-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LaU8NYev0Sk4fKjMViNF6y0xxKl0sU3V9iKjJcC11w4t/n/XAzCynlFk255/7GHo LI8cvrDaxmM3utBZF139JQ== 0000950130-96-000094.txt : 19960116 0000950130-96-000094.hdr.sgml : 19960116 ACCESSION NUMBER: 0000950130-96-000094 CONFORMED SUBMISSION TYPE: SC 13E3 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19960112 SROS: NYSE GROUP MEMBERS: DONALD J. TRUMP GROUP MEMBERS: TAJ MAHAL HOLDING CORP. GROUP MEMBERS: THCR MERGER CORP. GROUP MEMBERS: TM/GP CORPORATION GROUP MEMBERS: TRUMP HOTELS & CASINO RESORTS HOLDING, L.P. GROUP MEMBERS: TRUMP HOTELS & CASINO RESORTS INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: TAJ MAHAL HOLDING CORP CENTRAL INDEX KEY: 0000871012 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 133598656 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 SEC ACT: 1934 Act SEC FILE NUMBER: 005-41783 FILM NUMBER: 96502936 BUSINESS ADDRESS: STREET 1: 1000 THE BOARDWALK CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 BUSINESS PHONE: 6094495540 MAIL ADDRESS: STREET 1: 1000 BOARDWALK CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: TRUMP HOTELS & CASINO RESORTS INC CENTRAL INDEX KEY: 0000943320 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 133818402 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 BUSINESS ADDRESS: STREET 1: MISSISSIPPI AVE & THE BOARDWALK CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 BUSINESS PHONE: 6094416060 MAIL ADDRESS: STREET 1: MISSISSIPPI AVE AND THE BOARDWALK CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 SC 13E3 1 SCHEDULE 13E-3 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: [ ]. 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 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. 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 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; 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 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 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. 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, 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 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 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. 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," "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 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. - ------------------------------------------------------------- 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. 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. (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). (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. 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 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) EX-99.17.(B)(2) 2 REPORT BY ROTHSCHILD, INC. 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. 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 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 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- 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- 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- Rothschild Inc. Confidential PROJECT WONDER Valuation Matrix (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
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 ------- ------- ------- ----- ---------- ------ ------ ------ ----- -------- $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
- --------------- (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- Rothschild Inc. Confidential PROJECT WONDER Capitalization Summary (dollar amounts in millions except per share data) - -------------------------------------------------------------------------------- Scenario: Class A Share Purchase
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 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% ====== ====== ====== ======== =====
-5- Rothschild Inc. Confidential PROJECT WONDER Sources and Uses Summary (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
Sources Uses ---------------------------------- -------------------------------------------- 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 ======= =======
(1) Assumes $100.0 million of new equity is sold to the public. -6- 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
THCR Standalone FY 1996 FY 1997 ------- ------- Adjusted EPS $1.87 $2.90
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 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- $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%
- --------------- (1) Excludes the exercise of the THCR warrant. -7- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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:
Post-First Fidelity Post-First Fidelity Pre-First Fidelity Guarantee (a) Guarantee (b) Guarantee ------------------- ------------------- ------------------ Gem Equity Value per Class A Share ($2.23) - $24.91 $2.41 - $29.56 $8.88 - $36.02
- ---------------- (a) Guarantee valued at face amount. (b) Guarantee valued at a discount to face amount. -19- 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:
Post-First Fidelity Post-First Fidelity Pre-First Fidelity Guarantee (a) Guarantee (b) Guarantee ------------------- ------------------- ------------------ 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
- ---------------- (a) Guarantee valued at face amount. (b) Guarantee valued at a discount to face amount. -20- 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:
Post-First Fidelity Post-First Fidelity Pre-First Fidelity Guarantee (a) Guarantee (b) Guarantee ------------------- ------------------- ------------------- 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
- ---------------- (a) Guarantee valued at face amount. (b) Guarantee valued at a discount to face amount. -21- Rothschild Inc. Confidential PROJECT WONDER Market Capitalization Analysis (dollar amounts in millions except per share data) - -------------------------------------------------------------------------------- Management Projections - ----------------------
Valuation Multiple Market Capitalization ------------------ ------------------------ Low Mid High Low Mid High ---- ---- ---- ------ ------ ------ 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
(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. Rothschild Inc. Confidential PROJECT WONDER Market Capitalization Analysis (dollar amounts in millions except per share data) - -------------------------------------------------------------------------------- Management Projections
Valuation Multiple Market Capitalization Low Mid High Low Mid High ---- ---- ---- ------ ------ ------ 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
(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. Rothschild Inc. Confidential PROJECT WONDER Market Capitalization Analysis (dollar amounts in millions except per share data) - -------------------------------------------------------------------------------- Management Projections
Valuation Multiple Market Capitalization Low Mid High Low Mid High ---- ---- ---- ------ ------ ------ 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
(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. Rothschild Inc. Confidential PROJECT WONDER Discounted Cash Flow Analysis (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
MANAGEMENT PROJECTIONS - ---------------------- Fiscal Year Ending December 31, ------------------------------- 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- 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% 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 ------- --------- ----- ----- ------ ----- ----- ----- -------- ------ ----- ----- 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 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 ----- ----- ----- ------- ----- ----- ----- ----- ----- ----- 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
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. Rothschild Inc. Confidential PROJECT WONDER Discounted Cash Flow Anyalysis (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
MANAGEMENT PROJECTIONS - ---------------------- Fiscal Year Ending December 31, ------------------------------ 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- 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% 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 ----- ---------- ----- ----- ----- ----- ----- ----- -------- ----- ----- ----- 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 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 ---- ---- ---- ------- ---- ---- ---- ---- ---- ---- 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
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. Rothschild Inc. Confidential PROJECT WONDER Discounted Cash Flow Analysis (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
MANAGEMENT PROJECTIONS - ---------------------- Fiscal Year Ending December 31, ------------------------------ 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- 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% 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 ----- ---------- ----- ----- ----- ----- ----- ----- -------- ----- ----- ----- 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 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 ---- ---- ---- ------- ---- ---- ---- ---- ---- ---- 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
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. Rothschild Inc. Confidential PROJECT WONDER Discounted Cash Flow Anyalysis (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
ADJUSTED MANAGEMENT PROJECTIONS - ------------------------------- Fiscal Year Ending December 31, ------------------------------ 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- 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% 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 ----- ---------- ----- ----- ----- ----- ----- ----- -------- ----- ----- ----- 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 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 ---- ---- ---- ------- ---- ---- ---- ---- ---- ---- 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
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. Rothschild Inc. Confidential PROJECT WONDER Discounted Cash Flow Anyalysis (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
ADJUSTED MANAGEMENT PROJECTIONS - ------------------------------- Fiscal Year Ending December 31, ------------------------------ 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- 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% 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 ----- ---------- ----- ----- ----- ----- ----- ----- -------- ----- ----- ----- 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 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 ---- ---- ---- ------- ---- ---- ---- ---- ---- ---- 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
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. Rothschild Inc. Confidential PROJECT WONDER Discounted Cash Flow Anyalysis (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
ADJUSTED MANAGEMENT PROJECTIONS - ------------------------------- Fiscal Year Ending December 31, ------------------------------ 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- 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% 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 ----- ---------- ----- ----- ----- ----- ----- ----- -------- ----- ----- ----- 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 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 ---- ---- ---- ------- ---- ---- ---- ---- ---- ---- 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
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. 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
--MKT. CAP. AS A MULTIPLE OF:-- NET 1995E 1996E 1995E 1996E 1995E 1996E Management Projections DEBT EBIT EBIT EBITDA EBITDA Net Revenues Net Revenues ---------------------- ------ ----- ----- ------ ------ ------------ ------------ 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)
(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. 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
--MKT. CAP. AS A MULTIPLE OF:-- NET 1995E 1996E 1995E 1996E 1995E 1996E Management Projections DEBT EBIT EBIT EBITDA EBITDA Net Revenues Net Revenues ---------------------- ---- ----- ----- ------ ------ ------------ ------------ 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)
(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. 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
--MKT. CAP. AS A MULTIPLE OF:-- NET 1995E 1996E 1995E 1996E 1995E 1996E Management Projections DEBT EBIT EBIT EBITDA EBITDA Net Revenues Net Revenues ---------------------- ---- ------ ------ ------- ------- ------------ ------------ 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)
(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. Rothschild Inc. Confidential PROJECT WONDER Estimated Valuation of Realty Corp.'s Specified Parcels and Lease (dollar amounts in millions except per share data) - -------------------------------------------------------------------------------- Assumptions ----------- 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
- ---------- (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 ----- ----- ----- ----- ----- 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% ===== ==== ==== Rothschild Inc. Confidential PROJECT WONDER Proforma Gem Income Statement ----------------------------- (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
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 ------- ----------- ------ ------ ------ ------ ------ 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
Rothschild Inc. Confidential PROJECT WONDER Proforma Gem Balance Sheets --------------------------- (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
Forecast Management Projections For year end December 31, No Gem Expansion Estimate -------------------------------------------------- 3/31/96 Adjust. As Adjust. 1996 1997 1998 1999 2000 -------- ------- ---------- -------- -------- -------- -------- -------- 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 ======== ======= ======== ======== ======== ======== ======== ========
Rothschild Inc. Confidential PROJECT WONDER Proforma Gem Cash Flow Statement (dollar amounts in millions except per share data) - -------------------------------------------------------------------------------- Management Projections No Gem Expansion
Estimate Forecast 9-Mos Ended For year end December 31, ----------------------------------------- 12/31/96 1997 1998 1999 2000 ----------- ------- -------- ------- ------- 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
(a) Includes CRDA Investment and Partnership distribution. Rothschild Inc. Confidential PROJECT WONDER Proforma Gem Income Statement ----------------------------- (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
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 -------- ----------- ------ ------ ------ ------ ------ 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
Rothschild Inc. Confidential PROJECT WONDER Proforma Gem Balance Sheets --------------------------- (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
Forecast Management Projections For year end December 31, With Gem Expansion Estimate As ---------------------------------------------------- 3/31/96 Adjust. Adjusted 1996 1997 1998 1999 2000 -------- ------- -------- -------- -------- -------- -------- -------- 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 ======== ======= ======== ======== ======== ======== ======== ========
Rothschild Inc. Confidential PROJECT WONDER Proforma Gem Cash Flow Statement (dollar amounts in millions except per share data) - -------------------------------------------------------------------------------- Management Projections With Gem Expansion
Estimate Forecast 9-Mos Ended For year end December 31, ----------------------------------------- 12/31/96 1997 1998 1999 2000 ----------- ------- -------- ------- ------- 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
(a) Includes CRDA Investment and Partnership distribution. Rothschild Inc. Confidential PROJECT WONDER Proforma Gem Income Statement (dollar amounts in millions except per share data) - -------------------------------------------------------------------------------- Adjusted Management Projections No Gem Expansion
Proforma -------------------------------------------------------------------- Estimate Forecast Est/Act 9-Mos Ended For year end December 31, ------------------------------------------------------- 1995 12/31/96 1996 1997 1998 1999 2000 ------ -------- ------ ------ ------ ------ ------ 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
Rothschild Inc. Confidential PROJECT WONDER Proforma Gem Balance Sheets (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
Adjusted Management Projections Forecast No Gem Expansion Estimate For year end December 31, 3/31/96 Adjust. As Adjust. 1996 1997 1998 1999 2000 ------- ------- ---------- ------ ------ ------ ------ ------ 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 ====== ====== ======== ======== ======= ======== ======== ========
Rothschild Inc. Confidential PROJECT WONDER Proforma Gem Cash Flow Statement (dollar amounts in millions except per share data) - -------------------------------------------------------------------------------- Adjusted Management Projections No Gem Expansion
Estimate Forecast 9-Mos Ended For year end December 31, ------------------------------------------- 12/31/96 1997 1998 1999 2000 -------- ----- ----- ----- ----- 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
(a) Includes CRDA Investment and Partnership distribution. 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 Rothschild Inc. Confidential PROJECT WONDER Proforma Income Statement ------------------------- (dollar amounts in millions except per share data) - -------------------------------------------------------------------------------- Scenario: Class A Share Purchase / No Gem Expansion
Management Projections 1995 ------------------------------------------------ (a) (a) Proforma Gem THCR Adjust. As Adjust. ------ ------ ------- ---------- 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 Management Projections 1996 ------------------------------------------------- (a) (a) Proforma Gem THCR Adjust. As Adjust. ------- ------- ------- ---------- 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
- ---------- (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. Rothschild Inc. Confidential PROJECT WONDER Proforma Income Statement (dollar amounts in millions except per share data) - -------------------------------------------------------------------------------- Scenario: Class A Share Purchase / No Gem Expansion
Management Projections 1997 ------------------------------------------- (a) (a) Proforma Gem THCR Adjust. As Adjust. ------ ------ ------- ---------- 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 Management Projections 1998 ------------------------------------------- (a) (d) Proforma Gem THCR Adjust. As Adjust. ------ ------ ------- ---------- 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
- ---------- (a) Management estimates. (b) Post Mgmt fees and Realty rent. (c) Represents the addback of Realty Rent and Gem Services Agreement Fee. (d) Estimate Rothschild Inc. Confidential PROJECT WONDER Estimated Proforma Balance Sheets (dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
As of March 31, 1996 -------------------------------------------- THCR GEM Adjustments Proforma ------ ------ ------------ -------- 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 ====== ====== ====== ========
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 ======== ======== 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 - --------------------------------------------------------------------------------
CURRENT PRICE PRICE AS % OF 52 WEEK MARKET MARKET COMPANIES 05-Jan-96 HIGH LOW SHARES VALUE CAP. (a) - ------------------------------------ --------- ------- ------- ------ ------- --------- 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 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 - ---------------------------- ------- ------ ------ ----- ------ ------ 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
- ---------- * 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. 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 - --------------------------------------------------------------------------------
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 --------- ------ ------ ----- -------- ------ -------- -------- -------- ------ 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
- ---------- (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. PROJECT WONDER Analysis of Selected Atlantic City Casinos Comparative Multiples (dollar amounts in millions except per share data) SUMMARY DATA FOR SELECTED INDUSTRY COMPARABLES - --------------------------------------------------------------------------------
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 --------- ----- ---- --- ------ ------- ------- ------- ------ ------ ----- ----- ----- 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
SUMMARY RATIOS FOR SELECTED INDUSTRY COMPARABLES
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 --------- ------ ------ ------ ------ ------ --------- ----- ------- 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% 2 YEAR COMP. AVGE CAPEX/ CAPEX/ RELATIVE COMPANIES CAPEX Deprec. Sales PE --------- ------ ------- ------ -------- 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
(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. 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 1 CURRENT TRADING MULTIPLES
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 - ------- ------ ------ ---- ----- ---- -------- ------- ------- ------- 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 Gearing LTM 1995 Value Line Net Debt/ Div. EBITDA Net Inc. Timely Bk Cap Yield Margin Growth Rating -------- ----- ------ -------- --------- 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
(a) Adjusted Mean excludes the high, low and negative numbers. Page 2 CAPITAL STRUCTURES ------------------
$/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 - ------- ------ ------- ------ ------- ------ -------- ------ ------ ------- ----- --------- 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%
Page 3 SALES INFORMATION -----------------
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 - ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 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
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 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 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%
Page 4
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 % % % % % % % % % % % % - ------- ------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------ ------ 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% 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 - ------- ------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------ ------ 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
DEPRECIATION & AMORITIZATION INFORMATION Page 5 - ----------------------------------------
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 - ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- 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 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 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%
Page 6 EBIT INFORMATION ----------------
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 % - ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 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 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- 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
Page 7 EPS INFORMATION ---------------
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 - ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- 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 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 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%
Page 8 HISTORICAL SALES & EBITDA TRADING MULTIPLES
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 - ------- -------- --------- --------- --------- --------- --------- --------- --------- -------- ---------- --------- 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 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 --------- --------- --------- --------- --------- --------- --------- --------- -------- ---------- --------- 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
HISTORICAL EBIT & NET INCOME TRADING MULTIPLES
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 - ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------- ------- 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 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% - ----------------------------------------------------------------------------------------------------------------------------------
Page 10 SHARES OUTSTANDING & NET INCOME INFORMATION -------------------------------------------
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 - ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- 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
1986 1987 1988 1989 1990 1991 Net Income Net Income Net Income Net Income Net Income Net Income ---------- ---------- ---------- ---------- ---------- ---------- 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
1992 1993 1994 LTM 1995 1996 Net Income Net Income Net Income Net Income Net Income Net Income ---------- ---------- ---------- ---------- ---------- ---------- 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
Page 11 HISTORICAL SHARE PRICE & MARKET VALUE INFORMATION
1986 1987 1988 1989 1990 1991 1992 1993 1994 Company $/shr $/shr $/shr $/shr $/shr $/shr $/shr $/shr $/shr - ------- ----- ----- ----- ----- ----- ----- ----- ----- ----- 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 Mkt Mkt Mkt Mkt Mkt Mkt Mkt Mkt Mkt Val Val Val Val Val Val Val Val Val --- --- --- --- --- --- --- --- --- 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
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 - ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 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
HISTORICAL PREFERRED INFORMATION
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 - ------- --------- --------- --------- --------- --------- --------- --------- --------- --------- 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
HISTORICAL MINORITY INTEREST INFORMATION
1986 1987 1988 1989 1990 Closing Closing Closing Closing Closing Company Minority Int Minority Int Minority Int Minority Int Minority Int - ------- ------------ ------------ ------------ ------------ ------------ 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
1991 1992 1993 1994 Closing Closing Closing Closing Company Minority Int Minority Int Minority Int Minority Int - ------- ------------ ------------ ------------ ------------ 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
PAGE 15 HISTORICAL CASH INFORMATION ---------------------------
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 - ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- 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)
Page 16 HISTORICAL EQUITY INVESTMENTS & ADJUSTED MARKET CAPITALIZATIONS
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. - ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 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 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. -------- -------- -------- -------- -------- -------- -------- ------- -------- 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
Page 17 IBES, VALUE LINE & S&P 500 PEs ------------------------------
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 --- --- ----- --- ----- ----- ----- ----- ----- -------- --------- 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
Page 18 OTHER -----
Safety Annual Fiscal Latest Company Beta Rating Div Year End Quarter Comments - ------- ---- ------ ------ -------- ------- -------- 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
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 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. Rothschild Inc. Confidential PROJECT WONDER Analysis of Selected Comparable Acquisitions (U.S. dollar amounts in millions except per share data) - --------------------------------------------------------------------------------
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 - ------------------------------------ ------------ ------- ----------- ------ ----------- -------- 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. Transaction Value as a Multiple of: ---------------------------------------- Acquiror LTM LTM LTM Target EBITDA EBIT Sales - ------------------------------------ ------ ------ ------- 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
- ---------- (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 (*). Rothschild Inc. Confidential Discount Rate Analysis - ------------------------------------------------------------------------------- (dollar amounts in millions, exceptions noted)
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 - ----------------------- ------- ------ ------ -------------- ------- --------- ------- --------- ---- ----- 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%
Notes: - ------------------------------------------------------- (1) 173.5 millions of mortgage notes payable included. (2) Tax rate is assumed to be: 40.0% (3) Excludes Maximum and Minimum 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. 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 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 EX-99.17.(B)(4) 3 REPORT BY DONALDSON, LUFKIN & JENRETTE EXHIBIT 17(b)(4) - -------------------------------------------------------------------------------- PRESENTATION TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF WONDER JANUARY 4, 1996 _____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE PROJECT WONDER DRAFT - -------------------------------------------------------------------------------- TABLE OF CONTENTS
EXHIBIT TRANSACTION SUMMARY........................................ 1 VALUATION ANALYSES......................................... 2 PROFILE OF TOM............................................. 3 PROFILE OF THE COMBINED COMPANY............................ 4
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 PROJECT WONDER DRAFT - -------------------------------------------------------------------------------- TRANSACTION SUMMARY _____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE 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 $100 million in Wonder public equity offering . Trump management fee at Tom eliminated _____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE -1- PROJECT WONDER - -------------------------------------------------------------------------------- SOURCES AND USES ($ in millions)
SOURCES OF FUNDS USES OF FUNDS -------------------------------------------- --------------------------------------- Cash Sources Cash Uses ------------ --------- 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 ===== =====
________________________________________ (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- 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- PROJECT WONDER - -------------------------------------------------------------------------------- OWNERSHIP SUMMARY /(1)/
POST ACQUISITION /(2)/ POST & EQUITY ACQUISITION/(2)/ OFFERING & PRE-ACQUISITION POST & EQUITY TRUMP ------------------------ WONDER TOM ACQUISITION /(2)/ OFFERING WARRANTS ------------ ----------- -------------------- ------------------ ------------------- 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%
________________________________________ (1) Assumes $20.00 Wonder stock price and $100mm primary equity offering. (2) Assumes Tom's Class A shareholders receive Wonder stock. _____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE -4- PROJECT WONDER - -------------------------------------------------------------------------------- CAPITALIZATION SUMMARY ($ in millions)
PRO ESTIMATED AT 12/31/95 FORMA % OF TOTAL --------------------------- WONDER TOM COMBINED CAPITALIZATION ----------- ------------ ---------- ---------------- 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 --
____________________________ (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 $17 million which represents the present value of the obligation. _____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE -5- PROJECT WONDER - -------------------------------------------------------------------------------- PURCHASE PRICE SUMMARY ($ in millions)
EXCLUDING INCLUDING FEES FEES --------- --------- 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 ===== =====
____________________ (1) Black-Scholes analysis used to value Trump warrants. Assumed volatility of 35%. (2) Assumes $20.00 Wonder stock price. (3) Includes accrued PIK interest through March 31, 1996. _____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE -6- SUMMARY PURCHASES PRICE MULTIPLES ($ in millions)
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)/ -------------- ------------------ --------------- ---------------- --------------- --------------- 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............. -- -- -- -- -- --
__________________ (1) Assumes $18.3 million in synergies expected to be achieved in FY 1997. _____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE -7- 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 . $20.6 million in expected annual cost savings in FY 1998 . Provides critical mass necessary to compete effectively for new gaming licenses . Extends maturity of Tom long-term debt to allow for expansion plan _____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE -8- PROJECT WONDER - -------------------------------------------------------------------------------- VALUATION ANALYSES _____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE PROJECT WONDER - -------------------------------------------------------------------------------- VALUATION RELATIVE TO PROPOSAL . Methodologies - Comparable companies analysis - Comparable M&A transactions analysis - Discounted cash flow analysis - Contribution analysis _____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE -1- PROJECT WONDER - -------------------------------------------------------------------------------- PUBLIC COMPANY COMPARABLE ANALYSIS ($ in millions)
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. ------------- ----------- --------------- ------------------------- ----- -------- ------ ------------ 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
______________________________ (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 $18.3 million in synergies expected to be achieved in FY 1997. _____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE -2- PROJECT WONDER - -------------------------------------------------------------------------------- COMPARABLE MERGER AND ACQUISITIONS VALUATION ANALYSIS ($ in millions)
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 ------------- ---------- --------------- ---------- -------------- -------------- --------------- --------- 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
____________________ (1) Tom LTM results represent estimated FY 1995, excluding synergies. (2) Assumes $18.3 million in synergies expected to be achieved in FY (3) Average excludes high and low. _____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE -3- PROJECT WONDER - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW VALUATION ($ in millions) ENTERPRISE VALUES WITH TOM EXPANSION - ------------------------------------
WEIGHTED AVERAGE COST OF CAPITAL -------------------------------------------------------------------------------- 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% ------------ ------------ ------------- ------------ ----------- ------------ 5.0X $1,417.0 $1,357.5 $1,301.0 $1,247.5 $1,196.8 $1,148.6 TERMINAL 6.0 1,636.0 1,566.6 1,500.9 1,438.5 1,379.4 1,323.3 EBITDA 7.0 1,855.1 1,775.8 1,700.7 1,629.5 1,562.0 1,497.9 MULTIPLE 8.0 2,074.1 1,985.0 1,900.5 1,820.5 1,744.6 1,672.6 9.0 2,293.1 2,194.1 2,100.4 2,011.5 1,927.2 1,847.3 10.0 2,512.2 2,403.3 2,300.2 2,202.5 2,109.9 2,022.0
_____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE -4- PROJECT WONDER - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW VALUATION (CONT'D) ($ in millions) ENTERPRISE VALUES WITHOUT TOM EXPANSION - ---------------------------------------
WEIGHTED AVERAGE COST OF CAPITAL ------------------------------------------------------------------------- 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% ------------ ----------- --------- ---------- ----------- ---------- 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
_____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE -5- PROJECT WONDER - -------------------------------------------------------------------------------- CONTRIBUTION ANALYSIS
RELATIVE ENTERPRISE VALUATION CONTRIBUTION: INCLUDING FEES EXCLUDING FEES - ------------------------------------- ---------------------------------------- Wonder...............46.7% Wonder..............47.8% Tom..................53.3% Tom................52.2%
PROJECTED ---------------------------------------------- 1995 1996 1997 ------------- ------------ ----------- 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% -- --
_____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE -6- PROJECT WONDER - -------------------------------------------------------------------------------- PROFILE OF TOM _____________________________________________________________________________DLJ DONALDSON, LUFKIN & JENRETTE 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- PROJECT WONDER - -------------------------------------------------------------------------------- TOM SUMMARY HISTORICAL FINANCIAL INFORMATION ($ in millions)
FISCAL YEAR ENDED DECEMBER 31, LTM ----------------------------------------- 1992 1993 1994/(1)/ 10/31/95 ------------ ------------ ------------- ------------- Net Revenues.......................... $469.8 $498.9 $517.2 $555.0 Growth.............................. 7.2% 6.2% 3.7% -- EBITDA /(2)/.......................... 107.0 124.1 120.1 139.7 Margin.............................. 22.8% 24.9% 23.2% 25.2% EBIT.................................. 68.0 84.5 76.6 -- Margin.............................. 14.5% 16.9% 14.8% -- Cash Interest Expense................. -- -- -- 78.3 Total Interest Expense................ -- -- -- 117.3 Capital Expenditures.................. 12.1 16.8 23.0 25.3 Total Debt (Face)..................... -- -- -- 826.1 Total Debt + Contingent Liabilities... -- -- -- 826.1
______________________________ (1) Excludes non-recurring charges. (2) EBITDA figures are after Trump Realty lease payments and Trump management fee. ____________________________________________________________________________ DLJ DONALDSON, LUFKIN & JENRETTE -2- PROJECT WONDER - -------------------------------------------------------------------------------- TOM STAND-ALONE PROJECTED FINANCIAL SUMMARY/(1)/ ($ in millions)
FISCAL YEAR ENDING DECEMBER 31, ---------------------------------------------------------------------------- 1995PF 1996 1997 1998 1999 2000 ----------- ----------- ----------- ----------- ----------- ----------- 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 $45.9
___________________________ (1) Includes add-back of Trump Realty lease expense and Trump management fee. ____________________________________________________________________________ DLJ DONALDSON, LUFKIN & JENRETTE -3- PROJECT WONDER - -------------------------------------------------------------------------------- TOM EXPANSION PLAN ($ in millions)
ESTIMATED COST -------------- 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 $247 ===
____________________________________________________________________________ DLJ DONALDSON, LUFKIN & JENRETTE -4- PROJECT WONDER - -------------------------------------------------------------------------------- PROFILE OF THE COMBINED COMPANY ____________________________________________________________________________ DJL DONALDSON, LUFKIN & JENRETTE PROJECT WONDER - -------------------------------------------------------------------------------- SUMMARY OF CONSOLIDATED SYNERGIES ($ in millions)
FYE DECEMBER 31, ---------------------------------------------- 1996 1997 1998 -------------- -------------- -------------- 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 $20.6 === ==== ====
____________________________________________________________________________ DLJ DONALDSON, LUFKIN & JENRETTE -1- PROJECT WONDER - -------------------------------------------------------------------------------- PRO FORMA COMBINED FINANCIAL SUMMARY/(1)/ ($ in millions) ______________________________________ (1) Assumes $20.00 Wonder stock Price. ____________________________________________________________________________ DLJ DONALDSON, LUFKIN & JENRETTE -2- PROJECT WONDER - --------------------------------------------------------------------------------
FISCAL YEAR ENDING DECEMBER 31, ------------------------------------- ESTIMATED PROJECTED --------------------- PF 1995/(2)/ 1996 1997 --------------- ---------- ---------- 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
_________________________ (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- PROJECT WONDER - -------------------------------------------------------------------------------- ACCRETION/DILUTION ANALYSIS/(1)/
FISCAL YEAR ENDING DECEMBER 31, --------------------------------- ESTIMATED PROJECTED ---------------------- PF 1995 1996 1997 --------- ---------- ---------- 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%
______________________________________ (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- PROJECT WONDER - -------------------------------------------------------------------------------- EPS ACCRETION/DILUTION - SENSITIVITY ANALYSIS/(1)/
PROJECTED ----------------------------- 1996 1997 ------------- ------------- 10% EPS REDUCTION: ----------------- 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%
________________________________________ (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- PROJECT WONDER - --------------------------------------------------------------------------------
25% EPS REDUCTION: ----------------- 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%
____________________________________________________________________________ DLJ DONALDSON, LUFKIN & JENRETTE -6- 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- EX-99.17.(B)(5) 4 APPRAISAL OF THE TRUMP TAJ MAHAL CASINO RESORT 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 [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. 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 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 INTRODUCTION APPRAISAL GROUP International [Insert graphical material here. This photograph depicts the outside of the Taj Mahal Casino Resort.] 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 BACKGROUND DATA AND ANALYSES APPRAISAL GROUP INTERNATIONAL 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS ================================================================================ CONSTRUCTION DETAILS - -------------------- The following pages refer to the complex's vital statistics and electrical, heating and safety features. 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.
-55- APPRAISAL GROUP INTERNATIONAL BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS ================================================================================ 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.
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
-56- APPRAISAL GROUP INTERNATIONAL BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS ================================================================================ 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.
-57- APPRAISAL GROUP INTERNATIONAL BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS ================================================================================ 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,
-58- APPRAISAL GROUP INTERNATIONAL BACKGROUND DATA & ANALYSIS DESCRIPTION OF IMPROVEMENTS ================================================================================ 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.
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- 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 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 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 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 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 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 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 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 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 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 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 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 VALUATION AND CONCLUSIONS -72- 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 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 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 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 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 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 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;
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% - -----------------------------------------------------------------------------------------------------------------------------------
-79- APPRAISAL GROUP INTERNATIONAL 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 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 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 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 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 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 VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH ================================================================================
1982 CASINO FAIR MARKET MARKET 1985 CASINO FAIR MARKET MARKET PROPERTY CASINO WIN AREA SHARE SHARE SHARE PROPERTY CASINO WIN AREA SHARE SHARE SHARE - -------- ---------- ------ ----- ------ ------ -------- ---------- ------ ----- ------ ------ 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 1983 CASINO FAIR MARKET MARKET 1986 CASINO FAIR MARKET MARKET PROPERTY CASINO WIN AREA SHARE SHARE SHARE PROPERTY CASINO WIN AREA SHARE SHARE SHARE - -------- ---------- ------ ----- ------ ------ -------- ---------- ------ ----- ------ ------ 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 1984 CASINO FAIR MARKET MARKET 1987 CASINO FAIR MARKET MARKET PROPERTY CASINO WIN AREA SHARE SHARE SHARE PROPERTY CASINO WIN AREA SHARE SHARE SHARE - -------- ---------- ------ ----- ------ ------ -------- ---------- ------ ----- ------ ------ 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
-86- APPRAISAL GROUP INTERNATIONAL VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH ================================================================================
1988 CASINO FAIR ACTUAL MARKET 1991 CASINO FAIR ACTUAL MARKET PROPERTY CASINO WIN AREA SHARE SHARE SHARE PROPERTY CASINO WIN AREA SHARE SHARE SHARE - -------- ---------- ------ ----- ------ ------ -------- ---------- ------ ----- ------ ------ 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 1989 CASINO FAIR ACTUAL MARKET 1992 CASINO FAIR ACTUAL MARKET PROPERTY CASINO WIN AREA SHARE SHARE SHARE PROPERTY CASINO WIN AREA SHARE SHARE SHARE - -------- ---------- ------ ----- ------ ------ -------- ---------- ------ ----- ------ ------ 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 1990 CASINO FAIR ACTUAL MARKET 1993 CASINO FAIR ACTUAL MARKET PROPERTY CASINO WIN AREA SHARE SHARE SHARE PROPERTY CASINO WIN AREA SHARE SHARE SHARE - -------- ---------- ------ ----- ------ ------ -------- ---------- ------ ----- ------ ------ 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
-87- APPRAISAL GROUP INTERNATIONAL 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 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 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 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 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% $5,067,078,375 Future Casino Supply - ---------------------- The next consideration in estimating market share for the subject property is the likelihood of other casinos coming on line in the future. This factor will have a negative impact on casino revenues for the subject property as additional casino floor area dilutes market share for the entire industry. Based upon the current economic conditions, the current problems in the banking system and financial markets, we do not anticipate any additional casino properties to be built over the next 11 years. Our market share estimation for the property follows. REVENUES: - -------- Casino - ------ Market Share Estimation - ----------------------- Casino revenue will be estimated based upon fair share of industry-wide casino win. However, to further refine the analysis and to provide a more realistic approach to estimating revenue for the subject property, we assessed the subject's competitive position in the market. Such a comparison considers the subject property's inherent advantages and disadvantages in relation to the competition. These factors influence the market penetration (market share) that -92- APPRAISAL GROUP INTERNATIONAL VALUATION & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH ================================================================================ a property could achieve above or below 100% of its fair share. The subject's historical market share is listed below.
($ In Thousands) 1990 1991 1992 1993 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%
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.
TOTAL FAIR PENE- MARKET ESTIMATED PROJECTED TOTAL INDUSTRY CASINO SHARE TRATION SHARE GROSS ESTIMATED GROSS PERIOD YEAR GROWTH WIN SPACE % % % INCOME INCOME / SQ. FT. - -------------------------------------------------------------------------------------------------------------------------- 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
-93- APPRAISAL GROUP INTERNATIONAL 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 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 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 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 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 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 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 VALUATIONS & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH ============================================================================== Prepared by: TRUMP TAJ MAHAL CASINO RESORTS APPRAISAL GROUP International CASH FLOW PROJECTION ($000) ------------------------------
/--Actual---\ /--------------Projected--------------\ - -------\ 1993 Growth REVENUES (Unaudited) Rate Year 1 % Year 2 % - -------- ---------- ---- ------ --- ------ --- 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
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/--Actual---\ /--------------Projected--------------\ - -------\ 1993 Growth REVENUES (Unaudited) Rate Year 3 % Year 4 % - -------- ---------- ---- ------ --- ------ --- 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
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/--Actual---\ /--------------Projected--------------\ - -------\ 1993 Growth REVENUES (Unaudited) Rate Year 5 % Year 6 % - -------- ---------- ---- ------ ------ ------ ----- 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
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/--Actual---\ /--------------Projected--------------\ - -------\ 1993 Growth REVENUES (Unaudited) Rate Year 7 % Year 8 % - -------- ---------- ---- ------ ------ ------ ----- 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
(continued on next page) VALUATIONS & CONCLUSIONS CAPITALIZATION OF INCOME APPROACH ============================================================================== Prepared by: TRUMP TAJ MAHAL CASINO RESORTS APPRAISAL GROUP International CASH FLOW PROJECTION ($000) ------------------------------
/--Actual---\ /---------------------------Projected--------------------------\ - -------\ 1993 Growth REVENUES (Unaudited) Rate Year 9 % Year 10 % Year 11 % - -------- ---------- ---- ------ ------ ------- ----- ------- ------ 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
-101- APPRAISAL GROUP INTERNATIONAL 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 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 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 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 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 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 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 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 VALUATION & CONCLUSIONS ================================================================================ - Reversion value as projected At a 15.00% rate of return, our discounted cash flow calculations appear on the following page.
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 - ---------------------------------------------------------------------------------------------------------------------------------- 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 ====================
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 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 ADDENDA APPRAISAL GROUP International APPENDIX I Subject Property Photographs APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] HOSPITALITY SUITE #1417 [PHOTO] LANAI SUITE #1443 APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] LANAI SUITE #144 - CORNER UNIT [PHOTO] TYPICAL ROOM #4602 APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] RAJA SUITE #4617 [PHOTO] RAJA SUITE #4617 APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] RAJA SUITE #4617 [PHOTO] KING ROOM #4621 APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] SUITE #4812 [PHOTO] SUITE 4812 APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] VICEROY SUITE #4623 [PHOTO] 46TH FLOOR ELEVATOR BANK APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] 46TH FLOOR LOBBY [PHOTO] SULTAN SUITE #4811 APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] SULTAN SUITE #4811 [PHOTO] SULTAN SUITE #4811 APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] 51ST FLOOR ELEVATOR BANK [PHOTO] 51ST FLOOR HALLWAY APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] MICHELANEGELO SUITE [PHOTO] MICHELANGELO SUITE APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] MICHELANGELO SUITE [PHOTO] MICHELANGELO SUITE APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] ALEXANDER THE GREAT SUITE - GUEST BEDROOM [PHOTO] ALEXANDER THE GREAT SUITE - DINING ROOM APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] ALEXANDER THE GREAT SUITE - GENERAL VIEW [PHOTO] ALEXANDER THE GREAT SUITE - BATHROOM APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] ALEXANDER THE GREAT SUITE - LIVING ROOM [PHOTO] ALEXANDER THE GREAT SUITE - JACUZZI APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] ALEXANDER THE GREAT SUITE - BATHROOM AND EXERCISE ROOM APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] VIEW FROM PACIFIC AVENUE [PHOTO] PARKING GARAGE APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] VIEW OF THE SUBJECT FROM THE BOARDWALK [PHOTO] STEEL PIER APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] CLOSE-UP VIEW OF THE TOWER APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] VIEW ALONG THE BOARDWALK [PHOTO] VIEW ALONG THE BOARDWALK APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] MAIN ENTRANCE AND PORTE CHOCHERE [PHOTO] HOTEL LOBBY AND FRONT DESK APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] 2ND LEVEL PROMENADE TOWARDS THE BOARDWALKD [PHOTO] ESCALATORS TO 2ND LEVEL APPRAISAL GROUP Interanational Addenda Subject Property Photographs ================================================================================ [PHOTO] RETAIL SHOPS ON 2ND LEVEL [PHOTO] RETAIL SHOPS ON 2ND LEVEL APPRAISAL GROUP International Addenda Subject Property Photographs ================================================================================ [PHOTO] THE SPA AT THE TAJ [PHOTO] MARK G. ETESS ARENA APPRAISAL GROUP International APPENDIX II Floor Plans APPRAISAL GROUP International [FLOOR PLAN] FIRST LEVEL PLAN OF TAJ MAHAL CASINO RESORT [FLOOR PLAN] FIRST LEVEL MEZZANINE OF TAJ MAHAL CASINO RESORT [FLOOR PLAN] SECOND LEVEL PLAN OF TAJ MAHAL CASINO RESORT [FLOOR PLAN] SECOND LEVEL MEZZANINE OF TAJ MAHAL CASINO RESORT [FLOOR PLAN] 5TH LEVEL OF TAJ MAHAL CASINO RESORT [FLOOR PLAN] 6TH LEVEL OF TAJ MAHAL CASINO RESORT [FLOOR PLAN] 7TH FLOOR OF TAJ MAHAL CASINO RESORT [DIAGRAM OF TRUMP TAJ MAHAL CASINO] TRUMP TAJ MAHAL CASINO* RESORT OPERATING REVIEW PACKAGE DECEMBER 1993 APPENDIX III Trump Taj Mahal Associates Property Operating Statement APPRAISAL GROUP International 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 TAJ MAHAL CASINO AND RESORT MARKET SHARE ANALYSIS OPERATING REVIEW FOR THE MONTH ENDED DECEMBER 1993
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 - -------- ----- ------- -------------- ---- -------------- ---- ------- ------- ------------ ---- ------------ 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% 1993 1992 TABLE TABLE WIN WIN 1993 1992 MKT MKT HOLD HOLD PROPERTY RANK SHARE % SHARE % % % - -------- ---- ------- ------- ---- ---- 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
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 - -------- ----- ------- -------------- ---- -------------- ---- ------- ------- ------------ ---- ------------ 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% 1993 1992 SLOT SLOT WIN WIN 1993 1992 MKT MKT HOLD HOLD PROPERTY RANK SHARE % SHARE % % % - -------- ---- ------- ------- ---- ---- 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
1 TAJ MAHAL CASINO AND RESORT MARKET SHARE ANALYSIS OPERATING REVIEW YEAR TO DATE DECEMBER 1993
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 - ---------- ----- ----- --------------- ---- -------------- ---- ------- ------- -------------- ---- ------------- 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% 1993 1992 TABLE TABLE WIN WIN 1993 1992 MKT MKT HOLD HOLD PROPERTY RANK SHARE % SHARE % % % - ---------- ---- ------- ------- ---- ---- 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
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 - -------- ----- ------- --------------- ---- --------------- ---- ------- ------- -------------- ---- -------------- 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% 1993 1992 SLOT SLOT WIN WIN 1993 1992 MKT MKT HOLD HOLD PROPERTY RANK SHARE % SHARE % % % - -------- ---- ------- ------- ----- ----- 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
2 TAJ MAHAL CASINO AND RESORT MARKET SHARE ANALYSIS OPERATING REVIEW FOR THE MONTH ENDED DECEMBER 1993
TOTAL GROWTH TABLE GROWTH SLOT GROWTH 1993 1992 OVER LAST YEAR OVER LAST YEAR OVER LAST YEAR PROPERTY TOTAL WIN RANK TOTAL WIN RANK $ % $ % $ % - -------- ------------ ---- ------------ ---- ----------- ---- ---------- ----- ---------- ---- 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%
TAJ MAHAL CASINO AND RESORT MARKET SHARE ANALYSIS OPERATING REVIEW
TOTAL GROWTH TABLE GROWTH SLOT GROWTH 1993 1992 OVER LAST YEAR OVER LAST YEAR OVER LAST YEAR PROPERTY TOTAL WIN RANK TOTAL WIN RANK $ % $ % $ % - -------- -------------- ---- -------------- ---- ----------- ----- ------------ ----- ------------ ----- 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%
3 TAJ MAHAL CASINO AND RESORT OPERATING REVIEW - POKER & SIMULCASTING FOR THE MONTH ENDED DECEMBER 1993
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 - -------- ----- -------- ----- ---- ------- --------- ---- -------- -------- 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 1993 1993 1993 1993 1993 1993 Y-T-D SIMULCAST MKT SIMULCAST MKT HOLD SIMULCAST PROPERTY HANDLE RANK SHARE % REVENUE RANK SHARE % % REVENUE RANK - -------- --------- ---- ------- --------- ---- ------- ---- ---------- ---- 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
4 TRUMP TAJ MAHAL ASSOCIATES
(UNAUDITED) STATEMENT OF OPERATIONS DECEMBER 1993 - ------------------------------------------------------------------------------------------------------------------------------------ THIS YEAR VS BUDGET THIS YR VS LAST YR - ------------------------------------------------------------------------------------------------------------------------------------ ACTUAL BUDGET VAR $ VAR LAST VAR $ VAR DESCRIPTION % YEAR % - ------------------------------------------------------------------------------------------------------------------------------------ 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)
(UNAUDITED) STATEMENT OF OPERATIONS DECEMBER 1993 - ------------------------------------------------------------------------------------------------------------------------------------ THIS YEAR VS BUDGET THIS YR VS LAST YR - ------------------------------------------------------------------------------------------------------------------------------------ DESCRIPTION ACTUAL BUDGET VAR $ VAR LAST VAR $ VAR % YEAR % - ------------------------------------------------------------------------------------------------------------------------------------ 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
5 TRUMP TAJ MAHAL ASSOCIATES PROPERTY OPERATING STATEMENT OPERATING REVIEW FOR THE PERIOD ENDED DECEMBER 1993
PRIOR YEAR-- CURRENT YEAR--CURRENT MONTH CURRENT MONTH - -------------------------------------- ------------------ --------------------------------- ACTUAL PLAN ACTUAL DESCRIPTION - ------------------ ------------------ ------------------ --------------------------------- $ % $ % $ % 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
YEAR-TO-DATE PRIOR-YEAR-TO-DATE - --------------------------------- -------------------------------------------------------------- DESCRIPTION ACTUAL PLAN ACTUAL - --------------------------------- ------------------- -------------------- -------------------- $ % $ % $ % 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)
6 TRUMP TAJ MAHAL CASINO RESORT OPERATING REVIEW KEY STATISTICS DECEMBER 1993
CURRENT MONTH LAST YEAR CURRENT MONTH ACT vs PLAN THIS YEAR vs LAST YEAR VAR VAR VAR VAR ACTUAL PLAN $ % ACTUAL $ % 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% YEAR-TO-DATE PRIOR YEAR-TO-DATE ACT vs PLAN VAR VAR VAR VAR ACTUAL PLAN $ % ACTUAL $ % 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%
7 TRUMP TAJ MAHAL ASSOCIATES GAMING SUMMARY OPERATING REVIEW FOR THE PERIOD ENDEDED DECEMBER 1993
CURRENT YEAR-CURRENT MONTH PRIOR YR-CURRENT MTH ACTUAL PLAN ACTUAL DESCRIPTION $ % $ % $ % 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 YEAR-TO-DATE PRIOR-YEAR-TO-DATE DESCRIPTION ACTUAL PLAN ACTUAL $ % $ % $ % 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
8 TRUMP TAJ MAHAL ASSOCIATES TABLE SUMMARY OPERATING REVIEW FOR THE PERIOD ENDED DECEMBER 1993
PRIOR YEAR-- CURRENT YEAR--CURRENT MONTH CURRENT MONTH --------------------------- ------------- ------------------------------ ACTUAL PLAN ACTUAL DESCRIPTION ------ ---- -------------- ------------------------------ $ % $ % $ % 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
YEAR-TO-DATE PRIOR-YEAR-TO-DATE - ------------------------------ ----------------- ------------------ ------------------ DESCRIPTION ACTUAL PLAN ACTUAL - ------------------------------ ----------------- ------------------ ------------------ $ % $ % $ % 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
9 TRUMP TAJ MAHAL ASSOCIATES GAMING SUMMARY FOR TAJ MAHAL FOR DECEMBER 1993
Current Period Description Year-To-Date Current Year Prior Year % Change Current Year Prior Year % Change 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
REPORT NUMBER TABLE RUM DATE 01/13/94 10 TRUMP TAJ MAHAL ASSOCIATES SLOT SUMMARY OPERATING REVIEW FOR THE PERIOD ENDED DECEMBER 1993
Current Year-Current Month Prior Yr-Current Mth Actual Plan Actual Description $ % $ % $ % 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 Year-To-Date Prior-Year-To-Date Actual Plan Actual $ % $ % $ % 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
11 TRUMP TAJ MAHAL ASSOCIATES SLOT SUMMARY FOR TAJ MAHAL FOR DECEMBER 1993
Current Period Year-To-Date Current Year Prior Year % Change Description Current Year Prior Year % Change $ .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
NOTE THAT THE YTD NUMBERS FOR 1990 REFLECT TOTALS AS OF APRIL 2, 1990. 12 TRUMP TAJ MAHAL ASSOCIATES FOOD SUMMARY OPERATING REVIEW FOR THE PERIOD ENDING DECEMBER 1993
Current Year-Current Month Prior Yr-Current Mth Actual Plan Actual Description $ % $ % $ % 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
Year-To-Date Prior-Year-To-Date Description Actual Plan Actual $ % $ % $ % 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)
13 TRUMP TAJ MAHAL ASSOCIATES FOOD COVERS BY OUTLET OPERATING REVIEW FOR THE PERIOD ENDING DECEMBER 1993
CURRENT YEAR-CURRENT MONTH PRIOR YR-CURRENT MONTH ACTUAL PLAN VARIANCE ACTUAL VARIANCE DESCRIPTION $ % $ % 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
Year-To-Date Prior-Year-To-Date DESCRIPTION Actual Plan Variance Actual Variance $ % $ % OUTLET 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.?
14 REPORT NUMBER 15225 TRUMP TAJ MAHAL ASSOCIATES RUN DATE 01/13/94 AVERAGE CHECK BY OUTLET FOR THE PERIOD ENDED DECEMBER 1993
CURRENT YEAR-CURRENT MONTH PRIOR YEAR-CURRENT MONTH ACTUAL PLAN VARIANCE ACTUAL VARIANCE DESCRIPTION $ % $ % 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
YEAR-TO-DATE PRIOR YEAR-TO-DATE ACTUAL PLAN VARIANCE ACTUAL VARIANCE $ % $ % 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
REPORT NUMBER 15300 RUN DATE 01/13/94 TRUMP TAJ MAHAL ASSOCIATES BEVERAGE SUMMARY OPERATES REVIEW FOR THE PERIOD ENDED DECEMBER 1993
CURRENT YEAR-CURRENT MONTH PRIOR YR-CURRENT MTH YEAR-TO-DATE PRIOR-YEAR-TO-DATE ACTUAL PLAN ACTUAL DESCRIPTION ACTUAL PLAN ACTUAL $ % $ % $ % $ % $ % $ % 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
REPORT NUMBER 15400 TRUMP TAJ MAHAL ASSOCIATES RUN DATE 01/13/94 LODGING SUMMARY OPERATING REVIEW FOR THE PERIOD ENDED DECEMBER 1993
CURRENT YEAR-CURRENT MONTH PRIOR YR-CURRENT MONTH ACTUAL PLAN ACTUAL DESCRIPTION $ % $ % $ % 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
YEAR-TO-DATE PRIOR YEAR-TO-DATE ACTUAL PLAN ACTUAL DESCRIPTION $ % $ % $ % 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
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% 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% ========== ========== ========== ========== ========
CASINO BLOCK ANALYSIS 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%
BLOCK % OF OCCUPIED OCCUP. RMS % ROOMS ------------------- 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% ===========================
18 13-Jan-94 TRUMP TAJ MAHAL CASINO* RESORT ROOM OCCUPANCY ANALYSIS FOR THE YEAR ENDED DECEMBER 1993
ACTUAL PLAN VARIANCE VAR% PRIOR YEAR VARIANCE VAR% 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 ($361,694) -0.9% =========== =========== ========= =========== =========
CASINO BLOCK ANALYSIS TOTAL ROOMS AVAILABLE 456,250 TOTAL OCCUPIED ROOMS 421,268 CASINO BLOCK 201,492 ROOM COMPS: CASINO COMPS 164,974 ADMINISTRATIVE COMPS 10,976 OTHER COMPS 1,312 ------- TOTAL ROOM COMPS 177,262 ======= % BLOCK OCCUPIED 81.9% % BLOCK/TOTAL ROOMS AVAILABLE 44.2% % BLOCK/TOTAL OCCUPIED ROOMS 47.8% % BLOCK OCCUPIED/OCCUPIED ROOMS 39.2% % BLOCK OCCUPIED/ROOMS AVAILABLE 36.2%
BLOCK % OF OCCUPIED OCCUP. RMS % ROOMS ------------------ ROOM 84,990 90.4% 41.2% RLFB 19,525 20.8% 9.5% RFB 59,656 63.4% 28.9% RFBI 803 0.9% 0.4% - -------------------------- TOTAL 164,974 175.4% 80.0% ==========================
19 Report Number 15670 RUN DATE 01/13/94 TRUMP TAJ MAHAL ASSOCIATES FACILITY OPERATIONS SUMMARY FOR THE PERIOD ENDED DECEMBER 1993
CURRENT YEAR-CURRENT MONTH LAST YEAR-CURRENT MONTH DESCRIPTION ACTUAL PLAN VAR$ VAR% ACTUAL THIS YR VS LAST YR 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
DESCRIPTION YEAR-TO-DATE PRIOR-YEAR-TO-DATE ACTUAL PLAN VAR$ VAR% ACTUAL VAR$ VAR% 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) ??
20 Report Number 15675 RUN DATE 01/13/94 TRUMP TAJ MAHAL ASSOCIATES FIXED EXPENSES SUMMARY FOR THE PERIOD ENDED DECEMBER 1993
CURRENT YEAR-CURRENT MONTH LAST YEAR-CURRENT MONTH ACTUAL PLAN VAR$ VAR% ACTUAL THIS YR VS LAST YR DESCRIPTION 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 YEAR-TO-DATE PRIOR-YEAR-TO-DATE DESCRIPTION ACTUAL PLAN VAR$ VAR% ACTUAL VAR$ VAR% 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
21 Report Number 15400 RUN DATE 01/13/94 TRUMP TAJ MAHAL ASSOCIATES GENERAL & ADMINISTRATIVE SUMMARY FOR THE PERIOD ENDED DECEMBER 1993
CURRENT YEAR-CURRENT MONTH LAST YEAR-CURRENT MONTH ACTUAL PLAN VAR$ VAR% ACTUAL THIS YR VS LAST YR DESCRIPTION 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 YEAR-TO-DATE PRIOR-YEAR-TO-DATE DESCRIPTION ACTUAL PLAN VAR$ VAR% ACTUAL VAR$ VAR% 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
22 TRUMP TAJ MAHAL ASSOCIATES OPERATING REVIEW MONTHLY LABOR COMPARISON
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 ==================================================================================================================================== '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) - ----------------------------------------------------------------------------------------------------------------------------------- AVG WKLY GROSS MONTH WKS REVENUE ================================================ '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) --- - -------------------------------------------------
* = 1 Holiday Prepared By: Pam McGroggan 23 APPENDIX IV Property Real Estate Tax Assessment TRUMP TAJ MAHAL ASSOCIATES 1994 REAL ESTATE ASSESSMENT
ADDRESS BLOCK LOT LAND IMPROVEMENTS 1993 TOTAL LAND IMPROVEMENTS 1994 TOTAL CHANGE ASSESSED ASSESSED 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)
- -------------- (1) Demo of Soc. Sec. Bldg. APPENDIX V Economic Indicators APPRAISAL GROUP International - -------------------------------------------------------------------------------- NATIONAL MORTGAGE COMMITMENT SURVEY - --------------------------------------------------------------------------------
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 - ------------------ ------ ----------- ----- ----- --------- ------------ -------- ----------- ------------- 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
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 - --------------------------------------------------------------------------------
REGIONAL MALL OFFICE INDUSTRIAL ---------------------------- ---------------------------- ---------------------------- Current Last Current Last Current Last Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. - -------------------------------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------------- APARTMENT ---------------------------- Current Last Qtr. Qtr. - ------------------------------------------------ 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 - ------------------------------------------------
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 - -------------------------------------------------------------------------------- ECONOMIC INDICATORS - --------------------------------------------------------------------------------
Nov. May Nov. May Nov. Nov. 1993 1993 1992 1992 1991 1990 ---- ---- ---- ---- ---- ---- 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 Per Capita Personal 3rd Qtr. 1st Qtr. 3rd Qtr. 1st Qtr. 3rd Qtr. Disposable Income++ 1993 1993 1992 1992 1991 -------- -------- -------- -------- -------- 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
# Seasonally adjusted * Source: The Wall Street Journal + Source: Moody's Bond Survey ++ Revised figures used when available 15 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 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 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:
Type Range Average Full-Service 2.0%-4.0% 3.0% Economy/Limited-Service 2.0%-5.0% 3.6% Luxury 1.5%-4.0% 2.5%
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 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 TABLE 12 National Full-Service Hotel Market FIRST QUARTER 1994
KEY INDICATORS CURRENT QUARTER LAST QUARTER YEAR AGO - -------------------------------------------------------------------------------- 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
/a./ initial rates of change 20A 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 Table 14 National Luxury Hotel Market FIRST QUARTER 1994
CURRENT LAST YEAR KEY INDICATORS QUARTER QUARTER AGO 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
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.
EQUITY EQUITY CAP CHANGE RATES RESIDUAL IRRs RATES ------------------------------------------------------------------------------- Average Daily Operating Cap Year Selling Free & Free & Rate Expenses Rate Capped Expense Clear Clear 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.
GROSS ROOMS RESERVE FOR REVENUE MANAGEMENT REPLACEMENT OF MARKETING MULTIPLIER FEES FIXED ASSETS TIME ---------------------------------------------------------- Percent of Total GRRM Base Fee % Revenues Months 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.
32
EQUITY EQUITY CAP CHANGE RATES RESIDUAL IRRs RATES ------------------------------------------------------------------------------- Average Daily Operating Cap Year Selling Free & Free & Rate Expenses Rate Capped Expense Clear Clear 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.
GROSS ROOMS RESERVE FOR REVENUE MANAGEMENT REPLACEMENT OF MARKETING MULTIPLIER FEES FIXED ASSETS TIME ---------------------------------------------------------- Percent of Total GRRM Base Fee % Revenues Months 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.
National Luxury Hotel Market INVESTOR SURVEY RESPONSES First Quarter 1994 Source: Personal survey conducted by Cooper & Lybrand during January 1994.
EQUITY EQUITY CAP CHANGE RATES RESIDUAL IRRs RATES ------------------------------------------------------------------------------- Average Daily Operating Cap Year Selling Free & Free & Rate Expenses Rate Capped Expense Clear Clear 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.
GROSS ROOMS RESERVE FOR REVENUE MANAGEMENT REPLACEMENT OF MARKETING MULTIPLIER FEES FIXED ASSETS TIME ---------------------------------------------------------- Percent of Total GRRM Base Fee % Revenues Months 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.
EQUITY EQUITY CAP CHANGE RATES RESIDUAL IRRs RATES ------------------------------------------------------------------------------- Average Daily Operating Cap Year Selling Free & Free & Rate Expenses Rate Capped Expense Clear Clear 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.
GROSS ROOMS RESERVE FOR REVENUE MANAGEMENT REPLACEMENT OF MARKETING MULTIPLIER FEES FIXED ASSETS TIME ---------------------------------------------------------- Percent of Total GRRM Base Fee % Revenues Months 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.
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.
KEY RATES - -------------------------------------------------------------------------------------------- Dec. 1992 Sept. 1993 Oct. 1993 Nov. 1993 Dec. 1993 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
Source: Federal Reserve Statistical Release KEY RATES TRENDS 1990 to 1993 - -------------------------------------------------------------------------------- [GRAPH] Sources: Federal Reserve Statistical Release and Appraisal Institute Research Department
CONSUMER TRENDS - -------------------------------------------------------------------------------------------- IIIQ 1989 IIIQ 1990 IIIQ 1991 IIIQ 1992 IIIQ 1993 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
Source: Economic Indicators
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] 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
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 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 MORTGAGE COMMITMENTS ================================================================================ NATIONAL MORTGAGE COMMITMENT SURVEY Third Quarter 1993--National Ranges - --------------------------------------------------------------------------------
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 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
AVERAGE INTEREST RATES - ------------------------------------------------------------------------------- Third Quarter 1993--National Averages
Type and Amt. of Loan 3-5 Year Term 7-10 Year Term 10 Year+ Term 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 --
Source: Appraisal Institute Research Department NOTE: No regional averages appear for third quarter 1993 mortgage rates due to an insufficient sample size. 13 MarketSource ================================================================================ TRENDS AND FORECASTS - --------------------------------------------------------------------------------
Featured Property Type: HOTELS 1990 1991 1992 1993 Percent Change 1993-1995 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 --
14 TRENDS AND FORECASTS - -------------------------------------------------------------------------------- Featured Property Type: HOTELS
1990 1991 1992 1993 Percent Change 1993-1995 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
14A TRENDS AND FORECASTS - -------------------------------------------------------------------------------- Featured Property Type: HOTELS
1990 1991 1992 1993 Percent Change 1993-1995 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 --
15 TRENDS AND FORECASTS - -------------------------------------------------------------------------------- Featured Property Type: HOTELS
1990 1991 1992 1993 Percent Change 1993-1995 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 --
15A TRENDS AND FORECASTS - -------------------------------------------------------------------------------- Featured Property Type: HOTELS
1990 1991 1992 1993 Percent Change 1993-1995 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 --
16 Supply and Demand ================================================================================ TRENDS AND FORECASTS - --------------------------------------------------------------------------------
Featured Property Type: HOTELS Percent Change 1990 1991 1992 1993 1993-1995 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 _
Source: F.W. Dodge Group, McGraw-Hill, Inc. 17 Second Quarter 1993 National Investor Survey ACB Commercial Appraisal Power Shopping Centers
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) - ----------------------------------------------------------------------------------------------------------------------------------- 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
Hotels
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) - ----------------------------------------------------------------------------------------------------------------------------------- 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
bp: Basis Points 17 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 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 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 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 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 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 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*
------------------ ------------------------------------- -------------------- ------------- INDUSTRIAL RETAIL OFFICE APARTMENT ------------------ ------------------------------------- -------------------- ------------- Regional Neighborhood/ Warehouse R&D Center Power Center Community CBD Suburban Apartment - ----------------------------------------------------------------------------------------------------------------------------------- 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
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*
3Q 1993 2Q 1993 3Q 1992 3Q 1991 - ------------------------------------------------------------------------------- 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
* 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
3Q 1993 2Q 1993 3Q 1992 3Q 1991 - ------------------------------------------------------------------------------- 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
*Real estate over other investments. Source: Real Estate Research Corporation. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Table 4. Current Investment Conditions by Property Type*
3Q 1993 2Q 1993 1Q 1993 3Q 1992 - ------------------------------------------------------------------------------- 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
* 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*
3Q 1993 1Q 1993 3Q 1992 - ------------------------------------------------------------------------------- 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
* Rated on a scale of 1 (very bad) to 10 (very good) Source: Real Estate Research Corporation. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Table 6. Probability That a Tenant Will Renew Range Average - ------------------------------------------------------------------------------- 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
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
Internal Going-In Residual Property Types Rate of Capitalization Capitalization Respondent in Preference Order Return Rate Rate (%) (%) (%) - ----------------------------------------------------------------------------------------------------------------------------------- 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
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) (%) - ----------------------------------------------------------------------------------------------------------------------------------- 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.
QUARTERLY SURVEY OF INVESTMENT CRITERIA: THIRD QUARTER 1993 (continued)
Internal Going-In Residual Property Types Rate of Capitalization Capitalization Respondent in Preference Order Return Rate Rate (%) (%) (%) - -------------------------------------------------------------------------------- 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 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) (%) - ------------------------------------------------------------------------------- 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.
3 QUARTERLY SURVEY OF INVESTMENT CRITERIA: THIRD QUARTER 1993 (continued)
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 (%) (%) (%) (%) (%) - ------------------------------------------------------------------------------------------------------------------------------------ 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 Anticipated Long-Term Holding Inflation Respondent Period Expectation Comments (years) (%) - ------------------------------------------------------------------------------------------------------------------------------------ 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.
QUARTERLY SURVEY OF INVESTMENT CRITERIA:THIRD QUARTER 1993 (continued)
Internal Going-In Residual Property Types Rate of Capitalization Capitalization Respondent in Preference Order Return Rate Rate (%) (%) (%) - ------------------------------------------------------------------------------------------------------------------------------------ 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
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) (%) - ------------------------------------------------------------------------------------------------------------------------------------ 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.
- -------------------------------------------------------------------------------- QUARTERLY SURVEY OF INVESTMENT CRITERIA: THIRD QUARTER 1993 (continued)
Internal Going-In Residual Property Types Rate of Capitalization Capitalization Respondent in Preference Order Return Rate Rate (%) (%) (%) - ----------------------------------------------------------------------------------------------------------------------------------- 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+
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) (%) - ----------------------------------------------------------------------------------------------------------------------------------- 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.
- -------------------------------------------------------------------------------- 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)
Internal Going-In Residual Property Types Rate of Capitalization Capitalization Respondent in Preference Order Return Rate Rate (%) (%) (%) - ----------------------------------------------------------------------------------------------------------------------------------- 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
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) (%) - ----------------------------------------------------------------------------------------------------------------------------------- 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.
EX-99.17.(B)(6) 5 APPRAISAL OF THE SPECIFIED PARCELS [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 TRUMP TAJ MAHAL REALTY CORP. - ----------------------------
BLOCK LOT AREA - SQ. FT. ACRES 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 =========== ===========
APPRAISAL GROUP INTERNATIONAL EX-99.17.(C)(2) 6 AGREEMENT, DATED OCTOBER 6, 1995 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- 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- 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- 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- 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- Accepted and Agreed to: PUTNAM INVESTMENT MANAGEMENT as investment advisor to certain beneficial holders 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
-6- -7- -8- -9- -10- EX-99.17.(C)(3) 7 LETTER OF DONALD J TRUMP TO TAJ MAHAL HOLDING CORP 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 EX-99.17.(D) 8 JOINT PROXY STATEMENT - PROSPECTUS 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. (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." 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 TABLE OF CONTENTS
PAGE ---- 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
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PAGE ---- 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
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PAGE ---- 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
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PAGE ---- 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
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PAGE ---- 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
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
7 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:
CURRENT PLANNED -------------- --------------------------------------------- TRUMP TAJ TRUMP PLAZA INDIANA TAJ MAHAL PLAZA MAHAL EXPANSION(/1/) RIVERBOAT(/1/) EXPANSION(/2/) TOTAL ------ ------- -------------- -------------- -------------- ------- 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
- -------- (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 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:
TRUMP PLAZA TRUMP TRUMP FACILITY(/1/) PLAZA EAST WORLD'S FAIR TOTAL ------------- ---------- ------------ ------- 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
- -------- (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 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 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 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 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 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 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 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 $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 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
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) 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
HISTORICAL HISTORICAL ------------------------------------------------------------- ----------------------- NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------------------------- ----------------------- 1990 1991 1992 1993 1994 1994 1995 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) (UNAUDITED) 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
19
PRO FORMA (o) ------------------------------------ NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 1995 DECEMBER 31, 1994 (NOTE 1) ----------------- ------------------ STATEMENT OF OPERATIONS DATA: (UNAUDITED) (UNAUDITED) 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
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 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.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------------------------------- --------------------- 1990(a) 1991(b) 1992 1993 1994 1994 1995 --------- --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) (UNAUDITED) 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
21
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------------------------------- -------------------- 1990(a) 1991(b) 1992 1993 1994 1994 1995 --------- --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) (UNAUDITED) 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
- -------- (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 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 CURRENT OWNERSHIP STRUCTURE [CHART OMITTED. GRAPHIC DEPICTS THE CURRENT OWNERSHIP STRUCTURE OF THCR AND TAJ HOLDING AND THEIR RESPECTIVE SUBSIDIARIES] 24 OWNERSHIP STRUCTURE AFTER THE MERGER TRANSACTION [CHART OMITTED. GRAPHIC DEPICTS THE CURRENT OWNERSHIP STRUCTURE OF THCR AND ITS SUBSIDIARIES AFTER THE MERGER TRANSACTION] 25 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 (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 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 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 (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 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 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 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 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 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 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 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 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 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 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 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 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 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 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
(DOLLARS IN THOUSANDS) ----------- 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 ========
- -------- (/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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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)
ADJUSTMENTS FOR ADJUSTMENTS CONTRIBUTION ADJUSTMENTS TAJ FOR TAJ OF THCR STOCK FOR MERGER ASSOCIATES NOTE OFFERING PRO FORMA OFFERING PROCEEDS TRANSACTION PRO FORMA ------------ ------------- --------- ----------------- ----------- --------- (HISTORICAL) 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 ======== ======== ========
88 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)
ADJUSTMENTS ADJUSTMENTS TAJ FOR TAJ FOR MERGER ASSOCIATES NOTE OFFERING PRO FORMA TRANSACTION PRO FORMA ------------ -------------- --------- ----------- --------- (HISTORICAL) 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) ======== ======== ========
89 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)
ADJUSTMENTS FOR ADJUSTMENTS TAJ TAJ FOR MERGER ASSOCIATES NOTE OFFERING PRO FORMA TRANSACTION PRO FORMA ------------ --------------- --------- ----------- --------- (HISTORICAL) 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) ======== ======== ========
90 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: 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.............................................................
(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 (l) To record adjustments to historical interest expense to give effect to the Merger Transaction as follows:
DECEMBER 31, 1994 SEPTEMBER 30, 1995 ----------------- ------------------ 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 ========= ========
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 UNAUDITED PRO FORMA FINANCIAL INFORMATION TRUMP HOTELS & CASINO RESORTS, INC. PRO FORMA CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1995 (DOLLARS IN THOUSANDS)
PRO FORMA THCR ADJUSTMENTS PRO FORMA ------------ ----------- --------- (HISTORICAL) 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 ======== ========
93 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)
HISTORICAL --------------------------------------------------- PLAZA TRUMP HOLDING INDIANA THCR AND PLAZA AND OTHER PRO FORMA (PARENT CO. ONLY) ASSOCIATES JURISDICTIONS COMBINED ADJUSTMENTS PRO FORMA ----------------- ---------- ------------- -------- ----------- --------- 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) ===== ======== ======= ======== ========
94 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)
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 ----------- ----------- ------------- ------------- -------- ----------- --------- 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) ======= ======= ===== ======== ======== ========
95 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: 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.............................................................. $ ====
(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 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)
PRO FORMA ------------------- ELIMINATION AND TAJ PRO FORMA THCR ASSOCIATES ADJUSTMENTS PRO FORMA -------- ---------- ----------- ---------- 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 ======== ======== ==========
97 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)
PRO FORMA -------------------- TAJ PRO FORMA THCR ASSOCIATES ADJUSTMENTS PRO FORMA -------- ---------- ----------- ----------- 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 ===========
98 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)
PRO FORMA --------------------- TAJ PRO FORMA THCR ASSOCIATES ADJUSTMENTS PRO FORMA --------- ---------- ----------- ------------ 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 ============
99 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 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.
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) 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
- ------------------ 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 (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 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 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 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 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 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 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 $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 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 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 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 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:
TRUMP PLAZA TRUMP PLAZA TRUMP WORLD'S FACILITY(/1/) EAST FAIR TOTAL ------------- ----------- ------------- ------- 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
- -------- (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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------------------------- ------------------ 1990(A) 1991 1992 1993 1994 1994 1995 --------- --------- --------- -------------- --------- -------- -------- (IN THOUSANDS) (UNAUDITED) 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
- -------- (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 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 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 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 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 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 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 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):
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------- ----------------- 1992 1993 1994 1994 1995 -------- -------- -------- -------- -------- 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 ======== ======== ======== ======== ========
135 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:
PROJECT PROJECT COST ------- ------------- (IN MILLIONS) 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 ======
- -------- (/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 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 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 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 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 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 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 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 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 (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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 $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 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 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 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 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 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 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 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 MANAGEMENT OF THCR DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning each of THCR's directors and executive officers:
NAME POSITION ---- -------- 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
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 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 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 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 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 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 $14.00 per share. Summary Compensation Table. The following table sets forth information regarding compensation paid to or accrued by all the executive officers of THCR, for each of the last three completed fiscal years. Compensation accrued during one year and paid in another is recorded under the year of accrual. Because THCR was formed in 1995, compensation for the years ended December 31, 1994 and 1993 reflect solely the compensation paid or accrued to these individuals as executive officers of Plaza Associates. Historically, Plaza Associates has not provided its executive officers with participation in stock-based compensation plans or long-term incentive plans and, accordingly, such information is not reflected in the table below. Compensation for the year ended December 31, 1995 includes compensation paid or accrued to these individuals as executive officers of THCR and Plaza Associates.
LONG TERM COMPENSATION ANNUAL COMPENSATION AWARDS ----------------------------------- ------------------------------ RESTRICTED SECURITIES NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER POSITION(/1/) YEAR SALARY BONUS COMPENSATION(/2/) AWARDS($) OPTIONS(#) COMPENSATION ------------------ ---- -------- -------- ----------------- ----------- ----------- ------------ 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 -- -- -- --
- -------- (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 (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 $1,433,319. These phantom stock units were issued to Mr. Ribis in connection with his employment agreement with THCR. Each phantom stock unit entitles Mr. Ribis to one share of THCR Common Stock on the vesting date of the phantom stock unit. All of the phantom stock units are scheduled to vest on June 12, 1997. Vesting will accelerate in the event of Mr. Ribis' termination of employment with THCR (i) because of his death or disability, (ii) by THCR without cause, or (iii) voluntarily by Mr. Ribis under circumstances which constitute a constructive termination. Alternatively, the phantom stock units may expire prior to June 12, 1997 in the event Mr. Ribis voluntarily terminates his employment with THCR under circumstances which do not constitute constructive termination or if he is terminated by THCR with cause. Dividend equivalents with respect to the phantom stock units will be credited to a bookkeeping account on behalf of Mr. Ribis and will be paid out in cash at the time the phantom stock units vest or will expire along with the phantom stock units. The following table sets forth options granted to Mr. Ribis in 1995. No other member of the Executive Group received stock options in 1995. THCR did not issue any stock appreciation rights in 1995. This table also sets forth the hypothetical gains that would exist for the options at the end of their ten-year terms at assumed annual rates of stock appreciation of 5% and 10%. The actual future value of the options will depend on the market value of the THCR Common Stock. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZED VALUE AT ASSUMED ANNUAL RATES OF STOCK APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM ------------------------------------------------------------ --------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS GRANTED EXERCISE OR UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION NAME OPTIONS GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($) ---- ------------------ --------------- ----------- ------------- ---------- ---------- Nicholas L. Ribis....... 133,333 100% $14.00 June 12, 2005 $1,173,060 $2,960,580
The following table sets forth the number of shares covered by options held by Mr. Ribis and the value of the options as of December 31, 1995. Mr. Ribis was the only member of the Executive Group who held options in 1995. None of these options were exercisable in 1995. FY-END OPTION VALUE
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT FY-END(#) OPTIONS AT FY-END ($) -------------------------- -------------------------- NAME EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE ---- ------------ ------------- ------------ ------------- Nicholas L. Ribis........ N/A 133,333 N/A $2,866,660
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 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 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 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 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:
NAME POSITION ---- -------- 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
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 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 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 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.
ANNUAL COMPENSATION ------------------------------------- NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER POSITION YEAR SALARY BONUS COMPENSATION(/2/) COMPENSATION ------------------ ---- ---------- -------- ----------------- ------------ 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 -- --
- -------- (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 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 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 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: 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
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 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 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 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 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 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 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.
BENEFICIAL OWNERSHIP ---------------------------- NAME NUMBER PERCENT - ---- ------------ ---------- 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
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 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
BENEFICIAL OWNERSHIP ---------------------- NAME NUMBER PERCENT - ---- ----------- ---------- 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
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
BENEFICIAL OWNERSHIP ---------------------- NAME NUMBER PERCENT ---- ----------- ---------- Kemper Financial Services, Inc.(/1/)................... 112,152 14.7% Putnam Investment Management, Inc.(/2/)................ 101,148 13.9%
- -------- (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 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 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 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 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 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 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 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 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 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 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 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 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 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 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.
HIGH LOW ------- ------- 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
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 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.
HIGH LOW -------- ------- 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
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 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 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 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 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 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 INDEX TO FINANCIAL STATEMENTS
PAGE 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
F-1
PAGE 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
F-2 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 TRUMP HOTELS & CASINO RESORTS, INC. BALANCE SHEET MARCH 29, 1995 (PARENT COMPANY ONLY) ASSETS 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 ====
The accompanying notes to balance sheet are an integral part of this balance sheet. F-4 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 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 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 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 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 TRUMP PLAZA HOLDING ASSOCIATES AND TRUMP PLAZA ASSOCIATES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1993 AND 1994
1993 1994 ASSETS ------------- ------------- 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 ============= =============
The accompanying notes to financial statements are an integral part of these consolidated financial statements. F-10 TRUMP PLAZA HOLDING ASSOCIATES AND TRUMP PLAZA ASSOCIATES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
1992 1993 1994 ------------ ------------ ------------ 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) ============ ============ ============
The accompanying notes to financial statements are an integral part of these consolidated financial statements. F-11 TRUMP PLAZA HOLDING ASSOCIATES AND TRUMP PLAZA ASSOCIATES CONSOLIDATED STATEMENTS OF CAPITAL (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
PARTNERS' RETAINED CAPITAL EARNINGS TOTAL ------------ ------------ ------------ 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) ============ ============ ============
The accompanying notes to financial statements are an integral part of these consolidated financial statements. F-12 TRUMP PLAZA HOLDING ASSOCIATES AND TRUMP PLAZA ASSOCIATES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
1992 1993 1994 ------------- ------------- ------------ 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 ============= ============= ============
The accompanying notes to financial statements are an integral part of these consolidated financial statements. F-13 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:
YEARS ENDED DECEMBER 31, -------------------------- (IN THOUSANDS) 1992 1993 1994 -------- -------- -------- 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 ======== ======== ========
F-14 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: Buildings and building improvements........................... 40 years Furniture, fixtures and equipment............................. 3-10 years Leasehold improvements........................................ 10-40 years
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 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.
1992 1993 1994 ----------- ----------- ----------- 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 =========== =========== ===========
(3) LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, DECEMBER 31, 1993 1994 ------------ ------------ 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 ============ ============
PLAZA HOLDING AND PLAZA ASSOCIATES: 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 ============ ============
- --------------------- (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 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 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: 1995......................................................... $ 2,969,000 1996......................................................... 548,000 1997......................................................... 2,012,000 1998......................................................... 433,000 1999......................................................... -- Thereafter................................................... 400,221,000 ------------ $406,183,000 ============
(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:
AMOUNTS RELATING TO TOTAL AFFILIATES ------------ ------------ 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 ============ ============
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 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 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 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 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 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:
DECEMBER 31, 1994 ---------------------------- CARRYING AMOUNT FAIR VALUE --------------- ------------ 12 1/2% PIK Notes............................. $ 73,987,000 $ 51,791,000 10 7/8% Mortgage Notes........................ $326,234,000 $247,122,000
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 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 TRUMP HOTELS & CASINO RESORTS, INC. CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED, IN THOUSANDS)
SEPTEMBER 30, 1995 ------------- ASSETS 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 ========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-25 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)
INCEPTION TO SEPTEMBER 30, 1995 ------------------ 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 ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-26 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)
NUMBER OF SHARES ------------------ ADDITIONAL CLASS B PAID IN RETAINED COMMON COMMON AMOUNT CAPITAL EARNINGS TOTAL ---------- ------- ------ ---------- -------- -------- 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 ========== ===== ==== ======== ====== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-27 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)
INCEPTION TO SEPTEMBER 30, 1995 ---------------- 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 ========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-28 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 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 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 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 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 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 TRUMP PLAZA HOLDING ASSOCIATES AND TRUMP PLAZA ASSOCIATES CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30, 1994 1995 ------------ ------------- (UNAUDITED) ASSETS 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 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-35 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)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1994 1995 -------- -------- 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) -------- --------
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 ======= ======
The accompanying notes are an integral part of these condensed consolidated financial statements. F-36 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)
PARTNERS' RETAINED CAPITAL EARNINGS TOTAL --------- -------- -------- 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 ======== ======= ========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-37 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)
1994 1995 ------- ------- 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 ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. F-38 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 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:
DECEMBER 31, SEPTEMBER 1994 30, 1995 ------------ --------- 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 ============ ============
(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 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 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 TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS)
DECEMBER 31, -------------------- 1993 1994 --------- --------- 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 ========= =========
The accompanying notes to financial statements are an integral part of these consolidated financial statements. F-43 TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------- 1992 1993 1994 --------- --------- --------- 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) ========= ========= =========
The accompanying notes to financial statements are an integral part of these consolidated financial statements. F-44 TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CAPITAL (DEFICIT) (DOLLARS IN THOUSANDS)
ACCUMULATED TOTAL CONTRIBUTED SURPLUS CAPITAL CAPITAL (DEFICIT) (DEFICIT) ----------- ----------- --------- 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 ======== ======== ========
The accompanying notes to financial statements are an integral part of these consolidated financial statements. F-45 TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------- 1992 1993 1994 -------- -------- -------- 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 ======== ======== ========
The accompanying notes to financial statements are an integral part of these consolidated financial statements. F-46 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:
YEAR ENDED DECEMBER 31, ----------------------- 1992 1993 1994 ------- ------- ------- (IN THOUSANDS) 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 ======= ======= =======
F-47 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:
1993 1994 --------- --------- (IN THOUSANDS) 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 ========= =========
- --------------------- (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 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 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: 1995............................ $ 743,000 1996............................ 423,000 1997............................ 233,000 1998............................ 256,000 1999............................ 809,386,000 Thereafter...................... 0
(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:
1993 1994 ------- ------- (IN THOUSANDS) 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 ====== =======
- --------------------- (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 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:
1993 1994 ------- ------- (IN THOUSANDS) 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 ======= =======
F-51 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: 1995............................................................. $ 8,186,000 1996............................................................. $ 6,174,000 1997............................................................. $ 4,637,000 1998............................................................. $ 2,750,000 1999............................................................. $ 2,725,000 Thereafter....................................................... $65,400,000
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 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 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):
DECEMBER 31, ----------------- 1993 1994 -------- -------- (IN THOUSANDS) 11.35% Mortgage Bonds (a) Carrying Amount......................................... $580,464 $611,533 Fair Value.............................................. 761,350 512,638
- --------------------- (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):
1993 1994 -------- -------- 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.................................................. $ -- $ -- ======== ========
(9) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS) 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)
F-54 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 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 TAJ MAHAL HOLDING CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET
DECEMBER 31, ---------------------- 1993 1994 ---------- ---------- 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 ========== ==========
The accompanying notes to financial statements are an integral part of these consolidated financial statements. F-57 TAJ MAHAL HOLDING CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------------- 1992 1993 1994 ----------- ----------- ----------- 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 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these consolidated financial statements. F-58 TAJ MAHAL HOLDING CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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 --------- ------ --------- ------ --------- ------ ---------- ----------- ---------- 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 ========= === ======= === ========= === ========== =========== ==========
The accompanying notes to financial statements are an integral part of these consolidated financial statements. F-59 TAJ MAHAL HOLDING CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------- 1992 1993 1994 ----------- ----------- ----------- 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 =========== =========== ===========
The accompanying notes to the financial statements are an integral part of these consolidated financial statements. F-60 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 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 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 TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30, 1994 1995 ------------ ------------- (UNAUDITED) 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 ======== ========
The accompanying notes to financial statements are an integral part of these condensed consolidated financial statements. F-64 TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1994 1995 -------- -------- 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) ======== ========
The accompanying notes to financial statements are an integral part of these condensed consolidated financial statements. F-65 TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENT OF CAPITAL (DEFICIT) (DOLLARS IN THOUSANDS) (UNAUDITED)
ACCUMULATED CONTRIBUTED SURPLUS TOTAL CAPITAL (DEFICIT) CAPITAL ----------- ----------- ------- 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 ======== ======== =======
The accompanying notes to financial statements are an integral part of these condensed consolidated financial statements. F-66 TRUMP TAJ MAHAL ASSOCIATES AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1994 1995 -------- -------- 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 ======== ========
The accompanying notes to financial statements are an integral part of these condensed consolidated financial statements. F-67 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 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 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):
DECEMBER SEPTEMBER 31, 1994 30, 1995 --------- ----------- (UNAUDITED) 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 1994 1995 Three months ending September 30: --------- ----------- 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......................................... $ -- $ --
(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 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 TAJ MAHAL HOLDING CORP. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER SEPTEMBER 31, 30, ----------- ----------- 1994 1995 ----------- ----------- (UNAUDITED) 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 ----------- -----------
The accompanying notes to financial statements are an integral part of these condensed consolidated financial statements. F-72 TAJ MAHAL HOLDING CORP. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1994 1995 ----------- ----------- 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 =========== ===========
The accompanying notes to financial statements are an integral part of these condensed consolidated financial statements. F-73 TAJ MAHAL HOLDING CORP. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
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 --------- ------ --------- ------ --------- ------ ---------- ----------- ----------- 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 ========= === ======= === ========= === ========== =========== ===========
The accompanying notes to financial statements are an integral part of these condensed consolidated financial statements. F-74 TAJ MAHAL HOLDING CORP. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1994 1995 ----------- ----------- 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 =========== ===========
The accompanying notes to financial statements are an integral part of these condensed consolidated financial statements. F-75 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 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 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 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 ------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS * 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
- -------- * The Table of Contents is not part of this Merger Agreement. i 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
ii 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
iii 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 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 "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 "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 "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 "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 (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 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 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 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 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 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 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 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 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 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 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 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 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 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 (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 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 (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 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 (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 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 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 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 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 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 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 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 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 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 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----