1 1 STATE OF NEW JERSEY 2 CASINO CONTROL COMMISSION 3 - - - - - - - - - - - - - - - - - - - 4 Consideration of the appointment of a Conservator 5 following the denial of the application of Adamar of 6 New Jersey, Inc., for renewal of its casino license 7 and casino hotel alcoholic beverage license and other 8 matters (PRN 2140705, 2910706); 9 Consideration of the method for disposing of the 10 securities, assets, or both of Adamar of New Jersey, 11 Inc., a former casino licensee 12 - - - - - - - - - - - - - - - - - - - 13 Wednesday, December 19, 2007 14 Atlantic City Commission Offices 15 Joseph P. Lordi Public Meeting Room - First Floor 16 Tennessee Avenue and Boardwalk 17 Atlantic City, New Jersey 08401 18 2:25 p.m. to 2:40 p.m. 19 Certified Court Reporter: Darlene Sillitoe 20 - - - - - - - - - - - - - - - - - - - - - - - - - - - 21 ATLANTIC CITY COURT REPORTING, LLC 22 CERTIFIED COURT REPORTERS AND VIDEOGRAPHERS 23 1125 ATLANTIC AVENUE, SUITE 416 24 ATLANTIC CITY, NEW JERSEY 08401 25 (609) 345-8448 www.accourtreporting.com 2 1 B E F O R E : 2 CASINO CONTROL COMMISSION: LINDA M. KASSEKERT, CHAIR 3 MICHAEL A. FEDORKO, VICE CHAIR MICHAEL C. EPPS, COMMISSIONER 4 RALPH G. FRULIO, COMMISSIONER WILLIAM T. SOMMELING, COMMISSIONER 5 PRESENT FOR THE CASINO CONTROL COMMISSION: 6 SANDY DeLIA, ADMINISTRATIVE ASSISTANT DANIEL J. HENEGHAN, PUBLIC INFORMATION OFFICER 7 OFFICE OF THE GENERAL COUNSEL: 8 DIANNA W. FAUNTLEROY, GENERAL COUNSEL/EXECUTIVE SECRETARY 9 LEONARD J. DIGIACOMO, ASSISTANT GENERAL COUNSEL STEVEN M. INGIS, ASSISTANT GENERAL COUNSEL 10 11 12 A P P E A R A N C E S : 13 14 DIVISION OF GAMING ENFORCEMENT: YVONNE G. MAHER, ACTING DIRECTOR 15 STERNS & WEINROTH, PC 16 BY: PAUL M. O'GARA, ESQ: AND: ERICA HELMS, ESQ. 17 AND: KAREN CONFOY, ESQ. FOR: TROPICANA CASINO AND RESORTS 18 JUSTICE GARY S. STEIN 19 PASHMAN STEIN BY: SEAN MACK, ESQ. 20 TAMA HUGHES, ESQ. 21 GENERAL COUNSEL FOR TROPICANA 22 23 24 25 3 1 (The Special Meeting was commenced at 2 2:30 p.m.) 3 MS. DeLIA: This is advise the general 4 public that in compliance with Chapter 231 of 5 the Public Laws of 1975 entitled the "Open 6 Public Meetings Act," the New Jersey Casino 7 Control Commission on December 17th, 2007, 8 filed with the Secretary of State at the State 9 House, Trenton, New Jersey, a notice of this 10 hearing. On December 17th, 2007, copies were 11 mailed to subscribers. 12 Members of the press will be permitted 13 to take photographs, and we would ask that this 14 be done in a manner which is not disruptive or 15 distracting to the Commission. 16 The use of cellular telephone in the 17 public meeting room while the Commission is in 18 session is prohibited. 19 Would everyone please stand for the 20 Pledge of Allegiance. 21 (The salute to the flag was recited.) 22 CHAIR KASSEKERT: Good afternoon. 23 MS. DeLIA: Good afternoon. The matters 24 to be considered today are: Consideration of 25 the appointment of a conservator following the 4 1 denial of the application of Adamar of New 2 Jersey, Inc., for renewal of its casino license 3 and casino hotel alcoholic beverage license and 4 other matters, PRNs 2140705 and 2910706. 5 Consideration of the method for 6 disposing of the securities, assets, or both, 7 of Adamar of New Jersey, Inc., a former casino 8 licensee. 9 CHAIR KASSEKERT: Thank you. 10 Mr. DiGiacomo? 11 MR. DiGIACOMO: Chair, Commissioners, 12 good afternoon. If counsel could enter their 13 appearance for the record. 14 I'd also note that I've shared a draft 15 of the proposed order in this matter with them. 16 MS. MAHER: Good afternoon. Yvonne 17 Maher, Acting Director, on behalf of the 18 Division. 19 MR. O'GARA: Good afternoon. Paul 20 O'Gara and Karen Confoy and Erica Helms from my 21 firm for Tropicana Entertainment and its 22 parents. And I'd also, if I might, Justice 23 Stein is here, who is our trustee along with 24 his counsel. And I think that's everyone. 25 CHAIR KASSEKERT: Thank you. 5 1 MR. DiGIACOMO: Is -- I don't see, 2 Madame Chair, Miss Hughes here for the -- 3 Ah, yes. Okay. 4 CHAIR KASSEKERT: Thank you. 5 MR. O'GARA: She's used to me being her 6 lawyer. 7 (Laughter.) 8 MR. O'GARA: This is a new experience 9 for her. 10 CHAIR KASSEKERT: Thank you. 11 Last Wednesday the Commission initiated 12 a conservatorship proceeding following its 13 denial of the application of Adamar New Jersey, 14 Inc., better known as Tropicana, for renewal of 15 its casino license and casino hotel alcoholic 16 beverage license. 17 By operation of law, former New Jersey 18 Supreme Court Justice Gary Stein immediately 19 assumed a more active role as Trustee under the 20 Interim Casino Authorization Trust for 21 Tropicana's parent company, the now 22 disqualified Tropicana Casinos and Resorts. 23 Although the conservatorship commenced 24 so the Tropicana Casino could remain operating, 25 the Commission did not immediately appoint a 6 1 conservator. That task we are undertaking 2 today as we consider whether to appoint Justice 3 Stein to serve the dual capacity of conservator 4 and ICA trustee, subject to the Commission 5 supervision and in accordance with the 6 prescribed instructions. 7 The Commission has also asked the 8 parties to briefly compare and contrast the 9 statutory ICA provisions with those pertaining 10 to conservatorship. Based on those materials, 11 as may be orally supplemented today, the 12 Commission will then consider whether to issue 13 certain rulings in furtherance of facilitating 14 a better understanding of the process for 15 disposing of Tropicana's securities, assets, or 16 both. 17 First, then, I would ask the Division if 18 it is satisfied that Justice Stein continues to 19 meet the applicable standards for qualification 20 as a casino key employee so that he could 21 assume the duties of conservator. 22 MS. MAHER: It is, Your Honor, thanks. 23 CHAIR KASSEKERT: Very good. 24 Do the parties have any objection to him 25 serving in the dual capacity which I have 7 1 outlined? 2 MS. MAHER: No. 3 MR. O'GARA: No. We have no objection. 4 CHAIR KASSEKERT: Mr. O'Gara? 5 Thank you. 6 Next, do the parties wish to amplify the 7 materials they've presented in their letter 8 briefs? 9 Mr. O'Gara? 10 MR. O'GARA: No, ma'am. I think that we 11 indicated to you that there were not be to dual 12 capacity. We found that conservator provisions 13 of the Act afforded greater flexibility, not 14 only to Justice Stein and the regulators, but 15 to our interests as well. We are satisfied 16 that exercising the powers of the conservator 17 does not conflict with his having acted as and 18 continuing to act as Trustee and holding the 19 legal title in that manner for the benefit of 20 the State of New Jersey having gotten it that 21 way by, I think, the automatic operation of the 22 law when you denied the qualification. 23 We're satisfied, also, to go forward 24 with the arrangements, as outline in the order, 25 as to how Justice Stein's administrative 8 1 compensation matters would be handled, and I'll 2 represent to you with respect to the matters as 3 trustee and obligations we have, they will be 4 satisfied immediately. And Justice Stein is 5 aware of that, and I think will also tell you 6 that. 7 We believe that an advantage to the 8 conservatorship is the ability, more easily and 9 without formal order, for Justice Stein to have 10 the ability to access information from the 11 parent of the former licensee because, as we've 12 learned in a few days, much of what goes on 13 here is deeply intertwined. There are 14 arrangements which have to be separated, 15 obviously, but they're separation without harm 16 and collateral damage to innocent third 17 parties, including people who are in 401-Ks, 18 the insurance policies, here, and also the fact 19 of the legal obligations of the guarantor with 20 respect to the debt services which protects 21 these assets are facilitated by the more 22 generous provisions, I believe, for fast remedy 23 that lie underneath the conservatorship. So we 24 urge you to move forward in a fashion that 25 you've described, and we have no objection to 9 1 the entry of the order as proposed by your 2 staff. 3 CHAIR KASSEKERT: Thank you. 4 Miss Maher? 5 MS. MAHER: We have nothing to add. 6 CHAIR KASSEKERT: Thank you. 7 Let me ask if any of the Commissioners 8 have any questions before -- 9 COMMISSIONER SOMMELING: No questions, 10 Madame Chair. 11 CHAIR KASSEKERT: Thank you. 12 When the legislature added the ICA 13 provisions to the Act early in 1988, it clearly 14 was cognizant of the conservatorship 15 provisions. In at least two instances, the 16 legislature specifically identified the 17 conservatorship provisions as the prescribed 18 source of authority for action by an ICA 19 trustee. Less clear, however, is whether the 20 legislature ever contemplated the situation 21 facing the Commission where a conservatorship 22 and ICA trustee are both ongoing. 23 Nevertheless, some fundamental 24 principles apply. Confidence in casino gaming 25 operations would be eroded to the extent that 10 1 the State of New Jersey does not provide a 2 regulatory framework for casino gaming that 3 permits and promotes stability and continuity 4 in casino gaming operations. However, 5 continuity and stability in casino gaming 6 operations cannot be achieved at the risk of 7 permitting persons with unacceptable 8 backgrounds and records of behavior to control 9 casino gaming operations contrary to the vital 10 law enforcement interests of the State. 11 In that regard, the ICA provisions allow 12 for a not yet qualified purchaser to acquire an 13 ongoing casino operation subject to the 14 insulating mechanism of an ICA trust. As the 15 Senate Committee reporting on the ICA bill 16 explained, and I'll quote, "The bill 17 establishes a procedure for the appointment of 18 a trustee who would be authorized, if 19 necessary, to maintain and sell the property 20 that is being transferred. This procedure 21 would preclude an applicant who fails to 22 acquire and maintain interim casino 23 authorization from participating in the profits 24 of a casino and precludes an applicant who is 25 ultimately denied licensure from profiting as a 11 1 result of the sale of a casino." 2 To implement those concepts, the 3 legislature in Section 95.14c of the Act has 4 precluded the parties subject to the ICA trust 5 from participating in the earnings of the 6 casino hotel or receiving any return on its 7 investment while the trust is operative. By 8 contrast, Section 130.5 of the conservatorship 9 statute would allow the former casino licensee 10 to receive a fair rate of return out of net 11 earnings during the conservatorship. 12 Likewise, in Section 95.14e which 13 focuses on what the property being purchased 14 actually costs, the unqualified applicant -- 15 actually cost the unqualified applicant, the 16 legislature decreed that any proceeds 17 distributed to the unqualified applicant could 18 not exceed the lesser of its actual cost or the 19 value of the assets as of the day of its 20 disqualification with any excess paid to the 21 Casino Revenue Fund. 22 The comparable conservatorship 23 provision, Section 130.6, requires the 24 conservator, once the asset is sold, to pay the 25 net proceeds from it to the former casino 12 1 licensee. 2 Plainly, TCR agreed to purchase Aztar, 3 and through it, Tropicana under the ICA 4 regimen. Statutorily and contractually it 5 should receive no greater benefit than that. 6 With those parameters in mind, I believe 7 it is appropriate for Justice Stein to serve in 8 the dual capacity as conservator and ICA 9 trustee. Any such service necessarily would be 10 under the direct Commission supervision, and in 11 that regard, a draft order has been prepared 12 that delineates the extent of his powers and 13 duties and it delegates to me, as Chair, the 14 authority to issue such further instructions as 15 may be necessary. 16 Accordingly, I would now move the 17 adoption of the draft order which includes the 18 following: 19 Number one, the appointment of Justice 20 Stein to serve at the pleasure and under the 21 direct supervision of the Commission as 22 conservator while continuing to serve as ICA 23 trustee with the instruction that he shall 24 exercise only those powers and perform only 25 those duties as follows: 13 1 A, he need not as conservator take 2 possession of the property of the former casino 3 licensee except to the extent that he deems 4 necessary and then only after obtaining prior 5 Commission approval therefor, but he shall have 6 unfettered access to the books, records, and 7 papers of the former casino licensee; 8 B, except during the pendency of an 9 appeal from the Commission's refusal to renew 10 Tropicana's casino license shall endeavor and 11 be authorized to dispose of Tropicana; 12 C, upon application and approval by the 13 Commission, he may hire such legal or other 14 advisors as he deems necessary; 15 D, he shall endeavor to obtain 16 immediately an appraisal and various valuations 17 for the property and shall obtain an analysis 18 of the debt service obligations properly 19 allocable to the former casino licensee with 20 the authority delegated to me as Chair to 21 determine that amount; 22 E, he may retain Pashman Stein, PC, to 23 represent him personally in his dual capacity 24 as the ICA trustee and conservator; 25 F, he and his advisors are to maintain 14 1 the confidentiality of certain information from 2 the former casino licensee; 3 G, he is to facilitate the continuation 4 of the business of the former casino licensee; 5 H, he may evaluate whether changes in 6 the management of the former casino licensee 7 are necessary with the authority, subject to 8 Commission authority, to hire, fire, and 9 discipline staff; 10 I, he may review outstanding agreements 11 to which the former casino licensee is a party 12 under Section 104b; 13 J, he must report monthly to the 14 Commission and to the Division on the material 15 activities regarding the administration of the 16 conservatorship and the ICA trust; 17 And, K, Justice Stein is not presently 18 required to execute and file a fidelity bond. 19 Number, two, TCR and its affiliates that 20 are subject to the ICA trust shall not 21 participate in the earnings of the casino hotel 22 of the former casino licensee. Nor shall they 23 receive any return on their investment while 24 the ICA trust remains operative in accordance 25 with NJSA 5:12-95.14c. 15 1 Number three, any disposition of the 2 equity securities of Adamar, the sale in bulk 3 or the assets of the former casino license, or 4 both, shall be constructed in connection with 5 Article 9A of the Act, and any proceeds 6 therefrom shall be distributed to TCR as the 7 unqualified applicant pursuant to the ICA trust 8 only in an amount not to exceed the lower of 9 the actual cost of the assets to such 10 unqualified applicant or the value of such 11 assets calculated as if the investment had been 12 made on the date the ICA trust became 13 operative, and any excess remaining proceeds 14 shall be paid to the Casino Revenue Fund. 15 Number four, the Commission delegates to 16 me as Chair or my designee the authority to 17 modify, amend, or supplement the instructions 18 to the conservator consistent with the policies 19 of the Act. 20 Number five, Tropicana shall pay Justice 21 Stein a reasonable compensation for his 22 services as conservator based on his regular 23 hourly rate, shall provide him with liability 24 insurance coverage, and shall indemnify Justice 25 Stein and his advisors; 16 1 And, number six, Tropicana shall take no 2 action that is inconsistent with the Act in the 3 conservator's exercise of his powers thereunder 4 in accordance with the instructions of the 5 Commission. 6 And I so move. 7 Is there a second? 8 COMMISSIONER SOMMELING: Second. 9 CHAIR KASSEKERT: A motion has been made 10 and seconded. All in favor? 11 (Ayes.) 12 CHAIR KASSEKERT: Opposed? 13 (No response.) 14 CHAIR KASSEKERT: Motion carries. 15 Thank you. 16 This -- I will entertain a adjourn. 17 That's our business for today. 18 COMMISSIONER SOMMELING: Motion to 19 adjourn. 20 CHAIR KASSEKERT: The motion has been 21 made and seconded. All in favor? 22 (Ayes.) 23 CHAIR KASSEKERT: Opposed? 24 (No response.) 25 CHAIR KASSEKERT: The motion carries. 17 1 MR. O'GARA: Thank you. 2 (The Special Public Meeting was 3 adjourned at 2:40 p.m.) 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 18 1 2 C E R T I F I C A T E 3 4 5 I, DARLENE SILLITOE, a Certified Court 6 Reporter and Notary Public of the State of New 7 Jersey, certify that the foregoing is a true 8 and accurate transcript of the proceedings. 9 10 11 I further certify that I am neither 12 attorney, of counsel for, nor related to or 13 employed by any of the parties to the action; 14 further that I am not a relative or employee of 15 any attorney or counsel employed in this case; 16 nor am I financially interested in the action. 17 18 19 DARLENE SILLITOE CCR 20 License No XI01023 21 22 Dated: December 19, 2007 23 My Commission Expires on July 10, 2009 24 ID No 2062871 25