1 1 STATE OF NEW JERSEY 2 CASINO CONTROL COMMISSION 3 - - - - - - - - - - - - - - - - - - - 4 5 PUBLIC MEETING NO. 07-04-18 6 7 - - - - - - - - - - - - - - - - - - - 8 9 Wednesday, April 18, 2007 10 Atlantic City Commission Offices 11 Joseph P. Lordi Public Meeting Room - First Floor 12 Tennessee Avenue and Boardwalk 13 Atlantic City, New Jersey 08401 14 10:36 a.m. to 12:13 p.m. 15 16 17 Certified Shorthand Reporter: Darlene Sillitoe 18 - - - - - - - - - - - - - - - - - - - - - - - - - - - 19 20 CIPOLLONI & ASSOCIATES, INC. 21 CERTIFIED SHORTHAND REPORTERS 22 1125 ATLANTIC AVENUE, SUITE 416 23 ATLANTIC CITY, NEW JERSEY 08401 24 (609) 348-9190 25 www.cipolloni-associates.com 2 1 B E F O R E : 2 CASINO CONTROL COMMISSION: LINDA M. KASSEKERT, CHAIR 3 MICHAEL A. FEDORKO, VICE CHAIR MICHAEL C. EPPS, COMMISSIONER 4 RALPH G. FRULIO, COMMISSIONER WILLIAM T. SOMMELING, COMMISSIONER 5 PRESENT FOR THE CASINO CONTROL COMMISSION: 6 DARYL W. NANCE, ADMINISTRATIVE ANALYST LISA SPENGLER, PUBLICATIONS COORDINATOR 7 OFFICE OF THE GENERAL COUNSEL: 8 DIANNA W. FAUNTLEROY, GENERAL COUNSEL/EXECUTIVE SECRETARY 9 LEONARD J. DIGIACOMO, ASSISTANT GENERAL COUNSEL STEVEN M. INGIS, ASSISTANT GENERAL COUNSEL 10 SETH H. BRILIANT, SENIOR COUNSEL BERNADETTE T. FRIGEN, PROGRAM SUPERVISOR 11 RICHARD ROSS, PROGRAM SUPERVISOR CLAIRE FRANK, PROGRAM SUPERVISOR 12 DIVISION OF FINANCIAL EVALUATION: 13 CHRISTOPHER GLAUM, MANAGER 14 DIVISION OF GAMING ENFORCEMENT: YVONNE G. MAHER, ACTING DIRECTOR 15 MITCHELL SCHWEFEL, DEPUTY DIRECTOR 16 ASSISTANT ATTORNEYS GENERAL ANTHONY ZARRILLO, ASSISTANT ATTORNEY GENERAL 17 DEPUTY ATTORNEYS GENERAL 18 BRIAN BISCIEGLIA, DEPUTY ATTORNEY GENERAL TIMOTHY C. FICCHI, DEPUTY ATTORNEY GENERAL 19 MARYJO FLAHERTY, DEPUTY ATTORNEY GENERAL NORMA STANCIL, DEPUTY ATTORNEY GENERAL 20 WENDY WAY, DEPUTY ATTORNEY GENERAL 21 22 23 24 25 3 1 A P P E A R A N C E S : 2 ITEM NO. 3 JOSEPH CORBO, ESQ. FOR: MARINA DISTRICT DEVELOPMENT CO., LLC 3 ITEM NO. 8 WENDY WAY, DEPUTY ATTORNEY GENERAL 4 STEVEN M. INGIS, SENIOR GENERAL COUNSEL PATRICIA M. WILD, ESQ. 5 FOR: RIH ACQUISITIONS/ RESORTS INTERNATIONAL 6 ITEM NO. 10 TIMOTHY FICCHI, DEPUTY ATTORNEY GENERAL 7 SETH H. BRILIANT, SENIOR COUNSEL KAREN WOSNACK, ESQ. 8 FOR: HARRAH'S CASINO HOTEL, AC 9 ITEM NO. 11 TIMOTHY FICCHI, DEPUTY ATTORNEY GENERAL SETH H. BRILIANT, SENIOR COUNSEL 10 KAREN WOSNACK, ESQ. FOR: HARRAH'S CASINO HOTEL, AC 11 ITEM NO. 13 MARYJO FLAHERTY, DEPUTY ATTORNEY GENERAL 12 LEONARD J. DiGIACOMO, ASSISTANT GENERAL COUNSEL 13 WOLF, BLOCK BY: GILBERT BROOKS, ESQ. 14 AND: PATRICIA M. WILD, ESQ. FOR: RIH ACQUISITIONS, NJ, LLC 15 ITEM NO. 14 ANTHONY ZARRILLO, ASSISTANT 16 ATTORNEY GENERAL STEVEN M. INGIS, SENIOR GENERAL COUNSEL 17 COOPER LEVENSON BY: LLOYD D. LEVENSON, ESQ. 18 FOR: GARY K. NG 19 20 21 22 23 24 25 4 1 AGENDA PUBLIC MEETING NO. 07-04-18 2 APRIL 18, 2007, 10:36 a.m. ITEM PAGE VOTE 3 1 Ratification of the minutes of 8 9 4 April 4, 2007 2 Applications for employee and casino 5 service industry licenses: Gary K. Ng 9 11 6 Gerald J. Ford, Scientific Games Racing, LLC 7 Stephen L. Gibbs, Scientific Games 11 11 Racing, LLC 8 Andrew Paul, Cammegh Limited 11 11 3 Petition of Marina District Development 13 15 9 Company, LLC (d/b/a Borgata Hotel Casino & Spa) for the issuance of a temporary 10 casino key employee license to David Coskey pursuant to NJSA 5:12-89(e) and to permit 11 him pursuant to NJAC 19:43-2.6 to assume the duties and exercise the powers of Vice 12 President of Marketing without first having been found qualified (PRN 0950701) 13 4 Stipulations of settlement and consent Agreements: 14 a) John A. Griffith (06-0572-EA) 16 18 b) Judith Moya (04-0124-EA) 16 18 15 c) Julio Delacruz (06-0312-RC) 16 18 d) Michael T. Brown (06-0380-EA, 16 18 16 05-0196-ER) e) Mark W. Alosi (07-0004-EA) 16 18 17 f) Waclaw W. Gimalski (07-0008-EA) 16 18 g) Barry M. Greenstein (06-0355-EA) 16 18 18 h) Dacole C. Mincey (06-025-EA) 16 18 i) Marie S. Brady (06-0469-ER) 16 18 19 j) Roger A. Prescott (07-0027-RC) 16 18 k) Pablo Reyes-Mota (0600437-RC) 16 18 20 l) Kathleen D. Kelso (06-0575-EA) 16 18 m) Sammy Rivera (a/k/a Sammy 16 18 21 Rivera-Santiago) (0-6-0387-EA) n) Dipti Amin (07-0105-EA) 16 18 22 5 Stipulation of settlement in renewal 22 23 application of Fondacaro Companies, Inc., 23 (a/k/a Fondacaro Fencing, Inc.,) and Qualification of Gregory G. Fondacaro (06-0213-SR) 24 6 Applications for Suspension: a) Mona C. McKenna (07-0163-RC) 23 24 25 b) Brenda S. Palen (07-0173-RC) 23 24 c) David J. Snyder (07-0174-RC) 23 24 5 1 CONTINUED AGENDA PUBLIC MEETING NO. 07-04-18 2 APRIL 18, 2007, 10:36 a.m. ITEM PAGE VOTE 3 7 Preliminary hearing concerning the exclusion of: 4 a) Campanella, Jr. (07-0148-EL) 25 27 b) Paul Spina (07-0149-EL) 25 27 5 8 Joint petition of RIH Acquisitions, LLC, 32 43 NJ, and Resorts International Hotel, Inc., 6 for approval of a second amended and restated joint services agreement (PRN 0600601) 7 ROGER P. WAGNER, testified 37 9 Petition of Marina District Development 27 28 8 Company, LLC, to amend NJAC 19:50-3.3(c) and for declaratory ruling for a relaxation of 9 NJAC 19:50-3.3(c) pursuant to NJAC 19:40-1.3(d) and such other relief (PRN 0540702) 10 10 Petition of Marina Associates (d/b/a 28 29 Harrah's Casino Hotel Atlantic City) for an 11 amendment to its Certificate of Operation and Casino Hotel Alcohol Beverage License 12 to permit a casino reconfiguration and expansion (PRN 0990701) 13 11 Petition of Boardwalk Regency Corporation 30 31 (d/b/a Caesars Atlantic City( for an amendment 14 to its Certificate of Operation and Casino Hotel Alcoholic Beverage License to permit 15 a casino reconfiguration and expansion of its casino floor (PRN 0990704) 16 12 Notice of readoption of NJAC 19:49 31 32 (Junkets) 17 13 Amended petition of RIH Acquisitions NJ, 43 113 LLC, for renewal of its Casino License, 18 Casino Hotel Alcoholic Beverage License and other related relief (PRN 3630603) 19 Anthony P. Rodio, testified 52 Eric J. Matejevich, testified 89 20 14 Stipulation of settlement in application 18 21 of Gary K. Ng (07-0216-EA) 21 22 23 24 25 6 1 E X H I B I T S : 2 ITEM NO. 2 DESCRIPTION EVD 3 EL-1 Remand for hearings, 6 license X 4 applications EL-2 Grant 9 licenses X 5 6 ITEM NO. 3 7 Maureen Adams, Regional Vice President of Finance For Bally's Park Place, Inc., Boardwalk Regency 8 Corporation, Marina Associates and Atlantic City Showboat, Inc. 9 Nicholas R. Amato, Senior Vice President and General Counsel and Secretary for Resorts 10 International Hotel, Inc., and RIH Acquisitions, NJ, LLC 11 Francis Fitzpatrick, III, Direct of Security for Trump Plaza Associates, LLC 12 Donald W. Kneisel, II, Assistant Vice President of Information Technology for Adamar of New Jersey, Inc. 13 John C. Sanchez, Vice President of Slot Operations For Marina Associates; and 14 Chun M. Mak, Vice President of Far East Marketing For RIH Acquisition, NJ, LLC 15 16 ITEM NO. 13 ID EVD 17 C-1 Entities and Qualifiers Report X 4-12-07, by Mr. DiGiacomo 18 C-2 CHAB, 4-18-07, by Mr. French X C-3 EEBO Plan, 3-27-07, by Ms. Frank X 19 C-4 Draft Resolution X 20 D-1 Report, 3-28-08, Re: PRN 3630603 X By Ms. Flaherty REDACTED 21 D-1A Supplemental Submission, 4-12-07 X By Ms. Flaherty REDACTED 22 D-2 Letter Report, 3-21-07, by Ms. Flaherty X Re: AC Hilton CHAB License 23 24 (Exhibits retained by Commission.) 25 7 1 (Public Meeting 07-04-18 was commenced 2 at 10:36 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 16th, 2006, filed with 10 the Secretary of State at the State House in 11 Trenton an annual meeting schedule. On October 12 16th, copies were mailed to the Press of 13 Atlantic City, the Newark Star Ledger. 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 The matters discussed in closed session 6 were: Employee enterprise license matters. 7 The Commissioners approved the April 8 4th, 2007, closed session minutes. 9 Litigation update regarding: Warren 10 Lackland and Lewis Springer, Jr., versus the 11 State of New Jersey and the Casino Control 12 Commission; 13 Wirtz versus the Casino Control 14 Commissioner and the Division of Gaming 15 Enforcement; 16 Gloria Ford versus the State of New 17 Jersey, Casino Control Commission, et al.; 18 Husain versus the Casino Control 19 Commission, et al.; 20 And in the matter of the petition of SD 21 for removal from the voluntary self-exclusion 22 list. 23 Item No. 1, the ratification of the 24 minutes of April 4th, 2007, public meeting. 25 COMMISSIONER SOMMELING: Motion to 9 ITEM NO. 2 1 approve. 2 VICE CHAIR FEDORKO: Second. 3 CHAIR KASSEKERT: The motion has been 4 made and seconded. All in favor? 5 (Ayes.) 6 CHAIR KASSEKERT: Opposed? 7 (No response.) 8 CHAIR KASSEKERT: The motion carries. 9 MR. NANCE: Item No. 2, application for 10 employee and casino service industry licenses. 11 This agenda item will be entered as Exhibit 12 List 1 and 2. 13 Exhibit List 1 consists of 6 14 applications for initial and/or renewal of 15 casino key and casino employee licenses. 16 The Division has objected to licensure. 17 COMMISSIONER FRULIO: Motion to remand 18 for hearings. 19 VICE CHAIR FEDORKO: Second. 20 COMMISSIONER SOMMELING: Second. 21 CHAIR KASSEKERT: The motion has been 22 made and seconded. All in favor? 23 (Ayes.) 24 CHAIR KASSEKERT: Opposed? 25 (No response.) 10 ITEM NO. 2 1 CHAIR KASSEKERT: The motion carries. 2 MR. NANCE: For consideration is the 3 application of Gary K. Ng for a casino key 4 employee license and qualification. 5 The Division has recommended that this 6 application be granted. 7 COMMISSIONER FRULIO: Motion to remand 8 for hearing. 9 VICE CHAIR FEDORKO: Second. 10 CHAIR KASSEKERT: The motion has been 11 made and seconded. All in favor? 12 (Ayes.) 13 CHAIR KASSEKERT: Opposed? 14 (No response.) 15 CHAIR KASSEKERT: The motion carries. 16 MR. NANCE: This agenda item will be 17 entered as Exhibit List 2. 18 Exhibit List 2 consists of 9 19 applications for initial and/or renewal of 20 casino key and employee licenses. 21 The staff and Division has recommended 22 that these licenses be granted. 23 COMMISSIONER FRULIO: Motion to grant 24 applications. 25 VICE CHAIR FEDORKO: Second. 11 ITEM NO. 2 1 CHAIR KASSEKERT: The motion has been 2 made and seconded. All in favor? 3 (Ayes.) 4 CHAIR KASSEKERT: Opposed? 5 (No response.) 6 CHAIR KASSEKERT: The motion carries. 7 MR. NANCE: For consideration are the 8 following for qualification in connection with 9 their respective gaming-related casino service 10 industry licenses pursuant to NJAC 11 19:51-1.14B(h): For Gerald J. Ford, Scientific 12 Games Racing, LLC; Stephen Gibbs, Scientific 13 Games Racing, LLC; and Andrew Paul Cammegh, 14 Cammegh Limited. 15 Staff and the Division has recommended 16 qualification. 17 COMMISSIONER FRULIO: Motion to find 18 Messrs. Ford, Gibbs, and Cammegh plenarily 19 qualified in connection with their respective 20 gaming-related CSI licenses pursuant to NJAC 21 19:51-1.14B(h). 22 VICE CHAIR FEDORKO: Second. 23 CHAIR KASSEKERT: The motion has been 24 made and seconded. All in favor? 25 (Ayes.) 12 ITEM NO. 2 1 CHAIR KASSEKERT: Opposed? 2 (No response.) 3 CHAIR KASSEKERT: The motion carries. 4 MR. NANCE: For consideration are the 5 following applications for initial and/or 6 renewal of casino key employe licenses and for 7 qualification: Maureen Adams, Regional Vice 8 President of Finance for Bally's Park Place, 9 Inc., Boardwalk Regency Corp., Marina 10 Associates, and Atlantic City Showboat, Inc.; 11 Nicholas R. Amato, Senior Vice President 12 and General Counsel and Secretary for Resorts 13 International, Inc., and RIH Acquisitions, New 14 Jersey, LLC; 15 Francis Fitzpatrick, III, Director of 16 Security for Trump Plaza Associates, LLC; 17 Donald W. Kneisel, II, Assistance Vice 18 President of Information Technology for Adamar 19 of New Jersey, Inc.; 20 John C. Sanchez, Vice President of Slot 21 Operations for Marina Associates; 22 And Chun M. Mak, Vice President of Far 23 East Marketing for RIH Acquisitions, New 24 Jersey, LLC. 25 Staff and the Division have recommended 13 ITEM NO. 3 1 that these applications be granted. 2 COMMISSIONER FRULIO: Motion to grant 3 initial and renewal key licenses and for 4 qualification. 5 VICE CHAIR FEDORKO: Second. 6 CHAIR KASSEKERT: Motion is made and 7 seconded. This is a roll call vote. 8 MR. NANCE: Commissioner Sommeling? 9 COMMISSIONER SOMMELING: Yes. 10 MR. NANCE: Commissioner Epps? 11 COMMISSIONER EPPS: Yes. 12 MR. NANCE: Commissioner Frulio? 13 COMMISSIONER FRULIO: Yes. 14 MR. NANCE: Vice Chair Fedorko? 15 VICE CHAIR FEDORKO: Yes. 16 MR. NANCE: Chair Kassekert? 17 CHAIR KASSEKERT: Yes. 18 MR. NANCE: The record will reflect that 19 the motion is unanimous. 20 Item No. 3, Petition No. -- excuse me. 21 Item No. 3, petition of Marina 22 Development Company, LLC, for the issuance of a 23 temporary casino key employee license to David 24 Coskey pursuant to NJSA 5:12-89(e) and to 25 permit him pursuant to NJAC 19:43-2.6 to assume 14 ITEM NO. 3 1 the duties and exercise the powers of Vice 2 President of Marketing without first having 3 been found qualified. 4 CHAIR KASSEKERT: Good morning, Mr. 5 Corbo. 6 MR. CORBO: Good morning, Chair 7 Kassekert, Commissioners. 8 First, I'd gladly introduce you to Mr. 9 Coskey who, subject to your approval, will 10 serve as our Vice President of Marketing, 11 replacing Siddarth Vaikunta who will be leaving 12 us later this week. 13 Just by way of background, we're very 14 pleased to have Mr. Coskey join Borgata. And 15 in his previous capacities, he has served as 16 Vice President of Marketing for the Trump 17 properties, an interesting role as Executive 18 Vice President with the Philadelphia '76ers 19 during a very key period in their history, and 20 most recently in his own -- which Commissioner 21 Epps, I'm sure, appreciates -- and other 22 capacities recently. In his private marketing 23 firm, providing some consulting services for 24 Washington state casinos and with some -- with 25 the Pennsylvania casino, Foxwoods specifically. 15 ITEM NO. 3 1 So wanted to bring Mr. Coskey over here 2 and introduce him to you and ask for you to 3 grant the petition that he filed. 4 Thank you. 5 CHAIR KASSEKERT: Thank you. Any 6 questions? 7 COMMISSIONER SOMMELING: No questions, 8 Madame Chair. 9 VICE CHAIR FEDORKO: Motion to approve 10 the petition and issue a temporary casino key 11 employee license to David Coskey and permit him 12 to assume the duties and exercise the powers of 13 Vice President of Marketing without first 14 having been qualified. 15 COMMISSIONER FRULIO: Second. 16 CHAIR KASSEKERT: Motion has been made 17 and seconded. This is a roll call vote. 18 MR. NANCE: Commissioner Sommeling? 19 COMMISSIONER SOMMELING: Yes. 20 MR. NANCE: Commissioner Epps? 21 COMMISSIONER EPPS: Yes. 22 MR. NANCE: Commissioner Frulio? 23 COMMISSIONER FRULIO: Yes. 24 MR. NANCE: Vice Chair Fedorko? 25 VICE CHAIR FEDORKO: Yes. 16 ITEM NO. 4 1 MR. NANCE: Chair Kassekert? 2 CHAIR KASSEKERT: Yes. 3 MR. NANCE: The record will reflect that 4 the motion is unanimous. 5 CHAIR KASSEKERT: Thank you. 6 Congratulations. 7 MR. COSKEY: Thank you. 8 MR. CORBO: Thank you very much. 9 MR. NANCE: Item No. 4, stipulation of 10 settlement and consent agreement. 11 When I call your name, please come 12 forward stand behind this middle table, 13 spreading across the room so you may be seen: 14 John Griffith, Judith Moya, Julio Delacruz, 15 Michael Brown, Mark Alosi, Waclaw Gimalski, 16 Barry Greenstein, Dacole Mincey, Marie Brady, 17 Roger Prescott, Pablo Mota, Kathleen Kelso, 18 Sammy Rivera, and Dipti Amin. 19 CHAIR KASSEKERT: Thank you. Has 20 everyone whose name been called come forward at 21 this point? 22 I'm going to ask that you each state 23 your name for the record, starting with you, 24 sir. 25 MR. REYES-MOTA: Pablo Reyes-Mota. 17 ITEM NO. 4 1 CHAIR KASSEKERT: Sir? 2 MR. GREENSTEIN: Barry Greenstein. 3 MR. GIMALSKI: Waclaw Gimalsi. 4 MR. ALOSI: Mark Alosi. 5 MS. BRADY: Marie Brady. 6 MR. PRESCOTT: Roger Prescott. 7 MS. AMIN: Dipti Amin. 8 CHAIR KASSEKERT: Thank you. 9 In a moment we're going to vote on the 10 stipulations that you've agreed to with the 11 Division of Gaming Enforcement. 12 I'm going to ask at this point if any of 13 you wish to be heard on your matter. You don't 14 have to say anything if you don't want to. 15 Does anyone wish to be heard? Very 16 good. Thank you. 17 Mr. Biscieglia? 18 MR. BISCIEGLIA: Good morning, Chair and 19 Commissioners. 20 The Division has nothing further and ask 21 that the stipulations be adopted. 22 Thank you. 23 CHAIR KASSEKERT: Thank you. 24 Any questions? 25 COMMISSIONER SOMMELING: Move to approve 18 ITEM NO. 14 1 the stipulations, Madame Chair. 2 COMMISSIONER EPPS: Second. 3 CHAIR KASSEKERT: The motion has been 4 made and seconded. All in favor? 5 (Ayes.) 6 CHAIR KASSEKERT: Opposed? 7 (No response.) 8 CHAIR KASSEKERT: The motion carries. 9 Thank you very much for coming. Good 10 luck. 11 FROM THE FLOOR: Thank you. 12 MR. NANCE: Item No. 14, for your 13 consideration stipulation of settlement and 14 application of Gary K. Ng. 15 Mr. Ingis? 16 MR. INGIS: Good morning, Madame Chair, 17 Commissioners. 18 I don't -- oh, there he is. Mr. 19 Levenson? 20 Apparently, he's taken aback by the fact 21 that we've taken the matter out of order. 22 Pay attention. 23 MR. LEVENSON: I didn't expect to be 24 called till the end. 25 MR. INGIS: This is a stipulation of 19 ITEM NO. 14 1 settlement which, if approved, will result in 2 the granting of a casino key employee license 3 application and also a finding of 4 qualification. 5 Mr. Levenson is here on behalf of the 6 Applicant, and Mr. Zarrillo for the Division. 7 CHAIR KASSEKERT: Thank you. 8 Mr. Levenson? 9 MR. LEVENSON: I have nothing to add to 10 the stipulation of settlement. Mr. Ng is here 11 and, if there are any questions, I'll be happy 12 to answer them. 13 CHAIR KASSEKERT: Thank you. 14 Mr. Zarrillo? 15 MR. ZARRILLO: Good morning, Chair, 16 Commissioners. 17 I'd ask that you adopt the settlement -- 18 the stipulation of settlement as we propose it. 19 And I'll be happy to answer any questions you 20 have. I have nothing to add. 21 CHAIR KASSEKERT: Thank you. 22 Any questions? 23 COMMISSIONER SOMMELING: No questions, 24 Madame Chair. 25 Madame Chair, I move to approve the 20 ITEM NO. 14 1 stipulation of settlement and grant the 2 non-gaming casino service -- 3 CHAIR KASSEKERT: Commissioner 4 Sommeling, we're on Item 14. This is -- 5 COMMISSIONER EPPS: I'll make the 6 motion. 7 CHAIR KASSEKERT: Okay. 8 COMMISSIONER SOMMELING: I'm sorry. 9 COMMISSIONER EPPS: I'll move we approve 10 the stipulation and grant Mr. Ng's application 11 for a casino key employee license and 12 qualification as Senior Vice President of Asian 13 Player Development for Trump Taj Mahal 14 Associates, Trump Plaza Associates, LLC, and 15 Trump Marina Associates, LLC, subject to the 16 conditions set forth in the stipulation. 17 COMMISSIONER SOMMELING: Second. 18 CHAIR KASSEKERT: Is there a second? 19 The motion is made and seconded. This 20 is a roll call vote. 21 MR. NANCE: Commissioner Sommeling? 22 COMMISSIONER SOMMELING: Yes. 23 MR. NANCE: Commissioner Epps? 24 COMMISSIONER EPPS: Yes. 25 MR. NANCE: Commissioner Frulio? 21 ITEM NO. 14 1 COMMISSIONER FRULIO: Yes. 2 MR. NANCE: Vice Chair Fedorko? 3 VICE CHAIR FEDORKO: Yes. 4 MR. NANCE: Chair Kassekert? 5 CHAIR KASSEKERT: Yes. 6 MR. NANCE: The record will reflect that 7 the motion is unanimous. 8 MR. LEVENSON: All right. Thank you 9 very much. 10 CHAIR KASSEKERT: Thank you. Best of 11 luck. 12 Before we go on, let me just take a 13 point of personal privilege -- 14 Go ahead. You're done. Thank you. 15 -- and introduce Yvonne Maher, who is 16 the new Acting Director of the Division of 17 Gaming Enforcement. 18 MS. MAHER: Good morning. 19 CHAIR KASSEKERT: Good morning. 20 Welcome. 21 MS. MAHER: Chair, thank you. 22 CHAIR KASSEKERT: We're glad you're 23 here. 24 MS. MAHER: Thank you. And I appreciate 25 it. 22 ITEM NO. 5 1 MR. NANCE: Item No. 5, stipulation of 2 settlement in renewal application of Fondacaro 3 Companies, Inc., and qualification of Gregory 4 G. Fondacaro. 5 Mr. Ingis? 6 MR. INGIS: I would ask if Mr. Fondacaro 7 is present in the meeting room? Apparently 8 not. 9 This is a stipulation which, if 10 approved, will result in the granting of a 11 non-gaming casino service industry license. 12 Mr. Zarrillo is here again on behalf of 13 the Division. 14 CHAIR KASSEKERT: Thank you. 15 Mr. Zarrillo? 16 MR. ZARRILLO: Yes, good morning. 17 Chair. 18 We just ask that you adopt the 19 settlement as we prepared it. It's a matter 20 that's been around for a while. We just had to 21 wait for him to get some character reference 22 letters in, but there's no problems with it 23 now. 24 CHAIR KASSEKERT: Thank you. 25 Any questions? 23 ITEM NO. 6 1 COMMISSIONER FRULIO: Madame Chair, move 2 to approve the stipulation of settlement and 3 grant the non-gaming casino service industry 4 license renewal application of Fondacaro 5 Companies, Inc., pursuant to 92(c) of the Act. 6 VICE CHAIR FEDORKO: Second. 7 CHAIR KASSEKERT: The motion has been 8 made and seconded. All in favor? 9 (Ayes.) 10 CHAIR KASSEKERT: Opposed? 11 (No response.) 12 CHAIR KASSEKERT: The motion carries. 13 Thank you. 14 MR. NANCE: Item No. 6, application for 15 suspension for Mona McKenna, Brenda Palen, and 16 David Snyder. 17 Miss Frigen? 18 MS. FRIGEN: Good morning, Madame Chair, 19 Commissioners. 20 CHAIR KASSEKERT: Good morning. 21 MS. FRIGEN: Before we hear from the 22 Division, let me just ask whether any of the 23 individuals are present or represented today? 24 Apparently not. 25 CHAIR KASSEKERT: Thank you. 24 ITEM NO. 6 1 Mr. Biscieglia? 2 MR. BISCIEGLIA: Thank you, Chair. 3 The Division would just like to add in 4 regards to A, Mona McKenna, on April 12th of 5 2007, she was indicted for engaging in 6 prostitution, fourth degree. She pled guilty 7 to the indictment and is scheduled for 8 sentencing on July 20th of 2007. 9 In regards to B, Barbara [sic] Palen, 10 that is currently pending a grand jury with no 11 date set. 12 And in regards to C, David Synder, that 13 is scheduled for trial in Atlantic City 14 Municipal Court on April 25th of 2007. 15 Thank you. The Division has nothing 16 further. 17 CHAIR KASSEKERT: Thank you. 18 Any questions? 19 VICE CHAIR FEDORKO: Motion to suspend 20 credentials. 21 COMMISSIONER FRULIO: Second. 22 CHAIR KASSEKERT: The motion has been 23 made and seconded. All in favor? 24 (Ayes.) 25 CHAIR KASSEKERT: Opposed? 25 ITEM NO. 7 1 (No response.) 2 CHAIR KASSEKERT: The motion carries. 3 MR. BISCIEGLIA: Thank you, 4 Commissioners. 5 CHAIR KASSEKERT: Thank you. 6 MR. NANCE: Item No. 7, preliminary 7 hearing concerning the exclusion of John 8 Campanella, Jr., and Paul Spina. 9 Ms. Frigen? 10 MS. FRIGEN: Madame Chair, 11 Commissioners, with respect to John Campanella, 12 I would just note think spoke with his attorney 13 yesterday, Frank Mandia, who advised that they 14 are not contesting the preliminary exclusion. 15 They are going to be requesting a final hearing 16 on the final petition for exclusion. 17 Let me ask whether Paul Spina is present 18 or represented here today? Apparently not. 19 I would refer both of these matters over 20 to the Division. 21 CHAIR KASSEKERT: Thank you. 22 Ms. Stancil? 23 MS. STANCIL: Good morning, Chair 24 Kassekert, Commissioners. Good morning. 25 In reference to John Campanella, this 26 ITEM NO. 7 1 matter involved his conviction on June 6th, 2 2005, for mail fraud. This was a federal 3 indictment which involved members or alleged 4 members of the -- of an organized crime family 5 that's based in New York. 6 I don't have anything in addition to 7 that matter set forth in our petition, and I 8 believe that the information in the petition 9 establishes that the criteria for placement or 10 exclusion of Mr. Campanella on -- from Atlantic 11 City casino hotel facilities have been met, and 12 I would ask that you grant the application. 13 CHAIR KASSEKERT: Thank you. 14 Any questions? 15 COMMISSIONER SOMMELING: No questions, 16 Madame Chair 17 VICE CHAIR FEDORKO: Motion to grant the 18 Division's request for preliminary orders 19 placing the names of John Campanella, Jr., and 20 Paul Spina on the exclusion list pending final 21 action on the related petitions for final 22 exclusion. 23 COMMISSIONER FRULIO: Second. 24 CHAIR KASSEKERT: The motion has been 25 made and seconded. All in favor? 27 ITEM NO. 9 1 (Ayes.) 2 CHAIR KASSEKERT: Opposed? 3 (No response.) 4 CHAIR KASSEKERT: The motion carries. 5 Thank you. 6 MR. NANCE: For your consideration Item 7 No. 9, petition of Marina District Development 8 Company, LLC, to amend NJAC 19:50-3.3(c) and 9 for declaratory ruling for a relaxation of NJAC 10 19:50-3.3(c) pursuant to NJAC 19:40-1.3(d) and 11 such other relief. 12 Mr. Ingis? 13 MR. INGIS: Good morning, Madame Chair, 14 Commissioners. 15 The staff is requesting that this matter 16 be tabled for an additional 90 days for further 17 review by the Division and Commission staffs. 18 CHAIR KASSEKERT: Thank you. 19 This is item No. 9. 20 COMMISSIONER FRULIO: Yes. Move to 21 table the petition for up to 90 days and 22 authorize publication of a notice of action to 23 that effect. 24 VICE CHAIR FEDORKO: Second. 25 CHAIR KASSEKERT: The motion has been 28 ITEM NO. 10 1 made and seconded. All in favor? 2 (Ayes.) 3 CHAIR KASSEKERT: Opposed? 4 (No response.) 5 CHAIR KASSEKERT: The motion carries. 6 MR. NANCE: Item No. 10, petition of 7 Marina Associates for an amendment to its 8 certificate of operation and casino hotel 9 alcoholic beverage license to permit a casino 10 reconfiguration and expansion. 11 Mr. Briliant? 12 MR. BRILIANT: Good morning, Madame 13 Chair and Commissioners. 14 Karen Wosnack is here on behalf of 15 petitioner. Mr. Ficchi is here on behalf of 16 the Division. 17 We have circulated a draft resolution 18 which has been reviewed by all counsel, and the 19 matter is now before you for consideration. 20 MS. WOSNACK: Good morning. Karen 21 Wosnack here on behalf of Harrah's. 22 I do have Mr. Reggie Fulward, (phonetic) 23 the Vice President of Table Games with me in 24 the event that you have any questions. Other 25 than that, I would just ask that you grant the 29 ITEM NO. 10 1 relief requested. 2 Thank you. 3 CHAIR KASSEKERT: Thank you. 4 Mr. Ficchi? 5 MR. FICCHI: Madame Chair, 6 Commissioners, the Division has reviewed the 7 draft resolution. We have no objection to its 8 adoption by the Commission. 9 CHAIR KASSEKERT: Thank you. 10 Let me ask, are there any questions? 11 COMMISSIONER SOMMELING: No questions, 12 Madame Chair. 13 VICE CHAIR FEDORKO: Motion to adopt the 14 draft resolution and approve the petition of 15 Marina Associates for an amendment to its 16 Certificate of Operation and Casino Hotel 17 Alcoholic Beverage license to permit the 18 reconfiguration and expansion of its casino 19 floor, subject to the conditions in the 20 resolution. 21 COMMISSIONER FRULIO: Second. 22 CHAIR KASSEKERT: The motion has been 23 made and seconded. All in favor? 24 (Ayes.) 25 CHAIR KASSEKERT: Opposed? 30 ITEM NO. 11 1 (No response.) 2 CHAIR KASSEKERT: Motion carries. 3 MS. WOZNACK: Thank you. 4 CHAIR KASSEKERT: Thank you. 5 MR. NANCE: Item No. 11, petition of 6 Boardwalk Regency Corporation for an amendment 7 to its Certificate of Operation and Casino 8 Hotel Alcoholic Beverage license to permit a 9 reconfiguration and expansion of its casino 10 floor. 11 Mr. Briliant? 12 MR. BRILIANT: Once again, the same 13 parties. And we have circulated a draft 14 resolution. 15 CHAIR KASSEKERT: Thank you. 16 Miss Wosnack? 17 MS. WOSNACK: Again, other than just to 18 ask you to draft -- adopt the resolution as 19 drafted, I have nothing to add. 20 Thank you. 21 CHAIR KASSEKERT: Thank you. 22 MR. FICCHI: And, again, I have no 23 objection, Chair, Commissioners. 24 CHAIR KASSEKERT: Thank you. 25 Any questions? 31 ITEM NO. 12 1 COMMISSIONER SOMMELING: No questions, 2 Madame Chair. 3 Move to adopt the draft resolution and 4 approve the petition of Boardwalk Regency 5 Corporation for an amendment to its Certificate 6 of Operation and Casino Hotel Alcoholic 7 Beverage license to permit the reconfiguration 8 and expansion of its casino floor, subject to 9 the conditions in the resolution. 10 VICE CHAIR FEDORKO: Second. 11 CHAIR KASSEKERT: The motion has been 12 made and seconded. All in favor? 13 (Ayes.) 14 CHAIR KASSEKERT: Opposed? 15 (No response.) 16 CHAIR KASSEKERT: The motion carries. 17 MS. WOZNACK: Thanks very much. 18 MR. FICCHI: Thank you. 19 MR. NANCE: Item No. 12, notice of 20 readoption of NJAC 19:49. 21 Miss Frank? 22 MS. FRANK: Good morning, Chair and 23 Commissioners. 24 The notice of readoption of Chapter 49, 25 junkets, of the Commission's regulations is 32 ITEM NO. 8 1 before you today for approval. If approved, 2 the readoption would become effective tomorrow, 3 April 19th. The anticipated filing date with 4 the Office of Administrative Law. 5 CHAIR KASSEKERT: Thank you. 6 Any questions for Miss Frank? 7 COMMISSIONER SOMMELING: No questions, 8 Madame Chair. 9 COMMISSIONER FRULIO: Move to readopt as 10 published. 11 VICE CHAIR FEDORKO: Second. 12 CHAIR KASSEKERT: The motion has been 13 made and seconded. All in favor? 14 (Ayes.) 15 CHAIR KASSEKERT: Opposed? 16 (No response.) 17 CHAIR KASSEKERT: The motion carries. 18 MS. FRANK: Thank you. 19 MR. NANCE: For your consideration Item 20 No. 8, joint petition of RIH Acquisition, LLC, 21 New Jersey, and Resorts International Hotel, 22 Inc., for approval of a second amended and 23 restated joint services agreement. 24 Mr. Ingis? 25 MR. INGIS: Good morning, Madame Chair, 33 ITEM NO. 8 1 Commissioners. 2 Back on December 13th, 2006, the 3 Commission granted portions of this petition by 4 deferred consideration of certain aspects of 5 the petition relating to the proposed transfer 6 of license MIS employees and proposed 7 reorganization of the internal audit department 8 of the licensee memo. Those deferred matters 9 are now before the Commission today for 10 consideration. 11 Patricia Wild is here on behalf of the 12 Petitioners and Wendy Way for the Division of 13 Gaming Enforcement. 14 CHAIR KASSEKERT: Thank you. 15 Good morning. 16 MS. WILD: Good morning. Thank you. 17 Good morning, Chair and members of the 18 Commission. 19 As Mr. Ingis has already noted, this 20 matter is before you today as part of a 21 petition which has been outstanding for some 22 time. 23 Starting with the purchase of the 24 Atlantic City Hilton by Colony and Mr. Ribis in 25 2005, the Commission permitted certainly 34 ITEM NO. 8 1 operational functions to be carried out jointly 2 in respect of both Atlantic City Hilton and 3 Resorts Atlantic City. This petition proposed 4 an expansion of this concept to permit certain 5 functions to be carried out or in some cases 6 supervised at a corporate level. In December 7 the Commission granted aspects of this position 8 which did not impact on what are known as 9 mandatory functions within departments which 10 are mandated by the Casino Control Act 11 regulations. 12 The items remaining under consideration 13 today do touch two mandatory departments, the 14 internal audit department, and the MIS 15 department or, as some of us call it, the IT 16 department, depending upon your pleasure. 17 First of all, I'd like to thank the 18 Commission staff and the Division for the very 19 serious and understanding attention that was 20 paid to these matters. We had a series of 21 meetings with staff and with the Division and 22 the regulatory concerns were expressed, 23 discussed, responded to, and I hope resolved as 24 best as we possibly could. This was a long 25 process because of the policy concerns 35 ITEM NO. 8 1 surrounding these proposals. My clients are 2 well aware of those concerns, and we appreciate 3 that we were given an opportunity to address 4 those concerns in the way that we have. 5 I want to thank Mr. Ingis, Mr. 6 Storcella, Miss Hamer, and Miss Biache 7 (phonetic) of the Commission staff and also DAG 8 Way's inquiries along the way were of great 9 help in understanding issues and helping to 10 resolve them as well. I really appreciate the 11 participation of everybody in this process 12 because we were breaking somewhat new ground in 13 this petition. 14 I do want to make the representation 15 that we have made in meetings with your staff 16 that, particularly with respect to the IT 17 positions, the positions we're moving onto the 18 corporate level. We've made a commitment, a 19 corporate commitment, that these positions will 20 stay in New Jersey. If they become vacant, we 21 will make every attempt, and I'm sure we can 22 fill them in New Jersey, and we will allow them 23 to stay in New Jersey. They will move on to a 24 corporate payroll, but the people filling these 25 positions are from New Jersey. They'll live in 36 ITEM NO. 8 1 New Jersey. They'll pay payroll taxes in New 2 Jersey as well. 3 Also we have proposed different levels 4 of licensure where we have proposed a 5 particular licensure -- license standard. It 6 may not be the license standard that would be 7 required if this position were in New Jersey, 8 but we have made the commitment to have these 9 people specifically licensed in these levels, 10 and management will make sure that that 11 happens, that it continues to be respected. 12 In order for my -- in order for the 13 Commission to understand my client's 14 commitment -- it's one thing for me to stand 15 here and say that as the company's lawyer, but 16 I would like to call as a witness, 17 Commissioners, Roger P. Wagner. 18 CHAIR KASSEKERT: Thank you. 19 Mr. Wagner, you may come forward. Good 20 morning. 21 THE WITNESS: Good morning. The booth? 22 CHAIR KASSEKERT: You can sit wherever 23 you want. 24 We're going to put you in the booth soon 25 enough. We need to swear you in. 37 ROGER P. WAGNER 1 ROGER P. WAGNER, was duly sworn to 2 testify in this matter. 3 4 MR. NANCE: Thank you will you please 5 state your name for the record, 6 THE WITNESS: Yes. Roger Wagner. 7 MR. NANCE: Thank you. 8 CHAIR KASSEKERT: Thank you. 9 MS. WILD: Now, this is nice for me 10 because I feel like I'm having a nice 11 conversation with Mr. Wagner. 12 13 DIRECT EXAMINATION BY MS. WILD: 14 Q. Mr. Wagner, would you please tell us 15 what your position with Marina District Development 16 and RIH Acquisitions, LLC, the parent company? 17 A. I'm the chief operating officer. 18 Q. And to whom do you report? 19 A. I report to CEO Nick Ribis and to the 20 board of directors of that entity. 21 Q. And is it correct that you also hold 22 this title with respect to other affiliates of the AC 23 Hilton? 24 A. Yes, I do. Two other affiliates. 25 Q. Can you explain to the Commission those 38 ROGER P. WAGNER 1 positions? 2 A. The holding company for the Las Vegas 3 Hilton, and the holding company for Resorts here in 4 Atlantic City. 5 Q. And are you familiar with the petition 6 which is under consideration today by the Commission? 7 A. Yes, I am. 8 Q. And you are aware of the focus -- that 9 the focus of today's conversation is on the proposals 10 in the petition relating to the IT department; is that 11 correct? 12 A. That's correct. 13 Q. And you are aware that, are you not, 14 that the petition proposes the transfer of 11 persons 15 from property level IT department to the corporate IT 16 department; is that correct? 17 A. That is correct. 18 Q. Can you give the commission a little 19 understanding -- a little expression of your 20 understanding as to why this is being proposed? 21 A. Certainly. We have 11 developmental 22 type employees that are currently working in Atlantic 23 City. Most of our work, fortunately, is in Atlantic 24 City for development of computer operations. But 25 these functions are not mandatory. They are 39 ROGER P. WAGNER 1 developmental. We could out-source them to a casino 2 service company or develop them elsewhere in the 3 country. With programming and development the way it 4 is today, people can be located almost anywhere in the 5 world. 6 The talent pool, though, for gaming 7 though is really here in Atlantic City. We do have 8 six or seven developmental people in Las Vegas, a 9 couple in Chicago, and a few in Memphis, but the bulk 10 of them here are here. We want to have the ability to 11 control and develop standard kinds of proprietary 12 software systems for all six of our facilities. 13 Hopefully, more in the future -- although we got one 14 we might sell soon. And the standards we want to 15 develop are measurable and fairly identical 16 infrastructure across our portfolio of casinos. And 17 that was the reasoning behind this request. And I 18 hope that if you approve it today, we get on with 19 business. 20 We've made a commitment to keep these 21 people here. And to replace them in New Jersey where 22 most of the talent is, anyway, for developmental 23 people. In the event there's anything that they come 24 across that would conflict in a mandatory situation, 25 it would be directed to Tony Rodio or Steve Callender, 40 ROGER P. WAGNER 1 the two gaming executives at the two respective 2 properties here. I'm around to arbitrate. But it's 3 been -- our structure at the corporate headquarters 4 for Resorts is we serve on the strategic planning 5 role. Our vice presidents at the corporate level are 6 really consultants to the properties, not just here in 7 New Jersey but in each of the six properties that we 8 operate. We provide consulting roles. None of our 9 vice presidents have a direct relationship with any of 10 the subordinates to the general managers in any of the 11 six properties outside New Jersey. We kind of used 12 the New Jersey model to develop the whole corporate 13 structure. 14 Q. Thank you, Mr. Roger -- Mr. Wagner. 15 You were also aware, are you not, that 16 this potential process, the creation of a position of 17 the corporate vice president, internal audit? 18 A. Yes. 19 Q. And are you aware that in order to 20 comply with the Casino Control Act regulations, this 21 position must report to the audit committees of the 22 holding companies of the casino licensee companies? 23 A. Yes, I understand that. 24 Q. And could you explain to the Commission 25 how we anticipate assuring that that reporting line is 41 ROGER P. WAGNER 1 established or maintained? 2 A. Yes. We'll have our general counsel get 3 with the boards of directors of the three entities, 4 and they will form audit committees at the holding 5 companies. We currently have audit committees at the 6 license level only. And upon approval of that, and we 7 will -- we will have the copies of the resolutions 8 approved by the boards sent to the Commission. We 9 will then promote Penny Burtwhistle (phonetic) into 10 the position of Vice President of Corporate Internal 11 Audit and she's a talented lady. Lives here in New 12 Jersey. Will oversee our internal audit at all six of 13 our properties. 14 Q. Thank you Mr. Wagner. 15 MS. WILD: Those are the only questions 16 I have for Mr. Wagner. I'm sure if the 17 Commission has any, he'll be more than to 18 answer. 19 CHAIR KASSEKERT: Sure. Thank you. 20 Miss Way, any questions? 21 MS. WAY: Just one question. 22 23 CROSS-EXAMINATION BY MS. WAY: 24 Q. Good morning, Mr. Wagner. 25 A. Good morning. 42 ROGER P. WAGNER 1 Q. In the event a vacancy should arise in 2 any of these positions, will the positions still 3 remain in Atlantic City and be filled, but still 4 remain in Atlantic City? 5 A. Our commitment is to find the talent 6 here in Atlantic City. And if for some reason we 7 couldn't find that talent -- which I don't anticipate 8 that being we -- we have 11 positions, and we're going 9 to keep 11 positions. 10 Q. Thank you. 11 MS. WAY: No further questions. 12 Thank you Madame Chair. 13 CHAIR KASSEKERT: Thank you. 14 Any questions from the Commission? 15 VICE CHAIR FEDORKO: No. 16 COMMISSIONER SOMMELING: No questions, 17 Madame Chair. 18 CHAIR KASSEKERT: Okay. 19 VICE CHAIR FEDORKO: Madame Chair, I 20 make a motion to grant the petition and approve 21 the revised tables of organization and lines of 22 reporting for the MIS and Internal Audit 23 Departments, subject to the conditions set 24 forth in the order which are based on the 25 representations made on the record by counsel 43 ITEM NO. 13 1 for the petitioner. 2 COMMISSIONER FRULIO: Second. 3 CHAIR KASSEKERT: The motion has been 4 made and seconded. All in favor? 5 (Ayes.) 6 CHAIR KASSEKERT: Opposed? 7 (No response.) 8 CHAIR KASSEKERT: The motion carries. 9 Thank you. And thank you for working so 10 cooperatively with the Division and the 11 Commission to resolve this issue. 12 MS. WILD: It was my pleasure. I'm very 13 glad that today has happened. Thank you very 14 much. 15 MR. WAGNER: Thank you. 16 CHAIR KASSEKERT: Thank you. 17 MR. NANCE: Item No. 13 amended petition 18 of RIH Acquisition, New Jersey, LLC, for 19 renewal of its casino license and casino hotel 20 alcoholic beverage license and other related 21 relief. 22 Mr. DiGiacomo? 23 MR. DiGIACOMO: Madame Chair, 24 Commissioners, good morning. 25 Mr. Gilbert Brooks on behalf of the 44 ITEM NO. 13 1 petition. MaryJo Flaherty on behalf of the 2 Division of Gaming Enforcement. 3 CHAIR KASSEKERT: Thank you. A few 4 introductory remarks. Thank you. 5 Before the Commission -- let me just ask 6 that counsel enter their appearances for the 7 record, so even though Mr. DiGiacomo introduced 8 them. 9 MR. BROOKS: Good morning, Madame Chair, 10 members of the Commission. Gil Brooks of the 11 firm Wolf Block on behalf of the Petitioner. 12 MS. WILD: Good morning, Patricia Wild, 13 Vice President of Legal and Regulatory Affairs 14 for the Atlantic City Hilton and for Resorts 15 Atlantic City. 16 CHAIR KASSEKERT: Thank you. 17 MS. FLAHERTY: Yes. Chair and 18 Commissioners, MaryJo Flaherty with the 19 Division of Gaming Enforcement. 20 CHAIR KASSEKERT: Thank you. 21 I have a few introductory remarks. 22 Before the Commission today is the 23 application of RIH Acquisitions, better known 24 as the Hilton, for the renewal of its casino 25 and casino hotel alcoholic beverage licenses. 45 ITEM NO. 13 1 We will evaluate that application in accordance 2 with the pertinent licensing criteria under the 3 Casino Control Act, which now confers on the 4 Commission the flexibility to renew a casino 5 license for up to five years. 6 For a casino relicensure under section 7 84 of the Casino Control Act, Hilton needs to 8 establish by clear and convincing evidence four 9 essential affirmative criteria: Number one, 10 good character, honesty, and integrity; number 11 two, financial stability, integrity, and 12 responsibility; number three, the integrity of 13 its financial sources; and, number four, 14 business ability and casino experience. 15 Additionally, under section 86 of the 16 Act, Hilton must establish that it does not 17 suffer from any of the negative 18 disqualification criteria such as a failure to 19 provide required information, conviction of a 20 serious crime, pending criminal charges, or 21 association with what the Act calls "career 22 offenders" or "career offender cartel." 23 Further, section 134B prohibits the 24 Commission from issuing any license to any 25 Applicant that fails to agree to afford equal 46 ITEM NO. 13 1 employment opportunity under an approved 2 affirmative action program. And section 134D 3 nullifies any license that the Commission 4 issues in violation of section 134. 5 As for the CHAB license, the relevant 6 criteria are included in section 103 of the Act 7 and Chapter 50 of the Commission's regulations. 8 The Commission certainly will evaluate 9 all the licensing criteria, but we understand 10 that the testimony today will focus on 11 finances. 12 Before hearing the witnesses, there are 13 also a number of exhibits that have been 14 premarked and that Mr. Nance will now identify 15 for the record. 16 MR. NANCE: Chair, the premarked 17 exhibits are as follows: The Casino Control 18 Commission has exhibits -- has four exhibits, 19 C-1 through C-4. C-1 is the entities and 20 qualifiers report dated April 12, 2007. C-2 is 21 the CHAB report dated April 18th, 2007. C-3 is 22 the EEBO plan dated March 27, 2007. And for 23 identification only, C-4 is the draft 24 resolution. 25 The Division of Gaming Enforcement has 47 ITEM NO. 13 1 three exhibits, D-1, D-1A and D-2. D-1 is a 2 report dated March 28th, 2007, regarding PRN 3 3630603. D-1A is a supplemental submission, 4 dated April 12th, 2007, regarding Petition No. 5 3630603. And D-2 is a report dated March 21st, 6 2007, regarding an AC Hilton CHAB license. 7 CHAIR KASSEKERT: Thank you. 8 Are there any objections to the 9 admission of these exhibits? And are there any 10 sealing requests? 11 MR. BROOKS: Madame Chair, in connection 12 with Exhibit D-1, we do have a sealing request. 13 I have submitted to the Commission staff a copy 14 of the exhibit with the sealing requests, and 15 they are redacted, and I've submitted that 16 exhibit. 17 And we have that -- that's the only 18 exhibit we have a sealing request for. 19 CHAIR KASSEKERT: Thank you. 20 Miss Flaherty? 21 MS. FLAHERTY: Yes, Madame Chair and 22 Commissioners. 23 We would request that our exhibits be 24 admitted into evidence, and we have no 25 objection to the sealing request which I've had 48 ITEM NO. 13 1 an opportunity to review. 2 CHAIR KASSEKERT: Great. Thank you. 3 That being said, since there's no 4 objection and the redaction request is 5 approved, I will move these items into 6 evidence. 7 The draft resolution specifies the 8 rulings we are asked to consider, many of which 9 will require the Division's concurrence. 10 Miss Flaherty, does the Division concur 11 on those items? 12 MS. FLAHERTY: Yes, it does, Chair. 13 CHAIR KASSEKERT: Thank you. 14 I think we will -- are there any other 15 procedural matters at this point that need to 16 be brought to our attention? 17 MR. BROOKS: No, Madame Chair. 18 CHAIR KASSEKERT: Very good. We'll move 19 to opening statements. 20 Do the parties wish to make an opening 21 statement? 22 MR. BROOKS: Just briefly, Madame Chair. 23 We were here before you approximately a year 24 ago today seeking a plenary license for RIH 25 Acquisitions, New Jersey. The Commission 49 ITEM NO. 13 1 granted that plenary license for a one-year 2 term, and in connection with the grant of that 3 license, the Commission asked the management 4 the company to address the then financing that 5 impacted the facility. Management's done that, 6 and we present those materials to the 7 Commission in connection with this relicensing, 8 as well as addressing the other issues, the 9 myriad of other issues that needed to be 10 addressed. 11 And we're prepared to submit some 12 testimony here in to the Commission today in 13 connection with these issues. And I think that 14 those issues will establish by a clear and 15 convincing evidence the standards necessary for 16 the license renewal for the five-year term. 17 CHAIR KASSEKERT: Thank you. 18 Miss Wild? Any opening statements? 19 MS. WILD: No. Thank you. 20 CHAIR KASSEKERT: Miss Flaherty? 21 MS. FLAHERTY: Yes, Chair, 22 Commissioners. 23 The Division submitted a report dated 24 March the 28th regarding the casino license 25 renewal application of RIH Acquisitions in 50 ITEM NO. 13 1 regard to its ownership of the operation of the 2 AC Hilton. 3 The license term which you requested is 4 the five-year period. The renewal which we 5 have reviewed in terms of our report was the 6 initial one-year license term. We reported on 7 the casino license renewal applicant, its 8 holding companies, numerous other qualifying 9 entities, its individual qualifiers, and its 10 financial sources. 11 We also set forth information regarding 12 its compliance in New Jersey as well as in 13 other gaming jurisdictions, and we provided an 14 analysis of the financial stability of the 15 casino operation and its holding companies. 16 Additionally, we've submitted in a 17 supplemental report dated April the 12th, 2007, 18 other information for the Commission's 19 consideration. 20 The first matter concerned our 21 investigation into the issuance of certain 22 intercompany promissory notes. The second 23 matter dealt with other intercompany transfers, 24 which may have occurred, and we reviewed in 25 detail those for the Commission's 51 ITEM NO. 13 1 consideration. 2 No upstreaming of funds were included in 3 the forecast, it was noted. But we found that 4 there were actually three transfers from 5 January to March of this year. 6 Finally, in an important area, since the 7 issuance of our initial report, a major 8 development occurred on March -- I guess it was 9 on April the 4th -- it was announced that there 10 was a definitive agreement to sell the Resorts 11 East Chicago facility to Ameristar Casino, and 12 that facility is collateral for the financing 13 upon casino operation in Atlantic City as well 14 as two Mississippi operations. In light of 15 that, the sale of that facility will impact on 16 the forecasts which were submitted which did 17 not anticipate the recently announced sale. 18 We provided that information to the 19 Commission as a basis for this renewal 20 proceeding. We have not raised any objection 21 to the renewal, but we have recommended certain 22 conditions which I will address in my closing 23 following the testimony which is to be provided 24 to the Commission today. 25 Thank you. 52 ANTHONY P. RODIO 1 CHAIR KASSEKERT: Very good. Thank you. 2 We'll now move to testimony. Please 3 call your first witness. 4 MR. BROOKS: Madame Chair, call Tony 5 Rodio. 6 CHAIR KASSEKERT: Thank you. 7 Mr. Rodio, we're going to swear you in. 8 9 ANTHONY P. RODIO, was duly sworn to 10 testify in this matter. 11 12 MR. NANCE: Please state your name for 13 the record. 14 THE WITNESS: Tony Rodio. 15 CHAIR KASSEKERT: Okay. You may 16 proceed, Mr. Brooks. 17 MR. BROOKS: Thank you, Madame Chair. 18 19 DIRECT EXAMINATION BY MR. BROOKS: 20 Q. Good morning. 21 A. Good morning. 22 Q. For the record, could you please advise 23 the Commission of your position in the ownership 24 organizational structure of RIH Acquisitions, New 25 Jersey? 53 ANTHONY P. RODIO 1 A. I'm the Regional President for the 2 Atlantic City Hilton and Resorts Atlantic City. 3 Q. I assume, sir, that given your position 4 you are familiar with the economic forecasts provided 5 to the Division and Commission in connection with the 6 effort to have the RIH Acquisitions, New Jersey, 7 casino license renewed? 8 A. I am. 9 Q. Am I correct in that assumption? 10 A. Yes. 11 Q. Now, in terms of 2007, the 2007 forecast 12 EBITDA for the Atlantic City Hilton, that doesn't 13 include any impact attributed to the new Atlantic City 14 partial smoking ban. Could you explain for the 15 Commission the reason why an impact on the partial 16 smoking ban was not included in management's 17 assumptions when the forecasts were prepared? 18 A. At the time we weren't certain of how 19 the ordinance would be ultimately passed, number one. 20 Number two, I don't believe in its current form that 21 there is going to be any significant or relevant 22 impact with the 25 percent, you know, allowable space 23 to have smoking on the casino floor. 24 Q. Do the forecasts take into account 25 increased competition from the Pennsylvania slot 54 ANTHONY P. RODIO 1 parlors? 2 A. Yes, they did. 3 Q. And in terms of the impact to earnings, 4 if any, as a consequence of the increased slot 5 competition from Pennsylvania, what has management 6 observed in regard to date? 7 A. I would say that the impact has been 8 more than we had originally anticipated. I think that 9 a couple of things also need to be taken into 10 consideration. I think that the Atlantic City Hilton 11 has been impacted a little bit more than some of the 12 other operations, and certainly some of our other 13 property. The Atlantic City Hilton database skews a 14 little bit more towards Pennsylvania, Eastern 15 Pennsylvania particularly the Philadelphia area, and 16 our original assumptions were the impact that the 17 Pennsylvania would have on the market, we expected the 18 market to be flat to up slightly in growth. And 19 through the first quarter of the year, the market is, 20 in fact, down a little over two points. So the impact 21 has been a little bit greater on the overall market, 22 and the impact of the Atlantic City Hilton in 23 particular has been a little bit more than we had 24 originally anticipated. 25 Q. What are your thoughts about the impact 55 ANTHONY P. RODIO 1 on earnings as a consequence of this increased slot 2 competition from Pennsylvania for the Atlantic City 3 Hilton through the forecast time period? 4 A. I still believe that as we get into the 5 summer through the second quarter and into the third 6 quarter that we're going to see a reversal of some of 7 the dramatic impact that we felt in the first quarter. 8 I think as we get, again, to the summer period, 9 customers and people are going to want to be down at 10 the shore. And I think you're going to see a little 11 bit of a migration back from the racinos in 12 Pennsylvania back towards the Atlantic City market 13 and, in particular, to our property, Atlantic City 14 Hilton. 15 Q. A large portion of the 2007 forecasted 16 EBITDA growth at the Atlantic City Hilton is expected 17 to be achieved by cost-containing measures. Could you 18 explain to the Commission management's assumption in 19 this regard? 20 A. Yes. Well, first and foremost, was in 21 June of last year, we went through a regionalization, 22 and we are still feeling some of the benefits of that 23 through the first six months of this year because of 24 the regional structure that we implemented last 25 summer. So for the first six months, we're still 56 ANTHONY P. RODIO 1 realizing those benefits. 2 Plus as we looked at our overall 3 strategy for the Atlantic City Hilton, when we first 4 took over the operation, we were very aggressive from 5 a marketing standpoint in the first year to 18 months 6 of operation. We wanted to grab market share. And 7 then it was our hope and our belief that as we went 8 into our second full year of operation, we'd be able 9 to cut back on some of those marketing efforts which 10 will allow us to an improve our margins a little bit. 11 That was one area that as a result of Philadelphia 12 being a little bit more impact, we're not going to be 13 able to grab as much of that margin improvement as we 14 had originally anticipated. 15 Q. In connection with the forecasts those, 16 were the promotional allowance reductions that were 17 forecasted? 18 A. Correct. 19 Q. As management -- so what are the plans 20 or what does management perceive in terms of those 21 promotional allowance restrictions -- reductions, 22 rather -- in terms of the forecast time periods? 23 A. Certainly we need to be very fluid. 24 It's a very dynamic market, and first and foremost, we 25 need to do everything we can to hold onto our market 57 ANTHONY P. RODIO 1 share. So if the situation dictates that we need to 2 maintain a little bit more aggressive or higher level 3 of promotional reinvestment, we're going to do that to 4 hold onto our top-line revenue. 5 And as the situation, hopefully, 6 improves, as I think that it will with the business 7 coming back into the market in the summer period, then 8 we think that we'll still be able to realize some of 9 those savings going forward. 10 Q. Now, recently you sold a member of RIH 11 Acquisitions, New Jersey, Resorts International 12 Holdings announced that it was selling Resorts East 13 Chicago, which is a casino hotel located in Indiana. 14 And it's selling that to Ameristar Casinos in -- could 15 you briefly describe that transaction for the 16 Commission? 17 A. Well, I'll leave the detailed financial 18 implications of that to Mr. Matejevich when he comes 19 up and testifies. But, in essence, I think the big 20 thing for the overall heap properties, as we refer to 21 them, those properties that are aligned together, I 22 think it puts us in a much better financial position, 23 given the sale of that property. And it is my hope 24 and belief that it will also position us for future 25 development and expansion of our Atlantic City asset 58 ANTHONY P. RODIO 1 as a direct result of that sale. 2 Q. Are there preliminary plans for an 3 expansion of Atlantic City Hilton in connection with 4 the benefits that we've realized from the sale of the 5 Resorts East Chicago property? 6 A. Yes. We've been actively working on a 7 master plan, as we refer to it, at the Atlantic City 8 Hilton. We've engaged the architectural firm of 9 Bergman and Walls, which was the original designer of 10 the Golden Nugget, which is what the Atlantic City 11 Hilton was when it first opened. They've also done a 12 number of projects in Las Vegas. We actually have a 13 presentation later today for Mr. Ribis and one 14 scheduled next week for Mr. Barrack to go over the 15 full scope of that expansion. 16 Q. Can you share any details with the 17 Commission today in connection with that expansion? 18 A. It is a pretty significant expansion. 19 It would include a new tower in the vicinity of 1,000 20 rooms. It would include a new multi-purpose venue to 21 replace the temporary theater that we've been 22 utilizing for going on ten years now at the Atlantic 23 City Hilton, that would be able to accommodate 3,000 24 to 3500 people. That will serve also as a convention 25 area. 59 ANTHONY P. RODIO 1 It also has significant expansion to our 2 gaming space. We have the smallest casino in the 3 city, and it will nearly double the size of the casino 4 floor. It will add a number of restaurants and retail 5 areas as well. As well as in excess of 3,000 space 6 parking garage. 7 Q. What would be your expectations in 8 connection with those plans if they come to fruition 9 in terms of the competitiveness of Atlantic City 10 Hilton not only in the Atlantic City market but also 11 in connection with increased competition outside this 12 market. 13 A. I think as we look at Atlantic City 14 moving forward, I believe with all the regional 15 competition that we're seeing in Pennsylvania and in 16 New York and other areas that the properties that have 17 a more diversified experience are certainly going to 18 be the ones that are in a better position to keep 19 going forward locally as well as against those 20 regional competitors. Certainly, all you have to do 21 is look at the tremendous success that the Borgata has 22 experienced since it opened, and I think that, again, 23 they offer that diversified gaming experience and 24 that's what we're looking to develop at the Atlantic 25 City Hilton. I think it would, as I said, position us 60 ANTHONY P. RODIO 1 to better compete regionally. 2 MR. BROOKS: I have no further 3 questions, Madame Chair. 4 CHAIR KASSEKERT: Thank you. 5 Miss Flaherty? 6 MS. FLAHERTY: Yes, Chair, 7 Commissioners. 8 9 CROSS-EXAMINATION BY MS. FLAHERTY: 10 Q. My first question deals with forecasts 11 in terms of the -- in light of the smoking ban that 12 you've discussed, and the added competition from 13 Pennsylvania, how optimistic are those forecasts in 14 terms of the projected growth of those properties? 15 A. I believe that we will be able to 16 achieve or come very close to achieving those 17 forecasts in the second quarter through the balance of 18 the year. We've already seen as the weather has 19 occurred, this weekend aside, with this northeastern 20 that came through here, we have already seen some of 21 our business levels return to prior year levels at the 22 Atlantic City Hilton. I think, again, when the 23 weather seems to be better, we seem to return back to 24 normal levels. So I fully anticipate that we're going 25 to see that improve and continue through the second 61 ANTHONY P. RODIO 1 quarter, specifically into the third quarter in our 2 busy period. So if not being able to achieve those 3 targets, I think we'll be able to come much closer 4 than we were in the first quarter. 5 Q. Do you think the Pennsylvania slot 6 industry will continue to affect your operation in the 7 coming summer months? 8 A. Yeah. I think that if you look at any 9 of the urban areas where there's casinos, it seems 10 that they do better in the shoulder periods as opposed 11 to in the summer. And, again, I think that the 12 Atlantic City market will -- will return back to its 13 normal levels. And it's probably in those fourth and 14 first quarters where they'll have the biggest impact. 15 But I also think that we're learning 16 every day. Certainly at our company we have a lot of 17 tools that allows us to look at what segments of our 18 customer base are eroding, and what customers are 19 particularly eroding in terms of our play. And so 20 rather than take a shotgun approach as far as 21 reinvesting higher dollars across our whole database, 22 we can be more targeted and more specific in doing 23 whatever we can to get those customers to return back 24 to our -- back to our casino. So I think it's there's 25 also a learning process going on as we move forward. 62 ANTHONY P. RODIO 1 Q. Toward the end of forecasting period 2 when Pennsylvania may be opening full-scale casinos, 3 what impact it would have that operations? 4 A. Well, certainly there will have impact 5 as well, although they will not be open at any point 6 during this year, given all the regulatory issues that 7 they're battling with. But I think that you will have 8 see a second phase or second impact speed bump in 9 terms of the impact on the overall market. But they 10 also -- when those casinos open, the slot parlors, 11 they will not only be drawing just from the Atlantic 12 City casinos. They'll be drawing from the two 13 operations or three operations that are already 14 operating in Pennsylvania. So the picture will be 15 spread, not just to our market but also to the other 16 operators that are already existing in Pennsylvania. 17 Q. Uh-huh. Mr. Brooks has noted in his 18 questions that there is projected to be a reduction in 19 the percentage of promotional allowances and in 20 projected revenue? 21 A. Uh-huh. 22 Q. With your testimony given, is that 23 reduction feasible at this point? 24 A. As I said, I think that it is feasible, 25 particularly in the latter part of the second quarter 63 ANTHONY P. RODIO 1 and in the third quarter. But I would not, you know, 2 etch that in stone. As I said, it's a very dynamic 3 market. And given what the competition does both 4 locally and regionally, we're going to react and do 5 whatever we have to do to hold onto our market share. 6 But the intent right now is to be able 7 to realize some of those savings, particularly in the 8 summer period. 9 Q. Now, to date, this year, there has been 10 decreased in slot revenue from what was projected. 11 How is the company addressing that issue? 12 A. As I said, we are specifically able to 13 look at our customer base and identify those customers 14 that we know we've lost trips from year over year. 15 And we can identify those customers that we look 16 specifically within a 30-mile radius of any of those 17 operations that are currently -- you know, that just 18 opened in Pennsylvania. And so we're able to increase 19 our reinvestment to those specific customers where 20 we've lost the business as opposed to across the whole 21 database. And those are some of the steps that we've 22 employed the latter part of March and going into 23 April. And I think that together with the improved 24 weather and those more targeted offers, that's why 25 we've seen some of those business levels come back in 64 ANTHONY P. RODIO 1 the April period. 2 I think that it was prudent on our part 3 to take a wait-and-see approach in the January and 4 February period into March. The only way we would be 5 able to minimize the impact would have been to spread 6 that reinvestment across all of our customers. And I 7 think it was better to give up a little bit of 8 short-term revenue and bottom line and know where the 9 revenue was going to be so we were be more targeted 10 with our offers going forward. 11 Q. Now, the projected forecasted property 12 EBITDA also expects to achieve growth through 13 cost-containment measures and you've noted some 14 regionalization efforts on your part. Can you specify 15 what those cost-containment measures are? 16 A. Well, regionalization efforts were the 17 step that the company took, as I said, in June of last 18 year that took positions such as mine. There were two 19 regional managers last year. There is now one 20 regional purchasing and regional financing. So we're 21 recognizing through the first six months of this year 22 those financial benefits. 23 In addition to that, given the reduction 24 that we've seen in the first quarter, we've also taken 25 steps to reduce some of our operating costs without 65 ANTHONY P. RODIO 1 having to go through layoffs, through attrition in 2 areas where some of the operations have been impacted 3 with reduced volume. We're using less hours. We're 4 using less employees. And we're very diligent in 5 terms of our review of positions where before we 6 replace them and add them into back into the 7 organization, we want to make sure the business levels 8 are returning to previous year levels before we add 9 those costs back to the business. 10 So we're taking a very conservative 11 approach to adding back labor during this period of 12 time. 13 Q. Okay. So you don't see any negative 14 affect in terms of these measures on -- upon revenue 15 and -- 16 A. No. 17 Q. -- ricochet effect? 18 A. No. 19 Q. All right. Now, with regard to capital 20 expenditures, there are forecasts with regard to the 21 Atlantic City Hilton. Now, I assume that those are in 22 addition to the project that you're discussing in 23 relation to the funds which may be available from East 24 Chicago? 25 A. Yeah. The project I'm discussing is 66 ANTHONY P. RODIO 1 separate and apart from our annual capital. 2 Q. Okay. Can you discuss the capital plans 3 that are included in the forecasts? 4 A. Our typical capital includes a lot of 5 maintenance issues on a annual basis for back-of-the 6 house things, facilities and things of that nature. 7 There's always capital set aside for slot product, 8 which is no different this year. 9 I think the biggest thing that we are 10 embarking on -- and, actually, they will open this 11 weekend -- is a renovation of our second level of 12 suites. There's 13 suites just below our penthouse 13 level that have not been renovated since the day Steve 14 Wynn had opened them, as a matter of fact. And those 15 will be -- have been completely renovated and will be 16 open back to the public again this coming weekend. 17 Aside from those maintenance type items 18 and that complete renovation of the floor, there is 19 nothing else that would have a significant impact on 20 a -- on day-to-day operations. 21 Q. The projections also include 22 expenditures for information and technology 23 improvements. And I would ask if you could describe 24 how those improvements would affect the Atlantic City 25 operation. 67 ANTHONY P. RODIO 1 A. I think the way I describe our ability 2 to be more tactical and specific and targeted in our 3 offers are all as a result of a lot of the capital 4 expenditures that we've made, an investment that we've 5 made in IT. And our infrastructure company purchased 6 a system called Mariposa, which is a data warehouse 7 system. It gives us that capability to really look at 8 our customer base and dissect it a number of different 9 ways, and we're constantly reinvesting into that tool, 10 making sure that it is up to date, and we can utilize 11 it for things. As I described, that allows us to be 12 more targeted and specific in the way that we are 13 reacting to the impact in Pennsylvania. 14 Beyond that we're looking at technology 15 that will allow us to interact with the customer right 16 at the slot machine, and we're trying to -- couple 17 different options in terms of how to do that. We're 18 looking at doing a trial with a couple of different 19 systems later this year in that regard as well. 20 MS. FLAHERTY: Madame Chair, that's all 21 I have. Thank you. 22 CHAIR KASSEKERT: Thank you. 23 We'll take questions from the 24 Commissioners. 25 Let me ask first, since you're here, and 68 ANTHONY P. RODIO 1 the partial smoking ban went into effect on 2 Sunday, how did it go? 3 THE WITNESS: It's been seamless. Not 4 only at the Atlantic City Hilton, as a matter 5 of fact, at both of our properties. In terms 6 of the financial impact, it's obviously very 7 early to tell. 8 CHAIR KASSEKERT: Uh-huh. 9 THE WITNESS: And also we're going up 10 against, as I said, a northeastern that came 11 through here. So the business levels were 12 impacted more because of that. So it's hard to 13 discern over such a short period of time 14 whether it was impacted on weather or what the 15 long-term financial implications will be. I 16 still believe in my heart that will be none. 17 But having 25 percent of the floor still 18 remaining smoking, we have a wide variety of 19 table games that we can offer to our customers 20 that have smoking. And we have a pretty 21 significant percentage of our casino -- our 22 slot areas, that are smoking. 23 We did have one actually cute little 24 anecdote that occurred the first day. We 25 actually had a customer who went up to our 69 ANTHONY P. RODIO 1 security department and complained that there 2 was somebody in the smoking area that wasn't 3 smoking. 4 (Laughter.) 5 THE WITNESS: She felt that if you're in 6 the smoking area, you better light up, damn it. 7 CHAIR KASSEKERT: Good. 8 THE WITNESS: But overall it's been 9 seamless. 10 CHAIR KASSEKERT: Very good. 11 Questions from Commissioners? 12 COMMISSIONER SOMMELING: I have no 13 questions, Madame Chair. 14 CHAIR KASSEKERT: Commissioner Fedorko? 15 VICE CHAIR FEDORKO: That was actually 16 the question I was going to ask, about smoking. 17 And in addition to that, what do you 18 think the effect would have on a casino if 19 there was a total smoking ban? 20 THE WITNESS: I think that society in 21 general is just so accustomed at this point to 22 having these smoking restrictions put in that I 23 don't think it will be as dramatic as, you 24 know, everybody likes to point to Delaware and 25 couple other jurisdictions that have 70 ANTHONY P. RODIO 1 implemented it. The one area of our business, 2 a segment of our business that concerns me 3 is -- we have a significant amount of Asian 4 business at both properties. We have an Asian 5 bus program at both properties that comes 6 directly from Chinatown. And if they have an 7 option to be able to continue to go to 8 Connecticut and have a smoking environment 9 versus an equal distance trip to Atlantic City, 10 that's the one segment of the business that I 11 think would be at risk. Certainly it's going 12 to have some impact, but I don't think the dire 13 consequences that a lot of people anticipate. 14 VICE CHAIR FEDORKO: What is the 15 occupancy rate right now at your hotels? 16 THE WITNESS: At the Atlantic City 17 Hilton? 18 VICE CHAIR FEDORKO: Yeah. 19 THE WITNESS: Last year we occupied that 20 hotel at over 96 percent for the entire year. 21 In the first quarter, it was -- I'm not a 22 hundred percent certain, but it was certainly 23 in the 95 percent range, couple points below 24 that. But we were pretty much in line with 25 where we were last year adjusted for the number 71 ANTHONY P. RODIO 1 of rooms that are out of service because we 2 were renovating them. We have an incredible 3 unmet demand for the Atlantic City Hilton. We 4 have denials. By "denials" I mean customers 5 that call up and inquire about staying at our 6 property that we can't give them a room because 7 of -- because we're so occupied, particularly 8 on the weekends. In the vicinity of 30 to 9 35,000 denials on a monthly basis. So we -- I 10 think the Atlantic City Hilton is -- it's just 11 a gentle little property, and I think that it 12 would benefit from an expansion more so than 13 any other property on the market. 14 VICE CHAIR FEDORKO: If you had the 15 thousand rooms right now, could you fill them? 16 Do you think? 17 THE WITNESS: We could -- if we had a 18 thousand rooms, we could not fill them a 19 hundred percent, but we could come damn close, 20 quick. No doubt in my mind. 21 VICE CHAIR FEDORKO: Let me ask you this 22 question. There's talk -- since you are being 23 surrounded by states that have casinos now or 24 racinos, there's talk of VLTs at the 25 Meadowlands. Does that concern you at all? 72 ANTHONY P. RODIO 1 And do you think it would hurt Atlantic City? 2 THE WITNESS: Yeah, it concerns me. 3 And, yes, I also think it would hurt Atlantic 4 City. I think that given our druthers, we 5 certainly would rather be a -- the only gaming 6 option on the East Coast. We know that that's 7 not a reality. And so we're going to compete 8 as best we can. I think that it's one thing to 9 have neighboring states create the competition. 10 I think that it would be a mistake for our own 11 state to create the competition itself, given 12 the amount of benefit -- the significant 13 benefit that this state derives from this 14 market and to put the billions of dollars of 15 investment that a number of companies are 16 willing to invest here at risk by -- I think a 17 short-sighted approach of putting VLTs in the 18 Meadowlands, it would be a huge mistake. Do I 19 think the market would survive going forward? 20 Yeah. Do I think that the number of expansions 21 and new properties that are coming into the 22 market would be impacted? I think that as 23 well. I think that you would -- you would 24 definitely see some companies take a step back 25 before they invest $2 billion into that sea of 73 ANTHONY P. RODIO 1 uncertainty. 2 VICE CHAIR FEDORKO: I have one final 3 question. Depending on who you talk to, the 4 number fluctuates, but I'll use the number I've 5 heard a few times. Thirty-four million people 6 supposedly live within a tankful of gas of 7 Atlantic City. Do you foresee Atlantic City 8 ever reaching a saturation point? 9 THE WITNESS: We're -- I guess it could 10 potentially reach a saturation point. I don't 11 think that we have come anywhere near that 12 point. We are at the tip of the iceberg of 13 what this market is capable of. When you think 14 about the fact that we've got less than 15,000 15 hotel rooms and, as you said, 34 million people 16 within a tank of gas away, and you look at Las 17 Vegas where there's 140,000 rooms, and their 18 occupies are damn near what we experience here 19 in Atlantic City, I think that this market has 20 the -- the potential to become a regional 21 destination. And it would not shock me that we 22 would be able to support, you know, four, five, 23 six times the number of hotel rooms that 24 currently exist in the market. 25 VICE CHAIR FEDORKO: Thank you. 74 ANTHONY P. RODIO 1 CHAIR KASSEKERT: Thank you. 2 Any other questions? 3 Commission Epps? 4 COMMISSIONER EPPS: At the Atlantic City 5 Hilton, the Atlantic City Hilton has 6 experienced a tremendous recovery in the last 7 year, and a lot of that is attributed to you 8 and your management team. Can you tell us a 9 little bit about how you did that, the original 10 recovery, and are you confident, I'm sure you 11 Suggest, that you're going to be able to 12 maintain that recovery going forward? Because 13 you're, apparently, the golden child. 14 (Laughter.) 15 THE WITNESS: Well, first of all, you -- 16 I think you were right in saying that it was me 17 together with my management team, and I mean 18 there's a number of them here, and I would be 19 remiss not to point out Phil Juliano who has 20 been side by side with me on through this 21 recover, not only the Atlantic City Hilton, but 22 Resorts from a marketing standpoint. 23 How we did it? I think, first and 24 foremost, not to be critical of the prior 25 management or ownership, but certainly the 75 ANTHONY P. RODIO 1 property had been sold. And so when you have a 2 management team operating the place that is 3 going to be switching over to new management, I 4 think the place kind of slid by the way side 5 for a period of time. And I think even prior 6 to that, if you look at the way Caesars 7 operated in this market owning Bally's, 8 Caesars, and the Atlantic City Hilton, the 9 Atlantic City Hilton was always the small, 10 little stepchild that didn't get the attention. 11 I think that all it needed was a management 12 team to go in there and polish it up and 13 restore it to the grandeur that it is. I mean, 14 when you walk into any of these properties that 15 have been opened for the number of years that 16 the Atlantic City Hilton has, a lot of them 17 look tired, they look old. You walk into that 18 casino floor, and it's a testament to Steve 19 Wynn, and actually a testament to Joel Bergman, 20 the gentleman when that I mentioned earlier 21 that's working on our expansion plans. What 22 they've created there as held up to the test of 23 time. It's 27 years old, and that casino 24 floor, I think is as magnificent today as it 25 was then. What we did was went in there and 76 ANTHONY P. RODIO 1 reenergized the place and got the message out 2 to the gaming public at large that, hey, we're 3 open to businesses. We're a gambling joint. 4 We're not going to be able to compete with the 5 Borgata with the entertainment, with the 6 world-renown chefs and with retail 7 establishments. But if you want an exciting 8 place to come in and gamble and a great 9 gambling environment with a great hotel 10 product, we're here for you. And we were 11 aggressive in terms of getting that message out 12 there and reinvesting back in the customers to 13 get them to reexperience the Atlantic City 14 Hilton for the first time in a long time. And 15 I think that was the key to our success. 16 And, as I said, our intention was after 17 that exposure and being aggressive, it kind of 18 scaled back on that reinvestment. But the 19 timing is not going to allows us of that 20 because of the regional competition because of 21 the some of the competition going on in the 22 market today. 23 COMMISSIONER EPPS: I guess my next 24 question is are you confident that approach is 25 sustainable for the long haul in this market? 77 ANTHONY P. RODIO 1 THE WITNESS: Absent that expansion, 2 that approach is sustainable to keep it kind of 3 flat-lined with modest increases. To get a 4 significant -- you know, you can only get so 5 much out of it. It we went to an 84 percent 6 occupancy to -- last year, as I said, to a 96 7 percent occupancy. We improved 12 percentage 8 points. That's a lot of hotel rooms over the 9 course of 365 days. You can't improve on 96 10 percent. Once you're at 96 percent, you're -- 11 there's no more room in the inn. So to the 12 ability to grow as significantly as we did last 13 year is certainly not the case. But can we 14 maintain? Yeah. That's one of the things 15 we're up against right now. We grew our 16 business in the first quarter last year, 27 17 percent, our gaming revenue. And so we're down 18 not first quarter, but still, hell, over a 19 two-year period, that's still pretty 20 significant growth. 21 COMMISSIONER EPPS: Okay. 22 THE WITNESS: As I point out to Roger 23 all the time. 24 (Laughter.) 25 COMMISSIONER EPPS: Going forward on 78 ANTHONY P. RODIO 1 that point, when you contrast that plan with 2 your forecast, do you need to expand to hit 3 where you need to go over the five-year period? 4 THE WITNESS: It's -- absent growth in 5 the market, it's going to be difficult. I 6 think that we could -- we could certainly come 7 close to those numbers, and I think that we can 8 continue to show improvement year over year. I 9 mean, this first quarter has been difficult. 10 But in terms of quantum significant leaps like 11 we saw in the past year, no. It's not going to 12 be possible to obtain those kind of growth 13 rates absent more hotel rooms. I think the 14 hotel rooms are -- more than any other aspect 15 of the expansion are the key piece. 16 COMMISSIONER EPPS: Okay. Shifting to 17 another topic. You testified that you don't 18 see significant impact from -- or you don't 19 anticipate significant impact from the smoking 20 ban. I'll just take you a step forward. In 21 Q4, I guess, the ban takes another turn where 22 you have to have walled-off, ventilated 23 facilities. That takes you another step 24 further at being specifically inclusive. 25 Either you're going to jump in that water or 79 ANTHONY P. RODIO 1 not. How does that impact you financially in 2 Q4 when you have to have that room? 3 THE WITNESS: That does, obviously, 4 create a whole other dynamic. And I think 5 there is some uncertainty in terms of how that 6 will be accepted by our customers. 7 First of all, from our company's 8 perspective, we're going to take a wait-and-see 9 approach. We are in the process of developing 10 plans. Where would we put the walls? I know 11 some properties are looking at walled-off areas 12 that have no gaming but are on the casino 13 floor, little smoking lounges. My concern with 14 deploying that amount of capital to create 15 these smoking environments is I just fear that 16 somewhere along the line some regulatory body, 17 whether it's the city or the state or the 18 federal government or somebody, is going to 19 pull the rug out from under us as say we have 20 to to have a hundred percent smoking ban. And 21 we just spent literally millions and millions 22 of dollars to create these walled-off areas. I 23 personally would rather never ever see a wall 24 go up. I think -- I wish it was a level 25 playing field for everybody in the entire 80 ANTHONY P. RODIO 1 country, and there was no smoking in any 2 casino. I think it would be better for the 3 employees, first and foremost. I think it 4 would be better from a competitive standpoint 5 if everybody was on a level playing field. And 6 in the long run better for or customers. That 7 being said, we're going to have to, again, 8 evaluate what the competition does and the 9 impact. But I personally don't think we're 10 going to dive right in with the walls. But 11 we're still -- still evaluating. 12 COMMISSIONER EPPS: Now, this may seem 13 like a silly question, but humor me. 14 Your testimony was that in the middle 15 quarters, when the weather gets better, the 16 market rebounds and the trend reverses with the 17 people come here, given the way this year has 18 gone with our weather being unstable -- 19 because, like, we haven't seen spring yet. 20 What happens with a less-than-optimal summer? 21 Does that -- is it that close? Do you have 22 some flexibility that you can absorb the impact 23 if summer's not great and folks don't 24 necessarily come back? Because when summers 25 not great, we know that people will go around 81 ANTHONY P. RODIO 1 the corner to the mom and pop because it's 2 closer as opposed to going to Atlantic City for 3 a weekend when it's raining, and it was a 4 wasted trip so. 5 THE WITNESS: Yeah. I mean, the weather 6 is something that's out of our control. Do we 7 plan? Do we have contingencies for 8 less-than-optimal weather? It's really tough 9 to have contingencies for things like this 10 weekend. Would that be tough to overcome? 11 Yeah. But, I mean, it's hard to anticipate 12 hurricanes or storms of that effect. I think 13 that, you know, less-than-optimal in terms of a 14 lot of rain and things like that, I don't think 15 that that dramatically affects our results. It 16 would have to be a significant number of 17 northeasterns or hurricanes or significant 18 weather events, I think, to really have a 19 negative impact on our results as we move into 20 the summer period. 21 I think in a lot of respects, the 22 cooler, you know, even the damp kind of days, 23 people still come down to the shore. We do 24 better on the less-than-ideal but not terrible 25 weather days than we do on the beach days. So 82 ANTHONY P. RODIO 1 what we want in that perfect cloudy kind of 2 chance of rain kind of day. 3 (Laughter.) 4 COMMISSIONER EPPS: And two further 5 questions. The first is, you said the 6 expansion is being master planned. What is the 7 footprint? 8 THE WITNESS: We have three blocks we 9 can expand onto. First and foremost, on the 10 Atlantic Avenue side of Pacific Avenue next to 11 our parking garage, we have two surface lots 12 that we use for surface parking. That is the 13 lion's share -- well, I shouldn't say that. 14 That's a big chunk of the expansion. That's 15 where the multi-purpose room will be housed. 16 That's where the additional parking will be 17 housed. That's where some of the restaurants 18 and retail space will be housed. 19 On the boardwalk side, we have the 20 temporary theater which sits across -- or on 21 the boardwalk. That structure comes down, and 22 we're able to push the casino out across the 23 boardwalk. The additional tower, if you were 24 to look at the Atlantic City Hilton from above, 25 our two towers -- there's the original tower, 83 ANTHONY P. RODIO 1 and then there's one that kind of, what is 2 that, perpendicular to it. 3 COMMISSIONER EPPS: Right. 4 THE WITNESS: We would be completing the 5 H, if you were to look at it from above. 6 COMMISSIONER EPPS: Boardwalk to 7 Pacific. 8 THE WITNESS: Exactly. And then in the 9 front of the property where there's a fountain 10 and there's, like, a park area, that will 11 become our valet parking area. But the second 12 level above that would be -- second level would 13 push out across that park as well. 14 COMMISSIONER EPPS: And the last 15 question speaks to your need for expanded hotel 16 rooms versus denials. I know that you said 17 that a lot of the issue, particularly from the 18 competition in Pennsylvania, is driving your 19 database and making sure they come in. How 20 does your 96 percent occupancy rate impact 21 those people who aren't necessarily making 22 return trips because they get denied? Are they 23 within that group that -- 24 THE WITNESS: No. There's certainly 25 a -- there's definitely a big chunk of that. 84 ANTHONY P. RODIO 1 We have not actually dissected it. Because 2 that's actually an interesting way to look at 3 it. The people that are denied, where do they 4 come from? Where do they hail from? But the 5 other thing I always like to point out in terms 6 of denials, those are the number of customers 7 that are calling and we're turning down. How 8 many times are you going to keep calling and be 9 told that you're -- you can't stay there? So 10 how many people are being denied that aren't 11 even calling back so. 12 COMMISSIONER EPPS: Calling back. 13 THE WITNESS: So it would help us across 14 all of our geographic regions, where our 15 customers come from, and across of all our 16 segments. On the weekend we skew to a higher 17 rent customer than midweek because we'd be able 18 to expose so many more people to the property 19 as far as overnight stays with the additional 20 rooms. I mean, the impact, I think, it would 21 be dramatic. If you look at some of the other 22 expansions around the city, until those hotel 23 rooms come on-line at the Borgata, for example. 24 They've done an expansion, but it really hadn't 25 moved the dramatically. When those 800 rooms 85 ANTHONY P. RODIO 1 come on, you'll see their numbers jump. Same 2 thing with Harrah's. 3 COMMISSIONER EPPS: I lied. One last 4 question. 5 (Laughter.) 6 COMMISSIONER EPPS: Time after time we 7 hear people come and say we need rooms. We 8 need rooms. We need rooms. But the question 9 is -- and I'm sure the answer is money. But it 10 goes deeper than that. The question is, if you 11 know you need rooms, what is the obstacle in 12 building those rooms? 13 THE WITNESS: Well, I mean, our company 14 has only owned this property for -- you know, 15 it's not even been two years. 16 COMMISSIONER EPPS: Actually, your 17 company -- I guess my question is in general. 18 THE WITNESS: In general? 19 COMMISSIONER EPPS: In general. 20 THE WITNESS: You know, I can't speak 21 for the other companies. I worked previously 22 at Harrah's as the CFO, and we were as a 23 company constantly, if not in the process of 24 being a building a tower, planning for a tower 25 at either Harrah's or Showboat. And it was, I 86 ANTHONY P. RODIO 1 think, pretty well understood throughout the 2 organization at that time -- obviously, they're 3 going through an ownership change -- that rooms 4 were a great -- you got a great return on any 5 additional rooms that you built in Atlantic 6 City. And every time you put up a tower, the 7 question wasn't what kind of return you got. 8 The question was why did you make it so small? 9 So I agree with you one hundred percent. 10 But I can't speak to the financial structure of 11 all the various companies and entities. I 12 think that also right now, although I don't 13 think that it's a case -- I think there's a 14 degree of uncertainty in the market because of 15 things like Pennsylvania, because of the 16 smoking ban, because of the prospect of the 17 VLTs in the Meadowlands. So I think there's 18 some uncertainty that would cause people to 19 take a hesitant approach to investing what ends 20 up being, you know, billions of dollars. 21 COMMISSIONER EPPS: That's all I have. 22 CHAIR KASSEKERT: Thank you. 23 Commissioners Sommeling? 24 COMMISSIONER SOMMELING: Yes. In 25 reference to the market here in Atlantic City, 87 ANTHONY P. RODIO 1 do you consider to be a distinct advantage that 2 the casinos here, as opposed to states like 3 Pennsylvania, are contiguous throughout the 4 city? 5 THE WITNESS: Oh, yeah. Without a 6 doubt. As a matter of fact, even if you look 7 at within our market the way, the clusters of 8 properties are, that's one of the things that 9 hinders us at the Atlantic City Hilton in that 10 they are apart. Even though it's just a number 11 of blocks, you get the benefit of a critical 12 mass like you have at center boardwalk or you 13 have like at Showboat, Resorts, and Taj. So I 14 think, as a whole, it helps the overall city 15 being an attraction because people have options 16 when they come to Atlantic City to go from one 17 property to another. And then, I think, 18 individually within the city it helps 19 properties when you're in a cluster. 20 COMMISSIONER SOMMELING: Along the same 21 lines, considering that we've got an increased 22 amount of retail, top-of-the-line entertainment 23 and top-of-the-line restaurants in Atlantic 24 City now, does that make us more of a 25 destination venue for the gambling public? 88 ANTHONY P. RODIO 1 THE WITNESS: Again, without question. 2 I think that -- you know, as I talked about 3 earlier, I think that we don't really know what 4 the cap is as far as what Atlantic City can do. 5 I think that the thing that is holding us back 6 is more rooms in the market. But it certainly 7 is going to help us in the long run, us being 8 the entire market, to withstand the impact of 9 all these regional competitors when we have a 10 more diversified experience. If you can go to 11 just Chester and Philadelphia Park and all you 12 can experience are slot machines and maybe a 13 restaurant. But when you come to Atlantic 14 City, you can get a room. You can get a show. 15 You can go to restaurants with world-renown 16 chefs. You can go a nightclub. There's an 17 unbelievable retail experience. I think that 18 that certainly does help us in the long run. 19 And I do think we are moving closer and closer 20 to becoming a more regional destination. 21 COMMISSIONER SOMMELING: Thank you. 22 That's all the question I have, Madame 23 Chair. 24 CHAIR KASSEKERT: Commission Frulio? 25 Questions? 89 ERIC J. MATEJEVICH 1 Anything on redirect? 2 MR. BROOKS: No, Madame Chair. 3 CHAIR KASSEKERT: Anything on recross? 4 MS. FLAHERTY: No, Madame Chair. 5 CHAIR KASSEKERT: Thank you. You may 6 step down. 7 You may call your next witness. 8 MR. BROOKS: Madame Chair, I call Eric 9 Matevevich. 10 11 ERIC J. MATEJEVICH, was duly sworn to 12 testify in this matter. 13 14 MR. NANCE: Please state your name for 15 the record. 16 THE WITNESS: Eric Matejevich. 17 MR. NANCE: Thank you. 18 CHAIR KASSEKERT: You may proceed. 19 20 DIRECT EXAMINATION BY MR. BROOKS: 21 Q. Mr. Matejevich, you've appeared before 22 the Commission on several occasions, but for the 23 record, would you the state your position with Resorts 24 International Holdings, LLC? 25 A. Yes. I'm the chief financial officer. 90 ERIC J. MATEJEVICH 1 Q. The forecasts -- I want to focus you on 2 the forecasts provided to the Division and Commission, 3 dealing with the consolidated EBITA for Resorts 4 International Holdings, for the three-year forecast 5 time period. The forecasts take into account payments 6 for corporate overhead, interest expense, and income 7 taxes; correct? 8 A. That's correct. 9 Q. And the forecasts also take into account 10 payments for capital expenditures, information and 11 technology improvements, and the purchase of CRDA 12 obligations; is that correct? 13 A. That's correct. 14 Q. If the property's EBITDA were to remain 15 at the 2006 level with no growth in the forecast 16 period, would Resorts International Holdings be able 17 to make those payments? 18 A. Yes, we would be. 19 Q. Does Resorts International Holdings have 20 additional financial flexibility if the property 21 EBITDA does not meet expectations set forth in the 22 forecasts provided to Commission and the Division? 23 A. Yes. We do. Our financing at Resorts 24 International Holdings allows for a $10 million 25 withdraw revolver as well as about 38 million in 91 ERIC J. MATEJEVICH 1 EBITDA at financial financing, which we haven't taken 2 advantage of to date. 3 Q. Now, focusing on the Chase Credit 4 facility, that loan matures in 2008. What options do 5 Resorts International Holdings have at that point in 6 terms of handling or dealing with the maturation of 7 the credit facility? 8 A. We have the option to renew that for 9 three one-year periods, so we have another three years 10 after that initial maturity. 11 Q. Would the company also have the ability 12 to take into consideration the status of the debt 13 markets at that time? 14 A. True. If we thought that the debt 15 markets were more attractive, we, of course, would 16 consider refinancing. 17 Q. And it wouldn't be any impediment to 18 doing that? 19 A. No. 20 Q. Recognizing that the transaction is to 21 sell East Chicago in to Ameristar is still a work in 22 process -- 23 A. Uh-huh. 24 Q. -- how will that transaction, if it 25 comes to fruition, impact the Chase Credit facility? 92 ERIC J. MATEJEVICH 1 A. The facility provides for the 2 disposition of certain assets. It's clearly spells 3 out that, before any asset could be sold, Resorts East 4 Chicago had to be the first because they weren't 5 completely comfortable with the real estate value of 6 that property. Mainly because it floats. 7 (Laughter.) 8 A. And so the loan spells out the way in 9 which we can dispose of that property. And, 10 essentially, it attibutes a certain amount of the 11 loan, which I think is $376 million specifically to 12 the East Chicago property, and requires us if we're 13 going to sell East Chicago to pay down 110 percent of 14 that amount, which comes to about $415 million. And 15 so, assuming the sale goes through as planned, you 16 know, we'll take the proceeds of the sale, pay, of 17 course, the necessary taxes, and then pay down 18 approximately 415 million of the debt. 19 Q. Could you share with the Commission the 20 terms of the sale so that they have some idea of the 21 overall purchase price and the plans for that? 22 A. Yes. The terms of sale -- and we 23 weren't -- it's probably worthy to note that we 24 weren't actively trying to sell this property. We 25 were approached by Ameristar Casinos with a fairly 93 ERIC J. MATEJEVICH 1 deep interest they had in the property and in that 2 market. And they made us an offer, which we evaluated 3 very carefully, and decided that it probably made the 4 most sense to exit there at this time. And so what 5 they offered was $675 million for that asset. 6 Q. So if the repayment to the Chase Credit 7 facility takes place, where does that leave you, 8 approximately, in money left over in term of the 9 purchase price? 10 A. It leaves us with about $215 million 11 after. We're still doing some of the tax 12 calculations, but we think it would be right around 13 $215 million in excess cash. 14 Q. Would that, in your professional 15 opinion, give the company additional financial 16 flexibility? 17 (Laughter.) 18 A. Yes. In my personal and professional 19 opinion. Yes. It gives us quite a bit of 20 flexibility. And it really gives us the -- really the 21 equity infusion that we would need in order to do that 22 build-out which Mr. Rodio quite thoroughly discussed a 23 little earlier. 24 Q. And could you describe that and how that 25 would work in terms of the excess funds and the 94 ERIC J. MATEJEVICH 1 expansion plans that Mr. Rodio talked about? 2 A. Yeah. Essentially, the expansion right 3 now -- and we don't have a final dollar on it, but 4 it's somewhere between a billion and a billion-two, 5 and assume that you would need 18 to 20 percent equity 6 capital, we've got two sources of equity there. Not 7 only the cash, which I just mentioned, but also we've 8 got the land component, which the loan afforded us the 9 ability to carve out that land, so we could use that 10 as part of the equity as well. So we're quite 11 confident that would give us more than enough equity 12 to get the transaction done. 13 And then, you know, another component of 14 the loan was that we would be able to carve out that 15 specific property for this expansion because we had 16 kind of foreseen that we might go down this road when 17 we put this in place last October. 18 Q. Now, you've already talked about the 19 fact that there will be a reduction in the credit 20 facility in terms of paying down debt. 21 A. Uh-hum. 22 Q. But they'll also be the loss of revenue 23 generated by East Chicago; is that correct? 24 A. That's correct. 25 Q. Are you prepared to commit to providing 95 ERIC J. MATEJEVICH 1 the Commission and the Division will revised forecasts 2 for the forecast time period within 60 days -- or 60 3 days prior to the consumation of the East Chicago -- 4 Resorts East Chicago transaction? 5 A. Absolutely. We'll be happy to do that. 6 Q. Taking into account the various factors 7 that we've discussed, do you have any preliminary 8 opinions in terms of the financial stability of 9 Resorts International Holdings if the Resorts East 10 Chicago transaction is consummated? 11 A. I think the company is stronger. I 12 think there's no doubt that that will be the case. 13 Mainly because the loan is written so that that has to 14 be the case. It requires that our debt service 15 coverage is lower after the sale than it was prior to 16 the sale. And so, yeah, we will be actually a 17 stronger company after the sale. 18 MR. BROOKS: I have no further 19 questions, Madame Chair. 20 CHAIR KASSEKERT: Thank you. 21 Miss Flaherty? 22 MS. FLAHERTY: Yes. 23 24 CROSS-EXAMINATION BY MS. FLAHERTY: 25 Q. Good morning. 96 ERIC J. MATEJEVICH 1 A. Good morning. 2 Q. I wanted to ask you for your view with 3 regard to the impact of the decrease in the slot 4 revenue so far this year at the Atlantic City Hilton? 5 A. What the impact has been? 6 Q. In terms of the corporate projections. 7 A. Oh, you know, obviously, it's not what 8 we had hoped. But it hasn't been an issue at all in 9 terms of our cash management or changing plans in 10 capital expenditures or anything like that. You know, 11 we plan our cash management -- or when we do our cash 12 management planning, we use a discount to what we 13 think the property is going to do in terms of its 14 budget. And so, you know, we give ourselves some 15 leeway there. We're more than fine. 16 Q. And with the Pennsylvania slots and the 17 partial smoking ban, are you still confident in the 18 forecasts that you've submitted with regard to the 19 years 2007 through 2009 at this point? 20 A. Yes. 21 Q. Now, with regard to the forecast, the 22 income and expenses with regard to Resorts East 23 Chicago were included in those forecasts that were 24 submitted; correct? 25 A. Uh-huh. Correct. 97 ERIC J. MATEJEVICH 1 Q. What would be the major effects on the 2 forecasts which were provided in terms of the sale of 3 East Chicago with regard to capital expenditure, with 4 regard to information technology, improvements that 5 kind of thing? 6 A. Well -- right. It won't affect the 7 capital expenditures of the property like the Atlantic 8 City Hilton or our Tunica assets. But having said 9 that, I think we'll revisit our IT expenditures going 10 forward. Not to say that we'll make changes in that, 11 but, you know, with one fewer property in the company, 12 you know, there might be some changes we make there. 13 Q. Would it be correct to say that the East 14 Chicago property with Atlantic City -- the Atlantic 15 City Hilton property were really the two main 16 properties that are in this four-casino group? 17 A. Absolutely. They make up -- those two 18 combined make up 75 to 80 percent of the four 19 properties' EBITDA. 20 Q. Now, it's my understanding that the 21 current financing under the JP Morgan loan does not 22 include any restrictions for upstreaming loans; is 23 that correct? 24 A. That's correct. 25 Q. Now, what are the reasons that funds 98 ERIC J. MATEJEVICH 1 would be upstreamed or have been upstreamed for the 2 last several months? 3 A. For the most part, they've been 4 upstreamed to pay withholding taxes for nonresident 5 members of Colony's funds. 6 Q. Uh-huh. Now, would that kind of 7 requirement or issue arise with regard to the sale of 8 East Chicago property, noting that it's in Indiana? 9 A. Again, that's something we're working 10 on. And that tax information number would include 11 that withholding number in it. 12 Q. Do you anticipate any upstreaming 13 payments in the next several months? 14 A. No. 15 Q. Now, once -- 16 A. I don't anticipate any, but I also can't 17 promise that there won't be any. 18 Q. But you will notify us if there are? 19 A. Yes. 20 (Laughter.) 21 A. Notification. 22 Q. Once funds are upstreamed, can they be 23 reborrowed by Resorts International Holdings? 24 A. They could be reinfused by the equity 25 partners, but I don't -- I think we would need proper 99 ERIC J. MATEJEVICH 1 permissions from the regulatory bodies in order to 2 have them downstreamed as a debt. 3 Q. Now, I understand that there's a 4 guaranty that has been executed by Colony Investor VI, 5 Colony Investor VII, and RIH Colony Partners which 6 secures the JP Morgan facility. What's the financial 7 effect of that guaranty? In the event of any downturn 8 or problems, they would stand behind the company in 9 light of that guaranty? 10 A. I actually in -- I'm working from memory 11 here. I haven't looked at this probably since 12 October. But if I recall correctly, I think the 13 guaranty was specifically for what they call "bad boy 14 covenants" if that if there was some type of fraud at 15 the company or something like that. I don't think it 16 specifically spells out if there was a business 17 downturn or something that they would be there to step 18 in. 19 Q. Okay. 20 A. So -- 21 Q. But you would look at Colony in 22 events -- 23 A. Oh, absolutely. 24 Q. Any possibility, you would go to Colony? 25 A. Yeah. I think historically they've 100 ERIC J. MATEJEVICH 1 shown the wherewithal and the willingness to step in 2 and give us the financial help when we needed it. 3 Through the $50 million infusion last year, for 4 instance. 5 Q. So at this point in terms of the sale of 6 East Chicago, you're looking toward using the extra 7 proceeds that are realized from that sale for the 8 Atlantic City Hilton project. Would that be accurate? 9 A. Yes. I would say that is our first and 10 foremost priority. We think that this market has some 11 significant opportunities. We think that, as Tony 12 clearly said, you know, only really seen the beginning 13 here. And with a significant addition there, we think 14 we could do much, much better with that property. 15 Q. Now, noting that there was the sale of 16 the undeveloped property in late 2006 to Atlantic 17 Beach Gateway, and now there's the agreement of sale 18 with regard to Resorts in Chicago? 19 A. Uh-huh. 20 Q. What is the strategy at this point in 21 regards to the disposition of any other corporate 22 assets? 23 A. We don't plan on disposing of any other 24 assets. Having said that, to the extent in this 25 fairly frothy casino market right now where multiples 101 ERIC J. MATEJEVICH 1 are at levels we've really never seen historically, to 2 the extent someone would come in with a phenomenal 3 offer with some of the Tunica assets, we would 4 certainly consider it. But we're not actively looking 5 to sell of any casinos. 6 MS. FLAHERTY: That's all I have, Madame 7 Chair. Thank you. 8 CHAIR KASSEKERT: Questions from the 9 Commissioners? 10 COMMISSIONER SOMMELING: No questions, 11 Madame Chair. 12 COMMISSIONER EPPS: I have a question. 13 CHAIR KASSEKERT: Sure. Commission 14 Epps? 15 COMMISSIONER EPPS: The first question 16 is after the East Chicago transaction, assuming 17 it goes through -- 18 THE WITNESS: Uh-huh. 19 COMMISSIONER EPPS: -- there will be 20 primarily three properties in the bundle. 21 THE WITNESS: That's correct. 22 COMMISSIONER EPPS: What weight will 23 Atlantic City carry in the debt loan for that 24 bundle? Given East Chicago and Atlantic City 25 were the -- 102 ERIC J. MATEJEVICH 1 THE WITNESS: Approximately two-thirds 2 of the remaining 535 million. 3 COMMISSIONER EPPS: So Atlantic City 4 Hilton will have 70 percent, 75 percent? 5 THE WITNESS: Two-thirds. 6 COMMISSIONER EPPS: Well, 66 percent of 7 the weight for the properties? 8 THE WITNESS: Right. 9 COMMISSIONER EPPS: And in your forecast 10 and your financial flexibilities, there's 11 enough room in there to sustain that -- 12 THE WITNESS: Absolutely. 13 COMMISSIONER EPPS: -- load? 14 THE WITNESS: And, again, the way that 15 is -- I should walk you through what some of 16 the tests are, because it's not like you just 17 sell off the property, pay down 110 percent, 18 and that's it. What you have to do is, it's a 19 110 percent or the amount -- there are two debt 20 coverage tests. And one says take a look at 21 what the debt service coverage is for the three 22 properties at the time you sell. Let's say it 23 closes in October. So look back 12 months. In 24 October 31st, what is your debt service 25 coverage ratio, assuming only three properties, 103 ERIC J. MATEJEVICH 1 and assuming that the debt had been paid down 2 over the entire year, and compare that to the 3 what the debt service coverage ratio was 4 October 24th, 2006, when we put the loan in 5 place. And it has to be -- your debt service 6 coverage ratio has to be higher given just the 7 three properties. 8 And then the second test is you compare 9 it, again, let's assume late October you do the 10 debt ratio service then. And say what were the 11 four properties covering interest by at that 12 point? And the three properties have to be -- 13 have a greater debt service coverage interest 14 than the four properties would have at that 15 time. 16 So they impose it upon you to put the 17 company in a better leverage position than it 18 would have been if we had had all four assets. 19 COMMISSIONER EPPS: And that test is 20 done before you -- once the offer is made but 21 before you engage in acceptance, you have to 22 do-- satisfy those tests before you can -- 23 THE WITNESS: Exactly. 24 COMMISSIONER EPPS: Okay. 25 THE WITNESS: So by closing of the 104 ERIC J. MATEJEVICH 1 property, if I have to pay instead of 415 2 million in debt, if we got to pay down 450, 3 then we'll pay down 450 in order for that debt 4 to be met. 5 COMMISSIONER EPPS: And the one other 6 question is, assuming the 215 allows you to do 7 the expansion at the Atlantic City Hilton, as 8 you've indicated, the cash plus the value of 9 your land gives you equity to go forward. I'm 10 assuming it gives you equity to go out and 11 borrow the -- 12 THE WITNESS: Oh, absolutely. 13 COMMISSIONER EPPS: -- the additional 14 portion that would sell the property. 15 THE WITNESS: Absolutely. 16 COMMISSIONER EPPS: But borrowing to do 17 a $1 billion expansion also adds to your debt 18 load. 19 THE WITNESS: True. 20 COMMISSIONER EPPS: How does that work 21 within your margins for -- 22 THE WITNESS: It would be -- again, 23 given the ability to carve out those specific 24 parcels -- and this becomes a logistical issue, 25 but something we would figure out. We would -- 105 ERIC J. MATEJEVICH 1 so we could carve out those parcels. They 2 would be unencumbered by debt at that point. 3 That's why we could contribute them as equity 4 along with the cash equity and then borrow to 5 the extent that we cover our carrying costs 6 during the construction. And so -- I don't 7 know what that would look like today until we 8 have a better sense of what the final 9 construction number would be. And I'm sure 10 we'll be in front of you at that point before 11 we could do that type of debt financing. 12 COMMISSIONER EPPS: Okay. That was all 13 I had. 14 CHAIR KASSEKERT: Anything else? Any 15 other questions? 16 Anything on redirect? 17 MR. BROOKS: Nothing further, Madame 18 Chair. 19 CHAIR KASSEKERT: Anything on recross? 20 MS. FLAHERTY: You know, I have one 21 question, Madame Chair. 22 CHAIR KASSEKERT: Sure. 23 24 CROSS-EXAMINATION BY MS. FLAHERTY: 25 Q. Would it be possible to include, as you 106 ERIC J. MATEJEVICH 1 have referred to, the loan agreement with the forecast 2 that you will submit with your sale of East Chicago? 3 A. Absolutely. Yeah. Absolutely. 4 MS. FLAHERTY: Thank you very much. 5 CHAIR KASSEKERT: You may step down. 6 Any other witnesses? 7 MR. BROOKS: No further witnesses, 8 Madame Chair. 9 CHAIR KASSEKERT: Very good. Let me 10 afford you the opportunity to make a closing 11 statement. 12 Miss Flaherty? 13 MS. FLAHERTY: Yes. Madame Chair, 14 Commissioners. 15 In conjunction with the application for 16 its licensing renewal, RIH Acquisitions, its 17 qualification of its holding intermediary 18 companies, its individuals, as well as the 19 capability of its qualifiers and financial 20 sources, it also requests CHAB licensure, and 21 it seeks a five-year license renewal term. 22 Rulings are sought that all criteria for 23 continuing licensure have been met. The 24 Division has conducted the requisite 25 investigation in connection with the license 107 ITEM NO. 13 1 renewal application, and the results of our 2 investigation are set forth in our reports and 3 have been addressed today in terms of 4 testimony. 5 With regard to financial stability, the 6 forecast indicates that all items such as 7 interest expense and income taxes, capital 8 expenditures, other improvements, and CRDA 9 obligations will be met with excess funds 10 available. If annual property EBITDA remains 11 at the 2006 level, our review shows that they 12 would still be able to meet all those items. 13 And, further, if slot revenue does not increase 14 or meet the forecast as expected, they have 15 additional financial flexibility with the 16 revolver and the availability of furniture, 17 fixture, and equipment borrowings. 18 With regard to the application, the 19 Division has no objection to the renewal for a 20 casino licensure. We would request, though, 21 that various conditions which we've recommended 22 be imposed. Those include submitting for an 23 interim financial review as well as advanced 24 notice of upstreaming payments. And providing 25 forecasts with regard to the anticipated sale 108 ITEM NO. 13 1 of the Resorts East Chicago facility so that we 2 could review that matter in light of the loss 3 of its income stream. 4 Finally, we would request that a 5 condition be imposed with regard to the monthly 6 reports and monthly requirements with 7 certification which are required with regard to 8 its loan arrangements, which will include 9 specific financial information. 10 And with those conditions, again, we 11 have no objection to the renewal of the 12 license. 13 Thank you, Chair and Commissioners. 14 CHAIR KASSEKERT: Thank you. 15 Mr. Brooks? 16 MR. BROOKS: Thank you, Madame Chair. 17 The standards for a license renewal are 18 addressed at length in the amended petition we 19 submitted to the Commission, specifically in 20 paragraphs 184 through 192, and I won't repeat 21 those. I would respectfully submit to the 22 Commission that through the testimony that's 23 been presented today as well as the 24 submissions, of course, that have been 25 submitted into evidence have satisfied the 109 ITEM NO. 13 1 conditions for the license renewal for the 2 five-year term both in terms of the casino 3 license and in connection with the casino hotel 4 alcoholic beverages license. And on behalf of 5 RIH Acquisitions, I would request that the 6 Commission grant that license renewal. 7 I would also like to take this 8 opportunity to thank Mr. DiGiacomo, Mr. Glaum, 9 Mr. McHugh, and the rest of the Commission 10 staff in connection with getting us to this 11 point in terms of the license renewal. As 12 ever, they were the utmost professionals in 13 assisting us in that that process. 14 I'd also like to thank Miss Flaherty and 15 the Division staff, particularly Miss Flaherty, 16 who probably had the toughest job of all of us, 17 because it was the first time through with this 18 property. And it's not an uncomplex ownership 19 organizational structure. And she not only 20 came up to speed quickly but helped carry us 21 through this process and was absolutely 22 terrific. 23 With all that, Madame Chair, unless 24 there's any questions from the Division, we're 25 happy to rest. 110 ITEM NO. 13 1 CHAIR KASSEKERT: Thank you. Very good. 2 Just two questions. I guess we -- both 3 parties have consented to the draft resolution. 4 So I'll -- 5 MR. BROOKS: Yeah. 6 MS. FLAHERTY: We agree with the draft 7 resolution, Madame Chair. 8 CHAIR KASSEKERT: Thank you. 9 Are there any other matters that need to 10 be brought to our attention? 11 MR. BROOKS: No, Madame Chair. 12 MS. FLAHERTY: No, Madame Chair. 13 CHAIR KASSEKERT: Okay. 14 Let me ask if the Commission would like 15 a recess? No. Yes? 16 Everybody all right? Okay. Very good. 17 Then we will move right along to the motion. 18 In September 2004, an affiliate of the 19 Colony Investors agreed to purchase four 20 casinos, two each from Harrah's Entertainment 21 and Caesars Entertainment. Significantly for 22 us, the AC Hilton was one of the Caesars 23 properties being sold. Before closing that 24 transaction, Colony came to us seeking ICA, 25 which we granted two years ago. And although 111 ITEM NO. 13 1 the Hilton and its holding companies faced 2 financial challenges, their ability to 3 negotiate successfully with their prior lenders 4 played a critical role in our decision last 5 April to grant Hilton an additional one-year 6 license. Now Hilton is before the Commission 7 for its first five-year license renewal. 8 The new senior management team has 9 certainly guided the company both locally and 10 at the corporate level to a significant 11 financial recovery. For instance, the 12 corporate earnings before interest, taxes, 13 depreciation, and amortization rose $32 million 14 from 2005 to 2006, which is an impressive 35 15 percent increase. 16 Although, further increases in such 17 earnings from last year to this are also 18 projected to occur, the Commission must also 19 examine whether there is financial flexibility 20 to absorb cash flow shortfalls and Hilton's 21 parent company. Sufficient flexibility exists, 22 given its projected excess cash and its ability 23 to borrow on a fully available $19 million 24 credit line. Nevertheless, challenges for the 25 Hilton certainly remain, including continued 112 ITEM NO. 13 1 competitions from nearby jurisdictions and 2 Sunday's implantation of the local ordinance 3 banning smoking from at least 75 percent of the 4 casino floor space. 5 Adding to those uncertainties is the 6 recent announcement that Hilton's parent 7 company will sell its Resorts East Chicago 8 affiliate to Ameristar Casinos for $675 9 million, with closing estimated by the year's 10 end. Since Resorts East Chicago was projected 11 to help service the parent company's debt, that 12 property sale puts the reliability of the 13 parent company's projections in issue. Of 14 course, any such concern could readily be 15 allayed depending upon the use of the sale 16 proceeds, and we heard so today. 17 Thus, in my view, it is wholly 18 appropriate to impose the Division's 19 recommended condition that Hilton and its 20 holding companies supply revised forecasts 21 before the sale to Ameristar casinos before it 22 closes. 23 Based on the entire record of this 24 proceeding, I am satisfied that the Hilton and 25 its affiliates have the wherewithal demanded 113 ITEM NO. 13 1 under our financial stability standard. And, 2 accordingly, I move that the Commission adopt 3 the proposed resolution with the modifications 4 noted on the record and grant RIH Acquisitions 5 a five-year renewal of its casino and its 6 casino hotel alcoholic beverage licenses, all 7 as set forth in the findings and rulings and 8 subject to the conditions in the rulings, and I 9 there -- I so therefore move. 10 Is there a second? 11 COMMISSIONER FRULIO: Second. 12 COMMISSIONER SOMMELING: Second. 13 CHAIR KASSEKERT: Motion has been made 14 and seconded. This is a roll call vote. 15 MR. NANCE: Commissioner Sommeling? 16 COMMISSIONER SOMMELING: Yes. 17 MR. NANCE: Commissioner Epps? 18 COMMISSIONER EPPS: Yes. 19 MR. NANCE: Commissioner Frulio? 20 COMMISSIONER FRULIO: Yes. 21 MR. NANCE: Vice Chair Fedorko? 22 VICE CHAIR FEDORKO: Yes. 23 MR. NANCE: Chair Kassekert? 24 CHAIR KASSEKERT: Yes. 25 MR. NANCE: The record will reflect that 114 1 the motion is unanimous. 2 CHAIR KASSEKERT: Congratulations. 3 MR. BROOKS: Thank you very much, Madame 4 Chair. Thank you. 5 MS. WILD: Thank you. 6 MR. NANCE: In accordance with 7 Resolution No. 06-12-13-20, the next closed 8 session of the Commission shall be held on 9 Wednesday, May the 2nd, 2007, at 9:15 a.m., in 10 the Commission offices. 11 It is now time for the public 12 participation portion of the meeting. 13 CHAIR KASSEKERT: Is there anybody from 14 the public that issues to be heard? 15 Seeing no one, I'll declare this portion 16 of the meeting closed and entertain a motion to 17 adjourn. 18 COMMISSIONER SOMMELING: Motion to 19 adjourn. 20 COMMISSIONER FRULIO: Second. 21 CHAIR KASSEKERT: The motion has been 22 made and seconded. All in favor? 23 (Ayes.) 24 CHAIR KASSEKERT: Opposed? 25 (No response.) 115 1 CHAIR KASSEKERT: The motion carries. 2 (Public Hearing No. 07-04-18 was 3 adjourned at 12:13 p.m.) 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 116 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: April 24, 2007 24 My Commission Expires on July 10, 2009 25 ID No 2062871