1 A P P E A R A N C E S · 4/24/2008 · 12 be here today. I'm Bob Krauss from Ballard Spahr. 13...

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COMMONWEALTH OF PENNSYLVANIA

GAMING CONTROL BOARD

* * * * * * * * *

PUBLIC HEARING

* * * * * * * * *

BEFORE: MARY DIGIACOMO COLINS, CHAIRMAN

Raymond S. Angeli, Jeffrey W. Coy, James B.

Ginty, Kenneth T. McCabe, Sanford Rivers,

and Gary A. Sojka, Members

Keith Welks, Ex-officio Designee

HEARING: Thursday, April 24, 2008

10:07 a.m.

LOCATION: North Office Building

Hearing Room 1

Harrisburg, PA

WITNESSES: Bill Doniger, Steven Price, Peter Carlino,

Bill Clifford, Tom Auriemma, Gary Luderitz,

Don Barden, Sam Marshall, Sean Harrison,

James Talerico, Cyrus Pitre

Reporter: Cynthia Piro-Simpson

Any reproduction of this transcript

is prohibited without authorization

by the certifying agency.


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A P P E A R A N C E S 1

2

JAMES EISENHOWER, ESQUIRE 3

JUSTIN H. PARK, ESQUIRE 4

Schnader, Harrison, Segal & Lewis, LLP 5

1600 Market Street 6

Suite 3600 7

Philadelphia, PA 19103-7286 8

9

ROBERT P. KRAUSS, ESQUIRE 10

Ballard Spahr 11

51st Floor 12

1735 Market Street 13

Philadelphia, PA 19103-7599 14

15

BARBARA A. KAYE, ESQUIRE 16

Honigman, Miller, Schwartz & Cohn, LLP 17

2290 First National Building 18

660 Woodward Avenue 19

Detroit, MI 48226-3506 20

21

BARRY CREANY, 22

Deputy Enforcement Counsel 23

24

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I N D E X 1

2

OPENING REMARKS 3

by Chairman Colins 5 - 6 4

STATEMENT 5

by Attorney Krauss 6 - 7 6

by Mr. Doniger 7 - 9 7

by Mr. Price 9 - 10 8

by Mr. Luderitz 10 - 13 9

by Mr. Carlino 13 - 17 10

DISCUSSION AMONG PARTIES 17 - 19 11

by Mr. Doniger 19 - 21 12

by Mr. Auriemma 21 - 23 13

by Attorney Krauss 23 - 30 14

QUESTIONS 30 - 52 15

STATEMENT 16

by Mr. Eisenhower 53 - 55 17

by Mr. Barden 55 - 63 18


STATEMENT 20

by Mr. Talerico 83 - 85 21


DISCUSSION AMONG PARTIES 117 - 120 23

CERTIFICATE 121 24

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E X H I B I T S 1

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Number Description Offered 4

NONE OFFERED 5

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P R O C E E D I N G S 1

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CHAIRMAN COLINS: 3

Good morning, everyone. I'm Mary Colins, 4

Chairman of the Pennsylvania Gaming Control Board. To 5

begin with, could everyone turn off their cell phones 6

and their Blackberries, et cetera, if you would? 7

And there are two matters that we're 8

going to hear today, open the record too for hearings, 9

before we begin the public meeting. First is Penn 10

National Gaming, Inc., their acquisition by Fortress 11

Investment Group, LLC and Centerbridge Partners, and 12

that matter then will be followed by a hearing on 13

PITG's petition for approval of modifications to their 14

facility. 15

So if all of those in the Penn National 16

matter would come forward, please. And ---. 17

ATTORNEY KRASS: 18

May we spread across? 19

CHAIRMAN COLINS: 20

You may, as long as you leave some room 21

for some Gaming Board people. What do we need? We 22

just need ---. I think you can spread across there. 23

Before you all get too comfortable, I'm going to ask 24

those of you who Counsel wishes to testify to rise and 25


6

be sworn, if you would. The court reporter will 1

administer the oath. She's to your left. 2

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WITNESSES SWORN EN MASSE 4

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CHAIRMAN COLINS: 6

All right. Good morning, everyone. Mr. 7

Krass, would you like to begin? 8

ATTORNEY KRAUSS: 9

Good morning, Chairman Colins, 10

Commissioners. Thank you very much for allowing us to 11

be here today. I'm Bob Krauss from Ballard Spahr. 12

And I have the pleasure of representing Fortress and 13

Centerbridge in their application to purchase the 14

stock of Penn National Gaming, Inc. and to become the 15

owners of Penn National Gaming, Inc. 16

It's really a pleasure because Penn 17

National, of course, is the home team. Others have 18

come before you, but Penn National is the only 19

national gaming organization that's headquartered in 20

Pennsylvania. So I can --- have been assured by the 21

groom from New York that they will be gentle with the 22

bride. The bride will be wearing bright white. And 23

we expect to have a transaction that will be 24

beneficial not only to the shareholders of Penn 25


7

National but also to all of the constituencies that 1

were served by the passage of Act 71. 2

First, let me introduce Bill Doniger. 3

Bill, can you raise your hand, please? He is with 4

Fortress. Next to him to his right is Steve Price 5

from Centerbridge. Peter Carlino, I believe you all 6

know, he's the Chairman of Penn National Gaming. Bill 7

Clifford, Bill, is the CFO of Penn National Gaming and 8

will be able to answer any questions you have. Tom 9

Auriemma is the Chief Compliance Officer for Penn 10

National Gaming and Gary Luderitz, as you know, is the 11

general manager of Hollywood Casino at Penn National 12

Race Course. 13

With that said, Bill, would you please 14

start the proceedings by commenting? We have 15

distributed to each of you a booklet. We're not going 16

to use a PowerPoint because we really want to do this 17

informally. But the booklet that we distributed will 18

have the information that is being --- to which 19

testimony is being given today. At the end of the 20

hearing, I will move to introduce with your permission 21

the material that is before you as well as a 22

memorandum that I have prepared concerning the 23

transfer fee. Thank you. Bill? 24

MR. DONIGER: 25


8

Fortress Investment Group is an 1

alternative asset manager based in New York City. We 2

have approximately 800 employees. We were founded in 3

May of 1998, and we currently manage a little over $33 4

billion in capital in really two businesses. About 5

half of the capital is a hedge fund business, and the 6

other half of our capital is in the private equity 7

business where we invest in companies primarily in 8

North America and Western Europe. Our investment 9

philosophy is to invest in companies that are what we 10

call asset based so owned, stable, cash flowing 11

investments, and importantly that they are run by what 12

we believe to be the best in class management teams. 13

The Penn transaction is our first 14

investment in the gaming space, but is one that is 15

otherwise a hundred percent consistent with our 16

philosophy. And we are extremely excited to have the 17

opportunity to invest with Peter and senior 18

management, who we, you know, view as partners, and 19

their approach to us has been to treat us like 20

partners. 21

But to be clear, we operate out of New 22

York. We are not operators. We're investors and 23

cheerleaders for the most part. And from our 24

prospective, nothing will change from an operational 25


9

basis. We made the investment because of the quality 1

of the management team and their vision. And it 2

happens to be consistent with our philosophy. So you 3

know, we appreciate the opportunity to be here today, 4

and obviously I'm happy to answer any questions you 5

may have. 6

ATTORNEY KRAUSS: 7

Thank you, Bill. Steve, would you talk a 8

little bit about Centerbridge? 9

MR. PRICE: 10

Sure. Thanks, Bob. Thank you for having 11

us here today. Steven Price, I'm a senior managing 12

director at Centerbridge Partners. We started the 13

firm a little over two years ago in 2006. We are an 14

investment firm like Fortress. We have 5 billion --- 15

a little over $5 billion under management. We invest, 16

as Bill said, like Fortress does in management teams. 17

We've made a number of investments across industries. 18

This is our first investment in the 19

gaming space, but we look for stable businesses with 20

great management teams who have good vision to grow 21

the business. And we, at Centerbridge, do what we can 22

to try to help strategically think through issues, but 23

really day to day, and for the most part the 24

management teams that we back run the businesses. 25


10

The limited partners in our funds that we 1

manage are university endowments, state and corporate 2

pension funds, family offices. A number of those are 3

actually in Pennsylvania. And our firm has broad 4

experience, largely in the United States and Europe. 5

And we have about 50 people at our firm. And again, 6

like Bill, I'd be happy to answer any questions. 7

ATTORNEY KRAUSS: 8

Thank you, Steve. Gary Luderitz is with 9

us, the general manager of Hollywood Casino, the 10

spectacular Hollywood Casino at Penn National Race 11

Course. So, Gary, would you like to bring the Board 12

up to date on activities at the new casino. 13

MR. LUDERITZ: 14

Yes, thank you. Just a couple of things. 15

As the Board knows, we opened on Tuesday, February 16

12th to the public. And even as Kevin Hayes and I and 17

several others were cutting the ribbon, the fire alarm 18

was going off and asking all of our new guests to exit 19

the building immediately. But after we got past that 20

fun, we went on to do $9.7 million in slot revenue in 21

the month of February with a win per unit per day of 22

$268. 23

March --- oh, by the way, our first 24

weekend we did just over $2 million in slot revenue. 25


11

And I should say that we also opened --- reopened our 1

live racing product on Thursday, February 14th after 2

being shut down for several months and not being 3

available to the public for some two years. So we are 4

very proud to reinstate live racing to the public on 5

that day. 6

In March, we went on to do $16.2 million 7

in slot revenues at a win of $259 in win per unit per 8

day. And our continued strong patronage overall has 9

allowed us to build a nice database, and we hope to 10

begin some direct mail marketing campaigns with that 11

database as we have now collected some tens of 12

thousands of names in our first couple of months. 13

During February and March, we also were 14

generating from very significant purse money for horse 15

racing to the tune of some $2.8 million incremental. 16

And I think the fact that we built an integrated 17

racing and gaming facility, you can see the 18

interaction daily between our facilities that 19

accommodate both, and so we're very proud of that. 20

Based on early results, we do have a 21

petition into the Board to add another 295 games, and 22

that I believe is being heard in the first meeting in 23

May. 24

Just a couple remarks on diversity and 25


12

our efforts in employment. We spent a great deal of 1

time over the last two years recruiting in Harrisburg, 2

Lebanon, York and surrounding communities. We've met 3

with a lot of minority organizations, partnered with 4

organizations like CEEED, which is the Center for 5

Economic, Entrepreneurial and Employment Development, 6

the African-American Chamber and a number of other 7

organizations such as CareerLink at both Lebanon, 8

Harrisburg. We're very proud of the fact that we 9

think we created results that reflect the community. 10

Our workforce reflects the community in every respect. 11

And that's at every level, from the vice president 12

level, director, manager, supervisor and right down to 13

the line level. 14

Our efforts continued as it relates to 15

purchasing and construction. Out of some $4 million 16

in expenditures that we made in the first quarter, 17

some --- check my notes, some 12 percent of that was 18

spent on minority vendors. As it relates to 19

construction, at the end of the fourth quarter of '07, 20

out of some $209 million in awarded construction and 21

supplier contracts, $107 million went to Pennsylvania 22

based contractors and suppliers, and some $18.8 23

million or about nine percent went to minority 24

contractors and suppliers. 25


13

And just one other note that we are proud 1

of since we've opened, and including the test night 2

that we had for charity, Hollywood has donated 3

approximately $159,000 to local and regional 4

organizations that have been in need. So our 5

beginning results. Thank you. 6

ATTORNEY KRAUSS: 7

Thank you very much, Gary. Peter, Bill, 8

would you be kind enough to kind of share the vision 9

of post-closing with what changes, if any, are going 10

to be made and what the plans are for being able to 11

support the growth activities in Pennsylvania of Penn 12

National? 13

MR. CARLINO: 14

Thank you, Bob. Chairman Colins and 15

members of the Board, I am pleased to be here, though, 16

talking about this sale to Fortress and Centerbridge. 17

I think many of you know that I have been either 18

President or Chairman of Penn National since 1972, so 19

this is a long time passion and business of mine. 20

So the decision to do what we felt was 21

best for shareholders and to partner with Fortress and 22

Centerbridge was one not taken lightly. And 23

obviously, I believe we've made the right choice with 24

some very, very strong people who represent some of 25


14

the most important funds in the --- in the world and 1

certainly in the United States. As I think Bill will 2

describe in more detail, and I think Steve indicated, 3

it's --- it is universities and state pension funds 4

and kind of a who's who of investors in America. And 5

they will be our partners. 6

It's clear to me that these folks do not 7

operate businesses. That's not what they do. They're 8

looking to us to continue to do what we have done so 9

well over these many years. I think I understand 10

their philosophy. They're not making this investment 11

for amusement. They're making it for return to their 12

investors, and they look to us to do that. And we 13

expect that we will partner with them along the way, 14

and that's sort of the relationship that I expect. 15

I think you need to know that I'm going 16

nowhere. I've signed a five-year contract from the 17

date closing begins to carry on. I am investing 18

significant amounts of money in the new venture, so I 19

intend to have money committed to this as well. And 20

obviously, I'm making the case that as far as 21

Pennsylvania should be concerned, and as I think as a 22

Pennsylvania based company, we feel it's business as 23

usual. The only difference is we have a very, very, 24

very strong financial partner who can help us as we 25


15

continue to expand throughout the United States. And 1

we are, by the way, the largest regional operator in 2

the United States. And abroad, we have significant 3

efforts now underway to build a platform around the 4

world. 5

So the message is we're going nowhere. 6

Our headquarters will remain as it is here in 7

Pennsylvania, and we're looking forward to this 8

association with these two companies. Thank you. 9

Bill, do you have any ---? Thought he was going to 10

get off Scott free. Well, it looks like he may for 11

the moment. Bob? 12

ATTORNEY KRAUSS: 13

Bill and Peter, if we get table games in 14

Pennsylvania, will you support them or how will you 15

approach that? What'd you tell me this morning? 16

MR. CARLINO: 17

I'm going to get them this afternoon. 18

Look, it's no mystery, and it's been pretty public, I 19

think, with the newspapers. We're in the gaming 20

business. That's what we do. And like any business, 21

our goal is to provide what customers want. And I 22

won't belabor that point, but obviously a very, very 23

significant number of people say where's the rest. So 24

in due time and with a great deal of patience, perhaps 25


16

if this experiment, if you will, in gaming here in 1

Pennsylvania is as successful as the legislature and 2

the governor anticipated, and it will be, and it will 3

exceed all the original expectations, I would hope and 4

expect that some day we'll see table games. And we 5

would certainly support that. 6

ATTORNEY KRAUSS: 7

And how long do you think it will take to 8

ramp up to as many as 5,000 machines and to add the 9

other amenities that were in our application to begin 10

with? 11

MR. CARLINO: 12

In fairness, that's an unknown question. 13

Look, we're in the business of growing businesses. 14

What we have done, I think you know, at Penn National 15

is to create a master plan that looks far into the 16

future that provides expansion, building expansion for 17

another 2,000 machines above the 3,000 that we're 18

currently --- that we can currently employ, more 19

parking, future hotel and all the things that you 20

might expect to come. 21

But as we've just begun, it's been our 22

experience most closely in Charles Town, West Virginia 23

where I think you know we have one of the largest 24

facilities in the United States, now over 5,000 25


17

machines and going to 6,000, that it actually took 1

some time to take that spectacular facility from a $2 2

million money losing --- a $2 million a year loss 3

effort in West Virginia to what is now more than a 4

half a billion dollar a year business and very 5

successful and very powerful in the State of West 6

Virginia. 7

But it didn't happen overnight. It takes 8

time for customers to know who you are. And as you're 9

developing new markets that don't have active casinos 10

in town, people need to get out and understand what 11

you're about. So we expect that we will continue to 12

grow this business for quite a few years, and that 13

you'll see this steady, steady, steady growth. And as 14

soon as possible, we will --- we're committed to 15

expanding. But I mean, that's axiomatic that as a 16

business owner, we'll develop it to the absolute 17

maximum. And I'm sure Fortress and Centerbridge 18

agree. 19

ATTORNEY KRAUSS: 20

Thank you. And for the record, there are 21

2,020 machines that have been deployed at Hollywood 22

Casino now. We have an application before you for an 23

additional 295 machines, and the growth will go from 24

there to 3,000 under the law as quickly as possible, 25


18

as Peter has said. And then it will be up to you 1

whether it will go beyond that. 2

Let me also state for the record, Penn 3

National Gaming will remain as a public company filing 4

public reports, the Ks and Qs, and will subject to 5

Sarbanes Oxley and will have an audit committee and 6

will have all of the things. And 7

Fortress/Centerbridge have indicated that while they 8

may want to switch which company is the public 9

company, whether it's Penn National Gaming or whether 10

it's Penn National Acquisition or Penn National 11

Holdings, but they will maintain a voluntary filing 12

with the FCC so that for the foreseeable future anyway 13

all public reports will continue to be made and the 14

company will continue to be subject to the --- to the 15

compliance-type requirements of Sarbanes Oxley, audit 16

committee, compliance committee and the like. So that 17

will all go on without change. 18

MR. CARLINO: 19

Yeah. Let me add, look, you can quickly 20

guess that we'd rather be private for all the 21

competitive advantages of not having to tell your 22

competitors what you're doing. In the public world, 23

you know, now it's an acquisition, you've got to --- 24

or you sign a document. You must get it out there, 25


19

and everybody knows we'd really prefer not to do that. 1

But weighing that against just transparency and the 2

kind of things that this Board, and frankly others 3

would like to see, we've made a calculation that we're 4

going to remain a public reporting company. 5

ATTORNEY KRAUSS: 6

Thank you, Peter. Bill, we're in 7

troubling economic times. Would you like to talk 8

about the financing for this transaction, please? 9

MR. DONIGER: 10

Sure. And I guess I can talk about some 11

of the financing, because I think we are subject to 12

certain confidentiality provisions. And we have very 13

attractive financing, so we want to make sure that we 14

do everything we can to preserve our ability to obtain 15

the financing that is, you know, contractually 16

available to us. We are expecting to close the 17

transaction with a commitment of $7.1 billion. $5.1 18

billion of that will be senior bank debt and $2 19

billion of that, in effect, is subordinating, kind of 20

high yield debt. 21

We will have a revolver that will be 22

unfunded of approximately $400 million at closing 23

giving us ample equity. And we are in the process of 24

trying to get all the relevant documents put in place. 25


20

We have kind of initial drafts that we filed with a 1

number of states. I'm not exactly sure who got what, 2

but there's the framework of the documentation. And 3

you know, we are working expeditiously with the banks 4

to try to get all of the --- that put in place before 5

June 15th. And I feel, you know, very confident that 6

we will get to where we need to be and want to be. 7

ATTORNEY KRAUSS: 8

And can you discuss for us what your 9

plans are for taking money out of the Penn National 10

operation --- the Pennsylvania Penn National operation 11

up to the mothership? 12

MR. DONIGER: 13

Our business plan is to grow the company. 14

There's a number of initiatives that, you know, Peter 15

and the team are working on in other states. And 16

between the retained earnings and this revolver which 17

we put in place for incremental cash flow, incremental 18

equity, we intend to use that to grow the company as 19

opposed to, you know, dividends out to ourselves. 20

ATTORNEY KRAUSS: 21

There will be no percentage management 22

fee or anything like that that will go up? 23

MR. DONIGER: 24

We, at Fortress, have never charged fees 25


21

to any company in, you know, the history of our 1

existence. We basically --- we hope to add value and 2

we hope to get that return in the form of being a 3

shareholder. So we don't charge fees to any portfolio 4

company. 5

ATTORNEY KRAUSS: 6

Okay. Thank you very much. Tom, could 7

you join us now? Tom Auriemma is responsible for 8

having these wonderful meetings in 14 different 9

jurisdictions. So Tom can bring you up to speed. 10

MR. AURIEMMA: 11

Thank you, Madam Chair, members of the 12

Board. Upon the signing of the agreement on June 13

15th, 2007, I along with representatives of Fortress 14

and Centerbridge and their National Regulatory 15

Counsel, Frank Schrek, from the State of Nevada began 16

road shows throughout the United States and Canada to 17

explain the transaction to various regulatory bodies. 18

Penn National, of course, owns 19 and 19

operates 19 different gaming facilities in 15 20

different jurisdictions from full scale casino hotels 21

to riverboats to slot facilities to thoroughbred 22

harness racetracks as well as a greyhound track in 23

Florida. So we went over the course of a number of 24

months to those jurisdictions to explain the 25


22

transaction. We came to Pennsylvania here about 1

September or October and explained it to your staff at 2

that point in time. Additionally, we continued 3

through the late fall and all of those regulatory road 4

shows were completed in January. 5

At the same time, of course, various 6

investigations were ongoing by the different 7

jurisdictions into the transaction, into the 8

backgrounds of the individuals from Fortress and 9

Centerbridge. And I'm pleased to report that we have 10

a significant number of jurisdictions that have 11

approved the transaction and the Fortress/Centerbridge 12

individuals at this point in time. They are the Ohio 13

Racing Commission, the New Jersey Racing Commission, 14

the Pennsylvania State Horse Racing Commission subject 15

to your approval, of course, the New Mexico Gaming 16

Control Board, the New Mexico Racing Commission, the 17

Mississippi Gaming Commission. 18

Additionally, we've done public 19

presentations like today before the Illinois Gaming 20

Board and the Iowa Racing and Gaming Commission. At 21

this point in time, we are scheduled throughout the 22

rest of May and into early June with various 23

regulatory bodies, and I'm fairly confident that we 24

will have all of our necessary regulatory approvals by 25


23

early June or certainly by June 15th. 1

Once June 15th comes, of course, there is 2

a ticking fee that does apply. The agreement calls 3

for this transaction to be closed within a one year 4

period of time by June 15th, 2008. If it goes beyond 5

that, the transaction certainly can be closed beyond 6

that time. But there is a ticking fee that is a 7

mathematical calculation that Bill Doniger is more of 8

an expert than I am at explaining. But what it does 9

is it essentially ups the costs to Fortress and 10

Centerbridge and increases the shareholder price. 11

That's essentially where we are at this 12

point in time. And of course, we would ask for your 13

consideration to give approval to this transaction as 14

well. 15

ATTORNEY KRAUSS: 16

Thank you, Tom. And one of the things 17

that we've found as we've gone around the country, 18

everyone is interested in how Pennsylvania feels about 19

this transaction, and that is why we have requested as 20

the earliest possible consideration of the transaction 21

and appreciate your hearing us today to move in that 22

direction. 23

Before I go into a very short 24

presentation on the --- some comments on the transfer 25


24

fee, I think there's a story. Of course, we always 1

thank your staff because they do such a professional 2

job and a thorough job in what they've done. This was 3

a very, very difficult situation for them because 4

we've got people who are literally all over the world 5

who had to be investigated, and your staff did a 6

marvelous job in doing that. 7

I want to share with you one thing. 8

There was a question in Japan in Nomura Securities, 9

one of the largest investment institutions in the 10

world, was extorted, for want of a better word, as 11

many Japanese companies were at the time by members of 12

Japanese crime families that either they would have to 13

pay them some money or they would come to their annual 14

meetings and they would embarrass them personally. 15

And you know, in Japan embarrassment is a very large 16

issue. And so there were questions as to what that 17

was all about. 18

Well, Nomura sent Shabata San, one of 19

their managing directors, who's also on Fortress' 20

Board to appear before your staff. Your staff was 21

very --- very good with dealing with Shabata San so to 22

make him feel like he wasn't being interrogated, like 23

he was a criminal or anything like that. And I 24

thought it was very interesting. I was present at the 25


25

interview. And at the end of the interview, Shabata 1

San not only thanked Michael Rosenberry for his --- 2

the way he conducted himself, but he thanked the staff 3

of the Pennsylvania Gaming Control Board actually for 4

doing what they were doing, because they were ensuring 5

the safety and the integrity of the industry in which 6

the company that he sits on their board was going to 7

invest in. So I think that story is very important 8

for you to know about because what we put out to the 9

rest of the world is certainly very important. 10

At your meeting on December 3rd, 11

Pricewaterhouse Coopers presented to you the criteria 12

that should be considered under Section 1328 in --- of 13

our law in determining what the fee should be on a 14

transfer. As you know, Commissioner Coy, I was active 15

in that whole activity. And it started off with a 16

transfer approval and then it started off with a 17

transfer fee and then there was ---. 18

COMMISSIONER COY: 19

I remember you mentioned very high 20

figures. That's all I remember. 21

ATTORNEY KRAUSS: 22

Thank you very much, Commissioner. And 23

we went back and forth and back and forth and back and 24

forth. And while some of the fees were determined to 25


26

be fixed in stone, so to speak, the transfer fee was 1

left to you to determine what would be appropriate 2

under the circumstances. Pricewaterhouse Coopers --- 3

and I've given you a memorandum, by the way, that sets 4

this out in a little bit more detail that I'll enter 5

into the record when we're finished. 6

On December 18th, your staff recognized 7

that the long-term benefit to the gaming industry and 8

the ability to have more money to plow back into the 9

industry was more important than a one-time shot, and 10

therefore, they recommended a $2.5 million fee as the 11

transfer fee. And you adopted that as the transfer 12

fee in the Harrah's situation unless special 13

circumstances exist. And I'd like to spend just a few 14

minutes in describing what we think are the special 15

circumstances in this case for the --- that the 16

transfer fee should be reduced in this situation. 17

Perhaps the most important thing to 18

consider is what happened at the very beginning of 19

licensure. Licenses were granted at the end of 20

December 2006. Each of the licensees --- Category 1 21

licenses intended to open either a temporary or a 22

permanent facility rather quickly. Penn National had 23

made a different decision. It was going to tear down 24

its facility and build from ground up and build it 25


27

right as far as they were concerned. 1

The question was when was their $50 2

million going to be paid. Everybody else was more 3

than willing to pay it right away because they were 4

going to be in business right away. Penn National was 5

not going to be in business right away. And there was 6

some concern that your staff had that if one person 7

paid early and one person paid later --- and by the 8

way, the law provides that the fee is due at the time 9

of the issuance of the license, which didn't happen 10

for Penn National until a year later. And we could 11

have taken a technical position and said no, we 12

shouldn't pay that a year before we're going to be 13

issued a license. 14

Instead, Penn National gratuitously paid 15

the $50 million. And if I can just give you a few 16

easy numbers. The state had the money for a year. 17

Penn National didn't make a penny on it, and the state 18

if they invested it at merely four percent has made $2 19

million on that before Penn National made a penny. 20

And I think it is appropriate to consider that in 21

fixing this fee, because no other Category 1 licensee 22

was in that position. Harris paid their license fee 23

in January of '07, and they opened the next day. And 24

there was no difference of timing between the payment 25


28

of the fee and the time they started earning revenues, 1

and I think that is a circumstance that makes this 2

significantly different from the other situation that 3

you were dealing with. 4

Secondly, the legislature debated at 5

length during the process, the two years that Act 71 6

was being debated before the legislature, as to 7

whether there should not be different fees for large 8

market versus small market. And large markets 9

obviously had more opportunity. They had more 10

opportunity to make more money not only in gaming, but 11

at all the ancillary activities. And there was a lot 12

of discussion as to whether Philadelphia and 13

Pittsburgh would be charged one kind of fees and 14

others including Penn National in Harrisburg would be 15

charged other fees. And the decision was made at that 16

time, a political decision, that we weren't going to 17

get into favoring one or disfavoring another, and 18

therefore, all fees would be the same. However, that 19

certainly is something that you should take into 20

account. 21

And Harrah's, which was charged a $2.5 22

million fee is in, of course, a $5.5 million --- 5.5 23

million person marketplace. And Penn National is in 24

the Harrisburg area, and depending on how we want to 25


29

count it, it's somewhere between a half a million and 1

900,000 people that are in its marketplace. And 2

that's a significant difference that I think is worthy 3

of consideration by you. 4

Lastly, in the Harrah's situation, where 5

you thought $2.5 million was fair, Harrah's has had 6

and will continue to have a benefit, because only two 7

of the four projected facilities for the Philadelphia 8

marketplace are open. And therefore, they've had a 9

windfall that Penn National has not had and will not 10

have because there never was any expectation that 11

there would be several facilities in or around the 12

middle of the state. So I think for all of these 13

reasons, and the last one was where I started this 14

morning, Penn National has been in Pennsylvania for 30 15

years. They've been creating jobs for Pennsylvania 16

residents. They've been paying taxes and wage taxes 17

and the ancillary taxes that all of their vendors pay 18

for 30 years, and nobody else is in that position. 19

And I think all of those things are 20

appropriate for you to take into consideration as you 21

make your deliberation on setting the transfer fee for 22

this, and we would certainly be more than happy to 23

provide to your staff any additional information you 24

might think might be relevant. 25


30

CHAIRMAN COLINS: 1

Just a quick question for you. 2

ATTORNEY KRAUSS: 3

Yes. 4

CHAIRMAN COLINS: 5

Would you agree that our decision was 6

that $2.5 million is the transfer fee unless 7

circumstances should dictate that we move from that? 8

ATTORNEY KRAUSS: 9

That was your finding on December 18th. 10

Yes, Chairman. 11

CHAIRMAN COLINS: 12

Thank you. Okay. Thank you. 13

ATTORNEY KRAUSS: 14

That concludes our presentation. Are 15

there questions from the Board, Madam Chairman? 16

CHAIRMAN COLINS: 17

I'd like to ask our Office of Enforcement 18

Counsel to present their --- make their presentation. 19

And if they have questions, you can question and then 20

we'll reserve our questions until you're finished. 21

ATTORNEY PITRE: 22

We only have questions, Madam Chairman. 23

CHAIRMAN COLINS: 24

Okay. Very good. Proceed. 25


31

ATTORNEY PITRE: 1

There's been some discussion about that 2

Mr. Carlino will remain on board and Mr. Luderitz will 3

still be the --- running the Penn National property. 4

But what will be the makeup of the board of directors 5

going forward post-acquisition? 6

MR. DONIGER: 7

The Board of directors of Penn following 8

the acquisition will be Peter Carlino, myself, Steven 9

Price, Wes Edens from Fortress and Mark Gallogly, I 10

believe, from Centerbridge. And then we will --- and 11

I was speaking with Bill Clifford. We will have 12

certain independent directors that have not yet been 13

determined for purposes of the various requirements, 14

you know, under the Securities and Exchange 15

Commission. 16

ATTORNEY PITRE: 17

Post-acquisition, how will the decision 18

making be done? Will Mr. Carlino ---? 19

MR. DONIGER: 20

Yes. He will be a Board member and will 21

have a ---. 22

MR. CARLINO: 23

Can I take a whack at that, if I might? 24

ATTORNEY PITRE: 25


32

Yeah. Why don't you? 1

MR. CARLINO: 2

The reality is that these folks own the 3

company, so they're going to have the majority votes. 4

I kind of like this structure. I've never said this 5

to you, but there's two from Centerbridge, two from 6

Fortress and me. I ought to be able to persuade one 7

or the other of you to --- they are the majority vote. 8

I wouldn't be cute about that at all. I'm delighted 9

to sit on that Board. I expect to have considerable 10

influence on the Board, but I expect the Board to take 11

only those positions that a Board would to support or 12

analyze major initiatives. Where the rubber meets the 13

road, of course, is the day-to-day running of the 14

business, and that wouldn't change. 15

MR. DONIGER: 16

Just a maybe final point on that. There 17

are --- a lot of public companies have independent 18

directors whose job is to look out for the interest of 19

the shareholders. We happen to be the shareholders, 20

and we obviously want to do what's right for the 21

company, the employees and ourselves as shareholders. 22

And so --- you know, but we --- we own lots of 23

companies, sit on lots of boards, and we'd expect, 24

again, eventually at some point to be a full public 25


33

company again. And they're going to keep all the 1

processes and disciplines in place that go with, you 2

know, what Penn and other public companies do now. 3

MR. CARLINO: 4

Bill, can I just maybe get you to add one 5

thing? I talked about it, but you could maybe fill in 6

a little more color. You have people that you 7

represent, and those, of course, are the very 8

significant investors. You're putting personal money 9

as partners --- you and your partners into this 10

investment, but then you represent a very large group 11

of people to whom you're responsible. 12

MR. DONIGER: 13

Yeah, we are fiduciaries for lots of, as 14

Peter said, state pension fund endowments including, 15

you know, Pezer (phonetic) actually is a large 16

investor in Fortress and has been for a long time. 17

And we take that obligation, you know, as --- I mean, 18

it's what we do. And every day we come to work trying 19

to do the right thing for our investors, and we have a 20

very good, you know, alignment of interests in trying 21

to, you know, not only make, you know, profits for 22

investors, but, you know, there's other 23

constituencies, employees, the states in which we do 24

business, lots of different counterparties. You know, 25


34

we have a record since 1998 that we're very proud of 1

in fulfilling all of those obligations. 2

ATTORNEY PITRE: 3

Is this a long-term investment? Do you 4

view this as a long-term investment? Is there a life 5

on the funds? 6

MR. DONIGER: 7

The funds that we'll invest are ten-year 8

funds in the very beginning. I think that if you 9

asked any private equity investor are you long-term 10

investors, they give you the stock answer, yes. I 11

will tell you the process of getting licensed in 15 12

states was something that is, you know, onerous. It's 13

appropriate, but it was something that we were warned 14

that it was going to be a process that was going to be 15

pretty invasive and thorough. And before making this 16

investment, we thought long and hard about our 17

willingness to, you know, engage in that process, and 18

we wouldn't have done that if we --- if this was for a 19

short-term, you know, investment. It's just --- it 20

was too much work. You know, it's pretty much what 21

we've done for the last year of our lives. And the 22

only way, you know, from our own interest to do that 23

is if we were committed in this company for a long 24

time. 25


35

ATTORNEY PITRE: 1

You mentioned that you expect the company 2

to be a full public company again in the future. Do 3

you have any time frame that you're looking at? Will 4

that depend upon ---? 5

MR. DONIGER: 6

No, we have no time frame, but it is 7

logical that as the company grows --- it's a great 8

business, and you know, that eventually will be 9

something we will consider. But there is no specific 10

time frame. 11

ATTORNEY PITRE: 12

My understanding, I want you guys to 13

correct me if I'm wrong, that a goal of approximately 14

$1.3 billion was being raised through Fortress/Pennco 15

Investment Funds Equity; --- 16

MR. DONIGER: 17

Uh-huh (yes). 18

ATTORNEY PITRE: 19

--- is that correct? How much money do 20

you currently have committed to that fund? 21

MR. DONIGER: 22

We are still in the process and have not 23

asked for commitment. So as of right now, it is zero, 24

but that process is ongoing. And over the next, you 25


36

know, three or four weeks that will --- that process 1

will come to a conclusion. 2

ATTORNEY PITRE: 3

What are the primary sources of those 4

co-investors that you're seeking over the --- that 5

you're seeking this money from over the next three or 6

four weeks? 7

MR. DONIGER: 8

It's a combination of co-investment 9

funds, so people who --- you know, look to co-invest 10

in other peoples' transactions and actually other 11

Fortress funds as well. 12

ATTORNEY PITRE: 13

Do you have a plan B in case you don't 14

meet this $1.3 billion goal? 15

MR. DONIGER: 16

We've fully committed Fortress as the 17

capital to close this transaction. 18

ATTORNEY PITRE: 19

All right. I expect you'll keep us 20

abreast with regard to the ---. 21

MR. DONIGER: 22

Absolutely. 23

ATTORNEY PITRE: 24

Okay. I have no further questions. 25


37

CHAIRMAN COLINS: 1

All right. Let me ask the Board members 2

if there are any questions. I'll start with 3

Commissioner Ginty. 4

COMMISSIONER GINTY: 5

Thank you, Madam Chairman. Mr. Price, 6

Mr. Doniger, thank you for joining us today. I hope 7

your road show is coming to an end. I did a few of 8

them in my day, so ---. I also want to thank you for 9

the confidence that you're showing in one of 10

Pennsylvania's best performing companies as well as 11

our new gaming industry. 12

I have two questions. One is --- and I 13

forget the term, but the prospectus that you used with 14

your limited --- when you approach potential limited 15

partners, there's a term for that that I just am 16

missing. Have you shared that with the staff? 17

MR. DONIGER: 18

I am not sure, but I think we'd be happy 19

to. So I would have to check. 20


The second question, and I don't want to 22

get into confidential information. Are the respective 23

shares --- respective investment of your entities 24

confidential information? In other words, what 25


38

Fortress is investing into the deal? 1

MR. DONIGER: 2

I'm sorry. Can you clarify the question? 3


The respective investments that Fortress 5

and Centerbridge are making into that deal, is that 6

confidential? 7

MR. DONIGER: 8

No, no, no. We are approximately 78 9

percent; is that right? And Centerbridge is 22 10

percent of the total investment. 11


Is the absolute number confidential? 13

MR. DONIGER: 14

Oh, what we personally? 15


No, no, no, no, no. What --- in 17

addition, you gave me a percentage ---. 18

MR. DONIGER: 19

Oh, the amount of equity. Sorry. The 20

commitment is $2.7 --- I think $2.7 billion is the 21

total equity commitment. They split 78, 22 percent 22

respectively. 23


Well, I'm showing in material I have that 25


39

Fortress is committing roughly $2.3 million --- or 1

billion. Look at page 20, Bill. 2

MR. DONIGER: 3

Yeah. $2.7 is the total commitment, I 4

thought, is rough equity, and roughly 2.1 and 600 is, 5

I think, the --- is the pretty close ---. 6


Breakdown? 8

MR. DONIGER: 9

Yes. 10


And that gives you your respective 12

percentages? 13

MR. DONIGER: 14

Correct. Sorry. I'm a little slow. 15


Well, I'm sorry I didn't explain it very 17

well. Thank you. That's all the questions I have. 18

CHAIRMAN COLINS: 19

Commissioner Sojka? 20

COMMISSIONER SOJKA: 21

Yes. Just a brief question for 22

Centerbridge. I believe I understand the arrangement 23

that's being presented here today, but you mentioned 24

also association with university endowments, which 25


40

would have to be a very different kind of 1

relationship. Is that a --- you manage resources for 2

endowments? 3

MR. PRICE: 4

For non-profits like the Museum of Modern 5

Art, the Museum of Natural History, for universities, 6

you know, Bryn-Mawr, the Milton Hershey School as well 7

as states like Pezers and ---. 8


They essentially hire your group as a 10

manager essentially for some of their funds? 11

MR. PRICE: 12

Correct. Correct. 13


Okay. So a different relationship than 15

what we're talking about here. Thank you. 16

CHAIRMAN COLINS: 17

Anything further, Commissioner? Okay. 18

Commissioner Rivers? 19

COMMISSIONER RIVERS: 20

No questions. 21

CHAIRMAN COLINS: 22

All right. Thank you. Commissioner 23

Angeli? 24

COMMISSIONER ANGELI: 25


41

Just one question. I notice on page 20 1

where it says Deutsche Bank and Wachovia are debt 2

providers, I'm not really sure of the details of 3

Wachovia's recent concerns. But is that a concern at 4

all about the debt financing from Wachovia? 5

MR. DONINGER: 6

No, they --- I mean, they are a large, 7

you know, well capitalized financial institution. So 8

their ability to fund this transaction is not a 9

concern of ours whatsoever. 10


Thank you. I have no further questions. 12

CHAIRMAN COLINS: 13

Commissioner Coy? 14


Just a real quick one because by your own 16

admission, you've never done any investments in a 17

gaming concern before. So when you were looking for 18

this transaction, were you looking for a successful 19

company that happened to be in gaming, or were you 20

looking for a successful --- or a gaming company that 21

happened to be successful? 22

MR. DONIGER: 23

Our business is to invest in companies 24

that --- again, we have a philosophical approach. For 25


42

the most part, when we invest in companies, we've 1

never invested in a particular sector. So we look for 2

investments that have characteristics that are 3

consistent with our approach, asset based so there's a 4

real stability, a level ---. The cash flows are 5

reasonably predictable that have some organic growth, 6

but also that operate inside of sectors where there's 7

lots of opportunity to grow the business, expanding. 8

And I would say the --- you know, the gaming business 9

is something that, you know, again, is very consistent 10

with that approach. To have, you know, 19 assets, and 11

again a very stable steady cash flow. But the idea 12

that gaming is going to expand as we see here in 13

Pennsylvania, something that we feel very, very 14

strongly about. 15

And so given that, we've always had an 16

interest. But again, the idea that you just invest in 17

a gaming company is not, you know, so straightforward 18

because you have to be willing to engage in a 19

licensing process that's pretty thorough. So for us, 20

it was a function of we're interested in the space, 21

but it had to be the perfect company for us to really 22

kind of make that kind of commitment. And you know, 23

one thing lead to another and we're sitting at this 24

table, and we're very enthused about it. 25


43

COMMISSIONER COY: 1

So the answer to the question is it's a 2

little bit of both? 3

MR. DONIGER: 4

Yeah. 5

COMMISSIONER COY: 6

And one other question. You said that 7

you've been in this process vetted by what, 17 8

different jurisdictions? 9

MR. AURIEMMA: 10

It's actually 15 different jurisdictions. 11


And I guess I'd be curious to know from 13

your point of view, or whoever wants to take a crack 14

at it, how did the vetting or the investigation from 15

your prospective in Pennsylvania compare to the other 16

jurisdictions? 17

MR. AURIEMMA: 18

It's clearly the best and easiest. No 19

problems whatsoever. 20

MR. DONIGER: 21

Easiest was not the right answer. 22

MR. AURIEMMA: 23

From my prospective, of course, is 24

different jurisdictions do different levels of 25


44

investigations. The investigation here in 1

Pennsylvania was very thorough. As, you know, many of 2

you know I was a former regulator in New Jersey. 3

Clearly, your investigation here was comparable if not 4

exceeded what New Jersey would have done. I find it 5

to be very thorough, comprehensive and reasonable 6

under the circumstances. 7

Most of the other jurisdictions also were 8

very reasonable. They asked the appropriate 9

questions, the pertinent questions, and I think --- 10

overall despite the intrusiveness of these types of 11

investigations, I think the Fortress/Centerbridge 12

individuals, went through this, I think they've 13

handled it all very well. And you know, it's very 14

daunting to basically put your life before 15 15

different regulatory jurisdictions in one year. 16

That's a pretty tough task to ask of them, but they've 17

done it very well and they've held up very well. And 18

I think most --- most jurisdictions respected the --- 19

you know, their privacy where appropriate. And I 20

think overall I think their experience has been a good 21

one. 22

ATTORNEY KRAUSS: 23

For the record, what was your last 24

position in New Jersey and for how long? 25


45

MR. AURIEMMA: 1

As the director of the Division of Gaming 2

Enforcement in New Jersey. I was director for five 3

years. Before that, I spent, you know, 25 years also 4

as a regulator in New Jersey. 5

COMMISSIONER COY: 6

Just one final comment, Madam Chairman, 7

as to Mr. Carlino and others. As one commissioner who 8

lives in the central part of the state and talked to 9

people about going to your facility, the comments are 10

all very, very favorable, as is mine, about the 11

facility. You can be proud of what you've done. 12

MR. CARLINO: 13

Well, thank you very, very much. I give 14

a lot of credit, by the way, to Gary Luderitz, who's 15

here, and his team, because they're the folks that 16

make it happen, so ---. And this is an ongoing 17

process. We got a few more restaurants to open and 18

it's going to be a lot of fun over the next few years. 19

And I --- just one second since you gave me an 20

opening for that. I did take very seriously the 21

notion that we are the home team and that we're right 22

here in Harrisburg, the state capitol. And we wanted 23

this to be a showcase that we, as a company, could be 24

proud of and hopefully that the state legislature will 25


46

be proud of as well. 1

COMMISSIONER COY: 2

Can you guess the one complaint I get? 3

MR. CARLINO: 4

Losing money? 5

COMMISSIONER COY: 6

No. 7

MR. CARLINO: 8

Tell me, please. 9


Too smokey. 11

MR. CARLINO: 12

Yes, yes, yes. 13


And I know you struggle with it, and I 15

know the industry struggles with it. But it's the 16

only really negative thing I hear. 17

MR. CARLINO: 18

We're very much aware of that. We've had 19

some problems with the pressurization in the building. 20

And that is to say, you need a positive pressure to 21

--- and it's not adequate. So you might imagine that 22

we're working with our contractors to fix that 23

problem. With ceiling heights as high as they are, 24

there's no reason that we ought to have a smoke 25


47

problem. So I understand it's getting better and it 1

will be right before very long. So yes, that's one of 2

many complaints we've heard, so ---. 3

COMMISSIONER COY: 4

I know I said final, but one more. And 5

that is the comment made earlier by your manager about 6

your minority recruitment and minority employment. My 7

response would be to say that it's a good start. 8

MR. CARLINO: 9

That's fair enough. It's always a start, 10

and I understand that. 11

CHAIRMAN COLINS: 12

Very good. Thank you. Commissioner 13

McCabe? 14

COMMISSIONER MCCABE: 15

I have no questions, but I did want to 16

also echo what Commissioner Coy has said. I want to 17

thank you, Peter, for the fine job you've done with 18

Penn National and with Hollywood Casino. Thank you. 19

MR. CARLINO: 20

Well, thank you very much. 21

CHAIRMAN COLINS: 22

I have a question of Mr. Price and Mr. 23

Doniger. It's a question that's going to start with a 24

bit of a preamble. But also, Mr. Doniger, did not we 25


48

meet at the opening of Penn National, I believe? I 1

think we met that day. I think so. 2

MR. DONIGER: 3

Yes. 4

CHAIRMAN COLINS: 5

It's good to see you again. What I 6

wanted to ask you about is your intention as potential 7

new owners of Penn National Gaming with respect to the 8

Pennsylvania facility. When we licensed Penn National 9

in --- and we saw this new facility open, one of the 10

most important elements for me was the fact that this 11

is part of a very experienced, well run gaming 12

company, the Pennsylvania facility. That's very 13

important. It's not just that it looks nice, but that 14

it's run very well by a good company. In 15

Pennsylvania, as you know, we have a tax rate, which 16

is very high. It's 55 percent. What assurances can 17

you give us if you become the owners of Penn National 18

that this Pennsylvania facility will stay with the 19

company, which started it and runs it very well rather 20

than it be a bottom line type of sacrifice because of 21

the tax rate here? 22

MR. PRICE: 23

Well, first of all, we invested in the 24

company fully knowing what the tax rate was, so it's 25


49

not a surprise to us and any of our plans. But you 1

know, as Bill said and what I tried to say is, that we 2

look --- we look at a lot of different industries and 3

a lot of different companies and a lot of different 4

investments. And ultimately, the differentiator is 5

the management team. And we back management teams. 6

So we --- and you know, I think your 7

staff has checked with a number of the companies that 8

we've both invested in. But it's really up to Peter 9

and the management team. We agree that it's an 10

excellent management team he's put together to come up 11

with plans as to how to grow. We try to help him 12

think strategically and give them the capital. But 13

ultimately, it's Peter and the management team's call 14

as to how and when to grow the facility. We love 15

growth. We'd love to get to 3,000 and continue along 16

the master plan as soon as the management team feels 17

like it's warranted. 18

MR. DONIGER: 19

The other point is, I mean, this is a 20

service business, and you know, you can do things ---. 21

We own lots of companies that are service business and 22

service-type businesses. And if you think you can, 23

you know, make, you know, long-term returns by cutting 24

costs and cutting corners, you lose every step of the 25


50

way. And so --- you know, what this --- people have 1

choices. And the way, you know, this facility is 2

going to perform the best is to make it the top choice 3

and the best choice for the customers to come to. 4

But, you know, you could ask me what specifically 5

we're going to do. We don't know, because again, we 6

are investors and we invested with them and we have 7

the utmost confidence that, you know, Gary and Peter 8

and Bill Clifford and Tim Wilmott are going to do all 9

of the right things to make this --- basically for all 10

of the relevant constituencies at this facility. 11

MR. CARLINO: 12

I'd like to stick my nose in here for 13

just a second. Obviously, I have some confidence that 14

they've got their heads in the right places or I 15

wouldn't be sitting here next to them. That's the 16

entry point. 17

Penn itself has if you were to examine it 18

the highest return on capital in the industry. We do. 19

In other words, we return more to our shareholders for 20

every dollar invested than any other company. It's a 21

measure even of my own compensation and the 22

compensation of our senior staff. So we are very, 23

very tough about how capital gets deployed. I don't 24

expect that these folks are going to be any less so. 25


51

Just as our managers arrive at our door with the case 1

that they want a new restaurant or they want to build 2

a new hotel tower, and they've got to tell us --- and 3

we all carefully analyze, tell us where we're going to 4

see the kind of return. I won't give you what our 5

threshold is, but tell us how we're going to those 6

numbers. They've got to make the case, and we're very 7

difficult about that. 8

So we're used to that process. And the 9

same will apply here. If we do good enough in 10

managing this facility and we can deploy capital 11

effectively, we will continue to do that forever we 12

hope. 13

By the way, that gets to the issue of 14

while we'll --- to the degree we can encourage the 15

thought of table games sometime in the future when 16

this is a much more proven concept and the public, we 17

hope, is a lot more comfortable that we can --- you 18

know, there's gaming going on here. So why not give 19

the public what it wants? Again, not an argument for 20

table games, but we hope it will be part of an 21

evolution over time so that we'll continue to deploy 22

capital so long as we can effectively do it as to just 23

when they cut us, cut operations to the bone. I don't 24

expect it anyway, that they're going to mess with the 25


52

day to day. That's our job, to run an efficient 1

operation. So if that helps at all. 2

CHAIRMAN COLINS: 3

Yes. Thank you. Thanks a lot. All 4

right. Are there any other questions? All right. 5

Thank you very much. 6

ATTORNEY KRAUSS: 7

Madam Chairman, before we close, just 8

technically, I'd like to move that the entire verbal 9

presentation today along with the booklets that we 10

distributed and the memorandum pertaining to the 11

transfer fee be entered into the record. 12

CHAIRMAN COLINS: 13

Very good. Any objections? 14

ATTORNEY PITRE: 15

No objection. 16

CHAIRMAN COLINS: 17

All right. They're accepted. Thank you. 18

ATTORNEY PITRE: 19

Madam Chair, I would only ask that the 20

record remain open with regard to this matter. We're 21

not ready to close it as of yet. 22

CHAIRMAN COLINS: 23

All right. We'll hold the record open 24

for a bit longer. 25


53

ATTORNEY PITRE: 1

Thank you. 2

CHAIRMAN COLINS: 3

Very good. Thank you. 4

ATTORNEY KRAUSS: 5

Thank you very much, Madam Chairman. 6

Thank you very much. 7

CHAIRMAN COLINS: 8

All right. We will now ask PITG to come 9

forward, all those involved in that matter. All 10

right. Good morning --- good afternoon. It just 11

changed. All right. The first thing I'd like to ask 12

is for those who are going to testify to please stand 13

and be administered an oath, if you would. The court 14

reporter to your left will administer the oath. 15

------------------------------------------------------ 16

WITNESSES SWORN EN MASSE 17

------------------------------------------------------ 18

MR. EISENHOWER: 19

I'll introduce the witnesses as I --- in 20

my introduction. 21

CHAIRMAN COLINS: 22

All right. Then why don't you begin, Mr. 23

Eisenhower? 24

ATTORNEY EISENHOWER: 25


54

Good morning, Madam Chair, members of the 1

Board. I am Jim Eisenhower with the Schnader, 2

Harrison Law Firm, and I represent PITG Gaming, LLC. 3

We are here today on our amended petition for approval 4

of modifications to our proposed permanent facility 5

pursuant to PA Code Section 441(a)36, an amendment of 6

the related statement of conditions. 7

First, I'd like to thank the Board for 8

allowing us to make this presentation today. We know 9

it was a rather short notice, and we appreciate you 10

accommodating us. 11

I'd also like to introduce the members of 12

our team here to make this presentation. First, of 13

course, Mr. Don Barden, who is the president and CEO 14

of PITG Gaming, LLC. To his right is Ms. Barbara 15

Kaye, K-A-Y-E, from the Honigman Law Firm in Detroit. 16

Ms. Kaye is handling this financing for PITG. To my 17

left is Mr. Sam Marshall, who is the vice president 18

for design and construction for PITG Gaming and is on 19

the ground in Pittsburgh every day at our construction 20

site. 21

What we are seeking from this Board --- 22

oh, I'm sorry. This is Mr. Justin Park, who is an 23

associate at the Schnader Harrison Firm and is 24

assisting me throughout this process. He does all the 25


55

work. 1

What we are seeking from the Board is the 2

following, approval of our proposed financing, which 3

was attached as Exhibit A in our amended petition, 4

approval of our project development plan, which was 5

attached as Exhibit B, and the amendment of the 6

statement of conditions, and they're listed in our 7

petition, which are implicated by the modifications 8

that we have requested in our petition. 9

So at this point, I'd like to have Mr. 10

Barden discuss the modifications that we are 11

undertaking, and he will lead the presentation. 12

MR. BARDEN: 13

Thank you, Jim. Good morning, Madam 14

Chair, members of the Commission. Don Barden is my 15

name, B-A-R-D-E-N, like a bar in the den of your home. 16

Good morning. Thank you very much for 17

allowing us the opportunity to appear before you to 18

present our petition. And I'll go directly to the 19

petition starting with some of the recitals. And item 20

one, of course, is just a recital. Item two is a 21

recital. Item three warrants a little commentary as 22

it relates to the cost now of the project 23

comparatively speaking from our application. That 24

number now would be $600 million versus the $450 25


56

million, and we can get into that later. 1

But the request starts out at item number 2

six in the petition. That deals with the --- our 3

proposal to refinance our bridge loan and finance the 4

completion of our facility as described in Exhibit 5

Eight --- I'm sorry, Exhibit A that's attached, and 6

seeks the Board's approval of the proposed financing, 7

including the proposed entity organizational structure 8

and debt reflection reflected therein. We expect to 9

close this financing not later than May 19th it says 10

here, but we actually have a scheduled date of May 11

12th to close this facility. The commercial bank debt 12

will be arranged by KeyBank. The first and second 13

lien debt will be arranged by Credit Suisse. 14

Now, I'd like to turn your attention to 15

the structure itself in Exhibit A, which references 16

how the company would be organized. The graph shows 17

our development as the owner of Durrett (phonetic), 18

and it also reflects ---. These two boxes, by the 19

way, are designed to differentiate between what Barden 20

Development owns and what the minority investors own 21

in PITG Gaming in Pittsburgh. And so that's what 22

those two boxes are. 23

The Super HoldCo is designed to 24

accommodate the commercial bank traunch of the 25


57

financing, and of course, the PITG Gaming HoldCo for 1

the first and second lien holders is designed to 2

segregate the first and second lien from the 3

commercial bank subordinated loan facility. All of 4

these, of course, are upstream from the owner of the 5

facility, the PITG Gaming, which is the owner/operator 6

of the Pittsburgh gaming operation. 7

Attached also as part of Exhibit A are 8

the summary of the terms and conditions of the 9

subordinated debt as well as the first and second 10

lien. Moving on to item number seven, we commenced 11

construction on the facility and we anticipate opening 12

in May of next year. We're on budget, on time, in 13

fact, a little ahead of schedule. And I don't know if 14

we were able to get the photographs to you. Do you 15

have a slide that we can show an update of where we 16

are in construction? 17

Thank you very much. Okay. And I have 18

some little ones I printed on my computer that were 19

done April 22nd. But Kevin will show that in his --- 20

that's very good. Thank you. 21

Item number eight, we're seeking approval 22

to proceed with the development of our project in 23

accordance with the proposed development schedule set 24

forth in Exhibit B attached hereto and incorporated by 25


58

reference to project development plan. The plan 1

reflects certain modifications in the nature of timing 2

as opposed to the scope of the project. The scope is 3

the same footprint. We're just deferring a couple of 4

items. 5

And that's on Exhibit B, if we could go 6

to Exhibit B. The first phase of operations will 7

include all of the original phase I items as presented 8

during our suitability hearing, including 3,000 slots 9

in the same footprint with the loan exceptions being 10

the deferral of the completion of the outdoor 11

amphitheater as well as a ballroom space. These 12

deferred items are intended to be fully developed and 13

built out during year three of operations. 14

Phase II, also in the first year of 15

operations will include all of the original phase II 16

items compromised of an additional 1,000 gaming 17

machines. These machines are intended to be added at 18

the rate of 200 games per month beginning in the 19

eighth month of operations to be completed by the end 20

of the 12 month following opening. Of course, all 21

subject to your approval upon our application. 22

Phase III, the second year of operations, 23

will include all the original phase III items 24

compromised of addition of parking structure, 25


59

completion of the shell space and a final 1,000 games 1

subject to your approval. The final phase III will be 2

completed by the end of the second year following 3

opening. 4

Item number nine, seek approval of the 5

facility to open with 3,842 parking spaces. In our 6

statement of conditions, we had stated that we would 7

open with approximately 4,100. So this is 257 spaces 8

less than was in our statement of conditions which was 9

approximately 4,100. So it really could technically 10

fall into the approximate number, but I want to 11

explain why that number has decreased, because we want 12

as much parking as we can get. And that is because we 13

are on a Brownfield site in Pittsburgh, and we're on a 14

water table. We wanted to go down one level, and the 15

city advised us we couldn't and shouldn't go down 16

because there was some monster foundations down there, 17

that we didn't have to go down that deep. And we did 18

not want to be threatened with the water table 19

problems that would exist if we went down one level. 20

And so, therefore, we eliminated the 21

basement level of the parking garages and lost those 22

257 spaces. We'll make those up in our third phase, 23

when we an additional garage, I think, with 1,200 24

spaces. But the situation here is is that we couldn't 25


60

go any higher than we are and we couldn't go any lower 1

than we are. So we had --- we're at the ground level 2

and we're at the maximum height, but yet still below 3

the Steelers' stadium substantially. 4

Item number ten, I received a call from 5

the Honorable County Executive Onorato and the Mayor. 6

They want to talk to me about the rights that were 7

promised to me in conjunction with the Penguins on the 8

$3 million pledge we made. And I have honored their 9

request to meet with them, and this is not something 10

that's urgent anyway, because it wouldn't kick in even 11

if we were to pay it. I have to pay it until year two 12

--- after we open, two years from now roughly, ten 13

months after we open. So it's not an urgent matter. 14

So I would like to discuss it with them. 15

But just for background information, the 16

County Sports and Exhibition Authority, which is a 17

quasi public entity that oversees the Penguins and the 18

Convention Center and other entities, parking garages 19

and that in the City of Pittsburgh, passed a 20

resolution in 2005, I believe, that stated that 21

anybody who provides funding to the Penguins stadium 22

will get the development rights for the 28 acres where 23

the old Mellon Arena site is. 24

And so we gladly submitted to plan B, 25


61

which is $7.5 million a year, and came up with the 1

concept of spurring economic development by providing 2

seed capital to get that development going, not to any 3

particular organization, not to any particular group, 4

not to the city, but money that we would spend in 5

architectures, engineers and designers to come up with 6

a plan to engage the community so that they can be a 7

part of development. And we bring in other developers 8

to create activity and excitement in that 9

neighborhood, which none of it could have occurred 10

until after the stadium is --- the new one is built 11

and the old site is cleared, which is three, four 12

years down the road. 13

In the negotiations with the Penguins, 14

which I was a part of early on, when they were trying 15

to get this facility built, I was a part of those 16

negotiations with the governor and with county and 17

representatives of the SEA, Sports and Exhibition 18

Authority. It was always the thought that I would 19

have the development rights to that site, because 20

along with those rights came $1.5 million in parking 21

fees that you began to get immediately for the next 22

five years while the new place is being built. In 23

addition to that, you are buying the land at a 24

discount rate, about 50 cents on a dollar, and you 25


62

could --- you didn't have to pay for it until you were 1

taking it down to development. But I thought that was 2

pretty attractive, and I thought it was a nice quid 3

pro quo for us giving and contributing $7.5 million 4

out of our cash flow to build an arena for the public 5

as well as the $3 million that we were talking about 6

with respect to spurring economic development in the 7

area. 8

Lo and behold to me, when the deal was 9

announced, I was not at the last final one or two 10

meetings by non-invitation, and the rights were 11

granted to the Penguins for that site. I still tried 12

to be a gentleman about it and have not quarreled with 13

their decision and always have tried to be 14

cooperative. But it would seem unfashionable for me 15

to be required to spend money to do development and 16

planning and architecture and engineering work on a 17

site that the Penguins own and get all the benefits 18

from now and in the future. 19

Nevertheless, I'm still open to further 20

discussion with regard to that matter, and I requested 21

a deferral in terms of action by this Honorable Body 22

on that subject as it relates to the statement of 23

condition 56 this morning. 24

With that, that's our request and we'll 25


63

be happy to entertain any questions. 1

CHAIRMAN COLINS: 2

Mr. Eisenhower, anything further? 3


No. That would conclude our 5

presentation, Madam Chair, and we're ready for 6

questions. 7

CHAIRMAN COLINS: 8

Does the Office of Chief Enforcement 9

Counsel have any questions at this time? 10

ATTORNEY CREANY: 11

Yes, Madam Chairman. Mr. Barden, my name 12

is Barry Creany. I'm Deputy Enforcement Counsel 13

representing the Office of Enforcement Counsel. 14

First, with respect to the financing that you've 15

discussed today, the project has now grown from what 16

it had been licensed to $650 million. Could you 17

explain the status of that financing to the Board for 18

the record? 19

MR. BARDEN: 20

Yes, I will. The status of that 21

financing, we are currently operating under a bridge 22

facility. And we are --- last week we were in New 23

York on a road show. We presented to multiple 24

investors throughout the week, and then we had a bank 25


64

meeting on Friday that was well attended. In fact, we 1

had to put up additional chairs for that bank meeting. 2

Our time schedule is to have comments and commitments 3

back by Monday, I believe, May 2nd. Okay. Is that a 4

Monday? May 2nd. But we'll start getting comments 5

back on Monday. And so we're proceeding, and it's 6

going well along the lines of our closing schedule. 7

ATTORNEY CREANY: 8

Can you speak to this, or perhaps of any 9

of the parties that you brought with you today, the 10

status of some of the loan documents that would be 11

more or less the actual permanent credit facility, not 12

the term sheet that's attached as your amended 13

petition Exhibit A. 14

MR. BARDEN: 15

I'll defer to Barbara Kaye on that. 16

ATTORNEY KAYE: 17

We have received a draft of the initial 18

credit agreement, and according to the timeline, that 19

would be available for review on Monday. We have not 20

yet received a draft of the commercial bank credit 21

agreement from Key, but are expecting that hopefully 22

yet this week. We have received drafts of most of the 23

security documents, although not all. And so by this 24

time next week, we should have documents that are in 25


65

substantially final form subject to any additional 1

lender comments. That's the schedule. 2

ATTORNEY CREANY: 3

From consultations with some of the 4

financial people within BIE, I was understanding there 5

would be a number of other documents. And could you 6

tell us with respect to that, is there going to be a 7

disbursement agreement, or does that exist at this 8

point? 9

ATTORNEY KAYE: 10

There will be a disbursement agreement. 11

The disbursement agreement has been received and is in 12

the process of being reviewed and will --- because it 13

is a significant document, it should follow 14

approximately the same time line as the credit 15

agreement. 16

ATTORNEY CREANY: 17

And just for clarity for the record, 18

you've talked about a draft of a loan agreement, but 19

we have here a couple of different liens. What about 20

the first lien term loan facility? Does that document 21

exist? 22

ATTORNEY KAYE: 23

That's the one that we received the draft 24

of and hoped to be in a position to post for lender 25


66

review Monday or Tuesday. 1

ATTORNEY CREANY: 2

Will there be or is there one in 3

existence of the first lien revolving credit facility? 4

ATTORNEY KAYE: 5

That is included within the first lien 6

term facility. There is one agreement for the first 7

lien term and revolving facility. That's the one that 8

we've received a draft of and are in the process of 9

comment --- reviewing and commenting on. The second 10

lien term loan facility will look fairly similar. We 11

have not yet received a draft. But because it will be 12

fairly similar, it would be, you know, easy to get 13

through once the first lien is created. And then the 14

commercial bank facility, the one that Key is the 15

arranger for, again, we should receive a draft of that 16

this week. Many of those provisions will also be 17

similar to what's in the first lien agreement. So 18

really it's the first lien agreement that's driving 19

all the documents. 20

ATTORNEY CREANY: 21

Ms. Kaye, just because I'm not certain, 22

but for the record at least, when you were just 23

referring to the one with Key, is that the second lien 24

term? 25


67

ATTORNEY KAYE: 1

No. That's what we call the commercial 2

bank --- 3

MR. BARDEN: 4

That's the HoldCo note. 5

ATTORNEY KAYE: 6

--- the Super HoldCo. The Super HoldCo. 7

ATTORNEY CREANY: 8

What about the second lien term loan 9

facility? 10

ATTORNEY KAYE: 11

That would be very similar to the first 12

lien term loan facility that's also coming from Credit 13

Suisse. 14

ATTORNEY CREANY: 15

Does it exist? 16

ATTORNEY KAYE: 17

Not yet. But because it will track the 18

first lien facility, it will be very --- if you read 19

the first lien, you don't probably need to really read 20

the second lien. 21

ATTORNEY CREANY: 22

What about the second lien subsidiary 23

guarantee? 24

ATTORNEY KAYE: 25


68

We have seen a draft of that? 1

ATTORNEY CREANY: 2

Is it in a stage close to completion? 3

ATTORNEY KAYE: 4

Yes. I would say again we're shooting 5

for the Key documents to be substantially final in the 6

beginning --- the first half of next week. 7

ATTORNEY CREANY: 8

With respect to any hedging agreements, 9

will any exist when this financing goes through? 10

ATTORNEY KAYE: 11

I believe it's immediately following 12

closing that the hedging agreements would be put in 13

place, and I have not seen a draft of those, but 14

they're standard forms. 15

ATTORNEY CREANY: 16

And when would you expect to see them 17

then, after closing date? 18

ATTORNEY KAYE: 19

Or probably immediately before because 20

they're standard forms and they're not really subject 21

to much negotiation. It's not a front end item. 22

ATTORNEY CREANY: 23

What about any credit enhancement funding 24

or indemnification agreements? 25


69

ATTORNEY KAYE: 1

We spoke with counsel for the Pension 2

Fund earlier this week, and they have promised us 3

documents the first half of next week. 4

ATTORNEY CREANY: 5

Will there be a subordination loan 6

facility agreement? 7

ATTORNEY KAYE: 8

That's the KeyBank facility. 9

ATTORNEY CREANY: 10

And that exists now? 11

ATTORNEY KAYE: 12

No. That we should see the beginning of 13

next week. 14

ATTORNEY CREANY: 15

I believe yesterday in the CIM that you 16

provided --- or actually I believe Michelle Sherman 17

from Mr. Barden's company provided us with what is 18

termed sources and uses type of statement within that. 19

So we have that at least before our financial people 20

at this time. 21

ATTORNEY KAYE: 22

Right. As well as the summaries of the 23

term sheets, which do reflect all of the material 24

terms of the financing documents other than the 25


70

financial covenants. 1

ATTORNEY CREANY: 2

So correct me if I'm wrong, but I 3

understand, then, this is --- there's a little bit of 4

fluidity to the final terms at this point, and we 5

didn't even see the documents. 6

ATTORNEY KAYE: 7

I would not say there's fluidity to the 8

final terms, because the key terms are in the term 9

sheets. The process of negotiating a credit agreement 10

is always that certain of the covenants or certain of 11

the financial covenants get negotiated as part of the 12

final transaction. But in terms of the amount and the 13

interest rate and maturity, you know, the key terms of 14

financing, those are agreed upon. 15

ATTORNEY CREANY: 16

I understand that. But with respect to 17

--- if you receive these draft documents early next 18

week, what is the timeline for these type of 19

negotiations, the terms that are going to be 20

negotiated in those documents? 21

ATTORNEY KAYE: 22

Next week. I mean, we received a credit 23

agreement that was 150 pages on Tuesday and we sent 24

back comments. So it's 24/7. 25


71

ATTORNEY CREANY: 1

Will there be any changes between this 2

draft and the finals? 3

ATTORNEY KAYE: 4

Once the document is posted for the 5

lenders to review, significant changes typically don't 6

occur. 7

ATTORNEY CREANY: 8

And when do you think that date will be, 9

that they'll be posted for lenders to review? 10

ATTORNEY KAYE: 11

The first lien credit facility, again, 12

the goal is Monday and that's what we're shooting for. 13

The Key facility, I'm assuming the end of next week, 14

but I don't know for sure. 15

ATTORNEY CREANY: 16

And the current financing that's the 17

bridge loan with Credit Suisse? 18

ATTORNEY KAYE: 19

They are the agent. 20

ATTORNEY CREANY: 21

Okay. With the permanent credit 22

facility, who's going to be the agent on that? 23

ATTORNEY KAYE: 24

Credit Suisse. 25


72

ATTORNEY CREANY: 1

Under the bridge loan agreement, what is 2

the required closing date or ---? 3

ATTORNEY KAYE: 4

May 19th. Prior to May 19th. 5

ATTORNEY CREANY: 6

What would happen if it doesn't close on 7

May 19th? 8

ATTORNEY KAYE: 9

There would be a default under the bridge 10

financing. 11

ATTORNEY CREANY: 12

Thank you very much. Mr. Barden, with 13

respect to the Exhibit A that you produced in the 14

amended petition, could you explain to the Board what 15

differences we have on that exhibit from what the 16

licensed entity was back in December of 2006 or to the 17

extent necessary any other parties you have with you? 18

What other entities or any new parties? 19

MR. BARDEN: 20

The new entities would be PITG Gaming 21

Super HoldCo and the other entity would be PITG Gaming 22

HoldCo. And Barbara can explain why those two 23

entities had to be inserted. 24

ATTORNEY CREANY: 25


73

Please. 1

ATTORNEY KAYE: 2

Starting from the bottom up, if you will. 3

ATTORNEY CREANY: 4

Sure. 5

ATTORNEY KAYE: 6

PITG Gaming HoldCo is being put in place 7

at the request of the first and the second lien 8

lenders to provide --- consistent with the existing 9

regulations in Pennsylvania, to allow the lenders to 10

PITG Gaming HoldCo to be able to transfer their 11

interest in the debt without being required to be 12

licensed. And the first and second lien lenders 13

always require that subordinated debt, which is the 14

commercial bank debt at Super HoldCo, be at a higher 15

level. That's part of the legal subordination, 16

structural subordination. And they prefer that it be 17

to a special purpose entity, a newly formed just clean 18

entity. 19

So if you go up the chain, there's no 20

change in the ultimate ownership. There's no change 21

in the ultimate ownership of the minority investors. 22

These are strictly holding companies. They're shell 23

holding companies solely to serve the purpose of 24

facilitating the financing. 25


74

ATTORNEY CREANY: 1

Thank you very much. Mr. Barden, you had 2

indicated in your testimony that an opening date was 3

projected for May of 2009 and that you were on target 4

at this time and budget on that matter. 5

MR. BARDEN: 6

Yes. 7

ATTORNEY CREANY: 8

I'm just curious. On the recent report 9

that we received, there is --- and you referenced the 10

footprints unchanged in terms of the development. 11

There's a building on that 28-acre property that was 12

under a lease. Has that been resolved? 13

MR. BARDEN: 14

That's not part of the current 15

construction site. That lease expires next year, but 16

they're early outing, I think, in July. Right, Sam? 17

MR. MARSHALL: 18

Yes. 19

MR. BARDEN: 20

But that's for additional future 21

expansion and for surface parking, or use it for a 22

warehouse after they vacate. But that's not part of 23

the --- that was not part of the original footprint. 24

ATTORNEY CREANY: 25


75

I just wanted to make that clear for the 1

record. All these things that are phased in later, 2

that has no relation --- that space is not going to be 3

affected by anything to do with that lease? 4

MR. BARDEN: 5

That's correct. 6

ATTORNEY CREANY: 7

In the Exhibit B, it recites narratively 8

a different phase-in with respect to the second --- or 9

the second implement of slot machines. You would open 10

with 3,000, and originally licensed, I believe, in the 11

licensing hearings and in our conditions there's a 12

requirement that by the ninth month you have an 13

additional 1,000 to put you at 4,000 by the ninth 14

month of your first year of operation. Can you 15

explain with that phase-in, has there been any change 16

that you anticipate in projected revenues over that 17

first year of operation? 18

MR. BARDEN: 19

No. With respect to how we would ratchet 20

up, getting to 3,000 or going from 3,000 up? We're 21

going to open with 3,000. 22

ATTORNEY CREANY: 23

In terms of just the overall operations, 24

have you received any revenue projections of how that 25


76

changes the operations of PITG going forward? Does 1

that phasing then affect your projected revenue? 2

MR. BARDEN: 3

No, because the slots are pretty much 4

phased in as they were originally phased in. It's 5

just the other stuff that's differed. But the slots 6

and the revenue would not be impacted because it's 7

pretty much the same as it was. 8

ATTORNEY CREANY: 9

With respect to your testimony of the 10

parking garage, other than the reduction in the number 11

of spaces, has the structure itself changed? 12

MR. BARDEN: 13

Nothing other than elimination of the 14

first floor. Is that right, Sam? 15

MR. MARSHALL: 16

There's no change to the parking garage. 17

MR. BARDEN: 18

No, there's no change. 19

ATTORNEY CREANY: 20

From the original blueprints that were 21

presented in November --- or I'm sorry, I believe it 22

was November of 2006? 23

MR. MARSHALL: 24

I can't testify to that, because I didn't 25


77

see the 2006. I wasn't involved in this. 1

MR. BARDEN: 2

In terms of the footprint, I'm not sure 3

what the height was at that time, but ---. And I just 4

don't recollect, but back in --- whenever we submitted 5

to the Board our information for the bridge loan, we 6

showed the plans and the print and the height and the 7

spaces for the garage and the footprint was that --- 8

does anybody recall, was that ---? We did the closing 9

in? 10

ATTORNEY KAYE: 11

November of '07. 12

MR. BARDEN: 13

November of '07. 14

ATTORNEY CREANY: 15

Do we have any other demonstrative 16

evidence today to present with respect to the 17

blueprints, the rendering of the facility or anything 18

of that nature? 19

MR. BARDEN: 20

Yes. We have a handout here that shows 21

the footprint of the floor space, the parking garage 22

---. Sam, did you bring ---? 23

ATTORNEY CREANY: 24

Mr. Eisenhower, is there anything 25


78

additional that you have with respect to that that 1

you'd like to enter---? 2


Yes. We have an exhibit which we can 4

handout that shows the footprint of the casino, 5

and ---. 6

MR. BARDEN: 7

But it does not show the footprint of the 8

garage. 9


Right. 11

MR. BARDEN: 12

Well, yes, it does. I guess it does over 13

on the second page. 14


With the Board's permission, I'll hand 16

these out. Thank you, Madam Chair. 17

MR. BARDEN: 18

This is a larger print of what is being 19

handed out. I'll just show this over to counsel. 20

OFF RECORD DISCUSSION 21

CHAIRMAN COLINS: 22

Please, we have the stenographer that has 23

to listen to what you're saying. 24

ATTORNEY CREANY: 25


79

I'd ask that that be off the record. We 1

were just consulting on plans that Mr. Barden has 2

presented to review them to better understand. And 3

I'm going to leave it up to Mr. Eisenhower as to 4

whether he wants to have any of this admitted into the 5

record. But I wanted to better understand the changes 6

as to the development plan to further question Mr. 7

Barden. 8

MR. BARDEN: 9

And to that end, Madam Chairman, I'll 10

just describe what I discussed with respect to the 11

pass out that we have before you, and I'm sure Mr. 12

Eisenhower will ask that it be admitted. 13

On the first page, it shows a phase I and 14

phase II of --- and this relates back to the petition. 15

The information in yellow is the slot floor. You can 16

see that that remains the same. The expansion space 17

in blue, is what will be shelled in. And as we 18

expand, we'll just put in the carpeting and finish out 19

the space and knock down the wall, and it will be a 20

seamless expansion going from 3,000 to 4,000 to 5,000 21

over time. 22

The blue area, you can see, is the 23

amphitheater that's being deferred. And then the 24

little blue spot on the right is one of the 25


80

restaurants that will be shelled in. Nevertheless, 1

we're still opening with three restaurants in the 2

facility. 3

On the second page, you can see the 4

interior design and concept. That remains the same, 5

Las Vegas style first class facility. On the lower 6

part is the floor plan that has what, in essence, is 7

the footprint of the garage, which is the same as it 8

was when we originally submitted it. And it also 9

shows that the casino is on the --- this is the second 10

level of the casino, and it shows that part of the 11

casino is on the --- beneath the garage. And you can 12

see the ballroom in blue there. And actually, the 13

future use or the other items that will --- that the 14

ballroom actually is the one that's being deferred to 15

the phase, as it relates to the petition. 16

ATTORNEY CREANY: 17

Mr. Barden, in the earlier testimony you 18

had made reference to paragraph ten of the amended 19

petition, which was the matter relating to the 20

commitment to the statement of condition 56, which is 21

a $3 million contribution to the Hill District. And I 22

think I understand your testimony, but I wanted to 23

clarify that you believed that the statement 56 and 24

the development rights had some sort of linkage; is 25


81

that correct? 1

MR. BARDEN: 2

Yes, that's correct. 3

ATTORNEY CREANY: 4

And was there also some linkage between 5

that and plan B? 6

MR. BARDEN: 7

Yes, it was. 8

ATTORNEY CREANY: 9

At this point, in addition to what 10

modifications were presented in this amended petition, 11

and that, just to recap I think it's the garage with 12

respect to spaces. We have a ballroom and an 13

amphitheater that are going to be phased in later. Do 14

you foresee any additional modifications to this 15

facility between now and the date of opening? 16

MR. BARDEN: 17

No, I don't. 18

ATTORNEY CREANY: 19

With respect to the prior financing, at 20

the point I believe of licensure, we had a credit 21

facility from Jefferies & Company. Would you, for the 22

record, state what was the disposition of that credit 23

facility? What happened basically? 24

MR. BARDEN: 25


82

Okay. Good question. A couple of 1

reasons. First of all, Jefferies and I still have a 2

very warm and friendly relationship. But basically, 3

Jefferies is a midsize firm that specializes in 4

bond-type financings. When the credit crunch hit in 5

July, last --- late July of last year, we recognized 6

that bond financing is probably not the way to go, 7

because you don't have as much flexibility. So we 8

went toward bank financing for a couple of reasons, 9

with a larger firm that's national --- much larger 10

nationally and internationally, with a broad reach for 11

investors that could provide bank-type financing and 12

first and second lien-type natures such as Fortress 13

and Penn National is doing, which gives us more 14

flexibility in terms of loan covenants. It gives us 15

the ability to deliver and pay down debt where you're 16

constrained by bond financing with higher rates, 17

longer terms and heavy penalties for early pay down 18

and payouts. 19

So this enables our company to deliver 20

utilizing excess cash flow to do so and gives us much 21

more flexibility in terms of improving and expanding 22

and re-investing in the facility. That's basically 23

it. 24

ATTORNEY CREANY: 25


83

Thank you, Mr. Barden. At this point, I 1

don't have any further questions as to the testimony 2

that has been presented so far. Mr. Eisenhower, do 3

you have anything further? 4


Not at this time. 6

ATTORNEY CREANY: 7

Madam Chairman, I would like to call one 8

witness. Mr. Talerico, please state your name and 9

title for the record, please. 10

MR. TALERICO: 11

My name is James Talerico, and I'm the 12

supervisor for the Financial Investigations Unit for 13

BIE. 14

ATTORNEY CREANY: 15

And in that capacity, what is your 16

responsibility with respect to the Gaming Control 17

Board? 18

MR. TALERICO: 19

Our Financial Investigations Unit reviews 20

the financial information that's submitted from 21

applicants. 22

ATTORNEY CREANY: 23

At this point, what submissions have you 24

had to review with respect to the proposed financing 25


84

that's the subject of the amended petition? 1

MR. TALERICO: 2

The Financial Investigations Unit has 3

reviewed the term sheet that was submitted as part of 4

Exhibit A to the petition, and we now have a general 5

idea of what should be included in the drafts and the 6

final documents when they're submitted --- drafts next 7

week and whenever the final documents are submitted. 8

ATTORNEY CREANY: 9

Based upon what you've received at this 10

point, are you able to make an evaluation or 11

recommendation to this Board relative to that 12

financing proposal? 13

MR. TALERICO: 14

As of right now, we withhold comment 15

until we actually receive the final documents --- the 16

draft documents and review them. 17

ATTORNEY CREANY: 18

And what documents specifically are 19

necessary for you to be able to make a recommendation 20

to evaluate this proposal and to make recommendations 21

to the Board? 22

MR. TALERICO: 23

The documents that you referred to 24

before. Do you want me to list them? 25


85

ATTORNEY CREANY: 1

Are you stating all the documents that I 2

discussed with --- 3

MR. TALERICO: 4

Yes. 5

ATTORNEY CREANY: 6

--- Mrs. Kaye? 7

MR. TALERICO: 8

Yes. 9

ATTORNEY CREANY: 10

With respect to those, how much time once 11

you receive those documents will you need in order to 12

review, analyze and make recommendations to this 13

Board? 14

MR. TALERICO: 15

We'll just review them as long as it 16

takes. I can't --- as long as it takes. I mean, if 17

the Board needs them in a certain amount of time, 18

we'll have them ready for the Board. 19

ATTORNEY CREANY: 20

Thank you very much, Mr. Talerico. I 21

have no further witnesses. 22

CHAIRMAN COLINS: 23

All right. Let me ask the Board. We'll 24

start with questions. Commissioner Ginty, do you mind 25


86

beginning? 1


I guess as the junior member, I 3

always ---. 4

CHAIRMAN COLINS: 5

If not --- I'll start if you'd rather. 6


I just don't want to monopolize. You 8

know, as a starting point --- and this is for you, Mr. 9

Eisenhower --- what do you see the responsibility of 10

the Board being in this situation? 11


Well, Commissioner, I think the 13

responsibility is the same or very similar to the 14

responsibility of the Board at the time of licensing, 15

and that is to take care and review the requests made 16

by the licensee, to protect the public interest and to 17

make sure that --- as Mr. Barden has committed all 18

along, that this is going to be a first-class facility 19

and as he's committed to today. 20


At the time of the Board's adjudication, 22

and I was not on the Board at that time, but I did 23

take an opportunity to read at least part of the 24

record, the Board made a very specific reference to 25


87

the, quote, firm commitment from Jefferies & Company. 1

And as you know, that was further reviewed by the 2

Pennsylvania Supreme Court. It went into the calculus 3

of this Board choosing between the competitive 4

applicants. And now, quite frankly, we're confronted 5

with a change and what I consider a major part of the 6

suitability question and we're asked to do it in a 7

very short time frame. 8

Before I'm prepared to act on it, I want 9

to know exactly what happens. Ms. Kaye, you said that 10

if you're not prepared to close on May 19th, you will 11

be in default. What exactly happens if you're in 12

default of the bridge loan? 13

ATTORNEY KAYE: 14

It depends on what the lenders under the 15

bridge loan would like to have happen. They may chose 16

to allow additional time to permit the refinancing. 17

They may require a payment in order to do that. They 18

may choose to exercise their collateral securing the 19

bridge loan. 20


Do we have representatives of Credit 22

Suisse in the ---? No, they're not with us. 23

ATTORNEY KAYE: 24

But Credit Suisse is the agent, and they 25


88

would take direction from their lenders. So ---. 1


And do we know who the lenders are yet? 3

ATTORNEY KAYE: 4

The current lenders? 5


Well, that would be the bridge loan 7

lenders. Okay. And we know who those are. 8

MR. BARDEN: 9

Yes. 10


I just have to admit that, quite frankly, 12

I'm disturbed. When did you decide to forego, Mr. 13

Barden, the arrangements you had with Jefferies & 14

Company? 15

MR. BARDEN: 16

It would have to be before --- during 17

August, I would think. When the credit crunch hit, I 18

mean, everything in the world changed. 19


And was the Board notified at that time? 21

MR. BARDEN: 22

I'm not sure, but it was notified in 23

September or October. 24



89

And the bridge loan was submitted to the 1

Board and approved in November. 2


And so that I understand, the bridge loan 4

came after you decided to go with --- in another 5

direction other than with Jefferies & Company? 6

MR. BARDEN: 7

Yes. 8

CHAIRMAN COLINS: 9

Was the bridge loan --- the change and 10

the adoption of the bridge loan requested by petition? 11

MR. BARDEN: 12

I don't know the formal procedure, but it 13

was approved by the Board, whatever ---. I don't know 14

if it was ---. 15


It was submitted to the staff, and the 17

staff advised us that by submitting it in the way that 18

we did, we had complied with all the conditions --- 19

statement of conditions as of that time. And a letter 20

was given to us by Ms. Neeb to that effect. And that 21

facilitated the closing of that loan. 22


You know, the other part of this is the 24

deferral of the ballroom and so forth. Why are you 25


90

deferring that to phase II? 1

MR. BARDEN: 2

Primarily because the conditions of the 3

financial markets. This is the toughest financial 4

market in 30-plus years is one reason. We were sued 5

by the losing bidders, and they've been sabotaging us 6

ever since all the way up until today and probably 7

tomorrow too to try to make us fail so that they can 8

and their friends can have this license. The other 9

reasons is that we had to resolve lawsuits with the 10

Steelers and the Pirates that delayed us. If it 11

wasn't for the losing bidders and all the lawsuits and 12

the obstacles put in our path, this thing would be 13

ready to open next month, not next year, and we would 14

not have had the same financial marketplace conditions 15

as we have. 16


Let me understand that. Is the decision 18

to move it to a phase II financially driven or 19

construction driven? 20

MR. BARDEN: 21

It's really --- I would just be honest 22

and say it's financially driven. It's only $8 23

million, but that's a lot of million --- a lot of 24

money. 25


91


But if you get the 650 financing on May 2

19th, would that solve the financial ---? 3

MR. BARDEN: 4

It's not in the budget for that, but let 5

me just say this. We're just being cautious and being 6

able to deliver on our promise. If things go as well 7

as we think they should, then we could conceivably 8

accelerate that. We're just asking for the 9

flexibility because of all the obstacles that have 10

been put in our path by disgruntled bidders and 11

because of the credit markets that are affecting every 12

company in America, including the ones that just 13

appeared before you. That's all we're asking. 14


The Exhibit B to your petition, the 16

sources and uses of funds, that's to be provided? It 17

wasn't included at least in my copy of the petition. 18

ATTORNEY KAYE: 19

It was provided to staff yesterday, I 20

believe. 21

ATTORNEY CREANY: 22

Yesterday afternoon we received that from 23

Michelle Sherman of Barden Companies, and we've 24

distributed just in-house to our financial people in 25


92

BIE. 1


Mr. Eisenhower, I think you define, at 3

least as I see, my responsibilities the same I see 4

them. It would help me if you could get something to 5

us. I want to understand the full ramifications if 6

this does not go forward on May 12th. 7

MR. BARDEN: 8

We'll do that. 9


I have no further questions. 11

CHAIRMAN COLINS: 12

Okay. Thank you. Commissioner Sojka? 13


I want to thank Commissioner Ginty. Mr. 15

Barden, you'll be aware that probably neither of us 16

have laid eyes on you or vice versa until today, and 17

so I had many of the same questions, Jim. Thank you. 18

Just a couple follow-ups in the same area. Again, 19

having to do with the architectural aspects and the 20

ballroom, I think I heard you say that from the 21

exterior of the building, it will look exactly as you 22

had presented it to this Board at the time of your 23

application. All that will be missing will be the 24

interior build out and putting it in its final form. 25


93

So it will be a space set aside with that as the sole 1

and only purpose. 2

MR. BARDEN: 3

Right. Yes, Commissioner, you won't be 4

able to tell at all from the outside or from the 5

inside because there will be a direct decorative wall 6

that will be up with paintings and design concepts. 7

And so it will be invisible to the naked eye. 8


Okay. Thank you. And again, you'll 10

pardon me if I --- I just have to go back and sort of 11

laboriously try to understand the complexities of this 12

current change in the loan situation. The original 13

application was for $450 million. 14

MR. BARDEN: 15

That's correct. 16


There's now a $200 million bridge loan, 18

and the final sum will be $650 million. Am I --- no, 19

I'm getting a no from Ms. Kaye. 20

ATTORNEY KAYE: 21

There's a piece that you're missing. 22

You're missing the $150 million mezzanine financing. 23

MR. BARDEN: 24

No, he's not talking financing. He's 25


94

talking cost of the project. 1


I'm just talking about cost of the 3

project. 4

ATTORNEY KAYE: 5

I apologize. Sorry. 6

MR. BARDEN: 7

Go ahead. 8


The project has grown from $450 million 10

to $650 million ---. 11

MR. BARDEN: 12

The $450 is misleading, and that's what 13

the press has been printing, because the $450 did not 14

include a lot of elements that are normally included 15

in the project cost. One is interest reserve, fees, 16

and those sort of things are not included. And that's 17

what I stated in my opening statement, that the $450 18

--- the relevant number to that today is $600. So the 19

price has increased about $150 million because of a 20

lot of dynamics of the marketplace and final design 21

and things that were excluded originally. And that 22

$450, by the way, was never intended to be a maximum 23

cost. It was a minimum cost. 24



95

Am I still missing $50 million? It's 1

at ---. 2

MR. BARDEN: 3

License fee of $50 million. 4


Oh, that's --- it's the license fee. So 6

I was missing. Okay. If I may reserve the right to 7

come back later, I'm happy to yield the floor. 8

CHAIRMAN COLINS: 9

Commissioner Rivers? 10


Yes. Mr. Barden, you spent a 12

considerable amount of time talking with the planning 13

department and the City of Pittsburgh. Can you tell 14

us what was finally negotiated with the planning 15

department in terms of changes within what you 16

presented to us vis-à-vis changes that you presented 17

to them or what you presented to them? 18

MR. BARDEN: 19

I think everything that we're doing now 20

has already been presented and approved by the city. 21

I'm not sure that in terms of phasing the ballroom and 22

the amphitheater requires any action, Sam, at this 23

juncture. 24

MR. MARSHALL: 25


96

No. On the Planning Commission side, 1

they did not address the interior of the building 2

whatsoever, strictly the exterior of the building and 3

the site plan. 4


There was considerable conversation 6

regarding the parking facility. Did you have to make 7

any changes to accommodate them? 8

MR. BARDEN: 9

Yes. We made changes by eliminating the 10

basement in order to accommodate them. They have 11

given approval to our parking garage, which I think is 12

nine stories or ten. 13

MR. MARSHALL: 14

It's nine elevated levels plus the ground 15

floor or ten as most lay people ---. 16

MR. BARDEN: 17

119 feet. But what we have there and 18

what we proposed is what has been approved and what is 19

being presented here today. It's what has already 20

been approved by the City of Pittsburgh. And we're 21

under construction. We have our permits and we're 22

proceeding. The only technicality is lenders are very 23

fickle. When we said approximately 4,100 parking 24

spaces, they want your blessings that 3,842 meets that 25


97

approximate requirement. 1


There seems to be a fair number of 3

financial documents to be gathered and to be reviewed. 4

I guess my question is --- and here we're asking to 5

make a decision by either --- you know, maybe I'm 6

wrong here. Is it the 12th of May or the 19th of May? 7

MR. BARDEN: 8

Well, we'd like ---. 9


I've heard two dates. 11

MR. BARDEN: 12

Yeah. The two dates are different. The 13

19th is the day that our bridge loan expires. We have 14

a scheduled closing on the 12th, that may slop over a 15

couple of days. So I would, you know --- and we need 16

to have these things approved in order for us to 17

close, to fund and pay off the bridge loan. 18


So the 19th is a date that's cast in 20

stone? 21

MR. BARDEN: 22

That's right. 23


But the 12th is a floating date; correct? 25


98

MR. BARDEN: 1

That's right. So that may go to the 2

16th, which is that Friday. 3


I have no further questions. 5

CHAIRMAN COLINS: 6

Thank you. Commissioner Angeli? 7


Mr. Barden, when all is said and done, 9

when you looked at the original proposal around $450 10

million plus the other things that you had discussed 11

and now it's $650 million, are you comfortable with 12

these to be able to support the financing of this in 13

the original projections? 14

MR. BARDEN: 15

Yes. And when you throw in everything 16

including lawyer fees, financing fees to investment 17

banks, interest reserve, construction contingency on 18

the owner's side, contingency for the contractor, all 19

the insurance matters, start up cash, we put 20

everything all together so there will be no doubt. We 21

reserved three years of interest for the first and 22

second lien and the HoldCo. So the total is $770. 23

But in terms of hard cost for the project, it's in the 24

neighborhood of the $600 million plus the $650 for the 25


99

license. But we put everything together so we have 1

full financing so there's no question. I can sleep 2

for three years without having to worry about it. 3


Thank you. 5

CHAIRMAN COLINS: 6

Commissioner Coy? 7

COMMISSIONER COY: 8

Thank you. Mr. Barden, just --- I guess 9

the one question that recurs to some of us is, do we 10

have your assurance that the dollars that you're 11

talking about now --- some of them appear to have 12

increased, but whether that was because of increasing 13

costs of goods or services or these terrible attorney 14

costs you talked about. Do we have --- all the money 15

you're borrowing is going in this project, is that so? 16

MR. BARDEN: 17

That's correct. 18


In other words, this Board does not need 20

to be concerned that there are dollars that are 21

flowing out of what you're borrowing here to Detroit 22

or wherever else? 23

MR. BARDEN: 24

No way. And it's prohibited in our 25


100

agreements. 1

COMMISSIONER COY: 2

And we have your assurance on that? 3

MR. BARDEN: 4

And you have my assurance, absolutely. 5

COMMISSIONER COY: 6

And do you understand folks' concerns 7

about the need to completely understand about the 8

dollars that you had indicated you would contribute to 9

the association we talked about in the Hill District? 10

MR. BARDEN: 11

Right. Yes. 12


I think it's important that the community 14

and the folks that are writing articles and folks that 15

are reading, people in government positions understand 16

that there is not an attempt ---. Let me ask a 17

different. Is there an attempt to back away from any 18

agreements that were made in that regard? 19

MR. BARDEN: 20

The request is that we not have to spend 21

money to benefit the Penguins. There's no time table 22

on when this money is said to be expended or fund 23

these activities over a three-year period. So let me 24

ask you, Mr. Commissioner, what do I spend the money 25


101

on, number one? Number two, ---. 1

COMMISSIONER COY: 2

Well, if you gave me a day or two, I 3

could make a list. But I guess ---. 4

MR. BARDEN: 5

Number two --- go ahead. I'm sorry. 6

COMMISSIONER COY: 7

No, that's all right. You can ask a 8

question, but I ---. My concern is that the dollars 9

that were committed when this Board made a decision to 10

grant the license are being changed and you're 11

requesting that they be changed. And that's fine. I 12

think the community --- the Greater Pittsburgh 13

community, the Allegheny County community, the 14

taxpayers of Pennsylvania need to know that you are 15

still committed in terms, if not equal to and maybe 16

greater than your original commitment both to the 17

project and to contributions to whatever area to --- 18

that would inure to the benefit of the Greater 19

Pittsburgh community. 20

MR. BARDEN: 21

I understand, Mr. Commissioner. Let me 22

just comment on that for a moment. It probably 23

shouldn't have been me at this juncture that requested 24

that. It should have come from the county and the 25


102

Sports and Entertainment Authority, the County 1

Executive, who said in yesterday's paper and today's 2

paper that it would be unfair to ask me to spend that 3

money there since they didn't give me the development 4

rights that they promised me to contribute all this 5

money. I have not quarreled about this $7.5 million a 6

year and not getting the development rights. 7

I've been a pretty nice guy, and all I 8

asked them was, hey, what are we going to do about 9

this? I could have argued with them and contested 10

with them, the fact that they didn't give me the 11

rights. I probably could have made a big stink out of 12

the whole financing and funding of the Penguins' 13

arena, but I didn't do that. They promised me 14

millions of dollars that they reneged on, and I didn't 15

ask --- you know, so it should ---. In fact, I think 16

I read in the paper today that they should be making 17

the argument to you, not me. 18


I think I'll stop there. Thank you. 20

CHAIRMAN COLINS: 21

Mr. McCabe? 22


Thank you. Mr. Barden, as you know, 24

Commissioner Rivers and I live in Pittsburgh. One of 25


103

the things --- to follow up a little bit on what 1

Commissioner Coy's theme has been is we're starting to 2

hear as people drive by the construction site saying 3

oh, well, that's as far as it's going to get. Are you 4

still committed to finishing that project? 5

MR. BARDEN: 6

Yes. As long as the people are not 7

permitted to sabotage and badmouth through innuendo 8

and all kinds of other things that they're trying to 9

do at every stop and turn. It's just the most 10

outrageous thing I've ever seen in my life, how people 11

are trying to cause us to fail, cause rumors to be put 12

in the paper, cause things to happen to scare people 13

away and rumors here and rumors there. I mean, I 14

don't know if anybody's going to show you the 15

pictures. Just to show you what happened --- you 16

know, now they see the thing is going vertical. 17

There's steel and concrete coming out of the wall, you 18

know. 19

And they keep saying it and they keep 20

saying it, even the reporters. Are you going to 21

finish it? I said, what do you think we're doing. I 22

mean, why don't you go out there and see? Get in your 23

car. I'll drive you. Don't you see the people are 24

there working every day? This thing is coming out of 25


104

the ground. It's being built. Why you guys still 1

trying to derail me? Why are you trying to sabotage 2

me? What kind of conspiracy is this and who's behind 3

it? And I have some suspicions as to some of the 4

people who are behind it. It's a conspiracy. 5


My other question is, you got up and 7

testified before us that this was going to be a 8

flagship of your business. Is this still --- PITG, is 9

this still --- facility in Pittsburgh still going to 10

be the flagship? 11

MR. BARDEN: 12

It's the flagship, the mothership and the 13

fathership. 14


Thank you. 16

CHAIRMAN COLINS: 17

Good afternoon. What is the cost --- 18

what will be the cost to build the amphitheater? 19

MR. BARDEN: 20

The cost is --- Sam, is it $3 million 21

something? The total cost of the two, is it $3 22

million and change? 23

MR. MARSHALL: 24

The amphitheater was $3.5. 25


105

MR. BARDEN: 1

$3.5. 2

CHAIRMAN COLINS: 3

And the other part of your project you're 4

asking for a delay on is that large banquet facility. 5

And what's the cost of that? 6

MR. MARSHALL: 7

Just to shell it out, the savings to 8

shell it out versus finishing out was about $4.5. 9

MR. BARDEN: 10

Total of $8 million. 11

CHAIRMAN COLINS: 12

And why --- those were essentially part 13

of your phase I proposal; correct, the amphitheater 14

and the banquet facility? Were they not part of phase 15

I? 16

MR. BARDEN: 17

I think they --- yeah, I think so. 18

CHAIRMAN COLINS: 19

See, I viewed --- I viewed your entire 20

phase I package as giving you a tremendous advantage 21

in the licensing process because it included this 22

entertainment facility. It was part of your flagship 23

concept. Why put off the building of this $8 million 24

project until phase II when you're getting full --- 25


106

when you're getting the full financing now? 1

MR. BARDEN: 2

Well, we thought that the principal issue 3

you have to look at is providing the revenue to the 4

state. We did not want to cut out anything that would 5

impact putting in 3,000 slots and generating revenue 6

quickly for taxpayer relief. Just like the Meadows 7

eliminated their conference room and other things and 8

put in a garage, we already have a garage. So we 9

tried to do things that would have the least amount of 10

impact on generating revenue for the State of 11

Pennsylvania, the City of Pittsburgh, the county and, 12

of course, for our company. 13

CHAIRMAN COLINS: 14

I'm not understanding that. How would 15

that adversely affect developing revenue? 16

MR. BARDEN: 17

It's a matter of choices. If you have to 18

eliminate $8 million from your budget, what's the 19

avenue of least resistance that impacts revenue the 20

least amount? And those were the answers, because you 21

need the restaurants. You need --- we still have an 22

entertainment room to draw entertainment. But you 23

don't necessarily need a ballroom. You don't 24

necessarily need an amphitheater. We're still doing 25


107

all the outdoor activity and the walkway and all of 1

that. 2

CHAIRMAN COLINS: 3

What's to guarantee us that you'll build 4

it in the next phase? 5

MR. BARDEN: 6

Because I think it's an attraction that 7

we want to build, and we're committed to here. We 8

can't --- we've got to come back to you again. We're 9

committing to do it. 10

CHAIRMAN COLINS: 11

With respect to the loan documents, it 12

sounds like all we have basically are the very 13

skeleton --- skeletal documents that will be the 14

underpinnings of these transactions; is that correct? 15

ATTORNEY KAYE: 16

By next week, you will have most of the 17

documents. You're about the same place we are right 18

now. But we concluded the bridge facility in a very, 19

very short period of time from start to finish. These 20

loan documents track the bridge facility documents, 21

and I was the lawyer who was involved in closing the 22

bridge facility, and we have the same lawyers 23

representing the agents, Credit Suisse. So we are 24

confident that we can get it done. We are on a very 25


108

tight time frame. We're working very, very hard, but 1

we are highly motivated and we're confident that we 2

can do it. 3

And based on the review of the documents 4

that I've seen thus far, there's no reason to believe 5

that we can't, again because they are fairly similar 6

in structure to the documents that we just read in 7

November. So I --- I mean, if you had had a meeting 8

next week, there would have been a lot of paper that 9

we could have shared with you. We very much 10

appreciate you hearing us today because of our 11

targeting closing on the 12th, and we understand that 12

we need to get those documents to you and will do so. 13

CHAIRMAN COLINS: 14

Right. I mean, we're having the hearing 15

today, but we don't have really much of a foundation 16

at this point. 17

MR. BARDEN: 18

We understand, Madam Chair. And we'll 19

get documents to you as --- even if, you know, some of 20

them are not final, so we can start reviewing them as 21

they come to us. We'll have everything to you next 22

week. 23

CHAIRMAN COLINS: 24

I have some concerns about this dispute 25


109

involving the $3 million contribution to the 1

development of the Hill District. I was reviewing the 2

notes of testimony from the licensing --- your prior 3

suitability hearing, your licensing hearing, and I did 4

not see the linkage that you are talking about now. I 5

viewed this $3 million development fund as your 6

charitable contribution to the community. And the 7

plan B that you've referred to and that you've 8

testified to is really something that you agreed to 9

with other entities, not the Gaming Board; is that not 10

correct? 11

MR. BARDEN: 12

Yes. Plan B was --- plan B was done 13

before then, and I have notes that --- with 14

scribblings on them as to who was going to do what in 15

terms of ---. Let me say this. In my mind, when I 16

entered into plan B, I was getting the development 17

rights. When I started to do the activity with 18

respect to the commitment --- in fact, when I had 19

testified, I did not have an amount and Chairman 20

Decker asked me would I want to quantify that, and I 21

said yes, I'll do it right here. I'll said I'll make 22

it the same as the other. 23

When I made that comment, I was under the 24

impression in my mind because I had committed to $7.5 25


110

million by the Sports and Entertainment Authority that 1

I would have the development rights. So if you have 2

the development rights knowing that you're going to be 3

getting a million and a half in parking fees a year, 4

knowing that you're going to get discounted land going 5

forward, that's why I from the seat of my pants said, 6

well, if I'm going to do this, I don't mind giving 7

back and directing money for redevelopment. 8

But in terms of my testimony before the 9

Board, I did not say, Dear Gaming Control Board, I'm 10

not going to give this money if I don't get the 11

development rights. It didn't happen that way. 12

CHAIRMAN COLINS: 13

Right. And I understand how you're 14

linking it at this point. I understand the linkage 15

that you've outlined. But I guess my question is, you 16

know, the commitment to community development, I 17

wonder if the community understood that linkage at the 18

time --- 19

MR. BARDEN: 20

I think so. 21

CHAIRMAN COLINS: 22

--- when you made that commitment. 23

MR. BARDEN: 24

If you could talk to Representative Jake 25


111

Wheatley, he understands it. They understand it 1

clearly. In fact, they were very angry when I was not 2

given those rights. Again, as I said earlier, my 3

mistake was requesting it for myself. Now, it could 4

be very well that the county and the city will find 5

another way to compensate me for not giving me those 6

rights, and then I'd be happy to provide $3 million in 7

planning and development. 8

CHAIRMAN COLINS: 9

Now, the --- essentially, I think, on 10

this area --- in this area of your petition --- and 11

you filed an amended petition, I believe, asking us to 12

defer this matter; correct? Because it's your 13

intention to have conversation with the mayor and the 14

commissioners; is that correct? 15

MR. BARDEN: 16

Yes, ma'am. 17

CHAIRMAN COLINS: 18

And this --- I mean, it seems to me, that 19

this portion of your petition has an impact that this 20

Board would want to hear more about as we go forward 21

as we have to decide this issue. 22

MR. BARDEN: 23

Yeah, we plan to meet next week. 24

CHAIRMAN COLINS: 25


112

All right. And I would expect that it 1

would --- for me, it would be significant to hear 2

their input, to hear community representatives on this 3

issue because this was an essential element of the 4

license in my opinion, community giving, giving back 5

to the community. 6

MR. BARDEN: 7

Oh, I don't disagree. 8

CHAIRMAN COLINS: 9

And so I think it's appropriate that we 10

set aside time to hear this and to give an opportunity 11

for people to speak on it. 12


Madam Chair, I know being from 14

Pittsburgh, read in the press is that, in fact, they 15

--- you are supposed to meet with Dan Onorato and the 16

mayor. And they both have said that they wanted to 17

solve this and come before us, if need be, to offer us 18

a solution. So they publicly said they're willing to 19

try to put some type of proposal either in person or 20

through a letter to us. 21

CHAIRMAN COLINS: 22

What we'll do before we --- before we let 23

you go today, I want to take a brief executive session 24

to outline a --- so we can determine scheduling. But 25


113

are there any other questions from any of the Board 1

members at this time? 2


I just have a couple. On this last 4

issue, Mr. Eisenhower, you sent a letter to Frank 5

Donaghue on November 8th, 2006 outlining the 6

commitment and including some agreements. I'm not 7

going to go over them now, but I mean, that's kind of 8

what's in the record. And you know, you should 9

address those documents as well in any further 10

consideration of the issue. 11


Thank you, Commissioner. We will. 13


Cyrus, one question for you. Do we have 15

to license lenders? 16

CHAIRMAN COLINS: 17

Can I just ask one thing? Having 18

reviewed some of these documents, has anyone formed 19

--- and I know no one from Licensing is here right 20

now. Has anyone formed an opinion as to whether or 21

not there are additional people we have to investigate 22

in Licensing? Do we know that yet? 23

ATTORNEY CREANY: 24

Madam Chairman, I think from 25


114

consultations with the Bureau of Licensing the HoldCo 1

and Super HoldCo companies are probably either a 2

licensure issue or waiver issue, but they would have 3

to come in with applications to this Board. 4

MR. HARRISON: 5

After seeing the petition yesterday, the 6

Bureau of Licensing requests that applications from 7

the two newly formed intermediary companies, the 8

HoldCo and Super HoldCo. 9

ATTORNEY KAYE: 10

Right. And we got their request and 11

intend to file those applications. The people --- the 12

beneficial owners and the offices are all the same as 13

the entities who've already been licensed. We will 14

file that information promptly. 15

CHAIRMAN COLINS: 16

Thank you. 17

MR. BARDEN: 18

Madam Chair, might I add one thing. With 19

respect to our community contribution, because I know 20

it's important to you, it's important to me, I don't 21

want it to be forgotten that we're contributing $3 22

million to the Northside Leadership Conference. No 23

problems there. That's a commitment we made. We have 24

an agreement with them. I talked to the leader the 25


115

first part of this week. We're contributing $7.5 1

million to the Penguins. We're contributing $1.2 2

million for improvements for the Steelers' stadium. 3

We're putting in $9 million for highway and other 4

improvements that benefits the Steelers and the 5

Pirates and everyone else in the neighborhood. 6

We are making tremendous community 7

contributions unlike many other entities in 8

Pittsburgh, unlike many other people who are not taxed 9

like we're taxed, who are subsidized, but we're not 10

subsidized. And if we have to do something else, we 11

will certainly entertain that. 12

CHAIRMAN COLINS: 13

Thank you. That's why we're here today, 14

to take testimony and hear what you have to say on the 15

record on these issues. Anything further? 16


Yes, Madam Chair. I would just ask that 18

our petition and the exhibits attached, the floor plan 19

that was handed out during the course of the hearing 20

and the architectural drawing that was shown to staff 21

be included as exhibits in today's hearing. 22

CHAIRMAN COLINS: 23

All right. Thank you. I want to break 24

for an executive session ---. 25


116

ATTORNEY CREANY: 1

Madam Chairman, --- 2

CHAIRMAN COLINS: 3

Yes. 4

ATTORNEY CREANY: 5

--- before we break, could I have one 6

final statement from the Office of Enforcement 7

Counsel? 8

CHAIRMAN COLINS: 9

Sure. 10

ATTORNEY CREANY: 11

You had started with a question relative 12

to the financing that didn't need to be approved, and 13

I know that we've received internally the one sources 14

and uses that Commissioner Ginty ---. We'd like to 15

have, you know, at some point that submission as well. 16

But with respect to the prior bridge loan, I don't 17

know, is that the direction your question was earlier 18

before we went on to the issue of community 19

commitment? 20

CHAIRMAN COLINS: 21

Which was a request for the documents 22

regarding the financing, no. 23

ATTORNEY CREANY: 24

No. You had asked about whether the 25


117

lenders or some financing needed to be approved. 1

CHAIRMAN COLINS: 2

Oh, yes. That was the bridge loan I was 3

asking about, yes. 4


I'm asking about the permanent loan. 6

ATTORNEY CREANY: 7

And both of those are issues that the 8

Office of Enforcement Counsel would like to have --- 9

we recommend that there be an adjournment of the 10

hearing, that we'd have an opportunity to bring in 11

additional information once we receive the financial 12

documents and perhaps other witnesses as well. 13

CHAIRMAN COLINS: 14

Right. We're going to have an executive 15

session now pursuant to the Sunshine Act, and we're 16

going to discuss certain matters. And then we will 17

come back. I'm not going to release anyone in this 18

hearing. We'll come back. We're going to reschedule 19

the second part of this hearing, and then we'll get 20

into our executive session. I'm thinking of a break 21

of about a half an hour. Is that in agreement with 22

everyone? We'll take a half hour recess for executive 23

session. 24

SHORT BREAK TAKEN 25


118

CHAIRMAN COLINS: 1

Just by way of scheduling, we're going to 2

reschedule you for May 14th for another hearing. May 3

14th I believe is Wednesday, and that will take place 4

--- we are going to be actually out in the western 5

part of the state. We have a public meeting on the 6

15th. We will do a continuation on the 14th. We will 7

have to --- I'll have to get the exact address to you. 8

We will provide you with written confirmation of this. 9

The 15th we're doing the Valley View application 10

hearing, so it will be out there in Lawrence County. 11

We have to make sure we can get that room. We have to 12

get a secure room to have this on the 14th. 13

And that will give us time to get your 14

documents, to have more communication with you 15

regarding your refinancing. Let's see. What else? 16

And to have staff reach out to you and communicate 17

with you. Also, that gives you time to conduct your 18

conversations and meetings --- your conversations or 19

your meetings with Mr. Onorato or Mr. Ravenstahl, 20

whoever you have to talk to vis-à-vis the $3 million 21

issue, Hill District issue. And it also gives them an 22

opportunity to come in and testify if they chose on 23

that issue. So it gives us a chance to create a full 24

and complete record. And once we do that, you'll have 25


119

our decision very quickly because I understand you're 1

under the gun for the 19th. All right. 2


Madam Chair, if I might, we were hoping 4

that the Board would consider reconvening two weeks 5

from today, which I believe is May 8th. It's my 6

understanding that having Board approval prior to the 7

date that the Chair has set is important in the 8

negotiations and making sure the investors are where 9

we need them to be to close the deal during the week 10

of the 12th. And perhaps, Ms. Kaye can address that 11

timing issue. 12

ATTORNEY KAYE: 13

I think that the 14th would be extremely 14

problematic for the financing. We are shooting for 15

the 12th. As Mr. Barden said, it may slop a day or 16

two. But the lenders will want assurance much earlier 17

than that, that the structure and the terms of this 18

financing are approved, are acceptable to the Board. 19

If there were any issues that arose on the 14th, it 20

would be nearly impossible to address the Board's 21

concerns in time to close. 22

CHAIRMAN COLINS: 23

I'm sorry, but at this point in time, 24

we're unprepared to schedule an earlier hearing. 25


120

Thank you. Thank you very much. 1


Thank you, Madam Chair. Thank you. 3

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HEARING CONCLUDED AT 1:24 P.M. 5

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1 A P P E A R A N C E S · 4/24/2008 · 12 be here today. I'm Bob Krauss from Ballard Spahr. 13...

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Transcript of 1 A P P E A R A N C E S · 4/24/2008 · 12 be here today. I'm Bob Krauss from Ballard Spahr. 13...