1 1 STATE OF NEW JERSEY 2 CASINO CONTROL COMMISSION 3 SPECIAL MEETING 4 - - - - - - - - - - - - - - - - - - - 5 The petition of Trustee and Conservator for Adamar of New Jersey, Inc., to retain additional 6 legal counsel and related matters (PRN 3170801) 7 Consideration of the applications of the Trustee and Conservator for the former casino licensee, 8 Adamar of New Jersey, Inc., for approval of fees for the Conservator/Trustee, his personal counsel, 9 legal, and other consultants 10 11 - - - - - - - - - - - - - - - - - - - - 12 Monday, November 24, 2008 13 Atlantic City Commission Offices 14 Joseph P. Lordi Public Meeting Room - First Floor 15 Tennessee Avenue and Boardwalk 16 Atlantic City, New Jersey 08401 17 11:10 a.m. to 12:55 p.m. 18 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 2 CASINO CONTROL COMMISSION: LINDA M. KASSEKERT, CHAIR 3 WILLIAM T. SOMMELING, VICE CHAIR MICHAEL A. FEDORKO, COMMISSIONER 4 MICHAEL C. EPPS, COMMISSIONER 5 PRESENT FOR THE CASINO CONTROL COMMISSION: 6 DARYL W. NANCE, ADMINISTRATIVE ANALYST DANIEL J. HENEGHAN, PUBLIC INFORMATION OFFICER 7 OFFICE OF THE GENERAL COUNSEL: 8 DIANNA W. FAUNTLEROY, GENERAL COUNSEL/EXECUTIVE SECRETARY 9 LEONARD J. DiGIACOMO, ASSISTANT GENERAL COUNSEL 10 DIVISION OF GAMING ENFORCEMENT: DEPUTY ATTORNEYS GENERAL 11 MARY JO FLAHERTY, DEPUTY ATTORNEY GENERAL DOROTHY TURI, DEPUTY ATTORNEY GENERAL 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 A P P E A R A N C E S : 2 PASHMAN STEIN BY: SEAN MACK, ESQ. 3 FOR: THE CONSERVATOR/TRUSTEE 4 COLE SCHOTZ BY: MICHAEL D. SIROTA, ESQ. 5 AND: ILANA VOLKOV, ESQ. AND: RYAN JARECK, ESQ. 6 DEBEVOISE & PLIMPTON 7 BY: KYLE PASEWARK, ESQ. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4 1 I N D E X : 2 WITNESSES: DIRECT CROSS REDIRECT 3 MICHAEL D. SIROTA 14 4 By Mr. Mack 19 By Ms. Flaherty 17 5 KYLE PASEWARK 6 By Mr. Mack 27 By Ms. Flaherty 29 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 5 1 E X H I B I T S : 2 EXHIBIT DESCRIPTION ID EVD 3 D-1 Report, 11-18-08, regarding the Petition X of the Trustee/Conservator to retain 4 additional legal counsel and other relief with attachments incorporated by reference: 5 A, letter, 10-8-08, from Sean Mack, Esq., of Pashman Stein to Dianna Fauntleroy, 6 General Counsel of the Commission B, letter, 10-23-08, from Sean Mack, Esq., 7 of Pashman Stein to Chair Linda Kassekert of the Commission 8 C, letter, 10-27-08, from DAG Mary Jo Flaherty of the Division to Chair Kassekert 9 of the Commission 10 D-2 Supplemental report, 11-21-08, regarding X the petition of the Trustee/Conservator 11 to retain additional legal counsel and other relief 12 13 14 15 16 17 18 19 20 21 22 23 24 Commission retained exhibits 25 6 1 MR. NANCE: Good morning. I'd like to 2 read an opening statement: This is to advise 3 the general public in compliance with Chapter 4 231 of the Public Laws of 1975 entitled the 5 Open Public Meetings Act, the New Jersey Casino 6 Control Commission on November 21st, 2008, 7 filed with the Secretary of State at the State 8 House, Trenton, New Jersey, a notice of this 9 hearing. On November 21st, copies were mailed 10 to subscribers. 11 Members of the press will be permitted 12 to take photographs. We ask that this be done 13 in a manner which is not disruptive or 14 distractive to the Commission and which does 15 not interfere with the public right to observe 16 the hearing. 17 The use of cell phones in the public 18 meeting room is prohibited. 19 Would everyone please stand for the 20 Pledge of Allegiance. 21 (The flag salute was recited.) 22 CHAIR KASSEKERT: Good morning. 23 MR. NANCE: Good morning. 24 The matters to be considered are the 25 petition of Trustee and Conservator for Adamar 7 1 of New Jersey, Inc., to retain additional legal 2 counsel and related matters; and the 3 consideration of the application of the Trustee 4 and Conservator for the former casino licensee 5 Adamar, Inc., for approval of fees for the 6 Conservator/Trustee, his personal counsel, 7 legal and other consultants. 8 Mr. DiGiacomo? 9 MR. DiGIACOMO: Chair, Commissioners. 10 Good morning. Miss Sean Mack -- Mr. Sean Mack, 11 rather, for the Petitioner. Miss Mary Jo 12 Flaherty and Miss Dorothy Turi for the Division 13 of Gaming Enforcement. 14 CHAIR KASSEKERT: Good morning. 15 I think we're going to consider the 16 first item which is the retention of -- 17 Mr. Mack? 18 MR. MACK: Good morning, Chair, 19 Commissioners. 20 You have our petition and our response 21 to the Division's report. I won't repeat 22 what's already in there. 23 I would like to address this in two 24 parts. First, our recommendation to expand the 25 services of Cole Schotz, and then second to 8 1 address the issues related to Debevoise. 2 With me today from Cole Schotz is 3 Michael Sirota. 4 MR. SIROTA: Good morning. 5 CHAIR KASSEKERT: Good morning. 6 MR. MACK: Ilana Volkov. 7 MS. VOLKOV: Good morning. 8 MR. MACK: And their associate Ryan 9 Jareck. 10 MR. JARECK: Good morning. 11 MR. MACK: In the hopes they'll get 12 retained today, I brought them down, and we're 13 going over to the casino right after this to 14 meet with management and begin some of the work 15 that needed to get done. 16 If there are any questions for me or 17 Cole Schotz, Michael Sirota is available to 18 answer your questions or I am. 19 CHAIR KASSEKERT: Great. Thank you. 20 Let me hear from the Division first 21 because I know they had an exhibit they want to 22 move in. 23 MS. FLAHERTY: Yes. 24 CHAIR KASSEKERT: Miss Flaherty? 25 MS. FLAHERTY: Good morning, Chair and 9 1 Commissioners. 2 We have D-1, which is a report dated 3 November 18th, 2008, regarding the petition of 4 the Trustee/Conservator to retain additional 5 legal counsel and other relief and three 6 documents which were incorporated by reference. 7 They've been designated as A through C. 8 A is a letter dated October 8, 2008, 9 from Sean Mack of Pashman Stein to Dianna 10 Fauntleroy, General Counsel of the Commission. 11 B is a letter dated October 23, 2008, 12 from Sean Mack, Esq., of Pashman Stein to Chair 13 Linda Kassekert of the Commission. 14 C is a letter dated October 27th from me 15 to the Chair. 16 And, also, we would like to have marked 17 as D-2 a report dated November 21, 2008, which 18 is the supplemental to our report. 19 CHAIR KASSEKERT: Thank you. 20 MS. FLAHERTY: And which was recently 21 prepared and submitted to the Commission. 22 CHAIR KASSEKERT: Thank you. 23 Mr. Mack? Any objection to these 24 exhibits? 25 MR. MACK: No. 10 1 CHAIR KASSEKERT: Thank you. 2 All right. Seeing no objection, I will 3 move these D-1 and D-2 and by reference A, B, 4 and C into evidence. 5 Thank you. Let me ask now if there are 6 any -- did you have anything further, Miss 7 Flaherty? 8 MS. FLAHERTY: No. Thank you, Chair. 9 CHAIR KASSEKERT: Okay. Let me ask if 10 the Commissioners have questions? 11 Mr. Mack? 12 VICE CHAIR SOMMELING: I have no 13 questions at this time, Madame Chair. 14 CHAIR KASSEKERT: Commissioner Epps? 15 COMMISSIONER EPPS: No. 16 COMMISSIONER FEDORKO: I just have one 17 question, Mr. Mack. I may not be correct. Is 18 there also a bankruptcy firm in Delaware, too? 19 MR. MACK: Cole Schotz has been approved 20 by this Commission, I think it was in July, to 21 serve as our local counsel in Delaware. 22 COMMISSIONER FEDORKO: Right. 23 MR. MACK: So Mr. Sirota's partner, 24 Norman Pernick, has been doing that work down 25 in Delaware out of their Delaware office for 11 1 us. 2 COMMISSIONER FEDORKO: Okay. 3 MR. MACK: We expected it to expand. 4 You know, I think the order says they are 5 retained by the bankruptcy counsel. The 6 intention behind that was because of the 7 Tropicana Entertainment's bankruptcy filing 8 down in Delaware, so we could be represented 9 down there, and this is just to expand their 10 services. 11 COMMISSIONER FEDORKO: So there's only 12 one bankruptcy counsel? 13 MR. MACK: Correct. One law firm. 14 MS. FLAHERTY: Okay. 15 COMMISSIONER FEDORKO: Okay. Very good. 16 Thank you. 17 CHAIR KASSEKERT: And my understanding 18 was your role at that point was limited just in 19 terms of watching what was going on in the 20 Delaware courts? 21 MR. SIROTA: Yes. 22 CHAIR KASSEKERT: Correct? Okay. 23 Commissioner Epps? Do you have a 24 question? 25 COMMISSIONER EPPS: Yeah, I do have a 12 1 question now. 2 What you are seeking here is to retain 3 Cole Schotz as bankruptcy counsel in a 4 bankruptcy that is yet to be filed. And the 5 retainer to begin that engagement is what 6 you're seeking to have approved. Does any of 7 the work that has been -- how do you bifurcate 8 the work? Because they're currently doing work 9 for you on the same or related matter -- 10 MR. MACK: Uh-huh. 11 COMMISSIONER EPPS: -- and billing the 12 Tropicana. Now they're going to engage and do 13 ostensibly the same -- work on the same or 14 related matter, which involves the same set of 15 circumstances and facts, and begin a new set of 16 billings on a -- under a separate engagement. 17 How do you distinguish -- does the first 18 engagement end? Are we going to end that 19 engagement? Or are they going to continue to 20 monitor the Delaware case under a separate 21 engagement and then represent to you a 22 potential bankruptcy in New Jersey and bill you 23 at the same time? How do we manage that 24 billing process? 25 MR. MACK: I think the way it will work 13 1 is this approval would supersede the previous 2 one to expand the scope. Because of the 3 Tropicana Entertainment bankruptcy being in 4 Delaware, we need to have a presence in 5 Delaware to address any matters down there. As 6 we've said, our plan is to go through the 363 7 sale, and the idea would be to have them, Cole 8 Schotz, down there with all the related 9 bankruptcy aspects that go along with doing the 10 363 as outlined. 11 I don't know if you've had the pleasure 12 of seeing what a bankruptcy fee application 13 looks like. It's very detailed. It has to be 14 broken down into different subject matters. I 15 may ask Mike to address exactly how this is. 16 But you'll know exactly what the firm is doing 17 for which matters. And to the extent you want 18 to segregate between this is Tropicana 19 Entertainment Delaware bankruptcy related work, 20 that will be perfectly clear. 21 Michael, do you want to add? 22 MR. MICHAEL: Good morning. 23 The fee application -- 24 MS. FLAHERTY: Madame Chair, I would 25 just suggest that he be sworn. 14 Sirota 1 CHAIR KASSEKERT: Sworn? 2 MR. MACK: Well, he is an attorney. 3 MS. FLAHERTY: Okay. Fine. 4 CHAIR KASSEKERT: Do you want to take a 5 seat or could you want to -- 6 (Laughter.) 7 MR. SIROTA: Whatever works for you. 8 MR. NANCE: Would you just state your 9 name for the record, please? 10 MR. SIROTA: Yes. Michael D. Sirota. 11 MR. NANCE: Thank you. 12 MR. SIROTA: Thank you, and a thank you 13 for allowing me to appear. 14 CHAIR KASSEKERT: Good morning. 15 MR. SIROTA: The fee application, as Mr. 16 Mack said, is extraordinarily detailed. The 17 fees in the Chapter 11 construct need to be 18 approved not only ultimately by the client, but 19 just as importantly by the court, on notice to 20 every stake holder in the case. So typically 21 every month the interim fee applications are 22 submitted on 20-days notice to all parties and 23 interests in six-minute increments. And, 24 ultimately, the court will pass, as well as the 25 client, on the ultimate fees to be awarded. 15 Sirota 1 There's usual a process established where on an 2 interim basis fees can be approved on a 3 without-prejudice basis for those parties 4 entitled to object. We would assume that our 5 role would be expanded by necessity. We would 6 still have to pay attention as to what takes 7 place in Delaware, but in reality, the bulk of 8 the services rendered would be for Adamar 9 directly as a debtor in possession under 10 Chapter 11 of the bankruptcy contract. 11 COMMISSIONER EPPS: I appreciate that 12 and understand that. I guess my question was a 13 little bit more germane, and that is, are there 14 now two engagement -- separate engagements? Or 15 this going to be merged into one engagement by 16 which you will represent or handle the 363 17 process and also monitor the Delaware process? 18 MR. MACK: I would view this as one 19 engagement. 20 MR. SIROTA: Yes, sir. 21 COMMISSIONER EPPS: So the other 22 engagement will be closed out and go away. 23 Because you engaged it once, and you got a 24 retainer, and you started working on that. 25 MR. MACK: Right. 16 Sirota 1 COMMISSIONER EPPS: And now you're 2 getting a new retainer, and it seems like 3 you're starting a new engagement. If there's 4 no -- if the two are the same, then why is 5 there a need for a new retainer? 6 MR. MACK: These services are much 7 broader. The monitoring, what we have in the 8 past is just a monitoring of what's going on in 9 Delaware. 10 COMMISSIONER EPPS: But aren't you 11 already engaged by which they can just continue 12 to bill you, and you pay out on those bills? 13 MR. SIROTA: The services for this 14 particular engagement is much more 15 comprehensive. We agreed to be engaged under 16 on a very limited basis the first time around. 17 The services that we'll be providing now were 18 at no times contemplated during the initial 19 engagement. 20 MS. FLAHERTY: Chair, I have some 21 questions. 22 CHAIR KASSEKERT: Sure. 23 MS. FLAHERTY: Would you like to answer 24 from there or -- 25 MR. SIROTA: Whatever you're comfortable 17 Sirota - cross - Flaherty 1 with. 2 MS. FLAHERTY: That will probably be 3 easier. 4 MR. SIROTA: Sure. 5 MS. FLAHERTY: Thank you. 6 7 CROSS-EXAMINATION BY MS. FLAHERTY: 8 Q. Good morning, Mr. Sirota. 9 A. Yes. 10 Q. Has your firm handled cases involving 11 asset sales, mergers and acquisitions? 12 A. Yes, both in the bankruptcy context and 13 outside. Numerous. 14 Q. Do you specialize in mergers and 15 acquisitions in a bankruptcy context? 16 A. We do. I've been doing it exclusively 17 for 22 years and my firm for around 60 years. 18 Q. And has your firm facilitated debtor in 19 possession financing and permanent financing 20 arrangements? 21 A. We have. 22 Q. Is Mr. Marc Press a member of your firm? 23 A. He is. He's one of my co-shareholders. 24 Q. Does he specialize in mergers and 25 acquisitions? 18 Sirota - cross - Flaherty 1 A. He does, both in and outside of the 2 bankruptcy context. 3 Q. And is Mr. Press also an attorney that 4 has practiced in New York in the merger and 5 acquisition area? 6 A. Yes. 7 Q. Mr. Alan Rubin, is he a member of your 8 firm? 9 A. He is. He's also a co-shareholder. 10 Q. And does he specialize in mergers and 11 acquisitions? 12 A. He does. 13 Q. And is Mr. Rubin also a certified public 14 accountant with tax experience? 15 A. Yes. 16 Q. Could Cole Schotz perform merger and 17 acquisition work, including asset purchase agreements 18 on behalf of Tropicana? 19 A. We could. 20 Q. Could you do so, do you believe, in an 21 efficient manner? 22 A. I know -- I know that at the present 23 point there is M and A counsel that's providing 24 services to Adamar. 25 Q. Uh-hum. 19 Sirota - redirect - Mack 1 A. I believe we can. Your question on 2 efficiencies, of course, would require us to become up 3 to speed with the pending M and A process that's under 4 way. 5 Q. And how much of a retainer would Cole 6 Schotz require to perform the merger and acquisition 7 work? 8 A. We initially provide a retainer amount 9 to do exclusively the bankruptcy work, so we didn't 10 have the opportunity to, if you will, quote on the M 11 and A work. But it would be an additional amount of 12 money of approximately 100 to $200,000? 13 Q. Okay. Thank you. 14 MS. FLAHERTY: I think that's all I 15 have, Chair. 16 CHAIR KASSEKERT: Thank you. 17 Mr. Mack, let me give you the 18 opportunity. Do you have any additional 19 questions? 20 MR. MACK: Just a couple of follow up. 21 CHAIR KASSEKERT: Sure. 22 23 REDIRECT EXAMINATION BY MR. MACK: 24 Q. Mr. Sirota, has an engagement of your 25 firm to date, has your firm done any of the diligence 20 Sirota - redirect - Mack 1 work that would have been done in connection with an 2 asset purchase agreement? 3 A. No. 4 MR. MACK: Nothing further. 5 CHAIR KASSEKERT: Let me ask if the 6 Commissioners have any additional questions? 7 COMMISSIONER SOMMELING: No questions, 8 Madame Chair. 9 CHAIR KASSEKERT: Commissioner -- 10 COMMISSIONER EPPS: How much time 11 generally do you think it would take your firm 12 in a matter this far along and this complex to 13 get caught up to do that portion of the work? 14 The M and A portion of the work. 15 THE WITNESS: I would -- I would feel 16 much more comfortable if either Mr. Rubin or 17 Mr. Press were here since they would have to 18 undertake basically reviewing the asset 19 purchase agreement schedules, where it is in 20 the negotiations. So it's very difficult for 21 me to give you an hour estimate as to what they 22 would need to catch up. These are very complex 23 transactions. And I would suspect that at 24 least Mr. Rubin and Mr. Press and a group of 25 associates would spend considerable time 21 Sirota 1 reviewing all the materials in order to be 2 positioned to step into this sale process. 3 I'm sorry if I -- 4 COMMISSIONER EPPS: No. I understand. 5 CHAIR KASSEKERT: Commissioner Fedorko? 6 Any questions? 7 COMMISSIONER FEDORKO: No. No 8 questions. 9 CHAIR KASSEKERT: Mr. Mack, maybe 10 just -- 11 And please feel free to step down. 12 Just for the record, and I know it is 13 contained in all of your filings, but maybe if 14 you could just briefly tell us what the process 15 is that the Justice used in looking for a firm 16 to do the bankruptcy work. 17 MR. MACK: Be happy to. 18 To begin with, just being a member of 19 the bar, we each have some knowledge of firms 20 that do bankruptcy restructuring work in the 21 State of New Jersey. I went to the list of the 22 usual suspects, you might say, in the 23 bankruptcy bar here. Cole Schotz's name comes 24 up at the top of almost any list you look at. 25 Other firms that would also come up to the tops 22 1 of those lists would be Lowenstein Sandler, 2 McCarter & English. There are also a handful 3 of other firms that also come up. A lot of 4 them are currently representing parties in the 5 Tropicana Entertainment bankruptcy. Some of 6 those firms, for example, Sills Cummis even 7 showed up here on behalf of some of those 8 parties. So a lot of parties were conflicted 9 out, but there were still a good group left. 10 After reviewing, we then pulled the 11 public information that was available about 12 each of the variety of firms, and we quickly 13 focused on Cole Schotz, Lowenstein, and 14 McCarter & English as he probably the best 15 available firms to take on this matter. 16 We had also reviewed the Trump and the 17 Sands bankruptcy cases to see what firms had 18 been involved in there in those cases to see 19 who might have relevant experience. 20 After having done that diligence work, 21 we invited in Cole Schotz, McCarter, and 22 Lowenstein and interviewed each of them to -- 23 we, frankly, took advantage of them to get 24 ideas from them about how they would handle a 25 lot of the issues that we were going to face in 23 1 this case and to get their -- the benefit of 2 their thinking on this. 3 As a result of that interview process, 4 Justice Stein felt most comfortable with the 5 attorneys of Cole Schotz. Frankly, all three 6 of the firms are highly experienced in this 7 field. Every single one of them, I'm sure, 8 would have done a phenomenal job in this 9 matter. But we really did have -- the 10 interpersonal connection between Justice Stein 11 and the attorneys at Cole Schotz was clear to 12 myself and Justice Stein almost immediately. 13 And, you know, given all else being equal, that 14 really tipped the balance in favor of Cole 15 Schotz. 16 CHAIR KASSEKERT: Thank you. Okay. 17 Let me ask if there are any other 18 questions? 19 VICE CHAIR SOMMELING: No questions, 20 Madame Chair. 21 CHAIR KASSEKERT: Okay. Anything 22 further before we recess? 23 MR. MACK: I did want to address with 24 the Debevoise issues. 25 CHAIR KASSEKERT: Sure. 24 1 MR. MACK: That were raised in this -- 2 our plan -- Debevoise, as you know, have been 3 working with us since the beginning on the M 4 and A work. And our thought process had been 5 that they would continue to do the M and A work 6 to complete the 363 sale that we're nearing. 7 In the Division's response, they make 8 the argument that terminating the relationships 9 with Debevoise would result in efficiencies and 10 cost savings. That assumption -- or that 11 position I think can only be based on the 12 assumption that new counsel could step in at a 13 lower billing rate, pick up exactly where 14 Debevoise left off, and move forward without 15 having to look backwards, and that assumption 16 is just wrong. As you're well aware, Debevoise 17 have spent a lot of time and spent a lot of 18 resources doing the legal diligence that's 19 required to prepare this sort of complicated 20 purchase agreement. And any new counsel, 21 whether it's the Cole Schotz attorneys or 22 anybody else, would have to come in and spend a 23 considerable amount of time redoing that work. 24 And the savings you might have otherwise had on 25 the hourly rates would quickly evaporate based 25 1 on redoing work that's already been done. 2 And I was thinking over the weekend how 3 best I can explain to you all of the work that 4 the folks at Debevoise that have done and that 5 would need to be redone. And I started 6 flipping through the asset purchase agreement, 7 and it dawned on me that I also have another 8 problem. There's so much in the asset purchase 9 agreement in the schedules that I don't even 10 understand, and I don't know the background to, 11 and I don't know why it's written this way. If 12 we lose Debevoise, I'm going to need to have 13 Debevoise continue to be retained to help 14 Debevoise explain to new counsel why things are 15 written this way, what conversations they had 16 with Moelis about the benefit of structuring 17 things this way. So I would foresee the need 18 even with bringing new M and A counsel for 19 Debevoise to be involved in the transition 20 process because I can't facilitate that myself. 21 To give you a better sense of exactly 22 the type of diligence work that Debevoise has 23 done and would be redone, I asked Kyle Pasewark 24 from Debevoise to come down to today to just 25 give you a brief overview of the work that they 26 1 have done to give you a better sense of what 2 would be involved. 3 MS. FLAHERTY: Is he a New Jersey 4 counsel? 5 MR. MACK: Are you admitted in New 6 Jersey? 7 MR. PASEWARK: No. 8 CHAIR KASSEKERT: Then we'll -- 9 MR. MACK: Okay. We'll agree to swear 10 you in, then. 11 12 KYLE PASEWARK, was duly sworn to testify 13 in this matter. 14 15 MR. NANCE: Please state your name for 16 the record. 17 THE WITNESS: Kyle Pasewark. 18 MR. NANCE: Thank you. 19 CHAIR KASSEKERT: Mr. Pasewark, would 20 you be more comfort up here or you want to -- 21 THE WITNESS: However people want to do 22 it is fine. 23 CHAIR KASSEKERT: Okay. 24 MR. MACK: Do you want to -- 25 MS. FLAHERTY: That's fine. 27 Pasewark - dierct - Mack 1 DIRECT EXAMINATION BY MR. MACK: 2 A. So I wanted to give you just a brief 3 overview of the legal bills and work that's been done 4 and also talk a little bit maybe later about the 5 purchase agreement and the disclosure schedules. 6 Debevoise, as you know, has been 7 involved in the process from the beginning. During -- 8 during that time, there's been a datum that the 9 financial advisors and Debevoise and the Tropicana and 10 Pashman Stein have developed which runs to maybe just 11 short of 60 pages or so worth of documents which 12 Debevoise reviewed up until the beginning of October 13 for legal due diligence purposes. It's a standard 14 sort of datum. It includes, you know, corporate 15 structure, you know, real property issues which are 16 complicated in this transaction. Various employee 17 benefit plans, retention agreements, that type of 18 thing. Debt agreements. Financial statements. You 19 know, along the way, we have become familiar with the 20 structural connections between the Tropicana 21 Entertainment entities and Adamar. Obviously, with 22 the Commission's -- with the Commission's orders, 23 certain environmental matters. We've also reviewed 24 public files of Tropicana Entertainment which are 25 necessary, really, to review in order to get an idea 28 Pasewark - dierct - Mack 1 of what is held where in the Tropicana entities. 2 We have also been instrumental in adding 3 documents to the datum in consultation with the 4 Tropicana, with Pashman Stein and with Moelis, and we 5 would suspect that, depending on the bidder's needs, 6 certain documents would -- would need to continue to 7 be added. And that gets a little bit complicated 8 because any new counsel would obviously need to know 9 what's in there, why it's in there, what's not in 10 there, is it available? All of that work has been -- 11 has been previously done by Debevoise. So I think 12 that's, you know -- there is extensive diligence that 13 has been conducted and by which we have built the 14 purchase agreement and disclosure schedules that would 15 be, I think, difficult for others to duplicate. 16 Q. Mr. Pasewark, just to clarify in the 17 beginning of your testimony you mentioned a datum of 18 60 pages. Is that the datum was 60 pages or the 19 index? 20 A. The index. Yes. Just the index. So 21 it's -- you know, I haven't counted up the number of 22 documents, but I would say, you know, there are a 23 couple thousands documents in there. 24 CHAIR KASSEKERT: Miss Flaherty? 25 MR. MACK: Do you have any questions? 29 Pasewark - cross - Flaherty 1 MS. FLAHERTY: Yes. 2 3 CROSS-EXAMINATION BY MS. FLAHERTY: 4 Q. I was wondering. What percent of your 5 and M and A would be in the bankruptcy context? 6 A. Well, we have a -- we have a bankruptcy 7 team that had been engaged. I mean, I think that, you 8 know, my partner and other partners and other 9 associates have done a considerable amount of 10 bankruptcy -- have done considerable amount of 11 bankruptcy work. 12 I think one of the important things is 13 that about 90 percent of this contract is not a 14 bankruptcy specific contract. We really, you know -- 15 the asset provisions are more standard M and A asset 16 provisions. So that it's not -- and it's not terribly 17 uncommon to divide the bankruptcy work and the M and A 18 work because the bankruptcy specific provisions in 19 contract are relatively limited. 20 Q. Okay. But in terms of the work that you 21 do, is it -- let's say for the last two or three 22 years, has it been purely mergers and acquisitions? 23 Or has it involved cases of companies that are 24 actually in bankruptcy? 25 A. I personally have not -- 30 Pasewark - cross - Flaherty 1 Q. Yes. 2 A. -- done any bankruptcy related work in 3 the last couple of years. Obviously, the firm and the 4 partner who are overseeing the project have. 5 Q. Now, I would assume that when you 6 prepare an agreement of this type you look at other 7 agreements that you've worked on and take that and put 8 it together and come up with a first draft. Would 9 that be accurate? 10 A. Well, it would be -- it would be 11 accurate as far as it goes. I mean, in order to 12 prepare this agreement, because there are a lot of 13 company specific issues involved, and industry 14 specific issues involved, I mean, there really is no-- 15 there's no circumstances that which you just take an 16 agreement off the shelf. I mean, that's just not 17 done. You may use it as a very preliminary model. 18 But one of the things that we've had to do is to -- is 19 to look at, you know, just based on the general 20 knowledge of the M and A market -- because the market 21 continually changes, particularly in these times. 22 Fair amount of research. In fact, a lot of research 23 on industry specific deals. And some of those in the 24 restructuring context just to see what -- what 25 provisions were in those agreements, what provisions 31 Pasewark - cross - Flaherty 1 makes -- which of those provisions make sense for this 2 business, which of them don't make sense for this 3 business. Just because -- just because of the 4 particular situation that this business is in, namely 5 that it's not a -- it's not really a -- one of the 6 factors is it's not really a clean separation, because 7 ordinarily in most of the past presents, you know, the 8 entity is a -- a holding company entity has gone into 9 bankruptcy where the financing is. This is an odd 10 situation because you have the Tropicana Entertainment 11 entities which are already in, and then Adamar which 12 is not in. And the assets are divvied up in some ways 13 between those entities. So we had to be very 14 attentive to that. 15 Q. Okay. In looking at your billings, 16 there was a reference that other agreements had been 17 reviewed or looked at. Would those have been other 18 agreements that were drafted by your firm? Or would 19 those have been agreements that were drafted in cases 20 not handled by your firm but related to casino 21 bankruptcies? 22 A. Both. 23 Q. Both. And how many casino bankruptcies 24 has your firm been involved with? 25 A. This is the first that I'm aware of. 32 Pasewark 1 MS. FLAHERTY: I think that's all I 2 have. Thank you. 3 CHAIR KASSEKERT: Thank you. 4 Let me ask if any of the Commissioners 5 have any questions? 6 VICE CHAIR SOMMELING: Not at this time. 7 CHAIR KASSEKERT: Commissioner Epps? 8 COMMISSIONER EPPS: Can you distinguish 9 for me the work involved in the mergers and 10 acquisition portion that is outside of the 11 realm of the bankruptcy part of this 363 12 process as opposed to the work that is unique 13 to the 363 process and able to complete the 14 transaction? I'm -- if you follow my question. 15 THE WITNESS: Yeah. Sure. Yeah. 16 The 363 process is -- I mean, it 17 requires that the merger agreement -- or that 18 the purchase agreement be an asset purchase 19 agreement because it's a 363 deal. The 20 bankruptcy specific provisions have to do with, 21 you know, submissions of notice to the 22 bankruptcy court and are actually fairly easily 23 distinguishable in the contract. I mean, 24 various termination provisions relate to the 25 bankruptcy process. Most of the agreement, 33 Pasewark 1 though, is, you know -- you would -- you would 2 find in a general asset purchase agreement. In 3 other words, you have to make certain decisions 4 about what the transferred assets are going to 5 be, what the transferred liabilities are going 6 to be, which assets and liabilities are going 7 to be excluded from that transfer. And there 8 always are some. You know, that -- you would 9 make that decision regardless of whether this 10 were a 363 process. The negotiation process 11 might be a little bit different, but you would 12 make the decision in draft in terms of what the 13 buyer gets and what the buyer doesn't get 14 regardless of the 363 context. 15 And in this particular case, as I've 16 indicated, a good deal of those decisions are 17 based on the particular structure of this 18 business and its relationships to its former 19 parent. 20 The contract would include 21 representations and warranties, including in 22 this could be context, which representations 23 and warranties are appropriate to give or not 24 give and who is really in the best position to 25 give them. Those decisions are made regardless 34 Pasewark 1 of whether or not it's a 363 sale or not. 2 The various postsigning covenants, 3 particularly what's known as the conduct of 4 business covenant, which is a variety of 5 strictures and permissions that the business 6 has between signing and closing for what it can 7 and can't do with respect to its business which 8 are always very business specific and are not 9 really specific to the bankruptcy covenant. 10 There are also a variety of other type of 11 customary postsigning preclosing covenants 12 that, you know, some of which are included in 13 our graphic contract and some of which are not 14 in various ways. And we've made those 15 decisions, again in discussion with Moelis, 16 with Pashman Stein, with the Trustee/ 17 Conservator and with the Tropicana. What's 18 going to happen with employee benefit plans? 19 Not really specific to bankruptcy, although 20 again, the negotiation process may change. 21 Something as simple as the structure of who 22 gets paid what at closing in the context of the 23 financial advisors in this transaction are 24 actually a little bit complicated. 25 And then, of course, there are 35 Pasewark 1 termination provisions, and some of those are 2 bankruptcy specific. Some of the triggers for 3 termination payments, who gets paid what on 4 termination, some of them are bankruptcy 5 specific. Many of them are not. 6 So I mean, that's just a series of 7 issues, you know, which really takes you 8 through most of, I think, the contract. Other 9 than the bankruptcy specific provisions. 10 COMMISSIONER EPPS: Has your firm 11 conducted an acquisition through the 363 12 process in any context? 13 THE WITNESS: Yes, of course. 14 COMMISSIONER EPPS: Does it matter much 15 what type of business the company is in? Is 16 that a significant factor? 17 THE WITNESS: For -- 18 COMMISSIONER EPPS: Meaning where this 19 one is gaming and another company may be in 20 textiles. Does the nature of the business of 21 the company matter much in the process that you 22 guys engage in? 23 THE WITNESS: For the M and A contract, 24 of course it does. Yes. It matters. It 25 matter. You know, there are -- yes and no. I 36 Pasewark 1 mean, there are certain things that are -- you 2 know, that are general matters that are going 3 to show up in any contract. There are certain 4 things that depend on -- I wouldn't say the 5 industry so much as the particular business 6 which is within the industry. And that's 7 really the function of the discussions with -- 8 with the Tropicana, with Pashman Stein, and 9 with -- and with Moelis. 10 COMMISSIONER EPPS: So should I be 11 concerned as I sit here that your answer was 12 that you had not done a casino acquisition 13 through the bankruptcy process? 14 THE WITNESS: No. I don't think so. 15 And I think the reason for that is that we have 16 had extensive discussions with the Tropicana. 17 We've done, you know, extensive work on what 18 kinds of provisions are in gaming M and A 19 contracts and gaming bankruptcy contracts. I 20 mean, it doesn't take that long to get up to 21 speed. I mean, we enter into new industries 22 all the time. I mean, it doesn't take that 23 long to get up to speed, you know, in those 24 industries. You know, and it's something 25 that's sort of a regular part of our practice. 37 Pasewark 1 COMMISSIONER EPPS: Okay. 2 CHAIR KASSEKERT: Could you tell me a 3 little bit about how you see the process 4 working out moving forward if the Commission 5 approves today to the retention of Cole Schotz? 6 How will you work with them through this 7 process as we move forward? 8 THE WITNESS: Well, you know, we work 9 with -- and I'm sure Cole Schotz does as well. 10 We work with other firms doing other pieces of 11 transactions on a fairly regular basis. It is 12 generally not an issue. I mean, I think it 13 just requires a lot of coordination. I mean, 14 we've been involved in this transaction for -- 15 for a fairly long time. And I think, you know, 16 we're happy to bring Cole Schotz, you know, 17 into the process and tell them everything we 18 know. I'm sure they're happy to do the same 19 for us in terms of monitoring the Delaware 20 process. So I -- you know, it's really just a 21 lot of conversations and a lot of phone calls. 22 CHAIR KASSEKERT: Uh-huh. And as the 23 process moves forward, how will you work in 24 terms of the 363 process versus any other kind 25 of process that may occur? In terms of any 38 Pasewark 1 other kind of bankruptcy process? How will you 2 divvy that up? Will it just be through 3 conversations or -- 4 THE WITNESS: Yeah. I think there will 5 be -- 6 CHAIR KASSEKERT: Like at what point do 7 you stop and they take over? I guess that's 8 what I'm looking for. 9 THE WITNESS: I think there's probably 10 not a point where we stop and they take over 11 because the -- nor is there a point where they 12 would stop, and we would take over. 13 CHAIR KASSEKERT: Uh-hum. 14 THE WITNESS: The structure of this is 15 to negotiate a bid with -- with a buyer who, 16 you know, is -- is already looking at material 17 in the datum, which is obviously done in the 18 context of a 363 transaction, but again there 19 are -- most of the issues that are going to 20 show up in these negotiations are not going to 21 be necessarily bankruptcy specific. 22 Now, the time that the -- that the 23 process was suspended a little bit in October, 24 we were in a position to send -- we had had a 25 discussion in early October with a potential 39 Pasewark 1 buyer, had made certain revisions to the draft 2 contract based on those discussions, and we 3 were in a position to send a revised contract 4 out in a matter of days. 5 Now, how the process works subsequent to 6 this depends on good deal on the buyer. 7 CHAIR KASSEKERT: Uh-hum. 8 THE WITNESS: And what the buyer is 9 willing to do. How fast they are willing to 10 move. I mean, I think if -- from the M and A 11 side, if the buyer is -- moves with dispatch, 12 and keeping in mind -- keeping in mind the 13 upcoming, you know, straying season for the 14 holidays, I think we're really talking about a 15 few weeks to get kind of to the end of the M 16 and A road with the buyer in terms of having -- 17 of having initial contract. And, again, I 18 think a lot of that depends on the buyer and 19 how much, you know -- how much diligence 20 they've done, how much they feel like they need 21 to do, that kind of thing. And how, you 22 know -- how -- what they think of the contract. 23 CHAIR KASSEKERT: Thank you. 24 Any other questions? 25 Mr. Mack, anything else? 40 1 MR. MACK: Chair, you stole the last 2 round of my questions about the proposal going 3 forward. 4 I don't think I have anything more for 5 Mr. Pasewark. 6 If I could just comment, I guess, the 7 one -- the way Justice Stein is envisioning the 8 separation -- 9 CHAIR KASSEKERT: Uh-hum. 10 MR. MACK: -- going is Mr. Sirota does 11 the bankruptcy work, and has to refer -- has to 12 seek the advice and assistance of M and A 13 counsel, and instead of it being Mr. Press, it 14 would be Mr. Pasewark. And that's the -- it 15 would work the same way they would as if it was 16 an in-house -- as it was an in-house team. 17 And the only other point I'd like to 18 make before I sit down and shut up is, just 19 given the way the accelerated path that the 20 Supreme Court appears to be on, we 21 unfortunately don't have the luxury of time 22 to -- as you know, your order says as soon as a 23 decision comes down, assuming it's an 24 affirmative, we can move forward with Cordish 25 to negotiate. We don't have the luxury of 41 1 time, and Cordish isn't going to sit back and 2 wait while we tell them we now have new counsel 3 who needs to spend a couple weeks to get up to 4 speed before we can come back and negotiate 5 with you. That's just the reality of where we 6 are now. 7 CHAIR KASSEKERT: Thank you. 8 Miss Flaherty? 9 MS. FLAHERTY: Yes. Chair and 10 Commissioners. 11 CHAIR KASSEKERT: You can step down if 12 you like. 13 MS. FLAHERTY: I really have a two-part 14 argument. The first one relates to the letters 15 that have been marked into evidence and with 16 regard to those, there is information which 17 presents the bankruptcy matter as pressing. 18 And last week during conversations, it appeared 19 to the Division that there were still decisions 20 that have to be made and consultations that had 21 to occur with regard to the bankruptcy. So in 22 light of that, I wanted to ask that Mr. Mack 23 make representation on the record with respect 24 to the bankruptcy process on behalf of the firm 25 and the Trustee as to where the bankruptcy 42 1 proceeding is viewed. 2 And, also, I waned to make a 3 recommendation that with regard to the 4 retainers that we'll be discussing today, that 5 it would be our recommendation to the 6 Commission that the retainer agreements be 7 submitted to the Chair for her approval or by 8 delegated authority so we could actually see 9 the terms of those provisions, to see if the 10 money is due and paid when earned or if the 11 money is earned with the payment, and how those 12 provisions would work. So that would be our 13 suggestion on that score. 14 I have an argument with respect to the 15 petition, but I would like Mr. Mack to make a 16 representation with respect to the bankruptcy 17 proceeding at this point in terms of his firm's 18 view of where we go from here on out. 19 MR. MACK: I think I would respond this 20 way: Since this summer we've had the same 21 position before this Commission. We were 22 looking to find a buyer. And at the end of 23 that process, after negotiating an agreement, 24 an asset purchase agreement, we were planning 25 to present it to this Commission for approval 43 1 and then to complete that sale through a 363 2 process in a bankruptcy court. That's the same 3 process we're on today. Nothing has changed. 4 That has been the plan for months, and that's 5 the plan. We're nearing the end. This little 6 step we're having here is simply that in order 7 to complete that process, in order to take 8 Debevoise's M and A work and put it through a 9 363 sale, we need bankruptcy counsel. And 10 that's what we're doing today is getting us the 11 bankruptcy counsel to complete this journey 12 that we've been on for the last several months. 13 In terms of -- I don't know if I can 14 give you any more specifics in terms of timing 15 or anything. And part of it is there is 16 paperwork that needs to get done. Until today, 17 assuming they're approved and can begin 18 working, you know, we're meeting with 19 management to collect the voluminous 20 information that's necessary to begin that 21 process officially in the bankruptcy court. I 22 can't tell you if it's a day or few days or 23 weeks, how long management is going to need to 24 pull that information together to get to the 25 Cole Schotz team to complete that work. And at 44 1 the same time then the Supreme Court may or may 2 not rule, and we'll be dealing with Cordish 3 along the way. But we're nearing the end of 4 the path that we outlined to you several months 5 ago. 6 CHAIR KASSEKERT: Commissioner 7 Sommeling? Well -- 8 MS. FLAHERTY: I think -- let me -- 9 CHAIR KASSEKERT: Let Miss Flaherty 10 finish her argument. 11 MS. FLAHERTY: On the petition. 12 With regard to the petition, we're here 13 today to address the request to retain 14 bankruptcy counsel and to pay various retainer 15 amounts to the bankruptcy counsel as well as to 16 Debevoise & Plimpton and Pashman Stein. You 17 have our report of November 18th and the 18 additional documents that have been filed in 19 the meantime by both Pashman Stein and the 20 Division. 21 The Division has no disagreement with 22 the recommendation of the Trustee/Conservator 23 that Cole Schotz serve as Adamar's bankruptcy 24 counsel. It leaves the approval of Cole Schotz 25 as bankruptcy counsel to Adamar as well as 45 1 Adamar's payments of the retainer amount to 2 Cole Schotz and the retainer to Pashman Stein 3 to the sound discretion of the Commission 4 subject to the satisfaction of the cash reserve 5 requirement and its related procedure. 6 The Division recommends, however, that 7 the Commission seriously consider assigning the 8 transaction work to be performed in connection 9 with the sale of the Tropicana assets to Cole 10 Schotz on the basis of cost and efficiency 11 consideration. 12 First, with regard to the cash reserve 13 requirement, the Commission in the context of 14 various petitions has imposed a condition 15 requiring that on a rolling basis the former 16 casino licensee maintain for operational 17 purposes a $19 million balance plus any 18 necessary insurance reserve. And that includes 19 approximately $4 million for the operation of 20 the casino. And that must be retained prior to 21 the payment of interest payments in the debt 22 and fees incurred and approved by the 23 Commission in conjunction with Pash -- with 24 Justice Stein and his advisors. 25 Further, on July 18th a procedure was 46 1 established with regard to the actual payment 2 of monies. And it would be our position that 3 those procedures need to be followed with 4 regard to these retainer amounts. 5 Next as to Debevoise & Plimpton, the 6 Trustee/Conservator seeks payment of a retainer 7 by Adamar to that firm. A review of the 8 information provided by Cole Schotz and the 9 testimony today demonstrates that it has 10 significant assets, sale, merger and 11 acquisition practice, particularly in a 12 bankruptcy context. 13 Furthermore, the hourly rates for the 14 transaction work by Cole Schotz in terms of 15 their associates and partners are beneath those 16 that would be charged by Debevoise & Plimpton, 17 which ranged to almost twice as much per hour. 18 Cole Schotz offers the benefit of such merger 19 and acquisition transaction experience in a 20 bankruptcy framework, and it presents the 21 opportunity for efficiencies and economies that 22 would not pertain by continuing with the 23 separate merger and acquisition transaction 24 counsel as this matter proceeds. 25 The Division also views it important 47 1 that the sale transaction will not now only 2 occur with regulatory review and approval but 3 subject to the purview and under the auspices 4 of a bankruptcy court. In light of the current 5 circumstances, we believe that Cole Schotz 6 would be uniquely positioned to represent 7 Adamar in the bankruptcy transaction. 8 We would also note that it would seem to 9 be appropriate to consider if the Commission is 10 so inclined to retain Debevoise at this point 11 for the merger and acquisition work that the 12 scope of the agreement relates merger and 13 acquisition. We have noticed in the billings 14 that many of the services provided by Debevoise 15 & Plimpton go way beyond merger and acquisition 16 type of work which is provided. And we would 17 suggest that guidelines be imposed by the 18 Commission pursuant to condition with regard to 19 the scope of the agreement with Debevoise, who 20 would be involved and what work they would do. 21 And, basically, we also would want to 22 note that there was a footnote that was filed 23 with regard to papers submitted by the Trustee 24 last week that the Division should file a 25 motion with regard to the Debevoise work. In 48 1 our view, this matter was raised by the Trustee 2 in terms of the retainer request, and we 3 responded to the issue in our papers, and it is 4 appropriately before the Commission. 5 So with that, we would suggest that Cole 6 Schotz could perform this work, but if the 7 Commission is so inclined, that the amount and 8 nature of the work performed by Debevoise be 9 circumscribed. 10 Thank you. 11 CHAIR KASSEKERT: Thank you, Miss 12 Flaherty. 13 Anything else before we recess? 14 MR. MACK: No. 15 VICE CHAIR SOMMELING: One question. 16 CHAIR KASSEKERT: All right. 17 (Conferring.) 18 CHAIR KASSEKERT: We're going to recess 19 now. Thank you. 20 MS. FLAHERTY: Thank you. 21 (A recess was taken from 11:55 a.m. to 22 12:36 p.m.) 23 CHAIR KASSEKERT: Thank you. We'll go 24 back on the record. 25 Let me ask at this point if there are 49 1 any other matters that need to be brought to 2 our attention at this time? 3 Mr. Mack? 4 MR. MACK: No. 5 MS. FLAHERTY: No, Chair. 6 CHAIR KASSEKERT: Thank you very much. 7 Retired Trustee Gary Stein is Trustee 8 and Conservator and of Adamar of New Jersey, 9 has previously obtained Commission approval to 10 retain the law firm of Cole Schotz as counsel 11 in connection with the Delaware bankruptcy 12 proceedings involving Adamar affiliates. 13 Justice Stein now seeks permission to retain 14 Cole Schotz in the additional counsel to 15 represent him and Adamar as the company 16 prepares and eventually files for bankruptcy 17 protection. 18 The Justice has anticipated a bankruptcy 19 filing that would be coincident to seeking 20 approval under Section 363 under the bankruptcy 21 code for a sale of the property. However, the 22 Commission has directed Justice Stein to 23 maintain the status quo of the sale process 24 while an appeal of its order denying a renewal 25 of Adamar's casino license remains pending 50 1 before the New Jersey State Supreme Court. 2 Nevertheless, in preparing to act expeditiously 3 in the event the Supreme Court affirms the 4 Commission, or sooner if circumstances 5 necessitate, Justice Stein has filed the 6 pending petition. 7 In addition to Cole Schotz, Justice 8 Stein interviewed at least two other renowned 9 bankruptcy law firms. Although many factors 10 contributed to the Justice's recommendation of 11 Cole Schotz, certainly that firm's extensive 12 experience representing debtor interests played 13 a significant role. 14 If approved, Cole Schotz would 15 complement the legal team that Justice Stein 16 has already assembled through Pashman Stein and 17 Debevoise & Plimpton. In addition to seeking 18 approval for Cole Schotz, Justice Stein also 19 seeks authorization to provide each firm with a 20 retainer. 21 In responding to the petition, the 22 Division voices no objection to Justice Stein 23 being allowed to retain Cole Schotz, nor does 24 it oppose the amount of the requested retainer 25 for that firm subject to any payment thereof 51 1 conforming to the existing conditions and 2 procedures regarding maintenance of certain 3 minimum cash balances. Similarly, the Division 4 leaves to the Commission's sound discretion the 5 authorizing of a retainer of Pashman Stein with 6 the same caveat as to its payment. 7 Although not objecting to a retainer for 8 Debevoise, per se, the Division does note, 9 among other things, that Cole Schotz also does 10 transactional work, particularly in a 11 bankruptcy context. Thus, the Division 12 recommends that the Commission seriously 13 consider assigning those responsibilities to 14 Cole Schotz. For his part, Justice Stein 15 contends that any perceived cost savings based 16 on the difference in the hourly rates that the 17 two firms charge is illusory because of the 18 amount of effort that Debevoise has already 19 invested in the project versus what additional 20 time it would take for Cole Schotz to reach 21 that same level. 22 Certainly, throughout the process the 23 Commission has been mindful of the costs 24 involved so as not to strain needlessly the 25 casino operation's cash resources. Likewise, 52 1 the Division's vigilance in that regard is to 2 be commended. However, the Commission earlier 3 this year approved the retention of Debevoise 4 for the transactional work involved, and 5 further, the approval of the retainer does not 6 foreclose revisiting fee issues if 7 circumstances warrant. Moreover, I'm satisfied 8 from the presentations and testimony today that 9 the proposed course change is unlikely at this 10 stage to produce the hoped-for cost savings. 11 Before addressing an actual motion, I 12 note that Justice Stein has not specifically 13 requested permission for Adamar to file for 14 bankruptcy protection. Certainly the 15 Commission expects that it be consulted before 16 any such action is taken. However, should 17 Justice Stein confront circumstances that 18 necessitate a quick response on his part, the 19 notice requirements underlying the Open Public 20 Meetings Act, even insofar as the emergency 21 provisions thereunder are involved, may 22 constrict the ability of the Justice to act 23 speedily if the full Commission were required 24 to convene on the question. Accordingly, I 25 would move to grant the petition subject to the 53 1 previously imposed conditions and procedures as 2 to the payment of fees and costs and thereby: 3 One, approve the retention of Cole 4 Schotz at the rates and with the reimbursement 5 for costs as specified in the petition to serve 6 as counsel to the Justice and Adamar in 7 connection with the company filing for 8 bankruptcy protection, with a copy of the 9 superseding retention agreement submitted 10 within ten days, and approval thereof delegated 11 to me as Chair; 12 Two, approve the retention retainers for 13 each of the three law firms in the amounts set 14 forth in the petition subject to Justice Stein 15 ensuring that the work among the firms proceed 16 within the scope of the respective engagements 17 so as to minimize the duplication of fees and 18 costs with ultimately the Commission retaining 19 the authority to disallow any such fees and 20 costs that are duplicative, or otherwise; 21 And, three, delegate to me as Chair the 22 authority to authorize Justice Stein to cause 23 Adamar to file for bankruptcy protection if 24 emergent or other circumstances that he 25 reasonably believes require expeditious 54 1 handling become manifest. 2 And I so move. 3 Is there a second? 4 VICE CHAIR SOMMELING: Second. 5 CHAIR KASSEKERT: The motion has been 6 made and seconded. All in favor? 7 (Ayes.) 8 CHAIR KASSEKERT: Opposed? 9 (No response.) 10 CHAIR KASSEKERT: Motion carries. 11 We'll now move to the next item. 12 MR. DiGIACOMO: Thank you, 13 Commissioners. 14 MS. FAUNTLEROY: Good afternoon. 15 MR. NANCE: Miss Fauntleroy? 16 MS. FAUNTLEROY: The remaining item for 17 your consideration is the review and request 18 for approval of the outstanding invoices of the 19 Conservator/Trustee, his personal counsel, and 20 all consultants retained to date. And they 21 would include the September and October 22 invoices of Justice Stein as Conservator/ 23 Trustee, the outstanding invoices for September 24 and October of Pashman Stein as personal 25 counsel, the September and October invoices of 55 1 Debevoise & Plimpton as merger and acquisition 2 counsel, the September -- August, September, 3 and October invoices of Cole Schotz as Delaware 4 bankruptcy counsel, and the September, October 5 invoices of Micky Brown as consultant, and July 6 through September invoices of Gary Simpson as 7 consultant. 8 The detailed bills were previously 9 presented for your consideration. 10 We have Sean Mack here on behalf of the 11 Conservator/Trustee and Mary Jo on behalf of 12 the Division. 13 CHAIR KASSEKERT: Mr. Mack? 14 MR. MACK: Good afternoon now, Chair, 15 Commissioners. 16 I'm happy to answer any questions you 17 may have about any of the invoices that have 18 been submitted. 19 CHAIR KASSEKERT: Thank you. 20 Any questions? 21 COMMISSIONER EPPS: Well -- 22 CHAIR KASSEKERT: Commissioner Epps? 23 COMMISSIONER EPPS: Given the process 24 that we just engaged in in the last matter and 25 the necessity for those engagements, do these 56 1 bills, once approved, close out the prior 2 engagements? Do you understand my question? 3 MS. FAUNTLEROY: Yes. 4 COMMISSIONER EPPS: Or do you understand 5 the question? 6 MR. MACK: Not quite exactly. 7 COMMISSIONER EPPS: It's my 8 understanding that before proceeding to 9 bankruptcy, you have to clear up the 10 obligations, the outstanding obligations, of 11 all the parties -- 12 MR. MACK: Uh-huh. 13 COMMISSIONER EPPS: -- who could be 14 construed as debtors if you go into bankruptcy. 15 Those loss have to be cleared up. So will this 16 clear up those situations, so as you go forward 17 with the new retainers for Cole Schotz, 18 Debevoise on the other side of this matter, 19 everything else is taken care of or are there 20 future bills that we still have to -- 21 MR. MACK: This takes us through the end 22 of October. These submissions. 23 COMMISSIONER EPPS: Okay. 24 MR. MACK: And there's been some work 25 now in November -- significantly reduced as a 57 1 result of the stay, but there's been some 2 billing in November which, you know, we'll get 3 the files at the end of the month, or sooner if 4 need be. 5 COMMISSIONER EPPS: And I guess the 6 other question is if you then move into a 363 7 process and those things have to be resolved, 8 how quickly do you turn that around and get 9 that wrapped up so you're in the posture you 10 need to be in going into the 363? 11 MR. MACK: That's, frankly, a discussion 12 I was hoping to have here with staff this 13 afternoon to set up sort of through that 14 process. Various ways I think we can handle 15 that. Or I can propose to handle that. The 16 retainers, could -- I think could be used to 17 cover some of that. 18 I'm turning towards bankruptcy counsel 19 for his advice here. 20 MR. SIROTA: Commissioner, your point is 21 right on. There will be fees and expenses 22 incurred right up until the time of the filing. 23 Those fees and expenses, as a matter of 24 bankruptcy law, would have to be paid. 25 Otherwise the professionals would be creditors 58 1 of the very debtors they represent and, 2 therefore, be adverse parties. So you should 3 envision in our retainer agreement, I think in 4 our other professional engagements contemplate 5 that there will be a payment of those invoices, 6 and the retainers would be intact as of the 7 filing date, and the process would move 8 forward, 363 or otherwise. 9 There's a tremendous amount of work that 10 needs to be done in to position the debtor to 11 be stabilized with first-day pleadings in the 12 insolvency proceeding as well as to move 13 forward with the 363 process. We're going to 14 try to truncate that so we can get the show on 15 the road as soon as we can, depending on the 16 emergent circumstances we may confront as a 17 result of creditors and other Chapter 11 18 procedures. 19 COMMISSIONER EPPS: And I think that 20 certainly answers my question as to Cole Schotz 21 and Debevoise, and I guess even Pashman Stein. 22 But will you also close out the consultants? 23 MR. MACK: As far as I know, this 24 application today will close them out. It's -- 25 to my knowledge, there has been no additional 59 1 billings in this -- since the end of October. 2 COMMISSIONER EPPS: Okay. Given the 3 conditions with respect to payment, even if the 4 bills are submitted and approved, what 5 happens-- and I guess for bankruptcy counsel, 6 what happens with respect to the condition on 7 Tropicana from their rolling cash balance 8 requirement if you start 363, and those 9 payments are yet outstanding? How do you -- 10 MR. SIROTA: It's an excellent question, 11 and not something I've confronted before. I 12 heard the Commission quite clearly on the 13 minimum cash requirement. In the context of a 14 bankruptcy proceeding, ordinarily fees would be 15 dealt with, as I mentioned earlier, on a 30-day 16 process with 20 days' notice given to all stake 17 holders to object, approved on an interim basis 18 subject to a final fee application process 19 where everyone gets to revisit and weigh in on 20 the reasonableness of the fees, the court in 21 particular, the office of US Trustee, and the 22 stake holders. 23 Ordinarily, the process is determined by 24 the enterprise's ability to meet its 25 obligations in the normal course. Professional 60 1 fees, any administrative postbankruptcy fees in 2 operating the Tropicana. And there is no 3 minimal cash requirement. That's something 4 that I'm sure will be new for any bankruptcy 5 court to confront. Their objective is having 6 enough visibility to make sure the business can 7 continue without an artificial minimum. 8 COMMISSIONER EPPS: So, then, is it 9 foreseeable that you, Counsel, may come to us 10 seeking relief from that condition at that 11 point to allow you to go into the process? 12 MR. SIROTA: Yes. And as soon as we can 13 get our arms around the overall facts and cash 14 flows to determine whether that's an issue, we 15 may be back here. 16 You know, the other thing we may 17 confront is, you know, we're addressing the 18 debtor's professional team. When the Chapter 19 11 is filed, there will be a creditors 20 committee and creditors professionals, and you 21 should assume that the creditors committee will 22 retain counsel, financial advisors, maybe 23 consultants. And they won't feel quite as 24 constrained as we do with respect to filing 25 their fee applications, the process, and the 61 1 minimum required. They're going to ask the 2 bankruptcy court, as they would in every case, 3 to approve their fees on a going-forward basis. 4 So we have to sort of manage the process both 5 from the debtor end as well as the creditor 6 committee end. But we may very well be back 7 here to suggest an alternative approach. 8 COMMISSIONER EPPS: Did you want to 9 weigh in? 10 MS. FLAHERTY: Yes. I do just want to 11 comment on that. 12 Obviously, the condition is very 13 important to us and our experience with 14 bankruptcy court, especially in Camden at 15 least, has been that the bankruptcy judge has 16 always viewed that it was necessary for the 17 licensee to meet all regulatory requirements in 18 order to stay in business and to defer to the 19 Commission and regulatory process in that 20 regard. So it would be our view that an 21 argument should be put before the bankruptcy 22 court with respect to that condition, its 23 importance, and its regulatory base and that 24 hopefully the bankruptcy judge would be 25 persuaded by that, and that would be the way 62 1 that we would like the matter to proceed. 2 But we can have further discussions on 3 that point. 4 Thank you. 5 COMMISSIONER EPPS: Thank you. 6 CHAIR KASSEKERT: Any other questions? 7 Is there anything else? 8 MS. FLAHERTY: I would like to make an 9 argument with regard to the fees. 10 CHAIR KASSEKERT: Sure. 11 MS. FLAHERTY: The Division has reviewed 12 the invoices as to the hours billed, and the 13 billing rates. And the amounts billed are 14 accurate based on that review. 15 In the Division's view, any duplicative 16 and unnecessarily expenses and questionable 17 fees and expenses should be disallowed by the 18 Commission. In particular, the Division notes 19 in that regard fees and expenses which had been 20 charged with regard to an effort to obtain 21 further legal business before the Commission. 22 In terms of bankruptcy work by firms, I don't 23 know if it's appropriate to bill to try to get 24 business. 25 Next there were -- 63 1 CHAIR KASSEKERT: Let me just ask for 2 some clarification. Who was that bill 3 attributed to, Pashman Stein? 4 MS. FLAHERTY: No. That would be 5 Debevoise & Plimpton in terms of the bankruptcy 6 work. There was actually bankruptcy work 7 billed by Debevoise & Plimpton during the month 8 of October, various hours and times for that. 9 We also notice that there are multiple layers 10 of review and discussion at the firms Pashman 11 Stein, Debevoise & Plimpton on the same 12 subjects. Among lawyers at Pashman Stein and 13 then among lawyers at Debevoise & Plimpton and 14 then among the firms together. Or between the 15 firms together. 16 There were extensive work done at 17 Debevoise & Plimpton, and to some extent, at 18 Pashman Stein with regards to retention and 19 severance agreements, and we weren't familiar 20 with that. 21 And then, lastly, with regard to the 22 Debevoise's bills, there are a significant 23 number of entries that are designated as 24 "attention to." And we're not really sure what 25 those mean. It doesn't say review. It doesn't 64 1 say drafting. It doesn't say research. It's 2 attention. And I'm not really sure, so if they 3 could get more precise in that regard going 4 forward, we would appreciate it. 5 Thank you. 6 And, then, in consideration of the costs 7 and expenses of the Trustee/Conservator and his 8 legal counsel and advisor, that is within the 9 purview of the Commission under both the ICA 10 provisions and the conservatorship provisions 11 of the Act. In the absence of integrity, law 12 enforcement, financial stability, and other 13 such concerns, the Division's position is to 14 leave the fee and expense matters to the sound 15 discretion of the Commission, emphasizing that 16 any payment of the fees and expenses at issue 17 continue to be subject to the 30-day rolling 18 cash reserve requirement as imposed by the 19 Commission. The Division in this matter leaves 20 approval of the fees and expenses presented to 21 the Commission today to the Commission's sound 22 discretion. 23 Thank you very much. 24 CHAIR KASSEKERT: Thank you. 25 Mr. Mack? 65 1 MR. MACK: With regard to the first 2 issue that the Division had an issue with, I 3 standing here, have absolutely no recollection 4 of seeing anything in these bills where 5 Debevoise was doing work to try to get more 6 work. I have no absolutely no idea what that 7 is. And I have reviewed the bills. I don't 8 even -- 9 MS. FLAHERTY: I think there were -- 10 there were documents put together for 11 presentations to the Commission with respect to 12 the bankruptcy, and there were several days 13 where several people were working to put 14 together whatever was going to be presented. 15 MR. MACK: Oh, okay. Then we're talking 16 about the -- probably the October 1st -- 17 MS. FLAHERTY: Uh-huh. 18 MR. MACK: -- meeting that we had here. 19 CHAIR KASSEKERT: Meeting. 20 MR. MACK: And the purpose of that 21 meeting was, to add as Mr. Sirota has just 22 done, begin to discuss with Commission staff 23 the issues that were going to be -- come up and 24 be encountered as we go forward with this 25 process. And Debevoise, given their skill and 66 1 Richard Hahn's experience and his involvement 2 to date, has been the person we've been turning 3 to to do that until Mr. Sirota takes over. So 4 that that wasn't work to get them more work. 5 That was to help us explain to this body what 6 was going to happen going forward and why 7 various steps were going to need to be taken. 8 MS. FLAHERTY: Well, I took it to be in 9 support of Debevoise's becoming bankruptcy 10 counsel. 11 MR. MACK: This was -- this was just 12 providing, you know, bankruptcy related advice, 13 that they have been the only person available 14 to give it to us so far. 15 CHAIR KASSEKERT: Right. Without the 16 retainer. Right. 17 MR. MACK: As to the other matters, this 18 has come up a couple of times, and we had this 19 out back -- back in June. Justice Stein, in 20 various matters, not strictly related to M and 21 A, has sought the advice of experienced counsel 22 at Debevoise who have the expertise in 23 different areas, and the retention agreement is 24 one of them. 25 And as to the attention to language in 67 1 the time entries, I'll certainly talk to them 2 about making that more clear. 3 MS. FLAHERTY: Thank you. 4 CHAIR KASSEKERT: Thank you. Great. 5 Any more questions? 6 Is there a motion to approval the 7 invoices? 8 VICE CHAIR SOMMELING: Motion to approve 9 the invoices. 10 COMMISSIONER FEDORKO: Second. 11 CHAIR KASSEKERT: The motion has been 12 made and seconded. All in favor? 13 (Ayes.) 14 CHAIR KASSEKERT: Opposed? 15 (No response.) 16 CHAIR KASSEKERT: Motion carries. 17 Do we do a public portion, Mr. Nance? 18 MR. NANCE: Yes. 19 It is now time for the public 20 participation portion of the meeting. 21 CHAIR KASSEKERT: Thank you. 22 Is there anyone from the public who 23 wishes to be heard? 24 (No response.) 25 CHAIR KASSEKERT: Seeing no one, I'll 68 1 declare this portion of the meeting closed and 2 entertain a motion to adjourn. 3 VICE CHAIR SOMMELING: Motion to 4 adjourn. 5 COMMISSIONER FEDORKO: Second. 6 CHAIR KASSEKERT: The motion has been 7 made and seconded. All in favor? 8 (Ayes.) 9 CHAIR KASSEKERT: Opposed? 10 (No response.) 11 CHAIR KASSEKERT: Motion carries. 12 (Special Meeting 08-11-24 was adjourned 13 at 12:55 p.m.) 14 15 16 17 18 19 20 21 22 23 24 25 69 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: November 24, 2008 23 My Commission Expires on July 10, 2009 24 ID No 2062871 25