1 1 STATE OF NEW JERSEY 2 CASINO CONTROL COMMISSION 3 - - - - - - - - - - - - - - - - - - - - 4 Petition of Adamar of New Jersey, Inc., (Adamar) 5 for renewal of its casino license and other 6 matters 7 (PRN 2140705, 2910706, 2910708) 8 9 Volume 3 - PM Session 10 - - - - - - - - - - - - - - - - - - - - 11 12 Monday, November 26, 2007 13 Atlantic City Commission Offices 14 Tennessee and Boardwalk 15 Atlantic City, New Jersey 08401 16 2:24 p.m. to 4:46 p.m. 17 18 Certified Shorthand Reporter: Ellen Marie Gumpel 19 - - - - - - - - - - - - - - - - - - - - - - - - - 20 ATLANTIC CITY COURT REPORTING, LLC 21 CERTIFIED SHORTHAND REPORTERS 22 1125 Atlantic Avenue, Suite 416 23 Atlantic City, New Jersey 08401 24 (609) 348-9190 25 Www.accourtreporting.com 2 1 B E F O R E : 2 CASINO CONTROL COMMISSION: LINDA M. KASSEKERT, CHAIR 3 MICHAEL A. FEDORKO, VICE CHAIR MICHAEL C. EPPS, COMMISSIONER 4 RALPH G. FRULIO, COMMISSIONER WILLIAM T. SOMMELING, COMMISSIONER 5 PRESENT FOR THE CASION CONTROL COMMISSION: 6 DARYL W. NANCE, ADMINISTRATIVE ANALYST DANIEL J. HENEGHAN, PUBLIC INFORMATION OFFICER 7 OFFICE OF THE GENERAL COUNSEL: 8 DIANNA W. FAUNTLEROY, GENERAL COUNSEL/EXECUTIVE SECRETARY 9 LEONARD DiGIACOMO, ASSISTANT GENERAL COUNSEL STEVEN M. INGIS, ASSISTANT GENERAL COUNSEL 10 DIVISION OF GAMING ENFORCEMENT: 11 YVONNE G. MAHER, ACTING DIRECTOR MARYJO FLAHERTY, DEPUTY ATTORNEY GENERAL 12 A P P E A R A N C E S: 13 STERNS & WEINROTH, PC 14 BY: PAUL M. O'GARA, ESQ. GRAIG P. CORVELEYN, ESQ. 15 FOR: TROPICANA ENTITIES 16 MICHAEL & CARROLL 17 BY: GUY S. MICHAEL, ESQ. JOHN J. MERCUN, ESQ. 18 19 COOPER LEVENSON BY: LLOYD D. LEVENSON, ESQ. 20 21 22 23 24 25 3 1 2 I N D E X 3 4 WITNESS PAGE 5 THEODORE R. MITCHEL 6 DIRECT BY MR. O'GARA 4 7 CROSS BY MS. FLAHERTY 27 8 DONNA B. MORE 9 DIRECT BY MR. MICHAEL 103 10 CROSS BY MS. MAHER 110 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4 1 (The proceedings were recommenced at 2 2:24 p.m.) 3 CHAIR KASSEKERT: We will go back on 4 the record. 5 Mr. O'Gara, are you prepared to call 6 your next witness? 7 MR. O'GARA: Yes, ma'am. 8 Theodore Mitchel. 9 CHAIR KASSEKERT: Mr. Nance, will 10 swear you in. 11 THEODORE R. MITCHEL, was duly sworn 12 to testify in this matter. 13 MR. NANCE: Please state your name 14 for the record. 15 THE WITNESS: Theodore Mitchel. 16 MR. NANCE: Thank you. 17 CHAIR KASSEKERT: You may proceed, 18 Mr. O'Gara. 19 DIRECT EXAMINATION BY MR. O'GARA: 20 Q. Mr. Mitchel, it's Mitchel with one 21 L, correct? 22 A. That's correct. 23 Q. By whom are you employed, 24 Mr. Mitchel? 25 A. Columbia Sussex Corporation. 5 1 Q. In what capacity? 2 A. I'm secretary/treasurer and chief 3 accounting officer. 4 Q. And how long have you been employed 5 by Columbia Sussex section? 6 A. Eighteen years. 7 Q. And always in the finance field? 8 A. Yes. 9 Q. What were you first employed to do? 10 A. The same position I am now. 11 Q. So you've occupied that position for 12 18 years. 13 Is that a senior position at 14 Columbia Sussex? 15 A. Yes, it is. 16 Q. As a result of your position, did 17 you have involvement with the acquisition of then 18 Aztar Corporation by an affiliate of 19 Columbia Sussex? 20 A. I provided some assistance in that. 21 Q. Can you tell us the nature or what 22 kind of assistance you provided? 23 A. Well, as a part of that process, we 24 had to apply for gaming applications in a number 25 of jurisdictions. Because of my history with the 6 1 company, I assisted with Mr. Yung's application 2 and also the various companies that had to apply. 3 I assisted in that process. 4 Q. And people who work for you also 5 assisted in preparing some of the information 6 that was submitted? 7 A. To the extent that it was needed, 8 yes. 9 Q. All right. 10 Let me ask you. 11 With respect to the applications that are 12 pending here today and they are an applications 13 for a renewal of a casino license for the 14 Tropicana here in New Jersey, as well as the 15 applications for the plenary qualification of 16 Tropicana Entertainment. 17 The sum of the financial information 18 submitted in conjunction with those, is that the 19 information you assisted with? 20 A. Yes. 21 Q. Let me turn, first, to the forecasts 22 that we were prepared in conjunction with the 23 Tropicana Resort. 24 Are you familiar with those forecasts? 25 A. Yes, I am. 7 1 Q. You were not here last week, but 2 last week, Mr. Jacob, your colleague testified. 3 He was asked whether he was aware that those 4 forecasts were submitted in a less than timely 5 fashion. 6 Are you aware that there was some delay in 7 submitting those reports? 8 A. Well, there was a filing of those 9 forecasts on the due date. 10 Q. Do you recall what that due date 11 was? 12 A. August 1st. 13 Q. Okay. 14 And you made a filing? 15 A. Yes. 16 Q. Do you recall, was there a reaction 17 to the filing? 18 A. Yes. 19 We received comments back from the 20 staff that there were certain amendments or 21 changes that needed to be made to those 22 forecasts. 23 Q. Do you recall what type of changes 24 they were? 25 A. There were a variety of things. I 8 1 know we had to add a historical year. We 2 originally did not present the 2006 year. We had 3 to add that year to the forecast. We had to 4 provide some additional information regarding 5 our -- the detail of our debt that was not 6 provided in the format that the staff wanted. 7 Q. And, in fact, when you got those 8 comments, did you redo the forecasts? 9 A. Yes, we did. 10 Q. And they were then submitted? 11 A. Yes. 12 Q. Now, with regard to the formatting 13 and the errors that you described, you are now 14 well aware of what the format is for the 15 forecasting? 16 A. Yes. 17 Q. In fact, are the people who work 18 with you and the people at Tropicana 19 Entertainment in the financial department, as 20 well, aware of that? 21 A. Yes, they are. 22 Q. Do you anticipate that that is a 23 problem that will occur in the future? 24 A. No, it won't. 25 Q. Now, also, within those forecasts 9 1 are forecasts for capital expenditures. 2 And when we are speaking of capital 3 expenditures, we're speaking of the Tropicana 4 property here in New Jersey. We heard testimony 5 from Mr. Jacob regarding how those were done and 6 that they included a 2 percent forecast 7 maintenance capital expenditures. 8 A. I believe it's approximately that 9 number, yes. 10 Q. In fact, does that represent all of 11 the anticipated capital expenditures at this 12 property for '07, '08 or '09? 13 A. No, it does not. It would not 14 include, from what I recall, major projects that 15 might be initiated that we had not identified at 16 this point. 17 Q. So when the forecasts were done, 18 they included only the maintenance cap ex and no 19 stakeholder number for what those major projects 20 may be? 21 A. No, it did not. 22 Q. Do you anticipate that, in fact, the 23 capital expenditure budgets, had they been 24 forecasted to include those would have been 25 larger? 10 1 A. Yes, they would have. 2 Q. Would they have exceeded 5 percent 3 of the revenue numbers required by the 4 regulation? 5 A. I believe they would, yes. 6 Q. Why was that not included; what led 7 to that lack of inclusion? 8 A. That was really an oversight on my 9 part in terms of not being familiar with the 10 regulations and the importance of that. 11 Q. So if I understand correctly, the 12 cap ex figure that is there is just the 13 maintenance you need to keep the facility as it 14 is? 15 A. That's correct. 16 Q. And historically, in companies with 17 Columbia Sussex, that Mr. Yung has been 18 associated with, is that how you did cap 19 ex forecasts? 20 A. Yes, when we did a forecast; that's 21 what we generally would do, review just the 22 maintenance cap ex we would use in the forecast. 23 Q. And when would you add in the cap ex 24 for project improvements and new things that go 25 into the facility? 11 1 A. Generally, again, when we identified 2 what those projects specifically were for. 3 Q. What was the process for their 4 identification? 5 A. It could be a number of things. In 6 the hotel side, we periodically have reviews of 7 our facilities by the franchisers. They do what 8 is called a product improvement plan. Those 9 would identify major expenditures that we would 10 identify at that point. 11 Q. Let's turn now to the Tropicana and 12 let's turn to '08. 13 How would it have been done if there were 14 not a requirement for its inclusion, which you 15 were unaware of, how would you have gone about 16 looking at '08 cap expenditures beyond what we 17 see in the maintenance package? 18 A. We would have started with 19 discussing, you know, the operation with local 20 management and what their needs were and what 21 they anticipated was going to be required in the 22 near future. 23 Q. And as you modify these forecasts or 24 redo them for any purpose, will that information 25 be gathered earlier and, in fact, included in any 12 1 forecast that is submitted to the Division or 2 Commission? 3 A. Yes, it will. 4 Q. In that regard, are you aware of 5 negotiations that are ongoing with the 6 administrative agent for the lender on the term 7 loan to the Tropicana Entertainment? 8 A. To a certain extent, yes, I am. 9 Q. Do you know what gave rise to those 10 negotiations? 11 A. The failure of us to meet the 12 leverage covenant in the third quarter. 13 Q. And in as nontechnical terms as you 14 can, can you explain to us what not meeting the 15 leverage covenant means? 16 A. Leverage is a financial term that 17 refers to the amount that earnings, cash earnings 18 can cover the outstanding debt. So it is debt 19 divided by the cash earnings or EBITDA is a term 20 that is used. And under our debt agreement, we 21 were required to have 7.5 times coverage. And 22 we, in the third quarter, went slightly over 23 that. 24 Q. And had you not in the third quarter 25 exceeded the amount of the covenant, did you 13 1 anticipate that you were going to have any issues 2 within the fourth quarter? 3 A. We probably would have had an issue 4 in the fourth quarter. It was a very tight 5 covenant for us going into the fourth quarter. 6 Q. As a result of your not having met 7 the test of that covenant, what is the result of 8 that? 9 A. Well, it starts a process of 10 negotiation with our lender. Credit Suisse is 11 the administrative agent under that credit 12 agreement. So we would start that process of 13 discussions with them regarding reestablishing 14 that covenant going forward. It also involves a 15 readjustment of the interest rate on the loan. 16 Q. And to your knowledge, have those 17 discussions begun? 18 A. Yes, they have. 19 Q. Are you privy to those discussions? 20 A. I have not been involved in them 21 directly to date, but I have been involved in 22 assisting in that process. 23 Q. Based on the knowledge you have, do 24 you believe these discussions will yield an 25 agreement with the bank? 14 1 A. Yes, I do. 2 Q. And in conjunction with that 3 agreement, will you be required to submit new 4 forecasts to the agreement? 5 A. Yes, we will. 6 Q. What will the bank be looking for in 7 those forecasts? 8 A. They will want us to reflect in that 9 forecast, the, you know, expected operations of 10 the different casino properties and in the 11 Atlantic City market. Those projections will 12 reflect, you know, the effect of, you know, the 13 Pennsylvania gaming and its effect on revenues 14 and that sort of thing. So they would expect us 15 to update the forecast from new information that 16 we're aware of and our actual results to date. 17 Q. Do you anticipate that these 18 forecasts will -- when will they be prepared? 19 A. In the next two to three weeks. 20 Q. And when they are, is it your 21 intention to share them with the New Jersey 22 Division of Gaming Enforcement and the Casino 23 Control Commission? 24 A. Yes, we will. 25 Q. When you say they will reflect the 15 1 effect of Pennsylvania gaming, what do you mean 2 by that? 3 A. Well, actual results to date have 4 shown that that event, the new competition in 5 Pennsylvania has had a larger impact than we 6 originally anticipated in our forecasts. 7 Q. And in those forecasts, will you 8 also be making adjustments in line with the 9 regulation with respect to capital expenditures? 10 A. Yes, we will. 11 Q. And you will identify some 12 additional areas of cap ex? 13 A. Yes. 14 Q. What is the time frame you 15 anticipate it will take you to conclude an 16 agreement with the bank? 17 A. We hope that we can complete it 18 before the end of the year. 19 Q. During the period while you are 20 penning the agreement, do you have access to your 21 revolver? 22 A. No, we don't. 23 Q. If you successfully conclude the 24 agreement, what effect will it have with respect 25 to your access to the revolver? 16 1 A. We expect that to be restored. 2 Q. What is the amount of that revolver? 3 A. It's $180 million. 4 Q. In the interim, are you familiar 5 with the company's cash position? 6 A. Yes, I am. 7 Q. You're familiar with the position 8 right now? 9 A. Yes, I am. 10 Q. Do you have any concerns with 11 respect to the company's liquidity during the 12 period that all of these negotiations are 13 ongoing? 14 A. No, I do not. 15 Q. Does the company have retained cash 16 available? 17 A. Yes, it does. 18 Q. Can you give the general area of 19 magnitude without any specifics? 20 A. At the end of the third quarter, 21 approximately $100 million. 22 Q. There were also some questions asked 23 regarding the sale of an asset you had in 24 Vicksburg, Mississippi. 25 A. Yes. 17 1 Q. And what was that asset; was it a 2 Tropicana Entertainment asset? 3 A. No. 4 It's owned by a company called 5 Columbia Properties of Vicksburg, which is a 6 guarantor under our debt agreement. 7 Q. And is that the only property of the 8 casino properties that is not directly in the 9 Tropicana Entertainment family? 10 A. There is one other; the ^ 11 Jubilee Casino in Greenville, Mississippi. 12 Q. And when you say it was a guarantor, 13 what does that mean? 14 A. Well, it means that its financial 15 results support the credit that was extended for 16 that credit facility. 17 Q. And that was the overall credit 18 facility that was used for the purchase of all 19 the Aztar assets? 20 A. Yes. 21 Q. And has that asset been sold? 22 A. An agreement to sell that asset has 23 been entered into. It has not been sold yet. 24 Q. Do you anticipate when that closing 25 will occur? 18 1 A. They have to get regulatory 2 approval, the buyer does, in Mississippi. And we 3 expect that will probably be in the summertime of 4 2008. 5 Q. And what will be the disposition of 6 the proceeds -- there will be proceeds? 7 A. Yes. 8 Q. And how will those proceeds be 9 utilized? 10 A. The credit agreement requires that 11 those proceeds be used to pay down the term loan. 12 Q. So whatever the net proceeds are 13 from that sale, there will be a principal payment 14 on the term loan? 15 A. Yes. 16 Q. Are there any other -- are there any 17 required payments that are made on the principal 18 and term loans? 19 A. There was initially, but because of 20 the prepayments that we've made to date, those 21 required principal payments no longer exist. 22 We've prepaid those requirements. 23 Q. And do you recall the magnitude of 24 the prepayments you've paid? 25 A. They total approximately 19 1 $200 million. 2 Q. And that satisfies any of the 3 prepayment principal obligations going forward? 4 A. Yes, other than there is an excess 5 cash flow calculation that is required under the 6 agreement. So if there is -- based on a 7 calculation, if there is excess cash over and 8 above what we've already paid in principal, there 9 might be an additional requirement. 10 Q. But that excess cash flow 11 calculation allows you capital expenditures for 12 your facility? 13 A. Yes. It takes into account capital 14 expenditures. It also takes into account 15 principal payments on debt. 16 Q. There was also discussion and 17 questions about potential sale of "The Quarter," 18 which is a part of the Tropicana Entertainment 19 facility here in Atlantic City. 20 Are you aware of any announcement or 21 discussions with respect to that asset? 22 A. I heard that there was some 23 discussion of that possible sale, but I don't 24 believe that it is a current activity that we're 25 pursuing. 20 1 Q. If it were to be sold, what would be 2 the utilization of those proceeds? 3 A. It would be used to pay down debt. 4 Q. And its sale, would it in any way 5 affect directly the operations of the 6 casino/hotel, The Tropicana? 7 A. No, it wouldn't affect them. 8 Q. What is the role that Tropicana here 9 in New Jersey and Tropicana Entertainment has now 10 with respect to "The Quarter"? 11 A. Well, the Tropicana Atlantic City 12 has rented out the space in "The Quarter" to 13 various entertainment outlets and it collects 14 rent from the lease of that space. 15 Q. And does it have any core gaming 16 operations or food/beverage operations itself 17 inside "The Quarter" that you are aware of? 18 A. There is food and beverage 19 operations. As far as I know, there is no gaming 20 operation in "The Quarter." 21 Q. And the hotel tower that was 22 constructed in conjunction with "The Quarter," is 23 that, in fact, a separate asset that was not the 24 subject of any discussion today? 25 A. That's correct. 21 1 Q. If you were to sell it, would there 2 be covenants in any sale agreement to provide for 3 the quality of tenants at "The Quarter"? 4 A. There normally is in that kind of 5 sale, yes. Since it is part of our operation, we 6 would want to have some control over how the 7 property is used. 8 Q. But at present, you're aware that 9 that is not on the table at this moment? 10 A. That's my understanding. 11 Q. At the time that Mr. Yung and 12 affiliates of Mr. Yung acquired Tropicana 13 Entertainment, were you involved in the 14 negotiations and discussions with the banks 15 regarding the loan agreement? 16 A. Superficially. I mean, I provided 17 assistance. I wasn't directly involved in that. 18 Q. Did there come a point in time when 19 you were aware that Mr. Yung would have to make 20 an additional substantial cash contribution in 21 terms of the acquisition? 22 A. Yes, I was aware of that. 23 Q. And how was that accomplished; do 24 you recall? 25 Did it involve Columbia Sussex Corporation? 22 1 A. Yes, a subsidiary of Columbia 2 Sussex, CSC Holdings loaned money to Tropicana 3 Casinos and Resorts, the parent of Tropicana 4 Entertainment; that's how that money flowed into 5 the acquisition. 6 Q. Do you recall the amount of that 7 loan? 8 A. It was initially for $300 million 9 and I think it is presently $500 million. 10 Q. And is that a loan which matures in 11 2018? 12 A. Yes. 13 Q. And is there interest that accrues 14 with respect to that loan? 15 A. Yes, there is. 16 Q. Is there any requirement of payment 17 of that as part of that maturity? 18 A. No, there is not. 19 Q. And who, in fact, controls the 20 companies who made the loan? 21 A. Mr. Yung does. 22 Q. Who controls Tropicana 23 Entertainment? 24 A. Mr. Yung. 25 Q. In your mind, is there any question 23 1 as to whether or not upon its maturity, Mr. Yung 2 would demand payment if Tropicana did not have 3 the cash? 4 A. No, he would not. 5 Q. And at the time that this was going 6 on, how was that loan from the Columbia Sussex 7 affiliate viewed internally by the company and in 8 your discussions with the bank? 9 A. Well, the banks looked at it as 10 equity and that's how it is characterized between 11 Tropicana Casinos and Resorts and Tropicana 12 Entertainment. It is actually equity 13 contribution at that level and that's how the 14 bank viewed this as a quasi-equity contribution 15 into the facility. 16 Q. Now, Mr. Jacob was also asked about 17 a quarterly report, which was filed with the 18 Division of Gaming Enforcement and the Casino 19 Control Commission by the licensee, 20 Tropicana/Adamar of New Jersey and about an entry 21 on that report regarding amortization. 22 Are you familiar with the report that was 23 originally submitted? 24 A. Not directly. I am aware of it now 25 after the fact, but I was not aware of it 24 1 initially. 2 Q. Do you recall what it was that was 3 the item that was the subject of discussion 4 between the regulators and Tropicana 5 Entertainment with respect to the Tropicana 6 report? 7 A. I believe the initial report did not 8 include amortization of some intangible assets 9 that were required as a part of the acquisition 10 of Aztar. 11 Q. What does that mean, intangible 12 assets as required in conjunction with this. 13 Was that money; what is it? 14 A. There was no cash involved. There 15 was value assigned to a customer list, which is 16 primarily what would cause that. And that 17 customer list has to be amortized over an 18 expected life. The accounting rule requires that 19 to be amortized and that's what that entry is. 20 Q. Do you recall initially how was that 21 amortization handled in the report? 22 A. Well, initially, it was handled at 23 what I call the top level, the corporate level. 24 Due to a miscommunication, that entry did not get 25 pushed down into Tropicana Atlantic City's 25 1 financial statements, the Adamar financial 2 statements. 3 Q. Was that subsequently corrected? 4 A. Yes. It has been corrected. 5 Q. There is a loan in conjunction with 6 the -- a separate loan from the term loans that 7 we've been talking about that was made to 8 Tropicana Entertainment. It was made in 9 conjunction with the acquisition of the 10 Tropicana Las Vegas and its adjacent real estate; 11 is that correct? 12 A. That's correct. 13 Q. Is that loan in any way secured by 14 the assets here in Atlantic City? 15 A. No, it is not. 16 Q. What is that amount of that loan? 17 A. $440 million. 18 Q. It's secured by what? 19 A. By the assets in Las Vegas. 20 Q. Do you know why that loan was made 21 separately or why it was broken out from the 22 overall term loan? 23 A. It was made separately because of 24 our anticipated redevelopment of that Las Vegas 25 site. In discussions with Credit Suisse, we knew 26 1 that in a short period of time, that that asset 2 was going to be redeveloped and we wanted to 3 structure the loans in such a way that would 4 allow for that asset to be developed and financed 5 separately and this was the vehicle to do that. 6 Q. So it's stand-alone facility and it 7 has to do with the overall development of that. 8 If you had not done it that way, would it 9 have meant that there would have been a lot of 10 lengthy carve-outs inside of this credit 11 agreement? 12 A. Well, we would have had to refinance 13 the whole credit facility over again, which would 14 have been very costly. 15 Q. Recently, did Moody's take action 16 with respect to your term loan, in terms of the 17 rating of your term loan? 18 A. Yes. Moody's did lower the rating 19 of the term loan. 20 Q. Did they state a reason for so 21 doing? 22 A. They stated that the leverage ratios 23 had been lower than projected. 24 Q. What effect does this action by 25 Moody's have on your term loan? 27 1 A. It really has none. It will now 2 that the -- now that the covenant violation has 3 occurred, it will obviously play into 4 negotiations we have with the banks and the 5 credit facility and what the ultimate interest 6 rate is arrived at in that renegotiation process. 7 Q. So do you anticipate that in your 8 renegotiation process, the interest rate will 9 increase? 10 A. Yes, it will. 11 MR. O'GARA: Could I have one 12 moment? 13 CHAIR KASSEKERT: Yes. 14 (Discussion off the record.) 15 MR. O'GARA: I don't have any other 16 questions at this time. 17 CHAIR KASSEKERT: Any 18 cross-examination? 19 MS. FLAHERTY: Yes, chair. 20 Thank you. 21 CROSS-EXAMINATION BY MS. FLAHERTY: 22 Q. Good afternoon, Mr. Mitchel. 23 I understand that you have a Bachelor of 24 Science degree in business administration with a 25 concentration in accounting; is that correct? 28 1 A. That's correct. 2 Q. And you are also a CPA? 3 A. Yes, I am. 4 Q. And you are active and in good 5 standing as a CPA? 6 A. Yes, I am. 7 Q. Can you state the nature and extent 8 of your involvement in the affairs of Tropicana? 9 A. As I stated before, it's primarily 10 related to assisting in the gaming application 11 process and, also, in our registration process of 12 our public debt. Since I've had prior experience 13 with public filings, I've provided assistance in 14 terms of gathering the data and information 15 that's required in that registration scenario. 16 Q. How does that fit in with your 17 functions at Columbia Sussex? 18 What do you do at Columbia Sussex that's 19 different from Tropicana? 20 A. Well, at Columbia Sussex, I have 21 direct responsibility for overseeing the 22 preparation of all the internal/external 23 financial statements at Columbia Sussex; that's 24 the primary difference. 25 Larry King is our vice president and 29 1 chief accounting officer for the casinos and he 2 is responsible for that function on the casino 3 side. 4 Q. And with the loss of your current 5 chief financial officer, will you be more 6 involved in the Tropicana affairs in the upcoming 7 weeks, especially in light of what is facing you? 8 A. Yes, I will. 9 Q. Okay. 10 Now, in terms of general business matters, 11 overall corporate functioning, what is your role 12 in that; whether it is Tropicana or 13 Columbia Sussex, are you one of the key people in 14 your organization? 15 How do you describe that? 16 A. Well, I'm not exactly sure what you 17 are asking, but I do get involved -- when we do 18 major transactions, I am involved in that. When 19 we renegotiate or work with the lender, I am 20 generally aware of those transactions and might 21 assist in gathering information for the lender. 22 So I am aware of major transactions that we're 23 doing on the casino and hotel side. 24 Q. Is that mostly from the financial 25 end? 30 1 A. Yes. 2 Q. Now, with regard to Mr. Yung's 3 personal financial affairs, are you involved in 4 that? 5 A. Yes. I am aware of Mr. Yung's 6 personal financial affairs. 7 Q. Do you prepare and review his tax 8 returns, Mr. Yung's tax returns? 9 A. People that work for me do, yes. 10 Q. Now, you've been actively involved 11 in providing, I would say, the majority of 12 information to the Division during its 13 investigation. 14 How did that come about? 15 A. Well, again, mainly because of my 16 knowledge of the company and the history so I'm 17 kind of the logical one to help provide that 18 information. 19 Q. Now, were you the person primarily 20 or chiefly responsible for the financial and 21 related information submitted to the Division for 22 its financial analysis? 23 A. I am aware of it, but I used Larry 24 King's assistance in gathering some of that 25 information. 31 1 Q. Now, I want to start with the 2 management agreements. 3 From a financial point of view, can you 4 describe the management agreements both from a 5 Tropicana perspective and from a Columbia Sussex 6 perspective and how they are utilized by the 7 company? 8 A. Well, their main purpose is to 9 memorialize, you know, who is providing what 10 service and making sure that there is an adequate 11 charge for the cost of that service. 12 On the administrative service 13 agreement that Columbia Sussex has with Tropicana 14 Entertainment, it's focused on accounts payable 15 accounting type issues, administrative tax 16 preparation, payroll type issues, those kind of 17 general services. 18 On the casino side, the service 19 agreement between Tropicana Casinos and Resorts 20 and Tropicana Entertainment, the focus is, you 21 know, casino-related services, marketing, 22 oversight of purchases of gaming equipment. I 23 can't think of all the different things it 24 entails, but that kind of thing, specifically 25 related to casino operations, as opposed to 32 1 general administration. 2 Q. Now, on the Columbia Sussex side, 3 would it also be fair to say that it would 4 involve insurance matters, pension matters, those 5 types of different issues? 6 A. Yes, it would deal with that, also. 7 Q. From a financial standpoint in terms 8 of consolidation, how does it work? 9 How does it work not just from being 10 reimbursed from the companies, for which you 11 provide services, but, also, in terms of 12 consolidating, limiting the number of people 13 needed to do certain things? 14 A. Let me backup. 15 When I use the word "consolidation," 16 I'm an accountant so consolidation means 17 something different to me than what I think 18 you're asking. 19 Q. All right. 20 A. What I think you are asking is in 21 terms of who is doing what particular function. 22 Q. Right. 23 A. Generally, the approach that we have 24 taken as a company is we think it's better if we 25 have administrative-type functions performed 33 1 centrally and let the people at the various 2 locations, whether it be a hotel or casino, do 3 things that service customers and guests; that 4 should be their focus. They shouldn't have to 5 worry about how to fill out a form and file a tax 6 return or pay a bill. Those should be things 7 that, if we can, we should pull away from them so 8 they can focus on, like I said, the service of 9 the guests and the service of the patrons of the 10 facility. 11 Q. So administrative services would 12 include, as you said, the tax returns, the tax 13 filings, payables, IT? 14 A. To a certain extent, yes. 15 Q. Now, are you aware of any plans with 16 regard to the casino management services 17 agreement or the Columbia Sussex agreement as it 18 relates to New Jersey at this point? 19 A. Well, currently those agreements are 20 not in effect. 21 Q. Uh-huh. 22 A. And I'm not positive of what our 23 game plan is going forward. I know we have had 24 some discussions about the possibility of -- you 25 know, in the electronic age today, you can have 34 1 people be in different locations and perform 2 basically the same service. So, you know, we're 3 looking at the possibility of, you know, in 4 accounts payable, for example, if there is people 5 here in Atlantic City that electronically can 6 perform that function, physically be here, 7 instead of being in our Kentucky location, we're 8 looking into ways that -- is there a way where we 9 can keep employment in Atlantic City, but still 10 have the consolidation and the efficiencies that 11 we are looking for on a consolidated basis. 12 Q. Now, are consolidated and efficiency 13 really related to control or is it related to it 14 physically all being together? 15 A. Well, it is really two things. It 16 is partially control that, you know, we have 17 better control of cash and the outflow of 18 payrolls and payment of payroll and payroll taxes 19 and those kinds of things. We have, you know, 20 direct control of that, which is important to us. 21 It is also efficiency. We can -- you know, we've 22 got 80 some properties. And, obviously, we can 23 do administrative things a lot more efficiently 24 bringing all of that capacity together in one 25 location. 35 1 Q. And when it is efficient, it's well 2 run; would that be correct? 3 A. That's correct. 4 Q. Now, with regard to the Vicksburg 5 casino property, which you mentioned on your 6 direct is now under contract for sale, I have a 7 question with regard to the loan guarantees. 8 Currently, there is a guarantor with regard 9 to that; is that correct? 10 A. That's correct. 11 Q. And your plan is to use the proceeds 12 from the sale to pay down that? 13 A. That's correct. 14 Q. Now, in your view, will it be 15 sufficient to the bank, to your bankers to have 16 that offset, to use them as a guarantor in 17 exchange for the pay down of the debt? 18 A. That's a factor in terms of, you 19 know, the loss of that cash flow and how it 20 affects the covenants; and, obviously, that is 21 part of what we're going to be -- when we do this 22 re forecasting, we're going to take that into 23 account in our re forecasting process. 24 Q. In conjunction with that sale, I 25 think it was mentioned on direct that you had 36 1 already prepaid about $200 million on the 2 facility, the current credit facility; is that 3 correct? 4 A. Yes. 5 Q. And did a majority of that payment 6 come from a reserve relating to the sale of 7 Illinois casino -- that did not occur; is that 8 correct? 9 A. That's correct. 10 Q. Now, you talked about "The Quarter," 11 also, on direct. 12 My question with regard to that would be, 13 what would the sale of "The Quarter," how would 14 that relate to your ability to service debt? 15 A. Well, it's a similar exercise. 16 Right now, we're getting a certain 17 cash flow from the rental of the space at "The 18 Quarter." And will we be able to sell that asset 19 for a multiple of that cash flow, which is -- 20 makes sense in terms of the amount of debt we are 21 able to pay down with that being the sale 22 proceeds. 23 Q. In your view, would the sale of "The 24 Quarter" have an effect upon the operation of the 25 Atlantic City Tropicana? 37 1 A. I would think not, no. The only 2 real effect is the loss of that rental income. 3 Q. You don't see that there is a 4 relationship between what happens in a casino and 5 having the customer traffic, the vehicular 6 traffic issue to restaurants and that being in 7 control of that would be helpful? 8 A. Well, again, if we did do that sale, 9 there would be provisions within that sale that 10 allowed us to control the quality of the tenants 11 that are within that facility. We would want to 12 maintain that. Obviously, it's an important part 13 of our total facility. 14 Q. And you hope to do that through the 15 covenants in your agreement? 16 A. Yes. 17 Q. How did the mention of "The Quarter" 18 sale come about; what was the basis for that? 19 A. I believe it was in connection with 20 the various alternatives that, you know, we could 21 look at to pay down the debt. And I believe it 22 was in connection with this, this covenant 23 default that we had. 24 Q. But you would maintain and continue 25 to own the hotel tower? 38 1 A. Yes; that was never part of 2 discussion. 3 Q. Right now, you have no specific 4 plans with regard to the sale of "The Quarter"? 5 A. No. 6 Q. Have you done any computations as to 7 what price you would need to receive in order to 8 make it... 9 A. I haven't. I believe either 10 John Jacob or Larry King might have done some 11 numbers on it. 12 Q. Do you know what the construction 13 cost of "The Quarter" was? 14 A. I really don't. I would be guessing 15 if I gave you a number on it. 16 Q. Now, have you been involved in any 17 discussions or is there a possible addition with 18 regard to the events or the operation of a new 19 tower? 20 A. I'm not aware of that. 21 Q. So you have no details as to number 22 of rooms or cost of construction? 23 A. No. 24 Q. We mentioned the various investor 25 services and the downgrade with regard to the 39 1 Tropicana Entertainment's long-term debt. 2 Now, was that based on Moody's assessment of 3 Tropicana Entertainment's creditworthiness, the 4 downgrade? 5 A. Yes. 6 Q. My understanding is that the rating 7 change resulted from having a higher-leverage 8 ratio, as well as a lower-interest corporate 9 ratio; would that be accurate? 10 A. Yes. 11 Q. And that those were different from 12 when the ratings had initially been assigned when 13 you had issued the debt, correct? 14 A. Yes. 15 Q. Now, can you explain how those 16 ratios were affected? 17 How did they come become less desirable to 18 Moody's from the time when you had put out the 19 debt? 20 A. Well, the primary reason is the 21 amount of EBITDA, which is the cash flow in the 22 operation that is used in those calculations is 23 lower than the original projected. 24 Q. And what are the primary reasons for 25 that? 40 1 A. A lot of it has to do with the 2 Atlantic City operation here where the additional 3 competition from Pennsylvania and the smoking ban 4 rioted things, has caused revenues to be less 5 than originally projected. 6 Q. Now, as we have set forth in our 7 analysis, your or Tropicana Entertainment's total 8 debt leverage ratio for 2007 was going to be 9 close to the maximum; and, indeed, you actually 10 have since violated that covenant, correct? 11 A. Yes. 12 Q. And how could that noncompliance 13 have been avoided? 14 A. If we had been able to anticipate 15 better what our cash flow would have been, we 16 could have paid some additional debt down and it 17 would have allowed us to maintain or meet that 18 covenant. 19 Q. And why wasn't that done? 20 A. Well, there were some things that 21 happened, you know, after the end of the third 22 quarter -- really, two things. Some additional 23 adjustments to earnings, that happened after the 24 quarter; and, also, some of the calculation of 25 add-backs that are allowed on the credit 41 1 agreement. There was a miscalculation of one of 2 those add-backs. 3 Q. And where was that done? 4 Was that done, I assume, in the Kentucky 5 office; would that be accurate? 6 A. That's where those calculations are 7 done, although some of that data is obviously 8 provided by different locations. 9 Q. And so it was the sum of all the 10 information coming in from the various locations 11 to Kentucky and then when it finally got there 12 you saw that you weren't quite where you thought 13 you were? 14 A. That's correct. 15 Q. And you are now in negotiation with 16 the banks? 17 A. That's correct. 18 Q. Do you know the responsible lenders 19 today? 20 A. We have not got that far in the 21 process. We have made them aware of it. We are 22 starting to gather some information to give to 23 them, but we have not gotten any formal reaction 24 back from them yet. 25 Q. Okay. 42 1 So there have been no amendments that have 2 actually been made to the credit facility? 3 A. No, there is nothing else. 4 Q. Nothing else; okay. 5 Now, going forward, what options do you have 6 available to make sure that you stay in 7 compliance with your covenant? 8 A. Well, one thing that we're going to, 9 obviously, try to do in part of this negotiation 10 process is come up with some better projections 11 of where we think we are going to be and 12 therefore adjust the covenant levels that we have 13 to maintain so that they will be in line with 14 what we expect operations to be now going 15 forward. 16 Q. Do you have other options available 17 in the event that things get tight? 18 A. Yes, we can -- you know, we can pay 19 down the debt by selling assets or by providing 20 additional capital contributions or by different 21 things that we decide are appropriate. 22 Q. Now, you say the revolver is 23 currently not available; is that correct? 24 A. That's correct. It is currently not 25 available. 43 1 Q. In light of the covenant situation, 2 how do you view your availability to borrow in 3 the future when your revolver is availability; 4 what constraints will you be under in light of 5 how tight your covenants are? 6 A. Well, I expect that the covenants 7 will be adjusted to a more reasonable level -- 8 Q. Uh-huh. 9 A. -- based on our operations. I don't 10 see any real restrictions on the ability to use 11 the revolver in the future once those new 12 covenants are arrived at. 13 Q. So you believe that the new 14 covenants will be flexible enough to allow you to 15 use your revolver? 16 A. Yes. 17 Q. And you believe that the lender will 18 continue to afford your revolver? 19 A. Yes. 20 Q. Now, we discussed the recently 21 submitted commission quarterly report, financial 22 report and you discussed the error with regard to 23 that. 24 A. Yes. 25 Q. Now, who is responsible for filing 44 1 the quarterly submission? 2 A. I believe Chris Broome, our property 3 financial director is responsible for that. 4 Q. Who reviews that? 5 Does anybody at corporate review that? 6 A. I believe Larry King reviews it. 7 Q. Okay. 8 And as I understand it, what happened was 9 what happened was the amortization amount was 10 posted at the cost of goods and services level, 11 which is above the EBITDA line, as opposed to 12 where it should have been, which was below the 13 EBITDA line; would that be accurate? 14 A. That's correct. 15 Q. And as a result of that, was the 16 EBITDA then too low, lower than it should have 17 been? 18 A. That's correct. 19 Q. And, in fact, the EBITDA would have 20 been misstated? 21 A. That's correct. 22 Q. And you corrected the situation? 23 A. Yes, we did. 24 Q. What steps did you take to correct 25 it or what steps were taken? 45 1 A. Well, we instructed the property 2 where that particular item needs to show in the 3 financial statements and we provided them 4 information on how to do the amortization going 5 forward. 6 Q. And you're satisfied that this won't 7 occur again as a result of that instruction; is 8 that correct? 9 A. Yes, I am. 10 Q. Now, was this error or oversight 11 similar to the problem with the covenant 12 violation where something occurred and it just 13 wasn't communicated the right way or people just 14 didn't understand what needed to be done? 15 A. No. I don't see them as exactly the 16 same. There was some misunderstanding of how 17 that add-back process was to work; and, 18 therefore, the amount of the impact, you know, 19 was not calculated properly. But the other 20 factor was some additional adjustments that were 21 done at the corporate level that were not 22 anticipated. There were some adjustments of some 23 insurance reserves, which was a big part of that. 24 Q. How can things be done better so 25 that this type of thing doesn't happen again; 46 1 that either the information gets up to you or the 2 information gets down to the properties so that 3 it is correctly reported? 4 A. Well, as we have developed our -- 5 the quality of our accounting staff, the process 6 happens quicker so that we identify these items 7 in the reconciliations faster than we have done 8 in the past. 9 Q. Do you believe that that would be 10 sufficient to prevent that type of misinformation 11 in the future? 12 A. The adjustment of those insurance 13 reserves, you know, that's a process that is done 14 twice a year. We've instituted a policy to get 15 that data sooner so that an adjustment can be 16 made sooner in the process. 17 Q. Now, going to the discussion of the 18 capital contrib -- the cash contribution with 19 regard to the Aztar deal and the equity that is 20 in CSC. 21 Now, what does CSC own? 22 A. CSC Holdings -- 23 Q. Yes. 24 A. -- is an entity that owns interest 25 in a number of hotel properties. I am not sure 47 1 what the number is now, 30 or so properties. 2 Q. And those are all owned and 3 controlled by Mr. Yung, correct? 4 A. Yes. 5 Q. And at this point in time, 6 CSC Holdings, which is a subsidiary of Columbia 7 Sussex -- 8 A. That's correct. 9 Q. -- holds a loan payable from 10 Tropicana for approximately $500 million plus? 11 A. Yes. 12 Q. And that amount was, I guess, an 13 original $360 million and then at closing there 14 was another $140 some million that was needed; is 15 that correct? 16 A. I believe that's correct. 17 Q. And as was discussed on direct, 18 there are no payments that are being made during 19 the forecast period either in terms of principal 20 or interest? 21 A. There is no required payments. We 22 are allowed to make payments on those loans if we 23 have cash, but there is no required payment on 24 those. 25 Q. But you're not forecasting to make 48 1 any payments? 2 A. No. 3 Q. Now, what is the eventual plan to 4 address that loan or debt? 5 How do you view that happening? 6 A. Well, down the road, obviously, we 7 expect to be very profitable and the issues about 8 some of these covenants would get to a point that 9 would allow us to make distributions and payments 10 of that debt; or, at a point some time in the 11 future, we would refinance the debt. Those are 12 the events that would eventually result in a 13 repayment of that loan. 14 Q. Do you foresee that those monies 15 would be upstream from the operations through 16 Tropicana Entertainment to Tropicana and then pay 17 CSC Holdings? 18 A. Yes. 19 Q. When would you think that would 20 happen; at what point? 21 A. Well, you know, obviously, we expect 22 the operation to become profitable in the near 23 term, I don't know, five years out, something 24 like that; but we wouldn't do it, obviously, 25 until those restrictions on our current lending 49 1 agreement -- we have to get to a certain leverage 2 ratio before those are allowed so that wouldn't 3 happen until that point. 4 Q. Now, will Tropicana Entertainment or 5 any affiliate reimburse Mr. Yung for his income 6 tax liabilities resulting from Tropicana 7 Entertainment income? 8 A. We're allowed to under certain 9 instances, but Mr. Yung has other substantial 10 resources and because Tropicana Entertainment is 11 a pass-through entity, it has no direct tax 12 liability, other than, I think, there is a 13 corporate level tax in the State of New Jersey. 14 Beyond that, it has no obligation to pay a tax. 15 So the tax is owed by Mr. Yung personally. And 16 it's really a decision that we make as to how we 17 fund his personal tax liability. If we desire, 18 we could have it all paid by the resources that 19 he has through the hotel side of the business. 20 Q. Is it correct that none of the tax 21 liabilities are reflected in any of the forecasts 22 that you've submitted? 23 A. No, they were not. 24 Q. Now, there was also testimony with 25 regard to the submission of financial 50 1 information. 2 On the August 1st deadline, did the 3 financial information you submitted address in 4 detail the Atlantic City operation; weren't there 5 schedules and other information that was missing? 6 A. There were separate schedules for 7 the Adamar entity, which is the Tropicana 8 Atlantic City, but I believe that data came 9 within a day after that. 10 Q. Now, are you also in communication 11 with the investigative staff regarding gaps or 12 inconsistencies or failure to disclose with 13 regard to information submitted? 14 A. Yes. ^ Mr. Clark was very helpful 15 in pointing out some things that happened with 16 regard to those schedules that in the rush to get 17 them out and to get them to the staff, there was 18 a number of errors in the schedules. 19 Q. And those communications continued 20 through August, September and October? 21 A. Yes. We had addressed -- as we 22 received the information from Mr. Clark, we made 23 revisions and issued those revisions back to him. 24 Q. Why weren't your final forecasts 25 submitted until late October of this year? 51 1 A. Oh, I think, again, it was a 2 reaction to questions that Mr. Clark had that 3 required modifications to those numbers. 4 And as we did those revisions, we 5 naturally -- if we had better information, we 6 would include that information in that subsequent 7 forecast. And at that time, we were in the 8 process of closing the second quarter so those 9 numbers were changing a little bit. 10 So as we did each iteration for 11 Mr. Clark, we would incorporate anything in the 12 way of new information that we had. 13 Q. And what steps do you intend to take 14 or have you taken with regard to ensuring timely 15 and complete submissions in the future? 16 Have there been instructions to your staff, 17 training, communications? 18 A. Yes, all those things. You know, as 19 I mentioned before, we've increased the quality 20 of our staff at the corporate office to assist 21 the people at the property in terms of being able 22 to prepare those reports more accurately and more 23 timely. 24 Q. Now, in the forecast that you 25 submitted, did you forecast that Tropicana 52 1 Atlantic City would have a $28 million reduction 2 in costs and expenses for 2007? 3 A. I believe those are the right 4 numbers. 5 Q. And did that include a $17 million 6 to $18 million reduction in payroll? 7 A. Yes, it did. 8 Q. Did your forecast rely upon a net 9 reduction in personnel of 678 people? 10 A. I'm not sure it's that exact number. 11 The forecast took into account a reduction in 12 work force. 13 Q. Now, was the number that you used, 14 and I believe it is 678, did that conflict with 15 other reduction in force numbers that we 16 received? 17 We've had a number of different figures that 18 have come in. 19 A. I believe it's -- it might be 20 different than some other reports; but, you know, 21 as Donna explained, when we submit those reports, 22 we try to make them as accurate as possible at 23 the time they're submitted. So if they were 24 submitted at different times, the numbers might 25 be different. 53 1 Q. Are you confident with the number 2 that is in the financial information that you've 3 submitted to us as a basis for analysis? 4 A. At the time it was submitted, it was 5 the best information we had. 6 Q. How would your financial analysis be 7 affected if, for example, the number is 900, 8 instead of 678? 9 A. We would make adjustments to the 10 forecast if that was, in fact, you know, the 11 number. 12 Q. In your view, is there a point where 13 the number of employees less really is at a 14 critical mass and it affects the ability to 15 operate? 16 A. That's really an operational 17 question. I mean, I don't know how to operate a 18 casino. I don't profess to be an expert in how 19 to operate a casino so I couldn't tell when that 20 point is reached. 21 Q. So where did you obtain the 678 22 number, figure; where did that come from? 23 A. I requested it from 24 Mark Giannantonio's office. 25 Q. Now, as a result of the net decrease 54 1 in employees, in your forecast, would that 2 represent approximately $23 million in salaries 3 for the 2007 year? 4 A. I think that was an annualized 5 figure -- 6 Q. Right. 7 A. -- but that I believe is the right 8 number annualized for those -- in that reduction. 9 Q. With regard to the forecasts that 10 need to be done within the next two or three 11 weeks, are you aware of any further staff 12 reductions that may be planned? 13 A. No, I am not. 14 Q. Now, there is a $292 million note 15 payable from Adamar, which operates the Trop 16 Atlantic City, to Aztar and that remains on the 17 books; is that correct? 18 A. I believe that it does remain on the 19 books, yes. 20 Q. And has that been reclassified? 21 A. Our intent is to reclassify that to 22 equity. 23 Q. So there are no plans for repayment 24 because you're going to make it an equity amount? 25 A. Yes. 55 1 Q. Now, for the first nine months of 2 2007, did Tropicana Atlantic City meet its 3 forecasts? 4 A. I don't believe so. 5 Q. And will it therefore be unlikely 6 that it will achieve its forecast for the whole 7 year of 2007? 8 A. Not the original forecast, no. 9 Q. Now, for 2008, are the operating 10 expenses of Tropicana Atlantic City projected to 11 decrease from the prior year? 12 A. The original forecast did, yes. 13 Q. Do you anticipate that will be the 14 same in your new forecast? 15 A. There will be a decrease. It might 16 be better adjusted based on new information. 17 Q. As a result of reduction in staffing 18 and the inability to meet the forecast of the 19 first nine months of 2007, do you believe that it 20 is questionable whether or not Atlantic City can 21 maintain its revenue and GOP going forward during 22 the forecast period? 23 A. Well, again, that's an operational 24 question in terms of, you know, whether that's 25 going to have an impact or not. I really 56 1 couldn't say. 2 Q. So to prepare the forecast, you're 3 going to have to speak with operational people in 4 Atlantic City and Kentucky and then pull this 5 information together and then submit it? 6 A. Yes. 7 Q. Now, is excess cash at Tropicana 8 Atlantic City upstream to Aztar in its cash 9 management system? 10 A. Yes, it is. 11 Q. And will Tropicana Atlantic City 12 have a decrease to $35 million in its cash 13 balance, as of the end of the year, which would 14 be down about $28 million for the year? 15 A. I'm not familiar with exactly what 16 the number is, but that level wouldn't surprise 17 me. 18 Q. Why is that the case? 19 Why would you leave the money here, as 20 opposed to, you know, taking it to Kentucky? 21 A. Well, if it is not needed. I mean, 22 obviously, we would move upstream the lower level 23 of cash that is beneficial. 24 Q. What would you do with the money 25 when you upstream it? 57 1 A. Well, we either use it to pay down 2 debt or we invest it. 3 Q. Now, for 2007, are you aware that 4 Tropicana intended to spend $34.6 million in 5 terms of capital expenditures? 6 A. I believe that was the projection, 7 yes. 8 Q. How much of that money has been 9 spent at this point? 10 A. I'm not exactly sure of the number, 11 maybe $15 million to $20 million of that. 12 Q. How will the rest of the money be 13 spent? 14 A. In terms of when or on what project? 15 Q. Both. 16 When and on what project? 17 A. I believe we're continuing the room 18 renovation and the casino floor and restaurant 19 renovations in the fourth quarter and I believe 20 it might extend into the first quarter of 2008. 21 I believe the original projection of $35 million 22 is still accurate, as far as we know. 23 Q. So you anticipate that by early next 24 year that amount of money will be spent and the 25 projects will be completed? 58 1 A. Yes. 2 Q. Now, was the current refurbishment 3 of the Tropicana Atlantic City hotel rooms and 4 the casino floor planned by the prior owners? 5 A. I believe part of it was. I am not 6 sure about all. 7 Q. Now, throughout the forecast period, 8 is the maintenance expense forecasted to go 9 downward? 10 A. I believe in the forecast, it did 11 drop because of the phasing out of those major 12 capital projects. 13 Q. And for the last few years of the 14 forecast, you were basically looking just at 15 maintenance? 16 A. That's correct. 17 Q. And throughout the forecast period, 18 did you also forecast the upstreaming of 19 significant proceeds through Aztar to Tropicana 20 Entertainment? 21 A. Yes. 22 Q. Now, I wonder if you could explain a 23 little bit of the thought process behind the 24 capital expenditures. I know you testified on 25 direct about it, but do you always just forecast 59 1 maintenance; would that be accurate? 2 A. Other than if we have identified a 3 project, that's generally how we've done things 4 in the past. Until we identify a project, we 5 don't throw in an estimate of some major project 6 that we have not identified. 7 Q. How far along does the project have 8 to be before its actually included in the 9 forecast? 10 A. It would be included at least with 11 an estimated number as soon as we're aware that 12 it is something we want to do. 13 Q. Are you aware that the numbers that 14 were in your projections were well below what 15 Tropicana Atlantic City has historically had as a 16 standard? 17 A. I am now, yes. 18 Q. Now, would it be correct that for 19 the five-year period ending December 2010 that 20 you forecasted that Tropicana Atlantic City's 21 cap ex expenditures would only be about 22 3.9 percent of net revenues? 23 A. Yes. 24 Q. Now, with regard to the money that 25 is going to be upstream to Tropicana 60 1 Entertainment, will most of those funds go to pay 2 the acquisition debt? 3 A. Yes. 4 Q. Now, you said that the change in the 5 cap ex would be included in your new forecast? 6 A. Yes, it will. 7 Q. And that you did not know about the 8 regulatory requirement regarding cap ex? 9 A. I did not, no. 10 Q. And how exactly did you learn of the 11 requirements? 12 A. I believe through reading the report 13 that was issued by the Division. 14 Q. And your forecasting now will meet 15 that requirement; would that be accurate? 16 A. Yes. 17 Q. Now, what was the input of Tropicana 18 Atlantic City into the forecast that was 19 submitted for the -- received for the renewal -- 20 I mean, for the initial qualification of 21 Tropicana? 22 A. I believe we gave them some general 23 guidelines and they submitted -- the report that 24 is required for the properties is a lot more 25 detailed than the report that we were submitting 61 1 on a consolidated corporate-wide basis so they 2 had to give a lot of input in terms of how that 3 forecast would be done. 4 Q. Now, can you describe in detail the 5 nature and extent of any discussions that you had 6 with Tropicana Atlantic City financial personnel 7 with regard to the projections? 8 A. I remember a number of calls with 9 Chris Broome, who is the director of finance at 10 the property, looking at what the projections 11 were going to look like and some of the input 12 that we were going to need from her to help 13 complete that process. 14 Q. Did you discuss staffing level needs 15 with her during these conversations? 16 A. I don't recall discussing staffing 17 levels with her. 18 Q. Did you discuss Havalex (ph) with 19 her during those discussions? 20 A. Yes. 21 Q. And what did she inform you? 22 A. I mean, she was the one that 23 provided with us with the schedule of what the 24 existing projects in the books were going to cost 25 the company. 62 1 Q. Okay. 2 Now, did Tropicana Entertainment forecast a 3 net loss for 2007? 4 A. I believe our forecast showed a net 5 loss after depreciation and amortization, yes. 6 Q. And that was primarily due to net 7 interest expense from the acquisition? 8 A. Yes. 9 Q. Would a loss be greater as a result 10 of the first nine months of operation? 11 A. Yes. 12 Q. Is Tropicana Atlantic City a major 13 part of the Tropicana Entertainment operation? 14 A. Yes. It is a very big part. 15 Q. Almost half, correct? 16 A. Yes. 17 Q. And, at least, for the forecast 18 years, is cash flow from operations expected to 19 increase at the Tropicana Entertainment level? 20 A. I believe it is, yes. 21 Q. And those are going to be sufficient 22 to allow you to make substantial payments on your 23 term loan? 24 A. Yes. 25 Q. Now, how did the staffing reductions 63 1 at the various properties play into being able to 2 have the funds available and to make the debt 3 payments? 4 A. Well, we entered into our 5 calculation what our margins were and what our 6 expected EBITDA was going to be and our cash flow 7 was going to be at various properties. 8 Q. When were the staffing decisions 9 made? 10 A. I'm not sure when they were made. I 11 believe some of them were made prior to the 12 acquisition. 13 Q. So, basically, as you were incurring 14 the debt, you decided that you needed to make 15 some staffing reductions, correct? 16 A. It really was done as a part of the 17 final discussions. 18 Q. And those were in discussions with 19 the bank and information presented to the bank? 20 A. I believe so. 21 Q. And then other decisions were made 22 following acquisition? 23 A. I believe that's the sequence, yes. 24 Q. Now, during the five-year period 25 that ends December 2010, do you forecast paying 64 1 any debt other than on the term loan? 2 A. Only the term loan will be paid 3 down; that's correct. 4 Q. And virtually all the term loan was 5 incurred with regard to the Aztar acquisition? 6 A. Yes. 7 Q. And in addition to the term loan, 8 you have approximately $100 million in 9 subordinated notes outstanding, correct? 10 A. $960 million in subordinated notes. 11 Q. And that's in addition to the 12 revolver, which we discussed, correct? 13 A. That's in addition to the revolver, 14 yes. 15 Q. And the $440 million in Las Vegas? 16 A. Yes. 17 Q. Now, from 2006 to 2007, is the 18 Tropicana Entertainment cash balance going to 19 increase? 20 A. Will the cash balance increase from 21 the end of 2006 to the end of 2007? 22 Q. Right. 23 A. I would guess that it's probably 24 going to remain about the same because we do have 25 a required principal payment near the end of 65 1 December so the cash balance will be paid down at 2 that point when we make that required interest 3 payment. 4 Q. Were you forecasting an increase, 5 aside from the developments with regard to your 6 actual operations? 7 A. I can't recall if we forecasted an 8 increase or not. 9 Q. And does Tropicana Entertainment 10 expect to spend relatively limited amounts in 11 terms of cap ex mostly for maintenance during the 12 latter years of the agreement period? 13 A. For Tropicana Entertainment in 14 total? 15 Q. Yes. 16 A. I believe there are a number of 17 projects that are currently in progress; some 18 kind of garage down in Baton Rouge. So those are 19 projects that will be completed during the early 20 part of 2008 that weren't forecast. 21 Q. But for 2009/2010 you're 22 anticipating low cap ex, mostly maintenance? 23 A. In the forecast, we projected mostly 24 maintenance, yes. 25 Q. And that's in line with your 66 1 philosophy about just projected maintenance 2 unless there is a particular project, correct? 3 A. Correct. 4 Q. Now, you spoke about the Tropicana 5 Las Vegas debt during the direct. 6 As a result of the project that is planned 7 in Las Vegas, there will be a substantial debt 8 upon that operation; is that correct? 9 A. That's correct. 10 Q. And the Tropicana Las Vegas 11 operation and debt on that property are not 12 reflected on Tropicana Entertainment's 13 consolidated results, correct? 14 A. No, it will be; that entity will 15 consolidate in for accounting purposes, but the 16 debts will be separate. 17 Q. Is it now consolidated? 18 A. Yes, it is. 19 Q. Will the financing arrangements 20 basically affect the ability of 21 Tropicana Las Vegas to upstream funds to 22 Tropicana Entertainment and Tropicana? 23 A. It might, yes. 24 Q. Based on that situation, will 25 Tropicana Atlantic City continue to be the 67 1 primary entity to which you'll look for repayment 2 of the term loan? 3 A. Yes. 4 Q. Now, are you aware of any problems 5 with regard to Indiana in submitting income 6 statements, financially? 7 A. No, I am not. 8 Q. You haven't had any contact from the 9 Indiana gaming regulators with regard to that? 10 A. Not personally, no. 11 Q. Now, with regard to the corporate 12 credit cards, in the last six months of 2003 and 13 the first six months of 2004, were certain credit 14 card charges of Mr. Yung on his business cards 15 improperly accounted for as corporate expenses? 16 A. Yes. 17 Q. Were there any written controls with 18 regard to corporate charges at that time? 19 A. There were general written 20 procedures in regard to use of corporate credit 21 cards. 22 Q. But nothing specific as to his 23 business cards? 24 A. No. 25 Q. And did missed personal items windup 68 1 as deductions on the corporate income tax return? 2 A. I believe in one year there might 3 have been, but it was corrected the following 4 year. 5 Q. And that would have been for that 6 2003/2004 period? 7 A. I think the 2003. 8 Q. Now, did those items include 9 artwork? 10 A. I believe one of those was artwork. 11 Q. European vacation items? 12 A. Yes. 13 Q. Florida residence items? 14 A. Yes. 15 Q. And some private jet travel? 16 A. I believe so, yes. 17 Q. Now, did the charges amount to 18 approximately $56,000 in 2003? 19 A. I don't recall the exact amount, but 20 that's about the right number probably. 21 Q. And about $41,000 in 2004? 22 A. Again, I can't remember the specific 23 number, but it was in that neighborhood. 24 Q. Okay. 25 Now, you said that those items were 69 1 addressed on Mr. Yung's income tax return in 2 2004? 3 A. I believe so. 4 Q. Now, how were the 2003 personal 5 items reported? 6 A. We adjusted the loss carried forward 7 from 2003 to reflect that. 8 Q. And how about the 2004 personal 9 items? 10 A. The return hadn't been filed so we 11 corrected those items before the return had 12 actually been filed. 13 Q. And you reported that as income, 14 other self-employment income with regard to those 15 items? 16 A. I'm not sure how we actually 17 accomplished that. It was either an adjustment 18 of his personal income or it was an adjustment at 19 the corporate level. I can't recall. 20 Q. Now, for the relevant 2003/2007 21 period were food and beverage and gasoline 22 charges by Mr. Yung also claimed as business 23 expenses? 24 A. During what period? 25 Q. 2003/2004. 70 1 A. Some of those items may have been. 2 Q. Were those items also addressed in 3 the tax filing? 4 A. Yes. 5 Q. Okay. 6 Now, does Mr. Yung have tax credits that can 7 be offset against any amounts in any event? 8 A. I'm not sure what you mean by tax 9 credits. 10 Q. Does he have credits available to 11 him that would be available with regard to any 12 tax amounts that he might owe for 2003/2004? 13 A. During those periods, yes, there 14 were some loss carried forward. 15 Q. Now, in October 2005, did Columbia 16 Sussex adopt written procedures pertaining to 17 review of Mr. Yung's corporate credit card 18 charges? 19 A. Yes, we did. 20 Q. Can you describe those procedures? 21 A. Well, there is a two-level 22 procedure. Mr. Yung's administrative assistant 23 reviews his credit card charges first and then I 24 review them in addition to Mr. Yung, looking at 25 them personally. We identify anything that might 71 1 be of a personal nature and charge him for those 2 items personally. And then at the end of the 3 year, our internal audit staff does an overall 4 review of the whole year's activity to make sure 5 that there weren't any items that were overlooked 6 in that monthly process. 7 Q. And items allocated to Mr. Yung are 8 charged to him personally; is that accurate? 9 A. Yes. 10 Q. And all the items are checked 11 closely currently under the procedure? 12 A. Yes. 13 Q. Now, in the summer of 2000, did 14 Grant Thorton approach Columbia Sussex with 15 regard to a tax shelter concept? 16 A. Yes, they did. 17 Q. And was the Grant Thorton partner 18 John Michael? 19 A. John Michael. 20 Q. And is that correct that he was the 21 person that contacted you? 22 A. Yes. 23 Q. And what is your relationship with 24 Mr. Michael? 25 A. Grant Thorton and John Michael had 72 1 been engaged by us to review tax returns for the 2 corporation and for Mr. Yung for a number of 3 years before that and he, also, and his firm 4 provided general tax consulting to Columbia 5 Sussex and to Mr. Yung and related companies. 6 Q. Now, did Grant Thorton provide a 7 draft of this opinion regarding the tax shelter 8 in the fall of 2000? 9 A. Yes. 10 Q. What was the conclusion of the draft 11 opinion? 12 A. It was more likely than not that the 13 position that was proposed would pass IRS 14 scrutiny. 15 Q. What was your involvement in the 16 proposed tax shelter? 17 A. I reviewed the documentation that 18 Grant Thorton presented and assisted in carrying 19 out the steps that they laid out in their 20 proposed tax process. 21 Q. Now, did the tax shelter arrangement 22 involve transferring $30 million tax free from 23 the Cayman Island corporations owned by Mr. Yung 24 and family trust in a leveraged distribution 25 transaction? 73 1 A. Yes, it did. 2 Q. And did Mr. Yung have the voting 3 rights in the Cayman Island corporations with 4 sole authority to approve those transactions? 5 A. Yes, he did. 6 Q. Now, in September of 2000, did 7 Mr. Yung accept the terms of the Grant Thorton 8 engagement letter? 9 A. Yes. 10 Q. And was Grant Thorton to be paid a 11 fee of 3 percent of the amount of distribution 12 plus expenses. 13 A. I am not sure it was 3 percent. I 14 think it was a fixed dollar amount. 15 Q. Well, did the amount that was paid 16 to Grant Thorton seem like a lot to pay for the 17 work performed, which was $900,000? 18 A. It was not unusual for those types 19 of transactions that were being done at that time 20 by other accounting firms. It wasn't unusual in 21 that sense. 22 Q. Well, in the sense of the 23 accountants, do you usually pay them a set amount 24 per hour per project; do you usually pay them 25 that kind of money for an opinion? 74 1 A. We had not in the past; but, again, 2 other firms we had -- you know, prior to that, we 3 had a number of other firms make presentations to 4 us that had similar amounts of fees, which were 5 proposed fees. 6 Q. And how did the whole idea of the 7 tax shelter come about, were you looking to move 8 the money from the Cayman Islands or did 9 Grant Thorton approach you? 10 A. I believe Grant Thorton knew that we 11 were interested in trying to find a way to move 12 those funds, but they approached us. 13 Q. Was there any specific purpose in 14 moving the funds? 15 A. At the time, we were in the process 16 of looking at an acquisition in the United States 17 that would have required additional funds and we 18 were looking at alternatives to access more 19 resources. 20 Q. Did tax counsel advise that Mr. Yung 21 could rely on the Grant Thorton opinion? 22 A. Yes. 23 Q. Why did you arrange to obtain tax 24 counsel advice? 25 A. It was an unusual transaction and we 75 1 wanted some additional advice. 2 Q. Now, on December 29th, 2000, did a 3 series of transactions occur with regard to a 4 $30 million dividend distribution? 5 A. Yes. 6 Q. And, basically, did the control from 7 the island corporations borrow $30 million and 8 use the proceeds to purchase U.S. Treasury bonds, 9 which were then used as collateral for the 10 borrowing of the loan, the $30 million loan? 11 A. Yes. 12 Q. Did the Cayman Island corporations 13 distribute the treasury bonds to the U.S. 14 shareholders? 15 A. Yes. 16 Q. How did this transaction actually 17 occur; where were you or where was Mr. Yung? 18 What actually happened that day? 19 A. Honestly, I don't recall. 20 Q. Now, at the time under the Internal 21 Revenue Code, was the amount to be included as 22 shareholder income attributable to a corporate 23 distribution, the fair market value of the 24 property distributed reduced by the liability 25 alone? 76 1 A. I believe you've described it 2 correctly, yes. 3 Q. Then was the $30 million value of 4 the treasury bonds reduced by the $30 million 5 debt? 6 A. Yes. 7 Q. So, basically, there was no value? 8 A. Yes, ma'am. 9 Q. Did Mr. Yung or the trust recognize 10 any income from the receipt of the treasury bonds 11 on their 2000 federal income tax return? 12 A. No. 13 Q. And were there any disclosures to 14 the IRS of the bonds received? 15 A. No. 16 Q. Were there any disclosures of the 17 leveraged distribution transaction? 18 A. No. 19 Q. Now, did the tax issue pertain to 20 Section 301 of the Internal Revenue Code? 21 A. I don't know the tax code section. 22 Q. You're not familiar with that? 23 A. No, I am not. 24 Q. Are you familiar that that tax code 25 section was amended effective for transactions 77 1 occurring after January 4, 2001, which is about 2 six days after your transaction? 3 A. No, I am not. 4 Q. Were you familiar with an IRS Notice 5 9959 that was published in 1999 regarding BOSS 6 transactions, Bond and Option Strategy Sales. 7 A. I have heard of the term BOSS 8 transactions. I'm not familiar with that 9 regulation. 10 Q. Did you know that the change in the 11 IRS code applied retroactively to BOSS 12 transactions? 13 A. Again, I'm not familiar with that 14 regulation. 15 Q. Now, in light of the fact that you 16 didn't have a written opinion at the time when 17 you did the transactions from Grant Thorton, the 18 actual written opinion, did you have any concerns 19 with proceeding at that point in time? 20 A. No. I mean, we had a draft that had 21 been reviewed by both parties and we were very 22 comfortable with that situation. 23 Q. Now, did -- why didn't Grant Thorton 24 issue its full written opinion until August of 25 2001, which was approximately eight months after 78 1 the leveraged distribution transaction? 2 A. I believe they were including the 3 actual facts of the transaction and we wanted to 4 make sure they had that properly documented with 5 their opinion. 6 Q. And that took eight months? 7 A. I mean, again, I don't recall all 8 the circumstances as to why it took that long. I 9 know they wanted to verify the exact reference to 10 the bonds that were purchased and the loan and 11 make sure that they had the proper terms of the 12 loan included as exhibits to their opinion. 13 Q. Now, did you review the tax opinion 14 upon its receipt? 15 A. Yes. 16 Q. Did you review it in its entirety? 17 A. No, I did not. 18 Q. Why is that? 19 A. Have you read the tax opinion. 20 Q. Yes, I have. 21 A. I made it through about the first 15 22 pages. 23 Q. Were you satisfied with what you 24 read? 25 A. Yes. 79 1 Q. Now, did the opinion state that it 2 was subject to significant risk that the IRS may 3 challenge the tax treatment? 4 A. I believe there was some wording to 5 that effect in there, yes. 6 Q. Did it also say that it was subject 7 to substantial risk that a court would sustain an 8 IRS challenge? 9 A. I believe it did, yes. 10 Q. Would you have proceeded with the 11 leveraged distribution transaction if you had 12 received the opinion prior to the closing? 13 A. Yes. 14 Q. Now, in September of 2001, did the 15 Cayman Island corporations pay the $30 million 16 loan that was secured by the U.S. treasury notes? 17 A. In what year was that? 18 Q. September 2001? 19 A. Was the loan repaid? 20 Q. Yes. 21 A. Yes. 22 Q. Were the treasury bonds then 23 transferred to the shareholders? 24 A. They had already been transferred to 25 the shareholders. 80 1 Q. But they matured at that time or 2 shortly thereafter? 3 A. Yes. 4 Q. Now, as part of the IRS examination 5 of Columbia Sussex, did the IRS request in 6 February of 2003 that Columbia Sussex disclose 7 any tax shelter involvement by it or its 8 affiliates directly or indirectly? 9 A. I don't recall the exact wording of 10 that. We consulted with Grant Thorton for advice 11 on how to respond. 12 Q. But you are familiar that there was 13 a request for that type of response? 14 A. Yes. 15 Q. Why did you decide to go to Grant 16 Thorton for help in responding to the IRS? 17 A. They are our tax accountants. I saw 18 no reason not to include them or not to go to 19 them. 20 Q. Are you familiar that their response 21 was that there had been none? 22 A. Yes, I am. 23 Q. And how did that come about in light 24 of the fact that there had been a leverage 25 distribution transaction? 81 1 A. The advice I got from Grant Thorton 2 was that did not meet that definition of that 3 particular section. 4 Q. And so you agreed that the response 5 was correct with respect to Grant Thorton's 6 compliance with the IRS? 7 A. Yes. Not being a tax lawyer, I had 8 to rely on our experts, which were at that time 9 Grant Thorton. 10 Q. Now, did the IRS disagree with that? 11 Did they maintain that the distribution 12 should have been disclosed in response? 13 A. I believe they did, yes. 14 Q. In March of 2004, did the IRS 15 withdraw papers that they had sent relating to a 16 refund that was to be made to the Yungs? 17 A. I don't recall that. It's possible. 18 Q. Okay. 19 Now, are you familiar with the IRS finding 20 out about the leveraged distribution transaction? 21 A. I am aware that they did find out, 22 yes. 23 Q. Do you know how they found out? 24 A. I don't recall. 25 Q. Did anyone at Columbia Sussex 82 1 disclose the tax shelter to the IRS during the 2 audit that had been done with regard to 3 Mr. Yung's filings? 4 A. Initially, no. I can't recall if it 5 was done later on. 6 Q. Now, did the IRS meet with Columbia 7 Sussex personnel in late March for an explanation 8 of the tax shelter arrangement? 9 A. I don't recall when that meeting 10 took place. 11 Q. But they did meet with 12 Columbia Sussex? 13 A. I have a recollection that there was 14 a meeting. 15 Q. Were you at that meeting? 16 A. I think I was. 17 Q. What did they say? 18 A. I don't recall. 19 Q. Now, shortly thereafter, the IRS 20 advised that it would audit the trust returns, as 21 well as Mr. Yung's returns? 22 A. Yes. 23 Q. Was the IRS position after the 24 review that the transaction was substantially 25 similar to one which was under the IRS Code 301 83 1 and that that would apply retroactively? 2 A. I believe that was their position, 3 yes. 4 Q. Now, as a result of the IRS audit 5 and its determinations, have the Yung's paid tax, 6 penalty and interest? 7 A. Yes. 8 Q. And has the trust paid tax, penalty 9 and interest? 10 A. I believe the trust made that 11 payment if not last week, this week here. 12 Q. And that was for the additional 13 actual interest, correct? 14 A. The other amounts had been paid 15 previously; that's correct. 16 Q. Now, with regard to the 17 accuracy-related penalty involved in the IRS 18 audit, is it correct that the IRS cited a 19 demonstrated disregard for rules and regulations? 20 A. Again, in the final determination? 21 Q. Yes. 22 A. I don't recall what it says. 23 Q. Did it cite a reliance on the 24 Grant Thorton opinion without it being fully 25 reviewed or challenged? 84 1 A. Again, I don't recall exactly what 2 the final decision was that was made. 3 Q. To your knowledge, did it cite a 4 failure to disclose? 5 A. Again, I don't recall what the final 6 ruling stated. 7 MS. FLAHERTY: Could we just take a 8 minute? 9 CHAIR KASSEKERT: Sure. 10 (Pause.) 11 Q. Mr. Mitchel, I am just going to show 12 you page 12 of the 21-page IRS document, which is 13 attached to Mr. Yung's sworn interview, which is 14 D-10, and ask that you review this paragraph. 15 COMMISSIONER EPPS: Where is it? 16 MS. FLAHERTY: It's in D-10, 17 Commissioner, in a clipped section that's the 18 Internal Revenue Service report on the Yung's IRS 19 answer. 20 MR. DiGIACOMO: Ms. Flaherty, 21 through the chair, if you could help identify 22 what document we're talking about for the record? 23 MS. FLAHERTY: It's page 11. It's 24 an exhibit to Mr. Yung's sworn interview, which 25 is in evidence as D-10 and it is the IRS report 85 1 with regard to Yung's federal income tax. I 2 believe it is the second-clipped document, page 3 12. 4 CHAIR KASSEKERT: Page 12 of 21. 5 COMMISSIONER EPPS: It has an 6 exhibit tag for ID, but then we're deep, deep in 7 the... 8 BY MS. FLAHERTY: 9 Q. Mr. Mitchel, having had an 10 opportunity to review that, what is your response 11 to those portions of the IRS findings with 12 regards to the conduct and failure to disclose? 13 A. My reaction is that it says what it 14 says. 15 Q. Do you have any response to that, 16 any position? 17 A. Our response is that we relied on -- 18 in a very complicated tax situation, we relied on 19 tax experts to advise us on how to proceed and we 20 relied on the individuals that should know the 21 tax codes. 22 Q. How about with regard to the failure 23 to disclose that? 24 A. Again, we relied on their advice and 25 they are the experts on these sections of the 86 1 code and what is responsive. 2 Q. And even when the IRS was at your 3 offices doing the audit with regard to the 4 returns, you didn't feel that it was important 5 to -- 6 A. Again, we followed the advice of our 7 outside accountants. I mean, taxes are very, 8 very complicated. I know a lot about taxes, but 9 I don't know really enough to deal with these 10 kinds of matters. We have to rely on people that 11 that's all they do for a living. 12 Q. Now, with regards to some of the 13 regulatory violations, there was a major CTR 14 issue with regard to the Greenville, Mississippi 15 property. 16 Were you involved in that at all? 17 A. I was aware of it, yes. 18 Q. What steps were taken to deal with 19 that problem? 20 A. Initially, we hired Deloitte & 21 Touche to do a thorough evaluation of the 22 preparation of the CTRs for the whole period that 23 encompassed the IRS examination period. They 24 helped us identify procedures that needed to be 25 put in place to properly capture the data needed 87 1 to do the CTRs. 2 We hired them, also, on an ongoing 3 basis to conduct training at all of our 4 facilities, not just the facility at issue. 5 And then we hired at that time, I 6 don't believe it was Brian Doyle, but one of his 7 predecessors in that same position as he had to, 8 to -- in addition to do -- in addition to do 9 additional testing of the CTR preparation process 10 and Title 31. 11 Q. Is that the basis for the importance 12 of the Title 1 compliance, which Ms. More 13 testified to this morning at the various 14 properties? 15 A. I believe that's part of that. I 16 don't recall exactly what Ms. More said, but I 17 believe that's part of it. 18 MS. FLAHERTY: I have no further 19 questions. 20 Thank you, Commissioners. 21 CHAIR KASSEKERT: Questions from 22 commissioners? 23 COMMISSIONER EPPS: I have a couple. 24 The Grant Thorton issue -- I'll 25 start at the back and go forward. 88 1 Your testimony, I think, was that 2 they gave an opinion that said, It was more 3 likely -- what was that? 4 THE WITNESS: More likely than not. 5 COMMISSIONER EPPS: That it would 6 pass... 7 THE WITNESS: That it would pass IRS 8 scrutiny. 9 COMMISSIONER EPPS: In your 10 experience, is that enough of a certainty to move 11 forward? 12 THE WITNESS: At the time, that was 13 the accepted certainty that we needed on tax 14 opinions. 15 COMMISSIONER EPPS: That is the 16 standard then in order for you to -- 17 THE WITNESS: At that time that was 18 the standard, yes. 19 COMMISSIONER EPPS: What is the 20 standard now? 21 THE WITNESS: Well, there has been, 22 obviously, a lot of change since the whole tax 23 shelter thing has come to light so there is a 24 different standard. I couldn't tell you how it 25 is worded. 89 1 COMMISSIONER EPPS: When you say the 2 standard, whose standard is it? 3 THE WITNESS: The IRS's standard. 4 COMMISSIONER EPPS: Okay. 5 So the IRS set the standards you 6 could rely on from counsel? 7 THE WITNESS: Counsel or outside 8 accountants. 9 COMMISSIONER EPPS: Okay. 10 At Columbia Sussex or at its 11 progeny, if you will, what is the table of 12 organization on the finance side? 13 I believe you said you were the 14 chief accounting officer. 15 THE WITNESS: Yes. 16 COMMISSIONER EPPS: Can you break 17 that table of organization out for me? 18 THE WITNESS: There is Mr. Yung on 19 top and then there is a series of direct reports 20 to Mr. Yung, which includes the CFO, the VP of 21 operations, VP of finance, VP of food and 22 beverage, corporate counsel. 23 COMMISSIONER EPPS: Now, where are 24 you on that table of organization, are you on 25 that line? 90 1 THE WITNESS: I am underneath the 2 chief financial officer. 3 COMMISSIONER EPPS: So you report to 4 the chief financial officer? 5 THE WITNESS: Yes. 6 COMMISSIONER EPPS: Okay. 7 Mr. Jacob, who testified earlier, 8 would have been -- was your -- 9 THE WITNESS: He is my immediate 10 supervisor. 11 COMMISSIONER EPPS: Your immediate 12 supervisor; okay. 13 Now, on the issue of the cap ex 14 forecast where you said they were lower and they 15 just reflect maintenance until you discover 16 projects that you're willing to do, now, once you 17 discover a project, do you then have to submit a 18 new forecast because the numbers are now going to 19 be impacted one way or the other? 20 THE WITNESS: Well, it depends on 21 the purpose of the forecast that was done. I 22 mean, with a lender, we submit a forecast in the 23 beginning of a loan and unless the loan requires 24 an updated forecast, we wouldn't update it. If a 25 loan agreement required an updated forecast, 91 1 obviously, we would incorporate that new 2 information in future forecasts. 3 COMMISSIONER EPPS: What is the 4 impact of setting your forecast for cap ex the 5 way that you do and then later doing a pretty 6 significant project, which now impacts your 7 ability to meet your forecast? 8 How do you do that going forward if 9 you have projected such a low cap ex? 10 THE WITNESS: Well, in a lot of 11 cases, there is a separate financing arrangement 12 for that additional capital contribution. 13 Now, that's not allowed under our 14 arrangement with Tropicana Entertainment; but on 15 the hotel side, generally, if there is a major 16 cap ex item, you know, we will go finance that 17 separately. And that's again, another reason why 18 we historically haven't had a -- projected those 19 kinds of projects because a lot of times they are 20 financed separately. 21 COMMISSIONER EPPS: So then in this 22 situation, you were kind of using the hotel 23 model? 24 THE WITNESS: We were kind of using 25 the hotel model. 92 1 COMMISSIONER EPPS: Now, the 2 leverage ratio that was missed in Q3, you said, 3 it would have been tight in Q4. 4 You're in the process of 5 renegotiating the covenant. 6 THE WITNESS: Yes. 7 COMMISSIONER EPPS: But we're at the 8 end of November and you've got from now to the 9 rest of, I guess, December to get that done. 10 Is there another test at the end of 11 December that if this negotiation isn't completed 12 you would have to meet? 13 THE WITNESS: Well, I think once 14 we're in -- you know, we're in default now. The 15 fact that we don't meet the next quarter really 16 doesn't make a whole lot of difference. 17 COMMISSIONER EPPS: Doesn't 18 change... 19 THE WITNESS: I mean, we're already 20 in that situation so it doesn't really matter. 21 COMMISSIONER EPPS: Now, you said 22 that the Pennsylvania impact -- will that 23 Pennsylvania impact be in your -- the 24 Pennsylvania impact on '07 will be readdressed. 25 When you show the Pennsylvania 93 1 impact in '08 going forward, will you project a 2 greater impact or how do anticipate the impact of 3 Pennsylvania going forward? 4 THE WITNESS: We'll discuss that 5 with the operations people, with Mark and Kevin 6 and what they anticipate the effect to be on 2008 7 going forward and we will roll that into the 8 revised projections. 9 COMMISSIONER EPPS: Now, you 10 testified that in these renegotiations for the 11 covenants, you're not directly involved in those 12 discussions. 13 Is that because the CFO would take 14 that role? 15 THE WITNESS: Yes. 16 COMMISSIONER EPPS: Okay. 17 Then you testified as to the CSC 18 Holdings having loaned money to Trop. 19 What necessitated that loan? 20 THE WITNESS: Well, it was done as a 21 vehicle to get the required money that the lender 22 wanted put in as, basically, as equity and it was 23 a vehicle that we chose to use to facilitate the 24 future repayment of that money. 25 COMMISSIONER EPPS: Okay. 94 1 Now, help me understand. 2 If Mr. Yung owns CSC Holdings and 3 Mr. Yung owns Trop, would it have been possible 4 for Mr. Yung to just put money in Trop without 5 doing a loan? 6 Would that have been allowed? 7 THE WITNESS: We would have -- to do 8 that, we would have had to upstream the money to 9 Mr. Yung personally and let him put it down in. 10 Otherwise, if Columbia Sussex had 11 made a direct investment in Tropicana Casinos and 12 Resorts, it would have triggered some additional 13 regulatory filings. 14 COMMISSIONER EPPS: So then you had 15 to do it by way of a loan to document the 16 transactions and have a paper trail of where the 17 money comes from and have a -- 18 THE WITNESS: That's correct. 19 COMMISSIONER EPPS: Now, there was 20 testimony the other day that Mr. Yung owns this 21 company and Mr. Yung owns that company, at a 22 certain point if the debt is not paid, he could 23 just forget about it. 24 Is that a possible vehicle, also, 25 without any ramifications based on the -- 95 1 THE WITNESS: He could qualify the 2 loan because he is on both side of the 3 transaction. So if it comes to a point in 2018 4 where we need another year or two before the 5 refinancing takes place, he can amend the note to 6 accomplish that. He is the lender so he has 7 control over the repayment of that loan. 8 COMMISSIONER EPPS: What are the 9 financial obligations or financial ramifications 10 of him just forgetting about it? 11 THE WITNESS: What are the financial 12 obligations of that or the ramifications of that? 13 I really couldn't answer that right 14 now off the top of my head. 15 COMMISSIONER EPPS: But there would 16 be a lot of financial transactions that would 17 have to take place, reportings that would have to 18 take place for that to occur, because it is a 19 paper... 20 THE WITNESS: At that point, I think 21 it would trigger those regulatory, you know, 22 filings for Columbia Sussex because it's 23 essentially made an investment at that point. 24 By forgiving that loan, it would 25 have made an investment in those property's 96 1 directly. 2 COMMISSIONER EPPS: It's a note so 3 there are some ramifications with just saying, 4 Forget about it. 5 THE WITNESS: It's a legal 6 obligation, yes. 7 COMMISSIONER EPPS: Right. 8 So it represents a benefit to the 9 borrower if they forget about it so they would 10 have to -- the borrower would realize a 11 significant contribut -- I mean an impact, gain, 12 right? 13 THE WITNESS: Yes. 14 COMMISSIONER EPPS: But you 15 suggested that it can be refinanced and reworked 16 so it can be paid down or the plan is to work out 17 so that if your income gets better and things 18 turn around, you can plan on paying it as you go 19 down the road, but there is no current plan to 20 pay it; is that correct? 21 THE WITNESS: That's correct. 22 COMMISSIONER EPPS: Okay. 23 Now, you said that the Tropicana 24 Atlantic City represents almost 50 percent, close 25 to 50 percent of what? 97 1 THE WITNESS: I believe it's 2 Tropicana Entertainment's resort. 3 COMMISSIONER EPPS: Okay. 4 What percentage of Tropicana 5 Entertainment does its Las Vegas property 6 represent? 7 THE WITNESS: I don't know the 8 figure off the top of my head. I believe it is 9 15 or 20 percent, but I could be wrong. I'm 10 guessing. 11 COMMISSIONER EPPS: Now, Tropicana 12 Entertainment holds the $40 million loan, also? 13 THE WITNESS: Tropicana 14 Entertainment -- 15 COMMISSIONER EPPS: The Las Vegas 16 loan. 17 THE WITNESS: The actual borrower is 18 the entity that owns the Las Vegas operation. 19 COMMISSIONER EPPS: What entity is 20 that? 21 THE WITNESS: Tropicana 22 Entertainment is not the borrower under that 23 loan. 24 COMMISSIONER EPPS: What entity is 25 the borrower under that loan? 98 1 THE WITNESS: I believe it's 2 Tropicana Las Vegas Casino and Resorts. 3 COMMISSIONER EPPS: Now, is there 4 any obligation, does Atlantic City in any way 5 play into that $440 million Las Vegas loan? 6 THE WITNESS: Not at all. 7 COMMISSIONER EPPS: Not at all. 8 But the Las Vegas property plays 9 into Tropicana Entertainment? 10 THE WITNESS: It's a subsidiary of 11 Tropicana Entertainment. 12 COMMISSIONER EPPS: Okay. 13 So, ultimately, as you were saying 14 in consolidated numbers, it factors in? 15 THE WITNESS: It shows up in a 16 consolidation of Tropicana Entertainment. 17 COMMISSIONER EPPS: Now, you said 18 that in the missed covenant, one of the ways of 19 avoiding that would have been to pay down 20 additional debt. 21 THE WITNESS: That's correct. 22 COMMISSIONER EPPS: What would have 23 been a negative impact? 24 Would there have been a negative 25 impact on the other side? 99 1 I mean, the benefit of it is clearly 2 you would have made your covenant; but would 3 there have been an adverse impact of that outlay 4 of cash? 5 THE WITNESS: Not any immediate one. 6 I mean, there is, obviously, cash usage at that 7 point so our cash balance would have been lower 8 than it was, but our cash balance at the end of 9 September was $100 million. 10 COMMISSIONER EPPS: Would it have 11 affected it evenly? 12 THE WITNESS: No. 13 COMMISSIONER EPPS: Now, you said 14 that if in the future the covenants were tight, 15 you could use additional capital contributions? 16 THE WITNESS: That's one of the 17 alternatives, to use the capital contributions to 18 pay down debt. 19 COMMISSIONER EPPS: From where? 20 THE WITNESS: It could come from 21 Mr. Yung. It could come from additional lending 22 from Columbia Sussex. I mean, there is a variety 23 of different ways that that money could come in. 24 COMMISSIONER EPPS: Now, would those 25 additional borrowings impact your original note? 100 1 Would that change the terms of the 2 original agreement? 3 THE WITNESS: When you say the 4 original note, do you mean the one that is due in 5 2018? 6 COMMISSIONER EPPS: No. The note 7 that addresses -- the covenants that address the 8 note. 9 THE WITNESS: Yes. 10 COMMISSIONER EPPS: If you get 11 additional capital contributions to give you some 12 room in that -- in those covenants, is that -- do 13 I understand your testimony correctly? 14 THE WITNESS: The mechanism would be 15 the money would come into Tropicana Casinos and 16 Resorts, the parent. And it would then be pushed 17 down into Tropicana Entertainment, which is the 18 borrower. It would show as additional equity 19 contribution. 20 COMMISSIONER EPPS: So it would just 21 come down as an additional equity contribution, 22 so it wouldn't show... 23 THE WITNESS: No. 24 COMMISSIONER EPPS: Okay. 25 Now, turning to the forecast for 101 1 '07, you said that there was a $28 million 2 reduction in cost that showed in the forecast for 3 '07? 4 THE WITNESS: Yes. 5 COMMISSIONER EPPS: $17 million of 6 that was payroll? 7 THE WITNESS: Yes. 8 COMMISSIONER EPPS: Were there 9 forecasts that were done during what we've called 10 "the road show" to get financing for the 11 transaction? 12 THE WITNESS: I believe there was 13 some forecasting. 14 COMMISSIONER EPPS: Now, in those 15 forecasts, did they show a reduction in cost? 16 THE WITNESS: I believe they did. 17 COMMISSIONER EPPS: Did some of that 18 reduction reflect payroll? 19 THE WITNESS: I'm sure it did. 20 COMMISSIONER EPPS: Do you know what 21 amount of payroll reduction was reflected then? 22 THE WITNESS: I really don't know. 23 COMMISSIONER EPPS: Do you know how 24 the determination of what reduction in payroll 25 was made during that process? 102 1 THE WITNESS: I really wasn't that 2 involved at that time in that process. 3 COMMISSIONER EPPS: At what time of 4 the year, I mean, what date, if you can give me a 5 date, when was that process going on? 6 THE WITNESS: I'm guessing again, 7 but I think it probably was in the fall of 2006. 8 COMMISSIONER EPPS: Okay. 9 So in the fall of 2006, there was an 10 anticipated reduction in cost, some of it from 11 payroll deductions, including at the Tropicana 12 Atlantic City? 13 THE WITNESS: I believe so. 14 COMMISSIONER EPPS: That's it. 15 CHAIR KASSEKERT: Let me ask if 16 there is anything on redirect. 17 MR. O'GARA: No redirect. 18 CHAIR KASSEKERT: Anything on 19 recross? 20 MS. FLAHERTY: Nothing. 21 (Witness excused.) 22 CHAIR KASSEKERT: Why don't we take 23 a quick break, a very, very brief break and I 24 know we want to recall Ms. More for a couple of 25 additional questions and then I think that 103 1 probably will put us pretty close to 5:00. 2 MR. O'GARA: I take it with that you 3 would be done with this witness and bring 4 Ms. More back? 5 CHAIR KASSEKERT: Yes. 6 Okay. 7 So we will just take a quick 8 15-minute break? 9 MR. O'GARA: Fine. 10 Thank you. 11 (Recess: 4:13 p.m. to 4:31 p.m.) 12 CHAIR KASSEKERT: We'll go back on 13 the record. 14 Mr. Michael, I believe you wanted to 15 recall Ms. More? 16 MR. MICHAEL: Thank you. 17 CHAIR KASSEKERT: Thank you. 18 I'll remind her she is under oath. 19 DONNA B. MORE, previously was duly 20 sworn to testify in this matter. 21 DIRECT EXAMINATION BY MR. MICHAEL: 22 Q. There are a few other items that we 23 neglected to cover during your prior testimony 24 and so we'll do that at this point. 25 A. Okay. 104 1 Q. Bill King is presently working on 2 the property, Tropicana internal audit; is that 3 correct? 4 A. That's correct. 5 Q. Are you aware of how Mr. King was 6 retained and hired? 7 A. I believe he would have been hired 8 by our CFO, which at the time would have been 9 Rich Fitzpatrick. 10 Q. It would not have been Fred Buro? 11 A. No. My understanding is it had to 12 be done at the corporate level. 13 Q. There are a few questions with 14 respect to the audit committee meeting of 15 Tropicana Entertainment that was held on 16 June 29th. 17 I'll show you the exhibit that is now 18 marked -- or part of the exhibit that is now 19 marked P-60, which is a copy of those minutes. 20 A. Okay. 21 Q. The minutes reflect, do they not, 22 that you, along with Rich Fitzpatrick were 23 present with Jeff Silver at that meeting? 24 A. That's correct. 25 Q. Could you explain what your role was 105 1 at the meeting and what you did and what position 2 you played? 3 A. I didn't do a whole lot. Jeff was 4 the chairman and member of the committee so he 5 was responsible for pretty much running that 6 meeting. We were just there to sit in, as were a 7 number of other people at the corporate and, I 8 think, at the property level. 9 Is that me squeaking? 10 I hope not. 11 CHAIR KASSEKERT: I don't know. I'm 12 not sure. 13 A. But Jeff was the person who ran the 14 committee. And I don't know -- without reading 15 through this, I don't know if there was any 16 voting; but if there was, he would have been the 17 sole person voting. 18 Q. Is it fair to say you were there for 19 informational purposes and not for any kind of 20 governing -- 21 A. Correct. 22 Q. The minutes also reflect that -- it 23 says here that TCR will hold its initial audit 24 committee meeting on July 16th, 2007? 25 A. Right. 106 1 Q. Did that ever happen? 2 A. I don't believe it did happen. I 3 think we ultimately became focused on getting the 4 audit committee fixed, if you will, for what we 5 needed in New Jersey and from a Sarbannes 6 requirement, we're not required to have one at 7 the corporate level until the end of '08, so I 8 wanted to make sure we got in compliance in 9 New Jersey first. 10 And then actually through the course 11 of our discussions here, the audit committee at 12 the TCR level will not have Mr. Silver on it so 13 he will be the sole member at the New Jersey 14 level and won't -- will not sit on both of those 15 committees. 16 Q. Just to clarify, Mr. Silver has 17 recently resigned from the TCR audit committee? 18 A. Correct. 19 Q. His sole membership at this point 20 with respect to the audit committee is the TEL 21 audit committee, as the sole member? 22 A. Correct, Tropicana Entertainment, 23 correct. 24 Q. Is there a relationship between the 25 TCR audit committee and the Trop Entertainment 107 1 audit committee in any way, shape or form? 2 A. No. 3 Q. So there is nothing that the TCR 4 audit committee once it becomes operable will be 5 able to dictate to the Trop Entertainment audit 6 committee about policy or determinations of 7 corporate conduct? 8 A. No. Jeff will be the sole 9 independent member for purposes of the New Jersey 10 property. 11 Q. In that regard, the minutes here 12 also say that at the TCR audit committee, it was 13 agreed upon that company-wide details of the 14 internal audit and compliance functions would be 15 discussed; that was not intended to mean that the 16 TCR audit committee would dictate to the TEL what 17 those policies were to be? 18 A. No. I think it was intended that 19 Jeff Silver should just be up to speed with what 20 the company is doing generally, but obviously his 21 focus is on New Jersey, specifically. 22 Q. With respect to recent -- with 23 respect to a petition that was once filed with 24 the commission here for the movement of certain 25 IT functions or IT systems, actually, to 108 1 corporate headquarters, are you familiar with 2 that at all? 3 A. Yes. 4 Q. Could you describe what the present 5 status of that is? 6 A. I think what the present status is 7 and that's separate from the management 8 agreement, there was a petition to move, my 9 understanding is, the -- not the jobs related to 10 it, but the actual housing of the information so 11 somebody here in New Jersey would input what I 12 call non-casino information, payroll or time and 13 attendance or whatever. They would actually 14 input it here, but it would be housed on a server 15 system, if permissible, in Kentucky and that was, 16 I think, what that petition was about. We were 17 supposed to have some focus from corporate come 18 in and have the meeting to further elaborate on 19 it. I think they had to cancel due to some 20 scheduling issues, but I think if it isn't 21 rescheduled, it's something that they want to get 22 some clarification on. Again, not the jobs, but 23 the -- for lack of a better term and not being 24 all that knowledgeable, the housing of the 25 information. 109 1 Q. So the people that are inputting the 2 information here would continue to do that? 3 A. Yes; that's correct. 4 Q. But did server, so to speak, would 5 be located someplace else? 6 A. Correct. It would be -- for this 7 non-casino information, it would be a server 8 located in Kentucky. 9 Q. Are you aware whether, as late as 10 today, there was a request for a follow-up 11 meeting on that particular petition? 12 A. I believe there was. Again, we had 13 some scheduling issues of getting our people in 14 from corporate who could effectively talk about 15 it so I think there is another request in to 16 discuss whether the information can be housed 17 offsite. 18 Q. But that's what that is about, then 19 that's distinct from the management services 20 agreement issues that you had talked about in 21 your prior testimony? 22 A. Correct. 23 Q. While we're talking about 24 distinctions, let me make an additional point 25 with respect to the audit committees. 110 1 You said the TCR audit committee has not yet 2 met; that's distinct from the TCR compliance 3 committee? 4 A. Correct. 5 Q. And the TCR compliance committee has 6 met? 7 A. Yes, the TCR compliance committee 8 has met three times. 9 Q. The financial questions are about 10 the reporting lines. 11 Mr. Edwards, your surveillance director at 12 Tropicana, who does he report to now? 13 A. Mr. Edwards, who is head of 14 surveillance reports to Mr. Silver, Jeff Silver. 15 Q. And how about Mr. King, the lawyer? 16 A. Bill King reports to Karen Brugler. 17 Karen Brugler reports to Jeff Silver. 18 MR. MICHAEL: I have no other 19 questions. 20 CHAIR KASSEKERT: Anything on cross. 21 CROSS-EXAMINATION BY MS. MAHER: 22 Q. Who is on the TCR compliance 23 committee? 24 A. At this point that is a question in 25 flux because, as I mentioned, we had anticipated 111 1 potentially having Mr. Silver on as an 2 independent member. But so there is no confusion 3 or perceived issue, we will go back and redo the 4 membership of the TCR committee and leave 5 Mr. Silver in place at the Trop Entertainment or 6 at the New Jersey level. I think we also have 7 something pending to push that down to Ramada 8 Holdings of New Jersey, but at the New Jersey 9 level. 10 Q. No. 11 Who is on the compliance committee? 12 A. Oh, I am sorry. 13 On the compliance committee is me, 14 our CFO and Jeff Silver. 15 Q. So Jeff Silver is on the compliance 16 committee and the audit committee for New Jersey? 17 A. Correct. 18 Q. Bill King was not hired by an 19 independent audit committee; is that correct? 20 A. My understanding is that he was 21 hired by our CFO. 22 Q. He was hired at the corporate level? 23 A. At the corporate level, yes. 24 Q. Is it your understanding that it 25 would be a regulatory requirement that he be 112 1 hired by an independent audit committee? 2 A. My understanding is that he could 3 not be hired at the property level. I'm not sure 4 if under the regulations or if it had to be 5 somebody at corporate or an independent audit 6 committee. I don't know. 7 Q. So right now, as it stands, there is 8 not a TCR audit committee; is that correct? 9 A. Correct. 10 Q. You anticipate that being in place 11 by when? 12 A. We have to have it in place by the 13 end of '08. I anticipate it will be in effect 14 well before then. 15 Q. Who was at the June 29th, 2007 audit 16 committee meeting that you referenced in your 17 memo? 18 A. It was a phone meeting. Rich 19 Fitzpatrick and I were there. Jeff Silver was 20 there. Karen Brugler was there. Bill King was 21 there. I believe that was it. 22 Q. Was anyone from surveillance at the 23 meeting? 24 A. No. 25 Q. Do you know why not? 113 1 A. As I sit here today, I don't know. 2 I don't remember if there was a scheduling 3 problem. We had people all over, which is why we 4 did a phone meeting. I know Bill and Karen -- 5 Bill King and Karen were travelling. Rich and I, 6 I know were in Kentucky. Jeff was, I think, in 7 Las Vegas. So I don't know if it was a 8 scheduling issue. 9 Q. Have you had any audit committee 10 meetings since that June 29th meeting? 11 A. We had a meeting a couple of weeks 12 ago. We were in Las Vegas. 13 Q. So the audit committee meeting 14 regarding the Tropicana AC? 15 A. Correct. Everybody was out there 16 for the G2E show so because folks were out there 17 and to accommodate Mr. Silver's schedule, we 18 brought the New Jersey folks, a couple of the 19 New Jersey folks specifically there. 20 Q. Who attended that meeting? 21 A. Let's see. 22 Karen Brugler. Larry King was 23 there. Kevin Preston. I was there. John Jacob 24 was there. And then at some point, we all left 25 the room and Jeff had -- Jeff had a private 114 1 meeting with Karen Brugler. 2 Q. What about surveillance? 3 A. They were not there. And I am 4 trying to remember if they -- we had a phone 5 there. I am trying to remember if they called in 6 by phone or not, but I don't remember. 7 Q. It sounds like there have been two 8 audit committee meetings, correct, since June of 9 2007? 10 A. Yes. 11 Q. And at neither of them, does it 12 sound like there was any indication that 13 surveillance was present? 14 A. I don't remember if surveillance was 15 there. 16 Q. Do you have minutes from that 17 meetings? 18 A. I didn't do the minutes. Usually, 19 the minutes get prepared in time to review them 20 for the next meeting so I haven't seen them 21 directly. 22 MS. MAHER: Nothing further. 23 Thank you. 24 CHAIR KASSEKERT: Questions from the 25 Commissioners? 115 1 VICE CHAIR FEDORKO: I'm not clear. 2 Is there minutes or is there not 3 minutes? 4 THE WITNESS: There will be minutes. 5 In other words, the minutes generally when I see 6 them are in a packet that gets sent out before -- 7 maybe a week or ten days before the next audit 8 committee meeting or compliance committee 9 meeting, whichever the case is, and then people 10 review them, although, in this case -- if they 11 are technical amendments, obviously, but Jeff is 12 the sole member so he would review them, make any 13 corrections and then he would approve them at the 14 next meeting. So the November minutes, if you 15 will, would be approved by him at the first 16 quarter meeting of '08. I don't know that we set 17 a -- I don't know that there has been a date set 18 for that. 19 CHAIR KASSEKERT: Is it your 20 intention to involve surveillance in future 21 meetings? 22 THE WITNESS: Yes, it would be. I 23 will make sure of it, to the extent there is a 24 scheduling issue, that we work around it. 25 COMMISSIONER EPPS: Does your audit 116 1 committee meet quarterly? 2 THE WITNESS: Yes. It meets, at 3 least, quarterly. Obviously, if there is a 4 reason for it to meet, it can call a meeting when 5 needed; but yes, quarterly. 6 COMMISSIONER SOMMELING: And it 7 meets here in Atlantic City? 8 THE WITNESS: It -- yes. As I say, 9 in general, the Trop New Jersey one will be in 10 Atlantic City, but for the G2E show, and as a 11 convenience to Mr. Silver's schedule, we brought 12 people out there this time. 13 CHAIR KASSEKERT: Anything on 14 redirect? 15 MR. MICHAEL: Nothing. 16 CHAIR KASSEKERT: Anything on 17 recross. 18 MS. MAHER: Who actually physically 19 prepares the minutes of the audit committee. 20 THE WITNESS: Karen Brugler. 21 MS. MAHER: And then they go for 22 Mr. Silver for review? 23 MS. MAHER: Thank you. 24 CHAIR KASSEKERT: Thank you. 25 You may step down. 117 1 (Witness excused.) 2 CHAIR KASSEKERT: Do we need a 3 motion to adjourn because Wednesday would be a 4 special meeting again? 5 MR. NANCE: Yes. You're scheduled 6 for Wednesday. 7 CHAIR KASSEKERT: Okay; all right. 8 We will be reconvening this 9 Wednesday, November 27th starting at 10:00 a.m. 10 Could I have a motion to adjourn. 11 COMMISSIONER SOMMELING: Motion made 12 to adjourn. 13 VICE CHAIR FEDORKO: Second. 14 CHAIR KASSEKERT: A motion has been 15 made and seconded. 16 All in favor? 17 (Ayes.) 18 CHAIR KASSEKERT: Opposed? 19 (No response.) 20 CHAIR KASSEKERT: The motion 21 carries. 22 Thank you. 23 (Meeting adjourned: 4:46 p.m.) 24 25 118 1 C E R T I F I C A T E 2 STATE OF NEW JERSEY ) 3 : ss 4 COUNTY OF BURLINGTON ) 5 6 I, ELLEN MARIE GUMPEL, a Certified 7 Shorthand Reporter, Registered Professional 8 Reporter, Certified Realtime Reporter and Notary 9 Public within and for the States of New York and 10 New Jersey, do hereby certify that the foregoing 11 proceedings were taken before me on Monday, 12 November 26, 2007; 13 That the within transcript is a true 14 record of said proceedings; 15 That I am not connected by blood or 16 marriage with any of the parties herein nor 17 interested directly or indirectly in the matter 18 in controversy, nor am I in the employ of the 19 counsel. 20 IN WITNESS WHEREOF, I have hereunto set 21 my hand this 27th day of November, 2007. 22 23 _________________________________________ 24 ELLEN MARIE GUMPEL, C.S.R., R.P.R., C.R.R. 25