1 1 STATE OF NEW JERSEY 2 CASINO CONTROL COMMISSION 3 SPECIAL PUBLIC MEETING NO. 06-11-02 4 - - - - - - - - - - - - - - - - - - - 5 PETITION OF PINNACLE ENTERTAINMENT, INC., FOR RULINGS RELATING TO THE SHUTDOWN OF THE SANDS AND FOR OTHER 6 RELIEF (PRN 2710601); AND PETITION OF ACE GAMING, LLC, AND ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC., FOR 7 CERTAIN DECLARATORY RULINGS (PRN 2680602) 8 AMENDED PETITION OF WIMAR TAHOE CORPORATION FOR INTERIM CASINO AUTHORIZIATION TO OWN AND OPERATE THE 9 TROPICANA CASINO AND ENTERTAINMENT RESORT AND FOR OTHER RELIEF 10 (PRN 1570613, 2490609, 2770606 AND 2780607) 11 - - - - - - - - - - - - - - - - - - - 12 Thursday, November 2, 2006 13 Atlantic City Commission Offices Joseph P. Lordi Public Meeting Room - First Floor 14 Tennessee Avenue and Boardwalk Atlantic City, New Jersey 08401 15 9:35 a.m. to 3:28 a.m. 16 17 Certified Shorthand Reporter: Darlene Sillitoe 18 - - - - - - - - - - - - - - - - - - - - - - - - - - - 19 CIPOLLONI & ASSOCIATES, INC. 20 CERTIFIED SHORTHAND REPORTERS 21 1125 ATLANTIC AVENUE, SUITE 416 22 ATLANTIC CITY, NEW JERSEY 08401 23 (609) 348-9190 24 www.cipolloni-associates.com 25 2 1 B E F O R E : 2 CASINO CONTROL COMMISSION: LINDA M. KASSEKERT, CHAIR 3 RALPH G. FRULIO, VICE CHAIR MICHAEL C. EPPS, COMMISSIONER 4 MICHAEL A. FEDORKO, COMMISSIONER WILLIAM T. SOMMELING, COMMISSIONER 5 PRESENT FOR THE CASINO CONTROL COMMISSION: 6 DARYL W. NANCE, ADMINISTRATIVE ANALYST DANIEL J. HENEGHAN, PUBLIC INFORMATION OFFICER 7 OFFICE OF THE GENERAL COUNSEL: 8 DIANNA W. FAUNTLEROY, GENERAL COUNSEL/EXECUTIVE SECRETARY 9 E. DENNIS KELL, ASSISTANT GENERAL COUNSEL LEONARD DiGIACOMO, 10 DIVISION OF GAMING ENFORCEMENT: 11 THOMAS AURIEMMA, DIRECTOR DEPUTY ATTORNEYS GENERAL 12 RAYMOND J. MARQUEZ, DEPUTY ATTORNEY GENERAL CHARLES F. KIMMEL, DEPUTY ATTORNEY GENERAL 13 WENDY WAY, DEPUTY ATTORNEY GENERAL 14 15 16 17 18 19 20 21 22 23 24 25 3 1 A P P E A R A N C E S : 2 ITEM NO. 1 E. DENNIS KELL, ASSISTANT GENERAL COUNSEL 3 WENDY ALICE WAY, DEPUTY ATTORNEY GENERAL CHARLES F. KIMMEL, DEPUTY ATTORNEY GENERAL 4 PAUL M. O'GARA, ESQ. FOR: ATLANTIC COAST and ACE GAMING, LLC 5 SILLS CUMMIS BY: KENNETH F. OETTLE, ESQ. 6 FOR: PINNACLE ENTERTAINMENT, INC. 7 ITEM NO. 2 LEONARD J. DiGIACOMO, ASSISTANT GENERAL COUNSEL 8 RAYMOND J. MARQUEZ, DEPUTY ATTORNEY GENERAL CARROLL & MICHAEL 9 BY: GUY S. MICHAEL, ESQ. AND: JOHN J. MERCUN, ESQ. 10 FOR: ATLANTIC COAST and ACE GAMING, LLC COOPER, LEVENSON, APRIL, NIEDELMAN & WAGENHEIM, 11 PA BY: LLYOD D. LEVENSON, ESQ. 12 AND: LYNNE LEVIN KAUFMAN, ESQ. FOR: Wimar Tahoe Corportion 13 14 15 16 17 18 19 20 21 22 23 24 25 4 1 W I T N E S S E S : 2 Page 3 4 GEORGE TOTH 5 By Mr. O'Gara 16 6 KIM TOWNSEND 7 By Mr. Oettle 21 8 9 WILLIAM J. YUNG, III 10 By Mr. Michael 52 By Mr. Marquez 56 11 12 RICHARD M. FITZPATRICK 13 By Ms. Kaufman 64 By Mr. Marquez 77 14 FRED BURO 15 By Mr. Levenson 88 16 By Mr. Marquez 94 17 18 19 20 21 22 23 24 25 5 1 E X H I B I T S : 2 3 P-1 Trust Agreement dated October 16, 2006, 4 between Wimar Tahoe Corp., Wimar OpCo, LLC, Wimar OpCo Holdings, LLC, Wimar OpCo 5 Intermediate Holdings, LLC, all Delaware Limited Liability Companies, and Honorable 6 Gary S. Stein, Trustee 7 P-2 Promissory Note dated October 25, 2006 8 9 D-1 Report dated October 10, 2006, by 10 Raymond Marquez, Deputy Attorney General Re: Amended petition of Wimar Tahoe Corp., 11 for ICA and for other relief (PRN 2490609) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 6 1 AGENDA PUBLIC MEETING NO. 06-11-02 2 NOVEMBER 2, 2006, 9:35 a.m ITEM PAGE VOTE 3 1 Petition of Pinnacle Entertainment, 7 42 4 Inc., for rulings relating to the shutdown of the sands and for other 5 relief (PRN 2710601) 6 Petition of ACE Gaming, LLC, and Atlantic Coast Entertainment Holdings, 7 Inc., for certain declaratory rulings (PRN 2680602) 8 2 Amended petition of Wimar Tahoe 44 113 9 Corporation for interim casino authorization to own and operate 10 Tropicana Casino and Entertainment Resort (PRN 1570613); 11 Petition of Wimar Tahoe Corporation, Wimar OpCo, LLC, Winmar OpCo Intermediate 12 Holdings, LLC, and Wimar OpCo Holdings, LLC, for a declaratory ruling with respect to 13 the provisions of NJSA 5:12-82(d)(7)(8)(10) (PRN 249060); 14 Petition of Wimar Tahoe Corporation, Wimar Opco, LLC, Winmar OpCo Intermediate 15 Holdings, LLC, and Wimar OpCo Holdings, LLC, for declaratory relief with respect 16 to certain debt tansactions (PRN 2780607); Joint petition of Adamar of New Jersey, 17 Inc., (d/b/a Tropicana Casino and Resort) and Winmar Tahoe Corporation for temporary 18 licensing of Fred A. Buro as a casino key employee pursuant to NJSA 5:12-89e and to 19 permit him to assume the duties and exercise the powers of President and Chief Operating 20 Officer of Adamar of New Jersey, Inc., without having first been qualified pursuant 21 to NJAC 19:43-2.6 (PRN 2770606) 22 23 24 25 7 1 (Public Meeting 06-11-02 was commenced 2 at 9:35 a.m.) 3 MR. NANCE: I'd like to read an opening 4 statement: 5 This is to advise the general public 6 that in compliance with Chapter 231 of the 7 Public Laws of 1975 entitled the "Open Public 8 Meetings Act," the New Jersey Casino Control 9 Commission on October 19th, 2006, filed with 10 the Secretary of State at the State House in 11 Trenton, New Jersey, a notice of this special 12 hearing. On October 19th, 2006, copies were 13 mailed to the subscribers. 14 Members of the press will be permitted 15 to take photographs, and we would ask that this 16 be done in a manner which is not disruptive or 17 distracting to the Commission. 18 The use of cellular telephones in the 19 public meeting room while the Commission is in 20 session is prohibited. 21 Any members of the public who wish to 22 address the Commission will be given the 23 opportunity to do so before the Commission 24 adjourns for the day. 25 Please stand for the pledge of 8 ITEM NO. 1 1 allegiance. 2 (The flag salute was recited.) 3 CHAIR KASSEKERT: Good morning. 4 MR. NANCE: Good morning. 5 CHAIR KASSEKERT: Want to introduce the 6 item? 7 MR. NANCE: Yes. The matters to be 8 considered at this morning's session are the 9 petitions of Pinnacle Entertainment, Inc., for 10 the rulings related to shut down of Sands and 11 for other relief, and petition of ACE Gaming, 12 LLC, and Atlantic Coast Entertainment Holdings, 13 Inc., for certain declaratory rulings. 14 CHAIR KASSEKERT: Thank you. 15 Mr. Kell, anything to say before I ask 16 counsel to enter their appearance? 17 MR. KELL: Nothing, Madame Chair. 18 CHAIR KASSEKERT: I'll ask cousel to 19 enter their appearance just for the record. 20 MR. O'GARA: Yeah. Paul O'Gara for 21 Atlantic Coast. ARAB, A-R-A-B, and on behalf 22 of Ace. 23 MR. OETTLE: Ken Oettle, from Sills 24 Cummis for Pinnacle Entertainment. 25 MS. WAY: Good morning. Wendy Alice 9 ITEM NO. 1 1 Way, Deputy Attorney General, on behalf of the 2 Division of Gaming Enforcement. 3 MR. KIMMEL: Good morning. Charles 4 Kimmel, Deputy Attorney General, on behalf of 5 the Division of Gaming Enforcement. 6 CHAIR KASSEKERT: Thank you. 7 Good morning, everyone. I'd also note 8 the presence of Director of the Division of 9 Gaming Enforcement, Tom Auriemma. Welcome, 10 Tom. 11 Good morning. The Petitioners are 12 before us today seeking certain declaratory 13 rulings and other relief pertaining to the 14 shutdown of the Sands Casino Hotel and the 15 acquisition of the casino hotel and several 16 surrounding parcels of land and additional 17 rights by Pinnacle Entertainment, Inc. 18 Are there any procedural matters that 19 should be brought to our attention at this 20 time? 21 MR. O'GARA: Yeah. Just one. 22 CHAIR KASSEKERT: Sure. Mr. O'Gara? 23 MR. O'GARA: We had originally filed a 24 request to seal certain materials in 25 conjunction with our petition. We will 10 ITEM NO. 1 1 withdraw that request with the understanding 2 that we have submitted internal controls and 3 they'll be accordance treated in accordance 4 with Section 74. 5 CHAIR KASSEKERT: Very good. 6 Any other matters that need to be 7 brought to our attention? Okay. 8 Seeing none, I will ask counsel if they 9 would like to make an opening statement, 10 beginning with you Mr. O'Gara. 11 MR. O'GARA: Yeah. If I may, Chair, 12 members of the Commission. 13 This whole process began with the filing 14 of our petition on September 22nd. It's been 15 amended twice since then on the 22nd of 16 September -- or 19th of October 22nd of 17 October, and again I amended it again last 18 night to deal with one small issue. 19 Then Pinnacle Entertainment has also 20 filed petitions, and some of those you have 21 ruled on. And those rulings you made in 22 conjunction with their petitions, specifically 23 with respect to the status of an applicant or 24 industry license their status as a financial 25 source with respect to certain individuals who 11 ITEM NO. 1 1 would be qualifiers of Pinnacle allow us to go 2 forward with the relief that we seek today, 3 which is specifically with respect to 4 procedures for the shutdown of operations of 5 the Sands. 6 Upon your approval of those procedures, 7 the Sands would cease operations at the end of 8 gaming day November 10, which is 5:59 the 11th, 9 and at that time surrender or having 10 extinguished the certificate of operations. 11 Shut down the floor. There will be a final 12 count. We have submitted procedures and seek 13 relief with respect to the gaming equipment 14 that's being transferred from -- remains with 15 Ace. But when I say "transferred" to Pinnacle, 16 what is being transferred is the membership 17 interest in Ace, LLC. It's not any assets that 18 are going. In fact, the entity and all of its 19 assets and liabilities. 20 We have specifically sought rulings with 21 respect to our dealing with counter checks and 22 with respect to, as I said, the gaming 23 equipment. And with respect to the disposition 24 of the final amounts will be on the meters of 25 local area progressive slot machines and with 12 ITEM NO. 1 1 the two portions that are on the progressive 2 table game meters. 3 We have submitted rather extensive 4 iterations of closing procedures and internal 5 controls. And it's my understanding that they 6 match up with some that have been submitted on 7 behalf of what will be the perspectively -- the 8 new owner of Ace, Pinnacle Entertainment. And 9 we ask that you review those and you approve 10 these procedures. We'll use those procedures 11 to accomplish the shutdown. 12 And, thereafter, the actual closing of 13 the sale of Ace will occur on November the 14 17th. And at that point in time with the 15 transfer of interest, we would surrender back 16 to you the casino license which was issued to 17 ACE Gaming, LLC, and its holding company. 18 And I've reviewed the draft resolution, 19 and I have no issues with it. 20 CHAIR KASSEKERT: Thank you. 21 Mr. Oettle? An opening statement? 22 MR. OETTLE: Thank you, Madame Chair. 23 Pinnacle is here today to seek relief in 24 sequence to the relief sought by ACE Gaming. 25 Where they cease, we will pick up with all the 13 ITEM NO. 1 1 procedures. We're here to seek leave to 2 continue certain gaming-related activities 3 after the casino closes including, among other 4 things, collecting our counter checks, paying 5 off gaming liabilities, handling records, and 6 handling gaming equipment, and storing it on 7 the casino floor until it's disposed of. 8 I've reviewed the draft resolution. I 9 find it satisfactory and accurate. 10 The staff has asked me to represent on 11 the record one item regarding the corporate 12 structure that is still being worked out by 13 Pinnacle, and that is that in between Pinnacle 14 and the ACE Gaming subsidiary will be two or 15 three intermediary companies which will perform 16 whatever function intermediary companies 17 perform, largely corporate and structural. One 18 of them will be PNK Development 13. Above that 19 will be Biloxi Casino Corp., and possibly above 20 that will be something called Casino Magic. 21 I'm told that it's still being decided whether 22 there will be two or three in between the 23 Pinnacle at the top and ACE Gaming at the 24 bottom. 25 Of all those entities, we'll have as 14 ITEM NO. 1 1 officers, directors or members -- depending on 2 whether they are a corporation or a LLC -- 3 persons who have filed forms in connection with 4 Pinnacle's application for a statement of 5 compliance and Pinnacle's application for a CSI 6 license. It will be Dan Lee, Steve Cap, Jack 7 Godfrey and Chris Plant, and in this case Larry 8 Buck as well, who is coming to New Jersey to 9 head up the New Jersey operation. 10 There's one individual who in a residual 11 capacity is still an officer of Biloxi Casino 12 Corporation. That's Terry Schneider, but Terry 13 has already moved on to other things. And we 14 will just as an administrative matter remove 15 Terry Schneider as an officer of Biloxi so 16 there's no persons -- no individuals of in that 17 chain of ownership who haven't filed. 18 I'd also like to take this opportunity 19 today as I did the last time I appeared to 20 thank the Commission and its staff and the DGE 21 who have continued to work extremely hard with 22 us and stayed sometimes one step ahead of us, 23 sometimes we're one step ahead of them, but 24 we're pretty much coming out even. And it 25 looks as if we're going to have a smooth 15 ITEM NO. 1 1 transition, in large part thanks to them. 2 We will have one witness, today. Kim 3 Townsend is here are from Pinnacle to speak to 4 you about the transition, plans looking 5 forward, and who will head up the operation in 6 New Jersey. 7 CHAIR KASSEKERT: Thank you. 8 Division? 9 MS. WAY: Thank you, Madame Chair. 10 We've reviewed all the submissions that 11 have come in from both Petitioners onward to 12 today, and including today the draft resolution 13 and we support its adoption. 14 CHAIR KASSEKERT: Thank you. 15 MS. WAY: Thank you. 16 CHAIR KASSEKERT: All right. We'll now 17 move to testimony. Mr. O'Gara. 18 MR. O'GARA: Yeah. I call George Toth, 19 the president of Sands. 20 George? 21 CHAIR KASSEKERT: You'll be sworn. 22 23 GEORGE TOTH, having been duly sworn to 24 tell the truth, testified as follows: 25 16 GEORGE TOTH 1 MR. NANCE: Please state your name for 2 the record. 3 MR. TOTH: George Toth. 4 MR. NANCE: Thank you. You may be 5 seated. 6 CHAIR KASSEKERT: You may proceed. 7 8 DIRECT EXAMINATION BY MR. O'GARA: 9 Q. Mr. Toth, you are the president of the 10 Sands, ACE Gaming, LLC? 11 A. Yes, I am. 12 Q. And how long have you held that 13 position? 14 A. That's a good question. About two and a 15 half years. 16 Q. And prior to that, were you employed at 17 the Sands? 18 A. Yes, I was. 19 Q. For how long? 20 A. Two stints, 14 years. 21 Q. On or about Labor Day of this year, ARAB 22 announced that it was the intention to sell Ace to 23 Pinnacle. At that time did you undertake an 24 evaluation of what would be necessary to close down 25 the operations of the Sands? 17 GEORGE TOTH 1 A. Yes, we did. And with the help of legal 2 counsel, the department heads, and everyone involved 3 in the operation, we laid out operational plans of 4 what it would take to shut it down seeking regulatory 5 approval for those plans. 6 Q. And how many of your people did it 7 involve in trying to work out these kind of shutdown 8 plans? How did you organize it? By department? 9 A. Essentially we started with the vice 10 presidents in charge of the departments, so we did and 11 filtered it back down through the organization what it 12 would take to close the property. 13 Q. And subsequent to that agreement, have 14 you had occasion to have liaison and speak with and 15 work with people from Pinnacle Entertainment who 16 have-- will be taking over the property on the 17th? 17 A. Yes, we have. 18 Q. And, in fact, are you aware that they've 19 been developing procedures to learn what happens when 20 they take the property over? 21 A. Yes, I am. 22 Q. Now, Mr. Toth, specifically with respect 23 to some of the things we're dealing with, there are 24 issues with respect to how you would deal with casino 25 credit. Did you adopt a policy with respect to credit 18 GEORGE TOTH 1 and how was it executed? 2 A. Yes, we did. We adopt a policy credit 3 be closed on October 24th and all the counter checks 4 would be submitted by October 26th. It's all been 5 taken care of so the market bank is empty. 6 Q. So there are no counter checks pending 7 collection at this date? 8 A. That's correct. 9 Q. Now, once you had announced, and it was 10 a public announcement -- I mean, did you have to 11 develop a marketing plan? And, if so, what type of 12 marketing plan do you develop when you're leaving town 13 in a couple months? 14 A. I'd like to keep that secret in case I 15 ever get the opportunity again. 16 It's a very difficult marketing plan to 17 keep the customers coming and keep the employees 18 motivated and to get until we shut down, but we did 19 involve an extensive marketing plan that played upon 20 the history of the Sands. 21 Q. And as we get to the very end, have you 22 been satisfied with the way that plan has been 23 executed and worked out? 24 A. Yes. 25 Q. You have local area progressive slot 19 GEORGE TOTH 1 machines inside the casino. That's the ones that 2 aren't the IGT machines. The ones that are just in 3 the Sands. Have you submitted -- we've submitted 4 controls, but do you have a proposal for how you are 5 going to deal with the balances which are on those 6 meters which represent funds other than funds that 7 were set there by the Sands? 8 A. Yeah. Well, pending all approvals and 9 whatever we need to do, this will be a given out 10 between hours of 4:000 and 8:00 on final Friday night. 11 And random drawings, computer generated typical 12 sweepstakes promotion. 13 Q. And that would mean that sometime on the 14 6th of November, you'll finally take down those 15 numbers those final numbers? 16 A. If the 6th of November is the date 17 that's decided. Yes. 18 Q. Having done this, Mr. Toth, would you 19 say overall that from the time that you announced the 20 transaction to today that you've been satisfied with 21 your ability to get this done and the cooperation you 22 received from everyone in trying to get it done? 23 A. I think we've received tremendous 24 cooperation from everyone. From the Commission, 25 obviously. From all the attorneys, and both sides of 20 GEORGE TOTH 1 the equation, and the employees. Customers. Yes. 2 Q. You leave town a happy man? 3 A. I really can't -- I don't know what I'm 4 doing. 5 MR. O'GARA: I don't have any other 6 questions. 7 Thank you. 8 CHAIR KASSEKERT: Thank you. 9 Mr. Oettle, any questions for Mr. Toth? 10 MR. OETTLE: Not necessary. 11 CHAIR KASSEKERT: The Division, Wendy? 12 MS. WAY: No questions. 13 We thank the witness for his testimony. 14 CHAIR KASSEKERT: Thank you. 15 Let me ask if any of the Commissioners 16 have any questions? 17 COMMISSION FEDORKO: I don't have any 18 questions, Madame Chair, but I would just like 19 to congratulate a fellow Trentonian on a job 20 well done. I think you've done a great job. 21 CHAIR KASSEKERT: Thank you. Any other 22 questions? 23 COMMISSIONER SOMMELING: No questions, 24 Madame Chair. 25 VICE CHAIR FRULIO: No. 21 KIM TOWNSEND 1 CHAIR KASSEKETT: You may step down. 2 MR. TOTH: Thank you. 3 CHAIR KASSEKERT: Any other witnesses 4 Mr. O'Gara? 5 MR. O'GARA: No, ma'am. 6 CHAIR KASSEKERT: Mr. Oettle, any 7 witnesses? 8 MR. OETTLE: Yes, Madame Chair. One 9 witness. I would like to call Kim Townsend 10 from Pinnacle. 11 12 KIM TOWNSEND, having been duly sworn to 13 tell the truth, testified as follows: 14 15 MR. NANCE: Please state your name. 16 MS. TOWNSEND: Kim Townsend. 17 MR. NANCE: Thank you. 18 You may be seated. 19 CHAIR KASSEKERT: You may proceed. 20 21 DIRECT EXAMINATION BY MR. OETTLE: 22 23 Q. Thank you for coming today, Kim. Could 24 you tell us what your position is with Pinnacle 25 Entertainment? 22 KIM TOWNSEND 1 A. I am currently Senior Vice President of 2 Marketing at a corporate level. 3 Q. Have you been involved in the planning 4 and the compliance in connection with the shutdown of 5 the Sands and the transition of ownership to Pinnacle? 6 A. I have. One of my duties was acting as 7 the project manager for the initiation of the 8 transaction and the tasks that are laid out to get us 9 to the 17th and beyond. 10 Q. Could you tell us a little bit about how 11 the process began for you in connection with the 12 transition and have carried you forward at this point? 13 A. The process as part of the marketing 14 role is to participate in the development of future, 15 you know, properties within the Pinnacle structure. 16 And, obviously, we have been looking at many different 17 jurisdictions, and we have been looking at Atlantic 18 City for quite some time. And since I am from here, 19 this was a very natural thing for me to participate 20 in. And I wanted to assist the company in getting to 21 that point. 22 Q. How did you -- what were your initial 23 tasks when you first took this position as project 24 manager? 25 A. The initial tasks were developing a 23 KIM TOWNSEND 1 project matrix, a listing of all types of, you know, 2 conditions that would have to -- that Pinnacle would 3 actually have to go through in order for the 4 transition. And it -- obviously, you know, we have to 5 consider what is happening on the Sands side as well 6 so that it's as seamless as possible and as smooth as 7 possible. 8 Q. So -- 9 A. So I orchestrated the tasks that needed 10 to be performed. 11 Q. So one of your jobs was to integrate the 12 procedures that you conceived for when Pinnacle would 13 take over with the procedures that the Sands had 14 already -- 15 A. Yes. 16 Q. -- or was commencing? 17 A. Yes. 18 Q. As part of the shutdown? 19 A. Yes. 20 Q. Okay. You recently -- according to a 21 press release, you recently were elevated within the 22 organization, weren't you? 23 A. Yes, I was. 24 Q. What's your new position? 25 A. Executive Vice President for the 24 KIM TOWNSEND 1 Atlantic City Operations. Of course, with regulatory 2 approval. 3 Q. So are you going to move to New Jersey? 4 A. I am. Yes. 5 Q. On a permanent basis? 6 A. On a permanent basis. Yes. I have been 7 looking a little bit at homes -- probably more in 8 books than in person because I haven't quite had the 9 time, but we are anxiously looking toward to coming 10 home. 11 Q. You'll be the number two person? 12 A. Yes. 13 Q. In Pinnacle's New Jersey project? 14 A. Yes. 15 Q. Did you get your start in New Jersey in 16 the gaming industry? 17 A. Yes, I did. 1979 I started with the 18 Golden Nugget, Inc., corporate offices, and I was in 19 construction and accounting and opened up that 20 property as it related to the construction side of it 21 and moved into a marketing position, created the -- 22 probably the first player rating system and comp 23 system that we had there. 24 Q. How long were you with the Golden 25 Nugget? 25 KIM TOWNSEND 1 A. I left in '05. Excuse me. '85. And 2 that was at a point in time when Steve was looking to 3 sell the Golden Nugget. I was offered a position with 4 the Trump organization, and I accepted a corporate 5 position for VP marketing for all the properties. 6 Q. So you were with Trump for a while in 7 New Jersey? 8 A. I was with Trump for approximately five 9 years. Maybe a little bit longer and -- 10 Q. In marketing capacities? 11 A. I was the senior person for marketing 12 for all properties. Yeah. 13 Q. All three? 14 A. All three. 15 Q. Eventually you went to Las Vegas? 16 A. I did. I wasn't quite ready to move 17 initially in '85 when Mr. Wynn left here, and I was 18 still a small town girl, wasn't ready to make the 19 move. So probably five years later after a tour of 20 duty with Trump I was able to make that move. 21 Q. What was the first position you had in 22 Las Vegas? 23 A. It -- for Mr. Wynn? 24 Q. Yeah. You went with Steve Wynn. 25 A. I was Corporate Director of Marketing. 26 KIM TOWNSEND 1 Q. Director of Marketing. Were you 2 involved in helping open any properties in Las Vegas? 3 A. I was. We -- a lot of what I did was 4 the opening tasks very similar to this, but in terms 5 of an opening versus a shutdown for Mirage, Treasure 6 Island, Bilagio Biloxi, and along with the marketing 7 responsibility for all of the properties. 8 Q. You were involved in the Venetian as 9 well? 10 A. I was. I started with the Venetian 11 in -- I believe it was early '97. And I was also Vice 12 President of Marketing for that property. Majority of 13 my time was spent on the finance side of marketing 14 doing the road shows that raise the bonds, you know, 15 to build the Venetian. And, again, similar tasks that 16 you go through for. 17 Q. When did you join Pinnacle? 18 A. I joined Pinnacle in early '02. Right 19 around when Mr. Lee started, and I was Vice President 20 of Marketing. 21 Q. A Vice President of Marketing? You've 22 been involved in opening casinos for Pinnacle as well, 23 haven't you? 24 A. Yes. We have opened up L'Auberge du lac 25 in Lake Charles, which is the most successful river 27 KIM TOWNSEND 1 boat in the state of Louisiana. We are also actually 2 in the process of opening another facility in St. 3 Louis. So these opening tasks are being handled for 4 that as well. And we are also expanding in several 5 different locations, Indiana, New Orleans as well. 6 Q. So overall you've been involved in 7 opening about half a dozen casinos or more? 8 A. Yes. 9 Q. Looking for another one here in New 10 Jersey? 11 A. I like it. 12 Q. You'll be the number two person in New 13 Jersey. The number one person, according to the press 14 release, will be Larry Buck. When will he come here? 15 A. Larry is currently the GM and Vice 16 President of our Belterra property, which is in 17 Indiana, and he's winding down that position. We have 18 named a replacement for him. So there's probably a 19 good two, two-and-a-half-week transition. Obviously, 20 the gentleman who's been promoted is from within and 21 has been at that property so the transition will be as 22 long-term. He -- Larry will be out here towards the 23 end of November. He is currently looking for a home 24 long distancewise right now, and he is anxious to 25 relocate. He's from this area as well. 28 KIM TOWNSEND 1 Q. So he's moving here on a permanent 2 basis, also? 3 A. Absolutely. 4 Q. Does Larry have New Jersey roots, too? 5 A. I'm sorry? 6 Q. Is Larry from New Jersey? 7 A. Yes, he is. Actually, Larry and I 8 worked together at the Nugget early on. Yeah. 1982. 9 Q. That would be back in the early to mid 10 '80s? 11 A. Right. '82, '83. 12 Q. What other experience did Larry have in 13 New Jersey? 14 A. Well, he actually was here at the Golden 15 Nugget, and then through the transition of the 16 purchase of the Golden Nugget for approximately seven 17 years. He worked his way through, got promoted, and 18 actually became GM of some of the Midwestern Southern 19 RIVER boats and found his way to Pinnacle. 20 Q. You've told me you know several other 21 people within the Pinnacle organization who have New 22 Jersey roots and New Jersey casino experience? 23 A. We do. I was very nicely surprised 24 having joined Pinnacle, you know, with the existing 25 properties that we had to find a lot of familiar 29 KIM TOWNSEND 1 faces, and there is probably, you know, a good dozen 2 people within the organization that actually worked 3 with me here in Atlantic City. And I believe that 4 they are quite anxious to get this going because we 5 all look forward to their contributions that they can 6 make here. 7 Q. So you expect many of these people from 8 New Jersey to head back to New Jersey to be part of 9 this new project? 10 A. I haven't heard one that said they 11 didn't want to be here. So they are all anxious. 12 Q. And the company would accommodate their 13 wishes? 14 A. Oh, absolutely. 15 Q. You've been planning in terms of drawing 16 up charts and working out compliance schemes for the 17 internal controls necessary because Pinnacle will have 18 certain gaming functions even though the casino is 19 closed. We call them leftover gaming functions. 20 Could you tell us about some of the functions that 21 Pinnacle will be performing after the shutdown of the 22 casino that have a gaming relation? 23 A. Sure. And some of this doesn't 24 necessarily start on the 17th. The property is moving 25 a lot of the stored slot machines and gaming equipment 30 KIM TOWNSEND 1 from the warehouse to the facility somewhere on or 2 about November 12th. That is something that the Sands 3 is working out, and that's one of those tasks that we 4 overlap and need to make sure that it gets handled 5 appropriately. 6 Post close on the 17th, we have supplied 7 controls and documentation for surveillance and 8 security. We are maintaining a fairly large security 9 force to make sure that the floor is controlled. 10 Q. You'll be using the -- excuse me. 11 You'll be excusing the casino floor for storage 12 purposes? 13 A. We have requested that the casino floor 14 be considered as a warehouse. Yes. 15 Q. Tell us about the security you've 16 planned for that, the casino floor? 17 A. Part of our transition includes -- I'd 18 like to just start with, it includes keeping on some 19 of the Sands employees. One of our most critical 20 areas and concerns in order to meet our obligations as 21 relates to the regulatory environment, and because it 22 is the way we operate in all of our facilities, is to 23 make sure that we have enough security. Walt Tirrell 24 is currently at the property. He will be staying on. 25 As will Tom Green, who is the Director of Security. 31 KIM TOWNSEND 1 They have been rehearsing and reviewing staffing 2 levels daily. We have submitted what we feel is not 3 just adequate coverage but probably a little more than 4 adequate. 5 And, obviously, the feel or sense from 6 the Commission and the agencies that we need more, we 7 will certainly add to that staff. We probably -- we 8 are running 24/7 security. There will be posted 9 locations. They're be roving locations. People will 10 be interacting with a command center that will be 11 maintained at the Kentucky Avenue entrance side, and I 12 think that transition with security because we are 13 keeping, you know, the staff that is there will be 14 very easy. 15 Q. You'll have cameras as well? 16 A. Camera locations remain, and they will 17 be handled through security. Again, with the approval 18 of the Commission. Tapes will not be stored with 19 them, they will be stored within another group. 20 Q. And you'll also be making arrangements, 21 I believe, to pay off chips and tokens and slot 22 tickets to patrons who have haven't previously cashed 23 them in? 24 A. We will do that. We are setting up a 25 temporary process, and I don't really mean to call 32 KIM TOWNSEND 1 that "temporary." But as long as the Jefferson 2 building is in existence, which it surely will be for, 3 you know, an extended period of time, we will create a 4 satellite cage area where -- and the entrance itself 5 will be used by vendors. It will be used by employees 6 that need to come in to ask questions, and it will 7 certainly be used by customers, and they will be 8 notified that that is the entrance that they use. The 9 customers can come up and redeem the ticket-out 10 vouchers, they can redeem chips, they have a jackpot 11 that they have not received payment for. We will 12 handle those transactions again. 13 Internal controls have been created. We 14 are pending blessing of those, and if they need 15 alteration we will alter them. We do have a lot of 16 the accounting staff and advance staff staying on 17 board. And I believe that the appropriate positions 18 will be in place to handle these transactions. They 19 are no different than the positions in a current 20 operation, so we're keeping these people on board as 21 well. 22 Q. Thank you. 23 Tell us a little bit about how Pinnacle 24 is beginning to set up shop in New Jersey, where will 25 your offices be, and who will you bring here to take 33 KIM TOWNSEND 1 care of your -- to begin to work on the new project. 2 A. Initially we were going to maintain the 3 Jefferson building as offices. It's set up that way. 4 A lot of the remaining employees and staff are already 5 there. Files are there. So we will utilize the 6 Jefferson for offices in general. 7 In terms of staff that will be coming on 8 board November 17th, and clearly well into the first 9 quarter, there are a lot of obligations that we need 10 to meet, not just from a regulatory standpoint but an 11 accounting standpoint. And our focus in the first few 12 months will be making sure that those obligations are 13 met. 14 We do have a design group. Cliff 15 Kortman is our President of Pinnacle Construction. 16 They will, after the first of the year, be including 17 themselves in our offices. And his team is with -- he 18 will be naming a project manager, as we have project 19 manager for each of our construction projects that are 20 currently being worked on. And he'll set up shop here 21 in addition to the group that is staying on from the 22 Sands and in addition to myself. In addition to Larry 23 Buck who will be training. 24 Q. Pinnacle is pretty excited about this 25 project, isn't it? 34 KIM TOWNSEND 1 A. We are very excited. We are 2 enthusiastic. We are eager. We look forward to 3 spending a tremendous amount of time going over the 4 design concepts and the concepts, what inclusions we 5 want in the building. And that's a very long process, 6 but we are eager to be back here. 7 We absolutely believe that Atlantic City 8 is the thriving market. I think as a result of the 9 Borgata opening and what the Borgata was able to 10 achieve in terms of adding some depth to the market. 11 They did not just enhance customer share. They 12 enhanced market share, and I believe that we will 13 clearly do the same. 14 MR. OETTLE: I have no further 15 questions, Madame Chair. 16 Q. I'd like to ask Miss Townsend if you'd 17 like to add anything. I forgot to ask you about. 18 A. I do. Thank you. No. 19 The only thing I'd like to add is just 20 to take a moment to thank everyone. The Commission, 21 the Division, all the regulatory staff. You have been 22 proactive. You have been responsive to our needs. 23 You have worked countless hours in a very short time 24 in dealing with an extremely complex transaction. And 25 we really, really appreciate it. 35 KIM TOWNSEND 1 I am overtly impressed and look forward 2 to coming back and working with everybody. We enjoy 3 it. We do not take this light. And I think that we 4 have a lot of good things ahead of us. 5 CHAIR KASSEKERT: Thank you. 6 THE WITNESS: And I appreciate it. 7 Thank you. 8 CHAIR KASSEKERT: Mr. O'Gara, I assuming 9 you don't have any questions? 10 MR. O'GARA: I have no questions. 11 CHAIR KASSEKERT: Very good. 12 Wendy? 13 MS. WAY: No questions, Madame Chair. 14 We thank the witness for her testimony. 15 CHAIR KASSEKERT: Let me ask that the 16 Commissioners if they have any questions. 17 COMMISSIONER EPPS: I have a couple 18 questions. 19 CHAIR KASSEKERT: Sure. 20 COMMISSIONER EPPS: With respect to the 21 Sands building after the transactions -- 22 THE WITNESS: Uh-huh. 23 COMMISSIONER EPPS: I understand, you're 24 going to use the Sands as a warehouse. How 25 much other foot traffic will be in the Sands, 36 KIM TOWNSEND 1 and how will that be regulated? 2 THE WITNESS: As part of our closing 3 plan and documentation, security will be 4 sealing off public entrances. Walt and Tom are 5 also working with the fire safety, police, to 6 make sure that the appropriate doors are shut. 7 They eventually will be sealed. We are looking 8 for approval to fence off areas so public foot 9 traffic would cease. If there is public, they 10 should by using the Kentucky Avenue entrance 11 for offices and office use only. 12 VICE CHAIR EPPS: So it would be an 13 authorized personnel only? 14 THE WITNESS: Absolutely. 15 COMMISSIONER EPPS: Throughout the 16 building after that? 17 THE WITNESS: Yes. We have a procedure 18 in place for visitor authorization. Vendor 19 authorization, if there are people coming into 20 the building. And, eventually, when we get 21 into a construction phase, obviously, there 22 will be permitting and credential 23 responsibility. 24 VICE CHAIR EPPS: Okay. Thank you. 25 Also with respect to paying your 37 KIM TOWNSEND 1 liabilities and the satellite cage you 2 mentioned being set up at the Jefferson, is 3 there a plan to inform the public with some 4 kind of information blitz to let people know 5 this is where we are, this is how we're set up, 6 and this is what you need to do to recoup 7 whatever you're looking for that you may be 8 owed? 9 THE WITNESS: Yes. We will be placing 10 ads, redemption ads. I don't know that there 11 has been very many here in Atlantic City, but 12 it's obviously something that happens all the 13 time in Las Vegas and, unfortunately, within 14 the Biloxi area due to the hurricane. And it 15 will basically inform them, hours of operation, 16 location, requirements, what they will need to 17 bring. And we will run those ads for several 18 months. 19 VICE CHAIR EPPS: Okay. 20 THE WITNESS: So there is an awareness 21 of that. 22 VICE CHAIR EPPS: And my concern is that 23 the public who is out there -- 24 THE WITNESS: Right. 25 VICE CHAIR EPPS: -- needs to know how 38 KIM TOWNSEND 1 to go about getting -- 2 THE WITNESS: Absolutely. And what we 3 do have as well, is we are obviously keeping 4 the phone numbers open. I expect and 5 anticipate that there will be several calls and 6 in anticipation of that we have created, you 7 know, the top one hundred questions that people 8 could potentially ask. We have a staff that 9 will be in place, and there are exact answers 10 and ways in which to direct the public or 11 vendors or employees to assist them to get to 12 the next step. 13 VICE CHAIR EPPS: Okay. 14 CHAIR KASSEKERT: Commissioner 15 Sommeling? 16 COMMISSIONER SOMMELING: Madame Chair, I 17 would just like to thank Kim, a Jersey Girl, 18 back to New Jersey. 19 THE WITNESS: Thank you. Thank you. 20 I'm very excited. 21 CHAIR KASSEKERT: Let me just -- any 22 other questions? Let me just ask. 23 You spoke a little bit about the Sands 24 employees that you will be retaining through 25 this process. 39 KIM TOWNSEND 1 THE WITNESS: Uh-huh. 2 CHAIR KASSEKERT: Do you have a number 3 that you can share with us of individuals that 4 can be kept? Estimation. 5 THE WITNESS: Well, right now -- and 6 that may change, not in terms of a decline but 7 potentially an incline -- we will have 8 approximately a hundred, 125 people stay on 9 board. We are -- again, the bulk of those 10 numbers are security. 11 CHAIR KASSEKERT: Uh-huh. 12 THE WITNESS: Finance. Accounting. 13 Certainly human resources. Benefits. We are 14 continuing with the public relations effort. 15 And I know that you've seen Carl Zeitz. 16 Carl will be working from an outside resource 17 standpoint along with Carmen Gonzales 18 internally, who is one of the current Sands 19 employees on the community side. Lisa Buglio 20 from human resources will be staying on with a 21 lot of her staff as well. 22 CHAIR KASSEKERT: Okay. Any other 23 questions? 24 COMMISSIONER SOMMELING: No questions, 25 Madame Chair. 40 ITEM NO. 1 1 CHAIR KASSEKERT: You may step down. 2 Thank you. 3 THE WITNESS: Thank you. 4 CHAIR KASSEKERT: We'll now move to 5 closing statements. 6 Let me ask if any of the parties would 7 like to make a closing statement? 8 MR. O'GARA: No. We just thank everyone 9 that helped us, particularly Dianna and Rich 10 Franz and Dennis Kell who worked through all 11 these operations with us, as well as the people 12 in the Division. And we would ask that you 13 consider and adopt the draft resolution which 14 is before you. 15 CHAIR KASSEKERT: Thank you. 16 Mr. Oettle? 17 MR. OETTLE: Thank you, Madame Chair. 18 I'll simply echo Mr. O'Gara's remarks. 19 CHAIR KASSEKERT: Thank you. 20 Miss Way? Mr. Kimmel? 21 MS. WAY: Madame Chair, we just 22 recommend the Commission adopt the resolution 23 as drafted. 24 Thank you. 25 CHAIR KASSEKERT: Thank you. Let me ask 41 ITEM NO. 1 1 before we move forward? Does anyone need a 2 recess at this point? 3 Seeing not, okay. 4 Are there any other matters that need to 5 be brought to our attention at this point for 6 the record? 7 MR. O'GARA: Not that I'm aware of. 8 CHAIR KASSEKERT: Okay. Just checking. 9 Very good. 10 Well, obviously, this is a day of very 11 mixed emotions as we bid farewell to the Sands, 12 who has had a long history here in Atlantic 13 City. And I read in the paper today about the 14 whole history of the Coppa Room. And as they 15 move on, and we welcome to -- we welcome 16 Pinnacle to the Atlantic City market. And, 17 obviously, it's unfortunate to see any business 18 shut its doors. But it is fortunate, however, 19 that the proposed shutdown of the Sands is a 20 reflection of the health and the success of the 21 Atlantic City casino industry and not any sign 22 of weakness. And in that regard it is very 23 exciting to anticipate the casino hotel complex 24 that will be constructed on this site and the 25 jobs and related businesses that it will 42 ITEM NO. 1 1 generate. And we welcome Pinnacle to New 2 Jersey and look forward to working with it in 3 the coming years as it plans and constructs and 4 opens its new casino hotel. 5 And I would be remiss if I didn't extend 6 my thanks, also, to my staff, to Dennis, to 7 Dianna, to Rich, to Noreen, to Chris, each of 8 their respective staffs who worked in each of 9 the different areas that were impacted upon 10 both the closing and the bringing of Pinnacle 11 here as a gaming CSI, to thank the Division. 12 We worked hand in hand with the Division 13 throughout this process through many meetings, 14 with representatives Wendy, Chuck, Mitch, Tom, 15 and the rest of their staff. And to thank both 16 the parties, both Pinnacle and Sands for your 17 cooperation, your forthcoming -- your ability 18 to be forthcoming with us on various complex 19 issues. 20 So as we move forward, I now, therefore, 21 move to adopt the draft resolution. 22 And is there a second for this motion? 23 COMMISSIONER SOMMELING: Second. 24 COMMISSIONER FEDORKO: Second. 25 CHAIR KASSEKERT: The motion has been 43 ITEM NO. 1 1 made and seconded. This is a roll call vote. 2 MR. NANCE: Commissioner Sommeling? 3 COMMISSIONER SOMMELING: Yes. 4 MR. NANCE: Commissioner Epps? 5 COMMISSIONER EPPS: Yes. 6 MR. NANCE: Commissioner Fedorko? 7 COMMISSIONER FEDORKO: Yes. 8 MR. NANCE: Vice Chair Frulio? 9 VICE CHAIR FRULIO: Yes. 10 MR. NANCE: Chair Kassekert? 11 CHAIR KASSEKERT: Yes. 12 MR. NANCE: The record will reflect that 13 the motion is unanimous. 14 CHAIR KASSEKERT: Thank you very much. 15 Welcome to Atlantic City. 16 I am going to at this point ask if there 17 is anyone from the public that wishes to speak 18 since we're going to have a bifurcated meeting. 19 Is there anyone from the public here that 20 wishes to speak? 21 Seeing none, I will, therefore, enter a 22 recess. 23 We will reconvene at 2:00 this afternoon 24 to consider Columbia Sussex. 25 Thank you very much. 44 ITEM NO. 2 1 (The meeting was in recess from 10:18 2 a.m. to 2:06 p.m.) 3 CHAIR KASSEKERT: Actually, we did the 4 pledge. Just we'll come back off of recess. 5 Mr. Nance, you want to read the next 6 item for consideration? 7 MR. NANCE: Yes. The matter to be 8 considered are the petitioners -- the amended 9 petition of Wimar Tahoe Corporation for interim 10 casino authorization to own and operate 11 Tropicana Casino and Entertainment Resort; and 12 petition of Wimar Tahoe Corporation, Wimar 13 OpCo, LLC, Wimar OpCo Intermediate Holdings, 14 LLC, and Wimar OpCo Holings, LLC, and Wimar 15 Holding, LLC, for declaratory ruling with 16 respect to the provision of NJSA 17 5:12-82d(7)(8)(10). Petition of Wimar Tahoe 18 Corporation, Wimar OpCo, LLC, Wimar Opco 19 Intermediate Holdings, LLC, and Wimar Holdings, 20 LLC, for declaratory relief with respect to 21 certain debt transactions. And joint petition 22 of Adamar of New Jersey, Inc., and Wimar Tahoe 23 Corporation for temporary licensing of Fred 24 Buro as a casino key employee, pursuant to NJSA 25 5:12-89e and to permit him to assume the duties 45 ITEM NO. 2 1 and exercise the powers of President and Chief 2 Operating Officer of Adamar New Jersey, Inc., 3 without first having been found qualified 4 pursuant no NJAC 19:43-2.6. 5 CHAIR KASSEKERT: Mr. DiGiacomo? 6 Please. 7 MR. DiGIACOMO: Thank you, Madame Chair. 8 Good Afternoon. 9 Could counsel announce their appearances 10 for the record. 11 MR. MICHAEL: Guy Michael, Michael & 12 Carroll on behalf of the Applicants. Also from 13 Carroll & Michael here is John Mercun. 14 MR. LEVENSON: Hi. Lloyd Levenson, 15 Cooper Levenons on behalf of the Petitioners 16 and -- 17 MS. KAUFMAN: Lynne Kaufman, Cooper 18 Levenson, on behalf of the Petitioners. 19 MR. MARQUEZ: Deputy Attorney General 20 Raymond Marquez on behalf of the Division. 21 CHAIR KASSEKERT: Thank you. 22 Good afternoon. The Commission is 23 considering today the request by Wimar Tahoe 24 Corporation for interim casino authorization to 25 acquire Aztar Corporation and thereby become 46 ITEM NO. 2 1 the indirect owner of the Tropicana Casino and 2 Entertainment Resort. Because Wimar will use 3 Tropicana as collateral for the loans that will 4 fund a portion of the purchase price, we also 5 examine the financial stability of the company 6 and its qualifying entities. 7 ICA is essentially a form of qualifying 8 corporation that allows entities, such as 9 Wimar, to acquire and control casino-related 10 assets without a plenary suitable review while 11 still assuring that it does not profit from its 12 investment of the casino industry unless it 13 ultimately obtains qualification. 14 To start the process, ICA candidate must 15 submit a completed application, including a 16 trust agreement. The Commissioners examines 17 who has to qualify and then we check for 18 whether the necessary application forms have 19 been filed. 20 In evaluate the financial and other 21 criteria, the Commission will undertake 22 testimony today. And there are also a number 23 of exhibits that have been premarked and that 24 Mr. Nance will now identify for the record. 25 MR. NANCE: I received one exhibit from 47 ITEM NO. 2 1 the Division of Gaming Enforcement, which was 2 premarked as D-1, which is a report dated 3 October 10th, 2006, from Raymond Marquz, Deputy 4 Attorney General, regarding an amended petition 5 for Wimar Tahoe Corp., for ICA and other 6 relief. 7 I received two exhibits from the 8 Petitioner. Excuse me. Which was premarked as 9 P-1 and P-2. 10 P-1 is a trust agreement dated October 11 16th, 2006, between Wimar Tahoe Corp., Wimar 12 OpCo, LLC, Wimar Opco Holdings, LLC Wimar Opco 13 Intermediary Holdings, LLC, a Delaware 14 Liability Limited Group, for Gary S. Stein, 15 Trustee. 16 P-2 has been premarked as a promissory 17 note dated October 25th, 2006. 18 CHAIR KASSEKERT: Are all those -- the 19 exhibits, Mr. Michael? 20 MR. MICHAEL: Yeah. Those are the two 21 exhibits on behalf of Petitioners. We'd move 22 in those exhibits into evidence at this time. 23 CHAIR KASSEKERT: Thank you. 24 Let me just ask if there are any 25 objection to the admission of these exhibits? 48 ITEM NO. 2 1 MR. MARQUEZ: No objection. 2 CHAIR KASSEKERT: And are there any 3 sealing requests? 4 MR. MICHAEL: Yes. With respect to the 5 trust agreement in particular, there is a 6 request that we have filed to seal a portion of 7 that trust agreement, simply the compensation 8 portions of the trust agreement. 9 CHAIR KASSEKERT: Thank you. 10 Any objection to that being -- 11 I'm sorry. 12 MS. KAUFMAN: Yes. And we have a 13 sealing request for portions of the Division's 14 report. 15 CHAIR KASSEKERT: Thank you. Any 16 objections to those sealing requests, Mr. 17 Marquez? 18 MR. MARQUEZ: No, Madame Chair. 19 Although, I believe some copies of our report 20 were given to admin to be put in as an item. 21 You have -- 22 MR. NANCE: Yes. We have the exhibits. 23 MR. MARQUEZ: I need to have a copy back 24 from you. 25 MR. NANCE: Okay. 49 ITEM NO. 2 1 MR. MARQUEZ: We would have no objection 2 to the sealing, Madame Chair. 3 Thank you. 4 CHAIR KASSEKERT: All right. Seeing 5 none, I will move those exhibits into 6 submission, and the sealing requests as well. 7 With those exhibits in the record, the 8 company has made great strides in completing 9 its ICA filing. However, the Casino Control 10 Act essentially affords the Division a 90-day 11 opportunity to review the completed 12 application. That period may be abbreviated 13 whenever the Division sooner reports. 14 Although the Division has conditionally 15 reported here, it is, in my view, still 16 entitled to a 90-day review, especially given 17 some of the recent arrival of some of the 18 materials. Nevertheless, do I understand that 19 the Division does not object to this matter 20 proceeding now? 21 MR. MARQUEZ: That's correct, Madame 22 Chair. 23 CHAIR KASSEKERT: Very good. 24 Are there any other procedural matters 25 that need to be brought to our attention at 50 ITEM NO. 2 1 this time? 2 Seeing none, okay. 3 We are now set for opening statements, 4 which the parties may waive and elect instead 5 of to proceed directly to testimony. 6 Counsel, what's your preference? 7 MR. LEVENSON: Well, we are waiving an 8 opening statement, which I'm sure you find 9 quite different from my usual wanting to talk. 10 CHAIR KASSEKERT: Set yourself up, Mr. 11 Levenson. 12 MR. LEVENSON: But before we start, I 13 just wanted to introduce -- introduce -- I 14 can't see behind my head, but I know it. 15 Introduce the people who are here, even though 16 some of you have already had an opportunity to 17 meet them. 18 But I'd like to introduce you to William 19 Yung, who is the President, Secretary, Sole 20 Director and Sole Shareholder of Columbia 21 Associates and Wimar; Rich FitzPatrick, who is 22 the Columbia Vice President and CFO; Fred Buro, 23 who is the Vice President of Casino Marketing, 24 Wimar; and more recently on the horizon, Donna 25 More, who is Vice President and General Counsel 51 WILLIAM J. YUNG, III 1 of Wimar and Columbia Sussex. 2 So with those introductions, I'll turn 3 it over to Guy Michael, who is going to call 4 the first witness. 5 CHAIR KASSEKERT: Mr. Michael? 6 MR. MICHAEL: Want me to go first? 7 CHAIR KASSEKERT: Just ask if the 8 Division wishes to make an opening statement. 9 MR. MARQUEZ: No, Madame Chair. 10 CHAIR KASSEKERT: Very good. 11 Mr. Michael, you may begin. 12 MR. MICHAEL: Thank you, Madame Chair. 13 I'd like to call William Yung. 14 15 WILLIAM J. YUNG, III, having been duly 16 sworn to tell the truth, testified as follows: 17 18 MR. NANCE: Please state your name for 19 the record. 20 MR. YUNG: William Yung. 21 MR. NANCE: Thank you. You may be 22 seated. 23 CHAIR KASSEKERT: Make yourself 24 comfortable. 25 52 WILLIAM J. YUNG, III 1 DIRECT EXAMINATION BY MR. MICHAEL: 2 3 Q. Mr. Yung, good afternoon. 4 A. Good afternoon. 5 Q. For the record and for the Commission's 6 edification, could you just describe your present 7 title, position with the various entities? 8 A. I am President and CEO of Columbia 9 Entertainment and Columbia Sussex Corporation. The 10 Columbia Sussex is the hotel arm of my company, and 11 the Columbia Entertainment is the casino arm. 12 Q. As a matter of background, could you 13 also describe for the Commission your education, 14 training, and job history? 15 A. Okay. I have a bachelor of arts in 16 psychology at the University of Cincinnati. After I 17 graduated from college, I went to work for Andrew 18 Jergens as an industry engineer. He taught me that 19 skill there. 20 Then after that I went to Inmont 21 Corporation, worked there for six years. And then 22 when I was 30, I built my first hotel in Richwood, 23 Kentucky. And then from then on just kept building 24 hotels until I think it was 1989 when we bought the 25 Ohi Sierra in Lake Tahoe, and then we continued adding 53 WILLIAM J. YUNG, III 1 on casinos and hotels up to where we are now. 2 Q. What's triggered your interest in the 3 hotel business initially? 4 A. Well, the hotel business is -- it is 5 something that I always want to do get into and my 6 family background is in construction, and so I knew 7 construction, and it just seemed like it was -- as a 8 very easy business to get into with basically cleaning 9 and selling rooms. So that's why I got into it. 10 Q. And you developed into a business that 11 cleans and sells a lot of rooms; right? 12 A. That's right. Yes. Well, yes, we are. 13 Well, presently we're up to approximately 80 hotels of 14 which there's about -- about 35 Marriotts. We're the 15 largest full service Marriott licensee in the world. 16 Q. And are you also a licensee for other 17 brands as well? 18 A. Yes. We also have Hiltons, Westins, 19 Sheratons, Double Trees. Crown Plazas, Renaissance 20 Hotels, also. 21 Q. And how about the casino business? When 22 did you first get interested in and involved in 23 gaming? 24 A. Well, like I said, we bought the first 25 one in about '89, and it was a natural progression for 54 WILLIAM J. YUNG, III 1 us because most of the hotels that we were operating-- 2 the volume was relatively small compared to what 3 casinos do. So this was an opportunity to buy this 4 casino out there that had a lot of volume. And we 5 thought we could put our margins to it, and do very 6 well on it. And so we bought the one out in Lake 7 Tahoe. We kept that hotel and casino. We didn't do 8 another casino for about seven more years. We did one 9 in Mississippi, a river boat. And then in 2001 when 10 the recession hit, we noticed that the casinos really 11 didn't get impacted like the hotels. The hotels 12 really -- really took a really bad hit. And then 13 that -- at that point we decided, well, the casinos 14 look like a lot better investment than the hotels 15 since they're sort of immune to the cycles of business 16 so. 17 Q. All right. And taking this next step, 18 what first triggered your interest in Aztar? Can you 19 give us a little bit of background on the transaction 20 that we're here about today? 21 A. Sure. When I first saw the bidding 22 going on for Aztar, I really was not interested in it 23 because, to be honest with you. I haven't been to 24 Atlantic City for two or three years, and Fred Buro 25 got me to -- he told me Atlantic City had changed, and 55 WILLIAM J. YUNG, III 1 he got me to come up here and take a look at it. And 2 I was very impressed. And how much has changed in the 3 last two or three years. And then I at that point -- 4 I decided it would make a good investment here. And 5 that's where we got involved with the Aztar. 6 Q. Now, Mr. Buro is going to go into a 7 little more detail what the plans in Atlantic City 8 are, but just from a generalized basis from the 9 corporate standpoint, can you give us some idea what 10 your intentions are? 11 A. Well, you know, obviously, we're 12 builders. You know, we like to get -- we like to 13 develop and everything. So, you know, we're going to 14 look into the possibility of adding more rooms. It 15 definitely needs more rooms, we feel, in Atlantic 16 City. So we're going to look at trying to do more 17 rooms and remodel, absolutely completely remodel the 18 hotel within the next year and a half, two years. 19 Q. And along with gaming, you in other 20 jurisdictions as well, you have an appreciation for it 21 and understanding of the regulatory process that 22 accompanies that? 23 A. Well, we understand that it's very 24 important to follow the rules in every -- and with 25 this Aztar acquisition, we are becoming a much larger 56 WILLIAM J. YUNG, III 1 gaming entity. And we felt the need that -- we needed 2 to get more experience personnel to deal with keeping 3 us in line and also to deal with regulators. And we 4 were able to get Donna More to come to work for us, 5 which is a big asset. 6 MR. MICHAEL: I have no further 7 questions of Mr. Yung. 8 Commissioners might have some questions. 9 Mr. Marquez? 10 CHAIR KASSEKERT: Yeah. Mr. Marquez 11 cross-examination? 12 MR. MARQUEZ: Just on that last point. 13 14 CROSS-EXAMINATIN BY MR. MARQUEZ: 15 Q. What was the experience of Miss Moore? 16 Because I don't know if she'll be called as a witness. 17 CHAIR KASSEKERT: I'm sorry. I couldn't 18 hear you. 19 MR. MARQUEZ: I asked him to fill us in 20 a little bit on the experience of Miss More 21 just for record since she won't be a witness. 22 CHAIR KASSEKERT: Okay. Thank you. 23 A. Miss Moore was -- is our gaming attorney 24 in Illinois. I believe she used to work for the 25 Illinois Gaming Commission. I think she has many 57 WILLIAM J. YUNG, III 1 gaming clients. I don't know her full background, but 2 I know that she is well respected in the industry. 3 MR. MARQUEZ: Okay. Thank you. No 4 further questions. 5 CHAIR KASSEKERT: Thank you. 6 Let me ask if the commissioners have 7 questions? 8 Commissioner Fedorko? 9 MR. FEDORKO: Mr. Yung, just out of 10 curiosity, you mentioned more rooms. How many 11 more rooms? I'm sure you looked at the entire 12 site. How many more rooms do you think that 13 property could hold? 14 THE WITNESS: If you could get the land, 15 I don't think it would be a problem doing a 16 thousand more rooms, if you could acquire the 17 land that was somewhat proximate to where the 18 casino is. 19 MR. FEDORKO: Okay. Thank you. 20 CHAIR KASSEKERT: Commissioner Epps? 21 COMMISSIONER EPPS: I have one question 22 with respect to your view of Atlantic City in 23 your return trip. You said it had changed. 24 What do you think that Columbia Sussex and your 25 company's brand image or whatever could do for 58 WILLIAM J. YUNG, III 1 Atlantic City or at least that end of the 2 boardwalk where Aztar is located? And not just 3 your property proper, but do you envision that 4 your brand image going beyond your boundaries? 5 THE WITNESS: If we can acquire land, 6 yes. That's the main thing. If we can acquire 7 the land, we'll do more developing. And we'd 8 love to do more here. 9 CHAIR KASSEKERT: I guess my question 10 would be, Mr. Yung, obviously, Atlantic City is 11 a very different market than, I think, most of 12 where you've operated before. What's your 13 philosophy of a casino market? And do you 14 think that will change given the atmosphere in 15 Atlantic City, and in Atlantic City or even in 16 Las Vegas where you'll be an entrant now, as 17 compared to some of the other gaming markets 18 you are in? 19 THE WITNESS: Well, it is definitely 20 much higher volume than any place we've ever 21 dealt with before. I think that the Atlantic 22 City market is a very vibrant market. I think 23 that at first I was concerned about 24 Pennsylvania. But it just seems to me that 25 Atlantic City now has so much going for it 59 WILLIAM J. YUNG, III 1 where it didn't have before that I think the 2 market will -- I don't think it's going to take 3 a very big hit at all. And I think it will 4 continue to grow. 5 I don't know if that answers your 6 question. 7 CHAIR KASSEKERT: And -- it does. 8 How will you use that to balance what 9 you're going to -- your plans for Las Vegas 10 because, obviously, you're entering into two 11 very big substantial markets. 12 THE WITNESS: Uh-huh. 13 CHAIR KASSEKERT: Two substantial 14 properties. 15 THE WITNESS: Right. The Atlantic City 16 casino volume will be substantially more than 17 it will in Las Vegas. In Las Vegas we are -- 18 obviously, we're building a casino there. But 19 it's much more a hotel play because we'll 20 probably put four or five hotels on that site 21 with one casino in the middle. So it's 22 primarily a hotel play out in Las Vegas. But 23 here the casino volume is probably -- going to 24 be three times what it is in Las Vegas. So 25 this is the most important property we have, 60 WILLIAM J. YUNG, III 1 and it's the key to the whole company. 2 CHAIR KASSEKERT: Commissioner Epps? 3 COMMISISONER EPPS: I have one other 4 question. Kind of goes back to where I was 5 previously. 6 Borgata has kind of changed the image 7 and the look and feel of Atlantic City. You 8 guys will get an established facility. With an 9 established -- somewhat of an established 10 reputation and tradition. Is there something 11 different that your company brings? Or will 12 you just, kind of, incorporate what's already 13 there and go with what is established? How do 14 you foresee the Columbia Sussex's impression on 15 the market and will it change it? What impact 16 do you have it will have and how will that be 17 presented? 18 THE WITNESS: Well, you're correct. The 19 Borgata completely changed everything. And, 20 you know, I'm not -- I'm not above coping. 21 (Laughter.) 22 THE WITNESS: And so we're going to redo 23 all our outlets similar to Borgata. And, you 24 know, Las Vegas style. And, you know, I mean, 25 I think everybody is going to wind up doing it 61 WILLIAM J. YUNG, III 1 in the end. So -- but, yeah. We'll -- 2 absolutely. We'll try to mirror that as much 3 as we possibly can, given the age of our casino 4 compared to theirs. It's going to be -- 5 obviously, it's a lot -- it's going to be 6 harder for us because of the disjointed -- the 7 different sections. Where they had a 8 purpose-built casino, and we're going to try. 9 CHAIR KASSEKERT: And perhaps this final 10 question I have, might be a little more 11 appropriate for Mr. Buro when he comes up. But 12 I'd like to hear a little bit about your 13 philosophy about the employees of Aztar. 14 Obviously, you know, the employees that are 15 currently there that, hopefully, will become 16 your employees as you move on. But I'd like to 17 hear a little bit about your philosophy. 18 THE WITNESS: Well, the -- I think what 19 the plan is is to get in there and try to 20 understand exactly what we really need to do. 21 And there are several things that we 22 centralize, like purchasing. Most of the 23 accounting. Payroll. I think what we're going 24 to try to do is try to make -- if we have to 25 make cuts -- and I think there may be some cuts 62 WILLIAM J. YUNG, III 1 there. I think we're trying to try to make 2 most of those reductions through attrition. 3 And that's, you know -- that's the painless way 4 to try to do it. So, you know -- but you know, 5 we have to get in there and analyze the whole 6 thing first. 7 CHAIR KASSEKERT: Any other questions? 8 Commissioner Sommeling? 9 COMMISSIONER SOMMELING: Have you 10 discussed at all any growth plans for 11 Tropicana? Maybe you might have to make some 12 reductions, initially, and have to decide what 13 you have to hold with it and what you're going 14 to do with it ultimately, but has the company 15 discussed any growth plans for Tropicana? 16 THE WITNESS: Well, I think -- 17 COMMISSIONER SOMMELING: In terms of 18 coming into his market? 19 THE WITNESS: I think Mr. Buro will talk 20 to you somewhat about that. I think that he 21 has some plans on different markets which he 22 would like to go after that they haven't done 23 so far. 24 The other thing that we can help with is 25 we have around Atlantic City within a few 63 WILLIAM J. YUNG, III 1 hundred miles probably 35, 40 hotels that we're 2 planning on marketing to feed into here. And 3 into Atlantic City, which should help a little 4 bit. But I think he has some ideas to kind of 5 going after certain markets that are not really 6 going after right now. 7 COMMISSIONER SOMMELING: Okay. That's 8 all, Madame Chair. 9 CHAIR KASSEKERT: Anything else? 10 Thank you very much. 11 Let me -- oh, let me just ask if there's 12 any redirect or any questions? 13 MR. MICHAEL: No questions. 14 CHAIR KASSEKERT: Very good. Thank you. 15 You may call your next witness. 16 MS. KAUFMAN: Okay. Next witness will 17 be Rich FitzPatrick. 18 19 RICHARD FITZPATRICK, having been duly 20 sworn to tell the truth, testified as follows: 21 22 MR. NANCE: Please state your name for 23 the record. 24 THE WITNESS: Richard Fitzpatrick. 25 MR. NANCE: Thank you. 64 RICHARD M. FITZPATRICK 1 CHAIR KASSEKERT: Thank you. You may 2 proceed. 3 4 DIRECT EXAMINATION BY MS. KAUFMAN: 5 6 Q. Mr. Fitzpatrick, could you state your 7 title with Columbia Entertainment and with Columbia 8 Sussex? 9 A. Sure. I'm currently the Vice President, 10 Chief Financial Officer of the Columbia Sussex 11 Corporation. I expect that in a short period that I 12 will about become the Vice President -- Executive or 13 Senior Vice President and Chief Financial Officer and 14 Treasurer for Wimar Tahoe Corporation, Columbia 15 Entertainment. 16 Q. Great. And how long have you been with 17 Columbia Sussex? 18 A. Started in March of this year. 19 Q. Well, you've certainly have been busy. 20 What do your job duties entail? 21 A. I'm responsible for all the financial 22 aspects of the business. And the accounting, treasury 23 responsibilities, operational support responsibilties. 24 I'm responsible for financing, including this 25 transaction that we've been working on. And 65 RICHARD M. FITZPATRICK 1 intimately involved in the merger agreement itself. 2 Q. Okay. And have you -- tell us a little 3 about your previous job experience. 4 A. Sure. I've served for 2003 through 2005 5 as the Executive Vice President, Chief Financial 6 Officer for Prime Group Realty Trust in Chicago, which 7 is a public company. A realty trust that owns and 8 manages office buildings and industrial buildings in 9 Chicago. 10 Prior to that I worked as the Chief 11 Financial Officer for Omega Healthcare Investors, 12 which, again, was a public company with a portfolio of 13 nursing homes. 14 I'd worked for about 12 years prior to 15 that as the Chief Financial Officer for the Hampstead 16 Group, which is a private equity company that made 17 investments in a number of different facility-based 18 businesses, including entertainment businesses. And 19 Bristol Hotel Company -- Bristol Hotels and Resorts. 20 Windham Hotels and Resorts. Hoolihan's Restaurant 21 Group and Malwood Entertainment worldwide, each of 22 which I have served in different capacities in support 23 of our operating as Chief Financial Officer for each 24 of those at a period of time. 25 Q. Well, welcome to the gaming world. 66 RICHARD M. FITZPATRICK 1 You mentioned that one of your job 2 duties involves financing. Could you tell us a little 3 about how Columbia Entertainment expects to fund the 4 $2.04 billion equity that's needed for the merger and 5 to retire the $676 million or so worth of existing 6 debt? 7 A. Sure. We have entered into a $3 8 billion-- $3.1 billion financing agreement with Credit 9 Suisse to provide -- well, it's in three pieces. One 10 is a $1.7 billion term loan, which is comprised of 11 a-billion-five-fifty-five term -- term loan. 12 Five-year term loan. And $180 million revolver credit 13 facility. 14 We also then have entered into an 15 agreement to sell $975 million of subordinated notes, 16 which we're doing via a 144a private placement at this 17 point. Which we expect in the first quarter -- March, 18 April, time frame of next year to convert the publicly 19 tradable bonds. And we will be filing with the SEC at 20 that point in order to exchange those private 21 placement notes for publically tradable notes. 22 And the third piece of the financing is 23 a $440 million loan secured by the Aztar property in 24 Las Vegas. It's a 18 -- the bonds will be A clear 25 notes. The term loan, I said, was five years. The 67 RICHARD M. FITZPATRICK 1 $440 million loan secured by the property in Las Vegas 2 will be a 18-month loan with two six-month extensions 3 that we could take. The intention with that loan is 4 as we begin our development plans for the Las Vegas 5 property, we would then provide project financing for 6 that property completely separate that from the rest 7 of the business from a financial perspective, and take 8 out that $440 million interim note effectively. 9 Q. Okay. Thank you. 10 With all that the loan money, will the 11 loan money be used with any for any reason? And the 12 converse is is there any other funds that are 13 necessary to finance the merger transaction? 14 A. Yes. In addition to the -- the cash 15 that's needed to pay the shareholders of Aztar for 16 the -- for all of the stock of the company, we're also 17 paying off approximately $666 million -- $668 million 18 of Aztar's debt. We're paying off about 200 -- about 19 $200 million of our debt on our existing properties. 20 And we're also acquiring the Casino Queen property in 21 East St. Louis, Illinois, for about $200 million. 22 We also have additional -- to close the 23 transaction, we have transactional expenses, financing 24 expenses. We have obligations to make payments to 25 some of the Aztar -- primarily senior management, but 68 RICHARD M. FITZPATRICK 1 certain Aztar employees for severance payments that 2 Aztar had entered into. 3 In order to close that whole financing 4 and the various other needs, we're going to have to 5 contribute it -- contribute approximately $393 million 6 of cash into the transactions to complete that. That 7 number could move up and down by $80 million either 8 way, depending on what the ultimate closing proceeds 9 we're going to need to close the transaction when the 10 final numbers come in. And it also will change versus 11 via the -- the amount of the debt on the $1.55 billion 12 of term debt, that number is subject to a computation 13 of what our final trailing 12 months earnings have 14 been for the entire company on a pro forma basis 15 subject to the usual number of adjustments and how 16 that result turns out could vary that number up to 17 a-billion-five-fifty-five. Right now we've put a 18 billion-four-forty in the model as a mid points of the 19 cash needs and as the mid point of where we think 20 those final results will be. 21 Q. And what is the status of the Casino 22 Queen acquisition? 23 A. The acquisition is moving along as 24 expected. We are awaiting regulatory approval in 25 Illinois. We are -- a firm date has not been placed 69 RICHARD M. FITZPATRICK 1 by the Illinois regulators when that property will 2 appear on their slate or their agenda. We expect it 3 will be in their December meeting, but that has not 4 been determined as yet. 5 The closing of the Aztar transaction is 6 not contingent on the Casino Queen to the extent that 7 they close the Aztar transaction in advance of the 8 Casino Queen, the plan is to put $200 million, which 9 is the purchase price, into escrow pending that -- 10 that ultimate acquisition. And to the extent the 11 acquisition is not completed, those monies will be 12 returned to the term loan lenders as a permanent 13 reduction under the term loan. 14 Q. Thank you. 15 MS. KAUFMAN: As part of the approval 16 for the ICA, both the Columbia Entertainment 17 entities and, you know, and Adamar, especially 18 all of them, must prove financial stability. 19 Because Wimar has no operations of its own, it 20 depends on the operations of all the casinos. 21 We have submitted significant documentation to 22 the Division and Commission in order to prove 23 financial stability. 24 However, because we have Mr. FitzPatrick 25 with us today, I'm just going to ask him a few 70 RICHARD M. FITZPATRICK 1 questions to kind of emphasize the financial 2 stability with respect to New Jersey. 3 CHAIR KASSEKERT: Thank you. 4 Q. And but, I guess, the first general 5 question is, we talked about the debt. How do you 6 intend to repay the debt in terms -- how do you expect 7 to repay the debt and still prove financial stability? 8 A. Kind of combined, but we've taken all 9 the historical information for the Aztar properties 10 and our properties that we've contributed, or the 11 Wimar properties have contributed to the porfolio. 12 Wimar has contributed -- Wimar and its affiliates have 13 contributed several of its properties into the overall 14 acquisition and financing. And we've taken the 15 historical result from that group of properties as 16 well the historical result from the Aztar properties 17 and the Casino Queen property. And we've combined all 18 of those results and proved those against what the 19 ongoing debt service obligation would be. 20 And there's plenty of cash flow. 21 There's about a -- about a two-to-one coverage of cash 22 flow versus debt service requirements. So we've got 23 plenty of coverage. I think it's 1.9 to 2.0 going 24 into the transaction. So we have plenty of coverage 25 to -- cash flow coverage to cover our debt service. 71 RICHARD M. FITZPATRICK 1 And it also covers our capital 2 expenditure plan. We have significant capital 3 expenditure plans over the next -- particularly over 4 the next two years with respect to the Atlantic City 5 property, with respect to the Casino Queen property, 6 the Baton Rouge property, and a couple of the others. 7 We're going to be putting in in excess of a hundred 8 million dollars, and so there's plenty of cash flow to 9 cover that additional investment as well, as well as 10 the recurring capital expenditure for recurring 11 maintenance that has to be done. 12 Q. Okay. And isn't it also true that there 13 are certain principal payments are not due for a few 14 years out? 15 A. The loans are five-year term loan, 16 obviously. And eight years on the subdebt, the sub -- 17 the sub notes. In the meantime, with the cash flow 18 that we expect to generate from the portfolio, we 19 think that we'll pay down that debt significantly. 20 And when it's time, five years out, to redo that term 21 loan, we think we'll be -- you know, we'll have very, 22 very favorable financial position with which we can 23 refinance that asset at that time. 24 Q. Okay. Financial stability involves not 25 only being able to pay your outstanding debt but also 72 RICHARD M. FITZPATRICK 1 to pay any wagers to make capital and maintenance 2 expenditures, to pay your taxes, just to keep 3 operating. How do you expect to maintain the 4 financial stability in view of your debt obligation? 5 A. Well, once again, we have -- you know, 6 great coverage on our interest. And our -- well, our 7 debt service obligations. We anticipate we'll be 8 using excess cash to pay down debt as we have excess 9 cash. So we'll only have some flexibility, obviously, 10 to -- to use -- utilize any, that existing cash. To 11 the extent that we need to do that. 12 We also have a -- you know, we can 13 modify the capital expenditure program that we have. 14 We have great deal of flexibility. We know there are 15 a lot of things we want to do in Atlantic City for 16 this property. But some of the other properties, it's 17 not a priority necessarily for us to hurry up and do 18 the boat in one of or two of those jurisdictions or 19 some of the plans we'd like to do. I think we're very 20 focused on Atlantic City doing that program. But we 21 can certainly slow down some of the capital 22 expenditure for the program, if needed. 23 In addition, we have $180 million 24 revolving that will be available to us on the date of 25 closings that will be unrestricted as to its use. We 73 RICHARD M. FITZPATRICK 1 don't anticipate in our -- any of our forecasts -- 2 which again are historically based. We don't expect 3 to draw under that revolver, but to the extent there's 4 a timing difference, that is there for us to provide 5 any needs that we may have. 6 Q. Although the forecast is part of the 7 sealing request was made earlier, can you tell us 8 about some of the factors that you looked at in making 9 forecasts? 10 A. You know, again, we were very 11 conservative in those forecasts. We really looked to 12 the historical records and the historical growth of 13 the Aztar property. We made some adjustments to -- 14 for some operating changes that we expect to make, 15 particularly with respect to corporate overhead. 16 Aztar has a very hard -- very high corporate overhead 17 in Phoenix, Arizona. Very expensive operation there. 18 We anticipate that we will combine these -- the 19 properties and the overhead with our existing 20 overhead. We've added a few people, Donna More being 21 one of them. And a couple of others. But we're not 22 anticipating that we're going to expend at a corporate 23 standpoint anywhere near that level of corporate 24 expenditures. 25 So we've really -- been pretty 74 RICHARD M. FITZPATRICK 1 conservative in our -- in what's happened in the past, 2 the historical records, and forecasted those out. 3 And, hopefully, we have plenty of cushion to cover the 4 needs of the business. 5 Q. Okay. And how much of the borrowings 6 will be allocated to Atlantic City? 7 A. The -- again, the final numbers are not 8 in on that. It's somewhere between 925 and $975 9 million of the $3.1 billion of debt. That is expected 10 to be allocated to Atlantic City. It's, you know, 11 it's about -- it's a little over a third of the 12 financing will be allocated here. But, you know, 13 again, we have a much bigger portfolio now to 14 amoratize or to allocate the debt over it. The 15 Atlantic City property has received the brunt of the 16 Aztar's indebtedness on a percentage basis. I think 17 it's in the -- maybe 37, 38 percent would be allocated 18 to New Jersey. 19 Q. Okay. With the new borrowings and with 20 the Wimar structure, there will be more debt and taxes 21 in New Jersey allocated to New Jersey than there were 22 under the Aztar model. How do you expect to prove 23 financial stability with that? 24 A. Well, a couple of things. One is that, 25 you know, Aztar had, obviously, less indebtedness that 75 RICHARD M. FITZPATRICK 1 was in total and less indebtedness was charged to 2 Atlantic City, so they had less interest expense 3 charged to the Atlantic City property. 4 But, conversely, what their overhead 5 cost and managment structure, they had a significantly 6 higher management charge to the Atlantic City property 7 where we'll have a relatively small -- we're thinking 8 right now about a $3 million charge where Aztar had -- 9 I think it was -- I don't recall the number exactly, 10 but in the 30, 32 to $35 million range that they were 11 charging to the property. So, in total, we'll guess 12 the debt service that's allocated to New Jersey will 13 be significantly higher. 14 Conversely there's a significantly lower 15 charge for managment expenses that we're going to be 16 allocating to New Jersey. So we're still higher in 17 total. But it's not all that significant. 18 And, secondly, this property has 19 generated very significant cap -- or operating cash 20 flow. And, again, it's more than adequate to cover 21 all the debt service that is being put on the 22 property. 23 Q. Okay. Thank you. 24 I'll take you out of New Jersey very 25 briefly and ask you about Pennsylvania. 76 RICHARD M. FITZPATRICK 1 If Wimar is awarded a license in 2 Pennsylvania, how will they pay for the project and 3 will -- could that have any impact on the other casino 4 operations of Wimar? 5 A. We have -- 6 Q. In terms of the financing. 7 A. No. I understand. We have really 8 treated the Pennsylvania opportunity -- and we don't 9 know what the likelihood that we'll receive that award 10 there is. There I believe there are 13 applicants for 11 licenses and only, I don't know, five or seven 12 licenses to be granted. So there's a -- you know, if 13 we're lucky enough to be granted to be one of them, we 14 have planned for financing that project independently 15 of this financing transaction. We will pull that land 16 that's -- that Aztar owns today in Pennsylvania, we 17 will pull that out of this financing vehicle and put 18 in a special permit. And we have negotiated with Bank 19 of America and with Wachovia Bank to providing the 20 financing for that project on a one-off special 21 purpose basis. 22 And we've also received commitment from 23 Columbia Sussex to provide any -- the required portion 24 of the equity component that would be necessary to 25 build and begin the operation of that property. But 77 RICHARD M. FITZPATRICK 1 it would not be tied into this financing. It would be 2 completely separate from it. And not to bring you 3 back to Atlantic City, but don't -- I don't believe 4 that it should have any ultimate impact on financing 5 and the financial capability for us to continue and 6 operate effectively in Atlantic City. 7 MS. KAUFMAN: Okay. Thank you. 8 Chair and Commissioners, as I said 9 before, we're relying on our previous 10 submissions and to prove financial stability, 11 and we ask you to agree with the Division's 12 recommendation that we have done so under the 13 Act and the regulations. 14 Obviously, he's here for questions. 15 CHAIR KASSEKERT: Thank you. 16 Mr. Marquez? 17 18 CROSS-EXAMINATION BY MR. MARQUEZ: 19 Q. The company has a certain amount of 20 mandatory principal payments a year; is that correct? 21 A. That's correct. 22 Q. You mentioned what that will be? 23 A. It's $14.1 million per year. 24 Q. Okay. But in addition to those 25 payments, the company has forecast to make some 78 RICHARD M. FITZPATRICK 1 nonmandatory principal payments. 2 A. Correct. 3 Q. Correct? And what would be the 4 relationship? How much would those be? 5 A. Well, under the credit facility that 6 we've agreed to with Credit Suisse, we've agreed to 7 the extent that there is excess cash over and above 8 the operating and capital needs of the business that 9 we would take 50 percent of debt cash -- that excess 10 cash and make permanent repayments under the loan. We 11 obviously have the. We have the voluntary 12 capabilities of taking the other 50 percent and paying 13 that down as well, which currently we would expect 14 that we would most likely do that. We'd rather pay 15 done that loan as fast as we can so we would have that 16 flexibility. 17 We forecast that we would have -- I 18 don't recall the number, but about I want to say 40 to 19 $50 million of excess cash flow in the first year over 20 and above our requirements to do the capital 21 expenditures that we have for Atlantic City and for 22 the other properties, that we have forecast that we 23 would pay down on the debt. 24 In the future years, once those capital 25 plans have tapered off, and we've done those initial, 79 RICHARD M. FITZPATRICK 1 we would have somewhere around 125 to $140 million of 2 cash that we would be paying towards the loan. Half 3 of which would be voluntarily. 4 Q. So there's a good deal of flexibility 5 there, too? 6 A. Yes, there is. 7 Q. Okay. OpCo has to comply with a variety 8 of covenants. Is your covenant coverage equally 9 flexible? 10 A. Yes. We've taken -- we've taken our 11 forecasted models and run those through to see what 12 the cash and the interest components would be on a -- 13 and a long-term period. And we provided for a 14 significant margin of error within those numbers when 15 we computed the covenants. And that margin -- those-- 16 those cushions that were built into that make us feel 17 very comfortable that we will always be in compliance 18 with our requirements under the indebtedness. And I 19 mean, they are very substantial cushions, and we were 20 able to negotiate a level that was in our -- you know, 21 in the best interest of the operations of the company 22 and our ongoing cash needs. And also made the banks 23 comfortable that we would -- you know, we would be 24 performing under the loan. 25 Q. The Division prepares its report based 80 RICHARD M. FITZPATRICK 1 on the forecasts that you've given us. And I want to 2 thank you personally for all the help you've given us 3 in translating and backing up some of the statements 4 in the various agreements and what have you. You've 5 been very helpful. 6 In terms of the management forecasts in 7 our report, have the actuals year-to-date been ahead 8 of forecast in terms of Trop performance? 9 A. They have been on the Tropicana side. 10 This property has continued to do very well. 11 Q. And how about generally? 12 A. In general, we're -- we have two of our 13 properties that, you know -- one was the renovation of 14 the Mont Blue property where we -- it took a little 15 longer to complete the renovation, and we missed our 16 season, so we're going to miss that by a little bit. 17 I don't have the final numbers at this point, but I 18 expect that I'm going to miss that forecast by a 19 little bit. It will just take -- because we missed 20 our season, it will take a little longer for that 21 property to recover. 22 Q. Its my understanding that the Tropicana 23 in this past year was about 38 percent of total; is 24 that correct? 25 A. That's correct. 81 RICHARD M. FITZPATRICK 1 Q. And you expect that number to be less in 2 the future years as a percentage of the total? 3 A. I think it will as -- I think it -- 4 well, I think this property has great potential from a 5 marketing and -- and operational viewpoint, and I 6 think it will continue to grow. But, you know, I 7 think that the other properties will also have 8 opportunities. I think that ratio will probably 9 remain fairly consistent. It could drop off a little 10 bit. But I think it will be a fairly consistent view. 11 Q. Could you describe, are you going to 12 continue the present Tropicana renovation schedule and 13 plan into the near future in terms of, I think, we 14 were renovating hotel rooms and in line with the south 15 and north sides of the casino property? 16 A. We were in -- and, in fact, we've -- in 17 our thoughts, we wanted to expand on what's been 18 planned by Aztar. Aztar's, obviously, recognized that 19 the south tower needed -- south tower rooms needed to 20 be renovated, and those plans continue. They also 21 wanted to, on a staged basis, redo the casino. The 22 casino -- there's a small section of the casino that 23 they've already redone somewhat in line with what they 24 did when they put in the Quarter, which I think is a 25 tremendous job they did there. And they carried that 82 RICHARD M. FITZPATRICK 1 into part of the casino. But have not carried it 2 throughout the rest of the casino. We would like to 3 accelerate those plans to get that casino -- that 4 casino or remodeling project done sooner as opposed to 5 later. We would like to have that fully done before 6 next -- you know, the next major season and May -- 7 April, May, June time frame. We'd like to get as much 8 of that casino done as we can. 9 Q. How much does OpCo expect to spend on 10 capital expenditures for 2000 -- 11 A. For total or for this property? 12 Q. For total. 13 A. I believe the number is in total about 14 $129 million over the next two years. 15 Q. And this property? 16 A. This property, $44 million. 17 Q. So it's a good chunk of the total? 18 A. Yes, it is. 19 Q. Okay. Recently, I read that you were 20 not selling the Caruthersville Casino as quickly as 21 you anticipated. That leaves a $500 million gap in 22 the monies that you need -- 23 A. Correct. 24 Q. -- to make the acquisition. How or what 25 alternative do you have to raise that $30 million gap? 83 RICHARD M. FITZPATRICK 1 A. Columbia Sussex has agreed to increase 2 the amount of its loan to Wimar Tahoe to deal with the 3 timing of the Caruthersville property. We're 4 expecting to sell that prior to the closing of this 5 transaction, but it won't happen in that time. So 6 Columbia Sussex going to lend that incremental amount. 7 Q. So you won't be moving to -- up from 8 1.44 to 1.47? 9 A. Not to cover that -- that the 10 Caruthersville property. 11 Q. Let me ask you on the Credit Suisse 12 revolver, you mentioned 180 million revolver available 13 on closing unrestricted. The other question I have is 14 can each of the casinos borrow on that, or does it 15 have to be OpCo? 16 A. OpCo is the borrower under all the 17 credit facilities. 18 Q. All right. 19 A. But it's available to the needs of the 20 business. 21 Q. Each of the casino would have to go, 22 basically, to the parent and ask can we do this 23 project and how -- 24 A. Correct. 25 Q. Okay. That's all I have. 84 RICHARD M. FITZPATRICK 1 A. Correct. 2 MR. MARQUEZ: Thank you very much. 3 CHAIR KASSEKERT: Let me ask if any 4 commissioners have any questions? 5 Commissioners Epps? 6 COMMISSIONER EPPS: I have a couple 7 questions. 8 The subordinated notes, when do you 9 expect that to proceed? Wrap? And will it 10 wrap up ahead of closing or will that have to 11 extend beyond the closing of Aztar? 12 THE WITNESS: No. It will happen ahead 13 of closing. We expect that we will close the 14 Aztar transaction with the proceeds in the 15 public -- or the private placements of those 16 bonds. 17 COMMISSIONER EPPS: So -- so you don't 18 anticipate there being a problem closing 975 19 ahead of closing on the Aztar? 20 THE WITNESS: We don't. And we're under 21 advice from Credit Suisse who has 22 responsibility and a commitment to sell those 23 bonds that they think there's a ready market 24 for that. And we're going to be in the 25 marketplace as quickly as we can and begin the 85 RICHARD M. FITZPATRICK 1 road show and as soon as practical. And we 2 believe that we'll be able to sell those bonds 3 and market efficiently. 4 COMMISSIONER EPPS: And what's your 5 target closing of the Aztar transaction? 6 THE WITNESS: We were hoping to close by 7 the end of November. We've had a little bit of 8 delay given the Caruthersville situation, and 9 so we're probably going to miss the window 10 prior to -- prior to Thanksgiving. You know, 11 we're three or four or five days off. And 12 Thanksgiving then falls right into the middle 13 of the road show. And our Credit Suisse and 14 our financial advisors are telling us it's -- 15 would be better for us not to start and stop 16 the marketing effort for the bonds. So we 17 would ask expect at this time to begin that 18 marketing process right after Thanksgiving, and 19 it would be about a two-week proposal then. So 20 we would expect in the early part of December 21 that we would close on the transaction. 22 COMMISSIONER EPPS: Now, does that does 23 tension into December have a significant 24 financial impact on your -- on the transaction 25 given -- I think you had target date that you 86 RICHARD M. FITZPATRICK 1 wanted to meet -- extending that. Does that 2 cause any significant economic impact? 3 THE WITNESS: It has -- it has an 4 impact. I don't believe it has a significant 5 impact. We have agreed in the merger agreement 6 to pay the shareholders of Aztar an incremental 7 price per day if we don't close within six 8 months of the date we made our agreement, which 9 was November 19th. So there will be an 10 incremental payment. But we don't belief that 11 we'll have a significant financial impact on 12 our plans. 13 COMMISSIONER EPPS: It's been -- it's 14 been reported that the proposals for Las 15 Vegas -- for the Las Vegas Tropicana site are 16 somewhere -- renovation nearing on a million 17 dollars. How does that financing impact or how 18 is Atlantic City insulated from that financing 19 if you could explain that? 20 THE WITNESS: Sure. 21 As I mentioned earlier, the $444 million 22 indebtedness that we're taking on is secured by 23 that property was -- is the effectively a 24 bridge to the ultimate development of that 25 project, which is $2 billion project. At that 87 RICHARD M. FITZPATRICK 1 point the $444 million loan will be taken out. 2 And that project is completely segregated into 3 a special-purpose entity for the sole purpose 4 of development. And will not be tied to this 5 financing at all. So it really would have no 6 impact on the loan that's asscribed to the 7 Atlantic City properties. 8 COMMISSIONER EPPS: Now, is that so much 9 the Pennsylvania situation you explained 10 earlier? 11 THE WITNESS: It's very similar to it. 12 Other than the fact that that property will 13 still remain underneath Aztar Corporation, but 14 from a financing standpoint, from the 15 financials, we will able to isolate that 16 financing just to that facility. 17 COMMISSIONER EPPS: Now, going back to 18 the allocation of debt, isolating the Las Vegas 19 property, how does that impact the allocation 20 of New Jersey when that happens? Is there any 21 impact on that situation? 22 THE WITNESS: No, it doesn't. 440 was 23 separately segregated to the Las Vegas property 24 from day one, and that will not change. 25 COMMISSIONER EPPS: Okay. 88 FRED BURO 1 I think that's all I have. 2 CHAIR KASSEKERT: Commissioner 3 Sommeling, any questions? 4 MR. FEDORKO: No questions. 5 CHAIR KASSEKERT: If -- unless there's 6 any redirect, you may step down. 7 Thank you. 8 Call your next witness. 9 MR. LEVENSON: Yes, Madame Chair, I'd 10 like to call Fred Buro. 11 12 FRED BURO, having been duly sworn to 13 tell the truth, testified as follows: 14 15 MR. NANCE: State your name for the 16 record. 17 MR. BURO: Fred Buro. 18 MR. NANCE: Thank you. 19 20 DIRECT EXAMINATION BY MR. LEVENSON: 21 22 Q. Good afternoon, Mr. Buro. By whom are 23 you employed, sir? 24 A. Columbia Entertainment. 25 Q. And in what capacity? 89 FRED BURO 1 A. I'm a Vice President of Marketing for 2 the casino division of the company. 3 Q. And how long have you served in that 4 role? 5 A. Since March of 2004. 6 Q. And, basically, what are your job duties 7 in that role? 8 A. I'm responsible for the positioning and 9 the performance of the casinos in each of the 10 different markets and writing the marketing plans and 11 working with the properties to implement those plans. 12 Q. Can you tell us a little bit about your 13 casino experience before you undertake -- or you took 14 your present position? Particularly if you have any 15 experience in the New Jersey market. 16 A. Sure. I do have an experience in the 17 Atlantic City and New Jersey. I started my career in 18 Atlantic City with Trump Hotels and Casinos Resorts 19 as a Director of Marketing and Vice President of 20 Marketing and Executive Vice President of Marketing 21 and ultimately as President, Chief Operating Officer 22 of Trump Plaza. I worked for Trump Hotels for about 23 ten years. 24 I also accepted a position and worked 25 for Pennsylvania Nation Gaming. I was a general 90 FRED BURO 1 manager of their Charlestown Racetrack in Charlestown, 2 West Virginia. 3 Then in 2004, as I said, I joined 4 Columbia Sussex and took the responsibilities as the 5 Vice President of Marketing For Casinos. 6 Q. In what jurisdictions have you been 7 licensed for and found suitable? 8 A. In Louisiana and -- 9 Q. West Virginia? 10 A. West Virginia. Thank you. 11 And in New Jersey which -- 12 Q. Do you still -- do you have a license in 13 New Jersey? 14 A. Well, I was licensed twice in New 15 Jersey. And it expired in 2005, and right about now I 16 wish I renewed it. 17 (Laughter.) 18 Q. How do you feel your background as a 19 casino marketing executive would help you if you're 20 fortunate to be able to take on this new role here in 21 New Jersey? 22 A. Well, there's a lot that you do as a 23 casino marketer, and there's certainly a lot that you 24 do as a casino marketer in Atlantic City. You learn a 25 lot of the right things to do in this market and 91 FRED BURO 1 hopefully learn a lot of the things not to do. And I 2 grew up in each of the departments from player 3 development to hosting to international marketing to 4 hotel rooms and group marketing. And you grow up, and 5 as I did in in the Atlantic City, we'll call it 6 respectivefully so, Atlantic City bubble and then you 7 go get to go out into the world of Pennsylvania 8 National Gaming and Columbia Sussex, and you 9 understand that there's a whole other way and other 10 benefits to understanding the way that other markets 11 operate. And I think as a marketing person, you 12 understood that understand that you simply communicate 13 a product. In entertainment and casinos. And then as 14 an operator and as the president of the property, you 15 deliver that experience. So that you don't overstate. 16 You don't aggressively pursue customers. You don't 17 create promotional fares. By understanding the 18 market, you deliver on the product and deliver on the 19 expectations of both of the staff and the customers. 20 Q. As we all have seen, the Quarter project 21 has been quite innovative and highly successful. What 22 plans do you have for that Quarter and how to 23 capitalize on that success throughout the entire 24 project? 25 A. Certainly the Aztar Corporation should 92 FRED BURO 1 be commended for the insight and the risks that they 2 took to develop the Quarter. And it's been very, very 3 successful. I think that, as Richard stated earlier, 4 it would be incumbent upon us as the baton now is 5 passed to us through this transaction to lace that 6 feel and that energy and that product throughout the 7 casino and to follow up a question that was asked 8 earlier by commissioner, do more things like are being 9 done in town at other properties to raise the bar and 10 to provide a brand-new product and other reasons for 11 this new profile customer to continue to show up in 12 Atlantic City. 13 Q. All right. And as far as the casino 14 itself is concerned, the physical casino and the fact 15 that you have this wonderful sort of monster there, 16 the Quarter, what is your particular plans with regard 17 to making it more comprehensive as far as the theme 18 from the Quarter into the casino? 19 A. Sure. Short answer is to quickly turn 20 off the tiddly lights. The longer answer is to really 21 take that Quarter and get as much of the $44 million 22 that I can and spend it on that casino floor and make 23 that Quarter, make that energy new, fresh product that 24 caters to this new demographic that's showing up in 25 town. 93 FRED BURO 1 Q. And what do you believe your team will 2 bring to the Tropicana as far as the nongaming side of 3 the business is concerned? 4 A. I think that if you look at what's 5 happening in Las Vegas -- and sometimes we think we 6 live in the shadow of it, but the point is they're 7 both five -- Las Vegas and Atlantic City are growth 8 both $5 million markets, except in Las Vegas the 9 gaming events, have been eclipsed by the nongaming 10 revenue. I think it's important for us to remember, 11 that there has to be considerable investment in the 12 properties to keep them up to speed and not find 13 ourselves so far behind the curve you can't compete 14 and look for alternative sources and additional 15 sources to bring your product up to speed. 16 Q. Okay. And I know it was touched on 17 questions to Mr. FitzPatrick, but with regard to the 18 rooms, what is the intention with regard to upgrades, 19 with regard to the rooms? 20 A. Fortunately for me, I didn't -- I didn't 21 know much about Columbia Sussex when I joined the 22 company, it was a little company. But we really read 23 between the lines. They've been -- Bill Yung 24 specifically whose vision was to build this company 25 that way they've been operating hotels for -- 94 FRED BURO 1 successfully for over 30 years. And Bill's much more 2 modest than I am, but I'll be the first one to tell 3 you that he just in the last couple of days received 4 an award -- I believe it was from the Marriott 5 Corporation for the best food and beverage operation 6 in all the Marriott Hotels. And you consider how 7 Columbia Sussex operates and some of the perceptions 8 of how efficiently we do things we do so in a way that 9 you can also receive such an esteemed award for food 10 and beverage in the hotel world, and on the other hand 11 do it for casinos for 17 years as well. 12 MR. LEVENSON: I have no further 13 particular questions, Madame Chair. 14 Commissioners, Mr. Marquez or -- 15 CHAIR KASSEKERT: Mr. Marquez? 16 MR. LEVENSON: Commissioners have any 17 questions. 18 MR. MARQUEZ: I just have one, 19 basically. 20 21 CROSS-EXAMINAION BY MR. MARQUEZ: 22 23 Q. Mr. Yung mentioned that there were so 24 many related operations in the area and that he would 25 like to funnel them toward you. Could you go into 95 FRED BURO 1 that a bit? 2 A. Actually so. It's great to come on 3 board and have a resource of 85 hotels with 85 4 reservation centers that you can tie into. When you 5 think about the contribution of the additional rooms 6 in Las Vegas and tying in the Las Vegas opportunity 7 and Atlantic City and the market that lives in the 8 tri-state metropolitan here and the destination market 9 that visits Las Vegas, and tying in all the marketing 10 and all the databases of all the properties to drive 11 business to Atlantic City, I really think that 12 Columbia Sussex might even have a comparative 13 advantage over the competition. I don't know too many 14 other operators in this industry that have 90 hotels. 15 We have resorts in the Caribbean. We have a Westin 16 casino going up right now with hotel condominiums 17 in -- really botique western property down there. We 18 have two beautiful properties in in Lake Tahoe. We 19 just completely renovate the the Mont Blue property. 20 We have I think modestly stated we have a comparative 21 advantage to tie all these things together to 22 communicate, to collective databaes, not just the 23 database that exists in today's properties. 24 MR. MARQUEZ: Thank you. No further 25 questions. 96 FRED BURO 1 CHAIR KASSEKERT: Let me ask a question, 2 first. 3 You talked about in your testimony about 4 the your fair fair of the market. What do you 5 perceive to be Tropicana's fair share of the 6 market and will that change under the -- under 7 this acquisition? 8 THE WITNESS: I think if if it's running 9 about 8.4 percent right now of the market, 10 perhaps, you know, you look at the some of the 11 number in the revenue contributions, I think 12 they'll be some adjustments there. And I hope 13 it doesn't go down. But I do think that if we 14 understand and lever some of the opportunities 15 that we have outside the Atlantic City, we 16 hopefully will grow the market a little bit and 17 pick up more fair share a greater share of the 18 market without canibalizing so many other 19 markets and creating a promotion in what are. 20 We don't want to send the business back and 21 forth. 22 CHAIR KASSEKERT: Down the track. 23 Any questions? 24 Commissioner Frulio? 25 VICE CHAIR FRULIO: I got a couple. 97 FRED BURO 1 Mr. Buro, first of all, what kind of 2 marketing strategies do you think it would be 3 employed by you at the Trop to improve 4 earnings? Especially, after Mr. FitzPatrick 5 said that the forecasting would be 6 conservative? Or is conservative? 7 THE WITNESS: I think that you go in 8 and, again, it's -- we're getting the baton 9 from a very astute group of operators and pick 10 up on that momentum and not losing any 11 customers or opportunities, we would still flow 12 through in a very thorough analysis of the 13 property, understanding the affinity that 14 customers have for the Tropicana and understand 15 the potential growth and outmarkets for that. 16 If you look at the collective databases 17 and the databases of Atlantic City has about 18 four million people in it. Yet seven million 19 people in the tri-state metropolitan area. And 20 I think that if you understand the profile 21 shift of the customers that are coming here, 22 it's -- you're coming out of the World War II 23 era into the Baby Boomer area into the 24 Generation X right now, and that's happening 25 with three properties. Specifically being the 98 FRED BURO 1 other two, the big one, and then, of course, 2 the other Pier. I think that as we continue to 3 develop that, you now can tap into an 4 additional -- not different, but an 5 additional -- piece of business that will 6 ultimately encourage Atlantic City or incite it 7 to grow beyond the four percent a year that I 8 think it's been at for the last couple years. 9 VICE CHAIR FRULIO: I'm glad you said 10 that, because I'm also interested in your 11 philosophy on customer relations. A friend of 12 mine just went to the Trop, went to the front 13 desk, and the way he put it five mile walk to 14 his room there they lost his luggage. He said 15 he'd never go back to the Trop. What would you 16 could to get this guy or other people like that 17 back to the Trop? 18 THE WITNESS: Well, it's customer 19 recovery. You try to handle it, you know, at 20 the moment. And you try to -- only the one 21 side of it, is handling the problem at the 22 moment. And the other part is trying on a 23 preclude that from happening again in the 24 future. And I think that you just -- it's 25 about performance marketing. And I think that 99 FRED BURO 1 it's delivering the perception of that brand. 2 Though things aren't supposed to happen, and 3 nobody in this town hopes that they do, but I 4 think it's really understanding that it's the 5 customers that drive this business, and they 6 have a perception that we've done that is 7 through that type of delivery. 8 VICE CHAIR FRULIO: Okay. Thank you. 9 THE WITNESS: I hope I answered it. 10 I'm not sure I -- 11 VICE CHAIR FRULIO: Try to get him back 12 for you. 13 CHAIR KASSEKERT: Commissioner Fedorko? 14 Any questions? 15 MR. FEDORKO: Elliot Spitzer, I guess is 16 going to be the governor of New York City -- or 17 New York State -- announced a while back that 18 he would approve the Catskill casinos. That 19 means New Jersey is going to be landlocked by 20 every state that has a casino industry. Do you 21 think that's going to hurt New Jersey at all? 22 THE WITNESS: I think as casino gaming 23 and slot machines come closer and closer to 24 Atlantic City, and to the extent that we can't 25 control that outside of our own state, we pray 100 FRED BURO 1 that their higher tax rates, and they seem to 2 be -- seven percent ultimately in New York. 3 Six percent in Pennsylvania, with maybe 35,000 4 games coming on from Pennsylvania 10 to 15,000 5 in Philadelphia. I think Yonkers is already 6 opened. I think that everything takes a little 7 piece and I think it's, a -- I know comes down 8 to absorption and how quickly this product 9 comes on-line and how quickly the market can 10 grow. 11 And I think that in the short term 12 nobody likes to see it, in the long-term as 13 Bill says, you get over it and deal with it 14 because you don't have really control with 15 things that happen outside the state. 16 COMMISSIONER FEDORKO: Do you think -- 17 much is said about nongaming revenues between 18 Las Vegas and Atlantic City. Do you think 19 Atlantic City can ever really compete with Las 20 Vegas as far as the nongaming revenue? 21 THE WITNESS: The answer is absolutely 22 yes. The $64,000 question is how soon? I 23 think if these three amenities that you see in 24 town, being the Borgata piece, which is a 25 ground building, much easier to do, with some 101 FRED BURO 1 of the additional developments within the 2 Pinnacle folks, and the Sands and the Morgan 3 Stanley site, and Wally Barr and his site start 4 to about and these guys all understand the 5 concept of nongaming. I think there's a lot of 6 money out in the money to fund these markets in 7 the markets. And the answer is yes. 8 And I think we have to be careful about 9 where we develop and what we develop in 10 Atlantic City. And I think that there's a lot 11 of energies and focus on the boardwalk right 12 now, and so long as it's squarely there, I 13 don't think anybody can compete with the ocean. 14 So I think that that becomes a very big amenity 15 that Las Vegas doesn't have. 16 And I think -- and I know with 27 17 million people in this area that currently fly 18 to Las Vegas, if they can get that feeling that 19 amenity set here, I think you start cutting 20 into the trip frequency of Las Vegas and it 21 bodes well, very well for Atlantic City. 22 MR. FEDORKO: Thank you. 23 CHAIR KASSEKERT: Commissioner Epps? 24 COMMISSIONER EPPS: I have two 25 questions. 102 FRED BURO 1 One issue that, unfortunately, we can't 2 do anything about because we don't have get 3 control it is, Atlantic City has always been or 4 traditionally was a seasonal just -- 5 jurisdiction. It has grown into a more 24 -- I 6 mean, 12-month jurisdiction, but you still have 7 peaks and valleys. How do you work that -- 8 those valleys, given that one of our greatest 9 assets is the beach, but in January nobody 10 wants to see it. 11 THE WITNESS: Very, very true. 12 COMMISSIONER EPPS: So you have to find 13 a way to them still want them to come here. 14 They're not going to sit sit beach and sip a 15 cocktail or walk the boardwalk. You got to get 16 them to want to come here. The question is the 17 more rooms -- do you capitalize on what you 18 already have and build a stronger product, and 19 I guess market it better, because you don't 20 have to run the risk of getting too much 21 exposed and it backfired on you? So how do 22 you -- there's a delicate balance when you 23 consider the seasonal impact of the 24 jurisdiction and the nongaming amenities that 25 you have. You're one of the three, I guess, 103 FRED BURO 1 leaders in that trend, and you know what you're 2 your position is with that regard. How do you 3 manage that process? 4 THE WITNESS: The key to that answer is 5 rooms. I think that as more rooms come 6 on-line, there's -- there's not the volitility 7 of the availability because you've got 8 customers in sometimes. As more room product 9 comes on-line in Atlantic City, you'll get more 10 of the mid-week convention and group business 11 in town. As that business grows, it offsets 12 the valleys. The comp customers that want to 13 come in on Saturday night will have more rooms 14 as well, and that piece of the business can 15 grow. If you look at the ADR and the trailing 16 part of this town, it tells you that you can 17 use a lot more rooms here, which is why we're 18 looking at opportunities right now in and 19 around the Tropicana to look to in the future 20 to expand the rooms. 21 COMMISSIONER EPPS: Now, that's an 22 interesting point, because just being from 23 around here and having discussions, I know for 24 a fact that conventions and smaller level 25 organizations that want to come here for 104 FRED BURO 1 conventions have a more difficult time in that 2 process because companies say, you know what? 3 We'd love to have you, but not if you're going 4 to be here Friday night or Saturday night 5 because if you want to stay, it's going to be 6 $300 a night or whatever. And these 7 organizations, mom and pop organizations, can't 8 afford to do that. But if Atlantic City wants 9 their nongaming amenity business and their 10 gambling business, that might be something that 11 we need to look at. But and the point is 12 always more rooms. 13 What do you think is the turning point 14 that creates the catalyst for those kind of 15 conventions and those groups to be enough of a 16 draw or enough of a prospective group of 17 business people -- to generate enough business 18 to justify that the capital expenditure at the 19 outlay to build the rooms? Because if you 20 build them, and they don't come, then you're 21 out. But if you don't have it to give them to 22 on a Friday night at a rate they can afford, 23 they don't come either. So it's one or the 24 other. And what spurs that building growth, I 25 guess, all the way around? And you can only 105 FRED BURO 1 speak for your company. But what in general 2 spurs in that growth to say it's okay to go 3 ahead and do it and make some of those rooms 4 available to that groups that are in that tier? 5 THE WITNESS: It's a problem in Atlantic 6 City, and you know it's a problem when at the 7 Tropicana or Borgata or anywhere on Saturday 8 night, the majority of the rooms are comped out 9 and 102 rooms that are left are selling for 10 $700. That tells you right there that you 11 don't have enough for everybody. And it's -- 12 it's how do you get the needle out of your arm 13 for the comp room and start to take the cash 14 business with a minimum amount of supply. 15 It's I think with what's happening 16 what's been proven through the Quarter and the 17 Borgata and the Pier is that it's less than a 18 risk to build rooms in Atlantic City. And 19 while I think you'll see that a lot of people 20 will start to put properties work better 21 bigger, and a lot more rooms into this market, 22 and I think that will definitely make a 23 difference in growing this market right within 24 the tri-state metropolitan area. 25 COMMISSIONER EPPS: Thank you. 106 FRED BURO 1 CHAIR KASSEKERT: Commissioner 2 Sommeling? 3 COMMISSIONER SOMMELING: If you can tell 4 us with regard to your gaming customers how you 5 intend to track their play and all between all 6 your properties in New Jersey and your other 7 gaming jurisdictions? 8 THE WITNESS: Sure. 9 COMMISSIONER SOMMELING: And how they 10 benefits in your particular organization 11 between properties? That is, that's as to 12 entitlements as players. 13 THE WITNESS: Between the existing 14 properties that Columbia has? 15 COMMISSIONER SOMMELING: And your 16 players, I think, would incorporate Tropicana. 17 THE WITNESS: Okay. Currently a lot of 18 our properties are little properties in river 19 boat properties and local properties, and there 20 wouldn't be a lot of cross play. So our plans 21 would not include a very elaborate 22 comprehensive cyberspace database that sends 23 out a Total Rewards card to anything everybody 24 in our marketplace. 25 That being said, we completely 107 FRED BURO 1 understand the synergies that underly between 2 some of our properties and some of our 3 jurisdictions. Like Lake Tahoe, like Las Vegas 4 and Atlantic City. And the way I approach it 5 is really we return on investment and return on 6 time. You look at the various segments of the 7 market, and you look at your desired 8 reinvestment for those markets and competitive 9 landscape and you reinvest based on the 10 competition and based on your desired project 11 margins and placed into that as customer 12 loyalty program and on -- if you drop a 13 suitcase, when you are checking in. It's about 14 the performance marketing, and it';s about 15 reinvestments. 16 COMMISSIONER SOMMELING: Do you cross 17 market for your properties? 18 THE WITNESS: I think to the extent that 19 we could where it makes sense, absolutely. 20 Like Las Vegas and Atlantic City for sure. 21 Less so for the river boat communities. The 22 good news for Atlantic City is that -- and good 23 news for us should be fortunate enough here is 24 that we have the collective databases of all 25 these properties to market for Atlantic City. 108 ITEM NO. 2 1 COMMISSIONER SOMMELING: Thank you. 2 CHAIR KASSEKERT: Do you have anything 3 else? 4 COMMISSIONER EPPS: No. 5 CHAIR KASSEKERT: Any questions? 6 Anything on cross or -- 7 MR. MARQUEZ: Nothing. 8 MR. MICHAEL: No. 9 CHAIR KASSEKERT: Thank you. You may 10 step down. 11 I will now move to closing statements. 12 Mr. Marquez? 13 MR. MARQUEZ: Madame Chair, nothing 14 other than to say we're relying on our report 15 of October 10th in which we found that they had 16 the financial stability and the requisite 17 stability to grant the relief that they 18 requested. 19 CHAIR KASSEKERT: Thank you. 20 Counsel? 21 MR. LEVENSON: Nothing further. Just 22 ask, respectfully, that you vote to approve the 23 various petitions that are before you. 24 CHAIR KASSEKERT: Okay. Let me just on 25 the record ask if there are any comments on the 109 ITEM NO. 2 1 draft resolution, the parties consent to its 2 form and its adoption? 3 MR. MICHAEL: Yes, we do. 4 MR. MARQUEZ: Yeah. 5 CHAIR KASSEKERT: Very good. 6 And are there any other matters that 7 need to be brought to our attention at this 8 time? 9 MR. MARQUEZ: None, Madame Chair. 10 CHAIR KASSEKERT: I don't see any need 11 to take a recess unless any of the 12 commissioners -- very good. 13 We'll move forward then. 14 After agreeing last May to acquire 15 Aztar, Wimar availed itself of the ICA 16 provisions of our statutes that have afford it 17 the opportunity to close on the purchase before 18 we make a determination on its plenary 19 suitability. In order to do so, Wimar will 20 essentially put the casino in trust with 21 retired New Jersey Supreme Court Justice Gary 22 Stein serving as a trustee. Now, obviously, 23 he's, of course, beyond reproach and insulates 24 the casino hotel from its new owners until 25 they, too, demonstrate clearly and convincingly 110 ITEM NO. 2 1 their good character and financial stability, 2 and we thank him for our service here. 3 Wimar will fund the almost $3.4 billion 4 purchase price mostly through borrowings under 5 two credit bank facilities, the issuance of 6 senior subordinated notes and a loan from its 7 afiliate Columbia Sussex. With Tropicana used 8 as security for some of those loans, we must 9 review the financial stability, repercussions 10 from those material debt transactions. And 11 although Wimar and its affiliate, Columbia 12 Sussex, operate numerous hotels and casino 13 properties, none is the magnitude of the 14 Tropicana here. 15 And, further, with the acquisition, 16 Wimar will also endeaver to undertake a large 17 scale redevelopment of the Las Vegas Tropicana. 18 While those tasks certainly are daunting, the 19 company's human capital appears to be both 20 confident and competent. Moreover, the 21 financial model presented is reasonable with 22 its design to provide flexibility, thereby 23 scaling back on the projected use of excess 24 cash flow to repay the debt as we heard today, 25 or through borrowings under a fully available 111 ITEM NO. 2 1 $180 million credit line. 2 Such financial flexibilities is 3 elemental as recent events in Missouri 4 demonstrate. Wimar and Aztar anticipated 5 selling Aztar's casino property in Missouri to 6 Fortunes Entertainment, and then usung those 7 sales proceeds to fund part of the merger 8 consideration. However, the Missiouri State 9 gaming regulators apparently advised Aztar that 10 they would not finish their review of Fortunes 11 Entertainment until after the projected closing 12 of the merger. Thus, Wimar will need time to 13 raise additional capital, and we've been 14 assured that it's prepared to do so, and we so 15 heard today. 16 In any event, Wimar has shown no 17 inclination to retain Aztar's Missouri property 18 following the merger. Normally they will 19 business would be unremarkable, except here 20 there's been much media speculation that Wimar 21 is abandoning any Missouri casino property to 22 avoid regulatory scrutiny in that jurisdiction. 23 However, on the record, let me say that 24 according to the Division, Wimar early on 25 advised it that Missouri had identified areas 112 ITEM NO. 2 1 of concern, and, apparently, with Wimar's full 2 cooperation, of the Division has properly begun 3 investigating those concerns. Critically for 4 the purposes of these proceedings, the Division 5 reports that thus far it has discerned no basis 6 for substantial objection. And it is on that 7 basis that we proceed, ever mindful that the 8 ICA statute empowers us to activate the trust 9 at the earliest instant that there is 10 reasonable cause to believe that an applicant 11 or any its principals may be found unqualified. 12 As to the ICA itself, there are certain 13 loose ends that still need to be tied down but 14 which we have been assured can be accomplished 15 in time for the projected closing later this 16 month or in December, as we heard. We look 17 forward to that event. And we welcome Wimar, 18 which by all indications is poised to be a 19 vibrant and successful competitor in our market 20 here in Atlantic City. 21 And, accordingly, I move that the 22 Commission adopt the proposed resolution and 23 grant ICA to Wimar, and approve the material 24 debt transactions, all as set forth in the 25 findings and rulings and subject to the 113 ITEM NO. 2 1 conditions in the resolution. 2 I so move. 3 Is there a second? 4 COMMISSIONER SOMMELING: Second. 5 COMMISSIONER EPPS: Second. 6 CHAIR KASSEKERT: Motion has been made 7 and seconded. 8 This is a roll call vote. 9 MR. NANCE: Commissioner Sommeling? 10 COMMISSIONER SOMMELING: Yes. 11 MR. NANCE: Commissioner Epps? 12 COMMISSIONER EPPS: Yes. 13 MR. NANCE: Commissioner Fedorko? 14 COMMISSIONER FEDORKO: Yes. 15 MR. NANCE: Vice Chair Frulio? 16 VICE CHAIR FRULIO: Yes. 17 MR. NANCE: Chair Kassekert? 18 CHAIR KASSEKERT: Yes. 19 MR. NANCE: The record will reflect that 20 the motion is unanimous. 21 CHAIR KASSEKERT: Congratulations. 22 Welcome to Atlantic City. 23 Let me also not be remiss and thank our 24 staffs who have worked diligently, both our 25 Division of Gaming Enforcement staff, Ray and 114 ITEM NO. 2 1 his colleagues and Len, Noreen, and let me also 2 recognize -- because I know she will be leaving 3 us soon to go on maternity leave -- Carol 4 Defoor, who would have been your principal 5 inspector, and congratulate her on her upcoming 6 birth. 7 And, again, Mr. Yung, welcome to 8 Atlantic City. We look good to a good and 9 strong working relationship with you. 10 Thank you. 11 MR. YUNG: Thank you. 12 MR. LEVENSON: Thank you. 13 MR. MICHAEL: Thank you. 14 CHAIR KASSEKERT: Let me make a motion. 15 We need a motion to adjourn. 16 COMMISSIONER SOMMELING: Motion. 17 MR. FEDORKO: Second. 18 CHAIR KASSEKERT: All those in favor? 19 (Ayes.) 20 CHAIR KASSEKERT: Those opposed? 21 (No response.) 22 CHAIR KASSEKERT: Motion carries. 23 (The meeting was concluded at 2:25 p.m.) 24 25 115 1 2 C E R T I F I C A T E 3 4 5 I, DARLENE SILLITOE, a Certified 6 Shorthand Reporter and Notary Public of the 7 State of New Jersey, certify that the foregoing 8 is a true and accurate transcript of the 9 proceedings. 10 11 12 I further certify that I am neither 13 attorney, of counsel for, nor related to or 14 employed by any of the parties to the action; 15 further that I am not a relative or employee of 16 any attorney or counsel employed in this case; 17 nor am I financially interested in the action. 18 19 20 DARLENE SILLITOE CSR 21 License No XI01023 22 23 Dated: November 3, 2006 24 My Commission Expires on July 10, 2009 25 ID No 2062871