Investment in Eldorado

On December 14, 2007, the Company, through AcquisitionCo, 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 co-issued by Eldorado Casino Shreveport Joint Venture (the “Louisiana Partnership”) and Shreveport Capital Corporation, a wholly-owned subsidiary of the Louisiana Partnership (the “Mortgage Bonds”) and 11,000 preferred shares issued by Shreveport Gaming Holdings, Inc. (“SGH”), then a partner of the Louisiana Partnership, that is not affiliated with Resorts or the Company. The original principal amount of the Mortgage Bonds was $38,045,363. Previously in May 2007, NGOF 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. Of the Company’s 17.0359% Eldorado Interest, 14.47% and 2.5659% interests were acquired directly from Resorts and Carano, respectively.

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.

We evaluated our investment in Eldorado for possible impairment as of May 31, 2014 and determined that no impairment existed.

The following table presents unaudited condensed financial information of Eldorado for the three months ended March 31, 2014 and 2013 (in thousands):



	2014			2013
Net operating revenues	$	57,030		$	62,179
Operating income	$	1,552		$	6,025
Net income (loss)	$	(2,333	)	$	2,087

The following table presents unaudited condensed financial information of one of Eldorado’s unconsolidated investees, the Silver Legacy Joint Venture, for the three months ended March 31, 2014 and 2013 (in thousands):



	2014			2013
Net operating revenues	$	27,577		$	26,818
Operating income	$	1,431		$	219
Net loss	$	(1,306	)	$	(1,932	)

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 receiving 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 Holdo may terminated 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 InvestCo for its distribution 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 InvestCo for its distribution to NGOF.