1 1 STATE OF NEW JERSEY 2 CASINO CONTROL COMMISSION 3 - - - - - - - - - - - - - - - - - - - 4 5 PUBLIC MEETING NO. 09-08-26 6 7 - - - - - - - - - - - - - - - - - - - 8 9 Wednesday, August 26, 2009 10 Atlantic City Commission Offices 11 Joseph P. Lordi Public Meeting Room - First Floor 12 Tennessee Avenue and Boardwalk 13 Atlantic City, New Jersey 08401 14 10:37 a.m. to 5:50 p.m. 15 16 17 Certified Court Reporter: Darlene Sillitoe 18 - - - - - - - - - - - - - - - - - - - - - - - - - - - 19 20 ATLANTIC CITY COURT REPORTING, LLC 21 CERTIFIED COURT REPORTERS AND VIDEOGRAPHERS 22 1125 ATLANTIC AVENUE, SUITE 416 23 ATLANTIC CITY, NEW JERSEY 08401 24 (609) 345-8448 www.accourtreporting.com 25 2 1 2 CASINO CONTROL COMMISSION: LINDA M. KASSEKERT, CHAIR 3 MICHAEL C. EPPS, VICE CHAIR WILLIAM T. SOMMELING, COMMISSIONER 4 SHARON ANNE HARRINGTON, 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 DENIS J. CORBETT, SENIOR COUNSEL 10 TERESA M. NAGENGAST, SENIOR COUNSEL SANDRA DeLIA, LEGAL SUPPORT SPECIALIST 11 BERNADETTE T. FRIGEN, PROGRAM SUPERVISOR 12 DIVISION OF FINANCIAL EVALUATION: NOREEN IANNUZZI, DIRECTOR 13 DIVISION OF GAMING ENFORCEMENT: 14 DEPUTY ATTORNEYS GENERAL JOHN E. ADAMS, JR., DEPUTY ATTORNEY GENERAL 15 BRIAN C. BISCIEGLIA, DEPUTY ATTORNEY GENERAL MARY JO FLAHERTY, DEPUTY ATTORNEY GENERAL 16 CHARLES F. KIMMEL, DEPUTY ATTORNEY GENERAL DOROTHY TURI, DEPUTY ATTORNEY GENERAL 17 R. LANE STEBBINS, DEPUTY ATTORNEY GENERAL 18 19 20 21 22 23 24 25 3 1 A P P E A R A N C E S : 2 ITEM NO. 3 DOROTHY TURI, DEPUTY ATTORNEY GENERAL MICHAEL A. MAGAZZU, ESQ. 3 FOR: HARRAH'S ENTITIES 4 ITEM NO. 6 DENIS J. CORBETT, SENIOR DOROTHY TURI, DEPUTY ATTORNEY GENERAL 5 MICHAEL A. MAGAZZU, ESQ. FOR: ATLANTIC CITY SHOWBOAT, INC. 6 ITEM NO. 7 DENIS J. CORBETT, SENIOR COUNSEL 7 R. LANE STEBBINS, DEPUTY ATTORNEY GENERAL TAMA HUGHES, ESQ. 8 FOR: ADAMAR OF NEW JERSEY, INC. 9 ITEM NO. 9c SANDRA DeLIA, LEGAL SUPPORT SPECIALIST BRIAN C. BISCIEGLIA, DEPUTY ATTORNEY 10 GENERAL JAMES GRIMLY, ESQ. 11 FOR: KEVIN D. FLORES 12 ITEM NO. 13 TERESA N. NAGENGAST, SENIOR COUNSEL CHARLES F. KIMMEL, DEPUTY ATTORNEY GENERAL 13 STERNS & WEINROTH, PC DENNIS DALY, ESQ. 14 FOR: COACH, INC. 15 ITEM NO. 14 DIANNA W. FAUNTLEROY, GENERAL COUNSEL DOROTHY TURI, DEPUTY ATTORNEY GENERAL 16 MICHAEL A. MAGAZZU, ESQ. FOR: HARRAH'S ENTITIES 17 ITEM NO. 15 DIANNA W. FAUNTLEROY, GENERAL COUNSEL 18 DOROTHY TURI, DEPUTY ATTORNEY GENERAL STERNS & WEINROTH, PC 19 PAUL M. O'GARA, ESQ. FOR: HARRAH'S ENTITIES 20 ITEM NO. 16 LEONARD L. DiGIACOMO, ASSISTANT GENERAL 21 COUNSEL JOHN E. ADAMS, JR. DEPUTY ATTORNEY GENERAL 22 STERNS & WEINROTH, PC DUANE MORRIS, LLP 23 GILBERT BROOKS, ESQ. FOR: STEERING COMMITTEE OF 24 SECURED LENDERS PAUL M. O'GARA, ESQ. 25 FOR: TROPICANA ENTERTAINMENT, LLC 4 1 (Continued) A P P E A R A N C E S : 2 ITEM NO. 17 LEONARD L. DiGIACOMO, ASSISTANT GENERAL 3 COUNSEL NOREEN IANNUZZI, DIRECTOR OF COMPLIANCE 4 MARY JO FLAHERTY, DEPUTY ATTORNEY GENERAL STERNS & WEINROTH, PC 5 PAUL M. O'GARA, ESQ. FOR: TROPICANA ENTERTAINMENT, LLC 6 DUANE MORRIS, LLP GILBERT BROOKS, ESQ. 7 FOR: STEERING COMMITTEE OF SECURED LENDERS 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 5 1 AGENDA PUBLIC MEETING NO. 09-08-26 2 AUGUST 26, 2009, 10:37 a.m. ITEM PAGE VOTE 3 1 Ratification of the minutes of the 11 11 August 5, 2009, public meeting 4 2 Applications for employee and casino service industry licenses 5 20 initial and/or renewal of casino key 12 12 and casino employee licenses 6 10 initial and/or renewal of casino key 12 13 and casino employee licenses 7 Applications for initial and/or renewal of casino key casino employee licenses and for 8 qualification: Frank A. Muscolina, Vice President of 13 14 9 Human Resources Regional for Bally's Park Place, Inc., Boardwalk Regency Corporation, 10 Harrah's Atlantic City Operating Company, LLC, and Showboat Atlantic City Operating 11 Company, LLC Evan G. Novis, Vice President of New 13 14 12 Business Development for Bally's Park Place, Inc., Boardwalk Regency Corporation, Harrah's 13 Atlantic City Operating Company, LLC, and Showboat Atlantic City Operating Company, LLC 14 Kevin S. Smith, Vice President of 13 14 Litigation (Regional) for Resorts International 15 Hotel, Inc., and RIH Acquisition, NJ, LLC Alexis A. Turin, Vice President of 13 14 16 Marketing for Showboat Atlantic City Operating, LLC 17 3 Petition No. 2020903 of Harrah's Atlantic 14 16 City Operating Company, LLC, Showboat Atlantic 18 City Operating Company, LLC, Bally's Park Place, Inc., and Boardwalk Regency Corp., is 19 requesting the issuance of a temporary casino key employee license to Michelle Messina 20 pursuant to NJSA 5:12-80(e) and to permit her pursuant to NJAC 19:43-2.6 to assume the 21 duties and exercise the powers of Vice President of Direct Marketing and Advertising 22 without first having been found qualified 4 Petition No. 2190902 of Harrah's Atlantic 16 18 23 City Operating Company, LLC, Showboat Atlantic City Operating Company, LLC, 24 Bally's Park Place, Inc., and Boardwalk Regency Corporation, is requesting the 25 Issuance of a temporary casino key employee License to Robert Carmignani pursuant to 6 1 CONTINUED AGENDA PUBLIC MEETING NO. 09-08-26 2 AUGUST 26, 2009, 10:37 a.m. ITEM PAGE VOTE 3 NJSA 5:12-89(e) and to permit him pursuant 16 18 to NJAC 19:43-2.6 to assume the duties and 4 exercise the powers of Regional Vice President of Casino Marketing without first 5 having been found qualified 5 Stipulations of settlement and consent 6 agreements: a) Wenpen P. Lin (09-0084-EA) 18 20 7 b) Piyush Patel (07-0628-ER) 18 20 c) Dianna L. Brooks (09-0099-RC) 18 20 8 d) Santiago A. Mejia (08-0220-RC) 18 20 e) Ophelia J. Gibbs (08-0981-EA) 18 20 9 f) Francesco L. Nestore (09-0253-EA) 18 20 g) Crystal M. Harper (08-0821-ER) 18 20 10 h) James S. Gallagher, Sr. (09-0346-EA) 18 20 i) Maria P. Giraldo (09-0121-EA) 20 11 Sworn 22 j) Bich Q. Phan (a/k/a Quy Bich Phan) 18 20 12 (07-0480-EA) k) Khamphao Phommalyla (09-0158-ER) 18 20 13 l) Theresa L. Randolph (08-0706-ER) 18 20 6 Stipulation of settlement in State v. 26 28 14 Atlantic City Showboat, Inc., (d/d/a Showboat Casino Hotel) (09-0066-VC) 15 7 Stipulation of settlement in State v. 28 31 Adamar of New Jersey, Inc., (d/b/a 16 Tropicana Casino and Resort) and Joanna Raggio (08-085-VC) 17 8 Initial decision of State v. Quan M. 31 41 Nguyen (08-0720-EL) 18 9 Petitions for early reapplication: a) Roger A. Prescott (09-0410-RA) 41 42 19 b) Linda Bell (09-0226-RA) 42, 119 120 c) Kevin D. Flores (a/k/a Flores-Torres) 43 57 20 (09-0345-RA) Sworn 53 10 Reconsideration of Commission final orders due 21 to non-compliance of conditions therein: a) Vernon K. Burkett (09-0162-RA) 58 60 22 b) Newman R. Lewis (09-0159-RA) 58 60 c) Mack D. Ragsdale, III (09-0750-RA) 58 60 23 d) Michele Zappala (09-0959-RA) 58 60 11 Applications for suspension: 24 a) Fernando Javier (09-0493-RC) 60 66 Sworn 63 25 b) Avette A. Moody (09-0492-RC) 66 69 7 1 CONTINUED AGENDA PUBLIC MEETING NO. 09-08-26 2 AUGUST 26, 2009, 10:37 a.m. ITEM PAGE VOTE 3 12 Consideration of forfeiture orders in State v.: 4 a) Resorts International Hotel, Inc., 69 75 b) Resorts International Hotel, Inc., 71 75 5 et al. (09-0268-VC) c) Atlantic City Showboat, Inc. 71 75 6 (09-0124-VC) d) Boardwalk Regency Corporation 71 75 7 (09-0230-VC) 13 Petition of Coach, Inc., for exemption 75 79 8 licensure as a non-gaming casino service industry enterprise pursuant to NJSA 9 5:12-92c(3)(ii) (PRN 1330901) 14 Petition of Harrah's Entertainment, Inc., 79 82 10 (HEI), Harrah's Operating Company, Inc., (HOC), Harrah's Atlantic City Operating 11 Company, LLC, Showboat Atlantic City Operating Company, LLC, Bally's Park Place, Inc., and 12 Boardwalk Regency Corp. For waiver of qualification for HEI and HOC Officer 13 position (VP Finance) (PRN 2220904) 15 Petition of Harrah's Entertainment, Inc., 83 93 14 and Harrah's Operating Company, Inc., for Approval of the issuance of second priority 15 lien notes and other relief (PRN 2160901) 16 Amended and supplemental petition of the 96 118 16 Steering Committee of Secured Lenders for approval of an organizational structure and 17 for other relief (PRN 1590901); and Amended and supplemental petition of Tropicana 18 Entertainment, LLC, et al., for a declaratory ruling concerning, inter alia, the 19 qualification status of William J. Yung, III (PRN 3399801) 20 17 Joint petition of Resorts International 120 x Hotel, Inc., Column Financial, Inc., 21 Trimont Real Estate Advisors, Inc., Wells Fargo Bank, NA, and RAC Atlantic City 22 Holdings, LLC, for declaratory rulings Regarding the acquisition of real property on 23 which a licensed casino hotel is operated and for other relief (PRN 2040904) 24 Nicholas L. Ribis, Sworn 140 Stephen Yankauer, Sworn 188, 283 25 Francis X. McCarthy, Sworn 265 8 1 E X H I B I T S : ITEM 2 NO. 2 DESCRIPTION EVD 3 P-1 Remand for hearings 20 license X P-2 Grant 10 licenses X 4 5 ITEM NO. 17 DESCRIPTION EVD 6 D-1 DGE Letter Report, 7-27-09, to Chair X 7 Kassekert from Mary Jo Flaherty, DAG, Re: PRN 2040904 8 D-2 DGE Letter, 8-19-09, to Chair Kassekert X from Mary Jo Flaherty, DAG, 9 Re: PRN 2040904 (Request to redact) J-1 Settlement Agreement (Deed in Lieu of X 10 Foreclosure) by and among Wells Fargo Bank, NA, as Trustee, Resorts International 11 Hotel, Inc., Resorts PropCo, Inc., New Pier Operating Company, Inc., Resorts 12 Real Estate Holdings, Inc., Resorts Finance Holdings, Inc., and Colony Investors 13 IV, LP (Request to redact) J-2 Management Agreement by and between RAC X 14 Atlantic City Holdings, LLC, and Resorts International Hotel, Inc. 15 J-3 Escrow Agreement by and among: (A) Resorts X Finance Holdings, Inc., Resorts 16 International Hotel, Inc., Resorts PropCo, Inc., New Pier Operating Company, Inc., 17 Resorts Real Estate Holdings, Inc., and Colony Investors IV, LP; (B) RAC Atlantic 18 City Holdings, LLC; and (C) First American Title Insurance Company 19 J-4 Deferred Incentive Agreement by and X between RAC Atlantic City Holdings, LLC, 20 and Resorts International Hotel, Inc., (Request to redact) 21 J-5 Reaffirmation of Indemnities and other X Obligations and Release Agreement by and 22 between Resorts International Hotel, Inc., Resorts PropCo, Inc., New Pier Operating 23 Company, Inc., Resorts Real Estate Holdings Inc., Resorts Finance Holdings, Inc., and 24 Colony Investors IV, LP, for Wells Fargo Bank, NA, as Trustee and RAC Atlantic City 25 Holdings, LLC 9 1 Continued E X H I B I T S : ITEM 2 NO. 17 DESCRIPTION EVD 3 J-6 Deed in Lieu of Foreclosure by Resorts X International Hotel, Inc., to and for the 4 benefit of RAC Atlantic City Holdings, LLC J-7 Deed in Lieu of Foreclosure by New Pier 5 Operating Company, Inc., to and for the benefit of RAC Atlantic City Holdings, LLC 6 J-8 Deed in Lieu of Foreclosure by Resorts X Real Estate Holdings, Inc., to and for the 7 benefit of RAC Atlantic City Holdings, LLC J-9 Letter, 8-20-09, from TriMont Real Estate X 8 Advisors, Inc., to KeyCorp Real Estate Capital Markets, Inc. Re: CS 2007-TFL2/ 9 Resorts Atlantic City Mortgage Asset (Commission Advance Letter) 10 J-10 Letter, 8-13-09, from Patricia Wright, X Assistant Director of the Division of 11 Taxation to Paul M. O'Gara, Esq., Richard K. Weinroth, Esq. Re: Deed in Lieu of 12 Foreclosure/Resorts International Hotel, Inc., et al., to Wells Fargo Bank 13 J-11 Certificate of Formation of RAC Atlantic X City Holdings, Inc. 14 J-12 New Jersey Registration of Foreign Limited X Liability Company of RAC Atlantic City 15 Holdings, LLC J-13 RAC Atlantic City Holdings, Co., LLC, X 16 Limited Liability Company Agreement J-14 Stock Forfeiture and Termination Agreement X 17 by and between Colony RIH Holdings, Inc., Colony RIH Voteco, LLC, and Colony Investors 18 IV, LP, and Thomas J. Barrack and Nicholas L. Ribis, entered as of 7-17-09 19 J-15 Slide Presentation Booklet X J-16 Chart of Organizational Structure X 20 J-17 Undated Trimont Memorandum, Re: Insight X and Clarification as to the Monitoring 21 Process 22 23 24 25 (Exhibits retained by Commission.) 10 1 (Public Meeting 09-08-26 was commenced 2 at 10:37 a.m.) 3 MR. NANCE: Good morning. I'd like to 4 read an opening statement: 5 This is to advise the general public 6 that in compliance with Chapter 231 of the 7 public laws of 1975 entitled the "Open Public 8 Meetings Act," the New Jersey Casino Control 9 Commission on October 7th, 2008, filed with the 10 Secretary of State at the Statehouse in 11 Trenton, New Jersey, a notice of this hearing. 12 On October 7th, copies were mailed to 13 subscribers. 14 Members of the press will be permitted 15 to take photographs, and we ask that this be 16 done in a manner which is not disruptive or 17 distracting to the Commission. 18 The use of cell phones in the public 19 meeting room while the Commission is in session 20 is prohibited. 21 Any member of the public who wish to 22 address the Commission will be given the 23 opportunity to do so before the Commission 24 adjourns for the day. 25 Please stand for the Pledge of 11 ITEM NO. 1 1 Allegiance. 2 (The flag salute was recited.) 3 CHAIR KASSEKERT: Good morning. 4 MR. NANCE: Good morning. 5 The matters discussed in closed session 6 were: Employee and enterprise license matters. 7 The Commission approved the August 5th, 8 2009, closed-session minutes. 9 Litigate update regarding: Petition of 10 Highgate Steel for release of monies, and 11 Edwards versus Adamar of New Jersey, Inc., et 12 al. 13 The personnel matters were discussed as 14 follows: The Commission approved the revisions 15 to the unclassified reduction in force policy 16 within the Commission policy -- personnel 17 policy and procedure. 18 Item No. 1, ratification of the minutes 19 of the August 5th, 2009, public meeting. 20 COMMISSIONER SOMMELING: Move to 21 approve. 22 VICE CHAIR EPPS: Second. 23 CHAIR KASSEKERT: The motion has been 24 made and seconded. All in favor? 25 (Ayes.) 12 ITEM NO. 2 1 CHAIR KASSEKERT: Opposed? 2 Abstention? 3 COMMISSIONER HARRINGTON: Abstention. 4 MR. NANCE: Item No. 2, applications for 5 employee and casino service industry licenses. 6 This agenda item will be entered as Exhibit 7 List 1 and 2. 8 Exhibit List 1 consists of 20 9 applications for initial and/or renewal of 10 casino key or casino employee licenses. 11 The Division has objected to licensure. 12 COMMISSIONER EPPS: Motion to remand for 13 hearings. 14 COMMISSIONER SOMMELING: Second. 15 CHAIR KASSEKERT: The motion has been 16 made and seconded. All in favor? 17 (Ayes.) 18 CHAIR KASSEKERT: Opposed? 19 (No response.) 20 CHAIR KASSEKERT: Motion carries. 21 MR. NANCE: Exhibit List 2 consists of 22 10 applications for initial and/or renewal of 23 casino key and casino employee licenses. 24 Staff and the Division have recommended 25 that these licenses be granted. 13 ITEM NO. 2 1 VICE CHAIR EPPS: Move that we grant the 2 applications. 3 COMMISSIONER SOMMELING: Second. 4 CHAIR KASSEKERT: The motion has been 5 made and seconded. All in favor? 6 (Ayes.) 7 CHAIR KASSEKERT: Opposed? 8 (No response.) 9 CHAIR KASSEKERT: Motion carries. 10 MR. NANCE: For consideration are the 11 following applications for initial and/or 12 renewal of casino key employee licenses and for 13 qualification: For Frank A. Muscolina, Vice 14 President of Human Resources, Regional, for 15 Bally's Park Place, Inc., Boardwalk Regency 16 Corporation, Harrah's Atlantic City Operating 17 Company, LLC, and Showboat Atlantic City 18 Operating Company, LLC; 19 Evan Novis, Vice President of New 20 Business Development for Bally's Park Place 21 Inc., Boardwalk Regency Corporation, Harrah's 22 Atlantic City Operating Company, LLC, and 23 Showboat Atlantic City Operating Company, LLC; 24 Kevin S. Smith, Vice President of 25 Litigation, Regional, for Resorts International 14 ITEM NO. 3 1 Hotel, Inc., and RIH Acquisition, New Jersey, 2 LLC; 3 And Alexis A. Turin, Vice President of 4 Marketing for Showboat Atlantic City Operating, 5 LLC. 6 Staff and the Division have recommended 7 that these applications be granted 8 COMMISSIONER EPPS: Move that we grant 9 applications for initial or renewal of casino 10 employee licenses and for qualifications. 11 COMMISSIONER HARRINGTON: Second. 12 CHAIR KASSEKERT: Motion has been made 13 and seconded. This a roll call vote. 14 MR. NANCE: Commissioner Harrington? 15 COMMISSIONER HARRINGTON: Yes. 16 MR. NANCE: Commissioner Sommeling? 17 COMMISSIONER SOMMELING: Yes. 18 MR. NANCE: Vice Chair Epps? 19 VICE CHAIR EPPS: Yes. 20 MR. NANCE: Chair Kassekert? 21 CHAIR KASSEKERT: Yes. 22 MR. NANCE: The record will reflect that 23 the motion is unanimous. 24 Item No. 3, Petition No. 2020903 of 25 Harrah's Atlantic City Operating Company, LLC, 15 ITEM NO. 3 1 Showboat Atlantic City Operating Company, LLC, 2 Bally's Park Place, Inc., and Boardwalk Regency 3 Corp. is requesting the issuance of a temporary 4 key employee license to Michelle Messina 5 pursuant to NJSA 5:89(e) and to permit her 6 pursuant to NJAC 19:43-2.6 to assume the duties 7 and exercise the powers of Vice President of 8 Direct Marketing and Advertising without first 9 having been found qualified. 10 CHAIR KASSEKERT: I see counsel before 11 me. Anything on this petition? 12 MR. MAGAZZU: No. Good morning, Madame 13 Chair. I have nothing further. I've reviewed 14 the petition. I have nothing further to add. 15 CHAIR KASSEKERT: Thank you. 16 Miss Turi? 17 MS. TURI: Good morning, Madame Chair, 18 Commissioners. Dorothy Turi on behalf of the 19 Division of Gaming Enforcement. 20 We have no objection to the relief 21 sought here. 22 CHAIR KASSEKERT: Thank you. 23 Is there a motion on? 24 COMMISSIONER SOMMELING: Madame Chair, I 25 move to approve the petition and issue a 16 ITEM NO. 4 1 temporary casino key employee license to 2 Michelle Messina and to permit her to assume 3 the duties and exercise the powers of Vice 4 President of Director -- of Direct Marketing 5 and Advertising without first having been 6 qualified. 7 VICE CHAIR EPPS: Second. 8 CHAIR KASSEKERT: Motion is made and 9 seconded. This is a roll call wrote. 10 MR. NANCE: Commissioner Harrington? 11 COMMISSIONER HARRINGTON: Yes. 12 MR. NANCE: Commissioner Sommeling? 13 COMMISSIONER SOMMELING: Yes. 14 MR. NANCE: Vice Chair Epps? 15 VICE CHAIR EPPS: Yes. 16 MR. NANCE: Chair Kassekert? 17 CHAIR KASSEKERT: Yes. 18 MR. NANCE: The record will reflect that 19 the motion is unanimous. 20 Item No. 4, Petition No. 2190902 of 21 Harrah's Atlantic City Operating Company, LLC, 22 Showboat Atlantic City Operating Company, LLC, 23 Bally's Park Place, Inc., and Boardwalk Regency 24 Corporation, requesting the issuance of a 25 temporary casino key employee license to Robert 17 ITEM NO. 4 1 Carmignani pursuant to NJSA 5:12-89(e) and to 2 permit him pursuant to NJAC 19:43-2.6 to assume 3 the duties and exercise the powers of Regional 4 Vice President of Casino Marketing without 5 first having been found qualified. 6 CHAIR KASSEKERT: Again, Counsel? 7 Anything to add to this petition? 8 MR. NANCE: Excise me, Counsel, could 9 you identify for yourself for the record? 10 MR. MAGAZZU: Sure. Mike Magazzu, for 11 the record. 12 MR. NANCE: Thank you. 13 CHAIR KASSEKERT: Thank you. 14 MS. TURI: The Division of Gaming 15 Enforcement has no objection. 16 CHAIR KASSEKERT: Thank you. 17 VICE CHAIR EPPS: Madame Chair, I move 18 that we approve the petition and issue a 19 temporary casino key employee license to 20 Robert -- Robert Carmignani and permit him to 21 assume the duties and exercise the powers of 22 Regional Vice President of Casino Marketing 23 without first having been found qualified. 24 COMMISSIONER HARRINGTON: Second. 25 CHAIR KASSEKERT: Okay. Motion has been 18 ITEM NO. 5 1 made and seconded. This is a roll call vote. 2 MR. NANCE: Commissioner Harrington? 3 COMMISSIONER HARRINGTON: Yes. 4 MR. NANCE: Commissioner Sommeling? 5 COMMISSIONER SOMMELING: Yes. 6 MR. NANCE: Vice Chair Epps? 7 VICE CHAIR EPPS: Yes. 8 MR. NANCE: Chair Kassekert? 9 CHAIR KASSEKERT: Yes. 10 MR. NANCE: The record will reflect that 11 the motion is unanimous. 12 Item No. 5, stipulations of settlement 13 and consent agreements. When I call your name, 14 please come forward, stand behind this middle 15 table, spreading across the room so that you 16 may be seen: Wenpen Lin, Piyush Patel, Dianna 17 Brooks, Santiago Mejia -- excuse me -- Mejia, 18 Ophelia Gibbs, Francesco Nestore, Crystal 19 Harper, James Gallagher, Sr., Bich Phan, 20 Khamphoa Phommalyla, and Theresa Randolph. 21 CHAIR KASSEKERT: Has everyone whose 22 name has been called come forward at this time? 23 I'm going to ask that you each state 24 your name for the record, starting with you, 25 ma'am. 19 ITEM NO. 5 1 MS. PHAN: Quy Bich Phan. 2 MS. RANDOLPH: Theresa Randolph. 3 MS. GIBBS: Ophelia Gibbs. 4 MS. BROOKS: Dianna Brooks. 5 CHAIR KASSEKERT: Okay. In a moment we 6 are going to vote on the stipulations which 7 you've agreed to with the Division of Gaming 8 Enforcement. I'm going to ask at this point if 9 any of you wishes to be heard on your matter. 10 You don't have to say anything if you don't 11 want to. 12 Does anyone wish to be heard? 13 (No response.) 14 CHAIR KASSEKERT: No? 15 Mr. Biscieglia? 16 MR. BISCIEGLIA: Good morning, Chair, 17 Commissioners. 18 The Commission has nothing further on 19 this matter and ask that the stipulations be 20 approved as submitted. 21 Thank you. 22 CHAIR KASSEKERT: Thank you. 23 Any questions? 24 Madame, are you on the stipulations? 25 What's your name? 20 ITEM NO. 5 1 MS. GIRALDO: Maria Giraldo. 2 CHAIR KASSEKERT: Okay. We're going to 3 call you separately. Okay? 4 COMMISSIONER SOMMELING: Madame Chair -- 5 CHAIR KASSEKERT: Any questions? 6 Yes. 7 COMMISSIONER SOMMELING: Oh, I'm sorry. 8 CHAIR KASSEKERT: Go ahead. 9 COMMISSIONER SOMMELING: With the 10 exception of Maria Giraldo, I'll move to 11 approve the stipulations. 12 VICE CHAIR EPPS: Second. 13 COMMISSIONER HARRINGTON: Second. 14 CHAIR KASSEKERT: The motion has been 15 made and seconded. All in favor? 16 (Ayes.) 17 CHAIR KASSEKERT: Opposed? 18 (No response.) 19 CHAIR KASSEKERT: Motion carries. 20 Thank you for coming. Good luck. 21 MR. NANCE: I'd like to call Maria 22 Giraldo. 23 You may have a seat. 24 CHAIR KASSEKERT: You can have a seat. 25 Miss Giraldo, we're going to the vote on 21 ITEM NO. 5 1 the stipulation which you have agreed to with 2 the Division of Gaming Enforcement. I'm going 3 to ask if you have anything you wish to say, 4 and then I'm going to ask if the Commissioners 5 have any questions for you. 6 Do you have anything you wish to say? 7 MS. GIRALDO: Yes. 8 MS. NAGENGAST: Before we begin, she is 9 represented by counsel. 10 Is your attorney here? 11 MS. GIRALDO: No, he is not. 12 CHAIR KASSEKERT: Is he coming? 13 MS. GIRALDO: I don't know. 14 CHAIR KASSEKERT: You don't know. 15 MS. NAGENGAST: I know that he did not 16 appear at the last conference, so it is 17 possible that Mr. Roddy will not appear today 18 as well. 19 CHAIR KASSEKERT: Okay. 20 MS. NAGENGAST: I just want to make sure 21 that's on the record. 22 CHAIR KASSEKERT: Okay. Is there 23 something you'd like to say? 24 MS. GIRALDO: Yes. 25 CHAIR KASSEKERT: Okay. Would you 22 ITEM NO. 5 1 please rise, and Mr. Nance will swear you in. 2 MR. NANCE: Raise your right hand, 3 please. 4 5 MARIA P. GIRALDO, was duly sworn to 6 testify in this matter. 7 8 MR. NANCE: Please state your name for 9 the record. 10 MS. GIRALDO: Maria P. Giraldo. 11 MR. NANCE: Thank you. 12 CHAIR KASSEKERT: Okay. What would you 13 like to say? 14 MS. GIRALDO: I just want to say that 15 I -- I'm sorry. 16 CHAIR KASSEKERT: That's okay. 17 MS. GIRALDO: I been working hard and 18 trying to do the best I can do. And I please 19 to take -- look my papers and see how hard I 20 been working to give me my second chance to my 21 keep job. Okay. 22 CHAIR KASSEKERT: Okay. Let me ask 23 if -- see if any of the Commissioners have any 24 questions at this point for Miss Giraldo before 25 we hear from the Division? 23 ITEM NO. 5 1 COMMISSIONER SOMMELING: No questions, 2 Madame Chair. 3 CHAIR KASSEKERT: Commissioner Epps? 4 No. 5 Okay. Thank you. 6 Mr. Biscieglia? 7 MR. BISCIEGLIA: The question is as to 8 why exactly this matter was called separately. 9 The Division has nothing further and ask that 10 the stipulation be approved as submitted. 11 CHAIR KASSEKERT: Okay. 12 VICE CHAIR EPPS: I have one. Miss 13 Giraldo. 14 MS. GIRALDO: Oh. 15 VICE CHAIR EPPS: We received 16 packages -- I mean letters in support of you 17 and suggesting that other people have said that 18 you should be given a second chance, and you're 19 going to do better, and this thing is behind 20 you, and all that. We didn't hear that from 21 you. We didn't hear it in a letter. I need to 22 hear from you that you've made changes. You're 23 not the person that handled this situation, 24 that you're going to do better. 25 MS. GIRALDO: Oh. That case I was 24 ITEM NO. 5 1 happened, I was working at the time. Even I 2 was working two jobs. And that was the 3 situation. I wasn't involved. I was 4 directly -- I was in that case. You know? 5 They send in a package of signing, and I was 6 getting involved with that case. I wasn't like 7 deal with it -- with the problem. You 8 understand? That was package. I just sign and 9 come into my house. So and I -- I was working 10 all the time. I was working two jobs, and they 11 can see in the Resorts I was working the 12 doubles, my first job. And I came here to this 13 country. And now it keep it for 15 years. And 14 I was doing, like, housekeeping, EVS. And I 15 was cleaning. And I was getting a second job. 16 I did it even in the same casino. I did it in 17 Taj Mahal, and I was in Caesars. And as soon 18 as they -- I lost my job. I was keeping 19 working, doing, you know whatever that I had to 20 do to make my money, and I was doing it the 21 right -- always in the right way. Clean houses 22 and doing right, sell food. Whatever I has to 23 do, I was doing, get my money the right way. 24 And I involved with this case. That's 25 what I fighting today in. Even they give me 25 ITEM NO. 5 1 like -- deals, I don't want to take it. 2 Because I know that wasn't right. I want to 3 fight it today, and I did. I lost. And I went 4 to doing my time, and I get off, and I just 5 start working. As soon as I get off, I applied 6 for my job, and I get a job, and I keep it. 7 And I working in Resorts. 8 And I always be like that. You know? 9 Working. And you can -- like in the casino 10 working right now, all this time they can give 11 me overtime or whatever, I always there. And 12 it's nothing I say I be doing, sell drugs or 13 stuff like that. But I want to change? Yeah. 14 For better, and I always do. I'm the same 15 person. I was involved with that situation. 16 You know what I mean? Oh, of course, I want to 17 do better. And I trying every day to doing 18 better. And I trying to get my casino license 19 back. 20 CHAIR KASSEKERT: Okay. 21 VICE CHAIR EPPS: Madame Chair, I'm 22 going to move to approve the stipulation. 23 CHAIR KASSEKERT: Okay. 24 COMMISSIONER SOMMELING: Second. 25 COMMISSIONER HARRINGTON: Second. 26 ITEM NO. 6 1 CHAIR KASSEKERT: The motion has been 2 made and seconded. All in favor? 3 (Ayes.) 4 CHAIR KASSEKERT: Opposed? 5 (No response.) 6 CHAIR KASSEKERT: Motion carries. Okay. 7 We've approved your stipulation. Thank 8 you very much for coming. Good luck. And 9 continue to fight that fight there so nothing 10 like this occurs again. Okay? 11 MS. GIRALDO: Okay. Thank you very 12 much. 13 CHAIR KASSEKERT: Okay. Good luck. 14 Yup. 15 MR. BISCIEGLIA: Thank you. 16 MR. NANCE: Item No. 6, stipulation of 17 settlement in State versus Atlantic City 18 Showboat, Inc. 19 Mr. Corbett? 20 MR. CORBETT: Good morning, Chair, 21 Commissioners. 22 In the stipulation of settlement in this 23 case, the casino licensee admits to a 24 regulatory violation regarding underaged 25 gambling and agrees to pay a penalty of 27 ITEM NO. 6 1 $20,000. 2 Mr. Stebbins is here for the Division. 3 And for the casino licensee... 4 MR. MAGAZZU: Mike Magazzu on behalf of 5 Showboat. 6 CHAIR KASSEKERT: Mr. Stebbins? 7 MR. STEBBINS: Lane Stebbins on behalf 8 of the Division of Gaming Enforcement. 9 CHAIR KASSEKERT: Thank you. 10 Anything you'd like to say on the 11 stipulation? 12 MR. STEBBINS: I think the stipulation 13 itself is explanatory. The charges have been 14 laid out in the complaint. It's incorporated 15 in the stipulation. I think the penalty is 16 appropriate, and I would surge urge that you 17 adopt the stipulation. 18 CHAIR KASSEKERT: Thank you. 19 MR. STEBBINS: Thank you. 20 CHAIR KASSEKERT: Mr. Magazzu? 21 MR. MAGAZZU: I would just echo the 22 remarks of Mr. Stebbins. I have nothing to add 23 other than to request the approval of the 24 stipulation. 25 CHAIR KASSEKERT: Thank you. 28 ITEM NO. 7 1 Any questions? 2 COMMISSIONER SOMMELING: No questions, 3 Madame Chair. 4 COMMISSIONER HARRINGTON: No. 5 VICE CHAIR EPPS: Madame Chair, I move 6 had that we approve the stipulation of 7 settlement and impose a civil penalty of 8 $20,000 against Showboat Atlantic City 9 Operating Company, LLC, for violation of 10 Commission regulations regarding underage 11 gambling. 12 COMMISSIONER HARRINGTON: Second. 13 CHAIR KASSEKERT: The motion has been 14 made and seconded. All in favor? 15 (Ayes.) 16 CHAIR KASSEKERT: Opposed? 17 (No response.) 18 CHAIR KASSEKERT: Motion carries. 19 MR. NANCE: Item No. 7, stipulation of 20 settlement in State versus Adamar of New 21 Jersey, Inc, and Joanna Raggio. 22 Mr. Corbett? 23 MR. CORBETT: Chair, in the stipulation 24 of settlement in this case, the casino licensee 25 admits the regulatory violation regarding 29 ITEM NO. 7 1 underage gambling and drinking and agrees to 2 pay a penalty of $20,000. 3 In addition, the individual Respondent, 4 who is not here and not represented today, has 5 agreed in a stipulation to a three-day 6 suspension of her casino service employee 7 registration and plus a letter of reprimand. 8 CHAIR KASSEKERT: Thank you. 9 Mr. Stebbins, again? 10 MR. STEBBINS: Thank you, Madame Chair, 11 members of the Commissioner. 12 Again, the stipulation and the complaint 13 I think lay out the facts of the violation and 14 the penalty that's being imposed on both the 15 casino itself and the individual. The penalty 16 is appropriate, and I would urge that you adopt 17 the stipulation. 18 Thank you. 19 CHAIR KASSEKERT: Thank you. 20 Miss Hughes? 21 MS. HUGHES: Good morning, Madame Chair, 22 and Commissioners. Tama Hughes on behalf of 23 Adamar. 24 I do ask that you support this 25 stipulation of settlement. 30 ITEM NO. 7 1 I do want to place on the record that 2 Adamar, Tropicana is very cognizant of its 3 responsibilities with regards to underage 4 gambling. And I do just want to emphasize for 5 the record that over the past couple of years, 6 we have arrested, ejected approximately 190 7 underaged individuals. We routinely during our 8 roll calls with security remind and enhance our 9 security department to be vigilant. Especially 10 over the summer holidays -- the summer months 11 and also the holidays for underaged gambling. 12 As well as the surveillance department also 13 picks up and our gaming personnel routinely 14 look for the underaged gambler. 15 So I that you support this settlement. 16 CHAIR KASSEKERT: Thank you. 17 Any question? 18 COMMISSIONER SOMMELING: No questions, 19 Madame Chair. 20 VICE CHAIR EPPS: Madame Chair, I move 21 that we approve the stipulations of settlement 22 and assess the following penalties for 23 violation of Commission regulations regarding 24 serving alcoholic beverages to an underaged 25 person and underage gambling: That we, A, 31 ITEM NO. 8 1 impose a civil penalty of $20,000 against 2 Adamar of New Jersey, Incorporated; and, B, 3 suspend Joanna Raggio's casino service employee 4 registration for three working days and issue a 5 letter of reprimand to be made a permanent part 6 of her employee file. 7 CHAIR KASSEKERT: Is there a second? 8 COMMISSIONER HARRINGTON: Second. 9 CHAIR KASSEKERT: The motion has been 10 made and seconded. All in favor? 11 (Ayes.) 12 CHAIR KASSEKERT: Opposed? 13 (No response.) 14 CHAIR KASSEKERT: Motion carries. 15 MR. STEBBINS: Thank you. 16 MS. HUGHES: Thank you. 17 MR. NANCE: Item No. 8, initial decision 18 in State versus Quan Nguyen. 19 Miss Nagengast? 20 MS. NAGENGAST: Good morning, Chair, 21 Commissioners. 22 For your consideration is the initial 23 decision of Commissioner Epps in the matter of 24 State versus Quan Nguyen. 25 Before we begin, let me ask if Mr. 32 ITEM NO. 8 1 Nguyen is here or represented? 2 (No response.) 3 MS. NAGENGAST: I don't -- I don't see 4 him. I don't expect him today. 5 According to Commissioner Epps' 6 decision, Mr. Nguyen would not be placed on the 7 exclusion list. 8 I note that the Division did file an 9 objection, and Mr. Stebbins is here on behalf 10 of the Division. 11 CHAIR KASSEKERT: Thank you. 12 Mr. Stebbins? 13 MR. STEBBINS: Thank you, Madame Chair, 14 members of the Commission. 15 With the initial decision in hand, and 16 if you read through that initial decision, you 17 will see at Page 10 reference to Section 90h 18 and Section 91d, the rehabilitation provision 19 for licensing matters. You will also see 20 reference to the decision in Donna Davis versus 21 the Division of Gaming Enforcement and State 22 versus Diglio. Again, seminal cases which deal 23 with the issues of rehabilitation and context 24 of inimicality. That's very good. 25 You will also see at Page 11 of the 33 ITEM NO. 8 1 initial decision, Commissioner Epps writes that 2 he must still consider the offender-related 3 circumstances in this case. That's fine. 4 And finally, at Page 14, Commissioner 5 Epps writes that, in my opinion, Respondent has 6 demonstrated that he is on the road to 7 rehabilitation. 8 All of that is classic case law, 9 statutory provision, and decisional law were 10 this a licensing case, but it is not. It is an 11 exclusion case and therein lies the problem. 12 This might actually be okay to import the 13 rehabilitation features which are rolled into 14 inimicality through the Donna Davis and the 15 Diglio decisions if it were not for your very 16 own regulations which, in the exclusion 17 context, define what "inimicality" means for 18 purposes of the exclusion criteria. This is an 19 exclusion case. This is not a licensing case. 20 By the terms of 1.3a -- or 48-1.3a, 21 there are basis to exclude people. You can be 22 a member of a cartel. You can be an associate 23 of a cartel. You can be convicted of a crime. 24 Or you can be otherwise inimical, have an 25 inimical presence. That's what we're talking 34 ITEM NO. 8 1 about here, in part, because Mr. Nguyen already 2 has a conviction for a cheating-related 3 offense. Third-degree theft offense. 4 The difficulty here, though, is that 5 within 1.3a(4), the inimical provision for the 6 exclusion, your very own regulations say that 7 cheats are to be excluded. So it isn't really 8 a question of, well, is this inimical or not? 9 You have by your regulation already said 10 cheating is a basis for exclusion. And that is 11 echoed in 1.3b(1) and (2) where, if you look at 12 the factors that are presented there, all of 13 them look to the integrity of the games and the 14 public perception that you and I, as 15 regulators, are doing our job to make sure that 16 the games are run fairly, and there's not 17 hanky-panky, cheating or shenanigans going on 18 at the table. 19 So that -- that's really where we are. 20 And what this case does is it improperly 21 imports rehabilitation features, which by the 22 very terms of 90h and 91d are limited to those 23 statutory provisions into inimicality which 24 you've already defined to mean something else. 25 So for that reason, this is wrong as a 35 ITEM NO. 8 1 matter of law. What we have here is a fellow 2 who went in with his family, not once but 3 twice, and engaged in a cheating scam which 4 took something in excess of $400,000 off the 5 gaming tables. Okay? He was convicted of one 6 of those offenses, but he admitted to being 7 aware of and knowing that stuff was going on at 8 the table on both of them. At the time he was 9 a casino licensee. At the time he was 10 underage, and yet he still sat at the tables 11 with his family members and cleaned the houses 12 out of over $400,000. That's why we're here 13 today to exclude him. Because whatever you 14 want to do in defining inimicality for 15 exclusion purposes, he is a cheat. And if you 16 want to look at it just in terms of 17 inimicality, the integrity of the games was 18 compromised by his actions. He admits that he 19 knew the shenanigans were going on, but he 20 wanted to stay there because he wanted to make 21 a little money. 22 This is not the kind of person that we 23 want to have at the gaming tables. And all 24 we're doing here is precluding this individual 25 from the entertainment of gaming. It isn't 36 ITEM NO. 8 1 like we're taking away somebody's livelihood 2 here. All we're doing is, we're going to stop 3 this guy from gaming when not once but twice he 4 admittedly sat there and engaged in cheating. 5 That's where we are. And that's why the 6 Division filed the exceptions. 7 I urge you to reject the initial 8 decision and place Mr. Nguyen on the exclusion 9 list. He's not the kind of person that we want 10 in the casinos. Inimicality means what it 11 means under the exclusion provisions, and it is 12 wrong as a matter of law to import the 13 rehabilitation features into a case like this. 14 Thank you. 15 CHAIR KASSEKERT: I guess my question 16 would be, Mr. Stebbins, how -- what else -- you 17 know, obviously, the finder of fact here, 18 Commissioner Epps, listened to the testimony, 19 and he made a recommendation. And under the 20 regulation it says that the exclusion list may 21 exclude any person who meets any of that 22 following criteria. So what else would you 23 have him base the decision on? I mean, as a 24 finder of fact, you know, would you have him -- 25 what would you have him base that decision on? 37 ITEM NO. 8 1 MR. STEBBINS: He could base it upon 2 what the individual said. And he, you know, 3 any circumstances that that he might have 4 brought. I would direct your attention to the 5 opportunities that individuals such as Mr. 6 Nguyen would have where they were placed on the 7 exclusion list to evidence of changed 8 circumstances, things like that, which would go 9 to a removal from the exclusion list. Things 10 like that certainly could have been presented 11 at the hearing. 12 So if you want to have what could he 13 have looked to? Look within the exclusion 14 regulations. Look to the provisions which you 15 have put into place for people to be removed 16 from the exclusion list. The factors to be 17 considered there. And that's what Commission 18 Epps could have looked to in this record to 19 come to a conclusion that you may or may not 20 put somebody on the exclusion list. But to 21 import the licensing rehabilitation features 22 into an exclusion case is simply wrong as a 23 matter of law. 24 CHAIR KASSEKERT: I guess the other 25 thing that troubles me is the length of time 38 ITEM NO. 8 1 that these occurrences occurred in July of 2 2000? 3 MR. STEBBINS: Yes. 4 CHAIR KASSEKERT: Which was quite some 5 time ago. 6 MR. STEBBINS: Yes. 7 CHAIR KASSEKERT: And there were other 8 individuals involved. Yet this is the only 9 individual you have moved for exclusion; is 10 that correct? 11 MR. STEBBINS: Yes, it is. As I said at 12 the preliminary placement when the question was 13 asked, that very same type of question, we will 14 move to put somebody on the exclusion list if 15 we have an indication that the person has a 16 presence in the casino, a continuing presence. 17 And in this case Mr. Nguyen did. He went back 18 in there. 19 Now, the initial decision makes 20 reference to the fact that, well, there's no 21 indication of gaming -- or cheating -- 22 CHAIR KASSEKERT: Cheating. 23 MR. STEBBINS: -- with these subsequent 24 events. I can't say that there is or there 25 isn't. All I can say is that based upon the 39 ITEM NO. 8 1 casino records, play records, he was there. 2 That is different from the other individuals, 3 who we don't have any indication that they were 4 there. We're not going to expend our resources 5 or waste your time, putting somebody on the 6 exclusion list who isn't going into the 7 casinos. So as to the other individuals, if 8 they're not coming back, we're not going to 9 move for them. But this fellow came back, and 10 that's why we're here. 11 CHAIR KASSEKERT: And what about the 12 length of time? 13 MR. STEBBINS: Length of time, I don't 14 have a good answer for that except that when he 15 came back in and he got the license, form 16 Commissioner Frulio examined the whole record, 17 denied that license application. And that 18 really sort of highlighted it for us to move 19 forward with that, because he said in his 20 initial decision that Mr. Nguyen would be a 21 candidate for exclusion or should be excluded. 22 CHAIR KASSEKERT: Okay. Let me ask if 23 any of the other Commissioners have any 24 questions. 25 Commissioner Sommeling? 40 ITEM NO. 8 1 COMMISSIONER SOMMELING: I don't have 2 any questions. 3 CHAIR KASSEKERT: Commissioner 4 Harrington? 5 COMMISSIONER HARRINGTON: No. 6 CHAIR KASSEKERT: Counsel, do you have 7 anything you wish to add? 8 MS. NAGENGAST: No. 9 CHAIR KASSEKERT: You know, I guess, 10 frankly, I -- I am troubled about the length of 11 time. And I'm not sure, you know, frankly, Mr. 12 Stebbins, what else Commissioner Epps could 13 base his decision upon except for the testimony 14 that was given. And, as the finder of fact, he 15 made the determination that -- that to allow -- 16 to deny your request to exclude him. 17 So I'm going to move that we adopt the 18 initial decision and find that the Respondent's 19 presence in a licensed casino would not be 20 inimical, vacate the October 15th, 2008, order 21 preliminarily placing the Respondent on the 22 exclusion list, and remove the Respondent from 23 the exclusion list. 24 Is there a second? 25 COMMISSIONER SOMMELING: Second. 41 ITEM NO. 9 1 CHAIR KASSEKERT: The motion has been 2 made and seconded. All in favor? 3 (Ayes.) 4 CHAIR KASSEKERT: Opposed? 5 (No response.) 6 CHAIR KASSEKERT: Motion carries. 7 Thank you. 8 MR. NANCE: Item No. 9, petition for 9 early reapplication for Roger Prescott, Linda 10 Bell and Kevin Flores. 11 Miss DeLia? 12 MS. DeLIA: Good morning, Chair -- 13 CHAIR KASSEKERT: Good morning. 14 MS. DeLIA: -- and Commissioners. This 15 is a petition of Roger A. Prescott for re -- 16 excuse me -- to reapply early for a casino 17 service employee registration. 18 By letter dated July 15, 2009, the 19 Division interposed no objection. Mr. Prescott 20 is here, and Mr. Biscieglia is here on behalf 21 of the Division. 22 CHAIR KASSEKERT: Thank you. 23 Mr. Prescott, is there anything you'd 24 like to say this morning? 25 MR. PRESCOTT: No. 42 ITEM NO. 9 1 CHAIR KASSEKERT: Okay. Mr. Biscieglia? 2 MR. BISCIEGLIA: Thank you, 3 Commissioner. 4 The Division has nothing further. We 5 had recommended the granting of the petition. 6 If you have any questions, the Division will 7 answer them. 8 Thank you. 9 CHAIR KASSEKERT: Thank you. 10 Any questions? 11 COMMISSIONER SOMMELING: Madame Chair, I 12 move to grant Mr. Preston's petition to reapply 13 early for a casino employee registration. 14 VICE CHAIR EPPS: Second. 15 CHAIR KASSEKERT: The motion has been 16 made and seconded. All in favor? 17 (Ayes.) 18 CHAIR KASSEKERT: Opposed? 19 (No response.) 20 CHAIR KASSEKERT: Motion carries. 21 Thank you for coming. Good luck. 22 MR. PRESCOTT: Thank you. Thank you. 23 MR. NANCE: Miss Frigen? 24 MS. FRIGEN: Good morning, Madame Chair, 25 Commissioners. 43 ITEM NO. 9 1 With respect to Miss Bell's case, I had 2 a message on my answering machine this morning 3 about 20 to 9:00 that she was coming by train 4 from Vineland, and she might run a little bit 5 late. And I don't see her here yet. I would 6 ask that her matter be postponed, if that's 7 okay with you, until a little bit later in the 8 agenda to see if she comes in. 9 CHAIR KASSEKERT: Comes in. Sure. 10 MS. FRIGEN: Okay. 11 CHAIR KASSEKERT: We'll move to Item c. 12 MS. FRIGEN: Sure. That would be Mr. 13 Flores. Mr. Flores is present, along with this 14 attorney, Mr. Grimley. 15 For your consideration is Mr. Flores' 16 petition wherein he seeks permission to reapply 17 early for a license registration and/or a 18 non-credential hotel employment. 19 The Division has interposed an objection 20 to this petition. Since it is the Petitioner's 21 motion, I would ask Mr. Grimley to go forward 22 first. 23 CHAIR KASSEKERT: Thank you. 24 Mr. Grimley, is it? 25 MR. GRIMLEY: I'm sorry? 44 ITEM NO. 9 1 CHAIR KASSEKERT: I didn't hear your 2 name. I'm sorry. 3 MR. GRIMLEY: It's James Grimley on 4 behalf of Mr. Flores. 5 CHAIR KASSEKERT: Thank you. 6 MR. GRIMLEY: Basically, it seems that 7 the reason for the objection is based upon an 8 arrest my client was subjected to while he was 9 16 years old. Essentially, he was caught up in 10 a situation where there was a fight of some 11 sort in the Basin. He was eventually charged 12 and waived as an adult. He had a full jury 13 trial where he is acquitted of all charges 14 except the a fourth-degree possession of a 15 pocket knife. Had that case not been waived to 16 the adult court, and was handled simply in the 17 juvenile court, he would have been given 18 juvenile probation and, obviously, when he 19 turned 18, his record would have been sealed. 20 He is now 21 years old. He is a father. 21 He lives with this wife. They've been 22 together -- well, his girlfriend. They've been 23 together for two years. He works diligently. 24 He's got a high school education. He's 25 graduated from casino gaming school. He's 45 ITEM NO. 9 1 certified to deal roulette and baccarat, I 2 believe. He's been working full time since 3 this event. He was placed on probation as a 4 result of the conviction. No violations. No 5 problems with probation. He has had no 6 encounters with law enforcement since. He 7 supports both his wife and his child at this 8 time. 9 I think the Commissioner -- or what the 10 Commissioners should do is look at the event 11 from the eyes of a 16-year-old child, and 12 that's when this -- the arrest occurred. He's 13 now 21 years old. He's an adult. He wants to 14 support his family and his child. His child 15 one year old at this time. It's he's working 16 full time as a bus boy at the -- 17 MR. FLORES: Philip Seafood. 18 MR. GRIMLEY: Philip Seafood. And all 19 he asks for is an opportunity. 20 CHAIR KASSEKERT: Thank you. 21 Commissioners, do you have any questions 22 before we hear from the Division? 23 You want to hear from the Division 24 first? 25 COMMISSIONER SOMMELING: Counsel, did 46 ITEM NO. 9 1 you say he was working full-time since the 2 event? And he was 16 years old? 3 MR. GRIMLEY: Yes. 4 COMMISSIONER SOMMELING: So where has he 5 been working since he's been 16? 6 MR. GRIMLEY: He's been the Philip 7 Seafood for three years. 8 COMMISSIONER SOMMELING: Okay. 9 MR. GRIMLEY: And prior to that -- 10 (Conferring.) 11 MR. GRIMLEY: P. F. Chang's. Mostly 12 restaurant work. So it's restaurant work in 13 the bartender, bar back -- strike that -- not 14 bartender, a bar back and server. 15 CHAIR KASSEKERT: Since he just turned 16 21, that's good that you addressed that. 17 (Laughter.) 18 MR. GRIMLEY: We'd have a problem. 19 COMMISSIONER SOMMELING: Thank you. 20 CHAIR KASSEKERT: Mr. Biscieglia? 21 MR. BISCIEGLIA: Thank you. 22 Mr. Grimley is correct in that the 23 initial matter that began this process did 24 happen several years ago. 25 The Division's problem with the instant 47 ITEM NO. 9 1 petition revolves more around the Petitioner's 2 failure to accept any wrongdoing on his part in 3 this instant petition. While Mr. Grimley does 4 agree that there was a fourth-degree unlawful 5 possession of a weapon conviction, in the 6 instant petition this is not -- this is not 7 accepted by the Petitioner, and he seems to 8 deny the jury's findings. 9 Also, he's only been disqualified for a 10 period of about a year and a half regarding 11 this circumstance. 12 But the -- the critical element of 13 rehabilitation or a finding for a petitioner in 14 a situation like is an a petitioner's accepting 15 of wrongdoing, and the Division does not 16 believe, as set forth in our letter, that that 17 acceptance of any wrongdoing exists in this 18 matter. 19 Thank you. 20 CHAIR KASSEKERT: Okay. Let me ask if 21 there are any questions? 22 Commissioner Epps? 23 VICE CHAIR EPPS: I have one question to 24 your statement. And I'm just -- I'm just 25 trying to understand. I understand your 48 ITEM NO. 9 1 concern about his acceptance of wrongdoing. 2 But whether he accepted it or not, he was 3 adjudicated and had to serve whatever sanction 4 was meted out by that; is that correct? 5 MR. BISCIEGLIA: Certainly. 6 VICE CHAIR EPPS: So, I mean, you're 7 saying that -- I mean, he -- whether he thinks 8 he did it or not, some -- the jury said that he 9 did it, and he was sentenced and had to serve 10 time for it. But what you're saying is -- it's 11 not like something took a PTI or took a plea 12 and tried to say I took the plea only to get 13 out of -- from under it and now I'm saying I 14 didn't do it. This guy, whether he says he did 15 it or not, he got convicted of it, and he 16 served whatever sanction was handed down by it. 17 But what you seem to be saying is he shouldn't 18 come back saw because he still hasn't said he 19 did it. 20 MR. BISCIEGLIA: I'm not saying that he 21 shouldn't come back. What I'm saying -- and 22 what the Division's position is is that in 23 trying to come back and in making the petition 24 to be accepted back or to be allowed to hold a 25 credential, that a part of that process 49 ITEM NO. 9 1 involves an acceptance of wrongdoing and -- 2 that is set forth by the petitioners. And that 3 does not exist here. I'm not taking had he has 4 to do this to come back, but it's part of the 5 process of allowing him to hold a credential 6 again. This has long been held to be part of 7 the process, and it doesn't exist at this 8 point. 9 VICE CHAIR EPPS: Let me ask you another 10 question, Mr. Biscieglia. 11 From the record that you have with 12 respect to probation and his conduct on 13 probation and all those things, are they 14 exemplary? Or at least satisfactory. 15 MR. BISCIEGLIA: Satisfactory. 16 VICE CHAIR EPPS: That he conducted -- 17 MR. BISCIEGLIA: I have seen nothing 18 that there're not satisfactory. 19 VICE CHAIR EPPS: That he has conducted 20 himself properly? 21 MR. BISCIEGLIA: No. I've seen no 22 evidence that he hasn't conducted himself 23 satisfactorily. 24 VICE CHAIR EPPS: My question is how did 25 this matter differ from a stipulation we've 50 ITEM NO. 9 1 just approved besides this morning where a lady 2 just finished parole and we granted her an 3 opportunity to come back? This person's 4 finished probation and is looking to get an 5 opportunity to reapply for a license, and we're 6 saying he's not -- he's not been -- done -- 7 he's not -- he's far enough from the incident 8 to come back yet. He is not ripe. Why is this 9 one not ripe? 10 MR. BISCIEGLIA: As part of the -- well, 11 if you're just talking time wise, the previous 12 case was originally disqualified in 2004. 13 VICE CHAIR EPPS: Not the previous case. 14 She finished parole -- 15 MR. BISCIEGLIA: All right 16 CHAIR KASSEKERT: Giraldo. 17 VICE CHAIR EPPS: -- in '09 in March and 18 applied right away. 19 MR. BISCIEGLIA: Yes. 20 VICE CHAIR EPPS: And we did a stip, and 21 we're done. She's done in August of '09. 22 MR. BISCIEGLIA: I'm saying the 23 disqualification was found in 2004, whereas in 24 this present case, just from a point in time -- 25 I'll address your other point. But just from a 51 ITEM NO. 9 1 time point, this disqualification was February 2 2008. The other one was five years prior. And 3 in letter "i" on the agenda that you're talking 4 about, an integral part -- I mean, basically 5 the same issue. An integral part of the 6 Division offering a stipulation of finding of 7 rehabilitation to a person in that situation is 8 an acceptance of wrongdoing, an admission of 9 either the conviction or the conduct leading 10 to, you know, maybe PTI or anything like that. 11 But acceptance of wrongdoing is looked at as an 12 integral part of the rehabilitation process. 13 And if that's what you're going to apply here, 14 it doesn't exist here. 15 VICE CHAIR EPPS: But I guess, if I'm 16 not mistaken, I didn't hear her admission of 17 wrongdoing until it was elicited by testimony 18 from us on the record. She didn't write a 19 letter admitting her wrongdoing. There was 20 nothing in the record we had where she said she 21 did anything wrong until today. She said 22 she's -- she did wrong. She's trying to do 23 better, things like that. And there was a 24 stip. 25 This guy's being denied and almost in 52 ITEM NO. 9 1 the same situation. I don't see very much how 2 they differ other than what you said about time 3 away from the actual incident where, if I 4 believe the facts -- I mean, the court knocked 5 it down to a fourth-degree possession of a 6 pocket knife. I mean... 7 MR. BISCIEGLIA: And the question -- I'm 8 not sure of the question here. 9 VICE CHAIR EPPS: I'm not seeing how 10 these cases very much differ. As a matter of 11 fact, I don't see how the one we approved in 12 the stip was more egregious than this one. 13 MR. BISCIEGLIA: So that stipulation is 14 now going to perform the basis for this matter? 15 VICE CHAIR EPPS: No. I'm just asking 16 to you compare them. 17 MR. BISCIEGLIA: I -- the stipulation 18 was approved. I did not handle the 19 stipulation. That was my matter. I don't know 20 why that was handled in that way. In this 21 matter, I'm looking at the facts in this 22 matter, and I've set forth what that position 23 is. 24 VICE CHAIR EPPS: And I heard you. 25 Thank you. 53 ITEM NO. 9 1 MR. BISCIEGLIA: Okay. 2 CHAIR KASSEKERT: Any other questions? 3 COMMISSIONER SOMMELING: Mr. Flores? 4 You want to say anything to the Commission? 5 With respect to the incident and -- 6 CHAIR KASSEKERT: We're going to swear 7 you in. 8 MR. NANCE: Would you raise your right 9 hand, please? 10 CHAIR KASSEKERT: Mr. Nance? 11 12 KEVIN FLORES, was duly sworn to testify 13 in this matter. 14 15 MR. NANCE: Please state your name. 16 MR. FLORES: Kevin Flores. 17 I just want to say that it would be good 18 for me and my family to have the license. That 19 way I can earn more money and give a better 20 life to my son. When I say that I was in the 21 wrong place, and that's what got me in here. 22 That's all. I didn't do anything. That's all 23 I want to say. 24 CHAIR KASSEKERT: Okay. Thank you. 25 Is there a motion? 54 ITEM NO. 9 1 MR. BISCIEGLIA: I would like to state 2 that just when -- just granted the opportunity, 3 as the previous person was, to state anything 4 they wanted to state regarding this, the 5 Petitioner just stated that he did not do 6 anything. 7 MR. GRIMLEY: I have to comment on that. 8 He took the case to trial. He had an 9 opportunity to plead. They plea bargain. 10 That's what they do in the criminal courthouse. 11 They don't say you're indicted, you go to 12 trial. They gave him offers. I represented 13 him in the case. He denied responsibility from 14 day one until the moment of trial. They found 15 him guilty of fourth-degree offense. He 16 accepts their verdict and he -- as one of the 17 Commissioners brought out, he accepted the 18 punishment. He doesn't have to agree with the 19 decision, but he accepted it. 20 CHAIR KASSEKERT: I guess what's 21 troubling is, again, you know, holding a casino 22 license is a position of privilege. It's -- 23 you know, slightly a different standard than -- 24 than the criminal -- criminal standards. So 25 that's what's -- a little troubling here, I 55 ITEM NO. 9 1 think, for the Commission. 2 COMMISSIONER SOMMELING: Madame Chair, I 3 have difficulty with denying an opportunity to 4 work to Mr. Flores by denying him a casino 5 license or a casino service registration, but I 6 will make a motion to grant him permission to 7 work as a non-credential hotel employee. 8 CHAIR KASSEKERT: So you would -- you 9 would deny his petition to reapply early. 10 COMMISSIONER SOMMELING: Yes. 11 CHAIR KASSEKERT: In the circumstance. 12 And I think probably on the basis of time and 13 the basis of what we heard today and the fact 14 that holding a license is a privilege. 15 COMMISSIONER SOMMELING: That's correct, 16 Madame Chair. 17 CHAIR KASSEKERT: Okay. Is there a 18 second for that motion? 19 COMMISSIONER HARRINGTON: Can I ask a 20 question? 21 CHAIR KASSEKERT: Sure. Sure, 22 Commissioner. 23 COMMISSIONER HARRINGTON: Would that 24 preclude him from being able to demonstrate 25 sometime from now six months, a year, that he 56 ITEM NO. 9 1 has been acting in good faith and again apply 2 early? 3 MS. FRIGEN: Pursuant -- 4 COMMISSIONER HARRINGTON: One -- 5 MS. FRIGEN: No. Pursuant to the 6 regulations, he would be required to -- if this 7 motion goes forward and permission to reapply 8 early for license or registration is denied, he 9 would have to wait two years before he became 10 eligible to submit a similar petition from 11 today's date. So there would still, I think, 12 be, given the time frame, like one more 13 opportunity, August of 2011, we would be able 14 to accept another petition in which -- to seek 15 permission to reapply early for a license or 16 registration. 17 COMMISSIONER SOMMELING: But in the 18 interim, consistent with my motion, he could 19 work in a non-credential -- 20 MS. FRIGEN: Correct. That would be -- 21 COMMISSIONER SOMMELING: -- position. 22 MS. FRIGEN: -- correct. Yes. 23 COMMISSIONER SOMMELING: I re-move that 24 motion. 25 CHAIR KASSEKERT: Okay. Is there a 57 ITEM NO. 9 1 second for that motion? 2 I'll second it. 3 The motion has been made and seconded. 4 All in favor? 5 (Ayes.) 6 CHAIR KASSEKERT: Opposed? 7 VICE CHAIR EPPS: No. 8 CHAIR KASSEKERT: No? 9 Motion carries by a vote of three to 10 one. 11 Thank you. 12 MR. GRIMLEY: Thank you. 13 (Conferring.) 14 MR. NANCE: Do you see Miss Bell? 15 MS. FRIGEN: I don't think she's come in 16 yet. 17 MR. NANCE: No? 18 MS. FRIGEN: Miss Bell? 19 I don't believe she is here yet. If we 20 could just go forward, I'll try and monitor, 21 and I'll try to call her once we're done the 22 agenda and see if I can reach her. 23 CHAIR KASSEKERT: Okay. 24 MS. FRIGEN: I would just hate to hear 25 it because she's en route. 58 ITEM NO. 10 1 CHAIR KASSEKERT: Okay. Right. 2 MR. NANCE: Item No. 10, reconsideration 3 of the Commissioner final records due to 4 non-compliance of conditions therein for Vernon 5 Burkett, Newman Lewis, Mack Ragsdale, III, and 6 Michele Zappala. 7 Miss Frigen? 8 MS. FRIGEN: Let me ask for the record 9 whether any of these individuals is present for 10 represented today? 11 (No response.) 12 MS. FRIGEN: Apparently not. 13 As indicated in the paperwork, these 14 individuals have fallen out of compliance with 15 licensure conditions in which they were 16 required to report to the Division information 17 regarding their financial circumstances. Each 18 was subsequently scheduled to come in for a 19 conference to address the non-compliance issue, 20 and they've yet to appear. Consequently, their 21 matters are brought before you for 22 reconsideration today. 23 I would note that with respect to Mr. 24 Ragsdale and Miss Zappala, a denial of their 25 license applications will also result in a -- 59 ITEM NO. 10 1 the revocation of their registrations. 2 CHAIR KASSEKERT: Okay. Thank you. 3 Mr. Biscieglia? 4 MR. BISCIEGLIA: Thank you. 5 It's an unfortunate circumstance that 6 we're moved to have to bring this before the 7 Commission at this point. But, unfortunately, 8 the individuals listed as "a" through "d" have 9 been given ample time by the Division, 10 usually consisting of two or three letters and 11 a scheduling of a settlement conference with 12 the Commission that is then abandoned to 13 provide the information that they are required 14 to provide as per the terms of their 15 stipulation of settlement. And with the -- 16 bringing it before the Commission being the 17 last step, giving one last chance for the 18 persons to appear and answer the Division's 19 request. 20 Unfortunately, nobody's taken advantage 21 of that as listed today, so the Division must 22 ask that the respective orders granting 23 licensure be vacated. 24 CHAIR KASSEKERT: Thank you. 25 Any questions for Mr. Biscieglia? 60 ITEM NO. 11 1 COMMISSIONER SOMMELING: No questions, 2 Madame Chair. 3 But based upon their non-compliance with 4 the conditions set forth in the existing 5 Commission orders granting their licensures and 6 subsequent failure to address their 7 non-compliance issue after having been afforded 8 the opportunity to do so, vacate the existing 9 orders granting the license applications of the 10 referenced individuals and deny their 11 respective license applications. 12 And, further, pursuant to Section 106(c) 13 of the Act, revoke the casino service employee 14 registrations held by Mack D. Ragsdale, III, 15 and Michele Zappala. 16 CHAIR KASSEKERT: Is there a second? 17 VICE CHAIR EPPS: Second. 18 CHAIR KASSEKERT: The motion has been 19 made and seconded. All in favor? 20 (Ayes.) 21 CHAIR KASSEKERT: Opposed? 22 (No response.) 23 CHAIR KASSEKERT: Motion carries. 24 MR. NANCE: Item No. 11, application for 25 suspension for Fernando Javier and Avette 61 ITEM NO. 11 1 Moody. 2 Miss Frigen? 3 MS. FRIGEN: Madame Chair, the first 4 case we have is Fernando Javier. He is 5 present. I would ask him to come forward and 6 have a seat at the table. 7 As this is an application brought by the 8 Division of Gaming Enforcement in this case, I 9 would ask the Division to go forward and bring 10 the basis for which its seeking suspension. 11 CHAIR KASSEKERT: Thank you. 12 Mr. Biscieglia? 13 MR. BISCIEGLIA: Thank you. 14 On or about August 21st, 2009, [sic] the 15 Respondent was arrested by the State of New 16 Jersey State Police, Casino Enforcement Bureau, 17 and charged with theft by unlawful taking. 18 While employed as a slot technician at Resorts, 19 Atlantic City, the Respondent was observed 20 conducting test plays on the slot machines 21 where if the test play won, the Respondent 22 would continue to play until he received a 23 sizable amount of money, then punch out the 24 voucher which he would conceal with his access 25 card as he took it out of the machine. Upon 62 ITEM NO. 11 1 his arrest, he would then take these vouchers 2 to another slot machine, feed them in to create 3 one larger voucher which he would cash out. 4 Upon his arrest, he was in possession of 5 vouchers worth $685 and another one worth $5, 6 and he had been observed cashing out a $653 7 voucher. And upon his arrest, the Respondent 8 admitted to his conduct and could not provide 9 an explanation as to why he had engaged in 10 this. 11 The Respondent was charged in Atlantic 12 County with an Atlantic County accusation for 13 one count of theft by unlawful taking. And on 14 July 16th of 2009, he was accepted into the 15 Atlantic County Pretrial Intervention Program 16 and ordered to stay out of all casinos except 17 for employment. 18 Thank you. 19 CHAIR KASSEKERT: Thank you. 20 Mr. Javier, is there anything you'd like 21 to say today? 22 MR. JAVIER: Yes. 23 CHAIR KASSEKERT: You need to stand and 24 be sworn in. 25 MR. NANCE: Could you raise your right 63 ITEM NO. 11 1 hand, please? 2 3 FERNANDO JAVIER, was duly sworn to 4 testify in this matter. 5 6 MR. NANCE: Please state your name for 7 the record. 8 MR. JAVIER: Fernando Javier. 9 MR. NANCE: Thank you. 10 CHAIR KASSEKERT: Mr. Javier, what would 11 you like to say? 12 MR. JAVIER: Ladies and gentlemen, I'm 13 very sorry for what I have done. I made the 14 biggest mistake of my life. And I am very 15 sorry for those whom I've offended. 16 I'm here to ask you a consideration. 17 I'm on PTI right now and, as required, I have 18 to pay restitution from -- for the company whom 19 I offended. And I have a weekend job at 20 Tropicana, a two-day job as a poker dealer. 21 All I'm asking is can I continue to work until 22 I pay the restitution amount in time. 23 CHAIR KASSEKERT: Anything else? 24 MR. JAVIER: That's it. 25 CHAIR KASSEKERT: That's it. Okay. 64 ITEM NO. 11 1 Mr. Biscieglia, you want to respond? 2 MR. BISCIEGLIA: I would just respond to 3 that by the Respondent has admitted to the 4 admission to the conduct involved, and in this 5 situation, a suspension application would be 6 very appropriate. Or -- excuse me -- the 7 granting of a suspension application would be 8 appropriate. 9 CHAIR KASSEKERT: Let me ask if the 10 Commissioners have any questions? 11 Commissioner Epps? 12 VICE CHAIR EPPS: I don't know if I have 13 a question so much as a statement, Mr. Javier. 14 I understand what you're asking, but I think 15 that you have to understand the position that 16 we're in. You're asking for us to allow you to 17 continue to work in a part-time job so that you 18 can pay back restitution. 19 MR. JAVIER: Yes. 20 VICE CHAIR EPPS: But you want to work 21 in a highly regulated environment, and that 22 same environment whereby you committed the 23 offense which puts you in the situation that 24 you're in. And it's not as if only being -- 25 working in a regulated environment is the only 65 ITEM NO. 11 1 place that you could work part-time. Granted I 2 know the economy is bad, and it's tough to find 3 a job. But -- 4 MR. JAVIER: Yeah. 5 VICE CHAIR EPPS: You're seeking to work 6 in a highly regulated place where integrity is 7 key, and you've clearly violated the integrity 8 of that particular institution where you now 9 ask to continue to work at a part-time manner. 10 That's just a very, very difficult lift for us. 11 I mean, we have to protect the integrity of the 12 industry, particularly given the fact that that 13 offense is so fresh and it has just been 14 committed. It's hard for us to say in face of 15 you are still serving PTI for the particular 16 event, yeah, go ahead and work in the casino 17 environment. That's a difficult ask. Even 18 granted some of the things that we've approved 19 today that let people come back or forth or 20 whatever, this one is just too difficult and 21 too close to the situation. It's like a fresh 22 sore that the scab hasn't even healed. 23 MR. JAVIER: I understand the situation, 24 but I just want to pay the restitution amount 25 in due time. 66 ITEM NO. 11 1 VICE CHAIR EPPS: I understand that. 2 If the motion goes to what my 3 inclination, you're going to have to find 4 something else to work to get that money to get 5 that job back. Because being in the industry, 6 in my -- to my feeling, is not the place for 7 you to work that part-time job to earn that 8 money. 9 And with that, I move to grant the 10 Division's application for suspension. 11 COMMISSIONER SOMMELING: Second. 12 CHAIR KASSEKERT: The motion has been 13 made and seconded. All in favor? 14 (Ayes.) 15 CHAIR KASSEKERT: Opposed? 16 (No response.) 17 CHAIR KASSEKERT: Motion carries. 18 (Conferring.) 19 MS. FRIGEN: The next case we have is 20 Avette Moody. Before we hear from the 21 Division, let me see whether Mr. Moody is 22 present or represented? 23 (No response.) 24 MS. FRIGEN: Apparently not. He is not 25 here today. 67 ITEM NO. 11 1 I'd ask the Division to go forward and 2 also to update the Commission with respect to 3 the criminal status. 4 MR. BISCIEGLIA: Sure. 5 On May 13th of 2009, the Respondent was 6 in the Arcade Building, which we are presently 7 in, in the Division's offices being processed 8 for his casino service employee registration. 9 At that time it was discovered that there was 10 an outstanding bench warrant for the 11 Respondent's arrest in the amount of $1704. 12 When the police -- the New Jersey State Police 13 Casino Enforcement Bureau searched the 14 Respondent due to the arrest, he was found to 15 be in possession of heroin. 16 On July 23rd, 2009, the Respondent was 17 indicted in Atlantic County for one count of 18 possession of CDS, heroin, third degree. A 19 pre-arraignment scheduling conference was 20 scheduled to be held on August 20th of 2009. 21 I attempted to update this matter before 22 coming here, but the records did not show any 23 further information other than that conference 24 having been scheduled. 25 CHAIR KASSEKERT: Thank you. 68 ITEM NO. 11 1 Any questions? 2 COMMISSIONER SOMMELING: No questions, 3 Madame Chair. 4 CHAIR KASSEKERT: I wish the Respondent 5 would have been here so we could have asked him 6 some questions. 7 (Laughter.) 8 MR. BISCIEGLIA: I would say that I 9 realize in the past there has been a 10 discrepancy in the ideas of sometimes the 11 purview of Section 86(c)(2) of the Act or 12 there's been an argument between the Division 13 and the Commission as to where exactly this 14 applies, sometimes regarding casino behavior 15 that occurs at casinos as opposed to behavior 16 that did not occur at casinos. And while this 17 behavior did occur -- or conduct certainly did 18 not occur in the casinos, I think occurring in 19 the regulatory agency that overseas the 20 licensing of the casinos certainly must be 21 looked upon as inimical conduct within the 22 scope of 86(c)(2). 23 VICE CHAIR EPPS: I just want you to let 24 me know, if you could, if my brother's pants 25 defense held up. 69 ITEM NO. 11 1 MR. BISCIEGLIA: The what? 2 VICE CHAIR EPPS: The my brother's pants 3 defense. 4 MR. BISCIEGLIA: Oh, is that what it is? 5 (Laughter.) 6 MR. BISCIEGLIA: I've heard that one a 7 few times. Doesn't look like it did 8 considering he was indicted. 9 VICE CHAIR EPPS: Well, in the absence 10 of the party, I would move to grant the 11 Division's motion for suspension. 12 COMMISSIONER SOMMELING: Second. 13 CHAIR KASSEKERT: The motion has been 14 made and seconded. All in favor? 15 (Ayes.) 16 CHAIR KASSEKERT: Opposed? 17 (No response.) 18 CHAIR KASSEKERT: Motion carries. 19 MR. BISCIEGLIA: Thank you for all your 20 time today. 21 MR. NANCE: Item No. 12, consideration 22 of forfeiture orders in State versus Resorts 23 International Hotel, et al., Resorts, 24 International Hotel, Inc., et al., Atlantic 25 City Showboat, Inc. -- 70 ITEM NO. 11 1 (Conferring.) 2 MR. BISCIEGLIA: That's not the point. 3 We didn't object. That's my point is that 4 we -- 5 MS. FRIGEN: I know you didn't object. 6 If but if she's on her way down here, I would 7 just like to have it go forward. I will make 8 an effort to call her on her cell phone when 9 we're done. 10 MR. BISCIEGLIA: Does her -- so her 11 testimony, your believe to be -- that this 12 weighs on her testimony, whether or not -- 13 CHAIR KASSEKERT: I just want don't want 14 to deny somebody's right to be heard if we 15 think that she's on her way. 16 MS. FRIGEN: Because we've had 17 experience where somebody's come after the fact 18 and then we had to bring it back before the 19 extension and -- 20 CHAIR KASSEKERT: Yeah. 21 MS. FRIGEN: So if we could avoid doing 22 that -- 23 CHAIR KASSEKERT: Why don't we move 24 forward -- 25 MR. BISCIEGLIA: Do we have a time limit 71 ITEM NO. 12 1 on -- 2 VICE CHAIR EPPS: He's not objecting 3 to -- 4 CHAIR KASSEKERT: I know he's not. 5 MR. BISCIEGLIA: That's my only -- if we 6 were objecting, certainly. I mean, we'd want 7 to hear what she had to say. 8 CHAIR KASSEKERT: Right. 9 MR. BISCIEGLIA: But we recommend 10 granting, so. 11 CHAIR KASSEKERT: Right. 12 MR. BISCIEGLIA: So we'll wait? 13 CHAIR KASSEKERT: We'll wait until after 14 we finish this next item, and we'll just double 15 check if and see if she's on her way. Okay. 16 I'm sorry, Mr. Stebbins. 17 MR. STEBBINS: That's all right. 18 MR. NANCE: I recall Item No. 12 19 consideration of forfeiture orders in State 20 versus Resorts International Hotel, Inc., et 21 al., Atlantic City Showboat, Inc., and 22 Boardwalk Regency Corporation. 23 Miss Frigen? 24 MS. FRIGEN: Good morning, Madame Chair, 25 again, and Commissioners. 72 ITEM NO. 12 1 For your consideration, as indicated, 2 are those complaints seeking forfeiture of 3 monies that was seized by these casinos from 4 individuals who were either underaged or on the 5 self-exclusion list on the date of their gaming 6 activity. 7 Before we hear from the Division, I 8 would note that we have received letters from 9 respective counsel indicating -- casino 10 counsel -- indicating that they have no 11 objection to the entry of these orders. 12 I would ask whether -- if any of the 13 patrons are here or represented? I don't 14 believe so. 15 (No response.) 16 MS. FRIGEN: And, finally, I would just 17 note that for two of the patrons involved, and 18 that would be "IQ" for the Resorts complaint, 19 Docket No. 09-0229-VC and Patron "FL" in the 20 Caesars complaint, Agency Docket No. 21 09-0230-VC, the staff was not able to send 22 notice to these individuals because there was 23 no address information available. So the staff 24 would recommend that those matters be withdrawn 25 from consideration. 73 ITEM NO. 12 1 CHAIR KASSEKERT: Okay. So we're going 2 to withdraw -- 3 MS. FRIGEN: Just the counts or the 4 money accounts that were seized, the forfeited 5 amounts with respect to -- 6 CHAIR KASSEKERT: Okay. 7 MS. FRIGEN: -- those two individuals. 8 Otherwise, the remaining individuals, the staff 9 would recommend be deemed to have waived the 10 non-contested, the forfeiture of the money in 11 those complaints. 12 CHAIR KASSEKERT: Thank you. 13 Mr. Stebbins? 14 MR. STEBBINS: Just a note on what Miss 15 Frigen said. It's not a matter of them not 16 being underage and not having -- 17 CHAIR KASSEKERT: Right. 18 MR. STEBBINS: -- been found with 19 winnings. 20 CHAIR KASSEKERT: Just no street 21 address. 22 MR. STEBBINS: It's a matter of they 23 didn't answer their -- the service or the 24 attempted service. So that's where we are with 25 those. 74 ITEM NO. 12 1 CHAIR KASSEKERT: Okay. 2 MR. STEBBINS: With regard to all four 3 of these matters, with the exceptions noted, I 4 would urge to you enter the appropriate order. 5 CHAIR KASSEKERT: Thank you. 6 Any questions for Mr. Stebbins? 7 COMMISSIONER SOMMELING: I have no 8 questions, Madame Chair. 9 VICE CHAIR EPPS: Madame Chair, I move 10 that we dismiss without prejudice the 11 forfeiture actions with respect to Patron "IQ" 12 in the Resorts complaint, Agency Docket No. 13 09-0229-VC and Patron "FL" in the Boardwalk 14 Regency Corp. complaint, Agency Docket No. 15 09-0230-VC based on the Commission's inability 16 to effectuate proper notice as required by 17 Section 71.3(c) of the Act; but, otherwise, 18 order that the remaining money seized from the 19 other patrons in these four complaints be 20 forfeited due to their having gambled while 21 either underaged or on the self-exclusion list, 22 and respective casinos are directed to remit 23 the forfeited funds to the Commission for 24 appropriate disposition in accordance with NJSA 25 5:12-71.3(c). 75 ITEM NO. 13 1 CHAIR KASSEKERT: Is there a second? 2 COMMISSIONER HARRINGTON: Second. 3 COMMISSIONER SOMMELING: Second. 4 CHAIR KASSEKERT: The motion has been 5 made and seconded. All in favor? 6 (Ayes.) 7 CHAIR KASSEKERT: Opposed? 8 (No response.) 9 CHAIR KASSEKERT: The motion carries. 10 MR. STEBBINS: I thank you. 11 MS. FRIGEN: I'll go check on Miss Bell. 12 CHAIR KASSEKERT: Thank you. 13 MR. NANCE: Item No. 13, petition of 14 Coach, Inc., for exemption of a licensure as a 15 non-gaming casino service industry enterprise 16 pursuant to NJSA 5:12-92(c)(3)(ii). 17 Miss Nagengast? 18 MS. NAGENGAST: Chair, Commissioners. 19 As you're aware, in April of this year the 20 legislature passed new an amendments to the 21 Casino Control Act, one of which was allowing 22 for an exception for non-gaming casino service 23 industry licensees for applicants or for 24 licenses whose business within the Atlantic 25 City casino industry is less than one tenth of 76 ITEM NO. 13 1 one percent of their total revenue of all 2 business. Coach, Inc., has applied for that 3 exception. They are the first to do so, and 4 it's now before you for your consideration. 5 CHAIR KASSEKERT: Thank you. 6 Mr. Daly? 7 MR. DALY: Thank you, Commissioners. 8 And I welcome the opportunity to be a test 9 case. 10 (Laughter.) 11 MR. DALY: I couldn't have gotten a 12 cleaner one. The revenues of Coach, Inc., as 13 you know, are in excess of $3 billion. At 14 least they were as late as their most recent 15 public filing. And their revenue from casino 16 business is something around $428,000. And 17 that's considerably below the standard set up 18 by the statute. They could up to $3 million 19 worth of business with the casino licensees 20 before crossing that threshold. 21 I should note that this petition was 22 filed after this statute was amended, of 23 course, but before you adopted these 24 regulations that pertained to it. I'm not sure 25 that they're effective even yet, are they? 77 ITEM NO. 13 1 MS. NAGENGAST: I don't think so. 2 MR. DALY: They're not. But in 3 contemplation of they're becoming effective, 4 and if you chose to apply them to this 5 particular case, I would note that the only 6 difference between the regulations and 7 statutory provision is that the regulations add 8 the language that it's -- the earlier of either 9 the company's most recently completed fiscal 10 year or the period covered by the person's most 11 recently completed fourth quarterly financial 12 earnings report. I had filed the most recent 13 10K, which they filed last year in June. They 14 have another one now. And I would certainly be 15 willing to submit that if you want to condition 16 your approval, assuming you were willing to 17 grant approval, for this exemption on a 18 submission of the more recent filing. 19 But with that, I would ask that you 20 approve the petition after hearing from the 21 Division of Gaming Enforcement. 22 CHAIR KASSEKERT: Very good. 23 Any questions for Mr. Daly before we 24 hear from Mr. Kimmel? 25 COMMISSIONER SOMMELING: I have no 78 ITEM NO. 13 1 questions, Madame Chair. 2 CHAIR KASSEKERT: Mr. Kimmel? 3 MR. KIMMEL: Thank you, Madame Chair. 4 The Division filed a letter report by 5 Deputy Attorney General Lou Rogacki. We do not 6 object to the relief sought by this petition. 7 They are nowhere near the amount they could 8 earn, and we urge that you go ahead and grant 9 their exemption. 10 CHAIR KASSEKERT: Even if you throw the 11 outlets in? No. Just -- 12 (Laughter.) 13 CHAIR KASSEKERT: Any questions for Mr. 14 Kimmel? 15 COMMISSIONER SOMMELING: No questions, 16 Madame Chair. 17 CHAIR KASSEKERT: Does this mean I could 18 buy stock in Coach now? No. 19 Is there a motion here? 20 COMMISSIONER SOMMELING: Motion -- 21 VICE CHAIR EPPS: Okay. 22 COMMISSIONER SOMMELING: Go ahead. 23 VICE CHAIR EPPS: I've been talking all 24 morning. 25 COMMISSIONER HARRINGTON: Hum. 79 ITEM NO. 14 1 COMMISSIONER SOMMELING: Move to 2 grant -- 3 Go ahead. 4 (Laughter.) 5 CHAIR KASSEKERT: Actually, it's very, 6 very opportunistic that we let Miss 7 Harrington because she's a Coach aficionado, 8 too. So we've kept them in business. 9 COMMISSIONER HARRINGTON: I move to 10 grant the petition of Coach, Inc., for an 11 exemption for a non-gaming casino service 12 industry enterprise licensure pursuant to NJAC 13 5:12-92(c)(ii) subject to the conditions in the 14 order. 15 COMMISSIONER SOMMELING: Second. 16 CHAIR KASSEKERT: The motion has been 17 made and seconded. All in favor? 18 (Ayes.) 19 CHAIR KASSEKERT: Opposed? 20 (No response.) 21 CHAIR KASSEKERT: Motion carries. 22 Thank you. 23 MR. DALY: Thank you very much. 24 MR. NANCE: Item No. 14, petition of 25 Harrah's Entertainment, Inc., Harrah's 80 ITEM NO. 14 1 Operating Company, Inc., Harrah's Atlantic City 2 Operating Company, LLC, Showboat Atlantic City, 3 Operating Company, LLC, Bally's Park Place, 4 Inc., and Boardwalk Regency Corp. for waiver of 5 qualification for HEI and HOC officer position. 6 Miss Fauntleroy? 7 MS. FAUNTLEROY: Yes. Mr. Magazzu is 8 here on behalf of HEI, and Miss Turi is here. 9 There seems to be a question as to the 10 proposed draft resolution. It is marked as -- 11 yeah. It's marked as an exhibit. 12 (Conferring.) 13 MS. TURI: For the record, I've shown 14 counsel the draft resolution that was prepared 15 last week by Mary Wosniak. I haven't received 16 one since one, but this one, I believe, is 17 dated last Thursday. 18 (Conferring.) 19 MR. MAGAZZU: Sorry, Madame Chair. 20 MS. TURI: That was for the -- that was 21 for the next one. 22 CHAIR KASSEKERT: Oh, okay. 23 MR. MAGAZZU: I apologize. I haven't 24 had an opportunity to review the draft 25 resolution, so before I represent that -- could 81 ITEM NO. 14 1 I just take a minute to take a look? 2 CHAIR KASSEKERT: Sure. Sure. 3 (Conferring.) 4 MS. TURI: I apologize. I gave him a 5 copy of the resolution for the next item. 6 CHAIR KASSEKERT: Okay. So -- 7 MS. FAUNTLEROY: Want to take a look? 8 MR. MAGAZZU: Thanks. 9 CHAIR KASSEKERT: So... 10 VICE CHAIR EPPS: How about those Mets, 11 huh? 12 (Laughter.) 13 CHAIR KASSEKERT: I think that's -- how 14 many do they have on the disabled list? 15 Of course, the Phillies aren't doing too 16 good, either, so. 17 (Conferring.) 18 CHAIR KASSEKERT: Mr. Magazzu? Are you 19 all -- 20 MR. MAGAZUU: I'm okay. Thank you. 21 CHAIR KASSEKERT: Okay. Anything you'd 22 like to say on the resolution or -- 23 MR. MAGAZUU: Just that I've just had an 24 opportunity to review the resolution. I have 25 nothing to add other than to ask that the 82 ITEM NO. 14 1 petition be granted. 2 CHAIR KASSEKERT: Okay. Thank you. 3 Miss Turi? 4 MR. TURI: I also have seen the 5 resolution, and I have no objection to it. 6 CHAIR KASSEKERT: Thank you. 7 Any questions? 8 COMMISSIONER SOMMELING: No questions, 9 Madame Chair. 10 COMMISSIONER HARRINGTON: Then I move 11 that we adopt the draft resolution and waive 12 the qualification requirement pursuant to NJSA 13 5:12-85d(1) as to Eric Hession in his capacity 14 as Vice President of Finance for Harrah's 15 Operating Company, Inc., subject to the 16 conditions in the resolution. 17 CHAIR KASSEKERT: Is there a second? 18 VICE CHAIR EPPS: Second. 19 CHAIR KASSEKERT: The motion has been 20 made and seconded. This is a roll call vote. 21 MR. NANCE: Commissioner Harrington? 22 COMMISSIONER HARRINGTON: Yes. 23 MR. NANCE: Commissioner Sommeling? 24 COMMISSIONER SOMMELING: Yes. 25 MR. NANCE: Vice Chair Epps? 83 ITEM NO. 15 1 VICE CHAIR EPPS: Yes. 2 MR. NANCE: Chair Kassekert? 3 CHAIR KASSEKERT: Yes. 4 MR. NANCE: The record will reflect that 5 the motion is unanimous. 6 Item No. 15, petition of Harrah's 7 Entertainment, Inc., and Harrah's Operating 8 Company, Inc., for approval of the issuance of 9 second priority lien notes and other relief. 10 Miss Fauntleroy? 11 MS. FAUNTLEROY: Yes. This is the more 12 complicated matter. 13 CHAIR KASSEKERT: Right. 14 MS. FAUNTLEROY: Mr. O'Gara is here. 15 CHAIR KASSEKERT: So that's why we bring 16 in the big guns. 17 (Laughter and groans.) 18 MR. O'GARA: It's going to be a very 19 long day, anyway, Chair. Let's start now. 20 CHAIR KASSEKERT: A very profitable day 21 for you, Mr. O'Gara. 22 (Laughter and groans.) 23 MR. O'GARA: If only I was working for a 24 piece of the two and a half million. 25 (Laughter.) 84 ITEM NO. 15 1 MS. FAUNTLEROY: This petition involves 2 Harrah's Entertainment, Inc., and Harrah's 3 Operating Company, Inc.'s, request for approval 4 of the issuance of new second priority lien 5 notes and for other relief involving an 6 approval to engage in those transactions for an 7 extended period. 8 Mr. O'Gara is here on behalf of Harrah's 9 and Miss Turi is here on behalf of the 10 Division. 11 There's a draft resolution which 12 includes certain conditions, and there is also 13 a sealing request. 14 CHAIR KASSEKERT: Thank you. Mr. 15 O'Gara? 16 MR. O'GARA: Yes, ma'am. 17 It's -- we seek approval to issue two 18 and a half billion dollars in second priority 19 lien notes. These are, in fact, the same 20 second priority lien notes -- they're the same 21 series of second priority lien notes which have 22 been -- which we got your consent to issue in 23 connection with the exchanges that have been 24 done for other debt that Harrah's has 25 outstanding, primarily near term. Near 85 ITEM NO. 15 1 maturing debt. 2 What we're seeking here is to have 3 approval for the issuance for a period of 18 4 months. The -- they would then be issued from 5 time to time in order to facilitate either 6 trades for existing notes or funding to 7 purchase existing notes whether in private 8 transactions or in the market. The primary 9 goal is to purchase debt which matures in 2010 10 and 2011. And the thought is that that that is 11 the debt that's more likely to be available. 12 Because the pricing of the debt, when you go 13 out to the '17th and the '18th is fairly low, 14 and there's -- you know, hope springs eternal. 15 If we're able to do this, what it means 16 is that you take those maturities out to 2017, 17 2018 so you don't have any of the -- you know, 18 overhang that comes from the maturity of those 19 debt issues. 20 In doing so, we've had discussions with 21 your staff and with the Division and fully 22 understand that there be certain conditions or 23 perimeters, they're like guardrails, that we 24 could issue up to that amount in terms of how 25 they might affect the aggregate amount of 86 ITEM NO. 15 1 indebtedness involved at Harrah's as well as 2 the cash interest expense. 3 You've seen those conditions, and I will 4 urge you to remember that, again, is about $21 5 billion of total debt that's out there. So 6 it's not actually even a rounding error. 7 The thought is that by doing this, there 8 have been some open market purchases, as you're 9 aware. But what this means is, you don't go to 10 the resolver, and that means to the revolver is 11 available for the liquidity for not only things 12 you face in this market but in other markets, 13 as you try to see what's going on. And there's 14 just no capacity in the market to issue 15 unsecured notes now. And there is a desire in 16 the market for notes that have security. These 17 have a second priority, people holding 18 unsecured notes. There's an appetite and a 19 willingness to do those trades. 20 There are certain reporting conditions. 21 We have no problem, and we fully understand. 22 If we get to the guardrail, doesn't mean that 23 it is not anything you don't necessary view, 24 perhaps as we do, as a wise decision in terms 25 of maturities, but you want to look at it again 87 ITEM NO. 15 1 if we come to the rail. And we fully 2 understand that and ask that you give us the 3 approval to do it. 4 CHAIR KASSEKERT: Thank you. 5 Let me ask if Commissioners have any 6 questions for Mr. O'Gara before we hear from 7 Miss Turi? 8 VICE CHAIR EPPS: Just one clarification 9 with respect to, as you've termed it, the 10 guardrail. When you get there, do you 11 automatically come back to us, or do you just 12 stay away from it? 13 MR. O'GARA: I think we -- it depends 14 on, Commissioner, it's really -- no, I don't 15 think you necessarily stay away from it. I 16 think if you looked at it hypothetically, and 17 the more logical case, the debt's down, I 18 think, 2.3 billion aggregate on the changes. 19 And I think the cash interest expense -- I 20 don't have it in front of me -- 48 to 53 21 million over the term of this. But if you got 22 there, it may very well be that we would come 23 back to you, because what we're looking at is a 24 trade that goes beyond this that may give us 25 either a temporary increase in the interest 88 ITEM NO. 15 1 expense or may take it out, but takes out all 2 the 2011 or 2010. So you don't have that, you 3 know, which is going to be staring at you 4 anyway. We're at 2010 now. And then you're 5 out to the '17th and '18th. So, you know, if 6 we thought that tradeoff was beneficial in, A, 7 us not having to go to the revolver, not having 8 to take away flexibility, we would come back to 9 you. But I don't think we know until we see 10 the trades. 11 I mean, we certainly -- and we have -- 12 you know, they're very conservative. I think 13 in our discussions with your staff, I know with 14 Chris Glaum and with Mary Wosniak and with Bob 15 and Miss Turi, we arrived at these using -- 16 kind of formulaically using things that 17 happened in the past. And there's no question 18 that we agreed that, you know, the pricing in 19 the time that we're talking about this, I think 20 the second priorities were at 76 and they 21 dropped to 72. It's not unrealistic to see 65. 22 So if we -- you know, we know that, and so we 23 would probably come back. A lot of it is just 24 kind of market sensitive. And we have no way 25 of knowing, and that was something that your 89 ITEM NO. 15 1 staff was comfortable with, and we were 2 comfortable with as well. 3 VICE CHAIR EPPS: Miss Turi, you agree? 4 That it's kind of a longer leash for a big dog. 5 (Laughter.) 6 MS. TURI: Right. That's exactly what 7 we looked at. We looked at financial 8 flexibility. We looked at going out. We look 9 at the revolver ability. It would be there 10 through 2010 and 2011, should these notes be 11 issued. Our maturity dates we looked at. We 12 would then go further out to 2018. How the 13 interest expense might go up. How there would 14 be some changes and more flexibility in 2010, 15 2011. And in discussions with everybody, we 16 came up with these figures, these guardrails, 17 as Mr. O'Gara has called them, on the basis of 18 projections that have been given to us, on the 19 basis of the information that we had, the 20 numbers that we had. So if we put up a $58 21 million one, we're not saying that that's 22 written in stone. We're not saying that, well, 23 that's forever. We're saying that at this 24 point in time, on the basis of the information 25 we have, on the basis of what we've seen on the 90 ITEM NO. 15 1 2010s and 2011s that are going to be coming 2 due, on the basis of up to $2.5 million that 3 may go out that this would be appropriate, 4 given that we have all of these different 5 conditions in place, including the so-called 6 guardrails, that give us the opportunity to 7 review as each and every transaction comes in. 8 As we move out further into the -- into 2010, 9 and maybe even into the early 2011 period. So 10 that we know what's going on. 11 And at that point then, we can go, and 12 I'm sure we would get the information that we 13 would need in order to be able to move forward 14 should Harrah's feel the need to change these 15 guardrails or to increase them. 16 It's highly possible that it could go 17 down. As Mr. O'Gara said, at this point when 18 we got our particular projections, maybe it was 19 at 75 percent, and it went down to 71. And 20 maybe it can go down to 65. But I heard on the 21 radio this morning the economy is turning 22 around. So maybe it will go up to 76 as 23 opposed to 78. I don't know where that comment 24 came from. But we never know what the future 25 holds. 91 ITEM NO. 15 1 And what we were concerned with is 2 getting the conditions on to be sure that there 3 would be the financial flexibility moving 4 forward with Harrah's Entertainment so that 5 Harrah's Entertainment could do what it needed 6 to do and yet still have the financial 7 flexibility and maintain what it needs to have 8 in Atlantic City. 9 MR. O'GARA: Let me -- what you -- 10 because I don't want you to have any 11 misunderstanding. We fully understand what you 12 just said about the dog and the leash. I mean, 13 we understand. We know what the shelf is, and 14 we appreciate that immensely. I mean, I think 15 with the conditions you have, it gives you a 16 monitoring capability but also allows the 17 flexibility here not to do this in increments 18 of a hundred million, which is what we've been 19 doing. 20 But the primary goal here is not only 21 the extension of the maturities but also the 22 fact that in the market that the secured debt 23 you can get that and stay away from the 24 revolver. And I can't tell you that there 25 isn't another secured debt that if we can do 92 ITEM NO. 15 1 changes we aren't going to seek separate from 2 this. But what we saw, and I think what Miss 3 Turi was alluding to was, yeah, on the 4 guardrails, we may come back because it was at 5 75 and 71, and now it's in the high 60s as we 6 stand here now. So that may be the reason we 7 may be back. But it's not because we don't 8 understand and appreciate the concept and your 9 willingness to entertain us. We fully 10 understand the dog and the leash. 11 COMMISSIONER SOMMELING: So if it's 12 necessary, you'll be back. 13 MR. O'GARA: Oh, we'll be back. Yeah. 14 (Laughter.) 15 CHAIR KASSEKERT: Miss Turi, is there 16 anything else you'd like to add? 17 MS. TURI: No. Other than that we've 18 reviewed that draft resolution. We've had many 19 discussions with all the parties involved here, 20 and we're comfortable with the conditions that 21 are imposed and would urge that if you do grant 22 the relief that is sought here that all of the 23 conditions be imposed. 24 CHAIR KASSEKERT: And let me also ask 25 you, do you consent to the sealing request? 93 ITEM NO. 15 1 MS. TURI: Yes, we do. 2 CHAIR KASSEKERT: Okay. Very good. 3 Any other questions? 4 COMMISSIONER SOMMELING: No questions, 5 Madame Chair. 6 VICE CHAIR EPPS: Madame Chair, I move 7 that we adopt the draft resolution and grant 8 the relief requested approving the issuance of 9 the new second priority lien notes subject to 10 the conditions and the extent -- to the extent 11 set forth in the resolution. 12 COMMISSIONER SOMMELING: Second. 13 CHAIR KASSEKERT: Motion is made and 14 seconded. This is a roll call vote. 15 MR. NANCE: Commissioner Harrington? 16 COMMISSIONER HARRINGTON: Yes. 17 MR. NANCE: Commissioner Sommeling? 18 COMMISSIONER SOMMELING: Yes. 19 MR. NANCE: Vice Chair Epps? 20 VICE CHAIR EPPS: Yes. 21 MR. NANCE: Chair Kassekert? 22 CHAIR KASSEKERT: Yes. 23 MR. NANCE: The record will reflect that 24 the motion is unanimous. 25 CHAIR KASSEKERT: Thank you. 94 ITEM NO. 9b 1 Oh, the motion on the sealing request? 2 Is there a motion to grant the sealing request? 3 VICE CHAIR EPPS: I move that we grant 4 the sealing request. 5 COMMISSIONER SOMMELING: I second it. 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 Thank you. 13 Shall we recall 9b? 14 MR. O'GARA: Thank you. 15 MS. TURI: Thank you. 16 CHAIR KASSEKERT: Miss Frigen? 17 MS. FRIGEN: Well, we're making 18 progress. I did reach her. She was at the bus 19 depot in Atlantic City, so she said there was 20 you a delay with the bus. So she's still on 21 her way. 22 CHAIR KASSEKERT: Okay. 23 MS. FRIGEN: But she is in Atlantic 24 City. 25 CHAIR KASSEKERT: Okay. 95 ITEM NO. 9b 1 MS. FRIGEN: She should be here soon, 2 although she did indicate she may be walking 3 so. 4 CHAIR KASSEKERT: Oh, geez. 5 MS. FRIGEN: You know -- 6 CHAIR KASSEKERT: Instead of -- why -- 7 instead of holding Mr. Biscieglia up, if Mr. 8 Biscieglia is willing to stipulate on the 9 record that he would recommend granting the 10 request, we can let you go. I don't want to 11 hold you there. 12 MR. BISCIEGLIA: I appreciate that. And 13 I don't mind. Certainly, I want to have people 14 to have their right to have their say in front 15 of the Commission. It's just in this matter -- 16 CHAIR KASSEKERT: Right. 17 MR. BISCIEGLIA: We're not going against 18 her. We're recommending the granting of her 19 petition. So if that's acceptable for the 20 Commission, yes, I would state the Division's 21 position is to grant the Petitioner's instant 22 petition. 23 CHAIR KASSEKERT: Okay. Thank you very 24 much. 25 MR. BISCIEGLIA: Thank you. 96 ITEM NO. 16 1 All right. 2 (Conferring.) 3 CHAIR KASSEKERT: We're ready? 4 Yes. We're ready for item 16. 5 MR. NANCE: Item No. 16, amended and 6 supplemented petition of the Steering Committee 7 of the Secured Lenders for approval of an 8 organizational structure and for other relief. 9 And amended and supplemental petition of 10 Tropicana Entertainment, LLC, et al., for a 11 declaratory ruling concerning, inter alia, the 12 qualification status of William J. Yung, III. 13 Mr. DiGiacomo? 14 MR. DiGIACOMO: Chair, Commissioners. 15 Good morning. Mr. Gilbert Brooks is here for 16 the Petitioners on Item PRN 1590901. Mr. Paul 17 O'Gara for the Petitioners in PRN 3390801. Mr. 18 John Adams, for the Division of Gaming 19 Enforcement. 20 I've shared with counsel a draft of the 21 proposed resolution. I believe that they are 22 prepared to consent to its form and entry. 23 Following any remarks that the 24 Commission may have, I would like to just put a 25 clarification on the record regarding the draft 97 ITEM NO. 16 1 resolution. 2 CHAIR KASSEKERT: Thank you. Okay. 3 Mr. Brooks? 4 MR. BROOKS: Good morning, Madame Chair, 5 members of the Commission. We've had a 6 chance -- Gil Brooks from Duane Morris on 7 behalf of the Steering Committee of the Secured 8 Lenders. 9 We've had a chance to review the 10 resolution referred to by Mr. DiGiacomo, and 11 the resolution is acceptable to us, and we're 12 prepared to move forward. 13 CHAIR KASSEKERT: Thank you. 14 Mr. O'Gara? 15 MR. O'GARA: Yeah. We're Petitioners on 16 the petition that was joined. It was 17 originally filed in Tropicana Entertainment, 18 succeeding any Tropicana Entertainment, Inc., 19 and we consent to its form and entry as well. 20 CHAIR KASSEKERT: Thank you. 21 Mr. Adams? 22 MR. ADAMS: Good morning, Madame Chair 23 and Commissioners. 24 Yes, we also have reviewed the draft 25 resolution, and we do not have any objection to 98 ITEM NO. 16 1 the entry of that petition. 2 CHAIR KASSEKERT: Thank you. 3 Any questions from any of the 4 Commissioners? 5 COMMISSIONER SOMMELING: I have no 6 questions, Madame Chair. 7 CHAIR KASSEKERT: Mr. DiGiacomo, do you 8 want to wait until after I give my ruling -- 9 MR. DiGIACOMO: That it would be 10 appropriate. Yeah. 11 CHAIR KASSEKERT: -- for the 12 clarification on the -- okay. Thank you. 13 Late last month the Commission conducted 14 a hearing on two consolidated petitions that 15 request various relieve in an effort to 16 identify the specific entity that will buy the 17 Tropicana Casino Hotel. Essentially, what is 18 being requested is a ruling from us that 19 Tropicana Entertainment, Incorporated, which is 20 emerging from bankruptcy in Delaware that's has 21 primarily -- and has been primarily through 22 that process, sufficiently transformed for 23 regulatory purposes so as to be a separate 24 entity that is distinct from and unburdened by 25 the woeful compliance record of the Tropicana 99 ITEM NO. 16 1 Entertainment limited liability company that 2 the Commission found unqualified in December of 3 2007. In the course of that hearing, the 4 Commission amassed a voluminous record, 5 including over 40 exhibits and the testimony of 6 six witnesses. 7 Indisputably, in other cases we have 8 recognized the rejuvenating process that a 9 bankruptcy reorganization can work. But in 10 those instances financial stability was the 11 primary regulatory issue for which the 12 bankruptcy process appears especially 13 well-suited. Whether the same positive effects 14 equally apply in a case such as this is what 15 we're now asked to decide. 16 There is little dispute about the 17 transformative effects of the Delaware 18 bankruptcy. The rights that William J. Yung, 19 III, indirectly had in Tropicana Limited, which 20 filed for bankruptcy protection as a limited 21 liability company, do not attach to the 22 corporate entity that ultimately will emerge. 23 Thus, we have been told, and the Delaware 24 bankruptcy plan so provides, that interests 25 that Yung and his companies might otherwise be 100 ITEM NO. 16 1 in line to acquire in the new company, such as 2 through warrants or other rights, will not be 3 passed to him, either directly or indirectly, 4 but will instead be converted to cash. 5 Likewise, if there are any allowed 6 administrative claims for asserted shared 7 services or the like, and such allowance 8 apparently is being disputed, there would only 9 be a cash payout on any such allowed claim. 10 Although the precise cash amount has not 11 been quantified, the estimated cash 12 distribution in lieu of warrants has been 13 estimated at between 50,000 and $100,000, for 14 example. Certainly the Commission must be 15 mindful of the statutory formula in the Casino 16 Control Act that limits the recovery an 17 unqualified ICA candidate may receive from its 18 investment. What, if any, relevance any such 19 Delaware cash distributions to Mr. Yung may 20 have on that formula need not be decided now. 21 However, if the Commission allows the buyer 22 from the New Jersey bankruptcy to become a 23 subsidiary of Tropicana, Incorporated, other 24 parties at the appropriate time will need to 25 demonstrate that the statutory formula has been 101 ITEM NO. 16 1 satisfied. 2 Regulatory interests will be ill-served 3 if the Commission only examined what, if any, 4 role Mr. Yung might have with Tropicana, 5 Incorporated. To be sure, the Commission in 6 other cases has recognized that an entity 7 derives its moral character from the 8 individuals giving it direction, so that if a 9 disreputable person is removed, the entity that 10 remains may then pass muster. However, with 11 Tropicana Limited, the problems were not so 12 readily confined. 13 In that regard, it was not so much Mr. 14 Yung alone that resulted in Tropicana Limited's 15 regulatory dilemma. Rather his anti- 16 regulatory bias manifested itself through those 17 whom he hired, thereby permeating the entire 18 company and leading to its downfall. 19 Assuredly, the statute admonishes us 20 that the public confidence and trust in the 21 credibility and the integrity of the regulatory 22 process in casino operations are essential and 23 integral to the regulation and control of the 24 casino hotels. That confidence and trust might 25 be eroded if actions we take today are 102 ITEM NO. 16 1 perceived as disregarding our own prior 2 pronouncements. 3 However, the testimony and other 4 evidence leave no doubt that any vestige of Mr. 5 Yung and his administration at the time of the 6 company's disqualification will be supplanted 7 by the team in place upon the new Tropicana, 8 Incorporated, as it emerges from bankruptcy. 9 That said, we must also be satisfied 10 that there are no -- there is no cause for 11 concern if any member of the transition team, 12 which was assembled post-disqualification to 13 aid in the reorganization process, appears on 14 the roster of those who will run Tropicana, 15 Incorporated, post-bankruptcy. 16 Necessarily, the focus of any such 17 inquiry is on Scott Butera, who is no stranger 18 to the New Jersey regulatory apparatus and, for 19 that matter, possesses a casino key employee 20 license. Following a lengthy career as an 21 investment banker focusing on the lodging, 22 gaming, and leisure industries, Mr. Butera 23 earlier this decade guided Trump Entertainment 24 through its own restructuring as company 25 president and COO. Most recently, he served as 103 ITEM NO. 16 1 COO for a large development project in Las 2 Vegas. 3 Crucial here was Mr. Butera's hiring, 4 some three months after our December 2007 5 ruling disqualifying Tropicana Limited, as that 6 company's president and chief restructuring 7 officer. Recruited by what was then Tropicana 8 Limited's outside legal and financial advisors, 9 Mr. Butera did not interview with Mr. Yung for 10 the job. However, Mr. Butera's employment 11 contract with the company was executed by Mr. 12 Yung, who at that time still apparently 13 retained sole decision-making authority for the 14 company. 15 On the heels of Tropicana Limited's 16 filing for bankruptcy in early May of 2008, a 17 major creditor constituency mounted an effort 18 to unseat Mr. Yung and appoint a bankruptcy 19 trustee for the company. Whether in response 20 to that effort or otherwise, Mr. Yung resigned 21 from various positions, and Mr. Butera replaced 22 him as president and CEO by late June of 2008. 23 Mr. Butera testified that, in 24 undertaking those responsibilities, he had no 25 agreement with Mr. Yung or any of his entities 104 ITEM NO. 16 1 to protect their interests. Likewise, there's 2 no reason to suspect that any of the members of 3 the team that Mr. Butera has assembled owe any 4 allegiance to Mr. Yung. 5 During the transition, not all went 6 seamlessly. Although Tropicana Limited's 7 headquarters shifted from Kentucky to Las Vegas 8 in July of 2008, the company had limited 9 resources to assemble all the necessary 10 back-of-the-house functions there immediately. 11 So it continued to rely on the Kentucky-based 12 affiliate, Columbia Sussex, which Mr. Yung then 13 and now continues to wholly own. 14 For that matter, when Tropicana Limited 15 applied for statements of compliance from the 16 Commission asserting that it had severed its 17 relationship with Mr. Yung, the check submitted 18 to defray the regulatory costs of such 19 investigation bore Mr. Yung's signature. 20 Moreover, he officially remained on the account 21 as signatory through early February of this 22 year, in part, attributable to a delay in 23 engraving the new signature plates for use in 24 the company's automated check-writing system 25 through Bank of America. 105 ITEM NO. 16 1 Nevertheless, now run completely from 2 Las Vegas are what will be Tropicana, 3 Incorporated's, recruiting, information 4 technology, real estate, payroll, accounts 5 payable, treasury, accounting, risk management, 6 health and welfare benefits, and purchasing 7 functions. Any service contracts with Columbia 8 Sussex or otherwise have been rejected through 9 the bankruptcy process. 10 Without diminishing the importance of 11 the disassociation from Mr. Yung, the specter 12 of his control might linger if it were 13 uncertain to whom Mr. Butera and his team would 14 be reporting to because the new company owners 15 were so diffuse, with no dominant force. It 16 would be a natural speculation in such a 17 hypothetical for one to imagine Mr. Yung's 18 influence potentially filling the void by 19 percolating through Mr. Butera, whom he at 20 least hired on paper. 21 Here, however, such speculation can be 22 readily dismissed. Carl Icahn will convert his 23 approximately 41 percent interest in the 24 secured debt into a comparable equity ownership 25 stake in Tropicana, Incorporated. Also no 106 ITEM NO. 16 1 stranger to the New Jersey's regulatory 2 apparatus, Mr. Icahn has time and time again 3 demonstrated his independent approach to the 4 casino business. Nothing even remotely 5 suggests that he undertook this investment as 6 an accommodation to Mr. Yung with the prospect 7 of eventually returning the asset to him or 8 allowing Mr. Yung to share in any profits. For 9 that matter, such a hypothetical concern is not 10 unique to the proposed integrated structure, 11 but would exist even under the so-called 12 stand-alone arrangement where Mr. Icahn and the 13 other secured lenders would also receive their 14 proportionate equity stake in that form of 15 venture. Thus, any such concern may be readily 16 dismissed as mere speculation. 17 Through the testimony of Vincent 18 Intrieri, Icahn's representative on the 19 Steering Committee, her heard how the members 20 of the board of directors of the newly formed 21 Tropicana Entertainment were selected. It 22 comes as no surprise that Mr. Icon and one of 23 this insiders will fill two of the seven board 24 seats, and a third seat will be occupied by an 25 assertedly independent member of the Icahn 107 ITEM NO. 16 1 Enterprises board. 2 Mr. Butera will also be a member of the 3 new board. And, certainly, if Mr. Icahn 4 perceived Mr. Butera as beholden to Mr. Yung, 5 then, presumably, Mr. Icahn would have blocked 6 that appointment, which he has not. 7 Again, only by ascribing to Mr. Icahn a 8 willingness to acquire a significant interest 9 in the property, not in his own right, but as 10 an accommodation to Mr. Yung, might something 11 appear to be amiss. But no such evidence is 12 apparent for such a conjecture. If anything, 13 the record supports just the opposite 14 conclusion: That Mr. Icahn independently 15 approached this as an investment opportunity to 16 be added to his already extensive portfolio, 17 and with reason to question Mr. Yung's 18 managerial style. 19 As for the remaining three board members 20 of the new board, from this record there's 21 nothing that even remotely suggests that they 22 are aligned to Mr. Yung. 23 Given the totality of the circumstances, 24 the Petitioners have certainly made a strong 25 case in favor of the relief they seek in the 108 ITEM NO. 16 1 first count of the Steering Committee's 2 petition. However, before reaching such a 3 conclusion, some comment on the matter 4 involving Park Cattle, now apparently known as 5 Edgewood Companies, is appropriate in view of 6 the volume of material in the record on this 7 subject. 8 Tropicana Limited had two outstanding 9 interests in Lake Tahoe that it leased from 10 Park Cattle. A dispute arose between tenant 11 and the landlord over both properties. The 12 modified lease for one of them, known as the 13 Montbleu Resort Casino and Spa, is being 14 assumed in the Delaware bankruptcy. The 15 Yung-related guarantee on the predecessor 16 arrangement will be released. Thus, the 17 Montbleu matter need not detain us further. 18 The other lease involves the Lake Tahoe 19 Horizon property. Although Tropicana Limited 20 has no interest in continuing to lease that 21 facility, rejecting the lease might have 22 generated a sizable damage claim in favor of 23 Mr. Yung and his companies. Thus, to settle 24 what might be a protracted litigation, that 25 lease will be assumed in bankruptcy and then 109 ITEM NO. 16 1 assigned to a subsidiary of another Yung- 2 controlled company, Wimar Tahoe, which 3 subsidiary, along with Park Cattle, is pursuing 4 Nevada licensure in connection with that 5 property. 6 In order to maintain continuous casino 7 operations at the site, which apparently is 8 necessary so that Park Cattle could preserve 9 certain zoning rights that would be necessary 10 for its future hospitality development plans, 11 Tropicana Limited has agreed to lease and 12 manage the downsized casino operations for a 13 limited period of time while the new tenant 14 pursues licensure. And although Tropicana 15 Limited's interim management arrangement for 16 nominal rent is with Park Cattle, plainly, Mr. 17 Yung indirectly receives an incidental benefit 18 in that Park Cattle is not insisting upon his 19 indirect subsidiary immediately obtaining the 20 necessary licensure to lease the facility. And 21 given the limited duration of the entanglement, 22 I see no reason based on that circumstance, 23 viewed either singularly or in combination, to 24 preclude the relief sought in the first count. 25 As my earlier comments would suggest, I 110 ITEM NO. 16 1 would support allowing Tropicana, Incorporated, 2 to pursue qualification as a holding company in 3 connection with the application for casino 4 licensure that the Commission anticipates 5 receiving if the entity that emerges as the 6 successful buyer from the New Jersey 7 bankruptcy. 8 A draft resolution that reflects such a 9 determination also incorporates many of the 10 technical rulings that are sought in the first 11 count of the Steering Committee's petition. 12 Although no purpose would thus be served by 13 enumerating all of those rulings here, some of 14 them merit a brief comment. 15 Generally, much of the relief sought at 16 this stage can only be dealt with by 17 declaratory ruling since the actual interests 18 have not yet been acquired. Nevertheless, 19 guidance is certainly warranted as the company 20 endeavors to complete its licensing 21 application. 22 For instance, in the first count, a 23 ruling is sought that Tropicana, Incorporated, 24 will be a publicly traded corporation under 25 Section 39 of the Act, and that each holder 111 ITEM NO. 16 1 with under five percent of its common stock or 2 with warrants that are exercisable for under 3 five percent of the common stock can be waived 4 from the qualification requirement. Here 5 publicly-traded status would not only be deemed 6 to attach by virtue of Section 1145 of the 7 Bankruptcy Code but also a direct result of the 8 securities registration that is being made with 9 the SEC. 10 Consequently, qualification waivers for 11 institutional investors under Section 85f would 12 be available if the requisites therefor are 13 met. Further, qualification waivers under 14 Section 85d(1) are also available to holders of 15 securities such as the common -- as the new 16 common stock or the warrant, even if the entity 17 issuing the equity securities is non-public. 18 That said, although we would actually be 19 issuing any such waivers only when the 20 prospective buyer is before us for plenary 21 qualification, and then only if the requisite 22 standards are met and the Division concurs, as 23 I've already suggested, granting the limited 24 ruling now is nevertheless appropriate as 25 guidance for the buyer in preparing to submit a 112 ITEM NO. 16 1 complete set of materials in pursuit of its 2 licensing application. 3 Insofar as one or more holders have five 4 percent or more of the new common stock, or any 5 amount of warrants that are exercised that 6 would give rise to the right to purchase five 7 percent or more of the new common stock, 8 prudence would suggest preparing to have such 9 holders qualify unless other appropriate 10 arrangements were made. 11 Black Diamond Capital Management, with 12 4.4 percent of the secured debt, is a Steering 13 Committee member and is projected to receive a 14 proportionate amount of Tropicana, 15 Incorporated's, common stock. Stephen Deckoff, 16 Black Diamond's managing principal, is slated 17 for a seat on the board of directors of 18 Tropicana, Incorporated. Although we are told 19 that Deckoff's board seat is not contractually 20 or otherwise assured, the testimony certainly 21 suggests a correlation between Black Diamond's 22 economic state and Deckoff's ascension to the 23 board. Thus I'm not prepared to ignore the 24 coincidence of his appointment under the 25 totality of the circumstances, and particularly 113 ITEM NO. 16 1 given Black Diamond's role on the Steering 2 Committee. Thus, I'm presently disinclined to 3 recommend granting a waiver of the 4 qualification requirement for Black Diamond, 5 but would not foreclose if the parties, as they 6 complete their application, from offering 7 further materials to address that matter. 8 Petitioners also requests that the 9 Commission dispense with the qualification of 10 the litigation trust. As we have heard, that 11 trust upon bankruptcy consummation will acquire 12 various claims that it can then pursue through 13 litigation. 14 In other instances, the Commission has 15 required the qualification of the trustees of 16 the litigation trust but has dispensed with 17 such qualification for the trust itself and the 18 trust beneficiaries. In doing so, the 19 Commission was mindful that, among other 20 things, the casino-related entity emergency -- 21 emerging from bankruptcy would, one, be 22 obligated to repurchase the interests of the 23 trust's beneficiaries if the projected 24 litigation had not been settled within a finite 25 time and for a minimum amount, and, two, would 114 ITEM NO. 16 1 provide collateral for its repurchase 2 obligation by issuing a promissory note backed 3 by a letter of credit. 4 Here, the litigation trust creates no 5 right on the part of the trust beneficiaries to 6 have their trust interests repurchased and, 7 thus, Tropicana, Incorporated, will not issue a 8 note to secure any such repurchase obligation. 9 For that matter, just the opposite is true. 10 Tropicana, Incorporated, will loan the trust an 11 initial $300,000 to fund the costs and expenses 12 of administering and liquidating the trust 13 property, which essentially includes claims 14 against Mr. Yung and the proceeds of any such 15 claims. 16 Thus, while I am satisfied that there's 17 no need to present for anyone -- no need at 18 present for anyone to qualify in connection 19 with the litigation trust, I nevertheless 20 believe that its activities should be monitored 21 through the contemporaneous sharing with 22 regulators of those routine reports that the 23 trust contemplates will be produced, 24 particularly in accordance with Section 4.5 25 thereof. 115 ITEM NO. 16 1 Likewise, the regulators should be 2 notified if there's any material increase in 3 the amount loaned to the trust, with the 4 understanding that the changed circumstances 5 could potentially necessitate the need for 6 qualification. 7 While, earl -- while, as earlier 8 indicated, I'm prepared to recommend that a 9 regulatorily sufficient transformation has 10 occurred to allow Tropicana, Incorporated, to 11 proceed as it proposes under the first count, 12 it nevertheless bears noting that I would be 13 equally satisfied if Petitioners were to elect 14 to proceed with the stand-alone structure 15 proposed under the second count of the Steering 16 Committee's petition. 17 I note that Tropicana, Incorporated, as 18 a newly constituted entity, may need further 19 regulatory approvals from other jurisdictions, 20 and that such timing, for obvious reasons, is 21 generally beyond our control. In view of the 22 outside closing date specified in the asset 23 purchase agreement for Tropicana AC, it would 24 be disheartening if those extra-territorial 25 approvals were the sole cause for a delay in 116 ITEM NO. 16 1 the New Jersey closing. For that reason alone, 2 the stand-alone option might have some appeal. 3 Moreover, although we have heard of the 4 contemplated benefits that an integrated 5 structure may provide, there are certainly some 6 regulatory matters that at the appropriate time 7 will need to be addressed. For instance, any 8 evaluation of an integrated holding company 9 structure will necessarily assess the financial 10 stability, integrity, and responsibility of all 11 the qualifying entities. Among other things, 12 the Commission would need to be satisfied that 13 the New Jersey property has the requisite 14 financial flexibility to operate under our 15 system without fear that it will be relied upon 16 to its detriment to support operations 17 elsewhere. 18 Likewise, the Commission has faced 19 greater and greater challenges in terms of 20 assessing what level of essential 21 property-specific operational functions may be 22 removed to remote locations. Those concerns 23 are only upon us if the integrated, as opposed 24 to the stand-alone, structure is pursued in 25 this case. 117 ITEM NO. 16 1 With that, I move consistent with my 2 earlier remarks, to adopt the draft resolution 3 and grant the relief requested as specified 4 therein, subject to the enumerated conditions. 5 COMMISSIONER SOMMELING: Seconded. 6 CHAIR KASSEKERT: The motion has been 7 made and seconded. 8 Mr. DiGia -- 9 (Laughter.) 10 Mr. DiGiacomo, you have some 11 clarification for the record? 12 MR. DiGIACOMO: Yeah. Thank you, Chair. 13 If the Commission has before it on the 14 draft resolution on Page 5. 15 CHAIR KASSEKERT: Right. 16 MR. DiGIACOMO: The first of the 17 findings and rulings. 18 Mr. Brooks has raised a question with me 19 concerning the scope of that provision, and 20 specifically on the question of whether 21 Tropicana, Incorporated, the entity that's 22 emerging from the Delaware bankruptcy, could 23 only apply for qualification at the point after 24 it has, in fact, concluded and consummated the 25 bankruptcy plan in Delaware? And, at least 118 ITEM NO. 16 1 from my perspective, Chair and Commissioners, 2 that is not the intent of that provision. And 3 with -- unless Mr. Brooks has anything else 4 that he would wish to add, with that 5 understanding, I would offer the resolution for 6 your consideration. 7 CHAIR KASSEKERT: Okay. I would agree 8 with that. 9 Mr. Brooks? 10 MR. BROOKS: No. Madame Chair, that 11 clarification is fine for us. 12 Thank you. 13 CHAIR KASSEKERT: Okay. With that 14 clarification, we have a motion and a second. 15 This a roll call vote. 16 MR. NANCE: Roll call vote? 17 Commissioner Harrington? 18 COMMISSIONER HARRINGTON: Yes. 19 MR. NANCE: Commissioner Sommeling? 20 COMMISSIONER SOMMELING: Yes. 21 MR. NANCE: Vice Chair Epps? 22 VICE CHAIR EPPS: Yes. 23 MR. NANCE: Chair Kassekert? 24 CHAIR KASSEKERT: Yes. 25 MR. NANCE: The record will reflect that 119 ITEM NO. 9b 1 the motion is unanimous. 2 CHAIR KASSEKERT: Thank you. 3 MR. BROOKS: Thank you, Madame Chair. 4 MR. DiGIACOMO: Thank you Madame Chair. 5 CHAIR KASSEKERT: We're going to now 6 recess until 1:30. 7 MS. FAUNTLEROY: Miss Bell? 8 CHAIR KASSEKERT: Oh, Miss Bell. 9 MS. FAUNTLEROY: Go ahead. 10 MR. NANCE: I'd like to recall -- 11 MS. FAUNTLEROY: No. Going to do Miss 12 Bell. Just go ahead and do it. 13 CHAIR KASSEKERT: Yeah. 14 MS. FRIGEN: I was going to say, she's 15 not here. I don't know what to tell you. It's 16 your decision. Under these circumstances -- 17 CHAIR KASSEKERT: Let me ask you if -- 18 MS. FAUNTLEROY: Just go ahead and do 19 it. 20 CHAIR KASSEKERT: I think we should just 21 do it. Yeah. 22 Do any of the Commissioners -- we're 23 just going to go back to Item 9b. 24 VICE CHAIR EPPS: Madame Chair, I move 25 that we grant Miss Bell's permission to reapply 120 ITEM NO. 17 1 early for a casino service employee license, a 2 casino service employee registration and/or to 3 obtain employment early as a non-credential 4 hotel employee. 5 COMMISSIONER SOMMELING: 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: The motion carries. 12 We will now recess until 1:30. 13 COMMISSIONER HARRINGTON: If she comes, 14 we can hear from her; right? 15 MS. FRIGEN: Right. She shouldn't be 16 disappointed with the outcome. 17 (A recess was taken from 12:15 to 1:43 18 p.m.) 19 CHAIR KASSEKERT: Good afternoon. We'll 20 go back on the record. 21 MR. NANCE: Item No. 17, joint petition 22 of Resorts International Hotel, Inc., Column 23 Financial Inc., Trimont Real Estate Advisor, 24 Inc., and RAC, Atlantic City Holdings, LLC, for 25 declaratory ruling of acquisition on real 121 ITEM NO. 17 1 property on which the licensed casino hotel is 2 operated and for other relief. 3 Mr. DiGiacomo? 4 MR. DiGIACOMO: Chair, Commissioners, 5 good afternoon. 6 Counsel, please enter your appearances 7 for the record. 8 MR. O'GARA: Paul O'Gara for the Joint 9 Petitioners. 10 MS. FLAHERTY: Yes. Chair and 11 Commissioner, Mary Jo Flaherty, Deputy Attorney 12 General, Division of Gaming Enforcement. 13 Thank you. 14 CHAIR KASSEKERT: Mr. Brooks? Are you 15 going to enter an appearance? 16 MR. BROOKS: Gilbert Brooks here on 17 behalf of Resorts, Madame Chair. 18 CHAIR KASSEKERT: Thank you. 19 Before the Commission today is the joint 20 petition by Resorts and secured lenders and the 21 agents for several of those lenders seeking 22 several rulings regarding the ownership of the 23 casino hotel and the underlying land as well as 24 Commission approval of a management agreement 25 for the property. The Commission will take 122 ITEM NO. 17 1 testimony today in this matter. 2 Before hearing the witnesses, there are 3 also a number of exhibits that have been 4 premarked and identified on the list that Mr. 5 Nance has prepared and shared with the parties. 6 Mr. Nance? 7 MR. NANCE: Chair, Commissioners, the 8 premarked exhibits are a follows. Division of 9 Gaming Enforcement has two exhibits. They 10 premarked as D-1 and D-2. 11 D-1 is the Division's letter report 12 dated July 27th, 2009, regarding PRN 2040904. 13 And D-2 is the Division's letter dated 14 August 19th, 2009, regarding PRN 2040904. 15 The Joint Petitioners submitted 14 16 exhibits. They are premarked on the Exhibit 17 List as J-1 through -- to J-14. 18 CHAIR KASSEKERT: Thank you. 19 If Counsel is satisfied that the list 20 prepared by the Commission staff accurately 21 identified the premarked exhibits, are you 22 prepared to move them in on behalf of your 23 respective clients? 24 MS. FLAHERTY: Yes, Chair. The Division 25 would move in D-1 and D-2 as its reports with 123 ITEM NO. 17 1 regard to this matter, and we do not object to 2 the documents that have been marked as joint 3 exhibits for the Petitioners. 4 Thank you. 5 CHAIR KASSEKERT: Mr. O'Gara? 6 MR. O'GARA: Yes. We're prepared to 7 move them. We have a 15th exhibit, which is 8 some slides that we're going to use, but we 9 have them in books and decks, so that deck will 10 be marked after we've used the slides for the 11 opening. But we have no objection to them 12 being entered. 13 We have a sealing request pending for 14 some of the pending exhibits. We have no 15 sealing request with respect to the Division 16 reports, as you know, Chair. 17 CHAIR KASSEKERT: Would you -- you want 18 to identify those exhibits that are going to be 19 sealed? 20 MR. O'GARA: I -- it is -- yeah. I have 21 it, off the top of my head, it's portions of 22 the settlement agreement, which are J-1. Its 23 portions of the management agreement. And 24 principally it is -- with respect to the 25 management agreement, Chair, there is an 124 ITEM NO. 17 1 exhibit to the management agreement which 2 consists of an operating budget and operating 3 plan for which sealing is sought, and it's a 4 portion of a deferred incentive agreement which 5 is J-4. 6 I believe with respect to the balance of 7 the exhibits, there's nothing pending. 8 CHAIR KASSEKERT: Okay. Normally such 9 reports are addressed at the outset of the 10 proceeding. As you know with sensitive 11 financial information is accorded a measure of 12 deference. However, such written information 13 may become the topic of testimony today, in 14 which case, a different approach might be in 15 order. So, thus, I would propose that each 16 exhibit for which a sealing request has been 17 made be accorded such protection on a 18 preliminary basis but with the understanding 19 that all the parts of such exhibits are 20 available for questioning from the 21 Commissioners or counsel for the parties. 22 I would then, if so delegated by the 23 authority by my colleagues, decide as promptly 24 after the parties conclude their presentations 25 what portions, if any, will remain under seal. 125 ITEM NO. 17 1 In the interim, only the preliminarily 2 redacted versions of the documents will be made 3 available to the public. 4 Is that procedure acceptable to both of 5 you? 6 MR. O'GARA: Yes. It's acceptable to 7 us. 8 MS. FLAHERTY: Yes, Chair. Thank you. 9 CHAIR KASSEKERT: Thank you. 10 With that, I will receive all the 11 premarked exhibits into evidence and delegate 12 to me the authority, as I've outlined, to 13 decide the final sealing disposition. 14 Could I have a motion? 15 VICE CHAIR EPPS: I'll move that as -- 16 COMMISSIONER SOMMELING: Seconded. 17 VICE CHAIR EPPS: -- in particular. 18 CHAIR KASSEKERT: The motion has been 19 made and seconded. All in favor? 20 (Ayes.) 21 CHAIR KASSEKERT: Opposed? 22 (No response.) 23 CHAIR KASSEKERT: Motion carries. 24 Are there any other procedural matters 25 to be brought to our attention at this time? 126 ITEM NO. 17 1 MR. O'GARA: One. 2 CHAIR KASSEKERT: Uh-hum. 3 MR. O'GARA: If I might, Chair. 4 There was discussion we had with the 5 Division and with the General Counsel and with 6 your staff regarding the escrow agreement, 7 which is an exhibit here. Under the terms of 8 the escrow agreement, the escrow would have 9 been released on August 27. And, as you know, 10 there are conditions. One of the conditions is 11 action by this Commission. 12 Realizing that we're having a hearing 13 today and the passage of time, I have sent a 14 letter yesterday indicating the lender parties 15 at your staff's request, and we agreed, we now 16 have the acquiescence of Resorts and Colony 17 and, as a matter of fact, sometime today a 18 omnibus amendment, an extension agreement will 19 be signed, so the parties have extended the 20 escrow to September 2. 21 CHAIR KASSEKERT: Thank you. 22 And I received that letter yesterday. 23 Miss Flaherty, you received a copy of 24 that letter? 25 MS. FLAHERTY: Yes, I did, Chair. I'm 127 ITEM NO. 17 1 familiar with that. 2 And we have no other procedural matters 3 to be brought to your attention at this time. 4 CHAIR KASSEKERT: Thank you. 5 We are now set for opening statements 6 which the parties may waive and elect to then 7 proceed directly to testimony. Counsel, what's 8 your preference? 9 MR. O'GARA: We have something for you. 10 CHAIR KASSEKERT: Okay. Very good. 11 MR. O'GARA: If you don't mind. 12 What we propose to do is go through some 13 rather technical matters. What we thought 14 initially is what we have to tell you is 15 somewhat a story. And part of that story is 16 the story of Resorts and how -- how we got from 17 where we were to where we are. And if you can 18 move to the first one. 19 As you know, the Resorts was the first 20 casino in Atlantic City opened in 1978. The 21 physical facility you're all familiar with. 22 And, in fact, it's operated continually since 23 that time. It has over 2300 employees, and it 24 contributes $135 million to the New Jersey 25 economy, and approximately $34 million annually 128 ITEM NO. 17 1 in taxes, both gross revenue taxes and other 2 taxes to the municipality. 3 Resorts passed through ownership over a 4 period of time and ultimately was acquired by 5 its present ownership. In April of 2007, 6 Column Financial, Inc., which is a direct 7 wholly owned subsidiary of Credit Suisse, 8 provided a $360 million mortgage loan to 9 Resorts, and that loan was securitized, and 10 that's the actual transaction. Credit Suisse's 11 2007-TFL2 transaction, for the trivia of it. 12 And that's what, in fact, has been secured by 13 the loan we refer to. Column Financial retains 14 50 percent participation interest. That means 15 they own 50 percent of the loan, Chair. And 16 the remaining interests are the trustee 17 certificates whose holdings you've waived, and 18 they are widely held. 19 In November 9th -- on November 9th, 20 2008, Resorts failed to make its debt service 21 payment which was due monthly. And, as you're 22 aware, they failed to make any other further 23 monthly debt service payments and failed to 24 repay or refinance the mortgage loan when it 25 matured in April of 2009. We filed with this 129 ITEM NO. 17 1 Commission -- or the lenders group did -- the 2 petition seeking the right to exercise remedies 3 with respect to those defaults on the loan. 4 And on the 17th of March you authorized us to 5 accelerate the loan and commence a foreclosure 6 action. 7 Thereafter, there were extended 8 discussions between the lender group and the 9 borrower, which is Resorts and throughout that 10 meetings with regulators, including your staff, 11 about the consensual transactions that might be 12 arrived at in order to avoid the need for 13 foreclosure. And on July the 17th, an 14 agreement, which is the settlement agreement 15 and the agreements which accompany it, which 16 are the transactional agreements, were reached 17 to provide for a consensual transfer of a 18 property, that is a deed in lieu of 19 foreclosure, from Resorts to an LLC which is 20 wholly owned by Wells Fargo. And all those 21 documents were placed in escrow with three 22 conditions, one of which regarded a 23 satisfaction of certain determinations with 24 respect to realty transfer tax in New Jersey, 25 which determination was received from the 130 ITEM NO. 17 1 Division of Taxation, one of which was a title 2 insurance issue which was resolved, and the 3 final one is, it would obviously require your 4 approval. 5 Three days after we reached that, we 6 filed the petition that's pending before you to 7 seek approval of the transaction. And on the 8 27th, seven days later, the Division reports to 9 the Commission on the transaction. And then on 10 August 19th, specifically request the issues 11 which the Commission appropriately asked the 12 parties to address, the Division by a letter 13 indicated its consent which is required under 14 the statute to certain waivers that we sought 15 with respect to the ownership structure we 16 proposed. 17 We recognize that in doing this we are 18 asking the Commission to rule on matters, 19 number one, which are unique in a first 20 impression and to rule on them in circumstances 21 which are less than ideal; that is, that we're 22 here today because we got here through a 23 default and then ultimately foreclosure. And 24 we would suggest to you that, among other 25 things, there are a lot of benefits that come 131 ITEM NO. 17 1 from this consensual transaction. And the 2 first is the immediate stabilization of this 3 property prior to the Labor Day Weekend. 4 That's with reference to the testimony you'll 5 hear regarding the financial conditions you've 6 placed on the property with respect to what's 7 happened to maintaining cash balances and its 8 ability to have liquidity going forward 9 thereafter for a substantial period of time. 10 The way it will happen is that an 11 infusion of capital will occur, and that's $8 12 million. And that $8 million will come from 13 KeyBank, which is the servicer under the 14 agreement of this securitization trust, which 15 was on the slide before. They have 16 obligations, as you'll hear from Mr. Yankauer, 17 as the servicer with respect to preservation of 18 the collateral. And that $8 million is 19 represented in an exhibit before you, which is, 20 we refer to as the Commission advance letter, 21 but it is the commitment from KeyBank that, in 22 fact, $8 million has been moved to a KeyBank 23 account, will be made available to Resorts in 24 order to satisfy the financial stability 25 requirements that they have to operate as a 132 ITEM NO. 17 1 casino hotel in Atlantic City. 2 What that means is that you'll have the 3 preservation of 2300 jobs, because you'll have 4 some assurance with respect to the financial 5 stability and continuity of operations which 6 are issues which, obviously, are called into 7 question when you have the events that have 8 occurred in Resorts. And it means that you'll 9 have the continued operations of the hotel and 10 the concomitant revenues to the State that come 11 from that financial stability. $39 million in 12 taxes that are generated will still be paid, 13 and it enhances future credit opportunities for 14 all of the Atlantic City lenders in this market 15 because the transaction gives some indication 16 that there's predictability for lenders if they 17 comply with requirements to, in fact, realize 18 on collateral when distressed circumstances 19 occur. 20 The transaction, in its broadest 21 outlines, provides that the existing casino 22 licensee, which is Resorts International Hotel, 23 will manage and have exclusive control over all 24 of the casino operations at Resorts. The title 25 to the property is conveyed to an entity called 133 ITEM NO. 17 1 RAC Atlantic City Holdings, which is -- 2 everyone refers to as RAC. You hear people 3 testify to R-A-C. That's an LLC, a new 4 company. And it's wholly owned by Wells Fargo. 5 They're the trustee under the securitization 6 trust. So Wells Fargo will own that, and it 7 will be its only member. There will be a 8 non-member manager of that, and that's Trimont 9 Real Estate Advisors. They're, in fact, a 10 special service under the loan. 11 When the loan went into default, 12 specific provisions in the pooling and services 13 agreement provide that a special servicer takes 14 charge of the distressed loan. This is, in 15 fact, a chart representation of that ownership 16 structure which shows you that Wells Fargo owns 17 RAC, and then Trimont is the non-member 18 manager, and that's with respect to the real 19 estate. And with respect to the operations, 20 under the agreement we've reached, the complete 21 and exclusive control of those casino 22 operations remains with RIH. 23 The current license holder, which is 24 Resorts, will continue to operate, maintain, 25 have all responsibility for the property. 134 ITEM NO. 17 1 They'll have the exclusive control over the 2 operation and the gaming activities in the 3 property. The consensual agreement avoids a 4 protracted foreclosure proceeding. You'll hear 5 testimony, Chair, that if one were to initiate 6 a foreclosure, even if one were to have a 7 friendly or consensual foreclosure, minimally 8 it takes 90 to 120 days. A normal foreclosure 9 in New Jersey can take upwards of 18 months to 10 two years. It continues the op -- it provides 11 that the operations continue uninterrupted. 12 And there's $8 million of capital, which is new 13 capital to the property that's in Atlantic City 14 and at Resorts. 15 We're here, and we're here, obviously, 16 you know, in a fashion which has moved quickly 17 from the signing of this agreement. Because, 18 as I think you're own monitoring tells you, and 19 as your testimony will tell you, the cash 20 position at Resorts is not what they would wish 21 it to be. There's a critical need for this $8 22 million if this operation is going to continue 23 in the short term. And we think that this 24 consensual solution which, in fact, looks to 25 the future and looks to the future in terms of 135 ITEM NO. 17 1 financial stability out not two or three 2 months, but looks out into 2010 already with 3 advances provides a way to within the 4 regulatory framework to assure that the 5 standards of the Act are met and that the 6 operations continue. 7 Thank you. 8 CHAIR KASSEKERT: Thank you. 9 Miss Flaherty? 10 MS. FLAHERTY: Chair and Commissioners, 11 you have our two reports dated July 27th and 12 August 19th. 13 As Mr. O'Gara has stated, this situation 14 has been that Resorts has gone into default on 15 its loan arrangement. And there were 16 proceedings previously in February and March 17 before the Commission with regard to this 18 matter. And the lenders have proceeded with 19 regard to their rights under the agreements. 20 At this point there is an arrangement 21 before you for approval as a result of their 22 ongoing discussions. And from the Division's 23 standpoint, of critical importance are the 24 financial stability reviews that we've been 25 doing on an ongoing basis, and the results of 136 ITEM NO. 17 1 those reviews which shows that Resorts is in 2 some financial difficulty. 3 This is a matter of first impression. 4 It's novel and its unprecedented. It arises 5 from a default situation with financial 6 stability implications. What we're presented 7 with are the same parties that were previously 8 before the Commission in connection with the 9 financing transaction, except for Trimont and 10 RAC, and these are the parties which now have 11 rearranged roles which now have to be 12 considered and decided upon before you. 13 This is a case of persons coming before 14 the Commission for relief but not as an initial 15 matter, as a new project, as a new casino 16 investment, but as a way of dealing with what 17 we see as dramatic events and developments 18 which have affected the casino industry 19 generally in the United States, here in 20 Atlantic City and, for this matter, Resorts in 21 particular. 22 Our position with regard to these 23 matters are strictly limited to the unique 24 circumstances before the Commission. We do not 25 see these as precedential because they arise 137 ITEM NO. 17 1 out of those particular facts. And we see 2 those as a way, as an attempt to deal with, to 3 unwind this very difficult financial situation. 4 The closest analogy I think that can be 5 drawn with regard to Resorts in its current 6 situation is a bankruptcy matter, but we don't 7 have some of the protections that we would have 8 in bankruptcy, but we have tried to be guided 9 by some of the things that we would normally 10 try to do when you're dealing with a bankruptcy 11 situation. 12 The way we see this situation is that 13 the new organization isn't linear the way we 14 usually see a corporate structure brought to 15 us. Its more circular or pie-shaped with 16 Resorts in the middle and these various parties 17 sort of taking pieces or roles with regard to 18 it. And I think that, obviously, in some cases 19 those relationships are intertwining. As I 20 said, most of these parties have been before 21 you and rulings with regard to the original 22 financing and in connection with the renewal 23 but now because of the activation of their 24 roles, we are having to deal with what their 25 status and position will be before the 138 ITEM NO. 17 1 Commission. 2 We have the management group, which is a 3 revised version of the current licensee. We 4 have the newly formed owner, RAC, which is 5 wholly owned as a subsidiary of Wells Fargo, 6 which is a trustee under a trust arrangement or 7 the CMBS security holders as well as Credit 8 Suisse. And through the deed in lieu of 9 foreclosure, they will retain that property. I 10 think that in terms of Credit Suisse, our 11 renewal look at them has to do with their 12 ability to appoint the special service and to 13 possibly exercise some negative authority which 14 can, in any event, be overridden by Trimont. 15 And in that regard, I want to state that we 16 think it's particularly important that they're 17 going to have a passive role. As far as we can 18 see, they're not going to have any officers or 19 directors or people involved in the management 20 or ongoing operation of the casino hotel 21 facility. I think that that related to the 22 original Credit Suisse decision that was made 23 some years ago in the Trump matter, and I think 24 that in both cases the real critical importance 25 was that they were passive and had no control. 139 ITEM NO. 17 1 And I think that that differentiates the matter 2 from other circumstances where, you know, 3 people may try to come into the industry, and 4 they might try to have those authorities or 5 exercise that control. 6 I want to say that for basically the 7 last year, the regulatory agencies have devoted 8 substantial amount of time and resources to 9 these questions, and especially the financial 10 ones with regard to Resorts. And I want to 11 particularly say that the General Counsel, 12 Dianna Fauntleroy, Len DiGiacomo, and Noreen 13 Iannuzzi and Chris Glaum have been very 14 involved in those matters and monitoring the 15 situation closely. As well as Bob Latimer, Sue 16 Scott, Mike Iaconne from our staff. And I 17 think that the importance of the issues is 18 really reflected by the time and energy and 19 concern that the regulators have, you know, 20 brought to the table and to expending time with 21 the parties and, hopefully, you know, trying to 22 resolve these issues. 23 In view of the financial and other 24 matters which are facing Resorts, we would urge 25 a resolution based on the information which 140 ITEM NO. 17 1 will be adduced during the course of this 2 hearing, and we would request the Commission 3 act in accordance with our recommendations and 4 our proposed conditions. 5 Thank you. 6 CHAIR KASSEKERT: Thank you. 7 Mr. O'Gara you can call your first 8 witness. 9 MR. O'GARA: Yeah. Nicholas Ribis. 10 MR. DiGIACOMO: Madame Chair, while Mr. 11 Ribis is approaching the stand, I don't know 12 whether Mr. O'Gara has -- 13 MR. O'GARA: No. I have any more 14 movies, so we can. 15 MR. DiGIACOMO: Did you want to move 16 those in now, Mr. O'Gara? 17 MR. O'GARA: Yeah. I'll move in the 18 slides. 19 MR. DiGIACOMO: Okay. 20 MR. NANCE: Raise your right hand. 21 22 NICHOLAS RIBIS, was duly sworn to 23 testify in this matter. 24 25 MR. NANCE: Please state your name for 141 ITEM NO. 17-Ribis 1 the record. 2 MR. RIBIS: Nicholas L. Ribis, 3 R-i-b-i-s. 4 MR. NANCE: Thank you. 5 CHAIR KASSEKERT: You may proceed. 6 THE WITNESS: Thank you. 7 8 DIRECT EXAMINATION BY MR. O'GARA: 9 Q. Mr. Ribis, what's your position with 10 Resorts International Hotel, Inc? 11 A. I am the Chief Executive Officer, Vice 12 Chairman and Partner in Resorts International Hotel at 13 the present time. 14 Q. Assuming this transaction that we're 15 talking about was approved by the Commission, what 16 would your role be following the approval and 17 consummating the transaction? 18 A. Identical, except that the ownership of 19 RIH will be a hundred percent by me. Colony will exit 20 the transaction. I will control and manage facility 21 under a management agreement which the Commission has 22 marked into evidence. 23 Q. Were you directly involved in the 24 discussions with the lender group and the negotiation 25 of the management agreement and other documents that 142 ITEM NO. 17-Ribis 1 are before the Commission? 2 A. All the documents, yes. Ad nauseam. 3 Q. And under the terms of the management 4 agreement, what's the role and authority that RIH -- 5 and RIH is owned one hundred percent by you; is that 6 correct, Mr. Ribis? 7 A. That is correct. It was previously 8 owned by Colony and myself, but Colony is exiting. So 9 when -- if the transaction is approved and the 10 documents come out of escrow, I will own it, and I 11 will manage the facility. 12 Now, what was your question? I'm sorry. 13 Q. What will your role be with respect to 14 Resorts as opposed to the role of RAC, which is the 15 owner of the building? 16 A. Well, I can talk as -- even though I'm 17 educated as a lawyer and have practiced law, I haven't 18 done it in the last 20 years. I think it's going to 19 take smarter lawyers than me to sort through special 20 agent, trustees, and all the different elements of 21 this. But as I understand it, and as the documents 22 illustrate, RAC is a holding company of assets, 23 essentially with Wells Fargo being the trustee. And 24 Trimont is the designated special agent who will 25 monitor and get information regarding the transaction 143 ITEM NO. 17-Ribis 1 from the manager, which is RIH, which is me. Under 2 the management agreement and under the requirements of 3 the Casino Control Act, the manager has to have 4 complete control of the operations, which include the 5 casino and the employees. And on a day-to-day basis 6 going forward, the manager, which will include the 7 current management team of John Pasqualoni and Frank 8 McCarthy, will continue the operations just as they 9 are today. 10 And, obviously -- and I wanted to point 11 out, I see many of my long-term employees in the 12 audience. I hate to say this. It wasn't staged. 13 They came here, because I guess they were interested 14 to see what was going on with their lives, and that's 15 why I'm sitting here today. Because that's important 16 to me. Continuity of the business. This continues 17 the continuity of the business just as it was before. 18 It's seamless from that standpoint, Paul. 19 Q. Any question under this agreement who 20 has the absolute authority with respect to the conduct 21 of the casino operations in that building if this 22 agreement is consummated? 23 A. I can speak from my side. 24 Q. I think that's the side we'd like to 25 hear from. 144 ITEM NO. 17-Ribis 1 A. There's no question that nobody's 2 directing these operations but me. And if anybody 3 outside RIH attempts to direct me to do something that 4 is inappropriate or beyond the bounds of their 5 license, that's something that I'm not going to do, 6 and I'm going to report it to the Division and the 7 Commission. But I don't think that' going to happen. 8 But I clearly understand that. 9 Q. And pursuant to this, there's an 10 operating plan and a budget, Mr. Ribis. Were you 11 involved and your staff in the preparation of those? 12 A. Sure. Oh, sure. 13 Q. And, in fact, are you satisfied that 14 they give you -- that budget has financial flexibility 15 so that Resorts maintains liquidity and can conduct 16 operations going on into the future? 17 A. Resorts in the economic conditions of 18 the world, especially of the world in Atlantic City, 19 in my estimation, has performed well. Not good enough 20 to pay a $360 million mortgage, but well. It has 21 performed over the summer in a positive cash 22 situation, and under its current situation would not 23 need to draw down on any of the money that you talked 24 about until November, and then about $5 million. And 25 the rest of the draw-down would be sometime in the 145 ITEM NO. 17-Ribis 1 first quarter. As we anticipate. And those budgets 2 and operational budgets have been reviewed and gone 3 over by, not only my management team, and we have 4 supplied them and discussed them with the Trimont 5 people. 6 Q. And you're aware there's arising out of 7 the last proceedings that involve the lenders and 8 Resorts, there's a financial stability condition 9 regarding $15 million in available cash. Does this 10 transaction assure that you can meet that standard on 11 an ongoing basis? 12 A. Yes. Under the conditions I just 13 described. Yes. 14 Q. And -- and are you aware of what the 15 source and how -- what money is available to assure 16 you have that? 17 A. Well, I understand that there's a 18 document which is -- which I have read -- which talks 19 about $8 million. And I was supplemental to that. I 20 was spoken to by my counsel before the hearing, and I 21 understand that there was a commitment of a total of 22 $15 million, if necessary, when called by the 23 property. 24 Now, is that correct? I mean -- 25 Q. There's -- I think there's $8 million, 146 ITEM NO. 17-Ribis 1 and you'll always meet the $15 million condition. 2 A. Okay. 3 Q. Mr. Ribis, what's the term of your 4 agreement with RIH, you the manager, the owner of the 5 company and RAC, the owner of the building? 6 A. Well, the term is shorter. Its short 7 term, but really long term in concept. Without 8 specifically going into it, there is a long notice 9 period. We did it short term because, A, they don't 10 know if they're going to like me in the operations, 11 and I don't know if I'm going to like them. We like 12 each other, but it's a new relationship. It's one 13 that's started because of a distress situation. We've 14 gotten to know each other, and I think we have built 15 up mutual respect. I think the importance to the 16 management agreement without dealing with statutory 17 language or requirements is that it keeps in place 18 what we have on a -- on a relatively long-term basis 19 without -- without the need to disrupt the operations 20 of the property. That's why I did it. 21 Q. And does it automatically renew, this? 22 A. It automatically renews. And that's why 23 we did it that way. And nobody that discussed it with 24 me, from Mr. Yankauer to Mr. Hoelzle or the lawyers, 25 has any other view of it. We're not looking to start 147 ITEM NO. 17-Ribis 1 something and stop it. It costs us all. It costs 2 them money, and it would cause disruption in the 3 operation. In other words, there's a penalty to them 4 if they want to terminate it in six months or a year. 5 Q. And what kind of interaction do you 6 expect you're going to have with the people who will 7 own your building with respect to operating your 8 casino? 9 A. Well, as I do with my current partner, 10 they would be fully advised as to everything that goes 11 on. They have the budgets. We're going to be looking 12 at the numbers versus the budget. We're going to be 13 talking about the operations. They're not going to 14 direct me to do anything, but I've been dealing with 15 Peter and Kate from Trimont now for -- it's been a 16 long time, for, you know -- for eight months. I think 17 we know each other pretty well. And they're going to 18 have ideas answer, and I'm going to consider their 19 ideas. And I suspect many of their ideas I may want 20 to implement. And we've done that to date. And I 21 think as an advisor and someone that has information 22 and a staff back in Atlanta, why not use their brain 23 if it can help us doing what we do. 24 Q. Well, with respect to how that 25 building's operated, where's the decision-making 148 ITEM NO. 17-Ribis 1 authority vested? 2 A. Right here. There's no question about 3 that in my mind. 4 Q. Let me ask you one final question, Mr. 5 Ribis, which is a difficult one. But if there hadn't 6 been a consensual transaction -- 7 A. That's when you and I weren't talking. 8 Q. Yes. 9 (Laughter.) 10 Q. You'll recall that period, I guess. 11 If there hadn't been -- do you 12 anticipate there would have been a foreclosure 13 complaint by your secured lenders? 14 A. Well, I can't talk about what the 15 lenders would do, although they indicated they would 16 do that. I can talk about what's going on in this 17 industry. And I view this transaction from my 18 standpoint to be novel in that we avoided the 19 complexity of a conservator, the cost of a 20 conservator, the overlaid cost of a bankruptcy, and a 21 disruption of operations because none of these casinos 22 in this town -- and I do resent retiring executives' 23 comments in the Atlantic City Press about my 24 properties. There are eight properties in this town 25 all going through the same thing. I think what we can 149 ITEM NO. 17-Ribis 1 do here is see the glass as half full. What you have 2 here is a transaction which is beneficial to those 3 people sitting out there because they all keep their 4 jobs, and they are able to take care of their 5 families. It's beneficial to the State of New Jersey 6 by the millions and millions of taxes that we pay 7 every year. It's beneficial to this Casino Control 8 Commission because we don't have to deal with 9 conservators and bankruptcies and trustees and all the 10 things I wanted to avoid when I sat here and testified 11 months ago. And I think we've avoided that. I think 12 that it's a non-judicial resolution amongst adults 13 with one of the owners staying with the property who 14 managed it in a situation that could have been very 15 difficult and very destructive both to the lender, to 16 the State of New Jersey, to the Commission, and to the 17 owners. 18 Q. And is it your personal view that a 19 foreclosure and all that came with it would have been 20 disruptive to the property? 21 A. You said it. I mean, even a consensual 22 foreclosure in this state takes six months. And six 23 months, who knows? Without that $5 million in 24 November, who knows where we'd be. We have 25 requirements under the Casino Control Act for cash, 150 ITEM NO. 17-Ribis 1 and you need money to operate. And unless this 2 economy changes quickly, we're not going to be the 3 last party to be sitting in this chair. 4 MR. O'GARA: I don't have any additional 5 questions. 6 CHAIR KASSEKERT: Cross-examination? 7 MS. FLAHERTY: Yes, Chair. Thank you. 8 9 CROSS-EXAMINATION BY MS. FLAHERTY: 10 Q. Good afternoon, Mr. Ribis. 11 A. Hi, Mary Jo. 12 Q. I want to go back to basically how this 13 situation started. And if you could describe for us 14 Resorts and why it decided to stop its loan payments 15 last November? What was the situation you were 16 facing? 17 A. Well, going back to when we did the 18 transaction originally, obviously, things were going 19 great in the economy. Colony and its investors wanted 20 to -- had an old investment and wanted to be able to 21 take some money and repay their investors, which they 22 were able to do, and the property looked like it was 23 rolling along and doing well. And then the world 24 stopped. And really starting in July, prior to 25 November, over a year ago, we started to talk to the 151 ITEM NO. 17-Ribis 1 lenders, different parties that are sitting in this 2 room, but we started to talk to lenders about what we 3 could do here. And, to be honest with you, the 4 lenders basically said we don't know. I mean, this is 5 a CMBS loan. It's got trustees, special man -- it was 6 very confused. Things continued to deteriorate. And 7 we made a decision that in order to survive, if we 8 stopped paying the interest on the mortgage, we would 9 be able to survive. If some other things happened 10 during the course of the past ten months, and they 11 did, and we're here. And our cash position is not 12 bad, and we've survived. So our judgment in doing 13 that, I think, was good judgment. I'm sorry it wasn't 14 done six months earlier, and we would have preserved 15 some more cash that way. 16 Q. Now, most other casinos would have filed 17 for bankruptcy under this situation. 18 A. Uh-huh. 19 Q. And I know I've been involved in a lot 20 of discussions where that topic's been discussed, and 21 there have been explanations made, but could you put 22 on the record why there is no bankruptcy in this 23 situation? 24 A. I can speak for myself as a Chief 25 Executive. I've been through bankruptcies as a 152 ITEM NO. 17-Ribis 1 lawyer. I've been through bankruptcies as a chief 2 executive of another casino company in town in the 3 '90s. Three of them. They are expensive, disruptive, 4 and it never seems to progress -- progress the 5 business. The businesses in this industry, once they 6 go into a bankruptcy, always seem to be in decline and 7 always seem to be back in bankruptcy within three -- 8 three to four years later. In other words, the 9 bankruptcies don't cleanse the problem. 10 So I -- I personally was against ever 11 filing a bankruptcy unless we absolutely had to. And, 12 thank goodness we have parties on the other side, 13 smart lawyers from Skadden, smart executives who, 14 after disliking me because I didn't make the payment, 15 got to understand the situation, and we were able to 16 come forward with a proposal that made some sense. 17 But it took some time for people to work through that. 18 Q. Now, with regard to a bankruptcy filing, 19 are you aware that any parties involved may result of 20 that have liabilities that would come to them that 21 they would have to pay back money? 22 A. They -- not mandatorily. Colony had 23 signed -- and you've read about it in the paper. And 24 all the CMBS loans have what they call a "bad boy" 25 clause, so if they did certain things, there was a 153 ITEM NO. 17-Ribis 1 possibility that there would be a small portion of the 2 loan, which Colony IV -- that was my partner -- would 3 have to -- would have to repay to the bank. Yes. 4 Q. Now, with regard to Colony, and I'm 5 going to direct, I guess, attention to Exhibit -- 6 Joint Exhibit No. 5, and I don't know if you want to 7 see a copy of that, Mr. Ribis, but it's reaffirmation 8 agreement that has to do with indemnity and leases. 9 MR. BROOKS: Here. 10 Q. And I'm not going to go through line by 11 line or ask you specific questions, but my review of 12 this shows that as a result of that agreement Colony 13 will be released with regard to this transaction, 14 although they'll have certain ongoing guaranties at 15 least until the time of the closing and certain 16 indemnification requirements. Can you discuss this 17 agreement, how it came about, and Colony's exit from 18 the transaction? 19 A. I can't discuss the agreement because 20 I'm not sure I understand it. I've read it. I 21 understand that it's a plus and a minus. It lets them 22 off some guaranties and gets them on some other 23 guaranties and indemnifications. It was a document 24 that was heavily negotiated between Colony's lawyers 25 and lawyers for the banks. And it was, A, required by 154 ITEM NO. 17-Ribis 1 the bank, and A -- and, B, required by Colony, and it 2 was -- there was mutuality on both sides. The banks 3 wanted some guaranties and indemnifications going 4 forward, and the Colony wanted to be released from the 5 bad-boy guaranty under the loan. 6 Q. And are you familiar with Colony's 7 decision in regard? Can you speak to that? 8 A. In what way? 9 Q. In the sense of how they decided to exit 10 from Atlantic City. If that was the alternative that 11 they choose. 12 A. I think I can't speak to that. I think 13 it was strictly a business decision. It was an old 14 investment in a fund that had closed out all of the 15 other investments they had in Colony IV, and they 16 decided not to proceed further with this investment. 17 Q. Okay. 18 A. They didn't consult me on it. 19 Q. Now, since the time when the loan went 20 into default last November, can you set forth for the 21 record the steps that you took to deal with Resorts' 22 financial issues to try to continue the operation in 23 the face of some of the problems that -- 24 A. Well, I -- 25 Q. -- existed? 155 ITEM NO. 17-Ribis 1 A. Just before we stopped paying the 2 interest, we changed management because we weren't 3 satisfied with the direction of the management in the 4 property. We brought Mr. Pasqualoni on initially as 5 consultant, and then he took over the operations. We 6 streamlined the operations, like every other casino in 7 Atlantic City. Cost savings. We completed a tax 8 appeal in the first quarter with the City of Atlantic 9 City, which was pending for a number of years. We 10 tried to get our cost basis down to the lowest 11 possible levels, and we interacted substantially with 12 Mr. McCarthy, our Chief Financial Officer, my Chief 13 Financial Officer, Eric Matejevich, and Mr. Pasqualoni 14 on how to do that. 15 Q. Now, Mr. O'Gara has asked you if you see 16 your role continuing in terms of running Resorts. And 17 my question is, do you see your role changing in any 18 respect as a result of any of these agreements? 19 A. No. That was one of the things that is 20 important to me. If I viewed this strictly as a 21 financial investment, I could have exited and gone 22 home. Just put it behind me. Focused on other 23 things. I have plenty to do around the country. But 24 I love Atlantic City, and I love Resorts, and I care 25 about the people that work there. So it was important 156 ITEM NO. 17-Ribis 1 for me to see continuity. Because this is a property 2 that started my casino dealings. It was the first 3 property. It's a property that I've known since I've 4 represented Resorts when it first got its license on 5 very some tangential matters. Something that I didn't 6 intend to walk away from, and I was going to do 7 everything I could -- not to stay involved, but to be 8 sure there was continuity for the people that worked 9 there. 10 And many of these people have worked 11 there for more than 15 years. People sitting in the 12 audience today that I see, and who -- a lot of people 13 that work at the property. So that was my motivation 14 from the beginning. And, trust me, advisors, lawyers, 15 friends, bankers all said, maybe it's time to go. 16 Maybe it's time to put it behind you. I said no. I 17 still believe in Atlantic City. And the worst hadn't 18 come yet, and I still believe in being Atlantic City, 19 and I'm not a Pollyanna-ish about this. Atlantic City 20 is going through what Las Vegas is going through to a 21 much greater extent because we don't have ongoing 22 conventions, and we don't have all the amenities in 23 place. But Atlantic City is a great business 24 environment, and if we get through this recession, 25 which is really a depression, the second depression 157 ITEM NO. 17-Ribis 1 since the '30s -- first depression since the '30s -- 2 we'll be able to recover, and everybody will be able 3 to come through this in some satisfactory manner. And 4 that's what I hope my continuation as the manager and 5 owner of the operating company and chief executive. 6 And I hope that not only for the property but for the 7 owner of the assets, the banks, so that they can 8 recoup some of their investment in the loan that they 9 made in the -- on the property. 10 Q. All right. Now, Section 4.02 of Exhibit 11 No. 2, which is the management agreement, that's Page 12 7. 13 A. What is it? 14 MR. O'GARA: Tab 2. 15 THE WITNESS: Two. 16 A. Okay. I got it. 17 Q. On Page 7. 18 A. Go ahead. 19 Q. That talks about your complete 20 management of the casino business and -- 21 A. Section 4.02, Mary Jo? 22 Q. Yes. Page 7. 23 A. Okay. Oh. Page 7?. 24 Q. Yes. 25 A. Okay. 158 ITEM NO. 17-Ribis 1 Q. And I'd like to direct your attention to 2 Section 4.02 there. And that talks about the 3 manager's complete management of the casino business 4 and the sole and unrestricted power to direct the 5 casino operations, which is pretty much the language 6 that's in Section 8 related to the management 7 agreement. 8 A. Uh-hum. 9 Q. Is that what you're taking your 10 authority from, that you will continue to be solely in 11 charge of the facility? 12 A. Yes. I'm taking it from the management 13 agreement. Yes. 14 Q. In that provision. And -- 15 A. The entire -- that provision 16 specifically you refer to, yes. 17 Q. Uh-hum. 18 A. But the entire document. 19 Q. Now, above that on that same page is the 20 term -- and I know that Mr. O'Gara had some questions 21 with regard to that. As the manager, do you feel that 22 you will have enough continuity in terms of your role 23 as a result of the six-month term with the extension 24 that's provided? 25 A. You know, you could make it ten years, 159 ITEM NO. 17-Ribis 1 and it could end in 60 days. You could make it five 2 years, and it can end in a month. It wasn't -- it 3 wasn't something that I focused on because I wasn't 4 trying to -- this wasn't -- this wasn't about money. 5 It was about -- it was about continuing the 6 operations. So the shortness of it was something that 7 was negotiated through the lawyers, and I really -- I 8 have no -- I don't want to -- I can't -- I don't want 9 to have to reconcile that with the language of the Act 10 because I don't think that's something that I should 11 do. I think it's a lawyer's job to do that. But I'm 12 satisfied with it. You know, it's -- I understand 13 your question, but it's what we agreed to. 14 Q. Okay. I have a series of financial 15 questions now, and some of these are going to be both 16 under the current circumstance and if the arrangement 17 is approved by the Commission. And the first one has 18 to do with Resorts and the $15 million cash reserve 19 condition that's in place. 20 A. Uh-hum. 21 Q. And is it correct that Resorts hasn't 22 been able to meet that requirement for the last 23 several months? 24 A. It's -- it has not. And it's been 25 relatively, plus and minus, 13 million. So we haven't 160 ITEM NO. 17-Ribis 1 met it. But on an ongoing basis, there hasn't been a 2 deterioration of cash, in fact, you'll see some 3 positive cash movement, you know, from July and August 4 results of the property. But, yes, you're correct. 5 Q. Now, with the $8 million infusion, and 6 based on the further discussions that were held today, 7 that will be available to Resorts on an as-needed 8 basis, will you be able to meet that requirement going 9 forward if the deal is approved? 10 A. Yes. We've done it by, through -- 11 through 2'10, and you -- we've supplied that 12 information to the Division, Mr. Glaum, and the 13 Division financial people. And the answer is, yes, we 14 believe that, as you've seen it on the spreadsheets, 15 it works for us in that. And we've done the 16 sensitivity of five and ten percent decline in 17 business, and it still works for us. 18 Q. Now, without the infusion of those 19 funds, is Resorts' 2009 EBITDA forecasted to be 20 roughly $.2 million? 21 A. Yes. 22 Q. And does EBITDA approximate gross 23 operating profit? 24 A. Yes. 25 Q. And will Resorts be able to demonstrate 161 ITEM NO. 17-Ribis 1 the ability to achieve positive gross operating profit 2 on an annual basis which is required by regulation 3 without this infusion? Or will it be very tight? 4 A. It will be tight. 5 Q. Now, with and without the 8 million, how 6 would Resorts be able to satisfy the Capex 7 requirements under the regulations? How would you 8 view -- 9 A. We'd have to come in for relief. If 10 this transaction wasn't done, and there was a 11 foreclosure started, or if nothing was done, and we 12 rolled forward, unless there was an increase in 13 business in Atlantic City -- which I don't think 14 anybody can foresee in the immediate future, although 15 business has leveled out somewhat -- the slide which 16 started about this time last year for seven months 17 thereafter was a straight slide down if you look at 18 all the numbers. We're not a public company. We're a 19 private company. But public entities have the ability 20 to push off expenses to the fourth quarter. We take 21 them as they occur. So we have reality, in our 22 numbers. And I'm not criticizing public companies. 23 You know, I used to run one. But that's what happens 24 when you have fifty properties or twenty properties, 25 you can you could put some of your expenses towards 162 ITEM NO. 17-Ribis 1 the end of year rather than spread them. So our 2 expenses are spread daily and weekly and monthly. So 3 unless there's a major positive change, we -- we're 4 not -- what you have as the estimates of what we 5 really believe the property is going to do. 6 I really believe that the property, if 7 you read the management agreement, and you look at 8 where I make money, real money, in my mind, is when 9 the EBITDA gets above $10 million. So I can assure 10 you that I believe in that, or I wouldn't have signed 11 the agreement. 12 Q. All right. Now, I just want to note, 13 too, that EBITDA number that's forecasted that .2 14 million, that does not include reorganization costs of 15 1.6 million that are estimated for 2009, either; 16 correct? 17 A. I -- 18 THE WITNESS: Frank? 19 MR. McCARTHY: Correct. 20 A. That's correct. 21 (Laughter.) 22 A. That's something I had to ask my 23 financial guy. I wasn't sure. That's all these 24 lawyers that we have to pay. 25 (Laughter.) 163 ITEM NO. 17-Ribis 1 Q. So that would further affect your 2 financial situation that that -- 3 A. Yeah. 4 Q. -- further obligation is out there? 5 A. Sure. 6 Q. That's not in EBITDA? 7 A. Yeah. But if we didn't do this 8 transaction, I can assure you that the lawyers would 9 have to wait to get paid. 10 Q. Okay. Now, during the course of the 11 year -- and I'll just refer to submissions that we 12 received in February, the EBITDA forecast was 17.6 13 million, and the more recent forecast for this month 14 was .2 million. Obviously, they declined 15 significantly. So I'd like to you address at this 16 point in time with the numbers that we have, how 17 reliable are they? 18 A. They're only reliable as the economy is 19 reliable. If the numbers that -- Frank -- I think 20 Frank MCarthy is the finest financial guy in this 21 town. He's worked for me three different places. And 22 all he can do is estimate what he sees in the 23 marketplace. Nobody in January could have estimated 24 what we saw in January, February and March, April, 25 May. I mean, there was nobody making any money. And 164 ITEM NO. 17-Ribis 1 you have all the numbers of all the casinos, so you 2 know better than I. And that's why it was 17 million, 3 and it ended up to be where it is. It has nothing to 4 do with the operations. The business just wasn't 5 there. 6 Q. But at this point in time with the 7 forecasts that you have, in light of the information 8 and where the economy is and where the market is, do 9 you feel that you really have a better grasp on the 10 financial situation, the forecasting than you might 11 have, you know, six -- 12 A. We think so. 13 Q. -- a year ago? 14 A. We -- obviously, we think we understand 15 what happened in the national economy and the severe 16 recession we're in. And I think we have a handle on 17 the type of the levels of business that are coming 18 into Atlantic City and that are allocated to our 19 property. So we feel comfortable, and we've tortured 20 over the numbers, and we feel comfortable that this is 21 more realistic in the world we live in today. 22 Q. Okay. Now, I'd like you to look at 23 Exhibit 1, Page 12, Paragraph D? 24 A. Exhibit 1. Okay. 25 Q. Page 12. 165 ITEM NO. 17-Ribis 1 A. Okay. 2 Q. Paragraph D. 3 A. Uh-hum. 4 Q. The last sentence of that paragraph 5 says: The borrower parties make no representation as 6 to the solvency or maintenance of adequate capital in 7 normal obligations of outcome, which is a operations 8 of a casino and after the date thereof, which is 9 pretty much a representation you're making, that the 10 casino might not have sufficient funds to continue to 11 operate. 12 A. Yeah. But I'm not the borrowing party. 13 That's not me. 14 Q. Right. But -- 15 A. Okay. 16 Q. But the borrower party, you know -- or 17 the actual casino and the related affiliated entities? 18 A. Uh-hum. 19 Q. And so as of the time of the agreement, 20 you're not really vouching for the financial stability 21 of the operation. So in light of Resorts -- 22 A. Well, that's not true. I didn't make 23 that representation. The borrowing -- 24 Q. Okay. 25 A. -- borrowing party is not me. That's 166 ITEM NO. 17-Ribis 1 not me. I wasn't part of a company, and that's an 2 entity that's being released from this transaction as 3 the borrowing party. So don't -- I can't talk about 4 what the borrowing party did and what I'm doing here 5 today. 6 Q. Okay. But the borrowing parties are 7 basically all the Resorts entities. And the question 8 I have for you is, in light of Resorts' cash position 9 and cash flow as it stands at this point, does it have 10 the ability without the support under the loan 11 agreement and pooling and servicing agreement which 12 we've talked about, the $8 million, to address its 13 financial obligation on an ongoing basis? 14 A. That's why we're here today, because it 15 didn't, and it wasn't going to, and come November, we 16 needed a cash infusion of $5 million. I mean, and 17 that's what we needed, and an additional cash infusion 18 of 3 million in February, whatever the date is. So 19 the answer is -- I think it's obvious that we're 20 sitting here today, and we wouldn't be if we had that 21 ability. 22 Q. Okay. Now, on the same exhibit, Exhibit 23 1, Page 4, Paragraph E3? 24 A. Should have had Yankauer go up first. 25 (Laughter.) 167 ITEM NO. 17-Ribis 1 Q. I have some more questions for him, too. 2 This is one of my last. 3 A. He conned me on this one, I can tell you 4 that. 5 (Laughter.) 6 A. What was the page? 7 Q. Page 4. 8 If I have the right spot. Let me just 9 ask you the question. 10 A. Okay. 11 Q. It has to do with certain approvals of 12 employee terms and benefits -- well, I guess on a 13 general basis by the lenders. And how do you see 14 those in terms of your management of the facility? Is 15 this a general sign-off or how -- what's the interplay 16 between you and them and employees? 17 A. I'm sorry. I'm not sure, Mary Jo. I'm 18 not following. 19 Q. Let's see. I don't know if I have the 20 right page. But let's see here. 21 A. I can tell you that if you're asking me 22 whether they're going to come in and hire and fire, 23 then the answer is, my understanding is, from my role 24 the answer is, no, they don't have that authority. 25 Q. Okay. That basically all the employees 168 ITEM NO. 17-Ribis 1 are going to be your control and authority, and you're 2 going to make decisions with regard to them? 3 A. Yes. They all work for RIH, the company 4 which I own and control. 5 Q. Then the last question I have is, I 6 believe it's Schedule 3 to Exhibit 1 is the ERISA 7 requirements, and there are various representations in 8 there. And one is that the borrowers have fully 9 funded all their obligations to the employees. And in 10 terms of that, it's your plan, it's your process here 11 to run Resorts so it will continue to meet all its 12 obligations, including paying employees and all its 13 obligations under the Casino Control Act and to the 14 taxing authorities and to do all those things that a 15 casino is supposed to do. 16 A. Yes. 17 Q. That's all I have. Thank you. 18 CHAIR KASSEKERT: Okay. 19 Mr. Ribis, with respect to the 20 management agreement, Article 5 deals with 21 fiscal matters and deals with the approval of a 22 budget. What is your understanding of the 23 budget process that you're going to have with 24 the -- with Trimont and with the companies 25 above it? 169 ITEM NO. 17-Ribis 1 THE WITNESS: Well, what we'll do -- 2 what we did on this budget -- I can tell you 3 the process, Madame Chair. We -- we at the 4 property, John and Frank and their people, 5 prepared a draft budget which John and I and 6 Frank talked about, which we felt comfortable 7 with, which we put all the detail in, and that 8 was sent over to Trimont. And then there was 9 discussion between Trimont, questions that they 10 had as to Capex and other -- other things. And 11 there were discussions, and at all times John 12 and Frank -- mainly Frank in his department as 13 a financial matter -- coordinated with me as to 14 what we would do. But, essentially, it's our 15 budget, and they consult -- we sent it to them 16 for a review. And when we disagree with them 17 we didn't -- we didn't capitulate. We 18 explained it to them to try to make them 19 understand how we came to that conclusion. 20 CHAIR KASSEKERT: But my understanding 21 is from this contract that this management 22 agreement that they have to approve the budget? 23 THE WITNESS: That's correct. 24 CHAIR KASSEKERT: Now, this budget 25 process went easy. They agreed with you. 170 ITEM NO. 17-Ribis 1 What's going to happen if they don't agree with 2 you? 3 THE WITNESS: There's no process, I 4 don't think, to resolve -- I think we continue 5 on with the budget that we -- that we've 6 implemented prior. 7 CHAIR KASSEKERT: But if the budget 8 requires the approval of the owner, and they 9 don't approve it? What happens? 10 THE WITNESS: We have a problem. 11 CHAIR KASSEKERT: Is it your 12 understanding from the agreement that you have 13 any control whatsoever with respect to the 14 budget? 15 THE WITNESS: We prepare the budget. We 16 submit the budget, and they -- they approve the 17 budget going forward on an annual basis. It 18 would seem to me that if they didn't agree to a 19 budget that -- that we'd have to come before 20 the Commission and say to the Commission, we 21 have a problem because we have to prepare a 22 budget for the regulators at the same time, 23 that that budget is submitted to both the 24 Commission. 25 CHAIR KASSEKERT: Is it the case that if 171 ITEM NO. 17-Ribis 1 you don't have approval of the budget, it 2 doesn't matter if you can't -- if you have 3 authority to carry out gaming operations -- 4 THE WITNESS: Correct. 5 CHAIR KASSEKERT: -- and control the 6 gaming floor if the budget's not approved, how 7 do you do that? How do you pay employees? 8 THE WITNESS: Is there a provision in 9 there? I don't think. 10 Is there, Steve? 11 MR. YANKAUER: If you look at last 12 year's budget. 13 THE WITNESS: What? 14 MR. YANKAUER: You look at the last 15 year's budget. 16 THE WITNESS: Oh, you look at last 17 year's budget as well. We would work off the 18 prior budget until there's a resolution of the 19 existing, the new budget. 20 CHAIR KASSEKERT: Now, you testified and 21 had a little discussion about the $8 million 22 infusion. What if that's not enough? What if 23 things continue to deteriorate in Atlantic 24 City? 25 THE WITNESS: I think -- did you have a 172 ITEM NO. 17-Ribis 1 discussion with the Division about that before 2 the -- before the hearing? 3 Did I hear that, Paul? 4 MR. O'GARA: Certainly. Yeah. And to 5 the degree that specifically Mr. Yankauer can 6 address those procedures. 7 CHAIR KASSEKERT: Okay. 8 MR. O'GARA: But Mr. Ribis generally is 9 correct with respect to there are -- it's the 10 pooling and servicing -- there are additional 11 funds. We'll certainly address that through 12 Steve. 13 CHAIR KASSEKERT: Okay. All right. 14 Let ask me, Commissioner Epps? 15 Questions? 16 VICE CHAIR EPPS: I'll start with the $8 17 million. And if it's not for Mr. Ribis, I'll 18 hold it later or whatever. But how do we 19 get -- do you get to $8 million? I think you 20 just did it in your testimony a little bit. 21 Can you give it to me again? How did you get 22 to $8 million? 23 THE WITNESS: When with did the budget, 24 we look at the $15 million requirement that we 25 have from the Casino Control Commission of a 173 ITEM NO. 17-Ribis 1 cash balance, and we look at our -- we look at 2 our cash going forward, and we determined that 3 in November we would need $5 million cash 4 infusion when you take into account all the 5 various costs of the -- of the transaction and 6 the current operations. And then we rolled 7 forward to February where we needed an 8 approximately another -- I think it was $2.6 9 million. That's how we came up with the 10 number. 11 VICE CHAIR EPPS: Now, in this budget, 12 this takes into effect certain cash outlays 13 that Resorts will encount -- encounter in the 14 winter, late fall and early winter? 15 THE WITNESS: Yes, sir. 16 VICE CHAIR EPPS: And is capital 17 expenditures also figured into that $8 million, 18 your capital expenditure needs? 19 THE WITNESS: Our normal Capex budget is 20 required under the Casino Control Commission 21 requirements, and that's included as part of 22 the budget. 23 Right, Frank? Where are you? 24 CHAIR KASSEKERT: We might need Mr. 25 McCarthy to testify. 174 ITEM NO. 17-Ribis 1 THE WITNESS: We may need him. 2 MS. FRANK: The budget -- the budget -- 3 VICE CHAIR EPPS: No. He can't testify 4 from there. 5 CHAIR KASSEKERT: No. He can't. You 6 can't testify from there. 7 MS. FAUNTLEROY: People have to be 8 sworn. You can't testify from the back of the 9 room. 10 MR. O'GARA: Clearly. Additionally, I 11 beg your indulgence. There are certain things, 12 again, that Mr. Yankauer will address, too. 13 And, again, I didn't -- you know, Mr. Ribis, 14 obviously, from RIH knows as the CEO, but 15 certain things he would go to his CFO for. 16 Whereas we would go through those with Mr. 17 Yankauer, but again, sorry. 18 CHAIR KASSEKERT: Okay. 19 THE WITNESS: Okay. 20 VICE CHAIR EPPS: I'll move on. 21 Is there a termination clause in the 22 agreement? 23 THE WITNESS: Management agreement, yes. 24 VICE CHAIR EPPS: The management 25 agreement. 175 ITEM NO. 17-Ribis 1 THE WITNESS: Yes. 2 VICE CHAIR EPPS: And do you know 3 roughly how that works? 4 THE WITNESS: They give me 60 days 5 notice after the initial period, and the 6 agreement will terminate. 7 VICE CHAIR EPPS: So they could actually 8 say, you know what? It's not -- and your words 9 were, if you don't like them or you don't like 10 you, they can shut it down in 60 days, short of 11 that six-months' term. 12 THE WITNESS: No. Six months is -- no. 13 The initial term is six months, but they can 14 give notice during that period of time. 15 VICE CHAIR EPPS: During that six 16 months, they could give you 60-days notice and 17 say -- 18 THE WITNESS: Correct. Or Tomorrow 19 morning, yes. They could. 20 VICE CHAIR EPPS: And that would leave 21 us with -- what would that leave us with? 22 THE WITNESS: I guess somebody new would 23 come in and take it over. 24 VICE CHAIR EPPS: Okay. And the short 25 term, when you said it was a short term, but it 176 ITEM NO. 17-Ribis 1 could be a long term, the short term you were 2 referring to was six months? 3 THE WITNESS: Correct. 4 VICE CHAIR EPPS: And then you also gave 5 some testimony as to -- I think it was 6 Trimont's input. You said they would have some 7 ideas, and they would give you -- is Trimont a 8 casino company? 9 THE WITNESS: No. No. No. They're 10 just a -- they're -- they manage assets in 11 distressed situations like this, and they're 12 the special agent which was appointed by -- by 13 the trustee, I think, or by Credit Suisse, I 14 guess, to manage this particular asset under 15 these circumstances. 16 VICE CHAIR EPPS: So they're not going 17 to give you casino operation ideas because -- 18 or is that -- that's not what you were 19 referring to? 20 THE WITNESS: No. 21 VICE CHAIR EPPS: What type of ideas -- 22 THE WITNESS: I'm talking about cost. 23 They do a lot in the hotel business, cost, 24 advertising, marketing, any areas like that. 25 VICE CHAIR EPPS: Okay. There was some 177 ITEM NO. 17-Ribis 1 testimony about gross operating profits and how 2 things have gone, and you had indicated that 3 Resorts was -- had some positive results. For 4 what period of time was that? 5 THE WITNESS: July and August. 6 VICE CHAIR EPPS: Oh, you're speaking of 7 July and August. 8 THE WITNESS: Yes. 9 VICE CHAIR EPPS: Okay. But for the 10 first six months the year, not so good? 11 THE WITNESS: No. Like everybody else 12 in town, it was a bad period of time. 13 VICE CHAIR EPPS: And even in 2008, the 14 GOP numbers were down -- 15 THE WITNESS: The fourth quarter was 16 disastrous. Yes. 17 VICE CHAIR EPPS: Okay. My question is, 18 if I read the reports correctly, even if we use 19 the 12 months ending December of '08, Resorts 20 was way off GOP, and that's to be expected 21 because the economy was off. But Resorts was 22 30 points or so off its nearest competitor. 23 How do we -- how are you going to close that 24 gap as we go forward in a distressed situation? 25 THE WITNESS: That's why we changed 178 ITEM NO. 17-Ribis 1 management. I mean, the management missed the 2 mark. They didn't reduce costs. They missed 3 the marketplace that was changing fast, and 4 that's why John was -- you know, came in last 5 fall, early last fall to take over the 6 operations. 7 VICE CHAIR EPPS: Okay. 8 THE WITNESS: And -- 9 VICE CHAIR EPPS: And you told us that 10 when you were here before that you would change 11 management? 12 THE WITNESS: That's correct. 13 VICE CHAIR EPPS: And you had a new -- 14 you were going to address marketing schemes and 15 things like that. But how -- how has that -- 16 is this the July and August turnaround, is that 17 beginning to materialized in that turnaround? 18 Or just the summer months in Atlantic City is 19 when you do better? 20 THE WITNESS: Commissioner Epps, I think 21 that it was because of a slight improvement in 22 the marketplace. It was the summertime in 23 Atlantic City. And we understood the level of 24 the problem at the property, reduced our costs 25 going forward so that we could get to a break- 179 ITEM NO. 17-Ribis 1 even going forward and normalize business 2 environment. And we've layered on some new, 3 more focused marketing efforts. But, in my 4 humble estimation, it's a holding action until 5 this economy changes. There's nothing -- 6 there's nothing dramatic happening with regard 7 to Resorts or any other property that's going 8 to -- that's going to see it change overnight. 9 VICE CHAIR EPPS: I guess that's my 10 question. Is holding action enough when you 11 seem to be at a point where you need to 12 actually turn the corner? Is it -- can you 13 hold -- is it enough to just be in a holding 14 pattern? Don't you have to somehow move -- 15 make progress? 16 THE WITNESS: Well, that's why this cash 17 infusion helps. Because when you are hand to 18 mouth, hand to mouth, hand to mouth, this total 19 cash infusion, which Mr. Yankauer, which is up 20 to $15 million, will enable us to be a little 21 bit more flexible in what we do going forward. 22 VICE CHAIR EPPS: Okay. Well, then let 23 me ask this hypothetical. If the fall and 24 winter months in Atlantic City are particularly 25 down, at least for Resorts, and you're not 180 ITEM NO. 17-Ribis 1 competitive in the marketplace, is that -- and 2 that $5 million in November is not enough 3 because your projections fall short, is there 4 someplace that you can go for more help before 5 that February $3 million comes? I mean, is 6 that available to you? 7 THE WITNESS: Yes. The money's already 8 set aside in an account by KeyBank as described 9 by Mr. O'Gara. All we have to do is request 10 it, and they ship it down to us. They made 11 that commitment already. 12 VICE CHAIR EPPS: So if in November you 13 have to pull down the full 8 if -- 14 THE WITNESS: We will. 15 VICE CHAIR EPPS: -- it's available to 16 you? 17 THE WITNESS: Yeah. 18 VICE CHAIR EPPS: And now in February 19 you still need the 3 -- 20 THE WITNESS: We draw against the rest. 21 They'll have to replace -- you know, the 22 agreement was to go up to 15 million, so we'll 23 have to replace that, you know, that money, 24 however it's done in that KeyBank account. 25 VICE CHAIR EPPS: So there's a 181 ITEM NO. 17-Ribis 1 commitment that we can look to for more than $8 2 million? 3 THE WITNESS: Yes. I think so. I don't 4 want to testify for Mr. Yankauer but -- 5 MR. O'GARA: Yeah. Obviously, 6 Commissioner, I'm sorry. I mean, this 7 arrangement is the KeyBank arrangement, the 8 pooling services agreement, is something which 9 Mr. Yankauer is intimately involved with and, 10 in fact, negotiated. And I think that as he 11 addresses it, some of your particular questions 12 can be answered. Because Mr. Ribis is the 13 beneficiary of but not party to that agreement. 14 VICE CHAIR EPPS: Okay. Fair enough. 15 Lost my train of thought. I was on a 16 roll. 17 I don't think I have any other 18 questions. I guess I don't have any. 19 CHAIR KASSEKERT: Okay. Commissioner 20 Sommeling? 21 COMMISSIONER SOMMELING: No questions at 22 this time. 23 CHAIR KASSEKERT: Okay. Mr. Ribis, as 24 best as of your understanding about the 25 agreement, can you tell me who's going to own 182 ITEM NO. 17-Ribis 1 the property under Resorts? 2 THE WITNESS: RAC. 3 CHAIR KASSEKERT: RAC. And, again, for 4 the record, who is RAC? 5 THE WITNESS: RAC is owned by Wells 6 Fargo, as I understand it, who is the trustee 7 for the transaction, the CMBS loan and the bank 8 Credit Suisse. As I understand it. But that's 9 really Mr. Yankauer's area. But I know the 10 owner is Wells Fargo as trustee. 11 CHAIR KASSEKERT: But you're pretty -- 12 you have a very good understanding of the 13 Casino Control Act, don't you? You've been in 14 this business for a very long time. 15 THE WITNESS: Well, I understand it now 16 pretty well. Yeah. 17 CHAIR KASSEKERT: Uh-huh. What about -- 18 what's your view of the provision in the Casino 19 Control Act that requires anyone that owns the 20 land under a casino to be licensed? Do you 21 have any comment with respect to that? 22 THE WITNESS: You know, it's a tough 23 time because I think that you have to look at 24 the world we're in, and I don't want to 25 interpret the Casino Control Act. That's why 183 ITEM NO. 17-Ribis 1 you have Mr. O'Gara and Mr. Levy, and I 2 don't -- you know, this was a negotiating 3 transaction. So I'd rather not get into that. 4 CHAIR KASSEKERT: I understand that. 5 Being a little rhetorical. 6 You know, I could also ask the question 7 about what occurred with Colony and upstreaming 8 and downstreaming, and, you know, all these 9 financial transactions. Not to belabor the 10 point, but all these financial transactions and 11 how did the economy get into where we are, 12 where we are now because of a lessening of 13 regulatory control which is, of course, very 14 concerning. But that's just a rhetorical 15 comment. 16 THE WITNESS: Thank you. 17 CHAIR KASSEKERT: Commissioner Epps, do 18 you have additional questions? 19 VICE CHAIR EPPS: I have a question that 20 the Chair just brought up. I have a note here. 21 When we were here before, when Colony 22 was here, I remember asking the question 23 because Colony was a fund that was set to 24 expire at a certain point, and I was concerned. 25 I asked you about what happens when the -- that 184 ITEM NO. 17-Ribis 1 fund expires? And the Resorts' life extends 2 beyond the fund? And you say Colony wouldn't 3 go away even though the fund would expire. 4 Colony would still be around, and there would 5 be funds for Resorts. But now Colony is gone. 6 How do we -- how do we -- 7 THE WITNESS: Colony IV is gone, yes. 8 You know, as a fund, I think they're up to 9 Colony IX, which -- so Colony IV's investments 10 are all mature and completed. And Resorts was 11 the last element of that, I understand. 12 VICE CHAIR EPPS: But that was our 13 concern when it came to us. We knew, kind of, 14 that -- we knew that Colony was a fund that it 15 had, as funds, they work. They only exist for 16 a certain amount of time and kind of roll out 17 all their assets and get off that business. 18 But they were -- at least the statement that we 19 got is that even though it's a fund, it will be 20 around. It won't let Resorts down. It will 21 stay around. Now Resorts was in a situation 22 where they needed cash, and Colony was gone. I 23 mean -- 24 THE WITNESS: I think -- I think all 25 these private equity funds are facing up to a 185 ITEM NO. 17-Ribis 1 slew of problems. Without me addressing Colony 2 or any other funds, they've taken major hits, 3 and things have changed. I can't address 4 Colony's -- obviously, it's very -- it's very 5 difficult for a fund that makes an investment 6 in one asset and that fund is no longer -- has 7 any more cash, to take another fund which has 8 other investors and invested it into another 9 asset. 10 VICE CHAIR EPPS: Now, with respect to 11 the bankruptcy question, I think we hint around 12 it, and I think Mrs. Flaherty spoke to it. The 13 38-or-so million dollars that Resorts -- that 14 Colony took up from the Resorts transaction up 15 to its fund, if a bankruptcy were to be filed, 16 that money might have to come back, wouldn't 17 it? 18 THE WITNESS: Under the -- that's -- 19 that is a potential result. Yes. 20 VICE CHAIR EPPS: Did that have anything 21 to do with the decision not to file bankruptcy? 22 THE WITNESS: Not on my part. Maybe on 23 their part, but not on mine. 24 VICE CHAIR EPPS: That's all I have. 25 CHAIR KASSEKERT: Anything on redirect? 186 ITEM NO. 17-Ribis 1 MR. O'GARA: No, ma'am. 2 CHAIR KASSEKERT: Anything on recross? 3 4 RECROSS-EXAMINATION BY MS. FLAHERTY: 5 Q. I would just ask, Mr. Ribis, under the 6 termination clauses of the agreement, would there be 7 amounts that would need to be paid if there was an 8 abrupt termination and termination before the six 9 months or after -- or during the second six months of 10 the agreement? 11 A. Yes. 12 MS. FLAHERTY: That's it. Thank you. 13 VICE CHAIR EPPS: What is that payment? 14 THE WITNESS: It's in the millions of 15 dollars. So, in other words, it's a penalty. 16 If RAC wants to terminate early, there's a 17 financial penalty to them that they have to pay 18 to me in order to do that. That's why -- 19 Do you have it there? I don't have? 20 MS. FLAHERTY: Yes. It's actually in -- 21 it's in the management agreement on Page 18, 22 Article 8, Section 8.01 going on. It's -- I 23 believe, the termination payments are at 8.04. 24 And its a payment of 1.5 within the first six 25 months, and then 750 as it continues on to Page 187 ITEM NO. 17-Ribis 1 20. 2 VICE CHAIR EPPS: 2.2 ultimately? 3 THE WITNESS: Yeah. 4 MS. FLAHERTY: Well, it's two different 5 ones. Within the first month it's -- within 6 the first six months it's 1.5, and then later 7 on it would be 750 if there's a termination 8 during the next period. 9 THE WITNESS: That's in addition to the 10 management fees paid to me. 11 MS. FLAHERTY: And that's on Page 19 and 12 20 of the management agreement. 13 VICE CHAIR EPPS: Okay. 14 COMMISSIONER SOMMELING: If that were 15 the case, then -- if that occurred -- I'm not 16 suggesting that it will -- would this entire 17 management agreement expire? 18 THE WITNESS: They would have to -- they 19 would terminate the management agreement. 20 COMMISSIONER SOMMELING: Totally. 21 THE WITNESS: Yes. 22 COMMISSIONER SOMMELING: Separate and 23 apart from all of the other agreements? 24 THE WITNESS: Yes. 25 COMMISSIONER SOMMELING: They could, in 188 ITEM NO. 17-Ribis 1 effect, bring in a new qualified management 2 team? 3 THE WITNESS: They could. Yes. 4 CHAIR KASSEKERT: Subject to our 5 approval. 6 COMMISSIONER SOMMELING: Yes. Subject 7 to the approval. Yes. 8 VICE CHAIR EPPS: And that -- that we 9 were just discussing, is only as it applies to 10 termination without cause. 11 MS. FLAHERTY: Yes. 12 THE WITNESS: That's correct. 13 VICE CHAIR EPPS: Termination without 14 cause is completely different. 15 MS. FLAHERTY: Yes. Yes. 16 CHAIR KASSEKERT: You may step down. 17 THE WITNESS: Thank you. 18 CHAIR KASSEKERT: Mr. O'Gara, you can 19 call your next witness. 20 MR. O'GARA: Stephen Yankauer. 21 MR. NANCE: Raise your right hand. 22 23 STEPHEN YANKAUER, was duly sworn to 24 testify in this matter. 25 189 ITEM NO. 17-Yankauer 1 MR. NANCE: Please state your name for 2 the record. 3 MR. YANKAUER: Stephen Yankauer. 4 MR. NANCE: Would you please spell your 5 name for the record. 6 MR. YANKAUER: Sure. S-t-e-p-h-e-n. 7 Yankauer is Y-a-n-k-a-u-e-r. 8 MR. NANCE: Thank you. 9 CHAIR KASSEKERT: You may proceed. 10 MR. O'GARA: Thank you. 11 12 DIRECT EXAMINATION BY MR. O'GARA: 13 Q. Steve, by whom are you employed? 14 A. I'm employed by Credit Suisse. 15 Q. And what capacity? 16 A. I'm a managing director of Credit Suisse 17 and also a Vice President of Colony Financial, and I 18 work in that area. 19 Q. Now, just so we can -- the Commission 20 has been hearing a lot about this. Tell us first of 21 all, what is Column Financial? 22 A. Sure. Column Financial is a real estate 23 finance company. It's licensed in, if not all 50 24 states, nearly all 50 states. 25 Q. And who owns Column Financial? 190 ITEM NO. 17-Yankauer 1 A. It's a hundred percent owned by Credit 2 Suisse. 3 Q. So it was a financing subsidiary of 4 Credit Suisse? 5 A. Correct. 6 Q. And in this particular transaction, was 7 it the entity which arranged the loan, the $360 8 million loan, which is the subject of what we're 9 talking about today? 10 A. That is correct. 11 Q. And what's Credit Suisse? 12 A. Credit Suisse is a global, you know, 13 financial institution regulated around the globe. 14 Q. And in fact, in the United States under 15 the Brearly Filing Act, is Credit Suisse a qualified 16 as a financial holding company. 17 A. It's a bank holding company, and it's 18 regulated by the Federal Reserve in this country. 19 Q. And it, in fact, chose to elect that 20 status to be regulated by the Federal Reserve; 21 correct? 22 A. That correct. 23 Q. That's actually organized under the laws 24 of Swiss laws? 25 A. That is also correct. 191 ITEM NO. 17-Yankauer 1 Q. And what's RAC? What's R-A-C? 2 A. RAC is a newly formed entity that, 3 subject to this transaction being consummated, would 4 hold the property known as Resorts. 5 Q. And that would be owned, we've heard, by 6 as Wells Fargo. What is Wells Fargo's role in this 7 transaction? 8 A. Yeah. Wells Fargo is the trustee for 9 the 2007-TFL2 securitization, bond securitization. 10 It's a pooled bond securitization. Wells Fargo, as 11 trustee, holds all the loans of that securitization in 12 trust for the stakeholders, which are the bondholders 13 and other parties like Column Financial. 14 Q. All right. Now, with respect to the 15 entities we just discussed, Credit Suisse and Wells 16 Fargo, they're both banking institutions? 17 A. That is correct. 18 Q. And you know from your role in Credit 19 Suisse, but with Wells Fargo, they're regulated by the 20 Federal Reserve of the United States? 21 A. They're one of the largest banks in the 22 country, probably one of the top three, regulated by 23 the Federal Reserve as well. 24 Q. And, as such, you in your role in Credit 25 Suisse is pretty familiar with dealing with 192 ITEM NO. 17-Yankauer 1 regulators? 2 A. Very familiar with dealing with 3 regulators. We deal with regulators all the time in 4 this country and around the globe. 5 Q. There's another bank that's involved in 6 this transaction, and that's KeyBank? 7 A. That's correct. 8 Q. First of all, is Key a major financial 9 institution in the United States? 10 A. Key is also a major financial 11 institution in the United States, and it's also 12 regulated by the Federal Reserve. 13 Q. And what is KeyBank's role? What is 14 KeyBank with respect to this Resorts loan that we're 15 talking about today and then going forward, the 16 structure we're talking about? 17 A. Sure. KeyBank is the master servicer 18 for the securitization that I described before. The 19 master servicer's role is to administer the day-to-day 20 activities of ownership of the loans which are 21 primarily collecting principal and interest and 22 disbursing such to the stakeholders. 23 Q. All right. So at the time this loan was 24 arranged, Steve, $360 million was advanced to Resorts, 25 and that by Column Financial. 193 ITEM NO. 17-Yankauer 1 A. That's correct. 2 Q. And you then said the loan was 3 securitized. So when it was securitized, what does 4 that mean? What happened? Did different people or 5 different types of people through the offices of Wells 6 Fargo get pieces of this loan? 7 A. Sure. It was actually a $175 million 8 portion of the loan participation interest that was 9 placed into trust together with six other loans that 10 constituted the pool. And bond certificates were 11 issued representing ownership interest in that pool 12 and the cash flows that that pool generated. 13 Q. And that's pursuant to something called 14 a "pooling and servicing agreement"? 15 A. Sure. The pooling and servicing 16 agreement is a document that governs all the 17 relationships between the parties we've been talking 18 about. 19 Q. So the loan was arranged by Colony, and 20 then Wells Fargo put this loan together with five 21 other loans, 175 million of -- 22 A. Six other. 23 Q. Six others. That's where the 24 certificates are. And Column retained a half interest 25 in the loan, but that's part of this same loan that 194 ITEM NO. 17-Yankauer 1 is -- Wells Fargo administers? 2 A. Correct. Column retained -- it's 3 actually $185 million interest, so it's just over 50 4 percent. It's part of the same loan that went into 5 trust, so part is in the securitization trust and part 6 is held by Column. 7 Q. And assuming that nothing else had 8 happened, KeyBank as servicer did those administerial 9 tasks like getting interest payments to people and 10 dealing with borrowers? 11 A. That's correct. 12 Q. And did something happen in November of 13 2008 which changed the relationships of the parties 14 here? 15 A. Sure. November of 2008 is when Resorts 16 missed its interest payment, and that's when the 17 relationships changed, as you described. Some of the 18 things that begin to happen are that -- go back our -- 19 let me just step back to our role for a little bit. 20 Q. Right. 21 A. Our ownership interest in the loan makes 22 us under that pooling and servicing agreement the 23 directing holder. And as directing holder, you know, 24 we can do certain things, mostly on a consent basis. 25 But one of the things we can do is we can nominate a 195 ITEM NO. 17-Yankauer 1 servicer. A special servicer is a servicing party 2 that has special expertise in dealing with troubled 3 loans. So one of the first things that we did was to 4 nominate Trimont as special servicer to deal with this 5 trouble loan situation. 6 Q. And why would you -- and you're familiar 7 with securitized loans, I gather, in your structuring 8 job at Credit Suisse? 9 A. Yes, I am. 10 Q. And just so this isn't the only loan, 11 defaulted loan you've ever dealt with in your life, I 12 assume. 13 A. No. That's my job. Working on troubled 14 loan situation. 15 Q. And why would you appoint a special 16 servicer? Why would you just have Key go and take 17 care of these matters? Is there a specific reason? 18 A. Well, we actually could, in fact, have 19 Key handle it. Key does have its own special 20 servicing unit. However, you know, we like to try to 21 find the best party for the situation. And Trimont 22 is -- actually has the rating agencies' highest 23 ratings for special servicings, so they're highly 24 regarded in the industry, and they have a certain 25 amount of expertise. 196 ITEM NO. 17-Yankauer 1 Q. And not only that, but I assume your 2 authority as directing holder wasn't unfettered. You 3 couldn't decide that you and I and heaven were going 4 to form a servicing company and do this? There are 5 standards you have to meet? 6 A. Absolutely. It has to be a qualified 7 party, and it has to be rated, and by the rating 8 agencies and, you know, KeyBank as master servicer, 9 you know, has some say over who that party is. 10 Q. And when you say the rating agencies, 11 you mean people like S & P and Moody's. The rating 12 comes from a ratings servicer, special servicer, and 13 they have to achieve a certain rating? 14 A. That is correct. They have to submit 15 for ratings. They have to be rated to qualify to be a 16 special servicer, and Trimont has the highest ratings. 17 Q. Was Trimont, in fact, appointed special 18 servicer with respect to this loan following the 19 default? 20 A. Yes, they were. 21 Q. And what is the special servicer's role? 22 What is it -- when they're appointed, what is it they 23 would do? And let's assume in a nonregulated 24 environment alone that didn't involve a regulated 25 industry, a hotel loan. What's the special servicer's 197 ITEM NO. 17-Yankauer 1 mission? What are they supposed to do? 2 A. Well, their basic task is to try to 3 recover the proceeds from the loan in a maximum amount 4 for the stakeholders. That could take the form of a 5 relatively simple restructure, modification of terms. 6 It could in a disputed situation involve exercising 7 remedies, initiating foreclosure or, you know, a 8 negotiated settlement such as we have before us today. 9 Q. And when Trimont was appointed special 10 servicer with respect to this loan, were you, as the 11 directing holder, and KeyBank as a service aware that 12 it was a casino and subject to significant regulation 13 by the State of New Jersey? 14 A. We absolutely were. And one of the 15 first things that we did after nominating Trimont -- 16 might have even been before, I just can't remember, to 17 be honest -- is we came in and met with the 18 Commission, the Commission staff here. We wanted, 19 knowing that it was a highly regulated industry, to 20 apprise the Commission as to what the status of the 21 loan was, to open a dialog and make sure that, you 22 know, the regulators of this highly regulated industry 23 were apprised as to what was going on. 24 Q. And, in fact, since this time, have 25 there been some continuing dialog with regulators in 198 ITEM NO. 17-Yankauer 1 New Jersey about this loan? 2 A. Absolutely. We, together with Trimont 3 representing the lenders as well as the borrower, have 4 met with the Commission many times since this began. 5 Q. And has there been a continuing -- since 6 Resorts failed to make the interest payment, was there 7 an ongoing dialog with the borrower by the lender 8 group? 9 A. There was absolutely an ongoing with the 10 borrower. That's really where it begins and ends. 11 You cannot work out a troubled loan situation without 12 engaging with the borrower and understanding what 13 their issues are and working towards a resolution. 14 Q. Now, in March of this year, did the 15 lender group seek permission from this Commission with 16 respect to remedies? 17 A. We did. While we were engaged in 18 constant dialog with the borrower, and were hopeful 19 that we could have a consensual resolution, we were 20 fearful that we would not be able to get there. There 21 were some roadblocks along the way, and so we filed a 22 petition to the Commission to be able to exercise a 23 release as a lender. 24 Q. And did the Commission give permission 25 to the lenders to exercise certain remedies? 199 ITEM NO. 17-Yankauer 1 A. Yes, they did. 2 Q. And among them was the acceleration of 3 the loan? 4 A. Yes. 5 Q. And was the loan accelerated? 6 A. Yes, it was. 7 Q. And did, in fact, the lenders receive 8 the consent of the Commission to pursue and file a 9 foreclosure complaint? 10 A. We did. 11 Q. Has the foreclosure complaint been 12 filed? 13 A. No, it has not. 14 Q. Have efforts been undertaken to prepare 15 and have a foreclosure complaint that could be filed? 16 A. We went awfully far down the road to 17 foreclose if we needed to. We hired foreclosure 18 counsel. We prepared the foreclosure papers. We 19 actually had and still do actually, to this day, have 20 foreclosure papers ready to be filed in Trenton in 21 case we needed to. But our hope is that there will be 22 a consensual resolution. We feel that it is always 23 much better to avoid, you know, the negative issues 24 that would result relating to foreclosure if we can do 25 that. 200 ITEM NO. 17-Yankauer 1 Q. Why is foreclosure a last resort? 2 A. Foreclosure is the last resort because, 3 among other things, it will severely -- at least in my 4 mind -- severely disrupt the property. It will not 5 generate the immediate extra liquidity that this 6 transaction will bring. And, in fact, potentially the 7 negative stigma of the property going through a 8 foreclosure could hurt its business and jeopardize its 9 cash position. 10 Q. Now, you were involved in negotiations 11 which led to this consensual agreement? 12 A. Yes, I was. 13 Q. And can you just outline for us what -- 14 what is the nature of that agreement? What is 15 happening here? Who is giving what to whom, and what 16 party will have what role with respect to the business 17 we call Resorts? 18 A. Sure. Very simply, you know, the 19 property is being conveyed by the current property 20 owner, which is the borrower under the loan, back to 21 RAC, the newly created entity which is wholly owned by 22 Wells Fargo Trust with Trimont as its non-member 23 manager, and the property will continue to be managed 24 by RIH, which is the existing license holder for 25 continuity of management. 201 ITEM NO. 17-Yankauer 1 Q. And, first of all, there were questions 2 the Commissioners asked, and I think you're aware, 3 that agreement is for -- the management agreement is 4 for the initial term of six months and then rolls 5 over. 6 A. It's for an initial term of six months 7 and automatically renews for 60-day periods unless 8 terminated. 9 Q. And, in fact, if it were not renewed in 10 the first six months, there is a penalty that's paid; 11 correct? 12 A. There's actually a pretty severe penalty 13 in the first six months to disincent the lenders from 14 terminating. 15 Q. And assuming the transaction were 16 approved and RIH were managing, were going to make a 17 change, are you aware of what's required in making a 18 change to have someone else operate a casino in New 19 Jersey? 20 A. We would clearly be back before this 21 Commission seeking approval for another licensed 22 operator. We couldn't make a change without that 23 happening. 24 Q. And you recognize they'd have to have a 25 New Jersey casino license? 202 ITEM NO. 17-Yankauer 1 A. Absolutely. 2 Q. Is there a limited universe of people, 3 in your experience? 4 A. Yes. I don't know the exact number, but 5 it's probably less than a dozen. Well less. 6 Q. Now, additionally, the -- you've said 7 the non-member manager is Trimont, of RAC. And is 8 Trimont the party then charged with on behalf of the 9 lenders who own the real estate to have the interface 10 and relationship within RIH? 11 A. That's correct. 12 Q. And, among other things, the agreement 13 provides that there has to be a budget that has to be 14 reviewed and approved by the lenders; correct? 15 A. Yeah. Well, approved by Trimont as 16 special servicer. I guess I would point out that -- 17 Q. Is this anything new? 18 A. Yeah. That's where I was going. That 19 it is no different from the existing relationship. 20 The current loan documents that were approved by this 21 Commission provide for the exact same mechanics, that 22 the budget needs to be approved by the lender. It's 23 really the same relationship. 24 Q. So the loan documents, had there been no 25 default and even before there was a default, Resorts 203 ITEM NO. 17-Yankauer 1 prepared a budget, and it was discussed with and then 2 approved by the lender. That's what was going on? 3 A. We've been operating under that regime 4 since the loan was closed. 5 Q. Now, we've discussed Trimont, and we've 6 discussed RAC, which is Wells Fargo, and it's going to 7 own the dirt and the building and the beds and that 8 kind of stuff; correct? 9 A. Correct. 10 Q. Is it going to own the gaming equipment? 11 A. I don't believe so. 12 Q. No. Specifically, there's an 13 understanding that only the casino licensee could own 14 that; correct? 15 A. Correct. 16 Q. Now, Key. Does Key play some role now 17 in this default and with respect to the kind of 18 funding that might be needed to make this operation 19 work? 20 A. Sure. Key plays a very important role. 21 Key, as the master servicer for the securitization 22 trust, has the right to make what are known as 23 "property protection advances." If a property under 24 its -- under its care needs funds, it can effectively 25 make a property protection advance to the extent it 204 ITEM NO. 17-Yankauer 1 determines that those funds are recoverable. And when 2 it looks at recoverability, it's not just looking at 3 that is a particular property but looking at all of 4 the properties and loans under its care and trust. So 5 it goes well beyond this particular property. 6 In this transaction, Key has agreed to 7 immediately fund $8 million into an account -- a 8 KeyBank account which can be accessed by the property 9 manager for budgeted items. And if its cash balance 10 dips below 15 million. 11 Q. Now, is that, in fact, specifically the 12 advance that's described in the letter from Key to 13 Trimont and all the parties that are in the Commission 14 advance letter? 15 A. That's correct. 16 Q. And with respect to that, has Key 17 approved those funds and they're to be advanced to 18 this bank assume -- upon the approval of this 19 Commission? 20 A. Yes, they have. They've signed that 21 letter. Yes. 22 Q. So there's no further going to Key. 23 That money would just move up? 24 A. It would be funded shortly after this 25 transaction closes. 205 ITEM NO. 17-Yankauer 1 Q. And I think you've heard testimony, Mr. 2 Yankauer. You've been part of discussions that have 3 gone on that there's a requirement imposed by the 4 Commission in conjunction with their assessment of 5 Resorts' financial stability that they maintain cash 6 balances of $15 million. Is this $8 million in any 7 way to try to ensure and address that condition? 8 A. That's exactly the purpose. As of 9 today, you know, this additional $8 million would 10 bring the cash balances well in excess of that $15 11 million requirement. And, in fact, looking, you know, 12 out into the future, based on the budgets prepared by 13 RIH, it would address the concerns into 2010. 14 Q. To utilize that monies in the Key 15 account they, in fact, do the things, I think you've 16 heard, if the manager of Resorts thought it needed 2 17 or $3 million in liquidities for events in a weekend, 18 do they just access over and tell somebody, and the 19 money is wired over? Is that how it works? 20 A. Yeah. My understanding is they would 21 just call up Trimont, and they would make the funds 22 available. 23 Q. So it's no different than the account 24 they have now at another institution. They just move 25 the money over? 206 ITEM NO. 17-Yankauer 1 A. I believe I was told today that the 2 money could be wired, you know, within a day. 3 Q. And when initially there were 4 discussions about the amount of money that should be 5 immediately made as a first protective advance to talk 6 about this $15 million financial stability, you know, 7 requirement the Commission imposed, was there 8 discussion to have an initial advance of $5 million? 9 A. Yeah. That's correct. The initial 10 amount that was determined was $5 million. And as we 11 look out into the future, based on the budgets 12 prepared by Resorts, it was determined that a higher 13 number would sort of reduce all questions and make it 14 perfectly clear that, you know, that it would be 15 enough for the next year. 16 Q. And you had, in fact, looked out into 17 the budgets, not in '09 but 2010, and saw where there 18 might be events and said, let's anticipate those; 19 correct? 20 A. That's correct. 21 Q. Commissioner Epps asked a question. 22 What if you were in a circumstance and Resorts, number 23 one, let's say, has an unanticipated event that 24 requires, aside from everything else you looked at, 3 25 or $4 million for some issue arises with respect to 207 ITEM NO. 17-Yankauer 1 their facility, or if there's some event which causes, 2 you know, unanticipated loss of market share over a 3 period of time in Atlantic City, is this -- is this 4 it, this $8 million? Or is there, in fact, an ability 5 to get more money? 6 A. There's absolutely an ability, you know, 7 to get more money. Trimont would just make an 8 additional request to Key. An assessment would be 9 made if those, you know, advances are recoverable, and 10 the money could be funded. 11 Q. So this is no different than the 8 12 million -- here's just the 8 million is there on day 13 one without question? 14 A. That's correct. Additionally, there is 15 flexibility. The management agreement has -- provides 16 for flexibility to reallocate line items within the 17 budget so that if on any given day there's, you know, 18 a unbudgeted need in a particular line item, the 19 budget -- the manager, RIH, has the right on 20 reallocate from other line items they have access to 21 elsewhere and deal with particular issues as they 22 arise. 23 Q. Now, you say there's a recoverability 24 analysis, and I think that's something we, you know -- 25 is a word that doesn't have much meaning. When you 208 ITEM NO. 17-Yankauer 1 say "recoverability," what does that mean? 2 Recoverable to whom and recoverable against what 3 standard? When Key is making this determination as to 4 advance funds. 5 A. Sure. This would be recoverable by Key 6 because Key is the one making the advance. And they 7 would like to know they're going to get their money 8 back at the end of the day. But they come first in 9 the waterfall. It's very much a DIP loan, debtor in 10 possession loan, in bankruptcy. They would just like 11 to know based not just to the value of this 12 collateral, the Resorts collateral, but all the 13 collateral that they are servicing that they could get 14 their money back. 15 Q. And if Resorts were to be sold, the 16 facility were to be sold, and there would be proceeds, 17 Key is number one just like a DIP lender in getting 18 their expense back? 19 A. Just like DIP lender they would be first 20 in line. That's correct. 21 Q. Why does the lender group, and why did 22 though going through these negotiations? What do they 23 believe make this transaction far preferable to a 24 foreclosure and going ahead and exercising remedies? 25 A. Well, as I said before, if -- if the 209 ITEM NO. 17-Yankauer 1 lenders exercise remedies, we're certainly fearful 2 that that's going to be a long process, that the 3 immediate liquidity that we're offering now, you know, 4 will not be there. And you know, could have -- cause, 5 you know, a negative kind of a very negative impact on 6 the financial perspective on the property. So, you 7 know, lenders are interested in maximizing the value 8 of the collateral. And that means, you know, keeping 9 the property open, keeping people employed, you know, 10 and preserving the property and its continued 11 operations well into the future. 12 Q. Do Wells Fargo, on behalf of the holders 13 or Column or Credit Suisse, have any long-term 14 interest in owning Resorts or any other real estate? 15 A. No. Absolutely not. We're -- we're -- 16 you know, a lender is always the -- the property owner 17 of last resort. You know, we don't fancy ourselves as 18 experts in, you know, owning or operating properties. 19 You know, we would like to see the survival of the 20 property, its continued operation. And when the 21 market begins to turn around and capital begins to 22 flow again, then to see the property sold to a 23 long-term holder. 24 Q. Now, you're aware that in conjunction 25 with the petitions we've filed that we've sought 210 ITEM NO. 17-Yankauer 1 waivers of certain licensing requirements under the 2 Act for Credit Suisse, Column, as well as Wells Fargo 3 and Trimont. 4 A. That's correct. 5 Q. You're aware of that. 6 Now, in seeking those, we've indicated 7 that Trimont CS and Wells Fargo are not significantly 8 involved in Resorts gaming operations and will not be. 9 Do you anticipate having any involvement in the 10 operations of Resorts or control over what goes on 11 there? 12 A. None whatsoever. 13 Q. And with respect to these advances and 14 requesting them, is this control or is this 15 facilitating? 16 A. I think this is facilitation of 17 providing the capital necessary to keep the property 18 operating. 19 Q. If this transaction isn't approved, what 20 recourse is there for the lender group? 21 A. I think really the only recourse is to 22 pursue the foreclosure action. 23 Q. And having done the analysis that you 24 did in entering into this transaction, looking at the 25 needs, do you have a view as to Resorts' ability, 211 ITEM NO. 17-Yankauer 1 liquidity to continue operations on any immediate term 2 basis if, in fact, that were the course that were 3 taken? 4 A. Yeah. I don't believe they could meet 5 the $15 million requirement for the Commission. I see 6 no way that we could do that whatsoever, and I think 7 their cash position would ultimately dwindle. 8 MR. O'GARA: I have no other questions. 9 CHAIR KASSEKERT: Cross-examination? 10 MS. FLAHERTY: Yes. 11 12 EXAMINATION BY MS. FLAHERTY: 13 Q. Mr. Yankauer, for the record, the 14 Commission advance letter by which Trimont obtained 15 the $8 million from KeyCorp., that's J-9 in evidence 16 is that correct? 17 MR. O'GARA: There's a book right in 18 front of you. 19 A. I'll check. I didn't memorize the 20 numbers. 21 Q. I just want to have a reference for the 22 record. 23 A. Yeah. Let's take a look. 24 MR. O'GARA: There's a list on the 25 front. 212 ITEM NO. 17-Yankauer 1 A. Yes. Yeah. It is the letter. 2 Q. Now, I know that Mr. O'Gara touched on 3 this, but could you describe your job for Credit 4 Suisse? I know you testified before with regard to 5 this. Generally what you do. 6 A. Sure. I really have two loans -- two 7 roles. A senior credit officer of the bank approving 8 new loans, and I am a senior workout officer 9 responsible for working out troubled loan. 10 Q. And how many troubles loans would you 11 oversee? 12 A. At any moment? Or throughout my 13 history? 14 Q. Now. 15 A. Right -- 16 Q. At the current time. 17 A. Current time? Half a dozen. Between 18 half a dozen to a dozen. 19 Q. Now, do most of those relate to 20 commercial and mortgage securities transactions, or 21 are they various types? 22 A. They mostly involve real estate. I 23 think that's the common -- although I have absolutely 24 in my career worked on corporate transactions as well. 25 But they are not just CMBS. They could be syndicated 213 ITEM NO. 17-Yankauer 1 loans commercial loans, security loans. Runs the 2 gamut. 3 Q. Okay. Now, based on the discussions 4 that were held today, is it your position that RAC and 5 Trimont through Key will continue to provide for a $15 6 million cash reserve balance for Resorts on a rolling 7 basis? Is that our understanding? 8 A. Well, the understanding is exactly that 9 that $8 million can be accessed to, you know, keep the 10 cash reserves at the property up to $15 million. 11 Q. Okay. But that's in recognition of the 12 fact that there's a condition upon Resorts that it 13 have $15 million available to it at all times. 14 A. Correct. 15 Q. And if at some point in time under the 16 conditions that the Division has recommended that can 17 no longer be the case because it's deemed not to be 18 recoverable by Key, then there would be a 45-day 19 notice to the regulators? 20 A. That is correct. 21 Q. But other than that, in the intervening 22 time, until there's a determination that there is no 23 recoverability, there will be $15 million available? 24 A. It's really -- the reserve is $8 25 million. To ensure that there's 15 million available 214 ITEM NO. 17-Yankauer 1 at the property. 2 Q. Correct. Thank you. 3 Okay. Now, at this point in time will 4 RAC be exercises its right under the loan agreement 5 with the addition of cash management activities? 6 Would that be a fair statement? 7 A. The way I would describe it is that RAC 8 will own the cash accounts, but the cash is just going 9 to, you know, move through those accounts. And the 10 full signature authority under those accounts would be 11 vested with RIH, the manager. 12 Q. Now, I'd like you to look at Exhibit No. 13 1, Page 5, Paragraph 4C. 14 And that discusses closing. It talks 15 about checks and funds to the lenders, basically, with 16 regard to the property. Could you explain that 17 provision and what it it's meant to do? 18 VICE CHAIR EPPS: Mary Jo, what are we 19 looking at? 20 CHAIR KASSEKERT: Yeah. 21 MS. FLAHERTY: I'm sorry. Exhibit No. 22 1, Page 5. 23 CHAIR KASSEKERT: Right. 24 MS. FLAHERTY: Paragraph 4C. It's the 25 closing section. 215 ITEM NO. 17-Yankauer 1 CHAIR KASSEKERT: Got it. 2 A. Sure. Really what's happening is 3 there's a change of ownership here. And, you know, 4 RAC is going to become the new owner of the property. 5 The borrowers, you know, have their cash accounts. 6 And I think we're actually utilizing the same 7 accounts, just the ownership of the accounts is 8 changing. And we just want to acknowledge that the 9 money that was owned by the previous owner of the 10 property flows over to the new owner. That's part of 11 our collateral package. 12 Q. Okay. Now, I believe it's in the 13 same -- no. This is actually in the management 14 agreement, and it's on Page 11. 15 A. Which tab? 16 MR. O'GARA: It's Tab 2. 17 A. Thank you. 18 Q. Tab 2, Section 4.10. That deals with 19 bank accounts -- 20 A. I'm sorry. Which page number again? 21 Q. 11. Section 4.10 and up to 4.14 which 22 is on the next page. 23 A. I see it. Yes. 24 Q. Okay. Now, with regard to the bank 25 accounts, it's my understanding that under the 216 ITEM NO. 17-Yankauer 1 management agreement, the deposits of the revenues and 2 funds will be made into operating accounts. And those 3 accounts will be with KeyBank; is that correct? 4 A. Well, I don't remember off the top of my 5 head. I believe, off the top of my head, the only 6 cash that will be held at KeyBank is the initial $8 7 million reserve. I believe we're utilizing the same 8 accounts that Resorts has today, and I wasn't aware 9 that -- that the accounts were held at Key. 10 MR. O'GARA: I believe they are at TD 11 North Bank, formerly Commerce Bank. 12 Q. Now, will Trimont, on behalf of RAC, 13 monitor and manage Resorts' bank accounts to determine 14 the casino revenues and expenditures related to casino 15 operations? 16 A. My guess is, as owner, they'll be able 17 to see that information if they so request it, and 18 they'll also receive daily reportings as to the 19 revenues and expenses of the casino. But, you know, 20 that's just a passage monitoring. 21 Q. And -- okay. And what's the reason for 22 that? Why do you want to know that? Or why would RAC 23 want to know that? 24 A. Well, RAC -- RAC would want to know, you 25 know, that the operator is doing a good job. And so 217 ITEM NO. 17-Yankauer 1 the best way to understand that is to have a budget 2 and to, you know, measure the performance against the 3 budget and, you know, to discuss things that are going 4 well and things that are not going well. 5 Q. Okay. Well, I guess my question is, is 6 this to look at it line by line and to make 7 determinations with regard to or have discussions 8 about that, or to see if something really is out of 9 line, or to look for unusual items? What's the 10 standard or basis of review, I guess? 11 A. Well, I would say it's a little bit of 12 both. I mean, it's really to -- it's really for 13 overall monitoring purposes, but if in that process 14 something came to our attention -- or I'm saying 15 "our," it would be really be Trimont's attention -- 16 I'm sure that they would, you know, flag that and 17 raise it as a question. You know, you want to know 18 as, you know, a stakeholder in this property that the 19 managers are doing what they're supposed to be doing. 20 And really the one -- the one right at the end of the 21 day that I think, you know, Trimont has as special 22 servicer is to terminate the manager if. You know, 23 and we don't, obviously -- no one believes that this 24 would be the case. But if, you know, Mr. Ribis or his 25 employees run off with the money, we'd like to know 218 ITEM NO. 17-Yankauer 1 that. And, you know, obviously, that would be a cause 2 event to terminate. This is the kind of -- one of the 3 kinds of things. But, that's a very extraordinary 4 situation and, frankly, we'd hope that that would 5 never happen, clearly. And otherwise we more would 6 just be monitoring for performance. 7 Q. Now, with regard to the bank account 8 activities, there's an obligation to make 9 disbursements with regard to the approved budget, and 10 then there's also requirement to do that as otherwise 11 required by the Commission. Now, what's the basis for 12 that provision? 13 A. Well, the basis of that provision is to 14 ensure that we, you know, comply with all regulatory 15 requirements. I mean, it's in RAC's best interest, 16 Trimont's best interest, Column's best interest as a 17 stakeholder to ensure that the property complies with 18 all regulations, so. 19 Q. So, for example, if the Commission staff 20 or Division had an issue with regard to a financial 21 matter at Resorts, and we felt it was lacking in some 22 regard, that it didn't meet the Capex requirement or 23 some other stated requirement of the regulations, and 24 we came to you with regard to that, what would be the 25 process or response? 219 ITEM NO. 17-Yankauer 1 A. Well, that -- I can tell you from my 2 perspective, there's only one response, which is first 3 to understand what the issues are that had been 4 raised. And, number two, to make sure that they get 5 rectified. We are not -- as -- we're working in a 6 bank that's highly regulated. We are -- I am not 7 interested, my firm is not interested in being 8 associated with anything that doesn't comply with 9 regulation. 10 Q. Now, the budget includes provisions for 11 reserves that are required to be maintained. What 12 type of items are the reserves? Is it insurance? Is 13 it real estate taxes? Those type of large items that 14 come up periodically? 15 A. Well, I'd have to go back and take a 16 look into detail to what this is specifically 17 addressing. The loan agreement had reserves for taxes 18 and insurance, and capital items. Ordinarily, this 19 is -- I would imagine this is dealing with similar 20 type of situations. 21 Q. And there are other requirements, 22 expenses required to be paid with regard to the 23 Commission be paid as well? 24 A. Absolutely. Any required, you know, 25 taxes, fees, et cetera. 220 ITEM NO. 17-Yankauer 1 Q. Okay. Now, the management agreement 2 provides for allowances for certain line-item 3 variances. Can you describe the way that that would 4 work if there's a variance from a budget, what process 5 ensures? 6 A. Well, I believe the manager has 7 expressed authority for variances of up to ten percent 8 without any -- you know, without any consultation with 9 anybody, for that matter. 10 Q. Now, is that for each line item 11 individually, or is that in combination? There can be 12 a full ten percent variance? 13 A. That's a great question. You know, I 14 can just speak from my experience. I'm not sure the 15 words here convey that level of specificity, but it's 16 generally is practical. A property as sophisticated 17 and large as, you know, Resorts might have a detailed 18 budget that, you know, reaches into the hundreds of 19 line items. And no one is really interested in 20 micromanaging. No one on the lender level with the 21 new owner in micromanaging expenditures on, you know, 22 very small minutia line items, more at sort of a macro 23 level. Major items, repairs and maintenance, you 24 know, legal costs, you know, salaries, whatever it is. 25 The major line items. So there's probably a lot more 221 ITEM NO. 17-Yankauer 1 discretion below that, you know, to deal with things 2 on a very minutia level. 3 Q. Now, within the budget, Resorts 4 operates, but is there -- I just want to make clear 5 that that's totally at their discretion? Or is there 6 a process where there's advancement of funds from the 7 operation and then reimbursement as needs arise for 8 both operations and capital expenses? Is there a line 9 as to what is done on what side of that equation in 10 terms of what's done solely by the operation here and 11 what comes about by that advancing and reimbursement? 12 A. Really, the advancing is quite simple. 13 It's when they need money -- 14 Q. Uh-hum. 15 A. -- they're going to call up and ask for 16 it. And if its a budgeted item, as we discussed 17 earlier, it's going to be considered automatically 18 proved. So budgeted items, they'll be no discussions. 19 They'll just have to right to do that. I think where 20 the discussion comes in is if there's some 21 extraordinary issue that needs to be dealt with. 22 Q. Well, is it fair to say that what their 23 cash balance is now, plus the 8 million, they can 24 utilize in their discretion within the budget numbers? 25 A. Correct. 222 ITEM NO. 17-Yankauer 1 Q. And then at some point in time, when the 2 $15 million isn't met anymore, and they come back to 3 you and they said, we need this additional amount of 4 money, there's a discussion as to -- 5 A. If -- 6 Q. -- how reasonable it is or what the 7 basis or how it happened? 8 A. I think if you look at the -- if you 9 look at the budget -- 10 Q. Uh-hum. 11 A. The budget expressly predicts that some 12 of that 8 million will be utilized. 13 Q. Uh-hum. 14 A. And so I don't think they'll be any 15 conversation over utilizing monies to cover that $15 16 million balance. As I said before, if there are more 17 extraordinary circumstances, I think that's where, you 18 know, the discussion would come in. However, if the 19 property's not meeting it's $15 million balance, which 20 is a requirement pursuant to the Commission's rulings, 21 then they'll be no doubt that they will get that 22 money. 23 Q. Okay. Now, with regard to the section 24 we've been looking at, the bank accounts, paragraph -- 25 or Section 4.14, it talks about the obligations of the 223 ITEM NO. 17-Yankauer 1 owner, and it says: The owner shall have no 2 obligation to fund any amounts with regard to the 3 operation of the property other than that portion of 4 the gross revenues generated by the property that's 5 required to be used for operations within the budget. 6 How does that reconcile with regard to Exhibit 9 and 7 the not $8 million cash infusion and KeyCorp. 8 providing funds? 9 A. That's a great question because we wrote 10 that in Section 4.14, but we're obviously, we have no 11 requirement to do so. But we, obviously, clearly are 12 doing it. 13 Q. Uh-hum. 14 A. So we're living, you know, beyond the 15 express obligations that are set forth in this 16 management agreement. 17 Q. Okay. So what ties you to that funding 18 then? What's the basis for the funding from Trimont? 19 A. The funding of the $8 million? As a 20 reserve? 21 Q. Yes. And the requirement going forward 22 that there can be these additional requests or, you 23 know, statements that they need this money and that it 24 will be considered, and as long as it's recoverable, 25 it will be forthcoming? 224 ITEM NO. 17-Yankauer 1 A. It's very simple. I think that the 2 Commission is required to have a $15 million cash 3 balance at the property. And so if -- if RAC is the 4 owner of this property, they have to live by that, 5 else they put in jeopardy their -- the continued 6 operation of the property which, for all the reasons 7 I've described before, is a very bad thing if it 8 ceases to operate. 9 Q. Okay. Now, I'm going to ask is similar 10 question to what I asked before. In light of Resorts' 11 cash position and cash flow, in your view, does it 12 have the ability without support of the loan agreement 13 and the pooling services agreement to address its 14 financial obligations on an ongoing basis? 15 A. Yeah. I don't believe it does. 16 Q. You don't believe that it will have that 17 ability? 18 A. I don't believe they would have that 19 ability. Mr. Ribis said things similar to that. 20 Q. Okay. One other -- I have two other 21 short questions. 22 Exhibit 1, Schedule G. It talks about 23 non-tangible items. And one of those is gaming lists, 24 customer and guests lists? 25 A. Uh-huh. 225 ITEM NO. 17-Yankauer 1 Q. Are those items that are going to reside 2 at Resorts? Does the lender have any intention of 3 taking that? What's -- 4 A. We have -- those are items that were 5 necessary for the operation of the property. The 6 owner of the property doesn't need that information 7 for any other purpose other than to ensure that the 8 operator has that to operate the facility, so it would 9 be left with the manager. 10 Q. Okay. And my last question, it's 11 Exhibit 2, Page 9, and it talks about the employees of 12 the casino. 13 A. Uh-huh. 14 Q. Section 4.03c? 15 A. Sure. 16 Q. Okay. Now, again, that talks about the 17 policies and the owner having those submitted for 18 approval. Is that -- can you describe what that means 19 and how you would utilize that right? 20 A. Sure. I mean, really the manager is 21 going to be responsible, you know, for all of the 22 employee policies. I think, you know, there is an 23 approval right here from the owner just to make sure 24 that, you know, we don't go -- you know, have limos 25 for every employee driving back and forth to -- you 226 ITEM NO. 17-Yankauer 1 know, from their homes to work every day. You know, 2 we just want to make sure that things are generally 3 market standard. That's why it's there. 4 MS. FLAHERTY: That's all I have. Thank 5 you. 6 CHAIR KASSEKERT: Okay. Mr. Yankauer, I 7 want to preface my question by saying to you 8 that, you know, we all know how you got here. 9 We all know that this is as a result of a 10 default. You know, my inquiry and the inquiry 11 of our Commissioners today is to make an 12 ascertain as to whether or not the duties and 13 responsibilities you and Trimont have -- rise 14 to the level of licensure and whether it's 15 proper, as your attorney is asking, to grant a 16 waiver or not. So that's really where we're 17 coming at. 18 So that being said, with respect to the 19 budget issues again. You testified that 20 Trimont -- well, not Trimont but you -- have 21 always had this ability to approve the budget. 22 THE WITNESS: That's correct. 23 CHAIR KASSEKERT: But circumstances have 24 changed now, obviously. Everybody is in great 25 financial constraints. Tell me at what point 227 ITEM NO. 17-Yankauer 1 you're going to start to say no to things in 2 the budget? I mean, there's got to be -- 3 you're not in this business, and you're not 4 here helping Resorts because you're a nice guy. 5 I'm sure you're a nice guy. 6 (Laughter.) 7 FROM THE FLOOR: No, he's not. 8 CHAIR KASSEKERT: But you're here to 9 make money. 10 He's not, did I hear? 11 THE WITNESS: We're not to make money. 12 We're here to gain it -- 13 CHAIR KASSEKERT: Gain your money back. 14 THE WITNESS: That's correct. 15 CHAIR KASSEKERT: But you certainly 16 don't want to take a greater loss; correct? 17 THE WITNESS: I think that's right. I 18 think that's right. You know, it goes back to 19 what I said before, which is that if the 20 property shuts down, the lenders really will 21 get nothing at the end of the day. 22 CHAIR KASSEKERT: Uh-hum. 23 THE WITNESS: And so we have a vested 24 interest in trying to ride out the storm. This 25 is -- I think Mr. Ribis said before, you know, 228 ITEM NO. 17-Yankauer 1 this is one of the worst economic downturns 2 that we've seen in quite a long time. I've 3 been through several real estate cycles, and 4 this is clearly the worse that I've been 5 through. And the ability of capital to, you 6 know -- to finance real estate just isn't there 7 today. 8 This property needs time. It needs, you 9 know, money to get through this difficult 10 period. And we all know that, you know, these 11 difficult times are just part of a cycle, and 12 it's going to ebb to and fro, and there are 13 better times. And maybe it won't be as good as 14 times when this loan was made, but they will 15 come eventually. And our goal is, you know, to 16 get to that time or a time where we can sell 17 the property and to get it into better hands. 18 So its difficult to say, you know, when 19 we will, you know recommend funding or Key 20 will, you know, fund or not fund. Those are 21 decisions that are going to have to be made at 22 the time. But, you know, clearly, I believe 23 everyone understands that the delicate 24 situation that we're in, and there's really 25 just nothing in it for anybody, nothing in it 229 ITEM NO. 17-Yankauer 1 for the us, nothing in it for the employees, 2 nothing in it for any of the stakeholders here 3 if it all comes to an end. And the only way is 4 to -- the only way to have any recovery 5 whatsoever is to see a property that's 6 operating and vibrant. 7 CHAIR KASSEKERT: And I would agree with 8 you. Again, but that's really not the purpose 9 of our inquiry today. I think everybody 10 understands that. The purpose of our inquiry 11 is are these functions that you're going to be 12 doing rise to requiring a license? And if -- 13 or in the alternative should a waiver be 14 granted? But are these functions so -- at such 15 a level, you know, whether it's, you know, 16 controlled through the budget and maybe make a 17 recommendations there, or whether it's through 18 this $8 million, and what happens if $8 million 19 is -- they exceed it, and you need more than $8 20 million? You know, are those decisions rising 21 to the level of licensing? 22 THE WITNESS: Sure. And I'm not -- I'm 23 not a lawyer. So I can't, you know, opine, you 24 know, on the way the code is written and the 25 regulations are written. But I can tell you 230 ITEM NO. 17-Yankauer 1 that I believe that the kinds of authority that 2 will be exercised are -- in my mind, exactly 3 the same as a lender. And, you know, in fact, 4 even the whole budgeting process is identical 5 to that which existed, you know, when -- at 6 present. Or, you know, as now we are lenders 7 in this situation. And a lender's role is a 8 passive one, generally speaking. You know, the 9 budget -- virtually every real estate loan that 10 I've ever looked at has this same kind of 11 budgeting process in it, and I think what makes 12 this circumstance a little bit more unique is 13 how regulated, you know, the casino industry 14 is. And that's why we're having these 15 complicated discussions right now. 16 But it's generally regarded as a passive 17 role. If the budget is not approved, if 18 there's a dispute, the mechanism, going back to 19 the prior question that I think was a little 20 hazy before, the mechanism is that the old 21 budget will continue to be utilized, and 22 they'll be some directions that I mentioned for 23 the manager to reallocate items, and we'll have 24 to resolve it. Because if we don't resolve it, 25 all the bad things that I mentioned before will 231 ITEM NO. 17-Yankauer 1 happen. So it's not in the lenders' interest 2 to see it come to an end. 3 So is that -- you know, control in the 4 way the casino Commission defines it? You 5 know, I think if it was -- if it was control, 6 then you probably should have thought about it 7 at the time the loan was made. You know, 8 because it's really, really no different at 9 this point. 10 CHAIR KASSEKERT: You regret that the 11 loan was made? 12 THE WITNESS: Well, I -- 13 (Laughter.) 14 THE WITNESS: You know, clearly as a 15 financial institution that, you know, hopes to 16 see some, you know, recovery of -- recovery out 17 of this. Yeah, on one level I regret that it 18 was made. But, you know, I don't think anyone 19 could have foreseen the kinds of circumstances 20 that we see today. And, you know, it's 21 happened, you know, not here -- not just here 22 in Atlantic City. It's happened, you know, in 23 markets all over the country, in asset 24 classes -- almost every asset class. Its 25 happened all over the globe. And, 232 ITEM NO. 17-Yankauer 1 unfortunately, commercial real estate, you 2 know, and assets like this, are some of the 3 last ones, you know, to be coming back. The 4 liquidity is beginning to come back in other 5 areas. Some of the things that the government 6 has done, to, you know, try to restart the 7 economy have, you know, begun to work. But 8 it's going to take longer for it to come back 9 to this asset class. 10 CHAIR KASSEKERT: But you have to admit 11 that the budget process is very different when 12 times are good verse when times are bad. 13 Obviously, when we're in a situation like this, 14 you've got at least to be scrutinizing it more. 15 THE WITNESS: Well, if you have tons of 16 revenue, it's easier -- certainly easier to 17 cover your expenses. And there is no doubt 18 that these budgets are, you know, certainly 19 more constrained. But it is very much the 20 manager that's preparing them. It's very much 21 the manager that's recommending them. I can 22 tell you, I've had very little input. I've 23 seen the budgets come through. I've pointed 24 out a couple of things. But it is, it's really 25 the manager that's doing all the work. 233 ITEM NO. 17-Yankauer 1 CHAIR KASSEKERT: Commissioner Epps? 2 VICE CHAIR EPPS: I'm still trying to 3 wrap my head around all the nuances, and I'm 4 the type of person that does better when I draw 5 a picture. So I'm going to step you through 6 the picture I've drawn, and you let me know 7 when I'm going off. 8 THE WITNESS: Sure. 9 VICE CHAIR EPPS: I have Credit Suisse 10 at the top, okay? And they're a bank holding 11 company; right? 12 THE WITNESS: Correct. 13 VICE CHAIR EPPS: Okay. And then I have 14 a line pointing down to Column and others. And 15 they're in this pool that represents 3.6 16 million -- or, I'm sorry, $360 million. 17 THE WITNESS: No. Let me -- let's start 18 here. So if you draw line town to Credit 19 Suisse, the next line would be Column. 20 VICE CHAIR EPPS: Because they own it? 21 THE WITNESS: They own -- Credit Suisse 22 owns a hundred percent of Column. 23 VICE CHAIR EPPS: Right. 24 THE WITNESS: Okay. Column made a loan, 25 a $360 million loan. 234 ITEM NO. 17-Yankauer 1 FROM THE FLOOR: Do you want to draw? 2 MR. O'GARA: Do you want to draw? 3 VICE CHAIR EPPS: Sure. 4 THE WITNESS: Sure. 5 MR. O'GARA: I invite either 6 Commissioner Epps or Steve -- I think we're 7 safer with Steve, with the pen. 8 VICE CHAIR EPPS: Absolutely. Yeah. 9 Yeah. 10 MR. O'GARA: Do you have a marker? 11 Broad marker? 12 (Conferring.) 13 THE WITNESS: This is where we start. 14 This is the very beginning. 15 VICE CHAIR EPPS: Right. 16 THE WITNESS: Okay? Before the loan is 17 even securitized, we -- Credit Suisse owns 18 Column. Column made a loan to Resorts. 19 VICE CHAIR EPPS: Okay. Now, that loan 20 is $360 million; right? 21 THE WITNESS: 360 million. That's 22 right. Yes. The loan was $360 million. 23 THE COURT REPORTER: Excuse me. Could 24 you speak up? You don't have a mike over 25 there. 235 ITEM NO. 17-Yankauer 1 THE WITNESS: Yes. 2 VICE CHAIR EPPS: Now, at some point 3 Column broke up that 360 million and got some 4 participation into that loan. About half of it 5 from other people. 6 THE WITNESS: Correct. 7 VICE CHAIR EPPS: So there's somewhere 8 outside a box that is -- 9 THE WITNESS: Right here. Trimont and 10 TFL2. So we -- actually conveyed a portion of 11 the loan, so it sold a piece, not the whole 12 thing, but it sold a piece over here, so this 13 is 185. I'm sorry, 175. My mistake. And this 14 became 185 million. So now you have two 15 lenders. Okay? It's really -- it's really the 16 same loan, but it's been participated. So just 17 for simplicity for drawing, I'm showing it in 18 two different boxes. 19 VICE CHAIR EPPS: Well, I guess what I 20 did was, I put the 360 in one box and just 21 sliced it 175, 185. 22 THE WITNESS: That's a perfect way to do 23 it. 24 VICE CHAIR EPPS: And 185 is Column and 25 175 is other, is -- 236 ITEM NO. 17-Yankauer 1 THE WITNESS: In fact, it's often 2 depicted that way, so that's a great way to do 3 it. 4 VICE CHAIR EPPS: Okay. Now, in that 5 box that's split into sections, there's Wells 6 Fargo. If I understand correctly. 7 THE WITNESS: So, let's talk about that 8 loan. So let's say this is the loan that you 9 just referred to that's split. Okay? And, you 10 know, one piece is Column, and one piece is the 11 securitization trust. And there are a whole 12 bunch of other loans unrelated. You know, 13 unrelated to this property whatsoever. And all 14 of those loans are placed in a trust, the 15 trustee of which is Wells. Okay? 16 VICE CHAIR EPPS: Does Wells take any 17 ownership stake in that trust? 18 THE WITNESS: As a trustee, they own the 19 loans. But they own them for the beneficial 20 interest of the stakeholders, in which case, 21 for this particular loan that we're talking 22 about are the securitization bondholders and 23 Column. So they have -- they have -- they own 24 them, but all the economic and beneficial 25 interest goes to the stakeholders. 237 ITEM NO. 17-Yankauer 1 VICE CHAIR EPPS: So they're a pass- 2 through only, and I guess they get some service 3 fee to do that because that's what they do? 4 THE WITNESS: They just have the 5 fiduciary duty to the stakeholders. 6 VICE CHAIR EPPS: They have a management 7 agreement that gives them a fee. 8 THE WITNESS: They get some fee for 9 their services. 10 VICE CHAIR EPPS: A services agreement 11 fee. 12 THE WITNESS: That's correct. 13 VICE CHAIR EPPS: Okay. And then, I 14 guess, from Wells, I get Key. 15 THE WITNESS: So the trust needs to be 16 managed. 17 VICE CHAIR EPPS: Right. 18 THE WITNESS: And so, in essence, they 19 hire Key to do the work. Somebody's got to 20 actually do the work. The trustee doesn't have 21 the skills, the abilities to management loan. 22 So they hire a servicer, and that servicer 23 manages this pool, the box that I drew is over 24 the trust of the pool of loans. Key will 25 manage those loans. And then Trimont, if you 238 ITEM NO. 17-Yankauer 1 want to get to them, they will be the 2 subservicer or special servicer, in this case 3 with special skills, subcontractor to Key to 4 carry out the management of the troubled loan. 5 VICE CHAIR EPPS: Okay. Now, stepping 6 up quickly, Credit Suisse is a bank holding 7 company. 8 THE WITNESS: Correct. 9 VICE CHAIR EPPS: Column, by virtue of 10 ownership, is a bank holding company or no? 11 THE WITNESS: It's not in of itself a 12 bank holding company, but it -- 13 VICE CHAIR EPPS: Does it get the 14 benefit of the Credit Suisse's bank holding 15 company status? 16 THE WITNESS: Well, it's, you know, 17 regulated by the Federal Reserve in the same 18 with -- all of Credit Suisse is subject to 19 Federal Reserve control. And this is, in 20 essence, just a subsidiary of the bank holding 21 company. 22 VICE CHAIR EPPS: So does that the bank 23 holding company lends itself to certain status. 24 Does Column get to exercise just as Column, or 25 would it have to go back to Credit Suisse for 239 ITEM NO. 17-Yankauer 1 those privileges that bank holding companies 2 lend to? 3 THE WITNESS: I guess I'm not versed a 4 hundred percent in privileges of what a bank 5 holder company does. But, generally, as we 6 operate, it's all operating together. 7 MS. FLAHERTY: Commissioner, it's my 8 understanding that Credit Suisse qualifies as a 9 bank, and it is a bank holding company under 10 federal law. And then Column is a licensed 11 lending institution. It's licensed by various 12 states to conduct lending activity, so it could 13 also be exempt under the Act by virtue of that. 14 VICE CHAIR EPPS: Okay. Wells is also a 15 lending company? 16 THE WITNESS: Yes. Absolutely. 17 VICE CHAIR EPPS: And so things that 18 Wells hold in trust gets that same privilege? 19 Or no? 20 MS. FLAHERTY: Well, Wells itself is a 21 bank holding company and qualifies as a bank, 22 and this is it doing things activities. So as 23 a trustee, it would. 24 VICE CHAIR EPPS: And Key is a bank 25 holing company? 240 ITEM NO. 17-Yankauer 1 MS. FLAHERTY: KeyCorp. is -- Key Real 2 Estate Corp. is a subsidiary of KeyBank, which 3 is a bank holding company. And by virtue of 4 that status, because it's under full control of 5 the comptroller of the currency in that status, 6 it is treated as a bank as is its parent 7 KeyBank. And we've had information, 8 discussions with the bank regulators including 9 comptroller currency to that effect when they 10 were originally exempted. 11 VICE CHAIR EPPS: Okay. And then at 12 some point we get -- RAC comes out of Wells; 13 correct? 14 THE WITNESS: Right. So Wells is going 15 to create a new subsidiary, RAC. And so -- 16 VICE CHAIR EPPS: It's going to pass 17 through Wells -- from that trust through Wells, 18 that one block that's split? 19 THE WITNESS: Yeah. I guess you could 20 draw this, you know, inside -- inside the 21 trust. It would probably be the right place to 22 put it. 23 VICE CHAIR EPPS: Is that where RAC 24 goes, inside the trust? 25 THE WITNESS: Yeah. Because they're 241 ITEM NO. 17-Yankauer 1 creating the RAC, yeah, for the stakeholders 2 here which is, in essence, is the same thing as 3 a the trust. 4 VICE CHAIR EPPS: But it doesn't go 5 inside the trust and only around the box that's 6 split because RAC doesn't touch any of the 7 other -- 8 THE WITNESS: Yeah. In essence, this 9 loan is going to be wiped out. Okay? And 10 really what it's going to be replaced with is 11 RAC in here. So in trust used to be the loan, 12 and now the loan is going to be extinguished as 13 part of this transaction. What will -- what 14 will be left is the ownership of the asset, 15 which sits, you know, inside RAC. And so, 16 yeah, RAC should be drawn -- I think that's a 17 better -- I like that. That's a better 18 picture. It's just part of that box. 19 VICE CHAIR EPPS: Now -- okay. I think 20 I have that. You can go -- 21 MR. O'GARA: Should we mark this? 22 VICE CHAIR EPPS: We might as well. 23 MR. DiGIACOMO: I think, Mr. O'Gara, if 24 you're going to mark the deck in as J-15, that 25 would probably be J-16. 242 ITEM NO. 17-Yankauer 1 MR. O'GARA: J-16. So we can't lose it. 2 Would you write J-16 on your picture? 3 MR. Di'GIACOMO: Mr. Nance is looking at 4 me as if that's an incorrect designation. 5 MR. NANCE: No, that's fine. Because 6 you designated J-15. 7 MR. DiGIACOMO: Fine. Yeah. Hold J-15 8 for the deck. 9 MR. NANCE: That's fine. 10 VICE CHAIR EPPS: I have a question on a 11 whole separate -- I just needed that picture to 12 kind of -- 13 THE WITNESS: I think that that was very 14 helpful. 15 VICE CHAIR EPPS: I think that was very 16 helpful. 17 With respect to the termination, the 18 management agreement. The management agreement 19 is between who on that picture and Mr. Ribis' 20 company, RIH? 21 THE WITNESS: RAC. It's between RAC and 22 Mr. Ribis, RIH. 23 VICE CHAIR EPPS: RAC and RIH. Okay. 24 And then that -- that agreement contains a 25 termination clause. 243 ITEM NO. 17-Yankauer 1 THE WITNESS: Correct. 2 VICE CHAIR EPPS: Who, what people can 3 exercise that termination clause? Who are 4 they? 5 THE WITNESS: It would really be 6 Trimont. Trimont is the non-member manager of 7 RAC, and so Trimont would be the one that could 8 terminate RIH. 9 VICE CHAIR EPPS: So Trimont is a member 10 of RAC. Trimont and who else? 11 THE WITNESS: It's -- well, I just want 12 to be clear. It's not an ownership. It's not 13 a stakeholder, okay? But it's a non-member 14 manager. So it -- it's -- in essence, RAC has 15 engaged Trimont to, you know, to manage that 16 entity. 17 VICE CHAIR EPPS: Okay. So now let me 18 ask another question. 19 THE WITNESS: The ownership aspect of 20 it. 21 VICE CHAIR EPPS: Trimont -- in the 22 original picture, Trimont was working for Key. 23 THE WITNESS: Correct. 24 VICE CHAIR EPPS: Trimont is now also 25 going to work for RAC. It's going to continue 244 ITEM NO. 17-Yankauer 1 to work for Key and work for RAC? Or is it 2 still working for Key but in RAC? Do you 3 follow that question? 4 THE WITNESS: Yeah, I follow. It's -- 5 Trimont will continue to report to the master 6 servicer if -- it will have a responsibility 7 to, you know, continue its responsibilities, 8 you know, to Key, the master service. But 9 specifically as relates to this situation, it 10 will also be the non-member manager of RAC. 11 VICE CHAIR EPPS: Who else is in RAC? 12 Other than Trimont? 13 THE WITNESS: Again, Wells Fargo is the 14 owner, is the hundred percent owner as trustee. 15 And the non-member manager is Trimont. That's 16 it. There's nothing -- 17 VICE CHAIR EPPS: So it's just Wells and 18 Trimont? 19 THE WITNESS: Wells and Trimont. That's 20 it. Nothing. 21 VICE CHAIR EPPS: And Trimont can go to 22 Wells and say, you know what? This Ribis is 23 not guy did not our guy. He's got to do. 24 Trimont can do that. 25 THE WITNESS: Trimont can do that. 245 ITEM NO. 17-Yankauer 1 VICE CHAIR EPPS: And they can execute 2 the 60-day rule, let Mr. Ribis know, and 3 they're willing to pay the one-point whatever? 4 THE WITNESS: Whatever the termination 5 fee is. 6 VICE CHAIR EPPS: And they're willing to 7 do that? 8 THE WITNESS: I don't know if their 9 willing to do that. 10 VICE CHAIR EPPS: I guess -- 11 (Laughter.) 12 THE WITNESS: No contemplation -- they 13 could do it. 14 VICE CHAIR EPPS: And that call will be 15 made by Trimont? 16 THE WITNESS: That call would be made by 17 Trimont. You know, I'd have to look to see if 18 as directing class holder we had any ability to 19 weigh in on that, but it would be more of a 20 just a consent issue. They would probably come 21 and ask us, do we have a problem with it, and 22 we would say yes or no. 23 I think, you know, another very 24 important point is they could do that, but they 25 will not likely do that unless there is another 246 ITEM NO. 17-Yankauer 1 licensed party approved by this Commission to 2 replace them. 3 VICE CHAIR EPPS: Well, that's two 4 different issues. But my question is who is 5 the person that could do it? And the person 6 that could do it or entity that could do it is 7 Trimont, you're telling me. 8 THE WITNESS: Yeah. It's Trimont. 9 There's no doubt. 10 VICE CHAIR EPPS: Okay. And Trimont is 11 not a bank holding company? 12 THE WITNESS: Trimont is not a bank 13 holding company. That's correct. 14 VICE CHAIR EPPS: Now, recoverable 15 advance. 16 THE WITNESS: Yes. 17 VICE CHAIR EPPS: You've talked about 18 that term. "Recoverable" meaning I'm going to 19 loan you this, but I have a reasonable 20 expectation that I'm going to be able to get it 21 back. 22 THE WITNESS: That's fair. Yes. 23 VICE CHAIR EPPS: And if something 24 happens, I stand first in line to get mine 25 back, or at least whatever of mine I can get 247 ITEM NO. 17-Yankauer 1 back, I get first. 2 THE WITNESS: You -- that's correct. 3 VICE CHAIR EPPS: Okay. The whole world 4 turns around and everything gets better. You 5 sell Resorts for 500 million. Key gets their 8 6 back first. 7 THE WITNESS: Yes. 8 VICE CHAIR EPPS: At the table. The 9 first check cut is to Key. 10 THE WITNESS: You got it. 11 VICE CHAIR EPPS: Okay. If between now 12 and August of '10 when the whole world's going 13 to turn around and get better -- you heard that 14 here first. 15 (Laughter.) 16 VICE CHAIR EPPS: Resorts needs the 8 in 17 November, so they've exhausted the 8, and in 18 February that -- that thing in the projection 19 that was already there that they'll probably 20 going to need 3, so something went bad in 21 November, they need the whole rate? 22 THE WITNESS: They need more. 23 VICE CHAIR EPPS: They get to -- 24 THE WITNESS: Right. 25 VICE CHAIR EPPS: -- the budgeted 248 ITEM NO. 17-Yankauer 1 number, and that event happened, and they need 2 the 3? 3 THE WITNESS: Correct. 4 VICE CHAIR EPPS: They're going to go to 5 Key. Keys going to do a recoverable advance 6 analysis and say -- or could say, we're 7 probably going to get this back, too. Here's 8 the other 3. So now they're at 11 in theory. 9 THE WITNESS: That's correct. 10 VICE CHAIR EPPS: Okay. You suggest 11 that that is a likely occurrence? 12 THE WITNESS: It's, you know, hard for 13 me to say because I'm not them, clearly. But, 14 you know, based on my understanding of the way 15 all these agreements work, they are not just 16 looking to this particular asset. They're 17 looking to all the assets in the trust, and I 18 think there are seven in total. So I would say 19 that, you know, for the kinds of numbers that 20 you're throwing around, there's a good 21 likelihood that they would be able to do that. 22 VICE CHAIR EPPS: So then what you're 23 telling me is -- and this is the first time 24 I've heard it, which I'm just trying to 25 understand it. I'm not being smart. 249 ITEM NO. 17-Yankauer 1 RAC now gets the benefit of being in the 2 trust, and so that recoverable advance analysis 3 speaks to the entire -- all the assets in the 4 trust, not just the building across the street. 5 THE WITNESS: Well, it's really -- Key 6 is the one that wants to get their money back. 7 And so Key, as the master service, if the 8 entire trust can look to that entire trust to 9 get its money back, so if there are proceeds 10 from another situation they can look to that as 11 well and look at the recoverability in the 12 relation to the entire pool. 13 VICE CHAIR EPPS: So when we're talking 14 about recoverable advance analysis, we're not 15 just looking at the recoverability of Resorts 16 turning a corner and being in a valuable asset. 17 It's everything in the trust that Key will look 18 at before it decides whether or not to make 19 that advance? 20 THE WITNESS: That's correct. That's my 21 understanding. 22 VICE CHAIR EPPS: That's interesting. I 23 didn't know that. 24 Another thing you refer to, the lender 25 as an owner of last resort. Is the ownership 250 ITEM NO. 17-Yankauer 1 group actively seeking someone to buy this 2 asset? 3 THE WITNESS: Well, abs -- 4 VICE CHAIR EPPS: I think the market's 5 bad. Nobody wants to buy a casino anyway. Is 6 that the owner's goal, the bank -- the lender's 7 goal? 8 THE WITNESS: That's a better way to say 9 it, it is the lender's goal. You know, as of 10 this moment, we don't own the property. And it 11 would be disingenuous for us to be out there 12 marketing the properties. We would never 13 engage in any activity like that until we did 14 own it. I mean, in an ideal world, you know 15 we'd like to see the property stabilize and 16 improve a little bit. Because, as a seller, 17 you like to sell when times are better. So in 18 an ideal world, he'd like to wait a little bit 19 to -- if your date was August of 2010, we'll 20 wait until then, and then we'll sell it. But, 21 yes. The goal absolutely will be, you know, 22 ultimately to exit this project and to do it, 23 you know, as quickly as practiceable given the 24 current market conditions. 25 VICE CHAIR EPPS: I think that was all I 251 ITEM NO. 17-Yankauer 1 have. 2 CHAIR KASSEKERT: Can I -- before 3 Commissioner Sommeling, can I just revisit one 4 thing so that I understand it? 5 In your chart up there, RAC is the 6 entity that owns the assets; correct? 7 Everything except the gaming equipment. 8 THE WITNESS: Correct. 9 CHAIR KASSEKERT: So they would own the 10 hotel? 11 THE WITNESS: Yes. 12 CHAIR KASSEKERT: They own the parking 13 garage. 14 THE WITNESS: Correct. 15 CHAIR KASSEKERT: They own the land 16 underneath. 17 THE WITNESS: Correct. 18 CHAIR KASSEKERT: They own the Pier 19 there, I think; right? 20 THE WITNESS: The rights to develop a 21 pier; right. 22 CHAIR KASSEKERT: The rights to develop 23 a pier. The actual land that hasn't been 24 developed yet. 25 THE WITNESS: Right. There's excess 252 ITEM NO. 17-Yankauer 1 land adjacent. 2 CHAIR KASSEKERT: I know your response 3 is going to be to me I'm not a lawyer, but how 4 does that get reconciled with the licensing 5 requirements? Not only, you know, my concerns 6 are not only about the budget control, but also 7 the requirement that anyone that owns lands 8 under the casino be licensed. How do you 9 reconcile that? 10 THE WITNESS: Well, I don't want to use 11 the words that you told me not to use. 12 (Laughter.) 13 THE WITNESS: So I can't speak to the -- 14 you know, what the code says. But, again, 15 it's -- 16 CHAIR KASSEKERT: I mean, if you own the 17 land under the casino, what if you decided, 18 well, we're going to sell it to somebody else? 19 You know, I mean, how would we regulate that if 20 you're not licensed? 21 THE WITNESS: Are you asking me what -- 22 how you would regulate us selling the land 23 underneath the casino to a third party? 24 CHAIR KASSEKERT: Yeah. 25 THE WITNESS: I can assure you that if 253 ITEM NO. 17-Yankauer 1 we sell the land to a party that doesn't have a 2 license, we'll be here talking to you about 3 that. 4 CHAIR KASSEKERT: Okay. 5 THE WITNESS: And making sure that that 6 party, you know, ultimately is licensed. I 7 mean, we have no -- 8 CHAIR KASSEKERT: Then why shouldn't you 9 be licensed? 10 THE WITNESS: Well, again, we're here 11 because of this, you know, very difficult 12 situation. 13 CHAIR KASSEKERT: Yeah. 14 THE WITNESS: And, you know, trying to 15 make the best of it. And, look, at the end of 16 the day, if lenders who make loans need to be 17 licensed to take back the collateral, I think 18 it's going to be very difficult for lenders to 19 make loans. I don't believe lenders are in the 20 business of getting licensed before they make 21 the loan. And so -- and most lenders don't, 22 you know, want to go through the rigors of 23 being licensed. It's not that -- we're 24 licensed to do all sorts of things. We're 25 highly regulated. We're not looking for more 254 ITEM NO. 17-Yankauer 1 regulations. But I will tell you we will live 2 up to all the regulations. And it is -- it is 3 very difficult position, I believe, to ask 4 lenders to get licensed to be able -- just to 5 be able to exercise their remedies. And, you 6 know, I'm not sure what effect that would have 7 on just making loans in the future. 8 CHAIR KASSEKERT: But that's sort of a 9 misnomer. To exercise your remedies would be 10 to take the deed in lieu of foreclosure. We're 11 not saying you'd have to be licensed for that. 12 But if you're going to move forward and operate 13 a casino -- 14 THE WITNESS: But I don't believe -- I 15 honestly don't believe we want to operate a 16 casino. 17 CHAIR KASSEKERT: I think that you 18 don't. 19 THE WITNESS: To be operating a casino, 20 and my understanding from, you know, talking to 21 my counsel, is that that involves activities 22 that we are not just not involved in any way. 23 I mean, we're a passive, role player here, just 24 in the same way we were when we made the loan. 25 And so, yes, we will -- I acknowledge we're 255 ITEM NO. 17-Yankauer 1 going to own that land. RAC, not we. RAC is 2 going to own that land. 3 CHAIR KASSEKERT: Uh-hum. 4 THE WITNESS: But it's not going to be 5 doing anything with that land in any way to 6 violate the regulations that you guys have put 7 in place. 8 CHAIR KASSEKERT: Well, I guess the 9 whole -- you know, we'll probably get into a 10 philosophical argument about the purposes and 11 why we have regulations and what those purposes 12 are, and why the Act was created the way it was 13 because of the concern about keeping 14 unsavory -- not that you're an unsavory 15 character, either. But keeping unsavory 16 characters out of the business. And that's why 17 we have such high standards. And I just -- I'm 18 having trouble grasping, you know, that these 19 aren't functions -- and I don't want to 20 presuppose because I haven't heard all the 21 testimony yet. But from your testimony, I'm 22 having a hard time reconciling that. 23 THE WITNESS: I guess what I'm telling 24 you is that in your example of us selling the 25 land, I have no absolutely no interest in 256 ITEM NO. 17-Yankauer 1 saying -- to make it sound horrible -- in 2 aiding and abetting anybody else in breaking 3 the law. And so if we were granted this 4 waiver, if we're -- you know, so lucky, you're 5 gracious enough to do that, you know, we're 6 going to make sure that, you know, we don't, 7 you know, aide and abet somebody else for 8 violating your regulations. I mean, that's not 9 our business. 10 We have a reputation, we have a 11 reputation for, you know, abiding by 12 regulations. And, you know, if for some 13 unforeseen reason, we are seen as not living up 14 to those regulations, we deal with that. We 15 deal with it promptly. You know, that's not 16 our business. You know, we're a bank that's 17 regulated everywhere. So, you know, helping 18 others to do something that would be, you know, 19 deemed to be, you know, improper, illegal, or 20 not subject to regulations is -- that's just 21 unacceptable to our very existence. 22 CHAIR KASSEKERT: And I'm sure you will, 23 and I -- I believe all that. But I'm still at 24 a statutory impasse. And I guess that's what 25 I'm saying. 257 ITEM NO. 17-Yankauer 1 Commissioner Sommeling? 2 COMMISSIONER SOMMELING: Yes. The 3 primary role of Trimont is to maximize the 4 recovery value of the property; right? I mean 5 that's their primary function? 6 THE WITNESS: Of the loan that was 7 advanced. 8 COMMISSIONER SOMMELING: Right. 9 THE WITNESS: Which in this case would 10 happen to be the property. 11 COMMISSIONER SOMMELING: And they also 12 would be in control of what you -- what they 13 call "protective advances" should Resorts need 14 additional money to function in their 15 operations. 16 THE WITNESS: Well, they've already made 17 the request for the $8 million advance, which 18 has been approved by Key. Which would happen, 19 you know, immediately after this transaction 20 was approved, if it is approved. And they 21 would be responsible for requesting further 22 advances from Key if further advances were 23 required. 24 COMMISSIONER SOMMELING: And are you 25 required with the outline of the overall 258 ITEM NO. 17-Yankauer 1 general functions of Trimont that was given to 2 us? 3 THE WITNESS: I believe I've -- I have 4 seen that document. 5 COMMISSIONER SOMMELING: You have seen 6 this document? 7 THE WITNESS: Yes, I have. 8 COMMISSIONER SOMMELING: Do you know who 9 prepared this document? 10 THE WITNESS: It was prepared by 11 Trimont. 12 COMMISSIONER SOMMELING: By Trimont 13 itself? And was there any individual that is 14 responsible for preparing exactly what their 15 function would be? Which is about what this 16 says? 17 THE WITNESS: I believe it was, you 18 know, Peter Hoelzle and Kate Floyd. 19 COMMISSIONER SOMMELING: And it pretty 20 much puts Trimont in control of how the funds 21 that are disputed back to Resorts so that 22 Resorts could continue to operate and function 23 and maintain their threshold with respect to 24 operating capital; is that correct? 25 THE WITNESS: Well, to the extent that 259 ITEM NO. 17-Yankauer 1 funds are needed from that $8 million reserve, 2 their responsible is for making sure that those 3 wires occur. That's correct. 4 COMMISSIONER SOMMELING: It also says 5 they were they would be involved in all major 6 decision concerning the property. 7 THE WITNESS: Major decisions. An 8 example of the major decision might be selling 9 the property to another license holder. 10 COMMISSIONER SOMMELING: Okay. Well, I 11 want to just pursue this because they would 12 intimately involved, and I know the Chair and 13 the Commission is concerned about the 14 regulatory requirements as they might apply if 15 this deal goes through. 16 THE WITNESS: Uh-huh. 17 COMMISSIONER SOMMELING: And if they 18 would be in that kind of control, and as I read 19 this, and I read it over a number of times, it 20 says the purpose of the memorandum is to 21 provide inside clarification as to the 22 monitoring process that RAC Atlantic City, 23 through its managing member, Trimont, will 24 follow surrounding operations at the Resorts 25 Casino Hotel as further described in the joint 260 ITEM NO. 17-Yankauer 1 petition, so forth and so on. And it says that 2 this monitoring function shall consist of 3 oversight of cash, management and treasury 4 functions at the property and participation in 5 all major decisions concerning the property. 6 And you had said that meant what with regard to 7 major decisions? 8 THE WITNESS: I view major decisions as 9 to, you know, selling the project to recover 10 proceedings. In embarking on a major 11 unbudgeted capital improvement that would be 12 recommended by the manager. Manager might 13 say -- and I don't believe this will ever 14 happen, but -- let's build a new tower. You 15 know, it's going to cost us X. And, you know, 16 not likely to see that happen in this market. 17 Nor would we, you know, recommend doing 18 something like that. But we're talking about 19 major functional decision that relates to the 20 function of the property. Not the operations 21 of the casino. I think it's very clear, at 22 least in the words that you are describing, 23 that it is a monitoring of the operations, a 24 monitoring function. 25 COMMISSIONER SOMMELING: And as this 261 ITEM NO. 17-Yankauer 1 report indicates, that would be, at the least, 2 on a weekly basis. 3 THE WITNESS: I believe they would hold 4 telephonic calls. It would not be at the 5 property at all. There would be no presence. 6 They're located in Atlanta. There would be 7 e-mails and telephone calls and a very passive 8 role. 9 COMMISSIONER SOMMELING: That's all I 10 have. 11 CHAIR KASSEKERT: Okay. Lets me ask, 12 any other questions? Of this witness? 13 Anything on redirect? 14 MR. O'GARA: No, ma'am. 15 CHAIR KASSEKERT: Anything on recross? 16 MS. FLAHERTY: No, Chair. 17 Okay. We're going to take a brief 18 recess. 19 Thank you. You may step down. 20 THE WITNESS: Thank you very much. 21 (A recess was taken from 4:15 to 4:45 22 p.m.) 23 CHAIR KASSEKERT: We'll return from 24 recess. Go back on the record. 25 Mr. O'Gara, can you call your next 262 ITEM NO. 17-Yankauer 1 witness? 2 MR. O'GARA: Yeah. I think there was 3 one thing we wanted to do. 4 CHAIR KASSEKERT: Okay. 5 MR. O'GARA: Number one, Mr. Yankauer's 6 efforts, which are J-16, if you have no 7 objection, we'll -- and that's the only one we 8 have, so we'll have to have Daryl make sure he 9 preserves that. And I believe that -- 10 VICE CHAIR EPPS: He needs to sign it. 11 CHAIR KASSEKERT: Well, the other 12 question is, as a courtesy, how are we going to 13 reproduce it if the press or somebody else asks 14 him for it? 15 MR. O'GARA: I think you can have 16 viewings. 17 (Laughter.) 18 VICE CHAIR EPPS: Only if we have an 19 artist's signature. 20 MR. O'GARA: There might be a way for 21 Steve to do okay with this. 22 The other thing is Commissioner 23 Sommeling referred to a document which is, in 24 fact -- I will represent to you that that is a 25 document which in dialog with a number of 263 ITEM NO. 17-Yankauer 1 people, some of whom -- Mr. Latimer, I was 2 copied on. I think Mr. McCarthy may have been. 3 A series of documents back and forth to create 4 flow charts about Trimont, and there were 5 several versions. We're satisfied the version 6 Commissioner Sommeling has is a reasonably 7 accurate and a near-end of investigation. I 8 believe it probably came from either the 9 Counsel's office or -- but we have no 10 objection. It's marked as J-17. It going to 11 be admitted so that there would be something in 12 the record as to what the reference was so the 13 document -- 14 MR. NANCE: It hasn't been marked yet. 15 MR. O'GARA: Pardon me? Well, it will 16 have to be marked. 17 MR. DiGIACOMO: Yeah. Yeah. 18 MR. O'GARA: And so that will be it. 19 MR. DiGIACOMO: And that it will be -- 20 I'm sorry. 21 MR. NANCE: So we'll mark it as J-17, 22 which is, based on my reading, an undated 23 Trimont memorandum regarding -- 24 MR. O'GARA: It's an undated memoranda 25 on Trimont letterhead. Correct. 264 ITEM NO. 17-Yankauer 1 MR. NANCE: Okay. And it's regarding 2 insight and clarification as to the monitor 3 process. 4 MR. O'GARA: Yeah. I believe that's how 5 the e-mail chain started, with that letter. 6 CHAIR KASSEKERT: Any objection to that, 7 Counsel? 8 MS. FLAHERTY: No objection to it. 9 CHAIR KASSEKERT: Would you like to see 10 it? 11 MS. FLAHERTY: I would just like to note 12 with regard to the slide presentation, I'm not 13 sure if the Commission staff has the copies of 14 the booklet. 15 MR. O'GARA: Ah, yes. But unlike the 16 Yankauer art. Here they are. 17 (Laughter.) 18 MR. O'GARA: And I represent to you they 19 are exactly what was on the deck, Chair. 20 CHAIR KASSEKERT: Okay. I think you 21 were just trying to one-up Mr. Brooks that from 22 Tropicana matter. 23 MR. O'GARA: No. I have to say -- 24 CHAIR KASSEKERT: Large screen. 25 MR. O'GARA: I had no -- Skadden, the 265 ITEM NO. 17-Yankauer 1 technical department of Skadden put that 2 together and I -- 3 MR. RIBIS: Why didn't I get a book? 4 MR. O'GARA: And, in fact, it's a book 5 we did beforehand. And another first. 6 And with that, we had concluded the 7 witnesses that we were going to present. We 8 understood that the Commission may want another 9 witness, and we have people here, and certainly 10 that witness is available if you can tell me 11 who it is. 12 CHAIR KASSEKERT: Mr. McCarthy. 13 MR. O'GARA: Okay. So we call Francis 14 X. McCarthy. 15 MR. NANCE: Raise your right -- thank 16 you. 17 18 FRANCIS X. McCARTHY, was duly sworn to 19 testify in this matter. 20 21 MR. NANCE: Please state your name for 22 the record. 23 MR. McCARTHY: Francis X. McCarthy. 24 MR. NANCE: Spell your last name, please 25 MR. McCARTHY: M-c-C-a-r-t-h-y. 266 ITEM NO. 17-McCarthy 1 MR. NANCE: Thank you. 2 MR. O'GARA: If I might, Commissioner, 3 just a preliminary questions. 4 CHAIR KASSEKERT: Sure. 5 6 DIRECT EXAMINATION BY MR. O'GARA:. 7 Q. Hi, Mr. McCarthy. How are you? 8 A. Fine. How are you? 9 Q. Okay. 10 (Laughter.) 11 Q. What's your position with Resorts 12 International? 13 A. I'm Executive Vice President of Finance 14 for Resorts. 15 Q. And you held that position for some 16 time? 17 A. For the last three and a half years. 18 Q. And in that capacity you're familiar 19 with the consensual transaction that was entered 20 between the lender group and the Resorts' interests 21 that's the subject of today's hearing? 22 A. Yes, I am. 23 Q. And I assume you're, at least on a 24 nonlawyer basis, familiar with the documentation that 25 surrounds that? 267 ITEM NO. 17-McCarthy 1 A. Yes. 2 Q. And, likewise, you're familiar with the 3 present financial condition of Resorts? 4 A. Yes. 5 Q. And as well as the things we've talked 6 about today, the budget, the forecasts. You've had a 7 role in those, I assume; correct? 8 A. Yes, I have. 9 Q. It's my understanding that Miss Flaherty 10 had a number of the questions. Some of the 11 Commissioners may have. But I wanted to make sure 12 that everyone understood that you had involvement. So 13 that's all. 14 CHAIR KASSEKERT: Miss Flaherty? 15 MS. FLAHERTY: Yes. 16 17 CROSS-EXAMINATION BY MS. FLAHERTY: 18 Q. Mr. MaCarthy, I'll ask a question that 19 we had discussed with Mr. Ribis. Based on being the 20 Chief Financial Officer of Resorts, would it be 21 correct that Resorts has not been able to satisfy the 22 15 million cash reserve condition upon it for the last 23 several months? 24 A. That is correct. 25 Q. And is its EBITDA forecasted to be .2 268 ITEM NO. 17-McCarthy 1 million for 2009? 2 A. Yes, it is. 3 Q. Now, if you received the cash infusion 4 or the cash availability of the $8 million as a Chief 5 Financial Officer, how would you be able to continue 6 to operate Resorts? What would that do for you? 7 A. Well, we would be able to manage on a 8 day-to-day basis the facility. It would help us 9 through, obviously, the slower periods of time such as 10 the winter months. 11 Q. Now, with the $8 million, how would that 12 actual be utilized over the next six, eight-month 13 period based on your forecasts? 14 A. Based on our forecasts, we have a need 15 for approximately $5 million over the next eight 16 months. 17 Q. Uh-huh. 18 A. Million and a half of which is in a 19 November, December time frame, and the balance is in 20 March, April. 21 Q. And what are the reasons for those 22 needs? 23 A. We have -- we have to make payments 24 for -- CRDA payments, which is not part of our 25 budgeted EBITDA. Additionally, we have to make 269 ITEM NO. 17-McCarthy 1 payments on a Marina Energy loan for equipment. And 2 we also have just timing differences in payments that 3 are required. For instance, we have real estate tax 4 payment as well as CDRA payment in January, February, 5 time frame, which puts -- puts a strain on cash flow 6 because it's in the wintertime. 7 Q. Okay. Now, with regard to the Capex 8 requirements, would you be able to meet those? 9 A. Right now the forecasts do not have 10 Capex in the forecasts. 11 Q. Uh-hum. 12 A. With the money that's contemplated in 13 the trusted money that we're talking about, I'm sure 14 that we could work up a cash flow that would have 15 sufficient Capex that would allow the property to meet 16 its obligations. 17 Q. Okay. And that would be under the 18 regulation or in order to operate in had a 19 first-class -- you know, as first-class facility or to 20 attract patrons with programs or offerings? 21 A. Yeah. It's super important for any 22 facility to have Capex, particularly in the 23 challenging environment we're in. Facility needs to 24 keep its casino floor continually fresh with new 25 product. Additionally, any building in town here 270 ITEM NO. 17-McCarthy 1 requires capital improvements just on a regular 2 maintenance, wear and tear. And information 3 technology is a continual process that requires a 4 completion of new changes as they come to the 5 marketplace. So that would be the gist of what the 6 capital is required. 7 Q. Based on your experiences, as Chief 8 Financial Officer, in light of Resorts' cash position, 9 cash flow, does it have the ability without support of 10 the loan agreement and the pooling services agreement 11 to address its financial obligations on an ongoing 12 basis through the winter months of -- 13 A. No, it does not. 14 Q. With that support, is it your opinion 15 that you will be able to meet all the obligations that 16 you are required to under the Act, including Capex, 17 CDRA requirements, tax requirements, payments to 18 employees, vendors, the Commission? 19 A. With the adjusted dollar amount, yes. 20 Q. Thank you. That's all I have. 21 MS. FLAHERTY: Thank you. 22 CHAIR KASSEKERT: Questions from 23 Commissioners? 24 Commissioner Epps? 25 VICE CHAIR EPPS: If I understood you 271 ITEM NO. 17-McCarthy 1 correctly, of the $8 million, there would only 2 be about $3 million for you to do capital 3 expenditures. 4 THE WITNESS: That's correct. 5 VICE CHAIR EPPS: And that's enough for 6 you to keep your floor fresh and do the things 7 that you have to do to operate your facility 8 and to stay competitive? 9 THE WITNESS: No. What I -- what I said 10 was the adjusted dollar amount that's being 11 contemplated, the 8 million, I understand would 12 be adjusted to $15 million. That will give us 13 enough money to -- that would allow us to do 14 the capital. 15 VICE CHAIR EPPS: Okay. So in order for 16 you to be competitive and whatever, that -- you 17 would need that other 7 million that Mr. Ribis 18 made reference to, so that would be the second 19 recoverable advance from Key that would have to 20 come out. 21 THE WITNESS: Yes. 22 VICE CHAIR EPPS: That would be the 23 other 7 million, and Key would have to make 24 that assessment and determine whether or not 25 they could advance that other 7? 272 ITEM NO. 17-McCarthy 1 THE WITNESS: Yes. 2 VICE CHAIR EPPS: But as you sit here 3 today, in order to be competitive, you think 4 you would need that 7? 5 THE WITNESS: Yes, I do. 6 VICE CHAIR EPPS: That's all I have. 7 CHAIR KASSEKERT: When -- all right. 8 Go ahead, Commissioner Sommeling. I'll 9 wait. 10 COMMISSION SOMMELING: So that would 11 allow you to arrive at your cash needs. Would 12 you still be able to maintain the $15 million 13 threshold? 14 THE WITNESS: Yes, we would. 15 COMMISSIONER SOMMELING: And how would 16 that actually happen? 17 THE WITNESS: Well, we have a balance 18 now. We've been consistently -- without any 19 help from the proposed transaction, we've been 20 bouncing in the $14-million range. So 21 technically right now I need a million dollars. 22 Of course, we're in the summertime, and 23 throughout the process from March through now 24 we've been anywhere from $12 and a half million 25 up to 15. The $15 -- the $15 million threshold 273 ITEM NO. 17-McCarthy 1 is a -- is a threshold that is -- gives us the 2 working capital flexibility, and we basically 3 have been operating without that flexibility. 4 That doesn't mean we've been scrimping on 5 anything. We've been able to run our operation 6 on the balances that we've been able to have. 7 But to answer your question, the 15 8 million would be able to be achieved with the 9 additional monies that the -- I guess Key Bank 10 is going to be providing. 11 COMMISSIONER SOMMELING: That's it, 12 Chair. 13 CHAIR KASSEKERT: Commissioner 14 Harrington? 15 COMMISSIONER HARRINGTON: No. 16 CHAIR KASSEKERT: What -- what if this 17 isn't enough? I mean, if things go suddenly 18 south, could you foresee going back to Key to 19 ask for more money? 20 THE WITNESS: Things continue to go 21 south, we would, as we have always done 22 historically in Atlantic City here, you manage 23 through your capital expenditures. We would -- 24 obviously, we feel that all of our Capex are 25 priority. However, if you don't have the 274 ITEM NO. 17-McCarthy 1 money, you have to make do with what you have. 2 And if we see that we aren't making our 3 forecasted numbers, we would have to defer some 4 of those Capex until we get, say, to the next 5 summer season. That would be essentially it. 6 CHAIR KASSEKERT: Now, you are the Chief 7 Financial Officer. You have been the 8 individual that has probably worked closest 9 with the lenders prior to what happened in 10 November and now with Trimont. 11 THE WITNESS: Uh-hum. 12 CHAIR KASSEKERT: Can you tell us a 13 little bit about the budget process. 14 THE WITNESS: Yeah. The budget -- we 15 would prepare the budget and submit it to the 16 lenders, and I can tell you, not once did we 17 get any negative feedback one way or another 18 from -- from the financial institution. We 19 basically prepared it as we always do through 20 our departmentals. And, in fact, our -- we 21 prepared the forecasts, which is in the 22 documents that we submitted to you. Our actual 23 2010 planning is happening as we speak. And 24 I'm sure we will have some adjustments to the 25 plan that we submitted back in June, because 275 ITEM NO. 17-McCarthy 1 that's just a process. We do our budget 2 literally on a detailed basis by department 3 starting August -- late August or early 4 September. 5 CHAIR KASSEKERT: And this is a 6 calendar-year budget. 7 THE WITNESS: It will be the calendar 8 budget for 2010. So that's a process we'll be 9 commencing in approximately another three weeks 10 or so. 11 CHAIR KASSEKERT: Sure. Commissioner 12 Sommeling? 13 COMMISSIONER SOMMELING: Along the same 14 lines, as far as available cash as far as 15 Trimont is concerned, is there a time frame 16 when Resorts has to ask for the money in order 17 to be able to received by a certain date? I 18 mean, is it a 24/7 operation with them as far 19 as you needing more cash from them? Or is it 20 on certain dates, prior to those dates you 21 submit, and then they send the cash through? 22 Is that how that works? 23 THE WITNESS: You usually work this 24 whole process during business hours, which 25 would be Monday through Friday. We have the 276 ITEM NO. 17-McCarthy 1 wherewithal to know going into the weekend what 2 our cash needs are. So if, for instance, we 3 saw that we needed some additional money for 4 the weekend, per se, we have to draw that money 5 on a Thursday so it's in the -- in the casino 6 cage for Friday, for the weekend that's coming 7 up. We would probably, from what I heard from 8 Mr. Yankauer, we would submit on, say, a Monday 9 or Tuesday, and the funds would be available 10 within 24 hours if we needed the cash. So 11 that's the way we're used to working it. So, 12 you know, that's usually how you work with your 13 lender when you need the money. You let them 14 know you need the cash, and then it's 15 transferred into your account the following 16 business day, usually. 17 COMMISSIONER SOMMELING: That's all, 18 Chair. 19 CHAIR KASSEKERT: All right. 20 Commissioner Harrington? 21 COMMISSIONER HARRINGTON: I have a 22 question, and this may have been more 23 appropriate for Mr. Yankauer. But you were 24 talking about the capital expenditure funds and 25 the maintenance and restoration of the gaming 277 ITEM NO. 17-McCarthy 1 floor. Is there any contention or who makes 2 the decision with regard to restoration or 3 preservation or maintenance of the overall 4 property, so if there's a decision about, you 5 know, the garage or the hotel rooms or the 6 ancillary properties versus the gaming floor, 7 how is that resolved? 8 THE WITNESS: The decision process would 9 be through decision -- decider, if you will. 10 That would be Mr. Pasqualoni from a property 11 basis. He would then speak with Mr. Ribis and 12 discuss with Mr. Ribis what our options are and 13 what his recommendation is. And he and Mr. 14 Ribis would decide how we proceed. On choices. 15 COMMISSIONER HARRINGTON: Okay. But 16 they are two different pools of money? 17 THE WITNESS: Well, again, just the 18 money that I heard today that we are going to 19 have available to us, that -- with that money 20 available, we will be developing our capital 21 budget based on that money available. And 22 we'll be utilizing that -- those monies to fund 23 our capital. 24 COMMISSIONER HARRINGTON: Okay. But for 25 the gaming floor? 278 ITEM NO. 17-McCarthy 1 THE WITNESS: For gaming floor, for the 2 hotel. 3 COMMISSIONER HARRINGTON: For the -- 4 okay. 5 THE WITNESS: For all main -- it's 6 called maintenance capital expenditures. It's 7 the capital expenditures you need to maintain 8 the property. 9 COMMISSIONER HARRINGTON: Okay. Thanks. 10 COMMISSIONER SOMMELING: Chair? 11 CHAIR KASSEKERT: Sure. Commissioner 12 Sommeling? 13 COMMISSIONER SOMMELING: I want to 14 recall Mr. Yankauer for a question. 15 MR. O'GARA: I have a question for Mr. 16 McCarthy. 17 CHAIR KASSEKERT: Why don't we -- okay. 18 Why don't we finish up with Mr. McCarthy, and 19 then we'll recall Mr. Yankauer. 20 MR. O'GARA: I don't know if you're 21 done, Chair. 22 CHAIR KASSEKERT: I'm done. 23 MR. O'GARA: Okay. 24 CHAIR KASSEKERT: Thank you. 25 279 ITEM NO. 17-McCarthy 1 REDIRECT EXAMINATION BY MR. O'GARA: 2 Q. Mr. McCarthy, couple of things. 3 You understand that the $8 million has 4 been funded by Key? 5 A. I don't know that. I understand -- I've 6 seen a letter. 7 Q. Okay. And you've read the letter. 8 A. I think they committed to the funding. 9 Q. You read the letter. They committed 10 that they've made the decision. It's a funding 11 decision that comes out -- 12 A. Yeah. 13 Q. That any additional funds from Key would 14 have to be subject to a same request, goes through the 15 same mechanism, then they would fund it. Is that your 16 understanding? 17 A. Yes. 18 Q. So we know what's coming up would be 8 19 million? 20 A. Well, and I've been hearing through 21 other testimony that we -- there may be, and there 22 will be another 7 million coming. 23 Q. But there's been no request for $7 24 million; correct? 25 A. Not that I'm aware of. 280 ITEM NO. 17-McCarthy 1 Q. Let me ask you again, I think following 2 up on what Mary Jo asked you. With respect to the $15 3 million -- I think it's called cash reserve condition. 4 You have not met that since its been imposed on a 5 regular basis? 6 A. That's correct. 7 Q. And let me ask you, Mr. McCarthy, if, in 8 fact, this agreement were not approved and foreclosure 9 action were initiated by these lenders, and there were 10 no available funds, do you foresee that you would be 11 able to meet it any time in the foreseeable future? 12 A. Well, the answer would be no. We're in 13 the height of our season right now, and I'm not making 14 it so I would think -- 15 Q. It would continue to -- 16 A. I would expect it -- 17 Q. Fair to say it deteriorates when we get 18 further down the road? 19 A. I wouldn't use the word "deteriorate." 20 It will get lower. 21 Q. Becomes less. 22 (Laughter.) 23 Q. Okay. I'll take your word. "Lower" is 24 the same word. 25 And if, in fact, there were to be a 281 ITEM NO. 17-McCarthy 1 foreclosure, that would mean that with respect to your 2 long-term obligations that you weren't in any way 3 managing them; correct? 4 A. I'm sorry. I don't understand your 5 question. 6 Q. One of the financial stability standards 7 is that you would be able to either, you know, 8 satisfy, refinance, or otherwise manage your long-term 9 obligation? 10 A. Well, foreclosures takes place, that's 11 still there. 12 Q. Yeah. But you're not managing it at 13 that point. You're not assisting; correct? 14 A. I'm not sure. I'm not following your 15 question. 16 Q. Well, I mean, right now how do you view 17 what you're doing with your long-term debt? 18 A. Our long-term debt is exactly -- it's 19 now current debt. 20 Q. Yeah. 21 A. Because we haven't been paying the 22 interest. 23 Q. And you have no ability to pay. 24 A. We have no ability to pay. 25 Q. And no way to manage it; correct? 282 ITEM NO. 17-McCarthy 1 A. And when you say "manage it," 2 describe -- 3 Q. Well, refinance it, find alternatives? 4 A. No. Not in this marketplace. No. 5 Q. No. And if there were to be a legal 6 action, that would even exacerbate that, make it even 7 harder to even contemplate something like that; 8 correct? 9 A. Well, yes. Sure. 10 Q. Okay. 11 MR. O'GARA: I don't have any other 12 questions. 13 CHAIR KASSEKERT: Okay. Anything on -- 14 MS. FLAHERTY: No. No. 15 CHAIR KASSEKERT: -- recross? 16 MS. FLAHERTY: No recross. 17 CHAIR KASSEKERT: Commissioners, any 18 other questions. 19 COMMISSIONER SOMMELING: No questions, 20 Madame Chair. 21 CHAIR KASSEKERT: You may step down. 22 MR. O'GARA: Mr. Yankauer? 23 CHAIR KASSEKERT: Yeah, Commissioner 24 Sommeling would like to recall Mr. Yankauer. 25 So I will remind you, you are still under oath. 283 ITEM NO. 17-Yankauer 1 MR. NANCE: Yeah. 2 CHAIR KASSEKERT: We don't need to swear 3 you again. 4 5 STEPHEN YANKAUER, previously sworn. 6 7 COMMISSIONER SOMMELING: Thank you, 8 Chair. 9 Mr. Yankauer, in light of all the 10 questions that are being asked right now in 11 respect to the GOP and the cash flow and 12 everything with regard to Resorts, my question 13 regards the interest of Trimont in -- in trying 14 to recover the maximum recovery in terms of the 15 value of the property that we're talking about. 16 At what point should the -- should there still 17 continue to be, say a negative GOP for the year 18 2009 into 2010, would someone make the decision 19 that the property would then go into -- go up 20 for sale or whatever else -- whatever 21 disposition thinking in terms of maximizing 22 your recovery on the investment over the loan? 23 Would that occur? And who would make that 24 decision? 25 THE WITNESS: That would occur between 284 ITEM NO. 17-Yankauer 1 Trimont and KeyBank. 2 COMMISSIONER SOMMELING: And KeyBank. 3 THE WITNESS: Uh-hum. 4 COMMISSIONER SOMMELING: And that 5 would -- would there be individuals within the 6 bank structure itself that makes that decision, 7 or is it the people that are related in this 8 transaction and loan with Resorts? 9 THE WITNESS: I believe the way it works 10 is that the special servicer makes a 11 recommendation to KeyBank. KeyBank will 12 evaluate that. I don't know the names of the 13 individuals who were involved. But they will 14 evaluate that. And, you know, either concur or 15 not with Trimont's recommendation. 16 COMMISSIONER SOMMELING: And just to 17 carry that just a little bit further, although 18 we -- we monitor all of the financial 19 activities of all of the casinos. At what 20 point would you or your affiliates notify the 21 Commission that this was -- this was something 22 that was on the horizon? 23 THE WITNESS: Well, when you say 24 "something that was on the horizon," are you 25 talking about a sale of the property or -- 285 ITEM NO. 17-Yankauer 1 COMMISSIONER SOMMELING: Yes. 2 THE WITNESS: Well, I guess we would -- 3 we would notify the Commission as soon as 4 practicable. You know, for our -- we want to, 5 obviously, live up to whatever the requirements 6 are. I can't say I'd know off the top of my 7 head when the Commission is supposed to be 8 notified, but if the Commission is supposed to 9 be notified immediately upon contemplation of 10 the sale, we would obviously live by that. 11 If -- you know, if the Commission would like to 12 know we're engaging in a marketing process, 13 we'd be happy to keep the Commission aware of 14 that and apprised every step of the way. 15 COMMISSIONER SOMMELING: I think what 16 the Commission might be more interested in -- 17 we would be interested in that, too -- but 18 would be continuity of the regulatory process 19 as it would apply to the operation of that 20 property on a continuum. 21 THE WITNESS: Well, the license holder, 22 I would imagine, has an obligation to meet all 23 of the regulatory requirements. And so -- we 24 would expect that the Commission would be 25 apprised of anything material that was 286 ITEM NO. 17-Yankauer 1 happening either through us or through the 2 operator. 3 COMMISSIONER SOMMELING: That's all I 4 have. 5 CHAIR KASSEKERT: Let me ask. You know, 6 I have J-17 before me, which was just provided 7 to us and just moved into evidence. Can you 8 define to me what you mean by the term 9 "variable expense budget for the subsequent 10 month"? 11 THE WITNESS: I didn't write the 12 document. But, you know, the budget has a 13 series of expenses that are related to the 14 seasonality of the property. For example, if 15 the -- thank you very much. 16 If the property is in high season, it's 17 going to be higher occupancy, higher usage, 18 more customers in the door. I think that's 19 just a way of expressing the fact that each 20 month there are certain expenses that vary 21 with, you know, the seasonal usage of the 22 property. 23 CHAIR KASSEKERT: Okay. I guess my 24 concern is, I'm reading under the subsection 25 marked "benchmarks," and it says: In the event 287 ITEM NO. 17-Yankauer 1 that actual property revenues fall below 2 budget/plan in any given month, RAC shall 3 reserve the right to amend the variable expense 4 budget for the subsequent month until such time 5 that the operating revenues return to the 6 budget plan level. 7 And I guess I'm asking for an 8 understanding of what that means in terms of -- 9 it appears that this is not a discussion with 10 RIH. It's a -- it appears that it's a decision 11 made solely by RAC. 12 THE WITNESS: Well, you know, this 13 document is not the management agreement. And 14 the management agreement is very clear that it 15 states that RIH has access to budgeted 16 expenses. And so, you know, I would say that 17 it would be prudent for any operator of a 18 business, whether it's a hotel, a casino, 19 whether it makes automobiles, to tailor its 20 expenses, you know, to the volume of revenue 21 that is generated. It's a best practice but -- 22 CHAIR KASSEKERT: Again, I'm asking 23 about the -- 24 THE WITNESS: Again -- 25 CHAIR KASSEKERT: I'm trying to 288 ITEM NO. 17-Yankauer 1 determine whether or not -- 2 THE WITNESS: I understand. 3 CHAIR KASSEKERT: This is licensing. 4 THE WITNESS: Let me be clear. This is 5 not the management agreement. 6 CHAIR KASSEKERT: Correct. 7 THE WITNESS: So that I think the proper 8 answer is this is not the management agreement. 9 It's not the legal document by which the 10 parties are bound. And the -- you know, the 11 reality is that the operator, the licensed 12 operator, has access to budgeted expenditures. 13 CHAIR KASSEKERT: But what it says is: 14 The purpose of this memorandum is to provide 15 further insight and clarification as to the 16 monitoring process, the RAC Atlantic City 17 Holdings, LLC, entity through its managing 18 member, Trimont Real Estate Advisors, will 19 follow the surrounding operations at the 20 Resorts Atlantic City Hotel property as further 21 described in the joint petition to the New 22 Jersey Casino Control Commission petition dated 23 July 20th, 2009. Sort of might not be part of 24 the -- it seems to be a clarifying document at 25 the very least. 289 ITEM NO. 17-Yankauer 1 THE WITNESS: I believe it's an attempt 2 to be a clarifying document. I think the 3 clarification is here is sort of an 4 aspirational clarification. But I believe the 5 management agreement is clear that the license 6 holder has access to budgeting. 7 CHAIR KASSEKERT: Maybe Trimont needs to 8 read the management agreement? 9 MR. O'GARA: Chair, if I could, I think 10 the origin of this document ought to be 11 discussed. This document is in response to an 12 e-mail chain that went back and forth between 13 your financial evaluation staff -- 14 CHAIR KASSEKERT: Uh-hum. 15 MR. O'GARA: -- the Division of Gaming 16 Enforcement, I think some of the lawyers. 17 There were several versions of this document, 18 and then there were telephonic discussions. 19 I do not know with this version, because 20 I was not party to the calls that led up to it, 21 there were specific questions that went back 22 and forth about specific issues in a budget and 23 how would you theoretically do them? I think 24 that it was designed -- response of a specific 25 question by a specific person. 290 ITEM NO. 17-Yankauer 1 CHAIR KASSEKERT: Uh-hum. 2 MR. O'GARA: And I don't know how to 3 read them without, you know, having that part 4 of the dialog. I mean, I just -- so you would 5 understand what its genesis was, which was that 6 there were doc -- I believe that there's a 7 great deal that goes before this. And what 8 there were were budgets and spreadsheets and 9 then there were variations things that include, 10 I know, the variables expenses and some of 11 these things that are in there. And they were 12 looked at, and this was then followed up after 13 that between discussions between specific 14 individuals. And then I think that it was 15 ginned up at Trimont. And a number of people 16 looked at it, and it went back and forth. But 17 that's what it was. It was a document from one 18 person to another. And there were specific 19 questions that preceded it. Just so you 20 understood that fact. 21 CHAIR KASSEKERT: Okay. But -- that's 22 fine. But this is inconsistent, then, with the 23 management agreement. 24 MR. O'GARA: I don't know that it was 25 meant -- I don't even know -- when I say to 291 ITEM NO. 17-Yankauer 1 you, what the question was that led up to it. 2 Whether it's inconsistent or not, you know, I'm 3 not looking at it right now, but I'm accepting 4 when you're saying that. But when Mr. Yankauer 5 said the explanation. I don't know. In other 6 words, there may have been a specific question. 7 You know, this is this. And as you know, you 8 can posit the question, say I want to get to 9 here. I want to get to there. Someone was 10 looking to try to deal with specific questions 11 they had. And it was pretty nuts and bolts, if 12 you know what I mean. It was about who calls 13 who. 14 CHAIR KASSEKERT: I understand -- I 15 understand that. Because, again, it's not only 16 inconsistent with the management agreement, 17 it's inconsistent with the testimony that 18 you're not going to control the budget. 19 Because it says right here -- 20 MR. O'GARA: I don't know it's intended 21 to say it does. It certainly -- to the degree 22 that it is, it's not the position of the 23 lenders. As I say, it is a dialog between two 24 people. And unless I had both of them, I would 25 hesitate to tell you what precisely they were 292 ITEM NO. 17-Yankauer 1 saying. It was in response -- I know it was in 2 response because I -- I just had Bob Latimer 3 tell me the e-mail trail, and I don't have them 4 with me. I think it occurred -- my guess is I 5 said to someone, I don't even know if that's 6 the last iteration. 7 CHAIR KASSEKERT: Okay. 8 MR. O'GARA: But I know that I saw one 9 that went by. It went through my e-mail, so I 10 know that. But that's all I'm saying to you, 11 it was, in fact, there were specific questions 12 and people were looking to specific things, 13 saying, hey, tell me this. I'm explaining this 14 or doing that. And that was what the dialog 15 was. It certainly is not, in fact, what -- you 16 know, to the degree it's inconsistent to sworn 17 testimony here is what the agreement is, that's 18 the legal document. I mean, despite everybody, 19 you know, saying, hey, we all -- if people have 20 a question, believe me, you know, it's like, 21 you know, you go to the mattress. You go to 22 the agreements, and that's the agreement that 23 bind it. And you heard Mr. Yankauer who is a 24 party to it tell you what it said. 25 CHAIR KASSEKERT: I understand that. 293 ITEM NO. 17-Yankauer 1 THE WITNESS: May I interject? 2 CHAIR KASSEKERT: Yes. 3 THE WITNESS: I would agree with you 4 that this document is inconsistent with the 5 management agreement. I apologize on my -- I 6 mean, that there is that inconsistency. I just 7 scanned Section 4.02. I do not see any 8 reference to that specific ability, and I 9 apologize for that inconsistency. 10 CHAIR KASSEKERT: I understand that. 11 And I don't think that Credit Suisse -- you 12 know, I think that Trimont -- although I know 13 Trimont is sub of Credit Suisse, but -- 14 THE WITNESS: Not of credit Suisse. 15 CHAIR KASSEKERT: I think other people 16 have other ideas, and that's what we're trying 17 to determine here. 18 THE WITNESS: Understood. 19 MR. O'GARA: I think, Chair, to the 20 degree it is inconsistent -- it is not -- I 21 mean, what is that agreement is, and that was 22 not -- no one has submitted to you and said, 23 that's it. Because to the degree it's not 24 consistent, it's not it. I think is the 25 firmest way to say it. And, I dare say -- and 294 ITEM NO. 17-Yankauer 1 I'm not trying to quibble with anybody. 2 There's probably a whole lot of inconsistent 3 documents if you follow the trail here that 4 went on. And sometimes that's a product of 5 misunderstanding. Sometimes it's a product of 6 what was going on at the time. It was a moving 7 target. 8 CHAIR KASSEKERT: Commissioner 9 Sommeling? 10 COMMISSIONER SOMMELING: Yes. In regard 11 to the trust, do they make -- does Wells make a 12 decision based on what the lenders want in 13 terms of disposing of any assets? 14 THE WITNESS: Wells makes no decisions. 15 COMMISSIONER SOMMELING: All right. Who 16 makes no decisions on behalf of the trust? If 17 they're going to relinquish some of their 18 investments? 19 THE WITNESS: Yeah. That would be -- 20 first of all, the trust is not in the business 21 of selling assets. You know, the assets in the 22 trust -- 23 COMMISSIONER SOMMELING: Not the trust 24 itself, no. 25 THE WITNESS: Yeah. The -- but 295 ITEM NO. 17-Yankauer 1 generally speaking, just in very general terms, 2 the trust is a long-term holder of its -- of 3 its assets. But it's assets are generally, 4 when they go into the trust in loan form, 5 right? So it's a long-term holder of the 6 loans, and it anticipates that the loans will 7 be, you know, paid. The only thing time that 8 an asset sale really occurs is when there is a 9 loan that's been converted to -- to property. 10 REO, taken back through the structure such as 11 this or for foreclosure. And it's up to the 12 special servicer to rec -- that it's the 13 purpose of the special servicer is to recover 14 proceeds and determine to do that. So it would 15 be on the special servicer's direction to 16 dispose of that. 17 COMMISSIONER SOMMELING: That would be 18 Trimont? 19 THE WITNESS: That would be Trimont. 20 That's correct. 21 COMMISSIONER SOMMELING: Okay. So they 22 would be focusing only on that property, not a 23 group of properties -- 24 THE WITNESS: Yeah. 25 COMMISSIONER SOMMELING: They only deal 296 ITEM NO. 17-Yankauer 1 with one group. 2 THE WITNESS: That's correct. In fact, 3 Trimont would be appointed as special servicer 4 for the particular loan and could be changed. 5 You could, in theory, have one special servicer 6 for one loan and another special servicer for 7 another. 8 COMMISSIONER SOMMELING: Thank you. 9 CHAIR KASSEKERT: Anything else? 10 Anything else? 11 MS. FLAHERTY: Chair, yes. 12 CHAIR KASSEKERT: Yes. 13 MS. FLAHERTY: Let me just ask with 14 regard to the document, the last exhibit that 15 we have, the last joint exhibit that's with Mr. 16 Yankauer there. 17 I think it might be appropriate in light 18 of the inconsistency that's been admitted that 19 there would be a new version of this document 20 prepared of these procedures that would be in 21 accordance with what is the agreement among the 22 parties. 23 So it's -- and I have to say that I 24 received a copy of this, and I don't even know 25 if it's the same version Mr. Yankauer is 297 ITEM NO. 17-Yankauer 1 referring to, but it was sent at 5:48 August 2 the 20th. And I'm not really sure of the 3 genesis of it and who asked for this or who 4 prepared it, even, because it's not signed by 5 anybody other than it came from Trimont. 6 But if this could be submitted for 7 review and approval of the regulators and to 8 remove the -- I guess items in here, the 9 language in here, that is inappropriate in 10 light of the agreement that's been entered. 11 MR. O'GARA: That's not a problem, 12 Chair. I think that, you know, and I didn't 13 mean to -- I never thought it was intended to 14 be a document that outlined the procedures. It 15 was -- I think, it was a conversation. And to 16 the degree that what Miss Flaherty is suggests, 17 that there be a consistent document, and if you 18 wanted that -- in other words, we want to see 19 the procedure so we know what they are because 20 this conversation was confusing, that's not a 21 problem. But this was, like, someone e-mailing 22 something back and forth in a dialog. It was 23 not a document that was designed to be -- 24 CHAIR KASSEKERT: Uh-hum. 25 MR. O'GARA: -- one of the -- I think 298 ITEM NO. 17-Yankauer 1 you understand that difference, and that may be 2 where the inconsistency is. If such a document 3 is desired, it will be consistent because that 4 was not the intention. It was more a dialog 5 document than it was a document that was 6 intended to interpret or bind someone. 7 MS. FLAHERTY: And my concern -- 8 MR. O'GARA: Because the people who do 9 it don't appear to be any principals to the 10 transaction. 11 MS. FLAHERTY: And my concern, though, 12 is it is a document that's in evidence, and I 13 think it would be appropriate to clarify that. 14 CHAIR KASSEKERT: I have no problem with 15 that. Although I -- you know, when you hear 16 "evidence," you got to take that all into 17 consideration when you're making a 18 determination. And certainly, Miss Flaherty, 19 if you saw -- if this document was included, 20 would this not raise concerns with you with 21 respect to the request that's going forward? 22 MS. FLAHERTY: I see your point, Chair. 23 I had have notes on it. 24 CHAIR KASSEKERT: Very good. 25 Any more questions? 299 ITEM NO. 17-Yankauer 1 VICE CHAIR EPPS: I have one more 2 question since he's here. 3 (Laughter.) 4 CHAIR KASSEKERT: Commissioners Epps? 5 VICE CHAIR EPPS: Mr. Yankauer, Mr. 6 McCarthy said of the $8 million that's already 7 approved, only 3 million of that could be -- 8 because $5 million is what they need to do 9 other things, make certain payments. There's 10 that 3 million left for capital expenditure for 11 the entire year, I guess, for a year from now. 12 And that's -- that's seems to me, and I don't 13 run casinos -- woefully low. And you've 14 indicated to me that they would have to make 15 that further request, that it would go through 16 the recoverable -- recoverability analysis. If 17 it fails, and this is a property that you need 18 to maintain as an ongoing concern, there's -- 19 what's the rub? There's a -- there's an 20 inconsistency. There's an incompatibility 21 here. How do we overcome that? 22 Because it seems that the lender group 23 needs Resorts needs to maintain as an ongoing 24 concern, and you need to make it at least 25 competitive in the marketplace. And to be 300 ITEM NO. 17-Yankauer 1 competitive in the marketplace, to keep the 2 slot machine mix and its floor active and make 3 people want to go play at Resorts, it's going 4 to need to turn over that property. The $3 5 million is not going to give it the ability to 6 do that. 7 But if it can only do that after Key 8 does the analysis and determines that they're 9 going to be able to get the rest of the money 10 back, and Key can't make that determination, we 11 seem to have an impasse. How do we resolve 12 that? 13 THE WITNESS: Yeah. Two parts to the 14 answer to that question. Part number one is, I 15 believe -- and I looked at the budget briefly 16 today. There are two components of Capex in 17 the budget. There is maintenance Capex, and 18 there's ongoing Capex. And I believe in those 19 numbers they're in excess of $3 million that 20 we're talking about. I think it's closer to, 21 you know, 4 million, 4 -- in the range of 4 to 22 5 million. We can all look at the budget 23 together. So that's number one. 24 There is -- the point I want to make 25 that there's Capex in the budget at present. 301 ITEM NO. 17-Yankauer 1 Now, go to what Mr. McCarthy was, I believe, 2 saying that of the 8 million that's slated 3 for -- for this reserve, that 5 million would 4 be needed for operational use. That leaves an 5 incremental 3 million on top of what's already 6 in the budget. So we're talking about a higher 7 number still, you know, possibly 7 or 8 million 8 in aggregate. And if it was determined that 9 there needed to be more money, then a request 10 could be made to Key. I have not seen a budget 11 that has, you know, such a higher level of 12 capital expenditures and would welcome the 13 ability to, you know, review such or have 14 Trimont review such and determine if they 15 should make that request. 16 VICE CHAIR EPPS: Now, this review that 17 you did quickly today, was it budget to actual? 18 Or was it just budget? Because if the budget 19 said there would be this much money, but actual 20 says -- 21 THE WITNESS: I think attached to the 22 management agreement, there's a budget. 23 There's a budget attached to the management 24 agreement. It's affixed as a schedule. That's 25 what I glanced at. 302 ITEM NO. 17-Yankauer 1 VICE CHAIR EPPS: What I'm asking you is 2 the budget said it was going to be 10, but 3 reality is today there is only 2. 4 THE WITNESS: Yeah. I haven't seen any 5 number that looked like that. 6 VICE CHAIR EPPS: Then my -- that extra 7 three is not really -- 8 THE WITNESS: No. 9 VICE CHAIR EPPS: -- 10 plus 3. It's 3 10 plus 3. 11 THE WITNESS: Yeah. If I saw numbers, 12 as I described, and most of it had been spent 13 already, then there's only a smaller number 14 left. No. These were numbers that were 15 affixed to the schedules to the management 16 agreement. 17 VICE CHAIR EPPS: Going forward. 18 THE WITNESS: Okay. 19 MR. O'GARA: And the date of that is, 20 Commissioner Epps, that's going forward from 21 July 17th. So our actual would have been 22 through July 17th. So it's relatively 23 contemporaneous. 24 VICE CHAIR EPPS: Okay. 25 CHAIR KASSEKERT: Commissioner 303 ITEM NO. 17-Yankauer 1 Sommeling, do you have anything else? 2 COMMISSIONER SOMMELING: Yeah. I just 3 want to go back to this one point about the 4 negative GOP. And if it continues and, God 5 forbid, it does continue because there are 6 signs in the economy that it's starting to turn 7 around. If that were to happen, and because 8 Trimont is now streaming money to Resorts to 9 continue their operation, if it continues in 10 that way, at what point does Trimont decide 11 that we can't do this anymore? That we got to 12 stop doing this because the property obviously 13 is not going to turn around or not come back or 14 not be as profitable as we thought it was going 15 to be? 16 THE WITNESS: It's -- 17 COMMISSIONER SOMMELING: All these 18 questions. What would happen then? 19 THE WITNESS: It's a very -- you're 20 asking a very difficult question, to be honest 21 with you, to answer because it's theoretical. 22 I don't know, you know, what the shortfall is 23 going to look like, and, you know, I'm not the 24 one that's actually responsible for making that 25 assessment. But I can tell you what my 304 ITEM NO. 17-Yankauer 1 thinking would be if I were in that role, which 2 is, I would be looking at reforecasting 3 numbers, obviously, because the actual numbers 4 have come in, you know, below what the 5 expectation is from the budget. And, 6 therefore, there needs to be a reforecast. And 7 operating shortfalls need to be projected out 8 into the future. And a determination needs to 9 be made as to when the situation will turn 10 around, if and when it will turn around. And 11 how much money it will take in aggregate to 12 bridge to a better situation when the 13 shortfalls will not persist. And that number 14 and aggregate will be looked at in -- from a 15 recoverability standpoint. 16 It's very difficult to put any precise 17 measures on that. But I think if the answer 18 was that it was determined that KeyBank -- 19 Trimont would not recommend, you know, to 20 KeyBank to fund incremental dollars, then a 21 plan would have to be put in place which would, 22 you know, effectively ultimately be a transfer 23 of the property. And they would need to fund 24 as much money as it would take, you know, to 25 affect that plan. You know, go out, hire 305 ITEM NO. 17-Yankauer 1 advisors, brokers, you know, to sell the 2 property, develop a marketing plan, determine 3 how long it would take to do, that. Determine 4 how much money it would take to bridge to that 5 period and make that available so that the 6 property will continue to operate. 7 COMMISSIONER SOMMELING: Thank you. 8 CHAIR KASSEKERT: Anything else? 9 You may step down. 10 MR. O'GARA: One thing I think to 11 clarify. 12 13 REDIRECT EXAMINATION BY MR. O'GARA: 14 Q. What we call the Commission "advance 15 letter" makes provision that if advances are going to 16 cease, there is a 45-day notice period that would be 17 given to the Commission; correct? 18 A. Correct. 19 Q. So they would not be surprised by this. 20 And then there's a funding obligation to get through 21 that 45 days and do whatever the law requires; 22 correct? 23 A. Correct. 24 CHAIR KASSEKERT: Okay. May step down. 25 Thank you. 306 ITEM NO. 17 1 THE WITNESS: Thank you. 2 CHAIR KASSEKERT: We'll now move to any 3 questions of the Commissioners might have for 4 counsel. 5 And I -- I have one, Mary Jo. And 6 you've got to take me through the statutory 7 constraints of Section 82b and 82c because 8 here -- here -- here's my issue, when I read 9 the statute, 82b tells about the following 10 people that are eligible to hold a casino 11 license, unless otherwise determined by the 12 Commission with the concurrence the Attorney 13 General, which may not unreasonably be 14 withheld. Okay. I understand that. 15 I guess my first question is, it appears 16 to me that the Commission first determines 17 whether or not somebody's eligible and then we 18 go to the Division for advice? Is that your 19 reading of the statute? 20 MS. FLAHERTY: Well, the way I read the 21 statute is that there's specific provisions in 22 C that talk about management agreements. 23 CHAIR KASSEKERT: Right. 24 MS. FLAHERTY: Ownership. Lease 25 agreements. But as an intro to that, there's a 307 ITEM NO. 17 1 general provision that talks about the fact 2 that people should have casino licensure or 3 casino industry licensure under that provision 4 unless the Commission, with the concurrence of 5 the Attorney General, determine otherwise. 6 CHAIR KASSEKERT: Uh-hum. 7 MS. FLAHERTY: And I think that whether 8 you decide first and we concur or whether it's 9 a joint discussion, I believe that the baseline 10 to that is that we both have to agree. And I 11 think that that's a special -- 12 CHAIR KASSEKERT: Uh-hum. 13 MS. FLAHERTY: -- statutory mechanism, a 14 safeguard to ensure that both the regulators 15 are satisfied as to an appropriate course of 16 action. 17 Now, you could interpret it to say that 18 really that's just an introductory clause to C 19 and C governs, but our belief is B stands alone 20 and that the legislature really couldn't 21 contemplate every possible thing that could 22 occur. And they wanted to leave some 23 discretion in the regulatory agencies to make 24 that determination. 25 And that's an interpretation. It's been 308 ITEM NO. 17 1 our interpretation, but I think it's buttressed 2 by the fact that it has come up in different 3 instances over the years. 4 CHAIR KASSEKERT: Uh-hum. 5 MS. FLAHERTY: And the first one that 6 came up was many years ago with Resorts. And 7 originally the lessors under that property had 8 entered their lease agreements with people who 9 were operating a hotel before that was ever a 10 casino hotel operation. 11 CHAIR KASSEKERT: Uh-hum. 12 MS. FLAHERTY: And the leases had been 13 done without contemplation of gaming, did not 14 meet the requirements of the Act. And so when 15 Resorts was going to open as a casino hotel, 16 they went to the lessors and they said, we 17 don't want to do this. We don't want to change 18 it. If you want to change it, you're going to 19 have to pay us millions and millions and 20 millions of dollars. 21 CHAIR KASSEKERT: Uh-hum. 22 MS. FLAHERTY: And they were kind of 23 holding them hostage. And we said, we don't 24 want to hold the casino hotel operation up for 25 this, for this kind of conduct. Its really 309 ITEM NO. 17 1 against the policies of the Act. And because 2 of that, those lessors were not required to 3 hold anything, even though the statute in C(5) 4 would have said they would have had to have 5 been at least casino service industries. 6 Now, over the course of time, things 7 have changed and the lessor or groups have 8 changed, and different parties have been become 9 owners, and they wanted to be transferred, and 10 have obtained status over these intervening 11 years. But that was the decision at that point 12 in time with these lessors, that they were not 13 going to call them in. 14 CHAIR KASSEKERT: Uh-hum. 15 MS. FLAHERTY: And it was for valid, I 16 think, public policy purpose. We didn't want 17 to have a casino license operation and those 18 operators hold -- you know, held to that 19 requirement. And it really was almost an 20 extortion type of situation. 21 The same thing happened with the Trump 22 Plaza when Donald Trump was building the Trump 23 Plaza Casino Hotel, there were three different 24 lessors. They obtained the property while he 25 was in the midst of building a casino hotel. 310 ITEM NO. 17 1 And the same type of situation. They didn't -- 2 they did not want to come in for licensure. 3 They were going to hold him up for, you know, a 4 lot of money again. And it was our 5 determination that we should not go along with 6 that, that we should waive the requirement 7 because it really gave them more control, more 8 ability to influence the casino hotel operation 9 by having them meet the casino service industry 10 requirements and satisfy the provisions of the 11 Act than it would to be to let them go. 12 Now I'm not going to compare those 13 situations to this -- 14 CHAIR KASSEKERT: And that's where the 15 rub comes for me. 16 MS. FLAHERTY: Right. I mean, the 17 situation here is that, you know, we have a 18 process that unfolded with a casino operating, 19 wanting to get a loan, wanting to stay in 20 operation. And part of that loan went to good 21 things. I mean, it -- it satisfied a bunch of 22 little obligations that were related to the 23 casino hotel. And it also had to do with the 24 building of the tower. 25 CHAIR KASSEKERT: Uh-hum. Uh-hum. 311 ITEM NO. 17 1 MS. FLAHERTY: And we have a situation 2 where things have gone bad. 3 CHAIR KASSEKERT: Yeah. 4 MS. FLAHERTY: And we're trying to deal 5 with what the policies of the Act are. 6 And, you know, frankly, I think that the 7 vast majority of these parties are banks that 8 entered this as banks that would be exempt 9 under the Act. And I don't think that their 10 position has changed very dramatically at, 11 least in terms of Wells Fargo and some of the 12 other entities involved. KeyCorp. I don't see 13 that it really impacts on them. But, you know, 14 obviously, you know, we do have a novel, 15 unprecedented situation that we have to deal 16 with. And we have to weigh all those policies. 17 And I think that the other two issues 18 really are with RAC and Trimont, and they're 19 going to come in for casino service industry 20 licensure. It may not be casino licensure, but 21 it's casino service licensure. And they're 22 going to be under your purview and they're 23 going to have to meet some standards. 24 And beyond that, I can tell you that 25 we're virtually done with Trimont as a CSI, and 312 ITEM NO. 17 1 we haven't found if any reason to object to 2 them or to raise any questions with regard to 3 their suitability to be, you know, in that 4 capacity. 5 I would also suggest that, you know, if 6 there are concerns, there is a possibility that 7 you could put additional conditions on that 8 licensure that they would have to meet. That 9 you can't sell the land under the, you know, 10 casino without our prior approval. That you 11 can't sell the casino hotel. That you can't 12 do, you know, virtually anything without your 13 approval. And I think that, you know, that 14 might satisfy a lot of competing -- and I'm not 15 going to, you know, say that they're not 16 competing needs and policies under the Casino 17 Control Act. 18 And the question really becomes, you 19 know, with trying to, you know, stabilize the 20 property, with the, you know, I think serious 21 financial stability concerns, with keeping, you 22 know, the operation going, do we really feel a 23 deep concern as to the qualifications, the 24 credentials of these people to be involved in 25 this? And I think that, you know, a large part 313 ITEM NO. 17 1 of that is that I don't know if Credit Suisse 2 or Column is going to recover most of the money 3 they have in this deal. I really see them at 4 this point as being an expediter or facilitator 5 in terms of, you know, serving their position 6 as the directing party in terms of the trust 7 agreement. I think that a lot of these other, 8 you know -- Key and Wells Fargo are acting as 9 banks. They're continuing to do what they do 10 as banks. 11 Now, the loan is in default, but I 12 think, they are still acting as banks. And, 13 you know, RAC and Trimont are going to be 14 before you as CSIs. And they're going to have 15 to do what you say. They're going to be 16 subject to your requirements and they're going 17 to be subject to whatever conditions you put on 18 them. 19 CHAIR KASSEKERT: And that being said, 20 you know, I think part of your argument going 21 back to what occurred previously and, you know, 22 there were obviously public policies reasons at 23 that point. 24 MS. FLAHERTY: Uh-hum. 25 CHAIR KASSEKERT: I'm not sure that, you 314 ITEM NO. 17 1 know, I agree completely with your analysis all 2 the way through. 3 The other question I have is, I'm trying 4 to reconcile 82b with 82c. And 82c talks 5 about -- you know, in subsections it deals with 6 the concurrence of the Attorney General. 7 MS. FLAHERTY: Uh-hum. 8 CHAIR KASSEKERT: But Subsection 7 9 really doesn't -- I don't see any wiggle room 10 there. 11 MS. FLAHERTY: Uh-hum. 12 CHAIR KASSEKERT: Which provides for the 13 agreement of the management of the casino and, 14 as applicable, the authorized gaming in the 15 casino simulcasting facility, the Commission 16 shall require that either party thereto shall 17 require hold a casino license. I just don't 18 see the wiggle room there. 19 MS. FLAHERTY: Well, I mean, I guess -- 20 CHAIR KASSEKERT: And your argument is 21 it's subservient to 82B. 22 MS. FLAHERTY: Correct. That would be 23 my argument. 24 CHAIR KASSEKERT: But yet the 25 concurrence provisions were specifically put in 315 ITEM NO. 17 1 82c(1) and 82c(2) but not in 82 -- 82c(7). 2 MS. FLAHERTY: Right. 3 CHAIR KASSEKERT: Which -- 4 MS. FLAHERTY: And, I mean, over the 5 years, I've dealt with these provisions, you 6 know, on a number of occasions. And I can tell 7 you, I don't think that, you know, when they 8 were written, they were written as precisely as 9 that. I think that it was -- I think that 10 there were written quickly. I think that they 11 were provisions that were sort of afterthoughts 12 that many people really weren't considering 13 when the main contents of the Act was passed. 14 And I think that they needed to, you know, 15 needed to be added in because of questions and 16 some things that were coming up. But I don't 17 know how -- how precisely, thoughtfully, and 18 accurately each word was put into that. And 19 so, you know, I can only just fall back to my, 20 you know, position that I think as a catchall 21 the legislature said that in 82b if something 22 happens that, you know, really doesn't fall 23 within this that wasn't contemplated, we're 24 going to give this discretion to the regulatory 25 parties. 316 ITEM NO. 17 1 And I think also they said that if 2 somebody doesn't have significant control, in 3 another provision in 82, that you can say that 4 they don't need to. And I think that that 5 is -- 6 CHAIR KASSEKERT: Which is the issue 7 we're -- the very issue we've been discussing 8 today. 9 MS. FLAHERTY: And I think that there's 10 further discussion in that clause -- 11 CHAIR KASSEKERT: Which is a fact 12 determination. 13 MS. FLAHERTY: -- of 82 as well. So 14 that's my argument. 15 CHAIR KASSEKERT: And I guess my final 16 question would be, although in your opening 17 statement you argued that this would not set a 18 precedent -- 19 MS. FLAHERTY: Uh-hum. 20 CHAIR KASSEKERT: -- I don't see how it 21 doesn't. 22 MS. FLAHERTY: Well, I think that it is 23 unique circumstances. And, you know, I would 24 certainly limit it to a situation where someone 25 was already in the situation and needing to 317 ITEM NO. 17 1 deal with these issues and not anyone that was 2 entering the Casino Control, you know, 3 Commission's authority by virtue of a new deal 4 or initial proposition. You know, we're trying 5 to deal with really what is an exist strategy 6 here and, you know, trying to obviously 7 maintain this casino hotel operation. 8 CHAIR KASSEKERT: But I guess we can 9 have the very same issue somewhere down the 10 street, you know, another casino has a problem. 11 They find somebody willing to step in but 12 that -- that bank, that company, that whatever 13 says we don't want to be licensed. So, 14 therefore, wouldn't -- couldn't they try to 15 make the same argument? 16 MS. FLAHERTY: Well, I think that the 17 only places that you'd probably see that now, I 18 believe, are where you're going to have this 19 commercial mortgage bank securities 20 transactions. 21 CHAIR KASSEKERT: Uh-hum. 22 MS. FLAHERTY: And, hopefully, we don't 23 have any more of those. I mean, I -- 24 unfortunately, what happens over time is that 25 there -- you know, are many different 318 ITEM NO. 17 1 transactions that come before us, and they are 2 new and they're complicated and -- 3 CHAIR KASSEKERT: Right. 4 MS. FLAHERTY: You know, whether it was 5 leverage buyouts or, you know, private equity 6 deals, whatever the situation is. And each 7 time we're confronted with something that was 8 never contemplated when the Act was put 9 together. And, you know, we've changed 85 to 10 let people who weren't publicly traded be 11 equity holders because of, you know, certain of 12 these things that have happened. And they're 13 complicated, and we do the best we can. But, 14 obviously, they're not foreseen. And, you 15 know, sometimes there are problems. 16 But, you know, just as with leverage 17 buyouts, and you don't really see them done the 18 same way they were done in the mid '80s, I 19 don't think you're going to see these things 20 happen. Are we going to have other 21 transactions that are going to come up before 22 us that we don't even know what they were 23 they're going to be? We probably will. But I 24 think that these have been shown had they're 25 not going to work, that you can't always say 319 ITEM NO. 17 1 that a property is going to be worth more in 2 five years than it is that day. Properties 3 don't always go up in value. I mean, I think 4 people that weren't around in the 1980s thought 5 that was the case for the last 20 or so years 6 here, but it obviously isn't. 7 CHAIR KASSEKERT: Right. But, again, 8 you know, I think we just -- you know, I mean, 9 who would have expected we would have had the 10 bubble that we had, the recession, I -- you 11 know, it's difficult. Obviously, you can't 12 foresee anything -- everything that might 13 occur. But, you know, I'm just -- I have to 14 say, I'm just very concerned about the 15 standards for license and that we may be 16 diluting what the Act stands for. 17 MS. FLAHERTY: Right. And I really 18 understand that. And we, you know, seriously 19 contemplated all that. And we weighed all 20 these possible alternatives. And, you know, I 21 can tell you I've thought for hours and hours 22 and hours about, you know, different ways to, 23 you know, address or deal with this. But I 24 think this is -- 25 CHAIR KASSEKERT: Yeah. We all have. 320 ITEM NO. 17 1 This has been an immense struggle. 2 MS. FLAHERTY: Uh-hum. 3 CHAIR KASSEKERT: Let met ask if any of 4 the other Commissioners have any questions for 5 counsel? 6 COMMISSIONER SOMMELING: I have no 7 questions, Madame Chair. 8 CHAIR KASSEKERT: Commissioner Epps, any 9 questions? 10 We'll move to closing arguments then. 11 Which I think you kind of made your already. 12 (Laughter.) 13 MS. FLAHERTY: I can just say that, 14 obviously, this is a novel situation, and we 15 appreciate the Commission's close consideration 16 of it. 17 I think that, obviously, the 18 Commission's determinations are made on a 19 case-by-case basis. They are premised on the 20 facts presented in light of the prevailing 21 circumstances. I think we had a sort of 22 similar -- not really similar but, just as 23 equally unique situation with the Harrah's 24 private equity deal and the financial sources 25 there. I think the Commission really limited 321 ITEM NO. 17 1 their ruling to that specific case. I think 2 and I hope that the Commission could do that 3 here as well. 4 I don't think that we necessarily have 5 to make a precedent. But sometimes these 6 things are placed before us, and we need to 7 deal with them. And I think we have what we 8 have. 9 I think we've devoted our reports to 10 trying to address all the issues that there 11 are. Obviously, we're really concerned with 12 the financial status of Resorts, and we 13 reported that to you in January, June, July. 14 And we really think that based on our 15 consideration of this matter, that with the 16 conditions that we recommended, as well as the 17 continuation of the resolutions that are cited 18 in our report, and the conditions there as 19 modified, that we don't have an objection to 20 the relief that's sought by the Petitioners. 21 And with that, we submit it to your 22 consideration. Thank you. 23 CHAIR KASSEKERT: Thank you. 24 Mr. O'Gara? 25 MR. O'GARA: I mean, as to the legal 322 ITEM NO. 17 1 issue, Chair, we recognize, too -- and the 2 interpretation we urge you about 82b and 82c is 3 not one anyone's ever made before. But I 4 think, much as Mary Jo said, the kind of 5 exigent circumstances that you find yourself in 6 that if the exercise the discretion, the 7 question is when. And I would suggest to you 8 that these are fairly exigent circumstances. 9 In putting together the transaction, the 10 lenders and, I think, Resorts are mindful of 11 two things. Number one, to accomplish it in a 12 way that -- to address as many of the 13 regulatory concerns as they could, and that's 14 clear. In terms of trying to convey property, 15 there was understandings of how gaming has to 16 be done and attempts to write a management 17 agreement using those words which are 18 enforceable to you. 19 And the second was -- and it's a equally 20 piece, although not a legal piece, is the kind 21 of thorny financial piece they were confronted 22 with. I mean, this default occurred, you know, 23 months and months ago. And so they knew then 24 that, you know, the 360 that they accelerated, 25 it's being forgiven. You know, I mean, it's -- 323 ITEM NO. 17 1 they find themselves coming in the most 2 unwilling of people that get into this 3 circumstance. But also by find themselves 4 confronted with not just getting the house as 5 you may think, but the house and the family is 6 still there, and the family needs to eat. What 7 we have here is, unfortunately, whether we like 8 to say it or not, a business which is not 9 making money. And so, in addition to what goes 10 on with the loan, we looked at and think did 11 the standard that you had -- and you set a 12 benchmark of 15 million. And we're talking 13 about $8 million, a not insignificant amount of 14 money, which is being put -- and I think we've 15 gone through the filaments of it, but I think 16 that no one would disagree that it's 17 unrestricted, approved money, that this is 18 coming on day one because of realization of 19 your condition. 20 So it's a balance. And the reason why 21 many of these issues arise, I think, very 22 frankly, is -- and some of the ones you say, 23 how do you go this way or that way, in the 24 fullness of time might be a little bit easier. 25 But as we do the analysis, the needs are 324 ITEM NO. 17 1 immediate, and the consequence are severe. 2 There's a lot of collateral damage here if 3 we -- we thought if we could not try to find a 4 way to do this. And that collateral damage was 5 pretty immediate. The most optimistic of 6 people talk to you, you hear about November. I 7 would suggest to you, you know, optimism, like 8 forecast, you know, make you better discount 9 them. 10 And this isn't an evasive. These are 11 not people who came to this process. And most 12 often, I think we see -- and I think Miss 13 Flaherty and I and you presided over our little 14 to-dos with a lot of folks come here looking to 15 make a lot of money. And everyone -- no one 16 wants to maximize their contact with the 17 regulatory system that I have encountered yet. 18 There may be some, but I have not met them. I 19 don't think it's personal. But these are the 20 most unwilling. These were the lenders. And, 21 in fact, I think that what this is is an 22 attempt to ask you to exercise your discretion. 23 And I understand your reticence to do so 24 because it's a big list. I don't -- I don't 25 suggest it isn't. But under circumstances, 325 ITEM NO. 17 1 where in addition to whatever inures to these 2 lenders who now become building owners, that 3 there are other stakeholders here, and 4 provisions has been made for them. And among 5 those stakeholders are all the people who work 6 there, all the people who -- the whole group 7 that would be impacted not over this 45 days 8 that we talk about that comes 13, 14 months 9 out. But kind of like the meteor hit, and it 10 could hit us in a couple of weeks. 11 And so I understand. And it's an 12 exercise of your discretion, and its asked for 13 knowing it requires indulgence and 14 interpretation, but against a backdrop of 15 circumstances no one here set forth to bring 16 into motion. No one. 17 CHAIR KASSEKERT: Thank you, Mr. O'Gara. 18 And I think that you know that the 19 Commission well appreciates that, and we 20 understand what, you know, the lenders have 21 done. But, again, you know, we have the 22 statute. And if the statute is to stand for 23 anything, it has to stand for, you know, 24 setting a standard for New Jersey and the 25 whole -- I would submit to you, the whole 326 ITEM NO. 17 1 reason why investment communities have wanted 2 to invest in gaming, not just in New Jersey, 3 but throughout the United States, is because we 4 have high regulatory standards and because they 5 felt that their investments would safe. 6 MR. O'GARA: I didn't -- I didn't -- as 7 I said, I recognize the heavy lift. I didn't 8 say it wasn't. 9 CHAIR KASSEKERT: I know you do. I know 10 you do. 11 MR. O'GARA: And I know what -- I mean, 12 you and I know what I say when I take B and C. 13 But it's there for a reason, Chair. I ask you 14 just to consider, nobody wrote something in 15 that generic term. And I ask you to -- you 16 know, there's a world in which there's a 17 thousand ways to say no. I ask you to at least 18 examine if there's a way to say yes. 19 CHAIR KASSEKERT: Absolutely we will 20 examine it. And I think we have been examining 21 it for quite some time. And I agree with Mary 22 Jo that perhaps, you know, they always say you 23 don't want to insult your legislation, there's 24 probably a good reason for that -- that saying. 25 Well, obviously, given the voluminous 327 ITEM NO. 17 1 material, both written and oral, that we must 2 synthesize in this matter, I believe that the 3 appropriate course would be to reserve the 4 decision with the expectation we will announce 5 our determination sometime next week at a 6 special public meeting. Thus, unless my 7 colleagues on the Commission are prepared to 8 make a motion to decide on the matter now? 9 (No response.) 10 CHAIR KASSEKERT: No? 11 As Chair, I would simply close this item 12 for today with the expectation of returning 13 with our ruling on a timetable that I just 14 outlined. So we will reserve our decision in 15 this matter. 16 Thank you. 17 MR. O'GARA: Thank you. 18 MR. NANCE: In accordance with 19 Resolution No. 08-12-10-22, the next closed 20 session of the Commission shall be held on 21 Wednesday, September 9th, 2009, at 9:15 a.m. in 22 the Commission offices. 23 It is now time for the public 24 participation portion of the meeting. 25 CHAIR KASSEKERT: Is there anyone from 328 1 the public that wishes to be heard? 2 (No response.) 3 CHAIR KASSEKERT: Seeing no one, I'll 4 declare this portion of the meeting closed and 5 entertain a motion to adjourn. 6 COMMISSIONER SOMMELING: Motion to 7 adjourn. 8 CHAIR KASSEKERT: Is there a second? 9 VICE CHAIR EPPS: Second. 10 CHAIR KASSEKERT: The motion has been 11 made and seconded. All in favor? 12 (Ayes.) 13 CHAIR KASSEKERT: Opposed? 14 (No response.) 15 CHAIR KASSEKERT: Motion carries. 16 (Public Meeting No. 09-08-26 was 17 adjourned at 5:47 p.m.) 18 19 20 21 22 23 24 25 329 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: August 30, 2009 23 My Notary Commission Expires July 22, 2014 24 ID No 2062871 25