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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
[X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER 1-13794
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TRUMP HOTELS & CASINO RESORTS, INC.
(Exact name of registrant as specified in its Charter)
DELAWARE 13-3818402
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2500 BOARDWALK
ATLANTIC CITY, NEW JERSEY 08401
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 441-6060
COMMISSION FILE NO.: 33-90786
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TRUMP HOTELS & CASINO RESORTS HOLDINGS, L.P.
(Exact name of registrant as specified in its Charter)
DELAWARE 13-3818407
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2500 BOARDWALK
ATLANTIC CITY, NEW JERSEY 08401
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 441-6060
COMMISSION FILE NO.: 33-90786
-----------------------------
TRUMP HOTELS & CASINO RESORTS FUNDING, INC.
(Exact name of registrant as specified in its Charter)
DELAWARE 13-3818405
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2500 BOARDWALK
ATLANTIC CITY, NEW JERSEY 08401
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 441-6060
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock of Trump Hotels New York Stock Exchange
& Casino Resorts, Inc.,
par value $.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days. Yes|X| No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants' knowledge, in definitive proxy 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 Hotels & Casino
Resorts, Inc. held by non-affiliates as of March 25, 1999 was approximately:
$88,942,937
As of March 25, 1999, there were 22,195,256 shares of Trump Hotels &
Casino Resorts, Inc. Common Stock outstanding.
Documents Incorporated by Reference--Not applicable
FORM 10-K
TABLE OF CONTENTS
PART I...................................................................................1
ITEM 1. BUSINESS...................................................................1
Recent Events..................................................................1
General........................................................................1
Trump Plaza....................................................................3
The Taj Mahal..................................................................8
Trump Marina..................................................................12
Indiana Riverboat.............................................................16
Trademark/Licensing...........................................................17
Certain Indebtedness of THCR..................................................18
Atlantic City Market..........................................................20
Competition...................................................................21
Gaming and Other Laws and Regulations.........................................25
ITEM 2. PROPERTIES................................................................36
THCR..........................................................................36
Trump Plaza...................................................................36
Taj Mahal.....................................................................38
Trump Marina..................................................................40
Indiana Riverboat.............................................................41
ITEM 3. LEGAL PROCEEDINGS.........................................................41
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................44
PART II.................................................................................44
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTER .................................................................44
ITEM 6. SELECTED FINANCIAL DATA...................................................46
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ..................................................47
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............................57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ...................................................57
PART III................................................................................58
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................58
Directors, Executive Officers, Promoters and Control Persons..................58
Compliance with Section 16(a) of the Securities Exchange Act of 1934..........65
ITEM 11. EXECUTIVE COMPENSATION ...................................................65
i
Employment Agreements.........................................................67
Compensation of Directors.....................................................68
Committees of the Board of Directors..........................................69
Compensation Committee Interlocks and Insider Participation...................69
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............73
Security Ownership............................................................73
Changes in Control............................................................74
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................74
PART IV.................................................................................76
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...........76
IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS...........................82
SIGNATURES - TRUMP HOTELS & CASINO RESORTS, INC....................................83
SIGNATURES - TRUMP HOTELS & CASINO RESORTS HOLDINGS, L.P...........................84
SIGNATURES - TRUMP HOTELS & CASINO RESORTS FUNDING, INC............................85
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES...................F-1
ii
PART I
ITEM 1. BUSINESS.
RECENT EVENTS
On January 13, 1999, Trump Hotels & Casino Resorts Holdings, L.P.
("THCR Holdings") entered into an agreement with Hilton Hotels Corporation and
Flamingo Hilton Riverboat Casino, L.P. ("Flamingo-Kansas City") to acquire a
riverboat casino facility located in Kansas City, Missouri and substantially all
of the other assets, properties and rights of every kind and nature of
Flamingo-Kansas City. The aggregate consideration payable for the assets of
Flamingo-Kansas City is $15 million, subject to customary closing adjustments.
Consummation of the acquisition is subject to various conditions, including
obtaining certain approvals and licenses (including gaming licenses) from the
Missouri Gaming Commission and the Port Authority of Kansas City, Missouri, and
the expiration or termination of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
GENERAL
THCR Holdings, Trump Hotels & Casino Resorts Funding, Inc. ("THCR
Funding") and Trump Hotels & Casino Resorts, Inc. ("THCR") were organized under
the laws of the State of Delaware in March 1995. The partnership agreement
governing THCR Holdings provides that all business activities of THCR must be
conducted through THCR Holdings or subsidiary partnerships or corporations. As
the sole general partner of THCR Holdings, THCR generally has exclusive rights,
responsibilities and discretion in the management and control of THCR Holdings.
THCR, through THCR Holdings and its wholly owned subsidiaries, 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, the Trump Marina Hotel
Casino ("Trump Marina"), located in the marina district of Atlantic City, New
Jersey (the "Marina District"), as well as a riverboat casino located at
Buffington Harbor on Lake Michigan in Indiana (the "Indiana Riverboat"), making
THCR one of the largest casino entertainment companies in the United States. In
addition, THCR continues to be the exclusive vehicle through which Donald J.
Trump ("Trump") engages in new gaming activities in both emerging and
established gaming jurisdictions.
o TRUMP PLAZA. In May 1996, THCR 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, THCR 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 THCR'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 THCR'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, THCR 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, THCR 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 TRUMP MARINA. The acquisition of Trump's Castle Casino Resort
("Trump's Castle") on October 7, 1996 (the "Castle Acquisition"),
has further strengthened THCR's position as an industry leader.
During the second quarter of 1997, Trump's Castle Associates, L.P.
("Castle Associates") rethemed the property with a nautical emphasis
and renamed it Trump Marina Hotel Casino. The Castle Acquisition has
provided THCR with a significant presence in the Marina District,
the principal focus of expansion in the Atlantic City Market. In
addition, the Castle Acquisition has provided further opportunities
for operational efficiencies and economies of scale and eliminated
the perceived conflict of interest caused by the differing ownership
of Trump Marina and the other THCR properties in Atlantic City.
Ownership of Trump Marina will enable THCR to retain patrons that
may be drawn from The Boardwalk to the Marina District by new casino
development in the Marina District. The Castle Acquisition has also
enabled THCR to benefit from (i) the excellent condition of the
current facilities at Trump Marina, which have been designed to
accommodate additional development with minimal disruption to
existing operations, and (ii) the proximity of Trump Marina to the
"H-Tract," an approximately 150-acre parcel of land proposed to be
Atlantic City's newest area of casino hotel development (the
"H-Tract").
o INDIANA RIVERBOAT. Trump Indiana, Inc. ("Trump Indiana"), which owns
and operates the Indiana Riverboat and hotel at Buffington Harbor,
on Lake Michigan, approximately 25 miles southeast of downtown
Chicago, commenced operations on June 8, 1996. Trump Indiana is one
of 11 riverboat gaming projects permitted under current Indiana law,
and one of only five to be located in northern Indiana. Trump
Indiana and The Majestic Star Casino, LLC ("Barden") are the two
holders of riverboat owner's licenses to operate at Buffington
Harbor. Trump Indiana and Barden entered into an agreement (the "BHR
Agreement") relating to the formation of Buffington Harbor
Riverboats, L.L.C. ("BHR") and the joint ownership, development and
operation of all common land-based and waterside operations in
support of each of Trump Indiana's and Barden's separate riverboat
casinos at Buffington Harbor. The Indiana Riverboat has
approximately 37,000 square feet of gaming space and features 1,320
slot machines and 51 table games, and is one of the largest
riverboat casinos in the United States. The Indiana Riverboat's
principal market is the approximately 6.8 million people residing
within 50 miles of the Indiana Riverboat in the greater Chicago
metropolitan area. Approximately 11.2 million and 24.2 million
people live within a 100- and 200-mile radius of Buffington Harbor,
respectively.
o THE "TRUMP" NAME. THCR capitalizes on the widespread recognition of
the "Trump" name and its association with high quality amenities and
first class service. To this end, THCR provides a broadly
diversified gaming and entertainment experience consistent with the
"Trump" name and reputation for quality, tailored to the gaming
patron in each market. THCR also benefits from the "Trump" name in
connection with its efforts to expand and to procure new gaming
opportunities in the United States and abroad. THCR explores
opportunities to establish additional gaming operations,
particularly in jurisdictions where the legalization of casino
gaming is relatively new or anticipated.
2
The following table profiles THCR's current casino and hotel capacity:
TRUMP TAJ TRUMP INDIANA
PLAZA MAHAL MARINA RIVERBOAT TOTAL
----- ----- ------ --------- -----
Gaming square footage...................... 138,295 147,720 75,900 37,000 398,915
Slot machines.............................. 4,162 4,152 2,167 1,320 11,801
Table games (including poker).............. 103 211 92 51 457
Hotel rooms................................ 1,404 1,250 728 300 3,682
Trump Casino Services, L.L.C., a New Jersey limited liability company
("TCS"), was formed on June 27, 1996 for the purpose of realizing cost savings
and operational synergies by consolidating certain administrative functions of,
and providing certain services to, each of Trump Plaza Associates ("Plaza
Associates") and Trump Taj Mahal Associates ("Taj Associates"), the owner and
operator of Trump Plaza and the Taj Mahal, respectively. Trump Atlantic City
Associates ("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 New Jersey Casino Control Commission (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 Castle
Associates 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. In 1998, TCS, Plaza
Associates, Taj Associates, Castle Associates and Trump Indiana entered into a
second Amended and Restated Services Agreement pursuant to which TCS also
provides these same functions and services to Trump Indiana in connection with
the operation of the Indiana Riverboat. 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 realizing cost savings
and operational synergies by consolidating advertising functions of, and
providing certain services to, each of Plaza Associates, Taj Associates and
Castle Associates.
THCR operates 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.
3
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, THCR 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 gaming 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.
The following table details Trump Plaza's current casino and hotel
capacity:
TRUMP TRUMP
PLAZA MAIN TRUMP WORLD'S
FACILITY PLAZA 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
4
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, 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.
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. 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 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 and revue shows 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.
5
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 creditworthiness 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 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
6
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.
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 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 Taj Associates, the owner and
operator of the Taj Mahal, through its ownership interest in Trump AC. As part
of the 1996 Offerings (as defined), Trump AC and its wholly owned finance
subsidiary, Trump Atlantic City Funding, Inc., a Delaware corporation ("Trump AC
Funding"), issued the TAC I Notes (as defined).
The 1997 Events. In December 1997, Trump AC and Trump Atlantic City
Funding II, Inc., a Delaware corporation ("Funding II"), issued the TAC II Notes
(as defined) and Trump AC and Trump Atlantic City Funding III, Inc., a Delaware
corporation ("Funding III"), issued the TAC III Notes (as defined).
7
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.
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
8
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 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 horse race simulcasting location.
The Taj Mahal currently intends to reconfigure its casino floor,
subject to approval by 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
9
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 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.
10
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 creditworthiness 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 Taj Mahal Holding Corp., known after the Taj Acquisition as THCR
Holding Corp. ("THCR 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 ("THCR Holding Corp. Class A Common Stock");
(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 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 ("THCR Holding Corp. Class B Common Stock"),
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");
11
(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").
TRUMP MARINA
Castle Associates owns and operates Trump Marina, a luxury casino hotel
located on 14.7 acres in the Marina District approximately two miles from The
Boardwalk. Trump Marina is approximately one-quarter mile from the H-Tract.
Trump Marina consists of a 27-story hotel tower with 728 rooms, including 153
suites, 97 of which are "Crystal Tower" luxury suites, and contains
approximately 75,900 square feet of gaming space. Trump Marina offers 2,167 slot
machines, 92 table games, 8 restaurants, approximately 58,000 square feet of
convention, ballroom and meeting space, a 9-story parking garage, which can
accommodate approximately 3,000 cars, a 540-seat cabaret theater, two cocktail
lounges, a swimming pool, tennis courts, a health club and a roof-top helipad.
In addition, Trump Marina operates a 645-slip marina which is adjacent to the
casino hotel. An elevated enclosed walkway connects Trump Marina to a two-story
building which contains offices, a nautically themed retail store, a cocktail
lounge and a 240-seat gourmet restaurant that overlooks the marina and the
Atlantic City skyline. As a result of its high quality amenities, its
exceptional customer service and its geographical location, Trump Marina
distinguishes itself as a desirable alternative to the Atlantic City casinos
located on The Boardwalk.
MARKETING STRATEGY
Management's recent retheming of Trump Marina is intended to build upon
the casino's established customer base by attracting a younger crowd to the
facility. In keeping with this initiative, management has aimed to differentiate
Trump Marina from other Atlantic City casinos by offering contemporary
entertainment attractions and introducing its current "Wild Side" marketing
campaign. The "Wild Side" marketing program consists of a coordinated
advertising, entertainment and marketing campaign that is geared toward a
younger generation of patrons but will not exclude Trump Marina's established
customer base. Management, which developed the "Wild Side" marketing program
after careful study of the Atlantic City market, seeks to accomplish its goals
via an advertising campaign with a fun and youthful appeal, as well as providing
varied and extensive contemporary entertainment in the Grand Cayman Ballroom,
"The Shell" (a cabaret style theater), "The Wave" (a night club), "The Deck"
(for outdoor summertime entertainment) and large outdoor performances billed as
"Rock the Dock" concerts.
Service. By providing and maintaining a first-class facility and
exceptional service, Trump Marina has earned the Five Star Diamond Award from
the American Academy of Hospitality Sciences, the American Automobile
Association's "Four Diamond" and a "Four Star" Mobil Travel Guide rating. Trump
Marina provides a broadly diversified gaming and entertainment experience
consistent with the "Trump" name and reputation for quality amenities and
first-class service.
Gaming Environment. To stay abreast of current gaming trends in
Atlantic City, Trump Marina's management continuously monitors the configuration
of the casino floor and the games it offers to patrons with a view towards
making changes and improvements. A sophisticated computerized slot tracking and
marketing system is employed to perform this analysis. This monitoring has
confirmed a recent trend in the Atlantic City market towards fewer table games
and more slot machines. For example, slot machine revenue for the Atlantic
12
City market increased from 54.6% of the industry gaming revenue in 1988 to 70.8%
of industry gaming revenue in 1998. Trump Marina experienced a similar increase,
with slot revenue increasing from 52.5% of gaming revenue in 1988 to 71.4% of
gaming revenue in 1998. In response to this trend, management devoted more of
its casino floor space to slot machines and between 1994 and 1998 and has
replaced substantially all of its slot machines with newer machines. Trump
Marina has also responded to this trend by introducing its Monte Carlo club for
high-end slot players.
"Comping" Strategy. In order to compete effectively with other Atlantic
City casino hotels, Trump Marina offers Complimentaries primarily to patrons
with a demonstrated propensity to wager at Trump Marina. The policy at Trump
Marina is to focus promotional activities, including Complimentaries, on middle
and upper middle market "drive-in" patrons who visit Atlantic City frequently
and have proven to be the most profitable market segment. A patron's propensity
to wager is determined by a review of the patron's prior gaming history at Trump
Marina as well as other gaming establishments in Atlantic City. Each patron is
analyzed to ensure that the patron's gaming activity, net of any
complimentaries, is profitable to Castle Associates.
Entertainment and Special Events. Trump Marina pursues a coordinated
program of headline entertainment and special events. Trump Marina offers
headline entertainment approximately twenty times a year in its main ballroom,
complimented by contemporary acts each weekend in the cabaret theater. As a part
of its marketing plan, Trump Marina offers special events aimed at its core,
middle and upper-middle market segments. Trump Marina also hosts special events
on an invitation-only basis in an effort to attract existing targeted gaming
patrons and build loyalty among these patrons. These special events include golf
tournaments, theme parties and gaming tournaments. Headline entertainment is
scheduled so as not to overlap with any of these special events. In addition, as
part of its "Wild Side" marketing campaign, Trump Marina features outdoor bands
nightly (in season) as well as outdoor concerts promoted under the "Rock the
Dock" theme. Recent performances have included The Beach Boys, the Atlantic City
premiere of Van Halen, the artist formerly known as Prince, and comedian Chris
Rock.
Player Development and Casino Hosts. Trump Marina has contracts with
sales representatives in New Jersey, New York and other states to promote the
casino hotel. Trump Marina has sought to attract more middle market slot
patrons, as well as premium players, through its "junket" marketing operations,
which involve attracting groups of patrons by providing airfare, gifts and room
accommodations. Player development personnel host special events, offer
incentives and contact patrons directly in an effort to attract high-limit table
game patrons.
The casino hosts at Trump Marina assist table game patrons, and the
slot sales representatives at Trump Marina assist slot patrons on the casino
floor, make room and dinner reservations and provide general assistance. Slot
sales representatives also solicit Marina Card (the frequent player
identification slot card) sign-ups in order to increase Trump Marina's marketing
base.
Promotional Activities. The Marina Card constitutes a key element in
the direct marketing program of Trump Marina. Slot machine players are
encouraged to register for and utilize their personalized Marina Card to earn
various complimentaries based upon their level of play. The Marina Card is
inserted during play into a card reader attached to the slot machine for use in
computerized rating systems. These computer systems record data about the
cardholder, including playing preferences, frequency and denomination of play
and the amount of gaming revenues produced. Slot sales and management personnel
are able to monitor the identity and location of the cardholder and the
frequency and denomination of the cardholder's slot play. They also use this
information to provide attentive service to the cardholder on the casino floor.
Trump Marina designs promotional offers, conveyed via direct mail and
telemarketing, to patrons expected to provide revenues based upon their
historical gaming patterns. Such information is gathered on slot wagering by the
Marina Card and on table wagering by the casino games supervisor. Trump Marina
conducts slot machine and table game tournaments in which cash prizes are
offered to a select group of players invited to
13
participate in the tournament based upon their tendency to play. Such players
tend to play at their own expense during "off-hours" of the tournament. At
times, tournament players are also offered special dining and entertainment
privileges that encourage them to remain at Trump Marina.
Credit Policy. Historically, Trump Marina has extended credit on a
discretionary basis to certain qualified patrons. Credit play, as a percentage
of total dollars wagered, was approximately 31.4%, 32.4% and 30.1% for 1996,
1997 and 1998, respectively. As part of Trump Marina's business strategy, Trump
Marina has imposed stricter standards on applications for new or additional
credit. Trump Marina bases credit limits on each individual patron's
creditworthiness, as determined by an examination of the following criteria: (i)
checking each patron's personal checking account for current and average
balances, (ii) performing a credit check on each domestic patron and (iii)
checking each patron's credit limits and indebtedness at all casinos in the
United States as well as many island casinos. The above determination of a
patron's continued creditworthiness is performed for continuing patrons on a
yearly basis or more frequently if Trump Marina deems a re-determination of
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 Trump Marina's discretion.
Bus Program. Trump Marina has a bus program which transports
approximately 725 gaming patrons per day during the week and 750 per day on the
weekends. Castle Associates' bus program offers incentives and discounts to
certain scheduled and chartered bus customers. Based on historical surveys,
management has determined that gaming patrons who arrive by special charters as
opposed to scheduled bus lines or who travel distances greater than 60 miles are
more likely to create higher gaming revenue. Accordingly, Trump Marina's
marketing efforts are focused on such bus patrons.
TRUMP MARINA RETHEMING
In 1997, Trump Marina completed a project to retheme the casino hotel
with a nautical emphasis, targeting younger customers by offering contemporary
entertainment attractions and emphasizing Trump Marina's energetic, lively
atmosphere.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1998, Castle Associates employed approximately 3,400
full and part-time employees, of whom approximately 1,200 were subject to
collective bargaining agreements. Castle Associates' collective bargaining
agreement with Local No. 54 expires on September 15, 1999. Such agreement
extends to approximately 900 employees. In addition, four other collective
bargaining agreements, which expire in the year 2000, cover approximately 300
maintenance employees. Castle Associates believes that its relationships with
its employees are satisfactory. Trump's Castle Funding, Inc. ("Castle Funding")
has no employees.
Certain employees of Castle Associates must be licensed by or
registered with the CCC, depending on the nature of the position held. Casino
employees are subject to more stringent licensing requirements than non-casino
employees, and must meet applicable standards pertaining to such matters as
financial responsibility, good character, ability, casino training, experience
and New Jersey residency. Such regulations have resulted in significant
competition for employees who meet these requirements.
HISTORICAL BACKGROUND
General. Castle Funding was incorporated under the laws of the State of
New Jersey in May 1985 and is wholly owned by Castle Associates. Trump's Castle
Hotel & Casino, Inc. ("TCHI") was incorporated under the laws of the state of
New Jersey in 1985; it is wholly owned by THCR Holdings and is the general
partner of Castle Associates. Castle Funding was formed to serve as a financing
corporation to raise funds as an agent of Castle Associates. Since Castle
Funding and TCHI have no business operations, their ability to service their
indebtedness
14
is completely dependent upon funds they receive from Castle Associates.
Accordingly, the following discussion is related primarily to Castle Associates
and its operations.
PIK Note Acquisition. On June 23, 1995, Castle Associates entered into
an agreement with Hamilton Partners, L.P. ("Hamilton") which granted Castle
Associates an option (the "Castle Option") to acquire the Increasing Rate
Subordinated Pay-in-Kind Notes due 2005 of Castle Funding (the "Castle PIK
Notes") (which are currently subordinated to the New Castle Senior Notes (as
defined), the Working Capital Loan (as defined) and the Castle Mortgage Notes
(as defined)) owned by Hamilton (the "Castle Option Agreement"). The Castle
Option was granted to Castle Associates in consideration of $1.9 million of
aggregate payments to Hamilton. The Castle Option was exercisable at a price
equal to 60% of the aggregate principal amount of the Castle PIK Notes delivered
by Hamilton, with accrued but unpaid interest, plus 100% of the Castle PIK Notes
issued to Hamilton as interest subsequent to June 23, 1995. Pursuant to the
terms of the Castle Option Agreement, upon the occurrence of certain events
within 18 months of the time the Castle Option is exercised, Castle Associates
was required to make an additional payment to Hamilton of up to 40% of the
principal amount of the Castle PIK Notes. On May 21, 1996, Castle Associates
assigned the Castle Option to THCR Holdings, which, on that same date, exercised
the Castle Option and acquired approximately 90% of the then outstanding Castle
PIK Notes for approximately $38.7 million, in exchange for which THCR Holdings
received an aggregate of approximately $59.3 million principal amount of Castle
PIK Notes.
Castle Acquisition. On October 7, 1996, THCR Holdings acquired from
Trump all of the outstanding equity of Castle Associates. The following
transactions were effected in connection with the Castle Acquisition:
(i) Trump contributed to THCR Holdings his 61.5%
equity interest in Castle Associates, in consideration of which he
received a 9.52854% limited partnership interest in THCR Holdings,
exchangeable into 3,626,450 shares of THCR Common Stock (valuing each
such share at $30.00 (the "THCR Stock Contribution Value"));
(ii) Trump Casinos II, Inc. ("TCI-II") contributed
to THCR Holdings its 37.5% equity interest in Castle Associates in
consideration of which it received a 5.81009% limited partnership
interest in THCR Holdings, exchangeable into 2,211,250 shares of THCR
Common Stock (valuing each such share at the THCR Stock Contribution
Value); and
(iii) THCR-TCHI Merger Corp., a Delaware corporation
and a wholly owned subsidiary of THCR Holdings ("Castle Merger Sub"),
merged (the "TCHI Merger") with and into TCHI (holder of a 1% equity
interest in Castle Associates) whereupon (x) each share of common stock
of TCHI, par value $.01 per share (the "TCHI Common Stock"),
outstanding immediately prior to the TCHI Merger was converted into the
right to receive $.8845 in cash (the "TCHI Consideration") and each
share of common stock of Castle Merger Sub was converted into the right
to receive one share of common stock of the surviving corporation of
the TCHI Merger and (y) each holder of the Castle Warrants issued under
a warrant agreement, dated as of December 30, 1993, between TCHI and
First Bank National Association, as warrant agent, became entitled to
receive, for each former share of TCHI Common Stock for which each
Castle Warrant was exercisable, an amount in cash equal to the TCHI
Consideration.
In the aggregate, Trump received (i) a limited partnership interest in
THCR Holdings convertible into 5,837,700 shares of THCR Common Stock and (ii)
$884,550 in cash. On October 7, 1996, the closing sale price of the THCR Common
Stock on the New York Stock Exchange was $22.625 per share.
As a result of the Castle Acquisition, on October 7, 1996, THCR's and
Trump's beneficial equity interest in THCR Holdings was approximately 63.4% and
36.6%, respectively, and Trump's beneficial equity interest in THCR Holdings was
exchangeable into 13,918,723 shares of THCR Common Stock. The Castle Acquisition
was approved by the stockholders of THCR on September 30, 1996.
April 1998 Refinancing. On April 17, 1998, Castle Funding refinanced a
portion of its outstanding debt, on a consolidated basis, consisting of the $38
million outstanding on a term loan with a bank (the "Castle Term
15
Loan"), and its 11 1/2% Senior Secured Notes due 2000 (the "Old Castle Senior
Notes") by issuing 10 1/4% Senior Secured Notes due 2003 (the "New Castle Senior
Notes"). The proceeds from the issuance of the New Castle Senior Notes were used
to redeem all of the issued and outstanding Old Castle Senior Notes at 100% of
their principal amount and to repay the Castle Term Loan in full. In conjunction
with this refinancing, TCHI obtained a working capital credit facility (the
"Working Capital Loan"). Both the New Castle Senior Notes and the Working
Capital Loan are guaranteed by Castle Associates. The New Castle Senior Notes
have an outstanding principal amount of $62,000,000 and bear interest at the
rate of 10 1/4% per annum, payable semi-annually each April and October. The New
Castle Senior Notes mature on April 30, 2003. The Working Capital Loan has an
outstanding principal amount of $5,000,000 and bears interest at the rate of
10-1/4% per annum, payable semi-annually each April and October. The entire
principal balance of the Working Capital Loan matures on April 30, 2003.
INDIANA RIVERBOAT
The Indiana Riverboat features an approximately 280-foot luxury yacht
containing approximately 37,000 square feet of gaming space with 1,320 slot
machines, 51 table games and capacity for approximately 2,690 passengers and 300
employees. The site adjacent to the Indiana Riverboat includes surface parking
for approximately 3,000 automobiles and certain other infrastructure
improvements including a 300 room hotel. The cost to THCR for the development of
the Indiana Riverboat, which includes the land, the vessel, gaming equipment, a
pavilion for staging and ticketing and restaurant facilities, berthing and
support facilities and parking facilities, is $139 million through February 28,
1999. During the remainder of Trump Indiana's initial five-year license term, an
additional $14 million of funds will be required to be spent in connection with
municipal commitments required in connection with the licensure process. The
remaining $14 million required to be spent over the remainder of the initial
five-year license term is expected to be funded with cash from operations or
other available financings.
Buffington Harbor is approximately 25 miles from downtown Chicago. In
addition, the cities of Indianapolis, Fort Wayne, Toledo, Grand Rapids and
Milwaukee are each within a 175-mile radius of Buffington Harbor. Management
believes the Indiana Riverboat benefits from (i) its location and size, (ii) its
strategy of developing, together with Barden, an array of entertainment, retail
and restaurant attractions, and coordinated cruise schedules and (iii) the
widespread recognition of the "Trump" name and what management believes to be
its reputation for quality. Gaming facilities in Illinois are presently limited
to 1,200 gaming positions under current regulations in Illinois, which
management believes puts Illinois properties at a competitive disadvantage to
larger facilities such as the Indiana Riverboat. THCR has drawn on these
competitive advantages and capitalized on its experience in gaming activities in
Atlantic City in order to create an outstanding gaming and entertainment
experience.
THCR focuses its marketing efforts for the Indiana Riverboat on the
middle market, which makes up the majority of the gaming population in the
200-mile radius of Buffington Harbor, encompassing portions of the states of
Indiana, Illinois, Michigan, Ohio and Wisconsin (the "Great Lakes Market"). The
middle market constitutes a broad segment of casino patrons who come to a casino
for exciting recreation and entertainment and who typically wager less, on an
individual basis, than high-end patrons. Through the use of the "Trump" name and
systematic marketing programs, THCR has been attracting this middle market
customer.
The operation of a gaming riverboat in Indiana is subject to Indiana's
Riverboat Gambling Act (the "Riverboat Gambling Act") and the administrative
rules promulgated thereunder. Under the Riverboat Gambling Act, all games
typically available in Atlantic City casinos are permitted on the Indiana
Riverboat. The riverboat casinos in Indiana are permitted to stay open 21 hours
per day, 365 days per year and to extend credit and accept credit charge cards
with no loss or wagering limits.
In June 1996, the Indiana Gaming Commission (the "IGC") granted Trump
Indiana a riverboat owner's license for the ownership and operation of a gaming
vessel at Buffington Harbor, which must be renewed by June 2001.
16
On June 30, 1995, Trump Indiana acquired, pursuant to the Agreement of
Sale with Lehigh Portland Cement Company ("Lehigh"), dated May 10, 1995 (the
"Site Sale Agreement"), approximately 88 acres of land at Buffington Harbor (the
"Buffington Harbor Site") for $13.5 million. Pursuant to an agreement between
Lehigh and Trump Indiana, Lehigh granted Trump Indiana a lease for a term of up
to ten years for the use of the harbor and certain of Lehigh's property adjacent
to the Buffington Harbor Site for the docking of the Indiana Riverboat Vessel.
No lease payments were due to Lehigh during the first 30 months of the lease.
Pursuant to the Harbor Lease Agreement, Lehigh is entitled to receive lease
payments in the amount of $125,000 per month for the use of the property during
the remaining term of the lease, if the use continues beyond the initial 30
month period. The initial period has expired and the lease payments are
currently being paid to Lehigh. Trump Indiana contributed the Buffington Harbor
Site and its rights under the Harbor Lease Agreement to BHR in connection with
the formation of BHR. Pursuant to the BHR Agreement, BHR will own, develop and
operate all common land-based and waterside operations in support of Trump
Indiana's and Barden's separate riverboat casinos at Buffington Harbor. Trump
Indiana and Barden are each equally responsible for the development and the
operating expenses of BHR.
Trump Indiana entered into a development agreement (as defined) with
the City of Gary, Indiana, dated as of May 1, 1996, which memorialized the
commitments made by Trump Indiana to the City during the licensing process (the
"Development Agreement"). The Development Agreement sets forth the scope and
timing of the capital expenditures committed to be made by Trump Indiana during
the initial five-year term of its riverboat owner's license, Trump Indiana's
agreement to pay to the City four (4%) percent of Trump Indiana's annual
adjusted gross receipts and Trump Indiana's commitment regarding the employment
of women and racial minorities and the utilization of union labor and local
vendors. The Development Agreement also provides for certain monetary penalties
in the event Trump Indiana elects to abandon the Buffington Harbor Site within
the first four years of gaming operations. In addition, the Development
Agreement includes provisions regarding the "Trump Indiana Foundation," a
private foundation established by Trump Indiana for charitable purposes
primarily within the City and Lake County, Indiana. As of December 31, 1996,
Trump Indiana funded an initial $1.0 million to the Trump Indiana Foundation. In
addition, Trump Indiana is required to make annual contributions of $100,000 to
the Trump Indiana Foundation for the remaining four years of the Development
Agreement. The 1997 and 1998 contributions were made as of December 31, 1997 and
1998, respectively.
THCR believes that competition in the gaming industry, particularly the
riverboat and dockside gaming industry, is based on the quality and location of
gaming facilities, the effectiveness of marketing efforts, and customer service
and satisfaction. Although management believes that the location of the Indiana
Riverboat allows THCR to compete effectively with other casinos in the
geographic area surrounding its casino, THCR expects competition in the casino
gaming industry to be intense as more casinos are opened and new entrants into
the gaming industry become operational. See "--Competition."
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 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.
17
CERTAIN INDEBTEDNESS OF THCR
Senior Notes. THCR Holdings and THCR Funding (the "THCR Obligors") are
the issuers of $145 million aggregate principal amount of Senior Notes. The
Senior Notes are the joint and several obligations of the THCR Obligors.
Interest on the Senior Notes is payable semiannually in arrears.
The Senior Notes mature on June 15, 2005. The Senior Notes are not
redeemable prior to June 15, 2000, except pursuant to a Required Regulatory
Redemption (as defined in the indenture pursuant to which the Senior Notes were
issued (the "Senior Note Indenture")). Thereafter, the Senior Notes may be
redeemed at the option of the THCR Obligors, in whole or in part, at any time on
or after June 15, 2000 at the redemption prices set forth in the Senior Note
Indenture, together with accrued and unpaid interest to the date of redemption.
The obligations of the THCR Obligors under the Senior Note Indenture
are secured by (1) an assignment and pledge to the Trustee under the Senior Note
Indenture (the "Senior Note Trustee") of (a) 100% of the general partnership
interests in Plaza Associates, (b) 100% of the capital stock of Plaza Funding,
(c) 100% of the general partnership interests in Taj Associates, (d) 100% of the
membership interests in Trump Communications, (e) 100% of the capital stock of
TACC, which owns a 1% general partnership interest in Plaza Associates, a 1%
general partnership interest in Taj Associates and a 1% membership interest in
Trump Communications, (f) 100% of the membership interests in TCS, which owns a
99% membership interest in Trump Communications, (g) 100% of the capital stock
of Trump AC Funding, (h) 100% of the general partnership interests in Trump AC,
which owns 1% of the capital stock of TACC, 99% of the membership interests of
TCS, a 99% general partnership interest in Taj Associates, a 99% general
partnership interest in Plaza Associates and 100% of the capital stock of Trump
AC Funding, (i) 100% of the capital stock of Trump AC Holding, a direct wholly
owned subsidiary of THCR Holdings which owns a 1% general partnership interest
in Trump AC, (j) 100% of the capital stock of Trump Indiana, (k) 100% of the
capital stock of THCR Funding, (l) 100% of the partnership interests in Castle
Associates, (m) 100% of the capital stock of TCHI, which owns a 1% general
partnership interest in Castle Associates, (n) other equity interests issued
from time to time by THCR Holdings or any of its Subsidiaries (as defined in the
Senior Note Indenture), (o) the Castle PIK Notes held by THCR Holdings and (p)
promissory notes issued by THCR Holdings or any of its subsidiaries, excluding
Unrestricted Subsidiaries (as defined in the Senior Note Indenture), from time
to time directly owned or acquired by THCR Holdings; and (2) certain proceeds
from time to time received, receivable or otherwise distributed in respect of
the assets described in clause (1) above (collectively, the "Senior Note
Collateral"). The security interests in the Senior Note Collateral are first
priority security interests and are exclusive. Any equity interests in
Subsidiaries of THCR Holdings which are acquired by THCR Holdings will be
assigned and pledged to the Senior Note Trustee and the security interests
granted in such equity interests will be exclusive, first priority security
interests.
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 Mortgage Notes which mature on May 1, 2006 (the
"TAC II Notes"). 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 Mortgage Notes which mature on May 1, 2006
(the "TAC III Notes"). 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.
18
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.
Castle Notes. Castle Funding's Mortgage Notes bear interest, payable
semi- annually in cash, at 11 3/4% and mature on November 15, 2003 (the "Castle
Mortgage Notes"). The Castle Mortgage Notes may be redeemed at Castle Funding's
option at a specified percentage of the principal amount commencing in 1998.
The Castle Mortgage Notes are secured by a promissory note of Castle
Associates to Castle Funding (the "Castle Partnership Note") in an amount and
with payment terms necessary to service the Castle Mortgage Notes. The Castle
Partnership Note is secured by a mortgage on Trump Marina and substantially all
of the other assets of Castle Associates. The Castle Partnership Note has been
assigned by Castle Funding to the trustee of the indenture under which the
Castle Mortgage Notes were issued to secure the repayment of the Castle Mortgage
Notes. In addition, Castle Associates has guaranteed the payment of the Castle
Mortgage Notes (the "Castle Guaranty"), which is secured by a mortgage on Trump
Marina and substantially all of the assets of Castle Associates. The Castle
Partnership Note and the Castle Guaranty are expressly subordinated to the
indebtedness of the New Castle Senior Notes (as defined) and the Castle Term
Loan described below (collectively, the "Senior Indebtedness") and the liens of
the mortgages securing the Castle Partnership Note and the Castle Guaranty are
subordinate to the liens securing the Senior Indebtedness.
The Castle PIK Notes bear interest payable, at Castle Funding's option
in whole or in part in cash and through the issuance of additional Castle PIK
Notes, semi- annually at the rate of 7% through September 30, 1994 and 13 7/8%
through November 15, 2003. After November 15, 2003, interest on the Castle PIK
Notes is payable in cash at the rate of 13 7/8%. The Castle PIK Notes mature on
November 15, 2005. The Castle PIK Notes may be redeemed at Castle Funding's
option at 100% of the principal amount under certain conditions, as described in
the indenture governing the Castle PIK Notes, and are required to be redeemed
from a specified percentage of any equity offering which includes Castle
Associates. Interest has been accrued using the effective interest method. On
May 15, 1998 and November 15, 1998, the semi-annual interest payments of $5.6
million and $6.0 million, respectively, were paid by the issuance of additional
Castle PIK Notes.
The Castle PIK Notes are secured by a subordinated promissory note of
Castle Associates to Castle Funding (the "Castle Subordinated Partnership
Note"), which has been assigned to the Trustee for the Castle PIK Notes, and
Castle Associates has issued a subordinated guaranty (the "Castle Subordinated
Guaranty") of the Castle PIK Notes. The Castle Subordinated Partnership Note and
the Castle Subordinated Guaranty are expressly subordinated to the Senior
Indebtedness, the Castle Partnership Note and the Castle Guaranty. On May 21,
1996, THCR Holdings exercised an option and acquired approximately 90% of the
then outstanding Castle PIK Notes outstanding for approximately $38.7 million,
in exchange for which THCR Holdings received an aggregate of approximately $59.3
million principal amount of Castle PIK Notes.
On April 17, 1998, Castle Funding refinanced the Castle Term Loan and
the Old Castle Senior Notes by issuing the New Castle Senior Notes. The proceeds
from the issuance of the New Castle Senior Notes were used to redeem all of the
issued and outstanding Old Castle Senior Notes at 100% of their principal amount
and to repay the Castle Term Loan in full. In conjunction with this refinancing,
TCHI obtained the Working Capital Loan. Both the New Castle Senior Notes and the
Working Capital Loan are guaranteed by Castle Associates. The New Castle Senior
Notes have an outstanding principal amount of $62,000,000 and bear interest at
the rate of 10 1/4% per annum, payable semi-annually each April and October. The
New Castle Senior Notes mature on April 30, 2003. The Working Capital Loan has
an outstanding principal amount of $5,000,000 and bears interest at the rate of
10 1/4% per annum, payable semi-annually each April and October. The entire
principal balance of the Working Capital Loan matures on April 30, 2003.
19
The terms of the Working Capital Loan, the Castle Mortgage Notes, the
Castle PIK Notes and the New Castle Senior Notes include limitations on the
amount of additional indebtedness Castle Associates may incur, distributions of
Castle Associates capital, investments and other business activities.
Other Indebtedness. In addition to the foregoing, THCR's consolidated
long-term indebtedness includes approximately $39.5 million of indebtedness as
of December 31, 1998.
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 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.
20
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 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
21
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,
Trump Marina 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 and Trump Marina).
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 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
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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.
Indiana. The Indiana Riverboat competes primarily with riverboats and
other casinos in the northern Indiana suburban and Chicago metropolitan area and
throughout the Great Lakes Market. Although northern Indiana is part of the
greater Chicago metropolitan market, which is one of the most successful new
gaming markets in the United States, the Indiana Riverboat may be more dependent
on patrons from northern Indiana than its Illinois competitors, and the
propensity of these patrons to wager cannot be predicted with any degree of
certainty. In addition to competing with Barden's riverboat at the Buffington
Harbor Site, the Indiana Riverboat competes with a riverboat in Hammond,
Indiana, owned and operated by Empress Riverboat Casino in Joliet, Illinois, a
riverboat in East Chicago, Indiana, which is owned and operated by Harrah's
Entertainment under the Showboat name, and with a riverboat in Michigan City,
Indiana, which is owned and operated by Bluechip Casino. To a lesser degree, the
Indiana Riverboat competes with four operating riverboats located in southern
Indiana and one additional riverboat scheduled to be licensed and operating in
2000. At present there are four other riverboats in the Chicago area, with each
operator limited to 1200 gaming positions.
Management believes that competition in the gaming industry,
particularly the riverboat and dockside gaming industry, is based principally on
the quality and location of gaming facilities, the effectiveness of marketing
efforts, and customer service and satisfaction. Although THCR believes that the
location of the Indiana Riverboat will allow THCR to compete effectively with
other casinos in the geographic area surrounding its casino. Management expects
competition in the casino gaming industry to continue to be intense in the
Northwest Indiana marketplace.
The Indiana Riverboat is seeking a competitive advantage primarily
based upon its superior location, including its proximity to and direct access
from Chicago, extensive parking facilities, name recognition, a superior gaming
vessel and gaming experience, and targeted marketing strategies. See "--Indiana
Riverboat." In addition, a casino opened during 1994 in Windsor, Ontario, across
the river from Detroit. In 1997, Detroit approved land-based casino gaming with
a limit of four licenses for the metropolitan area, and selected the operators
for the licenses. Although management believes that there is sufficient demand
in the market to sustain the Indiana Riverboat, there can be no assurance to
that effect. Legislation has also been introduced on numerous occasions in
recent years to expand riverboat gaming in Illinois, including by authorizing
new sites in the Chicago area with which the Indiana Riverboat would compete.
THCR understands that there have been recent discussions in Illinois regarding
possible legislation to permit dockside gaming and/or increase the gaming
position limitations. There can be no assurance that either Indiana or Illinois,
or both, will not authorize additional gaming licenses, including for the
Chicago metropolitan area.
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
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casino-style gaming (even if only for limited charity purposes) is required to
negotiate gaming compacts with federally recognized Native American tribes.
Under IGRA, Native American tribes enjoy comparative freedom from regulation and
taxation of gaming operations, which provides them with an advantage over their
competitors, including 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 p