1 1 2 STATE OF NEW JERSEY 3 CASINO CONTROL COMMISSION 4 - - - - - - - - - - - - - - - - - - - 5 6 PUBLIC MEETING NO. 07-10-17 7 8 - - - - - - - - - - - - - - - - - - - 9 10 Wednesday, October 17, 2007 11 Atlantic City Commission Offices 12 Joseph P. Lordi Public Meeting Room - First Floor 13 Tennessee Avenue and Boardwalk 14 Atlantic City, New Jersey 08401 15 10:30 a.m. to 2:31 p.m. 16 17 18 Certified Court Reporter: Darlene Sillitoe 19 - - - - - - - - - - - - - - - - - - - - - - - - - - - 20 21 ATLANTIC CITY COURT REPORTING, LLC 22 CERTIFIED COURT REPORTERS AND VIDEOGRAPHERS 23 1125 ATLANTIC AVENUE, SUITE 416 24 ATLANTIC CITY, NEW JERSEY 08401 25 (609) 345-8448 www.accourtreporting.com 2 1 2 B E F O R E : 3 CASINO CONTROL COMMISSION: LINDA M. KASSEKERT, CHAIR 4 MICHAEL A. FEDORKO, VICE CHAIR MICHAEL C. EPPS, COMMISSIONER 5 RALPH G. FRULIO, COMMISSIONER WILLIAM T. SOMMELING, COMMISSIONER 6 PRESENT FOR THE CASINO CONTROL COMMISSION: 7 DARYL W. NANCE, ADMINISTRATIVE ANALYST DANIEL J. HENEGHAN, PUBLIC INFORMATION OFFICER 8 OFFICE OF THE GENERAL COUNSEL: 9 DIANNA W. FAUNTLEROY, GENERAL COUNSEL/EXECUTIVE SECRETARY 10 MARY WOZNIAK, ASSISTANT GENERAL COUNSEL STEVEN M. INGIS, ASSISTANT GENERAL COUNSEL 11 DENIS CORBETT, SENIOR COUNSEL E. DENNIS KELL, ASSISTANT GENERAL COUNSEL 12 SETH H. BRILIANT, SENIOR COUNSEL LON E. MAMOLEN, SENIOR COUNSEL 13 BERNADETTE T. FRIGEN, PROGRAM SUPERVISOR CLAIRE FRANK, PROGRAM SUPERVISOR/SENIOR EEO 14 COORDINATOR 15 DIVISION OF GAMING ENFORCEMENT: DEPUTY ATTORNEYS GENERAL 16 JACK ADAMS, DEPUTY ATTORNEY GENERAL BRIAN BISCIEGLIA, DEPUTY ATTORNEY GENERAL 17 TIMOTHY C. FICCHI, DEPUTY ATTORNEY GENERAL JAMES FOGARTY, DEPUTY ATTORNEY GENERAL 18 CHARLES F. KIMMEL, DEPUTY ATTORNEY GENERAL R. LANE STEBBINS, DEPUTY ATTORNEY GENERAL 19 20 21 22 23 24 25 3 1 A P P E A R A N C E S : 2 ITEM NO. 4 DENIS CORBETT, SENIOR COUNSEL CHARLES F. KIMMEL, DEPUTY ATTORNEY GENERAL 3 STERNS & WEINROTH BY: DENNIS DALY, ESQ. 4 FOR: ACE GAMING AND PINNACLE ENTERTAINMENT 5 ITEM NO. 10 CLAIRE FRANK, PROGRAM MANAGER JAMES FOGARTY, DEPUTY ATTORNEY GENERAL 6 FOX ROTHSCHILD BY: NICHOLAS CASIELLO, ESQ. 7 FOR: MGM MIRAGE 8 ITEM NO. 12 SETH H. BRILIANT, SENIOR COUNSEL CHARLES F. KIMMEL, DEPUTY ATTORNEY GENERAL 9 LEO PREVITI, ESQ. FOR: IGT, ET AL 10 ITEM NO. 13 LON E. MAMOLEN, SENIOR COUNSEL 11 TIMOTHY C. FICCHI, DEPUTY ATTORNEY GENERAL FOX ROTHSCHILD 12 BY: MARIEL GILETTO, ESQ. FOR: SHUFFLE MASTER 13 ITEM NO. 16 E. DENNIS KELL, ASSISTANT GENERAL COUNSEL 14 JACK ADAMS, DEPUTY ATTORNEY GENERAL JOSEPH R. DOUGHERTY, ESQ. 15 FOR: CASINO ASSOCIATION OF NEW JERSEY 16 ITEM NO. 17 MARY WOZNIAK, ASSISTANT GENERAL COUNSEL JACK ADAMS, DEPUTY ATTORNEY GENERAL 17 STERNS & WEINROTH BY: PAUL O'GARA, ESQ. 18 FOR: APOLLO HAMLET HOLDINGS, ET AL 19 20 21 22 23 24 25 4 1 AGENDA PUBLIC MEETING NO. 07-10-17 2 OCTOBER 17, 2007, 10:30 a.m. ITEM PAGE VOTE 3 1 Ratification of the minutes of 10 10 October 3, 2007 4 2 Applications for employee and casino service industry licenses: 5 10 Applications for initial and/or renewal 11 11 of casino key and casino employee licenses 6 Casino service industry license application 11 12 of Pajo Industries, Inc. 7 11 Applications for initial and/or renewal 12 12 of casino key and casino employee licenses 8 Applications for initial and/or renewal of casino key employee licenses and for 9 qualification: Christina F. Broome, Vice President of 12 13 10 Finance for Adamar of New Jersey, Inc. Mario A. DiGuiseppe, Vice President of 12 13 11 Casino Operations for Adamar of New Jersey, Inc. Rosalind Krause,General Manager for Trump 12 13 12 Taj Mahal Associates, LLC Qualification in connection with their 13 respective gaming related casino service industry licenses pursuant to NJAC 19:51-1.14B(h) 14 Robert J. Kelly, Gaming Partners 14 14 International SAS, Gaming Partners International 15 USA, Inc., and GPI Mexicana SA De CV Scientific Game Racing, LLC 16 James R. Metcalfe, Scientific Games 14 14 Racing, LLC 17 3 Stipulations of settlement and consent Agreements: 18 a) Steven Carday (07-0395-RA) 15 16 b) David Fox (07-0468-RA) 15 16 19 c) Pamela D. Maignan (07-0274-RA) 15 16 4 Stipulation of settlement in State 17 18 20 v. ACE Gaming, LLC (d/b/a Sands Casino and Hotel) and Pinnacle Entertainment, Inc. 21 (07-0109-VC) 5 Petitions for early reapplication: 22 a) Andrea Griffin (07-0460-RA) 18 20 b) Andrew P. Herbert (07-00555-RA) 21 22 23 c) Steven P. Hill (07-00370-RA) 22 23 6 Applications for suspension 24 a) Shazad K. Khan (07-0385-RC) 24 29 Sworn 26 25 5 1 CONTINUED AGENDA PUBLIC MEETING NO. 07-10-17 2 OCTOBER 17, 2007, 10:30 a.m. ITEM PAGE VOTE 3 6 b) Adetokunbo Ojo (07-0606-RC) 30 31 c) Brian S. Oneill (a/k/a O'Neill) 30 31 4 (07-0605-RC) d) Mark S. Truss, Jr. (07-0604-RC) 30 31 5 7 Preliminary hearing concerning the adj. exclusion of Robert Short 6 8 Consideration of final exclusion orders: a) Boa A. Bui (07-0273-EL) 31 35 7 b) John Campanella, Jr. (07-0148-EL) 31 35 c) Louis Colavecchio (07-0096-EL) 31 35 8 d) Coung Chi Dinh (a/k/a/ Dina Chi 31 35 Coung) (07-0232-EL) 9 e) Antonello P. Pietrafesa (07-0047-EL) 31 35 9 Consideration of the qualification of 33 35 10 Mark Fetah to serve as Vice President of Design & Construction of the Eastern Division 11 of Harrah's Operation Company, Inc. 10 Consideration of the qualification of 35 37 12 Kenny C. Guinn to serve as a member of MGM MIRAGE's Board of Directors 13 11 Petition of Marina District Development wdrn. Company, LLC, (d/b/a Borgata Hotel Casino 14 and Spa) for permission to transfer a Progressive jackpot pursuant to NJAC 15 19:45-1.39(n) (PRN 240717) 12 Petition of IGT; Trump Plaza Associates, 38 40 16 LLC; Trump Marina Associates, LLC; and Trump Taj Mahal Associates, LLC, for permission 17 to terminate the "Wheelionaire" Slot System and transfer its progressive jackpots 18 (PRN 2680701) 13 Proposed publication and temporary adoption 40 42 19 of amendment to NJAC 19:47-20.11 (Minimum Pay-Out Odds for Pair Plus Wager and Ante Bonus 20 in Three Card Poker) 14 Proposed adoption of amendments for "Bust 42 43 21 It" in Blackjack 15 Proposed publication of amendments for 44 45 22 Dragon Bonus Wager in baccarat and minibaccarat 16 Petition of Casino Association of New 46 47 23 Jersey, Inc., for a Field of Commerce Exemption pursuant to NJSA 5:12-92c for casino simulcast 24 sending tracks (PRN 2820706) 25 6 1 CONTINUED AGENDA PUBLIC MEETING NO. 07-10-17 2 OCTOBER 17, 2007, 10:30 a.m. ITEM PAGE VOTE 3 17 Amended petition of Apollo Hamlet Holdings, 49 175 LLC, Apollo Hamlet Holdings B, LLC, TPG Hamlet 4 Holdings, LLC, TEP Hamlet Holdings B, LLC, Co-Invest Hamlet Merger, Inc., for interim 5 casino authorization and plenary qualification as holding companies of casino licensees 6 (PRN 0460701) Gary G. Loveman, Chief Executive, Harrah's 7 Entertainment, Inc. Sworn 60 Jonathan Halkyard, Chief Financial Officer, 8 Harrah's Entertainment, Inc., Sworn 103 Eric Press, Partner, Apollo Management 9 Sworn 126 Kelvin Davis, TPG Capital Sworn 154 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 7 1 E X H I B I T S : 2 ITEM NO. 2 DESCRIPTION ID EVD 3 EL-1 Remand for hearings 10 license X 4 applications EL-2 Grant 11 licenses X 5 ITEM NO. 17 6 C-1 CHAB License Report, 10-17-07 X 7 C-2 Draft Resolution X 8 D-1 Report, 10-1-07, PRN 0460701 X 9 P-1 Organization Chart, 10-3-07 X P-2 Agreement and Plan of Merger X 10 P-3 Trust Agreement, 5-7-07 X P-4 Draft Loan Agreement, 7-16-07 X 11 P-5 Draft Credit Agreement, 8-6-07 X P-6 Draft Description of Notes, 8-2-07 X 12 P-7 Equity Commitment Letter, 12-19-06 X P-8 Draft First Mezzanine Loan Agreement, X 13 7-16-07 P-9 Draft Second Mezzanine Loan Agreement X 14 7-18-07 P-10 Draft Third Mezzanine Loan Agreement X 15 7-18-07 P-11 Draft Fourth Mezzanine Loan Agreement X 16 7-18-07 P-12 Draft Limited Liability Company X 17 Agreement, Showboat, 9-13-07 P-13 Draft Limited Liability Company X 18 Agreement, Harrah's, 9-13-07 P-14 Second Amended and Restated Limited X 19 Liability Company Agreement, Hamlet Holdings, 10-1-07 20 P-15 Amended and Restated Operating X Agreement, Apollo Hamlet Holdings, LLC, 21 1-1-07 P-16 Amended and Restated Operating X 22 Agreement, Apollo Hamlet Holdings B, LLC, 1-1-07 23 P-17 Limited Liability Company Operating X Agreement, TPG Hamlet Holdings, LLC, 2-5-07 24 P-18 Limited Liability Company Operating X Agreement, TPG Hamlet Holdings B, 25 LLC, 2-5-07 (Exhibits retained by Commission.) 8 1 CONTINUED E X H I B I T S : ID EVD 2 ITEM NO. 17 3 P-19 Limited Liability Company Operating X Agreement, TPG Hamlet Holdings, LLC, 2-5-07 4 P-20 Limited Liability Company Operating X Agreement of Co-Invest Hamlet Holdings B, 5 LLC, 2-7-07 P-21 State of NJ Authorization Certificates X 6 A through G P-22 Draft Equal Employment Business 7 Opportunity Plan Correspondences X 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Exhibits retained by Commission.) 9 1 (Public Meeting 07-10-17 was commenced 2 at 10:30 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 10 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 and enterprise license matters. 7 The Commission approved the October 3rd, 8 2007, closed session minutes. 9 Litigation update regarding Warren 10 Lackland and Lewis M. Springer, Jr., versus the 11 State of New Jersey and the Casino Control 12 Commission; 13 Gloria Ford versus the State of New 14 Jersey, Casino Control Commission, et al. 15 Tyron J. Floyd versus the Casino Control 16 Commission and Sands Hotel and Casino. 17 Item No. 1, ratification of the minutes 18 of October 3rd, 2007, public meeting. 19 COMMISSIONER SOMMELING: Move to 20 approve. 21 VICE CHAIR FEDORKO: Second. 22 CHAIR KASSEKERT: The motion has been 23 made and seconded. All in favor? 24 (Ayes.) 25 CHAIR KASSEKERT: Opposed? 11 ITEM NO. 2 1 (No response.) 2 CHAIR KASSEKERT: Motion carries. 3 MR. NANCE: Item No. 2, applications for 4 employee and casino service industry licenses. 5 This agenda item will be entered as Exhibit 6 List 1 and 2. 7 Exhibit List 1 consists of 10 8 applications for initial and/or renewal of 9 casino key and casino employee licenses. 10 The Division has objected to licensure. 11 COMMISSIONER FRULIO: Motion to remand 12 for license. 13 VICE CHAIR FEDORKO: Second. 14 COMMISSIONER SOMMELING: Second. 15 CHAIR KASSEKERT: The motion has been 16 made and seconded. All in favor? 17 (Ayes.) 18 CHAIR KASSEKERT: Opposed? 19 (No response.) 20 CHAIR KASSEKERT: Motion carries. 21 MR. NANCE: For consideration is the 22 casino service industry license application of 23 Pajo Industries, Inc. 24 The Division has objected to this 25 application. 12 ITEM NO. 2 1 COMMISSIONER FRULIO: Motion to remand 2 for hearing. 3 VICE CHAIR FEDORKO: Second. 4 CHAIR KASSEKERT: The motion has been 5 made and seconded. All in favor? 6 (Ayes.) 7 CHAIR KASSEKERT: Opposed? 8 (No response.) 9 CHAIR KASSEKERT: Motion carries. 10 MR. NANCE: Exhibit List 2 consists of 11 11 applications for initial and/or renewal of 12 casino key and casino employee licenses. 13 Staff and the Division have recommended 14 that these licenses be granted. 15 COMMISSIONER FRULIO: Motion to grant 16 applications. 17 VICE CHAIR FEDORKO: Seconded. 18 CHAIR KASSEKERT: The motion has been 19 made and seconded. All in favor? 20 (Ayes.) 21 CHAIR KASSEKERT: Opposed? 22 (No response.) 23 CHAIR KASSEKERT: Motion carries. 24 MR. NANCE: For consideration are the 25 following applications for initial and/or 13 ITEM NO. 2 1 renewal of casino key employee licenses and for 2 qualification: For Christina F. Broome, Vice 3 President of Finance for Adamar of New Jersey, 4 Inc.; Mario A. DiGuiseppe, Vice President of 5 Casino Operations for Adamar of New Jersey, 6 Inc.; and Rosalind Krause, General Manager for 7 Trump Taj Mahal Associates, LLC. 8 Staff and the Division have recommended 9 that these licenses be granted. 10 COMMISSIONER FRULIO: Motion to grant 11 initial and renewal of key licenses and for 12 qualification. 13 VICE CHAIR FEDORKO: Second. 14 CHAIR KASSEKERT: Motion is made and 15 seconded. This is a roll call vote. 16 MR. NANCE: Commissioner Sommeling? 17 COMMISSIONER SOMMELING: Yes. 18 MR. NANCE: Commissioner Epps? 19 COMMISSIONER EPPS: Yes. 20 MR. NANCE: Commissioner Frulio? 21 COMMISSIONER FRULIO: Yes. 22 MR. NANCE: Vice Chair Fedorko? 23 VICE CHAIR FEDORKO: Yes. 24 MR. NANCE: Chair Kassekert? 25 CHAIR KASSEKERT: Yes. 14 ITEM NO. 2 1 MR. NANCE: The record will reflect that 2 the motion is unanimous. 3 For consideration are the following for 4 qualification and in connection with their 5 respective gaming related casino service 6 industry licenses pursuant to NJAC 7 19:51-1.14B(h): For Robert J. Kelly for Gaming 8 Partners, International SAS, Gaming Partners 9 International USA, Inc., and T -- excuse me -- 10 GPI Mexicana SA De, CV Scientific Game Racing, 11 LLC; and James R. Metcalfe, Scientific Games 12 Racing, LLC. 13 Staff and the Division have recommended 14 qualification. 15 COMMISSIONER FRULIO: Motion to find 16 Messrs. Kelly and Metcalfe plenarily qualified 17 in connection with their respective gaming 18 related CSI licenses pursuant to NJAC 19 19:51-1.14B(h). 20 VICE CHAIR FEDORKO: Second. 21 CHAIR KASSEKERT: The motion has been 22 made and seconded. All those in favor? 23 (Ayes.) 24 CHAIR KASSEKERT: Opposed? 25 (No response.) 15 ITEM NO. 3 1 CHAIR KASSEKERT: Motion carries. 2 MR. NANCE: Item No. 3, stipulation of 3 settlement and consent agreements. When I call 4 your name, please come forward, stand behind 5 this middle table, spreading across the room so 6 that you may be seen: Steven Carday, David 7 Fox, and Pamela Maignan. 8 Mr. Ingis? 9 MR. INGIS: The staff has nothing to add 10 at this time, Madame Chair. 11 CHAIR KASSEKERT: Thank you. 12 I'm going to ask each of you to state 13 your names for the record, starting with you. 14 MR. FOX: David Fox. 15 CHAIR KASSEKERT: Ma'am? 16 MS. MAIGNAN: Pamela Maignan. 17 MR. CARDAY: Steven Carday. 18 CHAIR KASSEKERT: Okay. In a moment we 19 are going to vote on the stipulations which 20 you've agreed to with the Division of Gaming 21 Enforcement. I'm going to ask at this point if 22 any of you wish to be heard on your matter. 23 You don't have to say anything if you don't 24 want to. 25 Anyone wish to be heard? 16 ITEM NO. 3 1 MR. FOX: No. 2 MS. MAIGNAN: No. 3 MR. CARDAY: No. 4 CHAIR KASSEKERT: Okay. Mr. Biscieglia? 5 MR. BISCIEGLIA: Good morning, Chair, 6 Commissioners. The Division has nothing 7 further and ask that the stipulations be 8 adopted as drafted. 9 Thank you. 10 CHAIR KASSEKERT: Thank you. 11 Any questions? 12 COMMISSIONER SOMMELING: Madame Chair, 13 move to approve the stipulations. 14 VICE CHAIR FEDORKO: Second. 15 CHAIR KASSEKERT: The motion has been 16 made and seconded. All those in favor? 17 (Ayes.) 18 CHAIR KASSEKERT: Opposed? 19 (No response.) 20 CHAIR KASSEKERT: The motion carries. 21 Thank you very much for coming. Good 22 luck. 23 MR. FOX: Thank you. 24 MR. CARDAY: Thank you. 25 MS. MAIGNAN: Thank you. 17 ITEM NO. 4 1 MR. NANCE: Item No. 4, stipulation of 2 settlement in State versus ACE Gaming, LLC, and 3 Pinnacle Entertainment, Inc. 4 Mr. Corbett? 5 MR. CORBETT: Chair, Commissioners, in 6 this case, the casino licensee admits the 7 regulatory violation and agrees to pay a 8 penalty of $25,000. 9 Mr. Daly is here for the casino licensee 10 and Mr. Kimmel for the Division. 11 CHAIR KASSEKERT: Thank you. 12 Good morning, Mr. Daly. 13 MR. DALY: Good morning, Madame Chair, 14 Commissioners. Dennis Daly from Sterns & 15 Weinroth appearing on behalf of both 16 Respondents ACE Gaming and Pinnacle 17 Entertainment. 18 We endorse the settlement and ask that 19 you approve it. 20 CHAIR KASSEKERT: Thank you. 21 Mr. Kimmel? 22 MR. KIMMEL: Thank you, Madame Chair. 23 We also are in favor of the stipulation. 24 We believe the $25,000 civil penalty is 25 appropriate, and we ask that you impose it. 18 ITEM NO. 5 1 CHAIR KASSEKERT: Thank you. 2 Any questions for the parties? 3 COMMISSIONER SOMMELING: Madame Chair, 4 move to approve the stipulation of settlement 5 and impose a civil penalty of $25,000 against 6 ACE Gaming, LLC, for violation of the 7 Commission regulations regarding internal 8 controls. 9 VICE CHAIR FEDORKO: Second. 10 CHAIR KASSEKERT: The motion has been 11 made and seconded. All those in favor? 12 (Ayes.) 13 CHAIR KASSEKERT: Opposed? 14 (No response.) 15 CHAIR KASSEKERT: Motion carries. 16 Thank you. 17 MR. DALY: Thank you. 18 MR. NANCE: Item No. 5, petition for 19 early reapplication for Andrea Griffin, Andrew 20 Herbert, and Steven Hill. 21 Ms. Frigen? 22 MS. FRIGEN: Good morning, Madame Chair, 23 Commissioners. 24 All three are present this morning. I'd 25 ask Mr. Griffin first to have a seat. We'll do 19 ITEM NO. 5 1 his case first. 2 Mr. Hill, you can have a seat right over 3 there, and we'll take your case up next. 4 For your consideration is Mr. Griffin's 5 petition seeking permission to reapply early 6 for a casino employee license and registration 7 and/or noncredential casino hotel nonalcoholic 8 beverage employment. By letter dated August 9 20th, the Division has interposed no objection 10 to this petition. 11 I would just note that if the Commission 12 is inclined to grant Mr. Griffin early 13 reapplication relief, the staff has recommended 14 that he sign a wage execution addressing a 15 Motor Vehicle debt. 16 CHAIR KASSEKERT: Thank you. 17 Mr. Griffin, is there anything you'd 18 like to say in this matter? 19 MR. GRIFFIN: No, ma'am. 20 CHAIR KASSEKERT: Mr. Biscieglia? 21 MR. BISCIEGLIA: Thank you. 22 As Miss Frigen has stated, the Division 23 has not objected to this petition. The 24 Division would agree that you should execute 25 wage execution. 20 ITEM NO. 5 1 Thank you. 2 CHAIR KASSEKERT: Okay. And you 3 understand what this means, Mr. Griffin? 4 MR. GRIFFIN: Yes, ma'am. 5 CHAIR KASSEKERT: Okay. Let me ask if 6 any member of the Commission has any other 7 questions. 8 COMMISSIONER SOMMELING: No questions, 9 Madame Chair. 10 VICE CHAIR FEDORKO: Motion to grant Mr. 11 Griffin permission to reapply early for a 12 casino employee license, a casino service 13 employee service registration, and/or to work 14 as a noncredential casino hotel alcoholic 15 employee subject to the conditions set forth in 16 the order. 17 COMMISSIONER FRULIO: Second. 18 CHAIR KASSEKERT: The motion has been 19 made and seconded. All those in favor? 20 (Ayes.) 21 CHAIR KASSEKERT: Opposed? 22 (No response.) 23 CHAIR KASSEKERT: Motion carries. 24 Thank you very much for coming. Good 25 luck. 21 ITEM NO. 5 1 MR. GRIFFIN: Thank you. 2 MS. FRIGEN: Okay. Next up would be 3 Andrew Herbert. Mr. Herbert is also present. 4 I'd ask him to have a seat. 5 For your consideration is his petition 6 seeking permission to reapply early for a 7 registration and/or noncredential hotel 8 employment. The Division by letter dated 9 September 21st has interposed no objection. 10 CHAIR KASSEKERT: Thank you. 11 Mr. Herbert? Anything to say today? 12 MR. HERBERT: No, ma'am. 13 CHAIR KASSEKERT: Okay. Mr. Biscieglia? 14 MR. BISCIEGLIA: The Division has not 15 objected and has nothing further. 16 CHAIR KASSEKERT: Thank you. 17 Any questions? 18 COMMISSIONER SOMMELING: No questions, 19 Madame Chair. 20 VICE CHAIR FEDORKO: Motion to grant Mr. 21 Herbert permission to reapply early for a 22 casino service employee registration and/or to 23 obtain employment early as a noncredential 24 hotel employee. 25 COMMISSIONER EPPS: Second. 22 ITEM NO. 5 1 COMMISSIONER FRULIO: Second. 2 CHAIR KASSEKERT: The motion has been 3 made and seconded. All in favor? 4 (Ayes.) 5 CHAIR KASSEKERT: Opposed? 6 (No response.) 7 CHAIR KASSEKERT: Motion carries. 8 Thank you very much for coming. Good 9 luck. 10 MR. HERBERT: Thanks. 11 MS. FRIGEN: And, finally, we have Mr. 12 Hill. Mr. Hill, you could have a seat. 13 For your consideration is Mr. Hill's 14 permission seeking permission to reapply early 15 for a license registration and for a nonhotel 16 employment. By letter dated September 21st, 17 the Division has interposed no objection to 18 this petition. 19 Similar to the other matter, the staff 20 has recommended that Mr. Hill be required to 21 sign a wage execution addressing a financial 22 debt if the petition is granted. 23 CHAIR KASSEKERT: Thank you. 24 Mr. Hill? Anything to say? 25 MR. HILL: Just thank you for this 23 ITEM NO. 5 1 hearing. 2 CHAIR KASSEKERT: Okay. And you 3 understand about the wage -- 4 MR. HILL: Yes. I have no objections. 5 CHAIR KASSEKERT: Very good. 6 Mr. Biscieglia? 7 MR. BISCIEGLIA: Thank you. The 8 Division also has no objections to this 9 petition and has nothing further. 10 Thank you. 11 CHAIR KASSEKERT: Thank you. 12 Any questions? 13 COMMISSIONER SOMMELING: No questions, 14 Madame Chair. 15 VICE CHAIR FEDORKO: Motion to grant Mr. 16 Hill permission to reapply early for a casino 17 employee license and a casino service employee 18 registration and/or to work as a noncredential 19 hotel employee subject to the conditions set 20 forth in the order. 21 COMMISSIONER SOMMELING: Second. 22 CHAIR KASSEKERT: Motion has been made 23 and seconded. All in favor? 24 (Ayes.) 25 CHAIR KASSEKERT: Opposed? 24 ITEM NO. 6 1 (No response.) 2 CHAIR KASSEKERT: The motion carries. 3 Thank you very much for coming. Good 4 luck. 5 MR. NANCE: Item No. 6, application for 6 suspension for Shazad Khan, Adetokunbo Ojo, 7 Brian Oneill, and Mark Truss, Jr. 8 Miss Frigen? 9 MS. FRIGEN: Madame Chair, 10 Commissioners, I'm aware that Mr. Khan is 11 present. 12 Before we hear that case, let me ask 13 whether Mr. Ojo, Mr. Oneill, or Mr. Truss is 14 present or represented here today? 15 Apparently the three remaining 16 individuals are not here contesting the 17 suspension applications. 18 Mr. Khan is present. 19 CHAIR KASSEKERT: Okay. 20 MS. FRIGEN: I don't know if you want to 21 take his case. 22 CHAIR KASSEKERT: Mr. Kahn, we'll take 23 you first. 24 Mr. Biscieglia, since this is your 25 application. 25 ITEM NO. 6 1 MR. BISCIEGLIA: Thank you. On July 2 9th, 2007, the Division filed a complaint 3 seeking the revocation of the Respondent's 4 casino employee license. This was based on a 5 July 27, 2006, arrest for a credit card theft, 6 third degree, credit card fraud, third degree, 7 and conspiracy to commit credit card theft, 8 third degree. 9 On December 8th, the Respondent was 10 admitted into the Atlantic County Pretrial 11 Intervention Program for a period of 12 months. 12 On August 3rd, 2007, the Respondent requested a 13 deferral of the pending -- of the matter before 14 the Commission while his criminal charges were 15 pending, and this deferral was granted by the 16 Commission on September 6th, 2007. On 17 September 20th the Division filed a suspension 18 application in this matter based on the 19 deferral in relation to the seriousness of the 20 charges involving credit card theft. 21 The Division was made aware this 22 morning, I believe the Commission also, by Mr. 23 Khan -- maybe he could speak to this -- that 24 his PTI period of time has been extended for a 25 certain time period. Maybe Mr. Khan can answer 26 ITEM NO. 6 1 to the extension of his PTI. 2 Thank you. 3 CHAIR KASSEKERT: Okay. Mr. Khan, we 4 would need to swear you in. 5 MR. KAHN: No problem. 6 CHAIR KASSEKERT: So would you stand to 7 be sworn in. 8 9 SHAZAD KHAN, was duly sworn to testify 10 in this matter. 11 12 MR. NANCE: Please state your name for 13 the record. 14 MR. KAHN: Shazad Khan. 15 MR. NANCE: Thank you. You may be 16 seated. 17 CHAIR KASSEKERT: Mr. Kahn, what would 18 you like to tell us today and suggesting, as 19 Mr. Biscieglia did, that you tell us about the 20 extension of your PTI? 21 MR. KAHN: Yes, ma'am. I was in the 22 court, and I did pay all my fines. And I did 23 my -- whatever the judge asked me to do. And 24 they extended for another year for the program. 25 I'm sorry. They extended another year for the 27 ITEM NO. 6 1 program, gave me the PTI because whatever 2 happened in last year, in June of 2006 and 3 prior to that, I request the judge that this is 4 my first time that I got in trouble or got 5 convicted. So the judge did listen to me. 6 Usually they give you five-year program. They 7 would give me another year because of my 8 record, and it was my first time being in 9 trouble. 10 CHAIR KASSEKERT: Okay. So when your 11 would your PTI end, then, a year from -- 12 THE WITNESS: Basically what they told 13 me, that give me a year. But six months, 14 depending the way my record is, the way I go 15 with my work and don't ever get in trouble 16 again. 17 CHAIR KASSEKERT: Okay. You understand 18 that these offenses are -- are per se 19 disqualifying offense in terms of the terms of 20 the statute? 21 MR. KHAN: Yes, ma'am. 22 CHAIR KASSEKERT: Okay. Let me ask Mr. 23 Biscieglia. Do you have any questions? 24 MR. BISCIEGLIA: Yeah. I would just 25 restate that the PTI has extended a year. 28 ITEM NO. 6 1 We're now looking at a time period of 2 approximately 14 months with the two months 3 that still remaining on the original year, PTI, 4 before this matter would come to any type of 5 litigation between the Commission. And based 6 on the seriousness of these charges, the 7 Division cannot accept that and once again ask 8 for the suspension application be granted. 9 Thank you. 10 CHAIR KASSEKERT: Okay. Let me ask if 11 any of the Commissioners have any questions. 12 COMMISSIONER EPPS: Is this an offense 13 that occurred in the casino? 14 MR. BISCIEGLIA: No. 15 COMMISSIONER EPPS: All right. 16 CHAIR KASSEKERT: Mr. Khan, is there 17 anything else you'd like to say? 18 MR. KHAN: Yes, ma'am. I just want to 19 say stuff that happened with me, ma'am, it all 20 happened with my cousin. He worked in a gas 21 station. I did give him a ride. I honestly 22 didn't know that card was stolen. I pulled 23 into a Wawa. He purchased four gifts cards 24 totaling $400. When he got in trouble, he just 25 told the officers and detective my name. And I 29 ITEM NO. 6 1 did, went myself to Somers Point and testified 2 that, yes, I did give him a ride, but I did not 3 know that he stole the card from the his gas 4 station. I did give him the testimony, and I 5 did tell them everything in recording and 6 handwritings that whatever he did. And I just 7 took him as a ride. I never purchased a credit 8 card. I was with him. 9 CHAIR KASSEKERT: Okay. You understand 10 that if we do grant the suspension today that 11 you will be entitled to a hearing? 12 MR. KHAN: Yes, ma'am. 13 CHAIR KASSEKERT: Okay. All right. 14 Let me ask if there are any other 15 questions? 16 COMMISSIONER SOMMELING: No questions, 17 Madame Chair. 18 Move to suspend the credentials. 19 VICE CHAIR FEDORKO: Second. 20 CHAIR KASSEKERT: The motion has been 21 made and seconded. All in favor? 22 (Ayes.) 23 CHAIR KASSEKERT: Opposed? 24 (No response.) 25 CHAIR KASSEKERT: Motion carries. 30 ITEM NO. 6 1 We are going to suspend your credentials 2 because this is a per se disqualifying offense. 3 As I said you will be entitled to a hearing. 4 Miss Frigen will explain all that to you. I 5 urge you to take advantage of that and allow 6 the process to move forward. Okay? 7 Thank you. 8 MS. FRIGEN: Okay. The remaining three 9 individuals apparently are not here contesting 10 the suspension applications. 11 CHAIR KASSEKERT: Okay. Mr. Biscieglia? 12 Anything? 13 MR. BISCIEGLIA: I'd just like to add a 14 request as to B, Adetokunko Ojo and, C, Brian 15 Oneill, both of those are currently pending at 16 the Grand Jury with no date set. 17 In regards to D, Mark Truss, he was 18 charged in Atlantic County Accusation 0710215, 19 which is currently pending a status conference 20 for October 29th, 2007. 21 CHAIR KASSEKERT: Okay. Any questions? 22 COMMISSIONER SOMMELING: No questions, 23 Madame Chair. 24 Move to suspend the remaining 25 credentials. 31 ITEM NO. 7-8 1 VICE CHAIR FEDORKO: Second. 2 CHAIR KASSEKERT: The motion has been 3 made and seconded. All in favor? 4 (Ayes.) 5 CHAIR KASSEKERT: Opposed? 6 (No response.) 7 CHAIR KASSEKERT: The motion carries. 8 Thank you. 9 MR. BISCIEGLIA: Thank you. 10 MR. NANCE: Item No. 7 has been 11 adjourned. 12 Item No. 8, consideration of final 13 exclusion orders for Bao Bui, John Campanella, 14 Jr., Louis Colavecchio, Coung Chi Dinh, and 15 Antonello Pietrafesa. 16 Miss Frigen? 17 MS. FRIGEN: Let me ask for the record 18 whether any of these individuals are present or 19 represented? Apparently not. 20 The Commission has previously granted 21 the Division's request for preliminary 22 exclusion orders indicating they meet certain 23 exclusion criteria. Subsequent to that each 24 has been noticed of a right to have a final 25 hearing on the exclusion petitions. 32 ITEM NO. 8 1 We did receive correspondence from John 2 Campanella and Antonello Pietrafesa expressly 3 waiving rights to a final hearing. 4 The remaining individuals, Mr. Bui, Mr. 5 Colavecchio, Mr. Dinh, did not respond at all. 6 Consequently, the matters are all for final 7 exclusion before the Commission. 8 CHAIR KASSEKERT: Thank you. 9 Mr. Stebbins? 10 MR. STEBBINS: Thank you, Madame Chair, 11 Commissioners. 12 I'm here on Items 7 -- I'm sorry, 8a 13 through 8d. My colleague, Deputy Attorney 14 General Brian Biscieglia is here for Item E. 15 I would simply say that these matters 16 are properly before you for a final order. 17 They are fully supported by the petitions that 18 were filed and my colleague and I would be glad 19 to answer any questions that you may. 20 Thank you. 21 CHAIR KASSEKERT: Thank you. 22 Mr. Biscieglia? 23 MR. BISCIEGLIA: The Division's position 24 is essentially the same, especially in regard 25 to Mr. Pietrafesa in that he has expressly 33 ITEM NO. 9 1 waived his right to a hearing. 2 Thank you. 3 CHAIR KASSEKERT: Thank you. 4 Any questions? 5 COMMISSIONER SOMMELING: No questions, 6 Madame Chair. 7 COMMISSIONER FRULIO: Madame Chair, move 8 to issue final orders for exclusion for Messrs. 9 Bui, Campanella, Colavecchio, Dinh, and 10 Pietrafesa. 11 COMMISSIONER SOMMELING: Second. 12 VICE CHAIR FEDORKO: Second. 13 CHAIR KASSEKERT: The motion has been 14 made and seconded. All in favor? 15 (Ayes.) 16 CHAIR KASSEKERT: Opposed? 17 (No response.) 18 CHAIR KASSEKERT: Motion carries. 19 MR. STEBBINS: Thank you. 20 MR. BISCIEGLIA: Thank you. 21 MR. NANCE: Item No. 9, consideration of 22 the qualification of Mark Fetah to serve as 23 Vice President of Design and Construction for 24 the Eastern Division of Harrah's Operating 25 Company, Inc. 34 ITEM NO. 9 1 Miss Frank? 2 MS. FRANK: Good morning, Chair and 3 Commissioners. 4 Mark Fetah received temporary 5 qualification from the Commission in March of 6 this year. A draft resolution on his plenary 7 qualification has been shared with the parties. 8 It appears no counsel is here for 9 Harrah's, but Mr. Fogarty is here for the 10 Division. 11 MR. FOGARTY: Good morning. 12 CHAIR KASSEKERT: Mr. Fogarty? 13 MR. FOGARTY: Yes, DAG Turi had sent in 14 a letter dated September 21, 2002 -- 2007, 15 recommending that Mr. Fetah be qualified by you 16 all as Vice President of Design and 17 Construction for Harrah's Operating Company. 18 I've seen and reviewed the draft 19 resolution, and we have no objection to its 20 entry. 21 CHAIR KASSEKERT: Thank you. 22 Any questions for Mr. Fogarty? 23 COMMISSIONER SOMMELING: No questions, 24 Madame Chair. 25 COMMISSIONER EPPS: Chair, I move that 35 ITEM NO. 10 1 we adopt the draft resolution and find Mark 2 Fetah qualified to serve as Vice President of 3 Design and Construction for the Eastern 4 Division of Harrah's Operating Company. 5 COMMISSIONER SOMMELING: 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. 10, consideration of the 21 qualification of Kenny C. Guinn to serve as a 22 member of the MGM MIRAGE Board of Directors. 23 Miss Frank? 24 MS. FRANK: Mr. Guinn received temporary 25 qualification from the Commission in March of 36 ITEM NO. 10 1 this year as well, and a draft resolution on 2 his plenary qualification has been circulated 3 to the parties. 4 Nick Casiello is here for MGM MIRAGE and 5 Mr. Fogarty for the Division. 6 CHAIR KASSEKERT: Good morning, Mr. 7 Casiello. 8 MR. CASIELLO: Good morning, Madame and 9 Chair Commissioners. Nicholas Casiello of Fox 10 Rothschild on behalf of MGM MIRAGE. 11 As Miss Frank noted, this is the 12 application for the suitability of Mr. Guinn. 13 Just by way of a brief background, Mr. 14 Guinn previously served as the Governor of 15 Nevada from January of 1999 until January of 16 this year. He also previously served on the 17 Board of Directors of Boyd Gaming. 18 I've reviewed the draft resolution, and 19 it is acceptable in form and substance. 20 Thank you. 21 CHAIR KASSEKERT: Thank you. 22 Any questions for Mr. Casiello? 23 COMMISSIONER SOMMELING: No questions, 24 Madame Chair. 25 CHAIR KASSEKERT: Mr. Fogarty? 37 ITEM NO. 10 1 MR. FOGARTY: Yes. We did a letter 2 dated September 18th, 2007, this one authored 3 by me on behalf of the Division, recommending 4 that you qualify Kenny Guinn -- I'm told Mr. 5 Guinn likes the name "Kenny," so that's why I 6 emphasize the name Kenny. 7 CHAIR KASSEKERT: Governors are like 8 that. 9 MR. FOGARTY: In a position of member of 10 the Board of Directors of MGM MIRAGE. I've 11 seen the draft resolution and have no objection 12 to its entry. 13 CHAIR KASSEKERT: Thank you. 14 Any questions for Mr. Fogarty? 15 COMMISSIONER SOMMELING: No questions, 16 Madame Chair. 17 COMMISSIONER EPPS: I move that we adopt 18 the draft resolution and find Kenny C. Guinn 19 qualified to serve as a member of MGM MIRAGE 20 Board of Directors. 21 COMMISSIONER SOMMELING: Second. 22 CHAIR KASSEKERT: Motion is made and 23 seconded. This is a roll call vote. 24 MR. NANCE: Commissioner Sommeling? 25 COMMISSIONER SOMMELING: Yes. 38 ITEM NO. 11-12 1 MR. NANCE: Commissioner Epps? 2 COMMISSIONER EPPS: Yes. 3 MR. NANCE: Commissioner Frulio? 4 COMMISSIONER FRULIO: Yes. 5 MR. NANCE: Vice Chair Fedorko? 6 VICE CHAIR FEDORKO: Yes. 7 MR. NANCE: Chair Kassekert? 8 CHAIR KASSEKERT: Yes. 9 MR. NANCE: The record will reflect that 10 the motion is unanimous. 11 CHAIR KASSEKERT: Thank you. 12 MS. FRANK: Thank you. 13 MR. CASIELLO: Thank you. 14 MR. FOGARTY: Thank you. 15 MR. NANCE: Item No. 11, petition of 16 Marina District Development Company, LLC, has 17 been withdrawn at the request of the 18 Petitioners. 19 Item No. 12, petition of IGT, Trump 20 Plaza Associates, LLC, Trump Marina Associates, 21 LLC, and Trump Taj Mahal Associates, LLC, for 22 permission to terminate the "Wheelionaire" slot 23 system and transfer its progressive jackpots. 24 Mr. Briliant? 25 MR. BRILIANT: Good morning, Madame 39 ITEM NO. 11-12 1 Chair and Commissioners. Mr. Previti is here 2 on behalf of IGT and Mr. Kimmel is here on 3 behalf of the Division. 4 I have circulated a draft resolution, 5 and the parties have indicated that it's 6 acceptable to them. 7 CHAIR KASSEKERT: Thank you. 8 Good mortgage, Mr. Previti. 9 MR. PREVITI: Good morning. 10 We're here asking for permission to 11 transfer the "Wheelionaire" jackpot. We've 12 read the draft resolution and agree to the 13 terms and would is ask that you approve. 14 Thank you. 15 CHAIR KASSEKERT: Thank you. 16 Any questions for Mr. Previti? 17 Mr. Kimmel? 18 MR. KIMMEL: Seeing as the Trump 19 entities are a Co-Petitioner here, I had in the 20 finest tradition of Mr. Fusco prepared a long 21 address. But since I note that you have an 22 afternoon session, I'll limit my remarks to 23 saying I've read the draft resolution and have 24 no objection. 25 CHAIR KASSEKERT: Thank you very much. 40 ITEM NO. 13 1 You're very kind, Mr. Kimmel. 2 Any questions for Mr. Kimmel? 3 COMMISSIONER SOMMELING: Madame Chair, 4 move to adopt the draft resolution and approve 5 the Petitioners' request to transfer 6 progressive slot jackpots subject to the 7 condition in the resolution. 8 VICE CHAIR FEDORKO: Second. 9 CHAIR KASSEKERT: The motion has been 10 made and seconded. All in favor? 11 (Ayes.) 12 CHAIR KASSEKERT: Opposed? 13 (No response.) 14 CHAIR KASSEKERT: Motion carries. 15 MR. PREVITI: Thank you. 16 MR. KIMMEL: Thank you. 17 We'll send Mr. Fusco your regrets, Mr. 18 Kimmel. 19 MR. KIMMEL: Thank you. 20 MR. NANCE: Item No. 13, proposed 21 publication and temporary adoption of amendment 22 NJAC 19:47-20.11. 23 Mr. Mamolen? 24 MR. MAMOLEN: Good morning, Madame 25 Chair, Commissioners. 41 ITEM NO. 13 1 This matter is before you for both 2 publication and temporary adoption. And it's 3 an attempt to clean up a section of the 4 three-card poker regulation which deals with 5 the pay-out odds. As you know that currently 6 there's any number of pay tables existing for 7 the side wager and for the ante bonus -- one 8 for the ante bonus. In this one what we're 9 trying to do is just consolidate it with and 10 genericize it, if you will, with odds no less 11 than specified pay-out odds instead of 12 specified A through G or whatever pay tables. 13 CHAIR KASSEKERT: Thank you. 14 Counsel, would you like to enter your 15 appearance? 16 MS. GILETTO: Mariel Giletto, Fox 17 Rothschild, on behalf of Shuffle Master. 18 Good afternoon. 19 CHAIR KASSEKERT: Thank you. 20 Anything you'd like to say on behalf of 21 this petition? 22 MS. GILETTO: We just would like the 23 amendments to would be adopted as is. 24 CHAIR KASSEKERT: Thank you. 25 Mr. Ficchi, any comments on 42 ITEM NO. 14 1 the amendment? 2 MR. FICCHI: Madame Chair, 3 Commissioners, I just would say that we're just 4 reviewing the various options with regard to 5 the range of pay-out odds, and we will report 6 to the Commission on the house advantage, you 7 know, based on that report. 8 CHAIR KASSEKERT: Thank you. 9 Any questions for any of the parties? 10 COMMISSIONER SOMMELING: No questions, 11 Madame Chair. 12 COMMISSIONER FRULIO: Move to -- go 13 ahead. 14 VICE CHAIR FEDORKO: Motion to approve 15 for publication and temporary adoption. 16 COMMISSIONER FRULIO: Second. 17 CHAIR KASSEKERT: The motion has been 18 made and seconded. All in favor? 19 (Ayes.) 20 CHAIR KASSEKERT: Opposed? 21 (No response.) 22 CHAIR KASSEKERT: Motion carries. 23 Thank you. 24 MR. NANCE: Item No. 14, proposed 25 adoption of amendments for "Bust It" in 43 ITEM NO. 14 1 blackjack. 2 Mr. Mamolen? 3 MR. MAMOLEN: This is before you for 4 final adoption. "Bust It" is a side wager in 5 blackjack basically on the value of a third 6 card that is dealt to -- dealt to the dealer 7 and whether or not that third card results in a 8 break or a bust to the dealer. Different 9 pay-out odds, of course, by the amount of the 10 bust or the margin that the dealer goes over 11 21. And it's about before you for final 12 adoption. 13 We received but one comment, that being 14 from the Division which does not interpose an 15 objection to the proposal. 16 CHAIR KASSEKERT: Thank you. 17 Any questions for Mr. Mamolen? 18 COMMISSIONER SOMMELING: Move to adopt 19 as published. 20 VICE CHAIR FEDORKO: Second. 21 CHAIR KASSEKERT: The motion has been 22 made and seconded. All in favor? 23 (Ayes.) 24 CHAIR KASSEKERT: Opposed? 25 (No response.) 44 ITEM NO. 15 1 CHAIR KASSEKERT: The motion carries. 2 MR. NANCE: Item No. 15, proposed 3 publication of amendments for Dragon Bonus 4 Wager in baccarat and minibaccarat. 5 Mr. Mamolen? 6 MR. MAMOLEN: Madame Chair, this is a 7 side wager that's been out there for some time, 8 and finally three different casinos have 9 finally decided to pursue it, a test of it. 10 It's, in essence, the same type of concept that 11 the last one was for blackjack. One part of it 12 is a player can place a wager on either player, 13 banker hand. The winning wager will result if 14 a player is dealt a natural, as defined by the 15 rules of those games. And -- one the hand that 16 they wager is dealt natural and the other hand 17 is dealt non-natural. 18 The other circumstance where a player 19 can win on a Dragon Bonus Wager is what I was 20 referring to before in that the margin of the 21 point count that exceeds the other hand that is 22 not wagered on is four or more. So if a 23 player, for instance, wagers on the banker 24 hand, and that hand exceeds the player hand by 25 four or more, that is a winning wager. 45 ITEM NO. 15 1 CHAIR KASSEKERT: Thank you. 2 Any questions? 3 COMMISSIONER FRULIO: Yes, Madame Chair. 4 One question. 5 CHAIR KASSEKERT: Sure. Commissioner 6 Frulio? 7 COMMISSIONER FRULIO: I understand that 8 the casino licensees have the option of taking 9 a standard baccarat bet before the Dragon Bonus 10 Wager or not. Which way are they doing it? 11 MR. MAMOLEN: This would be -- they 12 would still be required to place a base bet. 13 COMMISSIONER FRULIO: They would? I had 14 read they had an option to -- 15 MR. MAMOLEN: Optional side wager. It 16 would still require a base bet. 17 COMMISSIONER FRULIO: Okay. Thank you. 18 CHAIR KASSEKERT: Any questions? 19 COMMISSIONER FRULIO: I'm sorry. 20 CHAIR KASSEKERT: Go ahead. 21 COMMISSIONER FRULIO: Move to adopt for 22 publication. 23 VICE CHAIR FEDORKO: Second. 24 CHAIR KASSEKERT: The motion has been 25 made and seconded. All in favor? 46 ITEM NO. 16 1 (Ayes.) 2 CHAIR KASSEKERT: Opposed? 3 (No response.) 4 CHAIR KASSEKERT: Motion carries. 5 MR. MAMOLEN: Thank you. 6 MR. NANCE: Item No. 16, petition of 7 Casino Association of New Jersey, Inc., for a 8 field of commerce exemption pursuant to NJSA 9 5:12-92c for casino simulcast sending tracks. 10 Mr. Briliant? Excuse me. Mr. Kell? 11 MR. KELL: Good morning, Madame Chair, 12 Commissioners. 13 Joseph Dougherty is here on behalf of 14 the Casino Association on this matter, and I 15 think Jack Adams is here for the Division. 16 And I have circulated a draft resolution 17 that would grant the relief of six conditions 18 asset forth therein. 19 CHAIR KASSEKERT: Thank you. 20 Mr. Dougherty? 21 MR. DOUGHERTY: Good morning, Madame 22 Chair, members of the Commission. Joseph 23 Dougherty here on behalf of the Casino 24 Association of New Jersey. 25 We have reviewed the resolution prepared 47 ITEM NO. 16 1 and have no objection to it, and we would 2 respectfully request that it be adopted. 3 Thank you. 4 CHAIR KASSEKERT: Thank you. 5 Mr. Adams? 6 MR. ADAMS: Madame Chair, Commissioners. 7 I'm here on behalf of Mr. McDonough and the 8 Division. 9 You have his letter in response. We 10 don't oppose the relief requested. We've also 11 reviewed the proposed resolution and don't have 12 any objection to that. 13 CHAIR KASSEKERT: Thank you. 14 Any questions for the parties? 15 COMMISSIONER SOMMELING: No questions, 16 Madame Chair. 17 VICE CHAIR FEDORKO: Motion to adopt the 18 draft resolution and grant the requested relief 19 subject to the conditions in the resolution. 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.) 48 1 CHAIR KASSEKERT: Motion carries. 2 Thank you. 3 MR. DOUGHERTY: Thank you. 4 CHAIR KASSEKERT: We're a little early 5 for Item 17. 6 Mr. Daly? 7 MR. DALY: Yes. 8 CHAIR KASSEKERT: Would you like to -- 9 we can take a -- 10 MR. DALY: How long does it require? 11 Would it be your preference to go right into 12 it? 13 CHAIR KASSEKERT: I think so unless -- 14 we can take a break. 15 MS. FAUNTLEROY: It was announced at 16 noon. 17 CHAIR KASSEKERT: It was announced at 18 noon? Okay. We have to wait until noon then. 19 All right. 20 We will recess until 12:00. 21 (A recess was taken from 11:00 a.m. to 22 12:00 p.m.) 23 24 (The afternoon session commenced at 25 12:00 p.m.) 49 ITEM NO. 17 1 CHAIR KASSEKERT: We'll go back on the 2 record. 3 MR. NANCE: Yes. Item No. 17, amended 4 petition of Apollo Hamlet Holdings, LLC, Apollo 5 Hamlet Holdings B, LLC, TPG Hamlet Holdings 6 LLC, TPG Hamlet Holdings B, LLC, Co-Invest 7 Hamlet Holdings Series, LLC, Co-Invest Hamlet 8 Holdings B, LLC, Hamlet Holdings, LLC, and 9 Hamlet Merger, Inc., for interim casino 10 authorization and plenary qualification as 11 holding companies of casino licensee. 12 Miss Wozniak? 13 MS. WOSNIAK: Good morning. 14 Parties will enter their appearances 15 please. 16 CHAIR KASSEKERT: Sure. Mr. O'Gara? 17 MR. O'GARA: Paul O'Gara for the 18 Petitioners. 19 MR. ADAMS: Jack Adams for the Division 20 of Gaming Enforcement. 21 CHAIR KASSEKERT: Good afternoon. 22 MR. ADAMS: Good afternoon. 23 CHAIR KASSEKERT: We're here today to 24 consider the application of Hamlet Holdings, et 25 al., for interim casino authorization as 50 ITEM NO. 17 1 holding companies of the four Harrah's casino 2 licensees. The Commission has also been asked 3 to review several material debt transactions 4 pursuant to NJAC 19:43-4.3. 5 ICA is essentially a form of temporary 6 qualification which permits the acquisition of 7 casino-related assets prior to a ruling on 8 plenary qualification. In order to evaluate 9 the statutory criteria for ICA, the Commission 10 will hear testimony this afternoon from several 11 witnesses. 12 There are also a number of exhibits that 13 have been premarked which Mr. Nance will now 14 identify for the record. 15 MR. NANCE: Chair, the premarked 16 exhibits are as follows: The Casino Control 17 Commission has two exhibits, C-1 and C-2. C-1 18 is the CHAB report dated October 17th, 2007. 19 And, for identification only, C-2 is a draft 20 resolution. 21 The Division of Gaming Enforcement has 22 one exhibit; D-1. D-1 is a report dated 23 October 1st, 2007, PRN 0460701. 24 The Petitioner has submitted 22 25 exhibits. They are premarked on the exhibit 51 ITEM NO. 17 1 list as P-1 to P-22. 2 CHAIR KASSEKERT: Thank you. 3 Are there any objections to the 4 admission of these exhibits? 5 MR. O'GARA: No objection. 6 MR. ADAMS: No objection. 7 MR. O'GARA: No. We have not. We have 8 a sealing request pending with respect to the 9 DGE report. 10 CHAIR KASSEKERT: Thank you. We'll deal 11 with that. 12 I'll, therefore, move those into 13 evidence. 14 Are there any comments on the draft 15 resolution before we proceed? 16 MR. O'GARA: No. 17 CHAIR KASSEKERT: And do the parties 18 consent to its adoption? 19 MR. ADAMS: Yes. 20 MR. O'GARA: Yes. 21 CHAIR KASSEKERT: Are there any other 22 procedural matters that need to be brought to 23 our attention at this time? 24 All right. Seeing none, I will ask 25 counsel if they would like to make an opening 52 ITEM NO. 17 1 statement. 2 Mr. O'Gara? 3 MR. O'GARA: Yes, Madame Chair, members 4 of the Commission. 5 We're here on the amended petition as 6 filed by entities including TPG Fund entities 7 and the acquiring entities of those of Apollo 8 for the acquisition of all of the common stock 9 of Harrah's Entertainment along with the 10 approval of the borrowings that are adjunct to 11 that. 12 Before I give you some description of 13 what you will hear, let me give you some idea 14 of the people who are here with me. And I'll 15 start with the people from Harrah's 16 Entertainment: Gary Loveman, the President and 17 CEO of Harrah's; Jonathan Halkyard, the Senior 18 Vice President and CFO; Steve Brammel, Senior 19 Vice President and General Counsel; Carlos 20 Tolosa, the President of Harrah's Eastern 21 Division; John Baker, Vice President for 22 Procurement and Enterprise Effectiveness; 23 Dennis Gallagher, the Vice President and Chief 24 Regulatory Officer; Michael Cohen, Vice 25 President and Associate General Counsel and the 53 ITEM NO. 17 1 Corporate Secretary; David Satz, the Vice 2 President of Governmental Relations and 3 Development; Lynne Hughes, Vice President of 4 Legal Affairs and Chief Legal Officer of 5 Harrah's Eastern Division; Tim Lowry, Senior 6 Attorney for Harrah's Eastern Division; and 7 Marybel Batjer, Vice President Public Policy 8 and Communications of Harrah's. 9 There's also a number of other senior 10 Harrah's executives, including general managers 11 from the Harrah's properties in Atlantic City. 12 From Apollo, we have: Leon Black, the 13 founder and a partner in Apollo; Eric Press, 14 who will testify, from TPG, Kelvin Davis and 15 Karl Peterson, both partners in TPG from 16 Nevada; and from Brownstein, Hyatt, Farber 17 Schreck, Frank Schreck; and our ICA trustee, 18 Jim Hurley, the former chairman of this 19 commission. 20 Now that I've done the hard part, what 21 we seek is approval of a transaction by which 22 entities controlled by Apollo and TPG funds 23 will acquire all of the common stock through a 24 merger entity of Harrah's Entertainment 25 Coporation. Following that merger, Harrah's 54 ITEM NO. 17 1 common stock -- they'll be three new classes of 2 common stock. There will be three classes of 3 stock, non -- a nonvoting common stock, which 4 will be issued to the funds which are, in fact, 5 investing and putting the money into the 6 transaction, a voting common stock, which will 7 be issued to an entity referred to as a VOTECO 8 which is owned and, in fact, populated by 9 individuals from Apollo and TPG, each of whom 10 have submitted to individual qualification and 11 whose qualification you'll pass on today, and a 12 nonvoting preferred stock, which will accompany 13 the noncommon -- the nonvoting common stock to 14 the acquiring funds. 15 In order for this transaction to close 16 we need your approval and your approval with 17 respect to the entries which are, in fact, 18 acquiring the various interests of stock and as 19 well as the individuals who, in fact, control 20 that entities who are the principles of TPG and 21 Apollo who submitted to you their 22 qualification. Hamlet Holdings, which is the 23 VOTECO, will, in fact, exercise the voting 24 control over all the activities of Harrah's. 25 And it's from those individuals that the 55 ITEM NO. 17 1 individuals who comprise the eight members of 2 the Harrah's board will join Mr. Loveman on the 3 board, will be drawn from that. And they will, 4 in fact, have all the votes associated with all 5 the common stock interest in Harrah's 6 Entertainment. 7 Now, the next issue we ask you to pass 8 on is how they're going to pay for it. And 9 you're going to hear testimony from Mr. 10 Halkyard as to how they're going to pay for it. 11 But in a rough cut, north of $6 billion of this 12 will be an equity investment which will come 13 from the Apollo and TPG funds and Co-Invest 14 funds. The funds which you see investing are 15 arms of Apollo VI, which is one of their funds 16 and TPG V, which is one of their funds, which 17 will be investing through these alternate 18 investing vehicles of those funds, and those 19 are the identified entities who are qualified 20 to hold the stock as are the co-invest 21 entities. Those entities are controlled by the 22 same people or the partners of Apollo and TPG 23 and, in fact, people who are in the VOTECO, so 24 you have the same people. There's an identity 25 of interest. The investors are, in fact, 56 ITEM NO. 17 1 limited partners, and they are largely 2 institutional investors, pension funds, 3 governmental entities who invest capital under 4 the management of these funds so they can 5 select investments to become their portfolio of 6 companies. Harrah's will join a number of 7 other iconic American companies which are 8 porfolios companies of both Apollo and TPG. 9 The borrowings are going to consist of 10 three different types of borrowings totaling 11 approximately $17.7 billion. There will be a 12 CMBS borrowings, which is Collateralized 13 Mortgage Back Securities, which is in the 14 neighborhood of $7 billion which will be 15 borrowed by companies which will own certain 16 real estate assets of Harrah's Entertainment. 17 Two of those real estate assets are 18 located here in New Jersey, the Showboat 19 facility and the Harrah's Marina facility. 20 Also be secured by certain of the Nevada 21 facilities. 22 In order to do that, we're seeking your 23 approval for the present companies to divest 24 themselves of that real estate, two property 25 companies, and to have the operations placed 57 ITEM NO. 17 1 into operating companies. There will then be a 2 true lease between the operating and property 3 companies which provides the necessary funds 4 for the debt service for the CMBS borrowings. 5 And in conjunction with that, a number of the 6 approvals that are sought from the Division are 7 with respect to CSI licensure of the property 8 companies, with respect to the structure of the 9 borrowing, including the borrowing entities of 10 the mezzanine borrowers, and likewise approvals 11 for the operating companies and issuances of 12 casino licenses on the same terms and 13 conditions as the existing licenses to the new 14 Harrah's Marina and the new Harrah's Showboat. 15 There's also conventional, 16 quote-unquote, financing that will be acquired 17 and guaranteed by the operating companies, 18 including the operating companies in New Jersey 19 which are not part of the CMBS borrowing, and 20 it includes unsecured notes and a term loan. 21 And all this you'll get a much better 22 description of from Mr. Halkyard who's going to 23 testify here. 24 Among the technical rulings we're 25 seeking from you are rulings which relate to 58 ITEM NO. 17 1 all of the structure of the new reorganized 2 Harrah's, including compliance with all the 3 sections of the Act, Section 82 particularly, 4 of all the new entities that we've created and 5 material debt approval for the overall 6 financing that's involved in the acquisition of 7 the common stock. 8 I think you probably have a number of 9 questions, and we'll try to pose some of them 10 regarding the nature of who these investors are 11 and who private equity people are. And I think 12 that you'll be able to see from what you 13 hear -- or you'll determine from what you hear 14 the nature of the investors, the nature of the 15 investment they make, and their commitment to 16 the investment to what Harrah's stands for 17 today. And, finally, when all is said and 18 done, we're going to ask you to consider the 19 draft resolution and grant us the approvals 20 which will allow this transaction to close and 21 to have the new ownership of the common stock 22 of Harrah's. 23 Thank you. 24 CHAIR KASSEKERT: Thank you, Mr. O'Gara. 25 Mr. Adams? 59 ITEM NO. 17 1 MR. ADAMS: Thank you, Chair. 2 Commissioners and Chair, you obviously 3 have already been supplied with a certain 4 amount of information that have been in 5 previous petitions that have been filed that 6 have an addressed some of the various and 7 sundry items that are involved in this matter. 8 Needless to say, it's been voluminous. It's 9 obviously a very large transaction. 10 You have our report which we filed which 11 details a lot of information in and of itself. 12 You also, obviously, are aware in our report we 13 ultimately did not oppose what we believe will 14 be an ultimate ruling by you authorizing 15 interim casino autorization on material debt 16 transactions. 17 However, as we said in our report and is 18 going to be supplied to you today, we believe 19 that the testimony you're going to hear today 20 is a integral part of what is going to go into 21 your decision. 22 After you hear that testimony in 23 consideration with the entire record in this 24 matter, then it will be ripe for you to render 25 your decision. We think where that's going to 60 LOVEMAN-O'GARA 1 go ultimately, but we would reserve further 2 comment based on the presentation of all the 3 testimony and then your deliberation in the 4 entire matter. 5 CHAIR KASSEKERT: Thank you. 6 We'll now move to testimony. Mr. 7 O'Gara, you may call your first witness. 8 MR. O'GARA: Gary Loveman. 9 10 GARY LOVEMAN, was duly sworn to testify 11 in this matter. 12 13 MR. NANCE: Please state your name for 14 the record. 15 MR. LOVEMAN: Gary Loveman. 16 MR. NANCE: Thank you. 17 MR. LOVEMAN: Thank you. 18 CHAIR KASSEKERT: You may proceed. 19 20 DIRECT EXAMINATION BY MR. O'GARA: 21 Q. Mr. Loveman, you are the Chairman, CEO, 22 and the President of Harrah's Entertainment? 23 A. I am. 24 Q. And how long have you had that 25 particular position? 61 LOVEMAN-O'GARA 1 A. I've been chairman since the beginning 2 of 2003. I've served as -- I'm sorry. I served as 3 CEO since the beginning of 2003. Chairman since the 4 beginning of 2005. 5 Q. All right. If you can take yourself 6 back to December of 2006, you as chairman and the 7 remaining members of the board of Harrah's 8 Entertainment determined to accept an offer from 9 Apollo and TPG to merge with an entity which they 10 created to acquire all the equity interest in your 11 company. Can you tell us what led up to that, and 12 what considerations went into the board's adoption of 13 that particular determination regarding the 14 acquisition? 15 A. I can. Although I want to emphasize 16 that the decision ultimately to support the offer made 17 by the two firms was that of an independent committee 18 of outside directors formed specifically for the 19 evaluation of this proposal and others that were 20 received by the board. And I think I can suggest that 21 the deliberations they undertook were to consider the 22 welfare of the shareholders who they are ultimately 23 responsible for represent and they reviewed the 24 offer -- the series of offers that led to the offer 25 that was ultimately accepted from the two firms to be 62 LOVEMAN-O'GARA 1 in the best interest of the shareholders and indeed in 2 the best interests of the company and its long-term 3 welfare. 4 With respect to management, there are 5 other considerations that I think that many of us who 6 have been employed at Harrah's and had long 7 commitments to Harrah's had in mind and that, of 8 course, had to do with the welfare of the employees, 9 the capacity of the business to perform at a high 10 level to create growth and opportunities. These are 11 all things that we felt very comfortable about, and 12 suggesting to the independent committee that we felt 13 these were things they would obtain in the event they 14 supported this transaction. 15 Q. Did the independent committee have 16 independent legal and financial advisors when they 17 considered the transaction, Mr. Loveman? 18 A. They did. Upon receipt of the -- and I 19 think even in anticipation of the receipt of the first 20 offer from these firms, the independent committee, 21 obtained independent legal counsel and also 22 independent investment banking counsel. 23 Q. And after the board determined -- after 24 the special committee made a recomendation, the board 25 then recommended the offer to the shareholders? 63 LOVEMAN-O'GARA 1 A. It did. 2 Q. And the shareholders then voted upon 3 this offer? 4 A. They did. 5 Q. And it was approved? 6 A. It was. 7 Q. Following the closing, Apollo and TPG 8 won all the equity in Harrah's Entertainment. What is 9 it that you see that they bring -- what kind of value 10 or resources do they bring to Harrah's that Harrah's 11 does not have presently? 12 A. Well, I just want to add that management 13 will also be a participant in a portion of the equity 14 here. 15 Q. Yeah. 16 A. So all of us involved in it, I think 17 that's a very particularly important component of the 18 what I think is appealing. But they bring a 19 considerable expertise particularly with respect to 20 how we think about and allocate capital. What sorts 21 of companies that we can do business with and how we 22 can structure commercial relationships that are 23 advantageous to the business in an industry that is 24 evolving very rapidly with the introduction of new 25 technology, new sorts of commercial partners. The 64 LOVEMAN-O'GARA 1 expansion of the valued proposition that we bring to 2 guests. We think that the expertise of both firms, 3 the other companies that are in their investment 4 portfolios, this brings us a considerable amount of 5 additional band width to undertake activities and 6 investments that I think are constructive to the 7 company. 8 We don't, frankly, anticipate that they 9 are going to help us run table games better or look 10 after slot machine movements and how we train our 11 folks in the buffet, things of that sort. Nor would I 12 think that they ever would suggest they will. But 13 there are areas that we bring a lot to whatever it is 14 we think we need to develop the business. 15 Q. And the management of Harrah's 16 Entertainment following the transaction will remain 17 the same? 18 A. It will remain the same. 19 Q. And you will remain the CEO? 20 A. I am remain the CEO. With your 21 permission. 22 (Laughter.) 23 Q. And you'll be a member of the board of 24 directors along with four people from each of the 25 sponsors? 65 LOVEMAN-O'GARA 1 A. That's correct. 2 Q. Both Apollo and TPG have indicated that 3 they will keep in place the operational management 4 philosophies that you put place in Harrah's. Can you 5 just give a brief description what those philosophies 6 are and what they are buying into? 7 A. I will. I think the Commissioners and 8 the Chair will know that's been our view for a long 9 time, that our business is driven by the enhanced 10 loyalty of our guests and, in turn, that is a 11 consequence of the work of our colleagues or our 12 employees in the provision of a level of service that 13 would inspire some degree of loyalty. And, of course, 14 that's probably never been put to a greater test than 15 here in this last year when we have the new capacity 16 to the north in New York and south in Philadelphia -- 17 or I should say to the west in Philadelphia. 18 And that -- that basic proposition will 19 continue to guide us as we go forward. We will 20 continue to work to provide the highest level of 21 service we can to all of our guests to encourage them 22 to visit us in as many places as we can. We've built 23 a network of casinos that is unrivaled by our 24 competitors. And it's been largely due to the 25 efficiently of us here in New Jersey and elsewhere 66 LOVEMAN-O'GARA 1 that that exists. And we'll continue to try to do 2 things with our colleagues that make it easy for them, 3 in fact, appealing for them to do things that 4 encourage the loyalty of our guests. 5 Now, of course, that's supported by 6 great buildings and new things like the Pool at 7 Harrah's Atlantic City and shopping malls like the 8 Pier and things of that sort that enhance the 9 experience. But, for us, it fundamentally is this 10 connection between the enthusiasm of our guests and 11 their loyalty as delivered by the folks that we work 12 with to generate that result. 13 Q. With respect specifically to New Jersey 14 and addressing here in New Jersey, will this 15 transaction in and of itself result in any changes in 16 your staffing or operational philosophy here in the 17 state? 18 A. It will not. Our operators, led by 19 Carlos Tolosa, have kept an eye on our staffing here 20 in from the very beginning and do so in response to 21 business needs. There's been no discussion with our 22 new friends in private equity over this very long 23 courtship that we've been involved in here, hopefully 24 leading to consummation at some point, about any 25 changes in how we staff our operations. That's never 67 LOVEMAN-O'GARA 1 even been an issue that we've ever discussed. 2 Q. With respect to the Harrah's Code of 3 Commitment, will anything about that change as a 4 result-- 5 A. Not as a consequence of this. We are in 6 the process of updating our Code of Commitment. We 7 think strengthening it, adding issues around 8 diversities, our management of diversities, more 9 literally into that code of committee, some other 10 tenants having to do with environmental friendliness 11 of our operations and our efforts in that respect. So 12 we consider the Code of Commitment to be a dynamic 13 document that will be updated as our travels require. 14 But there's nothing about this transaction that has 15 any bearing on that. That remains central to what we 16 do. 17 Q. Although I think you've already covered 18 it, I think it bears emphasis. With respect to the 19 day-to-day management of Harrah's Entertainment from 20 TPG down through the operating companies here in New 21 Jersey and Nevada, who will be make those management 22 decisions after this transaction is closed? 23 A. Same people that have been making them 24 heretofore. The management here in New Jersey, led by 25 Carlos Tolosa and by myself and my senior management 68 LOVEMAN-O'GARA 1 colleagues. 2 Q. All right. Following the closing of the 3 transaction, can you just give us some idea of where 4 you see Harrah's going over the next few years? 5 A. Well, it's our ambition to continue to 6 grow our brands in all the major markets where we're 7 allowed to be active and to continue to grow the 8 offering and the value proposition in markets that are 9 appealing to us. And as the Commission knows, New 10 Jersey has been a very welcome home for us. We have a 11 very supportive regulatory structure. We've had a 12 very supportive fiscal structure. So we've been able 13 to invest a tremendous amount of money here in New 14 Jersey with projects that are completed and others 15 that are ongoing. We continue to grow it as one of 16 the most exciting markets for further investment. And 17 that's part of the overall prospect that we have for 18 the company. 19 Since this agreement was made by the 20 independent committee in December, the company has 21 announced a new facility called Margaritaville in 22 Biloxi on the Mississippi Gulf Coast. We've announced 23 an expansion in excess of a billion in Caesars Palace, 24 Las Vegas. We've continued with our large expansion 25 here in Harrah's Atlantic City and a number of 69 LOVEMAN-O'GARA 1 projects and other properties here in town. We 2 announced the purchase of a very large piece of land 3 in Macau with a golf course there. So I think anyone 4 who is skeptical of the motivations of private equity 5 investors have seen that this is now what I've just 6 described to you is in excess of $2 billion of 7 investment since this romance was inked in December of 8 last year. We're going to continue to invest and grow 9 the business as we have. 10 Q. As part of the transaction, is there any 11 current plan to divest any companies assets 12 companywide here near in New Jersey? 13 A. No. We have no current plans to divest 14 assets in New Jersey or elsewhere. Now, we have from 15 time to time in the company's interest sold assets. 16 We have more than 50 operating business around the 17 world. If business conditions were to suggest there 18 was one we should divest, we would consider it as we 19 always would. But no -- 20 Q. That would be in the normal course of 21 evaluation? 22 A. That would be in the normal course of 23 business. Yeah. 24 Q. And, finally, ten months ago you were 25 enthusiastic about this transaction. Do you have the 70 LOVEMAN-ADAMS 1 same enthusiasm today? 2 A. I do. I have, in fact, I think even 3 greater enthusiasm. I think the period of gestation 4 here -- I use all sorts of metaphors for this. Some 5 romantic, some otherwise. But the -- 6 (Laughter.) 7 Q. That might be why -- 8 A. This period that we've been through this 9 December has -- I think proven to lots of folks, 10 ourselves and our new colleagues, that there's a great 11 deal we can do together. And the circumstances 12 surrounding the industry have generally improved over 13 that period, although it's a been a difficult ten 14 months here in Atlantic City. So I am more 15 enthusiastic today than I was at that time, and I 16 think better informed. 17 MR. O'GARA: I don't have any other 18 questions. 19 CHAIR KASSEKERT: Thank you. 20 Mr. Adams, any questions? 21 MR. ADAMS: Thank you, Chair. 22 23 CROSS-EXAMINATION BY MR. ADAMS: 24 Q. Mr. Loveman, I just have a few 25 questions. With respect to the Board of Directors of 71 LOVEMAN-ADAMS 1 Harrah's on a going-forward basis, and as Mr. O'Gara 2 had asked you, I believe that there will be four TPG 3 representatives on the board and four from Apollo and 4 yourself; is that correct? 5 A. That's correct. 6 Q. Do you see or can you tell us about how 7 you think that is going to work on a going-forward 8 basis with respect to the decisions involving Harrah's 9 Entertainment, Inc.? 10 A. Well, I think it's likely to work much 11 as the early deliberations of work involving the 12 parties thus far. An example of that -- I mean, when 13 we've made decisions to undertake large capital 14 projects here in the last several months the terms of 15 the merger agreement require that the two parties 16 agree to these decisions along with our existing 17 public company board. And it has been an incubator to 18 consider how this might work in the future. And what 19 I've observed is that these firms have recognized that 20 this a partnership that has to be collaborative. A 21 great deal of effort needs to occur to make sure that 22 the firm's profit conditions in a coincident fashion, 23 and that there not be circumstances that would lead to 24 a decision, particularly between -- putting myself 25 aside on this, and I have not yet seen any instances 72 LOVEMAN-ADAMS 1 where that would be the case. I think they've entered 2 into some other agreements to make sure that if other 3 casino investments come along they do these 4 collectively, so there's not any circumstance where 5 they find themselves on the sides of any issues in 6 future. And my sense is it will work along well. I 7 can tell you that as the chairman of the board of a 8 public company, the last thing you want is a split 9 vote anywhere. Whether your directors or individual 10 directors, or in this case they would be investors. 11 And I think we'll work to make sure that we all agree 12 that we're going to do something we're enthusiastic 13 about or we don't proceed. 14 Q. All right. I ask that in the context 15 based on what you just said. You are currently a 16 public company, but you will no longer be a public 17 company after this transaction, assuming it goes 18 forward; correct? 19 A. That's correct. 20 Q. Now, can you generally describe how you 21 perceive your relationship with Mr. Black and Mr. 22 Bonderman in this whole process, if there is one? 23 A. Well, I think there is. I met Mr. Black 24 and Mr. -- I know Mr. Bonderman a bit longer. I met 25 Mr. Black for the first time when this whole potential 73 LOVEMAN-ADAMS 1 transaction began to take shape. These are folks, I 2 think, well-known to all of us who were students to 3 the industry they've been in. Our relationship, I 4 think, is quite good. I have a lot of respect for 5 both of them, and particularly for the firms they've 6 built, which you'll hear have endured over a period of 7 time, have a lot of very talented people working 8 there. And I think they've done very impressive, 9 incredible work on the things they've done. So I've 10 been very pleased with that. 11 Q. Just going back to the board for one 12 additional question. Do you envision that the board 13 will on a going-forward basis have committees the way 14 it has had in the past and, if so, who would be on 15 those committee? 16 A. We haven't really articulated what those 17 committees will be. I think we will certainly have 18 certain committees, particularly with respect to 19 auditing, compliance, and supervision, surveillance, 20 and other issues that are mandated in regulatory law. 21 I'm not as certain that we would have something like a 22 nominating and governing committee of the sort that we 23 have currently in the public company where you have 24 attending to governement and institutions. But I 25 think we would certainly have a capital committee 74 LOVEMAN-ADAMS 1 structure. We would have a committee dedicated to 2 audit and compliance, and potentially one to the human 3 resources issues comparable to what we have today. 4 But, as I say, that will remain to be fleshed out. 5 Q. All right. And based on what you just 6 said, I would presume in of the type of example in Mr. 7 O'Gara discussed with you about the possibility of 8 diverting of assets that it would go to the full board 9 and decided by that board and/or any committees that 10 the board would designate to consider that issue; 11 correct? 12 A. I think that's certainly true. Yes. 13 Q. Now, again, just emphasize as far as 14 your understanding is concerned, will any operating 15 positions with any of the particular casino operations 16 here in Atlantic City involve any personnel from 17 either TPG or Apollo as far as in operating positions? 18 A. No. There not be be such folks. We 19 couldn't afford them. 20 (Laughter.) 21 Q. Well, now that you -- it's funny that 22 you mention that because that the next question. 23 There's been a lot of information 24 supplied concerning concerning fees that are going to 25 be paid with respect to Apollo and TPG. What is your 75 LOVEMAN-ADAMS 1 understanding of the fees that are going to be paid 2 and your understanding as to who is going to pay those 3 fees? 4 A. Well, my understanding of the fee 5 structure is pretty thin. And I don't want to 6 overstate it because I'm not entirely literate on 7 this. But my early understanding of this is that 8 there will be some level of fee taken from Harrah's as 9 an enterprise and then paid to the two institutions. 10 Now, whether it's paid to their funds or paid or their 11 management, general partnership, I'm really not sure. 12 But there will be some movement of funds from Harrah's 13 to each of the two firms. But the magnitude of that, 14 I have not seen. I'm not certain it's been determined 15 yet. 16 Q. Okay. Nonetheless, you are familiar 17 with the fact that fees are going to be paid by 18 Harrah's? 19 A. Yes. 20 Q. Do you have any -- perhaps this will be 21 Mr. Halkyard when he gets on the stand. 22 A. Yeah. 23 Q. Is there a contemplation as to when 24 that's going to be finally decided? 25 A. I would think it must be decided here in 76 LOVEMAN-ADAMS 1 the next couple of months between now and closure on 2 a -- 3 Q. The closure? 4 A. Yes. 5 Q. Okay. One last question. 6 We discussed what the process might be 7 for the diversion of assets. I assume that same 8 process would apply to any capital expenditure 9 decisions that might be made as well? 10 A. Right. The way we envision this is that 11 there would be a high-level committee that would 12 involve myself, Mr. Halkyard, our CFO, and senior 13 members of the two firms to consider the overall 14 capital budgeting structure of the company and the 15 capital structure of the company at any given point in 16 time. And then there will be delegated authorities, 17 as there are today. Carlos Toloso, who has a very 18 good big responsibility here, to look after 19 maintenance of the businesses and other expenditures, 20 restaurant renovations, and renovations of property 21 areas, things like that. 22 MR. ADAMS: Okay. I have nothing 23 further. 24 CHAIR KASSEKERT: Thank you. 25 Mr. Loveman, you're probably -- Harrah's 77 LOVEMAN 1 is probably in a unique position in that you 2 have properties both in Pennsylvania and 3 Chester and here in Atlantic City. How has the 4 competition impacted on your operation here in 5 Atlantic City; and has the Harrah's property in 6 Chester really served as a feeder for Atlantic 7 City? 8 THE WITNESS: Madame Chairwoman, it has 9 served as a feeder, but it's also served as a 10 bit of a drain. It is undeniably the case that 11 residents of suburban Philadelphia or downtown 12 Philadelphia in the past who have considered a 13 visit to Atlantic City as an appealing 14 alternative, particularly on certain days of 15 the week, now having not only our casino but 16 our competitors' casinos almost in their 17 neighborhoods, they have diverted some of those 18 visits to the local facilities at the expense 19 of the Atlantic City facilities. 20 We -- as you all know, we track that 21 through our reward program, so it's relatively 22 scientific to be able to say that the Kassekert 23 family of suburban Philadelphia who used to 24 make a certain number of visits to Atlantic 25 City might now make a few less, and we observed 78 LOVEMAN 1 that she's visiting us now in Chester instead. 2 So from a company's point of view, if we have 3 to lose that business to somebody, we lose it 4 to ourselves. 5 (Laughter.) 6 THE WITNESS: We regret the fact that we 7 lose it principally to the Governor of 8 Pennsylvania who takes 55 cents of every 9 dollar -- 10 (Laughter.) 11 THE WITNESS: -- to benefit his 12 administration rather than ourselves. So that 13 really as a commercial enterprise is the 14 problem. 15 CHAIR KASSEKERT: And I guess the other 16 big issue that has been impacting on the 17 Atlantic City casinos has been the partial 18 smoking ban. How has that impacted on the 19 business here in Atlantic City? 20 THE WITNESS: Well, I think it's been a 21 modest, adverse effect during the transition. 22 My hope is this is something that will abate. 23 We study, as I know you all have, the national 24 experience on this. And it's our view that the 25 way in which the phase-in period was 79 LOVEMAN 1 architected was, I think, a very thoughtful way 2 to allow our customers a chance to adjust to 3 the different restrictions that would be put in 4 place. We're comfortable with that. 5 It has had some negative effect. It's 6 hard to be very precise about how large it is. 7 It's certainly not as significant as the 8 Philadelphia or Pennsylvania effect has been on 9 visitation, however. 10 CHAIR KASSEKERT: Do you think either of 11 these two issues are going to impact on 12 Harrah's' ability and desire to do more capital 13 expansion down here in Atlantic City? 14 THE WITNESS: They certainly are 15 considerations we have to weigh heavily. I 16 do -- I'd like to think, and we have argued in 17 other settings, both internally and I think 18 with all of you, that we consider these to be 19 transitional dynamics. Atlantic City has 20 absorbed lots of supply shocks from Delaware, 21 from Connecticut, from New York and other 22 settings. It has always regained its footing 23 and continued to grow. This one has been a 24 little more painful this past year than others 25 we've experienced. But we think once we see 80 LOVEMAN 1 the end of that dip that we can be a little bit 2 less concerned about it. 3 CHAIR KASSEKERT: Thank you. 4 Questions from the Commissioners? 5 Commissioners Fedorko? 6 VICE CHAIR FEDORKO: Thank you. 7 Mr. Loveman, if the Harrah's acquisition 8 is approved today, all the casinos in Atlantic 9 City except the Borgata will have a heavy debt 10 load. In addition to that, and facing the 11 regional competition and the smoking ban, how 12 concerned do you think this Commission should 13 be concerned -- should be looking at that? How 14 concerned should we be? 15 THE WITNESS: Well, I think your role as 16 guardians of the -- not only the integrity, but 17 the stability of these businesses, it's 18 something you have to be concerned about. And 19 I can assure you it's something I've been 20 concerned about. Our company has run in a very 21 conservative debt load vis-a-vis our 22 competitors for many years. As a public 23 company, I would go to speak to equity 24 investors. I would always get an earful about 25 this as to with we considerably less debt and 81 LOVEMAN 1 leverage than people like MGM MIRAGE or other 2 companies. Or, in the extreme case, Mr. 3 Trump's businesses. Here we have undertaken an 4 increase in leverage, but we don't think a 5 precipitous increase in that leverage. 6 Fortunately, the company because of its 7 diversified base has not only a large but a 8 very stable level of cash flow. If our company 9 had its cash flows principally in one city or 10 even two, then I would feel much greater 11 trepidation about it. But given that we enjoy 12 these cash flows from very many places, now 13 from the UK to Southern California, Las Vegas, 14 Atlantic City, Chicago, Louisiana, and the 15 like, and given that the leverage levels remain 16 relatively modest compared to certain other 17 cases, I feel, as someone who's responsible for 18 making this work, am very confident we can 19 sustain and continue them. 20 VICE CHAIR FEDORKO: I saw an article 21 yesterday in one of the gaming publications 22 that Las Vegas in August was down 4.4 percent. 23 Given what's going on here in Atlantic City, do 24 you see this as, like, a national trend or is 25 it -- 82 LOVEMAN 1 THE WITNESS: No. We weren't down to 2 that degree in August, as you read in some of 3 the other circumstances. A lot of Vegas 4 month-on-month comparisons have to do with 5 special events and sometimes how many weekends 6 are in the month and other sorts of dynamics. 7 Las Vegas continues to be strong. So we don't 8 observe that to be a nationwide trend. 9 Now, I'm sure you've all read that there 10 have been reprots from other gaming 11 jurisdictions outside of Nevada last month 12 wasn't a great month. And the gaming analysts 13 have been reporting several states where 14 revenues were down year on year compared to 15 other years. It's certainly not been the most 16 buoyant year, but it's not something I'm 17 terribly alarmed about. 18 VICE CHAIR FEDORKO: Thank you. 19 CHAIR KASSEKERT: Commission Frulio? 20 COMMISSIONER FRULIO: Mr. Loveman, I'm 21 very much interested in knowing if you believe 22 that Atlantic City can handle three or more new 23 mega resort casinos all of which may open 24 within a one- or two-year span in the not too 25 distant future and what impact it will have on 83 LOVEMAN 1 the existing casinos, particularly the smaller 2 properties? 3 THE WITNESS: Well, I think the way you 4 premise the question is important to how we 5 consider it. The fact that the openings could 6 be coincident really exacerbate the problem. 7 It's our experience when these large increases 8 in supply occur in a somewhat gradual or 9 episodic way, then the markets absorb them 10 relatively well. But if it were to be the case 11 that the newly announced MGM MIRAGE facility 12 and the Pinnacle facility and the -- is it 13 Revel facilities? 14 COMMISSIONER FRULIO: Yeah. Revel. 15 THE WITNESS: -- were all to open at 16 largely the same moment, I think the smaller 17 properties with some facilities challenges 18 could have a very difficult time for a while. 19 It's certainly no secret that casino patrons 20 like to visit what's new. I've never in my 21 career found a way to stop that. Nor should 22 we, I suspect. But we work pretty hard at then 23 regaining people's loyalty after the first 24 visit to the new person on the block has 25 occurred. 84 LOVEMAN 1 But if you have three of them, and if 2 they are of the scale that's been proposed, I 3 think for folks whose facilities are challenged 4 and don't have a nationwide network to support 5 this, it could be a tough run. 6 COMMISSIONER FRULIO: Thank you. 7 CHAIR KASSEKERT: Commission Epps? 8 COMMISSIONER EPPS: I have a few 9 questions, which I'm sure you can anticipate 10 will be somewhat parochial. 11 What my first question is, the 12 value-added question. Can you expand on that a 13 little bit other than you said there were 14 expertise in allocation of capital. What other 15 valued added is gained in this process other 16 than a decent price to the shareholders in 17 making this move to go private? 18 THE WITNESS: Well, Commissioner, let me 19 take that in two pieces. The way the 20 independent committee had to consider this, the 21 fiduciary benefit to the existing shareholders 22 was largely their sole responsibility. So an 23 existing Harrah's shareholder, if they were to 24 receive more money and have the opportunity to 25 exit and go off and invest whatever they wish, 85 LOVEMAN 1 that was really fine with them. As you saw in 2 the shareholder vote, that's exactly what they 3 did. With respect to the rest of the 4 constituents, myself, the management team, our 5 employees, our suppliers, the communities in 6 which we operate, I think the question is more 7 complicated. And that's where my own thoughts 8 on this rested. And the question for me was 9 are we going to be a better company able to 10 operate better and do more appealing things, 11 more innovative things under private ownership, 12 putting aside who the specific owners are, but 13 under private ownership, would we be able to do 14 under public ownership? And it was my view and 15 well before these folks show up that I thought 16 that was indeed the case. And it had to do 17 both with the encumbrances of being a public 18 company, which involve a certain degree of 19 myopia and very short-term oriented focus. The 20 public market investors increasing have, and 21 especially in our business where there's 22 monthly data provided by jursidictions every by 23 month to concern one's self with. But also the 24 fact that the point where the company had come, 25 that is on the cusp of a big position in 86 LOVEMAN 1 Atlantic City, a big land ownership in Las 2 Vegas, the interests in being active in Macau 3 and other places, the ability to have a period 4 of time to pursue that growth strategy in a 5 private setting with the advantages that we 6 think that provides, it was a very 7 serendipitous result. And, as we think about 8 how to take advantage of the opportunity that 9 we have with the footprint around the country 10 to provide more services to guests, to provide 11 broader entertainment offering, to continue to 12 expand the facility, we think the skill these 13 firms bring help us in in that respect. And we 14 so far feel that's been the case. 15 COMMISSIONER EPPS: And to follow up in 16 that line. Was it your suggestion that there 17 are other members of a portfolio that you 18 become part of that become sisters that allow 19 you to tap into their resources to better 20 facilitate your processes? 21 THE WITNESS: Well, I think so. Now, 22 the firms -- and you should certainly ask them 23 this. They will tell you that they guard the 24 independence of these portfolios and companies 25 as they should. But to take a TPG example, one 87 LOVEMAN 1 of their firms in their portfolio is Neiman 2 Marcus, which owns among other things, Bergdorf 3 Goodman, very fine retailers. We are in the 4 business of expanding our retail footprint 5 around the country. I am certainly liable to 6 go visit my new friend Neiman Marcus and ask 7 him if he might consider helping us put some 8 stores around our facilities. Now, he might 9 well have done that in any case. I hope he 10 would have. But that's certainly an example of 11 something I might be considering. We could go 12 through other examples in these firm's 13 portfolios, but there are instances like that 14 where we think there's considerable potential. 15 COMMISSIONER EPPS: Okay. Now, getting 16 to my parochialism. 17 Atlantic City -- in your growth plan 18 specific to Atlantic City, technically, you 19 haven't really announced anything further. Do 20 you have any idea where growth might be in 21 Atlantic City in your properties? I'm assuming 22 it would be other than Harrah's, which is 23 pretty much built out. Almost as much as you 24 can get. 25 THE WITNESS: Right. 88 LOVEMAN 1 COMMISSIONER EPPS: But you got 2 Harrah's -- you got Caesar's and Bally's and 3 Showboat -- 4 THE WITNESS: Right. 5 COMMISSIONER EPPS: Do you have any idea 6 what potential growth might occur at those 7 facilities? 8 THE WITNESS: Well, we've given a lot of 9 consideration, Commissioner, to what sorts of 10 things might make sense, given the footprint of 11 those facilities. And you're right. Harrah's 12 is reaching a point where adding an awful lot 13 more on is difficult. If you forget your 14 wallet at one end of Harrah's and have to run 15 to the other end to retrieve it, you really 16 wish you hadn't done that. So it does reach a 17 point where five additions may be near the end. 18 And Showboat has had a lot of new things 19 happening. And we're very happy with how 20 showboat sits. Certainly our attention is 21 focused in the center of the boardwalk. We ask 22 ourselves what can we do now that the Pier is 23 finally finished and really prospering to make 24 this an even more desirable place? And the 25 debate there has focused on how do we generate 89 LOVEMAN 1 new demand into the city? And what sorts of 2 folks -- these 60-some-odd million adults who 3 live near us, Philadelphia to New York and 4 surrounding areas, that are not considering 5 Atlantic City might now consider us if we could 6 now offer them something new. 7 So we have lots of ideas about that. He 8 have not announced those plans. But I can -- I 9 think you can anticipate that they include 10 renovations of properties that are in the 11 center boardwalk area that could appeal to an 12 audience that's not purely a gaming audience. 13 That we might consider other sorts of draws 14 like convention or meeting space that has never 15 really been adequately pursued in Atlantic 16 City, in my view, even though the location is 17 desirable for them. Those are the sorts of 18 things that we look at to see how we can really 19 stimulate new demand in the market. 20 COMMISSIONER EPPS: Okay. Now, turning 21 a little bit further from nationally. Becoming 22 a private company and the board as you would -- 23 you had indicated four, four and one, if you 24 follow me. That scenario. 25 THE WITNESS: Uh-huh. 90 LOVEMAN 1 COMMISSIONER EPPS: -- takes the 2 esoteric kind of touchy-feely Atlantic City 3 thing a little bit further away. How do -- how 4 does that impact the local interests when the 5 management group is not as close to Atlantic 6 City as it may have been in the past? 7 THE WITNESS: Right. 8 COMMISSIONER EPPS: Is there cause for 9 concern that the Atlantic City focus is 10 somewhat diluted in that larger pool whereas 11 probably a big part of the Harrah's company 12 when it was just Harrah's -- 13 THE WITNESS: Uh-huh. 14 COMMISSIONER EPPS: -- may have -- 15 Atlantic City may have had more focus in the 16 dynamic. 17 THE WITNESS: I think it's a great 18 question. I just have to pause on the first 19 thing that you've say. If there's been a 20 touchy-feely part of Atlantic City, I haven't 21 felt it yet. 22 (Laughter.) 23 THE WITNESS: You and I have to spend 24 more time together. 25 COMMISSIONER EPPS: You don't know 91 LOVEMAN 1 Atlantic City like I do. 2 THE WITNESS: I've just been missing 3 that somehow. But I think the point's well 4 taken. There has always been a little bit of a 5 challenge when the company moved to Las Vegas 6 to make sure that we kept the right -- the 7 headquarters move to Las Vegas, and we kept the 8 right degree of attention on the interests of 9 our position here in Atlantic City. And that's 10 one of the reasons I maintainean office here. 11 I spend a lot of time here. Carlos Tolosa, who 12 is one of the top handful of people in the 13 company, looks after this market principally. 14 And our investors have shown a great deal of 15 interest in this. It constitutes almost a 16 third of the cash flow of the company and a 17 tremendous part of our growth. So I don't 18 think, whatever if the board composition turns 19 out to be, that they'll be any lack of 20 attention to Atlantic City. Certainly not on 21 my part. I think it's -- there's big bets in 22 three big markets for us, Las Vegas, Atlantic 23 City, and some day in Macau. And I think those 24 three will really occupy our attention. 25 COMMISSIONER EPPS: Just a couple more 92 LOVEMAN 1 questions. The first one is just compounding 2 on the Chair's question. 3 If Pennsylvania takes 55 cents on every 4 dollar, why are you there? And I think you 5 know the answer is if they're going to take it, 6 you rather them take it and give it to 7 yourself -- 8 THE WITNESS: Right. 9 COMMISSIONER EPPS: -- as opposed to 10 your competition. But that's a common question 11 that people ask. 12 THE WITNESS: Right. 13 COMMISSIONER EPPS: Why would someone 14 who has an interest in Atlantic City go right 15 across the bridge and compete with themselves? 16 But I guess you you'd rather give it to 17 yourself than somebody else. 18 THE WITNESS: Well, I -- what we try to 19 do, Commissioner, and I think with some degree 20 of success, is to say to the residents of 21 Philadelphia, we have a gaming facility for you 22 here. But it does not have the same offer set 23 that we have in Atlantic City. So if you want 24 to come for an afternoon, recognize in our 25 Chester facility we have no meaningful high-end 93 LOVEMAN 1 food and beverage. We have no hotel. We no 2 showroom. We have no standing entertainment. 3 We have nothing like the amenity level like our 4 facilities here. What we've said with the 5 total rewards program is, if you're going to 6 pay in a local casino, play in ours, accumulate 7 total regards credits, and come and use them in 8 here in Atlantic City. And that is, 9 fortunately, what people have been doing. So 10 they've been taking their shorter, two, three 11 hours in Chester, then come for the special 12 occasions or weekends here in Atlantic City. 13 Tragically, the alternative was the ABC 14 company would have had that license, and they 15 would have had just as many slot machines and 16 done many of the same things, but I would have 17 had no capacity to suggest to that audience 18 that they come and see me in Atlantic City. So 19 it's unfortunate that that occurred. But I 20 think we've ameliorated it as best we can. 21 COMMISSIONER EPPS: I guess a follow-up 22 question to that is, true to your business as 23 you are, if customer demand suggests that you 24 give them what they want, and your competition 25 is going to come in, like, the stand-alones 94 LOVEMAN 1 come in with a full scale offering -- 2 THE WITNESS: Uh-huh. 3 COMMISSIONER EPPS: -- do you then have 4 to step up your offering in Pennsylvania and 5 give them the full experience, which then takes 6 away from the Atlantic City experience? Are 7 you -- you could potentially be caught up in 8 that scenario. 9 THE WITNESS: Well, the 55 percent tax 10 rate stops that cold. It's just not feasible 11 under in fiscal regime to provide more than 12 what we provide, which is a lot of slot 13 machines. You know, big box that sits next to 14 a racetrack and a modest food and beverage 15 offering. 16 In all the jurisdictions around the 17 country that have -- if I may editorialize for 18 a moment -- these usurist tax rates -- 19 (Laughter.) 20 THE WITNESS: -- there's just no 21 capacity to build any sort of infrastructure 22 around it. So whether it's in Rhode Island or 23 it's in New York where you see a lack of 24 interest by bidders on these licenses with the 25 horse tracks, there's really no capacity to 95 LOVEMAN 1 invest in a hotel, an entertainment facility, 2 convention center, any of these things. So 3 unless the State of Pennsylvania have an 4 awakening that they would like to greatly 5 reduce the tax rate, which I think remarkably 6 unlikely, that we would never do that. 7 COMMISSIONER EPPS: And I guess, 8 finally, relating back to the previous line of 9 questioning, does Atlantic City run the risk of 10 losing a corporate citizen in Harrah's going 11 private? And if you follow me, when Harrah's 12 took over Bally's, it all became Harrah's. So 13 a corporate -- an independent corporate citizen 14 kind of went away and got morphed into one. 15 THE WITNESS: Right. 16 COMMISSIONER EPPS: Does that -- do we 17 run the risk of that corporate citizen getting 18 further away from us in this process? 19 THE WITNESS: No. Commissioner, that, I 20 can assure you, will not be the case. We will 21 be every bit as present. All the same 22 personalities for better, for worse you've come 23 to know with my group will be here, will be 24 every bit as active, philanthropic as involved 25 with our employees as we have been. So this 96 LOVEMAN 1 is, as we've said on certain occasions, it's a 2 change in the ownership structures. It's a 3 change in the capital structure, but it's not a 4 change in management, operations, or the way we 5 are active in our markets. So we'll be, I 6 think, exactly the same as you've known us here 7 before. 8 COMMISSIONER EPPS: That's all I have. 9 CHAIR KASSEKERT: Commissioner 10 Sommeling? 11 THE WITNESS: Thank you. 12 COMMISSIONER SOMMELING: Gary, just 13 going back to the question of keeping the 14 personnel here in your current facilities here 15 in this market, 16,000 employees and the 16 competition of the surrounding it, and given 17 the numbers in the past several months from 18 that competition, you see laying off any of 19 your employees in the near future? 20 THE WITNESS: We don't see any lay-offs 21 of folks in the near future. Mr. Toloso's job 22 is to look after the operational efficiency of 23 the business balanced by the need to provide a 24 service experience. I think we are tragically 25 watching a devolution in one of our 97 LOVEMAN 1 participants in this market where there's sort 2 of a chase to the bottom, and that's not how we 3 operate. If the job here is to create a 4 value-ladened experience for a guest whose 5 alternative is to visit other casinos, the last 6 thing one wants to do is reduce the service 7 experience, reduce the marketing that that 8 individual receives, and convince them that 9 they indeed really ought not to come to 10 Atlantic City. 11 So while we try to run the businesses 12 efficiently, we have no intention of laying 13 people off, whether it's in response to new 14 ownership or in response to market conditions. 15 Obviously, if there were some catastrophic 16 reduction in demand then, of course, we have to 17 consider that. But under the current levels, 18 that's not the case. 19 COMMISSIONER SOMMELING: Just getting 20 back a moment to that same question regarding 21 how the competition is affecting us, do you 22 see -- in your own opinion, do you see how this 23 market here is is going to turn around and 24 start to come back up again and maybe get back 25 to the numbers that we saw formerly? Or do you 98 LOVEMAN 1 see us being more competitive in a way that 2 would make that happen? 3 THE WITNESS: Well, I do. I think there 4 are several -- putting aside the big facility 5 openings that were asked by the Commissioner 6 earlier, I think there are a lot of innovative 7 things that are happening that are very hopeful 8 for the marketplace. The arrival of these two 9 new -- three new hotel towers, Taj Mahal, 10 Borgata, and our own -- we all know that rooms 11 are a big constraint on growth here. I think 12 that's very encouraging. We continue to hear 13 positive things about the train service, the 14 arrival at some point of better airplane 15 service. We've been chartering more and more 16 airplanes in and out of the local airport at 17 our own expense to bring new customers in. 18 And I think the most buoyant summer of 19 entertainment in Atlantic City that I can ever 20 recall. We've had A-level entertainment right 21 on through the year. And I think that's been 22 broad -- been very broadly successful, from 23 Barbara Streisand all the way along. We've 24 experimented with some very exclusive events 25 where we've invited members of our loyalty 99 LOVEMAN 1 program, for example, to the first of the Judds 2 concerts this summer. Big success. Boxing has 3 been very active here. So I think the only 4 good thing about new controvsey is it forces us 5 to be more imaginative. And how do we make 6 this place more exciting and more appealing? 7 And I've been modestly encouraged by what we've 8 seen. Last month's numbers were not pretty, 9 but we've got to look work harder and get more 10 clever about how we get people here. 11 COMMISSIONER SOMMELING: That's all. 12 CHAIR KASSEKERT: Thank you. 13 Commissioner Fedorko? 14 VICE CHAIR FEDORKO: Mr. Loveman, I just 15 have one more question. There's a lot of talk 16 about Bader Field. 17 THE WITNESS: Uh-huh. 18 VICE CHAIR FEDORKO: And we hear from 19 time to time that some of the casino operators 20 are concerned about a casino going in Bader 21 Field because it would detract away from them. 22 To my way of thinking -- I mean, more casinos, 23 bring more people into Atlantic City. How do 24 you feel about that? 25 THE WITNESS: I think you're certainly 100 LOVEMAN 1 right that more casinos bring more people into 2 any -- Atlantic City or any other city. And if 3 one were, for example, say the governor or the 4 mayor, as you could imagine, why they might see 5 it that way. The problem is the process of 6 making that happen at the level of the 7 individual business is often not well aligned 8 with that ambition. So let me try to be a 9 little bit less obtuse about that. 10 When we make the decision about building 11 one of these buildings, it's an enormous 12 capital commitment. There are very few 13 businesses in America that have to ante up, if 14 you will, at a billion dollars apiece. And 15 these businesses -- these facilities are not 16 easily reused for other purposes, so once we're 17 in, we're in for a long time. And for that 18 reason, stability is critical. We have to have 19 some idea what we're dealing with. So if we 20 know that a certain area is zoned for casino 21 licenses, and we can gage what kind of capacity 22 that might involve, we can make an informed 23 decision about whether we should participate in 24 that or not. If down the road someone says now 25 here's another enormous area that might also 101 LOVEMAN 1 become zoned for casino licenses and hence very 2 substantially change the investment horizons, 3 then we can take all that into account. But 4 certainly in the short term, that dilutes what 5 we would consider to be the return on making 6 the investment at center boardwalk or the 7 Marina or elsewhere. 8 So the most important thing for us is 9 just to have some idea of what we're dealing 10 with. The real problem is the uncertainty 11 around it. And, as you all know, investment 12 decisions hate uncertainty and the investors 13 hate uncertainty. So if things hang in the air 14 for a long period of time, it's very hard to 15 proceed because you just don't know where if 16 you're going to compete with three big new 17 buildings, as has been announced, or 13 18 buildings. Obviously, it makes a difference 19 what you have. 20 VICE CHAIR FEDORKO: From a customer 21 standpoint, is there such a thing as a 22 saturation point? 23 THE WITNESS: I don't think from a 24 customer -- the saturation point is not a term 25 that a customer would use. You know, there -- 102 LOVEMAN 1 most of us are happy when we have more choices. 2 We like more stores at the mall and more ski 3 resorts at the mountain and all that. But 4 certainly the providers can experience a 5 saturation point. And I think in the long 6 term, that's not such a discouraging notion, 7 but it can be in the short term a real big 8 problem. I think that's the issue here with 9 Bader Field. 10 VICE CHAIR FEDORKO: Thank you. 11 THE WITNESS: Thank you. 12 CHAIR KASSEKERT: Any other questions? 13 COMMISSIONER SOMMELING: No questions, 14 Madame Chair. 15 CHAIR KASSEKERT: Mr. O'Gara? Anything 16 on redirect? 17 MR. O'GARA: No. 18 MR. ADAMS: Nothing further. 19 CHAIR KASSEKERT: You may step down, Mr. 20 Loveman. 21 THE WITNESS: Thank you. 22 CHAIR KASSEKERT: Thank you. 23 You can call your next witness. 24 MR. O'GARA: John Halkyard. 25 103 HALKYARD-O'GARA 1 JONATHAN HALKYARD, was duly sworn to 2 testify in this matter. 3 4 MR. NANCE: Please state your name for 5 the record. 6 MR. HALKYARD: Jonathan Halkyard. 7 MR. NANCE: Thank you. 8 CHAIR KASSEKERT: You may proceed. 9 10 DIRECT EXAMINATION BY MR. O'GARA: 11 Q. Mr. Halkyard, you're the CFO of Harrah's 12 Entertainment? 13 A. That's right. 14 Q. And, as such, are you familiar with the 15 financing that is going to be involved with the 16 transaction that's under consideration here for the 17 acquisition of the equity? 18 A. Yes, I am. 19 Q. Can you tell us just as an initial 20 overview what is the gross amount of borrowings that 21 will be involved in order to fund the transaction 22 that's being considered today? 23 A. The gross amount of borrowings will be 24 approximately $25 billion. 25 Q. And is that in several different pieces 104 HALKYARD-O'GARA 1 or elements? 2 A. Yes. 3 Q. Can you describe them for us? 4 A. Sure. 5 Q. Rough cut? 6 A. In a rough cut, there will be $7 billion 7 of a new senior secured bank facility. There will be 8 just over $6 billion of new senior unsecured notes. 9 There will be a $7 and one-quarter billion real estate 10 or CMBS facility. And then approximately $4 and a 11 half billion of Harrah's existing senior and 12 subordinated notes will be actually rolled into the -- 13 into the new financing. 14 Q. And with respect to that gross amount of 15 borrowing, how will those funds be used, Mr. Halkyard? 16 What's the disposition of that money? 17 A. The uses of funds are as follows: The 18 most significant use will be -- will be approximately 19 $17.7 billion to pay the existing shareholders of 20 Harrah's Entertainment $90 per share. About $8 21 billion of existing Harrah's debt will be also repaid. 22 Q. All right. So at the end of the day, 23 the total outstanding indebtedness of new Harrah's 24 will be how much? 25 A. About a 25 -- just over $25 billion. 105 HALKYARD-O'GARA 1 Q. All right. And let's talk about the 2 elements that you said. One was the conventional bank 3 term loan? 4 A. Uh-huh. 5 Q. And can you just tell us roughly -- 6 general terms what that loan will be? 7 A. Sure. This will be a -- this will be a 8 secured senior bank loan. It will have a seven-year 9 term. It will be made up of, we anticipate, a very 10 large syndicate of banks, most of whom are already 11 well-known to our company and who know us quite well. 12 The pricing on the bank facility will be LIBOR plus 13 225 to 275 business points. 14 Q. I think you said that will be secured by 15 assets? 16 A. Yes. It will be secured by assets of 17 the company. There's -- as I mentioned, and I'll 18 describe in a moment, the real estate facility. The 19 senior secured loan facility will be secured by 20 assets, all assets other than those that are securing 21 the real estate facility. 22 Q. And here in Atlantic City, which assets 23 will be securing your real estate facility so we know 24 which ones are out of that? 25 A. Right. The real estate facility will be 106 HALKYARD-O'GARA 1 secured by a number of our business, including two 2 here in Atlantic City, which are Showboat and 3 Harrah's. 4 Q. All right. Let's move on to that real 5 estate facility. Can you describe for us what that 6 is? Does that involve kind of a restructuring inside 7 Harrah's and how you accomplish that? 8 A. Yes. What we are doing is we are 9 separating a number of our businesses, including 10 Showboat and Harrah's, into two -- broadly two 11 different entities. One's an operating company and 12 one's a property company. These property companies 13 will be the borrowers under this real estate facility. 14 The operating companies will actually be renting the 15 facilities from those property companies. And the 16 real estate lenders will have security in the real 17 property in these property companies. And the reason 18 we're doing this, and it's quite a lot of work to do 19 this restructuring, is because it does enable us to 20 realize a lower cost of financing on a fairly 21 significant part of the financing. And getting the 22 most efficient borrowing costs has been a key 23 consideration of putting the financing together. 24 Q. Just so I think it can be clear to the 25 Commissioners, that involves two real estate assets 107 HALKYARD-O'GARA 1 here in Atlantic City? 2 A. That's right. 3 Q. And several in Las Vegas; is that 4 correct? 5 A. That's right. Several in Las Vegas, 6 including the Rio and the Flamingo, and Harrah's, and 7 then also some of the our businesses in Northern 8 Nevada. 9 Q. With the exception that the remainder of 10 Harrah's will stay as they are? 11 A. That's right. 12 Q. And you mentioned also there would be 13 unsecured notes? 14 A. Yes. Yes. 15 Q. Now, does this -- you've had a chance to 16 look at the terms of these financing. Do they compare 17 favorably with similar transactions that have gone on 18 in the gaming and leisure industry in the recent past? 19 A. Absolutely. 20 Q. In terms of the cost? 21 A. I think -- I think so. I think the cost 22 of the financing is favorable compared to other 23 transactions that have been done in our industry. I 24 think it's a direct reflection of the size and the 25 diversification of our company. And the financial 108 HALKYARD-O'GARA 1 leverage that we're taking on as a result of this 2 transaction is actually lower, in some cases 3 substantially lower, than those of other transactions 4 like ours, which also is reflected in more competitive 5 cost financing. 6 Q. Now, if Harrah's were to dispose of any 7 assets, if that were to occur, with respect to the 8 CMBS financing and the convention financing, if there 9 was a disposition of the CMBS asset, how would that 10 the proceeds from the sale of an asset work in terms 11 of -- say you were to sell one of your Northern Nevada 12 properties as secured by the CMBS? How does that work 13 if there were a disposition of that? 14 A. If one of the -- if one of the 15 properties that is secured by the CMBS financing is 16 sold then the proceeds would be used to reduce those 17 loans. In the case of any other property, the debt 18 instruments that -- really the senior secured bank 19 facility, it has some provisions that would require a 20 portion of those proceeds to retire the loan but not 21 all. 22 Q. Now, are you satisfied that this 23 financing arrangement provides adequate liquidity for 24 Harrah's going forward from the day of the closing? 25 A. That has been -- I am. That has been 109 HALKYARD-O'GARA 1 the key consideration in establishing the financing, 2 is that for the interests of the company that we have 3 the flexibility to continue to grow business, not only 4 to complete the projects that we are currently under 5 way, but to invest in new projects and maintain our 6 businesses. 7 Q. And on the date of closing, will you 8 have an undrawn revolver available at Harrah's? 9 A. Yes. I failed to mention that. We have 10 a $2 billion revolving credit facility, which is 11 essentially a adjunct to the $7 billion bank facility 12 which we expect to be undrawn at closing. 13 Q. So day after closing, there's $2 billion 14 there available to draw on -- 15 A. Right. 16 Q. -- as you see fit. 17 A. Our company has always maintained a 18 sufficient amount of liquidity because of our -- the 19 opportunities that come before us to invest, to build 20 our business. And going forward it will be no 21 different, so I think having that liquidity is 22 important. 23 Q. Now, in conjunction with the approvals 24 that you've sought here, and I think a lot of other 25 places, you've given some rather elaborate forecasts 110 HALKYARD-O'GARA 1 along with the sponsors. In those forecasts do you 2 contemplate the prearranged payment of any dividends 3 of cash up from Harrah's to the sponsors? 4 A. No, we do not. 5 Q. And is there, in fact, a fee that's 6 being paid to the sponsors that you're aware of? 7 A. Yes. Yes. As I think Gary mentioned, 8 they'll be a management fee or monitoring fee paid to 9 the sponsors. We expect it will be approximately one 10 percent of our EBITDA, which is a -- it's fairly 11 typical to do that, to have that type of -- 12 Q. You mention one percent of your EBITDA? 13 A. Yeah. That's -- I agree with you. I 14 don't think it's finally determined, but it's in that 15 range. 16 Q. Is that material to -- material to a 17 significant expense of Harrah's? 18 A. One percent of EBITDA is not. I don't 19 consider it material. 20 Q. You're going to continue as CFO of this 21 company following the closing; correct, Mr. Halkyard? 22 A. Yes. 23 Q. Optimistic; right? 24 A. Yes. 25 (Laughter.) 111 HALKYARD-ADAMS 1 Q. Are you comfortable with the fact that 2 your company is going to be financially stable and 3 flexible to respond in this and all the other 4 marketplaces? 5 A. Absolutely. Absolutely. The 6 combination -- first of all, just the stability of our 7 business has proven by our performance and the 8 flexibility of the capital structure. I'm very 9 comfortable that we have -- that the company remains 10 very stable financially, and we can weather a storm or 11 continue to seize on opportunities that we see. 12 MR. O'GARA: I don't have any other 13 questions. 14 CHAIR KASSEKERT: Mr. Adams? 15 MR. ADAMS: Thank you, Chair. 16 17 CROSS-EXAMINATION BY MR. ADAMS: 18 Q. Let me just pick up right on that last 19 statement. That it's my understanding that Harrah's 20 will wind up with approximately twice as much debt 21 after this transaction occurs as is currently in debt. 22 Can you address that in some of the comments you just 23 made about the company's nonetheless still being 24 financially stable as far as you're concerned. 25 A. That is true. Our debt is going to go 112 HALKYARD-ADAMS 1 from approximately $12 and a half billion when we 2 close to 25 after -- after we close this deal. Our 3 company has historically, certainly in my time as 4 treasurer and now as CFO, had a very conservative 5 capital structure. And so while the magnitude of the 6 change is dramatic, the end point that we'll find 7 ourselves at post closing is not worrisome at all for 8 me. 9 And we -- we tested this through a 10 variety of different scenarios in our business. And 11 we've experienced through the hurricanes in the Gulf, 12 as well as other issues in our business, we've 13 experienced volatility in our operations. So it's 14 something that we can -- I think we can go into this 15 with a great deal of confidence, that even with this 16 increased debt load that we will have a great deal of 17 financial stability. 18 Q. Right. So you took into consideration 19 with the forecasted numbers the different scenarios 20 that you were just talking about? 21 A. Absolutely. 22 Q. And even taking those into 23 consideration, you still feel there is more than an 24 ample cushion to get you through any of these tough 25 times? 113 HALKYARD-ADAMS 1 A. Yes. 2 Q. Would that be a fair statement? 3 A. Yes. 4 Q. Can you just briefly describe, if you 5 can, your understanding of the real estate loan and 6 the mezzanine loans that are involved in this 7 transaction? 8 A. In terms of in the actual -- 9 Q. How that -- 10 A. -- CMBS facility. 11 Q. Yes. In relation to the overall CMBS 12 facility. There's a portion that are going to be 13 mezzanine loans? 14 A. Uh-huh. Yeah. 15 Q. Is that correct? And now I think we're 16 up to as many as nine potential entities involved in 17 the mezzanine loans -- 18 A. Uh-huh. 19 Q. -- versus the other. Can you break down 20 the percentage at this point of what you anticipate is 21 going to be what? 22 A. No. We -- yes. We don't. 23 Q. It's still evolving? 24 A. That's still evolving in terms of the 25 loans that would be attributable to the mezzanine as 114 HALKYARD-ADAMS 1 opposed to the actual property loans. 2 Q. Am I correct that the actual bulk of it, 3 as far as you understand it, is -- will be the 4 nonmezzanine loans? 5 A. That's right. Yes. 6 Q. And why is that? If you can elaborate 7 on that. 8 A. It's driven principally by the way that 9 these loans are ultimately syndicated out to the 10 market, that you have the mezzanine, and then the 11 property loan structure. They'll be in the majority 12 of the property. 13 Q. Now, is there a difference in interest 14 in the two loans? 15 A. To Harrah's Entertainment there is. To 16 Harrah's there is not. 17 Q. Right. Let's just talk briefly about 18 the fees that Mr. O'Gara had questioned you about. 19 Are you familiar with the fee structure 20 as it's concurrently proposed that they are going to 21 be paid in this particular matter? 22 A. Are you talking about the fees between 23 Harrah's and its sponsors? 24 Q. Yes. Yes. 25 A. I'm familiar with our general thinking 115 HALKYARD-ADAMS 1 around the fees. 2 Q. All right. So that is still in a state 3 of flux at this point as to what the bottom line might 4 be? 5 A. Yes. As far as I know, it is. 6 Q. It's your understanding those fees will 7 be paid by Harrah's; is that correct? 8 A. Yes. Yes. 9 Q. And that that -- those fees will flow up 10 to the sponsors; is that correct? 11 A. Yes. Although to which entity right now 12 I don't know. 13 Q. You don't know? 14 A. I don't know. 15 MR. ADAMS: Just give me one second. 16 CHAIR KASSEKERT: Sure. 17 (Conferring.) 18 Q. Now, there's a large amount, 19 approximately a billion dollars of fees and expenses 20 involved in this transaction. 21 A. Uh-huh. 22 Q. Are you familiar with those? 23 A. Yes. 24 Q. Can you just generally describe what 25 they entail? 116 HALKYARD-ADAMS 1 A. They entail -- there are several 2 different buckets. The largest portion of those are 3 financing fees associated with the commitments that 4 the -- underlying the financing structure. There's a 5 portion of it that will be used to fund the Harrah's 6 deferred compensation plan, top off the funding of 7 that plan. There will be fees paid to the sponsors as 8 well as in connection with the transaction. Those are 9 the major buckets. There will be some legal and 10 accounting and consulting fees as well. 11 Q. Right. 12 With respect to some of those fees, will 13 that have any impact on taxes paid by Harrah's here in 14 New Jersey? 15 A. Well -- no -- no direct impact that I 16 can think of right now. 17 Q. How about with respect to interest paid 18 on the transaction or involved in the financing of 19 this transaction, a LIBOR and the rates there? 20 A. On taxes paid here in New Jersey? 21 Q. Yes. Would it have any effect, in your 22 opinion, at all? 23 A. No. Not that I know of. 24 MR. ADAMS: I have nothing further. 25 CHAIR KASSEKERT: You are going to pay 117 HALKYARD 1 your taxes in New Jersey? 2 THE WITNESS: Yes. 3 CHAIR KASSEKERT: I know Mr. O'Gara 4 talked a little bit about the two billion 5 revolver and, obviously, that's something that 6 could be utilized if your operating results 7 fall short of your forecast. 8 THE WITNESS: Uh-huh. 9 CHAIR KASSEKERT: What other flexibility 10 would have if your forecasts don't come to 11 pass? 12 THE WITNESS: You know, we always have 13 flexibility in our capital spending. 14 CHAIR KASSEKERT: Uh-hum. 15 THE WITNESS: Around our business. We 16 have flexibility in other development projects 17 that are currently -- currently under way or 18 contemplated. Really those contemplated. But 19 I have to tell you, the predictability of our 20 operating performance is something that is -- 21 at least in my experience, surpasses any other 22 business that I've been involved with. We have 23 a -- you know, we are a company that was able 24 to issue a billion dollars of new debt 25 financing right after Katrina -- 118 HALKYARD 1 CHAIR KASSEKERT: Uh-huh. 2 THE WITNESS: -- hit our operations and 3 right before Rita was hitting the Gulf. That 4 was solely because of the diversity of our -- 5 the diversification of our company's cash flows 6 and the confidence that investors in our 7 company have with our ability to deliver those 8 operating results. So our greatest flexibility 9 is in that performance. And, certainly, the 10 magnitude of this revolving credit facility, I 11 think, is more than sufficient to handle any of 12 those hiccups. 13 CHAIR KASSEKERT: Thank you. 14 Questions from the Commissioners? 15 Commission Sommeling? 16 COMMISSIONER SOMMELING: What plans does 17 your company have for the undeveloped land in 18 Las Vegas? 19 THE WITNESS: That's a big question. 20 Our -- we have announced, Commissioner, a plan 21 to develop an arena in Las Vegas on land that's 22 presently really just surface parking just east 23 of the Las Vegas Strip. Beyond that, we are in 24 the process of doing a lot of master planning 25 for the other real estate. Really, the only 119 HALKYARD 1 piece of real estate at this point that we are 2 not spending a good deal of time planning for 3 is a fair amount of real estate that we have at 4 the Rio, which is on the other side of I-15 in 5 Las Vegas. 6 COMMISSIONER SOMMELING: And what about 7 the land that you've acquired in Macau? 8 THE WITNESS: Our plan in Macau is to 9 operate the best golf course in Macau. 10 (Laughter.) 11 COMMISSIONER SOMMELING: No further 12 questions. 13 CHAIR KASSEKERT: Commissioner Epps? 14 COMMISSIONER EPPS: With a debt load 15 level that is basically doubled, you still 16 suggest that there's no foreseen asset 17 dispositions in the offing, at least not on the 18 current horizon? 19 THE WITNESS: That's correct. 20 COMMISSIONER EPPS: Not on the current 21 horizon? 22 THE WITNESS: That's correct. 23 COMMISSIONER EPPS: Okay. Another 24 question I had is the way I understand the CMBS 25 financing breaking up the company, particularly 120 HALKYARD 1 in Atlantic City. 2 THE WITNESS: Uh-huh. 3 COMMISSIONER EPPS: Harrah's which would 4 become an OPTCO. 5 THE WITNESS: Uh-huh. 6 COMMISSIONER EPPS: And Showboat would 7 become an OPTCO. They don't become parties to 8 a pooled group. They kind of function on their 9 own, and they have obligations that they have 10 to satisfy. And if I read it correctly, the 11 burden on those companies increases. Are you 12 comfortable that they have the ability to 13 satisfy those increased burdens functioning by 14 themselves? Or am I -- 15 THE WITNESS: I don't view it, really, 16 as their burden increasing. Their burden 17 changes. Because on the one hand, they will be 18 leasing these facilities in a way. On the 19 other hand, the property companies, along with 20 the other CMBS property companies, will be 21 separately financed with this large CMBS 22 facility. 23 COMMISSIONER EPPS: But isn't it fair to 24 say that the property companies are a group? 25 THE WITNESS: Yes. 121 HALKYARD 1 COMMISSIONER EPPS: And they get to pool 2 resources, and they can help each other? 3 THE WITNESS: Yes. 4 COMMISSIONER EPPS: But the OPTCO is not 5 part of a group. They have to function and 6 meet their obligations on their own. 7 THE WITNESS: That's correct. 8 COMMISSIONER EPPS: And are you 9 satisfied -- 10 THE WITNESS: Yes. 11 COMMISSIONER EPPS: -- that the two 12 OPTCOs will be able to sustain their 13 obligations where -- without any ability to 14 reach over into a pool? 15 THE WITNESS: Yes, I am. They will 16 be -- the entire lease structure is designed in 17 such a way so that we have a great deal of 18 confidence they'll be able to do that. 19 COMMISSIONER EPPS: Now, the fee of -- 20 that you indicate is at best guess right now 21 one percent of the EBITDA. It's paid by 22 Harrah's at the entity that is Harrah's after 23 all of the different companies, I guess, send 24 their money up? 25 THE WITNESS: That's right. That's 122 HALKYARD 1 right. 2 COMMISSIONER EPPS: Okay. And then, 3 lastly, just some clarification on the 4 mezzanine loans. There are subordinated 5 mezzanine loans, if you will. 6 THE WITNESS: Uh-huh. 7 COMMISSIONER EPPS: They kind of 8 compound on top of each other? 9 THE WITNESS: Uh-huh. 10 COMMISSIONER EPPS: Can you explain 11 briefly how that compounding process works, the 12 ones that stack upon each other? 13 THE WITNESS: Well, they are -- they are 14 there -- their existence really is a function 15 and a way to facilitate the ultimate 16 distribution of the CMBS loans out to the 17 market. 18 COMMISSIONER EPPS: Okay. That was all 19 I had. 20 CHAIR KASSEKERT: Commissioner Frulio? 21 COMMISSIONER FRULIO: There's been 22 assumptions about the closing date of December 23 31st. 24 THE WITNESS: Uh-huh. 25 COMMISSIONER FRULIO: When do you feel 123 HALKYARD 1 that they'll be a closing of this acquisition? 2 THE WITNESS: Well, we feel -- we feel 3 that's still certainly a possibility. We're -- 4 right now, obviously, in the process of our 5 regulatory approval. We're at the beginning of 6 that process. It unfolds over the next nine 7 weeks, eight or nine weeks. So I think that 8 our determination on the actual timing of close 9 will probably not come until later in the 10 process, but that it will be in either December 11 or early 2008. 12 COMMISSIONER FRULIO: Thank you. 13 CHAIR KASSEKERT: Anything else? No? 14 Commissioner Epps? I think you had 15 another question. 16 COMMISSIONER EPPS: I did briefly. 17 The merger agreement suggests that the 18 closing happen -- the closing date has to 19 coincide or occur during a marketing -- a 20 marketing period. Can you briefly explain what 21 that marketing period is? What occurs in that 22 period? 23 THE WITNESS: The way it works is that 24 the merger agreement that -- you are correct, 25 Commissioner -- contemplates a marketing period 124 HALKYARD 1 of 25 days that is -- that is due to occur 2 after the satisfaction of all the closing 3 conditions, which are mainly the regulatory 4 approvals. So it is a period after the 5 regulatory approvals are obtained for the 6 sponsors to secure the financing for the 7 transaction. 8 COMMISSIONER EPPS: All right. 9 THE WITNESS: Now, in the merger 10 agreement, there is a suspension of that period 11 or the clock over the holidays to accommodate 12 the realities of the financing market over the 13 holidays, but that's essentially what it is. 14 COMMISSIONER EPPS: And then if the 15 closing does not occur on time, there's an 16 increase in the amount paid to the shareholders 17 for periods continuing on. 18 THE WITNESS: There is a -- there is a 19 date -- I believe the date is in March -- where 20 if the closing has not occurred by that time, 21 where there is a -- where there is a daily 22 essentially increase in the price paid to the 23 shareholders. 24 COMMISSIONER EPPS: Are we relatively 25 comfortable -- 125 HALKYARD 1 THE WITNESS: Yes. 2 COMMISSIONER EPPS: -- that will not be 3 an impact? 4 THE WITNESS: Yes. 5 COMMISSIONER EPPS: And I believe there 6 are shareholders that have a right to seek 7 another option with respect to their -- seeking 8 an assessment of their value of their stock as 9 opposed to just accepting the payment? 10 THE WITNESS: I don't -- I don't recall 11 that provision in the merger agreement. 12 COMMISSIONER EPPS: Okay. 13 THE WITNESS: But it's a -- it's 14 certainly an eventuality we don't expect to 15 occur at all. 16 COMMISSIONER EPPS: Doesn't. Okay. All 17 right. That's all. 18 CHAIR KASSEKERT: Mr. O'Gara, anything 19 on redirect? 20 MR. O'GARA: No. 21 CHAIR KASSEKERT: Mr. Adams? 22 MR. ADAMS: No. 23 CHAIR KASSEKERT: You may step down. 24 Thank you. 25 Call your next witness. 126 PRESS-O'GARA 1 MR. O'GARA: Eric Press. 2 3 ERIC PRESS, was duly sworn to testify in 4 this matter. 5 6 MR. NANCE: Please state your name for 7 the record. 8 MR. PRESS: Eric Press. 9 MR. NANCE: Thank you. 10 CHAIR KASSEKERT: You may proceed. 11 12 DIRECT EXAMINATION BY MR. O'GARA: 13 Q. Mr. Press, you are, in fact, a partner 14 in one of the sponsors; is that correct? 15 A. That is correct. 16 Q. And which would that be? 17 A. Apollo Management. 18 Q. Congratulations. 19 You are the first of the private equity 20 people to talk about in the room that actually talk 21 about something he owns. 22 (Laughter.) 23 Q. What is a Apollo, Mr. Press? 24 A. At its simplest, Apollo is a fund a 25 private equity fund. The best way to think about 127 PRESS-O'GARA 1 Apollo is we are a long-term partnership between two 2 groups. Those two groups are our limited partners. 3 The investors in our funds who provide the capital and 4 the general partners, or the group including myself 5 and my partners who actually invest in money on behalf 6 of the limiteds. 7 Our limited partners are typically large 8 public and private pension funds and endowments and 9 other financial institutions. These include the New 10 Jersey Department of the treasury. They include 11 General Motors, institutions like St. Jude's 12 Children's Hospital, Princeton. These investors 13 commit a very a large quantity of capital to our 14 funds, sometimes hundreds of million of dollars 15 apiece. And what is important about that commitment 16 is it's done on a blind-trust basis. They gave us 17 that money, and they have no discretion in terms of 18 how we invest it. And they give it to us on a 19 ten-year or more basis. Very long period of time, 20 trusting the sponsor to invest it wisely. The general 21 partners of the funds are the employees of Apollo and 22 TPG. And we also, as individuals, have significant 23 investments in these funds. We believe it's 24 important, as do our investors to put our money where 25 our mouth is and stand behind the investments that we 128 PRESS-O'GARA 1 make. 2 Similar to the relationship with our 3 limited partners, we approach all of our investments 4 with a long-term perspective and look to invest in 5 very high-quality businesses and management teams, 6 companies who are leaders in their industry and have a 7 potential for long-term and meaningful growth. 8 By taking a long-term approach outside 9 of the purview of the public markets, the companies 10 that we invest in are often able to make better 11 decisions for the long-term success of these 12 businesses then they might be if they are under public 13 pressure to produce results on a quarterly basis. We 14 believe that in the current market environment, we are 15 the capital that will allow companies such as Harrah's 16 to invest for the long term and make sense of economic 17 and capital decisions surrounding their assets. 18 Q. When was Apollo founded, Mr. Press? 19 A. Apollo was founded in 1990. 20 Q. And could you give us an idea of 21 approximately right now all of the Apollo funds, how 22 much money does Apollo presently manage roughly? 23 A. Right now, I believe we manage over $35 24 billion. That number will be closer to $44 billion 25 after finishing the completion of raising of new 129 PRESS-O'GARA 1 funds. 2 Q. And Apollo is founded by Leon Black; is 3 that correct? 4 A. That is correct. 5 Q. And can you give us some idea of some of 6 the portfolio companies, you know, that people would 7 recognize immediately that are and/or have been in the 8 Apollo portfolio? 9 A. Yes. Apollo invests in a variety of 10 businesses. Some of those businesses are industrial 11 businesses, chemical companies that are not household 12 names. We also do invest in a number of consumer 13 oriented businesses that you may have heard of. Our 14 portfolio has included over periods of time companies 15 such as General Nutrition Centers, AMC Movie Theaters, 16 and Vale Ski Resorts. 17 Q. Now, I think that you've heard -- sat 18 here and heard there's a lot of focus on the capital 19 intensity of the gaming industry and the costs 20 involved. You've been invested in businesses like 21 that before. I believe Vale Resorts was one of them. 22 Can you describe for us a little bit of the history of 23 Apollo's investment in Vale and how that ultimately 24 ran its course? 25 A. Sure. There are actually some 130 PRESS-O'GARA 1 interesting parallels between our investment in Vale, 2 which was one of our earliest and longest held 3 investments, and the Harrah's investments. When we 4 came to acquire control of Vale, we were coming into a 5 situation where Vale was the -- Vale Resorts was the 6 largest employer in its town. It was by far the most 7 important economic entity in that town. And people 8 were extraordinarily suspicious of those guys from New 9 York who all of a sudden owned them. And what I would 10 say is that by the time we sold our investment more 11 than ten years later, a very long-term hold period, I 12 don't think people could remember a time in Vale when 13 Apollo had not been associated with the resort. 14 And part of the reason for that is we 15 pursued with Vale very much the type of strategy that 16 Gary Loveman and his team have for Harrah's. It was a 17 long-term program of capital investment and growth. 18 So that we used to joke that when we acquired Vale, it 19 was a big pile of snow with some chair lifts. It was 20 obviously more than that at the time. But what we did 21 over the ten years that we controlled it, the ten or 22 more years that we controlled it, is we developed 23 hotels, condominiums, restaurants, spa facilities, 24 golf, retail, and built up a major international 25 resort destination. That took a lot of patience. It 131 PRESS-O'GARA 1 took a lot of effort. It also took a lot of capital. 2 But in the process we created jobs. We created a 3 major destination resort. And I think we've 4 demonstrated, as I think we've continued to 5 demonstrate with our other investments, not only 6 staying power and a desire to make money over a long 7 period of time but also our clear understanding that 8 the best way to make money is to invest in those 9 assets and grow them. 10 Q. Mr. Press, what considerations led 11 Apollo to decide to make the investment of the 12 magnitude they are in Harrah's Entertainment? 13 A. There were a number of characteristics. 14 I would say that they -- those characteristics are 15 generally very similar to some of our other successful 16 investments. Harrah's is a leader in its industry. 17 We believe that its management team is by far the most 18 talented in its industry. The company has a very 19 strong portfolio of brands, a very impressive 20 portfolio of assets. And we believe it has some 21 phenomenally interesting growth opportunities across 22 that portfolio, places where Harrah's and its 23 management team can invest capital. 24 Ultimately, in our businesses, we are in 25 the business of growing the dollars that we invest in 132 PRESS-O'GARA 1 the company. So when we find an industry leader with 2 a top-notch management team with the opportunity of 3 and potential of capital growth and further 4 investments, we get very excited. We think Harrah's 5 has all of those attributes. 6 Q. Mr. Press, you described that your 7 limited partners, your investors, you described what 8 kind of people they are. How do investors in Apollo 9 realize gain on their money? When they gave you money 10 to manage, what do you do -- and how do they make 11 their money? 12 A. Sure. Going back to what I said 13 earlier, the investors who give us their money do it 14 on a blind-trust basis. They give it to us, and they 15 don't get it back until we give it back to them. The 16 time that we give it back to them is really when we 17 sell a particular investment or we otherwise amortize 18 it. Or if the investment happens to be one that pays 19 dividends, that cash from the sale of the business or 20 dividends is distributed to our partners. So not 21 until there is some sort of transaction involves an 22 amortization do we distribute any money back to our 23 limited partners. 24 Q. And how, in fact, do the partners of 25 Apollo -- how do they realize gain on these 133 PRESS-O'GARA 1 transactions? In addition to the fact you've invested 2 your own capital. 3 A. Sure. 4 Q. Are there other ways in which you 5 realize your return? 6 A. Absolutely. Obviously, as I mentioned, 7 we are investors in all of our funds and make money if 8 and when the investment in the funds make money. We 9 also receive a share of the profits in a particular 10 fund, not on an investment-by-investment base but on 11 an aggregate fund basis. So if all of the investments 12 in the fund are profitable, then we will receive a 13 share of those profits. And that constitutes the vast 14 majority of the income that we as partners in Apollo 15 receive. 16 In addition to that, the management 17 company affiliated with the funds that is effectively 18 run by Apollo's partners also receives a management 19 fee on an annual basis from the limited partners. A 20 small percentage that is generally payable on an 21 annual basis, and it is based on the amount of capital 22 committed by each partner. 23 Q. The greater sum that you talked about 24 that's recognized on the gain, is this what's referred 25 to as "carried interest"? 134 PRESS-ADAMS 1 A. Yes, it is. 2 Q. What involvement will you, Eric Press, a 3 partner, have in the day-to-day management of Harrah's 4 Entertainment, Inc.? 5 A. None whatsoever. I will be a member of 6 the board of Harrah's going forward. And not unlike 7 any other board member of a public or private company, 8 I will have fiduciary and oversight responsibilities 9 typical of a board member of a large corporation. But 10 absolutely no day-to-day operational responsibilities 11 whatsoever. 12 MR. O'GARA: I don't have any other 13 questions for Mr. Press. 14 CHAIR KASSEKERT: Mr. Adams? 15 MR. ADAMS: Thank you, Chair. 16 17 CROSS-EXAMINATION BY MR. ADAMS: 18 Q. I'd like to focus first on the flow of 19 monies and how that works. 20 A. Sure. 21 Q. In terms of how money would flow back to 22 Apollo, whether it's management fees or whether it's 23 carried interest, or whether it's something else. Can 24 you describe that in a little more detail? 25 A. Yes. And probably the best way to do 135 PRESS-ADAMS 1 that is through an example. 2 Q. Right. 3 A. If we were to buy Harrah's at the end of 4 2007, and we were to sell Harrah's eight years later, 5 hopefully, if we did everything right and made a 6 prudent decision, there would be some profit 7 associated with that investment. 8 Q. Uh-huh. 9 A. We would -- let's assume at that point 10 we are selling the shares of stock that we own in 11 Harrah's? Perhaps we're selling it to the public in a 12 public offering. We collect money in exchange for our 13 shares, and we will return that money to our 14 investors. Some of that will be their original 15 investment. Some of that will be a distribution of 16 the profits. And as I mentioned before, a portion of 17 those profits will be paid to the partners of Apollo 18 in the form of carried interest. 19 Q. Okay. Now, aside from that general 20 description, on a year-to-year basis we've been 21 hearing testimony about management fees that are going 22 to be paid to the sponsors. 23 A. Right. 24 Q. Could you describe how that process 25 works? 136 PRESS-ADAMS 1 A. Yes. It is typical in private equity 2 transactions of this type for the sponsors to receive 3 a fee generally paid annually representing a -- what 4 in this case we believe -- or has not been finally 5 determined -- approximately one percent of the 6 company's EBITDA. I don't know whether that fee will 7 be paid annually or quarterly, but we generally think 8 of it as an annual monitoring fee for the investment. 9 Q. Okay. But that fee would -- as far as 10 you understand right now, that fee is going to be paid 11 by Harrah's? 12 A. Correct. 13 Q. And it would flow up to, let's say, a 14 company in the Apollo -- 15 A. That's correct. 16 Q. -- chain; is that correct? 17 A. That is correct. 18 Q. Okay. Have there been any discussions 19 that you've been privy to as far as finalizing that at 20 this point? 21 A. Not that I'm aware of. 22 Q. All right. You said you are going to be 23 on the Board of Directors of Harrah's; correct? 24 A. Correct. 25 Q. And three other people from Apollo as 137 PRESS-ADAMS 1 well as yourself would be on it; correct? 2 A. Correct. 3 Q. And there will be four from TPG. I 4 think you were here when I was questioning Mr. Loveman 5 about four, four, and one. Has there been any 6 discussion that you can tell us about with respect to 7 any committees and whether you will serve on any of 8 those committees of the board? Or how do you envision 9 that working out at this point? 10 A. To my knowledge there's been no 11 discussion of the constitution of any committees. As 12 Gary mentioned earlier, we will certainly have an 13 audit committee and other committees typical for 14 companies of this size. But, to my knowledge, we have 15 not discussed how they will be composed. 16 Q. Okay. Let me just go back and talk 17 briefly about the fund idea that you already gave some 18 testimony about. As I understand it, in this 19 transaction, it was Apollo Fund VI? 20 A. VI. 21 Q. VI at this point? Is there typically a 22 life expectancy of a fund? 23 A. Yes, there is. In a typical private 24 equity fund, the fund life is somewhere around ten 25 years. Sometimes it's a little bit longer. 138 PRESS-ADAMS 1 Q. Would it be fair of me to say to you 2 that it's your -- it's your concept as a partner 3 involved in this transaction that you're going to be 4 in this transaction for anywhere from at least five to 5 ten years? 6 A. Yes. That is correct. 7 Q. Okay. Actually a long -- longer term, 8 longer range commitment as you described as an 9 investor? 10 A. Correct. 11 Q. Other than the fund, there are certain 12 co-investors that are allowed to invest in this 13 transaction; is that correct? 14 A. Yes. 15 Q. Are they subject to the same term that I 16 just talked to you about with respect to the operation 17 of this fund? 18 A. They are. And in general in order to 19 become a co-investor in this transaction, those 20 co-investors are required to sign an agreement with us 21 that essentially delegates all control over their 22 co-investment to TPG and Apollo. In very similar way, 23 frankly, to the way that our limited partners allow us 24 control of their investment. 25 Q. Now, the entity that will control the 139 PRESS-ADAMS 1 vote -- voting shares, as I understand it, is now in 2 Hamlet Holdings Liability; is that correct? 3 A. Correct. 4 Q. You are not involved with that company; 5 is that correct? 6 A. I am not. 7 Q. Nonetheless, as I understand it, I 8 assume you might be familiar with the fact that there 9 might be three Apollo people and three TPG people? 10 A. Correct. 11 Q. Are you familiar with how that will 12 operate vis-a-vis Harrah's Entertainment of which you 13 will be a board member? 14 A. The entity that has been set up, what 15 you're referring to will be the entity in which 16 ultimately controls all of the voting decisions 17 associated with the ownership of equity interests in 18 Harrah's. That is the sole function of that entity. 19 The board of Harrah's will function in much the way 20 any corporate board will function. 21 Q. Do you have any knowledge as to how if 22 there is a deadlock at Hamilton -- at Hamlet Holdings, 23 how that will be broken if there was a three/three 24 split? 25 A. To my knowledge there is no specific 140 PRESS-ADAMS 1 framework for resolving deadlocks. However, I will 2 tell you, and I think it's a very relevant point for 3 the Commissioners as well, that in all of our 4 discussions with TPG -- at least the ones that I've 5 been privy to about this investment -- the notion of a 6 deadlock or a disagreement has not come up. And part 7 of the reason for that is we in TPG have a very 8 similar, I would almost go so far as to say an 9 identical view of Harrah's as a financial investment 10 for many of the reasons that I enunciated earlier in 11 terms of the quality of the management team, the 12 growth potential, the ability to compound our money 13 over a very long period of time by leaving it in this 14 investment. 15 I would also say that over the nearly 12 16 months since this transaction was signed, we've had 17 multiple opportunities, as you can imagine, to discuss 18 with TPG and also the management team at Harrah's 19 various investment opportunities, to hear from Gary 20 Loveman and his team what they would like to do with 21 the company. And I can't really recall any instance 22 where we in TPG did not see eye to eye on what the 23 company should be doing next. It really, in my mind, 24 is not a particularly complicated investment from that 25 perspective. And that probably explains why this 141 PRESS-ADAMS 1 whole notion of deadlocks has not come up. 2 I would also, in responding to your 3 question, add that there are personal relationships 4 between the individuals who head both of our firms, 5 and I personally cannot anticipate any difficulty. 6 Q. Is there anything that you're aware of 7 which would indicate that if such a deadlock were to 8 occur that ultimately Mr. Black and Mr. Bonderman 9 would be the arbiters of that deadlock? 10 A. My assumption is that Mr. Black and Mr. 11 Bonderman would be the arbiters along with the other 12 senior partners of their firms who are part of Hamlet 13 Holdings. 14 Q. One last question about dividends. Is 15 there any contemplation in your mind at this point 16 about the payment of dividends from Harrah's to 17 ultimately the limited partners in the investments? 18 A. No. We have not contemplated that in 19 our financial plan. 20 Q. Okay. Is there any contemplation that 21 if funds were needed with respect to this investment 22 that an additional Apollo fund would be created to 23 address that? 24 A. There's no current contemplation of 25 doing that. 142 PRESS-ADAMS 1 Q. Is that possible? 2 A. Let me answer the question this way. 3 Over the 17 years or so Apollo has been in business, 4 one of the best uses of our firms' investment capital 5 has been to invest it in existing portfolio companies 6 where we see other new opportunities to put capital to 7 work, whether it's in connection with an expansion 8 project or an acquisition. And it is certainly 9 possible that over the term of our ownership of 10 Harrah's that we might see such an opportunity, in 11 which case as the general partners in our fund we have 12 the right to ask our investors for additional capital. 13 But I know of no specific plans to do so. 14 MR. ADAMS: I have nothing further. 15 CHAIR KASSEKERT: Thank you. 16 Beyond just this Harrah's transaction, 17 why gaming in general? What's the attraction 18 for private equity in gaming? 19 THE WITNESS: I would actually take you 20 back to the example that I gave of Vale Ski 21 Resorts. 22 CHAIR KASSEKERT: Uh-huh. 23 THE WITNESS: If you think about what we 24 did in Vale, we had a destination-based 25 attraction where all of the ancillary services 143 PRESS 1 that we developed around a ski resort, whether 2 they were restaurants or hotels or golf courses 3 or retail opportunities, all of those 4 additional amenities were designed to allow 5 Vale to profit from the fact that the customers 6 were coming to that particular destination. 7 Much better to operate the hotel yourself or 8 have a financial interest in the hotel yourself 9 as long as people are going to be coming. Much 10 better, frankly, regardless of who owns the 11 hotel to make sure you have an attractive set 12 of entertainment opportunities around your core 13 asset in order to continue to attract more and 14 more customers to your site. 15 What we have seen in the gaming space, 16 broadly speaking, is that gaming has 17 transitioned and is still in a state of 18 transition, in our view, to a much more 19 mainstream form of entertainment. So that when 20 you see people coming to Atlantic City or Las 21 Vegas or other casinos within the Harrah's 22 portfolio, they are no longer coming solely to 23 gamble. They are often bringing their 24 families. They are even in some cases bringing 25 their children. They are staying in hotels. 144 PRESS 1 They're eating in fancy restaurants. They are 2 enjoying other forms of mainstream 3 entertainment. And that is a business model 4 going all the way back to Vale, which was one 5 of our very first investments, that we have 6 made money behind in the past. It's a business 7 model that we understand. And this whole 8 notion of destination-based entertainment is a 9 very important trend, as we see it, in the 10 gaming industry. And that more than the 11 specific gaming aspect of it itself is what has 12 its interests, too. 13 CHAIR KASSEKERT: Now, you testified 14 with respect to the day-to-day operations. You 15 know, that you will have no involvement 16 whatsoever, neither yourself or TPG. But 17 you're going to sit on the board of directors 18 with Gary Loveman. Now, what if he does 19 something you really don't like? 20 (Laughter.) 21 CHAIR KASSEKERT: In terms of the 22 management of one of the properties? 23 THE WITNESS: I would say two things. 24 One is that on any board of directors, whether 25 it is a public company board or a board that's 145 PRESS 1 populated predominantly by members of private 2 equity firms, if you are a director and the 3 members of the management team does something 4 you don't like, you're probably not shy and 5 you'll probably tell them. That's very 6 different from being involved in day-to-day 7 operations, obviously. 8 I would also say that in terms of the 9 role that we do try to play constructively as 10 board members is we all bring industry and life 11 and investment experiences to our board, and we 12 try to act as a sounding board for management. 13 So that the when CEO or CFO or the general 14 counsel of the company has an idea or a problem 15 or a thought in terms of where they'd like to 16 take the business, we try and act as a -- a 17 funnel for that discussion and try to provide 18 the advice where we can. 19 CHAIR KASSEKERT: Thank you. 20 Questions? Commissioner Frulio? 21 COMMISSIONER FRULIO: I've got one. 22 I have a question here that Mr. Loveman 23 answered before, but I want to hear it from a 24 private equity guy from the Big Apple. 25 THE WITNESS: Okay. 146 PRESS 1 COMMISSIONER FRULIO: And that is: Can 2 you give this commission any assurances that 3 your company will not follow suit of a private 4 equity firm that has recently entered the 5 Atlantic City market and has drastically 6 reduced its workforce at the expense of 7 customer service as reflected by consistently 8 negatively month over month gaming revenue 9 figure? 10 THE WITNESS: I can't speak to what 11 other companies have done in this market, 12 obviously. But I can tell was our intentions 13 are. 14 COMMISSIONER FRULIO: Go ahead. 15 THE WITNESS: We invested or made a 16 decision to invest in Harrah's because we have 17 a tremendous amount of confidence in Gary 18 Loveman and his team. His plans for the 19 business are our plans. We haven't changed a 20 thing. We don't currently intend to change a 21 thing. And Harrah's has pursued -- and, 22 frankly, part of the reason that we feel we 23 have such a great opportunity here is Harrah's 24 has pursued very consistently a strategy of 25 growing its assets and investing its assets. 147 PRESS 1 We see no reason why that would change in 2 Atlantic City. 3 CHAIR KASSEKERT: Commissioner Epps? 4 COMMISSIONER EPPS: One of the 5 apprehensions I think some folks may have with 6 respect to private equity companies, 7 particularly coming into the gaming market, is 8 kind of as you indicated in your testimony 9 earlier, you're in it -- a lot of times you're 10 in it for a short term, and then you look to 11 sell the assets to generate the profits that 12 your investors are looking for at the end of 13 that period. And for some -- for you guys, ten 14 years may seem a long time, but for some local 15 people, ten years may not. And knowing that 16 that type of company is coming in, in the back 17 of their mind they're always looking at I'm 18 going to be sold to somebody else, and they're 19 a little bit apprehensive. How do you allay 20 though fears that that -- it's not a process of 21 just getting something, shining it up, and 22 getting rid of it? 23 THE WITNESS: I think I would answer 24 that several ways. Frankly, one of the reasons 25 that we have this opportunity to invest in 148 PRESS 1 Harrah's is that the public markets saw Gary 2 Loveman and his team and their plans to invest 3 billions of dollars in the assets of Harrah's 4 over the next several years. And the public 5 markets didn't appreciate that, because the 6 public markets wanted to know what Gary was 7 going to do for them three months from now. 8 And that -- in our opinion, that was reflected 9 in the share price of Harrah's. 10 As a result, we came to the table and 11 are essentially adopting the very plans that 12 Gary has had all along to invest long-term in 13 those assets. We are, in my view, a much more 14 patient and long-term investor than the public 15 markets. And really the whole reason that 16 we're here is because we see a long-term plan 17 that we'd like to invest behind. So that is 18 one answer. 19 And the other which I would point out is 20 that relative to the institutional shareholders 21 of a typical public company who may trade in or 22 trade out where that board and the management 23 of that company may really have no idea who 24 their shareholders will be two weeks, two 25 years, or two months from now. We are here as 149 PRESS 1 a single investor. We can't leave until we 2 figure out a way to sell it. And I think that 3 in and of itself creates a tremendous amount of 4 stability around the asset. 5 Lastly, I would point out that the way 6 that we make money as partners in Apollo, as 7 mentioned earlier, is that we take a share in 8 the profits of the business. The best way for 9 us to get the most profits for ourselves, 10 speaking quite selfishly, is to take the pile 11 of money we invest on the front end and turn 12 that into the largest pile of dollars possible. 13 That generally involves trying to compound that 14 money over a very long period of time. 15 One of the things that I personally find 16 the most interesting about the gaming industry 17 generally and about Harrah's in particular is 18 the tremendous stability of the cash flows and 19 the growth potential that these assets have. 20 And so relative to a very cyclical business or 21 a business where you can't accurately predict 22 the future performance, we have an opportunity 23 here to invest our capital on day one and keep 24 it there for a long time, which is exactly what 25 we're incented to do from a profit-sharing 150 PRESS 1 standpoint. 2 COMMISSIONER EPPS: Do I hear you to say 3 that Apollo and TPG buying a stable and 4 successful company should give less angst than 5 Apollo and TPG coming in and buying a fledgling 6 company that was not necessarily doing very 7 well, and you would look at it from a different 8 investment -- it becomes a different investment 9 strategy? 10 THE WITNESS: I think there would be 11 some differences. Yes. But certainly in this 12 case we view this as an unusually good 13 opportunity to invest and hold for a very long 14 period of time. 15 COMMISSIONER EPPS: Okay. And, lastly, 16 do you think that Apollo/TPG with all of its 17 resources, and particularly given your Vale 18 scenario that you described, can benefit 19 Atlantic City as a whole by becoming part of 20 this market and helping it to become the 21 tourist destination that it seeks to become? 22 THE WITNESS: I would say yes. What we 23 are essentially doing as investors in Harrah's 24 is we are giving Gary Loveman and his 25 management team a chance to pursue the plan 151 PRESS 1 that they already have in place and to invest 2 capital. You've already seen some of the 3 capital investments that they have put into 4 Atlantic City, finishing the Harrah's project 5 right now as they are. But my general view is 6 that by being supportive of management and 7 management's plan, by definition that will wind 8 up being beneficial to Atlantic City because 9 Gary and his team are making long-term and 10 investment decisions for the growth of this 11 market. I would also say that as firms, Apollo 12 and TPG, are big, big believers in Atlantic 13 City. It is -- it provides a major portion of 14 the company's cash flow. And the success of 15 Atlantic City as a regional destination, as a 16 gaming market, is incredibly important to the 17 success of our investment. 18 CHAIR KASSEKERT: Commissioner Fedorko? 19 VICE CHAIR FEDORKO: Mr. Press, this is 20 our first dealings with a private equity 21 company firm. And I've asked Mr. O'Gara this 22 question before. How do you know who's 23 investing in your firm? What kind of 24 background checks do you do? 25 THE WITNESS: Sure. Many of the -- 152 PRESS 1 VICE CHAIR FEDORKO: I mean, I hope that 2 the New Jersey pension fund is sound. 3 (Laughter.) 4 THE WITNESS: I think they got a pass. 5 But the -- as you mentioned, most of the 6 investors in our funds are well-known public 7 institutions or the pension funds of private 8 corporations, so in some ways compared, I would 9 say to a public company, we really have no idea 10 who really owns your stock. We really have a 11 clear ideal of who our investors are. The 12 general counsel of Apollo performs a series of 13 due diligence checks. I'm not personally 14 familiar with exactly what they are, but a 15 series of due diligence checks on all 16 perspective investors in Apollo before they are 17 permitted to invest in the funds. 18 VICE CHAIR FEDORKO: Let me ask you 19 this. Without mentioning any names, have you 20 ever found anybody that you didn't want to have 21 any dealings with? 22 THE WITNESS: I personally am not aware 23 of whether that has happened or not, but it's 24 possible. 25 VICE CHAIR FEDORKO: Okay. Thank you. 153 PRESS 1 CHAIR KASSEKERT: Commissioner 2 Sommeling? 3 COMMISSIONER SOMMELING: Yes. Why was 4 the debt between Harrah's Operating Company and 5 the group of CMBS property split between CMBS 6 properties? 7 THE WITNESS: Why are we doing a CMBS? 8 COMMISSIONER SOMMELING: Why are you 9 doing it that way? 10 THE WITNESS: Sure. A couple of 11 reasons. I mean, one of the most basic is that 12 the amount of debt required to pursue this 13 transaction is -- frankly, it's a large number. 14 It's a large quantity of debt to place into the 15 markets at any one point in time. One of the 16 things that we at TPG like to think we do well 17 is arrange and structure financings very 18 efficiently. The buyers of CMBS debt are 19 typically a slightly different universe of 20 buyers than the investors in bank debt or 21 high-yield bonds. And as a result, it was our 22 view that we would get a more efficient 23 financing at overall lower rates of interest by 24 tapping into this separate real estate oriented 25 investment market. There was no real magic to 154 PRESS 1 it, other than we thought we could get a more 2 efficient financing at better rates. And we 3 happened to like the CMBS product a lot. 4 COMMISSIONER SOMMELING: And as sort of 5 like a follow-up to that, given the magnitude 6 of the debt outstanding after the acquisition, 7 are there any plans for any asset dispositions 8 to reduce debt levels? 9 THE WITNESS: We have no such plans. 10 COMMISSIONER SOMMELING: Okay. 11 CHAIR KASSEKERT: Thank you. Anything 12 on redirect? 13 MR. O'GARA: No. 14 CHAIR KASSEKERT: Anything on recross? 15 MR. ADAMS: No, Madame Chair. 16 CHAIR KASSEKERT: You can step down. 17 Any more witnesses, Mr. O'Gara? 18 MR. O'GARA: Yeah. Kelvin Davis. 19 20 KELVIN DAVIS, was duly sworn to testify 21 in this matter. 22 23 MR. NANCE: Please state your name for 24 the record. 25 MR. DAVIS: Kelvin Davis. 155 DAVIS-O'GARA 1 MR. NANCE: Thank you. 2 CHAIR KASSEKERT: You may proceed, Mr. 3 O'Gara. 4 5 DIRECT EXAMINATION BY MR. O'GARA: 6 Q. Mr. Davis -- are you with TPG? 7 A. Yes, I am. 8 Q. And are you a partner in TPG? 9 A. Yes, I am. 10 Q. In order to kind of follow the same 11 symmetry, can you just tell us a little bit about -- 12 we know how Apollo was founded and when, taking out of 13 order, when was TPG founded and by whom? 14 A. In 1992 founded by David Bonderman, Jim 15 Coulter, and Bill Price. 16 Q. And it's continuously functioned since 17 then? 18 A. That's correct. 19 Q. And do you know -- in all of its funds 20 right now, how much does TPG Capital own or manage? 21 A. We manage approximately $35 billion or 22 so. 23 Q. And you're a partner in that firm? 24 A. That is correct. 25 Q. In order to be efficient, does your firm 156 DAVIS-O'GARA 1 function in roughly the same way that Apollo does -- 2 (Laughter.) 3 Q. -- in terms of how you raise money and 4 where you get it and how you run it? 5 A. Yes. The structure of the firms and the 6 relationship we enjoy between ourselves and our 7 limited partners is very similar. We, in fact, share 8 limited partners to a certain extent, have similar 9 limited partners in many cases. We also support a 10 number of prominent instutional investors here in New 11 Jersey, including the New Jersey Common Fund. 12 Princeton Theatrical -- or Seminary, St. Jude's 13 Children's Research Hospital, et cetera. But the 14 structure of the firms are essentially the same. 15 That's correct. 16 Q. And do you, in fact, operate the same in 17 terms of how you, the partners of TPG, earn money and 18 how your investors owner money? 19 A. We do. We are -- the structure of our 20 limited partnership relationships are very similar, 21 and the forms of compensation and the incentives as 22 between ourselves and limited partners are extremely 23 similar. 24 Q. All right. Let me ask you. Why was 25 this investment attractive to TPG? Do you know? 157 DAVIS-O'GARA 1 A. Well, I think Eric Press did a nice job 2 outlining a number of the attractive characteristics 3 of Harrah's to us. First and foremost, the company 4 operates an industry which we find very attractive. 5 And as Eric said, one of the key questions we had to 6 address was our view of the Atlantic City market and 7 its chances for long-term prosperity. We certainly 8 appreciate some of the challenges the market is 9 experiencing today. But we are believers in Atlantic 10 City and the opportunities inherent in Harrah's 11 portfolio to over time continue to invest in this 12 market and see it prosper. 13 But certainly the overall environment in 14 the gaming industries both here in North America and 15 internationally we find very favorable. Needless to 16 say, the management team by Harrah's led by Gary, we 17 feel is exemplary, and the inherent opportunities to 18 leverage the customer service and the customer 19 relationship which this company enjoys across both his 20 existing assets and the prospects of new assets in its 21 existing jurisdictions and maybe others we found very, 22 very appealing. The diversified nature of Harrah's 23 portfolio is, we think, unprecedented. And the nature 24 of the properties their size and scale and the number 25 of them, the number of customers they serve, we think, 158 DAVIS-O'GARA 1 brings a particular stability and attractiveness to 2 this company that is quite unusual. 3 Q. Now, I think you've been able, sitting 4 here and listening to what's gone on in this hearing, 5 you know there's been a concern of capital intensive 6 nature of this business and the amount of capital 7 that's required to expand and continue to grow in 8 these marketplaces. Has TPG been involved in 9 portfolio companies which are incredibly capital 10 intensive in the past? 11 A. Yes. We have a whole host of them. 12 Many of them do business here in New Jersey. One 13 of -- of course, the most, I think, probably prominent 14 here is Continental Airlines, which, as you probably 15 know we, brought out of bankruptcy through 16 recapitalizing in 1993. Subsequently invested a very 17 significant amount of money in Continental and right 18 here in our significant hub in Newark to make that 19 airline a successful one under our leadership. But 20 whether it be Continental or J. Crew, the retailer, or 21 Burger King, the restaurant chain, or Neiman Marcus, 22 which has several stores here in New Jersey, we have 23 often owned businesses that require a great deal of 24 capital to fuel their growth. And in a very simple 25 way, the way that we continually make money in these 159 DAVIS-O'GARA 1 businesses is by growing them. And we understand in 2 this business as much as any, that takes an enormous 3 amounts of capital. 4 And you heard other members of our group 5 testify here in the past, creating a capital structure 6 which permits and supports that level of capital 7 investment was obviously a key goal of ours in 8 formulating this transaction. And we believe we've 9 successfully done that. 10 Q. Now, you're one of the individuals who's 11 been qualified and will be have involvements in this 12 investment. Are you on the board of Harrah's 13 Entertainment? 14 A. I expect to be, yes. 15 Q. And what role do you expect to have in 16 the day-to-day management of Harrah's? 17 A. None. 18 Q. Do you likewise trust Mr. Loveman? 19 (Laughter.) 20 A. And Mr. Halkyard. 21 Q. Mr. Halkyard? 22 A. And Carlos Tolosa and their colleagues, 23 yes. We are -- we absolutely are. In fact, as I 24 think has been underscored by Mr. Press, Gary's 25 leadership of this company and the experience this 160 DAVIS-ADAMS 1 team has and the track record that they have, which is 2 clearly identifiable, was one of the really strong 3 attributes of this investment from our standpoint. 4 And, obviously, it is our very strong hope that that 5 will continue to be a source of strength and growth of 6 this company going forward. 7 Q. And, likewise, you've had the benefit of 8 hearing Mr. Press, TPG doesn't have any plans or any 9 emphasis that it's made to Mr. Loveman about this 10 disposition of assets or asset disposition planned 11 involving Harrah's assets? 12 A. Absolutely not. You know, as I 13 mentioned, I think this is the classic the whole is 14 greater than the sum of the parts. The nature of the 15 portfolio that's been assembled here over time has 16 been one of the things that makes this company so 17 stable and attractive. And we have no intentions at 18 this time of disposing of assets. 19 MR. O'GARA: I don't have any other 20 questions. 21 CHAIR KASSEKERT: Mr. Adams? 22 MR. ADAMS: Just a couple, Mr. Davis. 23 24 CROSS-EXAMINATION BY MR. ADAMS: 25 Q. As I did with Mr. Press, generally 161 DAVIS-ADAMS 1 speaking, the TPG investment is coming through a TPG 2 Fund V; is that correct? 3 A. That's correct. 4 Q. Is there a life expectancy to that fund? 5 A. Yes, there is. 6 Q. And what is that? 7 A. I believe it's ten years with the 8 possibility of extending it for up to two years. 9 Q. Do you have anything dissimilar to say 10 in response to what I asked Mr. Press about your 11 perception of how you view the term of this investment 12 in Harrah's? Would it be fair of me to say it's five 13 to ten years? 14 A. I think we intend to hold this 15 investment for a long period of time. As you'll 16 appreciate, market circumstances may change, and the 17 environment may change. And we will certainly as a 18 board, along with Gary and management team, evaluate 19 opportunities as they come to us. But as we think 20 about the business plan here, that is that we've 21 embraced, it is a plan of making long-term investments 22 that drive long-term growth. And whereas our average 23 investments, if there is such a thing, might be held 24 for a five-year period, some certainly less and some 25 more, I think we believe this investment is more 162 DAVIS 1 likely to be held in the longer term over the longer 2 term period as opposed to shorter given the nature of 3 investments and the business plan that we are 4 embracing. 5 Q. Okay. And just briefly also about the 6 flow of funds or monies to TPG. Is it similar to the 7 way Mr. Press described the flow of funds to Apollo? 8 A. Yes, it is. 9 MR. ADAMS: I don't have anything 10 further. 11 CHAIR KASSEKERT: Questions? 12 Commissioner Epps? 13 COMMISSIONER EPPS: Just a couple. 14 Shifting gears, going in a different 15 direction. Can you tell me, what impact, if 16 you know, do TPG investments have on the public 17 markets? I mean, do you find that your company 18 or your group is the group that markets follow 19 and take interest over what you are investing 20 in? And the reason for question is there are 21 still some public companies in Atlantic City. 22 What could the impact of your investment here 23 in Atlantic City have on the other companies in 24 the public market? 25 THE WITNESS: That's a very good 163 DAVIS 1 question. I think certainly a transaction like 2 Harrah's has gotten a lot of attention. And I 3 think it didn't go unnoticed that firms like 4 Apollo and TPG believed in the gaming business, 5 believed in these major markets, and were 6 willing to invest very, very substantial 7 amounts of their capital behind those ideas 8 and, of course, behind this team. It's 9 probably not entire coincidentally that on the 10 heels of our announcement, there have been one 11 or two other announcements, certainly about 12 public equity interest in the industry. So I 13 do think people pay some attention. 14 It's hard for me to certainly speculate 15 whether this transaction will lead to others 16 beyond those that we already know, but I think 17 for the reasons that have been stated, private 18 equity, we feel like is a very good partner in 19 this industry because of the time frames that 20 we are able to employ, because of increasing 21 impatience among the public markets in certain 22 instances with long-term investment as opposed 23 to quarterly performance, we think private 24 equity is a very good partner for this industry 25 and one that has the transparency the 164 DAVIS 1 ownership, as highlighted by Mr. Press, and 2 hopefully is comforting to you as regulators as 3 well. 4 COMMISSIONER EPPS: And I guess with all 5 objectivity, the announcement of this merger 6 was made in December of last year prior to our 7 embarking on what has turned out to be a down 8 year in the industry. However, you guys seem 9 to be still bullish on the market and 10 optimistic about the long-term success of 11 Atlantic City. Is that fair to say? 12 THE WITNESS: That is true, 13 Commissioner. I think we -- we appreciate that 14 this market was likely to endure some 15 short-term challenges because of the 16 combination of a smoking ban -- limited smoking 17 ban at the time and what was happening in 18 Pennsylvania. But we also appreciate that this 19 market has in the past endured some of those 20 challenges. And it's certainly under the 21 leadership of the Harrah's team and our assets, 22 our assets are positioned long term in a very 23 positive way here, and we continue to be 24 believers in the marketplace. 25 COMMISSIONER EPPS: Okay. And, lastly, 165 DAVIS 1 I don't know how other areas where you've 2 invested are with respect to the regulatory 3 environment, but given the fact that you are 4 here today at a hearing of this nature in order 5 to facilitate a transaction, does that make it 6 more difficult on you guys at the back end to 7 resolve out of a situation like Harrah's where 8 that transaction would again have to meet 9 regulatory approvals in several different 10 jurisdictions to rule out, where some other 11 companies you may be able to just sell the 12 asset and get out more quickly. Does that 13 cause any additional difficulty for you in your 14 normal process of moving in and out of these 15 types of situations? 16 THE WITNESS: It hasn't caused us any 17 hesitation. We do have a history of investing 18 in businesses that are heavily regulated, maybe 19 none so much as this, but certainly our 20 investments in the airline industry and banking 21 businesses, insurance and otherwise, have come 22 under regulatory scrutiny. We fully appreciate 23 the power and jurisdiction which you will have 24 to rule on our eventual exit from this 25 transaction. And as we've become comfortable 166 DAVIS 1 with this process, we are comfortable with that 2 process as well. 3 COMMISSIONER EPPS: Okay. 4 CHAIR KASSEKERT: Commissioner 5 Sommeling? 6 COMMISSIONER SOMMELING: How does Apollo 7 TPG and the co-investors make money from the 8 Harrah's investment? Briefly. 9 THE WITNESS: I think, very briefly, we 10 make Harrah's more valuable at the time we are 11 able to sell it than it is now. We believe, as 12 Gary I think suggested in his testimony, that 13 the price that we've offered to the public 14 shareholders is, of course, a full and fair 15 price, and that's certainly what the full 16 committee and board of directors concluded. 17 That being said, we believe there's further 18 opportunity for growth in this company. And 19 over the horizon, as we have established in the 20 investment outlook, we certainly believe that 21 under the auspices of Gary and his team and 22 with our sponsorship and the support at the 23 board level, we can help make Harrah's a more 24 valuable company. 25 COMMISSIONER SOMMELING: That's it. 167 ITEM NO. 17 1 CHAIR KASSEKERT: Commissioner Frulio? 2 Anything? 3 Anything on redirect? 4 MR. O'GARA: No. None. 5 CHAIR KASSEKERT: Anything on recross? 6 You can step down. 7 THE WITNESS: If I could, Madame Chair, 8 I would just like to on behalf of Apollo and 9 ourselves very much thank the full Commission 10 and your staff for the diligence and the 11 professionalism in which you've evaluated this 12 complicated transaction. We know it's taken a 13 great deal of resources, and we look forward 14 for working with you in the future. 15 CHAIR KASSEKERT: Thank you very much. 16 THE WITNESS: Thank you. 17 CHAIR KASSEKERT: We appreciate your 18 comments and echo them. 19 Your next witness? 20 MR. O'GARA: No more. 21 CHAIR KASSEKERT: Okay. We'll now move 22 to closings statements. 23 Mr. Adams? 24 MR. ADAMS: Yes, Chair. I will be brief 25 with my comments. 168 ITEM NO. 17 1 Obviously, we have now heard an 2 extensive amount of testimony on a variety of 3 topics I think we all expected to hear about 4 and are integral to our decision. We heard 5 about equity contribution. We've heard about 6 debt vehicles. We've heard about fees that are 7 involved here. We even heard about the 8 possible -- possible flow of funds and how 9 those flow of funds will -- will actually go up 10 the chain, so to speak. Whether it's even a 11 contemplation about the sale of assets, all of 12 those issues. It's all now, we believe, ripe. 13 I think it's fair to say that in the 14 past, the four casino licensees that are 15 involved here have consistently demonstrated 16 their financial stability, their financial 17 integrity, and responsibility. I think, based 18 on everything we've heard here as well as all 19 the documentation that's been submitted to you, 20 that the Petitioners have essentially carried 21 their burden to demonstrate that they can go 22 forward on that basis, that they've met the 23 Statutory requirements required to get an 24 interim casino authorization and to, quite 25 frankly, have your approval on these debt 169 ITEM NO. 17 1 transactions, and I believe that's been 2 demonstrated to such an extent that certainly 3 on behalf of the Division we have not changed 4 our position. We would not oppose the 5 imposition of the interim casino authorization 6 and your finding that the material debt 7 transactions can go forward. 8 CHAIR KASSEKERT: Thank you. 9 Mr. O'Gara? 10 MR. O'GARA: We ask you to adopt the 11 draft resolution. 12 And also echo what Kelvin said. I want 13 to thank Jack and Mike Iaccone and all the 14 people who did this investigation. It was a 15 long and difficult matter. Went to a lot of 16 places, spent a lot of time. And also the two 17 people I've had the most contact with on your 18 staff, Mary Wosnack and Chris Glaum, who have 19 evaluated a significant amount of information 20 and been very patient and understanding with us 21 about what's a complex transaction and probably 22 fairly sophisticated business arrangement which 23 was somewhat new to this industry. And we 24 thank you very much for the indulgence and ask 25 you to adopt the resolution draft resolution. 170 ITEM NO. 17 1 CHAIR KASSEKERT: Thank you. 2 We're going to take a brief recess 3 before we render our decision. 4 (A recess was taken from 2:06 to 2:25 5 p.m.) 6 CHAIR KASSEKERT: We'll go back on the 7 record. 8 Let me ask if there are any other 9 matters that need to be brought to our 10 attention today? 11 Mr. Adams? 12 Mr. O'Gara? 13 MR. O'GARA: No, ma'am. 14 MR. ADAMS: I don't think so. 15 CHAIR KASSEKERT: Okay. Very good. 16 We're here today to consider the request 17 of Apollo Management and TPG Capital for 18 interim casino authorization so that they can 19 close on their $26 -- $26 billion. 20 (Laughter.) 21 CHAIR KASSEKERT: If it's 26, I'm 22 buying. 23 To acquire Harrah's Entertainment and 24 its four casino hotels here in Atlantic City. 25 Over the course of the last ten months, 171 ITEM NO. 17 1 since the deal was announced, the Applicants 2 have filed voluminous submissions with the 3 Commission and the Division in support of their 4 application for ICA. A grant of ICA would 5 permit them to close on the Harrah's 6 acquisition prior to a final ruling on their 7 plenary qualification. 8 During interim casino authorization, the 9 Applicants' ownership interests in the four 10 Harrah's properties will be held in trust with 11 former Commission Chairman James Harley as 12 trustee. He is, of course, no stranger to the 13 casino regulatory process and is beyond 14 reproach, and we thank him for his service 15 here. Thank you, Commissioner. 16 The Applicants also seek our approval of 17 several debt transactions, the credit facility, 18 real estate facility, and the issuance of new 19 senior notes pursuant to our regulations 20 governing material debt transactions. We must 21 additionally address the proposed restructuring 22 ensuing from the real estate financing and the 23 planned securitization of that debt. Among 24 other things, these matters involve the 25 transfer of the Showboat and Marina Casino and 172 ITEM NO. 17 1 CHAB licenses to the new operating companies, 2 the application for casino service industry 3 licensure by the PROPCOs, the new owners of the 4 casino real estate, and the approval of the 5 lease agreements between those entities. 6 Clearly the rulings in these matters are 7 many and complex, and they are enumerated in 8 great detail in the draft resolution. 9 I do have a few comments, however. 10 First, I'd like to commend the 11 Applicants and their counsel for their 12 cooperation throughout this extensive and 13 detailed application process. I believe that I 14 can speak for both agencies in extending our 15 thanks to you for your continued cooperation 16 with our staff in managing this incredibly 17 complex matter. 18 And let me join in thanking our staffs, 19 Jack, Bob, the Division of Gaming Enforcement, 20 Chris Glaum, especially Mary Wosnack who truly 21 made me understand the whole process. 22 (Applause.) 23 MR. ADAMS: Thank you, Mary. 24 CHAIR KASSEKERT: And I thank you all 25 for your cooperation and your assistance in 173 ITEM NO. 17 1 bringing us to today. 2 We welcome Apollo and TPG to Atlantic 3 City. Today we have heard testimony as to the 4 new owners' history of investing in and growing 5 the businesses they acquire, their future plans 6 and the projected direction in which they 7 intend to take the four Harrah's New Jersey 8 properties. We recognize that Apollo and TPG 9 want to acquire Harrah's Entertainment because 10 they're convinced they can generate a healthy 11 return for their investors just as Harrah's has 12 done for its shareholders. And Harrah's has 13 certainly generated very attractive returns for 14 its shareholders in the past in large part 15 through a willingness to reinvest and expand 16 their properties here as well as in many of the 17 other jurisdictions in which it operates. It 18 is has generated these returns by growing its 19 business, by not starving it. 20 So it should come as no surprise that I 21 share the concerns that have been alluded to 22 this afternoon, particularly with regard to a 23 commitment to future capital expenditures by 24 Apollo and TPG and any possibility of 25 significant staffing reductions at the Harrah's 174 ITEM NO. 17 1 properties here. 2 Harrah's Entertainment has, over the 3 years, demonstrated a steadfast commitment to 4 the continued improvement and expansion of a 5 first-rate Atlantic City properties and to its 6 local employees. While some uncertainty is 7 certainly unavoidable with any new owner, it is 8 my hope that Apollo and TPG intend to continue 9 the policies which have made Harrah's as 10 successful as it has been to date and that, 11 from today forward, Apollo and TPG will 12 maintain Harrah's record of commitment to 13 Atlantic City and perhaps even improve upon it. 14 And we've been told that will be the case. 15 Based upon the entire record of this 16 proceeding, including the testimony which we've 17 heard today and the extensive documentation in 18 the record, I am satisfied that the Applicants 19 have met the standards for interim casino 20 authorization. Accordingly, I would move to 21 adopt the draft resolution and to, one, grant 22 interim casino license authorization to Hamlet 23 Holdings, LLC, and the Apollo and TPG 24 Applicants as holding companies of the Harrah's 25 casino licensees; and, two, to grant approval 175 ITEM NO. 17 1 of the material debt transactions as all set 2 forth in the findings and rulings and subject 3 to the conditions in this resolution, and I so 4 move. 5 COMMISSIONER SOMMELING: Second. 6 VICE CHAIR FEDORKO: Second. 7 CHAIR KASSEKERT: Motion has been made 8 and seconded. This is a roll call vote. 9 MR. NANCE: Commissioner Sommeling? 10 COMMISSIONER SOMMELING: Yes. 11 MR. NANCE: Commissioner Epps? 12 COMMISSIONER EPPS: Yes. 13 MR. NANCE: Commissioner Frulio? 14 COMMISSIONER FRULIO: Yes. 15 MR. NANCE: Vice Chair Fedorko? 16 VICE CHAIR FEDORKO: Yes. 17 MR. NANCE: Chair Kassekert? 18 CHAIR KASSEKERT: Yes. 19 MR. NANCE: The record will reflect that 20 the motion is unanimous. 21 CHAIR KASSEKERT: Congratulations. 22 MR. O'GARA: Thank you. 23 MR. ADAMS: Thank you. 24 CHAIR KASSEKERT: Do the public portion 25 of the -- 176 1 MR. NANCE: In accordance with 2 Resolution No. 06-12-13-20, the next closed 3 session of the Commission shall be held on 4 Wednesday October 31st, 2007, at 9:15 a.m. in 5 the Commission offices. 6 It is now time for the public 7 participation portion of the meeting. 8 CHAIR KASSEKERT: Is there anyone from 9 the public that wishes to be heard? 10 (No response.) 11 CHAIR KASSEKERT: Seeing no one, I'll 12 declare this portion of the meeting closed and 13 entertain a motion to adjourn. 14 COMMISSIONER FRULIO: Motion to adjourn. 15 COMMISSIONER EPPS: Second. 16 CHAIR KASSEKERT: The motion has been 17 made and seconded. All in favor? 18 (Ayes.) 19 CHAIR KASSEKERT: Opposed? 20 (No response.) 21 CHAIR KASSEKERT: Motion carries. 22 (Public Meeting 07-10-17 was concluded 23 at 2:31 p.m.) 24 25 177 1 2 C E R T I F I C A T E 3 4 5 I, DARLENE SILLITOE, a Certified Court 6 Reporter and Notary Public of the State of New 7 Jersey, certify that the foregoing is a true 8 and accurate transcript of the proceedings. 9 10 11 I further certify that I am neither 12 attorney, of counsel for, nor related to or 13 employed by any of the parties to the action; 14 further that I am not a relative or employee of 15 any attorney or counsel employed in this case; 16 nor am I financially interested in the action. 17 18 19 DARLENE SILLITOE CCR 20 License No XI01023 21 22 Dated: October 18, 2007 23 My Commission Expires on July 10, 2009 24 ID No 2062871 25