- --------
Total Assets $837.7 $165.0 $1,002.7 $1,052.1 $1,123.3 $1,146.9 $1,155.2 $1,193.4
======== ======= ======== ======== ======== ======== ======== ========
Liabilities & Shareholders Equity
Credit Facility $0.0 $0.0 $43.9 $80.0 $60.5 $51.5 $0.0
Payables and accruals 69.7 (27.4) 42.3 42.3 42.3 42.3 42.3 42.3
-------- ------- -------- -------- -------- -------- -------- --------
Total Current Liabilities $69.7 ($27.4) $42.3 $86.2 $122.3 $102.8 $93.7 $42.3
Long-Term Debt
Mortgage Bonds $659.3 ($659.3) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
New Mortgage Notes 0.0 750.0 750.0 750.0 750.0 750.0 750.0 750.0
NatWest Loan & Other 45.5 45.5 45.3 44.4 44.2 0.5 0.5
Slot Machine Capitalized Lease 0.0 0.0 0.0 11.0 6.0 1.2 0.0
-------- ------- -------- -------- -------- -------- -------- --------
Total Long-Term Debt 704.8 90.7 795.5 795.3 805.4 800.2 751.7 750.5
Other Liabilities $34.3 ($27.4) $6.9 $6.9 $6.9 $6.9 $6.9 $6.9
Total Liabilities $808.7 $35.9 $844.6 $888.4 $934.5 $909.9 $852.3 $799.6
Shareholders Equity 29.0 129.1 158.1 163.7 188.8 237.0 302.9 393.7
-------- ------- -------- -------- -------- -------- -------- --------
Total Liabilties and Capital $837.7 $165.0 $1,002.7 $1,052.1 $1,123.3 $1,146.9 $1,155.2 $1,193.4
======== ======= ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Proforma Gem Cash Flow Statement
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
Management Projections
With Gem Expansion
<TABLE>
<CAPTION>
Estimate Forecast
9-Mos Ended For year end December 31,
-----------------------------------------
12/31/96 1997 1998 1999 2000
----------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Income $7.0 $26.7 $50.0 $67.5 $92.6
Addback:
Depreciation & Amortization 45.3 53.9 57.8 62.1 66.5
Working Capital Required (0.8) (1.0) (1.0) (1.0) (1.0)
(Increase)/Decrease in Cage Cash 0.0 (5.0) 0.0 0.0 0.0
Interest Payable 0.0 0.0 0.0 0.0 0.0
Capital Expenditures (a) (106.7) (120.8) (82.1) (71.1) (36.9)
------ ------ ----- ----- ------
Free Cash Flow Before Debt Amortization ($55.1) ($46.2) $24.7 $57.6 $121.2
====== ====== ===== ===== ======
Debt Amortization
New Bonds Issued 0.0 0.0 0.0 0.0 0.0
Natwest & Other (0.2) (0.9) (0.2) (43.7) 0.0
Slot Machines Capitalized Lease 0.0 11.0 (5.0) (4.8) (1.2)
------ ------ ----- ----- ------
TOTAL (0.2) 10.1 (5.2) (48.5) (1.2)
------ ------ ----- ----- ------
Free Cash Flow ($55.3) ($36.1) $19.5 $9.1 $120.0
====== ====== ===== ===== ======
Beginning Cash Balance 11.4 0.0 0.0 0.0 0.0
Free Cash Flow (55.3) (36.1) 19.5 9.1 120.0
Credit Facility Activity 43.9 36.1 (19.5) (9.1) (51.5)
------ ------ ----- ----- ------
Ending Cash Balance $0.0 $0.0 $0.0 $0.0 $68.5
</TABLE>
(a) Includes CRDA Investment and Partnership distribution.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Proforma Gem Income Statement
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
Adjusted Management Projections
No Gem Expansion
<TABLE>
<CAPTION>
Proforma
--------------------------------------------------------------------
Estimate Forecast
Est/Act 9-Mos Ended For year end December 31,
-------------------------------------------------------
1995 12/31/96 1996 1997 1998 1999 2000
------ -------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $557.7 $446.5 $579.6 $602.7 $626.8 $651.9 $678.0
Gross Operating Income $141.3 $129.0 $161.4 $171.0 $181.1 $190.5 $201.6
margin 25.3% 28.9% 27.8% 28.4% 28.9% 29.2% 29.7%
Taj Services Agreement Fee $1.9 0.0 0.5 0.0 0.0 0.0 0.0
Realty Rent 2.7 0.0 0.7 0.0 0.0 0.0 0.0
EBITDA $136.7 $129.0 $160.2 $171.0 $181.1 $190.5 $201.6
margin 24.5% 28.9% 27.6% 28.4% 28.9% 29.2% 29.7%
CRDA amortization $3.1 $2.5 $3.2 $3.4 $3.6 $3.7 $3.9
Depreciation & Amort. 43.9 42.6 54.3 43.4 41.7 43.4 45.2
EBIT $89.7 $83.9 $102.7 $124.1 $135.8 $143.4 $152.5
Interest Expense 76.9 71.8 102.0 94.2 94.1 94.1 90.0
Interest Income (3.7) (0.7) (0.7) (2.1) (3.5) (4.2) (5.2)
------ ------ ------ ------ ------ ------ ------
Net Interest Expense $73.2 $71.0 $101.2 $92.1 $90.6 $89.9 $84.8
Pre-Tax Income $16.5 $12.9 $1.5 $32.1 $45.2 $53.5 $67.7
Tax Provision (@ 42%) 6.9 5.4 0.6 13.5 19.0 22.5 28.4
------ ------ ------ ------ ------ ------ ------
Net Income $9.6 $7.5 $0.9 $18.6 $26.2 $31.0 $39.3
====== ====== ====== ====== ====== ====== ======
Credit Statistics:
EBITDA / Cash Interest 1.8 1.8 1.6 1.8 1.9 2.0 2.2
EBITDA-Capex / Cash Interest 1.4 1.5 1.3 1.5 1.7 1.8 2.0
Debt/EBITDA - - 5.0 4.6 4.4 3.9 3.7
</TABLE>
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Proforma Gem Balance Sheets
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Adjusted Management Projections Forecast
No Gem Expansion Estimate For year end December 31,
3/31/96 Adjust. As Adjust. 1996 1997 1998 1999 2000
------- ------- ---------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash $82.9 ($71.5) $11.4 $38.5 $68.5 $104.9 $104.2 $157.1
Cage Cash 25.0 25.0 25.0 25.0 25.0 25.0 25.0
Other Current Assets 27.3 27.3 28.0 29.0 30.0 31.0 32.0
------ ------ -------- -------- -------- -------- -------- --------
$135.2 ($71.5) $63.7 $91.5 $122.5 $159.9 $160.2 $214.1
P, P & E, net $688.4 $209.0 $897.4 $875.0 $859.4 $845.4 $829.8 $812.4
Other 14.1 $27.5 $41.6 42.1 42.7 43.6 44.6 45.7
------ ------ -------- -------- -------- -------- -------- --------
Total Assets $837.7 $165.0 $1,002.7 $1,008.6 $1,024.6 $1,048.9 $1,034.6 $1,072.2
====== ====== ======== ======== ======= ======== ======== ========
Liabilities & Shareholders Equity
Credit Facility $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Payables and accruals 69.7 (27.4) 42.3 42.3 42.3 42.3 42.3 42.3
------ ------ -------- -------- -------- -------- -------- --------
Total Current Liabilities $69.7 ($27.4) $42.3 $42.3 $42.3 $42.3 $42.3 $42.3
Long-Term Debt
Mortgage Bonds $659.3 ($659.3) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
New Mortgage Notes 0.0 750.0 750.0 750.0 750.0 750.0 750.0 750.0
NatWest Loan & Other 45.5 45.5 45.3 44.4 44.2 0.5 0.5
Slot Machine Capitalized Lease 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------ ------ -------- -------- -------- -------- -------- --------
Total Long-Term Debt 704.8 90.7 795.5 795.3 794.4 794.2 750.5 750.5
Other Liabilities $34.3 ($27.4) $6.9 $6.9 $6.9 $6.9 $6.9 $6.9
Total Liabilities $808.7 $35.9 $844.6 $844.4 $843.5 $843.3 $799.6 $799.6
Shareholders Equity 29.0 129.1 158.1 164.2 181.1 205.6 234.9 272.5
------ ------ -------- -------- -------- -------- -------- --------
Total Liabilties and Capital $837.7 $165.0 $1,002.7 $1,008.6 $1,024.6 $1,048.9 $1,034.6 $1,072.2
====== ====== ======== ======== ======= ======== ======== ========
</TABLE>
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Proforma Gem Cash Flow Statement
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
Adjusted Management Projections
No Gem Expansion
<TABLE>
<CAPTION>
Estimate Forecast
9-Mos Ended For year end December 31,
-------------------------------------------
12/31/96 1997 1998 1999 2000
-------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Income $7.5 $18.6 $26.2 $31.0 $39.3
Addback:
Depreciation & Amortization 45.0 46.8 45.2 47.1 49.1
Working Capital Required (0.8) (1.0) (1.0) (1.0) (1.0)
Interest Payable 0.0 0.0 0.0 0.0 0.0
Capital Expenditures (a) (24.5) (33.5) (33.9) (34.2) (34.5)
----- ----- ------ ------ ------
Free Cash Flow Before Debt Amortizati $27.3 $31.0 $36.6 $43.0 $52.9
===== ===== ====== ====== ======
Debt Amortization (0.2) (0.9) (0.2) (43.7) 0.0
----- ----- ------ ------ ------
Free Cash Flow $27.1 $30.1 $36.4 ($0.7) $52.9
===== ===== ====== ====== ======
Beginning Cash Balance 11.4 38.5 68.5 104.9 104.2
Free Cash Flow 27.1 30.1 36.4 (0.7) 52.9
Credit Facility 0.0 0.0 0.0 0.0 0.0
----- ----- ------ ------ ------
Ending Cash Balance $38.5 $68.5 $104.9 $104.2 $157.1
</TABLE>
(a) Includes CRDA Investment and Partnership distribution.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Merger Transaction Summary
--------------------------
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
PURCHASE PRICE SUMMARY
----------------------
Common shares %
------ ------ ------
Gem Class A 1.35 38.8%
Class B 0.78 22.4%
Class C 1.35 38.8%
------ ------
Total 3.48 100.0%
====== ======
Equity Offering Price
---------------------
Class A Class B Class C Fst Fidelity
------- ------- ------- ------------
Cash $0.00 $0.50 $0.00
Debt 0.00 0.00 0.00
Common 30.00 0.00 30.00
------ ----- ------
$30.00 $0.50 $30.00
====== ===== ======
Allocation of Consideration
---------------------------
Cash 0.0% 100.0% 0.0%
Debt 0.0% 0.0% 0.0%
Common 100.0% 0.0% 100.0%
Amount of Consideration
-----------------------
Cash $0.0 $0.4 $0.0 -
Debt 0.0 0.0 0.0 -
Common 40.5 0.0 40.5 10.0
------ ----- ------ ------
Total $40.5 $0.4 $40.5 $10.0
====== ===== ====== ======
THCR exchange ratio 1.38 0.00 1.38 -
Assumed THCR price per share $21.750
THCR Shareholder Profile
Pre-Transaction Post-Transaction
----------------- ------------------
shares % shares %
-------- ----- -------- ------
Gem Class A - - 1.86 7.3%
Gem Class B - - 0.00 0.0%
Gem Class C - - 1.86 7.3%
First Fidelity - - 0.46 1.8%
Current THCR holders
DJT 6.67 39.7% 6.67 26.1%
Public 10.14 60.3% 10.14 39.6%
New THCR to the Public - - 4.60 18.0%
-------- ------ ------- ------
Total (1) 16.80 100.0% 25.59 100.0%
======== ====== ======= ======
(1) Excludes the warrant issued to DJT.
SCENARIO: CLASS A SHARE PURCHASE
SOURCES AND USES SUMMARY
------------------------
Sources Uses
------- ----
Cash on-hand $71.5 Payment to First Fidelity $50.0
New Notes 750.0 Payment to Bankers Trust 10.0
New Common 191.0 (1) Redeem Mtg Bonds 793.7
Redeem NatWest Loan 0.0
Purchase/Exchange A & C share 81.0
Purchase B shares 0.4
THCR Equity to First Fidelity 10.0
Accrued Interest 27.4
Transaction Expenses 40.0
-------- --------
Total $1,012.5 $1,012.5
======== ========
(1) Assumes $100.0 million of new equity is sold to the public.
CAPITALIZATION SUMMARY
----------------------
As of March 31, 1996 Proforma Proforma % of
THCR Gem Adjust. As Adjust. Capital.
------ ------ -------- ---------- --------
Excess Cash $8.5 $82.9 ($71.5) $19.9
Restricted Cash 5.5 25.0 30.5
------ ------ -------- ----------
Total $14.0 $107.9 ($71.5) $50.4
====== ====== ======== ==========
Debt
----
THCR 10.875% Mtg Bonds $330.0 $330.0 21.4%
THCR 15.500% Snr Sec Nts 155.0 155.0 10.1%
THCR Cap Lease & Other 45.2 45.2 2.9%
Gem 11.350% Mtg Bonds 793.7 (793.7) 0.0 0.0%
Gem NatWest Loan 45.5 0.0 45.5 3.0%
Gem New Mtg Bonds 750.0 750.0 48.7%
Gem New Expand. Nts 0.0 0.0 0.0%
Gem New Other 0.0 0.0 0.0%
------ ------ -------- -------- -------
Total $530.2 $839.2 ($43.7) $1,325.7 86.0%
====== ====== ======== ======== =======
Shareholders' Equity $47.0 $29.0 $139.1 $215.1 14.0%
------ ------ -------- -------- -------
Total Capitalization $577.2 $868.2 $95.4 $1,540.8 100.0%
====== ====== ======== ======== =======
ASSUMPTIONS
-----------
Gem Expansion? No Transaction Fees and Expenses
-----------------------------
Gem New Mtg Bonds 12.000% Expensed $12.5
Gem Credit Facility 12.000% Capitalized 27.5
-----
Gem New Other Debt 10.000% Total $40.0
=====
Redeem NatWest Debt No Amortization per year (10 years) $2.8
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Proforma Income Statement
-------------------------
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
Scenario: Class A Share Purchase / No Gem Expansion
<TABLE>
<CAPTION>
Management Projections 1995
------------------------------------------------
(a) (a) Proforma
Gem THCR Adjust. As Adjust.
------ ------ ------- ----------
<S> <C> <C> <C> <C>
Net Revenues $557.7 $333.2 $890.9
EBITDA $136.7 (b) $75.4 $4.6 (d) $216.7
Depreciation/Amortization $43.9 $24.8 $5.6 $74.3
CRDA amortization $3.1 3.1
Write-off of Preopening Expenses 0.0
Amortization of Capitalized Costs 0.7 2.8 3.5
EBIT $89.7 $49.9 ($3.8) $135.8
Interest Expense
THCR 10.875% Mtg Bonds - $35.9 $35.9
THCR 15.500% Snr Sec Nts - 24.0 (c) 24.0
THCR Other - 5.8 (c) 5.8
Gem 11.350% Mtg Bonds 72.6 - (72.6) 0.0
Gem NatWest Loan 4.3 - 0.0 4.3
New Gem Mtg Bonds - - 90.0 (c) 90.0
------ ------ ------ ------
Total $76.9 $65.7 $17.4 $160.0
Interest Income (3.7) (2.2) - (5.9)
Partner Note - (0.2) - (0.2)
Pretax Income $16.5 ($13.5) ($21.1) ($18.1)
Tax Provision 42.0% $6.9 ($5.7) ($8.9) (7.6)
------ ------ ------ ------
Net Income $9.6 ($7.8) ($12.3) ($10.5)
====== ====== ====== ======
Adjustment
Preopening Expenses (A-T) - - - 0.0
------ ------ ------ ------
Adjusted Net Income $9.6 ($7.8) ($12.3) ($10.5)
====== ====== ====== ======
EPS - ($0.46) - ($0.41)
Adjust EPS - ($0.46) - ($0.41)
Shares Outstanding - 16.8 8.8 25.6
Proforma Credit Statistics:
EBITDA / Cash Interest 1.5 x 1.1 x - 1.4 x
EBITDA-Capex / Cash Interest 1.2 1.1 - 1.2
Debt/EBITDA 5.6 7.0 - 6.1
<CAPTION>
Management Projections 1996
-------------------------------------------------
(a) (a) Proforma
Gem THCR Adjust. As Adjust.
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Net Revenues $579.6 $620.4 $1,200.0
EBITDA $156.5 (b) $148.7 $4.9 (d) $310.0
Depreciation/Amortization $48.2 $26.4 $5.6 $80.3
CRDA amortization $3.2 3.2
Write-off of Preopening Expenses 9.0 9.0
Amortization of Capitalized Costs 0.7 2.8 3.4
EBIT $105.1 $112.6 ($3.5) $214.2
Interest Expense
THCR 10.875% Mtg Bonds - $35.9 $35.9
THCR 15.500% Snr Sec Nts - 24.0 (c) 24.0
THCR Other - 9.0 (c) 9.0
Gem 11.350% Mtg Bonds - - 0.0 0.0
Gem NatWest Loan - - 4.3 4.3
New Gem Mtg Bonds - - 90.0 (c) 90.0
------ ------ ------- --------
Total - $68.9 $94.3 $163.2
Interest Income (0.7) (1.1) (1.9)
Partner Note - (0.3) (0.3)
Pretax Income $105.8 $45.1 ($97.7) $53.2
Tax Provision 42.0% $44.4 $18.9 ($41.1) 22.3
------ ------ ------- --------
Net Income $61.4 $26.2 ($56.7) $30.8
====== ====== ======= ========
Adjustment
Preopening Expenses (A-T) - 5.2 - 5.2
------ ------ ------- --------
Adjusted Net Income $61.4 $31.4 ($56.7) $36.1
====== ====== ======= ========
EPS - $1.56 - $1.21
Adjust EPS - $1.87 - $1.41
Shares Outstanding - 16.8 8.8 25.6
Proforma Credit Statistics:
EBITDA / Cash Interest 1.7 x 2.2 x - 1.9 x
EBITDA-Capex / Cash Interest 1.4 2.2 - 1.7
Debt/EBITDA 4.9 3.6 - 4.3
</TABLE>
- ----------
(a) Management estimate.
(b) Post Mgmt fees and Realty rent.
(c) Proforma for full year results.
(d) Represents the addback of Realty Rent and Gem Services Agreement Fee.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Proforma Income Statement
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
Scenario: Class A Share Purchase / No Gem Expansion
<TABLE>
<CAPTION>
Management Projections 1997
-------------------------------------------
(a) (a) Proforma
Gem THCR Adjust. As Adjust.
------ ------ ------- ----------
<S> <C> <C> <C> <C>
Net Revenues $608.5 $724.5 $1,333.0
EBITDA $171.6 (b) $179.8 $5.1 (c) $356.6
Depreciation/Amortization $35.3 $27.4 $5.6 $68.4
CRDA amortization $3.4 3.4
Write-off of Preopening Expenses 0.0 0.0
Amortization of Capitalized Costs 0.7 2.8 3.4
EBIT $132.9 $151.7 ($3.2) $281.4
Interest Expense
THCR 10.875% Mtg Bonds - $35.9 $35.9
THCR 15.500% Snr Sec Nts - 24.0 24.0
THCR Other - 8.0 8.0
Gem 11.350% Mtg Bonds - - 0.0 0.0
Gem NatWest Loan - - 4.2 4.2
New Gem Mtg Bonds - - 90.0 90.0
------ ------ ------ --------
Total - $67.9 $94.2 $162.1
Interest Income (2.2) - (2.2)
Partner Note - (0.3) (0.3)
Pretax Income $135.1 $84.0 ($97.4) $121.7
Tax Provision 42.0% $56.8 $35.3 ($40.9) 51.1
------ ------ ------ --------
Net Income $78.4 $48.7 ($56.5) $70.6
====== ====== ====== ========
Adjustment
Preopening Expenses (A-T) - 0.0 - 0.0
------ ------ ------ --------
Adjusted Net Income $78.4 $48.7 ($56.5) $70.6
====== ====== ====== ========
EPS - $2.90 - $2.76
Adjust EPS - $2.90 - $2.76
Shares Outstanding - 16.8 8.8 25.6
Proforma Credit Statistics:
EBITDA / Cash Interest 1.9 x 2.6 x - 2.2 x
EBITDA-Capex / Cash Interest 1.6 2.6 - 2.0
Debt/EBITDA 4.9 3.6 - 4.3
<CAPTION>
Management Projections 1998
-------------------------------------------
(a) (d) Proforma
Gem THCR Adjust. As Adjust.
------ ------ ------- ----------
<S> <C> <C> <C> <C>
Net Revenues $642.0 $760.7 $0.0 $1,402.7
EBITDA $190.8 (b) $194.2 $5.4 (c) $390.4
Depreciation/Amortization $33.5 $29.6 $5.6 $68.8
CRDA amortization $3.6 3.6
Write-off of Preopening Expenses 0.0 0.0
Amortization of Capitalized Costs 0.7 2.8 3.4
EBIT $153.7 $163.9 ($3.0) $314.6
Interest Expense
THCR 10.875% Mtg Bonds - $35.9 $35.9
THCR 15.500% Snr Sec Nts - 24.0 24.0
THCR Other - 3.9 3.9
Gem 11.350% Mtg Bonds - - 0.0 0.0
Gem NatWest Loan - - 4.1 4.1
New Gem Mtg Bonds - - 90.0 90.0
------ ------ ------ --------
Total - $63.8 $94.1 $157.9
Interest Income (3.8) - (3.8)
Partner Note - (0.3) (0.3)
Pretax Income $157.4 $100.4 ($97.1) $160.8
Tax Provision 42.0% $66.1 $42.2 ($40.8) 67.5
------ ------ ------ --------
Net Income $91.3 $58.2 ($56.3) $93.3
====== ====== ====== ========
Adjustment
Preopening Expenses (A-T) - 0.0 - 0.0
------ ------ ------ --------
Adjusted Net Income $91.3 $58.2 ($56.3) $93.3
====== ====== ====== ========
EPS - $3.47 - $3.64
Adjust EPS - $3.47 - $3.64
Shares Outstanding - 16.8 8.8 25.6
Proforma Credit Statistics:
EBITDA / Cash Interest 2.1 x 3.0 x - 2.5 x
EBITDA-Capex / Cash Interest 1.8 3.0 - 2.3
Debt/EBITDA 4.0 2.7 - 3.4
</TABLE>
- ----------
(a) Management estimates.
(b) Post Mgmt fees and Realty rent.
(c) Represents the addback of Realty Rent and Gem Services Agreement Fee.
(d) Estimate
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Estimated Proforma Balance Sheets
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of March 31, 1996
--------------------------------------------
THCR GEM Adjustments Proforma
------ ------ ------------ --------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Excess Cash $8.5 $82.9 ($71.5) $19.9
Cage Cash 5.5 25.0 0.0 30.5
Other Current Assets 36.0 27.3 0.0 63.2
------ ------ ------ --------
Total Current Assets $50.0 $135.2 ($71.5) $113.6
PROPERTY & EQUIPMENT, NET 533.2 688.4 219.0 1,440.7
OTHER 28.4 14.1 27.5 70.1
------ ------ ------ --------
TOTAL ASSETS $611.6 $837.7 $175.0 $1,624.4
====== ====== ====== ========
CURRENT LIABILITIES
Credit Facility $0.0 $0.0 $0.0 $0.0
Payables and Accruals 27.7 69.7 (27.4) 69.9
------ ------ ------ --------
Total Current Liabilties $27.7 $69.7 ($27.4) $69.9
LONG TERM LIABILITIES
DJT 10.875% Mtg Bonds $330.0 $330.0
DJT 15.500% Snr Sec Notes 155.0 155.0
DJT Cap Lease & Other 50.3 50.3
Gem 11.350% Mtg Bonds 659.3 (659.3) 0.0
Gem Natwest Loan 45.5 45.5
Gem New Mtg Bonds 0.0 750.0 750.0
Gem Other 34.3 (27.4) 6.9
------ ------ ------ --------
Total $535.3 $739.1 $63.3 $1,337.7
MINORITY INTEREST 1.7 1.7
CAPITAL 47.0 29.0 139.1 215.1
Total Liabilties and Capital $611.7 $837.7 $175.0 $1,624.4
====== ====== ====== ========
</TABLE>
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Gem Excess Cash Analysis
(dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
estimate estimate
12/31/95 03/31/96
-------- --------
Cash Balance $90.0 $107.9
Reserves:
Cage Cash and Working Capital ($25.0) ($25.0)
Excess Cash Balance $65.0 $82.9
======== ========
Adjustments:
Accrued Interest on 11.35s ($9.1) ($27.4)
Excess Cash Availability $55.8 $55.5
======== ========
<PAGE>
Rothschild Inc.
PROJECT WONDER
Analysis of Selected Atlantic City Casinos
Comparative Multiples
---------------------
(dollar amount in millions except per share data)
MARKET MULTIPLE ANALYSIS FOR SELECTED INDUSTRY COMPARABLES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENT PRICE
PRICE AS % OF 52 WEEK MARKET MARKET
COMPANIES 05-Jan-96 HIGH LOW SHARES VALUE CAP. (a)
- ------------------------------------ --------- ------- ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
AZTAR Corp $8.13 77.38% 144.32% 38.3 311.2 715.1
Bally Entertainment Corp $15.00 100.00% 278.81% 47.3 709.5 1,696.9
Hollywood Casino Corp $4.50 43.90% 105.88% 24.7 111.2 491.4
Harrah's Entertainment, Inc. $26.38 79.61% 131.15% 102.6 2,706.1 3,261.6
Griffin Gaming & Entertainment, Inc. $11.75 59.67% 313.33% 7.9 92.8 258.4
Showboat Inc $26.38 89.77% 211.00% 15.5 408.8 568.4
Trump Hotels & Casino $21.75 97.21% 191.12% 16.7 363.2 804.4
Circus Circus Enterprises Inc. $30.38 84.07% 144.64% 102.8 3,121.8 3,715.5
Mirage Resorts, Inc. $38.38 100.00% 196.79% 91.4 3,509.1 3,730.2
<CAPTION>
MARKET CAP. AS A MULTIPLE OF
-------------------------------------------------------
CURRENT NEXT CURRENT NEXT CURRENT NEXT
YEAR YEAR YEAR YEAR YEAR YEAR
COMPANIES EBITDA EBITDA EBIT EBIT SALES SALES
- ---------------------------- ------- ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
AZTAR Corp 6.6 x 5.1 x 10.9 x 7.2 x 1.2 x 1.1 x
Bally Entertainment Corp 6.5 6.1 9.1 8.5 1.7 1.5
Hollywood Casino Corp 5.8 5.1 NA NA NA NA
Harrah's Entertainment, Inc. 7.5 6.5 8.6 7.7 2.1 2.0
Griffin Gaming & Entertainment, Inc. 4.2 3.9 5.4 5.0 0.9 0.8
Showboat Inc 7.4 6.7 12.9 11.0 1.3 1.2
Trump Hotels & Casino 10.6 * 5.4 17.4 7.7 2.4 2.1
Maximum (b) 7.5 x 6.7 x 17.4 x 11.0 x 2.4 x 2.1 x
Mean (b) 6.3 5.5 10.7 7.9 1.6 1.5
Median (b) 6.6 5.4 9.1 7.7 1.3 1.2
Minimum (b) 4.2 3.9 5.4 5.0 0.9 0.8
Circus Circus Enterprises Inc. 8.5 7.3 10.8 9.2 2.9 2.6
Mirage Resorts, Inc. 9.2 8.7 14.4 13.0 2.8 2.7
</TABLE>
- ----------
* Not included in summary multiples
(a) Market Capitalisation = Market Value + Preferred Equity at Liquidation Value
(incl. Redeemable) + Short-Term Debt + Long-Term Debt + Minority Interest -
Cash & Marketable Securities.
(b) Summary Multiples exclude numbers that are Negative, Not Available, Not
Meaningful, and (*) figures.
<PAGE>
Rothschild Inc.
PROJECT WONDER
Analysis of Selected Atlantic City Casinos
Comparative Multiples
(dollar amounts in millions except per share data)
MARKET MULTIPLE ANALYSIS FOE SELECTED INDUSTRY COMPARABLESS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE AS A MULTIPLE OF
LTM CURRENT NEXT LTM LFQ
PRICE MARKET MARKET NET TO YEAR EPS YEAR EPS CASH COMMON
COMPANIES 1/5/96 SHARES VALUE CAP. (a) COMMON EST. (b) EST. (b) FLOW (c) EQUITY
--------- ------ ------ ----- -------- ------ -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. $8.13 38.3 $310.8 $715.1 67.7 x 38.7 x 11.3 x 6.8 x 0.8 x
BALLY ENTERTAINMENT $15.00 47.3 $709.5 $1,696.9 45.5 25.0 19.0 7.6 1.5
HOLLYWOOD CASINO 'A' $4.50 24.7 $111.2 $491.4 41.2 12.5 6.9 2.0 NM
HARRAH'S ENTERTAIN. $26.38 102.6 $2,706.1 $3,261.6 32.9 20.1 15.7 17.4 4.4
GRIFFIN GAMING & ENT $11.75 7.9 $92.8 $258.4 4.4 11.0 9.6 1.9 3.6
SHOWBOAT, INC. $26.38 15.5 $408.8 $568.4 26.4 37.1 17.8 8.7 2.4
TRUMP HOTELS & CASINO $21.75 16.7 $363.2 $804.4 NM 12.1 10.5 NM 6.8
Maximum (d) 67.7 x 38.7 x 19.0 x 17.4 x 6.8 x
Mean (d) 36.3 22.4 13.0 7.4 3.2
Adj. Mean (e) 36.5 23.7 14.0 6.3 3.0
Median (d) 32.9 20.1 11.3 6.8 2.4
Minimum (d) 4.4 11.0 6.9 1.9 0.8
CIRCUS CIRCUS ENTERP $30.38 102.7 $3,120.5 $3,715.5 22.5 18.1 16.5 13.9 2.8
MIRAGE RESORTS $38.38 91.4 $3,506.9 $3,730.2 23.8 21.1 19.6 14.7 3.0
MKT. CAP. AS A MULTIPLE OF
COMPANIES LTM LTM LTM
AZTAR CORP. EBITDA EBIT SALES
BALLY ENTERTAINMENT 7.1 x 11.9 x 1.27 x
HOLLYWOOD CASINO 'A' 7.2 10.8 1.71
HARRAH'S ENTERTAIN. 4.6 9.1 0.92
GRIFFIN GAMING & ENT 8.4 10.4 2.15
SHOWBOAT, INC. 3.6 6.0 0.85
TRUMP HOTELS & CASINO 7.1 11.6 1.33
11.6 15.6 2.61
Maximum 11.6 x 15.6 x 2.61 x
Mean 7.1 10.8 1.55
Adj. Mean 6.9 10.8 1.48
Median 7.1 10.8 1.33
Minimum 3.6 6.0 0.85
CIRCUS CIRCUS ENTERP 12.1 16.7 3.08
MIRAGE RESORTS 10.4 14.0 2.87
</TABLE>
- ----------
(a) Market Capitalization = Market Value + Preferred Equity at Liquidation Value
(Incl. Redeemable) + Short-Term Debt + Long Term Debt + Minority Interest -
Cash & Marketable Securities.
(b) Earnings Estimates were obtained from I/B/E/S.
(c) Cash Flow = Income Available to Common + Depreciation, Depletion &
Amortization + Deferred Taxes - Unremitted Earnings of Unconsolidated
Subsidiaries.
(d) Summary Multiples exlcude members that are Negative, Not Available, Not
Meaningful, and figures which are considered ouliers(*)
(e) Adj. Mean excludes the high, low and negative numbers.
<PAGE>
PROJECT WONDER
Analysis of Selected Atlantic City Casinos
Comparative Multiples
(dollar amounts in millions except per share data)
SUMMARY DATA FOR SELECTED INDUSTRY COMPARABLES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LTM CURRENT NEXT LTM LFQ
SHARES --52 Week Range- NET TO YR. EPS YR. EPS CASH COMMON LTM LTM LTM LTM
COMPANIES OUT HIGH LOW COMMON EST. (a) EST. (a) FLOW (b) EQUITY EBITDA EBIT SALES ENDED
--------- ----- ---- --- ------ ------- ------- ------- ------ ------ ----- ----- -----
<CAPTION> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S> <S>
AZTAR CORP. 38.3 $10.50 $5.63 $4.6 $0.21 $0.72 $46.0 $371.7 $101.3 $59.9 564.2 9/95
BALLY ENTERTAINMENT 47.3 $12.88 $5.38 $15.6 $0.60 $0.79 $93.3 $479.4 $234.5 $156.8 990.7 9/95
HOLLYWOOD CASINO 'A' 24.7 $10.25 $4.25 $2.7 $0.36 $0.65 $54.4 ($28.4) $105.8 $54.1 533.7 9/95
HARRAH'S ENTERTAIN. 102.6 $33.13 $20.11 $82.3 $1.31 $1.68 $155.7 $609.3 $386.2 $312.8 1,515.2 9/95
GRIFFIN GAMING & ENT 7.9 $19.69 $3.75 $21.3 $1.07 $1.22 $49.8 $25.9 $71.6 $43.1 302.6 9/95
SHOWBOAT, INC. 15.5 $29.38 $12.50 $15.5 $0.71 $1.48 $47.1 $172.7 $80.4 $48.8 427.4 9/95
TRUMP HOTELS & CASINO 16.7 $21.63 $11.38 ($17.2) $1.80 $2.08 ($0.6) $53.7 $69.5 $51.5 308.2 9/95
CIRCUS CIRCUS ENTERP 102.7 $36.13 $21.00 $138.7 $1.68 $1.84 $224.6 $1,134.7 $308.1 $222.1 1,207.2 7/95
MIRAGE RESORTS 91.4 $35.13 $19.50 $147.1 $1.82 $1.96 $238.6 $1,158.2 $358.3 $266.8 1,298.2 9/95
</TABLE>
SUMMARY RATIOS FOR SELECTED INDUSTRY COMPARABLES
<TABLE>
<CAPTION>
3 YEAR LTM LTM 1995E 3 YEAR GEARING LTM
CAGR EBITDA EBIT EPS CAGR NET DEBT/ DIV. D & A/
COMPANIES SALES MARGIN MARGIN GROWTH EPS BOOK CAP. YIELD SALES
--------- ------ ------ ------ ------ ------ --------- ----- -------
<CAPTION> <S> <S> <S> <S> <S> <S> <S> <S>
AZTAR CORP. 4.0% 18.0% 10.6% 242.9% 103.3% 52.6% 0.0% 7.3%
BALLY ENTERTAINMENT -12.6% 23.7% 15.8% 31.7% -61.8% 66.5% 0.0% 7.8%
HOLLYWOOD CASINO 'A' NA 19.8% 10.1% 80.6% NA 108.1% 0.0% 9.7%
HARRAH'S ENTERTAIN. 9.1% 25.5% 20.6% 28.2% 60.7% 50.7% 0.0% 4.8%
GRIFFIN GAMING & ENT -5.5% 23.7% 14.2% 14.0% 13.4% 86.5% 0.0% 9.4%
SHOWBOAT, INC. 6.6% 18.8% 11.4% 108.5% 26.0% 60.7% 0.4% 7.4%
TRUMP HOTELS & CASINO NA 22.6% 16.7% 15.6% NA 89.1% 0.0% 5.4%
Mean 0.3% 21.7% 14.2% 74.5% 28.3% 73.5% 0.1% 7.4%
Mean (excluding neg points) 6.6% 21.7% 14.2% 74.5% 50.9% 73.5% 0.1% 7.4%
CIRCUS CIRCUS ENTERP 13.2% 25.5% 18.4% 9.5% 8.9% 37.1% 0.0% 7.1%
MIRAGE RESORTS 15.1% 27.6% 20.6% 7.7% 18.2% 16.2% 0.0% 7.0%
<CAPTION>
2 YEAR COMP.
AVGE CAPEX/ CAPEX/ RELATIVE
COMPANIES CAPEX Deprec. Sales PE
--------- ------ ------- ------ --------
<S> <C> <C> <C> <C>
AZTAR CORP. $66.1 1.6 11.7% 4.4
BALLY ENTERTAINMENT $96.6 1.2 9.7% 3.0
HOLLYWOOD CASINO 'A' $72.0 1.4 13.5% 2.7
HARRAH'S ENTERTAIN. $227.0 3.1 15.0% 2.1
GRIFFIN GAMING & ENT $17.6 0.6 5.8% 0.3
SHOWBOAT, INC. $66.1 2.1 15.5% 1.7
TRUMP HOTELS & CASINO $16.2 1.0 5.3% NM
Mean $90.9 1.7 11.9% 2.4
Mean (excluding neg points) $90.9 1.7 11.9% 2.4
CIRCUS CIRCUS ENTERP $262.3 3.1 21.7% 1.5
MIRAGE RESORTS $250.8 2.7 19.3% 1.5
</TABLE>
(a) Earnings Estimates were obtained from I/B/E/S
(b) Cash Flow = Income Available to Common + Depreciation, Depletion &
Amortization + Deferred Taxes - Unremitted Earnings of Unconsolidated
Subsidiaries.
<PAGE>
MARKET MULTIPLE ANALYSIS
------------------------
TABLE OF CONTENTS
-----------------
Contents Page
- -------- ----
Current Trading Multiples 1
Capital Structures 2
Sales Information 3
EBITDA Information 4
Depreciation Information 5
EBIT Information 6
EPS Information 7
Historical Sales & EBITDA Trading Multiples 8
Historical EBIT & Net Income Trading Multiples 9
Historical Shares & Net Income Information 10
Historical Share Prices & Market Values 11
Historical Debt Information 12
Historical Preferred Information 13
Historical Minority Interest Information 14
Historical Cash Information 15
Historical Equity Invest. & Market Capitalizations 16
"IBES, Value Line & S&P 500 PEs" 17
Other & Comments 18
Business Description & SIC Codes 19
Notes 20
This document has been prepared as a medium for discussion. No representations
are made or should be inferred as to its accuracy or completeness.
<PAGE>
Page 1
CURRENT TRADING MULTIPLES
<TABLE>
<CAPTION>
Adjusted Market Capitalization - to - Market Value - to -
LTM 1995E LTM 1995E Book LTM 1995E 1996E Book
Company EBITDA EBITDA EBIT EBIT Cap Net Inc. Net Inc. Net Inc. Value
- ------- ------ ------ ---- ----- ---- -------- ------- ------- -------
<C> <S> <S> <S> <S> <S> <S> <S> <S> <S>
AZTAR CORP. 7.1 6.7 11.9 11.0 0.9 67.7 38.7 11.3 0.8
BALLY ENTERTAINMENT 7.2 6.5 10.8 9.1 1.2 45.5 25.0 19.0 1.5
HOLLYWOOD CASINO 'A' 4.6 5.8 9.1 NA 1.4 41.2 12.5 6.9 (3.9)
HARRAH'S ENTERTAIN. 8.4 7.5 10.4 8.7 2.6 32.9 20.1 15.7 4.4
GRIFFIN GAMING & ENT 3.6 4.2 6.0 5.4 1.3 4.4 11.0 9.6 3.6
SHOWBOAT, INC. 7.1 7.4 11.6 12.9 1.3 26.4 37.1 17.8 2.4
TRUMP HOTELS & CASINO 11.6 10.6 15.6 17.4 1.6 (21.1) 12.1 10.5 6.8
ADJ. MEAN(a) 6.9 6.8 10.8 10.4 1.4 36.3 24.1 13.4 2.5
CIRCUS CIRCUS ENTERP 12.1 8.4 16.7 10.8 2.1 22.5 18.1 16.5 2.8
MIRAGE RESORTS 10.4 9.2 14.0 14.3 2.7 23.8 21.1 19.6 3.0
<CAPTION>
Gearing LTM 1995 Value Line
Net Debt/ Div. EBITDA Net Inc. Timely
Bk Cap Yield Margin Growth Rating
-------- ----- ------ -------- ---------
<S> <C> <C> <C> <C> <C>
AZTAR CORP. 52.6% 0.0% 18.0% 242.9% 4.0
BALLY ENTERTAINMENT 66.5% 0.0% 23.7% 31.7% NA
HOLLYWOOD CASINO 'A' 108.1% 0.0% 19.8% 80.6% NA
HARRAH'S ENTERTAIN. 50.7% 0.0% 25.5% 28.2% NA
GRIFFIN GAMING & ENT 86.5% 0.0% 23.7% 14.0% NA
SHOWBOAT, INC. 60.7% 0.4% 18.8% 108.5% 2.0
TRUMP HOTELS & CASINO 89.1% 0.0% 22.6% 15.6% NA
ADJ. MEAN(a) 70.8% 0.1% 21.6% 84.3% NA
CIRCUS CIRCUS ENTERP 37.1% 0.0% 25.5% 9.5% 4.0
MIRAGE RESORTS 16.2% 0.0% 27.6% 7.7% 2.0
</TABLE>
(a) Adjusted Mean excludes the high, low and negative numbers.
<PAGE>
Page 2
CAPITAL STRUCTURES
------------------
<TABLE>
<CAPTION>
$/share Market Total Pref. Interest Invest Market Book Net Debt/
Company Shares 1/5/96 Value Debt @ Book @ Book Cash @ Book Cap. Value Total Cap
- ------- ------ ------- ------ ------- ------ -------- ------ ------ ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 38.3 $8.13 310.8 455.7 6.1 4.1 (48.9) (12.6) 715.1 371.7 52.6%
BALLY ENTERTAINMENT 47.3 $15.00 709.5 1,307.4 0.2 37.2 (357.4) 0.0 1,696.9 479.4 66.5%
HOLLYWOOD CASINO 'A' 24.7 $4.50 111.2 429.6 0.0 0.0 (49.4) 0.0 491.4 (28.4) 108.1%
HARRAH'S ENTERTAIN. 102.6 $26.38 2,706.1 700.4 0.0 20.6 (72.8) (92.7) 3,261.6 609.3 50.7%
GRIFFIN GAMING & ENT 7.9 $11.75 92.8 217.1 0.0 0.0 (51.5) 0.0 258.4 25.9 86.5%
SHOWBOAT, INC. 15.5 $26.38 408.8 392.2 0.0 1.8 (125.6) (108.9) 568.4 172.7 60.7%
TRUMP HOTELS & CASINO 16.7 $21.75 363.2 488.8 0.0 0.0 (47.6) 0.0 804.4 53.7 89.1%
CIRCUS CIRCUS ENTERP 102.7 $30.38 3,120.5 732.5 0.0 0.0 (62.7) (74.8) 3,715.5 1,134.7 37.1%
MIRAGE RESORTS 91.4 $38.38 3,506.9 258.3 0.0 0.0 (35.0) 0.0 3,730.2 1,158.2 16.2%
</TABLE>
<PAGE>
Page 3
SALES INFORMATION
-----------------
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 LTM 1995E 1996E
Company Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales
- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 687.0 747.3 476.7 522.3 508.2 481.3 512.0 518.8 541.4 564.2 595.8 635.5
BALLY ENTERTAINMENT 1,639.0 1,730.1 1,940.8 2,069.2 2,082.2 1,412.5 1,297.0 1,320.1 942.3 990.7 1,030.0 1,120.0
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 342.7 463.9 533.7 NA NA
HARRAH'S ENTERTAIN. NA 797.7 866.0 944.8 1,004.2 1,031.1 1,113.1 1,251.9 1,339.4 1,515.2 1,553.6 1,624.2
GRIFFIN GAMING & ENT 428.1 455.8 456.0 451.3 423.6 418.2 436.9 439.6 353.0 302.6 282.7 314.1
SHOWBOAT, INC. 50.2 114.3 295.0 342.4 334.3 331.6 355.2 375.7 401.3 427.4 429.7 462.8
TRUMP HOTELS & CASINO NA NA NA NA NA NA 313.3 300.5 295.1 308.2 331.3 381.0
CIRCUS CIRCUS ENTERP 374.0 458.9 512.0 522.4 692.1 806.0 843.0 954.9 1,170.2 1,207.2 1,340.0 1,550.0
MIRAGE RESORTS 381.8 194.2 175.0 299.8 909.0 822.9 833.0 953.3 1,254.2 1,298.2 1,325.0 1,420.0
</TABLE>
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 LTM 1995E 1996E
Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales
Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. NA 8.8% -36.2% 9.6% -2.7% -5.3% 6.4% 1.3% 4.4% - 10.0% 12.6%
BALLY ENTERTAINMENT NA 5.6% 12.2% 6.6% 0.6% -32.2% -8.2% 1.8% -28.6% - 9.3% 13.1%
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA NA 35.3% - NA NA
HARRAH'S ENTERTAIN. NA NA 8.6% 9.1% 6.3% 2.7% 7.9% 12.5% 7.0% - 16.0% 7.2%
GRIFFIN GAMING & ENT NA 6.5% 0.0% -1.0% -6.1% -1.3% 4.5% 0.6% -19.7% - -19.9% 3.8%
SHOWBOAT, INC. NA 128.0% 158.0% 16.1% -2.4% -0.8% 7.1% 5.8% 6.8% - 7.1% 8.3%
TRUMP HOTELS & CASINO NA NA NA NA NA NA NA -4.1% -1.8% - NA 23.6%
CIRCUS CIRCUS ENTERP NA 22.7% 11.6% 2.0% 32.5% 16.5% 4.6% 13.3% 22.5% - 14.5% 28.4%
MIRAGE RESORTS NA -49.1% -9.9% 71.3% 203.2% -9.5% 1.2% 14.4% 31.6% - 5.6% 9.4%
</TABLE>
<PAGE>
Page 4
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 LTM 1995E 1996E
EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA
Company % % % % % % % % % % % %
- ------- ------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 15.0% 14.6% 11.4% 0.3% 10.2% 8.7% 12.0% 13.5% 19.7% 18.0% 18.0% 22.4%
BALLY ENTERTAINMENT 20.1% 18.9% 19.7% 17.7% 14.3% 13.3% 17.0% 17.1% 24.2% 23.7% 25.3% 25.0%
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 20.4% 18.7% 19.8% NA NA
HARRAH'S ENTERTAIN. NA 17.5% 21.0% 21.3% 20.8% 23.4% 25.0% 28.2% 26.5% 25.5% 28.1% 31.0%
GRIFFIN GAMING & ENT 6.1% 15.1% 11.1% 6.2% 9.1% 17.2% 12.1% 9.3% 0.0% 23.7% 21.7% 20.9%
SHOWBOAT, INC. 26.4% 24.5% 13.2% 15.1% 15.0% 18.5% 19.3% 18.5% 16.8% 18.8% 17.9% 18.3%
TRUMP HOTELS & CASINO NA NA NA NA NA NA 19.3% 19.3% 19.3% 22.6% 23.0% 39.2%
CIRCUS CIRCUS ENTERP 29.8% 31.5% 33.0% 32.6% 30.4% 30.7% 29.9% 27.1% 28.8% 25.5% 32.9% 32.7%
MIRAGE RESORTS 20.3% 22.0% 27.8% 26.4% 27.1% 27.2% 22.7% 24.7% 26.7% 27.6% 30.5% 30.0%
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 LTM 1995E 1996E
Company EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA
- ------- ------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 69.7 86.6 105.8 85.3 95.9
HARRAH'S ENTERTAIN. NA 139.6 181.4 201.6 208.6 241.2 278.6 353.3 355.1 386.2 435.8 503.3
GRIFFIN GAMING & ENT 25.9 68.8 50.5 27.8 38.6 71.8 52.7 40.8 NA 71.6 61.5 65.7
SHOWBOAT, INC. 13.2 28.0 38.9 51.6 50.1 61.2 68.5 69.6 67.4 80.4 77.1 84.7
TRUMP HOTELS & CASINO NA NA NA NA NA NA 56.0 67.2 59.1 69.5 76.2 149.4
CIRCUS CIRCUS ENTERP 111.5 144.6 168.7 170.2 210.7 247.8 252.1 259.2 337.1 308.1 440.5 507.2
MIRAGE RESORTS 77.6 42.8 48.7 79.2 245.9 223.5 188.8 235.7 335.0 358.3 403.9 426.3
</TABLE>
<PAGE>
DEPRECIATION & AMORITIZATION INFORMATION Page 5
- ----------------------------------------
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 LTM 1995E 1996E
Company D&A D&A D&A D&A D&A D&A D&A D&A D&A D&A D&A D&A
- ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. (39.2) (44.2) (24.6) (34.2) (27.8) (28.2) (28.7) (32.7) (37.0) (41.4) (41.8) (43.0)
BALLY ENTERTAINMENT (142.2) (131.2) (137.1) (153.9) (159.7) (110.5) (108.9) (113.8) (76.0) (77.7) (80.0) (85.0)
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA (27.1) (31.0) (51.7) NA NA
HARRAH'S ENTERTAIN. NA (44.1) (44.8) (49.5) (55.5) (63.9) (69.6) (77.6) (70.6) (73.4) (80.0) (85.0)
GRIFFIN GAMING & ENT (23.9) (23.6) (23.2) (35.7) (26.3) (23.8) (25.3) (27.9) (17.3) (28.5) (13.5) (14.3)
SHOWBOAT, INC." (2.9) (6.7) (18.9) (19.6) (22.4) (25.7) (22.0) (23.3) (28.4) (31.6) (32.0) (33.0)
TRUMP HOTELS & CASINO NA NA NA NA NA NA (15.8) (17.6) (15.7) (16.6) (30.0) (45.0)
CIRCUS CIRCUS ENTERP (24.7) (29.4) (31.8) (31.2) (41.0) (47.4) (46.6) (58.1) (81.1) (86.0) (95.3) (104.0)
MIRAGE RESORTS (27.3) (17.0) (14.9) (21.9) (53.7) (60.0) (63.0) (74.1) (97.2) (91.5) (143.8) (140.0)
1986 1987 1988 1989 1990 1991 1992 1993 1994 LTM 1995E 1996E
D&A / D&A / D&A / D&A / D&A / D&A / D&A / D&A / D&A / D&A / D&A / D&A /
Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 5.7% 5.9% 5.2% 6.5% 5.5% 5.9% 5.6% 6.3% 6.8% 7.3% 7.0% 6.8%
BALLY ENTERTAINMENT 8.7% 7.6% 7.1% 7.4% 7.7% 7.8% 8.4% 8.6% 8.1% 7.8% 7.8% 7.6%
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 7.9% 6.7% 9.7% NA NA
HARRAH'S ENTERTAIN. NA 5.5% 5.2% 5.2% 5.5% 6.2% 6.3% 6.2% 5.3% 4.8% 5.1% 5.2%
GRIFFIN GAMING & ENT 5.6% 5.2% 5.1% 7.9% 6.2% 5.7% 5.8% 6.4% 4.9 9.4% 4.8% 4.6%
SHOWBOAT, INC. 5.8% 5.9% 6.4% 5.7% 6.7% 7.7% 6.2% 6.2% 7.% 7.4% 7.4% 7.1%
TRUMP HOTELS & CASINO NA NA NA NA NA NA 5.1% 5.8% 53% 5.4% 9.1% 11.8%
CIRCUS CIRCUS ENTERP 6.6% 6.4% 6.2% 6.0% 5.9% 5.9% 5.5% 6.1% 6.9 7.1% 7.1% 6.7%
MIRAGE RESORTS 7.2% 8.7% 8.5% 7.3% 5.9% 7.3% 7.6% 7.8% 7.7% 7.0% 10.8% 9.9%
</TABLE>
<PAGE>
Page 6
EBIT INFORMATION
----------------
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 LTM 1995E 1996E
Company EBIT % EBIT % EBIT % EBIT % EBIT % EBIT % EBIT % EBIT % EBIT % EBIT % EBIT % EBIT %
- ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 9.3% 8.7% 6.2% -6.3% 4.8% 2.8% 6.4% 7.2% 12.8% 10.6% 11.0% 15.6%
BALLY ENTERTAINMENT 11.4% 11.3% 12.6% 10.2% 6.7% 5.5% 8.6% 8.5% 16.2% 15.8% 18.1% 17.7%
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 12.4% 12.0% 10.1% NA NA
HARRAH'S ENTERTAIN. NA 12.0% 15.8% 16.1% 15.2% 17.2% 18.8% 22.0% 21.2% 20.6% 24.2% 26.2%
GRIFFIN GAMING & ENT 0.5% 9.9% 6.0% -1.7% 2.9% 11.5% 6.3% 2.9% -4.9% 14.2% 16.9% 16.4%
SHOWBOAT, INC. 20.6% 18.6% 6.8% 9.3% 8.3% 10.7% 13.1% 12.3% 9.7% 11.4% 10.2% 11.1%
TRUMP HOTELS & CASINO NA NA NA NA NA NA 11.2% 16.5% 14.7% 16.7% 13.9% 27.4%
CIRCUS CIRCUS ENTERP 23.2 25.1 26.7 26.6% 24.5% 24.9 24.4 21.1 21.9 18.4% 25.8% 26.9%
MIRAGE RESORTS 13.2% 13.3% 19.3% 19.1% 21.1% 19.9% 15.1% 16.9% 19.0% 20.6% 19.6% 20.2%
1986 1987 1988 1989 1990 1991 1992 1993 1994 LTM 1995E 1996E
EBIT EBIT EBIT EBIT EBIT EBIT EBIT EBIT EBIT EBIT EBIT EBIT
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 63.9 64.8 29.7 (32.8) 24.2 13.6 32.6 37.4 69.4 59.9 65.3 9.3
BALLY ENTERTAINMENT 187.2 196.3 245.2 211.5 138.9 77.8 111.2 112.2 152.4 156.8 186.4 198.2
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 42.6 55.7 54.1 NA NA
HARRAH'S ENTERTAIN. NA 95.5 136.7 152.2 153.1 177.3 209.0 275.7 284.4 312.8 376.1 425.4
GRIFFIN GAMING & ENT 2.0 45.2 27.3 (7.8) 12.3 48.0 27.4 12.9 (17.3) 43.1 47.9 51.4
SHOWBOAT, INC. 10.3 21.3 20.0 32.0 27.8 35.5 46.5 46.3 39.0 48.8 43.9 51.4
TRUMP HOTELS & CASINO NA NA NA NA NA NA 35.0 49.6 43.4 51.5 46.2 104.4
CIRCUS CIRCUS ENTERP 86.8 115.1 136.9 139.0 169.7 200.4 205.5 201.1 256.0 222.1 345.1 403.3
MIRAGE RESORTS 50.2 25.8 33.8 57.3 192.1 163.5 125.7 161.5 237.8 266.8 260.1 286.9
</TABLE>
<PAGE>
Page 7
EPS INFORMATION
---------------
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 LTM 1995E 1996E
Company EPS EPS EPS EPS EPS EPS EPS EPS EPS EPS EPS EPS
- ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. $0.27 $0.15 ($0.04) ($1.18) $0.16 $0.05 $0.41 $0.28 $0.42 $0.12 $0.21 $0.72
BALLY ENTERTAINMENT $0.81 $0.26 $1.12 ($0.15) ($10.57) ($1.79) ($0.05) ($0.40) ($0.10) $0.33 $0.60 $0.79
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA $0.02 $0.08 $0.11 $0.36 $0.65
HARRAH'S ENTERTAIN. NA $0.00 $0.00 $0.00 $0.30 $0.33 $0.51 $0.89 $1.37 $0.80 $1.31 $1.68
GRIFFIN GAMING & ENT NM NM NM NM NM ($10.35) ($13.25) ($25.35) ($15.10) $2.70 $1.07 $1.22
SHOWBOAT, INC. $0.58 ($0.18) ($0.37) $0.34 $0.10 $0.51 $1.37 $0.89 $1.02 $1.00 $0.71 $1.48
TRUMP HOTELS & CASINO NA NA NA NA NA NA NA NA NA ($1.03) $1.80 $2.08
CIRCUS CIRCUS ENTERP $0.32 $0.55 0.76 0.87 $1.02 $1.23 $1.41 $1.34 $1.59 $1.35 $1.68 $1.84
MIRAGE RESORTS $0.04 $0.07 ($0.03) ($0.65) $0.63 $0.80 $0.53 $0.58 $1.32 $1.61 $1.82 $1.96
1986 1987 1988 1989 1990 1991 1992 1993 1994 LTM 1995E 1996E
EPS EPS EPS EPS EPS EPS EPS EPS EPS EPS EPS EPS
Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. NA -44.4% -126.7% 2850.0% -113.6% -68.8% 720.0% -31.7% 50.0% - -25.0% 242.9%
BALLY ENTERTAINMENT NA -67.9% 330.8% -113.4% 6946.7% -83.1% -97.2% 700.0% -75.0% - -250.0% 31.7%
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA NA 300.0% - 1700.0% 80.6%
HARRAH'S ENTERTAIN. NA NA NA NA NA 10.0% 54.5% 74.5% 53.9% - 47.2% 28.2%
GRIFFIN GAMING & ENT NA ERR ERR ERR ERR ERR 28.0% 91.3% -40.4% - -104.2% 14.0%
SHOWBOAT, INC. NA -131.0% 105.6% -191.9% -70.6% 410.0% 168.6% -35.0% 14.6% - -20.2% 108.5%
TRUMP HOTELS & CASINO NA NA NA NA NA NA NA NA NA - NA 15.6%
CIRCUS CIRCUS ENTERP NA 71.9% 38.2% 14.5% 17.2% 20.6% 14.6% -5.0% 18.7% - 25.4% 9.5%
MIRAGE RESORTS NA 75.0% -142.9% 2066.7% -196.9% 27.0% -33.8% 9.4% 127.6% - 213.8% 7.7%
</TABLE>
<PAGE>
Page 8
HISTORICAL SALES & EBITDA TRADING MULTIPLES
<TABLE>
<CAPTION>
LTM 10 yr
86 Adj 87 Adj 88 Adj 89 Adj 90 Adj 91 Adj 92 Adj 93 Adj 94 Adj Adj Median
Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap./ Adj Mkt
Company 86 Sales 87 Sales 88 Sales 89 Sales 90 Sales 91 Sales 92 Sales 93 Sales 94 Sales LTM Sales Cap/Sales
- ------- -------- --------- --------- --------- --------- --------- --------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 0.6 0.6 0.6 0.6 0.2 0.4 0.5 1.1 1.1 1.3 0.7
BALLY ENTERTAINMENT 1.1 1.0 1.1 1.0 0.6 0.8 1.0 1.2 1.5 1.7 1.1
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 1.6 1.1 0.9 1.2
HARRAH'S ENTERTAIN. NA 0.0 0.0 0.0 1.3 1.5 2.4 4.3 2.8 2.2 1.6
GRIFFIN GAMING & ENT 1.0 1.3 1.4 1.8 0.7 0.9 0.9 1.2 0.5 0.9 1.1
SHOWBOAT, INC. 4.1 2.4 1.0 0.8 0.7 0.8 1.0 1.0 1.0 1.3 1.4
TRUMP HOTELS & CASINO NA NA NA NA NA NA NA NA NA NA NA
CIRCUS CIRCUS ENTERP 2.2 2.1 2.3 3.8 2.9 3.0 4.2 3.9 2.1 3.1 2.9
MIRAGE RESORTS 1.4 1.2 5.3 4.2 1.3 1.5 2.0 2.8 1.7 2.9 2.4
<CAPTION>
Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap./ Mkt Cap / Median
86 EBITDA 87 EBITDA 88 EBITDA 89 EBITDA 90 EBITDA 91 EBITDA 92 EBITDA 93 EBITDA 94 EBITDA LTM EBITDA EBITDA
--------- --------- --------- --------- --------- --------- --------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 3.7 4.0 5.2 NM 2.3 5.1 4.4 8.3 5.4 7.1 5.1
BALLY ENTERTAINMENT 5.6 5.3 5.6 5.6 4.4 6.2 5.6 7.2 6.3 7.2 5.9
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 7.8 5.7 4.6 6.0
HARRAH'S ENTERTAIN. NA NA NA NA 6.0 6.4 9.5 15.2 10.4 8.4 9.3
GRIFFIN GAMING & ENT 15.9 8.6 13.1 29.3 7.7 5.2 7.8 12.4 NA 3.6 11.5
"SHOWBOAT, INC." 15.5 9.9 7.5 5.5 4.8 4.5 5.2 5.5 6.2 7.1 7.2
TRUMP HOTELS & CASINO NA NA NA NA NA NA NA NA NA NA NA
CIRCUS CIRCUS ENTERP 7.3 6.8 6.9 11.7 9.4 9.8 14.1 14.2 7.2 12.1 9.9
MIRAGE RESORTS 7.0 5.3 18.9 15.9 4.8 5.6 8.8 11.3 6.5 10.4 9.5
</TABLE>
<PAGE>
HISTORICAL EBIT & NET INCOME TRADING MULTIPLES
<TABLE>
<CAPTION>
10 yr
86 Adj 87 Adj 88 Adj 89 Adj 90 Adj 91 Adj 92 Adj 93 Adj 94 Adj LTM Adj Median
Mkt Mkt Mkt Mkt Mkt Mkt Mkt Mkt Mkt Mkt Adj Mkt
Cap./ Cap./ Cap./ Cap./ Cap./ Cap./ Cap./ Cap./ Cap./ Cap./ Cap./
Company 86 EBIT 87 EBIT 88 EBIT 89 EBIT 90 EBIT 91 EBIT 92 EBIT 93 EBIT 94 EBIT LTM EBIT EBIT
- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 6.0 6.7 9.5 (10.0) 4.9 15.8 8.3 15.6 8.2 11.9 7.7
BALLY ENTERTAINMENT 9.8 8.9 8.7 9.7 9.4 15.0 11.1 14.4 9.5 10.8 10.7
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 12.7 8.8 9.1 10.2
HARRAH'S ENTERTAIN. NA 0.0 0.0 0.0 8.2 8.7 12.7 19.5 13.0 10.4 8.0
GRIFFIN GAMING & ENT 202.5 13.1 24.2 (103.8) 24.2 7.7 15.0 39.4 (11.0) 6.0 21.7
SHOWBOAT, INC. 19.9 13.0 14.5 8.9 8.6 7.7 7.7 8.2 10.7 11.6 11.1
TRUMP HOTELS & CASINO NA NA NA NA NA NA NA NA NA 15.6 15.6
CIRCUS CIRCUS ENTERP 9.3 8.5 8.4 14.3 11.7 12.1 17.4 18.4 9.5 16.7 12.6
MIRAGE RESORTS 10.9 8.7 27.2 22.0 6.2 7.6 13.3 16.5 9.2 14.0 13.6
<CAPTION>
Val./86 Val./87 Val./88 Val./89 Val./90 Val./91 Val./92 Val./93 Val./94 Val./LTM Median
Net Inc. Net Inc. Net Inc. Net Inc. Net Inc. Net Inc. Net Inc. Net Inc. Net Inc. Net Inc. PE
-------- -------- ------- -------- ------- ------- ------- ------- ------- -------- -------
AZTAR CORP. NA NA NA (7.0) 17.2 112.5 17.7 23.7 14.3 67.7 35.1
BALLY ENTERTAINMENT 24.4 49.5 19.8 (100.8) (0.2) (2.9) (157.5) (21.3) (61.3) 45.5 (20.5)
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 637.5 71.9 41.2 250.2
HARRAH'S ENTERTAIN. NA NA NA NA 16.7 22.2 35.9 51.4 22.5 32.9 30.3
GRIFFIN GAMING & ENT NA NA NA NA NA (0.7) (0.3) (0.3) (0.3) 4.4 0.5
SHOWBOAT, INC. 16.9 (40.3) (23.6) 27.2 40.0 17.2 12.3 18.1 14.2 26.4 10.8
TRUMP HOTEL & CASINO NA NA NA NA NA NA NA NA NA (21.1) (21.1)
Mean 20.7 4.6 (1.9) (26.9) 18.4 29.6 (18.4) 118.2 10.2 36.3 51.1
CIRCUS CIRCUS ENTERP 18.6 14.2 12.8 21.5 17.9 20.3 26.8 27.4 14.5 22.5 19.7
MIRAGE RESORTS 92.5 61.4 (236.7) (16.8) 11.8 13.9 24.7 41.2 15.5 23.8 3.1
Relative PE Calculations:
- ------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
S&P 500 PE 16.7 14.1 11.7 15.4 15.5 26.1 22.8 21.3 15.0 15.4 17.4
Comparable Avg.
Relative PE 1.2 0.3 (0.2) (1.7) 1.2 1.1 (0.8) 5.5 0.7 2.4 2.9
Intermediate Treasury
Yields 7.2% 8.8% 9.2% 7.9% 8.1% 6.7% 6.6% 5.8% 7.8% 6.5% 7.5%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 10
SHARES OUTSTANDING & NET INCOME INFORMATION
-------------------------------------------
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 LTM 1993 1994
Company Shrs Shrs Shrs Shrs Shrs Shrs Shrs Shrs Shrs Shrs CAPEX CAPEX
- ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 39.7 39.7 39.8 40.9 37.7 37.9 37.0 37.4 37.5 38.3 77.8 54.4
BALLY ENTERTAINMENT 31.0 26.8 26.8 28.0 31.0 36.4 46.0 46.8 47.0 47.3 97.3 95.9
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 22.7 24.4 24.7 42.3 101.6
HARRAH'S ENTERTAIN. NA NA NA NA 80.0 101.4 101.9 102.3 102.4 102.6 234.8 219.1
GRIFFIN GAMING & ENT 1.3 1.3 0.2 0.2 4.0 4.0 4.0 4.0 4.0 7.9 25.3 9.9
SHOWBOAT, INC. 10.1 12.3 11.3 11.4 11.4 11.4 14.8 15.0 15.4 15.5 59.7 72.5
TRUMP HOTELS & CASINO NA NA NA NA NA NA NA NA NA 16.7 17.2 15.3
CIRCUS CIRCUS ENTERP 113.3 113.7 90.5 85.6 82.5 84.9 87.3 86.1 85.9 102.7 382.0 142.7
MIRAGE RESORTS 86.1 54.8 42.2 41.4 41.7 54.9 74.6 90.6 91.0 91.4 432.4 69.1
</TABLE>
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991
Net Income Net Income Net Income Net Income Net Income Net Income
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 10.7 6.0 (1.6) (48.2) 6.0 1.9
BALLY ENTERTAINMENT 25.1 7.0 30.0 (4.2) (327.8) (65.2)
HOLLYWOOD CASINO 'A' N/A N/A N/A N/A N/A N/A
HARRAH'S ENTERTAIN. N/A N/A N/A N/A 24.0 33.5
GRIFFIN GAMING & ENT 0.0 0.0 0.0 0.0 0.0 (41.7)
SHOWBOAT, INC. 5.8 (2.2) (4.2) 3.9 1.1 5.8
TRUMP HOTELS & CASINO N/A N/A N/A N/A N/A N/A
CIRCUS CIRCUS ENTERP 36.2 62.5 68.8 74.5 84.1 104.4
MIRAGE RESORTS 3.4 3.8 (1.3) (26.9) 26.3 43.9
</TABLE>
<TABLE>
<CAPTION>
1992 1993 1994 LTM 1995 1996
Net Income Net Income Net Income Net Income Net Income Net Income
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 15.2 10.5 15.7 4.6 8.0 27.5
BALLY ENTERTAINMENT (2.3) (18.7) (4.7) 15.6 28.4 37.4
HOLLYWOOD CASINO 'A' N/A 0.5 2.0 2.7 8.9 16.1
HARRAH'S ENTERTAIN. 52.0 91.0 140.3 82.3 134.4 172.4
GRIFFIN GAMING & ENT (53.4) (102.2) (60.9) 21.3 8.5 9.6
SHOWBOAT, INC. 20.3 13.3 15.7 15.5 11.0 22.9
TRUMP HOTELS & CASINO N/A N/A N/A (17.2) 30.1 34.7
CIRCUS CIRCUS ENTERP 123.0 115.4 136.5 138.7 172.6 189.0
MIRAGE RESORTS 39.5 52.6 120.1 147.1 166.3 179.1
</TABLE>
<PAGE>
Page 11
HISTORICAL SHARE PRICE & MARKET VALUE INFORMATION
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994
Company $/shr $/shr $/shr $/shr $/shr $/shr $/shr $/shr $/shr
- ------- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. NA NA NA $8.25 $ 2.75 $ 5.63 $ 7.25 $ 6.63 $ 6.00
BALLY ENTERTAINMENT $19.75 $12.88 $22.13 $15.13 $ 2.13 $ 5.25 $ 7.88 $ 8.50 $ 6.13
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA $12.75 $ 5.75
HARRAH'S ENTERTAIN. NA NA NA NA $ 5.00 $ 7.33 $18.33 $45.75 $30.88
GRIFFIN GAMING & ENT NA NA NA NA $ 3.75 $ 7.50 $ 4.38 $ 8.13 $ 4.38
SHOWBOAT, INC. $ 9.81 $ 7.25 $ 8.75 $9.25 $ 4.00 $ 8.75 $16.88 $16.13 $14.50
TRUMP HOTELS & CASINO NA NA NA NA NA NA NA NA NA
CIRCUS CIRCUS ENTERP $5.96 $7.79 $9.71 $18.67 $18.25 $25.00 $37.83 $36.75 $23.13
MIRAGE RESORTS $3.70 $4.30 $7.10 $10.95 $7.45 $11.10 $13.10 $23.88 $20.50
<CAPTION>
Mkt Mkt Mkt Mkt Mkt Mkt Mkt Mkt Mkt
Val Val Val Val Val Val Val Val Val
--- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. NA NA NA 337.2 103.8 213.0 268.1 247.5 224.8
BALLY ENTERTAINMENT 611.9 345.5 592.6 423.3 65.9 191.4 362.1 397.7 287.8
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 289.7 140.3
HARRAH'S ENTERTAIN. NA NA NA NA 399.8 743.4 1,867.8 4,678.3 3,161.7
GRIFFIN GAMING & ENT NA NA NA NA 15.0 30.2 17.6 32.8 17.6
SHOWBOAT, INC. 98.8 89.5 98.5 105.3 45.4 99.3 249.8 241.6 222.8
TRUMP HOTELS & CASINO NA NA NA NA NA NA NA NA NA
CIRCUS CIRCUS ENTERP 674.8 886.1 878.9 1,597.8 1,505.0 2,122.5 3,301.0 3,164.4 1,985.3
MIRAGE RESORTS 318.7 235.7 299.6 453.4 310.9 609.7 977.3 2,163.2 1,865.4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994
Closing Closing Closing Closing Closing Closing Closing Closing Closing
Company Debt Debt Debt Debt Debt Debt Debt Debt Debt
- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 396.8 467.0 304.0 185.4 184.3 182.7 381.6 406.6 430.9
BALLY ENTERTAINMENT 1,311.3 1,411.6 1,673.4 1,769.6 1,455.4 1,138.1 1,021.5 1,494.7 1,266.2
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 345.5 432.1
HARRAH'S ENTERTAIN. NA NA 30.2 27.7 957.0 887.5 881.3 842.0 728.5
GRIFFIN GAMING & ENT 583.1 628.7 800.0 860.2 342.6 394.2 461.5 551.4 212.5
SHOWBOAT, INC. 117.1 231.3 228.1 225.8 231.6 213.0 209.1 280.6 392.0
TRUMP HOTELS & CASINO NA NA NA NA NA NA NA NA NA
CIRCUS CIRCUS ENTERP 173.2 170.9 297.8 409.3 497.7 338.6 308.2 567.5 632.8
MIRAGE RESORTS 506.0 213.3 750.2 900.0 1,012.2 826.3 834.5 566.7 363.6
</TABLE>
<PAGE>
HISTORICAL PREFERRED INFORMATION
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994
Closing Closing Closing Closing Closing Closing Closing Closing Closing
Company Preferred Preferred Preferred Preferred Preferred Preferred Preferred Preferred Preferred
- ------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 0.0 0.0 0.0 0.0 1.1 2.1 3.0 3.9 4.9
BALLY ENTERTAINMENT 1.3 100.0 100.0 100.0 60.3 37.5 34.7 34.7 34.7
HOLLYWOOD CASINO 'A' 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
HARRAH'S ENTERTAIN. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
GRIFFIN GAMING & ENT 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
SHOWBOAT, INC. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TRUMP HOTELS & CASINO 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
CIRCUS CIRCUS ENTERP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
MIRAGE RESORTS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
</TABLE>
<PAGE>
HISTORICAL MINORITY INTEREST INFORMATION
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990
Closing Closing Closing Closing Closing
Company Minority Int Minority Int Minority Int Minority Int Minority Int
- ------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
AZTAR CORP. 12.9 4.5 2.3 3.2 4.1
BALLY ENTERTAINMENT 2.0 0.0 16.0 0.0 0.0
HOLLYWOOD CASINO 'A' 0.0 0.0 0.0 0.0 0.0
HARRAH'S ENTERTAIN. 0.0 0.0 0.0 0.0 0.0
GRIFFIN GAMING & ENT 0.0 0.0 0.0 0.0 0.0
SHOWBOAT, INC. 0.0 0.6 0.6 0.0 0.0
TRUMP HOTELS & CASINO 0.0 0.0 0.0 0.0 0.0
CIRCUS CIRCUS ENTERP 0.0 0.0 0.0 0.0 0.0
MIRAGE RESORTS 0.0 0.0 0.0 0.0 0.0
</TABLE>
<TABLE>
<CAPTION>
1991 1992 1993 1994
Closing Closing Closing Closing
Company Minority Int Minority Int Minority Int Minority Int
- ------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
AZTAR CORP. 0.0 0.0 0.0 0.0
BALLY ENTERTAINMENT 39.4 0.0 42.4 37.4
HOLLYWOOD CASINO 'A' 0.0 0.0 0.0 0.0
HARRAH'S ENTERTAIN. 0.0 0.0 15.0 0.0
GRIFFIN GAMING & ENT 0.0 0.0 0.0 0.0
SHOWBOAT, INC. 0.0 0.0 0.0 0.0
TRUMP HOTELS & CASINO 0.0 0.0 0.0 0.0
CIRCUS CIRCUS ENTERP 0.0 0.0 0.0 0.0
MIRAGE RESORTS 0.0 0.0 0.0 0.0
</TABLE>
<PAGE>
PAGE 15
HISTORICAL CASH INFORMATION
---------------------------
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994
Closing Closing Closing Closing Closing Closing Closing Closing Closing
Company Cash Cash Cash Cash Cash Cash Cash Cash Cash
- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. (23.8) (38.7) (23.9) (99.0) (74.1) (77.1) (100.4) (39.6) (52.1)
BALLY ENTERTAINMENT (57.3) (76.3) (101.6) (74.6) (71.8) (54.1) (36.6) (203.1) (184.5)
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA (88.7) (66.5)
HARRAH'S ENTERTAIN. NA NA (68.6) (56.1) (40.3) (34.6) (43.8) (62.0) (85.0)
GRIFFIN GAMING & ENT (171.7) (36.9) (139.5) (45.3) (58.9) (53.2) (66.9) (76.8) (40.9)
SHOWBOAT, INC. (10.6) (43.4) (36.9) (46.3) (37.6) (38.7) (99.6) (122.8) (90.4)
TRUMP HOTELS & CASINO NA NA NA NA NA NA NA NA NA
CIRCUS CIRCUS ENTERP (39.3) (74.3) (20.7) (19.4) (18.1) (34.2) (43.4) (39.1) (53.8)
MIRAGE RESORTS (234.8) (175.9) (80.3) (92.6) (133.6) (194.4) (143.0) (57.5) (47.1)
</TABLE>
<PAGE>
Page 16
HISTORICAL EQUITY INVESTMENTS & ADJUSTED MARKET CAPITALIZATIONS
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994
Equity Equity Equity Equity Equity Equity Equity Equity Equity
Company Invest. Invest. Invest. Invest. Invest. Invest. Invest. Invest. Invest.
- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 0.0 0.0 0.0 (98.1) (100.6) (105.7) (281.6) (35.9) (37.6)
BALLY ENTERTAINMENT (36.3) (43.5) (138.9) (172.2) (204.1) (182.4) (146.2) (150.0) 0.0
HOLLYWOOD CASINO 'A' 0.0 0.0 0.0 0.0 0.0 0.0 (6.9) (4.5) (13.4)
HARRAH'S ENTERTAIN. 0.0 0.0 (76.9) (67.1) (59.4) (53.5) (55.9) (103.8) (120.9)
GRIFFIN GAMING & ENT 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
SHOWBOAT, INC. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (17.8) (108.9)
TRUMP HOTELS & CASINO 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
CIRCUS CIRCUS ENTERP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (142.9)
MIRAGE RESORTS (44.0) (47.4) (47.4) 0.0 0.0 0.0 0.0 0.0 0.0
<CAPTION>
Adj. Mkt Adj. Mkt Adj. Mkt Adj. Mkt Adj. Mkt Adj. Mkt Adj. Mkt Adj. Mkt Adj. Mkt
Cap. Cap. Cap. Cap. Cap. Cap. Cap. Cap. Cap.
-------- -------- -------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. 385.9 432.8 282.4 328.8 118.6 215.0 270.7 582.5 570.9
BALLY ENTERTAINMENT 1,832.9 1,737.4 2,141.6 2,046.0 1,305.7 1,169.9 1,235.5 1,616.4 1,441.7
HOLLYWOOD CASINO 'A' NA NA NA NA NA NA NA 542.0 492.5
HARRAH'S ENTERTAIN. NA NA NA NA 1,257.1 1,542.7 2,649.5 5,369.5 3,684.4
GRIFFIN GAMING & ENT 411.4 591.8 660.5 814.9 298.7 371.3 412.3 507.3 189.2
SHOWBOAT, INC. 205.3 277.9 290.3 284.9 239.5 273.6 359.3 381.6 415.6
TRUMP HOTELS & CASINO NA NA NA NA NA NA NA NA NA
CIRCUS CIRCUS ENTERP 808.7 982.6 1,156.0 1,987.7 1,984.6 2,426.9 3,565.8 3,692.8 2,421.4
MIRAGE RESORTS 545.9 225.6 922.2 1,260.8 1,189.5 1,241.6 1,668.8 2,672.4 2,181.8
</TABLE>
<PAGE>
Page 17
IBES, VALUE LINE & S&P 500 PEs
------------------------------
<TABLE>
<CAPTION>
Value Value Value S&P S&P S&P
IBES Line IBES Line IBES Line 500 S&P 500 Relative
Company LTM 1994 1994 1995 1995 1995 1995 1995 500 1995 1995
- ------- EPS EPS EPS EPS EPS PE PE PE Price Earnings PE
--- --- ----- --- ----- ----- ----- ----- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AZTAR CORP. $0.12 NA NA $0.20 $0.20 40.6 40.6 17.3 616.3 35.7 2.3
BALLY ENTERTAINMENT $0.33 NA NA $0.61 $0.35 24.6 42.9 17.3 616.3 35.7 2.5
HOLLYWOOD CASINO 'A' $0.11 NA NA $0.41 NA 11.0 NA 17.3 616.3 35.7 NA
HARRAH'S ENTERTAIN. $0.80 NA NA $1.30 $1.35 20.3 19.5 17.3 616.3 35.7 1.1
GRIFFIN GAMING & ENT $2.70 NA NA $1.61 NA 7.3 NA 17.3 616.3 35.7 NA
SHOWBOAT, INC. $1.00 NA NA $0.91 $0.90 29.0 29.3 17.3 616.3 35.7 1.7
TRUMP HOTELS & CASINO ($1.03) NA NA $1.78 NA 12.2 NA 17.3 616.3 35.7 NA
CIRCUS CIRCUS ENTERP $1.35 NA NA $1.70 $1.35 17.9 22.5 17.3 616.3 35.7 1.3
MIRAGE RESORTS $1.61 NA NA $1.69 $1.70 22.7 22.6 17.3 616.3 35.7 1.3
</TABLE>
<PAGE>
Page 18
OTHER
-----
<TABLE>
<CAPTION>
Safety Annual Fiscal Latest
Company Beta Rating Div Year End Quarter Comments
- ------- ---- ------ ------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
AZTAR CORP. 1.2 5.0 $0.00 12/31/94 9/95
BALLY ENTERTAINMENT 1.2 5.0 $0.00 12/31/94 9/95
HOLLYWOOD CASINO 'A' 1.3 NA NA 12/31/94 9/95
HARRAH'S ENTERTAIN. 1.8 4.0 $0.00 12/31/94 9/95
GRIFFIN GAMING & ENT 0.6 NA NA 12/31/94 9/95
SHOWBOAT, INC. 1.3 5.0 $0.10 12/31/94 9/95
TRUMP HOTELS & CASINO NA NA NA NA 9/95
CIRCUS CIRCUS ENTERP 1.5 3.0 $0.00 1/31/95 7/95
MIRAGE RESORTS 1.4 3.0 $0.00 12/31/94 9/95
</TABLE>
<PAGE>
Page 19
IDENTIFICATION
--------------
Ticker Company Industry SIC Business Description
- ------ ------- ------------ --------------------
azr+ AZTAR CORP. 7,000 MISC AMUSEMENT & REC SERVICE
bly+ BALLY ENTERTAINMENT 7,000 MISC AMUSEMENT & REC SERVICE
hwcc+ HOLLYWOOD CASINO 'A' 7,000 MISC AMUSEMENT & REC SERVICE
het+ HARRAH'S ENTERTAIN. 7,000 MISC AMUSEMENT & REC SERVICE
gge+ GRIFFIN GAMING & ENT 7,000 MISC AMUSEMENT & REC SERVICE
sbo+ SHOWBOAT, INC. 7,000 MISC AMUSEMENT & REC SERVICE
djt+ TRUMP HOTELS & CASINO N/A MISC AMUSEMENT & REC SERVICE
cir+ CIRCUS CIRCUS ENTERP 7,000 MISC AMUSEMENT & REC SERVICE
mir+ MIRAGE RESORTS 7,000 MISC AMUSEMENT & REC SERVICE
<PAGE>
Page 20
NOTES
-----
* Most of the information contained in this analysis is from the Value Line
Database. Compustat is used to download information which is not provided
from Value Line.
* Forecasts are Value Line estimates, unless otherwise noted.
* EBDIT = Earnings before depreciation, amortization, interest, taxes, other
non-operating costs and extraordinary charges;
EBIT = Earnings before interest, other non-operating costs, taxes and
extraordinary charges;
EBT = Earnings before taxes and extraordinary charges.
* Market Value = Common shares outstanding * share price. Any adjustments
will be noted.
* Adjusted Market Capitalization = Market Value + total debt including
capitalized leases + redeemable preferred and other preferred + minority
interests (all @ book value unless otherwise stated) - cash and cash
equivalents - equity investments (@ book unless otherwise stated). Any
adjustments will be noted.
* The current indicated annual dividend used in determining the current
dividend yield is derived by taking the latest quarter's dividend and
multiplying it by 4.
* Historical market value multiples are derived by taking the year end stock
price and multiplying it by the year end number of shares.
* Historical adjusted market capitalization multiples are derived by taking
the year end market value and adding the year end debt, preferred and
minority interest balances and subtracting the year end cash and equity
investment balances.
<PAGE>
Rothschild Inc. Confidential
PROJECT WONDER
Analysis of Selected Comparable Acquisitions
(U.S. dollar amounts in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Offer Value as a Multiple of:
LTM LTM LTM
Acquiror Announcement Offer Transaction Net To Cash Common
Target Date Value Value Common Flow (a) Equity
- ------------------------------------ ------------ ------- ----------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Grand Casinos Inc. 06-Jul-95 139.2 134.5 12.3 x 11.9 x 2.3 x
Gaming Corporation of America
ITT Corp. 16-Dec-94 1,695.4 1,765.9 23.0 13.5 2.9
Caesars World Inc.
Indemnity Holdings 27-Jan-94 11.5 17.9 NA NA NA
Star of Cripple Creek Casino
International Gaming Management 15-Jan-94 59.7 59.7 NA NA NA
Schilling Casino Corp.
International Gaming Management 10-Jan-94 58.0 58.0 NA NA NA
Splash Casino and Resort
ITT Sheraton 3-Nov-93 160.0 160.0 NA NA NA
MGM Grand- Desert Inn Hotel
International Gaming Management 1-Nov-93 65.8 65.8 NA NA NA
Spectrum Gaming
Sahara Resorts 18-Feb-93 53.9 343.3 NM 3.9 4.5
Sahara Casino Partners L.P.
Hilton Hotels 16-Jun-92 83.0 89.0 9.4 6.6 1.4
Bally's Grand Inc (Reno Casino)
Caesars World Inc. 19-July-90 361.2 377.7 12.1 12.7 1.7
Caesars New Jersey Inc.
<CAPTION>
Transaction Value as a Multiple of:
----------------------------------------
Acquiror LTM LTM LTM
Target EBITDA EBIT Sales
- ------------------------------------ ------ ------ -------
<S> <C> <C> <C>
Grand Casinos Inc. 4.6 x 4.7 x 2.74 x
Gaming Corporation of America
ITT Corp. 9.5 13.1 1.77
Caesars World Inc.
Indemnity Holdings NA NA NA
Star of Cripple Creek Casino
International Gaming Management NA NA NA
Schilling Casino Corp.
International Gaming Management NA NA NA
Splash Casino and Resort
ITT Sheraton NA NA NA
MGM Grand- Desert Inn Hotel
International Gaming Management NA NA NA
Spectrum Gaming
Sahara Resorts 6.3 10.8 1.54
Sahara Casino Partners L.P.
Hilton Hotels 5.1 6.0 0.70
Bally's Grand Inc (Reno Casino)
Caesars World Inc. 5.5 7.3 1.17
Caesars New Jersey Inc.
Maximum (b) 9.5 x 13.1 x 2.74 x 23.0 x 13.5 x 4.5 x
Mean (including Caesars) (b) 6.2 8.4 1.58 14.2 9.7 2.6
Mean (excluding Caesars) (b) 5.4 7.1 1.52 8.8 8.8 2.5
Median (b) 5.5 7.3 1.54 12.2 11.9 2.3
Minimum (b) 4.6 4.7 0.70 9.4 3.9 1.4
</TABLE>
- ----------
(a) Cash Flow = Income Available to Common + Depreciation, Depletion &
Amortization + Deferred Taxes - Unremitted Earnings of Unconsolidated
Subsidiaries.
(b) Summary Multiples exclude numbers that are Negative, Not Available, Not
Meaningful, and figures which are considered outliers (*).
<PAGE>
Rothschild Inc. Confidential
Discount Rate Analysis
- -------------------------------------------------------------------------------
(dollar amounts in millions, exceptions noted)
<TABLE>
<CAPTION>
Debt to Levered Unlevered Cost
Levered Market Total Market Debt to Unlevered Cost of Cost of of
Company Name Beta Value Debt Capitalization Equity Beta Equity Equity Debt WACC
- ----------------------- ------- ------ ------ -------------- ------- --------- ------- --------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Established Casinos
- -------------------
AZTAR CORP. 1.16 280.5 455.8 61.9% 162.5% 0.59 12.9% 9.5% 11.8% 9.3%
BALLY ENTERTAINMENT 1.21 522.8 1,296.0 71.3% 247.9% 0.49 13.2% 8.91% 9.0% 10.2%
CIRCUS CIRCUS ENTERP 1.48 2,221.4 709.4 24.2% 31.9% 1.24 14.8% 13.4% 8.3% 13.2%
MIRAGE RESORTS 1.53 2,150.0 299.8 12.2% 13.9% 1.41 15.1% 14.4% 1O.0% 14.5%
HARRAH'S ENTERTAIN. 1.86 2,626.5 731.804 21.8% 27.9% 1.59 17.1% 15.5% 8.2% 15.2%
SHOWBOAT, INC. 1.12 334.3 392.2 54.0% 117.3% 0.66 12.7% 9.9% 10.4% 11.4%
----- ----- ----- ----- -----
1.00 14.3% 11.9% 9.6% 12.3%
Emerging Market Casinos
- -----------------------
ARGOSY GAMING 1.26 231.2 123.1 34.8% 53.3% 0.95 13.5% 11.7% 12.0% 13.0%
CASINO AMERICA 1.13 121.5 138.9 53.3% 114.3% 0.67 12.7%. 10.0% 10.8% 11.7%
CASINO MAGIC CORP. 0.96 146.1 141.4 49.2% 96.8% 0.61 11.7% 9.6% 11.0% 11.3%
GRAND CASINOS 1.78 883.6 353.0 28.5% 40.0% 1.44 16.6%. 14.6% 9.3% 14.5%
HOLLYWOOD CASINO 'A' 1.36 149.4 429.6 74.2% 287.5% 0.50 14.1% 8.9% 12.0% 12.5%
LADY LUCK GAMING'A' 1.24 44.6 181.3 (1) 80.3% 406.6% 0.36 13.4% 8.1% 10.7%. 11.2%
PLAYERS INT'L 1.54 303.4 152.8 33.5% 50.4% 1.18 15.2% 13.0% 8.4% 12.9%
PRESIDENT CASINOS 0.70 100.0 115.7 53.6% 115.7% 0.41 10.1% 8.4% 12.6% 11.4%
---- ----- ----- ----- -----
0.77 13.4% 10.5% 10.8% 12.3%
Gaming Equipment Mfg.
- --------------------
INT'L GAME TECH. 1.44 1,489.8 114.2 7.1% 7.7% 1.38 14.6% 14.2% 8.25 14.1%
CASINO DATA SYSTEMS 1.4 98.0 0.0 0.0% O.O% 1.40 14.3% 14.3% NMF 14.3%
LOTTERY ENTERPRISES 1.31 8.4 0.9 9.3% 10.2% 1.23 13.8% 13.3% 6.0% 13.1%
AUTOTOTE CORP 2.14 112.1 48.8 30.3% 43.6% 1.70 18.8% 16.1% NA NA
GTECH HOLDINGS CORP 0.98 1,205.9 348.1 22.4% 28.9% 0.84 11.8% 11.0% 7.9% 10.9%
WMS INDUSTRIES 1.2 542.3 88.9 14.1% 16.4% 1.09 13.1% 12.5% 12.0% 13.0%
BALLY GAMING INTL 0.28 123.6 75.3 37.9% 60.9% 0.21 7.6% 7.2% 10.4% 8.7%
---- ----- ----- ----- -----
1.39 14.5% 14.3% 8.2% 14.2%
Racetracks
- ----------
CALIFORNIA JOCKEY CLUB 0.56 93.3 0.0 0.0% 0.0% 0.56 9.3% 9.3% NMF 9.3%
CHURCHILL DOWNS 0.38 141.9 0.0 0.0% 0.0% 0.38 8.2% 8.2% NMF 8.2%
INTNL THOROUGHBRED BR. 1.47 43.0 17.2 28.5% 39.9% 1.05 14.8% 12.2% 6.0% 12.3%
LADBROKE GROUP PLC 0.89 2,692.3 1,777.6 39.8% 66.0% 0.54 11.3% 9.2% 8.4% 10.1%
---- ----- ----- ----- -----
0.63 10.9% 9.7% 7.2% 10.0%
Maximum 1.59 17.1% 15.5% 12.6% 15.2%
Average 0.87 13.3% 11.2% 9.8% 12.0%
Minimum 0.36 8.2% 8.1% 6.0% 8.2%
Adjusted Mean(3) 0.86 13.4% 11.1% 9.9% 12.1%
Cost of Equity (CAPM) Risk-free rate
(10 years): 5.9
Risk Premium: 6.0%
Beta: 0.86
Cost of Equity 11.1%
</TABLE>
Notes:
- -------------------------------------------------------
(1) 173.5 millions of mortgage notes payable included.
(2) Tax rate is assumed to be: 40.0%
(3) Excludes Maximum and Minimum
<PAGE>
PROJECT WONDER
Atlantic City Casino Stock Index Relative to S&P 500
[GRAPH APPEARS HERE]
Casino SP50 S&P 500 STOCK INDEX
Index
CURRENCY: U.S. Dollar
Comp
Index
-----
Avg DATE VOLUME HIGH LOW CLOSE Index
----- ---- ------ ----
1.00 12/19/94 458.800 456.640 457.910 1.00
1.01 12/20/94 458.450 456.370 457.100 1.00
1.00 12/21/94 461.700 457.100 459.610 1.00
1.00 12/22/94 461.210 459.330 459.670 1.00
1.03 12/23/94 461.320 459.390 459.830 1.00
1.02 12/27/94 462.730 459.830 462.470 1.01
1.01 12/28/94 462.490 459.000 460.860 1.01
0.99 12/29/94 461.810 460.360 461.160 1.01
1.04 12/30/94 462.120 459.240 459.270 1.00
1.04 1/03/95 459.270 457.200 459.110 1.00
1.06 1/04/95 460.720 457.560 460.710 1.01
1.12 1/05/95 461.300 459.750 460.340 1.01
1.15 1/06/95 462.490 459.470 460.680 1.01
1.14 1/09/95 461.770 459.740 460.830 1.01
1.13 1/10/95 464.590 460.830 461.680 1.01
1.11 1/11/95 463.610 458.650 461.660 1.01
1.10 1/12/95 461.930 460.630 461.640 1.01
1.10 1/13/95 466.430 461.640 465.970 1.02
1.12 1/16/95 470.390 465.970 469.380 1.03
1.15 1/17/95 470.150 468.190 470.050 1.03
1.20 1/18/95 470.430 468.030 469.720 1.03
1.20 1/19/95 469.720 466.400 466.950 1.02
1.19 1/20/95 466.990 463.990 464.780 1.02
1.21 1/23/95 466.230 461.140 465.810 1.02
1.19 1/24/95 466.880 465.470 465.860 1.02
1.21 1/25/95 469.510 464.400 467.440 1.02
1.18 1/26/95 468.620 466.900 468.320 1.02
1.16 1/27/95 471.360 468.320 470.390 1.03
1.18 1/30/95 470.520 467.490 468.510 1.02
1.18 1/31/95 471.030 468.180 470.420 1.03
1.19 2/01/95 472.750 469.290 470.400 1.03
1.20 2/02/95 472.790 469.950 472.780 1.03
1.21 2/03/95 479.910 472.780 478.640 1.05
1.23 2/06/95 481.950 478.360 481.140 1.05
1.22 2/07/95 481.320 479.690 480.810 1.05
1.23 2/08/95 482.600 480.400 481.190 1.05
1.29 2/09/95 482.000 479.910 480.190 1.05
1.33 2/10/95 481.960 479.530 481.460 1.05
1.32 2/13/95 482.860 481.070 481.650 1.05
1.35 2/14/95 482.940 480.890 482.550 1.05
1.43 2/15/95 485.540 481.770 484.540 1.06
1.39 2/16/95 485.220 483.050 485.220 1.06
1.35 2/17/95 485.220 481.970 481.970 1.05
1.40 2/21/95 482.720 482.720 482.720 1.05
1.39 2/22/95 486.150 482.450 485.070 1.06
1.38 2/23/95 489.190 485.070 486.910 1.06
1.39 2/24/95 488.220 485.700 488.110 1.07
1.35 2/27/95 488.110 483.180 483.810 1.06
1.38 2/28/95 487.440 483.770 487.390 1.06
1.37 3/01/95 487.830 484.920 485.650 1.06
1.35 3/02/95 485.710 483.190 485.130 1.06
1.34 3/03/95 485.420 483.070 485.420 1.06
1.34 3/06/95 485.700 481.520 485.630 1.06
1.31 3/07/95 485.630 479.700 482.120 1.05
1.35 3/08/95 484.080 481.570 483.140 1.06
1.33 3/09/95 483.740 482.050 483.160 1.06
1.33 3/10/95 490.370 483.160 489.570 1.07
1.32 3/13/95 491.280 489.350 490.050 1.07
1.32 3/14/95 493.690 490.050 492.890 1.08
1.32 3/15/95 492.890 490.830 491.880 1.07
1.34 3/16/95 495.740 491.780 495.410 1.08
1.34 3/17/95 496.670 494.950 495.520 1.08
1.34 3/20/95 496.610 495.270 496.150 1.08
1.38 3/21/95 499.190 494.040 495.070 1.08
1.37 3/22/95 495.670 493.670 495.670 1.08
1.41 3/23/95 496.770 494.190 495.950 1.08
1.46 3/24/95 500.970 495.950 500.970 1.09
1.45 3/27/95 503.200 500.930 503.200 1.10
1.50 3/28/95 503.910 501.830 503.900 1.10
1.51 3/29/95 508.150 500.960 503.120 1.10
1.51 3/30/95 504.660 501.000 502.220 1.10
1.50 3/31/95 502.220 495.700 500.710 1.09
1.55 4/03/95 501.910 500.200 501.850 1.10
1.62 4/04/95 505.260 501.820 505.240 1.10
1.71 4/05/95 505.570 503.170 505.570 1.10
1.81 4/06/95 507.100 505.000 506.080 1.11
1.75 4/07/95 507.190 503.590 506.420 1.11
1.77 4/10/95 507.010 504.610 507.010 1.11
1.76 4/11/95 508.850 505.290 505.530 1.10
1.77 4/12/95 507.170 505.070 507.170 1.11
1.76 4/13/95 509.830 507.170 509.230 1.11
1.73 4/17/95 512.030 505.430 506.130 1.11
1.70 4/18/95 507.650 504.120 505.370 1.10
1.72 4/19/95 505.890 501.190 504.920 1.10
1.70 4/20/95 506.500 503.440 505.290 1.10
1.73 4/21/95 508.490 505.290 508.490 1.11
1.72 4/24/95 513.020 507.440 512.890 1.12
1.73 4/25/95 513.540 511.320 512.100 1.12
1.76 4/26/95 513.040 510.470 512.660 1.12
1.84 4/27/95 513.620 511.630 513.550 1.12
1.94 4/28/95 515.290 510.900 514.710 1.12
1.89 5/01/95 515.600 513.420 514.260 1.12
1.88 5/02/95 515.180 513.030 514.860 1.12
1.84 5/03/95 520.540 514.860 520.480 1.14
1.82 5/04/95 525.400 519.440 520.540 1.14
1.80 5/05/95 522.350 518.280 520.120 1.14
1.88 5/08/95 525.150 519.140 523.960 1.14
1.89 5/09/95 525.990 521.790 523.560 1.14
1.94 5/10/95 524.400 521.530 524.360 1.15
1.90 5/11/95 524.890 522.700 524.370 1.15
1.91 5/12/95 527.050 523.300 525.550 1.15
1.90 5/15/95 527.740 525.000 527.740 1.15
1.91 5/16/95 529.080 526.450 528.190 1.15
1.89 5/17/95 528.420 525.380 527.070 1.15
1.81 5/18/95 527.070 519.580 519.580 1.13
1.80 5/19/95 519.580 517.070 519.190 1.13
1.86 5/22/95 524.340 519.190 523.650 1.14
1.86 5/23/95 528.590 523.650 528.590 1.15
1.86 5/24/95 531.910 525.570 528.610 1.15
1.85 5/25/95 529.040 524.890 528.590 1.15
1.80 5/26/95 528.590 522.510 523.650 1.14
1.78 5/30/95 525.580 521.380 523.580 1.14
1.80 5/31/95 533.410 522.170 533.400 1.16
1.79 6/01/95 534.210 530.050 533.490 1.17
1.76 6/02/95 536.910 529.550 532.510 1.16
1.78 6/05/95 537.730 532.470 535.600 1.17
1.85 6/06/95 537.090 535.140 535.550 1.17
1.84 6/07/95 535.550 531.660 533.130 1.16
1.83 6/08/95 533.560 531.650 532.350 1.16
1.82 6/09/95 532.350 526.000 527.940 1.15
1.88 6/12/95 532.540 527.940 530.880 1.16
1.87 6/13/95 536.230 530.880 536.050 1.17
1.84 6/14/95 536.480 533.830 536.470 1.17
1.87 6/15/95 539.070 535.560 537.120 1.17
1.90 6/16/95 539.980 537.120 539.830 1.18
1.90 6/19/95 545.220 539.830 545.220 1.19
1.94 6/20/95 545.440 543.430 544.980 1.19
1.93 6/21/95 545.930 543.900 543.980 1.19
1.95 6/22/95 551.070 543.980 551.070 1.20
1.97 6/23/95 551.070 548.230 549.710 1.20
1.94 6/26/95 549.790 544.060 544.130 1.19
1.87 6/27/95 547.070 542.190 542.430 1.18
1.86 6/28/95 546.330 540.720 544.730 1.19
1.85 6/29/95 546.250 540.790 543.870 1.19
1.87 6/30/95 546.820 543.510 544.750 1.19
1.80 7/03/95 547.100 544.430 547.090 1.19
1.77 7/05/95 549.980 546.280 547.260 1.20
1.75 7/06/95 553.990 546.590 553.990 1.21
1.78 7/07/95 556.570 553.050 556.370 1.22
1.81 7/10/95 558.480 555.770 557.190 1.22
1.81 7/11/95 557.190 553.800 554.780 1.21
1.82 7/12/95 561.560 554.270 560.890 1.22
1.83 7/13/95 562.000 559.070 561.000 1.23
1.86 7/14/95 561.000 556.410 559.890 1.22
1.89 7/17/95 562.940 559.450 562.720 1.23
1.86 7/18/95 562.720 556.860 558.460 1.22
1.76 7/19/95 558.460 542.510 550.980 1.20
1.79 7/20/95 554.430 549.100 553.540 1.21
1.83 7/21/95 554.730 550.910 553.620 1.21
1.82 7/24/95 557.210 553.620 556.630 1.22
1.85 7/25/95 561.750 556.340 561.100 1.23
1.85 7/26/95 563.780 560.850 561.610 1.23
1.90 7/27/95 565.330 561.610 565.220 1.23
1.90 7/28/95 565.400 562.040 562.930 1.23
1.97 7/31/95 563.490 560.060 562.060 1.23
1.92 8/01/95 562.110 556.670 559.640 1.22
1.92 8/02/95 565.620 557.870 558.800 1.22
1.88 8/03/95 558.800 554.100 558.750 1.22
1.90 8/04/95 559.570 557.910 558.940 1.22
1.91 8/07/95 561.240 558.940 560.030 1.22
1.93 8/08/95 561.530 558.320 560.390 1.22
1.91 8/09/95 561.590 559.290 559.710 1.22
1.91 8/10/95 560.630 556.050 557.450 1.22
1.89 8/11/95 558.500 553.040 555.110 1.21
1.88 8/14/95 559.740 554.760 559.740 1.22
1.87 8/15/95 559.980 555.220 558.570 1.22
1.87 8/16/95 559.980 557.370 559.970 1.22
1.87 8/17/95 559.970 557.420 559.040 1.22
1.89 8/18/95 561.240 558.340 559.210 1.22
1.89 8/21/95 563.340 557.890 558.110 1.22
1.90 8/22/95 559.520 555.870 559.520 1.22
1.90 8/23/95 560.000 557.080 557.140 1.22
1.90 8/24/95 558.630 555.200 557.460 1.22
1.89 8/25/95 561.310 557.460 560.100 1.22
1.91 8/28/95 562.220 557.990 559.050 1.22
1.90 8/29/95 560.010 555.710 560.000 1.22
1.90 8/30/95 561.520 559.490 560.920 1.22
1.91 8/31/95 562.360 560.490 561.880 1.23
1.90 9/01/95 564.620 561.010 563.840 1.23
1.91 9/05/95 569.200 563.840 569.170 1.24
1.91 9/06/95 570.530 569.000 570.170 1.25
1.90 9/07/95 571.110 569.230 570.290 1.25
1.86 9/08/95 572.680 569.270 572.680 1.25
1.81 9/11/95 575.150 572.680 573.910 1.25
1.82 9/12/95 576.510 573.110 576.510 1.26
1.80 9/13/95 579.720 575.470 578.770 1.26
1.79 9/14/95 583.990 578.770 583.610 1.27
1.77 9/15/95 585.070 581.790 583.350 1.27
1.74 9/18/95 583.370 579.360 582.770 1.27
1.72 9/19/95 584.240 580.750 584.200 1.28
1.71 9/20/95 586.770 584.180 586.770 1.28
1.71 9/21/95 586.790 580.910 583.000 1.27
1.71 9/22/95 583.000 578.250 581.730 1.27
1.70 9/25/95 582.140 579.500 581.810 1.27
1.68 9/26/95 584.660 580.650 581.410 1.27
1.65 9/27/95 581.420 574.680 581.040 1.27
1.64 9/28/95 585.880 580.690 585.870 1.28
1.68 9/29/95 587.610 584.000 584.410 1.28
1.64 10/02/95 585.050 580.540 581.720 1.27
1.62 10/03/95 582.340 578.480 582.340 1.27
1.61 10/04/95 582.340 579.910 581.470 1.27
1.57 10/05/95 582.630 579.580 582.630 1.27
1.58 10/06/95 584.540 582.100 582.490 1.27
1.53 10/09/95 582.490 576.350 578.370 1.26
1.55 10/10/95 586.030 571.550 577.520 1.26
1.57 10/11/95 579.520 577.080 579.460 1.27
1.65 10/12/95 583.120 579.460 583.100 1.27
1.66 10/13/95 587.390 583.100 584.500 1.28
1.63 10/16/95 584.860 582.630 583.030 1.27
1.59 10/17/95 586.780 581.900 586.780 1.28
1.62 10/18/95 589.770 586.270 587.440 1.28
1.68 10/19/95 590.660 586.340 590.650 1.29
1.68 10/20/95 590.660 586.780 587.460 1.28
1.67 10/23/95 587.460 583.730 585.060 1.28
1.69 10/24/95 587.310 584.750 586.540 1.28
1.64 10/25/95 587.190 581.410 582.470 1.27
1.59 10/26/95 582.630 572.530 576.720 1.26
1.62 10/27/95 579.700 573.210 579.700 1.27
1.63 10/30/95 583.790 579.700 583.250 1.27
1.63 10/31/95 586.710 581.500 581.500 1.27
1.64 11/01/95 584.240 581.040 584.220 1.28
1.65 11/02/95 589.720 584.220 589.720 1.29
1.67 11/03/95 590.570 588.650 590.570 1.29
1.68 11/06/95 590.640 588.310 588.460 1.29
1.68 11/07/95 588.460 584.240 586.320 1.28
1.69 11/08/95 591.710 586.320 591.710 1.29
1.69 11/09/95 593.900 590.890 593.260 1.30
1.69 11/10/95 593.260 590.390 592.720 1.29
1.66 11/13/95 593.720 590.580 592.300 1.29
1.66 11/14/95 592.300 588.980 589.290 1.29
1.66 11/15/95 593.970 588.360 593.960 1.30
1.66 11/16/95 597.910 593.520 597.340 1.30
1.63 11/17/95 600.140 597.300 600.070 1.31
1.63 11/20/95 600.400 596.170 596.850 1.30
1.63 11/21/95 600.280 595.420 600.240 1.31
1.63 11/22/95 600.710 598.400 598.400 1.31
1.62 11/24/95 600.240 598.400 599.970 1.31
1.62 11/27/95 603.350 599.970 601.320 1.31
1.61 11/28/95 606.450 599.020 606.450 1.32
1.64 11/29/95 607.660 605.470 607.640 1.33
1.65 11/30/95 608.690 605.370 605.370 1.32
1.66 12/01/95 608.110 605.370 606.980 1.33
1.68 12/04/95 613.830 606.850 613.680 1.34
1.71 12/05/95 618.480 613.140 617.680 1.35
1.68 12/06/95 621.110 616.690 620.180 1.35
1.68 12/07/95 620.190 615.210 616.170 1.35
1.68 12/08/95 617.820 614.320 617.480 1.35
1.64 12/11/95 620.900 617.140 619.520 1.35
1.62 12/12/95 619.550 617.680 618.780 1.35
1.63 12/13/95 622.020 618.270 621.690 1.36
1.64 12/14/95 622.880 616.130 616.920 1.35
1.64 12/15/95 617.720 614.460 616.340 1.35
1.61 12/18/95 616.340 606.130 606.810 1.33
1.61 12/19/95 611.940 605.050 611.930 1.34
1.62 12/20/95 614.270 605.930 605.940 1.32
1.59 12/21/95 610.520 605.940 610.490 1.33
1.62 12/22/95 613.500 610.450 611.960 1.34
1.61 12/26/95 614.500 611.960 614.300 1.34
1.58 12/27/95 615.730 613.750 614.530 1.34
1.59 12/28/95 615.500 612.400 614.120 1.34
1.62 12/29/95 615.930 612.360 615.930 1.35
1.67 1/02/96 620.740 613.170 620.730 1.36
1.67 1/03/96 623.250 619.560 621.320 1.36
1.70 1/04/96 624.520 613.960 617.700 1.35
1.70 1/05/96 617.700 612.020 616.710 1.35
-------- -----
Casino index consists of AZR, BLY, GGE, HET, HWCC, and SBO.
<PAGE>
PROJECT WONDER
THCR Price/Volume Run
---------------------
[GRAPH APPEARS HERE]
CURRENCY: U.S. Dollar
DATE VOLUME HIGH LOW CLOSE
------- ------- ------ ------ ------
6/07/95 1582100 14.250 14.000 14.000
6/08/95 838300 14.125 14.000 14.000
6/09/95 322700 14.125 14.000 14.000
6/12/95 273400 14.125 14.000 14.000
6/13/95 213300 14.125 14.000 14.000
6/14/95 453300 14.125 13.250 13.250
6/15/95 178100 13.250 12.750 12.875
6/16/95 80600 12.875 12.750 12.750
6/19/95 300100 12.750 11.625 11.625
6/20/95 60400 12.250 11.375 12.125
6/21/95 243400 13.250 12.250 12.625
6/22/95 53600 12.875 12.625 12.750
6/23/95 19600 12.875 12.750 12.875
6/26/95 55400 13.000 12.875 13.000
6/27/95 29300 13.125 13.000 13.000
6/28/95 56200 13.250 13.125 13.125
6/29/95 29900 13.375 13.125 13.375
6/30/95 37900 13.500 13.375 13.375
7/03/95 55100 13.375 13.125 13.125
7/05/95 19200 13.250 13.000 13.125
7/06/95 22400 13.250 13.125 13.125
7/07/95 78200 13.125 13.000 13.000
7/10/95 75800 14.000 13.125 13.750
7/11/95 20900 13.750 13.500 13.625
7/12/95 138700 14.375 13.500 14.125
7/13/95 29200 14.000 13.875 13.875
7/14/95 121300 14.375 13.875 14.375
7/17/95 82400 14.375 14.125 14.250
7/18/95 18800 14.125 14.125 14.125
7/19/95 20700 14.125 13.875 13.875
7/20/95 21900 14.125 13.875 14.125
7/21/95 33900 14.250 14.000 14.125
7/24/95 49900 14.250 14.000 14.125
7/25/95 20000 14.250 14.125 14.250
7/26/95 71000 15.125 14.250 15.125
7/27/95 115000 15.500 15.000 15.250
7/28/95 17400 15.250 15.000 15.125
7/31/95 24500 15.125 14.750 15.000
8/01/95 28000 14.875 14.625 14.875
8/02/95 81800 15.750 14.875 15.625
8/03/95 164900 16.250 15.250 16.125
8/04/95 109200 16.625 16.125 16.250
8/07/95 57100 16.375 15.750 15.750
8/08/95 37500 15.875 15.625 15.750
8/09/95 193700 17.000 16.125 16.875
8/10/95 257900 18.000 17.125 17.750
8/11/95 293900 19.250 17.750 19.125
8/14/95 146700 19.750 19.375 19.500
8/15/95 99200 19.750 18.875 19.000
8/16/95 56600 19.125 19.000 19.125
8/17/95 64700 19.750 19.250 19.750
8/18/95 41200 19.750 19.250 19.250
8/21/95 29300 19.625 19.000 19.000
8/22/95 28600 18.875 18.500 18.625
8/23/95 33900 19.125 18.375 19.125
8/24/95 25400 19.125 18.875 19.000
8/25/95 35100 19.000 18.875 19.000
8/28/95 17200 19.125 18.875 19.125
8/29/95 13400 19.125 18.750 18.875
8/30/95 23700 18.875 18.750 18.750
8/31/95 9400 18.875 18.750 18.875
9/01/95 9900 18.750 18.625 18.750
9/05/95 13300 18.750 18.375 18.500
9/06/95 36900 19.000 18.375 19.000
9/07/95 6400 19.000 18.875 19.000
9/08/95 8900 19.000 18.750 18.750
9/11/95 12000 18.750 18.500 18.500
9/12/95 45000 18.625 18.250 18.250
9/13/95 28400 18.250 17.750 17.750
9/14/95 76700 17.625 17.000 17.500
9/15/95 84700 17.375 17.000 17.125
9/18/95 90700 18.500 16.875 18.500
9/19/95 19000 18.500 18.125 18.250
9/20/95 57300 18.625 18.250 18.500
9/21/95 18900 18.500 18.250 18.375
9/22/95 23700 18.500 18.125 18.500
9/25/95 7700 18.500 18.125 18.125
9/26/95 34400 18.125 17.750 17.875
9/27/95 59300 17.750 17.000 17.125
9/28/95 63700 17.125 16.500 16.875
9/29/95 33000 17.125 16.750 17.000
10/02/95 27900 17.875 17.125 17.625
10/03/95 14100 17.750 17.375 17.500
10/04/95 74800 17.500 17.250 17.250
10/05/95 9400 17.250 17.000 17.125
10/06/95 2900 17.250 17.000 17.125
10/09/95 38200 17.125 16.375 16.750
10/10/95 468400 16.625 16.000 16.125
10/11/95 58800 16.500 15.625 16.125
10/12/95 14600 16.625 16.250 16.500
10/13/95 16100 17.000 16.625 17.000
10/16/95 11000 17.125 16.625 16.750
10/17/95 20000 16.750 16.250 16.375
10/18/95 16100 16.375 16.125 16.125
10/19/95 53800 16.500 16.000 16.125
10/20/95 5700 16.500 16.250 16.250
10/23/95 87900 16.500 16.375 16.375
10/24/95 4200 16.375 16.250 16.250
10/25/95 9200 16.125 15.750 15.750
10/26/95 33700 15.750 15.250 15.250
10/27/95 259200 15.000 14.000 14.750
10/30/95 61600 16.500 14.875 16.500
10/31/95 31900 17.250 16.500 17.000
11/01/95 29400 17.125 16.625 16.750
11/02/95 120000 17.750 16.750 17.750
11/03/95 14300 18.000 17.500 17.625
11/06/95 45100 17.875 17.125 17.375
11/07/95 44100 17.625 17.375 17.375
11/08/95 14600 17.750 17.250 17.625
11/09/95 24200 18.500 18.125 18.250
11/10/95 11700 18.125 17.750 17.875
11/13/95 3300 17.750 17.750 17.750
11/14/95 4900 17.750 17.500 17.750
11/15/95 20200 18.375 17.625 18.375
11/16/95 42700 18.250 17.625 17.625
11/17/95 47200 17.625 17.375 17.625
11/20/95 48300 18.750 17.875 18.125
11/21/95 21600 18.125 17.750 17.750
11/22/95 10200 17.750 17.500 17.500
11/24/95 1500 17.625 17.625 17.625
11/27/95 8700 17.625 17.500 17.625
11/28/95 17600 18.000 17.500 17.875
11/29/95 6900 18.125 17.875 18.000
11/30/95 38800 19.250 18.000 19.000
12/01/95 118400 19.500 19.000 19.375
12/04/95 95500 20.000 19.000 19.750
12/05/95 163600 21.000 19.875 21.000
12/06/95 173100 21.125 19.500 20.375
12/07/95 145700 21.125 20.375 20.875
12/08/95 51400 20.875 20.625 20.875
12/11/95 66300 21.625 20.750 21.500
12/12/95 28400 21.500 21.125 21.125
12/13/95 52100 21.625 20.750 21.500
12/14/95 24200 21.625 20.750 20.750
12/15/95 43600 20.625 20.250 20.500
12/18/95 14600 20.250 20.000 20.000
12/19/95 20200 20.500 20.000 20.375
12/20/95 19000 20.375 20.250 20.250
12/21/95 33300 20.500 20.125 20.375
12/22/95 6800 21.000 20.500 21.000
12/26/95 29400 21.500 21.125 21.375
12/27/95 85300 21.500 21.250 21.375
12/28/95 67400 21.500 21.250 21.375
12/29/95 65500 21.500 21.250 21.500
1/02/96 58200 22.375 21.750 21.750
1/03/96 79700 21.750 21.125 21.750
1/04/96 64300 21.625 21.375 21.500
1/05/96 62100 22.000 21.500 21.750
<PAGE>
PROJECT WONDER
Price/Volume Run of Gem's 11.35% Mortgage Bonds
[GRAPH APPEARS HERE]
CURRENCY: U.S. Dollar
DATE VOLUME HIGH LOW CLOSE
------ ------ ---- --- ------
12/19/94 125 64.375 63.375 63.500
12/20/94 116 63.500 63.000 63.250
12/21/94 65 64.500 63.750 64.000
12/22/94 65.000 64.000 64.500
12/23/94 20 64.750 64.625 64.750
12/27/94 100 66.500 66.000 66.000
12/28/94 225 67.750 66.125 66.125
12/29/94 97 66.875 66.000 66.875
12/30/94 10 67.000 66.000 67.000
1/03/95 15 67.000 66.000 67.000
1/04/95 255 68.875 68.000 68.000
1/05/95 128 68.750 68.000 68.750
1/06/95 304 68.750 68.125 68.250
1/09/95 206 68.625 68.375 68.625
1/10/95 761 70.000 68.625 68.625
1/11/95 824 69.375 68.750 68.750
1/12/95 435 69.250 68.500 69.250
1/13/95 336 69.375 69.000 69.250
1/16/95 350 70.375 69.250 70.250
1/17/95 136 72.375 70.750 72.375
1/18/95 610 72.750 70.000 70.500
1/19/95 57 70.500 70.250 70.250
1/20/95 864 70.375 69.625 69.625
1/23/95 98 70.250 69.000 70.250
1/24/95 91 69.750 69.500 69.500
1/25/95 90 69.250 69.250 69.250
1/26/95 133 69.500 69.125 69.250
1/27/95 38 69.500 69.000 69.250
1/30/95 53 69.500 68.500 69.500
1/31/95 60 69.375 68.750 69.375
2/01/95 72 69.875 69.375 69.500
2/02/95 452 70.000 68.000 68.000
2/03/95 127 68.750 67.875 68.625
2/06/95 472 69.000 68.375 69.000
2/07/95 90 69.500 69.250 69.500
2/08/95 115 69.500 69.000 69.250
2/09/95 62 69.750 69.000 69.375
2/10/95 223 69.750 69.500 69.750
2/13/95 109 70.250 70.000 70.000
2/14/95 40 70.750 70.000 70.750
2/15/95 101 72.000 71.000 71.875
2/16/95 92 71.750 71.250 71.500
2/17/95 60 71.375 71.250 71.375
2/21/95 152 71.875 71.375 71.375
2/22/95 171 71.500 71.000 71.250
2/23/95 18 71.625 71.500 71.500
2/24/95 30 71.000 71.000 71.000
2/27/95 100 71.000 70.000 71.000
2/28/95 96 71.500 71.000 71.500
3/01/95 406 73.750 72.500 73.250
3/02/95 322 74.000 73.250 73.750
3/03/95 20 73.750 73.750 73.750
3/06/95 206 73.000 72.500 72.500
3/07/95 375 73.000 72.000 72.000
3/08/95 166 72.875 72.250 72.875
3/09/95 110 74.000 73.000 73.750
3/10/95 55 75.000 73.750 73.750
3/13/95 108 74.000 73.500 74.000
3/14/95 70 73.750 73.500 73.750
3/15/95 93 74.000 73.750 74.000
3/16/95 97 75.000 73.750 75.000
3/17/95 196 75.000 74.000 74.250
3/20/95 39 74.250 74.000 74.000
3/21/95 77 74.250 73.750 74.250
3/22/95 123 74.250 73.500 73.500
3/23/95 55 74.500 74.125 74.500
3/24/95 75 75.000 74.500 74.500
3/27/95 101 76.500 75.000 75.500
3/28/95 35 75.500 75.500 75.500
3/29/95 5 75.125 75.125 75.125
3/30/95 143 75.750 75.500 75.500
3/31/95 145 76.000 75.750 76.000
4/03/95 127 75.500 75.500 75.500
4/04/95 85 76.875 76.000 76.500
4/05/95 93 76.250 75.500 76.250
4/06/95 318 77.500 76.000 77.000
4/07/95 55 78.000 77.250 78.000
4/10/95 70 78.000 77.500 78.000
4/11/95 46 77.750 77.500 77.500
4/12/95 49 77.500 77.375 77.375
4/13/95 64 78.000 77.250 78.000
4/17/95 6 77.500 77.500 77.500
4/18/95 78.000 77.000 77.500
4/19/95 7 77.375 77.375 77.375
4/20/95 18 77.500 77.000 77.000
4/21/95 227 77.250 77.000 77.250
4/24/95 103 78.000 77.125 77.875
4/25/95 369 72.250 72.000 72.000
4/26/95 71 72.000 71.625 71.750
4/27/95 262 72.000 71.000 72.000
4/28/95 8 72.000 71.000 72.000
5/01/95 21 71.875 71.000 71.000
5/02/95 11 71.625 71.000 71.625
5/03/95 195 72.000 71.750 72.000
5/04/95 269 74.250 73.000 74.000
5/05/95 130 74.500 74.250 74.500
5/08/95 152 75.000 74.500 75.000
5/09/95 135 76.000 75.000 75.000
5/10/95 57 75.250 74.500 74.500
5/11/95 48 75.000 74.750 75.000
5/12/95 154 76.000 75.000 76.000
5/15/95 93 76.750 74.500 75.000
5/16/95 25 76.000 76.000 76.000
5/17/95 131 77.000 76.000 76.000
5/18/95 707 77.750 76.000 76.000
5/19/95 28 76.000 75.500 76.000
5/22/95 14 76.000 75.500 75.500
5/23/95 35 76.500 76.500 76.500
5/24/95 218 77.000 75.750 76.000
5/25/95 244 76.000 75.750 75.750
5/26/95 46 76.250 75.500 75.500
5/30/95 68 76.000 75.625 75.625
5/31/95 236 76.500 74.500 74.500
6/01/95 367 75.500 74.500 75.500
6/02/95 78 76.000 75.500 76.000
6/05/95 263 78.250 76.500 78.000
6/06/95 163 80.500 79.000 79.375
6/07/95 315 83.000 82.000 82.750
6/08/95 88 82.500 81.000 81.875
6/09/95 18 81.000 79.000 79.000
6/12/95 161 79.625 78.250 79.625
6/13/95 47 80.000 79.000 80.000
6/14/95 5 79.625 79.625 79.625
6/15/95 27 78.500 78.500 78.500
6/16/95 182 77.500 77.000 77.250
6/19/95 114 77.250 76.750 77.250
6/20/95 46 77.000 76.500 76.500
6/21/95 95 77.500 77.250 77.500
6/22/95 89 79.000 78.000 79.000
6/23/95 607 80.000 79.500 80.000
6/26/95 10 79.000 79.000 79.000
6/27/95 231 81.000 79.750 80.500
6/28/95 80.500 80.000 80.250
6/29/95 80.500 79.500 80.000
6/30/95 25 80.500 80.500 80.500
7/03/95 80.000 79.000 79.500
7/05/95 152 81.000 79.000 79.000
7/06/95 57 81.000 80.500 81.000
7/07/95 94 82.000 81.750 82.000
7/10/95 36 82.500 82.000 82.000
7/11/95 41 82.500 82.500 82.500
7/12/95 6 82.500 82.500 82.500
7/13/95 35 83.000 82.000 82.000
7/14/95 82.500 81.000 81.750
7/17/95 10 82.250 82.250 82.250
7/18/95 44 82.500 81.250 81.250
7/19/95 142 82.000 79.500 80.500
7/20/95 131 81.000 80.750 81.000
7/21/95 448 83.000 81.500 82.750
7/24/95 202 83.750 82.750 83.750
7/25/95 75 86.500 83.750 86.500
7/26/95 20 86.000 85.000 85.000
7/27/95 65 85.750 84.000 84.000
7/28/95 85.000 84.500 84.750
7/31/95 23 85.000 85.000 85.000
8/01/95 74 85.750 85.500 85.750
8/02/95 36 87.000 86.500 86.500
8/03/95 68 87.000 86.000 86.500
8/04/95 72 86.750 86.375 86.500
8/07/95 43 86.500 86.500 86.500
8/08/95 20 86.750 86.500 86.750
8/09/95 25 86.750 86.000 86.750
8/10/95 41 86.000 85.000 85.000
8/11/95 17 85.500 85.000 85.000
8/14/95 50 86.000 86.000 86.000
8/15/95 5 86.000 86.000 86.000
8/16/95 38 85.000 84.625 84.625
8/17/95 236 84.625 84.000 84.250
8/18/95 11 84.500 84.000 84.500
8/21/95 15 84.375 84.000 84.375
8/22/95 239 84.500 83.750 84.000
8/23/95 54 83.750 83.625 83.625
8/24/95 43 84.000 83.000 83.625
8/25/95 28 83.750 83.250 83.750
8/28/95 77 84.000 83.500 83.750
8/29/95 100 84.500 84.125 84.125
8/30/95 162 84.250 84.000 84.250
8/31/95 192 84.250 83.750 84.250
9/01/95 84.750 84.000 84.375
9/05/95 118 84.500 84.000 84.500
9/06/95 347 84.500 84.250 84.375
9/07/95 373 84.750 84.125 84.125
9/08/95 85 85.250 85.000 85.000
9/11/95 15 84.500 84.500 84.500
9/12/95 606 87.500 85.500 87.500
9/13/95 444 88.000 87.000 88.000
9/14/95 250 88.500 87.500 87.500
9/15/95 250 88.500 88.000 88.500
9/18/95 58 88.500 87.500 87.750
9/19/95 39 88.250 88.000 88.250
9/20/95 378 89.000 87.500 88.500
9/21/95 658 89.250 88.750 88.750
9/22/95 104 88.750 88.500 88.750
9/25/95 75 88.750 88.625 88.625
9/26/95 242 89.500 89.000 89.500
9/27/95 155 89.500 89.000 89.000
9/28/95 198 89.500 89.000 89.375
9/29/95 190 89.750 89.000 89.750
10/02/95 190 90.000 89.375 89.625
10/03/95 406 89.625 89.000 89.500
10/04/95 143 89.000 87.875 87.875
10/05/95 268 88.750 87.750 88.750
10/06/95 49 88.625 88.500 88.500
10/09/95 88 90.000 88.500 89.500
10/10/95 802 89.500 89.000 89.250
10/11/95 118 89.875 89.000 89.875
10/12/95 178 89.875 89.250 89.375
10/13/95 156 91.000 89.750 90.000
10/16/95 210 90.250 90.250 90.250
10/17/95 101 90.250 90.000 90.250
10/18/95 28 90.250 89.500 89.500
10/19/95 266 90.250 89.750 89.875
10/20/95 116 89.750 89.250 89.625
10/23/95 251 90.000 89.500 89.875
10/24/95 32 89.750 89.000 89.750
10/25/95 216 89.750 89.000 89.250
10/26/95 61 89.500 89.250 89.250
10/27/95 56 90.000 89.250 90.000
10/30/95 344 87.000 85.000 86.000
10/31/95 110 86.125 85.500 85.500
11/01/95 100 86.000 85.500 86.000
11/02/95 831 87.000 85.750 86.500
11/03/95 52 87.000 86.750 86.750
11/06/95 55 87.000 86.750 87.000
11/07/95 44 87.000 86.375 86.875
11/08/95 109 87.500 87.000 87.500
11/09/95 59 87.500 87.500 87.500
11/10/95 58 87.500 87.250 87.500
11/13/95 123 87.375 86.250 87.250
11/14/95 69 87.250 86.500 87.250
11/15/95 147 87.000 86.500 87.000
11/16/95 43 87.000 86.250 86.500
11/17/95 181 87.000 86.250 86.500
11/20/95 188 88.250 87.375 87.500
11/21/95 5 87.750 87.125 87.125
11/22/95 92 87.875 87.000 87.500
11/24/95 88.250 87.000 87.625
11/27/95 41 88.250 88.000 88.000
11/28/95 44 87.750 87.000 87.750
11/29/95 62 87.875 87.125 87.125
11/30/95 15 87.875 87.125 87.125
12/01/95 10 88.000 87.875 88.000
12/04/95 303 88.875 88.000 88.875
12/05/95 6 89.500 89.500 89.500
12/06/95 154 91.500 90.250 91.500
12/07/95 112 90.875 90.625 90.625
12/08/95 484 92.000 91.000 91.500
12/11/95 172 91.000 90.875 90.875
12/12/95 6 91.000 91.000 91.000
12/13/95 681 92.750 91.375 92.500
12/14/95 91 92.625 92.000 92.625
12/15/95 86 93.000 92.500 92.500
12/18/95 656 92.875 92.500 92.500
12/19/95 94 93.000 92.500 92.500
12/20/95 220 93.500 93.000 93.500
12/21/95 145 96.000 94.750 96.000
12/22/95 95.500 94.625 95.063
12/26/95 70 95.500 95.000 95.000
12/27/95 349 95.750 95.500 95.625
12/28/95 395 96.500 95.750 95.750
12/29/95 21 96.250 96.000 96.250
1/02/96 532 97.000 96.125 97.000
1/03/96 309 98.000 97.125 98.000
1/04/96 155 98.000 96.500 96.500
1/05/96 254 98.000 97.500 97.875
<PAGE>
EXHIBIT 17(b)(4)
- --------------------------------------------------------------------------------
PRESENTATION TO
THE SPECIAL COMMITTEE OF
THE
BOARD OF DIRECTORS
OF
WONDER
JANUARY 4, 1996
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
<PAGE>
PROJECT WONDER DRAFT
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
EXHIBIT
<S> <C>
TRANSACTION SUMMARY........................................ 1
VALUATION ANALYSES......................................... 2
PROFILE OF TOM............................................. 3
PROFILE OF THE COMBINED COMPANY............................ 4
</TABLE>
Note: All projections and estimates of future events are strictly those of,
and the following analyses are based upon financial and other information
provided to DLJ by, Wonder, Tom and their respective managements.
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
<PAGE>
PROJECT WONDER DRAFT
- --------------------------------------------------------------------------------
TRANSACTION SUMMARY
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
TRANSACTION OVERVIEW
. Merge Tom with a wholly-owned subsidiary of Wonder
. Tom's Class A shareholders receive $30 per share (aggregate consideration
of $40.5 million) in Wonder Common Stock or cash, at their option
. On account of all of his equity and voting interests in Tom, Trump
receives aggregate consideration of $40.5 million in Wonder Common Stock
equivalents
. Tom's Class B shares are redeemed for $0.50 per share in cash (aggregate
consideration of $0.4 million)
. Trump receives warrants to purchase 600,000 shares of Wonder Common Stock
at a $30.00 strike price (three-year term), 600,000 shares of Wonder
Common Stock at a $35.00 strike price (four-year term) and 600,000 shares
of Wonder Common Stock at a $40.00 strike price (five-year term)
. Purchase land held by Trump Realty and remove First Fidelity contingent
liability and receive releases with payment of $50 million in cash and
500,000 shares of Wonder Common Stock
. Pay $10 million cash to BT on behalf of Trump for consent and releases by
BT
. Refinance Tom Mortgage Bonds with $750 million First Mortgage Note
offering
. Raise $100 million in Wonder public equity offering
. Trump management fee at Tom eliminated
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-1-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
SOURCES AND USES
($ in millions)
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
-------------------------------------------- ---------------------------------------
Cash Sources Cash Uses
------------ ---------
<S> <C> <C> <C>
Excess Cash /(1)/ $44.2 Payment to First Fidelity $50.0
New First Mortgage Notes 750.0 Payment to BT 10.0
Additional Equity Issued to Public 100.0 Retire First Mortgage Bonds 793.8
-----
Purchase Class B Shares 0.4
Transaction Fees and Expenses 40.0
----
Total Cash Sources 894.2 Total Cash Uses 894.2
Non-Cash Sources Non-Cash Uses
---------------- -------------
Equity Issued to Taj Class A /(2)/ 40.5 Purchase Class A and C Shares 81.0
Equity Issued to Taj Class C 40.5 Equity to First Fidelity /(3)/ 10.0
----
Equity to First Fidelity 10.0
----
Total Sources $985.2 Total Uses $985.2
===== =====
</TABLE>
________________________________________
(1) Although Tom will have $55.0 million of excess cash, only $44 million will
be used in the Acquisition in order to provide a working capital cushion.
(2) Assumes Class A shareholders will receive Wonder stock in the Acquisition.
(3) Assumes $20.00 Wonder stock price.
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-2-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
ADDITIONAL POTENTIAL USES
. Trump Indiana additional capital expenditures
- $25 million required to fund permanent facility /(1)/
. Refinance Natwest loan
- $44.9 million aggregate principal amount
. Exercise Trump Plaza East option
- Current exercise price of $28 million
. Fund Tom expansion
__________________________________________
(1) Assumes $10 million of gaming equipment financing available.
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-3-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
OWNERSHIP SUMMARY /(1)/
<TABLE>
<CAPTION>
POST
ACQUISITION /(2)/
POST & EQUITY
ACQUISITION/(2)/ OFFERING &
PRE-ACQUISITION POST & EQUITY TRUMP
------------------------
WONDER TOM ACQUISITION /(2)/ OFFERING WARRANTS
------------ ----------- -------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Trump.......................... 39.8% 50.0% 40.7% 33.0% 37.7%
Class A........................ - 50.0% 9.5% 7.7% 7.1%
Public......................... 60.2% - 47.5% 57.4% 53.4%
First Fidelity................. - - 2.3% 1.9% 1.8%
----- ----- ---- ---- ----
Total.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
________________________________________
(1) Assumes $20.00 Wonder stock price and $100mm primary equity offering.
(2) Assumes Tom's Class A shareholders receive Wonder stock.
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-4-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
CAPITALIZATION SUMMARY
($ in millions)
<TABLE>
<CAPTION>
PRO
ESTIMATED AT 12/31/95 FORMA % OF TOTAL
---------------------------
WONDER TOM COMBINED CAPITALIZATION
----------- ------------ ---------- ----------------
<S> <C> <C> <C> <C>
Excess Cash.................................... $15.1 $55.0 $26.0 --
Cage/Restricted Cash........................... 12.0 25.0 37.0 --
---- ---- ---- ==
Total Cash..................................... $27.2 $80.0 $63.0 --
===== ===== ===== ==
Long-Term Debt:
Tom NatWest Loan.............................. $0.0 $44.9 $44.9 3.1%
Tom 11.35% First Mortgage Bonds............... 0.0 793.8/(1)/ 0.0 0.0
Wonder 10.88% First Mortgage Bonds............ 330.0 0.0 330.0 22.8
Wonder 15.50% Senior Secured Notes............ 155.0 0.0 155.0 10.7
New First Mortgage Notes...................... 0.0 0.0 750.0 51.8
Other Debt.................................... 13.9 1.2 15.1 1.1
----- ----- ------- -----
Total Long-Term Debt....................... 499.0 839.9 1,295.0 89.5
Equity......................................... 49.2 (84.6)/(2)/ 152.7 10.5
---- ----- ----- ----
Total Capitalization........................... $548.2 $755.3 $1,447.8 100.0%
====== ====== ========
Contingent Liabilities
First Fidelity................................ $0.0 $30.0/(3)/ $0.0 --
</TABLE>
____________________________
(1) Includes accrued PIK interest through March 31, 1996.
(2) Gives effect to loss associated with redemption of First Mortgage Bonds.
(3) Currently booked on Tom's balance sheet at $17 million which represents the
present value of the obligation.
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-5-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
PURCHASE PRICE SUMMARY
($ in millions)
<TABLE>
<CAPTION>
EXCLUDING INCLUDING
FEES FEES
--------- ---------
<S> <C> <C>
Purchase Equity.............................. $81.4 $81.4
Assumed Value of Warrants to Trump/(1)/ ..... 7.4 7.4
--- ---
Equity Purchase Price...................... 88.8 88.8
Payment to First Fidelity:
Cash....................................... 50.0 50.0
Equity/(2)/................................ 10.0 10.0
Payment to BT................................ 10.0 10.0
Retire Old First Mortgage Bonds/(3)/......... 793.8 793.8
Assume NatWest Loan.......................... 44.9 44.9
Transaction Fees and Expenses................ 0.0 40.0
Less: Excess Cash on Hand.................... (55.0) (55.0)
------ ------
Enterprise Value.......................... $942.5 $982.5
===== =====
</TABLE>
____________________
(1) Black-Scholes analysis used to value Trump warrants. Assumed volatility of
35%.
(2) Assumes $20.00 Wonder stock price.
(3) Includes accrued PIK interest through March 31, 1996.
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-6-
<PAGE>
SUMMARY PURCHASES PRICE MULTIPLES
($ in millions)
<TABLE>
<CAPTION>
PURCHASE PRICE PURCHASE PRICE
MULTIPLES MULTIPLES
TOM FINANCIAL RESULTS INCLUDING FEES EXCLUDING FEES
---------------------------------- -------------------------------- -------------------------------
EXCLUDING INCLUDING EXCLUDING INCLUDING EXCLUDING INCLUDING
SYNERGIES SYNERGIES/(1)/ SYNERGIES SYNERGIES/(1)/ SYNERGIES SYNERGIES/(1)/
-------------- ------------------ --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1995 ESTIMATED
- --------------
Revenues................ $559.6 $559.6 1.8x 1.8x 1.7x 1.7x
EBITDA.................. 138.2 156.5 7.1 6.3 6.8 6.0
EBIT.................... 94.3 112.6 10.4 8.7 10.0 8.4
Book Value.............. 40.3 -- 2.2 -- 2.2 --
1996 BUDGET
- -----------
Revenues............... $583.4 $583.4 1.7x 1.7x 1.6x 1.6x
EBITDA................. 161.0 179.3 6.1 5.5 5.9 5.3
EBIT................... 112.8 131.1 8.7 7.5 8.4 7.2
Book Value............. -- -- -- -- -- --
</TABLE>
__________________
(1) Assumes $18.3 million in synergies expected to be achieved in FY 1997.
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-7-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
STRATEGIC RATIONALE
. Creates one of the largest gaming companies in the United States
. Significant presence in growing Atlantic City market
- Combined company will have approximately one-quarter of Atlantic
City's hotel rooms, gaming space, slots and tables
. Alleviates Trump conflict-of-interest concerns
. $20.6 million in expected annual cost savings in FY 1998
. Provides critical mass necessary to compete effectively for new gaming
licenses
. Extends maturity of Tom long-term debt to allow for expansion plan
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-8-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
VALUATION ANALYSES
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
VALUATION RELATIVE TO PROPOSAL
. Methodologies
- Comparable companies analysis
- Comparable M&A transactions analysis
- Discounted cash flow analysis
- Contribution analysis
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-1-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
PUBLIC COMPANY COMPARABLE ANALYSIS
($ in millions)
<TABLE>
<CAPTION>
IMPLIED TOM MULTIPLES IMPLIED TOM MULTIPLES
TOM INCLUDING FEES EXCLUDING FEES COMPARABLE COMPANY
---------------------------- --------------------------
FINANCIAL EXCLUDING INCLUDING EXCLUDING INCLUDING MULTIPLES/1)/
-----------------------
RESULTS/2)/ SYNERGIES SYNERGIES/(3)/ SYNERGIES SYNERGIES/3)/ LOW AVERAGE HIGH BALLY ENT.
------------- ----------- --------------- ------------------------- ----- -------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ENTERPRISE VALUE/
LTM Revenues............... $559.6 1.8x 1.8x 1.7x 1.7x 0.8x 1.7x 2.6x 1.9x
LTM EBITDA................. 138.2 7.1 6.3 6.8 6.0 4.5 7.4 11.2 7.1
LTM EBIT................... 94.3 10.4 8.7 10.0 8.4 6.0 10.9 17.3 10.1
1996P EBITDA............... 161.0 6.1 5.5 5.9 5.3 4.1 6.3 8.4 6.0
PRICE/
1995P Net Income........... NM NM NM NM NM 6.8x 21.7x 41.4x 23.3X
1996P Net Income........... NM NM NM NM NM 6.1 14.8 28.6 17.7
Book Value................. 40.3 2.2 -- 2.2 -- 0.8 2.4 4.1 1.4
</TABLE>
______________________________
(1) Comparable casino hotel companies includes Harrah's Entertainment, Bally
Entertainment, Rio Hotels, Showboat, Aztar, Griffin Gaming, Hollywood
Casinos, Mirage, MGM Grand and Stratosphere.
(2) Tom LTM results represent estimated FY1995, excluding synergies.
(3) Assumes $18.3 million in synergies expected to be achieved in FY 1997.
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-2-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
COMPARABLE MERGER AND ACQUISITIONS VALUATION ANALYSIS
($ in millions)
<TABLE>
<CAPTION>
IMPLIED TOM MULTIPLES IMPLIED TOM MULTIPLES AVERAGE AVERAGE
TOM INCLUDING FEES EXCLUDING FEES CASINO SINGLE ITT-
--------------------------- --------------------------
FINANCIAL EXCLUDING INCLUDING EXCLUDING INCLUDING RESORT PROPERTY CAESARS
RESULTS/(1)/ SYNERGIES SYNERGIES/(2)/ SYNERGIES SYNERGIES/(2)/ MULTIPLES/(3)/ MULTIPLES/(3)/ MULTIPLE
------------- ---------- --------------- ---------- -------------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ENTERPRISE VALUE/
LTM Revenues $559.6 1.8x 1.8x 1.7x 1.7x 1.6x 1.4x 1.8x
LTM EBITDA 138.2 7.1 6.3 6.8 6.0 8.7 8.4 9.1
LTM EBIT 94.3 10.4 8.7 10.0 8.4 12.2 11.0 13.5
EQUITY VALUE/
1995P Net Income NM NM NM NM NM -- -- 23.3x
Book Value 40.3 2.2 -- 2.2 -- -- -- 2.9
</TABLE>
____________________
(1) Tom LTM results represent estimated FY 1995, excluding synergies.
(2) Assumes $18.3 million in synergies expected to be achieved in FY
(3) Average excludes high and low.
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-3-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW VALUATION
($ in millions)
ENTERPRISE VALUES WITH TOM EXPANSION
- ------------------------------------
<TABLE>
<CAPTION>
WEIGHTED AVERAGE COST OF CAPITAL
--------------------------------------------------------------------------------
8.0% 9.0% 10.0% 11.0% 12.0% 13.0%
------------ ------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
5.0X $1,417.0 $1,357.5 $1,301.0 $1,247.5 $1,196.8 $1,148.6
TERMINAL 6.0 1,636.0 1,566.6 1,500.9 1,438.5 1,379.4 1,323.3
EBITDA 7.0 1,855.1 1,775.8 1,700.7 1,629.5 1,562.0 1,497.9
MULTIPLE 8.0 2,074.1 1,985.0 1,900.5 1,820.5 1,744.6 1,672.6
9.0 2,293.1 2,194.1 2,100.4 2,011.5 1,927.2 1,847.3
10.0 2,512.2 2,403.3 2,300.2 2,202.5 2,109.9 2,022.0
</TABLE>
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-4-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW VALUATION (CONT'D)
($ in millions)
ENTERPRISE VALUES WITHOUT TOM EXPANSION
- ---------------------------------------
<TABLE>
<CAPTION>
WEIGHTED AVERAGE COST OF CAPITAL
-------------------------------------------------------------------------
8.0% 9.0% 10.0% 11.0% 12.0% 13.0%
------------ ----------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
5.0X $1,148.5 $1,104.0 $1,061.8 $1,021.6 $983.5 $947.2
TERMINAL 6.0 1,298.3 1,247.0 1,198.4 1,152.2 1,108.4 1,066.7
EBITDA 7.0 1,448.0 1,390.0 1,335.0 1,282.8 1,233.2 1,186.1
MULTIPLE 8.0 1,597.8 1,533.0 1,471.6 1,413.4 1,358.1 1,305.5
9.0 1,747.5 1,676.1 1,608.3 1,544.0 1,482.9 1,424.9
10.0 1,897.3 1,819.1 1,744.9 1,674.5 1,607.8 1,544.4
</TABLE>
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-5-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
CONTRIBUTION ANALYSIS
<TABLE>
<CAPTION>
RELATIVE ENTERPRISE VALUATION CONTRIBUTION:
INCLUDING FEES EXCLUDING FEES
- ------------------------------------- ----------------------------------------
<S> <C> <C>
Wonder...............46.7% Wonder..............47.8%
Tom..................53.3% Tom................52.2%
</TABLE>
<TABLE>
<CAPTION>
PROJECTED
----------------------------------------------
1995 1996 1997
------------- ------------ -----------
<S> <C> <C> <C>
REVENUES:
Wonder........................ 37.3% 51.5% 54.2%
Tom........................... 62.7% 48.5% 45.8%
EBITDA:
Wonder........................ 34.4% 46.6% 49.0%
Tom........................... 65.6% 53.4% 51.0%
EBIT:
Wonder........................ 37.0% 50.2% 50.0%
Tom........................... 63.0% 49.8% 50.0%
NET INCOME:
Wonder........................ NM NM NM
Tom........................... NM NM NM
BOOK VALUE:
Wonder........................ 45.0% -- --
Tom........................... 55.0% -- --
</TABLE>
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-6-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
PROFILE OF TOM
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
TOM CORPORATE PROFILE
. Largest casino hotel facility in Atlantic City
. Since commencing operations in 1990:
- #1 in total gaming revenue
- #1 in table revenues
- #1 in slot revenues
. Top performer in the Atlantic City market in terms of Revenues and
EBITDA
. First class hotel and entertainment facilities
. Expansion plan provides upside significant potential
_____________________________________________________________________________DLJ
DONALDSON, LUFKIN & JENRETTE
-1-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
TOM SUMMARY HISTORICAL FINANCIAL INFORMATION
($ in millions)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, LTM
-----------------------------------------
1992 1993 1994/(1)/ 10/31/95
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net Revenues.......................... $469.8 $498.9 $517.2 $555.0
Growth.............................. 7.2% 6.2% 3.7% --
EBITDA /(2)/.......................... 107.0 124.1 120.1 139.7
Margin.............................. 22.8% 24.9% 23.2% 25.2%
EBIT.................................. 68.0 84.5 76.6 --
Margin.............................. 14.5% 16.9% 14.8% --
Cash Interest Expense................. -- -- -- 78.3
Total Interest Expense................ -- -- -- 117.3
Capital Expenditures.................. 12.1 16.8 23.0 25.3
Total Debt (Face)..................... -- -- -- 826.1
Total Debt + Contingent Liabilities... -- -- -- 826.1
</TABLE>
______________________________
(1) Excludes non-recurring charges.
(2) EBITDA figures are after Trump Realty lease payments and Trump management
fee.
____________________________________________________________________________ DLJ
DONALDSON, LUFKIN & JENRETTE
-2-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
TOM STAND-ALONE PROJECTED FINANCIAL SUMMARY/(1)/
($ in millions)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
1995PF 1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Current Property $559.6 $583.4 $612.5 $646.2 $672.1 $702.3
Expansion 0.0 0.0 74.6 99.8 161.8 231.5
----- ----- ----- ----- ----- -----
Total 559.6 583.4 687.1 746.0 833.9 933.8
Growth Rate 8.2% 4.2% 17.8% 8.6% 11.8% 12.0%
EBITDA
Current Property 138.2 161.0 175.4 194.9 205.0 220.0
Expansion 0.0 0.0 33.0 46.3 72.6 101.8
----- ----- ----- ----- ----- -----
Total 138.2 161.0 208.4 241.2 277.6 321.8
Margin 24.7% 27.6% 30.3% 32.3% 33.3% 34.5%
EBIT
Current Property 94.3 112.8 140.1 161.3 169.7 182.9
Expansion 0.0 0.0 25.5 36.0 59.3 83.1
----- ----- ----- ----- ----- -----
Total 94.3 112.8 165.6 197.3 229.0 266.0
Margin 16.9% 19.3% 24.1% 26.5% 27.5% 28.5%
Capital Expenditures
Maintenance 28.5 31.7 25.0 25.0 25.0 35.0
Expansion 0.0 23.7 83.6 75.6 53.1 10.9
---- ---- ----- ----- ---- ----
Total $28.5 $54.8 $108.6 $100.6 $78.1 $45.9
</TABLE>
___________________________
(1) Includes add-back of Trump Realty lease expense and Trump management fee.
____________________________________________________________________________ DLJ
DONALDSON, LUFKIN & JENRETTE
-3-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
TOM EXPANSION PLAN
($ in millions)
<TABLE>
<CAPTION>
ESTIMATED
COST
--------------
<S> <C> <C>
Phase I (1996-1997) Conversion of entertainment $53
arena into 60,000 sq. ft. of
casino space
New entertainment area built 8
on steel pier
Phase II (1997-1998) 2,200 car parking garage 26
Phase III (1998-1999) Two 640 room hotel towers 160
---
Total cost $247
===
</TABLE>
____________________________________________________________________________ DLJ
DONALDSON, LUFKIN & JENRETTE
-4-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
PROFILE OF THE COMBINED COMPANY
____________________________________________________________________________ DJL
DONALDSON, LUFKIN & JENRETTE
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
SUMMARY OF CONSOLIDATED SYNERGIES
($ in millions)
<TABLE>
<CAPTION>
FYE DECEMBER 31,
----------------------------------------------
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Position / Department Rationalization:
Senior Positions Eliminated....................... $1.3 $1.3
Department Reductions............................. 5.6 5.6
Operational Cost Savings:
Purchasing Discounts (4% on $160 million)......... 6.4 6.4
Mail Volume Discounts................................ 1.0 1.0
Combining Laundry Facilities...................... 1.5 1.5
Combining In-House Litigation Services............ 1.0 1.0
Combining Health Insurance Coverage............... 1.0 1.0
Other Operational Savings......................... 0.5 0.5
Combining Reservations Department.................... -- 1.3
Other Efficiencies................................... -- 1.0
----- ----
TOTAL............................................. $9.0 $18.3 $20.6
=== ==== ====
</TABLE>
____________________________________________________________________________ DLJ
DONALDSON, LUFKIN & JENRETTE
-1-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
PRO FORMA COMBINED FINANCIAL SUMMARY/(1)/
($ in millions)
______________________________________
(1) Assumes $20.00 Wonder stock Price.
____________________________________________________________________________ DLJ
DONALDSON, LUFKIN & JENRETTE
-2-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
-------------------------------------
ESTIMATED PROJECTED
---------------------
PF 1995/(2)/ 1996 1997
--------------- ---------- ----------
<S> <C>
TOM
- ---
Revenues.................................. $559.6 $583.4 $612.5
EBITDA.................................... 138.2 161.0 175.4
EBIT...................................... 94.3 112.8 140.1
WONDER/(3)//(4)/
- -------
Revenues.................................. $333.2 $620.4 $724.5
EBITDA.................................... 72.4 140.8 168.2
EBIT...................................... 55.4 113.7 140.1
Net Income................................ (14.4) 28.9 43.7
EPS/(5)/.................................. (0.86) 1.72 2.60
PRO FORMA COMBINED (EXCLUDES
- ----------------------------
SYNERGIES AND TOM EXPANSION)
- ----------------------------
Revenues.................................. $892.8 $1,203.8 $1,337.0
EBITDA.................................... 210.6 301.8 343.6
EBIT...................................... 142.7 209.5 273.2
Net Income................................ (24.9) 35.4 66.2
EPS/(3)/.................................. (0.95) 1.34 2.51
</TABLE>
_________________________
(2) 1995 pro forma for add-back of the Trump management fee and Trump Realty
lease payment.
(3) 1995 results pro forma for current capital structure, tax rate and G&A
expenses.
(4) Excludes pre-opening expenses.
(5) Reported 1995 EPS will be approximately ($0.20) per share representing the
period from June 7 through December 31, 1995.
____________________________________________________________________________ DLJ
DONALDSON, LUFKIN & JENRETTE
-3-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
ACCRETION/DILUTION ANALYSIS/(1)/
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
---------------------------------
ESTIMATED PROJECTED
----------------------
PF 1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
EARNINGS PER SHARE:
- -------------------
Wonder Stand-Alone EPS/(2)/ /(3)/....... ($0.86) $1.72 $2.60
Pro Forma Combined EPS:
Unadjusted............................ ($0.95) $1.34 $2.51
Accretion (Dilution).................. (10.1)% (21.9)% (3.4)%
Adjusted For Synergies/(4)/........... ($0.60) $1.54 $2.92
Accretion (Dilution).................. 29.7% (10.4)% 12.2%
Adjusted For Tom Expansion............ NM NM $3.03
Accretion (Dilution).................. NM NM 16.3%
Adj. For Synergies/(4)/ and Tom
Expansion............................. NM NM $3.43
Accretion (Dilution).................. NM NM 31.9%
</TABLE>
______________________________________
(1) Assumes $20.00 Wonder stock price. Excludes effect of Trump warrants.
(2) 1995 results pro forma for current capital structure, tax rate and G&A
expenses.
(3) Excludes pre-opening expenses.
(4) Assumes $9.0 million of synergies for FY 1995 and FY 1996 and $18.3
million for FY 1997.
____________________________________________________________________________ DLJ
DONALDSON, LUFKIN & JENRETTE
-4-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
EPS ACCRETION/DILUTION - SENSITIVITY ANALYSIS/(1)/
<TABLE>
<CAPTION>
PROJECTED
-----------------------------
1996 1997
------------- -------------
10% EPS REDUCTION:
-----------------
<S> <C> <C>
Wonder Stand-Alone EPS .............. $1.55 $2.34
Pro Forma Combined EPS:
Unadjusted......................... $1.23 $2.35
Accretion (Dilution)............... (20.3)% 0.1%
Adjusted For Synergies/(2)/........ $1.43 $2.75
Accretion (Dilution)............... (7.5)% 17.5%
Adjusted For Tom Expansion......... NM $2.86
Accretion (Dilution)............... NM 22.1%
Adj. For Synergies/(2)/ and Tom
Expansion......................... NM $3.27
Accretion (Dilution)............... NM 39.4%
</TABLE>
________________________________________
(1) Assumes $20.00 Wonder stock price. Excludes effect of Trump warrants.
(2) Assumes $9.0 million of synergies for FY 1996 and $18.3 million for FY
1997.
____________________________________________________________________________ DLJ
DONALDSON, LUFKIN & JENRETTE
-5-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
25% EPS REDUCTION:
-----------------
<S> <C> <C>
Wonder Stand-Alone EPS....................... $1.29 $1.95
Pro Forma Combined EPS:
Unadjusted................................. $1.07 $2.09
Accretion (Dilution)....................... (17.1)% 7.3%
Adjusted For Synergies/(2)/................ $1.27 $2.50
Accretion (Dilution)....................... (1.7)% 28.1%
Adjusted For Tom Expansion................. NM $2.61
Accretion (Dilution)....................... NM 33.6%
Adj. For Synergies/(2)/ and Tom............ NM $3.01
Expansion
Accretion (Dilution)....................... NM 54.4%
</TABLE>
____________________________________________________________________________ DLJ
DONALDSON, LUFKIN & JENRETTE
-6-
<PAGE>
PROJECT WONDER
- --------------------------------------------------------------------------------
CONSIDERATIONS
. Size of equity offering
. Class A Option: stock vs. cash
. Lock-ups
. Collar
. Absence of definitive agreements
____________________________________________________________________________ DLJ
DONALDSON, LUFKIN & JENRETTE
-7-
<PAGE>
EXHIBIT 17(b)(5)
APPRAISAL OF
TRUMP TAJ MAHAL CASINO RESORT
ATLANTIC CITY, NEW JERSEY
PREPARED FOR
Trump Taj Mahal Associates
c/o The Trump Organization
725 Fifth Avenue
New York, New York
APPRAISAL GROUP International
<PAGE>
[Letterhead of Appraisal Group International Appears Here]
N.J. Office
March 18, 1994
Trump Taj Mahal Associates
c/o The Trump Organization
725 Fifth Avenue
New York, New York 10022
Re: Trump Taj Mahal Casino Resort
Atlantic City, New Jersey
Our Ref. #94027
-----------------------------
Gentlemen:
Pursuant to your authorization, an inspection and appraisal has been made of the
above-captioned premises in order to estimate the Going Concern Value, as of
March 18, 1994. Going Concern Value is defined within the report, which contains
the collective data and analyses upon which our value estimate is concluded.
Trump Taj Mahal Casino Resort, which will be known from this point on as the
"Subject Property", is located at Virginia Avenue and the Boardwalk in Atlantic
City, New Jersey. The property consists of a total of 29.24+ Acres, situated
-
among various parcel, improved with a multi-story, multi-building, 120,000
square foot casino gaming area and 1,250 room resort hotel. Also included is the
ancillary parking garage, steel pier, and storage warehouses in Pleasantville
and egg harbor township. The employee parking lot, located on North Carolina
Avenue and Huron Avenue is leased from the City of Atlantic City.
Consideration has been given to all three recognized methods of valuation. They
are the "Cost Approach," the "Sales Comparison Approach" and the "Capitalization
of Income Approach." Due to the nature of this property, our value conclusion is
based solely on the utilization of the Capitalization of Income Approach.
This letter is not the appraisal, but merely serves to transmit the attached
appraisal report and to convey the final conclusion of value.
The attached report includes Definitions of Going Concern value, and of the
property rights appraised as if free and clear of mortgages. The appraisal is
subject to the assumptions and limiting conditions set forth in the appraisal
report.
<PAGE>
Trump Taj Mahal Associates -2- March 18, 1994
This report has been prepared in compliance with the Office of Thrift
Supervision of the Department of Treasury's Regulation 12 C.F.R. Part 564, the
Uniform Standards of Professional Appraisal Practice, and the Office of the
Comptroller of Currency (OCC) written appraisal guidelines.
Based upon the findings, it is our opinion that the Going Concern Value, subject
to the assumptions and limiting conditions as set forth herein, as of the value
date, March 18, 1994, is:
ONE BILLION ONE HUNDRED MILLION DOLLARS
---------------------------------------
($1,100,000,000,000)
This letter and the accompanying report are integral parts of our findings and
conclusions.
Respectfully submitted,
APPRAISAL GROUP International
[SEAL APPEARS HERE.] /s/ Irwin J. Steinberg
--------------------------------
IRWIN J. STEINBERG, MAI
N.J. State Certified Real Estate
General Appraisers #RG00347
/s/ Avi M. Vardi
--------------------------------
AVI M. VARDI, Senior Appraiser
N.J. State Certified Real Estate
General Appraisers #RG00641
APPRAISAL GROUP International
<PAGE>
TABLE OF CONTENTS
-----------------
INTRODUCTION
EXECUTIVE SUMMARY AND CONCLUSIONS.................... 1
CERTIFICATION........................................ 3
PURPOSE OF APPRAISAL................................. 4
PROPERTY RIGHTS APPRAISED............................ 4
FUNCTION OF THE REPORT............................... 4
PROPERTY HISTORY & OWNERSHIP......................... 4
SCOPE OF THE ASSIGNMENT.............................. 4
DEFINITION OF MARKET VALUE........................... 7
OTHER DEFINITIONS.................................... 8
QUALIFICATIONS OF THE APPRAISERS..................... 9
ASSUMPTIONS AND LIMITING CONDITIONS.................. 17
BACKGROUND DATA AND ANALYSES
IDENTIFICATION OF SUBJECT PROPERTY................... 21
AREA DATA............................................ 23
ATLANTIC CITY DATA................................... 35
NEIGHBORHOOD ANALYSIS................................ 41
SITE DESCRIPTION..................................... 45
DESCRIPTION OF THE IMPROVEMENTS...................... 49
ZONING DATA.......................................... 64
REAL ESTATE TAX AND ASSESSMENT DATA.................. 67
HIGHEST AND BEST USE................................. 69
VALUATION AND CONCLUSIONS
VALUATION METHOD..................................... 75
CAPITALIZATION OF INCOME APPROACH.................... 79
CORRELATION AND VALUE CONCLUSION.....................115
ADDENDA
APPENDIX I - Subject Property Photographs
APPENDIX II - Floor Plans
APPENDIX III - Trump Taj Mahal Associates Statement of Income
APPENDIX IV - Property Real Estate Tax Assessments
APPENDIX V - Economic Indicators
APPRAISAL GROUP International
<PAGE>
INTRODUCTION
APPRAISAL GROUP International
<PAGE>
[Insert graphical material here. This photograph
depicts the outside of the Taj Mahal Casino Resort.]
<PAGE>
INTRODUCTION EXECUTIVE SUMMARY
================================================================================
EXECUTIVE SUMMARY
- -----------------
Location: Trump Taj Mahal Casino Resort is located at Virginia
Avenue and the Boardwalk in Atlantic City, New Jersey.
The casino/hotel complex occupies the majority of the
land extending from Pacific Avenue to the Boardwalk,
and from Pennsylvania Avenue to Maryland Avenue. The
employee parking area is located on North Carolina and
Huron Avenue and the warehouses are located in
Pleasantville and Egg Harbor Township.
Block/Lot: Hotel and Casino - 13/116, 118.01, 126, 128.03,
128.04, 128.06, 128.07, 128.08,
129.01, 129.02, 129.06, and 142
14/17, 18, 28, 41, 65, and 67 and
various lots in Blocks 119 and 120.
Employee Parking - RP017/3.Y (Leased)
Warehouse - 190/15 (Pleasantville)
36-A/5 (Egg Harbor Township)
Land Area: The subject parcel consists of a main tract of
29.24(PLUS OR MINUS) acres; a separate, but adjacent,
lot containing 1,360(PLUS OR MINUS) square feet, or
0.03 acres; and a riparian grant of 9.76 acres. The
total area of all three is 39.0 acres. However,
1.96(PLUS OR MINUS) acres of Block 13, Lots 128.06 and
142 and 2.05(PLUS OR MINUS) acres of Block 13, Lots
128.03, 129.06, and 129.02 are land locked service
roads and streets for the benefit of the subject and
others.
Improvements: 1250 rooms within a 51 story hotel/casino complex that
contains a total of approximately 4,319,905 sq. ft. of
gross building area. The casino gaming area is
approximately 120,000 sq. ft. Also included is a multi-
level parking garage, containing a total of 1,649,754
square foot of gross building area, with a capacity for
approximately 4,538 vehicles.
Zoning: RS-C: Resort Commercial District
Highest and
Best Use: As Vacant - The highest and best use of the subject
---------
site, as vacant, is the development of casino/hotel
facility.
-1-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION EXECUTIVE SUMMARY
================================================================================
As Improved - The highest and best use of the site, as
-----------
improved, is that of an casino/hotel facility similar to
the current improvements.
Purpose of
Appraisal: To estimate The Going Concern Value
Valuation Date: March 18, 1994
Inspection Date: March 18, 1994
Present During
Inspection: Mr. William Beyer
Project Design Coordinator
ESTIMATE OF VALUE
-----------------
CAPITALIZATION OF INCOME APPROACH:
- ----------------------------------
DISCOUNTED CASH FLOW TECHNIQUE -
- --------------------------------
Holding Period: 10 years
Discount Rate: 15.00%
Terminal Rate: 10.00%
11th Year NOI: $170,448,894
Selling Costs: 3.00%
Estimated Stabilized Occupancy Level: 92.00%
1st Year Average Room Rate: $97.00
Growth Rate: 4.00%
Year 1 Casino Revenue: $3,749/sq. ft.
Casino Area: 120,000 sq. ft.
VALUE INDICATED VIA THE
CAPITALIZATION OF INCOME APPROACH: (ROUNDED) $1,100,000,000
-2-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION CERTIFICATION
===============================================================================
CERTIFICATION
- -------------
This is to certify that:
The subject property was inspected by Irwin J. Steinberg, MAI, and Avi M. Vardi,
Senior Appraiser of APPRAISAL GROUP International.
To the best of our knowledge and belief the statements of fact contained in this
report are true and correct.
We have no financial or other interest, direct or indirect, present or
prospective, in the subject premises, nor do we have a personal interest or bias
with respect to the parties involved.
Our employment, and the compensation thereof, is in no way contingent upon the
amount of the valuation, nor is it contingent on an action or event resulting
from the analyses, opinions or conclusions in, or the use of this report.
This appraisal assignment was not based on a requested minimum valuation, a
specific valuation, or the approval of a loan.
The analyses and conclusions contained within this appraisal report were
prepared solely by us, unless specifically noted in sections where significant
professional assistance was rendered.
The reported analyses, opinions and conclusions are limited only by the reported
assumptions and limiting conditions, and are our personal, unbiased professional
analyses, opinions and conclusions.
Our analyses, opinions, and conclusions were developed, and this report was
prepared, in conformity with the requirements of the Code of Professional Ethics
and the Standards of Professional Practice of the Appraisal Institute and the
Uniform Standards of Professional Appraisal Practice of The Appraisal
Foundation.
The use of this report is subject to the requirements of the Appraisal Institute
relating to peer review by its duly authorized representatives.
/s/ Avi M. Vardi /s/ Irwin J. Steinberg
- ---------------------------------- --------------------------------
AVI M. VARDI, Senior Appraiser IRWIN J. STEINBERG, MAI/1/
N.J. State Certified Real Estate N.J. State Certified Real Estate
General Appraisers #RG00641 General Appraisers #RG00347
- ------------------------
/1/ Irwin J. Steinberg, MAI is currently certified under the voluntary
continuing education program of the Appraisal Institute.
-3-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION RELATED INFORMATION
===============================================================================
PURPOSE OF APPRAISAL
--------------------
The purpose of this appraisal is to estimate the Going Concern Value of certain
property rights, as delineated below, of the herein described premises, subject
to the assumptions and limiting conditions stated, as of March 18, 1994.
PROPERTY RIGHTS APPRAISED
-------------------------
The property rights being appraised consist of the Partnership's Fee Simple and
Leasehold Estates, as if free and clear of all liens and encumbrances, except
those which are stated within this report, but subject to the limitations of
eminent domain, escheat, police power and taxation.
FUNCTION OF THE REPORT
----------------------
It is our understanding that this appraisal report is to be used for financial
and administrative purposes. This report has been prepared in compliance with
the Office of Thrift Supervision of the Department of Treasury's Regulations 12
CFR Part 564, the Uniform Standards of Professional Appraisal Practice and the
Office of the Comptroller (OCC) written appraisal guidelines.
PROPERTY HISTORY & OWNERSHIP
- ----------------------------
The site was assembled between 1962 and 1986 under various corporations set up
by Resorts International, Inc. ("RII"). A large portion of the site was
purchased from the Housing Authority and Urban Redevelopment Agency of the City
of Atlantic City (the "Housing Authority"). The total purchase price of this
acquisition was $1,892,821.20. Of the total acquisition, 368,550 square feet is
now part of the subject site.
-4-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION RELATED INFORMATION
================================================================================
While under construction, the subject property along with other assets were
purchased for $230,000,000 plus a liquidated sum of $25,000,000 and adjustments
and construction costs after March 31, 1988 as per that certain Asset Purchase
Agreement dated May 27, 1988, from RII and certain of its subsidiaries by Trump
Taj Mahal Associates Limited Partnership, a New Jersey limited partnership owned
by Donald J. Trump. The property opened on April 2, 1990. Property ownership
is as follows:
Block Lot Owner
- ----- --- -----
13 126 Trump Taj Mahal Assoc.
14 67 Trump Taj Mahal Assoc.
13 128.03, 128.04, 128.06 ,128.07, Trump Taj Mahal Realty
128.08, 129.01, 129.02 ,129.06, Corp.
116, 118.01, 142
14 65, 17, 18, 28, 41 Trump Taj Mahal Realty
Corp.
119 6, 22, 39, 58, 68, 85 Trump Taj Mahal Realty
Corp.
120 23, 33, 44, 58, 65, 66 Trump Taj Mahal Realty
Corp.
In addition, there is a 9.76 acre, riparian grant that extends 150' wide and
2,835' deep into the Atlantic Ocean (Block 14, Lot 28) that is partially (3.45
(PLUS OR MINUS) acres) improved with a pier; an easement 60' x 150' permitting a
skyway above the Boardwalk; a non-exclusive easement over Pennsylvania Avenue
used to connect the Taj Mahal and Resorts that is 40' x 80' (Block 14, Lot
67.02) and two other, unused non-exclusive, easements over Pennsylvania Avenue
that are 30' x 80'. There is also a non-exclusive easement for a tunnel at the
end of Pennsylvania Avenue.
-5-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION SCOPE OF THE ASSIGNMENT
================================================================================
ORGANIZATION AND OPERATION
- --------------------------
Trump Taj Mahal Associates was formed on June 23, 1988, as a New Jersey limited
partnership. The Partnership was converted to a general partnership in
December, 1990. As a result of the Plan of Reorganization, the current partners
and their respective ownership interests are Trump Taj Mahal, Inc. ("TTMI"),
49.995%, The Trump Taj Mahal Corporation ("Trump Corp."), .01%, and TM/GP
Corporation ("TMGP"), the managing general partner, and a wholly owned
subsidiary of Taj Mahal Holding Corp. ("Holding"), 49.995%.
The Partnership was formed for the purpose of acquiring, constructing and
operating the Trump Taj Mahal Casino Resort (the "Taj Mahal"), an Atlantic City
Hotel, Casino and Convention Center Complex. On April 2, 1990, the Partnership
opened the Taj Mahal to the public. Prior to such date, the Partnership was in
the development stage and incurred losses amounting to approximately $24,164,000
(unaudited).
SCOPE OF THE ASSIGNMENT
- -----------------------
Prepare a complete appraisal report, in a narrative format, of the subject
property. The report shall include:
1. Identification and description of the specific estate(s) to be appraised
and the effective date.
2. A description of the property to be appraised.
3. Its neighborhood and environment, both physical and economic, along with a
conclusion as to anticipated future value trends.
4. An analysis of Highest and Best Use.
5. A discussion of the appraisal techniques considered and used in the
development of the valuation.
6. A complete presentation of each applicable appraisal approach.
7. A summary and reconciliation of the approaches into a final value estimate
as of the value date in question.
-6-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION DEFINITION OF MARKET VALUE
================================================================================
DEFINITION OF MARKET VALUE/2/
-----------------------------
The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller, each
acting prudently, knowledgeably, and assuming the price is not affected by undue
stimulus.
Implicit in this definition is the consummation of a sale as of a specified date
and the passing of title from seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well-informed or well-advised, and each acting in
what they consider their own best interest;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold
unaffected by special or relative financing or sales concessions
granted by anyone associated with the sale.
- ------------------------
/2/ As currently adopted and required by the Resolution Trust Corporation and
agencies acting under Title XI of the Federal Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (FIRREA), and the Office of
the Comptroller of Currency (OCC).
-7-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION OTHER DEFINITIONS
================================================================================
OTHER DEFINITIONS/3/
--------------------
FEE SIMPLE ESTATE -
- -----------------
Absolute ownership unencumbered by any other interest or estate, subject only to
the limitations imposed by the governmental powers of taxation, eminent domain,
police power, and escheat.
GOING CONCERN VALUE -
- -------------------
The value created by a proven property operation; considered a separate entity
to be valued with a specific business establishment; also called going value.
LEASED FEE ESTATE -
- -----------------
An ownership interest, held by a landlord with the rights of use and occupancy
conveyed by lease to others. The rights of the lessor (the leased fee owner)
and the leased fee are specified by contract terms contained within the lease.
LEASEHOLD ESTATE -
- ----------------
The interest held by the lessee (the tenant or renter) through a lease conveying
the rights of use and occupancy for a stated term under certain conditions.
MARKET RENT -
- -----------
The rental income that a property would most probably command in the open
market; indicated by the current rents paid and asked for comparable space as of
the date of the appraisal.
USE VALUE -
- ---------
The value a specific property has for a specific use.
- ------------------------
/3/ THE DICTIONARY OF REAL ESTATE APPRAISAL, THIRD EDITION, APPRAISAL
INSTITUTE, PAGES 140, 160, 204, 221, 383.
-8-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION QUALIFICATIONS OF IRWIN J. STEINBERG
================================================================================
IRWIN J. STEINBERG
MAI A.S.A. SR/WA
QUALIFICATIONS
--------------
APPRAISAL EDUCATION -
- -------------------
American Institute of Real Estate Appraisers Courses:
No. 1 Principles - New York University
No. 2 Urban Problems - Syracuse University
Rutgers University:
Real Estate Appraising Courses No. 1 and No. 2
Numerous Seminars & Lectures
EXPERIENCE -
- ----------
Active in the appraisal, sale and research of real property throughout the
United States, Canada and the Caribbean Islands since 1953. Included were all
forms of residential,
industrial and commercial properties.
ENGAGED IN:
Appraisals Financial Analysis
Brokerage Industrial Development
Condominium Conversion and Use Analysis
Studies Land Development
Condemnation Analysis Market Research
Construction Urban Mortgage Finance
Renewal Sponsor Property Development
Consulting Tax Appeals
Corporate Analysis Valuation Studies
Feasibility Zoning Investigation
AFFILIATIONS -
- ------------
Appraisal Institute - MAI*
American Society of Appraisers - A.S.A.*
American Right-of-Way Association, Senior Member -SR/WA*
(Past President Chapter No. 15)
(Past International Director)
Florida State Certified Real Estate General Appraiser - Certificate No.
RZ0001550
New Jersey State Certified Real Estate General Appraiser - Certificate
No.RG 00347
New York State Certified Real Estate General Appraiser - Certificate No.
1342
Licensed New Jersey, New York and Florida Real Estate Broker
*Indicates Professional Designation
-9-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION QUALIFICATIONS OF IRWIN J. STEINBERG
===============================================================================
LECTURER -
- --------
American Right-of-Way Association Seminars
Bureau of National Affairs, Inc.
Institute for Professional & Executive Development, Inc.
Mortgage Bankers Association
National Real Estate Development Center
New Jersey Association of Realtors
PUBLICATIONS -
- ------------
American Right-of-Way Magazine
PARTIAL LIST OF CLIENTS SERVED -
- ------------------------------
FEDERAL -
- -------
Corps of U.S. Army Engineers
Department of Housing and Urban Development
F.D.I.C.
Housing & Homes Finance Agency
Internal Revenue Service
Public Housing Administration
Resolution Trust Corporation
U.S. Attorney
Veterans Administration
INSTITUTIONAL -
- -------------
AMOSKEAG Bank (New Hampshire)
Bank American Commercial Corp.
Bank of Great Neck
Bank Leumi
Bankers Life Company
Bankers Trust Company
Banque Nationale de Paris
Barclay's American Business Credit
Bay Banks of Massachusetts
Berkeley Federal Savings & Loan Association
Carteret Savings and Loan Association
Chemical Bank
The CIT Group
Citibank
Commercial Trust Company of N.J.
Crestmont Federal Savings & Loan Association
Crossland Savings Bank
Dai-Ichi Kangyo Bank, Ltd.
Dime Savings of N.Y.
-10-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION QUALIFICATIONS OF IRWIN J. STEINBERG
================================================================================
INSTITUTIONAL (CONTINUED)-
- --------------------------
East New York Savings Bank
East River Savings Bank
Eastdil Realty, Inc.
Equitable Life Insurance Company of Iowa
European American Bank
First Chicago
First Fidelity Bank, N.A., N.J.
First National State Bank of New Jersey
First Pennsylvania Bank
Goldome Realty Credit Corp.
Home Life Insurance
Home Savings Bank
Howard Savings Bank
Israel Discount Bank
Lehman Bros.
Lincoln First Real Estate Credit Corp.
Lincoln Savings Bank (New York)
Manhattan Savings Bank
Marine Midland Bank
Mellon Bank
Merrill Lynch Capital Markets
Merrill Lynch Hubbard
Merrill Lynch White Weld
Midlantic National Bank
Michigan National Corp. Banks
Morgan Stanley and Company, Inc.
National Bank of Canada
National Westminster Bank
New Jersey National Bank
New Jersey Sports & Exposition Authority
New York & Suburban Federal Savings & Loan Association
New York Urban Servicing Company, Inc.
Norstar Bank
Paine Webber, Inc.
Poughkeepsie Savings Bank FSB
Peoples Bank, N.A.
Provident Savings Bank
Reliance Federal Savings & Loan Association
Republic Bank Dallas
The Controller of the State of New York
U.S. Life Real Estate Services Corp.
Unity Savings & Loan Association (Northridge, Illinois)
Upper Avenue National Bank (Chicago, Illinois)
-11-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION QUALIFICATION OF IRWIN J. STEINBERG
================================================================================
INSTITUTIONAL (CONTINUED)-
- --------------------------
United Jersey Bank
Valley National Bank
Victoria Bankshares (Texas)
W.P. Carey and Company
Yasuda Trust and Banking Company, Ltd.
COMMERCIAL & INDUSTRIAL -
- -----------------------
Addressograph Multigraph International (Varityper)
Amterre Management, Inc.
Associated Commercial Corporation (A Division of Gulf & Western)
Associated Dry Goods
British Land of America
Brock Motor Inns Corporation
Chatwal Hotels
Chrysler Corporation
Citco Oil Company
D.R.G. Financial Corporation
Eberhard Faber, Inc.
Federal Express
Federal Transportation Company
Grand Union
Harley Hotels
Hertz Corporation
Korvette's
Lefrak Organization, Inc.
Mitsubishi Corporation
Penske Products
Pizza Hut
Power Holdings U.S., Inc.
Resorts International
Sinclair Oil Company
Spector Terminals, Inc.
The Sudler Companies
Titan Group, Inc.
Trump Organization
United Advertising Company (Eller Advertising)
United Air Lines
U.S. Homes & Development
Verdun Industrial Center (Verdun, Canada)
Westinghouse Electric Corporation
Wickes Companies, Inc.
-12-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION QUALIFICATIONS OF IRWIN J. STEINBERG
================================================================================
MISCELLANEOUS -
- -------------
Accountants
Condemnation Commissions and Individuals
Estates
Various Attorneys
EDUCATIONAL CERTIFICATION -
- -------------------------
The Appraisal Institute conducts a voluntary program of continuing education for
its designated members. MAls and RMs, who meet the minimum standards of this
program, are awarded periodic educational certification. I am currently
certified under the voluntary continuing education program.
-13-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION QUALIFICATIONS OF AVI M. VARDI
===============================================================================
AVI M. VARDI
QUALIFICATIONS
--------------
EDUCATION:
- ---------
Northeastern University, Boston, Massachusetts
School of Business Administration
American Institute of Real Estate Appraisers Courses:
Real Estate Appraisal Principles (#IA1/8-1)
Basic Valuation Procedures (#1A2)
Capitalization Theory and Techniques - Part A (#lBA)
Capitalization Theory and Techniques - Part B (#lBB)
Case Studies in Real Estate Valuation (#2-1)
Report Writing and Valuation Analysis (#2-2)
Standards of Professional Practice (SPP)
Numerous Seminars & Lectures
PROFESSIONAL AFFILIATIONS:
- -------------------------
N.Y. State Certified Real Estate General Appraiser - Certificate No. 0733
N.J. State Certified Real Estate General Appraiser - Certificate No. RG
00641
MAI Candidate - New York Metropolitan District Chapter of the Appraisal
Institute
National Association of Real Estate Appraisers - CREA (#48831)
Member - New York Metropolitan Young Mortgage Bankers Association
Senior Appraiser - APPRAISAL GROUP International, West Orange, New Jersey
EXPERIENCE:
----------
TYPES OF PROPERTIES APPRAISED: ENGAGED IN:
Apartment Buildings Appraisals
Casinos Highest and Best Use Analysis
Condominium Conversions Discounted Value Approach (R41B/C)
Hotels & Resorts Market Research
Industrial Buildings Feasibility Studies
Office Building
Golf Courses
Restaurants
Retail Properties
Shopping Centers
Vacant Land
Various Special Use Facilities
-14-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION QUALIFICATIONS OF AVI M. VARDI
===============================================================================
REAL ESTATE VALUATIONS AND EVALUATIONS DONE IN THE FOLLOWING STATES:
California Kentucky Oklahoma
Colorado Massachusetts Pennsylvania
Connecticut Nevada South Carolina
District of Columbia New Hampshire Texas
Georgia New Jersey Virginia
Illinois New York Wyoming
Indiana North Carolina
PARTIAL LIST OF CLIENTS SERVED:
- ------------------------------
INSTITUTIONAL -
- -------------
American National Insurance Company
American Savings Bank
Bank Audi USA
Bank Leumi Trust Company of New York
Bank of Great Neck
Bankers Life Company
Big Apple West
Brookhill Group
Central Federal Savings
C.I.T. Group
Citibank, N.A.
City Federal Savings and Loan Association
Crossland Savings Bank
Crown Life Insurance Company
Eastdil Realty
Federal Deposit Insurance Corporation (FDIC)
First Chicago
First Fidelity Bank
FGH Realty Credit Corporation
Hanauer Financial Corporation
Home Savings Bank
Israel Discount Bank
Kranzco Group
NorthAm Mortgage Company
Manhattan Savings Bank
Penn Federal Savings Bank
Provident Savings Bank
Republic National Bank
Resolution Trust Corporation (RTC)
The Principal Financial Group
The Yasuda Trust & Banking Company
UMB Bank & Trust Company
-15-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION QUALIFICATIONS OF AVI M. VARDI
===============================================================================
INSTITUTIONAL (CONTINUED)-
- --------------------------
United Jersey Bank
W.P. Carey & Company
COMMERCIAL AND INDUSTRIAL-
- --------------------------
Brick Church Quick Chek Pizza Hut
British Land of America Residential Financial Corporation Chatwal Hotels
Lefrak Organization Sovran Mortgage Corp. The Sudler Companies
Newport Management Trump Organization U.S. Power
Hertz Corporation
VARIOUS -
-------
Accountants Estates Pension Funds
Attorneys Investors Syndicators
Developers
-16-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION ASSUMPTIONS & LIMITING CONDITIONS
===============================================================================
ASSUMPTIONS AND LIMITING CONDITIONS
- -----------------------------------
This appraisal report has been made with the following general assumptions:
1. Unless otherwise stated, the value appearing in this appraisal represents our
opinion of market value or the value defined as of the date specified.
Market value of real estate is affected by national and local economic
conditions and consequently will vary with future changes in such conditions.
2. No responsibility is assumed for the legal description or for matters
including legal or title considerations. Title to the property is assumed to
be good and marketable unless otherwise stated.
3. The property is appraised free and clear of any or all liens or encumbrances
unless otherwise stated.
4. Responsible ownership and competent property management are assumed.
5. The information furnished by others is believed to be reliable. However, no
warranty is given for its accuracy.
6. All engineering is assumed to be correct. The plot plans and illustrative
material in this report are included only to assist the reader in visualizing
the property.
7. It is assumed that there are no hidden or unapparent conditions of the
property, subsoil, or structures that render it more or less valuable. No
responsibility is assumed for such conditions or for arranging for
engineering studies that may be required to discover them.
8. It is assumed that there is full compliance with all applicable federal,
state, and local environmental regulations and laws unless noncompliance is
stated, defined, and considered in the appraisal report.
9. It is assumed that all applicable zoning and use regulations and restrictions
have been complied with, unless a nonconformity has been stated, defined, and
considered in the appraisal report.
10. It is assumed that all required licenses, certificates of occupancy,
consents, or other legislative or administrative authority from any local,
state, or national government or private entity or organization have been or
can be obtained or renewed for any use on which the value estimate contained
in this report is based.
11. It is assumed that the utilization of the land and improvements is within
the boundaries or property lines of the property described and that there is
no encroachment or trespass unless noted in the report.
12. The distribution, if any, of the total valuation in this report between land
and improvements applies only under the stated program of utilization. The
separate
-17-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION ASSUMPTIONS & LIMITING CONDITIONS
===============================================================================
allocations for land and buildings must not be used in conjunction
with any other appraisal and are invalid if so used.
13. Possession of this report, or a copy thereof, does not carry with it the
right of publication.
14. The contract for appraisal, consultation, or analytical service is fulfilled
and total fee is payable upon completion of the report. The appraisers will
not be asked or required to give testimony in court or hearing because of
having made the appraisal in full or in part, nor engage in post-appraisal
consultation with the client or third parties, except under separate and
special arrangement and at additional fee.
15. No environmental or impact study, special market study or analysis, highest
and best use analysis or feasibility study has been requested or made unless
otherwise specified in an agreement for services or in the report. The
appraisers reserve the unlimited right to alter, amend, revise or rescind
any of the statements, findings, opinions, values, estimates or conclusions
upon any subsequent such study or analysis or previous study or analysis
subsequently becoming known to him.
16. Neither all nor any part of the contents of this report (especially any
conclusions as to value, the identity of the appraiser, or the firm with
which the appraiser is connected) shall be disseminated to the public
through advertising, public relations, news, sales, or other media without
the prior written consent and approval of the appraisers.
17. The appraisers may not divulge material contents of the report, analytical
findings or conclusions or give a copy of the report to anyone other than
the client or his designee as specified in writing, except as may be
required by the Appraisal Institute as it may request in confidence for
ethics enforcement or by a court of law or body with the power of subpoena.
18. This appraisal is to be used only in its entirety and no part is to be used
without the whole report. All conclusions and opinions concerning the
analyses which are set forth in the report were prepared by the appraisers
whose signatures appear on the appraisal report, unless indicated as review
appraiser. No change of any items in the report shall be made by anyone
other than the appraisers and the appraisers shall have no responsibility if
any such unauthorized change is made.
19. The signatories of this appraisal report are members (or candidates) of the
Appraisal Institute. The By-laws and Regulations of the Appraisal Institute
require each member and candidate to control the use and distribution of
each appraisal report signed by such member or candidate.
20. No responsibility is assumed for matters legal in character or nature, nor
matters of survey, nor any architectural, structural, mechanical or
engineering nature. No opinion is rendered as to the title, which is
presumed to be good and merchantable. The property is appraised as if free
and clear, unless otherwise stated in particular parts of the report.
-18-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION ASSUMPTIONS & LIMITING CONDITIONS
===============================================================================
21. Comparable data relied upon in this report has been confirmed with one or
more parties familiar with the transaction or from affidavit. All are
considered appropriate for inclusion to the best of our factual judgement
and knowledge.
22. The market value estimated and the cost used are as of the date of the
estimate of value. All dollar amounts are based on the purchasing power and
price of the dollar as of the date of the value estimate.
23. The identity of the appraisers or firm with which they are connected, or any
reference to the Appraisal Institute or to the MAI designation, or to the
American Society of Appraisers or to the A.S.A. designation, shall not be
divulged without the written consent and approval of the authors.
24. This appraisal expresses our opinion and employment to make this appraisal
and was in no way contingent upon reporting a predetermined value or
conclusion. The fee for this appraisal or study is for the service rendered
and not for time spent on the physical report.
25. The value estimated in this appraisal report is gross without consideration
given to any encumbrance, restriction, or question of title unless
specifically defined. The estimate of value in the appraisal report is not
based in whole or in part upon race, color or national origin of the present
owners or occupants of properties in the vicinity of the property appraised.
26. There is no reason to believe that this site has ever been used to process
or store any hazardous substance or toxic waste, and the owners have
indicated that there are no hazardous substances or wastes on the site.
Nevertheless, the appraisers are not engineers or environmental experts, and
the appraisal assumption that there are no hazardous substances or toxic
wastes on the site should not be construed as an expert conclusion.
27. Unless otherwise stated in this report, the existence of hazardous
substances, including without limitation asbestos, polychlorinated
biphenyls, petroleum leakage, or agricultural chemicals, which may or may
not be present on the property, or other environmental conditions, were not
called to the attention of nor did the appraisers become aware of such
during the appraisers' inspection. The appraisers have no knowledge of the
existence of such materials on or in the property unless otherwise stated.
The appraisers, however, are not qualified to test such substances or
conditions.
If the presence of such substances, such as asbestos, urea formaldehyde foam
insulation, or other hazardous substances or environmental conditions may
affect the value of the property, the value estimated is predicated on the
assumption that there is no such condition on or in the property or in such
proximity thereto that it would cause a loss in value. No responsibility is
assumed for any such conditions, nor for any expertise or engineering
knowledge required to discover them.
28. Unless otherwise stated in this report, we did not make a survey and
analysis of the property to determine whether or not it is in conformity
with the various detailed requirements of the
-19-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
INTRODUCTION ASSUMPTIONS & LIMITING CONDITIONS
===============================================================================
Americans with Disabilities Act (ADA). It is possible that a compliance
survey of the property, together with a detailed analysis of the
requirements of the ADA, could reveal that the property is not in compliance
with one or more of the requirements. If so, this fact could have a negative
effect upon the value of the property. Since we have no direct evidence
relating to this issue, we did not consider possible noncompliance with the
requirements of the ADA in estimating the value of the property.
29. ACCEPTANCE AND/OR USE OF THIS APPRAISAL REPORT CONSTITUTES ACCEPTANCE OF THE
PRECEDING CONDITIONS.
-20-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA AND ANALYSES
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS IDENTIFICATION OF SUBJECT PROPERTY
================================================================================
IDENTIFICATION OF SUBJECT PROPERTY
- ----------------------------------
Trump Taj Mahal Casino Resort is located at Virginia Avenue and the Boardwalk in
Atlantic City, New Jersey. The casino/hotel complex is bounded by the Boardwalk
and the Atlantic Ocean to the south, Pacific Avenue to the north, Pennsylvania
Avenue to the west, and Maryland Avenue to the east. The property occupies
nearly the entire block.
On the tax rolls of Atlantic City, the subject property is identified as Block
13, Lots 116, 118.01, 126, 128.03, 128.04, 128.06, 128.07, 128.08, 129.01,
129.02, 129.06, and 142, Block 14, Lots 17, 18, 28, 41, 65, and 67 and various
lots in Blocks 119 and 120.
The property consists of 29.24 (PLUS OR MINUS) acres of upland improved with
1,250 room within a 51-story hotel/casino complex that containing a total of
approximately 4,319,905 square feet of gross building area. Also included is the
ancillary parking garage, steel pier, storage warehouses on Delilah Road in
Pleasantville and Egg Harbor Township (Block 190, Lot 15 and Block 36-A, Lot 5),
and employee parking lot, leased from the City of Atlantic City and is located
on North Carolina Avenue and Huron Avenue, known as, Block RP017, Lot 3.4.
Maps, a plot plan and photographs on the following pages will visually acquaint
the reader with the property appraised, its location, environs, size and shape
of the land, plus improvements and other details.
[Graphic material omitted. The graphic is a street map depicting The Boardwalk
area of Atlantic City. The map shows the locations of the following casinos
(from North to South): Showboat, Taj Mahal, Merv Griffin's Resorts, Sands,
Claridge, Bally's Park Place, Caesar's Boardwark Regency, Trump Plaza, Trump
Regency (Hotel), Trop World and Bally's Grand. The map highlights the location
of the appraised property.]
-22-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS AREA DATA
================================================================================
AREA DATA
- ---------
ATLANTIC COUNTY-
- ---------------
Atlantic County is located on New Jersey's southeastern coast and encompasses a
total of 611.4 square miles, with a land surface of 567.0 square miles and water
and tidal flow areas of 44.4 square miles. The entire county represents 7.5% of
the total area of the state and contains 2.9% of New Jersey's population.
Atlantic County's major city, Atlantic City, an older urban resort city which
has gone through a long period of decline, began its revitalization when its
first hotel-casino opened in May 1978. Trump Taj Mahal Casino Resort, the
city's latest and 12th hotel-casino opened in April 1990. During 1991 over 30
million tourists flocked to Atlantic City and an average of 44,200 persons were
employed in the county's gaming industry. The gaming industry also is
indirectly responsible for most of the noncasino employment growth (nearly
30,000 jobs) the county has experienced since 1978.
Three principal roads, the Atlantic City Expressway, the White Horse Pike (Rt.
30) and the Black Horse Pike (Rt. 322), link the shore with the Philadelphia-
Camden area. The Garden State Parkway is the major access route from northern
New Jersey, New York and the New England states. Persons residing as far south
as Norfolk and Richmond, Virginia can travel to Atlantic County by way of the
Chesapeake Bay Bridge Tunnel and the Cape-May-Lewes Ferry. Population centers
in the Baltimore-Washington, D.C. area have routes such as I-95 which tie in
with the Delaware Memorial Bridge connecting New Castle County in Delaware to
Salem County in New Jersey. Atlantic City is only some 60 miles from the
bridge.
-23-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS AREA DATA
================================================================================
In 1989 passenger rail service was restored between Atlantic City and
Philadelphia. This includes daily commuter and express schedules. Up until
recently, air traffic from the major carriers has been minimal in Atlantic
County. However, the Atlantic City International Airport, located in Pomona,
adjacent to the Federal Aviation Administration Technical Center (FAATC) in Egg
Harbor Township, has the capabilities for handling large aircraft and has been
expanding as the number of hotel-casinos has grown.
EMPLOYMENT DEVELOPMENTS (1981-90)
- ---------------------------------
Prior to casino gambling (pre-1978), the county's employment growth rate tracked
that of the state. Since the advent of casino gambling, however, the county's
rate has remained well above that of the state.
The county's service-producing sector accounted for nearly all of the increase
in jobs during the 1981-1990 period. The hotel-casinos, which fall within the
services subcategory, accounted for most of the 10-year gain, with appreciable
job growth also occurring in the business and health services segments.
The wholesale and retail trade industry, which experienced job growth every year
from 1981 through 1988, leveled in 1989. Trade employment expanded by 29.9%
from 1981 through 1990, a little more than the state's 28.0% growth rate in
trade jobs over the same period. Employment in the county's transportation
communications/public utilities industry advanced at a slightly faster pace than
that of the state during the 1981-1990 period (23.9% vs 22. 1%, respectively).
-24-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS AREA DATA
================================================================================
In contrast to the other service-producing industries, employment growth in
Atlantic County's finance/insurance/real estate industry lagged well behind that
of the state during the 1980s. The gain during the 1981-1990 period was a 7.0%
advance for the county, well below the state's 46.4%.
Atlantic County's goods-producing sectors (manufacturing and construction)
recorded an overall decline of 0.6% from 1981 to 1990, compared with a decline
of 13.8% for the state during the same period. Of course, the county has a much
smaller proportion of manufacturing jobs to total private- sector employment
(5.5% in 1990) than the state (19.9% in 1990). In construction, the county and
the state have the same share (5.5% in 1990) of employment to total private-
sector employment.
Construction employment peaked in Atlantic County during the 1987-1989 period
and started to drop in 1990 because of the completion of the Taj Mahal Casino
Resort and, like the state and nation, because of the onset of the national
recession.
Atlantic County's factory payrolls declined by 18.5% from 1981 through 1990,
with most of the losses occurring since 1989. The county's recent decline
primarily can be traced to losses in the apparel, stone/clay/glass,
rubber/plastics and transportation equipment industries. Foreign competition
tended to be the primary cause behind the long-term declines in the county's
apparel and stone/clay/glass industries, as in the state and the nation.
-25-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS AREA DATA
================================================================================
POPULATION TRENDS (1970-90)
- ---------------------------
The total civilian population in Atlantic County, according to the 1990 census,
was 226,700. This represented an increase of 32,600 or 16.8% from 1980 which
was more than three times the state's rate of population growth (5.0%) during
the same period. Overall, the county ranked fifth in percentage population
growth among New Jersey's 21 counties during the 1980s. The county's most
significant numeric gains since 1980 were reported in three principal
municipalities: Egg Harbor (5,136), Galloway (11,154) and Hamilton (6,513)
townships.
Countering some of the growth was a population decline of 2,213 or 5.5% in
Atlantic City during the 1980-1990 period. In comparison, Atlantic City's
population declined by 7,660 or 16% from 1970 to 1980. Factors which
contributed to Atlantic City's population decline over the past two decades
included: the demolition of some of the city's aging and deteriorated housing
stock; the erosion of the city's resort economy through most of the 1970's, and
the national trend of population flight from urban environments. A moderate
inland shift in population from 1980 to 1990 did not alter the concentration
along the shore areas, considering the proximity to the ocean of Egg Harbor and
Galloway townships where the major growth has occurred.
HOUSING (1980-91)
- -----------------
According to the 1990 census, the total number of dwelling units in Atlantic
County was 106,877, up by 17,535 or 19.6% from 1980. The county's housing stock
expanded almost twice as fast as the state's (10.9%) during the 1980s. Of the
total, about 95,000 units were year-round with the remainder being seasonal
units. Single-family, detached homes accounted for the majority of the
-26-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS AREA DATA
================================================================================
year-round housing stock (56,002). There also were 36,642 multi-family units and
9,069 single-family attached units.
The five municipalities which had the largest number of dwelling units
authorized since 1981 were Atlantic City, Brigantine and the townships of Egg
Harbor, Galloway and Hamilton. Except for Atlantic City, these communities also
experienced most of the population growth since 1980.
The availability of seasonal housing and its conversion to year-round use in
Atlantic City, Ventnor, Margate, and Brigantine have helped meet the demand for
primary housing. Earlier in this decade the fastest selling housing development
on the county's mainland were often townhouses or condominiums that were
purchased as investments for rental purposes. This trend has slowed in recent
years and most units are now purchased as primary residences. The demand for
single-family detached homes also has been increasing, fueled in part by the
desire of homebuyers to move up to this type of housing. Hamilton, Galloway and
Egg Harbor townships have a good deal of land available for development and
their proximity to Atlantic City is an asset. Most of the new housing
development outside of Atlantic City may well be concentrated in these three
mainland areas for many years to come.
INCOME, 1981-1989 -
- -----------------
During the 1981-1989 period (latest data available at the county level), the
growth of total personal income was greater in Atlantic County than in the state
or nation. This was almost entirely the result of the development of the hotel-
casino industry in Atlantic City. The initial investment in these hotel-casinos
(construction costs for a single hotel-casino can reach several hundred million
-27-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS AREA DATA
================================================================================
dollars), their payrolls and their ongoing purchases of other goods and services
have all helped spur income growth for persons in the county.
Per capita personal income grew by 77.4% in the county during the period,
reaching a level of $23,723 in 1989, which ranked Atlantic 10th among New
Jersey's 21 counties. In comparison, per capita personal income in the state
and nation increased by 83.1% and 60.7%, respectively.
Another income indicator is the annual average wage derived using reports
submitted by employers (private sector only) covered under state unemployment
insurance program. Contrary to per capita income, which is by place of
residence, the annual average wage is by work location. Atlantic County's
annual average wage of $22,948 ranked the county 16th in the state in 1990.
This was lower than the statewide annual average wage of $28,192. Two factors
are largely responsible for the county's annual average wage being lower than
the state's. The county has a greater percentage of its employment in the
service industry (60% for the county vs 31% for the state) where wages tend to
be lower on average. Also, the county's diminishing but still relatively
prevalent number of seasonal and other part-time jobs help dilute the annual
average wage.
LABOR FORCE TRENDS (1985-91)
- ----------------------------
Although the volume and percent of unemployed persons in Atlantic County was
lower in 1985 (the earliest year for which comparable data are available) than
in 1991, a recession year, both fell to the lowest levels in 1988, a boom year,
when the unemployment rate averaged 4.9%. The slowing of economic growth in both
the state and nation, which culminated with the onset of the current recession
in July 1990, was responsible for the cyclical upturn in joblessness through
1991.
-28-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS AREA DATA
================================================================================
With this slowing pace of economic development in Atlantic County and the
surrounding area, the average rate of unemployment rose from 5.8% in 1990 to
8.3% in 1991 and continued at high levels into early 1992. The rise was even
more pronounced than the statewide increase from 1990 (5.0%) to 1991 (6.6%).
This increase in both Atlantic County and the state is the result of the
recession that partially resulted from a slowdown in unsustainable high levels
of economic activity during the late 1980s in the region, especially in the
hotel-casino industry.
Although both the nation's and the state's economic boom, together with the
local hotel-casino industry growth, had pushed the annual average rate of
unemployment below 6.0% in Atlantic County during the 1987-1990 period, the
number of unemployed has tended to remain relatively high compared with the
state due to several factors. Atlantic County still experiences seasonal
variation in employment which keep the number of unemployed higher on average
than areas with little seasonal variation. During the peak summer months of
July and August, the county's labor force and total employment are 20% -25%
above the winter lows. Tourism and agriculture are the two sectors of the
county's economy most affected by seasonal factors.
TRANSPORTATION
- --------------
AIR TRANSPORTATION -
- ------------------
The area is served by two airports, Bader Field in Atlantic City and the
International Airport in Pomona. Both airports have a master plan in effect.
The end result could be regularly scheduled airline flights by all the major
carriers by the mid 1990s. The implementation of regularly scheduled airline
flights will have a significant positive impact on the area.
-29-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS AREA DATA
================================================================================
The first phase of the Airport Master Plan has been released and calls for $46
million in new facilities and upgrading at Pomona and $5.5 million for Bader
Field. The renovations will allow for scheduled air service to Atlantic City
from major airlines.
ROADWAY TRANSPORTATION -
- ----------------------
Atlantic County is served by a vast network of highways and secondary roadways.
The Garden State Parkway is the major north/south roadway through the region,
while the Atlantic City Expressway is the major east/west thoroughfare. Other
major roadways through the region are Routes 9, 30, 40, and 322.
The New Jersey Highway Authority has recently announced plans to widen sections
of the Garden State Parkway and to increase the number of toll booths in order
to improve traffic flow on the southern end of the highway. The existing four-
lane highway is planned to be widened to six lanes and additional improvements
will be planned for the highway's intersection with the Atlantic City
Expressway.
The Atlantic City Expressway has been widened from four to six lanes between
Winslow and the Pleasantville Toll Plaza. This $28.3 million project was
completed in December 1987. In addition, the Authority is committed to
extending the third lane into Atlantic City in conjunction with the development
of the Convention/Rail Service Center.
Atlantic County has proposed the construction of a beltway from the Garden State
Parkway near Smithville southwest to U.S. Route 30, past Pomona Airport and the
Atlantic City Expressway
-30-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS AREA DATA
================================================================================
before rejoining the Parkway. The limited-access highway is expected to relieve
congestion in the mainland areas near Atlantic City.
Approximately $55 million will be spent under a joint public-private venture for
significant improvements on U.S. Route 30 and Route 87 within Atlantic County.
Construction of these improvements began in the fall of 1985, and is ongoing at
the present time.
CONVENTION CENTER -
- -----------------
As previously noted, plans to develop the Convention/Rail Terminal at the
Atlantic City Expressway are now progressing. Plans call for the convention
complex to be located on a 30.5 acre site across from the rail terminal and
parking facility and connected by an open atrium. In total, the proposed
complex will include 486,600 square feet of contiguous exhibit space, making it
comparable to most of the largest convention centers in the United States. The
new Convention Center will also include parking facilities for up to 40 buses, a
multi-level parking structure for approximately 1,600 cars, restaurant and
retail facilities, and direct linkage via an overpass to the Atlantic City
Expressway.
Groundbreaking for the convention center was on February 24, 1993. It is
expected to be completed by February 1996.
OUTLOOK -
- -------
While the local economy would no doubt benefit from a sustained national rebound
in consumer confidence and spending during 1994, Atlantic County is at a unique
period in its economic history because little growth is expected in the hotel-
casino industry for at least the next several years. The
-31-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS AREA DATA
================================================================================
casino gaming industry's sometimes painful transition from a rapid early growth
phase to a consolidating or maturing phase should continue in 1994 and for the
next several years.
Over the past 13 years, both the pattern and pace of economic development in
Atlantic County has been tied either directly or indirectly to casino gambling.
Troubled times for the gaming industry, an industry which now accounts for about
one of every three jobs, usually causes similar ripples throughout most sectors
of the local economy.
Overall, the gaming industry's level of employment should stabilize at current
levels or show only marginal gains during 1994. Elsewhere in the local economy,
little, if any, employment growth is expected and will depend almost entirely on
a rebound in consumer spending, especially for the trade, services and
construction industries. Atlantic County's rate of unemployment may begin to
gradually fall in 1994, if the economic recovery takes hold at both the national
and state levels.
Developments that are necessary to the future well-being of the county's
tourism, convention and gambling industries include: clean beaches, a new
Atlantic City Convention Center and a revitalized Atlantic City Airport (4/93).
-32-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS AREA DATA
================================================================================
ATLANTIC COUNTY
-------------------------------------------
Population, Effective Buying Income,
Retail Sales and Buying Power Index (BPI)
-------------------------------------------
Population - (1/91) 226,700
Median Age Male: 32.8
Female: 35.5
% of U.S. .0903
% Change 1980-90 16.8%
Population/square mile
(Density) 404
1990 EBI ($000) $3,071,238
% of U.S. .0878
1990 retail sales ($000) $2,135,828
% of U.S. .1182
Buying Power Index .0973
-------------------------------------------
1995 Projections
-------------------------------------------
Population 240,500
% Change 1990 - 1995 6.3%
Information was obtained from The Survey of Buying Power Demographics USA 1991
------------------------------------------------
[Graphic material omitted. The graphic is a map depicting the major roads in
Southeastern New Jersey. The map highlights the location of Atlantic City.]
-33-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS ATLANTIC CITY DATA
================================================================================
ATLANTIC CITY DATA
- ------------------
OVERVIEW
- --------
Atlantic City is part of Absecon Island which is located in the southeastern
portion of Atlantic County. The total area of Atlantic City is 11.84 square
miles. Atlantic City is located approximately 125 miles south of New York City,
60 miles east of Philadelphia, and 175 miles north of Washington D.C.
The City was incorporated in 1852, and soon afterward became world renowned as a
resort town. In 1870, the first boardwalk was constructed, and in 1929,
Atlantic City built the world's largest convention center and became almost
fully dependent on tourism. The tourism industry prospered for many years and
then gradually started to decline, and by the 1960s the area had become
depressed.
In 1977, when the Casino Gambling Act legalized gaming in Atlantic City, the
stagnant tourist industry began to flourish. The legalization of gaming in
Atlantic City has brought unprecedented growth and development to Atlantic City
and to Atlantic County.
Casino Industry -
- ----------------
As of 1991, gaming has added approximately 44,200 casino related employees, a
drop from 2,500 from 1990. The dramatic impact that the gaming industry has had
on revenues can be illustrated by analyzing the revenue it has generated for the
State of New Jersey and for Atlantic City.
Since 1979, gaming has generated $211,500,000 in reinvestment obligations for
Atlantic City.
-34-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS ATLANTIC CITY DATA
================================================================================
The CRDA (Casino Reinvestment Development Authority) was established to
counteract the deteriorated portions of Atlantic City. This department is
funded by the casino industry by contributing 1.25% of gross casino revenues
minus bad debt.
The executive director of the CRDA expects what he called a balanced residential
community to emerge in the Inlet which has been the most rundown area of the
city. He expects this transformation to occur in 5 to 7 years.
Over the next 25 years it is expected that the casino industry will have
contributed over 2 billion dollars to Atlantic City. It is expected that the
reinvestment obligations that are funded by the casino industry, will improve
the city's rundown areas dramatically.
Since the first casino opened in 1978 through the end of 1992 the casino revenue
tax has generated over $2,600,000,000 in revenues for the State of New Jersey.
The operating casinos contributed approximately $106,000,000 in property taxes
for Atlantic City and Atlantic County in 1992. This amount represented nearly
30.00% of the total taxes paid in Atlantic City in 1992.
Since 1978, the Casino Industry has contributed approximately $4,850,000,000 in
total taxes including New Jersey Casino Revenue Tax, Atlantic City and Atlantic
County Property Tax, Federal Income Tax, Social Security, State Corporate Tax,
Federal and State Unemployment Tax and Regulatory Fees and Reinvestment
Obligations.
A positive development for Atlantic City's hotel-casino industry occurred in
June 1991 when significant changes to the Casino Control Act were signed into
law. In the long run, the much
-35-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS ATLANTIC CITY DATA
================================================================================
anticipated changes are expected to expand Atlantic City's casino market and
spur growth in the region.
The most notable changes allow round-the-clock gambling on weekends, holidays
and other special events; permit slot coverage of the casino floor to increase
to 45% over the next three years; and allows three new games of chance. Gaming
industry officials indicate that surge in gaming revenues during the third
quarter of 1991 was at least partially due to these new regulatory changes.
Even though the number of visitors to Atlantic City, as calculated by the New
Jersey Expressway Authority (NJEA), declined for the fifth year in a row during
1993, an estimated 30.0 million visitors traveled to Atlantic City in 1993.
Cars and buses still formed the bulk of the travelers, despite the casinos'
efforts to broaden their market beyond those who can arrive within a day's
drive.
City and tourism officials attributed the 3.2% drop in the number of visitors
from 1990 to the recession, and in the first half of 1991, to the Gulf War.
However, the decrease in visitors did not affect the gross gaming revenues of
the casinos, which was $3.23 billion in 1992, an 8.06% increase over 1991. 1993
gross gaming revenue of the casinos was $3.287 billion, a 1.69% increase over
1992. According to the Atlantic City visitors and convention bureau, the 1993
decline is the result of fewer charter bus passengers, as part of the casino
marketing program.
-36-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS ATLANTIC CITY DATA
================================================================================
INFRASTRUCTURE IMPROVEMENTS:
- ---------------------------
Airport -
- -------
While the implementation of the Amtrak and PATCO lines will have a substantial
impact on the area, major plans for airport expansion are also underway.
$46 million improvements project are underway. Serving all of Southern New
Jersey and located just 10 miles outside of Atlantic City, Atlantic City
International Airport has regularly scheduled flights by major carriers such as:
Continental, US Air, Northwest and Spirit, with service from over 75 major
cities. The master plan which is in effect, could eventually lead to regularly
scheduled airline flights by most major carriers.
Rail Service -
- ------------
As noted in the area data section of this report, the Amtrak Express trains are
operational, and provide non-stop service between Philadelphia and Atlantic
City. Construction of the $15 million rail terminal is the final step in an
overall $101 million rail project which is rebuilding the 67 miles of tracks
connecting Atlantic City and Philadelphia.
The 22,000 square-foot rail terminal will include five tracks and three
platforms capable of handling 12-car trains and facilitating an estimated 1,900
passengers per hour during peak operating hours and some 2.2 million travelers a
year.
Amtrak will operate five daily round-trip express trains between the resort and
Philadelphia's 30th Street Station, and six on weekends, plus one daily non-stop
to and from New York and Philadelphia which will allow connections to virtually
the complete Amtrak nationwide rail system.
-37-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS ATLANTIC CITY DATA
================================================================================
Parking for 250 cars will be offered at the rail terminal, and its 14,000
square-foot concourse will include seating for 200 people, ticket facilities and
restaurant and newsstand concessions.
Convention Center -
- -----------------
Atlantic City's new convention and exposition center, when it opens in 1996,
should significantly increase the resort's capabilities in attracting new
convention and trade show business.
The convention center will contain a total of 510,000 square feet of convention
space, including 486,600 square feet of continuous exhibit halls, a 32,000
square foot multipurpose room, 104,200 square feet of meeting rooms and 20,000
square feet of ancillary facilities. The entire Convention Center is expected
to be ready by February 1996 and will have a substantial positive impact on
Atlantic City.
Recent studies by the Atlantic City Convention and Visitors Bureau favorably
reflect on both convention industry interest in the new facility and its
capability of accommodating major shows currently not considering the resort.
The shows which will be utilizing this new facility represent 1.1 million
delegates generating a national average of $787.54 apiece over four days, or
more than $866 million, including $177 million in hotel room revenue and $11
million on convention center rental fees, with the balance expended on items
such as food, shopping and entertainment. Atlantic City's convention and trade
show industry is enjoying dramatic growth.
Conclusions -
- -----------
While gaming has brought Atlantic City back on the path of economic growth and
development, there are still major social and economic problems to be overcome.
However, after considering the
-38-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS ATLANTIC CITY DATA
================================================================================
positive impact of the gaming industry on employment in Atlantic City, the
casino reinvestment obligations that are beginning to transform the blighted
portions of the city, the in-progress improvements to the transportation
network, and the emergence of a more broad based local economy, it is our
opinion that Atlantic City is on the path to long term economic growth and
development.
-39-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS NEIGHBORHOOD DATA
================================================================================
NEIGHBORHOOD ANALYSIS
- ---------------------
A property is an integral part of its surroundings and must not be treated as an
entity separate and apart from its environment. The value of a property is not
found exclusively in its physical characteristics. Physical, economic,
political and sociological forces found in the area interact to give value to a
property. In order to determine the degree of influence extended by these
forces upon a property, their past and probable future trends must be analyzed
in depth. Therefore, in order to determine the value of a property, a careful
and thorough analysis must be made of the area in which is found the property
under study. This area is commonly referred to as a neighborhood.
A neighborhood can be a portion of a city, a community, or an entire town. It
is usually considered to be an area which exhibits a certain degree of
homogeneity as to use, tenancy and other characteristics. Homogeneity is a
state of uniform structure or composition throughout. Therefore, in real estate
terminology, a homogeneous neighborhood is one in which the property uses are
similar.
The subject property is located at the Boardwalk between North Carolina Avenue
and Pennsylvania Avenue in Atlantic City. The neighborhood can be delineated by
the Boardwalk and the Atlantic Ocean to the south, Pacific Avenue to the north,
New York Avenue to the west, and New Jersey Avenue to the east.
The subject property fronts on the Boardwalk which was the main tourist
attraction in Atlantic City until the introduction of gaming in 1978. The
Boardwalk runs the entire length of Atlantic City along the beach from the
Absecon Inlet to the western city limit at Ventnor. The
-40-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS NEIGHBORHOOD DATA
================================================================================
Boardwalk is now the center casino area in Atlantic City, and is improved with
casinos, hotels, restaurants, piers, and various other tourist orientated
support facilities. The Atlantic City convention center is also located on the
Boardwalk west of the subject property near Trump Plaza.
The main east and west roadways running near the beach block of Atlantic City
are Atlantic and Pacific Avenues, which run parallel with the Boardwalk. Both
roadways are within 2 blocks of the Boardwalk.
The advent of gaming in the area has led to rapidly escalating land prices for
area zoned for casino use. The casino zoning district is located along the
beach block running from Maryland Avenue, west to Albany Avenue. The northern
boundary is Pacific Avenue, while the southern boundary is the Boardwalk. Two
other small areas zoned for casino use are located by the Absecon Inlet and the
Marina Area. A casino site, which requires a minimum of 2 acres area, can now
command land prices in the $200-$300 per square foot range.
Typical land uses within the area are restaurants, older hotels, condominiums,
apartments, and other assorted residential and commercial uses. While there is
new and planned development, many of these improvements are in deteriorating
condition. Although much of the area is in need of revitalization, the casinos
have spurred additional commercial and residential development and will
eventually lead to long term economic growth in the neighborhood.
Trump Taj Mahal Casino Resort is next to the Showboat and Resorts. The opening
of the Taj Mahal benefitted the neighborhood by giving it the two newest casinos
(Trump Taj Mahal Casino
-41-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS NEIGHBORHOOD DATA
================================================================================
Resort and Showboat). Additionally, there are four piers located within four
blocks of the subject property. They include the Garden Pier, the Steel Pier,
the Steeplechase Pier, and the Central Pier.
To the west of the subject property is currently the main Boardwalk casino area.
This area is bounded by Brighton Avenue to the west, and Indiana Avenue to the
east. This area spans approximately 15 blocks and includes casinos such as The
Sands, The Claridge, Bally's Park Place, Caesars Boardwalk Regency, Trump Plaza,
and the Tropicana. Since the opening of the subject property, this area of the
Boardwalk become more of a center point of the casino district than it was, due
to the large concentration of hotel rooms, convention space, and casino space.
The opening of the Taj Mahal have had a significant impact on the casino
industry in Atlantic City. In addition to the 120,000 square foot casino, Trump
Taj Mahal Casino Resort added approximately 1,250 hotel rooms and 230,000 square
feet of convention space to this section of the Boardwalk. The concentration of
hotel rooms and convention space added by the Taj Mahal spurred additional
development and renovations which have a positive impact on property values and
property utilization in the neighborhood. Based upon current, as well as
proposed developments in the neighborhood, it is our opinion that area has
passed the point of decline and is headed for a period of revitalization.
Four great forces influencing value include social, economic, environmental, and
governmental forces. We were unable to detect any detrimental factors from any
of these forces. Therefore, it is our opinion that the neighborhood will
continue to exert a positive influence on property values and continue to remain
economically viable into the foreseeable future.
[Graphic material omitted. The graphic is a map depicting Ventnor City and
Atlantic City. The graphic depicts the locations of (from West to East):
Atlantic City Convention Center, Bally's Grand Hotel and Casino, Trop World
Casino and Entertainment Resort, Trump Regency Hotel, Trump Plaza Hotel and
Casino, Caesar's Atlantic City Hotel and Casino, Bally's Park Place Hotel and
Casino, Claridge Hotel and Casino, Sands Hotel and Casino, Merv Griffin's
Resorts Hotel and Casino, Taj Mahal Hotel and Casino, Showboat Hotel and Casino,
Trump Castle Hotel and Casino and Harrah's Marina Hotel and Casino. The
graphic highlights the location of the appraised property.]
-42-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS SITE DESCRIPTION
================================================================================
SITE DESCRIPTION
- ----------------
LOCATION: Trump Taj Mahal Casino Resort is located at Virginia
Avenue and the Boardwalk in Atlantic City, New Jersey.
The casino/hotel complex occupies the majority of the
land extending from Pacific Avenue to the Boardwalk and
from Pennsylvania Avenue to Maryland Avenue. The
employee parking area leased from the City of Atlantic
City is located on North Carolina Avenue and Huron
Avenue and the warehouses are located in Pleasantville
and Egg Harbor Township.
BLOCK/LOT: Hotel and Casino - 13/116, 118.01, 126, 128.03,
128.04, 128.06, 128.07, 128.08,
129.01, 129.02, 129.06, and 142
14/17, 18, 28, 41, 65, and 67 and
various lots in Blocks 119 and 120.
Employee Parking - RP017/3.Y (Leased)
Warehouse - 190/15 (Pleasantville)
36-A/5 (Egg Harbor Township)
AREA: The subject parcel consists of a main tract of 29.24
(PLUS OR MINUS) acres; a separate, but adjacent lot
containing 1,360 sq. ft. or 0.03 acres; and a riparian
grant of 9.76 acres. The total area of all three
parcels is 39.0 acres. However, 1.96 (PLUS OR MINUS)
acres of Block 13, Lots 128.06 and 142 and 2.05 (PLUS
OR MINUS) acres of Block 13, Lots 128.03, 129.06, and
129.02 are land locked service roads and streets for
the benefit of the subject and others.
SHAPE: The main parcel is irregular in shape
FRONTAGE: The main parcel has a total frontage of 625' on Pacific
Avenue (interrupted by Virginia Avenue - 80' wide) and
former Presbyterian Avenue (20' wide) both of which
proceed into the subject parcel to depths of 558' and
262', respectively. There is also 1,460' of frontage on
Pennsylvania Avenue from Pacific Avenue to the
Boardwalk and 952.27' along the Boardwalk. A portion of
Virginia Avenue, that has not been vacated, serves a
-43-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS SITE DESCRIPTION
================================================================================
separate property, the "Best of Life" Apartments (a
senior citizen complex - not part of the subject
property), which is almost surrounded by the subject.
Maryland Avenue vacated in 1983, is now a service road
for the benefit of the subject and others. A tunnel,
that runs from the end of Pennsylvania Avenue,
underneath the subject, to former Maryland Avenue is
used for one-way traffic from Pennsylvania Avenue back
out to Pacific Avenue.
TERRAIN: Predominantly level and at road grade. We have not
commissioned nor conducted any soil or subsoil studies.
However, based on the existence of the subject, as well
as neighboring structures, the soil load bearing
qualities appear adequate.
UTILITIES: All municipal services, public and private utilities
are available to the site including police protection
and fire fighting services, electric, storm and
sanitary sewers, water, gas telephone, and cable
television.
ACCESS: The site is accessible from public right-of-ways.
Vehicular ingress and egress is available from
Pennsylvania Avenue (80 feet wide), Virginia Avenue (80
feet wide) and Maryland Avenue. In addition to the
above mentioned streets, pedestrian ingress and egress
is available from the Boardwalk.
EASEMENTS: Typical utility and public easements run through the
site. None of these easements, however, have an adverse
impact on value.
FLOOD HAZARDS: The site is located in the F.E.M.A. Firm Zone A-8, as
designated by the National Flood Insurance Program-Firm
Insurance Rate Map for the City of Atlantic City,
Atlantic County, New Jersey, Community #345278.
REMARKS: An additional small lot is located just past the
northeast corner of the main parcel and is almost
rectangular in shape with 17' of frontage on Pacific
Avenue; sidelines of 80'(PLUS OR MINUS) and a rear line
of 17'. It is used as part of a roadway providing
public access to the Beach and an exit area for
Showboat. LOT 42 IN BLOCK 14 IS A LEASEHOLD. The
riparian grant for the Steel Pier is 150' wide and
extends 2,835' from the subject, across the Boardwalk,
into the Atlantic Ocean to the Pierhead Line
Established
-44-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS SITE DESCRIPTION
================================================================================
February 20, 1933. However, only 150' x 1,002' (PLUS OR
MINUS) can be, and is being used, and the public has
certain rights to use the pier and the beach and water
below. In addition, there are the following: an
easement 60' x 150' permitting a skyway above the
Boardwalk; an easement over Pennsylvania Avenue used to
connect the Trump Taj Mahal Casino Resort that is 40' x
80' (Block 14, Lot 67.02); two other, unused easements
over Pennsylvania Avenue that are each 30' x 80'; and
an easement for the tunnel at the end of Pennsylvania
Avenue.
The subject property's site, including utilities and
improvements, is considered typical for the
neighborhood area. There were no adverse encroachments,
or detrimental off site conditions noted.
Routine inspections and questions concerning the
subject property did not reveal any hazardous toxic
conditions. However, the appraisers are NOT experts in
the identification of toxic or hazardous conditions.
Therefore, if a definitive evaluation is required, the
client or reader is advised to seek the services of an
expert.
-45-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS SITE DESCRIPTION
================================================================================
[Graphic material omitted. The graphic is a site plan that depicts the area
bounded by Pacific Avenue to the North, The Boardwalk to the South, Maryland
Avenue to the East and Pennsylvania Avenue to the West. The graphic includes
Block 13, Block 14 and the vacated portion of Virginia Avenue.]
-46-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
DESCRIPTION OF THE IMPROVEMENTS
- -------------------------------
Trump Taj Mahal Casino Resort is improved with a multi-story, multi-building
casino/hotel complex that opened April 2, 1990. It consists of a low rise
section that houses the casino, restaurants, shops, offices, ballrooms,
conference rooms, back of house uses, hotel lobby, lounges, a health spa, an
arena, and a theater.
The low rise tower is the building base and contains all common facilities. The
Casino area is located in the central southeast portion of the building with
access from the Boardwalk, the hotel lobby, restaurants and the Steel Pier Area.
This area is 120,000 square feet of actual gaming area with an additional 34,162
square feet for casino support.
The restaurant section of the complex is primarily located in the southwest
corner, however, restaurants and lounges are scattered throughout the complex in
strategic locations, where pedestrian traffic is the highest. The restaurant
section in the southwest corner contains an Italian restaurant with seating for
300 (Marco Polo), an Oriental restaurant which seats 185 (Dynasty), a
Continental restaurant which also seats 185 (Scheherazade), a Steak House with
seating for 200 (Safari Steakhouse), and the Food Bazaar, which have seating for
500 (Sultans Feast).
In addition, Trump Taj Mahal Casino Resort offers Sinbad's (a seafood
restaurant) new Delhi Deli, the Bombay Cafe, Gobi Dessert, Rock 'n Rolls (1950's
Themal Super Diner) and Koo Koo Roo (a chicken restaurant).
-47-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
There is a hotel tower that contains guest rooms and suites; 2 parking garages;
and a pier, located across the Boardwalk, which is improved with a 2 story
building (partially completed) attached to the main complex by an enclosed
bridge.
LOW RISE TOWER CASINO & RESTAURANT
- ----------------------------------
The low rise area is 3 to 7 stories and contains most of the casino and hotel
facilities except for a majority of the guest rooms, and some offices. Basic
construction consists of a fire-proofed steel frame; poured concrete floors; and
an insulated, poured concrete roof deck with a rubber membrane surface except
that the roof over the ballroom is insulted metal panel. Exterior walls consist
of prefabricated panels constructed of heavy gauge metal studs; exterior gypsum
board, rigid insulation; and Dryvit plaster. They are decorated with signs,
lights, and fiberglass ornamentation.
The ground floor contains the casino; hotel lobby; porte cochere; various
restaurants and related service areas; shops; back of house uses; and mechanical
and storage rooms. The new Oasis Lounge in the hotel lobby is currently under
construction.
The casino of 120,000 sq. ft. is highly irregular in shape (See diagram).
Finishes include carpeted floors; mirrors and various other wall coverings;
chandeliers and fixtures with incandescent lights. The ceiling is mirrored,
observation windows or decorative acoustic block, and numerous, covered
surveillance cameras. According to the Trump Organization, at the end of
January 1994 there were 3,158 slot machines and 212 table games divided as
follows: 99 blackjack, 20 craps, 4 big six, 21 roulette, 4 baccarat, 4
minibaccarat, and 60
-48-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
other slot machines. There are a total of 3,158 slot machines, including 155
nickel machines, 1,982 quarter machines, 315 fifty-cents machines, 619 dollar
machines, 79 five dollar machines, 5, $25 machines and 3, $100 machines. It
should be noted that due to the shape of the casino, the required width of the
aisles and the location of the exits, the use of stools, and the source and
amount of traffic affect the number and placement of machines and tables. In
addition, there are change booths, cashier counters, security and Casino Control
Commission offices, and the 1,200 seat, The Casbah Lounge. The remaining public
areas including hotel lobby, corridors, restaurants, and shops all have high
grades of finish including marble and carpeted floors, various types of wall
coverings including marble and fabric; and decorative acoustic ceilings with
crystal chandeliers and high hat lighting.
Adjacent to the casino is the Mark G. Etess Arena, a 63,000 sq. ft. facility
(plus a 16,950 sq. ft. prefunction lobby) that is used for conventions, trade
shows, concerts, and sporting events. It has a banquet capacity of 5,000 people
and a seating capacity of approximately 6,000, depending on layout (4,000 seats
are available by 12 movable, motorized folding bleachers). In addition, there
is a stage; 8 dressing rooms, 6 VIP/press booths; 15,625 sq. ft. staging area;
and 14,000 sq. ft. of storage.
Back of house facilities include hard and soft count room; coin and chip
storage; miscellaneous offices; a dealers' lounge; and storage areas. Finishes
are generally sealed concrete and composition tile floors; painted sheetrock
walls and acoustic panel ceilings with recessed fluorescent lighting. The
restaurants are serviced by 4 kitchens which have quarry tile floors; stainless
steel counters; and acoustic panel ceilings with recessed fluorescent lighting.
-49-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
The first level mezzanine contains various offices; storage areas; a
surveillance room that is approximately 26' x 32', which has a raised computer
floor and halon fire extinguishing system and metal catwalks that cover the
casino floor and are used for surveillance through mirrored glass.
The second floor is divided into 3 ballrooms; meeting rooms, restaurants; shops;
offices; and service area. The ballrooms can be divided by pocket doors into a
maximum of 9. In addition, there are 10 separate meeting rooms, divisible into
16 units and 4 restaurants and 1 lounge with finishes of good quality that vary
with their theme. These areas are serviced by 4 separate kitchens, a service
bar, and a banquet kitchen. Also on this level is 22,771 sq. ft. of retail
space, divided into 8 separate upscale shops and a salon; 10,725 sq. ft. of
offices including the executive offices with a high grade of finish; and various
storage and mechanical rooms.
The second floor mezzanine is divided into 3 meeting rooms containing a total of
1,740 sq. ft.; a 916 sq. ft. prefunction room; a restaurant and kitchen; a shop;
and various offices.
"Level 14" (the numbers between 2M and 14 are not used) has the hospitality
suites, Lanai Suites, health spa, day care center, video arcade, offices, and
mechanical and storage rooms. The hospitality suites (7) are designed for
entertainment and have an oversized parlor, bar, outdoor area, and bathroom.
They are roughly 2,100 sq. ft. and sleeping arrangements are available by
connecting, adjoining bedrooms. The Lanai suites (50 on two floors) contain
1,000 to 1,500 sq. ft. and have 1 or 2 bedrooms, a living room with dining area,
2 bathrooms,
-50-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
and a bar. All of the suites have high grades of finish. The health spa contains
10,184 sq. ft. (plus an 11,484 sq. ft. enclosed pool). The fitness portion is
divided into 3 sections for weights, cardiovascular equipment, and aerobics.
Finishes include carpeted floors, mirrored and painted walls, and acoustic panel
ceilings. Men's and women's locker rooms have lockers, a whirlpool, sauna, steam
room, and massage room. There are shower stalls, sinks, and toilets.
HOTEL TOWER
- -----------
The hotel portion of the structure tower 38 stories on top of the base and four
hundred and twenty-nine feet above sea level. This portion of the building is
designed for 1,201 rooms of the 1,250 total. Total square footage for the hotel
section is 1,002,173. The rooms contain high quality furniture, fixtures and
amenities. The room count is as follows:
Double 492
King 247 (28 are not in the tower)
Upgraded Double 195
Upgraded King 74
Raja Suites 25
Sultan Suites 143
Viceroy Suites 35
Lanai Suites 21 (not in tower)
Hospitality Suites 6
Penthouse Suites 12
-51-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
Basic construction of the tower consists of a fire proofed steel frame; precast,
prestressed concrete plank floors with a poured concrete top coat; and a heavy
steel truss roof with an insulated concrete deck and rubber membrane surface.
Exterior walls are prefabricated aluminum panels and insulated, vision and
spandrell glass.
Floors 14-38 are "standard" floors while levels 39-51 are considered "upgraded",
with a higher quality of corridor and room finish. The standard corridors are
finished with carpeted floors (the elevator lobby's floor is marble); vinyl
covered walls; and painted ceilings with incandescent lights. The rooms have
carpeted (marble in the bathrooms) floors; vinyl, covered walls; and stuccoed
ceilings. The upgraded floors use better grades of marble and carpet; mirrors
and polished metal; and more lights. There are 10 different types of units
including 4 of guest rooms and 6 of suites.
Guest Rooms - The 4 room types, averaging 465 sq. ft. each, have similar
-----------
layouts and have either a king size bed or 2 doubles. There are standard
and upgraded styles.
Viceroy Suites - "L" shaped mini-suites containing 660 (PLUS OR MINUS)
--------------
square feet with sleeping and living/dining are and a 3 fixture bathroom.
Sultan Suites - 2 1/2 room suites containing 1,200 (PLUS OR MINUS) square
-------------
feet. Each has a parlor and dining area; a master bedroom with a whirlpool
bath; a bathroom; and a powder room.
Raja Suites - One or two bedrooms suites containing 1,400 (PLUS OR MINUS)
-----------
square feet. The units are divided into a living room with dining area; a
master bedroom with a whirlpool bath; a master bathroom with a tub, stall
shower, sink and toilet; a foyer with a bar; and a powder room. If a second
bedroom is required, an adjacent guest room is used.
-52-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
Lanai Suites - One and two bedroom suites which range from 1,000 to 1,500
------------
sq. ft. These contain a living room with dining area; a bar area; master
bedroom with a whirlpool bath; a master bathroom; and a second bathroom.
Hospitality Suites - These units are designed for entertaining but can be
------------------
used for sleeping by attaching an adjacent guestroom. They are
approximately 2,100 sq. ft. and can accommodate 50 people. The rooms
contain a bar area, sitting areas, greenhouse enclosure, and a lavatory.
Each unit is individually finished with an animal theme.
Penthouse Suites - These are large suites named and styled after famous
----------------
historical figures. They have high grades of finish. All, except one,
have two bedrooms, one or two bathrooms, a whirlpool, sauna, dining room,
bar, and lavatory.
TYPICAL GUEST ROOM - KING
- -------------------------
Each room is finely appointed with decorative wall coverings, matching bed
spread and curtains, rugs, mirrors and paintings. The furniture includes (1)
king size bed, (4) lamps, (1) six drawer low dresser, (1) desk and chair, (1)
love seat, (1) reading chair, (3) night stands and end tables, telephone and
television.
TYPICAL GUEST ROOM - DOUBLE
- ---------------------------
Each room contains (2) double beds, (1) high rise dresser, (2) lamps (2) reading
chairs, a small table and all the other amenities mentioned under King.
-53-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
SUITES
- ------
Each suite is decorated slightly differently, however, most contain several
couches, chairs, lamps and tables. They also contain widescreen television, wet
bars, pantries and in most cases spas. The master bedrooms have the king sized
beds on a riser, a built in canopy over the bed and access to the outside
balcony via sliding glass doors. The floors are carpeted and the walls are
papered. The trim in the rooms is chrome or brass.
On the 49th and 50th floors is the two level Maharajah Club (access by
invitation only). It contains 6,500 sq. ft. and serves as a private club.
There is a bar on each level and food is available.
The entire hotel/casino facility is protected by fire alarms and sprinklers.
Heating and cooling is supplied to the complex by a central steam and chilled
water system. There are eight, 700 horsepower oil/gas fire, Cleaver Brooks
boilers and eight chillers. The water is then distributed to individual HVAC
units in each of the guest rooms and 120 air handlers located in other areas of
the complex. The guest rooms are all connected to a computer system that allows
the reservation desk to individually adjust room temperatures, as needed, prior
to patron arrivals.
In the low rise there are 6 passenger elevators; 4 service elevators, 4 freight
elevators; 3 dumbwaiters; one 500 lb. platform lift; and 21 escalators. The
hotel tower has a bank of 12 elevators (serve all levels); an additional
passenger elevator; and 5 service cars.
-54-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
CONSTRUCTION DETAILS
- --------------------
The following pages refer to the complex's vital statistics and electrical,
heating and safety features.
<TABLE>
<S> <C>
AGE: 1990
SIZE: 4,319,905 total floor area, 51 stories on
approximately 29.24 (PLUS OR MINUS) acres.
Hotel Rooms: 1,250 Keys (Guest Rooms) 1,039,773 sq. ft.
Valet Parking: 1,608 Parking Spaces 416,550 sq. ft.
Pennsylvania Avenue Garage (Self): 1,900 Parking Spaces 817,704 sq. ft.
Pennsylvania Avenue
Garage Addition (Self): 1,030 Parking Spaces 415,500 sq. ft.
BUILDING HEIGHT: 51 stories
FOUNDATION: Masonry and steel on cap pilings
FRAME: Masonry and steel
FLOOR: Reinforced concrete slab
EXTERIOR WALLS: HOTEL: Double pane reflective windows and steel
panels
LOW RISE: Masonry and stucco
HVAC SYSTEM: 1) The boiler plant includes eight (8) 700 BHP
Boilers using eight (8) pound steam for heating.
2) The chiller plant includes eight (8) 1500 ton
chillers and corresponding cooling towers on the
roof baded upon a chilled water system for
cooling.
3) There are eight air handling systems, of which
some are fresh air systems with fan coil units,
and other are variable volume systems. There are
four (4) large built up systems for the casino.
4) Separate computer A/C systems are provided in
the computer spaces.
</TABLE>
-55-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
<TABLE>
<S> <C>
5) There is a complete smoke removal system which
consists of approximately 100 fans.
6) The hotel tower has a fan coil unit system for
all the rooms and a large fresh air system which
is also used as part of the smoke removal system.
7) There are many fan systems for cooling
electrical spaces, for code exhaust, for make up
air requirements, and for kitchen exhaust.
8) There is a carbon monoxide sensing and exhaust
system.
</TABLE>
<TABLE>
<S> <C>
ELECTRICAL SUMMARY: 12,900 ft. - 23,000 volt cable
2 - Incoming lineups of 23 KV switchgear
4 - 10,000 KVA transformers
2 - Substations
21 - Distribution boards
40 - Motor control centers
70 - Panelboards
1,200 Ft. - Bus duct
6 Generators - 5 @ 140KW; 1 @ 1050 KW
1 - 180 KW - UPS uninterruptable power source
2 - 25 KW - Inverters
130,000 SF - Cellular floor (2,500' of trench header)
4,000 - Fluorescent fixtures with energy
saving ballast
15,200 - Incandescent & high pressure sodium
fixtures
311 - Site lighting poles
260 - Building flood lights
27 - Dimmer boards
1,000 - Security cameras
400 - Alarmed doors
7,500 - Life safety devices
1,350 - Building management devices
110 - Remanco outlets
130 - SDS/CMS outlets
500 - Wang outlets
4,200 - Phone outlets
1,200,000 Ft. - MC/BX cable
900,00 Ft. - Conduit
400,000 Ft. - Feeder cable
75,000 - Remanco
</TABLE>
-56-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
<TABLE>
<S> <C>
138,000 Ft. - CCTV cable
2,000 - Speakers
150,000 Ft. - Audio cable
SPRINKLER: The hotel tower is comprised of approximately 780
sprinkler heads supplied by two (2) 6" risers that feed
the floors from either side. Each floor is protected by
a loop provided with a water flow detector, control
valve, tamper switch, and drain assembly at each
connection. All bathrooms are protected; closets are
not protected and meet local and state code
requirements.
The risers have separate control valves and are
provided with fire department valves in cabinets along
with 2.5 gallon water fire extinguishers. A separate
6" riser with fire department valves only is located
approximately at the center of the building.
A roof manifold with a separate control valve is
provided on the ocean side of the tower for test and/or
fire fighting purposes.
FIRE PUMPS: There are three (3) electric fire pumps incorporated
into the central plant. The low zone pump is rated at
1500 GPM @ 165 PSI, and the high zone pump is rated at
150 GPM @ 115 PSI.
There are two (2) jockey pumps provided. Each is
independent of the other and satisfies both the low and
high zone system respectively.
Five (5) separate controllers are provided for the fire
and all are on an emergency generator.
The water supply for the pumps is from a combination
10" city supply into the pump room from the 20" main
located on Maryland Avenue. Another 12" combination
city supply is brought into the pump room. Both piping
configurations are combined to provide a multiple
supply source.
The central plant/garage portion of the building is
protected by approximately 3,200 sprinklers and
consists of two (2) electrical rooms, a chiller room, a
boiler room, eight (8) garage levels, and electrical
rooms at the top.
</TABLE>
-57-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
<TABLE>
<S> <C>
Each of the electrical rooms is protected by a pre -
action type sprinkler system which will be activated by
smoke detectors or manual pull stations.
The boiler room and chiller rooms are protected by
individual wet pipe sprinkler systems. Each has its
own control value, water flow device, and drain.
The garage levels of the building are protected by a
dry pipe sprinkler system. Located near the elevators
is a 4" wet riser rising through each floor of the
garage. This wet riser will supply the appropriate
number of dry pipes required per floor. Each dry
system protecting the garage floors has been designed
as a galvanized loop type system.
The electrical room at the top elevation of the garage
is protected by a single pre - action valve assembly.
This is supplied from the 4" wet riser supplying the
garage floors.
These dry risers supply 2.25" fire hose rack stations,
five (5) of each located on every floor of the garage.
All areas for which protection is being provided are as
per the BOCA codes and/or DCA - Atlantic City
requirements.
The low rise exhibition hall portion of the subject
property is protected by approximately 25,000 sprinkler
heads. These two areas consist of an impressive
network of horizontal and vertical standpipe runs, wet
and dry pipe sprinkler systems, hose valve cabinets,
Halon fire protection systems, Pre-Action Sprinkler
Systems and Kitchen Hood Quencher Systems.
Located around the perimeter of the property are five
(5) sets of fire department connections. These are
connected into the high pressure and low pressure
standpipe systems accordingly, for the use of the fire
department to supply additional water to any part of
the building in the event of a fire.
There are approximately sixteen (16) high value areas
protected by Halon Suppression Systems. The areas
include the Computer Room, Television-Security,
</TABLE>
-58-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
<TABLE>
<S> <C>
Television Equipment, Tape Storage, Fire Command,
Audio-Video Rooms and certain electrical areas.
Each area is also provided with a Pre-Action system
which allow water to enter into the piping system and
be available to suppress a fire in the event the Halon
System did not extinguish the fire. The combination of
Halon and Pre-Action Suppression Systems exceeds code
requirements, however, the added protection is
available in the event of a second flare-up.
The sprinkler system piping throughout the complex also
supplies the water to the Gaylord Quencher Kitchen Hood
Suppression Systems. The supply piping to the panels
is provided from the combination risers with separate
supervised control valves. The flow devices are in the
Quencher panels.
</TABLE>
OTHER AREAS
- -----------
The TERRACE BUILDING is a 30 (PLUS OR MINUS) year old, 11 story structure that
has a total floor area of 64,147 sq. ft. It was formerly a hotel, 10 floors of
which are used as offices; one has rooms for employees. Basic construction
consists of a steel frame with brick veneered exterior walls; concrete floors;
and a flat roof deck. It is sprinklered and HVAC is supplied by the main,
complex plant. The ground floor has an entrance lobby, offices, and two, 2,000
lb. Otis passenger elevators. The upper floors, in general, have a center
corridor with rooms off of each side. Finishes are, generally, carpeted floors;
vinyl covered and painted walls; and acoustic panel ceilings with recessed
fluorescent lighting on the floors which are used. Overall, this structure is in
fair condition and is in need of extensive renovations and reconstruction.
-59-
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
The THEATER BUILDING (Xanadu) is a 3 story structure containing a total gross
area of 113,429 sq. ft. Construction began in March, 1989 and stopped in
November, 1989. The project was then mothballed until February, 1992 when it
was then renewed. Basic construction consists of a fireproof frame with dryvit
exterior walls; concrete floors; and a flat roof deck. Development plans show
the ground level divided into a 3,328 sq. ft. restaurant with a 1,152 sq. ft.
kitchen; a 3,367 sq. ft. lounge; offices; stage support areas; dressing rooms;
storage; and men's and ladies lavatories. A first floor mezzanine house support
areas. The second level contains the 13,488 sq. ft. theater. There is a stage
area with seating in front; scaffolding for lighting; and a mezzanine area for
control rooms. Also, there is a bar area to serve the showroom. The structures
have 1 passenger elevator, 1 service elevator, 1 freight elevator, and 4
escalators.
The SELF PARKING GARAGE is a twelve-story parking structure containing 1,233,204
sq. ft. with a capacity of 2,930 cars. Basic construction consists of a
concrete frame with precast, prestressed concrete panel floors and partial
walls. The ground floor is for an entrance and exit, facility vehicle parking,
a 6 bay loading dock, storage, staging areas, and a 1,090 sq. ft. office. The
upper levels are used for parking and 32 cooling towers. There are 6 passenger
elevators.
The VALET PARKING AREA is an eight-story parking garage containing 416,550 sq.
ft. with a capacity of 1,608 cars. Basic construction consists of a concrete
frame with poured concrete
-60-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
floors and concrete partial walls. The ground floor is used for a 5 bay loading
dock and service areas. There are 3 passenger elevators.
The STEEL PIER is located across the Boardwalk from the hotel/casino complex. It
is 150' (PLUS OR MINUS) wide and extends 1,002.60' across the beach and into the
Atlantic Ocean or a total surface area of 150,390 (PLUS OR MINUS) sq. ft. Basic
construction consists of concrete columns and a flat, tier concrete deck. Ramps
connect the different levels. Chain link fencing runs around the perimeter of
the entire pier and across each section. A majority of the area is open and has
been used for special events. The ocean end has lighting, fencing, and painting
for a helipad. In addition, there is a small, movable, modular structure which
was used as office space. A blocked off, stub tunnel under the Boardwalk extends
out from the vehicular tunnel that goes from Pennsylvania to Maryland Avenues.
It was to connect to a ramp to be built east of the present pier for access to
the pier. The land over which it was to go has reverted to the City. There is a
2 story building at the end closest to the Boardwalk. Basic construction
consists of a fireproofed steel frame; Dryvit exterior walls; concrete floors;
and a flat roof deck. An enclosed bridge provides access from the hotel/casino
complex, across the Boardwalk, to the second level of the building.
The ground floor is entered from the Boardwalk - there are no stairs or
elevators between the two stories. The ground floor level contains 2,
unfinished, 40' high, areas used for storage and bike rental of 1,830 (PLUS OR
MINUS) square feet and 2,700 (PLUS OR MINUS) square feet with a passageway
between for access to the remainder of the Pier. The upper level is also;
unfinished and was intended for
-61-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS
================================================================================
use as a restaurant. However, it has not been needed nor is it intended to be
finished as such in the immediate future.
The building known as the "SOCIAL SECURITY BUILDING" located at N/E/C of Pacific
Avenue and Pennsylvania Avenue (Block 14, Lot 17), has been demolished. It was
finished for offices and utilized by the Taj Mahal for personnel offices until
its demolition in the spring of 1993.
ZONING DATA
- -----------
Generally, zoning looks to the future as a result of planning. Its purpose is
to promote and maintain a degree of homogeneity in the use of real estate within
the confines of a given geographic, political subdivision.
The Appraisal Institute in their book, "The Dictionary of Real Estate Appraisal"
- - third edition (page 399) have defined zoning as:
"The public regulation of the character and extent of real estate use
through police power; accomplished by establishing districts or areas with
uniform restrictions relating to improvements; structural height, area, and
bulk; density of population; and other aspects on the use and development of
private property."
The casino hotel is located within the RSC-Resort Commercial District of
Atlantic City. Portion of the site, (Approx. 17 (PLUS OR MINUS) acres) are in
the Urban Renewal Tract. The purpose of this district is to provide for the
City's main industry, consisting predominantly of casino and other transient and
tourist oriented uses.
-62-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS ZONING DATA
================================================================================
Some of the bulk regulations of this district are as follows:
Minimum Lot Area 2 Acres
---------------------------------------------------------------------------
Minimum Lot Width 150 Feet
---------------------------------------------------------------------------
Minimum Lot Depth 150 Feet
---------------------------------------------------------------------------
Minimum Front Yard 0 Feet (Along Boardwalk)
---------------------------------------------------------------------------
Minimum Front Yard 10 feet (along Public streets)
---------------------------------------------------------------------------
Minimum Side Yard 0 Feet
---------------------------------------------------------------------------
Minimum Rear Yard 0 Feet
---------------------------------------------------------------------------
Maximum Building Height 385 feet above sea level
---------------------------------------------------------------------------
Maximum Lot Coverage 80%
---------------------------------------------------------------------------
Maximum FAR 8.0
---------------------------------------------------------------------------
Parking Requirements:
1 space/hotel room for first 500 rooms; 1 space/2 rooms beyond 500 rooms
plus 12 spaces/1,000 sq. ft. of non-hotel space for first 40,000 sq. ft.,
and 6 spaces/1,000 sq. ft. for next 60,000 sq. ft., and 3 spaces/1,000 sq.
ft., over 100,000 sq. ft.
Our analysis of the existing regulations indicate that the subject property
represents a conforming use.
[Graphic material omitted. This graphic is an Atlantic City Zoning Map
promulgated by the Department of Planning and Development. The graphic
highlights the location of the appraised property in the Urban Renewal Tract.]
-63-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS REAL ESTATE TAX & ASSESSMENT DATA
================================================================================
REAL ESTATE TAX AND ASSESSMENT DATA
- -----------------------------------
The real estate tax assessment, synonymous with assessed value, is the official
valuation level of property for ad valorem tax purposes. "The Appraisal of Real
Estate" 10th edition 1992, Page 24, states:
"Assessed value applies in ad valorem taxation and refers to the value of a
property according to the tax rolls. Assessed value may not conform to
market value but it is usually calculated in relation to a market value
base."
Since the assessment is a dollar amount assigned to taxable property by the
assessor for the purpose of taxation, it may not reflect the independent value
conclusions found within this report.
Breakdown of the 1994 real estate assessments, assembled by the Trump
Organization and verified by Appraisal Group International, are presented in the
Addenda of this report. 1994 total assessment reflect $657,621,700, which
includes the employee parking area, leased from the city of Atlantic City.
The 1994 tax rate totals $2.497 per $100.00 of assessed valuation. The
subject's current real estate tax liability is as follows:
-64-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS REAL ESTATE TAX & ASSESSMENT DATA
================================================================================
1993-1994 Total Tax Assessment: $657,621,700
1993-1994 Tax Rate: $2.497 per $100
Tax Liability - Hotel & Casino: $ 16,187,462
- Employee Parking Lot: $ 233,352
------------
Total Tax Liability: $ 16,420,814
1994 Ratio = 89.23% of market value
[Graphic material omitted. This graphic depicts a floor plan of the Taj Mahal
Casino Resort.]
-65-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS HIGHEST & BEST USE ANALYSIS
================================================================================
HIGHEST AND BEST USE
- --------------------
Highest and Best Use is a valuation concept that can be applied to either the
land or improvements. It normally is used to mean that use of a parcel of land
(without regard to any improvements upon it) that will bring the greatest net
return to the land over a given period of time. The concept of highest and best
use can also be applied to a property which has some improvements upon it that
have a remaining economic life. In this context, highest and best use can refer
to that use of the existing improvements which is most profitable to the owner.
It is possible to have two different highest and best uses for the same
property; one for the land ignoring the improvements; and another that
recognizes the presence of the improvements.
In cases where the site is improved, the results of the highest and best use
analysis (of the land only) may indicate a different use than the existing use.
The existing use will continue, however, until such time as the land value less
cost of conversion or demolition in its highest and best use exceeds the total
value of the property in its existing use. Therefore, as long as the improved
property has a higher market value than the land alone as if vacant, the
existing use will serve as the highest and best use. This analysis will address
the highest and best use as improved. The highest and best use must meet the
following criteria:
1. It must be legal in conformity with existing zoning and other building
and land use restrictions.
2. The use must not be speculative or conjectural, but probable and
reasonable.
3. Sufficient market demand must exist.
-66-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS HIGHEST & BEST USE ANALYSIS
================================================================================
4. The use must return the greatest profit for the longest period,
considering all alternatives.
Inherent in reaching any conclusion as to the highest and best use of a property
is the consideration of the many principles related to valuation. The Principle
of Anticipation is predicated on the foundation that value is created by the
anticipation of future benefits. It is not based on historical costs, but on
what current market participants believe the future benefits of the purchase
will be. In essence, value is the present worth of future benefits.
The Principle of Conformity addresses itself to the issue that property achieves
its optimum value when the use to which it is put, and the design and layout of
any structure situated on the land, blends in well with its environs. The use
need not be the same as all surrounding properties, but it need be homogenous
with those uses. All of these factors must be considered in arriving at a
conclusion as to the highest and best use of a property.
Central to the determination of Highest and Best Use, as it pertains to wealth
maximization of individual property owners, is the consideration of four
critical factors:
1. Physically Possible
2. Legally Permissible
3. Financially Feasible
4. Maximally Productive
Usually this study is unbiased; however, in the subject's case a hotel and
casino facility has been constructed on the site. Primary consideration will be
given to that use.
There are four critical factors that will be analyzed in regard to this
particular use for the subject property. They are listed on the following
pages:
-67-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS HIGHEST & BEST USE ANALYSIS
================================================================================
Physically Possible -
-------------------
Refers to the physical adaptability of a site for a proposed use. The
subject site was clear land at the time construction commenced. The site
is already improved and, as a result, its existence proves it is physically
adaptable.
This inspection focused particularly on the physical elements or
characteristics of the site, which include size, shape, terrain, frontage
and depth, topography, soil conditions, and capacity and availability of
public utilities.
An analysis of all physical elements, both individually and collectively,
produces the conclusion that the subject site is well suited for
development.
The physically possible test determines what is possible on the site. The
choices are to renovate, convert, demolish, or leave the improvements as
they are. The subject is functional for its existing and intended use. No
changes to the physically possible criterion are warranted. The subject
passes the test of physically possible.
Legally Permissible -
-------------------
Refers to the legality or conformance of a given or proposed use to
existing zoning and other land use controls.
When investigating the legality of a proposed use, factors to consider
include private restrictions, zoning, building codes, historic district
controls, and environmental regulations.
-68-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS HIGHEST & BEST USE ANALYSIS
================================================================================
The subject is located within the RS-C Resort Commercial district of
Atlantic City. The property was constructed in conformance with the
regulations of the RS-C zoning district.
The subject is a legally permissible use (The legally permissible test
would require a more in-depth analysis if the subject were a preexisting
nonconforming use). The subject passes the test of legally permissible.
Financially Feasible -
--------------------
Analysis of the physically possible and legally permissible uses of the
subject site has indicated that the development of the site with a hotel
and casino facility was both possible and permissible. Additionally, and
in conformity with the discussions of the definitions of Highest and Best
Use, the improvements blend harmoniously with neighboring and existing uses
and complement community development goals. However, in analyzing the
financial feasibility of a possible use, the marketplace must be tested in
order to determine if a positive rate of return sufficient to attract
investment capital to the project is generated by its potential operation.
In order to investigate the above-mentioned factors, an "Immediate Market
Area Overview" was conducted. This immediate market area was defined as
containing hotel and casino facilities in the Atlantic City Market. The
result of the analysis may be found in the Capitalization of Income
Approach section of this report.
-69-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS HIGHEST & BEST USE ANALYSIS
================================================================================
An analysis of average room rents and casino win, coupled with increasing
demand for such facilities, indicates that positive net income from
operations is sufficient to attract investment capital. In conclusion, the
subject property passes the test of financially feasible.
Maximally Productive -
--------------------
This refers to the use which will result in the greatest "net return" to
the land as the result of the proposed use, as compared to a higher use.
With reference to maximally productive, it is doubtful that the subject
could be put to a higher use.
Once a casino license is granted to a developer, the revenues attributable
to the land and improvements far exceed the income that can be generated by
any alternate use. Therefore, the highest and best use of the subject
property is for continued use as a hotel and casino.
CONCLUSION -
- ----------
The subject property is well located in a desirable location in the on the
Boardwalk in Atlantic City. As mentioned in the Neighborhood Data and General
Area Data Section of this report, the area is in a mixed use neighborhood
containing commercial, and retail properties.
The preceding analysis indicates that the subject sites pass all four tests of
the critical factors utilized to determine Highest and Best Use. Thus, it is
our opinion that the current utilization
-70-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
BACKGROUND DATA & ANALYSIS HIGHEST & BEST USE ANALYSIS
================================================================================
of the subject property as a hotel and casino facility represents the Highest
and Best Use of each.
Typically, the appraiser first comes to a conclusion as to the highest and best
use of the site as if it were vacant and available for development. This helps
in the proper valuation of the land in the Cost Approach to value. In the
subject's case, this approach is not relevant. Without an extensive analysis,
we have concluded that the highest and best use of the site, if vacant, would be
for development of a hotel and casino facility.
In reference to the employees parking facility on North Carolina Avenue and
Huron Avenue, this parcel of land is considered an integral part of the Trump
Taj Mahal Casino Resort, because it is a vital component to the daily operation
of this facility. Therefore, the employees parking facility is considered an
essential part of the subject property.
Furthermore, and in reference to the warehouse facilities which are located in
the Pleasantville and Township of Egg Harbor, the warehouse facilities are
considered an integral part of the Trump Taj Mahal Casino Resort, because it is
a vital component to the daily operation of this facility. Therefore, for the
purpose of this report, the warehouse facilities are considered part of the
casino and hotel facility.
The highest and best use of the warehouse buildings is for industrial/warehouse
use. However, inasmuch as a casino needs back storage space in a less expensive
area, the highest and best use of the warehouse facility is in conjunction with
the operation of the casino.
-71-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION AND CONCLUSIONS
-72-
<PAGE>
VALUATION & CONCLUSIONS VALUATION METHOD
===============================================================================
VALUATION METHOD
- ----------------
The valuation of real estate is, essentially, the valuation of the rights
inherent to the ownership of the property. The valuation approaches are based
on sound economic principles, as they relate directly to real estate. The three
traditional approaches to the valuation of real estate are as follows:
COST APPROACH: In this approach, the improvements are replaced as if new, and
- -------------
any applicable depreciation is deducted to arrive at a net improvement value.
To this is added the value of the land and any site improvements or allied
appurtenances, in order to arrive at a value estimate.
SALES COMPARISON APPROACH: A technique of finding sales of similar properties,
- -------------------------
extracting units of comparison, and carefully analyzing and comparing them by
virtue of their minor differences and major similarities, to arrive at an
indication of value for the appraised property.
CAPITALIZATION OF INCOME APPROACH: Converts the net operating income
- ---------------------------------
attributable to the real estate after all expenses, into a valuation estimate.
This approach capitalizes the income by an appropriate method and rate as
derived from a market study of similar properties and/or competitive
investments.
The valuation of the subject property will employ the Capitalization of Income
Approach to value. This section will be preceded by an explanation of the steps
involved in arriving at the independent value estimate.
-73-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS VALUATION METHOD
===============================================================================
The subject property, as a hotel and casino facility is considered income
producing and investment grade real estate. As an investment vehicle, real
estate is most often purchased for its ability to generate economic benefits,
such as protection of capital, appreciation, tax benefits and an annual return
on investment or dividend. Of the three valuation methods, the Capitalization
of Income Approach most accurately reflects the aggregate value of these
benefits. It traditionally produces the most reliable indication of value for
income producing real estate and, thus, will be given primary consideration for
the final value estimate.
The Cost Approach, in this valuation has not been implemented.
In order to reflect a value indication by the Cost Approach, the improvements
are replaced as if new, and any accrued depreciation is deducted to arrive at a
net improvement value.
Depreciation falls into three broad categories: Physical Deterioration,
Functional Obsolescence and External Obsolescence. Physical Deterioration may
be sub-categorized into Curable and Incurable. Curable physical deterioration
is that loss in value which occurs as the short lived components of the
structure gradually wear out, but are not yet ready to be replaced or redone.
Incurable deterioration refers to the actual physical wear and tear to the major
components of the building.
Functional Obsolescence refers to the adequacy of the building in relation to
the site, and to the utility of the layout and equipment inherent to the
building. It is often the measure of an overimprovement or underimprovement.
Any functional obsolescence has the ability to be
-74-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS VALUATION METHOD
================================================================================
cured, but the cost, in relation to its contribution to value, is the measure of
whether it is curable.
The third category of depreciation is Economic Obsolescence. Sometimes referred
to as Environmental Obsolescence, this form of depreciation is a result of
external interference to the property, and is incurable.
Due to the characteristics of the subject property, estimates of accrued
physical deterioration and functional obsolescence becomes inordinately
subjective and extremely difficult to measure with any degree of accuracy. As
accrued depreciation is fundamental to a value estimate by the Cost Approach,
this approach has been precluded from the subject's valuation. The Cost
Approach may provide a reliable estimate of value for newly constructed
properties; however, as buildings and other forms of improvements increase in
age and begin to deteriorate, the resultant loss in value becomes increasingly
difficult to quantify accurately.
We find that knowledgeable buyers of similar properties generally base their
purchase decisions on economic factors such as forecasted cash flow and return
on investment. Because the Cost Approach does not reflect any of these income-
related considerations, but does require a number of highly subjective and
insubstantial depreciation estimates, this approach is usually given minimal
weight in the valuation process.
Additionally, in a similar casino facility, we know of no instance where the
replacement cost of a building was the basis for a purchase decision.
-75-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS VALUATION METHOD
===============================================================================
The Sales Comparison Approach has not been utilized. This valuation method
provides an accurate value estimate for simple forms of real estate, such as
single family dwellings or vacant land, where comparable properties tend to be
homogenous and a purchaser's individual goals are similar. However, for income
producing real estate such as the subject, there are numerous subjective
adjustments to be made which are difficult to quantify accurately. Furthermore,
more often than not, income producing real estate (comparable improved sales) is
sold subject to numerous conditions of sale including, but not limited to, cash
flow guarantees, advantageous management agreements and advantageous seller
financing.
Any one or all of these conditions, which may affect the negotiated sale price,
are almost always impossible to uncover and verify when researching a comparable
improved sale, thereby diminishing the reliability of a value indication by the
Sales Comparison Approach. Furthermore, the Sales Comparison Approach could not
be used for lack of market transactions.
Since the market for this type of real estate gives most consideration to a
property's economic benefits, the Capitalization of Income Approach will be
utilized as a value indicator.
CAPITALIZATION OF INCOME APPROACH
- ---------------------------------
Capitalization, in real estate terminology, is the process by which an income
projection is converted into an indication of value. The element that
transforms the income projection is a rate that reflects the return necessary to
attract investment capital. The process of Income Capitalization generally
reflects the principle of anticipation. Defined as the present worth of
-76-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
anticipated future benefits, anticipation follows a pattern similar to investor
thinking and motivation.
We studied the market, in addition to the past operating history of casino
hotels similar to the subject, so as to determine the best method or process of
Income Capitalization. Factors considered in our decision making included the
following:
- The age, quality and condition of the improvements.
- Occupancy levels in the market.
- Projected casino win.
- Projected future growth of the market.
- Typical investor requirements for a property of this type.
We have concluded that annuity capitalization, utilizing the discounted cash
flow technique, is the most appropriate method of capitalization. This
valuation process utilizes the following five steps:
1. Projection of Investment Holding Period.
2. Projection of Annual Casino Revenue for each year of the holding
period.
3. Selection of a Yield Rate.
4. Projection of Reversionary Value.
5. Calculation of Net Present Value based on Steps 1 through 4.
-77-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
===============================================================================
STEP 1 -
- ------
In this valuation of the subject property, we will utilize a ten (10) year
holding period for the investment. Although the subject has a much longer
useful life, an investment analysis becomes more manageable and meaningful if
limited to a time period considerably less than the real estate's economic life.
A ten (10) year holding period for this investment is long enough to model the
subject's performance with some degree of accuracy, but short enough to
reasonably estimate expected income and expenses of the real estate. It should
be mentioned that the eleventh (11th) year cash flow was projected in order to
calculate the reversionary interest, which is explained in detail in Step 4.
STEP 2:
- ------
CASINO REVENUE
- --------------
In determining future casino revenue for the subject property we have analyzed
historical operating data on the gaming industry in Atlantic City since 1982.
1982 was the first year comprehensive operating data was available on the
individual casinos. While we did consider and review statistics of the gaming
industries in Las Vegas, Reno, and Laughlin, the information was not considered
in this report, due to the vast differences in these gaming markets.
The table below lists total inventory of casino space as of December 31 of each
year. As can be seen on the following chart, the inventory of casino space
increased by 20.54% from 1983 to 1984, 13.4% from 1984 to 1985, 10.00% from 1986
to 1987, and 6.4% from 1987 to 1988. From 1988 to 1989, casino space decreased
6.67% due to the closing of the Atlantis
-78-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
Hotel and Casino. In April 1990, the Taj Mahal opened it's 120,000 square foot
casino, increasing industry casino space by 18.49%. From 1990 to 1992, casino
space increased less than 1.00%. The casinos periodically change the casino
floor area slightly to accommodate different games and slots. This accounts for
the less than 1% increase in casino floor area from 1990 to 1991. 1993 casino
floor area remained at 1991 level. Historical increases in casino space are
explored on the following table;
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
property 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
- ----------
Resorts 60,000 59,857 59,857 59,857 59,857 59,857 59,857 60,000 60,000 60,000 60,000 60,000
Caesars 49,061 49,061 59,999 59,296 59,296 59,296 59,617 60,000 60,000 60,000 60,000 60,000
Bally's 60,000 60,000 59,439 59,439 59,439 59,439 59,996 59,996 59,996 61,835 64,410 64,410
Sands 38,336 32,496 49,459 49,459 49,688 49,688 50,090 49,899 49,899 50,123 50,123 50,123
Harrah's 44,090 44,698 44,698 54,291 60,444 60,444 59,718 60,364 60,364 61,278 61,278 61,278
Marina
Bally's Grand 40,805 40,717 40,814 40,814 43,162 43,162 45,442 45,442 45,442 45,442 45,442 45,442
Atlantis 54,000 51,085 51,051 50,709 50,544 50,544 50,601 -- -- -- --
--
Claridge 30,000 34,408 33,937 33,752 42,817 42,817 43,054 43,054 43,054 43,579 43,579 43,579
TropWorld 50,795 50,873 50,850 50,850 48,838 48,838 87,562 90,827 90,827 90,774 90,774 90,774
Trump Plaza -- -- 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000
Trump's Castle -- -- -- 60,00 60,000 60,000 60,000 60,000 60,000 60,000 61,198 61,198
Showboat -- -- -- -- -- 59,388 59,388 59,388 59,388 59,388 59,388 59,388
Trump Taj Maha -- -- -- -- -- -- -- -- 120,000 120,000 120,000 120,000
Total 427,087 423,195 510,104 578,467 594,085 653,473 695,325 648,970 768,970 772,419 776,192 776,192
- -----------------------------------------------------------------------------------------------------------------------------------
% CHANGE - -0.91% 20.54% 13.40% 2.70% 10.00% 6.40% -6.67% 18.49% 0.45% 0.49% 0.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-79-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
CASINO WIN 1982 - 1993
- ----------------------
The following data lists total casino win, percentage of increase/decrease in
casino win, casino area, and win per square foot per year. The following win
analysis is based upon win per square foot of casino floor area per year
(Win/SF). In some instances total win and Win/SF/Year will indicate different
top performers. For example, in 1982 Resorts International had the largest win,
while the Golden Nugget (now, Bally's Grand) had the largest Win/SF/Year. The
Golden Nugget is referred to as Bally's Grand throughout the exhibits.
1982
- ----
In 1982 the Golden Nugget was the top performer at $4,526/SF, followed by
Harrah's at $3,985/SF. Caesars came in third at $3,958/SF. The worst
performers in 1982 were the Atlantis at $2,623/SF, the Tropicana at $2,948/SF,
and the Claridge at $2,986/SF. Total industry casino win in 1982 was
$1,493,164,092, representing nearly a 36% increase over 1981.
1983
- ----
In 1983 all of the casinos showed revenue increases over 1982. The top
performer in 1983 was the Golden Nugget with revenues of $6,455/SF, followed by
Sands at $4,814/SF. The worst performers in 1983 were, again, the Atlantis at
$2,819/SF and the Claridge at $3,203/SF.
-80-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
===============================================================================
1984
- ----
In 1984, Trump Plaza opened and most of the casinos continued to show revenue
increases per square foot, while other casinos earnings/SF declined due in part
to the additional supply. In aggregate terms, however, all casinos except the
Golden Nugget showed increases in casino revenue in 1984.
The top performer in 1984 was the Golden Nugget at $6,151/SF, followed by
Harrah's at $4,708/SF. The worst in 1984 were the Atlantis at $2,880, and Sands
at $3,225/SF.
1985
- ----
In 1985 Trump's Castle opened and 6 casinos showed decreases in revenue on an
aggregate basis, while 4 casinos experienced moderate increases. Top performers
in 1985 were the Golden Nugget at $5,893/SF, Caesars at $4,167/SF, and Tropicana
at $4,151 /SF. The worst performers in 1985 were the Atlantis at $2,731/SF, and
Trump Plaza at $3,390/SF.
1986
- ----
In 1986, no additional casino space came on line. Most casinos showed small
increases in revenue, while others showed decreases in revenue. The top
performers in 1986 were the Golden Nugget at $5,791/SF, Tropicana at $4,390/SF,
and Caesars at $4,379/SF. The worst performers in 1986 were the Atlantis at
$2,038/SF, and the Claridge at $2,799/SF. The Atlantis experienced a 25.64%
decrease in casino revenue between 1985 and 1986.
-81-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
===============================================================================
1987
- ----
In 1987 the top performer was Bally's Grand, formerly the Golden Nugget, at
$5,557/SF and the worst performer was the Atlantis at $1,453/SF. In 1987 the
Showboat came on line and added 59,388 additional square feet of casino floor
area to Atlantic City.
1988
- ----
In 1988, TropWorld expanded its casino by 27,562 square feet. Since the
TropWorld expansion became effective in the fourth quarter of 1988, the win/SF
figures are low, as the facility did not benefit from a full year of expanded
casino floor area.
The top performers in 1988 were Caesars at $5,160/SF, and Trump Plaza at
$5,014/SF. The worst performer in 1988 was the Atlantis at $1,663/SF.
1989
- ----
The top performer in 1989 was Trump Plaza at $5,095/SF, followed by Caesars at
$5,051/SF. The worst performer in 1989 was the Claridge at $2,988/SF. The
Atlantis casino discontinued operations on May 22, 1989. Total casino floor
area decreased by 50,601 square feet in 1989.
1990
- ----
The Trump Taj Mahal opened on April 4, 1990 adding 120,000 square feet of casino
floor area. While the Taj helped increase total industry win by approximately
5%, it was at the expense of other casinos. With the exception of the Sands and
the Claridge, all casinos experienced a drop in casino revenues in 1990.
-82-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
===============================================================================
In nine months operation, the Taj won $304,890,000 topping the industry in gross
win. With regard to win/square foot, however, the top performer was Caesars at
$4,840 followed by Trump Plaza at $4,645.
1991
- ----
The year of 1991 was the first full year the Taj Mahal was open. While showing
the lowest win/square foot in the industry ($3,198/sf), the Taj had the highest
gross casino revenues ($383,764,374) the industry has ever seen.
1992
- ----
While minimal casino space came on line, Atlantic City casino revenues showed an
increase of 8.17%. This is due in part to new legislation allowing 24-hour-a-
day, seven days a week gambling. Total casino revenue was $3,232,600,000. The
biggest percentage increase from 1991, reported by Trump's Castle (25.48%),
while the lowest, 1.67% reported by Harrah's.
1993
- ----
Although 1993 had a 2.28% less visitor trips to Atlantic City, gross gaming
revenue of the casinos increased by 1.69% over 1992. The biggest percentage
increase from 1992, reported by Bally's Grand (9.02%) while the lowest, 5.38%
reported by Caesars. Once again, the Taj Mahal had the highest gross casino
revenue ($442,064,270) the Atlantic City market has ever seen.
-83-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
===============================================================================
Market Share Analysis
- ---------------------
In order to estimate future casino revenue we have considered existing casino
win, expected trends in the local economy and projected increases in casino
supply. The chart on the following pages lists historical market share for all
casinos since 1982. This exhibit indicates fair share, actual share, and market
share for each casino.
Fair share is based upon the ratio of the subject property's casino floor area
to the total casino floor area in Atlantic City. For example, in 1986 there was
594,085 square feet of total casino space. Resorts' casino space in 1986 was
59,857 square feet. Thus, the fair share for Resorts in 1986 was 10.08%. This
fair share percentage is estimated by dividing Resorts' casino floor area by the
total casino floor area in Atlantic City.
The actual share for Resorts is calculated by dividing Resorts' casino win by
total casino win in Atlantic City. Resorts actual share is greater than its
fair share, which indicates a market share greater than 100.00%.
The market share is calculated by dividing the actual share by the fair share.
The resulting amount is expressed as a percentage. Any given property's fair
share percentage will change as new casinos come on line.
Assuming that each competitive property (including the subject property) were to
receive only its fair share percentage of casino revenue, each property's total
income would be its fair share percentage multiplied by total industry revenue.
This method assumes that each casino has the
-84-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
same characteristics and has no inherent advantages or disadvantages in relation
to the competition.
The chart on the following pages lists fair share, market share, and market
share % for the various casinos from 1982 - 1993.
-85-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
<TABLE>
<CAPTION>
1982 CASINO FAIR MARKET MARKET 1985 CASINO FAIR MARKET MARKET
PROPERTY CASINO WIN AREA SHARE SHARE SHARE PROPERTY CASINO WIN AREA SHARE SHARE SHARE
- -------- ---------- ------ ----- ------ ------ -------- ---------- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Resorts 215,475,611 60,000 14.05% 14.43% 102.72% Resorts 243,303,550 59,857 10.35% 11.38% 109.94%
Caesars 194,203,214 49,061 11.49% 13.01% 113.22% Caesars 247,091,048 59,296 10.25% 11.55% 112.71%
Bally's 196,421,938 60,000 14.05% 13.15% 93.64% Bally's 224,266,340 59,439 10.28% 10.49% 102.05%
Sands 145,715,465 38,336 8.98% 9.76% 108.72% Sands 179,011,974 49,459 8.55% 8.37% 97.90%
Harrah's 175,695,745 44,090 10.32% 11.77% 113.98% Harrah's 215,481,374 54,291 9.39% 10.08% 107.35%
Bally's Grand 184,686,846 40,805 9.55% 12.37% 129.46% Bally's Grand 240,507,288 40,814 7.06% 11.25% 159.39%
Atlantis 141,651,221 54,000 12.64% 9.49% 75.03% Atlantis 138,497,929 50,709 8.77% 6.48% 73.87%
Claridge 89,593,743 30,000 7.02% 6.00% 85.42% Claridge 119,664,800 33,752 5.83% 5.60% 95.90%
TropWorld 149,720,309 50,795 11.89% 10.03% 84.31% TropWorld 211,058,414 50,850 8.79% 9.87% 112.27%
Trump Plaza Trump Plaza 203,418,232 60,000 10.37% 9.51% 91.70%
Trump's Castle Trump's Castle 116,350,887 60,000 10.37% 5.44% 52.45%
TOTAL WIN 1,493,164,092 TOTAL WIN 2,138,651,836
TOTAL CASINO TOTAL CASINO 578,467
AREA 427,087 AREA
<CAPTION>
1983 CASINO FAIR MARKET MARKET 1986 CASINO FAIR MARKET MARKET
PROPERTY CASINO WIN AREA SHARE SHARE SHARE PROPERTY CASINO WIN AREA SHARE SHARE SHARE
- -------- ---------- ------ ----- ------ ------ -------- ---------- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Resorts 252,471,635 59,857 14.14% 14.26% 100.79% Resorts 234,995,579 59,857 10.08% 10.30% 102.24%
Caesars 213,591,342 49,061 11.59% 12.06% 104.04% Caesars 259,631,506 59,296 9.98% 11.38% 114.03%
Bally's 230,814,258 60,000 14.18% 13.03% 91.93% Bally's 228,408,470 59,439 10.01% 10.01% 100.07%
Sands 156,424,701 32,496 7.68% 8.83% 115.03% Sands 189,935,233 49,688 8.36% 8.33% 99.55%
Harrah's 201,479,511 44,698 10.56% 11.38% 107.72% Harrah's 236,511,327 60,444 10.17% 10.37% 101.90%
Bally's Grand 262,810,910 40,717 9.62% 14.84% 154.24% Bally's Grand 249,940,146 43,162 7.27% 10.96% 150.81%
Atlantis 144,014,321 51,085 12.07% 8.13% 67.37% Atlantis 102,992,704 50,544 8.51% 4.51% 53.07%
Claridge 110,205,513 34,408 8.13% 6.22% 74.56% Claridge 119,862,763 42,817 7.21% 5.25% 72.90%
TropWorld 199,129,720 50,873 12.02% 11.24% 93.54% TropWorld 214,422,037 48,838 8.22% 9.40% 114.34%
Trump Plaza Trump Plaza 218,026,595 60,000 10.10% 9.56% 94.63%
Trump's Castle Trump's Castle 226,477,004 60,000 10.10% 9.93% 98.30%
TOTAL WIN 1,770,941,911 TOTAL WIN 2,281,203,364
TOTAL CASINO TOTAL CASINO
AREA 423,195 AREA 594,085
<CAPTION>
1984 CASINO FAIR MARKET MARKET 1987 CASINO FAIR MARKET MARKET
PROPERTY CASINO WIN AREA SHARE SHARE SHARE PROPERTY CASINO WIN AREA SHARE SHARE SHARE
- -------- ---------- ------ ----- ------ ------ -------- ---------- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Resorts 256,215,277 59,857 11.73% 13.13% 111.87% Resorts 239,135,901 59,857 9.16% 9.58% 104.61%
Caesars 223,162,980 59,999 11.76% 11.43% 97.21% Caesars 288,253,648 59,296 9.07% 11.55% 127.29%
Bally's 237,140,083 59,439 11.65% 12.15% 104.27% Bally's 249,361,212 59,439 9.10% 9.99% 109.85%
Sands 159,525,853 49,459 9.70% 8.17% 84.30% Sands 191,065,676 49,688 7.60% 7.66% 100.69%
Harrah's 210,431,683 44,698 8.76% 10.78% 123.04% Harrah's 246,489,298 60,444 9.25% 9.88% 106.78%
Bally's Grand 251,033,409 40,814 8.00% 12.86% 160.75% Bally's Grand 242,367,645 43,162 6.61% 9.71% 147.03%
Atlantis 147,002,452 51,051 10.01% 7.53% 75.26% Atlantis 73,515,680 50,544 7.73% 2.95% 38.08%
Claridge 123,139,808 33,937 6.65% 6.31% 94.93% Claridge 124,148,402 42,817 6.55% 4.97% 75.92%
TropWorld 218,492,046 50,850 9.97% 11.19% 112.30% TropWorld 211,041,057 48,838 7.47% 8.46% 113.15%
Trump Plaza 125,622,971 60,000 11.76% 6.44% 54.72% Trump Plaza 244,427,240 60,000 9.18% 9.79% 106.67%
Trump's Castle Trump's Castle 239,431,764 60,000 9.18% 9.59% 104.49%
Showboat Showboat 146,422,142 59,388 9.09% 5.87% 64.56%
TOTAL WIN 1,951,766,562 TOTAL WIN 2,495,659,665
TOTAL CASINO TOTAL CASINO
AREA 510,104 AREA 653,473
</TABLE>
-86-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
<TABLE>
<CAPTION>
1988 CASINO FAIR ACTUAL MARKET 1991 CASINO FAIR ACTUAL MARKET
PROPERTY CASINO WIN AREA SHARE SHARE SHARE PROPERTY CASINO WIN AREA SHARE SHARE SHARE
- -------- ---------- ------ ----- ------ ------ -------- ---------- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Resorts 242,860,446 59,857 8.61% 8.88% 103.16% Resorts 220,152,119 60,000 7.77% 7.36% 94.74%
Caesars 307,600,167 59,617 8.57% 11.25% 131.18% Caesars 309,144,460 60,000 7.77% 10.33% 133.03%
Bally's 269,285,686 59,996 8.63% 9.85% 114.12% Bally's 267,153,994 61,835 8.01% 8.93% 111.55%
Sands 205,448,397 50,090 7.20% 7.51% 104.28% Sands 242,007,729 50,123 6.49% 8.09% 124.66%
Harrah's 281,347,029 59,718 8.59% 10.29% 119.79% Harrah's 283,956,112 61,278 7.93% 9.49% 119.65%
Bally's Grand 221,631,026 45,442 6.54% 8.10% 124.01% Bally's Grand 191,504,110 45,442 5.88% 6.40% 108.81%
Atlantis 84,164,835 50,601 7.28% 3.08% 42.29% Claridge 135,417,405 43,579 5.64% 4.53% 80.23%
Claridge 132,970,882 43,054 6.19% 4.86% 78.53% TropWorld 287,081,460 90,774 11.75% 9.60% 81.66%
TropWorld 232,784,867 87,562 12.59% 8.51% 67.59% Trump 235,050,365 60,000 7.77% 7.86% 101.15%
Trump Plaza 300,840,812 60,000 8.63% 11.00% 127.48% Trump's Castle 196,518,043 60,000 7.77% 6.57% 84.57%
Trump's Castle 246,427,256 60,000 8.63% 9.01% 104.42% Showboat 239,850,377 59,388 7.69% 8.02% 104.28%
Showboat 209,413,204 59,388 8.54% 7.66% 89.65% Trump Taj 383,764,374 120,000 15.54% 12.83% 82.57%
Mahal
TOTAL WIN 2,734,774,607 TOTAL WIN 2,991,600,548
TOTAL CASINO TOTAL CASINO
AREA 695,325 AREA 772,419
<CAPTION>
1989 CASINO FAIR ACTUAL MARKET 1992 CASINO FAIR ACTUAL MARKET
PROPERTY CASINO WIN AREA SHARE SHARE SHARE PROPERTY CASINO WIN AREA SHARE SHARE SHARE
- -------- ---------- ------ ----- ------ ------ -------- ---------- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Resorts 227,144,000 60,000 8.58% 8.10% 94.41% Resorts 136,181,000 60,000 7.73% 7.31% 94.52%
Caesars 303,434,000 60,000 8.58% 10.82% 126.11% Caesars 333,835,000 60,000 7.73% 10.33% 33.60%
Bally's 279,690,000 59,996 8.58% 9.97% 116.25% Bally's 277,997,000 64,410 8.30% 8.60% 103.63%
Sands 219,668,000 49,899 7.13% 7.83% 109.78% Sands 246,934,000 50,123 6.46% 7.64% 118.29%
Harrah's 292,056,000 60,364 8.63% 10.41% 120.65% Harrah's 288,310,000 61,278 7.89% 8.92% 112.97%
Bally's Grand 211,082,000 45,442 6.50% 7.52% 115.84% Bally's Grand 199,560,000 45,442 5.85% 6.17% 105.45%
Atlantis 30,753,000 50,601 7.23% 1.10% 15.16% Claridge 148,798,000 43,579 5.61% 4.60% 81.99%
Claridge 128,722,000 43,054 6.15% 4.59% 74.56% TropWorld 313,959,000 90,774 11.69% 9.71% 83.05%
TropWorld 284,019,000 90,827 12.98% 10.12% 77.98% Trump Plaza 268,441,000 60,000 7.73% 8.30% 107.43%
Trump Plaza 306,009,000 60,000 8.58% 10.91% 127.19% Trump's Castle 242,008,000 61,198 7.88% 7.49% 94.95%
Trump's Castle 264,358,000 60,000 8.58% 9.42% 109.87% Showboat 258,605,000 59,388 7.65% 8.00% 104.56%
Showboat 258,357,000 59,388 8.49% 9.21% 108.49% Trump Taj 417,972,000 120,000 15.46% 12.93% 83.63%
Mahal
TOTAL WIN 2,805,292,000 TOTAL WIN 3,232,600,000
TOTAL CASINO TOTAL CASINO
AREA 699,571 AREA 776,192
<CAPTION>
1990 CASINO FAIR ACTUAL MARKET 1993 CASINO FAIR ACTUAL MARKET
PROPERTY CASINO WIN AREA SHARE SHARE SHARE PROPERTY CASINO WIN AREA SHARE SHARE SHARE
- -------- ---------- ------ ----- ------ ------ -------- ---------- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Resorts 204,968,566 60,000 7.80% 6.94% 89.00% Resorts 241,569,438 60,000 7.73% 7.34% 94.94%
Caesars 290,397,809 60,000 7.80% 9.84% 126.09% Caesars 315,879,209 60,000 7.73% 9.60% 124.15%
Bally's 267,986,787 59,996 7.80% 9.08% 116.37% Bally's 295,608,838 64,410 8.30% 8.98% 108.23%
Sands 230,397,595 49,899 6.49% 7.81% 120.29% Sands 243,567,851 50,123 6.46% 7.40% 114.59%
Harrah's 279,744,507 60,364 7.85% 9.48% 120.74% Harrah's 285,102,379 61,278 7.89% 8.66% 109.72%
Bally's Grand 199,610,669 45,442 5.91% 6.76% 114.44% Bally's 217,567,749 45,442 5.85% 6.61% 112.91%
Claridge 134,685,664 43,054 5.60% 4.56% 81.50% Claridge 154,614,839 43,579 5.61% 4.70% 83.67%
TropWorld 278,513,512 90,827 11.81% 9.44% 79.89% TropWorld 309,921,748 90,774 11.69% 9.42% 80.51%
Trump Plaza 278,707,647 60,000 7.80% 9.44% 121.02% Trump Plaza 267,185,087 60,000 7.73% 8.12% 105.01%
Trump's Castle 233,870,200 60,000 7.80% 7.92% 101.55% Trump's 244,859,084 61,198 7.88% 7.44% 94.35%
Showboat 247,809,985 59,388 7.72% 8.40% 108.71% Showboat 273,536,999 59,388 7.65% 8.31% 108.62%
Trump Taj Mahal 304,890,000 120,000 15.61% 10.33% 66.19% Trump Taj 442,064,270 120,000 15,46% 13.43% 86.87%
Mahal
TOTAL WIN 2,951,582,941 TOTAL WIN 3,291,477,491
TOTAL CASINO TOTAL CASINO
AREA 768,970 AREA 776,192
</TABLE>
-87-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
CASINO INDUSTRY OUTLOOK
- -----------------------
The Atlantic City casino industry has reached the stability/maturity stage in
its life cycle. Casino revenues growth has slowed from double-digit rates to
mid single-digit rates, and now to low single digit rates. The industry is
being squeezed by various factors including stagnant industry growth due in part
to local/regional factors relating to infrastructure, and national factors,
specifically, the current recession. Although the Nevada casinos do not affect
the market, constant industry growth from Indian reservations such as Foxwoods
in Connecticut and Riverboat casinos in Illinois, Iowa, Colorado, and most
recently in Louisiana, will have some effect on the Atlantic City and Nevada
casino market in the future.
LOCAL FACTORS
- -------------
The Atlantic City Casino industry has matured at a time when the United States,
and more particularly, the northeast is recovering from the recession. In 1985,
for the first time since the inception of gaming, visitor trips to Atlantic City
declined from previous levels. Visitor trips to Atlantic City are listed below.
-88-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
Year Visitor Trips % Change
---- ------------- ---------
1978 7,008,000 -
1979 9,465,000 35.06%
1980 13,822,000 46.03%
1981 19,084,000 38.07%
1982 22,955,000 20.28%
1983 26,361,000 14.84%
1984 28,466,000 7.99%
1985 29,326,000 3.02%
1986 29,932,000 2.07%
1987 31,845,000 6.39%
1988 33,138,000 4.06%
1989 32,133,000 -3.03%
1990 31,841,000 -0.91%
1991 30,800,000 -3.27%
1992 30,700,000 -0.32%
1993 30,000,000 -2.28%
As is evident in the foregoing table, visitor trips fell 3% from 1988 to 1989,
1% from 1989 to 1990 and 3.27% from 1990 to 1991, and a slight decline is
reflected in 1992. 1993 reflected a further decline of 2.28%. Part of the
reason for the decline in visits is due to the reduction in unprofitable casino
hotel sponsored bus charters. Another factor is the local economic economy and
increasing competition from Foxwoods in Connecticut.
Factors limiting future growth in visitors to Atlantic City is the lack of
accessibility to the airport and lack of sufficient hotel rooms.
A study referred to by the Atlantic County Department of Regional Planning
stated that Atlantic City ranks 60 out of 65 North American cities in terms of
convenient airline service and 53 out of 65 cities as easy to get to.
Accessibility has a severe impact on the convention industry as over 60% of
convention delegates arrive by air transportation. The lack of accessibility
will have a negative impact on the convention center, currently under
construction.
-89-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
Atlantic City also suffers from a lack of hotel rooms. The supply of rooms is
not expected to be met until air transportation is improved and the convention
center is built. While these conclusions set a negative outlook, a review of
progress made toward these goals changes the picture.
In an article in the Newark Star Ledger, Casino Control Commission Chairman
Stephen P. Perskie outlined a six point agenda that could restart the resort's
redevelopment. The agenda calls for:
*Continued movement toward expanding Atlantic City International Airport.
*The commencement of construction of a new Atlantic City High School.
*Streamlining of casino regulations.
*Implementation of a comprehensive demolition program.
*Continuation of the redevelopment programs of the Casino Reinvestment
Development Authority (CRDA).
*Legislative action on financing the proposed convention center.
Perskie further stated that the area should build on the airport agreement
between Atlantic City's mayor and former Governor James Florio. Legislation has
been enacted and signed and the planning and design of the airport are currently
underway.
Conclusions
- -----------
The casino industry has currently reached a temporary stage of maturity. We
call it temporary because we expect additional growth in this industry once the
convention center is built and once the airport is fully expanded. The result
of the expanded airport will be direct daily flights to Atlantic City. This
will significantly increase the market area of the industry spurring additional
growth and development. With this in mind, historical and future industry
growth is detailed as follows:
-90-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
Historical Casino Revenue Growth
- --------------------------------
The table on the following page illustrates historical growth rates for the
casino industry from 1978 through 1992;
Industry Total
Year Growth Win
-------- ------ ---
1978 N/A $ 134,083,945
1979 142.74% $ 325,480,531
1980 97.45% $ 642,673,242
1981 71.13% $1,099,787,894
1982 35.77% $1,493,164,092
1983 18.60% $1,770,941,911
1984 10.21% $1,951,766,562
1985 9.58% $2,138,651,836
1986 6.67% $2,281,203,364
1987 9.40% $2,495,659,665
1988 9.58% $2,734,774,607
1989 2.58% $2,805,292,000
1990 5.21% $2,951,582,941
1991 1.36% $2,991,600,548
1992 8.06% $3,232,600,000
1993 1.82% $3,291,477,491
As evident above, industry growth rates have been declining from 1985 to 1991 as
the result of a maturing market. The approximate 1.36% growth from 1990 to 1991
was partially due to the national recession. However, in 1992, the 12 Atlantic
City casinos reported an increase of 8.06%. 1993 reflects a 1.82% growth among
the 12 Atlantic City casinos. Given the current state of the national economy,
we anticipate a moderate growth rate in 1994 of 4.00%. By 1995 and forward, we
expect the previously mentioned airport expansion and the convention center to
increase the market area of the industry. With this in mind, we expect 4%
growth throughout the remainder of the projection period. Our future industry
casino revenue growth follows:
-91-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
Projected Total
Increase Industry Win
------------------------------------
1994 4.00% $3,423,136,591
1995 4.00% $3,560,062,054
1996 4.00% $3,702,464,536
1997 4.00% $3,850,563,118
1998 4.00% $4,004,585,643
1999 4.00% $4,164,769,068
2000 4.00% $4,331,359,831
2001 4.00% $4,504,614,224
2002 4.00% $4,684,798,793
2003 4.00% $4,872,190,745
2004 4.00% $5,067,078,375
Future Casino Supply
- ----------------------
The next consideration in estimating market share for the subject property is
the likelihood of other casinos coming on line in the future. This factor will
have a negative impact on casino revenues for the subject property as additional
casino floor area dilutes market share for the entire industry. Based upon the
current economic conditions, the current problems in the banking system and
financial markets, we do not anticipate any additional casino properties to be
built over the next 11 years. Our market share estimation for the property
follows.
REVENUES:
- --------
Casino
- ------
Market Share Estimation
- -----------------------
Casino revenue will be estimated based upon fair share of industry-wide casino
win. However, to further refine the analysis and to provide a more realistic
approach to estimating revenue for the subject property, we assessed the
subject's competitive position in the market.
Such a comparison considers the subject property's inherent advantages and
disadvantages in relation to the competition. These factors influence the
market penetration (market share) that
-92-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
a property could achieve above or below 100% of its fair share. The subject's
historical market share is listed below.
<TABLE>
<CAPTION>
($ In Thousands) 1990 1991 1992 1993
<S> <C> <C> <C> <C>
Industry Casino win $2,951,583 $2,991,601 $3,232,600 $3,291,477
Subject Casino Win $ 304,890 $ 383,764 $ 417,972 $ 442,064
Industry Casino Space 768,970 772,419 776,192 776,192
Subject Casino Space 120,000 120,000 120,000 120,000
Fair Share 15.61% 15.54% 15.46% 15.46%
Market Share 10.33% 12.83% 12.93% 13.43%
---------- ---------- ---------- ----------
Market Share Ratio 66.19% 82.57% 83.63% 86.87%
</TABLE>
As evident from the table, the Trump Taj Mahal Hotel and Casino market
penetration (market share ratio) has been on the increase. In 1991 (first full
year of casino operation), the property's market penetration increased to
82.57%. While 1992 market penetration only increased by 1.28% to 83.63%, 1993
reflects a 3.87% increase to 86.87%.. It is our opinion that the subject has
reached a stabilized market penetration. Throughout the entire holding period,
market penetration has been estimated at 85%, in line with 1993 performance.
This is a realistic market penetration estimate for the property. Projected
casino revenues are listed below.
<TABLE>
<CAPTION>
TOTAL FAIR PENE- MARKET ESTIMATED
PROJECTED TOTAL INDUSTRY CASINO SHARE TRATION SHARE GROSS ESTIMATED GROSS
PERIOD YEAR GROWTH WIN SPACE % % % INCOME INCOME / SQ. FT.
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1994 4.00% $3,423,136,591 776,192 15.46% 85.00% 13.14% $449,834,379 $3,749
2 1995 4.00% $3,560,062,054 776,192 15.46% 85.00% 13.14% $467,827,755 $3,899
3 1996 4.00% $3,702,464,536 776,192 15.46% 85.00% 13.14% $486,540,865 $4,055
4 1997 4.00% $3,850,563,118 776,192 15.46% 85.00% 13.14% $506,002,499 $4,217
5 1998 4.00% $4,004,585,643 776,192 15.46% 85.00% 13.14% $526,242,599 $4,385
6 1999 4.00% $4,164,769,068 776,192 15.46% 85.00% 13.14% $547,292,303 $4,561
7 2000 4.00% $4,331,359,831 776,192 15.46% 85.00% 13.14% $569,183,995 $4,743
8 2001 4.00% $4,504,614,224 776,192 15.46% 85.00% 13.14% $591,951,355 $4,933
9 2002 4.00% $4,684,798,793 776,192 15.46% 85.00% 13.14% $615,629,409 $5,130
10 2003 4.00% $4,872,190,745 776,192 15.46% 85.00% 13.14% $640,254,586 $5,335
11 2004 4.00% $5,067,078,375 776,192 15.46% 85.00% 13.14% $665,864,769 $5,549
</TABLE>
-93-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
ROOM REVENUE AND OCCUPANCY
- ---------------------------
The subject property achieved an average room rate of $98.31 in 1992 and $96.57
in 1993. The subject's occupancy rate was 91.3% in 1992 and 92.3% in 1993.
Additional statistics regarding average daily room rates and occupancy levels
have been included for all the casino/hotels in Atlantic City. This information
was obtained from the Atlantic City Casino Association. Listed on the following
page are Average Daily Rates (ADR) and occupancy levels for the competitive
properties for 1992.
ATLANTIC CITY CASINO HOTEL STATISTICS - 1992
============================================
PROPERTY ADR OCCUPANCY
============================================
Resorts $ 71.13 92.4%
Caesars $ 84.98 86.4%
Bally's $118.98 79.4%
Sands $ 60.42 92.8%
Harrah's $ 87.25 87.3%
Bally's Grand $121.25 80.4%
Claridge $ 70.54 86.5%
TropWorld $ 62.73 88.6%
Trump Plaza $104.38 86.9%
Trump Castle $ 76.45 85.7%
Showboat $ 71.26 89.0%
Taj Mahal $ 98.31 91.3%
============================================
The average room rate has been estimated at $97.00 in 1994, on par with 1993,
and is projected to increase by 4.00% per year. The occupancy level has been
stabilized at 92.00% throughout the projection period.
-94-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
FOOD AND BEVERAGE INCOME
- ------------------------
Food and Beverage income has been estimated as a function of casino revenue.
Food and Beverage sales have been projected at 10.00% of casino revenue
throughout the holding period. The revenue history is listed below:
Food & Beverage Revenue
Revenues (000) 1990* 1991 1992 1993
----- ---- ---- ----
Casino Revenue $304,890 $383,764 $417,972 $442,064
Food & Beverage
Revenue $ 59,329 S40,294 $ 19,489 S40,767
-------- -------- -------- --------
Ratio to Casino Revenue 19.46% 10.50% 4.66%` 9.22%
-------- -------- -------- --------
*= From 4/2/90
OTHER INCOME
- --------------
Other income has been projected as a function of casino revenue. This revenue
source has been estimated at 4.00% of casino revenue throughout the projection
period. The revenue history is detailed below.
Other Revenue
Revenues (000) 1990* 1991 1992 1993
----- ---- ---- ----
Casino Revenue $304,890 $383,764 $417,972 $442,064
Other Revenue $ 11,405 $ 12,090 $ 16,458 17,304
-------- -------- -------- --------
Ratio to Casino Revenue 3.74% 3.15% 3.94% 3.91%
-------- -------- -------- --------
*= From 4/2/90
PROMOTIONAL ALLOWANCE
- -----------------------
The promotional allowance reflects the aggregate retail value of complimentary
services provided to casino guests in order to draw visitors to the casino.
This is a standard industry practice provided by all casinos. Some of the
complimentary services include hotel rooms, food and beverage, theater and other
entertainment, and miscellaneous services. The past expense history for this
item is as follows:
-95-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
Promotional Allowance
Revenues (000) 1990* 1991 1992 1993
----- ---- ---- ----
Casino Revenue $304,890 $383,764 $417,972 $442,064
Promotional Allowance $ 51,443 $ 53,935 $ 61,250 $ 56,444
-------- -------- -------- --------
Ratio to Casino Revenue 16.87% 14.05% 14.65% 12.77%
-------- -------- -------- --------
*= From 4/2/90
As evident above, the promotional allowances as a percentage of casino revenue
have been decreasing. This is typical for most of the properties in Atlantic
City. Based upon the most recent trends, this item has been estimated at 10.00%
of casino revenue throughout the projection period.
BAD DEBT ALLOWANCE
- ------------------
This category is an allowance for doubtful accounts for casino play on a credit
basis. Based upon the most recent data, bad debt expenses have been estimated
at 1.00% of casino revenue throughout the projection period.
EXPENSES
- --------
DEPARTMENTAL EXPENSES
- ---------------------
Departmental expenses are costs directly attributable to the line item revenues.
Included within this general category are casino expenses, room department
expenses, food and beverage expenses, and other expenses. Our category for
other expenses will be costs directly attributable to the other income category.
CASINO EXPENSES
- ---------------
The casino expense represents the largest single expense category, and is
substantially attributable to employee salaries and benefits, casino marketing,
license and inspections, and other expenses. The other expenses include such
items as playing materials, slot machine servicing, supplies and other expenses.
-96-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
Casino taxes and other fees are also included in this expense category. The tax
imposed by the State of New Jersey is the casino revenue tax which is currently
8.00% of casino revenues less bad debt. Another tax is the Casino Redevelopment
Authority payments.
All casinos are required by the New Jersey Casino Control Commission to make
investments in the City of Atlantic City. The money is invested in projects
according to the Casino Reinvestment Development Authority. The required
payments are 1.25% of casino revenues less bad debt.
Casino expenses have remained relatively constant as a function of revenue.
Trump Taj Mahal Casino Resort's casino expense has been estimated at
$202,425,000 and assumed to remain constant at 45.00% of gross revenue. This
expense is based upon the fixed department costs, while the revenue tax and CRDA
obligations are a function of revenue as outlined above.
ROOM EXPENSES
- -------------
The rooms department expense has been stabilized at 35.0% of department revenue
throughout the projection period. This ratio is consistent with the prior
operating history of the property.
FOOD AND BEVERAGE EXPENSES
- --------------------------
Food and beverage expenses have been stabilized at a fixed ratio of 90% of
departmental income throughout the projection period. This ratio is consistent
with prior operating history of the property.
OTHER EXPENSES
- --------------
This department expense has been stabilized at 75.00% of department revenue.
This ratio is consistent with the prior operating history of the property.
-97-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
UNDISTRIBUTED OPERATING EXPENSES
- --------------------------------
Undistributed operating expenses are costs that are not directly attributable to
a specific department. Included within this general category are general and
administrative expenses, marketing expenses, and property operations and
maintenance, which includes energy costs. Each expense item will be further
described as follows:
GENERAL AND ADMINISTRATIVE
- --------------------------
This category includes such items as employee salaries and benefits, office
supplies, security and surveillance and service contracts, as well as other
related expenses. This expense has been estimated at $32,945,000 in 1994 and is
assumed to increase by 5% per annum.
FACILITY OPERATIONS
- -------------------
This expense item includes environmental and engineering and utilities expenses.
This expense has been estimated at $34,034,000 and is assumed to increase by 5%
per annum.
ADVERTISING
- -----------
This expense item includes direct mail, sales, and advertising. 1993 actual
expense was $3,489,859. 1994 expense has been estimated based on 1993 actual,
however increased by 5.00%.
MANAGEMENT
- ----------
Management expenses is estimated at $1,572,000 per annum, as per the current
Trump Services Agreement.
FIXED CHARGES
- -------------
Fixed charges are costs of operations irrespective of revenue or occupancy
levels. Included within this category are real estate tax liability, insurance
costs, and ground lease payments.
-98-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
Real Estate Taxes
- -----------------
The indicated tax liability for Trump Taj Mahal Casino Resort is $16,420,814,
which includes employee parking lot the city of Atlantic City. The above
liability is based on total assessment of $657,621,700.
The combined tax liability for the facility is as follows:
Tax Liability
-------------
Hotel and Casino $16,187,462.
Employee Parking Lot Site 233,352.
-----------
TOTAL $16,420,814
===========
We have increased real estate taxes at 5.00% per annum, which is in line with
previous increases in Atlantic City (see Real Estate Tax section of this
report).
Insurance
- ---------
This expense category is estimated at $6,300,000 in Year 1, which is based on
the 1993 actual, however increased by 5.00%. Again, we have increased insurance
at 5.00% per annum.
Trump Realty Rent
- -----------------
This expense category reflects the rent payments for all the leased land, such
as the employee parking lot, etc.
Replacement Reserves
- --------------------
This category provides for the gradual replacement of limited life components
necessary for the operation of the property. Included in this category are
gaming equipment, furniture, fixtures and other equipment, and building
components. The replacement reserve category is based upon the sinking fund
premise. The expected life, and future replacement cost of each
-99-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
================================================================================
item is estimated, and a reserve fund is set up to cover these future
expenditures. Consideration is then given to "yield" or "safe" rates currently
available in the marketplace in order to establish the required sinking fund
amount.
While it is beyond the scope of this analysis to estimate replacement reserves
based upon the expected life of each limited life component, a stabilized ratio
of 1.50% of total revenue is sufficient to cover these future expenditures.
This estimate is consistent with prior capital expenditures at the property over
the past few years for new gaming equipment, and FF&E etc. The inclusion of
replacement reserves is standard appraisal practice.
Projection of Income and Expense
- --------------------------------
The following projections of income and expenses reflect the subject property's
anticipated performance over the next eleven years. The statements are
expressed in current dollars for each calendar year. This analysis has been
developed from computer software developed by APPRAISAL GROUP International.
Our income and expense projections appear on the following pages.
-100-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATIONS & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
==============================================================================
Prepared by: TRUMP TAJ MAHAL CASINO RESORTS
APPRAISAL GROUP International CASH FLOW PROJECTION
($000) ------------------------------
<TABLE>
<CAPTION>
/--Actual---\ /--------------Projected--------------\
- -------\
1993 Growth
REVENUES (Unaudited) Rate Year 1 % Year 2 %
- -------- ---------- ---- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C>
Casino 79.40% $442,064 4.00% $449,834 79.27% 467,828 79.27%
Guest Rooms 7.31% $40,682 4.00% $40,716 7.17% $42,344 7.17%
Food & Beverage 10.05% $55,953 4.00% 58,191 10.25% $60,519 10.25%
Other Income 3.24% $18,038 4.00% 18,760 3.31% $19,510 3.31%
------ -------- ------ -------- ------ -------- ------
GROSS POTENTIAL REVENUE 100.00% $556,737 $567,501 100.00% $590,201 100.00%
Promotional Allowance -10.14% ($56,444) -10.00% (44,983) -7.93% ($46,783) -7.93%
Casino Bad Debt 0.00% $0 -1.00% ($4,498) -0.79% ($4,678) -0.79%
------ -------- ------ -------- ------ -------- ------
EFFECTIVE TOTAL REVENUE 89.86% $500,293 $518,019 91.28% $538,740 91.28%
------ -------- ------ -------- ------ -------- ------
% OF % OF
TOTAL TOTAL
DEPARTMENTAL EXPENSES % OF REV % 0F REV REVENUE REVENUE
- --------------------- -------- -------- -------
Casino 41.41 $196,318 45.00% $202,425 39.08% $210,522 39.08%
Rooms 37.21 $15,137 35.00% $14,251 2.75% $14,821 2.75%
Food & Beverage 98.59 $54,043 95.00% $55,282 10.67% $57,493 10.67%
Other 74.27% $13,397 75.00% $14,070 2.72% $14,632 2.72%
------ -------- ------ -------- ------ -------- ------
Total Dept. Expenses $278,895 $286,027 50.40% $297,469 55.22%
------ -------- ------ -------- ------ -------- ------
TOTAL DEPARTMENTAL PROFIT $221,399 $231,992 49.60% $241,271 44.78%
------ -------- ------ -------- ------ -------- ------
UNDISTRIBUTED OPERATING
EXPENSE Growth @
- ----------------------- --------
General & Admin. 6.27% $31,376 5.00% $32,945 6.36% $34,592 6.42%
Facility Operations 6.48% $32,414 5.00% $34,034 6.57% $35,736 6.63%
Advertising 0.70% $3,490 5.00% $3,664 0.71% $3,848 0.71%
Management Fees 0.31% $1,572 4.00% $1,634 0.32% $1,700 0.33%
------ -------- ------ -------- ------ -------- ------
Total Undistrib. Expenses $68,851 $72,278 13.95% $75,876 14.10%
------ -------- ------ -------- ------ -------- ------
GROSS OPERATION PROFIT $152,547 $159,714 35.65% $165,396 30.69%
------ -------- ------ -------- ------ -------- ------
FIXED CHARGES % OF REV
--------
Property Taxes & Insurs. 4.28% $24,111 5.00% $25,317 4.89% $26,582 5.13%
Trump Realty Rent 0.54% $2,725 0.00% $2,725 0.53% $2,725 0.53%
Reserved (FF&E) N/A 1.50% $7,770 1.50% $8,081 1.56%
------ -------- ------ -------- ------ -------- ------
Total Other Deductions $26,836 $35,812 6.91% $37,389 7.22%
------ -------- ------ -------- ------ -------- ------
CASH FLOW 25.13% $125,711 $123,902 28.73% $128,007 23.47%
(Before Debt Service) -------- ------ -------- ------ -------- ------
92.30% 92.00% 92.00%
OCCUPANCY (%) - 1993 ACTUAL $96.57 $97.00 $100.88%
AVERAGE ROOM RATE - 4.00% 4.00%
% INCREASE IN ADR 1,250 1,250 1,250
NUMBER OF ROOMS 421,268 419,750 419,750
TOTAL ROOMS OCCUPIED
</TABLE>
(continued on next page)
<PAGE>
VALUATIONS & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
==============================================================================
Prepared by: TRUMP TAJ MAHAL CASINO RESORTS
APPRAISAL GROUP International CASH FLOW PROJECTION
($000) ------------------------------
<TABLE>
<CAPTION>
/--Actual---\ /--------------Projected--------------\
- -------\
1993 Growth
REVENUES (Unaudited) Rate Year 3 % Year 4 %
- -------- ---------- ---- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C>
Casino 79.40% $442,064 4.00% $486,541 79.27% $506,002 79.27%
Guest Rooms 7.31% $40,682 4.00% $44,038 7.17% $45,800 7.17%
Food & Beverage 10.05% $55,953 4.00% $62,940 10.25% $65,457 10.25%
Other Income 3.24% $18,038 4.00% $20,290 3.31% $21,102 3.31%
------ -------- ------ ------- ----- ------- -----
GROSS POTENTIAL REVENUE 100.00% $556,737 $613,809 100.00% $638,361 100.00%
Promotional Allowance -10.14% ($56,444) -10.00% ($48,654) -7.93% ($50,600) -7.93%
Casino Bad Debt 0.00% $0 -1.00% ($4,865) -0.79% ($5,060) -0.79%
------ -------- ------ ------- ----- ------- -----
EFFECTIVE TOTAL REVENUE 89.86% $500,293 $560,290 91.28% $582,701 91.28%
------ -------- ------ ------- ----- ------- -----
% OF % OF
TOTAL TOTAL
DEPARTMENTAL EXPENSES % OF REV % 0F REV REVENUE REVENUE
- --------------------- -------- -------- ------- -------
Casino 41.41 $196,318 45.00% $218,943 39.08% $227,701 39.08%
Rooms 37.21 $15,137 35.00% $15,413 2.75% $16,030 2.75%
Food & Beverage 98.59 $54,043 95.00% $59,793 10.67% $62,185 10.67%
Other 74.27% $13,397 75.00% $15,218 2.72% $15,826 2.72%
------ -------- ------ ------- ----- ------- -----
Total Dept. Expenses $278,895 $309,367 55.22% $321,742 55.22%
------ -------- ------ ------- ----- ------- -----
TOTAL DEPARTMENTAL PROFIT $221,399 $250,922 44.78% $260,959 44.78%
------ -------- ------ ------- ----- ------- -----
UNDISTRIBUTED OPERATING
EXPENSE Growth @
- ----------------------- --------
General & Admin. 6.27% $31,376 5.00% $36,322 6.48% $38,138 6.55%
Facility Operations 6.48% $32,414 5.00% $37,523 6.70% $39,399 6.76%
Advertising 0.70% $3,490 5.00% $4,040 0.72% $4,242 0.73%
Management Fees 0.31% $1,572 4.00% $1,768 0.34% $1,839 0.35%
------ -------- ------ ------- ----- ------- -----
Total Undistrib. Expenses $68,851 $79,653 14.24% $83,618 14.39%
------ -------- ------ ------- ----- ------- -----
GROSS OPERATION PROFIT $152,547 $171,270 30.54% $177,342 30.40%
------ -------- ------ ------- ----- ------- -----
FIXED CHARGES % OF REV
--------
Property Taxes & Insurs. 4.28% $24,111 5.00% $27,912 5.39% $29,307 5.66%
Trump Realty Rent 0.54% $2,725 0.00% $2,725 0.53% $2,725 0.53%
Reserved (FF&E) N/A 1.50% $8,404 1.62% $8,741 1.69%
------ -------- ------ ------- ----- ------- -----
Total Other Deductions $26,836 $39,041 7.54% $40,773 7.87%
------ -------- ------ ------- ----- ------- -----
CASH FLOW 25.13% $125,711 $132,229 23.01% $136,569 22.52%
(Before Debt Service) -------- ------ ------- ----- ------- -----
92.30% 92.00% 92.00%
OCCUPANCY (%) - 1993 ACTUAL $96.57 $104.92 $109.11
AVERAGE ROOM RATE - 4.00% 4.00%
% INCREASE IN ADR 1,250 1,250 1,250
NUMBER OF ROOMS 421,268 419,750 419,750
TOTAL ROOMS OCCUPIED
</TABLE>
(continued on next page)
<PAGE>
VALUATIONS & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
==============================================================================
Prepared by: TRUMP TAJ MAHAL CASINO RESORTS
APPRAISAL GROUP International CASH FLOW PROJECTION
($000) ------------------------------
<TABLE>
<CAPTION>
/--Actual---\ /--------------Projected--------------\
- -------\
1993 Growth
REVENUES (Unaudited) Rate Year 5 % Year 6 %
- -------- ---------- ---- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Casino 79.40% $442,064 4.00% $526,243 79.27% $547,292 79.27%
Guest Rooms 7.31% $40,682 4.00% $47,632 7.17% $49,537 7.17%
Food & Beverage 10.05% $55,953 4.00% $68,076 10.25% $70,799 10.25%
Other Income 3.24% $18,038 4.00% $21,946 3.31% $22,824 3.31%
------ -------- ------ -------- ------- --------- -------
GROSS POTENTIAL REVENUE 100.00% $556,737 $663,896 100.00% $690,452 100.00%
Promotional Allowance -10.14% ($56,444) -10.00% ($52,624) -7.93% ($54,729) -7.93%
Casino Bad Debt 0.00% $0 -1.00% ($5,262) -0.79% ($5,473) -0.79%
------ -------- ------ -------- ------- --------- -------
EFFECTIVE TOTAL REVENUE 89.86% $500,293 $606,009 91.28% $630,250 91.28%
------ -------- ------ -------- ------- --------- -------
% of % of
TOTAL TOTAL
DEPARTMENTAL EXPENSES % OF REV % 0F REV REVENUE REVENUE
- --------------------- -------- -------- ------- -------
Casino 41.41 $196,318 45.00% $236,809 39.08% $246,282 39.08%
Rooms 37.21 $15,137 35.00% $16,671 2.75% $17,338 2.75%
Food & Beverage 98.59 $54,043 95.00% $64,672 10.67% $67,259 10.67%
Other 74.27% $13,397 75.00% $16,459 2.72% $17,118 2.72%
------ -------- ------ -------- ------- -------- -------
Total Dept. Expenses $278,895 $334,612 55.22% $347,996 55.22%
------ -------- ------ -------- ------- -------- -------
TOTAL DEPARTMENTAL PROFIT $221,399 $271,398 44.78% $282,254 44.78%
------ -------- ------ -------- ------- -------- -------
UNDISTRIBUTED OPERATING
EXPENSE Growth @
- ----------------------- --------
General & Admin. 6.27% $31,376 5.00% $40,045 6.61% $42,047 6.67%
Facility Operations 6.48% $32,414 5.00% $41,369 6.83% $43,437 6.89%
Advertising 0.70% $3,490 5.00% $4,454 0.73% $4,677 0.74%
Management Fees 0.31% $1,572 4.00% $1,912 0.37% $1,989 0.32%
------ -------- ------ -------- ------- -------- -------
Total Undistrib. Expenses $68,851 $87,780 14.54% $92,150 14.62%
------ -------- ------ -------- ------- -------- -------
GROSS OPERATION PROFIT $152,547 $183,618 30.25% $190,104 30.16%
------ -------- ------ -------- ------- -------- -------
FIXED CHARGES % OF REV
--------
Property Taxes & Insurs. 4.28% $24,111 5.00% $30,773 5.94% $32,311 6.24%
Trump Realty Rent 0.54% $2,725 0.00% $2,725 0.53% $2,725 0.53%
Reserved (FF&E) N/A 1.50% $9,090 1.75% $9,454 1.82%
------ -------- ------ -------- ------- -------- -------
Total Other Deductions $26,836 $42,588 8.22% $44,490 8.59%
------ -------- ------ -------- ------- -------- -------
CASH FLOW 25.13% $125,711 $141,030 22.02% $145,614 21.57%
(Before Debt Service) -------- ------ -------- ------- -------- -------
92.30% 92.00% 92.00%
OCCUPANCY (%) - 1993 ACTUAL $96.57 $113.48 $118.02
AVERAGE ROOM RATE - 4.00% 4.00%
% INCREASE IN ADR 1,250 1,250 1,250
NUMBER OF ROOMS 421,268 419,750 419,750
TOTAL ROOMS OCCUPIED
</TABLE>
(continued on next page)
<PAGE>
VALUATIONS & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
==============================================================================
Prepared by: TRUMP TAJ MAHAL CASINO RESORTS
APPRAISAL GROUP International CASH FLOW PROJECTION
($000) ------------------------------
<TABLE>
<CAPTION>
/--Actual---\ /--------------Projected--------------\
- -------\
1993 Growth
REVENUES (Unaudited) Rate Year 7 % Year 8 %
- -------- ---------- ---- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Casino 79.40% $442,064 4.00% $569,184 79.27% $591,951 79.27%
Guest Rooms 7.31% $40,682 4.00% $51,518 7.17% $53,579 7.17%
Food & Beverage 10.05% $55,953 4.00% $73,631 10.25% $76,576 10.25%
Other Income 3.24% $18,038 4.00% $23,737 3.31% $24,686 3.31%
------ -------- ------ -------- ------- --------- -------
GROSS POTENTIAL REVENUE 100.00% $556,737 $718,070 100.00% $746,793 100.00%
Promotional Allowance -10.14% ($56,444) -10.00% ($56,918) -7.93% ($59,195) -7.93%
Casino Bad Debt 0.00% $0 -1.00% ($5,692) -0.79% ($5,920) -0.79%
------ -------- ------ -------- ------- --------- -------
EFFECTIVE TOTAL REVENUE 89.86% $500,293 $655,460 91.28% $681,687 91.28%
------ -------- ------
% of % of
TOTAL TOTAL
DEPARTMENTAL EXPENSES % OF REV % 0F REV REVENUE REVENUE
- --------------------- -------- -------- ------- -------
Casino 41.41 $196,318 45.00% $256,133 39.08% $266,378 39.08%
Rooms 37.21 $15,137 35.00% $18,031 2.75% $18,753 2.75%
Food & Beverage 98.59 $54,043 95.00% $69,949 10.67% $72,747 10.67%
Other 74.27% $13,397 75.00% $17,803 2.72% $18,515 2.72%
------ -------- ------ -------- ------- -------- -------
Total Dept. Expenses $278,895 $361,916 55.22% $376,393 55.22%
------ -------- ------ -------- ------- -------- -------
TOTAL DEPARTMENTAL PROFIT $221,399 $293,544 44.78% $305,285 44.78%
------ -------- ------ -------- ------- -------- -------
UNDISTRIBUTED OPERATING
EXPENSE Growth @
- ----------------------- --------
General & Admin. 6.27% $31,376 5.00% $44,150 6.74% $46,357 6.80%
Facility Operations 6.48% $32,414 5.00% $45,609 6.96% $47,890 7.03%
Advertising 0.70% $3,490 5.00% $4,911 0.75% $5,156 0.76%
Management Fees 0.31% $1,572 4.00% $2,068 0.32% $2,151 0.32%
------ -------- ------ -------- ------- -------- -------
Total Undistrib. Expenses $68,851 $96,737 14.76% $101,554 14.90%
------ -------- ------ -------- ------- -------- -------
GROSS OPERATION PROFIT $152,547 $196,806 30.03% $203,732 29.89%
------ -------- ------ -------- ------- -------- -------
FIXED CHARGES % OF REV
--------
Property Taxes & Insurs. 4.28% $24,111 5.00% $33,927 6.55% $35,623 6.88%
Trump Realty Rent 0.54% $2,725 0.00% $2,725 0.53% $2,725 0.53%
Reserved (FF&E) N/A 1.50% $9,832 1.90% $10,225 1.97%
------ -------- ------ -------- ------- -------- -------
Total Other Deductions $26,836 $46,484 8.97% $48,573 9.38%
------ -------- ------ -------- ------- -------- -------
CASH FLOW 25.13% $125,711 $150,323 21.05% $155,159 20.51%
(Before Debt Service) -------- ------ -------- ------- -------- -------
92.30% 92.00% 92.00%
OCCUPANCY (%) - 1993 ACTUAL $96.57 $122.74 $127.65
AVERAGE ROOM RATE - 4.00% 4.00%
% INCREASE IN ADR 1,250 1,250 1,250
NUMBER OF ROOMS 421,268 419,750 419,750
TOTAL ROOMS OCCUPIED
</TABLE>
(continued on next page)
<PAGE>
VALUATIONS & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH
==============================================================================
Prepared by: TRUMP TAJ MAHAL CASINO RESORTS
APPRAISAL GROUP International CASH FLOW PROJECTION
($000) ------------------------------
<TABLE>
<CAPTION>
/--Actual---\ /---------------------------Projected--------------------------\
- -------\
1993 Growth
REVENUES (Unaudited) Rate Year 9 % Year 10 % Year 11 %
- -------- ---------- ---- ------ ------ ------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Casino 79.40% $442,064 4.00% $615,629 79.27% $640,255 79.27% $665,865 79.27%
Guest Rooms 7.31% $40,682 4.00% $55,722 7.17% $57,951 7.17% $60,269 7.17%
Food & Beverage 10.05% $55,953 4.00% $79,639 10.25% $82,824 10.25% $86,137 10.25%
Other Income 3.24% $18,038 4.00% $25,674 3.31% $26,701 3.31% $27,769 3.31%
------ -------- ------ -------- ------- --------- ------- --------- -------
GROSS POTENTIAL REVENUE 100.00% $556,737 $776,664 100.00% $807,731 100.00% $840,040 100.00%
Promotional Allowance -10.14% ($56,444) -10.00% ($61,563) -7.93% ($64,025) -7.93% ($66,586) -7.93%
Casino Bad Debt 0.00% $0 -1.00% ($6,156) -0.79% ($6,403) -0.79% $766,795 -0.79%
------ -------- ------ -------- ------- --------- ------- --------- -------
EFFECTIVE TOTAL REVENUE 89.86% $500,293 $708,945 91.28% $737,303 91.28% $766,795 91.28%
------ -------- ------ -------- ------- --------- ------- --------- -------
% of % of % of
TOTAL TOTAL TOTAL
DEPARTMENTAL EXPENSES % OF REV % 0F REV REVENUE REVENUE REVENUE
- --------------------- -------- -------- ------- ------- -------
Casino 41.41 $196,318 45.00% $277,033 39.08% $288,115 39.08% $299,639 39.08%
Rooms 37.21 $15,137 35.00% $19,503 2.75% $20,283 2.75% $21,094 2.75%
Food & Beverage 98.59 $54,043 95.00% $75,657 10.67% $78,683 10.67% $81,831 10.67%
Other 74.27% $13,397 75.00% $19,255 2.72% $20,025 2.72% $20,826 2.72%
------ -------- ------ -------- ------- -------- ------- -------- -------
Total Dept. Expenses $278,895 $391,448 55.22% $407,106 55.22% $423,390 55.22%
------ -------- ------ -------- ------- -------- ------- -------- -------
TOTAL DEPARTMENTAL PROFIT $221,399 $317,497 44.78% $330,197 44.78% $343,405 44.78%
------ -------- ------ -------- ------- -------- ------- -------- -------
UNDISTRIBUTED OPERATING
EXPENSE Growth @
- ----------------------- --------
General & Admin. 6.27% $31,376 5.00% $48,675 6.87% $51,109 6.93% $53,664 7.00%
Facility Operations 6.48% $32,414 5.00% $50,284 7.09% $52,798 7.16% $55,438 7.23%
Advertising 0.70% $3,490 5.00% $5,414 0.76% $5,685 0.77% $5,969 0.78%
Management Fees 0.31% $1,572 4.00% $2,237 0.32% $2,326 0.32% $2,419 0.32%
------ -------- ------ -------- ------- -------- ------- -------- -------
Total Undistrib. Expenses $68,851 $106,610 15.04% $111,918 15,18% $117,491 15.32%
------ -------- ------ -------- ------- -------- ------- -------- -------
GROSS OPERATION PROFIT $152,547 $210,887 29.75% $218,279 29.61% $225,924 29.46%
------ -------- ------ -------- ------- -------- ------- -------- -------
FIXED CHARGES % OF REV
--------
Property Taxes & Insurs. 4.28% $24,111 5.00% $37,404 7.22% $39,274 7.58% $41,238 7.96%
Trump Realty Rent 0.54% $2,725 0.00% $2,725 0.53% $2,725 0.53% $2,725 0.53%
Reserved (FF&E) N/A 1.50% $10,634 2.05% $11,060 2.13% $11,502 2.22%
------ -------- ------ -------- ------- -------- ------- -------- -------
Total Other Deductions $26,836 $50,763 9.80% $53,059 10.24% $55,465 10.71%
------ -------- ------ -------- ------- -------- ------- -------- -------
CASH FLOW 25.13% $125,711 $160,124 19.95% $165,220 19.36% $170,449 18.75%
(Before Debt Service) -------- ------ -------- ------- -------- ------- -------- -------
92.30% 92.00% 92.00% 92.00%
OCCUPANCY (%) - 1993 ACTUAL $96.57 $132.75 $138.06 $143.58
AVERAGE ROOM RATE - 4.00% 4.00% 4.00%
% INCREASE IN ADR 1,250 1,250 1,250 1,250
NUMBER OF ROOMS 421,268 419,750 419,750 419,750
TOTAL ROOMS OCCUPIED
</TABLE>
-101-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS
================================================================================
STEP 3 -
- --------
The selection of a yield rate to discount the projected cash flow and eventual
property reversion is based upon our analysis of yield rates anticipated by real
estate investors in the marketplace. It is important to note that these rates
do not exhibit any particular property's past history, but rather reflect an
investor's current yield expectations on future cash flows.
A yield rate utilized in annuity capitalization (discounted cash flow) differs
from an income rate used in straight capitalization, in that a yield rate
specifically addresses the time value of money and income stream patterns. If
two identical properties have identical current income levels, except that one
property's income will escalate faster than the other, an income rate such as an
overall rate would not reflect different values, whereas a yield rate
(discounted cash flow) would. The above is not meant to preclude the use of
income rates. These rates are appropriate valuation tools when income levels
are static and at regular intervals. Furthermore, income rates, such as overall
rates, are useful when estimating a property's reversionary value, especially
where long term income projections beyond a specified holding period are
uncertain and highly subjective.
In order to select an appropriate yield rate, we analyzed the motivating factors
that potential purchasers of properties similar to the subject would most
consider. Among the factors taken into consideration were the following:
- Risk
- Condition of subject
- Current income levels and future projections
- Competition
- Anticipated growth of the area
- Tax benefits
- Future Value of the property.
The yield, or rate of return, that a real estate investor is willing to accept
on a current purchase is not only affected by returns on other real estate
transactions. A knowledgeable investor
-102-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS
================================================================================
compares the expected yield on a real estate investment to yields he expects to
earn on competitive investments with similar risk, duration, capital protection,
and tax benefits.
Some of the non-real estate investments, typically compared to properties such
as the subject and their respective yields as of November 1993 (most recent
indices published by the Appraisal Institute - see Addenda), are as follows:
1. United States Government
10 year bonds - 5.72% yield rate
2. Corporate Bonds (A) - 7.29% yield rate
3 Municipal Bonds (A) - 5.39% yield rate
At this time, it is somewhat difficult to substantiate an appropriate discount
rate for casino facilities, such as the subject property, because few meaningful
transactions have occurred that clearly illustrate current purchase criteria.
However, a key issue that must be addressed is the fact that hotel and casino
facilities, have fallen from favor as an investment option for most
institutional level buyers. Sluggish economies have affected this attitude, and
a turnaround is not expected for several years.
An unwillingness to consider hotel and casino facilities as an investment,
unless a property is stabilized, suggests that prices have gone down as a result
of higher return requirements. But, as mentioned above, the few dated
transactions that have occurred, both in Atlantic City and Nevada, do not
provide a high degree of tangible support for this theory. The lack of sales
illustrates the unwillingness of sellers to take less for their properties based
on today's buyer yield requirements. We have found that the differential in
returns between buyers and sellers now approximates 200 to 300 basis points.
Obviously, the disparity goes far in explaining the paucity of closed
transactions.
-103-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS
================================================================================
Nonetheless, one pattern has been illustrated in purchaser due diligence that
provides insight. Today's buyer is making purchase decisions with less emphasis
on future returns (sale at reversion) and placing more emphasis on the current
income to the property. In some cases, investors are reducing above-market
contractual rents to market rates when making their investment decisions. This
illustrates the conservative approach investors are taking and the risk now
perceived with real estate as an investment vehicle. In essence, purchasers
will not pay for speculative upside in today's uncertain market and as a result,
sellers are facing lower than desired offering prices when transactions are in
negotiation.
In order to objectively and rationally select discount rates, we have considered
two methods. First, we have analyzed yield rates of new bond issues and key
money rates. Second, we have reviewed required rates of return with real estate
investors.
Recent key bond yields and money rates as of March 14, 1994 are set forth in
the following table.
==============================================================================
KEY MONEY RATES
AS OF 3/14/94
==============================================================================
Prime Rate 6.00%
Discount Rate 3.00%
3 Month T-Bills 3.49%
Commercial Paper (90 days) 3.83%
Treasury Bills (One Year) 3.95%
Treasury Notes (Two Year) 4.97%
Treasury Notes (Five Year) 5.93%
Treasury Notes (Ten Year) 6.51%
Treasury Notes (30 Year) 6.93%
High Quality
Corporate Bonds (Financial) 6.98%
Medium Quality
Corporate Bonds (Industrial) 7.59%
==============================================================================
Source: The Wall Street Journal, March 14, 1994
-104-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS
================================================================================
The above rates indicate that a low-risk, long-term investment, such as a 30-
Year U.S. Treasury Bond, yields a 6.93 percent return. A yield of 6.98 to 7.59
percent is obtainable through corporate bonds which typically have a lower risk
than income-producing real estate, but higher than government issued paper. It
should be noted that these rates have been very flat since the beginning of
1992, and the prospect of higher returns is not encouraging.
In analyzing real estate as an investment vehicle relative to the financial
markets, four factors differentiate real estate from the investment
opportunities described in the above chart. These are tax treatment,
credibility, liquidity and risk, and are described respectively in the following
paragraphs.
Potential arguments against utilizing bond yields and money market rates when
analyzing real estate often include the vast differences in tax treatment. In
the past, real property ownership enjoyed many tax benefits that were not
available for bond and money instruments (i.e. interest rate deductions, etc.).
However, changes (1986) in the tax laws have influenced required real estate
yields upward due to fewer incentives.
In addition to the tax laws surrounding real estate investments, two major
concerns exist for the real estate industry according to a survey conducted by
NCREIF (National Council of Real Estate Investment Fiduciaries): 1) the
credibility of real estate as an investment class; and 2) the illiquidity of
real estate in the market place. This index is similar to stock market indexes,
such as the Dow Jones Industrial Average (DJIA), in that it has followed the
performance of several specific real estate investments over a period of time.
The credibility of real estate can only be determined through long-term
performance. The NCREIF index has been in existence for fourteen years, which
is short in comparison to the DJIA and other investment indexes. However, even
in accounting for a severe downturn in the industry in the past several years,
the index reveals long-term yield rates of 9.7 percent for
-105-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS
================================================================================
all properties and 12.4 percent for eastern properties. Only time can add to the
credibility of real estate as an investment, but the current trends indicate a
respectable return.
Real estate also suffers from illiquidity, particularly when compared to various
financial instruments that may be converted into cash quickly. It is often a
long and arduous task to transfer real estate, particularly when the property is
very large and has numerous leases requiring much due diligence and legal
counsel. This is often a deterring factor when purchasing real estate as an
investment, thus requiring higher yields when compared to stocks and bonds.
The last significant difference between real estate and the financial markets is
the measure of risk. While no marketplace is perfect or any measure of risk
absolute, the financial markets are more sensitive to fluctuations relative to
the whole market. The trading of financial instruments is similar to the
process of gathering comparable sales in the Sales Comparison Approach of the
appraisal process. The magnitude of trading within the financial market,
analysis of the same instrument by many informed participants and the
adjustments made by the market participants provide a sound indication of yields
at varying degrees of risk. This sensitivity tends to indicate that the
financial markets illustrate a better measurement of risk than does the real
estate market, due to the lower volume of transactions in real estate.
Therefore, it is very important to analyze the differing levels of risk present
in the financial markets at varying yield rates in order to perceive and select
an appropriate discount rate applicable to the subject. For the above stated
reason, investors of real estate typically require returns several hundred basis
points above what can be achieved in the financial markets. In our experience
of casino and hotel facilities transactions, return requirements have ranged
from 600 to 800 basis points above medium quality Corporate bonds. Therefore,
an appropriate discount rate for the subject would be in the range of
approximately 13.00 to 16.00 percent.
-106-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS
================================================================================
Additionally, we have reviewed two separate investor surveys and conducted our
own telephone interviews. Respondents to the discount rate survey included
national, institutional- grade, investment and pension fund advisors and local
players in the market. The answers of the respondents in the retail, office and
lodging categories ranged considerably. The Peter F. Korpacz Investor survey
for the first quarter of 1994 indicated a discount rate (IRR) range of 9.00 to
20.00 percent, with an average discount rate of 13.93 percent for the National
Luxury Hotel Market. The National Full-Service Hotel Market reflects a discount
rate in the range of 10.00% to 20.00% with an average of 15.33%. It should be
noted that the upper end of this range represents troubled or distressed
properties and has not been considered. The CB National Investor Survey (2nd
Quarter - 1993) indicated a discount rate (IRR) range of 12.00 to 20.00 percent
for hotels with an average of 14.9%. The RCDH report indicates an initial rate
(Ro) of 12.00% to 15.00%.
Before the real estate market began to discernibly respond to the soft market
conditions in most major U.S. Cities, competitive yields had been trending
downward. In general, this followed the pattern of rates for all properties and
alternative investments. Further, the downward pattern reflected a competitive
environment in which supply, that is well-located, higher-profile stabilized
facilities, did not match buyer demand. During this period, rates as low as
10.00 to 10.50 percent were not uncommon for top quality holdings in major metro
areas. However, in the last eighteen to twenty-four months, we have seen a
reversal of this trend, with rates now in the 11.0 to 15.0 percent range, and
only trophy properties justifying rates below 10.0 to 11.0 percent.
The discount rate is a function of several factors: a property's image,
location, and physical characteristics; appreciation potential, competitive
appeal, and cash flow stability; and the nature or degree of risk, real or
perceived, inherent to the investment. The subject property is a mature hotel
and casino facility, located along the Boardwalk in Atlantic City. A higher
-107-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS
================================================================================
yield rate is necessary for a casino hotel because the investor is usually
purchasing an ongoing business along with the real estate. The business or the
"going concern" portion of the property is substantially dependent on the
competency of the management team.
Based on this analysis, considering the higher risk associated with the going
concern portion of the investment for similar casino hotel properties and our
cash flow projections, we believe the discount rate should fall toward the upper
end of the 13.00 to 16.00 percent range. Therefore, we have estimated a
discount rate of 15.00 percent.
National investors are generally seeking a 7% "Real" rate of return over the
growth or increase rate, as measured by the Consumer Price Indexes. Assuming a
4.00% CPI increase (400 basis points), and adding 400 basis points to reflect
the added risk attributable to the going concern portion of the investment, a
discount rate of 15.00% is further supported.
STEP 4 -
- ------
Reversionary Value sometimes referred to as Residual Value, may be defined as
the remainder which reverts to the fee owner at the end of a lease period,
projection period or actual sale of real estate.
The reversionary value is estimated by capitalizing the projected eleventh
(11th) year cash flow by a terminal rate of 10.00%. A terminal capitalization
rate, sometimes called outgoing rate, is the direct relationship between a
future projection of Net Operating Income produced by the real estate and its
price, or value, in the marketplace at a future certain point of time. Terminal
capitalization rates are based upon investors' perceptions of future income
value relationship giving consideration to future income levels, supply/demand
relationship as it pertains to competition and remaining economic life of the
subject.
A recent survey indicates that investors active in the market employ terminal
rates from 8.00% to 11.00%.
-108-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS
================================================================================
Giving the nature of the subject property, we have selected a terminal
capitalization rate of 10.00%, which reflects the added risk associated with a
casino/hotel.
Taken from the previously mentioned investor surveys, terminal capitalization
rates for hotel facilities range from 8.0 to 11.0 percent, with the variance
attributable to many of the same factors mentioned in our discussion of the
discount rate. However, other issues influence the terminal capitalization rate
and also warrant mention. First, the physical condition and competitive
position of a property ten (10) years into the future must be studied. Second,
the nature of the building's occupancy and casino wins in the initial years must
be analyzed. Finally, the risk inherent to the reversion year's revenue and
expense projections must be measured. Furthermore, in considering the terminal
rate for the subject property, it is important to analyze all factors which may
affect the subject property, such as gaming regulations and legislation.
On this basis, we have elected to use a terminal capitalization rate of 10.00%.
Value = Income
------
Rate
Value = $170,448,894 = $1,704,488,941
------------
.10
We have deducted 3.0% of the gross reversionary value in order to arrive at a
net sale proceeds. Our discounted cash flow reflects the net reversionary
value.
STEP 5 -
- ------
The Net Present Value conclusion is based on the employment of the Discounted
Cash Flow method. The process of discounting the cash flows, including the
reversion, reflects the present worth of this investment given the information
listed below:
- A required rate of return
- Receiving cash flows as projected
-109-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS
================================================================================
- Reversion value as projected
At a 15.00% rate of return, our discounted cash flow calculations appear on the
following page.
<TABLE>
<CAPTION>
PRESENT WORTH OF INCOME STREAM
==============================
TRUMP TAJ MAHAL CASINO RESORTS
- ------------------------------
PRESENT
PRESENT WORTH OF
WORTH OF INCOME CASH
PERIOD CASH FLOW REVERSION $1 FACTOR STREAM YIELD
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 $123,901,692 - 0.8696 $ 107,744,911 11.21%
2 $128,007,155 - 0.7561 $ 96,786,210 11.59%
3 $132,228,858 - 0.6575 $ 86,940,474 11.97%
4 $136,569,049 - 0.5718 $ 78,090,182 12.36%
5 $141,029,950 - 0.4972 $ 70,120,091 12.76%
6 $145,613,743 - 0.4323 $ 62,948,821 13.18%
7 $150,322,568 - 0.3759 $ 56,506,253 13.60%
8 $155,158,510 - 0.3269 $ 50,721,317 14.04%
9 $160,123,592 - 0.2843 $ 45,523,137 14.49%
10 $165,219,764 - 0.2472 $ 40,842,326 14.95%
11 - $1,653,354,273 0.2472 $ 408,709,176
-------------------
$1,104,932,899
- SAY -
$1,100,000,000
====================
</TABLE>
DISCOUNT RATE: 15.00%
TERMINAL
CAPITALIZATION
RATE: 10.00%
11TH YEAR NOI: $ 170,448,894
ASSUMED SALE
VALUE:
$1,704,488,941
ASSUMED SALE
COSTS:
3.00%
NET SALES PROCEEDS $1,653,354,273
-110-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
VALUATION & CONCLUSIONS CORRELATION & VALUATION CONCLUSION
================================================================================
CORRELATION AND VALUE CONCLUSION
--------------------------------
Based upon our research and analysis, we arrived at the following independent
value estimate:
CAPITALIZATION OF INCOME APPROACH $1,100,000,000
In a typical appraisal assignment, this section of the report would assess the
strengths and weaknesses of the various approaches to value utilized. However,
since we are valuing the Going Concern Value of the subject property, only the
Capitalization of Income Approach is applicable.
Giving consideration to the forces that create and affect value, it is our
opinion that the Going Concern Value of the subject property, AS OF MARCH 18,
1994, IS:
ONE BILLION ONE HUNDRED MILLION DOLLARS
---------------------------------------
($1,100,000,000)
-111-
APPRAISAL GROUP INTERNATIONAL
<PAGE>
ADDENDA
APPRAISAL GROUP International
<PAGE>
APPENDIX I
Subject Property Photographs
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
HOSPITALITY SUITE #1417
[PHOTO]
LANAI SUITE #1443
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
LANAI SUITE #144 - CORNER UNIT
[PHOTO]
TYPICAL ROOM #4602
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
RAJA SUITE #4617
[PHOTO]
RAJA SUITE #4617
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
RAJA SUITE #4617
[PHOTO]
KING ROOM #4621
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
SUITE #4812
[PHOTO]
SUITE 4812
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
VICEROY SUITE #4623
[PHOTO]
46TH FLOOR ELEVATOR BANK
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
46TH FLOOR LOBBY
[PHOTO]
SULTAN SUITE #4811
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
SULTAN SUITE #4811
[PHOTO]
SULTAN SUITE #4811
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
51ST FLOOR ELEVATOR BANK
[PHOTO]
51ST FLOOR HALLWAY
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
MICHELANEGELO SUITE
[PHOTO]
MICHELANGELO SUITE
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
MICHELANGELO SUITE
[PHOTO]
MICHELANGELO SUITE
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
ALEXANDER THE GREAT SUITE - GUEST BEDROOM
[PHOTO]
ALEXANDER THE GREAT SUITE - DINING ROOM
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
ALEXANDER THE GREAT SUITE - GENERAL VIEW
[PHOTO]
ALEXANDER THE GREAT SUITE - BATHROOM
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
ALEXANDER THE GREAT SUITE - LIVING ROOM
[PHOTO]
ALEXANDER THE GREAT SUITE - JACUZZI
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
ALEXANDER THE GREAT SUITE - BATHROOM AND EXERCISE ROOM
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
VIEW FROM PACIFIC AVENUE
[PHOTO]
PARKING GARAGE
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
VIEW OF THE SUBJECT FROM THE BOARDWALK
[PHOTO]
STEEL PIER
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
CLOSE-UP VIEW OF THE TOWER
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
VIEW ALONG THE BOARDWALK
[PHOTO]
VIEW ALONG THE BOARDWALK
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
MAIN ENTRANCE AND PORTE CHOCHERE
[PHOTO]
HOTEL LOBBY AND FRONT DESK
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
2ND LEVEL PROMENADE TOWARDS THE BOARDWALKD
[PHOTO]
ESCALATORS TO 2ND LEVEL
APPRAISAL GROUP Interanational
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
RETAIL SHOPS ON 2ND LEVEL
[PHOTO]
RETAIL SHOPS ON 2ND LEVEL
APPRAISAL GROUP International
<PAGE>
Addenda Subject Property Photographs
================================================================================
[PHOTO]
THE SPA AT THE TAJ
[PHOTO]
MARK G. ETESS ARENA
APPRAISAL GROUP International
<PAGE>
APPENDIX II
Floor Plans
APPRAISAL GROUP International
<PAGE>
[FLOOR PLAN]
FIRST LEVEL PLAN OF TAJ MAHAL CASINO RESORT
<PAGE>
[FLOOR PLAN]
FIRST LEVEL MEZZANINE OF TAJ MAHAL CASINO RESORT
<PAGE>
[FLOOR PLAN]
SECOND LEVEL PLAN OF TAJ MAHAL CASINO RESORT
<PAGE>
[FLOOR PLAN]
SECOND LEVEL MEZZANINE OF TAJ MAHAL CASINO RESORT
<PAGE>
[FLOOR PLAN]
5TH LEVEL OF TAJ MAHAL CASINO RESORT
<PAGE>
[FLOOR PLAN]
6TH LEVEL OF TAJ MAHAL CASINO RESORT
<PAGE>
[FLOOR PLAN]
7TH FLOOR OF TAJ MAHAL CASINO RESORT
<PAGE>
[DIAGRAM OF TRUMP TAJ MAHAL CASINO]
<PAGE>
TRUMP TAJ MAHAL CASINO* RESORT
OPERATING REVIEW PACKAGE
DECEMBER 1993
APPENDIX III
Trump Taj Mahal Associates Property Operating Statement
APPRAISAL GROUP International
<PAGE>
TRUMP TAJ MAHAL CASINO* RESORT
OPERATING REVIEW PACKAGE
DECEMBER, 1993
TABLE OF CONTENTS
Market Share Analysis 1-4
Statement of Operations 5
Property Operating Statement 6
Key Statistics 7
Gaming Summary 8
Table Summary 9
Games Drop/Games Win Summary 10
Slot Summary 11
Slot Handle/Slot Win Summary 12
Food Summary 13
Food Covers by Outlet 14
Average Check by Outlet 15
Beverage Summary 16
Lodging Summary 17
Room Occupancy Statistics 18-19
Facility Operations Summary 20
Fixed Expense Summary 21
General & Administrative Summary 22
Monthly Labor Comparison 23
2
14-Jan-94
<PAGE>
TAJ MAHAL CASINO AND RESORT
MARKET SHARE ANALYSIS
OPERATING REVIEW
FOR THE MONTH ENDED DECEMBER 1993
<TABLE>
<CAPTION>
1993 1992
UNIT 1993 1992 DROP DROP 1993 1992
# OF MKT PIT PIT MKT MKT TABLE TABLE
PROPERTY UNITS SHARE % DROP RANK DROP RANK SHARE % SHARE % WIN RANK WIN
- -------- ----- ------- -------------- ---- -------------- ---- ------- ------- ------------ ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAJ 163 14.5% $ 87,689,444 1 $ 78,608,255 1 16.7% 15.3% $ 15,032,138 1 $ 11,953,332
PLAZA 86 7.6% 44,791,209 5 50,140,987 3 8.5% 9.8% 7,187,558 5 6,597,694
RESORTS 81 7.2% 38,670,767 8 38,772,967 5 7.4% 7.6% 4,992,405 9 5,919,872
CAESARS 114 10.1% 58,510,412 2 72,228,158 2 11.1% 14.1% 7,783,536 4 9,154,844
BALLY 95 8.4% 46,293,817 3 37,342,753 7 8.8% 7.3% 8,544,234 2 6,456,570
SANDS 93 8.2% 45,591,542 4 49,528,461 4 8.7% 9.7% 8,346,337 3 7,432,388
HARRAH'S 80 7.1% 29,141,951 11 33,497,933 9 5.5% 6.5% 4,740,664 10 6,037,023
CLARIDGE 67 5.9% 20,063,289 12 18,868,713 12 3.8% 3.7% 2,892,712 12 2,857,434
SHOWBOAT 92 8.2% 32,057,454 10 30,140,774 11 6.1% 5.9% 4,189,909 11 4,409,688
TROP WORLD 89 7.9% 36,344,985 9 37,980,777 6 6.9% 7.4% 5,579,973 7 5,950,677
CASTLE 81 7.2% 41,356,955 7 33,938,422 8 7.9% 6.6% 5,067,970 8 5,160,284
GRAND 87 7.7% 44,765,868 6 31,912,594 10 8.5% 6.2% 7,106,882 6 4,567,694
----- ------- -------------- -------------- ------- ------- ------------ ------------
TOTAL 1,128 100.0% $ 525,277,693 $ 512,960,794 100.0% 100.0% $ 81,464,318 $ 76,497,500
% change from last year 2.4% 6.5%
<CAPTION>
1993 1992
TABLE TABLE
WIN WIN 1993 1992
MKT MKT HOLD HOLD
PROPERTY RANK SHARE % SHARE % % %
- -------- ---- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
TAJ 1 18.5% 15.6% 17.1% 15.2%
PLAZA 4 8.8% 8.6% 16.0% 13.2%
RESORTS 8 6.1% 7.7% 12.9% 15.3%
CAESARS 2 9.6% 12.0% 13.3% 12.7%
BALLY 5 10.5% 8.4% 18.5% 17.3%
SANDS 3 10.2% 9.7% 18.3% 15.0%
HARRAH'S 6 5.8% 7.9% 16.3% 18.0%
CLARIDGE 12 3.6% 3.7% 14.4% 15.1%
SHOWBOAT 11 5.1% 5.8% 13.1% 14.6%
TROP WORLD 7 6.8% 7.8% 15.4% 15.7%
CASTLE 9 6.2% 6.7% 12.3% 15.2%
GRAND 10 8.7% 6.0% 15.9% 14.3%
------- -------
TOTAL 100.0% 100.0% 15.6% 14.6%
% change from last year
</TABLE>
<TABLE>
<CAPTION>
1993 1992
UNIT 1993 1992 HANDLE HANDLE 1993 1992
# OF MKT SLOT SLOT MKT MKT SLOT SLOT
PROPERTY UNITS SHARE % HANDLE RANK HANDLE RANK SHARE % SHARE % WIN RANK WIN
- -------- ----- ------- -------------- ---- -------------- ---- ------- ------- ------------ ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAJ 3,158 12.9% $ 207,766,071 1 $ 171,039,042 2 12.7% 11.8% $ 18,375,878 1 $ 15,967,800
PLAZA 1,834 7.5% 110,035,359 9 118,026,788 7 6.7% 8.2% 10,352,855 8 10,684,649
RESORTS 1,916 7.8% 116,050,255 8 94,522,698 10 7.1% 6.5% 9,894,934 9 9,253,687
CAESARS 2,073 8.4% 135,897,330 6 126,618,152 4 8.3% 8.8% 12,545,820 6 12,503,470
BALLY 2,009 8.2% 143,429,050 5 118,143,927 6 8.7% 8.2% 12,920,125 4 11,456,464
SANDS 1,627 6.6% 106,169,538 10 98,047,110 9 6.5% 6.8% 9,527,164 10 9,225,076
HARRAH'S 1,891 7.7% 199,232,999 2 146,993,437 3 12.2% 10.2% 14,429,441 3 12,857,575
CLARIDGE 1,368 5.6% 66,405,827 12 54,563,325 12 4.1% 3.8% 6,664,203 12 5,962,156
SHOWBOAT 2,379 9.7% 151,968,233 4 124,064,574 5 9.3% 8.6% 12,900,860 5 11,324,695
TROP WORLD 2,731 11.1% 184,468,598 3 203,185,699 1 11.3% 14.1% 14,891,882 2 15,810,843
CASTLE 2,098 8.5% 128,641,744 7 113,918,864 8 7.8% 7.9% 11,522,479 7 10,745,620
GRAND 1,477 6.0% 89,361,828 11 76,373,741 11 5.5% 5.3% 7,777,880 11 7,324,026
----- ------- -------------- -------------- ------- ------- ------------ ------------
TOTAL 24,561 100.0% $1,639,426,832 $1,445,497,357 100.0% 100.0% $141,803,521 $133,116,061
% change from last year 13.4% 6.5%
<CAPTION>
1993 1992
SLOT SLOT
WIN WIN 1993 1992
MKT MKT HOLD HOLD
PROPERTY RANK SHARE % SHARE % % %
- -------- ---- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
TAJ 1 13.0% 12.0% 8.8% 9.3%
PLAZA 8 7.3% 8.0% 9.4% 9.1%
RESORTS 9 7.0% 7.0% 8.5% 9.8%
CAESARS 4 8.8% 9.4% 9.2% 9.9%
BALLY 5 9.1% 8.6% 9.0% 9.7%
SANDS 10 6.7% 6.9% 9.0% 9.4%
HARRAH'S 3 10.2% 9.7% 7.2% 8.7%
CLARIDGE 12 4.7% 4.5% 10.0% 10.9%
SHOWBOAT 6 9.1% 8.5% 8.5% 9.1%
TROP WORLD 2 10.5% 11.9% 8.1% 7.8%
CASTLE 7 8.1% 8.1% 9.0% 9.4%
GRAND 11 5.5% 5.5% 8.7% 9.6%
------- ------- ---- ----
TOTAL 100.0% 100.0% 8.6% 9.2%
% change from last year
</TABLE>
1
<PAGE>
TAJ MAHAL CASINO AND RESORT
MARKET SHARE ANALYSIS
OPERATING REVIEW
YEAR TO DATE DECEMBER 1993
<TABLE>
<CAPTION>
1993 1992
UNIT 1993 1992 DROP DROP 1993 1992
# OF MKT PIT PIT MKT MKT TABLE TABLE
PROPERTY UNITS SHARE % DROP RANK DROP RANK SHARE % SHARE % WIN RANK WIN
- ---------- ----- ----- --------------- ---- -------------- ---- ------- ------- -------------- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAJ 163 14.6% $ 1,062,042,357 1 $ 1,067,595,021 1 15.5% 15.1% $ 173,432,276 1 $ 169,112,175
PLAZA 87 7.8% 626,622,245 3 689,918,629 3 9.2% 9.8% 93,969,830 4 95,863,530
RESORTS 82 7.3% 543,763,629 6 537,581,983 5 7.9% 7.6% 77,432,381 7 80,023,125
CAESARS 97 8.7% 772,797,587 2 891,982,707 2 11.3% 12.6% 125,409,938 2 140,376,736
BALLY 96 8.6% 547,751,407 5 515,591,706 7 8.0% 7.3% 90,292,942 5 87,618,050
SANDS 87 7.8% 610,843,421 4 647,876,441 4 8.9% 9.2% 94,090,263 3 102,588,615
HARRAH'S 90 8.1% 462,489,368 10 504,876,892 8 6.8% 7.2% 72,927,998 8 79,153,564
CLARIDGE 67 6.0% 278,835,873 12 276,036,011 12 4.1% 3.9% 40,958,630 12 40,757,976
SHOWBOAT 83 7.5% 465,736,958 9 444,761,334 11 6.8% 6.3% 70,669,641 11 72,579,779
TROP WORLD 88 7.9% 449,410,501 11 524,159,014 6 6.6% 7.4% 71,945,560 9 82,723,901
CASTLE 87 7.8% 492,119,300 8 504,488,200 9 7.2% 7.2% 71,861,502 10 77,733,952
GRAND 88 7.9% 534,333,290 7 450,116,028 10 7.8% 6.4% 87,144,824 6 73,634,996
----- ----- --------------- -------------- ------- ------- -------------- -------------
TOTAL 1,113 100.0% $6,846,745,936 $7,054,983,966 100.0% 100.0% $1,070,135,785 $1,102,166,399
% change from last year -3.0% -2.9%
<CAPTION>
1993 1992
TABLE TABLE
WIN WIN 1993 1992
MKT MKT HOLD HOLD
PROPERTY RANK SHARE % SHARE % % %
- ---------- ---- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
TAJ 1 16.2% 15.3% 16.3% 15.8%
PLAZA 4 8.8% 8.7% 15.0% 13.9%
RESORTS 7 7.2% 7.3% 14.2% 14.9%
CAESARS 2 11.7% 12.7% 16.2% 15.7%
BALLY 5 8.4% 7.9% 16.5% 17.0%
SANDS 3 8.8% 9.3% 15.4% 15.8%
HARRAH'S 8 6.8% 7.2% 15.8% 15.7%
CLARIDGE 12 3.8% 3.7% 14.7% 14.8%
SHOWBOAT 11 6.6% 6.6% 15.2% 16.3%
TROP WORLD 6 6.7% 7.5% 16.0% 15.8%
CASTLE 9 6.7% 7.1% 14.6% 15.4%
GRAND 10 8.1% 6.7% 16.3% 16.4%
------- -------
TOTAL 100.0% 100.0% 15.6% 15.6%
% change from last year
</TABLE>
<TABLE>
<CAPTION>
1993 1992
UNIT 1993 1992 HANDLE HANDLE 1993 1992
# OF MKT SLOT SLOT MKT MKT SLOT SLOT
PROPERTY UNITS SHARE % HANDLE RANK HANDLE RANK SHARE % SHARE % WIN RANK WIN
- -------- ----- ------- --------------- ---- --------------- ---- ------- ------- -------------- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAJ 3,121 13.0% $ 2,857,910,382 2 $ 2,510,071,469 2 11.9% 11.4% $ 264,503,544 1 $ 246,947,887
PLAZA 1,812 7.6% 1,834,226,838 8 1,781,849,694 7 7.6% 8.1% 173,215,257 7 168,387,560
RESORTS 1,822 7.6% 1,758,359,886 9 1,584,205,819 9 7.3% 7.2% 164,137,057 9 155,498,842
CAESARS 1,944 8.1% 1,995,809,446 6 1,997,757,557 4 8.3% 9.0% 190,469,271 6 192,118,747
BALLY 1,949 8.1% 2,144,750,082 5 1,929,288,881 6 8.9% 8.7% 205,315,896 4 192,916,463
SANDS 1,607 6.7% 1,630,971,918 10 1,443,560,648 10 6.8% 6.5% 149,477,588 10 142,641,218
HARRAH'S 1,896 7.9% 2,543,551,242 3 2,244,296,664 3 10.5% 10.2% 212,174,381 3 208,341,542
CLARIDGE 1,401 5.9% 1,062,240,262 12 942,573,287 12 4.4% 4.3% 113,656,209 12 105,600,700
SHOWBOAT 2,271 9.5% 2,189,507,169 4 1,965,888,182 5 9.1% 8.9% 202,867,358 5 185,123,158
TROP WORLD 2,660 11.1% 2,866,847,299 1 2,736,780,159 1 11.9% 12.4% 237,976,188 2 227,474,944
CASTLE 1,976 8.3% 1,851,407,983 7 1,682,869,610 8 7.7% 7.6% 172,997,582 8 162,628,339
GRAND 1,465 6.1% 1,376,691,844 11 1,264,068,286 11 5.7% 5.7% 130,422,925 11 126,138,551
----- ------- --------------- --------------- ------- ------- -------------- --------------
TOTAL 23,923 100.0% $24,112,274,351 $22,083,210,286 100.0% 100.0% $2,217,213,256 $2,113,817,951
% change from last year 9.2% 4.9%
<CAPTION>
1993 1992
SLOT SLOT
WIN WIN 1993 1992
MKT MKT HOLD HOLD
PROPERTY RANK SHARE % SHARE % % %
- -------- ---- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
TAJ 1 11.9% 11.7% 9.3% 9.8%
PLAZA 7 7.8% 8.0% 9.4% 9.5%
RESORTS 9 7.4% 7.4% 9.3% 9.8%
CAESARS 5 8.6% 9.1% 9.5% 9.6%
BALLY 4 9.3% 9.1% 9.6% 10.0%
SANDS 10 6.7% 6.7% 9.2% 9.9%
HARRAH'S 3 9.6% 9.9% 8.3% 9.3%
CLARIDGE 12 5.1% 5.0% 10.7% 11.2%
SHOWBOAT 6 9.1% 8.8% 9.3% 9.4%
TROP WORLD 2 10.7% 10.8% 8.3% 8.3%
CASTLE 8 7.8% 7.7% 9.3% 9.7%
GRAND 11 5.9% 6.0% 9.5% 10.0%
------- -------
TOTAL 100.0% 100.0% 9.2% 9.6%
% change from last year
</TABLE>
2
<PAGE>
TAJ MAHAL CASINO AND RESORT
MARKET SHARE ANALYSIS
OPERATING REVIEW
FOR THE MONTH ENDED DECEMBER 1993
<TABLE>
<CAPTION>
TOTAL GROWTH TABLE GROWTH SLOT GROWTH
1993 1992 OVER LAST YEAR OVER LAST YEAR OVER LAST YEAR
PROPERTY TOTAL WIN RANK TOTAL WIN RANK $ % $ % $ %
- -------- ------------ ---- ------------ ---- ----------- ---- ---------- ----- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAJ $ 33,408,016 1 $ 27,921,132 1 $ 5,486,884 19.7% $3,078,806 25.8% $2,408,078 15.1%
PLAZA 17,540,413 7 17,282,343 6 258,070 1.5% $589,864 8.9% ($331,794) -3.1%
RESORTS 14,887,339 10 15,173,559 10 (286,220) -1.9% ($927,467) -15.7% $641,247 6.9%
CAESARS 20,329,356 4 21,658,314 3 (1,328,958) -6.1% ($1,371,308) -15.0% $42,350 0.3%
BALLY 21,464,359 2 17,913,034 5 3,551,325 19.8% $2,087,664 32.3% $1,463,661 12.8%
SANDS 17,873,501 6 16,657,464 7 1,216,037 7.3% $913,949 12.3% $302,088 3.3%
HARRAH'S 19,170,105 5 18,894,598 4 275,507 1.5% ($1,296,359) -21.5% $1,571,866 12.2%
CLARIDGE 9,556,915 12 8,819,590 12 737,325 8.4% $35,278 1.2% $702,047 11.8%
SHOWBOAT 17,090,769 8 15,734,383 9 1,356,386 8.6% ($219,779) -5.0% $1,576,165 13.9%
TROP WORLD 20,471,855 3 21,761,520 2 (1,289,665) -5.9% ($370,704) -6.2% ($918,961) -5.8%
CASTLE 16,590,449 9 15,905,904 8 684,545 4.3% ($92,314) -1.8% $776,859 7.2%
GRAND 14,884,762 11 11,891,720 11 2,993,042 25.2% $2,539,188 55.6% $453,854 6.2%
------------ ------------ ----------- ---------- ----------
TOTAL $223,267,839 $209,613,561 $13,654,278 6.5% $4,966,818 6.5% $8,687,460 6.5%
</TABLE>
TAJ MAHAL CASINO AND RESORT
MARKET SHARE ANALYSIS
OPERATING REVIEW
<TABLE>
<CAPTION>
TOTAL GROWTH TABLE GROWTH SLOT GROWTH
1993 1992 OVER LAST YEAR OVER LAST YEAR OVER LAST YEAR
PROPERTY TOTAL WIN RANK TOTAL WIN RANK $ % $ % $ %
- -------- -------------- ---- -------------- ---- ----------- ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAJ $ 437,935,820 1 $ 416,060,062 1 $21,875,758 5.3% $4,320,101 2.6% $17,555,657 7.1%
PLAZA 267,185,087 7 264,251,090 6 $2,933,997 1.1% ($1,893,700) -2.0% $4,827,697 2.9%
RESORTS 241,569,438 10 235,521,967 10 $6,047,471 2.6% ($2,590,744) -3.2% $8,638,215 5.6%
CAESARS 315,879,209 2 332,495,483 2 ($16,616,274) -5.0% ($14,966,798) -10.7% ($1,649,476) -0.9%
BALLY 295,608,838 4 280,534,513 5 $15,074,325 5.4% $2,674,892 3.1% $12,399,433 6.4%
SANDS 243,567,851 9 245,229,833 8 ($1,661,982) -0.7% ($8,498,352) -8.3% $6,836,370 4.8%
HARRAH'S 285,102,379 5 287,495,106 4 ($2,392,727) -0.8% ($6,225,566) -7.9% $3,832,839 1.8%
CLARIDGE 154,614,839 12 146,358,676 12 $8,256,163 5.6% $200,654 0.5% $8,055,509 7.6%
SHOWBOAT 273,536,999 6 257,702,937 7 $15,834,062 6.1% ($1,910,138) -2.6% $17,744,200 9.6%
TROP WORLD 309,921,748 3 310,198,845 3 ($277,097) -0.1% ($10,778,341) -13.0% $10,501,244 4.6%
CASTLE 244,859,084 8 240,362,291 9 $4,496,793 1.9% ($5,872,450) -7.6% $10,369,243 6.4%
GRAND 217,567,749 11 199,773,547 11 $17,794,202 8.9% $13,509,828 18.3% $4,284,374 3.4%
-------------- -------------- ----------- ------------ ------------
TOTAL $3,287,349,041 $3,215,984,350 $71,364,691 2.2% ($32,030,614) -2.9% $103,395,305 4.9%
</TABLE>
3
<PAGE>
TAJ MAHAL CASINO AND RESORT
OPERATING REVIEW - POKER & SIMULCASTING
FOR THE MONTH ENDED DECEMBER 1993
<TABLE>
<CAPTION>
1993 1993 1993 DEC Y-T-D
# OF UNIT MKT POKER MKT Y-T-D AVG WIN AVG WIN
PROPERTY UNITS SHARE % WIN RANK SHARE % POKER WIN RANK PER UNIT PER UNIT
- -------- ----- -------- ----- ---- ------- --------- ---- -------- --------
<S> <C>
TAJ 58 36.3% $1,127,513 1 38.8% $ 7,513,044 1 $ 19,440 $129,535
RESORTS 25 15.6% 436,136 2 15.0% 3,733,699 2 17,445 149,348
CAESARS 9 5.6% 235,646 4 8.1% 556,804 6 26,183 61,867
BALLY 20 12.5% 392,893 3 13.5% 2,571,809 3 19,645 128,590
SANDS 20 12.5% 203,780 5 7.0% 1,706,514 4 10,189 85,326
HARRAH'S 9 5.6% 164,490 7 5.7% 164,490 8 18,277 18,277
SHOWBOAT 6 3.8% 146,672 8 5.0% 197,321 7 24,445 32,887
CASTLE 13 8.1% 197,356 6 6.8% 1,180,684 5 15,181 90,822
-- ---- ------- --- --------- ------ ------
TOTAL 160 100.0% $2,904,486 100.0% $17,624,365 $18,153 $110,152
<CAPTION>
1993 1993 1993 1993 1993 1993 Y-T-D
SIMULCAST MKT SIMULCAST MKT HOLD SIMULCAST
PROPERTY HANDLE RANK SHARE % REVENUE RANK SHARE % % REVENUE RANK
- -------- --------- ---- ------- --------- ---- ------- ---- ---------- ----
<S> <C>
TAJ $1,110,307 3 15.1% $101,111 3 15.0% 9.1% $ 830,416 4
RESORTS 1,315,470 2 17.9% 126,012 2 18.7% 9.6% 964,794 3
CAESARS 3,258,359 1 44.4% 296,422 1 44.1% 9.1% 1,209,302 1
SANDS 739,106 5 10.1% 66,013 5 9.8% 8.9% 704,176 5
SHOWBOAT 907,832 4 12.4% 82,851 4 12.3% 9.1% 977,911 2
---------- ----- -------- ----- ----------
TOTAL $7,331,074 100.0% $672,409 100.0% 9.2% $4,686,600
</TABLE>
4
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES
<TABLE>
<CAPTION>
(UNAUDITED)
STATEMENT OF OPERATIONS
DECEMBER 1993
- ------------------------------------------------------------------------------------------------------------------------------------
THIS YEAR VS BUDGET THIS YR VS
LAST YR
- ------------------------------------------------------------------------------------------------------------------------------------
ACTUAL BUDGET VAR $ VAR LAST VAR $ VAR DESCRIPTION
% YEAR %
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <S>
5,032,138 13,290,807 1,741,531 13.1 1,953,332 3,078,806 25.0 TABLE GAMES
8,037,015 17,215,351 821,164 4.8 15,760,110 2,276,905 14.4 SLOTS
1,127,313 0 1,127,313 .0 0 1,127,313 .0 POKER
100,187 0 100,187 .0 0 100,187 .0 SIMULCASTING
34,296,653 30,506,458 3,790,195 12.4 27,713,442 6,503,211 23.0 TOTAL GAMING REVENUE
2,699,386 2,471,200 228,186 9.2 2,384,428 314,950 13.2 LODGING
4,624,734 4,170,405 454,329 10.0 3,785,508 839,146 22.2 FOOD & BEVERAGE
433,907 239,000 194,907 8.18 409,620 24,200 5.9 ENTERTAINMENT
1,103,506 909,579 193,927 21.3 1,471,093 (367,506) (25.0) OTHER
8,861,533 7,790,184 1,071,349 13.8 8,050,729 810,806 10.0 TOTAL OTHER
43,158,186 38,296,642 4,861,544 12.7 35,764,171 7,394,017 20.7 GROSS REVENUE
(4,715,242) (4,410,641) (304,601) (6.9) (3,847,205) (060,037) (22.6) PROMOTIONAL ALLOWANCE
38,442,944 33,806,001 4,556,943 13.4 31,916,966 6,525,900 20.4 NET REVENUE
EXPENSES
14,065,673 13,000,881 (1,064,792) (0.2) 13,090,803 (974,070) (7.4) PAYROLL & BENEFITS
1,808,517 1,650,358 (158,159) (9.6) (1,535,055) (273,462) (7.0) COST OF GOODS SOLD
3,070,063 2,993,204 (76,054) (2.6) 2,437,854 (632,209) (25.9) COIN/TABLE COUPONS
1,435,270 1,131,039 (304,231) (26.9) 1,079,438 (355,832) (33.0) PROMO EXPENSE
424,029 206,638 (157,393) (59.0) 390,752 (33,277) (0.5) ADVERTISING
1,048,590 1,308,620 (539,962) (41.3) 830,868 (1,017,722) (122.5) MARKETING/ENTERTAINMENT
3,304,543 2,964,757 (339,206) (11.5) 2,406,137 (098,___) ____ GAMING TAX & REGULATORY
FEES
2,269,193 1,943,173 (316,814) (10.3) 1,057,258 _________ ____ PROPERTY TAX, RENT &
INSURANCE
1,178,749 1,183,839 4,590 .4 1,170,871 _________ ____ UTILITIES
(171,275) 603,073 775,148 20.4 13,000 _________ ____ ALLOWANCE-DOUBTFUL
ACCOUNTS
2,193,211 2,045,848 (147,369) (7.2) 1,526,864 (666,___) (44.0) GENERAL & ADMINISTRATIVE
31,417,363 29,091,742 (2,325,621) (8.0) 26,330,900 (5,070,463) (19.3) TOTAL COST & EXPENSES
7,025,581 4,794,259 2,231,322 46.5 5,578,066 1,447,517 26.0 GROSS OPERATING INCOME
60,997 48,249 (12,748) (26.4) (7,852) (68,849) (876.0) TRUMP SERVICES AGREEMENT
0 0 0 .0 0 0 .0 RESTRUCTURING LITIGATION
COSTS
216,952 189,818 (27,134) (14.3) 174,507 (42,445) (24.8) WRITE-DOWN ON
227,083 227,083 0 .0 227,083 0 .0 TRUMP REALTY RENT
6,520,549 4,329,109 2,191,440 50.6 5,184,328 1,336,223 25.0 EBIDA
3,159,736 3,825,159 (134,277) (4.4) 3,089,597 (70,139) (2.3) DEPRECIATED &
AMORTIZATION
10,589,754 9,257,800 (1,252,454) (13.5) 9,425,517 INTEREST
(7,148,941) (7,953,650) 804,709 10.1 (7,330,706) 101,846 2.5
(7,148,941) (7,953,650) 804,709 10.1 (7,330,706) 181,846 2.5 NET INCOME (LOSS)
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
STATEMENT OF OPERATIONS
DECEMBER 1993
- ------------------------------------------------------------------------------------------------------------------------------------
THIS YEAR VS BUDGET THIS YR VS
LAST YR
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION ACTUAL BUDGET VAR $ VAR LAST VAR $ VAR
% YEAR %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TABLE GAMES 73,432,274 67,291,439 5,140,835 3.7 169,112,174 4,328,101 2.0
SLOTS 260,284,893 248,838,866 12,245,227 4.0 244,933,258 15,358,835 6.0
POKER 7,519,644 0 7,519,644 .0 0 7,519,644 .0
SIMULCASTING 028,259 0 028,259 .0 0 828,259 .0
TOTAL GAMING REVENUE 42,064,274 415,330,305 26,733,965 6.4 414,845,432 28,818,830 6.0
LODGING 40,681,989 40,315,000 366,909 .9 41,043,596 (301,687) (.9)
FOOD & BEVERAGE 55,953,240 59,608,970 (3,655,722) (6.1) 59,455,675 (3,502,427) (5.9)
ENTERTAINMENT 3,798,060 2,958,000 832,868 28.2 4,816,451 (1,825,583) (21.0)
OTHER 14,247,134 11,562,828 2,684,386 23.2 12,564,114 1,683,019 13.0
TOTAL OTHER 14,673,159 14,444,790 228,361 .2 117,879,036 (3,286,670) (2.2)
GROSS REVENUE 556,737,429 529,775,103 26,962,326 5.1 531,925,268 24,812,141 4.0
PROMOTIONAL ALLOWANCE 556,737,420 529,775,103 26,962,326 5.1 531,925,268 24,812,141 4.0
NET REVENUE 500,293,255 468,053,110 31,440,145 6.7 470,675,742 29,617,513 6.0
EXPENSES
PAYROLL & BENEFITS 62,081,025 160,901,461 (1,179,564) (.7) 155,959,817 (6,122,008) (3.9)
COST OF GOODS SOLD 22,051,847 23,478,979 627,132 2.2 23,425,233 573,885 2.5
COIN/TABLE COUPONS 39,759,990 338,778,818 (981,180) (2.5) 37,603,549 (2,156,449) (5.0)
PROMO EXPENSE 15,166,644 13,086,216 (1,360,420) (9.9) 12,615,995 (2,550,650)
ADVERTISING 3,409,354 3,293,232 (196,127) (6.0) 5,666,299 2,176,948 38.
MARKETING/ENTERTAINMENT 16,307,994 19,037,760 2,649,774 19.9 17,137,777 749,783
GAMING TAX & REGULATORY 40,543,041 59,590,332 (944,749) (2.4) 38,341,078 (2,201,371) ____
FEES
PROPERTY TAX, RENT & 24,111,081 23,203,575 (827,506) (3.6) 22,676,385 (1,414,697) ____
INSURANCE
UTILITIES 13,100,795 14,178,653 877,950 6.1 13,677,724 276,930
ALLOWANCE-DOUBTFUL 3,472,150 7,596,887 4,124,517 54.3 6,196,078 2,724,220 44.0
ACCOUNTS
GENERAL & ADMINISTRATIVE 29,021,635 25,757,840 (3,263,987) (12.2) 25,360,925 (3,660,711) (14._)
TOTAL COST & EXPENSES 70,205,569 369,011,349 (474,228) (.1) 350,661,944 (11,623,628)
GROSS OPERATING INCOME 30,007,606 99,841,761 38,965,925 31.3 112,813,798 17,993,889
TRUMP SERVICES AGREEMENT 1,571,594 1,185,521 (386,073) (32.6) 1,308,182 (103,412)
RESTRUCTURING LITIGATION 250,000 0 (250,000) .0 0 (250,000) ____
COSTS
WRITE-DOWN ON 2,763,664 2,590,100 (173,564) (6.7) 2,562,519 (201,145)
TRUMP REALTY RENT 2,725,000 2,724,990 (4) .0 2,705,000 0 .0
EBIDA 122,697,428 92,541,144 38,156,284 32.6 105,338,097 17,354,323
DEPRECIATED & 36,057,679 36,054,648 __________ (2.2) 36,387,548 (470,131) ____
AMORTIZATION
INTEREST 108,370,770 109,084,000 655,230 .6 104,019,272 (4,329,498)
(22,539,021) (52,547,504) 38,008,483 57.1 (35,898,723) 12,559,699 35.1
NET INCOME (LOSS) (22,539,021) (52,547,504) 38,008,483 57.1 (35,098,723) 12,559,699 35.0
</TABLE>
5
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES
PROPERTY OPERATING STATEMENT OPERATING REVIEW FOR THE PERIOD ENDED DECEMBER
1993
<TABLE>
<CAPTION>
PRIOR YEAR--
CURRENT YEAR--CURRENT MONTH CURRENT MONTH
- -------------------------------------- ------------------ ---------------------------------
ACTUAL PLAN ACTUAL DESCRIPTION
- ------------------ ------------------ ------------------ ---------------------------------
$ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
34,300,930 89.2 30,506,458 90.8 27,713,442 86.0 Casino
3,420,267 0 3,254,366 9.6 2,876,848 9.0 Food
1,214,564 3.2 952,639 2.0 958,213 3.0 Beverage
2,726,766 7.1 2,494,900 7.4 2,413,588 7.6 Lodging
449,717 1.2 259,800 0 394,954 1.2 Entertainment
1,042,220 2.7 828,479 2.4 1,407,127 4.4 Other
43,162,464 112.3 38,296,642 113.0 35,764,171 112.1 Gross Revenue
(4,715,242) (12.3) (4,410,641) (13.0) (3,847,295) (12.1) Promotional Allowances
- ---------- ----- ---------- ------ ---------- ------
38,447,222 100.0 33,986,001 100.0 31,916,966 100.0 Net Revenue
- ---------- ----- ---------- ------ ---------- ------
Operating Income
13,667,431 39.9 11,414,147 37.4 10,979,401 39.6 Casino
(270,743) (7.9) (288,790) (8.9) (497,749) (17.3) Food
396,094 32.6 280,083 29.4 298,707 31.2 Beverage
1,404,953 51.5 1,396,555 56.0 1,304,275 54.0 Lodging
(364,032) (80.9) (436,520) (168.0) (490,516) (124.2) Entertainment
671,820 64.5 495,140 59.0 959,755 68.2 Other
- ---------- ----- ---------- ------ ---------- ------
15,505,523 35.9 12,060,623 33.6 12,553,073 35.1 Gross Operating Income
- ---------- ----- ---------- ------ ---------- ------
Fixed, General & Admin
3,031,771 7.9 2,788,974 8.2 2,714,702 0.5 Facility Operations
2,259,993 5.9 1,943,179 5.7 1,857,258 5.8 Fixed Expenses
3,188,176 8.3 3,334,211 9.0 2,403,046 7.5 General
- ---------- ----- ---------- ------ ---------- ------
8,479,940 22.1 8,066,364 23.0 6,975,006 21.9 Total
- ---------- ----- ---------- ------ ---------- ------
7,025,583 10.3 4,794,259 14.1 5,578,067 17.5 Operating Income
68,997 0.2 48,249 0.1 (7,852) 0 Trump Services Agreement
0 0 0 0 0 0 Trump Management Fee
0 0 0 0 0 0 Restructure & Litigation
216,952 0.6 189,810 0.6 174,507 0.5 Write Down on Purchase of Crow
227,083 0.6 227,083 0.7 227,083 0.7 Trump Realty Rent
6,520,551 17.0 4,329,109 12.0 5,104,328 16.2 EBIDTA
- ---------- ----- ---------- ------ ---------- ------
3,159,736 8.2 3,025,459 8.9 3,009,597 9.7 Depreciation and Amortization
10,509,754 27.3 9,257,300 27.3 9,425,517 29.5 Interest
0 0 0 0 0 0 State Income Tax Provision
(7,140,940) (10.6) (7,953,650) (23.5) (7,330,785) (23.0) Income Before Extraordinary Items
0 0 0 0 0 0 Extraordinary Items
(7,140,940) (10.6) (7,953,650) (23.5) (7,330,785) (23.0) Net Income
</TABLE>
<TABLE>
<CAPTION>
YEAR-TO-DATE PRIOR-YEAR-TO-DATE
- --------------------------------- --------------------------------------------------------------
DESCRIPTION ACTUAL PLAN ACTUAL
- --------------------------------- ------------------- -------------------- --------------------
$ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
Casino 442,126,869 0.4 415,330,305 88.6 414,045,432 88.0
Food 42,524,942 8.5 46,647,704 9.9 46,332,106 9.8
Beverage 13,749,879 2.7 13,400,86. 2.9 13,565,079 2.9
Lodging 41,094,600 8.2 48,803,800 8.7 41,494,818 8.8
Entertainment 4,288,846 0.8 3,117,600 0.7 4,989,262 1.1
Other 13,074,813 2.6 10,475,220 2.2 11,497,779 2.4
Gross Revenue 556,294,029 111.3 529,775,105 113.0 531,925,269 13.0
Promotional Allowances (50,414,174) (11.3) (60,921,943) (13.0) (61,249,526) (13.0)
------------ ------- ------------ ------- ------------ -------
Net Revenue 500,339,055 100.00 468,853,110 100.0 470,675,743 100.0
------------ ------- ------------ ------- ------------ -------
Operating Income
Casino 194,675,582 44.0 165,995,078 40.0 173,406,527 41.9
Food (2,491,991) (5.9) 153,779 0.3 (533,679) (1.2)
Beverage 4,420,980 32.2 4,729,145 35.3 4,726,637 34.8
Lodging 25,986,492 63.1 26,898,831 65.9 27,650,132 66.6
Entertainment (5,680,928) (133.2) (6,382,826) (204.7) (5,458,252) (109.4)
Other 8,600,848 66.4 5,880,073 56.1 7,216,105 62.0
------------ ------- ------------ ------- ------------ -------
Gross Operating Income 225,514,182 40.5 197,274,080 37.2 207,007,478 38.0
------------ ------- ------------ ------- ------------ -------
Fixed, General & Admin
Facility Operations 32,417,253 6.5 33,629,057 7.2 32,350,663 6.9
Fixed Expenses 24,111,001 4.0 33,008,606 5.0 22,676,005 4.8
General 39,008,163 7.0 41,319,607 8.3 39,966,622 8.5
------------ ------- ------------ ------- ------------ -------
Total 95,510,497 19.1 98,232,310 21.0 94,993,089 20.2
------------ ------- ------------ ------- ------------ -------
Operating Income 130,007,685 26.0 99,041,761 21.1 112,013,000 23.0
Trump Services Agreement 1,571,594 0.3 1,185,521 0.3 1,388,182 0.3
Trump Management Fee 0 0 0 0 0 0
Restructure & Litigation 250,000 0.1 0 0 0 0
Write Down on Purchase of Crow 2,763,664 0.6 2,590,100 0.6 2,725,000 0.5
Trump Realty Rent 2,763,000 0.5 2,724,994 0.9 105,338,100 22.4
EBIDTA 122,637,427 24.5 42,541,144 19.2 105,338,100 22.4
------------ ------- ------------ ------- ------------ -------
Depreciation and Amortization 36,857,679 7.4 36,054,640 7.2 36,387,548 2.2
Interest 100,378,770 21.7 109,034,000 23.9 104,049,222 22.1
State Income Tax Provision 0 0 0 0 0 0
Income Before Extraordinary Items (22,539,022) (4.5) (52,547,504) (11.2) (35,898,720) (7.5)
Extraordinary Items 0 0 0 0 0 0
Net Income (22,539,022) (4.5) (52,547,504) (11.2) (35,090,720) (7.5)
</TABLE>
6
<PAGE>
TRUMP TAJ MAHAL CASINO RESORT
OPERATING REVIEW
KEY STATISTICS
DECEMBER 1993
<TABLE>
<CAPTION>
CURRENT MONTH LAST YEAR CURRENT MONTH
ACT vs PLAN THIS YEAR vs LAST
YEAR
VAR VAR VAR VAR
ACTUAL PLAN $ % ACTUAL $ %
<S> <C> <C> <C> <C> <C> <C> <C>
CASH
DROP $ 67,633,744 $ 60,385,000 $ 7,248,744 12.0% $ 60,721,755 $ 6,911,989 11.4%
CREDIT
DROP $ 19,893,015 $ 23,665,000 ($3,771,985) -15.9% $ 17,886,500 $ 2,006,515 11.2%
TOTAL
DROP $ 87,526,759 $ 84,050,000 $ 3,476,759 4.1% $ 78,608,255 $ 8,918,504 11.3%
WIN $ 16,159,651 $ 13,290,400 $ 2,869,251 21.6% $ 11,953,332 $ 4,206,319 35.2%
HOLD% 18.5% 15.8% 15.2%
HANDLE $ 207,766,071 $ 172,884,400 $ 34,881,671 20.2% $ 171,039,042 $ 36,727,029 21.5%
NET WIN $ 18,037,016 $ 17,215,871 $ 821,145 4.8% $ 15,760,110 $ 2,276,906 14.4%
HOLD% 8.7% 10.0% 9.2%
RMS
AVAIL 38,750 38,750 0 0.0% 38,750 0 0.0%
SOLD 34,202 28,600 5,602 19.6% 28,941 5,261 18.2%
OCCUP % 88.2% 73.8% 74.7%
ADR
(NET) $78.92 $86.41 ($7.48) -8.7% $82.39 ($3.46) -4.2%
FD
COVERS 277,405 326,030 (48,625) -14.9% 258,264 19,141 7.4%
AVG CK $12.12 $9.76 $2.37 24.2% $10.79 $1.33 12.4%
LINE BUS
PX 32,862 74,000 (41,138) -55.6% 38,684 (5,822) -15.1%
CHART
BUS PX 16,212 18,600 (2,388) -12.8% 12,535 3,677 29.3%
TOTAL
BUS PX 49,074 92,600 (43,526) -47.0% 51,219 (2,145) -4.2%
BUS COIN $ 905,663 $ 1,204,970 ($299,307) -24.8% $636,614 $269,049 42.3%
BUS FD
COUP $ 30,687 $ 298,642 ($267,955) -89.7% $124,174 ($93,487) -75.3%
AVG CST/
PAX $19.08 $16.24 $2.84 17.5% $14.85 $4 28.5%
ARENA
COVERS 18,714 13,802 4,912 35.6% 27,187 (8,473) -31.2%
# OF
SHOWS 12 9 3 33.3% 19 (7) -36.8%
SEATS
AVAIL 38,916 17,252 21,664 125.6% 38,282 634 1.7%
OCCUP % 48.1% 80.0% 71.0%
GARAGE
COUNTS
SELF
PARK 102,650 114,970 (12,320) -10.7% 136,455 (33,805) -24.8%
VALET 31,332 27,684 3,648 13.2% 26,292 5,040 19.2%
TTI CARS 133,982 142,654 (8,672) 6.1% 162,747 (28,765) 17.7%
VALET % 23.4% 19.4% 16.1%
<CAPTION>
YEAR-TO-DATE PRIOR YEAR-TO-DATE
ACT vs PLAN
VAR VAR VAR VAR
ACTUAL PLAN $ % ACTUAL $ %
<S> <C> <C> <C> <C> <C> <C> <C>
CASH
DROP $ 812,048,385 $ 761,222,000 $ 50,826,385 6.68% $ 790,453,033 $ 21,595,352 2.7%
CREDIT
DROP $ 249,831,287 $ 297,865,000 ($48,033,713) -16.1% $ 277,141,988 ($27,310,701) 9.9%
TOTAL
DROP $1,061,879,672 $1,059,087,000 $ 2,792,672 0.3% $1,067,595,021 ($5,715,349) 0.5%
WIN $ 180,945,321 $ 167,291,900 $ 13,653,421 8.2% $ 169,112,175 $ 11,833,146 7.0%
HOLD% 17.0% 15.8% 15.8%
HANDLE $2,857,910,382 $2,487,140,900 $370,769,482 14.9% $2,510,071,469 $347,838,913 13.9%
NET WIN $ 260,284,082 $ 248,039,007 $ 12,245,075 4.9% $ 244,922,266 $ 15,361,816 6.3%
HOLD% 9.1% 10.0% 9.8%
RMS
AVAIL 426,250 457,500 (1,250) -0.3% 457,500 (1,250) 0.3%
SOLD 421,268 407,900 13,368 3.3% 417,240 4,028 1.0%
OCCUP % 92.3% 89.2% 91.2%
ADR
(NET) $96.57 $98.84 ($2.27) -2.3% $98.32 ($1.75) 1.8%
FD
COVERS 3,843,855 4,391,435 (547,580) -12.5% 4,289,039 (445,184) 10.4%
AVG CK $10.82 $10.42 $0.40 3.9% $10.60 $0.22 2.1%
LINE BUS
PX 574,034 885,850 (311,816) -35.2% 790,253 (216,219) -27.4%
CHART
BUS PX 235,981 192,500 43,481 22.6% 360,138 (124,157) -31.5%
TOTAL
BUS PX 810,015 1,078,350 (268,335) -24.9% 1,150,391 (340,376) -29.6%
BUS COIN $12,844,938 $14,107,125 ($1,262,187) -8.9% $15,929,904 ($3,084,966) -19.4%
BUS FD
COUP $ 1,191,881 $ 3,293,229 ($2,101,348) -63.8% $ 2,066,988 (875,107) -42.3%
AVG CST/
PAX $17.33 $16.13 $1.20 7.5% $15.64 $1.68 10.8%
ARENA
COVERS 222,692 266,265 (43,573) -16.4% 252,820 (30,128) -11.9%
# OF
SHOWS 125 438 (313) -71.5% 207 (82) -39.6%
SEATS
AVAIL 441,276 383,653 57,623 15.0% 448,385 (7,109) 1.6%
OCCUP % 50.5% 69.4% 56.4%
GARAGE
COUNTS
SELF
PARK 1,620,595 1,639,873 (19,278) -1.2% 1,971,532 (350,937) -17.8%
VALET 391,649 372,808 18,841 5.1% 375,561 16,088 %
TTI CARS 2,012,244 2,012,681 (437) 0.0% 2,317,093 (334,819) %
VALET % 19.5% 18.5% 16.0%
</TABLE>
7
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES
GAMING SUMMARY
OPERATING REVIEW
FOR THE PERIOD ENDEDED DECEMBER 1993
<TABLE>
<CAPTION>
CURRENT YEAR-CURRENT MONTH PRIOR YR-CURRENT MTH
ACTUAL PLAN ACTUAL DESCRIPTION
$ % $ % $ %
<C> <C> <C> <C> <C> <C> <S>
15,032,138 45.5 13,290,607 43.6 11,953,332 43.1 TABLES
1,127,313 3.4 0 .0 0 .0 POKER
100,187 .3 0 .0 0 .0 SIMULCASTING
18,037,015 54.5 17,215,851 56.4 15,760,110 56.9 SLOTS
4,277 .0 0 .0 0 .0 OTHER REVENUE
34,300,930 103.7 30,506,450 100.0 27,713,442 100.0 GAMING REVENUE
5,341,659 16.2 4,615,713 15.1 4,828,921 17.4 SALARIES & WAGES
1,733,199 5.2 1,535,692 5.0 1,532,302 5.5 P/R TAXES & BENEFTS
5,167,337 15.6 4,317,270 14.2 3,948,621 14.2 COMPS
(171,275) (.5) 596,373 2.0 0 .0 PROVISION DOUBTFUL CASINO ACCT
2,772,234 8.4 2,429,665 8.0 2,235,247 8.1 GROSS REVENUE TAXES
150,177 .5 148,777 .5 145,070 .5 CASINO LICENSE FEES
14,993,331 45.3 13,643,490 14.7 12,690,161 45.0 SUBTOTAL
53. .2 63,490 .2 40,767 .1 THE CLUB
449
86,294 .3 37,750 .1 29,997 .1 COST OF GOODS SOLD
1,880,988 5.7 2,246,929 7.4 1,604,106 5.8 FOOD, COIN & OTHER COUPONS
1,011,335 3.1 1,315,000 4.3 1,054,600 3.8 DIRECT MAIL
0 .0 0 .0 102,698 .4 TOURNAMENT PRIZES
(16,333) .0 30,000 .1 0 .0 SLOT PROMOTIONS
424,128 1.3 78,000 .3 89,085 .3 TRUMP LORD
100,300 .3 167,000 .5 0 .0 CONSUMER BUS PROMOTIONS
62,971 .2 64,964 .2 40,423 .1 CASINO OPERATING SUPPLIES
620,012 1.9 259,600 .9 201,005 .7 SPECIAL EVENTS
462,610 1.4 455,700 1.5 355,974 1.3 CHARTER EXPENSE
70,990 .2 47,000 .2 (317,188) (1.1) ADVERTISING COSTS
670 .0 0 .0 0 .0 PUBLIC RELATIONS-DONATIONS
0 .0 0 .0 1,646 .0 COST OF SALES PROMOTIONS BOOTH
0 .0 (1,000) .0 2,323 .0 INTERCOMPANY ALLOCATIONS
386,397 .9 257,982 .0 308,050 1.4 DOCKET FEES/COMMISSIONS
15,474 .0 17,750 .1 9,448 .0 CREDIT BUREAU CHARGES
154,906 .5 70,000 .2 109,679 .4 OUTSIDE LIMOUSINE
10,209 .0 14,725 .0 12,665 .0 CASH
35,798 .1 20,000 .1 18,093 .1 LEGAL EXPENSES
80,063 .2 41,000 .1 25,095 .1 SUPERBUS EXPENSE
8,247 .0 14,704 .0 8,931 .0 UNIFORMS
255,530 .0 247,310 .0 264,081 1.0 ALL OTHER OPEATING EXPENSES
5,640,167 17.1 5,448,813 17.0 4,043,079 14.4 SUBTOTAL
20,633,499 62.4 19,892,311 62.6 16,734,041 60.4 T O T A L E X P E N S E S
13,662,431 41.3 11,414,147 37.4 10,979,401 39.6 G R O S S O P E R I N C
<CAPTION>
YEAR-TO-DATE PRIOR-YEAR-TO-DATE
DESCRIPTION ACTUAL PLAN ACTUAL
$ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
TABLES 173,482,275 40.0 167,291,439 40.3 169,112,124 40.0
POKER 7,519 1.7 0 .0 0 .0
SIMULCASTING 828,259 .2 0 .0 0 .0
SLOTS 260,284,093 60.0 148,038,866 59.7 244,933,258 59.2
OTHER REVENUE 56,599 .0 0 .0 0 .0
GAMING REVENUE 142,120,869 101.9 415,330,305 100.0 414,045,432 100.0
SALARIES & WAGES 70,921,301 14.0 56,401,632 13.6 56,303,468 13.6
P/R TAXES & BENEFTS 19,682,900 4.5 20,356,371 4.9 17,249,039 4.2
COMPS 60,281,082 13.9 59,008,630 14.2 50,420,371 14.1
PROVISION DOUBTFUL CASINO ACCT 3,469,150 .0 7,506,667 1.8 6,040,870 1.5
GROSS REVENUE TAXES 35,369,527 0.2 33,153,267 8.0 32,953,750 9.0
CASINO LICENSE FEES 1,910,486 .4 1,771,433 .4 1,618,209 .4
SUBTOTAL 101,6?5,246 41.9 178,198,000 42.9 172,666,500 41.7
THE CLUB 470,715 .1 833,276 .2 697,840 .2
COST OF GOODS SOLD 618,993 .1 505,600 .1 134,542 .0
FOOD, COIN & OTHER COUPONS 26,842,471 6.2 27,495,060 6.6 20,098,879 6.0
DIRECT MAIL 13,928,881 3.2 18,477,350 4.4 16,918,222 4.1
TOURNAMENT PRIZES 382,934 .1 150,000 .0 1,625,051 .1
SLOT PROMOTIONS 102,092 .0 360,000 .1 102,425 .0
TRUMP LORD 688,340 .2 1,077,000 .3 851,520 .2
CONSUMER BUS PROMOTIONS 1,184,475 .3 2,182,000 .5 45,312 .2
CASINO OPERATING SUPPLIES 471,366 .2 830,705 .2 557,116 .1
SPECIAL EVENTS 3,167,233 .2 4,639,471 1.1 2,097,540 .5
CHARTER EXPENSE 5,000,063 1.2 5,528,400 1.3 4,586,336 1.1
ADVERTISING COSTS 592,913 .1 626,800 .2 1,648,496 .1
PUBLIC RELATIONS-DONATIONS 670 .0 0 .0 5,000 .0
COST OF SALES PROMOTIONS BOOTH 1,667 .0 0 .0 96,693 .0
INTERCOMPANY ALLOCATIONS 0 .0 (12,000) .0 (9,885) .0
DOCKET FEES/COMMISSIONS 4,521,281 1.0 3,461,470 .0 3,445,034 .0
CREDIT BUREAU CHARGES 195,787 .0 220,000 .1 101,053 .3
OUTSIDE LIMOUSINE 1,471,768 .3 900,000 .2 1,878,554 .1
CASH 305 .0 155,880 .0 271,010 .1
LEGAL EXPENSES 245,976 .1 240,000 .1 201,593 .0
SUPERBUS EXPENSE 7 ,945 .2 342,000 .1 201,593 .0
UNIFORMS 1 ,488 .0 176,427 .4 112,705 .0
ALL OTHER OPEATING EXPENSES 4,5 ,370 1.0 2,947,860 .7 4,900,016 1.2
SUBTOTAL 65,8 ,041 15.2 71,137,227 17.1 67,972,397 16.4
T O T A L E X P E N S E S 247,475,287 57.1 219,335,227 60.4 248,638,985 58.1
G R O S S O P E R I N C 94,625,582 44.9 165,995,670 40.0 173,406,527 41.9
</TABLE>
8
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES
TABLE SUMMARY OPERATING REVIEW FOR THE PERIOD ENDED DECEMBER 1993
<TABLE>
<CAPTION>
PRIOR YEAR--
CURRENT YEAR--CURRENT MONTH CURRENT MONTH
--------------------------- ------------- ------------------------------
ACTUAL PLAN ACTUAL DESCRIPTION
------ ---- -------------- ------------------------------
$ % $ % $ %
<C> <C> <C> <C> <C> <C> <S>
15,032,138 100.0 13,298,607 100.0 11,953,332 100.0 Tables
1,127,313 7.5 0 0 0 0 Poker
100,187 .7 0 0 0 0 Simulcasting
4,277 0 0 0 0 0 Other Revenue
- ---------- ----- ---------- ----- ---------- -----
16,263,915 108.2 13,290,607 100.0 11,953,332 100.0 Total Gaming Revenue
- ---------- ----- ---------- ----- ---------- -----
3,599,054 23.7 3,065,653 23.1 3,234,913 27.1 Salaries and Wages
1,269,795 0.4 1,068,857 8.0 1,098,362 9.2 Taxes and Benefits
- ---------- ----- ---------- ----- ---------- -----
4,829,649 32.1 4,134,509 31.1 4,333,275 36.3 Total Payroll and Benefits
- ---------- ----- ---------- ----- ---------- -----
1,072,479 7.1 1,231,702 9.3 969,138 8.1 Room Comps
896,616 6.0 802,019 6.0 807,096 7.4 Food Comps
678,724 4.5 591,398 4.5 558,585 4.7 Beverage Comps
56,146 0.4 35,000 0.3 1,556 0 Coupons
93,292 0.6 90,672 0.7 104,040 0 Other Comps
- ---------- ----- ---------- ----- ---------- -----
2,797,257 18.6 2,750,790 20.7 2,520,415 21.1 Total Promotional Allowances
- ---------- ----- ---------- ----- ---------- -----
104,712 0.7 58,600 0.4 89,622 0.8 Outside Entertainment
110,680 0.7 0 0 0 0 Cash Comps
2,000 0 9,900 0.1 21,080 0.2 Gifts
85,404 0.6 105,430 0 101,384 0 Tips, Photo and Other
0 0 0 0 0 0 Travel Reimbursements
280,669 1.9 170,113 1.3 202,560 1.7 Outside Limo
80,394 0.6 263,000 2.0 222,808 1.9 Cage Payouts
162,490 1.1 0 0 0 0 Table Coupons
834,348 5.6 607,043 4.6 637,455 5.3 Total Promotional Expenses
- ---------- ----- ---------- ----- ---------- -----
10,538 0.1 12,500 0.1 12,100 0.1 Employee Licenses
1,306,932 8.7 1,015,539 7.6 956,267 8.0 Gross Revenue Tax
4,622 0 0 0 652 0 Other Licenses & Fees
1,332,092 8.8 1,028,039 7.7 969,018 0.1 Total Licenses, Fees and Taxes
- ---------- ----- ---------- ----- ---------- -----
53,205 0.4 57,600 0.4 39,021 0.3 Maharajah Club
2,136 0 0 0 0 0 Cost of Goods Sold
53,398 0.4 50,909 0.4 40,423 0.3 Table Operating Supplies
(171,275) (1.1) 596,373 4.5 0 0 Provision for Doubtful Debt
0 0 0 0 0 0 Collateral
10,765 0.1 2,350 0 5,039 0 Postage Expense
3,632 0 1,600 0 13,985 0.1 Advertising
315,159 2.1 137,600 1.0 179,309 1.5 Promotions and Special Events
214,643 1.6 262,600 2.0 235,203 2.0 Charter Expense
17,760 0.1 0 0 12,500 0.1 Consulting Expense
- ---------- ----- ---------- ----- ---------- -----
58,145 0.4 34,265 0.3 27,161 0.2 Supplies Expense
5,779 0 21,380 0.2 3,261 0 ????? Expense
42,992 0.3 41,127 0.3 45,820 0.4 Telephone and Telegraph
8,297 0.1 12,112 0.1 5,935 0.1 Uniforms
42,996 0.3 2,780 0 24,782 0.2 Other Expenses
954,239 6.3 1,424,876 10.7 921,244 7.7 Total Other Expenses
- ---------- ----- ---------- ----- ---------- -----
10,737,504 71.4 9,945,257 74.8 9,381,406 78.5 Total Expenses
- ---------- ----- ---------- ----- ---------- -----
5,526,331 36.8 3,345,351 25.2 2,571,926 21.5 Gross Operating Income
</TABLE>
<TABLE>
<CAPTION>
YEAR-TO-DATE PRIOR-YEAR-TO-DATE
- ------------------------------ ----------------- ------------------ ------------------
DESCRIPTION ACTUAL PLAN ACTUAL
- ------------------------------ ----------------- ------------------ ------------------
$ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
Tables 173,432,274 100.0 167,291,439 100.0 169,112,174 100.0
Poker 7,519,644 4.3 0 0 0 0
Simulcasting 828,259 0.5 0 0 0 0
Other Revenue 56,599 0 0 0 0 0
----------- ----- ----------- ----- ------------ ------
Total Gaming Revenue 181,834,776 104.0 167,291,439 100.0 169,112,174 100.0
----------- ----- ----------- ----- ------------ ------
Salaries and Wages 40,818,548 23.5 37,603,295 22.5 38,183,959 22.6
Taxes and Benefits 14,191,548 8.2 14,285,865 8.5 12,485,278 7.4
----------- ----- ----------- ----- ------------ ------
Total Payroll and Benefits 55,002,096 31.7 51,889,160 31.0 50,669,238 30.0
----------- ----- ----------- ----- ------------ ------
Room Comps 14,907,118 8.6 16,385,256 9.8 15,171,533 9.0
Food Comps 11,916,099 6.9 12,989,640 7.8 11,595,601 6.9
Beverage Comps 8,181,442 4.7 8,356,868 5.0 7,520,720 4.4
Coupons 325,471 0.2 350,000 0.2 448,439 0.3
Other Comps 1,217,653 0.7 1,055,083 0.8 1,508,205 0.9
----------- ----- ----------- ----- ------------ ------
Total Promotional Allowances 36,547,783 21.1 39,136,847 23.4 36,324,499 21.5
----------- ----- ----------- ----- ------------ ------
Outside Entertainment 484,405 0.3 457,200 0.3 510,844 0.3
Cash Comps 673,161 0.4 0 0 0 0
Gifts 100,331 0.1 158,800 0.1 99,313 0.1
Tips, Photo and Other 1,395,189 0.8 1,273,000 0.8 0 0
Travel Reimbursements 0 0 0 0 90 0
Outside Limo 2,708,546 1.6 2,128,860 1.3 2,339,278 1.4
Cage Payouts 2,617,658 1.5 3,313,000 2.0 3,167,182 1.9
Table Coupons 162,490 0.1 0 0 0 0
Total Promotional Expenses 8,214,781 4.2 7,330,868 4.4 7,266,851 4.3
----------- ----- ----------- ----- ------------ ------
Employee Licenses 245,506 0.1 160,366 0.1 139,374 0.1
Gross Revenue Tax 14,211,627 0.2 12,782,783 7.6 13,047,081 7.7
Other Licenses & Fees 23,290 0 3,100 0 4,297 0
Total Licenses, Fees and Taxes 14,483,424 0.4 2,946,249 7.7 13,190,253 7.0
----------- ----- ----------- ----- ------------ ------
Maharajah Club 465,968 0.3 753,800 0.5 685,911 0.4
Cost of Goods Sold 47,135 0 0 0 0 0
Table Operating Supplies 555,593 0.3 628,507 0.4 557,116 0.3
Provision for Doubtful Debt 3,469,150 2.0 7,506,667 4.5 6,040,870 3.6
Collateral 0 0 0 0 0 0
Postage Expense 99,956 0.1 27,196 0 78,895 0
Advertising 47,572 0 24,700 0 89,879 0.1
Promotions and Special Events 2,028,383 1.2 2,593,686 1.6 1,402,218 0.8
Charter Expense 2,791,026 1.6 3,211,200 1.9 2,825,510 1.7
Consulting Expense 131,741 0.1 50,000 0 340,362 0
----------- ----- ----------- ----- ------------ ------
Supplies Expense 60,053 0.3 417,723 0.3 460,937 0
T&E Expense 411,312 0.2 261,545 0.2 367,923 0
Telephone and Telegraph 521,754 0.3 498,118 0.3 552,356 0
Uniforms 119,212 0.1 4,145,315 0.1 82,210 0
Other Expenses 807,119 0.5 (175,414) (0.1) (164,715) (0.1)
Total Other Expenses 15,750,028 9.1 18,582,873 11.1 15,927,350 9.1
----------- ----- ----------- ----- ------------ ------
Total Expenses 129,998,111 75.0 129,885,996 77.6 13,378,891 73.0
----------- ----- ----------- ----- ------------ ------
Gross Operating Income 51,088,665 29.9 37,405,443 22.4 45,733,483 27.0
</TABLE>
9
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES
GAMING SUMMARY FOR TAJ MAHAL
FOR DECEMBER 1993
<TABLE>
<CAPTION>
Current Period Description Year-To-Date
Current Year Prior Year % Change Current Year Prior Year % Change
<S> <C> <C> <C> <C> <C> <C>
Blackjack
37,823,848 34,446,071 9.8 Drop 476,505,689 489,221,509 (2.6)
5,855,709 5,900,895 (.8) Win 71,857,756 71,877,039 .0
15,400 17,100 Hold% 15,000 14,600
102 98 # of Tables 1,251 1,144
57,409 60,213 Win/Unit 57,440 62,830
Craps
24,172,080 19,612,026 23.3 Drop 268,210,830 281,979,246 (4.9)
3,624,119 2,892,904 25.3 Win 37,739,522 42,599,813 (11.4)
14,900 14,700 Hold% 14,000 15,100
17 22 # of Tables 232 309
213,183 131,496 Win/Unit 162,670 137,063
Roulette
6,130,959 5,132,867 19.4 Drop 79,755,951 75,418,847 5.8
1,591,066 1,280,245 24.3 Win 19,503,030 18,683,402 4.4
25,900 24,900 Hold% 24,100 24,700
21 18 # of Tables 213 245
75,765 71,125 Win/Unit 91,564 76,259
Big Six
499,126 387,493 28.8 Drop 6,639,117 7,169,497 (7.4)
242,812 199,027 22.0 Win 3,185,566 3,409,116 (6.6)
48,600 51,300 Hold% 47,900 47,500
4 6 # of Tables 57 72
60,703 33,171 Win/Unit 55,887 47,349
All Other
3,339,249 2,262,890 47.6 Drop 31,334,191 18,422,305 70.1
709,526 473,428 49.9 Win 7,284,370 4,731,361 54.0
21,200 20,900 Hold% 23,200 25,600
10 7 # of Tables 90 65
70,953 67,633 Win/Unit 74,330 72,790
Poker
0 0 .0 Drop 0 0 .0
1,127,513 0 .0 Win 7,513,044 0 .0
.000 .000 Hold% .000 .000
58 0 # of Tables 347 0
19,440 0 Win/Unit 21,651 0
Baccarat
12,650,893 13,939,225 (9.2) Drop 161,103,742 163,138,494 (1.2)
2,386,656 859,645 177.6 Win 27,523,825 23,342,404 17.9
18,800 6,100 Hold% 17,000 14,300
4 5 # of Tables 55 52
596,664 171,929 Win/Unit 500,433 448,894
Minibaccarat
3,065,289 2,827,683 8.4 Drop 38,492,837 32,245,043 19.4
622,250 347,188 79.2 Win 6,330,208 4,468,960 41.8
20,200 12,200 Hold% 16,400 13,000
5 2 # of Tables 45 24
124,450 173,594 Win/Unit 140,849 186,207
Total
87,609,444 70,600,255 11.6 Drop 1,062,042,357 1,067,595,021 (.5)
16,159,651 11,953,332 35.2 Win 180,945,321 169,112,175 7.0
18,400 15,200 Hold% 17,000 15,800
221 158 # of Tables 2,290 1,911
73,121 75,654 Win/Unit 78,740 88,494
</TABLE>
REPORT NUMBER TABLE
RUM DATE 01/13/94
10
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES
SLOT SUMMARY
OPERATING REVIEW
FOR THE PERIOD ENDED DECEMBER 1993
<TABLE>
<CAPTION>
Current Year-Current Month Prior Yr-Current Mth
Actual Plan Actual Description
$ % $ % $ %
<C> <C> <C> <C> <C> <C> <S>
18,375,878 100.0 17,676,580 100.0 15,967,800 100.0 Gross Slot Win
338,862 1.8 460,729 2.6 207,690 1.3 Multi Link/
Progressive Adj
18,037,015 98.2 17,215,851 97.4 15,760,110 98.7 Net Slot Win
1,727,354 9.4 1,525,636 8.6 1,539,828 9.6 Salaries and Wages
517,854 2.8 491,261 2.8 488,121 3.1 Taxes and
Benefits
2,245,209 12.2 2,016,896 11.4 2,027,949 12.7 Total Payroll and Benefits
490,056 2.7 466,142 2.6 366,159 2.3 Room Comps
659,775 3.6 362,107 2.0 285,419 1.8 Food Comps
85,015 .5 36,835 .2 47,454 .3 Beverage Comps
36,390 .2 598,725 3.4 251,838 1.6 Coupons
180,634 1.0 45,494 .3 51,137 .3 Other Comps
1,467,870 8.0 1,509,302 8.5 1,002,008 6.3 Total Promotional Allowances
2,871,553 15.6 2,963,204 16.8 2,409,614 15.1 Coin Expense
13,226 .1 7,500 .0 7,617 .0 Outside Entertainment
6,711 .0 850 .0 4,060 .0 Gifts
73,392 .4 40,510 .2 26,769 .2 Tips, Photo and Other
0 .0 0 .0 0 .0 Travel Reimbursements
3,303 .0 0 .0 0 .0 Cage Payouts
2,960,105 16.2 3,012,072 17.0 2,448,060 15.3 Total Promotional Expenses
3,038 .0 3,583 .0 10,200 .1 Employee Licenses
131,583 .7 132,694 .8 121,917 .8 Slot Machine License Fees
1,465,302 8.0 1,414,126 8.0 1,278,981 8.0 Gross Revenue Tax
332 .0 0 .0 202 .0 Other Licenses & Fees
1,600,255 0.7 1,550,403 8.0 1,411,299 8.8 Total Licenses, Fees and Taxes
93,253 .5 43,065 .2 34,578 .2 Presidents Select Club
9,572 .1 14,055 .1 0 .0 Slot Operating Supplies
54,023 .3 0 .0 2,693 .0 Direct Mail Collateral
10,493 .1 44,600 .3 (364,026) (2.3) Direct Mail Production
30,234 .2 100,813 .6 66,349 .1 Postage Expense
427,640 2.3 29,600 .5 30,160 .2 Advertising
83,967 .5 197,000 1.1 112,977 .7 Slot Promotions
312,853 1.7 122,000 .7 100,503 .6 Special Events
220,968 1.2 193,100 1.1 120,771 .8 Charter Expense
100,087 .5 95,741 .5 132,528 .8 Junket Fees/Commissions
9,952 .1 300 .0 0 .0 Consulting
Expense
70,220 .4 49,751 .3 54,984 .3 Supplies Expense
569 .0 233 .0 165 .0 ? Expense
10,614 .1 8,679 .0 5,737 .0 Telephone & Telegraph
0 .0 2,666 .0 2,997 .0 Uniforms
9,920 .1 14,100 .1 9,340 .1 Over/? & Counterfeits
161,693 .9 92,681 .5 153,564 1.0 Other Expenses
1,614,058 8.8 1,058,382 6.0 463,319 2.9 Total Other Expenses
9,895,577 53.9 9,147,055 51.7 7,352,635 46.0 Total Expenses
8,141,438 44.3 8,068,797 45.6 8,407,475 52.7 Gross Operating Income
<CAPTION>
Year-To-Date Prior-Year-To-Date
Actual Plan Actual
$ % $ % $ %
<C> <C> <C> <C> <C> <C> <S>
264,503,555 100.0 254,631,059 100.0 246,947,879 100.0 Gross Slot Win
4,219,462 1.6 6,592,193 2.6 2,814,621 .0 Multi Link/
Progressive Adj
260,281,093 98.4 248,038,866 97.4 244,933,258 99.2 Net Slot Win
19,551,632 7.4 18,396,937 7.2 17,716,619 7.2 Salaries and Wages
6,056,473 2.3 6,471,907 2.5 5,247,151 2.1 Taxes and Benefits
25,602,105 9.7 24,868,844 9.8 22,964,070 9.3 Total Payroll and Benefits
6,825,762 2.6 5,907,808 2.3 7,205,548 2.9 Room Comps
6,029,619 2.3 4,791,521 1.9 4,927,893 2.0 Food Comps
833,792 .3 523,595 .2 1,234,646 .5 Beverage Comps
1,877,873 .7 7,643,?00 3.0 7,990,016 3.2 Coupons
1,017,263 .4 636,411 .3 915,905 .4 Other Comps
16,581,310 6.3 19,502,935 7.7 22,274,809 9.0 Total Promotional Allowances
38,981,368 14.7 38,328,818 15.1 32,082,362 15.0 Coin Expense
90,369 .0 102,000 .0 57,875 .0 Outside Entertainment
95,948 .0 85,200 .0 38,074 .0 Gifts
481,108 .2 494,381 .2 394,317 .2 Tips, Photo and Other
0 .0 0 .0 90 .0 Travel Reimbursements
57,567 .0 0 .0 0 .0 Cage Payouts
39,706,360 15.0 39,010,399 15.3 37,572,723 15.2 Total Promotional Expenses
68,631 .0 57,471 .0 54,585 .0 Employee Licenses
1,568,542 .6 1,550,496 .6 1,419,441 .6 Slot Machine License Fees
21,154,899 8.0 20,370,484 8.0 19,906,669 8.1 Gross Revenue Tax
4,452 .0 0 .0 512 .0 Other Licenses & Fees
22,796,524 8.6 21,978,451 8.6 21,381,207 3.7 Total Licenses, Fees and Taxes
588,867 .2 571,270 .2 168,836 .1 Presidents Select Club
117,774 .0 202,203 .1 0 .0 Slot Operating Supplies
178,579 .1 0 .0 210,201 .1 Direct Mail Collateral
2??,927 .1 582,400 .2 1,097,300 .4 Direct Mail Production
9??,776 .4 1,217,650 .5 1,194,190 .5 Postage Expense
747,845 .3 1,096,?00 .4 359,714 .1 Advertising
1,287,367 .5 2,692,000 1.1 2,392,239 1.0 Slot Promotions
1,516,784 .6 2,045,786 .8 1,007,699 .4 Special Events
2,2??,037 .9 2,312,?00 .9 1,761,326 .? Charter Expense
1,503,855 .6 1,331,735 .5 1,242,222 .5 Junket Fees/Commissions
41,901 .0 3,600 .0 86,399 .0 Consulting Expense
5??,061 .2 642,005 .3 726,328 .3 Supplies Expense
??,253 .0 11,?40 .0 6,732 .0 ? Expense
201,748 .1 104,742 .0 110,168 .0 Telephone & Telegraph
74,767 .0 31,988 .0 30,449 .0 Uniforms
1?8,302 .1 155,150 .1 196,208 .1 Over/? & Counterfeits
2,211,595 .? 1,082,635 .4 2,478,404 1.0 Other Expenses
12,007,539 4.8 14,088,603 5.5 13,068,?05 5.? Total Other Expenses
117,496,838 44.4 119,449,231 46.9 117,260,014 47.5 Total Expenses
142,787,255 54.0 128,589,635 50.5 127,673,044 51.7 Gross Operating Income
</TABLE>
11
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES
SLOT SUMMARY FOR TAJ MAHAL
FOR DECEMBER 1993
<TABLE>
<CAPTION>
Current Period Year-To-Date
Current Year Prior Year % Change Description Current Year Prior Year % Change
<S> <C> <C> <C> <C> <C> <C>
$ .05 Machines
2,611,411 2,867,544 (8.9) Handle 42,053,329 43,216,980 (2.7)
403,907 441,074 (8.4) Win 6,521,980 6,680,454 (2.4)
15.400 15.300 Hold% 15.500 15.400
155 156 # Of Machines 1,871 1,873
2,606 2,827 Win/Unit 3,486 3,567
$ .25 Machines
94,781,170 79,997,404 18.5 Handle 1,351,948,159 1,250,335,495 8.1
9,501,808 8,335,936 14.0 Win 140,650,502 135,781,935 3.6
10.000 10.400 Hold% 10.400 10.800
1,979 1,811 # Of Machines 23,345 105,448
4,801 4,603 Win/Unit 6,025 1,288
$ .50 Machines
19,697,091 19,185,515 2.7 Handle 298,366,329 308,983,643 (3.4)
1,858,942 1,934,503 (3.9) Win 29,364,395 31,539,593 (6.9)
9.400 10.000 Hold% 9.800 10.200
320 312 # Of Machines 3,865 3,707
5,809 6,200 Win/Unit 7,598 8,508
$1.00 Machines
64,056,689 50,592,764 26.6 Handle 841,608,175 875,740,661 24.5
5,028,472 4,178,937 20.3 Win 69,092,424 58,475,081 18.2
7.800 8.200 Hold% 8.200 8.600
618 544 # Of Machines 7,342 6,061
Win/Unit 9,411 9,648
8,137 7,682 $5.00 Machines
24,413,635 16,693,835 46.2 Handle 288,174,140 203,520,965 41.6
1,361,674 940,925 44.7 Win 17,087,?78 13,013,485 31.3
5.500 5.600 Hold% 5.900 6.300
78 79 # Of Machines 927 892
17,457 11,910 Win/Unit 18,133 14,589
$25.00 Machines
1,630,175 1,222,500 34.0 Handle 22,358,150 17,517,225 27.6
163,875 112,525 45.6 Win 1,255,165 982,839 27.7
10.000 9.200 Hold% 5.600 5.600
5 5 # Of Machines 60 60
32,775 22,505 Win/Unit 20,919 16,381
$100.00 Machines
567,900 479,400 18.5 Handle 13,401,800 10,756,500 24.6
57,200 23,900 139.3 Win 531,700 474,500 12.1
10.000 4.900 Hold% 3.900 4.400
3 3 # Of Machines 36 36
19,067 7,967 Win/Unit 14,769 13,181
Total
207,766,071 171,039,042 21.5 Handle 2,857,910,382 2,510,071,469 13.9
18,375,878 15,967,800 15.1 Win 264,503,544 246,947,887 7.1
8.800 9.300 Hold% 9.200 9.800
3,158 2,910 # Of Machines 37,446 118,077
5,819 5,407 Win/Unit 7,064 2,091
</TABLE>
NOTE THAT THE YTD NUMBERS FOR 1990 REFLECT TOTALS AS OF APRIL 2, 1990.
12
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES
FOOD SUMMARY
OPERATING REVIEW
FOR THE PERIOD ENDING DECEMBER 1993
<TABLE>
<CAPTION>
Current Year-Current Month Prior Yr-Current Mth
Actual Plan Actual Description
$ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
1,500,039 43.8 1,378,483 42.4 1,289,176 44.8 Cash Sales
86,005 2.5 633,725 19.5 309,075 10.7 Coupon Sales
1,826,371 53.3 1,204,435 37.0 1,224,961 42.6 Comp Sales
18,097 .5 36,600 1.1 49,473 1.7 Other Revenue
11,743 .3 6,930 .2 7,447 .3 Staff Dining Sales
13,909 .4 5,815 .2 3,283 .1 Allowances
3,428,267 100.0 3,254,366 100.0 2,876,848 100.0 Total Net Food Sales
1,316,656 38.4 1,263,526 38.8 1,149,673 40.8 Cost of Food Sold
1,577,749 46.0 1,441,301 44.3 1,413,444 49.1 Salaries & Wages
584,796 17.1 579,754 17.0 490,854 17.1 Payroll Taxes & Benefits
3,110 .1 3,000 .1 59,656 2.1 Comps
0 .0 27,500 .8 0 .0 Promotions
46,504 1.4 68,750 2.1 68,127 2.1 China/Glass/Silver
10,151 .3 9,825 .3 16,416 .6 Decorations
0 .0 4,350 .1 2,776 .1 Menus
50,199 1.5 59,800 1.0 22,073 .8 Restaurant Supplies
43 .0 6,650 .2 10,240 .4 Uniforms
2,447 .1 8,425 .3 614 .0 Linen
27,195 .8 20,550 .6 59,140 2.1 Laundry
0 .0 0 .0 0 .0 Prep/Ste? Allocations
80,160 2.3 49,725 1.5 88,785 3.1 All Other Expenses
3,699,010 107.9 3,543,156 108.9 3,374,597 117.3 Total Expenses
(270,743) (7.9) (288,290) (8.9) (497,749) (17.3) Gross Operating Income
</TABLE>
<TABLE>
<CAPTION>
Year-To-Date Prior-Year-To-Date
Description Actual Plan Actual
$ % $ % $ %
<C> <C> <C> <C> <C> <C> <C>
Cash Sales 20,501,911 48.2 19,864,533 42.6 28,122,262 43.4
Coupon Sales 2,442,481 5.7 7,993,600 17.1 8,528,078 18.4
Comp Sales 19,197,204 45.1 18,331,434 39.3 17,210,630 37.1
Other Revenue 321,573 .8 439,200 .9 442,311 1.0
Staff Dining Sales 124,902 .3 100,317 .2 102,969 .2
Allowances 65,129 .2 81,300 .2 74,944 .2
Total Net Food Sales 42,521,942 100.0 46,647,784 100.0 46,332,106 100.0
Cost of Food Sold 17,241,777 40.6 18,111,715 38.0 18,320,935 39.5
Salaries & Wages 10,126,570 42.6 17,848,526 38.3 10,678,578 40.3
Payroll Taxes & Benefits 6,712,055 15.8 7,250,089 15.5 6,748,405 14.?
Comps 303,205 .7 36,000 .1 158,361 .3
Promotions 0 .0 330,000 .7 0 .0
China/Glass/Silver 709,579 1.7 879,675 1.9 882,337 1.9
Decorations 98,451 .2 143,900 .3 144,858 .3
Menus 28,958 .1 61,300 .1 44,840 .1
Restaurant Supplies 518,667 1.2 750,615 1.6 283,221 .6
Uniforms 69,081 .2 79,900 .2 77,768 .2
Linen 79,179 .2 110,750 .2 120,056 .3
Laundry 219,758 .6 259,950 .6 301,254 .7
Prep/Ste? Allocations 316 .0 0 .0 0 .0
All Other Expenses 874,336 2.1 631,585 1.4 1,105,122 2.4
Total Expenses 45,01?,933 105.9 46,494,005 99.7 46,865,785 101.2
Gross Operating Income (2,491,991) (5.9) 153,779 .3 (533,??9) (1.2)
</TABLE>
13
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES
FOOD COVERS BY OUTLET
OPERATING REVIEW
FOR THE PERIOD ENDING DECEMBER 1993
<TABLE>
<CAPTION>
CURRENT YEAR-CURRENT MONTH PRIOR YR-CURRENT MONTH
ACTUAL PLAN VARIANCE ACTUAL VARIANCE DESCRIPTION
$ % $ %
<C> <C> <C> <C> <C> <C> <C> <S>
93,845 103,400 (9,555) (9.24) 74,041 19,004 21.10 Sultan's Feast
16,526 32,000 (15,474) (40.36) 14,461 2,065 12.50 New Dehli Deli
0 45,000 (45,000) (100.00) 25,025 (25,025) .00 Rock & Rolls
90,008 92,750 5,258 5.67 87,865 10,143 10.35 Bombay Cafe
200,379 273,150 (64,771) (23.71) 201,392 6,907 3.35 Subtotal Volume
6,208 5,070 1,130 22.45 5,885 323 5.20 Marco Polo
2,855 3,800 (1,025) (26.42) 1,322 1,533 53.70 Sinbad's
4,900 3,500 1,400 40.00 4,380 512 10.45 Dynasty
4,676 4,800 (204) (4.18) 3,806 870 18.61 Safari Steak House
259 1,400 (1,141) (81.50) 1,764 (1,505) (581.03) Scheherazade
18,898 10,730 168 .90 17,165 1,733 9.17 Subtotal Gourmet
27,379 22,150 5,229 23.61 24,832 2,547 9.30 Room Service
22,749 12,000 10,749 89.58 14,875 7,874 34.61 Banquets/Conventions
0 0 0 .00 0 0 .00 Pool Snack Bar
50,128 34,150 15,978 46.79 39,707 10,421 20.79 Subtotal Other
277,405 326,030 (48,625) (14.91) 258,264 19,141 6.90 Total Food Covers
</TABLE>
<TABLE>
<CAPTION>
Year-To-Date Prior-Year-To-Date
DESCRIPTION Actual Plan Variance Actual Variance
$ % $ %
OUTLET
<S> <C> <C> <C> <C> <C> <C> <C>
Sultan's Feast 1,277,156 1,379,100 (101,944) (7.39) 1,327,437 (50,281) 3.79
New Dehli Deli 411,079 476,500 (65,421) (13.73) 510,240 (99,161) 19.13
Rock & Rolls 204,117 629,600 (345,483) (54.87) 499,290 (215,173) 43.10
Bombay Cafe 1,066,109 1,156,375 (90,266) (7.81) 1,191,251 (125,142) 10.?1
Subtotal Volume 3,038,461 3,641,575 (603,114) (16.56) 3,520,218 (409,757) 13.?8
Marco Polo 74,997 76,440 (1,443) (1.89) 82,096 (7,099) 8.?5
Sinbad's 43,969 50,710 (6,741) (13.29) 40,779 (4,810) 9.46
Dynasty 56,203 49,700 6,503 13.09 49,035 7,168 14.?2
Safari Steak House 59,347 68,360 (9,013) (13.19) 66,602 (7,335) 11.00
Scheherazade 22,843 21,800 1,043 4.78 22,676 167 .74
Subtotal Gourmet 257,359 267,010 (9,651) (3.61) 269,268 (11,909) 4.?2
Room Service 306,145 206,800 19,345 6.75 299,081 7,064 2.16
Banquets/Conventions s 238,991 186,500 52,491 28.15 182,931 56,060 30.?5
Pool Snack Bar 2,899 9,550 (6,651) (69.64) 9,541 (6,642) 69.?2
Subtotal Other 548,035 482,850 65,185 13.50 491,553 56,482 11.19
Total Food Covers 3,843,855 4,391,435 (547,580) (12.47) 4,289,039 (445,184) 10.?
</TABLE>
14
<PAGE>
REPORT NUMBER 15225 TRUMP TAJ MAHAL ASSOCIATES
RUN DATE 01/13/94 AVERAGE CHECK BY OUTLET
FOR THE PERIOD ENDED DECEMBER 1993
<TABLE>
<CAPTION>
CURRENT YEAR-CURRENT MONTH PRIOR YEAR-CURRENT MONTH
ACTUAL PLAN VARIANCE ACTUAL VARIANCE DESCRIPTION
$ % $ %
<C> <C> <C> <C> <C> <C> <C> <S>
OUTLET
$ 7.16 $ 6.65 $ .51 7.67 $ 6.89 $ .27 3.92 SULTAN'S FEAST
$ 9.32 $ 8.79 $ .53 6.03 $ 8.63 $ .69 8.00 NEW DEHLI DELI
$ .88 $ 5.25 $ (5.25) (100.00) $ 5.38 $ (5.38) (100.00) ROCK & ROLLS
$ 10.22 $ 9.66 $ .56 5.80 $ 9.79 $ .43 4.39 BOMBAY CAKE
$ 8.77 $ 7.69 $ 1.08 14.04 $ 0.09 $ .68 0.41 SUB AVERAGE VOLUME
$ 33.32 $ 25.79 $ 7.53 29.20 $ 30.27 $ 3.05 10.00 MARCO POLO
$ 31.12 $ 29.29 $ 1.83 6.25 $ 31.02 $ .10 .32 SINBAD'S
$ 37.47 $ 31.75 $ 5.72 10.02 $ 35.55 $ 1.91 5.37 DYNASTY
$ 39.56 $ 35.78 $ 3.79 10.59 $ 36.52 $ 3.04 8.32 SAFARI STEAK HOUSE
$ 65.39 $ 41.25 $ 24.14 50.52 $ 40.45 $ 24.94 61.66 SCHEHERAZADE
$ 36.05 $ 31.39 $ 4.66 14.85 $ 34.11 $ 1.94 5.69 SUB AVERAGE GOURMET
$ 12.31 $ 12.75 $ (.44) (3.45) $ 11.49 $ .82 7.14 ROOM SERVICE
$ 22.78 $ 17.50 $ 5.20 29.71 $ 19.21 $ 3.49 18.17 BANQUETS/CONVENTIONS
$ 17.98 $ 15.48 $ 2.51 16.21 $ 15.42 $ 2.56 16.68 SUB AVERAGE OTHER
$ 12.12 $ 9.76 $ 2.36 24.10 $ 18.79 $ 1.33 12.33 TOTAL AVERAGE CHECK
</TABLE>
<TABLE>
<CAPTION>
YEAR-TO-DATE PRIOR YEAR-TO-DATE
ACTUAL PLAN VARIANCE ACTUAL VARIANCE
$ % $ %
<C> <C> <C> <C> <C> <C> <C>
SULTAN'S FEAST $ 6.94 $ 6.77 $ .17 2.51 $ 6.79 $ .15 2.21
NEW DEHLI DELI $ 9.03 $ 9.58 $ (.47) (4.95) $ 8.96 $ .87 .78
ROCK & ROLLS $ 5.18 $ 5.89 $ (.71) (12.05) $ 5.96 $ (.70) (13.09)
BOMBAY CAKE $ 10.06 $ 18.24 $ (.19) (1.86) $ 18.26 $ (.21) (2.05)
SUB AVERAGE VOLUME $ 8.15 $ 8.98 $ .08 .99 $ 8.16 $ (.81) (.12)
MARCO POLO $ 30.31 $ 28.84 $ 2.27 8.18 $ 28.37 $ 1.94 6.84
SINBAD'S $ 31.16 $ 31.46 $ (.38) (.95) $ 31.88 $ (.73) (2.29)
DYNASTY $ 35.08 $ 32.77 $ 2.31 7.05 $ 33.58 $ 1.59 4.75
SAFARI STEAK HOUSE $ 37.24 $ 36.94 $ .30 .81 $ 38.88 $ (.76) (2.88)
SCHEHERAZADE $ 40.84 $ 42.16 $ (1.32) (3.13) $ 48.93 $ (.89) (.22)
SUB AVERAGE GOURMET $ 34.03 $ 33.88 $ 1.03 3.12 $ 33.38 $ .65 1.95
ROOM SERVICE $ 12.80 $ 13.32 $ (.44) (3.30) $ 13.06 $ (.18) (1.38)
BANQUETS/CONVENTIONS $ 17.14 $ 19.67 $ (2.54) (12.91) $ 28.54 $ (3.48) (16.55)
SUB AVERAGE OTHER $ 15.88 $ 16.47 $ (.60) (4.13) $ 16.46 $ (.67) (4.87)
TOTAL AVERAGE CHECK $ 18.02 $ 18.42 $ .40 3.84 $ 18.68 $ .22 2.88
</TABLE>
<PAGE>
REPORT NUMBER 15300
RUN DATE 01/13/94
TRUMP TAJ MAHAL ASSOCIATES
BEVERAGE SUMMARY
OPERATES REVIEW
FOR THE PERIOD ENDED DECEMBER 1993
<TABLE>
<CAPTION>
CURRENT YEAR-CURRENT MONTH PRIOR YR-CURRENT MTH YEAR-TO-DATE PRIOR-YEAR-TO-DATE
ACTUAL PLAN ACTUAL DESCRIPTION ACTUAL PLAN ACTUAL
$ % $ % $ % $ % $ % $ %
<C> <C> <C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
375,437 30.9 313,476 32.9 362,762 37.9 CASH SALES 4,670,476 34.0 4,351,649 32.5 4,915,728 36.2
7,796 .6 8 .8 394 .8 COUPON SALES 36,335 .2 0 .0 8,506 .1
833,111 60.6 640,185 67.2 595,616 62.2 COMP SALES 9,804,645 65.9 9,060,989 67.6 8,658,684 63.8
8 .8 8 .8 8 .0 OTHER REVENUE 0 .0 0 .0 0 .0
1,855 .1 8 .8 631 .1 STAFF BUILDING SALES 1,345 .0 0 .0 4,182 .0
2,835 .2 942 .1 1,190 .1 ALLOWANCES 19,923 .1 12,252 .1 13,221 .1
1,214,564 100.0 952,639 100.0 958,213 100.0 TOTAL NET BEVERAGE SALES 13,749,079 100.0 13,400,386 100.0 13,565,879 100.0
296,194 24.4 229,409 24.1 242,539 25.3 COST OF BEVERAGE SOLD 3,389,742 24.7 3,215,896 24.0 3,297,332 24.3
323,556 26.6 271,664 28.5 270,482 28.2 SALARIES & WAGES 3,675,109 26.7 3,359,558 25.1 3,473,870 25.6
154,535 12.7 121,627 12.0 113,610 11.9 PAYROLL TAXES & BENEFITS 1,789,972 12.7 1,487,971 11.1 1,535,112 11.3
8 .0 1,875 .1 8 .8 COMPS 0 .0 12,980 .1 10,057 .1
6,962 .6 6,308 .7 7,909 .8 GLASSWARE 69,587 .4 79,700 .6 88,577 .4
24,162 2.0 16,225 1.7 8 .8 RESTAURANT SUPPLIES 259,664 1.9 200,700 1.5 19,642 .1
8 .0 15,001 1.6 8 .8 UNIFORMS 49,815 .4 180,814 1.3 81,010 .4
13,861 1.1 11,175 1.2 24,966 2.6 ALL OTHER EXPENSES 159,890 1.1 134,508 1.0 342,443 2.5
818,476 67.4 672,556 70.6 659,506 63.3 TOTAL EXPENSES 9,378,899 67.0 8,671,241 64.7 8,839,242 65.2
396,894 32.6 280,083 29.4 298,707 31.2 GROSS OPERATING INCOME 4,474,980 32.2 4,729,145 35.3 4,726,637 34.4
</TABLE>
<PAGE>
REPORT NUMBER 15400 TRUMP TAJ MAHAL ASSOCIATES
RUN DATE 01/13/94 LODGING SUMMARY
OPERATING REVIEW
FOR THE PERIOD ENDED DECEMBER 1993
<TABLE>
<CAPTION>
CURRENT YEAR-CURRENT MONTH PRIOR YR-CURRENT MONTH
ACTUAL PLAN ACTUAL DESCRIPTION
$ % $ % $ %
<C> <C> <C> <C> <C> <C> <S>
1,861,641 30.9 736,200 29.5 1,011,415 41.9 CASH REVENUE
1,631,413 59.8 1,768,000 70.5 1,418,872 58.5 COMP REVENUE
(6,332) (.2) 25,000 1.8 37,059 1.6 ALLOWANCES
2,699,386 99.0 2,471,200 99.1 2,304,428 98.0 NET ROOM REVENUE
30,186 1.1 23,000 .9 36,598 1.5 PAY TV RECEPTION
617 .0 1,500 .1 (2,300) (.1) OTHER OPERATING INCOME
1,324 .0 1,800 .1 4,527 .2 ALLOWANCES
29,399 1.1 22,700 .9 29,771 1.2 NET OTHER OPERATING REVENUE
(2,019) (.1) 1,000 .0 (612) .0 VALET REVENUE
0 .0 0 .0 0 .0 ALLOWANCES
(2,019) (.1) 1,000 .0 (612) .0 NET VALUE
2,726,766 100.0 2,494,900 100.0 2,413,588 100.0 TOTAL HOTEL REVENUE
157,665 5.8 125,955 5.0 133,014 5.5 FRONT OFFICE SALARY/WAGES
450,939 16.5 366,376 14.7 365,591 15.1 HOUSEKEEPING SALARIES & WAGES
34,248 1.3 33,290 1.3 29,403 1.2 RESERVATIONS SALARIES & WAGES
642,853 23.6 525,621 21.1 528,007 21.9 TOTAL SALARIES & WAGES
241,806 0.8 218,993 8.0 200,119 0.3 TOTAL PER TAXES & BENEFITS
883,948 32.4 744,614 29.0 228,126 30.2 TOTAL PAYROLL
31,069 1.2 23,000 .9 32,435 1.3 COST OF SALES--PAY T.V.
0 .0 0 .0 0 .0 COST OF OUTLET SERVICES
31,069 1.2 23,000 .9 32,435 1.3 TOTAL COST OF GOODS
1,162 .0 2,000 .1 2,204 .1 COMPS
2 .0 15,000 .6 19,975 .0 COMMISSIONS
0 .0 0 .0 0 .0 BAG DEBT--HOTEL
15,140 .6 11,970 .5 10,772 .4 TELEPHONE
70,586 2.9 64,064 2.6 98,612 4.1 LINEN
152,194 5.6 111,000 4.4 90,763 3.8 LAUNDRY
58,839 2.1 42,320 1.7 43,488 1.0 GUEST SUPPLIES
10,436 .7 12,012 .5 13,098 .5 CLEANING SUPPLIES
3,164 .1 5,976 .2 16,655 .7 EQUIPMENT EXPENSE
0 .0 0 .0 0 .0 PRINTING & STATIONARY
0 .0 0 .0 0 .0 PAPER SUPPLIES
30,722 1.1 25,244 1.0 8,319 .3 SUPPLIES
6,417 .2 1,827 .1 3,256 .1 UNIFORMS
42,137 1.5 39,310 1.6 41,606 1.7 ALL OTHER EXPENSES
1,321,014 40.5 1,098,345 44.0 1,109,313 46.8 TOTAL EXPENSES
1,404,953 51.5 1,396,555 56.0 1,304,275 54.0 GROSS OPERATING INCOME
</TABLE>
<TABLE>
<CAPTION>
YEAR-TO-DATE PRIOR YEAR-TO-DATE
ACTUAL PLAN ACTUAL DESCRIPTION
$ % $ % $ %
<C> <C> <C> <C> <C> <C> <S>
17,088,532 43.5 17,489,800 42.7 17,787,448 42.9 CASH REVENUE
23,070,249 56.1 23,310,500 57.1 23,691,166 57.1 COMP REVENUE
276,872 .7 485,300 1.0 435,818 1.0 ALLOWANCES
48,681,909 99.0 40,315,000 98.8 41,843,596 98.9 NET ROOM REVENUE
423,574 1.0 471,000 1.2 477,289 1.2 PAY TV RECEPTION
23,847 .1 31,000 .1 27,887 .1 OTHER OPERATING INCOME
29,620 .1 25,200 .1 46,546 .1 ALLOWANCES
422,801 1.0 476,800 1.2 457,031 1.1 NET OTHER OPERATING REVENUE
(10,030) .0 12,000 .0 (6,617) .0 VALET REVENUE
0 .0 0 .0 0 .0 ALLOWANCES
(10,030) .0 12,000 .0 (6,617) .0 NET VALUE
41,091,680 100.0 48,803,800 100.0 41,494,010 100.0 TOTAL HOTEL REVENUE
1,658,912 4.0 1,465,632 3.6 1,838,978 4.4 FRONT OFFICE SALARY/WAGES
5,206,238 12.7 4,551,989 11.2 4,623,152 11.1 HOUSEKEEPING SALARIES & WAGES
385,330 .9 404,108 1.0 269,885 .7 RESERVATIONS SALARIES & WAGES
7,250,471 17.6 6,421,729 15.7 6,724,814 16.2 TOTAL SALARIES & WAGES
2,700,703 6.6 2,712,744 6.6 2,429,225 5.9 TOTAL PER TAXES & BENEFITS
9,951,175 24.2 9,134,473 22.4 9,153,239 22.1 TOTAL PAYROLL
401,824 1.0 402,000 1.2 492,511 1.2 COST OF SALES--PAY T.V.
0 .0 0 .0 0 .1 COST OF OUTLET SERVICES
401,824 1.0 482,000 1.2 492,511 1.2 TOTAL COST OF GOODS
21,337 .1 24,000 .1 57,926 .1 COMPS
240,666 .6 108,000 .4 223,233 .5 COMMISSIONS
0 .0 0 .0 0 .0 BAG DEBT--HOTEL
161,389 .4 144,040 .4 134,068 .3 TELEPHONE
1,044,824 2.5 913,696 2.2 880,136 2.1 LINEN
1,585,036 3.7 1,332,000 3.3 1,308,876 3.2 LAUNDRY
659,889 1.6 683,692 1.5 585,483 1.4 GUEST SUPPLIES
158,574 .4 171,310 .4 184,253 .4 CLEANING SUPPLIES
92,663 .2 79,784 .2 99,848 .2 EQUIPMENT EXPENSE
0 .0 0 .0 0 .0 PRINTING & STATIONARY
0 .0 0 .0 0 .0 PAPER SUPPLIES
344,542 .9 322,491 .8 358,191 .9 SUPPLIES
32,488 .1 21,930 .1 14,196 .0 UNIFORMS
471,669 1.1 495,625 1.2 351,126 .8 ALL OTHER EXPENSES
15,158,189 36.9 13,904,969 34.1 13,844,070 33.4 TOTAL EXPENSES
25,934,492 63.1 26,898,931 65.0 27,650,132 66.8 GROSS OPERATING INCOME
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRUMP TAJ MAHAL CASINO* RESORT
13-Jan-94 ROOM OCCUPANCY ANALYSIS
FOR THE MONTH ENDED DECEMBER 1993
ACTUAL PLAN VARIANCE VAR% PRIOR YEAR VARIANCE VAR%
<S> <C> <C> <C> <C> <C> <C> <C>
NET REVENUE $2,699,386 $2,471,200 $ 228,186 9.2% $2,384,429 $314,957 13.2%
ROOMS SOLD 34,202 28,600 5,602 19.6% 28,941 5,261 18.2%
ROOMS AVAILABLE 38,750 38,750 0 0.0% 38,750 0 0.0%
AVERAGE RATE $ 78.92 $ 86.41 ($7.48) -8.7% $ 82.39 ($3.46) -4.2%
OCCUPANCY % 88.3% 73.8% 145 pts 74.7% 13.6 pts
ROOMS SOLD
COMP 14,117 16,000 (1,883) -11.8% 11,243 2,874 25.6%
TRANSIENT 5,634 2,000 3,634 181.7% 6,851 (1,217) -17.8%
CONVENTION 3,178 2,700 478 17.7% 2,552 626 24.5%
TOUR & TRAVEL 3,262 2,900 362 12.5% 2,945 317 10.8%
PACKAGE 1,768 2,000 (232) -11.6% 1,570 198 12.6%
DIRECT MARKETING 6,243 3,000 3,243 108.1% 3,780 2,463 65.2%
----- ----- ----- ----- -----
TOTAL 34,202 28,600 5,602 19.6% 28,941 5,261 18.2%
AVERAGE RATE
COMP $ 115.56 $ 110.00 $ 5.56 5.1% $ 125.49 ($9.93) -7.9%
TRANSIENT 74.81 80.00 (5.19) -6.5% 75.59 (0.78) -1.0%
CONVENTION 71.50 80.00 (8.50) -10.6% 81.71 (10.21) -12.5%
TOUR & TRAVEL 44.00 45.00 (1.00) -2.2% 39.76 4.24 10.7%
PACKAGE 44.76 62.00 (17.24) -27.8% 40.18 4.58 11.4%
DIRECT MARKETING 32.51 35.00 (2.49) -7.1% 27.71 4.79 17.3%
GROSS ADR 79.11 87.26 (8.15) -9.3% 83.69 (4.58) -5.5%
ALL W/FORFEITURE (0.19) (0.85) 0.66 -78.2% (1.30) 1.12 -85.8%
----- ----- ---- ----- ----
NET ADR $ 78.92 $ 86.41 ($7.48) -8.7% $ 82.39 ($3.46) -4.2%
REVENUE
COMP $1,631,413 $1,760,000 ($128,587) -7.3% $1,410,872 $220,541 15.6%
TRANSIENT 421,489 160,000 261,489 163.4% 517,886 (96,397) -18.6%
CONVENTION 227,211 216,000 11,211 5.2% 208,513 18,698 9.0%
TOUR & TRAVEL 143,531 130,500 13,031 10.0% 117,082 26,449 22.6%
PACKAGE 79,135 124,000 (44,865) -36.2% 63,083 16,052 25.4%
DIRECT MARKETING 202,939 105,000 97,939 93.3% 104,757 98,182 93.7%
-------- -------- -------- --------- -------
GROSS REVENUE $2,705,719 $2,495,500 $ 210,219 8.4% $2,422,193 $283,526 11.7%
ALLOWANCES (6,332) (25,000) 18,668 74.7% (37,859) 31,526 -83.3%
FORFEIT/TAX EXEMPT 0 700 (700) -100.0% 95 (95) -100.0%
-------- -------- -------- --------- -------
NET REVENUE $2,699,386 $2,471,200 $ 228,186 9.2% $2,384,429 $314,957 13.2%
========== ========== ========== ========== ========
</TABLE>
<TABLE>
CASINO BLOCK ANALYSIS
<S> <C>
TOTAL ROOMS AVAILABLE 38,750
TOTAL OCCUPIED ROOMS 34,202
CASINO BLOCK 13,802
ROOM COMPS:
CASINO COMPS 12,785
ADMINISTRATIVE COMPS 0
ALL OTHER COMPS 1,332
-----
TOTAL ROOM COMPS 14,117
======
% BLOCK OCCUPIED 92.6%
% BLOCK/TOTAL ROOMS AVAILABLE 35.6%
% BLOCK/TOTAL OCCUPIED ROOMS 40.4%
% BLOCK OCCUPIED/OCCUPIED ROOMS 37.4%
% BLOCK OCCUPIED/ROOMS AVAILABLE 33.0%
</TABLE>
<TABLE>
<CAPTION>
BLOCK % OF
OCCUPIED OCCUP.
RMS % ROOMS
-------------------
<S> <C> <C> <C>
ROOM 6,887 40.1% 19.3%
RLFB 1,428 8.3% 4.0%
RFB 4,424 25.7% 12.4%
RFBI 46 0.3% 0.1%
---------------------------
TOTAL 12,785 74.4% 35.8%
===========================
</TABLE>
18
<PAGE>
13-Jan-94 TRUMP TAJ MAHAL CASINO* RESORT
ROOM OCCUPANCY ANALYSIS
FOR THE YEAR ENDED DECEMBER 1993
<TABLE>
<CAPTION>
ACTUAL PLAN VARIANCE VAR% PRIOR YEAR VARIANCE VAR%
<S> <C> <C> <C> <C> <C> <C> <C>
NET REVENUE $40,681,904 $40,315,000 $ 366,904 0.9% $41,043,599 ($361,694) -0.9%
ROOMS SOLD 421,268 412,150 9,118 2.2% 417,490 3,778 0.9%
ROOMS AVAILABLE 456,250 457,500 (1,250) -0.3% 457,500 (1,250) -0.3%
AVERAGE RATE $ 96.57 $ 97.82 ($1.25) -1.3% $ 98.31 ($1.74) -1.8%
OCCUPANCY % 92.3% 90.1% 2.2 pts 91.3% 1.1 pts
ROOMS SOLD
COMP 177,262 165,000 12,262 7.4% 186,321 (9,059) -4.9%
TRANSIENT 66,889 88,950 (22,061) -24.8% 73,224 (6,335) -8.7%
CONVENTION 47,231 46,900 331 0.7% 50,259 (3,028) -6.0%
TOUR & TRAVEL 65,724 49,400 16,324 -33.0% 54,067 11,657 21.6%
PACKAGE 28,553 36,550 (7,997) -21.9% 31,459 (2,906) -9.2%
DIRECT MARKETING 35,609 25,350 10,259 40.5% 22,160 13,449 60.7%
------ ------ ------ ------ ------
TOTAL 421,268 412,150 9,118 2.2% 417,490 3,778 0.9%
AVERAGE RATE
COMP $ 130.18 $ 141.28 ($11.10) -7.9% $ 127.15 $3.03 2.4%
TRANSIENT 93.67 62.11 31.56 50.8% 98.22 (4.55) -4.6%
CONVENTION 90.95 106.87 (15.92) -14.9% 97.20 (6.25) -6.4%
TOUR & TRAVEL 59.43 62.00 (2.57) -4.1% 53.45 5.98 11.2%
PACKAGE 73.51 68.97 4.55 6.6% 68.91 4.57 6.6%
DIRECT MARKETING 37.28 50.21 (12.93) -25.8% 29.18 8.10 27.8%
GROSS ADR 97.25 98.76 (1.51) -1.5% 99.34 (2.09) -2.1%
ALL W/FORFEITURE (0.68) (0.94) 0.26 -27.8% (1.03) 0.35 -33.9%
----- ----- ---- ----- ----
NET ADR $ 96.57 $ 97.82 ($1.25) -1.3% $ 98.31 ($1.74) -1.8%
REVENUE
COMP 23,075,677 $23,310,500 (234,823) -1.0% $23,691,167 ($615,489) -2.6%
TRANSIENT 6,265,317 5,524,700 740,617 13.4% 7,192,038 (926,721) -12.9%
CONVENTION 4,295,517 5,012,200 (716,683) -14.3% 4,884,984 (589,467) -12.1%
TOUR & TRAVEL 3,906,013 3,062,900 843,113 27.5% 2,890,022 1,015,991 35.2%
PACKAGE 2,098,981 2,520,700 (421,719) -16.7% 2,168,850 (69,869) -3.2%
DIRECT MARKETING 1,327,384 1,272,700 54,684 4.3% 646,585 680,799 105.3%
--------- --------- ------ ------- -------
GROSS REVENUE $40,968,889 $40,703,700 $ 265,189 0.7% $41,473,646 ($504,757) -1.2%
ALLOWANCES (289,537) (405,300) 115,763 28.6% (436,989) 147,451 -33.7%
FORFEITURES 2,552 16,600 (14,048) -84.6% 6,941 (4,389) -63.2%
----------- ----------- --------- ----------- ---------
NET REVENUE $40,681,904 $40,315,000 $ 366,904 0.9% $41,043,599 ($361,694) -0.9%
=========== =========== ========= =========== =========
</TABLE>
<TABLE>
CASINO BLOCK ANALYSIS
<S> <C>
TOTAL ROOMS AVAILABLE 456,250
TOTAL OCCUPIED ROOMS 421,268
CASINO BLOCK 201,492
ROOM COMPS:
CASINO COMPS 164,974
ADMINISTRATIVE COMPS 10,976
OTHER COMPS 1,312
-------
TOTAL ROOM COMPS 177,262
=======
% BLOCK OCCUPIED 81.9%
% BLOCK/TOTAL ROOMS AVAILABLE 44.2%
% BLOCK/TOTAL OCCUPIED ROOMS 47.8%
% BLOCK OCCUPIED/OCCUPIED ROOMS 39.2%
% BLOCK OCCUPIED/ROOMS AVAILABLE 36.2%
</TABLE>
<TABLE>
<CAPTION>
BLOCK % OF
OCCUPIED OCCUP.
RMS % ROOMS
------------------
<S> <C> <C> <C>
ROOM 84,990 90.4% 41.2%
RLFB 19,525 20.8% 9.5%
RFB 59,656 63.4% 28.9%
RFBI 803 0.9% 0.4%
- --------------------------
TOTAL 164,974 175.4% 80.0%
==========================
</TABLE>
19
<PAGE>
Report Number 15670
RUN DATE 01/13/94
TRUMP TAJ MAHAL ASSOCIATES
FACILITY OPERATIONS SUMMARY
FOR THE PERIOD ENDED DECEMBER 1993
<TABLE>
<CAPTION>
CURRENT YEAR-CURRENT MONTH LAST YEAR-CURRENT MONTH
DESCRIPTION
ACTUAL PLAN VAR$ VAR% ACTUAL THIS YR VS LAST YR
<C> <C> <C> <C> <C> <C> <C> <S>
636,501 945,945 309,444 32.7 931,820 295,319 31.7 SALARY & WAGES
341,257 351,945 10,680 3.0 350,010 8,753 2.5 PAYROLL TAXES & BENEFITS
9 400 391 97.8 2,865 2,856 99.7 COMPS
1,135 2,254 1,119 49.7 3,230 2,095 64.9 UNIFORMS
413 3,000 2,587 86.2 0 (413) .0 CONSULTING
641,105 118,994 (522,111) (438.8) 97,673 (543,432) (556.4) SERVICE CONTRACTS
2,904 49,000 46,096 94.1 17,062 14,159 83.0 CLEANING SUPPLIES &
CONTRACTS
1,113 265 (848) (320.1) 751 (362) 48.1 PAPER/GUEST SUPPLIES
1,218 0 (1,218) .0 12,434 11,216 90.2 ELECTRICAL & MECHANICAL
EQUIP.
0 0 0 .0 16,937 16,937 100.0 KITCHEN EQUIPMENT
0 7,650 7,650 100.0 12,700 12,780 100.0 EXTERMINATING
0 0 0 .0 11,055 11,055 100.0 LIGHTING SUPPLIES
0 0 0 .0 25,932 25,932 100.0 BUILDING EQUIPMENT
34,269 14,000 (20,269) (144.8) 10,301 (23,968) (232.7) AIR CONDITIONING &
REFRIGERATION
14,274 13,400 (874) (6.5) 19,451 5,177 26.6 PLUMBING & HEATING
7,644 6,000 (1,644) (27.4) 17,810 10,167 57.1 GROUNDS & LANDSCAPING
0 0 0 .0 0 0 .0 INTERIOR PLANTS CONTRACT
0 6,700 6,700 100.0 439 439 100.0 GLASS/WINDOWS
0 0 0 .0 4,302 4,302 100.0 FLOOR COVERING SUPPLIES
0 0 0 .0 2,510 2,510 100.0 PAINTING & DECORATING
SUPPLIES
276,549 176,056 (100,493) (57.1) 154,820 (121,729) (70.6) ALL OTHER EXPENSES
1,958,391 1,695,609 (262,782) (15.5) 1,692,185 (266,207) (15.7) TOTAL FACILITY & EVS COSTS
662,556 721,100 58,544 8.1 704,759 42,203 6.0 ELECTRIC COSTS
192,881 220,875 27,994 12.7 174,336 (18,544) (10.6) OIL & GAS COSTS
93,520 31,855 (61,665) (193.6) 42,669 (50,851) (119.2) WATER COSTS
78,837 77,385 (1,452) (1.9) 60,254 (18,508) (30.8) WASTE REMOVAL
45,586 42,150 (3,436) (8.2) 40,499 (5,087) (12.6) SEWER COSTS
0 0 0 .0 0 0 .0 TV CABLE SERVICE
1,073,380 1,093,365 19,985 1.8 1,022,518 (50,862) (5.0) TOTAL UTILITY COSTS
3,031,771 2,788,974 (242,797) (8.7) 2,714,702 (317,069) (11.7) TOTAL FACILITY OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION YEAR-TO-DATE PRIOR-YEAR-TO-DATE
ACTUAL PLAN VAR$ VAR% ACTUAL VAR$ VAR%
<C> <C> <C> <C> <C> <C> <C>
SALARY & WAGES 7,556,044 11,083,184 3,527,060 31.8 10,932,424 3,376,380 30.9
PAYROLL TAXES & BENEFITS 3,332,029 4,499,556 1,167,527 25.9 4,181,287 849,177 20.3
COMPS 5,669 7,200 1,531 21.3 22,364 16,695 74.7
UNIFORMS 20,151 27,835 6,884 25.5 28,412 8,261 29.1
CONSULTING 33,694 40,000 6,306 15.8 45,154 11,461 25.4
SERVICE CONTRACTS 5,850,807 1,427,928 (4,422,874) (309.7) 1,228,877 (4,621,925) 376.1
CLEANING SUPPLIES & 275,188 547,752 272,564 49.8 286,103 10,995 9.0
CONTRACTS
PAPER/GUEST SUPPLIES 15,281 3,180 (12,051) (379.0) 12,937 (2,293) 12.7
ELECTRICAL & MECHANICAL 28,649 0 (28,649) .0 179,971 151,928 84.4
EQUIP.
KITCHEN EQUIPMENT 11,425 0 (11,425) .0 327,471 316,845 96.5
EXTERMINATING 37,904 91,800 53,896 58.7 70,380 32,476 46.1
LIGHTING SUPPLIES 6,573 0 (6,573) .0 111,013 104,440 94.1
BUILDING EQUIPMENT 43,284 0 (43,234) .0 193,169 149,935 27.6
AIR CONDITIONING & 171,299 170,000 (1,799) (1.1) 150,404 (21,395) 14.2
REFRIGERATION
PLUMBING & HEATING 197,755 160,800 (36,955) (23.0) 168,171 (29,583) 12.6
GROUNDS & LANDSCAPING 103,850 80,500 (23,330) (29.0) 97,330 (6,500) 6.7
INTERIOR PLANTS CONTRACT 0 0 0 .0 252,279 252,279 180.0
GLASS/WINDOWS 62,675 80,000 17,325 21.7 69,970 7,296 10.4
FLOOR COVERING SUPPLIES ????? 0 (323) .0 11,800 11,537 92.3
PAINTING & DECORATING 500 0 (508) .0 34,430 33,922 99.5
SUPPLIES
ALL OTHER EXPENSES 2,466,939 2,218,822 (248,117) (11.2) 1,790,721 (676,218) ????
TOTAL FACILITY & EVS COSTS 20,220,111 20,437,677 217,263 1.1 20,194,727 (25,687) ???
ELECTRIC COSTS 8,540,197 9,431,200 891,003 9.4 8,651,961 111,764 1.3
OIL & GAS COSTS 1,556,005 1,750,500 202,495 11.5 1,561,279 5,274 ??
WATER COSTS 646,041 562,260 (83,781) (14.9) 565,832 (80,210) 14.2
WASTE REMOVAL 890,227 933,620 43,593 4.6 886,243 (3,984) .5
SEWER COSTS 566,368 505,800 (60,568) (12.0) 498,621 (75,747) 15.4
TV CABLE SERVICE 0 0 0 .0 0 0 .0
TOTAL UTILITY COSTS 12,190,639 13,191,380 992,541 7.5 12,155,996 (42,903) .4
TOTAL FACILITY OPERATIONS 32,119,253 33,629,057 1,209,804 3.6 32,350,663 (68,590) ??
</TABLE>
20
<PAGE>
Report Number 15675
RUN DATE 01/13/94
TRUMP TAJ MAHAL ASSOCIATES
FIXED EXPENSES SUMMARY
FOR THE PERIOD ENDED DECEMBER 1993
<TABLE>
<CAPTION>
CURRENT YEAR-CURRENT MONTH LAST YEAR-CURRENT MONTH
ACTUAL PLAN VAR$ VAR% ACTUAL THIS YR VS LAST YR DESCRIPTION
<C> <C> <C> <C> <C> <C> <C> <S>
800,819 377,479 (423,340) (112.1) 164,021 (636,798) (388.2) INSURANCE EXPENSE
10,850 22,500 11,650 51.8 22,878 12,028 52.6 OFFSITE OFFICE RENT
1,000 0 (1,000) .0 6,000 5,000 83.3 BRANCH OFFICE RENT
0 0 0 .0 0 0 .0 PIPPETT RENT EXPENSE
0 0 0 .0 0 0 .0 TRUMP ORGANIZATION
0 0 0 .0 0 0 .0 RENT EXPENSE-OFFSITE SERVICES
0 0 0 .0 0 0 .0 RENT EXPENSE-GUEST PARKING
60,854 80,000 19,146 23.9 79,004 18,150 23.0 RENT EXPENSE-EMPLOYEE PARKING
1,384,731 1,460,000 75,269 5.2 1,582,168 197,437 12.5 REAL PROPERTY TAX
1,738 3,200 1,462 45.7 3,187 1,448 45.5 REAL PROPERTY TAX - LEASED PROP
2,259,993 1,943,179 (316,814) (16.3) 1,857,258 (402,735) (21.7) TOTAL FIXED EXPENSES
<CAPTION>
YEAR-TO-DATE PRIOR-YEAR-TO-DATE
DESCRIPTION ACTUAL PLAN VAR$ VAR% ACTUAL VAR$ VAR%
<S> <C> <C> <C> <C> <C> <C> <C>
INSURANCE EXPENSE 6,151,558 4,495,175 (1,656,383) (36.8) 4,022,936 (2,128,622) 52.9
OFFSITE OFFICE RENT 117,781 270,000 152,219 56.4 368,199 250,418 68.0
BRANCH OFFICE RENT 31,509 0 (31,509) .0 55,227 23,717 42.9
PIPPETT RENT EXPENSE 0 0 0 .0 0 0 .0
TRUMP ORGANIZATION 0 0 0 .0 0 0 .0
RENT EXPENSE-OFFSITE SERVICES 0 0 0 .0 0 0 .0
RENT EXPENSE-GUEST PARKING 0 0 0 .0 0 0 .0
RENT EXPENSE-EMPLOYEE PARKING 731,751 960,000 228,249 23.8 948,051 216,300 22.8
REAL PROPERTY TAX 17,059,072 17,520,000 460,928 2.6 17,233,418 174,346 1.0
REAL PROPERTY TAX - LEASED PROP 19,110 38,400 18,990 49.5 48,554 29,144 60.0
TOTAL FIXED EXPENSES 24,111,081 23,283,575 (827,506) (3.6) 22,676,305 (1,434,697) 6.3
</TABLE>
21
<PAGE>
Report Number 15400
RUN DATE 01/13/94
TRUMP TAJ MAHAL ASSOCIATES
GENERAL & ADMINISTRATIVE SUMMARY
FOR THE PERIOD ENDED DECEMBER 1993
<TABLE>
<CAPTION>
CURRENT YEAR-CURRENT MONTH LAST YEAR-CURRENT MONTH
ACTUAL PLAN VAR$ VAR% ACTUAL THIS YR VS LAST YR DESCRIPTION
<C> <C> <C> <C> <C> <C> <C> <S>
1,201,961 1,161,013 (40,948) (3.5) 1,111,366 (90,595) (0.2) SALARIES & WAGES
514,530 571,427 56,897 10.0 634,329 119,799 18.9 TAXES & BENEFITS
1,716,491 1,732,440 15,949 .9 1,745,695 29,204 1.7 TOTAL PAYROLL
603,113 129,602 (473,511) (365.4) 186,311 (416,801) (223.7) TOTAL COMPS
0 0 0 .0 0 0 .0 PRINTING & STATIONARY
402 4,400 3,998 90.9 3,932 3,530 39.0 COPYING EXPENSE
73,182 52,518 (20,664) (39.3) 70,707 (2,395) (3.4) SERVICE CONTRACTS
49,439 48,783 (656) (1.3) 50,640 1,201 2.1 SUPPLIES EXPENSE
21,633 21,625 (8) .0 20,284 (1,349) (6.6) TELEPHONE & TELEGRAPH
20,121 10,500 (9,621) (91.6) 25,153 5,032 20.0 POSTAGE EXPENSE
4,059 7,870 3,011 38.3 27,414 22,555 82.3 CONTRACT LABOR
1,739 3,830 2,091 54.6 2,220 481 21.7 TRADE ASSOCIATION
SUBSCRIPTION
26,290 60,000 33,710 56.2 75,401 49,111 65.1 UNIFORMS
19,069 1,466 (17,603) (200.8) 4,917 (14,152) (287.8) EQUIPMENT EXPENSE
4,945 3,022 (1,923) (63.6) 3,846 (1,098) (20.6) EQUIPMENT RENTAL
51,104 36,793 (14,311) (38.9) 38,676 (12,428) (32.1) CONSULTING EXPENSE
190,415 173,000 (17,415) (10.1) 119,824 (70,591) (50.9) LEGAL EXPENSES
3,907 4,150 243 5.9 3,432 (475) (13.0) AUTO EXPENSE
45,000 20,000 (25,000) (125.0) 15,600 (29,400) (180.5) AUDIT FEES
(107) 0 107 .0 (782) (675) (86.3) CASH OVER SHORT
7,303 2,000 (5,303) (265.1) 8,364 1,061 12.7 RECRUITING
0 0 0 .0 0 0 .0 RELOCATION
21,077 20,000 (1,077) (5.4) (2,301) (23,958) (331.6) EMPLOYEE ACTIVITIES
73,922 12,230 (56,692) (329.0) 29,304 (44,118) (118.0) TRAVEL & ENTERTAINMENT
EXPENSE
21,979 24,338 2,359 9.7 21,135 (845) (4.0) MEDICAL STATION CONTRACT
7,809 18,769 10,960 58.4 19,490 11,681 59.0 REPAIR & MAINTENANCE
0 0 0 .0 0 0 .0 LAUNDRY EXPENSE
(643,696) 156,356 800,052 511.7 (438,512) 205,185 46.8 OTHER EXPENSES
390 686,650 686,260 99.9 98,745 98,355 99.6 TOTAL EXPENSES
367,143 379,225 12,082 3.2 22,898 (344,245) ( ,503.4) LICENSES, FEES & TAXES
0 0 0 .0 0 0 .0 PROMOTIONS EXPENSE
5,816 6,250 434 6.9 2,259 (3,559) (157.6) SPECIAL EVENTS EXPENSE
437,496 336,769 (100,727) (29.9) 241,607 (195,889) (01.1) ADVERTISING COST
15,183 9,000 (6,183) (68.7) 52,041 36,858 70.0 PR & PUBLICITY COST
42,544 45,000 2,456 5.5 40,926 (1,618) (4.0) MARKETING FEES & COMMISSIONS
0 0 0 .0 0 0 .0 INTERCOMPANY ALLOCATIONS
0 9,275 9,275 100.0 13,365 13,365 100.0 OTHER
868,183 705,519 (82,664) (10.5) 373,095 (495,083) (132.7) TOTAL OTHER
3,188,176 3,334,211 146,035 4.4 2,403,846 (784,330) (32.6) TOTAL
<CAPTION>
YEAR-TO-DATE PRIOR-YEAR-TO-DATE
DESCRIPTION ACTUAL PLAN VAR$ VAR% ACTUAL VAR$ VAR%
<S> <C> <C> <C> <C> <C> <C> <C>
SALARIES & WAGES 14,109,809 13,003,184 (226,125) (1.6) 13,730,150 (379,158) 2.8
TAXES & BENEFITS 7,692,087 7,202,265 (489,772) (6.8) 6,250,799 (1,441,238) 23.1
TOTAL PAYROLL 21,801,316 21,005,449 (715,897) (3.4) 19,980,949 (1,820,396) 9.1
TOTAL COMPS 4,141,996 1,879,079 (2,262,917) (120.4) 2,363,182 (1,778,894) 75.3
PRINTING & STATIONARY 0 0 0 .0 0 0 .0
COPYING EXPENSE 28,311 53,300 24,909 46.9 40,852 12,541 30.9
SERVICE CONTRACTS 632,400 659,864 27,426 4.2 576,792 (55,647) 9.8
SUPPLIES EXPENSE 596,909 646,777 49,868 7.7 608,438 11,529 1.4
TELEPHONE & TELEGRAPH 237,883 259,500 21,617 8.3 248,632 10,748 4.3
POSTAGE EXPENSE 66,221 126,120 59,899 47.5 153,317 87,896 56.8
CONTRACT LABOR 68,978 94,440 27,362 29.0 213,429 146,351 68.5
TRADE ASSOCIATION 18,589 52,890 34,301 64.9 20,435 1,846 9.0
SUBSCRIPTION
UNIFORMS 464,994 720,000 255,006 35.4 693,395 228,401 32.9
EQUIPMENT EXPENSE 68,978 24,942 (44,636) (176.8) 101,384 32,406 32.6
EQUIPMENT RENTAL 83,600 36,464 (47,036) (129.0) 57,353 (26,147) 45.6
CONSULTING EXPENSE 450,056 420,520 (29,536) (7.0) 432,045 (18,010) 1.2
LEGAL EXPENSES 2,423,918 2,538,500 114,562 4.5 1,948,321 (475,618) 24.4
AUTO EXPENSE 60,291 49,800 (10,991) (22.1) 53,169 (7,621) 14.8
AUDIT FEES 271,000 150,000 (121,000) (80.7) 179,200 (91,800) 51.2
CASH OVER SHORT (23,323) 0 23,323 .0 1,570 24,893 1,585.6
RECRUITING 68,459 62,000 (6,859) (11.1) 58,269 (10,590) 13.1
RELOCATION 8,115 0 (8,716) .0 5,675 (3,091) 55.6
EMPLOYEE ACTIVITIES 204,400 130,750 (74,216) (56.0) 168,477 (36,498) 21.2
TRAVEL & ENTERTAINMENT 146,100 275,556 (170,954) (62.0) 199,970 (246,520) 121.3
EXPENSE
MEDICAL STATION CONTRACT 262,207 292,056 29,849 10.2 260,770 (1,437) .3
REPAIR & MAINTENANCE 161,887 240,976 79,289 32.9 400,522 238,835 59.5
LAUNDRY EXPENSE 18 0 (10) .0 21 3 11.6
OTHER EXPENSES (1,389,821) 1,911,734 3,301,605 172.7 720,333 2,110,155 292.4
TOTAL EXPENSES 5,210,486 8,746,239 3,535,753 40.4 7,142,318 1,931,833 27.6
LICENSES, FEES & TAXES 3,173,883 4,503,177 1,409,524 30.8 3,702,518 528,865 14,9
PROMOTIONS EXPENSE 0 23,750 23,750 100.0 0 0 .0
SPECIAL EVENTS EXPENSE 36,022 67,515 31,430 46.6 36,662 586 1.8
ADVERTISING COST 3,870,405 4,053,828 183,363 4.5 5,575,647 1,705,182 30.8
PR & PUBLICITY COST 109,291 108,000 (1,291) (1.2) 179,125 69,834 39.0
MARKETING FEES & COMMISSIONS 624,702 660,000 35,293 5.3 642,509 17,802 2.5
INTERCOMPANY ALLOCATIONS 0 0 0 .0 0 0 .0
OTHER 40,141 112,650 72,509 64.4 193,709 153,647 44.3
TOTAL OTHER 7,854,335 9,600,920 1,754,505 18.3 18,330,252 2,475,916 24.3
TOTAL 39,008,168 41,319,687 2,311,524 5.6 39,816,622 808,459 2.0
</TABLE>
22
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES
OPERATING REVIEW
MONTHLY LABOR COMPARISON
<TABLE>
<CAPTION>
AVG WKLY
TOTAL
AVG WKLY AVG AVG WKLY AVG WKLY HRS AVG WKLY AVG WKLY AVG WKLY AVERAGE
PAID WKLY REGULAR OVERTIME O.T. & REGULAR OVERTIME TOTAL $'S HOURLY
MONTH WKS EMPLOYEES FTE'S HOURS HOURS REG EARNINGS EARNINGS O.T. & REG. RATE
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
'92 DECEMBER** (5) 5,799 4,727 179,058 10,022 189,080 $1,778,979 $138,195 $1,917,174 $ 10.14
'93 JANUARY* (4) 5,676 4,697 182,241 5,643 187,884 $1,846,114 $ 80,733 $1,926,847 $ 10.26
'93 FEBRUARY (4) 5,757 4,628 181,244 3,853 185,097 $1,887,289 $ 60,491 $1,947,780 $ 10.52
'93 MARCH (4) 5,837 4,734 186,650 4,669 191,319 $1,902,623 $ 72,127 $1,974,750 $ 10.32
'93 APRIL (5) 5,707 4,623 178,001 4,631 182,632 $1,900,531 $ 69,463 $1,969,994 $ 10.79
'93 MAY (4) 5,649 4,666 181,251 5,347 186,598 $1,936,967 $ 83,055 $2,020,022 $ 10.83
'93 JUNE* (4) 5,873 4,831 185,180 8,419 193,599 $1,931,263 $130,835 $2,062,098 $ 10.65
'93 JULY (5) 6,111 4,886 202,427 12,289 214,716 $2,078,698 $171,275 $2,249,973 $ 10.48
'93 AUGUST (4) 6,156 5,292 203,201 8,645 211,846 $2,112,307 $119,242 $2,231,549 $ 10.53
'93 SEPTEMBER* (5) 5,911 4,979 196,425 9,006 206,322 $2,020,242 $130,630 $2,150,872 $ 10.42
'93 OCTOBER (4) 5,795 4,841 188,197 5,618 193,815 $2,025,014 $ 83,556 $2,108,570 $ 10.88
'93 NOVEMBER* (4) 5,775 4,937 187,417 10,537 197,954 $1,986,516 $150,830 $2,137,346 $ 10.80
'93 DECEMBER** (5) 5,787 4,806 128,793 14,220 197,013 $1,911,330 $206,727 $2,118,057 $ 10.75
- -----------------------------------------------------------------------------------------------------------------------------------
Variance - This Month vs (12) 131 5,404 (3,683) 941 75,186 (55,897) 19,289 0.05
Last Month
Variance - '93 vs '92 - 12 (79) (3,735) (4,198) (7,933) (132,351) (68,532) (200,883) (0.61)
Current Month
Favorable/(Unfavorable)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AVG WKLY
GROSS
MONTH WKS REVENUE
================================================
<S> <C> <C> <C>
'92 DECEMBER** (5) $ 8,816,415
'93 JANUARY* (4) $ 9,183,777
'93 FEBRUARY (4) $ 8,620,916
'93 MARCH (4) $ 9,450,668
'93 APRIL (5) $10,574,767
'93 MAY (4) $11,042,163
'93 JUNE* (4) $ 9,715,572
'93 JULY (5) $12,300,049
'93 AUGUST (4) $12,397,894
'93 SEPTEMBER* (5) $11,075,589
'93 OCTOBER (4) $10,540,137
'93 NOVEMBER* (4) $10,554,451
'93 DECEMBER** (5) $10,307,033
- -------------------------------------------------
Variance - This Month vs (247,418)
Last Month 1,490,618
Variance - '93 vs '92 -
Current Month
Favorable/(Unfavorable) ---
- -------------------------------------------------
</TABLE>
* = 1 Holiday
Prepared By: Pam McGroggan
23
<PAGE>
APPENDIX IV
Property Real Estate Tax Assessment
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES
1994 REAL ESTATE ASSESSMENT
<TABLE>
<CAPTION>
ADDRESS BLOCK LOT LAND IMPROVEMENTS 1993 TOTAL LAND IMPROVEMENTS 1994 TOTAL CHANGE
ASSESSED ASSESSED
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BOARDWALK 13 126 49,821,000 260,291,100 310,112,100 49,821,000 260,291,100 310,112,100 0
NW BOARDWALK & VIRGINIA 14 67 61,385,100 160,614,900 222,000,000 61,385,100 160,614,900 222,000,000 0
NO. CAR. & HURON(LEASED) RP017 3.Y 8,886,200 459,100 9,345,300 8,886,200 459,100 9,345,300 0
------------------------------------------------------------------------------------------
TOTAL--ASSOCIATES 120,092,300 421,365,100 541,457,400 120,092,300 421,365,100 541,457,400 0
STREET 13 128.03 4,548,600 31,800 4,580,400 4,548,600 31,800 4,580,400 0
REAR PARKING LOT 13 128.04 7,163,000 50,100 7,213,100 7,163,000 50,100 7,213,100 0
STREET 13 128.06 8,718,000 861,000 9,579,000 8,718,000 861,000 9,579,000 0
1001 BOARDWALK 13 128.07 7,142,200 170,000 7,312,200 7,142,200 170,000 7,312,200 0
1001 BOARDWALK 13 128.08 6,053,200 18,500,000 24,553,200 6,053,200 18,500,000 24,553,200 0
EAST MARYLAND AVE (3.7) 13 129.01 6,787,800 47,500 6,835,300 6,787,800 47,500 6,835,300 0
PACIFIC AVE. 13 129.02 204,000 204,000 204,000 0 204,000 0
LAND LOCKED SERVICE ROAD 13 129.06 2,727,400 19,100 2,746,500 2,727,400 19,100 2,746,500 0
SW PACIFIC & MARYLAND 13 116 4,357,100 215,500 4,572,600 4,357,100 215,500 4,572,600 0
SE VIRGINIA & PACIFIC 13 118.01 14,598,400 14,598,400 14,598,400 0 14,598,400 0
MARYLAND AVE. 13 142 3,554,300 3,554,300 3,554,300 0 3,554,300 0
SW PACIFIC & VIRGINIA 14 65 5,850,000 38,200 5,888,200 5,850,000 38,200 5,888,200 0
SE PENNA & PACIFIC 14 17 1,237,500 112,500 1,350,000 1,237,500 (1) 0 1,237,500 (112,500)
111 S PENNA AVE. 14 18 1,125,000 7,500 1,132,500 1,125,000 7,500 1,132,500 0
SW VIRGINIA & BOARDWALK 14 28 6,000,000 13,990,000 19,990,000 6,000,000 13,990,000 19,990,000 0
113-15 S PENNA AVE. 14 41 1,125,000 7,500 1,132,500 1,125,000 7,500 1,132,500 0
115-17 N VIRGINIA AVE. 119 6 78,800 55,300 134,100 78,800 55,300 134,100 0
116 N MARYLAND AVE. 119 22 43,800 43,800 43,800 0 43,800 0
113 N VIRGINIA AVE. 119 39 42,200 42,200 42,200 0 42,200 0
121 N VIRGINIA AVE. 119 58 24,500 1,300 25,800 24,500 1,300 25,800 0
121-25 N VIRGINIA AVE. 119 68 72,500 3,300 75,800 72,500 3,300 75,800 0
108 WOOTON TERRACE 119 85 56,900 2,000 58,900 56,900 2,000 58,900 0
108 N VIRGINIA AVE. 120 23 49,500 51,200 100,700 49,500 51,200 100,700 0
102 N PRESBYTERIAN AVE. 120 33 26,300 26,300 26,300 0 26,300 0
104-08 N PRESBYTERIAN AVE. 120 44 22,500 51,600 74,100 22,500 51,600 74,100 0
110-16 N. VIRGINIA AVE. 120 58 198,000 153,700 351,700 198,000 153,700 351,700 0
104 N VIRGINIA AVE. 120 65 25,000 25,600 50,600 25,000 25,600 50,600 0
102 N. VIRGINIA AVE. 120 66 25,000 25,600 50,600 25,000 25,600 50,600 0
------------------------------------------------------------------------------------------
TOTAL--REALTY 81,856,500 34,420,300 116,276,800 81,856,500 34,307,800 116,164,300 (112,500)
TOTAL-Atlantic City 201,948,800 455,785,400 657,734,200 201,948,800 455,672,900 657,621,700 (112,500)
</TABLE>
- --------------
(1) Demo of Soc. Sec. Bldg.
<PAGE>
APPENDIX V
Economic Indicators
APPRAISAL GROUP International
<PAGE>
- --------------------------------------------------------------------------------
NATIONAL MORTGAGE COMMITMENT SURVEY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Interest Rates
Conventional Loans Lender Number of 3-5 7-10 More than Amortization Percent Loan-to- Debt Coverage
Less than $5m Sample Commitments Years Years 10 Years Period Constant Value Ratio Ratio
- ------------------ ------ ----------- ----- ----- --------- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multifamily 6 29 8.06 8.58 8.31 15-13 11.13% 71.7% 1.29
Retail 6 8 8.13 8.50 8.43 10-30 10.82% 69.0% 1.38
Office 5 8 8.27 8.59 8.92 10-30 11.08% 70.6% 1.31
Industrial 6 6 8.13 8.48 8.71 10-30 11.17% 74.3% 1.30
</TABLE>
Source: Appraisal Institute Research Department. Figures are derived from a
survey of lenders in various geographic regions conducted during the first
business week of December 1993. Data quoted are averages and do not reflect
conditions in all markets. Readers are encouraged to contact local lenders for
rates and terms applicable in local markets. For further information, contact
the Research Department, (312) 335-4466.
- --------------------------------------------------------------------------------
NATIONAL MARKET INDICATORS: Fourth Quarter 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REGIONAL MALL OFFICE INDUSTRIAL
---------------------------- ---------------------------- ----------------------------
Current Last Current Last Current Last
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Free & Clear
Equity IRR
Range 10.00%-14.00% 10.00%-14.00% 10.00%-15.00% 10.00%-15.00% 11.00%-14.00% 11.00%-14.00%
Average 11.65% 11.65% 12.56% 12.45% 11.95% 11.88%
Change (b.p.) -- 0 -- +11 -- +7
- --------------------------------------------------------------------------------------------------------------
Free & Clear
Equity Cap Rate
Range 6.00%-11.00% 6.00%-11.00% 7.50%-12.00% 7.50%-11.00% 7.25%-12.00% 7.25%-12.00%
Average 7.70% 7.70% 9.77% 9.67% 9.55% 9.56%
Change (b.p.) -- 0 -- +10 -- -1
- --------------------------------------------------------------------------------------------------------------
Residual
Cap Rate
Range 7.00%-11.50% 7.00%-11.50% 8.00%-12.50% 8.00%-12.00% 8.25%-10.50% 8.25%-10.50%
Average 8.34% 8.34% 9.71% 9.58% 9.56% 9.58%
Change (b.p.) -- 0 -- +13 -- -2
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
APARTMENT
----------------------------
Current Last
Qtr. Qtr.
- ------------------------------------------------
<S> <C> <C>
Free & Clear
Equity IRR
Range 10.00%-15.00% 10.00%-15.00%
Average 11.56% 11.43%
Change (b.p.) -- +13
- ------------------------------------------------
Free & Clear
Equity Cap Rate
Range 7.50%-10.00% 7.50%-10.00%
Average 9.04% 9.07%
Change (b.p.) -- -3
- ------------------------------------------------
Residual
Cap Rate
Range 8.00%-10.50% 8.00%-11.00%
Average 9.30% 9.34%
Change (b.p.) -- -4
- ------------------------------------------------
</TABLE>
Definitions
B.p. Free & clear equity cap rate Residual cap rate
Basis points Initial cash-on-cash rate of Overall capitalization
return on the equity investment, rate used in calculation
unencumbered by financing. of residual price at
(all cash overall capitalization conclusion of forecast
rate). period.
Free and clear equity IRR
Internal rate of return on equity, based on
annual end-of-year compounding,
unencumbered by financing (all cash).
Source: Korpacz Real Estate Investor Survey. Personal survey of a cross-section
of major institutional equity real estate market participants conducted in
October 1993 by Peter F. Korpacz & Associates, Inc. For complete information on
Quarterly Survey results, contact Peter F. Korpacz & Associates, Inc.; Route
111, Suite 303; Smithtown, NY 11787-3713. (516) 979-9465.
14
<PAGE>
- --------------------------------------------------------------------------------
ECONOMIC INDICATORS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nov. May Nov. May Nov. Nov.
1993 1993 1992 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Market Rates and Bond Yields--%
- -------------------------------
Reserve Bank Discount Rate.......... 3.00 3.00 3.00 3.50 4.58 7.00
Prime Rate (monthly average)........ 6.00 6.00 6.00 6.50 7.58 10.00
Federal Funds Rate.................. 3.02 3.00 3.09 3.82 4.81 7.81
3-Month Treasury Bills.............. 3.12 2.96 3.14 3.66 4.60 7.07
6-Month Treasury Bills.............. 3.27 3.07 3.35 3.78 4.66 7.04
3-Month Certificates of Deposit..... 3.35 3.10 3.58 3.82 4.94 8.03
LIBOR 3-mo. Rate (as of 12/15/93)*.. 3.31 3.31 3.62 4.00 4.56 7.81
U.S. 5-Yr. Bonds.................... 5.06 5.20 6.04 6.69 6.62 8.02
U.S. 10-Yr. Bonds................... 5.72 6.04 6.87 7.39 7.42 8.39
U.S. 30-Yr. Bonds................... 6.21 6.92 7.61 7.89 7.92 8.54
Municipal Tax Exempts (Aaa)+........ 5.10 5.47 6.08 6.25 6.24 6.75
Municipal Tax Exempts (A)+.......... 5.39 5.76 6.34 6.53 6.43 7.05
Corporate Bonds (Aaa)+.............. 6.93 7.43 8.10 8.28 8.48 9.30
Corporate Bonds (A)+................ 7.29 7.85 8.58 8.81 9.01 9.88
Corporate Bonds (Baa)+.............. 7.66 8.21 8.96 9.13 9.45 10.62
Stock Dividend Yields--%
- ------------------------
(Source: Standard & Poor's)
Common Stocks--500.................. 2.72 2.80 2.98 2.99 3.15 3.91
Other Benchmarks
- ------------------------------------
Industrial Production Index#........ 113.2 110.4 109.7 108.8 107.8 107.5
(Federal Reserve 1987=100)
Unemployment#....................... 6.5% 6.9% 7.3% 7.5% 6.9% 5.9%
Monetary Aggregates, daily avg#
M1, $-Billions.................... 1,125.9 1,067.1 1,019.0 954.3 890.1 822.6
M2, $-Billions.................... 3,548.3 3,505.7 3,507.2 3,469.2 3,408.1 3,318.4
Member Bank Borrowed Reserves
$-Billions........................ 0.089 0.121 0.104 0.155 0.108 0.230
Consumer Price Index................ 145.8 144.2 142.0 139.7 137.8 133.8
<CAPTION>
Per Capita Personal 3rd Qtr. 1st Qtr. 3rd Qtr. 1st Qtr. 3rd Qtr.
Disposable Income++ 1993 1993 1992 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Annual Rate in
Current $s........................ $ 18,254 $ 17,876 $ 17,577 $ 17,245 $ 16,752
Savings as % of D.P.I............... 3.7 3.9 4.9 5.0 4.4
</TABLE>
# Seasonally adjusted
* Source: The Wall Street Journal
+ Source: Moody's Bond Survey
++ Revised figures used when available
15
<PAGE>
1994 HOTEL MARKET FORECAST
As 1993 brought about improvement for the hospitality industry, 1994 is
forecast to show financial gains and increasing hotel values. Hotel investors
struggled through another year of economic recovery, and those that survived the
credit crunch and industry downturn during the past few years will see improved
portfolio yields and growth opportunities.
Participants in our hotel market forecast survey cited interest rates, job
growth, employment/unemployment, and inflation as the most significant issues
affecting the hotel investment market. Other factors the participants noted, in
order of significance, include: productivity; federal, state, and local taxes;
defense cutbacks; federal, state, and local deficits; corporate and personal
debt, and foreign competition.
Nearly 60.0% of the respondents view the next 12 months as a buyer's
market. They expect the buyers to include Asian and European strategic
investors, entrepreneurial (owner-operator) investors, REITs, pension funds, and
equity funds. Sellers will be banks, insurance companies, and other
institutional holders who are seeking to divest to reduce balance-sheet
exposure.
Wall Street is viewed as having a significant role in providing sources of
capital to the hotel investment market. Debt securitization instruments (for
example, public offerings and REMICS), REITs, pension funds, and foreign
investors will be the most active capital sources funding growth. Banks are
virtually out of the picture, and domestic insurance companies are now dealing
with regulatory issues, putting most in a nonlending status.
The most significant factors that will affect hotels positively, as ranked
by the participants, are absorption of existing rooms, lack of new construction,
national economic conditions, credit availability, and operating expense growth.
Factors rated as having the greatest negative impact on the industry are
increases in the minimum wage rate, continued room rate discounting, and
inflation. One of the other factors that should not be overlooked is the need to
reinvest capital into aging properties to maintain or obtain the appropriate
franchise affiliation.
According to Coopers & Lybrand's December 1993 Hospitality Directions,
occupancy rates are forecast to improve to 66.1% in 1994, a 2.2% gain compared
with 1993. Average daily rates, which have shown marginal improvement (1.52%
average growth) over the past two years, are forecast to increase by 2.7% in
1994. The combined effect or RevPAR (revenue per available room) will yield a
6.8% year-end increase over one year ago. This gain will positively affect
bottom-line performance, critical to the industry's building a measurable track
record with many "side-line" investors are anxious to see.
Most participants see the strongest investment opportunities in the full-
service and economy/limited-service segments, whereas the luxury and resort
segments will continue to lag. A composite of the rankings by product type is
shown in Exhibit III.
Exhibit III
Investment Opportunities
LUXURY 3.8
RESORTS 3.8
ECONOMY/LIMITED-SERVICE 2.9
ALL-SUITES 2.8
FULL-SERVICE 2
Scale (1 to 5. 1= best)
Washington, D.C., Atlanta, Charlotte, and Chicago were selected as cities
offering the best overall conditions for hotel investment in 1994.
18
<PAGE>
With the pendulum slowly shifting from what has been a strong buyers'
market to a more balanced playing field, increasing competition among buyers for
quality product is exerting downward pressure on cap rates and yield
expectations. There are exceptions to this, most notably older noninstitutional-
grade hotels and hotels located along the West Coast, south of San Francisco,
where recessionary conditions still prevail.
Survey participants were asked to evaluate seven investment criteria and
the percent change anticipated for 1994. The criteria evaluated were free and
clear equity IRRs, leverage equity IRRs, free and clear equity cap rates,
residual cap rates, average daily rates, occupancy, and operating expenses. In
addition, participants were asked to forecast 1994 price and value trends.
Results are summarized below.
National Full-Service Hotel Market
The majority of the participants surveyed indicated that both free and
clear and leveraged IRRs are generally expected to decline from prior-year
requirements. The rate of change ranges from 0.0% to 5.0%. Free and clear equity
cap rates are also expected to show a decline ranging from 0.0% to 10.0%. One
participant took exception to this, noting that yields may trend upward by as
much as 1.0% to 2.0%. Residual cap rates are also expected to decline as
competition increases for quality earnings-producing assets.
Average daily rates are projected to show a change rate ranging from 1.5%
to 6.0%, with the consensus around 3.0%. By comparison, the WEFA Group (Wharton
Econometrics) is projecting inflation at 2.9% for 1994. All participants expect
occupancy to improve, particularly in light of limited new construction.
Operating expenses are also forecast to increase within a 2.0% to 4.0% range.
Finally, according to the participants surveyed, prices and values are forecast
to increase from 0.0% to 10.0%.
National Economy/Limited-Service Hotel Market
The forecast change in free and clear IRRs is within a range of 200 basis
points up or down. However, the majority of participants indicated a decline
from prior-year requirements. Clearly, there is now more seller resistance to
discount pricing for quality product which would lower going-in yields, but by
how much is yet to be determined. This also holds true for leveraged yields;
however, there could be an ever greater swing in leveraged IRRs depending on the
magnitude of changes in interest rates. This will be closely monitored as we
track trends. Overall, equity and residual cap rates are forecast to show
minimal change, approximately 100 basis points up or down.
Average daily rates are forecast to show a change ranging from 2.0% to
6.0%, with occupancy increasing from 1.5 to 3.0 percentage points. Increases in
operating expenses are forecast in the range of 1.0% to 4.0%, with the mean of
approximately 3.0%. As in the full-service hotel market segment, prices and
values are forecast to increase from 0.0% to 10.0%.
National Luxury Hotel Market
Luxury hotels, which have experienced a significant decline in values and
investor appeal, should begin to see some activity, particularly from off-shore
investors and entrepreneurial funds. Institutional holders of these hotels have
marked down asset values to levels that now make economic sense in some cases.
The majority of participants with assets in this market segment forecast
declining yields. The forecast change ranges from 0 to minus 450 basis points.
Free and clear equity cap rates are expected to show a greater decline than
residual cap rates, indicative of the increasingly competitive investment
climate.
Average daily rates are forecast to show a change rate ranging from 1.5% to
8.0%, with occupancy also increasing at a pace of 1.0 to 4.0 percentage points.
Luxury properties will continue, though, to be hampered by increasing consumer
price sensitivity and the significant capital required to acquire and maintain
them. Operating expenses are forecast to increase at a rate of 3.0% to 4.0%. The
participants anticipate that prices and values will increase in some cases by as
much as 15.0%; however, this will still be well below original project cost.
Portfolio Mix
The participants were asked to share their 1993 hotel portfolio mix and what
they foresee in 1996. The results are shown in Exhibit IV. Although the
percentages are forecast to change slightly by 1996, hotel investors will
continue to prefer full-service and economy/limited service hotels over luxury
hotels and resorts.
Exhibit IV
Hotel Portfolio Mix
[GRAPH APPEARS HERE]
This chart depicts the Hotel Portfolio Mix, highlighting the luxury hotel
percentages. In 1993, there were 26.9% luxury hotels compared to 25.6% in 1996.
19
<PAGE>
HOTEL VALUATION ISSUES
One question appraisers commonly ask is What are typical industry ratios
for base and incentive management fees? If this item is not correctly reflected,
there can be a material over- or understatement of value.
Hotel management has experienced dramatic change over the past six years,
with institutional owners and lenders requiring management to perform more like
joint owners and take on a greater portion of the financial risk. Institutional
owners recognize that a hotel is a management-intensive, going-concern asset,
unlike other forms of real estate.
Management contracts are now being negotiated with bottom-line performance
emphasis and no or low penalty termination provisions. For full-service and
luxury properties, conditions are even more demanding, and management often must
provide performance guarantees and equity contributions.
Is there a typical management fee structure? In an attempt to address this
question, we asked the survey participants to provide data on both base and
incentive fees by hotel market segment. All participants reported that base
management fees are computed as a percentage of gross revenue. The ranges and
averages in base management fees for each hotel market segment are as follows:
<TABLE>
<CAPTION>
Type Range Average
<S> <C> <C>
Full-Service 2.0%-4.0% 3.0%
Economy/Limited-Service 2.0%-5.0% 3.6%
Luxury 1.5%-4.0% 2.5%
</TABLE>
Base fees have declined from historical levels of typically 5.0% of revenue
as increasing emphasis is placed on what are referred to as "incentive fees."
The long-term, high-cost, base management fees of the 1980s simply do not appear
in agreements today. Incentive fees are performance driven and are often, but
not always, computed as a percentage of pretax NOI or percentage of increased
cash flow. For leveraged investments, pretax NOI often includes debt service.
Several of the most common structures for incentive fees are highlighted below:
. x% of NOI after FF&E reserve and minimum return to owner; percent
can range from 10.0% to 20.0%.
. x% over a minimum return to owner.
. x% over pre-takeover annual performance.
. x% of gross operating profit (GOP).
The 1994 Hotel Market Forecast and Hotel Valuation Issues were prepared by
Coopers & Lybrand.
19A
<PAGE>
NATIONAL FULL-SERVICE HOTEL MARKET
The future is becoming increasingly brighter for the full-service hotel
market segment, as evidenced by the recent "good media" and the overall
improvement in market conditions. Our survey participants anticipate that a
continued strengthening of the financial performance of hotels will stimulate
more interest for investment-grade assets. This interest is being fueled in part
by corporate acquisitions with "off-shore dollars" and capital from the domestic
public markets and pension and entrepreneurial funds.
Although only the top 10.0% of investors seem to have what they believe is
sufficient access to capital, the survey participants indicate that
institutional lenders, such as credit companies and life insurance companies,
will likely reenter the hotel investment market in late 1994. As a result, hotel
prices and values will continue to rebound; however, regional disparities will
exist. Hotel values are still depressed in California and little change is
expected this year.
Limited new construction and an increase in room demand from both the
commercial and leisure markets are contributing to the increase in occupancy
rates. With the improvement of occupancy, average daily rates will also grow.
The survey results show a 51-basis-point increase in the average daily rate
change rate to 3.29% (see Table 12). This compares favorably with 1994 inflation
expectations of 2.9%, as projected by the WEFA Group. These increases will
provide greater return to investors.
As reported last quarter, many new buyers continue to enter the market,
closing the gap between bid and asking prices. As this interest continues and
the volume of RTC and institutional REO assets decreases, sellers will hold
performing assets until a buyer meets their price. One respondent mentioned that
"more capital is pursuing hotel product, with some money being rolled over from
successful RTC investments."
The average free and clear equity IRR increased 28 basis points to 15.33%
this quarter. However, when excluding new survey participants, the equity free
and clear IRR decreased 5 basis points.
The average free and clear equity cap rate increased 5 basis points to
11.48% this quarter. However, once again when excluding new survey participants,
the equity free and clear cap rate decreased 20 basis points.
The average residual cap rate decreased 41 basis points to 11.48% from last
quarter's 11.89%. While the overall averages would suggest an upward trend in
return requirements, many respondents have lowered their required yields for
nondistressed product.
Hotel investors often seek some form of debt capital to finance
investments. This quarter leveraged IRRs were surveyed to determine the premium
and/or discount compared with free and clear equity IRRs. For the current
quarter, the respondents reported an average leveraged IRR, assuming 50.0% to
60.0% debt, of 23.25%, a 792-basis-point premium over the average free and clear
equity IRR. With current low interest rates, investors who can access debt
capital can take advantage of the positive spread to boost leveraged equity
returns. This is also enabling them to increase the bid on a property when
competing with all-equity investors.
Common investment criteria cited were positive current cash flow and the
potential for stronger cash flow. Investors continue to emphasize cash-on-cash
returns and direct capitalization when analyzing deals, with continuing emphasis
on exit strategies. Most participants indicate a preference for the Midwest and
South and are less interested in hotels in the Northeast.
Overall, the hotel investment market is becoming more active with new
buyers seeking quality product. Most participants indicate that the first
quarter of 1994 will be a good time to buy. However, as competition increases,
prices and values will respond by increasing.
The National Full-Service Hotel Market report was prepared by Coopers & Lybrand.
20
<PAGE>
TABLE 12
National Full-Service Hotel Market
FIRST QUARTER 1994
<TABLE>
<CAPTION>
KEY INDICATORS CURRENT QUARTER LAST QUARTER YEAR AGO
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Free & Clear Equity IRR
- --------------------------------------------------------------------------------
RANGE 10.00%-20.00% 10.00%-20.00%
AVERAGE 15.33% 15.05%
CHANGE (Basis Points) - +28
- --------------------------------------------------------------------------------
Free & Clear Equity cap Rate
- --------------------------------------------------------------------------------
RANGE 8.00%-15.00% 7.50%-14.00%
AVERAGE 11.48% 11.43%
CHANGE (Basis Points) - +5
- --------------------------------------------------------------------------------
Average Daily Rate Chg.
Rate
- --------------------------------------------------------------------------------
RANGE 1.00%-6.00% 1.00%-5.00%
AVERAGE 3.29% 2.78%
CHANGE (Basis Points) - +51
- --------------------------------------------------------------------------------
Operating Expense Chg. Rate
- --------------------------------------------------------------------------------
RANGE 1.00%-5.00% 2.00%-4.00%
AVERAGE 3.63% 3.44%
CHANGE (Basis Points) - +19
- --------------------------------------------------------------------------------
Residual Cap Rate
- --------------------------------------------------------------------------------
RANGE 10.00%-15.00% 10.00%-15.00%
AVERAGE 11.48% 11.89%
CHANGE (Basis Points) - -41
</TABLE>
/a./ initial rates of change
20A
<PAGE>
KORPACZ
NATIONAL LUXURY HOTEL MARKET
Our survey participants remain less interested in luxury hotels and resorts
than in full-service and economy/limited-service properties. The large
capital requirements, perceived higher risk, and historically longer period
required to realize investment objectives deter many active investor groups
from pursuing this type of product. Many of the participants report that
an increase in investment capital pursuing quality product is exerting
downward pressure on cap rates.
Occupancy for this market segment has improved during the past 12 months,
and further gains are anticipated this year. Average daily rates are also
expected to improve this year, but gains will be limited by corporate and
consumer price sensitivity. For the current quarter, survey participants
anticipate an average initial year change rate of 3.0%, which compares
favorably with the WEFA Group's 1994 inflation projection of 2.9%.
Geographic areas for investments vary; some of the preferred locations include
the Mid-Atlantic and Sunbelt, San Francisco, New York, Chicago, and Atlanta.
Investment interest for luxury product is up, even though there have been
significantly fewer transactions than reported in the other segments.
Investors continue to look for quality assets at discounted prices as much
as 50.0% below original project cost. One participant said, "The next wave
of troubled properties to surface will be the worst of the 1980s deals,"
described as high-priced, long-term management contract deals. Another
participant specifically noted that "the greatest dollar impact will be
felt in the luxury segment as foreign lenders finally work through problems
and sell off bad deals."
The average free and clear equity IRR decreased 157 basis points to
13.93% this quarter (see Table 14). The decline is due to increased
capital competing for a limited supply of quality assets, according to
survey participants. Additionally, there is anticipation of improving
market conditions in selected market areas, thereby reducing perceived
investor risk.
The average free and clear equity cap rate for the current quarter
declined 150 basis points to 10.25%. The average residual cap rate
decreased 70 basis points to 10.00%. It will be interesting to see whether
this is a continuing trend or a new year adjustment in anticipation of
increased competition.
Investors were asked to provide equity return requirements on leveraged
investments, where debt represents 50.0% to 60.0% of the financing. Survey
respondents indicated a leveraged equity IRR of 19.83%, a 590-basis-point
premium over the average free and clear equity IRR.
Overall, investment interest in the luxury hotel market is on the rise although
it lags their interest in the other hotel market segments by a considerable
margin. This segment continues to be the most difficult to measure in terms of
value trends due to a limited number of actual transactions. Investors still
continue to search in strong growth markets for properties that have cash flow
upside through repositioning and better management. One stimulus that can alter
this is how active a role Wall Street takes in marketing these products through
equity and/or debt securitization.
THE NATIONAL LUXURY HOTEL MARKET REPORT
WAS PREPARED BY COOPERS & LYBRAND.
22
<PAGE>
Table 14
National Luxury Hotel Market
FIRST QUARTER 1994
<TABLE>
<CAPTION>
CURRENT LAST YEAR
KEY INDICATORS QUARTER QUARTER AGO
<S> <C> <C> <C>
Free & Clear Equity IRR
RANGE 9.00% - 20.00% 9.00% - 20.00%
AVERAGE 13.93% 15.50%
CHANGE (Basis Points) - -157
Free & Clear Equity Cap Rate
RANGE 8.00% - 13.00% 9.00% - 14.00%
AVERAGE 10.25% 11.75%
CHANGE (Basis Points) - -150
Average Daily Rate Chg. Rate/a/
RANGE 0.00% - 6.00% 0.00% - 5.00%
AVERAGE 3.00% 2.20%
CHANGE (Basis Points) - +80
Operating Expense Chg. Rate/a/
RANGE 1.00% - 5.00% 2.00% - 4.00%
AVERAGE 3.71% 3.20%
CHANGE (Basis Points) - +51
Residual Cap Rate
RANGE 9.00% - 12.00% 9.00% - 12.00%
AVERAGE 10.00% 10.70%
CHANGE (Basis Points) - -70
a. initial rates of change
</TABLE>
<PAGE>
National Full-Service Hotel Market
INVESTOR SURVEY RESPONSES*
First Quarter 1994
*Representative sample; due to space constraints, not all responses are
included.
Source: Personal survey conducted by Coopers & Lybrand during January 1994.
<TABLE>
<CAPTION>
EQUITY
EQUITY CAP
CHANGE RATES RESIDUAL IRRs RATES
-------------------------------------------------------------------------------
Average Daily Operating Cap Year Selling Free & Free &
Rate Expenses Rate Capped Expense Clear Clear
<S> <C> <C> <C> <C> <C> <C> <C>
HOTEL ACQUISITION/MANAGEMENT CO. Forecast 2.0% to 4.0% 3.5% 10.00% 5 2.0% 15.00% 9.00%
Period: 5 to 7 years years 1-2; to to
Prefers East Coast and east of the 4.0% to 5.0% 13.00% 7
Mississippi; preferences include chain- thereafter
affiliated, full-service, and all-suite
hotels with revenues in excess of $5
million. Relies heavily on DCF (IRR),
will use sales comparables if available
for reasonableness, and percent of original
cost; cash-on-cash returns in the first
three years are particularly critical in
attracting capital, with a minimum of 10.0%
return in year 1 required.
HOTEL ACQUISITION/MANAGEMENT CO. Forecast 3.5% 4.0% -- -- -- 10.00% 10.00%
Period: long term years 1-2; to 5.0% to to
Interested in East Coast and Midwest; 3.5% to 4.0% 12.00% 12.00%
preferences include all-suite, extended thereafter
stay, and moderate full-service; primary
emphasis on direct capitalization;
investment outlook promising, with 6 to 8
acquisitions planned within next 24 months.
INVESTMENT ADVISOR Forecast Period: 5 to 7 3.0% to 4.0% 4.0% 10.00% 6 3.0% 13.00% 10.00%
years year 1' to to to to
Prefers West Coast and Southeast U.S. and 3.5% 12.00% 8 14.00% 12.00%
parts of Canada; will invest across all hotel thereafter
products; relies on DCF and direct
capitalization and expects more interest in
hotels, especially from foreign sources
(Asian and European) as the economy improves;
not currently investing in hotels.
PENSION FUND INVESTMENT ADVISOR Forecast 4.0% 4.0% 10.00% 5 Varies 14.00% Varies
Period: 5 to 10 years to to
Investments are in southern half of U.S.; 15.00% 10
preferences include the 40 largest MSAs with high
percentage in the South; relies on DCF, direct
capitalization, GRRM, and sales comparison; sees
modest improvement within the next 12 months;
is looking toward debt investment as opposed to
equity investment.
LIFE INSURANCE COMPANY Forecast 2.0% 4.0% 12.00% 11 5.0% 13.00% 10.00%
Period: 10 years to to to to
Prefers Holiday Inns and Marriott brands; 4.0% 13.00% 18.00% 4.00%
relies on DCF, direct capitalization,
GRRM, and sales comparison; prices continue
to be depressed on troubled properties; pricing
for performing investment-grade properties
becoming stiffer.
</TABLE>
<TABLE>
<CAPTION>
GROSS ROOMS RESERVE FOR
REVENUE MANAGEMENT REPLACEMENT OF MARKETING
MULTIPLIER FEES FIXED ASSETS TIME
----------------------------------------------------------
Percent of
Total
GRRM Base Fee % Revenues Months
<S> <C> <C> <C> <C>
HOTEL ACQUISITION/MANAGEMENT CO. Forecast 1.5 3.0% 3.0% 10
Period: 5 to 7 years to to to
Prefers East Coast and east of the 2.0 4.0% 12
Mississippi; preferences include chain-
affiliated, full-service, and all-suite
hotels with revenues in excess of $5
million. Relies heavily on DCF (IRR),
will use sales comparables if available
for reasonableness, and percent of original
cost; cash-on-cash returns in the first
three years are particularly critical in
attracting capital, with a minimum of 10.0%
return in year 1 required.
HOTEL ACQUISITION/MANAGEMENT CO. Forecast 3.0% 3.0% 4.0% 3
Period: long term to
Interested in East Coast and Midwest; 4.0%
preferences include all-suite, extended
stay, and moderate full-service; primary
emphasis on direct capitalization;
investment outlook promising, with 6 to 8
acquisitions planned within next 24 months.
INVESTMENT ADVISOR Forecast Period: 5 to 7 2.0 2.0% 3.0% --
years to to to
Prefers West Coast and Southeast U.S. and 2.5 3.0% 5.0%
parts of Canada; will invest across all hotel
products; relies on DCF and direct
capitalization and expects more interest in
hotels, especially from foreign sources
(Asian and European) as the economy improves;
not currently investing in hotels.
PENSION FUND INVESTMENT ADVISOR Forecast 1.5 2.0% 3.0% 6
Period: 5 to 10 years to to to to
Investments are in southern half of U.S.; 2.0 3.0% 5.0% 9
preferences include the 40 largest MSAs with
high percentage in the South; relies on DCF,
direct capitalization, GRRM, and sales
comparison; sees modest improvement within the
next 12 months; is looking toward debt investment
as opposed to equity investment.
LIFE INSURANCE COMPANY Forecast -- 3.0% 3.0% --
Period: 10 years to
Prefers Holiday Inns and Marriott brands; 4.0%
relies on DCF, direct capitalization,
GRRM, and sales comparison; prices continue
to be depressed on troubled properties; pricing
for performing investment-grade properties
becoming stiffer.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
EQUITY
EQUITY CAP
CHANGE RATES RESIDUAL IRRs RATES
-------------------------------------------------------------------------------
Average Daily Operating Cap Year Selling Free & Free &
Rate Expenses Rate Capped Expense Clear Clear
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE INSURANCE COMPANY Forecast Period: 1.0% 3.5% 10.00% 10 3.0% 16.00% 12.00%
10 years to to
Investments are throughout the U.S.; 2.0% 20.00%
preferences include top MSAs; relies
primarily on direct capitalization; will use
DCF to extent that reasons exist to do so.
HOTEL ACQUISITION/MANAGEMENT CO. Forecast 3.0% 3.0% 11.00% 5 2.0% 15.00% 13.00%
Period: 5 years to to to to
Interested in eastern U.S.; preferences include 4.0% 4.0% 12.00% 3.0%
upper-end Holiday Inns, Hiltons, Marriotts, and
Embassy Suites; uses DCF, direct capitalization,
and sales comparison; also looks at cash-on-cash
return and exit strategy; values appear to be
increasing.
HOTEL ACQUISITION/MANAGEMENT CO. Forecast 2.0% 3.0% 12.00% 3 3.0% 15.00% 8.00%
Period: 3 to 5 years to to to to to to to
Seeking acquisitions in the Southwest, West 3.0% 4.0% 13.00% 5 4.0% 18.00% 15.00%
Coast, and Pacific Northwest; prefers all-suite
hotels including Embassy Suites, Guest
Quarters, and Radisson Suites; uses primarily
direct capitalization and analyzes exit strategy
and cash-on-cash return; investment outlook is
favorable; is looking to be more active in 1994.
PENSION FUND ADVISOR Forecast Period: 4.0% to 6.0% 2.0% 10.0% 6 3.0% 20.00% 10.50%
5 to 7 years years 1-2; to or to
Prefers major U.S. cities; preferences include 4.0 thereafter 4.0% 8 13.00%
full-service and luxury brands such as
Radisson, Marriott, Hyatt, Westin, and Embassy
Suites; uses direct capitalization and 50% of
construction costs; still a buyer's market, but
cap rates are coming down; greater competition
entering the market.
REAL ESTATE INVESTMENT FIRM Forecast Period: 1.0% 1.0% 12.00% 5 1.0% 11.0% 10.00%
3 to 7 years to to to to to to
Uses a combination of direct capitalization 5.0% 5.0% 7 3.0% 14.00% 12.00%
and sales comparison; seeking cash-on-cash
returns of 11.00% to 14.00%; turnaround
situations emphasized with definitive exit
strategy; purchases hotels below replacement
cost; sees a more competitive but still good
buyers' market.
INVESTMENT ADVISOR Forecast Period: 5 years 3.5% 4.0% 12.00% 6 3.0% 14.00% 11.00%
Prefers Northern California, Atlanta, and years 1-2;
Florida; feels there is good investment 4.5%
activity nationwide; prices are frequently thereafter
exceeding expectations with more capital
pursuing hotels product; anticipated first
increase in prices since 1988.
</TABLE>
<TABLE>
<CAPTION>
GROSS ROOMS RESERVE FOR
REVENUE MANAGEMENT REPLACEMENT OF MARKETING
MULTIPLIER FEES FIXED ASSETS TIME
----------------------------------------------------------
Percent of
Total
GRRM Base Fee % Revenues Months
<S> <C> <C> <C> <C>
LIFE INSURANCE COMPANY Forecast Period: -- 3.0% 7.0% 6
10 years to
Investments are throughout the U.S.; 18
preferences include top MSAs; relies
primarily on direct capitalization; will use
DCF to extent that reasons exist to do so.
HOTEL ACQUISITION/MANAGEMENT CO. Forecast -- 4.0% 3.0% 6
Period: 5 years
Interested in eastern U.S.; preferences include
upper-end Holiday Inns, Hiltons, Marriotts, and
Embassy Suites; uses DCF, direct capitalization,
and sales comparison; also looks at cash-on-cash
return and exit strategy; values appear to be
increasing.
HOTEL ACQUISITION/MANAGEMENT CO. Forecast 2.0 4.0% 2.0% 2
Period: 3 to 5 years to to to
Seeking acquisitions in the Southwest, West 3.0 3.0% 4
Coast, and Pacific Northwest; prefers all-suite
hotels including Embassy Suites, Guest
Quarters, and Radisson Suites; uses primarily
direct capitalization and analyzes exit
strategy and cash-on-cash return; investment
outlook is favorable; is looking to be more
active in 1994.
PENSION FUND ADVISOR Forecast Period: 2.0 2.0% 4.0% 12
5 to 7 years to to
Prefers major U.S. cities; preferences include 2.5 5.0%
full-service and luxury brands such as
Radisson, Marriott, Hyatt, Westin, and Embassy
Suites; uses direct capitalization and 50% of
construction costs; still a buyer's market, but
cap rates are coming down; greater competition
entering the market.
REAL ESTATE INVESTMENT FIRM Forecast Period: -- 2.0% 2.0% 6
3 to 7 years to to to
Uses a combination of direct capitalization 4.0% 4.0% 9
and sales comparison; seeking cash-on-cash
returns of 11.00% to 14.00%; turnaround
situations emphasized with definitive exit
strategy; purchases hotels below replacement
cost; sees a more competitive but still good
buyers' market.
INVESTMENT ADVISOR Forecast Period: 5 years 2.6 2.5% 4.0% 8
Prefers Northern California, Atlanta, and
Florida; feels there is good investment
activity nationwide; prices are frequently
exceeding expectations with more capital
pursuing hotels product; anticipated first
increase in prices since 1988.
</TABLE>
<PAGE>
National Luxury Hotel Market
INVESTOR SURVEY RESPONSES
First Quarter 1994
Source: Personal survey conducted by
Cooper & Lybrand during January 1994.
<TABLE>
<CAPTION>
EQUITY
EQUITY CAP
CHANGE RATES RESIDUAL IRRs RATES
-------------------------------------------------------------------------------
Average Daily Operating Cap Year Selling Free & Free &
Rate Expenses Rate Capped Expense Clear Clear
<S> <C> <C> <C> <C> <C> <C> <C>
HOTEL ACQUISITION/MANAGEMENT CO. Forecast 3.0% 4.0% -- -- -- 9.00% 9.00%
Period: long term to
Investments are in Southeast; interested in 5.0%
East Coast and Midwest; preferences include
all-suite, extended-stay, and moderate full-
service; primary emphasis on direct
capitalization; investment outlook promising
with 6 to 8 acquisitions planned within next
24 months.
INVESTMENT ADVISOR Forecast Period: 5 to 10 1.0% to 3.0% 4.0% 9.00% 6 3.0% 12.00% 10.00%
years years 1-2; to or to to to
Prefers West Coast and Southeast U.S. and parts 3.5% 10.00% 11 14.00% 12.00% 3.0%
of Canada; will invest across all hotel thereafter
products; relies on DCF and direct
capitalization and expects more interest in
hotels, especially from foreign sources (Asian
and European) as the economy improves; not
currently investing in hotels.
PENSION FUND INVESTMENT ADVISOR Forecast 4.0% 4.0% 9.00% 5 Varies 15.00% Varies
Period: 5 to 10 years to to
Investments are in southern half of U.S.; 12.00% 10
preferences include the 40 largest MSAs with
high percentage in the southern area of the
U.S.; relies on DCF, direct capitalization,
GRRM, and sales comparison; sees modest
improvement within the next 12 months.
LIFE INSURANCE COMPANY Forecast Period: 0.0% to 1.0% 3.5% 11.00% 10 3.0% 18.00% 13.00%
10 years years 1-2; to
Investments are throughout the U.S.; 1.0% year 3; 20.00%
preferences include top MSAs; relies primarily 2.0% thereafter
direct capitalization; will use DCF to extent
that reasons exist to do so.
REAL ESTATE INVESTMENT FIRM Forecast Period: 1.0% 1.0% 10.00% 5 1.0% 11.00% 9.00%
5 to 7 years to to to to to to
Investments are in Southwest; no geographic 5.0% 5.0% 7 3.0% 14.00% 12.00%
preferences; investing in full-service hotels,
some with upper-tier pricing; uses a
combination of direct capitalization and sales
comparison; seeking cash-on-cash returns of
11.00% to 14.00%; turnaround situations
emphasized with definitive exit strategy;
purchases hotels below replacement cost; sees a
more competitive but still good buyers' market;
is looking on a national basis for package deals.
PENSION FUND ADVISOR Forecast Period: 5 to 7 4.0% to 6.0% 2.0% 9.00% 6 3.0% 18.00% 9.00%
years years 1-2; to or to
Investments are in Denver, Chicago, Washington, 4.0% 4.0% 8 11.00%
DC, North Carolina, and Arizona; prefers major thereafter
U.S. cities; preferences include full-service
and luxury brands such as Radisson, Marriott,
Hyatt, Westin, and Embassy Suites; uses direct
capitalization and 50.0% of construction costs;
still a buyers' market; sees greater dollar
impact in luxury market.
</TABLE>
<TABLE>
<CAPTION>
GROSS ROOMS RESERVE FOR
REVENUE MANAGEMENT REPLACEMENT OF MARKETING
MULTIPLIER FEES FIXED ASSETS TIME
----------------------------------------------------------
Percent of
Total
GRRM Base Fee % Revenues Months
<S> <C> <C> <C> <C>
HOTEL ACQUISITION/MANAGEMENT CO. Forecast 3.0 3.0% 3.0% 3
Period: long term to
Investments are in Southeast, interested in 4.0%
East Coast and Midwest; preferences include
all-suite, extended-stay, and moderate full-
service; primary emphasis on direct
capitalization; investment outlook promising
with 6 to 8 acquisitions planned within next
24 months.
INVESTMENT ADVISOR Forecast Period: 5 to 10 -- 2.0% 3.0% --
years to to
Prefers West Coast and Southeast U.S. and parts 3.0% 5.0%
of Canada; will invest across all hotel
products; relies on DCF and direct
capitalization and expects more interest in
hotels, especially from foreign sources (Asian
and European) as the economy improves; not
currently investing in hotels.
PENSION FUND INVESTMENT ADVISOR Forecast -- 2.0% 4.0% 6
Period: 5 to 10 years to to to
Investments are in southern half of U.S.; 3.0% 6.0% 9
preferences include the 40 largest MSAs with
high percentage in the southern area of the
U.S.; relies on DCF, direct capitalization,
GRRM, and sales comparison; sees modest
improvement within the next 12 months.
LIFE INSURANCE COMPANY Forecast Period: -- 3.0% 6.0% 6
10 years to
Investments are throughout the U.S.; 18
preferences include top MSAs; relies primarily
direct capitalization; will use DCF to extent
that reasons exist to do so.
REAL ESTATE INVESTMENT FIRM Forecast Period: -- 2.0% 2.0% 9
5 to 7 years to to to
Investments are in Southwest; no geographic 3.0% 4.0% 12
preferences; investing in full-service hotels,
some with upper-tier pricing; uses a
combination of direct capitalization and sales
comparison; seeking cash-on-cash returns of
11.00% to 14.00%; turnaround situations
emphasized with definitive exit strategy;
purchases hotels below replacement cost; sees a
more competitive but still good buyers' market;
is looking on a national basis for package
deals.
PENSION FUND ADVISOR Forecast Period: 5 to 7 2.0 1.5% 4.0% 12
years to to to
Investments are in Denver, Chicago, Washington, 2.5 2.0% 6.0%
DC, North Carolina, and Arizona; prefers major
U.S. cities; preferences include full-service
and luxury brands such as Radisson, Marriott,
Hyatt, Westin, and Embassy Suites; uses direct
capitalization and 50.0% of construction costs;
still a buyers' market; sees greater dollar
impact in luxury market.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY
EQUITY CAP
CHANGE RATES RESIDUAL IRRs RATES
-------------------------------------------------------------------------------
Average Daily Operating Cap Year Selling Free & Free &
Rate Expenses Rate Capped Expense Clear Clear
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT ADVISOR Forecast Period: 5 years 3.5% 4.0% 10.00% 11 2.0% 11.00% 8.00%
Prefers Northern California, Atlanta, and years 1-2;
Florida; feels there is good investment 4.5%
activity nationwide, prices frequently exceed thereafter
expectations with more capital pursuing hotel
product; anticipates first increase in prices
since 1988.
</TABLE>
<TABLE>
<CAPTION>
GROSS ROOMS RESERVE FOR
REVENUE MANAGEMENT REPLACEMENT OF MARKETING
MULTIPLIER FEES FIXED ASSETS TIME
----------------------------------------------------------
Percent of
Total
GRRM Base Fee % Revenues Months
<S> <C> <C> <C> <C>
INVESTMENT ADVISOR Forecast Period: 5 years 4.0 2.0% 4.0% 11
Prefers Northern California, Atlanta, and
Florida; feels there is good investment
activity nationwide, prices frequently exceed
expectations with more capital pursuing hotel
product; anticipates first increase in prices
since 1988.
</TABLE>
<PAGE>
Market Source
Market Source (IISN 1055-5579) is published quarterly by the Appraisal
Institute, 875 N. Michigan Ave., Chicago, IL 60611-1980, (312) 335-4100. Fax:
(312) 335-4400.
President
Douglas C. Brown, MAI
Chair, Research and Information Committee
Ronald E. Malmfeldt, MAI
Vice President, Research
W. Lee Minnerly
Manager, Data Services
Jon D. Ruesch
Managing Editor
Joy M. White
Manager, Design/Production
Julie Beich
Subscriptions: Subscription rates are $100 per year for Appraisal Institute
members and affiliates, $150 per year for all others. Make checks payable to:
Appraisal Institute, 875 N. Michigan Ave., Chicago, IL 60611-1980. Single
copies, if available, are $25 each.
(C) 1994 by the Appraisal Institute. All rights reserved. The opinions and
statements set forth herein do not necessarily reflect the viewpoints of the
Appraisal Institute or its individual members, and neither the Institute nor its
editors and staff assume responsibility for such expressions of opinion or
statement.
The Appraisal Institute advocates equal opportunity and nondiscrimination in the
appraisal profession and conducts its activities without regard to race, color,
sex, religion, national origin, or handicap status.
<PAGE>
<TABLE>
<CAPTION>
KEY RATES
- --------------------------------------------------------------------------------------------
Dec. 1992 Sept. 1993 Oct. 1993 Nov. 1993 Dec. 1993
<S> <C> <C> <C> <C> <C>
Federal Funds 2.92 3.09 2.99 3.02 2.96
U.S. Treasuries:
3-Month 3.25 2.96 3.04 3.12 3.08
6-Month 3.39 3.06 3.13 3.27 3.25
1-Year 3.71 3.36 3.39 3.58 3.61
2-Year 4.67 3.85 3.87 4.16 4.21
3-Year 5.21 4.17 4.18 4.50 4.54
5-Year 6.08 4.73 4.71 5.06 5.15
7-Year 6.46 5.08 5.05 5.45 5.48
10-Year 6.77 5.36 5.33 5.72 5.77
30-Year 7.44 6.00 5.94 6.21 6.25
Prime Rate 6.00 6.00 6.00 6.00 6.00
Moody's Corp. Bonds:
Aaa 7.98 6.66 6.67 6.93 6.93
A 8.27 6.94 6.91 7.25 7.28
Baa 8.81 7.34 7.31 7.66 7.69
</TABLE>
Source: Federal Reserve Statistical Release
KEY RATES TRENDS 1990 to 1993
- --------------------------------------------------------------------------------
[GRAPH]
Sources: Federal Reserve Statistical Release and Appraisal
Institute Research Department
<TABLE>
<CAPTION>
CONSUMER TRENDS
- --------------------------------------------------------------------------------------------
IIIQ 1989 IIIQ 1990 IIIQ 1991 IIIQ 1992 IIIQ 1993
<S> <C> <C> <C> <C> <C>
Consumer Price 125.0 132.7 137.2 141.3 145.1
Index
Per Capita $15,026 $16,242 $16,752 $17,577 $18,254
Disposable
Personal Income
Savings as 4.1 3.9 4.4 4.9 3.7
Percent of DPI
Inflation Rate 3.8 4.7 3.4 2.5 2.2
</TABLE>
Source: Economic Indicators
<PAGE>
<TABLE>
<CAPTION>
Benchmarks
====================================================================================================================================
TOTAL EMPLOYMENT TRENDS (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Percent Change Unemployment Rate
Sept. 1992 July 1993 Aug. 1993 Sept. 1993[p] Sept. 1992-Sept. 1993 Sept. 1992 Sept. 1993[p]
<S> <C> <C> <C> <C> <C> <C> <C>
Atlanta 1,512.2 1,574.7 1,580.3 1,587.5 5.0 6.9 4.5
Baltimore 1,091.7 1,081.0 1,077.7 1,076.3 (1.4) 7.5 7.2
Boston 1,542.7 1,538.1 1,532.8 1,538.9 (0.2) 7.7 6.3
Charlotte 625.7 629.2 633.2 636.7 1.8 5.1 3.7
Chicago 3,097.9 3,144.6 3,145.3 3,152.4 1.8 6.2 7.8
Cincinnati 752.2 759.4 760.3 765.5 1.8 5.2 5.6
Cleveland 923.2 922.4 920.2 923.9 0.1 6.2 6.0
Dallas-Ft. Worth* 2,001.7 2,022.4 2,033.8 2,042.0 2.0 6.9 5.6
Denver 878.1 898.7 899.8 901.8 2.7 4.9 4.7
Detroit 1,883.2 1,885.4 1,897.8 1,910.4 1.4 8.8 6.9
Houston 1,625.4 1,635.9 1,632.6 1,637.8 0.8 7.4 6.9
Indianapolis 682.3 687.8 688.1 691.3 1.3 4.8 3.6
Kansas City 789.3 792.1 789.1 797.1 1.0 5.0 4.9
Las Vegas 400.9 405.3 408.3 412.0 2.8 6.7 7.2
Los Angeles 3,801.1 3,719.9 3,710.5 3,730.7 (1.9) 10.4 9.7
Miami 860.9 871.4 873.8 882.7 2.5 11.8 7.2
Milwaukee 764.1 772.6 774.3 778.2 1.8 4.8 3.9
Minneapolis-St. Paul 1,411.0 1,425.9 1,427.6 1,433.7 1.6 4.5 4.2
Nashville 520.8 528.3 530.1 534.4 2.6 4.9 3.9
Nassau-Suffolk 1,045.1 1,036.0 1,032.2 1,038.4 (0.6) 7.9 6.4
New Orleans 538.2 534.3 532.8 537.3 (0.2) 7.4 6.6
New York 3,754.9 3,730.1 3,728.1 3,728.2 (0.7) 10.6 8.2
Oklahoma City 430.9 429.4 430.5 437.9 1.6 5.5 4.9
Orlando 573.3 586.5 585.6 591.4 3.2 7.3 5.6
Philadelphia 2,085.1 2,074.1 2,064.8 2,067.8 (0.8) 7.3 6.7
Phoenix 997.2 990.3 993.4 1,012.4 1.5 5.9 4.4
Pittsburgh 915.6 912.6 914.1 923.0 0.8 6.2 5.9
Portland 654.0 656.5 658.0 661.0 1.1 6.3 6.0
St. Louis 1,164.8 1,157.1 1,152.8 1,169.3 0.4 5.7 5.8
San Antonio 554.2 562.2 561.4 571.8 3.2 6.6 5.5
San Diego 942.3 929.9 926.0 928.0 (1.5) 7.7 8.4
San Francisco 915.0 910.1 907.0 909.5 (0.6) 6.3 6.4
Seattle 1,134.2 1,130.6 1,124.8 1,137.6 0.3 6.1 6.8
Washington, D.C. 2,193.5 2,221.2 2,189.4 2,205.1 0.5 5.1 4.5
U.S. 108,674.0 110,338.0 110,305.0 110,467.0 1.6 7.5 6.7
</TABLE>
Source: Employment and Earnings
DATA SOURCES
================================================================================
CB Commercial Office Vacancy Index of the United States. CB Commercial Real
Estate Group, Inc., Los Angeles. Quarterly.
F.W. Dodge Real Estate Analysis and Planning Service. F.W. Dodge Group,
McGraw-Hill, Inc. Lexington, Mass. Quarterly.
Economic Indicators. Council of Economic Advisors to the Joint Economic
Committee, U.S. Congress, Washington, D.C. Monthly.
Employment and Earnings. U.S. Department of Labor, Bureau of Labor
Statistics, Washington, D.C. Monthly.
Federal Housing Finance Board News. Federal Housing Finance Board,
Washington, D.C. Monthly.
Federal Reserve Statistical Release. Board of Governors of the Federal
Reserve System, Washington, D.C. Weekly.
Forecast of Housing Activity. National Association of Home Builders of the
United States, Washington, D.C. Monthly.
Housing Starts, Current Construction Reports, series C20. U.S. Department of
Commerce, Bureau of the Census, Washington, D.C. Monthly.
Housing Units Authorized by Building Permits, Current Construction Reports,
series C40. U.S. Department of Commerce, Bureau of the Census, Washington, D.C.
Monthly.
Housing Vacancies and Homeownership, Current Housing Reports, series H111.
U.S. Department of Commerce, Bureau of the Census, Washington, D.C. Monthly.
Monthly Retail Trade: Sales and Inventories, Current Business Reports, series
BR. U.S. Department of Commerce, Bureau of the Census, Washington, D.C.
Monthly.
3
<PAGE>
National Real Estate Index. Liquidity Fund, Emeryville, Calif. Quarterly.
New One-Family Houses Sold, Current Construction Reports, series C25. U.S.
Department of Commerce, Bureau of the Census, Washington, D.C. Monthly.
New Residential Construction in Selected Metropolitan Areas, Current
Construction Reports, series C21. U.S. Department of Commerce, Bureau of the
Census, Washington, D.C. Quarterly.
Real Estate Outlook. National Association of Realtors, Washington, D.C.
Monthly.
U.S. Housing Markets. Lomas Mortgage USA, Detroit. Quarterly.
3A
<PAGE>
MORTGAGE COMMITMENTS
================================================================================
NATIONAL MORTGAGE COMMITMENT SURVEY
Third Quarter 1993--National Ranges
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Interest Rates
Type and Lender No. of 3-5 Year 7-10 Year 10 Year + Amort. Percent Loan-to- Debt Cov.
Amt. of Loan Sample Commits. Term Term Term Period Constant Value Ratio Ratio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Less than $5M:
Multifamily 11 112 6.88-9.50 7.09-9.25 7.31-9.88 10-30 9.16-13.96 56-85 1.05-1.71
Retail 9 25 7.00-9.25 6.80-10.00 8.00-9.25 10-30 9.55-13.25 52-85 1.04-1.80
Office 7 31 7.00-9.75 7.50-9.75 8.25-9.75 12-25 9.47-13.42 54-85 1.15-1.74
Industrial 11 28 6.38-10.50 7.50-9.25 8.00-9.25 10-30 8.86-13.16 55-85 1.01-1.75
$5M-$9.99M:
Office 5 4 7.00-8.25 7.50-8.50 -- 12-30 10.22-13.15 61-80 1.00-1.63
Industrial 6 7 7.00-8.25 7.50-8.93 -- 12-30 10.01-13.42 47-80 1.16-1.73
</TABLE>
AVERAGE INTEREST RATES
- -------------------------------------------------------------------------------
Third Quarter 1993--National Averages
<TABLE>
<CAPTION>
Type and Amt. of Loan 3-5 Year Term 7-10 Year Term 10 Year+ Term
<S> <C> <C> <C>
Less than $5M:
Multifamily 7.97 8.09 8.59
Retail 8.08 8.41 8.58
Office 8.30 8.50 8.89
Industrial 8.23 8.40 8.62
$5M-$9.99M:
Office 7.85 8.10 --
Industrial 7.69 8.28 --
</TABLE>
Source: Appraisal Institute Research Department
NOTE: No regional averages appear for third quarter 1993 mortgage rates due to
an insufficient sample size.
13
<PAGE>
MarketSource
================================================================================
TRENDS AND FORECASTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Featured Property Type: HOTELS
1990 1991 1992 1993 Percent Change
1993-1995
<S> <C> <C> <C> <C> <C>
Anaheim
Completions 1,027 1,057 134 7 5,928.9
Absorption Rate 684 (447) (210) 133 528.6
Vacancy Rate 34.3 39.8 40.9 38.6 --
Atlanta
Completions 1,496 1,473 861 48 734.9
Absorption Rate 581 (75) 505 260 273.8
Vacancy Rate 28.6 32.7 33.2 25.9 --
Baltimore
Completions 307 359 137 0 --
Absorption Rate 101 (251) (89) 67 344.2
Vacancy Rate 32.6 37.5 39.0 34.2 --
Boston
Completions 553 160 0 252 (4.3)
Absorption Rate (425) (327) 86 63 1,129.3
Vacancy Rate 29.0 30.7 29.9 27.6 --
Charlotte
Completions 743 655 81 28 121.2
Absorption Rate 398 (110) 228 129 384.9
Vacancy Rate 50.7 56.7 54.8 48.6 --
Chicago
Completions 909 442 1,299 9 4,791.3
Absorption Rate 338 (247) 64 (120) 1,536.4
Vacancy Rate 20.8 22.1 24.6 22.7 --
</TABLE>
14
<PAGE>
TRENDS AND FORECASTS
- --------------------------------------------------------------------------------
Featured Property Type: HOTELS
<TABLE>
<CAPTION>
1990 1991 1992 1993 Percent Change
1993-1995
<S> <C> <C> <C> <C> <C>
Cincinnati
Completions 768 270 26 53 105.2
Absorption Rate 221 13 235 22 939.9
Vacancy Rate 19.8 21.5 19.2 17.7 --
Cleveland
Completions 606 613 67 1 7,315.7
Absorption Rate 6 19 (2) (80) 272.5
Vacancy Rate 21.2 26.8 27.0 24.4 --
Columbus
Completions 207 210 111 199 15.3
Absorption Rate 273 151 173 38 199.7
Vacancy Rate 16.7 17.1 16.0 15.3 --
Dallas
Completions 454 329 74 46 587.9
Absorption Rate 1,078 10 352 162 348.2
Vacancy Rate 27.6 28.5 27.2 23.9 --
Denver
Completions 0 1 0 27 225.2
Absorption Rate 508 269 401 106 90.6
Vacancy Rate 22.1 19.6 16.0 10.8 --
Detroit
Completions 1,144 343 19 43 46.9
Absorption Rate 119 (670) 333 (54) 897.5
Vacancy Rate 32.3 36.6 34.7 23.6 --
Fort Worth
Completions 81 2 6 26 404.3
</TABLE>
14A
<PAGE>
TRENDS AND FORECASTS
- --------------------------------------------------------------------------------
Featured Property Type: HOTELS
<TABLE>
<CAPTION>
1990 1991 1992 1993 Percent Change
1993-1995
<S> <C> <C> <C> <C> <C>
Absorption Rate 236 242 (151) 34 482.8
Vacancy Rate 10.7 6.8 9.0 5.8 --
Hartford
Completions 264 279 0 2 3,838.3
Absorption Rate (10) (194) (105) 9 1,313.3
Vacancy Rate 29.0 37.2 39.4 38.5 --
Honolulu
Completions 91 109 1,092 593 (9.1)
Absorption Rate 520 678 (263) 282 (120.6)
Vacancy Rate 9.5 5.5 14.0 17.2 --
Houston
Completions 210 18 29 39 217.2
Absorption Rate 1,366 612 679 137 517.5
Vacancy Rate 19.7 16.9 14.0 13.5 --
Indianapolis
Completions 427 440 15 101 (50.9)
Absorption Rate 238 382 190 83 514.8
Vacancy Rate 21.4 21.5 19.9 16.7 --
Kansas City
Completions 393 274 123 83 103.6
Absorption Rate 362 (6) 120 47 1,106.2
Vacancy Rate 16.4 18.4 18.0 10.8 --
Los Angeles
Completions 2,190 2,976 1,847 769 (45.1)
Absorption Rate 6 (1,272) (1,863) (252) 737.6
Vacancy Rate 28.8 35.6 41.3 41.0 --
</TABLE>
15
<PAGE>
TRENDS AND FORECASTS
- --------------------------------------------------------------------------------
Featured Property Type: HOTELS
<TABLE>
<CAPTION>
1990 1991 1992 1993 Percent Change
1993-1995
<S> <C> <C> <C> <C> <C>
Miami
Completions 348 368 519 125 51.0
Absorption Rate (264) (250) 307 (28) 470.8
Vacancy Rate 20.6 22.2 22.2 23.7 --
Milwaukee
Completions 413 85 90 15 618.7
Absorption Rate 149 16 91 47 293.0
Vacancy Rate 30.8 31.7 31.2 24.4 --
Minneapolis-St. Paul
Completions 151 197 730 4 2,980.5
Absorption Rate 539 385 790 144 382.4
Vacancy Rate 25.5 23.9 23.3 19.5 --
Nashville
Completions 314 426 73 192 23.5
Absorption Rate 300 (143) 379 162 228.4
Vacancy Rate 22.5 27.2 24.2 17.9 --
Nassau-Suffolk
Completions 36 171 2 0 --
Absorption Rate (6) (119) (74) 17 1,026.3
Vacancy Rate 28.6 33.7 34.9 30.5 --
Newark
Completions 0 238 38 53 168.3
Absorption Rate (168) (315) (62) 38 539.6
Vacancy Rate 24.2 29.2 29.9 27.5 --
</TABLE>
15A
<PAGE>
TRENDS AND FORECASTS
- --------------------------------------------------------------------------------
Featured Property Type: HOTELS
<TABLE>
<CAPTION>
1990 1991 1992 1993 Percent Change
1993-1995
<S> <C> <C> <C> <C> <C>
Absorption Rate 349 537 85 172 274.9
Vacancy Rate 31.8 28.1 27.3 25.6 --
New York
Completions 467 1,340 832 16 1,384.5
Absorption Rate (847) (1,724) (731) (82) 1,216.8
Vacancy Rate 22.7 28.9 31.5 30.6 --
Oklahoma City
Completions 0 0 0 2 2,066.3
Absorption Rate 130 64 (126) 26 441.7
Vacancy Rate 37.3 35.8 37.6 35.8 --
Orlando
Completions 3,142 1,644 1,852 129 320.1
Absorption Rate 948 (395) 386 294 141.4
Vacancy Rate 27.1 32.5 33.5 30.9 --
Philadelphia
Completions 1,984 817 0 232 (25.1)
Absorption Rate 59 (306) (14) 70 470.5
Vacancy Rate 27.3 31.8 31.6 29.2 --
Phoenix
Completions 699 339 113 11 1,917.6
Absorption Rate 593 (140) 81 55 620.2
Vacancy Rate 21.8 23.8 23.6 18.5 --
Pittsburgh
Completions 456 362 55 7 494.9
Absorption Rate 301 (159) (98) 192 (71.9)
Vacancy Rate 19.0 23.5 24.5 19.7 --
</TABLE>
16
<PAGE>
Supply and Demand
================================================================================
TRENDS AND FORECASTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Featured Property Type: HOTELS Percent Change
1990 1991 1992 1993 1993-1995
<S> <C> <C> <C> <C> <C>
Portland
Completions 301 337 173 30 81.5
Absorption Rate 297 132 187 32 782.0
Vacancy Rate 10.2 12.8 12.2 10.9 -
Sacramento
Completions 340 174 596 38 189.4
Absorption Rate 304 (37) (10) (9) 4,539.1
Vacancy Rate 16.6 18.5 24.6 23.9 -
St. Louis
Completions 513 562 205 61 117.2
Absorption Rate 126 45 (94) 59 639.7
Vacancy Rate 18.6 21.5 23.0 17.9 _
Salt Lake City
Completions 38 180 521 51 330.8
Absorption Rate 299 351 183 (23) 1,208.7
Vacancy Rate 12.9 10.2 15.1 12.3 _
San Antonio
Completions 211 28 218 41 885.9
Absorption Rate 303 (148) 448 100 249.8
Vacancy Rate 23.7 25.1 22.3 20.8 _
San Diego
Completions 1,728 1,691 2,120 89 134.9
Absorption Rate 613 (609) (91) 103 722.9
Vacancy Rate 39.8 48.2 54.5 51.9 _
San Francisco
Completions 416 360 134 1 23,204.2
Absorption Rate 266 (560) (203) (17) 1,258.4
Vacancy Rate 23.7 26.7 27.8 28.5 _
Seattle
Completions 938 1,418 351 145 (12.7)
Absorption Rate 354 574 152 (54) 2,216.4
Vacancy Rate 27.2 32.1 32.9 34.2 _
Tampa
Completions 354 113 385 10 1,815.4
Absorption Rate 353 (265) 144 112 96.8
Vacancy Rate 18.9 21.5 22.5 20.4 -
Washington, D.C.
Completions 2,563 2,124 57 77 366.9
Absorption Rate 625 84 1,089 201 427.9
Vacancy Rate 25.0 29.0 26.4 22.7 _
</TABLE>
Source: F.W. Dodge Group, McGraw-Hill, Inc.
17
<PAGE>
Second Quarter 1993 National Investor Survey ACB Commercial Appraisal
Power Shopping Centers
<TABLE>
<CAPTION>
Real Rate Typical
Discount Growth Rate Assumptions (%) of Return Marketing
----------------------------------------------------
Overall Cap Rates (%) Rate (%) Market General Retail (%) Period
---------------------
Type of Firm Going-in Terminal (IRR) Rent Expenses Inflation Sales (RRR) (Months)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advisor 9-10 10-10.5 11 4 4 4 -- -- --
Advisor 9.75 10 12.25 3 4 4 -- 8 9
Advisor 10 10 12-13 4 4 4 4 -- --
Advisor 10 10 12.5 2-3 4 4 2-3 -- --
Advisor 9.25 9.5 11.75 5 4.5 4.5 5 7.25 12
Advisor 9.5-10 10 11 4 5 4 -- -- --
Advisor 9 9.5 11.25 0-3 4 4 -- -- --
Advisor 8.5-10 8.5-11 11.5-14 -- 4-5 4-5 3-5 -- --
Advisor 10 10 11 0,0,4.. 4 4 -- 7 --
Advisor 10 10 13 4 4 4 -- -- --
Advisor 9-9.5 9.5-10 14 2-4 4 4 2-3 -- 6-12
Advisor 10 10.5 11-12 0,0,4.. 4 4 -- 7-8 9
Developer 9.5 +100bp 12-15 4 4-5 -- -- 8-10 --
Insurance Co. 10.5 11.5 12 2.5 4 3.5 3.5 -- 12
Insurance Co. 10 25-75bp 11.75 4 5 4 -- -- --
Insurance Co. -- 9.25-9.75 10.75-11.5 -- 3.5-5 3.5-5 -- -- 10
Investor 9.5 +25bp 12+ -- -- -- -- -- --
Lender/Investor 10 10 12 3 4 4 -- -- --
Pension Fund 9-10 9-10 11-11.5 4 4 4 4 5-6 6-12
- ------------------------------------------------------------------------------------------------------------------------------------
Range: 8.5-10.5 8.5-11.5 10.75-15 0-5 3.5-5 3.5-5 2-5 5-10 6-12
Average: 9.7 10.0 12.0 3.4 4.2 4.0 3.6 7.4 10.0
Change from 2nd
Qtr. 1992 Survey +30 +30 -20 -30 -30 -50 +10 -20
</TABLE>
Hotels
<TABLE>
<CAPTION>
Real Rate Typical
Discount Growth Rate Assumptions (%) of Return Marketing
-------------------------------------
Overall Cap Rates (%) Rate (%) Market General (%) Period
---------------------
Type of Firm Going-in Terminal (IRR) Rent Expenses Inflation (RRR) (Months)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advisor 10-13 10-13 16-20 2-3 3.5 4 12-16 6
Advisor 13-15 15 17.5 0-2 4 4 13.5 12
Advisor 11 12 15 3 3 3 -- 12
Advisor 10 10 15 0,4.. 4 4 -- --
Developer 9 +100bp 12-15 4 4-5 -- 8-10 --
Insurance Co. 13 14 14 0 4 3.5 -- 24
Insurance Co. 12-15 50-100bp 12-15 4 5.5 4 -- --
Investor 10 -- -- -- 5 5 10 6
Investor 12-13+ +50-75bp 13+ -- -- -- -- --
Lender/Investor 13 12 15 3 4 4 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Range: 9-13 10-15 12-20 0-4 3-5.5 3-5 8-16 6-24
Average: 11.8 12.4 14.9 2.6 4.2 3.9 11.6 12.0
Change from 2nd Qtr.
1992 Survey: -20 +10 +50 -30 -30 -20 +160
</TABLE>
bp: Basis Points
17
<PAGE>
TRENDS AND FORECASTS
- --------------------------------------------------------------------------------
Featured Property Type: HOTELS
Emerging Trends in Real Estate: 1994
Real Estate Research Corporation and Equitable Real Estate Investment
Management, Inc.
In the next two issues of the RERC Real Estate Report we will publish
excerpts from this year's Emerging Trends. In this issue, we will reprint
Chapter 1, It's Started, which outlines the major findings of this year's
report.
Forward
Every year since our 1985 report, in the midst of an unprecedented
development boom, Emerging Trends in Real Estate has warned about and then
chronicled the fall of the real estate markets. Victims of a "kill the
messenger syndrome," our past cautions were not always welcomed by the industry,
no matter their unfortunate accuracy. With this in mind, we cannot be accused
of undue optimism in this year's forecast when our evaluation points finally to
trends suggesting that markets have bottomed and are beginning what promises to
be an extended convalescence.
As always, Emerging Trends is based on face-to-face, in-depth interviews and
surveys with more than 100 leading real estate investors and experts-executives
from pension funds, banks, insurance companies, and advisors as well as
investment bankers, developers and well known entrepreneurs. Their consensus
views form the backbone of this report, which is supplemented by analysis and
research of Real Estate Research Corporation and Equitable Real Estate
Investment Management, Inc. For example, the August job figures showed a loss
of 39,000 jobs, compared to a gain of 211,000 in July. Many analysts believe
that the August numbers will be revised to show an employment gain. Overall,
through August, the economy has added 1.2 million jobs in 1993, and this is
expected to hit more than 2.0 million by year-end.
Emerging Trends
The focus of Emerging Trends has changed over the past decade, reflecting the
dramatic upheaval in the real estate business. Interviewees use to be dominated
by developers and syndicators, the report's primary audience was developers, and
its prognostications revolved around where the best development opportunities
existed in the country. Now our interviewees are loathe to even reference the
"D" word, let alone say it, and the continued absence of any significant
commercial construction activity is the primary reason for why markets are
starting to turn.
Exhibit 1-1
Asset Class Investment Potential
[GRAPH APPEARS HERE]
Exhibit 1-2
When Will Values Begin to Increase?
[GRAPH APPEARS HERE]
With development a moot point, we redirected Emerging Trends in recent years,
writing the report for real estate investors--providing a broad overview for
guiding decision-making, pointing out opportunities as well as the quicksand.
Since the 1990 issue, we have also significantly expanded our survey to probe
our interviewees for their investment perspectives on land uses, cities, capital
sources, values, and pricing. These surveys provide a more quantitative context
to the subjective interviewing process.
Now in its fifteenth year, Emerging Trends has watched and predicted the
movements of almost a complete real estate cycle and the ultimate downsizing of
our industry. The report has evolved, changed, and expanded with the ups and
downs of what has been the industry's most volatile era. Mostly thanks to the
interviewees, our forecasts have been repeatedly on target. With some small
measure of optimism at hand, we're actually looking forward to being right
again.
It's Started: Recovery Moves Forward Slowly
For 1994, investors can size up the real estate markets in either of two
ways--both accurate:
. A sluggish economy, coupled with corporate makeovers and less-than-optional
demographic shifts, hobbles the markets and set roadblocks to quick recovery.
Office markets may not see real improvement until the end of the century.
Development prospects are moribund, and new construction slumps to a 30-year
low. Capital sources, aside from much-hyped and expensive Wall Street vehicles,
are still in retreat, just-in-time, QVC, laptops, E-Mail, portable phones--the
progeny of burgeoning technology--are threats to the real estate landscape as
we've known it.
. Tight capital is good news. Realism has taken hold, fostering disciplined
underwriting and a focus on fundamentals--location, credit tenants, quality. The
development bust is just what the industry needed to get back on its feet. Low
interest rates continue to be a boon, helping values recover and making real
estate yields more attractive. In fact, pension funds actually assess real
estate as competitive with stocks and bonds for future investment potential and
are ready to reenter the asset class--in a measured fashion. If anything,
investors are missing the chance to lock in large yield spreads on very
conservatively underwritten mortgages. Significantly, values are stabilizing;
1994 should even see slight upticks for warehouses and malls, as well as gains
for apartments on top of good coupon returns. The success of high-quality equity
REIT offerings has been a shot in the arm, restoring some confidence in the
industry as they bail out prominent owners in need of refinancing.
No matter how you call it, the recovery process has begun. Prospects for
investment real estate should improve, slowly but steadily, through the end of
the decade. Despite the depth of the real estate depression and its continuing,
jarring aftershocks, this is the first time since 1984 that Emerging Trends has
seen a generally positive directing taking hold--albeit for a smaller,
transformed industry. There's no easy money to be made, and the shakeout isn't
over by any means. Investors must be highly selective in identifying and
analyzing prospective acquisitions or financing candidates. But it's time to
start looking at real estate again--with a sober, calculated view.
How protracted will the recovery period be? What obstacles still stand in the
way? Where are the investment opportunities and the nasty traps? Who will own
and finance real estate as we go forward, and what are the prospects for each
major market and property category? Based on face-to-face interviews and
in-depth surveys with the nation's leading real estate executives, Emerging
Trends seeks to answer these and other questions in our annual industry outlook.
Last year, Emerging Trends interviewees saw real estate as an impaired
investment category, beset by negative returns and still-plunging short-term
prospects. They wanted signs that markets were bottoming out and stabilizing
before they would commit to the asset class again. Today those signals are
coming through. While fixed-income securities and equities have at record
highs, real estate is at a postwar low. However, most investors, while viewing
real estate much more favorably, are somewhat chary of being first back into the
markets. They want further evidence of firming before they move with conviction.
They also wonder which specific properties to invest in, given the remaining
market uncertainties. But they are ready to move. In 1994, look for marked
improvement in investor appetites.
In order of preference, multifamily, industrial warehouse, and regional mall
properties will be the focus of investors coming back into the market.
Apartments, the top choice, are in tight supply and values are actually
increasing. Warehouse and retail mall values are stabilizing. Office properties,
especially downtown, receive low ratings; but suburban office is strengthening,
and with prices well below replacement costs there may be some excellent value
plays. Despite improved balance sheets, there's still not much interest in
hotels.
No one expects a sudden, dramatic turnaround. In fact, for all the talk of
improved real estate karma, the Emerging Trends panel is more worried now about
an anemic economic delaying recovery than it was a year ago, especially for
office markets. Nevertheless, as one interviewee sums it up: "It's going to take
longer, but it's started. That's the important thing. We're stabilizing and
we're finally looking up." There's little doubt that the real estate recovery
will be slow and spotty. We define recovery as the stage in which values begin
to increase as a result of improvement in effective rental rates and movement
toward market equilibrium. For office properties, real rents won't increase
until mid-1996, according to the consensus. Some regional malls may see small
value hikes in '94, but others will shut down, unable to compete for the
shrinking number of retail tenants.
Washington, D.C., and Atlanta rank as the nation's strongest markets for real
estate investment. Denver jumps to third, spurred by dramatic strengthening in
its residential category. Overall, market assessments are more bullish than they
were last year, but the nation's capital ranks as the only city where real
estate values can be expected to increase--just barely--in 1994. Los Angeles
again brings up the rear, with New York and Philadelphia also lagging. Sunbelt
markets in general have stronger near-term prospects, as population growth
promises to be the engine for better performance.
Almost unanimously, the interviewees peg job growth as the key to pulling
real estate out of its pit and triggering substantial improvement. But no one
anticipates a wave of positive employment trends this is the biggest reason for
tempered outlooks on the industry rebound. Company layoffs and much-ballyhooed
reengineerings, the pressures of competing globally, and technological
advancements that discourage the need for more space are stymieing white-collar
job growth and will restrain office demand over the next decade. Government
spending on major initiatives to produce jobs and encourage overall economic
expansion is blocked by the federal deficit. Since the end of the 1991-1992
recession, job creation has been in lower-paying work with less security and
lower benefits. This is not the type of employment growth that fills office
buildings. Meanwhile, dampened consumer confidence, resulting in part from the
tepid jobs picture, has been staunching any change for robust sales gains at
malls.
- ------------------------------------------------------------------------------
Current Quarterly
Investment Survey Data
Available by fax or on
computer disk
------------------------------------------------------------------------
If you would like to receive RERC's Quarterly Investment Survey summary
tables via fax as soon as they are compiled, contact Real Estate Research
Corporation at (312) 346-5885.
As an additional convenience to subscribers, RERC will send the entire
Investment Survey (text and tables) on computer diskette to those who request
this service. The cost to receive the information on computer diskette is
$7.50 per report. The diskette will contain the Quarterly Investment Survey
narrative in both WordPerfect 5.1 and ASCII formats, and the Quarterly Survey
Investment Criteria in both Lotus 1-2-3 and ASCII formats.
- --------------------------------------------------------------------------------
The industry outlook for the overall economy is also underwhelming. On a
scale of one to ten (one being very weak and ten very strong), interviewees rate
the economy for 1994 at a plodding 4.8, not much better than 1993's 3.8 rating.
Again, no one expects the type of economic rebound that will fuel a dramatic
recovery in any of the real estate markets.
On the other hand, interviewees acknowledge that low interest rates have been
a godsend in allowing the recovery to take root. Their outlook is for rates to
rise, but only slightly in 1994.
Increased capital flows are another necessary ingredient for the market's
comeback, and which raises perhaps the most interesting question for this year's
Emerging Trends: Who will own and finance real estate after the great debacle?
The traditional sources--banks and life insurance companies--have been forced to
the sidelines by regulators and ratings agencies. They will return--banks
sooner, insurers certainly not in 1994. Pension funds, while again considering
new investments, can't be expected to fill the void, although may in the real
estate industry would like to think they can. Foreign investors are back home
nursing their wounds and will not be players in the foreseeable future.
Wall Street activity REITs, commercial loan securitizations, and venture
capital plays--are leading the way in returning some liquidity to the markets.
But hoopla aside, REITs will remain a niche investment category. Yield greed,
not necessarily real estate fundamentals, have been the REITs' great attraction
in 1993. However, they have drawn a lot of positive attention to real estate,
providing a badly needed boost for the beleaguered asset class. Probably more
significant are the mortgage conduits being created to access Wall Street money
and filling the temporary-financing gap left by banks and insurers. These
sources will supply much-needed capitalization for smaller and midsized owners
of multifamily and commercial real estate while REITs provide short-term relief
for some of the bigger players. In keeping with the lukewarm turnaround under
way, more capital will return to real estate in 1994 but it will still be in
relatively short supply.
The more traditional transaction volume from private sales should advance
modestly in 1994, despite recent market inertia. Activity will pick up as banks
shed more of their costly-to-manage REO holdings and insurers expedite portfolio
reduction to meet stringent risk-based capital guidelines. Again, apartments,
warehouses, and retail will be where the action is, as deal spreads narrow in
the wake of improved performance trends. Pension funds will be investing in
those categories. Entrepreneurs, less risk-averse, may dabble in picking off
quality office buildings.
As for development, forget about it! The industry has. And that's probably
the most telling evidence of how realistic and purposeful the marketplace has
become about what's needed to sustain recovery. Development has almost fallen
out of the real estate vocabulary; trying to find a regional mall or office
building under construction is like searching for a needle in a haystack.
Any new project is basically pie-in-the-sky. To even think about discussing
your pipe dreams is risking ridicule. The only possibilities for new
construction are apartment developments in markets exhibiting both constrained
supply and surging population growth and the occasional office or industrial
warehouse build-to-suit.
Changes in the tax code have their pluses and minuses, and could be viewed as
a wash for the industry. Relief from onerous passive-loss rules is one positive,
although owners will not be able to carry forward and deduct old passive losses
incurred before January 1, 1994. The "five or 50" rule limiting pension fund
investment in REITs was relaxed, but there are still some ownership limitations.
A minus in the new laws is the provision that stretches depreciation schedules
from 31.5 to 39 years on new properties placed in service.
An increasingly important issue commanding the attention of all real estate
owners today is property security and tenant safety. It's not a new concern but
crime is just so much more pervasive and seemingly more violent. Malls can't
afford headlines that suggest they're dangerous places. Corporate tenants make
security an important negotiating point. Alarm systems and gatehouses are
becoming expected amenities in apartment complexes. Of course, for hotels guest
safety is absolutely crucial. It's a bleak commentary, but owners and investors
who neglect providing secure environments are courting potentially devastating
consequences for their properties.
Real estate enters a period of extended convalescence in 1994. The cycle is
making its turn upward after a harrowing, debilitating descent. No one wants to
relive the joyride from excess to oblivion that made the '80s notorious. In the
real estate world of the '90s, less will be viewed as more. Less capital, less
development, less popularity, and reduced expectations will ultimately yield a
stronger, more stable industry. This attitude adjustment has largely been
imposed on the industry by the severity of its collapse and the realities of the
economy. But now that heads are screwed on straighter, the real estate markets
are finally moving slowly, but forward.
- --------------------------------------------------------------------------------
Emerging Trends in Real Estate: 1994 is available for $25 from Real Estate
Research Corporation, 2 N. LaSalle Street, Suite 400, Chicago, Illinois
60602.
- --------------------------------------------------------------------------------
[graphic material omitted. This is a graph depicting a Comparison of Rates
between the four quarters and year of 1984 and the four quarters and year of
1993. Real Estate Yields were highest, at approximately 14% in 1984 and 13% in
1993. Next are Moody's As Utilities, at approximate 14% in 1984 and 8% in 1993.
Lowest are 10 year treasuries, at approximately 12% in 1984 and 6% in 1993]
Real Estate Investment Survey:
Third Quarter 1993
Kenneth P. Riggs, Jr. MAI
President
Nicholas Buss Ph.D.
Director of Investment Research
Economic conditions
Economic signals remain somewhat mixed as the Clinton Administration wrestles
to get the domestic economy firmly on track and at the same time address larger
policy issues.
The economy has been growing at a faster pace than we thought. Every year at
this time, the U.S. Department of Commerce revises its estimates of GDP. This
year's update covered data back to 1990. The new figures show that for the past
six quarters, the economy has grown at an annual rate of 3%, up from 2.5% based
on the old data. Growth during 1992 was revised to 3.9%, up from 3.1%. The year
finished strongly, with fourth-quarter 1992 growth revised upwards to 5.7%.
The economy has slowed somewhat during the first half of 1993. Revised
numbers place first-quarter growth at an anemic annual rate of 0.8%.
Second-quarter growth GDP was not much better at 1.8%. The good news is that
during this slowdown, job growth accelerated and domestic demand remained
strong. This suggests that the economy has enough momentum for a second-half
rebound.
The employment picture is more encouraging, though the job market continues
to move in fits and starts.
For example, the August job figures showed a loss of 39,000 jobs, compared to
a gain of 211,000 in July. Many analysts believe that the August numbers will be
revised to show an employment gain. Overall, through August, the economy has
added 1.2 million jobs in 1993, and this is expected to hit more than 2.0
million by year-end.
. Not all the job news is good. The manufacturing sector continues to struggle.
In August, manufacturing shed a further 42,000 jobs, bringing the year-to-date
total to more than 200,000 jobs lost. Large corporations continue to announce
cutbacks, including Kodak and Procter and Gamble during the third-quarter.
Manufacturing employment is now at its lowest level since 1965 and its share of
total employment has slipped from 26% in 1973 to 16% today. These losses are
being offset by gains in the service sector which has seen payrolls rise by 1.3
million since January.
. Indications are that consumers are beginning to climb to their feet once
again. After slipping rapidly during the first-half of 1993, consumer
confidence shows signs of strengthening. In September, the
<PAGE>
TRENDS AND FORECASTS
- --------------------------------------------------------------------------------
Featured Property Type: HOTELS
Conference Board's index of consumer confidence moved upwards to 62.6 from 59.3
in August. It marked the index's third consecutive monthly increase. Of
interest, is the continued split between consumers' upbeat assessment of present
conditions (at a 2-1/2 year high), but somewhat downbeat view of the long-term
outlook.
.Increased consumer confidence is reflected in retail sales. Retail sales
continue to remain strong, rising 0.2% in August, and 0.3% in July. After
adjusting for prices, retail sales have risen a healthy 5.3% over the past year.
.The housing market is also showing more life. Housing starts in August
increased nearly 8%, to an annual rate of 1.32 million, the highest level in 3-
1/2 years. Cheap mortgages and better weather fueled the gains and starts rose
in all regions, except the Northeast where they fell. Low mortgage rates are
now translating into increased sales. The Mortgage Bankers Association reports
that by early September, mortgage applications had risen 35% from June. New
home sales are critical to lifting the economy, as they translate into increased
consumer spending for home-related goods.
.Inflation remains under control. Through August, consumer prices were up
just 2.8% from the previous year. They are expected to end the year well below
3%, the lowest pace in 21 years. On the producer side, inflationary pressure is
virtually non-existent this year. During the past year, producer prices have
risen at an annual rate of just 0.6%.
[Insert graphic material here. This is The RERC Real Estate Barometer: Third
Quarter 1993. The chart uses a scale of 1 to 10, with 1 being "very bad" and 10
being "very good." The question "Is now a good time to buy?" rates a 7.5. The
question "Is it a good time to sell?" rates a 4.0. Finally, the question "What
is the current availability of capital?" rates a 5.3.]
.Continued low inflation should keep interest rates low. Long-term rates,
critical to stimulating the economy, continue to be pushed lower. The 30-year
Treasury fell below 6% in September. Signs are that these low rates are finally
working their way across the economy. The best sign is that bank lending is up
after two years of little or no growth, with personal and real estate loans
accounting for the lion's share of the rise. Lower rates lift demand for the
economy's interest-sensitive sectors, such as homebuilding, durable-goods, and
autos. They also free up cash flow for businesses to invest elsewhere.
Although economic signals remain somewhat mixed, the general trend is
encouraging. It is against this economic back drop that our panel reported
third-quarter figures.
Investment Overview
It's official, the bottom has been reached. This quarter we asked our panel
to rate (on a 0 to 10 scale, with 0=falling, 5=bottom, and 10=rising) where we
currently are in the real estate cycle. The overall average was 5.1. This
rating supports our panel's growing mood of optimism over the past three
quarters. Consensus is that the bid-ask spread continues to be squeezed
(especially for apartment and warehouse
<PAGE>
TRENDS AND FORECASTS
- --------------------------------------------------------------------------------
Featured Property Type: HOTELS
properties), transaction activity has picked up, and capital has returned to the
market. A number of respondents noted that the best opportunities may already
have been past, though attractive buy opportunities remain.
Panelists also commented that many markets have shown signs of stabilizing;
concessions are being squeezed out, effective rents have stabilized, and, with
no new construction, net absorption is zero or slightly positive. Our
respondents remain realists, however, and note that although markets may have
bottomed, the lack of new job growth and continued corporate downsizing and
restructuring will mean that recovery will be a slow and protracted process.
Transaction activity is being spurred by the increasing number of REITs that
are coming to market, particularly in the apartment and retail sectors. The
ability of REITs to access relatively inexpensive capital has resulted in their
ability to bid aggressively for properties. This in turn has pushed
capitalization rates downward. This movement is reflected in RERC's Real Estate
Barometer. For the Third Quarter Survey, the bid-ask spread narrowed to 3.5,
down from 4.2 the previous quarter and the lowest level since RERC started
measuring the spread in 1991. Although the buy position continues to be heavily
favored, scoring a 7.5 on the scale (10=high), it slipped slightly from last
quarter. Conversely, the sell position scored a 4.0, still relatively weak, but
up strongly from 3.4 the previous quarter.
As reported by our respondents, transaction activity picked up in the prior,
or second quarter. Fifteen panelists reported transaction activity for the
first six months of 1993, totaling 35 deals, valued at $720 million. The
average indicated deal size was $20.5 million. Of the 15 respondents providing
data, three had yet to close a deal in 1993.
Our panel continues to be bullish on the availability of capital. This
quarter they rated capital availability an encouraging 5.3 on a 1 to 10 scale
(10=plentiful). This is up from 5.0 last quarter, and an anaemic 3.8 for first-
quarter 1993. Again, a prime factor influencing this response has been the
continued appetite of Wall Street. However, Wall Street is not the only source
of capital. Pension funds and entrepreneurial individuals continue to show
increased interest. Even banks, which many had written off for the remainder of
the decade, have shown signs that they will once again consider real estate
loans. This is not too surprising given returns on alternative investments.
Yield requirements
Real estate yield expectations moved down or remained unchanged for all
property types except neighborhood/community shopping centers. As Table 1
shows, reported yield requirements range from
<PAGE>
TRENDS AND FORECASTS
- --------------------------------------------------------------------------------
Featured Property Type: HOTELS
10.0% to 15.0%, with property averages ranging from 11.3% to 12.8%. The mean
required yield for all property types edged down for the second straight
quarter, from 12.1% to 12.0%.
Changes in yield expectations from the previous quarter were relatively
small. The largest decrease was for 30 basis points for R&D properties. Office
properties, both CBD and suburban, lead all property types with the highest
average yield requirement (12.8%), followed by R&D (12.6%), and
neighborhood/community shopping centers (12.2%). Regional malls continue to
have the lowest return expectations (11.3%), followed by apartments (11.5%), and
warehouse and retail power centers (both at 11.8%). As always, we underline
that these rates represent unleveraged yield expectations, not realized returns.
Going-in capitalization rates decreased for all property types, with the
exception of CBD and suburban office properties. Average going-in rates ranged
from 7.7% for regional malls to 10.6% for suburban office properties. The
average going-in rate decreased by 20 basis points for warehouse buildings and
retail power centers, while it increased 10 basis points for CBD and suburban
office properties.
Average terminal capitalization rates ranged from 8.4% for regional malls to
10.2% for suburban office properties. Changes in terminal capitalization rates
were more mixed than changes in going-in rates. The gap between average going-
in rates and average terminal rates ranges from +70 basis for regional malls and
retail pow centers to -40 basis points for suburban office properties. As
indicated in Table 1, investors are using higher going-in rates than terminal
rates for office properties, and in some cases R&D properties. This reflects
the continued state of disequilibrium in these markets and the expectation that
market conditions will be better at the end of the holding period than they are
today. Currently, investors are placing more emphasis on current cash flow than
future appreciation when valuing property. This trend will be discussed in more
detail later in the report.
Table 3 illustrates historic spreads between the average targeted yield for
real estate and actual yields for alternative investments. The gap between real
estate yields and capital markets continues to increase. The current range in
spreads is from 460 basis points on Aa Utilities to a whopping 630 basis points
on 10-year Treasuries. The 630 basis points spread over Treasuries is the
largest spread since the early 1980s. The continued widening of the gap
highlights the relative attractiveness of real estate vis-a-vis other asset
classes and the increasing attention real estate is generating from yield hungry
institutional investors.
Property preference
Our respondents were asked to rate the nine property types in terms of their
current investment conditions. Table 4 shows the average scores for each
property type. This quarter, apartments moved
<PAGE>
TRENDS AND FORECASTS
- --------------------------------------------------------------------------------
Featured Property Type: HOTELS
solidly back to the top of the pile after slipping to second place last quarter.
Apartments scored an impressive 7.0 on a 1 to 10 scale (10=very good).
Apartments continue to top most investor's acquisition lists. But, as we have
been saying for the past two quarters, this popularity has its price. Good
quality apartment properties are becoming more difficult to find and competition
has pushed capitalization rates down and prices up. Demand for apartments is
coming from two main sources: pension funds, typically underweighted in this
asset class; and REITs, flush with cash for acquisitions.
Apartment REITs have flourished over the past year. NAREIT reported that
apartment REITs raised over $780 million in the first half of 1993, double
1992's $326 million. By mid-1993, the 10 existing apartment REITs controlled
approximately 71,500 units. The success of these REITs has resulted in a flurry
of new issues. During third-quarter, no less than eight additional apartment
REITs are expected to come to market, controlling an additional 71,000 units.
Warehouse properties saw ratings move upwards this quarter, to 6.4 from 6.0.
Despite mixed signals from the economy, industrial properties continue to be
favored and placed near the top of most investor's acquisition lists. The
reasons for this are relatively simple: compared to most other property types,
warehouses have performed relatively well over the past three years. Although
vacancies have increased and rents and values have slipped slightly, overall,
the supply and demand fundamentals of this asset class have remained intact.
However investors must be knowledgeable when making new acquisitions, paying
attention to big-picture trends in manufacturing and distribution technology.
The remaining property types, with the exception of R&D, saw their ratings
drop this quarter. CBD office and hotels continue to languish at the bottom of
the list. Although they receive low ratings, contrarian investors with courage
and strong hearts are taking a serious look at these assets, figuring that the
best buys may be just around the corner for these property types.
Geographic preference
Geographic preferences of our panel are gathered on a semiannual basis.
Table 5 shows how investors rate the relative strengths of competing markets as
of the third quarter 1993. Overall, the increased optimism of our panel is
reflected in their ratings of the 16 major markets, with most cities seeing an
increase in their ratings from first quarter 1993.
Washington, D.C. and Atlanta continue to top our panelist's list with ratings
of 6.9 and 6.6, respectively. Washington, D.C. has held the top spot for the
past year. Our respondents feel this will be
<PAGE>
TRENDS AND FORECASTS
- --------------------------------------------------------------------------------
Featured Property Type: HOTELS
the first market to recover, buffered by stable government payrolls and a well
compensated private sector. While the retail and residential markets are
improving, office market remains troubled.
Atlanta's affordable middle class lifestyle is a magnet for population
migration to this metro area, and it ranks as the nation's leader in job growth.
Typical of many sun-belt cities with room to grow and few barriers to entry, it
is the suburbs that are expanding while the downtown suffers. Again, it is the
residential and retail markets that are prospering, while the office markets are
uniformly soft (with over 25% vacancy rate in the CBD). Recent major corporate
relations have taken the build-to-suit route.
Miami/South Florida recorded the largest increase this quarter, jumping from
a rating of 5.1 in first-quarter 1993 to 5.9 this quarter. Miami's strength
is its apartment sector which has very low vacancies and may be primed for new
construction in 1994. Ironically, Hurricane Andrew has been a boon to Miami's
residential and retail markets and stirrings of new activity from Latin America
raise optimism on the office side. Recent acts of random violence, which have
made national and international headlines, may dampen this area's
attractiveness.
Denver and Phoenix continue to show a steady increase in ratings. Both
markets have seen residential values rise as Southern Californian's bailout of
Los Angeles and surrounding areas. In Denver, the apartment market is tight and
retailers are expanding. The new airport will open during the next year, which
is seen as a positive for industrials. In Phoenix, the industrial sector is
poised to benefit from the passage of the North American Free Trade Act (NAFTA).
Further, Phoenix rates as one of the nation's hottest retail markets, buoyed by
younger babyboomer demographics.
One city that has seen its rating decline during the past year is Seattle.
Boeing's announcement of widespread job cuts has led to uncertainty surrounding
this market. The jetmaker's cutbacks have hurt office and residential over the
short term. Seattle's growing high-tech sector, led by Microsoft, remains a
plus. Further, the industrial sector remains strong, due largely to its role as
a Pacific gateway.
The larger cities, particularly New York and Los Angeles, continue to
languish at the bottom of the ratings, with near-term prospects not encouraging.
Growth rates
Although our respondents report more optimism, this has yet to be reflected
in their underwriting assumptions which remain firmly conservative. For most
asset classes, rent increases are expected to be minimal--0% to 3%--over the
next one to three years, increasing 3% to 5% thereafter. A 3% to 4% annual
average appears favored by most respondents. Again, the exception to this
appears to be apartments
<PAGE>
TRENDS AND FORECASTS
- --------------------------------------------------------------------------------
Featured Property Type: HOTELS
and good quality retail, where demand remains relatively strong and growth rates
of 3% to 5% can be justified throughout the holding period. Expense growth
rates typically mirror inflation expectations, ranging between 3% to 5%, with
many respondents betting on continued low inflation, in the 3% to 4% range. The
typical holding period remains 10 years.
Renewal probability
This quarter we asked our respondents to what renewal probabilities they
typically use in their own internal analyses. Their responses are shown in
Table 6. They range from a low of 51% of tenants renewing for CBD and suburban
office, to a high of 62% for regional malls. Overall, the renewal probabilities
provided by the panel are conservative and go hand-in-hand with the other
underwriting assumptions used.
Summary
As our respondents head into the year-end push, cautious optimism prevails.
Signs are that the bottom has been reached, capital is returning and that
sunnier skies are ahead. Transaction activity will be watched closely over the
remainder of the year for confirmation of these trends.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Table 1. Real Estate Investment Criteria by Property Type. Third Quarter 1993*
<TABLE>
<CAPTION>
------------------ ------------------------------------- -------------------- -------------
INDUSTRIAL RETAIL OFFICE APARTMENT
------------------ ------------------------------------- -------------------- -------------
Regional Neighborhood/
Warehouse R&D Center Power Center Community CBD Suburban Apartment
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pre-tax yield (IRR) (%)
Range** 11.0-12.0 12.0-13.0 10.0-12.0 11.0-13.0 11.0-13.0 11.5-15.0 12.0-15.0 10.5-13.0
Average 11.8 12.6 11.3 11.8 12.2 12.8 12.8 11.5
Going-in cap rate (%)
Range** 8.0-10.0 9.5-11.0 7.0-9.0 8.5-10.0 9.0-10.5 8.5-13.0 9.0-12.0 8.0-9.5
Average 9.3 10.0 7.7 9.2 9.6 10.4 10.6 8.8
Terminal cap rate (%)
Range** 9.0-11.0 9.5-11.0 7.5-10.0 9.0-11.0 9.5-11.5 9.0-12.0 9.0-12.0 8.5-10.0
Average 9.9 10.0 8.4 9.9 10.1 10.1 10.2 9.4
</TABLE>
Note: Income and expense growth rates are addressed in the accompanying text.
* The survey was conducted in July and August 1993 and reflects expected returns
for third-quarter 1993 investments.
** Ranges and other data reflect the central tendencies of respondents; high and
low responses have generally been eliminated.
Source: Real Estate Research Corporation.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Table 2. Real Estate vis-a-vis Capital Market Returns*
<TABLE>
<CAPTION>
3Q 1993 2Q 1993 3Q 1992 3Q 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate yield (%) 12.0 12.1 12.1 12.1
Moody's Aa Utilities (%) 7.4 7.9 8.4 8.9
Moody's Aaa Corporate (%) 7.2 7.6 8.2 8.7
10-Year Treasuries (%) 5.7 6.1 7.4 8.0
</TABLE>
* This survey was conducted in July and August 1993 and reflects desired returns
for third-quarter 1993 investments. Capital markets rates are for the first week
of each quarter.
Source: Real Estate Research Corporation.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Table 3. Intermarket Yield Spreads: Real Estate vis-a-vis Capital Markets
<TABLE>
<CAPTION>
3Q 1993 2Q 1993 3Q 1992 3Q 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mean real estate yield (%) 12.0 12.1 12.1 12.1
Yield Spread (percentage points)*
- ---------------------------------
Moody's Aa Utilities (%) 4.6 4.2 3.7 3.2
Moody's Aaa Corporate (%) 4.8 4.5 3.9 3.4
10-Year Treasuries (%) 6.3 6.0 4.7 4.1
</TABLE>
*Real estate over other investments.
Source: Real Estate Research Corporation.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Table 4. Current Investment Conditions by Property Type*
<TABLE>
<CAPTION>
3Q 1993 2Q 1993 1Q 1993 3Q 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Apartment 7.0 6.5 6.8 6.8
2. Industrial - warehouse 6.4 6.0 6.7 7.0
3. Retail - regional mall 6.4 6.8 5.5 6.0
4. Retail - power center 6.2 5.5 5.7 5.8
5. Retail - neighborhood 6.0 6.0 5.8 6.1
6. Industrial - R&D 4.6 4.3 3.9 4.4
7. Suburban office 3.7 4.0 3.8 3.3
8. CBD office 3.1 4.1 2.9 2.9
9. Hotel 2.8 4.0 2.6 1.9
</TABLE>
* Rated on a scale of 1 (very bad) to 10 (very good)
Source: Real Estate Research Corporation.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Table 5. Current Investment Conditions by Major Markets*
<TABLE>
<CAPTION>
3Q 1993 1Q 1993 3Q 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Washington, D.C. 6.9 6.3 6.0
2. Atlanta 6.6 6.3 5.6
3. Miami/S. Florida 5.9 5.1 5.0
4. Dallas 5.8 5.8 6.0
San Francisco 5.8 6.0 5.0
Denver 5.8 5.7 5.3
7. Phoenix 5.6 5.5 5.0
8. Seattle 5.4 5.9 5.8
9. Houston 5.3 5.2 5.5
10. San Diego 5.1 4.7 4.9
11. Chicago 4.9 5.4 5.4
12. Boston 4.3 4.5 3.5
13. St. Louis 4.0 4.0 3.6
14. Detroit 3.6 3.3 3.3
15. New York 3.5 3.7 3.5
16. Los Angeles 3.3 3.3 4.2
</TABLE>
* Rated on a scale of 1 (very bad) to 10 (very good)
Source: Real Estate Research Corporation.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Table 6. Probability That a Tenant Will Renew
Range Average
- -------------------------------------------------------------------------------
<S> <C> <C>
CBD Office (%) 25-80 51
Suburban Office (%) 25-70 51
Industrial - warehouse (%) 50-90 59
Industrial - R&D (%) 40-60 50
Retail - regional-mall (%) 50-85 62
Retail - power center (%) 50-75 58
Retail - neighborhood (%) 50-75 55
Apartments (turnover - %) 50-95 61
</TABLE>
Source: Real Estate Research Corporation.
- -------------------------------------------------------------------------------
Vol. 22, No. 3
Real Estate Report is published four times a year by Real Estate Research
Corporation, 2 North LaSalle Street, Suite 400, Chicago, IL 60602. Copyright
1993 by Real Estate Research Corporation. All rights reserved. No part of this
newsletter may be reproduced in any form, by microfilm, xerography, or
otherwise, or incorporated into any information retrieval system, without the
written permission of the copyright owner. Third-class postage paid at Chicago,
IL. Subscriptions are $195 per year, or $357 for two years. Single copies and
back issues, if available, are $55 each.
POSTMASTER: Send address changes to RERC Real Estate Report, 2 North LaSalle
St., Suite 400, Chicago, IL 60602, telephone (312) 346-5885.
Publisher: Kenneth P. Riggs, Jr.
Managing Editor: Nicholas Buss
Layout: Thomas Goebelt
Circulation: Linda Panico
Investment Survey: Nicholas Buss,
Kenneth P. Riggs, Jr.
This publication is designed to provide accurate information in regard to the
subject matter covered. It is sold with the understanding that the publisher is
not engaged in rendering legal or accounting service. The publisher advises
that no statement in this issue is to be construed as a recommendation to make
any real estate investments or to buy or sell any security or as investment
advice. The examples contained in the publication are intended for use as
background on the real estate industry as a whole, not as support for any
particular real estate investment or security. Although RERC Real Estate Report
uses only sources that it deems reliable and accurate, Real Estate Research
Corporation does not warrant the accuracy of the information contained herein.
- --------------------------------------------------------------------------------
QUARTERLY SURVEY OF INVESTMENT CRITERIA: THIRD QUARTER 1993
<TABLE>
<CAPTION>
Internal Going-In Residual
Property Types Rate of Capitalization Capitalization
Respondent in Preference Order Return Rate Rate
(%) (%) (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
West Coast investment 1. Industrial - warehouse 11.0-12.0 9.0-10.0 10.0
advisor 2. Retail - neighborhood 11.0-12.0 9.0-10.0 10.0
3. Retail - power center 11.0-12.0 9.5-10.5 10.0
4. Office - suburban 13.0-15.0 11.0-12.0 9.0-10.0
5. Office - CBD 13.0-15.0 11.0-12.0 9.0-10.0
National investment 1. Retail - regional mall 11.0 7.0-8.0 7.0-8.0
advisor* 2. Retail - neighborhood 11.0-12.0 9.0-10.0 9.0-10.0
3. Retail - power center 11.5-12.5 9.0-11.0 9.0-11.0
4. Industrial - warehouse 11.0-12.0 10.0 10.0
5. Office - suburban 12.0-13.0 10.0-11.0 9.0-10.0
East Coast pension Not acquiring properties at this time
fund 1. Retail - regional mall 7.0-8.0 8.0
2. Apartment 9.0-10.0 10.0
2. Industrial - warehouse 9.0-10.0 10.0
3. Retail - neighborhood 9.0-10.0 10.0
4. Retail - power center 9.0-10.0 10.0
5. Office - CBD 10.0-11.0 11.0
6. Office - suburban 10.0-11.0 11.0
East Coast investment No preference
advisor* Retail - regional mall 8.0
Retail - neighborhood 10.0
Retail - power center 10.0
Industrial - warehouse 10.0
Apartment 9.0
Foreign and domestic 1. Retail - regional mall 11.5 7.0 7.5
investment advisor 1. Apartment 11.5 8.75 9.5
2. Industrial - warehouse 11.75 8.75 9.5
3. Retail - power center 12.0 9.5 10.5
4. Office - CBD 12.5 9.5 10.0
4. Retail - neighborhood 12.5 10.0 11.0
4. Office - suburban 12.5 10.0 11.0
5. Hotel 13.5 10.5 11.5
</TABLE>
<TABLE>
<CAPTION>
Growth Rates
--------------------
Income; Expense;
------ ------- Anticipated Long-Term
Years 1 to 3/ Years 1 to 3/ Holding Inflation
Years 4 to 10 Years 4 to 10 Period Expectation Comments
(%) (%) (years) (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
West Coast investment 0 4 10 4 Feels there is a flight to higher
advisor 4 4 quality and current yields. With
the exception of Southern
California, thinks the bottom of
the cycle has been reached.
National investment 0 5 10 5 Thinks that prices for most
advisor* 5 5 property types have yet to hit
bottom. Favors retail properties
in Boston, Washington, D.C., and
Atlanta.
East Coast pension 0-2 2-3 10 2-3 Has sat out the equity market
fund 2-3 2-3 during 1992 and will do the same
in 1993.
East Coast investment 0 4 10 4 Investments are made based on
advisor* 4 4 cash-on-cash returns. Uses IRR
simply as an assumption check.
Feels that property performance
will not improve until supply
and demand comes into equilibrium.
Foreign and domestic 0-4.5 4 10 4 Says that the narrowing of the
investment advisor 3.5-4.5 4 bid-ask spread and modest increase
in buyer activity suggest that
markets have ballooned. Good
buying opportunities remain.
</TABLE>
QUARTERLY SURVEY OF INVESTMENT CRITERIA: THIRD QUARTER 1993
(continued)
<TABLE>
<CAPTION>
Internal Going-In Residual
Property Types Rate of Capitalization Capitalization
Respondent in Preference Order Return Rate Rate
(%) (%) (%)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National real 1. Apartment 11.0-12.0 8.0-9.0 8.5-9.0
estate investor 2. Industrial -
and advisor* warehouse 11.0-12.0 8.5-10.0 9.0-9.5
3. Retail - regional
mall 11.0-12.0 7.5-8.0 7.5-8.0
4. Retail - neighbor-
hood 11.0-12.0 9.0-10.0 9.0-10.0
5. Retail - power
center 11.0-12.0 9.0-10.0 9.0-10.0
6. Industrial - R&D 12.0-13.0 9.5-10.5 9.5-10.5
7. Office - CBD 11.0-12.0 9.0-9.5 9.0
8. Office - suburban 12.0-13.0 10.0-11.0 9.5-10.5
National real 1. Retail - regional
estate investor mall 11.0-12.0 7.5 7.5
and advisor
National 1. Apartment 11.0 8.5-9.0 8.75-9.25
developer and 2. Land 15.0
investment
advisor
National 1. Retail - regional
investment mall 11.0 7.5 7.5
advisor 2. Apartments 12.0 9.0 9.0
3. Industrial -
warehouse 12.0 9.0 9.0
4. Hotels 15.0 13.0 12.0
5. Retail - power
center 12.0 9.5 9.0
6. Retail - neighborhood 12.5 10.0 9.5
7. Industrial - R&D 13.0 10.0 9.0
8. Office - suburban 14.0 13.0 12.0
9. Office - CBD 14.0 13.0 12.0
National in- 1. Apartments 11.0 8.5 10.0
surer and 2. Industrial - warehouse 11.0 9.0 10.5
investor 3. Office - suburban 12.0 9.5 9.75
4. Retail - regional mall 10.75 7.5 8.0
5. Office - CBD 11.5 9.0 9.25
6. Hotel 13.5 10.0 13.5
National in- 1. Retail - regional mall 11.5 8.0 8.0-8.5
vestment 2. Industrial - warehouse 11.5 9.0-10.0 9.5-10.5
advisor 3. Retail - power center 11.75 9.75-11.0 10.0-11.0
4. Apartment 11.75 8.5-9.5 9.0-10.0
5. Office - suburban 11.75 9.0-10.0 9.5-10.5
6. Office - CBD 12.0 8.5-10.0 9.0-10.5
<CAPTION>
Growth Rates
Income: Expense:
------- --------
Years 1 Years 1
to 3/ to 3/ Anticipated Long-Term
Years 4 Years 4 Holding Inflation
to 10 to 10 Period Expectation Comments
(%) (%) (years) (%)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
National real 0.4 4 10 4 Sees more capital
estate investor 4 4 waiting in the wings
and advisor* in the form of REITs
being formed. These
REIT's offer the
highest price for a
particular deal in
exchange for a
seller waiting for,
and taking the risk
of, the REIT raising
money.
National real 2-5 4 10 4 Prices property
estate investor based on current
and advisor cash yields. Little
emphasis on future
appreciation due to
uncertainty concern-
ing future market
conditions.
National 4-5 4-5 7 4 Likes Atlanta, but
developer and 4-5 4-5 thinks that prices
investment are escalating
advisor rapidly for quality
apartments. Also
likes Dallas.
National 0-4 3.5 3-10 3.5 Notes that despite
investment 3-4 3.5 shifts to pricing
advisor based on current
yield, they still
look at appreci-
ation.
National in- 0-4 4 8-10 3 Bullish on Chicago,
surer and 2-4 4 Atlanta, Washington,
investor D.C., and Dallas.
National in- 0-4 4 6-12 4 When pricing prop-
vestment 2-4 4 erty they look for
advisor a satisfactory
return going in, but
also look at price
per sq. ft., rents
in relation to
market, and DCF
using a stabilized
growth/inflation
factor.
</TABLE>
3
QUARTERLY SURVEY OF INVESTMENT CRITERIA: THIRD QUARTER 1993
(continued)
<TABLE>
<CAPTION>
Growth Rates
-----------------------------
Income Expense:
Internal Going-in Residual --------- --------
Property Types Rate of Capitalization Capitalization Years 1 to 3/ Years 1 to 3/
Respondent in Preference Order Return Rate Rate Years 4 to 10 Years 4 to 10
(%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
National investment 1. Office - CBD 14.0 11.0 - 13.0 11.0 - 13.0 0-4 4
advisor* 2. Office - suburban 15.0 11.0 - 13.0 11.0 - 13.0 4 4
3. Industrial - warehouse 13.0 10.0 10.0
National real estate 1. Apartment 10.5 8.0 8.5 - 9.0 0-4 3-4
lender 2. Single - family 11.0 NA NA 3-5 3-4
3. Retail - regional mall 11.0 8.0 8.5 - 9.0
4. Retail - power center 11.5 8.5 9.0 - 9.5
5. Industrial - R&D 12.0 10.0 10.5 - 11.0
6. Industrial - warehouse 12.0 10.0 10.5 - 11.0
7. Office - suburban 12.0 9.5 10.0 - 10.5
8. Office - CBD 12.0 9.5 10.0 - 10.5
9. Retail - neighborhood 13.0 10.5 11.0 - 11.5
10. Hotel 14.0 11.0+ 12.0+
National investment 1. Retail - regional mall 10.75-11.2 8.0-9.0 7.5-8.5 0-5 4.5-5
advisor* 2. Industrial - warehouse 11.0-12.0 10.0-11.5 9.5 5 4.5-5
3. Office - suburban 12.0 9.5-10.5 9.5-10.5
4. Office - CBD 11.5-13.0 8.5-10.0 8.0-8.5
National investment 1. Industrial - warehouse 10.0-11.0 9.0 10.0 0-5 4
advisor 2. Retail - power center 11.0 9.0 10.0 5 4
3. Apartments 10.0-10.5 9.0 10.0
4. Retail - regional mall 10.0 7.5-8.0 8.5-9.0
5. Office - CBD 13.0 10.0 11.0
6. Retail - neighborhood 12.0 10.0 11.0
7. Office - suburban 13.0 10.0 11.0
8. Industrial - R&D 13.0 10.0 11.0
National investment 1. Apartment 11.0 9.0 10.0 0-3 2-4
advisor 2. Retail - power center 11.0 9.0 10.0 2.5-3.5 2-4
3. Office - suburban 12.0 10.0 10.0
4. Retail - neighborhood 12.0 10.0 10.5
5. Industrial - warehouse 11.0 10.0 10.0
6. Office - CBD 13.0 11.0 10.0
7. Industrial - R&D 13.0 10.5 10.0
8. Retail - regional mall 11.0 8.0 9.0
9. Hotel 13.0+ 12.0 12.0
National investment 1. Industrial - warehouse 11.5-12.0 9.0-10.0 9.5-10.5 3 3
advisor 2. Apartment 11.5 8.5-9.5 9.0-10.0 3 3
3. Retail - regional mall 11.0 7.0-8.0 7.5-9.0
<CAPTION>
Anticipated Long-Term
Holding Inflation
Respondent Period Expectation Comments
(years) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
National investment 4-7 4 Believes that the bid-ask spread is now considerably
advisor* narrower and that sellers are more realistic.
National real estate 5-10 4.0 Notes that the bid-ask spread is narrowing and that
lender deals are starting to get done. Prices using a 10-year DCF
plus reversion. Uses the going-in rate as a sanity check.
National investment 10 4.5-5 Continues to focus on regional mall properties in growth
advisor* areas. Is bullish on Washington, D.C. due to the federal
government influence.
National investment 10 3.5 Thinks bid/ask spread has narrowed, mainly as a result
advisor of transfers to lenders.
National investment 7-15 3.5 Models property cash flows using rent spikes, but notes
advisor does not buy on the basis of spikes. Rather, spikes are
seen as "bonuses" yield if they are achieved.
National investment 7-10 3 When pricing property they focus on going-in cash yields
advisor and use 10-year projections as a test of volatility.
</TABLE>
QUARTERLY SURVEY OF INVESTMENT CRITERIA:THIRD QUARTER 1993
(continued)
<TABLE>
<CAPTION>
Internal Going-In Residual
Property Types Rate of Capitalization Capitalization
Respondent in Preference Order Return Rate Rate
(%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National investment 1. Retail--regional mall 11.0 7.0 8.0
advisor* 2. Retail--neighborhood 11.5 9.5 10.0
2. Industrial--warehouse 11.5 9.0 10.0
3. Office--suburban 12.0 10.0 12.0
4. Office--CBD 12.0 10.0 12.0
National lender and 1. Retail--neighborhood 12.0 9.0 10.0
investor 2. Retail--power center 13.0 8.5 9.5
2. Industrial--warehouse 12.0 9.0 10.0
3. Retail--regional mall 11.0 8.0 9.0
3. Industrial--R&D 13.0 10.0 10.0
4. Office--CBD 12.0 9.0 10.0
5. Office--suburban 12.0 10.0 10.0
National lender and 1. Apartment 12.5 9.0 8.5
investor* 2. Retail--neighborhood 12.5 10.5 10.0
3. Industrial--warehouse 12.0 9.25 9.0
4. Retail--power center 12.0 10.0 9.5
5. Office--suburban 14.0 10.5 9.5
6. Industrial--R&D 14.0 11.0 11.0
7. Retail--regional mall 11.0 8.0 7.5
8. Hotel 16.0 13.0 11.0
9. Office--CBD 12.5 9.5 10.0
National investment 1. Apartment 11.75-13.2 8.5-9.25 9.0-9.75
advisor
National lender 1. Apartment 11.0-12.0 9.0 10.0
2. Industrial--warehouse 11.0-12.0 9.0 10.0
3. Retail--regional mall 11.0 9.0 10.0
4. Retail--power center 11.0-12.0 9.0 10.0
5. Retail--neighborhood 11.0-12.0 9.0 10.0
6. Office--suburban 12.0 11.0 10.0
7. Office--CBD 12.0 11.0 10.0
8. Industrial--R&D 12.0 11.0 10.0
9. Hotel 15.0 15.0 15.0
National investment 1. Retail--regional mall 11.0 6.5-7.5 7.5-8.5
advisor 2. Office--CBD 12.0 9.0-10.0 8.0
3. Industrial--warehouse 12.0 9.0-10.0 9.0
4. Office--suburban 13.0 11.0-12.0 9.0
</TABLE>
<TABLE>
<CAPTION>
Growth Rates
------------
Income: Expense: Anticipated Long-Term
------- --------
Years 1 to 3/ Years 1 to 3/ Holding Inflation
Years 4 to 10 Years 4 to 10 Period Expectation Comments
Respondent (%) (%) (years) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
National investment 0-5 5 10 3 Likes retail, particularly South
advisor* 3-5 5 Florida, Seattle, Boston, and the
Northeast in general.
National lender and Varies 4 7-10 4 Notes that a shift to current yield
investor 4 pricing is apparent in the buyers
sector. Potential appreciation may
affect pricing some, however,
current cash flow is the pricing
gauge used.
National lender and 0-4 3-5 5-7 3 Except for the west coast, thinks
investor* 3-4 3-5 that we hit bottom in 1992. Looks
for transaction volume to increase
during 1993.
National investment 4 4 7-10 3 Rates Dallas, Miami, Phoenix,
advisor 4 4 Denver and Houston as the nation's
top five apartment markets. Prices
property based on current cash flow.
National lender Varies Varies 10 3-4 Looks more for value from cash flows
than from residual. Thinks that the
method of pricing is changing to
reflect the "fixed income" people
are looking for.
National investment 0-4 4 10 4 Thinks there is more capital chasing
advisor 4 4 transactions. Notes that yields for
prime regional malls are under
downward pressure.
</TABLE>
- --------------------------------------------------------------------------------
QUARTERLY SURVEY OF INVESTMENT CRITERIA: THIRD QUARTER 1993
(continued)
<TABLE>
<CAPTION>
Internal Going-In Residual
Property Types Rate of Capitalization Capitalization
Respondent in Preference Order Return Rate Rate
(%) (%) (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National investment 1. Industrial - warehouse 11.0 9.5 10.0
advisor* 2. Apartment 11.0 9.0 10.0
3. Retail - neighborhood 11.5 10.0 11.0
4. Industrial - R&D 11.5 10.0 10.5
5. Retail - regional mall 10.5 7.5 8.0
6. Retail - power center 12.0 9.0 10.0
7. Office - suburban 12.0 12.5 10.0
8. Office - C&D 11.5 12.0 10.0
National investment 1. Industrial - warehouse 12.0 10.0 10.0
advisor 2. Industrial - R&D 12.5 10.5 10.0
3. Office - suburban 12.5 12.0 10.0
4. Office - CBD 13.0 10.0 10.0
5. Apartment 11.0 9.0 10.0
National investor* 1. Office - C&D 13.0 NA 9.0
2. Office - suburban 13.0 NA 9.5
3. Apartment 12.5 9.5 10.0
4. Retail - regional mall 12.0 NA 7.5
National investment 1. Industrial - warehouse 11.0-12.5 8.25-9.25 8.25-9.25
advisor 2. Apartment 11.5-12.5 9.5 9.5
3. Retail - neighborhood 11.5-12.5 9.5 9.5
4. Office - suburban 13.0-15.0 10+ 10+
</TABLE>
<TABLE>
<CAPTION>
Growth Rates
--------------------
Income; Expense; Anticipated Long-Term
------ -------
Years 1 to 3/ Years 1 to 3/ Holding Inflation
Years 4 to 10 Years 4 to 10 Period Expectation Comments
(%) (%) (years) (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
National investment 0-3 4 6-10 4 Says that the REIT market is
advisor* 3 4 growing, but thinks that the REIT
boom is nearly over.
National investment 0 3-4 10 3-4 Pricing is based on current
advisor 2-3 3-4 cash yields. Favors a low
inflation/low interest rate
environment and thinks that the
market will be hurt if rates rise
in the near term.
National investor* Varies 4 10 4 Does not think the bid/ask
Varies 4 spread has really narrowed, but
transaction volume is picking up
because deal sizes are getting
larger.
National investment 0-5 4 8-10 4 Focuses on cash yields and returns
advisor 2-5 4 generated from market rental rates
vs. rent roll, which today is
typically higher than prevailing
market rates.
</TABLE>
- --------------------------------------------------------------------------------
DEFINITIONS:
YIELD (IRR)
Internal rate of return (IRR) is the rate of interest that discounts the pre-
income tax cash flows received by the equity investor(s) back to a present value
that is exactly equal to the amount of the original equity investment. It is in
effect a time-weighted average return on equity and as used here, is synonomous
with the term "yield."
GOING-IN CAP RATE
First-year NOI divided by present value (or purchase price), unless otherwise
noted.
RESIDUAL CAP RATE
Usually a capitalization rate used to estimate resale or reversion value at the
end of the holding period.
GROWTH RATE
Annual compounded rate of increase in revenue and expenses over current-year
levels. Further expenses are typically forecast on a line-by-line basis.
QUARTERLY SURVEY OF INVESTMENT CRITERIA: THIRD QUARTER 1993
(continued)
<TABLE>
<CAPTION>
Internal Going-In Residual
Property Types Rate of Capitalization Capitalization
Respondent in Preference Order Return Rate Rate
(%) (%) (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Southern investment 1. Retail - neighborhood 12.25 10.0 10.5
advisor 2. Retail - power center 12.0 10.0 10.5
3. Apartment 11.5 9.0 9.5
4. Industrial - warehouse 11.0 10.0 10.5
5. Office - suburban 13.5 11.0 11.0
6. Retail - regional mall 12.0 9.0 9.5
7. Industrial - R&D 13.0 13.0 13.0
8. Office - CBD 15.5 13.0 13.0
East Coast investment 1. Office - CBD 10.0-12.0 8.5-9.5 9.5-10.5
advisor* 2. Retail - regional mall 10.0-12.0 7.0-9.0 8.0-10.0
3. Industrial - warehouse 10.0-13.0 9.0-11.0 10.0-12.0
4. Apartment 10.0-12.0 8.5-9.5 9.5-10.5
National investment 1. Apartment 11.0 8.75-9.0 9.25-9.5
advisor 2. Industrial - warehouse 12.0 9.0 9.75
3. Industrial - R&D 12.5 9.25 9.75
East Coast investor 1. Apartment 11.5 9.0 10.0
and advisor 2. Industrial - warehouse 12.0 9.0 10.0
3. Retail - power center 12.0 9.0 10.0
4. Retail - regional mall 12.0 9.0 10.0
5. Retail - neighborhood 12.0 9.0 10.0
6. Industrial - R & D 12.0 9.5 10.0
7. Office - suburban 12.0 10.0 10.0
8. Office - CBD 12.0 10.0 10.0
9. Hotel 14.0 11.0 10.0
National investor and 1. Apartment 11.0-13.0 8.5-9.5 9.0
lender 2. Retail - neighborhood 12.0-15.0 9.5-10.0 10.0
3. Retail - power center 11.0-13.0 9.0 10.0
4. Retail - regional mall 10.0-12.0 7.0 8.0
5. Industrial - warehouse 12.0-15.0 10.0 10.0
West Coast investment 1. Apartment 12.5 9.0-9.5 9.5-10.0
advisor 2. Industrial - warehouse 12.0 9.0-10.0 9.5-10.0
3. Retail - regional mall 12.0 7.0-8.0 7.5-8.5
4. Retail - neighborhood 12.5 9.0-10.0 9.5-10.5
</TABLE>
<TABLE>
<CAPTION>
Growth Rates
------------------------------
Income: Expense: Anticipated Long-Term
------------- -------------
Years 1 to 3/ Years 1 to 3/ Holding Inflation
Years 4 to 10 Years 4 to 10 Period Expectation Comments
(%) (%) (years) (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Southern investment 0-4.5 4 5-10 4 Notes that there are more
advisor 2.5-4.5 4 apartment buyers in the market,
particularly REITs, which are
pushing cap rates down.
East Coast investment 0-4 4.5 10-15 4.5 Capital availability remains poor.
advisor* 4 4.5 Lenders are the primary sellers,
trying to unload REO properties.
Buyers are mainly entreprenurial
individuals.
National investment 3-4 4 5-10 4 Notes that apartment cap rates are
advisor 3-4 4 falling as REITs buy up property.
Thinks "B" apartments are starting
to look more attractive.
East Coast investor 0-4 4 10 4 Prices property using going-in
and advisor 3-4 cap rate and will continue to do
so as long as inflation remains
low.
National investor and 0.4 4 6-10 4 Considers going-in cap rate, price
lender 4 4 per unit as compared to
replacement cost, and IRR when
pricing properties.
West Coast investment 0.4 3-4 10 3-4 Reports that transaction activity
advisor 4 3-4 has picked up during the first six
months of 1993, and that more money
is available and ready to buy.
</TABLE>
<PAGE>
[LOGO OF APPRAISAL GROUP APPEARS HERE]
EXHIBIT 17 (B) (6)
REPLY TO: N.J. Office
December 21, 1995
Mr. James Wright
CFO - Trump Taj Mahal Casino Resorts
1000 Boardwalk
Atlantic City, New Jersey 08401
Re: Trump Taj Mahal Realty Corp.
Atlantic City, New Jersey
Our Ref. #95029-1
----------------------------
Dear Mr. Wright;
Pursuant to your authorization, an appraisal has been made of the
above-captioned premises in order to estimate the Market Value, as of December
20, 1995. Market Value is defined within the report, which contains the
collective data and analyses upon which our value estimate is concluded.
Trump Taj Mahal Realty Co. consists of various parcels of land (see enclosed)
used in conjunction and operation of the Trump Taj Mahal Casino Resorts in
Atlantic City, New Jersey. The property consists of a total 15.31+ Acres, which
include various parcel situated under the Taj Mahal main structure, the Steel
Pier and the Virginia Avenue warehouse (lots 119 & 120).
Based upon the findings, it is our opinion that the Market Value, subject to the
assumptions and limiting conditions as set forth herein, as the value date,
December 20, 1995, is in the range of $80,180,000 (R) to $95,590,000 (R).
This letter and the collective data and analyses upon which our value estimate
is concluded are integral parts of our findings and conclusions.
Respectfully submitted,
APPRAISAL GROUP International
/s/ Avi M. Vardi, Mai
---------------------------------
AVI M. VARDI, MAI
N.J. State Certified Real Estate
General Appraisers #RG00641
AMV:kk
<PAGE>
TRUMP TAJ MAHAL REALTY CORP.
- ----------------------------
<TABLE>
<CAPTION>
BLOCK LOT AREA - SQ. FT. ACRES
<S> <C> <C> <C> <C> <C>
13 116 36,575 0.840
118.01 55,050 1.264
128.03 16,849 0.387
128.04 47,755 1.096
128.06 59,880 1.375
128.07 47,620 1.093
128.08 40,951 0.940
129.01 44,444 1.020
129.02 1,359 0.031 Estimated Value
129.06 19,750 0.453 $150.00 $175.00
------------ -----------
142 12,300 0.282
TOTAL BLK 13........ 382,533 SQ. FT. 8.78 ACRES $57,379,950 $66,943,275
16 17 16,501 0.379
18 7,501 0.172
41 7,501 0.172
65 38,994 0.895
TOTAL BLK 14........ 70,497 SQ. FT. 1.62 ACRES $10,574,550 $12,336,975
Estimated Value @
$75.00 $100.00
----------- -----------
(STEEL PIER)
14 42 150,300 SQ. FT. 3.450 ACRES $11,272,500 $15,030,000
VIRGINIA AVE. W'HOUSE
119 6 7,876 0.181
22 4,373 0.100
39 4,225 0.097
58 2,448 0.056 Estimated Value @
68 6,750 0.155 $15.00 $20.00
-------- --------
85 5,925 0.136
TOTAL BLK 119 31,597 SQ. FT. 0.73 ACRES $473,955 $631,940
120 23 4,948 0.114
33 2,627 0.060
44 2,252 0.052
58 17,325 0.398
65 2,500 0.057
66 2,500 0.057
TOTAL BLK 120 32,152 SQ. FT. 0.74 ACRES $482,280 $643,040
- ----------------------------------------------------------------------------------------
SUMMARY
- -------
BLOCK 13 382,533 SQ. FT. 8.78 ACRES
BLOCK 14 70,497 1.62
STEEL PIER 150,300 3.45
BLOCK 119 31,597 0.73
BLOCK 120 32,152 0.74 ESTIMATED VALUE RANGE...
--------- ------
TOTAL TRUMP REALTY LAND 667,079 SQ. FT. 15.31 ACRES $80,183,235 -TO- $95,585,230
=========== ===========
</TABLE>
APPRAISAL GROUP INTERNATIONAL
<PAGE>
EXHIBIT 17 (C)(2)
TAJ MAHAL HOLDING CORP.
TRUMP TAJ MAHAL ASSOCIATES
TRUMP TAJ MAHAL FUNDING, INC.
1000 The Boardwalk
Atlantic City, New Jersey 08401
As of October 6, 1995
PUTNAM INVESTMENT MANAGEMENT SC FUNDAMENTAL VALUE FUND, L.P.
One Post Office Square SC FUNDAMENTAL VALUE BVI LTD.
Boston, Massachusetts 02109 512 Fifth Avenue
New York, New York 10019
Attention: Mr. Robert M. Paine
---------
Attention: Peter Collery
---------
HAMILTON PARTNERS, L.P.
48 Par-la-Ville road
Suite #43
Hamilton HM 11, Bermuda
Attention: Thomas F. Dailey
---------
PRUDENTIAL SECURITIES
One New York Plaza
16th Floor
New York, New York 10292
Attention: Mr. Raymond Lemanski
---------
GRACE BROTHERS LTD.
100 West Diversey Parkway
Chicago, Illinois 60614
Attention: Mr. Bradford Whitmore
---------
Re: Taj Mahal Holding Corp. Class A Common Stock
--------------------------------------------
Gentlemen:
Taj Mahal Holding Corp., Trump Taj Mahal Associates and Trump Taj Mahal
Funding, Inc. (collectively, the "Trump Entities") have discussed with you the
possibility that the Trump Entities may before April 30, 1996 effect a
recapitalization (the "Recapitalization") of Trump Taj Mahal Associates
("Associates"). The terms of the Recapitalization have not been negotiated, but
the Recapitalization is likely to involve the following steps:
(a) a transaction involving the purchase, redemption, exchange or
defeasance of all 11.35% Mortgage Bonds, Series A, due 1999 (the "Old
Bonds") issued by Trump Taj Mahal Funding, Inc. ("Taj Funding") (the
"Bond Redemption");
(b) the redemption, in accordance with the Certificate of Incorporation of
Taj Mahal Holding Corp. ("Taj Holding Corp."), of each share of Class
B Common Stock of Taj Holding Corp. (the "Class B Common Stock") in
connection with the Bond Redemption; and
(c) a merger (the "Merger") of Taj Holdings Corp. and a newly formed
subsidiary in which, among other matters, (i) each share of Class A
Common Stock of Taj Holding Corp (the "Class A Common Stock")
-1-
<PAGE>
and (ii) in the event the Merger is structured as a Stock Transaction
(as defined below), each share of Class C Common Stock of Taj Holding
Corp. (the "Class C Common Stock') would be converted into the right
to receive the merger consideration described in the next paragraph of
this letter agreement.
In anticipation of their negotiation of the terms of the Recapitalization
and to induce each of you (the "Holders") (i) to agree to vote the shares of the
Class A Common Stock now held by you in favor of the Merger and to approve any
amendment to the Certificate of Incorporation of Taj Holding Corp. required in
order to effectuate the Recapitalization (which amendment shall only be
effective upon consummation of the Merger)(a "Charter Amendment), provided that
such Recapitalization is to be consummated on or before April 30, 1996, and (ii)
not to sell, transfer or otherwise dispose of such shares prior to April 30,
1996 except on the terms hereinafter provided, the Trump Entities hereby agree
with each of you that they will, subject only to the conditions precedent
outlined in the next sentence, seek to effect, as promptly as possible after the
date hereof and no later than April 30, 1996, the Merger, in which each share of
the Class A Common Stock will be converted into a right to receive, at the
option of each Holder, either (1) cash in an amount not less than $30, or (2)
shares of the publicly-traded Common Stock of Trump Hotels and Casino Resorts,
Inc. ("Trump Hotels & Casinos") having a Market Value (as herein defined) of not
less than $30 (the "Stock Transaction") in the event that such shares are made
available by Trump Hotels & Casinos, in either event such Merger consideration
to be paid on or before April 30, 1996. The obligation of the Trump Entities to
consummate the Merger is subject to (a) the receipt by the Trump Entities of all
necessary consents, approvals and authorizations of any governmental or
administrative agency, having jurisdiction or other third parties, (b) if the
Trump Entities seek to consummate the Stock Transaction, the approval by the
Board of Directors of Trump Hotels & Casinos of a merger agreement providing for
such transaction on terms acceptable to it and, if required by such Board, the
receipt of an opinion of a nationally recognized investment banking firm as to
the fairness, from a financial point of view, of such transaction to the common
stockholders of Trump Hotels & Casinos, (c) the receipt by the Trump Entities of
financing, on terms acceptable to the Trump Entities, in an amount sufficient to
effectuate the Recapitalization, (d) the terms of the merger agreement and all
other documentation required for the Recapitalization being satisfactory to the
Trump Entities and (e) if required by the Class B Directors of Taj Holding
Corp., the receipt of an opinion of a nationally recognized investment banking
firm as to fairness, from a financial point of view, of the Merger to the
holders of the Class A Common Stock.
Subject to the terms and conditions set forth below, each Holder covenants
and agrees with the Trump Entities to vote, consent or otherwise cause its Owned
Securities (as herein defined) to be voted in favor of the Merger and the
Charter Amendment, if the vote thereon is taken as part of the Recapitalization
to be consummated during the term of this letter agreement. Each Holder further
covenants and agrees that it will not, without the written consent of the Trump
Entities, (i) grant any proxies to any person authorizing such person to vote
the Owned Securities on the First Merger or the Charter Amendment in any manner
inconsistent with the consummation of the Recapitalization or (ii) sell,
transfer or otherwise dispose of the Owned Securities, except pursuant to the
terms of the Merger; provided; however, that the foregoing shall not restrict a
-------- -------
sale, transfer or other disposition of any of the Owned Securities by a Holder
to a party which agrees in writing with the Holder and the Trump Entities to be
subject to the terms and conditions of this letter agreement.
-2-
<PAGE>
Each of Putnam Investment Management (for the funds and accounts advised by
it that hold Class A Common Stock), Hamilton Partners, L.P., Prudential
Securities (for its accounts), Grace Brothers Ltd., SC Fundamental Value Fund,
L.P. and SC Fundamental Value BVI Ltd. (each a "Holder"), represents and
warrants to the Trump Entities that, as of the date hereof, (i) such Holder
either (A) is the beneficial owner of not less than the number of shares of
Class A Common Stock set forth below its signature (the "Owned Securities"), or
(B) has investment or voting discretion with respect to such Owned Securities
and has the power and authority to bind the beneficial owner of such Owned
Securities to the terms of this letter agreement, and (ii) such Holder has full
power and authority to vote and consent in favor of the Merger and Charter
Amendment and to exchange, assign and transfer the Owned Securities upon the
consummation of the Merger in exchange for the Merger consideration hereinabove
described.
The foregoing covenants and agreements of the Holders are made upon the
following terms and conditions:
1. Fee. As part of the consideration for each Holder's covenant and
----
agreement not to sell its Owned Securities, all as herein provided, the Trump
Entities shall pay or cause to be paid pro rata to the Holders an aggregate fee
of $701,840 concurrently with the execution hereof and a further aggregate fee
of $701,840 on March 15, 1996; provided; however, that such further fee need not
-------- -------
be paid if, prior to that date, the Merger shall have been consummated.
2. Term and Termination. This letter agreement shall terminate, the
--------------------
foregoing covenants and agreements of the Holders shall cease to bind the
Holders and the Trump Entities and the foregoing votes shall be deemed to be
null and void, upon the earlier to occur of:
(i) April 30, 1996; or
(ii) the date upon which any default under the Indenture under the
terms of which the 15 1/2% Senior Secured Notes due 2005 of Trump
Hotels & Casino Resorts Holdings, L.P. and Trump Hotels & Casino
Resorts Funding, Inc. are outstanding becomes an Event of Default, as
that term is from time to time defined in that Indenture; or
(iii) default in payment of the fee on March 15, 1996, if the Merger
has not been consummated prior to that date.
3. Condition Precedent. The obligations of each Holder to vote or
-------------------
consent or to cause the Owned Securities to be voted as herein provided is
subject to the obtaining by the Trump Entities of all necessary consents,
approvals and authorizations of any governmental or administrative agency or any
other person or entity of any of the transactions contemplated in the
restructuring, including without limitation the approval of the New Jersey
Casino Control Commission and the declaration by the Securities and Exchange
Commission of the effectiveness of any registration statement/merger proxy
statement required in connection with the Recapitalization.
4. Counsel Fees; Indemnification. The Trump Entities shall promptly pay
-----------------------------
the reasonable fees and disbursements of the Holders' special counsel, Ropes &
Gray, relating to the preparation of this letter agreement and to all actions of
each Holder, including without limitation permitted sales of Owned Securities,
taken in accordance with this letter agreement. The Trump Entities also shall
indemnify each of the Holders, their respective directors, trustees, officers,
counsel, special counsel, employees and agents and each
-3-
<PAGE>
other person, if any, who controls any of Putnam Investment Management, Hamilton
Partners, L.P., Prudential Securities, Grace Brothers Ltd., SC Fundamental Value
Fund, L.P. or SC Fundamental Value BVI Ltd. or the funds or accounts managed by
it and to hold the Holders and such other persons harmless from and against all
losses, claims, damages, liabilities and expenses (including expenses of
litigation or preparation therefore, all collectively referred to as
"Liabilities"), which the Holders or any such person in connection with or
rising out of the matters referred to herein, except for Liabilities incurred
under circumstances where the proposed indemnitee has been determined by a court
of competent jurisdiction not to have acted in good faith or where the
Liabilities arose primarily out of the gross negligence or willful misconduct of
the indemnitee. For purposes of this indemnification covenant, any person or
entity to whom a Holder transfers Owned Securities in accordance with the terms
of this letter agreement shall be a Holder entitled to indemnification as
hereinabove provided.
5. Market Value. If the Merger consideration for the Class A Common
------------
Stock is to be shares of the Class A Common Stock of Trump Hotels & Casinos (the
"Holding Company Public Stock"), rather than cash, the Market Value of each
share of Holding Company Public Stock shall be the average of the mean between
the bid and asked prices per share of such stock on each of the fifteen trading
days immediately preceding the consummation of the Merger.
6. Governing Law; Casino Control Act; Jurisdiction.
-----------------------------------------------
(a) This agreement and all amendments hereof and waivers and consents
hereunder shall be governed by the internal law of the State of New York,
without regard to the choice of law and conflict of laws principles thereof.
(b) Notwithstanding anything to the contrary contained in this agreement,
this agreement shall be deemed to include all provisions required by the New
Jersey Casino Control Act and the regulations promulgated thereunder (the
"Act"). To the extent that any term or provision contained in this agreement
shall be inconsistent with the Act, the provisions of the Act shall term or
provision contained in this agreement shall be inconsistent with the Act, the
provisions of the Act shall govern. All provisions of the Act, to the extent
required by law to be included in this agreement, are incorporated herein by
reference as if fully restated in this agreement.
(c) Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this agreement may be brought against any of the
parties in the courts of the State of New York, or, if it has or can acquire
jurisdiction, in the United States District Court for the Southern District of
New York, and each of the parties hereby consents to the exclusive jurisdiction
of such courts (and of the appropriate appellate courts) in any such action or
proceeding, and waives any objection to venue laid therein.
7. Specific Performance. The parties acknowledge that the subject matter
--------------------
of this agreement is unique and that no adequate remedy of law would be
available for breach of this agreement by the Holders. Accordingly, the Holders
agree that the Trump Entities will be entitled to an appropriate decree of
specific performance or other equitable remedies to enforce this Agreement
(without any bond or other security being required), and each Holder waives the
defense in any action or proceeding brought to enforce this Agreement and there
exists an adequate remedy of law.
The parties hereto acknowledge and agree that nothing contained herein
shall be deemed or construed to constitute any intention, agreement or
understanding whatsoever of Trump Hotels & Casino Resorts, Inc. or any of its
affiliates, including without limitation, Donald J. Trump with respect to his
-4-
<PAGE>
interest in any such entity, with respect to the Recapitalization or any other
matter contemplated by this letter agreement.
If the foregoing terms accurately reflect our discussions and, to the
extent aforesaid, your agreement, please execute a counterpart of this letter
and return it to us.
Very truly yours,
TRUMP TAJ MAHAL ASSOCIATES
By: /s/ Donald J. Trump
-------------------
TAJ MAHAL HOLDING CORP.
By: /s/ Donald J. Trump
-------------------
TRUMP TAJ MAHAL FUNDING, INC.
By: /s/ Donald J. Trump
-------------------
-5-
<PAGE>
Accepted and Agreed to:
PUTNAM INVESTMENT MANAGEMENT
as investment advisor to
certain beneficial holders
<TABLE>
<S> <C> <C>
By /s/ Jin Ho October 6, 1995
------------------------------
Number of Shares of Class A Common Stock: 135,000
PRUDENTIAL SECURITIES
By /s/ Raymond Lemansk: ___________, 1995
------------------------------
Number of Shares of Class A Common Stock: 56,104
HAMILTON PARTNERS, L.P.
By Securities Trading Limited, General Partner
By /s/ Thomas F. Dailey ___________, 1995
------------------------------
Thomas F. Dailey, President
Number of Shares of Class A Common Stock: 325,736
GRACE BROTHERS LTD.
By /s/ Bradford Whitmore ___________, 1995
------------------------------
Number of Shares of Class A Common Stock: 95,000
SC FUNDAMENTAL VALUE FUND, L.P.
SC FUNDAMENTAL VALUE BVI LTD.
By /s/ Peter Collery ___________, 1995
------------------------------
Number of Shares of Class A Common Stock: 90,000
</TABLE>
-6-
<PAGE>
-7-
<PAGE>
-8-
<PAGE>
-9-
<PAGE>
-10-
<PAGE>
EXHIBIT 17 (C)(3)
DONALD J. TRUMP
725 FIFTH AVENUE
NEW YORK, NEW YORK 10022
January 8, 1996
Taj Mahal Holding Corp.
1000 The Boardwalk
Atlantic City, New Jersey 08401
Attention: Board of Directors
Dear Sirs:
In connection with the merger of THCR Merger Corp. ("Merger Sub"), a wholly
owned subsidiary of Trump Hotels & Casino Resorts, Inc. ("THCR"), with and
into Taj Mahal Holding Corp. ("Taj Holding"), and the related transactions
described in the Agreement and Plan of Merger (the "Merger Agreement"), dated
as of January 8, 1996, by and among THCR, Merger Sub and Taj Holding, and as
an inducement for the parties thereto to enter into the Merger Agreement, I
hereby agree to vote or to cause to be voted all shares of Class C Common
Stock, par value $.01 per share, of Taj Holding beneficially owned by me for
approval and adoption of the Merger Agreement.
My agreement herein to vote in favor of the Merger Agreement shall terminate
at such time as the Merger Agreement is terminated in accordance with its
terms.
Sincerely,
/s/ Donald J. Trump
-------------------------------------
Donald J. Trump
<PAGE>
EXHIBIT 17(d)
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 11, 1996
JOINT PROXY STATEMENT-PROSPECTUS
-----------
JOINT PROXY STATEMENT PROSPECTUS
FOR FOR
TRUMP HOTELS & CASINO TRUMP HOTELS & CASINO RESORTS, INC.
RESORTS, INC.
AND
TAJ MAHAL HOLDING CORP.
-----------
SPECIAL MEETING OF STOCKHOLDERS OF TRUMP HOTELS & CASINO RESORTS, INC. TO BE
HELD MARCH , 1996
SPECIAL MEETING OF STOCKHOLDERS OF TAJ MAHAL HOLDING CORP. TO BE HELD MARCH ,
1996
-----------
This Joint Proxy Statement-Prospectus (the "Proxy Statement-Prospectus") is
furnished in connection with the solicitation of proxies by the Board of
Directors of Trump Hotels & Casino Resorts, Inc., a Delaware corporation
("THCR"), for use at a Special Meeting (including any and all adjournments or
postponements thereof, the "THCR Special Meeting") of stockholders of THCR, and
in connection with the solicitation of proxies by the Board of Directors of Taj
Mahal Holding Corp., a Delaware corporation ("Taj Holding"), for use at a
Special Meeting (including any and all adjournments or postponements thereof,
the "Taj Holding Special Meeting") of stockholders of Taj Holding. The THCR
Special Meeting will be held on March , 1996 at and the Taj Holding
Special Meeting will be held on March , 1996 at .
This Proxy Statement-Prospectus relates, among other things, to the proposed
merger (the "Merger") of THCR Merger Corp., a Delaware corporation ("Merger
Sub") and a wholly owned subsidiary of THCR, with and into Taj Holding pursuant
to the Agreement and Plan of Merger, dated as of January 8, 1996 (the "Merger
Agreement"), among THCR, Taj Holding and Merger Sub. As a result of the Merger
and the related transactions discussed below, Trump Hotels & Casino Resorts
Holdings, L.P., a Delaware limited partnership ("THCR Holdings") and a
subsidiary of THCR, will wholly own Trump Taj Mahal Associates ("Taj
Associates"), the owner and operator of the Trump Taj Mahal Casino Resort (the
"Taj Mahal"). If the Merger is approved and consummated, each share of Class A
Common Stock, par value $.01 per share, of Taj Holding ("Taj Holding Class A
Common Stock") issued and outstanding immediately prior to the Effective Time
of the Merger (as defined in the Merger Agreement) (other than treasury stock
held by Taj Holding, shares owned by any direct or indirect subsidiary of Taj
Holding and Dissenting Shares (as defined herein)) will be converted into the
right to receive, at each holder's election, either (a) $30.00 in cash or (b)
that number of shares of Common Stock, par value $.01 per share, of THCR ("THCR
Common Stock") as is determined by dividing $30.00 by the Market Value. Market
Value is defined as the average of the high and low per share sales prices on
the New York Stock Exchange ("NYSE") of a share of THCR
(Continued on following page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE MERGER TRANSACTION
(AS DEFINED HEREIN).
-----------
This Proxy Statement-Prospectus also constitutes the Prospectus of THCR with
respect to the shares of THCR Common Stock to be issued in connection with the
Merger. The THCR Common Stock is listed on the NYSE under the symbol "DJT." On
February , 1996, the last reported sales price of THCR Common Stock on the
NYSE was $ . See "Market Price and Dividend Data."
This Proxy Statement-Prospectus and the accompanying forms of proxy are first
being mailed to stockholders of THCR and Taj Holding on or about February ,
1996.
-----------
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR
ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE FAIRNESS OR MERITS
OF THIS TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
NEITHER THE NEW JERSEY CASINO CONTROL COMMISSION, THE INDIANA GAMING
COMMISSION NOR ANY OTHER REGULATORY AUTHORITY HAS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-----------
THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS IS FEBRUARY , 1996.
<PAGE>
(Continued from previous page)
Common Stock on the fifteen trading days immediately preceding the Effective
Time of the Merger. No fractional shares of THCR Common Stock will be issued
in the Merger.
The Merger Agreement also contemplates the following transactions occurring
in connection with the Merger:
(a) the consummation of the offering by THCR of up to $140,000,000 of THCR
Common Stock (and an amount to be issued pursuant to the underwriters' over-
allotment option) (the "THCR Stock Offering") and the consummation of the
offering by Trump Taj Mahal Funding, Inc. ("Taj Funding") of up to
$750,000,000 aggregate principal amount of debt securities (the "Taj Notes")
(the "Taj Note Offering," and, together with the THCR Stock Offering, the
"Offerings"), the aggregate net proceeds of which will be used, together
with available cash of Taj Associates, to (i) pay cash to those holders of
Taj Holding Class A Common Stock electing to receive cash in the Merger,
(ii) redeem Taj Funding's outstanding 11.35% Mortgage Bonds, Series A due
1999 (the "Bonds"), (iii) redeem the outstanding shares of Class B Common
Stock, par value $.01 per share, of Taj Holding (the "Taj Holding Class B
Common Stock") as required in connection with the redemption of the Bonds
pursuant to the Amended and Restated Certificate of Incorporation of Taj
Holding (the "Taj Holding Certificate of Incorporation"), (iv) purchase
certain real property used in the operation of the Taj Mahal that is
currently leased from Trump Taj Mahal Realty Corp. ("Realty Corp."), a
corporation wholly owned by Donald J. Trump ("Trump"), and (v) make a
payment to Bankers Trust Company ("Bankers Trust") to obtain releases of the
liens and guarantees that Bankers Trust has with respect to Taj Associates;
(b) the contribution by Trump to THCR Holdings and Taj Mahal Holdings LLC
("Taj Holdings LLC"), a subsidiary of THCR Holdings, of all of his direct
and indirect ownership interests in Taj Associates; and
(c) the contribution by THCR to THCR Holdings and Taj Holdings LLC of all
of its indirect ownership interests in Taj Associates acquired in the
Merger.
The Merger is contingent upon the consummation of the other transactions
contemplated by the Merger Transaction. As a result of the Merger Transaction,
THCR's and Trump's beneficial equity interests in THCR Holdings will be
approximately % and %, respectively. In addition, THCR will issue to Trump a
warrant to purchase an aggregate of 1.8 million shares of THCR Common Stock,
one third of which may be purchased on or prior to (i) the third anniversary
of the issuance of the warrant at $30.00 per share, (ii) the fourth
anniversary of the issuance of the warrant at $35.00 per share and (iii) the
fifth anniversary of the issuance of the warrant at $40.00 per share The
Merger and the related transactions discussed above are collectively referred
to as the "Merger Transaction."
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT-PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES
OFFERED BY THIS PROXY STATEMENT-PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN
ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS NOR THE
ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH HEREIN SINCE THE DATE HEREOF OR INCORPORATED BY REFERENCE HEREIN SINCE
THE DATE HEREOF.
AVAILABLE INFORMATION
THCR has filed with the office of the Securities and Exchange Commission
(the "SEC") in Washington, D.C., a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. The
Registration Statement includes the Joint Proxy Statement of THCR and Taj
Holding filed with the SEC in connection with the Merger Agreement. Trump,
THCR, THCR Holdings, Taj Holding, TM/GP Corporation ("TM/GP") and Merger Sub
have filed with the SEC a Rule 13e-3 Transaction Statement on Schedule 13E-3
(the "Schedule 13E-3") with respect to the Merger. This Proxy Statement-
Prospectus does not contain all of the information set forth in the
Registration Statement and the Schedule 13E-3, certain portions of which have
been omitted as permitted by the rules and regulations of the SEC. Such
additional information can be inspected at, and obtained from, the SEC in the
manner set forth below. For further information pertaining to the securities
offered hereby and to Trump, THCR, THCR Holdings, Taj Holding, TM/GP and
Merger Sub, reference is made to the Registration Statement and to the
Schedule 13E-3, including, in each case, the exhibits filed as parts thereof.
THCR, THCR Holdings, Taj Holding, Taj Associates and Taj Funding are subject
to the informational reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, accordingly, have filed reports
and other information with the SEC. Reports, proxy statements and other
information of THCR, THCR Holdings, Taj Holding, Taj Associates and Taj
Funding filed with the SEC, as well as the Registration Statement and the
Schedule 13E-3, are available for inspection and copying at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at certain regional offices of the SEC
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621-2511 and 7 World Trade Center, New York, New York
10048. Copies of such material can be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The THCR Common Stock is listed on the New York Stock
Exchange, and reports and other information concerning THCR can be inspected
at the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005. The units consisting of $1,000 principal amount of Bonds and one
share of Taj Holding Class B Common Stock (the "Units") are listed on the
American Stock Exchange, and reports and other information concerning Taj
Holding, Taj Associates and Taj Funding can be inspected at the offices of the
American Stock Exchange, 86 Trinity Place, New York, New York 10006.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROXY STATEMENT-PROSPECTUS SUMMARY........................................ 8
General................................................................. 8
Parties to the Merger................................................... 9
The Special Meetings.................................................... 10
Recommendations of the Boards of Directors.............................. 11
Opinions of Financial Advisors.......................................... 12
The Merger Agreement.................................................... 12
Related Merger Transactions............................................. 13
Dissenting Stockholders' Rights of Appraisal............................ 16
Risk Factors............................................................ 16
Stock Exchange Listing.................................................. 16
Comparative Per Share Prices............................................ 16
Comparative Rights of Stockholders...................................... 17
Certain Federal Income Tax Considerations............................... 17
Accounting Treatment.................................................... 17
Regulatory Approvals.................................................... 17
Summary Financial Information of THCR................................... 18
Summary Financial Information of Taj Associates ........................ 21
Corporate and Financial Structure and Organization...................... 23
CURRENT OWNERSHIP STRUCTURE............................................... 24
OWNERSHIP STRUCTURE AFTER THE MERGER TRANSACTION.......................... 25
RISK FACTORS.............................................................. 26
High Leverage and Fixed Charges .......................................... 26
Holding Company Structure; Risk in Refinancing and Repayment of
Indebtedness; Need for Additional Financing............................ 27
Restrictions on Certain Activities...................................... 28
Recent Results.......................................................... 29
Trump Plaza Expansion and the Taj Mahal Expansion....................... 29
The Indiana Riverboat................................................... 32
Competition............................................................. 33
Conflicts of Interest................................................... 36
Control and Involvement of Trump........................................ 37
Reliance on Key Personnel............................................... 38
Strict Regulation by Gaming Authorities................................. 39
Considerations with Respect to the Acquisition or Development of Addi-
tional Gaming Ventures................................................. 40
Limitations on License of the Trump Name................................ 41
The Possible Application of Fraudulent Conveyance Laws to the Merger
Transaction............................................................ 41
Interests of Certain Members of the Boards of Directors of THCR and Taj
Holding................................................................ 42
Limitations Inherent in Fairness Opinions............................... 42
Shares Eligible for Future Sale......................................... 43
Effect of Merger Transaction on Holders of THCR Common Stock............ 43
Trading Markets; Potential Volatility of Market Price................... 44
SPECIAL FACTORS........................................................... 45
Background of the Merger Transaction.................................... 45
Recommendations of the Board of Directors; Reasons for the Merger
Transaction; Fairness of the Merger Transaction........................ 50
Opinions of the Financial Advisors...................................... 54
AGI Appraisals.......................................................... 58
Purpose and Structure of the Merger Transaction......................... 65
Related Merger Transactions............................................. 66
Sources and Uses of Funds in the Merger Transaction..................... 68
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Effects of the Merger Transaction; Operations of Taj Associates
After the Merger Transaction........................................... 69
Interests of Certain Persons in the Merger Transaction.................. 69
Certain Federal Income Tax Consequences................................. 70
GENERAL INFORMATION....................................................... 71
THE THCR SPECIAL MEETING.................................................. 71
Purpose................................................................. 71
Record Date; Voting Rights; Proxies..................................... 71
Quorum.................................................................. 71
Required Vote........................................................... 72
Solicitation of Proxies................................................. 72
THE TAJ HOLDING SPECIAL MEETING........................................... 73
Purpose................................................................. 73
Record Date; Voting Rights; Proxies..................................... 73
Quorum.................................................................. 73
Required Vote........................................................... 73
Solicitation of Proxies................................................. 74
Election Procedures..................................................... 74
THE MERGER AGREEMENT...................................................... 75
The Merger ............................................................. 75
Closing; Effective Time ................................................ 75
Terms of the Merger..................................................... 75
Election Procedures..................................................... 75
Surrender and Payment; Exchange Fund.................................... 76
Dividends; Liability; No Further Rights for Holders Electing Cash Con-
sideration ............................................................ 77
Fractional Shares....................................................... 78
Dissenting Shares....................................................... 78
Conditions to the Merger................................................ 78
Representations and Warranties.......................................... 79
Conduct Pending the Merger.............................................. 80
Other Covenants......................................................... 81
No Solicitation......................................................... 81
Indemnification and Insurance........................................... 82
Termination............................................................. 83
Fees and Expenses....................................................... 83
Amendment; Waiver....................................................... 83
DISSENTING STOCKHOLDERS' RIGHTS OF APPRAISAL.............................. 84
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................. 87
SELECTED HISTORICAL FINANCIAL INFORMATION OF THCR......................... 101
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THCR....................................................... 103
General................................................................. 103
Results of Operations for the Nine-Month Periods Ended September 30,
1995 and 1994.......................................................... 103
Results of Operations for the Years Ended December 31, 1994 and 1993.... 104
Results of Operations for the Years Ended December 31, 1993 and 1992.... 105
Liquidity and Capital Resources......................................... 107
Seasonality............................................................. 110
Inflation............................................................... 110
BUSINESS OF THCR.......................................................... 111
Trump Plaza............................................................. 112
Facilities and Amenities............................................... 113
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Trump Plaza Business Strategy.......................................... 114
Seasonality............................................................. 116
Employees and Labor Relations........................................... 116
Indiana Riverboat....................................................... 116
Other Jurisdictions..................................................... 119
Properties.............................................................. 120
Trademark/Licensing..................................................... 123
The 1992 Plaza Restructuring............................................ 123
Certain Indebtedness of THCR............................................ 124
Legal Proceedings....................................................... 125
SELECTED HISTORICAL FINANCIAL INFORMATION OF TAJ ASSOCIATES............... 128
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF TAJ ASSOCIATES............................................. 129
General................................................................. 129
Results of Operations for the Nine-Month Periods Ended September 30,
1995 and 1994.......................................................... 129
Results of Operations for the Years Ended December 31, 1994 and 1993.... 130
Results of Operations for the Years Ended December 31, 1993 and 1992.... 132
Liquidity and Capital Resources......................................... 133
Taj Associates........................................................ 133
Taj Holding........................................................... 136
Seasonality............................................................. 137
Inflation............................................................... 137
BUSINESS OF TAJ HOLDING................................................... 138
General................................................................. 138
Business Strategy....................................................... 138
Properties.............................................................. 141
Seasonality............................................................. 142
Employees and Labor Relations........................................... 142
The 1991 Taj Restructuring.............................................. 142
Certain Indebtedness.................................................... 143
Bonds................................................................. 143
NatWest Loan.......................................................... 144
First Fidelity Loan/Specified Parcels................................. 145
TTMI Note............................................................. 146
Working Capital Facility.............................................. 146
Legal Proceedings....................................................... 147
ATLANTIC CITY MARKET...................................................... 149
COMPETITION............................................................... 151
REGULATORY MATTERS........................................................ 154
Antitrust Regulations................................................... 154
Gaming Laws--General.................................................... 154
New Jersey Gaming Regulations........................................... 154
Indiana Gaming Regulations.............................................. 161
Other Laws and Regulations.............................................. 166
MANAGEMENT OF THCR........................................................ 168
Directors and Executive Officers........................................ 168
Management of Trump Plaza............................................... 170
Executive Compensation.................................................. 171
Employment Agreements................................................... 174
Compensation of Directors............................................... 175
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Committees of the Board of Directors.................................... 176
Compensation Committee Interlocks and Insider Participation............. 176
MANAGEMENT OF TAJ HOLDING................................................. 177
General................................................................. 177
Directors and Executive Officers........................................ 178
Executive Compensation.................................................. 180
Employment Agreements................................................... 182
Compensation of Directors............................................... 183
Compensation Committee Interlocks and Insider Participation............. 183
CERTAIN TRANSACTIONS...................................................... 184
THCR.................................................................... 184
Plaza Associates........................................................ 185
Taj Holding and Affiliates.............................................. 188
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THCR.... 190
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF TAJ
HOLDING.................................................................. 191
DESCRIPTION OF THCR CAPITAL STOCK......................................... 192
General................................................................. 192
THCR Common Stock and THCR Class B Common Stock......................... 192
THCR Preferred Stock.................................................... 193
Provisions Having Possible Anti-takeover Effects........................ 193
Delaware Law and Certain Charter and By-Law Provisions.................. 194
DESCRIPTION OF THE THCR HOLDINGS PARTNERSHIP AGREEMENT.................... 196
Distributions and Allocations of Profits and Losses..................... 196
Management.............................................................. 196
Transferability of Interests............................................ 197
Additional Capital Contributions; Issuance of Additional Partnership In-
terests................................................................ 197
Exchange and Registration Rights........................................ 197
Tax Matters Partner..................................................... 198
Term.................................................................... 198
Contribution Agreement.................................................. 199
Indemnification......................................................... 199
Certain Regulatory Matters.............................................. 200
Other................................................................... 200
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 201
Voting Rights........................................................... 201
Issuance of Preferred Stock............................................. 201
Stockholders' Meetings.................................................. 202
Business Combinations................................................... 202
Change of Control....................................................... 202
Board of Directors...................................................... 203
Indemnification and Liability of Directors and Officers................. 203
Amendment of Certificate of Incorporation and By-Laws................... 204
Disqualification of Stockholders........................................ 204
MARKET PRICE AND DIVIDEND DATA............................................ 205
THCR.................................................................... 205
Taj Holding............................................................. 205
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 207
The Merger.............................................................. 207
Redemption of the Bonds................................................. 207
Redemption of the Taj Holding Class B Common Stock...................... 207
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Backup Withholding....................................................... 208
SPECIAL TAX CONSIDERATIONS FOR FOREIGN SHAREHOLDERS........................ 209
Dividends................................................................ 209
Gain on Disposition...................................................... 209
Federal Estate Taxes..................................................... 209
Information Reporting and Backup Withholding............................. 210
SUBMISSION OF STOCKHOLDER PROPOSALS........................................ 211
LEGAL MATTERS.............................................................. 211
EXPERTS.................................................................... 211
INDEX TO FINANCIAL STATEMENTS ............................................. F-1
</TABLE>
<TABLE>
<C> <S>
Annex A: Merger Agreement
Annex B: Fairness Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation
Annex C: Fairness Opinion of Rothschild Inc.
Annex D: Delaware General Corporation Law Section 262
</TABLE>
7
<PAGE>
PROXY STATEMENT-PROSPECTUS SUMMARY
The following is a summary of certain of the information contained in this
Proxy Statement-Prospectus and is qualified in its entirety by the more
detailed information and financial statements included elsewhere herein.
Certain capitalized terms used herein are defined elsewhere in the Proxy
Statement-Prospectus. Unless otherwise indicated, the term "THCR" as used
herein includes THCR and its subsidiaries and the term "Taj Holding" includes
Taj Holding and its direct and indirect interests in Taj Associates.
Stockholders of THCR and Taj Holding are urged to read the entire Proxy
Statement-Prospectus and Annexes hereto in their entirety.
GENERAL
The Merger Transaction is designed to combine into one entity two "Four Star"
Atlantic City casino hotels operated by Trump, as well as a riverboat gaming
project currently under development approximately 25 miles southeast of
downtown Chicago (the "Indiana Riverboat"), creating one of the largest casino
entertainment companies in the United States. Upon consummation of the Merger
Transaction, THCR will own and operate the Trump Taj Mahal Casino Resort,
currently Atlantic City's largest casino hotel, and the Trump Plaza Hotel and
Casino ("Trump Plaza"), which will be the largest casino hotel in Atlantic City
upon completion of its ongoing expansion program (the "Trump Plaza Expansion").
As part of the Merger Transaction, the maturity of Taj Associates' long-term
indebtedness will be extended by refinancing the Bonds with the Taj Notes,
providing the Taj Mahal with greater financial flexibility to undertake an
expansion program to increase its hotel room inventory and casino floor space
and expand its parking facilities (the "Taj Mahal Expansion"). In addition,
THCR's ownership and operation of the Indiana Riverboat, to be located at
Buffington Harbor on Lake Michigan, will give it a presence in the greater
Chicago metropolitan area market which is one of the most successful new gaming
markets in the United States. THCR will also continue to be the exclusive
vehicle through which Trump will engage in new gaming activities in both
emerging and established gaming jurisdictions.
THCR believes the acquisition of the Taj Mahal will strengthen THCR's
position as a leader in the casino entertainment industry. The Merger
Transaction will enhance THCR's presence in the growing Atlantic City market,
which, in terms of gaming revenues, has demonstrated a ten year compound annual
growth rate of 6.2% and a growth rate of 9.5% for calendar year 1995 versus
calendar year 1994. After giving effect to the Merger Transaction and the Trump
Plaza Expansion, THCR will have approximately one-quarter of Atlantic City's
casino square footage, slot machines, table games and hotel room inventory. The
combination of the Taj Mahal with THCR's existing and planned operations will
provide opportunities for operational efficiencies, economies of scale and
benefits from the talent, expertise and experience of management at the
operating entities. Management believes that the marquee status of the "Trump"
name, along with the critical mass resulting from the Merger Transaction, will
allow THCR to compete more effectively for prime gaming licenses in other
jurisdictions.
The following table profiles THCR's casino and hotel capacity following the
consummation of the Merger Transaction:
<TABLE>
<CAPTION>
CURRENT PLANNED
-------------- ---------------------------------------------
TRUMP TAJ TRUMP PLAZA INDIANA TAJ MAHAL
PLAZA MAHAL EXPANSION(/1/) RIVERBOAT(/1/) EXPANSION(/2/) TOTAL
------ ------- -------------- -------------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Casino square footage... 73,000 120,000(/3/) 66,340 37,000 60,000 356,340
Slot machines........... 2,325 3,550 2,025 1,500 2,500 11,900
Table games............. 97 162 46 73 -- 378
Hotel rooms............. 555 1,250 849(/4/) -- 1,280 3,934
</TABLE>
- --------
(1) Scheduled to be completed early in the second quarter of 1996.
(2) Plans for the Taj Mahal Expansion, scheduled to be completed in phases from
the fourth quarter of 1996 through the second quarter of 1999, are
preliminary and subject to modification.
(3) Excludes a 12,000 square foot poker, keno and race simulcasting room.
(4) Includes 150 rooms which were opened at Trump Plaza East on October 30,
1995.
8
<PAGE>
THCR will continue to capitalize on the widespread recognition of the "Trump"
name and its association with high quality amenities and first class service.
To achieve this end, THCR will seek to provide a broadly diversified gaming and
entertainment experience consistent with the "Trump" name and reputation for
quality, tailored to the gaming patron in each market. THCR will also seek to
benefit from the "Trump" name in connection with efforts to expand and to
procure new gaming opportunities in the United States and abroad.
PARTIES TO THE MERGER
Trump Hotels & Casino Resorts. THCR owns and operates Trump Plaza, a luxury
casino hotel located on The Boardwalk in Atlantic City, and is currently
developing the Indiana Riverboat. THCR's strategy is to capitalize on Trump
Plaza's reputation for excellence, as well as to meet both existing demand and
the increase in demand that management anticipates will result from the
increased number of available rooms and infrastructure improvements that are
currently being implemented to enhance further the "vacation destination
appeal" of Atlantic City. The ongoing Trump Plaza Expansion, scheduled to be
completed early in the second quarter of 1996, involves the renovation and
integration into Trump Plaza of a hotel located adjacent to Trump Plaza's main
tower ("Trump Plaza East") and the former Trump Regency Hotel ("Trump World's
Fair"), and the construction of new gaming space, retail operations and
entertainment venues.
Upon completion of the Trump Plaza Expansion, Trump Plaza's hotel room
inventory and casino floor space will be the largest in Atlantic City. The
following table details the plans for the Trump Plaza Expansion:
<TABLE>
<CAPTION>
TRUMP PLAZA TRUMP TRUMP
FACILITY(/1/) PLAZA EAST WORLD'S FAIR TOTAL
------------- ---------- ------------ -------
<S> <C> <C> <C> <C>
Casino square footage.......... 75,000 15,000 49,340 139,340
Slot machines.................. 2,400 400 1,550 4,350
Table games.................... 97 13 33 143
Hotel rooms.................... 555 349(/2/) 500 1,404
</TABLE>
- --------
(1) Includes the 2,000 square foot area which will connect the existing
facility with Trump Plaza East and the 75 slot machines to be included in
this area.
(2) Includes 150 rooms which were opened on October 30, 1995.
The Indiana Riverboat, currently scheduled to open for business early in the
second quarter of 1996, will feature an approximately 280-foot luxury yacht
with approximately 37,000 square feet of gaming space, will contain 1,500 slot
machines and 73 table games and will be one of the largest riverboat casinos in
the United States. The Indiana Riverboat's principal market will be the
approximately 6.8 million people residing within 50 miles of Buffington Harbor
in the northern Indiana suburban and Chicago metropolitan areas.
Taj Holding. Taj Holding has no business operations and serves as a holding
company for a 50% investment in Taj Associates. Taj Associates owns and
operates the Taj Mahal, a luxury casino hotel located on The Boardwalk in
Atlantic City. The Taj Mahal is currently the largest casino hotel in Atlantic
City, and has ranked first among all Atlantic City casinos in terms of total
gaming revenues, table revenues and slot revenues since it commenced
operations. The Taj Mahal capitalizes on the widespread recognition and marquee
status of the "Trump" name and its association with high quality amenities and
first class service as evidenced by its "Four Star" Mobil Travel Guide rating.
Management believes that the breadth and diversity of the Taj Mahal's casino,
entertainment and convention facilities will enable the Taj Mahal to benefit
from the growth of the Atlantic City market.
The Taj Mahal consists of a 42-story hotel tower and contiguous low-rise
structure, sited on approximately 17 acres of land. The Taj Mahal has 1,250
guest rooms (including 242 suites), 15 restaurants, six lounges, parking for
approximately 4,600 cars, an 18-bay bus terminal and approximately 65,000
square feet of ballroom, meeting room and pre-function area space. The Taj
Mahal is currently contemplating adding new themed restaurants to be owned and
operated by nationally recognized restaurant operators, including the
Rainforest Cafe. In addition, the Taj Mahal features a 20,000-square-foot
multi-purpose entertainment complex known as the Xanadu Theater with seating
capacity for approximately 1,200 people, which can be used as a theater,
concert hall, boxing arena
9
<PAGE>
and exhibition hall (the "Taj Entertainment Complex") and the Mark Etess Arena,
which comprises an approximately 63,000-square-foot exhibition hall facility.
The Taj Mahal regularly engages well-known musicians and entertainment
personalities and will continue to emphasize weekend marquee events such as
Broadway revues, high visibility sporting events, international festivals and
contemporary concerts to maximize casino traffic and to maintain the highest
level of glamour and excitement at the Taj Mahal.
Following the consummation of the Merger Transaction, THCR plans to undertake
an expansion plan at the Taj Mahal. It is currently expected that the Taj Mahal
Expansion will be funded out of the Taj Mahal's cash from operations and
borrowings and will be completed in phases from the fourth quarter of 1996
through 1999. The Taj Mahal Expansion, the plans for which are preliminary and
subject to change, involves the construction of a 2,200 space expansion of the
Taj Mahal's existing self-parking facilities and a new arena on a surface
parking area located adjacent to the Taj Mahal, each scheduled to be completed
in the fourth quarter of 1996; the conversion of the current site of the Mark
Etess Arena into a new 60,000-square-foot circus-themed casino with 2,500 slot
machines, to be completed in 1997; and the construction of two new 640 room
hotel towers adjacent to the Taj Mahal's existing hotel tower, the first of
which is scheduled to be completed in 1997, and the second of which is
scheduled to begin construction following the completion of the first tower and
be completed in 1999. See "Risk Factors--Trump Plaza Expansion and the Taj
Mahal Expansion."
THE SPECIAL MEETINGS
Time, Place and Date. A Special Meeting of THCR stockholders will be held at
on March , 1996, at 10:00 a.m., local time.
A Special Meeting of Taj Holding stockholders will be held at on March
, 1996, at 10:00 a.m., local time.
Purpose of the Special Meetings. At the THCR Special Meeting, holders of THCR
Common Stock and Class B Common Stock, par value $.01 per share, of THCR ("THCR
Class B Common Stock") will be asked to approve the Merger Transaction, which
approval will constitute approval and adoption of the Merger Agreement.
Stockholders of THCR will also consider and vote upon any other matter that may
properly come before the THCR Special Meeting.
At the Taj Holding Special Meeting, holders of Taj Holding Class A Common
Stock, Taj Holding Class B Common Stock and Class C Common Stock, par value
$.01 per share, of Taj Holding ("Taj Holding Class C Common Stock") will be
asked to approve and adopt the Merger Agreement. Stockholders of Taj Holding
will also consider and vote upon any other matter that may properly come before
the Taj Holding Special Meeting.
Votes Required; Record Date. Approval of the Merger Transaction will require
the affirmative vote of (i) the holders of a majority of the outstanding shares
of THCR Common Stock (excluding directors and executive officers of THCR and
their affiliates) voting as a separate class (representing the approval of a
majority of THCR's unaffiliated stockholders); and (ii) the holders of shares
representing a majority of the outstanding voting power of the THCR Common
Stock and THCR Class B Common Stock voting together as a single class. Only
holders of record of THCR Common Stock and THCR Class B Common Stock at the
close of business on February , 1996 (the "THCR Record Date") are entitled to
vote at the THCR Special Meeting. As of the THCR Record Date (i) directors and
executive officers of THCR and their affiliates had the power to vote shares
representing approximately % of the outstanding shares of THCR Common Stock;
and (ii) Trump had the power to vote 100% of the outstanding shares of THCR
Class B Common Stock, representing approximately 40% of the combined voting
power of the shares of THCR Common Stock and THCR Class B Common Stock. All of
such officers, directors and affiliates have indicated that they intend to vote
their shares for approval of the Merger Transaction. Trump has agreed with THCR
to vote his shares of THCR Class B Common Stock for
10
<PAGE>
approval of the Merger Transaction and at the THCR Special Meeting such shares
will be voted accordingly. See "The THCR Special Meeting."
Approval and adoption of the Merger Agreement will require the affirmative
vote of the holders of a majority of the outstanding shares of each of the Taj
Holding Class A Common Stock, Taj Holding Class B Common Stock and Taj Holding
Class C Common Stock, each voting as a separate class. Only holders of record
of Taj Holding Class A Common Stock, Taj Holding Class B Common Stock and Taj
Holding Class C Common Stock at the close of business on February , 1996 (the
"Taj Holding Record Date") are entitled to vote at the Taj Holding Special
Meeting. As of the Taj Holding Record Date (i) directors and executive officers
of Taj Holding and their affiliates had the power to vote shares representing
approximately % of the Taj Holding Class A Common Stock; (ii) directors and
executive officers of Taj Holding and their affiliates had the power to vote
shares representing approximately % of the Taj Holding Class B Common Stock;
and (iii) Trump had the power to vote 100% of the outstanding shares of Taj
Holding Class C Common Stock. All of such officers, directors and affiliates
have indicated that they intend to vote their shares for approval and adoption
of the Merger Agreement. Trump has agreed with Taj Holding to vote his shares
of Taj Holding Class C Common Stock for approval and adoption of the Merger
Agreement and at the Taj Holding Special Meeting such shares will be voted
accordingly. See "The Taj Holding Special Meeting."
As of the Taj Holding Record Date, there were 1,350,000 shares of Taj Holding
Class A Common Stock outstanding, each of which entitles the holder thereof to
one vote per share. Pursuant to an agreement, dated as of October 6, 1995 (the
"Class A Agreement"), the holders of 701,840 shares of Taj Holding Class A
Common Stock (representing approximately 52% of the outstanding shares of Taj
Holding Class A Common Stock) agreed to vote such shares in favor of the Merger
and at the Taj Holding Special Meeting, such shares will be voted accordingly.
See "Special Factors--Background of the Merger Transaction."
In considering whether to vote for approval of the Merger Transaction or
approval and adoption of the Merger Agreement, as applicable, stockholders
should be aware that certain members of the Board of Directors and management
of each of THCR, Taj Holding and certain of their affiliates have interests
which may present them with actual or potential conflicts of interest in
connection with the Merger Transaction. Trump is the Chairman of the Board of
Directors of THCR and Taj Holding and currently is the beneficial owner of
approximately 40% and 50% of THCR and Taj Associates, respectively.
Furthermore, in connection with the Merger Transaction, certain debt
obligations of Trump and certain of his affiliates will be satisfied, and
certain guarantees of indebtedness by Trump and certain of his affiliates will
be released. See "Risk Factors--Interests of Certain Members of the Boards of
Directors of THCR and Taj Holding," "--Conflicts of Interest" and "Special
Factors--Interests of Certain Persons in the Merger Transaction."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Board of Directors of THCR and the Special Committee of the Board of
Directors of THCR, consisting of its three independent directors (the "THCR
Special Committee"), have considered the terms and conditions of the Merger
Transaction and certain other information, including the opinion of THCR's
financial advisor, and have determined that the proposed Merger Transaction is
fair to, and in the best interests of, THCR, and have unanimously approved the
terms of the Merger Transaction and the Merger Agreement. ACCORDINGLY, THE
BOARD OF DIRECTORS OF THCR RECOMMENDS THAT THE STOCKHOLDERS OF THCR VOTE FOR
APPROVAL OF THE MERGER TRANSACTION.
In order for the Merger to be approved by the Board of Directors of Taj
Holding, it must be approved by both a majority of the entire Board of
Directors of Taj Holding and a majority of the Class B Directors of Taj Holding
(the "Class B Directors"). After considering the terms and conditions of the
proposed Merger Agreement and certain other information, including the opinion
of Taj Holding's financial advisor and the Class A Agreement, the Board of
Directors of Taj Holding (including the Class B Directors) determined that the
11
<PAGE>
proposed Merger is fair to, and in the best interests of, Taj Holding and the
holders of Taj Holding Class A Common Stock, and unanimously approved the terms
of the Merger Agreement. ACCORDINGLY, THE BOARD OF DIRECTORS OF TAJ HOLDING
RECOMMENDS THAT THE STOCKHOLDERS OF TAJ HOLDING VOTE FOR APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT.
For more information on the considerations and recommendations of the Board
of Directors of each of THCR and Taj Holding, see "Special Factors--Background
of the Merger Transaction," "--Recommendations of the Board of Directors;
Reasons for the Merger Transaction; Fairness of the Merger Transaction" and "--
Interests of Certain Persons in the Merger Transaction."
OPINIONS OF FINANCIAL ADVISORS
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") was retained by
THCR to render its opinion to the THCR Special Committee as to the fairness to
THCR, from a financial point of view, of the aggregate consideration to be paid
by THCR pursuant to the transactions contemplated by the Merger Agreement. At a
meeting of the THCR Special Committee held on January 8, 1996 to consider and
vote on the Merger Transaction, DLJ delivered its written opinion to the effect
that, as of such date, the aggregate consideration to be paid by THCR pursuant
to the transactions contemplated by the Merger Agreement is fair, from a
financial point of view, to THCR. A copy of the full written opinion of DLJ,
dated January 8, 1996, is attached to this Proxy Statement-Prospectus as Annex
B, and is incorporated herein by reference and should be read carefully in its
entirety. See "Risk Factors--Limitations Inherent in Fairness Opinions" and
"Special Factors--Opinions of the Financial Advisors."
Rothschild Inc. ("Rothschild") was retained by Taj Holding to render its
opinion to the Board of Directors of Taj Holding, including the Class B
Directors, as to the fairness, from a financial point of view, of the
consideration to be received by the holders of Taj Holding Class A Common Stock
in connection with the Merger Transaction. At a meeting of the Board of
Directors of Taj Holding held on January 8, 1996 to consider and vote on the
Merger, Rothschild delivered its written opinion to the effect that, as of such
date, the consideration to be received by the holders of Taj Holding Class A
Common Stock in connection with the Merger Transaction, is fair, from a
financial point of view, to the holders of Taj Holding Class A Common Stock. A
copy of the full written opinion of Rothschild, dated January 8, 1996, is
attached to this Proxy Statement-Prospectus as Annex C, and is incorporated
herein by reference and should be read carefully in its entirety. See "Risk
Factors--Limitations Inherent in Fairness Opinions" and "Special Factors--
Opinions of the Financial Advisors."
THE MERGER AGREEMENT
Terms of the Merger. The Merger Agreement provides that, subject to the
satisfaction or waiver of the conditions to the Merger, Merger Sub will be
merged with and into Taj Holding in accordance with the Delaware General
Corporation Law ("DGCL") whereupon the separate existence of Merger Sub will
cease and Taj Holding will be the surviving corporation in the Merger (the
"Surviving Corporation"). The Merger will become effective on such date as a
certificate of merger for the Merger (the "Certificate of Merger") is accepted
for filing by the Secretary of State of the State of Delaware in accordance
with the DGCL or at such time thereafter as provided in the Certificate of
Merger (the "Effective Time").
Conversion of Outstanding Shares. At the Effective Time, (i) each share of
Taj Holding Class A Common Stock outstanding immediately prior to the Effective
Time will, except as otherwise provided in the Merger Agreement, be converted
into and represent the right to receive, at the holder's election, either (x)
$30.00 in cash (the "Cash Consideration") or (y) that number of shares of THCR
Common Stock as is determined by dividing $30 by the Market Value (the "Stock
Consideration" and collectively with the Cash Consideration, the "Merger
Consideration"); (ii) each share of Taj Holding Class C Common Stock
outstanding immediately prior
12
<PAGE>
to the Effective Time will be contributed by Trump to Taj Holding and canceled;
(iii) each share of Taj Holding Class A Common Stock held by Taj Holding as
treasury stock immediately prior to the Effective Time or owned by any direct
or indirect subsidiary of Taj Holding immediately prior to the Effective Time
will be canceled, and no conversion or payment will be made with respect
thereto; and (iv) each share of common stock of Merger Sub outstanding
immediately prior to the Effective Time will be converted into and represent
the right to receive one fully paid and nonassessable share of common stock of
the Surviving Corporation. Market Value is defined as the average of the high
and low per share sales prices of the THCR Common Stock during the fifteen
trading days immediately preceding the Effective Time. No fractional shares of
THCR Common Stock will be issued in the Merger.
Election Procedures. Each holder of Taj Holding Class A Common Stock will
receive an election form (the "Election Form") together with this Proxy
Statement-Prospectus permitting each holder of Taj Holding Class A Common Stock
to elect to receive only Stock Consideration or only Cash Consideration. Any
holder of Taj Holding Class A Common Stock who wishes to receive Cash
Consideration must send the Election Form properly completed to the Exchange
Agent (as defined) on or before 5:00 p.m. on the business day prior to the Taj
Holding Special Meeting or such other date as determined by THCR and Taj
Holding (the "Election Deadline"). Holders of the Taj Holding Class A Common
Stock who (i) fail to complete properly the Election Form, (ii) fail to send
the Election Form to the Exchange Agent prior to the Election Deadline or (iii)
make no election, shall be deemed to have elected to receive the Stock
Consideration. Any Election Form may be revoked prior to the Election Deadline
by submitting a new Election Form to the Exchange Agent.
Conditions to the Merger. The respective obligations of Taj Holding, THCR and
Merger Sub to consummate the transactions contemplated by the Merger Agreement
are subject to the fulfillment at or prior to the Effective Time of certain
conditions which may be waived in whole or in part to the extent permitted by
applicable law, including, among other conditions, (i) consummation of the
transactions contemplated by the Merger Transaction; (ii) the Merger Agreement
shall have been duly approved by the requisite votes of the stockholders of
THCR and Taj Holding; (iii) the receipt of certain regulatory approvals,
including approval under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") and the approval of the New Jersey Casino
Control Commission (the "CCC"); (iv) the number of shares of Taj Holding Class
A Common Stock for which written demand for appraisal has been properly made
pursuant to Section 262 of the DGCL shall not have exceeded 5% of the total
number of shares of Taj Holding Class A Common Stock outstanding immediately
prior to the Effective Time; and (v) the shares of THCR Common Stock to be
issued pursuant to the Merger shall have been approved for listing on the NYSE,
subject to official notice of issuance. The obligation of THCR to consummate
the Merger is also subject to the Market Value of the THCR Common Stock being
$20.00 or more.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (i) by joint written consent
of Taj Holding and THCR; (ii) by either Taj Holding or THCR and Merger Sub if
certain conditions of the Merger have not been satisfied or waived at such time
as such condition is no longer capable of satisfaction; or (iii) by any party
to the Merger Agreement if the Merger has not been consummated on or before
June 30, 1996.
RELATED MERGER TRANSACTIONS
The Offerings; Sources and Uses. The Merger Transaction includes the
Offerings, the aggregate net proceeds of which will be used, together with
available cash of Taj Associates, to (i) pay cash to those holders of Taj
Holding Class A Common Stock electing to receive cash in the Merger ($40.5
million assuming all such holders elect Cash Consideration); (ii) redeem the
outstanding Bonds at a redemption price equal to 100% of the principal amount
thereof (approximately $780 million assuming a redemption date of March 31,
1996), plus accrued interest to the date of redemption; (iii) redeem the
outstanding shares of Taj Holding Class B Common
13
<PAGE>
Stock, as required in connection with the Bond redemption, at the redemption
price of $.50 per share (approximately $400,000 in the aggregate); (iv)
purchase, for $50 million in cash and 500,000 shares of THCR Common Stock,
certain real property that is currently leased by Taj Associates from Realty
Corp., a corporation wholly owned by Trump, including land underlying the Taj
Entertainment Complex, land adjacent to the Taj Mahal used by it for surface
parking and bus terminals, the pier located across The Boardwalk from the Taj
Mahal (the "Steel Pier"), and a warehouse complex (collectively, the "Specified
Parcels"); and (v) pay Bankers Trust $10 million to obtain releases of the
liens and guarantees that Bankers Trust has in connection with certain
outstanding indebtedness owed by Trump to certain lenders, including Bankers
Trust (the "Bankers Trust Indebtedness"). See "Special Factors--Related Merger
Transactions."
Specified Parcels Purchase. The Specified Parcels are currently leased by Taj
Associates from Realty Corp. for approximately $3.3 million per year. See
"Business of Taj Holding--Certain Indebtedness--First Fidelity Loan/Specified
Parcels." Realty Corp. has outstanding indebtedness of approximately $78
million owing to First Fidelity Bank, National Association, New Jersey ("First
Fidelity") (the "First Fidelity Loan") which is due November 15, 1999. The
First Fidelity Loan is currently secured on a first lien basis by the Specified
Parcels, and Taj Associates has previously guaranteed the repayment of the
First Fidelity Loan up to a maximum of $30 million. Trump has also previously
personally guaranteed (up to a maximum of approximately $19.2 million), and
pledged his direct and indirect equity interests in Taj Associates as
collateral for, the First Fidelity Loan. As mortgagee, First Fidelity has the
right to terminate the lease on the Specified Parcels, under certain
circumstances, in the event the First Fidelity Loan is not paid when due. See
"Business of Taj Holding--Certain Indebtedness--First Fidelity Loan/Specified
Parcels."
In order to secure future use of the Specified Parcels and eliminate all
future lease payments on the Specified Parcels, Taj Associates expects to cause
the First Fidelity Loan to be satisfied through the payment of $50 million in
cash and 500,000 shares of THCR Common Stock and purchase the Specified Parcels
from Realty Corp. for a nominal amount by exercising a purchase option with
respect to the Specified Parcels. Upon consummation of the purchase of the
Specified Parcels, (i) the lease relating to the Specified Parcels will be
terminated, thus eliminating Taj Associates' rental obligations thereunder;
(ii) the $30 million guaranty by Taj Associates of the First Fidelity Loan will
be released; and (iii) Trump's guaranty of such indebtedness will be released
and First Fidelity will relinquish its lien on Trump's direct and indirect
equity interests in Taj Associates. The Specified Parcels may be part of the
collateral securing the Taj Notes. See "Business of Taj Holding--Certain
Indebtedness--First Fidelity Loan/Specified Parcels."
Consent and Release Payment. As part of the Merger Transaction, Taj
Associates will pay $10 million to Bankers Trust in respect of certain of the
Bankers Trust Indebtedness. The Bankers Trust Indebtedness is currently secured
by, among other things, a promissory note from Trump Taj Mahal, Inc. ("TTMI"),
a corporation wholly owned by Trump and the holder of a 49.995% general
partnership interest in Taj Associates, to Trump (the "TTMI Note"), as well as
a lien on Trump's direct and indirect equity interests in Taj Associates. In
exchange for such payment, Bankers Trust will consent to the Merger Transaction
and release its lien on Trump's direct and indirect equity interests in Taj
Associates and the pledge of the TTMI Note. See "Business of Taj Holding--
Certain Indebtedness--TTMI Note."
Trump Contribution and Consideration. In connection with the Merger
Transaction, Trump will contribute or cause to be contributed all of his direct
and indirect equity interests in Taj Associates (representing a 50% economic
interest) to THCR Holdings and Taj Holdings LLC by contributing to THCR
Holdings his shares (consisting of 50% of the outstanding capital stock) of The
Trump Taj Mahal Corporation ("TTMC"), the holder of a .01% general partnership
interest in Taj Associates, and causing TTMI to contribute to THCR Holdings and
Taj Holdings LLC, TTMI's 49.995% general partnership interest in Taj
Associates.
In addition, Trump will contribute to Taj Holding all of his Taj Holding
Class C Common Stock, which will be canceled pursuant to the Merger Agreement.
The Taj Holding Class C Common Stock provides Trump
14
<PAGE>
with the ability to elect a majority of the members of the Board of Directors
of, and thereby control, Taj Holding. It also affords Trump separate class
voting rights in certain events, including the consummation of the Merger. The
Taj Services Agreement (as defined herein), pursuant to which Trump has
received or will receive $1,862,000, $1,353,000 and $1,566,000 during the years
ended 1995, 1994 and 1993, respectively, as compensation for services rendered
to Taj Associates, will also be terminated in connection with the Merger
Transaction.
Trump, through TTMI, has the right to reduce the equity interest of the Taj
Holding Class A Common Stock in Taj Associates from 50% to 20% by causing Taj
Associates to make a payment to the holders of the Bonds in an amount
calculated to provide them with a cumulative return equal to approximately 14%
per annum (the "14% Payment"). If the 14% Payment is made (which can occur only
if the Bonds are retired, redeemed or paid in full), Trump would beneficially
own 80% of Taj Associates. Moreover, the 14% Payment is permitted to be
financed with Taj Associates' borrowings. In connection with the Merger
Transaction, TTMI does not intend to exercise its right to cause Taj Associates
to make such payment and such right will terminate upon the redemption of the
Bonds.
In exchange for the contribution by Trump and TTMI to THCR Holdings and Taj
Holdings LLC, Trump's directly held limited partnership interest in THCR
Holdings will be modified and TTMI will receive a limited partnership interest
in THCR Holdings. As a result of the Merger Transaction, Trump's aggregate
beneficial ownership of limited partnership interests in THCR Holdings will
decrease from 40% to %, with a % interest held directly by TTMI (assuming
a price of $ per share of THCR Common Stock as the Market Value in
connection with the Merger and as the public offering price in the THCR Stock
Offering). Trump's limited partnership interest in THCR Holdings represents his
economic interest in the assets and operations of THCR Holdings and is
convertible, at Trump's option, into 6,666,667 shares of THCR Common Stock
(representing approximately 40% of the outstanding shares of THCR Common Stock
after giving effect to such conversion). Upon consummation of the Merger
Transaction (assuming a price of $ per share of THCR Common Stock as the
Market Value in connection with the Merger and as the public offering price in
the THCR Stock Offering). Trump's and TTMI's limited partnership interests in
THCR Holdings will be convertible into shares of THCR Common Stock,
representing approximately % of the then outstanding shares of THCR Common
Stock upon consummation of the Merger Transaction. At the time that TTMI
becomes a limited partner of THCR Holdings, THCR will issue shares of THCR
Class B Common Stock to TTMI.
THCR Class B Common Stock has voting power equivalent to the voting power of
the THCR Common Stock into which a THCR Class B Common Stockholder's limited
partnership interest in THCR Holdings is convertible. The THCR Class B Common
Stock is not entitled to dividends or distributions. Upon conversion of all or
any portion of the THCR Holdings limited partnership interest into shares of
THCR Common Stock, the corresponding voting power of the THCR Class B Common
Stock (equal in voting power to the number of shares of THCR Common Stock
issued upon such conversion) will be proportionately diminished. Concurrent
with the consummation of the Merger Transaction, THCR will issue to Trump a
warrant to purchase an aggregate of 1.8 million shares of THCR Common Stock,
one third of the underlying shares of which may be purchased on or prior to (i)
the third anniversary of the issuance of the warrant at $30.00 per share, (ii)
the fourth anniversary of the issuance of warrant at $35.00 per share and (iii)
the fifth anniversary of the issuance of the warrant at $40.00 per share.
THCR Contribution and Consideration. In connection with the Merger
Transaction, THCR will cause TM/GP, which will become an indirect wholly owned
subsidiary of THCR after the Effective Time and which holds a 49.995% general
partnership interest in Taj Associates, to contribute to THCR Holdings and Taj
Holdings LLC its general partnership interest in Taj Associates, and will cause
Taj Holding, which will become a direct wholly owned subsidiary of THCR after
the Effective Time, to contribute to TM/GP and will then cause TM/GP to
contribute to THCR Holdings the shares (consisting of 50% of the outstanding
capital stock) of TTMC held by Taj Holding. As a result of the Merger
Transaction, THCR's beneficial equity interest in THCR Holdings will increase
from 60% to %, including % interest held directly by TM/GP (assuming a $
price per share
15
<PAGE>
of THCR Common Stock as the Market Value in connection with the Merger and as
the public offering price in the THCR Stock Offering).
Redemption of Taj Holding Class B Common Stock. The Taj Holding Class B
Common Stock is essentially a nonparticipating stock issued as part of a Unit
in connection with the Bonds that entitles the holders thereof to elect the
Class B Directors, to vote on matters presented to the stockholders of Taj
Holding and to separately approve certain matters. The Taj Holding Certificate
of Incorporation provides that the outstanding shares of Taj Holding Class B
Common Stock must be redeemed at such time as the Bonds are redeemed, defeased
or paid, at the redemption price of $.50 per share. In connection with the
Merger Transaction, Taj Holding will cause each outstanding share of Taj
Holding Class B Common Stock to be redeemed at the redemption price of $.50 per
share in accordance with the provisions of the Taj Holding Certificate of
Incorporation.
DISSENTING STOCKHOLDERS' RIGHTS OF APPRAISAL
Under Delaware law, appraisal rights with respect to the Merger may be
available to stockholders of Taj Holding. Appraisal rights with respect to the
Merger are only available if such holders (i) neither vote for approval of the
Merger Transaction nor consent thereto in writing; and (ii) comply with the
other statutory requirements of the DGCL. See "Dissenting Stockholders' Rights
of Appraisal" and "Annex D."
Stockholders of THCR are not entitled to appraisal rights with respect to the
Merger.
RISK FACTORS
In deciding whether to approve the Merger Transaction or approve and adopt
the Merger Agreement, as applicable, and, with respect to the holders of Taj
Holding Class A Common Stock, to elect Cash Consideration or Stock
Consideration, the stockholders of THCR and Taj Holding should carefully
evaluate the matters set forth herein, including those under the heading "Risk
Factors." Factors to be considered include: (i) the high leverage and fixed
charges of THCR and Taj Holding; (ii) THCR's holding company structure, the
risk in refinancing and repayment of indebtedness, and the need for additional
financing; (iii) the restrictions imposed on certain activities by certain debt
instruments; (iv) the recent results of Trump Plaza and the Taj Mahal; (v)
risks associated with the Trump Plaza Expansion and the Taj Mahal Expansion;
(vi) risks relating to the Indiana Riverboat; (vii) competition in the gaming
industry; (viii) conflicts of interest; (ix) control by and the involvement of
Trump; (x) reliance on certain key personnel; (xi) the strict regulation by
gaming authorities, including the potential disqualification of holders of THCR
Common Stock; (xii) considerations with respect to the acquisition and
development of additional gaming ventures; (xiii) limitations on THCR's license
of the "Trump" name; (xiv) certain potential fraudulent conveyance risks; (xv)
interests in the Merger Transaction of certain members of the Boards of
Directors of THCR and Taj Holding; (xvi) limitations inherent in the fairness
opinions of DLJ and Rothschild; (xvii) the shares of THCR Common Stock eligible
for future sale; (xviii) the dilutive effect of the Merger Transaction on
existing holders of THCR Common Stock; and (xix) the trading markets and
potential volatility of the market price of the shares of THCR Common Stock.
STOCK EXCHANGE LISTING
The listing on the NYSE, subject to official notice of issuance, of the
shares of THCR Common Stock to be issued pursuant to the Merger Agreement is a
condition to the consummation of the Merger.
COMPARATIVE PER SHARE PRICES
On January 8, 1996, the last sales price of THCR Common Stock reported on the
NYSE was $21 3/4 per share and the last sales price of a Unit as reported on
the American Stock Exchange ("Amex") was $98 per
16
<PAGE>
$100 principal amount of Bonds. The initial public announcement of the Merger
Transaction occurred after the close of trading on such date. The Taj Holding
Class B Common Stock and the Bonds trade together as Units and may not be
transferred separately. On , 1996, the last sales price of THCR Common
Stock was $ per share and the last sales price of a Unit was $ per $100
principal amount of Bonds. There is no established market for the Taj Holding
Class A Common Stock or the Taj Holding Class C Common Stock. See "Market Price
and Dividend Data."
COMPARATIVE RIGHTS OF STOCKHOLDERS
The rights of stockholders of Taj Holding are currently governed by Delaware
law, the Taj Holding Certificate of Incorporation and the Amended and Restated
By-Laws of Taj Holding (the "Taj Holding By-Laws"). Upon consummation of the
Merger, holders of Taj Holding Class A Common Stock who receive THCR Common
Stock in the Merger will become stockholders of THCR, which is also a Delaware
corporation, and their rights as stockholders of THCR will be governed by
Delaware law, the Amended and Restated Certificate of Incorporation of THCR
(the "THCR Certificate of Incorporation") and the Amended and Restated By-Laws
of THCR (the "THCR By-Laws"). For a discussion of the various differences
between the rights of stockholders of Taj Holding and the rights of
stockholders of THCR, see "Comparison of Stockholder Rights."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Holders of Taj Holding Class A Common Stock and holders of Taj Holding Class
B Common Stock and Bonds should consult their tax advisers concerning the tax
implications of the Merger Transaction and of the ownership and disposition of
their stock or debt interests under applicable state, local, foreign income and
other tax laws. The exchange of Taj Holding Class A Common Stock for cash or
THCR Common Stock in the Merger is anticipated to be a taxable event for the
holders thereof, and the redemption of the Bonds and the Taj Holding Class B
Common Stock will be taxable events for the holders thereof.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a "purchase" for accounting and
reporting purposes and Trump's contributions of all of his direct and indirect
ownership interests in Taj Associates are expected to be accounted for using
carry over basis accounting.
REGULATORY APPROVALS
Certain aspects of the Merger Transaction will require notification to,
and/or approvals from, certain federal and state regulatory authorities.
Consummation of the Merger is conditioned upon, among other things, receipt of
certain regulatory approvals including approval under the HSR Act and the
approval of the CCC. See "Regulatory Matters."
17
<PAGE>
SUMMARY FINANCIAL INFORMATION OF THCR
The following tables set forth (a) certain historical consolidated financial
information of Trump Plaza Associates ("Plaza Associates") and Trump Plaza
Holding Associates ("Plaza Holding") (predecessors of THCR) for each of the
five years ended December 31, 1990 through 1994 and the nine month periods
ended September 30, 1994 and certain historical consolidated financial
information of THCR for the period from inception (June 12, 1995) to September
30, 1995 (unaudited) (see Note 1 below) and (b) unaudited pro forma financial
information of THCR (giving effect to the June 1995 Offerings (as defined) see
Note 1). The unaudited pro forma information also gives effect to the Merger
Transactions (including the effects of the redemption of the Bonds, the
Offerings and the consolidation of Taj Associates in THCR's financial
statements). The historical
financial information of Plaza Holding and Plaza Associates as of December 31,
1993 and 1994 and for the years ended December 31, 1992, 1993 and 1994 as set
forth below has been derived from the audited consolidated financial statements
of Plaza Holding and Plaza Associates included elsewhere in this Proxy
Statement-Prospectus. The historical financial information of Plaza Holding and
Plaza Associates for the years ended December 31, 1990 and 1991 as set forth
has been derived from the audited consolidated financial statements of Plaza
Holding and Plaza Associates not included in this Proxy Statement-Prospectus.
The unaudited financial information as of September 30, 1994 and 1995 and for
the periods then ended has been derived from the unaudited condensed
consolidated financial statements included elsewhere in this Proxy Statement-
Prospectus and in the opinion of management, includes all adjustments,
consisting of only normal, recurring adjustments, necessary to present fairly
the financial position, results of operations and changes in cash flows for the
periods presented. The results of these interim periods are not necessarily
indicative of the operating results for a full year. The pro forma Statement of
Operations Data and Other Data give effect to the Merger Transaction as if it
had occurred on January 1, 1994 and the pro forma Balance Sheet Data gives
effect to the same as if the same had occurred on September 30, 1995. The pro
forma financial information should not be considered indicative of actual
results that would have been achieved had the transactions occurred on the date
or for the period indicated and does not purport to indicate results of
operations as of any future date or for any future period. All financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations of THCR," "Unaudited
Pro Forma Financial Information" and the consolidated and condensed financial
statements and the related notes thereto included elsewhere in this Proxy
Statement-Prospectus.
18
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL
------------------------------------------------ ------------- ----------------
NINE FROM INCEPTION
MONTHS (JUNE 12, 1995)
ENDED TO SEPTEMBER 30,
YEARS ENDED DECEMBER 31, SEPTEMBER 30, 1995 (NOTE 1)
------------------------------------------------ ------------- ----------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- ------------- ----------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $319,937 $279,684 $313,318 $300,491 $295,063 $222,066 $113,301
Depreciation and amor-
tization.............. 16,725 16,193 15,842 17,554 15,653 11,734 5,091
Income from operations. 19,109 16,087 35,003 49,640 43,415 33,952 23,134
Interest expense, net.. 33,128 33,363 31,356 39,889 48,219 36,051 16,816
Extraordinary gain
(loss)................ -- -- (38,205) 4,120 -- -- --
Net income (loss) (a).. (10,591) (29,230) (35,787) 9,338 (8,870) (5,305) 1,299
OTHER DATA:
EBITDA (b)............. $ 44,016 $ 44,000 $ 60,399 $ 68,241 $ 60,524 $ 46,681 $ 27,697
Capital expenditures
(c)................... 11,002 5,509 8,643 10,052 20,489 14,611 102,535
Ratio of earnings to
fixed charges
(deficiency) (d)...... (11,902) (32,094) 1.1x 1.1x (9,735) (5,828) 1.2x
Cash flows provided by
(used in)
Operating activities... 7,297 9,514 26,191 21,820 19,950 19,817 10,315
Investing activities... (6,959) (6,175) (10,469) (12,679) (21,691) (14,611) (198,530)
Financing activities... (1,960) (2,870) (7,367) (13,550) (1,508) 2,560 183,386
BALANCE SHEET DATA (AT
END OF PERIODS):
Total assets........... $395,775 $378,398 $370,349 $374,498 $375,643 $386,080 $599,415
Total long-term debt,
net of current
maturities (e)........ 247,048 (33,326) 249,723 395,948 403,214 398,644 486,655
Total capital (defi-
cit).................. 83,273 54,043 81,362 (54,710) (63,580) (60,068) 53,727
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
------------------------------------------------------------- -----------------------
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------- -----------------------
1990 1991 1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA (AT END OF
PERIOD): (F)
Casino square footage... 60,000 60,000 60,000 60,000 73,000(n) 66,299 74,033
Number of hotel rooms... 557 557 557 557 555 557 555
Hotel occupancy rate.... 88.3% 87.1% 86.9% 87.6% 88.6% 89.9% 92.2%
TABLE GAMES:
Total Atlantic City
table drop (g)......... $7,903,248 $7,219,192 $7,055,034 $6,835,572 $6,832,517 $5,131,243 $5,350,188
Atlantic City table drop
growth................. 3.1% (8.7)% (2.3)% (3.1)% 0.0% (1.3)% 4.3%
Trump Plaza table drop
(g).................... $ 848,823 $ 646,480 $ 689,919 $ 626,621 $ 599,881 $ 450,595 $ 473,153
Trump Plaza table games
market share (h)....... 10.7% 9.0% 9.8% 9.2% 8.8% 8.8% 8.8%
Trump Plaza table games
fair share (i)......... 8.9% 8.5% 8.2% 7.8% 8.0% 7.9% 8.6%
Trump Plaza table games
efficiency (j)......... 120.6% 105.1% 118.8% 118.0% 110.6% 110.9% 102.8%
Trump Plaza table units. 117 112 98 87 89 88 97
Trump Plaza table
revenue................ $ 127,993 $ 98,905 $ 95,864 $ 93,392 $ 92,770 $ 69,284 $ 72,293
Trump Plaza table
revenue per unit per
day (actual dollars)... $ 2,997 $ 2,419 $ 2,679 $ 2,940 $ 2,855 $ 2,877 $ 2,740
SLOTS:
Total Atlantic City slot
revenue................ $1,724,309 $1,851,070 $2,113,829 $2,214,638 $2,297,280 $1,738,656 $1,971,442
Atlantic City slot
revenue growth......... 9.3% 7.4% 14.2% 4.8% 3.7% 1.7% 13.4%
Trump Plaza slot revenue
(k).................... $ 150,715 $ 136,128 $ 168,388 $ 173,215 $ 170,316 $ 129,370 $ 154,157
Trump Plaza slot market
share (h).............. 8.7% 7.4% 8.0% 7.8% 7.4% 7.4% 7.8%
Trump Plaza slot fair
share (i).............. 8.2% 7.8% 7.8% 7.6% 8.0% 8.0% 8.3%
Trump Plaza slot
efficiency (j)......... 107.2% 94.5% 102.6% 103.1% 92.5% 92.8% 94.6%
Trump Plaza slot units.. 1,661 1,659 1,727 1,812 2,076 2,047 2,342
Trump Plaza slot revenue
per unit per day
(actual dollars) (k)... $ 248 $ 225 $ 267 $ 262 $ 225 $ 232 $ 241
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA (o)
------------------------------------
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, 1995
DECEMBER 31, 1994 (NOTE 1)
----------------- ------------------
STATEMENT OF OPERATIONS DATA: (UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net revenues............................. $812,245 $ 668,445
Depreciation and amortization............ 58,023 46,165
Income from operations................... 115,549 116,735
Interest expense, net (l)................ 163,098 116,232
Net loss................................. (51,615) (4,337)
Net loss per common share (m)............ (2.93) (.25)
OTHER DATA:
EBITDA (b)(l)............................ 178,728 162,372
Ratio of earnings to fixed charges
(deficiency) (d)........................ (52,480) (3,344)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................. -- 1,532,073
Total long-term debt, net of current
maturities.............................. -- 1,281,663
Total capital............................ -- 138,428
</TABLE>
Note 1: THCR was incorporated on March 28, 1995 and conducted no operations
until June 12, 1995, when THCR issued $140,000,000 of Common Stock (the "June
1995 Stock Offering") and contributed the proceeds therefrom to THCR Holdings
in exchange for an approximately 60% general partnership interest in THCR
Holdings. At the consummation of the June 1995 Stock Offering, Trump
contributed his 100% beneficial interest in Plaza Funding, Plaza Holding and
Plaza Associates, the owner and operator of Trump Plaza, to THCR Holdings for
an approximately 40% limited partnership interest in THCR Holdings. The
financial data as of September 30, 1995 and for the period ended September 30,
1995 reflect the operations of THCR from inception (June 12, 1995) to September
30, 1995.
- --------
(a) Net loss for the year ended December 31, 1990, includes income of $2.4
million resulting from the settlement of a lawsuit relating to a boxing
match. Net loss for the year ended December 31, 1991, includes a $10.9
million charge associated with the rejection of the lease of the former
Trump Regency Hotel and $4.0 million of costs associated with certain
litigation. Net income for 1992 includes $1.5 million of costs associated
with certain litigation. Net income for the years ended December 31, 1993
and 1994, and the nine months ended September 30, 1994 and the period from
inception (June 12, 1995) to September 30, 1995, includes $3.9, $4.9, $3.7
and $1.3 million, respectively, of real estate taxes and leasing costs
associated with Trump Plaza East.
(b) EBITDA represents income from operations before interest expense, taxes,
depreciation, amortization, restructuring costs, net expenses of Trump
World's Fair, non-cash compensation charges associated with awards to the
President of THCR under the 1995 Stock Incentive Plan, the non-cash write-
down of New Jersey Casino Reinvestment Development Authority ("CRDA")
investments. EBITDA should not be construed as an alternative to net income
or any other measure of performance determined in accordance with generally
accepted accounting principles or as an indicator of THCR operating
performance, liquidity or cash flows generated by operating, investing and
financing activities. Management has included information concerning EBITDA
as management understands that it is used by certain investors as one
measure of THCR's historical ability to service its debt.
(c) Capital expenditures attributable to Trump Plaza East were approximately
$2.8 million and $8.9 million for the years ended December 31, 1993 and
1994, and $6.2 million for the nine months ended September 30, 1994, and
$9.4 million for the period from inception (June 12, 1995) to September 30,
1995. Includes $ million and $ million related to the Trump Plaza
Expansion for the nine months ended September 30, 1994 and 1995,
respectively.
(d) For purposes of computing this ratio, earnings consist of loss before
income taxes, extraordinary items, minority interest and fixed charges,
adjusted to exclude capitalized interest. Fixed charges consist of interest
expense, including amounts capitalized, preferred partnership distribution
requirements and the portion of operating lease rental expense that is
representative of the interest factor (deemed to be one-third of operating
lease rental expense). Earnings were insufficient to cover fixed charges
for the years ended 1990, 1991, 1994, and the nine months ended September
30, 1994 and, on a pro forma basis, for the year ended 1994 and the nine
months ended September 30, 1995.
(e) Reflects reclassification in 1991 of indebtedness relating to outstanding
mortgage bonds as a current liability due to then existing events of
default.
(f) Atlantic City industry data has been compiled from information filed with
and published by the CCC and is unaudited.
(g) Table drop represents the total dollar value of chips purchased for table
games for the period indicated.
(h) Market share represents the total Trump Plaza gaming revenues expressed as
a percentage of total Atlantic City gaming revenues.
(i) Fair share is the percentage of the total number of gaming units (table
games and slot machines) in Trump Plaza to the total number of gaming units
in casino hotels in Atlantic City.
(j) Efficiency is the ratio of Trump Plaza's market share to its fair share.
(k) Slot revenue is shown on the cash basis and excludes amounts reserved for
progressive jackpot accruals.
(l) Does not give effect to any return on investment from the net proceeds of
the June 1995 Offerings.
(m) Pro forma earnings per share assumes weighted average shares outstanding as
of September 30, 1995, shares awarded to the President of the Company
pursuant to the 1995 Stock Incentive Plan and shares to be issued in the
THCR Stock Offering.
(n) The expansion of 13,000 square feet was commenced in April 1994 and
completed at the end of that year.
(o) The Pro Forma Statement of Operations Data and Other Data give effect to
the Merger Transaction as if same had occurred on January 1, 1994 and the
Pro Forma Balance Sheet Data gives effect to the Merger Transaction as if
same had occurred on September 30, 1995.
20
<PAGE>
SUMMARY FINANCIAL INFORMATION OF TAJ ASSOCIATES
Taj Holding has no business operations and serves as a holding company for a
50% investment in Taj Associates. Therefore, historical financial information
for Taj Holding is not presented below. The audited consolidated financial
statements of Taj Holding as of December 31, 1993 and 1994 and for the years
ended December 31, 1992, 1993 and 1994 are included elsewhere in this Proxy
Statement-Prospectus.
The following table sets forth certain historical consolidated financial
information of Taj Associates for each of the five years ended December 31,
1990 through 1994 and for the nine months ended September 30, 1994 and 1995.
The financial information of Taj Associates as of December 31, 1990, 1991,
1992, 1993 and 1994 and for the years then ended set forth below has been
derived from the audited consolidated financial statements of Taj Associates.
The audited financial information as of December 31, 1993 and 1994 and for the
years ended December 31, 1992, 1993 and 1994 are included elsewhere in this
Proxy Statement-Prospectus. The financial information as of September 30, 1994
and 1995 and for each of the nine months then ended has been derived from the
unaudited consolidated financial statements of Taj Associates included
elsewhere in this Proxy Statement-Prospectus and in the opinion of management,
includes all adjustments, consisting of only normal, recurring adjustments,
necessary to present fairly the financial position, results of operations and
changes in cash flows for the periods presented. This information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Taj Associates," "Unaudited Pro Forma
Financial Information" and the consolidated financial statements and the
related notes thereto included elsewhere in this Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- ---------------------
1990(a) 1991(b) 1992 1993 1994 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net Revenues............ $ 356,698 $ 438,313 $ 469,753 $ 498,911 $ 517,182 $ 386,538 $ 417,296
Depreciation and
amortization........... 44,647 36,202 36,388 36,858 39,750 28,944 32,407
Income (loss) from
operations............. (23,289) 31,828 68,027 84,458 76,634 54,190 72,404
Interest expense, net... (82,105) (100,683) (103,126) (106,997) (113,292) (85,512) (86,112)
Extraordinary gain
(loss)................. 0 259,618 0 0 0 0 0
Net Income (loss)....... (120,277) (88,513) (35,099) (22,539) (36,658) (31,322) (13,708)
OTHER DATA:
EBITDA(c)............... 62,361 96,234 106,978 124,080 120,018 85,282 107,126
Capital expenditures.... 178,060 17,045 12,111 16,752 23,030 15,749 19,477
Ratio of earnings to
fixed charges
(deficiency)(d)........ (143,612) (71,105) (35,099) (22,539) (36,658) (31,322) (13,708)
Cash flows provided by
(used in)
operating activities... 7,798 35,126 31,786 48,634 33,422 40,562 73,310
Investing activities.... (117,965) (18,901) (17,759) (22,160) (27,231) (19,749) (23,751)
Financing activities.... 61,613 (16,170) (2,500) (2,492) (3,039) (2,355) (1,986)
BALANCE SHEET DATA (AT
END OF PERIOD):
Total assets............ 845,804 814,051 802,556 811,508 807,612 822,914 843,725
Total long-term debt,
net of current
maturities(e).......... 917(f) 573,844 595,682 625,765 656,701 651,626 688,143
Total capital
(deficit).............. (69,420) 167,837 130,913 106,641 67,812 73,609 52,899
OPERATING DATA (AT END OF
PERIOD)(G):
Casino Square Footage... 120,000 120,000 120,000 130,110 132,317 132,317 133,111
Number of Hotel Rooms... 1,250 1,250 1,250 1,250 1,250 1,250 1,250
Hotel Occupancy Rate.... 95.5% 87.3 % 91.3 % 92.3 % 92.4% 93.8 % 92.0%
TABLE GAMES:
Total Atlantic City
table drop(h).......... 7,903,249 7,219,192 7,055,034 6,835,572 6,832,517 5,131,243 5,350,188
Atlantic City table drop
growth................. 3.1% (8.7)% (2.3)% (3.1)% 0.0% (1.3)% 4.3%
Taj Mahal table games
market share(j)........ 12.6% 16.4 % 15.3 % 16.2 % 17.1% 16.4 % 17.7%
Taj Mahal table games
fair share(k).......... 12.3% 12.7 % 13.3 % 14.5 % 14.2% 14.4 % 13.4%
Taj Mahal table games
efficiency(l).......... 102.1% 129.1 % 115.0 % 111.7 % 120.4% 113.9 % 132.1%
Taj Mahal table units... 167 166 159 163 159 161 150
Taj Mahal table
revenue(i)............. 154,048 187,000 169,112 173,432 185,000 132,019 148,953
Taj Mahal table revenue
per unit per day
(actual dollars)....... 3,354 3,080 2,913 2,915 3,184 3,004 3,637
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1990(a) 1991(b) 1992 1993 1994 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SLOTS:
Total Atlantic City
slot revenue(l)(m).... 1,724,309 1,851,070 2,113,829 2,214,638 2,297,280 1,738,656 1,971,442
Atlantic City slot
revenue growth........ 9.3% 7.4% 14.2% 4.8% 3.7% 1.7% 13.4%
Taj Mahal slot
revenue(i)(m)......... 150,842 197,383 246,947 264,504 259,114 200,213 217,475
Taj Mahal slot market
share(j).............. 8.8% 10.7% 11.7% 11.9% 11.3% 11.5% 11.0%
Taj Mahal slot fair
share(k).............. 14.2% 13.0% 12.7% 13.1% 12.6% 12.3% 12.5%
Taj Mahal slot
efficiency(l)......... 62.0% 82.3% 92.1% 90.8% 89.7% 93.5% 88.0%
Taj Mahal slot units... 2,909 2,778 2,840 3,146 3,342 3,241 3,540
Taj Mahal slot revenue
per day (actual
dollars)(i)(m)........ 189 195 238 230 213 226 225
</TABLE>
- --------
(a) The Taj Mahal was substantially completed and opened to the public on April
2, 1990.
(b) Taj Associates and Taj Funding completed the 1991 Taj Restructuring on
October 4, 1991, which may affect the comparability of prior periods.
(c) EBITDA represents income from operations before depreciation, amortization,
restructuring costs, the non-cash write-down of CRDA investments and a
nonrecurring cost of a litigation settlement. EBITDA should not be
construed as an alternative to net income or any other measure of
performance determined in accordance with generally accepted accounting
principles or as an indicator of Taj Associates' operating performance,
liquidity or cash flows generated by operating, investing and financing
activities. Management has included information concerning EBITDA, as
management understands that it is used by certain investors as one measure
of Taj Associates' historical ability to service its debt.
(d) For purposes of computing this ratio, earnings consist of loss before
income taxes and extraordinary items and fixed charges, adjusted to exclude
capitalized interest. Fixed charges consist of interest expense, including
amounts capitalized, partnership distribution requirements and the portion
of operating lease rental expense that is representative of the interest
factor (deemed to be one-third of operating lease rental expense).
(e) The years ended December 31, 1991, 1992, 1993, 1994 and the nine months
ended September 30, 1994 and 1995 include approximately $528,124, $550,140,
$580,464, $611,533, $606,509 and $643,135 of Bonds, net of discount of
approximately $201,334, $188,162, $172,417, $153,597, $158,622 and
$137,108, respectively, which is being accreted as additional interest
expense to maturity and results in an effective interest rate of
approximately 18.0%. See Note 2 of Notes to Consolidated Financial
Statements of Taj Associates.
(f) Long-term debt of $720,715 had been reclassified to current maturities as
of December 31, 1990.
(g) Atlantic City industry data has been compiled from information filed with
and published by the CCC and is unaudited.
(h) Table drop represents the total dollar value of chips purchased for table
games for the period indicated.
(i) Table and slot revenues represent the amount of money that a casino retains
(or wins) out of the total amount wagered at table games and slot machines,
respectively.
(j) Market share represents the total Taj Mahal gaming revenues expressed as a
percentage of total Atlantic City gaming revenues.
(k) Fair share is the percentage of the total number of gaming units (table
games or slot machines) in the Taj Mahal to the total number of gaming
units in casinos in Atlantic City.
(l) Efficiency is the ratio of the Taj Mahal's market share to its fair share.
(m) Slot revenue is shown on the cash basis and excludes amounts reserved for
progressive jackpot accruals.
22
<PAGE>
CORPORATE AND FINANCIAL STRUCTURE AND ORGANIZATION
The Taj Mahal is currently beneficially owned by Taj Holding and Trump. Taj
Holding currently beneficially owns a 50% equity interest in Taj Associates,
the partnership that directly owns and operates the Taj Mahal, through its
ownership of (i) all of the outstanding capital stock of TM/GP, which owns a
49.995% equity interest in Taj Associates, and (ii) 50% of the outstanding
capital stock of TTMC, which owns a .01% equity interest in Taj Associates.
Trump currently beneficially owns the other 50% equity interest in Taj
Associates through his ownership of (i) all of the outstanding capital stock of
TTMI, which owns a 49.995% equity interest in Taj Associates, and (ii) 50% of
the outstanding capital stock of TTMC. Taj Associates, the guarantor of the
Bonds, wholly owns Taj Funding, the issuer of the Bonds. Upon consummation of
the Merger Transaction, THCR Holdings will wholly own Taj Associates through
its ownership of a 99% equity interest in Taj Holdings LLC and all of the
capital stock of TTMC, which will own a 1% equity interest in Taj Holdings LLC.
In connection with the Merger Transaction, THCR Holdings and THCR Funding will
designate Taj Associates, Taj Funding, Taj Holdings LLC and TTMC as
unrestricted subsidiaries (each, an "Unrestricted Subsidiary") under the
indenture pursuant to which the Senior Notes were issued.
THCR is currently the sole general partner and Trump is currently the sole
limited partner of THCR Holdings. THCR has the exclusive rights,
responsibilities and discretion in the management and control of THCR Holdings.
THCR is a holding company with no independent operations, the principal asset
of which is its general partnership interest in THCR Holdings. THCR Holdings is
also a holding company with no independent operations. THCR Holdings' principal
assets are its ownership interests in its subsidiaries. THCR Holdings'
subsidiaries include Trump Indiana, Plaza Associates, Trump Plaza Funding, Inc.
("Plaza Funding"), Plaza Holding, Trump Plaza Holding, Inc. ("Plaza Holding
Inc.") and Trump Hotels & Casino Resorts Funding, Inc. ("THCR Funding"). Plaza
Associates owns and operates Trump Plaza and is the guarantor of the 10 7/8%
Mortgage Notes due 2001 (the "Plaza Mortgage Notes"). Plaza Funding is the
issuer of the Plaza Mortgage Notes and owns a 1% equity interest in Plaza
Associates. Plaza Holding owns a 99% equity interest in Plaza Associates, and
Plaza Holding Inc. owns a 1% equity interest in Plaza Holding. THCR Funding,
together with THCR Holdings, are the co-obligors of the 15 1/2% Senior Secured
Notes due 2005 (the "Senior Notes"). Trump Indiana has a 50% equity interest in
Buffington Harbor Riverboats, LLC ("BHR").
Merger Sub, a wholly owned subsidiary of THCR, was formed for the purpose of
effecting the Merger and has not conducted any other business. Taj Holdings LLC
will be formed as a Delaware limited liability company prior to the
consummation of the Merger Transaction for the purpose of holding the 99%
equity interest in Taj Associates that it will acquire in the Merger
Transaction. The remaining 1% of Taj Associates will be owned by TTMC, which
will be a wholly owned subsidiary of THCR Holdings upon the consummation of the
Merger Transaction, thereby giving THCR Holdings beneficial ownership of 100%
of the equity of Taj Associates. TM/GP, a wholly owned subsidiary of Taj
Holding, currently serves as the managing general partner of Taj Associates.
To effect the Merger Transaction, the Amended and Restated Partnership
Agreement of THCR Holdings (the "THCR Holdings Partnership Agreement") will be
amended to allow THCR to use the proceeds from the THCR Stock Offering as
discussed herein and to add TM/GP and TTMI as limited partners. An amendment of
the THCR Holdings Partnership Agreement requires the approval of Trump, who
will be the sole limited partner at the time of amendment, and a majority of
the members of the THCR Special Committee. See "Description of the THCR
Holdings Partnership Agreement."
THCR, a Delaware corporation, was incorporated on March 28, 1995. Merger Sub,
a Delaware corporation, was incorporated on January 5, 1996. The principal
executive offices of THCR, THCR Holdings and Merger Sub are located at
Mississippi Avenue and The Boardwalk, Atlantic City, New Jersey 08401, and
their telephone number is (609) 441-6060.
Taj Holding, a Delaware corporation, was incorporated on December 18, 1990.
The principal executive offices of Taj Holding and TM/GP are located at 1000
The Boardwalk, Atlantic City, New Jersey 08401, and their telephone number is
(609) 449-5540.
23
<PAGE>
CURRENT OWNERSHIP STRUCTURE
[CHART OMITTED. GRAPHIC DEPICTS THE CURRENT OWNERSHIP STRUCTURE OF THCR AND TAJ
HOLDING AND THEIR RESPECTIVE SUBSIDIARIES]
24
<PAGE>
OWNERSHIP STRUCTURE AFTER THE MERGER TRANSACTION
[CHART OMITTED. GRAPHIC DEPICTS THE CURRENT OWNERSHIP STRUCTURE OF THCR AND ITS
SUBSIDIARIES AFTER THE MERGER TRANSACTION]
25
<PAGE>
RISK FACTORS
In deciding whether to approve the Merger Transaction or approve and adopt
the Merger Agreement, as applicable, and in the case of the holders of Taj
Holding Class A Common Stock, whether to elect Cash Consideration or Stock
Consideration, the stockholders of THCR and Taj Holding should carefully
evaluate the following risk factors and the information and financial
statements provided elsewhere in this Proxy Statement-Prospectus.
HIGH LEVERAGE AND FIXED CHARGES
Upon consummation of the Merger Transaction, THCR and its subsidiaries will
have a substantial amount of indebtedness on a consolidated basis. At
September 30, 1995, after giving pro forma effect to the Merger Transaction,
THCR's consolidated indebtedness for borrowed money would have totaled
approximately $1.28 billion, including $155 million aggregate principal amount
of Senior Notes, $330 million aggregate principal amount of Plaza Mortgage
Notes, $750 million aggregate principal amount of Taj Notes (collectively, the
"Notes"), and approximately $45 million of indebtedness owed by Taj Associates
to National Westminster Bank U.S.A. ("NatWest") pursuant to the loan
agreement, dated as of November 3, 1989 (as amended, the "NatWest Loan"). See
"Special Factors--Sources and Uses of Funds in the Merger Transaction,"
"Business of THCR--Certain Indebtedness of THCR" and "Business of Taj
Holding--Description of Certain Indebtedness."
As a result of their designations as Unrestricted Subsidiaries, Taj Holdings
LLC, Taj Associates, Taj Funding and TTMC will not be subject to the Senior
Note Indenture, including the covenants and restrictions contained therein,
and THCR Holdings and THCR Funding will not derive any benefits (for covenant
purposes) from Taj Associates' operations. The Senior Note Indenture, however,
would restrict THCR Holdings and THCR Funding from providing Taj Associates
and Taj Funding with cash and/or credit support. Accordingly, as long as the
Senior Notes (or other similar indebtedness) are outstanding, Taj Associates
and Taj Funding will be required to satisfy their obligations, including the
obligations under the Taj Notes and future indebtedness incurred in connection
with the Taj Mahal Expansion, through cash generated by Taj Associates'
operations and through permitted borrowings and refinancings. See "--Holding
Company Structure; Risk in Refinancing and Repayment of Indebtedness; Need for
Additional Financing." In addition, no direct or indirect partner,
stockholder, employee, officer or director, as such, past, present or future,
of either of Taj Associates or Taj Funding or any successor entity will have
any personal liability in respect of the obligations of Taj Associates and Taj
Funding under the indenture with respect to which the Taj Notes will be issued
(the "Taj Mortgage Note Indenture") or the Taj Notes by reason of the status
as such partner, stockholder, employee, officer or director. The Senior Note
Indenture has a similar provision.
Assuming that the Merger Transaction had been consummated on January 1,
1994, THCR's consolidated pro forma earnings would have been insufficient to
cover fixed charges by $52.4 million for the year ended December 31, 1994 and
$3.3 million for the nine months ended September 30, 1995. Assuming the Merger
Transaction had been consummated on January 1, 1994, Taj Associates' pro forma
earnings would have been insufficient to cover fixed charges by $17.9 million
for the year ended December 31, 1994 and Taj Associates would have had a pro
forma ratio of earnings to fixed charges of 1.05x for the nine months ended
September 30, 1995, respectively.
Interest on the Senior Notes and the Plaza Mortgage Notes is, and interest
on the Taj Notes will be, payable semiannually in cash. The ability of THCR
Holdings and THCR Funding, Plaza Associates (as guarantor) and Plaza Funding,
Taj Associates (as guarantor) and Taj Funding to pay cash interest on the
Senior Notes, the Plaza Mortgage Notes and the Taj Notes, respectively, will
be dependent upon the ability of THCR and its subsidiaries (in the case of the
Senior Notes and the Plaza Mortgage Notes) and Taj Associates and Taj Funding
(in the case of the Taj Notes) to generate enough cash flow from operations
sufficient for such purposes and will be subject to the risks associated with
refinancing and repayment of indebtedness described below. See "--Holding
Company Structure; Risk in Refinancing and Repayment of Indebtedness; Need for
Additional Financing," "--Recent Results--Trump Plaza," and "--Recent
Results--Taj Mahal." In addition, under the terms of their
26
<PAGE>
indebtedness, the ability of THCR Holdings and THCR Funding, Plaza Associates
and Taj Associates to make distributions or other payments to holders of their
equity interests is and will be severely limited. See "--Restrictions on
Certain Activities."
At September 30, 1995, Plaza Associates' Consolidated Net Worth (as defined
in the indenture pursuant to which the Plaza Mortgage Notes were issued (the
"Plaza Mortgage Note Indenture")) was approximately $83.7 million. If Plaza
Associates' Consolidated Net Worth should fall below negative $25.0 million,
Plaza Funding or Plaza Associates would be required to make an offer (a
"Deficiency Offer") to acquire 10% of the aggregate principal amount of the
Plaza Mortgage Notes, plus accrued interest to the date of purchase. There can
be no assurance that Plaza Funding or Plaza Associates would have sufficient
liquidity to fund a Deficiency Offer if one were required to be made.
Taj Associates has a working capital facility (the "Working Capital
Facility") which matures in 1999 and permits borrowings of up to $25.0
million. Obligations under the Working Capital Facility are secured to the
extent of such obligations by a mortgage on the assets of Taj Associates
senior to the lien of any mortgage that may secure the Taj Notes (the "Taj
Note Mortgage") and any mortgage that may secure the guarantee of Taj
Associates with respect to the Taj Notes. During 1994 and 1995, no amounts
were borrowed under the Working Capital Facility. If Taj Associates were to
draw on the entire amount of funds available to it under the Working Capital
Facility, the aggregate principal amount of Taj Associates' indebtedness would
be increased by an additional $25.0 million, and such additional indebtedness,
together with any accrued and unpaid interest thereon, would be senior in
right of payment to the Taj Notes.
The substantial indebtedness and fixed charges of THCR and Taj Associates
may limit their respective ability to respond to changing business and
economic conditions, to fund capital expenditures for future expansion or
otherwise, either through cash flow or additional indebtedness, to absorb
adverse operating results or to maintain their facilities at an operating
level which will continue to attract patrons. Future operating results are
subject to significant business, economic, regulatory and competitive
uncertainties and contingencies, many of which are outside their control. THCR
and Taj Associates, as the case may be, may be required to reduce or delay
planned capital expenditures, sell assets, restructure debt or raise
additional equity to meet principal repayment and other obligations of it and
its subsidiaries in later years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of THCR--Liquidity and Capital
Resources" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Taj Associates--Liquidity and Capital Resources."
There is no assurance that any of these alternatives could be effected on
satisfactory terms, if at all. See "--Holding Company Structure; Risk in
Refinancing and Repayment of Indebtedness; Need for Additional Financing."
Furthermore, such alternatives could impair their competitive position, reduce
cash flow and have a material adverse effect on their results of operations.
HOLDING COMPANY STRUCTURE; RISK IN REFINANCING AND REPAYMENT OF INDEBTEDNESS;
NEED FOR ADDITIONAL FINANCING
THCR is a holding company, the principal asset of which is its general
partnership interest in THCR Holdings, and has no independent means of
generating revenue. As a holding company, THCR depends on distributions and
other permitted payments from THCR Holdings to meet its cash needs. In
addition, THCR Holdings is a holding company, the principal assets of which
are the shares of capital stock and partnership interest of its subsidiaries.
Dividends and distributions received with respect to equity interests in
subsidiaries of THCR Holdings are the sole source of funds which are available
to THCR Holdings to meet its obligations, including its obligations under the
Senior Notes. The payment of dividends and distributions by subsidiaries,
including by THCR Holdings, however, is significantly restricted by certain
covenants contained in debt agreements and other agreements to which such
subsidiaries are subject and may be restricted by other agreements entered
into in the future and by applicable law. See "--Restrictions on Certain
Activities" and "Description of the THCR Holdings Partnership Agreement."
27
<PAGE>
The ability of THCR Holdings and THCR Funding, Plaza Associates and Plaza
Funding, and Taj Associates and Taj Funding to pay their respective
indebtedness when due will depend upon their ability either to generate cash
from operations sufficient for such purpose or to refinance such indebtedness
on or before the date on which it becomes due. THCR management does not
currently anticipate being able to generate sufficient cash flow from
operations to repay a substantial portion of the principal amount of the
Senior Notes or Plaza Mortgage Notes, and Taj Associates management does not
currently anticipate being able to generate sufficient cash flow from
operations to repay a substantial portion of the principal amount of the Taj
Notes. Thus, the repayment of the principal amount of the Notes will likely
depend primarily upon the ability to refinance the Notes when due. The future
operating performance and the ability to refinance the Notes will be subject
to the then prevailing economic conditions, industry conditions and numerous
other financial, business and other factors, many of which are beyond the
control of THCR and Taj Associates. There can be no assurance that the future
operating performance of THCR Holdings and THCR Funding, Plaza Associates and
Plaza Funding, and Taj Associates and Taj Funding, as the case may be, will be
sufficient to meet these repayment obligations or that the general state of
the economy, the status of the capital markets generally or the receptiveness
of the capital markets to the gaming industry and to THCR will be conducive to
refinancing the Notes or other attempts to raise capital. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
THCR--Liquidity and Capital Resources" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Taj Associates--
Liquidity and Capital Resources."
The cost to THCR for the development of the Indiana Riverboat through the
commencement of its operations, which includes the land, the vessel, gaming
equipment, a pavilion for staging and ticketing and restaurant facilities,
berthing and support facilities and parking facilities, is expected to be
approximately $84 million and is expected to open early in the second quarter
of 1996. THCR initially anticipated spending $59 million prior to the
commencement of the Indiana Riverboat's operations for the vessel, gaming
equipment and initial berthing and support facilities, and also anticipated
spending an additional $27 million in the second phase to be completed by mid-
1997, which would feature a pavilion for staging and ticketing and restaurant
facilities, berthing and support facilities and expanded parking. To
facilitate the Indiana Riverboat's operations from the opening day and to
avoid disruptive construction at the site for an additional year, THCR
determined to accelerate the second phase of the project and complete both
phases prior to commencing operations. THCR anticipates obtaining the
additional $25 million in financing to complete the accelerated development of
the Indiana Riverboat through the commencement of its operations in the form
of $5 million in additional vessel financing, $10 million in mortgage
financing or from an unsecured working capital facility and $10 million in
operating leases. Trump Indiana is seeking commitments for this additional
financing, although no commitments are currently in place. During its initial
five-year license term, an additional $69 million of funds (consisting of
approximately $48 million for construction of a hotel and other amenities and
$21 million in infrastructure improvements and other municipal uses) will be
required to be spent by Trump Indiana, which is expected to be funded with
cash from operations or additional borrowings. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations of THCR--
Liquidity and Capital Resources." THCR also contemplates obtaining an
aggregate of approximately $17.5 million of equipment financing in connection
with the acquisition of slot machines and related gaming equipment for Trump
Plaza's existing facilities, Trump World's Fair and Trump Plaza East.
Commitments for only a portion of this financing are currently in place. The
failure of THCR to obtain all or a significant portion of the financings
discussed above may have a material adverse effect on THCR.
RESTRICTIONS ON CERTAIN ACTIVITIES
The Senior Note Indenture and the Plaza Mortgage Note Indenture impose
restrictions on the activities of THCR Holdings and its subsidiaries, and on
Plaza Associates and Plaza Funding, respectively. The Taj Note Indenture will
impose restrictions on the activities of Taj Associates and its subsidiaries.
In addition, the NatWest Loan and the Working Capital Facility impose
restrictions on the activities of Taj Associates and Taj Funding. Generally,
the restrictions contained in these instruments relate to the incurrence of
additional indebtedness, the distribution of cash and/or property to partners,
the repayment or repurchase of pari passu or junior securities, the
maintenance of required net worth, investments, mergers and sales of assets
and the creation of liens. These
28
<PAGE>
restrictions could limit the ability of THCR (including Plaza Associates and
Trump Indiana), and Taj Associates, as the case may be, to respond to changing
business and economic conditions. A failure to comply with any of these
obligations could also result in an event of default under the Senior Note
Indenture, the Plaza Mortgage Note Indenture or the Taj Note Indenture, which
could permit acceleration of the Notes and acceleration of certain other
indebtedness of THCR or Taj Associates under other instruments that may
contain cross-acceleration or cross-default provisions.
The activities of Trump are restricted by certain debt agreements under
which he is personally obligated. These agreements impose restrictions on
Trump and certain of his affiliates, relating to, among other things,
incurrence of additional indebtedness, the creation of liens, mergers and
sales of assets, investments, leases, issuance of equity interests, affiliate
transactions and capital expenditures. As a result, certain transactions in
which Trump may wish to engage involving his ownership interest in THCR or its
affiliates may require the prior consent of such lenders. See "--Control and
Involvement of Trump."
RECENT RESULTS
Trump Plaza. Plaza Associates had net losses of $5.3 million, $29.2 million,
$35.8 million (including an extraordinary loss of $38.2 million) and $8.9
million for the nine months ended September 30, 1994 and the years ended
December 31, 1991, 1992, and 1994, respectively, and net income of $0.4
million (including an extraordinary loss of $9.3 million) for the nine months
ended September 30, 1995 and $9.3 million for the year ended December 31, 1993
(including an extraordinary gain of $4.1 million). In 1991, Plaza Associates
began to experience liquidity problems, principally due to amortization
requirements of its long-term debt. On May 29, 1992, Plaza Associates and
Plaza Funding completed a restructuring (the "1992 Plaza Restructuring"), the
purpose of which was to improve the amortization schedule and extend the
maturity of Plaza Associates' indebtedness. In June 1993, Plaza Associates,
Plaza Funding and Plaza Holding completed a refinancing, the purpose of which
was to enhance Plaza Associates' liquidity and to position Plaza Associates
for a subsequent deleveraging transaction. See "Business of THCR--The 1992
Plaza Restructuring." THCR management believes that the deterioration in
results experienced in 1990 and 1991 was attributable primarily to a recession
in the Northeast and increased industry competition, primarily due to the
opening of the Taj Mahal in April 1990, which had a disproportionate impact on
Trump Plaza as compared to certain other Atlantic City casinos due in part to
the common use of the "Trump" name. See "Business of THCR--Trump Plaza--Trump
Plaza Business Strategy."
Taj Mahal. Taj Associates had net losses of $31.3 million, $13.7 million,
$35.1 million, $22.5 million and $36.7 million for the nine months ended
September 30, 1994 and 1995 and the years ended December 31, 1992, 1993 and
1994, respectively. From the opening of the Taj Mahal in April 1990 through
the spring of 1991, cash generated from Taj Associates' operations was
insufficient to cover its fixed charges. As a result, Taj Associates failed to
provide Taj Funding with sufficient funds to meet its debt servicing needs.
During 1991, Taj Funding, Taj Associates and Taj Associates' then existing
general partners (TTMI and TTMC) restructured their existing indebtedness (the
"1991 Taj Restructuring"). Pursuant to the terms of the 1991 Taj
Restructuring, Taj Funding's 14% First Mortgage Bonds, Series A, due 1998 (the
"Old Bonds") were exchanged for the Bonds and certain modifications were made
to the terms of bank borrowings and amounts owed to both Trump and his
affiliates. In addition, approximately 50% of the ownership interest in Taj
Associates was transferred indirectly to the holders of the Old Bonds. See
"Business of Taj Holding--The 1991 Taj Restructuring."
TRUMP PLAZA EXPANSION AND THE TAJ MAHAL EXPANSION
Construction and Regulatory Approvals. The Trump Plaza Expansion is expected
to be completed early in the second quarter of 1996 and the Taj Mahal
Expansion, the plans for which are preliminary and subject to change, is
expected to be completed in phases from the fourth quarter of 1996 through the
second quarter of 1999. Construction projects, however, such as those
contemplated by the Trump Plaza Expansion and the Taj Mahal Expansion, can
entail significant development and construction risks including, but not
limited to, labor disputes, shortages of material and skilled labor, weather
interference, unforeseen engineering problems,
29
<PAGE>
environmental problems, geological problems, construction, demolition,
excavation, zoning or equipment problems and unanticipated cost increases, any
of which could give rise to delays or cost overruns. There can be no assurance
that THCR and Taj Associates will receive the licenses and regulatory
approvals necessary to undertake, in the case of the Taj Mahal Expansion, and
to complete, in the case of each of the Trump Plaza Expansion and the Taj
Mahal Expansion, their respective expansion plans, or that such licenses and
regulatory approvals will be obtained within the anticipated time frames.
On October 30, 1995, Plaza Associates opened 150 of the rooms and suites at
Trump Plaza East. Plaza Associates intends to open the remainder of the rooms
and suites and the casino at Trump Plaza East in the first quarter of 1996,
although there can be no assurance that such openings will occur by such time.
The Trump Plaza Expansion and the Taj Mahal Expansion will each require
various licenses and regulatory approvals, including the approval of the CCC.
Furthermore, the New Jersey Casino Control Act (the "Casino Control Act")
requires that additional guest rooms be put in service within a specified time
period after any such casino expansion. If Plaza Associates or Taj Associates
completed any casino expansion and subsequently did not complete the requisite
number of additional guest rooms within the specified time period, such party
might have to close all or a portion of the expanded casino in order to comply
with regulatory requirements, which could have a material adverse effect on
the results of operations and financial condition of Plaza Associates or Taj
Associates, as applicable. In addition, in order to operate the additional
casino space contemplated by the Taj Mahal Expansion, Taj Associates must
obtain, among other regulatory approvals, the approval of the CCC and
determinations by the CCC that the Taj Mahal's additional casino space,
together with its current casino space, is a "single room" under the Casino
Control Act and that the operation of this additional casino space by Taj
Associates will not constitute undue economic concentration of Atlantic City
casino operations. Taj Associates will file a petition with the CCC seeking
such declaratory rulings. See "Regulatory Matters--New Jersey Gaming
Regulations--Casino Licensee" and "Regulatory Matters--New Jersey Gaming
Regulations--Approved Hotel Facilities."
Trump Plaza East. On June 24, 1993, Plaza Associates acquired a five-year
option to purchase the fee and leasehold interests comprising Trump Plaza East
(the "Trump Plaza East Purchase Option"). In October 1993, Plaza Associates
assumed the leases associated with Trump Plaza East. Until such time as the
Trump Plaza East Purchase Option is exercised or expires, Plaza Associates is
obligated to pay the net expenses associated with Trump Plaza East. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of THCR--Liquidity and Capital Resources" and "Certain
Transactions--Plaza Associates--Trump Plaza East." During the nine months
ended September 30, 1995 and the year ended December 31, 1994, Plaza
Associates incurred approximately $3.2 million and $4.9 million, respectively,
of such expenses. Under the Trump Plaza East Purchase Option, Plaza Associates
has the right to acquire the fee interest in Trump Plaza East for a purchase
price of $28.0 million through December 31, 1996 increasing by $1.0 million
annually thereafter until expiration on June 30, 1998.
Should THCR determine to acquire Trump Plaza East, up to $30.0 million of
internally generated funds and/or additional financing would be required to
fund the acquisition pursuant to the existing purchase option. There can be no
assurance that such financing would be available on attractive terms, if at
all. In addition, the exercise of the Trump Plaza East Purchase Option may
require the consent of certain of Trump's personal creditors, and there can be
no assurance that such consent will be obtained at the time Plaza Associates
desires to exercise the Trump Plaza East Purchase Option. The CCC has required
that Plaza Associates exercise the Trump Plaza East Purchase Option no later
than July 1, 1996. Plaza Associates intends to request that the CCC extend the
July 1, 1996 deadline for exercising the Trump Plaza East Purchase Option,
although there can be no assurance that such extension will be granted.
Failure of THCR to acquire Trump Plaza East, to obtain an extension of the
July 1, 1996 deadline or to obtain an extension of the existing lease of the
premises beyond its current June 30, 1998 expiration date would have a
material adverse effect on THCR. See "Certain Transactions--Plaza Associates--
Trump Plaza East."
30
<PAGE>
Plaza Associates has already begun development of Trump Plaza East. If Plaza
Associates is unable to finance the purchase price of Trump Plaza East
pursuant to the Trump Plaza East Purchase Option, any amounts expended with
respect to Trump Plaza East, including payments under the Trump Plaza East
Purchase Option and the lease pursuant to which Plaza Associates leases Trump
Plaza East, and any improvements thereon, would inure to the benefit of the
owner of Trump Plaza East and not to Plaza Associates and would increase the
cost of demolition of any improvements for which Plaza Associates would be
liable. As of September 30, 1995, Plaza Associates had capitalized
approximately $9.3 million in construction costs related to Trump Plaza East.
If the development of Trump Plaza East is not successful, THCR would be
required to write off the capitalized construction costs associated with the
project.
In September 1993, Trump (as predecessor in interest to Plaza Associates
under the lease for Trump Plaza East) entered into a sublease (the "Time
Warner Sublease") with Time Warner pursuant to which Time Warner subleased the
entire first floor of retail space at Trump Plaza East for a Warner Brothers
Studio Store which opened in July 1994. Rent under the Time Warner Sublease is
currently accruing and will not become due and payable to Plaza Associates
until the satisfaction of certain conditions designed to protect Time Warner
from the termination of the Time Warner Sublease by reason of the termination
of Plaza Associates' leasehold estate in Trump Plaza East or the foreclosure
of a certain mortgage and until Time Warner's unamortized construction costs
are less than accrued rent. No assurances can be made that such conditions
will be satisfied. In addition, Time Warner may terminate the Time Warner
Sublease at any time beginning two years after the commencement date in the
event that gross sales for the store do not meet certain threshold amounts or
at any time if Plaza Associates fails to operate a first class hotel on Trump
Plaza East. No assurances can be made that Trump Plaza East will continually
be operated as a first class hotel or that sales for the Warner Brothers
Studio Store will exceed the threshold amounts. See "Certain Transactions--
Plaza Associates--Trump Plaza East."
Trump World's Fair. The ongoing renovation of Trump World's Fair is
currently expected to be completed early in the second quarter of 1996,
although there can be no assurance that the project will be completed by such
time. Upon the completion of such renovation, THCR intends to operate Trump
World's Fair as a casino hotel. In order to operate the casino space in Trump
World's Fair, Plaza Associates must obtain all necessary regulatory approvals,
including approval of the CCC, which approval cannot be assured. Plaza
Associates has applied for a separate casino license with respect to Trump
World's Fair. The CCC was required to determine that the operation of the
casino by Plaza Associates will not result in undue economic concentration in
Atlantic City. On May 18, 1995, the CCC ruled that the operation of Trump
World's Fair by Plaza Associates will not result in undue economic
concentration. Although this determination is a required condition precedent
to the CCC's ultimate issuance of a casino license for Trump World's Fair, and
management believes that a casino license will ultimately be issued for Trump
World's Fair, there can be no assurance that the CCC will issue this casino
license or what conditions may be imposed, if any, with respect thereto. See
"Regulatory Matters--New Jersey Gaming Regulations--Casino Licensee" and
"Regulatory Matters--New Jersey Gaming Regulations--Approved Hotel
Facilities." Although construction at Trump World's Fair has commenced, if the
costs of developing, constructing, equipping and opening Trump World's Fair
exceed the proceeds allocated from the June 1995 Offerings (as defined) for
such expenditures, Plaza Associates may be forced to rely on alternative
methods of financing, which could impair the competitive position of the Trump
Plaza and reduce Plaza Associates' cash flow. See "--High Leverage and Fixed
Charges," "--Holding Company Structure; Risk in Refinancing and Repayment of
Indebtedness; Need for Additional Financing" and "--Restrictions on Certain
Activities."
The Taj Mahal. It is expected that the Taj Mahal Expansion will be funded
out of the Taj Mahal's cash from operations and borrowings. It is contemplated
that the Taj Note Indenture will permit the incurrence by Taj Associates of up
to $ million of additional indebtedness to finance the Taj Mahal Expansion,
subject to certain restrictions and conditions. No commitments are currently
in place with respect to financing any of the Taj Mahal Expansion. If the
operations of the Taj Mahal do not generate the anticipated cash flow to fund
the Taj Mahal Expansion, the ability to complete such expansion will depend on
the ability of Taj Associates to obtain financing for such purposes in
addition to that currently contemplated. There can be no assurance that Taj
31
<PAGE>
Holding will be able to generate sufficient cash flow from operations or to
obtain financing on terms satisfactory to Taj Holding, if at all. In addition,
any indebtedness incurred in connection with the Taj Mahal Expansion in
addition to the $ million to be permitted to be incurred under the Taj Note
Indenture would be subject to the limitations set forth in the Taj Note
Indenture. See "--High Leverage and Fixed Charges," "--Holding Company
Structure; Risk in Refinancing and Repayment of Indebtedness; Need for
Additional Financing," "--Restrictions on Certain Activities" and "Business of
Taj Holding--Business Strategy--The Taj Mahal Expansion."
THE INDIANA RIVERBOAT
New Venture Risk. The Indiana Riverboat is a start-up development. Trump
Indiana's operations are subject to all of the many risks inherent in the
establishment of a new business enterprise, including unanticipated
construction, permitting, licensing or operating problems with the riverboat
and land-based, berthing and support facilities, as well as the ability of
THCR to market and operate a new venture in a new gaming jurisdiction.
Although construction has begun on the Indiana Riverboat, there can be no
assurance that the Indiana Riverboat will become operational or that such
project will be completed on budget or on schedule. Furthermore, construction
projects, such as the Indiana Riverboat, entail significant risks. See "--
Considerations with Respect to the Acquisition or Development of Additional
Gaming Ventures."
Northern Indiana is a new gaming market. The success of gaming in a market
which has never supported gaming operations cannot be guaranteed or accurately
predicted. The number of patrons of a riverboat casino in a new gaming
jurisdiction like northern Indiana and the propensity of these patrons to
wager cannot be predicted with any degree of certainty and there can be no
assurance that THCR will be able to operate the Indiana Riverboat in a
profitable manner.
While THCR and its management have substantial experience in operating
gaming properties in New Jersey, THCR has never been involved in constructing
or operating riverboat casinos, and there is no operating history with respect
to THCR's proposed operation at Buffington Harbor, Indiana. THCR's future
operating results at Buffington Harbor will depend upon THCR's ability to
complete and open gaming facilities on schedule and several other factors over
which THCR will have little or no control, including, without limitation,
general economic conditions, gaming taxes, the availability of ancillary
facilities to support gaming visitors, competition, the availability of
adequately trained gaming employees and the ability to obtain and maintain the
necessary licenses and permits. There can be no assurance that THCR's
operations will prove successful or that THCR will be able to generate
sufficient revenues from such operations or attain and maintain profitable
operations. In addition, THCR is unable to predict whether seasonality will
have a material effect on the operations of the Indiana Riverboat.
Trump Indiana and Barden-Davis Casinos, LLC ("Barden"), an entity
beneficially owned by Don H. Barden, a developer based in Detroit without
significant gaming experience, are the two holders of certificates of
suitability for Buffington Harbor. Trump Indiana and Barden have entered into
an agreement (the "BHR Agreement") relating to the joint ownership,
development and operation of all common land-based and waterside operations in
support of each of Trump Indiana's and Barden's separate riverboat casinos at
Buffington Harbor. Trump Indiana and Barden will each be equally responsible
for the development and operating expenses at such site and THCR will be
dependent on the ability of Barden to pay for its share of all future
expenses. There can be no assurance that THCR or Trump Indiana will be able to
fund from operations or to finance on terms satisfactory to THCR or Trump
Indiana any such required expenditures or, if available, such other
indebtedness would be permitted under existing debt instruments of THCR.
Furthermore, there can be no assurance that Barden will be able to fund its
portion of such expenses. Additionally, if either Trump Indiana or Barden
causes, permits or suffers an event of default under the BHR Agreement to
continue for more than 270 days, including the failure to make a capital
contribution or to fulfill any other obligation thereunder within 30 days
after written notice, the nondefaulting party will have the right to acquire
the defaulting party's interest in BHR for a purchase price of $1,000,000.
32
<PAGE>
THCR has capitalized and will continue to capitalize certain costs
associated with the expansion of its gaming operations in Indiana and other
jurisdictions. As of September 30, 1995, THCR and its predecessors had
capitalized approximately $23.7 million in development and pre-opening costs
solely in connection with the Indiana Riverboat operation. THCR's policy is to
capitalize pre-opening costs, such as site identification and evaluation,
salaries and overhead and marketing, in addition to construction costs, based
primarily on its experience with new project developments. If the development
of the Indiana Riverboat or any other pending or future new venture is not
successful, THCR will be required to write off the capitalized costs. In
addition, THCR anticipates obtaining additional financing prior to the opening
of the Indiana Riverboat early in the second quarter of 1996, although no
commitments are currently in place. See "Risk Factors--Holding Company
Structure; Risk in Refinancing and Repayment of Indebtedness; Need for
Additional Refinancing."
Environmental Risks. The Indiana Riverboat is located in an area on Lake
Michigan known as Buffington Harbor. Buffington Harbor had been the site of
industrial operations, which prior operations or activities have or may have
resulted in pollution or contamination of the environment. As the owner and
operator of the Indiana Riverboat, Trump Indiana and THCR could be held liable
under certain legal theories for the costs of cleaning up, as well as certain
damages resulting from, past or present spills, disposals or other releases of
hazardous or toxic substances or wastes on, in or from the site, regardless of
whether either party knew of, or was responsible for, the presence of such
substances or wastes at the site. Neither THCR nor Trump Indiana has a source
of indemnity for any such liability. However, THCR believes, based on third-
party engineering reports, that the costs of any remedial activities would not
be significant.
Maritime and Weather Considerations. Under the provisions of Title 46 of the
United States Code, the design, construction and operation of the Indiana
Riverboat are subject to regulation and approval by the U.S. Coast Guard.
Prior to the commencement of operations, a Certificate of Inspection and a
Certificate of Documentation must be obtained from the U.S. Coast Guard. As a
condition of the issuance of a Certificate of Inspection, the U.S. Coast Guard
may, among other things, require changes in the design or construction of the
Indiana Riverboat that may materially increase the cost of construction and/or
materially delay the completion of construction and the commencement of
operations. All shipboard employees of Trump Indiana employed on U.S. Coast
Guard regulated vessels, including those not involved with the actual
operation of the vessel, such as dealers, cocktail hostesses and security
personnel, may be subject to certain federal legislation relating to maritime
activity, which, among other things, exempts those employees from state limits
on workers' compensation awards. THCR expects that it will have adequate
insurance to cover employee claims.
The Indiana Riverboat is anticipated to be a cruising riverboat on Lake
Michigan, which, among other things, would require a U.S. Coast Guard hull
inspection at five-year intervals. Operating on Lake Michigan will expose the
Indiana Riverboat to marine hazards such as unpredictable currents, floods or
other severe weather conditions and a heavy volume of maritime traffic. THCR
anticipates that adequate maritime insurance coverage will be obtained for the
Indiana Riverboat; however, the occurrence of a catastrophic loss in excess of
coverage would have a material adverse effect on THCR. Trump Indiana's
revenues will be derived from its riverboat and land-based facilities. A
riverboat could be lost from service due to casualty, mechanical failure or
extended or extraordinary maintenance or inspection. The loss of a vessel from
service for an extended period of time could adversely affect Trump Indiana's
operations. Business activity at any location could also be adversely affected
by a flood or other severe weather conditions. Flooding in particular, as well
as other severe weather conditions, could make THCR's vessel more difficult or
impossible to board, or even result in a prolonged or total loss of a gaming
vessel, either of which could have a material adverse effect on THCR. Although
THCR expects to maintain insurance against casualty losses resulting from
severe weather, the insurance coverage maintained may not adequately
compensate THCR for losses, including loss of profits, resulting from severe
weather.
COMPETITION
Competition in the Atlantic City casino hotel market is intense. Trump Plaza
and the Taj Mahal compete with each other and with the other casino hotels
located in Atlantic City, including the other casino hotel owned by Trump,
Trump's Castle Casino Resort ("Trump's Castle"). See "--Conflicts of
Interest." Trump Plaza and
33
<PAGE>
the Taj Mahal are located on The Boardwalk, approximately 1.2 miles apart from
each other. At present, there are 12 casino hotels located in Atlantic City,
including the Taj Mahal and Trump Plaza, all of which compete for patrons. In
addition, there are several sites on The Boardwalk and in the Atlantic City
Marina area on which casino hotels could be built in the future and various
applications for casino licenses have been filed and announcements with
respect thereto made from time to time (including a proposal by Mirage
Resorts, Inc.), although neither THCR nor Taj Holding are aware of any current
construction on such sites by third parties. No new casino hotels have
commenced operations in Atlantic City since 1990, although several existing
casino hotels have recently expanded or are in the process of expanding their
operations. While management of THCR and Taj Holding believe that the addition
of hotel capacity would be beneficial to the Atlantic City market generally,
there can be no assurance that such expansion would not be materially
disadvantageous to either Trump Plaza or the Taj Mahal. There also can be no
assurance that the Atlantic City development projects which are planned or
underway will be completed.
Total Atlantic City gaming revenues have increased over the past three
years, although at varying rates. Although all 12 Atlantic City casinos
reported increases in gaming revenues in 1992 as compared to 1991, THCR and
Taj Holding believe that this was due, in part, to the depressed industry
conditions in 1991. In 1993, nine casinos experienced increased gaming
revenues compared to 1992 (including the Taj Mahal), while three casinos
(including Trump Plaza) experienced decreased revenues. In 1994, ten casinos
experienced increased gaming revenues compared to 1993 (including the Taj
Mahal), while two casinos (including Trump Plaza) experienced decreased
revenues. During the first nine months of 1995, all 12 casinos experienced
increased gaming revenues compared to the first nine months of 1994.
In 1990, the Atlantic City casino industry experienced a significant
increase in room capacity and in available casino floor space, including the
rooms and floor space made available by the opening of the Taj Mahal. The
effects of such expansion were to increase competition and to contribute to a
decline in 1990 in gaming revenues per square foot. In 1990, the Atlantic City
casino industry experienced a decline in gaming revenues per square foot of
5.0%, which trend continued in 1991, although at the reduced rate of 2.9%. In
1992, however, the Atlantic City casino industry experienced an increase of
6.9% in gaming revenues per square foot from 1991. Gaming revenues per square
foot increased by 1.4% for 1993 (excluding poker and race simulcast rooms,
which were introduced for the first time in such year), compared to 1992. In
1994, gaming revenues per square foot decreased 2.5% (or 4.5%, including
square footage devoted to poker, keno and race simulcasting). The 1994 decline
was due, in part, to the increase in casino floor space in Atlantic City as a
result of expansion of a number of casinos and to the severe weather
conditions which affected the Northeast during the winter of 1994. Between
April 30, 1993 and September 30, 1995, many operators in Atlantic City
expanded their facilities in connection with the June 1993 legalization of
simulcasting and poker, increasing total casino square footage by
approximately 183,000 square feet (23.6%) of which, approximately 73,000
square feet, is currently devoted to poker, keno and race simulcasting. During
this same period, 176 poker tables and 5,967 slot machines were added. See
"Atlantic City Market."
Trump Plaza and the Taj Mahal also compete, or will compete, with facilities
in the northeastern and mid- Atlantic regions of the United States at which
casino gaming or other forms of wagering are currently, or in the future may
be, authorized. To a lesser extent, Trump Plaza and the Taj Mahal face
competition from gaming facilities nationwide, including land-based, cruise
line, riverboat and dockside casinos located in Colorado, Illinois, Indiana,
Iowa, Louisiana, Minnesota, Mississippi, Missouri, Nevada, South Dakota,
Ontario (Windsor), the Bahamas, Puerto Rico and other locations inside and
outside the United States, and from other forms of legalized gaming in New
Jersey and in its surrounding states such as lotteries, horse racing
(including off-track betting), jai alai, bingo and dog racing, and from
illegal wagering of various types. New or expanded operations by other persons
can be expected to increase competition and could result in the saturation of
certain gaming markets. In September 1995, New York introduced a keno lottery
game, which is played on video terminals that have been set up in
approximately 1,800 bars, restaurants and bowling alleys across the state. In
addition to competing with other casino hotels in Atlantic City and elsewhere,
by virtue of their proximity to each other and the common aspects of certain
of their respective marketing efforts, including use of the "Trump" name,
Trump
34
<PAGE>
Plaza and the Taj Mahal compete directly with each other for gaming patrons.
Although management does not intend to operate Trump Plaza and the Taj Mahal
to the competitive detriment of each other, the effect may be that Trump Plaza
and the Taj Mahal will operate to the competitive detriment of each other.
THCR anticipates that the Indiana Riverboat will compete primarily with
riverboats and other casinos in the northern Indiana suburban and Chicago
metropolitan area and throughout portions of the states of Indiana, Illinois,
Michigan, Ohio and Wisconsin (the "Great Lakes Market"). In addition to
competing with Barden's riverboat at the shared Buffington Harbor site, the
Indiana Riverboat will compete with a riverboat in Hammond, Indiana, which is
being developed by the owner and operator of the Empress Riverboat Casino in
Joliet, Illinois, a riverboat in East Chicago, Indiana, which is being
developed by Showboat, Inc. and with the riverboat expected to be licensed in
the nearby community of Michigan City, Indiana. To a lesser degree, the
Indiana Riverboat will compete with the six additional riverboats expected to
be licensed in the rest of Indiana. At present there are four other riverboat
casino operations in the Chicago area (three of which operate two riverboats
each, with each operator limited to 1,200 gaming positions in the aggregate).
In addition, a casino opened during 1994 in Windsor, Ontario, across the river
from Detroit, and Detroit is considering several proposals for casinos in its
downtown area. Although THCR believes that there is sufficient demand in the
market to sustain the Indiana Riverboat, there can be no assurance to that
effect. There can be no assurance that either Indiana or Illinois, or both,
will not authorize additional gaming licenses, including for the Chicago
metropolitan area. See "--The Indiana Riverboat."
In addition, Trump Plaza and the Taj Mahal face, and the Indiana Riverboat
will face, competition from casino facilities in a number of states operated
by federally recognized Native American tribes. Pursuant to the Indian Gaming
Regulatory Act ("IGRA"), which was passed by Congress in 1988, any state which
permits casino style gaming (even if only for limited charity purposes) is
required to negotiate gaming compacts with federally recognized Native
American tribes. Under IGRA, Native American tribes enjoy comparative freedom
from regulation and taxation of gaming operations, which provides them with an
advantage over their competitors, including Trump Plaza, the Taj Mahal and the
Indiana Riverboat. See "Competition."
Legislation permitting other forms of casino gaming has been proposed, from
time to time, in various states, including those bordering New Jersey. Plans
to begin operating slot machines at race tracks in the State of Delaware are
underway, including the slot machines currently operating at the Dover Downs
and Delaware Park race tracks. Six states have presently legalized riverboat
gambling while others are considering its approval, including New York and
Pennsylvania, and New York City is considering a plan under which it would be
the embarking point for gambling cruises into international waters three miles
offshore. Several states are considering or have approved large scale land-
based casinos. Additionally, Las Vegas experienced significant expansion in
1993 and 1994, with additional capacity planned and currently under
construction. The operations of Trump Plaza and the Taj Mahal could be
adversely affected by such competition, particularly if casino gaming were
permitted in jurisdictions near or elsewhere in New Jersey or in other states
in the Northeast. In December 1993, the Rhode Island Lottery Commission
approved the addition of slot machine games on video terminals at Lincoln
Greyhound Park and Newport Jai Alai, where poker and blackjack have been
offered for over two years. Currently, casino gaming, other than Native
American gaming, is not allowed in other areas of New Jersey or in
Connecticut, New York or Pennsylvania. On November 17, 1995, a proposal to
allow casino gaming in Bridgeport, Connecticut, was voted down by that state's
senate. A New York State Assembly plan has the potential of legalizing non-
Native American gaming in portions of upstate New York. Essential to this plan
is a proposed New York State constitutional amendment that would legalize
gambling. To amend the New York Constitution, the next elected New York State
Legislature must repass a proposal legalizing gaming and a statewide
referendum, held no sooner than November 1997, must approve the constitutional
amendment. To the extent that legalized gaming becomes more prevalent in New
Jersey or other jurisdictions near Atlantic City, competition would intensify.
In particular, in the past, proposals have been introduced to legalize gaming
in other locations, including Philadelphia.
In addition, legislation has from time to time been introduced in the New
Jersey State Legislature relating to types of statewide legalized gaming, such
as video games with small wagers. To date, no such legislation,
35
<PAGE>
which may require a state constitutional amendment, has been enacted.
Legislation has also been introduced on numerous occasions in recent years to
expand riverboat gaming in Illinois, including by authorizing new sites in the
Chicago area with which the Indiana Riverboat would compete and by otherwise
modifying existing regulations to decrease or eliminate certain restrictions
such as gaming position limitations. To date, no such legislation has been
enacted. THCR and Taj Holding are unable to predict whether any such
legislation, in New Jersey, Illinois or elsewhere, will be enacted or whether,
if passed, it would have a material adverse impact on their respective results
of operations or financial condition.
THCR believes that competition in the gaming industry, particularly the
riverboat and dockside gaming industry, is based on the quality and location
of gaming facilities, the effectiveness of marketing efforts, and customer
service and satisfaction. Although management of THCR believes that the
location of the Indiana Riverboat will allow THCR to compete effectively with
other casinos in the geographic area surrounding its casino, THCR expects
competition in the casino gaming industry to be intense as more casinos are
opened and new entrants into the gaming industry become operational.
Furthermore, new or expanded operations by other persons can be expected to
increase competition for existing and future operations and could result in a
saturation of certain gaming markets.
CONFLICTS OF INTEREST
Trump is currently the beneficial owner of 100% of Trump's Castle, which
competes directly with the Taj Mahal and Trump Plaza, and Trump could, under
certain circumstances, have an incentive to operate Trump's Castle to the
competitive detriment of the Taj Mahal and Trump Plaza. Trump has certain
interests in the Merger Transaction that may be deemed to differ from
stockholders generally. See "--Interests of Certain Members of the Board of
Directors of THCR and Taj Holding" and "Special Factors--Interests of Certain
Persons in the Merger Transaction."
Trump and TC/GP, Inc. ("TC/GP"), a corporation beneficially owned by Trump,
have entered into a services agreement (the "Trump's Castle Services
Agreement") with Trump's Castle Associates ("TCA"), the partnership that owns
and operates Trump's Castle, pursuant to which TC/GP has agreed to provide
marketing, advertising and promotional and other similar and related services
to Trump's Castle. Pursuant to the Trump's Castle Services Agreement, in
respect of any matter or matters involving employees, contractors,
entertainers, celebrities, vendors, patrons, marketing programs, promotions,
special events, or otherwise, Trump will, and will cause his affiliates to the
best of his ability and consistent with his fiduciary obligations to TCA,
Trump Plaza and the Taj Mahal to, act fairly and in a commercially reasonable
manner so that on an annual overall basis (x) neither Trump Plaza nor the Taj
Mahal shall realize a competitive advantage over Trump's Castle, by reason of
any activity, transaction or action engaged in by Trump or his affiliates and
(y) Trump's Castle shall not be discriminated against.
Trump serves as the Chairman of the Board of THCR pursuant to an Executive
Agreement entered into by Trump, THCR and THCR Holdings (the "Trump Executive
Agreement"). Pursuant to the terms of the Trump Executive Agreement, Trump
provides to THCR, from time to time, when reasonably requested, marketing,
advertising, promotional and other similar and related services with respect
to the operation and business of THCR. The Trump Executive Agreement continues
in effect (i) for an initial term of five years, and (ii) thereafter, for a
three-year rolling term until either Trump or THCR provides notice to the
other of its election not to continue extending the term, in which case the
term of the Trump Executive Agreement will end three years from the date such
notice is given. The Trump Executive Agreement also provides that Trump may
devote time and effort to the Taj Mahal and Trump's Castle and, subject to the
terms of a Contribution Agreement, dated as of June 12, 1995, by and between
Trump and THCR Holdings (the "Contribution Agreement"), to other business
matters, and that the Trump Executive Agreement will not be construed to
restrict Trump from operating the Taj Mahal and Trump's Castle in a
commercially reasonable manner and/or having an interest therein or conducting
any other activity not prohibited under the Contribution Agreement. See
"Management of THCR--Employment Agreements" and "Description of the THCR
Holdings Partnership Agreement." Pursuant to the terms of a services agreement
(the "TPM Services Agreement") between Plaza Associates and Trump
36
<PAGE>
Plaza Management Corp., a corporation beneficially owned by Trump ("TPM"), TPM
provides certain advisory services to Plaza Associates. See "Certain
Transactions."
Trump is subject to certain loan agreements which contain covenants that
relate to his equity interests in THCR and Taj Associates. See "--Control and
Involvement of Trump." In connection with the Merger Transaction, Trump is
seeking to obtain from his personal creditors, among other things, releases of
liens on his direct and indirect equity interests in Taj Associates, which
releases are required to consummate the Merger Transaction. See "Special
Factors--Related Merger Transactions" and "Business of Taj Holding--Certain
Indebtedness."
Nicholas L. Ribis, the Chief Executive Officer of THCR and Taj Associates,
is also the Chief Executive Officer of TCA, the partnership that owns and
operates Trump's Castle. Messrs. Robert M. Pickus and John P. Burke, officers
of THCR, are each executive officers of TCA and Taj Associates. Mr. Burke is
an officer of TM/GP. In addition, Messrs. Trump, Ribis and Burke serve on one
or more of the governing bodies of THCR, Taj Holding, TCA and their affiliated
entities. Mr. Pickus serves on one or more of the governing bodies of Taj
Holding and TCA. As a result of Trump's interests in three competing Atlantic
City casino hotels, the common chief executive officer and other common
officers, a conflict of interest may be deemed to exist, including by reason
of such persons' access to information and business opportunities possibly
useful to any or all of such casino hotels. Furthermore, Trump has agreed that
he will pursue, develop, control and conduct all new gaming activities through
THCR. Although no specific procedures have been devised for resolving
conflicts of interest confronting, or which may confront, Trump, such persons
and all the casinos affiliated with Trump, Messrs. Trump, Ribis, Pickus and
Burke have informed THCR and Taj Holding that they will not engage in any
activity which they reasonably expect will harm THCR, Taj Holding or their
respective affiliates or is otherwise inconsistent with their obligations as
officers and directors of THCR, Taj Holding or their affiliates. See "Certain
Transactions."
CONTROL AND INVOLVEMENT OF TRUMP
Upon consummation of the Merger Transaction, through his beneficial
ownership of the THCR Class B Common Stock, Trump will control approximately
% of the total voting power of THCR (assuming a price of $ per share of
THCR Common Stock as Market Value in connection with the Merger and as the
public offering price in the THCR Stock Offering). THCR believes that the
involvement of Trump in the affairs of THCR is an important factor that will
affect the prospects of THCR. Following the Merger Transaction, Trump will
continue to pursue, develop, control and conduct all of his gaming business
(except for Trump's Castle) through THCR. See "--Conflicts of Interest."
Although Trump has no obligation to contribute funds to THCR or THCR
Holdings and is not providing any personal guarantees in connection with the
Merger Transaction, THCR management believes that Trump's financial condition
and general business success together with the public's perception of such
success may be relevant to the success of THCR due, in part, to the marquee
value of the "Trump" name. Trump is engaged, through various enterprises, in a
wide range of business activities. During 1989, 1990, 1991 and 1992, certain
of Trump's businesses, including businesses for which Trump supplied personal
guarantees, experienced financial difficulties that necessitated a
comprehensive financial restructuring of certain of his properties and
holdings, including Trump's interests in Trump Plaza, Trump's Castle and the
Taj Mahal, and his personal indebtedness. See "Management of THCR" and
"Management of Taj Holding." Since 1990, Trump has engaged in a series of
transactions designed to reduce his personal indebtedness. However, Trump will
continue to have a substantial amount of personal indebtedness following the
Merger Transaction, most of which has a scheduled maturity in 1998. Bankers
Trust, an affiliate of BT Securities Corporation ("BT Securities"), which has
rendered financial advisory services to THCR and Taj Holding in the past, is a
significant creditor of Trump and will be receiving a payment of $10 million
in connection with the Merger Transaction in order to release certain liens
and guarantees. See "Special Factors--Related Merger Transactions" and
"Business of Taj Holding--Certain Indebtedness--TTMI Note."
37
<PAGE>
Trump will have ongoing requirements to make payments of principal and
interest on his outstanding indebtedness following the consummation of the
Merger Transaction. In addition, the agreements with respect to Trump's
indebtedness generally contain comprehensive covenants and events of default
which relate to the operations of certain of his affiliates. If such covenants
are breached or if events of default otherwise occur, either of which could
occur at any time, such indebtedness could be subject to acceleration by the
applicable lenders. Any such acceleration could have a material adverse effect
on Trump and could trigger an obligation to make a repurchase offer with
respect to certain of the Notes by the issuers thereof. Furthermore, a
substantial portion of Trump's assets consist of real property or interests in
regulated enterprises, which may affect the liquidity of such assets. Trump
has advised THCR and Taj Holding that he is actively pursuing all reasonable
means of providing for the repayment or rescheduling of such indebtedness.
There can be no assurance that Trump will be successful in repaying or
rescheduling his indebtedness or that his assets will appreciate sufficiently
to provide a source of repayment for such indebtedness. Trump's ability to
repay his indebtedness is subject to significant business, economic,
regulatory and competitive uncertainties, many of which are beyond his
control. Any failure by Trump to repay or reschedule his indebtedness or to
otherwise maintain financial stability may have a material adverse effect on
THCR and, under such circumstances, could adversely affect the ability to
provide for the payment of interest or principal on the Notes, or to refinance
the Notes on the respective maturities thereof. Moreover, if the CCC at any
time finds Trump to be financially unstable under the Casino Control Act, the
CCC is authorized to take any necessary public action to protect the public
interest, including the suspension or revocation of the casino licenses of
Plaza Associates and/or Taj Associates. Any jurisdiction in which THCR may
seek to conduct gaming operations would likely have similar regulations. See
"--Strict Regulation by Gaming Authorities" and "Regulatory Matters."
In order to consummate the Merger Transaction, Trump will need to obtain
certain consents and waivers from his creditors, which creditors have a
security interest in his financial interest in Taj Associates. The prior
consent of such creditors is a condition to consummation of the Merger
Transaction.
The THCR Certificate of Incorporation and THCR By-Laws contain provisions
which may have the effect of delaying, deferring or preventing a change in
control of THCR. In addition, the Senior Note Indenture and the Plaza Mortgage
Note Indenture contain, and the Taj Note Indenture will contain, provisions
relating to certain changes of control of THCR and THCR Holdings, Plaza
Associates and Taj Associates, respectively. Upon the occurrence of such a
change of control, the respective issuer would be obligated to make an offer
to purchase all of the respective Notes then outstanding at a purchase price
equal to 101% of the principal amount thereof plus accrued and unpaid
interest. There can be no assurance that funds necessary to effect such a
purchase would be available if such an event were to occur. To the extent
required under the Plaza Mortgage Note Indenture, Trump will retain the right
to control the management of Plaza Associates for as long as Trump continues
to own beneficially 20% or more of the voting power of THCR and no other
holder beneficially owns a greater percentage of such voting power. See
"Description of the THCR Holdings Partnership Agreement."
Because of the control of Trump as described above, the value of the THCR
Common Stock may be less than it would otherwise be absent such control.
RELIANCE ON KEY PERSONNEL
The ability of THCR and Taj Associates to operate successfully is dependent,
in part, upon the continued services of certain of its employees, including
Nicholas L. Ribis, the President, Chief Executive Officer and Chief Financial
Officer of THCR, the Chief Executive Officer of THCR Holdings and the Chief
Executive Officer of Taj Associates. Mr. Ribis' employment agreements with
THCR and THCR Holdings on the one hand and Taj Associates on the other will
expire on June 7, 2000 and September 25, 1996, respectively (subject to
earlier termination upon the occurrence of certain events). There can be no
assurance that a suitable replacement for Mr. Ribis could be found in the
event of a termination of his employment. A shortage of skilled management-
level employees currently exists in the gaming industry which may make it
difficult and expensive to attract and retain qualified employees. In
addition, Mr. Ribis and certain other executives of THCR and Taj Holding
currently allocate their time among THCR's and Taj Holding's various
operations as well as certain other
38
<PAGE>
enterprises owned by Trump. Following the consummation of the Merger
Transaction, Mr. Ribis will devote approximately 75% of his professional time
to the affairs of THCR. See "Management of THCR" and "Management of Taj
Holding."
STRICT REGULATION BY GAMING AUTHORITIES
The ownership and operation of the gaming related businesses of Plaza
Associates and Taj Associates are subject to strict state regulation under the
Casino Control Act. Plaza Associates and Taj Associates and their various
officers and other qualifiers have received the licenses, permits and
authorizations required to operate Trump Plaza and the Taj Mahal,
respectively. Failure to maintain or obtain the requisite casino licenses
would have a material adverse effect on THCR and Taj Holding. On June 22,
1995, the CCC renewed Taj Associates' casino license through March 31, 1999
and renewed Plaza Associates' casino license through June 30, 1999. No
assurance can be given as to the term for which the CCC will renew these
licenses or as to what license conditions, if any, may be imposed by the CCC
in connection with any future renewals. The Merger Transaction is subject to
approval by the CCC. See "Regulatory Matters--New Jersey Gaming Regulation."
In January 1996, the Indiana Gaming Commission (the "IGC") extended Trump
Indiana's certificate of suitability constituting approval of the application
for a riverboat owner's license for a riverboat to be docked at Buffington
Harbor, on Lake Michigan in Indiana. The certificate of suitability is valid
until June 28, 1996, and may be further extended upon written application to
and approval of the IGC. A riverboat owner's license will only be issued upon
satisfaction of the conditions of the certificate of suitability and the
requirements of the gaming laws, which include completion of the Indiana
Riverboat, acquisition of necessary permits or approvals from federal, state
and local authorities and readiness to commence operations. Pursuant to the
terms of the certificate of suitability, Trump Indiana must comply with
certain other requirements imposed by the IGC, including a requirement that
Trump Indiana invest an aggregate of $153 million in the Indiana Riverboat and
certain related projects and certain economic development projects and pay
certain incentive fees based on percentages of gaming revenues and earnings to
the City of Gary, Indiana. Failure to comply with the foregoing conditions
and/or failure to commence riverboat excursions as may be required by the IGC
may result in the expiration of the certificate of suitability. There can be
no assurance that THCR and/or Trump Indiana will be able to comply with the
terms of the certificate of suitability, that it will be further extended if
operations do not commence by June 28, 1996 or that a riverboat owner's
license for the Indiana Riverboat will ultimately be granted. Further, the IGC
may place restrictions, conditions or requirements on the permanent riverboat
owner's license. If granted, such license would be for an initial term of five
years and renewable annually thereafter. With respect to certain land-based,
berthing and support facilities as currently planned, Trump Indiana would also
be dependent on the ability of Barden to obtain the requisite licenses and
fund its portion of joint development and operating costs.
In October 1994, the U.S. Attorney General's Office in Indiana notified the
IGC that a federal law passed in 1951, commonly known as the Johnson Act,
prohibits gaming vessels from cruising anywhere on the Great Lakes, including
portions of Lake Michigan falling within Indiana's borders and jurisdiction.
The IGC has requested further consideration on this matter by the Department
of Justice. Recently adopted state legislation and pending Federal legislation
may also affect the foregoing. See "Regulatory Matters--Indiana Gaming
Regulations--Excursions."
Any jurisdiction in which THCR may seek to conduct gaming operations would
be likely to require THCR to apply for and obtain regulatory approvals with
respect to the construction, design and operational features of the gaming
facilities it intends to operate in that jurisdiction. The obtaining of such
licenses and approvals may be time consuming and expensive and cannot be
assured.
THCR believes that the availability of significant additional revenue
through taxation is one of the primary reasons that Indiana and other
jurisdictions have legalized gaming. THCR's current gaming operations are, and
any future gaming operations are likely to be, subject to significant taxes
and fees in addition to normal federal
39
<PAGE>
and state corporate income taxes, and such taxes and fees are subject to
increase at any time. Any material increase in these taxes or fees would
adversely affect THCR.
The Casino Control Act imposes substantial restrictions on the ownership of
securities of THCR and Taj Holding. A shareholder may be required to meet the
qualification provisions of the Casino Control Act relating to financial
sources and/or security holders. Each institutional investor (as defined in
the Casino Control Act) seeking a waiver of qualification must execute a
certification which will be provide, to the New Jersey Division of Gaming
Enforcement and the CCC. Pursuant to the provisions of the Casino Control Act,
the THCR Certificate of Incorporation provides that all securities of THCR are
held subject to the condition that, if a holder thereof is found to be
disqualified by the CCC pursuant to the provisions of the Casino Control Act,
such holder shall (a) dispose of his interest in THCR; (b) not receive any
dividends or interest upon any such securities; (c) not exercise, directly or
through any trustee or nominee, any right conferred by such securities; and
(d) not receive any remuneration in any form from the casino licensee for
services rendered or otherwise. See "Regulatory Matters--New Jersey Gaming
Regulations."
Pursuant to IGC proposed rules, any person acquiring 5% or more of THCR
Common Stock (or for certain institutional investors, a greater percentage)
must be found suitable by the IGC. The IGC has the authority to require a
finding of suitability with respect to any stockholder regardless of the
percentage of ownership. In this regard, the THCR Certificate of Incorporation
provides that THCR may redeem any shares of THCR's capital stock held by any
person or entity whose holding of shares may cause the loss or non-
reinstatement of a governmental license held by THCR. Such redemption shall be
at the lesser of the price at which the stock was purchased or the market
price (as defined in the THCR Certificate of Incorporation). See "Regulatory
Matters--Indiana Gaming Regulations--Indiana Gaming Commission."
CONSIDERATIONS WITH RESPECT TO THE ACQUISITION OR DEVELOPMENT OF ADDITIONAL
GAMING VENTURES
THCR's growth strategy includes the acquisition, development, ownership
and/or management of dockside, riverboat and/or land-based casinos in emerging
and established gaming jurisdictions. THCR's plans for development and
acquisition of gaming ventures in addition to Trump Plaza, the Indiana
Riverboat and the Taj Mahal are speculative at this time, as THCR has no
present plans to acquire or develop any other specific gaming venture other
than the Taj Mahal. The availability of new gaming opportunities is largely
dependent on the legality of gaming in various states, and gaming is currently
prohibited throughout most of the United States. Moreover, the recent
expansion of the legalization of gaming may not continue. Legislation relating
to gaming has been introduced and failed to pass in the legislatures in a
number of states, including Connecticut and Florida. For these and other
reasons, no assurance can be given that attractive opportunities to develop
new operations will be available to THCR or that THCR will be able to take
advantage of any opportunity that does arise.
To engage in multiple projects or larger scale development activities, THCR
will need to obtain financing from third parties and may require additional
managerial resources. There can be no assurance that additional financing or
managerial talent will be available or, if available, that it would be on
terms satisfactory to THCR. Incurrence of such indebtedness would also be
subject to restrictions under debt instruments of THCR. See "--High Leverage
and Fixed Charges" and "--Restrictions on Certain Activities." In addition,
THCR would need to obtain additional sites and licenses to operate such gaming
facilities and competition for suitable sites and for licenses is usually
intense. No assurance can be given that THCR will be able to obtain desirable
sites or necessary licenses or successfully overcome the regulatory,
financial, business and other problems inherent in the construction and
operation of any new gaming venture.
Construction projects, such as those proposed in connection with the
development of new gaming ventures, including those currently proposed by
Plaza Associates, Trump Indiana and Taj Associates, entail significant risks,
including shortages of materials or skilled labor, unforeseen engineering,
environmental or geological problems, work stoppages, weather interference,
floods, unanticipated cost increases, the inability to commence operations as
scheduled and other problems. The number and scope of the licenses and
approvals required to complete the construction of any project, such as a
hotel and other destination resort facilities, are extensive,
40
<PAGE>
including, without limitation, the approval of state and local land-use
authorities and the acquisition of building and zoning permits. Unexpected
concessions required by local, state or federal regulatory authorities could
involve significant additional costs and delay scheduled openings of
facilities. There can be no assurance that THCR will receive the licenses and
approvals necessary to undertake or complete any of its development plans, or
that such licenses and approvals will be obtained within the anticipated time
frame.
LIMITATIONS ON LICENSE OF THE TRUMP NAME
Subject to certain restrictions, THCR has the exclusive right (except with
respect to Trump's Castle and the Taj Mahal (during the period prior to the
consummation of the Merger Transaction)) to use the "Trump" name and likeness
in connection with gaming and related activities pursuant to a trademark
license agreement between Trump and THCR (the "License Agreement"). See
"Business of THCR--Trademark/Licensing." THCR's rights under the License
Agreement are secured by a security interest in the names "Trump," "Donald
Trump" and "Donald J. Trump" (including variations thereon, the "Trump Names")
and related intellectual property rights (collectively, the "Marks") for use
in connection with casino services, pursuant to a security agreement (the
"Trademark Security Agreement"). If there were a default under the License
Agreement or the Trademark Security Agreement, THCR would have rights, subject
to the requirements of applicable state law, to enforce the rights and
remedies contained in the Trademark Security Agreement. In the event of a
foreclosure sale of the Marks, the net amount realized in such sale by THCR
might not yield the full amount of damages that THCR could sustain as a result
of the default. In addition, the existence of rights of others to the use of
the Trump Names, including pursuant to the existing security interests with
respect to trademarks associated with Trump's Castle as well as to any other
security interests in trademarks for non-gaming hotels, could adversely affect
the ability of THCR to realize the benefits of the Trademark Security
Agreement. THCR's right to repossess and dispose of the Marks upon a breach of
the License Agreement may be significantly impaired if the owner of the Marks
were to become the subject of a case under the United States Bankruptcy Code
(the "Bankruptcy Code") prior to THCR's having repossessed and disposed of the
Marks. Under the Bankruptcy Code, secured creditors, such as THCR, are
automatically stayed from repossessing or disposing of their collateral
without bankruptcy court approval. Moreover, the Bankruptcy Code permits a
defaulting debtor to retain and continue to use the collateral if the secured
creditor is given "adequate protection" of its interest in the collateral.
Such adequate protection under the Bankruptcy Code may take various forms,
including the granting of a replacement lien or other relief that will enable
the secured creditor to realize the "indubitable equivalent" of its interest
in the collateral. Accordingly, it is impossible to predict whether or when
THCR would repossess or dispose of the Marks, or whether or to what extent
THCR would then be compensated for any delay in payment or loss of value of
the Marks through the requirement of "adequate protection" if the owner of the
Marks were to become the subject of a bankruptcy or reorganization case.
Furthermore, the License Agreement could be rejected in connection with a
bankruptcy of the licensor if, in the business judgment of a trustee or the
licensor, as debtor-in-possession, rejection of the contract would benefit the
licensor's estate. In the event of such rejection, THCR could assert a claim
for damages, secured by THCR's lien on the Marks.
THE POSSIBLE APPLICATION OF FRAUDULENT CONVEYANCE LAWS TO THE MERGER
TRANSACTION
The Merger Transaction may be subject to review under relevant federal and
state fraudulent conveyance laws if a bankruptcy or reorganization case were
commenced or a lawsuit (including in circumstances where bankruptcy is not
involved) were commenced by or on behalf of unpaid creditors, if such
creditors were to exist, of THCR, THCR Holdings, Taj Holding, Taj Funding, Taj
Associates, Trump or TM/GP (each a "Transaction Participant"), as the case may
be, at some future date. The laws vary among the various jurisdictions. In
general, under these laws, if a court were to find that, at the time property
was transferred, an obligation was incurred or a security interest was
granted, either (i) such property was transferred or such obligation was
incurred or security interest granted with the intent of hindering, delaying
or defrauding creditors, or (ii) both (a) the entity transferring the property
or incurring the obligation or granting such security interest received less
than reasonably equivalent or fair value or consideration in exchange for such
property, the incurrence of such obligation or the granting of such security
interest and (b) the entity (x) was insolvent or was rendered insolvent
41
<PAGE>
by reason thereof, (y) was engaged in a business or transaction for which its
remaining assets constituted unreasonably small capital, or (z) intended to
incur, or believed, or reasonably should have believed, that it would incur,
debts beyond its ability to pay such debts as they matured (as all of the
foregoing terms are defined in or interpreted under the fraudulent conveyance
statutes) (a "Fraudulent Conveyance"), such court could impose legal and
equitable remedies, including (A) subordination of the obligation to presently
existing and future indebtedness of the entity, (B) avoidance of the issuance
of the obligation or granting of the security interest, and direction of the
repayment of any amounts paid from the proceeds thereof to a fund for the
benefit of the entity's creditors or (C) taking of other action detrimental to
the transferees of the property or holders of the instruments evidencing the
entity's obligations.
The measures of insolvency for purposes of determining whether a Fraudulent
Conveyance occurred would vary depending upon the laws of the relevant
jurisdiction and upon the valuation assumptions and methodology applied by the
court. Generally, however, an entity would be considered insolvent for
purposes of the foregoing if the sum of the entity's debts, including
contingent unliquidated and unmatured liabilities, is greater than all the
entity's property at a fair valuation, or if the present fair saleable value
of the entity's assets is less than the amount that would be required to pay
the probable liability on its existing debts as they become absolute and
matured.
THCR and Taj Holding believe that each Transaction Participant will receive
reasonably equivalent and fair value in connection with the applicable
transactions involved in the Merger Transaction. It is possible, however, that
a court could conclude differently. Notwithstanding such possibility, however,
each of THCR and Taj Holding believe that at the time of, or as a result of,
the consummation of the transactions comprising the Merger Transaction, such
entity and its subsidiaries (i) will not be insolvent or rendered insolvent
under the foregoing standards; (ii) will not be engaged in a business or
transaction for which its remaining assets constitute unreasonably small
capital; and (iii) do not intend to incur, and do not believe that it will or
would (subject to the discussion regarding the likely need to refinance the
Taj Notes at maturity as described herein under "--Holding Company Structure;
Risk in Refinancing and Repayment of Indebtedness; Need for Additional
Financing") incur, debts beyond its ability to pay such debts as they mature.
Consequently, THCR and Taj Holding believe that even if one or more elements
of the transactions were deemed to involve the transfer of property, the
incurrence of an obligation or the grant of a security interest for less than
reasonably equivalent or fair value, a Fraudulent Conveyance would not occur.
INTERESTS OF CERTAIN MEMBERS OF THE BOARDS OF DIRECTORS OF THCR AND TAJ
HOLDING
In considering the recommendation of the Board of Directors of THCR and the
Board of Directors of Taj Holding with respect to the Merger Transaction and
the Merger Agreement, respectively, certain members thereof have certain
interests in the Merger Transaction in addition to those of stockholders
generally. Trump is the Chairman of the Board of Directors of THCR and Taj
Holding and currently is the beneficial owner of approximately 40% and 50% of
THCR and Taj Associates, respectively. Furthermore, in connection with the
Merger Transaction, certain debt obligations of Trump and of his affiliates
will be satisfied, and certain guarantees of indebtedness by Trump and certain
of his affiliates will be released. See "Special Factors--Related Merger
Transactions," "Special Factors--Interests of Certain Persons in the Merger
Transaction" and "Business of Taj Holding--Certain Indebtedness."
LIMITATIONS INHERENT IN FAIRNESS OPINIONS
The fairness opinion of DLJ dated January 8,1996 included as Annex B and the
summary thereof included in this Proxy-Statement Prospectus describes the
limitations on scope, factors considered and basis for the conclusions
reached. See "Special Factors--Opinions of the Financial Advisors." DLJ was
not asked to, and did not, express any opinion as to whether another
transaction with Taj Holding and its affiliates could be obtained on more
favorable terms to THCR than the Merger Transaction. The limitations contained
in the fairness opinion should be considered carefully and stockholders should
note that the fairness opinion does not
42
<PAGE>
constitute a recommendation on how stockholders should vote on the proposals
submitted at the THCR Special Meeting or Taj Holding Special Meeting.
Developments after January 8, 1996 may affect DLJ's fairness opinion.
The fairness opinion of Rothschild dated January 8, 1996 included as Annex C
and the summary thereof included in this Proxy Statement-Prospectus describes
the limitations on scope, factors considered and basis for the conclusions
reached. See "Special Factors--Opinions of the Financial Advisors." Rothschild
was not asked to, and did not, express any opinion as to whether another
transaction with THCR or its affiliates or any other entity could be obtained
on more favorable terms to the holders of Taj Holding Class A Common Stock
than the Merger Transaction. The limitations contained in the fairness opinion
should be considered carefully and stockholders should note that the fairness
opinion does not constitute a recommendation on how stockholders should vote
on the proposals submitted at the THCR Special Meeting or Taj Holding Special
Meeting. Rothschild was not asked to, and did not, express any opinion as to
whether the terms of the Merger are fair to the holders of Taj Holding Class B
Common Stock or the holder (Trump) of the Taj Holding Class C Common Stock.
Developments after January 8, 1996 may affect Rothschild's fairness opinion.
See "Special Factors--Background of the Merger Transaction."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following completion of the Merger Transaction there will be
shares of THCR Common Stock outstanding (assuming all of the holders of Taj
Holding elect Stock Consideration and a Market Value of $ in connection
with the Merger) ( shares if the underwriters' over-allotment option with
respect to the THCR Stock Offering is exercised in full), but excluding
(i) shares of THCR Common Stock (subject to certain adjustments) issuable
upon conversion of Trump's limited partnership interest in THCR Holdings, (ii)
an additional shares of THCR Common Stock reserved for issuance pursuant
to the 1995 Stock Plan (as defined) and (iii) the THCR Class B Common Stock,
which shares are not entitled to dividends or distributions and represent
Trump's, and will represent TTMI's, voting interest and become nonvoting to
the extent of a conversion of their interest in THCR Holdings. Of those shares
outstanding, an aggregate of shares sold in the THCR Stock Offering,
issued to First Fidelity and issued in the Merger ( shares if the
underwriters' over-allotment option with respect to the THCR Stock Offering is
exercised in full), will be freely tradeable without restriction or future
registration under the Securities Act, unless purchased by an "affiliate" (as
defined in the Securities Act) of THCR, which shares will be subject to resale
limitations of Rule 144 promulgated under the Securities Act ("Rule 144"). The
remaining shares outstanding upon completion of the Merger Transaction will
not have been registered under the Securities Act and are restricted
securities within the meaning of Rule 144 ("Restricted Shares"), except that
such shares and the shares of THCR Common Stock issuable upon conversion of
limited partnership interests in THCR Holdings, will have certain registration
rights. See "Description of the THCR Holdings Partnership Agreement--Exchange
and Registration Rights." Restricted Shares cannot be sold publicly in the
absence of such registration, unless sold pursuant to an exemption under the
Securities Act, such as the exemption provided by Rule 144. It is expected
that THCR and certain stockholders will agree not to sell or otherwise dispose
of such shares or securities convertible into or exercisable or exchangeable
for THCR Common Stock for days after the date of the THCR Stock Offering
without the prior written consent of DLJ as the lead underwriter of the THCR
Stock Offering. Upon expiration of the applicable lock-up agreement with the
underwriters, the shares subject and covered thereby will be eligible for sale
subject to the restrictions contained in the Securities Act and the rules and
regulations promulgated thereunder, including Rule 144. Sales of substantial
amounts of THCR Common Stock in the public market subsequent to the Merger
Transaction, or the perception that such sales could occur, could adversely
affect the prevailing market price of the THCR Common Stock and could impair
THCR's ability to raise capital through the sale of equity securities.
EFFECT OF MERGER TRANSACTION ON HOLDERS OF THCR COMMON STOCK
In connection with the Merger Transaction, THCR will issue up to shares
of THCR Common Stock to holders of Taj Holding Class A Common Stock in the
Merger, 500,000 shares to First Fidelity, in connection with the purchase of
the Specified Parcels, and up to shares of THCR Common Stock pursuant to
the
43
<PAGE>
THCR Stock Offering (assuming a price of $ per share of THCR Common Stock
as the Market Value in connection with the Merger and as the public offering
price in the THCR Stock Offering). As required pursuant to the terms of the
THCR Holdings Partnership Agreement, Trump's beneficial ownership of limited
partnership interests in THCR Holdings will be adjusted to be convertible into
approximately shares of THCR Common Stock in connection with the Merger
Transaction. As a result of these issuances, the existing THCR Common Stock
holders' percentage of ownership of THCR could be diluted up to %.
Accordingly, the voting power of existing holders of THCR Common Stock would
be diluted by such amount.
TRADING MARKETS; POTENTIAL VOLATILITY OF MARKET PRICE
The THCR Common Stock began trading in June 1995, and since that time its
price has fluctuated substantially. The price at which the THCR Common Stock
will trade in the future will depend upon a number of factors, including,
without limitation, THCR's historical and anticipated operating results
(including the timing of the openings related to the various expansion
projects), overall Atlantic City gaming results and general market and
economic conditions, several of which factors are beyond the control of THCR.
In addition, factors such as quarterly fluctuations in THCR's financial and
operating results, announcements by THCR or others, and developments affecting
THCR, its customers, the Atlantic City market or the gaming industry
generally, could cause the market price of the THCR Common Stock to fluctuate
substantially.
44
<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE MERGER TRANSACTION
From August 1993 through June 1994, representatives of Trump and Taj
Associates negotiated with representatives of Putnam Investment Management,
Inc. ("Putnam"), acting for certain affiliated funds which at the time
beneficially owned a substantial amount of Units and Taj Holding Class A
Common Stock, Prudential Securities Inc. ("Prudential"), and certain other
substantial holders of Units and Taj Holding Class A Common Stock to explore
the feasibility of a recapitalization of Taj Associates under which
substantially all of the indebtedness of Taj Associates and its affiliated
entities would be exchanged or refinanced and Trump would acquire all the
equity interests in Taj Holding not then owned by him.
These negotiations resulted on March 8, 1994 in the execution by Trump, Taj
Associates, Taj Funding and Taj Holding of a letter with Putnam (the "March 8
Letter") which set forth the parties' understanding of the discussions that
had taken place regarding the recapitalization proposal and which indicated
that those terms were generally satisfactory. The March 8 Letter provided for
a restructuring transaction that would have included (i) an exchange offer
with the holders of the Bonds (the "Bondholders") for an equivalent principal
amount of new bonds with an interest rate of 11 7/8% (with an adjustment
downwards if certain parent company financing were repaid), a cash payment of
$7.5 million to exchanging Bondholders and an additional $15 million principal
amount of new bonds to be issued to exchanging Bondholders, (ii) an
acquisition by Trump of all the Taj Holding Class A Common Stock for a cash
price of $29.50 per share, (iii) the repayment of the First Fidelity Loan, the
NatWest Loan and the TTMI Note and (iv) an equity financing that would raise
between $115 and $125 million of proceeds which, together with approximately
$35 million of cash on hand, would be used to fund the cash requirements for
the transaction. Pursuant to the March 8 Letter, the exchange offer would have
required that a minimum of 90% of the principal amount of Bonds be tendered
for exchange and that the maturity date for the new bonds be set at ten years.
On March 22, 1994, at a meeting of the Board of Directors of Taj Holding at
which Jefferies & Company, Inc. ("Jefferies"), Taj Holding's financial advisor
at the time, and Andrews & Kurth L.L.P., special counsel to the Class B
Directors of Taj Holding (the "Special Counsel") were present, representatives
of Trump discussed with the Board of Directors of Taj Holding the background
and terms of the proposed recapitalization as provided in the March 8 Letter.
Jefferies also indicated its preliminary view that the merger consideration
was fair, from a financial point of view, to the holders of Taj Holding Class
A Common Stock. On March 26, 1994, Jefferies delivered a preliminary copy of
its report.
The Board of Directors of Taj Holding then met (with Jefferies present
telephonically) on March 28, 1994 to discuss the proposed recapitalization and
Jefferies' report thereon and requested certain additional analyses from
Jefferies, which were provided on March 29, 1994. On March 30, 1994, the Class
B Directors separately discussed the financial advisor's report (including
such additional analyses) with representatives of Jefferies and, later that
day, the entire Board of Directors of Taj Holding met telephonically to
discuss the proposed recapitalization and the financial advisor's report. At
the conclusion of such meeting, the Board of Directors of Taj Holding voted
unanimously to approve and recommend the proposed 1994 recapitalization.
During the summer of 1994, the parties determined not to proceed with the
proposed 1994 recapitalization, as Trump had been informed by several
Bondholders, who held in excess of 15% of the outstanding principal amount of
the Bonds, that they were not interested in pursuing the recapitalization on
the proposed terms. Thus, the parties believed that they would not be able to
achieve the 90% condition of the exchange offer.
On January 24, 1995, representatives of Taj Associates contacted the Special
Counsel to the Class B Directors of Taj Holding to indicate that they wished
to schedule a meeting of the Board of Directors of Taj Holding for the purpose
of discussing a proposal for a recapitalization of Taj Associates and its
affiliated entities in early February. On February 2, 1995, a meeting of the
Board of Directors of Taj Holding was held to discuss the proposed
recapitalization of Taj Associates and its affiliated entities, which would
include the contribution by Trump of Trump Indiana. The Board of Directors of
Taj Holding was presented with a proposed plan of
45
<PAGE>
recapitalization (the "February 2 Proposal") in which (i) each $1,000
principal amount of Bonds would be exchanged for $750 principal amount of new
Taj Funding mortgage notes and twenty shares of common stock of TTMI, (ii) all
shares of Taj Holding Class B Common Stock associated with the exchanged Bonds
would be redeemed at the required redemption price of $.50 per share, (iii) in
a merger transaction, each share of Taj Holding Class A Common Stock (other
than shares as to which appraisal rights are perfected) would be converted
into and represent the right to receive four shares of common stock of TTMI,
and each share of Taj Holding Class B Common Stock (other than shares
associated with any Bonds exchanged in the exchange offer and any shares as to
which appraisal rights are perfected) would be converted into and represent
the right to receive $.50 in cash, (iv) Trump Indiana would become a wholly
owned subsidiary of TTMI and would guarantee new mortgage notes, and (v) the
NatWest Loan and the Taj Associates--First Fidelity Guarantee (as defined)
would be exchanged for new mortgage notes and new common stock on the same
basis as the Bonds.
Without passing on the merits of the February 2 Proposal, the Board of
Directors of Taj Holding authorized the officers of Taj Holding to begin the
preparation of documentation relating to the February 2 Proposal, asked
Rothschild and BT Securities to provide certain additional information in
connection with the February 2 Proposal prior to the regularly scheduled board
meeting on February 9, 1995, and agreed to consider the retention of
Rothschild and BT Securities at such Board of Directors meeting. On February
9, 1995, the Board of Directors of Taj Holding held a meeting and approved the
retention of Rothschild and BT Securities to serve as financial advisors in
connection with a recapitalization plan based on the February 2 Proposal. On
February 13, 1995, Taj Holding, Taj Funding, Taj Associates, TTMI and TTMC
entered into an agreement with BT Securities and Rothschild, pursuant to which
BT Securities and Rothschild were retained as financial advisors in connection
with such recapitalization plan. Upon execution of the agreement, BT
Securities and Rothschild were paid $240,000 and $160,000, respectively. This
agreement with Rothschild and BT Securities was subsequently terminated. Trump
subsequently informed Taj Holding during the week of March 7, 1995 that he had
determined not to contribute Trump Indiana in connection with the transaction
contemplated by the February 2 Proposal, but instead to include the
contribution of Trump Indiana as part of a proposed recapitalization involving
Trump Plaza (which was accomplished in connection with the June 1995
Offerings).
On April 3, 1995, a meeting of the Board of Directors of Taj Holding was
held to discuss a proposed recapitalization of Taj Associates and its
affiliated entities which would not involve Trump Indiana. Rothschild and BT
Securities presented to the directors a proposed plan of recapitalization (the
"April 3 Proposal") in which (i) each $1,000 principal amount of Bonds would
be exchanged for (a) $750 principal amount of new Taj Funding mortgage notes
and (b) twenty shares of new common stock of TTMI, (ii) all shares of Taj
Holding Class B Common Stock associated with the Bonds would be redeemed at
the required redemption price of $.50 per share, (iii) in a merger
transaction, each share of Taj Holding Class A Common Stock (other than shares
as to which appraisal rights are perfected) would receive $12 in cash and each
share of Taj Holding Class B Common Stock (other than shares associated with
any Bonds exchanged in the exchange offer and any shares as to which appraisal
rights are perfected) would be converted into and represent the right to
receive $.50 in cash, (iv) the NatWest Loan and the TTMI Note would be
exchanged for new mortgage notes and new common stock on the same basis as the
Bonds and (v) Taj Associates would purchase the Taj Entertainment Complex, the
Steel Pier and a warehouse complex from Realty Corp. and the associated Taj
Associates-First Fidelity Guarantee would be released in exchange for $22.5
million principal amount of new mortgage notes and 600,000 shares of new
common stock.
The Board of Directors of Taj Holding was not asked to take and took no
further action with respect to the April 3 Proposal. At the July 13, 1995
meeting of the Board of Directors of Taj Holding, the Board invited
Rothschild, BT Securities and DLJ to discuss generally the desirability of
refinancing Taj Associates' indebtedness.
During the summer of 1995, members of management of Taj Holding approached
certain holders of Taj Holding Class A Common Stock about a potential
recapitalization transaction of Taj Associates, which could involve a merger
of the Taj Mahal with THCR. These holders indicated their general support for
such a transaction. At the September 27, 1995 meeting of the Board of
Directors of Taj Holding, at which DLJ, BT
46
<PAGE>
Securities and Rothschild were present, the Board discussed a proposal (the
"September 27 Proposal") which provided for a merger of Taj Holding with a
subsidiary of THCR with Taj Holding becoming a subsidiary of THCR, the payment
to the holders of Taj Holding Class A Common Stock (at such holders' option)
of $30.00 in cash or $30.00 in THCR Common Stock in the event shares of THCR
Common Stock are made available by THCR, the redemption of the Bonds and
redemption of the Taj Holding Class B Common Stock, the contribution by Trump
of his interests in Taj Associates, the elimination of the First Fidelity
Loan, TTMI Note and NatWest Loan and the issuance of new mortgage notes by Taj
Funding with a longer maturity and greater covenant flexibility than the
Bonds.
At the September 27 meeting, the Board of Directors of Taj Holding approved
the execution of the Class A Agreement with certain holders of Taj Holding
Class A Common Stock pursuant to which such holders would agree to vote in
favor of the proposed merger. The Class A Agreement was entered into on
October 6, 1995 by Taj Associates, Taj Funding and Taj Holding and Putnam,
Prudential, Hamilton Partners, L.P., Grace Brothers, Ltd., SC Fundamental
Value Fund, L.P. and SC Fundamental Value BVI Ltd., the holders of
approximately 52% of the Taj Holding Class A Common Stock. These holders also
agreed not to dispose of their shares of Class A Common Stock except pursuant
to such recapitalization, other than through sales to third parties who agree
to be bound by the Class A Agreement. Taj Associates, Taj Funding and Taj
Holding paid $701,840 to these holders of Taj Holding Class A Common Stock and
agreed to pay them an additional $701,840 if the proposed recapitalization
does not occur prior to March 15, 1996. The Class A Agreement expires on
April 30, 1996. Neither Trump nor THCR is a party to the Class A Agreement. In
connection with the approval of the Class A Agreement by the Board of
Directors of Taj Holding, Trump agreed to reimburse the appropriate entity for
any and all fees paid to holders of Taj Holding Class A Common Stock pursuant
to the Class A Agreement in the event that Trump voted his shares in THCR
against, or, if the Board of Directors of THCR was requested to vote, and
Trump (as a director) voted against, or if such Board was not requested to
vote on, the transaction outlined in the September 27 Proposal.
At a meeting of the Board of Directors of THCR held on October 3, 1995,
representatives of management of THCR and Willkie Farr & Gallagher ("Willkie
Farr"), counsel to THCR in connection with the Merger Transaction, which firm
has historically (but not in connection with the negotiation of the Merger
Agreement and certain other matters related to the Merger Transaction) served
as counsel to Taj Associates and its affiliates, discussed with the Board of
Directors the transactions outlined in the September 27 Proposal and the Class
A Agreement.
In early October 1995, Special Counsel was retained to represent Taj Holding
in connection with the negotiation of the Merger Agreement, in addition to
representing the Class B Directors generally.
On November 6, 1995, representatives of Special Counsel met with
representatives of THCR and Willkie Farr to discuss the timing and mechanics
of effecting the proposed transaction referred to in the September 27
Proposal. Thereafter, representatives of THCR, Taj Holding, Willkie Farr and
Special Counsel commenced preparation of this Proxy Statement-Prospectus and
other documents related to the Merger Transaction, including the Merger
Agreement. During November and December 1995 and January 1996, DLJ, BT
Securities, Rothschild and counsel to DLJ participated in sessions where
drafts of this Proxy Statement-Prospectus and drafts of the Merger Agreement
were discussed.
On December 4, 1995, following receipt of a draft of the Proxy Statement-
Prospectus, the Class B Directors met telephonically with Special Counsel.
Special Counsel reviewed with the Class B Directors the proposed terms of the
Merger Transaction as described in such draft and updated the Class B
Directors on the status of discussions with representatives of THCR. The Class
B Directors then discussed the retention of a financial advisor, and
determined that, given Rothschild's knowledge of Taj Holding and Taj
Associates, its prior retention with respect to the February 2 proposal and
its expertise in such matters, it would be appropriate for Rothschild to be
retained by Taj Holding to serve as financial advisor in connection with the
Merger and to render a fairness opinion. Special Counsel discussed with the
Class B Directors certain changes in the Merger Agreement which Special
Counsel recommended, including a separate class vote of the holders of the Taj
Holding Class A
47
<PAGE>
Common Stock to approve the Merger, although such vote was not specifically
required by the Taj Holding Certificate of Incorporation. Subsequently,
Rothschild entered into a retention agreement with Taj Holding.
On December 8, 1995, Special Counsel met telephonically with Ropes & Gray,
counsel to the holders of Taj Holding Class A Common Stock who are parties to
the Class A Agreement. Such counsel confirmed that the Class A Agreement was
reached through arms-length negotiations and accurately represents the desires
of the parties thereto.
At a meeting of the Board of Directors of THCR held on December 11, 1995,
representatives of THCR, Willkie Farr, DLJ and BT Securities discussed with
the Board of Directors of THCR the Merger Transaction as described in the
draft of the Proxy Statement-Prospectus previously distributed to the Board,
including the contribution by Trump to THCR of his direct and indirect equity
interests in Taj Associates. Willkie Farr updated the Board of Directors of
THCR on the status of discussions with Special Counsel to the Class B
Directors of Taj Holding. The Board of Directors of THCR also reviewed the
approval process and the timing of the proposed Merger Transaction. The Board
of Directors of THCR determined that as a result of the affiliated nature of
the proposed transaction, the THCR Special Committee and the Board of
Directors of THCR each would separately review, analyze and vote on the
proposed Merger Transaction, and that an investment banking firm be retained
to render an opinion to the THCR Special Committee as to the fairness of the
consideration to be paid by THCR in the proposed Merger Transaction. Following
a presentation of the proposed Merger Transaction by DLJ, the Board of
Directors of THCR discussed (without Trump being present) the potential
benefits to THCR in connection with the proposed transaction.
On December 14, 1995, Special Counsel met telephonically with
representatives of Rothschild to discuss the timing for a written report and
the analyses to be used in the preparation of such report. Later that same
day, the Class B Directors again met telephonically with Special Counsel.
Special Counsel updated the Class B Directors on the status of the
transaction, including certain proposed changes thereto, and the status of
negotiations concerning various requested modifications to the Merger
Agreement. Special Counsel also reported to the Class B Directors regarding
the conversation with the counsel to the holders of Taj Holding Class A Common
Stock and the discussion with Rothschild.
On December 18, 1995, the Board of Directors of THCR (other than Trump),
Willkie Farr and management of THCR met telephonically to discuss the status
of the proposed Merger Transaction, the approval process to be employed, as
well as an update on negotiations with Taj Holding. The Board of Directors of
THCR discussed the retention of DLJ as financial advisor to THCR to, among
other things, render an opinion to the THCR Special Committee as to fairness
of the consideration to be paid by THCR in the Merger Transaction. The
Directors determined that given DLJ's knowledge of THCR and Taj Associates,
and its expertise in such matters, DLJ would be appropriate to serve as
financial advisor and to render a fairness opinion. Following this discussion,
the Board of Directors concluded that, in order to maximize procedural
fairness, the proposed Merger Transaction be submitted to a vote of all
unaffiliated stockholders of THCR in addition to the vote of all of THCR's
stockholders required by Delaware law.
On December 21, 1995, Rothschild presented to the Board of Directors of Taj
Holding its preliminary written report on the Merger, which is discussed below
(the "Rothschild Report"). On December 21, 1995, the Taj Holding Class B
Directors met telephonically together with Special Counsel to review generally
the Rothschild Report, the latest draft of the Merger Agreement and the status
of the requested modifications to the Merger Agreement. Later that day, at a
telephonic meeting of the entire Board of Directors of Taj Holding at which
Rothschild, Special Counsel and Willkie Farr were present, representatives of
the Board of Directors of Taj Holding discussed the terms of the proposed
Merger as described in a draft Joint Proxy Statement-Prospectus distributed
December 15, 1995. Rothschild described the Rothschild Report in detail and
responded to questions from members of the Board of Directors of Taj Holding
with respect thereto.
On December 22, 1995, the Board of Directors of THCR (other than Trump),
Willkie Farr and management of THCR met telephonically to discuss and review
the proposed Merger Transaction and status of negotiations
48
<PAGE>
with Special Counsel to the Class B Directors of Taj Holding. On January 3,
1996, DLJ was engaged by THCR to act as THCR's exclusive financial advisor in
connection with the Merger Transaction.
On January 4, 1996, the THCR Special Committee met with DLJ, Willkie Farr
and the General Counsel of THCR to discuss the Merger Transaction. At such
meeting, DLJ presented its preliminary written report on the terms of the
Merger Transaction and its fairness analysis, which is discussed below (the
"DLJ Report"), and responded to questions from members of the THCR Special
Committee. Following DLJ's presentation, the THCR Special Committee requested
certain additional information from DLJ and THCR, which information was
provided to the Special Committee during the period from January 4 to January
8, 1996. Immediately following the meeting of the THCR Special Committee, the
Board of Directors of THCR met to discuss the status of the proposed Merger
Transaction and the DLJ Report. The DLJ Report may be inspected at THCR's
principal executive offices.
On January 4, 1996, the Class B Directors held a meeting with
representatives of Rothschild and Special Counsel and discussed the status of
the Merger Agreement and an updated version of the Rothschild Report including
certain additional analyses which had been requested. Later that day, the
entire Board of Directors met with Rothschild, Special Counsel and Willkie
Farr present, to discuss the Merger and an updated version of the Rothschild
Report and to ask questions of Rothschild. In addition, in light of the fact
that Trump was to receive a warrant to purchase shares of THCR Common Stock
concurrent with the consummation of the Merger, the Class B Directors
requested Nicholas L. Ribis, Taj Holding's Vice President, to request that
THCR provide additional consideration to the holders of Taj Holding Class A
Common Stock. During the period through January 8, 1996, representatives of
Taj Holding, Special Counsel, THCR and Willkie Farr continued to negotiate the
Merger Agreement and the terms of the Merger. Among other things, it was
agreed that the Merger would be subject to the approval of the holders of the
Taj Holding Class A Common Stock, Taj Holding Class B Common Stock and Taj
Holding Class C Common Stock, each voting as a separate class. It was also
agreed that (i) Taj Holding would be able to furnish information to, and
participate in negotiations with, certain persons concerning an alternative
proposal for the acquisition of Taj Holding, if the Class B Directors, by a
majority vote, determined in their good faith judgement that such action would
be appropriate in furtherance of the best interests of stockholders, and (ii)
the Merger Agreement could be terminated by Taj Holding, acting through the
Class B Directors, if the Class B Directors shall have withdrawn or modified
their approval or recommendation of the Merger Agreement or the Merger in
order to permit Taj Holding to execute an agreement to effect a proposal for
the acquisition of Taj Holding determined by the Class B Directors to be more
favorable to the Taj Holding stockholders than the transactions contemplated
by the Merger Agreement.
On January 8, 1996, the Class B Directors of Taj Holding held a telephonic
meeting, with Rothschild and Special Counsel present, to review the proposed
Merger. During the meeting, Rothschild delivered its written opinion that the
consideration to be received by the holders of Taj Holding Class A Common
Stock in connection with the Merger Transaction, is fair, from a financial
point of view, to the holders of Taj Holding Class A Common Stock. At the
conclusion of such meeting, the Class B Directors determined that the proposed
Merger is fair to, and in the best interests of, the holders of the Taj
Holding Class A Common Stock, and voted unanimously to approve the Merger and
recommend that stockholders vote to approve and adopt the Merger Agreement.
Later that day, the entire Board of Directors of Taj Holding held a telephonic
meeting, with Rothschild, Special Counsel and Willkie Farr present, to review
the proposed Merger. During the meeting, the Board of Directors of Taj Holding
was informed by Mr. Ribis, that, in response to the request made by the Class
B Directors at the previous meeting, THCR would not consider giving any
additional consideration to Taj Holding's stockholders. At the conclusion of
the meeting, the Board of Directors determined that the proposed Merger is
fair to, and in the best interests of, Taj Holding and the holders of Taj
Holding Class A Common Stock, and voted unanimously to approve the Merger and
recommend that Taj Holding's stockholders vote to approve and adopt the Merger
Agreement.
The Board of Directors of Taj Holding did not determine whether the terms of
the Merger are fair to, or in the best interests of, the holders of Taj
Holding Class B Common Stock or the holder (Trump) of Taj Holding
49
<PAGE>
Class C Common Stock. The Board of Directors of Taj Holding recognized that
the redemption price for the Taj Holding Class B Common Stock is established
by the Taj Holding Certificate of Incorporation at $0.50 per share and that
such stock must be redeemed in connection with the redemption of the Bonds,
which is a condition to the Merger. The Taj Holding Board of Directors also
recognized that all the outstanding shares of Taj Holding Class C Common Stock
are beneficially owned by Trump, who is a director of Taj Holding and has the
ability to elect a majority of the members of the Board of Directors of Taj
Holding, and who had an opportunity to negotiate the terms of the Merger
Transaction on his own behalf as they relate to the Taj Holding Class C Common
Stock.
On January 8, 1996, the THCR Special Committee met telephonically with DLJ,
Willkie Farr and the General Counsel of THCR to further discuss the DLJ
Report. During the meeting, DLJ delivered its written opinion that the
aggregate consideration to be paid by THCR pursuant to the transactions
contemplated by the Merger Agreement is fair to THCR from a financial point of
view. After discussing the opinion with DLJ and considering the elements of
the Merger Transaction, the THCR Special Committee voted unanimously to
approve the Merger Transaction. Immediately following the THCR Special
Committee meeting, the Board of Directors of THCR met telephonically to
discuss the Merger Transaction and the DLJ Report. At the conclusion of such
meeting, the THCR Board of Directors voted unanimously to approve and
recommend the Merger Transaction and the Merger Agreement.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER TRANSACTION;
FAIRNESS OF THE MERGER TRANSACTION
Taj Holding. On January 8, 1996, the members of the Board of Directors of
Taj Holding unanimously determined that the Merger is fair to and in the best
interest of Taj Holding and the holders of Taj Holding Class A Common Stock
and recommended that such stockholders of Taj Holding approve and adopt the
Merger Agreement. In determining to recommend approval and adoption of the
Merger Agreement and the transactions contemplated thereby and in approving
the Merger Agreement, the Board of Directors considered a number of factors,
including but not limited to the factors discussed below.
(a) In determining that the Proposed Merger is fair to, and in the best
interest of, Taj Holding and the holders of Taj Holding Class A Common
Stock, and in deciding to recommend that such Stockholders vote to approve
and adopt the Merger Agreement, the Board of Directors considered:
(i) discussions with Rothschild regarding generally, the financial
condition, results of operations and business of Taj Mahal, Taj
Holding's principal asset, which are summarized below under the caption
"--Opinions of the Financial Advisors,"
(ii) discussions with Rothschild with respect to the industry in
which Taj Holding operates, as well as the recent results of operations
of Taj Holding,
(iii) the oral and written presentations of Rothschild described
below under "Opinion of Financial Advisor" and its written opinion
dated January 8, 1996 to the effect that, as of the date of such
opinion and based upon the matters set forth therein, the consideration
to be received by the holders of the Taj Holding Class A Common Stock,
in connection with the Merger Transaction, is fair, to such holders
from a financial point of view,
(iv) that the consummation of the Merger is conditioned upon the
affirmative vote of a majority of the outstanding shares of Taj Holding
Class A Common Stock, even though such right is not provided in the Taj
Holding Certificate of Incorporation,
(v) that the Merger Consideration was the subject of arm's-length
negotiations between members of management of Taj Holding, on the one
hand, and certain significant holders of the Taj Holding Class A Common
Stock, on the other hand,
(vi) that the holders of approximately 52% of the Taj Holding Class A
Common Stock entered into the Class A Agreement pursuant to which they
agreed to vote in favor of the Merger,
50
<PAGE>
(vii) that, in order to retain the ability to achieve greater value
for the holders of Taj Holding Class A Common Stock, Taj Holding
negotiated the ability to furnish information to, and participate in
negotiations with, certain persons concerning alternative proposals for
the acquisition of Taj Holding, if the Class B Directors, by a majority
vote, determined in their good faith judgment that such action would be
appropriate in furtherance of the best interests of the stockholders.
It was further agreed that the Merger Agreement could be terminated by
Taj Holding, acting through the Class B Directors, if the Class B
Directors shall have withdrawn or modified their approval or
recommendation of the Merger Agreement or the Merger in order to permit
Taj Holding to execute an agreement to effect a proposal for the
acquisition of Taj Holding which the Class B Directors determined to be
more favorable to the Taj Holding stockholders than the transactions
contemplated by the Merger Agreement. The ability to ultimately
consummate such an alternative acquisition, however, would be subject
to the approval of the entire Board of Directors of Taj Holding and the
stockholders of Taj Holding, including Trump as the beneficial owner of
all the outstanding shares of Taj Holding Class C Common Stock.
(viii) the fact that the holders of the Taj Holding Class A Common
Stock will have the opportunity to elect to receive cash for their
shares and achieve immediate liquidity,
(ix) that, in any alternative transaction, the possibility exists
that Taj Associates could make the 14% Payment (none of which would be
payable to the holders of the Taj Holding Class A Common Stock),
thereby substantially diluting the value of the equity interest in Taj
Associates represented by the Taj Holding Class A Common Stock, and
(x) the fact that there currently is not, and historically there has
not been, an established trading market for the Taj Holding Class A
Common Stock.
(b) In deciding to recommend that the holders of Taj Holding Class B
Common Stock vote to approve and adopt the Merger Agreement, the Board of
Directors considered:
(i) that each share of Taj Holding Class B Common Stock trades as
part of a Unit and, therefore, that there is no separate trading market
for the Taj Holding Class B Common Stock,
(ii) that the Taj Holding Certificate of Incorporation requires
payment of the $.50 per share Taj upon the purchase, payment or
defeasance of the Bond with which such share trades, and
(iii) that the consummation of the Merger is conditioned upon the
affirmative vote of a majority of the outstanding shares of Taj Holding
Class B Common Stock, even though such Taj Holding Class B Common Stock
would be redeemed prior to the Effective Time.
With respect to the Taj Holding Class A Common Stock, the factors
discussed above were considered by the Board of Directors of Taj Holding in
the following manner:
(a) The Board of Directors of Taj Holding considered as favorable to its
decision and placed special emphasis on the matters set forth in items
(a)(iii), (iv), (v), (vi) and (vii) above. The Board of Directors of Taj
Holding relied on, actively discussed and requested, received and
considered additional analyses regarding the presentation by Rothschild
described herein under "--Opinions of the Financial Advisors--Taj Holding-
Opinion of Rothschild".
(b) The Board of Directors of Taj Holding considered as favorable to its
decision the fact that the holders of a majority of the Taj Holding Class A
Common Stock entered into the Class A Agreement and agreed to vote their
shares in favor of the Merger, and that all holders of the Taj Holding
Class A Common Stock will be given the right to vote on the Merger, even
though such right is not provided in the Taj Holding Certificate of
Incorporation.
(c) The Board of Directors of Taj Holding considered as favorable to its
decision the matters set forth in items (a)(i) and (ii) above. In
connection therewith, the Board of Directors of Taj Holding reviewed Taj
Holding's historical operating results, the forecasts utilized by
Rothschild in preparing the Rothschild Report, and presentations by Taj
Holding's management concerning the prospects for the Taj Mahal. In these
deliberations, the Board of Directors of Taj Holding recognized that, as a
result of the Merger the
51
<PAGE>
holders of Taj Holding Class A Common Stock electing Cash Consideration
would not have the ability to participate in the future growth of Taj
Holding.
(d) In considering the Rothschild Report, the Board of Directors of Taj
Holding considered the various projections prepared by management and
considered by Rothschild in arriving at their recommendation. See
"Additional Information."
With respect to the Taj Holding Class B Common Stock, the Board of Directors
gave equal weight to the factors discussed in items (b)(i) through (iii)
above.
The Board of Directors of Taj Holding did not determine whether the terms of
the Merger are fair to, or in the best interests of, the holders of Taj
Holding Class B Common Stock or the holder (Trump) of Taj Holding Class C
Common Stock. The Board of Directors of Taj Holding recognized that the
redemption price for the Taj Holding Class B Common Stock is established by
the Taj Holding Certificate of Incorporation at $0.50 per share and that such
stock must be redeemed in connection with the redemption of the Bonds, which
is a condition to the Merger. The Taj Holding Board of Directors also
recognized that all the outstanding shares of Taj Holding Class C Common Stock
are beneficially owned by Trump, who is a director of Taj Holding and has the
ability to elect a majority of the members of the Board of Directors of Taj
Holding, and who had an opportunity to negotiate the terms of the Merger
Transaction on his own behalf as they relate to the Taj Holding Class C Common
Stock.
The Board of Directors of Taj Holding considered each of the factors listed
above during the course of its deliberations prior to approving the Merger
Agreement. The Board of Directors of Taj Holding evaluated the factors listed
above in light of its knowledge of the business and operations of the Taj
Mahal and its business judgment. In view of the wide variety of factors
considered in connection with its evaluation of the Merger, the Board of
Directors of Taj Holding found it impracticable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors
considered in making its determinations.
The Board of Directors of Taj Holding believes that the Merger is
procedurally fair, because (i) the Board of Directors of Taj Holding retained
a financial advisor to render an opinion as to whether the consideration to be
paid in the Merger was fair from a financial point of view to the holders of
the Taj Holding Class A Common Stock, and Rothschild, the financial advisor so
retained, rendered such an opinion, (ii) of the availability to holders of Taj
Holding Class A Common Stock of appraisal rights under the DGCL, (iii) of the
fact that the Merger will not be consummated unless the conditions to the
Merger are satisfied or waived, including a vote in favor of the Merger by
holders of a majority of the Taj Holding Class A Common Stock and Taj Holding
Class B Common Stock, each voting as a separate class, and (iv) Taj Holding,
in order to retain the ability to achieve greater value for the holders of the
Taj Holding, negotiated the ability to furnish information to, and participate
in negotiations with, persons concerning alternative proposals for the
acquisition of Taj Holding, if the Class B Directors by a majority vote
determine in their good faith judgment that such action is appropriate in
furtherance of the best interests of stockholders. It was further agreed that
the Merger Agreement could be terminated by Taj Holding, acting through the
Class B Directors, if the Class B Directors shall have withdrawn or modified
their approval or recommendation of the Merger Agreement or the Merger in
order to permit Taj Holding to execute an agreement to effect a proposal for
the acquisition of Taj Holding, which the Class B Directors determined to be
more favorable to the Taj Holding stockholders than the transaction
contemplated by the Merger Agreement. The ability to ultimately consummate
such an alternative acquisition, however, would be subject to the approval of
the entire Board of Directors of Taj Holdings and the stockholders of Taj
Holding, including Trump as the beneficial owner of all the outstanding shares
of Taj Holding Class C Common Stock.
A copy of the written opinion of Rothschild delivered to the Board of
Directors of Taj Holding, including the Class B Directors, which sets forth
the assumptions made, matters considered and limits of the review by
Rothschild in rendering its opinion, is attached to this Proxy Statement-
Prospectus as Annex C. Stockholders are urged to read this opinion in its
entirety. These materials are available for inspection and copying at the
principal executive offices of Taj Associates.
52
<PAGE>
THCR. On January 8, 1996, the THCR Special Committee and the Board of
Directors of THCR each determined that the Merger Transaction was fair to, and
in the best interests of, THCR and unanimously approved the terms of the
Merger Transaction and the Merger Agreement. Accordingly, the Board of
Directors of THCR recommends that the stockholders of THCR vote for approval
of the Merger Transaction.
In making their respective determinations and recommendations concerning the
Merger Transaction, which determinations and recommendations are the product
of the business judgment of the respective members thereof, exercised in light
of their fiduciary duties to THCR and THCR's stockholders, the THCR Special
Committee and the Board of Directors of THCR considered a number of factors,
including but not limited to the following factors discussed below:
(a) Knowledge of THCR's and Taj Associates' business, operations,
properties, assets, financial condition, operating results and future
prospects, the current conditions in, and the future prospects of, the
Atlantic City market and gaming markets outside of Atlantic City, and the
competitive positions of each of Trump Plaza and the Taj Mahal in the Atlantic
City market, all of which indicated that the acquisition of Taj Associates
would make a good strategic fit with THCR, and that the combination would
create a company that will be better positioned than either would be
separately to compete both in Atlantic City and for prime gaming licenses in
other jurisdictions.
(b) The potential for synergies from combining THCR with Taj Associates,
which the THCR Special Committee and the Board of Directors of THCR believe
would have a favorable impact on long-term value for THCR's stockholders.
(c) The Merger Agreement includes as a condition the consummation of the
THCR Stock Offering and the Taj Note Offering on terms acceptable to THCR. A
related factor in the considerations of the THCR Special Committee and the
Board of Directors of THCR was that the Merger Transaction includes the
refinancing of the Bonds with the Taj Notes which will extend the maturity of
Taj Associates' debt and provide financial flexibility thereby. Additionally,
the Merger Agreement includes as a condition to THCR's obligation to
consummate the Merger that the Market Value of THCR Common Stock equal $20.00
or more.
(d) The Merger Transaction requires the approval of a majority of the
unaffiliated public stockholders of THCR through a separate class vote.
(e) Discussions with DLJ regarding the financial condition, results of
operations and business of the Taj Mahal, as well as the industry in which the
Taj Mahal and THCR operate; the discussions also included a review of the
recent results of the Taj Mahal.
(f) The oral presentations of DLJ described below under "--Opinions of the
Financial Advisors--THCR-Opinion of DLJ" and its written opinion, dated
January 8, 1996, to the THCR Special Committee to the effect that, as of the
date of such opinion, and based on the matters set forth therein, the
aggregate consideration to be paid by THCR pursuant to the transactions
contemplated by the Merger Agreement is fair to THCR from a financial point of
view. Furthermore, the THCR Special Committee was satisfied with the scope of
the review and analysis performed by DLJ and believed that DLJ had performed
competently and professionally.
(g) With respect to the purchase of the Specified Parcels from Realty Corp.,
that (i) the properties are integral to the Taj Associates Expansion, (ii) the
related $30 million guaranty of Taj Associates will be released, (iii) the
lease relating to the Specified Parcels will be terminated, thus eliminating
Taj Associates $3.3 million annual rental payment obligations thereunder, and
(iv) a recent appraisal indicating that the market value of the Specified
Parcels ranged from approximately $80 million to $95 million.
(h) The payment to Bankers Trust was required to obtain the consent of
Bankers Trust to the Merger and the release of its liens on Trump's direct and
indirect equity interests in Taj Associates.
53
<PAGE>
(i) That Trump beneficially owns a 50% equity interest in Taj Associates and,
through his ownership of the Taj Class C Common Stock, elects a majority of the
Directors of Taj Holding and thus controls Taj Holding; and that in the Merger
Transaction, Trump's beneficially equity interests in Taj Associates will be
contributed to Trump Holding and Taj Holdings LLC and the Taj Holding Class
Common Stock will be canceled.
(j) The fact that Trump controls approximately 40% of the voting power of
THCR before the Merger Transaction and will control approximately the same
percentage following the consummation of the Merger Transaction. The THCR
Special Committee and the Board of Directors of THCR viewed this Trump's
continued significant holdings as a positive factor given that the association
of THCR with Trump is believed to enhance the status of THCR due to the
widespread recognition of the "Trump" name and its association with high
quality amenities and first class services.
(k) Certain risks associated with the proposed Merger Transaction, as set
forth under "Risk Factors."
The THCR Special Committee and the Board of Directors of THCR considered each
of the factors listed above during the course of their deliberations prior to
approving the Merger Transaction. In view of the wide variety of factors
considered, neither the THCR Special Committee nor the Board of Directors of
THCR found it practicable to quantify or otherwise attempt to assign relative
weights to the specific factors considered in making their determinations. The
THCR Special Committee and the Board of Directors of THCR believe that the
factors discussed above in paragraphs (a) through (g), (i) and (j) supported
their decision to approve the Merger Transaction and outweighed the risks
associated therewith referred to in paragraph (k).
Each of THCR, THCR Holdings, Trump and Merger Sub reasonably believes that
the Merger Transaction is fair to the holders of Taj Holding Class A Common
Stock for the reasons identified by the Board of Directors of Taj Holding in
making its determination as to fairness.
OPINIONS OF THE FINANCIAL ADVISORS
Taj Holding--Opinion of Rothschild. Rothschild has delivered its written
opinion, dated January 8, 1996, that, from a financial point of view, the
consideration to be received by the holders of Taj Holding Class A Common
Stock, in connection with the Merger Transaction (as constituted as of the
above mentioned date), is fair to such holders.
The full text of the written opinion of Rothschild dated January 8, 1996
which sets forth the assumptions made, the matters considered and the review
undertaken with regard to such opinion, is attached as Annex C to this Proxy
Statement-Prospectus. Stockholders are urged to read the opinion in its
entirety. Rothschild's opinion is directed only to the fairness of the
consideration to be received by the holders of the Taj Holding Class A Common
Stock and does not constitute a recommendation to any holder of shares of Taj
Holding Class A Common Stock, Taj Holding Class B Common Stock, or Taj Holding
Class C Common Stock as to how the holder should vote. The summary of
Rothschild's opinion set forth in this Proxy Statement-Prospectus is qualified
in its entirety by reference to the full text of such opinion.
In arriving at its opinion, Rothschild (i) reviewed the proposed terms and
conditions of the Merger Transaction as set forth in the Merger Agreement, (ii)
considered certain publicly available information relating to Taj Holding,
(iii) considered and reviewed certain other financial and business information
relating to Taj Holding and THCR, including financial forecasts provided to
Rothschild by Taj Holding, (iv) considered and reviewed financial and business
information including financial projections provided to Rothschild by THCR and
(v) met with Taj Holding's and THCR's managements to discuss the businesses of
Taj Holding and THCR, respectively. Rothschild also considered certain
financial and market information for THCR and compared that data with similar
data for other publicly-traded companies in businesses similar to those of
THCR. Rothschild
54
<PAGE>
also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that it deemed
relevant. Rothschild's analyses were not adjusted for the dilution that would
result from a possible 14% Payment. Furthermore, Rothschild's analyses did not
reflect the Taj Mahal Expansion because without the Merger Transaction, or
consent by the holders of the Bonds, Taj Holding would be unable to finance
such a program.
In addition, Rothschild did not make an independent evaluation or appraisal
of any of the assets of Taj Holding, but was furnished with an appraisal by
Appraisal Group International ("AGI") in March 1994 regarding the value of the
Taj Mahal and AGI's appraisal in December 1995 regarding various parcels of
land owned by Realty Corp. Rothschild was not requested to, and did not,
solicit third party offers to acquire all or any part of Taj Holding, nor, to
Rothschild's knowledge, has any interest in making such an offer been
presented by any third party, including in response to the public disclosure
regarding the Class A Agreement. Rothschild was also not asked to, and did
not, express any opinion as to whether another transaction with THCR or its
affiliates, or with any other entity, might provide more favorable terms to
the holders of Taj Holding Class A Common Stock than the Merger Transaction.
Rothschild's opinion was necessarily based solely upon information available
to it and business, market, economic and other conditions as they existed on,
and could be evaluated as of, the date of such opinion.
In connection with its review and the preparation of its written opinion,
Rothschild did not independently verify any of the foregoing information and
relied on such information being complete and accurate in all material
respects. Rothschild also relied upon certain projections furnished by Taj
Holding's management, which it assumed had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of Taj
Holding's management as to the future financial performance of Taj Holding. No
representation can be made with respect to the ability of Taj Associates to
achieve any projected results in the range of those projected by Taj Holding's
management. The projections prepared by Taj Holding's management reflect their
best available estimates and judgments at the time of preparation as to
possible ranges of results in the forecasted periods based upon varying
assumptions. The various forecasts present a wide range of possible results
which are subject to a number of uncertainties.
The following is a summary of the analyses that Rothschild utilized in
arriving at its opinion as to the fairness of the consideration to be received
by the holders of Taj Holding Class A Common Stock in connection with the
Merger Transaction from a financial point of view, and that Rothschild
discussed with the Board of Directors of Taj Holdings at its December 21, 1995
and January 4, 1996 meetings.
Valuation of Taj Holding. For purposes of its opinion as to the fairness of
the consideration to be received by holders of Taj Holding Class A Common
Stock in connection with the Merger Transaction from a financial point of
view, Rothschild employed three principal valuation methodologies: a publicly
traded comparable company analysis, a discounted cash flow analysis, and a
comparable transaction analysis. The methodologies used by Rothschild as
described to the Board of Directors of Taj Holding at its December 21, 1995
and January 4, 1996 meetings, are described below.
Publicly Traded Comparable Company Analysis. Rothschild reviewed the
financial, operating and market performance of the following group of seven
Atlantic City gaming companies with that of Taj Holding: Aztar Corporation,
Bally Entertainment Corporation, Hollywood Casino Corporation, Harrah's
Entertainment, Inc., Griffin Gaming & Entertainment, Inc., Showboat, Inc., and
THCR (the "Core Comparable Group"). Rothschild also reviewed and compared the
financial, operating and market performances of two other established
jurisdiction gaming companies: Circus Circus Enterprises, Inc. and Mirage
Resorts, Inc. Rothschild examined certain publicly available or estimated
financial data of the Core Comparable Group, including, but not limited to,
net revenues, EBITDA (earnings before interest, taxes, depreciation and
amortization), EBIT (earnings before interest and tax), net income available
to common, earnings per share, depreciation and amortization, interest
expense, and capital expenditures. Rothschild also examined and compared
various operating and credit ratios and certain capitalization data including,
but not limited to, leverage ratios, interest coverage, and net debt to
EBITDA. Rothschild also reviewed market data, including various trading
multiples such as market capitalization to EBITDA and EBIT and stock price to
earnings per share, equity market value to net cash flow (net income plus
depreciation and amortization). Market capitalization is defined as the market
value of a company's equity
55
<PAGE>
securities, plus preferred equity at liquidation value (including redeemable),
plus the face value of all debt, plus minority interest, less cash and
marketable securities. Taj Holding EBITDA and EBIT multiples are pro forma for
the elimination of lease payments made to Realty Corp. and payments made under
the Taj Services Agreement but before consideration of potential operating
synergies and other cost reductions.
The Core Comparable Group's market capitalization to latest twelve month
("LTM") EBITDA multiple ranged from 3.6x to 11.6x (with a mean and median of
approximately 7.0x) and 6.5x for Taj Holding. The Core Comparable Group's
market capitalization to estimated 1995 EBITDA multiple ranged from 4.2x to
7.5x (with a mean and median of approximately 6.0x and 6.5x, respectively) and
6.8x for Taj Holding. The Core Comparable Group's market capitalization to
estimated 1996 EBITDA multiple ranged from 3.9x to 6.7x (with a mean and
median of approximately 5.5x) and 5.9x for Taj Holding. The Core Comparable
Group's market capitalization to estimated 1995 EBIT multiple ranged from 5.4x
to 17.4x (with a mean and median, of approximately 11.0x and 9.0x,
respectively) and 9.9x for Taj Holding. The Core Comparable Group's market
capitalization to estimated 1995 revenues multiple ranged from 0.9x to 2.4x
(with a mean and median of approximately 1.5x) and 1.7x for Taj Holdings.
Rothschild drew no specific conclusion for this analysis but subjectively
factored its observations from this analysis into its qualitative assessment
of the relevant facts and circumstances. In addition, Rothschild considered
other financial data (including margins and growth rates) as well as certain
operating information such as fundamental gaming performance and efficiency
ratios, for the Core Comparable Group.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
Rothschild estimated the present value of the future cash flows that Taj
Holding could be expected to produce over a five-year period from 1996 through
2000 under various assumptions and in accordance with Taj Holding's management
projections excluding any incremental benefits or costs associated with the
Merger Transaction or from an expansion of the Taj Mahal. Rothschild
determined the value for the Taj Holding Class A Common Stock by adding (i)
the present value (using discount rates ranging from 12.0% to 15.0%) of the
five-year unleveraged free cash flows of Taj Holding and (ii) the present
value of Taj Holding's 2000 terminal value, and subtracting (iii) the current
debt outstanding net of any excess cash available. The terminal values were
determined by multiplying 2000's projected EBITDA by a range of multiples
determined based on the Core Comparable Group, as contained in the Publicly
Traded Comparable Company Analysis (ranging from 4.5 times to 5.5 times 2000's
EBITDA). Rothschild drew no specific conclusion from this analysis but
subjectively factored its observations from this analysis into its qualitative
assessment of the relevant facts and circumstances.
Comparable Transaction Analysis. Rothschild reviewed selected acquisitions
in the gaming industry, including among others, Caesar's World Inc./ITT Corp.,
Sahara Resorts/Sahara Casino Partners, Hilton Hotels/Bally's Grand, and
Caesar's World/Caesar's New Jersey and considered various acquisition
multiples such as transaction value to EBITDA and EBIT, offer price to
earnings per share and equity offer value to net cash flow. Rothschild
reviewed the Caesars World transaction because it is the most recently
completed large gaming merger and acquisition transaction with significant
Atlantic City operations. The Caesars World transaction is not, however,
directly comparable to the Merger Transaction.
The Comparable Transactions' transaction value to LTM EBITDA multiple ranged
from 4.6x to 9.5x (with a mean, including the Caesars World transaction, of
approximately 6.0x, and 5.5x without the Caesars World transaction, and a
median of approximately 5.5x) and 6.5x for the Merger Transaction. Rothschild
drew no specific conclusion from this analysis but subjectively factored its
observations from this analysis into its qualitative assessment of the
relevant facts and circumstances.
Pro Forma Merger Analysis. Rothschild analyzed certain pro forma effects
resulting from the Merger Transaction. In conducting its analysis, Rothschild
relied upon certain assumptions described above and the financial projections
provided by the managements of THCR and Taj Holding. Rothschild also reviewed,
without independent verification, the estimates prepared by the respective
managements of THCR and Taj Holding of cost reductions achievable as a result
of the Merger Transaction. Rothschild also reviewed without independent
verification, the estimates prepared by the management of Taj Holding of the
projected effects of the Taj Mahal Expansion on operating results.
Additionally, using the financial information and projections provided to
Rothschild by Taj Holding's and THCR's respective managements, Rothschild
reviewed the accretion of or dilution to THCR's 1996 and 1997 pro forma
projected earnings per share resulting from the Merger Transaction;
56
<PAGE>
specifically, the elimination of lease payments to Realty Corp. and fees
attributable to the Taj Services Agreement. This analysis revealed that the
Merger Transaction would be generally dilutive to pro forma 1996 and 1997
earnings per share on the basis described. Rothschild drew no specific
conclusion from this analysis but subjectively factored its observations from
this analysis into its qualitative assessment of the relevant facts and
circumstances.
Other Factors. Rothschild considered such other factors as the fact that
there is no established trading market for the shares of Taj Holding Class A
Common Stock. However, Rothschild is aware of limited privately negotiated
transactions in shares of Taj Holding Class A Common Stock. Rothschild
considered and reviewed the financial terms of a recent privately negotiated
block trade of shares of Taj Holding Class A Common Stock. Furthermore,
consideration was also given to the net book value and liquidation value of
Taj Holding.
In arriving at its written opinion dated January 8, 1996 and in discussing
its opinion with the Board of Directors of Taj Holding (including the Class B
Directors), Rothschild performed certain financial analyses, portions of which
are summarized above. The summary set forth above does not purport to be a
complete description of Rothschild's analyses. Rothschild believes that its
analyses must be considered as a whole and that selecting portions of its
analyses could create an incomplete view of the process underlying the
opinion. In addition, Rothschild may have given various analyses more or less
weight than other analyses, and may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to
be Rothschild's view of the actual value of Taj Holding. The preparation of a
fairness opinion is a complex process involving subjective judgments and is
not necessarily susceptible to partial analysis or summary description. No
company or transaction used in the publicly traded comparable company analysis
or the comparable transaction analysis summarized above is identical to Taj
Holding or the Merger Transaction. Accordingly, any such analysis of the value
of the consideration paid to holders of Taj Holding Class A Common Stock
involves complex considerations and judgments concerning differences in the
potential financial and operating characteristics of the comparable companies
as well as other factors relating to the trading and the acquisition values of
the comparable companies. These and other limitations, including potential
regulatory restrictions on gaming ownership, may detract from the usefulness
of other publicly traded comparable company multiples or multiples from prior
gaming acquisitions as valuation methodologies. In performing its analyses,
Rothschild made numerous assumptions with respect to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of Taj Holding and all of which are
beyond the control of Rothschild. The results of the analyses performed by
Rothschild are not necessarily indicative of actual values, which may be
significantly more or less favorable than suggested by such analyses. The
analyses described above were prepared solely as part of Rothschild's analysis
of the fairness of the consideration to the holders of Taj Holding Class A
Common Stock. The analyses do not purport to be appraisals or to reflect the
prices at which Taj Holding might actually be sold or the actual trading value
of Taj Holding and its affiliates' securities.
Rothschild is a nationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers, acquisitions, restructurings, leveraged buy-outs, and
capital markets activities and in valuations for estate, corporate and other
purposes. The Board of Directors of Taj Holding selected Rothschild to act as
its financial advisor on the basis of Rothschild's reputation and Rothschild's
familiarity with Taj Holding and the gaming industry in general and its
experience in the restructuring of other public companies in similar types of
transactions. In February 1995, Rothschild was retained, together with BT
Securities, to act as financial advisor to Taj Holding and certain of its
affiliates in connection with a proposed restructuring pursuant to which
Rothschild received a $160,000 fee. Such retention has been terminated. In
addition, Rothschild has previously acted as financial advisor to the
Committee of Bondholders of Taj Funding in connection with the 1991
Restructuring of TTMC, Taj Funding, Taj Associates and TTMI for which it had
received customary compensation for such advisory activities and, during the
preceding two years, has performed investment banking and other financial
advisory services for entities affiliated with Trump for which customary
compensation was received.
57
<PAGE>
For rendering its opinion to the Board of Directors of Taj Holding,
including the Class B Directors, and evaluating the financial aspects of the
Merger Transaction, Rothschild has received a $300,000 fee and will be
reimbursed for its reasonable out-of-pocket expenses and indemnified against
certain liabilities, including liabilities arising under federal securities
laws.
AGI APPRAISALS
In connection with a Taj Associates recapitalization proposal discussed in
1994, Taj Associates obtained an appraisal from AGI (the "AGI Report"), which
concluded that the going concern value of the Taj Mahal, as of March 18, 1994,
was approximately $1.1 billion.
In the opinion of AGI, the AGI Report, which is subject to certain
assumptions and qualifications, was prepared in conformity with the
regulations of the Office of Thrift Supervision of the U.S. Department of the
Treasury, the Uniform Standards of Professional Appraisal Practice, and the
Office of the Comptroller of the Currency's written appraisal guidelines.
In the course of its determination of the Taj Mahal's going concern value,
AGI reviewed data relating to the subject property, Atlantic County and
Atlantic City in general, the neighborhood of the site, the Atlantic City
casino/hotel market, the past operating history of casino/hotels similar to
the Taj Mahal, zoning, real estate taxes and assessments and the highest and
best use for the property. AGI opined that the going concern value of the Taj
Mahal, as of March 18, 1994, was approximately $1.1 billion. For purposes of
the AGI Report, going concern value was defined as the value created by a
proven property operation, with the subject property considered as a separate
entity to be valued with a specific business establishment, which, in the case
of the Taj Mahal, is as an operating casino/hotel facility.
In reaching its conclusion with respect to the going concern value of the
Taj Mahal, AGI considered the three generally recognized methods of valuing
real estate, namely, (i) the cost approach, in which all improvements to the
subject property are replaced as if new and any accrued depreciation is
deducted to arrive at a net improvement value, (ii) the sales comparison
approach, which is based upon a comparison of sales of similar properties,
taking into consideration their minor differences and major similarities, and
(iii) the capitalization of income approach, which converts the net operating
income attributable to the real estate, after all expenses, into a valuation
estimate. The capitalization of income approach capitalizes the income by an
appropriate method and rate as derived from a market study of similar
properties and/or competitive investments. Of the three valuation methods, AGI
selected the capitalization of income approach as the basis for arriving at a
going concern value because it provides the most reliable indication of value
for an income producing property. AGI's value conclusion is based solely on
the utilization of the capitalization of income approach.
AGI concluded that annuity capitalization, utilizing the discounted cash
flow technique, was the most appropriate method of capitalization. Such
technique was comprised of five steps: (i) projection of the investment
holding period in respect of the Taj Mahal, (ii) projection of annual casino
revenues for the Taj Mahal for each year of the holding period, (iii)
selection of a yield rate in order to discount to present value the projected
cash flow and eventual value of the property upon reversion, (iv) projection
of the reversionary, or residual, value of the property at the end of the
projection period and (v) calculation of the net present value of the Taj
Mahal to reflect its worth as an investment assuming (a) a required rate of
return, (b) the property achieving cash flows as projected and (c) a reversion
value of the property as projected.
In implementing steps (i) through (v) above, AGI first utilized a 10-year
holding period for the investment based on the conclusion that such amount of
time was long enough to model the Taj Mahal's performance but short enough to
reasonably estimate the expected income and expenses of the real estate. AGI
then determined future casino revenues for the Taj Mahal by analyzing
historical operating data, market share and revenue growth for the Taj Mahal
and for the gaming industry in Atlantic City in general.
58
<PAGE>
Based on the foregoing, AGI projected income and expenses of the Taj Mahal
for the years 1994 through 2004. Based upon an assumed growth rate of 4.0% per
year, AGI projected that the Taj Mahal's total revenues would increase from
$518.0 million in 1994 to $766.8 million in 2004. Based upon, among other
things, the assumption that casino expense, the largest single expense
category for the Taj Mahal, would remain constant at 45.0% of gross revenues,
AGI projected that the Taj Mahal's gross operating profit would increase from
$159.7 million to $225.9 million, and cash flow before debt service would
increase from $123.9 million to $170.5 million, over the same period.
Based on the fact that investors in real estate typically require a return
several hundred basis points above what can be achieved in the financial
markets, and that, in AGI's experience, return requirements for transactions
involving casino and hotel facilities have ranged from 600 to 800 basis points
above medium quality corporate bonds, AGI determined that an appropriate
discount rate for the Taj Mahal would be in the range of approximately 13.0%
to 16.0%. Based on the foregoing analysis, and taking into consideration the
higher risk associated with investments in similar casino/hotel properties and
AGI's cash flow projections for the Taj Mahal, AGI determined that, in the
case of the Taj Mahal, a 15.0% discount rate would be appropriate.
AGI then determined the reversionary value of the Taj Mahal by capitalizing
the projected 11th year (2004) cash flow of the Taj Majal, which was $170.5
million, by a terminal rate of 10.0%. Such rate was selected based on the
range of terminal rates currently employed by the market (from 8.0% to 11.0%)
and taking into consideration the increased investment risks associated with a
casino/hotel. Utilizing the 10.0% terminal rate, and assuming sales costs of
3.0%, AGI concluded that the net sale value of the Taj Mahal in 2004, the
final year of the projections, would be approximately $1.65 billion.
AGI then applied the 15.0% discount rate to the projected cash flow of the
Taj Mahal for each year of the projected 10-year holding period, as well as to
the net sales proceeds assumed to be received from a sale of the Taj Mahal in
the eleventh year. Such calculation resulted in a total present worth for the
Taj Mahal equal to $1.105 billion. Based on this figure, AGI concluded that
the going concern value of the Taj Mahal as of March 18, 1994 was
approximately $1.1 billion.
The AGI Report assumed, among other things, that (i) Taj Associates holds
good and marketable title to the property on which the Taj Mahal is located,
(ii) information furnished to AGI by third parties is reliable, (iii) there
are no hidden or unapparent conditions of the property, subsoil or structures
that would render the property more or less valuable and (iv) there is full
compliance with all applicable federal, state and local environmental
regulations and laws and all applicable zoning and use regulations and
restrictions, unless otherwise stated, defined and considered in the AGI
Report.
An appraisal is an estimate or opinion of value and cannot be relied upon as
a precise measure of value of worth. The amount that Taj Associates might
realize from the sale of the Taj Mahal maybe more or less than its appraised
value. AGI did not solicit any offers or inquiries with respect to the Taj
Mahal from potential purchasers, and therefore, the AGI Report should not be
read to suggest that a buyer was, in fact, available or if one were available,
that it would be willing to pay the appraised value. Accordingly, no assurance
can be given as to the value which could be obtained from the sale of the Taj
Mahal. Additionally, whatever the value of the Taj Mahal may be in a sale
under the conditions assumed in the AGI Report, a sale under distress
conditions would likely result in a substantially lower price.
AGI has been engaged in the real estate appraisal business for approximately
40 years, maintaining offices in New York, New Jersey and Florida and
employing 10 full-time appraisers. AGI has prior experience in appraising
casino hotel properties in Atlantic City (including the Resorts Casino Hotel
and Trump Plaza and Trump's Castle) and numerous casinos in Las Vegas, Nevada
and in performing appraisals in conformity with regulations governing federal
savings institutions. AGI was selected by management on the basis of its
experience and expertise in evaluating income-producing properties, including
hotels and casino hotels.
59
<PAGE>
The services performed by AGI were performed in accordance with the Code of
Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute and the Uniform Standards of Professional Appraisal
Practice of the Appraisal Foundation. AGI has no financial or other interest,
direct or indirect, present or prospective, in the Taj Mahal or a personal
interest or bias with respect to Taj Associates or any of its affiliates.
AGI's employment and compensation were not contingent upon the amount of the
valuation or on any action or event resulting from the analyses, opinions or
conclusions in, or the use of, the AGI Report. In consideration for its
services rendered to Taj Associates in connection with the AGI Report, AGI
received a fee from Taj Associates of approximately $50,000. During the past
six years, AGI has conducted a prior appraisal of the Taj Mahal for Taj
Associates as well as appraisals of six other properties owned or controlled
by Trump. AGI has performed appraisals of Trump Plaza for Plaza Associates, of
Trump's Castle for TCA, of Crystal Palace for The Trump Organization, of Trump
Tower for the Trump Organization, of The Plaza Hotel in New York City for
Citibank, N.A. and of Mar-A-Lago Club for Trump. AGI received an aggregate of
approximately $181,000 for performing such appraisals.
A copy of the AGI Report has been filed as an Exhibit to the Schedule 13E-3
(copies of which can be obtained from the Public Reference Section at the SEC
at prescribed rates). Holders of shares of Taj Holding Class A Common Stock
should read the AGI report in its entirety for a description of the matters
considered and procedures followed.
In December of 1995, AGI provided a report to Taj Associates (the "AGI
Specified Parcels Report") which concluded that the market value of the
Specified Parcels was in the range of $80.2 million and $95.6 million.
THCR--Opinion of DLJ. As part of its role as financial advisor to THCR, DLJ
was asked to render an opinion to the THCR Special Committee as to the
fairness to THCR of the aggregate consideration, as described below, to be
paid by THCR in the transactions contemplated by the Merger Agreement. DLJ
delivered to the THCR Special Committee its written opinion that, based upon,
and subject to, the assumptions, factors, limitations and other matters set
forth in its opinion, as of January 8, 1996, the aggregate consideration to be
paid by THCR pursuant to the transactions contemplated by the Merger Agreement
(as described therein) is fair to THCR from a financial point of view. The DLJ
fairness opinion does not constitute a recommendation to any holder as to how
to vote on the Merger Transaction and by its terms provides that no person
other than the Special Committee may rely upon such opinion.
DLJ assumed, with the THCR Special Committee's consent, that both the
consideration to be paid and the consideration to be received by THCR pursuant
to the Merger Agreement and the transactions contemplated thereby is as set
forth in this paragraph. Not more than 4,550,000 (less the Reduced Amount (as
defined below)) shares of THCR Common Stock (or equivalents of such shares)
will be issued by THCR (excluding any shares of THCR Common Stock issued
pursuant to the THCR Stock Offering), warrants to purchase not more than
600,000, 600,000 and 600,000 shares of THCR Common Stock at exercise prices
not less than $30.00, $35.00 and $40.00 per share, respectively, and which
will have a maturity of three, four and five years, respectively, will be
issued by THCR, and not more than $60 million in cash plus the Cash
Consideration will be expended (exclusive of any transaction fees and
expenses). For purposes of DLJ's fairness opinion, the Reduced Amount shall be
equal to a number of shares of THCR Common Stock determined by dividing (a)
the Cash Consideration received by the holders of the Taj Holding Class A
Common Stock in the transactions contemplated by the Merger Agreement by (b)
$20.00. Upon consummation of the transactions contemplated by the Merger
Agreement, (i) THCR will receive additional general partnership interests in
THCR Holdings for contributing or causing its subsidiaries to contribute its
total direct and indirect beneficial ownership of Taj Associates to THCR
Holdings in an amount calculated pursuant to the THCR Holdings Partnership
Agreement, (ii) THCR Holdings will be the beneficial owner of 100% of the
outstanding equity of Taj Associates free and clear of any liens and
encumbrances, (iii) immediately after giving effect to the transactions
contemplated by the Merger Agreement, THCR will own the Specified Parcels free
and clear of any liens and encumbrances and the lease between Taj Associates
and Realty Corp. relating to the Specified Parcels shall terminate and Taj
Associates shall no longer be obligated to make any payments to Realty Corp.
and/or First Fidelity in connection with such Specified Parcels and (iv) the
Taj Services Agreement will be terminated. DLJ assumed, with the THCR Special
60
<PAGE>
Committee's consent, that Taj Holdings LLC, TTMC, Taj Associates and Taj
Funding will not have more than $800 million of net indebtedness (i.e.,
aggregate face value of outstanding indebtedness (including accrued cash
interest and non-cash interest) less available cash (excluding any cage or
restricted cash collectively on their balance sheets immediately prior to the
consummation of the transactions contemplated by the Agreement. DLJ also
assumed, with the THCR Special Committee's consent, that for the purposes of
its opinion, the price of the THCR Common Stock will be no less than $20.00
per share (before deducting any underwriting discounts or commissions).
THE FULL TEXT OF THE WRITTEN OPINION OF DLJ ADDRESSED TO THE THCR SPECIAL
COMMITTEE DATED JANUARY 8, 1996 IS ATTACHED HERETO AS ANNEX B. HOLDERS OF THCR
COMMON STOCK ARE URGED TO READ THE DLJ FAIRNESS OPINION IN ITS ENTIRETY FOR
THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED AND THE LIMITS OF THE REVIEW MADE
BY DLJ. THE FOLLOWING DISCUSSION OF THE DLJ FAIRNESS OPINION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF ANNEX B.
DLJ did not make any recommendation as to the form or amount of
consideration to be paid by THCR pursuant to the transactions contemplated by
the Merger Agreement. Such consideration was determined by arm's-length
negotiations among THCR, Donald Trump, Taj Holding and the other parties to
the Class A Agreement in which negotiations DLJ advised THCR management. DLJ's
opinion does not constitute an opinion as to the prices at which the THCR
Common Stock will actually trade at any time, including the Effective Time. No
restrictions or limitations were imposed by THCR or its affiliates upon DLJ
with respect to the investigations made or the procedures followed by DLJ in
rendering its opinion. DLJ was not requested to, and did not, solicit
alternate transactions with third parties.
In arriving at its opinion, DLJ reviewed a draft of the Merger Agreement and
a draft of this Proxy Statement-Prospectus. DLJ also reviewed financial and
other information that was publicly available or furnished to it by THCR and
Taj Associates, including discussions with their respective managements.
Included in the information provided to DLJ were certain financial projections
of THCR and Taj Associates prepared by management of THCR and Taj Associates,
respectively. In addition, DLJ compared certain financial and securities data
of Taj Associates with various other companies whose securities are traded in
the public markets, reviewed historical stock prices and trading volumes of
THCR Common Stock, reviewed prices and financial data implied by the
consideration paid in other business combinations and conducted such other
financial studies, analyses and investigations DLJ deemed appropriate for the
purposes of its opinion. DLJ also reviewed the draft pro forma combined
condensed financial information for THCR and Taj Associates and the
description of the business of each contained in the draft Proxy Statement-
Prospectus.
In rendering its opinion, DLJ, with the THCR Special Committee's consent,
relied upon and assumed the accuracy, completeness and fairness of all of the
financial and other information that was available to it from public sources,
that was provided to it by THCR and Taj Associates or their respective
representatives or that was otherwise reviewed by DLJ. DLJ also, with the THCR
Special Committee's consent, assumed that the financial projections supplied
to it were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of THCR and Taj
Associates as to the future operating and financial performance of THCR and
Taj Associates. In particular, DLJ relied upon the estimates of the respective
management of THCR and Taj Associates of the operating synergies and other
cost reductions achievable as a result of the Merger Transaction. DLJ was not
asked to assume, and did not assume, any responsibility for making any
independent evaluation or appraisal of the assets or liabilities of THCR, Taj
Associates or the Specified Parcels or for making any independent verification
of any information reviewed by it, and DLJ did not independently verify any of
such information. DLJ relied as to all legal matters with respect to THCR, Taj
Holding and Taj Associates upon the advice of counsel to THCR.
DLJ's opinion is necessarily based on economic, market, financial and other
conditions as they existed on, and on the information made available to it as
of, the date of its opinion. Although subsequent developments may affect its
opinion, DLJ does not have any obligation to update, revise or reaffirm its
opinion. DLJ expressed
61
<PAGE>
no opinion as to the fairness of the allocation of the aggregate consideration
to be paid by THCR among the parties receiving such consideration, DLJ has
assumed that each of the companies shall have all appropriate licenses and
permits upon consummation of the Merger Transaction, including all gaming
licenses to conduct its business as conducted or proposed to be conducted.
The following is a summary of certain factors considered and principal
financial analyses performed by DLJ to arrive at its January 8, 1996 opinion
and does not purport to be a complete description of the analyses performed by
DLJ. DLJ performed certain procedures, including each of the financial
analyses described below, and reviewed with the management of THCR and Taj
Associates the assumptions on which such analysis were based and other
factors, including the current and projected financial results of such
companies.
General. DLJ reviewed the financial terms contained in a draft of the Merger
Agreement. DLJ assumed, with THCR's consent, that the price of the Common
Stock will be not less than $20 per share (before deducting any underwriting
fees and commissions). DLJ also reviewed (a) THCR's (i) Forms 10-Q for the
quarters ended June 30 and September 30, 1995 and (ii) prospectuses for the
June 1995 Stock Offering and the public offering of $155 million aggregate
principal amount of Senior Notes (the "June 1995 Note Offering" together with
the June 1995 Stock Offering, the "June 1995 Offerings"), (b) Taj Holding's
(i) Form 10-K for the year ended December 31, 1994, (ii) Forms 10-Q for the
quarters ended March 31, June 30 and September 31, 1995 and (iii) Form 8-K
filed October 18, 1995 and (c) Taj Associates' (i) Form 10-K for the year
ended December 31, 1994 and (ii) Forms 10-Q for the quarters ended March 31,
June 30 and September 30, 1995. DLJ also reviewed the historical trading
performance and trading volume of THCR Common Stock from the date of its
initial public offering to December 22, 1995. DLJ also made a comparison of
the historical trading performance of THCR Common Stock against (i) the
Standard & Poors 400 Stock Index and against a DLJ constructed index of gaming
companies (the "Gaming Index"). DLJ selected the following companies whose
equity securities are publicly traded for inclusion in the Gaming Index based
upon qualitative factors which DLJ deemed relevant based upon its experience
in the gaming industry: Aztar Corporation, Bally Entertainment Corporation,
Griffin Gaming & Entertainment, Inc., Harrah's Entertainment, Inc. Hollywood
Casino Corporation, MGM Grand, Inc., Mirage Resorts, Incorporated, Rio Hotel &
Casino, Inc. and Stratosphere Corporation. DLJ also reviewed the financial
terms of a recent privately negotiated block trade of Taj Holding Class A
Common Stock.
Pro Forma Merger Analysis. DLJ analyzed certain pro forma effects resulting
from the Merger Transaction. In conducting its analysis, DLJ relied upon the
assumptions described above and the financial projections provided by the
managements of THCR and Taj Associates. DLJ also reviewed, without independent
verification, the estimates prepared by the respective managements of THCR and
Taj Associates of operating synergies and other costs reductions achievable by
combining the operations of THCR and Taj Associates. DLJ also reviewed,
without independent verification, the estimates prepared by the management of
Taj Associates of the projected effects of the Taj Mahal Expansion on
operating results. DLJ analyzed the pro forma effect of such operating
synergies, other cost reductions, and the Taj Mahal Expansion on earnings per
share of THCR. Additionally, using the financial information and projections
(normalized for non-recurring items) provided to DLJ by Taj Associates' and
THCR's respective managements, DLJ reviewed the accretion of or dilution to
THCR's 1995 pro forma earnings per share and 1996 and 1997 projected earnings
per share resulting from the Merger Transaction. DLJ's analysis separately
considered accretion/dilution (i) on an unadjusted basis, (ii) giving effect
to the synergies and other cost reductions estimated by THCR's and Taj
Associates' management, (iii) giving effect to the Taj Mahal Expansion and
(iv) giving effect to the Taj Mahal Expansion and the synergies referred to in
(ii) above. This analysis revealed that the Merger Transaction would be (a)
dilutive to pro forma 1995 earnings per share, except on the basis described
in (ii) above, projected 1996 earnings per share, and 1997 projected earnings
per share on an unadjusted basis and (b) accretive to pro forma 1995 earnings
per share on the basis described in (ii) above and 1997 projected earnings per
share on each basis described in (ii) through (iv) above. DLJ also considered
the effect on its analysis of a 10% and a 25% negative variance between actual
results and the results projected by THCR's management. DLJ drew no specific
conclusion from this analysis but subjectively factored its observations from
this analysis into its qualitative assessment of the relevant facts and
circumstances.
62
<PAGE>
Analysis of Certain Other Publicly Traded Companies. To provide contextual
data and comparative market information, DLJ compared selected historical
earnings and operating and financial ratios for Taj Associates to
corresponding data and ratios of certain gaming companies whose securities are
publicly traded. In conducting its analysis DLJ compared the ratios implied by
the aggregate consideration to be paid by THCR in the transactions
contemplated by the Merger Agreement (with and without accounting for the
synergies and other costs reductions projected by THCR's and Taj Associates'
management) to the ratios implied from the market valuation of companies
comprising the Gaming Index. DLJ also separately compared the ratios implied
by the aggregate consideration to be paid by THCR in the transactions
contemplated by the Merger Agreement to the ratios implied from the market
valuation of Bally Entertainment Corporation ("Bally Entertainment"); this
comparison was made because of the concentration of Bally Entertainment's
revenue base in the Atlantic City market. Although DLJ used these companies
for comparison purposes, none of such companies, including but not limited to,
Bally Entertainment, is directly comparable to Taj Associates or THCR,
respectively. Data and ratios considered included: the ratio of enterprise
value to latest twelve month ("LTM") revenues, LTM EBITDA, LTM EBIT, 1996
projected EBITDA, the ratio of market price to 1995 projected net income, the
ratio of market price to 1996 projected net income and the ratio of market
price to book value. All projected information for the companies in the Gaming
Index and Bally Entertainment was obtained from Institutional Broker's
Estimate Service, a third-party service which summarizes the estimates made by
analysts employed by several investment banking firms and from the published
reports of research analysts employed by investment banking firms, including
analysts employed by DLJ. Enterprise value is defined as the sum of the face
value of a company's debt plus the market value of its equity securities less
excess cash. DLJ made a subjective assessment of the cash position of each
company in the Gaming Index for the purpose of making an estimate of excess
cash. EBITDA is earnings before interest, taxes, depreciation and amortization
and was selected for analysis by DLJ because it is a widely used estimate of
cash flows generated by operations. EBIT is earnings before interest and taxes
and was selected by DLJ because it is a measure of operating performance. The
ratio of enterprise value to LTM revenues ranged from 0.8x to 2.6x for the
companies included in the Gaming Index, was 1.9x for Bally Entertainment and
was 1.7x for Taj Associates (both with and without consideration of operating
synergies and other cost reductions). The ratio of enterprise value for the
companies included in the Gaming Index to LTM EBITDA ranged from 4.5x to
11.2x, was 7.1x for Bally Entertainment, was 6.8x for Taj Associates without
giving effect to synergies and other cost reductions and was 6.0x for Taj
Associates after giving effect to operating synergies and other cost
reductions. The ratio of enterprise value for the companies included in the
Gaming Index to LTM EBIT ranged from 6.0x to 17.3x, was 10.1x for Bally
Entertainment, was 10.0x for Taj Associates without giving effect to synergies
and other cost reductions and was 8.4x for Taj Associates after giving effect
to operating synergies and other cost reductions. The ratio of enterprise
value to 1996 projected EBITDA ranged from 4.1x to 8.4x for the companies
included in the Gaming Index, was 6.0x for Bally Entertainment, was 5.9x for
Taj Associates without giving effect to synergies and other cost reductions
and was 5.3x for Taj Associates after giving effect to operating synergies and
other cost reductions. The ratio of price to book value for the companies
included the Gaming Index ranged form 0.8x to 4.1x, was 1.4x for Bally
Entertainment and was 2.2x for Taj Associates. DLJ also separately considered
the effects of the transaction costs associated with the Merger Transaction on
these ratios. DLJ drew no specific conclusion from this analysis but
subjectively factored its observations from this analysis into its qualitative
assessment of the relevant facts and circumstances.
Comparable Merger and Acquisition Analysis. DLJ reviewed the implied
valuation multiples of: (i) selected merger and acquisition transactions
including the majority of casino hotel company transactions completed since
1984 (the "Casino Resort Transactions"), (ii) selected single property merger
and acquisition transactions in the gaming industry since 1984 (the "Single
Property Transactions") and (iii) ITT's acquisition of Caesars World in 1995
(the "Caesars Transaction"). DLJ made the analysis referred to in (iii) above
because it is the most recent, completed, large gaming merger and acquisition
transaction with significant Atlantic City operations. Neither the Caesars
Transaction nor the transactions described in (i) and (ii) above are directly
comparable to the Merger or the Merger Transaction. DLJ compared the ratios
implied by the aggregate consideration to be paid by THCR in the transactions
contemplated by the Merger Agreement ("the Transaction") (with and without
accounting for the synergies and other cost reductions estimated by THCR's
63
<PAGE>
and Taj Associates' respective managements) to the ratios implied by mean
(calculated excluding the high and low multiple) of the Casino Resort
Transactions, the mean (calculated excluding the high and low multiple) of the
Single Property Transactions and the Caesars Transaction. The ratio of
enterprise value implied by the consideration paid to LTM Revenues for the
mean of the Casino Resort Transactions was 1.6x, 1.4x for the mean of the
Single Property Transactions, 1.8x for the Caesars Transaction and 1.7x for
the Transaction (both with and without giving effect to synergies and other
cost reductions). The ratio of enterprise value implied by the consideration
paid to LTM EBITDA for the mean of the Casino Transactions was 8.7x, 8.4x for
the mean of the Single Property Transactions, 9.1x for the Caesars
Transaction, 6.8x in the Transaction without giving effect to synergies and
other cost reductions and 6.0x in the Transaction after giving effect to the
synergies and other cost reductions. The ratio of enterprise value implied by
the consideration paid to LTM EBIT was 12.2x for the mean of the Casino Resort
Transactions, 11.0x for the mean of the Single Property Transactions, 13.5x
the Caesars Transaction, 10.0x for the Transaction without giving effect to
synergies and other cost reductions and 8.4x for the Transaction after giving
effect to the synergies and other cost reductions. The multiple of equity
value to book value was also compared and was 2.9x for the Caesars Transaction
and 2.2x in the Transaction. DLJ drew no specific conclusion from this
analysis but subjectively factored its observations from this analysis into
its qualitative assessment of the relevant facts and circumstances.
Discounted Cash Flow Valuation Analysis. DLJ performed a discounted cash
flow analysis of Taj Associates. In conducting its analysis, DLJ relied on
certain assumptions, financial projections and other information provided by
the managements of THCR and Taj Associates. DLJ preformed its analysis using
Taj Associates' management's estimates of future performance of the Taj Mahal
and the future results of operations of Taj Associates (including and
excluding the Taj Mahal Expansion). DLJ selected a range of terminal exit
multiples of 5.0 to 10.0 times EBITDA and a range of weighted average cost of
capital from 8% to 13% based upon its subjective judgments about, among other
things, the capital markets, Taj Associates prospects and the gaming industry.
The terminal exit multiple represents an estimate of the value of Taj
Associates earnings at the end of the five year period covered by Taj
Associates' management's projections. This analysis implied an enterprise
value of Taj Associates ranging from $1,417 million to $2,022 million and
$1,149 million to $1,544 million, with and without the Taj Mahal Expansion,
respectively. DLJ drew no specific conclusion from this analysis but
subjectively factored its observations from this analysis into its qualitative
assessment of the relevant facts and circumstances.
Contribution Analysis. DLJ reviewed the relative contribution to THCR after
the Merger Transaction of THCR, as a stand alone enterprise, and Taj
Associates, as a stand alone enterprise. DLJ relied upon estimates of 1995,
1996 and 1997 financial information provided by THCR's and Taj Associates'
respective managements. THCR and Taj Associates provided 46.7% and 53.3%,
respectively, of the combined enterprise value; these ratios would be 47.8%
and 52.2%, respectively, if the costs of the Merger and the THCR Stock
Offering were excluded. The projections made by Taj Associates' and THCR's
management reveal, over the three year period, that THCR would provide from
37.3% to 54.2% of combined revenues; from 34.4% to 49.0% of combined EBITDA
and from 37.0% to 50.0% of combined EBIT. On a corresponding basis Taj
Associates would provide from 62.7% to 45.8% of combined revenues, from 65.6%
to 51.0% of combined EBITDA and from 63.0% to 50.0% of combined EBIT. Taj
Associates will contribute 55.0% of combined book value to THCR after the
Merger Transaction. DLJ drew no specific conclusion from this analysis but
subjectively factored its observations from this analysis into its qualitative
assessment of the relevant facts and circumstances.
The summary set forth above does not purport to be a complete description of
the analyses performed and factors considered by DLJ. The preparation of a
fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these
methods to the particular circumstances and, therefore, such an opinion is not
readily susceptible to summary description. Accordingly, notwithstanding the
separate factors summarized above, DLJ believes that its analysis must be
considered as a whole and that selecting portions of its analysis and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinions.
Furthermore, in arriving at its fairness opinion, DLJ did not attribute any
particular weight to any analysis, or factor considered by it, but rather made
subjective and qualitative judgments as to the significance and relevance of
each analysis
64
<PAGE>
and factor. In performing its analyses, DLJ made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters. The analyses performed by DLJ are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses.
THCR selected DLJ as its financial advisor because DLJ is a nationally
recognized investment banking firm and the principals of DLJ have substantial
experience in transactions similar to the Merger, are familiar with THCR and
its business and are familiar with the gaming industry. As part of its
investment banking business, DLJ is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions.
In the ordinary course of business, DLJ actively trades the debt and equity
securities of THCR, Taj Associates and their respective subsidiaries for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities.
Pursuant to the terms of an engagement letter THCR has agreed to pay DLJ a
fee of $1,500,000 for rendering its fairness opinion. In addition, THCR has
agreed to pay DLJ $4,500,000 upon consummation of the Merger; this fee may be
reduced, at THCR's option to $2,500,000 in exchange for a specific allocation
to DLJ of a portion of the underwriting commissions payable in connection with
the Taj Note Offering. THCR has also agreed to reimburse DLJ for its out-of-
pocket expenses (including the reasonable fees and expenses of DLJ's counsel)
incurred in connection with its engagement (exclusive of expenses incurred in
connection with the Offerings), and to indemnify DLJ and certain of its
related persons against certain liabilities in connection with its engagement,
including liabilities under the federal securities laws. The terms of the fee
arrangement with DLJ, which DLJ and THCR believe are customary in transactions
of this nature, were negotiated at arm's length between THCR and DLJ, and the
THCR Special Committee and the Board of Directors of THCR was made aware of
such arrangement, including the fact that a significant portion of the
aggregate fee payable to DLJ is contingent upon consummation of the Merger.
DLJ has been engaged to act as lead manager for the THCR Stock Offering and
the Taj Note Offering for which DLJ will receive customary fees. Over the past
two years, DLJ has rendered a variety of investment banking services to Trump
and his affiliated entities for which it has received or will receive
customary fees aggregating to $11.9 million (such amount includes fees for
acting as lead manager for the June 1995 Offerings and for financial advisory
services rendered in connection with the formation of THCR and excludes fees
for services rendered in connection with the Merger Transaction).
PURPOSE AND STRUCTURE OF THE MERGER TRANSACTION
The purpose of the Merger Transaction is for THCR Holdings to acquire
beneficial ownership of 100% of the equity of Taj Associates for the reasons
described in "Special Factors--Background of the Merger Transaction" and
"Special Factors--Recommendations of the Board of Directors; Reasons for the
Merger Transaction; Fairness of the Merger Transaction." The Merger
Transaction is designed to combine into one entity two "Four Star" Atlantic
City casino hotels, operated by Trump, as well as the Indiana Riverboat,
thereby creating one of the largest casino entertainment companies in the
United States. THCR believes the acquisition of the Taj Mahal will strengthen
THCR's position as a leader in the casino entertainment industry. THCR further
believes that the combination of the Taj Mahal with THCR's existing and
planned operations will provide opportunities for operational efficiencies,
economies of scale and benefits from the talent, expertise and experience of
management at the operating entities, and that the Merger Transaction will
enhance THCR's presence in the growing Atlantic City market.
The Merger will be effected by the merger of Merger Sub with and into Taj
Holding. Upon the consummation of the Merger Transaction, including the
contributions by Trump, TTMI, THCR and TM/GP, THCR Holdings will acquire
beneficial ownership of 100% of the equity of Taj Associates.
The Merger Transaction has been structured to ensure that THCR Holdings
acquires 100% of the equity of Taj Associates through a series of
substantially simultaneous transactions. The Merger Transaction is being
undertaken at this time based upon current market conditions and the recent
performance of Taj Associates and THCR, which contribute to the feasibility of
the Merger Transaction. Although Taj Holding has in the past
65
<PAGE>
considered several recapitalization transactions, none of such
recapitalizations were implemented. See "Special Factors--Background to the
Merger Transaction." Other than certain variations of the current structure,
THCR, THCR Holdings, Merger Sub and Taj Holdings LLC did not consider any
alternatives to the Merger Transaction.
RELATED MERGER TRANSACTIONS
The Offerings. The consummation of the Taj Note Offering and the THCR Stock
Offering will occur simultaneously with, and will be conditioned upon, the
closing of the Merger. There can be no assurance that the Taj Note Offering
and the THCR Stock Offering will be able to be consummated on terms
satisfactory to THCR. To the extent that holders of Taj Holding Class A Common
Stock elect Stock Consideration, THCR will proportionately reduce the number
of shares offered pursuant to the THCR Stock Offering and issue shares
directly to such holders. In the event that either of such offerings is not
consummated, THCR would pursue any other alternatives available to it at the
time. The aggregate net proceeds, together with available cash of Taj
Associates, will be used to (i) pay cash to those holders of Taj Holding Class
A Common Stock electing to receive cash in the Merger ($40.5 million assuming
all such holders elect Cash Consideration); (ii) redeem the outstanding Bonds
at a redemption price equal to 100% of the principal amount thereof,
(approximately $780 million assuming a redemption date of March 31, 1996),
plus accrued interest to the date of redemption; (iii) redeem the outstanding
shares of Taj Holding Class B Common Stock, as required in connection with the
Bond redemption, at the redemption price of $.50 per share (approximately
$400,000 in the aggregate); (iv) purchase, for $50 million in cash and 500,000
shares of THCR Common Stock, the Specified Parcels from Realty Corp.; and (v)
pay to Bankers Trust $10 million to obtain releases of the liens and
guarantees that Bankers Trust has in connection with certain of the Bankers
Trust Indebtedness.
THCR currently intends the Offerings to consist of the issuance in
underwritten transactions of up to $140,000,000 of THCR Common Stock
(including an over-allotment option) and up to $750,000,000 of aggregate
principal amounts of Taj Notes with up to a ten year maturity. However, such
financing could also involve public or private issuances of debt (including
convertible debt or debt accompanied by warrants) and/or equity securities or
foreign or domestic bank loans. THCR and its financial advisors have not yet
determined the precise composition and terms of the foregoing financing. The
actual amounts of debt and equity of various types raised will depend upon a
number of factors, including market conditions, the price of THCR Common Stock
and other factors beyond the control of THCR management. The interest rates on
any debt financing could be fixed or floating, and such financing could
require prepayments prior to maturity, periodically and/or result of asset
dispositions, excess cash flow or issuances of equity. To the extent the Taj
Note Offering involves commitments for future loans, such commitments may be
conditioned on continued compliance by Taj Associates with the terms of the
loan agreements and the absence of material adverse change in Taj Associates'
business. Subject to the terms of existing indentures, any debt financing may
be secured by some or all of Taj Associates' assets. Events of default
resulting in acceleration of the maturity of any debt financing are likely to
include failure to make required payments, breaches of covenants or
representations, default with respect to other debt securities, failure to
satisfy judgments and certain events of bankruptcy or insolvency. Any debt
financing is likely to include a change of control provision and restrictive
covenants prohibiting or limiting, among other things, mergers, sales of
assets, making of acquisitions and other investments, capital expenditures,
transactions with affiliates, entry into new lines of business, the incurrence
of additional debt and liens and the payment of dividends. Non-compliance
could result in the acceleration of such indebtedness.
Specified Parcels Purchase. The Specified Parcels are currently leased by
Taj Associates from Realty Corp. for approximately $3.3 million per year. See
"Business of Taj Holding--Certain Indebtedness--First Fidelity Loan/Specified
Parcels." Realty Corp. has outstanding indebtedness of approximately $78
million owing to First Fidelity in respect of the First Fidelity Loan which is
due November 15, 1999. The First Fidelity Loan is currently secured on a first
lien basis by the Specified Parcels, and Taj Associates has previously
guaranteed the repayment of the First Fidelity Loan up to a maximum of $30
million. Trump has also personally previously guaranteed (up to a maximum of
approximately $19.2 million), and pledged his direct and indirect equity
interests in Taj Associates as collateral for, the First Fidelity Loan. As
mortgagee, First Fidelity has the right,
66
<PAGE>
under certain circumstances, to terminate the lease on the Specified Parcels
in the event the First Fidelity Loan is not paid when due. See "Business of
Taj Holding--Certain Indebtedness--First Fidelity Loan/Specified Parcels."
In order to secure future use of the Specified Parcels and eliminate all
future lease payments on the Specified Parcels, Taj Associates expects to
cause the First Fidelity Loan to be satisfied through the payment of $50
million in cash and 500,000 shares of THCR Common Stock and purchase the
Specified Parcels from Realty Corp. for a nominal amount by exercising a
purchase option with respect to the Specified Parcels. Upon consummation of
the purchase of the Specified Parcels, (i) the lease relating to the Specified
Parcels will be terminated, thus eliminating Taj Associate's rental
obligations thereunder; (ii) the $30 million guaranty by Taj Associates of the
First Fidelity Loan will be released; and (iii) Trump's guaranty of such
indebtedness will be released and First Fidelity will relinquish its lien on
Trump's direct and indirect equity interest in Taj Associates. The Specified
Parcels may be part of the collateral securing the Taj Notes. See "Business of
Taj Holdings--Certain Indebtedness--First Fidelity Loan/Specified Parcels."
Consent and Release Payment. As part of the Merger Transaction, Taj
Associates will pay $10 million to Bankers Trust in respect of certain of the
Bankers Trust Indebtedness. The Bankers Trust Indebtedness is currently
secured by, among other things, the TTMI Note, as well as a lien on Trump's
direct and indirect equity interests in Taj Associates. In exchange for such
payment, Bankers Trust will consent to the Merger Transaction and release its
lien on Trump's direct and indirect equity interests in Taj Associates and the
pledge of the TTMI Note. See "Business of Taj Holding--Certain Indebtedness--
TTMI Note."
Trump Contribution and Consideration. In connection with the Merger
Transaction, Trump will contribute to THCR Holdings his shares (consisting of
50% of the outstanding capital stock) of TTMC, the holder of a .01% general
partnership interest in Taj Associates, and will cause TTMI to contribute to
THCR Holdings and Taj Holdings LLC TTMI's 49.995% general partnership interest
in Taj Associates.
In addition, Trump will contribute to Taj Holding all of his Taj Holding
Class C Common Stock, which will be canceled pursuant to the Merger Agreement.
The Taj Holding Class C Common Stock provides Trump with the ability to elect
a majority of the Board of Directors of, and thereby control, Taj Holding. It
also affords Trump separate class voting rights in certain events, including
the consummation of the Merger. The Taj Services Agreement, pursuant to which
Trump has received or will receive $1,862,000, $1,353,000 and $1,566,000
during the years ended 1995, 1994 and 1993, respectively, as compensation for
services rendered to Taj Associates, will also be terminated in connection
with the Merger Transaction.
In exchange for the contribution by Trump and TTMI to THCR Holdings and Taj
Holdings LLC, Trump's directly held limited partnership interest in THCR
Holdings will be modified and TTMI will receive a limited partnership interest
in THCR Holdings. As a result of the Merger Transaction, Trump's aggregate
beneficial ownership of limited partnership interests in THCR Holdings will
decrease from 40% to %, with a % interest held directly by TTMI (assuming
a price of $ per share of THCR Common Stock as the Market Value in
connection with the Merger and as the public offering price in the THCR Stock
Offering). Trump's limited partnership interest in THCR Holdings represents
his economic interest in the assets and operations of THCR Holdings, and is
convertible, at Trump's option, into 6,666,667 shares of THCR Common Stock
(representing approximately 40% of the outstanding shares of THCR Common Stock
after giving effect to such conversion). Upon consummation of the Merger
Transaction (assuming a price of $ per share of THCR Common Stock as the
Market Value in connection with the Merger and as the public offering price in
the THCR Stock Offering), Trump's and TTMI's limited partnership interests in
THCR Holdings will be convertible into shares of THCR Common Stock,
representing approximately % of the then outstanding shares of THCR Common
Stock. At the time that TTMI becomes a limited partner of THCR Holdings, THCR
will issue shares of THCR Class B Common Stock to TTMI.
THCR Class B Common Stock has voting power equivalent to the voting power of
the THCR Common Stock into which a THCR Class B Common Stockholder's limited
partnership interest in THCR Holdings is
67
<PAGE>
convertible. The THCR Class B Stock is not entitled to dividends or
distributions. Upon conversion of all or any portion of a THCR Holdings
limited partnership interest into shares of THCR Common Stock, the
corresponding voting power of the THCR Class B Common Stock held (equal in
voting power to the number of shares of THCR Common Stock issued upon such
conversion) will be proportionately diminished. In connection with the Merger
Transaction, THCR will issue to Trump a warrant to purchase an aggregate of
1.8 million shares of THCR Common Stock, one third of the underlying shares of
which may be purchased on or prior to (i) the third anniversary of the
issuance of the warrant at $30.00 per share, (ii) the fourth anniversary of
the issuance of the warrant at $35.00 per share and (iii) the fifth
anniversary of the issuance of the warrant at $40.00 per share. Upon
consummation of the Merger Transaction, with respect to the shares underlying
the warrant to be issued to Trump, Trump will be granted registration rights
comparable to those he currently has with respect to the shares of THCR Common
Stock issuable upon conversion of his limited partnership interest in THCR
Holdings. See "Description of THCR Holdings Partnership Agreement."
THCR Contribution and Consideration. In connection with the Merger
Transaction, THCR will cause TM/GP, which will be an indirect wholly owned
subsidiary of THCR after the Effective Time, and which holds 49.995% general
partnership interest in Taj Associates, to contribute to THCR Holdings and Taj
Holdings LLC its general partnership interest in Taj Associates, and will
cause Taj Holding to contribute to TM/GP and will then cause TM/GP to
contribute to THCR Holdings the shares (consisting of 50% of the outstanding
capital stock) of TTMC held by Taj Holding. As a result of the Merger
Transaction, THCR's beneficial equity interest in THCR Holdings will increase
from 60% to %, including a % interest held directly by TM/GP (assuming a
$ price per share of THCR Common Stock as the Market Value in connection
with the Merger and as the public offering price in the THCR Stock Offering).
SOURCES AND USES OF FUNDS IN THE MERGER TRANSACTION
The following table sets forth the sources and uses of funds for the Merger
Transaction (assuming a March 31, 1996 consummation).
Anticipated Sources of Funds
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
THCR Stock Offering(/1/)..................................... $100,000
Taj Note Offering............................................ 750,000
THCR Common Stock Issued to Holders of Taj Holding Class A
Common Stock and Trump(/2/)................................. 81,000
THCR Common Stock Issued to First Fidelity(/3/).............. 10,000
Available Cash............................................... 30,642
--------
Total Sources................................................ $971,642
========
Anticipated Uses of Funds
Acquisition of Taj Holding Class A Common Stock and Trump's
Direct and Indirect Equity Interests in Taj Associates(/1/). $ 81,000
Redeem Taj Holding Class B Common Stock...................... 400
Redeem Bonds(/4/)............................................ 780,242
Cash Payment to First Fidelity............................... 50,000
THCR Common Stock Issued to First Fidelity(/2/).............. 10,000
Cash Payment to Bankers Trust................................ 10,000
Transaction Fees and Expenses................................ 40,000
--------
Total Uses................................................... $971,642
========
</TABLE>
- --------
(/1/Assumes)all holders of Taj Holding Class A Common Stock elect Stock
Consideration.
(/2/Includes)the value of the shares of THCR Common Stock into which the
limited partnership interests in THCR Holdings to be issued to Trump and
TTMI in connection with the Merger Transaction will be convertible.
(/3/Assumes)a price of $20.00 per share of THCR Common Stock.
(/4/Excludes)accrued interest through the redemption date.
68
<PAGE>
CERTAIN EFFECTS OF THE MERGER TRANSACTION; OPERATIONS OF TAJ ASSOCIATES AFTER
THE MERGER TRANSACTION
Upon consummation of the Merger Transaction, THCR will wholly own Taj
Holding and TM/GP, and THCR Holdings will wholly own Taj Associates through
THCR Holdings' 99% ownership of Taj Holdings LLC and 100% ownership of TTMC.
THCR Holdings will then have a 100% interest in Taj Associates, including its
net book value at September 30, 1995 and net loss for the nine months ended
September 30, 1995, which were $52,899 and $(13,708), respectively, and THCR
and Trump will have a % beneficial interest and % beneficial interest in
Taj Associates, respectively, through their direct and indirect ownership of
THCR Holdings. As of September 30, 1995, Trump's 50% interest in Taj
Associates' net book value and net loss for the nine months ended September
30, 1995 amounted to $26,449 and $(6,854), respectively, TM/GP's 49.995%
interest in Taj Associates' net book value at September 30, 1995 and net loss
for the nine months ended September 30, 1995 amounted to $26,446 and $(6,853),
respectively, and THCR, THCR Holdings, Merger Sub and Taj Holdings LLC did not
have any interest in Taj Associates. Upon consummation of the Merger
Transaction, THCR's % beneficial interest in Taj Associates' pro forma net
book value as of September 30, 1995 and pro forma net loss for the nine months
ended September 30, 1995 will be $ and $ , respectively (including
TM/GP's % interest), and Trump's % beneficial interest in Taj Associates'
pro forma net book value as of September 30, 1995 and net income for the nine
months ended September 30, 1995 will be $ and $ , respectively (including
TTMI's % interest). If all holders of Taj Holding Class A Common Stock elect
Stock Consideration (assuming a price of $ per share of THCR Common Stock
as the Market Value in connection with the Merger and as the public offering
price in the THCR Stock Offering), upon consummation of the Merger Transaction
(and assuming that the over-allotment option to be granted in connection with
the THCR Stock Offering is exercised in full), such holders would hold
approximately % of the outstanding shares of THCR Common Stock and would
share in Taj Associates' earnings and growth through their investment in THCR.
Holders of Taj Holding Class A Common Stock electing Cash Consideration would
not continue to share in such earnings and growth as such holders would
receive cash in the Merger.
In connection with the Merger Transaction, THCR will cause TM/GP, the holder
of a 49.995% general partnership interest in Taj Associates, to contribute to
Taj Holdings LLC TM/GP's general partnership interest in Taj Associates, and
will cause Taj Holding to contribute to TM/GP and will then cause TM/GP to
contribute to THCR Holdings the shares of TTMC held by Taj Holding at the time
of the Merger. Upon consummation of the Merger, the directors of Merger Sub
will become the directors of the Surviving Corporation. At the Effective Time,
the directors of TM/GP, other than Messrs. Trump, Ribis and Pickus, will
resign as directors of TM/GP. Taj Associates' current officers and management
team will continue to operate the Taj Mahal, and as a wholly owned subsidiary
of THCR Holdings, the officers of THCR, the managing general partner of THCR
Holdings, will oversee Taj Associates' management. It is expected that
following the Merger Transaction, the business and operations of Taj
Associates will be continued substantially as they are currently being
conducted, other than undertaking the Taj Mahal Expansion.
Following the consummation of the Merger Transaction, the registration under
the Exchange Act of the Taj Holding Class A Common Stock and Taj Holding Class
B Common Stock will be terminated and the Units will be delisted from the
Amex. This termination of registration under the Exchange Act would make the
provisions of the Exchange Act, such as the requirement to file periodic
reports with the SEC, no longer applicable to Taj Holding. Taj Associates and
Taj Funding, however, will continue to file periodic reports with the SEC
under the Exchange Act as required in connection with the Taj Notes. Certain
officers and directors of Taj Holding and certain officers and employees of
Taj Associates have participated in negotiating the provisions of the Merger
Transaction. These employees have received no additional compensation for such
services.
INTERESTS OF CERTAIN PERSONS IN THE MERGER TRANSACTION
General. In considering the recommendation of the Board of Directors of THCR
and the Board of Directors of Taj Holding with respect to the Merger
Transaction, certain members thereof have certain interests in the Merger
Transaction in addition to those of stockholders generally. Of the nine
members of the Board of Directors of Taj Holding, two (Trump and Nicholas L.
Ribis) are also directors of THCR, and two (Robert M.
69
<PAGE>
Pickus and John P. Burke) are executive officers of THCR and, therefore, may
be deemed to have a conflict with respect to the Merger Transaction, given
that THCR is the other party to the Merger Agreement and THCR Holdings will
acquire 100% of the equity of Taj Associates if the Merger Transaction is
consummated. In addition, Messrs. Kelly, First, Ribis and Trump are directors
of Realty Corp. Furthermore, Mr. Ribis, the Chief Executive Officer of Taj
Associates and Vice President of Taj Holding and TM/GP, is THCR's President,
Chief Executive Officer and Chief Financial Officer, Mr. Pickus, the Executive
Vice President of Corporate and Legal Affairs of Taj Associates, is THCR's
Executive Vice President and Secretary, and Mr. Burke, Vice President of
TM/GP, is THCR's Corporate Treasurer. See "Management of THCR" and "Management
of Taj Holding."
In addition to Trump's position as the Chairman of the Board of THCR and Taj
Holding, he currently owns 50% of the equity of Taj Associates and
approximately 40% of THCR Holdings. In consideration for the contribution of
his interests in Taj Associates, Trump will receive certain consideration
which is different from the consideration to be received by the holders of Taj
Holding Class A Common Stock in the Merger. See "--Related Merger
Transactions."
To the best knowledge of THCR, THCR Holdings, Merger Sub, Taj Holdings LLC,
TM/GP and Taj Holding, no director or officer of any of THCR, THCR Holdings,
Merger Sub, Taj Holdings LLC, TM/GP or Taj Holding beneficially owns any
shares of Taj Holding Class A Common Stock or Taj Holding Class B Common
Stock, except as set forth "Security Ownership of Certain Beneficial Owners
and Management of THCR" and "Security Ownership of Certain Beneficial Owners
and Management of Taj Holding."
Indemnification of Directors and Officers; Insurance. Pursuant to the Merger
Agreement, for a period of six years after the Effective Time, each of the
Surviving Corporation and TM/GP will, and THCR will cause each of the
Surviving Corporation and TM/GP to, provide to the former officers and
directors of Taj Holding (the "Taj Holding Indemnified Parties")
indemnification as provided in the THCR Certificate of Incorporation and THCR
By-Laws in effect as of the date of the Merger Agreement. In addition, THCR
has agreed, and has agreed to cause the Surviving Corporation and TM/GP to
agree, that until six years from the Effective Time, unless otherwise required
by law, the certificate of incorporation and by-laws of the Surviving
Corporation and TM/GP shall not be amended, repealed or modified to reduce or
limit the rights of indemnity afforded to the present and former directors,
officers and employees of Taj Holding and TM/GP (including, without
limitation, with respect to the Merger Transaction) or the ability of the
Surviving Corporation or TM/GP to indemnify such persons, nor to hinder, delay
or make more difficult the exercise of such rights of indemnity or the ability
to indemnify. The Merger Agreement further provides that for such six years
after the Effective Time, the Surviving Corporation and TM/GP shall, and THCR
shall cause the Surviving Corporation and TM/GP to, purchase and maintain in
effect directors' and officers' liability insurance policies covering the Taj
Holding Indemnified Parties on terms no less favorable than the terms of the
current insurance policies' coverage or, if such directors' and officers'
liability insurance is unavailable for an amount not greater than 150% of the
premium paid by Taj Holding (on an annualized basis) for directors' and
officers' liability insurance during the period from January 1, 1996 to the
Effective Time (the "Current D&O Premium"), the Surviving Corporation and
TM/GP shall obtain as much insurance as can be obtained for a premium not in
excess (on an annualized basis) of such amount. See "The Merger Agreement--
Idemnification and Insurance."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Holders of Taj Holding Class A Common Stock and holders of Taj Holding Class
B Common Stock and Bonds should consult their tax advisers concerning the tax
implications of the Merger Transaction and of the ownership and disposition of
their stock or debt interests under applicable state, local, foreign income
and other tax laws. The exchange of Taj Holding Class A Common Stock for cash
or THCR Common Stock in the Merger and the redemption of the Bonds and the Taj
Holding Class B Common Stock is anticipated to be a taxable event for the
holders thereof.
70
<PAGE>
GENERAL INFORMATION
This Proxy Statement-Prospectus is being furnished to the stockholders of
THCR in connection with the THCR Special Meeting and to the stockholders of
Taj Holding in connection with the Taj Holding Special Meeting. The THCR
Special Meeting will be held at 10:00 a.m. on March , 1996 at . The Taj
Holding Special Meeting will be held at 10:00 a.m. on March , 1996 at .
This Proxy Statement-Prospectus and the accompanying forms of proxy are first
being mailed to stockholders on or about February , 1996.
THE THCR SPECIAL MEETING
PURPOSE
At the THCR Special Meeting, holders of THCR Common Stock and THCR Class B
Common Stock will be asked to approve the Merger Transaction, which approval
will constitute approval and adoption of the Merger Agreement. At the THCR
Special Meeting, stockholders of THCR will also consider and vote upon such
other matters as may properly be brought before the THCR Special Meeting.
THE BOARD OF DIRECTORS OF THCR HAS UNANIMOUSLY APPROVED THE TERMS OF THE
MERGER TRANSACTION AND THE MERGER AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL
OF THE MERGER TRANSACTION.
RECORD DATE; VOTING RIGHTS; PROXIES
The Board of Directors of THCR has fixed the close of business on
February , 1996 as the THCR Record Date for determining holders entitled to
notice of and to vote at the THCR Special Meeting. The proposed issuance of
shares of THCR Common Stock to be issued as part of the THCR Stock Offering
will occur after the THCR Record Date and such shares will not be entitled to
vote at the Special Meeting.
As of the THCR Record Date, there were 10,066,667 shares of THCR Common
Stock issued and outstanding, each of which entitles the holder thereof to one
vote per share and there were 1,000 shares of THCR Class B Common Stock issued
and outstanding (all of which were held by Trump), each of which entitles the
holder thereof to 6,666,667 votes per share. The voting power of the shares of
THCR Class B Common Stock held by Trump equals the voting power of the number
of shares of THCR Common Stock issuable upon the conversion of Trump's limited
partnership interest in THCR Holdings into THCR Common Stock. The THCR Class B
Common Stock is intended to provide Trump with a voting interest in THCR which
is proportionate to his equity interest in THCR Holdings' assets represented
by his limited partnership interest. THCR does not know of any matters other
than as described in the Notice of Special Meeting that are to come before the
THCR Special Meeting.
All shares of THCR Common Stock and THCR Class B Common Stock represented by
properly executed proxies will, unless such proxies have previously been
revoked, be voted in accordance with the instructions indicated in such
proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH SHARES WILL BE VOTED FOR
APPROVAL OF THE MERGER TRANSACTION. If any other matter or matters are
properly presented for action before the THCR Special Meeting, the persons
named in the enclosed form of proxy and acting thereunder will have the
discretion to vote on such matters in accordance with their best judgment,
unless such authorization is withheld. A stockholder who has given a proxy may
revoke it at any time prior to its exercise by giving written notice thereof
to the Secretary of THCR, by signing and returning a later dated proxy, or by
voting in person at the THCR Special Meeting; however, mere attendance at the
THCR Special Meeting will not itself have the effect of revoking the proxy.
QUORUM
The presence in person or by proxy of the holders of the shares
representing a majority of the outstanding voting power of the THCR Common
Stock and THCR Class B Common Stock is necessary to constitute a
71
<PAGE>
quorum in connection with the transaction of business at the THCR Special
Meeting. Shares for which duly executed proxies have been received but with
respect to which holders of shares have abstained from voting are counted in
determining the shares present at the THCR Special Meeting.
REQUIRED VOTE
Approval of the Merger Transaction will require the affirmative vote of (i)
the holders of a majority of the outstanding shares of THCR Common Stock
(excluding directors and executive officers of THCR and their affiliates)
voting as a separate class (representing the approval of a majority of THCR's
unaffiliated stockholders); and (ii) the holders of shares representing a
majority of the outstanding voting power of THCR Common Stock and THCR Class B
Common Stock voting together as a single class.
As of the THCR Record Date, (i) directors and executive officers of THCR and
their affiliates had the power to vote shares representing approximately %
of the outstanding shares of THCR Common Stock; and (ii) Trump had the power
to vote 100% of the outstanding shares of THCR Class B Common Stock,
representing approximately 40% of the voting power of the shares of THCR Class
A Common Stock and THCR Class B Common Stock. All of such officers, directors
and affiliates have indicated that they intend to vote their shares for
approval of the Merger Transaction. Pursuant to the Trump/THCR Voting
Agreement, Trump has agreed to vote his shares of THCR Class B Common Stock
for approval of the Merger Transaction and at the THCR Special Meeting, such
shares will be voted accordingly.
For purposes of determining whether the Merger Transaction has received the
required number of votes for approval at the THCR Special Meeting, abstentions
will have the same effect as a negative vote. In instances where
recordholders, such as brokers, are prohibited from exercising discretionary
authority for beneficial owners who have not returned a proxy, those shares
will not be counted in determining the shares present at the meeting and
entitled to vote with respect to that matter and will have the same effect as
a negative vote.
SOLICITATION OF PROXIES
THCR will bear the costs of soliciting proxies from its stockholders. In
addition to the use of the mails, proxies may be solicited by the directors
and officers of THCR by personal interview, telephone or telegram. Such
directors and officers will not receive additional compensation for such
solicitation but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. THCR has retained MacKenzie Partners, Inc., a proxy
soliciting firm, to assist in the solicitation of proxies and will pay such
firm a fee, estimated not to exceed $15,000 plus reimbursement of reasonable
out-of-pocket expenses, which are not expected to exceed $15,000. Arrangements
may also be made with brokerage firms and other custodians, nominees and
fiduciaries to forward proxy solicitation materials to the beneficial owners
of shares of THCR Common Stock held of record by such persons, in which case
THCR will reimburse such brokerage firms, custodians, nominees and fiduciaries
for reasonable out-of-pocket expenses incurred by them in connection
therewith.
72
<PAGE>
THE TAJ HOLDING SPECIAL MEETING
PURPOSE
At the Taj Holding Special Meeting, the holders of Taj Holding Class A
Common Stock, Taj Holding Class B Common Stock and Taj Holding Class C Common
Stock will be asked to approve and adopt the Merger Agreement. At the Taj
Holding Special Meeting, stockholders of Taj Holding will also consider and
vote upon such other matters as may properly be brought before the Taj Holding
Special Meeting.
THE BOARD OF DIRECTORS OF TAJ HOLDING HAS UNANIMOUSLY APPROVED THE TERMS OF
THE MERGER AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
RECORD DATE; VOTING RIGHTS; PROXIES
The Board of Directors of Taj Holding has fixed the close of business on
February , 1996 as the Taj Holding Record Date for determining the holders
entitled to notice of and to vote at the Taj Holding Special Meeting.
As of the Taj Holding Record Date, there were 1,350,000 shares of Taj
Holding Class A Common Stock, 780,242 shares of Taj Holding Class B Common
Stock and 1,350,000 shares of Taj Holding Class C Common Stock (all of which
were held by Trump) issued and outstanding, each of which entitles the holder
thereof to one vote per share. Taj Holding does not know of any other matters
other than as described in the Notice of Special Meeting that are to come
before the Taj Holding Special Meeting.
All shares of Taj Holding Class A Common Stock, Taj Holding Class B Common
Stock and Taj Holding Class C Common Stock represented by properly executed
proxies will, unless such proxies have previously been revoked, be voted in
accordance with the instructions indicated in such proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH SHARES WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT. If any other matter or matters are properly presented for
action before the Taj Holding Special Meeting, the persons named in the
enclosed form of proxy and acting thereunder will have the discretion to vote
on such matters in accordance with their best judgment, unless such
authorization is withheld. A stockholder who has given a proxy may revoke it
at any time prior to its exercise by giving written notice thereof to the
Secretary of Taj Holding, by signing and returning a later dated proxy, or by
voting in person at the Taj Holding Special Meeting; however, mere attendance
at the Taj Holding Special Meeting will not itself have the effect of revoking
the proxy.
QUORUM
The presence in person or by proxy of the holders of a majority of the
outstanding shares of each of the Taj Holding Class B Common Stock and Taj
Holding Class C Common Stock is necessary for the transaction of business at
the Taj Holding Special Meeting. Shares for which duly executed proxies have
been received but with respect to which holders of shares have abstained from
voting are counted in determining the shares present at the Taj Holding
Special Meeting.
REQUIRED VOTE
Approval and adoption of the Merger Agreement will require the affirmative
vote of the holders of a majority of the outstanding shares of each of the Taj
Holding Class A Common Stock, Taj Holding Class B Common Stock and Taj Holding
Class C Common Stock, each voting as a separate class.
As of the Taj Holding Record Date, (i) directors and executive officers of
Taj Holding and their affiliates had the power to vote shares representing
approximately % of the Taj Holding Class A Common Stock; (ii) directors and
executive officers of Taj Holding and their affiliates had the power to vote
shares representing approximately % of the Taj Holding Class B Common Stock;
and (iii) Trump had the power to vote 100% of the outstanding shares of Taj
Holding Class C Common Stock. All of such officers, directors and affiliates
73
<PAGE>
have indicated that they intend to vote their shares for approval and adoption
of the Merger Agreement. Pursuant to the Trump/Taj Holding Voting Agreement,
Trump has agreed to vote his shares of Taj Holding Class C Common Stock for
approval and adoption of the Merger Agreement and at the Taj Holding Special
Meeting, such shares will be voted accordingly.
Pursuant to the Class A Agreement, the holders of 701,840 shares of Taj
Holding Class A Common Stock (representing approximately 52% of the
outstanding shares of Taj Holding Class A Common Stock) agreed to vote in
favor of the Merger Agreement and at the Taj Holding Special Meeting, such
shares will be voted accordingly.
For purposes of determining whether the Merger Agreement has received the
required number of votes for approval at the Taj Holding Special Meeting,
abstentions will have the same effect as a negative vote. In instances where
recordholders, such as brokers, are prohibited from exercising discretionary
authority for beneficial owners who have not authorized the vote on a matter,
those shares will not be counted in determining the shares present at the
meeting and entitled to vote with respect to that matter and will have the
same effect as a negative vote.
SOLICITATION OF PROXIES
Taj Holding will bear the costs of soliciting proxies from its stockholders.
In addition to the use of the mails, proxies may be solicited by the directors
and officers of Taj Holding by personal interview, telephone or telegram. Such
directors and officers will not receive additional compensation for such
solicitation but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Taj Holding has retained MacKenzie Partners, Inc., a
proxy soliciting firm, to assist in the solicitation of proxies and will pay
such firm a fee, estimated not to exceed $15,000, plus reimbursement of
reasonable out-of-pocket expenses, which are not expected to exceed $15,000.
Arrangements may also be made with brokerage firms and other custodians,
nominees and fiduciaries to forward proxy solicitation materials to the
beneficial owners of shares of Taj Holding Class A Common Stock and Taj
Holding Class B Common Stock held of record by such persons, in which case Taj
Holding will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in
connection therewith.
ELECTION PROCEDURES
Each holder of Taj Holding Class A Common Stock will receive an Election
Form together with this Proxy Statement-Prospectus permitting each holder of
Taj Holding Class A Common Stock to elect to receive only Stock Consideration
or only Cash Consideration. Any holder of Taj Holding Class A Common Stock who
wishes to receive Cash Consideration must send the Election Form properly
completed to the Exchange Agent on or before 5:00 p.m. on the Election
Deadline. Holders of the Taj Holding Class A Common Stock who (i) fail to
complete properly the Election Form, (ii) fail to send the Election Form to
the Exchange Agent prior to the Exchange Deadline or (iii) make no election,
shall be deemed to have elected to receive the Stock Consideration. Any
Election Form may be revoked prior to the Election Deadline by submitting a
new Election Form to the Exchange Agent.
HOLDERS OF TAJ HOLDING CLASS A COMMON STOCK AND TAJ HOLDING CLASS B COMMON
STOCK SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR PROXY CARDS. HOLDERS
OF TAJ HOLDING CLASS A COMMON STOCK WHO WISH TO RECEIVE CASH CONSIDERATION
MUST SEND THE ELECTION FORM TO THE EXCHANGE AGENT ON OR BEFORE THE ELECTION
DEADLINE. SEE "THE MERGER AGREEMENT--ELECTION PROCEDURES."
74
<PAGE>
THE MERGER AGREEMENT
The following description of certain terms of the Merger Agreement is only a
summary and does not purport to be complete. This discussion is qualified in
its entirety by reference to the complete text of the Merger Agreement, a copy
of which is attached hereto as Annex A and incorporated herein by reference.
Stockholders of THCR and Taj Holding are urged to read the Merger Agreement in
its entirety.
THE MERGER
The Merger Agreement provides that, subject to the satisfaction or waiver of
the conditions to the Merger contained therein, Merger Sub will be merged with
and into Taj Holding, in accordance with the DGCL, whereupon the separate
existence of Merger Sub will cease and Taj Holding will become the Surviving
Corporation. At the Effective Time, the conversion of Taj Holding Class A
Common Stock and the conversion of shares of the Common Stock of Merger Sub
will be effected as described below. The current certificate of incorporation
and by-laws of Merger Sub will become the certificate of incorporation and by-
laws of the Surviving Corporation, except that the certificate of
incorporation of the Surviving Corporation will be amended to change the name
of Merger Sub to "Taj Mahal Holding Corp." The directors of Merger Sub
immediately prior to the Effective Time will become the directors of the
Surviving Corporation and the officers of Taj Holding immediately prior to the
Effective Time will become the officers of the Surviving Corporation, in each
case until their respective successors are duly elected and qualified.
CLOSING; EFFECTIVE TIME
The Merger Agreement provides that the closing of the Merger (the "Closing")
will take place as promptly as practicable (and in any event within two
business days) after satisfaction or waiver of certain terms and conditions,
including conditions to Closing, contained in the Merger Agreement. A soon as
practicable after the Closing, Taj Holding and Merger Sub will file, or cause
to be filed, a certificate of merger with the Secretary of State of the State
of Delaware (the "Certificate of Merger"). The Effective Time will be the time
such filing is accepted for filing by the Secretary of State of the State of
Delaware or at such other time as set forth in the Certificate of Merger.
TERMS OF THE MERGER
The Merger Agreement provides that, at the Effective Time, (i) each share of
Taj Holding Class A Common Stock outstanding immediately prior to the
Effective Time will, except as otherwise provided in the Merger Agreement, be
converted into and represent the right to receive, at the holder's election,
either $30.00 in cash or that number of fully paid nonassessable shares of
THCR Common Stock determined by dividing $30 by the Market Value; (ii) all
shares of Taj Holding Class C Common Stock outstanding immediately prior to
the Effective Time will be canceled; and (iii) each share of the Common Stock
of Merger Sub outstanding immediately prior to the Effective Time will be
converted into and represent the right to receive one fully paid and
nonassessable share of Common Stock, par value $0.01 per share, of the
Surviving Corporation. "Market Value" is defined in the Merger Agreement as
the average of the high and low per share sales prices of the THCR Common
Stock during the fifteen trading days immediately preceding the Effective Time
or, if THCR and Taj Holding mutually agree, during any such other period as
agreed under the Class A Agreement. Immediately prior to the Effective Time,
Taj Holding will cause each share of Taj Holding Class B Common Stock
outstanding prior to such time to be redeemed at $.50 per share in accordance
with the provisions of the Taj Holding Certificate of Incorporation and the
Bond Indenture. Each share of Taj Holding Class A Common Stock held by Taj
Holding as treasury stock immediately prior to the Effective Time or owned by
any direct or indirect subsidiary of Taj Holding immediately prior to the
Effective Time will be canceled, and no conversion or payment will be made
with respect thereto.
ELECTION PROCEDURES
The Merger Agreement provides that, prior to the Effective Time, THCR and
Taj Holding Prior will designate Continental Stock Transfer & Trust Company,
or another mutually acceptable bank or trust company,
75
<PAGE>
to act as the Exchange Agent. Taj Holding will, or will cause the Exchange
Agent to, send the Election Form, in form satisfactory to THCR, to each holder
of Taj Holding Class A Common Stock together with this Proxy Statement-
Prospectus. Each Election Form will permit each holder of Taj Holding Class A
Common Stock (or the beneficial owner through appropriate and customary
documentation and instructions) to elect to receive either the Stock
Consideration or the Cash Consideration. Taj Holding will use its best efforts
to make available one or more Election Forms as may be reasonably requested by
all persons who become holders (or beneficial owners) of Taj Holding Class A
Common Stock between the record date established for purposes of the Taj
Holding Special Meeting and the Election Deadline.
Any holder of Taj Holding Class A Common Stock who wishes to receive Cash
Consideration in lieu of Stock Consideration must send the Election Form
properly completed to the Exchange Agent at the address set forth in the
Election Form on or before the Election Deadline. Holders of the Taj Holding
Class A Common Stock who (i) fail to complete properly the Election Form, (ii)
fail to send the Election Form to the Exchange Agent prior to the Election
Deadline or (iii) make no election, will be deemed to have elected to receive
the Stock Consideration.
Any Election Form may be revoked prior to the Election Deadline by
submitting a new Election Form to the Exchange Agent. In addition, all
Election Forms will automatically be deemed revoked if the Exchange Agent is
notified in writing by Taj Holding and THCR that the Merger has been abandoned
or the Merger Agreement has been terminated.
Subject to the terms of the Merger Agreement, the determination of the
Exchange Agent will be binding and conclusive as to whether or not the
Election Form has been properly or timely submitted or revoked. Neither the
Exchange Agent, Taj Holding, THCR nor Merger Sub will be under any obligation
to notify any person of any defect in an Election Form or the revocation
thereof.
SURRENDER AND PAYMENT; EXCHANGE FUND
The Merger Agreement provides that, as soon as practicable after the
Effective Time, THCR will instruct the Exchange Agent to mail to each holder
of a certificate or certificates evidencing shares of Taj Holding Class A
Common Stock (other than Dissenting Shares) (the "Taj Holding Certificates")
(i) a letter of transmittal (which will specify that delivery will be
effected, and risk of loss and title to the Taj Holding Certificates will
pass, only upon proper delivery of such Taj Holding Certificates to the
Exchange Agent) and (ii) instructions to effect the surrender of the Taj
Holding Certificates in exchange for Merger Consideration. Each holder of Taj
Holding Class A Common Stock, upon surrender to the Exchange Agent of such
holder's Taj Holding Certificates with the letter of transmittal, duly
executed, and such other customary documents as may be required pursuant to
such instructions, will be given the amount to which such holder is entitled
to, pursuant to the Merger Agreement, of (i) certificates evidencing shares of
THCR Common Stock (the "THCR Certificates") as payment of the Stock
Consideration, (ii) cash as payment of the Cash Consideration (without any
interest accrued thereon), (iii) dividends or distributions declared or made
on the THCR Common Stock after the Effective Time and payable between the
Effective Time and the time of such surrender (the "THCR Dividends") and/or
(iv) cash for payment of fractional shares of THCR Common Stock (as described
below). Until so surrendered, each Taj Holding Certificate will after the
Effective Time represent for all purposes only the right to receive THCR
Certificates or cash, as the case may be. After the Effective Time, there will
be no further registration of transfers of Taj Holding Class A Common Stock.
THCR will establish reasonable procedures for the delivery of THCR
Certificates or cash, as the case may be, to holders of Taj Holding Class A
Common Stock whose Taj Holding Certificates have been lost, destroyed or
mutilated.
At the Closing, THCR will deposit in trust with the Exchange Agent, for the
benefit of the holders of Taj Holding Class A Common Stock, the appropriate
amount to which such holders are entitled, pursuant to the Merger Agreement,
of THCR Certificates for payment of the Stock Consideration, cash for payment
of the Cash Consideration, THCR Dividends, if any, and cash for payment of
fractional shares of THCR Common Stock (collectively, the "Exchange Fund").
The Exchange Agent will, pursuant to irrevocable instructions, make the
76
<PAGE>
payments to the holders of the Taj Holding Class A Common Stock as set forth
in the Merger Agreement. The Exchange Agent will not be entitled to vote or
exercise any rights of ownership with respect to the THCR Common Stock held by
it from time to time, except that it will hold all THCR Dividends paid or
distributed for the accounts of the persons entitled thereto.
If any delivery of the Merger Consideration is to be made to a person other
than the registered holder of the Taj Holding Certificates surrendered in
exchange therefor, it will be a condition to such delivery that the Taj
Holding Certificate so surrendered will be properly endorsed or be otherwise
in proper form for transfer and that the person requesting such delivery will
(i) pay to the Exchange Agent any transfer or other taxes required as a result
of delivery to a person other than the registered holder or (ii) establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
Any portion of the Exchange Fund that remains undistributed to the holders
of the Taj Holding Class A Common Stock for 180 days after the Effective Time
will be delivered to THCR upon demand. Any holder of Taj Holding Class A
Common Stock who has not complied with the exchange provisions of the Merger
Agreement within 180 days after the Effective Time will have no further claim
upon the Exchange Agent and will thereafter look only to THCR for conversion
or payment, as the case may be, of the Merger Consideration, THCR Dividends
and fractional shares of THCR Common Stock.
If a Taj Holding Certificate has not been surrendered prior to the date on
which any receipt of Merger Consideration, THCR Dividends or cash for payment
of fractional shares of THCR Common Stock would otherwise escheat to or become
the property of any governmental agency, such Taj Holding Certificate will, to
the extent permitted by applicable law, be deemed to be canceled and no money
or other property will be due to the holder thereof.
The Exchange Agent will invest cash in the Exchange Fund, as directed by
THCR, on a daily basis, provided that all such investments will be in
obligations of or guaranteed by the United States of America with remaining
maturities not exceeding 180 days, in commercial paper obligations receiving
the highest rating from either Moody's Investors Services, Inc. or Standard &
Poor's Ratings Group, or in certificates of deposit or banker's acceptances of
commercial banks with capital exceeding $500 million (collectively, "Permitted
Investments"). The maturities of Permitted Investments will be such as to
permit the Exchange Agent to make prompt payment to former stockholders of Taj
Holding entitled thereto as contemplated by the Merger Agreement. THCR will
promptly replenish the Exchange Fund to the extent of any losses incurred as a
result of Permitted Investments. Any interest and other income resulting from
such investments will be paid to THCR. If for any reason (including losses)
the Exchange Fund is inadequate to pay the amounts to which holders of Taj
Holding Class A Common Stock will be entitled under the Merger Agreement, THCR
will in any event be liable for payment thereof. The Exchange Fund will not be
used for any purpose not specifically provided for in the Merger Agreement.
DIVIDENDS; LIABILITY; NO FURTHER RIGHTS FOR HOLDERS ELECTING CASH
CONSIDERATION
No THCR Dividend will be paid to persons entitled to receive certificates
representing THCR Common Stock pursuant to the Merger Agreement until such
persons surrender their Taj Holding Certificates. Upon such surrender, THCR
Dividends will be paid to the person in whose name the THCR Certificate will
be issued. In no event will the person entitled to receive such dividends or
distributions be entitled to receive interest on such
dividends or distributions. Notwithstanding the foregoing, neither the
Exchange Agent nor any party to the Merger Agreement will be liable to a
holder of Taj Holding Class A Common Stock for any shares of THCR Common Stock
or dividends or distributions thereon delivered to a governmental agency
pursuant to any applicable escheat or similar laws.
Holders of Taj Holding Class A Common Stock who elect to receive the Cash
Consideration or who will receive cash for payment of fractional shares of
THCR Common Stock will, upon properly surrendering their Taj Holding
Certificates, be deemed to have been paid in full satisfaction of all rights
pertaining to the shares or fractions thereof exchanged for cash theretofore.
77
<PAGE>
FRACTIONAL SHARES
No fractional shares of THCR Common Stock will be issued in connection with
the Merger. In lieu of any such fractional share, each holder of THCR Common
Stock who would otherwise have been entitled to a fractional share of THCR
Common Stock upon surrender of certificates for exchange will be paid cash
(without interest) in an amount equal to the Market Value of such fractional
shares. As soon as practicable after the determination of the amount of cash
to be paid to former holders of Taj Holding Class A Common Stock in lieu of
any fractional interests, the Exchange Agent will make available such amounts
to such former holders.
DISSENTING SHARES
Notwithstanding any other provision of the Merger Agreement to the contrary,
shares of Taj Holding Class A Common Stock that are outstanding immediately
prior to the Effective Time and which are held by holders who have not voted
in favor of the Merger or consented thereto in writing and who will have
demanded properly in writing appraisal for such shares in accordance with
Section 262 of the DGCL and who have not withdrawn such demand or otherwise
have forfeited appraisal rights (collectively, the "Dissenting Shares") will
not be converted into or represent the right to receive the Merger
Consideration. Such holders will be entitled to receive payment of the
appraised value of such shares, except that all Dissenting Shares held by
holders who have failed to perfect or who effectively have withdrawn or lost
their rights to appraisal of such shares under such Section 262 will thereupon
be deemed to have been converted into and to have become exchangeable, as of
the Effective Time, for the right to receive, without any interest thereon,
the Stock Consideration, upon surrender of the Taj Holding Certificates
evidencing such shares.
Taj Holding will give THCR (i) prompt notice of any demands for appraisal
received by Taj Holding, withdrawals of such demands, and any other
instruments served pursuant to the DGCL and received by Taj Holding and (ii)
the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the DGCL. Taj Holding will not, except with the
prior written consent of THCR, make any payment with respect to any demands
for appraisal, or offer to settle, or settle, any such demands.
CONDITIONS TO THE MERGER
The obligations of Taj Holding, THCR and Merger Sub to consummate the
transactions contemplated by the Merger Agreement are subject to the
fulfillment at or prior to the Effective Time of certain conditions, any or
all of which may be waived in whole or in part, to the extent permitted by
applicable law, including that, (i) the Merger Agreement will have been duly
approved and adopted by the affirmative vote of a majority of the outstanding
shares of (x) Taj Holding Class B Common Stock and Taj Holding Class C Common
Stock, each voting as a separate class, in accordance with the DGCL and the
Taj Holding Certificate of Incorporation, and (y) Taj Holding Class A Common
Stock, voting as a separate class; (ii) the Merger Transaction will have been
duly approved by the affirmative vote of a majority of the outstanding shares
of (x) THCR Common Stock and THCR Class B Common Stock, voting as a single
class, in accordance with the DGCL and the THCR Certificate of Incorporation,
and (y) THCR Common Stock (other than shares held by officers and directors of
THCR and their affiliates), voting as a separate class; (iii) all filings
required to be made prior to the Effective Time with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Effective Time from, governmental and regulatory authorities (including,
without limitation, Gaming Authorities) in connection with the execution and
delivery of the Merger Agreement and the consummation of the transactions
contemplated thereby by Taj Holding, THCR and Merger Sub will have been made
or obtained (as the case may be) without restrictions, except where the
failure to obtain such consents, approvals, permits and authorizations could
not be reasonably be expected to have a material adverse effect; (iv) no court
or governmental or regulatory authority of competent jurisdiction (including,
without limitation, Gaming Authorities) will have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, judgment,
decree, injunction or other order (whether temporary, preliminary or
permanent) or taken any action that prohibits the consummation of the
transactions contemplated by the Merger Agreement; provided, however, that the
parties invoking this condition will use their best efforts to have any such
judgment, decree, injunction or order vacated; (v) the shares of THCR Common
Stock to be issued pursuant to the Merger will have been approved for listing
on the NYSE, subject to
78
<PAGE>
official notice of issuance; and (vi) the waiting period applicable to the
consummation of the Merger under the HSR Act will have expired or been
terminated.
The obligation of Taj Holding to consummate the transactions contemplated by
the Merger Agreement is also subject to the fulfillment at or prior to the
Effective Time of certain other conditions, any or all of which may be waived
in whole or in part to the extent permitted by applicable law, including that,
(i) the Taj Note Offering will have been consummated on terms reasonably
acceptable to Taj Holding; (ii) the consent of certain of Taj Associates'
creditors necessary to consummate the Merger Transaction will have been
obtained; (iii) Taj Holding LLC or any other person to which part or all of
the assets of Taj Holding or any of its subsidiaries has been or will be
transferred will have assumed (without releasing the Surviving Corporation or
TM/GP) the indemnification and other obligations of the Surviving Corporation
and TM/GP set forth in the Merger Agreement; (iv) each of THCR and Merger Sub
will have performed in all material respects all of its respective obligations
under the Merger Agreement required to be performed by them at or prior to the
Effective Time; (v) each of the representations and warranties of each of THCR
and Merger Sub contained in the Merger Agreement and in any certificate or
other writing delivered by THCR and Merger Sub pursuant thereto will be true
in all material respects at and as of the Effective Time, as if made at and as
of such time (except to the extent it relates to a particular date); and (vi)
Taj Holding will have received a certificate from THCR and Merger Sub, signed
by an executive officer of THCR and Merger Sub, respectively, to the effect
set forth in clauses (iv) and (v) of this paragraph.
The obligation of each of THCR and Merger Sub to consummate the transactions
contemplated by the Merger Agreement is also subject to the fulfillment at or
prior to the Effective Time of certain conditions, any or all of which may be
waived in whole or in part to the extent permitted by applicable law,
including that, (i) the Market Value of the THCR Common Stock will be $20.00
or more; (ii) the Offerings will have been consummated on terms acceptable to
THCR; (iii) the purchase of the Specified Parcels will have been consummated
on terms acceptable to THCR, the obligations relating to the outstanding
indebtedness of Realty Corp. to First Fidelity will have been satisfied and
the releases of the liens and guarantees relating to such indebtedness will
have been obtained; (iv ) the payment to Bankers Trust of $10 million
contemplated as part of the Merger Transaction will have been made and the
releases of the liens and guarantees that Bankers Trust has with respect to
Taj Associates (including Trump's direct and indirect ownership interest
therein) and with respect to the TTMI Note will have been obtained; (v) Trump
will have contributed, or caused to be contributed, to THCR Holdings and Taj
Holdings LLC all of his direct and indirect ownership interests in Taj
Associates on terms acceptable to THCR; (vi) the number of shares of Taj
Holding Class A Common Stock for which written demand for appraisal has been
properly made pursuant Section 262 of the DGCL will have not exceeded 5% of
the total number of shares of Taj Holding Class A Common Stock outstanding
immediately prior to the Effective Time; (vii) the Registration Statement
containing this Proxy Statement-Prospectus will have been declared effective
and no stop order suspending effectiveness will have been issued, no action,
suit, proceeding or investigation by the SEC to suspend the effectiveness
thereof will have been initiated and be continuing, and all necessary
approvals under blue sky or other state securities laws, the Securities Act or
the Exchange Act relating to the issuance or trading of the THCR Common Stock
will have been received; (viii) the consent of certain of Trump's creditors
necessary to consummate the Merger Transaction will have been obtained; (ix)
Taj Holding will have performed in all material respects all of its
obligations under the Merger Agreement required to be performed by it at or
prior to the Effective Time; (x) each of the representations and warranties of
Taj Holding contained in the Merger Agreement and in any certificate or other
writing delivered by Taj Holding pursuant thereto will be true in all material
respects at and as of the Effective Time, as if made at and as of such time
(except to the extent it relates to a particular date); and (xi) THCR and
Merger Sub will have received a certificate signed by an executive officer of
Taj Holding to the effect set forth in clauses (ix) and (x) of this paragraph.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
THCR, Merger Sub and Taj Holding relating to, among other things, the
following matters (which representations and warranties are subject,
79
<PAGE>
in certain cases, to specified exceptions): (i) due organization, corporate
power, standing and similar corporate matters; (ii) capitalization; (iii)
subsidiaries; (iv) reports and other documents filed with the SEC, and the
accuracy of the information contained therein, including financial statements;
(v) the absence of certain changes or events having a material adverse effect
on the financial condition, business or results of operations of each party;
(vi) authorization, execution, delivery, performance and enforceability of the
Merger Agreement and the transactions contemplated thereby; (vii) the absence
of any conflict with their respective certificates of incorporation and by-
laws and compliance with applicable laws; (viii) the absence of any consent,
waiver or authorization that would have a material adverse effect on the
financial condition, business or results of operations of each party; (ix) the
absence of any litigation having a material adverse effect on the financial
condition, business or results of operations of each party; (x) payment of
taxes and filing of tax returns; (xi) material contracts and leases; (xii) the
absence of any material untrue statements or omissions in the Registration
Statement containing this Proxy Statement-Prospectus and in the Schedule 13E-3
and the Registration Statements relating to the THCR Stock Offering and the
Taj Note Offering; (xiii) the inapplicability of Section 203 of the DGCL;
(xiv) the receipt of opinions from financial advisors; (xv) the absence of
brokerage or finder's fees, except those payable to Rothschild and DLJ; (xvi)
the existence of the Trump/Taj Holding Voting Agreement and the Trump/THCR
Voting Agreement; (xvii) the right of Taj Holding and Taj Funding to redeem
the Bonds; and (xviii) the due authorization of, and lack of preemptive or
similar rights with respect to the shares of THCR Common Stock to be issued in
connection with the Merger.
CONDUCT PENDING THE MERGER
Pursuant to the terms of the Merger Agreement, from and after the date
thereof and until the Effective Time, Taj Holding will, and will cause each of
its subsidiaries to, conduct its business solely in the ordinary course
consistent with past practice and, without the prior written consent of THCR,
Taj Holding will not, and will cause each of its subsidiaries not to, except
as required or permitted pursuant to the terms of the Merger Agreement or as
contemplated in Taj Holding's previous filings with the SEC or by the terms of
the Merger Transaction, (i) make any material change in the conduct of its
businesses and operations or enter into any transaction other than in the
ordinary course of business consistent with past practice, or make any
investment other than a Permitted Investment (as such term is defined in the
Bond Indenture); (ii) make any change in its certificate of incorporation or
by-laws, issue any additional shares of capital stock or equity securities,
grant any option, warrant or right to acquire any capital stock or equity
securities, issue any security convertible into or exchangeable for its
capital stock, alter in any material respect the terms of any of its
outstanding securities, or make any change in its outstanding shares of
capital stock or in its capitalization, whether by reason of a
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, stock dividend or otherwise; (iii) incur, assume or
guarantee any indebtedness for borrowed money, issue any notes, bonds,
debentures or other corporate securities or grant any option, warrant or right
to purchase any thereof; provided, however, that Taj Funding may consummate
the Taj Note Offering; (iv) make any sale, assignment, transfer, abandonment
or other conveyance of any of its assets or any part thereof, except in the
ordinary course of business consistent with past practices; (v) subject any of
its assets, or any part thereof, to any lien or suffer such to be imposed
other than such liens as may arise in the ordinary course of business
consistent with past practice or by operation of law; (vi) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock or declare, set aside or pay any dividends or other distribution
in respect of such shares; (vii) increase the compensation payable or to
become payable to its executive officers or employees, except for increases in
the ordinary course of business in accordance with past practices, or grant
any severance or termination pay to, or enter into any employment or severance
agreement (other than in the ordinary course of business) with, any director
or executive officer, or establish, adopt, enter into or amend in any material
respect or take action to accelerate any rights or benefits under any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust fund,
policy or arrangement for the benefit of any director, executive officer or
employee; (viii) take any other action that would cause any of the
representations and warranties made in the Merger Agreement not to remain true
and correct; or (ix) commit itself to do any of the foregoing. In addition,
from the date of the Merger Agreement through the Effective Time, Taj Holding
will not,
80
<PAGE>
and will cause its subsidiaries not to, pay or declare any dividend or make
any distribution with respect to any of their equity interests except as
contemplated in connection with the Merger Transaction.
In addition, from and after the date of the Merger Agreement and until the
Effective Time, THCR will, and will cause each of its subsidiaries to, conduct
its business solely in the ordinary course consistent with past practice and,
without the prior written consent of Taj Holding, THCR will not, and will
cause each of its subsidiaries not to, except as required or permitted
pursuant to the terms of the Merger Agreement or as contemplated in THCR's
previous filings with the SEC or by the terms of the Merger Transaction, (i)
make any material change in the conduct of its businesses and operations or
enter into any transaction other than in the ordinary course of business
consistent with past practice; (ii) make any change in its certificate of
incorporation or by-laws, or make any material change in its outstanding
shares of capital stock or in its capitalization, whether by reason of a
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, stock dividend or otherwise; (iii) take any other
action that would cause any of the representations and warranties made in the
Merger Agreement not to remain true and correct; or (iv) commit itself to do
any of the foregoing.
OTHER COVENANTS
Pursuant to the terms of the Merger Agreement, each of THCR and Taj Holding
agreed (i) to prepare and file with the SEC this Proxy Statement-Prospectus
and to make all necessary filings with respect to the transactions
contemplated by the Merger under applicable state and federal securities laws;
(ii) to take all necessary actions to convene the THCR Special Meeting and the
Taj Holding Special Meeting, respectively; (iii) to deliver to each of their
respective stockholders this Proxy Statement-Prospectus and related proxy card
and, in the case of Taj Holding, the Election Form; (iv) to use reasonable
efforts to deliver to the other "comforts letters" of their respective
independent accountants, dated and delivered the date on which the
registration statement containing this Proxy Statement-Prospectus will become
effective; (v) to give the other access to information and personnel and to
keep, subject to certain exceptions, such information confidential; (vi) to
notify the other upon the occurrence of certain specified events; and (vii) to
use their best efforts to file or cause to be filed as soon as practicable
notifications under the HSR Act in connection with the Merger, and to respond
as promptly as practicable to any inquiries received from the Federal Trade
Commission and the Antitrust Division of the Department of Justice for
additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other governmental authority in connection with antitrust matters.
Taj Holding also agreed to cause (i) the redemption of the Bonds immediately
after the Effective Time and (ii) Taj Associates' general counsel to deliver
to THCR at the Closing a certificate (satisfactory to counsel for THCR)
identifying all holders of Taj Holding Class A Common Stock who were, to the
best of his knowledge and after being advised by outside counsel, affiliates
(for purposes of Rule 145 under the Securities Act) of Taj Holding at the time
of the Taj Special Meeting. THCR also agreed to use its best efforts to list
on the NYSE, subject to official notice of issuance, the THCR Common Stock to
be issued pursuant to the Merger.
Subject to the terms and conditions of the Merger Agreement, each of the
parties thereto further agreed to use all reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by the Merger Agreement,
including using all reasonable efforts to obtain all necessary waivers,
consents and approvals, to effect all necessary registrations and filings
(including, but not limited to, filings with all applicable governmental
agencies) and to lift any injunction or other legal bar to the transactions
contemplated by the Merger Agreement (and, in such case, to proceed with the
transactions contemplated by the Merger Agreement as expeditiously as
possible), subject, however, to the appropriate vote of the respective
stockholders or stockholder, as the case may be, of Taj Holding, THCR and
Merger Sub.
NO SOLICITATION
The Merger Agreement provides that subject to the fiduciary duties of the
Board of Directors of Taj Holding, as advised by its Special Counsel, neither
Taj Holding nor any of its subsidiaries will, directly or
81
<PAGE>
indirectly, take (nor will Taj Holding authorize or permit its subsidiaries,
officers, directors, employees, representatives, investment bankers,
attorneys, accountants or other agents or affiliates, to take) any action (i)
to knowingly encourage, solicit or initiate the submission of any Acquisition
Proposal (as defined in the Merger Agreement), (ii) to enter into any
agreement with respect to any Acquisition Proposal or (iii) to participate in
any way in discussions or negotiations with, or furnish any information to,
any person in connection with, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal. Taj Holding will promptly
communicate to the other parties to the Merger Agreement any solicitation by
or of Taj Holding and the terms of any proposal or inquiry, including the
identity of the person and its affiliates making the same, that it may receive
in respect of any such transaction, or of any such information requested from
it or of any such negotiations or discussions being sought to be initiated
with it.
Notwithstanding the paragraph above, pursuant to the Merger Agreement, Taj
Holding may, directly or indirectly, furnish information and access, in each
case in response to unsolicited requests therefor, to any person or entity
pursuant to appropriate confidentiality agreements, and may participate in
discussions and negotiate with such person or entity concerning any
Acquisition Proposal involving Taj Holding or any direct or indirect
subsidiary of Taj Holding, if the Taj Holding Class B Directors by a majority
vote determine in their good faith judgment that such action is appropriate in
furtherance of the best interests of stockholders.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that, for a period of six years from the
Effective Time, each of the Surviving Corporation and TM/GP will, and THCR
will cause the Surviving Corporation and TM/GP to, provide the Taj Holding
Indemnified Parties indemnification as set forth in the certificate of
incorporation and by-laws of THCR as in effect as of the date of the Merger
Agreement. THCR agreed, and caused the Surviving Corporation and TM/GP to
agree, that until six years from the Effective Time, unless otherwise required
by law, the certificate of incorporation and by-laws of the Surviving
Corporation and TM/GP will not be amended, repealed or modified to reduce or
limit the rights of indemnity afforded to the present and former directors,
officers and employees of Taj Holding and TM/GP (including, without
limitation, with respect to the transactions contemplated by the Merger
Agreement), or the ability of the Surviving Corporation or TM/GP to indemnify
them, nor to hinder, delay or make more difficult the exercise of such rights
of indemnity or the ability to indemnify. Should any claim or claims be made
against any present or former director, officer, employee or agent of Taj
Holding or TM/GP, arising from his services as such, within six years of the
Effective Time, the provisions of the Merger Agreement with respect to
indemnification and the certificate of incorporation and the by-laws of the
Surviving Corporation and TM/GP will continue in effect until the final
disposition of all such claims.
In the event the Surviving Corporation or TM/GP or any of their respective
successors or assigns (i) consolidates with or merges into any other person
and will not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provision will be made so that the successors and assigns of the Surviving
Corporation or TM/GP, as the case may be, will assume all of the obligations
set forth in the Merger Agreement.
In addition, for a period of six years after the Effective Time, the
Surviving Corporation and TM/GP will, and THCR will cause the Surviving
Corporation and TM/GP to, purchase and maintain in effect directors' and
officers' liability insurance policies covering the Taj Holding Indemnified
Parties on terms no less favorable than the terms of the current insurance
policies coverage. Notwithstanding the foregoing, if the directors' and
officers' liability insurance referred to in this paragraph is unavailable for
the Current D&O Premium, the Surviving Corporation and TM/GP will obtain as
much insurance as can be obtained for a premium not in excess (on an
annualized basis) of the Current D&O Premium. In the event any claim is made
against present or former directors, officers or employees of Taj Holding or
TM/GP that is covered or potentially covered by insurance, THCR agrees, and
will cause the Surviving Corporation and TM/GP to agree, to do nothing that
would forfeit, jeopardize, restrict or limit the insurance coverage available
for that claim until the final disposition of that claim unless otherwise
required by law or their respective certificate of incorporation or by-laws.
82
<PAGE>
The provisions in the Merger Agreement regarding indemnification and
insurance are intended to be for the benefit of, and will be enforceable by,
the Taj Holding Indemnified Parties, their heirs and personal representatives
and will be binding on THCR and the Surviving Corporation and their respective
successors and assigns.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time (whether before or after approval of the
Merger Agreement by the respective stockholders of Taj Holding or THCR) (i) by
joint written consent of Taj Holding and THCR; (ii) by Taj Holding if the
conditions to the obligation of Taj Holding to consummate the Merger have not
been satisfied or waived by Taj Holding at such time as such condition is no
longer capable of satisfaction; (iii) by THCR and Merger Sub if any of the
conditions to the obligations of THCR and Merger Sub to consummate the Merger
have not been satisfied or waived by THCR and Merger Sub at such time as such
condition is no longer capable of satisfaction; (iv) by Taj Holding, acting
through the Taj Holding Class B Directors, if the Taj Holding Class B
Directors shall have withdrawn or modified their approval or recommendation of
the Merger Agreement or the Merger in order to permit Taj Holding to execute
an agreement to effect an Acquisition Proposal determined by the Taj Holding
Class B Directors to be more favorable to the Taj Holding stockholders than
the transactions contemplated hereby; or (v) by either party if the Merger has
not been consummated on or before June 30, 1996; provided, however, that a
party may not terminate the Merger Agreement pursuant to this clause if the
failure of such party to fulfill any of its obligations under the Merger
Agreement will have been the reason that the Merger will not have been
consummated on or before said date.
In the event of termination of the Merger Agreement, there will be no
liability on the part of any party thereto (except for the willful breach of
the Merger Agreement); provided, however, that certain terms of the Merger
Agreement, including indemnification for brokerage fees, confidentiality and
the payment of fees and expenses will survive the termination.
FEES AND EXPENSES
The Merger Agreement provides that, whether or not the Merger is
consummated, all costs and expenses incurred in connection therewith and the
transactions contemplated thereby will be paid equally by Taj Holding and
THCR; provided, however, that all costs and expenses incurred in connection
with (i) printing, filing and distributing the Registration Statement filed
with the SEC in connection with the THCR Stock Offering and (ii) any filings
in connection with the HSR Act, will be borne solely by THCR.
AMENDMENT; WAIVER
The Merger Agreement provides that it may be amended by the parties thereto
by action of each of their respective Boards of Directors, at any time prior
to the Effective Time; provided, however, that any such amendment made after
the adoption of the Merger Agreement by the stockholders of Taj Holding or
THCR will not, without further approval of such stockholders (i) alter or
change the amount, kind or manner of payment of Merger Consideration, (ii)
alter or change any term of the certificate of incorporation of the Surviving
Corporation (except as otherwise provided in the Merger Agreement) or (iii)
change any other terms or conditions of the Merger Agreement, if any of such
changes, alone or in the aggregate, would materially and adversely affect the
stockholders of Taj Holding or THCR. Any amendment to the Merger Agreement
must be in writing signed by all the parties thereto.
The Merger Agreement also provides that, at any time prior to the Effective
Time, Taj Holding, THCR and Merger Sub may, unless otherwise set forth in the
Merger Agreement, (i) extend the time for the performance of any agreement of
the other party or parties thereto, (ii) waive any accuracy in the
representations and warranties contained therein or in any document delivered
pursuant thereto or (iii) waive compliance with any agreement or condition of
the other party or parties hereto contained therein. Any agreement on the part
of any party to any such extension or waiver will be effective only if set
forth in a writing signed on behalf of such party and delivered to the other
party or parties. No failure or delay by any party in exercising any right,
power or privilege under the Merger Agreement will operate as a waiver thereof
nor will any single or partial exercise thereof preclude any other right,
power or privilege.
83
<PAGE>
DISSENTING STOCKHOLDERS' RIGHTS OF APPRAISAL
The DGCL sets forth certain rights and remedies applicable to stockholders
of record of Taj Holding (each, a "Stockholder") who may object to the Merger.
These rights are available only to stockholders holding shares through the
Effective Date of the Merger (the "Dissenting Shares") if the Merger is
completed, provided that Stockholders comply with Section 262 of the DGCL.
Stockholders of THCR are not entitled to appraisal rights with respect to the
Merger. Set forth below is a summary of Stockholders' rights as provided by
Section 262 of the DGCL. A copy of Section 262 of the DGCL is attached to this
Proxy Statement-Prospectus as Annex D. The following discussion is not a
complete statement of the law relating to appraisal rights and is qualified in
its entirety by reference to Annex D. This discussion and Annex D should be
reviewed carefully by any holder who wishes to exercise statutory appraisal
rights or who wishes to preserve the right to do so, because the failure to
comply with the procedures set forth herein or therein will result in the loss
of such appraisal rights. Any Stockholder who contemplates the assertion of
appraisal rights is urged to consult his own counsel.
Under Section 262 of the DGCL, when a merger is to be submitted for approval
at a meeting of stockholders, not less than 20 days prior to the meeting, a
constituent corporation must notify each of the holders of its stock for which
appraisal rights are available that such appraisal rights are available and
include in each such notice a copy of Section 262. This Proxy Statement-
Prospectus shall constitute such notice to Stockholders.
Stockholders who desire to exercise their appraisal rights must satisfy all
of the following conditions. Any such Stockholder must be a stockholder of
record of Taj Holding from the date he makes a written demand for appraisal
(as described below) through the Effective Time and must continuously hold his
Dissenting Shares throughout the period between such dates. A written demand
for appraisal of the Dissenting Shares must be delivered to the Secretary of
Taj Holding before the taking of the vote of Stockholders on the Merger
Agreement. Such vote will take place at the Taj Holding Special Meeting. The
demand will be sufficient if it reasonably informs Taj Holding of the identity
of the Stockholder and that the Stockholder intends thereby to demand the
appraisal of his Dissenting Shares. This written demand for appraisal of
Dissenting Shares must be in addition to and separate from any proxy or vote
abstaining from or voting against the Merger Agreement. Although a Stockholder
must vote against, abstain from voting, or fail to vote on the Merger
Agreement to preserve his rights to appraisal, such vote against, failure to
vote, or abstention from voting will not, of itself, constitute a demand for
appraisal within the meaning of Section 262 of the DGCL.
Holders of Dissenting Shares electing to exercise their appraisal rights
under Section 262 of the DGCL must neither vote for approval of the Merger
Agreement nor consent thereto in writing. A Stockholder who signs and returns
a proxy card without expressly specifying a vote against approval of the
Merger Agreement or a direction to abstain, by checking the applicable box on
the proxy card enclosed herewith, will effectively have thereby waived such
Stockholder's appraisal rights as to those shares because, in the absence of
express instructions to the contrary, such Dissenting Shares will be voted in
favor of the Merger Agreement. Accordingly, a Stockholder who desires to
perfect his appraisal rights with respect to any Dissenting Shares must, as
one of the procedural steps involved in such perfection, either (i) refrain
from executing and returning a proxy card and from voting in person in favor
of the Merger Agreement or (ii) check either the "Against" or the "Abstain"
box next to the proposal on such card or affirmatively vote in person against
the Merger Agreement or register in person an abstention with respect thereto.
A demand for appraisal must be executed by or for the Stockholder, fully and
correctly, exactly as such Stockholder's name appears on the certificate or
certificates representing his Dissenting Shares. If the Dissenting Shares are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a Stockholder; however, the agent must identify the record owner
and expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record owner. If a Stockholder holds Dissenting Shares
through a broker who in turn holds the shares through a central securities
depository nominee, a demand for appraisal of such Dissenting Shares must be
made by or on behalf of the depository nominee and must identify the
depository nominee as the holder of record.
84
<PAGE>
A record owner, such as a broker, fiduciary or other nominee who holds
Dissenting Shares as a nominee for others, may exercise appraisal rights with
respect to the Dissenting Shares held for all or less than all beneficial
owners of Dissenting Shares as to which such person is the record owner. In
such case, the written demand must set forth the number of Dissenting Shares
covered by such demand. Where the number of Dissenting Shares is not expressly
stated, the demand will be presumed to cover all Dissenting Shares outstanding
in the name of such record owner. A person having a beneficial interest in
Dissenting Shares that are held of record in the name of another person must
act promptly to cause the record holder to follow the steps summarized herein
properly and in a timely manner to perfect whatever appraisal rights are
available.
A Stockholder who elects to exercise appraisal rights must mail or deliver
his written demand to: Nicholas F. Moles, Esq., Secretary, Taj Mahal Holding
Corp., c/o Trump Taj Mahal Casino Resort, 1000 The Boardwalk, Atlantic City,
NJ 08401.
The written demand for appraisal must specify the Stockholder's name and
mailing address, the number of Dissenting Shares owned, and a statement that
the Stockholder is thereby demanding appraisal of his Dissenting Shares.
Within ten days after the Effective Time, the Surviving Corporation will
provide notice of the Effective Time to all Stockholders who have complied
with Section 262 of the DGCL. Upon written request, the Surviving Corporation
will furnish each Stockholder who has complied with the requirements of
Section 262 of the DGCL a statement setting forth the aggregate number of
Dissenting Shares not voted in favor of the Merger Agreement with respect to
which demands for appraisal have been received and the aggregate number of
holders of such Dissenting Shares.
Within 120 days after the Effective Time, either the Surviving Corporation
or any Stockholder who has complied with the required conditions of Section
262 of the DGCL may file a petition in the Delaware Court of Chancery (the
"Chancery Court"), with a copy served on the Surviving Corporation in the case
of a petition filed by a Stockholder, demanding a determination of the fair
value of the Dissenting Shares of all dissenting Stockholders. There is no
present intent on the part of THCR to file an appraisal petition and
Stockholders seeking to exercise appraisal rights should not assume that the
Surviving Corporation will file such a petition or that the Surviving
Corporation will initiate any negotiations with respect to the fair value of
the Dissenting Shares. Accordingly, Stockholders who desire to have their
Dissenting Shares appraised should initiate any petitions necessary for the
perfection of their appraisal rights within the time periods and in the manner
prescribed in Section 262 of the DGCL. Within 120 days after the Effective
Time, any Stockholder who has theretofore complied with the applicable
provisions of Section 262 of the DGCL will be entitled, upon written request,
to receive from the Surviving Corporation a statement setting forth the
aggregate number of Dissenting Shares not voting in favor of the Merger
Agreement and with respect to which demands for appraisals were received by
Taj Holding and the number of holders of such Dissenting Shares. Such
statement must be mailed within 10 days after written request therefor has
been received by the Surviving Corporation. Within 20 days of the filing of a
petition by a Stockholder with the Chancery Court, or contemporaneous with the
filing of a petition by the Surviving Corporation, the Surviving Corporation
must file with the Chancery Court a verified list containing the names and
addresses of the Stockholders who have demanded payment for their Dissenting
Shares and with whom agreements as to the value of their Dissenting Shares
have not been reached.
If a petition for appraisal is timely filed, all Stockholders who have
complied with Section 262 of the DGCL will become entitled to such a
determination. The Chancery Court will hold a hearing on such petition through
which it will determine which Stockholders are entitled to appraisal rights
and will appraise the Dissenting Shares owned by such Stockholders. The
Chancery Court may require Stockholders who have demanded an appraisal for the
Dissenting Shares and who hold such Dissenting Shares represented by
certificates to submit their certificates to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings; if any such
Stockholder fails to comply with such direction, the Chancery Court may
dismiss the proceedings as to such Stockholder. Where proceedings are not
dismissed, the appraisal will be based upon the Chancery Court's determination
of the fair value of such Dissenting Shares exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. In determining fair value, the Chancery Court is to take into
account all
85
<PAGE>
relevant factors. In Weinberger v. UOP, Inc., decided in 1983, the Delaware
Supreme Court discussed the factors that could be considered in determining
fair value in an appraisal proceeding, stating that "proof of value by any
techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered
and that "[f]air price obviously requires consideration of all relevant
factors involving the value of a company. . . ." The Delaware Supreme Court
stated that in making this determination of fair value, the court must
consider market value, asset value, dividends, earnings prospects, the nature
of the enterprise and any other facts which could be ascertained as of the
date of the merger which throw any light on future prospects of the merged
corporation. In Weinberger, the Delaware Supreme Court stated that "elements
of future value, including the nature of the enterprise, which are known or
susceptible of proof as of the date of the merger and not the product of
speculation, may be considered." Section 262 of the DGCL, however, provides
that fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Stockholders considering seeking appraisal should recognize that the fair
value of the Dissenting Shares determined under Section 262 of the DGCL could
be more than, the same as or less than the consideration that Stockholders are
entitled to receive pursuant to the Merger Agreement if they do not seek
appraisal of their Dissenting Shares, and opinions of investment banking firms
as to fairness, from a financial point of view, are not opinions as to fair
value under Section 262 of the DGCL. The cost of the appraisal proceeding may
be determined by the Chancery Court and levied against the parties as the
Chancery Court deems equitable in the circumstances, including, if the
Chancery Court found equitable justification therefor, against the Surviving
Corporation or any affiliate thereof which may be a party to the proceeding.
Upon application of a dissenting Stockholder, the Chancery Court may order
that all or a portion of the expenses incurred by any dissenting Stockholder
in connection with the appraisal proceeding, including without limitation,
reasonable attorneys' fees and the fees and expenses of experts, be charged
pro rata against the value of all the Dissenting Shares entitled to appraisal.
In the absence of such a determination or assessment, each party bears its own
expenses.
Any Stockholder who has duly demanded appraisal in compliance with Section
262 of the DGCL will not, after the Effective Time, be entitled to vote his
Dissenting Shares for any purpose, subject to such demand or to receive
payment of dividends or other distributions on such Dissenting Shares, except
for dividends or distributions payable to Stockholders of record at a date
prior to the Effective Time.
At any time within 60 days after the Effective Time, any Stockholder shall
have the right to withdraw such demand for appraisal and to accept the terms
offered in the Merger Agreement; after this period, the Stockholder may
withdraw such demand for appraisal only with the consent of the Surviving
Corporation. If no petition for appraisal is filed with the Chancery Court
within 120 days after the Effective Time, Stockholders' rights to appraisal
shall cease, and all Stockholders shall be entitled to receive only the
consideration provided in the Merger Agreement. Inasmuch as the Surviving
Corporation will have no obligation to file such a petition and THCR has no
present intention to do so, any Stockholder who desires such a petition to be
filed is advised to file it on a timely basis. Any Stockholder may withdraw
such Stockholder's demand for appraisal by delivering to the Surviving
Corporation a written withdrawal of such demand for appraisal and acceptance
of the Merger, except (i) that any such attempt to withdraw made more than 60
days after the Effective Time will require written approval of the Surviving
Corporation and (ii) that no appraisal proceeding in the Chancery Court shall
be dismissed as to any Stockholder without the approval of the Chancery Court,
and such approval may be conditioned upon such terms as the Chancery Court
deems just.
86
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
(I) TRUMP TAJ MAHAL ASSOCIATES AND TRUMP TAJ MAHAL FUNDING, INC.
(II) TRUMP HOTELS & CASINO RESORTS, INC. AND
(III) TRUMP HOTELS & CASINO RESORTS, INC. AND TRUMP TAJ MAHAL ASSOCIATES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Consolidated Balance Sheets of (i) Taj Associates,
(ii) THCR and (iii) THCR and Taj Associates as of September 30, 1995 and the
Unaudited Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1994 and for the nine months ended September 30, 1995 (the
"Unaudited Pro Forma Financial Statements") are set forth below.
The Unaudited Pro Forma Consolidated Balance Sheets have been prepared
assuming the Merger Transaction had occurred on September 30, 1995. The
Unaudited Pro Forma Consolidated Statements of Operations have been prepared
assuming that the Merger Transaction had occurred on January 1, 1994.
The Unaudited Pro Forma Financial Statements are presented for informational
purposes only and do not purport to present what the respective Balance Sheets
would have been had the Merger Transaction, in fact, occurred on September 30,
1995 or what the respective results of operations for the year ended December
31, 1994 and the nine months ended September 30, 1995 would have been had the
Merger Transaction, in fact, occurred on January 1, 1994 or to project the
respective results of operations for any future period.
The Unaudited Pro Forma Consolidated Balance Sheet and Statements of
Operations of Taj Associates included on pages 87 to 91 give effect to (a) the
redemption of the Bonds and the Taj Holding Class B Common Stock, (b) the Taj
Note Offering, (c) the contribution by THCR of the net proceeds of the THCR
Stock Offering to Taj Associates, (d) the "push down" of the purchase
accounting adjustments associated with the Merger to Taj Associates, (e) the
termination of the Taj Services Agreement, (f) the cancellation of payments to
Realty Corp. and First Fidelity in connection with the acquisition of the
Specified Parcels, and (g) the payment to Bankers Trust to obtain releases of
the liens and guarantees that Bankers Trust has with respect to Taj
Associates. The Unaudited Pro Forma Consolidated Balance Sheet and Statements
of Operations of THCR included on pages 92 to 95 give effect to (h) the THCR
Stock Offering and the contribution of the net proceeds therefrom to Taj
Associates as described in (c) above, and the Statement of Operations gives
effect to (i) the June 1995 Offerings which reflect the formation and initial
financing of THCR and THCR Holdings and their acquisition of Trump Plaza and
Trump Indiana. The adjustments referred to in (i) above are required because
the historical audited and historical unaudited financial information included
in this Proxy Statement-Prospects for THCR, for all periods before June 12,
1995, does not give effect to the transactions described in (i) above. The
Unaudited Consolidated Pro Forma Balance Sheet and Consolidated Statements of
Operations of THCR and Taj Associates included on pages 96 to 99 give effect
to the (j) consolidation of Taj Associates, which will be an indirect wholly
owned subsidiary of THCR Holdings after the Merger Transaction. These
Unaudited Pro Forma Financial Statements assume that all holders of Taj
Holding Class A Stock elect to receive Stock Consideration in the Merger; if
this assumption is not accurate the size of the THCR Offering will be
increased to the extent of Cash consideration paid in the Merger (the maximum
THCR Offering size is $140 million).
The Merger is expected to be accounted for as a "purchase" for accounting
and reporting purposes and Trump's contributions of all of his direct and
indirect ownership interests in Taj Associates are expected to be accounted
for using carry over basis accounting.
The Unaudited Pro Forma Financial Statements should be read in conjunction
with the Financial Statements and related notes thereto included elsewhere in
this Proxy Statement-Prospectus and the information set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
THCR" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Taj Associates."
87
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
TRUMP TAJ MAHAL ASSOCIATES AND TRUMP TAJ MAHAL FUNDING, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
ADJUSTMENTS CONTRIBUTION ADJUSTMENTS
TAJ FOR TAJ OF THCR STOCK FOR MERGER
ASSOCIATES NOTE OFFERING PRO FORMA OFFERING PROCEEDS TRANSACTION PRO FORMA
------------ ------------- --------- ----------------- ----------- ---------
(HISTORICAL)
<S> <C> <C> <C> <C> <C> <C>
Current Assets
Cash and cash
equivalents............. $108,769 $750,000 (a) $ 17,927 $87,000(f) $(10,000)(g) $ 44,927
(780,243)(b) (50,000)(h)
(390)(c)
(33,209)(d)
(27,000)(e)
Accounts receivable,
net..................... 15,759 15,759 15,759
Inventories........... 6,950 6,950 6,950
Prepaid expenses and
other current
assets.................. 5,175 5,175 5,175
Investment in THCR
Common Stock......... -- -- -- 10,000 (f) 10,000 (h) --
-------- -------- --------
Total current
assets.................. 136,653 45,811 72,811
Property and
Equipment, net....... 694,602 694,602 43,475 (h) 820,877
40,500 (i)
42,300 (j)
Deferred loan costs... 27,000 (e) 27,000 27,000
Other assets.......... 12,470 12,470 12,470
-------- -------- --------
Total assets........ $843,725 $779,883 $933,158
======== ======== ========
Current Liabilities
Current maturities of
long- term debt....... $ 868 $ 868 $ 868
Accounts payable and
accrued expenses..... 5,880 5,880 5,880
Accrued interest
payable................. 27,441 (27,430)(d) 11 11
Due to affiliates,
net..................... 547 547 547
Other current
liabilities............. 38,303 38,303 38,303
-------- -------- --------
Total current
liabilities............. 73,039 45,609 45,609
Other long-term
liabilities.......... 29,644 (5,779)(d) 23,865 (16,525)(h) 7,340
Bonds, net of
discount................ 643,135 (643,135)(b) -- --
Other long term debt.. 45,008 45,008 45,008
Notes................. -- 750,000(a) 750,000 750,000
-------- -------- -------- --------
Total Liabilities... 790,826 864,482 847,957
Capital:
Contributed Capital... 123,765 123,765 87,000(f) (10,000)(g) 85,201
40,500 (i)
(166,064)(k)
Accumulated Deficit... (70,866) (137,108)(b) (208,364) 42,300 (j) --
(390)(c) 166,064 (k)
-------- -------- --------
Total capital......... 52,899 (84,599) 85,201
-------- -------- --------
Total Liabilities
and Capital........ $843,725 $779,883 $933,158
======== ======== ========
</TABLE>
88
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
TRUMP TAJ MAHAL ASSOCIATES AND TRUMP TAJ MAHAL FUNDING, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS
TAJ FOR TAJ FOR MERGER
ASSOCIATES NOTE OFFERING PRO FORMA TRANSACTION PRO FORMA
------------ -------------- --------- ----------- ---------
(HISTORICAL)
<S> <C> <C> <C> <C> <C>
Revenues:
Gaming................ $461,622 $461,622 $461,622
Rooms................. 41,815 41,815 41,815
Food and Beverage..... 58,029 58,029 58,029
Other................. 17,894 17,894 17,894
-------- -------- --------
Gross Revenues...... 579,360 579,360 579,360
Less--Promotional
Allowances.............. 62,178 62,178 62,178
-------- -------- --------
Net Revenues........ 517,182 517,182 517,182
-------- -------- --------
Cost and Expenses:
Gaming................ 260,472 260,472 260,472
Rooms................. 15,662 15,662 15,662
Food and Beverage..... 25,035 25,035 25,035
General and
Administrative.......... 99,629 $(2,725)(h) 96,904 $(1,353)(m) 95,551
Depreciation and
Amortization............ 39,750 373 (h) 40,123 2,247 (n) 42,370
-------- -------- --------
440,548 438,196 439,090
-------- -------- --------
Income from
Operations.............. 76,634 78,986 78,092
Interest Income....... 2,019 2,019 2,019
Interest Expense...... (115,311) 17,275(l) (98,036) (98,036)
-------- -------- --------
Loss before
Extraordinary Loss...... $(36,658) $(17,031)(o) $(17,925)(o)
======== ======== ========
</TABLE>
89
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND TRUMP TAJ MAHAL FUNDING, INC. PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS FOR ADJUSTMENTS
TAJ TAJ FOR MERGER
ASSOCIATES NOTE OFFERING PRO FORMA TRANSACTION PRO FORMA
------------ --------------- --------- ----------- ---------
(HISTORICAL)
<S> <C> <C> <C> <C> <C>
Revenues:
Gaming................ $377,368 $377,368 $377,368
Rooms................. 33,035 33,035 33,035
Food and Beverage..... 42,933 42,933 42,933
Other................. 11,479 11,479 11,479
-------- -------- --------
Gross Revenues...... 464,815 464,815 464,815
Less--Promotional
Allowances.............. 47,519 47,519 47,519
-------- -------- --------
Net Revenues........ 417,296 417,296 417,296
-------- -------- --------
Cost and Expenses:
Gaming................ 208,671 208,671 208,671
Rooms................. 11,500 11,500 11,500
Food and Beverage..... 18,597 18,597 18,597
General and
Administrative.......... 73,717 $(2,044)(h) 71,673 $1,296(m) 70,377
Depreciation and
Amortization............ 32,407 280 (h) 32,687 1,686(n) 34,373
-------- -------- --------
344,892 343,128 343,518
-------- -------- --------
Income from
Operations.............. 72,404 74,168 73,778
Interest Income....... 2,752 2,752 2,752
Interest Expense...... (88,864) 15,839(l) (73,025) (73,025)
-------- -------- --------
Income (loss) before
Extraordinary Loss...... $(13,708) $ 3,895(o) $ 3,505(o)
======== ======== ========
</TABLE>
90
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION (DOLLARS IN THOUSANDS)
PRO FORMA ADJUSTMENTS:
(a) To record the issuance of $750,000 aggregate principal amount of Taj
Mortgage Notes with interest at a rate of 12%. The Taj Mortgage Notes
are assumed to be issued at face value.
(b) To record the redemption of the Bonds which had a face value of
$780,243 and a book value of $643,135 as of September 30, 1995, and an
extraordinary loss of $137,498 relating to the redemption of the Bonds
including the redemption of the Taj Holding Class B Common Stock (see
note (c) below).
(c) To record the payment of $.50 for the redemption of each share of Taj
Holding Class B Common Stock as an extraordinary loss.
(d) To record the payment of accrued interest on the redemption of the
Bonds as of September 30, 1995.
(e) To record the payment of transaction expenses which are expected to be
approximately $27,000 and consist of the following:
<TABLE>
<S> <C>
Financial advisory fees and expenses................................ $
Underwriting discounts and commissions..............................
SEC filing fee......................................................
New York Stock Exchange listing fee.................................
Legal fees and expenses.............................................
Accounting fees and expenses........................................
Printing and engraving expenses.....................................
Proxy solicitation, distribution and Exchange Agent fees............
Blue Sky fees.......................................................
Miscellaneous.......................................................
Total.............................................................
</TABLE>
(f) To record the net proceeds from the THCR Stock Offering and the
issuance of the common stock for the purchase of the Specified Parcels,
which will be subsequently contributed to Taj Associates.
(g) To record the payment to Bankers Trust to obtain releases of the liens
and guarantees that Bankers Trust has with respect to Taj Associates.
(h) To record the purchase of the Specified Parcels and the release of the
Taj Associates-First Fidelity Guarantee, the elimination of the lease
payments on the Specified Parcels and the additional depreciation on
the purchase.
(i) To record the purchase of the Taj Holding Class A Common Stock by THCR
which is being pushed down to the Taj Mahal's books as an adjustment to
property plant and equipment.
(j) To record 50% of the historical negative book value of Taj Associates,
as adjusted for the pro forma extraordinary loss on the redemption of
the Bonds, as part of the push down of the cost of the purchase of the
Taj Holding Class A Common Stock by THCR. No adjustment is required for
Trump's 50% interest since his contribution is recorded using the carry
over basis of accounting.
(k) To eliminate the capital deficit of the Taj Mahal as a result of the
push down of the cost of the purchase of Taj Holding Class A Common
Stock by THCR. This adjustment represents the accumulated deficit after
the adjustments for the Taj Note Offering of $208,364 less the $42,300
as described in footnote (j).
91
<PAGE>
(l) To record adjustments to historical interest expense to give effect to the
Merger Transaction as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 SEPTEMBER 30, 1995
----------------- ------------------
<S> <C> <C>
Historical interest expense $ 115,311 $ 88,864
(i)Elimination of interest and discount
accretion on Bonds..................... (105,141) (82,264)
(ii)Elimination of the interest on the
Realty Corp. obligation................ (2,047) (1,748)
(iii)Elimination of refinancing trans-
action expenses........................ (2,787) (1,352)
(iv)Reflect Taj Mortgage Note inter-
est.................................... 90,000 67,500
(v)Reflect amortization of deferred
loan costs............................. 2,700 2,025
--------- --------
Pro Forma Adjustment................... $ (17,275) $(15,839)
========= ========
Pro Forma Interest Expense............. $ 98,036 $ 73,025
========= ========
</TABLE>
A 0.25% increase in the interest rate on the Taj Notes would result in a
$1,875 and a $1,406 increase in interest expense for the year ended December
31, 1994 and the nine months ended September 30, 1995, respectively.
(m) To record the elimination of the fee resulting from the termination of the
Taj Services Agreement.
(n) To record the additional depreciation expense resulting from the
allocation of the purchase price to property and equipment. The purchase
price is being allocated as follows: $47,615 to land and $78,660 to
building based upon an appraisal and the amount allocated to building is
being depreciated over the remaining life of the building (35 years).
(o) Excludes the effect of the extraordinary loss of $137,498 upon the
redemption of the Bonds. See notes (b) and (c).
92
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
TRUMP HOTELS & CASINO RESORTS, INC. PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
THCR ADJUSTMENTS PRO FORMA
------------ ----------- ---------
(HISTORICAL)
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents.............. $ 23,357 $ (500)(a) $ 22,857
Restricted cash........................ 24,225 24,225
Accounts receivable, net............... 13,074 13,074
Inventories............................ 2,598 2,598
Other current assets................... 5,497 5,497
-------- --------
Total current assets................. 68,751 68,251
Investment in Taj Associates............. -- 40,500 (a) 137,500
97,000 (b)
Property and Equipment, net.............. 399,922 399,922
Land rights.............................. 29,412 29,412
Cash restricted for future construction.. 71,750 71,750
Note receivable.......................... 3,091 3,091
Deferred loan costs, net................. 9,855 9,855
Other assets............................. 16,634 16,634
-------- --------
Total assets......................... $599,415 $736,415
======== ========
Current Liabilities
Current maturities of long-term debt... $ 2,100 $ 2,100
Accounts payable and accrued expenses.. 31,946 31,946
Accrued interest payable............... 17,743 17,743
Due to affiliates, net................. 403 403
Other current liabilities.............. -- --
-------- --------
Total current liabilities............ 52,192 52,192
Long-term debt, net of discount and
current maturities....................... 486,655 486,655
Deferred income taxes.................... 5,173 5,173
-------- --------
Total Liabilities.................... 544,020 544,020
Minority interest........................ 1,668 1,668
Capital:
Common Stock........................... 101 75 (a,b) 176
Additional paid in capital............. 52,327 39,980 (a) 189,252
96,945 (b)
Retained earnings...................... 1,299 1,299
-------- --------
Total Capital........................ 53,727 190,727
-------- --------
Total Liabilities and Capital........ $599,415 $736,415
======== ========
</TABLE>
93
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
TRUMP HOTELS & CASINO RESORTS, INC. PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------
PLAZA TRUMP
HOLDING INDIANA
THCR AND PLAZA AND OTHER PRO FORMA
(PARENT CO. ONLY) ASSOCIATES JURISDICTIONS COMBINED ADJUSTMENTS PRO FORMA
----------------- ---------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Gaming................ -- $261,451 -- $261,451 $261,451
Rooms................. -- 18,312 -- 18,312 18,312
Food and Beverage..... -- 40,149 -- 40,149 40,149
Other................. -- 8,408 -- 8,408 8,408
----- -------- ------- -------- --------
Gross Revenues...... -- 328,320 -- 328,320 328,320
Less--Promotional
Allowances........... -- 33,257 -- 33,257 33,257
----- -------- ------- -------- --------
Net Revenues........ -- 295,063 -- 295,063 295,063
----- -------- ------- -------- --------
Cost and Expenses:
Gaming................ -- 139,540 -- 139,540 139,540
Rooms................. -- 2,715 -- 2,715 2,715
Food and Beverage..... -- 17,050 -- 17,050 17,050
General and
Administrative....... -- 73,075 $ 25 73,100 $ 5,933 (c) 79,033
Depreciation and
Amortization......... -- 15,653 -- 15,653 15,653
Other................. -- 3,615 -- 3,615 3,615
----- -------- ------- -------- --------
-- 251,648 25 251,673 257,606
----- -------- ------- -------- --------
Income (loss) from
Operations........... -- 43,415 (25) 43,390 37,457
Interest Income....... -- 842 7 849 300 (d) 1,149
Interest Expense...... -- (49,061) (3,192) (52,253) (24,025)(e) (68,230)
(714)(f)
9,777 (g)
(1,015)(h)
Other non-operating
expense.............. -- (4,931) -- (4,931) (4,931)
----- -------- ------- -------- --------
Loss before state income
taxes, minority
interest and
extraordinary loss..... -- (9,735) (3,210) (12,945) (34,555)
Benefit for state income
taxes.................. -- (865) -- (865) (865)
----- -------- ------- -------- --------
Loss before minority
interest and
extraordinary loss..... -- (8,870) (3,210) (12,080) (33,690)
Minority Interest....... -- -- -- -- --
----- -------- ------- -------- --------
Loss before
extraordinary loss..... -- $ (8,870) $(3,210) $(12,080) $(33,690)
===== ======== ======= ======== ========
</TABLE>
94
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
TRUMP HOTELS & CASINO RESORTS, INC. PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------
NINE MONTHS
ENDED
FROM INCEPTION DATE (JUNE 12, 1995) SEPTEMBER 30,
THROUGH SEPTEMBER 30, 1995 1995
------------------------------------- -------------
THCR TRUMP
THCR HOLDINGS INDIANA PLAZA HOLDING
(PARENT CO. (PARENT CO. AND OTHER AND PLAZA PRO FORMA
ONLY) ONLY) JURISDICTIONS ASSOCIATES COMBINED ADJUSTMENTS PRO FORMA
----------- ----------- ------------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Gaming................. -- -- -- $224,499 $224,499 $224,499
Rooms.................. -- -- -- 14,671 14,671 14,671
Food and Beverage...... -- -- -- 33,403 33,403 33,403
Other.................. -- -- -- 7,187 7,187 7,187
------- ------- ----- -------- -------- --------
Gross Revenues......... -- -- -- 279,760 279,760 279,760
Less--Promotional
Allowances............ -- -- -- 28,611 28,611 28,611
------- ------- ----- -------- -------- --------
Net Revenues........... -- -- -- 251,149 251,149 251,149
------- ------- ----- -------- -------- --------
Cost and Expenses:
Gaming................. -- -- -- 121,987 121,987 121,987
Rooms.................. -- -- -- 1,741 1,741 1,741
Food and Beverage...... -- -- -- 13,783 13,783 13,783
General and
Administrative........ $ 1,202 $ 1,371 $ 393 51,073 54,039 $ 2,294 (c) 56,333
Depreciation and
Amortization.......... -- -- -- 11,792 11,792 11,792
Other.................. -- -- -- 2,556 2,556 2,556
------- ------- ----- -------- -------- --------
1,202 1,371 393 202,932 205,898 208,192
------- ------- ----- -------- -------- --------
Income (loss) from
Operations............ (1.202) (1,371) (393) 48,217 45,251 42,957
Interest Income........ -- 2,075 -- 689 2,764 134 (d) 2,898
Interest Expense....... -- (7,572) -- (34,419) (41,991) (10,745)(e) (48,857)
(536)(f)
4,878 (g)
(463)(h)
Other non-operating
expense............... -- -- -- (3,847) (3,847) (3,847)
------- ------- ----- -------- -------- --------
Income (loss) before
state income taxes,
minority interest and
extraordinary loss..... (1,202) (6,868) (393) 10,640 2,177 (6,849)
Provision for state
income taxes........... -- -- -- 993 993 993
------- ------- ----- -------- -------- --------
Income (loss) before
minority interest and
extraordinary loss..... (1,202) (6,868) (393) 9,647 1,184 (7,842)
Minority interest....... -- -- -- -- (1,668) 1,668 (i) --
------- ------- ----- -------- -------- --------
Income (loss) before
extraordinary loss..... $(1,202) $(6,868) $(393) $ 9,647 $ (484) $ (7,842)
======= ======= ===== ======== ======== ========
</TABLE>
95
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
PRO FORMA ADJUSTMENTS:
THCR and THCR Holdings were formed in March 1995 and commenced operations on
June 12, 1995 with the consummation of the June 1995 Stock Offering and the
June 1995 Note Offering.
(a) To record the purchase of Taj Holding Class A Common Stock through the
issuance of THCR Common Stock and with available cash.
(b) To record the proceeds from the THCR Stock Offering which will be
subsequently contributed to Taj Associates, net of transaction expenses
which are expected to be approximately $13,000 and consist of the
following:
<TABLE>
<S> <C>
Financial advisory fees and expenses................................. $
Underwriting discounts and commissions...............................
New York Stock Exchange listing fee..................................
SEC filing fees......................................................
Legal fees and expenses..............................................
Accounting fees and expenses.........................................
Printing and engraving expenses......................................
Proxy solicitation, distribution and Exchange Agent fees.............
Blue Sky fees........................................................
Miscellaneous........................................................
----
Total.............................................................. $
====
</TABLE>
(c) To record additional general and administrative expenses relating to the
operations of THCR Holdings, Trump Indiana and THCR.
(d) To record interest income on a $3,000 note receivable from Trump at prime
plus 1%.
(e) To record interest expense relating to the Senior Notes.
(f) To reflect interest expense on amounts obtained under the equipment and
vessel financing line. To date, THCR has obtained a commitment for $15,000
and has obtained advances of $6,800 at a rate of 10.5%. Although THCR
expects to borrow additional amounts, no assurances can be given that such
financing will be available.
(g) To eliminate interest expense (including amortization of deferred
financing costs) on the PIK Notes which were redeemed with the proceeds
from the offering of the June 1995 Stock Offering.
(h) To reflect the amortization of deferred financing costs associated with
the Senior Notes.
(i) To eliminate minority interest as pro forma adjustments result in a loss
at THCR Holdings and there is no minority interest basis on the THCR
Balance Sheet.
96
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
TRUMP HOTELS & CASINO RESORTS, INC. AND TRUMP TAJ MAHAL ASSOCIATES PRO FORMA
CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
-------------------
ELIMINATION
AND
TAJ PRO FORMA
THCR ASSOCIATES ADJUSTMENTS PRO FORMA
-------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents....... $ 22,857 $ 44,927 $ 67,784
Restricted cash................. 24,225 -- 24,225
Accounts receivable, net........ 13,074 15,759 28,833
Inventories..................... 2,598 6,950 9,548
Other current assets............ 5,497 5,175 10,672
-------- -------- ----------
Total current assets.......... 68,251 72,811 141,062
Investment in Taj Associates...... 137,500 -- $(97,000)(a) --
(40,500)(b)
Property and Equipment, net....... 399,922 820,877 1,220,799
Land rights....................... 29,412 -- 29,412
Cash restricted for future
construction...................... 71,750 -- 71,750
Note receivable................... 3,091 -- 3,091
Deferred loan costs, net.......... 9,855 27,000 36,855
Other assets...................... 16,634 12,470 29,104
-------- -------- ----------
Total assets.................. $736,415 $933,158 $1,532,073
======== ======== ==========
Current Liabilities
Current maturities of long-term
debt.............................. $ 2,100 $ 868 $ 2,968
Accounts payable and accrued
expenses.......................... 31,946 5,880 37,826
Accrued interest payable........ 17,743 11 17,754
Due to affiliates, net.......... 403 547 950
Other current liabilities....... -- 38,303 38,303
-------- -------- ----------
Total current liabilities..... 52,192 45,609 97,801
Other long-term liabilities....... 7,340 7,340
Long-term debt, net of discount
and current maturities............ 486,655 795,008 1,281,663
Deferred income taxes............. 5,173 -- 5,173
-------- -------- ----------
Total Liabilities............. 544,020 847,957 1,391,977
Minority interest................. 1,668 -- 1,668
Capital:
Common Stock.................... 176 176
Additional paid in capital...... 189,252 85,201 (97,000)(a) 136,953
(40,500)(b)
Retained earnings .............. 1,299 -- 1,299
-------- -------- ----------
Total Capital................. 190,727 85,201 138,428
-------- -------- ----------
Total Liabilities and Capital. $736,415 $933,158 $1,532,073
======== ======== ==========
</TABLE>
97
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
TRUMP HOTELS & CASINO RESORTS, INC. AND TRUMP TAJ MAHAL ASSOCIATES PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PRO FORMA
--------------------
TAJ PRO FORMA
THCR ASSOCIATES ADJUSTMENTS PRO FORMA
-------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Gaming................... $261,451 $461,622 $ 723,073
Rooms.................... 18,312 41,815 60,127
Food and Beverage........ 40,149 58,029 98,178
Other.................... 8,408 17,894 26,302
-------- -------- -----------
Gross Revenues......... 328,320 579,360 907,680
Less--Promotional
Allowances................. 33,257 62,178 95,435
-------- -------- -----------
Net Revenues........... 295,063 517,182 812,245
-------- -------- -----------
Cost and Expenses:
Gaming................... 139,540 260,472 400,012
Rooms.................... 2,715 15,662 18,377
Food and Beverage........ 17,050 25,035 42,085
General and
Administrative............. 79,033 95,551 174,584
Depreciation and
Amortization............... 15,653 42,370 58,023
Other.................... 3,615 -- 3,615
-------- -------- -----------
257,606 439,090 696,696
-------- -------- -----------
Income from Operations... 37,457 78,092 115,549
Interest Income.......... 1,149 2,019 3,168
Interest Expense......... (68,230) (98,036) (166,266)
Other non-operating
expenses................... (4,931) -- (4,931)
-------- -------- -----------
Loss before state income
taxes and extraordinary
loss....................... (34,555) (17,925) (52,480)
Benefit for state income
taxes...................... (865) -- (865)
-------- -------- -----------
Loss before extraordinary
loss (d)................... $(33,690) $(17,925)(e) $ (51,615)(e)
======== ======== === ===========
Loss per share before
extraordinary loss......... $ (2.93)
===========
Weighted Average Shares
Outstanding (c)............ $17,633,333
===========
</TABLE>
98
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
TRUMP HOTELS & CASINO RESORTS, INC. AND TRUMP TAJ MAHAL ASSOCIATES PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PRO FORMA
---------------------
TAJ PRO FORMA
THCR ASSOCIATES ADJUSTMENTS PRO FORMA
--------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Gaming.................. $ 224,499 $ 377,368 $ 601,867
Rooms................... 14,671 33,035 47,706
Food and Beverage....... 33,403 42,933 76,336
Other................... 7,187 11,479 18,666
--------- --------- ------------
Gross Revenues........ 279,760 464,815 744,575
Less--Promotional
Allowances................ 28,611 47,519 76,130
--------- --------- ------------
Net Revenues.......... 251,149 417,296 668,445
--------- --------- ------------
Cost and Expenses:
Gaming.................. 121,987 208,671 330,658
Rooms................... 1,741 11,500 13,241
Food and Beverage....... 13,783 18,597 32,380
General and
Administrative............ 56,333 70,377 126,710
Depreciation and
Amortization.............. 11,792 34,373 46,165
Other................... 2,556 -- 2,556
--------- --------- ------------
208,192 343,518 551,710
--------- --------- ------------
Income from Operations.. 42,957 73,778 116,735
Interest Income......... 2,898 2,752 5,650
Interest Expense........ (48,857) (73,025) (121,882)
Other non-operating
expenses.................. (3,847) -- (3,847)
--------- --------- ------------
Income (loss) before state
income taxes and
extraordinary loss....... (6,849) 3,505 (3,344)
Provision for state income
taxes..................... 993 -- 993
--------- --------- ------------
Income (loss) before
extraordinary loss (d).... $ (7,842) $ 3,505(e) $ (4,337)(e)
========= ========= ============
Loss per share before
extraordinary loss........ $ (0.25)
============
Weighed Average Shares
Outstanding (c)........... $ 17,633,333
============
</TABLE>
99
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
PRO FORMA ADJUSTMENTS:
(a) To record the elimination of THCR's investment in the Taj Mahal
resulting from the contribution of the proceeds of the THCR Stock
Offering to Taj Associates.
(b) To record the elimination of THCR's investment in the Taj Mahal
resulting from the purchase of Taj Holding Class A Common Stock.
(c) Weighted average number of shares include the number of shares
outstanding on September 30, 1995, shares awarded to the Chief
Executive Officer pursuant to the 1995 Stock Incentive Plan and the
shares to be issued in this offering.
(d) No amounts attributable to the minority interest in THCR Holdings have
been recorded since there is no minority interest basis on the balance
sheet of THCR to absorb such losses.
(e) Excludes the extraordinary loss upon the redemption of the Bonds and
the Taj Holding Class B Common Stock.
100
<PAGE>
SELECTED HISTORICAL
FINANCIAL INFORMATION OF THCR
The following table sets forth certain historical consolidated financial
information of Plaza Associates and Plaza Holding (predecessors of THCR) for
each of the five years ended December 31, 1990 through 1994 and for the nine-
month period ended September 30, 1994 and certain historical consolidated
financial information of THCR for the period from inception (June 12, 1995) to
September 30, 1995 (unaudited) (See Note 1 below). The historical financial
information of Plaza Holding and Plaza Associates as of December 31, 1993 and
1994 and for the years ended December 31, 1992, 1993 and 1994 as set forth
below has been derived from the audited consolidated financial statements of
Plaza Holding and Plaza Associates included elsewhere in this Proxy Statement-
Prospectus. The historical financial information of Plaza Holding and Plaza
Associates as of December 31, 1990, 1991 and 1992 and for the years ended
December 31, 1990 and 1991 as set forth below has been derived from the
audited consolidated financial statements of Plaza Holding and Plaza
Associates not included in this Proxy Statement-Prospectus.
The unaudited financial information as of September 30, 1994 and 1995 and
the periods then ended has been derived from the unaudited condensed
consolidated financial statements included elsewhere in this Proxy Statement-
Prospectus and in the opinion of management, includes all adjustments,
consisting of only normal, recurring adjustments, necessary to present fairly
the financial position, results of operations and changes in cash flows for
the periods presented. The results of these interim periods are not
necessarily indicative of the operating results for a full year. All financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations of THCR," "Unaudited
Pro Forma Financial Information" and the consolidated and condensed financial
statements and the related notes thereto included elsewhere in this Proxy
Statement-Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS FROM INCEPTION
ENDED JUNE 12, 1995 TO
SEPTEMBER SEPTEMBER 30, 1995
YEARS ENDED DECEMBER 31, 30, (NOTE 1)
------------------------------------------------ ----------- ------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- ----------- ------------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Gaming................. $276,932 $233,265 $265,448 $264,081 $261,451 $197,068 $101,634
Other.................. 87,286 66,411 73,270 69,203 66,869 50,128 25,738
Trump World's Fair..... -- 11,547 9,465 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Gross revenues......... 364,218 311,223 348,183 333,284 328,320 247,196 127,372
Promotional allowances. 44,281 31,539 34,865 32,793 33,257 25,130 14,071
-------- -------- -------- -------- -------- -------- --------
Net revenues........... 319,937 279,684 313,318 300,491 295,063 222,066 113,301
Costs and expenses:
Gaming................. 178,356 133,547 146,328 136,895 139,540 104,100 52,681
Other.................. 26,331 23,404 23,670 24,778 23,380 17,352 8,596
General and
administrative........ 76,057 69,631 75,459 71,624 73,075 53,933 23,799
Depreciation and
amortization.......... 16,725 16,193 15,842 17,554 15,653 11,734 5,091
Restructuring charges.. -- 943 5,177 -- -- -- --
Trump World's Fair..... 3,359 19,879 11,839 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total costs and
expenses.............. 300,828 263,597 278,315 250,851 251,648 187,119 90,167
-------- -------- -------- -------- -------- -------- --------
Income from operations.. 19,109 16,087 35,003 49,640 43,415 34,947 23,134
-------- -------- -------- -------- -------- -------- --------
Interest expense, net... 33,128 33,363 31,356 39,889 48,219 36,051 16,816
Other non-operating
(income) expense(a).... (2,400) 14,818 1,462 3,873 4,931 4,724 2,198
Extraordinary (loss)
gain................... -- -- (38,205) 4,120 -- -- --
Provision (benefit) for
income taxes........... (1,028) (2,864) (233) 660 (865) (523) 1,153
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $(10,591) $(29,230) $(35,787) $ 9,338 $ (8,870) $ (5,305) $ 1,299
======== ======== ======== ======== ======== ======== ========
Net income per common
share(b)............... $.13
====
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and cash
equivalents............ $ 10,005 $ 10,474 $ 18,802 $ 14,393 $ 11,144 $ 22,159 $ 23,357
Property and equipment,
net.................... 316,595 306,834 300,266 293,141 298,354 296,300 399,922
Total assets............ 395,775 378,398 370,349 374,498 375,643 386,080 599,415
Total long-term debt,
net of current
maturities(c).......... 247,048 33,326 249,723 395,948 403,214 398,644 486,655
Preferred partnership
interest............... -- -- 58,092 -- -- -- --
Total capital (deficit). 83,273 54,043 11,362 (54,710) (63,580) (60,068) 53,727
</TABLE>
- ------------------
Note 1: THCR was incorporated on March 28, 1995 and conducted no operations
until the June 1995 Stock Offering and contributed the proceeds therefrom to
THCR Holdings in exchange for an approximately 60% general partnership
interest in THCR Holdings. At the consummation of the June 1995 Stock
Offering, Trump contributed his 100% beneficial interest in Plaza Funding,
Plaza Holding and Plaza Associates, the owner and operator of Trump Plaza,
to THCR Holdings for an approximately 40% limited partnership interest in
THCR Holdings. In addition, Trump contributed to THCR Holdings all of his
existing interests and rights to new gaming activities in both emerging and
established gaming jurisdictions, including Trump Indiana. The financial
data as of September 30, 1995 and for the period ended September 30, 1995
reflect the operations of THCR from inception (June 12, 1995) to September
30, 1995.
101
<PAGE>
(a) Other non-operating (income) expense for the year ended December 31, 1990
includes income of $2.4 million resulting from the settlement of a lawsuit
relating to a boxing match. Other non-operating (income) expense for the
year ended December 31, 1991 includes a $10.9 million charge associated
with the rejection of the lease associated with the former Trump Regency
Hotel and $4.0 million of costs associated with certain litigation. Other
non-operating (income) expense for 1992 includes $1.5 million of costs
associated with certain litigation. Other non-operating (income) expense
for the years ended December 31, 1993 and 1994 and for the nine months
ended September 30, 1994 and 1995 includes $3.9, $4.9, 3.7 and 1.3
million, respectively, of real estate taxes and leasing costs associated
with Trump Plaza East.
(b) Earnings per share is based on the weighted average number of shares of
THCR Common Stock and common stock equivalents including shares awarded to
the Chief Executive Officer under a phantom stock unit award. The shares
of THCR Class B Common Stock owned by Trump have no economic interest and,
therefore, are not considered.
(c) Reflects reclassification in 1991 of indebtedness relating to outstanding
mortgage bonds as a current liability due to then existing events of
default.
102
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THCR
GENERAL
Set forth below is a discussion and analysis of the financial condition and
results of operations of Plaza Associates, which THCR Holdings acquired in
June 1995. Neither THCR nor any of its subsidiaries has any significant
operating history, other than Plaza Associates. The partnership agreement
governing THCR Holdings provides that all business activities of THCR must be
conducted through THCR Holdings or subsidiary partnerships or corporations.
RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND
1994
Gaming revenues were $224,499,000 for the nine months ended September 30,
1995, an increase of $27,431,000 or 13.9% from gaming revenues of $197,068,000
for the comparable period in 1994. This increase in gaming revenues consisted
of an increase in both table games and slot revenues. While the first nine
months of 1994 were adversely affected by unfavorable winter weather,
construction and management turnover, management believes that the increase in
gaming revenues in 1995 is also due to an increased level of demand evident in
the Atlantic City market generally, as well as management's marketing and
other initiatives, the introduction of new slot machines and table games, the
addition of bill acceptors on slot machines, and an increase in casino floor
square footage.
Slot revenues were $152,318,000 for the nine months ended September 30,
1995, an increase of $24,534,000 or 19.2% from slot revenues of $127,784,000
for the comparable period in 1994. This increase was primarily due to an
increase in casino floor square footage and the introduction of new slot
machines, as well as management's marketing and other initiatives.
Table games revenues were $72,181,000 for the nine months ended September
30, 1995, an increase of $2,897,000 or 4.2% from table games revenues of
$69,284,000 for the comparable period in 1994. Table games drop (i.e., the
dollar value of chips purchased) increased by 5.0% for the nine months ended
September 30, 1995 from 1994.
Other revenues were $55,261,000 for the nine months ended September 30,
1995, an increase of $5,133,000 or 10.2% from other revenues of $50,128,000
for the comparable period in 1994. Other revenues include revenues from rooms,
food, beverage and miscellaneous items. The increase primarily reflects
increases in food and beverage revenues attendant to increased levels of
gaming activity and increased promotional expenses.
Promotional allowances were $28,611,000 for the nine months ended September
30, 1995, an increase of $3,481,000 or 13.9% from promotional allowances of
$25,130,000 for the comparable period in 1994. This increase is primarily
attributable to an increase in gaming activity during the nine months ended
September 30, 1995.
Gaming costs and expenses were $121,987,000 for the nine months ended
September 30, 1995, an increase of $17,887,000 or 17.2% from gaming costs and
expenses of $104,100,000 for the comparable period in 1994. This increase was
primarily due to increased promotional and operating expense and taxes
associated with increased levels of gaming revenues during the nine months
ended September 30, 1995.
General and administrative expenses were $51,073,000 for the nine months
ended September 30, 1995, a decrease of $3,855,000 or 7.0% from general and
administrative expenses of $54,928,000 for the comparable period in 1994. This
decrease is primarily the result of cost containment measures.
Income from operations was $48,217,000 for the nine months ended September
30, 1995, an increase of $14,265,000 or 42.0% from income from operations of
$33,952,000 for the comparable period in 1994.
103
<PAGE>
Other non-operating expense was $3,847,000 for the nine months ended
September 30, 1995, an increase of $118,000 from other non-operating expense
of $3,729,000 for the comparable period in 1994. This increase is attributable
to costs associated with Trump Plaza East.
The extraordinary loss of $9,250,000 for the nine months ended September 30,
1995 relates to the redemption and write-off of unamortized deferred financing
costs relating to the repurchase and redemption on June 12, 1995 of all of the
12 1/2% Pay-in-Kind Notes due 2003 of Plaza Holding (the "PIK Notes") and
related warrants to acquire PIK Notes (the "PIK Note Warrants").
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
Gaming revenues were $261.5 million for the year ended December 31, 1994, a
decrease of $2.6 million or 1.0% from gaming revenues of $264.1 million in
1993, although gaming revenues increased for the industry generally in
Atlantic City for the year ended December 31, 1994 compared to the year ended
December 31, 1993. This decrease in gaming revenues consisted of a reduction
in both table games and slot revenues. These results were impacted by a number
of major ice and snow storms throughout the northeastern United States, during
the three months ended March 31, 1994 which severely restricted travel in the
region. Bad weather also impacted the Atlantic City market's results for the
three months ended March 31, 1993; however, the weather during the comparable
period in 1994 was much more severe. The decrease in gaming revenues was also
due in part to disruptions caused by an expansion of the casino floor which
created operating inefficiencies by temporarily disrupting the normal flow of
patrons upon entrance to the casino, as well as detracting from the overall
appearance of the casino floor. Also, in 1994 Trump Plaza experienced turnover
of certain key management positions which had a negative impact on operations.
This negative impact was mitigated by the end of 1994 as new management was
hired and began implementing new policies and marketing programs. See
"Business of THCR--Trump Plaza--Trump Plaza Business Strategy" and "Management
of THCR--Employment Agreements."
Slot revenues were $168.7 million for the year ended December 31, 1994, a
decrease of $1.8 million or 1.1% from slot revenues of $170.5 million in 1993.
This decrease was due in part to the sensitivity of slot revenues to certain
of the factors specified in the foregoing paragraph. Plaza Associates elected
to discontinue certain progressive slot programs, thereby reversing certain
accruals into revenue which had the effect of improving slot revenue by $0.6
million for the year ended December 31, 1994.
Table games revenues were $92.8 million for the year ended December 31,
1994, a decrease of $0.8 million or 0.9% from table games revenues of $93.6
million in 1993. This decrease was primarily due to a reduction in table games
drop by $26.7 million or 4.3% for the year ended December 31, 1994 from 1993,
offset by an increase in the table game hold percentage (the percentage of
table drop retained by Plaza Associates) to 15.5% for the year ended December
31, 1994 from 14.9% in 1993.
During the year ended December 31, 1994, gaming credit extended to customers
was approximately 17% of overall table play, a decrease of 1% from 1993. At
December 31, 1994, gaming receivables amounted to approximately $13.7 million,
a decrease of approximately $2.3 million from 1993, with allowances for
doubtful gaming receivables of approximately $8.5 million, a decrease of
approximately $1.9 million from 1993.
Other revenues were $66.9 million for the year ended December 31, 1994, a
decrease of $2.3 million or 3.3% from other revenues of $69.2 million in 1993.
This decrease in other revenues primarily reflects decreases in food and
beverage revenue resulting from changes in bus couponing.
Promotional allowances were $33.3 million for the year ended December 31,
1994, an increase of $0.5 million or 1.5% from $32.8 million in 1993. This
increase is attributable to increased marketing and promotional activities.
Gaming costs and expenses were $139.5 million for the year ended December
31, 1994, an increase of $2.6 million or 1.9% from gaming costs and expenses
of $136.9 million in 1993. This increase was primarily due to
104
<PAGE>
increased marketing costs instituted toward the end of 1994. These marketing
programs consisted of increased bus programs and direct marketing activities.
The increase in marketing costs was offset by decreased gaming taxes
associated with the decreased levels of gaming activity and revenues from
1993.
General and administrative expenses were $73.1 for the year ended December
31, 1994, an increase of $1.5 million or 2.1% from general and administrative
expenses of $71.6 million in 1993. This increase resulted primarily from $1.1
million in cash associated with donations to the New Jersey Casino
Reinvestment Development Authority (the "CRDA") for the year ended December
31, 1994.
Income from operations was $43.4 million for the year ended December 31,
1994, a decrease of $6.2 million or 12.5% from income from operations of $49.6
million for 1993.
Net interest expense was $48.2 million for the year ended December 31, 1994,
an increase of $8.3 million or 20.8% from net interest expense of $39.9
million in 1993. This increase is primarily attributable to increased interest
expenses associated with the Plaza Mortgage Notes and the PIK Notes which were
outstanding for all of 1994.
Other non-operating expense was $4.9 million (including $3.1 million of
leasing costs) for the year ended December 31, 1994, an increase of $1.0
million or 25.6% from other non-operating expense of $3.9 million in 1993.
This increase is directly attributable to twelve months of costs associated
with Trump Plaza East. See Note 6 to the accompanying Financial Statements of
Plaza Holding and Plaza Associates.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
Gaming revenues were $264.1 million for the year ended December 31, 1993, a
decrease of $1.3 million or 0.5% from gaming revenues of $265.4 million for
1992. This decrease in gaming revenues consisted of a reduction in table games
revenues, which was partially offset by an increase in slot revenues. These
results were impacted by major snow storms during February and March, which
severely restricted travel in the region. The decrease in revenues was also
attributable, in part, to the revenues derived from "high roller" patrons from
the Far East during 1992, which did not recur in 1993, due in part to the
decision to de-emphasize marketing efforts directed at "high roller" patrons
from the Far East and also to the effects of the adverse economic conditions
in that region.
Slot revenues were $170.5 million for the year ended December 31, 1993, an
increase of $1.0 million or 0.6% from slot revenues of $169.5 million in 1992.
Plaza Associates elected to discontinue certain progressive slot jackpot
programs thereby reversing certain accruals into revenues which had the effect
of improving slot revenue by $4.1 million for the year ended December 31,
1992. Excluding the aforementioned adjustment, slot revenues would have
resulted in a $5.0 million or 3.0% improvement over 1992. Plaza Associates
believes that its improvement in slot revenues reflects its intensified slot
marketing efforts directed towards patrons who tend to wager more per slot
play and general growth in the industry. See "Business of THCR--Trump Plaza
Business Strategy."
Table games revenues were $93.6 million for the year ended December 31,
1993, a decrease of $2.3 million or 2.4% from table games revenues of $95.9
million in 1992. This decrease was primarily due to a reduction in table games
drop by 9.2% for the year ended December 31, 1993 from 1992, offset by an
increase in the table games hold percentage to 14.9% for the year ended
December 31, 1993 from 13.9% in 1992. The reduction in table game drop was due
to the large dollar amounts wagered during 1992 by certain foreign customers.
During the year ended December 31, 1993, gaming credit extended to customers
was approximately 18.0% of overall table play, a decrease of 9.6% from 1992.
At December 31, 1993, gaming receivables amounted to approximately $16.0
million, a decrease of approximately $4.5 million from 1992, with allowances
for doubtful gaming receivables of approximately $10.4 million, a decrease of
approximately $3.6 million from 1992.
105
<PAGE>
Other revenues were $69.2 million for the year ended December 31, 1993, a
decrease of $4.1 million or 5.6% from other revenues (excluding revenues from
the former Trump Regency Hotel, now known as Trump World's Fair, at such time
operated by Plaza Associates) of $73.3 million in 1992. The decrease in other
revenues primarily reflects a $2.1 million adjustment to the outstanding
gaming chip liability in 1992 (this amount had been offset in gaming cost and
expenses with a specific reserve provision for casino uncollectible accounts
receivable), as well as decreases in food and beverage revenues attendant to
reduced levels of gaming activity, and reduced promotional allowances.
Promotional allowances were $32.8 million for the year ended December 31,
1993, a decrease of $2.1 million or 5.9% from promotional allowances of $34.9
million in 1992. This decrease is primarily attributable to a reduction in
table gaming activity as well as Plaza Associates' focusing its marketing
efforts during the period towards patrons who tend to wager more frequently
and in larger denominations.
Gaming costs and expenses were $136.9 million for the year ended December
31, 1993, a decrease of $9.4 million, or 6.4% from gaming costs and expenses
of $146.3 million in 1992. This decrease was primarily due to a $4.8 million
decrease in gaming bad debt expense as well as decreased promotional and
operating expenses and taxes associated with decreased levels of gaming
activity and revenues.
Other costs and expenses were $24.8 million for the year ended December 31,
1993, an increase of $1.1 million or 4.7% from other costs and expenses of
$23.7 million in 1992.
General and administrative expenses were $71.6 million for the year ended
December 31, 1993, a decrease of $3.8 million or 5.1% from general and
administrative expenses of $75.5 million in 1992. This decrease resulted
primarily from a $2.4 million real estate tax charge resulting from a
reassessment by local authorities of prior years' property values incurred
during 1992 and overall cost reductions related to cost containment efforts.
Income from operations was $49.6 million for the year ended December 31,
1993, an increase of $7.0 million or 16.4% from income from operations
(excluding the operations of the former Trump Regency Hotel and before
restructuring costs) of $42.6 million for 1992. In addition to the items
described above, 1993 costs and expenses were lower as a result of the absence
of the costs and expenses associated with the 1992 Plaza Restructuring and the
former Trump Regency Hotel which were incurred in 1992.
Net interest expense was $39.9 million for the year ended December 31, 1993,
an increase of $8.5 million or 27.2% from net interest expense of $31.4
million in 1992. This is attributable to the interest expense associated with
the 1993 refinancing.
Other non-operating expenses were $3.9 million for the year ended December
31, 1993, an increase of $2.4 million or 164.9% from non-operating expense of
$1.5 million in 1992. This increase is directly attributable to costs
associated with Trump Plaza East. See Note 6 to the accompanying Financial
Statements of Plaza Holding and Plaza Associates.
In August 1990, Plaza Associates entered into a triple net lease with an
affiliate pursuant to which Plaza Associates began operating the former Trump
Regency Hotel as a non-casino hotel. During such period of operation, losses
attributable to the former Trump Regency Hotel aggregating approximately $14.1
million adversely affected the results of operations of Plaza Associates.
Pursuant to the 1992 Plaza Restructuring, Plaza Associates ceased operating
the former Trump Regency Hotel as of September 30, 1992. The offerings of the
Plaza Mortgage Notes, PIK Notes and PIK Note Warrants in connection with the
1993 refinancing resulted in an extraordinary gain of $4.1 million for the
year ended December 31, 1993, which reflects the excess of carrying value of
the former Trump Regency Hotel obligation over the amount of the settlement
payment, net of related prepaid expenses. The 1992 Plaza Restructuring
resulted in an extraordinary loss of $38.2 million for the year ended December
31, 1992, which reflects a $32.8 million accounting adjustment to carry the
bonds and preferred stock issued in the 1992 Plaza Restructuring on Plaza
Associates' balance sheet at fair market value based upon then current rates
of interest. Plaza Associates also wrote off certain deferred financing
charges and costs of $5.4 million.
106
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
General. On June 12, 1995, THCR consummated the June 1995 Stock Offering of
10,000,000 shares of THCR Common Stock at the offering price of $14.00 per
share, resulting in aggregate gross proceeds to THCR of $140,000,000, and THCR
Holdings and THCR Funding consummated the June 1995 Note Offering. The
proceeds to THCR from the June 1995 Stock Offering were contributed by THCR to
THCR Holdings in return for an approximately 60% general partnership interest
in THCR Holdings. THCR Holdings, in turn, has used net proceeds from the June
1995 Offerings through September 30, 1995 for the following purposes: (a)
repurchase and redemption of the PIK Notes and PIK Note Warrants (including
accrued interest payable) for $86,209,000, (b) exercise of the option to
acquire Trump World's Fair (the "Trump World's Fair Purchase Option") for
$58,150,000, (c) construction costs at Trump Plaza East of $2,500,000 and (d)
construction and land acquisition costs of $23,772,000 for the Indiana
Riverboat. The balance of the proceeds will be used for the completion of the
construction at Trump Plaza, Trump Plaza East, Trump World's Fair and the
Indiana Riverboat, as well as for general corporate purposes.
Each of the Plaza Mortgage Note Indenture and the Senior Note Indenture
restricts the ability of Plaza Associates, Trump Indiana and other
subsidiaries of THCR Holdings to make distributions to partners or pay
dividends, as the case may be, unless certain financial ratios are achieved.
Further, given the rapidly changing competitive environment and the risks
associated with THCR's proposed expansion plans, THCR's future operating
results are highly conditional and could fluctuate significantly. Moreover, as
a condition to the June 1995 Note Offering, THCR Holdings and THCR Funding
entered into a Cash Collateral and Disbursement Agreement (the "Cash
Collateral Agreement") with First Bank National Association in its respective
capacities as Trustee and Disbursement Agent (each as defined therein). The
Cash Collateral Agreement called for initial deposits to custodial accounts
which are restricted in use for (a) Trump Indiana for the ship and land
projects, (b) Trump Plaza construction projects, including the exercise of the
Trump World's Fair Purchase Option and construction projects at Trump Plaza
East and Trump World's Fair and (c) the first two interest payments on the
Senior Notes. As of September 30, 1995, $24,225,000 is restricted for the
first two interest payments on the Senior Notes and is reflected as restricted
cash in THCR's condensed consolidated balance sheets. The balance of funds
restricted for Trump Indiana, Trump Plaza East and Trump World's Fair is
approximately $9,725,000, $12,650,000 and $49,375,000, respectively, at
September 30, 1995, and is reflected as cash restricted for future
construction as a non-current asset in THCR's balance sheets. With these
restricted funds, as well as cash flow from operating activities, and the
financings discussed above (some of which still remain to be obtained), THCR
management believes that sufficient funds will be available to complete the
projects that are currently in development. In addition, Plaza Associates may
be obligated to comply with certain proposed regulations of the Occupational
Safety and Health Administration ("OSHA"), if adopted. THCR is unable to
estimate the cost, if any, to Plaza Associates of such compliance. See
"Regulatory Matters--Other Laws and Regulations."
Trump Plaza, Trump World's Fair and Trump Plaza East. Cash flow from
operating activities is Plaza Associates' principal source of liquidity. For
the year ended December 31, 1994, and the nine-month period ended September
30, 1995 net cash from operating activities was $20.0 million and $32.4
million, respectively.
Capital expenditures of $86.6 million for the nine-month period ended
September 30, 1995 increased approximately $72.0 million from the comparable
period in 1994 and was primarily attributable to the purchase of Trump World's
Fair for $60.0 million and $2.2 million of related renovation expenditures.
Also, expenditures for renovation costs associated with Trump Plaza East were
$14.2 million for the nine months ended September 30, 1995 versus $5.9 million
for the comparable period in 1994. These expenditures were funded from cash
flows from operating activities. Capital expenditures of $20.5 million for the
year ended December 31, 1994 increased approximately $10.4 million from 1993
and were primarily attributable to the casino expansion, purchase of
additional slot machines, construction of the new baccarat pit for Trump Plaza
and refurbishing costs associated with Trump Plaza East. These expenditures
were financed from funds generated from operations. Capital expenditures for
1993 and 1992 were $10.1 million and $8.6 million, respectively. Previously,
Plaza Associates provided for significant capital expenditures which
concentrated on the renovation of the casino floor and certain restaurants,
hotel rooms and the hotel lobby. See "Business of THCR--Facilities and
Amenities."
107
<PAGE>
Plaza Associates has approximately $2.1 million of indebtedness maturing
through September 30, 1996. THCR management expects that this debt will be
repaid with cash from operating activities.
At September 30, 1995, THCR had combined working capital of $16.6 million,
which included a receivable from the CRDA for $4.2 million for reimbursable
improvements made to the Trump Plaza East. At December 31, 1994, Plaza
Associates had a combined working capital deficit totaling $7.1 million,
compared to a combined working capital deficit of $1.5 million at December 31,
1993. At September 30, 1995, Plaza Associates had a combined working capital
deficit totaling approximately $1.7 million, compared to a combined working
capital deficit of $7.1 million at December 31, 1994.
In 1993, Plaza Associates received the approval of the CCC, subject to
certain conditions, for the expansion of its hotel facilities at Trump Plaza
East. As part of the Trump Plaza Expansion, management has commenced the
expansion and renovation of rooms at Trump Plaza East, and on October 30,
1995, opened 150 rooms and suites at Trump Plaza East. This opening of rooms
and suites was ahead of schedule and under the budget set for this part of the
expansion. THCR intends to open the remainder of the rooms and suites and the
casino at Trump Plaza East in the first quarter of 1996. There can be no
assurances that such openings will occur and, if so, that the completion of
such construction will be either under budget or ahead of schedule. Trump
World's Fair renovations are scheduled for completion at the end of the first
quarter or early in the second quarter of 1996. See "Risk Factors--High
Leverage and Fixed Charges," "--Trump Plaza Expansion and the Taj Mahal
Expansion," "--The Indiana Riverboat" and "--Considerations with Respect to
the Acquisition or Development of Additional Gaming Ventures."
As a result of the Trump Plaza Expansion, Plaza Associates will be
permitted, subject to certain conditions, to increase, and is in the process
of increasing, Trump Plaza's casino floor space to 90,000 square feet. Plaza
Associates petitioned the CCC to permit it to increase such space to 100,000
square feet pursuant to a statutory amendment which became effective January
25, 1995. In its May 18, 1995 declaratory rulings with respect to this
petition, the CCC determined, among other things, that the approved hotel
comprised of Trump Plaza's main tower and Trump Plaza East is permitted to
contain a maximum of 100,000 square feet of casino space. Plaza Associates
added to Trump Plaza approximately 9,000 square feet in April 1994, 1,000
square feet in July 1994, 3,000 square feet in December 1994 and 25,000 square
feet in June 1995. At September 30, 1995, the total casino square footage was
approximately 73,000 square feet.
Pursuant to the Trump Plaza East Purchase Option, which expires on June 30,
1998, Plaza Associates may purchase both the fee and leasehold interests
comprising Trump Plaza East. See "Certain Transactions--Plaza Associates--
Trump Plaza East." Until such time as the Trump Plaza East Purchase Option is
exercised or expires, Plaza Associates is obligated to pay the net expenses
associated with Trump Plaza East, including, without limitation, current real
estate taxes (approximately $1.2 million per year based upon current assessed
valuation) and annual lease payments of $3.1 million per year. Under the Trump
Plaza East Purchase Option, Plaza Associates has the right to acquire Trump
Plaza East for a purchase price of $28.0 million through December 31, 1996,
increasing by $1.0 million annually thereafter until expiration on June 30,
1998. In addition, Plaza Associates has the right of first offer upon any
proposed sale of all or any portion of the fee interest in Trump Plaza East
during the term of the Trump Plaza East Purchase Option (the "Right of First
Offer") . Under the terms of the Trump Plaza East Purchase Option, if Plaza
Associates defaults in making payments due under the Trump Plaza East Purchase
Option, Plaza Associates would be liable to the grantor of the Trump Plaza
East Purchase Option for the sum of (a) the present value of all remaining
payments to be made by Plaza Associates pursuant to the Trump Plaza East
Purchase Option during the term thereof and (b) the cost of demolition of all
improvements then located at Trump Plaza East, unless such improvements had
been accepted in writing by the grantor. See "Risk Factors--Trump Plaza
Expansion and the Taj Mahal Expansion." Plaza Associates has no definitive
plans with respect to exercising the Trump Plaza East Purchase Option.
THCR management believes that the net proceeds of the June 1995 Offerings
and equipment financings allocated to Trump Plaza East and cash flow from
operations should be sufficient to complete the planned renovations of Trump
Plaza and Trump Plaza East at a remaining cost, at September 30, 1995, of
approximately
108
<PAGE>
$12.7 million as contemplated by the Trump Plaza Expansion. However,
additional financing will be required should THCR propose to exercise the
Trump Plaza East Purchase Option, and there can be no assurance that such
financing will be available on attractive terms, if at all. THCR anticipates
incurring equipment financing for a portion of the gaming equipment at Trump
Plaza East. Commitments are currently in place with respect to some of such
financing, and THCR believes that it will be able to obtain the remainder of
such financing on customary terms acceptable to THCR, although there can be no
assurance given to that effect. Pursuant to the Right of First Offer, Plaza
Associates has ten days after receiving written notice from the grantor of the
proposed sale to commit to exercise the right to acquire Trump Plaza East at
the lesser of the proposed sale price and the applicable exercise price under
the Trump Plaza East Purchase Option. If Plaza Associates commits to exercise
the Right of First Offer, it has ten days from the date of the commitment to
deposit $3,000,000 with the grantor, to be credited towards the purchase price
or to be retained by the grantor if the closing, through no fault of the
grantor, does not occur within ninety days (or, subject to certain conditions,
120 days) of the date of the commitment. There can be no assurance that Plaza
Associates would have the liquidity necessary to exercise its Right of First
Offer on a timely basis should it be required.
Pursuant to the terms of the TPM Services Agreement, in consideration for
services provided, Plaza Associates pays TPM each year an annual fee of $1.0
million in equal monthly installments and reimburses TPM on a monthly basis
for all reasonable out-of-pocket expenses incurred by TPM in performing its
obligations under the TPM Services Agreement, up to certain amounts.
Approximately $1.3 million and $1.2 million of payments under the TPM Services
Agreement were charged to expense for the years ended December 31, 1994 and
1993, respectively, and approximately $1,012,000 and $961,000 were charged to
the nine-month periods ended September 30, 1995 and 1994, respectively.
Payments received under the TPM Services Agreement are currently pledged by
TPM to secure lease payments for a helicopter that TPM makes available to
Plaza Associates. Pending approval by the lessor of the helicopter, it is
currently contemplated that the stock of TPM will be transferred by Trump to
THCR Holdings, which will in turn assume the lease and related obligations, as
well as become entitled to all amounts payable under the TPM Services
Agreement. See "Certain Transactions."
Approximately $58 million of the net proceeds of the June 1995 Offerings was
used to exercise the Trump World's Fair Purchase Option. THCR believes that
the net proceeds of the June 1995 Offerings, together with additional
equipment financing, will be sufficient to fund the additional approximately
$51.6 million required to complete renovation of and open Trump World's Fair
early in the second quarter of 1996, although there can be no assurance given
to that effect. Associated with the openings of Trump World's Fair and Trump
Plaza East, management anticipates incurring approximately $ of pre-opening
costs, which will be expensed at the time of such openings.
Trump Indiana. Pursuant to the terms of the certificate of suitability
originally issued to Trump Indiana on December 9, 1994, as extended, Trump
Indiana must comply with certain statutory and other requirements imposed by
the IGC. Failure to comply with the foregoing conditions and/or failure to
commence riverboat excursions by June 28, 1996, may result in the revocation
of the certificate of suitability. There can be no assurance that THCR and/or
Trump Indiana will be able to comply with the terms of the certificate of
suitability, or that a riverboat owner's license will ultimately be granted.
In addition to the approximately $84 million anticipated to be spent prior
to commencing the operations of the Indiana Riverboat early in the second
quarter of 1996, during its initial five-year license term, an additional $69
million of funds (consisting of approximately $48 million for the construction
of a hotel and other amenities and $21 million for infrastructure improvements
and other municipal uses) will be required to be spent by Trump Indiana in
connection with the Indiana Riverboat facility and related commitments,
including commitments required in connection with the licensure process. The
sources of the initial $84 million include, and are anticipated to include:
$34 million from the proceeds of the June 1995 Offerings, $20 million from
vessel financing, $10 million from equipment financing, $10 million from a
mortgage on Trump Indiana's interest in the Buffington Harbor site or from an
unsecured working capital facility and $10 million from operating leases.
Trump Indiana has received commitments for $15 million in vessel financing and
$10 million in slot machine
109
<PAGE>
financing.Trump Indiana is seeking commitments for the additional financing
required to commence the operations of the Indiana Riverboat. The remaining
$69 million required to be spent is expected to be funded with cash from
operations or additional borrowings. See "Risk Factors--The Indiana
Riverboat."
On August 30, 1995, Trump Indiana entered into a loan and security agreement
with debis Financial Services, Inc. ("dFS") pursuant to which dFS will
provide, subject to the terms and conditions thereof, $15 million in financing
for the gaming vessel, which is currently under construction. As of December
31, 1995, dFS has provided Trump Indiana with approximately $6.8 million
pursuant to such agreement. Any other projects pursued by THCR in the future
would require additional funds. There can be no assurance that sufficient
funds will be available either from cash generated by operating activities or
from additional financing sources for such projects.
Trump Indiana and Barden entered into the BHR Agreement relating to the
formation of BHR. Pursuant to the BHR Agreement, BHR will own, develop and
operate all common land-based and waterside operations in support of each of
Trump Indiana's and Barden's separate riverboat casinos at Buffington Harbor.
Trump Indiana and Barden will each be equally responsible for the development
and operating expenses of BHR. Upon its formation, BHR was capitalized with
the contribution by Trump Indiana of ownership of the Buffington Harbor site
and the contribution by Barden of $6.75 million. Barden has subsequently
contributed approximately $14 million for construction costs to equal the
costs previously funded by Trump Indiana; thereafter, Trump Indiana and Barden
will share all of the development and operating expenses of BHR equally. There
can be no assurance that THCR or Trump Indiana will be able to fund from
operations or to finance on terms satisfactory to THCR or Trump Indiana any
future required expenditures or, if available, other such indebtedness would
be permitted under existing debt instruments of THCR. Furthermore, THCR will
also be dependent on the ability of Barden to pay for its share of the
development and operating expenses of BHR and there can be no assurance that
Barden will be able to fund such expenses. Associated with the opening of the
Indiana Riverboat, Management anticipates incurring $ of pre-opening costs,
which will be expensed at the time of such openings. See "Risk Factors--The
Indiana Riverboat."
THCR. THCR has no independent means of generating revenues and its sole
source of liquidity is distributions and other permitted payments from THCR
Holdings. As of December 31, 1995, THCR did not have any long or short-term
indebtedness, and is not anticipated to have any in the near future. THCR
Holdings has agreed that all expenses of THCR shall, to the maximum extent
practicable, be paid directly by THCR Holdings. Any other expenses paid
directly by THCR are required to be reimbursed promptly by THCR Holdings and
are deemed to be expenses of THCR Holdings.
SEASONALITY
The gaming industry in Atlantic City is seasonal, with the heaviest activity
at Trump Plaza occurring during the period from May through September.
Consequently, THCR's operating results during the two quarters ending in March
and December would not likely be as profitable as the two quarters ending in
June and September. THCR has no operating history in Indiana, and is unable to
predict seasonality with respect to the Indiana Riverboat.
INFLATION
There was no significant impact on Plaza Associates' operations as a result
of inflation during the first nine months of 1995, and during 1994, 1993 or
1992.
110
<PAGE>
BUSINESS OF THCR
THCR, through THCR Holdings and its subsidiaries, owns and operates Trump
Plaza, a luxury casino hotel located on The Boardwalk in Atlantic City and the
Indiana Riverboat, a gaming project currently under development at Buffington
Harbor on Lake Michigan. THCR management believes THCR benefits from the
following factors:
. THE "TRUMP" NAME. THCR capitalizes on the widespread recognition of the
"Trump" name and its association with high quality amenities and first
class service. To this end, THCR provides a broadly diversified gaming
and entertainment experience consistent with the "Trump" name and
reputation for quality, tailored to the gaming patron in each market.
THCR also benefits from the "Trump" name in connection with its efforts
to expand and to procure new gaming opportunities in the United States
and abroad.
. TRUMP PLAZA EXPANSION. THCR is currently enhancing further Trump Plaza's
position as an industry leader by increasing its gaming space and hotel
capacity while maintaining its commitment to first class customer
service. This strategy is designed to capitalize on Trump Plaza's
reputation for excellence, as well as to meet both existing demand and
the anticipated demand from the increased number of available rooms and
infrastructure improvements that are currently being implemented to
enhance further the "vacation destination appeal" of Atlantic City. The
Trump Plaza Expansion is expected to be completed early in the second
quarter of 1996 and to include the renovation and integration into Trump
Plaza of Trump Plaza East and Trump World's Fair, together with
additional casino space, retail operations and entertainment venues. On
October 30, 1995, THCR opened nearly 50% of the rooms and suites in Trump
Plaza East. This opening of 150 rooms and suites was ahead of schedule
and under the budget set for this part of the expansion. THCR intends to
open the remaining rooms and suites and the casino at Trump Plaza East in
the first quarter of 1996. Renovations are ongoing at Trump World's Fair
and THCR expects that the renovations at Trump World's Fair will be
completed early in the second quarter of 1996. Upon completion of Trump
World's Fair, Trump Plaza's casino floor space would be the largest in
Atlantic City, increasing from 75,000 square feet to an aggregate of
approximately 139,340 square feet of gaming space, housing a total of
approximately 4,300 slot machines and 142 table games. Trump Plaza's
hotel capacity would increase to a total of 1,404 guest rooms from 555
rooms, making Trump Plaza's guest room inventory the largest in Atlantic
City.
. INDIANA RIVERBOAT. Trump Indiana has received site approval and a
certificate of suitability to develop a gaming project in Buffington
Harbor, on Lake Michigan, approximately 25 miles southeast of downtown
Chicago. Trump Indiana was the first recipient of a certificate of
suitability in Indiana and is one of 11 riverboat gaming projects
permitted under current Indiana law, with only five of these to be
located in northern Indiana. The Indiana Riverboat is currently on
schedule to open for business early in the second quarter of 1996. Trump
Indiana and Barden have entered into the BHR Agreement providing for the
formation of BHR, which will own, develop and operate all common land-
based and waterside operations in support of each of Trump Indiana's and
Barden's separate riverboat casinos at Buffington Harbor. The Indiana
Riverboat is planned to have approximately 37,000 square feet of gaming
space and feature 1,500 slot machines and 73 table games, and will be one
of the largest riverboat casinos in the United States. The Indiana
Riverboat's principal market will be the approximately 6.8 million people
residing within 50 miles of the Indiana Riverboat in the northern Indiana
suburban and Chicago metropolitan areas. Approximately 11.2 million and
24.2 million people live within a 100- and 200-mile radius of the site.
. NEW "TRUMP" GAMING VENTURES. THCR explores opportunities to establish
additional gaming operations, particularly in jurisdictions where the
legalization of casino gaming is relatively recent or is anticipated.
THCR management believes that Trump's involvement with THCR facilitates
THCR's expansion efforts, as THCR plans to capitalize on the "Trump" name
and what management believes to be its marquee value in seeking new
casino opportunities. THCR, through THCR Holdings and its
111
<PAGE>
subsidiaries, is the exclusive vehicle for new gaming ventures by Trump,
subject to the terms of certain agreements governing this relationship and
Trump's relationship with Trump's Castle. See "--Trademark/Licensing" and
"Management of THCR--Employment Agreements."
TRUMP PLAZA
THCR management believes that Trump Plaza's "Four Star" Mobil Travel Guide
rating and "Four Diamond" American Automobile Association rating reflect the
high quality amenities and services that Trump Plaza provides to its casino
patrons and hotel guests. These amenities and services include a broad
selection of dining choices, headline entertainment, deluxe accommodations,
tennis courts and swimming and health spa facilities.
Trump Plaza's management team has recently launched a variety of new
initiatives designed to increase the level of gaming activity generally at its
casino and to attract casino patrons who tend to wager more frequently and in
larger denominations than the typical Atlantic City patron. These initiatives
include targeted marketing and advertising campaigns directed to select groups
of customers in the Boston-New York-Washington, D.C. corridor, the
introduction of new slot machines and table games and the addition of bill
acceptors on slot machines.
The Trump Plaza Expansion. THCR management believes that as a result of the
Trump Plaza Expansion and Trump Plaza's strategic location, Trump Plaza is
well positioned to become one of the premier host properties in Atlantic City.
The Trump Plaza Expansion is currently scheduled to be completed early in the
second quarter of 1996 and would increase Trump Plaza's prime central frontage
on The Boardwalk to nearly a quarter of a mile. THCR management also believes
that the construction of the new convention center and tourist corridor
linking the new convention center with The Boardwalk will enhance the
desirability of Atlantic City generally and, as a result of Trump Plaza's
central location, will benefit Trump Plaza in particular. In addition, THCR
management expects to be able to take advantage of recent gaming regulatory
changes that will allow casino space to be directly visible and accessible
from The Boardwalk. Trump Plaza's location on The Boardwalk at the end of the
main highway into Atlantic City makes it highly accessible for "drive-in" and
"walk-in" patrons.
THCR is in the process of renovating and integrating into Trump Plaza, Trump
World's Fair, located on The Boardwalk adjacent to the existing Atlantic City
Convention Center, which is next to Trump Plaza, at a remaining cost of $51.6
million as of September 30, 1995. Upon completion, Trump World's Fair would
add 49,340 square feet of casino floor space directly accessible from The
Boardwalk and 500 hotel rooms, connected with the current Trump Plaza hotel
and casino facility by an enclosed walkway overlooking The Boardwalk.
Renovations are ongoing at Trump World's Fair and THCR expects, although there
can be no assurances, that the renovations at Trump World's Fair will be
completed early in the second quarter of 1996. THCR management believes that
Trump World's Fair represents an attractive expansion opportunity and use of
capital, particularly relative to what management estimates it would cost to
construct a comparable facility. Commencement of operations at Trump World's
Fair is contingent upon, among other things, obtaining certain regulatory
approvals. See "Risk Factors--Trump Plaza Expansion and the Taj Mahal
Expansion."
Trump Plaza is also in the process of renovating and integrating into Trump
Plaza a hotel tower, Trump Plaza East, located adjacent to Trump Plaza's
existing facility, at a remaining cost of approximately $25.2 million. On
October 30, 1995, THCR opened nearly 50% of the rooms and suites in Trump
Plaza East. This opening of 150 rooms and suites was ahead of schedule and
under the budget set for this part of the expansion. THCR intends to open the
remaining rooms and suites and the casino at Trump Plaza East in the first
quarter of 1996. There can be no assurances that such openings will occur and,
if so, that the completion of such construction will be either under budget or
ahead of schedule. When completed, Trump Plaza East will have 15,000 square
feet of casino space and 349 hotel rooms. Trump Plaza currently leases Trump
Plaza East and has an option to acquire it from an unaffiliated entity. See
"Certain Transactions--Plaza Associates--Trump Plaza East." Trump Plaza East
will be reconfigured to provide a new entranceway to Trump Plaza directly off
the
112
<PAGE>
Atlantic City Expressway. Management believes the increased hotel capacity as
a result of the Trump Plaza Expansion will enable it better to meet demand and
accommodate its casino guests, as well as to host additional and larger
conventions and corporate meetings. The following table details plans for the
Trump Plaza Expansion:
<TABLE>
<CAPTION>
TRUMP PLAZA TRUMP PLAZA TRUMP WORLD'S
FACILITY(/1/) EAST FAIR TOTAL
------------- ----------- ------------- -------
<S> <C> <C> <C> <C>
Casino square footage......... 75,000 15,000 49,340 139,340
Slot machines................. 2,400 400 1,550 4,350
Table games................... 97 13 33 143
Hotel rooms................... 555 349(/2/) 500 1,404
</TABLE>
- --------
(1) Includes the 2,000 square foot area which will connect the existing
facility with Trump Plaza East, and the 75 slot machines to be included in
this area.
(2) Includes 150 rooms which were opened on October 30, 1995.
In July 1994, Time Warner opened its second largest Warner Brothers Studio
Store pursuant to a sublease of the entire first floor of retail space on The
Boardwalk at Trump Plaza East (approximately 17,000 square feet). THCR
management believes that the commitment of Time Warner at Trump Plaza East,
together with other nationally known retail, restaurant and entertainment
establishments expected to participate in the Trump Plaza Expansion, evidences
the continued growth of, and highlights Trump Plaza's favored place within,
the Atlantic City casino market.
FACILITIES AND AMENITIES
Main Tower. The casino in the existing facility of Trump Plaza (the "Main
Tower") currently offers 97 table games and 2,400 slot machines. In addition
to the casino, the Main Tower consists of a 31-story tower with 555 guest
rooms, including 62 suites. The Main Tower also offers 10 restaurants, a 750-
seat cabaret theater, four cocktail lounges, 28,000 square feet of convention,
ballroom and meeting room space, a swimming pool, tennis courts and a health
spa.
The entry level of the Main Tower includes a cocktail lounge, two gift
shops, a deli, a coffee shop, an ice cream parlor and a buffet. The casino
level houses the casino, a fast food restaurant, an exclusive slot lounge for
high-end patrons and a new oceanfront baccarat gaming area. Upon completion,
an enclosed walkway will connect Trump Plaza at the casino level with the
Atlantic City Convention Center and with Trump World's Fair.
The Main Tower's guest rooms are located in a tower which affords most guest
rooms a view of the ocean. While rooms are of varying size, a typical guest
room consists of approximately 400 square feet. Trump Plaza also features 16
one-bedroom suites, 28 two-bedroom suites and 18 "Super Suites." The Super
Suites are located on the top two floors of the Main Tower and offer luxurious
accommodations and 24-hour butler and maid service. The Super Suites and
certain other suites are located on the "Club Level" which requires guests to
use a special elevator key for access, and contains a lounge area (the "Club
Level Lounge") that offers food and bar facilities.
The Main Tower is connected by an enclosed pedestrian walkway to a 10-story
parking garage, which can accommodate approximately 2,650 cars, and contains
13 bus bays, a comfortable lounge, a gift shop and waiting area (the
"Transportation Facility"). The Transportation Facility provides patrons with
immediate access to the casino, and is located directly off of the main
highway into Atlantic City.
Trump World's Fair. Upon completion of the renovation early in the second
quarter of 1996, Trump World's Fair will be connected to the Main Tower by an
enclosed walkway overlooking The Boardwalk and will add an additional 500
hotel rooms to Trump Plaza. In addition, Trump World's Fair will be outfitted
with approximately 49,340 square feet of casino floor space housing
approximately 1,550 slot machines and 33 table games. In addition to the
casino, Trump World's Fair will feature three restaurants, including a state-
of-the-art buffet, a cocktail lounge, convention, ballroom and meeting room
space, a swimming pool and a health spa. The
113
<PAGE>
enclosed walkway will run through a portion of the Atlantic City Convention
Center, which is located between Trump World's Fair and the Main Tower. In
this connection, Plaza Associates has acquired an easement with regard to
portions of the Atlantic City Convention Center. See "--Properties--Trump
World's Fair" and "Regulatory Matters--New Jersey Gaming Regulations--Approved
Hotel Facilities."
Trump Plaza East. Plaza Associates is in the process of renovating and
integrating Trump Plaza East, which is located directly adjacent to the Main
Tower, into Trump Plaza. The hotel will be opened in stages beginning with the
hotel rooms, of which 150 were opened on October 30, 1995. This construction
was completed ahead of schedule under the budget for this part of the
expansion. THCR intends to open the remaining rooms and suites and the casino
at Trump Plaza East in the first quarter of 1996. In addition, the hotel has
retail space fronting The Boardwalk. Trump has entered into a 10-year sublease
agreement with Time Warner pursuant to which Time Warner has subleased the
entire first floor of the retail space (approximately 17,000 square feet)
located at Trump Plaza East for a Warner Brothers Studio Store which opened in
July 1994. The second floor, directly connected to the Main Tower, will house
15,000 square feet of distinctly themed casino floor space with 400 slot
machines and one pit of 13 table games.
Plaza Associates is obligated to either pay a tax to the CRDA of 2.5% of its
gross casino revenues (excluding revenues from casino operations at Trump
World's Fair during its first year of operation, and including such revenues
at all times after its first year of operation) or to obtain investment tax
credits in an amount equal to 1.25% of its gross casino revenues. In 1993,
Plaza Associates obtained approval from the CRDA for $14.1 million of funding
with respect to the demolition of certain structures at Trump Plaza East and
the construction of certain improvements on the site. Recently, the New Jersey
Superior Court ruled that the CRDA exceeded its statutory authority in
granting such approval. The ruling is being appealed by Plaza Associates, but
there can be no assurance as to the success of such appeal. See "--Legal
Proceedings--Trump Plaza East."
TRUMP PLAZA BUSINESS STRATEGY
General. A primary element of Trump Plaza's business strategy is to seek to
attract patrons who tend to wager more frequently and in larger denominations
than the typical Atlantic City gaming customer ("high-end players"). Such
high-end players typically wager $5 or more per play in slots and $25 or more
per play in table games. In order to attract more high-end gaming patrons to
Trump Plaza in a cost-effective manner, Plaza Associates has refocused its
marketing efforts. Commencing in 1991, Plaza Associates substantially
curtailed costly "junket" marketing operations which involved attracting
groups of patrons to the facility on an entirely complimentary basis (e.g., by
providing free air fare, gifts and room accommodations). In the fall of 1992,
Plaza Associates decided to de-emphasize marketing efforts directed at "high
roller" patrons from the Far East, who tend to wager $50,000 or more per play
in table games. Plaza Associates determined that the potential benefit derived
from these patrons did not outweigh the high costs associated with attracting
such players and the resultant volatility in the results of operations of
Trump Plaza. Revenues derived from high roller patrons have declined since
1992, although management believes that such revenue loss has not had a
significant impact on profitability for the reasons discussed above. In
addition, this shift in marketing strategy has allowed Plaza Associates to
focus its efforts on attracting the high-end players.
After a period of turnover in management in 1994, Plaza Associates hired a
new president and chief operating officer for Trump Plaza, as well as several
other senior managers. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of THCR--Results of Operations for the
Years Ended December 31, 1994 and 1993" and "Management of THCR--Employment
Agreements." The new management team at Trump Plaza is dedicated to continuing
Trump Plaza's long-standing commitment to maintaining high quality amenities,
while at the same time pursuing an aggressive new strategy focusing on
strategic expansion and customer service. Trump Plaza's management team
commenced the Trump Plaza Expansion in 1995 and has recently launched a
variety of new initiatives designed to increase the level of casino gaming
activity generally at its casino and, in particular, to attract casino patrons
who tend to wager more frequently and in larger denominations than the typical
Atlantic City patron. These initiatives include targeted marketing and
advertising campaigns directed to select groups of customers in the Boston-New
York-Washington, D.C. corridor, the introduction of new slot machines and
table games and the addition of bill acceptors on slot machines.
114
<PAGE>
Gaming Environment. In recent years, there has been an industry trend
towards fewer table games and more slot machines. For the Atlantic City casino
industry, revenue from slot machines increased from 54.6% of the industry
gaming revenue in 1988 to 67.0% of the industry gaming revenue in 1994. Trump
Plaza experienced a similar increase, with slot revenue increasing from 51.2%
of gaming revenue in 1988 to 64.5% of gaming revenue in 1994. In response to
this trend, Trump Plaza has devoted more of its casino floor space to slot
machines. In April 1993, Trump Plaza removed 12 table games from the casino
floor and replaced them with 75 slot machines. Moreover, as part of its
program to attract high-end slot players, Plaza Associates created "Fifth
Avenue Slots," a separate high-end slot area that includes approximately 70
slot machines (most of which provide for $5 or more per play), an exclusive
lounge for high-end patrons and other amenities.
Trump Plaza pursues a continuous preventative maintenance program that
emphasizes the casino, hotel rooms and public areas in Trump Plaza. These
programs are designed to maintain the attractiveness of Trump Plaza to its
gaming patrons. Trump Plaza continuously monitors the configuration of the
casino floor and the games it offers to patrons with a view towards making
changes and improvements. Trump Plaza's casino floor has clear, large signs
for the convenience of patrons. As new games have been approved by the CCC,
Plaza Associates has integrated such games into its casino operations to the
extent it deems appropriate.
"Comping" Strategy. In order to compete effectively with other Atlantic City
casino hotels, Plaza Associates offers complimentary drinks, meals, room
accommodations and/or travel arrangements to its patrons ("complimentaries" or
"comps"). Management monitors Trump Plaza's policy on complimentaries so as to
provide comps primarily to patrons with a demonstrated propensity to wager at
Trump Plaza.
Entertainment. Trump Plaza offers headline entertainment as part of its
strategy to attract high-end and other patrons. Trump Plaza offers headline
entertainment weekly during the summer and monthly during the off- season, and
also features other entertainment and revue shows.
Player Development/Casino Hosts. Plaza Associates currently employs gaming
representatives in New Jersey, New York and other states, as well as several
international representatives, to promote Trump Plaza to prospective gaming
patrons. Player development personnel host special events, offer incentives
and contact patrons directly in an effort to attract high-end table game
patrons from the United States, Canada and South America. Trump Plaza's casino
hosts assist patrons on the casino floor, make room and dinner reservations
and provide general assistance. They also solicit Trump Card (the frequent
player slot card) sign-ups in order to increase Plaza Associates marketing
base.
Promotional Activities. The Trump Card constitutes a key element in Trump
Plaza's direct marketing program. Subject to regulatory constraints, the Trump
Card will be used in all of THCR's gaming facilities so as to build a national
database of gaming patrons. Slot machine players are encouraged to register
for and utilize their personalized Trump Card to earn various complimentaries
based upon their level of play. The Trump Card is inserted during play into a
card reader attached to the slot machine for use in computerized rating
systems. THCR's computer systems record data about the cardholders, including
playing preferences, frequency and denomination of play and the amount of
gaming revenues produced.
Trump Plaza designs promotional offers, conveyed via direct mail and
telemarketing, to patrons expected to provide revenues based upon their
historical gaming patterns. Such information is gathered on slot wagering by
the Trump Card and on table game wagering by the casino game supervisors.
Promotional activities include the mailing of vouchers for complimentary slot
play. Trump Plaza also utilizes a special events calendar (e.g., birthday
parties, sweepstakes and special competitions) to promote its gaming
operations.
Plaza Associates conducts slot machine and table game tournaments in which
cash prizes are offered to a select group of players invited to participate in
the tournament based upon their tendency to play. Such players tend to play at
their own expense during "off-hours" of the tournament. At times, tournament
players are also offered special dining and entertainment privileges that
encourage them to remain at Trump Plaza.
Bus Program. Trump Plaza has a bus program, which transports approximately
2,400 gaming patrons per day during the week and 3,500 per day on the
weekends. Trump Plaza's bus program offers incentives and
115
<PAGE>
discounts to certain scheduled and chartered bus customers. Trump Plaza's
Transportation Facility contains 13 bus bays and is connected by an enclosed
pedestrian walkway to Trump Plaza. The Transportation Facility provides
patrons with immediate access to the casino, and contains a comfortable lounge
area for patrons waiting for return buses.
Credit Policy. Historically, Trump Plaza has extended credit to certain
qualified patrons. For the years ended December 31, 1992, 1993 and 1994 and
the nine months ended September 30, 1995 credit play as a percentage of total
dollars wagered was approximately 28%, 18%, 17%, and 18%, respectively. As
part of Trump Plaza's new business strategy and in response to the general
economic downturn in the Northeast, Trump Plaza has imposed stricter standards
on applications for new or additional credit and has reduced credit to
international patrons. Such stricter standards in the extension of credit have
contributed to the reduction of credit play as a percentage of total dollars
wagered and has led to improved quality of the credit extended.
SEASONALITY
The gaming industry in Atlantic City is seasonal, with the heaviest activity
at Trump Plaza during the period from May through September, and with December
and January showing substantial decreases in activity. Revenues have been
significantly higher on Fridays, Saturdays, Sundays and holidays than on other
days.
EMPLOYEES AND LABOR RELATIONS
Plaza Associates has approximately 3,800 employees of whom approximately
1,100 are covered by collective bargaining agreements. THCR management
believes that its relationships with its employees are satisfactory. Certain
of Plaza Associates employees must be licensed under the Casino Control Act.
See "Regulatory Matters--New Jersey Gaming Regulations--Qualification of
Employees." Plaza Funding has no employees.
In April 1993, the National Labor Relations Board (the "NLRB") found that
Plaza Associates had violated the National Labor Relations Act (the "NLRA") in
the context of a union organizing campaign by table game dealers of Plaza
Associates in association with the Sports Arena and Casino Employees Union
Local 137, a/w Laborers' International Union of North America, AFL-CIO ("Local
137"). In connection with such finding, Plaza Associates was ordered to
refrain from interfering with, restraining, or coercing employees in the
exercise of the rights guaranteed them by Section 7 of the NLRA, to notify its
employees of such rights and to hold an election by secret ballot among its
employees regarding whether they desire to be represented for collective
bargaining by Local 137. The election was held on May 20 and 21, 1994 and the
vote, which has been certified by the NLRB, was in favor of management and
against representation by Local 137.
INDIANA RIVERBOAT
The Indiana Riverboat is expected to feature an approximately 280-foot
luxury yacht containing approximately 37,000 square feet of gaming space with
1,500 slot machines, 73 table games and capacity of approximately 2,450
passengers and 300 employees. The site adjacent to the Indiana Riverboat is
anticipated to include surface parking for approximately 3,000 automobiles and
certain other infrastructure improvements. The cost to THCR for the
development of the Indiana Riverboat, which includes the land, the vessel,
gaming equipment, a pavilion for staging and ticketing and restaurant
facilities, berthing and support facilities and parking facilities, is
expected to be approximately $84 million through the planned opening early in
the second quarter of 1996. THCR initially anticipated spending $59 million
prior to the commencement of the Indiana Riverboat's operations for the
vessel, gaming equipment and initial berthing and support facilities, and also
anticipated spending an additional $27 million in the second phase to be
completed by mid-1997, which would feature a pavilion for staging and
ticketing and restaurant facilities, berthing and support facilities and
expanded parking. To facilitate the Indiana Riverboat's operations from the
opening day and to avoid disruptive construction at the site for an additional
year, THCR determined to accelerate the second phase of the project and
complete both phases prior to commencing operations. On August 30, 1995, Trump
Indiana entered into a
116
<PAGE>
loan and security agreement with dFS, pursuant to which dFS has agreed,
subject to the terms and conditions thereof, to provide $15 million in
financing for the gaming vessel which is substantially constructed. In
addition, THCR has further committed in the licensure process to construct a
hotel facility and other amenities (at an approximate cost of $48 million) and
to fund approximately $21 million of infrastructure improvements and other
municipal uses.
The Indiana Riverboat site is approximately 25 miles from downtown Chicago.
In addition, the cities of Indianapolis, Fort Wayne, Toledo and Grand Rapids
are each within a 175-mile radius of the Indiana Riverboat location. THCR
believes the Indiana Riverboat will benefit from (i) its location and size,
(ii) its strategy of developing, together with Barden, an array of
entertainment, retail and restaurant attractions, and coordinating cruise
schedules and (iii) the widespread recognition of the "Trump" name and what
management believes to be its reputation for quality. Gaming facilities in
Illinois are limited at present to 1,200 gaming positions under current
regulations in Illinois, which THCR believes will put Illinois properties at a
competitive disadvantage to larger facilities such as the Indiana Riverboat.
THCR expects to draw on these competitive advantages and to capitalize on its
experience in gaming activities in Atlantic City in order to create an
outstanding gaming and entertainment experience.
THCR expects to focus its marketing efforts for the Indiana Riverboat on the
middle market, which makes up the majority of the gaming population in the
Great Lakes Market. The middle market constitutes a broad segment of casino
patrons who come to a casino for exciting recreation and entertainment and who
typically wager less, on an individual basis, than high-end patrons. Through
the use of the "Trump" name and systematic marketing programs, THCR will seek
to attract drive-in customers to the facility. Casinos currently operating in
the Great Lakes Market have been achieving operating results which exceed
levels in other new gaming markets in terms of win per unit. THCR believes
that these operating levels indicate that the Great Lakes Market will be
capable of absorbing significant capacity expansion in the future.
Under current gaming laws in Indiana, all games typically available in
Atlantic City casinos will be permitted on the Indiana Riverboat. The
riverboat casinos in Indiana will be permitted to stay open 24 hours per day,
365 days per year and to extend credit and accept credit charge cards, with no
loss or wagering limits. It is anticipated that the Indiana Riverboat would
make approximately six daily cruises of two to three hours in duration each.
Indiana gaming laws permit gambling while cruising and during each 30-minute
period during passenger embarkation and disembarkation. The foregoing may be
subject to the adoption of proposed amendments to applicable Federal
legislation and clarification or interpretation of recently enacted state
legislation. See "Regulatory Matters--Indiana Gaming Regulations--Excursions."
THCR believes that competition in the gaming industry, particularly the
riverboat and dockside gaming industry, is based on the quality and location
of gaming facilities, the effectiveness of marketing efforts, and customer
service and satisfaction. Although management of THCR believes that the
location of the Indiana Riverboat will allow THCR to effectively compete with
other casinos in the geographic area surrounding its casino, THCR expects
competition in the casino gaming industry to be intense as more casinos are
opened and new entrants into the gaming industry become operational.
Barden and Trump Indiana are the holders of the certificates of suitability
in Buffington Harbor. Barden is an entity beneficially owned by Don H. Barden,
a developer based in Detroit without significant gaming experience. Pursuant
to the BHR Agreement, BHR will own, develop and operate all common land-based
and waterside operations in support of Trump Indiana's and Barden's separate
riverboat casinos at Buffington Harbor. Trump Indiana and Barden will each be
equally responsible for the development and the operating expenses of BHR. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of THCR--Liquidity and Capital Resources."
On June 29, 1995, Trump Indiana acquired, pursuant to the Agreement of Sale
(the "Site Sale Agreement") with Lehigh Portland Cement Company ("Lehigh"),
dated May 10, 1995, approximately 88 acres of land at
117
<PAGE>
Buffington Harbor for $13.5 million (the "Site Purchase Price"). Pursuant to
the Site Sale Agreement, Lehigh also granted Trump Indiana a ten year lease
for the initial use of certain of Lehigh's property adjacent to the Buffington
Harbor site for the docking of the Indiana Riverboat vessel. Trump Indiana
will make no lease payments to Lehigh during the first 30 months of the lease.
In the event that the use of this property continues beyond the initial 30-
month period, Lehigh will be entitled to receive a license fee in an amount
equal to $125,000 per month for each month Trump Indiana uses Lehigh's
property during the remaining term of the lease.
In 1994, the City of Gary (the "City") commenced a legal proceeding in Lake
County Superior Court of Indiana captioned City Of Gary v. Lehigh Portland
Cement Company, et al., in which the City sought to exercise its eminent
domain power to acquire certain of Lehigh's property, including the Buffington
Harbor site, for the purpose of using the land as a gaming venture. On May 12,
1995, the court ruled in favor of the City. Consummation of the condemnation
process is subject to additional conditions. However, on May 27, 1995, THCR
entered into a Memorandum of Understanding (the "MOU") with the City pursuant
to which the City agreed to take all necessary steps to dismiss the
condemnation suit following the closing of the Site Sale Agreement. This
proceeding was dismissed with prejudice in July 1995. THCR and Trump Indiana
further agreed, among other things, to (i) pay to the City $205,000 as
reimbursement for certain costs and expenses incurred by the City, and pay
certain additional costs and expenses to be incurred by the City in connection
with the dismissal of its condemnation suit; (ii) use best efforts to
negotiate and complete by June 20, 1995 a long-term ground lease pursuant to
which the City would lease the Buffington Harbor Site to Trump Indiana for a
period of 99 years with rent at $1.00 per year (the "Buffington Harbor
Lease"), (iii) transfer title to the Buffington Harbor Site to the City in
consideration of $1.00 upon closing the Site Sale Agreement, provided the
Buffington Harbor Lease is then effective; (iv) use best efforts to negotiate
and complete by July 25, 1995 a development agreement with the City in order
to confirm Trump Indiana's undertakings to the City pursuant to its
certificate of suitability and (v) commence construction at the Buffington
Harbor site by the later of June 30, 1995 or such date on which all permits
and approvals necessary for the development and operation of the Buffington
Harbor site have been obtained, and use best efforts to commence gaming
operations within ninety (90) days of commencement of construction. To date,
THCR and Trump Indiana have complied with the terms of the MOU. On September
29, 1995, Trump Indiana, Barden and the City entered into an agreement
modifying the MOU (the "Amended MOU"). The Amended MOU permits Trump Indiana
and Barden to retain ownership of the 88 acre parcel at Buffington Harbor to
be utilized for their riverboat operations.
On December 9, 1994, the IGC issued to Trump Indiana a certificate of
suitability for a riverboat owner's license for a riverboat to be docked in
Buffington Harbor, Indiana. The certificate of suitability constitutes
approval of the application of Trump Indiana for a riverboat owner's license.
In January 1996, the IGC extended Trump Indiana's certificate of suitability
until June 28, 1996. Pursuant to the terms of the certificate of suitability,
during such period, Trump Indiana must comply with certain statutory and other
requirements imposed by the IGC. In addition, as a condition to the
certificate of suitability, Trump Indiana has committed to invest $153 million
in the Indiana Riverboat and certain related projects and certain economic
development projects and to pay to the City a 1% of gross gaming revenue fee,
intended to be used by the City for security and public safety purposes, and
an additional fee ranging from (i) 2% to 4% of the gross gaming revenue
depending on the amount of gross gaming revenues generated or (ii) 2% to 18%
of net income before taxes depending on the amount of Trump Indiana's net
income before taxes, whichever is greater.
Failure to comply with the foregoing conditions and/or failure to commence
riverboat excursions by such time as required by the IGC could result in the
revocation of the certificate of suitability. There can be no assurance that
THCR and/or Trump Indiana will be able to comply with the terms of the
certificate of suitability, that it will be further extended if operations do
not commence by June 28, 1996 or that a riverboat owner's license will
ultimately be granted. The riverboat owner's license will only be issued upon
satisfaction of the conditions of the certificate of suitability and the
requirements of the gaming laws, which include the completion of the Indiana
Riverboat, acquisition of necessary permits or approvals from federal, state
and local authorities and readiness to commence operations. See "Regulatory
Matters--Indiana Gaming Regulations--Interim
118
<PAGE>
Compliance Requirements." If granted, such license would be for an initial
term of five years and renewable annually thereafter. With respect to certain
land-based facilities, THCR would also be dependent on the ability of Barden
to obtain the requisite licenses and fund its portion of joint construction
costs.
Trump Indiana has entered into a Sales and Construction Agreement with
Atlantic Marine, Inc. ("AMI") for the purchase and construction of the Indiana
Riverboat vessel (the "Construction Agreement") for $24 million (the "Vessel
Contract Price"). Pursuant to the Construction Agreement, Trump Indiana paid
10% of the Vessel Contract Price to AMI and AMI ordered materials and
commenced construction of the vessel. The vessel will remain the property of
AMI until the Vessel Contract Price is paid in full. All risk of damage to or
destruction of the vessel and all liability to or for labor employed during
its construction will be the responsibility of AMI. Pursuant to the
Construction Agreement, AMI will not be responsible for (i) any negligent
construction or defects in the vessel after nine months from the date of
acceptance of the vessel by Trump Indiana upon completion of the construction
or (ii) any incidental or consequential damages.
Development of the Indiana Riverboat project will require THCR to (a)
acquire rights to traverse, use and/or improve certain parcels of property
owned by third parties, in order to gain direct, construction and emergency
access to the property, and (b) acquire access to water, sewer, gas, electric
and other necessary utility services which presently cannot provide service to
the site and which may require extension of existing utility service
facilities across existing rights of way and other property owned by third
parties. There can be no assurance that THCR will obtain the rights, utility
services, licenses, permits and approvals necessary to undertake or complete
its development plans, or that such rights, utility services, licenses,
permits and approvals will be obtained within the anticipated time frame.
Before the Indiana Riverboat becomes operational, additional definitive
agreements must be negotiated and executed, gaming facilities must be
constructed and a number of further conditions must be satisfied (including
the licensing of THCR, Barden and their respective employees and the receipt
of all requisite permits). There can be no assurance that the Indiana
Riverboat will become operational. See "--Indiana Riverboat," "Risk Factors--
The Indiana Riverboat," "--Competition," and "Regulatory Matters--Indiana
Gaming Regulations."
THCR believes that competition in the gaming industry, particularly the
riverboat and dockside gaming industry, is based on the quality and location
of gaming facilities, the effectiveness of marketing efforts, and customer
service and satisfaction. Although management of THCR believes that the
location of the Indiana Riverboat will allow THCR to compete effectively with
other casinos in the geographic area surrounding its casino, THCR expects
competition in the casino gaming industry to be intense as more casinos are
opened and new entrants into the gaming industry become operational. See
"Competition."
THCR has no operating history in Indiana and is unable to predict
seasonality with respect to the Indiana Riverboat.
OTHER JURISDICTIONS
Casino gaming is currently permitted in a number of other states, as well as
on Native American lands in a number of other states. New or expanded
operations by other persons can be expected to increase competition for THCR's
existing and future operations and could result in the saturation of certain
gaming markets.
THCR explores opportunities to establish additional gaming operations,
particularly in jurisdictions where the legalization of casino gaming is
relatively recent or is anticipated. There can be no assurance as to whether,
or the point at which, THCR will be successful in commencing gaming operations
in any particular jurisdiction. The results of THCR's efforts to establish
such operations will depend upon the level of competition for available
opportunities, THCR's financial resources and other factors which may be
beyond THCR's control, including the decision of various jurisdictions to
establish or expand legalized casino gaming and risks associated with
construction. See "Risk Factors--Considerations with Respect to the
Acquisition or Development of Additional Gaming Ventures."
119
<PAGE>
PROPERTIES
Plaza Associates owns and leases several parcels of land in and around
Atlantic City, New Jersey, each of which is used in connection with the
operation of Trump Plaza and each of which is subject to the liens of the
mortgages associated with the Plaza Mortgage Notes (collectively, the "Plaza
Mortgages") and certain other liens. Upon its acquisition, Trump Plaza East
would also become subject to the Plaza Mortgages. One of the Plaza Mortgages
(the "Plaza Note Mortgage") and related assignments of assets encumber the
real property owned and leased by Plaza Associates and substantially all of
Plaza Associates' other assets, all of which constitute Trump Plaza and its
related properties, and secure a note from Plaza Associates to Plaza Funding
in the same principal amount of the Plaza Mortgage Notes (the "Plaza
Associates Note"). Plaza Funding has assigned the Plaza Note Mortgage and
Plaza Associates Note to the trustee under the Plaza Mortgage Note Indenture.
Another of the Plaza Mortgages (the "Plaza Guarantee Mortgage") and related
assignments of assets of Plaza Associates encumber the real property and
assets of Plaza Associates described above, senior to the liens of the Plaza
Note Mortgage, and secure Plaza Associates' non-recourse guarantee (the "Plaza
Guarantee") of the Plaza Mortgage Notes. The Plaza Mortgage Note Indenture and
the Plaza Mortgages are herein collectively referred to as the "Plaza Mortgage
Note Agreements."
Plaza Casino Parcel. The Main Tower is located on The Boardwalk in Atlantic
City, New Jersey, next to the existing Atlantic City Convention Center. It
occupies the entire city block (approximately 2.38 acres) bounded by The
Boardwalk, Mississippi Avenue, Pacific Avenue and Columbia Place (the "Plaza
Casino Parcel").
The Plaza Casino Parcel consists of four tracts of land, one of which is
owned by Plaza Associates and three of which are leased to Plaza Associates
pursuant to three non-renewable ground leases, each of which expires on
December 31, 2078 (each, a "Plaza Ground Lease"). Trump Seashore Associates
("Trump Seashore"), Seashore Four Associates ("Seashore Four") and Plaza Hotel
Management Company (each, a "Plaza Ground Lessor") are the owners/lessors
under such respective Ground Leases (respectively, the "TSA Lease," "SFA
Lease" and "PHMC Lease"; the land which is subject to the Ground Leases (which
includes Additional Parcel 1, as defined) is referred to collectively as the
"Plaza Leasehold Tracts" and individually as a "Plaza Leasehold Tract"). Trump
Seashore Associates and Seashore Four Associates are 100% beneficially owned
by Trump and are, therefore, affiliates of THCR.
The Plaza Ground Leases provide that each Plaza Ground Lessor may encumber
its fee estate with mortgage liens, but any such fee mortgage will not
increase the rent under the applicable Plaza Ground Lease and must be
subordinate to such Plaza Ground Lease. Accordingly, any default by a Plaza
Ground Lessor under any such fee mortgage will not result in a termination of
the applicable Plaza Ground Lease but would permit the fee mortgagee to bring
a foreclosure action and succeed to the interests of the Plaza Ground Lessor
in the fee estate, subject to Plaza Associates' leasehold estate under such
Plaza Ground Lease. Each Plaza Ground Lease also specifically provides that
the Plaza Ground Lessor may sell its interest in the applicable Plaza
Leasehold Tract, but any such sale would be made subject to Plaza Associates'
interest in the applicable Plaza Ground Lease.
On August 1, 1991, as security for indebtedness owed to a third party, Trump
Seashore transferred its interest in the TSA Lease to United States Trust
Company of New York ("UST"), as trustee for the benefit of such third party
creditor. The trust agreement among UST, Trump Seashore and such creditor
provides that the trust shall terminate on the earlier of (i) August 1, 2012
or (ii) the date on which such third party creditor certifies to UST that all
principal, interest and other sums due and owing from Trump Seashore to such
third party creditor have been paid.
On September 20, 1995, Trump Seashore and its third party lender entered
into a mortgage note modification and extension agreement, pursuant to which
Trump Seashore and such third party lender extended the term of the
indebtedness described above, which matured in October 1993, to September 30,
1996, and increased the interest rate to be paid on such indebtedness to one
and one-half percent in excess of the interest rate stated by such third party
lender to be its prime rate.
120
<PAGE>
Each Plaza Ground Lease contains options pursuant to which Plaza Associates
may purchase the Plaza Leasehold Tract covered by such Plaza Ground Lease at
certain times during the term of such Plaza Ground Lease under certain
circumstances. The purchase price pursuant to each option is specified in the
applicable Plaza Ground Lease.
The Plaza Ground Leases are "net leases" pursuant to which Plaza Associates,
in addition to the payment of fixed rent, is responsible for all costs and
expenses with respect to the use, operation and ownership of the Plaza
Leasehold Tracts and the improvements now, or which may in the future be,
located thereon, including, but not limited to, all maintenance and repair
costs, insurance premiums, real estate taxes, assessments and utility charges.
The improvements located on the Plaza Leasehold Tracts are owned by Plaza
Associates during the terms of the respective Plaza Ground Leases and upon the
expiration of the term of each Plaza Ground Lease (for whatever reason),
ownership of such improvements will vest in the Plaza Ground Lessor.
If a bankruptcy case is filed by or commenced against a Plaza Ground Lessor
under applicable bankruptcy law, the trustee in bankruptcy in a liquidation or
reorganization case under the applicable bankruptcy law, or a debtor-in-
possession in a reorganization case under the applicable bankruptcy law, has
the right, at its option, to assume or reject the Plaza Ground Lease of the
debtor-lessor (subject, in each case, to court approval). If the Plaza Ground
Lease is assumed, the rights and obligations of Plaza Associates thereunder,
and the rights of the trustee with respect to the Plaza Mortgage Notes (the
"Plaza Mortgage Note Trustee") as leasehold mortgagee under the Plaza Mortgage
Note Agreements, would continue in full force and effect. If the Plaza Ground
Lease is rejected, Plaza Associates would have the right, at its election,
either (i) to treat the Plaza Ground Lease as terminated, or (ii) to continue
in possession of the land and improvements under the Plaza Ground Lease for
the balance of the term thereof and at the rental set forth therein (with a
right to offset against such rent any damages caused by the Plaza Ground
Lessor's failure to thereafter perform its obligations under such Plaza Ground
Lease). The Plaza Mortgage Note Agreements provide that if a Plaza Ground
Lease is rejected, Plaza Associates assigns to the Plaza Mortgage Note Trustee
its rights to elect whether to treat the Plaza Ground Lease as terminated or
to remain in possession of the leased premises.
In the case of the Plaza Ground Leases, the rejection of a Plaza Ground
Lease by a trustee in bankruptcy or debtor-lessor (as debtor-in-possession)
may result in termination of any options to purchase the fee estate of the
debtor-lessor and the Plaza Mortgage Note Trustee's option (as leasehold
mortgagee as described above), if the Plaza Ground Lease is terminated, to
enter into a new lease directly with the lessor. In addition, under an
interpretation of New Jersey law, it is possible that a court would regard
such options as separate contracts and, therefore, severable from the Plaza
Ground Lease. In such event, the trustee in bankruptcy or debtor-lessor (as
debtor-in-possession) could assume the Plaza Ground Lease, while rejecting
some or all of such options under the Ground Lease.
Parking Parcels. Plaza Associates owns a parcel of land (the "Plaza Garage
Parcel") located across the street from the Plaza Casino Parcel and along
Pacific Avenue in a portion of the block bounded by Pacific Avenue,
Mississippi Avenue, Atlantic Avenue and Missouri Avenue. Plaza Associates has
constructed on the Plaza Garage Parcel a 10-story parking garage capable of
accommodating approximately 2,650 cars and which includes offices and a bus
transportation center with bays accommodating up to 13 buses at one time. An
enclosed pedestrian walkway from the parking garage accesses Trump Plaza at
the casino level. Parking at the parking garage is available to Trump Plaza's
guests, as well as to the general public. One of the tracts comprising a
portion of the Plaza Garage Parcel is subject to a first mortgage on Plaza
Associates' fee interest in such tract. As of September 30, 1995, such
mortgage secured indebtedness had an approximate outstanding principal balance
of $1.4 million.
121
<PAGE>
Plaza Associates leases, pursuant to the PHMC Lease, a parcel of unimproved
land located on the northwest corner of the intersection of Mississippi and
Pacific Avenues consisting of approximately 11,800 square feet ("Additional
Parcel 1") and owns another parcel on Mississippi Avenue adjacent to
Additional Parcel 1 consisting of approximately 5,750 square feet (the
"Bordonaro Parcel"). In addition to the Plaza Mortgages, the Bordonaro Parcel
is encumbered by a first mortgage securing indebtedness having an outstanding
principal balance, as of September 30, 1995, of approximately $110,000.
Additional Parcel 1 and the Bordonaro Parcel are presently paved and used for
surface parking.
Plaza Associates also owns five parcels of land, aggregating approximately
43,300 square feet, and subleases one parcel consisting of approximately 3,125
square feet. All of such parcels are contiguous and are located along Atlantic
Avenue, in the same block as the Plaza Garage Parcel. They are used for
signage and surface parking and are not encumbered by any mortgage liens other
than those of the Plaza Mortgages.
Warehouse Parcel. Plaza Associates owns a warehouse and office facility
located in Egg Harbor Township, New Jersey containing approximately 64,000
square feet of space (the "Egg Harbor Parcel"). The Egg Harbor Parcel is
encumbered by a first mortgage having an outstanding principal balance, as of
September 30, 1995, of approximately $1.5 million and is encumbered by the
Plaza Mortgages.
Trump Plaza East. In September 1993, Trump (as predecessor in interest to
Plaza Associates under the lease for Trump Plaza East) entered into the Time
Warner Sublease with Time Warner pursuant to which Time Warner subleased the
entire first floor of retail space for a new Warner Brothers Studio Store
which opened in July 1994. The Time Warner Sublease provides for a 10-year
term which expires on the last day of the month immediately preceding the
tenth anniversary of the commencement date and contains two 5-year renewal
options exercisable by Time Warner. Time Warner renovated the premises in
connection with opening the studio store. Rent under the Time Warner Sublease
is currently accruing and will not become due and payable to Plaza Associates
until the satisfaction of certain conditions designed to protect Time Warner
from the termination of the Time Warner Sublease by reason of the termination
of Plaza Associates' leasehold estate in Trump Plaza East or the foreclosure
of a certain mortgage and until Time Warner's unamortized construction costs
are less than accrued rent. No assurances can be made that such conditions
will be satisfied. In addition, Time Warner may terminate the Time Warner
Sublease at any time after two years after the commencement date in the event
that gross sales for the store do not meet certain threshold amounts or at any
time if Plaza Associates fails to operate a first class hotel on Trump Plaza
East. See "Certain Transactions--Plaza Associates--Trump Plaza East."
Trump World's Fair. Pursuant to an easement agreement with The New Jersey
Sports and Exposition Authority ("NJSEA"), Plaza Associates has an exclusive
easement over, in and through the portions of the Atlantic City Convention
Center to be used as the pedestrian walkway connecting the Main Tower and
Trump World's Fair. The easement is for a 25-year term and may be renewed at
the option of Plaza Associates for one additional 25-year period. In
consideration of the granting of the easement, Plaza Associates must pay to
NJSEA the sum of $2,000,000 annually, such annual payment to be adjusted every
five years to reflect changes in the consumer price index. Plaza Associates
will have the right to terminate the easement agreement at any time upon six
months' notice to NJSEA in consideration of a termination payment of
$1,000,000. See also "Certain Transactions--Plaza Associates--Trump World's
Fair" and "Regulatory Matters--New Jersey Gaming Regulations--Approved Hotel
Facilities."
Superior Mortgages. The liens securing the indebtedness on the Plaza Garage
Parcel, the Bordonaro Parcel and the Egg Harbor Parcel (all of such liens are
collectively called the "Existing Senior Plaza Mortgages") are all senior to
the liens of the Plaza Mortgages. The principal amount currently secured by
such Existing Senior Plaza Mortgages as of September 30, 1995 is, in the
aggregate, approximately $3.1 million.
Plaza Associates has financed or leased and from time to time will finance
or lease its acquisition of furniture, fixtures and equipment. The lien in
favor of any such lender or lessor may be superior to the liens of the Plaza
Mortgages.
122
<PAGE>
Trump Tower. THCR Holdings has entered into a ten year lease with The Trump-
Equitable Fifth Avenue Company, a corporation wholly owned by Trump, dated as
of July 1, 1995, for the lease of office space in The Trump Tower in New York
City, which THCR Holdings may use for its general, executive and
administrative offices. The fixed rent is $115,000 per year, paid in monthly
installments, for the period from July 1, 1995 to June 30, 2000 and will be
$129,250 per year, paid in monthly installments, for the period from July 1,
2000 to June 30, 2005. In addition, THCR Holdings will pay as additional rent
a portion of the taxes for each tax year. THCR Holdings has the option to
terminate this lease upon ninety days written notice and payment of
$32,312.50.
Indiana Riverboat. See "--Indiana Riverboat."
TRADEMARK/LICENSING
Pursuant to the License Agreement, Trump granted to THCR the world-wide
right and license to use the Marks in connection with casino and gaming
activities and related services and products. The license is exclusive,
subject to existing licenses of the Marks to the Taj Mahal and Trump's Castle.
The License Agreement does not restrict or restrain Trump from the right to
use or further license the Trump Names in connection with services and
products other than casino services and products.
The license is for a term of the later of: (i) 20 years; (ii) such time as
Trump and his affiliates no longer hold a 15% or greater voting interest in
THCR; or (iii) such time as Trump ceases to be employed or retained pursuant
to an employment, management, consulting or similar services agreement with
THCR. Upon expiration of the term of the License, Trump will grant THCR a non-
exclusive license for a reasonable period of transition on terms to be
mutually agreed upon between Trump and THCR. Trump's obligations under the
License Agreement are secured by a security agreement, pursuant to which Trump
granted THCR a first priority security interest in the Marks for use in
connection with casino services, as well as related hotel, bar and restaurant
services. See "Risk Factors--Limitations on License of the Trump Name."
THE 1992 PLAZA RESTRUCTURING
In 1991, Trump Plaza experienced liquidity problems. THCR management
believes that those liquidity problems were attributable, in part, to an
overall deterioration in the Atlantic City gaming market, as indicated by
reduced rates of casino revenue growth for the industry for the two prior
years, aggravated by an economic recession in the Northeast. In addition,
increased casino gaming capacity in Atlantic City, due in part to the opening
of the Taj Mahal in April 1990, may also have contributed to Trump Plaza's
liquidity problems.
In order to alleviate its liquidity problem, pursuant to the 1992 Plaza
Restructuring, Plaza Associates and Plaza Funding restructured their
indebtedness through a prepackaged plan of reorganization under Chapter 11 of
the Bankruptcy Code.
The purpose of the 1992 Plaza Restructuring was to improve the amortization
schedule and extend the maturity of Plaza Associates' indebtedness by (i)
eliminating the sinking fund requirement on Plaza Funding's 12 7/8% Mortgage
Bonds, due 1998 (the "Original Plaza Bonds"), (ii) extending the maturity of
such indebtedness from 1998 to 2002, (iii) lowering the interest rate from 12
7/8% per annum to 12% per annum, (iv) reducing the aggregate principal amount
of the indebtedness under the Original Plaza Bonds and certain other
indebtedness from $250 million to $225 million and (v) eliminating certain
other indebtedness by reconstituting such debt in part as new bonds (the
"Successor Plaza Bonds") and in part as Stock Units (as defined). The 1992
Plaza Restructuring was necessitated by the inability to either generate cash
flow or obtain additional financing sufficient to make the scheduled sinking
fund payment on the Original Plaza Bonds. In connection with the 1992 Plaza
Restructuring, each holder of $1,000 principal amount of Original Plaza Bonds
and such other indebtedness received (i) $900 principal amount of Successor
Plaza Bonds, (ii) 12 Stock Units, each representing one share of Common Stock
and one share of Preferred Stock of Plaza Funding (the "Stock Units") and
(iii) cash payments of approximately $58.65, reflecting accrued interest.
123
<PAGE>
On May 29, 1992, Plaza Funding, which theretofore had no interest in Plaza
Associates, received a 50% beneficial interest in TP/GP, Inc. ("Trump Plaza
GP"), and Plaza Funding and Trump Plaza GP were admitted as partners of Plaza
Associates. Plaza Funding also issued approximately three million Stock Units
to holders of the Original Plaza Bonds and certain other indebtedness.
Pursuant to the terms of the Plaza Associates partnership agreement, Plaza
Funding was issued a preferred partnership interest, which provided Plaza
Funding with partnership distributions designed to pay dividends on, and the
redemption price of, the Stock Units. Trump Plaza GP became the managing
general partner of Plaza Associates, and, through its Board of Directors,
managed the affairs of Plaza Associates. Trump Plaza GP was subsequently
merged with and into Plaza Funding, which became the managing general partner
of Plaza Associates.
The Successor Plaza Bonds and the Stock Units were redeemed in 1993 out of
the proceeds of a refinancing designed to enhance Trump Plaza's liquidity and
to position the Trump Plaza for a subsequent deleveraging transaction. The
1993 refinancing included (i) the sale by Plaza Funding of $330 million in
aggregate principal amount of Plaza Mortgage Notes and (ii) the sale by Plaza
Holding of $60 million aggregate principal amount of PIK Notes and PIK Note
Warrants to acquire an aggregate of $12 million in principal amount of
additional PIK Notes. Upon consummation of the refinancing, Plaza Funding held
a 1% equity interest in Plaza Associates and Plaza Holding held a 99% equity
interest.
CERTAIN INDEBTEDNESS OF THCR
THCR Holdings and THCR Funding (the "THCR Obligors") are the issuers of $155
million principal amount of Senior Notes. The Senior Notes are the joint and
several obligations of the THCR Obligors. Interest on the Senior Notes is
payable semiannually in arrears.
The Senior Notes mature on June 15, 2005. The Senior Notes are not
redeemable prior to June 15, 2000, except pursuant to a Required Regulatory
Redemption (as defined in the Senior Note Indenture). Thereafter, the Senior
Notes may be redeemed at the option of the THCR Obligors, in whole or in part,
at any time on or after June 15, 2000 at the redemption prices set forth in
the Senior Note Indenture, together with accrued and unpaid interest to the
date of redemption. In addition, upon the occurrence of a Senior Note Change
of Control (as defined in the Senior Note Indenture), each holder of Senior
Notes may require the THCR Obligors to repurchase such holder's Senior Notes
at 101% of the principal amount thereof, together with accrued and unpaid
interest to the date of repurchase.
The obligations of the THCR Obligors under the Senior Note Indenture are
secured by (1) an assignment and pledge to the Trustee under the Senior Note
Indenture (the "Senior Note Trustee") of (a) 99% of the general partnership
interests in Plaza Associates, (b) 100% of the capital stock of Plaza Funding
(the holder of the remaining 1% general partnership interest in Plaza
Associates, which 1% is pledged exclusively for the benefit of the holders of
the Mortgage Notes), (c) 100% of the general partnership interests in Plaza
Holding, (d) 100% of the capital stock of Plaza Holding Inc., (e) 100% of the
capital stock of Trump Indiana, (f) 100% of the capital stock of THCR Funding,
(g) other equity interests issued from time to time by THCR Holdings or any of
its subsidiaries, excluding Unrestricted Subsidiaries, and (h) promissory
notes issued by THCR Holdings or any of its subsidiaries, excluding
Unrestricted Subsidiaries, from time to time directly owned or acquired by
THCR Holdings; (2) certain remaining net proceeds from the June 1995
Offerings; and (3) certain proceeds from time to time received, receivable or
otherwise distributed in respect of the assets described in clauses (1) and
(2) above (collectively, the "Collateral"). The security interests in the
Collateral are first priority security interests and are exclusive except to
the extent required by the Plaza Mortgage Note Indenture to equally and
ratably secure the Plaza Mortgage Notes with respect to any of the direct or
indirect equity interests in Plaza Associates, Plaza Funding, Plaza Holding
and Plaza Holding Inc. Any equity interests in subsidiaries of THCR Holdings,
excluding equity interests in Unrestricted Subsidiaries, which are acquired by
THCR Holdings will be assigned and pledged to the Senior Note Trustee and the
security interests granted in such equity interests will be exclusive, first
priority security interests. In connection with the Merger Transaction, THCR
will designate Taj Holdings LLC, TTMC, Taj Associates and Taj Funding as
Unrestricted Subsidiaries under the Senior Note Indenture.
124
<PAGE>
In addition to the Senior Notes, $330 million of the Plaza Mortgage Notes
remain outstanding. The Plaza Mortgage Notes were issued by Plaza Funding,
with Plaza Associates providing a full and unconditional guaranty thereof. The
Plaza Mortgage Notes will mature in 2001 and bear interest semiannually in
arrears. The Plaza Mortgage Notes are subject to redemption at any time on or
after June 15, 1998, at the option of Plaza Funding or Plaza Associates, in
whole or in part, at the redemption prices set forth in the Plaza Mortgage
Note Indenture. In addition, upon the occurrence of a Plaza Mortgage Note
Change of Control (as defined in the Plaza Mortgage Note Indenture), each
holder of Plaza Mortgage Notes may require Plaza Funding or Plaza Associates
to repurchase such holder's Plaza Mortgage Notes at 101% of the principal
amount thereof, together with accrued and unpaid interest to the date of
repurchase.
Plaza Funding's and Plaza Associates' obligations under the Plaza Mortgage
Note Indenture are secured principally by (i) the Plaza Note Mortgage
encumbering substantially all of Plaza Associates' assets (see "--Properties")
and (ii) the pledge by Plaza Funding of its 1% general partnership interest in
Plaza Associates and, equally and ratably with the Senior Notes to the extent
required by the Plaza Mortgage Note Indenture, by a pledge of (x) THCR
Holdings' 99% general partnership interest in Plaza Holding, (y) Plaza
Holding's 99% general partnership interest in Plaza Associates, and (z) 100%
of the capital stock of Plaza Funding and Plaza Holding Inc. (the holder of
the remaining 1% of Plaza Holding).
In addition to the foregoing, THCR's consolidated long-term indebtedness
includes approximately $3.1 million of outstanding mortgage notes described
under "--Properties" as of September 30, 1995.
LEGAL PROCEEDINGS
General. Plaza Associates, its partners, certain members of its former
Executive Committee, and certain of its employees, have been involved in
various legal proceedings. In general, Plaza Associates has agreed to
indemnify such persons and entities against any and all losses, claims,
damages, expenses (including reasonable costs, disbursements and counsel fees)
and liabilities (including amounts paid or incurred in satisfaction of
settlements, judgments, fines and penalties) incurred by them in said legal
proceedings. Such persons and entities are vigorously defending the
allegations against them and intend to vigorously contest any future
proceedings.
Trump Plaza East. From monies made available to it, the CRDA is required to
set aside $100 million for investment in hotel development projects in
Atlantic City undertaken by casino licensees which result in the construction
or rehabilitation of at least 200 hotel rooms by December 31, 1996. These
investments are to fund up to 35% of the cost to casino licensees of such
projects. See "Regulatory Matters--New Jersey Gaming Regulations--Investment
Alternative Tax Obligations." Plaza Associates made application for such
funding to the CRDA with respect to its proposed construction and
rehabilitation of the Trump Plaza East hotel rooms and related Boardwalk and
second level facilities, proposed demolition of an existing hotel expansion
structure attached thereto and development of an appurtenant public park,
roadway and parking area on the site thereof and proposed acquisition of the
entire project site.
The CRDA, in rulings through January 10, 1995, approved the hotel
development project and, with respect to same, reserved to Plaza Associates
the right to take investment tax credits in an amount equal to 27% ($14.1
million) of $52.4 million of eligible estimated project development costs. In
October 1994, following a September 1994 CCC ruling authorizing same, Plaza
Associates advised the CRDA of its intention to, without affecting either the
project development costs or the tax credits, locate approximately 15,000
square feet of casino space on the second floor of Trump Plaza East and was
advised by the CRDA that its proposed use of such space would not affect the
approval of the hotel development project.
As part of its approval and on the basis of its powers of eminent domain,
the CRDA, during 1994, initiated five condemnation proceedings in the Superior
Court of New Jersey, Atlantic County, to acquire certain small parcels of land
within the project site. The defendants in three of those matters, with
respect to parcels which impact only the public park and parking areas, Casino
Reinvestment Development Authority v. Banin, et al., Docket No. ATL-L-2676-94,
Casino Reinvestment Development Authority v. Sabatini, et al., Docket No.
125
<PAGE>
ATL-L-2976-94, and Casino Reinvestment Development Authority v. Coking, et
al., Docket No. ATL-L-2974-94, asserted numerous defenses to the condemnation
complaints and filed counterclaims against CRDA and third-party complaints
against Plaza Associates alleging, inter alia, an improper exercise of CRDA
power for private purposes and conspiracy between the CRDA and Plaza
Associates. After the filing of briefs and a hearing, a New Jersey Superior
Court judge issued an opinion that the Trump Plaza East acquisition and
renovation was not eligible for CRDA funding and, as a result, the CRDA could
not exercise its power of eminent domain because the project included casino
floor space. The court, by order dated April 18, 1995, dismissed the
condemnation complaints with prejudice. On April 17, the same judge dismissed
the counterclaims and third-party complaints without prejudice. Notices of
appeal were filed with the New Jersey Superior Court, Appellate Division on
April 21, 1995 by the CRDA and on April 24, 1995 by Plaza Associates. On May
1, 1995, the Casino Association of New Jersey on behalf of its members, 11 of
the 12 Atlantic City casino hotels, filed a motion to intervene or, in the
alternative, for leave to appear as an amicus curiae. Briefs have been filed
by all parties and the matter now awaits the scheduling of oral arguments.
The completion of the planned renovations of Trump Plaza East is not
dependent upon the utilization of CRDA funding or upon the CRDA's acquisition
of the real estate subject to the condemnation proceedings. Plaza Associates
intends to pursue this appeal vigorously and believes it will be successful,
based in part on the March 29, 1995 opinion of the New Jersey Office of
Legislative Services ("OLS"), which serves as legal counsel to the New Jersey
State Legislature, that N.J.S.A. 5:12-173.8 empowered the CRDA to approve and
fund projects such as Trump Plaza East and, in part, on the fact that Section
173.8 expressly exempts hotel development projects from the statutory
limitation with respect to any CRDA investment or project which directly and
exclusively benefits the casino hotel or related facility.
In a related matter, Vera Coking, et al. v. Atlantic City Planning Board and
Trump Plaza Associates, Docket No. ATL-L-339-94, the Atlantic City Planning
Board's approval of the Trump Plaza East renovation was challenged on various
grounds. In July, 1994, a New Jersey Superior Court judge upheld the Atlantic
City Planning Board approvals with respect to the hotel renovation component
of Trump Plaza East and the new roadway but invalidated the approval of the
valet parking lot and the public park because Plaza Associates lacked site
control with respect to the small parcels of land CRDA sought to condemn.
Plaintiff appealed the court's decision upholding the approval of the hotel
renovation and new roadway and Plaza Associates cross-appealed the court's
decision invalidating the approval of the public park and valet parking area.
Plaza Associates with- drew its cross-appeal and plaintiff's appeal is pending
in the Superior Court of New Jersey, Appellate Division, Docket No. A-1511-94-
T1. Plaza Associates received land-use approval for and has constructed the
valet parking area after deletion of the small parcels.
In another related matter, Josef Banin and Vera Coking v. Atlantic City
Planning Board and Trump Plaza Associates, Docket No. L-2188-95, the land-use
approval for this area has been challenged on various grounds. Plaza
Associates filed its answer to the complaint denying the allegations of the
complaint. The land use approval involves certain minor amendments to the
previously granted site plan approvals for the hotel renovation component of
Trump Plaza East and the new roadway. The amendments included certain design
changes with respect to the Trump Plaza East and certain design changes to the
roadway. The amendments did not require any variance relief and the amendments
fully complied with the Land Use Ordinance of the City of Atlantic City. The
plaintiffs allege the Atlantic City Planning Board acted in an arbitrary and
capricious manner in approving the amendments and further argue that the
chairperson of the Atlantic City Planning Board had a conflict of interest in
hearing the matter because of her status as an employee of the CRDA, the
entity that had approved certain funding for the project. The plaintiffs have
filed their brief in this matter and Plaza Associates has filed its response
brief. The matter is scheduled for oral argument on January 26, 1996. It is
likely the court will rule on the matter on that date.
Penthouse Litigation. On April 3, 1989, BPHC Acquisition, Inc. and BPHC
Parking Corp. (collectively, "BPHC") filed a third-party complaint (the
"Complaint") against Plaza Associates and Trump. The Complaint arose in
connection with the action entitled Boardwalk Properties, Inc. and Penthouse
International Ltd. v.
126
<PAGE>
BPHC Acquisition, Inc. and BPHC Parking Corp., which was instituted on March
20, 1989 in the New Jersey Superior Court, Chancery Division, Atlantic County.
The suit arose in connection with the conditional sale by Boardwalk
Properties, Inc. ("BPI") (or, with respect to certain of the property, BPI's
agreement to sell) to Trump of BPI's fee and leasehold interests in (i) Trump
Plaza East, (ii) an approximately 4.2-acre parcel of land located on Atlantic
Avenue, diagonally across from Trump Plaza's parking garage (the "Columbus
Plaza Site") which was then owned by an entity in which 50% of the interests
were each owned by BPHC and BPI and (iii) an additional 1,462-square foot
parcel of land located within the area of Trump Plaza East (the "Bongiovanni
Site"). Prior to BPI entering into its agreement with Trump, BPI had entered
into agreements with BPHC which provided, among other things, for the sale to
BPHC of Trump Plaza East, as well as BPI's interest in the Columbus Plaza
Site, assuming that certain contingencies were satisfied by a certain date.
Additionally, by agreement between BPHC and BPI, in the event BPHC failed to
close on Trump Plaza East, BPHC would convey to BPI the Bongiovanni Site. Upon
BPHC's failure to close on Trump Plaza East, BPI entered into its agreement
with Trump pursuant to which it sold Trump Plaza East to Trump and instituted
a lawsuit against BPHC for specific performance to compel BPHC to transfer to
BPI, BPHC's interest in the Columbus Plaza Site and Bongiovanni Site, as
provided for in the various agreements between BPHC and BPI and in the
agreement between BPI and Trump.
The Complaint alleged that Plaza Associates and/or Trump engaged in the
following activities: civil conspiracy, violations of the New Jersey Antitrust
Act, violations of the New Jersey RICO statute, malicious interference with
contractual relations, malicious interference with prospective economic
advantage, inducement to breach a fiduciary duty and malicious abuse of
process. The relief sought in the Complaint included, among other things,
compensatory damages, punitive damages, treble damages, injunctive relief, the
revocation of all of Plaza Associates' and Trump's casino licenses, the
revocation of Plaza Associates' current Certificate of Partnership, the
revocation of any other licenses or permits issued to Plaza Associates and
Trump by the State of New Jersey, and a declaration voiding the conveyance by
BPI to Trump of BPI's interest in Trump Plaza East, as well as BPI's and/or
Trump's rights to obtain title to the Columbus Plaza Site.
On October 13, 1993, a final judgment as to Trump and Plaza Associates was
filed. That judgment dismissed each and every claim against Trump and Plaza
Associates. The case remained open as to final resolution of all claims
between BPI and BPHC. Following the entry of a subsequent judgment as to those
claims, BPHC and BPI have settled all claims between them. BPHC is pursuing
its appeal as to Trump and Plaza Associates but only as to its money damages
claims of interference with contract and prospective economic advantage and of
inducing BPI to breach its fiduciary duty to BPHC. All other claims raised in
BPHC's complaint as to Trump and Plaza Associates and dismissed by the October
13, 1993 judgment have been finally determined in favor of Trump and Plaza
Associates. All briefs due in connection with BPHC's appeal have been filed.
No argument date has been set.
Other Litigation. Various legal proceedings are now pending against Plaza
Associates. THCR considers all such proceedings to be ordinary litigation
incident to the character of its business and not material to its business or
financial condition. The majority of such claims are covered by liability
insurance (subject to applicable deductibles), and THCR believes that the
resolution of these claims, to the extent not covered by insurance, will not,
individually or in the aggregate, have a material adverse effect on the
financial condition or results of operations of THCR.
Plaza Associates is also a party to various administrative proceedings
involving allegations that it has violated certain provisions of the Casino
Control Act. THCR believes that the final outcome of these proceedings will
not, either individually or in the aggregate, have a material adverse effect
on THCR or on the ability of Plaza Associates to otherwise retain or renew any
casino or other licenses required under the Casino Control Act for the
operation of Trump Plaza. At this juncture the prospects of a favorable
outcome in actions described above cannot be assessed. Plaza Associates intend
to vigorously contest the allegations made against it.
127
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF TAJ ASSOCIATES
Taj Holding has no business operations and serves as a holding company for a
50% investment in Taj Associates. Therefore, historical financial information
is not presented below. The audited consolidated financial statements of Taj
Holding as of December 31, 1993 and 1994 and for the years ended December 31,
1992, 1993 and 1994 are included elsewhere in this Proxy Statement-Prospectus.
The following table sets forth certain historical consolidated financial
information of Taj Associates for each of the five years ended December 31,
1990 through 1994 and for the nine-month periods ended September 30, 1994 and
1995 (unaudited). The historical financial information of Taj Associates as of
December 31, 1993 and 1994, and for the years ended December 31, 1992, 1993
and 1994 as set forth below has been derived from the audited consolidated
financial statements of Taj Associates included elsewhere in this Proxy
Statement-Prospectus. The historical financial information of Taj Associates
as of December 31, 1990, 1991 and 1992, and for the years ended December 31,
1990 and 1991 as set forth below has been derived from the audited
consolidated financial statements of Taj Associates not included in this Proxy
Statement-Prospectus.
The unaudited financial information as of September 30, 1994 and 1995, and
the nine months then ended has been derived from the unaudited condensed
consolidated financial statements included elsewhere in this Proxy Statement-
Prospectus and in the opinion of management, includes all adjustments,
consisting of only normal, recurring adjustments, necessary to present fairly
the financial position, results of operations and changes in cash flows for
the periods presented. The results of these interim periods are not
necessarily indicative of the operating results for a full year. All financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Taj Associates,"
"Unaudited Pro Forma Financial Information" and the consolidated and condensed
financial statements and related notes thereto included elsewhere in this
Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- ------------------
1990(A) 1991 1992 1993 1994 1994 1995
--------- --------- --------- -------------- --------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
REVENUES:
Gaming................. $ 300,902 $ 380,997 $ 414,045 $ 442,064 $ 461,622 $345,329 $377,368
Other.................. 107,239 111,251 116,958 113,291 117,738 90,011 87,447
--------- --------- --------- --------- --------- -------- --------
Gross Revenues........ 408,141 492,248 531,003 555,355 579,360 435,340 464,815
Promotional
allowances............ 51,443 53,935 61,250 56,444 62,178 48,802 47,519
--------- --------- --------- --------- --------- -------- --------
Net Revenues.......... 356,698 438,313 469,753 498,911 517,182 386,538 417,296
COSTS AND EXPENSES:
Gaming................. 164,838 204,513 227,394 237,566 260,472 196,412 208,671
Other.................. 36,613 39,181 39,125 40,605 40,697 29,633 30,097
General and
Administrative........ 92,886 100,191 98,819 99,424 99,629 77,359 73,717
Depreciation and
Amortization.......... 44,647 36,202 36,388 36,858 39,750 28,944 32,407
Restructuring costs.... 41,003 26,398 -- -- -- -- --
--------- --------- --------- --------- --------- -------- --------
Income (loss) from
Operations............. (23,289) 31,828 68,027 84,458 76,634 54,190 72,404
--------- --------- --------- --------- --------- -------- --------
Net interest expense.... (82,105) (100,683) (103,126) (106,997) (113,292) (85,512) (86,112)
Extraordinary gain(b)... -- 259,618 -- -- -- -- --
Net Income (loss)....... (124,269) 188,513 (35,099) (22,539) (36,658) (31,322) (13,708)
BALANCE SHEET DATA
(AT END OF PERIOD)
Cash and cash
equivalents............ $ 22,480 $ 22,535 $ 34,062 $ 58,044 $ 61,196 $ 76,502 $108,769
Property and equipment-
net.................... 797,821 766,135 742,129 722,834 706,785 710,007 694,602
Total assets............ 845,804 814,051 802,556 811,508 807,612 822,914 843,725
Total long-term
debt(c)................ 917 573,844 595,682 625,765 656,701 651,626 688,143
Total capital
(deficit).............. (69,420) 167,837 130,913 106,641 67,812 73,609 52,899
</TABLE>
- --------
(a) Operations commenced on April 2, 1990. Results of operations for 1990 are
not necessarily indicative of the operating results for a full year.
(b) The extraordinary gain of $259,618 for the year ended December 31, 1991
reflects a $204,276 accounting adjustment to carry the old Bonds at fair
market value based on current interest rates at the date of issuance
(effective rate of approximately 18%), and $20,000 related to settlement
of the subcontractors' note payable, with the balance representing a
discharge of accrued interest on indebtedness.
(c) Long-term debt of $720,175 as of December 31, 1990 had been classified as
a current liability.
128
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF TAJ ASSOCIATES
GENERAL
Taj Holding has no business operations and serves as a holding company for a
50% investment in Taj Associates. Therefore, the following is a discussion of
the results of operations of Taj Associates.
RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND
1994
Net revenues were approximately $417.3 million for the nine months ended
September 30, 1995, an increase of $30.8 million or 8.0% from net revenues of
$386.5 million for the comparable period in 1994. This increase was primarily
due to an increase in gaming revenues.
Gaming revenues comprise the major component of net revenues and consist of
win from table games, poker, slot machines, horserace simulcasting and keno.
Total gaming revenues were $377.4 million for the nine months ended September
30, 1995, an increase of $32.1 million or 9.3% from total gaming revenues of
$345.3 million for the comparable period in 1994. These revenues represent a
market share of 13.4% of the Atlantic City gaming market in each of the nine
months ended September 30, 1995 and 1994, based on figures filed with the CCC.
Table game win was approximately $148.8 million for the nine months ended
September 30, 1995, an increase of $16.8 million or 12.7% from table game win
of $132.0 million for the comparable period in 1994. Dollars wagered at table
games was $866.6 million for the nine months ended September 30, 1995, an
increase of $30.3 million or 3.6% from dollars wagered at table games from
$836.3 million for the comparable period in 1994. Table win percentage was
17.2% for the nine months ended September 30, 1995, an increase from 15.8% in
1994. Table win percentage, which represents the percentage of dollars wagered
retained by Taj Associates, tends to be fairly constant over the long term,
but may vary significantly in the short term, due to large wagers by "high
rollers." The win percentage for the nine months ended September 30, 1995 is
significantly above Taj Associates' and the industry's historical win
percentage, and it is likely that Taj Associates' win percentage will decrease
in the future. During the twelve months ending December 31, 1994 and 1993, Taj
Associates' win percentage was approximately 16.4% and 16.3% respectively,
while the Atlantic City average was approximately 15.8% and 15.6%
respectively.
Slot win was $212.9 million for the nine months ended September 30, 1995, an
increase of $13.8 million or 6.9% from slot win of $199.1 million for the
comparable period in 1994. Dollars wagered in slot machines was $2.55 billion
for the nine months ended September 30, 1995, an increase of $286.3 million or
12.6% from dollars wagered in slot machines of $2.26 billion for the
comparable period in 1994. This increase was offset by a decrease in slot win
percentage to 8.3% for the nine months ended September 30, 1995, from 8.8% for
the comparable period in 1994. The increase in slot machine wagering and the
reduced slot win percentage is consistent with the industry trend in Atlantic
City in recent years.
In addition to table game and slot revenues, Taj Associates'
Keno/Poker/Simulcasting operations generated approximately $13.3 million in
poker revenues, $1.0 million of simulcasting revenue and $1.3 million of keno
revenue for the nine months ended September 30, 1995, compared to $12.3
million of poker revenue, $1.1 million of simulcasting revenue and $0.9
million of keno revenue for the corresponding period in 1994. Keno operations
commenced June 15, 1994.
Increases in gaming revenues during the first three quarters of 1995 over
the comparable period of 1994 were attributable primarily to (i) the increase
in dollars wagered on slots relative to the depressed 1994 levels caused by
severe winter weather during the first three months of the year, (ii) the
increase in dollars wagered on table games and the improved win percentage,
both of which were substantially attributable to international high level
players and (iii) the general growth of the Atlantic City market.
129
<PAGE>
Nongaming revenues consist primarily of room, food, beverage and
entertainment. For the nine months ended September 30, 1995 and 1994, these
revenues totaled $87.4 million and $90.0 million, respectively. Room revenue
of approximately $33.0 million in 1995 was the result of an occupancy rate of
92.0% and an average room rate of $105.28. In 1994, room revenue of $32.2
million was the result of an occupancy rate of 93.9% and an average room rate
of $100.45.
In the food and beverage outlets, Taj Associates generated revenues of
approximately $42.9 million and $44.1 million during the first nine months of
1995 and 1994, respectively. The approximately $1.2 million
decrease is primarily attributable to a 1.0% decrease in the number of persons
served and a decrease in the average food check to $11.56 in 1995 from $11.62
in 1994. The decrease in food and beverage revenue reflects both fewer
complimentaries offered to patrons (which are recorded both as revenue and as
a promotional allowance) and reduced food prices designed to stimulate cash
sales.
The decrease in other revenue of approximately $2.3 million was primarily
attributable to a decrease in entertainment revenue of approximately $1.8
million resulting from fewer events and an increased emphasis on promoter
sponsored entertainment events in 1995 versus events sponsored by Taj
Associates in 1994.
Promotional allowances were $47.5 million for the nine months ended
September 30, 1995, a decrease of $1.3 million from promotional allowances of
$48.8 million for the comparable period in 1994. Promotional allowances were
10.2% of gross revenues in 1995 compared to 11.2% in 1994, reflecting Taj
Associates' efforts to increase control over complimentaries while increasing
gaming revenues.
Gaming expenses increased approximately $12.3 million or 6.2% for the nine
months ended September 30, 1995 from the comparable period in 1994, primarily
due to increased marketing/promotional costs associated with increased gaming
revenues. Both room and food and beverage expenses remained generally
constant. General and administrative expenses decreased primarily due to the
nonrecurrence of costs for settlement of litigation which were incurred during
1994. Costs for settlement of litigation for the nine months ended September
30, 1995 decreased by approximately $3.7 million or 100% to $0 from the
comparable period of 1994. Depreciation expense increased in 1995 compared to
1994 due to increased capital expenditures on replacement furniture, fixtures
and equipment and the shorter lives associated therewith.
Total operating expenses as a percentage of net revenue decreased to 82.6%
for the nine months ended September 30, 1995 compared to 86.0% for the
comparable period in 1994.
The $2.0 million or 2.3% increase in interest expense is attributable to (i)
the increased amount of principal outstanding resulting from the issuance of
Bonds to satisfy the Additional Amount (as defined in the Bond Indenture) and
(ii) the increased accretion of the discount on the Bonds as they approach
maturity. These amounts were partially offset by a decrease in costs incurred
for uncompleted refinancing efforts during the period.
As a result of the foregoing factors, income from operations was $72.4
million for the nine months ended September 30, 1995, an increase of $18.2
million or 33.6% from income from operations of $54.2 million for the
comparable period of 1994.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
Net revenues were $517.2 million for the year ended December 31, 1994, an
increase of $18.3 million or 3.7% from net revenues of $498.9 million for the
year ended December 31, 1993.
Gaming revenues, which comprise the major component of total revenues and
consist of win from table games, poker, slot machines, horserace simulcasting
and keno, were approximately $461.6 million in 1994, an increase of $19.5
million or 4.4% from gaming revenues of $442.1 million in 1993. The increase
in gaming revenues occurred while the overall Atlantic City gaming industry
experienced an increase in gaming revenue of 3.9%. These revenues represent a
market share of the Atlantic City market of approximately 13.5% in each of
1994 and 1993, based on figures filed with the CCC.
130
<PAGE>
Table game win was approximately $184.7 million for the year ended December
31, 1994, an increase of $11.3 million or 6.5% from table game win of $173.4
million in 1993. Dollars wagered at table games was $1,125.0 million in 1994,
an increase of $63.0 million or 5.9% from dollars wagered at table games of
$1,062.0 million in 1993. Table win percentage (i.e., percentage of dollars
wagered that were retained by Taj Associates) increased to 16.4% in 1994 from
16.3% in 1993.
For the year ended December 31, 1994, slot win was approximately $257.9
million, a decrease of $2.4 million or 0.9% from slot win of $260.3 million in
1993. The decrease was largely due to a decrease in the slot
win percentage. Slot win percentages were 8.8% in 1994 and 9.3% in 1993.
Dollars wagered at slot machines were $2,940.1 million in 1994, an increase of
$82.2 million or 2.9% from the dollars wagered at slot machines of $2,857.9
million in 1993. The decrease in slot win percentage and the increase in slot
machine wagering is consistent with the industry trend in Atlantic City in
recent years.
In addition to table game and slot revenues, Taj Associates' newly opened
Keno room and expanded Poker/Simulcasting operations generated approximately
$16.3 million of revenues from poker, $1.4 million of revenues from
simulcasting and $1.3 million of revenues from Keno in 1994 compared to
approximately $7.5 million in poker revenue and $0.8 million in simulcasting
revenue for the year ended December 31, 1993. Poker/Simulcasting operations
commenced in June 1993 while Keno operations commenced on June 15, 1994.
Nongaming revenues consist primarily of room, food, beverage and
entertainment revenues. Nongaming revenues were $117.7 million for the year
ended December 31, 1994, an increase of $4.4 million or 3.9% from nongaming
revenues of $113.3 million in 1993. This increase was attributable primarily
to an increase in food and beverage revenue of approximately $2.1 million or
3.8%, and an increase in room revenue of approximately $1.2 million or 2.9%.
Food and beverage revenue and room revenue was $58.0 million and $41.8
million, respectively, for the fiscal year ended December 31, 1994, an
increase from food and beverage revenue and room revenue of $56.0 million and
$40.7 million, respectively, in 1993. The increase in food and beverage
revenue was partially attributable to the increase of the average food check
to $11.68 in 1994 from $10.82 in 1993 and the increased banquet functions
associated with gaming promotions. Room occupancy was 92.4% and 92.5% and the
average room rate was $99.19 and $96.38 for the years ended December 31, 1994
and 1993, respectively.
Promotional allowances were $62.2 million in 1994, an increase of $5.8
million from promotional allowances of $56.4 million in 1993. Promotional
allowances were 10.7% of gross revenues in 1994 compared to 10.2% of gross
revenues in 1993, reflecting the more aggressive marketing posture necessary
in order to maintain or achieve increases in gaming revenues comparable to
1993.
Gaming expenses were $260.5 million in 1994, an increase of $22.9 million or
9.6% from gaming expenses of $237.6 million in 1993, primarily due to increase
marketing promotional costs directed at slot machine and table game play and
operating expenses associated with the new or expanded games of poker,
simulcasting and keno.
During the year ended December 31, 1994, room expenses increased slightly
and food and beverage expenses decreased slightly over the comparable period
in 1993, reflecting continuing cost controls in this area. General and
administrative expenses increased slightly, primarily due to costs associated
with a settlement of outstanding litigation, offset by decreases in real
property taxes resulting from settlement of appeals. Costs for settlement of
litigation were approximately $3.7 million in 1994, an increase of $3.7
million or 100% from 1993. Real property taxes were $12.2 million in 1994, a
decrease of approximately $4.9 million or 28.7% from real property taxes of
$17.1 million for 1993. Were it not for these items, costs in this category
would have increased approximately $2.0 million over the comparable period of
1993. Depreciation expense has increased in 1994 compared to 1993 due to
increased capital expenditures on replacement furniture, fixtures and
equipment and the shorter lives associated therewith.
Total operating expenses as a percentage of net revenue increased to 85.2%
in 1994 from 83.1% in 1993.
131
<PAGE>
Interest expense was $115.3 million in 1994, an increase of $6.9 million
from interest expense of $108.4 million in 1993. The increase is attributable
to the increased amount of principal outstanding resulting from the issuance
of the Bonds to satisfy the Additional Amount (as defined), the increased
accretion of discount on the Bonds as they approach maturity and professional
fees incurred during the first six months of 1994 related to the proposed
recapitalization, which was not consummated.
As a result of the foregoing factors, income from operations was $76.6
million in 1994, a decrease of $7.9 million or 9.3% from income from
operations of $84.5 million in 1993.
Taj Associates experienced a net loss of $36.7 million for 1994 as compared
to a net loss of $22.5 million for 1993.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
Net revenues for the year ended December 31, 1993 totaled $498.9 million, an
increase of $29.1 million or 6.2% from net revenues of $469.8 million in 1993.
Gaming revenues, which comprise the major component of total revenues and
consist of win from table games, poker, slot machines and horserace
simulcasting were approximately $442.1 million in 1993, an increase of $28.1
million or 6.8% from gaming revenues of $414.0 million in 1992. These revenues
represented a market share in the Atlantic City gaming market of 13.5% in 1993
and 12.9% in 1992, based on figures filed with the CCC. The increase in Taj
Associates' gaming revenues and market share occurred while the overall
Atlantic City gaming industry experienced an increase in gaming revenue of
only 2.9%. Management believes the increase in gaming revenues was
attributable primarily to Taj Associates' expanded slot marketing efforts,
increased table game win percentage (i.e., percentage of dollars wagered that
were retained by Taj Associates) and the addition of poker and horserace
simulcasting operations.
Table game win was approximately $173.4 million in 1993, an increase of $4.3
million or 2.6% from table game win of $169.1 million in 1992. Although
dollars wagered at table games decreased by $5.6 million or 0.5% in 1993, to
$1,062.0 million in 1993 from $1,067.6 million in 1992, the decrease was
offset by an increase in table win percentage (i.e., percentage of dollars
wagered that were retained by Taj Associates) of 16.3% in 1993 from 15.8% in
1992.
Slot win was approximately $260.3 million for the year ended December 31,
1993, an increase of $15.4 million or 6.3% from slot win of $244.9 million in
1992. The increase was largely due to an increase in dollars wagered. Slot win
percentages were 9.3% in 1993 and 9.8% in 1992. The decrease in table wagering
compared to the increase in slot machine wagering and the reduced slot win
percentage is consistent with industry activity in 1993 and with the industry
trend in recent years.
In addition to table game and slot revenues, Taj Associates' poker and
horserace simulcasting operations, which opened June 29, 1993, generated $7.5
million of revenues from poker and $0.8 million of revenues from simulcasting
for the year ended December 31, 1993.
Nongaming revenues were approximately $113.3 million for the year ended
December 31, 1993, a decrease of $3.7 million or 3.2% from nongaming revenues
of $117.0 million in 1992. This decrease in revenue was attributable primarily
to a decrease in food and beverage revenue of approximately $3.5 million or
5.9%, and a slight decrease in room revenue of $0.3 million or 0.7%.
Food and beverage revenue was $56.0 million for the year ended December 31,
1993, a decrease of $3.5 million from food and beverage revenue of $59.5
million in 1992. The decline in the food and beverage revenue was primarily
attributable to management's decision to reduce the use of promotional coupons
in certain food outlets to increase profitability. Accordingly, the number of
persons served decreased approximately 10.4% in 1993 while the average food
check increased to $10.82 in 1993 from $10.60 in 1992.
132
<PAGE>
Room revenue, room occupancy and average room rate were approximately $40.7
million, 92.5% and $96.38, respectively, compared to $41.0 million, 91.2% and
$98.32, respectively in 1992. The reduced room rate in 1993 was part of the
continuation of various marketing plans initially implemented in 1992 to
increase occupancy and enhance gaming activity.
Promotional allowances were $56.4 million in 1993, compared to $61.3 million
in 1992. Promotional allowances were 10.2% of gross revenues in 1993 compared
to 11.5% of gross revenues in 1992, reflecting the reduction in promotional
food coupons discussed above.
Gaming expenses were $237.6 million in 1993, an increase of approximately
$10.2 million or 4.5% from gaming expenses of $227.4 million in 1992,
primarily due to increased marketing promotional costs directed at slot
machine play and operating expenses associated with the addition of poker and
simulcasting. During the
year ended 1993, room expenses increased slightly over the comparable period
in 1992. The decrease in food and beverage expenses were volume related, but
did not decrease proportionately to the decrease in sales because of the
continued increase in the cost of labor, food and beverage expenses which were
not fully passed on to patrons through increased prices. General and
administrative expenses increased slightly, by approximately $0.6 million or
0.6%, primarily due to increased costs required to support the expanded
operations.
Total operating expenses as a percentage of net revenue declined to 83.1% in
1993 compared to 85.5% in 1992.
Interest expense was $108.4 million in 1993, an increase of $4.4 million
from interest expense of $104.0 million in 1992. The increase was primarily
attributable to the increased accretion of discount on the Bonds, and the
portion of interest on the Bonds payable in the form of additional principal
amounts of the Bonds.
Income from operations was $84.5 million for 1993, an increase of $16.5
million or 24.1% from income from operations of $68.0 million in 1992,
primarily as a result of continuing efforts to maintain cost controls.
Taj Associates experienced a net loss of $22.5 million for the year ended
December 31, 1993 as compared to a net loss of $35.1 million for 1992.
LIQUIDITY AND CAPITAL RESOURCES
TAJ ASSOCIATES
Working Capital. Cash flow from operations provides Taj Associates with its
ability to meet debt service obligations and capital expenditure programs
along with adequate operating liquidity. Cash flow from operating activities
for the nine months ending September 30, 1995 was $73.3 million compared with
$40.6 million in 1994, due primarily to the increase in gaming revenues. Cash
flow from operating activities for the twelve months ended December 31, 1994
was $33.4 million compared with $48.6 million in 1993, which is attributable
primarily to the decrease in income from operations. Cash flow from operating
activities for the twelve months ended December 31, 1992 was $31.8 million
compared with $48.6 million in 1993. Working capital at September 30, 1995
increased by $22.9 million to approximately $63.6 million from approximately
$40.7 million at December 31, 1994. From December 31, 1993 to December 31,
1994 working capital grew by $11.7 million, from a working capital surplus of
approximately $29.0 million at December 31, 1993 to a working capital surplus
of approximately $40.7 million at December 31, 1994. From December 31, 1992 to
December 31, 1993, working capital grew by $18.5 million, to approximately
$29.0 million at December 31, 1993 from approximately $10.5 million at
December 31, 1992. These improvements are the result of increases in cash,
casino receivables, inventories, or credits toward future property taxes.
Pursuant to the terms of the Taj Reorganization Plan and the Bond Indenture,
Taj Associates was permitted to obtain a $25 million working capital facility,
a $50 million senior line of credit (the "Senior Line of Credit") and a $25
million standby letter of credit (the "Standby Letter of Credit") secured by
certain assets of Taj Associates, including the Taj Mahal, on a basis senior
to the lien of the mortgage securing the Bonds.
133
<PAGE>
On November 14, 1991, Taj Associates entered into a working capital facility
(the "Working Capital Facility") provided by Foothill Capital Corporation
("Foothill"). The Working Capital Facility permits borrowings of up to $25
million. Obligations under the Working Capital Facility are secured by a
mortgage on the assets of Taj Associates senior to the lien of mortgage
securing the Bonds. In September 1994, Taj Associates extended the maturity
from 1996 to November 1999, in consideration of the modification of certain of
the terms of the Working Capital Facility. Interest for borrowings under the
Working Capital Facility accrues at the rate of prime plus 3% (11.75% at
September 30, 1995) with a minimum interest rate of 0.666% per month, and is
payable monthly. Amounts borrowed under the Working Capital Facility must be
repaid by November 14, 1999. The Working Capital Facility also provides for
fees applicable to the commitment, maintenance, and unused portions of the
Working Capital Facility. During 1993 and 1994 and the first nine months of
1995, there were no borrowings under the Working Capital Facility. To date,
Taj Associates has not sought to obtain the Senior Line of Credit or the
Standby Letter of Credit and there can be no assurances as to whether and on
what terms Taj Associates could obtain the Senior Line of Credit or the
Standby Letter of Credit.
Capital Expenditures. Capital expenditures during the nine months ended
September 30, 1995 totaled approximately $19.5 million compared to $15.7
million for the comparable period in 1994. Capital expenditures totaled
approximately $12.1 million, $16.8 million and $23.0 million for the years
ended 1992, 1993 and 1994, respectively. Major capital expenditures for 1992
included an on-site food storeroom, restaurant and room renovations, casino
floor reconfiguration and continuing construction of the Taj Entertainment
Complex. Major capital expenditures for 1993 included parking garage upgrades,
restaurant and room renovations, carpet replacement, and ongoing casino floor
reconfiguration, including additional slot machines, completion of the Taj
Entertainment Complex and modification of existing space to accommodate the
new games of race simulcasting and poker. Major capital expenditures for 1994
included the expansion of the poker room, the addition of the game of keno to
the casino floor, relocation of the lobby cocktail lounge, construction of a
new slot player's club, continued casino floor reconfiguration, purchase of
new slot machines and hotel room renovations.
Taj Associates' capital budget for fiscal 1995 totaled approximately $26.0
million which was financed by cash flow from operations and includes provision
for hotel tower and room renovations, carpet replacement, ongoing casino floor
reconfiguration including 1,300 replacement slot machines, new telephone
reservation equipment and limousines. Taj Associates may be obligated to
expend up to $30 million in improvements to the Steel Pier in order to
maintain its Coastal Area Facilities Review Act ("CAFRA") Permit, which is a
condition to its casino license. In March 1993, Taj Associates obtained a
modification of its CAFRA Permit providing for the extension of the required
commencement and completion dates of these improvements for one year based
upon an interim use of the Steel Pier for an amusement park. Taj Associates
received an additional one-year extension, in March 1995, of the required
commencement and completion dates of the improvements based upon the same
interim use of the Steel Pier for an amusement park pursuant to a sublease
with an amusement park operator. Taj Associates is currently seeking further
modification of its obligations under the CAFRA Permit. See "Business of Taj
Holding--Properties--Steel Pier." In addition, Taj Associates may be obligated
to comply with certain proposed regulations of the OSHA, if adopted. Taj
Associates is unable to estimate the cost, if any, to Taj Associates of such
compliance. See "Regulatory Matters--Other Laws and Regulations."
Taj Associates' capital expenditures historically included a component to
expand the facility as well as maintain its first class operation.
Historically, amounts necessary to maintain the first class nature of the
facility were approximately $9.7 million, $6.4 million and $19.2 million for
the years ended 1992, 1993 and 1994, respectively. The capital budget for 1995
included approximately $24.0 million to maintain Taj Associates' facilities.
Debt Service. As a result of the consummation of the Taj Reorganization Plan
on October 4, 1991, Taj Associates' liquidity problem was alleviated. The
improvement in liquidity was accomplished through a lowering of the interest
rate on certain of Taj Associates' long-term indebtedness, including its Old
Bonds and, in the case of the Bonds, the deferral of the due date of a portion
of accrued interest thereon through the issuance from time to time of
additional Bonds. The effect of this debt restructuring was to reduce the
minimum cash interest expense on its long-term indebtedness, although total
interest expense (inclusive of pay-in-kind interest) increased as a result of
the 1991 Taj Restructuring.
134
<PAGE>
Taj Associates remains a highly leveraged enterprise with total borrowings
at September 30, 1995 in the amount of $826.1 million. Net of the unamortized
discount on the Bonds in the amount of $137.1 million and current maturities
of $0.9 million, the net long term indebtedness is approximately $688.1
million. At September 30, 1995, after giving effect to the Merger Transaction,
on a pro forma basis, Taj Associates' total borrowings would have been $795.9.
Upon consummation of the Merger Transaction, Taj Associates' aggregate
outstanding indebtedness will consist of $750 million of Taj Notes,
approximately $45 million due under the NatWest Loan and $0.9 million of other
obligations. In addition, upon consummation of the Merger Transaction, the Taj
Associates--First Fidelity Guarantee (as defined) will be released in
connection with the purchase of the Specified Parcels by Taj Associates. See
"Business of Taj Holding--Certain Indebtedness--First Fidelity Loan/Specified
Parcels." Assuming industry conditions do not deteriorate substantially, Taj
Holding management believes that, as a result of cash provided from
operations, together with its current cash and cash investment balance, it
will have sufficient cash flow for the next twelve months to meet its debt
service requirements, capital expenditure program and have sufficient
operating liquidity.
Interest on the Bonds must be paid in cash at the rate of 9.375% payable
semi-annually on May 15 and November 15 (the "Mandatory Cash Interest
Amount"). Effective May 15, 1992 and annually thereafter, in addition to this
Mandatory Cash Interest Amount, an additional amount of interest in cash or
additional Bonds or a combination thereof is payable equal to the difference
between 11.35% of the outstanding principal amount of the Bonds and the sum of
the Mandatory Cash Interest Amount payable on that date and the immediately
preceding November 15 (the "Additional Amount"). To the extent that there is
excess available cash flow ("EACF") of Taj Associates for the immediately
preceding calendar year, Taj Funding will pay the Additional Amount in cash up
to 10.28% and the balance thereof may be paid at the option of Taj Associates
in cash or additional Units, provided that an equivalent amount of cash is
used to purchase or redeem Units. Additional Bonds issued on October 4, 1991
amounted to approximately $7.2 million. For the period from the issuance of
the Bonds, October 4, 1991 through December 31, 1992, there was no EACF. The
Additional Amounts due for the period from October 4, 1991 through May 15,
1992 and for the period from May 15, 1992 to May 15, 1993 of approximately
$8.8 million and $14.6 million, respectively, were paid entirely in Bonds. Taj
Associates satisfied the Additional Amount due May 15, 1994 in the amount of
approximately $14.9 million through the issuance of approximately $12.2
million in Bonds and the payment of the approximately $2.6 million balance in
cash. Taj Funding satisfied the Additional Amount due May 15, 1995 through the
issuance of approximately $15.1 million in Bonds. Taj Holding satisfied its
cash interest obligations due in 1995 (including the Mandatory Cash Interest
Amount) with cash flow from operations.
Interest expense for the years ended December 31, 1992, 1993 and 1994 and
the nine months ended September 30, 1994 and 1995 consisted of the following
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- -----------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Minimum cash interest expense:
Bonds............................ $ 68,946 $ 70,070 $ 71,300 $ 53,368 $ 54,330
Bank loans....................... 4,341 4,765 4,299 3,217 3,204
Working Capital Facility......... 791 180 415 325 235
Other, including refinancing
costs........................... 845 1,097 3,409 3,401 1,413
-------- -------- -------- -------- --------
74,923 76,112 79,423 60,311 59,182
-------- -------- -------- -------- --------
Additional Amount................. 14,435 14,759 15,021 11,243 11,445
-------- -------- -------- -------- --------
Accretion of discount:
Bonds............................ 13,172 15,745 18,820 13,795 16,489
Guarantee of Affiliate Debt...... 1,519 1,763 2,047 1,506 1,748
-------- -------- -------- -------- --------
14,691 17,508 20,867 15,301 18,237
-------- -------- -------- -------- --------
Total interest expense............ $104,049 $108,379 $115,311 $ 86,855 $88,864
======== ======== ======== ======== ========
</TABLE>
135
<PAGE>
Management believes, based upon current levels of operations, that although
following the consummation of the Merger Transaction Taj Associates will
continue to be highly leveraged, as a result of the Merger Transaction it will
have the ability to pay interest on the Taj Notes and Taj Associates' other
indebtedness and to pay other liabilities with funds from operations (and, if
necessary, from the Working Capital Facility) for the next twelve months.
However, there can be no assurance to that effect. See "Risk Factors--High
Leverage and Fixed Charges." In addition, Taj Holding does not currently
anticipate that Taj Associates will be able to generate sufficient cash flow
from its operations to repay a substantial portion of the principal amount of
the Taj Notes. Thus the repayment of the Taj Notes is likely to be dependent
primarily upon Taj Associates' ability to refinance the Taj Notes when due.
There can be no assurance that the status of the capital markets or Taj
Associates' operating performance in the future will be conducive to
refinancing the Taj Mortgage Notes or other attempts to raise capital. See
"Risk Factors--Holding Company Structure; Risk in Refinancing and Repayment of
Indebtedness; Need for Additional Financing."
Following the consummation of the Merger Transaction, the Taj Mahal plans to
undertake an expansion plan of its existing operations, which plans are
preliminary and subject to change. It is currently expected that the expansion
will be funded out of cash from operations and borrowings and is scheduled to
be completed in phases by the end of the second quarter of 1999. The Taj Mahal
Expansion involves the construction of two new 640 room hotel towers adjacent
to the Taj Mahal's existing hotel tower, a 2,200 space expansion of the Taj
Mahal's existing self-parking facilities, conversion of the Mark Etess Arena
into a new 60,000 square foot circus-themed casino with 2,500 slot machines,
and construction of a new arena on a surface parking area located adjacent to
the Taj Mahal.
The following table summarizes the different phases of the Taj Mahal
Expansion with their associated capital costs and expected completion dates:
<TABLE>
<CAPTION>
PROJECT
PROJECT COST
------- -------------
(IN MILLIONS)
<S> <C>
Parking facility, 2,200 spaces.............................. $ 26.0
New Arena................................................... $ 10.5
Circus Casino............................................... $ 53.3
First hotel tower, 640 rooms................................ $ 76.0
Second hotel tower, 640 rooms(/1/).......................... $ 83.6
------
Total................................................... $249.4
======
</TABLE>
- --------
(/1/Construction)on the second hotel tower is to start after the completion
and opening of the first tower.
In addition, the Taj Mahal is contemplating adding new nationally recognized
themed restaurants, including the Rainforest Cafe. Construction costs for each
of the three themed restaurants will be the obligation of the lessees. The
lease for the Rainforest Cafe will require Taj Associates to contribute $2.5
million towards construction after the project is completed and the restaurant
opens for business.
TAJ HOLDING
Taj Holding's sole source of liquidity is from distributions from Taj
Associates. As of September 30, 1995, Taj Holding did not have any long or
short-term indebtedness, and is not anticipated to have any in the near
future.
The Taj Associates partnership agreement (the "Taj Partnership Agreement")
currently provides that Taj Associates shall make distributions (i) at the
direction of TM/GP and (ii) to each partner to enable such partner to pay its
taxes arising out of its interest in the partnership ("Tax Distributions"). In
addition, the Taj Partnership Agreement requires Taj Associates to distribute
to TM/GP ("Expense Distributions") amounts necessary to permit TM/GP or Taj
Holding (a) to make payments (generally for indemnification of officers and
directors) that TM/GP or Taj Holding are required to make pursuant to the
terms of TM/GP's Certificate of Incorporation and
136
<PAGE>
the Taj Holding Certificate of Incorporation, (b) to pay fees to Directors
(including fees for serving on a committee), (c) to pay all other expenses of
TM/GP and Taj Holding, and (d) to permit Taj Holding to redeem the Taj Holding
Class B Common Stock when required to make such a redemption pursuant to the
terms of the Taj Holding Certificate of Incorporation. It is anticipated that
the Taj Partnership Agreement will be amended in connection with the Merger
Transaction in certain technical respects.
For the years ended December 31, 1992, 1993, 1994, and the nine months ended
September 30, 1995, Taj Holding received distributions from Taj Associates of
approximately $1.8 million, $1.7 million, $2.2 million, and $1.2 million,
respectively.
The Bond Indenture prohibits Taj Associates from making any distributions
other than Tax Distributions and Expense Distributions during such time as the
Bonds are outstanding.
The Taj Holding Certificate of Incorporation requires Taj Holding to redeem
each outstanding share of Taj Holding Class B Common Stock at a redemption
price of $.50 per share (adjusted to reflect stock splits, combinations and
dividends since the original date of issuance) at such time as the principal
amount of Bonds with respect to which such share was issued is redeemed,
defeased, or paid in full.
Pursuant to the Stock Issuance Agreement, dated as of October 4, 1991 (the
"Stock Issuance Agreement"), Taj Holding has agreed to issue and deliver to
Taj Funding such number of additional shares of Taj Holding Class B Common
Stock as Taj Funding may request to enable Taj Funding to pay interest on the
Bonds in the form of additional Units in accordance with the terms of the Bond
Indenture. In accordance with the Stock Issuance Agreement, Taj Holding issued
an additional 8,844 shares of Taj Holding Class B Common Stock on May 15,
1992, 14,579 additional shares of Taj Holding Class B Common Stock on May 15,
1993, 12,249 shares of Taj Holding Class B Common Stock on May 15, 1994 and
15,112 shares of Taj Holding Class B Common Stock on May 15, 1995.
SEASONALITY
The gaming industry in Atlantic City is seasonal, with the heaviest activity
at the Taj Mahal occurring during the period from May through September.
Consequently, Taj Associates' operating results during the two quarters ending
in March and December would not likely be as profitable as the two quarters
ending in June and September.
INFLATION
There was no significant impact on Taj Associates' operations as a result of
inflation during the first nine months of 1995, and during 1994, 1993 or 1992.
137
<PAGE>
BUSINESS OF TAJ HOLDING
Taj Holding has no business operations and serves as a holding company for a
50% investment in Taj Associates.
GENERAL
Taj Associates owns and operates the Taj Mahal, a luxury casino hotel
located on The Boardwalk in Atlantic City. The Taj Mahal is currently the
largest casino hotel facility in Atlantic City, and has ranked first among all
Atlantic City casinos in terms of total gaming revenues, table revenues and
slot revenues since it commenced operations in 1990. The Taj Mahal capitalizes
on the widespread recognition and marquee status of the "Trump" name and its
association with high quality amenities and first class service as evidenced
by its "Four Star" Mobil Travel Guide rating. Management believes that the
breadth and diversity of the Taj Mahal's casino, entertainment and convention
facilities and its status as a "must see" attraction will enable the Taj Mahal
to benefit from the expected continued growth of the Atlantic City market.
The Taj Mahal currently features Atlantic City's largest casino, with
120,000-square-feet of gaming space, 162 table games and 3,550 slot machines.
In addition, the Taj Mahal has a 12,000-square-foot poker, keno, race
simulcasting room with 61 poker tables, which was added in 1993 and expanded
in 1994. The casino's offerings include blackjack, craps, roulette, baccarat,
red dog, sic-bo, pai gow, pai gow poker, caribbean stud poker and big six. In
December 1995, the Taj Mahal opened an Asian themed table game area which
offers 16 popular Asian table games catering to the Taj Mahal's growing Asian
clientele. In addition, as a special bonus to high-end players, Taj Associates
offers three clubs for the exclusive use of select customers: the Maharajah
Club for table game players, the Presidents Club for high-end slot players,
and the Bengal Club for other preferred slot players.
The Taj Mahal consists of a 42-story hotel tower and contiguous low-rise
structure, sited on approximately 17 acres of land. The Taj Mahal has 1,250
guest rooms (including 242 suites), 15 restaurants, six lounges, parking for
approximately 4,600 cars, an 18-bay bus terminal and approximately 65,000-
square-feet of ballroom, meeting room and pre-function area space. The Taj
Mahal is currently contemplating adding new themed restaurants to be owned and
operated by nationally recognized restaurant operators, including the
Rainforest Cafe. In addition, the Taj Mahal features the Taj Entertainment
Complex, a 20,000-square-foot multi-purpose entertainment complex known as the
Xanadu Theater with seating capacity for approximately 1,200 people, which can
be used as a theater, concert hall, boxing arena or exhibition hall, and the
Mark Etess Arena, which comprises an approximately 63,000-square foot
exhibition hall facility. The Xanadu Theater and the Mark Etess Arena have
allowed the Taj Mahal to offer longer running, more established productions
that cater to the tastes of the Taj Mahal's high-end international guests, and
has afforded the Taj Mahal more flexibility in the use of its facilities for
sporting and other headline programs. The Taj Mahal regularly engages well-
known musicians and entertainment personalities and will continue to emphasize
weekend marquee events such as Broadway revues, high visibility sporting
events, international festivals and contemporary concerts to maximize casino
traffic and to maintain the highest level of glamour and excitement at the Taj
Mahal.
Management believes that the Taj Mahal's 1,250-room capacity and vast
casino, entertainment, convention and exhibition space, including the Mark
Etess Arena, make it a highly attractive convention facility and destination
resort facility at which visitors may stay for extended periods. In addition
to its normal advertising, Taj Associates actively promotes the Taj Mahal with
various local chambers of commerce, travel agencies which specialize in
convention travel and various corporate travel departments in order to attract
convention business.
BUSINESS STRATEGY
General. In recent years, under the direction of Trump and the management
team led by Nicholas L. Ribis, its Chief Executive Officer, Taj Associates has
completed construction of the Taj Entertainment Complex, reconfigured and
expanded the casino floor to provide race simulcasting, poker wagering and the
new game of keno, opened an Asian themed table game area and increased the
number of poker tables and slot machines. Taj
138
<PAGE>
Associates continually monitors operations to adapt to and anticipate industry
trends. Since 1994, the Taj Mahal has embarked on a strategy to renovate all
of its hotel guest rooms and corridors by April 1996 and to replace all of its
existing slot machines by the middle of 1996 with new, more efficient machines
with bill collectors. A primary element of the Taj Mahal's business strategy
is to attract patrons who tend to wager more frequently and in larger
denominations than the typical Atlantic City gaming customer ("high-end
players"). Such high-end players typically wager $5 or more per play in slots
and $100 or more per play in table games. As a result of these and other
initiatives, Taj Associates has had strong recent operating results, with net
revenues for the nine months ended September 30, 1995 approximately 8% higher
than the period in 1994. In addition, slot revenues also increased in the nine
months ended September 30, 1995, a 6.9% increase over the comparable period in
1994. The Taj Mahal's total gaming revenues represent a 13.4% share of the
Atlantic City gaming market in the nine months ended September 30, 1995 and
1994, resulting in part from Atlantic City's highest table game efficiency and
win per unit per day during such time.
The Taj Mahal Expansion. Following the consummation of the Merger
Transaction, THCR plans to undertake an expansion plan at the Taj Mahal to
meet both existing demand and the increase in demand that management
anticipates will result from the increased number of rooms and infrastructure
improvements that are currently being implemented to enhance further the
"vacation destination appeal" of Atlantic City. It is currently expected that
the Taj Mahal Expansion will be funded out of the Taj Mahal's cash from
operations and borrowings, and will be completed in phases from the fourth
quarter of 1996 through 1999. The Taj Mahal Expansion, the plans for which are
preliminary and subject to change, involves the construction of a 2,200 space
expansion of the Taj Mahal's existing self-parking facilities and a new arena
on a surface parking area located adjacent to the Taj Mahal, each scheduled to
be completed in the fourth quarter of 1996; the conversion of the current site
of the Mark Etess Arena into a new 60,000-square foot circus-themed casino
with 2,500 slot machines, to be completed in 1997; and the construction of two
new 640 room hotel towers adjacent to the Taj Mahal's existing hotel tower,
the first of which is scheduled to be completed in 1997, and the second of
which is scheduled to begin construction following the completion of the first
tower and be completed in 1999. See "Risk Factors--Trump Plaza Expansion and
The Taj Mahal Expansion--The Taj Mahal."
Gaming Environment. The Taj Mahal's management continues to capitalize on
the Taj Mahal's status as the largest facility in Atlantic City and a "must
see" attraction, while maintaining the attractiveness of the property and
providing a comfortable gaming experience. In 1994, the Taj Mahal completed a
major redecoration of the hotel lobby, a casino floor expansion and a
reconfiguration, as well as the addition of a new mid-level player slot club.
The casino floor expansion and reconfiguration accommodated the addition of
keno, an additional 4 poker tables and 163 slot machines. Taj Holding
management believes that this renovation represents a significant improvement
by creating an uninterrupted view from the lobby to the casino floor.
Approximately 2,050 new slot machines were placed in service during 1994 and
1995 to replace older models. Taj Holding management anticipates that it will
continue to replace all older slot machines early in 1996. In addition, in
June 1993, the Taj Mahal completed a 10,000-square foot poker and simulcast
area (which was subsequently enlarged to 12,000 square feet), which features
61 poker tables in the largest poker room in Atlantic City. For the year ended
December 31, 1994, the Taj Mahal captured approximately 40.7% of the total
Atlantic City poker revenues.
Taj Holding management continuously monitors the configuration of the casino
floor and the games it offers to patrons with a view towards making changes
and improvements. For example, the Taj Mahal's casino floor has clear, large
signs for the convenience of patrons. Additionally, as new games have been
approved by the CCC, management has integrated such games to the extent it
deems appropriate. In 1994, the Taj Mahal introduced the newly-approved games
of keno and caribbean stud poker and in 1995 introduced the game of pai gow.
Entertainment. Taj Holding believes headline entertainment, as well as other
entertainment and revue shows, is an effective means of attracting and
retaining gaming patrons. The August 1993 completion of the Xanadu Theater has
allowed the Taj Mahal to offer longer running, more established productions
that cater to
139
<PAGE>
the tastes of the Taj Mahal's high-end international guests. The additional
theater has also afforded the Taj Mahal more flexibility in the use of its
larger entertainment arena for sporting and other headline programs. The Taj
Mahal regularly engages well-known musicians and entertainment personalities
and will continue to emphasize weekend "marquee" events such as Broadway
revues, high visibility sporting events, festivals and contemporary concerts
to maintain the highest level of glamour and excitement. Mid-week uses for the
facilities include convention events and casino marketing sweepstakes. The Taj
Mahal also includes the Mark Etess Arena, which comprises an approximately
63,000 square-foot exhibition hall facility.
"Comping" Strategy. In order to compete effectively with other casino
hotels, the Taj Mahal offers complimentaries. In 1991 and 1992, the Taj Mahal
increased promotional activities and complimentaries to its targeted patrons
in response to a difficult economic environment and increased capacity in the
Atlantic City market. Currently, the policy at the Taj Mahal is to focus
promotional activities, including complimentaries, on middle and upper middle
market "drive in" patrons who visit Atlantic City frequently and have proven
to be the most profitable market segment.
Additionally, as a result of increased regulatory flexibility, Taj
Associates has implemented a cash comping policy to high-end players in order
to compete with similar practices in Las Vegas and to attract international
business.
Player Development. Taj Associates employs sales representatives as a means
of attracting high-end slot and table gaming patrons to the property. Taj
Associates currently employs numerous gaming representatives in New Jersey,
New York and other states, as well as several international representatives,
to host special events, offer incentives and contact patrons directly in the
United States, Canada and South America. In addition, targeted marketing to
international clientele will be continued and expanded through new sales
representatives in Latin America, Mexico, Europe, the Far East and the Middle
East.
As a special bonus to high-end players, Taj Associates offers three clubs
for the exclusive use of select customers: the Maharajah Club for table game
players, the Presidents Club for high-end slot players, and the Bengal Club
for other preferred slot players.
The casino hosts assist patrons on the casino floor, make room and dinner
reservations and provide general assistance. They also solicit Trump Card (the
frequent player card) sign-ups in order to increase the Taj Mahal's marketing
base.
Taj Associates also plans to continue the development of its slot and coin
programs through direct mail and targeted marketing campaigns emphasizing the
high-end player. "Motorcoach Marketing," the Taj Mahal's customer bus-in
program, has been an important component of player development and will
continue to focus on tailoring its player base and maintaining a low-cost
package.
Promotional Activities. The Trump Card, a player identification card,
constitutes a key element in the Taj Mahal's direct marketing program. Both
table and slot machine players are encouraged to register for and utilize
their personalized Trump Card to earn various complimentaries and incentives
based on their level of play. The Trump Card is inserted during play into a
card reader attached to the table or slot machine for use in computerized
rating systems. These computer systems record data about the cardholder,
including playing preferences, frequency and denomination of play and the
amount of gaming revenues produced. Sales and management personnel are able to
monitor the identity and location of the cardholder and the frequency and
denomination of such cardholder's play. They can also use this information to
provide attentive service to the cardholder while the patron is on the casino
floor.
The Taj Mahal designs promotional offers, conveyed via direct mail and
telemarketing, to patrons expected to provide revenues based upon their
historical gaming patterns. Such information is gathered on slot wagering by
the Trump Card and on table game wagering by the casino games supervisor.
Promotional activities at the Taj Mahal include the mailing of vouchers for
complimentary slot play and utilization of a special events calendar (e.g.,
birthday parties, sweepstakes and special competitions) to promote its gaming
operations.
140
<PAGE>
The Taj Mahal conducts slot machine and table game tournaments in which cash
prizes are offered to a select group of players invited to participate in the
tournament based upon their tendency to play. Special events such as "Slot
Sweepstakes" and "bingo" are designed to increase mid-week business and will
continue to be emphasized throughout 1996. Players at these tournaments tend
to play at their own expense during "off-hours" of the tournament. At times,
tournament players are also offered special dining and entertainment
privileges that encourage them to remain at the Taj Mahal.
Credit Policy. Historically, the Taj Mahal has extended credit on a
discretionary basis to certain qualified patrons. For the years ended December
31, 1992, 1993 and 1994 and the nine months ended September 30, 1995, the Taj
Mahal's credit play as a percentage of total dollars wagered was approximately
26.0%, 23.5%, 22.8% and 22.9%, respectively. Since 1991, the Taj Mahal has
successfully attracted high-end table game patrons through its "junket"
marketing operations and has undertaken a marketing effort aimed at high-end
international table game patrons, which increased credit play as a percentage
of total dollars in 1991 and early 1992. Since the initial success of these
marketing efforts, the Taj Mahal has been more selective in its extension of
credit, thereby decreasing credit play as a percentage of gaming revenues in
1992, 1993 and 1994.
PROPERTIES
Taj Associates owns and leases several parcels of land in Atlantic City, New
Jersey, each of which is used in connection with the operation of the Taj
Mahal and each of which is encumbered by the Amended Mortgage securing the
Bonds and the mortgage securing the $25 million Working Capital Facility. Upon
consummation of the Merger Transaction, these parcels of land may also secure
the Taj Notes. All of the following properties (other than certain property
underlying the casino parcel, which is owned by Taj Associates) comprised the
Specified Parcels.
The Casino Parcel. The land comprising the site upon which the Taj Mahal is
located consists of approximately 17 acres, which are bounded by The Boardwalk
to the south, Maryland Avenue to the east, Pennsylvania Avenue to the west and
which extends to the north towards Pacific Avenue for approximately three-
quarters of a city block on the western portion of the site and two-thirds of
a city block on the eastern portion of the site. Construction was
substantially completed and the Taj Mahal was opened to the public on April 2,
1990.
Taj Entertainment Complex. The Taj Entertainment Complex is situated in a
parcel of land leased from Realty Corp. and features a 20,000 square foot
multi-purpose entertainment complex known as the Xanadu Theater with seating
capacity for approximately 1,200 people, which can be used as a theater,
concert hall, boxing arena or exhibition hall.
Steel Pier. Taj Associates leases the Steel Pier from Realty Corp. A
condition imposed on Taj Associates' CAFRA Permit (which, in turn, is a
condition of Taj Associates' casino license) initially required that Taj
Associates begin construction of certain improvements on the Steel Pier by
October 1992, which improvements were to be completed within 18 months of
commencement. Taj Associates initially proposed a concept to improve the Steel
Pier, the estimated cost of which improvements was $30 million. Such concept
was approved by the New Jersey Department of Environmental Protection and
Energy ("NJDEPE"), the agency which administers CAFRA. In March 1993, Taj
Associates obtained a modification of its CAFRA Permit providing for the
extension of the required commencement and completion dates of the
improvements to the Steel Pier for one year based upon an interim use of the
Steel Pier for an amusement park. Taj Associates received an additional one-
year extension, in March 1995, of the required commencement and completion
dates of the improvements of the Steel Pier based upon the same interim use of
the Steel Pier as an amusement park pursuant to a sublease ("Pier Sublease")
with an amusement pier operator ("Pier Subtenant"). The Pier Sublease provides
for a five-year lease term through December 31, 1999. However, Taj Associates
may terminate the Pier Sublease after December 31 of each year if written
notice of termination is given to the Pier Subtenant on or before September 1
of such year. Taj Associates is currently seeking further modification to its
obligations under the CAFRA Permit.
141
<PAGE>
Office and Warehouse Space. Taj Associates owns an office building located
on South Pennsylvania Avenue adjacent to the Taj Mahal. In addition, Taj
Associates, in April 1991, purchased for approximately $1.7 million certain
facilities of Trump's Castle Associates which are presently used for fleet
maintenance and limousine services, and for office space which it leases to a
commercial tenant.
Taj Associates has entered into a lease with The Trump-Equitable Fifth
Avenue Co., a corporation wholly owned by Trump, for the lease of office space
in The Trump Tower in New York City, which Taj Associates uses as a marketing
office. The monthly payments under the lease had been $1,000, and the premises
were leased at such rent for four months in 1992, the full twelve months in
1993 and 1994 and eight months in 1995. On September 1, 1995, the lease was
renewed for a term of five years with an option for Taj Associates to cancel
the lease on September 1 of each year, upon six months' notice and payment of
six months' rent. Under the renewed lease, the monthly payments are $2,184.
Parking. The Taj Mahal provides parking for approximately 4,600 cars of
which 3,600 spaces are located in indoor parking garages and 1,000 spaces are
located on land leased to Taj Associates by Realty Corp. In addition, Taj
Associates entered into a lease agreement with Trump's Castle Associates to
share its employee parking facilities. In connection with the Taj Mahal
Expansion, Taj Associates will expand its self-parking facilities by 2,200
spaces.
SEASONALITY
The gaming industry in Atlantic City traditionally has been seasonal, with
its strongest performance occurring from May through September, and with
December and January showing substantial decreases in activity. Revenues have
been significantly higher on Fridays, Saturdays, Sundays and holidays than on
other days.
EMPLOYEES AND LABOR RELATIONS
Taj Associates has approximately 6,100 employees for the operation of the
Taj Mahal, of which approximately 1,850 employees are represented by
collective bargaining agreements. Taj Associates believes that its
relationships with its employees are satisfactory and that its staffing levels
are sufficient to provide first-rate service. Since opening in April 1990,
during which time some collective bargaining agreements with various unions
have expired prior to the execution of new agreements, the business of Taj
Associates has not been interrupted due to any labor disputes. The collective
bargaining agreement with HERE Local 54, which covers substantially all of Taj
Associates' hotel and restaurant employees, was renegotiated in September 1994
and will expire on September 14, 1999.
Certain Taj Associates employees must be licensed under the Casino Control
Act. See "Regulatory Matters--New Jersey Gaming Regulations--Qualification of
Employees."
THE 1991 TAJ RESTRUCTURING
During 1990 and 1991, Taj Associates experienced liquidity problems. Taj
Holding believes that these problems were attributable, in part, to an overall
deterioration in the Atlantic City gaming market, as indicated by reduced
rates of casino revenue growth for the industry for the two prior years,
aggravated by an economic recession in the Northeast and the Persian Gulf War,
as well as the risks inherent in the establishment of a new business
enterprise. Comparatively, excessive casino gaming capacity in Atlantic City
may also have contributed to Taj Associates' liquidity problems.
As a result of Taj Associates' liquidity problems, Taj Funding failed to
make its November 15, 1990 and May 15, 1991 interest payments on its Old
Bonds, resulting in an event of default under the indenture with respect to
such Old Bonds. During 1990 and 1991, Taj Associates also failed to pay
certain principal and interest installments on certain indebtedness due under
its loan with NatWest.
142
<PAGE>
In order to alleviate its liquidity problems, during 1991, TTMC, Taj
Funding, Taj Associates and TTMI (together, the "Debtors") restructured their
indebtedness through the 1991 Taj Restructuring, which was a "prepackaged"
plan of reorganization under Chapter 11 of the Bankruptcy Code. At the time,
the Debtors believed that there was no alternative to their liquidity problems
other than filing petitions under the Bankruptcy Code. Taj Associates had been
unable to obtain additional financing, and Taj Funding was restricted from
amending the payment terms of the Old Bonds outside of a case under the
Bankruptcy Code without the unanimous consent of the holders thereof. The
purpose of the 1991 Taj Restructuring was to improve the amortization schedule
and extend the maturity of Taj Associates' indebtedness by reducing and
deferring the Debtors' annual debt service requirements by (i) restructuring
Taj Associates' and affiliated entities' long-term indebtedness to NatWest,
First Fidelity and Bankers Trust, and (ii) issuing the Bonds with an overall
lower rate of interest as compared with Taj Funding's Old Bonds.
Upon consummation of the 1991 Taj Restructuring on October 4, 1991, Taj
Associates issued to the holders of the Old Bonds a general partnership
interest representing 49.995% of the equity of Taj Associates. Such holders in
turn contributed such partnership interest to Taj Holding. Taj Funding also
issued the Units to the holders of the Old Bonds. As part of the 1991 Taj
Restructuring, TM/GP, which has no other assets, received a 49.995%
partnership interest in Taj Associates from Taj Holding. Trump also
contributed to Taj Holding a 50% ownership interest in TTMC, which owns a .01%
interest in Taj Associates, in exchange for the Taj Holding Class C Common
Stock, as described below.
At the time of these transfers, Taj Holding issued 1,350,000 shares of Taj
Holding Class A Common Stock and 729,458 shares of Taj Holding Class B Common
Stock to the holders of the Old Bonds and 1,350,000 shares of Taj Holding
Class C Common Stock to Trump. In accordance with the terms of the Bond
Indenture, a portion of the interest on the Bonds may be paid in additional
Bonds. At May 15, 1992, 1993, 1994 and 1995, 8,844 Units comprised of
$8,844,000 of Bonds and 8,844 shares of Taj Holding Class B Common Stock,
14,579 Units comprised of $14,579,000 of Bonds and 14,579 shares of Taj
Holding Class B Common Stock, 12,249 Units comprised of $12,249,000 of Bonds
and 12,249 shares of Taj Holding Class B Common Stock, and 15,112 Units
comprised of $15,112,000 of Bonds and 15,112 shares of Taj Holding Class B
Common Stock, respectively, were issued in lieu of the payment of a portion of
the cash interest on the outstanding Bonds.
Currently, the holders of Taj Holding Class B Common Stock are entitled to
elect four of the nine members of Taj Holding's Board of Directors and Trump,
as holder of the Taj Holding Class C Common Stock, is entitled to elect the
remaining five directors. The Taj Holding Class A Common Stock has no voting
rights until such time as the Bonds are redeemed, defeased or paid in full.
However, except upon Taj Holding's liquidation, only the Taj Holding Class A
Common Stock is entitled to distributions and dividends, if any, made by Taj
Holding. The Taj Holding Class B Common Stock must be redeemed at a price of
$.50 per share when the Bonds with which they were issued, are paid, redeemed
or defeased.
CERTAIN INDEBTEDNESS
Set forth below is a summary of certain debt instruments to which affiliates
of Taj Holding are parties prior to the Merger Transaction.
BONDS
In connection with the 1991 Taj Restructuring, Taj Funding and Taj Holding
issued Units, each of which was comprised of $1,000 principal amount of Bonds
and one share of Taj Holding Class B Common Stock. Pursuant to the Bond
Indenture, Taj Funding may issue up to $860 million of Bonds. On October 4,
1991, at the time the Units were issued, the principal amount of Bonds issued
was $729,458,000.
Terms. As of September 30, 1995, the principal amount of Bonds issued was
$780,242,000. The Bonds have a stated maturity date of November 15, 1999. The
Bonds bear interest at 11.35% per annum. Interest on the Bonds is due semi-
annually on each November 15 and May 15. Interest on the Bonds must be paid in
cash on
143
<PAGE>
each interest payment date at a rate of 9.375% per annum, and, in addition,
effective May 15, 1992, and annually thereafter, an additional amount of
interest in cash or additional Bonds or a combination thereof, is payable in
an amount to increase the interest paid to 11.35% per annum.
Guarantee. The obligations of Taj Funding to pay the principal of, premium,
if any, and interest on the Bonds are guaranteed by Taj Associates.
Security. The Bonds are secured by an assignment by Taj Funding to the
trustee under the Bond Indenture (the "Taj Bond Trustee") of a promissory
note, dated as of October 4, 1991, issued by Taj Associates to Taj Funding
(the "Taj Bond Partnership Note") in a principal amount of $675 million, with
payment terms substantially similar to the payment terms of the Bonds, which
is in turn secured by an amended mortgage, dated as of October 4, 1991, by Taj
Associates as mortgagor and Taj Funding as mortgagee, securing payment of the
Taj Bond Partnership Note, as amended to reflect the terms of the Bonds (the
"Amended Mortgage"), which has been assigned to the Taj Bond Trustee and
encumbers Taj Associates' interest in the Taj Mahal and substantially all of
the other assets of Taj Associates, excluding certain furniture, furnishings,
fixtures, machinery and equipment which is subject to the lien of the NatWest
Loan. In addition, the Taj Bond Partnership Note is secured by a second,
subordinated lien on all the real estate owned by Realty Corp. Moreover, Taj
Associates has acquired an option to purchase the real estate owned by Realty
Corp., and such option has been assigned to the Taj Bond Trustee as security
for the Bonds.
Covenants. The Bond Indenture contains certain restrictive covenants which
restrict, among other things, the activities of Taj Funding and Taj
Associates; the ability of Taj Associates to enter into certain leases; the
incurrence of additional debt (including a covenant limiting payments on long-
term debt); the creation of liens; the payment of dividends and distributions
on and repurchases of capital stock and partnership interests and other
restricted payments; consolidations, mergers and conveyances and transfers of
property and assets; transactions with affiliates; investments of Taj Funding
and Taj Associates; and the waiver of stay extension and usury laws.
Treatment Under the Merger Transaction. The principal and accrued and unpaid
interest on the outstanding Bonds will be paid in full in connection with the
Merger Transaction. Concurrently with the retirement of the Bonds, the
outstanding shares of Taj Holding Class B Common Stock will be redeemed in
accordance with their terms, at a redemption price of $.50 per share.
NATWEST LOAN
On November 3, 1989, Taj Associates entered into the NatWest Loan, which
provided financing of $50,000,000 for certain items of furniture, fixtures and
equipment installed in the Taj Mahal. On October 4, 1991, in connection with
the 1991 Taj Restructuring, the NatWest Loan was amended in order to, among
other things, modify the interest rate and other payment terms.
Terms. As of September 30, 1995, the principal amount of the NatWest Loan
was $44,986,000, and the interest rate was 9.375% per annum. Principal and
interest on the NatWest Loan are payable as follows:
(i) on the last business day of each month until the earlier of the last
business day of October 1999 or the date the NatWest Loan, together with
all interest thereon, is paid in full, the sum of $416,667, to be applied
first in respect of accrued interest on the NatWest Loan and thereafter, to
the extent available, in reduction of the principal of the NatWest Loan;
provided, however, up to $525,000 of such payments received by NatWest in
any year shall be paid to either First Fidelity or Bankers Trust for
application by First Fidelity in payment of obligations of Taj Associates
to First Fidelity, and by Bankers Trust on behalf of Taj Associates on
behalf of TTMI in payment of interest on the TTMI Note. Such amounts paid
by NatWest shall not have been applied by NatWest in payment of the
principal of, interest on or any other sums due in respect of the NatWest
Loan or otherwise payable to NatWest;
144
<PAGE>
(ii) on May 15 of each year (if any of the principal of or interest on
the NatWest Loan is then outstanding), commencing on May 15, 1992, to and
including May 15, 1999, an amount (the "EACF Payment") equal to 16.5% (or,
if the First Fidelity Loan shall have been paid in full on or prior to any
such May 15, 20%) of Excess Available Cash Flow (as defined in the Bond
Indenture) for the preceding calendar year in excess of the Additional
Amount (as defined in the Bond Indenture) payable on such May 15 (such
remaining Excess Available Cash Flow, the "Remaining EACF Amount"), if any,
to be applied first in reduction of then accrued but unpaid interest on,
and then to principal of the NatWest Loan; and
(iii) on November 15, 1999, the outstanding principal of and all accrued
but unpaid interest on the NatWest Loan.
Security. The NatWest Loan is secured by a first priority lien on the
furniture, fixtures and equipment acquired with the proceeds of the NatWest
Loan plus any after-acquired furniture, fixtures and equipment that replaces
such property, or of the same type; provided, however, that the NatWest Loan
may be subordinated to a lien to secure purchase money financing of such
after-acquired property which does not exceed 50% of the purchase price of
such after-acquired property.
Remedies upon Events of Default. Upon the occurrence of an event of default
under the NatWest Loan, including, without limitation, the sale of any real
estate owned by Realty Corp. for less than the release price set forth in
First Fidelity Loan (as defined below) without the prior written consent of
NatWest, NatWest may accelerate any and all indebtedness outstanding under the
NatWest Loan.
Treatment Under the Merger Transaction. The NatWest Loan will remain
outstanding following the consummation of the Merger Transaction subject to
obtaining the consent of NatWest.
FIRST FIDELITY LOAN/SPECIFIED PARCELS
On November 22, 1988, First Fidelity, Realty Corp. and Trump, as guarantor,
entered into the First Fidelity Loan in the aggregate principal amount of
$75,000,000. Pursuant to an amendment to the First Fidelity Loan, effective as
of October 4, 1991, the rate of interest payable was modified, the dates of
payment of principal and interest were deferred and accrued interest in the
amount of $1,773,750 was capitalized. As of September 30, 1995, the principal
amount outstanding on the First Fidelity Loan was approximately $78 million.
Unpaid principal and accrued interest on the First Fidelity Loan is due and
payable on November 15, 1999, unless otherwise extended in connection with the
extension of the maturity of the Bonds.
Taj Associates currently leases the Specified Parcels from Realty Corp., a
corporation wholly owned by Trump, pursuant to an Amended and Restated Lease
Agreement, dated as of October 4, 1991 (the "Specified Parcels Lease").
Pursuant to the Specified Parcels Lease, Taj Associates is obligated to pay
Realty Corp. $3.3 million plus 3.5% of the Remaining EACF Amount per year.
Such annual payment, however, is reduced by (i) all of the Base Fees and the
first $75,000 of the Incentive Fees payable to Trump pursuant to the Taj
Services Agreement and assigned by Trump to First Fidelity (which amounts were
$575,000 in 1995) and (ii) the portion of monies payable by Taj Associates to
NatWest to be remitted to First Fidelity (which amounts were $525,000 in
1995). The Specified Parcels Lease expires on December 31, 2023, however, the
lease may be terminated prior to such date following a foreclosure or similar
proceeding on the Specified Parcels by First Fidelity, the holder of a first
mortgage lien on the Specified Parcels which secures the First Fidelity Loan
(the "First Fidelity Mortgage") or any other mortgagee thereof.
The Specified Parcels Lease provides that, upon payment of the First
Fidelity Loan, and upon discharge of the First Fidelity Mortgage, Taj
Associates may purchase the Specified Parcels for ten dollars. Payment of the
First Fidelity Loan is guaranteed by a guarantee (limited to any deficiency in
the amount owed under the First Fidelity Loan when due, up to a maximum of $30
million) by Taj Associates (the "Taj Associates-First Fidelity
145
<PAGE>
Guarantee"), a personal guarantee by Trump (pursuant to which First Fidelity
has agreed to forbear from asserting any personal claim with respect thereto
in excess of approximately $19.2 million) (the "Trump-First Fidelity
Guarantee") and limited recourse guarantees by TTMC (the "TTMC-First Fidelity
Guarantee") and TTMI (as amended, the "TTMI-First Fidelity Guarantee" and,
together with the Trump-First Fidelity Guarantee and the TTMC-First Fidelity
Guarantee, the "Other First Fidelity Guarantees"). The Other First Fidelity
Guarantees are secured by pledges by Trump of 62.5% of his Taj Holding Class C
Common Stock, TTMC Common Stock and TTMI Common Stock and all of his shares of
Realty Corp. Common Stock, and pledges by TTMI and TTMC of 62.5% and 31.25%,
respectively, of their equity and financial interests as general partners in
Taj Associates (all such interests pledged to First Fidelity as security for
the Other First Fidelity Guarantees are referred to herein as the "Other First
Fidelity Guarantee Collateral"). First Fidelity's recourse under the TTMC-
First Fidelity Guarantee and the TTMI-First Fidelity Guarantee is limited to
the collateral pledged by TTMC and TTMI, respectively.
Upon the satisfaction in full of the obligations due under the First
Fidelity Loan at a negotiated amount of $50 million and 500,000 shares of THCR
Common Stock, Taj Associates will purchase the Specified Parcels from Realty
Corp. In connection therewith, First Fidelity will (i) release and discharge
Realty Corp. from the First Fidelity Loan and release its lien on the
Specified Parcels, (ii) release Taj Associates from the Taj Associates-First
Fidelity Guarantee, (iii) release each of Trump, TTMC and TTMI from their
respective obligations under the Other First Fidelity Guarantees and (iv)
release its lien on the Other First Fidelity Guarantee Collateral. In
addition, the purchase of the Specified Parcels will eliminate Taj Associates'
current obligations under the Specified Parcels Lease and the termination
rights with respect to the Specified Parcels Lease, thereby facilitating the
Taj Mahal Expansion by securing the future use of the Specified Parcels by Taj
Associates. It is anticipated that holders of the Taj Notes will have a
security interest in the Specified Parcels.
TTMI NOTE
On April 30, 1990, Trump loaned $25 million to Taj Associates on an
unsecured basis, in exchange for a note payable to Trump (the "Old Taj
Associates Note"). The Old Taj Associates Note was pledged to certain lenders
to Trump, including Bankers Trust, as security for certain of Trump's personal
indebtedness. On October 4, 1991, in connection with the 1991 Taj
Restructuring and in order to facilitate the reorganization of Taj Associates
and certain of its affiliates, the Old Taj Associates Note was canceled and,
in lieu thereof, TTMI, a corporation wholly owned by Trump which was formed
for the purpose of holding a general partnership interest in Taj Associates,
executed the TTMI Note, a promissory note payable to Trump in the principal
amount of $27,188,000. At such time, in order to secure the Bankers Trust
Indebtedness, Trump pledged to certain lenders, including Bankers Trust, his
right, title and interest in the TTMI Note. As additional security for the
Bankers Trust Indebtedness, Trump pledged to Bankers Trust all of his shares
of Taj Holding Class C Common Stock, TTMC Common Stock and TTMI Common Stock,
which pledges are subordinate, in part, to the liens of First Fidelity in such
collateral. In addition, TTMI and TTMC have each guaranteed the repayment of
the Bankers Trust Indebtedness, which limited recourse guarantees are secured
by pledges by TTMI and TTMC to Bankers Trust of 100% and 50%, respectively, of
their equity and financial interests as general partners in Taj Associates,
which pledges are subordinate, in part, to the liens of First Fidelity in such
collateral.
In connection with the Merger Transaction, Bankers Trust will receive $10
million from Taj Associates in respect of certain of the Bankers Trust
Indebtedness. Upon such payment, Bankers Trust will release (i) its lien on
the TTMI Note, (ii) its liens on the remaining collateral pledged by Trump to
Bankers Trust and (iii) TTMI and TTMC from their respective obligations as
guarantors of certain of Trump's personal indebtedness and the liens securing
such obligations.
WORKING CAPITAL FACILITY
Background and Terms. On November 14, 1991, Taj Associates entered into the
Working Capital Facility with Foothill in the amount of $25,000,000, which is
secured by a lien on Taj Associates' assets senior to the lien of the Bond
Mortgage securing the Bonds. On September 1, 1994, Taj Associates and Foothill
extended the
146
<PAGE>
maturity to November 13, 1999, in consideration of modifications of the terms
of the facility. Borrowings under the Working Capital Facility bear interest
at a rate equal to the prime lending rate plus 3%, with a minimum of 0.666%
per month. The agreement further provides for a .75% annual fee and a .50%
unused line fee. As of December 31, 1994, no amounts were outstanding under
the Working Capital Facility.
Events of Default. The occurrence of any of the following events constitute
an event of default under the Working Capital Facility: (i) failure to pay
principal, interest, fees, charges or reimbursements due to Foothill, when due
and payable or when declared due and payable; (ii) failure or neglect to
perform certain duties and covenants under the agreement; (iii) any material
portion of Taj Associates' assets is attached, seized, subjected to a writ or
distress warrant, levied upon, or comes into the possession of any judicial
officer or assignee and such attachment or writ is not dismissed within 60
days; (iv) an insolvency proceeding is commenced by Taj Associates; (v) an
insolvency proceeding is commenced against Taj Associates, and is not
dismissed within 60 days; (vi) Taj Associates is enjoined, restrained, or in
any way prevented by certain governmental agencies from continuing to conduct
all or any material part of its business affairs; (vii) Taj Associates fails
to pay certain liens, levies or assessments on the payment date thereof;
(viii) certain judgments or claims in excess of $500,000 become a lien or
encumbrance upon a material portion of Taj Associates' assets; (ix) Taj
Associates defaults in payments owing to NatWest or the Bond Trustee; (x) Taj
Associates makes unauthorized payments on debt subordinated to the Working
Capital Facility; (xi) misrepresentations are made by Taj Associates to
Foothill in any warranty, representation, certificate, or report; (xii)
certain ERISA violations which could have a material adverse effect on the
financial condition of Taj Associates; or (xiii) Taj Associates incurs or
enters into a commitment to incur any indebtedness which is secured by Taj
Associates assets subject to the working capital facility.
Remedies upon Event of Default. Upon the occurrence of an event of default,
Foothill may, at its election, without notice of its election and without
demand, do any one or more of the following: (i) declare all obligations
immediately due and payable; (ii) cease advancing money or extending credit;
(iii) terminate the Working Capital Facility without affecting Foothill's
rights and security interest in Taj Associates assets; (iv) settle disputes
and claims directly with certain Taj Associates debtors; (v) make such
payments and perform such acts as Foothill deems necessary to protect its
security interests; (vi) set off amounts owed under the Working Capital
Facility by other Taj Associates accounts or deposits held by Foothill; (vii)
prepare for sale and sell, after giving proper notice, Taj Associates assets
securing the Working Capital Facility in a commercially reasonable manner;
(viii) exercise its rights under certain mortgage and assignment documents
between Taj Associates and Foothill; (ix) credit bid and purchase at any
public sale subject to the provisions of the Casino Control Act; (x) any
deficiency which exists after disposition of Taj Associates assets securing
the Working Capital Facility will be paid immediately by Taj Associates; any
excess will be returned to Taj Associates, without interest.
Treatment under the Merger Transaction. The Working Capital Facility may
remain outstanding following the consummation of the Merger Transaction and
Foothill's consent would be required in such event.
LEGAL PROCEEDINGS
General. Taj Holding, TM/GP, TTMI and TTMC are not parties to any material
legal proceedings. Taj Associates, its partners, certain members of the former
Executive Committee, Taj Funding, TTMI and certain of their employees are or
were involved in various legal proceedings, some of which are described below.
Taj Associates and Taj Funding have agreed to indemnify such persons and
entities against any and all losses, claims, damages, expenses (including
reasonable costs, disbursements and counsel fees) and liabilities (including
amounts paid or incurred in satisfaction of settlements, judgments, fines and
penalties) incurred by them in said legal proceedings. Such persons and
entities are vigorously defending the allegations against them and intend to
vigorously contest any future proceedings.
Bondholder Litigation. Between June 1990 and October 1990 six purported
class actions were commenced on behalf of the holders of Taj Funding's Old
Bonds, which were outstanding prior to the consummation of the
147
<PAGE>
Plan, and the publicly traded bonds of Trump's Castle and Trump Plaza. In
December 1990 all six cases were consolidated in the United States District
Court for the District of New Jersey. On February 8, 1991, the plaintiffs in
the consolidated action filed an amended and consolidated complaint with
respect to the Taj Mahal. This complaint named as defendants Donald J. Trump,
Robert S. Trump, Harvey I. Freeman, Taj Associates, Taj Funding, TTMI, The
Trump Organization and Merrill Lynch, Pierce, Fenner & Smith, Inc., and
purported to be brought on behalf of those who either purchased Old Bonds or
who would be deprived of interest on the Old Bonds pursuant to the Plan. The
complaint alleged violations of Sections 11 and 12 of the Securities Act and
Section 10(b) and Rule 10b-5 of the Exchange Act against all defendants and
breach of fiduciary duty and common law false advertising against various
defendants and sought compensatory damages in an unspecified amount. Taj
Associates and the other defendants moved to dismiss the amended and
consolidated complaint on or about January 28, 1992. On June 2, 1992 the Court
granted the defendants' motion to dismiss. Plaintiffs thereafter appealed the
dismissal of the consolidated action. On October 14, 1993, the United States
Court of Appeals for the Third Circuit affirmed the District Court's dismissal
of the amended complaint. On March 7, 1994, the U.S. Supreme Court denied the
plaintiffs' petition for a writ of certiorari.
Atlantic City Lease Agreement. The City of Atlantic City is currently
disputing Taj Associates' termination of a lease agreement relating to
employee parking. On March 29, 1990, Taj Associates entered into a lease
agreement with the City of Atlantic City pursuant to which Taj Associates
leased a parcel of land containing approximately 1,300 spaces for employee
intercept parking at a cost of approximately $1 million. In addition, Taj
Associates has expended in excess of $1.4 million in improving the site. The
permit under which the lease is operated was issued by NJDEPE on December 20,
1989 for five years and contains several conditions, one of which required Taj
Associates to find another location "off-island" for employee parking by April
2, 1992. NJDEPE extended this condition for two successive one-year periods
through April 2, 1994. On November 14, 1994, as a result of the non-renewal of
the permit, Taj Associates notified the City that the lease agreement had
become inoperative and was therefore being canceled as of December 20, 1994.
Taj Associates subsequently obtained "off-island" parking with Trump's Castle
Associates sufficient to meet its employee parking requirements. The City has
indicated in a letter to Taj Associates that it contests the cancellation of
the lease agreement and claims certain extensions to the permit apply, to
which Taj Associates does not agree.
Other Litigation. Various legal proceedings are now pending against Taj
Associates. Taj Holding considers all such proceedings to be ordinary
litigation incident to the character of its business. The majority of such
claims are covered by liability insurance (subject to applicable deductibles),
and Taj Holding believes that the resolution of these claims, to the extent
not covered by insurance, will not, individually or in the aggregate, have a
material adverse effect on the financial condition or results of operations of
Taj Holding.
148
<PAGE>
ATLANTIC CITY MARKET
The Atlantic City gaming market has demonstrated continued growth despite
the recent proliferation of new gaming venues across the country. The 12
casino hotels in Atlantic City generated approximately $3.43 billion in gaming
revenues in 1994, an approximately 3.6% increase over 1993 gaming revenues of
approximately $3.31 billion, despite the effects of unfavorable winter weather
in the first quarter of 1994. For the first eleven months of 1995, which
experienced milder winter weather in the first three months compared to the
same period in 1994, gaming revenues for the 12 casino hotels in the Atlantic
City market were approximately $3.48 billion, an increase of approximately
10.1% from the comparable period in 1994. From 1989 to 1994, total gaming
revenues in Atlantic City have increased 22%, while hotel rooms increased only
slightly during that period. Occupancy levels in Atlantic City increased to
historic highs in 1994, reaching 88%, up from 83% in 1989. Although total
visitor volume to Atlantic City remained relatively constant in 1994, the
volume of bus customers dropped to 8.1 million in 1994, continuing a decline
from 13.1 million in 1989. The volume of customers traveling by other means to
Atlantic City has grown from 18.9 million in 1989 to 24.7 million in 1994.
Total Atlantic City slot revenues increased 3.7% in 1994, continuing a solid
trend of increases over the past five years. From 1989 through 1994, slot
revenue growth in Atlantic City has averaged 7.9% per year. Total table
revenue increased 1% in 1994, while table game revenue from 1989 to 1994 has
decreased on average 2.6% per year. Management believes the slow growth in
table revenue is primarily attributable to two factors. First, the slot
product has been significantly improved over the last five years. Dollar bill
acceptors, new slot machines, video poker and blackjack and other improvements
have increased the popularity of slot play among a wider universe of casino
patrons. Casino operators in Atlantic City have added slot machines in favor
of table games due to increased public acceptance of slot play and due to slot
machines' comparatively higher profitability as a result of lower labor and
support costs. Since 1990, the number of slot machines in Atlantic City has
increased 28%, while the number of table games has decreased by 17%. Slot
revenues increased from 58% of total casino revenues in 1990 to 67% in 1994.
The second reason for historic slow growth in table revenue is that table game
players are typically higher end players and are more likely to be interested
in overnight stays and other amenities. During peak season and weekends, room
availability in Atlantic City is currently inadequate to meet demand, making
it difficult for casino operators to aggressively promote table play.
Casino revenue growth in Atlantic City has lagged behind that of other
traditional gaming markets, principally Las Vegas, for the last five years.
Both THCR management and Taj Holding management believe that this relatively
slow growth is partially attributable to two key factors. First, the
regulatory environment and infrastructure problems in Atlantic City have made
it more difficult and costly to operate. Total regulatory costs and tax levies
in New Jersey have exceeded Nevada since inception, and there is generally a
higher level of regulatory oversight in New Jersey than in Nevada. The
infrastructure problems, manifested by impaired accessibility of the casinos,
downtown Atlantic City congestion and the condition of the areas surrounding
the casinos, have made Atlantic City less attractive to the gaming customer.
Secondly, there have been no significant additions to hotel capacity in
Atlantic City since 1990. Las Vegas visitor volumes have increased, in part,
due to the continued addition of new hotel capacity. Both markets have
exhibited a strong correlation between hotel room inventory and total casino
revenues.
Despite lower overall growth rates than the Las Vegas market, both THCR
management and Taj Holding management believe that Atlantic City possesses
similar revenue and cash flow generation capabilities. The approximately $3.18
billion of gaming revenue produced by the 12 casino hotels in Atlantic City in
the first ten months of 1995 exceeded the approximately $2.60 billion of
gaming revenues produced by the 19 largest casino hotels on the Las Vegas
Strip, even though the Atlantic City casino hotels have less than one-quarter
the number of hotel rooms of the Las Vegas Strip casino hotels. Win per unit
figures in Atlantic City are at a significant premium to Las Vegas win per
unit performance, primarily due to the constrained supply of gaming positions
in Atlantic City compared to Las Vegas.
The regulatory environment in Atlantic City has improved recently. Most
significantly, 24-hour gaming has been approved, poker and keno have been
added and regulatory burdens have been reduced. In particular,
149
<PAGE>
Bill A61 was passed in January of 1995, which has eliminated duplicative
regulatory oversight and channeled operator's funds from regulatory support
into CRDA uses. Administrative costs of regulation will be reduced while
increasing funds available for new development.
In addition to the planned casino expansions, major infrastructure
improvements have begun. The CRDA is currently overseeing the development of
the "tourist corridor" that will link the new convention center with The
Boardwalk and will, when completed, feature an entertainment and retail
complex. The tourist corridor is scheduled to be completed in conjunction with
the completion of the new convention center.
Trump Plaza is adjacent to the existing Atlantic City Convention Center and
will also be one of the closest casino hotels to the new convention center,
which as currently planned would hold approximately 500,000 square feet of
exhibit and pre-function space, 45 meeting rooms, food-service facilities and
a 1,600-car underground parking garage. The Taj Mahal is approximately 1.5
miles from the site of the new convention center. When completed, the new
approximately $290 million convention center would be the largest exhibition
space between New York City and Washington, D.C. It will be located at the
base of the Atlantic City Expressway and is currently planned to open in
January 1997. The State of New Jersey is also implementing an approximately
$125 million capital plan to upgrade and expand the Atlantic City
International Airport.
Both THCR management and Taj Holding management believe that recent gaming
regulatory reforms will serve to permit future reductions in operating
expenses of casinos in Atlantic City and to increase the funds available for
additional infrastructure development through the CRDA. Due principally to an
improved regulatory environment, general improvement of economic conditions in
1993 and 1994 and high occupancy rates, significant investment in the Atlantic
City market has been initiated and/or announced. Bally recently bought a
boardwalk lot for $7.5 million, the Sands just completed a major renovation,
and in December of 1994, approval by the CRDA was given to TropWorld to add
626 hotel rooms and the Grand for 295 rooms (both of which are under
construction) and the Taj Mahal for 1,280 rooms and a 1,500 space parking
garage. Overall, various casinos in the market have applied to the CRDA for
funding to construct 3,400 new hotel rooms. Both THCR management and Taj
Holding management believe that these increases in hotel capacity, together
with infrastructure improvements, will be instrumental in stimulating future
revenue growth in the Atlantic City market. See "Competition."
150
<PAGE>
COMPETITION
Competition in the Atlantic City casino hotel market is intense. Trump Plaza
and the Taj Mahal compete with each other and with the other casino hotels
located in Atlantic City, including the other casino hotel owned by Trump,
Trump's Castle. See "Risk Factors--Conflicts of Interest." Trump Plaza and the
Taj Mahal are located on The Boardwalk, approximately 1.2 miles apart from
each other. At present, there are 12 casino hotels located in Atlantic City,
including the Taj Mahal and Trump Plaza, all of which compete for patrons. In
addition, there are several sites on The Boardwalk and in the Atlantic City
Marina area on which casino hotels could be built in the future and various
applications for casino licenses have been filed and announcements with
respect thereto made from time to time (including a proposal by Mirage
Resorts, Inc.), although neither THCR nor Taj Holding are aware of any current
construction on such sites by third parties. No new casino hotels have
commenced operations in Atlantic City since 1990, although several existing
casino hotels have recently expanded or are in the process of expanding their
operations. While management of THCR and Taj Holding believe that the addition
of hotel capacity would be beneficial to the Atlantic City market generally,
there can be no assurance that such expansion would not be materially
disadvantageous to either Trump Plaza or the Taj Mahal. There also can be no
assurance that the Atlantic City development projects which are planned or
underway will be completed.
Trump Plaza and the Taj Mahal also compete, or will compete, with facilities
in the northeastern and mid- Atlantic regions of the United States at which
casino gaming or other forms of wagering are currently, or in the future may
be, authorized. To a lesser extent, Trump Plaza and the Taj Mahal face
competition from gaming facilities nationwide, including land-based, cruise
line, riverboat and dockside casinos located in Colorado, Illinois, Indiana,
Iowa, Louisiana, Minnesota, Mississippi, Missouri, Nevada, South Dakota,
Ontario (Windsor), the Bahamas, Puerto Rico and other locations inside and
outside the United States, and from other forms of legalized gaming in New
Jersey and in its surrounding states such as lotteries, horse racing
(including off-track betting), jai alai, bingo and dog racing, and from
illegal wagering of various types. New or expanded operations by other persons
can be expected to increase competition and could result in the saturation of
certain gaming markets. In September 1995, New York introduced a keno lottery
game, which is played on video terminals that have been set up in 1,800 bars,
restaurants and bowling alleys across the state. In addition to competing with
other casino hotels in Atlantic City and elsewhere, by virtue of their
proximity to each other and the common aspects of certain of their respective
marketing efforts, including use of the "Trump" name, Trump Plaza and the Taj
Mahal compete directly with each other for gaming patrons. Although management
does not intend to operate Trump Plaza and the Taj Mahal to the competitive
detriment of each other, the effect may be that Trump Plaza and the Taj Mahal
will operate to the competitive detriment of each other.
THCR anticipates that the Indiana Riverboat will compete primarily with
riverboats and other casinos in the northern Indiana suburban and Chicago
metropolitan area and throughout the Great Lakes Market. In addition to
competing with Barden's riverboat at the Buffington Harbor site, the Indiana
Riverboat will compete with a riverboat in Hammond, Indiana, which is being
developed by the owner and operator of the Empress Riverboat Casino in Joliet,
Illinois, a riverboat in East Chicago, Indiana, which is being developed by
Showboat, Inc. and with the riverboat expected to be licensed in the nearby
community of Michigan City, Indiana. To a lesser degree, the Indiana Riverboat
will compete with the six additional riverboats expected to be licensed in the
rest of Indiana. At present there are four other riverboat casino operations
in the Chicago area (three of which operate two riverboats each, with each
operator limited to 1,200 gaming positions in the aggregate). In addition, a
casino opened during 1994 in Windsor, Ontario, across the river from Detroit,
and Detroit is considering several proposals for casinos in its downtown area.
Although THCR believes that there is sufficient demand in the market to
sustain the Indiana Riverboat, there can be no assurance to that effect. There
can be no assurance that either Indiana or Illinois, or both, will not
authorize additional gaming licenses, including for the Chicago metropolitan
area. See "Risk Factors--The Indiana Riverboat."
In addition, Trump Plaza and the Taj Mahal face, and the Indiana Riverboat
will face, competition from casino facilities in a number of states operated
by federally recognized Native American tribes. Pursuant to IGRA, any state
which permits casino style gaming (even if only for limited charity purposes)
is required to
151
<PAGE>
negotiate gaming contracts with federally recognized Native American tribes.
Under IGRA, Native American tribes enjoy comparative freedom from regulation
and taxation of gaming operations, which provides them with an advantage over
their competitors, including Trump Plaza, the Taj Mahal and the Indiana
Riverboat.
In 1991, the Mashantucket Pequot Nation opened a casino facility in Ledyard,
Connecticut, located in the far eastern portion of such state, an
approximately three-hour drive from New York City and an approximately two and
one-half hour drive from Boston, which currently offers 24-hour gaming and
contains over 3,100 slot machines. The Mashantucket Pequot Nation has
announced various expansion plans, including its intention to build another
casino in Ledyard together with hotels, restaurants and a theme park. In
addition, the Mohegan Nation has commenced construction of a casino resort to
be located 10 miles from the Ledyard casino. The Mohegan Nation resort will be
built and managed by Sun International, an entity headed by a South African
investor, is scheduled to be as large as the Ledyard casino and is scheduled
to open in October 1996. There can be no assurance that any continued
expansion of gaming operations by the Mashantucket Pequot Nation or that any
commencement of gaming operations by the Mohegan Nation would not have a
materially adverse impact on Trump Plaza's or the Taj Mahal's operations.
A group in New Jersey calling itself the "Ramapough Indians" has applied to
the U.S. Department of the Interior to be Federally recognized as a Native
American tribe, which recognition would permit it to require the State of New
Jersey to negotiate a gaming compact under IGRA. In 1993, the Bureau of Indian
Affairs denied the Ramapough Indians Federal recognition. The Ramapough
Indians have appealed the decision. Similarly, a group in Cumberland County,
New Jersey calling itself the "Nanticoke Lenni Lenape" tribe has filed a
notice of intent with the Bureau of Indian Affairs seeking formal Federal
recognition as a Native American tribe. Also, it has been reported that a
Sussex County, New Jersey businessman has offered to donate land he owns there
to the Oklahoma-based Lenape/Delaware Indian Nation which originated in New
Jersey and already has Federal recognition but does not have a reservation in
New Jersey. The Lenape/Delaware Indian Nation has signed an agreement with the
town of Wildwood, New Jersey to open a casino; however, the plan requires
federal and state approval in order to proceed. In July 1993, the Oneida
Nation opened a casino featuring 24-hour table gaming and electronic gaming
systems, but without slot machines, near Syracuse, New York, and has announced
an intention to open expanded gaming facilities. Representatives of the St.
Regis Mohawk Nation signed a gaming compact with New York State officials for
the opening of a casino, without slot machines, in the northern portion of the
state close to the Canadian border. The St. Regis Mohawks have also announced
their intent to open a casino at the Monticello Race Track in the Catskill
Mountains region of New York, however, any Indian gaming operation in the
Catskills is subject to the approval of the Governor of New York. The
Narragansett Nation of Rhode Island, which has Federal recognition, is
negotiating a casino gaming compact with Rhode Island. The Aquinnah Wampanoags
Tribe is seeking to open a casino in New Bedford, Massachusetts. Other Native
American nations are seeking Federal recognition, land and negotiation of
gaming compacts in New York, Pennsylvania, Connecticut and other states near
Atlantic City.
The Pokagon Band of Potawatomi Indians of southern Michigan and northern
Indiana has been federally recognized as an Indian tribe. In September 1995,
the Pokagon Band of Potawatomi Indians signed a gaming compact with the
governor of Michigan to build a land-based casino in southwestern Michigan and
also entered into an agreement with Harrah's Entertainment, Inc. to develop
and manage the casino.
Legislation permitting other forms of casino gaming has been proposed, from
time to time, in various states, including those bordering New Jersey. Plans
to begin operating slot machines at race tracks in the state of Delaware are
underway, including the slot machines currently operating at the Dover Downs
and Delaware Park race tracks. Six states have presently legalized riverboat
gambling while others are considering its approval, including New York and
Pennsylvania, and New York City is considering a plan under which it would be
the embarking point for gambling cruises into international waters three miles
offshore. Several states are considering or have approved large scale land-
based casinos. Additionally, Las Vegas experienced significant expansion in
1993 and 1994, with additional capacity planned and currently under
construction. The operations of Trump Plaza and the Taj Mahal could be
adversely affected by such competition, particularly if casino gaming
152
<PAGE>
were permitted in jurisdictions near or elsewhere in New Jersey or in other
states in the Northeast. In December 1993, the Rhode Island Lottery Commission
approved the addition of slot machine games on video terminals at Lincoln
Greyhound Park and Newport Jai Alai, where poker and blackjack have been
offered for over two years. Currently, casino gaming, other than Native
American gaming, is not allowed in other areas of New Jersey or in
Connecticut, New York or Pennsylvania. On November 17, 1995, a proposal to
allow casino gaming in Bridgeport, Connecticut, was voted down by that state's
Senate. A New York State Assembly plan has the potential of legalizing non-
Native American gaming in portions of upstate New York. Essential to this plan
is a proposed New York State constitutional amendment that would legalize
gambling. To amend the New York Constitution, the next elected New York State
Legislature must repass a proposal legalizing gaming and a statewide
referendum, held no sooner than November 1997, must approve the constitutional
amendment. To the extent that legalized gaming becomes more prevalent in New
Jersey or other jurisdictions near Atlantic City, competition would intensify.
In particular, a proposal has been introduced to legalize gaming in
Philadelphia and other locations in Pennsylvania.
In addition, legislation has from time to time been introduced in the New
Jersey State Legislature relating to types of statewide legalized gaming, such
as video games with small wagers. To date, no such legislation, which may
require a state constitutional amendment, has been enacted. Legislation has
also been introduced on numerous occasions in recent years to expand riverboat
gaming in Illinois, including by authorizing new sites in the Chicago area
with which the Indiana Riverboat would compete and by otherwise modifying
existing regulations to decrease or eliminate certain restrictions such as
gaming position limitations. To date, no such legislation has been enacted.
THCR and Taj Holding are unable to predict whether any such legislation, in
New Jersey, Illinois or elsewhere, will be enacted or whether, if passed, it
would have a material adverse impact on their respective results of operations
or financial condition.
THCR believes that competition in the gaming industry, particularly the
riverboat and dockside gaming industry, is based on the quality and location
of gaming facilities, the effectiveness of marketing efforts, and customer
service and satisfaction. Although management of THCR believes that the
location of the Indiana Riverboat will allow THCR to compete effectively with
other casinos in the geographic area surrounding its casino, THCR expects
competition in the casino gaming industry to be intense as more casinos are
opened and new entrants into the gaming industry become operational.
Furthermore, new or expanded operations by other persons can be expected to
increase competition for existing and future operations and could result in a
saturation of certain gaming markets.
153
<PAGE>
REGULATORY MATTERS
ANTITRUST REGULATIONS
The Merger is subject to the expiration or termination of the applicable
waiting period under the HSR Act. Under the HSR Act and the rules promulgated
thereunder by the Federal Trade Commission (the "FTC"), the Merger may not be
consummated until notifications have been given and certain information has
been furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the applicable waiting period has expired or been
terminated. On , 1996, THCR and Taj Holding filed Notification and Report
forms under the HSR Act with the FTC and the Antitrust Division. On ,
1996, the FTC and the Antitrust Division granted early termination of the
waiting period under the HSR Act with respect to the Merger effective
immediately. At any time before or after consummation of the Merger,
notwithstanding that early termination of the waiting period under the HSR Act
has been granted, the Antitrust Division of the FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the consummation of the Merger or
seeking divestiture of substantial assets of THCR or Taj Holding. Private
parties may also seek to take legal action under the antitrust laws under
certain circumstances.
Based on information available to them, THCR and Taj Holding believe that
the Merger can be effected in compliance with the federal antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, THCR and Taj Holding would prevail or would not be required to accept
certain adverse conditions in order to consummate the Merger.
GAMING LAWS--GENERAL
The following is only a summary of the applicable provisions of the Casino
Control Act of the State of New Jersey, the Riverboat Gambling Act of the
State of Indiana, and certain other laws and regulations. It does not purport
to be a full description thereof and is qualified in its entirety by reference
to the New Jersey Casino Control Act, the Indiana Riverboat Gambling Act and
such other laws and regulations.
Each of THCR and Taj Holding believes that it and its respective affiliates
are in material compliance with all applicable laws, rules and regulations
discussed below.
NEW JERSEY GAMING REGULATIONS
In general, the Casino Control Act and its implementing regulations contain
detailed provisions concerning, among other things: the granting and renewal
of casino licenses; the suitability of the approved hotel facility, and the
amount of authorized casino space and gaming units permitted therein; the
qualification of natural persons and entities related to the casino licensee;
the licensing of certain employees and vendors of casino licensees; rules of
the games; the selling and redeeming of gaming chips; the granting and
duration of credit and the enforceability of gaming debts; management control
procedures, accounting and cash control methods and reports to gaming
agencies; security standards; the manufacture and distribution of gaming
equipment; the simulcasting of horse races by casino licensees; equal
employment opportunities for employees of casino operators, contractors of
casino facilities and others; and advertising, entertainment and alcoholic
beverages.
Casino Control Commission. The ownership and operation of casino/hotel
facilities in Atlantic City are the subject of strict state regulation under
the Casino Control Act. The CCC is empowered to regulate a wide spectrum of
gaming and non-gaming related activities and to approve the form of ownership
and financial structure of not only a casino licensee, but also its entity
qualifiers and intermediary and holding companies and any other related entity
required to be qualified ("CCC Regulations").
Operating Licenses. Taj Associates was issued its initial casino license in
April 1990. On June 22, 1995, the CCC renewed Taj Associates' casino license
through March 31, 1999. Plaza Associates was issued its initial
154
<PAGE>
casino license on May 14, 1984. On June 22, 1995, the CCC renewed Plaza
Associates' casino license through June 30, 1999. Management believes that a
casino license will ultimately be issued for Trump World's Fair, although
there can be no assurance that the CCC will issue this casino license or what
conditions may be imposed, if any, with respect thereto.
Casino Licensee. No casino hotel facility may operate unless the appropriate
license and approvals are obtained from the CCC, which has broad discretion
with regard to the issuance, renewal, revocation and suspension of such
licenses and approvals, which are non-transferable. The qualification criteria
with respect to the holder of a casino license include its financial
stability, integrity and responsibility; the integrity and adequacy of its
financial resources which bear any relation to the casino project; its good
character, honesty and integrity; and the sufficiency of its business ability
and casino experience to establish the likelihood of a successful, efficient
casino operation. The casino licenses currently held by Taj Associates and
Plaza Associates are renewable for periods of up to four years. The CCC may
reopen licensing hearings at any time, and must reopen a licensing hearing at
the request of the Antitrust Division.
No person may be the holder of a casino license if the holding will result
in undue economic concentration in Atlantic City casino operations by that
person. On May 17, 1995, the CCC adopted a regulation defining the criteria
for determining undue economic concentration which codifies the content of
existing CCC precedent with respect to the subject. In April 1995, Plaza
Associates petitioned the CCC for certain approvals. In its May 18, 1995
declaratory rulings with respect to such petition, the CCC, among other
things, (i) determined that Trump World's Fair is an approved hotel permitted
to contain a maximum of 60,000 square feet of casino space, that the 40,000
square feet of casino space therein is a single room and that its operation by
Plaza Associates would not result in undue economic concentration in Atlantic
City casino operations; (ii) approved the operation of Trump World's Fair by
Plaza Associates under a separate casino license subject to an application for
and the issuance of such license and approved the proposed easement agreements
with respect to the proposed enclosed Atlantic City Convention Center walkway;
(iii) approved in concept the proposed physical connection and integrated
operation by Plaza Associates of the Main Tower, Trump Plaza East and Trump
World's Fair; and (iv) determined that the approved hotel comprised of the
Main Tower and Trump Plaza East is permitted to contain a maximum of 100,000
square feet of casino space. In addition, on December 13, 1995, Plaza
Associates received CCC authorization for 49,340 square feet of casino space
at Trump World's Fair. A separate Plaza Associates casino license with respect
to Trump World's Fair would have a renewable term of one year for each of its
first three years and thereafter be renewable for periods of up to four years.
Plaza Associates has made application for such separate casino license with
respect to Trump World's Fair but there can be no assurance that the CCC will
issue this casino license or what conditions may be imposed, if any, with
respect thereto. See "Risk Factors--Trump Plaza Expansion and the Taj Mahal
Expansion."
To be considered financially stable, a licensee must demonstrate the
following ability: to pay winning wagers when due; to achieve an annual gross
operating profit; to pay all local, state and federal taxes when due; to make
necessary capital and maintenance expenditures to insure that it has a
superior first-class facility; and to pay, exchange, refinance or extend debts
which will mature or become due and payable during the license term. The CCC
is required to review and approve a transaction such as the Merger Transaction
with regard to the financial stability standards.
In the event a licensee fails to demonstrate financial stability, the CCC
may take such action as it deems necessary to fulfill the purposes of the
Casino Control Act and protect the public interest, including: issuing
conditional licenses, approvals or determinations; establishing an appropriate
cure period; imposing reporting requirements; placing restrictions on the
transfer of cash or the assumption of liabilities; requiring reasonable
reserves or trust accounts; denying licensure; or appointing a conservator.
See "--New Jersey Gaming Regulations--Conservatorship."
THCR and Taj Holding believe that, upon consummation of the Merger
Transaction, Taj Associates and Plaza Associates will each have, and will each
continue to have, adequate financial resources to meet the financial
155
<PAGE>
stability requirements of the CCC for the foreseeable future. Taj Associates
and Plaza Associates plan to petition the CCC to approve the transactions
contemplated by the Merger Transaction. It is a condition to the consummation
of the Merger that the Merger Transaction is approved by the CCC.
Pursuant to the Casino Control Act, CCC Regulations and precedent, no entity
may hold a casino license unless each officer, director, principal employee,
person who directly or indirectly holds any beneficial interest or ownership
in the licensee, each person who in the opinion of the CCC has the ability to
control or elect a majority of the board of directors of the licensee (other
than a banking or other licensed lending institution which makes a loan or
holds a mortgage or other lien acquired in the ordinary course of business)
and any lender, underwriter, agent or employee of the licensee or other person
whom the CCC may consider appropriate, obtains and maintains qualification
approval from the CCC. Qualification approval means that such person must, but
for residence, individually meet the qualification requirements as a casino
key employee. Pursuant to a condition of its casino license, payments by Plaza
Associates to or for the benefit of any related entity or partner, with
certain exceptions, are subject to prior CCC approval; and, if Plaza
Associates' cash position falls below $5.0 million for three consecutive
business days, Plaza Associates must present to the CCC and the Division
evidence as to why it should not obtain a working capital facility in an
appropriate amount.
Control Persons. An entity qualifier or intermediary or holding company,
such as Taj Holding, TM/GP, Plaza Holding, Plaza Holding Inc., Plaza Funding,
THCR Holdings, THCR Funding or THCR is required to register with the CCC and
meet the same basic standards for approval as a casino licensee; provided,
however, that the CCC, with the concurrence of the Director of the Antitrust
Division, may waive compliance by a publicly-traded corporate holding company
with the requirement that an officer, director, lender, underwriter, agent or
employee thereof, or person directly or indirectly holding a beneficial
interest or ownership of the securities thereof individually qualify for
approval under casino key employee standards so long as the CCC and the
Director of the Antitrust Division are, and remain, satisfied that such
officer, director, lender, underwriter, agent or employee is not significantly
involved in the activities of the casino licensee, or that such security
holder does not have the ability to control the publicly-traded corporate
holding company or elect one or more of its directors. Persons holding five
percent or more of the equity securities of such holding company are presumed
to have the ability to control the company or elect one or more of its
directors and will unless this presumption is rebutted, be required to
individually qualify. Equity securities are defined as any voting stock or any
security similar to or convertible into or carrying a right to acquire any
security having a direct or indirect participation in the profits of the
issuer.
Financial Sources. The CCC may require all financial backers, investors,
mortgagees, bond holders and holders of notes or other evidence of
indebtedness, either in effect or proposed, which bear any relation to any
casino project, including holders of publicly-traded securities of an entity
which holds a casino license or is an entity qualifier, subsidiary or holding
company of a casino licensee (a "Regulated Company"), to qualify as financial
sources. In the past, the CCC has waived the qualification requirement for
holders of less than 15% of a series of publicly-traded mortgage bonds so long
as the bonds remained widely distributed and freely traded in the public
market and the holder had no ability to control the casino licensee. Taj
Associates will petition the CCC for a determination that the Taj Notes will
be widely distributed and freely traded in the public market. There can be no
assurance, however, that the CCC will grant such a petition, will determine
that the holders of Taj Notes have no ability to control Taj Associates as a
casino licensee or will continue the practice of granting such waivers and, in
any event, the CCC may require holders of less than 15% of a series of debt to
qualify as financial sources even if not active in the management of the
issuer or casino licensee.
Institutional Investors. An institutional investor ("Institutional
Investor") is defined by the Casino Control Act as any retirement fund
administered by a public agency for the exclusive benefit of Federal, state or
local public employees; any investment company registered under the Investment
Company Act of 1940, as amended; any collective investment trust organized by
banks under Part Nine of the Rules of the Comptroller of the Currency; any
closed end investment trust; any chartered or licensed life insurance company
or property and casualty insurance company; any banking and other chartered or
licensed lending institution; any investment
156
<PAGE>
advisor registered under the Investment Advisers Act of 1940, as amended; and
such other persons as the CCC may determine for reasons consistent with the
policies of the Casino Control Act.
An Institutional Investor may be granted a waiver by the CCC from financial
source or other qualification requirements applicable to a holder of publicly-
traded securities, in the absence of a prima facie showing by the Antitrust
Division that there is any cause to believe that the holder may be found
unqualified, on the basis of CCC findings that: (i) its holdings were
purchased for investment purposes only and, upon request by the CCC, it files
a certified statement to the effect that it has no intention of influencing or
affecting the affairs of the issuer, the casino licensee or its holding or
intermediary companies; provided, however, that the Institutional Investor
will be permitted to vote on matters put to the vote of the outstanding
security holders; and (ii) if (x) the securities are debt securities of a
casino licensee's holding or intermediary companies or another subsidiary
company of the casino licensee's holding or intermediary companies which is
related in any way to the financing of the casino licensee and represent
either (A) 20% or less of the total outstanding debt of the company, or (B)
50% or less of any issue of outstanding debt of the company, (y) the
securities are equity securities and represent less than 10% of the equity
securities of a casino licensee's holding or intermediary companies, or (z)
the securities so held exceed such percentages, upon a showing of good cause.
There can be no assurance, however, that the CCC will make such findings or
grant such waiver and, in any event, an Institutional Investor may be required
to produce for the CCC or the Antitrust Division upon request, any document or
information which bears any relation to such debt or equity securities.
Generally, the CCC requires each institutional holder seeking waiver of
qualification to execute a certification to the effect that (i) the holder has
reviewed the definition of Institutional Investor under the Casino Control Act
and believes that it meets the definition of Institutional Investor; (ii) the
holder purchased the securities for investment purposes only and holds them in
the ordinary course of business; (iii) the holder has no involvement in the
business activities of, and no intention of influencing or affecting the
affairs of the issuer, the casino licensee or any affiliate; and (iv) if the
holder subsequently determines to influence or affect the affairs of the
issuer, the casino licensee or any affiliate, it shall provide not less than
30 days' prior notice of such intent and shall file with the CCC an
application for qualification before taking any such action. If an
Institutional Investor changes its investment intent, or if the CCC finds
reasonable cause to believe that it may be found unqualified, the
Institutional Investor may take no action with respect to the security
holdings, other than to divest itself of such holdings, until it has applied
for interim casino authorization and has executed a trust agreement pursuant
to such an application. See "--New Jersey Gaming Regulations--Interim Casino
Authorization."
Declaratory Rulings. Taj Associates and Plaza Associates will petition the
CCC for declaratory rulings approving the Merger Transaction and determining,
among other things, that after consummation thereof, Taj Associates and Plaza
Associates will continue to satisfy the CCC's financial stability
requirements; Trump will continue to demonstrate his financial stability; the
Regulated Companies and natural person qualifiers are qualified; the
certificates of incorporation and partnership agreements of the Regulated
Companies contain required provisions with respect to the transfer of
securities and qualification of security holders under the Casino Control Act;
the Taj Notes are publicly traded securities and that CCC approval of the
issuance or subsequent transfer of the securities is not required; that the
individual holders of the Taj Notes need not be qualified as financial
sources, and their qualification may be waived by the CCC and that
qualification of the holders of THCR Common Stock be waived by the CCC.
Ownership and Transfer of Securities. The Casino Control Act imposes certain
restrictions upon the issuance, ownership and transfer of securities of a
Regulated Company and defines the term "security" to include instruments which
evidence a direct or indirect beneficial ownership or creditor interest in a
Regulated Company including, but not limited to, mortgages, debentures,
security agreements, notes and warrants. Currently, each of TM/GP, TTMC, Taj
Holding, Taj Funding, Taj Associates, TTMI, certain other entities that own
the Taj Holding Class A Common Stock or the Taj Holding Class B Common Stock,
Plaza Funding, Plaza Holding, Plaza Holding Inc., Plaza Associates, THCR
Holdings, THCR Funding and THCR are deemed to be a Regulated Company, and
instruments evidencing a beneficial ownership or creditor interest therein,
including partnership interest, are deemed to be the securities of a Regulated
Company.
157
<PAGE>
If the CCC finds that a holder of such securities is not qualified under the
Casino Control Act, it has the right to take any remedial action it may deem
appropriate, including the right to force divestiture by such disqualified
holder of such securities. In the event that certain disqualified holders fail
to divest themselves of such securities, the CCC has the power to revoke or
suspend the casino license affiliated with the Regulated Company which issued
the securities. If a holder is found unqualified, it is unlawful for the
holder (i) to exercise, directly or through any trustee or nominee, any right
conferred by such securities, or (ii) to receive any dividends or interest
upon such securities or any remuneration, in any form, from its affiliated
casino licensee for services rendered or otherwise.
With respect to non-publicly-traded securities, the Casino Control Act and
CCC Regulations require that the corporate charter or partnership agreement of
a Regulated Company establish a right in the CCC of prior approval with regard
to transfers of securities, shares and other interests and an absolute right
in the Regulated Company to repurchase at the market price or the purchase
price, whichever is the lesser, any such security, share or other interest in
the event that the CCC disapproves a transfer. With respect to publicly-traded
securities, such corporate charter or partnership agreement is required to
establish that any such securities of the entity are held subject to the
condition that, if a holder thereof is found to be disqualified by the CCC,
such holder shall dispose of such securities.
Interim Casino Authorization. Interim casino authorization is a process
which permits a person who enters into a contract to obtain property relating
to a casino operation or who obtains publicly-traded securities relating to a
casino licensee to close on the contract or own the securities until plenary
licensure or qualification. During the period of interim casino authorization,
the property relating to the casino operation or the securities is held in
trust.
Whenever any person enters into a contract to transfer any property which
relates to an ongoing casino operation, including a security of the casino
licensee or a holding or intermediary company or entity qualifier, under
circumstances which would require that the transferee obtain licensure or be
qualified under the Casino Control Act, and that person is not already
licensed or qualified, the transferee is required to apply for interim casino
authorization. Furthermore, except as set forth below with respect to publicly
traded securities, the closing or settlement date in the contract at issue may
not be earlier than the 121st day after the submission of a complete
application for licensure or qualification together with a fully executed
trust agreement in a form approved by the CCC. If, after the report of the
Antitrust Division and a hearing by the CCC, the CCC grants interim
authorization, the property will be subject to a trust. If the CCC denies
interim authorization, the contract may not close or settle until the CCC
makes a determination on the qualifications of the applicant. If the CCC
denies qualification, the contract will be terminated for all purposes and
there will be no liability on the part of the transferor.
If, as the result of a transfer of publicly-traded securities of a licensee,
a holding or intermediary company or entity qualifier of a licensee or a
financing entity of a licensee, any person is required to qualify under the
Casino Control Act, that person is required to file an application for
licensure or qualification within 30 days after the CCC determines that
qualification is required or declines to waive qualification. The application
must include a fully executed trust agreement in a form approved by the CCC
or, in the alternative, within 120 days after the CCC determines that
qualification is required, the person whose qualification is required must
divest such securities as the CCC may require in order to remove the need to
qualify.
The CCC may grant interim casino authorization where it finds by clear and
convincing evidence that: (i) statements of compliance have been issued
pursuant to the Casino Control Act; (ii) the casino hotel is an approved hotel
in accordance with the Casino Control Act; (iii) the trustee satisfies
qualification criteria applicable to key casino employees, except for
residency; and (iv) interim operation will best serve the interests of the
public.
When the CCC finds the applicant qualified, the trust will terminate. If the
CCC denies qualification to a person who has received interim casino
authorization, the trustee is required to endeavor, and is authorized, to
158
<PAGE>
sell, assign, convey or otherwise dispose of the property subject to the trust
to such persons who are licensed or qualified or shall themselves obtain
interim casino authorization.
Where a holder of publicly-traded securities is required, in applying for
qualification as a financial source or qualifier, to transfer such securities
to a trust in application for interim casino authorization and the CCC
thereafter orders that the trust become operative: (i) during the time the
trust is operative, the holder may not participate in the earnings of the
casino hotel or receive any return on its investment or debt security
holdings; and (ii) after disposition, if any, of the securities by the
trustee, proceeds distributed to the unqualified holder may not exceed the
lower of their actual cost to the unqualified holder or their value calculated
as if the investment had been made on the date the trust became operative.
Approved Hotel Facilities. The CCC may permit a licensee, such as Taj
Associates and Plaza Associates, to increase its casino space if the licensee
agrees to add a prescribed number of qualifying sleeping units within two
years after the commencement of gaming operations in the additional casino
space. However, if the casino licensee does not fulfill such agreement due to
conditions within its control, the licensee will be required to close the
additional casino space, or any portion thereof that the CCC determines should
be closed.
Persons who are parties to the lease for an approved hotel building or who
have an agreement to lease a building which may in the judgment of the CCC
become an approved hotel building are required to hold a casino license unless
the CCC, with the concurrence of the Attorney General of the State of New
Jersey, determines that such persons do not have the ability to exercise
significant control over the building or the operation of the casino therein.
Agreements to lease an approved hotel building or the land under the
building must be for a durational term exceeding 30 years, must concern 100%
of the entire approved hotel building or the land upon which it is located and
must include a buy-out provision conferring upon the lessee the absolute right
to purchase the lessor's entire interest for a fixed sum in the event that the
lessor is found by the CCC to be unsuitable.
In its May 18, 1995 declaratory rulings with respect to the proposed
enclosed Atlantic City Convention Center walkway to Trump World's Fair, the
CCC, among other things, approved the proposed easement agreements with
respect to such walkway and determined, with the concurrence of the Attorney
General, that no CCC license is required to grant the easement and that the
easements satisfy the durational term requirement and need not concern 100% of
the entire approved hotel building or include such a buy-out provision. See
"Business of THCR--Properties--Trump World's Fair."
Agreement for Management of Casino. Each party to an agreement for the
management of a casino is required to hold a casino license, and the party who
is to manage the casino must own at least 10% of all the outstanding equity
securities of the casino licensee. Such an agreement shall: (i) provide for
the complete management of the casino; (ii) provide for the unrestricted power
to direct the casino operations; and (iii) provide for a term long enough to
ensure the reasonable continuity, stability and independence and management of
the casino.
License Fees. The CCC is authorized to establish annual fees for the renewal
of casino licenses. The renewal fee is based upon the cost of maintaining
control and regulatory activities prescribed by the Casino Control Act, and
may not be less than $200,000 for a four-year casino license. Additionally,
casino licensees are subject to potential assessments to fund any annual
operating deficits incurred by the CCC or the Antitrust Division. There is
also an annual license fee of $500 for each slot machine maintained for use or
in use in any casino.
Gross Revenue Tax. Each casino licensee is also required to pay an annual
tax of 8% on its gross casino revenues. For the years ended December 31, 1992,
1993 and 1994 and for the nine months ended September 30, 1995, Plaza
Associates' gross revenue tax was approximately $21.0 million, $21.3 million,
$21.0 million and $18.1 million, respectively, and its license, investigations
and other fees and assessments totaled approximately
159
<PAGE>
$4.7 million, $4.0 million, $4.2 million and $3.2 million, respectively. For
the years ended December 31, 1992, 1993 and 1994 and for the nine months ended
September 30, 1995, Taj Associates' gross revenue tax was approximately $33.0
million, $35.4 million, $36.7 million and $30.3 million, respectively, and its
license, investigations and other fees and assessments totaled approximately
$5.3 million, $5.2 million, $5.2 million and $3.8 million, respectively.
Investment Alternative Tax Obligations. An investment alternative tax
imposed on the gross casino revenues of each licensee in the amount of 2.5% is
due and payable on the last day of April following the end of the calendar
year. A licensee is obligated to pay the investment alternative tax for a
period of 30 years. Estimated payments of the investment alternative tax
obligation must be made quarterly in an amount equal to 1.25% of estimated
gross revenues for the preceding three-month period. Investment tax credits
may be obtained by making qualified investments or by the purchase of bonds
issued by the CRDA. CRDA bonds may have terms as long as fifty years and bear
interest at below market rates, resulting in a value lower than the face value
of such CRDA bonds.
For the first ten years of its tax obligation, the licensee is entitled to
an investment tax credit against the investment alternative tax in an amount
equal to twice the purchase price of bonds issued to the licensee by the CRDA.
Thereafter, the licensee is (i) entitled to an investment tax credit in an
amount equal to twice the purchase price of such bonds or twice the amount of
its investments authorized in lieu of such bond investments or made in
projects designated as eligible by the CRDA and (ii) has the option of
entering into a contract with the CRDA to have its tax credit comprised of
direct investments in approved eligible projects which may not comprise more
than 50% of its eligible tax credit in any one year.
From the monies made available to the CRDA, the CRDA is required to set
aside $100 million for investment in hotel development projects in Atlantic
City undertaken by a licensee which result in the construction or
rehabilitation of at least 200 hotel rooms by December 31, 1996. These monies
will be held to fund up to 35% of the cost to casino licensees of expanding
their hotel facilities to provide additional hotel rooms, a portion of which
will be required to be available upon the opening of the new Atlantic City
convention center and dedicated to convention events. The CRDA has determined
at this time that eligible casino licensees will receive up to 27% of the cost
of additional hotel rooms out of these monies set aside and may, in the
future, increase the percentage to no greater than 35%.
Minimum Casino Parking Charges. As of July 1, 1993, each casino licensee was
required to pay the New Jersey State Treasurer a $1.50 charge for every use of
a parking space for the purpose of parking, garaging or storing motor vehicles
in a parking facility owned or leased by a casino licensee or by any person on
behalf of a casino licensee. This amount is paid into a special fund
established and held by the New Jersey State Treasurer for the exclusive use
of the CRDA. Plaza Associates and Taj Associates currently charge their
respective parking patrons $2.00 in order to make their required payments to
the New Jersey State Treasurer and cover related expenses. Amounts in the
special fund will be expended by the CRDA for eligible projects in the
corridor region of Atlantic City related to improving the highways, roads,
infrastructure, traffic regulation and public safety of Atlantic City or
otherwise necessary or useful to the economic development and redevelopment of
Atlantic City in this regard.
Atlantic City Fund. On each October 31 during the years 1996 through 2003,
each casino licensee shall pay into an account established in the CRDA and
known as the Atlantic City Fund, its proportional share of an amount related
to the amount by which annual operating expenses of the CCC and the Antitrust
Division are less than a certain fixed sum. Additionally, a portion of the
investment alternative tax obligation of each casino license for the years
1994 through 1998 allocated for projects in Northern New Jersey shall be paid
into and credited to the Atlantic City Fund. Amounts in the Atlantic City Fund
will be expended by the CRDA for economic development projects of a revenue
producing nature that foster the redevelopment of Atlantic City other than the
construction and renovation of casino hotels.
160
<PAGE>
Conservatorship. If, at any time, it is determined that TM/GP, TTMC, Taj
Holding, Taj Funding, Taj Associates, TTMI, Plaza Associates, Plaza Funding,
Plaza Holding Inc., Plaza Holding, THCR, THCR Holdings, THCR Funding or any
other entity qualifier has violated the Casino Control Act or that any of such
entities cannot meet the qualification requirements of the Casino Control Act,
such entity could be subject to fines or the suspension or revocation of its
license or qualification. If Taj Associates' or Plaza Associates' license is
suspended for a period in excess of 120 days or revoked, or if the CCC fails
or refuses to renew such casino license, the CCC could appoint a conservator
to operate and dispose of Taj Associates' or Plaza Associates' casino hotel
facilities. A conservator would be vested with title to all property of Taj
Associates or Plaza Associates relating to the casino and the approved hotel
subject to valid liens and/or encumbrances. The conservator would be required
to act under the direct supervision of the CCC and would be charged with the
duty of conserving, preserving and, if permitted, continuing the operation of
the casino hotel. During the period of the conservatorship, a former or
suspended casino licensee is entitled to a fair rate of return out of net
earnings, if any, on the property retained by the conservator. The CCC may
also discontinue any conservatorship action and direct the conservator to take
such steps as are necessary to effect an orderly transfer of the property of a
former or suspended casino licensee. It would be the obligation of the
conservator to continue the debt service payments on the Taj Associates Note,
but no assurance can be given that the conservator would have sufficient funds
available to do so.
Qualification of Employees. Certain employees of Taj Associates and Plaza
Associates must be licensed by or registered with the CCC, depending on the
nature of the position held. Casino employees are subject to more stringent
requirements than non-casino employees and must meet applicable standards
pertaining to financial stability, integrity and responsibility, good
character, honesty and integrity, business ability and casino experience and
New Jersey residency. These requirements have resulted in significant
competition among Atlantic City casino operators for the services of qualified
employees.
Gaming Credit. Taj Associates' and Plaza Associates' casino games are
conducted on a credit as well as cash basis. Gaming debts arising in Atlantic
City in accordance with applicable regulations are enforceable in the courts
of the State of New Jersey. The extension of gaming credit is subject to
regulations that detail procedures which casinos must follow when granting
gaming credit and recording counter checks which have been exchanged, redeemed
or consolidated.
Control Procedures. Gaming at the Taj Mahal and Trump Plaza is conducted by
trained and supervised personnel. Taj Associates and Plaza Associates employ
extensive security and internal controls. Security checks are made to
determine, among other matters, that job applicants for key positions have had
no criminal history or associations. Security controls utilized by the
surveillance department include closed circuit video camera to monitor the
casino floor and money counting areas. The count of moneys from gaming also is
observed daily by representatives of the CCC.
INDIANA GAMING REGULATIONS
Indiana Gaming Commission. The ownership and operation of riverboat gaming
operations in Indiana are subject to strict state regulation under the
Riverboat Gambling Act and the administrative rules promulgated thereunder.
The IGC is empowered to administer, regulate and enforce the system of
riverboat gaming established under the Riverboat Gambling Act and has
jurisdiction and supervision over all riverboat gaming operations in Indiana,
as well as all persons on riverboats where gaming operations are conducted.
The IGC is empowered to regulate a wide variety of gaming and non-gaming
related activities, including the licensing of suppliers to, and employees at,
riverboat gaming operations and to approve the form of ownership and financial
structure of not only riverboat owner and supplier licensees, but also their
entity qualifiers, and intermediary and holding companies. Indiana is a new
gaming jurisdiction and the emerging regulatory framework is not yet complete.
The IGC has adopted certain final rules and has published others in proposed
or draft form which are proceeding through the review and final adoption
process. The IGC also has indicated its intent to publish additional proposed
rules in the future. The IGC has broad rulemaking power, and it is impossible
to predict what effect, if any, the amendment of existing rules, the
finalization of currently new rules might have on the
161
<PAGE>
operations of the Indiana Riverboat or THCR. The following reflects both
adopted and proposed regulations. Further, the Indiana General Assembly has
the power to promulgate new laws and implement amendments to the Riverboat
Gambling Act, which could materially affect the operation or economic
viability of the gaming industry in Indiana.
Certificate of Suitability. On December 9, 1994, the IGC issued to Trump
Indiana a "Certificate of Suitability" for a riverboat owner's license for a
riverboat to be docked in Buffington Harbor, Indiana. The certificate of
suitability constitutes approval of the application of Trump Indiana for a
riverboat owner's license. The IGC extended Trump Indiana's certificate of
suitability until June 28, 1996. Pursuant to the terms of the certificate of
suitability, during such period, Trump Indiana must comply with certain
statutory and other requirements imposed by the IGC. In addition, as a
condition to the certificate of suitability, Trump Indiana has committed to
invest $153 million in the Indiana Riverboat and certain related projects and
to pay certain incentive fees to the City of Gary, Indiana. Failure to comply
with the foregoing conditions and/or failure to commence riverboat excursions
as required by the IGC may result in revocation of the certificate of
suitability. There can be no assurance that THCR and/or Trump Indiana will be
able to comply with the terms of the certificate of suitability, that it will
be further extended if operations do not commence as required by the IGC or
that a riverboat owner's license for the Indiana Riverboat will ultimately be
granted or subsequently renewed.
Riverboat Owner's License. No one may operate a riverboat gaming operation
in Indiana without holding a riverboat owner's license. The certificate of
suitability received by Trump Indiana on December 9, 1994 and most recently
extended through June 28, 1996, means that Trump Indiana received a written
document issued by the Executive Director of the IGC that indicates that Trump
Indiana has been chosen for licensure if Trump Indiana meets certain
requirements within the interim compliance period as established by the IGC.
The interim compliance period is the period of time between the issuance of
the certificate of suitability and the issuance of a permanent riverboat
owner's license or the notice of denial thereof.
Interim Compliance Requirements. Interim compliance requires, among other
things: obtaining a permit to develop the riverboat gaming operation from the
United States Army Corps of Engineers, which permit was obtained on October
10, 1995; obtaining a valid certificate of inspection from the United States
Coast Guard for the vessel on which the riverboat gaming operation will be
conducted; applying for and receiving the appropriate permits or certificates
from the Indiana Alcoholic Beverage Commission, Indiana Fire Marshall, and
other appropriate local, state and federal agencies which issue permits
including, but not limited to, health permits, building permits and zoning
permits; closing the financing necessary to complete the development of the
gaming operation; posting a bond in compliance with the applicable law;
obtaining the insurance deemed necessary by the IGC; receiving licensure for
electronic gaming devices and other gaming equipment under applicable law;
submitting an emergency response plan in compliance with applicable laws; and
taking any other action that the IGC deems necessary for compliance under
Indiana gaming laws. Further, the IGC may place restrictions, conditions or
requirements on the permanent riverboat owner's license. An owner's initial
license expires five years after the effective date of the license, and unless
the owner's license is terminated, expires or is revoked, the owner's license
may be renewed annually by the IGC upon satisfaction of certain conditions
contained in the Riverboat Gambling Act.
Transfer of Riverboat Owner's License. Pursuant to IGC proposed rules, an
ownership interest in a riverboat owner's license shall not be transferred
unless the transfer complies with applicable law, and no riverboat gaming
operation may operate unless the appropriate licenses and approvals are
obtained from the IGC. Under current Indiana law, a maximum of 11 owner's
licenses may be in effect at any time. No person or entity may simultaneously
own an interest in more than two riverboat owner's licenses. A person or
entity may simultaneously own up to 100% in one riverboat owner's license and
no more than 10% in a second riverboat owner's license.
A riverboat owner's licensee must possess a level of skill, experience, or
knowledge necessary to conduct a riverboat gaming operation that will have a
positive economic impact on the host site, as well as the entire State
162
<PAGE>
of Indiana. Additional representative, but not exclusive, qualification
criteria with respect to the holder of a riverboat owner's license include
character, reputation, financial integrity, the facilities or proposed
facilities for the conduct of riverboat gaming including related non-gaming
projects such as hotel development, and the good faith affirmative action plan
to recruit, train and upgrade minorities and women in all employment
classifications. The IGC shall require persons holding owner's licenses to
adopt policies concerning the preferential hiring of residents of the city in
which the riverboat docks for riverboat jobs. The IGC has broad discretion in
regard to the issuance, renewal, revocation, and suspension of licenses and
approvals, and the IGC is empowered to regulate a wide variety of gaming and
non-gaming related activities, including the licensing of suppliers to, and
employees at, riverboat gaming operations, and to approve the form of
ownership and financial structure of not only riverboat owner and supplier
licensees, but also their subsidiaries and affiliates.
A riverboat owner's licensee or any other person may not lease, hypothecate,
borrow money against or loan money against a riverboat owner's license. An
ownership interest in a riverboat owner's licensee may only be transferred in
accordance with the regulations promulgated under the Riverboat Gambling Act.
An applicant for the approval of a transfer of a riverboat owner's license
must comply with application procedures prescribed by the IGC, present
evidence that it meets or possesses the standards, qualifications and other
criteria under Indiana gaming laws that it meets all requirements for a
riverboat owner's license, and pay an investigative fee in the amount of
$50,000 with the application. If the IGC denies the application to transfer an
ownership interest, it shall issue notice of denial to the applicant, and,
unless, specifically stated to the contrary, a notice of denial of an
application for transfer shall not constitute a finding that the applicant is
not suitable for licensure. A person who is served with notice of denial under
this rule may request an administrative hearing.
Control Persons and Operational Matters. The IGC has implemented strict
regulations with respect to the suitability of riverboat license owners, their
key personnel and their employees similar to the CCC regulations and
precedent. The IGC utilizes a "class-based" licensing structure that subjects
all individuals associated with Trump Indiana to varying degrees of background
investigations. Likewise, comprehensive security measures, including video
surveillance by both random and fixed cameras, are required in the casino and
money counting areas. Additionally, the IGC has delineated procedures for the
reconciliation of the daily revenues and tax remittance to the state as
further detailed below.
Tax. The IGC has imposed a tax on admissions to gaming excursions at a rate
of three dollars for each person admitted to the gaming excursion. This
admission tax is imposed upon the license owner conducting the gaming
excursion on a per-person basis without regard to the actual fee paid by the
person using the ticket, with the exception that no tax shall be paid by
admittees who are actual and necessary officials, employees of the licensee or
other persons actually working on the riverboat. The IGC may suspend or revoke
the license of a riverboat owner's licensee that does not submit the payment
or the tax return form regarding admission tax within the required time
established by the IGC.
A tax is imposed on the adjusted gross receipts received from gaming
authorized under the Riverboat Gambling Act at a rate of 20% of the amount of
the adjusted gross receipts. Adjusted gross receipts is defined as the total
of all cash and property (including checks received by a licensee), whether
collected or not, received by a licensee from gaming operations less the total
of all cash paid out as winnings to patrons including a provision for
uncollectible gaming receivables as is further set forth in the Riverboat
Gambling Act. The IGC may, from time to time, impose other fees and
assessments on riverboat owner licensees. In addition, all use, excise and
retail taxes apply to sales aboard riverboats.
Excursions. Generally, gaming may not be conducted while a riverboat is
docked, other than during the 30-minute periods for passenger embarkation and
disembarkation. The Riverboat Gambling Act, as originally enacted, provided an
exception if weather conditions or water conditions present a danger to the
riverboat and authorized the IGC to adopt rules to provide other exceptions.
In October 1994, the U.S. Attorney General's Office in Indiana notified the
IGC that a Federal law commonly known as the Johnson Act prohibits gaming
163
<PAGE>
vessels from cruising anywhere on the Great Lakes, including portions of Lake
Michigan falling within Indiana's borders and jurisdiction. Since that time,
the IGC has requested further consideration on this matter by the Department
of Justice, although no response has been provided to date. On May 9, 1995,
the House of Representatives approved H.R. 1361, which includes a provision
exempting vessels beginning a voyage in Indiana, and remaining within the
territorial jurisdiction of Indiana, from certain provisions of the Johnson
Act. There can be no assurance that H.R. 1361 will be enacted into law.
Further, it is uncertain whether any such legislation, as enacted, will exempt
vessels operating on Lake Michigan from all aspects of the Johnson Act or will
address all concerns raised by the Department of Justice. In addition, the
Indiana General Assembly has passed Senate Enrolled Act No. 572 and House
Enrolled Act No. 1722, each of which have become law. Both Senate Enrolled Act
No. 572 and House Enrolled Act No. 1722 include amendments which prevent the
Commission from adopting rules permitting gaming operations to take place
while a riverboat is docked. However, Senate Enrolled Act No. 572 includes an
express provision in the statute allowing gaming operations to take place
while a riverboat is docked if a determination is made in writing that a
condition exists that would cause a violation of Federal law if a riverboat
were to cruise. This same provision was not included in House Enrolled Act No.
1722. On May 15, 1995, the IGC adopted a resolution acknowledging the
nonconforming provisions of Senate Enrolled Act No. 572 and House Enrolled Act
No. 1722, and adopted a resolution to the effect that the IGC would give
effect to the provisions of Senate Enrolled Act No. 572. It is possible that
these nonconforming provisions may be reconciled by the Indiana General
Assembly upon its reconvening of the Indiana General Assembly in January 1996.
There can be no assurance that the nonconforming provisions in the Riverboat
Gambling Act will be corrected in a favorable manner. Further, although the
IGC has determined to give effect to favorable provisions of Senate Enrolled
Act No. 572, there can be no assurance that commencement of gaming operations
by Trump Indiana while the riverboat is docked would not be subject to
challenge as a violation of Indiana law, or that commencement of gaming
operations by Trump Indiana while cruising on Lake Michigan would not be
subject to challenge as a violation of the Johnson Act.
Restricted Contracts. Under proposed IGC rules, no riverboat licensee or
riverboat license applicant may enter into or perform any contract or
transaction in which it transfers or receives consideration which is not
commercially reasonable or which does not reflect the fair market value of the
goods or services rendered or received as determined at the time the contract
is executed. Any contract entered into by a riverboat licensee or riverboat
license applicant that exceeds the total dollar amount of $50,000 shall be a
written contract. A riverboat license applicant means an applicant for a
riverboat owner's license that has been issued a certificate of suitability.
Without first complying with the procedures established by the Executive
Director of the IGC regarding the notice of intention to enter into restricted
contracts, no riverboat licensee or riverboat license applicant may enter into
any contract, among others, which is described as follows: any contract to
acquire (by lease, rental or purchase) any gaming equipment or supplies; any
contract which relates to maintenance or servicing of electronic gaming
devices; any contract which relates to the provision of security to the
riverboat gaming operation; any contract in which the goods or services are
valued at more than $100,000 with the same party during a 12-month period; any
contract in which the goods or services are valued at more than $50,000 and
for which the riverboat licensee or riverboat license applicant did not
solicit and consider competitive offerors to supply the goods or services; and
any other contract, identified by the IGC so that the IGC may insure the
contracts are for a fair market value and were competitively negotiated.
Finance. Pursuant to IGC proposed rules, any person (other than an
institutional investor) acquiring 5% or more of any class of voting securities
of a publicly traded corporation that owns a riverboat owner's license or 5%
or more of the beneficial interest in a riverboat licensee, directly or
indirectly, through any class of the voting securities of any holding or
intermediary company of a riverboat licensee shall apply to the IGC for
finding of suitability within 45 days after acquiring the securities. Each
institutional investor who, and individually or in association with others,
acquires, directly or indirectly, 5% or more of any class of voting securities
of a publicly-traded corporation that owns a riverboat owner's license or 5%
or more of the beneficial interest in a riverboat licensee through any class
of the voting securities of any holding or intermediary company
164
<PAGE>
of a riverboat licensee shall notify the IGC within 10 days after the
institutional investor acquires the securities and shall provide additional
information and may be subject to a finding of suitability as required by the
IGC.
Under Indiana gaming laws, an institutional investor who would otherwise be
subject to a suitability finding shall, within 45 days after acquiring the
interests, submit the following information: a description of the
institutional investor's business and a statement as to why the institutional
investor satisfies the definitional requirements of an institutional investor
under Indiana gaming rule requirements; a certification made under oath that
the voting securities were acquired and are held for investment purposes only
and were acquired and are held in the ordinary course of business as an
institutional investor; the name, address, telephone number, social security
number or federal tax identification number of each person who has the power
to direct or control the institutional investor's exercise of its voting
rights as a holder of voting securities of the riverboat licensee; the name of
each person who beneficially owns 5% or more of the institutional investor's
voting securities or equivalent; a list of the institutional investor's
affiliates; a list of all securities of the riverboat licensee that are or
were beneficially owned by the institutional investor or its affiliates within
the preceding one year; a disclosure of all criminal and regulatory sanctions
imposed during the preceding ten years; a copy of any filing made under 16
U.S.C. 18(a); and any other additional information the IGC may request to
insure compliance with Indiana gaming laws.
Each institutional investor who, individually or in association with others,
acquires, directly or indirectly, the beneficial ownership of 15% or more of
any class of voting securities of a publicly-traded corporation that owns a
riverboat owner's license or 15% or more of the beneficial interest in a
riverboat licensee through any class of voting securities of any holding
company or intermediary company of a riverboat licensee shall apply to the IGC
for a finding of suitability within 45 days after acquiring the securities.
The THCR Certificate of Incorporation provides that THCR may redeem any
shares of the THCR's capital stock held by any person or entity whose holding
of shares may cause the loss or nonreinstatement of a governmental license
held by THCR. As defined in the THCR Certificate of Incorporation, such
redemption shall be at the lesser of the market price of the stock or the
price at which the stock was purchased.
Under Indiana gaming laws, an institutional investor means any of the
following: a retirement fund administered by a public agency for the exclusive
benefit of federal, state, or local public employees; an investment company
registered under the Investment Company Act of 1940; a collective investment
trust organized by banks under Part 9 of the Rules of the Comptroller of the
Currency; a closed end investment trust; a chartered or licensed life
insurance company or property and casualty insurance company; a banking,
chartered or licensed lending institution; an investment adviser registered
under the Investment Advisers Act of 1940; and other entity the IGC determines
constitutes an institutional investor. The IGC may in the future promulgate
regulations with respect to the qualification of other financial backers,
mortgagees, bond holders, holders of indentures, or other financial
contributors.
Minority and Women Business Participation. Indiana gaming laws provide that
the opportunity for full minority and women's business enterprise
participation in the riverboat industry in Indiana is essential to social and
economic parity for minority and women business persons. The IGC has the power
to review compliance with the goals of participation by minority and women
business persons and impose appropriate conditions on licensees to insure that
goals for such business enterprises are met.
Under proposed administrative rules, a riverboat licensee or a riverboat
license applicant shall designate certain minimum percentages of the value of
its contracts for goods and services to be expended with minority business
enterprises and women's business enterprises such that 10% of the dollar value
of the riverboat licensee's or the riverboat license applicant's contracts be
expended with minority business enterprises and 5% of the dollar value of the
riverboat licensee's or the riverboat license applicant's contracts be
expended with women's business enterprises. Expenditures with minority and
women business enterprises are not mutually exclusive.
165
<PAGE>
IGC Action. All licensees subject to the jurisdiction of the IGC have a
continuing duty to maintain suitability for licensure. The IGC may initiate an
investigation or disciplinary action or both against a licensee about whom the
commission has reason to believe is not maintaining suitability for licensure,
is not complying with licensure conditions, and/or is not complying with
Indiana gaming laws or regulations. The IGC may suspend, revoke, restrict, or
place conditions on the license of a licensee; require the removal of a
licensee or an employee of a licensee; impose a civil penalty or take any
other action deemed necessary by the IGC to insure compliance with Indiana
gaming laws.
OTHER LAWS AND REGULATIONS
The U.S. Department of the Treasury has adopted regulations pursuant to
which a casino is required to file a report of each deposit, withdrawal,
exchange of currency, gambling tokens or chips, or other payments or transfers
by, through or to such casino which involves a transaction in currency of more
than $10,000 per patron, per gaming day. Such reports are required to be made
on forms prescribed by the Secretary of the Treasury and are filed with the
Commissioner of the Internal Revenue Service (the "Service"). In addition,
THCR and Taj Associates are each required to maintain detailed records
(including the names, addresses, social security numbers and other information
with respect to its gaming customers) dealing with, among other items, the
deposit and withdrawal of funds and the maintenance of a line of credit.
In the past, the Service had taken the position that gaming winnings from
table games by nonresident aliens were subject to a 30% withholding tax. The
Service, however, subsequently adopted a practice of not collecting such tax.
Recently enacted legislation exempts from withholding tax table game winnings
by nonresident aliens, unless the Secretary of the Treasury determines by
regulation that such collections have become administratively feasible.
As the result of an audit conducted by the U.S. Department of Treasury,
Office of Financial Enforcement, Plaza Associates was alleged to have failed
to timely file the "Currency Transaction Report by Casino" in connection with
65 individual currency transactions in excess of $10,000 during the period
from October 31, 1986 to December 10, 1988. Plaza Associates paid a fine of
$292,500 in connection with these violations. Plaza Associates has revised its
internal control procedures to ensure continued compliance with these
regulations. From 1992 through 1995, the Service conducted an audit of
"Currency Transaction Reports by Casino" filed by Taj Associates for the
period from April 2, 1990 through December 31, 1991. The U.S. Department of
Treasury has received a report detailing the audit as well as the response of
Taj Associates. Taj Associates is awaiting comments from the U.S. Department
of Treasury as to any potential violations.
The Indiana Riverboat site is located near, or adjacent to and may include
protected wetlands which may subject THCR to obligations or liabilities in
connection with wetlands mitigation or protection. See "Risk Factors--The
Indiana Riverboat."
On April 5, 1994, OSHA proposed a regulation that would require, inter alia,
that employers who permit smoking in workplaces establish designated smoking
areas, permit smoking only in such areas, and assure that designated smoking
areas be enclosed, exhausted directly to the outside, and maintained under
negative pressure sufficient to contain tobacco smoke within the designated
area. Plaza Associates has estimated construction costs to build enclosed,
exhausted, negative-pressure smoking rooms in Trump Plaza to be $1.5 million
for its casino and $2.5 million for its restaurants. Plaza Associates has also
estimated construction costs to provide negative-pressure exhaust systems for
Trump Plaza hotel rooms to be $1,500 per room; however, management believes
that it is highly unlikely that the regulation, if promulgated, would require
hotel rooms to be equipped with exhaust systems if smoking is prohibited in
the rooms during housekeeping and maintenance activities. If the
166
<PAGE>
regulation is promulgated and is applicable to Trump Plaza hotel rooms, the
number of rooms that would be affected is not known at this time. Taj
Associates is unable to estimate the cost, if any, of compliance with these
proposed regulations and is unable to determine if the cost, if any, of such
compliance would have a material adverse effect on Taj Associates.
THCR and Taj Associates are subject to other federal, state and local
regulations and, on a periodic basis, must obtain various licenses and
permits, including those required to sell alcoholic beverages in the State of
New Jersey as well as in other jurisdictions. Management of THCR and Taj
Holding believe all required licenses and permits necessary to conduct
business of THCR and Taj Associates have been obtained for operations in the
State of New Jersey.
THCR expects to be subject to similar rigorous regulatory standards in each
other jurisdiction in which it seeks to conduct gaming operations. There can
be no assurance that regulations adopted, permits required or taxes imposed,
by other jurisdictions will permit profitable operations by THCR in those
jurisdictions.
In addition, the federal Merchant Marine Act of 1936 and the federal
Shipping Act of 1916 and the applicable regulations thereunder contain
provisions designed to prevent persons who are not citizens of the United
States, as defined therein, from beneficially owning more than 25% of the
capital stock of any entity operating a vessel on the Great Lakes.
167
<PAGE>
MANAGEMENT OF THCR
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of THCR's
directors and executive officers:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Donald J. Trump......... Chairman of the Board
Nicholas L. Ribis....... President, Chief Executive Officer, Chief Financial Officer and Director
Robert M. Pickus........ Executive Vice President and Secretary
John P. Burke........... Corporate Treasurer
Wallace B. Askins....... Director
Don M. Thomas........... Director
Peter M. Ryan........... Director
</TABLE>
Donald J. Trump--Mr. Trump, 49 years old, has been Chairman of the Board of
THCR and THCR Funding since their formation in 1995. Mr. Trump is also
Chairman of the Board of Directors, President and Treasurer of Plaza Funding
and the managing general partner of Plaza Associates. Trump was a 50%
shareholder, Chairman of the Board of Directors, President and Treasurer of
Trump Plaza GP and the managing general partner of Plaza Associates prior to
its merger into Plaza Funding in June 1993. Trump was Chairman of the
Executive Committee and President of Plaza Associates from May 1986 to May
1992 and was a general partner of Plaza Associates until June 1993. Trump has
been a director and President of Plaza Holding Inc. since February 1993 and
was a partner in Plaza Holding from February 1993 until June 1995. Trump has
been Chairman of the Board and a Class C Director of Taj Holding and TM/GP
since October 1991; President and Treasurer of Taj Holding since March 4,
1991; Chairman of the Board of Directors, President and Treasurer of Taj
Funding and TTMI since June 1988; sole director, President and Treasurer of
TTMC since March 1991; Chairman of the Executive Committee of Taj Associates
from June 1988 to October 1991; and President and Director of Realty Corp.
since May 1986. Trump has been Chairman of the Board of Partner
Representatives of TCA, the partnership that owns Trump's Castle, since May
1992; and was Chairman of the Executive Committee of TCA from June 1985 to May
1992. In addition, Trump is the managing general partner of TCA. Trump is also
the President of The Trump Organization, which has been in the business,
through its affiliates and subsidiaries, of acquiring, developing and managing
real estate properties for more than the past five years. Trump was a member
of the Board of Directors of Alexander's Inc. from 1987 to March 1992. Mr.
Trump's business address is c/o The Trump Organization, 725 Fifth Avenue, New
York, NY, 10022.
Nicholas L. Ribis--Mr. Ribis, 51 years old, has been President, Chief
Executive Officer, Chief Financial Officer, and a director of THCR, THCR
Holdings and THCR Funding since their formation in 1995. Mr. Ribis has been
the Chief Executive Officer of Plaza Associates since February 1991, was
President from April 1994 to February 1995, and was a member of the Executive
Committee of Plaza Associates from April 1991 to May 29, 1992 and was a
director and Vice President of Trump Plaza GP from May 1992 until its merger
into Plaza Funding in June 1993. Mr. Ribis has been Vice President of Plaza
Funding since February 1995 and Vice President of Plaza Holding Inc. since
February 1995. Mr. Ribis has served as a director of Plaza Holding Inc. since
June 1993 and of Plaza Funding since July 1993. Mr. Ribis has been a Class C
Director and Vice President of TM/GP and Taj Holding since October 1991; Chief
Executive Officer of Taj Associates since February 1991; Vice President of Taj
Funding since September 1991; Vice President of TTMI since February 1991 and
Secretary of TTMI since September 1991; Director of Realty Corp. since October
1991; and a member of the Executive Committee of Taj Associates from April
1991 to October 1991. He has also been Chief Executive Officer of TCA since
March 1991; member of the Executive Committee of TCA from April 1991 to May
1992; member of the Board of Partner Representatives of TCA since May 1992;
and has served as the Vice President and Assistant Secretary of Trump's Castle
Hotel & Casino, Inc. an entity beneficially owned by Trump, since December
1993 and January 1991, respectively. Mr. Ribis has served as Vice President of
TC/GP, Inc. since December 1993 and
168
<PAGE>
had served as Secretary of TC/GP, Inc. from November 1991 to may 1992. Mr.
Ribis has been Vice President of Trump Corp. since September 1991. From
January 1993 to January 1995 Mr. Ribis served as the Chairman of the Casino
Association of New Jersey and has been a member of the Board of Trustees of
the CRDA since October 1993. From January 1980 to January 1991, Mr. Ribis was
Senior Partner in, and since February 1991, is Counsel to, the law firm of
Ribis, Graham & Curtin, which serves as New Jersey legal counsel to all of the
above-named companies and certain of their affiliated entities. Mr. Ribis'
business address is c/o Trump Hotels & Casino Resorts, Inc., 725 Fifth Avenue,
New York, NY 10022.
Robert M. Pickus--Mr. Pickus, 41 years old, has been Executive Vice
President and Secretary of THCR since its formation in 1995. He has also been
the Executive Vice President of Corporate and Legal Affairs of Plaza
Associates since February 16, 1995. From December 1993 to February 1995, Mr.
Pickus was the Senior Vice President and General Counsel of Plaza Associates
and, since April 1994, he has been the Vice President and Assistant Secretary
of Plaza Funding and Assistant Secretary of Plaza Holding Inc. Mr. Pickus has
been the Executive Vice President of Corporate and Legal Affairs of Taj
Associates since February 1995, and a Class C Director of Taj Holding and
TM/GP since November 1995. He was the Senior Vice President and Secretary of
Trump's Castle Funding, Inc. from June 1988 to December 1993 and General
Counsel of TCA from June 1985 to December 1993. Mr. Pickus was also Secretary
of Trump's Castle Hotel & Casino, Inc., an entity beneficially owned by Trump,
from October 1991 until December 1993. Mr. Pickus has been the Executive Vice
President of Corporate and Legal Affairs of TCA Associates since February 1995
and a member of the Board of Partner Representatives of TCA since October
1995. Mr. Pickus' business address is c/o Trump Hotel & Casino Resorts, Inc.,
Mississippi Avenue and the Boardwalk, Atlantic City NJ, 08401.
John P. Burke--Mr. Burke, 48 years old, has been Corporate Treasurer of
THCR, THCR Holdings and THCR Funding since their formation in 1995. He has
also been Corporate Treasurer of Plaza Associates and Taj Associates since
October 1991. Mr. Burke has been a Class C Director of TM/GP and Taj Holding
and Vice President of TM/GP since October 1991. Mr. Burke has been the
Corporate Treasurer of TCA since October 1991, the Vice President of TCA,
Trump's Castle Funding, Inc., TC/GP, Inc. and Trump's Castle Hotel & Casino,
Inc. since December 1993, and the Vice President-Finance of The Trump
Organization since September 1990. Mr. Burke was an Executive Vice President
and Chief Administrative Officer of Imperial Corporation of America from April
1989 through September 1990. Mr. Burke's business address is c/o Trump Hotels
& Casino Resorts, Inc., 725 Fifth Avenue, New York, NY 10022.
Wallace B. Askins--Mr. Askins, 64 years old, has been a director of THCR
since June 1995. He has also been a director of Plaza Funding and Plaza
Holding Inc. since April 11, 1994, and has been a partner representative of
the Board of Partner Representatives of TCA since May 1992. Mr. Askins served
as a director of TC/GP, Inc. from May 1992 to December 1993. From 1987 to
November 1992, Mr. Askins served as Executive Vice President, Chief Financial
Officer and as a director of Armco Inc. Mr. Askins also serves as a director
of EnviroSource, Inc. Mr. Askins' address is 20 Shadowbrook Lane, Morristown,
NJ 07960.
Don M. Thomas--Mr. Thomas, 64 years old, has been a director of THCR since
June 1995. He has also been the Senior Vice President of Corporate Affairs of
the Pepsi-Cola Bottling Co. of New York since January 1985. Mr. Thomas was the
Acting Chairman, and a Commissioner, of the CRDA from 1985 through 1987, and a
Commissioner of the CCC from 1980 through 1984. From 1974 through 1980, Mr.
Thomas served as Vice President, General Counsel of the National Urban League.
From 1966 through 1974, Mr. Thomas served in various capacities with Chrysler
Corporation rising to the level of President-Auto Dealerships. Mr. Thomas was
an attorney with American Airlines from 1957 through 1966. Mr. Thomas was a
director of Trump Plaza GP until its merger into Plaza Funding in June 1993
and has been a director of Plaza Funding and Plaza Holding Inc. since June
1993. Mr. Thomas is an attorney licensed to practice law in the State of New
York. Mr. Thomas' business address is c/o Pepsi-Cola Bottling Co., 46-00 5th
Street, Long Island City, NY 11101.
Peter M. Ryan--Mr. Ryan, 58 years old, has been a director of THCR since
June 1995. He has also been the President of each of The Marlin Group, LLC and
The Brookwood Carrington Fund, LLC, real estate financial advisory groups,
since January 1995. Prior to that, Mr. Ryan was the Senior Vice President of
The Chase
169
<PAGE>
Manhattan Bank for more than five years. Mr. Ryan has been a director of the
Childrens Hospital FTD since October 1995. Mr. Ryan's business address is c/o
The Marlin Group, 101 Park Avenue, Suite 2506, New York, NY 10178.
The officers of THCR serve at the pleasure of the Board of Directors of
THCR.
All of the persons listed above are citizens of the United States and have
been qualified or licensed by the CCC.
Trump and Nicholas L. Ribis served as either executive officers and/or
directors of Taj Associates and its affiliated entities when such parties
filed their petition for reorganization under Chapter 11 of the Bankruptcy
Code on July 17, 1991. The Second Amended Joint Plan of Reorganization of such
parties was confirmed on August 28, 1991, and was declared effective on
October 4, 1991. Trump, Nicholas L. Ribis, John P. Burke and Robert M. Pickus
also served as Executive Committee members, officers and/or directors of TCA
and its affiliated entities at the time such parties filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code on March 9, 1992. The
First Amended Joint Plan of Reorganization of such parties was confirmed on
May 5, 1992, and was declared effective on May 29, 1992. Trump, Nicholas L.
Ribis and John P. Burke served as either executive officers and/or directors
of Plaza Associates and its affiliated entities when such parties filed their
petition for reorganization under Chapter 11 of the Bankruptcy Code in March
1992. The First Amended Joint Plan of Reorganization of such parties was
confirmed on April 30, 1992, and was declared effective on May 29, 1992. Trump
was a partner of Plaza Operating Partners Ltd. when it filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code on November 2, 1992.
The plan of reorganization for Plaza Operating Partners Ltd. was confirmed on
December 11, 1992 and declared effective in January 1993. John P. Burke was
Executive Vice President and Chief Administrative Officer of Imperial
Corporation of America, a thrift holding company whose major subsidiary,
Imperial Savings, was seized by the Resolution Trust Corporation in February
1990. Subsequently, in February 1990, Imperial filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code.
THCR is the general partner of THCR Holdings. As the managing general
partner of THCR Holdings, THCR will generally have the exclusive rights,
responsibilities and discretion in the management and control of THCR
Holdings. Upon consummation of the Merger Transaction, TM/GP will also be a
general partner of THCR Holdings. See "Special Factors--Related Merger
Transactions" and "Description of THCR Holdings Partnership Agreement."
MANAGEMENT OF TRUMP PLAZA
Plaza Funding is the managing general partner of Plaza Associates, the
partnership that owns and operates Trump Plaza. The Board of Directors of each
of Plaza Funding and Plaza Holding Inc. consists of Messrs. Trump, Ribis,
Wallace B. Askins and Don M. Thomas. The Plaza Mortgage Note Indenture
requires that two directors of each of Plaza Funding and Plaza Holding Inc. be
persons who would qualify as "Independent Directors" as such term is defined
by the American Stock Exchange, Inc. (the "Independent Directors").
Set forth below, are the names, ages, positions and offices held with Plaza
Funding and Plaza Associates and a brief account of the business experience
during the past five years of each of the executive officers of Plaza Funding
and Plaza Associates other than those who are also directors or executive
officers of THCR.
Barry J. Cregan--Mr. Cregan, 41 years old, has been Chief Operating Officer
of Plaza Associates since September 19, 1994 and President since March 1995.
Since February 21, 1995, Mr. Cregan has been Vice President of Plaza Funding
and Plaza Holding Inc. Prior to accepting these positions at Trump Plaza, Mr.
Cregan was President of The Plaza Hotel in New York for approximately three
years. Prior to joining The Plaza Hotel, he was Vice President of Hotel
Operations at Trump's Castle in Atlantic City. In addition, Mr. Cregan has
worked for Hilton and Hyatt in executive capacities as well as working in Las
Vegas and Atlantic City in executive capacities. Mr. Cregan's business address
is c/o Trump Plaza Hotel & Casino, Mississippi Avenue and The Boardwalk,
Atlantic City, NJ, 08401.
170
<PAGE>
Francis X. McCarthy, Jr.--Mr. McCarthy, 42 years old, was Vice President of
Finance and Accounting of Trump Plaza GP from October 1992 until June 1993,
the date of Trump Plaza GP's merger into Plaza Funding, was Senior Vice
President of Finance and Administration of Plaza Associates from August 1990
to June 1994 and has been Executive Vice President of Finance and
Administration since June 1994; Chief Accounting Officer of Plaza Funding
since May 1992; Vice President and Chief Financial Officer of Plaza Funding
since July 1992 and Assistant Treasurer of Plaza Funding since March 1991. Mr.
McCarthy previously served in a variety of financial positions for Greate Bay
Hotel and Casino, Inc. from June 1980 through August 1990. Mr. McCarthy's
business address is c/o Trump Plaza Hotel and Casino, Mississippi Avenue and
The Boardwalk, Atlantic City, NJ, 08401.
Fred A. Buro--Mr. Buro, 38 years old, has been the Senior Vice President of
Marketing of Plaza Associates since May 1994. Mr. Buro previously served as
the President of Casino Resources, Inc., a casino marketing, management and
development organization from 1991 through 1994. Prior to that, Mr. Buro
served from 1984 through 1991 as the President of a professional services
consulting firm. Mr. Buro's business address is c/o Trump Plaza Hotel and
Casino, Mississippi Avenue and The Boardwalk, Atlantic City, NJ 08401.
James A. Rigot--Mr. Rigot, 43 years old, has been Executive Vice President
of Casino Operations of Plaza Associates since November 1994. Mr. Rigot served
as Vice President of Casino Operations of TropWorld Casino and Entertainment
Resort from July 1989 through November 1994. From January 1989 through July
1989, Mr. Rigot was Assistant Casino Manager of Resorts Casino Hotel. Mr.
Rigot's business address is c/o Trump Plaza Hotel and Casino, Mississippi
Avenue and The Boardwalk, Atlantic City, NJ 08401.
Kevin S. Smith--Mr. Smith, 38 years old, has been the Vice President,
General Counsel of Plaza Associates since February 1995. Mr. Smith was
previously associated with Cooper Perskie April Niedelman Wagenheim &
Levenson, an Atlantic City law firm specializing in trial litigation. From
1989 until February 1992, Mr. Smith handled criminal trial litigation for the
State of New Jersey, Department of Public Defender, assigned to the Cape May
and Atlantic County Conflict Unit. Mr. Smith's business address is c/o Trump
Plaza Hotel and Casino, Mississippi Avenue and The Boardwalk, Atlantic City,
NJ 08401.
Patrick J. O'Malley--Mr. O'Malley, 41 years old, has been the Executive Vice
President of Hotel Operations of Plaza Associates since September 1995. Prior
to joining Trump Plaza, from September 1994 until September 1995, Mr. O'Malley
was President of the Plaza Hotel in New York City. From December 1989 until
September 1994, Mr. O'Malley was the Vice President of Finance of the Plaza
Hotel in New York City. Prior to joining the Plaza Hotel in New York City,
from 1986 to 1989, Mr. O'Malley was a Regional Financial Controller for the
Four Seasons Hotel and Resorts, Ltd. From 1979 to 1986, Mr. O'Malley worked in
the Middle East and Europe as Hotel Controller for Marriot International
Hotels. Mr. O'Malley's business address is c/o Trump Plaza Hotel and Casino,
Mississippi Avenue and The Boardwalk, Atlantic City, NJ 08401.
All of the persons listed above have been licensed by the CCC.
EXECUTIVE COMPENSATION
General. Because THCR was formed in 1995, there was no salary or bonus paid
to, deferred or accrued for the benefit of, THCR's Chief Executive Officer or
any of the four remaining most highly compensated executive officers (whose
annual salary and bonus exceeded $100,000 for the year ended December 31, 1995
(collectively, the "Executive Group")) by THCR or THCR Holdings prior to or
during the fiscal year ended December 31, 1994. Similarly, no member of the
Executive Group received any other annual compensation, restricted stock
awards, stock options, stock appreciation rights ("SARs"), long-term incentive
performance ("LTIP") payouts or other compensation from THCR or THCR Holdings
prior to or for the fiscal year ended December 31, 1994. All cash compensation
paid to the Executive Group in respect of services provided to THCR since its
inception was paid and will continue to be paid by THCR Holdings in accordance
with the THCR Holdings Partnership Agreement. See "Description of the THCR
Holdings Partnership Agreement."
171
<PAGE>
1995 Stock Incentive Plan. The Board of Directors of THCR adopted the 1995
Stock Incentive Plan (the "1995 Stock Plan"), pursuant to which, directors,
employees and consultants of THCR and certain of its subsidiaries and
affiliates who have been selected as participants are eligible to receive
awards of various forms of equity-based incentive compensation, including
stock options, stock appreciation rights, stock bonuses, restricted stock
awards, performance units and phantom stock, and awards consisting of
combinations of such incentives. The 1995 Stock Plan is administered by the
Stock Incentive Plan Committee of the Board of Directors of THCR (the "Stock
Incentive Plan Committee"). Subject to the provisions of the 1995 Stock Plan,
the Stock Incentive Plan Committee has sole discretionary authority to
interpret the 1995 Stock Plan and to determine the type of awards to grant,
when, if and to whom awards are granted, the number of shares covered by each
award and the terms and conditions of the award.
Options granted under the 1995 Stock Plan may be "incentive stock options"
("ISOs"), within the meaning of Section 422 of the Code, or nonqualified stock
options ("NQSOs"). The vesting, exercisability and exercise price of the
options are determined by the Stock Incentive Plan Committee when the options
are granted, subject to a minimum price in the case of ISOs of the Fair Market
Value (as defined in the 1995 Stock Plan) of the Common Stock on the date of
grant and a minimum price in the case of NQSOs of the par value of THCR Common
Stock. In the discretion of the Stock Incentive Plan Committee, the option
exercise price may be paid in cash or in shares of THCR Common Stock or other
property having a fair market value on the date of exercise equal to the
option exercise price, or by delivering to THCR a copy of irrevocable
instructions to a stockbroker to deliver promptly to THCR an amount of sale or
loan proceeds sufficient to pay the exercise price. Except as provided by the
Stock Incentive Plan Committee in an underlying stock option agreement, in the
event of a Change of Control (as defined in the 1995 Stock Plan or in the
stock option agreement), all options subject to such agreement will be fully
exercisable.
The 1995 Stock Plan permits the Stock Incentive Plan Committee to grant
SARs, either alone or in connection with an option. An SAR entitles its holder
to be paid an amount equal to the fair market value of THCR Common Stock
subject to the SAR on the date of exercise of the SAR, less the exercise price
of the related stock option in the case of an SAR granted in connection with a
stock option, or the fair market value of one share of stock on the date the
SAR was granted, in the case of an SAR granted independent of an option.
Shares of THCR Common Stock covered by a restricted stock award are issued to
the recipient at the time the award is granted, but are subject to forfeiture
in the event continued employment and/or other restrictions and conditions
established by the Stock Incentive Plan Committee at the time the award is
granted are not satisfied. Unless otherwise determined by the Stock Incentive
Plan Committee, a recipient of a restricted stock award has the same rights as
an owner of THCR Common Stock, including the right to receive cash dividends
and to vote the shares. A performance unit or phantom stock award provides for
the future payment of cash or the issuance of shares of THCR Common Stock to
the recipient if continued employment and/or other performance objectives
established by the Stock Incentive Plan Committee at the time of grant are
attained. The 1995 Stock Plan also provides that performance unit and phantom
stock awards may be settled in cash, in the discretion of the Stock Incentive
Plan Committee and if indicated in the applicable award agreement, on each
date on which shares of THCR Common Stock covered by the awards would
otherwise have been delivered or become unrestricted, in an amount equal to
the fair market value of such shares on such date. Except as provided in a
particular award agreement, in the event of a Change in Control (as defined in
the 1995 Stock Plan), notwithstanding any vesting schedule with respect to an
award of options, SARs, phantom stock units or restricted stock, such options
or SAR will become immediately exercisable with respect to the shares subject
to such option or SAR, and restrictions with respect to such phantom stock
units or shares of restricted stock will immediately expire. In addition,
payment will be made as determined by the Stock Incentive Plan Committee with
respect to performance units. The 1995 Stock Plan also provides for the grant
of unrestricted stock bonus awards.
THCR has reserved 1,000,000 shares of THCR Common Stock for issuance under
the 1995 Stock Plan, provided, however, that in the event of changes in the
outstanding stock or the capital structure of THCR, adjustments will be made
by the Stock Incentive Plan Committee as to (i) the number, price or kind of a
share of
172
<PAGE>
stock or other consideration subject to outstanding awards and (ii) the
maximum number of shares of stock subject to all awards under the 1995 Stock
Plan.
In 1995, the Stock Incentive Plan Committee granted to Nicholas L. Ribis,
under the 1995 Stock Plan: (a) a stock bonus award of 66,667 shares of THCR
Common Stock, which was fully vested when issued, (b) a phantom stock unit
award of 66,666 units, entitling Mr. Ribis to receive 66,666 shares of THCR
Common Stock on June 12, 1997, subject to certain conditions, and (c) an award
of NQSOs entitling Mr. Ribis to purchase 133,333 shares of the THCR Common
Stock, subject to certain conditions (including vesting at a rate of 20% per
year over a five-year period). The options have an exercise price of $14.00
per share.
Summary Compensation Table. The following table sets forth information
regarding compensation paid to or accrued by all the executive officers of
THCR, for each of the last three completed fiscal years. Compensation accrued
during one year and paid in another is recorded under the year of accrual.
Because THCR was formed in 1995, compensation for the years ended December 31,
1994 and 1993 reflect solely the compensation paid or accrued to these
individuals as executive officers of Plaza Associates. Historically, Plaza
Associates has not provided its executive officers with participation in
stock-based compensation plans or long-term incentive plans and, accordingly,
such information is not reflected in the table below. Compensation for the
year ended December 31, 1995 includes compensation paid or accrued to these
individuals as executive officers of THCR and Plaza Associates.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------------------------
RESTRICTED SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION(/1/) YEAR SALARY BONUS COMPENSATION(/2/) AWARDS($) OPTIONS(#) COMPENSATION
------------------ ---- -------- -------- ----------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald J. Trump(/3/).... 1995 $583,333 $ -- $ -- -- -- $1,321,000(/3/)
Chairman of the 1994 -- -- -- -- -- 1,288,000(/3/)
Board 1993 -- -- -- -- -- 1,247,000(/3/)
Nicholas L. Ribis(/5/).. 1995 $812,555 $933,338 $ -- 933,324(/6/) 133,333 $ --
Chief Executive Officer 1994 572,917 250,000 280,407 -- -- --
1993 225,000 250,000 380,500 -- -- --
Robert M. Pickus........ 1995 $126,987 $ 65,000 $ -- -- -- $ 4,004(/4/)
Executive Vice President 1994 163,759 32,500 -- -- -- 3,291(/4/)
and Secretary 1993 5,808 -- -- -- -- --
John P. Burke........... 1995 $ 50,000 $ 38,333 $ -- -- -- $ --
Corporate Treasurer 1994 50,000 -- -- -- -- --
1993 45,903 20,000 -- -- -- --
</TABLE>
- --------
(1) All the executive officers in this table are also executive officers of
Taj Holding; the compensation from this entity is not included in this
table. See "Management of Taj Holding--Executive Compensation."
(2) Represents the dollar value of annual compensation not properly
categorized as salary or bonus, including amounts reimbursed for income
taxes. Following SEC rules, perquisites and other personal benefits are
not included in this table because the aggregate amount of that
compensation is less than the lesser of $50,000 or 10% of the total of
salary and bonus for each member of the Executive Group.
(3) The amounts listed represent amounts paid by Plaza Associates to TPM, a
corporation beneficially owned by Trump, for services provided under the
TPM Services Agreement. Payments received by TPM under the TPM Services
Agreement are currently pledged by TPM to secured lease payments for a
helicopter that TPM makes available to Plaza Associates. See "Certain
Transactions--Plaza Associates--TPM Services Agreement." Trump is not an
employee of Plaza Associates and receives no compensation from Plaza
Associates other than pursuant to the TPM Services Agreement.
(4) Represents vested and unvested contributions made by Plaza Associates to
Trump Plaza Hotel and Casino Retirement Savings Plan. Funds accumulated
for an employee under this plan consist of a certain percentage of the
employee's compensation plus Plaza Associates' employer matching
contributions equaling 50% of the participant's contributions, are
retained until termination of employment, attainment of age 59 1/2 or
financial hardship, at which time the employee may withdraw his or her
vested funds.
(5) Mr. Ribis devotes a majority of his time to the affairs of THCR. See "--
Employment Agreements."
173
<PAGE>
(6) As of December 31, 1995, Mr. Ribis held 66,666 phantom stock units issued
pursuant to the Stock Incentive Plan. These units had a value as of
December 31, 1995 of $1,433,319. These phantom stock units were issued to
Mr. Ribis in connection with his employment agreement with THCR. Each
phantom stock unit entitles Mr. Ribis to one share of THCR Common Stock on
the vesting date of the phantom stock unit. All of the phantom stock units
are scheduled to vest on June 12, 1997. Vesting will accelerate in the
event of Mr. Ribis' termination of employment with THCR (i) because of his
death or disability, (ii) by THCR without cause, or (iii) voluntarily by
Mr. Ribis under circumstances which constitute a constructive termination.
Alternatively, the phantom stock units may expire prior to June 12, 1997
in the event Mr. Ribis voluntarily terminates his employment with THCR
under circumstances which do not constitute constructive termination or if
he is terminated by THCR with cause. Dividend equivalents with respect to
the phantom stock units will be credited to a bookkeeping account on
behalf of Mr. Ribis and will be paid out in cash at the time the phantom
stock units vest or will expire along with the phantom stock units.
The following table sets forth options granted to Mr. Ribis in 1995. No
other member of the Executive Group received stock options in 1995. THCR did
not issue any stock appreciation rights in 1995. This table also sets forth
the hypothetical gains that would exist for the options at the end of their
ten-year terms at assumed annual rates of stock appreciation of 5% and 10%.
The actual future value of the options will depend on the market value of the
THCR Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------------ ---------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION
NAME OPTIONS GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------------ --------------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Nicholas L. Ribis....... 133,333 100% $14.00 June 12, 2005 $1,173,060 $2,960,580
</TABLE>
The following table sets forth the number of shares covered by options held
by Mr. Ribis and the value of the options as of December 31, 1995. Mr. Ribis
was the only member of the Executive Group who held options in 1995. None of
these options were exercisable in 1995.
FY-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END(#) OPTIONS AT FY-END ($)
-------------------------- --------------------------
NAME EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
---- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Nicholas L. Ribis........ N/A 133,333 N/A $2,866,660
</TABLE>
EMPLOYMENT AGREEMENTS
Trump serves as the Chairman of the Board of THCR pursuant to the Executive
Agreement. In consideration for Trump's services under the Trump Executive
Agreement, Trump receives a salary of $1 million per year. Pursuant to the
terms of the Trump Executive Agreement, Trump provides to THCR, from time to
time, when reasonably requested, marketing, advertising, professional and
other similar and related services with respect to the operation and business
of THCR. The Trump Executive Agreement continues in effect (i) for an initial
term of five years, and (ii) thereafter, for a three-year rolling term until
either Trump or THCR provides notice to the other of its election not to
continue extending the term, in which case the term of the Trump Executive
Agreement will end three years from the date such notice is given. The Trump
Executive Agreement also provides that Trump may devote time and effort to the
Taj Mahal and Trump's Castle and, subject to the terms of the Contribution
Agreement (as defined), to other business matters, and that the Trump
Executive Agreement will not be construed to restrict Trump from operating the
Taj Mahal and Trump's Castle in a commercially reasonable manner and/or having
an interest therein or conducting any other activity not prohibited under the
Contribution Agreement. See "Risk Factors--Conflicts of Interest" and
"Description of the THCR Holdings Partnership Agreement."
174
<PAGE>
Plaza Associates had an employment agreement with Nicholas L. Ribis (the
"Ribis Plaza Agreement") pursuant to which Mr. Ribis acted as Chief Executive
Officer of Plaza Associates. The Ribis Plaza Agreement provided for an annual
salary of $550,000 with annual increases of 10% on each anniversary. Mr. Ribis
received a $250,000 signing bonus. Pursuant to the terms of the Ribis Plaza
Agreement, in the event Plaza Associates engaged in an offering of common
shares to the public, Plaza Associates and Mr. Ribis would agree to negotiate
new compensation arrangements to include equity participation for Mr. Ribis.
As a result of the June 1995 Offerings, THCR and THCR Holdings entered into a
revised employment agreement with Mr. Ribis (the "Revised Ribis Plaza
Agreement") to replace the Ribis Plaza Agreement, pursuant to which he agreed
to serve as President and Chief Executive Officer of THCR and Chief Executive
Officer of THCR Holdings. The term of the Revised Ribis Plaza Agreement is
five years and Mr. Ribis is required to devote the majority of his
professional time to the affairs of THCR, as measured on a quarterly basis,
based on a 40-hour work week. Under the Revised Ribis Plaza Agreement, Mr.
Ribis's annual salary is $907,500, which is 50% of the aggregate current
annual base salary ($1,815,000) that Mr. Ribis receives as Chief Executive
Officer of THCR ($907,500), Taj Mahal ($453,750) and Trump's Castle
($453,750). Following the consummation of the Merger Transaction, Mr. Ribis
will devote 75% of his professional time to the operations of THCR, Plaza
Associates and Taj Associates, and his annual salary will be $1,361,250 per
year with respect to his services to these entities. See "Management of Taj
Holding--Employment Agreements." Mr. Ribis will continue to receive $453,750
per year with respect to his services to Trump's Castle. In 1995, the Stock
Incentive Plan Committee granted to Mr. Ribis, under the 1995 Stock Plan: (a)
a stock bonus award of 66,667 shares of THCR Common Stock, which was fully
vested when issued, (b) a phantom stock unit award of 66,666 units, entitling
him to receive 66,666 shares of THCR Common Stock on June 12, 1997, subject to
certain conditions, and (c) an award of NQSOs entitling Mr. Ribis to purchase
133,333 shares of the THCR Common Stock at an exercise price of $14.00 per
share. The options will vest at the rate of 20% per year over a five-year
period, and be subject to certain other conditions. In the event Mr. Ribis's
employment is terminated by THCR other than for "cause" or if he incurs a
"constructive termination without cause" (as each term is defined in the
Revised Ribis Plaza Agreement), Mr. Ribis will receive a severance payment
equal to one year's base salary, and the phantom stock units and options will
become fully vested. The phantom stock units will also automatically vest upon
the death or disability of Mr. Ribis. The Revised Ribis Plaza Agreement also
provides for up to an aggregate of $2.0 million of loans to Mr. Ribis to be
used by him to pay his income tax liability in connection with stock options,
phantom stock units and stock bonus awards, which loans will be forgiven,
including both principal and interest, in the event of a "Change of Control"
(as defined in the Revised Ribis Plaza Agreement). The Revised Ribis Plaza
Agreement also provides certain demand and piggyback registration rights for
THCR Common Stock issued pursuant to the foregoing.
Mr. Ribis is also Chief Executive Officer of Taj Associates and TCA, the
partnerships that own the Taj Mahal and Trump's Castle, and receives
compensation from such entities for such services as set forth above. Pursuant
to the Revised Ribis Agreement, he is required to devote the majority of his
time to the affairs of THCR, and following the consummation of the Merger
Transaction, Mr. Ribis will devote approximately 75% of his professional time
to THCR. All other executive officers of Plaza Associates, except Messrs.
Burke and Pickus, devote substantially all of their time to the business of
Plaza Associates.
THCR Holdings has an employment agreement with Robert M. Pickus (the "Pickus
Agreement") pursuant to which he serves as Executive Vice President and
General Counsel. The Pickus Agreement, which expires on July 9, 1998 if not
extended, provides for annual compensation of $275,000 plus bonus. Employment
may be terminated only for "cause" (as defined in the Pickus Agreement), which
includes revocation of Mr. Pickus' casino key employee license by the CCC and
conviction of a crime. Upon termination for cause, Mr. Pickus will receive
only compensation earned to the date of termination.
COMPENSATION OF DIRECTORS
Directors of THCR who are also employees or consultants of THCR and its
affiliates receive no directors fees. Non-employee directors are paid an
annual directors fee of $50,000, plus $2,000 per meeting attended plus
175
<PAGE>
reasonable out-of-pocket expenses incurred in attending these meetings,
provided that directors currently serving on the Board of Directors of Plaza
Funding or Plaza Holding Inc. receive no additional compensation. All such
fees are reimbursed to THCR by THCR Holdings in accordance with the THCR
Holdings Partnership Agreement.
COMMITTEES OF THE BOARD OF DIRECTORS
THCR has an Executive Committee, an Audit Committee, a Special Committee, a
Stock Incentive Plan Committee and a Compensation Committee. The Executive
Committee is composed of Messrs. Trump and Ribis. The Audit Committee and the
Special Committee are composed of Messrs. Askins, Ryan and Thomas, each of
whom is an independent director of THCR. The Stock Incentive Plan Committee is
composed of Messrs. Trump, Askins, Ryan and Thomas. The Compensation Committee
is composed of Messrs. Trump, Ribis, Askins and Thomas. The Special Committee
was established pursuant to the THCR By-Laws and the THCR Holdings Partnership
Agreement and is empowered to vote on any matters which require approval of a
majority of the independent directors of THCR, including affiliated
transactions. See "Description of the THCR Holdings Partnership Agreement."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Trump and certain affiliates have engaged in certain related party
transactions. See "Certain Transactions."
In general, the compensation of executive officers of THCR is determined by
the Compensation Committee of the Board of Directors of THCR. No officer or
employee of THCR, other than Messrs. Trump and Ribis, who serves on the Board
of Directors of THCR, participated in the deliberations of the Board of
Directors of THCR concerning executive compensation.
The SEC requires issuers to disclose the existence of any other corporation
in which both (i) an executive officer of the registrant serves on the board
of directors and/or compensation committee, and (ii) a director of the
registrant serves as an executive officer. Messrs. Ribis, Pickus and Burke,
executive officers of THCR, have served on the board of directors of other
entities in which members of the Board of Directors of THCR (namely, Messrs.
Trump and Ribis) served and continue to serve as executive officers.
Management believes that such relationships have not affected the compensation
decisions made by the Board of Directors of THCR in the last fiscal year.
Messrs. Trump and Ribis serve on the Board of Directors of Plaza Funding,
the managing general partner of Plaza Associates, of which Messrs. Trump and
Ribis are executive officers. Messrs. Trump and Ribis also serve on the Board
of Directors of Plaza Holding Inc., of which Messrs. Trump, Ribis and Burke
are also executive officers. Trump is not compensated by such entities for
serving as an executive officer, however, he has entered into a personal
services agreement with Plaza Associates and THCR. Messrs. Ribis and Burke are
not compensated by the foregoing entities, however, they are compensated by
Plaza Associates for their service as executive officers.
Messrs. Ribis, Pickus and Burke serve on the Board of Directors of Taj
Holding, which holds an indirect equity interest in Taj Associates, the
partnership that owns the Taj Mahal, of which Messrs. Trump and Ribis are
executive officers. Such persons also serve on the Board of Directors of
TM/GP, the managing general partner of Taj Associates, of which Messrs. Trump
and Ribis are executive officers. Mr. Ribis is compensated by Taj Associates
for his services as its Chief Executive Officer. See "Management of Taj
Holding--Employment Agreements."
Mr. Ribis also serves on the Board of Directors of Realty Corp., which
leases certain real property to Taj Associates, of which Trump is an executive
officer. Trump, however, does not receive any compensation for serving as an
executive officer of Realty Corp. Mr. Ribis receives compensation from TCA for
acting as its Chief Executive Officer. See "Management of Taj Holding--
Employment Agreements."
176
<PAGE>
MANAGEMENT OF TAJ HOLDING
GENERAL
All decisions affecting the business and affairs of Taj Associates,
including the operation of the Taj Mahal, are determined currently by TM/GP,
the managing general partner of Taj Associates. Upon consummation of the
Merger Transaction, Taj Associates will be managed by Taj Holdings LLC which
will be its managing general partner and the governance procedures described
in the following paragraphs will no longer be applicable.
Pursuant to the Taj Holding Certificate of Incorporation, the certificate of
incorporation of TM/GP and the DGCL, the terms of the transactions relating to
the Merger, to the extent they contemplate action by TM/GP or Taj Associates,
must be approved by (i) the entire Board of Directors of Taj Holding, (ii) the
holders of Taj Holding Class B Common Stock and Taj Holding Class C Common
Stock, each voting as a separate class, (iii) the Class B Directors of TM/GP
(which are the same as the Class B Directors of Taj Holding), (iv) the entire
Board of Directors of TM/GP (which consists of the Class B Directors and Class
C Directors of Taj Holding), (v) the holders of the Class B Common Stock of
TM/GP, par value $.01 per share (the "TM/GP Class B Common Stock"), and (vi)
the stockholders of TM/GP. Taj Holding is the sole holder of TM/GP's capital
stock which consists solely of TM/GP Class B Common Stock and Class C Common
Stock, par value $.01 per share (the "TM/GP Class C Common Stock"). Pursuant
to the Taj Holding Certificate of Incorporation, the Class B Directors of Taj
Holding and the Class C Directors of Taj Holding vote the TM/GP Class B Common
Stock and the TM/GP Class C Common Stock, respectively.
The Board of Directors of TM/GP is comprised of nine directors, consisting
of four TM/GP Class B Directors and five TM/GP Class C Directors. The TM/GP
Class C Directors are elected indirectly by Trump and the TM/GP Class B
Directors are elected indirectly by the holders of the Bonds. Trump, Nicholas
L. Ribis, Steven R. Busch, Robert M. Pickus and John P. Burke currently serve
as the TM/GP Class C Directors, and Harold First, John K. Kelly, Robert J.
McGuire and Roy E. Posner currently serve as the TM/GP Class B Directors.
Trump serves as Chairman of the Board, President and Treasurer of TM/GP.
Nicholas L. Ribis and John P. Burke serve as Vice Presidents of TM/GP, and
Nicholas F. Moles serves as Secretary of TM/GP. The officers of TM/GP serve at
the pleasure of the Board of Directors of TM/GP.
The Board of Directors of Taj Holding consists of the same four TM/GP Class
B Directors and five TM/GP Class C Directors. The holders of the Taj Holding
Class B Common Stock elect the four Class B Directors of Taj Holding, who,
pursuant to the Taj Holding Certificate of Incorporation are required to vote
the TM/GP Class B Common Stock to elect themselves as the four Class B
Directors of TM/GP. Similarly, Trump, the holder of the Taj Holding Class C
Common Stock, elects the five Class C Directors of Taj Holding, who, pursuant
to the Taj Holding Certificate of Incorporation are required to vote the TM/GP
Class C Common Stock to elect themselves as the five Class C Directors of
TM/GP. Any change in the composition of the Board of Directors of Taj Holding
will result in a concomitant change in the Board of Directors of TM/GP. The
Board of Directors of Taj Holding does not have a nominating or compensation
committee or any committees performing similar functions. Trump serves as
Chairman of the Board, President and Treasurer of Taj Holding. Nicholas L.
Ribis serves as Taj Holding's Vice President and Nicholas F. Moles serves as
Taj Holding's Secretary. The officers of Taj Holding serve at the pleasure of
the Board of Directors of Taj Holding.
Both Taj Holding and TM/GP have an Audit Committee on which one Class C
Director, John P. Burke, serves with two Class B Directors, Harold First and
Robert J. McGuire.
Upon consummation of the Merger, and until successors are duly elected or
appointed, (i) Messrs. Trump, Ribis, and Pickus, the current directors of
Merger Sub, will become the directors of the Surviving Corporation, and (ii)
the current officers of Taj Holding will become the officers of the Surviving
Corporation. According to the terms of the Taj Holding Certificate of
Incorporation, the Class B Directors of Taj Holding are required to resign
upon redemption of the Bonds. In addition, upon the consummation of the Merger
Transaction, the existing directors of TM/GP, other than Messrs. Trump, Ribis
and Pickus, will resign.
177
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of Taj
Holding's directors and executive officers and a key employee of Taj
Associates:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Donald J. Trump......... Chairman of the Board (Class C), President and Treasurer
Nicholas L. Ribis....... Vice President and Director (Class C)
R. Bruce McKee.......... Assistant Treasurer
Nicholas F. Moles....... Secretary
Robert M. Pickus........ Director (Class C)
John P. Burke........... Director (Class C)
Steven R. Busch......... Director (Class C)
Harold First............ Director (Class B)
John K. Kelly........... Director (Class B)
Robert J. McGuire....... Director (Class B)
Roy E. Posner........... Director (Class B)
Nicholas J. Niglio...... Senior Vice President, Casino Marketing of Taj Associates
</TABLE>
Set forth below are the names, ages, positions and offices held with Taj
Holding and a brief account of the business experience during the past five
years of each of the executive officers and directors of Taj Holding and
certain key employees of Taj Associates. Each of such persons is a citizen of
the United States and has been approved and/or licensed by the CCC. With
respect to Messrs. Trump, Ribis, Pickus and Burke, please see the information
set forth in "Management of THCR".
R. Bruce McKee--Mr. McKee, 50 years old, has been acting Chief Operating
Officer of Taj Associates since October 1995; Senior Vice President, Finance
of Taj Associates since July 1993; Vice President, Finance of Taj Associates
from September 1990 through June 1993; Assistant Treasurer of Taj Funding,
TM/GP, Taj Holding, Realty Corp., TTMC and TTMI since October 1991; Vice
President of Finance of Elsinore Shore Associates, the owner and operator of
the Atlantis Casino Hotel, Atlantic City, from April 1984 to September 1990;
and Treasurer of Elsinore Finance Corp., Elsinore of Atlantic City and Elsub
Corp. from June 1986 to September 1990. The Atlantis Casino Hotel now
constitutes the portion of Trump Plaza known as Trump World's Fair. Mr.
McKee's business address is c/o Trump Taj Mahal Casino Resort 1000 The
Boardwalk, Atlantic City, New Jersey 08401
Nicholas F. Moles--Mr. Moles, 42 years old, has been Assistant Secretary of
Taj Holding and TM/GP from October 1991 to February 1995; Secretary of Taj
Holding and TM/GP since February 1995; Senior Vice President, Law and General
Counsel of Taj Associates since June 1993; Assistant Secretary of Taj Funding
since October 1991 and Assistant Secretary of TTMI since January 1989. From
May 1986 to May 1988, Mr. Moles was General Counsel of Plaza Associates and
was Vice President and General Counsel of Plaza Associates from May 1988 to
December 1988. Mr. Moles was Vice President and General Counsel of Elsinore
Shore Associates from May 1985 to May 1986 and was Director and Assistant
Secretary of Elsinore Finance Corporation from November 1985 to May 1986. Mr.
Moles' business address is c/o Trump Taj Mahal Casino Resort 1000 The
Boardwalk, Atlantic City, New Jersey 08401.
Steven R. Busch--Mr. Busch, 49 years old, has been a Class C Director of
TM/GP and Taj Holding since January 1995. Since May 1994, Mr. Busch has been
an independent economic and financial consultant. From March 1989 to April
1994, Mr. Busch was an Executive Vice President of Shearson Lehman Brothers
Inc. and Senior Vice President & Senior Credit Officer, Boston Safe Deposit
and Trust Company (an affiliate of Shearson Lehman Brothers Inc). Mr. Busch's
address is 135 East 71st Street, New York, New York 10021.
Larry W. Clark--Mr. Clark, 50 years old, has been Executive Vice President,
Casino Operations of Taj Associates since November 1991; Senior Vice
President, Casino Operations of Taj Associates from May 1991 to November 1991;
Vice President, Casino Administration of Taj Associates from April 1991 to May
1991 and from January 1990 to November 1990; Vice President, Casino
Operations, Dunes Hotel & Country Club from November 1990 to April 1991, and
was Director of Casino Marketing and Vice President, Casino Operations,
Showboat Hotel & Casino from November 1988 to January 1990. Mr. Clark's
business address is 1000 The Boardwalk, Atlantic City, New Jersey 08401.
178
<PAGE>
Rudy E. Prieto--Mr. Prieto, 51 years old, has been Executive Vice President,
Operations of Taj Associates since December 1995. Prior to joining the Taj
Mahal, Mr. Prieto was Executive Vice President and Chief Operating Officer for
Elsinore Corporation from May 1995 to November 1995; Senior Vice President in
charge of the development of the Mojave Valley Resort for Elsinore Corporation
from April 1994 to April 1995 and Executive Vice President and Assistant
General Manager for the Tropicana Resort and Casino from May 1988 to October
1994. Mr. Prieto's business address is c/o Trump Taj Mahal Casino Resort, 1000
The Boardwalk, Atlantic City, New Jersey 08401.
Walter Kohlross--Mr. Kohlross, 52 years old, has been Senior Vice President,
Food & Beverage of Taj Associates since April 1992; Vice President, Food &
Beverage of Taj Associates from April 1991 to April 1992 and from November
1988 to November 1990, and was Vice President, Operations of Taj Associates
from November 1990 to April 1991. Mr. Kohlross' business address is c/o Trump
Taj Mahal Casino Resort, 1000 The Boardwalk, Atlantic City, New Jersey 08401.
Richard D. Kline--Mr. Kline, 50 years old, has been Senior Vice President,
Hotel Operations of Taj Associates since September 1994; Vice President, Hotel
Operations of Taj Associates from June 1993 to September 1994, and was Vice
President, Property Management of Taj Associates from March 1992 to June 1993.
From 1966 to 1992, Mr. Kline held a variety of command and staff positions in
the United States Army, and retired with the rank of Colonel. Mr. Kline's
business address is c/o Trump Taj Mahal Casino Resort, 1000 The Boardwalk,
Atlantic City, New Jersey 08401.
Harold First--Mr. First, 59 years old, has been a Class B Director of TM/GP
and Taj Holding since October 1991. Mr. First was a Director of Trans World
Airlines, Inc. from December 1990 through January 1993; Director of ACF
Industries, Inc. from February 1991 through December 1992; Vice Chairman of
the Board of Directors of American Property Investors, Inc., the general
partner of American Real Estate Partners, L.P. from March 1991 through
December 1992; Member of Board of Directors of Realty Corp. since October
1991; Member of Supervisory Board of Directors of Memorex Telex N.V. since
February 1992; member of Board of Directors of Cadus Pharmaceutical
Corporation since April 1995; member of Board of Directors of Tel-Save
Holdings, Inc. since September 1995; and Chief Financial Officer of Icahn
Holding Corporation and related entities from December 1990 through December
1992. Since January 1993, Mr. First has been employed as an independent
financial consultant. Mr. First's business address is c/o KPMG Peat Marwick,
LLP, 345 Park Avenue, New York, New York 10154.
John K. Kelly--Mr. Kelly, 46 years old, has been a Class B Director of
TM/GP, Taj Holding and Realty Corp. since October 1991. Mr. Kelly has been
Senior Vice President/General Counsel of Ocean Federal Savings Bank, a
federally chartered mutual savings bank, since April 1988. Mr. Kelly's
business address is c/o Ocean Federal Savings Bank, 74 Brick Boulevard, Brick,
New Jersey 08723.
Robert J. McGuire--Mr. McGuire, 59 years old, has been a Class B Director of
TM/GP and Taj Holding since October 1991. Mr. McGuire has been President of
Kroll Associates, a management consulting firm, since 1989, Director of
Emigrant Savings Bank since 1988 and a Director of GTI Holding Corp. since
1989. Mr. McGuire's business address is c/o Kroll Associates, 900 Third
Avenue, New York, New York 10022.
Roy E. Posner--Mr. Posner, 62 years old, has been a Class B Director of
TM/GP and Taj Holding since October 1991. Mr. Posner has been Senior Vice
President and Chief Financial Officer of the Loews Corporation since 1986, and
is a member of the Board of Directors of Bulova Systems and Instruments
Corp.Mr. Posner's business address is c/o Loews Corporation, 667 Madison
Avenue, 7th Floor, New York, New York 10021.
Nicholas J. Niglio--Mr. Niglio, 49 years old, has been Senior Vice
President, Casino Marketing of Taj Associates since October 31, 1995. From
February 6, 1995 to October 31, 1995, Mr. Niglio was Vice President,
International Marketing of Taj Associates. Prior to joining Taj Associates, Mr
Niglio was Executive Vice President of International Marketing/Player
Development for TCA, the partnership that owns and operates Trump's Castle
from October 1993 until February 1995. Prior to that, Mr. Niglio served as
Senior Vice
179
<PAGE>
President of Eastern Operations of Caesars World Marketing Corporation for
three years. Prior to that he served as Vice President--Casino Manager at
Caesars Atlantic City for three years. Mr. Niglio's business address is
c/o Trump Taj Mahal Casino Resort, 1000 The Boardwalk, Atlantic City, New
Jersey 08401.
Trump, Nicholas L. Ribis, John P. Burke, R. Bruce McKee, Nicholas F. Moles,
Larry W. Clark and Walter Kohlross served as either executive officers and/or
directors of Taj Associates and its affiliated entities when such parties
filed their petition for reorganization under Chapter 11 of the Bankruptcy
Code on July 17, 1991. The Second Amended Joint Plan of Reorganization of such
parties was confirmed on August 28, 1991, and was declared effective on
October 4, 1991. Trump, Nicholas L. Ribis, John P. Burke and Robert M. Pickus
served as Executive Committee members, officers and/or directors of TCA and
its affiliated entities at the time such parties filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code on March 9, 1992. The
First Amended Joint Plan of Reorganization of such parties was confirmed on
May 5, 1992, and was declared effective on May 29, 1992. Trump, Nicholas L.
Ribis and John P. Burke served as either executive officers and/or directors
of Plaza Associates and its affiliated entities when such parties filed their
petition for reorganization under Chapter 11 of the Bankruptcy Code in March
1992. The First Amended Joint Plan of Reorganization of such parties was
confirmed on April 30, 1992, and was declared effective on May 29, 1992. Trump
was a partner of Plaza Operating Partners Ltd. when it filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code on November 2, 1992.
The plan of reorganization for Plaza Operating Partners Ltd. was confirmed on
December 11, 1992 and declared effective in January 1993. John P. Burke was
Executive Vice President and Chief Administrative Officer of Imperial
Corporation of America, a thrift holding company, whose major subsidiary,
Imperial Savings, was seized by the Resolution Trust Corporation in February
1990. Subsequently, in February 1990, Imperial filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code.
EXECUTIVE COMPENSATION
Taj Holding does not pay any cash compensation to its executive officers for
serving as such and Taj Holding does not offer its executive officers stock-
based compensation plans, long-term incentive plans or defined benefit pension
plans. The executive officers of Taj Holding, other than Trump, are also
employees of Taj Associates and are compensated by Taj Associates. Directors
are also compensated for serving on Taj Holding's Board of Directors. See "--
Compensation of Directors" below. Mr. Ribis, as a Class C Director of TM/GP,
participates in decisions relating to bonuses paid by Taj Associates, but
abstains from decisions relating to his own bonus.
180
<PAGE>
The following table sets forth information for each of the last three
completed fiscal years regarding compensation paid to or accrued by (i) the
President of Taj Holding and (ii) each of the next four highest paid executive
officers of Taj Holding and/or Taj Associates, whose salary and bonus exceeded
$100,000 for the year ended December 31, 1995, including one additional
individual who would have been among the next four highest paid executive
officers but for the fact that his employment was terminated in 1995.
Compensation accrued during one year and paid in another is recorded under the
year of accrual. Information relating to long-term compensation is
inapplicable and has therefore been omitted from the table.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(/2/) COMPENSATION
------------------ ---- ---------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Donald J. Trump(/1/).... 1995 $ -- $ -- $ -- $1,626,000(/3/)
Chairman of the Board, 1994 -- -- -- 1,353,000(/3/)
President and Treasurer 1993 -- -- -- 1,566,000(/3/)
of Taj Holding
Nicholas L. Ribis(/5/).. 1995 $ 543,081 $ -- $ -- $ --
Vice President of Taj 1994 580,083 -- -- --
Holding 1993 299,253 250,000 164,997 --
and Chief Executive
Officer
of Taj Associates
R. Bruce McKee ......... 1995 $ 188,862 $292,756 $ -- $ 3,567(/4/)
Acting Chief Operating 1994 172,703 94,500 -- 3,250(/4/)
Officer, 1993 130,539 49,500 -- 2,468(/4/)
Chief Financial Officer
and
Senior Vice President
of Finance
of Taj Associates
Larry W. Clark ......... 1995 $ 276,611 $124,200 $ -- $ 3,696(/4/)
Executive Vice 1994 261,554 97,500 -- 4,620(/4/)
President 1993 263,521 97,500 -- 4,375(/4/)
Casino Operations of
Taj Associates
Nicholas J. Niglio(/6/). 1995 $ 228,792 $100,236 $ -- $ 3,696(/4/)
Senior Vice President 1994 -- -- -- --
Casino Marketing 1993 -- -- -- --
of Taj Associates
Dennis C. Gomes(/7/).... 1995 $1,321,270 $ -- $ -- $ --
1994 1,541,614 -- -- --
1993 1,070,988 860,000 -- --
</TABLE>
- --------
(1) Mr. Trump performs functions similar to those of a chief executive
officer.
(2) Represents the dollar value of annual compensation not properly
categorized as salary or bonus, including amounts reimbursed for income
taxes. Following SEC rules, perquisites and other personal benefits are
not included in this table unless the aggregate amount of that
compensation is the lesser of either $50,000 or 10% of the total of salary
and bonus for such executive officers.
(3) The amounts listed represent amounts paid to Trump pursuant to the Taj
Services Agreement. See "Certain Transactions--Taj Holding and
Affiliates--Taj Services Agreement." Trump is not an employee of Taj
Associates and receives no compensation from Taj Associates other than
pursuant to the Taj Services Agreement. Mr. Trump is also an executive
officer of THCR; the compensation from this entity is not included in this
table. See "Management of THCR--Executive Compensation--Summary
Compensation Table."
(4) Represents vested and unvested contributions made by Taj Associates to the
Trump Taj Mahal Retirement Savings Plan. Funds accumulated for an employee
under this plan consist of a certain percentage of the employee's
compensation plus Taj Associates' employer matching contributions equaling
50% of the participants' contributions, are retained until termination of
employment, attainment of age 59 1/2 or financial hardship, at which time
the employee may withdraw his or her vested funds.
(5) Mr. Ribis devotes approximately one quarter of his professional time to
the affairs of Taj Associates, and upon consummation of the Merger
Transaction he will devote 75% of his time to the operations of THCR,
Plaza Associates and Taj Associates. Mr. Ribis is also an executive
officer of THCR and Plaza Associates; the compensation from these entities
is not included in this table. See "Management of THCR--Executive
Compensation--Summary Compensation Table."
(6) Mr. Niglio's employment with Taj Associates commenced on February 6, 1995.
(7) Former Vice President of Taj Holding, director of Taj Holding and TM/GP
and former Chief Operating Officer of Taj Associates. Mr. Gomes's
employment was terminated on October 3, 1995.
181
<PAGE>
EMPLOYMENT AGREEMENTS
Taj Associates has an employment agreement with Nicholas L. Ribis (the
"Ribis Taj Agreement") pursuant to which Mr. Ribis acts as Chief Executive
Officer of Taj Associates. Mr. Ribis received a $250,000 signing bonus.
Pursuant to the terms of the Ribis Taj Agreement, in the event that Taj
Associates, or any entity which acquires substantially all of Taj Associates,
proposes to engage in an offering of common shares to the public, Taj
Associates and Mr. Ribis will negotiate new compensation arrangements to
include equity participation for Mr. Ribis. Taj Associates may at any time
terminate Mr. Ribis's employment for "cause" (as such term is defined in the
Ribis Taj Agreement). The Ribis Taj Agreement expires on September 25, 1996.
Taj Associates and Mr. Ribis expect to amend the Ribis Taj Agreement,
effective as of June 12, 1995, pursuant to which, among other things, Mr.
Ribis's annual salary will change from $550,000 (with annual increases of 10%
on each anniversary) to $453,750. Mr. Ribis acts as President, Chief Executive
Officer and Chief Financial Officer of THCR and THCR Holdings, the Chief
Executive Officer of TCA and Plaza Associates, the partnerships that own
Trump's Castle and Trump Plaza, and receives additional compensation from such
entities. Mr. Ribis devotes approximately one quarter of his professional time
to the affairs of Taj Associates. Following the consummation of the Merger
Transaction, Mr. Ribis will devote 75% of his professional time to the
operations of THCR, Plaza Associates and Taj Associates. See "Management of
THCR--Employment Agreements."
Taj Associates has an employment agreement with R. Bruce McKee pursuant to
which he serves as Senior Vice President, Chief Financial Officer of Taj
Associates. The agreement, which expires on September 30, 1997, provides for
an annual salary of $175,000, a guaranteed bonus of $25,000 and is terminable
by Mr. McKee on each anniversary date of the agreement. Mr. McKee will further
be considered for additional bonus compensation at Taj Associates sole
discretion. Factors considered by Taj Associates in the awarding of all
discretionary bonuses generally are the attainment by Taj Associates of
budgeted or forecasted goals and the individual's perceived contribution to
the attainment of such goals.
Taj Associates has an employment agreement with Larry W. Clark pursuant to
which he serves as Executive Vice President, Casino Operations of Taj
Associates. The agreement, which expires on November 30, 1997, provides for an
annual salary of $300,000 and, in addition, a minimum guaranteed bonus of at
least $97,500 per annum.
Taj Associates has an employment agreement with Nicholas J. Niglio which was
assigned to Taj Associates by TCA on February 6, 1995, pursuant to which he
serves as Senior Vice President, Casino Marketing of Taj Associates. The
agreement, which expires on December 31, 1996, provides for an annual salary
of $250,000 and, an annual bonus at the sole discretion of management of Taj
Associates. Mr. Niglio previously served as Executive Vice President of TCA.
Taj Associates may terminate the employment agreements of Messrs. Clark,
McKee and Niglio in its sole discretion, without cause. If Mr. Clark's
employment agreement is terminated, Taj Associates would be obligated to pay
Mr. Clark the greater of one year's salary or his salary for the number of
months remaining in the agreement, each at his then current salary. If Mr.
McKee's employment agreement is terminated, Taj Associates would be obligated
to pay Mr. McKee an amount equal to one year's then current salary. If Mr.
Niglio's employment agreement is terminated, Taj Associates would be obligated
to pay Mr. Niglio the lesser of three month's salary or his salary for the
number of months remaining in the agreement, each at his then current salary.
Taj Associates entered into a severance agreement with Nicholas F. Moles
(the "Moles Agreement") on August 11, 1994. The Moles Agreement provides that
upon Mr. Moles' termination other than for "cause" (as defined in the Moles
Agreement), loss of his casino key employee license from the CCC or voluntary
resignation, Taj Associates will pay Mr. Moles a severance payment equal to
the amount of his salary at its then current rate for the period of one year.
Taj Associates had an employment agreement with Dennis C. Gomes, pursuant to
which Mr. Gomes served as President and Chief Operating Officer of Taj
Associates. The agreement, provided for an annual salary of $1,500,000, and
annual increases of 10% on each anniversary. Mr. Gomes received a signing
bonus of $600,000. On September 19, 1995, pursuant to the terms of the
employment agreement, Mr. Gomes terminated his employment agreement as
President and Chief Operating Officer of Taj Associates and continued to serve
in that position as an employee-at-will. On October 3, 1995, the Board of
Directors of TM/GP terminated Mr. Gomes
182
<PAGE>
from his position as President and Chief Operating Officer of Taj Associates
and Vice President of Taj Holding. On that same date, Trump, the holder of the
Taj Holding Class C Common Stock terminated Mr. Gomes as a Class C Director of
TM/GP and Taj Holding. Mr. Gomes did not receive any severance compensation in
connection with his termination.
COMPENSATION OF DIRECTORS
The directors of Taj Holding are compensated as follows: (i) each Class B
Director is paid $60,000 per year plus $4,000 for each meeting of the Board of
Directors attended; provided, however, that the total fees received by any
Class B Director in any single calendar year may not exceed $90,000 except
under unusual circumstances not anticipated to occur; (ii) Trump is not paid
any fee for serving as a Class C Director; and (iii) each Class C Director
other than Trump is paid a fee of $30,000 per year plus $2,000 for each
meeting of the Board of Directors attended (which meeting fee was waived for a
portion of 1994 and 1995 for all Class C Directors who are employees of Taj
Holding and its affiliates); provided, however, that the total fees received
by any Class C Director in any single calendar year may not exceed $45,000,
except under unusual circumstances not anticipated to occur. All directors
receive reasonable expenses of attendance for each meeting attended. In
addition, members of the TM/GP Audit Committee are compensated as follows:
each member selected by the Class B Directors receives $2,000 per meeting
attended and each member selected by the Class C Directors receives $1,000 per
meeting attended. A total of $384,000 and $175,000 in directors' fees and
committee fees was paid to the Class B Directors and Class C Directors,
respectively, in the fiscal year ended December 31, 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Trump and certain affiliates have engaged in certain related party
transactions. See "Certain Transactions."
In general, the compensation of executive officers of Taj Associates is
determined by the Board of Directors of Taj Holding and TM/GP. No officer or
employee of Taj Associates other than Mr. Ribis who serves on the Board of
Directors of Taj Holding and TM/GP, participated in the deliberations
concerning executive compensation.
The SEC requires registrants to disclose the existence of any other
corporation in which both (i) an executive officer of the registrant serves on
the board of directors and/or compensation committee, and (ii) a director of
the registrant serves as an executive officer. Mr. Ribis, an executive officer
of Taj Associates, is a member of the Board of Directors of other entities in
which members of the Board of Directors of TM/GP, the managing general partner
of Taj Associates (namely, Messrs. Trump, Ribis and Burke), are executive
officers. Messrs. Trump and Ribis, executive officers of Taj Holding, are
members of the Board of Directors of other entities in which members of the
Board of Directors of Taj Holding (namely, Messrs. Trump, Ribis and Burke) are
executive officers. Mr. Ribis, an executive officer of Taj Funding and TTMI,
serves on the Board of Directors of other entities in which the sole Director
of Taj Funding and TTMI (namely, Trump) serves as an executive officer. In
addition, Trump or entities owned by him receive management or services fees
pursuant to fixed formulas provided for in agreements with Taj Associates,
Plaza Associates, THCR and TCA, of which Mr. Ribis is a director or a director
of the managing general partner.
Mr. Ribis serves on the Board of Directors of Taj Holding, which is the 100%
beneficial owner of TM/GP, of which Trump is an executive officer. Messrs.
Trump and Ribis serve on the Board of Directors of TM/GP, which is the
managing general partner of Taj Associates, of which Messrs. Ribis and Burke
are executive officers. Trump, however, does not receive any compensation for
serving as an executive officer of TM/GP or Taj Holding. Messrs. Trump and
Ribis also serve on the Board of Directors of Realty Corp., which leases
certain real property to Taj Associates, of which Messrs. Trump and Ribis are
executive officers. Messrs. Trump and Ribis, however, do not receive any
compensation for serving as executive officers of Realty Corp. Trump is also a
director of TTMI, TTMC and Taj Funding; Mr. Ribis serves as an executive
officer of one or more of such entities; however, he does not receive any
compensation for serving in such capacities.
Messrs. Trump and Ribis serve on the Board of Directors of Plaza Funding,
Inc., the managing general partner of Plaza Associates, of which Messrs. Trump
and Ribis are executive officers. Messrs. Trump and Ribis also serve
183
<PAGE>
on the Board of Directors of Plaza Holding, Inc., of which Messrs. Trump,
Ribis and Burke are also executive officers. Trump is not compensated by such
entities for serving as an executive officer; however, he has entered into a
personal services agreement with Plaza Associates and THCR. Messrs. Ribis and
Burke are not compensated by the foregoing entities; however, they are
compensated by Plaza Associates for their service as executive officers.
Trump serves on the Board of Directors of THCR and TC/GP, Inc., of which
Messrs. Ribis and Burke are executive officers. Trump is not compensated by
such entities for serving as an executive officer; however, a corporation
controlled by him has entered into a services agreement with TCA. Messrs.
Ribis and Burke are not compensated by the foregoing entities; however, they
are compensated by TCA for their service as executive officers.
CERTAIN TRANSACTIONS
Payments to affiliates in connection with any such transactions are governed
by the provisions of the Plaza Mortgage Note Indenture and the Senior Note
Indenture, and may also be governed by the provisions of the Taj Note
Indenture, which provisions generally require that such transactions be on
terms as favorable as would be obtainable from an unaffiliated party, and
require the approval of a majority of the independent directors of THCR for
certain affiliated transactions.
THCR
Trump entered into the Trump Executive Agreement, the Contribution Agreement
and the License Agreement in June 1995, and is currently the sole limited
partner of THCR Holdings. See "Management of THCR--Employment Agreements" and
"Business of THCR--Trademark/Licensing." See "Description of the THCR Holdings
Partnership Agreement." The only cash compensation paid to Trump in connection
with his services to THCR is pursuant to the Trump Executive Agreement, other
than payments paid to TPM under the TPM Services Agreement, which payments are
currently pledged by TPM to secure lease payments for a Super Puma helicopter
that TPM makes available to Plaza Associates. See "--Plaza Associates--TPM
Services Agreement."
Upon consummation of the June 1995 Offerings, Trump contributed to the
capital of Trump Indiana and other jurisdiction subsidiaries payments made by
him relating to expenditures for the development of Trump Indiana and other
gaming ventures. As of June 12, 1995 these advances totaled approximately $4.4
million. Of these amounts, approximately $3.0 million was used to fund
expenses related to the development of Trump Indiana. In order to fund such
expenses, THCR Holdings lent to Trump $3.0 million and Trump issued to THCR
Holdings a five-year promissory note bearing interest at a fixed rate of prime
rate, plus 1%, payable annually. The promissory note will be automatically
canceled in the event that at any time during the periods set forth below, the
THCR Common Stock trades on the New York Stock Exchange, or any other
applicable national exchange or over-the-counter market, at a price per share
equal to or greater than the prices set forth below (subject to adjustment in
certain circumstances) for any ten trading days during any 15 consecutive
trading day period:
<TABLE>
<S> <C>
If on or prior to June 12, 1997 ...................................... $25.00
If on or prior to June 12, 1998 ...................................... $27.50
If on or prior to June 12, 1999 ...................................... $30.00
If on or prior to June 12, 2000 ...................................... $32.50
</TABLE>
THCR Holdings has entered into a ten year lease with The Trump-Equitable
Fifth Avenue Company, a corporation wholly owned by Trump, dated as of July 1,
1995, for the lease of office space in The Trump Tower in New York City, which
THCR Holdings may use for its general executive and administrative offices.
The fixed rent is $115,000 per year, paid in monthly installments, for the
period from July 1, 1995 to June 30, 2000 and will be $129,250 per year, paid
in monthly installments, for the period from July 1, 2000 to June 30, 2005. In
addition, THCR Holdings will pay as additional rent a portion of the taxes for
each tax year. THCR Holdings has the option to terminate this lease upon
ninety days written notice and payment of $32,312.50.
184
<PAGE>
In connection with the Merger Transaction, Trump and THCR entered into an
agreement, dated January 8, 1996, pursuant to which Trump agreed to take the
actions contemplated to be taken by Trump in connection with the Merger
Transaction, including to vote, or cause to be voted, all shares of THCR
Common Stock and THCR Class B Common Stock beneficially owned by Trump in
favor of the approval of the Merger Transaction. THCR agreed to use reasonable
efforts to fulfill, and cause to be fulfilled, those obligations owed to Trump
in connection with the Merger Transaction.
Mr. Ribis, the President, Chief Executive Officer and Chief Financial
Officer of THCR, is Counsel to the law firm of Ribis, Graham and Curtin, which
serves as New Jersey Counsel to THCR, THCR Holdings and its subsidiaries, Taj
Holdings, Taj Associates, and certain of their affiliated entities.
PLAZA ASSOCIATES
Plaza Associates has joint property insurance coverage with TCA, Taj
Associates and other entities affiliated with Trump for which the annual
premium paid by Plaza Associates was approximately $1.4 million for the twelve
months ended May 1996.
Plaza Associates leased from Taj Associates certain office facilities
located in Pleasantville, New Jersey. In 1993 and 1992, lease payments by
Plaza Associates to Taj Associates totaled approximately $30,000 and $138,000,
respectively. Such lease terminated on March 19, 1993, and Plaza Associates
vacated the premises. Through February 1, 1993, Plaza Associates also leased
from Trump approximately 120 parking spaces at Trump Plaza East for
approximately $5.50 per parking space per day, with payments under such
arrangement for the years ended December 31, 1993 and December 31, 1992
totaling $21,000 and $227,000, respectively.
Plaza Associates also leased portions of its warehouse facility located in
Egg Harbor Township, New Jersey to TCA until January 31, 1994; lease payments
by TCA to Plaza Associates totaled $6,000, $15,000 and $14,000 in 1994, 1993
and 1992, respectively.
Seashore Four is the fee owner of a parcel of land constituting a portion of
the Plaza Casino Parcel, which it leases to Plaza Associates pursuant to the
SFA Lease. Seashore Four was assigned the lessor's interest in the existing
SFA Lease in connection with its acquisition of fee title to such parcel from
a non-affiliated third party in November 1983. The SFA Lease was entered into
by Plaza Associates with such third party on an arm's-length basis. Plaza
Associates recorded rental expenses of approximately $788,000, $900,000 and
$900,000 in 1995, 1994 and 1993, respectively, concerning rent owed to
Seashore Four.
Trump Seashore is the fee owner of a parcel of land constituting a portion
of the Plaza Casino Parcel, which it leases to Plaza Associates pursuant to
the TSA Lease. In July 1988, Trump Seashore exercised a $10 million option to
purchase the fee title to such parcel from a non-affiliated third party. In
connection therewith, Trump Seashore was assigned the lessors' interest in the
Trump Seashore Lease, which interest has, however, been transferred to UST.
See "Business of THCR--Properties." Plaza Associates made rental payments to
Trump Seashore of approximately $750,000, $1.0 million and $1.0 million in
1995, 1994 and 1993, respectively.
Trump World's Fair. In June 1989, Trump Crystal Tower Associates Limited
Partnership ("Trump Crystal"), a New Jersey limited partnership wholly owned
by Trump, acquired from Elsinore Shore Associates all of the assets
constituting the former Atlantis Casino Hotel ("Atlantis"), which is located
on The Boardwalk adjacent to the Atlantic City Convention Center on the
opposite side from Trump Plaza and is otherwise referred to herein as Trump
World's Fair. Prior to such acquisition, all of the Atlantis' gaming
operations were discontinued. The facility was renamed the Trump Regency Hotel
and, in August 1990, pursuant to a triple net lease with an affiliate of Plaza
Associates, leased to Plaza Associates, which operated it solely as a non-
casino hotel. During such period of operation, losses attributable to the
former Trump Regency Hotel aggregating approximately $14.1 million adversely
affected the results of operations of Plaza Associates. Pursuant to the 1992
Plaza Restructuring, Plaza Associates ceased operating the former Trump
Regency Hotel as of September 30, 1992. As part of the 1992 Plaza
Restructuring, the triple-net lease was terminated and Plaza Associates issued
to Chemical Bank ("Chemical"), the assignee of rents payable under such lease,
a promissory note in the original principal amount of $17.5 million (the
"Regency Note"). At such time, title to the former Trump Regency Hotel
185
<PAGE>
was transferred by Trump to ACFH Inc. ("ACFH"), a wholly owned subsidiary of
Chemical. From that time until June 12, 1995, the former Trump Regency Hotel
was operated on behalf of ACFH as a non-casino hotel by Sovereign Management,
a third party unaffiliated with THCR, Trump or their respective affiliates.
Pursuant to an agreement between Trump Crystal, and ACFH, Trump Crystal
granted ACFH a non-exclusive license to use the "Trump" name in connection
with such property. Plaza Associates repaid the Regency Note with a portion of
the proceeds from the sale of the Plaza Mortgage Notes and PIK Notes.
In December 1993, Trump entered into an option agreement (the "Original
Chemical Option Agreement") with Chemical and ACFH. The Original Chemical
Option Agreement granted to Trump an option to purchase (i) the former Trump
Regency Hotel (including the land, improvements and personal property used in
the operation of the hotel) and (ii) certain promissory notes (including a
personal promissory note of Trump payable to Chemical for $35.9 million (the
"Trump Note")) made by Trump and/or certain of his affiliates and payable to
Chemical (the "Chemical Notes") which are secured by certain real estate
assets located in New York, unrelated to Plaza Associates, including the Trump
Note which was made by Trump on July 20, 1987. As of September 30, 1995, the
aggregate amount owed by Trump and his affiliates under the Chemical Notes
(none of which constitutes an obligation of Plaza Associates) was
approximately $65.8 million. In connection with exercise of the Trump World's
Fair Purchase Option, as discussed below, the Trump Note was canceled.
The aggregate purchase price payable for the assets subject to the Original
Chemical Option Agreement was $80 million. Under the terms of the Original
Chemical Option Agreement, $1 million was required to be paid for the option
by January 5, 1994. In addition, the Original Chemical Option Agreement
provided for an expiration of the option on May 8, 1994, subject to an
extension until June 30, 1994 upon payment of an additional $250,000 on or
before May 8, 1994. The Original Chemical Option Agreement did not allocate
the purchase price among the assets subject to the option or permit the option
to be exercised for some, but not all, of such assets.
In connection with the execution of the Original Chemical Option Agreement,
Plaza Associates was to make the initial $1 million payment, and, in
consideration of such payment to be made by Plaza Associates, Trump agreed
with Plaza Associates that, if Trump was able to acquire the former Trump
Regency Hotel pursuant to the exercise of the option, he would make it
available for the sole benefit of Plaza Associates on a basis consistent with
Plaza Associates' contractual obligations and requirements. Trump further
agreed that Plaza Associates would not be required to pay any additional
consideration to Trump in connection with any assignment to Plaza Associates
of the option to purchase the former Trump Regency Hotel. On January 5, 1994,
Plaza Associates obtained the approval of the CCC to make the $1 million
payment, and the payment was made on that date.
On June 16, 1994, Trump, Chemical and ACFH amended and restated the Original
Chemical Option Agreement (the "First Amended Chemical Option Agreement"). The
First Amended Chemical Option Agreement provided for an extension of the
expiration of the option through September 30, 1994, upon payment of $250,000.
Such payment was made on June 27, 1994. The First Amended Chemical Option
Agreement provided for a $60 million option price for the former Trump Regency
Hotel and the Trump Note, and a separate $20 million option price for the
other Chemical Notes. On August 30, 1994, Trump, Chemical and ACFH entered
into an amendment to the First Amended Chemical Option Agreement (the "Second
Amended Chemical Option Agreement"). The Second Amended Chemical Option
Agreement provided for an extension of the expiration of the option through
March 31, 1995 upon the payment of $50,000 a month for the period October
through December 1994, and $150,000 a month for the period January through
March 1995. Plaza Associates received the approval of the CCC and has made
such payments. On March 6, 1995, Trump, Chemical and ACFH entered into an
amendment to the Second Amended Chemical Option Agreement (the "Third Amended
Chemical Option Agreement") or the Trump World's Fair Purchase Option. On June
12, 1995, Trump exercised the Trump World's Fair Purchase Option for
$58,150,000 ($60 million less $1,850,000 in option payments which were
available as of that date to offset the original exercise price), and title to
Trump World's Fair was transferred via directed deed from ACFH to Plaza
Associates. In connection with the exercise of the Trump World's Fair Purchase
Option, the Trump Note was canceled. THCR is currently in the process of
renovating and integrating Trump World's Fair into Trump Plaza. See "Business
of THCR--Trump Plaza--The Trump Plaza Expansion."
186
<PAGE>
Trump Plaza East. In 1993, Plaza Associates received the approval of the
CCC, subject to certain conditions, for the expansion of its hotel facilities
at Trump Plaza East. On June 24, 1993, in connection with the 1993 refinancing
of Trump Plaza, (i) Trump transferred title to Trump Plaza East to Missouri
Boardwalk, Inc. ("Boardwalk"), a wholly owned subsidiary of Midlantic National
Bank ("Midlantic"), in exchange for a reduction in indebtedness to Midlantic
in an amount equal to the sum of fair market value of Trump Plaza East and all
rent payments made to Boardwalk by Trump under the Trump Plaza East Lease (as
defined), (ii) Boardwalk leased Trump Plaza East to Trump (the "Trump Plaza
East Lease") for a term of five years, which expires on June 30, 1998, during
which time Trump was obligated to pay Boardwalk $260,000 per month in lease
payments, and (iii) Plaza Associates acquired the Trump Plaza East Purchase
Option. In October 1993, Plaza Associates assumed the Trump Plaza East Lease
and related expenses. In addition, Plaza Associates has the Right of First
Offer upon any proposed sale of all or any portion of the fee interest in
Trump Plaza East during the term of the Trump Plaza East Purchase Option.
Pursuant to the Right of First Offer, Plaza Associates has ten days after
receiving written notice from the grantor of the proposed sale to commit to
exercise the Right of First Offer. If Plaza Associates commits to exercise the
Right of First Offer, it has ten days from the date of commitment to deposit
$3,000,000 with the grantor, to be credited towards the purchase price or to
be retained by the grantor if the closing, through no fault of the grantor,
does not occur within 90 days (or, subject to certain conditions, 120 days) of
the date of the commitment. If Plaza Associates determines not to timely
exercise the Right of First Offer, the grantor thereof may sell Trump Plaza
East to a third party, subject, however, to the Trump Plaza East Purchase
Option and the lease associated with Trump Plaza East. Trump, individually,
also has been granted by such lender the Right of First Offer upon a proposed
sale of all or any portion of Trump Plaza East during the term of the Trump
Plaza East Purchase Option. Trump has agreed with Plaza Associates that his
Right of First Offer will be subject to Plaza Associates' prior exercise of
its Right of First Offer (with any decision of Plaza Associates requiring the
approval of the independent directors of Plaza Funding, acting as the managing
general partner of Plaza Associates). Acquisition of Trump Plaza East by Plaza
Associates would under certain circumstances (provided there are no events of
default under the Trump Plaza East Lease or the Trump Plaza East Purchase
Option and provided that certain other events had not theretofore or do not
thereafter occur) discharge Trump's obligation to Midlantic in full.
TPM Services Agreement. On June 24, 1993, Plaza Associates and TPM entered
into the TPM Services Agreement which amended and restated an earlier services
agreement. Pursuant to the TPM Services Agreement, TPM is required to provide
to Plaza Associates, from time to time when reasonably requested, consulting
services on a non-exclusive basis, relating to marketing, advertising,
promotional and other similar and related services (the "TPM Services") with
respect to the business and operations of Plaza Associates. In addition, the
TPM Services Agreement contains a non-exclusive "license" of the "Trump" name.
TPM is not required to devote any prescribed amount of time to the performance
of its duties. In consideration for the TPM Services, Plaza Associates pays
TPM an annual fee of $1.0 million in equal monthly installments. In addition
to such annual fee, Plaza Associates reimburses TPM on a monthly basis for all
reasonable out-of-pocket expenses incurred by TPM in performing its
obligations under the Trump Plaza Services Agreement. Plaza Associates paid
TPM $1,321,000, $1,288,000 and $1,247,000 in 1995, 1994 and 1993,
respectively, for the TPM Services. Pursuant to the TPM Services Agreement,
Plaza Associates will agree to hold TPM, its officers, directors and employees
harmless from and against any loss arising out of or in connection with the
performance of the TPM Services and to hold Trump harmless from and against
any loss arising out of the license of the "Trump" name. The TPM Services
Agreement provides that its term is coextensive with the period during which
any Plaza Mortgage Notes remain outstanding.
Payments received under the TPM Services Agreement are currently pledged by
TPM to secure lease payments for a helicopter that TPM makes available to
Plaza Associates. Pending approval by the lessor of the helicopter, it is
currently contemplated that the stock of TPM will be transferred by Trump to
THCR Holdings, which will in turn assume the lease and related obligations, as
well as become entitled to all amounts payable under the TPM Services
Agreement.
Indemnification Agreements. In addition to the indemnification provisions
in THCR's and its subsidiaries' employment agreements (see "Management of
THCR--Employment Agreements"), certain former and current
187
<PAGE>
Directors of Plaza Funding entered into separate indemnification agreements in
May 1992 with Plaza Associates pursuant to which such persons are afforded the
full benefits of the indemnification provisions of the partnership agreement
governing Plaza Associates. Plaza Associates has also entered into an
Indemnification Trust Agreement in November 1992 (the "Trust Agreement") with
Midlantic National Bank (the "Indemnification Trustee") pursuant to which the
sum of $100,000 was deposited by Plaza Associates with the Indemnification
Trustee for the benefit of the Directors of Plaza Funding and certain former
Directors of Trump Plaza GP to provide a source for indemnification for such
persons if Plaza Associates, Plaza Funding or Trump Plaza GP, as the case may
be, fails to immediately honor a demand for indemnification by such persons.
The indemnification agreements with the directors of Plaza Funding and
Directors of Trump Plaza GP were amended in June 1993 to provide, among other
things, that Plaza Associates would maintain directors' and officers'
insurance covering such persons during the ten-year term (subject to
extension) of the Indemnification Agreements; provided, however, that if such
insurance would not be available on a commercially practicable basis, Plaza
Associates could, in lieu of obtaining such insurance, annually deposit an
amount in the Indemnification Trust Fund equal to $500,000 for the benefit of
such directors; provided, however, that deposits relating to the failure to
obtain such insurance shall not exceed $2.5 million.
TAJ HOLDING AND AFFILIATES
On January 8, 1996, as an inducement for Taj Holding, THCR and Merger Sub to
enter into the Merger Agreement, Trump agreed to vote, or cause to be voted,
all shares of Taj Holding Class C Common Stock beneficially owned by Trump in
favor of the approval and adoption of the Merger Agreement.
During the fiscal years ended December 31, 1993, 1994 and 1995, Taj
Associates reimbursed Taj Holding $1,733,000, $2,171,000 and $1,553,000,
respectively, for all amounts necessary to permit TM/GP or Taj Holding (a) to
make payments that TM/GP or Taj Holding was required to make pursuant to the
terms of the TM/GP Certificate of Incorporation and the Taj Holding
Certificate of Incorporation (generally for indemnification of officers and
directors), (b) to pay fees to directors (including fees for serving on a
committee), (c) to pay all other expenses of TM/GP and Taj Holding and (d) to
permit Taj Holding to redeem the Taj Holding Class B Common Stock when
required to make such redemption pursuant to the terms of the Taj Holding
Certificate of Incorporation. Taj Holding did not engage in any other
transactions with its affiliates during the fiscal years ended December 31,
1993, 1994 and 1995.
Taj Funding has not engaged in any transactions with its affiliates, except
for the loan of funds made to Taj Associates in exchange for an intercompany
note secured by a mortgage. Both the note and the mortgage were amended in
1991 pursuant to the 1991 Taj Restructuring.
Taj Associates has entered into a lease with The Trump-Equitable Fifth
Avenue Co., a corporation wholly owned by Trump, for the lease of office space
in The Trump Tower in New York City, which Taj Associates uses as a marketing
office. The monthly payments under the lease had been $1,000, and the premises
were leased at such rent for four months in 1992, the full twelve months in
1993 and 1994 and eight months in 1995. On September 1, 1995, the lease was
renewed for a term of five years with an option for Taj Associates to cancel
the lease on September 1 of each year, upon six months' notice and payment of
six months' rent. Under the renewed lease, the monthly payments are $2,184.
Taj Associates currently leases the Specified Parcels from Realty Corp.,
consisting of land adjacent to the site of the Taj Mahal, which is being used
primarily for a bus terminal, surface parking and the Taj Entertainment
Complex, as well as the Steel Pier, and a warehouse complex. During 1993, 1994
and 1995, lease obligations to Realty Corp. for these facilities were
approximately $3.3 million per year. Upon consummation of the Merger
Transaction, Taj Associates will purchase the Specified Parcels from Realty
Corp. See "The Merger Transaction."
In April 1991, Taj Associates purchased from Trump's Castle Associates for
$1,687,000 two adjacent parcels of land on the Pleasantville-Egg Harbor
Township border, constituting approximately 10 acres. The first parcel
contains two buildings, certain fleet maintenance facilities and an office
building and warehouse facility, portions of which were leased to Trump Plaza
Associates. The lease expired in March 1993 and Trump Plaza Associates has
vacated. Taj Associates currently leases the space to a commercial tenant. The
second parcel is unimproved.
188
<PAGE>
In December 1994, Taj Associates entered into a one-year agreement with TCA
pursuant to which TCA leases to Taj Associates 300 parking spaces (500 parking
spaces during the months of May to September) at a rate of 50 cents per space
per day, to be used for employee parking. The agreement expired in December
1995, however, TCA and Taj Associates are currently negotiating an extension
of the agreement and have agreed to continue the lease on a month-by-month
basis.
Taj Associates engages in various transactions with Trump Plaza and Trump's
Castle. These transactions are charged at cost or normal selling price in the
case of retail items and include certain shared payroll costs as well as
complimentary services offered to customers. Expenses incurred by Taj
Associates payable to TCA for the years ended December 31, 1993, 1994 and 1995
were approximately $1,100,000, $1,167,000, and $1,056,000, respectively, of
which all but $69,000, $30,000, and $148,000, respectively, was paid or offset
against amounts owed to Taj Associates by TCA. Expenses incurred by Taj
Associates payable to the Plaza Associates for the years ended December 31,
1993, 1994 and 1995 were approximately $83,000, $149,000 and $339,000,
respectively, all of which were offset against amounts owed to Taj Associates
by Plaza Associates, with exception of $61,000 at December 31, 1995.
On October 4, 1991, Taj Associates entered into the Taj Associates-First
Fidelity Guarantee to guarantee performance by Realty Corp. of its obligations
under the First Fidelity Loan. The Taj Associates-First Fidelity Guarantee is
limited to any deficiency in the amount owed under the First Fidelity Loan
when due, up to a maximum of $30 million. In connection with the Merger
Transaction and the payment of $[50] million and [500,000 shares of THCR
Common Stock] to First Fidelity in complete satisfaction of the obligations
due under the First Fidelity Loan contemplated thereby, First Fidelity will,
among other things, release Taj Associates from the Taj Associates-First
Fidelity Guarantee. See "Business of Taj Holding--Certain Indebtedness--First
Fidelity Loan/Specified Parcels."
During 1992 and prior years, Taj Associates had an arrangement with the
Trump Shuttle, Inc. (the "Trump Shuttle"), which at the time was beneficially
owned by Trump, for the provision of airline services to Atlantic City on
behalf of Taj Associates patrons. During 1992, Taj Associates incurred $29,000
in charges from the Trump Shuttle, all of which was paid.
Taj Services Agreement. Taj Associates and Trump have entered into the Taj
Services Agreement, which became effective in April 1991, and which provides
that Trump will render to Taj Associates marketing, advertising, promotional
and related services with respect to the business operations of Taj Associates
through December 31, 1999. In consideration for the services to be rendered,
Taj Associates pays an annual fee (the "Annual Fee") equal to 1 1/2% of Taj
Associates' earnings before interest, taxes and depreciation less capital
expenditures for such year, with a minimum base fee of $500,000 per annum. The
base fee is payable monthly with the balance due April 15 of the following
year. During 1993, 1994 and 1995, Trump earned approximately $1,566,000,
$1,353,000 and $1,862,000, respectively, in respect of the Annual Fee,
including amounts paid to a third party pursuant to an assignment agreement.
In addition to the Annual Fee, Taj Associates reimburses Trump on a monthly
basis for all reasonable out-of-pocket expenses up to certain aggregate
amounts incurred by Trump in performing his obligations under the Taj Services
Agreement. During 1993, 1994 and 1995, Taj Associates reimbursed Trump
$232,000, $224,000 and $166,000, respectively, for expenses pursuant to the
Taj Services Agreement, of which $127,000, $148,000 and $105,000,
respectively, was incurred to an affiliate for air transportation. Taj
Associates has agreed to indemnify Trump from and against any licensing fees
arising out of his performance of the Taj Services Agreement, and against any
liability arising out of his performance of the Taj Services Agreement, other
than that due to his gross negligence or willful misconduct. In connection
with the Merger, the Taj Services Agreement will be terminated.
Indemnification Agreements. In addition to the indemnification provisions in
Taj Associates employment agreements (see "Management of Taj Holdings--
Employment Agreements"), the Merger Agreement provides for indemnification of
any present or former director, officer, employee or agent of Taj Holding and
TM/GP, arising from his services as such, within six years of the Effective
Time. See "The Merger Transaction--Indemnification and Insurance."
189
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THCR
The following table sets forth, as of December 31, 1995 (without giving
effect to the transactions contemplated by the Merger Transaction), certain
information regarding the beneficial ownership of THCR Common Stock by (i)
each of THCR's executive officers, (ii) each director of THCR, (iii) each
person who is known to THCR to own beneficially more than 5% of the THCR
Common Stock and (iv) all officers and directors of THCR as a group. Such
information is based, in part, upon information provided by certain
stockholders of THCR. In the case of persons other than members of the
officers and directors of THCR, such information is based solely on a review
of Schedules 13G filed with the SEC.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------------
NAME NUMBER PERCENT
- ---- ------------ ----------
<S> <C> <C>
Donald J. Trump.................................... 6,666,917(/1/) 39.8%
Nicholas L. Ribis.................................. 66,667(/2/) *
John P. Burke...................................... 300(/3/) *
Robert M. Pickus................................... 200 *
Wallace B. Askins.................................. 3,000 *
Don M. Thomas...................................... 200 *
Peter M. Ryan...................................... -- --
The Capital Group Companies, Inc................... 1,064,000(/4/) 10.6
State Street Research & Management Company......... 1,193,600(/5/) 11.9
Oppenheimer Group, Inc............................. 1,227,200(/6/) 12.2
All officers and directors of THCR (7 persons)..... 6,737,284 40.2
</TABLE>
The above persons have sole voting and investment power, unless otherwise
indicated.
- --------
* Less than 1%.
(1) These shares include 6,666,667 shares of THCR Common Stock, into which
Trump's limited partnership interest in THCR Holdings is convertible,
subject to certain adjustments. See "Description of the THCR Holdings
Partnership Agreement." These shares do not include 300 shares of THCR
Common Stock held by his wife, Mrs. Marla M. Trump, of which shares Trump
disclaims beneficial ownership. Trump is also the beneficial owner of the
outstanding shares of the THCR Class B Common Stock (1,000 shares). The
THCR Class B Common Stock has voting power equivalent to the voting power
of the THCR Common Stock into which Trump's limited partnership interest
is convertible. Upon conversion of all or any portion of the THCR Holdings
limited partnership interest into shares of THCR Common Stock, the
corresponding voting power of the THCR Class B Common Stock will be
proportionately diminished. See "Description of THCR Capital Stock."
(2) Represents a stock bonus awarded to the President of THCR pursuant to the
1995 Stock Plan. See "Management of THCR--Executive Compensation." These
shares do not include 3,081 shares and 2,739 shares held by Mr. Ribis as
custodian for his son, Nicholas L. Ribis, Jr., and his daughter,
Alexandria Ribis, respectively, of which shares Mr. Ribis disclaims
beneficial ownership.
(3) Mr. Burke shares voting and dispositive power of 100 of these shares with
his wife. The number in the table does not include 100 shares beneficially
owned solely by his wife, of which shares Mr. Burke disclaims beneficial
ownership.
(4) 333 South Hope Street, Los Angeles, California 90071. The Capital Group
Companies, Inc. ("Capital Group") has sole dispositive power over these
shares and sole voting power over 256,000 of these shares. These shares
include 410,000 and 654,000 shares beneficially owned by Capital Research
and Management Company ("Capital Research") and Capital Guardian Trust
Company ("Capital Guardian"), respectively. Capital Group is the parent
holding company of Capital Research and Capital Guardian. Capital Group,
Capital Research and Capital Guardian disclaim beneficial ownership of
these shares.
(5) One Financial Center, 30th Floor, Boston, Massachusetts 02111. State
Street Research and Management Company ("State Street") is an investment
adviser and disclaims beneficial ownership of these shares. Metropolitan
Life Insurance Company, One Madison Avenue, New York, New York 10010, is
the parent holding company of State Street.
(6) Oppenheimer Tower, World Financial Center, New York, New York 10281.
Oppenheimer Group, Inc. ("Oppenheimer") has shared voting and dispositive
power over these shares. These shares include 1,029,300 shares
beneficially owned by Oppenheimer Capital, an investment adviser, of which
Oppenheimer is the parent holding company.
190
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OF TAJ HOLDING
Taj Holding Class A Common Stock and Taj Holding Class B Common Stock. The
following tables set forth, as of December 31, 1995 (without giving effect to
the Merger Transaction), certain information regarding the beneficial
ownership of the Taj Holding Class A Common Stock and Class B Common Stock by
each person who is known to Taj Holding to own beneficially more than 5% of
Taj Holding Class A Common Stock and Taj Holding Class B Common Stock. Such
information is based, in part, upon information provided by certain of the
stockholders identified below. Such information is based solely on information
provided to Taj Holding by such persons. No directors or executive officers of
Taj Holding beneficially own any shares of Taj Holding Class A Common Stock or
Taj Holding Class B Common Stock.
BENEFICIAL OWNERSHIP OF TAJ HOLDING CLASS A COMMON STOCK
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------
NAME NUMBER PERCENT
- ---- ----------- ----------
<S> <C> <C>
Prudential Securities, Inc.(/1/)(/6/).................... 381,840 28.3
Putnam Investment Management, Inc.(/2/)(/6/)............. 135,000 10.0
Grace Brothers Ltd.(/4/)(/6/)............................ 95,000 7.0
SC Fundamental Value Fund, L.P./ SC Fundamental Value BVI
Ltd.(/5/)(/6/).......................................... 90,000 6.7
</TABLE>
The above persons have sole voting and investment power, unless otherwise
indicated.
- --------
(1) 48 Par La Ville Road, Suite 463, Hamilton MH11, Bermuda.
(2) One Seaport Plaza, New York, NY 08401.
(3) One Post Office Square, Boston, MA 02109.
(4) 950 Third Avenue, New York, NY 10022.
(5) 512 Fifth Avenue, New York, NY 10022
(6) Party to the Class A Agreement. See "Special Factors--Background to the
Merger Transaction."
BENEFICIAL OWNERSHIP OF TAJ HOLDING CLASS B COMMON STOCK
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------
NAME NUMBER PERCENT
---- ----------- ----------
<S> <C> <C>
Kemper Financial Services, Inc.(/1/)................... 112,152 14.7%
Putnam Investment Management, Inc.(/2/)................ 101,148 13.9%
</TABLE>
- --------
(1) 120 South LaSalle Street, Chicago, IL 60603. Kemper Financial Services,
Inc., a wholly owned subsidiary of Kemper Financial Companies, Inc.,
serves as an investment advisor to certain mutual funds and various other
managed accounts, including those which hold Taj Holding Class B Common
Stock. As a result, Kemper Financial Services, Inc. shares with such
mutual funds and managed accounts voting and dispositive power over the
shares of Taj Holding Class B Common Stock held by those entities.
(2) One Post Office Square, Boston, MA 02109. Putnam Investment Management,
Inc. serves as an investment advisor to Putnam Funds, and as a result
shares with each Putnam Fund voting and dispositive power over the shares
of Taj Holding Class B Common Stock held by Putnam Funds. Marsh & McLennan
Companies, Inc. and Putnam Investments, Inc. are deemed to control Putnam
Investment Management, Inc., and are each therefore deemed to beneficially
own Putnam Investment Management, Inc.'s shares of Taj Holding Class B
Common Stock reported above. Marsh & McLennan Companies, Inc. is the
controlling shareholder of Putnam Investment Management, Inc.
Except as otherwise noted above, Taj Holding believes the beneficial holders
listed above have sole voting and investment power regarding the shares of Taj
Holding Class A Common Stock and Taj Holding Class B Common Stock shown as
being beneficially owned by them.
Taj Holding Class C Common Stock. Trump, a Class C Director of Taj Holding,
owns 100% of the outstanding shares of Taj Holding Class C Common Stock.
191
<PAGE>
DESCRIPTION OF THCR CAPITAL STOCK
The following summary description of the capital stock of THCR does not
purport to be complete and is qualified in its entirety by reference to the
THCR Certificate of Incorporation and the THCR By-Laws, copies of which are
filed as exhibits to this Registration Statement of which this Proxy
Statement-Prospectus is a part.
GENERAL
The authorized capital stock of THCR consists of (i) 50,000,000 shares of
THCR Common Stock, of which 10,066,667 shares are currently issued and
outstanding, (ii) 1,000 shares of THCR Class B Common Stock, all of which are
currently issued and outstanding, and (iii) 1,000,000 shares of Preferred
Stock, par value $1.00 per share (the "THCR Preferred Stock"), none of which
are issued and outstanding. Upon consummation of the Merger Transaction
(assuming all of the holders of Taj Holding Class A Common Stock elect Stock
Consideration and assuming a price of $ per share of THCR Common Stock as
the Market Value in connection with the Merger and as the public offering
price in the THCR Stock Offering), there will be shares of THCR Common
Stock outstanding.
THCR COMMON STOCK AND THCR CLASS B COMMON STOCK
Holders of THCR Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Subject to the rights of the holders of the THCR Class B Common
Stock described below, holders of a majority of the shares of THCR Common
Stock entitled to vote in any election of directors and may elect all of the
directors standing for election. Holders of THCR Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the THCR Board
of Directors out of funds legally available therefor. Upon the liquidation,
dissolution or winding up of THCR, the holders of THCR Common Stock and THCR
Class B Common Stock will share ratably, out of the assets of THCR legally
available for distribution to its stockholders, to the extent of their par
value, $.01 per share. After such payment is made, the holders of the THCR
Common Stock will be entitled to participate ratably in all of the remaining
assets of THCR available for distribution. Holders of THCR Common Stock have
no subscription, redemption or conversion rights. Holders of THCR Common Stock
have no preemptive rights to subscribe to any additional securities that THCR
may issue, nor is the THCR Common Stock subject to calls or assessments by
THCR. All the outstanding shares of THCR Common Stock are, and the shares of
THCR Common Stock to be issued in connection with the Merger Transaction, when
issued and paid for will be, fully paid and non-assessable. The rights,
preferences and privileges of holders of THCR Common Stock are subject to, and
may be adversely affected by, the rights of the holders of shares of any
series of THCR Preferred Stock that THCR may designate and issue in the
future.
Trump is the beneficial owner of all 1000 outstanding shares of THCR Class B
Common Stock. The THCR Class B Common Stock votes together with the THCR
Common Stock as a single class on all matters submitted to stockholders of
THCR for a vote or in respect of which consents are solicited (other than in
connection with certain amendments of the THCR Certificate of Incorporation
described below). The number of votes represented by the THCR Class B Common
Stock held by any holder equals the number of shares of THCR Common Stock
issuable to the holder upon the conversion of such holder's partnership
interest in THCR Holdings into THCR Common Stock. Upon such conversion, the
corresponding voting power of shares of THCR Class B Common Stock (equal in
voting power to the number of shares of THCR Common Stock issued upon such
conversion) will be proportionately diminished. The THCR Class B Common Stock
provides Trump with a voting interest in THCR which is proportionate to his
equity interest in THCR Holdings' assets represented by his limited
partnership interest. Except for the right to receive par value upon
liquidation, the THCR Class B Common Stock has no right to receive any
dividend or other distribution in respect of the equity of THCR. In addition,
the THCR Certificate of Incorporation provides that the THCR Class B Common
Stock is not entitled to a separate class vote on any matters submitted to the
stockholders of THCR for their approval, except for any amendment of the terms
of the THCR Class B Common Stock, which require (x) the affirmative vote of
the THCR Class B Common Stock, voting as a separate class, and (y) the
affirmative vote of a majority of the shares of THCR
192
<PAGE>
Common Stock held by persons who are not beneficial owners of THCR Class B
Common Stock, voting as a separate class.
In accordance with the requirements of the Casino Control Act, the Indiana
Riverboat Gambling Act and the Mississippi Gaming Control Act, the THCR
Certificate of Incorporation provides that all securities of THCR are held
subject to the condition that, if a holder thereof is found to be
disqualified, such holder shall: (a) dispose of his interest in THCR; (b) not
receive any dividends or interest upon any such securities; (c) not exercise,
directly or indirectly or through any trustee or nominee, any right conferred
by such securities; and (d) not receive any remuneration in any form from the
casino license for services rendered or otherwise. The THCR Certificate of
Incorporation further provides that THCR may redeem any shares of THCR's
capital stock held by any person or entity whose holding of shares may cause
the loss or non-reinstatement of a governmental license held by THCR. Such
redemption shall be at the lesser of fair market value (as defined in the THCR
Certificate of Incorporation), or the purchase price of such capital stock.
The THCR Certificate of Incorporation may also contain other provisions
required by the gaming laws of other jurisdictions.
The Transfer Agent for the THCR Common Stock is Continental Stock Transfer &
Trust Company, Jersey City, New Jersey.
THCR PREFERRED STOCK
THCR's Board of Directors may, without further action by THCR's
stockholders, issue THCR Preferred Stock in one or more series and fix the
rights, preferences, privileges, qualifications, limitations and restrictions
of the THCR Preferred Stock including dividend rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of
shares constituting any series or the designation of such series. The issuance
of THCR Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of THCR without further action by the
stockholders and may adversely affect the voting and other rights of the
holders of THCR Common Stock. At present, THCR has no plans to issue any of
the THCR Preferred Stock.
PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECTS
The THCR Certificate of Incorporation and the THCR By-Laws contain
provisions that could have anti- takeover effects. These provisions are
intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors of THCR and in the policies formulated
by the Board of Directors of THCR and to discourage certain types of
transactions which may involve an actual or threatened change of control of
THCR. The provisions are designed to reduce the vulnerability of THCR to an
unsolicited proposal for a takeover of THCR that does not contemplate the
acquisition of all of its outstanding shares or an unsolicited proposal for
the restructuring or sale of all or part of THCR. The provisions are also
intended to discourage certain tactics that may be used in proxy fights. The
Board of Directors of THCR believes that, as a general rule, such takeover
proposals would not be in the best interest of THCR and its stockholders. Set
forth below is a description of such provisions in the THCR Certificate of
Incorporation and the THCR By-Laws. The Board of Directors of THCR has no
current plans to formulate or effect additional measures that could have an
anti-takeover effect.
The THCR Certificate of Incorporation provides that directors, other than
those, if any, elected by the holders of THCR Preferred Stock, can be removed
from office only for cause and only by the affirmative vote of the holders of
at least 66 2/3% of the combined voting power of the then outstanding shares
of capital stock entitled to vote thereon ("THCR Voting Stock"). Pursuant to
the By-Laws, newly created directorships resulting from any increase in the
authorized number of directors and any vacancies on the Board of Directors of
THCR may be filled by the affirmative vote of a majority of the remaining
directors.
Except as otherwise provided for with respect to the rights of the holders
of THCR Preferred Stock, the THCR Certificate of Incorporation provides that
the whole Board of Directors of THCR will consist of that number of directors
determined from time to time by the Board of Directors of THCR.
193
<PAGE>
The THCR By-Laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board of Directors of
THCR or a committee thereof, of candidates for election as directors and with
regard to certain other matters to be brought before an annual meeting of
stockholders of THCR. In general, notice must be received by THCR not later
than 10 days after the public announcement of the meeting date and must
contain certain specified information concerning the matters to be brought
before the meeting and the stockholder submitting the proposal.
In addition, the THCR Certificate of Incorporation provides that whenever
any vote of THCR Voting Stock is required by law to amend, alter, repeal or
rescind any provision thereof, then, in addition to any affirmative vote
required by law or any required vote of the holders of THCR Preferred Stock,
the affirmative vote of at least a majority of the combined voting power of
the then-outstanding shares of THCR Voting Stock and approval by at least a
majority of the then-authorized number of directors of THCR is required to
amend certain provisions of the THCR Certificate of Incorporation; provided,
however, that if any such amendment, alteration, repeal, or rescission (a
"THCR Change") relates to those provisions or to removal of directors, such
THCR Change must also be approved by the affirmative vote of the holders of at
least 66 2/3% of the combined voting power of the then-outstanding shares of
THCR Voting Stock, voting together as a single class and, if at the time there
exist one or more THCR Related Persons (as defined), such THCR Change must
also be approved by the affirmative vote of the holders of at least a majority
of the combined voting power of the Disinterested Shares (defined in the THCR
Certificate of Incorporation as, to any THCR Related Person, shares of THCR
Voting Stock that are beneficially owned and owned of record by stockholders
other than such THCR Related Person). A "THCR Related Person" means any
person, entity or group which beneficially owns 10% or more of the outstanding
voting stock of THCR, provided, however, that Trump and his affiliates are not
deemed to be a THCR Related Person.
The THCR Certificate of Incorporation provides that the vote(s) required by
the immediately preceding provision shall not be required if such THCR Change
has been first approved by at least two-thirds of the then- authorized number
of directors of THCR and, if at the time there exist one or more THCR Related
Persons, by a majority of the THCR Continuing Directors (as defined with
respect to any THCR Related Person to be any member of the Board of Directors
of THCR who (i) is unaffiliated with and is not the THCR Related Person and
(ii) became a member of the Board of Directors of THCR prior to the time that
the THCR Related Person became a THCR Related Person, and any successor of a
THCR Continuing Director who is recommended to succeed a THCR Continuing
Director by a majority of THCR Continuing Directors then on the Board of
Directors of THCR).
The THCR Certificate of Incorporation provides that the THCR By-Laws may be
adopted, altered, amended or repealed by the stockholders of THCR or by a
majority vote of the entire Board of Directors of THCR.
The THCR Certificate of Incorporation provides that, except as otherwise
provided for with respect to the rights of the holders of THCR Preferred
Stock, no action that is required or permitted to be taken by the stockholders
of THCR at any annual or special meeting of stockholders may be effected by
written consent of stockholders in lieu of a meeting of stockholders, unless
the action to be effected by written consent of stockholders and the taking of
such action by such written consent have expressly been approved in advance by
the Board of Directors of THCR and, if such action involves a "business
combination" within the meaning of Section 203 of the DGCL, such written
consent shall have expressly been approved in advance by the affirmative vote
of at least a majority of the THCR Continuing Directors then in office.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
THCR is subject to the provisions of Section 203 of the DGCL. Section 203 of
the DGCL prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder.
194
<PAGE>
Subject to certain exceptions, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years did own,
15% of the corporation's voting stock. Neither Trump nor any of his affiliates
is deemed to be an "interested stockholder" for purposes of Section 203 of the
DGCL.
The THCR Certificate of Incorporation contains certain provisions permitted
under the DGCL relating to the liability of directors. The provisions
eliminate a director's liability for monetary damages for a breach of
fiduciary duty, except in certain circumstances involving wrongful acts, such
as the breach of a director's duty of loyalty or acts or omissions which
involve intentional misconduct or a knowing violation of law. Furthermore, the
THCR Certificate of Incorporation and the THCR By-Laws contain provisions to
indemnify THCR's directors and officers to the fullest extent permitted by the
DGCL, including payment in advance of a final disposition of a director's or
officer's expenses and attorneys' fees incurred in defending any action, suit
or proceeding. THCR believes that these provisions assist THCR in attracting
and retaining qualified individuals to serve as directors.
195
<PAGE>
DESCRIPTION OF THE THCR HOLDINGS PARTNERSHIP AGREEMENT
The following summary of the Amended and Restated Agreement of Limited
Partnership of THCR Holdings (the "THCR Holdings Partnership Agreement"), and
the description of certain provisions set forth elsewhere in this Proxy
Statement-Prospectus is qualified in its entirety by reference to such
Partnership Agreement, which is filed as an exhibit to the Registration
Statement of which this Proxy Statement-Prospectus is a part. THCR Holdings
was formed in 1995 under the Delaware Revised Uniform Limited Partnership Act,
as amended (the "Delaware RULPA").
DISTRIBUTIONS AND ALLOCATIONS OF PROFITS AND LOSSES
THCR Holdings makes any required distributions to each partner of THCR
Holdings (each, a "Partner") for taxes ("Tax Amounts") in one or more payments
from time to time during each year, but in no event later than March 1 of the
year immediately following such year, in an aggregate cash sum equal to such
Partner's percentage interest in Tax Amounts in respect of such year. In
general, Tax Amounts for any year are the product of the highest marginal tax
rate applicable to any of the Partners (subject to certain limitations) and
THCR Holdings' taxable income for such year. The THCR Holdings Partnership
Agreement provides that after making the required tax distributions,
additional distributions will be made from time to time as determined by a
majority of the Board of Directors of THCR, but in any case pro rata in
accordance with the Partners' percentage interests. THCR Holdings' ability to
make distributions (including tax distributions) are subject to, among other
things, limitations set forth in the Senior Note Indenture. See "Risk
Factors--Restrictions on Certain Activities."
Profits and losses for tax purposes are generally allocated among the
partners in accordance with their percentage interests, subject to compliance
with the provisions of Section 704(b) and 704(c) of the Code and the Treasury
Regulations thereunder governing special allocations of certain partnership
items, including the "ceiling rule" set forth in Treasury Regulations Section
1.704-3 (which are not be subject to cure by special allocation except as
specifically provided in the THCR Holdings Partnership Agreement).
THCR Holdings has agreed that all expenses of THCR shall, to the maximum
extent practicable, be paid directly by THCR Holdings. Any other expenses paid
directly by THCR are required to be reimbursed promptly by THCR Holdings and
are deemed to be expenses of THCR Holdings.
MANAGEMENT
As the sole general partner of THCR Holdings, THCR generally has the
exclusive rights, responsibilities and discretion in the management and
control of THCR Holdings. The limited partners of THCR Holdings (the "Limited
Partners") have no authority, as Limited Partners, to transact business or
take any acts on behalf of, or make any decision for, THCR Holdings. Trump,
however, has the right to control the management of Plaza Associates. In
connection with the Merger Transaction, the THCR Holdings Partnership
Agreement will be amended to give Trump the right to control the resolution of
tax matters affecting or relating to Taj Associates in respect of periods
ending on or prior to the date on which Taj Holding acquired its interest in
Taj Associates, including requiring THCR Holdings, Taj Holdings LLC and Taj
Associates to adjust the tax basis of assets held by Taj Associates in
connection with the resolution of such tax matters to the extent such basis
adjustments shall not reduce THCR's share of federal income tax depreciation
and cost recovery deductions in respect of assets held by Taj Associates as of
the date of the Merger and contributions of the interests in Taj Associates to
THCR Holdings and Taj Holdings LLC.
The THCR Holdings Partnership Agreement provides that THCR shall not,
without the consent of a majority-in-interest of the Limited Partners,
undertake actions relating to any of the following during such time as the
Limited Partners own more than 10% of the outstanding partnership interests in
THCR Holdings: the
196
<PAGE>
dissolution of THCR Holdings under the Delaware RULPA, the institution of any
proceedings for bankruptcy on behalf of THCR Holdings, the making of a general
assignment for the benefit of creditors or the appointment of a custodian,
receiver or trustee for all or any part of the assets of THCR Holdings.
TRANSFERABILITY OF INTERESTS
The THCR Holdings Partnership Agreement provides that THCR may not withdraw
as general partner of THCR Holdings, or transfer without the consent of a
majority-in-interest of the Limited Partners (other than THCR), so long as the
Limited Partners hold at least a 10% interest in THCR Holdings; provided,
however, that such consent right shall not apply to a determination by THCR or
THCR Holdings to enter into a merger, sale, consolidation, combination or
similar transaction. A Limited Partner may transfer all or any portion of his
interests in THCR Holdings, provided that (i) THCR including a majority of the
Special Committee (as defined) consents to such transfer, which consent may
not be unreasonably withheld or delayed, except no such consent is required
for (a) a transfer of Partnership interests described below under "Exchange
and Registration Rights," (b) a transfer to a Permitted Holder (which term
includes the spouse and other descendants of such Limited Partner (including
any related trusts controlled by, and established and maintained for the sole
benefit of, such Limited Partner or such spouse or descendant) and the estate
of any of the foregoing), or (c) a transfer upon foreclosure on an interest of
a Limited Partner pursuant to certain permitted liens, and (ii) such transfer
does not violate certain other restrictions on transfer contained in the THCR
Holdings Partnership Agreement. No transferee is admitted as a substitute
Limited Partner of THCR Holdings having the rights of a Limited Partner
without the consent of THCR, including a majority of the Special Committee.
ADDITIONAL CAPITAL CONTRIBUTIONS; ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS
No Partner is required under the terms of the THCR Holdings Partnership
Agreement to make additional capital contributions to THCR Holdings, except as
described below in connection with the issuance of additional partnership
interests.
The THCR Holdings Partnership Agreement provides that no additional
Partnership interests will be issued, except in the case of (i) an additional
partnership interest to THCR in exchange for a contribution of value from THCR
and (ii) an additional limited partnership interest to Trump or his Permitted
Holders in exchange for a contribution of value from Trump or his Permitted
Holders (as defined in the THCR Holdings Partnership Agreement), as determined
by a majority of the Special Committee. The Special Committee is composed of
directors who are not officers or employees of THCR and who are not affiliates
of Trump or any of his affiliates.
The THCR Holdings Partnership Agreement currently provides that THCR will
not issue additional debt or equity securities, unless the proceeds of such
issuance are contributed to THCR Holdings and that it will not issue any
additional shares of THCR Class B Common Stock, except to Trump or his
Permitted Holders. In connection with, and in light of the structure necessary
to consummate the Merger Transaction, the THCR Holdings Partnership Agreement
will be amended to provide that THCR may contribute to THCR Holdings the
indirect interests in Taj Associates that THCR acquires in the Merger rather
than contribute the proceeds from the THCR Stock Offering to THCR Holdings.
Furthermore, the THCR Holdings Partnership Agreement will be amended to
provide that THCR Holdings may issue limited partnership interests to TTMI and
TM/GP in exchange for the contribution of their respective 49.995% equity
interest in Taj Associate, and to provide that THCR may issue shares of
THCR Class B Common Stock to TTMI at such as TTMI becomes a Limited Partner.
EXCHANGE AND REGISTRATION RIGHTS
THCR entered into an exchange and registration rights agreement (the
"Exchange Rights Agreement") with Trump, pursuant to which, among other
things: (i) Trump and his permitted successors and assigns are able to
exchange all or any portion of their interest in THCR Holdings for THCR Common
Stock and (ii) a majority of the Special Committee has the right to require
any holder of a limited partnership interest (other than Trump and
197
<PAGE>
his Permitted Holders) to exchange their Partnership interests for THCR Common
Stock. The number of shares of THCR Common Stock issuable upon exchange of
limited partnership interests are adjusted from time to time to reflect stock
dividends, stock splits, reverse stock splits, reclassifications and
recapitalizations.
The exchange of limited partnership interests for shares of THCR Common
Stock under the Exchange Rights Agreement is subject to (i) the expiration or
termination of the applicable waiting period, if any, under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, and (ii) the
satisfaction of certain other conditions contained in the Exchange Rights
Agreement.
The Exchange Rights Agreement provides that, upon a transfer of limited
partnership interests in THCR Holdings, the transferee will obtain the
benefits of, and be subject to, all of the provisions of the Exchange Rights
Agreement.
The Exchange Rights Agreement contains certain registration rights under the
Securities Act in favor of the holders of the THCR Common Stock issuable upon
the exchange of limited partnership interests. The holders of securities
representing a majority of the THCR Common Stock issuable upon the exchange of
limited partnership interests shall have the right to require THCR, at THCR's
expense (other than with respect to underwriting discounts, commissions and
fees attributable to the sale of any such Common Stock), subject to certain
limitations, to file two registration statements relating to the resale to the
public of all or a portion of their THCR Common Stock.
In addition, in the event THCR proposes to register any of its THCR Common
Stock pursuant to a registration statement under the Securities Act (other
than on Forms S-4 or S-8 or other similar successor forms), such holders may,
by giving written notice to THCR, request that THCR, at THCR's expense (other
than with respect to underwriting discounts, commissions and fees attributable
to the sale of any such THCR Common Stock), include in such registered
offering all or any part of their THCR Common Stock. THCR is required to
include the securities covered by such notice or notices in such registered
offering unless THCR determines for any reason not to proceed with the
underlying offering of its equity securities or, in the case of an
underwritten offering, if the managing underwriter determines that the amount
of THCR Common Stock requested to be included in such registration exceeds the
amount which can be sold in such offering without adversely affecting the
distribution of the securities being offered.
TTMI will be granted registration rights with respect to the shares of THCR
Common Stock into which its limited partnership interests will be convertible
which are similar to those granted to Trump under the Exchange Rights
Agreement (as defined).
TAX MATTERS PARTNER
Pursuant to the THCR Holdings Partnership Agreement, THCR is the tax matters
partner of THCR Holdings and, as such, has authority to make tax elections
under the Code on behalf of THCR Holdings, subject to certain notice and
consultation rights in favor of the Limited Partners.
TERM
The term of the THCR Holdings Partnership Agreement continues until December
31, 2035, or until sooner dissolved upon (i) the dissolution, bankruptcy or
termination of THCR, (ii) the election of THCR and a majority-in-interest of
the Limited Partners, (iii) the sale or other disposition of all or
substantially all the assets of THCR Holdings (but in the event of such sale
or transfer, such time of dissolution may be extended, at the option of THCR,
until the receipt of substantially all of the proceeds thereof, or a
determination by THCR that no material additional proceeds will likely be
received), or (iv) the entry of a decree of judicial dissolution of THCR
Holdings pursuant to the provisions of the Delaware RULPA, which decree is
final and not subject to approval; provided, however, the Limited Partners may
elect to continue THCR Holdings. An election to continue THCR Holdings must be
unanimous unless the Delaware RULPA permits such election pursuant to the vote
of a lesser percentage in interest of the Limited Partners, in which event
such election may be by such lesser percentage in
198
<PAGE>
interest as is permitted in the Delaware RULPA, but in no event shall such
election be by a vote of less than a majority-in-interest of the Limited
Partners.
CONTRIBUTION AGREEMENT
Trump received his limited partnership interest in THCR Holdings in exchange
for a contribution of, among other things, all of his beneficial interest in
Plaza Associates and all of his other existing interests and rights to gaming
activities in both emerging and established jurisdictions, including Trump
Indiana, but excluding the Taj Mahal and Trump's Castle. Such contribution was
made pursuant to the terms of the Contribution Agreement between Trump and
THCR Holdings. Under the Contribution Agreement, Trump agreed to pursue,
develop and conduct all new casino and gaming opportunities only on behalf of
THCR. Trump further agreed not to engage in certain actions in connection with
casino and gaming activities, including, without limitation, casino hotels,
and related services and products. For purposes of this grant and without
limiting its application with respect to other properties, any hotel with
gaming conducted on its premises will be considered a casino hotel and any
business or activity engaged in by Trump and located in Nevada, Atlantic City
(other than the Taj Mahal (prior to the Merger Transaction) and Trump's
Castle) or within one mile of a casino will be presumed to be an activity to
which these restrictions will apply. Such a presumption may be rebutted by a
vote of the majority of the Special Committee. The agreement to offer new
gaming opportunities to THCR is for a term of the later of (i) 20 years, (ii)
such time as Trump and his affiliates no longer hold a 15% or greater voting
interest in THCR or (iii) such time as Trump ceases to be employed or retained
pursuant to an employment, management, consulting or similar services
agreement with THCR. Trump may generally continue to engage in business as
currently conducted or proposed to be conducted at the Taj Mahal (prior to the
Merger Transaction) and Trump's Castle. For as long as Trump owns beneficially
20% or more of the voting power of THCR and no other holder owns more voting
power of THCR, or such shorter period ending on the date on which no Plaza
Mortgage Notes remain outstanding, to the extent required under the Plaza
Mortgage Note Indenture, Trump shall retain the right (x) to designate for
election a majority of the Board of Directors of Plaza Funding and its
successors and assigns and any other managing general partner of Plaza
Associates and (y) to control the management of Plaza Associates. See "Risk
Factors--Conflicts of Interest" and "--Control and Involvement of Trump."
INDEMNIFICATION
THCR Holdings indemnifies and hold harmless each Partner and its affiliates,
and all officers, directors, employees and agents of such Partner and its
affiliates (individually, an "Indemnitee") from and against any and all
losses, claims, demands, costs, damages, liabilities, joint and several,
expenses of any nature (including attorneys' fees and disbursements),
judgments, fines, settlements and other amounts arising from any and all
claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, in which the Indemnitee may be involved, or
threatened to be involved, as a party or otherwise, relating to the operations
of THCR Holdings, including, without limitation, liabilities under the Federal
and state securities laws, regardless of whether the Indemnitee continues to
be a Partner, an affiliate of a Partner, or an officer, director, employee, or
agent of a Partner or an affiliate of a Partner at the time any such liability
or expense is paid or incurred, but only if the act or omission giving rise to
such proceeding does not constitute gross negligence or willful misconduct;
provided, however, that such indemnification or agreement to hold harmless,
will be recoverable only out of assets of THCR Holdings and not from the
Partners. The indemnification provided by the THCR Holdings Partnership
Agreement is in addition to any other rights to which an Indemnitee may be
entitled under any agreement, as a matter of law or equity, or otherwise, both
as to action in the Indemnitee's capacity as a Partner, an affiliate of a
Partner, or as an officer, director, employee or agent of a Partner or an
affiliate of a Partner and as to any action in another capacity, and will
continue, with respect to actions relating to the operations of THCR Holdings,
as to an Indemnitee who has ceased to serve in such capacity and will inure to
the benefit of the heirs, successors, assigns and administrators of the
Indemnitee. No Indemnitee may be denied indemnification in whole or in part
under the THCR Holdings Partnership Agreement by reason of the fact that the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was approved in accordance with the
THCR Holdings Partnership Agreement. No officer, employee or agent of THCR
Holdings has any liability to THCR Holdings or any of its partners for
monetary damages for action taken, or any failure to take any action, in such
capacity, with certain exceptions.
199
<PAGE>
CERTAIN REGULATORY MATTERS
The THCR Holdings Partnership Agreement provides that it is subject to the
provisions of the Casino Control Act and the Indiana Riverboat Gambling Act.
The THCR Holdings Partnership Agreement further provides that THCR Holdings
may redeem the partnership interest held by any person or entity whose holding
of such interest may cause the loss or non-reinstatement of any governmental
license or permit of THCR Holdings or any of its subsidiaries. Such redemption
will be on the terms set forth in the THCR Holdings Partnership Agreement.
OTHER
The THCR Holdings Partnership Agreement provides that, unless a majority-in-
interest of the Limited Partners otherwise consents, all business activities
of THCR must be conducted through THCR Holdings or its subsidiaries.
THCR Holdings is authorized to enter into transactions with partners or
their affiliates, as long as the terms of such transactions are fair and
reasonable, and no less favorable to THCR Holdings than would be obtained from
an unaffiliated third party.
Except for certain technical amendments, the THCR Holdings Partnership
Agreement may only be amended by THCR, upon the approval of a majority of the
Special Committee with the consent of a majority-in- interest of the Limited
Partners.
Except for Trump's agreement to conduct all new gaming activities through
THCR as described above and under "--Contribution Agreement" and "Management
of THCR--Employment Agreements," the THCR Holdings Partnership Agreement
provides that any Limited Partner may engage in other business activities
outside THCR Holdings, including business activities that directly compete
with THCR Holdings; provided, however, that no such other activities
discriminate against THCR Holdings. See "Risk Factors--Conflicts of Interest"
and "--Control and Involvement of Trump."
THCR Holdings has agreed to indemnify Trump in the event of the non-payment
by THCR Holdings of certain liabilities assumed by THCR Holdings in connection
with its formation.
The THCR Holdings Partnership Agreement also provides that no additional
compensation shall be paid directly or indirectly to Trump under the Trump
Executive Agreement or otherwise, unless approved by the Special Committee.
Other than the TPM Services Agreement and notwithstanding the foregoing, THCR
(including each of its subsidiaries) may not enter into any management,
services, consulting, or similar agreements with Trump or any of his
affiliates, except for employment agreements in the ordinary course of
business consistent with industry practice and approved by the Special
Committee.
200
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
Upon consummation of the Merger Transaction, holders of Taj Holding Class A
Common Stock who elect Stock Consideration will become holders of THCR Common
Stock. The following is a summary of material differences between the rights
of holders of Taj Holding Class A Common Stock and the rights of holders of
THCR Common Stock. As each of Taj Holding and THCR is organized under the laws
of Delaware, these differences arise principally from provisions of the
charter and by-laws of each of Taj Holding and THCR.
The following does not purport to be complete statements of the rights of
holders of Taj Holding Class A Common Stock under the Taj Holding Certificate
of Incorporation and the Taj Holding By-Laws as compared with the rights of
holders of THCR Common Stock under the THCR Certificate of Incorporation and
THCR By-Laws. These summaries are qualified in their entirety by reference to
the DGCL and governing corporate instruments of Taj Holding and THCR. The
terms of THCR's capital stock are described in greater detail under
"Description of THCR Capital Stock." Copies of the charter and by-laws for
each of Taj Holding and THCR are available for inspection at their respective
principal executive offices. In addition, the THCR Certificate of
Incorporation and the THCR By-Laws are filed as exhibits to the registration
statement to which this Proxy Statement-Prospectus is a part, and copies will
be sent to holders of Taj Holding Class A Common Stock upon request.
VOTING RIGHTS
Prior to the redemption of the Bonds (the "Bond Redemption"), the Taj
Holding Class A Common Stock has no voting rights, except as otherwise
provided by law. After the Bond Redemption, the Taj Holding Class A Common
Stock and the Taj Holding Class C Common Stock will each be entitled to one
vote per share and will vote on all matters on which stockholders are entitled
to vote as a single class. In electing directors, the Taj Holding Certificate
of Incorporation provides for cumulative voting rights, that is (i) each
holder of Taj Holding Class A Common Stock or Taj Holding Class C Common Stock
will have that number of votes that such holder would be entitled to cast for
the election of directors with respect to such holder's series of stock
multiplied by the number of directors to be elected and (ii) such holder may
cast all of such votes for a single nominee.
Holders of THCR Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Subject to the rights of the holders of THCR Class B Common
Stock described below, holders of a majority of the shares of THCR Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. The THCR Certificate of Incorporation
provides that THCR Class B Common Stock is not entitled to a separate class
vote on any matters submitted to the stockholders of THCR for their approval,
except for any amendment of the terms of the THCR Class B Common Stock, which
require (x) the affirmative vote of the THCR Class B Common Stock, voting as a
separate class, and (y) the affirmative vote of a majority of the shares of
THCR Common Stock held by persons who are not beneficial owners of the THCR
Class B Common Stock, voting as a separate class.
ISSUANCE OF PREFERRED STOCK
Pursuant to the Taj Holding Certificate of Incorporation, the Board of
Directors may issue one or more series of preferred stock with such rights and
privileges relating to dividends, redemption, liquidation, conversion and
voting as it may determined by resolution; provided, however, that the
designation of any class of preferred stock may not limit the voting rights of
any class of common stock without the consent of the holders of such class.
The THCR Certificate of Incorporation provides that the Board of Directors
may, without further action by the stockholders, issue preferred stock in one
or more series and fix the rights, preferences, privileges, qualifications,
limitations and restrictions of the preferred stock including dividend rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series or the designation of such
series. Accordingly, the issuance of THCR Preferred Stock may have the effect
of delaying,
201
<PAGE>
deferring or preventing a change in control of THCR without further action by
the stockholders and may adversely affect the voting and other rights of the
holders of THCR Common Stock.
STOCKHOLDERS' MEETINGS
Special Meetings. The Board of Directors may call a special meeting of
stockholders. In addition, the Taj Holding By-Laws provide that special
meetings of any class of common stock shall be called by the Secretary upon
receipt of a request of at least 10% of the outstanding shares of such class.
The THCR Certificate of Incorporation provides that special meetings of
stockholders may be called by the Board of Directors or the President and
shall be called by the President or the Secretary at the request in writing of
a director or a majority of the voting stock issued and outstanding.
Actions Without a Meeting. The Taj Holding By-Laws allow for any action
required or permitted at any annual or special meeting of stockholders to be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action to be taken, is signed by the
holders of at least majority of each class of outstanding stock entitled to
vote thereon.
The THCR Certificate of Incorporation, provides that, unless provided for or
fixed for a series of preferred stock, no action that is required or permitted
to be taken by the stockholders at an annual or special meeting may be
effected by written consent in lieu of a meeting, unless the action to be
effected by written consent and the taking of such action by written consent
have expressly been approved in advance by the Board of Directors, and if such
matter involves a "business combination" as defined in Section 203 of the
DGCL, such written consent shall have expressly been approved in advance by
the affirmative vote of at least a majority of the THCR Continuing Directors.
BUSINESS COMBINATIONS
Prior to the Bond Redemption, a merger, consolidation or business
combination with or into any other entity must be approved by a majority of
the shares of the Taj Holding Class B Common Stock. The Taj Holding
Certificate of Incorporation, however, does not afford holders of Taj Holding
Class A Common Stock such right, before or after the Bond Redemption.
Both Taj Holding and THCR are subject to the provisions of Section 203 of
the DGCL. Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three
years did own, 15% of the corporation's voting stock. Pursuant to the THCR
Certificate of Incorporation, neither Trump nor any of his affiliates is
deemed to be an "interested stockholder" for purposes of Section 203 of the
DGCL.
Holders of Taj Holding Class A Common Stock and holders of THCR Common Stock
have no preemptive or appraisal rights, except as provided under the DGCL.
CHANGE OF CONTROL
The Taj Holding Certificate of Incorporation precludes Trump and his
affiliates prior to the Bond Redemption from acquiring beneficial ownership of
Taj Holding Class A Common Stock, except to satisfy a warrant given to certain
class action plaintiffs in connection with the settlement of their claims.
After the Bond Redemption there are no further restrictions on beneficial
acquisitions of Taj Holding Class A Common Stock by Trump or its affiliates if
all the payments made in connection with the Bonds were made in full.
202
<PAGE>
The THCR Certificate of Incorporation does not preclude Trump or his
affiliates from acquiring THCR Common Stock. In addition, Trump is the
beneficial owner of all 1000 outstanding shares of THCR Class B Common Stock,
which votes together with the THCR Common Stock as a single class on all
matters submitted to stockholders of THCR for a vote or in respect of which
consents are solicited (other than in connection with certain amendments to
the terms of the THCR Class B Common Stock described above). The number of
votes represented by the THCR Class B Common Stock held by any holder equals
the number of shares of THCR Common Stock issuable to the holder upon the
conversion of such holder's partnership interest in THCR Holdings into THCR
Common Stock. Upon such conversion, the corresponding voting power of shares
of THCR Class B Common Stock (equal in voting power to the number of shares of
THCR Common Stock issued upon such conversion) will be proportionately
diminished.
BOARD OF DIRECTORS
General. The Taj Holding Certificate of Incorporation does not authorize the
Board of Directors to change the authorized number of directors and provides
that the number of directors shall be nine. Prior to the Bond Redemption, the
Board of Directors is divided into two classes, the Taj Holding Class B
Directors (elected by the holders of the Taj Holding Class B Common Stock) and
the Taj Holding Class C Directors (elected by the holders of Taj Holding Class
C Common Stock). After the Bond Redemption, all but one of the Taj Holding
Class B Directors shall resign and the Board of Directors shall consist of
nine unclassified directors. After the Bond Redemption, the Taj Holding
directors will be elected by the holders of Taj Holding Class A Common Stock
and Taj Holding Class C Common Stock, voting as a single class. The Taj
Holding Certificate of Incorporation further provides that, after the Bond
Redemption, directors will be elected by the affirmative vote of a plurality
of the votes cast thereon.
Except as otherwise provided for with respect to the rights of the holders
of THCR Preferred Stock, the THCR Certificate of Incorporation and THCR By-
Laws provide that the Board of Directors will consist of that number of
directors determined from time to time by it, not to exceed fifteen. In
addition, the THCR By-Laws establish an advance notice procedure with regard
to the nomination, other than by or at the direction of the Board or a
committee thereof, of candidates for election as directors and with regard to
certain other matters to be brought before an annual meeting of stockholders.
In general, notice must be received by THCR not later than 10 days after the
public announcement of the meeting date and must contain certain specified
information concerning the matters to be brought before the meeting and the
stockholder submitting the proposal.
Removal of Directors. The Taj Holding By-Laws provide that a director may be
removed from office, with or without cause, by a majority vote of the holders
of the class of stock that elected such director. Any vacancies in the Board
of Directors as the result of the resignation of a director are filled by the
then-remaining directors of the same class.
The THCR Certificate of Incorporation provides that directors, other than
those, if any, elected by the holders of THCR Preferred Stock, can be removed
from office only for cause and only by the affirmative vote of the holders of
at least 66 2/3% of the THCR Voting Stock. Pursuant to the THCR By-Laws, newly
created directorships resulting from any increase in the authorized number of
directors and any vacancies on the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors.
INDEMNIFICATION AND LIABILITY OF DIRECTORS AND OFFICERS
Both the Taj Holding Certificate of Incorporation and the THCR Certificate
of Incorporation provide that each of their officers, directors, employees or
agents shall be indemnified to the fullest extent permitted under Delaware
law. The charters also provide that directors are not liable to Taj Holding
and THCR, respectively, or to each of their stockholders, for monetary damages
for breach of fiduciary duty, except if such director (i) is liable under
Delaware law or (ii) is liable by reason that such director (a) breached the
director's duty of loyalty, (b) did not act in good faith, (c) acted in a
manner involving intentional misconduct or a knowing violation of law or (d)
derived an improper personal benefit.
203
<PAGE>
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BY-LAWS
Certificate of Incorporation. Prior to the Bond Redemption, any amendment to
the Taj Holding Certificate of Incorporation must be approved by a majority of
the holders of Taj Holding Class B Common Stock. Thereafter, any amendment
requires a majority vote of the Taj Holding Class A Common Stock and Taj
Holding Class C Common Stock voting as a single class.
The THCR Certificate of Incorporation provides that whenever any vote of
THCR Voting Stock is required by law to amend, alter, repeal or rescind any
provision thereof, then, in addition to any affirmative vote required by law
or any required vote of the holders of THCR Preferred Stock, the affirmative
vote of at least a majority of the combined voting power of the then-
outstanding shares of THCR Voting Stock and approval by at least a majority of
the then- authorized number of directors is required to amend certain
provisions of the THCR Certificate of Incorporation; provided, however, that
if a THCR Change relates to those provisions or to removal of directors, such
THCR Change must also be approved by the affirmative vote of the holders of at
least 66 2/3% of the combined voting power of the then-outstanding shares of
THCR Voting Stock, voting together as a single class and, if at the time there
exist one or more THCR Related Persons, such THCR Change must also be approved
by the affirmative vote of the holders of at least a majority of the combined
voting power of the Disinterested Shares.
The THCR Certificate of Incorporation further provides that the vote(s)
required by the immediately preceding provision shall not be required if such
THCR Change has been first approved by at least two-thirds of the then-
authorized number of directors of THCR and, if at the time there exist one or
more THCR Related Persons, by a majority of the THCR Continuing Directors.
By-Laws. Taj Holding By-Laws prohibits the Board of Directors from amending
the Taj Holding By-Laws, but provides that the holders of every class of stock
of Taj Holding entitled to vote thereon may amend the Taj Holding By-Laws;
provided that under certain circumstances prior to the Bond Redemption, the
holders of Taj Holding Class B Common Stock have the exclusive power to amend
the Taj Holding By-Laws. In addition, the Taj Holding Certificate of
Incorporation, provides that prior to the Bond Redemption, any amendment to
the By-Laws must be approved by a majority of the holders of Taj Holding Class
B Common Stock.
The THCR Certificate of Incorporation provides that the THCR By-Laws may be
adopted, altered, amended or repealed by the vote of a majority of the
stockholders of THCR or by a majority vote of the entire Board.
DISQUALIFICATION OF STOCKHOLDERS
In accordance with the requirements of the Casino Control Act, the Taj
Holding Certificate of Incorporation provides that all of its securities are
held subject to the condition that, if a holder thereof is found to be
disqualified, such holder shall: (a) dispose of his interest in Taj Holding;
(b) not receive any dividends or interest upon any such securities; (c) not
exercise, directly or indirectly or through any trustee or nominee, any right
conferred by such securities; and (d) not receive any remuneration in any form
from the casino license for services rendered or otherwise. The Taj Holding
Certificate of Incorporation further provides that Taj Holding may redeem any
shares of capital stock held by any person or entity whose holding of shares
may cause the loss or non-reinstatement of a governmental license held by Taj
Holding. The redemption shall be at par value per share thereof.
The THCR Certificate of Incorporation has similar provisions, but in
addition to any terms required by the Casino Control Act, stockholders are
also subject to the Indiana Riverboat Gambling Act and gaming laws of other
jurisdictions with authority over the business affairs of THCR. Pursuant to
the THCR Certificate of Incorporation, in the case of a mandatory redemption
of any shares of capital stock held by any person or entity whose holding of
shares may cause the loss or non-reinstatement of a governmental license, the
redemption shall be at the lesser of fair market value, as defined in the THCR
Certificate of Incorporation, or the purchase price of such capital stock.
204
<PAGE>
MARKET PRICE AND DIVIDEND DATA
THCR
The THCR Common Stock is listed on the NYSE under the symbol "DJT." The
initial public offering price of the THCR Common Stock was $14.00 per share.
The following table reflects the high and low sales prices of the THCR Common
Stock as reported by the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
----
First quarter............................................... N/A N/A
Second quarter (from June 7, 1995).......................... $14 $11 5/8
Third quarter............................................... $19 3/4 $13
Fourth quarter.............................................. $21 5/8 $14
1996
----
First quarter (through January 9, 1996)..................... $22 3/8 $ 19
</TABLE>
The reported closing sale price of the THCR Common Stock on the NYSE on
January 8, 1996, the last full day of trading prior to the announcement of the
Merger Transaction, was $ 21 3/4. As of January 9, 1996 there were
approximately 211 holders of record of THCR Common Stock.
Trump is the sole beneficial owner of all 1,000 outstanding shares of THCR
Class B Common Stock. No established trading market exists for the THCR Class
B Common Stock, and no shares of THCR Class B Common Stock have been
transferred since their issuance to Trump. The THCR Class B Common Stock has
no right to receive any dividend or other distribution with respect to the
equity of THCR.
THCR has never paid a dividend and does not anticipate paying one in the
foreseeable future. The payment of any future dividends will be at the
discretion of the THCR Board of Directors and will depend upon, among other
things, THCR's, financial condition and capital needs, legal restrictions on
the payment of dividends, contractual restrictions in financing agreements and
on other factors deemed pertinent by the THCR Board of Directors. See "Risk
Factors--Restrictions on Certain Activities." It is the current policy of the
THCR Board of Directors to retain earnings, if any, for use in its
subsidiaries' operations (except as set forth in the THCR Holdings Partnership
Agreement) and THCR otherwise has no current intention of paying dividends to
the holders of THCR Common Stock. In addition, the Plaza Mortgage Note
Indenture and the Senior Note Indenture contains, and the Taj Mortgage Note
Indenture will contain, certain covenants, including, without limitation,
covenants with respect to limitations on the payment of dividends, which
limitations would limit THCR's ability to obtain funds from THCR Holdings with
which to pay dividends. Pursuant to these indentures, there are restrictions
on the payment of dividends unless, among other things, (i) no default or
event of default has occurred and is continuing under the indenture, (ii)
certain entities meet certain consolidated financial ratios and (iii) the
total amount of the dividends does not exceed certain amounts specified in the
indentures. See "Business of THCR--Certain Indebtedness of THCR" and
"Description of the THCR Holdings Partnership Agreement."
TAJ HOLDING
As of January 9, 1996, the Taj Holding Class A Common Stock was held by 372
holders of record. The Taj Holding Class A Common Stock is not listed on any
national securities exchange nor quoted in the over-the-counter market, no
established "bid" and "ask" price is available and there is currently no
established trading market for the Taj Holding Class A Common Stock. Hamilton
Partners, L.P. has informed Taj Holding that on December 28, 1995 it sold all
of its 385,736 shares of Taj Holding Class A Common Stock to Prudential
Securities, Inc. Taj Holding is not aware of any other recent transfers of Taj
Holding Class A Common Stock.
205
<PAGE>
Taj Holding has never paid a dividend to its stockholders, and in the event
that the Merger Transaction is not consummated, Taj Holding does not
anticipate paying a dividend in the foreseeable future. The payment of any
future dividends will be determined by the Taj Holding Board of Directors in
light of conditions then existing, including, the financial condition of Taj
Holding, restrictions in financing agreements, business conditions and other
factors. See "Risk Factors--Restrictions on Certain Activities." The ability
of Taj Holding to make distributions is restricted by the Bond Indenture,
which contains restrictions on the ability of Taj Associates to make
distributions to its partners.
Each share of Taj Holding Class B Common Stock trades, together with $1,000
principal amount of Bonds, as a Unit. The Taj Holding Class B Common Stock may
not trade separately from the Unit. The Unit is traded on the American Stock
Exchange ("Amex") under the symbol "TAJA.A." The following table reflects the
high and low sales prices of the Units expressed per $100 principal amount of
Bonds, as reported by the Amex.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
1993
- ----
First quarter................................................. $ 91 $80 5/8
Second quarter................................................ $ 95 1/2 $86
Third quarter................................................. $100 $94 1/8
Fourth quarter................................................ $104 $97 5/8
1994
- ----
First quarter................................................. $105 1/2 $99
Second quarter................................................ $100 $79 3/4
Third quarter................................................. $ 80 1/2 $65
Fourth quarter................................................ $ 69 3/8 $61 3/8
1995
- ----
First quarter................................................. $ 76 1/2 $66
Second quarter................................................ $ 83 $71
Third quarter................................................. $ 89 3/4 $79
Fourth quarter................................................ $ 96 1/2 $85
1996
- ----
First quarter (through January 9, 1996)....................... $ 99 3/4 $96 1/8
</TABLE>
The reported closing sale price of the Units (expressed per $100 of
principal amount of Bonds) on the Amex on January 8, 1996 the last full day of
trading prior to the announcement of the Merger Transaction, was $98. As of
January 9, 1996, there were 780,242 Units outstanding (corresponding to
780,242 shares of Taj Holding Class B Common Stock and $780,242,000 aggregate
principal amount of Bonds) held by approximately 450 record holders.
All the shares of Taj Holding Class C Common Stock are beneficially owned by
Trump. No established trading market exists for the Taj Holding Class C Common
Stock, and no shares of Taj Holding Class C Common Stock have been transferred
since their issuance to Trump.
The Taj Holding Certificate of Incorporation provides that holders of Taj
Holding Class B Common Stock and Taj Holding Class C Common Stock are not
entitled to the payment of dividends. However, if a stock distribution or
stock dividend or other reclassification of the Taj Holding Class A Common
Stock occurs, an equivalent distribution, stock dividend or other
reclassification of the Taj Holding Class C Common Stock will be made such
that the total number of issued and outstanding shares of Taj Holding Class C
Common Stock is the same as the total number of issued and outstanding shares
of Taj Holding Class A Common Stock.
206
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Federal income tax consequences of the Merger Transaction are complex.
The following summary does not discuss all aspects of United States federal
income taxation that may be relevant to a particular holder of Taj Holding
Class A Common Stock or holder of Taj Holding Class B Common Stock and Bonds
in light of such holder's particular circumstances and income tax situation.
Each holder should consult such holder's tax adviser as to the specific tax
consequences to the holder of the Merger Transaction, including the
application and effect of state, local, foreign and other tax laws.
THE MERGER
The Merger is anticipated to be a taxable event for holders of Taj Holding
Class A Common Stock. A holder will recognize gain or loss equal to the
difference between the holder's adjusted basis in the Taj Holding Class A
Common Stock and the amount of Merger Consideration received in exchange for
such stock. Such gain or loss will be treated as a capital gain or loss if the
Taj Holding Class A Common Stock was held as a capital asset and will be a
long-term capital gain or loss if the holding period for such stock exceeded
one year. If the holder of Taj Holding Class A Common Stock elects to receive
Stock Consideration, the holder's initial basis in the THCR Common Stock
received will be equal to its fair market value and the holding period in the
THCR Common Stock will begin on the day following the date of receipt of the
THCR Common Stock.
REDEMPTION OF THE BONDS
The redemption of the Bonds will be taxable for federal income tax purposes.
A holder will recognize gain or loss measured by the difference between the
redemption price of the Bonds and the holder's adjusted issue price of the
Bonds. Subject to the market discount rules discussed in the next paragraph,
such gain or loss will be a capital gain or loss if the Bonds were held as
capital assets by the holder and will be a long-term capital gain or loss if
the holding period for the Bonds is in excess of one year.
Holders who purchased Bonds for a purchase price that was less than the
Bonds' stated redemption price at maturity may realize ordinary income upon
the redemption of the Bonds. The Internal Revenue Code of 1986, as amended
(the "Code"), generally requires holders of "market discount bonds" to treat
as ordinary income any gain realized on the disposition of such bonds to the
extent of the market discount accrued during the holder's period of ownership
(as determined in accordance with the method chosen by the holder under the
Code). A "market discount bond" is a debt obligation purchased at or after the
original issue at a price below the stated redemption price at maturity. In
the case of a bond, such as the Bonds, with original issue discount ("OID"),
the stated redemption price at maturity is treated as equal to its adjusted
issue price. The accrued market discount generally equals a ratable portion of
the bond's market discount determined by the number of days the taxpayer has
held the bond at the time of disposition and expressed as a percentage of the
number of days from the date of purchase to the bond's maturity date. A holder
of a market discount bond may elect to include market discount in income as it
accrues and, thus, will avoid recognizing market discount at disposition.
To the extent a portion of the redemption price of the Bonds represents
accrued and unpaid interest, a holder of a Bond will (i) increase the adjusted
issue price of the Bond by the amount of the redemption payment that
constitutes accrued OID and (ii) report as ordinary income the portion of the
payment, if any, that represents "qualified stated interest," as defined in
the Code, in accordance with the holder's method of accounting.
REDEMPTION OF THE TAJ HOLDING CLASS B COMMON STOCK
The redemption of the Taj Holding Class B Common Stock will be taxable under
the Code. Each holder will recognize gain or loss equal to the difference
between the amount of the holder's adjusted basis in the Taj Holding Class B
Common Stock and the cash redemption amount received for the stock. Such gain
or loss will be a capital gain or loss if the stock was held as a capital
asset and will be a long-term capital gain or loss if the holding period
exceeds one year.
207
<PAGE>
BACKUP WITHHOLDING
Holders of Taj Holding Class A Common Stock and holders of Taj Holding Class
B Common Stock and Bonds may be subject to backup withholding at the rate of
31% with respect to reportable payments of (i) interest or OID accrued with
respect to the Bonds or (ii) Merger Consideration received in exchange for the
Taj Holding Class A Common Stock or the cash proceeds received in connection
with the redemption of the Bonds or the Taj Holding Class B Common Stock. A
holder will be exempt from backup withholding if the holder is a corporation
or comes within certain other exempt categories and, when required,
demonstrates that fact, or provides a correct taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with the applicable requirements of the backup withholding rules.
Amounts paid as backup withholding do not constitute an additional tax and are
allowable as a credit against the holder's federal income tax liability.
Holders of Taj Holding Class A Common Stock and holders of Taj Holding Class B
Common Stock and Bonds should consult their tax advisers as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
208
<PAGE>
SPECIAL TAX CONSIDERATIONS FOR FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of non-resident
alien individuals, foreign corporations, foreign partnerships and foreign
trusts and estates (collectively, "Non-U.S. Shareholders") are complex, and
the following discussion is intended only as a summary of such rules.
Prospective Non-U.S. Shareholders should consult with their own tax advisers
to determine the impact of federal, state and local income tax laws on an
investment in THCR, including any reporting requirements, as well as the tax
treatment of such an investment under their home country laws.
In general, Non-U.S. Shareholders will be subject to regular United States
federal income tax with respect to their investment in THCR if such investment
is "effectively connected" with the Non-U.S. Shareholder's conduct of a trade
or business in the United States. A corporate Non-U.S. Shareholder that
receives income or gain from the sale or disposition of THCR Common Stock that
is (or is treated as) effectively connected with the conduct of a United
States trade or business may also be subject to the branch profits tax under
Section 884 of the Code, which is payable in addition to regular United States
corporate income tax. The following discussion will apply to Non-U.S.
Shareholders whose investment in THCR is not so effectively connected. THCR
expects to withhold United States federal income tax, as described below, on
the gross amount of any distributions paid to a Non-U.S. Shareholder unless
(i) a lower treaty rate applies and the required form evidencing eligibility
for that reduced rate is filed with THCR or (ii) the Non-U.S. Shareholder
files an IRS Form 4224 with THCR, claiming that the distribution is
"effectively connected" income.
DIVIDENDS
Generally, dividends paid by THCR will be subject to a United States
withholding tax equal to 30% of the gross amount of the distribution unless
such tax is reduced or eliminated by an applicable tax treaty. A distribution
of cash in excess of THCR's earnings and profits will be treated first as a
return of capital that will reduce a Non-U.S. Shareholder's basis in its
shares of THCR's stock (but not below zero) and then as gain from the
disposition of such shares, the tax treatment of which is described under the
rules discussed below with respect to dispositions of shares. A Non-U.S.
Shareholder will have to file refund claims to obtain a refund of tax withheld
on distributions in excess of the dividend portion of any distribution.
GAIN ON DISPOSITION
A Non-U.S. Shareholder will generally not be subject to United States
federal income tax on gain recognized on a sale or other disposition of THCR
Common Stock unless (i) as noted above, the gain is effectively connected with
the conduct of a trade or business within the United States by the Non-U.S.
Shareholder, (ii) in the case of a Non-U.S. Shareholder who is a nonresident
alien individual and holds the Common Stock as a capital asset, such holder is
present in the United States for 183 or more days in the taxable year and
certain other requirements are met or (iii) the Non-U.S. Shareholder is
subject to tax under the United States real property holding company rules
discussed below.
THCR may be, or may subsequently become, a United States real property
holding company for United States federal income tax purposes because of its
ownership of substantial real estate assets in the United States. If THCR were
to be treated as a United States real property holding Company, then a Non-
U.S. Shareholder who holds, directly or indirectly, more than 5% of the THCR
Common Stock will be subject to United States Federal income taxation on any
gain realized from the sale or exchange of such stock, unless an exemption is
provided under an applicable treaty.
FEDERAL ESTATE TAXES
THCR Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for United States federal estate tax
purposes) of the United States at the date of death will be included in such
individual's estate for United States federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
209
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally
not apply to dividends paid on THCR Common Stock to a Non-U.S. Shareholder at
an address outside the United States. Payments by a United States office of a
broker of the proceeds of a sale of THCR Common Stock is subject to both
backup withholding at a rate of 31% and information reporting unless the
holder certifies its Non-U.S. Shareholder status under penalties of perjury or
otherwise establishes an exemption. Information reporting requirements (but
not backup withholding) will also apply to payments of the proceeds of sales
of THCR Common Stock by foreign offices of United States brokers or foreign
brokers with certain types of relationships to the United States, unless the
broker has documentary evidence in its records that the holder is a Non-U.S.
Shareholder and certain other conditions are met, or the holder otherwise
establishes an exemption.
Any amounts withheld under the backup withholding rules will be refunded or
credited against the Non-U.S. Shareholder's United States federal income tax
liability, provided that the required information is furnished to the Internal
Revenue Service.
These information reporting and backup withholding rules are under review by
the United States Treasury and their application to THCR Common Stock could be
changed by future regulations.
210
<PAGE>
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders of THCR wishing to include proposals in the proxy material for
the next Annual Meeting of THCR must submit the same in writing so as to be
received at the executive offices of THCR on or before , 1996. Such
proposals must also meet the other requirements of the rules of the SEC
relating to stockholders' proposals and the requirements set forth in the THCR
Certificate of Incorporation and THCR By- Laws.
Stockholders of Taj Holding wishing to include proposals in the proxy
material for the next Annual Meeting of Taj Holding (assuming the Merger is
not consummated prior to such meeting, which will not be held if the Merger is
consummated prior to the scheduled date for such Annual Meeting) must submit
the same in writing so as to be received at the executive offices of Taj
Holding on or before , 1996. Such proposals must also meet the other
requirements of the rules of the SEC relating to stockholders' proposals and
the requirements set forth in the Taj Holding Certificate of Incorporation and
Taj Holding By-Laws.
LEGAL MATTERS
Certain legal matters, including certain tax matters, in connection with the
securities offered hereby are being passed upon for THCR by Willkie Farr &
Gallagher, New York, New York.
The statements as to matters of law and legal conclusions concerning New
Jersey gaming laws included under the captions "Risk Factors--Strict
Regulation by Gaming Authorities," and "Regulatory Matters" (other than the
subcaptions "Antitrust Regulations" and "Other Laws and Regulations") have
been prepared by Sterns & Weinroth, Trenton, New Jersey, gaming counsel for
THCR and Taj Holding. Sterns & Weinroth offers no opinion and does not purport
to opine on the application of federal securities laws and regulations or the
securities laws and regulations of any state with respect to the securities
offered hereby.
The statements as to matters of law and legal conclusions concerning Indiana
gaming laws included under the captions "Risk Factors--Strict Regulation by
Gaming Authorities" and "Regulatory Matters" (other than the subcaptions
"Antitrust Regulations" and "Other Laws and Regulations") have been prepared
by Tabbert Hahn & Zanetis, P.C., Indianapolis, Indiana, gaming counsel for
THCR. Tabbert Hahn & Zanetis, P.C. offers no opinion and does not purport to
opine on the application of federal securities laws and regulations or the
securities laws and regulations of any state with respect to the securities
offered hereby.
EXPERTS
The audited financial statements of Trump Hotels & Casino Resorts, Inc.,
Trump Plaza Holding Associates and Trump Plaza Associates, Trump Taj Mahal
Associates and Subsidiary, and Taj Mahal Holding Corp. included in this Proxy
Statement-Prospectus and elsewhere in the Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance
upon the authority of said firm as experts in giving said reports.
211
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Trump Hotels & Casino Resorts, Inc.
Report of Independent Public Accountants................................ F-3
Balance Sheet as of March 29, 1995...................................... F-4
Notes to Balance Sheet.................................................. F-5
Trump Plaza Holding Associates and Trump Plaza Associates
Report of Independent Public Accountants................................ F-9
Consolidated Balance Sheet as of December 31, 1993 and 1994............. F-10
Consolidated Statements of Operations for the years ended December 31,
1992, 1993
and 1994............................................................... F-11
Consolidated Statements of Capital (Deficit) for the years ended
December 31, 1992, 1993
and 1994............................................................... F-12
Consolidated Statements of Cash Flows for the years ended December 31,
1992, 1993
and 1994............................................................... F-13
Notes to Consolidated Financial Statements.............................. F-14
Trump Hotels & Casino Resorts, Inc.
Condensed Consolidated Balance Sheet as of September 30, 1995
(unaudited)............................................................ F-25
Condensed Consolidated Statements of Operation for the period from
Inception (June 12, 1995) to September 30, 1995 (unaudited)............ F-26
Condensed Consolidated Statement of Capital (Deficit) for the period
from Inception (June 12, 1995) to September 30, 1995 (unaudited)....... F-27
Condensed Consolidated Statement of Cash Flows for the period from
Inception (June 12, 1995) to September 30, 1995 (unaudited)............ F-28
Notes to Condensed Consolidated Financial Statements (unaudited)........ F-29
Trump Plaza Holding Associates and Trump Plaza Associates
Condensed Consolidated Balance Sheet as of December 31, 1994 and
September 30, 1995 (unaudited)......................................... F-35
Condensed Consolidated Statements of Operations for the Nine Months
Ended September 30, 1994 and 1995 (unaudited).......................... F-36
Condensed Consolidated Statement of Capital (Deficit) for the Nine
Months Ended September 30, 1995 (unaudited)............................ F-37
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1994 and 1995 (unaudited).......................... F-38
Notes to Condensed Consolidated Financial Statements (unaudited)........ F-39
Trump Taj Mahal Associates and Subsidiary
Report of Independent Public Accountants................................ F-42
Consolidated Balance Sheet as of December 31, 1993 and 1994............. F-43
Consolidated Statements of Operations for the years ended December 31,
1992, 1993 and 1994.................................................... F-44
Consolidated Statements of Capital (Deficit) for the years ended Decem-
ber 31, 1992, 1993
and 1994............................................................... F-45
Consolidated Statements of Cash Flows for the years ended December 31,
1992, 1993
and 1994............................................................... F-46
Notes to Consolidated Financial Statements.............................. F-47
Taj Mahal Holding Corp. and Subsidiary
Report of Independent Public Accountants................................ F-56
Consolidated Balance Sheet as of December 31, 1993 and 1994............. F-57
Consolidated Statement of Operations for the years ended December 31,
1992, 1993 and 1994.................................................... F-58
Consolidated Statement of Stockholders' Equity for the years ended De-
cember 31, 1992, 1993
and 1994............................................................... F-59
Consolidated Statements of Cash Flows for the years ended December 31,
1992, 1993 and 1994.................................................... F-60
Notes to Consolidated Financial Statements.............................. F-61
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Trump Taj Mahal Associates and Subsidiary
Condensed Consolidated Balance Sheet as of December 31, 1994 and Septem-
ber 30, 1995 (unaudited)............................................... F-64
Condensed Consolidated Statements of Operations for the nine months
ended September 30, 1994 and 1995 (unaudited).......................... F-65
Condensed Consolidated Statement of Capital (Deficit) for the nine
months ended September 30, 1995 (unaudited)............................ F-66
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1994 and 1995 (unaudited).......................... F-67
Notes to Condensed Consolidated Financial Statements (unaudited)........ F-68
Taj Mahal Holding Corp. and Subsidiary
Condensed Consolidated Balance Sheet as of December 31, 1994 and Septem-
ber 30, 1995 (unaudited)............................................... F-72
Condensed Consolidated Statements of Operations for the nine months
ended September 30, 1994 and 1995 (unaudited).......................... F-73
Condensed Consolidated Statements of Stockholders' Equity for the nine
months ended
September 30, 1995 (unaudited)......................................... F-74
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1994 and 1995 (unaudited).......................... F-75
Notes to Condensed Consolidated Financial Statements (unaudited)........ F-76
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trump Hotels & Casino Resorts, Inc.:
We have audited the accompanying balance sheet of Trump Hotels & Casino
Resorts, Inc. (a Delaware Corporation) as of March 29, 1995 (parent company
only). This balance sheet is the responsibility of the management of Trump
Hotels & Casino Resorts, Inc. Our responsibility is to express an opinion on
this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Trump Hotels & Casino Resorts,
Inc. as of March 29, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Roseland, New Jersey
May 5, 1995 (except with respect
to the matter discussed in Note
5, as to which the date is
January 8, 1996)
F-3
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
BALANCE SHEET
MARCH 29, 1995
(PARENT COMPANY ONLY)
ASSETS
<TABLE>
<S> <C>
Cash...................................................................... $101
Investment in Trump Hotels & Casino Resorts Holdings, L.P................. 199
----
Total Assets............................................................ $300
====
LIABILITIES AND SHAREHOLDER'S EQUITY
Commitments and Contingencies
Common Stock, $.01 par value, 1,000 shares authorized, 100 shares issued
and outstanding.......................................................... $300
----
Total Shareholder's Equity.............................................. 300
----
Total Liabilities and Shareholder's Equity.............................. $300
====
</TABLE>
The accompanying notes to balance sheet are an integral part of this balance
sheet.
F-4
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
NOTES TO BALANCE SHEET
MARCH 29, 1995
(1) ORGANIZATION AND OPERATIONS
The accompanying balance sheet is that of Trump Hotels & Casino Resorts, Inc.
("THCR") (parent company only). Trump Hotels & Casino Resorts Holdings, L.P.
("THCR Holdings") is owned 99% by THCR as general partner and 1% by Donald J.
Trump ("Trump") as a limited partner and Trump Hotels & Casino Resorts Funding,
Inc. ("THCR Funding") is a wholly owned subsidiary of THCR Holdings.
THCR was formed on March 29, 1995 to own and operate the Trump Plaza Hotel
and Casino ("Trump Plaza"), a luxury casino hotel located on The Boardwalk in
Atlantic City, New Jersey, and a riverboat gaming facility currently under
development at Buffington Harbor, Indiana (the "Indiana Riverboat"). THCR,
through THCR Holdings and its subsidiaries, intends to be the exclusive vehicle
through which Trump will engage in new gaming activities in emerging or
established gaming jurisdictions.
THCR Holdings and THCR Funding were formed on March 29, 1995 to raise funds
through the issuance and sale of debt securities for the benefit of Trump Plaza
and the Indiana Riverboat. As of March 29, 1995, they had no assets or
operations other than their initial capitalization.
As of March 29, 1995, all of THCR's common stock (the "THCR Common Stock")
was owned by Donald J. Trump and it had no assets or operations other than its
initial capitalization and its investment in THCR Holdings. Upon consummation
of the proposed public offerings (Note 2), THCR Holdings will beneficially own
100% of Trump Plaza and the Indiana Riverboat, as well as Trump's interests in
other gaming jurisdictions. As of March 29, 1995, each of these operations and
interests was beneficially owned by Trump. Upon consummation of the proposed
public offerings (Note 2), Trump will own an interest in these operations
through a limited partnership interest in THCR Holdings as well as THCR's Class
B Common Stock (the "THCR Class B Common Stock").
The operating companies that will be owned by THCR and THCR Holdings will
have a substantial amount of indebtedness. The ability of these entities to
service such debt will be entirely dependent upon their ability to generate
cash flow from operations. Other than Trump Plaza, each of the potential gaming
operations is in the development stage and has had limited or no site
construction. THCR's proposed operations in these jurisdictions are subject to
all of the many risks inherent in the establishment of a new business
enterprise, including unanticipated construction, permitting, licensing or
operating problems associated with the facilities as well as the ability of
THCR to market a new venture in a new gaming jurisdiction. In addition, gaming
operations in all jurisdictions are subject to strict regulatory licensing and
operating controls, as well as commitments for taxes, licensing fees and
investment obligations. Failure to maintain or obtain the requisite casino
licenses would have a material adverse effect on THCR. For additional
information, see the "Risk Factors" section of the Proxy Statement-Prospectus.
(2) PROPOSED PUBLIC OFFERINGS
THCR, THCR Holdings and THCR Funding have filed registration statements for
the offering and sale of THCR Common Stock for gross proceeds of $150 million,
as well as $140 million of Senior Secured Notes (the "June 1995 Offerings").
The proceeds from the June 1995 Offerings are intended to be used to develop
the gaming operations described in Note 1 as well as to repurchase or redeem
certain indebtedness of Trump Plaza.
In connection with the contribution by Trump of his beneficial ownership in
Trump Plaza Funding, Inc. ("Plaza Funding"), Trump Plaza Holding Associates
("Plaza Holding") and Trump Plaza Associates ("Plaza Associates") as well as
his investments in other gaming jurisdictions to THCR Holdings, Trump will
receive shares of THCR Class B Common Stock. The THCR Class B Common Stock will
vote with the THCR Common Stock on all matters submitted to stockholders of
THCR for a vote or in respect of which consents are solicited. The number of
votes represented by the THCR Class B Common Stock will be equal to the number
of shares of THCR Common Stock that could be acquired by Trump and his
affiliates upon
F-5
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
NOTES TO BALANCE SHEET--(CONTINUED)
MARCH 29, 1995
conversion of interests in THCR Holdings then held by such persons into shares
of THCR Common Stock. The THCR Class B Common Stock is intended to provide
Trump with a voting interest in THCR which is proportionate to his equity
interest in THCR Holdings assets. The THCR Class B Common Stock will have no
right to receive any dividend or other distribution in respect of the equity
of THCR. In addition, Trump has agreed to waive any state law rights to vote
the THCR Class B Common Stock as a class in the event of a merger or sale of
substantial assets.
(3) STOCK INCENTIVE PLAN
In connection with the June 1995 Offerings, the Board of Directors of THCR
(the "Board of Directors") will adopt the 1995 Stock Incentive Plan (the "1995
Stock Plan"). Pursuant to the 1995 Stock Plan, directors, employees and
consultants of THCR and certain of its subsidiaries and affiliates who have
been selected as participants are eligible to receive awards of various forms
of equity-based incentive compensation, including stock options, stock
appreciation rights, stock bonuses, restricted stock awards, performance units
and phantom stock, and awards consisting of combinations of such incentives.
The 1995 Stock Plan is administered by a committee appointed by the Board of
Directors (the "Stock Incentive Plan Committee"). Subject to the provisions of
the 1995 Stock Plan, the Stock Incentive Plan Committee has sole discretionary
authority to interpret the 1995 Stock Plan and to determine the type of awards
to grant, when, if and to whom awards are granted, the number of shares
covered by each award and the terms and conditions of the award.
Options granted under the 1995 Stock Plan may be "incentive stock options"
("ISOs"), within the meaning of Section 422 of the Internal Revenue Code, or
nonqualified stock options ("NQSOs"). The exercise price of the options is
determined by the Stock Incentive Plan Committee when the options are granted,
subject to a minimum price in the case of ISOs of the Fair Market Value (as
defined in the 1995 Stock Plan) of the THCR Common Stock on the date of grant
and a minimum price in the case of NQSOs of the par value of the THCR Common
Stock. In the discretion of the Stock Incentive Plan Committee, the option
exercise price may be paid in cash or in shares of THCR Common Stock or other
property having a fair market value on the date of exercise equal to the
option exercise price, or by delivering to THCR a copy of irrevocable
instructions to a stockholder to deliver promptly to THCR an amount of sale or
loan proceeds sufficient to pay the exercise price. If provided by the Stock
Incentive Plan Committee in an underlying stock option agreement, in the event
of a Change of Control (as defined in the 1995 Stock Plan), all options
subject to such agreement will be fully exercisable.
The 1995 Stock Plan permits the Stock Incentive Plan Committee to grant
stock appreciation rights ("SARs"). An SAR granted as an alternative or a
supplement to a related stock option will entitle its holder to be paid an
amount equal to the fair market value of the THCR Common Stock subject to the
SAR on the date of exercise of the SAR, less the exercise price of the related
stock option or such other price as the Stock Incentive Plan Committee may
determine at the time of the grant of the SAR (which may not be less than the
lowest price which the Stock Incentive Plan Committee may determine under the
1995 Stock Plan for such stock option). Shares of THCR Common Stock covered by
a restricted stock award will be issued to the recipient at the time the award
is granted, but will be subject to forfeiture in the event continued
employment and/or restrictions and conditions established by the Stock
Incentive Plan Committee at the time the award is granted are not satisfied.
Unless otherwise determined by the Stock Incentive Plan Committee, a recipient
of a restricted stock award will have the same rights as an owner of THCR
Common Stock, including the right to receive cash dividends and to vote the
shares. A performance unit or phantom stock award will provide for the future
payment of cash or the issuance of shares of THCR Common Stock to the
recipient if continued
F-6
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
NOTES TO BALANCE SHEET--(CONTINUED)
MARCH 29, 1995
employment and/or other performance objectives established by the Stock
Incentive Plan Committee at the time of grant are attained. The 1995 Stock Plan
also provides for the grant of stock bonus awards, restricted stock awards and
performance unit awards, which may be settled in cash, in the discretion of the
Stock Incentive Plan Committee and if indicated in the applicable award
agreement, on each date on which shares of THCR Common Stock covered by the
awards would otherwise have been delivered or become unrestricted, in an amount
equal to the fair market value of such shares on such date.
THCR has reserved 1,000,000 shares of THCR Common Stock for issuance under
the 1995 Stock Plan.
In connection with the June 1995 Offerings, the Stock Incentive Plan
Committee intends to grant the following awards to Nicholas L. Ribis under the
1995 Stock Plan: (a) a Stock bonus award of 66,667 shares of THCR Common Stock,
which will be fully vested when issued, (b) a phantom stock unit award of
66,666 units, entitling Mr. Ribis to receive 66,666 shares of THCR Common Stock
two years following such award, subject to certain conditions and (c) an award
of NQSOs entitling Mr. Ribis to purchase 133,333 shares of THCR Common Stock,
subject to certain conditions (including vesting at a rate of 20% per year over
a five-year period). The options will have an exercise price equal to the price
at which THCR Common Stock is sold to the public in the Offerings.
(4) EMPLOYMENT ARRANGEMENTS
Trump will serve as the Chairman of the Board of Directors of THCR pursuant
to an Executive Agreement to be entered into between Trump and THCR Holdings
upon consummation of the June 1995 Offerings (the "Trump Executive Agreement").
In consideration for Trump's services under the Trump Executive Agreement,
which has no fixed term, Trump will receive a salary of $1 million per year.
Plaza Associates currently has an employment agreement with Nicholas L. Ribis
pursuant to which Mr. Ribis acts as Chief Executive Officer of Plaza
Associates. The agreement, which expires on September 25, 1996, provides for an
annual salary of $550,000 with annual increases of 10% on each anniversary. Mr.
Ribis' current annual salary under the agreement is $605,000. Mr. Ribis
received a $250,000 signing bonus. THCR Holdings intends to enter into a
revised employment agreement with Mr. Ribis to replace the existing agreement,
pursuant to which he will agree to serve as chief executive officer of THCR and
THCR Holdings. The term of the employment agreement will be for five years and
Mr Ribis will be required to devote the majority of his professional time to
the affairs of THCR. Mr. Ribis' annual salary will be $907,500.
(5) SUBSEQUENT EVENTS
On January 8, 1996, THCR, Taj Mahal Holding Corp. ("Taj Holding") and THCR
Merger Corp. ("Merger Sub") entered into the Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which Merger Sub will merge with and into Taj
Holding (the "Merger"). The Merger Agreement provides that each outstanding
share of Class A Common Stock of Taj Holding (the "Taj Holding Class A Common
Stock") will be converted into the right to receive, at each holder's election,
either (a) $30.00 in cash or (b) that number of shares of THCR Common Stock as
shall have a market value equal to $30.00. The Merger Agreement also
contemplates the following transactions occurring in connection with the
Merger:
(a) the consummation of the offering by THCR of up to $140,000,000 of THCR
Common Stock (and an amount to be issued pursuant to the underwriters' over-
allotment option) (the "THCR Stock Offering") and the offering by Trump Taj
Mahal Funding, Inc. ("Taj Funding") of up to $750,000,000 aggregate
principal amount of debt securities, the aggregate net proceeds of which
will be used, together with available cash of Taj Mahal Associates ("Taj
Associates"), to (i) pay cash to those holders of Taj Holding Class A Common
Stock electing to receive cash in the Merger, (ii) redeem Taj Funding's
outstanding 11.35% Mortgage Bonds, Series A due 1999 (the "Bonds"), (iii)
redeem the outstanding
F-7
<PAGE>
shares of Class B Common Stock, par value $.01 per share, of Taj Holding as
required in connection with the redemption of the Bonds pursuant to the
Amended and Restated Certificate of Incorporation of Taj Holding, (iv)
purchase certain real property adjacent to the Trump Taj Mahal Casino Resort
that is currently leased from Trump Taj Mahal Realty Corp., a corporation
wholly owned by Trump, and (v) make a payment to Bankers Trust to obtain
releases of the liens and guarantees that Bankers Trust has with respect to
Taj Associates;
(b) the contribution by Trump to THCR Holdings and Taj Mahal Holdings LLC
("Taj Holdings LLC"), a subsidiary of THCR Holdings, of all of his direct
and indirect ownership interests in Taj Associates; and
(c) the contribution by THCR to THCR Holdings and Taj Holdings LLC of all
of its indirect ownership interests in Taj Associates acquired in the
Merger.
Existing and prospective investors should consider among other things, (i)
the high leverage and fixed charges of THCR and Taj Holding; (ii) the risk in
refinancing and repayment of indebtedness and the need for additional financing
(iii) the restrictions imposed on certain activities by certain debt
instruments (iv) the recent results of Trump Plaza and the Taj Mahal (v) risks
associated with the Trump Plaza Expansion, the Taj Mahal Expansion and the
Indiana Riverboat. There can be no assurance that the Trump Plaza Expansion or
the Taj Mahal Expansion will be completed or that the Indiana Riverboat or any
other gaming venture, will open or that any of THCR's or the Taj Mahal's
operations will be successful. See "Risk Factors" included elsewhere in this
Proxy Statement-Prospectus for a discussion of these and other factors.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trump Plaza Holding Associates and
Trump Plaza Associates:
We have audited the accompanying consolidated balance sheets of Trump Plaza
Holding Associates (a New Jersey general partnership) and Trump Plaza
Associates (a New Jersey general partnership) as of December 31, 1993 and 1994,
and the related consolidated statements of operations, capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1994.
These consolidated financial statements are the responsibility of the
management of Trump Plaza Holding Associates and Trump Plaza Associates. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trump Plaza Holding Associates
and Trump Plaza Associates as of December 31, 1993 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Roseland, New Jersey
February 18, 1995 (except with
respect to the matters discussed
in Note 10, as to which the date
is January 8, 1996)
F-9
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES AND TRUMP PLAZA ASSOCIATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
1993 1994
ASSETS ------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents...................... $ 14,393,000 $ 11,144,000
Trade receivables, net of allowances for
doubtful accounts of $10,616,000 and
$8,493,000, respectively...................... 6,759,000 6,685,000
Accounts receivable, other..................... 198,000 112,000
Inventories.................................... 3,566,000 3,657,000
Prepaid expenses and other current assets...... 2,701,000 4,280,000
------------- -------------
Total current assets......................... 27,617,000 25,878,000
------------- -------------
Property and Equipment (Notes 4, 6 and 8):
Land and land improvements..................... 35,613,000 36,463,000
Buildings and building improvements............ 295,617,000 297,573,000
Furniture, fixtures and equipment.............. 78,173,000 84,709,000
Leasehold improvements......................... 2,404,000 2,404,000
Construction in progress....................... 3,784,000 14,864,000
------------- -------------
415,591,000 436,013,000
Less--Accumulated depreciation and amortiza-
tion.......................................... (122,450,000) (137,659,000)
------------- -------------
Net property and equipment................... 293,141,000 298,354,000
------------- -------------
Land Rights, net of accumulated amortization of
$3,410,000 and $3,780,000, respectively......... 30,058,000 29,688,000
------------- -------------
Other Assets:
Deferred bond issuance costs, net of
accumulated amortization of $1,088,000 and
$3,270,000, respectively (Note 3)............. 16,254,000 14,125,000
Other Assets................................... 7,428,000 7,598,000
------------- -------------
Total other assets........................... 23,682,000 21,723,000
------------- -------------
Total assets................................. $ 374,498,000 $ 375,643,000
============= =============
LIABILITIES AND CAPITAL
Current Liabilities:
Current maturities of long-term debt (Note 3).. $ 1,633,000 $ 2,969,000
Accounts payable............................... 6,309,000 9,156,000
Accrued payroll................................ 5,806,000 4,026,000
Accrued interest payable (Note 3).............. 1,829,000 1,871,000
Due to affiliates, net (Note 8)................ 97,000 206,000
Other accrued expenses......................... 7,109,000 8,998,000
Other current liabilities...................... 5,330,000 4,602,000
Distribution payable to Trump Plaza Funding,
Inc........................................... 974,000 --
------------- -------------
Total current liabilities.................... 29,087,000 31,828,000
------------- -------------
Non-Current Liabilities:
Long-term debt, net of current maturities (Note
3)............................................ 395,948,000 403,214,000
Distribution payable to Trump Plaza Funding,
Inc........................................... 2,949,000 3,822,000
Deferred state income taxes.................... 1,224,000 359,000
------------- -------------
Total non-current liabilities................ 400,121,000 407,395,000
------------- -------------
Total liabilities............................ 429,208,000 439,223,000
------------- -------------
Commitments and Contingencies (Notes 4 and 6).... -- --
Capital (Deficit):
Partner's Deficit.............................. (78,772,000) (78,772,000)
Retained Earnings.............................. 24,062,000 15,192,000
------------- -------------
Total Capital (Deficit)...................... (54,710,000) (63,580,000)
------------- -------------
Total liabilities and capital................ $ 374,498,000 $ 375,643,000
============= =============
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated financial statements.
F-10
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES AND TRUMP PLAZA ASSOCIATES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Gaming............................. $265,448,000 $264,081,000 $261,451,000
Rooms.............................. 18,369,000 18,324,000 18,312,000
Food and Beverage.................. 43,889,000 41,941,000 40,149,000
Other.............................. 11,012,000 8,938,000 8,408,000
Trump Regency...................... 9,465,000 -- --
------------ ------------ ------------
Gross Revenues................... 348,183,000 333,284,000 328,320,000
Less-Promotional allowances........ 34,865,000 32,793,000 33,257,000
------------ ------------ ------------
Net Revenues..................... 313,318,000 300,491,000 295,063,000
------------ ------------ ------------
Costs and expenses:
Gaming............................. 146,328,000 136,895,000 139,540,000
Rooms.............................. 2,614,000 2,831,000 2,715,000
Food and Beverage.................. 18,103,000 18,093,000 17,050,000
General and Administrative......... 75,459,000 71,624,000 73,075,000
Depreciation and Amortization...... 15,842,000 17,554,000 15,653,000
Restructuring costs................ 5,177,000 -- --
Trump Regency...................... 11,839,000 -- --
Other.............................. 2,953,000 3,854,000 3,615,000
------------ ------------ ------------
278,315,000 250,851,000 251,648,000
------------ ------------ ------------
Income from operations........... 35,003,000 49,640,000 43,415,000
------------ ------------ ------------
Non-operating income (expense):
Interest income.................... 487,000 546,000 842,000
Interest expense (Note 3).......... (31,843,000) (40,435,000) (49,061,000)
Other non-operating expense (Note
5)................................ (1,462,000) (3,873,000) (4,931,000)
------------ ------------ ------------
Non-operating expense, net....... (32,818,000) (43,762,000) (53,150,000)
------------ ------------ ------------
Income (loss) before state income
taxes and extraordinary items... 2,185,000 5,878,000 (9,735,000)
Provision (benefit) for state income
taxes............................... (233,000) 660,000 (865,000)
------------ ------------ ------------
Income (loss) before extraordinary
items............................... 2,418,000 5,218,000 (8,870,000)
Extraordinary gain (loss) (Note 5)... (38,205,000) 4,120,000 --
------------ ------------ ------------
Net income (loss).................... $(35,787,000) $ 9,338,000 $ (8,870,000)
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated financial statements.
F-11
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES AND TRUMP PLAZA ASSOCIATES
CONSOLIDATED STATEMENTS OF CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
PARTNERS' RETAINED
CAPITAL EARNINGS TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1991........... $ 40,502,000 $ 13,541,000 $ 54,043,000
Net Loss............................. -- (35,787,000) (35,787,000)
Preferred Plaza Associates Interest
Distribution, Net................... (43,864,000) 36,970,000 (6,894,000)
------------ ------------ ------------
Balance, December 31, 1992........... (3,362,000) 14,724,000 11,362,000
Net Income........................... -- 9,338,000 9,338,000
Preferred Plaza Associates Interest
Distribution........................ (6,317,000) -- (6,317,000)
Distribution to Donald J. Trump to
repay certain personal indebtedness. (52,500,000) -- (52,500,000)
Distribution to Donald J. Trump to
redeem Trump Plaza Funding, Inc.
Preferred Stock Units............... (35,000,000) -- (35,000,000)
Conversion of Preferred Plaza Associ-
ates Interest into General Plaza As-
sociates Interest................... 18,407,000 -- 18,407,000
------------ ------------ ------------
Balance, December 31, 1993........... (78,772,000) 24,062,000 (54,710,000)
Net Loss............................. -- (8,870,000) (8,870,000)
------------ ------------ ------------
Balance, December 31, 1994........... $(78,772,000) $ 15,192,000 $(63,580,000)
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated financial statements.
F-12
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES AND TRUMP PLAZA ASSOCIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
1992 1993 1994
------------- ------------- ------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net Income (loss)................... $ (35,787,000) $ 9,338,000 $ (8,870,000)
Adjustments to reconcile net income
(loss) to net cash flows provided
by operating activities:
Noncash charges:
Extraordinary loss (gain)........ 38,205,000 (4,120,000) --
Depreciation and amortization of
property and equipment.......... 15,211,000 17,177,000 15,276,000
Accretion of discount on
indebtedness.................... -- 862,000 1,916,000
Amortization of other assets..... 631,000 377,000 377,000
Provision for losses on
receivables..................... 4,675,000 90,000 396,000
Deferred state income taxes...... (233,000) 729,000 (865,000)
Utilization of CRDA credits and
donations....................... 1,358,000 -- 1,062,000
Valuation allowance of CRDA
investments..................... 645,000 1,047,000 394,000
------------- ------------- ------------
24,705,000 25,500,000 9,686,000
Decrease (increase) in
receivables..................... 99,000 823,000 (236,000)
Increase in inventories.......... (167,000) (498,000) (91,000)
Increase in prepaid expenses and
other current assets............ (580,000) (199,000) (1,385,000)
(Increase) decrease in other
assets.......................... (828,000) 2,530,000 1,504,000
Increase in amounts due to
affiliates...................... 374,000 188,000 109,000
Increase (decrease) in accounts
payable, accrued expenses and
other current liabilities....... 2,588,000 (6,524,000) 10,464,000
Decrease in distribution payable
to Trump Plaza Funding, Inc..... -- -- (101,000)
------------- ------------- ------------
Net cash flows provided by
operating activities............ $ 26,191,000 $21,820,000 $19,950,000
------------- ------------- ------------
Cash flows from investing
activities:
Purchases of property and
equipment........................ $ (8,643,000) $ (10,052,000) $(20,489,000)
Purchases of CRDA investments..... (1,853,000) (2,823,000) (2,525,000)
Cash refund of CRDA deposits...... -- 196,000 1,323,000
------------- ------------- ------------
Net cash flows used in investing
activities....................... (10,496,000) (12,679,000) (21,691,000)
------------- ------------- ------------
Cash flows from financing
activities:
Deferred financing costs.......... -- (17,342,000) --
Distributions to Donald J. Trump.. -- (87,500,000) --
Distributions to Plaza Funding.... -- (40,000,000) --
Preferred Plaza Associates
Interest Distribution............ (2,324,000) (6,282,000) --
Borrowings........................ 251,575,000 386,147,000 375,000
Payments and current maturities of
long-term debt................... (256,618,000) (248,573,000) (1,883,000)
------------- ------------- ------------
Net cash flows used in financing
activities....................... (7,367,000) (13,550,000) (1,508,000)
------------- ------------- ------------
Net increase (decrease) in cash
and cash equivalents........... 8,328,000 (4,409,000) (3,249,000)
Cash and cash equivalents at
beginning of year.................. 10,474,000 18,802,000 14,393,000
------------- ------------- ------------
Cash and cash equivalents at end of
year............................... $ 18,802,000 $ 14,393,000 $ 11,144,000
============= ============= ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated financial statements.
F-13
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES
AND TRUMP PLAZA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
The accompanying financial statements include those of Trump Plaza Holding
Associates ("Plaza Holding"), a New Jersey general partnership, and its 99%
owned subsidiary, Trump Plaza Associates ("Plaza Associates"), a New Jersey
general partnership, which owns and operates Trump Plaza Hotel and Casino
("Trump Plaza") located in Atlantic City, New Jersey. Trump Plaza Funding, Inc.
("Plaza Funding"), a New Jersey corporation, owns the remaining 1% interest in
Plaza Associates. Plaza Holding's sole source of liquidity is distributions in
respect of its interest in Plaza Associates.
All significant intercompany balances and transactions have been eliminated
in the accompanying consolidated financial statements. The minority interest in
Plaza Associates has not been separately reflected in the consolidated
financial statements of Plaza Holding since it is not material.
Plaza Funding was incorporated on March 14, 1986 and was originally formed
solely to raise funds through the issuance and sale of its debt securities for
the benefit of Plaza Associates. As part of a Prepackaged Plan of
Reorganization under Chapter 11 of the U.S. Bankruptcy Code consummated on
May 29, 1992, Plaza Funding became a partner of Plaza Associates and issued
approximately three million Stock Units, each comprised of one share of
Preferred Stock and one share of Common Stock of Plaza Funding. On June 25,
1993, the Stock Units were redeemed with a portion of the proceeds of Plaza
Funding's 10 7/8% Mortgage Notes due 2001 (the "Plaza Mortgage Notes") as well
as Plaza Holding's Stock Units.
Plaza Holding was formed in February, 1993 for the purpose of raising funds
for Plaza Associates. On June 25, 1993, Plaza Holding completed the sale of
12,000 Units (the "Units"), each Unit consisting of $5,000 principal amount of
12 1/2% Pay-In-Kind Notes, due 2003 (the "PIK Notes"), and one PIK Note Warrant
(the "PIK Note Warrant") to acquire $1,000 principal amount of PIK Notes. The
PIK Notes and the PIK Note Warrants are separately transferable. Plaza Holding
has no other assets or business other than its 99% equity interest in Plaza
Associates.
Plaza Associates was organized in June 1982. Prior to the date of the
consummation of the Offerings, Plaza Associates three partners were TP/GP Inc.
("Trump Plaza/GP"), the managing general partner of Plaza Associates, Plaza
Funding and Donald J. Trump ("Trump"). On June 25, 1993, Trump contributed his
interest in Trump Plaza/GP to Plaza Funding and Trump Plaza/GP merged with and
into Plaza Funding. Plaza Funding then became the managing general partner of
Plaza Associates. In addition, Trump contributed his interest in Plaza
Associates to Plaza Holding, and Plaza Funding and Plaza Holding, each of which
are wholly owned by Trump, became the sole partners of Plaza Associates.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GAMING REVENUES AND PROMOTIONAL ALLOWANCES
Gaming revenues represent the net win from gaming activities which is the
difference between amounts wagered and amounts won by patrons. The retail value
of accommodations, food, beverage and other services provided to customers
without charge is included in gross revenue and deducted as promotional
allowances. The estimated departmental costs of providing such promotional
allowance are included in gaming costs and expenses as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
(IN THOUSANDS)
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Rooms.......................................... $ 4,804 $ 4,190 $ 4,311
Food and Beverage.............................. 14,982 14,726 15,373
Other.......................................... 3,884 3,688 4,169
-------- -------- --------
$ 23,670 $ 22,604 $ 23,853
======== ======== ========
</TABLE>
F-14
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES
AND TRUMP PLAZA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
During 1992 and 1994, certain Progressive Slot Jackpot Programs were
discontinued which resulted in $4,100,000 and $585,000, respectively, of
related accruals being taken into income.
INVENTORIES
Inventories of provisions and supplies are carried at the lower of cost
(weighted average) or market.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost and is depreciated on the straight-
line method using rates based on the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and building improvements........................... 40 years
Furniture, fixtures and equipment............................. 3-10 years
Leasehold improvements........................................ 10-40 years
</TABLE>
Interest associated with borrowings used to finance construction projects has
been capitalized and is being amortized over the estimated useful lives of the
assets.
LAND RIGHTS
Land rights represent the fair value of such rights, at the time of
contribution to Plaza Associates by the Trump Plaza Corporation, an affiliate
of Plaza Associates. These rights are being amortized over the period of the
underlying operating leases which extend through 2078.
INCOME TAXES
Plaza Funding, Plaza Holding and Plaza Associates adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"), effective January 1, 1993. Adoption of this new standard did not
have a significant impact on the respective statements of financial condition
or results of operations. SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method deferred tax liabilities and assets are determined based on the
difference between the financial statement and the tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The accompanying financial statements of Plaza Funding include a provision
for Federal income taxes, based on distributions from Plaza Associates relating
to Plaza Funding's Preferred Stock which was redeemed on June 25, 1993. Plaza
Funding will be reimbursed for such income taxes by Plaza Associates. The
accompanying consolidated financial statements of Plaza Holding and Plaza
Associates do not include a provision for Federal income taxes since any income
or losses allocated to its partners are reportable for Federal income tax
purposes by the partners.
Under the New Jersey Casino Control Commission regulations, Plaza Associates
is required to file a New Jersey corporation business tax return. Accordingly,
a provision (benefit) for state income taxes has been reflected in the
accompanying consolidated financial statements of Plaza Holding and Plaza
Associates.
Plaza Associates deferred state income taxes result primarily from
differences in the timing of reporting depreciation for tax and financial
statement purposes.
F-15
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES
AND TRUMP PLAZA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, Plaza Funding, Plaza Holding
and Plaza Associates consider all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents. The following
supplemental disclosures are made to the statements of cash flows.
<TABLE>
<CAPTION>
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid during the year for interest.. $25,310,000 $41,118,000 $36,538,000
=========== =========== ===========
Cash paid for state and Federal income
taxes.................................. $ -- $ 81,000 $ --
=========== =========== ===========
Issuance of debt in exchange for accrued
interest............................... $ -- $ 3,562,000 $ 8,194,000
=========== =========== ===========
</TABLE>
(3) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
------------ ------------
<S> <C> <C>
PLAZA FUNDING:
10 7/8% Mortgage Notes, due 2001 net of
unamortized discount of $4,141,000 and
$3,766,000, respectively (A).................. $325,859,000 $326,234,000
============ ============
</TABLE>
PLAZA HOLDING AND PLAZA ASSOCIATES:
<TABLE>
<S> <C> <C>
PLAZA ASSOCIATES:
Plaza Associates Note (10 7/8% Mortgage Notes,
due 2001
net of unamortized discount of $4,141,000 and
$3,766,000, respectively) (A)................. $325,859,000 $326,234,000
Mortgage notes payable (C)..................... 6,410,000 5,494,000
Other notes payable............................ 1,060,000 468,000
------------ ------------
333,329,000 332,196,000
Less--Current maturities....................... 1,633,000 2,969,000
------------ ------------
331,696,000 329,227,000
PLAZA HOLDING:
PIK Notes (12 1/2% Notes, due 2003 net of dis-
count of $11,310,000 and $9,769,000, respec-
tively) (B)................................... 64,252,000 73,987,000
------------ ------------
$395,948,000 $403,214,000
============ ============
</TABLE>
- ---------------------
(A) On June 25, 1993 Plaza Funding issued $330,000,000 principal amount of 10
7/8% Mortgage Notes, due 2001, net of discount of $4,313,000. Net proceeds
of the offering were used to redeem all of Plaza Funding's outstanding
$225,000,000 principal amount 12% Mortgage Bonds, due 2002 and together
with other funds (see (B) Pay-In-Kind Notes) all of Plaza Funding's Stock
Units, comprised of $75,000,000 liquidation preference participating
cumulative redeemable Preferred Stock with associated shares of Common
Stock, to repay $17,500,000 principal amount 9.14% Regency Note due 2003,
to make a portion of a distribution to Trump to pay certain personal
indebtedness, and to pay transaction expenses.
F-16
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES
AND TRUMP PLAZA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Plaza Mortgage Notes mature on June 15, 2001 and are redeemable at any
time on or after June 15, 1998, at the option of Plaza Funding or Plaza
Associates, in whole or in part, at the principal amount plus a premium
which declines ratably each year to zero in the year of maturity. The
Plaza Mortgage Notes bear interest at the stated rate of 10 7/8% per annum
from the date of issuance, payable semi-annually on each June 15 and
December 15, commencing December 15, 1993 and are secured by substantially
all of Plaza Associates assets. The accompanying consolidated financial
statements reflect interest expense at the effective interest rate of
11.12% per annum.
The Indenture governing the Plaza Mortgage Notes (the "Mortgage Note
Indenture") contains certain covenants limiting the ability of Plaza
Associates to incur indebtedness, including indebtedness secured by liens
on Trump Plaza. In addition, Plaza Associates may, under certain
circumstances, incur up to $25.0 million of indebtedness to finance the
expansion of its facilities, which indebtedness may be secured by a lien
on the hotel facilities of Plaza Associates ("Trump Plaza East") (see
Note 6 Commitments And Contingencies) senior to the liens of one of the
Plaza Mortgages (the "Plaza Note Mortgage") and another of the Plaza
Mortgages (the "Plaza Guarantee Mortgage") thereon. The Plaza Mortgage
Notes represent the senior indebtedness of Plaza Funding. The note from
Plaza Associates to Plaza Funding in the same principal amount of the
Plaza Mortgage Notes (the "Plaza Associates Note") and the guarantee of
the Plaza Mortgage Notes (the "Plaza Guarantee") rank pari passu in right
of payment with all existing and future senior indebtedness of Plaza
Associates.
The Plaza Mortgage Notes, the Plaza Associates Note, the Plaza Note
Mortgage, the Plaza Guarantee and the Plaza Guarantee Mortgage are non-
recourse to the partners of Plaza Associates, to the shareholders of Plaza
Funding and to all other persons and entities (other than Plaza Funding
and Plaza Associates), including Trump. Upon an event of default, holders
of the Plaza Mortgage Notes would have recourse only to the assets of
Plaza Funding and Plaza Associates.
(B) On June 25, 1993 Plaza Holding issued $60,000,000 principal amount of 12
1/2% PIK Notes, due 2003, together with PIK Note Warrants to acquire an
additional $12,000,000 of PIK Notes at no additional cost. The PIK Note
Warrants are exercisable following the earlier of certain triggering events
or June 15, 1996.
The PIK Notes mature on June 15, 2003 and bear interest at the rate of 12
1/2% per annum from the date of issuance, payable semi-annually on each
June 15 and December 15, commencing December 15, 1993. At the option of
Plaza Holding, interest is payable in whole or in part, in cash or, in
lieu of cash, through the issuance of additional PIK Notes valued at 100%
of their principal amount. The ability of Plaza Holding to pay interest in
cash on the PIK Notes is entirely dependent on the ability of Plaza
Associates to distribute available cash, as defined, to Plaza Holding for
such purpose.
As of December 31, 1994 Plaza Associates has elected to issue in lieu of
cash a total of $11,756,000 in PIK Notes to satisfy its semi-annual PIK
Note interest obligation.
The PIK Notes are structurally subordinate to Plaza Funding's Mortgage
Notes and any other indebtedness of Plaza Associates and are secured by a
pledge of Plaza Holding's 99% equity interest in Plaza Associates. The
indenture to which the PIK Notes were issued (the "PIK Note Indenture")
contains covenants prohibiting Plaza Holding from incurring additional
indebtedness and engaging in other activities, and other covenants
restricting the activities of Plaza Associates substantially similar to
those set forth in the Plaza Mortgage Note Indenture. The PIK Notes and
the PIK Note Warrants are non-recourse to the Partners of Plaza Holding,
including Trump, and to all other persons and entities (other than Plaza
Holding). Upon an event of default, holders of PIK Notes or PIK Note
Warrants will have recourse only to the assets of Plaza Holding which
consist solely of its equity interest in Plaza Associates.
(C) Interest on these notes is payable with interest rates ranging from 10.0%
to 11.0%. The notes are due at various dates between 1995 and 1998 and are
secured by real property.
F-17
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES
AND TRUMP PLAZA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities of long-term debt in each of the years subsequent
to 1994 are:
<TABLE>
<S> <C>
1995......................................................... $ 2,969,000
1996......................................................... 548,000
1997......................................................... 2,012,000
1998......................................................... 433,000
1999......................................................... --
Thereafter................................................... 400,221,000
------------
$406,183,000
============
</TABLE>
(4) LEASES
Plaza Associates leases property (primarily land), certain parking space, and
various equipment under operating leases. Rent expense for the years ended
December 31, 1992, 1993, and 1994 was $4,361,000, $4,338,000 and $3,613,000,
respectively, of which $2,127,000, $2,513,000 and $1,900,000, respectively,
relates to affiliates of Plaza Associates.
Future minimum lease payments under the noncancelable operating leases are
as follows:
<TABLE>
<CAPTION>
AMOUNTS
RELATING TO
TOTAL AFFILIATES
------------ ------------
<S> <C> <C>
1995............................................ $ 6,445,000 $ 2,125,000
1996............................................ 6,670,000 2,350,000
1997............................................ 6,670,000 2,350,000
1998............................................ 5,110,000 2,350,000
1999............................................ 3,550,000 2,350,000
Thereafter...................................... 270,633,000 191,250,000
------------ ------------
$299,078,000 $202,775,000
============ ============
</TABLE>
Certain of these leases contain options to purchase the leased properties at
various prices throughout the leased terms. At December 31, 1994, the aggregate
option price for these leases was approximately $58,000,000.
In October 1993, Plaza Associates assumed the lease of Trump Plaza East to
Donald J. Trump ("Trump") (the "Trump Plaza East Lease") and related expenses
which are included in the above lease commitment amounts. In connection with
the offering and sale of Common Stock of Trump Hotels & Casino Resorts, Inc.
("THCR") for gross proceeds of $150 million and 140 million of Senior Secured
Notes (the "June 1995 Offerings"), Plaza Associates acquired a five-year option
to purchase Trump Plaza East. See Note 6--"Commitments and Contingencies Future
Expansion."
(5) EXTRAORDINARY GAIN (LOSS) AND NON-OPERATING EXPENSE
The excess of the carrying value of a note obligation over the amount of the
settlement payment net of related prepaid expenses in the amount of $4,120,000
has been reported as an extraordinary gain for the year ended December 31,
1993.
The extraordinary loss for the year ended December 31, 1992 consists of the
effect of stating the PIK Notes and Plaza Funding's Preferred Stock issued at
fair value as compared to the carrying value of these securities and the write
off of certain deferred financing charges and costs.
F-18
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES
AND TRUMP PLAZA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Non-operating expense in 1992 included $1,462,000 of legal expenses relating
to litigation associated with Trump Plaza East. In 1993 and 1994 these costs
included $3,873,000 and $4,931,000, respectively, in costs associated with
Trump Plaza East (see Note 6--Commitments and Contingencies Future Expansion),
net of miscellaneous non-operating credits which amounts included $2,322,000
and $798,000 for 1993 and 1994, respectively, representing real estate taxes
applicable for the period prior to June 24, 1993.
(6) COMMITMENTS AND CONTINGENCIES
CASINO LICENSE RENEWAL
The operation of an Atlantic City hotel and casino is subject to significant
regulatory controls which affect virtually all of its operations. Under the New
Jersey Casino Control Act (the "Casino Control Act"), Plaza Associates is
required to maintain certain licenses.
In April 1993, the New Jersey Casino Control Commission ("CCC") renewed Plaza
Associates license to operate Trump Plaza. This license must be renewed in June
1995, is not transferable and will include a review of the financial stability
of Plaza Associates. Upon revocation, suspension for more than 120 days, or
failure to renew the casino license, the Casino Control Act provides for the
mandatory appointment of a conservator to take possession of the hotel and
casino's business and property, subject to all valid liens, claims and
encumbrances.
LEGAL PROCEEDINGS
Plaza Associates, its Partners, certain members of its former Executive
Committee, and certain of its employees, have been involved in various legal
proceedings. In general, Plaza Associates has agreed to indemnify such persons
against any and all losses, claims, damages, expenses (including reasonable
costs, disbursements and counsel fees) and liabilities (including amounts paid
or incurred in satisfaction of settlements, judgements, fines and penalties )
incurred by them in said legal proceedings. Such persons and entities are
vigorously defending the allegations against them and intend to vigorously
contest any future proceedings.
Various legal proceedings are now pending against Plaza Associates. Plaza
Associates considers all such proceedings to be ordinary litigation incident to
the character of its business. Plaza Associates believes that the resolution of
these claims will not, individually or in the aggregate, have a material
adverse effect on its financial condition or results of operations.
Plaza Associates is also a party to various administrative proceedings
involving allegations that it has violated certain provisions of the Casino
Control Act. Plaza Associates believes that the final outcome of these
proceedings will not, either individually or in the aggregate, have a material
adverse effect on its financial condition, results of operations or on the
ability of Plaza Associates to otherwise retain or renew any casino or other
licenses required under the Casino Control Act for the operation of Trump
Plaza.
CASINO REINVESTMENT DEVELOPMENT AUTHORITY OBLIGATIONS
Pursuant to the provisions of the Casino Control Act, Plaza Associates,
commencing twelve months after the date of opening of Trump Plaza in May 1984,
and continuing for a period of twenty-five years thereafter, must either obtain
investment tax credits (as defined in the Casino Control Act), in an amount
equivalent to 1.25% of its gross casino revenues, or pay an alternative tax of
2.5% of its gross casino revenues, (as defined in the Casino Control Act).
Investment tax credits may be obtained by making qualified investments or by
the purchase of bonds at below market interest rates from the Casino
Reinvestment Development Authority ("CRDA"). Plaza Associates is required to
make quarterly deposits with the CRDA based on 1.25% of its
F-19
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES
AND TRUMP PLAZA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
gross revenue. For the years ended December 31, 1992, 1993 and 1994, Plaza
Associates charged to operations $645,000, $1,047,000 and $838,000,
respectively, to give effect to the below market interest rates associated with
CRDA bonds that have either been issued or are expected to be issued from funds
deposited.
In connection with Trump Plaza East (see below), the CRDA has approved the
use of up to $1,519,000 in deposits made by Plaza Associates for site
improvements. Such deposits are being capitalized as part of property and
equipment as funds are appropriated by the CRDA.
CONCENTRATIONS OF CREDIT RISKS
In accordance with casino industry practice, Plaza Associates extends credit
to a limited number of casino patrons, after extensive background checks and
investigations of credit worthiness. At December 31, 1994 approximately 28% of
Plaza Associates casino receivables (before allowances) were from customers
whose primary residence is outside the United States, with no significant
concentration in any one foreign country.
TRUMP PLAZA EAST
In 1993, Plaza Associates received the approval of the CCC, subject to
certain conditions, for the expansion of Trump Plaza East. On June 24, 1993,
Trump transferred title of Trump Plaza East to a lender in exchange for a
reduction in indebtedness to such lender in an amount equal to the sum of the
fair market value of Trump Plaza East and all rent payments made to such lender
by Trump under Trump Plaza East Lease. At that time, the lender leased Trump
Plaza East to Trump for a term of five years, which expires on June 30, 1998,
during which time Trump is obligated to pay the lender $260,000 per month in
lease payments. In October 1993, Plaza Associates assumed the Trump Plaza East
Lease and related expenses.
On June 25, 1993, Plaza Associates acquired a five-year option to purchase
Trump Plaza East (the "Trump Plaza East Purchase Option"). In addition, Plaza
Associates has a right of first refusal (the "Right of First Offer") upon any
proposed sale of all or any portion of Trump Plaza East during the term of the
Trump Plaza East Purchase Option. Until such time as the Trump Plaza East
Purchase Option is exercised or expires, Plaza Associates will be obligated,
from and after the date it entered into the Trump Plaza East Purchase Option,
to pay the net expenses associated with Trump Plaza East. During 1994, Plaza
Associates incurred $4.9 million of such expenses. The CCC has required that
Plaza Associates exercise the Trump Plaza East Purchase Option or its Right of
First Offer no later than July 1, 1995. Plaza Associates has petitioned the CCC
to extend such date to July 1, 1996; however, no assurance can be given that
such waiver will be granted or that any condition imposed by the CCC would be
acceptable to Plaza Associates. If Plaza Associates defaults in making payments
due under the Trump Plaza East Purchase Option, Plaza Associates would be
liable to the lender for the sum of (a) the present value of all remaining
payments to be made by Plaza Associates pursuant to the Trump Plaza East
Purchase Option during the term thereof and (b) the cost of demolition of all
improvements then located on Trump Plaza East. In order for Plaza Associates to
exercise the Trump Plaza East Purchase Option it would be required to pay $27.0
million through June 30, 1995, increasing by $1.0 million annually thereafter
until expiration on June 30, 1998. If Plaza Associates is unable to exercise
the option, it would be required to expense any capitalized costs associated
with Trump Plaza East.
As of December 31, 1994, Plaza Associates had capitalized approximately $11.7
million in construction costs related to Trump Plaza East including a $1
million consulting fee paid to Trump (Note 8). Plaza Associates might have to
close all or a portion of the expanded casino in order to comply with
regulatory requirements, which could have a material adverse effect on the
results of operations and financial condition of the Plaza Associates. Plaza
Associates ability to acquire Trump Plaza East pursuant to the Trump Plaza
F-20
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES
AND TRUMP PLAZA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
East Purchase Option is dependent upon its ability to obtain financing to
acquire the property. The ability to incur such indebtedness is restricted by
the Plaza Mortgage Note Indenture and the PIK Note Indenture and requires the
consent of certain of Trump's personal creditors. Plaza Associates ability to
develop Trump Plaza East is dependent upon its ability to use existing cash on
hand and generate cash flow from operations sufficient to fund development
costs. No assurance can be given that such cash on hand will be available to
Plaza Associates for such purposes or that it will be able to generate
sufficient cash flow from operations. In addition, exercise of the Trump Plaza
East Purchase Option or the Right of First Offer requires the consent of
certain of Trump's personal creditors, and there can be no assurance that such
consent will be obtained at the time Plaza Associates desires to exercise the
Trump Plaza East Purchase Option or such right.
The accompanying consolidated financial statements do not include any
adjustments that may be necessary should Plaza Associates be unable to exercise
the Trump Plaza East Purchase Option.
(7) EMPLOYEE BENEFIT PLANS
Plaza Associates has a retirement savings plan (the "Plan") for its nonunion
employees under Section 401(k) of the Internal Revenue Code. Employees are
eligible to contribute up to 15% of their earnings to the Plan and Plaza
Associates will match 50% of an eligible employee's contributions up to a
maximum of 4% of the employee's earnings. Plaza Associates recorded charges of
$699,000, $765,000 and $848,000 for matching contributions for the years ended
December 31, 1992, 1993 and 1994, respectively.
Plaza Associates provides no other material post-retirement or post-
employment benefits.
(8) TRANSACTIONS WITH AFFILIATES
DUE TO/FROM AFFILIATES
Amounts due to affiliates was $97,000 and $206,000 as of December 31, 1993
and 1994, respectively. Plaza Associates leases warehouse facility space to
Trump's Castle Associates. Lease payments of $14,000, $15,000 and $6,000 were
received from Trump's Castle Associates in 1992, 1993 and 1994, respectively.
Plaza Associates leased office space from Trump Taj Mahal Associates, which
terminated on March 19, 1993. Lease payments of $138,000 and $30,000 were paid
to Trump Taj Mahal Associates in 1992 and 1993, respectively.
Plaza Associates leases two parcels of land under long-term ground leases
from Seashore Four Associates and Trump Seashore Associates. In 1992, 1993 and
1994, Plaza Associates paid $900,000, $900,000 and $900,000, respectively, to
Seashore Four Associates, and paid $1,000,000, $1,000,000 and $1,000,000 in
1992, 1993 and 1994, respectively, to Trump Seashore Associates.
SERVICES AGREEMENT
Pursuant to the terms of a Services Agreement with Trump Plaza Management
Corp. ("TPM"), a corporation beneficially owned by Donald J. Trump, in
consideration for services provided, Plaza Associates pays TPM each year an
annual fee of $1.0 million in equal monthly installments, and reimburses TPM on
a monthly basis for all reasonable out-of-pocket expenses incurred by TPM in
performing its obligations under the Services Agreement, up to certain amounts.
Under this Services Agreement, approximately $708,000, $1.2 million and $1.3
million was charged to expense for the years ended December 31, 1992, 1993, and
1994, respectively.
F-21
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES
AND TRUMP PLAZA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
TRUMP PLAZA WEST OPTION
In December 1993, Trump entered into an option agreement (the "Original
Chemical Option Agreement") with Chemical Bank ("Chemical") and ACFH Inc.
("ACFH") a wholly owned subsidiary of Chemical. The Original Chemical Option
Agreement granted to Trump an option to purchase (i) the Trump Regency Hotel
(including the land, improvements and personal property used in the operation
of the hotel) ("Trump World's Fair") and (ii) certain promissory notes made by
Trump and/or certain of his affiliates and payable to Chemical (the "Chemical
Notes") which are secured by certain real estate assets located in New York,
unrelated to Plaza Associates.
The aggregate purchase price payable for the assets subject to the Original
Chemical Option Agreement was $60 million. Under the terms of the Original
Chemical Option Agreement, $1 million was required to be paid for the option by
January 5, 1994. In addition, the Original Chemical Option Agreement provided
for an expiration of the option on May 6, 1994, subject to an extension until
June 30, 1994 upon payment of an additional $250,000 on or prior to May 6,
1994. The Original Chemical Option Agreement did not allocate the purchase
price among the assets subject to the option or permit the option to be
exercised for some, but not all of such assets.
In connection with the execution of the Original Chemical Option Agreement,
Trump agreed with Plaza Associates that, if Trump is able to acquire Trump
World's Fair pursuant to the exercise of the option, he would make Trump
World's Fair available for the sole benefit of Plaza Associates on a basis
consistent with Plaza Associates contractual obligations and requirements.
Trump further agreed that Plaza Associates would not be required to pay any
additional consideration to Trump in connection with any assignment of the
option to purchase Trump World's Fair. On January 5, 1994, Plaza Associates
obtained the approval of the CCC to make the $1 million payment, which was made
on that date.
On June 16, 1994, Trump, Chemical and ACFH entered into, amended and restated
the Original Chemical Option Agreement, (the "First Amended Chemical Option
Agreement"). The First Amended Chemical Option Agreement provided for an
extension of the expiration of the Option through September 30, 1994, upon
payment of $250,000. Such payment was made on June 27, 1994. The First Amended
Chemical Option Agreement also provided for a $60 million option price for
Trump World's Fair and one of the Chemical Notes. On August 30, 1994, Trump,
Chemical and ACFH entered into an amendment to the First Amended Chemical
Option Agreement (the "Second Amended Chemical Option Agreement"). The Second
Amended Chemical Option Agreement provides for an extension of the expiration
of the option through March 31, 1995 upon the payment of $50,000 a month for
the period October through December 1994, and $150,000 a month for the period
January through March 1995. Plaza Associates received the approval of the CCC
and has made such payments.
As of December 31, 1994, $1,550,000, representing option payments, is
included in other assets in the accompanying consolidated balance sheet. If the
option is exercised, these amounts are available to offset the $60 million
option price.
OTHER PAYMENTS TO DONALD J. TRUMP
During 1994, Plaza Associates paid to Trump $1,000,000 under a Construction
Management Service Agreement. The payment was made for construction management
services rendered by Trump with respect to Trump Plaza East. This payment was
approved prior to disbursement by the CCC and has been classified in
construction in process in the accompanying consolidated balance sheet as of
December 31, 1994.
F-22
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES
AND TRUMP PLAZA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
During 1994, Plaza Associates also paid Trump a commission of approximately
$572,000 for securing a retail lease at Trump Plaza. The commission has been
capitalized and is being amortized to expense over the 10-year term of the
lease.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the following financial instruments of Plaza Funding,
Plaza Holding and Plaza Associates approximates fair value, as follows: (a)
cash and cash equivalents, accrued interest receivables and payables are based
on the short term nature of these financial instruments, (b) CRDA bonds and
deposits are based on the allowances to give effect to the below market
interest rates.
The estimated fair values of other financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------
CARRYING AMOUNT FAIR VALUE
--------------- ------------
<S> <C> <C>
12 1/2% PIK Notes............................. $ 73,987,000 $ 51,791,000
10 7/8% Mortgage Notes........................ $326,234,000 $247,122,000
</TABLE>
The fair values of the PIK and Mortgage Notes are based on quoted market
prices obtained by Plaza Associates from its investment advisor.
There are no quoted market prices for other notes payable and a reasonable
estimate could not be made without incurring excessive costs.
(10) SUBSEQUENT EVENTS
On June 12, 1995 three newly formed entities owned by Trump--Trump Hotels &
Casino Resorts, Inc. ("THCR"), Trump Hotels & Casino Resorts Holdings, L.P.
("THCR Holdings") and Trump Hotels & Casino Resorts Funding, Inc.--completed
the offering and sale of $155,000,000 of Senior Secured Notes and $140,000,000
of equity, the June 1995 Offerings.
In connection with the June 1995 Offerings, Trump contributed all of his
beneficial interest in Plaza Associates (consisting of all of the outstanding
capital stock of Plaza Funding, a 99% equity interest in Plaza Holding and all
of the outstanding capital stock of Trump Plaza Holding, Inc.) to THCR
Holdings. Trump also contributed all of his existing interests and rights to
new gaming activities in both emerging and established gaming jurisdictions to
THCR Holdings.
The net proceeds of the June 1995 Offerings were used to repurchase or redeem
the PIK Notes and PIK Note Warrants (Note 3), finance the expansion of Trump
Plaza (Notes 6 and 8) as well as to fund casino development costs in certain
jurisdictions outside of Atlantic City.
On January 8, 1996, THCR, Taj Mahal Holding Corp. ("Taj Holding") and THCR
Merger Corp. ("Merger Sub") entered into the Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which Merger Sub will merge with and into Taj
Holding (the "Merger"). The Merger Agreement provides that each outstanding
share of Class A Common Stock of Taj Holding ("Taj Holding Class A Common
Stock") will be converted into the right to receive, at each holder's election,
either (a) $30.00 in cash or (b) that number of shares of Common Stock of THCR
("THCR Common Stock") as shall have a market value equal to $30.00. The Merger
Agreement also contemplates the following transactions occurring in connection
with the Merger:
(a) the consummation of the offering by THCR of up to $140,000,000 of THCR
Common Stock (and an amount to be issued pursuant to the underwriters' over-
allotment option) (the "THCR Stock
F-23
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES
AND TRUMP PLAZA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Offering") and the offering by Trump Taj Mahal Funding, Inc. ("Taj Funding")
of up to $750,000,000 aggregate principal amount of debt securities, the
aggregate net proceeds of which will be used, together with available cash
of Taj Associates, to (i) pay cash to those holders of Taj Holding Class A
Common Stock electing to receive cash in the Merger, (ii) redeem Taj
Funding's outstanding 11.35% Mortgage Bonds, Series A due 1999 (the
"Bonds"), (iii) redeem the outstanding shares of Class B Common Stock, par
value $.01 per share, of Taj Holding as required in connection with the
redemption of the Bonds pursuant to the Amended and Restated Certificate of
Incorporation of Taj Holding, (iv) purchase certain real property adjacent
to the Taj Mahal that is currently leased from Trump Taj Mahal Realty Corp.,
a corporation wholly owned by Trump, and (v) make a payment to Bankers Trust
to obtain releases of the liens and guarantees that Bankers Trust has with
respect to Taj Associates;
(b) the contribution by Trump to THCR Holdings and Taj Mahal Holdings LLC
("Taj Holdings LLC"), a subsidiary of THCR Holdings, of all of his direct
and indirect ownership interests in Taj Associates; and
(c) the contribution by THCR to THCR Holdings and Taj Holdings LLC of all
of its indirect ownership interests in Taj Associates acquired in the
Merger.
Existing and prospective investors should consider among other things, (i)
the high leverage and fixed charges of THCR and Taj Holding; (ii) the risk in
refinancing and repayment of indebtedness and the need for additional
financing; (iii) the restrictions imposed on certain activities by certain debt
instruments; (iv) the recent results of Trump Plaza and the Taj Mahal; (v)
risks associated with the Trump Plaza Expansion, the Taj Mahal Expansion and
the Indiana Riverboat. There can be no assurance that the Trump Plaza Expansion
or the Taj Mahal Expansion will be completed or that the Indiana Riverboat or
any other gaming venture, will open or that any of THCR's or the Taj Mahal's
operations will be successful. See "Risk Factors" included elsewhere in this
Proxy Statement-Prospectus for a discussion of these and other factors.
F-24
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
-------------
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 23,357
Restricted cash................................................ 24,225
Receivables, net............................................... 13,074
Inventories.................................................... 2,598
Other current assets........................................... 5,497
--------
Total current assets......................................... 68,751
PROPERTY AND EQUIPMENT, NET...................................... 399,922
LAND RIGHTS...................................................... 29,412
CASH RESTRICTED FOR FUTURE CONSTRUCTION.......................... 71,750
NOTE RECEIVABLE.................................................. 3,091
DEFERRED LOAN COSTS, NET......................................... 9,855
OTHER ASSETS..................................................... 16,634
--------
Total Assets................................................. $599,415
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt........................... $ 2,100
Accounts payable and accrued expenses.......................... 31,946
Accrued interest payable....................................... 17,743
Due to affiliates, net......................................... 403
--------
Total Current Liabilities.................................... 52,192
LONG-TERM DEBT, net of discount and current maturities........... 486,655
DEFERRED INCOME TAXES PAYABLE.................................... 5,173
--------
Total Liabilities............................................ 544,020
--------
MINORITY INTEREST................................................ 1,668
STOCKHOLDERS' EQUITY:
Common Stock $.01 par value 50,000,000 shares authorized,
10,066,667 issued and
outstanding..................................................... 101
Class B Common Stock $.01 par value, 1,000 shares authorized, is-
sued and outstanding............................................ -
Additional Paid in Capital....................................... 52,327
Retained Earnings................................................ 1,299
--------
Total Stockholders' Equity................................... 53,727
--------
Total Liabilities and Stockholders' Equity................... $599,415
========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-25
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JUNE 12, 1995) TO SEPTEMBER 30, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
INCEPTION TO
SEPTEMBER 30, 1995
------------------
<S> <C>
REVENUES:
Gaming..................................................... $ 101,634
Rooms...................................................... 6,995
Food and Beverage.......................................... 14,866
Other...................................................... 3,877
-----------
Gross Revenues........................................... 127,372
Less--Promotional allowances............................... 14,071
-----------
Net Revenues............................................... 113,301
-----------
COSTS AND EXPENSES:
Gaming..................................................... 52,681
Rooms...................................................... 783
Food and Beverage.......................................... 6,654
General and Administrative................................. 23,799
Depreciation and Amortization.............................. 5,091
Other...................................................... 1,159
-----------
90,167
-----------
Income from operations................................... 23,134
-----------
NON-OPERATING INCOME AND (EXPENSES):
Interest income............................................ 2,361
Interest expense........................................... (19,177)
Other non-operating expense................................ (2,198)
-----------
(19,014)
-----------
Income before provision for state income taxes............... 4,120
PROVISION FOR STATE INCOME TAXES............................. 1,153
-----------
Income before Minority Interest.............................. $ 2,967
-----------
MINORITY INTEREST............................................ 1,668
-----------
NET INCOME................................................... $ 1,299
===========
Earnings per share........................................... $ .13
===========
Weighted average shares...................................... 10,161,561
===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-26
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CAPITAL
FOR THE PERIOD FROM INCEPTION (JUNE 12, 1995) TO SEPTEMBER 30, 1995
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------ ADDITIONAL
CLASS B PAID IN RETAINED
COMMON COMMON AMOUNT CAPITAL EARNINGS TOTAL
---------- ------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 12, 1995.. 1,000 $-- $(75,543) $ -- $(75,543)
Proceeds from issuance
of Common Stock........ 10,000,000 100 126,748 -- 126,848
Issuance of Stock Grant
Award.................. 66,667 1 933 -- 934
Accretion of Phantom
Stock Units............ -- 189 189
Net Income.............. -- -- -- 1,299 1,299
---------- ----- ---- -------- ------ --------
Balance, September 30,
1995................... 10,066,667 1,000 $101 $ 52,327 $1,299 $ 53,727
========== ===== ==== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-27
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JUNE 12, 1995) TO SEPTEMBER 30, 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
TO SEPTEMBER 30,
1995
----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 1,299
Adjustments to reconcile net income to net cash flows from
operating activities--
Noncash charges--
Depreciation and amortization.............................. 5,091
Issuance of stock grant awards and phantom stock units..... 1,122
Minority interest in net income............................ 1,668
Accretion of discounts on mortgage notes................... 127
Provisions for losses on receivables....................... 236
Utilization of CRDA credits and donations.................. 211
Valuation allowance of CRDA investments.................... (739)
Deferred income taxes...................................... 1,153
--------
10,168
Increase in receivables.................................... (6,015)
Decrease in inventories.................................... 826
Increase in advances from affiliates....................... 492
Decrease in other current assets........................... 6,193
Decrease in other assets................................... 5,742
Decrease in accounts payable and accrued expenses.......... (2,802)
Decrease in accrued interest payable....................... (4,289)
--------
Net cash flows provided by operating activities........... 10,315
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net...................... (102,555)
Restricted cash for short-term operating needs............... (24,225)
Cash restricted for future construction...................... (71,750)
--------
Net cash flows used in investing activities............... (198,530)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock, net................................ 126,848
Issuance of Senior Secured Notes, net........................ 144,849
Retirement of PIK Notes...................................... (81,746)
Issuance of note receivable.................................. (3,000)
Payment of current maturities of long-term debt.............. (3,565)
--------
Net cash flows provided by financing activities........... 183,386
--------
Net decrease in cash and cash equivalents..................... (4,829)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................ 28,186
--------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30, 1995............... $ 23,357
========
CASH INTEREST PAID............................................ $ 22,848
========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-28
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND OPERATIONS
Trump Hotels & Casino Resorts, Inc. ("THCR"), which commenced operations on
June 12, 1995, was formed on March 28, 1995 to own and operate the Trump Plaza
Hotel and Casino ("Trump Plaza"), a luxury casino hotel located on The
Boardwalk in Atlantic City, New Jersey. In addition, THCR, through Trump
Indiana, Inc. ("Trump Indiana"), a wholly owned subsidiary of Trump Hotels &
Casino Resorts Holdings, L.P. ("THCR Holdings"), is in the process of
developing a riverboat gaming facility at Buffington Harbor, Indiana (the
"Indiana Riverboat"). THCR, through THCR Holdings and its subsidiaries, will be
the exclusive vehicle through which Donald J. Trump ("Trump") will engage in
new gaming activities in emerging or established gaming jurisdictions.
THCR Holdings and its wholly owned subsidiary, Trump Hotels & Casino Resorts
Funding, Inc. ("THCR Funding"), were formed on March 28, 1995 to raise funds
through the issuance and sale of debt securities for the benefit of Trump Plaza
and Trump Indiana. THCR Holdings is owned approximately 60.2% by THCR, as
general partner and approximately 39.8% by Trump, as limited partner. THCR
Holdings beneficially owns 100% of Trump Plaza and Trump Indiana, as well as
interests in other gaming jurisdictions.
All significant intercompany balances and transactions have been eliminated
in the accompanying condensed consolidated financial statements.
The accompanying condensed financial statements have been prepared without
audit. In the opinion of management, all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial position, the
results of operations and cash flows for the periods presented, have been made.
The accompanying condensed financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and note disclosures normally included in
financial statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted. These condensed financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Annual Report on Form 10-K for the year ended December 31, 1994
and Trump Plaza Funding's ("Plaza Funding") and Trump Plaza Associates' ("Plaza
Associates") Form 10-Q for the nine months ended September 30, 1995, of Plaza
Funding, Trump Plaza Holding Associates ("Plaza Holding") and Plaza Associates
each filed with the Securities and Exchange Commission.
The accounting policies followed by THCR are substantially the same as those
followed by Plaza Funding and Plaza Associates.
The casino industry in Atlantic City is seasonal in nature; therefore,
results of operations for the period ended September 30, 1995 are not
necessarily indicative of the operating results for a full year.
(2) PUBLIC OFFERINGS
On June 12, 1995, THCR completed a public offering of 10,000,000 shares of
its common stock, par value $.01 per share (the "THCR Common Stock"), at $14.00
per share (the "June 1995 Stock Offering") for gross proceeds of $140,000,000.
Concurrently with the June 1995 Stock Offering, THCR Holdings, together with
its subsidiary, THCR Funding, issued 15 1/2% Senior Notes due 2005 (the "Senior
Notes") for gross proceeds of $155,000,000 (the "June 1995 Note Offering" and,
together with the June 1995 Stock Offering, the "June 1995 Offerings"). THCR
contributed the gross proceeds of the June 1995 Stock Offering to THCR
Holdings. The net proceeds from the June 1995 Offerings were used for the
following purposes: (a) repurchase
F-29
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
and redemption of the 12 1/2% Pay-in-Kind Notes due 2003 ("PIK Notes") of Plaza
Holding (including accrued interest payable) of $86,209,000, (b) exercise of an
option to purchase the Trump Plaza Regency Hotel ("Trump World's Fair") for
$58,150,000, (c) construction costs at a hotel located adjacent to Trump
Plaza's existing facility ("Trump Plaza East") for $2,500,000 and (d)
construction and land acquisition costs of $23,772,000 for the Indiana
Riverboat. The balance of the proceeds will be used for the completion of the
construction at Trump Plaza, the Trump Plaza East, the Trump World's Fair and
the Indiana Riverboat.
Prior to the June 1995 Offerings, Trump was the sole stockholder of THCR and
sole beneficial owner of THCR Holdings. Concurrent with the June 1995
Offerings, Trump contributed to THCR Holdings all of his beneficial interest in
Plaza Associates, which consisted of all of the outstanding capital stock of
Plaza Funding, a 99% equity interest in Plaza Holding and all of the
outstanding capital stock of Trump Plaza Holding, Inc. ("Plaza Holding Inc."),
which owns the remaining 1% equity interest in Plaza Holding. Trump also
contributed all of his existing interests and rights to new gaming activities
in both emerging and established gaming jurisdictions, including Trump Indiana
but excluding his interests in the Trump Taj Mahal Casino Resort and Trump's
Castle Casino Resort (together, the "Other Trump Casinos"), to THCR Holdings.
The proceeds of the June 1995 Stock Offering were contributed by THCR to THCR
Holdings in exchange for an approximate 60.2% general partnership interest in
THCR Holdings. THCR Holdings' partnership agreement provides that all business
activities of THCR must be conducted through THCR Holdings or its subsidiary
partnerships or corporations. As the sole general partner of THCR Holdings,
THCR will have the exclusive rights, responsibilities and discretion in the
management and control of THCR Holdings (although Trump has retained certain
rights to control the management of Plaza Associates to the extent required by
the Mortgage Note Indenture pursuant to which the Plaza Mortgage Notes (as
defined) were issued).
In exchange for Trump's contributions to THCR Holdings as described above,
Trump received an approximately 39.8% limited partnership interest in THCR
Holdings.
Trump's limited partnership interest in THCR Holdings represents his economic
interest in the assets and operations of THCR Holdings. Accordingly, such
limited partnership interest is convertible at Trump's option into 6,666,667
shares of THCR Common Stock (subject to certain adjustments) representing
approximately 39.8% of the outstanding shares of THCR Common Stock.
Trump received shares of Class B Common Stock of THCR, par value $.01 per
share (the "THCR Class B Common Stock"). The THCR Class B Common Stock votes
together with the Common Stock as a single class on all matters submitted to
stockholders of THCR for a vote or in respect of which consents are solicited
(other than in connection with certain amendments to THCR's Amended and
Restated Certificate of Incorporation). The number of votes represented by the
THCR Class B Common Stock held by any holder is equal to the number of shares
of THCR Common Stock issuable to the holder upon conversion of such holder's
partnership interest in THCR Holdings into THCR Common Stock. Upon such
conversion, the corresponding voting power of shares of THCR Class B Common
Stock provides Trump with a voting interest in THCR which is proportionate to
his equity interest in THCR Holdings' assets represented by his limited
partnership interest. Except for the right to receive par value upon
liquidation, the THCR Class B Common Stock has no right to receive any dividend
or other distribution in respect of the equity of THCR. In addition, Trump has
agreed to waive (except as set forth under the Amended and Restated Certificate
of Incorporation of THCR) state law rights to vote the THCR Class B Common
Stock as a separate class in the event of merger or sale of substantial assets.
F-30
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(3) BASIS OF PRESENTATION
PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements of THCR reflect
the contributed entities' assets and liabilities on the carryover basis of
accounting as of June 12, 1995, the date of such contribution as such entities
were under common control. Trump's approximately 39.8% economic interest in
THCR Holdings is accounted for as a minority interest in THCR's financial
statements.
The accompanying statements of operations reflect the operations for the
three-month period ended September 30, 1995 and the period from inception
through September 30, 1995. THCR did not have any operations from the period of
its formation, March 28, 1995, through the date of the Offerings.
INCOME TAXES
Federal income taxes are provided based on THCR's income, subject to Federal
income tax.
Under the New Jersey Casino Control Commission (the "CCC") regulations, Plaza
Associates is required to file a New Jersey Corporate Business Tax Return.
Accordingly, a provision for state income taxes has been reflected in the
accompanying condensed statements of operations of THCR.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
common stock and common stock equivalents (including shares to be granted to
the President, Chief Executive Officer and Chief Financial Officer of THCR
under a phantom stock unit award (see Note 5). The shares of THCR Class B
Common Stock owned by Trump have no economic interest and, therefore, are not
considered in the calculation of weighted average shares outstanding.
(4) LONG-TERM DEBT
On June 12, 1995, THCR Holdings and THCR Funding issued $155,000,000
principal amount of the Senior Notes. The Senior Notes are redeemable in cash
at the option of THCR Holdings and THCR Funding, in whole or in part, at any
time on or after June 15, 2000 at redemption prices, as defined. The Senior
Notes bear interest at the stated rate of 15 1/2% per annum, payable semi-
annually in arrears on June 15 and December 15 of each year, commencing
December 15, 1995, and are secured by substantially all of the assets of THCR
Holdings. Costs associated with the issuance of the debt total approximately
$10,151,000. These costs have been deferred and are being amortized over the
life of the Senior Notes.
On June 25, 1993, Plaza Funding issued $330,000,000 principal amount of 10
7/8% Mortgage Notes due 2001 (the "Plaza Mortgage Notes"), net of discount of
$4,313,000. At September 30, 1995, the Plaza Mortgage Notes were $326,543,000,
net of discount of $3,457,000.
Plaza Associates has other notes payable of $7,212,000 at September 30, 1995,
including $2,100,000 in current maturities. Interest on these notes is payable
monthly and these notes have various maturity dates.
(5) STOCK INCENTIVE PLAN
In connection with the June 1995 Offerings, the Board of Directors of THCR
(the "Board of Directors") adopted the 1995 Stock Incentive Plan (the "1995
Stock Plan"). Pursuant to the 1995 Stock Plan, directors,
F-31
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
employees and consultants of THCR and certain of its subsidiaries and
affiliates who have been selected as participants are eligible to receive
awards of various forms of equity-based incentive compensation, including stock
options, stock appreciation rights, stock bonuses, restricted stock awards,
performance units and phantom stock, and awards consisting of combinations of
such incentives. The 1995 Stock Plan is administered by a committee appointed
by the Board of Directors (the "Stock Incentive Plan Committee").
Options granted under the 1995 Stock Plan may be incentive stock options
("ISOs"), within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or nonqualified stock options ("NQSOs"). The
vesting, exercisability and exercise price of the options are determined by the
Committee when the options are granted, subject to a minimum price, in the case
of ISOs, of the Fair Market Value (as defined in the 1995 Stock Plan) of THCR
Common Stock on the date of the grant and a minimum price, in the case of
NQSOs, of the par value of THCR Common Stock.
The 1995 Stock Plan permits the Stock Incentive Plan Committee to grant stock
appreciation rights ("SARs") either alone or in connection with an option. An
SAR granted as an alternative or a supplement to a related stock option will
entitle its holder to be paid an amount equal to the fair market value of THCR
Common Stock subject to the SAR on the date of exercise of the SAR, less the
exercise price of the related stock option or such other price as the Stock
Incentive Plan Committee may determine at the time of the grant of the SAR
(which may not be less than the lowest price which the Stock Incentive Plan
Committee may determine under the 1995 Stock Plan for such stock option).
The 1995 Stock Plan also provides that phantom stock and performance unit
awards may be settled in cash, at the discretion of the Stock Incentive Plan
Committee and if indicated in the applicable award agreement, on each date on
which shares of THCR Common Stock covered by the awards would otherwise have
been delivered or become unrestricted, in an amount equal to the fair market
value of the shares on such date.
Subject to adjustment in the event of changes in the outstanding stock or the
capital structure of THCR, THCR has reserved 1,000,000 shares of THCR Common
Stock for issuance under the 1995 Stock Plan.
In connection with the June 1995 Offerings, the Stock Incentive Plan
Committee granted to the President, Chief Executive Officer and Chief Financial
Officer of THCR a stock bonus award of 66,667 shares of THCR Common Stock under
the 1995 Stock Plan, which was fully vested upon issuance. Compensation expense
of approximately $933,000 associated with the stock bonus award is reflected in
the accompanying statement of operations of THCR. A phantom stock unit award
was also issued to the President, Chief executive Officer and Chief Financial
Officer of THCR.
This award entitles the President, Chief Executive Officer and Chief
Financial Officer of THCR to receive 66,666 shares of THCR Common Stock two
years following such award, subject to certain conditions. The compensation
expense associated with the phantom stock award is approximately $933,000 and
this amount is being amortized over the two-year vesting period and was
approximately $189,000 for the period from inception to September 30, 1995. The
President, Chief Executive Officer and Chief Financial Officer of THCR also
received an award of NQSOs for the purchase of 133,333 shares of THCR Common
Stock, subject to certain conditions (including vesting at a rate of 20% per
year over a five-year period). The options have an exercise price of $14.00 per
share.
(6) CERTAIN TRANSACTIONS WITH COMPANY EXECUTIVE
EXECUTIVE AGREEMENT
Trump serves as the Chairman of the Board of Directors pursuant to an
Executive Agreement entered into between Trump, THCR and THCR Holdings (the
"Trump Executive Agreement"). In consideration
F-32
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
for Trump's services under the Trump Executive Agreement, Trump receives a
salary of $1,000,000 per year, payable in equal monthly installments.
NOTE RECEIVABLE
Prior to consummation of the June 1995 Offerings, Trump incurred $3,000,000
relating to expenditures for the development of Trump Indiana and other gaming
ventures. Concurrently with the June 1995 Offerings, THCR Holdings loaned Trump
$3,000,000 and Trump issued to THCR Holdings a five-year promissory note (the
"Trump Note") bearing interest at a fixed rate of 10% per annum, payable
annually. The Trump Note will be automatically canceled in the event that at
any time during the period defined in the Trump Note, the THCR Common Stock
trades at a price per share equal to or greater than the prices set forth in
the Trump Note (subject to adjustment in certain circumstances). During the
period from inception to September 30, 1995, the trading price of the THCR
Common Stock did not reach the defined prices.
(7) EMPLOYMENT AGREEMENT
Nicholas L. Ribis ("Ribis"), the President, Chief Executive Officer and Chief
Financial Officer of THCR entered into a five-year employment agreement (the
"Revised Ribis Agreement") with THCR and THCR Holdings on June 12, 1995.
Pursuant to the Revised Ribis Agreement, Ribis shall be employed as the
President and Chief Executive Officer of THCR and Chief Executive Officer of
THCR Holdings and shall receive a base salary of $907,500, annually.
(8) COMMITMENTS AND CONTINGENCIES
As a condition to the June 1995 Note Offering, THCR Holdings and THCR Funding
entered into a Cash Collateral and Disbursement Agreement (the "Cash Collateral
Agreement") with First Bank National Association in its respective capacities
as Trustee and Disbursement Agent (each as defined therein). The Cash
Collateral Agreement called for initial deposits to custodial accounts which
are restricted in use for (a) Trump Indiana for the ship and land projects, (b)
Trump Plaza construction projects, including the exercise of the option to
purchase the Trump World's Fair (the "Trump World's Fair Purchase Option") and
construction projects at the Trump Plaza East and the Trump World's Fair and
(c) the first two interest payments on the Senior Notes. As of September 30,
1995, $24,225,000 is restricted for the first two interest payments on the
Senior Notes and is reflected as Restricted Cash in the accompanying condensed
balance sheets. The balance of funds restricted for Trump Indiana, the Trump
Plaza East and the Trump World's Fair are approximately $9,725,000, $12,650,000
and $49,375,000, respectively, at September 30, 1995, and are reflected as Cash
Restricted for future construction as a non-current asset in the accompanying
balance sheets.
(9) CASINO LICENSE RENEWAL:
The operation of an Atlantic City hotel and casino is subject to significant
regulatory controls which affect virtually all of its operations. Under the New
Jersey Casino Control Act (the "Casino Control Act"), Plaza Associates is
required to maintain certain licenses.
In June 1995, the New Jersey Casino Control Commission (the "CCC") renewed
Plaza Associates' license to operate Trump Plaza. This license must be renewed
in June 1999, is not transferable and such renewal of the license will include
a review of the financial stability of Plaza Associates. Upon revocation,
suspension for more than 120 days or if the CCC fails or refuses to renew such
casino license, the Casino Control Act allows for the appointment of a
conservator to take possession of the hotel and casino's business and property,
subject to all valid liens, claims and encumbrances.
F-33
<PAGE>
TRUMP HOTELS & CASINO RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(10) SUBSEQUENT EVENT
On January 8, 1996, THCR, Taj Holding and THCR Merger Corp. ("Merger Sub")
entered into the Agreement and Plan of Merger (the "Merger Agreement") pursuant
to which Merger Sub will merge with and into Taj Holding (the "Merger"). The
Merger Agreement provides that each outstanding share of Class A Common Stock
of Taj Holding ("Taj Holding Class A Common Stock") will be converted into the
right to receive, at each holder's election, either (a) $30.00 in cash or (b)
that number of shares of THCR Common Stock as shall have a market value equal
to $30.00. The Merger Agreement also contemplates the following transactions
occurring in connection with the Merger:
(a) the consummation of the offering by THCR of up to $140,000,000 of THCR
Common Stock (and an amount to be issued pursuant to the underwriters' over-
allotment option) (the "THCR Stock Offering") and the offering by Trump Taj
Mahal Funding, Inc. ("Taj Funding") of up to $750,000,000 aggregate
principal amount of debt securities, the aggregate net proceeds of which
will be used, together with available cash of Taj Mahal Associates ("Taj
Associates"), to (i) pay cash to those holders of Taj Holding Class A Common
Stock electing to receive cash in the Merger, (ii) redeem Trump Taj Mahal
Funding, Inc's ("Taj Funding") outstanding 11.35% Mortgage Bonds, Series A
due 1999 (the "Bonds"), (iii) redeem the outstanding shares of Class B
Common Stock, par value $.01 per share, of Taj Holding as required in
connection with the redemption of the Bonds pursuant to the Amended and
Restated Certificate of Incorporation of Taj Holding, (iv) purchase (using
cash and 500,000 shares of THCR Common Stock) certain real property adjacent
to the Trump Taj Mahal Casino Resort that is currently leased from Trump Taj
Mahal Realty Corp., a corporation wholly owned by Trump, and (v) make a
payment to Bankers Trust to obtain releases of the liens and guarantees that
Bankers Trust has with respect to Taj Associates;
(b) the contribution by Trump to THCR Holdings and Taj Mahal Holdings LLC
("Taj Holdings LLC"), a subsidiary of THCR Holdings, of all of his direct
and indirect ownership interests in Taj Associates; and
(c) the contribution by THCR to THCR Holdings and Taj Holdings LLC of all
of its indirect ownership interests in Taj Associates acquired in the
Merger.
F-34
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES AND TRUMP PLAZA ASSOCIATES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ 11,144 $ 20,079
Receivables, net.................................. 6,797 12,321
Inventories....................................... 2,477 2,598
Advances to affiliates, net....................... -- 403
Other current assets.............................. 4,280 4,765
-------- --------
Total current assets............................ 24,698 40,166
PROPERTY AND EQUIPMENT, net......................... 298,354 376,116
LAND RIGHTS......................................... 29,688 29,412
OTHER ASSETS........................................ 22,903 16,634
-------- --------
Total Assets.................................... $375,643 $462,328
======== ========
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Current maturities of long-term debt.............. $ 2,969 $ 2,100
Accounts payable and accrued expenses............. 26,782 29,255
Accrued interest payable.......................... 1,871 10,469
Due to affiliate, net............................. 206 --
-------- --------
Total Current Liabilities....................... 31,828 41,824
LONG-TERM DEBT, net of discount and current maturi-
ties............................................... 403,214 331,655
DISTRIBUTION PAYABLE TO TRUMP PLAZA FUNDING, INC.... 3,822 3,822
DEFERRED STATE INCOME TAXES......................... 359 1,351
-------- --------
Total Liabilities............................... 439,223 378,652
-------- --------
CAPITAL:
Partners' Equity (Deficit)........................ (78,772) 68,087
Retained Earnings................................. 15,192 15,589
-------- --------
Total Capital (Deficit)......................... (63,580) 83,676
-------- --------
Total Liabilities and Capital................... $375,643 $462,328
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-35
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES AND TRUMP PLAZA ASSOCIATES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 AND 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
------------------
1994 1995
-------- --------
<S> <C> <C>
Revenues:
Gaming.................................................... $197,068 $224,499
Rooms..................................................... 14,014 14,671
Food and Beverage......................................... 29,556 33,403
Other..................................................... 6,558 7,187
-------- --------
Gross Revenues.......................................... 247,196 279,760
Less-Promotional Allowances............................... 25,130 28,611
Net Revenues............................................ 222,066 251,149
-------- --------
COSTS AND EXPENSES:
Gaming.................................................... 104,100 121,987
Rooms..................................................... 2,064 1,741
Food and Beverage......................................... 12,501 13,783
General and Administrative................................ 54,928 51,073
Depreciation and Amortization............................. 11,734 11,792
Other..................................................... 2,787 2,556
-------- --------
Total Costs and Expenses.................................... 188,114 202,932
-------- --------
Income from operations.................................. 33,952 48,217
-------- --------
NON-OPERATING EXPENSE (NET):
Interest income........................................... 520 689
Interest expense.......................................... (36,571) (34,419)
Other non-operating expense............................... (3,729) (3,847)
-------- --------
(39,780) (37,577)
-------- --------
</TABLE>
<TABLE>
<S> <C> <C>
Income (loss) before provision (benefit) for state income
taxes and extraordinary loss.................................. (5,828) 10,640
PROVISION (BENEFIT) FOR STATE INCOME TAXES..................... (523) 993
------- ------
Income before extraordinary items.............................. (5,305) 9,647
Extraordinary Loss............................................. -- (9,250)
------- ------
Net Income (Loss).............................................. $(5,305) $ 397
======= ======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-36
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES AND
TRUMP PLAZA ASSOCIATES
CONDENSED CONSOLIDATED STATEMENT OF CAPITAL (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS' RETAINED
CAPITAL EARNINGS TOTAL
--------- -------- --------
<S> <C> <C> <C>
Balance, December 31, 1994........................ $(78,772) $15,192 $(63,580)
Net Income........................................ -- 397 397
Contributed Capital--Trump Hotels & Casino Resorts
Holdings, L.P.................................... 146,859 -- 146,859
-------- ------- --------
Balance, September 30, 1995....................... $ 68,087 $15,589 $ 83,676
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-37
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES AND TRUMP PLAZA ASSOCIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................ $(5,305) $ 397
Adjustments to reconcile net income (loss) to net cash flows
provided by operating activities--
Noncash charges--
Extraordinary Loss......................................... -- 9,250
Depreciation and amortization.............................. 11,734 11,792
Accretion of discounts on indebtedness..................... 1,412 1,021
Provisions for losses on receivables....................... 357 734
Deferred state income taxes................................ (523) 992
Utilization of CRDA credits and donations.................. 995 445
Valuation allowance of CRDA investments.................... 227 (790)
------- -------
8,897 23,841
Increase in receivables.................................... (437) (6,258)
Decrease in inventories.................................... 10 382
(Increase) decrease in advances to affiliates.............. 375 (609)
Increase in other current assets........................... (2,420) (485)
Decrease in other assets................................... 329 4,470
Increase in accounts payable and accrued expenses.......... 1,961 8,298
Increase in accrued interest payable....................... 11,102 2,773
------- -------
Net cash flows provided by operating activities........... 19,817 32,412
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net...................... (14,611) (86,612)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred partnership interest distribution.................. (233) --
Additional borrowings........................................ 4,348 1,928
Payments of debt............................................. (1,555) (3,906)
Redemption of PIK Notes...................................... -- (81,746)
Contributed Capital-Trump Hotels & Casino Resorts Holdings,
L.P. ....................................................... -- 146,859
------- -------
Net cash flows provided by financing activities........... 2,560 63,135
------- -------
Net increase in cash and cash equivalents..................... 7,766 8,935
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................ 14,393 11,144
------- -------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30,.................... $22,159 $20,079
======= =======
CASH INTEREST PAID............................................ $18,445 $22,848
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-38
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES AND
TRUMP PLAZA ASSOCIATES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed financial statements include those of Trump Plaza
Funding, Inc. ("Plaza Funding"), a New Jersey corporation as well as those of
Trump Plaza Holding Associates, ("Plaza Holding") a New Jersey General
Partnership, and its 99% owned subsidiary, Trump Plaza Associates, ("Plaza
Associates") a New Jersey General Partnership, which owns and operates the
Trump Plaza Hotel and Casino located in Atlantic City, New Jersey. Plaza
Funding owns the remaining 1% interest in, and is the managing general partner
of, Plaza Associates. Plaza Holding's sole source of liquidity is distributions
in respect of its interest in Plaza Associates.
All significant intercompany balances and transactions have been eliminated
in the condensed consolidated financial statements of Plaza Holding.
The accompanying condensed financial statements have been prepared by Plaza
Funding, Plaza Holding and Plaza Associates without audit. In the opinion of
Plaza Funding, Plaza Holding and Plaza Associates, all adjustments, consisting
of only normal recurring adjustments, necessary to present fairly the financial
position, the results of operations and cash flows for the periods presented,
have been made. Certain prior year amounts have been reclassified to conform
with the current period presentation.
The accompanying condensed financial statements have been prepared by Plaza
Funding, Plaza Holding and Plaza Associates pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and note disclosures normally included in financial statements
prepared in conformity with generally accepted accounting principles have been
condensed or omitted. These condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in Plaza
Funding's, Plaza Holding's and Plaza Associates' Annual Report on Form 10-K for
the year ended December 31, 1994 filed with the Securities and Exchange
Commission.
The casino industry in Atlantic City is seasonal in nature; therefore,
results of operations for the nine months ended September 30, 1995 are not
necessarily indicative of the operating results for a full year.
(2) PUBLIC OFFERINGS
On June 12, 1995, Trump Hotels & Casino Resorts, Inc., ("THCR") completed a
public offering of 10,000,000 shares of common stock at $14.00 per share (the
"June 1995 Stock Offering") for gross proceeds of $140,000,000. Concurrently
with the June 1995 Stock Offering, Trump Hotels & Casino Resorts Holdings, L.P.
("THCR Holdings") together with its subsidiary, Trump Hotels & Casino Resorts
Funding, Inc. ("THCR Funding") issued 15 1/2% Senior Secured Notes (the "Senior
Notes") for gross proceeds of $155,000,000 (the "June 1995 Note Offering" and,
together with the June 1995 Stock Offering, the "June 1995 Offerings"). From
the proceeds from the June 1995 Stock Offering, THCR contributed approximately
$126,848,000 to THCR Holdings. THCR Holdings subsequently contributed
$146,859,000 to Plaza Holding.
Prior to the June 1995 Offerings, Donald J. Trump ("Trump") was the sole
owner of THCR Holdings. Concurrent with the June 1995 Offerings, Trump
contributed to THCR Holdings all of his beneficial interest in Plaza Associates
(consisting of all of the outstanding capital stock of Plaza Funding, a 99%
equity interest in Plaza Holding and all of the outstanding capital stock of
Trump Plaza Holding, Inc. ("Plaza Holding, Inc.") which owns the remaining 1%
equity interest in Plaza Holding). Trump also contributed to THCR Holdings all
of his existing interest and rights to new gaming activities in both emerging
and established gaming jurisdictions, including Trump Indiana but excluding his
interests in the Trump Taj Mahal Casino Resort and Trump's Castle Casino Resort
(together, the "Other Trump Casinos").
F-39
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES AND
TRUMP PLAZA ASSOCIATES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(3) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
1994 30, 1995
------------ ---------
<S> <C> <C>
Plaza Funding:
10 7/8% Mortgage Notes, due 2001 net of
unamortized discount of $3,766,000 and
$3,457,000, respectively (A)............... $326,234,000 $326,543,000
============ ============
Plaza Associates:
Partnership Note (10 7/8% Mortgage Notes,
due 2001 net of unamortized discount of
$3,766,000 and $3,457,000, respectively)
(A)........................................ $326,234,000 $326,543,000
Mortgage notes payable...................... 5,494,000 3,055,000
Other notes payable......................... 468,000 4,157,000
------------ ------------
332,196,000 333,755,000
Less--Current maturities.................. 2,969,000 2,100,000
------------ ------------
329,227,000 331,655,000
Plaza Holding:
PIK Notes (12 1/2% Notes due 2003 net of
discount of $9,769,000) (B)................ 73,987,000 --
------------ ------------
$403,214,000 $331,655,000
============ ============
</TABLE>
(A) On June 25, 1993, Plaza Funding issued $330,000,000 principal amount of 10
7/8% Mortgage Notes, due 2001 (the "Plaza Mortgage Notes"), net of discount
of $4,313,000, and loaned the proceeds to Plaza Associates.
(B) On June 25, 1993 Plaza Holding issued $60,000,000 principal amount of 12
1/2% Pay-In-Kind Notes, due 2003 (the "PIK Notes"), together with Warrants
to acquire an additional $12,000,000 of PIK Notes at no additional cost
(the "PIK Note Warrants"). The PIK Note Warrants were exercised prior to
June 12, 1995 and the PIK Notes were repurchased and redeemed on June 12,
1995 from the amounts contributed to Plaza Holding by THCR Holdings (See
Note 2). Such repurchase and redemption resulted in the recognition of an
extraordinary loss of $9,250,000 relating to the redemption and the write-
off of unamortized deferred financing costs.
(4) CASINO LICENSE RENEWAL
The operation of an Atlantic City hotel and casino is subject to significant
regulatory controls which affect virtually all of its operations. Under the New
Jersey Casino Control Act (the "Casino Control Act") Plaza Associates is
required to maintain certain licenses.
In June 1995, the New Jersey Casino Control Commission ("CCC") renewed Plaza
Associates' license to operate Trump Plaza. This license must be renewed in
June 1999, is not transferable, and such renewal of the license will include a
review of the financial stability of Plaza Associates. Upon revocation,
suspension for more than 120 days, or if the CCC fails or refuses to renew such
casino license, the Casino Control Act allows for the appointment of a
conservator to take possession of the hotel and casino's business and property,
subject to all valid liens, claims and encumbrances.
F-40
<PAGE>
TRUMP PLAZA HOLDING ASSOCIATES AND
TRUMP PLAZA ASSOCIATES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(5) TRUMP REGENCY OPTION
On June 12, 1995, Trump exercised its option to purchase the Trump Regency
("Trump World's Fair"). The option price of $60,000,000 was funded with
$58,150,000 from the capital contributed by THCR Holdings (see Note 2), and
$1,850,000 of previous deposits made by Plaza Associates. Plaza Associates
received the property via directed deed.
(6) SUBSEQUENT EVENT
On January 8, 1996, THCR, Taj Holding and THCR Merger Corp. ("Merger Sub")
entered into the Agreement and Plan of Merger (the "Merger Agreement") pursuant
to which Merger Sub will merge with and into Taj Holding (the "Merger"). The
Merger Agreement provides that each outstanding share of Class A Common Stock
of Taj Holding ("Taj Holding Class A Common Stock") will be converted into the
right to receive, at each holder's election, either (a) $30.00 in cash or (b)
that number of shares of THCR Common Stock as shall have a market value equal
to $30.00. The Merger Agreement also contemplates the following transactions
occurring in connection with the Merger:
(a) the consummation of the offering by THCR of up to $140,000,000 of THCR
Common Stock (and an amount to be issued pursuant to the underwriters' over-
allotment option) (the "THCR Stock Offering") and the offering by Trump Taj
Mahal Funding, Inc. ("Taj Funding") of up to $750,000,000 aggregate
principal amount of debt securities, the aggregate net proceeds of which
will be used, together with available cash of Taj Mahal Associates ("Taj
Associates"), to (i) pay cash to those holders of Taj Holding Class A Common
Stock electing to receive cash in the Merger, (ii) redeem Trump Taj Mahal
Funding, Inc's ("Taj Funding") outstanding 11.35% Mortgage Bonds, Series A
due 1999 (the "Bonds"), (iii) redeem the outstanding shares of Class B
Common Stock, par value $.01 per share, of Taj Holding as required in
connection with the redemption of the Bonds pursuant to the Amended and
Restated Certificate of Incorporation of Taj Holding, (iv) purchase (using
cash and 500,000 shares of THCR Common Stock) certain real property adjacent
to the Trump Taj Mahal Casino Resort that is currently leased from Trump Taj
Mahal Realty Corp., a corporation wholly owned by Trump, and (v) make a
payment to Bankers Trust to obtain releases of the liens and guarantees that
Bankers Trust has with respect to Taj Associates;
(b) the contribution by Trump to THCR Holdings and Taj Mahal Holdings LLC
("Taj Holdings LLC"), a subsidiary of THCR Holdings, of all of his direct
and indirect ownership interests in Taj Associates; and
(c) the contribution by THCR to THCR Holdings and Taj Holdings LLC of all
of its indirect ownership interests in Taj Associates acquired in the Merger
and contributed to THCR by Trump.
F-41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trump Taj Mahal Associates and Subsidiary:
We have audited the accompanying consolidated balance sheets of Trump Taj
Mahal Associates (a New Jersey general partnership) and Subsidiary as of
December 31, 1993 and 1994, and the related consolidated statements of
operations, capital (deficit) and cash flows for each of the three years in the
period ended December 31, 1994. These consolidated financial statements are the
responsibility of Trump Taj Mahal Associates management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trump Taj Mahal Associates and
Subsidiary as of December 31, 1993 and 1994 and the result of their operations
and their cash flows for each of the three years in the period ended December
31, 1994, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Roseland, New Jersey
March 22, 1995 (except
with respect to the
matter discussed in Note
10, as to which the date
is January 8, 1996
F-42
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash investments.............................. $ 58,044 $ 61,196
Receivables, net of allowance of $4,346 and $4,059 for
doubtful accounts..................................... 13,034 15,443
Inventory.............................................. 4,685 6,431
Prepaid expenses and other current assets.............. 3,986 7,806
--------- ---------
Total Current Assets................................. 79,749 90,876
--------- ---------
PROPERTY AND EQUIPMENT (Notes 1, 2, and 5):
Land................................................... 37,291 37,843
Building............................................... 646,653 656,702
Furniture, fixtures and equipment...................... 148,401 160,372
Leasehold improvements................................. 30,971 31,243
--------- ---------
863,316 886,160
Less: Accumulated depreciation and amortization...... (140,482) (179,375)
--------- ---------
722,834 706,785
--------- ---------
OTHER ASSETS............................................. 8,925 9,951
--------- ---------
Total Assets......................................... $ 811,508 $ 807,612
========= =========
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Long-term debt due currently (Note 2).................. $ 805 $ 743
Accounts payable....................................... 3,934 3,256
Accrued interest payable............................... 11,460 8,977
Due to affiliates, net (Note 3)........................ 490 109
Other current liabilities (Note 4)..................... 34,100 37,102
--------- ---------
Total Current Liabilities............................ 50,789 50,187
--------- ---------
OTHER LIABILITIES (Notes 2 and 3)........................ 28,313 32,912
--------- ---------
LONG-TERM DEBT NET OF UNAMORTIZED DISCOUNT OF $172,417
AND $153,597 (Note 2)................................... 625,765 656,701
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 5)
CAPITAL:
Contributed capital.................................... 123,765 123,765
Accumulated deficit.................................... (17,124) (55,953)
--------- ---------
Total Capital........................................ 106,641 67,812
--------- ---------
Total Liabilities and Capital........................ $ 811,508 $ 807,612
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated financial statements.
F-43
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
REVENUES (Note 1):
Gaming...................................... $ 414,045 $ 442,064 $ 461,622
Rooms....................................... 41,044 40,682 41,815
Food and beverage........................... 59,456 55,953 58,029
Other....................................... 16,458 16,656 17,894
--------- --------- ---------
Gross revenues............................ 531,003 555,355 579,360
Less--Promotional allowances (Note 1)....... 61,250 56,444 62,178
--------- --------- ---------
Net revenues.............................. 469,753 498,911 517,182
--------- --------- ---------
COST AND EXPENSES:
Gaming...................................... 227,394 237,566 260,472
Rooms....................................... 15,216 15,525 15,662
Food and beverage........................... 23,909 25,080 25,035
General and administrative.................. 98,819 99,424 99,629
Depreciation and amortization............... 36,388 36,858 39,750
--------- --------- ---------
401,726 414,453 440,548
--------- --------- ---------
Income from operations........................ 68,027 84,458 76,634
Interest income............................... 923 1,382 2,019
Interest expense.............................. (104,049) (108,379) (115,311)
--------- --------- ---------
Net loss...................................... $ (35,099) $ (22,539) $ (36,658)
========= ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated financial statements.
F-44
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CAPITAL (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
CONTRIBUTED SURPLUS CAPITAL
CAPITAL (DEFICIT) (DEFICIT)
----------- ----------- ---------
<S> <C> <C> <C>
Balance, January 1, 1992..................... $123,765 $ 44,072 $167,837
Net loss..................................... -- (35,099) (35,099)
Partnership distribution (Note 6)............ -- (1,825) (1,825)
-------- -------- --------
Balance, December 31, 1992................... 123,765 7,148 130,913
Net loss..................................... -- (22,539) (22,539)
Partnership distribution (Note 6)............ -- (1,733) (1,733)
-------- -------- --------
Balance, December 31, 1993................... 123,765 (17,124) 106,641
Net loss..................................... -- (36,658) (36,658)
Partnership distribution (Note 6)............ -- (2,171) (2,171)
-------- -------- --------
Balance, December 31, 1994................... $123,765 $(55,953) $ 67,812
======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated financial statements.
F-45
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $(35,099) $(22,539) $(36,658)
Adjustments to reconcile net loss to net cash
flows provided by
operating activities--
Depreciation and amortization.................. 36,388 36,858 39,750
Charges related to lease guarantee............. 1,519 1,763 2,047
Accretion of discount on Bond indebtedness..... 13,172 15,745 18,820
Other adjustments to reduce the carrying value
of non-current
assets........................................ 2,563 2,764 2,134
Utilization of CRDA credits.................... -- -- 1,500
Provision for doubtful accounts................ 6,197 3,472 2,974
-------- -------- --------
24,740 38,063 30,567
Changes in operating assets and liabilities:
Receivables, net............................... (3,349) (2,281) (5,383)
Inventory...................................... (6) (1,612) (1,746)
Other current assets........................... (655) (39) (3,552)
Other assets................................... (225) (766) (392)
Due to affiliates, net......................... 186 98 (381)
Accounts payable............................... 1,717 (2,225) (678)
Accrued interest payable....................... 14,611 14,900 12,537
Other liabilities.............................. (5,233) 2,496 2,450
-------- -------- --------
Net cash flows provided by operating
activities................................... 31,786 48,634 33,422
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. (12,111) (16,752) (23,030)
Investment in CRDA obligations.................. (5,648) (5,408) (4,201)
-------- -------- --------
Net cash flows used in investing activities... (17,759) (22,160) (27,231)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings........................ 8,000 -- --
Repayments of borrowings........................ (8,675) (759) (868)
Partnership distribution........................ (1,825) (1,733) (2,171)
-------- -------- --------
Net cash flows used in financing activities... (2,500) (2,492) (3,039)
-------- -------- --------
NET INCREASE IN CASH AND CASH INVESTMENTS........ 11,527 23,982 3,152
CASH AND CASH INVESTMENTS BEGINNING OF YEAR...... 22,535 34,062 58,044
-------- -------- --------
CASH AND CASH INVESTMENTS END OF YEAR............ $ 34,062 $ 58,044 $ 61,196
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest.......... $ 74,778 $ 75,972 $ 79,121
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS:
Issuance of PIK bonds in lieu of cash interest.. $ 8,844 $ 14,579 $ 12,249
======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated financial statements.
F-46
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
The accompanying consolidated financial statements include those of Trump Taj
Mahal Associates ("Taj Associates"), and its wholly owned subsidiary, Trump Taj
Mahal Funding, Inc. ("Taj Funding"). All significant intercompany balances and
transactions have been eliminated in the consolidated financial statements.
Taj Associates was formed on June 23, 1988 as a New Jersey limited
partnership. Taj Associates was converted to a general partnership in December
1990. The current partners and their respective ownership interests are Trump
Taj Mahal, Inc. ("TTMI"), 49.995%, The Trump Taj Mahal Corporation ("TTMC"),
.01%, and TM/GP Corporation ("TM/GP"), the managing general partner, and a
wholly owned subsidiary of Taj Mahal Holding Corp. ("Taj Holding"), 49.995%.
Taj Associates was formed for the purpose of acquiring, constructing and
operating the Trump Taj Mahal Casino Resort (the "Taj Mahal"), an Atlantic City
hotel, casino and convention center complex. On April 2, 1990, Taj Associates
opened the Taj Mahal to the public.
Taj Funding was incorporated on June 3, 1988 for the purpose of raising funds
through the issuance of its 14% First Mortgage Bonds, Series A, due 1998 (the
"Old Bonds"), the proceeds of which were loaned to Taj Associates for
construction of the Taj Mahal. During 1991, as a result of a plan of
reorganization (the "1991 Taj Restructuring"), the Old Bonds were subsequently
exchanged for the Taj Funding's 11.35% Mortgage Bonds, Series A, due 1999 (the
"Bonds"). Since Taj Funding has no business operations, its ability to repay
the principal and interest on the Bonds is completely dependent on the
operations of Taj Associates.
Donald J. Trump ("Trump") beneficially owns 50% of Taj Associates and has
pledged his total ownership interest as collateral under various debt
agreements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Casino revenues consist of the net win from gaming activities, which is the
difference between gaming wins and losses. Revenues from hotel and other
services are recognized at the time the related service is performed.
Promotional Allowances
Gross revenues includes the retail value of complimentary rooms, food,
beverages, and other services furnished to patrons. The retail value of these
promotional allowances is deducted from gross revenues to arrive at net
revenues. The cost of promotional allowances is charged to operations.
Promotional allowances consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1992 1993 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Rooms................................................ $23,692 $23,079 $25,562
Food and Beverage.................................... 34,403 30,734 32,581
Other................................................ 3,155 2,631 4,035
------- ------- -------
$61,250 $56,444 $62,178
======= ======= =======
</TABLE>
F-47
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The accompanying financial statements do not include a provision for Federal
income taxes of Taj Associates, since any income or losses allocated to the
partners are reportable for Federal income tax purposes by the partners.
Under the New Jersey Casino Control Commission regulations, Taj Associates is
required to file a New Jersey corporation business tax return.
Inventories
Inventories are carried at cost on a weighted average basis.
Property and Equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line method over the estimated useful lives of assets. Estimated
useful lives range from three to seven years for furniture, fixtures and
equipment and 40 years for buildings and building improvements. Leasehold
improvements are amortized over the term of the related lease commencing in the
period these assets are placed in service.
The interest expense associated with borrowings used to fund the purchase and
construction of the Taj Mahal has been capitalized and is being amortized over
the estimated useful life of the facility.
Cash and Cash Investments
Cash and cash investments include hotel and casino funds, funds on deposit
with banks and temporary investments having a maturity of three months or less.
(2) LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
First Mortgage Bonds (a)............................... $ 752,881 $ 765,130
Unamortized discount................................... (172,417) (153,597)
--------- ---------
Net.................................................... 580,464 611,533
Bank term loan (b)..................................... 45,314 45,138
Other.................................................. 792 773
--------- ---------
Total................................................ 626,570 657,444
Less: Current portion................................ (805) (743)
--------- ---------
$ 625,765 $ 656,701
========= =========
</TABLE>
- ---------------------
(a) Taj Funding's Bonds bear interest of 11.35% and are due November 15, 1999.
Each Bond, together with one share of Taj Holding's Class B redeemable
common stock, par value $.01 per share, trade together as a unit
("Units"), and may not be transferred separately. Interest on the Bonds is
due semi-annually on each November 15 and May 15. Interest on the Bonds
must be paid in cash on each interest payment date at the rate of 9.375%
per annum (the "Mandatory Cash Interest Amount"). In addition to the
Mandatory Cash Interest Amount, effective May 15, 1992 and annually
thereafter, an additional amount of interest (the "Additional Amount") in
cash or additional Bonds or a combination thereof, is payable equal to the
difference between 11.35% of the outstanding principal amount of the Bonds
and the Mandatory Cash Interest Amount previously paid. To the extent that
there is excess available cash
F-48
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
flow ("EACF") of Taj Associates, as defined in the related indenture, for
the immediately preceding calendar year, Taj Funding will pay the Additional
Amount in cash up to 10.28% and the balance thereof may be paid at the
option of Taj Funding in cash or additional Units, provided that an
equivalent amount of cash is used to purchase or redeem Units. Additional
Bonds issued on October 4, 1991 amounted to approximately $7,208,000. For
the period from the issuance of the Bonds, October 4, 1991, through December
31, 1992, there was no EACF. Accordingly, Taj Funding paid the Additional
Amounts on May 15, 1993 and May 15, 1992 through the issuance of
approximately $14,579,000 and $8,844,000, respectively, in additional Bonds.
Of the $14,870,000 Additional Amount due May 15, 1994, $2,621,000 was paid
in cash and the $12,249,000 balance in Bonds. Of the $15,111,000 Additional
Amount due May 15, 1995, Taj Associates expects to satisfy the obligation
through the issuance of Bonds.
Since Taj Funding has no business operations, its ability to repay the
principal and interest on the Bonds is completely dependent on the
operations of Taj Associates. The Bonds are guaranteed as to payment of
principle and interest by Taj Associates and are collateralized by
substantially all Taj Associates property.
In accordance with AICPA Statement of Position 90-7, "Financial Reporting
By Entities in Reorganization Under the Bankruptcy Code", the Bonds when
issued were stated at the present value of amounts to be paid, determined
at current interest rates (effective rate of approximately 18%). The
effective interest rate of the Bonds was determined based on the trading
price of the Bonds for a specific period. Stating the debt at its
approximate present value resulted in a reduction of approximately
$204,276,000 in the carrying amount of the Bonds. This gain is being offset
by increased interest costs over the period of the Bonds to accrete such
bonds to their face value at maturity. At December 31, 1994, the unaccreted
balance of this discount approximated $153,597,000. The current interest
rates of other borrowings approximated their stated interest rates as of
the effective date. The accretion amounted to approximately $13,172,000 in
1992, $15,745,000 in 1993 and $18,820,000 in 1994, and is included in
interest expense.
(b) On November 3, 1989, Taj Associates entered into a loan agreement with
National Westminster Bank, U.S.A. (the "NatWest Loan") which provided
financing up to $50,000,000 for certain items of furniture, fixtures and
equipment installed in the Taj Mahal. The terms of the NatWest Loan were
modified in 1991 as part of the 1991 Taj Restructuring. The restructured
NatWest Loan bears interest at 9 3/8% per annum. Principal and interest is
payable monthly in the fixed amount of $373,000 to be applied first to
accrued interest and the balance to the extent available, to principal,
through maturity, November 15, 1999. Additionally, on May 15 of each year
(May 15, 1992 through May 15, 1999), to the extent principal is still
outstanding, NatWest will receive 16.5% of the EACF of the preceding
calendar year in excess of the Additional Amount, to be applied first to
accrued but unpaid interest, and then to principal.
The NatWest Loan is secured by a first priority lien on the furniture,
fixtures and equipment acquired with the proceeds of the NatWest Loan plus
any after acquired furniture, fixtures and equipment that replaces such
property, or of the same type, provided, however, that the NatWest Loan may
be subordinated to a lien to secure purchase money financing of such after
acquired property up to 50% of the value of such after acquired property.
In November 1991, Taj Associates obtained a working capital line of credit
in the amount of $25,000,000 with a maturity of five years. In September
1994, Taj Associates extended the maturity to November 1999, in
consideration of modifications of the terms of the facility. Interest on
advances under the line are at prime plus 3% with a minimum of 0.666 per
month. The Agreement provides for a 3/4% annual fee and a 1/2% unused line
fee and contains various covenants. During 1993 and 1994, no amounts were
outstanding under the line. During 1992, $8,000,000 was drawn under the
line and repaid.
F-49
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Aggregate annual maturities of long-term debt at accreted value are as
follows:
<TABLE>
<S> <C>
1995............................ $ 743,000
1996............................ 423,000
1997............................ 233,000
1998............................ 256,000
1999............................ 809,386,000
Thereafter...................... 0
</TABLE>
(3) TRANSACTIONS WITH AFFILIATES
Taj Associates has engaged in certain transactions with Trump and entities
that are wholly or partially owned by Trump. Amounts owed to (receivable from)
at December 31 are as follows:
<TABLE>
<CAPTION>
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Donald J. Trump (a)......................................... $ 537 $ 253
Trump Taj Mahal Realty Corp. ("Realty Corp.") (b)........... -- --
Trump's Castle Associates (c)............................... 69 30
Trump Plaza Associates (c).................................. (73) (131)
Helicopter Air Services (d)................................. (43) (43)
------ -------
$ 490 $ 109
====== =======
</TABLE>
- ---------------------
(a) Taj Associates has entered into a Services Agreement (the "Services
Agreement"), which provides that Trump will render to Taj Associates
marketing, advertising, promotional and related services with respect to
the business operations of Taj Associates. In consideration for the
services to be rendered, Taj Associates will pay an annual fee equal to
1.5% of Taj Associates earnings before interest, taxes and depreciation, as
defined, less capital expenditures and partnership distributions for such
year, with a minimum base fee of $500,000. The services fee is payable
monthly through November 15, 1999, although the agreement provides for
earlier termination under certain events. Portions of the fee have been
assigned to First Fidelity Bank in connection with the Loan to Realty Corp.
which has been guaranteed by Trump. For the years ended December 31, 1992,
1993 and 1994, Taj Associates incurred $1,319,000, $1,566,000 and
$1,353,000, respectively, under the Services Agreement. In addition, during
1993 and 1994, Taj Associates reimbursed Mr. Trump $232,000 and $224,000,
respectively, for expenses pursuant to the Services Agreement, of which
$127,000 and $149,000, respectively, was incurred to an affiliate for air
transportation.
(b) The term of the lease between Taj Associates and Realty Corp. is through
2023 and provides for base rentals payable by Taj Associates, prior to the
time that the NatWest Loan is paid in full, of $2,725,000 per year, plus 3
1/2% of the EACF in excess of the Additional Amount and, upon payment in
full of the NatWest loan, increasing to include the payments to which
NatWest is otherwise entitled under the amended NatWest Agreement (Note 3).
The amended lease was assigned by Realty to First Fidelity Bank ("First
Fidelity"). The first $3,300,000 received by First Fidelity each year will
be applied to the interest due on the Realty Corp. loan (the "Loan"). Any
additional sums paid will also reduce Taj Associates guarantee (see below)
and the principal amount of the Loan. The Loan is secured by a first
mortgage lien on the underlying parcels owned by Realty Corp.
Pursuant to a limited subordinated guarantee Taj Associates will, under
certain circumstances, reimburse First Fidelity for any deficiency in the
amount owed to First Fidelity upon maturity of the Loan, up to a
F-50
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
maximum of $30,000,000, provided that First Fidelity first pursues its
first mortgage lien on the parcels, and provided further that the Bonds
have been paid in full. Inasmuch as Taj Associates lease payments are
Realty Corp's sole source of funds to satisfy the Loan and the amount of
the Loan exceeds the estimated fair market value of the land by more than
$30,000,000, Taj Associates recorded the present value of the maximum
guarantee amount as of October 4, 1991. Discounted at 15%, a reasonable
incremental cost of capital, the obligation amounted to approximately
$9,103,000. This obligation is being accreted as interest expense over the
life of the Bonds and is included in Other Liabilities in the accompanying
consolidated balance sheets. The accretion amounted to approximately
$1,519,000, $1,763,000, and $2,047,000 for the years ended December 31,
1992, 1993 and 1994, respectively.
(c) Taj Associates engages in various transactions with the two other Atlantic
City hotel/casinos owned by Trump. These transactions are charged at cost
or normal selling price in the case of retail items and include the
utilization of fleet maintenance and limousine services, certain shared
professional fees and payroll costs as well as complimentary services
offered to customers. During 1992, Taj Associates incurred approximately
$622,000 and $93,000 of costs for these services from Trump's Castle Casino
Resort ("Trump's Castle") and Trump Plaza, respectively. In addition, Taj
Associates charged $67,000 and $309,000 to Trump's Castle and Trump Plaza,
respectively, for similar services. During 1993, Taj Associates incurred
approximately $1,100,000 and $83,000 of costs for these services from
Trump's Castle and Trump Plaza, respectively. In addition, Taj Associates
charged $256,000 and $255,000 to Trump's Castle and Trump Plaza,
respectively, for similar services. During 1994, Taj Associates incurred
approximately $1,167,000 and $149,000 of costs for these services from
Trump's Castle and Trump Plaza, respectively. In addition, Taj Associates
charged $235,000 and $361,000 to Trump's Castle and Trump Plaza,
respectively, for similar services.
(d) Helicopter Air Services and the Trump Shuttle, Inc. (the "Trump Shuttle")
provided aircraft charters and travel services to certain patrons of the
Taj Mahal on behalf of Taj Associates. For the years ended December 31,
1992, 1993 and 1994, Taj Associates incurred no charges from Helicopter Air
Services. During 1992, Taj Associates incurred charges of $29,000 from
Trump Shuttle.
(4) OTHER CURRENT LIABILITIES
The components of other current liabilities at December 31 consisted of the
following:
<TABLE>
<CAPTION>
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Payroll and related costs................................... $11,381 $14,806
Self-insurance reserves..................................... 4,879 4,626
Advertising/Marketing costs................................. 2,387 3,242
Advance deposits............................................ 1,046 3,022
Unredeemed chip liability................................... 3,056 2,725
Accrued taxes............................................... 2,912 912
Progressive jackpot reserves................................ 2,206 582
Other....................................................... 6,233 7,187
------- -------
$34,100 $37,102
======= =======
</TABLE>
F-51
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) COMMITMENTS AND CONTINGENCIES
LEASES AND EMPLOYMENT AGREEMENTS
Taj Associates has entered into employment agreements with certain key
employees and lease agreements for land, office and warehouse space under
noncancellable operating leases expiring at various dates through 2023. At
December 31, 1994, minimum commitments under these arrangements are as follows:
<TABLE>
<S> <C>
1995............................................................. $ 8,186,000
1996............................................................. $ 6,174,000
1997............................................................. $ 4,637,000
1998............................................................. $ 2,750,000
1999............................................................. $ 2,725,000
Thereafter....................................................... $65,400,000
</TABLE>
Rent expense was approximately $4,942,000, $4,520,000 and $5,027,000 for the
years ended December 31, 1992, 1993 and 1994, respectively.
Taj Associates leases the pier extending from the Taj Mahal 1,000 feet into
the Atlantic Ocean (the "Steel Pier") from Realty Corp. A condition imposed on
Taj Associates Coastal Area Facilities Review Act ("CAFRA") permit (which, in
turn, is a condition of Taj Associates casino license) initially required that
Taj Associates begin construction of certain improvements on the Steel Pier
which were to be completed within 18 months of commencement. Taj Associates
initially proposed a concept to improve the Steel Pier, the estimated cost of
which was $30,000,000. Such concept was approved by the New Jersey Department
of Environmental Protection and Energy ("NJDEPE"), the agency which administers
CAFRA. In March 1993, Taj Associates obtained a modification of its CAFRA
permit providing for the extension of the required commencement and completion
dates of the improvements to the Steel Pier for one year based upon an interim
use of the Steel Pier for an amusement park. In March 1994 and 1995, Taj
Associates received an additional one-year extension of the required
commencement and completion dates of the improvements of the Steel Pier based
upon the same interim use of the Steel Pier as an amusement park.
EMPLOYEE BENEFIT PLAN
Effective January 1, 1989, Taj Associates established the Taj Mahal
Retirement Savings Plan ("the Benefit Plan") for its employees over 21 years of
age who are not covered by a collective bargaining agreement. The Benefit Plan
is structured to qualify for favorable tax treatment under Section 401(k) of
the Internal Revenue Code and allows eligible participants to contribute up to
15% of their salary (certain limits apply, as defined) to the Benefit Plan with
a matching Partnership contribution of 50% of the first 4% of such employee
salary contribution. The funds are invested by a Benefit Plan trustee. Taj
Associates contributions for the years ended December 31, 1992, 1993 and 1994
were $841,000, $870,000 and $938,000, respectively.
CASINO LICENSE RENEWAL
Taj Funding and Taj Associates are subject to regulation and licensing by the
New Jersey Casino Control Commission (the "CCC"). Taj Associates' casino
license must be renewed periodically, is not transferable, is dependent upon
the financial stability of Taj Associates and can be revoked at anytime. Upon
revocation, suspension for more than 120 days, or failure to renew the casino
license due to Taj Associates financial condition or for any other reason, the
Casino Control Act (the "Casino Control Act") provides that the CCC may appoint
a conservator to take possession of and title to the hotel and casino's
business and property,
F-52
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
subject to all valid liens, claims and encumbrances. On March 22, 1995, the CCC
extended Taj Associates' casino license through June 30, 1995 in order to
consolidate Taj Associates license renewal proceedings with Trump's Castle and
the Taj Mahal (the "Other Trump Casinos"), at which time the CCC will conduct a
plenary hearing for renewal of Taj Associates' casino license for a period of
up to four years as provided by law.
LEGAL PROCEEDINGS
Taj Associates, its partners, certain of its employees and Taj Funding are
involved in various legal proceedings incurred in the normal course of
business. In the opinion of management of Taj Associates, the expected
disposition of these proceedings would not have a material adverse affect on
Taj Associates or TTMI's financial condition or results of operations.
INVESTMENT OBLIGATION
The Casino Control Act requires Taj Associates to make qualified investments,
as defined, in New Jersey, or pay an investment alternative tax to the New
Jersey Casino Reinvestment Development Authority ("CRDA"). Commencing in 1991,
and for a period of thirty years thereafter, Taj Associates must either obtain
investment tax credits, as defined, in an amount equivalent to 1.25% of its
gross casino revenues or pay an alternative tax of 2.5% of its gross casino
revenues, as defined. Investment tax credits may be obtained by making
qualified investments, by depositing funds which may be converted to bonds by
the CRDA or by donating previously deposited funds in exchange for future
credits against tax liability. Taj Associates intends to satisfy its investment
obligation primarily by depositing funds and donations of funds deposited.
During 1994, Taj Associates contributed $9,500,000 of previous CRDA deposits,
the carrying value of which was $4,750,000. Of the carrying value, $3,250,000
will become a leasehold improvement upon completion of the improvements during
1995, and $1,500,000 was a donation of previously deposited funds, which became
a credit utilized in 1994 as a reduction of current year obligations. The
deposits and bonds traditionally bear interest at below-market interest rates;
accordingly, Taj Associates has reduced its carrying value of the deposits by
50% and charged operations approximately $2,563,000, $2,764,000 and $2,134,000
in 1992, 1993 and 1994, respectively. Taj Associates is required to satisfy its
obligations to the CRDA through deposits on a quarterly basis. If such deposits
are converted to bonds by the CRDA, such bonds will be accounted for under SFAs
No. 115.
(6) PARTNERSHIP DISTRIBUTION
Taj Associates is obligated to reimburse Taj Holding for its operating
expenses which consist of directors and officers liability insurance, board of
director fees and expenses, and administrative expenses. Total expenses for the
years ended December 31, 1992, 1993 and 1994 approximated $1,825,000,
$1,733,000 and $2,171,000, respectively.
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the following financial instruments of Taj Funding and
Taj Associates approximates fair value, as follows: (a) cash and cash
equivalents and accrued interest payable are based on the short term nature of
the financial instruments; and, (b) CRDA deposits are based on the valuation
allowances to give effect to the below market interest rates.
F-53
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The estimated fair values of the other financial instruments are as follows
(Note 3):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
11.35% Mortgage Bonds (a)
Carrying Amount......................................... $580,464 $611,533
Fair Value.............................................. 761,350 512,638
</TABLE>
- ---------------------
(a) The fair value of the Mortgage Bonds is based on quoted market prices as of
December 31, 1993 and 1994.
There are no quoted market prices for the Taj Associates-NatWest Loan and
other debt and a reasonable estimate of their value could not be made
without incurring excessive costs.
(8) FINANCIAL INFORMATION--TAJ FUNDING
Financial information relating to Taj Funding as of and for the years ended
December 31, 1993 and 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Total Assets (including Mortgage Note Receivable of $752,881
and $765,130 and related interest receivable).............. $771,018 $783,562
======== ========
Total Liabilities and Capital (including Mortgage Bonds pay-
able of $752,881 and $765,130 and related interest pay-
able)...................................................... $771,018 $783,562
======== ========
Interest Income............................................. $ 84,829 $ 86,322
======== ========
Interest Expense............................................ $ 84,829 $ 86,322
======== ========
Net Income.................................................. $ -- $ --
======== ========
</TABLE>
(9) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1992
- ----
Net Revenues............................. $104,274 $118,110 $135,203 $112,166
Income from Operations................... 8,134 18,229 25,802 15,862
Net Income (Loss)........................ (17,049) (7,251) 159 (10,958)
1993
- ----
Net Revenues............................. $110,382 $126,364 $141,597 $120,568
Income from Operations................... 13,014 23,181 30,812 17,451
Net Income (Loss)........................ (13,003) (3,192) 4,212 (10,556)
1994
- ----
Net Revenues............................. $111,297 $127,254 $147,987 $130,644
Income from Operations................... 7,902 14,980 31,308 22,444
Net Income (Loss)........................ (20,761) (13,847) 3,286 (5,336)
</TABLE>
F-54
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) SUBSEQUENT EVENT
On January 8, 1996, Trump Hotels & Casino Resorts Inc. ("THCR"), Taj Holding
and THCR Merger Corp. ("Merger Sub") entered into the Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which Merger Sub will merge with
and into Taj Holding (the "Merger"). The Merger Agreement provides that each
outstanding share of Class A Common Stock of Taj Holding ("Taj Holding Class A
Common Stock") will be converted into the right to receive, at each holder's
election, either (a) $30.00 in cash or (b) that number of shares of Common
Stock of THCR ("THCR Common Stock") as shall have a market value equal to
$30.00. The Merger Agreement also contemplates the following transactions
occurring in connection with the Merger:
(a) the consummation of the offering by THCR of up to $140,000,000 of THCR
Common Stock (the "THCR Stock Offering") and the offering by Taj Funding of
up to $750,000,000 aggregate principal amount of debt securities, the
aggregate net proceeds of which will be used, together with available cash
of Taj Associates, to (i) pay cash to those holders of Taj Holding Class A
Common Stock electing to receive cash in the Merger, (ii) redeem the Bonds,
(iii) redeem the outstanding shares of Class B Common Stock, par value $.01
per share, of Taj Holding as required in connection with the redemption of
the Bonds pursuant to the Amended and Restated Certificate of Incorporation
of Taj Holding, (iv) purchase certain real property adjacent to the Taj
Mahal that is currently leased from Realty Corp., a corporation wholly owned
by Trump , and (v) make a payment to Bankers Trust to obtain releases of the
liens and guarantees that Bankers Trust has with respect to Taj Associates;
(b) the contribution by Trump to THCR Holdings and Taj Mahal Holdings LLC
("Taj Holdings LLC"), a subsidiary of Trump Hotels & Casino Resorts
Holdings, L.P. ("THCR Holdings"), of all of his direct and indirect
ownership interests in Taj Associates; and
(c) the contribution by THCR to THCR Holdings and Taj Holdings LLC of all
of its indirect ownership interests in Taj Associates acquired in the
Merger.
Existing and prospective investors should consider among other things, (i)
the high leverage and fixed charges of THCR and Taj Holding; (ii) the risk in
refinancing and repayment of indebtedness and the need for additional financing
(iii) the restrictions imposed on certain activities by certain debt
instruments (iv) the recent results of Trump Plaza and the Taj Mahal (v) risks
associated with the Trump Plaza Expansion, the Taj Mahal Expansion and the
Indiana Riverboat. There can be no assurance that the Trump Plaza Expansion or
the Taj Mahal Expansion will be completed or that the Indiana Riverboat or any
other gaming venture, will open or that any of THCR's or the Taj Mahal's
operations will be successful. See "Risk Factors" included elsewhere in this
Proxy Statement-Prospectus for a discussion of these and other factors.
F-55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Taj Mahal Holding Corp.
and Subsidiary
We have audited the accompanying consolidated balance sheets of Taj Mahal
Holding Corp. (a Delaware corporation) and Subsidiary as of December 31, 1993
and 1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the management
of Taj Mahal Holding Corp. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Taj Mahal Holding Corp. and
Subsidiary as of December 31, 1993 and 1994 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Roseland, New Jersey
March 22, 1995 (except with respect to the
matter discussed in Note 3, as to which the
date is January 8, 1996)
F-56
<PAGE>
TAJ MAHAL HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1994
---------- ----------
<S> <C> <C>
ASSETS (NOTE 2)
Cash................................................. $ 100 $ 100
---------- ----------
Total Assets..................................... $ 100 $ 100
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Class B Common Stock; $.01 par value; 860,000 shares
authorized, 752,881 and 765,130 issued and outstand-
ing as of December 31, 1993 and 1994, respectively.. $ 20 $ 20
STOCKHOLDERS' EQUITY (NOTE 1)
Class A Common Stock; $.01 par value; 10,000,000
shares authorized, 1,350,000 issued and outstanding. $ 40 $ 40
Class C Common Stock; $.01 par value; 10,000,000
shares authorized, 1,350,000 issued and outstanding. 40 40
Additional paid in capital........................... 3,558,000 5,729,000
Accumulated deficit.................................. (3,558,000) (5,729,000)
---------- ----------
Total Stockholders' Equity....................... 80 80
---------- ----------
Total Liabilities and Stockholders' Equity....... $ 100 $ 100
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated financial statements.
F-57
<PAGE>
TAJ MAHAL HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenue................................. $ -- $ -- $ --
Expenses (Note 2)--
Director fees, insurance and adminis-
trative expenses....................... 1,825,000 1,733,000 2,171,000
----------- ----------- -----------
Net loss................................ $(1,825,000) $(1,733,000) $(2,171,000)
=========== =========== ===========
Net loss per common share (Note 2)...... $ (1.35) $ (1.28) $ (1.61)
=========== =========== ===========
Weighted average number of shares out-
standing............................... 1,350,000 1,350,000 1,350,000
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated financial statements.
F-58
<PAGE>
TAJ MAHAL HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------
CLASS A CLASS B CLASS C
---------------- ---------------- ----------------
ADDITIONAL
NUMBER NUMBER NUMBER PAID IN ACCUMULATED
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ --------- ------ --------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992................... 1,350,000 $40 738,302 $20 1,350,000 $40 $1,825,000 $(1,825,000) $ 100
Additional issuance of
common stock in connec-
tion with the Partner-
ship's interest pay-
ment................... -- -- 14,579 -- -- -- -- -- --
Distribution from the
Partnership for operat-
ing expenses........... -- -- -- -- -- -- 1,733,000 -- 1,733,000
Net loss................ -- -- -- -- -- -- -- (1,733,000) (1,733,000)
--------- --- ------- --- --------- --- ---------- ----------- ----------
Balance, December 31,
1993................... 1,350,000 40 752,881 20 1,350,000 40 3,558,000 (3,558,000) 100
Additional issuance of
common stock in connec-
tion with the Partner-
ship's interest pay-
ment................... -- -- 12,249 -- -- -- -- -- --
Distribution from the
Partnership for operat-
ing expenses........... -- -- -- -- -- -- 2,171,000 -- 2,171,000
Net loss................ -- -- -- -- -- -- -- (2,171,000) (2,171,000)
--------- --- ------- --- --------- --- ---------- ----------- ----------
Balance, December 31,
1994................... 1,350,000 $40 765,130 $20 1,350,000 $40 $5,729,000 $(5,729,000) $ 100
========= === ======= === ========= === ========== =========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated financial statements.
F-59
<PAGE>
TAJ MAHAL HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss............................... $(1,825,000) $(1,733,000) $(2,171,000)
Cash Flows from Financing Activities:
Partnership distribution............... 1,825,000 1,733,000 2,171,000
Net Change in Cash and Cash Investments. -- -- --
Cash at Beginning of Period............. 100 100 100
----------- ----------- -----------
Cash at End of Period................... $ 100 $ 100 $ 100
=========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these consolidated financial statements.
F-60
<PAGE>
TAJ MAHAL HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BACKGROUND
The accompanying consolidated financial statements include those of Taj Mahal
Holding Corp. ("Taj Holding") and its wholly owned subsidiary, TM/GP
Corporation, ("TM/GP"), the managing general partner of Trump Taj Mahal
Associates, a New Jersey general partnership ("Taj Associates") which operates
the Trump Taj Mahal Casino Resort. All significant intercompany balances and
transactions have been eliminated in the consolidated financial statements.
Taj Holding was organized on December 18, 1990 as a Delaware corporation
wholly owned by Donald J. Trump ("Trump"). Prior to January 1, 1992, Taj
Holding had no activity. As described below, Taj Holding was formed for the
purpose of consummating a plan of reorganization (the "1991 Taj Restructuring")
involving Taj Associates and Trump Taj Mahal Funding, Inc. ("Taj Funding"), a
New Jersey corporation that raised funds for Taj Associates. Prior to the
consummation of the 1991 Taj Restructuring, both Taj Associates and Taj Funding
were owned by Trump and affiliated entities.
Taj Holding and its subsidiary have no business operations other than its
investment in Taj Associates. As a result, its ability to pay operating
expenses and dividends is completely dependent on the operations of Taj
Associates.
Upon consummation of the 1991 Taj Restructuring on October 4, 1991, Taj
Associates issued to the holders of Taj Funding's 14% First Mortgage Bonds,
Series A, Due 1998 (the "Old Bonds"), a general partnership interest
representing 49.995% of the equity of Taj Associates. Such holders in turn
contributed such partnership interest to Taj Holding. Taj Funding also issued
new 11.35% Mortgage Bonds, Series A, Due 1999 ("Bonds") in exchange for the Old
Bonds. Each $1,000 principal amount of Bonds trades as a unit with one share of
Class B Common Stock (the "Taj Holding Class B Common Stock") of Taj Holding,
as described below.
TM/GP, which has no other assets, received a 49.995% partnership interest in
Taj Associates from Taj Holding. Trump also contributed to Taj Holding a 50%
ownership interest in The Trump Taj Mahal Corporation, a Delaware Corporation,
which owns a .01% interest in Taj Associates, in exchange for the Class C
Common Stock (the "Taj Holding Class C Common Stock"), as described below.
At the time of these transfers, Taj Holding issued 1,350,000 shares of its
Class A Common Stock (the "Taj Holding Class A Common Stock") and 729,458
shares of the Taj Holding Class B Common Stock to the holders of the Old Bonds
and 1,350,000 shares of the Taj Holding Class C Common Stock to Trump.
Notwithstanding their par value, the various classes of common stock are
recorded at stated value, which represents the value assigned to the shares of
Taj Holding which were issued in connection with the consummation of the 1991
Taj Restructuring.
In accordance with the terms of the indenture pursuant to which the Bonds
were issued (the "Taj Mortgage Note Indenture"), a portion of the interest on
the Bonds may be paid in cash or in additional Bonds (the "Additional Amount").
On May 15, 1992, 8,844 units comprised of $8,844,000 of Bonds and 8,844 shares
of Taj Holding Class B Common Stock were issued by Taj Funding as payment of
the Additional Amount. On May 15, 1993, 14,579 units comprised of Bonds in the
aggregate amount of approximately $14,579,000 and 14,579 shares of Taj Holding
Class B Common Stock were issued as payment of the Additional Amount. On May
15, 1994, 12,249 units comprised of Bonds in the aggregate principle amount of
approximately $12,249,000 and 12,249 shares of Taj Holding Class B Common Stock
were issued together with $2,621,000 in cash as payment of the Additional
Amount.
Currently, the holders of Taj Holding Class B Common Stock are entitled to
elect four of the nine members of Taj Holding's Board of Directors and Trump,
as holder of Taj Holding Class C Common Stock, is entitled to elect the
remaining five directors. The Taj Holding Class A Common Stock has no voting
rights
F-61
<PAGE>
TAJ MAHAL HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
during the time any of Taj Holding Class B Common Stock is outstanding.
However, upon Taj Holding's liquidation, all three classes of Taj Holding's
common stock share ratably in the assets of Taj Holding to the extent of their
par value, with the Taj Holding Class A Common Stock entitled to the residual.
The Taj Holding Class B Common Stock must be redeemed at a price of $.50 per
share when the Bonds, with which they were issued, are paid, redeemed or
purchased and canceled.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT IN TAJ ASSOCIATES
Taj Holding accounts for its investment in Taj Associates using the equity
method of accounting. Under this method, Taj Holding reports as equity income
50% of Taj Associates' earnings, if any, from October 4, 1991. In addition, the
difference between Taj Holding's equity in the underlying identifiable assets
of Taj Associates as of October 4, 1991 ($91,703,000) and the cost basis of its
investment in Taj Associates is being amortized into income over 40 years.
For the period from October 4, 1991 to December 31, 1994, Taj Associates
incurred a net loss of $109,851,000. Taj Holding's equity in this loss
($54,926,000) less amortization of the difference between the underlying
identifiable assets of Taj Associates and the cost basis of its investment in
Taj Associates, for the period from October 4, 1991 to December 31, 1994,
$7,451,000, will not be reflected in Taj Holding's financial statements until
such time as Taj Associates generates earnings sufficient to offset the
accumulated net loss. Taj Holding is not committed to providing future
financial support to Taj Associates.
INCOME TAXES
Taj Holding will record Federal income taxes based on its allocable share of
Taj Associates' earnings. The payment of any such taxes will be reimbursed by
Taj Associates. Under New Jersey Casino Control Commission regulations, Taj
Associates is required to file a consolidated New Jersey corporation business
tax return and pay all state taxes attributable to its earnings.
OPERATING EXPENSES
Expenses of Taj Holding consist of directors and officers liability
insurance, board of director fees and expenses, and administrative expenses.
Taj Holding is entitled to full reimbursement of such expenses by Taj
Associates . Total expenses for the years ended December 31, 1994, 1993 and
1992 approximated $2,171,000, $1,733,000 and $1,825,000, respectively, all of
which were reimbursed by Taj Associates.
CLASS B COMMON STOCK
As the redemption of the Class B Common Stock is outside of the control of
Taj Holding, the Class B Common Stock is not shown as a component of
Stockholders' Equity. Accretion of the Class B Common Stock to redemption value
and the value of the additional Class B Common Stock issued in connection with
the additional Bonds (Note 1) are not material.
EARNINGS PER SHARE
For the calculation of net loss per share, Class A Stock was used since it is
the only Class of participating stock. Net loss per share is determined by
dividing the net loss by the weighted average number of shares of Class A Stock
outstanding.
F-62
<PAGE>
TAJ MAHAL HOLDING CORP. AND TM/GP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) SUBSEQUENT EVENT
On January 8, 1996, Trump Hotels & Casino Resorts, Inc. ("THCR"), Taj Holding
and THCR Merger Corp. ("Merger Sub") entered into the Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which Merger Sub will merge with
and into Taj Holding (the "Merger"). The Merger Agreement provides that each
outstanding share of Taj Holding Class A Common Stock will be converted into
the right to receive, at each holder's election, either (a) $30.00 in cash or
(b) that number of shares of Common Stock of THCR ("THCR Common Stock") as
shall have a market value equal to $30.00. The Merger Agreement also
contemplates the following transactions occurring in connection with the
Merger:
(a) the consummation of the offering by THCR of up to $140,000,000 of THCR
Common Stock (the "THCR Stock Offering") and the offering by Taj Funding of
$750,000,000 aggregate principal amount of debt securities, the aggregate
net proceeds of which will be used, together with available cash of Taj
Associates, to (i) pay cash to those holders of Taj Holding Class A Common
Stock electing to receive cash in the Merger, (ii) redeem the Bonds, (iii)
redeem the outstanding shares of Taj Holding Class B Common Stock as
required in connection with the redemption of the Bonds pursuant to the
Amended and Restated Certificate of Incorporation of Taj Holding, (iv)
purchase certain real property adjacent to the Trump Taj Mahal Casino Resort
that is currently leased from Trump Taj Mahal Realty Corp., a corporation
wholly owned by Trump, and (v) make a payment to Bankers Trust to obtain
releases of the liens and guarantees that Bankers Trust has with respect to
Taj Associates;
(b) the contribution by Trump to THCR Holdings and Taj Mahal Holdings LLC
("Taj Holdings LLC"), a subsidiary of Trump Hotels & Casino Resorts
Holdings, L.P. ("THCR Holdings"), of all of his direct and indirect
ownership interests in Taj Associates; and
(c) the contribution by THCR to THCR Holdings and Taj Holdings LLC of all
of its indirect ownership interests in Taj Associates acquired in the
Merger.
Existing and prospective investors should consider among other things, (i)
the high leverage and fixed charges of THCR and Taj Holding; (ii) the risk in
refinancing and repayment of indebtedness and the need for additional
financing; (iii) the restrictions imposed on certain activities by certain debt
instruments; (iv) the recent results of Trump Plaza and the Taj Mahal; (v)
risks associated with the Trump Plaza Expansion, the Taj Mahal Expansion and
the Indiana Riverboat. There can be no assurance that the Trump Plaza Expansion
or the Taj Mahal Expansion will be completed or that the Indiana Riverboat or
any other gaming venture, will open or that any of THCR's or the Taj Mahal's
operations will be successful. See "Risk Factors" included elsewhere in this
Proxy Statement-Prospectus for a discussion of these and other factors.
F-63
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash investments......................... $ 61,196 $108,769
Receivables, net of allowance of $5,354 and $4,059
for doubtful accounts............................ 15,443 15,759
Inventory......................................... 6,431 6,950
Prepaid expenses and other current assets......... 7,806 5,175
-------- --------
Total Current Assets............................ 90,876 136,653
======== ========
Property and Equipment:
Land.............................................. 37,843 37,843
Building ......................................... 656,702 663,284
Furniture, fixtures and equipment................. 160,372 170,047
Leasehold improvements............................ 31,243 31,253
-------- --------
886,160 902,427
Less: Accumulated depreciation and amortization. (179,375) (207,825)
-------- --------
706,785 694,602
-------- --------
Other Assets........................................ 9,951 12,470
-------- --------
Total Assets...................................... $807,612 $843,725
======== ========
LIABILITIES AND CAPITAL
Current Liabilities:
Long-term debt due currently...................... $ 743 $ 868
Accounts payable.................................. 3,256 5,880
Accrued interest payable.......................... 8,977 27,441
Due to affiliates, net............................ 109 547
Other current liabilities......................... 37,102 38,303
-------- --------
Total Current Liabilities....................... 50,187 73,039
-------- --------
Other long term liabilities......................... 32,912 29,644
-------- --------
Long-term debt net of unamortized discount of
$153,597 and $137,108.............................. 656,701 688,143
-------- --------
Commitments and Contingencies
Capital:
Contributed capital............................... 123,765 123,765
Accumulated deficit............................... (55,953) (70,866)
-------- --------
Total Capital................................... 67,812 52,899
-------- --------
Total Liabilities and Capital................... $807,612 $843,725
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
condensed consolidated financial statements.
F-64
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS
ENDED SEPTEMBER
30,
------------------
1994 1995
-------- --------
<S> <C> <C>
REVENUES:
Gaming................................................... $345,329 $377,368
Rooms.................................................... 32,159 33,035
Food and beverage........................................ 44,110 42,933
Other.................................................... 13,742 11,479
-------- --------
Gross revenues......................................... 435,340 464,815
Less--Promotional allowances............................. 48,802 47,519
-------- --------
Net revenues........................................... 386,538 417,296
COST AND EXPENSES:
Gaming................................................... 196,412 208,671
Rooms.................................................... 11,491 11,500
Food and beverage........................................ 18,142 18,597
General and administrative............................... 77,359 73,717
Depreciation and amortization............................ 28,944 32,407
-------- --------
332,348 344,892
-------- --------
Income from operations..................................... 54,190 72,404
Interest income............................................ 1,343 2,752
Interest expense........................................... (86,855) (88,864)
-------- --------
Net loss................................................... $(31,322) $(13,708)
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
condensed consolidated financial statements.
F-65
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CAPITAL (DEFICIT)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
CONTRIBUTED SURPLUS TOTAL
CAPITAL (DEFICIT) CAPITAL
----------- ----------- -------
<S> <C> <C> <C>
Balance, December 31, 1994..................... $123,765 $(55,953) $67,812
Net loss for the nine months ended
September 30, 1995............................ -- (13,708) (13,708)
-------- -------- -------
Partnership distribution....................... -- (1,205) (1,205)
-------- -------- -------
Balance, September 30, 1995.................... $123,765 $(70,866) $52,899
======== ======== =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
condensed consolidated financial statements.
F-66
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
------------------
1994 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $(31,322) $(13,708)
Adjustments to reconcile net loss
to net cash flows provided by operating activities--
Depreciation and amortization............................ 28,944 32,407
Charges related to lease guarantee....................... 1,506 1,748
Accretion of discount on Bond indebtedness................ 13,795 16,489
Other adjustments to reduce the carrying value
of non current assets.................................... 2,148 2,315
Provision for doubtful accounts........................... 1,809 3,825
-------- --------
16,880 43,076
Changes in operating assets and liabilities:
Receivables, net......................................... (1,688) (4,141)
Inventory................................................ (1,883) (519)
Other current assets..................................... (673) 2,114
Other assets............................................. (654) (204)
Due to affiliates, net................................... (451) 438
Accounts payable......................................... 2,251 2,624
Accrued interest payable................................. 26,693 29,909
Other liabilities........................................ 87 13
-------- --------
Net cash flows provided by operating activities......... 40,562 73,310
-------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment........................ (15,749) (19,477)
Investment in CRDA obligation............................. (4,000) (4,274)
-------- --------
Net cash flows used in investing activities............. (19,749) (23,751)
-------- --------
Cash Flows from Financing Activities:
Repayments of borrowings.................................. (645) (781)
Partnership distribution.................................. (1,710) (1,205)
-------- --------
Net cash flows used in financing activities............. (2,355) (1,986)
-------- --------
Net Increase (Decrease) in Cash and Cash Investments........ 18,458 47,573
Cash and Cash Investments Beginning of Period............... 58,044 61,196
======== ========
Cash and Cash Investments End of Period..................... $ 76,502 $108,769
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest.................... $ 42,074 $ 40,718
======== ========
Supplemental Disclosure of Non-Cash Transactions:
Issuance of PIK bonds in lieu of cash interest............ $ 12,249 $ 15,112
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
condensed consolidated financial statements.
F-67
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND OPERATIONS
The accompanying consolidated financial statements include those of Trump Taj
Mahal Associates ("Taj Associates"), and its wholly owned subsidiary, Trump Taj
Mahal Funding, Inc. ("Taj Funding"). All significant intercompany balances and
transactions have been eliminated in the consolidated financial statements.
Taj Associates was formed on June 23, 1988, as a New Jersey limited
partnership. Taj Associates was converted to a general partnership in December,
1990. The current partners and their respective ownership interests are Trump
Taj Mahal, Inc. ("TTMI"), 49.995%, The Trump Taj Mahal Corporation ("TTMC"),
.01%, and TM/GP Corporation ("TM/GP"), the managing general partner, and a
wholly owned subsidiary of Taj Mahal Holding Corp. ("Taj Holding"), 49.995%.
The accompanying financial statements have been prepared by Taj Associates
and Taj Funding without audit. In the opinion of Taj Associates and Taj
Funding, all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the financial position, results of operations and
changes in cash flows for the periods presented, have been made.
The accompanying financial statements have been prepared by Taj Associates
and Taj Funding pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Accordingly, certain information and note
disclosures normally included in financial statements prepared in conformity
with generally accepted accounting principles have been condensed or omitted.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in Taj Associates and Taj Funding's
December 31, 1994 Annual Report on Form 10-K.
Donald J. Trump ("Trump") beneficially owns 50% of Taj Associates and has
pledged his total ownership interest as collateral under various debt
agreements.
The casino industry in Atlantic City is seasonal in nature. Therefore,
results of operations for the three and nine months ended September 30, 1995
and 1994 are not necessarily indicative of the operating results for a full
year.
(2) BORROWINGS
Long term debt consists of bank debt and outstanding bonds. Taj Funding's
first bonds bear interest at the rate of 11.35% and are due November 15, 1999
(the "Bonds"). Each $1,000 principal amount of Bonds, together with one share
of Class B Common Stock of Taj Holding ("Taj Holding Class B Common Stock"),
trade together as a Unit, and may not be transferred separately. Interest on
the Bonds is due semi-annually on each November 15 and May 15. Interest on the
Bonds must be paid in cash on each interest payment date at the rate of 9.375%
per annum (the "Mandatory Cash Interest Amount"). In addition to the Mandatory
Cash Interest Amount, effective May 15, 1992 and annually thereafter, an
additional amount of interest (the "Additional Amount") in cash or additional
Bonds or a combination thereof, is payable equal to the difference between
11.35% of the outstanding principal amount of the Bonds and the Mandatory Cash
Interest Amount previously paid. To the extent that there is excess available
cash flow ("EACF") of Taj Associates, as defined in the Indenture governing the
Bonds, for the immediately preceding calendar year, Taj Funding will pay the
Additional Amount in cash up to 10.28% and the balance thereof may be paid at
the option of Taj Funding in cash or additional Units, provided that an
equivalent amount of cash is used to purchase or redeem Units. Additional Bonds
issued on October 4, 1991 amounted to approximately $7,208,000. For the period
from the issuance of the Bonds, October 4, 1991 through December 31, 1992,
there was no EACF. Accordingly, Taj Funding paid the Additional Amounts on May
15, 1993 and May 15, 1992 through the issuance of
F-68
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES, AND SUBSIDIARY
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
approximately $14,579,000 and $8,844,000, respectively, in additional Bonds. Of
the $14,870,000 Additional Amount due May 15, 1994, $2,621,000 was paid in cash
and the $12,249,000 balance in Bonds. Of the $15,112,000 Additional Amount due
May 15, 1995, Taj Funding satisfied the entire obligation through the issuance
of Bonds.
Since Taj Funding has no business operations, its ability to repay the
principal and interest on the Bonds is completely dependent on the operations
of Taj Associates. The Bonds are guaranteed as to payment of principle and
interest by Taj Associates and are collateralized by substantially all Taj
Associates' property.
In accordance with AICPA Statement of Position 90-7, "Financial Reporting By
Entities in Reorganization Under the Bankruptcy Code", the Bonds when issued
were stated at the present value of amounts to be paid, determined at current
interest rates (effective rate of approximately 18%). The effective interest
rate of the Bonds was determined based on the trading price of the Bonds for a
specific period. Stating the debt at its approximate present value resulted in
a reduction of approximately $204,276,000 in the carrying amount of the Bonds.
This gain is being offset by increased interest costs over the period of the
Bonds to accrete such Bonds to their face value at maturity. At September 30,
1995, the unaccreted balance of this discount was approximately $137,108,000.
The current interest rates of other borrowings approximated their stated
interest rates as of the effective date.
Taj Associates also has a loan agreement (the "NatWest Loan") with National
Westminster Bank, U.S.A. ("NatWest") which provided financing up to $50,000,000
for certain items of furniture, fixtures and equipment installed in the Trump
Taj Mahal Casino Resort. The NatWest Loan bears interest at 9 3/8% per annum.
Principal and interest is payable monthly in the fixed amount of $373,000 to be
applied first to accrued interest and the balance to the extent available, to
principal, through maturity, November 15, 1999. Additionally, on May 15 of each
year while principal is still outstanding, NatWest will receive 16.5% of the
EACF of the preceding calendar year in excess of the Additional Amount, to be
applied first to accrued but unpaid interest, and then to principal.
The NatWest Loan is secured by a first priority lien on the furniture,
fixtures and equipment acquired with the proceeds of the NatWest Loan plus any
after acquired furniture, fixtures and equipment that replaces such property,
or of the same type, provided however, that the NatWest Loan may be
subordinated to a lien to secure purchase money financing of such after
acquired property up to 50% of the value of such after acquired property.
In November 1991,Taj Associates obtained a working capital line of credit in
the amount of $25,000,000 with a maturity of five years. In September 1994, Taj
Associates extended the maturity to November 1999, in consideration for
modifications of the terms of the facility. Interest on advances under the line
are at prime plus 3% with a minimum of 7% per annum. The agreement provides for
a 3/4% annual fee and a 1/2% unused line fee and contains various covenants.
During 1995 and 1994, no amounts were outstanding under the line.
(3) CASINO LICENSE RENEWAL
Taj Funding and Taj Associates are subject to regulation and licensing by the
New Jersey Casino Control Commission (the "CCC"). The Taj Associates' casino
license must be renewed periodically, is not transferable, is dependent upon
the financial stability of the Partnership and can be revoked at anytime. Upon
revocation, suspension for more than 120 days, or failure to renew the casino
license due to Taj Associates' financial condition or for any other reason, the
Casino Control Act (the "Casino Control Act") provides that the CCC may appoint
a conservator to take possession of and title to the hotel and casino's
business and property, subject to all valid liens, claims and encumbrances. On
June 22, 1995, the CCC renewed Taj Associates casino license for four years,
through March 31, 1999.
F-69
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES, AND SUBSIDIARY
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(4) LEGAL PROCEEDINGS
Taj Associates, its Partners, certain of its employees and Taj Funding are
involved in various legal proceedings incurred in the normal course of
business. In the opinion of management of Taj Associates, the expected
disposition of these proceedings would not have a material adverse effect on
the Taj Associates' or Taj Funding's financial condition or results of
operations.
(5) PARTNERSHIP DISTRIBUTION
Taj Associates is obligated to reimburse Taj Holding for its operating
expenses which consist of directors and officers liability insurance, board of
director fees and expenses, and administrative expenses. Total expenses for the
nine months ended September 30, 1995 and 1994 approximated $1,205,000 and
$1,710,000, respectively.
(6) FINANCIAL INFORMATION TAJ FUNDING
Financial information relating to Taj Funding is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 1994 30, 1995
--------- -----------
(UNAUDITED)
<S> <C> <C>
Total Assets (including Mortgage Note
Receivable of $765,130 and $780,242
in addition to related interest receivable)....... $ 783,562 $813,472
Total Liabilities and Capital (including
Mortgage Bonds payable of $765,130 and
$780,242 and in addition to related interest pay-
able)............................................. $ 783,562 813,472
<CAPTION>
1994 1995
Three months ending September 30: --------- -----------
<S> <C> <C>
Interest Income.................................... $ 21,711 $ 22,140
Interest Expense................................... $ 21,711 $ 22,140
Net Income......................................... $ -- $ --
Nine months ending September 30:
Interest Income.................................... $ 64,611 $ 65,775
Interest Expense................................... $ 64,611 $ 65,775
Net Income......................................... $ -- $ --
</TABLE>
(7) SUBSEQUENT EVENTS
On January 8, 1996, THCR, Taj Holding and THCR Merger Corp. ("Merger Sub")
entered into the Agreement and Plan of Merger (the "Merger Agreement") pursuant
to which Merger Sub will merge with and into Taj Holding (the "Merger"). The
Merger Agreement provides that each outstanding share of Taj Holding Class A
Common Stock will be converted into the right to receive, at each holder's
election, either (a) $30.00 in cash or (b) that number of shares of THCR Common
Stock or shall have a market value equal to $30.00. The Merger Agreement also
contemplates the following transactions occurring in connection with the
Merger:
(a) the consummation of the offering by THCR of up to $140,000,000 of THCR
Common Stock (the "THCR Stock Offering") and the offering by Taj Funding of
up to $750,000,000 aggregate principal amount of debt securities, the
aggregate net proceeds of which will be used, together with available cash
of Taj Associates, to (i) pay cash to those holders of Taj Holding Class A
Common Stock electing to
F-70
<PAGE>
TRUMP TAJ MAHAL ASSOCIATES, AND TRUMP TAJ MAHAL FUNDING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
receive cash in the Merger, (ii) redeem the Bonds, (iii) redeem the
outstanding shares of Taj Holding Class B Common Stock as required in
connection with the redemption of the Bonds pursuant to the Amended and
Restated Certificate of Incorporation of Taj Holding, (iv) purchase certain
real property adjacent to the Taj Mahal that is currently leased from Trump
Taj Mahal Realty Corp., a corporation wholly owned by Trump, and (v) make a
payment to Bankers Trust to obtain releases of the liens and guarantees that
Bankers Trust has with respect to Taj Associates;
(b) the contribution by Trump to THCR Holdings and Taj Mahal Holdings LLC
("Taj Holdings LLC"), a subsidiary of Trump Hotels & Casino Resorts
Holdings, L.P. ("THCR Holdings"), of all of his direct and indirect
ownership interests in Taj Associates; and
(c) the contribution by THCR to THCR Holdings and Taj Holdings LLC of all
of its indirect ownership interests in Taj Associates acquired in the
Merger.
F-71
<PAGE>
TAJ MAHAL HOLDING CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 30,
----------- -----------
1994 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash................................................ $ 100 $ 100
----------- -----------
Total Assets.................................... $ 100 $ 100
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Class B Common Stock; $.01 par value; 860,000 shares
authorized, 765,130 and 780,242 issued and out-
standing as of December 31, 1994 and September 30,
1995, respectively................................. $ 20 $ 20
STOCKHOLDERS' EQUITY (NOTE 1)
Class A Common Stock; $.01 par value; 10,000,000
shares authorized, 1,350,000 issued and outstand-
ing................................................ $ 40 $ 40
Class C Common Stock; $.01 par value; 10,000,000
shares authorized, 1,350,000 issued and outstand-
ing................................................ 40 40
Additional paid in capital.......................... 5,729,000 6,934,000
Accumulated deficit................................. (5,729,000) (6,934,000)
----------- -----------
Total Stockholders' Equity...................... $ 80 $ 80
----------- -----------
Total Liabilities and Stockholders' Equity...... $ 100 $ 100
----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
condensed consolidated financial statements.
F-72
<PAGE>
TAJ MAHAL HOLDING CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Revenue.............................................. $ -- $ --
Expenses (Note 2)--
Director fees, insurance and administrative ex-
penses.............................................. 1,710,000 1,205,000
----------- -----------
Net loss............................................. $(1,710,000) $(1,205,000)
=========== ===========
Net loss per common share (Note 2)................... $ (1.27) $ (.89)
=========== ===========
Weighted average number of shares outstanding........ 1,350,000 1,350,000
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
condensed consolidated financial statements.
F-73
<PAGE>
TAJ MAHAL HOLDING CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------
CLASS A CLASS B CLASS C
---------------- ---------------- ----------------
ADDITIONAL
NUMBER NUMBER NUMBER PAID IN ACCUMULATED
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ --------- ------ --------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 1,350,000 $40 765,130 $20 1,350,000 $40 $5,729,000 $(5,729,000) $ 100
Additional issuance of
common stock in connec-
tion with the Partner-
ship's interest
payment................ -- -- 15,112 -- -- -- -- -- --
Distribution from the
Partnership for operat-
ing expenses........... -- -- -- -- -- -- 1,205,000 -- 1,205,000
Net loss................ -- -- -- -- -- -- -- (1,205,000) (1,205,000)
--------- --- ------- --- --------- --- ---------- ----------- -----------
Balance, September 30,
1995................... 1,350,000 $40 780,242 $20 1,350,000 $40 $6,934,000 $(6,934,000) $ 100
========= === ======= === ========= === ========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
condensed consolidated financial statements.
F-74
<PAGE>
TAJ MAHAL HOLDING CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(1,710,000) $(1,205,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership distribution........................... 1,710,000 1,205,000
----------- -----------
NET CHANGE IN CASH -- --
CASH AT BEGINNING OF PERIOD 100 100
----------- -----------
CASH AT END OF PERIOD $ 100 $ 100
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
condensed consolidated financial statements.
F-75
<PAGE>
TAJ MAHAL HOLDING CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND BACKGROUND
The accompanying consolidated financial statements include those of Taj Mahal
Holding Corp. ("Taj Holding") and its wholly owned subsidiary, TM/GP
Corporation ("TM/GP"), the managing general partner of Trump Taj Mahal
Associates, a New Jersey general partnership ("Taj Associates") which operates
the Trump Taj Mahal Casino Resort (the "Taj Mahal"). All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
Taj Holding was organized on December 18, 1990 as a Delaware corporation
wholly owned by Donald J. Trump ("Trump"). Prior to January 1, 1992, Taj
Holding had no activity. As described below, Taj Holding was formed for the
purpose of consummating a plan of reorganization (the "1991 Taj Restructuring")
involving Taj Associates and Trump Taj Mahal Funding, Inc. ("Taj Funding"), a
New Jersey corporation which restructured the indebtedness of Taj Associates.
Prior to the 1991 Taj Restructuring, both Taj Associates and Taj Funding were
owned by Trump and affiliated entities.
Taj Holding and its subsidiaries have no business operations other than their
investment in Taj Associates. As a result, their ability to pay operating
expenses and dividends is completely dependent on the operations of Taj
Associates.
Upon consummation of the 1991 Taj Restructuring on October 4, 1991, the Taj
Associates issued to the holders of Taj Funding's 14% First Mortgage Bonds,
Series A, Due 1998 (the "Old Bonds"), a general partnership interest
representing 49.995% of the equity of Taj Associates. Such holders in turn
contributed such partnership interest to Taj Holding. Taj Funding also issued
new 11.35% Mortgage Bonds, Series A, Due 1999 (the "Bonds") in exchange for the
Old Bonds. Each $1,000 principal amount of Bonds trades as a unit with one
share of Class B Common Stock (the "Taj Holding Class B Common Stock") of Taj
Holding, as described below.
TM/GP, which has no other assets, received a 49.995% partnership interest in
Taj Associates from Taj Holding. Trump also contributed to Taj Holding a 50%
ownership interest in The Trump Taj Mahal Corporation, a Delaware corporation,
which owns a .01% interest in the Partnership, in exchange for the Class C
Common Stock (the "Taj Holding Class C Common Stock"), as described below.
At the time of these transfers, Taj Holding issued 1,350,000 shares of its
Class A Common Stock (the "Taj Holding Class A Common Stock") and 729,458
shares of its Taj Holding Class B Common Stock to the holders of the Old Bonds
and 1,350,000 shares of its Taj Holding Class C Common Stock to Trump.
Notwithstanding their par value, the various classes of common stock are
recorded at stated value, which represents the value assigned to the shares of
Taj Holding which were issued in connection with the 1991 Taj Restructuring .
In accordance with the terms of the indenture pursuant to which the Bonds
were issued, a portion of the interest on the Bonds may be paid in cash or in
additional Bonds (the "Additional Amount"). On May 15, 1992, 8,844 units
comprised of Bonds in the aggregate amount of $8,844,000 and 8,844 shares of
Taj Holding Class B Common Stock were issued by Taj Funding as payment of the
Additional Amount. On May 15, 1993, 14,579 units comprised of Bonds in the
aggregate amount of approximately $14,579,000 and 14,579 shares of Taj Holding
Class B Common Stock were issued as payment of the Additional Amount. On May
15, 1994, 12,249 units comprised of Bonds in the aggregate principal amount of
approximately $12,249,000 and 12,249 shares of Taj Holding Class B Common Stock
were issued together with $2,621,000 in cash as payment of the Additional
Amount. On May 15, 1995, 15,112 units comprised of Bonds in the aggregate
principal amount of approximately $15,112,000 and 15,112 shares of Taj Holding
Class B Common Stock were issued as payment of the Additional Amount.
F-76
<PAGE>
TAJ MAHAL HOLDING CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Currently, the holders of the Taj Holding Class B Common Stock are entitled
to elect four of the nine members of Taj Holding's Board of Directors and
Trump, as holder of the Taj Holding Class C Common Stock is entitled to elect
the remaining five directors. The Taj Holding Class A Common Stock has no
voting rights during the time any of the Taj Holding Class B Common Stock is
outstanding. However, upon Taj Holding's liquidation, all three classes of Taj
Holding's common stock share ratably in the assets of Taj Holding to the extent
of their par value, with the Taj Holding Class A Common Stock entitled to the
residual. The Taj Holding Class B Common Stock must be redeemed at a price of
$.50 per share when the Bonds, with which they were issued, are paid, redeemed
or purchased and canceled.
The accompanying financial statements have been prepared by Taj Holding
without audit. In the opinion of Taj Holding, all adjustments, consisting of
only normal recurring adjustments, necessary to present fairly the financial
position, results of operations and changes in cash flows for the periods
presented, have been made.
The accompanying financial statements have been prepared by Taj Holding
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). Accordingly, certain information and note disclosures normally
included in financial statements prepared in conformity with generally accepted
accounting principles have been condensed or omitted. These financial
statements should be read in conjunction with the financial statements and
notes thereto included in Taj Holding's December 31, 1994 Annual Report on Form
10-K.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT IN THE PARTNERSHIP
Taj Holding accounts for its investment in Taj Associates using the equity
method of accounting. Under this method, Taj Holding reports as equity income
50% of Taj Associates' earnings, if any, from October 4, 1991. In addition, the
difference between Taj Holding's equity in the underlying identifiable assets
of the Taj Associates as of October 4, 1991 ($91,703,000) and the cost basis of
its investment in Taj Associates is being amortized into income over 40 years.
For the period from October 4, 1991 to September 30, 1995, Taj Associates
incurred a net loss of $123,559,000. Taj Holding's equity in this loss
($61,779,500) less amortization of the difference between the underlying
identifiable assets of Taj Associates and the cost basis of its investment in
Taj Associates, for the period from October 4, 1991 to September 30, 1995,
(9,170,000), will not be reflected in Taj Holding's financial statements until
such time as Taj Associate generates earnings sufficient to offset the
accumulated net loss.
INCOME TAXES
Taj Holding will record Federal income taxes based on its allocable share of
Taj Associates earnings. The payment of any such taxes will be reimbursed by
Taj Associates. Under New Jersey Casino Control Commission regulations, Taj
Associates is required to file a consolidated New Jersey corporation business
tax return and pay all state taxes attributable to its earnings.
OPERATING EXPENSES
Expenses of Taj Holding consist of directors and officers liability
insurance, board of director fees and expenses, and administrative expenses.
Taj Holding is entitled to full reimbursement of such expense by Taj
F-77
<PAGE>
TAJ MAHAL HOLDING CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Associates. Total expenses for the nine months ended September 30, 1995 and
1994 approximated $1,205,000 and $1,710,000, respectively, all of which were
reimbursed by Taj Associates.
EARNING PER SHARE
For the calculation of net loss per share, Taj Holding Class A Common Stock
was used since it is the only class of participating stock. Net loss per share
is determined by dividing the net loss by the weighted average number of shares
of Taj Holding Class A Common Stock outstanding.
(3) SUBSEQUENT EVENT
On January 8, 1996, THCR, Taj Holding and THCR Merger Corp. ("Merger Sub")
entered into the Agreement and Plan of Merger (the "Merger Agreement") pursuant
to which Merger Sub will merge with and into Taj Holding (the "Merger"). The
Merger Agreement provides that each outstanding share of Taj Holding Class A
Common Stock will be converted into the right to receive, at each holder's
election, either (a) $30.00 in cash or (b) that number of shares of THCR Common
Stock as shall have a market value equal to $30.00. The Merger Agreement also
contemplates the following transactions occurring in connection with the
Merger:
(a) the consummation of the offering by THCR of up to $140,000,000 of THCR
Common Stock (the "THCR Stock Offering") and the offering by Taj Funding of
up to $750,000,000 aggregate principal amount of debt securities, the
aggregate net proceeds of which will be used, together with available cash
of Taj Associates, to (i) pay cash to those holders of Taj Holding Class A
Common Stock electing to receive cash in the Merger, (ii) redeem the Bonds,
(iii) redeem the outstanding shares of Taj Holding Class B Common Stock as
required in connection with the redemption of the Bonds pursuant to the
Amended and Restated Certificate of Incorporation of Taj Holding, (iv)
purchase certain real property adjacent to the Taj Mahal that is currently
leased from Trump Taj Mahal Realty Corp., a corporation wholly owned by
Trump, make a payment to Bankers Trust to obtain releases of the liens and
guarantees that Bankers Trust has with respect to Taj Associates;
(b) the contribution by Trump to THCR Holdings and Taj Mahal Holdings LLC
("Taj Holdings LLC"), a subsidiary of Trump Hotels & Casino Resorts
Holdings, Inc. ("THCR Holdings"), of all of his direct and indirect
ownership interests in Taj Associates; and
(c) the contribution by THCR to THCR Holdings and Taj Holdings LLC of all
of its indirect ownership interests in Taj Associates acquired in the
Merger.
F-78
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TRUMP HOTELS & CASINO RESORTS, INC.
TAJ MAHAL HOLDING CORP.
AND
THCR MERGER CORP.
-------------------------
DATED AS OF JANUARY 8, 1996
-------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS *
<TABLE>
<C> <S> <C>
ARTICLE I DEFINITIONS.................................................... A-2
Section 1.01. Definitions............................................ A-2
ARTICLE II THE MERGER.................................................... A-6
Section 2.01. The Merger............................................. A-6
Section 2.02. Conversion of Outstanding Shares; Redemption........... A-7
Section 2.03. Certificate of Incorporation........................... A-7
Section 2.04. By-Laws................................................ A-7
Section 2.05. Directors and Officers................................. A-7
Section 2.06. Exchange Agent......................................... A-7
Section 2.07. Election Procedures.................................... A-8
Section 2.08. Taj Holding Class A Common Stock Exchange Procedures... A-8
Section 2.09. Dividends; Liability................................... A-9
No Further Rights For Holders Electing Cash
Section 2.10. Consideration......................................... A-9
Section 2.11. No Fractional Shares................................... A-10
Section 2.12. Dissenting Shares...................................... A-10
ARTICILE III REPRESENTATIONS AND WARRANTIES OF TAJ HOLDING............... A-10
Section 3.01. Corporate Organization................................. A-10
Section 3.02. Capitalization......................................... A-10
Section 3.03. Subsidiaries........................................... A-11
Section 3.04. Financial Statements; SEC Reports...................... A-11
Section 3.05. Absence of Certain Changes or Events................... A-11
Section 3.06. Authorization and Validity of Agreements; Opinion of
Financial Advisor..................................... A-11
Section 3.07. No Conflict or Violation............................... A-12
Section 3.08. Consents and Approvals................................. A-12
Section 3.09. Litigation............................................. A-13
Section 3.10. Taxes.................................................. A-13
Section 3.11. Contracts and Leases................................... A-13
Section 3.12. Joint Proxy Statement.................................. A-13
Section 3.13. Takeover Provisoins Inapplicable....................... A-13
Section 3.14. Brokerage/Finder's Fees................................ A-13
Section 3.15. Bond Redemption; Taj Funding Offering.................. A-13
Section 3.16. THCR Offering.......................................... A-14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THCR....................... A-14
Section 4.01. Corporate Organization................................. A-14
Section 4.02. Capitalization......................................... A-14
Section 4.03. Subsidiaries........................................... A-14
Section 4.04. Financial Statements; SEC Reports...................... A-14
Section 4.05. Absence of Certain Changes or Events................... A-15
Authorization and Validity of Agreements; Opionion of
Section 4.06. Financial Advisor..................................... A-15
Section 4.07. No Conflict or Violation............................... A-15
Section 4.08. Consents and Approvals................................. A-16
Section 4.09. Litigation............................................. A-16
Section 4.10. Taxes.................................................. A-16
Section 4.11. Contracts and Leases................................... A-16
</TABLE>
- --------
* The Table of Contents is not part of this Merger Agreement.
i
<PAGE>
<TABLE>
<C> <S> <C>
Section 4.12. THCR Registration Statement............................ A-16
Section 4.13. Takeover Provisions Inapplicable....................... A-17
Section 4.14. Brokerage/Finder's Fees................................ A-17
Section 4.15. TAJ Funding Offering................................... A-17
ARTICLE V REPRESENTATIONS AND WARRANTIES OF MERGER SUB.................... A-17
Section 5.01. Corporate Organization; Subsidiaries................... A-17
Section 5.02. Capitalization......................................... A-17
Section 5.03. Authorization and Validity of Agreements............... A-17
ARTICLE VI COVENANTS OF TAJ HOLDING....................................... A-18
Section 6.01. Conduct Pending Merger................................. A-18
Section 6.02. Joint Proxy Statement.................................. A-18
Section 6.03. Stockholders Meeting................................... A-19
Section 6.04. Compliance With the Securities Act..................... A-19
Section 6.05. No Solicitation........................................ A-19
Section 6.06. Dividend Prohibition................................... A-19
Section 6.07. Letters of Accountants................................. A-19
ARTICLE VII COVENANTS OF THCR............................................. A-19
Section 7.01. Conduct Pending the Merger............................. A-19
Section 7.02. Joint Proxy Statement.................................. A-20
Section 7.03. Stockholders Meeting................................... A-20
Section 7.04. Indemnification and Insurance.......................... A-20
Section 7.05. Letters of Accountants................................. A-21
ARTICLE VIII OTHER AGREEMENTS............................................. A-21
Section 8.01. Stock Exchange Listing................................. A-21
Section 8.02. Additional Agreements; Consents and Permits............ A-21
Section 8.03. Registration of Securities............................. A-21
Section 8.04. Access to Information; Confidentiality................. A-22
Section 8.05. Notification of Certain Matters........................ A-22
Section 8.06. HSR Act................................................ A-23
Section 8.07. Bond Redemption........................................ A-23
ARTICLE IX CONDITIONS TO THE MERGER....................................... A-23
Section 9.01. Conditions to the Obligations of Each Party............ A-23
Section 9.02. Conditions to the Obligation of TAJ Holding............ A-24
Section 9.03. Conditions to the Obligations of THCR and Merger Sub... A-24
ARTICLE X TERMINATION..................................................... A-25
Section 10.01. Termination............................................ A-25
Section 10.02. Effect of Termination.................................. A-25
ARTICLE XI MISCELLANEOUS.................................................. A-26
Section 11.01. Notices................................................ A-26
Section 11.02. Survival............................................... A-26
Section 11.03. Amendment.............................................. A-26
Section 11.04. Waiver................................................. A-27
Section 11.05. Successors and Assigns................................. A-27
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
Section 11.06. Governing Law.......................................... A-27
Section 11.07. Gaming Laws............................................ A-27
Section 11.08. Integration............................................ A-27
Section 11.09. Third Party Beneficiaries.............................. A-27
Section 11.10. Specific Performance................................... A-27
Section 11.11. Remedies Cumulative.................................... A-27
Section 11.12. Publicity.............................................. A-27
Section 11.13. Fees & Expenses........................................ A-27
Section 11.14. Headings; Counterparts; Effectiveness.................. A-28
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 8, 1996 (the "Merger
Agreement"), by and among TRUMP HOTELS & CASINO RESORTS, INC., a Delaware
corporation ("THCR"), TAJ MAHAL HOLDING CORP., a Delaware corporation ("Taj
Holding"), and THCR MERGER CORP., a Delaware corporation and a wholly owned
subsidiary of THCR ("Merger Sub").
WHEREAS, Taj Holding and certain of its affiliates and THCR and certain of
its affiliates desire to effect the Merger Transaction, which includes (a) the
merger of Merger Sub with and into Taj Holding upon the terms and subject to
the conditions set forth herein (the "Merger"); (b) consummation of the
offering by THCR (the "THCR Offering") of up to $140,000,000 of Common Stock
of THCR, par value $.01 per share ("THCR Common Stock"), and the offering by
Trump Taj Mahal Funding, Inc. ("Taj Funding") or its affiliate of up to
$750,000,000 aggregate principal amount of debt securities (the "Taj Funding
Offering"), the aggregate net proceeds of which will be used, together with
available cash of Trump Taj Mahal Associates ("Taj Associates"), to, among
other things, (i) pay cash, pursuant to this Merger Agreement, to those
holders of Class A Common Stock of Taj Holding, par value $.01 per share (the
"Taj Holding Class A Common Stock"), electing to receive cash in the Merger,
(ii) redeem (the "Bond Redemption") Taj Funding's outstanding 11.35% Mortgage
Bonds, Series A due 1999 (the "Bonds"), (iii) redeem the outstanding shares of
Class B Common Stock of Taj Holding, par value $.01 per share (the "Taj
Holding Class B Common Stock"), as required in connection with the Bond
Redemption, (iv) purchase certain real property (collectively, the "Specified
Parcels") that is currently leased by Taj Associates, the owner and operator
of the Trump Taj Mahal Casino Resort (the "Taj Mahal"), from Trump Taj Mahal
Realty Corp. ("Realty Corp."), a corporation wholly owned by Donald J. Trump
("Trump"), and (v) make a payment to Bankers Trust Company ("Bankers Trust")
to obtain releases of the Liens (defined below) and guarantees that Bankers
Trust has with respect to Taj Associates; (c) the contribution by Trump to
Trump Hotels & Casino Resorts Holdings, L.P., a subsidiary of THCR ("THCR
Holdings"), and Taj Mahal Holdings LLC ("Taj Holdings LLC") of all of his
direct and indirect ownership interests in Taj Associates; and (d) the
contribution by THCR to THCR Holdings and Taj Holdings LLC of all its indirect
ownership interests in Taj Associates acquired in the Merger;
WHEREAS, THCR and Trump have agreed that (a) in exchange for their
contributions to THCR Holdings and Taj Holdings LLC, THCR's and Trump's
beneficial equity interests in THCR Holdings will be adjusted pursuant to the
terms of the Amended and Restated Agreement of Limited Partnership of THCR
Holdings (the "Partnership Agreement"), and (b) as part of the Merger
Transaction, THCR will issue to Trump a warrant to purchase 1.8 million shares
of THCR Common Stock, one-third of which may be purchased on or prior to (i)
the third anniversary of the issuance of the warrant at $30 per share, (ii)
the fourth anniversary of the issuance of the warrant at $35 per share and
(iii) the fifth anniversary of the issuance of the warrant at $40 per share
(the Merger and the related transactions discussed above are collectively
referred to as the "Merger Transaction");
WHEREAS, pursuant to the Class A Voting Agreement (defined below), the
holders of approximately 52% of the outstanding shares of Taj Holding Class A
Common Stock have agreed to vote in favor of the Merger;
WHEREAS, pursuant to the Trump THCR Voting Agreement (defined below) Trump
has agreed to vote all of the shares in THCR beneficially owned by him in
favor of the Merger Transaction, and pursuant to the Trump Taj Voting
Agreement (defined below) Trump has agreed to vote all of the shares
beneficially owned by him in Taj Holding in favor of the Merger Agreement;
WHEREAS, the THCR Special Committee of the Board of Directors of THCR
(defined below), and the Taj Holding Class B Directors (defined below) and the
Board of Directors of Taj Holding, have received the DLJ Fairness Opinion and
the Rothschild Fairness Opinion (each defined below), respectively;
WHEREAS, the THCR Special Committee and the Board of Directors of THCR have
determined that the Merger Transaction is consistent with and in furtherance
of the long-term business strategy of THCR;
A-1
<PAGE>
WHEREAS, the Taj Holding Class B Directors and the Board of Directors of Taj
Holding have determined that the Merger is consistent with and in furtherance
of the long-term business strategy of Taj Holding;
WHEREAS, the THCR Special Committee and the Board of Directors of THCR have
determined that the Merger Transaction is fair to, and in the best interests
of, THCR;
WHEREAS, the Taj Holding Class B Directors and the Board of Directors of Taj
Holding based on, among other things, the advice of the financial advisor to
Taj Holding and existence of the Class A Voting Agreement (defined below),
have determined that the Merger is fair to, and in the best interests of, Taj
Holding and the holders of Taj Holding Class A Common Stock;
WHEREAS, the THCR Special Committee and the Board of Directors of THCR have
approved the Merger Transaction and this Merger Agreement;
WHEREAS, the Taj Holding Class B Directors and the Board of Directors of Taj
Holding have approved the Merger and this Merger Agreement; and
WHEREAS, the Board of Directors of Merger Sub has approved this Merger
Agreement and THCR, as the sole stockholder of Merger Sub, has approved and
adopted this Merger Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. As used in this Merger Agreement, the following
terms shall have the respective meanings set forth below (terms defined in the
singular shall have the same meanings when used in the plural and vice versa):
"Acquisition Proposal" with respect to any Person shall mean any proposed
(i) merger, consolidation, share exchange or similar transaction involving
such Person or a Subsidiary of such Person, as a result of which the
consolidated assets of such Person and its Subsidiaries taken as a whole,
increase or decrease by 25% or more, (ii) sale, lease or other disposition
directly or indirectly (other than by merger, consolidation, share exchange or
similar transaction) of assets of such Person or its Subsidiaries representing
25% or more of the consolidated assets of such Person and its Subsidiaries,
(iii) issue, sale, or other disposition (other than by merger, consolidation,
share exchange or similar transaction) of securities (or options, rights or
warrants to purchase, or securities convertible into, such securities)
representing 25% or more of the voting power of such Person or
(iv) transaction in which any Person shall acquire beneficial ownership, or
the right to acquire beneficial ownership or any "group" (as such term is
defined under the Exchange Act) shall have been formed which beneficially owns
or has the right to acquire beneficial ownership of 25% or more of the
outstanding common stock of such Person (other than Persons or groups having
such beneficial ownership as of the date hereof).
"Bankers Trust" shall have the meaning set forth in the Recitals.
"Bond Indenture" shall mean the Amended and Restated Indenture, dated as of
October 4, 1991, among Taj Funding, as issuer, Taj Associates, as guarantor,
and First Bank National Association, as trustee, relating to the issuance of
the Bonds.
"Bond Redemption" shall have the meaning set forth in the Recitals.
"Bonds" shall have the meaning set forth in the Recitals.
A-2
<PAGE>
"Cash Consideration" shall have the meaning set forth in Section 2.02.
"Certificate of Merger" shall have the meaning set forth in Section 2.01.
"Class A Voting Agreement" means the letter agreement, dated as of October
6, 1995, among Taj Holding, Taj Associates, Taj Funding, Putnam Investment
Management, Hamilton Partners, L.P., Prudential Securities, Grace Brothers
Ltd., SC Fundamental Value Fund, L.P. and SC Fundamental Value BVI Ltd.,
relating to the voting of shares of Taj Holding Class A Common Stock, as such
agreement may be amended from time to time.
"Closing" shall have the meaning set forth in Section 2.01.
"Confidential Information" shall mean all information about a party hereto,
whether furnished before or after the date hereof, and regardless of the
manner in which it is furnished, together with all analyses, compilations,
studies, summaries, extracts or other documents, which contain or otherwise
reflect such information. Confidential Information shall not include
information which the recipient can clearly demonstrate falls within any of
the following categories: (i) information which has come within the public
domain through no fault or action of the recipient or its affiliates
(including, without limitation, all information contained in publicly
available documents filed with the SEC); (ii) information which was known to
the recipient on a non-confidential basis prior to its disclosure by a party
hereto; or (iii) information which becomes available to the recipient on a
non-confidential basis from any third party, the disclosure of which to, or
the receipt of which by, the recipient, to the knowledge of the recipient
after due inquiry, does not violate any contractual or legal obligation said
third party has to the disclosing party or any other Person with respect to
such information.
"Current D&O Premium" shall mean an amount not greater than 150% of the
premium paid by Taj Holding (on an annualized basis) for directors' and
officers' liability insurance during the period from January 1, 1996 to the
Effective Time.
"Debt S-1" shall have the meaning set forth in Section 3.15.
"DGCL" shall mean the Delaware General Corporation Law.
"Disclosing Party" shall mean any party to this Merger Agreement that
discloses or provides Confidential Information to any other party to this
Merger Agreement.
"Dissenting Shares" shall have the meaning set forth in Section 2.12.
"DLJ" shall have the meaning set forth in Section 4.06.
"DLJ Fairness Opinion" shall have the meaning set forth in Section 4.06.
"Effective Time" shall have the meaning set forth in Section 2.01.
"Election Deadline" shall have the meaning set forth in Section 2.07.
"Election Form" shall have the meaning set forth in Section 2.07.
"Equity S-1" shall have the meaning set forth in Section 3.16.
"Exchange Act" shall mean the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder.
"Exchange Agent" shall have the meaning set forth in Section 2.06.
"Exchange Agreement" shall mean the Exchange and Registration Rights
Agreement, dated as of June 12, 1995, between THCR and Trump.
A-3
<PAGE>
"Exchange Fund" shall have the meaning set forth in Section 2.08.
"First Fidelity" shall mean First Fidelity Bank, N.A.
"Gaming Authority" shall mean the New Jersey Casino Control Commission, the
New Jersey Division of Gaming Enforcement, the Indiana Gaming Commission, the
Mississippi Gaming Commission and the Mississippi State Tax Commission or any
other governmental agency which regulates gaming in a jurisdiction in which
either THCR or its Subsidiaries or Taj Holding or its Subsidiaries conducts
gaming activities.
"Gaming Laws" shall mean any laws, rules, regulations or ordinances
governing gaming activities and any administrative rules or regulations
promulgated thereunder, and any other corresponding statutes, rules and
regulations.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Joint Proxy Statement" shall mean the joint proxy statement of Taj Holding
and THCR with respect to the Taj Holding Meeting and the THCR Meeting.
"Lien" shall mean any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation, or other encumbrance
upon or with respect to any property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired.
"Market Value" shall mean the average of the high and low per share sales
prices of the THCR Common Stock during the fifteen trading days immediately
preceding the Effective Time or, if THCR and Taj Holding mutually agree,
during any such other period as agreed under the Class A Voting Agreement.
"Merger" shall have the meaning set forth in Recitals.
"Merger Agreement" shall have the meaning set forth in the Preamble.
"Merger Consideration" shall have the meaning set forth in Section 2.02.
"Merger Sub" shall have the meaning set forth in the Preamble.
"Merger Sub Common Stock" shall mean the Common Stock, par value $.01 per
share, of Merger Sub.
"Merger Sub Material Adverse Effect" shall mean a material adverse effect
with respect to the business, results of operations, properties, operations or
financial condition of Merger Sub.
"Merger Transaction" shall have the meaning set forth in the Recitals.
"NYSE" shall mean the New York Stock Exchange.
"Partnership Agreement" shall have the meaning set forth in the Recitals.
"Permitted Investments" shall have the meaning set forth in Section 2.08.
"Person" shall mean any individual, partnership, corporation, trust,
association, limited liability company, governmental agency or any other
entity.
"Realty Corp." shall have the meaning set forth in the Recitals.
"Receiving Party" shall mean any party to this Merger Agreement that
receives or obtains Confidential Information from a Disclosing Party.
"Rothschild" shall have the meaning set forth in Section 3.06.
A-4
<PAGE>
"Rothschild Fairness Opinion" shall have the meaning set forth in Section
3.06.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Special Counsel" shall mean Andrews & Kurth L.L.P., special counsel to the
Taj Holding Class B Directors.
"Specified Parcels" shall have the meaning set forth in the Recitals.
"Stock Consideration" shall have the meaning set forth in Section 2.02.
"Subsidiary" shall mean, with respect to any Person, any other Person in
which such first Person, directly or indirectly, owns, controls or has the
power to vote at least 50% of the outstanding securities generally entitled to
vote upon the election of directors. For the purposes of this Merger Agreement
the term "Subsidiary" shall also include, with respect to Taj Holding, Taj
Associates and, with respect to THCR, THCR Holdings, Trump Plaza Holding
Associates and Trump Plaza Associates.
"Surviving Corporation" shall mean the surviving corporation in the Merger.
"Taj Associates" shall have the meaning set forth in the Recitals.
"Taj Funding" shall have the meaning set forth in the Recitals.
"Taj Funding Offering" shall have the meaning set forth in the Recitals.
"Taj Holding" shall have the meaning set forth in the Preamble.
"Taj Holding Certificates" shall have the meaning set forth in Section 2.08.
"Taj Holding Class A Common Stock" shall have the meaning set forth in the
Recitals.
"Taj Holding Class B Common Stock" shall have the meaning set forth in the
Recitals.
"Taj Holding Class C Common Stock" shall mean the Class C Common Stock, par
value $.01 per share, of Taj Holding.
"Taj Holding Class B Directors" shall mean the Class B Directors of Taj
Holding.
"Taj Holding Class C Directors" shall mean the Class C Directors of Taj
Holding.
"Taj Holding Indemnified Parties" shall have the meaning set forth in
Section 7.04.
"Taj Holding Material Adverse Effect" shall mean a material adverse effect
with respect to the business, results of operations, properties, operations or
financial condition of Taj Holding and its Subsidiaries, taken as a whole.
"Taj Holding Meeting" shall have the meaning set forth in Section 6.03.
"Taj Holding SEC Reports" shall have the meaning set forth in Section 3.04.
"Taj Holdings LLC" shall have the meaning set forth in the Recitals.
"Taj Mahal" shall have the meaning set forth in the Recitals.
A-5
<PAGE>
"THCR" shall have the meaning set forth in the Preamble.
"THCR Certificates" shall have the meaning set forth in Section 2.08.
"THCR Class B Common Stock" shall mean the Class B Common Stock, par value
$.01 per share, of THCR.
"THCR Common Stock" shall have the meaning set forth in the Recitals.
"THCR Dividends" shall have the meaning set forth in Section 2.08.
"THCR Holdings" shall have the meaning set forth in the Recitals.
"THCR Material Adverse Effect" shall mean a material adverse effect with
respect to the business, results of operations, properties, operations or
financial condition of THCR and its Subsidiaries, taken as a whole.
"THCR Meeting" shall have the meaning set forth in Section 7.03.
"THCR Offering" shall have the meaning set forth in the Recitals.
"THCR Registration Statement" shall mean the Registration Statement on Form
S-4 of THCR to be filed with the SEC in connection with the Merger, including
the Prospectus with respect to the THCR Common Stock included therein.
"THCR SEC Reports" shall have the meaning set forth in Section 4.04.
"THCR Special Committee" shall mean the Special Committee of the Board of
Directors of THCR.
"TM/GP" shall mean TM/GP Corporation, a wholly owned subsidiary of Taj
Holding.
"TM/GP Class B Common Stock" shall mean the Class B Common Stock of TM/GP,
par value $.01 per share.
"Trump" shall have the meaning set forth in the Recitals.
"Trump Taj Voting Agreement" shall have the meaning set forth in Section
3.06.
"Trump THCR Voting Agreement" shall have the meaning set forth in Section
4.06.
"TTMI Note" shall mean the promissory note from Trump Taj Mahal, Inc. to
Trump, dated October 4, 1991.
ARTICLE II
THE MERGER
Section 2.01. The Merger. (a) Upon the terms and subject to the conditions
of this Merger Agreement, at the Effective Time, Merger Sub shall be merged
with and into Taj Holding in accordance with the DGCL, whereupon the separate
existence of Merger Sub shall cease, and Taj Holding shall be the Surviving
Corporation.
(b) Unless this Merger Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
10.01 and subject to the satisfaction or, if permissible, waiver of the
conditions set forth in Article IX, the closing of the Merger (the "Closing")
shall take place as promptly as practicable (and in any event within two
business days) after satisfaction or waiver of the conditions set forth in
Article IX, at the offices of Willkie Farr & Gallagher, 153 East 53rd Street,
New York, New York, unless another date, time or place is agreed to in writing
by the parties hereto.
A-6
<PAGE>
(c) At the Closing, (i) Taj Holding will deliver to THCR and Merger Sub the
opinion referred to in Section 6.04 and the various certificates, instruments
and documents referred to in Section 9.03, (ii) THCR and Merger Sub will
deliver to Taj Holding the various certificates, instruments and documents
referred to in Section 9.02 and (iii) THCR will deliver to the Exchange Agent
the Merger Consideration.
(d) As soon as practicable after the Closing, Taj Holding and Merger Sub
will file, or cause to be filed, with the Secretary of State of the State of
Delaware, a certificate of merger for the Merger in accordance with the
provisions of the DGCL (the "Certificate of Merger"). The Merger shall become
effective at the time such filing is accepted for filing by the Secretary of
State of the State of Delaware or at such other time as set forth in the
Certificate of Merger (the "Effective Time").
(e) From and after the Effective Time, the Surviving Corporation, shall have
all the rights, privileges, powers and franchises and be subject to all of the
restrictions, disabilities and duties of Taj Holding and Merger Sub, all as
provided under the DGCL.
Section 2.02. Conversion of Outstanding Shares; Redemption. (a) At the
Effective Time:
(i) each share of Taj Holding Class A Common Stock outstanding
immediately prior to the Effective Time shall, except as otherwise provided
in this Section, be converted into and represent the right to receive, at
the holder's election, either (x) $30.00 in cash (the "Cash Consideration")
or (y) that number of fully paid and nonassessable shares of THCR Common
Stock determined by dividing $30.00 by the Market Value (the "Stock
Consideration" and together with the Cash Consideration, the "Merger
Consideration");
(ii) all shares of Taj Holding Class C Common Stock outstanding
immediately prior to the Effective Time shall be canceled; and
(iii) each share of Merger Sub Common Stock outstanding immediately prior
to the Effective Time shall be converted into and represent the right to
receive one fully paid and nonassessable share of Common Stock, par value
$0.01 per share, of the Surviving Corporation.
(b) Immediately prior to the Effective Time, Taj Holding shall cause each
share of Taj Holding Class B Common Stock outstanding immediately prior to
such time to be redeemed at $.50 per share in accordance with the provisions
of the certificate of incorporation of Taj Holding and the Bond Indenture.
(c) Each share of Taj Holding Class A Common Stock held by Taj Holding as
treasury stock immediately prior to the Effective Time or owned by any direct
or indirect Subsidiary of Taj Holding immediately prior to the Effective Time
shall be canceled, and no conversion or payment shall be made with respect
thereto.
Section 2.03. Certificate of Incorporation. The certificate of incorporation
of Merger Sub in effect at the Effective Time shall be the certificate of
incorporation of the Surviving Corporation, until amended in accordance with
the DGCL, except that Article Second thereof shall be amended to read as
follows: "The name of the Corporation is Taj Mahal Holding Corp."
Section 2.04. By-laws. The by-laws of Merger Sub in effect at the Effective
Time shall be the by-laws of the Surviving Corporation, until amended in
accordance with the DGCL and the certificate of incorporation of the Surviving
Corporation.
Section 2.05. Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed in accordance with the DGCL and
the Surviving Corporation's certificate of incorporation and by-laws, (a) the
directors of Merger Sub at the Effective Time shall be the directors of the
Surviving Corporation and (b) the officers of Taj Holding at the Effective
Time shall be the officers of the Surviving Corporation.
Section 2.06. Exchange Agent. Prior to the Effective Time, THCR and Taj
Holding shall designate Continental Stock Transfer & Trust Company, or another
mutually acceptable bank or trust company, to act as exchange agent for the
Merger (the "Exchange Agent").
A-7
<PAGE>
Section 2.07. Election Procedures. (a) Taj Holding shall, or shall cause the
Exchange Agent to, send an election form (the "Election Form") in form
satisfactory to THCR, to each holder of Taj Holding Class A Common Stock
together with the Joint Proxy Statement. Each Election Form shall permit each
holder of Taj Holding Class A Common Stock (or the beneficial owner through
appropriate and customary documentation and instructions) to elect to receive
either the Stock Consideration or the Cash Consideration.
(b) Any holder of Taj Holding Class A Common Stock who wishes to receive
Cash Consideration must send the Election Form properly completed to the
Exchange Agent at the address set forth in the Election Form on or before 5:00
p.m. on the business day prior to the Taj Holding Meeting or at any other time
and date as Taj Holding and THCR may mutually agree (the "Election Deadline").
(c) Holders of the Taj Holding Class A Common Stock who (i) fail to complete
properly the Election Form, (ii) fail to send the Election Form to the
Exchange Agent prior to the Election Deadline or (iii) make no election, shall
be deemed to have elected to receive the Stock Consideration.
(d) Taj Holding shall use its best efforts to make available one or more
Election Forms as may be reasonably requested by all Persons who become
holders (or beneficial owners) of Taj Holding Class A Common Stock between the
record date established for purposes of the Taj Holding Stockholder Meeting
and the Election Deadline.
(e) Any Election Form may be revoked prior to the Election Deadline by
submitting a new Election Form to the Exchange Agent. In addition, all
Election Forms shall automatically be deemed revoked if the Exchange Agent is
notified in writing by Taj Holding and THCR that the Merger has been abandoned
or this Merger Agreement has been terminated.
(f) Subject to the terms of this Merger Agreement, the determination of the
Exchange Agent shall be binding and conclusive as to whether or not the
Election Form has been properly or timely submitted or revoked. Neither the
Exchange Agent, Taj Holding, THCR nor Merger Sub shall be under any obligation
to notify any Person of any defect in an Election Form or the revocation
thereof.
Section 2.08. Taj Holding Class A Common Stock Exchange Procedures. (a) As
soon as practicable after the Effective Time, THCR shall instruct the Exchange
Agent to mail to each holder of a certificate or certificates evidencing
shares of Taj Holding Class A Common Stock (other than Dissenting Shares) (the
"Taj Holding Certificates") (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Taj Holding
Certificates shall pass, only upon proper delivery of such Taj Holding
Certificates to the Exchange Agent) and (ii) instructions to effect the
surrender of the Taj Holding Certificates in exchange for Merger
Consideration. Each holder of Taj Holding Class A Common Stock, upon surrender
to the Exchange Agent of such holder's Taj Holding Certificates with the
letter of transmittal, duly executed, and such other customary documents as
may be required pursuant to such instructions, shall be given the amount to
which such holder is entitled, pursuant to this Merger Agreement, of (i)
certificates evidencing shares of THCR Common Stock (the "THCR Certificates")
as payment of the Stock Consideration, (ii) cash as payment of the Cash
Consideration (without any interest accrued thereon), (iii) dividends or
distributions declared or made on the THCR Common Stock after the Effective
Time and payable between the Effective Time and the time of such surrender
(the "THCR Dividends") and/or (iv) cash for payment of fractional shares of
THCR Common Stock. Until so surrendered, each Taj Holding Certificate shall
after the Effective Time represent for all purposes only the right to receive
THCR Certificates or cash, as the case may be. After the Effective Time, there
shall be no further registration of transfers of Taj Holding Class A Common
Stock. THCR shall establish reasonable procedures for the delivery of THCR
Certificates or cash, as the case may be, to holders of Taj Holding Class A
Common Stock whose Taj Holding Certificates have been lost, destroyed or
mutilated.
(b) At the Closing, THCR shall deposit in trust with the Exchange Agent, for
the benefit of the holders of Taj Holding Class A Common Stock, the
appropriate amount to which such holders are entitled, pursuant to this Merger
Agreement, of THCR Certificates for payment of the Stock Consideration, cash
for payment of the Cash
A-8
<PAGE>
Consideration, THCR Dividends, if any, and cash for payment of fractional
shares of THCR Common Stock (collectively, the "Exchange Fund"). The Exchange
Agent shall, pursuant to irrevocable instructions, make the payments to the
holders of Taj Holding Class A Common Stock as set forth in this Merger
Agreement. The Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to the THCR Common Stock held by it from time
to time hereunder, except that it shall hold all THCR Dividends paid or
distributed for the accounts of the Persons entitled thereto.
(c) If any delivery of the Merger Consideration is to be made to a Person
other than the registered holder of the Taj Holding Certificates surrendered
in exchange therefor, it shall be a condition to such delivery that the Taj
Holding Certificate so surrendered shall be properly endorsed or be otherwise
in proper form for transfer and that the Person requesting such delivery shall
(i) pay to the Exchange Agent any transfer or other taxes required as a result
of delivery to a Person other than the registered holder or (ii) establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) Any portion of the Exchange Fund that remains undistributed to the
holders of the Taj Holding Class A Common Stock for 180 days after the
Effective Time shall be delivered to THCR upon demand. Any holder of Taj
Holding Class A Common Stock who has not therefore complied with this Article
within 180 days after the Effective Time shall have no further claim upon the
Exchange Agent and shall thereafter look only to THCR for conversion or
payment, as the case may be, of the Merger Consideration, THCR Dividends and
fractional shares of THCR Common Stock.
(e) If a Taj Holding Certificate has not been surrendered prior to the date
on which any receipt of Merger Consideration, THCR Dividends or cash for
payment of fractional shares of THCR Common Stock would otherwise escheat to
or become the property of any governmental agency, such Taj Holding
Certificate shall, to the extent permitted by applicable law, be deemed to be
canceled and no money or other property will be due to the holder thereof.
(f) The Exchange Agent shall invest cash in the Exchange Fund, as directed
by THCR, on a daily basis, provided that all such investments shall be in
obligations of or guaranteed by the United States of America with remaining
maturities not exceeding 180 days, in commercial paper obligations receiving
the highest rating from either Moody's Investors Services, Inc. or Standard &
Poor's Corporation, or in certificates of deposit or banker's acceptances of
commercial banks with capital exceeding $500 million (collectively, "Permitted
Investments"). The maturities of Permitted Investments shall be such as to
permit the Exchange Agent to make prompt payment to former stockholders of Taj
Holding entitled thereto as contemplated by this Section. THCR shall promptly
replenish the Exchange Fund to the extent of any losses incurred as a result
of Permitted Investments. Any interest and other income resulting from such
investments shall be paid to THCR. If for any reason (including losses) the
Exchange Fund is inadequate to pay the amounts to which holders of Taj Holding
Class A Common Stock shall be entitled under this Merger Agreement, THCR shall
in any event be liable for payment thereof. The Exchange Fund shall not be
used for any purpose not specifically provided for in this Merger Agreement.
Section 2.09. Dividends; Liability. No THCR Dividend will be paid to Persons
entitled to receive certificates representing THCR Common Stock pursuant to
this Merger Agreement until such Persons surrender their Taj Holding
Certificates. Upon such surrender, THCR Dividends shall be paid to the Person
in whose name the THCR Certificate shall be issued. In no event shall the
Person entitled to receive such dividends or distributions be entitled to
receive interest on such dividends or distributions. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable to
a holder of Taj Holding Class A Common Stock for any shares of THCR Common
Stock or dividends or distributions thereon delivered to a governmental agency
pursuant to any applicable escheat or similar laws.
Section 2.10. No Further Rights for Holders Electing Cash
Consideration. Holders of Taj Holding Class A Common Stock who elect to
receive the Cash Consideration or who shall receive cash for payment of
fractional shares of THCR Common Stock shall, upon properly surrendering their
Taj Holding Certificates, be deemed to have been paid in full satisfaction of
all rights pertaining to the shares or fractions thereof exchanged for cash
theretofore.
A-9
<PAGE>
Section 2.11. No Fractional Shares. No fractional shares of THCR Common
Stock will be issued in connection with the Merger. In lieu of any fractional
shares, each holder of Taj Holding Class A Common Stock who would otherwise
have been entitled to a fractional share of THCR Common Stock upon surrender
of Taj Holding Certificates for exchange will be paid cash (without interest)
in an amount equal to the Market Value of such fractional shares. As soon as
practicable after the determination of the amount of cash to be paid to former
holders of Taj Holding Class A Common Stock in lieu of any fractional shares,
the Exchange Agent will make available such amounts to such former holders.
Section 2.12. Dissenting Shares. (a) Notwithstanding any other provision of
this Merger Agreement to the contrary, shares of Taj Holding Class A Common
Stock that are outstanding immediately prior to the Effective Time and which
are held by holders who shall have not voted in favor of the Merger or
consented thereto in writing and who shall have demanded properly in writing
appraisal for such shares in accordance with Section 262 of the DGCL and who
shall not have withdrawn such demand or otherwise have forfeited appraisal
rights (collectively, the "Dissenting Shares") shall not be converted into or
represent the right to receive the Merger Consideration. Such holders shall be
entitled to receive payment of the appraised value of such shares, except that
all Dissenting Shares held by holders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
shares under such Section 262 shall thereupon be deemed to have been converted
into and to have become exchangeable, as of the Effective Time, for the right
to receive, without any interest thereon, the Stock Consideration, upon
surrender of the Taj Holding Certificates evidencing such shares.
(b) Taj Holding shall give THCR (i) prompt notice of any demands for
appraisal received by Taj Holding, withdrawals of such demands, and any other
instruments served pursuant to the DGCL and received by Taj Holding and (ii)
the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the DGCL. Taj Holding shall not, except with the
prior written consent of THCR, make any payment with respect to any demands
for appraisal, or offer to settle, or settle, any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TAJ HOLDING
Taj Holding represents and warrants to THCR and Merger Sub that:
Section 3.01. Corporate Organization. Taj Holding is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware, and has all requisite corporate power and authority to own its
properties and assets and to conduct its businesses as now conducted. Taj
Holding is duly qualified and in good standing in each jurisdiction in which
the property owned, leased or operated by it makes such qualification
necessary, except where the failure to be so qualified and in good standing
would not be reasonably expected to have a Taj Holding Material Adverse
Effect.
Section 3.02. Capitalization. The authorized capital stock of Taj Holding
consists of (i) 1,000,000 shares of Preferred Stock, par value $1.00 per
share, (ii) 10,000,000 shares of Taj Holding Class A Common Stock, (iii)
860,000 shares of Taj Holding Class B Common Stock and (iv) 10,000,000 shares
of Taj Holding Class C Common Stock. 1,350,000, 780,242 and 1,350,000 shares
of Taj Holding Class A Common Stock, Taj Holding Class B Common Stock and Taj
Holding Class C Common Stock, respectively, are issued and outstanding. The
outstanding shares of Taj Holding Class A Common Stock, Taj Holding Class B
Common Stock and Taj Holding Class C Common Stock have been duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights. The outstanding shares of Taj Holding Class A Common Stock, Taj
Holding Class B Common Stock and Taj Holding Class C Common Stock are the sole
outstanding capital stock of Taj Holding. There are no options, warrants or
other rights to purchase debt or equity securities of Taj Holding outstanding.
A-10
<PAGE>
Section 3.03. Subsidiaries. Each Subsidiary of Taj Holding (i) is a
corporation or other legal entity duly organized, validly existing and (if
applicable) in good standing under the laws of the jurisdiction of its
organization and has the full power and authority to own its properties and
conduct its business and operations as currently conducted, except where the
failure to be duly organized, validly existing or in good standing does not
have, and would not be reasonably expected to have, a Taj Holding Material
Adverse Effect, and (ii) is duly qualified and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified does not have and would not be
reasonably expected to have a Taj Holding Material Adverse Effect.
Section 3.04. Financial Statements; SEC Reports. Taj Holding has previously
furnished THCR and Merger Sub with true and complete copies of the Taj Holding
and Taj Associates (i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, as filed with the SEC, (ii) Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1995, June 30, 1995, and September 30, 1995,
as filed with the SEC, (iii) proxy statements related to all meetings of
stockholders (whether annual or special) since January 1, 1995 and prior to
the date hereof and (iv) all other reports or registration statements filed
with the SEC since January 1, 1995 (clauses (i) through (iv) being referred to
herein collectively as the "Taj Holding SEC Reports"). As of their respective
filing dates, the Taj Holding SEC Reports complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case
may be. As of their respective dates, the Taj Holding SEC Reports, including,
without limitation, any financial statements included therein, did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements included in the Taj Holding SEC Reports comply as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles applied
on a basis consistent with prior periods (except as may be indicated therein
or in the notes thereto), present fairly the financial position of the
entities to which they relate as of the dates thereof and the results of their
operations and cash flows for the periods presented therein subject, in the
case of the unaudited interim financial statements, to normal year-end audit
adjustments, any other adjustments described therein and the fact that certain
information and notes have been condensed or omitted in accordance with the
Exchange Act, and are, in all material respects, in accordance with the books
of account and records of Taj Holding.
Section 3.05. Absence of Certain Changes or Events. Except as described in
the Taj Holding SEC Reports, during the period since September 30, 1995, (i)
the business of Taj Holding and its Subsidiaries has been conducted only in
the ordinary course, consistent with past practice, (ii) neither Taj Holding
nor any of its Subsidiaries has entered into any material transaction other
than in the ordinary course, consistent with past practice, and (iii) there
has not been any event or change that has had a Taj Holding Material Adverse
Effect.
Section 3.06. Authorization and Validity of Agreements; Opinion of Financial
Advisor. (a) Taj Holding has the corporate power to enter into this Merger
Agreement and to carry out its obligations hereunder and, subject to the
approval of the holders of the Taj Holding Class B Common Stock and the Taj
Holding Class C Common Stock, each voting as a separate class, has the
corporate power to consummate the Merger and the other transactions
contemplated by this Merger Agreement to be performed by Taj Holding. The
execution and delivery of this Merger Agreement, the performance of Taj
Holding's obligations hereunder and the consummation of the Merger and the
other transactions contemplated by this Merger Agreement to be performed by
Taj Holding have been duly authorized by all necessary corporate action by the
Taj Holding Class B Directors and the Board of Directors of Taj Holding.
Rothschild Inc. ("Rothschild") has delivered to the Taj Holding Class B
Directors and to the Board of Directors of Taj Holding its opinion, dated
January 8, 1996 (the "Rothschild Fairness Opinion"), that the consideration to
be received by the holders of the Taj Holding Class A Common Stock in
connection with the Merger Transaction is fair, from a financial point of
view, to the holders of the Taj Holding Class A Common Stock. The Taj Holding
Class B Directors and the Board of Directors of Taj Holding have unanimously
approved the terms of the Merger and the other transactions contemplated by
this Merger Agreement to be performed by Taj Holding (subject to, in the case
of the Taj Funding Offering, the negotiation
A-11
<PAGE>
of the terms relating thereto) and this Merger Agreement. This Merger
Agreement has been duly executed and delivered by Taj Holding and constitutes
the valid and binding obligation of Taj Holding enforceable against Taj
Holding in accordance with its terms, except (i) to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally, and (ii) that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which
any proceeding therefor may be brought.
(b) The Class B Directors of TM/GP and the entire board of directors of
TM/GP have unanimously approved the terms of all the transactions relating to
the Merger to the extent they contemplate action by TM/GP or Taj Associates.
The Taj Holding Class B Directors have caused, pursuant to the certificate of
incorporation of Taj Holding, all the shares of TM/GP Class B Common Stock to
approve the terms of all the transactions relating to the Merger to the extent
they contemplate action by TM/GP or Taj Associates. The Taj Holding Class B
Directors and Taj Holding Class C Directors have caused, pursuant to the
certificate of incorporation of Taj Holding, Taj Holding to approve, as the
sole shareholder of TM/GP, the terms all the transactions relating to the
Merger to the extent they contemplate action by TM/GP or Taj Associates.
(c) Except for the approvals referred to in this Section, no other corporate
proceedings on the part of Taj Holding are necessary to authorize this Merger
Agreement and the transactions contemplated hereby to be performed by it
(subject to, in the case of the Taj Funding Offering, the negotiation of the
terms relating thereto); provided, however, that pursuant to Section 9.01
hereof, this Merger Agreement must also be approved and adopted by a majority
of the outstanding shares of the Taj Holding Class A Common Stock, voting as a
separate class.
(d) Trump, the beneficial owner of all the outstanding shares of Taj Holding
Class C Common Stock, has agreed to vote all of such shares in favor of the
Merger pursuant to a voting agreement (the "Trump Taj Voting Agreement"), a
copy of which has been delivered to each of the parties hereto.
Section 3.07. No Conflict or Violation. The execution, delivery and
performance by Taj Holding of this Merger Agreement, the consummation of the
Merger, the Bond Redemption and the Taj Funding Offering do not and will not
violate or conflict with any provision of the charter documents or by-laws of
Taj Holding or its Subsidiaries and do not and will not violate any provision
of law, or any order, judgment or decree of any court or other governmental or
regulatory authority, nor violate or result in a breach of or constitute (with
due notice or lapse of time or both) a default under any contract, lease, loan
agreement, mortgage, security agreement, trust indenture or other agreement or
instrument to which Taj Holding or its Subsidiaries are a party or by which
they are bound or to which their respective properties or assets are subject,
nor result in the creation or imposition of any lien, charge or encumbrance of
any kind whatsoever upon any of the properties or assets of Taj Holding or its
Subsidiaries, nor adversely affect or result in the cancellation,
modification, revocation or suspension of any of the licenses, franchises,
permits, authorizations or approvals issued or granted to Taj Holding or its
Subsidiaries by the United States, any state or local government, any foreign
national or local government, or any department, agency, board, commission,
bureau or instrumentality of any of the foregoing, except as would not be
reasonably expected to have a Taj Holding Material Adverse Effect or as would
not prevent consummation of the transactions contemplated by this Merger
Agreement.
Section 3.08. Consents and Approvals. The execution, delivery and
performance of this Merger Agreement by Taj Holding do not and will not
require any material consent, waiver, authorization or approval of any
governmental or regulatory authority, domestic or foreign, or of any other
Person, and no material declaration or notification to, or filing or
registration with, or permit of, any governmental or regulatory authority,
except as it (i) may be required in connection or compliance with applicable
provisions of the DGCL, the Exchange Act, the Securities Act, the HSR Act,
blue sky or other state securities laws or Gaming Laws, (ii) would not be
reasonably expected to have a Taj Holding Material Adverse Effect, (iii) would
not prevent consummation of the transactions contemplated by this Merger
Agreement or (iv) is otherwise contemplated in this Merger Agreement.
A-12
<PAGE>
Section 3.09. Litigation. Except as disclosed in the Taj Holding SEC
Reports, there are no actions, suits, investigations or proceedings
(adjudicatory, rulemaking or otherwise) pending or, to the knowledge of Taj
Holding, threatened against Taj Holding or any of its Subsidiaries, or any
property of Taj Holding or any such Subsidiary in any court or before any
arbitrator of any kind or before or by any governmental or regulatory
authority, domestic or foreign, except actions, suits, investigations or
proceedings which, individually or in the aggregate, do not have and would not
be reasonably expected to result in a Taj Holding Material Adverse Effect.
Section 3.10. Taxes. Taj Holding and its Subsidiaries have filed all
federal, state, county, local and foreign tax returns required to be filed by
them, and have paid all taxes shown to be due thereon, other than taxes
appropriate reserves for which have been made in the financial statements of
Taj Holding and its Subsidiaries (and, to the extent material, such reserves
have been accurately described to THCR). There are no assessments or
adjustments that have been asserted in writing against Taj Holding or its
Subsidiaries for any period for which Taj Holding has not made appropriate
reserves in its financial statements.
Section 3.11. Contracts and Leases. The Taj Holding SEC Reports contain a
complete listing of all material contracts, leases, agreements or
understandings, whether written or oral, required to be described therein or
filed as exhibits thereto pursuant to the Exchange Act. Each of such
contracts, leases, agreements and understandings is in full force and effect
and (i) none of Taj Holding or its Subsidiaries or, to Taj Holding's best
knowledge, any other party thereto, has breached or is in default thereunder,
(ii) no event has occurred which, with the passage of time or the giving of
notice would constitute such a breach or default, (iii) no claim of material
default thereunder has, to Taj Holding's best knowledge, been asserted or
threatened and (iv) none of Taj Holding or its Subsidiaries or, to Taj
Holding's best knowledge, any other party thereto is seeking the renegotiation
thereof or substitute performance thereunder, except where such breach or
default, or attempted renegotiation or substitute performance, individually or
in the aggregate, does not have and would not be reasonably expected to have a
Taj Holding Material Adverse Effect.
Section 3.12. Joint Proxy Statement. None of the information supplied or to
be supplied by Taj Holding for inclusion or incorporation by reference in the
THCR Registration Statement, the Joint Proxy Statement or the Schedule 13E-3
to be filed by Taj Holding and others in connection with the Merger
Transaction, will at the time it becomes effective (in the case of the THCR
Registration Statement) or it is mailed (in the case of the Joint Proxy
Statement) contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event
with respect to Taj Holding, its officers and directors or any of its
Subsidiaries should occur which is required to be described in an amendment
of, or a supplement to, such registration statement or proxy statement, Taj
Holding shall notify THCR thereof.
Section 3.13. Takeover Provisions Inapplicable. As of the date hereof and at
all times on or prior to the Effective Time, Section 203 of the DGCL, is, and
shall be, inapplicable to the Merger and the other transactions contemplated
by the Merger Transaction.
Section 3.14. Brokerage/Finder's Fees. Except for Rothschild, no broker,
finder or investment banker is entitled to any brokerage, finder's or other
fee or commission in connection with the Merger based upon arrangements made
by or on behalf of Taj Holding or its Subsidiaries, and the fees and
commissions payable to Rothschild, as contemplated by this Section, will be
paid in full by Taj Holding. Taj Holding hereby indemnifies THCR and Merger
Sub for any fees owing as a result of a breach of this Section.
Section 3.15. Bond Redemption; Taj Funding Offering. Taj Holding, Taj
Associates and Taj Funding have the right under the Bond Indenture to effect
the Bond Redemption. The Boards of Directors of Taj Holding and Taj Funding
have authorized, subject to the consummation of the Merger and the other
elements of the Merger Transaction, (a) the Bond Redemption and (b) the filing
of a registration statement on Form S-1 with the SEC relating to the Taj
Funding Offering (the "Debt S-1") and, subject to the negotiation of the terms
relating thereto, the Taj Funding Offering.
A-13
<PAGE>
Section 3.16. THCR Offering. None of the information supplied by Taj Holding
with respect to Taj Holding and its Subsidiaries for inclusion in the
registration statement on Form S-1 to be filed by THCR with the SEC relating
to the THCR Offering (the "Equity S-1") will, at the time the Equity S-1
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If any time prior to
the Effective Time any event with respect to Taj Holding, its officers and
directors or any of its Subsidiaries should occur which is required to be
described in an amendment to or supplement to such registration statement, Taj
Holding shall immediately notify THCR thereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THCR
THCR represents and warrants to Taj Holding that:
Section 4.01. Corporate Organization. THCR is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has all requisite corporate power and authority to own its properties and
assets and to conduct its businesses as now conducted. THCR is duly qualified
and in good standing in each jurisdiction in which the property owned, leased
or operated by it makes such qualification necessary, except where the failure
to be so qualified and in good standing would not be reasonably expected to
have a THCR Material Adverse Effect.
Section 4.02. Capitalization. The authorized capital stock of THCR consists
of 50,000,000 shares of THCR Common Stock, 1,000 shares of THCR Class B Common
Stock and 1,000,000 shares of Preferred Stock, par value $1.00 per share.
10,066,667 and 1,000 shares of the THCR Common Stock and the THCR Class B
Common Stock, respectively, are issued and outstanding. All outstanding shares
of THCR Class B Common Stock are owned by Trump. The outstanding shares of
THCR Common Stock and THCR Class B Common Stock have been duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive
rights. The outstanding shares of the THCR Common Stock and the THCR Class B
Common Stock are the sole outstanding capital stock of THCR. THCR is the sole
general partner of THCR Holdings, and, as of December 31, 1995, THCR held a
60% general partnership interest in THCR Holdings. As of December 31, 1995,
Trump's 40% limited partnership interest in THCR Holdings was convertible, at
Trump's option, into 6,666,667 shares of THCR Common Stock (subject to certain
adjustments set forth in the Exchange Agreement). The shares of THCR Common
Stock to be issued to holders of Taj Holding Class A Common Stock in
connection with the Merger have been duly authorized and, when issued and
delivered to such holders as provided in this Merger Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such shares
of THCR Common Stock will not be subject to any preemptive or similar rights.
Section 4.03. Subsidiaries. Each Subsidiary of THCR (i) is a corporation or
other legal entity duly organized, validly existing and (if applicable) in
good standing under the laws of the jurisdiction of its organization and has
the full power and authority to own its properties and conduct its business
and operations as currently conducted, except where the failure to be duly
organized, validly existing or in good standing does not have, and would not
be reasonably expected to have, a THCR Material Adverse Effect, and (ii) is
duly qualified and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so
qualified does not have and would not be reasonably expected to have a THCR
Material Adverse Effect.
Section 4.04. Financial Statements; SEC Reports. THCR has previously
furnished Taj Holding with true and complete copies of the THCR (i)
Registration Statement on Form S-1 (File No. 33-90784), as filed with the SEC,
(ii) Quarterly Reports on Form 10-Q for the quarters ended June 30, 1995 and
September 30, 1995, as filed with the SEC, and (iii) all other reports or
registration statements filed with the SEC since June 7, 1995 (clauses (i)
through (iii) being referred to herein collectively as the "THCR SEC
Reports"). As of their
A-14
<PAGE>
respective filing dates, the THCR SEC Reports, including, without limitation,
any financial statements included therein, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements
included in the THCR SEC Reports comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles applied on a basis consistent
with prior periods (except as may be indicated therein or in the notes
thereto), present fairly the financial position of the entities to which they
relate as of the dates thereof and the results of their operations and cash
flows for the periods presented therein subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments, any other
adjustments described therein and the fact that certain information and notes
have been condensed or omitted in accordance with the Exchange Act, and are,
in all material respects, in accordance with the books of account and records
of THCR.
Section 4.05. Absence of Certain Changes or Events. Except as described in
the THCR SEC Reports, during the period since September 30, 1995, (i) the
business of THCR and its Subsidiaries has been conducted only in the ordinary
course, consistent with past practice, (ii) neither THCR nor any of its
Subsidiaries has entered into any material transaction other than in the
ordinary course, consistent with past practice, and (iii) there has not been
any change or event that has had a THCR Material Adverse Effect.
Section 4.06. Authorization and Validity of Agreements; Opinion of Financial
Advisor. (a) THCR has the corporate power to enter into this Merger Agreement
and to carry out its obligations hereunder and, subject to the approval by the
affirmative vote of a majority of the outstanding shares of THCR Common Stock
and THCR Class B Common Stock, voting as a single class, has the power to
consummate the Merger and the other transactions contemplated by this Merger
Agreement to be performed by THCR. The execution and delivery of this Merger
Agreement, the performance of THCR's obligations hereunder and the
consummation of the Merger have been duly authorized by all necessary
corporate action by the THCR Special Committee and the Board of Directors of
THCR. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") has
delivered to the THCR Special Committee its opinion, dated January 8, 1996
(the "DLJ Fairness Opinion"), that the aggregate consideration to be paid by
THCR pursuant to the transactions contemplated by this Merger Agreement, is
fair, from a financial point of view, to THCR. The THCR Special Committee and
the Board of Directors of THCR have unanimously approved the terms of the
Merger Transaction and this Merger Agreement. This Merger Agreement has been
duly executed and delivered by THCR and constitutes the valid and binding
obligation of THCR enforceable against THCR in accordance with its terms,
except (i) to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally, and (ii) that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought.
(b) Except for the approval of the Merger Transaction by the holders of THCR
Common Stock and THCR Class B Common Stock as described in this Section and in
Section 9.01 hereof (which approval shall constitute adoption of this Merger
Agreement) and the required amendment to the Partnership Agreement, no other
corporate proceedings on the part of THCR are necessary to authorize the
Merger Transaction.
(c) Trump, the beneficial owner of all the outstanding shares of THCR Class
B Common Stock, has agreed to vote all of such shares and any shares of THCR
Common Stock that he beneficially owns in favor of the Merger Transaction
pursuant to a voting agreement (the "Trump THCR Voting Agreement"), a copy of
which has been delivered to each of the parties hereto.
Section 4.07. No Conflict or Violation. The execution, delivery and
performance by THCR of this Merger Agreement, the consummation of the Merger
and the other elements of the Merger Transaction, including, without
limitation, the THCR Offering, do not, and will not violate or conflict with
any provision of the charter documents or by-laws of THCR or its Subsidiaries
and do not and will not violate any provision of law, or any order, judgment
or decree of any court or other governmental or regulatory authority, nor
violate or
A-15
<PAGE>
result in a breach of or constitute (with due notice or lapse of time or both)
a default under any contract, lease, loan agreement, mortgage, security
agreement, trust indenture or other agreement or instrument to which THCR or
its Subsidiaries are a party or by which they are bound or to which their
respective properties or assets are subject, nor result in the creation or
imposition of any lien, charge or encumbrance of any kind whatsoever upon any
of the properties or assets of THCR or its Subsidiaries, nor adversely affect
or result in the cancellation, modification, revocation or suspension of any
of the licenses, franchises, permits, authorizations or approvals issued or
granted to THCR or its Subsidiaries by the United States, any state or local
government, any foreign national or local government, or any department,
agency, board, commission, bureau or instrumentality of any of the foregoing,
except as would not be reasonably expected to have a THCR Material Adverse
Effect or as would not prevent consummation of the transactions contemplated
by this Merger Agreement.
Section 4.08. Consents and Approvals. The execution, delivery and
performance of this Merger Agreement by THCR and Merger Sub do not and will
not require any material consent, waiver, authorization or approval of any
governmental or regulatory authority, domestic or foreign, or of any other
Person, and no material declaration or notification to, or filing or
registration with, or permit of, any governmental or regulatory authority,
except as it (i) may be required in connection or compliance with applicable
provisions of the DGCL, the Exchange Act, the Securities Act, the HSR Act,
blue sky or other state securities laws or Gaming Laws, (ii) would not be
reasonably expected to have a THCR Material Adverse Effect, (iii) would not
prevent consummation of the transactions contemplated by this Merger Agreement
or the payment of the Merger Consideration following consummation of the
Merger or (iv) is otherwise contemplated in this Merger Agreement.
Section 4.09. Litigation. Except as disclosed in the THCR SEC Reports, there
are no actions, suits, investigations or proceedings (adjudicatory, rulemaking
or otherwise) pending or, to the knowledge of THCR, threatened against THCR or
any of its Subsidiaries, or any property of THCR or any such Subsidiary in any
court or before any arbitrator of any kind or before or by any governmental or
regulatory authority, domestic or foreign, except actions, suits,
investigations or proceedings which, individually or in the aggregate, do not
have and would not be reasonably expected to result in a THCR Material Adverse
Effect.
Section 4.10. Taxes. THCR and its Subsidiaries have filed all federal,
state, county, local and foreign tax returns required to be filed by them, and
have paid all taxes shown to be due thereon, other than taxes appropriate
reserves for which have been made in the financial statements of THCR and its
Subsidiaries (and, to the extent material, such reserves have been accurately
described to Taj Holding). There are no assessments or adjustments that have
been asserted in writing against THCR or its Subsidiaries for any period for
which THCR has not made appropriate reserves in its financial statements.
Section 4.11. Contracts and Leases. The THCR SEC Reports contain a complete
listing of all material contracts, leases, agreements or understandings,
whether written or oral, required to be described therein or filed as exhibits
thereto pursuant to the Exchange Act. Each of such contracts, leases,
agreements and understandings is in full force and effect and (i) none of THCR
or its Subsidiaries or, to THCR's best knowledge, any other party thereto, has
breached or is in default thereunder, (ii) no event has occurred which, with
the passage of time or the giving of notice would constitute such a breach or
default, (iii) no claim of material default thereunder has, to THCR's best
knowledge, been asserted or threatened and (iv) none of THCR or its
Subsidiaries or, to THCR's best knowledge, any other party thereto is seeking
the renegotiation thereof or substitute performance thereunder, except where
such breach or default, or attempted renegotiation or substitute performance,
individually or in the aggregate, does not have and would not be reasonably
expected to have a THCR Material Adverse Effect.
Section 4.12. THCR Registration Statement. None of the information supplied
or to be supplied by THCR with respect to THCR and its Subsidiaries for
inclusion or incorporation by reference in the THCR Registration Statement and
the Joint Proxy Statement will at the time it becomes effective (in the case
of the THCR Registration Statement) or it is mailed (in the case of the Joint
Proxy Statement) contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
A-16
<PAGE>
to make the statements therein, in light of the circumstances under which they
are made, not misleading. If at any time prior to the Effective Time any event
with respect to THCR, its officers and directors or any of its Subsidiaries
should occur which is required to be described in an amendment of, or a
supplement to, such registration statement or proxy statement, THCR shall
notify Taj Holding thereof.
Section 4.13. Takeover Provisions Inapplicable. As of the date hereof and at
all times on or prior to the Effective Time, Section 203 of the DGCL, is, and
shall be, inapplicable to the Merger and the other transactions contemplated
by the Merger Transaction.
Section 4.14. Brokerage/Finder's Fees. Except for DLJ, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger based upon arrangements made by or on
behalf of THCR or its Subsidiaries, and the fees and commissions payable to
DLJ, as contemplated by this Section, will be paid in full by THCR. THCR
indemnifies Taj Holding for any fees owing as a result of a breach of this
Section.
Section 4.15. Taj Funding Offering. None of the information supplied by THCR
with respect to THCR and its Subsidiaries for inclusion in the Debt S-1 will,
at the time the Debt S-1 becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If any time prior to the Effective Time any event with respect to
THCR, its officers and directors or any of its Subsidiaries should occur which
is required to be described in an amendment to, or supplement to, such
registration statement, THCR shall immediately notify Taj Holding thereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Merger Sub represents and warrants to Taj Holding that:
Section 5.01. Corporate Organization; Subsidiaries. Merger Sub is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all requisite corporate power and
authority to own its properties and assets and to conduct its businesses as
now conducted. Merger Sub is duly qualified and in good standing in each
jurisdiction in which the property owned, leased or operated by it makes such
qualification necessary, except where the failure to be so qualified and in
good standing would not be reasonably expected to have a Merger Sub Material
Adverse Effect. Merger Sub has no Subsidiaries.
Section 5.02. Capitalization. The authorized capital stock of Merger Sub
consists of 1,000 shares of Merger Sub Common Stock, 100 of which are issued
and outstanding. THCR is the owner of all the outstanding shares of the Merger
Sub Common Stock. The outstanding shares of Merger Sub Common Stock have been
duly authorized and validly issued and are fully paid, nonassessable and free
of preemptive rights. The Merger Sub Common Stock is the sole outstanding
capital stock of Merger Sub.
Section 5.03. Authorization and Validity of Agreements. Merger Sub has the
corporate power to enter into this Merger Agreement and to carry out its
obligations hereunder and has the power to consummate the Merger. The
execution and delivery of this Merger Agreement, the performance of Merger
Sub's obligations hereunder and the consummation of the Merger have been duly
authorized by all necessary corporate action by the Board of Directors of
Merger Sub and by THCR as the sole holder of Merger Sub Common Stock. This
Merger Agreement has been duly executed and delivered by Merger Sub and
constitutes the valid and binding obligation of Merger Sub enforceable against
Merger Sub in accordance with its terms, except (i) to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally, and (ii) that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which
any proceeding therefor may be brought. No other corporate proceedings on the
part of Merger Sub are necessary to authorize this Merger Agreement and the
transactions contemplated hereby.
A-17
<PAGE>
ARTICLE VI
COVENANTS OF TAJ HOLDING
Section 6.01. Conduct Pending the Merger. From and after the date of this
Merger Agreement and until the Effective Time, Taj Holding shall, and shall
cause each of its Subsidiaries to, conduct its business solely in the ordinary
course consistent with past practice and, without the prior written consent of
THCR, Taj Holding shall not, and shall cause each of its Subsidiaries not to,
except as required or permitted pursuant to the terms hereof or as
contemplated in the Taj Holding SEC Reports filed through the date hereof or
by the terms of the Merger Transaction:
(i) make any material change in the conduct of its businesses and
operations or enter into any transaction, other than in the ordinary course
of business consistent with past practice, or make any investment other
than a Permitted Investment (as such term is defined in the Bond
Indenture);
(ii) make any change in its certificate of incorporation or by-laws,
issue any additional shares of capital stock or equity securities, grant
any option, warrant or right to acquire any capital stock or equity
securities, issue any security convertible into or exchangeable for its
capital stock, alter in any material respect the terms of any of its
outstanding securities, or make any change in its outstanding shares of
capital stock or in its capitalization, whether by reason of a
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, stock dividend or otherwise;
(iii) incur, assume or guarantee any indebtedness for borrowed money,
issue any notes, bonds, debentures or other corporate securities or grant
any option, warrant or right to purchase any thereof;
(iv) make any sale, assignment, transfer, abandonment or other conveyance
of any of its assets or any part thereof, except in the ordinary course of
business consistent with past practices;
(v) subject any of its assets, or any part thereof, to any lien or suffer
such to be imposed other than such liens as may arise in the ordinary
course of business consistent with past practice or by operation of law;
(vi) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or declare, set aside or pay
any dividends or other distribution in respect of such shares;
(vii) increase the compensation payable or to become payable to its
executive officers or employees, except for increases in the ordinary
course of business in accordance with past practices, or grant any
severance or termination pay to, or enter into any employment or severance
agreement (other than in the ordinary course of business) with, any
director or executive officer, or establish, adopt, enter into or amend in
any material respect or take action to accelerate any rights or benefits
under any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust fund, policy or arrangement for the benefit of any director,
executive officer or employee;
(viii) take any other action that would cause any of the representations
and warranties made in this Merger Agreement not to remain true and
correct; or
(ix) commit itself to do any of the foregoing.
Section 6.02. Joint Proxy Statement. As promptly as reasonably practicable
after the execution of this Merger Agreement, Taj Holding and THCR shall
prepare and file with the SEC the preliminary Joint Proxy Statement, which
will be included within the THCR Registration Statement. As promptly as
reasonably practicable after comments are received from the SEC with respect
to the THCR Registration Statement and after the satisfactory response thereto
by Taj Holding and THCR, Taj Holding and THCR shall file with the SEC the
definitive Joint Proxy Statement and any amendment to the THCR Registration
Statement and shall use all reasonable efforts to cause the THCR Registration
Statement to become effective as soon thereafter as it is reasonably
practicable. Promptly thereafter, Taj Holding shall distribute the Joint Proxy
Statement and related proxy card and the Election Form to its stockholders.
A-18
<PAGE>
Section 6.03. Stockholders Meeting. Taj Holding shall take all action
necessary, in accordance with applicable law and its certificate of
incorporation and by-laws, to convene a special meeting of the holders of the
Taj Holding Class A Common Stock, Taj Holding Class B Common Stock and Taj
Holding Class C Common Stock (the "Taj Holding Meeting") as promptly as
practicable for the purpose of approving and adopting this Merger Agreement.
Subject to its fiduciary duties, as advised by Special Counsel, the Board of
Directors of Taj Holding will recommend that holders of Taj Holding Class A
Common Stock, Taj Holding Class B Common Stock and Taj Holding Class C Common
Stock vote in favor of this Merger Agreement at the Taj Holding Meeting.
Section 6.04. Compliance with the Securities Act. At the Closing, Taj
Holding shall cause to be delivered to THCR a certificate (satisfactory to
counsel for THCR) of the general counsel of Taj Associates identifying all
holders of Taj Holding Class A Common Stock who were, to the best of his
knowledge and after being advised by outside counsel, affiliates (for purposes
of Rule 145 under the Securities Act) of Taj Holding at the time of the Taj
Holding Meeting.
Section 6.05. No Solicitation. (a) Subject to the fiduciary duties of the
Board of Directors of Taj Holding, as advised by Special Counsel, neither Taj
Holding nor any of its Subsidiaries shall, directly or indirectly, take (nor
shall Taj Holding authorize or permit its Subsidiaries, officers, directors,
employees, representatives, investment bankers, attorneys, accountants or
other agents or affiliates, to take) any action (i) to knowingly encourage,
solicit or initiate the submission of any Acquisition Proposal, (ii) to enter
into any agreement with respect to any Acquisition Proposal or (iii) to
participate in any way in discussions or negotiations with, or furnish any
information to, any Person in connection with, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal. Taj Holding
will promptly communicate to the other parties hereto any solicitation by or
of Taj Holding and the terms of any proposal or inquiry, including the
identity of the Person and its affiliates making the same, that it may receive
in respect of any such transaction, or of any such information requested from
it or of any such negotiations or discussions being sought to be initiated
with it.
(b) Notwithstanding paragraph (a) above, Taj Holding may, directly or
indirectly, furnish information and access, in each case in response to
unsolicited requests therefor, to any Person pursuant to appropriate
confidentiality agreements, and may participate in discussions and negotiate
with such Person concerning any Acquisition Proposal involving Taj Holding or
any direct or indirect Subsidiary of Taj Holding, if the Taj Holding Class B
Directors by a majority vote determine in their good faith judgment that such
action is appropriate in furtherance of the best interests of stockholders.
Section 6.06. Dividend Prohibition. From the date of this Merger Agreement
through the Effective Time, Taj Holding shall not, and shall cause its
Subsidiaries not to, pay or declare any dividend or make any distribution with
respect to any of their equity interests except as contemplated in connection
with the Merger Transaction.
Section 6.07. Letters of Accountants. Taj Holding shall use its reasonable
best efforts to cause to be delivered to THCR "comfort letters" of Arthur
Andersen LLP, Taj Holding's independent public accountants, dated and
delivered the date on which the THCR Registration Statement shall become
effective and as of the Effective Time, and addressed to THCR, in form and
substance reasonably satisfactory to THCR and reasonably customary in scope
and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Merger
Agreement.
ARTICLE VII
COVENANTS OF THCR
Section 7.01. Conduct Pending the Merger. From and after the date of this
Merger Agreement and until the Effective Time, THCR shall, and shall cause
each of its Subsidiaries to, conduct its business solely in the
A-19
<PAGE>
ordinary course consistent with past practice and, without the prior written
consent of Taj Holding, THCR shall not, and shall cause each of its
Subsidiaries not to, except as required or permitted pursuant to the terms
hereof or as contemplated in the THCR SEC Reports filed through the date
hereof or by the terms of the Merger Transaction:
(i) make any material change in the conduct of its businesses and
operations or enter into any transaction other than in the ordinary course
of business consistent with past practice;
(ii) make any change in its certificate of incorporation or by-laws, or
make any material change in its outstanding shares of capital stock or in
its capitalization, whether by reason of a reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, stock dividend or otherwise;
(iii) take any other action that would cause any of the representations
and warranties made in this Merger Agreement not to remain true and
correct; or
(iv) commit itself to do any of the foregoing.
Section 7.02. Joint Proxy Statement. As promptly as reasonably practicable
after the execution of this Merger Agreement, THCR and Taj Holding shall
prepare and THCR shall file with the SEC the THCR Registration Statement,
which shall include the preliminary Joint Proxy Statement and the preliminary
prospectus with respect to the THCR Common Stock to be issued in connection
with the Merger. As promptly as reasonably practicable after comments are
received from the SEC with respect to the THCR Registration Statement and
after the satisfactory response thereto by THCR and Taj Holding, THCR and Taj
Holding shall file with the SEC the definitive Joint Proxy Statement and THCR
shall file with the SEC any amendment to the THCR Registration Statement and
shall use all reasonable efforts to cause the THCR Registration Statement to
become effective as soon thereafter as it is reasonably practicable. Promptly
thereafter, THCR shall distribute the Joint Proxy Statement and related proxy
card to its stockholders.
Section 7.03. Stockholders Meeting. (a) THCR shall take all action
necessary, in accordance with applicable law and its certificate of
incorporation and by-laws, to convene a special meeting of the holders of the
THCR Common Stock and the THCR Class B Common Stock (the "THCR Meeting") as
promptly as practicable for the purpose of approving the Merger Transaction.
Subject to its fiduciary duties, as advised by outside counsel, the Board of
Directors of THCR will recommend that holders of THCR Common Stock vote in
favor of and adopt the Merger Transaction (which approval will constitute
adoption of this Merger Agreement) at the THCR Meeting.
(b) THCR, as the sole stockholder of Merger Sub, has consented to the
adoption of this Merger Agreement by Merger Sub and agrees that such consent
shall be deemed for all purposes as a vote duly adopted at a meeting of the
stockholders of Merger Sub held for such purpose.
Section 7.04. Indemnification and Insurance. (a) For a period of six years
from the Effective Time, each of the Surviving Corporation and TM/GP shall,
and THCR shall cause the Surviving Corporation and TM/GP to, provide to the
former officers and directors of Taj Holding (the "Taj Holding Indemnified
Parties") indemnification as set forth in the certificate of incorporation and
by-laws of THCR as in effect as of the date hereof. THCR agrees, and shall
cause the Surviving Corporation and TM/GP to agree, that until six years from
the Effective Time, unless otherwise required by law, the certificate of
incorporation and by-laws of the Surviving Corporation and TM/GP shall not be
amended, repealed or modified to reduce or limit the rights of indemnity
afforded to the present and former directors, officers and employees of Taj
Holding and TM/GP (including, without limitation, with respect to the
transactions contemplated by this Merger Agreement), or the ability of the
Surviving Corporation or TM/GP to indemnify them, nor to hinder, delay or make
more difficult the exercise of such rights of indemnity or the ability to
indemnify.
(b) Should any claim or claims be made against any present or former
director, officer, employee or agent of Taj Holding or TM/GP, arising from his
services as such, within six years of the Effective Time, the provisions of
this Section with respect to indemnification and the certificate of
incorporation and the by-laws of the Surviving Corporation and TM/GP shall
continue in effect until the final disposition of all such claims.
A-20
<PAGE>
(c) In the event the Surviving Corporation or TM/GP or any of their
respective successors or assigns (i) consolidates with or merges into any
other Person and shall not be the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any Person, then and in each such case,
proper provision shall be made so that the successors and assigns of the
Surviving Corporation or TM/GP, as the case may be, shall assume all of its
obligations set forth in this Section.
(d) For a period of six years after the Effective Time, the Surviving
Corporation and TM/GP shall, and THCR shall cause the Surviving Corporation
and TM/GP to, purchase and maintain in effect directors' and officers'
liability insurance policies covering the Taj Holding Indemnified Parties on
terms no less favorable than the terms of the current insurance policies
coverage. Notwithstanding the foregoing, if the directors' and officers'
liability insurance referred to in this paragraph is unavailable for the
Current D&O Premium, the Surviving Corporation and TM/GP shall obtain as much
insurance as can be obtained for a premium not in excess (on an annualized
basis) of the Current D&O Premium.
(e) In the event any claim is made against present or former directors,
officers or employees of Taj Holding or TM/GP that is covered or potentially
covered by insurance, THCR agrees that it shall, and shall cause the Surviving
Corporation and TM/GP to, do nothing that would forfeit, jeopardize, restrict
or limit the insurance coverage available for that claim until the final
disposition of that claim unless otherwise required by law or their respective
certificate of incorporation or by-laws.
(f) This Section 7.04 is intended to be for the benefit of, and shall be
enforceable by, the Taj Holding Indemnified Parties, their heirs and personal
representatives and shall be binding on THCR, the Surviving Corporation and
TM/GP and their respective successors and assigns.
Section 7.05. Letters of Accountants. THCR shall use its reasonable best
efforts to cause to be delivered to Taj Holding "comfort letters" of Arthur
Andersen LLP, THCR's independent public accountants, dated and delivered the
date on which the THCR Registration Statement shall become effective and as of
the Effective Time, and addressed to Taj Holding, in form and substance
reasonably satisfactory to Taj Holding and reasonably customary in scope and
substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Merger
Agreement.
ARTICLE VIII
OTHER AGREEMENTS
Section 8.01. Stock Exchange Listing. THCR shall, prior to the Effective
Time, use its best efforts to list on the NYSE, subject to official notice of
issuance, the THCR Common Stock to be issued pursuant to the Merger.
Section 8.02. Additional Agreements; Consents and Permits. Subject to the
terms and conditions herein provided, each of the parties hereto agrees to use
all reasonable efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Merger Agreement, including using all
reasonable efforts to obtain all necessary waivers, consents and approvals, to
effect all necessary registrations and filings (including, but not limited to,
filings with all applicable governmental agencies) and to lift any injunction
or other legal bar to the transactions contemplated by this Merger Agreement
(and, in such case, to proceed with the transactions contemplated by this
Merger Agreement as expeditiously as possible), subject, however, to the
appropriate vote of the respective stockholders or stockholder, as the case
may be, of Taj Holding, THCR and Merger Sub.
Section 8.03. Registration of Securities. Each of the parties hereto shall
use its reasonable efforts to prepare promptly and file with the SEC, shall
furnish such information required to be included in, and shall
A-21
<PAGE>
cooperate in the preparation of, such registration statements under the
Securities Act and Schedules 13E under the Exchange Act, and to cause such
registration statements to be declared effective, as applicable, as shall be
required to finance the Merger Transaction and to register the shares of THCR
Common Stock issuable pursuant to the terms of this Merger Agreement. Each of
the parties hereto shall use its reasonable efforts to cause such registration
statements and schedules to comply as to form in all material respects with
the provisions of the Securities Act and the Exchange Act, respectively.
Section 8.04. Access to Information; Confidentiality. (a) Each of the
parties hereto shall afford to the other parties hereto and to their
accountants, counsel and other representatives full access during normal
business hours (and at such other times as the parties may mutually agree)
throughout the period until the Effective Time to all of its properties,
books, contracts, commitments, records and personnel and, during such period,
each shall furnish promptly to the others (i) a copy of each report, schedule
and other document filed or received by it pursuant to the requirements of
federal or state securities laws or Gaming Laws, and (ii) all other
information concerning its business, properties and personnel, both past and
present, as such party may reasonably request.
(b) A Receiving Party shall (i) keep confidential and not disclose or reveal
to any Person, other than those employed by the Receiving Party or acting on
the Receiving Party's behalf and directly participating in the performance of
such party's obligations under this Merger Agreement, all Confidential
Information, (ii) cause their respective affiliates and the directors,
officers, employees, agents, advisors and controlled or controlling Persons of
such party and its affiliates to observe the terms of this Section and to keep
confidential and not disclose or reveal to any Person all Confidential
Information, and (iii) not use Confidential Information for any purpose other
than in connection with the transactions contemplated by this Merger Agreement
and in a manner approved by the Disclosing Party.
(c) In the event that a Receiving Party is requested or required by
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process or required (as advised in writing by
its outside counsel) to disclose any of the Confidential Information, the
Receiving Party shall provide the Disclosing Party with prompt written notice
so that it may seek a protective order or other appropriate remedy. In the
event such protection or other remedy is not obtained, the Receiving party may
disclose such Confidential Information pursuant to such interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process or other law; provided, however, that the Receiving Party
shall exercise best efforts to obtain assurance that confidential treatment
will be accorded to such Confidential Information.
(d) Without prejudice to the rights and remedies otherwise available to a
Disclosing Party, a Disclosing Party shall be entitled to equitable relief by
way of injunction if the Receiving Party or any of the Receiving Party's
affiliates and the directors, officers, employees, agents, advisors and
controlled or controlling Persons of such Receiving Party and its affiliates
breach or threaten to breach any of the provisions of this Section.
Section 8.05. Notification of Certain Matters. Taj Holding, THCR and Merger
Sub shall give prompt notice to each other of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Merger Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Merger Agreement;
(iii) any action, suit, claim, investigation or proceeding commenced or,
to its knowledge, threatened against, relating to or involving or otherwise
affecting Taj Holding, THCR or any of their Subsidiaries, which is
reasonably likely to (A) have a Taj Holding Material Adverse Effect, THCR
Material Adverse Effect or Merger Sub Material Adverse Effect, as the case
may be, or (B) prevent the consummation of the transactions contemplated by
this Merger Agreement or cause any of such transactions to be rescinded
following consummation;
A-22
<PAGE>
(iv) the occurrence, or failure to occur, of any event or change in
circumstances where such occurrence or failure to occur would be likely to
cause any representation or warranty contained in this Merger Agreement to
be untrue or inaccurate in any material respect at any time from the date
hereof to the Effective Time; and
(v) any material failure of such party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that no such notification shall affect the
representations or warranties of the parties or the conditions to the
obligations of the parties hereunder.
Section 8.06. HSR Act. The Parties shall use their best efforts to file or
cause to be filed as soon as practicable notifications under the HSR Act in
connection with the Merger, and to respond as promptly as practicable to any
inquiries received from the Federal Trade Commission and the Antitrust
Division of the Department of Justice for additional information or
documentation and to respond as promptly as practicable to all inquiries and
requests received from any State Attorney General or other governmental
authority in connection with antitrust matters.
Section 8.07. Bond Redemption. Taj Holding shall take all necessary actions
to cause the Bond Redemption to occur immediately after the Effective Time.
ARTICLE IX
CONDITIONS TO THE MERGER
Section 9.01. Conditions to the Obligations of Each Party. The respective
obligations of Taj Holding, THCR and Merger Sub to consummate the transactions
contemplated by this Merger Agreement are subject to the fulfillment at or
prior to the Effective Time of each of the following conditions, any or all of
which may be waived in whole or in part, to the extent permitted by applicable
law:
(i) this Merger Agreement shall have been duly approved and adopted by
the affirmative vote of a majority of the outstanding shares of the Taj
Holding Class B Common Stock and Taj Holding Class C Common Stock, each
voting as a separate class, in accordance with the DGCL and the certificate
of incorporation of Taj Holding;
(ii) this Merger Agreement shall have been duly approved and adopted by
the affirmative vote of a majority of the outstanding shares of Taj Holding
Class A Common Stock, voting as a separate class;
(iii) the Merger Transaction shall have been duly approved and adopted by
the affirmative vote of a majority of the outstanding shares of THCR Common
Stock and THCR Class B Common Stock, voting as a single class, in
accordance with the DGCL and the certificate of incorporation of THCR;
(iv) the Merger Transaction shall have been duly approved by the
affirmative vote of a majority of the outstanding shares of THCR Common
Stock (excluding officers and directors of THCR and their affiliates),
voting as a separate class;
(v) all filings required to be made prior to the Effective Time with, and
all consents, approvals, permits and authorizations required to be obtained
prior to the Effective Time from, governmental and regulatory authorities
(including, without limitation, Gaming Authorities) in connection with the
execution and delivery of this Merger Agreement and the consummation of the
transactions contemplated hereby by Taj Holding, THCR and Merger Sub shall
have been made or obtained (as the case may be) without restrictions,
except where the failure to obtain such consents, approvals, permits and
authorizations could not be reasonably be expected to have a Taj Holding
Material Adverse Effect or a THCR Material Adverse Effect (assuming the
merger has taken place);
(vi) no court or governmental or regulatory authority of competent
jurisdiction (including, without limitation, Gaming Authorities) shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent)
A-23
<PAGE>
or taken any action that prohibits the consummation of the transactions
contemplated by this Merger Agreement; provided, however, that the parties
invoking this condition shall use their best efforts to have any such
judgment, decree, injunction or order vacated;
(vii) the shares of THCR Common Stock to be issued pursuant to the Merger
shall have been approved for listing on the NYSE, subject to official
notice of issuance; and
(viii) the waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
Section 9.02. Conditions to the Obligation of Taj Holding. The obligation of
Taj Holding to consummate the transactions contemplated by this Merger
Agreement is subject to the fulfillment at or prior to the Effective Time of
each of the following conditions, any or all of which may be waived in whole
or in part by Taj Holding to the extent permitted by applicable law:
(i) the Taj Funding Offering shall have been consummated on terms
reasonably acceptable to Taj Holding;
(ii) the consent of certain of Taj Associates' creditors necessary to
consummate the Merger Transaction shall have been obtained;
(iii) Taj Holding LLC or any other Person to which part or all of the
assets of Taj Holding or any of its Subsidiaries has been or will be
transferred shall have assumed (without releasing the Surviving Corporation
or TM/GP) the indemnification and other obligations of the Surviving
Corporation and TM/GP set forth in Section 7.04 hereof;
(iv) each of THCR and Merger Sub shall have performed in all material
respects all of its respective obligations hereunder required to be
performed by them at or prior to the Effective Time;
(v) each of the representations and warranties of each of THCR and Merger
Sub contained in this Merger Agreement and in any certificate or other
writing delivered by THCR and Merger Sub pursuant hereto shall be true in
all material respects at and as of the Effective Time, as if made at and as
of such time (except to the extent it relates to a particular date); and
(vi) Taj Holding shall have received a certificate from THCR and Merger
Sub, signed by an executive officer of THCR and Merger Sub, respectively,
to the effect set forth in clauses (iv) and (v) of this Section.
Section 9.03. Conditions to the Obligations of THCR and Merger Sub. The
obligation of each of THCR and Merger Sub to consummate the transactions
contemplated by this Merger Agreement is subject to the fulfillment at or
prior to the Effective Time of each of the following conditions, any or all of
which may be waived in whole or in part by THCR to the extent permitted by
applicable law:
(i) the Market Value of the THCR Common Stock shall be $20 or more;
(ii) the THCR Offering and the Taj Funding Offering shall have been
consummated on terms acceptable to THCR;
(iii) the purchase of the Specified Parcels shall have been consummated
on terms acceptable to THCR, the obligations relating to the outstanding
indebtedness of Realty Corp. to First Fidelity shall have been satisfied
and the releases of the Liens and guarantees relating to such indebtedness
shall have been obtained;
(iv) the payment to Bankers Trust of $10 million, contemplated as part of
the Merger Transaction, shall have been made and the releases of the Liens
and guarantees that Bankers Trust has with respect to Taj Associates
(including Trump's direct and indirect ownership interest therein) and with
respect to the TTMI Note shall have been obtained;
(v) Trump shall have contributed, or caused to be contributed, to THCR
Holdings and Taj Holdings LLC all of his direct and indirect ownership
interests in Taj Associates on terms acceptable to THCR;
A-24
<PAGE>
(vi) the number of shares of Taj Holding Class A Common Stock for which
written demand for appraisal has been properly made pursuant Section 262 of
the DGCL shall have not exceeded 5% of the total number of shares of Taj
Holding Class A Common Stock outstanding immediately prior to the Effective
Time;
(vii) the THCR Registration Statement shall have been declared effective
and no stop order suspending effectiveness shall have been issued, no
action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
necessary approvals under blue sky or other state securities laws, the
Securities Act or the Exchange Act relating to the issuance or trading of
the THCR Common Stock shall have been received;
(viii) the consent of certain of Trump's creditors necessary to
consummate the Merger Transaction shall have been obtained;
(ix) Taj Holding shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time;
(x) each of the representations and warranties of Taj Holding contained
in this Merger Agreement and in any certificate or other writing delivered
by Taj Holding pursuant hereto shall be true in all material respects at
and as of the Effective Time, as if made at and as of such time (except to
the extent it relates to a particular date); and
(xi) THCR and Merger Sub shall have received a certificate signed by an
executive officer of Taj Holding to the effect set forth in clauses (ix)
and (x) of this Section.
ARTICLE X
TERMINATION
Section 10.01. Termination. This Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (whether
before or after approval of this Merger Agreement by the respective
stockholders of Taj Holding or THCR):
(i) by joint written consent of Taj Holding and THCR;
(ii) by Taj Holding if any of the conditions specified in Sections 9.01
or 9.02 have not been satisfied or waived by Taj Holding at such time as
such condition is no longer capable of satisfaction;
(iii) by THCR and Merger Sub if any of the conditions specified in
Sections 9.01 or 9.03 have not been satisfied or waived by THCR and Merger
Sub at such time as such condition is no longer capable of satisfaction;
(iv) by Taj Holding, acting through the Taj Holding Class B Directors, if
the Taj Holding Class B Directors shall have withdrawn or modified their
approval or recommendation of this Merger Agreement or the Merger in order
to permit Taj Holding to execute an agreement to effect an Acquisition
Proposal determined by the Taj Holding Class B Directors to be more
favorable to the Taj Holding stockholders than the transactions
contemplated hereby; or
(v) by either party if the Merger has not been consummated on or before
June 30, 1996; provided, however, that a party may not terminate this
Merger Agreement pursuant to this clause if the failure of such party to
fulfill any of its obligations under this Merger Agreement shall have been
the reason that the Merger shall not have been consummated on or before
said date.
Section 10.02. Effect of Termination. In the event of termination of this
Merger Agreement pursuant this Article, this Merger Agreement shall forthwith
terminate and (except for the willful breach of this Merger Agreement by any
party hereto) there shall be no liability on the part of any party hereto;
provided, however, that Sections 3.14, 4.14, 8.04(b), (c) and (d), 10.02,
11.05, 11.06, 11.07, 11.09, 11.11 and 11.13 shall survive the termination of
this Merger Agreement.
A-25
<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile or similar
writing) and shall be given:
(i) if to Taj Holding to:
Taj Mahal Holding Corp.
1000 The Boardwalk
Atlantic City, New Jersey 08401
Facsimile: (609) 449-5593
Attention: Nicholas F. Moles, Esq.
with copies to:
Andrews & Kurth L.L.P.
425 Lexington Avenue
New York, New York 10017
Facsimile: (212) 850-2929
Attention: Emanuel S. Cherney, Esq.
(ii) if to THCR or Merger Sub to:
Trump Hotels & Casino Resorts, Inc.
Mississippi Avenue and The Boardwalk
Atlantic City, New Jersey 08401
Facsimile: (609) 441-7926
Attention: Robert M. Pickus, Esq.
with copies to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Facsimile: (212) 821-8111
Attention: Daniel D. Rubino, Esq.
or such other address or facsimile number as such party may hereafter specify
by notice to the other parties hereto. Each such notice, request or other
communication shall be effective (i) if given by facsimile, when such
facsimile is transmitted to the facsimile number specified in this Section and
the appropriate confirmation is provided, (ii) if given via United States
mail, three days after such notice is deposited in the mail in a postage pre-
paid envelope or (iii) if given by any other means, when delivered at the
address specified in this Section.
Section 11.02. Survival. None of the representations, warranties, agreements
or covenants contained herein shall survive the Effective Time, except for the
agreements contained in Articles I and II, Sections 3.14, 4.14, 7.04, 8.02,
8.04(b), (c) and (d), 11.02, 11.05, 11.06, 11.07, 11.09, 11.11, 11.13 and the
last sentence of Section 11.03.
Section 11.03. Amendment. Any provision of this Merger Agreement may be
amended by the parties hereto by action of each of their respective Boards of
Directors, at any time prior to the Effective Time; provided, however, that
any such amendment made after the adoption of this Merger Agreement by the
stockholders of Taj Holding or THCR shall not, without further approval of
such stockholders (i) alter or change the amount, kind or manner of payment of
the Merger Consideration, (ii) alter or change any term of the certificate of
incorporation of the Surviving Corporation (except as otherwise provided in
this Merger Agreement) or (iii) change any other terms or conditions of this
Merger Agreement, if any of such changes, alone or in the aggregate, would
materially and adversely affect the stockholders of Taj Holding or THCR. Any
amendment to this Merger Agreement shall be in writing signed by all the
parties hereto.
A-26
<PAGE>
Section 11.04. Waiver. At any time prior to the Effective Time, Taj Holding,
THCR and Merger Sub may, unless otherwise set forth in this Merger Agreement,
(i) extend the time for the performance of any agreement of the other party or
parties hereto, (ii) waive any accuracy in the representations and warranties
contained herein or in any document delivered pursuant hereto or (iii) waive
compliance with any agreement or condition of the other party or parties
hereto contained herein. Any agreement on the part of any party to any such
extension or waiver shall be effective only if set forth in a writing signed
on behalf of such party and delivered to the other party or parties. No
failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other right, power or privilege.
Section 11.05. Successors and Assigns. The provisions of this Merger
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided, however, that no party
may assign or otherwise transfer any of its rights under this Merger Agreement
without the consent of each of the other parties hereto.
Section 11.06. Governing Law. Except to the extent set forth in Section
11.07 or in the DGCL, this Merger Agreement shall be construed in accordance
with and governed by the internal laws of the State of New York without regard
to principles of conflict of laws.
Section 11.07. Gaming Laws. Each of the provisions of this Merger Agreement
is subject to and shall be enforced in compliance with the Gaming Laws.
Section 11.08. Integration. This Merger Agreement embodies the entire
agreement and understanding among the parties hereto and supersedes all prior
agreements and understandings relating to the subject matter hereof.
Section 11.09. Third Party Beneficiaries. This Merger Agreement (including
the documents and instruments referred to herein) is not intended to confer
upon any other Person any rights or remedies hereunder; provided, however, the
Taj Holding Indemnified Parties shall be third party beneficiaries of Section
7.04 hereof.
Section 11.10. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Merger Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Merger
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
Section 11.11. Remedies Cumulative. All rights, powers and remedies provided
under this Merger Agreement otherwise available at law or in equity shall be
cumulative and not alternative, and the exercise or beginning of any thereof
by any party shall not preclude the simultaneous or later exercise of any
other such right, power or remedy by such party.
Section 11.12. Publicity. So long as this Merger Agreement is in effect,
each of the parties agrees to consult with each other in issuing any press
release or otherwise making any public statement with respect to the Merger,
and none of them shall issue any press release or make any public statement
prior to such consultation, except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange. The
commencement of litigation relating to this Merger Agreement or any
proceedings in connection therewith shall not be deemed a violation of this
Section.
Section 11.13. Fees and Expenses. Whether or not the Merger is consummated,
all costs and expenses incurred in connection with this Merger Agreement and
the transactions contemplated hereby shall be paid equally by Taj Holding and
THCR; provided, however, that all costs and expenses incurred in connection
with (i) printing, filing and distributing the Equity S-1 and (ii) any filings
pursuant to Section 8.06 hereof, shall be borne solely by THCR.
A-27
<PAGE>
Section 11.14. Headings; Counterparts; Effectiveness. The headings contained
in this Merger Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Merger Agreement. This Merger
Agreement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Merger Agreement shall become effective when
each party hereto shall have received counterparts hereof signed by the other
parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Merger Agreement to
be duly executed by their respective authorized officers as of the day and
year first above written.
TAJ MAHAL HOLDING CORP.
/s/ R. Bruce McKee
_____________________________________
By: R. Bruce McKee
Title: Assistant Treasurer and
Acting Chief Operating Officer
of Trump Taj Mahal Associates
TRUMP HOTELS & CASINO RESORTS, INC.
/s/ Nicholas L. Ribis
_____________________________________
By: Nicholas L. Ribis
Title: President and Chief Executive
Officer
THCR MERGER CORP.
/s/ Nicholas L. Ribis
_____________________________________
By: Nicholas L. Ribis
Title: President and Chief Executive
Officer
A-28
<PAGE>
ANNEX B
[DLJ LETTERHEAD]
January 8, 1996
Special Committee of
the Board of Directors of Trump
Hotels & Casino Resorts, Inc.
725 Fifth Avenue
New York, NY 10022
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to Trump Hotels & Casino Resorts, Inc. (the "Company") of the aggregate
consideration to be paid by the Company pursuant to the transactions
contemplated by the Agreement and Plan of Merger to be dated as of January 8,
1996, among the Company, THCR Merger Corp. and Taj Mahal Holding Corp. ("Taj
Holding") (the "Agreement"). Unless otherwise defined herein, all capitalized
terms used herein shall have the meanings ascribed to them in the Agreement.
We have assumed, with your consent, that both the consideration to be paid
and the consideration to be received by the Company pursuant to the
transactions contemplated by the Agreement is as set forth in this paragraph.
Not more than 4,550,000 (less the Reduced Amount (as defined below)) shares of
common stock, $0.01 par value per share (the "Common Stock") of the Company
(or equivalents of such shares) will be issued by the Company (excluding any
shares of Common Stock issued pursuant to the THCR Offering), warrants (the
"Warrants") to purchase not more than 600,000, 600,000 and 600,000 shares of
Common Stock at exercise prices not less than $30.00, $35.00 and $40.00 per
share, respectively, and which will have a maturity of three, four and five
years, respectively, will be issued by the Company, and not more than $60
million in cash plus the Cash Consideration will be expended (exclusive of any
transaction fees and expenses). For purposes of this letter, the Reduced
Amount shall be equal to a number of shares of Common Stock determined by
dividing (a) the Cash Consideration received by the holders of the Taj Holding
Class A Common Stock in the transactions contemplated by the Agreement by (b)
$20.00. Upon consummation of the transactions contemplated by the Agreement,
(i) the Company will receive additional general partnership interests in Trump
Hotels & Casino Resorts Holdings, L.P. ("THCR Holdings") for contributing or
causing its subsidiaries to contribute its total direct and indirect
beneficial ownership of Taj Associates to THCR Holdings in an amount
calculated pursuant to the Amended and Restated Agreement of Limited
Partnership of THCR Holdings, (ii) THCR Holdings will be the beneficial owner
of 100% of the outstanding equity of Taj Associates free and clear of any
liens and encumbrances, (iii) immediately after giving effect to the
transactions contemplated by the Agreement, the Company will own the Specified
Parcels free and clear of any liens and encumbrances and the lease between Taj
Associates and Trump Realty Corp. relating to the Specified Parcels shall
terminate and Taj Associates shall no longer be obligated to make any payments
to Trump Realty Corp. and/or First Fidelity on account of such Specified
Parcels and (iv) the Services Agreement dated as of April 1, 1991 by and
between Taj Associates and Donald J. Trump will be terminated. We have
assumed, with your consent, that Taj Holding LLC, TTMC, Taj Associates and Taj
Funding will not have more than $800 million of net indebtedness (i.e.,
aggregate face value of outstanding indebtedness (including accrued cash
interest and non-cash interest) less available cash (excluding reasonable and
customary amounts of cash or restricted cash)) collectively on their balance
sheets immediately
B-1
<PAGE>
prior to the consummation of the transactions contemplated by the Agreement.
We have also assumed, with your consent, that for the purposes of this
opinion, the price of the Common Stock will be no less than $20.00 per share
(before deducting any underwriting discounts or commissions).
In arriving at our opinion, we have reviewed the Agreement and the Proxy
Statement in draft form included in the draft Form S-4 registration statement
as proposed to be filed with the Securities and Exchange Commission, both
dated as of January 5, 1995. We also have reviewed financial and other
information that was publicly available or furnished to us by or on behalf of
the Company and Taj Associates including information provided during
discussions with their respective managements. Included in the information
provided to us during discussions with the respective managements were certain
financial projections of Taj Associates for the periods beginning the quarter
ending December 31, 1995 and ending the fiscal year ending December 31, 2000
prepared by the management of Taj Associates and certain financial projections
of the Company for the periods beginning the quarter ending December 31, 1995
and ending the fiscal year ending December 31, 1997 prepared by the management
of the Company. In addition, we have compared certain financial and securities
data of the Company and Taj Associates with various other companies whose
securities are traded in public markets, reviewed prices and premiums paid in
other business combinations and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion.
In rendering our opinion, we have relied upon and assumed the accuracy, and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by or on behalf of the
Company and Taj Associates or their respective representatives, or that was
otherwise reviewed by us. In particular, we have relied upon the estimates of
the management of the Company of the operating synergies achievable as a
result of the Merger and upon our discussion of such synergies with the
management of Taj Associates. With respect to the financial projections
supplied to us, we have assumed, with your consent, that they have been
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of the Company and Taj Associates as
to the future operating and financial performance of the Company and Taj
Associates. We have not assumed any responsibility for making any independent
evaluation or appraisal of the Specified Parcels or Taj Associates' assets or
liabilities or for making any independent verification of any of the
information reviewed by us. We have relied as to all legal matters on advice
of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as
of, the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
fairness of the allocation of the aggregate consideration to be paid by the
Company among the parties receiving such consideration. Additionally, we are
expressing no opinion herein as to the prices at which the Company's common
stock will actually trade at any time, including the Effective Time. Our
opinion does not constitute a recommendation to any shareholder as to how such
shareholder should vote on the proposed transaction. Finally, our opinion does
not address the underlying business decision of the Company to consummate the
transactions contemplated by the Agreement.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
DLJ has performed investment banking and other services for the Company, Taj
Holding and other Trump affiliated businesses in the past and has been
compensated for such services. During 1990-1992, DLJ served as a financial
advisor to Trump in connection with refinancings at the Trump Plaza and Trump
Taj Mahal casinos in Atlantic City. In June 1995, DLJ served as lead manager
in connection with a concurrent $140 million IPO and $155 million Senior
Secured Note offering for the Company. DLJ has been retained with respect to
other transactions related to entities controlled by Donald Trump. DLJ has
been retained to act as lead manager in connection with the issuance and sale
by the Company (including its subsidiaries) of
B-2
<PAGE>
any debt securities or any equity securities (including the THCR Offering)
related to or contemplated by the acquisition of Taj Associates. DLJ has also
been retained to act as the financial advisor to the Company in connection with
the acquisition of Taj Associates, including rendering this opinion. The
Company has paid or has agreed to pay, as applicable, DLJ fees in connection
with the performance of these services.
Please note that DLJ is a full service securities firm engaged in securities
trading and brokerage activities, as well as providing investment banking and
financial advisory services. In the ordinary course of our trading and
brokerage activities, DLJ or its affiliates may at any time hold long or short
positions, and may trade or otherwise effect transactions, for our own account
or the accounts of customers, in debt or equity securities of the Company, Taj
Associates or their affiliates. We recognize our responsibility for compliance
with federal laws in connection with any such activities.
Based upon, and subject to, the foregoing and such other factors as we deem
relevant, we are of the opinion that the aggregate consideration to be paid by
the Company pursuant to the transactions contemplated by the Agreement (as
described herein), is fair to the Company from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BY: ___________________________
B-3
<PAGE>
ANNEX C
[ROTHSCHILD LETTERHEAD]
January 8, 1996
Board of Directors
Class B Directors
Taj Mahal Holding Corp.
Mississippi Avenue and The Boardwalk
Atlantic City, New Jersey 08401
Dear Sirs:
You have requested our opinion (the "Opinion") as to the fairness, from a
financial point of view, to the holders of Class A Common Stock ("Class A
Shareholders") of Taj Mahal Holding Corp. ("Taj Holding") of the consideration
to be received by the Class A Shareholders, pursuant to the Agreement and Plan
of Merger, dated as of January 8, 1996 (the "Merger Agreement"), among Trump
Hotels & Casino Resorts, Inc. ("THCR"), Taj Holding and a wholly-owned
subsidiary of THCR, in connection with the Merger Transaction (as defined
below). The Merger Agreement, in addition to addressing other potential
related transactions, provides that each outstanding share of Taj Holding's
Class A Common Stock will be converted into a right to receive, at each Class
A Shareholder's election, either (a) $30.00 in cash or (b) shares of Common
Stock of THCR ("THCR Common Stock") having a Market Value (as such term is
defined in the Merger Agreement) of $30.00. The merger ("Merger") and the
other related transactions contemplated to be consummated in connection with
the Merger, as more fully described in the Merger Agreement and the
Registration Statement on Form S-4 (draft dated January 5, 1996) to be filed
with respect to the Merger, are hereinafter referred to as the "Merger
Transaction".
In formulating the Opinion, we considered: (i) the terms and conditions of
the Merger Transaction as set forth in the Merger Agreement; (ii) certain
publicly available information relating to Taj Holding and THCR; (iii)
financial and business information including financial projections, provided
by Taj Holding and THCR and their respective representatives both orally and
in writing; (iv) discussions with Taj Holding's and THCR's managements
regarding Taj Holding's and THCR's businesses, respectively; (v) analyses
utilizing several different methodologies relating to Taj Holding and THCR;
(vi) historical market prices and trading volumes of THCR Common Stock and
certain other gaming companies; (vii) that the Merger Transaction is
contingent upon the consummation of other related transactions contemplated by
the Merger Agreement; (viii) publicly available information regarding certain
other gaming companies and transactions we deemed relevant; and (ix) other
factors and information we deemed appropriate.
We have (i) relied upon, without independent verification (which it was
agreed was beyond the scope of our assignment), the accuracy and completeness,
in all material respects, of all financial and other information publicly
available and/or furnished to us orally or in writing by Taj Holding and THCR
or their respective representatives and (ii) neither made an independent
appraisal or evaluation of the assets of Taj Holding nor received any such
appraisal or evaluation other than the appraisal of Trump Taj Mahal Casino
Resort prepared by Appraisal Group International ("AGI") for Trump Taj Mahal
Associates in March 1994 and AGI's appraisal, dated December 1995, regarding
various parcels of land owned by Trump Taj Mahal Realty Corp. In addition, it
was agreed we were not asked to, and do not, express any opinion as to whether
another transaction with THCR, or its affiliates or any other entity, might
provide more favorable terms to the Class A Shareholders than the Merger
Transaction. With respect to financial forecasts, we understand from Taj
Holding and THCR that they have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the future financial
performance of Taj Holding and THCR.
C-1
<PAGE>
We have acted as financial advisor to the Board of Directors of Taj Holding
(including the Directors elected by the holders of Class B Common Stock of Taj
Holding) for the purpose of rendering a written Opinion and shall receive a
fee for such service. In February 1995, we were retained, together with BT
Securities Corporation, to act as financial advisor to Taj Holding and certain
of its affiliates in connection with a proposed restructuring pursuant to
which we received a fee. Said retention has been terminated. In addition, we
have previously acted as financial advisor to a committee of bondholders of
Trump Taj Mahal Funding, Inc. in connection with a restructuring transaction
in 1991 and, during the preceding two years, have performed investment banking
and other financial advisory services for entities affiliated with Donald J.
Trump for which customary compensation was received.
Based on and subject to the foregoing and other factors we deemed relevant,
it is our Opinion as of the date hereof that the consideration in the form of
either cash or THCR Common Stock to be received by the Class A Shareholders,
at each Class A Shareholder's election, in connection with the Merger
Transaction, is fair, from a financial point of view, to the Class A
Shareholders.
Very truly yours,
/s/ Rothschild Inc.
_____________________________________
ROTHSCHILD INC.
C-2
<PAGE>
ANNEX D
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251,252,254,257,258,263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in /1/ subsections (f) or (g) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its
D-1
<PAGE>
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)288 or 253
of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this section. The notice shall be
sent by certified or registered mail, return receipt requested, addressed
to the stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of the notice, demand in writing from the
surviving or resulting corporation the appraisal of his shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsection (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their
D-2
<PAGE>
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list
at the addresses therin stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the
D-3
<PAGE>
written approval of the corporation, then the right of such stockholder to an
appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D-4
