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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No.: 333-643
TRUMP ATLANTIC CITY ASSOCIATES
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(Exact Name of Registrant as specified in its charter)
New Jersey 22-3213714
-------------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization) 08401
2500 Boardwalk (Zip Code)
Atlantic City, New Jersey
(Address of principal executive offices)
Registrant's telephone number, including area code: (609) 441-6060
TRUMP ATLANTIC CITY FUNDING, INC.
-----------------------------------------------------
(Exact Name of Registrant as specified in its charter)
Delaware 22-3418939
---------------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization) 08401
2500 Boardwalk (Zip Code)
Atlantic City, New Jersey
(Address of principal executive offices)
Registrant's telephone number, including area code: (609) 441-6060
TRUMP ATLANTIC CITY FUNDING II, INC.
------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
Delaware 22-3550202
---------------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization) 08401
2500 Boardwalk (Zip Code)
Atlantic City, New Jersey
(Address of principal executive offices)
Registrant's telephone number, including area code: (609) 441-6060
TRUMP ATLANTIC CITY FUNDING III, INC.
------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
Delaware 22-3550203
---------------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization) 08401
2500 Boardwalk (Zip Code)
Atlantic City, New Jersey
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 441-6060
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrants (1) have filed all Reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of Trump Atlantic City
Funding, Inc. held by non-affiliates as of March 30, 1999 was $0.
The aggregate market value of the voting stock of Trump Atlantic City
Funding II, Inc. held by non-affiliates as of March 30, 1999 was $0.
The aggregate market value of the voting stock of Trump Atlantic City
Funding III, Inc. held by non-affiliates as of March 30, 1999 was $0.
Indicate by check mark whether the Registrants have filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [X] No [ ]
As of March 30, 1999, there were 100 shares of Trump Atlantic City Funding,
Inc.'s Common Stock outstanding.
As of March 30, 1999, there were 100 shares of Trump Atlantic City Funding
II, Inc.'s Common Stock outstanding.
As of March 30, 1999, there were 100 shares of Trump Atlantic City Funding
III, Inc.'s Common Stock outstanding.
Documents Incorporated by Reference--Not applicable.
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FORM 10-K
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I .............................................................. 1
ITEM 1. BUSINESS ................................................. 1
General ........................................................ 1
Trump Plaza .................................................... 2
The Taj Mahal .................................................. 6
TCS ............................................................ 10
Trademark/Licensing ............................................ 10
Certain Indebtedness ........................................... 11
Atlantic City Market ........................................... 11
Competition .................................................... 13
Gaming and Other Laws and Regulations .......................... 16
ITEM 2. PROPERTIES ............................................... 22
Trump Plaza .................................................... 22
Taj Mahal ...................................................... 24
ITEM 3. LEGAL PROCEEDINGS ........................................ 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...... 28
PART II ............................................................. 29
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ..................................... 29
ITEM 6. SELECTED FINANCIAL DATA .................................. 29
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS .................... 31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ............................................ 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .............. 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ..................... 37
PART III............................................................. 38
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ...... 38
ITEM 11. EXECUTIVE COMPENSATION .................................. 43
Employment Agreements .......................................... 45
Compensation of Directors ...................................... 47
Compensation Committee Interlocks and Insider Participation .... 47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ......................................... 49
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .......... 50
PART IV ............................................................. 52
(i)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K .................................... 52
IMPORTANT FACTORS RELATING TO FORWARD LOOKING STATEMENTS ............ 58
SIGNATURES .......................................................... 59
TRUMP ATLANTIC CITY ASSOCIATES ................................... 60
TRUMP ATLANTIC CITY FUNDING, INC ................................. 61
TRUMP ATLANTIC CITY FUNDING II, INC .............................. 62
TRUMP ATLANTIC CITY FUNDING III, INC ............................. 63
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES ..... F-1
(ii)
PART I
ITEM 1. BUSINESS.
GENERAL
Trump Atlantic City Associates ("Trump AC"), a New Jersey general
partnership, was formed under the name of Trump Plaza Holding Associates on
February 17, 1993. Trump Atlantic City Funding, Inc., a Delaware corporation
("Trump AC Funding"), was formed on January 30, 1996. Trump Atlantic City
Funding II, Inc. ("Funding II") and Trump Atlantic City Funding III, Inc.
("Funding III"), each a Delaware corporation, were formed on November 18, 1997.
Each of the Registrants are wholly owned subsidiaries of Trump Hotels & Casino
Resorts Holdings, L.P. ("THCR Holdings"), of which Trump Hotels & Casino
Resorts, Inc. ("THCR") is the general partner. THCR is the exclusive vehicle
through which Donald J. Trump ("Trump") engages in new gaming activities in both
emerging and established gaming jurisdictions. Trump AC owns and operates the
Trump Plaza Hotel and Casino ("Trump Plaza"), which also includes Trump World's
Fair, and the Trump Taj Mahal Casino Resort (the "Taj Mahal"), each located on
The Boardwalk in Atlantic City, New Jersey.
o TRUMP PLAZA. In May 1996, Trump AC completed an expansion program
which further enhanced Trump Plaza's gaming space and hotel capacity
(the "Trump Plaza Expansion") while maintaining its commitment to
first class customer service. This strategy was designed to capitalize
on Trump Plaza's reputation for excellence, as well as to meet both
existing and anticipated demand for the increased number of rooms and
infrastructure improvements that are currently being implemented to
enhance further the "vacation destination appeal" of Atlantic City. As
part of the Trump Plaza Expansion, Trump AC renovated and integrated
into Trump Plaza a hotel adjacent to Trump Plaza's main tower ("Trump
Plaza East") and renovated and integrated into Trump Plaza the former
Trump Regency Hotel, located on The Boardwalk adjacent to the original
Atlantic City Convention Center, which is next to Trump Plaza and is
now known as Trump World's Fair. The renovations at Trump Plaza East
were completed in February 1996 and at Trump World's Fair in May 1996.
Trump Plaza has 138,295 square feet of gaming space, housing a total
of approximately 4,162 slot machines and 103 table games, making Trump
Plaza's casino the largest in Atlantic City (in terms of square
footage). Trump Plaza's hotel capacity consists of 1,404 guest rooms,
making Trump Plaza's guest room inventory one of the largest in
Atlantic City.
o TAJ MAHAL. Management believes that the acquisition of the Taj Mahal
on April 17, 1996 (the "Taj Acquisition") has strengthened Trump AC's
position as a leader in the casino entertainment industry through its
ownership of two successful land-based casino hotels on The Boardwalk.
Furthermore, the Taj Acquisition has enhanced Trump AC's presence in
the growing Atlantic City gaming market (the "Atlantic City Market").
After giving effect to the Taj Acquisition and the Trump Plaza
Expansion, Trump AC had acquired 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 Trump Plaza's
operations has provided opportunities for operational efficiencies,
economies of scale and benefits from the talent, expertise and
experience of management at the operating entities. In July 1997,
Trump AC completed an expansion plan at the Taj Mahal (the "Taj Mahal
Expansion"), which included construction of a new bus terminal,
expansion of parking facilities and expansion of casino floor space.
o THE "TRUMP" NAME. Trump AC capitalizes on the widespread recognition
of the "Trump" name and its association with high quality amenities
and first class service. To this end, Trump AC provides a broadly
diversified gaming and entertainment experience consistent with the
"Trump" name and reputation for quality.
1
The following table profiles Trump AC's current casino and hotel
capacity:
TRUMP
PLAZA TRUMP
MAIN TRUMP WORLD'S
FACILITY PLAZA EAST FAIR TAJ MAHAL TOTAL
-------- ---------- ------- --------- -----
Gaming square footage........ 74,198 14,886 49,211 147,720 286,015
Slot machines................ 2,124 402 1,636 4,152 8,314
Table games.................. 103 0 0 211 314
Hotel rooms.................. 555 349 500 1,250 2,654
The Registrants operate in only one industry segment. See "Financial
Statements and Supplementary Data."
TRUMP PLAZA
Management believes that Trump Plaza's Five Star Diamond Award from the
American Academy of Hospitality Sciences reflects 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.
Management believes that as a result of the Trump Plaza Expansion and
Trump Plaza's strategic location, Trump Plaza is one of the premier host
properties in Atlantic City. The Trump Plaza Expansion was completed in May 1996
and increased Trump Plaza's prime central frontage on The Boardwalk to nearly a
quarter of a mile. Management believes that the construction of the new
convention center and the tourist corridor linking the new convention center
with The Boardwalk enhances the desirability of Atlantic City generally and, as
a result of Trump Plaza's central location, benefits Trump Plaza in particular.
In addition, management has taken advantage of gaming regulatory changes that
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 both "drive-in" and "walk-in"
patrons.
As part of the Trump Plaza Expansion, Trump Plaza opened the Ocean View
Casino and Bar and a total of 349 rooms, including nine super suites, located at
Trump Plaza East, which is fully integrated into Trump Plaza. Trump Plaza East
has approximately 15,000 square feet of casino space. Trump Plaza also completed
construction of a new entranceway to Trump Plaza to provide easier access by car
to Trump Plaza.
In May 1996, Trump AC completed the renovations and integration of
Trump World's Fair, located on The Boardwalk adjacent to the original Atlantic
City Convention Center, into Trump Plaza. Trump World's Fair contains 49,211
square feet of casino floor space, approximately 16,000 square feet of which is
directly accessible from The Boardwalk, and 500 hotel rooms, connected to Trump
Plaza's main tower by an enclosed walkway overlooking The Boardwalk.
Management believes the increased hotel capacity as a result of the
Trump Plaza Expansion enables Trump Plaza to better meet demand and accommodate
its casino guests, as well as to host additional and larger conventions and
corporate meetings.
2
The following table details Trump Plaza's current casino and hotel
capacity:
TRUMP TRUMP
PLAZA MAIN TRUMP PLAZA WORLD'S
FACILITY EAST FAIR TOTAL
---------- ----------- ------- ------
Gaming square footage....... 74,198 14,886 49,211 138,295
Slot machines............... 2,124 402 1,636 4,162
Table games................. 103 0 0 103
Hotel rooms................. 555 349 500 1,404
Trump Plaza's management team has launched a variety of initiatives
designed to increase the level of casino gaming activity generally at Trump
Plaza and to attract casino patrons who tend to wager more frequently 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, and the introduction of new updated gaming
products.
ATLANTIC CITY MARKETING STRATEGY
Trump Plaza. Trump Plaza East has been integrated into Trump Plaza and
together the two are operated as a single casino hotel facility. Trump Plaza
presently intends to continue the marketing strategies it has found successful
in the past, including targeting lucrative high-end drive-in slot customers.
Management believes the additional hotel rooms and gaming facilities at Trump
Plaza East better enable Trump Plaza to accommodate the more profitable weekend
drive-in patron, who tends to wager more per play and per visit than the typical
walk-in or bus patron.
Trump World's Fair. Trump World's Fair is seeking to attract the
"middle market" segment (primarily bus customers and Boardwalk pedestrian
traffic) by offering high value food and entertainment attractions in a festive
"World's Fair" atmosphere. The first floor of Trump World's Fair features a
Boardwalk level casino offering walk-in customers direct access from The
Boardwalk to 569 slot machines. In addition, Trump World's Fair contains a bus
terminal that has a dedicated escalator leading directly to a separate casino
entertainment area that contains a 500-seat buffet-style restaurant and a casino
with 508 slot machines. The bus terminal and dedicated casino facilities allow
Trump World's Fair to serve efficiently a high volume of bus customers. The
second floor of Trump World's Fair has approximately 559 slot machines along
with additional restaurants. Moreover, with its prime location adjoining the
original Atlantic City Convention Center and near the new Atlantic City
Convention Center, and its room base of 500 rooms and approximately 50,000
square feet of total gaming space, management believes that Trump World's Fair
is ideally suited to attract convention visitor traffic.
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. Such high-end
players typically wager $5 or more per play in slots and $25 or more per play in
table games. In the fall of 1992, Trump Plaza Associates ("Plaza Associates"),
the owner and operator of Trump Plaza, 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 high-end players.
Although considered one property, Trump Plaza and Trump World's Fair
have separate marketing identities. Trump Plaza caters to the mid to high level
segment while Trump World's Fair focuses on the "middle" market. Trump Plaza's
concentration of special events, entertainment, suites and variety of gourmet
restaurants define its presence and highly perceived image. The Trump Plaza's
suite product, high-end slot clubs and fine dining restaurants indicate Plaza
Associates' commitment to this segment of the market. While Trump Plaza
3
strives to accommodate the more lucrative drive-in patron, Trump World's Fair
offers a fun, relaxing experience which is extremely appealing to the bus rider.
A combination of lower slot denominations, including Atlantic City's largest
nickel lounge, lower table limits, sweepstakes, bus bingo programs, on-floor
tournaments and a premier buffet make this possible.
"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 so as to provide
complimentaries primarily to patrons with a demonstrated propensity to wager at
Trump Plaza. A patron's propensity to wager is determined by a review of the
patron's prior gaming history at Trump Plaza as well as other gaming
establishments in Atlantic City. Each patron is analyzed to ensure that the
patron's gaming activity, net of any complimentaries, is profitable to Plaza
Associates.
Entertainment. Trump Plaza offers headline entertainment as part of its
strategy to attract high-end and other patrons. Trump Plaza offers a variety of
headline entertainment throughout the year.
Player Development/Casino Hosts. Plaza Associates currently employs
gaming representatives in New Jersey, Pennsylvania 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. 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. Plaza Associates' 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.
Bus Program. Trump Plaza has a bus program, which transports
approximately 1,700 gaming patrons per day during the week and 2,400 per day on
the weekends. Trump Plaza's bus program offers incentives and discounts to
certain scheduled and chartered bus customers. Trump Plaza's Transportation
Facility (as defined) 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. Trump World's Fair's bus terminal has a
dedicated escalator leading directly to a casino entertainment area complete
with an international buffet. Trump World's Fair's bus terminal provides patrons
with a spacious lounge area with a view of the Atlantic Ocean and The Boardwalk.
Trump World's Fair's bus program transports approximately 1,200 gaming patrons
per day during the week and 2,100 per day on weekends.
Credit Policy. Historically, Trump Plaza has extended credit on a
discretionary basis to certain qualified patrons. For the years ended December
31, 1996, 1997 and 1998 credit play as a percentage of total dollars wagered was
approximately 17.4%, 18.9% and 22.4%, respectively. Trump Plaza bases credit
limits on each individual patron's creditworthiness, as determined by an
examination of the following criteria: (i) checking each patron's personal
checking account for current and average balances, (ii) performing a credit
check on each domestic patron and (iii) checking each patron's credit limits and
indebtedness at all casinos in the United States as well as many island casinos.
The above determination of a patron's continued creditworthiness is performed
for continuing patrons on a yearly basis or more frequently if Trump Plaza deems
a re-determination of credit worthiness is necessary. In addition, depositing of
markers is regulated by the State of New Jersey. Markers in
4
increments of $1,000 or less are deposited in a maximum of 7 days; markers of
increments of $1,001 to $5,000 are deposited in a maximum of 14 days; and
markers in increments of over $5,001 are deposited in a maximum of 45 days.
Markers may be deposited sooner at the request of patrons or at Trump Plaza's
discretion.
FACILITIES AND AMENITIES
Trump Plaza. The casino in Trump Plaza's main tower currently offers
103 table games and 2,124 slot machines. In addition to the casino, Trump
Plaza's main tower consists of a 31-story tower with 555 guest rooms, including
62 suites. Trump Plaza's 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 Trump Plaza's main tower includes a cocktail lounge,
three 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 an ocean view high-end slot area. An enclosed walkway
connects Trump Plaza at the casino level with the original Atlantic City
Convention Center and with Trump World's Fair.
On February 16, 1996, Trump Plaza opened the approximately 15,000
square-foot Ocean View Casino and Bar and 249 of its 349 hotel rooms at Trump
Plaza East. Management opened the remaining rooms and suites at Trump Plaza East
in March 1996. The Ocean View Casino and Bar is the first gaming room in
Atlantic City to combine a casino, bar and entertainment area, and features a
70-foot long bar with 27 bar-top slot machines, live entertainment and a 58
square-foot video wall, complemented by six additional television sets along the
bar. With its high ceilings and windows overlooking the Atlantic Ocean and The
Boardwalk, Trump Plaza has created a new and exciting entertainment environment
for its casino patrons.
Trump Plaza's guest rooms are located in two towers which afford 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's main tower
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 Trump Plaza's
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 that offers food and bar facilities.
Trump Plaza's 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 a waiting area
(the "Transportation Facility"). The Transportation Facility provides patrons
with immediate access to the casino, and is located directly off the Atlantic
City Expressway, the main highway into Atlantic City.
In July 1994, Time Warner Entertainment Company, L.P. ("Time Warner")
opened its second largest Warner Brothers Studio Store occupying the entire
first floor of retail space on The Boardwalk at Trump Plaza East (approximately
17,000 square feet).
Trump World's Fair. Trump World's Fair is connected to Trump Plaza's
main tower by an enclosed walkway overlooking The Boardwalk and adds an
additional 500 hotel rooms to Trump Plaza. In addition, Trump World's Fair is
outfitted with approximately 50,000 square feet of casino floor space housing
1,636 slot machines. In addition to the casino, Trump World's Fair features
three restaurants, including a state-of-the-art buffet, a cocktail lounge,
convention and ballroom and meeting room space. The enclosed walkway runs
through a portion of the original Atlantic City Convention Center, which is
located between Trump World's Fair and Trump Plaza's main tower. Plaza
Associates has acquired an easement with regard to this walkway through the
original Atlantic City Convention Center.
Trump Plaza and Trump World's Fair are physically connected to the
original convention center. By the summer of 2001, the East Hall of this
convention center will undergo a $72 million renovation funded by the CRDA.
These improvements will convert the East Hall into a modern special events
venue, and will benefit both Trump Plaza and Trump World's Fair.
5
EMPLOYEES AND LABOR RELATIONS
Plaza Associates has approximately 4,800 employees of whom
approximately 1,500 are covered by collective bargaining agreements. The
collective bargaining agreement with Local No. 54 expires on September 15, 1999.
Management believes that its relationships with its employees are satisfactory.
Certain of Plaza Associates' employees must be licensed or registered under the
New Jersey Casino Control Act (the "Casino Control Act").
HISTORICAL BACKGROUND
The 1995 and 1996 Events. In connection with the initial public
offering (the "June 1995 Stock Offering") of 10 million shares of THCR Common
Stock, THCR Holdings repurchased and redeemed the $60 million aggregate
principal amount of 12 1/2% Pay-In-Kind Notes due 2003 (the "Plaza PIK Notes")
and the warrants to acquire an aggregate of $12 million in principal amount of
additional Plaza PIK Notes (the "Plaza PIK Note Warrants"). In addition, in
connection with the June 1995 Stock Offering and the offering by THCR Holdings
and its wholly owned finance subsidiary, Trump Hotels & Casino Resorts Funding,
Inc. ("THCR Funding"), of $155 million 15 1/2% Senior Secured Notes due 2005
(the "Senior Notes") (the "June 1995 Note Offering" and, together with the June
1995 Stock Offering, the "June 1995 Offerings"), Trump transferred, pursuant to
a contribution agreement, to THCR Holdings his ownership interests in Trump
Plaza Funding, Inc. ("Plaza Funding") and Trump AC. Upon the consummation of the
June 1995 Offerings, THCR Holdings owned Plaza Associates. In connection with
the Taj Acquisition, THCR Holdings became the owner of both Plaza Associates and
Trump Taj Mahal Associates ("Taj Associates"), the owner and operator of the Taj
Mahal, through its ownership interest in Trump AC. As part of the 1996
Offerings, Trump AC and its wholly owned finance subsidiary, Trump AC Funding,
issued the TAC I Notes (as defined).
The 1997 Events. In December 1997, Trump AC and Funding II issued the
TAC II Notes and Trump AC and Funding III issued the TAC III Notes.
THE TAJ MAHAL
The Taj Mahal ranked first among all Atlantic City casinos in terms of
total gaming revenues for the year ended December 31, 1998. 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 Five Star Diamond Award from the American Academy of
Hospitality Sciences. 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 growth of the
Atlantic City market.
In recent years, Taj Associates has completed construction of the Taj
Entertainment Complex (as defined), reconfigured and expanded the casino floor
to provide race simulcasting, poker wagering and keno, opened an Asian themed
table game area, opened the Bengal Club for mid-level slot players and increased
the number of poker tables and slot machines. The Taj Mahal's poker room is the
largest in Atlantic City, which management believes adds to its customers'
overall gaming experience. Taj Associates continually monitors operations to
adapt to and anticipate industry trends. From 1994 to mid-1997, the Taj Mahal
refurbished substantially all of its hotel guest rooms and corridors and
replaced all of its existing slot machines with new, more efficient machines
with bill acceptors. Moreover, to further attract high-end players, the Taj
Mahal opened the Dragon Room, an Asian themed table gaming area with 16 table
games, and the Sultan's Palace, a separate 5,900 square-foot high-end slot
lounge. In connection with the Sultan's Palace, the Taj Mahal opened the
relocated and expanded President's Club for high-end slot players.
The Taj Mahal Expansion consisted of the construction of a new 14-bay
bus terminal, which was completed in December 1996, a 2,400 space expansion of
the existing self parking facilities, which was completed in May 1997, and an
approximately 7,000 square foot casino expansion with approximately 260 slot
machines with frontage on The Boardwalk, which was completed in July 1997. In
addition, to increase entertainment opportunities for customers, the Hard Rock
Cafe opened in November 1996, the All Star Cafe opened in March 1997 and the
Stage Deli of New York opened in October 1997. A Warner Brothers Studio Store
opened at the Taj Mahal in May 1997.
6
The Taj Mahal is currently in the process of expanding the retail
shopping experience along the length of its parking garage promenade walkway
which immediately adjoins the Taj Mahal's main retail shopping area. The first
tenant, Starbucks, operated by Host International, Inc., opened in September
1996. Sbarro's, an Italian eatery, operated by Sbarro America Properties, Inc.,
opened in October 1998. Boardwalk Treats, Beka's Pastries and a Harley Davidson
retail merchandise outlet are expected to open in the early spring of 1999. A
Sunglass Hut, operated by Sunglass Hut International, opened in August 1998 in
another location also adjoining the Taj Mahal's main retail shopping area.
In November 1998, the Taj Mahal entered into a development agreement
with the New Jersey Casino Reinvestment Development Authority (the "CRDA") for
the redevelopment of the road corridors and surrounding neighborhoods leading
from Route 30, one of its major access routes, and the Taj Mahal. The project,
which is expected to cost approximately $20.8 million, is scheduled to be
completed in phases through the summer of 2000 and will greatly enhance the Taj
Mahal's customer's experience and ease in reaching the Taj Mahal. The project
itself will greatly improve the road infrastructure and lighting, provide
extensive landscaping, involve the acquisition and demolishing of deteriorated
buildings and involve the completion of a new housing development.
THE TAJ MAHAL OPERATIONS
General. The Taj Mahal currently has approximately 147,720 square feet
of gaming space, 211 table games and 4,152 slot machines, which includes an
approximately 12,000 square-foot poker, keno and race simulcasting room with 64
poker tables, which was added in 1993 and expanded in 1994. The casino's
offerings include blackjack, craps, roulette, baccarat, mini baccarat, sic-bo,
pai gow, pai gow poker, Caribbean stud poker, big six, mini big six, mini dice
and let it ride poker. 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 May 1996, the Taj Mahal opened the Sultan's
Palace, a high-end slot lounge. In August 1996, the Taj Mahal opened the
relocated and expanded President's Club for high-end slot players in conjunction
with the Sultan's Palace.
In December 1996, the Taj Mahal opened a new bus terminal with 14 bays.
In November 1996, the Hard Rock Cafe opened at the Taj Mahal adjacent to the
casino and The Boardwalk. In March 1997, the All Star Cafe opened at the Taj
Mahal. A Warner Brothers Studio Store opened in May 1997. An additional
simulcasting facility featuring horse racing was completed in June 1997.
Construction of an approximately 7,000 square-foot casino expansion with 260
slot machines, with Boardwalk frontage, was completed in July 1997. In October
1997, the Stage Deli of New York opened at the Taj Mahal. In addition, as a
special bonus to high-end players, the Taj Mahal offers three clubs for the
exclusive use of select customers: the Maharajah Club for high-end table game
players, the President's Club for high-end slot players and the Bengal Club for
other preferred slot players.
The Taj Mahal currently consists of a 42-story hotel tower and
contiguous low-rise structure sited on approximately 30 acres of land. The Taj
Mahal has 1,250 guest rooms (including 242 suites), 19 dining and 12 beverage
locations, parking for approximately 6,950 cars, a 14-bay bus terminal and
approximately 65,000 square feet of ballroom, meeting room and pre-function area
space. 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 or exhibition hall (the "Taj Entertainment Complex") and the Mark Etess
Arena, which comprises an approximately 63,000 square-foot exhibition hall and
entertainment facility. The Xanadu Theater and 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.
Gaming Environment. The Taj Mahal's management continues to capitalize
on the Taj Mahal's status as one of the largest facilities 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
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slot club. The casino floor expansion and reconfiguration accommodated the
addition of keno, poker tables and slot machines. In the period 1994 through
1996, the Taj Mahal substantially replaced all of its existing slot machines
with new, more efficient machines with bill acceptors. 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 64 poker
tables in the largest poker room in Atlantic City. For the year ended December
31, 1998, the Taj Mahal captured approximately 51.8% of the total Atlantic City
poker revenues. In 1996 and 1997 the Taj Mahal expanded its casino floor by
approximately 6,200 and 8,600 square feet, respectively. The 1997 expansion
accommodated casino space with Boardwalk frontage and a second horserace
simulcasting location.
The Taj Mahal currently intends to reconfigure its casino floor,
subject to approval by the New Jersey Casino Control Commission (the "CCC") on
an ongoing basis, to accommodate changes in patron demand. 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 games of pai gow, pai gow poker and let it ride poker.
Progressive blackjack and mini dice were also added in 1996 and 1997,
respectively.
"Comping" Strategy. In order to compete effectively with other casino
hotels, the Taj Mahal offers Complimentaries. Currently, the policy at the Taj
Mahal is to focus promotional activities, including Complimentaries, on middle
and upper middle market "drive in" patrons with a propensity to wager who visit
Atlantic City frequently and have proven to be the most profitable market
segment. Comping policy is determined by a patron's propensity to wager. A
patron's propensity to wager is determined by a review of the patron's prior
gaming history at the Taj Mahal as well as other gaming establishments in
Atlantic City. Each patron is analyzed to ensure that the patron's gaming
activity, net of any Complimentaries, is profitable to Taj Associates.
Additionally, as a result of increased regulatory flexibility, the Taj Mahal 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.
Entertainment. The Taj Mahal believes headline entertainment, as well
as other entertainment and revue shows, is an effective means of attracting and
retaining gaming patrons. The Xanadu Theater allows the Taj Mahal to offer
longer running, more established productions that cater to the tastes of the Taj
Mahal's high-end international guests. The Xanadu Theater, together with the
Mark Etess Arena (an approximately 63,000 square-foot exhibition hall facility),
afford 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.
Player Development. The Taj Mahal employs sales representatives as a
means of attracting high-end slot and table gaming patrons to the property. The
Taj Mahal 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.
The casino hosts assist patrons on the casino floor, make room and
dinner reservations and provide general assistance. They also solicit Trump Card
(a player identification card) sign-ups in order to increase the Taj Mahal's
marketing base.
The Taj Mahal 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
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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 and table game play and utilization of a special events
calendar (e.g., birthday parties, sweepstakes and special competitions) to
promote its gaming operations.
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. 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, 1996, 1997 and 1998, the Taj Mahal's credit play as a percentage of total
dollars wagered was approximately 29.7%, 31.2% and 26.6%, respectively. The Taj
Mahal bases credit limits on each individual patron's creditworthiness, as
determined by an examination of the following criteria: (i) checking each
patron's personal checking account for current and average balances, (ii)
performing a credit check on each domestic patron and (iii) checking each
patron's credit limits and indebtedness at all casinos in the United States as
well as many island casinos. The above determination of a patron's continued
creditworthiness is performed for continuing patrons on a yearly basis or more
frequently if the Taj Mahal deems a re-determination of credit worthiness is
necessary. In addition, depositing of markers is regulated by the State of New
Jersey. Markers in increments of $1,000 or less are deposited in a maximum of 7
days; markers of increments of $1,001 to $5,000 are deposited in a maximum of 14
days; and markers in increments of over $5,001 are deposited in a maximum of 45
days. Markers may be deposited sooner at the request of patrons or at the Taj
Mahal's discretion.
EMPLOYEES
Taj Associates has approximately 4,500 full time equivalent employees
for the operation of the Taj Mahal, of whom approximately 1,900 employees are
covered by collective bargaining agreements. The collective bargaining agreement
with Local No. 54 expires on September 15, 1999. Management believes that its
relationships with its employees are satisfactory and that its staffing levels
are sufficient to provide superior service. Certain of Taj Associates' employees
must be licensed or registered under the Casino Control Act.
TAJ ACQUISITION
On April 17, 1996, a subsidiary of THCR was merged (the "Taj Merger")
with and into THCR Holding Corp., known prior to April 17, 1996 as Taj Mahal
Holding Corp. As a result of the Taj Merger and the related transactions
discussed below, THCR Holdings acquired Taj Associates. The Taj Acquisition
included, among other things:
(a) the payment of an aggregate of approximately $31,181,000 in cash and
the issuance of 323,423 shares of THCR Common Stock to the holders of
THCR Holding Corp.'s Class A Common Stock, par value $.01 per share;
(b) the contribution (i) by Trump to Trump AC of all of his direct and
indirect ownership interests in Taj Associates, pursuant to the
contribution agreement, dated as of April 17, 1996, among, Trump, Trump
Casinos, Inc. ("TCI"), TM/GP Corporation, known after the Taj
Acquisition as THCR/LP
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Corporation ("THCR/LP"), and THCR Holdings in exchange for a
modification of Trump's limited partnership interest in THCR Holdings
and (ii) by THCR to Trump AC of all of its direct ownership interests
in Taj Associates acquired in the Taj Merger;
(c) the public offerings by (i) THCR of 12,500,000 shares of THCR Common
Stock (plus 750,000 shares of THCR issued in connection with the
partial exercise of the underwriters' over-allotment option (together,
the "1996 Stock Offering")), and (ii) Trump AC and Trump AC Funding of
the TAC I Notes (collectively with the 1996 Stock Offering, the "1996
Offerings");
(d) the redemption, immediately prior to the Taj Merger, of the outstanding
shares of THCR Holding Corp.'s Class B Common Stock, par value $.01 per
share, in accordance with its terms, for $.50 per share;
(e) the redemption of the outstanding 11.35% Mortgage Bonds, Series A,
due 1999 issued by Trump Taj Mahal Funding, Inc. (the "Taj Bonds");
(f) the retirement of the outstanding Plaza Funding's 10-7/8% First
Mortgage Notes due 2001 (the "Plaza Notes");
(g) the satisfaction of the indebtedness of Taj Associates under its loan
agreement with National Westminster Bank USA ("Nat West");
(h) the purchase of certain real property used in the operation of the
Taj Mahal (the "Specified Parcels") that was leased from Taj
Mahal Realty Corp. ("Realty Corp.");
(i) the purchase of Trump Plaza East;
(j) the payment to Bankers Trust Company ("Bankers Trust") to obtain
releases of liens and guarantees that Bankers Trust had in connection
with indebtedness owed by Trump to Bankers Trust; and
(k) the issuance to Trump of warrants to purchase 1,800,000 shares
of THCR Common Stock (the "Trump Warrants").
TCS
Trump Casino Services, L.L.C., a New Jersey limited liability company
("TCS"), was formed on June 27, 1996 for the purpose of reducing operating costs
by consolidating certain administrative functions of, and providing certain
services to, each of Plaza Associates and Taj Associates, the owner and operator
of Trump Plaza and the Taj Mahal, respectively. Trump AC and Trump Atlantic City
Corporation ("TACC"), a wholly owned subsidiary of Trump AC, own a 99% and 1%
interest, respectively, in TCS. In June 1996, the CCC granted TCS an initial
casino license which, in July 1997, was renewed through July 1998 and in July
1998 was renewed through July 1999. On July 8, 1996, TCS, Plaza Associates and
Taj Associates entered into an agreement (the "TCS Services Agreement") pursuant
to which TCS provides to each of Taj Associates and Plaza Associates certain
management, financial and other functions and services necessary and incidental
to the respective operation of each of their casino hotels. On October 23, 1996,
TCS, Plaza Associates, Taj Associates and Trump Castle Associates, L.P. ("Castle
Associates"), the owner and operator of Trump Marina Hotel Casino ("Trump
Marina"), entered into an Amended and Restated Services Agreement pursuant to
which TCS also provides those same functions and services to Castle Associates
in connection with the operation of Trump Marina. Trump Communications, L.L.C.
("Trump Communications"), a New Jersey limited liability company and a
subsidiary of TCS, was formed on January 31, 1997 for the purpose of reducing
operating costs by consolidating advertising functions of, and providing certain
services, to each of Plaza Associates, Taj Associates and Castle Associates.
TRADEMARK/LICENSING
Subject to certain restrictions, THCR has the exclusive right to use
the "Trump" name and likeness in connection with gaming and related activities
pursuant to a trademark license agreement between Trump and
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THCR (the "License Agreement"). Pursuant to the License Agreement, Trump granted
to THCR the world-wide right and license to use the names "Trump," "Donald
Trump" and "Donald J. Trump" (including variations thereon, the "Trump Names")
and related intellectual property rights (collectively, the "Marks") in
connection with casino and gaming activities and related services and products.
The License Agreement does not restrict or restrain Trump from the right to use
or further license the Trump Names in connection with services and products
other than casino services and products.
The license is for a term of the later of: (i) June 2015; (ii) such
time as Trump and his affiliates no longer hold a 15% or greater voting interest
in THCR; or (iii) such time as Trump ceases to be employed or retained pursuant
to an employment, management, consulting or similar services agreement with
THCR. Upon expiration of the term of the license, Trump will grant THCR a
non-exclusive license for a reasonable period of transition on terms to be
mutually agreed upon between Trump and THCR. Trump's obligations under the
License Agreement are secured by a security agreement, pursuant to which Trump
granted THCR a first priority security interest in the Marks for use in
connection with casino services, as well as related hotel, bar and restaurant
services.
CERTAIN INDEBTEDNESS
TAC I Notes. As a part of the Taj Acquisition, Trump AC and Trump AC
Funding issued in an underwritten offering $1,200,000,000 aggregate principal
amount of Mortgage Notes which mature on May 1, 2006 (the "TAC I Notes"). The
TAC I Notes include restrictive covenants prohibiting or limiting, among other
things, the sale of assets, the making of acquisitions and other investments,
capital expenditures, the incurrence of additional debt and liens and the
payment of dividends and distributions. Non-compliance could result in the
acceleration of such indebtedness.
TAC II Notes. In December 1997, Trump AC and Funding II issued
$75,000,000 principal amount of the TAC II Notes which mature on May 1, 2006.
The TAC II Notes include restrictive covenants prohibiting or limiting, among
other things, the sale of assets, the making of acquisitions and other
investments, capital expenditures, the incurrence of additional debt and liens
and the payment of dividends and distributions. Non-compliance could result in
the acceleration of such indebtedness.
TAC III Notes. In December 1997, Trump AC and Funding III issued
$25,000,000 principal amount of the TAC III Notes which mature on May 1, 2006.
The TAC III Notes include restrictive covenants prohibiting or limiting, among
other things, the sale of assets, the making of acquisitions and other
investments, capital expenditures, the incurrence of additional debt and liens
and the payment of dividends and distributions. Non-compliance could result in
the acceleration of such indebtedness.
Plaza Notes. The Plaza Notes were retired in connection with the Taj
Acquisition. The Plaza Notes were issued by Plaza Funding, with Plaza Associates
providing a full and unconditional guaranty thereof. The Plaza Notes were
retired through repurchase and defeasance and Plaza Funding and Plaza Associates
were released from their obligations under all financial and negative covenants
and certain other provisions contained in the indenture under which the Plaza
Notes were issued (the "Plaza Note Indenture"), and the Plaza Note Security (as
defined in the Plaza Note Indenture) was released against the deposit of cash or
U.S. government obligations in an amount sufficient to effect the redemption on
June 15, 1998 of all of the Plaza Notes so defeased, at a redemption price of
105% of the principal amount thereof, together with accrued and unpaid interest
to such date. Additionally, Plaza Funding irrevocably instructed the Plaza Note
Trustee (as defined in the Plaza Note Indenture) to provide notice of such
redemption not less than 30 or more than 60 days prior to June 15, 1998.
Other Indebtedness. In addition to the foregoing, Trump AC's long-term
indebtedness includes approximately $6.3 million of indebtedness, including, as
of December 31, 1998, approximately $1.3 million due under outstanding mortgage
notes described above.
ATLANTIC CITY MARKET
The Atlantic City Market has demonstrated continued growth despite the
recent proliferation of new gaming venues across the country. The 12 casino
hotels in Atlantic City generated approximately $4.05 billion in gaming revenues
in 1998, an approximately 3.3% increase over 1997 gaming revenues of
approximately $3.91
11
billion. From 1992 to 1998, total gaming revenues in Atlantic City have
increased approximately 25.8%, while hotel rooms increased by 34.0% during that
period. Although total visitor volume to Atlantic City remained relatively
constant in 1998, the volume of bus customers increased to 9.9 million in 1998,
still representing a decline from 11.7 million in 1991. The volume of customers
traveling to Atlantic City has grown from 20.4 million in 1992 to 24.4 million
in 1998.
Casino revenue growth in Atlantic City has lagged behind that of other
traditional gaming markets, principally Las Vegas, for the last five years.
Management believes that this relatively slower growth is primarily attributable
to two key factors. First, there were no significant additions to hotel capacity
in Atlantic City until 1996. Las Vegas visitor volumes have increased, in part,
due to the continued addition of new hotel capacity. Both markets have exhibited
a strong correlation between hotel room inventory and total casino revenues.
Secondly, the regulatory environment and infrastructure problems in Atlantic
City have made it more difficult and costly to operate. Total regulatory costs
and tax levies in New Jersey have exceeded those in Nevada since inception, and
there is generally a higher level of regulatory oversight in New Jersey than in
Nevada. The infrastructure problems, manifested by impaired accessibility of the
casinos, downtown Atlantic City congestion and the condition of the areas
surrounding the casinos have made Atlantic City less attractive to the gaming
customer.
Total Atlantic City slot revenues increased 3.9% in 1998, continuing a
trend of increases over the past six years. From 1992 through 1998, slot revenue
growth in Atlantic City has averaged 5.6% per year. Total table game revenue
increased 2.1% in 1998, while table game revenue from 1992 to 1998 has increased
on average 1.0% 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. Bill acceptors, new slot
machines, video poker and blackjack and other improvements have increased the
popularity of slot play among a wider universe of casino patrons. Casino
operators in Atlantic City have added slot machines in favor of table games due
to increased public acceptance of slot play and due to slot machines'
comparatively higher profitability as a result of lower labor and support costs.
Since 1992, the number of slot machines in Atlantic City has increased 58.8%,
while the number of table games has increased by 6.4%. Slot revenues increased
from 66% of total casino revenues in 1992 to 69.8% in 1998. 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.
The regulatory environment in Atlantic City has improved over the past
several years. Most significantly, 24-hour gaming has been approved, poker and
keno have been added and regulatory burdens have been reduced. In particular,
comprehensive amendments to New Jersey gaming laws were made in January 1995,
which have eliminated duplicative regulatory oversight and channeled a certain
portion of operator's funds through 2003 from regulatory support into uses of
the CRDA. Administrative costs of regulation will be reduced while increasing
funds will be available for new development in Atlantic City. In addition, in
1994, legislation was enacted which eliminated the requirement that a casino
consist of a "single room" in a casino hotel. A casino may now consist of "one
or more locations or rooms" approved by the CCC for casino gaming.
Atlantic City's new convention center, with approximately 500,000
square feet of exhibit and pre-function space, 45 meeting rooms, food-service
facilities and a 1,600-car underground parking garage, is the largest exhibition
space between New York City and Washington, D.C. It is located at the base of
the Atlantic City Expressway and opened in May 1997. Atlantic City's old
convention center is located on The Boardwalk, physically connected to the Trump
Plaza and owned by the New Jersey Sports and Exposition Authority (the "NJSEA").
Its East Hall, which was completed in 1929 and is listed on the National
Register of Historic Places will, with funding approved by the CRDA in February
1999, undergo a $72 million renovation to be completed by the summer of 2001.
These improvements, while preserving the historic features of this landmark,
will convert it into a modern special events venue and will include new seating
for 10,000 to 14,000 in its main auditorium and new lighting, sound and
television-ready wiring systems. Construction will halt in both September 1999
and September 2000 to avoid disrupting the Miss America Pageant presentations
during those years.
In addition to the planned casino expansions, major infrastructure
improvements have been completed. The CRDA oversaw the development of the $88
million "Grand Boulevard" corridor that links the new convention center with The
Boardwalk. The project was completed in early 1998. Furthermore, as set forth in
a November
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1998 agreement with the CRDA, a $20.8 million beautification project is now in
progress for the five block Virginia and Maryland Avenue corridors which connect
the thirty acre Boardwalk site of the Taj Mahal to Absecon Boulevard (Route 30),
one of Atlantic City's principal access roadways. This comprehensive project
includes the repair, resurfacing and resignalizing of these roads and the
installation of new roadside lighting, the acquisition and demolition of
deteriorated structures on Virginia Avenue and, to a lesser extent, Maryland
Avenue, and the installation and maintenance of roadside landscaping on those
sites, the construction of a twenty-two unit subdivision of two-story, single
unit and duplex residences which will front on opposing sides of Virginia
Avenue, and the improvement of the exterior facades of selected Virginia Avenue
and other structures, with consents of the owners, to achieve a harmony and
continuity of design among closely proximate properties. Construction of the
roadway and housing elements of this project is expected to commence during or
about the summer of 1999.
Management believes that these gaming regulatory reforms will serve to
permit future reductions in operating expenses of casinos in Atlantic City and
to increase the funds available for additional infrastructure development
through the CRDA. Due principally to an improved regulatory environment, general
improvement of economic conditions and high occupancy rates, significant
investment in the Atlantic City Market has been initiated and/or announced.
Management believes that these increases in hotel capacity, together with
infrastructure improvements, will be instrumental in stimulating future revenue
growth in the Atlantic City Market. See "--Competition."
COMPETITION
Atlantic City. Competition in the Atlantic City Market is intense.
Trump Plaza, the Taj Mahal and Trump Marina (the "Atlantic City Properties")
compete with other casino hotels located in Atlantic City and with each other.
At present, there are 12 casino hotels located in Atlantic City, including the
Atlantic City Properties, all of which compete for patrons. In addition, there
are several sites on The Boardwalk and in the Marina District on which casino
hotels could be built in the future and various applications for casino licenses
have been filed and announcements with respect thereto made from time to time
(including a casino resort joint venture (the "Mirage Joint Venture") between
Mirage and the Boyd Gaming Corporation to be built in the Marina District which
will contain 1,200 rooms and is scheduled to be completed in the spring of 2002,
and a casino resort by MGM Grand, Inc. to be built on The Boardwalk after MGM
Grand, Inc. purchases the land chosen as the site for the casino resort).
Although management is not aware of any current construction on such sites by
third parties, infrastructure improvements in the area have begun. Mirage
intends to build a casino resort called LeJardin which will contain 3,500-4,000
rooms and will be linked to the resort created as a result of the Mirage Joint
Venture. Substantial new expansion and development activity has recently been
completed or has been announced in Atlantic City, including the expansion at
Harrah's, Hilton, Caesar's, Resorts, Tropicana and Bally's Wild West Casino,
which intensifies competitive pressures in the Atlantic City Market. While
management believes that the addition of hotel capacity would be beneficial to
the Atlantic City Market generally, there can be no assurance that such
expansion would not be materially disadvantageous to the Atlantic City
Properties. There also can be no assurance that the Atlantic City development
projects which are planned or are underway will be completed.
Total Atlantic City gaming revenues have increased over the past five
years, although at varying rates. 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 1995, all 12 casinos experienced increased gaming revenues
compared to 1994. During 1996, six casinos (including Trump Plaza and the Taj
Mahal) experienced increased gaming revenues compared to 1995, while six casinos
experienced decreased revenues. In 1997, eight casinos (including Trump Plaza
and the Taj Mahal) experienced increased gaming revenues compared to 1996, while
four casinos experienced decreased revenues. In 1998, seven casinos experienced
increased gaming revenues compared to 1997 (including Trump Plaza), while five
casinos experienced decreased revenues (including the Taj Mahal).
In 1992, 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
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number of casinos and to the severe weather conditions which affected the
Northeast during the winter of 1994. Between April 30, 1993 and December 31,
1995, many operators in Atlantic City expanded their facilities in anticipation
of and in connection with the June 1993 legalization of simulcasting and poker,
increasing total gaming square footage by approximately 181,200 square feet
(23.3%) of which approximately 136,200 square feet is currently devoted to
poker, keno and race simulcasting. During this same period, 172 poker tables and
5,500 slot machines were added. During 1996, a total of approximately 65,870
square feet of casino floor space was added, an increase of 47.2%, including
Trump World's Fair's 49,211 square feet. Slot machines increased by
approximately 1,911 units during 1996 and table games increased by approximately
44 units during 1996, of which Trump World's Fair accounted for 1,518 units and
16 units, respectively. During 1997, a total of approximately 51,870 square feet
of casino floor space was added. Slot machines increased by approximately 2,153
units and table games increased by approximately 82 units during 1997. During
1998, a total of approximately 38,350 square feet of casino floor space was
added. Slot machines increased by approximately 822 units and table games
decreased by approximately 71 units during 1998.
The Atlantic City Properties 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, the Atlantic City Properties face
competition from gaming facilities nationwide, including land-based, cruise
line, riverboat and dockside casinos located in Colorado, Illinois, Indiana,
Iowa, Louisiana, Mississippi, Missouri, Nevada, South Dakota, Ontario (Windsor
and Niagara Falls), the Bahamas, Puerto Rico and other locations inside and
outside the United States, and from other forms of legalized gaming in New
Jersey and in its surrounding states such as lotteries, horse racing (including
off-track betting), jai alai, bingo and dog racing, and from illegal wagering of
various types. New or expanded operations by other persons can be expected to
increase competition and could result in the saturation of certain gaming
markets. In September 1995, New York introduced a keno lottery game, which is
played on video terminals that have been set up in approximately 1,800 bars,
restaurants and bowling alleys across the state. Bay Cruises is operating a
gambling cruise ship where patrons are taken from a pier in Sheepshead Bay in
Brooklyn, New York to international waters to gamble. In September 1997, another
gambling cruise ship was launched off the coast of Montauk, New York. On April
24, 1998 Freeport Casino Cruises began operating a gambling ship in Long Island,
New York. Manhattan Cruises, a company offering gambling cruises departing from
Manhattan, New York City since January 28, 1998, suspended operations in early
May 1998, but has announced plans to resume operations shortly. Other companies
(including South Shore Cruise Lines and Circle Line) are currently seeking
permission to operate similar cruises in the New York City area. On December 5,
1997, the mayor of New York City proposed the construction of a casino on
Governors Island, located in the middle of New York Harbor; however, the
proposal would require an amendment to the New York State Constitution and the
sale of the island to New York by the federal government. In Delaware, a total
of approximately 2,600 slot machines were installed at three horse racetracks in
1996. Initial legislation allowed a maximum of 1,000 slot machines at each of
the three racetracks. In 1998, the Delaware legislature approved a bill which
would more than double the number of slot machines allowed at the three
racetracks. At the end of 1998, there was a total of approximately 3,000 slot
machines installed and the additional approved machines have become operational
during the first quarter of 1999. West Virginia also permits slot machines at
racetracks, and track owners in several other states, including Maryland and
Pennsylvania, are seeking to do the same. In December 1996, the temporary Casino
Niagara opened in Niagara Falls, Ontario. Ontario officials expect that
two-thirds of Casino Niagara's patrons will come from the United States,
predominantly from western New York. In February 1998, the Ontario Casino
Commission designated a consortium whose principal investor is Hyatt Hotels
Corporation as the preferred developer of the permanent Casino Niagara.
Moreover, the Atlantic City Properties may also face competition from various
forms of internet gambling.
In addition to competing with other casino hotels in Atlantic City and
elsewhere, by virtue of their proximity to each other and the common aspects of
certain of their respective marketing efforts, including the common use of the
"Trump" name, the Atlantic City Properties compete directly with each other for
gaming patrons.
Other Competition. In addition, the Atlantic City Properties and the
Indiana Riverboat 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
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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 the
Atlantic City Properties and the Indiana Riverboat. In March 1996, the United
States Supreme Court struck down a provision of IGRA which allowed Native
American tribes to sue states in federal court for failing to negotiate gaming
compacts in good faith. Management cannot predict the impact of this decision on
the ability of Native American tribes to negotiate compacts with states.
In 1991, the Mashantucket Pequot Nation opened Foxwoods, a casino
facility in Ledyard, Connecticut, located in the far eastern portion of such
state, an approximately three-hour drive from New York City and an approximately
two and one- half hour drive from Boston, which currently offers 24-hour gaming
and contains approximately 6,000 slot machines. An expansion at Foxwoods,
completed in April 1998, includes additional hotel rooms, restaurants and retail
stores. A high-speed ferry operates seasonally between New York City and
Foxwoods. The Mashantucket Pequot Nation has also announced plans for a
high-speed train linking Foxwoods to the interstate highway and an airport
outside Providence, Rhode Island. In addition, in October 1996, the Mohegan
Nation opened the Mohegan Sun Resort in Uncasville, Connecticut, located 10
miles from Foxwoods. Developed by Sun International Hotels, Ltd., the Mohegan
Sun Resort has 3,000 slot machines. The Mohegan Nation has announced plans for
an expansion of the casino facilities and the construction of a hotel,
convention center and entertainment center to be completed in the fall of 2001.
In addition, the Eastern Pequots are seeking formal recognition as a Native
American tribe for the purpose of opening a casino in the North Stonington area.
There can be no assurance that any continued expansion of gaming operations of
the Mashantucket Pequot Nation, the gaming operations of the Mohegan Nation or
the commencement of gaming operations by the Eastern Pequots would not have a
materially adverse impact on the operations of the Atlantic City Properties.
A group in Cumberland County, New Jersey calling itself the "Nanticoke
Lenni Lenape" tribe has filed a notice of intent with the Bureau of Indian
Affairs seeking formal federal recognition as a Native American tribe. In March
1998, the Oklahoma-based Lenape/Delaware Indian Nation, which originated in New
Jersey and already has federal recognition, filed a lawsuit against the city of
Wildwood claiming that the city is built on ancestral land. The city of
Wildwood, which has supported the plan to build a casino, has entered settlement
negotiations, offering to deed municipal land to the tribe. The plan, which is
opposed by the State of New Jersey, required state and federal approval. In
early 1999, however, the Delaware Indian Nation's lawsuit was dismissed. In July
1993, the Oneida Nation opened a casino featuring 24-hour table gaming and
electronic gaming systems, but without slot machines, near Syracuse, New York.
The Oneida Nation opened a hotel in October 1997 that included expanded gaming
facilities, and has constructed a golf course and convention center.
Representatives of the St. Regis Mohawk Nation signed a gaming compact with New
York State officials for the opening of a casino, without slot machines, in the
northern portion of the state close to the Canadian border. The St. Regis
Mohawks have also announced their intent to open a casino at the Monticello Race
Track in the Catskill Mountains region of New York; however, any Native American
gaming operation in the Catskills is subject to the approval of the Governor of
New York. The Seneca Nation plans to negotiate with New York State to open a
casino in Western New York; however, the proposed casino would be subject to the
purchase of additional property that is declared reservation territory by the
federal government. The Narragansett Nation of Rhode Island, which has federal
recognition, is seeking to open a casino in Rhode Island. The Aquinnah Wampanoag
Tribe is seeking to open a casino in Massachusetts. Other Native American
nations are seeking federal recognition, land and negotiation of gaming compacts
in New York, Pennsylvania, Connecticut and other states near Atlantic City.
State Legislation. Legislation permitting other forms of casino gaming
has been proposed, from time to time, in various states, including those
bordering New Jersey. Six states have presently legalized riverboat gambling
while others are considering its approval, including New York and Pennsylvania.
Several states are considering or have approved large scale land-based casinos.
Additionally, since 1993, the gaming space in Las Vegas has expanded
significantly, with additional capacity planned and currently under
construction. The operations of the Atlantic City Properties could be adversely
affected by such competition, particularly if casino gaming were permitted in
jurisdictions near or elsewhere in New Jersey or in other states in the
Northeast. In December 1993, the Rhode Island Lottery Commission approved the
addition of slot machine games on video terminals at Lincoln Greyhound Park and
Newport Jai Alai, where poker and blackjack have been offered for over two
years. Currently, casino gaming, other than Native American gaming, is not
allowed in other areas of New Jersey or in Connecticut, New York or
Pennsylvania. On November 17, 1995, a proposal to allow casino gaming in
Bridgeport, Connecticut was voted down by that state's Senate. On June 18, 1998,
the New York State Senate and
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General Assembly failed to enact a constitutional amendment to legalize casino
gambling in certain areas of New York State, effectively postponing any
referendum to authorize such a constitutional amendment until not earlier than
November 2001. To the extent that legalized gaming becomes more prevalent in New
Jersey or other jurisdictions near Atlantic City, competition would intensify.
In particular, proposals have been introduced to legalize gaming in other
locations, including Philadelphia, Pennsylvania. In February 1999, the
Pennsylvania State General Assembly approved a bill allowing in May 1999 a
non-binding public referendum on a variety of legalized gaming issues including
riverboats, video poker in taverns and slot machines at racetracks, but the
Pennsylvania State Senate failed to enact the General Assembly Bill. In
addition, legislation has from time to time been introduced in the New Jersey
State Legislature relating to types of statewide legalized gaming, such as video
games with small wagers. To date, no such legislation, which may require a state
constitutional amendment, has been enacted. Management is unable to predict
whether any such legislation, in New Jersey, Indiana, Illinois or elsewhere,
will be enacted or whether, if passed, it would have a material adverse impact
on the Atlantic City Properties.
GAMING AND OTHER LAWS AND REGULATIONS
The following is only a summary of the applicable provisions of the
Casino Control Act and certain other laws and regulations. It does not purport
to be a full description thereof and is qualified in its entirety by reference
to the Casino Control Act and such other laws and regulations. Unless otherwise
indicated, all references to "Trump Plaza" include (a) Trump Plaza's main tower,
including Trump Plaza East and (b) Trump World's Fair.
New Jersey Gaming Regulations
In general, the Casino Control Act and its implementing regulations
contain detailed provisions concerning, among other things, the granting and
renewal of casino licenses; the suitability of the approved hotel facility and
the amount of authorized casino space and gaming units permitted therein; the
qualification of natural persons and entities related to the casino licensee;
the licensing of certain employees and vendors of casino licensees; the rules of
the games; the selling and redeeming of gaming chips; the granting and duration
of credit and the enforceability of gaming debts; management control procedures,
accounting and cash control methods and reports to gaming agencies; the security
standards; the manufacture and distribution of gaming equipment; the
simulcasting of horse races by casino licensees; equal employment opportunities
for employees of casino operators, contractors of casino facilities and others;
and advertising, entertainment and alcoholic beverages.
Casino Control Commission. The ownership and operation of casino/hotel
facilities in Atlantic City are the subject of strict state regulation under the
Casino Control Act. The CCC is empowered to regulate a wide spectrum of gaming
and non-gaming related activities and to approve the form of ownership and
financial structure of not only a casino licensee, but also its entity
qualifiers and intermediary and holding companies and any other related entity
required to be qualified ("CCC Regulations").
Operating Licenses. In June 1995, the CCC renewed Taj Associates'
license to operate the Taj Mahal through March 1999, renewed Castle Associates'
license to operate Trump Marina through May 1999, and renewed Plaza Associates'
license to operate Trump Plaza through June 1999. In May 1996, the CCC granted
Plaza Associates a license to operate Trump World's Fair through May 1997, and
in December 1996, the CCC approved Plaza Associates' application to operate
Trump Plaza and Trump World's Fair under one casino license through May 1999. In
June 1996, the CCC granted TCS a casino license through July 1997, which license
has been renewed annually through July 1999. Timely applications have been filed
for renewal of the Plaza Associates, Taj Associates, Castle Associates and TCS
casino licenses, and a petition has been filed with the CCC seeking
consolidation of the hearings on the casino license renewals. It is anticipated
that the CCC will act favorably on the petition seeking consolidation of the
license renewal hearings, and extend the casino licenses allowing for a
consolidated hearing on the license renewals to be conducted in June 1999.
Casino License. No casino hotel facility may operate unless the
appropriate license and approvals are obtained from the CCC, which has broad
discretion with regard to the issuance, renewal, revocation and suspension of
such licenses and approvals, which are non-transferable. The qualification
criteria with respect to the holder of a casino license include its financial
stability, integrity and responsibility; the integrity and adequacy of
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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 Plaza Associates, Taj
Associates and Castle Associates are renewable for periods of up to four years
and the license held by TCS is renewable for a period of up to one year. The CCC
may reopen licensing hearings at any time, and must reopen a licensing hearing
at the request of the Division of Gaming Enforcement (the "Division").
Each casino license, except the TCS license, entitles the holder to
operate one casino. Further, no person may be the holder of a casino license if
the holding of such license will result in undue economic 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 outlines the content of existing CCC precedent with respect to the
subject. In its May 18, 1995 declaratory rulings with respect to Plaza
Associates' petition, the CCC, among other things, determined that Plaza
Associates' operation of Trump World's Fair casino space would not result in
undue economic concentration in Atlantic City casino operations.
To be considered financially stable, a licensee must demonstrate the
following ability: to pay winning wagers when due; to achieve an annual gross
operating profit; to pay all local, state and federal taxes when due; to make
necessary capital and maintenance expenditures to insure that it has a superior
first-class facility; and to pay, exchange, refinance or extend debts which will
mature or become due and payable during the license term.
In the event a licensee fails to demonstrate financial stability, the
CCC may take such action as it deems necessary to fulfill the purposes of the
Casino Control Act and protect the public interest, including: issuing
conditional licenses, approvals or determinations; establishing an appropriate
cure period; imposing reporting requirements; placing restrictions on the
transfer of cash or the assumption of liabilities; requiring reasonable reserves
or trust accounts; denying licensure; or appointing a conservator. See
"--Conservatorship."
Management believes that it has adequate financial resources to meet
the financial stability requirements under the Casino Control Act for the
foreseeable future.
Pursuant to the Casino Control Act, CCC Regulations and precedent, no
entity may hold a casino license unless each officer, director, principal
employee, person who directly or indirectly holds any beneficial interest or
ownership in the licensee, each person who in the opinion of the CCC has the
ability to control or elect a majority of the board of directors of the licensee
(other than a banking or other licensed lending institution which makes a loan
or holds a mortgage or other lien acquired in the ordinary course of business)
and any lender, underwriter, agent or employee of the licensee or other person
whom the CCC may consider appropriate, obtains and maintains qualification
approval from the CCC. Qualification approval means that such person must, but
for residence, individually meet the qualification requirements as a casino key
employee.
Control Persons. An entity qualifier or intermediary or holding
company, such as Trump AC, Trump AC Holding, Plaza Funding or TACC is required
to register with the CCC and meet the same basic standards for approval as a
casino licensee; provided, however, that the CCC, with the concurrence of the
Director of the Division, may waive compliance by a publicly-traded corporate
holding company with the requirement that an officer, director, lender,
underwriter, agent or employee thereof, or person directly or indirectly holding
a beneficial interest or ownership of the securities thereof, individually
qualify for approval under casino key employee standards so long as the CCC and
the Director of the Division are, and remain, satisfied that such officer,
director, lender, underwriter, agent or employee is not significantly involved
in the activities of the casino licensee, or that such security holder does not
have the ability to control the publicly-traded corporate holding company or
elect one or more of its directors. Persons holding five percent or more of the
equity securities of such holding company are presumed to have the ability to
control the company or elect one or more of its directors and will, unless this
presumption is rebutted, be required to individually qualify. Equity securities
are defined as any voting stock or any security similar to or convertible into
or carrying a right to acquire any security having a direct or indirect
participation in the profits of the issuer.
Financial Sources. The CCC may require all financial backers,
investors, mortgagees, bond holders and holders of notes or other evidence of
indebtedness, either in effect or proposed, which bear any relation to any
casino project, including holders of publicly-traded securities of an entity
which holds a casino license or is an
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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 an issue of
publicly-traded mortgage bonds so long as the bonds remained widely distributed
and freely traded in the public market and the holder has no ability to control
the casino licensee. 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 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
Division that there is any cause to believe that the holder may be found
unqualified, on the basis of CCC findings that: (i) its holdings were purchased
for investment purposes only and, upon request by the CCC, it files a certified
statement to the effect that it has no intention of influencing or affecting the
affairs of the issuer, the casino licensee or its holding or intermediary
companies; provided, however, that the Institutional Investor will be permitted
to vote on matters put to the vote of the outstanding security holders; and (ii)
if (x) the securities are debt securities of a casino licensee's holding or
intermediary companies or another subsidiary company of the casino licensee's
holding or intermediary companies which is related in any way to the financing
of the casino licensee and represent either (A) 20% or less of the total
outstanding debt of the company or (B) 50% or less of any issue of outstanding
debt of the company, (y) the securities are equity securities and represent less
than 10% of the equity securities of a casino licensee's holding or intermediary
companies or (z) the securities so held exceed such percentages, upon a showing
of good cause. There can be no assurance, however, that the CCC will make such
findings or grant such waiver and, in any event, an Institutional Investor may
be required to produce for the CCC or the Antitrust Division of the Department
of Justice upon request, any document or information which bears any relation to
such debt or equity securities.
Generally, the CCC requires each institutional holder seeking waiver of
qualification to execute a certification to the effect that (i) the holder has
reviewed the definition of Institutional Investor under the Casino Control Act
and believes that it meets the definition of Institutional Investor; (ii) the
holder purchased the securities for investment purposes only and holds them in
the ordinary course of business; (iii) the holder has no involvement in the
business activities of and no intention of influencing or affecting, the affairs
of the issuer, the casino licensee or any affiliate; and (iv) if the holder
subsequently determines to influence or affect the affairs of the issuer, the
casino licensee or any affiliate, it shall provide not less than 30 days' prior
notice of such intent and shall file with the CCC an application for
qualification before taking any such action. If an Institutional Investor
changes its investment intent, or if the CCC finds reasonable cause to believe
that it may be found unqualified, the Institutional Investor may take no action
with respect to the security holdings, other than to divest itself of such
holdings, until it has applied for interim casino authorization and has executed
a trust agreement pursuant to such an application. See "--Interim Casino
Authorization."
Ownership and Transfer of Securities. The Casino Control Act imposes
certain restrictions upon the issuance, ownership and transfer of securities of
a Regulated Company and defines the term "security" to include instruments which
evidence a direct or indirect beneficial ownership or creditor interest in a
Regulated Company including, but not limited to, mortgages, debentures, security
agreements, notes and warrants. Trump AC, Trump AC Funding, Funding II and
Funding III are deemed to be Regulated Companies, and instruments evidencing a
beneficial ownership or creditor interest therein, including a partnership
interest, are deemed to be the securities of a Regulated Company.
If the CCC finds that a holder of such securities is not qualified
under the Casino Control Act, it has the right to take any remedial action it
may deem appropriate, including the right to force divestiture by such
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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.
Under the terms of the indentures which govern the TAC I Notes (the
"TAC I Note Indenture"), the TAC II Notes (the "TAC II Note Indenture") and the
TAC III Notes (the "TAC III Note Indenture"), if a holder of such securities
does not qualify under the Casino Control Act when required to do so, such
holder must dispose of its interest in such securities, and Trump AC, Trump AC
Funding, Funding II and Funding III may redeem the securities at the lesser of
the outstanding amount or fair market value.
Interim Casino Authorization. Interim casino authorization is a process
which permits a person who enters into a contract to obtain property relating to
a casino operation or who obtains publicly-traded securities relating to a
casino licensee to close on the contract or own the securities until plenary
licensure or qualification. During the period of interim casino authorization,
the property relating to the casino operation or the securities is held in
trust.
Whenever any person enters into a contract to transfer any property
which relates to an ongoing casino operation, including a security of the casino
licensee or a holding or intermediary company or entity qualifier, under
circumstances which would require that the transferee obtain licensure or be
qualified under the Casino Control Act, and that person is not already licensed
or qualified, the transferee is required to apply for interim casino
authorization. Furthermore, except as set forth below with respect to publicly
traded securities, the closing or settlement date in the contract at issue may
not be earlier that the 121st day after the submission of a complete application
for licensure or qualification together with a fully executed trust agreement in
a form approved by the CCC. If, after the report of the Division and a hearing
by the CCC, the CCC grants interim authorization, the property will be subject
to a trust. If the CCC denies interim authorization, the contract may not close
or settle until the CCC makes a determination on the qualifications of the
applicant. If the CCC denies qualification, the contract will be terminated for
all purposes and there will be no liability on the part of the transferor.
If, as the result of a transfer of publicly-traded securities of a
licensee, a holding or intermediary company or entity qualifier of a licensee,
or a financing entity of a licensee, any person is required to qualify under the
Casino Control Act, the 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 to order to remove the need to qualify.
The CCC may grant interim casino authorization where it finds by clear
and convincing evidence that: (i) statements of compliance have been issued
pursuant to the Casino Control Act; (ii) the casino hotel is an approved hotel
in accordance with the Casino Control Act; (iii) the trustee satisfies
qualification criteria applicable to key casino employees, except for residency;
and (iv) interim operation will best serve the interests of the public.
When the CCC finds the applicant qualified, the trust will terminate.
If the CCC denies qualification to a person who has received interim casino
authorization, the trustee is required to endeavor, and is authorized, to sell,
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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 an existing licensee to
increase its casino space if the licensee agrees to add a prescribed number of
qualifying sleeping units within two years after the commencement of gaming
operations in the additional casino space. However, if the casino licensee does
not fulfill such agreement due to conditions within its control, the licensee
will be required to close the additional casino space, or any portion thereof
that the CCC determines should be closed.
Persons who are parties to the lease for an approved hotel building or
who have an agreement to lease a building which may in the judgment of the CCC
become an approved hotel building are required to hold a casino license unless
the CCC, with the concurrence of the Attorney General of the State of New
Jersey, determines that such persons do not have the ability to exercise
significant control over the building or the operation of the casino therein.
Unless otherwise determined by the CCC, agreements to lease an approved
hotel building or the land under the building must be for a durational term
exceeding 30 years, must concern 100% of the entire approved hotel building or
the land upon which it is located and must include a buy-out provision
conferring upon the lessee the absolute right to purchase the lessor's entire
interest for a fixed sum in the event that the lessor is found by the CCC to be
unsuitable.
Agreement for Management of Casino. Each party to an agreement for the
management of a casino is required to hold a casino license, and the party who
is to manage the casino must own at least 10% of all the outstanding equity
securities of the casino licensee. Such an agreement shall: (i) provide for the
complete management of the casino; (ii) provide for the unrestricted power to
direct the casino operations; and (iii) provide for a term long enough to ensure
the reasonable continuity, stability and independence and management of the
casino.
License Fees. The CCC is authorized to establish annual fees for the
renewal of casino licenses. The renewal fee is based upon the cost of
maintaining control and regulatory activities prescribed by the Casino Control
Act, and may not be less than $200,000 for a four-year casino license.
Additionally, casino licensees are subject to potential assessments to fund any
annual operating deficits incurred by the CCC or the Division. There is also an
annual license fee of $500 for each slot machine maintained for use or in use in
any casino.
Gross Revenue Tax. Each casino licensee is also required to pay an
annual tax of 8% on its gross casino revenues. For the years ended December 31,
1996, 1997 and 1998, Plaza Associates' gross revenue tax was approximately $29.8
million, $30.1 million and $30.2 million, respectively, and its license,
investigation and other fees and assessments totaled approximately $4.4 million,
$6.0 million and $5.2 million, respectively. For the years ended December 31,
1996, 1997 and 1998, Taj Associates' gross revenue tax was approximately $40.7
million, $41.7 million and $41.1 million, respectively, and its license,
investigation and other fees and assessments totaled approximately $5.0 million,
$3.9 million and $4.4 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 (the "CRDA
Bonds"). CRDA Bonds may
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have terms as long as 50 years and bear interest at below market rates,
resulting in a value lower than the face value of such CRDA Bonds.
For the first ten years of its tax obligation, the licensee is entitled
to an investment tax credit against the investment alternative tax in an amount
equal to twice the purchase price of the CRDA Bonds issued to the licensee.
Thereafter, the licensee (i) is entitled to an investment tax credit in an
amount equal to twice the purchase price of such CRDA Bonds or twice the amount
of its investments authorized in lieu of such bond investments or made in
projects designated as eligible by the CRDA and (ii) has the option of entering
into a contract with the CRDA to have its tax credit comprised of direct
investments in approved eligible projects which may not comprise more than 50%
of its eligible tax credit in any one year.
From the monies made available to the CRDA, the CRDA was required to
set aside $175 million for investment in hotel development projects in Atlantic
City undertaken by a licensee which result in the construction or rehabilitation
of at least 200 hotel rooms. These monies were used to fund up to 27% of the
cost to casino licensees of expanding their hotel facilities to provide
additional hotel rooms, a portion of which has been required to be available
with respect to the new Atlantic City Convention Center.
Minimum Casino Parking Charges. Since July 1, 1993, each casino
licensee has been required to pay the New Jersey State Treasurer a $1.50 charge
for every use of a parking space for the purpose of parking motor vehicles in a
parking facility owned or leased by a casino licensee or by any person on behalf
of a casino licensee. This amount is paid into a special fund established and
held by the New Jersey State Treasurer for the exclusive use of the CRDA. Plaza
Associates and Taj Associates currently charge their 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 Division are
less than a certain fixed sum. Additionally, a portion of the investment
alternative tax obligation of each casino licensee for the years 1994 through
1998 allocated for projects in northern New Jersey shall be paid into and
credited to the Atlantic City Fund. Amounts in the Atlantic City Fund will be
expended by the CRDA for economic development projects of a revenue producing
nature that foster the redevelopment of Atlantic City other than the
construction and renovation of casino hotels.
Conservatorship. If, at any time, it is determined that Plaza
Associates, Trump AC, Trump AC Funding, Funding II, Funding III, Taj Associates
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 a casino license is suspended for a period in
excess of 120 days or is revoked, or if the CCC fails or refuses to renew such
casino license, the CCC could appoint a conservator to operate and dispose of
such licensee's casino hotel facilities. A conservator would be vested with
title to all property of such licensee 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.
Qualification of Employees. Certain employees of Plaza Associates, Taj
Associates and TCS 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.
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Gaming Credit. Plaza Associates' and Taj 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 Atlantic City Properties is conducted
by trained and supervised personnel. Plaza Associates and Taj 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.
OTHER LAWS AND REGULATIONS
The United States Department of the Treasury (the "Treasury") has
adopted regulations pursuant to which a casino is required to file a report of
each deposit, withdrawal, exchange of currency, gambling tokens or chips, or
other payments or transfers by, through or to such casino which involves a
transaction in currency of more than $10,000 per patron, per gaming day (a
"Currency Transaction Report"). 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, Plaza Associates
and Taj Associates are 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.
From 1992 through 1995, the Service conducted an audit of Currency
Transaction Reports filed by Taj Associates for the period from April 2, 1990
through December 31, 1991. The Treasury has received a report detailing the
audit as well as the response of Taj Associates. As a result of Taj Associates'
audit, the Treasury has notified Taj Associates that it failed to timely file
Currency Transaction Reports in connection with certain currency transactions.
In December 1997, Taj Associates paid a fine of $477,000 in connection with 106
of these violations.
Plaza Associates and Taj Associates have adopted the following internal
control procedures to increase compliance with these Treasury regulations: (i)
computer exception reporting; (ii) establishment of a committee to review
Currency Transaction Report transactions and reporting which consists of
executives from the Casino Operations, Marketing and Administration Departments;
(iii) internal audit testing of compliance with the Treasury regulations; (iv)
training for all new and existing employees in compliance with the Treasury
regulations; and (v) a self-disciplinary program for employee violations of the
policy.
Trump AC is subject to other federal, state and local regulations and,
on a periodic basis, must obtain various licenses and permits, including those
required to sell alcoholic beverages in the State of New Jersey as well as in
other jurisdictions. Management believes all required licenses and permits
necessary to conduct the business of Trump AC has been obtained for operations
in New Jersey.
ITEM 2. PROPERTIES.
TRUMP PLAZA
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
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mortgages associated with the TAC I Notes, the TAC II Notes and the TAC III
Notes (collectively, the "Plaza Mortgages") and certain other liens.
Plaza Casino Parcel. Trump Plaza's main tower is located on The
Boardwalk in Atlantic City, New Jersey, next to the 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, three of which
are currently owned by Plaza Associates and one of which is leased by Plaza
Hotel Management Company ("PHMC") to Plaza Associates pursuant to a
non-renewable ground lease, which expires on December 31, 2078 (the "PHMC
Lease"). The land which is subject to the PHMC Lease is referred to as the
"Plaza Leasehold Tract." Seashore Four Associates ("Seashore Four") and Trump
Seashore Associates ("Trump Seashore") had leased to Plaza Associates two of the
tracts which are now owned by Plaza Associates. Trump Seashore and Seashore Four
are 100% beneficially owned by Trump and are, therefore, affiliates of THCR.
Plaza Associates purchased the tract from Seashore Four in January 1997 and the
tract from Trump Seashore in September 1996 for $10.1 million and $14.5 million,
respectively.
The PHMC Lease is a "net lease" 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 Tract
and the improvements now, or which may in the future be, located thereon,
including, but not limited to, all maintenance and repair costs, insurance