Investment in Eldorado

On December 14, 2007, the Company effectively acquired its Eldorado Interest by transferring the Eldorado-Shreveport Investments in part to Eldorado Resorts, LLC (“Resorts”) and the balance to Donald L. Carano (“Carano”), free and clear of any liens. The Eldorado-Shreveport Investments included first mortgage bonds due 2012 (the “Mortgage Bonds”) and 11,000 preferred shares of a partner of the co-issuer of the Mortgage Bonds. The Mortgage Bonds were co-issued by Eldorado Casino Shreveport Joint Venture (the “Louisiana Partnership”) and Shreveport Capital Corporation, a wholly-owned subsidiary of the Louisiana Partnership (the “New Shreveport Notes”). The original principal amount of the Mortgage Bonds was $38,045,363. The 11,000 preferred shares were issued by Shreveport Gaming Holdings, Inc. (“SGH”), then a partner of the Louisiana Partnership, that is not affiliated with Resorts or the Company. In May 2007, NGOF had contributed the Eldorado-Shreveport Investments to the Company at the estimated fair value of such investments as of that date. Effective April 1, 2009, Resorts became a wholly-owned subsidiary of Eldorado when all of the members of Resorts, including AcquisitionCo, exchanged their interests in Resorts for identical interests in Eldorado. Approximately 85% of the Company’s Eldorado Interest was acquired directly from Resorts and the balance from Carano, 14.47% and 2.5659%, respectively.

The Company’s interest in Eldorado was recorded at estimated fair value based on the quoted market price of the Eldorado-Shreveport Investments ($38,314,863) on the acquisition date, which is considered a level 2 fair value input in GAAP. Such value exceeded 17.0359% of the carrying (or book) value of Resorts’ equity by approximately $14.8 million. The Company attributed $16.1 million of its $38.3 million acquisition price to intangible assets, $15.4 million to indefinite-lived intangibles assets and $0.8 million to definite-lived intangibles assets. Subsequently, the Company has adjusted its equity in the net income (loss) of Eldorado by amortization of the excess purchase price attributed to the definite-lived intangibles, approximately $108,000 annually using an estimated economic life of seven years.

The Company acquired its interest in Eldorado pursuant to the terms and conditions of a purchase agreement, dated July 20, 2007. The parties to the agreement were Resorts, AcquisitionCo, and Carano, now the presiding member of Eldorado’s board of managers and the chief executive officer of Eldorado who then held the same positions with Resorts. Carano or members of his family continue to own directly or indirectly approximately 51% of Eldorado.

Eldorado’s five member board of managers is composed of individuals designated by the parties to the purchase agreement, including one member to be designated by AcquisitionCo, currently Timothy T. Janszen. Members of the board of managers are required to be licensed or found suitable by the relevant Nevada and Louisiana gaming authorities.

As a limited liability company, Eldorado is generally not subject to federal income taxes and its members are required to include their respective shares of Eldorado’s taxable income in their respective income tax returns. Eldorado’s operating agreement provides that the board of managers will distribute each year to each member an amount equal to such member’s allocable share of taxable income multiplied by the highest marginal combined federal, state, and local income tax rate applicable to the members for that year.

Changes in the Company’s investment in Eldorado during the years ended February 28, 2014 and 2013 are as follows:



	2014			2013
Balance, beginning of period	$	22,988,441		$	23,861,936
Equity in net income (loss) of Eldorado	3,110,862			(277,238		)
Distributions received from Eldorado	(904,606		)	(596,257		)
Equity in other comprehensive income of unconsolidated investee	301,876			—
Balance, end of period	$	25,496,573		$	22,988,441

The Company did not record any impairment related to its equity method investment in Eldorado during the years ended February 28, 2014 and 2013.

The following tables present condensed financial information of Eldorado as of December 31, 2013 and 2012, and for the years then ended (in thousands).



	December 31, 2013		December 31, 2012
Balance Sheets
Current assets	$	39,429	$	34,928
Restricted cash	5,000		5,000
Investment in and advances to unconsolidated affiliate	18,349		5,066
Property and equipment, net	180,342		189,713
Other assets, net	27,062		27,818
Total assets	$	270,182	$	262,525

Current liabilities	$	25,147	$	27,301
Other liabilities	169,460		174,221
Members' equity	75,575		61,003
Total liabilities and members' equity	$	270,182	$	262,525



	2013		2012
Statements of Operations
Net operating revenues	$	247,186	$	254,740
Operating income	$	22,582	$	15,481
Net income (loss)	$	18,897	$	(991	)
Other Comprehensive Income - Minimum Pension Liability Adjustment of Unconsolidated Affiliate	$	1,772	$	—
Comprehensive income (loss)	$	20,669	$	(991	)

The following tables present condensed financial information of one of Eldorado’s unconsolidated investees, the Silver Legacy Joint Venture, as of December 31, 2013 and 2012 and for the years then ended (in thousands).



	December 31, 2013		December 31, 2012
Balance Sheets
Current assets	$	29,565	$	21,764
Property and equipment, net	198,150		206,790
Other assets, net	8,201		15,258
Total assets	$	235,916	$	243,812

Current liabilities	$	28,332	$	23,571
Other liabilities	91,684		134,841
Partners' equity	115,900		85,400
Total liabilities and partners' equity	$	235,916	$	243,812



	2013		2012
Statements of Operations
Net operating revenues	$	125,841	$	114,800
Operating income	$	13,283	$	1,413
Net income (loss)	$	28,482	$	(19,396	)
Other comprehensive income - minimum pension liability adjustment	$	3,544	$	354
Comprehensive income (loss)	$	32,026	$	(19,042	)

On September 9, 2013, Eldorado and MTR Gaming Group, Inc. (“MTR”), a publicly traded company, announced that they had entered into a definitive agreement (the “Merger Agreement”), which provides for the combination of MTR and Eldorado in a stock merger with a cash election option offered to MTR’s current stockholders. On November 18, 2013, Eldorado and MTR entered into Amendment No. 1 to the Merger Agreement, which increased the cash election option per share amount from $5.15 to $6.05 and increased the aggregate amount available for the purchase of shares pursuant to the cash option from $30 million to $35 million, with the $5 million increase to be funded by Eldorado utilizing its cash on hand. MTR’s remaining common shares will be exchanged for shares in the combined new company (“NewCo”).

If consummated, the merger would result in shares of NewCo being listed on The Nasdaq Stock Market (the "Nasdaq"). Pursuant to the terms of the merger, the members of Eldorado will collectively receive, in the aggregate, consideration equal to the product of (a) Eldorado’s adjusted EBITDA for the twelve months ending on the most recent month end preceding the closing date by at least twenty days and (b) 6.81. The amount of consideration is subject to adjustment depending on Eldorado’s excess cash, outstanding debt, and working capital based upon an agreed upon working capital target for Eldorado, an amount equal to certain transaction expenses of MTR which is capped at $7.0 million, the value of Eldorado’s interest in the Silver Legacy Joint Venture, and the amount of restricted cash on Eldorado’s balance sheet (if any) relating to the credit support required in connection with the Silver Legacy Joint Venture’s credit facility.

Consummation of the Mergers is subject to numerous conditions including, among others, MTR not receiving and accepting a superior proposal. In addition, Eldorado has been advised by MTR that it has received proposals that may lead to a superior proposal that would entitle it to terminate the Merger Agreement by paying Eldorado a $5.0 million termination fee plus reimbursement for out-of-pocket costs not to exceed $500,000. Under certain circumstances of non-performance by MTR, Eldorado Holdco may terminate the Merger Agreement and receive a $6.0 million termination fee plus reimbursement of out-of-pocket costs not to exceed $1.0 million. Accordingly, there can be no assurances that the transactions contemplated by the Merger Agreement will be consummated on the terms described herein or at all.

Upon closing of the aforementioned Merger Agreement, the Company may distribute the shares of NewCo’s common stock received at closing to NGOF. Should that occur, the Company's operations will, subsequent to such date, reflect only the Company's ownership of Mesquite. Management is unable to determine at this time the impact on the Company if the transactions contemplated by the Merger Agreement are consummated and the Company ultimately does not distribute the shares of NewCo to NGOF.