Attached files

file filename
EX-32.2 - 906 CERTIFICATION - MANAGER - NGA Holdco, LLCdex322.htm
EX-32.1 - 906 CERTIFICATION - OPERATING MANAGER - NGA Holdco, LLCdex321.htm
EX-31.2 - 302 CERTIFICATION - MANAGER - NGA Holdco, LLCdex312.htm
EX-10.4 - ASSIGNMENT AND ASSUMPTION OF REGSITRATION RIGHTS AGREEMENT - NGA Holdco, LLCdex104.htm
EX-31.1 - 302 CERTIFICATION - OPERATING MANAGER - NGA Holdco, LLCdex311.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-K

 

 

(Mark One)

x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from              to             

Commission file number 0-52734

 

 

NGA HOLDCO, LLC

(Exact Name of Small Business Issuer as Specified in its Charter)

 

 

 

Nevada   20-8349236

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

22 Waterway Avenue, Suite 150, The Woodlands, TX 77380

(Address of Principal Executive Offices)

713-559-7400

(Registrant’s Telephone Number, Including Area Code)

 

 

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Class A Units

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporate by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ¨   Accelerated filer  ¨   Non-accelerated filer  ¨   Smaller reporting company  x
    (Do not check if smaller reporting company)  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.    Yes  ¨    No  x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates. None.

DOCUMENTS INCORPORATED BY REFERENCE

None

 

 

 


Part 1

 

ITEM 1. BUSINESS.

THE COMPANY

Overview of the Company

NGA HoldCo, LLC, a Nevada limited liability company (the “Company”), was formed on January 8, 2007 by the filing of its articles of organization with the office of the Secretary of State of the State of Nevada. The Company was formed at the direction of Newport Global Opportunities Fund LP, a Delaware limited partnership (the “Newport Fund”), and an affiliate of Newport Global Advisors LP, a Delaware limited partnership (“Newport”). The Company was formed for the primary purpose of holding equity, directly or indirectly through affiliates, in one or more entities related to the gaming industry. The Company has two wholly owned subsidiaries, NGA Blocker, LLC, a Nevada limited liability company (“Blocker”), and AcquisitionCo, LLC, a Nevada limited liability company (“AcquisitionCo”), each of which was formed on January 8, 2007.

The Company has had no revenue generating business since inception. Its current business consists of its ownership of a 17.0359% equity interest in Eldorado HoldCo LLC (“Eldorado”), which was acquired through a wholly owned subsidiary effective April 1, 2009, in exchange for such subsidiary’s 17.0359% equity interest in Eldorado Resorts, LLC, a Nevada limited liability company wholly owned by Eldorado (“Resorts”), that had been acquired by the subsidiary on December 14, 2007. See “The Resorts Transaction,” below.

Upon completion of the acquisition of the 17.0359% interest in Resorts, the other 82.9641% interest continued to be owned by the members of Resorts owning the interest prior to the completion of the transaction, including Donald L. Carano or members of his family who following the acquisition continued to own directly or indirectly approximately 51% of Resorts and presently own directly or indirectly approximately 51% of Eldorado. For additional information concerning the ownership of the 82.9641% interest, which effective April 1, 2009 became an 82.9641% interest in Eldorado, see the footnote to the diagram under “Organizational Diagram”, below.

Resorts was formed in 1996 and became the successor to a predecessor partnership that constructed the original Eldorado Hotel and Casino in Reno, Nevada (as subsequently expanded, the “Eldorado-Reno”) which opened for business in 1973. Resorts owns and operates the Eldorado-Reno. Through two wholly owned subsidiaries, Resorts also owns all of the partnership interest, other than certain rights associated with the “Preferred Capital Contribution Amount” and “Preferred Return” (as these terms are defined in the partnership agreement) of the partnership that owns, and operates pursuant to a management agreement, the Eldorado Shreveport Hotel and Casino in Shreveport, Louisiana (the “Eldorado-Shreveport”). Eldorado Limited Liability Company (“ELLC”), a Nevada limited liability company 96.1858% owned by Resorts, is a 50% joint venture partner in a general partnership that owns and operates the Silver Legacy Resort Casino (“Silver Legacy”), a hotel and casino property adjacent to Eldorado-Reno. Resorts also owns a 21.25% interest in Tamarack Junction, a small casino in south Reno. For the year ended December 31, 2009, Resorts had net revenue of $271.9 million and a net loss of $(1.4) million compared with net revenue of $284.8 million and a net loss of $(27.9) million for the year ended December 31, 2008.

Other than its equity interest in Eldorado HoldCo and any indirect interest it may subsequently hold in another entity by virtue of its equity interest in Eldorado HoldCo, and a proposed acquisition of a 40% equity interest in another entity that owns and operates gaming properties in southern Nevada, more fully described under “Proposed Acquisition” below, the Company has no current plans to acquire, directly or indirectly through affiliates, an equity interest in another entity.

Formed in 2005, Newport is a Texas-based investment management firm with approximately $350 million in assets committed to pursuing alternative fixed income strategies. The firm concentrates primarily on the stressed and distressed opportunities within the high yield debt and bank loan markets but may also include the acquisition and disposition of other types of corporate securities and claims. Newport has 8 employees, with its primary office in The Woodlands, TX. Newport’s principals include Timothy T. Janszen, CEO, Thomas R. Reeg, Senior Managing


Director, Ryan Langdon, Senior Managing Director, and Roger A. May, Senior Managing Director. Collectively, the principals have over 50 years of experience investing in the high yield and distressed debt markets. Newport is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended. Newport is investment manager of the Newport Fund, a private investment fund which seeks attractive long-term risk adjusted returns by capitalizing on investments in the distressed debt markets and in some instances, ultimately making control-oriented investments. The Newport Fund began investing in 2006.

Ownership of the Company

The Company currently has one issued and outstanding Class A Unit, representing all of its voting equity, which is held by NGA VoteCo, LLC, a Nevada limited liability company (“VoteCo”). All of the Company’s 9,999 issued and outstanding Class B Units, representing all of its non-voting equity, are held by NGA No VoteCo, LLC, a Nevada limited liability company (“InvestCo”). VoteCo is owned by Thomas R. Reeg, Timothy T. Janszen and Ryan Langdon, each of whom owns a 30% interest, and Roger A. May, who owns a 10% interest. We refer to Messrs. Reeg, Janszen, Langdon and May collectively as the “VoteCo Equityholders.” InvestCo is owned by the Newport Fund, which holds all of InvestCo’s issued and outstanding voting securities. At present, the Company has no plans to issue any additional Class A Units or Class B Units.

The VoteCo Equityholders, through VoteCo, control all matters of the Company that are subject to the vote of members, including the appointment and removal of managers. Each of the VoteCo Equityholders is a member of the Company’s board of managers, and Mr. Reeg is the Company’s operating manager who has responsibility for the day-to-day management of the Company. The Class B Units issued to InvestCo allow it and its investors to invest in the Company without having any voting power or power to control the operations or affairs of the Company, except as otherwise required by law. If InvestCo and its investors had any of the power to control the operations or affairs of the Company afforded to holders of the Class A Units, they and their respective constituent equityholders would generally be required, in connection with the Company’s investment in Resorts, to be licensed or found suitable under the gaming laws and regulations of the State of Nevada as well as various local regulations in that state.

VoteCo, InvestCo, the Company and each of the Company’s two wholly owned subsidiaries, Blocker and AcquisitionCo, are managed by Thomas R. Reeg, the operating manager of each entity. The Company, Blocker and AcquisitionCo, as well as Resorts, are all limited liability companies. Consequently, absent an election by one or more of those entities to be treated for Federal income tax purposes as a corporation, the Company’s investors would be required to report as income for Federal tax purposes their allocable shares of Resorts’ income. However, Blocker has elected to be taxed as a corporation. Because of that election, Blocker is a separately taxed, non-flow through entity that is taxed on the income of its 100% owned subsidiary, AcquisitionCo, including AcquisitionCo’s allocable share of Resorts’ income subsequent to the consummation of the Resorts transaction, rather than the Company’s investors. To the extent that Blocker distributes its net income to the Company, the members of the Company will be responsible for Federal and any applicable state income taxes on their allocable shares of those distributions as well as their allocable shares of any income generated by the Company itself.

The Resorts Transaction

The Company acquired indirectly through a wholly owned subsidiary a 17.0359% interest in Resorts on December 14, 2007 pursuant to the terms and conditions of an Amended and Restated Purchase Agreement, dated as of July 20, 2007 (the “Purchase Agreement”), a copy of which is incorporated by reference as an exhibit to this annual report. The parties to the Purchase Agreement were Resorts, AcquisitionCo, which is the subsidiary through which the Company acquired its interest in Resorts, and Donald L. Carano, the presiding member of Resorts’ Board of Managers and the Chief Executive Officer of Resorts (“Carano”), from whom a portion of the 17.0359% interest was acquired. As a result of the transaction, the Company acquired indirectly through its subsidiaries 17.0359% of Resorts, with Carano or members of his family continuing to own directly or indirectly approximately 51% of Resorts and Carano continuing in the roles in the management of Resorts he held prior to the transaction.

At closing, the Company, through its subsidiaries, acquired its 17.0359% equity interest in Resorts, including a 14.47% new membership interest acquired directly from Resorts and a previously outstanding 3% membership interest (reduced as a result of the issuance of the new membership interest to a 2.5659% interest) that was acquired from Carano. In consideration for its interest in Resorts, AcquisitionCo

 

   

transferred to Resorts, free and clear of any liens, ownership of $31,133,250 original principal amount of First Mortgage Bonds due 2012 co-issued by Eldorado Casino Shreveport Joint Venture, a Louisiana general partnership that owns Eldorado-Shreveport (the “Louisiana Partnership”), and Shreveport Capital Corporation, a wholly owned subsidiary of the Louisiana Partnership (the “Shreveport Bonds”) together with the right to all interest paid with respect thereto after the closing date, and


   

transferred to Carano, free and clear of any liens, $6,912,113 original principal amount of Shreveport Bonds together with the right to all interest paid with respect thereto after the closing date and a stock equity interest representing a capital contribution amount of $286,889 issued by Shreveport Gaming Holdings, Inc., a limited partner of the Louisiana Partnership that is not affiliated with Resorts or the Company.

At closing, Resorts and Carano paid to AcquisitionCo in cash $1,142,974 and $170,658, respectively, representing accrued and unpaid interest on the Shreveport Bonds received by them.

The terms of the Purchase Agreement entitled Resorts, prior to or immediately following the Company’s acquisition of its interest in Resorts, to make a distribution of up to $10 million to the members of Resorts other than Acquisition Co. On July 25, 2007, Resorts made a $10 million distribution to its then current members in accordance with these terms of the Purchase Agreement. The distribution was funded through borrowings under Resorts’ credit facility.

Organizational Diagram

The diagram below depicts, in bold type, the general ownership of the entities related to the Company and its subsidiaries prior to the closing of the Resorts transaction, which did not change as a result of the Resorts transaction. The diagram below also depicts the Company’s ownership interest in Resorts and Resorts’ ownership of the entities related to it immediately following the closing of the Resorts transaction, as adjusted to reflect the subsequent formation of Eldorado to be a new holding company of Resorts and the exchange, effective April 1, 2009, all of the equity interests of Resorts (including the 17.0359% interest then held by the Company) for equivalent equity interests in Eldorado.


LOGO

 

 

* Includes Recreational Enterprises, Inc. (47.0415%), Hotel Casino Realty Investments, Inc. (5.1318%), Hotel Casino Management, Inc. (24.8037%), Ludwig J. Corrano (4.2765%), Gary Carano S Corp Trust (0.3421%), Glenn Carano S Corp Trust (0.3421%), Gene Carano S Corp Trust (0.3421%), Gregg Carano S Corp Trust (0.3421%) and Cindy Carano S Corp Trust (0.3421%).


Put and Call Rights

At the time of closing under the Purchase Agreement, AcquisitionCo and the members of Resorts entered into an amendment and restatement of Resorts’ operating agreement (the “Resorts Operating Agreement”) and, when the equity interests in Resorts were exchanged for equivalent equity interests in Eldorado, the members of Eldorado entered into an operating agreement with substantially the same provisions included in the Resorts Operating Agreement (the “Eldorado Operating Agreement”). Under the terms of the Eldorado Operating Agreement, at any time after the occurrence of a “Material Event” (as defined) or at any time after June 14, 2015 (the “Trigger Date”) AcquisitionCo or its permitted assignee(s) (the “Interest Holder”) will have the right to sell (“Put”) all but not less than all the new 14.47% interest acquired from Resorts to Eldorado, and Eldorado will have the right to purchase (“Call”) all but not less than all of the entire 17.0359% interest acquired by AcquisitionCo, at a price equal to the fair market value of the interest without discounts for minority ownership and lack of marketability, as determined by mutual agreement of the Interest Holder and Eldorado. In the event that after 30 days the Interest Holder and Eldorado have not mutually agreed on a purchase price, the purchase price will be determined by the average of two appraisals by nationally recognized appraisers of private companies, provided the two appraisals are within a 5% range of value based upon the lowest of the two appraisals. If the two appraisals are not within the 5% range, the purchase price will be determined by the average of a third mutually acceptable, independent, nationally recognized appraiser of private companies and the next nearest of the first two appraisals unless the third appraisal is at the mid-point of the first two appraisals, in which event the third appraisal will be used to established the fair market value. So long as a Material Event that entitles the Interest Holder to exercise its Put right has not occurred, AcquisitionCo will have the right to unilaterally extend the Trigger Date for up to two one-year extension periods. Upon exercise of either the Call or the Put, the Eldorado Operating Agreement provides that the transaction close within one year of the exercise of the right unless delayed for necessary approvals from applicable gaming authorities.

As defined in the Eldorado Operating Agreement, a “Material Event” for the purpose of allowing Eldorado to exercise the right to Call the 17.0359% interest means the loss, forfeiture, surrender or termination of a material license or finding of unsuitability issued by one or more of the applicable gaming authorities with respect to Thomas R. Reeg, AcquisitionCo or any transferee of AcquisitionCo or any affiliate of AcquisitionCo. If a Material Event occurs that permits Eldorado to exercise its Call right prior to the Trigger Date, the Interest Holder will be obligated to provide carry back financing to Eldorado on terms and conditions reasonably acceptable to Eldorado. If a Call is required or ordered by any applicable gaming authority, the Call will be on the terms provided for in the Eldorado Operating Agreement, unless other terms are required by any of the applicable gaming authorities, in which event the Call will be on those terms.

As defined in the Eldorado Operating Agreement, a “Material Event” for the purpose of allowing the Interest Holder to exercise the right to Put the 14.47% interest to Eldorado means the loss, forfeiture, surrender or termination of a material license or finding of unsuitability by any applicable gaming authority with respect to Eldorado, any affiliate of Eldorado (other than AcquisitionCo or its affiliates), including, but not limited to, the Eldorado-Reno, the Eldorado-Shreveport and Silver Legacy.

At the time of closing under the Purchase Agreement, Resorts, AcquisitionCo and Carano entered into a separate put-call agreement (the “Put-Call Agreement”). Under the terms of the Put-Call Agreement, the Interest Holder was entitled, if it exercised its Put rights under the Resorts Operating Agreement as then in effect, to require Carano to purchase from it the portion of the 17.0359% interest acquired by AcquisitionCo from Carano. In that event, the purchase price payable by Carano would have been the amount determined by multiplying the purchase price payable to the Interest Holder for the 14.47% interest, as determined in accordance with the terms of the Resorts Operating Agreement as then in effect, multiplied by a fraction the numerator of which would have been the percentage interest in Eldorado being sold to Carano and the denominator of which would have been the percentage interest in Eldorado being sold to Eldorado. When Resorts became the wholly-owned subsidiary of Eldorado, Eldorado adopted an operating agreement with the same put-call provisions previously included in the operating agreement of Resorts and the Resorts operating agreement was amended to, among other things, eliminate, the previously included put-call provisions. Although they have not done so as of the date of this report, it is the intention of the parties to the Put-Call Agreement to modify the terms of the agreement to make it applicable to the exercise of the put-call rights that are now contained in the Eldorado Operating Agreement.

Resorts is subject to certain covenants under its credit facility and the indenture relating to the 9% senior notes due 2014 co-issued by Resorts and a wholly owned subsidiary of Resorts that impose limitations on Resorts’ ability to reacquire its equity interests or to make distributions to Eldorado. So long as these covenants are in effect, they will limit or restrict entirely the ability of Eldorado to fund the purchase by Eldorado of the 14.47% interest in the event the Interest Holder exercises its Put right under the Eldorado Operating Agreement as well as the purchase of the 17.0359% interest in the event Eldorado exercises its Call right under the Eldorado Operating Agreement. Accordingly, each covenant, if then


applicable, may, as a practical matter, prevent the purchase of the 14.47% interest or the 17.0359% interest unless the transaction, at the time it occurs, can be funded within the covenants’ provisions or any non-compliance is waived by the lenders under the credit facility and/or the holders of the 9% notes, as applicable. In the event these covenants, or either of them, remain in effect at a time when the Interest Holder seeks to exercise its Put right or Eldorado seeks to exercise its Call right, there can be no assurance that the covenants will not in effect preclude Eldorado from being able to conclude the transaction, and, if so, that any waivers that may then be required to consummate the transaction can be obtained or that Resorts will be able to eliminate the covenant restrictions by the repayment of any indebtedness then owed to the creditors whom the covenants are intended to benefit or otherwise.

In the event of an initial public offering by Eldorado of any of its equity securities, the Put and Call provisions described above will terminate and be of no further force and effect.

Registration Rights

In the event of a public offering by Eldorado of its equity securities in which any member of Eldorado is allowed to participate, the Interest Holder will have rights under the Eldorado Operating Agreement equivalent to other members of Eldorado to sell the equity securities of Eldorado held by the Interest Holder on a pro rata basis with the other members. At the time of closing under the Purchase Agreement, AcquisitionCo and Resorts entered the into a registration rights agreement (the “Registration Rights Agreement”). By an assignment and assumption of the Registration Rights Agreement, with the consent of AcquisitionCo, the rights and obligations of Resorts under the agreement were assigned to, and assumed by, Eldorado. Under the Registration Rights Agreement, AcquisitionCo and its permitted assigns have certain registration rights to conduct a secondary offering subsequent to any initial public offering of the equity securities of Eldorado.

Employees

The Company has no employees, other than its operating manager, Thomas R. Reeg, who receives no compensation from the Company or its subsidiaries for his services as the Company’s operating manager.

ELDORADO HOLDCO LLC

Introduction

Effective April 1, 2009, all of the equity interests of Resorts (including the 17.0359% interest then indirectly held by the Company through AcquisitionCo) were exchanged for equivalent equity interests of Eldorado and Resorts thus became a wholly owned subsidiary of Eldorado. Eldorado conducts no operations other than those conducted indirectly through Resorts and its subsidiaries.

In 1996, Resorts was formed and became the successor to a predecessor partnership in a reorganization in which all of the interests in the predecessor partnership were exchanged for membership interests in Resorts. Insofar as they relate to periods prior to July 1, 1996, the effective date of the reorganization, references to Resorts are to its predecessor partnership except to the extent the context requires otherwise. Eldorado Capital Corp., a Nevada corporation wholly owned by Resorts (“Eldorado Capital”), was incorporated with the sole purpose of serving as co-issuer of debt co-issued by Resorts and Eldorado Capital. Eldorado Capital holds no significant assets and conducts no business activity. Resorts’ other subsidiaries include Eldorado Shreveport #l, LLC (“ES#1”) and Eldorado Shreveport #2 LLC, (“ES#2”), Nevada limited liability companies wholly owned by Resorts, and ELLC.

Resorts owns and operates Eldorado-Reno, a premier hotel/casino and entertainment facility centrally located in downtown Reno. Eldorado-Reno is easily accessible both to vehicular traffic from Interstate 80, the principal highway linking Reno to its primary visitor markets in northern California, and to pedestrian traffic from nearby casinos.

ELLC is a 50% joint venture partner in a general partnership (the “Silver Legacy Joint Venture”) that owns Silver Legacy. A major themed hotel/casino, Silver Legacy is situated between, and seamlessly connected at the casino level to, Eldorado-Reno and Circus Circus-Reno, a hotel casino owned and operated by the other partner in the Silver Legacy Joint Venture, Galleon, Inc., an indirect wholly owned subsidiary of MGM MIRAGE (“MGM”).


ES#1 and ES#2 acquired 75.4% and 1%, respectively, of the partnership interests of Eldorado Casino Shreveport Joint Venture (the “Louisiana Partnership”) on July 22, 2005. The Louisiana Partnership owns and Resorts manages Eldorado-Shreveport, a 403-room all suite art deco-style hotel and a tri-level riverboat dockside casino complex situated on the Red River in Shreveport, Louisiana that was formerly operated as the Hollywood Casino Shreveport. Pursuant to the terms of the Louisiana Partnership’s partnership agreement, in December 2007 the Louisiana Partnership called the 23.6% partnership interest then held by a third unaffiliated partner at a call purchase price of $9,263,426 subject to receipt of the requisite regulatory approval from the Louisiana gaming authorities. As a result of the call transaction, which closed on March 20, 2008, ES#1 and ES#2 now own 98.7% and 1.3%, respectively, of the Louisiana Partnership’s partnership interest, representing all of the Louisiana Partnership’s partnership interests other than certain rights associated with the “Preferred Capital Contribution Amount” and “Preferred Return” (as these terms are defined in the partnership agreement).

Resorts also owns a 21.25% interest in Tamarack Crossing, LLC, a Nevada limited liability company that owns and operates Tamarack Junction, a small casino in south Reno which commenced operations September 4, 2001. Tamarack Junction is situated on approximately 62,000 square feet of land with 13,230 square feet of gaming space that had 465 slot machines at December 31, 2009.

Management of Eldorado

Eldorado’s board of managers (the “Eldorado Board”) is currently composed of four managers, including AcquisitionCo and three managers of Eldorado who were managers of Resorts prior to the Resorts transaction, Donald L. Carano, Recreational Enterprises, Inc. (“REI”), and Hotel-Casino Management, Inc. (“HCM”). Under the terms of the Eldorado Operating Agreement, AcquisitionCo is deemed to have designated Thomas R. Reeg as its current representative for all determinations made by the Eldorado Board. REI and HCM are deemed to have designated Gary L. Carano and Raymond J. Poncia, Jr., respectively, as their current representatives on the Eldorado Board. So long as they remain managers of Eldorado, AcquisitionCo, REI and HCM may change their respective representatives on the Eldorado Board from time to time by notice to Eldorado.

As long as AcquisitionCo or an affiliate of AcquisitionCo continues to be a member of Eldorado, AcquisitionCo will designate one of Eldorado’s managers. As long as REI or an affiliate of REI continues to be a member of Eldorado, REI will be entitled to designate three of Eldorado’s managers. Currently, there are only two REI designated managers, REI and Donald L. Carano. A third REI designated manager, Leslie Stone Heisz, resigned effective March 2008, and, as of the date hereof, REI has not designated a replacement. As long as HCM or an affiliate of HCM continues to be a member of Resorts, HCM is entitled to designate one of Eldorado’s managers. Generally, any manager of Eldorado may be removed from office with cause upon a vote of more than 50% of Eldorado’s membership interests.

Subject to the limitations described below, and except as otherwise delegated to Eldorado’s Chief Executive Officer (the “Eldorado CEO”), the Eldorado Board has control over the management of the business and affairs of Eldorado. Each manager has one vote and actions of the Eldorado Board generally require a majority vote of the managers. The members of the Eldorado Board are required to be licensed or found suitable by the relevant Nevada and Louisiana gaming authorities in order to engage in the management of Eldorado. For further information about these licensing and suitability requirements, see “Governmental Regulation – Nevada Regulation and Licensing” and – “Louisiana Regulation and Licensing,” below.

Under the Eldorado Operating Agreement, the Eldorado CEO is given the general powers and duties of management usually vested in the chief executive officer of a corporation along with such other powers and duties as may be prescribed by the Eldorado Board or the Eldorado Operating Agreement, including the supervision, direction and control of the day-to-day business and affairs of Resorts. In addition to the general authority, the Eldorado CEO has the following specific rights which may be exercised on behalf of Eldorado:

 

   

to develop, improve, maintain, operate and lease Eldorado’s property;


   

in any single transaction or series of related transactions having a value of under $5,000,000, on behalf of Eldorado, to contract to sell, sell, lease, exchange, grant any option on, convert to condominiums or otherwise transfer or dispose of any of the real or personal property of Eldorado;

 

   

to select and remove such officers, agents and employees of Eldorado to assist with the management or operation of Eldorado;

 

   

to employ and terminate the services of such persons, firms, corporations or other entities, including any one or more of Eldorado’s members, for or in connection with the business of Eldorado or the acquisition, development, improvement, operation, maintenance, management, leasing, financing, refinancing, sale, exchange or other disposition of the property of Eldorado and to perform Eldorado’s administrative services, accounting services, independent auditing services, legal and other services;

 

   

to institute, prosecute, defend and settle any legal or administrative proceedings having an actual or potential value of under $5,000,000;

 

   

in any single transaction or series of related transactions having a value of under $5,000,000 to acquire real or tangible personal property to carry on the business of Eldorado, and to sell, exchange or otherwise dispose of the same; and

 

   

in any single transaction or series of related transactions having a value of under $5,000,000 to enter into loans, mortgages and other financing arrangements or rearrangements, and to grant such security interests in the assets of Eldorado, as may be necessary or desirable to carry on the business.

Without the affirmative vote or written consent of all of Eldorado’s members, neither the Eldorado Board nor the Eldorado CEO may directly or indirectly:

 

   

do any act in contravention of the Eldorado Operating Agreement;

 

   

do any act that would make it impossible to carry on Eldorado’s ordinary business, provided that actions of the managers in accordance with Eldorado’s purposes or the rights and powers granted under the Eldorado Operating Agreement will not be considered to breach this provision; or

 

   

commingle funds of Eldorado with funds of any other person.

Without the affirmative vote or written consent of members holding 65% of Eldorado’s outstanding membership interests, neither the Eldorado Board nor the Eldorado CEO may directly or indirectly:

 

   

amend the number of Eldorado’s authorized managers;

 

   

cause Eldorado to merge or otherwise engage in any kind of business combination or reorganization with another entity or other person;

 

   

approve, adopt and implement such new or additional incentive compensation policies and plans for the benefit of the managers, officers, agents and/or employees of Eldorado that contemplate the issuance of any form of equity interest in Eldorado;

 

   

cause Eldorado to enter into any joint venture or partnership or limited liability company agreement;

 

   

cause Eldorado to enter into any loan that results in assets of Eldorado being hypothecated in excess of 80% of the fair market value of all assets of Eldorado;


   

cause or permit any new issuance and sale of membership interests of Eldorado other than in connection with subsequent capital contributions in accordance with the Eldorado Operating Agreement;

 

   

cause or permit any person or entity to which a new issuance and sale of membership interests has been made by Eldorado other than in connection with subsequent capital contributions in accordance with the Eldorado Operating Agreement to become a member by reason of or in connection therewith;

 

   

possess Eldorado property, or assign rights in specific Eldorado property, for other than a Eldorado purpose;

 

   

purchase or lease Eldorado property from Eldorado or sell or lease property to Eldorado;

 

   

cause Eldorado to guarantee the indebtedness of any person or cause or suffer or permit any Eldorado property to secure or become collateral for any indebtedness of any person other than Eldorado;

 

   

cause or permit Eldorado at any time to have more than 100 members and/or interest holders; or

 

   

designate a new “Tax Matters Partner” as described in the Eldorado Operating Agreement.

Without the affirmative vote or written consent of member holding 75% of Eldorado’s outstanding membership interests, neither the Eldorado Board nor the Eldorado CEO may directly or indirectly request subsequent capital contributions from the members and interest holders of Eldorado.

Members of Eldorado and AcquisitionCo do not have the right to take part in the management or control of Eldorado. The members of Eldorado have voting rights generally limited to those required by law.

Business Strategy

Eldorado has an experienced management team that includes Donald Carano and several members of his immediate family. Donald Carano, the Chief Executive Officer and a member of the Board of Managers of Eldorado, co-founded Eldorado-Reno in 1973 and has been the driving force behind its development. In addition to Donald Carano, each of Eldorado’s other seven senior executives has in excess of 25 years of experience in the gaming industry. The day-to-day management of Eldorado-Shreveport is performed by on-sight personnel that Resorts has hired on behalf of the Louisiana Partnership. By the terms of the Eldorado-Shreveport management agreement, Resorts is obligated to provide oversight of on-site management by no less than three of its executives or other individuals it designates. The individuals who currently serve in this capacity are Gary Carano, Gregg Carano, Robert Jones and Rob Mouchou. In their oversight roles, these executives have dedicated time to assist in the management of Eldorado-Shreveport and will continue to do so in the future, but to date their oversight responsibilities have not had, nor is it anticipated that they will have, an impact on operations at Eldorado-Reno. In addition to their roles in the management of Eldorado, members of the Carano family beneficially own currently approximately 51% of Eldorado.

Eldorado’s business strategy draws upon its extensive gaming management experience gained from successfully operating Eldorado-Reno. Key elements of Eldorado’s strategy include the following:

Personal Service and High Quality Amenities. One of the cornerstones of Eldorado’s business strategy is to provide its customers with an extraordinary level of personal service. Eldorado’s senior management is actively involved in the daily operations of Eldorado-Reno, frequently interacting with hotel, restaurant and gaming patrons to ensure that they are receiving the highest level of personal attention. Eldorado’s management regularly conducts feedback sessions and focus groups with customers to elicit comments and suggestions on ways it can improve each customer’s experience at Eldorado-Reno. Furthermore, Eldorado’s management continually strives to instill in each employee a dedication to superior service designed to exceed guests’ expectations.


In addition to personalized service, Eldorado-Reno has earned a reputation for high quality amenities and an excellent price-to-value relationship. Locals and visitors alike are attracted to Eldorado-Reno’s dining venues, for which Eldorado-Reno has received national recognition. Management believes that Eldorado-Reno’s excellent cuisine adds to the overall atmosphere and prestige of the hotel and therefore emphasizes outstanding food and ambiance and a wide variety of dining choices.

Eldorado-Reno continually monitors its casino operations to react to changing market conditions and customer demands. Eldorado-Reno targets premium-play customers as well as the value-conscious gaming patron with its state-of-the-art casino featuring the latest in game technology, electronic displays and customer-convenient features.

Marketing to Target Gaming Patrons. Eldorado primarily targets its marketing programs to four segments of the gaming market: the free and independent traveler, preferred casino customers, local patrons and the wholesale/specialty groups.

The free and independent traveler segment consists of those travelers not affiliated with groups who make their reservations directly with Eldorado-Reno or through independent travel agents. To attract the independent traveler to Eldorado-Reno, Eldorado uses print media, radio, television and direct mail to advertise in northern California, the Pacific Northwest and other regional travel markets.

Preferred casino customers are those patrons who maintain the necessary level of gaming activity to become established casino guests. Eldorado uses a special events agenda and a guest development program, including providing casino credit, to attract and retain preferred casino customers. In addition, Eldorado utilizes Eldorado-Reno’s quality hotel rooms, excellent restaurant venues and other amenities to offer complimentaries to a broad spectrum of established casino guests, from the frequent players who place relatively modest wagers to the premium players who consistently wager high amounts. Eldorado believes that the ability to reward the more modest gaming patrons fosters intense loyalty and repeat business.

Wholesale/specialty and Internet groups consist of those customers participating in travel packages offered by air tour operators, groups of up to 100 people with strong gaming profiles and visitors attending tournaments at the National Bowling Stadium. Eldorado-Reno’s sales force targets this segment by attending trade shows in order to establish relationships with airlines, travel agents, meeting planners and wholesalers. Eldorado-Reno has developed special marketing programs and tools to cultivate relationships with these air tour operators and specialty groups, including offering familiarization tours of Eldorado-Reno. Eldorado-Reno attempts to utilize this market segment as a means of creating a consistent utilization of its rooms during the calendar year. Internet customers, which are encompassed in this segment, continue to grow in number as more customers utilize the Internet for its convenience and in an effort to obtain the most competitive rate.

Eldorado seeks to attract and retain local customers through frequent promotions that highlight Eldorado-Reno’s quality gaming and dining experience, as well as being an active supporter of numerous Reno market events and organizations.

Eldorado-Reno has a state-of-the-art, real-time customer tracking system which comprehensively tracks its gaming customers throughout the casino. Customers are given an electronically readable card to insert into slot machines and to provide to floor supervisors at table games. The slot machines automatically transmit gaming data to a central computer and floor supervisors manually enter certain data relating to gaming customers which is then computerized. In 2002, Eldorado-Reno enhanced its customer tracking program with the purchase of several computerized gaming tables. This technologically advanced product, along with the slot tracking system, provides data relating to gaming customers’ gaming habits, maximum and minimum wagers, the total amount wagered and length of play and assists in better providing customers with prompt recognition and complimentaries based on their levels of gaming. In 2002, Eldorado-Reno enhanced the way its customers can redeem earned complimentaries available for redemption throughout the property. This innovation is enhanced by a friendly, knowledgeable staff and a conveniently located promotion center. In addition, “Club Eldorado,” Eldorado-Reno’s full-service slot club, offers an array of special events and exciting tournaments and convenient ways of earning complimentaries.


The cost incurred by Eldorado for advertising in 2009 was $6,109,000 compared with $6,921,000 in 2008.

Strategic Expansion and Improvements. Since opening Eldorado-Reno in 1973, Eldorado has employed a strategy of periodic expansion and improvement in order to maintain and enhance Eldorado-Reno’s position as a leader in the Reno area. Continuing this strategy, Eldorado-Reno is constantly updating its property in order to maintain its presence as one of the premier hotels in the Reno area. In November 2006, Eldorado-Reno built an imaginative bar featuring a lounge and VIP seating area adjacent to its La Strada restaurant. This project also created two new private dining areas designed to accommodate parties and additional dining space in the La Strada restaurant. The bar and additional seating were completed in February 2007. In January 2009, the BuBinga nightclub was converted into a high limit gaming room. This gaming area, with two elegant bars and numerous plasma televisions, is the only one of its kind in northern Nevada.

Eldorado owns a 31,000 square foot piece of property across the street from and west of Eldorado-Reno which could be used for further expansion of Eldorado-Reno and two other adjacent parcels totaling approximately 18,687 square feet which are currently utilized as surface parking that accommodates approximately 140 vehicles but could be used for further expansion of Eldorado-Reno. In August 2007, Resorts purchased a small motel located adjacent to the Eldorado-Reno’s parking garage which was demolished in 2009 and is being turned into a surface parking lot.

Eldorado-Reno

Eldorado-Reno is centrally positioned in the heart of Reno’s prime gaming area and room base. Easily accessible to both foot and vehicular traffic, Eldorado-Reno is strategically located directly off Interstate 80, the principal highway linking the Reno market with San Francisco, Sacramento and other cities in its primary visitor market of northern California. With three towers, including a 26-story tower that lights up with over 2,000 feet of neon at night, Eldorado-Reno is visible from Interstate 80, attracting visitors to the downtown area and generating interest in the property. Eldorado-Reno is situated to attract foot traffic from other casinos as well as from the local populace. In addition, Eldorado-Reno is easily accessible to visitors competing in and attending the various bowling tournaments that are held in the National Bowling Stadium and to visitors attending events in the downtown special event center, completed in December 2004, and the downtown ballroom, completed in February 2008, all of which are located just one block away.

As of December 31, 2009, Eldorado-Reno offered approximately 76,500 square feet of gaming space, with approximately 1,349 slot machines, 45 table games consisting of blackjack, craps, roulette, Pai Gow Poker, Let It Ride® , Caribbean stud poker, mini-baccarat, two keno games and a poker room. Eldorado-Reno’s casino includes a mix of slot machines and table games which management believes makes it attractive to both middle-income and premium-play customers. Slot machines, which are offered in denominations from 1 cent to $100, generated approximately 68% of Eldorado-Reno’s total gaming revenues in 2009. A diverse selection of table games and a variety of table limits encourage play from a wide range of gaming customers, which management believes makes Eldorado-Reno one of the premier table games casinos in the Reno market.

The interior of the hotel is designed to create a European ambiance and offers 815 finely-appointed guest rooms and suites, including 17 specialty suites, 93 “Eldorado-Reno Player’s Spa Suites” with bedside spas and 26 one- or two-bedroom penthouse suites. Hotel guests enjoy panoramic views of Reno’s skyline and the majestic Sierra Nevada mountain range. In 2009 and 2008, Eldorado-Reno achieved average hotel occupancy of 81.3% and 84.1%, respectively. In 2009, Eldorado-Reno achieved an Average Daily Rate (“ADR”) of approximately $60.95 compared with $66.35 in 2008.

Eldorado-Reno is nationally recognized for its cuisine. Its seven dining venues, which have an aggregate seating capacity of more than 1,300, range from buffet to gourmet and offer high quality food at reasonable prices.


Eldorado-Reno’s dining venues include the following:

 

   

Roxy’s, which has a seating capacity of approximately 254, is a Parisian-style bistro, restaurant and bar with contemporary American influences offering French country fare, steaks and seafood along with an extensive wine list;

 

   

La Strada, features northern Italian cuisine in an Italian countryside villa setting, and has a seating capacity of approximately 164;

 

   

The Brew Brothers, which has a seating capacity of approximately 190, was the first microbrewery located in a hotel/casino;

 

   

The Prime Rib Grill, which has a seating capacity of approximately 186, is a spirited, lively steak and seafood house specializing in prime rib and grilled entrees;

 

   

The Buffet, which has a seating capacity of approximately 340, offers a 200-foot buffet offering a variety of cuisines, including American, Italian, Chinese, Mexican, Hop Wok grill, a pizza station and salad, fruit and ice cream bars;

 

   

Tivoli Gardens, which has a seating capacity of approximately 210, offering a 24-hour-a-day restaurant with a menu featuring Asian, Italian, Mexican and classic American cuisines;

 

   

Golden Fortune, which is situated within Tivoli Gardens, offers authentic Hong Kong style cuisine offering 90 specialties.

Eldorado-Reno’s selection of high-quality food and beverages reflects the Carano family’s emphasis on the dining experience. Eldorado-Reno chefs utilize homemade pasta, carefully chosen imported ingredients, fresh seafood and top quality USDA choice cuts of beef. Throughout the property, beverage offerings include The Brew Brothers microbrewed beers and wines from the Ferrari-Carano Winery.

Eldorado-Reno features a 566-seat showroom, a cabaret on the casino floor and a VIP lounge. Other amenities offered by Eldorado-Reno include two retail shops, a versatile 12,400 square foot convention center and an outdoor plaza located diagonal to Eldorado-Reno which hosts a variety of special events. Eldorado-Reno has parking facilities for over 1,130 vehicles including a 643-space self-park garage, a 124-space surface parking lot and a 363-space valet parking facility.

Due to a number of factors affecting consumers, including a the current economic recession, contracted credit markets, and reduced consumer spending, 2008 and 2009 were difficult years for the casino resort business. Visitation to the Reno area was down from prior years, and the number of airline passengers arriving at Reno-Tahoe International Airport also decreased, resulting in lower casino volumes and a reduced demand for hotel rooms. The difficult economic conditions will likely require Eldorado-Reno to continue for the foreseeable future to compete aggressively for customers with the six other hotel-casinos that, like the Eldorado-Reno, each generates at least $36 million in annual gaming revenues, including the Silver Legacy.

Silver Legacy Resort Casino

Silver Legacy opened in July 1995 as the first major newly-constructed hotel/casino in the Reno market since 1978. Silver Legacy’s hotel, the tallest building in northern Nevada, is a “Y”-shaped structure with three wings, consisting of 37-, 34- and 31-floor tiers. Silver Legacy’s opulent interior showcases a casino built around a 120-foot tall mining rig, which appears to mine for silver. The rig is situated beneath a 180-foot diameter dome, which is a distinctive landmark on the Reno skyline. The interior surface of the dome features dynamic sound and laser light shows, providing visitors with a unique experience when they are in the casino.

Silver Legacy is situated on two city blocks, encompassing 240,000 square feet in downtown Reno. The hotel currently offers 1,709 guest rooms, including 141 player spa suites, eight penthouse suites and seven hospitality suites. Many of Silver Legacy’s guest rooms feature views of Reno’s skyline and the Sierra Nevada


mountain range. Silver Legacy’s 10-story parking facility can accommodate approximately 1,750 vehicles. At December 31, 2009, Silver Legacy’s casino had approximately 87,300 square feet of gaming space with 1,506 slot machines and 63 table games, including blackjack, craps, roulette, Pai Gow Poker, Let It Ride®, Caribbean stud poker, Baccarat and Pai Gow, a keno lounge and a race and sports book. “Club Legacy,” Silver Legacy’s slot club, offers customers exciting special events and tournaments and convenient ways of earning complimentaries.

Silver Legacy’s dining options are offered in six venues:

 

   

Sterling’s Seafood Steakhouse, which has a seating capacity of approximately 170, offering the finest in steaks and seafood along with an extensive wine list, tableside desserts and an extravagant Sunday Brunch;

 

   

Flavors! The Buffet, has a seating capacity of approximately 500;

 

   

Fairchild’s Oyster Bar, which has a seating capacity of approximately 55, offering a comfortable drink and specialized seafood dining;

 

   

Café Sedona, has a seating capacity of approximately 330, offering an extensive menu that includes American classics and Chinese cuisine 24-hours a day;

 

   

Fresh Express Food Court, which has a seating capacity of approximately 110, offering a range of options including a deli and grill, authentic Asian cuisine and American classics; and

 

   

Sips Coffee House, situated in the hotel lobby, which offers gourmet coffee and teas.

In addition, the hotel sponsors entertainment events which are held in the hotel’s convention area. Silver Legacy’s other amenities include retail shops, exercise and spa facilities, a beauty salon and an outdoor swimming pool and sundeck.

Eldorado-Reno, Silver Legacy, and Circus Circus-Reno (which is owned by ELLC’s Silver Legacy Joint Venture partner) are connected in a “seamless” manner by 200-foot wide skyway corridors. These enclosed corridors serve as entertainment bridgeways between the three properties and house several restaurants and retail shops. Eldorado-Reno, Silver Legacy and Circus Circus-Reno comprise the heart of the Reno market’s prime gaming area and room base, providing the most extensive and the broadest variety of gaming, entertainment, lodging and dining amenities in the Reno area, with an aggregate of 4,096 rooms, 20 restaurants and enough parking to accommodate approximately 6,100 vehicles, and as of December 31, 2009, approximately 3,778 slot machines and 143 table games.

A city-owned 50,000 square-foot ballroom facility was opened in February 2008, and is operated and managed by Silver Legacy, together with Eldorado-Reno and Circus Circus-Reno, and complements the existing Reno Events Center. It provides an elegant venue for large dinner functions and convention meeting space along with concert seating for approximately 3,000 attendees.

Silver Legacy Joint Venture

Silver Legacy was developed by the Silver Legacy Joint Venture pursuant to a joint venture agreement originally entered into in 1994 (as amended to date, the “Silver Legacy Joint Venture Agreement”) between ELLC and Galleon, Inc. (“Mandalay Sub”). Under the terms of the Silver Legacy Joint Venture Agreement, ELLC and Mandalay Sub (each a “Silver Legacy Partner” and, together, the “Silver Legacy Partners”) each owns a 50% interest in the Silver Legacy Joint Venture.

The following is a summary of the Silver Legacy Joint Venture Agreement. The summary is qualified in its entirety by reference to the Silver Legacy Joint Venture Agreement, which is incorporated by reference as an exhibit to this annual report.


Additional Capital Contributions. The Silver Legacy Joint Venture Agreement provides that the Silver Legacy Partners shall not be permitted or required to contribute additional capital to the Silver Legacy Joint Venture without the consent of the Silver Legacy Partners, which consent may be given or withheld in each Silver Legacy Partner’s sole and absolute discretion.

Silver Legacy Partnership Distributions. Subject to any contractual restrictions to which the Silver Legacy Joint Venture is subject, including the indenture relating to the Silver Legacy Notes, and prior to the occurrence of a “Liquidating Event,” the Silver Legacy Joint Venture is required by the Silver Legacy Joint Venture Agreement to make distributions to the Silver Legacy Partners as follows:

 

   

An amount equal to the estimated taxable income of the Silver Legacy Joint Venture allocable to each Silver Legacy Partner multiplied by the greater of the maximum marginal federal income tax rate applicable to individuals for such period or the maximum marginal federal income tax rate applicable to corporations for such period; provided, however, that if the State of Nevada enacts an income tax (including any franchise tax based on income), the applicable tax rate for any tax distributions subsequent to the effective date of such income tax shall be increased by the higher of the maximum marginal individual tax rate or corporate income tax rate imposed by such tax (after reduction for the federal tax benefit for the deduction of state taxes, using the maximum marginal federal, individual or corporate rate, respectively).

 

   

Annual distributions of remaining “Net Cash From Operations” in proportion to the Percentage Interests of the Silver Legacy Partners.

 

   

Distributions of “Net Cash From Operations” in amounts or at times that differ from those described in (a) and (b) above, provided in each case that both Silver Legacy Partners agree in writing to the distribution in advance thereof.

As defined in the Silver Legacy Joint Venture Agreement, the term “Net Cash From Operations” means the gross cash proceeds received by the Silver Legacy Joint Venture, less the following amounts: (i) cash operating expenses and payments of other expenses and obligations of the Silver Legacy Joint Venture, including interest and scheduled principal payments on Silver Legacy Joint Venture indebtedness, including indebtedness owed to the Silver Legacy Partners, if any, (ii) all capital expenditures made by the Silver Legacy Joint Venture, and (iii) such reasonable reserves as the Silver Legacy Partners deem necessary in good faith and in the best interests of the Silver Legacy Joint Venture to meet anticipated future obligations and liabilities of the Silver Legacy Joint Venture (less any release of reserves previously established, as similarly determined).

The Managing Partner. The Silver Legacy Joint Venture Agreement designates Mandalay Sub as the Silver Legacy Joint Venture’s managing partner with responsibility and authority for the day-to-day management of the business affairs of the Silver Legacy Joint Venture, including overseeing the day-to-day operations of Silver Legacy and other Silver Legacy Joint Venture business, preparation of the Silver Legacy Joint Venture’s budgets and implementation of the decisions made by the Silver Legacy Partners. The managing partner is also responsible for the preparation and submission of the Silver Legacy Joint Venture’s annual business plan for review and approval by the Silver Legacy Joint Venture’s executive committee, utilizing the special voting procedures and the procedure for resolving deadlocks described below.

The Silver Legacy Joint Venture Agreement provides that the managing partner shall appoint the general manager, subject to approval of the appointment by the executive committee, utilizing the special voting procedures and the procedure for resolving deadlocks described below. Under the terms of the Silver Legacy Joint Venture Agreement, the general manager may be removed by ELLC or Mandalay Sub upon 30 days written notice. The Silver Legacy Joint Venture Agreement also provides that the managing partner shall appoint the other principal senior management of the Silver Legacy Joint Venture and Silver Legacy (subject to approval of the appointments by the executive committee in the case of the Silver Legacy Joint Venture’s general manager and its controller), who shall perform such functions, duties, and responsibilities as the managing partner may assign, and shall serve at the direction and pleasure of the managing partner.


The Silver Legacy Joint Venture Agreement provides that the unanimous approval of both Silver Legacy Partners is required for certain actions, including the admission of an additional partner, the purchase of additional real property, encumbrances on Silver Legacy, sales or other dispositions of all or substantially all of the assets of the Silver Legacy Joint Venture, refinancing or incurrence of indebtedness involving in excess of $250,000 other than in the ordinary course of business, capital improvements involving more than $250,000 that are not included in an approved annual business plan, and any obligation, contract, agreement, or commitment with a partner or an affiliate of a partner which is not specifically permitted by the Silver Legacy Joint Venture Agreement.

Replacement of the Managing Partner. If the actual net operating results of the business of the Silver Legacy Joint Venture for any four consecutive quarters are less than 80% of the projected amount as set forth in the Silver Legacy Joint Venture’s annual business plan, after appropriate adjustments for factors affecting similar business in the vicinity of the Silver Legacy, ELLC may require Mandalay Sub to resign from its position as managing partner.

In addition, in the event Mandalay Sub resigns as managing partner, ELLC will have the right and option to become the managing partner of the Silver Legacy Joint Venture and assume all the obligations of the managing partner under the Silver Legacy Joint Venture Agreement, or the Silver Legacy Partners are required to attempt to appoint a third party to manage the day-to-day business affairs of the Silver Legacy Joint Venture. In such event, if the Silver Legacy Partners are unable to agree on a manager, then the Silver Legacy Joint Venture shall be dissolved and liquidated in accordance with the provisions of the Silver Legacy Joint Venture Agreement.

The Executive Committee. An executive committee of the Silver Legacy Joint Venture is authorized to review, monitor and oversee the performance of the management of Silver Legacy. The executive committee of the Silver Legacy Joint Venture consists of five members, with three members appointed by the managing partner and two members appointed by the other Silver Legacy Partner. In the event that neither of the Silver Legacy Partners is the managing partner, then the executive committee shall consist of five members, with two members appointed by each Silver Legacy Partner and a fifth member appointed by a third party manager selected by the Silver Legacy Partners. Each Silver Legacy Partner may, at any time, appoint alternate members to the executive committee and the alternates will have all the powers of a regular committee member in the event of the absence or inability of a regular committee member to serve. With the exception of the special voting procedures described below, each member of the executive committee is entitled to one vote on each matter decided by the executive committee and each action of the executive committee must be approved by a majority of all of the members of the executive committee, who may be present or voting by proxy. The current members of the executive committee are James J. Murren, Corey I. Sanders and David D. Thrasher, each of whom was appointed by Mandalay Sub, and Robert M. Jones and Gene R. Carano, each of whom was appointed by ELLC.

Subject to the requirement of unanimous approval of the Silver Legacy Partners for certain actions, the duties of the executive committee include, but are not limited to, (i) reviewing, adjusting, approving, developing, and supervising the Silver Legacy Joint Venture’s annual business plan, (ii) reviewing and approving the terms of any loans made to the Silver Legacy Joint Venture, (iii) approving all material purchases, sales, leases or other dispositions of Silver Legacy Joint Venture property, other than in the ordinary course of business, and (iv) approving the appointment of the General Manager, who is the Silver Legacy Joint Venture’s Chief Executive Officer, and the Controller, who is the Silver Legacy Joint Venture’s Chief Financial Officer and Accounting Officer, and determining the compensation of the General Manager and the Controller.

The Silver Legacy Joint Venture Agreement provides special voting procedures for (i) the executive committee’s approval of the annual business plan, (ii) the appointment of the general manager and (iii) the determination of the general manager’s compensation. In voting on these matters, the members of the executive committee appointed by the managing partner shall have a total of two votes and the members of the executive committee appointed by the other Silver Legacy Partner shall have a total of two votes. The managing partner shall designate which two of the three members of the executive committee appointed by the managing partner are to exercise the two votes. If the executive committee is deadlocked in deciding any matter which is subject to the special voting procedures, then the meeting may be adjourned to another meeting date. If the executive committee remains deadlocked with respect to its approval of an annual business plan until the end of the second month of the fiscal year described in the annual business plan, then either Silver Legacy Partner may by written notice cause the approval of the annual business plan to be submitted to a nationally recognized accounting firm mutually agreeable


to the Silver Legacy Partners (the “Accountant”) for resolution. The Accountant shall consider the positions of the members of the executive committee and the Silver Legacy Partners, and shall decide whether to approve the annual business plan, or to modify the annual business plan and approve it with such modifications. The decision of the Accountant on these matters shall have the same effect as the approval of the annual business plan by the executive committee. If the executive committee remains deadlocked with respect to its approval of the appointment of a general manager for a period of one month following the effective date of the resignation or removal of the previous general manager, then the executive committee shall assume the duties of the general manager until such time as the executive committee can reach a decision on the appointment and compensation of a new general manager. In exercising the duties of the general manager, the executive committee shall act and vote in accordance with the special voting procedures described above. If the executive committee remains deadlocked on the determination of the compensation of the general manager for a period of one month following the first meeting on the proposed compensation, then either Silver Legacy Partner may by written notice cause the determination of such compensation to be submitted to the Accountant for resolution. In that event, the Accountant shall consider the positions of the executive committee, and shall adopt a compensation arrangement consistent with the position advocated by at least one member of the executive committee. The decision of the Accountant on any matter which is subject to the special voting procedures shall be final and binding on the executive committee and the Silver Legacy Partners.

Transfer of Silver Legacy Partnership Interests. Except as expressly permitted by the Silver Legacy Joint Venture Agreement, neither Silver Legacy Partner may transfer all or any portion of its interest in the Silver Legacy Joint Venture or any rights therein without the unanimous consent of both Silver Legacy Partners. The Silver Legacy Joint Venture Agreement provides that a Silver Legacy Partner may transfer or convey all or any portion of its interest in the Silver Legacy Joint Venture to an affiliate of that Silver Legacy Partner (subject to certain limitations), members of the Silver Legacy Partner’s family (which includes the Silver Legacy Partner’s spouse, natural or adoptive lineal descendants, and trusts for their benefit), another Silver Legacy Partner, a personal representative of the Silver Legacy Partner or any person or entity approved by the unanimous consent of the Silver Legacy Partners.

Unless otherwise agreed by Mandalay Sub, Donald L. Carano or a member of his immediate family acceptable to Mandalay Sub, which acceptance may not be unreasonably withheld, or an affiliate controlled by Donald L. Carano or a member of his immediate family acceptable to Mandalay Sub, which acceptance may not be unreasonably withheld, is required to be the manager of and control ELLC (or, if applicable, any entity that is a permitted transferee and to which ELLC has transferred its interest in the Silver Legacy Joint Venture). Unless otherwise agreed by ELLC, which may not be unreasonably withheld, Mandalay Sub (or, if applicable, any entity that is a permitted transferee and to which Mandalay Sub has transferred its interest in the Silver Legacy Joint Venture) is required to be controlled by Mandalay Resort Group. In the event the limitation in this paragraph with respect to either Silver Legacy Partner is breached, the other Silver Legacy Partner will have the right (but not be required) to exercise the buy-sell provisions described below.

Limitation on Silver Legacy Partners’ Actions. The Silver Legacy Joint Venture Agreement includes each Silver Legacy Partner’s covenant and agreement not to (i) take any action to require partition or to compel any sale with respect to its Silver Legacy Joint Venture interest, (ii) take any action to file a certificate of dissolution or its equivalent with respect to itself, (iii) take any action that would cause a bankruptcy of such Silver Legacy Partner, (iv) withdraw or attempt to withdraw from the Silver Legacy Joint Venture, (v) exercise any power under the Nevada Partnership Act to dissolve the Silver Legacy Joint Venture, (vi) transfer all or any portion of its interest in the Silver Legacy Joint Venture (other than as permitted hereunder), (vii) petition for judicial dissolution of the Silver Legacy Joint Venture, or (viii) demand a return of such Silver Legacy Partner’s contributions or profits (or a bond or other security for the return of such contributions or profits) without the unanimous consent of the Silver Legacy Partners. The Silver Legacy Joint Venture Agreement also provides that if a Silver Legacy Partner attempts to (A) cause a partition or (B) withdraw from the Silver Legacy Joint Venture or dissolve the Silver Legacy Joint Venture, or otherwise take any action in breach of its aforementioned agreements, the Silver Legacy Joint Venture shall continue and (1) the breaching Silver Legacy Partner shall immediately cease to have the authority to act as a Silver Legacy Partner, (2) the other Silver Legacy Partner shall have the right (but shall not be obligated unless it was so obligated prior to such breach) to manage the affairs of the Silver Legacy Joint Venture, (3) the breaching Silver Legacy Partner shall be liable in damages, without requirement of a prior accounting, to the Silver Legacy Joint Venture for all costs and liabilities that the Silver Legacy Joint Venture or any Silver Legacy Partner may incur


as a result of such breach, (4) distributions to the breaching Silver Legacy Partner shall be reduced to 75% of the distributions otherwise payable to the breaching Silver Legacy Partner and (5) the breaching Silver Legacy Partner shall continue to be liable to the Silver Legacy Joint Venture for any obligations of the Silver Legacy Joint Venture pursuant to the Silver Legacy Joint Venture Agreement, and to be jointly and severally liable with the other Silver Legacy Partner(s) for any debts and liabilities (whether actual or contingent, known or unknown) of the Silver Legacy Joint Venture existing at the time the breaching Silver Legacy Partner withdraws or dissolves.

Buy-Sell Provision. Either Silver Legacy Partner (provided such Silver Legacy Partner is not in default of any of the provisions of the Silver Legacy Joint Venture Agreement) may make an offer (“Offer”), which will constitute an irrevocable offer by the Silver Legacy Partner giving the Offer, either to (i) purchase all, but not less than all, of the interest in the Silver Legacy Joint Venture of the other Silver Legacy Partner free of liens and encumbrances for the amount specified in the Offer (the “Sales Price”), or (ii) sell all, but not less than all, of its interest in the Silver Legacy Joint Venture free of liens and encumbrances to the other Silver Legacy Partner for the amount specified in the Offer (the “Purchase Price”). The Silver Legacy Partner receiving an Offer will have a period of two months to accept the Offer to sell at the Sales Price or, in the alternative, to require that the offering Silver Legacy Partner sell its interest to the other Silver Legacy Partner at the Purchase Price. The closing of the transaction for the sale or purchase of the Silver Legacy Joint Venture interest shall occur not later than six months after the notice of election or at such other time as may be required by the Nevada Gaming Authorities. Subject to any agreements to which the Silver Legacy Joint Venture is a party, the Silver Legacy Partner purchasing the Silver Legacy Joint Venture interest (the “Purchasing Silver Legacy Partner”) shall be entitled to encumber the Silver Legacy Joint Venture property in order to finance the purchase, provided that the other Silver Legacy Partner (the “Selling Silver Legacy Partner”) will have no liability, contingent or otherwise, under such financing. The Purchasing Silver Legacy Partner may assign all or part of its right to purchase the Silver Legacy Joint Venture interest of the Selling Silver Legacy Partner to an affiliate of the Purchasing Silver Legacy Partner, provided that no such assignment relieves the Purchasing Silver Legacy Partner of its obligations in the event of a default by the affiliate.

Dissolution, Winding Up and Liquidation. The Silver Legacy Joint Venture Agreement provides that the Silver Legacy Joint Venture shall dissolve and commence winding up and liquidating upon the first to occur of any of (i) January 1, 2053, (ii) the sale of all or substantially all of the Silver Legacy Joint Venture property, (iii) the unanimous vote of the Silver Legacy Partners to dissolve, wind up, and liquidate the Silver Legacy Joint Venture, (iv) the happening of any other event that makes it unlawful or impossible to carry on the business of the Silver Legacy Joint Venture, (v) the occurrence of an Event of Bankruptcy (as defined the Silver Legacy Joint Venture Agreement) of a Silver Legacy Partner, or (vi) the Silver Legacy Partners are unable to agree upon a replacement managing partner as provided in the Silver Legacy Joint Venture Agreement (each, a “Liquidating Event”).

The Silver Legacy Joint Venture Agreement also includes the Silver Legacy Partners’ agreement that the Silver Legacy Joint Venture shall not dissolve prior to the occurrence of a Liquidating Event, notwithstanding any provision of the Nevada Uniform Partnership Act to the contrary. If it is determined by a court of competent jurisdiction that the Silver Legacy Joint Venture has dissolved prior to the occurrence of a Liquidating Event, the Silver Legacy Partners have agreed to continue the business of the Silver Legacy Joint Venture without a winding up or liquidation.

Upon the occurrence of a Liquidating Event, the Silver Legacy Joint Venture will continue solely for the purpose of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Silver Legacy Partners. The managing partner will be responsible for overseeing the winding up and liquidation of the Silver Legacy Joint Venture, taking full account of the Silver Legacy Joint Venture’s liabilities and assets, causing the assets to be liquidated as promptly as is consistent with obtaining the fair market value thereof, and causing the proceeds therefrom, to the extent sufficient therefor, to be applied and distributed (i) first, to the payment and discharge of all of the Silver Legacy Joint Venture’s debts and liabilities to creditors other than Silver Legacy Partners, (ii) second, to the payment and discharge of all of the Silver Legacy Joint Venture’s debts and liabilities to Silver Legacy Partners, and (iii) the balance, if any, to the Silver Legacy Partners in the amount of their respective capital accounts, after giving effect to all contributions, distributions, and allocations for all periods or portions thereof.


Reno Market

Reno is the second largest metropolitan area in Nevada, with a population of approximately 428,000 according to the most recently available U.S. census data, and is located at the base of the Sierra Nevada Mountains along Interstate 80, approximately 135 miles east of Sacramento, California and 225 miles east of San Francisco, California. Reno is a destination resort market that primarily attracts “drive-in” visitors by offering gaming as well as numerous other summer and winter recreational activities. In addition to gaming, the Reno area features national forests, mountains and lakes (including Lake Tahoe) and offers year-round opportunities for outdoor activities of all types. An estimated two-thirds of visitors to the Reno market arrive by some form of ground transportation. Under normal conditions, Eldorado-Reno and Silver Legacy are within a 10-minute drive of the airport, making them easily accessible to visitors traveling to Reno by air.

The Reno area enjoys relatively mild weather, with abundant sunshine throughout the year and low humidity. Reno’s annual snowfall is modest, although heavier snowfall in the mountain passes around Reno can obstruct traffic to Reno. Special annual events in the Reno area include Hot August Nights, the National Championship Air Races, the Reno Balloon Races, Street Vibrations, the Reno/Tahoe Open PGA golf tournament and the Reno Rodeo. According to the Reno-Sparks Convention and Visitors Authority (the “Visitors Authority”) and the Nevada Commission on Tourism, the greater Reno area attracted an estimated 4.4 million visitors for the twelve months ended June 30, 2009 compared to an estimated 4.8 million for the twelve months ended June 30, 2008.

The following table sets forth certain statistical information for the Reno market for the years 2005 through 2009 as reported by the Visitors Authority, the Nevada Commission on Tourism and the Nevada State Gaming Control Board.

 

     The Reno Market  
     2005     2006     2007     2008     2009  

Gaming Revenues (000’s)(1)

   $ 920,722      $ 940,315      $ 925,512      $ 831,889      $ 715,234   

Gaming Positions(2)(3)

     23,666        21,794        21,670        20,217        19,009   

Hotel Rooms(2)

     14,620        14,393        15,292        15,637        16,134   

Average Hotel Occupancy Rate(1)

     75.6     76.6     75.4     66.6     64.7

Visitors(4)

     4,765,737        4,925,358        5,040,772        4,838,914        4,431,072   

 

(1) For the twelve months ended December 31 for each period shown.
(2) As of December 31 for each period shown.
(3) Calculated from information provided by the Nevada State Gaming Control Board.
(4) For the twelve months ended June 30 for each period shown.

The National Bowling Stadium, located approximately one block from Eldorado-Reno and Silver Legacy, opened in 1995. The facility, which features 80 bowling lanes, has been selected to host tournaments for the American Bowling Congress (the “ABC”) and the Women’s International Bowling Congress (the “WIBC”), which has merged with the ABC to form the United States Bowling Congress (the “USBC”), two of every three years through 2018. The National Bowling Stadium, which did not host an ABC or WIBC tournament in 2008, was the site of the WIBC’s National Championship Bowling Tournament in 2009 and will host the ABC’s National Championship Bowling Tournament in 2010. Through a one-time agreement, the National Bowling Stadium will also host the USBC Tournament in Reno in 2011, usually an off year for Reno. According to the Visitors Authority, bowling tournaments held at the National Bowling Stadium attract visitors from markets that do not normally contribute substantially to Reno’s visitor profile. The National Bowling Stadium also features a large-screen movie theater, retail space and can be configured to host special events and conventions.


Eldorado-Shreveport

Eldorado-Shreveport is an all suite art deco-style hotel and casino destination resort in Shreveport, Louisiana. Eldorado-Shreveport enjoys high visibility and convenient access from Interstate 20, the major highway that connects the Shreveport market with its feeder markets of Dallas/Ft. Worth and East Texas. Eldorado-Shreveport is managed by Resorts and utilizes the same theme and marketing and operating strategies that have been successfully implemented at Eldorado-Reno.

Eldorado-Shreveport commenced operations on December 20, 2000. Resorts acquired an initial 76.4% interest in the partnership that owns Eldorado-Shreveport and assumed its role as manager of the property on July 22, 2005. Resorts acquired the remaining 23.6% partnership interest, other than certain rights associated with the “Preferred Capital Contribution Amount” and “Preferred Return” (as these terms are defined in the partnership agreement) on March 20, 2008. Eldorado-Shreveport consists of a 403-room, all suite hotel and a three-level riverboat dockside casino. The casino contains approximately 59,000 square feet of space with approximately 1,501 slot machines, approximately 50 table games and a poker room with 9 tables. The riverboat casino floats in a concrete and steel basin that raises the riverboat nearly 20 feet above the river. The basin virtually eliminates variation in the water height and allows the boat to be permanently moored to the land-based pavilion. Eldorado-Shreveport’s computerized pumping system is designed to regulate the water level of the basin to a variance of no more than three inches.

The centerpiece of the resort is an approximately 170,000 square foot land-based pavilion housing numerous restaurants and entertainment amenities. An 85-foot wide seamless entrance connects the casino to the land-based pavilion on all three levels resulting in the feel of a land-based casino. The pavilion features a dramatic 60-foot high atrium enabling patrons to see the casino floor from almost anywhere in the pavilion. Other amenities include an award-winning gourmet steakhouse, an expansive buffet, a sports-themed casual diner, a premium players’ club and an entertainment show room. The pavilion also includes a deli and ice cream shop, VIP check-in, a premium quality bar, meeting rooms and a retail store.

Eldorado-Shreveport offers three parking facilities, including two parking lots and an eight-story parking garage located directly across the street and connected to the pavilion by an enclosed walkway. The three parking facilities provide space for approximately 2,000 cars, including valet parking for approximately 340 cars.

Shreveport/Bossier City Market

Eldorado-Shreveport was built next to an existing riverboat gaming and hotel facility formerly operated by Harrah’s Entertainment and now operated by Boyd Gaming. The two casinos form the first and only “cluster” in the Shreveport/Bossier City market, allowing patrons to park once and easily walk between the two facilities. There are currently five casinos and a racino operating in the Shreveport/Bossier City market, which is the largest gaming market in Louisiana. The Shreveport/Bossier City gaming market permits continuous dockside gaming without cruising requirements or simulated cruising schedules, allowing casinos to operate 24 hours a day with uninterrupted access. Based on information published by the state of Louisiana, the five casino operators and racino in the Shreveport/Bossier City market generated approximately $779.7 million in gaming revenues in 2009, a decrease of approximately 8% from 2008.

The principal target markets for Eldorado-Shreveport are patrons from the Dallas/Ft. Worth Metroplex and East Texas. It is estimated that approximately 7.2 million adults reside within approximately 200 miles of Shreveport/Bossier City. Eldorado-Shreveport is located approximately 180 miles east of Dallas and can be reached by car in approximately three hours. Flight times are less than one hour from both Dallas and Houston to the Shreveport Regional Airport.


The following table sets forth certain statistical information for the Shreveport/Bossier City market for the years 2005 through 2009 as reported by the Louisiana Gaming Control Board.

 

     The Shreveport/Bossier City Market
     2009    2008    2007    2006    2005

Gaming Revenues (000’s)(1)

   $ 779,653    $ 847,533    $ 844,130    $ 847,409    $ 814,229

Gaming Positions (2)(3)

     9,000      8,975      8,930      9,179      9,225

Admissions (000’s) (1)

     12,002      12,657      13,373      13,689      14,693

 

(1) For the twelve months ended December 31 for each period shown.
(2) As of December 31 for each period shown.
(3) Calculated from information provided by the Louisiana Gaming Control Board.

Proposed Acquisition

On February 23, 2010, Black Gaming, LLC (“Black Gaming”) and its directly and indirectly owned subsidiaries, Virgin River Casino Corporation (“Virgin”); B & BB, Inc. (“BBB”); R. Black, Inc. (“Black Inc.”); RBG, LLC (“RBG”); Casablanca Resorts, LLC (“Casablanca”); Oasis Interval Ownership, LLC (“Oasis Own”); Oasis Interval Management, LLC (“Oasis Mgmt”); and Oasis Recreational Properties, Inc. (“Oasis Rec”, and together with Virgin, BBB, Black Inc., RBG, Casablanca, Oasis Own and Oasis Mgmt, the “Debtor Subsidiaries”) filed petitions with the United States Bankruptcy Court for the District of Nevada (the “Bankruptcy Court”) for relief under Title 11, Chapter 11 of the United States Code (the “Bankruptcy Code”). On March 1, 2010, Black Gaming and the Debtor Subsidiaries (together, the “Debtors”) filed with the Bankruptcy Court a Joint Plan of Reorganization (the “Plan”).

If the Plan is confirmed by the Bankruptcy Court and all of the conditions specified in the Plan are satisfied, including but not limited to the receipt of all requisite gaming approvals, then, according to the terms of the Plan, a new entity (“New Black Gaming”) is to acquire all of the assets of Black Gaming, including its direct and indirect ownership interests in the Debtor Subsidiaries and New Black Gaming is to issue to a group of investors, including Newport (the “New Black Gaming Investors”), all of the equity interests in New Black Gaming. Pursuant to an agreement among the New Black Gaming Investors, if the Plan is confirmed by the Bankruptcy Court and all of the conditions specified in the Plan are satisfied, Newport, or an affiliate of Newport, will acquire 40% of the total equity interests in New Black Gaming for $8,222,222 in cash. In addition to the interests issuable to the New Black Gaming Investors, including the 40% interest issuable to Newport or an affiliate of Newport, the Plan provides for the issuance to a class of Black Gaming’s creditors of warrants to purchase five percent of the fully-diluted equity interests in New Black Gaming that will be exercisable for a period of five years and, if exercised in full, would reduce the percentage interest issuable to Newport or an affiliate of Newport from 40% to 38% of New Black Gaming’s equity interest.

If the Plan is confirmed by the Bankruptcy Court and all of the conditions specified in the Plan are satisfied, the Newport Fund intends to acquire the equity interest in New Black Gaming issuable to Newport or an affiliate of Newport and to utilize the Company’s wholly owned subsidiary, AcquisitionCo, to make the acquisition. In that event, the Newport Fund will contribute to InvestCo the full amount of the cash purchase price which in turn will be contributed by InvestCo to the Company, then by the Company to Blocker, and finally by Blocker to AcquisitionCo, which will pay the purchase price and acquire the interest in New Black Gaming. The aforementioned contribution from Newport Fund down to AcquisitionCo will not result in any change in the ownership of InvestCo, the Company, Blocker or AcquisitionCo.

The assets to be acquired by New Black Gaming pursuant to the Plan include the CasaBlanca Hotel & Casino, the Virgin River Hotel & Casino and the Oasis Hotel & Casino, each in Mesquite, Nevada, two championship golf courses, a full-service spa, a bowling center, a gun club, restaurants, and banquet and conference facilities, as more fully described below. The descriptions provided below are based on the information included in the disclosure statement (the “Disclosure Statement”) that accompanied the Plan when it was filed with the Bankruptcy Court.

CasaBlanca Hotel & Casino. The CasaBlanca Hotel & Casino (the “CasaBlanca”) includes a hotel with approximately 472 tower rooms (including 24 suites) and 24 timeshare units and a casino with approximately 27,000 square feet of space. The casino offers approximately 792 video poker and slot machines, 24 table games, a full service race and sports book, lounge entertainment and dancing. The CasaBlanca offers various resort and entertainment amenities, including a golf club, a full service spa, tennis courts, a lagoon swimming pool with a


waterfall and slide, a hot tub, a sand volleyball court and an arcade. In addition, the CasaBlanca offers a 320-seat buffet restaurant, a 180-seat 24-hour café, a 136-seat fine dining restaurant, an ice cream parlor, a gift shop and a 10,000 square-foot banquet and conference facility and a 500-seat showroom. The CasaBlanca, situated on approximately 43 acres, has a parking lot with a capacity for approximately 1,940 cars as well as a 45-unit full service R.V. park. Approximately one mile from the CasaBlanca, situated on a 221-acre site, is the CasaBlanca Golf Club featuring an 18-hole, 7,011 yard championship course. The land on which the golf club is located is leased pursuant to a 99-year lease that expires in June 2094.

Virgin River Hotel & Casino. The Virgin River Hotel & Casino (the “Virgin River”) has 717 guest rooms (includes six suites) and a 36,000 square-foot casino with approximately 771 video poker and slot machines, 16 table games, a full service race and sports book, a 183-seat bingo parlor and keno. The Virgin River offers various resort and entertainment amenities, including swimming pools and hot tubs, a 24-lane state-of-the art bowling center, an arcade and a lounge for entertainment and dancing. In addition, the Virgin River offers a 182-seat 24-hour café, a 178-seat buffet restaurant and a gift shop. The Virgin River is situated on an approximately 32-acre site, with a parking lot that has a capacity for approximately 1,650 cars.

Oasis Hotel & Casino. Prior to December 5, 2008, the Oasis Hotel & Casino (the “Oasis”) was a full-service entertainment and resort destination. Due to deteriorating economic conditions, on December 5, 2008, operations at the Oasis were significantly reduced. Under the initially reduced operations, the Oasis offered 144 video poker and slot machines, as well as various resort and entertainment amenities, including golf at the Palm Golf Course, swimming pools and hot tubs, tennis courts, an arcade, a go-kart track, and a miniature golf range. Due to the continued deterioration of economic conditions, in May 2009, the Oasis further reduced operations to 16 video poker and slot machines, the minimum number of machines required to maintain the requisite gaming approvals needed to operate this property’s casino, and golf course operations. The Oasis is situated on an approximately 26-acre site, containing a parking lot with a capacity for approximately 1,800 cars as well as an 80 unit R.V. park. Approximately four miles from the Oasis is the Palms Golf Course featuring an 18-hole, 7,008 yard championship course. The Palms Golf Course straddles the Nevada/Arizona border and is situated on a 256-acre site, of which 180 acres were leased from the State of Arizona pursuant to a lease that expired in May 2008. Oasis Rec is currently seeking to renew the lease and is continuing to pay for the use of this land on terms similar to those of the expired lease.

Virgin River Convention Center. The Virgin River Convention Center, situated on an approximately 14-acre site, has approximately 12,000 square feet of meeting space and 210 hotel rooms. The Virgin River Convention Center is currently used as a special event facility and for overflow hotel traffic from the other properties.

Oasis Ranch and Gun Club. The Oasis Ranch and Gun Club encompasses over 1,000 acres of farmland, game pasture, and river bottom and offers ten stations on a sporting clay course, two trap and skeet fields with 15 stands, and gun safety classes, plus horseback riding, motocross, and hayrides.

The potential acquisition described above is subject to a number of conditions, including, but not limited to, confirmation of the Plan by the Bankruptcy Court and the satisfaction of all applicable conditions, including, but not limited to, the receipt of all requisite gaming approvals required in order for AcquisitionCo to be able to acquire an equity interest in New Black Gaming. There can be no assurance that the Plan will be confirmed by the Bankruptcy Court, or, even if the Plan is confirmed, that all of the applicable conditions will be satisfied.


Competition

The gaming industry includes land-based casinos, dockside casinos, riverboat casinos, casinos located on Native American reservations and other forms of legalized gaming. There is intense competition among companies in the gaming industry, many of which have significantly greater resources than Resorts has. Certain states have legalized casino gaming and other states may legalize gaming in the future. Legalized casino gaming in these states and on Native American reservations near Resorts’ markets or changes to gaming laws in states surrounding Nevada could increase competition in the Reno market and could adversely affect its operations. Resorts also competes to a lesser extent with gaming facilities in other jurisdictions with dockside gaming facilities, state-sponsored lotteries, on-and-off track pari-mutuel wagering, Internet gaming, card clubs, riverboat casinos and other forms of legalized gambling.

Eldorado-Reno and Silver Legacy compete for customers primarily on the basis of location, range and pricing of amenities and overall atmosphere. Of the 30 casinos currently operating in the Reno market, Eldorado-Reno and Silver Legacy each competes principally with the six other hotel-casinos that, like Eldorado-Reno and Silver Legacy, each generates at least $36 million in annual gaming revenues. Two existing hotel/casinos completed construction on an expansion of their hotel, casino, restaurants and parking facilities along with various other amenities in 2007 and 2009, respectively. There have also been announcements of other pending expansion and/or new projects within the Reno market. At this time, Resorts cannot predict the extent to which new and proposed projects will be undertaken or the extent to which current hotel and/or casino space may be expanded in the future nor can it determine the impact they may have on its operations. Resorts expects that any additional rooms added in the Reno market will increase competition for visitor revenue. There can be no assurance that any growth in Reno’s current room base or gaming capacity will not adversely affect Resorts’ financial condition or results of operations. Eldorado-Reno and Silver Legacy also compete with hotel-casinos located in the nearby Lake Tahoe region as well as those in Las Vegas, Nevada. A substantial number of customers travel to both Reno and the Lake Tahoe area during their visits. Consequently, Resorts believes that Eldorado-Reno’s success as well as that of Silver Legacy is influenced to some degree by the success of the Lake Tahoe market. While the number of visitors decreased approximately 8.4% in the 12-month period ended June 30, 2009 compared with the same prior year period, Eldorado’s management believes the decline was due to the current recession and does not anticipate a decline in the popularity of either Reno or Lake Tahoe as tourist destination areas in the foreseeable future. Any such decline could adversely affect the operations at Eldorado-Reno and Silver Legacy.

Land-based, riverboat, or dockside casino gaming (other than that conducted on Native American-owned land) is currently conducted in 13 states and casino gaming on Native American-owned land is conducted in a number of states, including California, Washington, and Oregon. Resorts’ management believes the Reno market draws over 50% of its visitors from California. In addition to gaming on Native American-owned land, California allows other non-casino style gaming, including pari-mutuel wagering, a state-sponsored lottery, card clubs, bingo, and off-track betting.

On March 7, 2000, California voters approved Proposition 1A which amended the California constitution and legalized “Nevada-style” gaming on Native American reservations. The passage of this amendment has allowed the expansion of existing Native American gaming operations, as well as the opening of new Native American gaming facilities in California. Additionally, numerous tribes have announced that they intend to open gaming facilities. Other tribes are at various stages of planning new or expanded facilities in northern California, including facilities within a one-hour drive of San Francisco or Sacramento. There are approximately 104 federally recognized Native American tribes in California. Based on information provided by the California Gambling Control Commission, Resorts’ management believes approximately 67 Native American tribes currently have compacts with the State of California. Currently there are 58 Native American casinos in operation in the State of California.

Under their current compacts, most Native American tribes in California may operate up to 2,000 slot machines, and up to two gaming facilities may be operated on any reservation. Under action taken by the National Indian Gaming Commission, gaming devices similar in appearance to slot machines, but which are deemed to be technological enhancements to bingo style gaming, are not subject to limits imposed by the State of California on the number of slot machines and may be used by tribes without state permission. The number of slot machines the tribes are allowed to operate may increase as a result of any new or amended compacts the tribes may enter into with the State of California that receive the requisite approvals, such as has been the case with respect to a number of new


or amended compacts executed and approved in recent years. For example, in April 2007, the California Senate approved amendments to the compacts of five Native American tribes. In June 2007, the California Assembly approved four of these five compacts which increased the number of slot machines permitted to be operated by two of the four tribes from 2,000 to 5,000 each and increased the number that may be operated by each of the other two tribes from 2,000 to 7,500. California voters approved these four increases by their approval of gaming referendums on their statewide ballot on February 5, 2008. Resorts’ management believes that the increase in the number of slot machines permitted to be operated by the four tribes will not significantly impact Eldorado’s and Silver Legacy’s operations since the casinos operated by those tribes are located in southern California. In September 2008, the Governor of California signed a bill, which was subsequently approved by the Bureau of Indian Affairs, ratifying an amendment to the compact of a tribe located in northern California to increase from 2,000 to 5,000 the number of slot machines that may be operated by this tribe. This tribe opened a casino in December 2008 that is located 20 miles east of Sacramento and currently offers 2,100 slot machines. The amendment of the compact of this tribe and new compacts or modifications to existing compacts of other tribes that currently operate or may operate casinos in central or northern California to provide similar increases to the number of slot machines permitted to be operated, could have a material adverse impact on Resorts’ operations, depending on the number of such tribes securing new or modified compacts, the number of additional machines permitted and the locations of the properties utilizing the additional machines. We believe the continued growth of Native American gaming establishments, including the addition of hotel rooms and other amenities, could continue to place additional competitive pressure on Resorts’ operations. While we cannot predict the extent of any future impact, it could be significant.

Many existing Native American gaming facilities in northern California are modest compared to Reno market casinos such as Eldorado-Reno and Silver Legacy. However, some Native American tribes have established large-scale gaming facilities in California and numerous Native American tribes have announced that they are in the process of expanding, developing, or are considering establishing large-scale hotel and gaming facilities in northern California. Eldorado-Reno and Silver Legacy have experienced a measurable impact on their operations from these northern California facilities, resulting in a negative effect on their overall operating results. While the extent of the future impact cannot be predicted, it could be significant, particularly during periods such as the current economic recession when California residents may be less willing to travel longer distances to enjoy a casino experience. Resorts’ management believes the greatest impact from Native American gaming establishments to the customer bases at Eldorado-Reno and Silver Legacy is to day-trippers, those patrons whose visit is for one day and does not include an overnight stay. These customers are typically not tracked players, as they tend not to be as loyal a customer as those who visit for more than one day at a time. Day-trippers primarily visit Reno in the second and third quarters when the weather is more favorable.

The competitive impact on Nevada gaming establishments, in general, and Eldorado-Reno and Silver Legacy, in particular, from the continued growth of gaming outside Nevada cannot be determined at this time. However, Resorts’ management believes that the expansion of casino gaming on Native American lands in California, and to a lesser extent in Washington and Oregon, could have a material adverse affect on future operations, depending on the nature, location, and scope of those operations.

The Shreveport/Bossier City gaming market is characterized by intense competition and the market has not grown substantially since Eldorado-Shreveport originally opened as the Hollywood Casino in December 2000. Eldorado-Shreveport competes directly with four casinos, three of which have operated in the Shreveport/Bossier City market for a number of years and have established customer bases. It also competes with a racetrack that opened a new permanent casino facility in April 2004. Casino gaming is currently prohibited in several jurisdictions from which the Shreveport/Bossier City market draws customers, primarily Texas. Although casino gaming is currently not permitted in Texas, the Texas legislature has from time to time considered proposals to authorize casino gaming. In July 2003, the Chickasaw Nation announced the opening of WinStar Casinos, a Las Vegas-style, 110,000-square-foot gaming facility located in Oklahoma approximately 60 miles north of the Dallas/Fort Worth area. Although gaming in Oklahoma is limited by law to Class II-type games, which have previously been technologically incapable of offering a similar entertainment experience to Eldorado-Shreveport’s Class III-type games, recent innovations have allowed the Class II-type product to compete much more effectively than in the past. In November 2004, voters in Oklahoma approved several ballot initiatives which, when fully implemented,


will (1) allow Class II-type games at three Oklahoma racetracks, the closest of which is approximately 200 miles from the Dallas/Fort Worth area; (2) allow several new electronic gaming devices, including video poker, that are defined as “games of skill” at native-American casinos; and (3) allow certain “player-pooled” table games such as poker and blackjack at native-American casinos. Since Eldorado-Shreveport draws a significant number of its customers from the Dallas/Fort Worth area, but is located approximately 190 miles from that area, management believes Eldorado-Shreveport will face increased competition from the WinStar Casinos, racetracks and similar types of facilities.

Operations

The primary source of Resorts’ revenues is its properties’ casinos, although their hotels, restaurants, bars, shops and other services are an important adjunct to the casinos. The following table sets forth the respective contributions to Resorts’ net revenues on a dollar and percentage basis of the major activities at Eldorado-Reno and Eldorado-Shreveport for each of the three most recent fiscal years.

 

    Year Ended December 31,  
    2009     2008     2007  
    (Dollars in Thousands)  

Revenues:

            

Casino(1)

  $222,665    81.9   $ 231,087      81.1   $ 225,152      79.0

Food, Beverage and Entertainment(2)

  60,860    22.4     63,367      22.2     67,049      23.5

Hotel(2)

  24,358    9.0     26,658      9.4     28,777      10.1

Other(2)

  7,526    2.8     7,797      2.7     8,046      2.8
                                      

Gross revenues

  315,409    116.0     328,909      115.5     329,024      115.4

Less:

            

Complimentary allowances(2)

  (43,510)    (16.0 %)      (44,087   (15.5 %)      (43,888   (15.4 %) 

Net revenues

  $271,899    100.0   $ 284,822      100.0   $ 285,136      100.0

 

(1) Casino revenues are the net difference between the sums received as winnings and the sums paid as losses.
(2) Hotel, food, beverage, entertainment and other include the retail value of services which are provided to casino customers and others on a complimentary basis. Such amounts are then deducted as complimentary allowances to arrive at net revenue.

Evansville, Indiana

On March 31, 2008, Resorts and a newly formed, wholly owned subsidiary of Resorts (“Resorts Indiana”), entered into a definitive agreement (the “Evansville Agreement”) pursuant to which Resorts Indiana agreed to purchase from Aztar Riverboat Holding Company, LLC (the “Seller”) all of the membership interests in Aztar Indiana Gaming Company, LLC (“Aztar Indiana”), an indirect subsidiary of Tropicana Casinos and Resorts.


On May 5, 2008, Tropicana Entertainment, LLC and certain of its affiliated entities, including Aztar Indiana and the Seller, filed for bankruptcy relief under Chapter 11 of the Bankruptcy Code. As a result of the filing, the Seller became entitled, at its option, to assume or reject prepetition executory contracts such as the Evansville Agreement, subject to approval of the bankruptcy court. On September 22, 2008, the bankruptcy court approved bidding procedures to allow Tropicana to seek higher and better bids to purchase Aztar Indiana. As a result of the process, no higher or better bids were received. Accordingly, a sale hearing was scheduled before the bankruptcy court where Tropicana was to seek the entry of an order approving and authorizing the sale of Aztar Indiana to Resorts pursuant to the Evansville Agreement.

On November 20, 2008, in light of uncertainty regarding whether the acquisition of Casino Aztar would close, Resorts and the Seller agreed to terminate the Evansville Agreement with the following terms of settlement: (i) payment of $5 million of the escrowed deposit to the Seller with the balance, including any accrued interest less escrow costs, being distributed to Resorts, (ii) the right of Resorts to a $5 million credit against any consideration otherwise owed by Resorts in the event of any future agreement of Resorts to acquire Aztar Indiana or an interest therein, and (iii) mutual releases of the parties from any further obligation under the Evansville Agreement. On November 26, 2008 the bankruptcy court approved the terms of settlement and Resorts gave notice of its termination of the commitment for the financing related to the proposed acquisition of Aztar Indiana. As a result of the settlement, Resorts recognized $5 million of the escrow deposit as expense in the fourth quarter of 2008 along with other expenses relating to the transaction of approximately $1.8 million and $0.9 million in fees associated with the financing commitment.

Governmental Regulation

Eldorado and its subsidiaries and their operations are subject to extensive regulation under laws, rules and supervisory procedures primarily in the jurisdictions where their facilities are located or docked. If additional gaming regulations are adopted in Nevada or Louisiana where their operations are conducted, those regulations could impose restrictions or costs that could have a significant adverse effect on those operations. From time to time, various proposals have been introduced in the legislatures of the two jurisdictions in which Eldorado and its subsidiaries and their operations are conducted that, if enacted, could adversely affect the tax, regulatory, operational or other aspects of the gaming industry and those operations. We do not know whether or when such legislation will be enacted. Gaming companies are currently subject to significant state and local taxes and fees in addition to normal federal and state corporate income taxes, and such taxes and fees are subject to increase at any time. Any material increase in these taxes or fees could adversely affect Resorts’ and its subsidiaries’ operations.

Some jurisdictions, including the two in which Eldorado is licensed, Nevada and Louisiana, empower their regulators to investigate participation by licensees in gaming outside their jurisdiction and require licensees to file periodic reports respecting those gaming activities. Violations of gaming laws or regulations in one jurisdiction could result in disciplinary action in other jurisdictions.

Under provisions of gaming laws in jurisdictions in which Eldorado has operations, and under the organizational documents of Eldorado and its subsidiaries, certain of their securities are subject to restriction on ownership which may be imposed by specified governmental authorities. The restrictions may require a holder of those securities to dispose of the securities or, if the holder refuses, or is unable, to dispose of the securities, the issuer may be required to repurchase the securities.

The Company has been approved by the Nevada and Louisiana gaming authorities to hold an equity interest in Eldorado and is subject to extensive ongoing regulation by the gaming authorities of these jurisdictions. See, “Nevada Regulation and Licensing” and “Louisiana Regulation and Licensing”, below.

Nevada Regulation and Licensing

The ownership and operation of casino gaming facilities in Nevada, including the Eldorado-Reno, Silver Legacy, and Tamarack Junction are subject to the Nevada Gaming Control Act (the “Nevada Act”) and regulations promulgated thereunder. Eldorado’s gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission (the “Nevada Commission”), the Nevada State Gaming Control Board (the “Nevada Board”) and various local governmental authorities (collectively, the “Nevada Gaming Authorities”).


The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy that seek to:

 

   

prevent unsavory or unsuitable persons from having any direct or indirect involvement with gaming at any time or in any capacity;

 

   

establish and maintain responsible accounting practices and procedures;

 

   

maintain effective control over the financial practices of licensees, including establishing minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable recordkeeping and requiring the filing of periodic reports with the Nevada Gaming Authorities;

 

   

prevent cheating and fraudulent practices; and

 

   

provide a source of state and local revenues through taxation and licensing fees.

Changes in these regulations and procedures could have an adverse effect on gaming operations at Nevada casinos, including the Eldorado-Reno, Silver Legacy and Tamarack Junction.

Resorts, which owns and operates Eldorado-Reno, is licensed by the Nevada Gaming Authorities as a corporate licensee (a “Corporate Licensee”) under the terms of the Nevada Act. Resorts is also registered with the Nevada Commission as a holding company in connection with its 96% interest in Eldorado Limited Liability Company, a 50% joint venture partner in Silver Legacy, and as a manager and member of Tamarack Junction. Each of Eldorado-Reno, Silver Legacy, and Tamarack Junction are licensed as non-restricted (casino) gaming operations under Nevada law. The gaming licenses held by each of these properties require periodic payments of fees and taxes and are not transferable. Corporate Licensees are required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information that the Nevada Commission may request. No person may become a member of, or receive any percentage of the profits from, Eldorado without first obtaining licenses and approvals from the Nevada Gaming Authorities. All of the members of Eldorado have obtained the licenses and approvals necessary to own their respective interests in Eldorado. Eldorado and its affiliated entities have obtained from the Nevada Gaming Authorities the various registrations, approvals, permits and licenses required in order to engage in gaming activities at Eldorado-Reno and to own its interests in ELLC, a joint venture partner in Silver Legacy, and its interests in Tamarack Junction.

Prior to the closing of the Resorts Transaction, the Company and its affiliated entities and controlling persons obtained certain approvals from the Nevada Gaming Authorities. These approvals included the following:

 

   

the Company was registered as a publicly traded corporation as that term is defined by the Nevada Act,

 

   

the Company, VoteCo, Blocker, and AcquisitionCo were registered as holding or intermediary companies and were found suitable in such capacities, and

 

   

the VoteCo equityholders were licensed as members and managers, as applicable, of VoteCo and found suitable as controlling managers, as applicable, of the Company, Blocker, and AcquisitionCo.

In addition, the Nevada Commission issued a variety of approvals in connection with the Resorts Transaction, including:

 

   

approval of the disposition of the Resorts 3% equity interest by Carano to AcquisitionCo; and


   

approval of the issuance of the 14.47% new membership interest by Resorts and transfer of the interest to AcquisitionCo.

The Nevada Gaming Authorities have found the Company, VoteCo, Blocker and AcquisitionCo and each such company’s respective members and managers suitable in connection with the interests held in Eldorado. While the direct and indirect holders of Class B Membership Units of the Company are not mandatorily required to be found suitable in connection with the Company’s holdings in Eldorado, they remain subject to the discretionary authority of the Nevada Commission and can be required to file an application and have their suitability determined, or to dispose of their investment in the Company.

The Company has been approved to be registered by the Nevada Commission as a “publicly traded corporation” as that term is defined in the Nevada Act. The Company is deemed a publicly traded corporation under the Nevada Act because its Class A Units are registered under the Securities Exchange Act of 1934 and the Company is accordingly required to file periodic reports pursuant to that Act. There is currently only one Class A Unit issued and outstanding and it is not currently anticipated that any of the Company’s membership units or any other securities of the Company will be listed for trading or trade with any frequency.

The Company, VoteCo, Blocker, and AcquisitionCo filed applications with the Nevada Gaming Authorities to obtain various registrations, licenses, findings of suitability, approvals and permits required to acquire the interests now held in Eldorado. In connection with the Company’s, VoteCo’s, Blocker’s and AcquisitionCo’s applications, each of the members of VoteCo filed an application for approval as a member and as a manager of VoteCo, and Mr. Reeg additionally filed an application for approvals as a Manager of the Company, Blocker, and AcquisitionCo. All applications filed by the Company and its affiliates were approved by the Nevada Commission on September 20, 2007, authorizing the Company and its affiliates to consummate the Resorts Transaction. All of the foregoing approvals were renewed at the time the interests held in Resorts by the Company were exchanged for interests in Eldorado.

No person may become a stockholder or member of, or receive any percentage of the profits of, an intermediary or holding company or gaming licensee without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Nevada Gaming Authorities may investigate any individual who has a material relationship to or material involvement with the Company or its affiliates to determine whether the individual is suitable or should be licensed as a business associate of a gaming licensee. Certain of the officers, managers and key employees of Eldorado, Resorts, the Company, VoteCo, Blocker and AcquisitionCo have been or may be required to file applications with the Nevada Gaming Authorities and are or may be required to be licensed or found suitable by the Nevada Gaming Authorities in connection with the Resorts Transaction. The Nevada Gaming Authorities may deny any application for licensing for any reason which they deem appropriate. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. An applicant for licensing or an applicant for a finding of suitability must pay or must cause to be paid all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and, in addition to their authority to deny an application for a finding of suitability or licensing, the Nevada Gaming Authorities have the authority to disapprove changes in a corporate position.

If the Nevada Gaming Authorities were to find an officer, manager or key employee of Eldorado, Resorts, the Company, VoteCo, Blocker or AcquisitionCo unsuitable for licensing or unsuitable to continue having a continuing relationship with any of these entities, the companies involved would have to sever all relationships with such person. The Nevada Gaming Authorities may deny an application for any cause which they deem reasonable. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada.

If it were determined that the Nevada Act was violated by Eldorado, Resorts, the Company, VoteCo, Blocker or AcquisitionCo, the gaming licenses and approvals they hold could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, any such violation and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act or of the regulations of the Nevada Commission, at the discretion of the Nevada Commission. Furthermore, the Nevada Commission could appoint a supervisor to operate the Eldorado-Reno, Silver Legacy, or Tamarack Junction and, under specified circumstances, earnings generated during the supervisor’s appointment (except for the reasonable rental value of the premises) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could (and revocation of any gaming license would) impact Resorts’ casino revenues and cause the Company to suffer financial loss.


The Order of Registration issued by the Nevada Commission in connection with its holdings in Eldorado (the “Order of Registration”) contains certain conditions, including conditions that (1) prohibit VoteCo, InvestCo or their respective affiliates from selling, assigning, transferring, pledging or otherwise disposing of Class A Membership Units or Class B Membership Unites of Resorts or any other security convertible into or exchangeable for Class A Membership Units or Class B Membership Units, without the prior approval of the Nevada Commission, and (2) prohibit the Company from declaring cash dividends or distributions on any class of membership unit of the Company beneficially owned in whole or in part by InvestCo, VoteCo, or their respective affiliates, without the prior approval of the Nevada Commission.

The Order of Registration also requires the Company, VoteCo, Blocker and AcquisitionCo to submit detailed financial and operating reports to the Nevada Gaming Authorities on an ongoing basis. Substantially all material loans, leases, sales of securities and similar financing transactions by the Company, VoteCo, Blocker and AcquisitionCo must be reported to, and in some cases approved by, the Nevada Commission.

Regardless of the number of shares held, any beneficial holder of voting securities issued by the Company may be required to file an application, be investigated and have that person’s suitability as a beneficial holder of voting securities determined if the Nevada Commission has reason to believe that the ownership would otherwise be inconsistent with the declared policies of the State of Nevada. If the beneficial holder of such voting securities who must be found suitable is a corporation, partnership, limited partnership, limited liability company or trust, it must submit detailed business and financial information, including a list of its beneficial owners. The applicant must pay all costs of the investigation incurred by the Nevada Gaming Authorities in conducting any investigation.

The Nevada Act requires any person who individually or in association with others acquires, directly or indirectly, beneficial ownership of more than 5% of the voting securities of a publicly traded corporation registered with the Nevada Commission to report the acquisition to the Nevada Commission, and such person may be required to be found suitable. The Nevada Act requires that each person who, individually or in association with others, acquires, directly or indirectly, beneficial ownership of more than 10% of the voting securities of a publicly traded corporation registered with the Nevada Commission to apply to the Nevada Commission for a finding of suitability within 30 days after the Chairman of the Nevada Board mails written notice to the person requiring such filing. Under certain circumstances, an “institutional investor,” as defined in the Nevada Act, which acquires more than 10%, but not more than 20%, of the voting securities of a registered publicly traded corporation may apply to the Nevada Commission for a waiver of a finding of suitability if the institutional investor holds the voting securities for investment purposes only. Also under certain circumstances, an institutional investor that has obtained a waiver may hold up to 25% of the voting securities of such company if it first obtains a finding from the Nevada Commission to the effect that its holdings do not constitute an acquisition of control of the publicly traded corporation. An institutional investor will not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the registered publicly traded corporation, a change in the corporate charter, bylaws, management, policies or operations of the registered publicly traded corporation, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding such a company’s voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include:

 

   

voting on all matters voted on by stockholders or interest holders;

 

   

making financial and other inquiries of management of the types normally made by securities analysts for informational purposes and not to cause a change in management, policies or operations; and

 

   

other activities that the Nevada Commission may determined to be consistent with such investment intent.


Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board may be found unsuitable. The same restrictions apply to a record owner of equity securities if the record owner, after request, fails to identify the beneficial owner. Any person found unsuitable and who holds, directly or indirectly, any beneficial ownership of the equity securities of a publicly traded corporation registered with the Nevada Commission beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a member or hold a voting security or other equity security issued by the Company or to have any other relationship with the Company, the Company:

 

   

pays that person any dividend or interest with respect to voting securities of the Company,

 

   

allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person,

 

   

pays remuneration in any form to that person for services rendered or otherwise, or

 

   

fails to pursue all lawful efforts to require such unsuitable person to relinquish his or her voting securities, including, if necessary, the immediate purchase of said voting securities for cash at fair market value.

The Nevada Commission may, in its discretion, require the holder of any debt or non-voting security of a registered publicly traded corporation to file applications, be investigated, and be found suitable to own the debt or non-voting security of such corporation. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the registered publicly traded corporation can be sanctioned, including by revocation of its approvals, if without the prior approval of the Nevada Commission, it:

 

   

pays to the unsuitable person any dividend, interest, or any distribution whatsoever,

 

   

recognizes any voting right by such unsuitable person in connection with such securities,

 

   

pays the unsuitable person remuneration in any form, or

 

   

makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transactions.

The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or the proceeds derived from the offering are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes.

Changes in control of the Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby the person obtains control, may not occur without the prior approval of the Nevada Commission. Entities and person seeking to acquire control of a registered publicly traded corporation must satisfy the Nevada Commission with respect to a variety of stringent standards prior to assuming control of such corporation. The Nevada Commission may also require controlling stockholders, members, partners, officers, directors and other persons having an ownership interest in or a material relationship or involvement with the entity proposing to acquire control to be investigated and licensed as part of the approval process relating to the transaction.

Any person who is licensed, required to be licensed, registered, required to be registered, or under common control with such persons, and who proposes to become involved or is involved in a gaming venture outside of Nevada (“Foreign Gaming”), is required to deposit certain funds with the Nevada Board in order to pay the expenses of investigation of the Nevada Board of their participation in such Foreign Gaming. Thereafter, such persons are required to comply with certain reporting requirements imposed by the Nevada Act. A licensee is also subject to disciplinary action by the Nevada Commission if it knowingly violates any laws of the foreign jurisdiction pertaining to the Foreign Gaming operation, fails to conduct the Foreign Gaming operation in accordance with the


standards of honesty and integrity required of Nevada gaming operations, engages in activities or enters into associations that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employs, contract with, or associates with, a person in a Foreign Gaming operation who has been denied a license or finding of suitability in Nevada for the reason of personal unsuitability.

Louisiana Regulation and Licensing

In the State of Louisiana, Resorts, through two wholly owned subsidiaries, owns 100% interest in and operates Eldorado-Shreveport. The operation and management of a riverboat casino in Louisiana is subject to extensive state regulation. The Louisiana Riverboat Economic Development and Gaming Control Act, or the Riverboat Act, became effective on July 19, 1991.

The Riverboat Act states, among other things, that certain of the policies of the State of Louisiana are:

 

  1. to develop a historic riverboat industry that will assist in the growth of the tourism market;

 

  2. to license and supervise the riverboat industry from the period of construction through actual operation;

 

  3. to regulate the operators, manufacturers, suppliers and distributors of gaming devices; and

 

  4. to license all entities involved in the riverboat gaming industry.

The Riverboat Act makes it clear, however, that no holder of a license or permit possesses any vested interest in such license or permit and that the license or permit may be revoked at any time.

In a special session held in April 1996, the Louisiana Legislature passed the Louisiana Gaming Control Act, or the Gaming Control Act, which created the Louisiana Gaming Control Board, or the Gaming Control Board. Pursuant to the Gaming Control Act, all of the regulatory authority, control and jurisdiction of licensing for riverboats was transferred to the Gaming Control Board. The Gaming Control Board is made up of nine members and two ex-officio members (the Secretary of Revenue and Taxation and the Superintendent of the Louisiana State Police). It is domiciled in Baton Rouge and regulates riverboat gaming, the land-based casino in New Orleans, racetrack slot facilities and video poker. The Attorney General acts as legal counsel to the Gaming Control Board. Any material alteration in the method whereby riverboat gaming is regulated in the State of Louisiana could have an adverse effect on the operations of Eldorado-Shreveport.

The Louisiana Legislature also passed legislation requiring each parish (county) where riverboat gaming is currently authorized to hold an election in order for the voters to decide whether riverboat gaming will remain legal in that parish. Eldorado-Shreveport is located in Caddo Parish, Louisiana, which approved riverboat gaming at the special election held on November 6, 1996.

The Riverboat Act approved the conduct of gaming activities on riverboats, in accordance with the Riverboat Act, on twelve separate waterways in Louisiana. The Riverboat Act allows the Gaming Control Board to issue up to fifteen licenses to operate riverboat gaming projects within the state, with no more than six in any one parish. There are presently fifteen licenses issued and thirteen riverboats currently operating. Two riverboats in other areas of the State are not operational due to recent storms. Pursuant to the Riverboat Act and the regulations promulgated thereunder, each applicant which desired to operate a riverboat casino in Louisiana was required to file a number of separate applications for a Certificate of Preliminary Approval, all necessary gaming licenses, and a Certificate of Final Approval. No final Certificate was issued without all necessary and property certificates from all regulatory agencies, including the U.S. Coast Guard, the U.S. Army Corps of Engineers, local port authorities and local levee authorities.

Eldorado-Shreveport, as operated by Eldorado subsidiaries, received its license and related approvals in July 2005. This license is subject to periodic renewal and is subject to certain general operational conditions. The property was formerly operated and licensed as the Hollywood Casino Shreveport.


Eldorado and certain of its members, officers, and certain of its key personnel were found suitable to operate riverboat gaming in the State of Louisiana. New members, officers, and certain key employees associated with gaming must also be found suitable by the Gaming Control Board prior to working in gaming-related areas. These approvals may be immediately revoked for a number of causes as determined by the Gaming Control Board. The Gaming Control Board may deny any application for a certificate, permit or license for any cause found to be reasonable by the Gaming Control Board. The Gaming Control Board has the authority to require Eldorado to sever its relationships with any persons for any cause deemed reasonable by the Gaming Control Board or for the failure of that person to file necessary applications with the Gaming Control Board.

In addition to an annual fee of $100,000 that is payable for the operation of Eldorado-Shreveport, the State of Louisiana imposes a gaming tax equal to 21.5% of the net gaming proceeds generated by the Louisiana Partnership. Additionally, each local government may charge a boarding fee or admissions tax. Eldorado-Shreveport currently pays admission taxes of 4.75% of its adjusted gross receipts to various local governmental bodies. Any increase in these fees or taxes could have a material and detrimental effect on the operations of Eldorado-Shreveport.

At any time, the Gaming Control Board may investigate and require the finding of suitability of any member, beneficial owner, or officer of Eldorado or of any of its subsidiaries. The Gaming Control Board requires all holders of more than a 5% interest in the license holder (regardless of whether the interest is a voting or non-voting interest) to submit to suitability requirements. Additionally, if a member or beneficial owner who must be found suitable is a corporate, limited liability company, or partnership entity, then the shareholders, members, or partners of the entity must also submit to investigation. The sale or transfer of more than a 5% interest in any interest in a riverboat licensee is subject to Gaming Control Board approval.

Pursuant to the regulations promulgated by the Gaming Control Board, all licensees are required to inform the Gaming Control Board of all debt, credit, financing and loan transactions, including the identity of debt holders and in some cases prior approval from the Gaming Control Board is required prior to entering into any such debt transactions. Eldorado and its subsidiaries that own Eldorado-Shreveport are subject to these regulations. In addition, the Gaming Control Board, in its sole discretion, may require the holders of such debt securities to file applications and obtain suitability certificates from the Gaming Control Board. Additionally, if the Gaming Control Board finds that any holder exercises a material influence over the gaming operations, a suitability finding will be required. If the Gaming Control Board determines that a person is unsuitable to own such a security or to hold such an indebtedness, the Gaming Control Board may propose any action which it determines proper and necessary to protect the public interest, including the suspension or revocation of the license. The Gaming Control Board may also, under the penalty of revocation of license, issue a condition of disqualification naming the person(s) and declaring that such person(s) may not:

 

   

receive dividends or interest in debt or securities;

 

   

exercise directly or through a nominee a right conferred by the securities or indebtedness;

 

   

receive any remuneration from the licensee;

 

   

receive any economic benefit from the licensee; or

 

   

continue in an ownership or economic interest in a licensee or remain as a member, beneficial owner, officer, or partner of a licensee.

Any violation of the Riverboat Act or the rules promulgated by the Gaming Control Board could result in substantial fines, penalties (including a revocation of the license), and criminal actions. Additionally, all licenses and permits issued by the Gaming Control Board are revocable privileges and may be revoked at any time by the Gaming Control Board.


Internal Revenue Service Regulations

The Internal Revenue Service requires operators of casinos located in the United States to file information returns for U.S. citizens, including names and addresses of winners, for keno, bingo and slot machine winnings in excess of stipulated amounts. The Internal Revenue Service also requires operators to withhold taxes on some keno, bingo and slot machine winnings of nonresident aliens. Eldorado is unable to predict the extent to which these requirements, if extended, might impede or otherwise adversely affect its operations.

Regulations adopted by the Financial Crimes Enforcement Network of the Treasury Department and the Nevada Gaming Authorities require the reporting of currency transactions in excess of $10,000 occurring within a gaming day, including identification of the patron by name and social security number. This reporting obligation began in 1985 and may have resulted in the loss of gaming revenues to jurisdictions outside the United States which are exempt from the ambit of these regulations.

Other Laws and Regulations

The sale of alcoholic beverages at Eldorado-Reno, Eldorado-Shreveport and Silver Legacy are subject to licensing, control and regulation by applicable local regulatory agencies. All licenses are revocable and are not transferable. The agencies involved have full power to limit, condition, suspend or revoke any license, and any disciplinary action could, and revocation would, have a material adverse effect upon Eldorado’s operations.

Eldorado-Reno, Eldorado-Shreveport and Silver Legacy are subject to extensive state and local regulations and, on a periodic basis, they must obtain various licenses and permits, including those required to sell alcoholic beverages. Eldorado believes that it and its subsidiaries have obtained all required licenses and permits and that its business, which is conducted through its subsidiaries, is conducted in substantial compliance with applicable laws.

Environmental Matters

As is the case with any owner or operator of real property, Eldorado is subject to a variety of federal, state and local governmental regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. Federal, state and local environmental laws and regulations also impose liability on potentially responsible parties, including the owners or operators of real property, to clean up, or contribute to the cost of cleaning up, sites at which hazardous wastes or materials were disposed of or released. Eldorado does not have environmental liability insurance to cover such events.

In 1998 Silver Legacy received reimbursement and indemnification from Chevron Company USA of $750,000 for petroleum contamination identified on Silver Legacy property. In addition, reimbursement for some of the expenditures has been, and further reimbursement may be, obtained from the State of Nevada Petroleum Fund which has been established to reimburse parties for costs incurred in clean-up of underground storage tank related contamination. In 2005, Resorts demolished two motels it owned across the street from and west of Eldorado-Reno. It was determined that contamination of the soil existed and Resorts sought and received reimbursement from the State of Nevada Petroleum Fund for expenditures of approximately $20,000 incurred in the clean-up relating to the contamination.

Groundwater in the vicinity of the Eldorado-Reno property is also contaminated by a chlorinated solvent known as perchloroethylene or “PCE.” This contaminant is widespread in the Reno/Sparks area. The Central Truckee Meadows Remediation District, encompassing much of the cities of Reno and Sparks, was established pursuant to state legislation to address this contamination. The Central Truckee Meadows Remediation District is managed by Washoe County under the direction of the Nevada Division of Environmental Protection, and is currently conducting investigations and developing a remediation plan. Funding for the Central Truckee Meadows Remediation District is provided through assessments to water customers which are calculated on the basis of water use. The annual assessment to Eldorado-Reno is currently $119, plus an additional sum based on the amount of water used, which in its most recent annual assessment amounted to approximately $12,900. Silver Legacy is required to pay assessments averaging approximately $20,000 annually. It is possible that additional assessments may be made against properties that receive special benefits from the Central Truckee Meadows Remediation District, such as clean-up of contamination affecting a specific parcel. The legislation implementing this program exempts property owners who did not cause or contribute to the contamination from civil and criminal liability for the cost of remediation and any related damages, except to the extent of unpaid assessments. Eldorado does not believe that Eldorado-Reno has contributed to this solvent contamination, however, Eldorado expects that Eldorado-Reno will be required to allow the Central Truckee Meadows Remediation District access to its property for continued investigation.


Asbestos has been determined to be present in the acoustic ceilings of approximately 216 of Eldorado-Reno’s older hotel rooms. Removal of the asbestos will be required only in the event of the demolition of the affected rooms or if the asbestos is otherwise disturbed. At this time, management has no plans to renovate or demolish the affected rooms in a manner that would require removal of the asbestos.

The possibility exists that additional contamination, as yet unknown, may exist at Eldorado-Reno or Silver Legacy. In all cases, however, Resorts believes that any such contamination would have arisen from activities of prior owners or occupants, or from offsite sources and not as a result of any of its actions or operations. Eldorado does not believe that its expenditures for environmental investigations or remediation will have a material adverse effect on its financial condition or results of operations.

In addition to the annual assessments referred to above, Resorts has expended approximately $938,000 in connection with environmental matters from January 1, 1993 through December 31, 2009, of which approximately $4,550 was expended in 2009 and approximately $1,475 was expended in 2008.

Seasonality

Hotel/casino operations in the Reno market are subject to seasonal variation, with the strongest operating results generally occurring in the third quarter of each year and the weakest results generally occurring during the period from November through February. Variations occur when weather conditions make travel to Reno by visitors from northern California and the Pacific Northwest difficult.

Hotel/casino operations in the Shreveport/Bossier City market are subject to slight seasonal variations, with the strongest operating results generally occurring in the first quarter of each year and the weakest results generally occurring during the fourth quarter.

Employees

As of December 31, 2009, there were approximately 1,485 employees at Eldorado-Reno and approximately 1,336 employees at Eldorado-Shreveport. At that date there were approximately 1,800 employees at Silver Legacy. A substantial majority of the employees at each property are nonmanagement personnel. The number of people employed at any time at either of the Reno properties is subject to seasonal fluctuation. None of the employees at Eldorado-Reno, Eldorado-Shreveport or Silver Legacy are covered by a collective bargaining agreement. Eldorado believes that employee relations at Eldorado-Reno, Eldorado-Shreveport and Silver Legacy are excellent.

Factors that May Affect the Company’s Future Results

Certain information included in this report (as well as information included in oral statements or other written statements made or to be made by the Company) contains or may contain forward-looking statements which can be identified by the fact that they do not relate strictly to historical or current facts. The Company has based these forward-looking statements on its current expectations about future events. These forward-looking statements include statements with respect to the Company’s beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance and business, including statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan” or similar expressions.

These statements include information relating to capital spending, financing sources and the effects of regulation (including gaming and tax regulation) and competition.

Any or all of the forward-looking statements in this report and in any other public statements the Company makes may turn out to be wrong. This can occur as a result of inaccurate assumptions or as a consequence of known


or unknown risks and uncertainties. Many factors discussed in this report, such as government regulation and the competitive environment, will be important in determining the Company’s future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements.

The Company undertakes no obligation to update any forward looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in the Company’s subsequent quarterly and annual reports should be consulted. The following discussion of risks, uncertainties and possible inaccurate assumptions relevant to the Company’s business includes factors the Company believes could cause its actual results to differ materially from expected and historical results. Other factors beyond those listed below could also adversely affect the Company.

 

   

As described under “Competition,” in this Item 1, Eldorado-Reno, Silver Legacy and Eldorado-Shreveport operate in very competitive environments. The growth in the number of hotel rooms and/or casino capacity in Reno, Nevada or Shreveport, Louisiana or the spread of legalized gaming in other jurisdictions, including the growth of Native American gaming in northern California and the northwestern United States, could negatively affect future operating results.

 

   

As discussed under “Nevada Regulation and Licensing” and “Louisiana Regulation and Licensing” in this Item 1, Eldorado-Reno’s, Silver Legacy’s and Eldorado-Shreveport’s gaming operations are highly regulated by governmental authorities in Nevada or Louisiana, and Resorts’ future operations may be significantly impacted by this regulation.

 

   

Changes in applicable gaming, tax or other laws or regulations could have a significant effect on the operations of Eldorado-Reno, Silver Legacy and Eldorado-Shreveport.

 

   

Eldorado-Reno’s, Silver Legacy’s and Eldorado-Shreveport’s operations are particularly sensitive to reductions in discretionary consumer spending and are affected by changes in general economic and market conditions nationally, such as the current economic recession, particularly when such conditions impact the respective areas where their operations are conducted and those areas where their customers live, including, in the case of Eldorado-Reno and Silver Legacy, California, and, in the case of Eldorado-Shreveport, Texas.

 

   

Security concerns or terrorist activity, including any future security alerts and/or terrorist attacks similar to those that occurred on September 11, 2001 could adversely affect the operations of Eldorado-Reno, Silver Legacy and Eldorado-Shreveport.

 

   

The highway between Reno and northern California, where a large number of Eldorado-Reno’s and Silver Legacy’s customers reside, experience winter weather conditions from time to time that limit the number of customers who visit Reno during such periods.

 

   

The concentration of all of Eldorado’s operations in Reno and Shreveport poses a risk that is not applicable to more geographically diversified gaming companies. Any economic, weather or other conditions which adversely impact gaming operations in Reno or Shreveport will impact a significant portion of Eldorado’s operations.

 

   

The gaming industry represents a significant source of tax revenues to the state, county and local jurisdictions in which gaming is conducted and, in 2003, Nevada increased the state taxes Eldorado pays. From time to time, various state and federal legislators and officials have proposed a variety of changes in tax laws, or in the administration of those laws, affecting the gaming industry, including a federal gaming tax.

 

   

The interest rate on a portion of Eldorado’s debt is subject to fluctuation based on changes in short-term interest rates. Interest expense could increase as a result of this factor.

 

   

Claims have been brought against Eldorado in various legal proceedings, and additional legal and tax claims will likely arise from time to time. While the Company believes that the ultimate


 

disposition of current matters will not have a material impact on its financial condition or results of operations, it is possible that Eldorado’s cash flows and results of operations could be adversely affected from time to time by the resolution of one or more of these contingencies.

 

   

There is intense competition to attract and retain management and key employees in the gaming industry. The operations at Eldorado-Reno, Silver Legacy or Eldorado-Shreveport could be adversely affected in the event of the inability to recruit or retain key personnel.

 

ITEM 1A. RISK FACTORS.

Not applicable.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable.

 

ITEM 2. PROPERTIES.

The Company

The Company owns no real property. But, as a result of its equity interest in Eldorado, the Company holds an indirect equity interest in Resorts which directly or indirectly, through the Louisiana Partnership, Eldorado-Reno and Silver Legacy Joint Venture, holds interests in real property.

Resorts

Eldorado-Reno is situated on an approximately 159,000 square foot parcel at 345 North Virginia Street, Reno, Nevada. Resorts owns the entire parcel, except for approximately 30,000 square feet which is leased from C, S and Y Associates, a general partnership of which Donald Carano is a general partner. The lease expires on June 30, 2027. Annual rent is equal to the greater of (i) $400,000 and (ii) an amount based on a decreasing percentage of Eldorado-Reno’s gross gaming revenues ranging from 3.0% of the first $6.5 million of gross gaming revenues to 0.1% of gross gaming revenues in excess of $75.0 million. Rent in 2009 totaled approximately $605,000, compared with approximately $624,000 in 2008. Substantially, all of Resorts’ real property and the related personal property (including Eldorado-Reno, a 31,000 square foot parcel of property across the street from and west of Eldorado-Reno and two adjacent parcels totaling an additional 18,687 square feet) is subject to encumbrances securing the repayment of Resorts’ senior secured revolving credit facility (as amended, the “Resorts Credit Facility”), which as of December 31, 2009 provided for borrowing from time to time of up to $16 million. There was no indebtedness outstanding on the Resorts’ Credit Facility as of December 31, 2009.

Silver Legacy Joint Venture

Silver Legacy is owned by Silver Legacy Joint Venture, a Nevada general partnership of which a 96%-owned subsidiary of Resorts is a 50% partner. Silver Legacy is situated on two neighboring parcels of land, located at 407 North Virginia Street and 411 North Sierra Street in Reno, Nevada. Silver Legacy Joint Venture owns both parcels, comprising 118,167 and 119,927 square feet, respectively. As of December 31, 2009 both parcels and the improvements located thereon were encumbered by liens securing the indebtedness incurred under Silver Legacy Joint Venture’s senior credit facility (the “Silver Legacy Credit Facility”), which expired on March 30, 2010, and the indebtedness evidenced by the 10-1/8% mortgage notes due 2012 co-issued by Silver Legacy Joint Venture and its wholly owned subsidiary, Silver Legacy Capital Corp. (the “Silver Legacy Notes”). At December 31, 2009, the aggregate principal amount of the indebtedness secured by these liens totaled $142.7 million.


Louisiana Partnership

The Louisiana Partnership, a Louisiana general partnership in which two wholly owned subsidiaries of Resorts own all of the partnership interest (other than certain rights associated with the “Preferred Capital Contribution Amount” and “Preferred Return” (as these terms are defined in the partnership agreement)), leases approximately nine acres of land in Shreveport, Louisiana on which Eldorado-Shreveport was constructed. Eldorado-Shreveport consists of a 403-room, all-suite hotel and a three-level riverboat dockside casino that contains approximately 59,000 square feet of space. Eldorado-Shreveport’s centerpiece is a 170,000 square foot land-based pavilion housing restaurants and entertainment amenities. An 85-foot wide seamless entrance connects the casino to the land-based pavilion on all three levels resulting in the feel of a land-based casino. The Louisiana Partnership also leases other properties in the Shreveport area for office space, employee parking and storage. At December 31, 2009, substantially all of the Louisiana Partnership’s assets, including Eldorado-Shreveport, were subject to liens securing the repayment of $155,616,000 principal amount of 10% notes due 2012 co-issued by the Louisiana partnership and a wholly owned subsidiary of the Louisiana Partnership (the “Shreveport Notes”), including $31,133,250 principal amount of Shreveport Notes acquired by Resorts in consideration of its issuance to the Company of a new 14.47% interest in Resorts on December 14, 2007.

 

ITEM 3. LEGAL PROCEEDINGS.

As of the date of this report, the Company is not a party to any pending legal proceeding and to its knowledge, no action, suit or proceeding against it has been threatened by any person.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

Part II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

No established public trading market exists for the Company’s membership units. There are no plans, proposals, arrangements or understandings with any person with regard to the development of a trading market in any of the Company’s membership units.

The only classes of equity securities of the Company currently outstanding are its Class A Units, which is the Company’s only class of voting securities, and its Class B Units. As of the date of this report, VoteCo is the holder of record of one Class A Unit, which is the only Class A Unit issued and outstanding, and InvestCo is the only holder of record of the Company’s 9,999 Class B Units. The Company did not issue any equity securities during 2009, nor did the Company or any “affiliated purchaser” (as defined in Rule 10b-18 (a)(3) under the Securities Exchange Act of 1934) purchase any equity securities of the Company during 2009.

The Company has not in the past paid, and does not expect to pay in the foreseeable future, any dividends or other distributions with respect to its membership units.

Reference is made to the information appearing under the caption “Equity Compensation Plans” in Item 11 of this report, which information is incorporated in this Item 5 by this reference.

 

ITEM 6. SELECTED FINANCIAL DATA.

Not applicable.


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

THE COMPANY

Overview

The following management’s discussion and analysis relates to the Company’s financial statements and notes thereto included in this report and incorporated by reference in Item 8 hereof. As used in this management’s discussion and analysis, reference to the Company’s interest in Eldorado refers to the Company’s 17.0359% interest in Resorts, acquired on December 14, 2007, until such interest was exchanged, effective April 1, 2009, for a 17.0359% interest in Resorts’ new holding company, Eldorado HoldCo LLC, after which such references are to the 17.0359% interest in Eldorado.

The Company and its subsidiaries were formed as legal entities on January 8, 2007 for the primary purpose of holding equity, directly or indirectly through affiliates, in one or more entities related to the gaming industry, and to exercise the rights, and manage the distributions received, in connection with those holdings. In 2007, the Company incurred costs (primarily professional fees) in connection with a purchase agreement pursuant to which its subsidiary, NGA AcquisitionCo, LLC, acquired a 17.0359% interest in Resorts (see Note 5 to the Company’s Consolidated Financial Statements incorporated by reference in Item 8 hereof), including applications by the Company and certain of its subsidiaries and beneficial owners for licensure with gaming regulatory authorities in Nevada and Louisiana.

The financial statements presented reflect the activity of the Company’s only assets, the investments associated with Resorts, which, from August 1, 2006 (inception) until the acquisition of the interest in Resorts on December 14, 2007, consisted principally of bonds and preferred securities, which are reflected as of the approximate fair value since the date of the Letter of Intent between Resorts and Newport Global in November 2006, and, since the acquisition of the interest in Resorts on December 14, 2007, consists of the Company’s interest in Eldorado. The related statements of operations reflect the interest and dividends earned on the aforementioned bonds and preferred securities since August 2006 and any direct expenses associated with the Resorts transaction.

The Company has had no revenue generating business since inception and its current business plan consists primarily of its 17.0359% equity interest in Eldorado.

Year Ended December 31, 2009 Versus Year Ended December 31, 2008

For the twelve months ended December 31, 2009, the Company’s share of the net loss on Eldorado was approximately $0.3 million compared to a net loss of $4.7 million for the same period last year. The reduction in net loss was attributable to the significant reduction in the net loss at Eldorado. Improvement in the net loss at Eldorado was largely attributable to the lack of acquisition termination charges and impairment charges in 2009 when compared to the same period in 2008. The acquisition charges experienced during 2008 were the result of Eldorado’s pursuit of the Indian gaming property which was ultimately cancelled and expensed. The impairment charge for Eldorado occurred as a result of its write down of its investment interest in the Silver Legacy property.

Expenses during 2009 increased approximately $0.1 million when compared to the same prior year period as expenses were impacted by a refund of previously expensed gaming application deposits and the reversal in the Texas Franchise Tax accrual for 2006 and 2007, both of which occurred during 2008. No such offsets to expenses occurred during 2009.

The income tax expense for 2009 was $2.5 million compared to the benefit for 2008 of approximately $3.1. The significant change between 2009 and 2008 occurred as a result of having the expected realization of the deferred tax asset fall below the more-likely-than-not threshold. Consequently, the Company booked a full valuation allowance on its deferred tax asset in 2009.

The net loss for the year ended December 31, 2009 was $3.1 million compared to a net loss of $5.4 million for the year ended December 31, 2008. The improvement was largely attributable to the lack of the $3.6 million impairment in the carrying value in Investments in Resorts and a lower net loss on Resorts during 2009 when compared to 2008, all of which was partially offset by the change in the provision related to income tax.

Year Ended December 31, 2008 Versus Year Ended December 31, 2007

As a result of the Company’s exchange of an aggregate of $38,045,363 original principal amount of first mortgage bonds due 2012 (the “Shreveport Bonds”) co-issued by Eldorado Casino Shreveport Joint Venture (the “Louisiana Partnership”) and Shreveport Capital Corporation, a wholly owned subsidiary of the Louisiana Partnership, in exchange for a 17.0359% interest in Resorts on December 14, 2007, the Company did not generate interest income for the year ended December 31, 2008 compared to $3.5 million for the year ended December 31, 2007 when the Company held the Shreveport Bonds for approximately 11.5 months. Similarly, the Company did not receive dividend income nor did it recognize any gain on marketable securities for 2008 compared to $0.06 million of dividend income and an approximate $2.0 million gain on marketable securities for the year ended 2007. The Company’s net equity loss on Resorts increased to $4.7 million as a result of a higher net loss for the year 2008 at Resorts compared to $0.06 million in 2007. Another contributing factor to the higher loss experienced in 2008 was the impact of the full year attribution in 2008 versus approximately 17 days in 2007.

Expenses decreased approximately $1.0 million for the year ended December 31, 2008 when compared with the prior year as the Company incurred the majority of the costs associated with the acquisition of its ownership interest in Resorts during 2007.

The income tax benefit for 2008 was approximately $3.1 million for 2008 versus a provision for income taxes of approximately $0.7 million for 2007. During 2008, Eldorado reported a net loss and the Company recognized the tax benefit of the loss. A portion of the benefit was carried back to 2007 while the remainder was booked as a deferred tax asset.

The net loss for the year ended December 31, 2008 was $5.4 million compared to net income of $3.7 million for the year ended December 31, 2007. The decline was largely attributable to the combination of reduced interest income, reduced dividend income, the elimination of the gain on marketable securities, a $3.6 million impairment in the carrying value in Investments in Resorts and a higher net loss on Resorts during 2008 when compared to 2007. The decline in income more than offset the lower expenses during the comparative periods.


Liquidity and Capital Resources

During the year ended December 31, 2009, the Company incurred costs of approximately $0.2 million associated with the Company’s ownership of its interest in Eldorado. These costs were funded by Newport. During the year ended December 31, 2008, the Company incurred costs associated with its ownership interest in Eldorado totaling approximately $0.1 million. These costs were also funded by Newport on behalf of NGA HoldCo.

For the year ended December 31, 2009, the Company incurred costs of approximately $0.1 million associated with maintaining its gaming and related licenses in Nevada and Louisiana. For the year ended December 31, 2008, the Company incurred costs associated with maintaining these gaming and related licenses totaling $0.1 million. These costs were also funded by Newport on behalf of NGA HoldCo.

For 2010, the Company expects approximately $0.250 million in costs associated with maintaining its gaming and related licenses in Nevada and Louisiana. The costs are to be funded by Newport on behalf of NGA HoldCo. Thus, the Company has the resources to fund its operations and commitments for the next year.

Critical Accounting Estimates and Policies

Investment in Resorts

The Company accounts for its 17.0359% investment in Eldorado using the equity method of accounting in accordance authoritative guidance regarding fair value measurement. The Company considers whether the fair value of its equity method investment has declined below its carrying value whenever adverse events or changes in circumstances indicate that the recorded value may not be recoverable. If the Company considers any such decline to be other than temporary, then a write-down would be recorded to estimated fair value. Evidence of a loss in value that may be other than temporary might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of our investment or inability of Eldorado to sustain an earnings capacity that would justify the carrying amount of the investment. In evaluating whether the loss in value is other than temporary, we consider: 1) the length of time and the extent to which the fair value has been less than cost; 2) the financial condition and near-term prospects of Eldorado, including any specific events which may influence the operations of Eldorado; 3) our intent and ability to retain our investment in Eldorado for a period of time sufficient to allow for any anticipated recovery in fair value; 4) the condition and trend of the economic cycle; 5) Eldorado’s financial performance and projections; 6) trends in the general market; and 7) Eldorado’s capital strength and liquidity.

In determining whether the fair value of our investment in Eldorado was less than our carrying value, we used a discounted cash flow model as our principal technique. Our model incorporated an estimated weighted-average cost of capital that a market participant would use in evaluating the investment in a purchase transaction. The estimated weighted-average cost of capital was based on the risk free interest rate and other factors such as current risk premiums. We use the discounted cash flow model as it provides greater detail and opportunity to reflect specific facts, circumstances and economic conditions for our investment. Comparable business transactions are often limited in number, the information can be dated, and often require significant adjustments due to differences in the size of the business, markets served and other factors. We therefore believe that in our circumstance, this made comparisons to business transactions less reliable than the discounted cash flows model. However, we do consider comparable business transactions as a reasonableness test of our principal technique.

In performing this impairment test, we take steps to ensure that appropriate and reasonable cash flow projections and assumptions are used. We also perform sensitivity analyses on the key assumptions used, including the weighted-average cost of capital. Based upon the assumptions used by management, we calculated a discount rate of 11%.

Below is a sensitivity analysis regarding the aggregate fair value of Eldorado to changes in the discount rate as of December 31, 2009, the date of our analysis (in thousands):

 

Approximate decrease in fair value from a 100 basis point increase

   (3,008

Approximate increase in fair value from a 100 basis point decrease

   3,167   

The Company did not record any impairment for 2009 as the estimated fair value exceeded the carrying value. Nevertheless, in 2008 the Company assessed its value for carrying the asset as a result of market conditions and determined that, as a result of the Company’s impairment test on its investment, a non-cash impairment charge of $3.6 million in 2008 relating solely to its investment in Eldorado was necessary. The impairment charge resulted from factors impacted by current economic conditions, including: 1) lower marked valuation multiples for gaming assets; 2) higher discount rates resulting from the turmoil in the credit and equity markets; 3) current cash flow forecasts for Eldorado.


Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial


operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes. For the year ended 2009, the Company determined that it would not be able to realize its deferred income tax assets in the future. As a result, the Company booked a valuation allowance of $2.6 million.

In July 2006, the FASB issued Financial Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. This interpretation also provides guidance on measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, upon inception. There was no unrecognized tax recorded as a result of the implementation. Nevertheless, in the event the Company were to incur interest and penalties related to unrecognized tax benefits, the Company would recognize such interest and penalties related to such unrecognized tax benefits within the income tax expense line in the NGA HoldCo accompanying consolidated income statements. Moreover, such accrued interest and penalties would be included within the related tax liability line in the accompanying balance sheet were they to exist.

Recently Issued Accounting Standards

The Partnership adopted various accounting standards during 2009, none of which had a material effect on its consolidated financial statements.

In addition, certain amendments to Accounting Standards Codification (“ASC”) Topic 810 “Consolidation” become effective for us beginning January 1, 2010. Such amendments include changes to the quantitative approach to determine the primary beneficiary of a variable interest entity (“VIE”). An enterprise must determine if its variable interest or interests give it a controlling financial interest in a VIE by evaluating whether 1) the enterprise has the power to direct activities of the VIE that have a significant effect on economic performance, and 2) the enterprise has an obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The amendments to ASC 810 also require ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE. The adoption of these amendments did not have a material effect on the Partnership’s consolidated financial statements.

Off Balance Sheet Arrangements

The Company currently has no off-balance sheet arrangements.

 


ELDORADO HOLDCO LLC

Eldorado’s financial statements are not consolidated with the financial statements of the Company and are included herein, along with the following discussion, to assist investors in understanding the Company.

The terms “we”, “us” and “our”, as used in the following management’s discussion and analysis refer to Eldorado HoldCo LLC and its consolidated subsidiaries except where the context otherwise requires. When we use the term “Resorts” it refers only to Eldorado Resorts LLC except where the context otherwise requires. These terms, as used in this management’s discussion and analysis, do not include our unconsolidated joint ventures unless the context otherwise requires.

Overview

Effective April 1, 2009, Eldorado HoldCo LLC, a Nevada limited liability company (“Eldorado”), was formed to be the holding company for Eldorado Resorts LLC (“Resorts”), a wholly owned subsidiary of Eldorado. The members of Resorts contributed all their respective membership interests in Resorts to Eldorado in return for proportionate membership interests in Eldorado. Other than the membership interests in Resorts, Eldorado has no assets, liabilities and conducts no operations.

Resorts, which was formed in June 1996, owns and operates the Eldorado Hotel & Casino (the “Eldorado-Reno”), a premier hotel/casino and entertainment facility in Reno, Nevada and manages Eldorado Casino Shreveport, an all suite art deco-style hotel and a tri-level riverboat dockside casino complex situated on the Red River in Shreveport, Louisiana (the “Eldorado-Shreveport”). Resorts’ 96% owned subsidiary, Eldorado Limited Liability Company, a Nevada limited liability company (“ELLC”), owns a 50% interest in a general partnership (the “Silver Legacy Joint Venture”) which owns the Silver Legacy Resort Casino (the “Silver Legacy”), a major, themed hotel/casino located adjacent to Eldorado-Reno. Resorts also owns a 21.25% interest in Tamarack, a small casino in south Reno.

Eldorado Capital Corp., a wholly owned subsidiary of Resorts (“Eldorado Capital”) was established for the purpose of serving as a co-issuer of 10 1 / 2 % Senior Subordinated Notes due 2006 issued by Resorts and Eldorado Capital (the “10 1 / 2 % Notes”). Eldorado Capital is also a co-issuer of 9% senior notes due 2014 issued by Resorts and Eldorado Capital on April 20, 2004 (the “9% Notes”). Eldorado Capital holds no significant assets and conducts no business activity.

Two Nevada limited liability companies wholly owned by Resorts, Eldorado Shreveport #1, LLC (“ES#1”) and Eldorado Shreveport #2, LLC (“ES#2” and, collectively with ES#1, the “Investors”), Resorts and Hollywood Casino Shreveport, a then unaffiliated Louisiana general partnership (the “Louisiana Partnership”), entered into an Investment Agreement dated as of October 18, 2004 (the “Investment Agreement”) pursuant to which the Investors agreed to acquire a controlling general partnership interest (representing all of the voting interests) in the Louisiana Partnership, which owns and operates Eldorado-Shreveport. Pursuant to a Joint Plan of Debtors and Bondholders Committee (the “Plan”) confirmed by the United States Bankruptcy Court, Western District of Louisiana, Shreveport Division (Case No. 04-13259), on July 22, 2005, ES#1 and ES#2 acquired 74% and 1%, respectively, of the partnership interests of the Louisiana Partnership, representing all of the voting partnership interests of the Louisiana Partnership, for $5.0 million in cash. On the same date, ES#1, the managing general partner of the Louisiana Partnership, also acquired 55,006 shares of the common stock of Shreveport Gaming Holdings, Inc., an unaffiliated Delaware corporation which then owned a 25% non-voting partnership interest in the Louisiana


Partnership (“SGH”), for $1,266,667 and exercised its option to convert the shares into (i) an additional 1.4% non-voting partnership interest in the Louisiana Partnership and (ii) the right to distributions by the Louisiana Partnership in respect of $1.12 million of the “Preferred Capital Contribution Amount” and the “Preferred Return” in respect of such Preferred Capital Contribution Amount (each as defined in the Louisiana Partnership’s Fifth Amended and Restated Partnership Agreement). As a result of the closing on March 20, 2008 of the Louisiana Partnership’s call of the other 23.6% partnership interest held by an unaffiliated third party, ES#1 and ES#2 now own all of the partnership interests in the Louisiana Partnership other than the selling partners’ rights relating to its “Preferred Capital Contribution Amount” and its “Preferred Return” (as those terms are defined in the partnership agreement). Pursuant to the Plan, on July 21, 2005, the Louisiana Partnership and its wholly owned subsidiary, Shreveport Capital Corporation, a Louisiana corporation (“Shreveport Capital” and collectively with the Louisiana Partnership, the “Shreveport Issuers”) co-issued $140 million aggregate principal amount of 10% First Mortgage Notes due 2012 (the “New Shreveport Notes”) and the Shreveport Issuers’ previously outstanding $150 million aggregate principal amount of 13% First Mortgage Notes due 2006 with Contingent Interest and $39 million aggregate principal amount of 13% Senior Secured Notes due 2006 with Contingent Interest were cancelled. Resorts acquired ES#1 and ES#2 from Donald L. Carano and Gary L. Carano for $2.0 million, representing their cost, pursuant to a membership units option agreement dated September 28, 2004, by and among Donald L. Carano, Gary L. Carano and Resorts. The membership interests in ES#1 and ES#2 were originally held by Donald L. Carano and Gary L. Carano because it was anticipated that the Shreveport transactions would be consummated prior to Resorts’ receipt of the requisite approvals it would need from the Louisiana Gaming Control Board in order to acquire an interest in the Louisiana Partnership. As of December 31, 2009, Eldorado’s investment in ES#1 and ES#2, including the consideration paid for the acquisition of the membership interests in these entities and additional capital contributions, totaled $6.3 million.

Eldorado accounts for its investment in the Silver Legacy Joint Venture and Tamarack, utilizing the equity method of accounting. Resorts owned an 18% interest in MindPlay LLC (an entity which sold all of its assets in February 2004 and was dissolved in March 2008). Eldorado’s consolidated net (loss) income includes its proportional share of the net (loss) income before taxes of the Silver Legacy Joint Venture, Tamarack, and MindPlay.

General

The following management discussion and analysis relates to Eldorado’s consolidated financial statements and the notes thereto included elsewhere in this annual report. All intercompany accounts and transactions have been eliminated in consolidation.

Critical Accounting Policies

Our discussion and analysis of our results of operations and financial condition that follows are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. Because of the uncertainty inherent in these matters, there is no assurance that actual results will not differ from our estimates used in applying the following critical accounting policies.

The preparation of the financial statements included in this report require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. Because of the uncertainty inherent in these matters, there is no assurance that actual results will not differ from our estimates used in applying the following critical accounting policies.


Accounting for Unconsolidated Affiliates

The consolidated financial statements include the accounts of Eldorado and its subsidiaries. Investments in unconsolidated affiliates which are 50% or less owned and do not meet the consolidation criteria of Accounting Codification Standards (“ASC”) Topic 810, “Consolidation” (“ASC 810”) are accounted for under the equity method. Certain amendments of ASC 810 became effective for us beginning January 1, 2010. Such amendments include changes to the quantitative approach to determine the primary beneficiary of a variable interest entity (“VIE”). An enterprise must determine if its variable interest or interests give it a controlling financial interest in a VIE by evaluating whether 1) the enterprise has the power to direct activities of the VIE that have a significant effect on economic performance, and 2) the enterprise has an obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The amendments to ASC 810 also require ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE. The adoption of these amendments did not have a material effect on its consolidated financial statements.

Eldorado considers whether the fair values of any of its equity method investments have declined below their carrying value whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If Eldorado considers any such decline to be other than temporary, then a write-down would be recorded to estimated fair value. Estimated fair value is determined using a discounted cash flow analysis based on estimated future results of the investee and market indicators of terminal year capitalization rate. As a result of a triggering event, Eldorado tested its investments for impairment in 2008. Eldorado recognized a non-cash impairment charge of $16.55 million in 2008 relating solely to its investment in the Silver Legacy Joint Venture. The impairment charge resulted from factors impacted by economic conditions, including: 1) lower market valuation multiples for gaming assets; 2) higher discount rates resulting from turmoil in the credit and equity markets; and 3) cash flow forecasts for the Silver Legacy Joint Venture. There was no impairment in 2009.

Property and Equipment and Other Long-Lived Assets

Property and equipment is recorded at cost and is depreciated over its estimated useful life or lease term. Judgments are made in determining estimated useful lives and salvage values of these assets. The accuracy of these estimates affects the amount of depreciation expense recognized in our financial results and whether we have a gain or loss on the disposal of assets. We review depreciation estimates and methods as new events occur, more experience is acquired, and additional information is obtained that would possibly change our current estimates. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We use an estimate of undiscounted future cash flows produced by the asset as compared to its carrying value to determine whether an impairment exists. If it is determined that the asset is impaired based on expected future cash flows, a loss, measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset, would be recognized. At December 31, 2009 and 2008, no events or changes in circumstances indicated that the carrying values of our long-lived assets may not be recoverable.

Eldorado’s intangible assets include our gaming license and customer relationships. We have assigned a value of $19.7 million to our gaming license to operate in Louisiana. Our operations are dependent on the Louisiana Partnership’s continued licensing by the Louisiana Gaming Control Board. In assessing the recoverability of the carrying value of our license, we must make assumptions regarding future cash flows, gaming taxes and the costs of continued licensing. If these estimates or the related assumptions change in the future, we may be required to record impairment losses with respect to this asset. Such impairment loss would be recognized as a non-cash component of operating income.

Eldorado has assigned a value of $2.0 million to its customer relationships in Louisiana, which are being amortized on a straight-line basis over a five-year period. In assessing the recoverability of the carrying value of our customer relationships, we must make assumptions regarding future cash flows and the pattern of customer visits. If these estimates or the related assumptions change in the future, we may be required to record impairment losses with respect to this asset. Such impairment loss would be recognized as a non-cash component of operating income.


Reserve for Uncollectible Accounts Receivable

We reserve an estimated amount for receivables that may not be collected. Methodologies for estimating bad debt reserves range from specific reserves to various percentages applied to aged receivables. Historical collection rates are considered, as are customer relationships, in determining specific reserves. As with many estimates, management must make judgments about potential actions by third parties in establishing and evaluating our reserves for bad debts.

Self-Insurance Reserves

Eldorado-Reno and Eldorado-Shreveport are self insured for their group health and workmen’s compensation programs. We utilize historical claims information provided by our third party administrators to make estimates for known pending claims as well as claims that have been incurred, but not reported as of the balance sheet date. In order to mitigate our potential exposure, we have an individual claim stop loss policy on our group health claims and an aggregate stop loss policy on our workmen’s compensation claims. If we become aware of significant claims or material changes affecting our estimates, we would increase our reserves in the period in which we made such a determination and record the additional expense.

Players’ Club Point Liability

Our players’ club allows customers to earn “points” based on the volume of their gaming activity. Under the terms of our program, these points are redeemable for certain complimentary services, at their discretion, including rooms, food, beverage, retail and entertainment tickets. We accrue the expense for unredeemed complimentaries, after consideration of estimated breakage, as they are earned. The value of the cost to provide the complimentaries is expensed as earned and is included in casino expense on our consolidated income statement. To arrive at the estimated cost associated with our players’ club, estimates and assumptions are made regarding incremental marginal costs of the benefits, breakage rates and the mix of goods and services for which the points will be redeemed. We use historical data to assist in the determination of estimated accruals.

Litigation, Claims and Assessments

We utilize estimates for litigation, claims and assessments. These estimates are based on our knowledge and experience regarding current and past events, as well as assumptions about future events. If our assessment of such a matter should change, we may have to change the estimates, which may have an adverse effect on our financial position, results of operations or cash flows. Actual results could differ from these estimates.

Factors Impacting Operating Trends

Eldorado’s marketing strategy is designed to take advantage of our proximity to the large population base of the greater San Francisco, Sacramento and Dallas/Ft. Worth metropolitan areas and other major markets by targeting the local day-trip market and by utilizing our hotel rooms to expand our patron mix to include overnight visitors. We also coordinate our restaurant and entertainment promotions to encourage overnight stays. By utilizing the data in our casino information systems, we are able to identify our premium patrons, encourage their participation in our casino player’s card program and design promotions and special events to target this market.

Economic Impact

Throughout 2008 and 2009, volatility and disruption in the financial markets, escalating unemployment and an unstable housing market contributed to a weakening national economy, which negatively impacted northern Nevada and northern California. This weakening in the economy has resulted in declines in discretionary spending which has negatively impacted the results of operations of Eldorado-Reno and it is uncertain if these conditions will improve in the near term. In response to the difficult economic environment, management has addressed, and continues to address, areas of Eldorado-Reno and Eldorado-Shreveport for potential cost savings and revenue generations.


Expansion of Native American Gaming

A significant portion of Eldorado’s revenues and operating income are generated from patrons who are residents of northern California and northern Texas, and as such, our operations have been adversely impacted by the growth in Native American gaming in northern California and, to a lesser extent, in Oklahoma. In addition to existing gaming facilities, several Native American tribes have announced that they are in the process of developing or are considering establishing large-scale gaming facilities in northern California. Management believes the greatest impact from Native American gaming to Eldorado’s customer base is to its day-trippers, those patrons whose visit is for one day and does not include an overnight stay. These customers are typically not tracked players, as they tend not to be as loyal a customer as those who visit for more than one day at a time.

Most Native American tribes in California currently may operate up to 2,000 slot machines, and up to two gaming facilities may be operated on any one reservation. However, under action taken by the National Indian Gaming Commission, gaming devices similar in appearance to slot machines, but which are deemed to be technological enhancements to bingo style gaming, are not subject to such limits and may be used by tribes without state permission. The number of slot machines the tribes are allowed to operate may increase as a result of any new or amended compacts the tribes may enter into with the State of California that receive the requisite approvals, such as has been the case with respect to a number of new or amended compacts that have been executed and approved.

In April 2007, the California Senate approved amendments to the compacts of five Native American tribes. In June 2007, the California Assembly approved four of these five amendments which increased the number of slot machines permitted to be operated by two of the four tribes from 2,000 to 5,000 each and increased the number that may be operated by each of the other two tribes from 2,000 to 7,500. In February 2008, California voters approved these four increases with their approval of gaming referendums on their statewide ballot. Management believes that the increase in the number of slot machines permitted to be operated by these four tribes will not significantly impact Eldorado-Reno’s and Silver Legacy’s operations since the casinos operated by those tribes are located in southern California.

In September 2008, the Governor of California signed a bill, which was subsequently approved by the Bureau of Indian Affairs, ratifying an amendment to the compact of a tribe located in northern California to increase from 2,000 to 5,000 the number of slot machines that may be operated by this tribe. This tribe opened a casino located 20 miles east of Sacramento in December 2008 that currently offers 2,100 slot machines. The amendment of the compact of this tribe, and new compacts or modifications to existing compacts of other tribes that currently operate or may operate casinos in central or northern California to provide similar increases to the number of slot machines permitted to be operated, could have a material adverse impact on our operations, depending on the number of such tribes securing new or modified compacts, the number of additional machines permitted and the locations of the properties utilizing the additional machines.

Based on a United States District Court ruling and court order in October 2009, the California Gambling Control Commission issued licenses for a total of approximately 3,500 additional slot machines to 11 tribes. Of these licenses, a majority were issued to tribes in northern and central California. This new issuance of slot machine licenses resulted from the Ninth Circuit Court of Appeal’s rejection of the state’s request to delay a federal judge’s ruling regarding the legality of the imposed limitation on the number of slot machines tribes that signed gaming compacts in 1999 were allowed to operate. The Governor of California has appealed the judge’s decision and the case is expected to be heard in 2010.

We believe the continued growth of Native American gaming establishments, including the addition of hotel rooms and other amenities, could continue to place additional competitive pressure on our operations. While we cannot predict the extent of any future impact, it could be significant.

Although casino gaming is currently not permitted in Texas, the Texas legislature has from time to time considered proposals to authorize casino gaming. In July 2003, the Chickasaw Nation opened WinStar Casinos, a Las Vegas-style gaming facility located in Oklahoma approximately 60 miles north of the Dallas/Fort Worth area. In December 2008, the WinStar Casino completed the expansion of its casino space to a total of 519,000 square feet with more than 5,800 electronic gaming devices, numerous table games, 46 poker tables, an 800-seat bingo hall and a 2,500-seat event center. In September 2009, the WinStar Casino opened a 395-room hotel with an organic spa. The Choctaw Nation operates a casino and hotel facility in Durant, Oklahoma, approximately 75 miles north of the


Dallas/Fort Worth area. The Choctaw facility, which includes a 101-room hotel and other amenities, currently has approximately 1,600 electronic gaming devices, 24 table games and 14 poker tables. A major expansion of the facility opened in February 2010 to include a 330-room hotel, several new restaurants, a food court and a spa. The casino space was expanded to approximately 3,067 electronic gaming devices, 40 table games and 30 poker tables. Although gaming in Oklahoma is limited by law to Class II-type games, which games have previously been technologically incapable of offering a similar entertainment experience to our Class III-type games, recent innovations have allowed the Class II-type product to compete much more effectively than in the past. In November 2004, voters in Oklahoma approved several ballot initiatives which allow (1) Class II-type games at three Oklahoma racetracks, the closest of which is approximately 200 miles from the Dallas/Fort Worth area; (2) several new electronic gaming devices, including video poker, that are defined as “games of skill” at native-American casinos; and (3) certain “player-pooled” table games such as poker and blackjack at native-American casinos. Since Eldorado-Shreveport draws a significant number of its customers from the Dallas/Fort Worth area, but is located approximately 190 miles from that area, we believe we will continue to face increased competition from the WinStar and Choctaw casinos and similar types of facilities.

Severe Weather

Eldorado-Reno’s operations are subject to seasonal variation, with the weakest results generally occurring during the winter months. Weather conditions were not out of the ordinary in 2009. The Reno area and the nearby mountain passes experienced an especially large amount of snowfall in the first quarter of 2008, which negatively impacted business levels.

Major Bowling Tournament in the Reno Market

The National Bowling Stadium, located one block from Eldorado-Reno, is one of the largest bowling complexes in North America and has been selected to host multi-month tournaments in Reno two of every three years through 2018. The United States Bowling Congress (“USBC”) has reached an agreement to bring the 2011 USBC Open Tournament to the National Bowling Stadium, a year that was previously scheduled to be an off year for Reno. Historically, these bowling tournaments have attracted a significant number of visitors to the Reno market and have benefited the downtown area. The absence of a major bowling tournament in 2008 had a negative impact on operations in the first half of 2008. The USBC Women’s Tournament returned to the Reno market in April 2009 and brought approximately 40,500 bowlers during the second quarter of 2009. The USBC Open Tournament, which brought approximately 80,000 bowlers to the Reno market during the tournament period in 2007 prior to the current economic downturn, returns to the Reno market in 2010.

Other Factors Affecting Results of Operations

Our operating results are highly dependent on the volume of customers visiting and staying at our resorts. Key volume indicators include table games drop and slot handle, which refer to amounts wagered by our customers. The amount of volume we retain, which is not fully controllable by us, is recognized as casino revenues and is referred to as our win or hold. In addition, hotel occupancy and price per room designated by average daily rate (“ADR”) are key indicators for our hotel business.

Summary Financial Results

Net Revenues

The following table highlights the results of our operations (dollars in thousands) for the periods indicated:

 

     Year ended
December 31,

2009
    Percent
Change
    Year ended
December 31,

2008
    Percent
Change
    Year ended
December 31,
2007
 

Net revenues

   $ 271,899      (4.5 )%    $ 284,822      (0.1 )%    $ 285,136   

Operating expenses

     249,856      (5.2 )%      263,698      1.5     259,726   

Equity in (loss) income of unconsolidated affiliates

     (1,218 )   63.5     (3,341 )   (159.6 )%      5,610   

Loss on sale/disposition of long-lived assets and property and equipment

     (1,102   (282.6 )%      (288   87.9     (2,387

Acquisition termination charges

     —        —          (6,840   —          —     

Impairment in investment in joint venture

     —        —          (16,550   —          —     

Operating income (loss)

     19,723      434.6     (5,895 )   (120.6 )%      28,633   

Net (loss) income

     (1,438 )   95.2     (27,857   (724.9 )%      4,458   

Less net loss (income) attributable to noncontrolling interests

     90      (88.7 )%      798      (592.6 )%      (162

Net (loss) income attributable to company

   $ (1,348   (95.0 )%    $ (27,059   (729.9 )%    $ 4,296   


Net Revenues. Eldorado had a decrease in net revenues for the year ended December 31, 2009 compared to the year ended December 31, 2008. Eldorado-Reno had a decrease in net revenues due to decreases in nearly all revenue centers, but primarily in the casino. Management believes these declines in revenues were attributable to factors impacting Reno’s gaming and tourism market as a whole, including the weak national economy and troubled housing market, specifically within its feeder markets in northern California, the continued increase in competition generated by growth in Native American gaming, and declines in citywide convention room nights. Eldorado-Shreveport’s net revenues increased for the year ended December 31, 2009 compared to 2008 due to increases in all revenue segments except for a slight decrease in hotel revenue. Both the implementation of new marketing programs and capital improvements made to the property (including the addition of new slot machines) contributed to the increase in customer patronage in 2009.

Eldorado had a slight decrease in net revenues for the year ended December 31, 2008 compared to the year ended December 31, 2007. While casino revenues increased in 2008, all other revenue segments decreased compared to 2007. Eldorado-Reno had decreases in all revenue centers in 2008. Management believes Reno’s tourism market was negatively impacted by the aforementioned difficult economic environment faced by its customers, especially in its primary feeder markets in northern California, along with record high gasoline prices that our customers experienced in the second quarter of 2008 which negatively affected drive-in visitor traffic and the continued increase in competition generated by growth in Native American gaming. In 2007, we experienced escalated visitor traffic generated in downtown Reno by the previously discussed USBC Open Tournament, which began in mid-February and continued through June of 2007. Eldorado-Shreveport’s net revenues increased for the year ended December 31, 2008 compared to 2007 due to increases in all revenue segments except for a slight decrease in other revenue. Both the implementation of new marketing programs and capital improvements made to the property (including the addition of new slot machines) contributed to the increases in customer patronage in 2008.

Equity in (Loss) Income of Unconsolidated Affiliates. Earnings from Eldorado’s unconsolidated affiliates, the Silver Legacy Joint Venture and Tamarack, increased approximately $2.1 million for the year ended December 31, 2009 as compared to 2008. Although the Silver Legacy Joint Venture’s departmental revenues were down in 2009, we had an increase in equity in income of approximately $2.0 million relating to our investment in Silver Legacy due to our $2.8 million share of the joint venture’s gain on the retirement of $17.2 million of its debt. The Silver Legacy Joint Venture experienced declines in casino and rooms revenues, and to a lesser extent, food, beverage and entertainment revenues in 2009 as compared to 2008. The decreased departmental revenues, partly offset by a reduction in expenses, were due to the aforementioned factors affecting the Eldorado net revenues. For the year ended December 31, 2009 compared to 2008, equity in income in Tamarack increased approximately $96,000 due to decreased operating expenses.

Earnings from Eldorado’s’ unconsolidated affiliates, the Silver Legacy Joint Venture and Tamarack, decreased approximately $9.0 million for the year ended December 31, 2008 as compared to 2007. For the year ended December 31, 2008, equity in income of the Silver Legacy Joint Venture decreased approximately $8.6 million as compared to 2007. This decrease was primarily a result of declines in casino, room and food revenues as a result of the aforementioned factors affecting the Eldorado net revenues. For the year ended December 31, 2008 compared to 2007, equity in income in Tamarack decreased approximately $314,000, due to decreased revenues and increased payroll expenses.

Operating Income and Net (Loss) Income. During 2009, as compared to the prior year, operating and net income increased, primarily due to the aforementioned increase in income from our unconsolidated affiliates, lower operating expenses, a $6.8 million expense in 2008 relating to the termination of the Evansville, Indiana transaction (See Note 1 of the Notes to Eldorado’s Consolidated Financial Statements) and a non-cash impairment charge of $16.55 million in 2008 relating solely to our investment in the Silver Legacy Joint Venture.


For the year ended December 31, 2008 as compared to 2007, operating and net income decreased, primarily due to a decrease in income from our unconsolidated affiliates, increased casino expenses, acquisition termination charges associated with the Evansville, Indiana transaction, and impairment in investment in joint venture. In 2008, operating expenses decreased in all operating segments compared to the prior year primarily as a result of decreased business levels. Management has addressed the decrease in operating and net income through payroll reductions implemented in April and continued throughout 2008 along with an increase in the employee contribution for group insurance in April of 2008. In the first quarter of 2007, we recorded a $1.6 million loss on disposition of long-lived assets from the charitable contribution of land to the City of Reno to allow for the construction of a new city-owned ballroom facility, which opened in February 2008 and is being operated and managed by Silver Legacy, Eldorado Resorts LLC and Circus-Circus Hotel and Casino-Reno. In the fourth quarter of 2008, Resorts recognized a $6.8 million expense relating to the termination of the Evansville, Indiana transaction (See Note 1 of the Notes to Eldorado’s Consolidated Financial Statements). As a result of a triggering event, Eldorado tested its investments for impairment in 2008. Eldorado recognized a non-cash impairment charge of $16.55 million in 2008 relating solely to its investment in the Silver Legacy Joint Venture. The impairment charge resulted from factors impacted by current economic conditions, including: 1) lower market valuation multiples for gaming assets; 2) higher discount rates resulting from turmoil in the credit and equity markets; and 3) current cash flow forecasts for the Silver Legacy Joint Venture.

Revenues

The following table highlights our sources of net operating revenues (dollars in thousands) for the periods indicated:

 

     Year ended
December 31,
2009
   Percent
Change
    Year ended
December 31,
2008
   Percent
Change
    Year ended
December 31,
2007

Casino

   $ 222,665    (3.6 )%    $ 231,087    2.6   $ 225,152

Food, beverage and entertainment

     60,860    (4.0 )%      63,367    (5.5 )%      67,049

Hotel

     24,358    (8.6 )%      26,658    (7.4 )%      28,777

Other

     7,526    (3.5 )%      7,797    (3.1 )%      8,046

Less: Promotional allowances

     43,510    (1.3 )%      44,087    0.5     43,888

Casino Revenues. Casino revenues decreased for the year ended December 31, 2009 compared to the year ended December 31, 2008, due to a decrease in table games drop of 13.9% and lower table games hold percentage, partially offset by a 0.2% increase in slot handle and a higher slot hold percentage. Eldorado-Reno casino revenues decreased primarily due to a lower table games hold percentage along with a 11.9% decrease in slot coin-in and a 20.3% decrease in table games drop as compared to 2008. We believe casino volume and revenues during 2008 were negatively impacted by the previously discussed economic factors affecting net revenues.

Eldorado-Shreveport casino revenues increased $2.4 million for the year ended December 31, 2009 compared to the prior year. Slot revenues increased by $5.4 million, or 4.8%, during 2009 compared to the prior year. The slot revenue increase results from a 6.9% increase in slot coin-in, partially offset by a decrease in slot hold percentage during 2009. Both the implementation of new marketing programs and capital improvements made to the property, including the addition of new slot machines, contributed to the increase in slot coin-in. Table games revenue decreased $2.4 million during 2009, as a result of a decrease in table drop of 9.2%, which more than offset an increase in the table games hold percentage in 2009.

Casino revenues increased for the year ended December 31, 2008 compared to the year ended December 31, 2007, due to a 1.5% increase in slot handle, an increase in table games and slot hold percentage partially offset by a 4.1% decrease in table games drop. Eldorado-Reno casino revenues decreased primarily due to decreases in table games drop and slot handle of 11.2% and 10.0%, respectively, and a decrease in slot hold percentage, partially offset by a higher table games hold percentage in 2008. We believe casino volume and revenues during 2008 were negatively impacted by the previously discussed economic factors affecting net revenues.


Eldorado-Shreveport casino revenues increased $14.6 million to $149.2 million for the year ended December 31, 2008 compared to $134.6 million in the prior year. Slot revenues increased by $11.6 million, or 11.7%, during 2008 compared to the prior year. The slot revenue increase results from a 9.2% increase in slot coin-in coupled with a slot machine hold percentage increase in 2008. Table games revenue increased $3.5 million, or 11.3%, during 2008 as a result of an increase in table drop coupled with an increase in the table games hold percentage during 2008.

Food, Beverage and Entertainment Revenues. For the year ended December 31, 2009 compared to the prior year, food, beverage and entertainment revenues decreased approximately $3.6 million at Eldorado-Reno and increased approximately $1.1 million at Eldorado-Shreveport. Eldorado-Reno food revenues decreased due to decreases in restaurant customer counts of 3.1%, along with a lower average check. Beverage revenues also decreased in 2009 due to decreased visitor traffic. Entertainment revenues increased in 2009 as showroom occupancy increased due to the popularity of the shows playing throughout 2009. Eldorado-Shreveport’s food and beverage revenues increased due to increased customer volume and the increased use of complimentaries.

For the year ended December 31, 2008 compared to the prior year, food, beverage and entertainment revenues decreased approximately $5.8 million at Eldorado-Reno and increased approximately $2.1 million at Eldorado-Shreveport. Eldorado-Reno food revenues decreased due to decreases in restaurant customer counts of 14.1%, partially offset by a higher average check. We believe restaurant customer counts were negatively impacted in the first half of 2008 due to the remodeling of the Eldorado-Reno buffet. In addition, beverage revenues decreased 19.6% in 2008, as a result of decreased visitor traffic and the closing of the BuBinga Lounge nightclub in September 2008. Entertainment revenues also decreased due to lower occupancy in its showroom. Eldorado-Shreveport’s food and beverage revenues increased due to increased customer volume and the increased use of complimentaries.

Hotel Revenues. For the year ended December 31, 2009 as compared to 2008, room revenues decreased approximately $2.2 million due to a decrease in ADR and a decreased hotel occupancy percentage. Eldorado-Reno’s hotel revenues decreased due to a lower ADR and hotel occupancy percentage of approximately $60.95 and 81.3%, respectively, compared to approximately $66.35 and 84.1%, respectively, in 2008. The decreases in ADR and hotel occupancy in 2009 were partly attributable to increased competition, both locally and within its feeder markets, combined with declines in tourism visitor counts associated with the weak economy. Eldorado-Shreveport hotel revenues decreased as a result of a decrease in the ADR to $65.93 in 2009 partially offset by an increase in hotel occupancy rate to 91.8%, compared to the ADR of $66.35 and occupancy of 84.1% for 2008.

For the year ended December 31, 2008 as compared to 2007, room revenues decreased approximately $2.0 million due to a decrease in ADR partially offset by a slightly increased hotel occupancy percentage. Eldorado-Reno’s hotel revenues decreased due to a lower ADR and hotel occupancy percentage of approximately $66.35 and 84.1%, respectively, compared to approximately $74.29 and 85.1%, respectively, in 2007. The decrease in ADR was partly attributable to the absence of a major bowling tournament when the USBC tournament, which began in mid-February of 2007 and continued through June 2007, along with additional convention business in the Reno market, helped increase the average room rate and hotel occupancy percentage. Eldorado-Shreveport hotel revenues increased slightly as a result of an increase in the hotel occupancy rate from 87.2% during 2007 to 89.6% during 2008 while the ADR declined from $70.13 during 2007 to $69.41 during 2008.

Promotional Allowances. Promotional allowances, expressed as a percentage of casino revenues, were 19.5% in 2009 and 2008. In 2009, the amount of promotional allowances decreased at Eldorado-Reno due to lower casino volume while promotional allowances at Eldorado-Shreveport increased reflecting an increase in food and beverage and retail complimentaries as part of that property’s marketing programs. Eldorado-Shreveport feels the increase in such promotional activities helped drive increases in patron volume associated with the overall 5.3% increase in combined table drop and slot handle.

For the year ended December 31, 2008, promotional allowances, expressed as a percentage of casino revenues, were 19.1% compared to 19.5% in 2007. In 2008, the amount of promotional allowances decreased at Eldorado-Reno due to lower casino volume while promotional allowances at Eldorado-Shreveport increased reflecting an increase in food and beverage and retail complimentaries as part of its marketing programs. In 2007, Eldorado-Reno increased the amount of complimentaries certain slot customers are awarded resulting in increased redemption of complimentaries earned. Eldorado-Shreveport feels the increase in such promotional activities helped drive increases in patron volume associated with the overall 10.2% increase in combined table drop and slot handle.


Operating Expenses

The following table highlights our operating expenses (dollars in thousands) for the periods indicated:

 

     Year ended
December 31,
2009
   Percent
Change
    Year ended
December 31,
2008
   Percent
Change
    Year ended
December 31,
2007

Casino

   $ 119,024    (3.1 )%    $ 122,884    3.4   $ 118,836

Food, beverage and entertainment

     42,952    (7.4 )%      46,368    (1.9 )%      47,284

Hotel

     9,613    (9.5 )%      10,616    1.2     10,492

Other

     10,752    0.2     10,733    9.1     9,841

Selling, general and administrative and management fees

     43,583    (11.4 )%      49,181    (2.1 )%      50,243

Depreciation and amortization

     23,932    0.1     23,916    3.8     23,030

Casino Expenses. Casino expenses decreased for the year ended December 31, 2009 as compared to 2008, due to decreases in expenses at Eldorado-Reno primarily due to lower payroll expenditures, gaming taxes, and a decrease in the redemption of complimentaries as a result of fewer customers, partially offset by an increase in bad debt expense. Eldorado-Shreveport’s casino expenses increased for the year ended December 31, 2009 due to gaming taxes increasing by $0.7 million as a result of increases in patron volume. Marketing expenses, which are included in casino expenses, increased by $0.8 million as increases in giveaways, cash coupons and direct mail advertising were partially offset by decreases in patron transportation costs as well as in radio and television advertising. The net increase in marketing expenses reflects the ongoing refinement of its marketing programs.

Casino expenses increased for the year ended December 31, 2008 as compared to 2007, primarily due to increases in expenses at Eldorado-Shreveport associated with increased gaming taxes as a result of increases experienced in patron volume. Marketing expenses, which are included in casino expenses, increased as increases in giveaways, cash coupons, patron transportation costs and special events were partially offset by decreases in print and billboard advertising. The net increase in marketing expenses reflects the ongoing refinement of marketing programs. These increases in casino expense were partially offset by decreases in payroll expenditures resulting from management’s efforts to contain costs. Eldorado-Reno’s casino expenses decreased for the year ended December 31, 2008 due to lower payroll expenditures, gaming taxes, and a decrease in the redemption of complimentaries as a result of fewer customers, partially offset by an increase in marketing expenses.

Food, Beverage and Entertainment Expenses. For the year ended December 31, 2009 , food, beverage and entertainment expenses decreased as compared to 2008. Eldorado-Reno’s food, beverage and entertainment expenses decreased as a result of lower payroll expenditures and cost of sales associated with fewer customers in its restaurants and bars along with the closing of our nightclub in September 2008. Showroom expenses decreased in 2009 due to lower advertising and show production costs. Eldorado-Shreveport food and beverage expenses increased slightly by $0.6 million during the year ended December 31, 2009 compared to 2008, reflecting the increase in the associated revenues. Increased food and beverage costs have been partially offset by increased operating efficiencies.

For the year ended December 31, 2008, food, beverage and entertainment expenses decreased as compared to 2007. Eldorado-Reno’s food, beverage and entertainment expenses decreased primarily as a result of lower payroll expenditures and cost of sales associated with fewer customers in its restaurants and bars along with the closing of its nightclub in September 2008. Entertainment expenses also decreased in 2008 due to lower show production costs. Eldorado-Shreveport food and beverage expenses increased in 2008 compared to 2007, reflecting the increase in the associated revenues combined with increased food and beverage costs and partially offset by operating efficiencies.

Hotel Expenses. Hotel expenses decreased for the year ended December 31, 2009, as compared to 2008. Eldorado-Reno hotel expenses decreased primarily due to a decrease in payroll expenditures. Eldorado-Shreveport hotel expenses decreased slightly during 2009 reflecting lower operating costs.


Hotel expenses increased for the year ended December 31, 2008, as compared to 2007. Eldorado-Reno hotel expenses decreased slightly due to lower payroll expenditures partially offset by an increase in amenities provided to its hotel guests. Eldorado-Shreveport hotel expenses increased during 2008 reflecting higher occupancy rates and operating costs.

Selling, General and Administrative Expense and Management Fees. For the year ended December 31, 2009 as compared to 2008, selling, general and administrative expenses and management fees decreased primarily due to decreases in payroll expenditures, advertising expenses, utility expenses and costs associated with outside professional services and the absence of any management fee expense in 2009. General and administrative expenses at Eldorado-Shreveport increased due to additional sales taxes imposed.

For the year ended December 31, 2008 as compared to 2007, selling, general and administrative expenses and management fees decreased due to Eldorado-Reno’s lower payroll expenditures, legal expenses and management fees partially offset by increased utility expenses. General and administrative expenses at Eldorado-Shreveport increased due to additional sales taxes imposed.

Historically, Eldorado pays management fees to Recreational Enterprises, Inc. and Hotel Casino Management, Inc., the owners of 47% and 25% of the Eldorado’s equity interests, respectively. However, no management fee was paid to either entity for the year ended December 31, 2009. The management fees paid to Recreational Enterprises, Inc. and Hotel Casino Management, Inc. totaled $500,000 and $600,000 for the years ended December 31, 2008, and 2007, respectively. By agreement, these fees may not exceed 1.5% of the Eldorado-Reno’s annual net revenues.

Depreciation and Amortization Expense. Depreciation and amortization expense increased slightly for the year ended December 31, 2009 compared to 2008 primarily as a result of Eldorado-Shreveport depreciation and amortization expense, which increased by $0.5 million during 2009 compared to 2008 as a result of significant property additions made during 2009. Eldorado-Reno depreciation expense decreased slightly in 2009 as fewer assets were placed into service.

Depreciation and amortization expense increased for the year ended December 31, 2008 compared to 2007 primarily as a result of Eldorado-Shreveport adding approximately $4.7 million of property and equipment in renovations and enhancements to its facility, thereby increasing the depreciable basis of its fixed assets. Eldorado-Reno depreciation expense increased slightly in 2008 as more assets were placed into service primarily related to the buffet remodel.

Other Income (Expense)

Other income (expense) is comprised of interest expense, interest income, and other income (loss).

For the year ended December 31, 2009, interest expense decreased to $21.3 million compared to $22.6 million in 2008. Interest expense at Eldorado-Shreveport primarily reflects the interest on the New Shreveport Notes and the Preferred Capital Contribution Amount. Interest expense at Eldorado-Shreveport during 2009 remained consistent with 2008. In 2009 and 2008, Eldorado-Reno interest expense was $6.4 million and $7.7 million, respectively. In 2009, interest expense decreased as compared to 2008 due to a decrease in outstanding borrowings and in 2008 Eldorado-Reno incurred financing fees of $0.9 million related to the Evansville transaction.

For the year ended December 31, 2008, interest expense decreased to $22.6 million compared to $25.0 million in 2007. Interest expense at Eldorado-Shreveport primarily reflects the interest on the New Shreveport Notes and the Preferred Capital Contribution Amount. Interest expense during 2008 decreased slightly by $0.4 million as interest expense with respect to the Preferred Capital Contribution Amount decreased as a result of the August 2007 payment of all deferred interest accrued during the period from the Effective Date through July 31, 2007. Accordingly, the Preferred Return has subsequently been calculated on a reduced principal balance. Eldorado-Reno interest expense was $7.7 and $6.7 million in 2008 and 2007, respectively. In 2008, interest expense increased primarily due to financing fees of $0.9 million related to the Evansville transaction along with an increase in outstanding borrowing, partially offset by a lower average interest rate. In 2007, Eldorado-Reno recognized approximately $100,000 in interest income from its escrow deposit relating to the Evansville transaction.


In the fourth quarter of 2009, Eldorado-Reno exercised the warrants relating to the MindPlay settlement agreement with Bally’s and sold the shares so acquired and recorded income resulting from such exercise and sale of $101,000. In 2008, Eldorado-Reno recorded income of $239,000 in MindPlay from a settlement agreement with Bally’s. In 2008, Eldorado-Reno recognized income associated with warrants received under the terms of the settlement agreement in the amount of $193,000. As of December 31, 2009, Resorts’ financial investment in MindPlay was $0.

Seasonality

Hotel/casino operations in the Reno market are subject to seasonal variation, with the strongest operating results generally occurring in the third quarter of each year and the weakest results generally occurring during the period from November through February. Variations occur when weather conditions make travel to Reno by visitors from northern California and the Pacific Northwest difficult. The following table shows Eldorado-Reno’s percentage of gross revenues by quarter for each of 2009, 2008, and 2007.

 

     2009     2008     2007  

First quarter

   21.3   23.8   22.2

Second quarter

   28.6   24.7   26.4

Third quarter

   25.9   28.5   27.7

Fourth quarter

   24.2   23.0   23.7
                  

Total

   100.0   100.0   100.0

Hotel/casino operations in the Shreveport/Bossier City market are subject to slight seasonal variations, with the strongest operating results generally occurring in the first quarter of each year and the weakest results generally occurring during the fourth quarter.

The following table shows Eldorado-Shreveport’s percentage of gross revenues by quarter for 2009, 2008 and 2007.

 

     2009     2008     2007  

First quarter

   26.3   24.7   24.4

Second quarter

   25.2   25.2   25.0

Third quarter

   25.2   26.5   26.5

Fourth quarter

   23.3   23.6   24.1
                  

Total

   100.0   100.0   100.0

Liquidity and Capital Resources

Cash Flows

During the years ended December 31, 2009 and 2008, Eldorado generated cash flows from operating activities of $24.5 million and $20.2 million, respectively. The $4.3 million increase in cash provided by operations was comprised primarily of an increase in net income of $26.4 million related to an increase in income from our unconsolidated affiliates, a $6.8 million acquisition termination charge in 2008, and a $16.55 million impairment in investment in joint venture in 2008, along with various changes in balance sheet accounts which occurred in the normal course of business.

During the years ended December 31, 2008 and 2007, Eldorado generated cash flows from operating activities of $20.2 million and $21.0 million, respectively. The $0.8 million decrease in cash provided by operations was comprised primarily of a decrease in net income of $31.4 million which includes a decrease in equity in income of unconsolidated affiliates of $8.5 million, a $6.8 million acquisition termination charge, and a $16.55 million impairment in investment in joint venture, along with various changes in balance sheet accounts which occurred in the normal course of business. In 2008, distributions from unconsolidated affiliates included a $5.0 million special distribution in 2008 from the Silver Legacy. The changes in these balance sheet accounts represented changes which occurred in the normal course of business.


As of December 31, 2009, Eldorado’s cash and cash equivalents were $31.3 million, of which $11.7 million were at the parent company level and $19.6 million were at the Louisiana Partnership, both sufficient for normal operating requirements.

Cash used in investing activities at Eldorado for the years ended December 31, 2009 and 2008 was $10.2 million and $13.4 million, respectively. In 2009, cash used in investing activities was for purchases of property and equipment. In 2008, cash used in investing activities related primarily to capital expenditures totaling $13.7 million.

Cash used in investing activities at Eldorado for the years ended December 31, 2008 and 2007 was $13.4 million and $13.3 million, respectively. In 2008, cash used in investing activities included $13.7 million for purchases of property and equipment. In 2007, cash used in investing activities related primarily to capital expenditures totaling $13.9 million.

Cash used in financing activities was $16.2 million for the year ended December 31, 2009, compared to cash used in financing activities of $11.5 million for the year ended December 31, 2008. In 2009, cash used in financing activities was to primarily related to decreasing outstanding debt on Resorts’ credit facility.

Cash used in financing activities was $11.5 million for the year ended December 31, 2008, compared to cash used in financing activities of $10.3 million for the year ended December 31, 2007. In 2008, cash was used in financing activities related to $9.3 million spent by Eldorado-Shreveport during the first quarter of 2008 to redeem its outstanding non-voting partnership equity interests (see “Call Option on Non-voting Equity Interest” below). In 2007, cash was used in financing activities primarily for $14.8 million in distributions to its members partially offset by an increase in outstanding debt on Resorts’ credit facility of $5.0 million.

In July 2009, Eldorado renewed its general and liability insurance policies each covering a 12-month period. Under these policies, the Eldorado-Reno and the Silver Legacy have combined earthquake coverage of $350 million and combined flood coverage of $225 million. In the event that an earthquake causes damage only to Eldorado-Reno’s property, Eldorado-Reno is eligible to receive up to $350 million in coverage, depending on the replacement cost. However, in the event that both properties are damaged, Eldorado-Reno is entitled to receive, to the extent of any replacement cost incurred, up to $130 million of the coverage amount (based on its percentage of the total earthquake coverage) and the portion of the other $220 million, if any, remaining after satisfaction of the claim of the Silver Legacy with respect to its property. In the event that a flood causes damage only to Eldorado-Reno’s property, Eldorado-Reno is eligible to receive up to $225 million in coverage, depending on the replacement cost. However, in the event that both properties are damaged, Eldorado-Reno is entitled to receive, to the extent of any replacement cost incurred, up to $5 million of the coverage amount (based on its percentage of the total flood coverage) and the portion of the other $220 million, if any, remaining after satisfaction of the claim of the Silver Legacy with respect to its property. Eldorado-Shreveport is eligible to receive up to $100 million of flood coverage independently and irrespective of any losses at the other properties.

Eldorado’s insurance policy also includes combined terrorism coverage for Eldorado-Reno and the Silver Legacy up to $500 million. In the event that an act of terrorism causes damage only to Eldorado-Reno’s property, Eldorado-Reno is eligible to receive up to $500 million in coverage, depending on the replacement cost. However, in the event that both properties are damaged, Eldorado-Reno is entitled to receive, to the extent of any replacement cost incurred, up to $220 million of the coverage amount (based on its percentage of the total reported property values) and the portion of the other $280 million, if any, remaining after satisfaction of the claim of the Silver Legacy. This policy also covers the Eldorado-Shreveport, discussed under “Shreveport, Louisiana Transactions”, below. In the event that an act of terrorism causes damage to Eldorado-Reno, Silver Legacy and the Eldorado-Shreveport, Eldorado-Reno is entitled to receive, to the extent of any replacement cost incurred, up to $160 million of the coverage amount (based on its percentage of the total reported property values) and the portion of the other $340 million, if any, remaining after satisfaction of the claims to the other two properties.

The operating agreement of Eldorado dated April 1, 2009 obligates Eldorado, to distribute each year for as long as it is not taxed as a corporation to each of its members an amount equal to such members’ allocable share of


the taxable income of Eldorado multiplied by the highest marginal combined Federal, state and local income tax rate applicable to individuals for that year. And, prior to the formation of Eldorado, Resorts’ operating agreement had a similar provision. In 2009, the Louisiana Partnership made a $325,000 distribution on behalf of ES#1 and ES#2 to the State of Louisiana. In 2008, Resorts made distributions of $2.4 million to its members, of which $1.2 million was for 2008 taxes. In January 2008, Resorts made a $1.2 million tax distribution to its members relating to the year ended 2007. In 2007, Resorts made distributions of $14.8 million to its members. The distributions made in 2007 include a $10.0 million distribution (see below) that was intended to be in addition to Resorts’ $4.8 million of tax distributions made in 2007. No tax or other distributions were made to the members of Eldorado or Resorts in 2009.

The terms of the purchase agreement relating to its issuance on December 14, 2007, of a 14.47% equity interest in Resorts entitled Resorts either, prior to or immediately following the closing of the transaction, to make a distribution to the members of Resorts of up to $10 million (See “Newport Global Transaction”, below). During the annual meeting of the Board of Members of Resorts on June 7, 2007, the board approved a $10 million distribution upon the execution of the purchase agreement. The distribution was not dependent upon the issuance of the additional equity interest. The $10 million distribution, which was made on July 25, 2007, was funded through borrowings under Resorts’ credit facility.

The Louisiana Partnership joint venture agreement obligates the Louisiana Partnership to distribute to each of its partners quarterly for as long as the Louisiana Partnership is not taxed as a corporation, an amount of “Distributable Cash Flow” (as defined) equal to the partner’s allocable share of our taxable income, as adjusted in accordance with the terms of the Joint Venture Agreement, multiplied by a percentage equal to the greater of (a) the sum of (i) the highest federal marginal income tax rate in effect for individuals (after giving effect to the federal income tax deduction for state and local income taxes and taking into account the effects of Internal Revenue Code sections 67 and 68 as if the individual’s only income was the income allocated to such individual in his or her capacity as one of its partners) plus (ii) the highest marginal Louisiana and Shreveport, Louisiana income tax rates in effect for individuals or (b) the sum of (i) the highest federal marginal income tax rate in effect for corporations plus (ii) the highest marginal Louisiana and Shreveport, Louisiana income or franchise tax rates in effect for corporations (after giving effect to the federal income tax deduction for such state and local income or franchise taxes). The Louisiana Partnership made a $1.5 million tax distribution for the year ended December 31, 2008. The Louisiana Partnership made no tax distributions in 2009 and 2007.

Eldorado’s future sources of liquidity are anticipated to be from its operating cash flow, funds available from Resorts’ credit facility, and capital lease financing for certain fixed asset purchases. Eldorado-Reno’s anticipated uses of cash in 2009 will be for (i) new slot machines ($1.0 million), (ii) hotel remodeling ($1.0 million), and (iii) recurring capital expenditures (estimated at approximately $2.0 million), and (v) debt service. We believe Eldorado’s capital resources are adequate to meet its obligations, including the funding of its debt service, until April 15, 2014 when Resorts’ 9% Notes become due and payable and we will be required to refinance the indebtedness evidenced by the bonds, and recurring capital expenditures. We believe Eldorado-Shreveport’s capital resources are adequate to meet its obligations, including the funding of its debt service, until August 1, 2012 when the Louisiana Partnership’s New Shreveport Notes become due and payable and we will be required to refinance the indebtedness evidenced by the bonds, and recurring capital expenditures. Eldorado-Shreveport is planning to spend approximately $10.0 million for capital expenditures during 2009. Anticipated expenditures include costs associated with purchases of slot machines, hotel room and buffet renovations, other general facility renovations and other operating equipment.

At December 31, 2009, Resorts had outstanding $64.5 million in aggregate principal amount of the 9% Notes and the Louisiana Partnership had outstanding (i) $124.5 million in aggregate principal amount of the New Shreveport Notes, and (ii) $19.3 million of 13% Preferred Equity Interest.

At December 31, 2009, Eldorado had $11.7 million of cash and cash equivalents at Eldorado-Reno and, after giving effect to then outstanding borrowings, it had approximately $16.0 million of borrowing capacity under Resorts’ credit facility. Resorts’ credit facility is a senior secured revolving credit facility with a maturity date of February 28, 2011. On March 13, 2009, the credit facility was amended to reduce to $20.0 million, as of that date, and further reduce by $1.0 million at the end of each quarter thereafter, the amount of credit available under the facility. Borrowings under the credit facility bear interest, at Resorts’ option, at either (i) the greater of (a) the rate publicly announced from time to time by Bank of America as its “Prime Rate” or (b) the Federal Funds Rate plus


.50% (“Base Rate”) or (ii) a Eurodollar rate determined in accordance with the credit facility. The credit facility is secured by substantially all of Eldorado-Reno’s real property. The credit facility includes various restrictions and other covenants that are applicable to Resorts and its restricted subsidiaries including: (i) restrictions on the disposition of property, (ii) restrictions on investments and acquisitions, (iii) restrictions on distributions to members of Eldorado, (iv) restrictions on the incurrence of liens and negative pledges, (v) restrictions on the incurrence of indebtedness and the issuance of guarantees, (vi) restrictions on transactions with affiliates and, (vii) restrictions on annual capital expenditures including capital leases. The credit facility contains financial covenants including a maximum total debt to EBITDA ratio, a maximum senior secured debt to EBITDA ratio, a minimum fixed charge coverage ratio and a minimum equity requirement. On November 13, 2007, Resorts, Bank of America, N.A., and Capital One, N.A. executed an amendment to the credit facility that waived a default under the covenant relating to distributions and reduced the minimum ratio of EBITDA to fixed charges from 1.25 to 1.1 under the credit facility with retroactive effect for the quarter ended September 30, 2007 and for each subsequent quarter through and including the quarter ending June 30, 2008. On March 28, 2008, Resorts, Bank of America, N.A., U.S. Bank, N.A. and Capital One, N.A. executed an amendment to the credit facility that waived the default under the covenant relating to distributions and further reduced the minimum ratio of EBITDA to fixed charges from 1.1 to 1.0 under the credit facility with retroactive effect for the quarter ended December 31, 2007 and for each subsequent quarter through and including the quarter ending June 30, 2008. The aforementioned March 13, 2009 amendment to the credit facility retroactively reset the minimum members’ equity to $90.0 million at December 31, 2008, kept the total debt to EBITDA ratio at 4.0 to 1.0 through December 31, 2010, and eliminated from the EBITDA calculation the $6.8 million in expenses incurred in the fourth quarter of 2008 in connection with the Evansville transaction. These changes were retroactive for the quarter ended December 31, 2008. As of the date of the amendment, the amount of credit available pursuant to the credit facility was reduced to $20.0 million and, by its terms, that amount reduces by an additional $1.0 million at the end of each subsequent quarter, beginning with the quarter ending March 31, 2009 until maturity. On May 8, 2009, Resorts, Bank of America, N.A., U.S. Bank, N.A. and Capital One, N.A. executed a further amendment to the credit facility that retroactively reset the minimum member’s equity to $80.0 million at March 31, 2009 thus curing a default at March 31, 2009 under the facility’s financial covenant relating to minimum member’s equity. There was no indebtedness outstanding under the credit facility as of December 31, 2009.

In addition to the covenants in the credit facility that require the maintenance of certain financial ratios, the credit facility contains other covenants imposing limitations on additional debt, dispositions of property, liens, change of control and mergers and similar transactions. As of December 31, 2009, Resorts was in compliance with all of the covenants under the credit facility.

On May 12, 2009, Resorts and Newport Global Advisors L.P. (“Newport”) executed an agreement (the “Newport Agreement”) pursuant to which Resorts was entitled to make a written request to Newport for a loan on the terms and subject to conditions set forth in the Newport Agreement. In accordance with the terms of the Newport Agreement, Resorts paid Newport $25,000 for its commitment. No request for a loan was ever made under the Newport Agreement, which was terminated effective August 18, 2009.

On March 31, 2008, Resorts and a newly formed, wholly owned subsidiary of Resorts (“Resorts Indiana”), entered into a definitive agreement (the “Evansville Agreement”) pursuant to which Resorts Indiana agreed to purchase from Aztar Riverboat Holding Company, LLC (the “Seller”) all of the membership interests in Aztar Indiana Gaming Company, LLC (“Aztar Indiana”), an indirect subsidiary of Tropicana Casinos and Resorts.


On May 5, 2008, Tropicana Entertainment, LLC and certain of its affiliated entities, including Aztar Indiana and the Seller, filed for bankruptcy relief under Chapter 11 of the Bankruptcy Code. As a result of the filing, the Seller became entitled, at its option, to assume or reject prepetition executory contracts such as the Evansville Agreement, subject to approval of the bankruptcy court. On September 22, 2008, the bankruptcy court approved bidding procedures to allow Tropicana to seek higher and better bids to purchase Aztar Indiana. As a result of the process, no higher or better bids were received. Accordingly, a sale hearing was scheduled before the bankruptcy court where Tropicana was to seek the entry of an order approving and authorizing the sale of Aztar Indiana to us pursuant to the Evansville Agreement.

On November 20, 2008, in light of uncertainty regarding whether the acquisition of Casino Aztar would close, Resorts and the Seller agreed to terminate the Evansville Agreement with the following terms of settlement: (i) payment of $5 million of the escrowed deposit to the Seller with the balance, including any accrued interest less escrow costs, being distributed to Resorts, (ii) the right of Resorts to a $5 million credit against any consideration otherwise owed by Resorts in the event of any future agreement of Resorts to acquire Aztar Indiana or an interest therein, and (iii) mutual releases of the parties from any further obligation under the Evansville Agreement. On November 26, 2008 the bankruptcy court approved the terms of settlement and we gave notice of our termination of the commitment for the financing related to the proposed acquisition of Aztar Indiana.

9% Senior Notes due 2014

On April 20, 2004, Resorts and Capital issued $64.7 million original principal amount of the 9% Notes which are unsecured senior obligations due April 15, 2014. As of December 31, 2009, Resorts had outstanding $64.5 million in aggregate principal amount of the 9% Notes. Interest on the 9% Notes is payable semi-annually on April 15 and October 15, beginning on October 15, 2004. Resorts may redeem the 9% Notes, in whole or in part, upon not less than 30 days notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages (as defined), if any, to the applicable redemption date if redeemed during the 12-month period beginning on April 15 of the years indicated:

 

Year

   Percentage

2010

   103.00

2011

   101.50

2012

   100.00

2013 and thereafter

   100.00

Upon a change of control event, each holder of the 9% Notes may require Resorts to repurchase all or a portion of its 9% Notes at a purchase price equal to 101% of the principal amount of the 9% Notes, plus accrued interest. The indenture relating to the 9% Notes contains covenants applicable to Resorts and its restricted subsidiaries that, among other things, limit our ability and, in certain instances, the ability of our restricted subsidiaries, to incur indebtedness, make distributions to the holders of our equity, purchase our equity securities, make payments on our subordinated indebtedness other than in accordance with the original terms thereof, incur liens, and merge, consolidate or transfer all or substantially all of our assets. These covenants are subject to a number of important qualifications and exceptions. As of December 31, 2009, Resorts was in compliance with all of these covenants.

10% First Mortgage Notes due 2012

Pursuant to the Plan, on July 21, 2005, the Louisiana Partnership and Shreveport Capital (together, the “Shreveport Issuers”) co-issued $140 million of New Shreveport Notes, which provide for interest at the rate of


10% per annum and become due and payable in 2012, and $150 million principal amount 13% first mortgage notes with contingent interest due 2006 and $39 million principal amount 13% senior secured notes with contingent interest due 2006 were cancelled. Interest on the New Shreveport Notes accrues from June 30, 2005 and is payable semiannually each February 1 and August 1, commencing February 1, 2006. Such interest is payable in cash or, at our option, through the issuance of additional New Shreveport Notes for all or a portion of the amount of interest then due. However, this option to issue additional New Shreveport Notes in lieu of cash payments for interest may only be made for four semiannual interest payments (which need not be consecutive) and, with limited exceptions, may not be made once a “Preferred Capital Contribution Amount”, as defined below, has been redeemed or otherwise acquired by the Shreveport Issuers. On February 1 and August 1, 2006, respectively, the Shreveport Issuers issued $8.2 million and $7.4 million of additional New Shreveport Notes due 2012 in lieu of making the cash interest payments. Since February 1, 2007, the Louisiana Partnership has paid in cash all of its semiannual interest payments with respect to the New Shreveport Notes.

The New Shreveport Notes were not redeemable prior to August 1, 2009. On or after August 1, 2009, the Louisiana Partnership may redeem the New Shreveport Notes at the following redemption prices (expressed as a percentage of principal amount) plus any accrued and unpaid interest:

 

Year beginning August 1,

   Percentage  

2009

   105.0

2010

   102.5

2011 and thereafter

   100.0

The Louisiana Partnership will be required to make an offer to repurchase the New Shreveport Notes outstanding at 101% of the principal amount upon the occurrence of a Change of Control, as defined in the indenture governing the New Shreveport Notes (see below). Redemption offers at 100% of the principal amount are required to be made with the proceeds of Asset Sales by the Louisiana Partnership in excess of $5 million or with Excess Loss Proceeds following an Event of Loss in excess of $5 million, as those terms are defined in the indenture.

The New Shreveport Notes were issued under an Amended and Restated Indenture, dated as of July 21, 2005, by and among the Shreveport Issuers and U.S. Bank National Association, as trustee (as amended, the “Shreveport Indenture”). The Shreveport Indenture includes covenants that, among other things, impose restrictions (subject to certain exceptions) on the Louisiana Partnership’s ability and its “Restricted Subsidiaries” (as defined in the Shreveport Indenture) to declare or pay distributions on account of their equity interests, purchase or otherwise acquire their equity interests, make certain payments on or with respect to pari passu or subordinated indebtedness, make investments, sell their assets, incur liens, engage in transactions with their affiliates, incur indebtedness and issue preferred equity. The New Shreveport Notes are secured by a first priority security interest in substantially all of the Louisiana Partnership’s current and future assets. The liens of the holders of the previously outstanding First Mortgage Notes and Senior Secured Notes under the related indentures and collateral documents were amended and restated and continue as first priority liens securing the New Shreveport Notes. In addition, ES#1 and ES#2 have pledged their interests in the Louisiana Partnership, and Resorts has pledged its interests in ES#1 and ES#2, for the benefit of the holders of the New Shreveport Notes.

In June 2009, the Louisiana Partnership solicited consents from the holders of the New Shreveport Notes to modify the Shreveport Indenture with respect to the allowance of certain “Restricted Payments” (as defined in the Shreveport Indenture). A sufficient number of consents were obtained to allow for the modification, which became effective on June 29, 2009. Holders of the New Shreveport Notes approving the consent were paid a fee in the amount of $2.50 for every $1,000 of New Shreveport Notes held. The consent fee, which amounted to $0.4 million, has been reflected as a deferred financing cost and is being amortized over the remaining term of the New Shreveport Notes. Costs associated with obtaining the consents amounting to $37,000 have been expensed as incurred.


Preferred Return on Preferred Capital Contribution Amount

On July 21, 2005, SGH acquired a 25% non-voting partnership equity interest and a $20 million preferred equity interest in the Louisiana Partnership pursuant to the Plan. On July 22, 2005, ES#1 converted 55,006 shares of the common stock of SGH into (i) a 1.4% non-voting partnership interest in the Louisiana Partnership (reducing SGH’s interest to 23.6%) and (ii) the right to distributions by the Louisiana Partnership in respect of $1.12 million of the preferred equity interests of SGH (reducing the amount retained by SGH to $18.88 million). The preferred equity interest was initially valued at its face amount of $20 million. On December 19, 2007, Resorts exercised an available call option to require SGH to sell to the Louisiana Partnership all of its remaining 23.6% non-voting interest in the Louisiana Partnership. The Call Purchase Price of $9.3 million was paid on March 20, 2008. The payment was recorded during the first quarter of 2008 as a charge to partners’ equity for the redemption of non-voting partnership equity interests.

The Louisiana Partnership’s Fourth Amended and Restated Joint Venture Agreement, dated as of July 21, 2005, as amended by a Fifth Amended and Restated Joint Venture Agreement, dated as of July 22, 2005 (the “Joint Venture Agreement”), provides for a “Preferred Return” (as defined) on the “Preferred Capital Contribution Amount” (as defined) to SGH, and each transferee of any of SGH’s interest in the Louisiana Partnership that becomes a partner in the Louisiana Partnership in accordance with the Joint Venture Agreement (each an “SGH Transferee”). As defined in the Joint Venture Agreement, “Preferred Capital Contribution Amount” means $20 million, less the cumulative amounts distributed from time to time in payment of the Preferred Capital Contribution Amount. As defined in the Joint Venture Agreement, “Preferred Return” means an amount calculated in the same manner as interest on a loan accruing daily from June 30, 2005, at an annual rate of 13% (based upon a 365- or 366- day year, as applicable), compounded quarterly on the last day of each fiscal quarter of each applicable year, taking into account distributions of Preferred Return made pursuant to the Joint Venture Agreement as if they were payments of interest and distributions in payment of the Preferred Capital Contribution Amount made pursuant to the Joint Venture Agreement as if they were payments of principal. As of December 31, 2009 and 2008, accrued interest with respect to the Preferred Capital Contribution Amount was $433,000 for both periods, of which $24,000 for both periods, was payable to ES#1.

Prior to July 22, 2013, the Joint Venture Agreement permits, but does not require, the Louisiana Partnership’s managing partner, ES#1, to make annual distributions in payment of the Preferred Return and the Preferred Capital Contribution Amount from our “Distributable Cash Flow” (as defined) remaining after all distributions required to be made with respect to the current and all prior fiscal years, including any required tax distributions. On July 22, 2013, the Louisiana Partnership will be required by the Joint Venture Agreement to distribute to SGH and any SGH Transferees (collectively, the “Preferred Return Partners”) amounts sufficient to (i) pay all accrued Preferred Return not previously paid and (ii) pay the remaining Preferred Capital Contribution Amount. Except as otherwise provided in the Joint Venture Agreement, no distributions other than payments of the Preferred Return and payments of the Preferred Capital Contribution Amount will be made to the Louisiana Partnership’s partners on account of their interests in the Louisiana Partnership unless sufficient distributions have been made to the Preferred Return Partners such that the Preferred Return Partners have received all accrued Preferred Return and the Preferred Capital Contribution Amount has been reduced to zero. Failure to pay the Preferred Return and the Preferred Capital Contribution Amount in full on or before July 22, 2013 will give rise to the right to terminate the Louisiana Partnership’s management agreement with Resorts.

Eldorado-Shreveport Management Agreement

On July 22, 2005, Resorts and the Louisiana Partnership entered into a management agreement (the “Management Agreement”) pursuant to which Resorts, as the Louisiana Partnership’s exclusive agent, manages the Eldorado-Shreveport. For its services, Resorts is entitled to receive a base management fee of $2.5 million annually, payable in quarterly installments of $625,000 each on October 22, January 22, April 22 and July 22 of each year during the term of the Management Agreement, beginning October 22, 2005. Payment of the base management fee has priority over the payment of any interest due on the New Shreveport Notes. Resorts is also entitled to an incentive fee equal to the sum of (i) 15% of the amount, if any, by which “EBITDA” (as defined in the Management Agreement) for any calendar year during the term of the Management Agreement exceeds $20 million and (ii) an additional 5% of the amount, if any, by which “EBITDA” (as defined in the Management Agreement) for any such calendar year exceeds $25 million.


Newport Global Transaction

Resorts entered into an Amended and Restated Purchase Agreement, dated as of July 20, 2007 (the “Purchase Agreement”), with NGA AcquisitionCo LLC, a wholly owned subsidiary of NGA HoldCo, LLC (“NGA”), and Donald L. Carano, who is the presiding member of Eldorado’s Board of Managers and the Chief Executive Officer of Eldorado, and then held the same positions with Resorts (“Carano”), pursuant to which NGA agreed, subject to the terms and conditions of the Purchase Agreement, to acquire a 17.0359% equity interest in Resorts (the “17.0359% Interest”), including a new 14.47% equity interest to be acquired directly from Resorts (the “14.47% Interest”) and an outstanding 3% membership interest (that, as a result of the issuance of the 14.47% Interest, reduced to a 2.5659% interest) to be acquired from Carano. Upon completion of the NGA transaction, which occurred on December 14, 2007, Carano or members of his family continued to own 51% of Resorts and Carano continued in his roles in the management of Resorts.

In consideration for the 14.47% Interest, NGA transferred to Resorts, free and clear of any liens, ownership of $31,133,250 original principal amount of New Shreveport Notes together with the right to all interest paid with respect thereto after the closing date. At closing, Resorts paid NGA $1,142,974 in cash representing interest on the New Shreveport Notes accrued and unpaid through the date of closing.

Commitments and Contingencies

City of Shreveport Ground Lease and Admission Fees

The Louisiana Partnership entered into a ground lease with the City of Shreveport for the land on which Eldorado-Shreveport was built. The lease has an initial term ending December 20, 2010 with subsequent renewals for up to an additional 40 years. Base rental payments under the lease began when construction commenced and were $10,000 per month during the construction period. The base rental amount increased to $450,000 per year upon opening and continues at that amount for the remainder of the initial ten-year lease term. During the first five-year renewal term, the base annual rental will be $402,500. The annual base rental payment will increase by 15% during each of the second, third, fourth and fifth five-year renewal terms with no further increases. The base rental portion of the ground lease is being amortized on a straight-line basis. In addition to the base rent, the Louisiana Partnership pays a monthly percentage rent equal to the greater of (1) $500,000 per year or (2) the sum of 1% of the Louisiana Partnership’s adjusted gross revenues and the amount by which 50% of the net income from Eldorado-Shreveport’s parking facilities exceeds a specified parking income credit. Ground lease rentals amounted to approximately $2.1 million during both 2009 and 2008, including percentage rentals amounting to $1.5 million in both years.

In addition, the ground lease agreement calls for payments in lieu of admission fees to the City of Shreveport and payments to the Bossier Parish School Board amounting to 3.225% and .5375% of Net Gaming Proceeds (as defined in the agreement), respectively. In May 2005, a settlement agreement was approved by the Bankruptcy Court pursuant to which the Louisiana Partnership began paying a percentage of its Net Gaming Proceeds, as defined, in the amount of .3% during 2006, which increased to .4% effective January 1, 2007 and increased to .5% after 2007. Such payments are in addition to the payments under the ground lease and are in lieu of both admission fees and any sales or use tax for complimentary goods or services. Such payments in lieu of admission fees and school taxes amounted to $6.8 million and $6.7 million for the years ended December 31, 2009 and 2008, respectively.

Contractual Commitments

The following table summarizes our estimated contractual payments, as of December 31, 2009 (in thousands).

 

 


Payment due

by Period

   Long-Term Debt
Instruments
   Interest
payments on
long-term debt
(1)
   Preferred
Equity Interest
(2)
   Capital Leases    Operating
Leases (3)
   Total

2010

   $ —      $ 18,251    $ —      $ 259    $ 703    $ 19,213

2011

     —        18,251      —        259      320      18,830

2012

     124,483      13,067      —        259      196      138,005

2013

     —        5,803      —        236      148      6,187

2014

     64,475      1,653      19,313      102      140      85,683

Thereafter

     —        —        —        —        128      128
                                         

Total

   $ 188,958    $ 57,025    $ 19,313    $ 1,115    $ 1,635    $ 268,046
                                         

 

(1) Interest payments assume that the Louisiana Partnership did not utilize the provision under the New Indenture allowing the Louisiana Partnership to issue additional New Shreveport Notes in lieu of making interest payments. The Louisiana Partnership has the option of doing this two more times.
(2) Includes interest of $433.
(3) Includes ground lease; base fee, cash payment only.

The repayment of Resorts’ long-term debt, which consists of indebtedness under its credit facility, which was $0 as of December 31, 2009, and indebtedness evidenced by the 9% Notes, is subject to acceleration upon the occurrence of an event of default under the credit facility or the indenture relating to the 9% Notes.

Interest on the New Shreveport Notes is payable semiannually in cash or, at our option, through the issuance of additional New Shreveport Notes for all or a portion of the amount of interest then due. On February 1 and August 1, 2006, respectively, the Louisiana Partnership issued $8.2 million and $7.4 million of additional New Shreveport Notes due 2012 in lieu of making the cash interest payments.

Eldorado routinely enters into operational contracts in the ordinary course of its business, including construction contracts for minor projects that are not material to our business or financial condition as a whole. Our commitments relating to these contracts are recognized as liabilities in our consolidated balance sheets when services are provided with respect to such contracts.

The Louisiana Partnership leases retail space located across the street from the casino/hotel complex to unrelated retail tenants. Rental revenue during 2009 amounted to less than $0.1 million. There are currently three tenants renting retail space under rental agreements expiring at various dates between 2010 and 2011, some of which have optional renewal periods. Rental payments are comprised of fixed monthly amounts, percentage rentals and common area maintenance payments.

 

ITEM 7B. Quantative and Qualitative Disclosure About Market Risk.

Not applicable.

 

ITEM 8. Financial Statements and Supplementary Data.

Reference is made to the reports of Deloitte & Touche, LLP and the audited financial statements of the Company, audited financial statements of Eldorado HoldCo, LLC, and audited financial statements of Circus and Eldorado Joint Venture appearing on pages F-2 through F-54 of this annual report, which are incorporated in this Item 8 by this reference.

 

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.


ITEM 9A.(T). Controls and Procedures.

Disclosure Controls and Procedures

An evaluation was performed by management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2009, our disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our control over financial reporting that occurred during the fourth fiscal quarter of the fiscal year covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control system was designed to provide reasonable assurance that information contained in the Company’s consolidated financial statements is reliable, does not contain any untrue statement of a material fact or omit to state a material fact, and fairly presents in all material respects the financial condition, results of operations and cash flows as of and for the periods presented in this annual report.

All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls provide only reasonable assurances with respect to financial statement preparation. In addition, the effectiveness of internal controls may vary over time due to changes in conditions.

Our management evaluated the internal control over financial reporting using the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation as of December 31, 2009, management has concluded that the Company’s internal control over financial reporting is effective based on those criteria.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

 

ITEM 9B. OTHER INFORMATION.

None


Part III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The Company is managed by a board of managers which has four members who are Thomas R. Reeg (who is also the Company’s Operating Manager), Timothy T. Janszen, Ryan Langdon and Roger May. Each of the Company’s managers may be removed from the Company’s board of managers at any time, with or without cause, by VoteCo as the holder of all of the Company’s voting equity. A majority of the Company’s managers may remove the Operating Manager from the position of Operating Manager (but not from the position of manager). The approval of a majority of the Company’s managers is required to elect a new Operating Manager, who must be selected from among the members of the Company’s board of managers. Other than its Operating Manager, the Company does not have any executive officers.

Each of the Company’s managers is the owner of an equity interest in VoteCo, which holds all of the Company’s voting equity, and collectively they own all of VoteCo’s equity interests. Because of the Company’s structure, which gives all of its voting power to VoteCo, and because the Company pays no compensation, it believes the attribute that best qualifies each of the Company’s managers to hold his position as a manager of the Company is his equity interest in VoteCo. Moreover, each individual has company and industry knowledge and experience which further qualifies each of the Company’s managers to hold his position.

The following table sets forth information as of the date of this report, regarding each manager of the Company and each manager of Resorts.

 

Name

  

Age

       

Position(s)

Thomas R. Reeg(1)

   38       Manager of the Company and Resorts and Operating
         Manager of the Company

Timothy T. Janszen(2)

   45       Manager of the Company

Ryan Langdon(3)

   37       Manager of the Company

Roger A. May(4)

   44       Manager of the Company

Donald L. Carano(5)

   77       Manager of Resorts

Gary L. Carano(6)

   56       Manager of Resorts

Raymond J. Poncia, Jr.(7)

   75       Manager of Resorts

 

(1) Mr. Reeg has been a manager of the Company since January 11, 2007 and its operating manager since July 1, 2007. In his capacity as the Company’s Operating Manager, Mr. Reeg performs certain services for the Company commonly performed by a principal executive officer. Mr. Reeg is the designated representative of AcquisitionCo, which became a member of Resorts’ board of managers upon the closing of the Company’s acquisition of its interest in Resorts on December 14, 2007 and a member of Eldorado’s board of managers effective April 1, 2009 when Resorts became the wholly owned subsidiary of Eldorado.
(2) Mr. Janszen has been a manager of the Company since July 1, 2007.
(3) Mr. Langdon has been a manager of the Company since July 1, 2007.
(4) Mr. May has been a manager of the Company since July 1, 2007. In his capacity as a manager of the Company, Mr. May performs certain services for the Company commonly performed by a principal financial officer.
(5) Mr. Carano is the designated representative of Recreational Enterprises, Inc., a Nevada corporation, which has been a member of Resorts’ board of managers since 1996 and a member of Eldorado’s board of managers since April 1, 2009 when Resorts became the wholly owned subsidiary of Eldorado.
(6) Mr. Carano has been a member of Resorts’ board of managers since 1996 and a member of Eldorado’s board of managers since April 1, 2009 when Resorts became the wholly owned subsidiary of Eldorado.
(7) Mr. Poncia is the designated representative of Hotel-Casino Management, Inc., a Nevada corporation, which has been a member of Resorts’ board of managers since 1996 and a member of Eldorado’s board of managers since April 1, 2009 when Resorts became the wholly owned subsidiary of Eldorado.

Thomas R. Reeg, CFA. Mr. Reeg has been a Senior Managing Director of Newport Global Advisors L.P. since September 14, 2005. Prior to joining Newport Global Advisors L.P., Mr. Reeg held a number of positions, most recently Managing Director and portfolio manager, in the High Yield Group of AIG Global Investment Group from 2002 to September 2005. Mr. Reeg was responsible for co-management of the high yield mutual fund portfolios. Mr. Reeg joined AIG Global Investment Group in 2002 as a senior high yield investment analyst where


he coordinated credit research in the gaming, lodging and utilities sectors. Prior to joining AIG Global Investment Group, Mr. Reeg was a senior high yield research analyst covering telecommunications, casino, lodging and leisure sectors at Bank One Capital Markets. Mr. Reeg’s previous experience also includes similar high yield research positions with ABN AMRO and Bank of America Securities. He received a Bachelor of Business Administration in Finance from the University of Notre Dame in 1993. Mr. Reeg is a Chartered Financial Analyst.

Timothy T. Janszen. Mr. Janszen has been the Chief Executive Officer of Newport Global Advisors L.P. since September 14, 2005. Prior to joining Newport Global Advisors L.P., Mr. Janszen held a number of positions, most recently Managing Director and portfolio manager, in the High Yield Group of AIG Global Investment Group over a period of more than five years. Mr. Janszen joined AIG Global Investment Group with the acquisition of American General Investment Management (“AGIM”) in 2001. Mr. Janszen was responsible for the management of AIG Global Investment Group’s high yield group. Mr. Janszen was also the lead portfolio manager of all general and separate high yield accounts. Previously, Mr. Janszen was head of high yield portfolio management at AIG Global Investment Group. At AGIM, he was head of credit research. Prior to rejoining AGIM, Mr. Janszen served as director of research for Pacholder Associates, an independent money manager focused on high yield and distressed investing. Prior to that, Mr. Janszen worked for American General as a senior investment manager. For the four years prior to originally joining American General, Mr. Janszen served in a variety of senior management positions including the last two years as president of ICO, Inc., a public oil service company affiliated with Pacholder. Mr. Janszen spent the first four years of his career as a high yield trader and analyst at Pacholder. Mr. Janszen received a Bachelor of Science in Business Administration, cum laude, from Xavier University in Cincinnati, Ohio, in 1986.

Ryan Langdon. Mr. Langdon has been a Senior Managing Director of Newport Global Advisors L.P. since September 14, 2005. Prior to joining Newport Global Advisors L.P., Mr. Langdon held a number of positions, most recently a Managing Director and portfolio manager, in the High Yield Group of AIG Global Investment Group from 2002 to September 2005. Mr. Langdon was responsible for managing the distressed portfolio. Mr. Langdon joined AIG Global Investment Group’s High Yield Group in 2002 as a senior high yield investment analyst following the telecommunications and cable sectors. Prior to joining AIG Global Investment Group, Mr. Langdon worked at ABN AMRO as a senior high yield telecommunications and cable analyst. Mr. Langdon started his career as a vice president and high yield investment analyst at Pacholder Associates. He received a Bachelor of Science in Business Economics from Miami University in 1994 and a Master of Arts in Economics from Miami University in 1995. Mr. Langdon serves on the board of directors of iPCS, Inc.

Roger A. May, CFA. Mr. May has been a Senior Managing Director of Newport Global Advisors L.P. since September 14, 2005. Prior to joining Newport Global Advisors L.P., Mr. May held a number of positions, most recently Managing Director, in the High Yield Group of AIG Global Investment Group over a period of more than five years. Mr. May was co-head of research for the High Yield Group, as well as the senior analyst in the healthcare, pharmaceuticals and utilities sectors. Mr. May joined AIG Global Investment Group with the acquisition of AGIM in 2001. Mr. May joined AGIM in 1999 as a senior fixed income investment manager covering the healthcare, lodging and service sectors. Mr. May received a Bachelor of Science in Mathematics from Louisiana State University in 1989 and a Master of Business Administration from the University of Houston in 1996. Mr. May is a Chartered Financial Analyst.

Donald L. Carano. Mr. Carano has been a manager of Resorts since 1996 and a manager of Eldorado since April 1, 2009 when Resorts became the wholly owned subsidiary of Eldorado. Mr. Carano has served as Chief Executive Officer of, and has owned a controlling interest in, Resorts or its predecessor since 1973 and Eldorado since April 1, 2009, when Resorts became the wholly owned subsidiary of Eldorado. Previously, he was an attorney with the firm of McDonald Carano Wilson LLP, with which he maintains an “of counsel” relationship. Mr. Carano has been involved in the gaming industry and has been a licensed casino operator since 1969. Also, since 1984, Mr. Carano has been the Chief Executive Officer of the Ferrari Carano Winery. He is the father of Gary Carano. He is also the father of Gene and Gregg Carano and is married to Rhonda Carano, each of whom is employed by Eldorado-Reno in an executive or senior management position.

Gary L. Carano. Mr. Carano has been the designated representative of Recreational Enterprises, Inc., a manager of Eldorado, since 1996 and, in that capacity served on the board of managers of Resorts and, since April 1, 2009 when Resorts became the wholly owned subsidiary of Eldorado, has served on the board of managers of Eldorado. Mr. Carano has served as General Manager of the Silver Legacy since 1995.


Mr. Carano has served as President and Chief Operating Officer of Resorts since 2004 and Eldorado since April 1, 2009, when Resorts became the wholly owned subsidiary of Eldorado. Previously, he served as Assistant General Manager, General Manager and Chief Operating Officer of the Eldorado from 1980 to 1994. Mr. Carano holds a Bachelors Degree in Business Administration from the University of Nevada, Reno.

Raymond J. Poncia, Jr. Mr. Poncia has been the designated representative of Hotel-Casino Management, Inc., since 1996 and, in that capacity served on the board of managers of Resorts and, since April 1, 2009 when Resorts became the wholly owned subsidiary of Eldorado, has served on the board of managers of Eldorado. Mr. Poncia has had an ownership interest in the Eldorado-Reno since 1973 and has been involved in the gaming industry since 1968. He has been involved with the Eldorado-Reno in the areas of development, architectural and interior design, construction financing and business planning. Mr. Poncia received his architectural degree from Case-Reserve University and has been a licensed architect in private practice since 1960.

Audit Committee Financial Expert

The Company’s Board of Managers, which does not have a separate audit committee, has determined that Thomas R. Reeg, who is a member of the Board of Managers and the Company’s Operating Manager, is an “audit committee financial expert” in that he has the following attributes:

 

   

an understanding of generally accepted accounting principles and financial statements;

 

   

the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves;

 

   

experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements or experience actively supervising one or more persons engaged in such activities;

 

   

an understanding of internal control over financial reporting; and

 

   

an understanding of audit committee functions.

Reference is made to the description of Mr. Reeg’s business experience which appears above. The Board of Managers has also determined that no member of the Board of Managers, including Mr. Reeg, is “independent” as that term is defined under current rules of the New York Stock Exchange (the “NYSE”). None of the Company’s securities are listed on the NYSE or any other national securities exchange or any national securities association, nor is there any current intention to so list any securities of the Company in the future.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our managers, executive officers and persons who own more than ten percent of a registered class of our equity securities (collectively, the “reporting persons”) to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish us with copies of these reports. Based on written representations received from our reporting persons, we believe that no filings were required to be made by those reporting persons for the period January 1, 2009 through December 31, 2009.

Code of Ethics

The Company’s Board of Managers has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions. The code of ethics is a written standard designed to deter wrongdoing and to promote

 

   

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;


   

full, fair, accurate, timely and understandable disclosure in the Company’s reports and other documents that it files with, or submits to, the Securities and Exchange Commission or any applicable gaming regulatory authority and in other public communications made by the Company;

 

   

compliance with applicable governmental laws, rules and regulations;

 

   

the prompt internal reporting of violations of the code in the manner provided in the code; and

 

   

accountability for adherence to the code.

A copy of the code of ethics is incorporated by reference as Exhibit 14.1 to this report.

 

ITEM 11. EXECUTIVE COMPENSATION.

The Company’s managers, including its Operating Manager, are not entitled to compensation from the Company for any services rendered to or on behalf of the Company, or otherwise, in their capacities as managers of the Company and, accordingly, no compensation for such services has been paid to the Company’s managers by or on behalf of the Company. The Company’s managers, including the Operating Manager, also are not compensated by or on behalf of the Company for any other services they provide to the Company, including the services performed by Mr. Reeg that are commonly performed by a principal executive officer and the services performed by Mr. May that are commonly performed by a principal financial officer or a principal accounting officer. The Company’s managers are entitled to reimbursement from the first available funds of the Company for direct out-of-pocket costs and expenses they incur on behalf of the Company that directly relate to the business and affairs of the Company. The Company does not have any named executive officers other than its Operating Manager, Thomas R. Reeg, who during the year ended December 31, 2009 performed services for the Company commonly performed by a principal executive officer, for which Mr. Reeg received no compensation from the Company. Roger A. May, a Manager of the Company, performed services for the Company during the year ended December 31, 2009 commonly performed by a principal financial officer, for which Mr. May received no compensation from the Company.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth, as of the date of this report, information regarding the beneficial ownership of the Company’s voting securities by all persons known to be the beneficial owners of more than 5% of any voting class of Company securities.

 

Name of Beneficial Owner(1)

  

Title of Class of

Company Securities

  

Amount and Nature of

Beneficial Ownership(2)

  

Percent of Class

 

NGA VoteCo, LLC

   Class A Units    1 Unit (3)    100 %(3) 

Thomas R. Reeg(4)

   Class A Units    1 Unit (5)    100 %(5) 

Timothy T. Janszen(6)

   Class A Units    1 Unit (5)    100 %(5) 

Ryan Langdon(7)

   Class A Units    1 Unit (5)    100 %(5) 

Roger A. May(8)

   Class A Units    1 Unit (5)    100 %(5) 

 

(1) The address for each beneficial owner is:

c/o Newport Global Advisors LP

21 Waterway Avenue, Suite 150

The Woodlands, TX 77380

(2) Beneficial ownership is determined in accordance with the Exchange Act, as amended, and the rules and regulations promulgated thereunder.


(3) VoteCo directly owns one Class A Unit of the Company, which is the only Class A Unit of the Company that is issued and outstanding.
(4) Thomas R. Reeg is a member of the Company’s and VoteCo’s board of managers and the operating manager of VoteCo and the Company.
(5) Thomas R. Reeg, Timothy T. Janszen, Ryan Langdon and Roger A. May (collectively, the “VoteCo Equityholders”) are the voting members of VoteCo holding 30, 30, 30 and 10 VoteCo Units, respectively. These individuals may be deemed to form a “group” holding all 100 VoteCo Units and, as a result, each such individual may be deemed to be a beneficial owner of the Class A Unit of the Company directly held by VoteCo.
(6) Mr. Janszen is a member of the Company’s and VoteCo’s board of managers.
(7) Mr. Langdon is a member of the Company’s and VoteCo’s board of managers.
(8) Mr. May is a member of the Company’s and VoteCo’s board of managers.

The following table sets forth, as of the date of this report, information regarding the beneficial ownership by each of the Company’s managers, Thomas R. Reeg, Timothy T. Janszen, Ryan Langdon and Roger A. May, of each class of equity securities of the Company, the Company’s parent or the Company’s subsidiaries of which he owns any beneficial interest. Mr. Reeg, who is the Company’s operating manager, and performs services for the Company commonly performed by a principal financial officer, is the Company’s only named executive officer.

 

Name of Company Manager(1)

  

Title of Class of Securities

  

Amount and Nature of

Beneficial Ownership(2)

   Percent of Class  

Thomas R. Reeg(3)

  

VoteCo Units

Company Class A Units

Blocker Units

AcquisitionCo Units

  

30 Units (4)

1 Unit (5)

100 Units (6)

100 Units (7)

   30.0

100

100

100

%(4) 

%(5) 

%(6) 

%(7) 

Timothy T. Janszen(8)

  

VoteCo Units

Company Class A Units

Blocker Units

AcquisitionCo Units

  

30 Units (9)

1 Unit (5)

100 Units (6)

100 Units (7)

   30.0

100

100

100

%(4) 

%(5) 

%(6) 

%(7) 

Ryan Langdon(10)

  

VoteCo Units

Company Class A Units

Blocker Units

AcquisitionCo Units

  

30 Units (11)

1 Unit (5)

100 Units (6)

100 Units (7)

   30.0

100

100

100

%(4) 

%(5) 

%(6) 

%(7) 

Roger A. May(12)

  

VoteCo Units

Company Class A Units

Blocker Units

AcquisitionCo Units

  

10 Units (13)

1 Unit (5)

100 Units (6)

100 Units (7)

   10

100

100

100

%(4) 

%(5) 

%(6) 

%(7) 

Company Managers and Executive Officers of the Company as a Group (4 persons)(14)

        
   Company Class A Units    1 Unit (5)    100 %(5) 
   Blocker Units    100 Units (6)    100 %(6) 
   AcquisitionCo Units    100 Units (7)    100 %(7) 

 

(1) The address for each manager of the Company is:

c/o Newport Global Advisors LP

21 Waterway Avenue, Suite 150

The Woodlands, TX 77380

(2) Beneficial ownership is determined in accordance with the Exchange Act, as amended, and the rules and regulations promulgated thereunder.
(3) Thomas R. Reeg is the operating manager of VoteCo, the Company, Blocker and AcquisitionCo. Mr. Reeg performs services for the Company commonly performed by a principal executive officer.
(4) Thomas R. Reeg is the listed owner of these securities.
(5)

VoteCo is the listed owner of one Class A Unit of the Company, which is the only Class A Unit of the Company that is issued and outstanding. Thomas R. Reeg, Timothy T. Janszen, Ryan Langdon and Roger A.


 

May each may be deemed to be a member of a “group” holding all 100 VoteCo Units and, as a result, each may be deemed to be a beneficial owner of the Class A Unit of the Company, representing the only Class A Unit of the Company issued and outstanding, directly held by VoteCo.

(6) The Company is the listed owner of all 100 Blocker Units. Thomas R. Reeg, Timothy T. Janszen, Ryan Langdon and Roger A. May each may be deemed to be a member of a “group” holding all 100 VoteCo Units and, as a result, each may be deemed to be a beneficial owner of all Blocker Units directly held by the Company.
(7) Blocker is the listed owner of all 100 AcquisitionCo Units. Thomas R. Reeg, Timothy T. Janszen, Ryan Langdon and Roger A. May each may be deemed to be a member of a “group” holding all 100 VoteCo Units and, as a result, each may be deemed to be a beneficial owner of all AcquisitionCo Units directly held by Blocker.
(8) Timothy T. Janszen is a manager of VoteCo, the Company, Blocker and AcquisitionCo.
(9) Timothy T. Janszen is the listed owner of these securities.
(10) Ryan Langdon is a manager of VoteCo, the Company, Blocker and AcquisitionCo.
(11) Ryan Langdon is the listed owner of these securities.
(12) Roger A. May is a manager of VoteCo, the Company, Blocker and AcquisitionCo. Mr. May performs services for the Company commonly performed by a principal financial officer or a principal accounting officer.
(13) Roger A. May is the listed owner of these securities.
(14) The Company currently has no executive officers, but Thomas R. Reeg, the Company’s operating manager, performs services for the Company commonly performed by a principal executive officer and Roger A. May, a manager of the Company, performs services for the Company commonly performed by a principal financial officer or a principal accounting officer.

Equity Compensation Plans

The following tables set forth certain information relating to equity compensation plans as of December 31, 2009 for the Company, which has no equity compensation plan.

Equity Compensation Plan Information

 

Plan category

 

Number of securities to be

issued upon exercise of

outstanding options,

warrants and rights

(a)

 

Weighted average exercise

price of outstanding options,

warrants and rights

(b)

 

Number of remaining

available for future issuance

under equity compensation

plans (excluding securities

reflected in column (a))

(c)

Equity compensation plans approved by security holders

  None   —     None

Equity compensation plans not approved by security holders

  None   —     None

Total

  None   —     None

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Director Independence

The Company’s Board of Managers has determined that none of the Company’s managers is “independent” as that term is defined under current rules of the New York Stock Exchange (the “NYSE”). None of the Company’s securities are listed on the NYSE or any other national securities exchange or any national securities association, nor is there any current intention to so list any securities of the Company in the future.

The Board of Managers of Eldorado has determined that no member of Eldorado’s Board of Managers is “independent” as that term is defined under current rules of the NYSE. None of Eldorado’s securities are listed on the NYSE or any other national securities exchange or any national securities association, nor is there any current intention to so list any securities of Resorts in the future.


Company’s Parent

The Company’s only parent is VoteCo, which holds 100% of the voting securities of the Company. The equity owners of VoteCo are Thomas R. Reeg, Timothy T. Janszen and Ryan Langdon, each of whom owns a 30% interest, and Roger A. May, who owns a 10% interest.

Related Transactions

Until July 1, 1996, Resorts had historically paid a management fee to each of Recreational Enterprises, Inc. and Hotel Casino Management, Inc. A portion of these fees represented compensation for services provided to Resorts by certain members of the Carano family. Effective July 1, 1996, Resorts entered into a new management agreement (the “Eldorado Management Agreement”) with Recreational Enterprises, Inc. and Hotel Casino Management, Inc. which provides that Recreational Enterprises, Inc. and Hotel Casino Management, Inc. (collectively, the “Managers”) will, among other things, (a) develop strategic plans for Resorts’ business, including preparing annual budgets and capital expenditure plans, (b) provide advice and oversight with respect to financial matters of Resorts, (c) establish and oversee the operation of financial accounting systems and controls and regularly review Resorts’ financial reports, (d) provide planning, design and architectural services to Resorts and (e) furnish advice and recommendations with respect to certain other aspects of Resorts’ operations. In consideration for such services, Resorts pays to the Managers a management fee not to exceed 1.5% of Resorts’ annual net revenues. There is no minimum payment required to be paid to the Managers pursuant the Eldorado Management Agreement. The current term of the Eldorado Management Agreement continues in effect until July 1, 2011 after which it will be automatically renewed for additional three-year terms until terminated by one of the parties. Resorts paid no management fees to the Managers in 2009. In 2008, it paid management fees to Recreational Enterprises, Inc. and Hotel Casino Management, Inc. of $328,000 and $172,000, respectively. There can be no assurance that the terms of the Eldorado Management Agreement are at least as favorable to Resorts as could be obtained from unaffiliated third parties. Recreational Enterprises, Inc. is beneficially owned by members of the Carano family and Hotel Casino Management, Inc. is beneficially owned by members of the Poncia family. Donald M. Carano and Raymond J. Poncia, Jr. are members of Resorts’ and Eldorado’s boards of managers.

Resorts owns the parcel on which Eldorado-Reno is located, except for approximately 30,000 square feet which is leased from C, S and Y Associates, a general partnership of which Donald Carano is a general partner (the “C, S and Y Lease”). The C, S and Y Lease expires on June 30, 2027. Annual rent is payable in an amount equal to the greater of (i) $400,000 or (ii) an amount based on a decreasing percentage of Eldorado-Reno’s gross gaming revenues for the year ranging from 3% of the first $6.5 million of gross gaming revenues to 0.1% of gross gaming revenues in excess of $75 million. In 2009 and 2008, the rent paid pursuant to the C, S and Y Lease, totaled approximately $605,000 and $624,000, respectively. In the opinion of Eldorado’s management, the terms of the C, S and Y Lease are at least as favorable to Resorts as could have been obtained from unaffiliated third parties.

Eldorado currently retains the firm of McDonald Carano Wilson LLP (“McDonald Carano”) in connection with a variety of legal matters. Donald Carano was an attorney with McDonald Carano from 1961 until 1980. Mr. Carano has maintained an “of counsel” relationship with McDonald Carano, but is not involved in the active practice of law or in the representation of Resorts or any of its affiliates as an attorney. Mr. Carano receives no compensation from McDonald Carano. In the opinion of Eldorado’s management, the fees paid to McDonald Carano are at least as favorable to Eldorado as could be obtained from any other law firm for comparable services.

Resorts owns a 21.25% interest in Tamarack Crossings, LLC, a Nevada limited liability company, which owns and operates Tamarack Junction (“Tamarack”), a small casino in south Reno, Nevada. Resorts has a nontransferable option to purchase from Donald Carano, at a purchase price equal to his cost plus any undistributed income attributable thereto (which amounted to approximately $2.6 million at December 31, 2009), an additional 10.0% interest in Tamarack Crossings, LLC, which is exercisable until June 30, 2010. Donald Carano currently owns a 26.25% interest in Tamarack Crossings, LLC. Four members of Tamarck Crossings, LLC, including Resorts and three unaffiliated third parties, manage the business and affairs of the Tamarack. At December 31, 2009 and 2008, Resorts’ financial investment in Tamarack Crossings, LLC was $5.5 million and $5.3 million,


respectively. Resorts’ capital contribution to Tamarack Crossings, LLC represents its proportionate share of the total capital contributions of the members. Additional capital contributions of the members, including Resorts, may be required for certain purposes, including the payment of operating costs and capital expenditures or the repayment of loans, to the extent such costs are not funded by prior capital contributions and earnings.

From time to time Eldorado leases aircraft owned by Recreational Enterprises, Inc., for use in operating its business. In 2009 and 2008, the lease payments made by Eldorado for use of the aircraft totaled approximately $0.9 million and $1.2 million, respectively. In the opinion of Eldorado’s management, the lease terms were at least as favorable as could have been obtained from an unaffiliated third party.

From time to time Eldorado leases a yacht owned by Sierra Adventure Equipment, a limited liability company beneficially owned by Recreational Enterprises, Inc., for use in operating its business. In 2009 and 2008, the lease payments made by Eldorado for use of the yacht totaled approximately $2,500 and $81,500, respectively. In the opinion of Eldorado’s management, the lease terms were at least as favorable as could have been obtained from an unaffiliated third party.

Eldorado occasionally purchases wine and firewood directly from the Ferrari Carano Winery, which is owned by Recreational Enterprises, Inc. and Donald Carano. The firewood is used in Eldorado-Reno’s various wood burning ovens while wine purchases are sent directly to customers in appreciation of their patronage. In 2009 and 2008, Eldorado spent approximately $43,000 and $63,500, respectively, for these products. In the opinion of Eldorado’s management, the purchases were on terms as least as favorable as could have been obtained from an unaffiliated third party.

No distributions were made by Silver Legacy to its partners, and no distributions were made by Eldorado or Resorts to its members, during the year ended December 31, 2009. In 2008, Resorts made distributions of $2.4 million to its members for income taxes, including a $1.2 million tax distribution in January 2008 relating to the year 2007, and Silver Legacy made a special distribution in the amount of $10 million, of which $5 million was paid to each of its partners, in March 2008.

The information included in Item 1 of this report under the subcaption “The Resorts Transaction” is incorporated herein by this reference.

In April 2008, the Silver Legacy and Eldorado began combining certain back-of-the-house and administrative departmental operations, including purchasing, advertising, information systems, surveillance and engineering of the Eldorado and Silver Legacy in an effort to achieve payroll cost savings synergies at both properties. Payroll costs associated with the combined operations are shared equally and are billed at cost plus an estimated allocation for related benefits and taxes. During 2009 and 2008, the Silver Legacy reimbursed Eldorado $543,000 and $129,200, respectively, for Silver Legacy’s allocable portion of the shared administrative services costs associated with the operations performed at the Eldorado and the Eldorado reimbursed the Silver Legacy $143,300 and $30,100, respectively, for Eldorado’s allocable portion of the shared administrative services costs associated with the operations performed at Silver Legacy.

Eldorado’s identification and review of related party transactions is not covered by any formal policies or procedures but is accomplished through informal discussion and examination among executive management and Eldorado’s Board of Managers. Transactions with related parties are subjected to the prior review of management and its Board of Managers. Related party transactions typically involve various transactions with Eldorado’s affiliates, or entities in which an affiliate of Eldorado has an interest, that generally provide Eldorado with an opportunity to obtain favorable terms and/or premium products. However, all of Eldorado’s related party transactions are reviewed to ensure that the terms are at least as favorable to Eldorado as those obtainable from an unaffiliated third party. According to Eldorado’s management, there has not been any transaction since the beginning of the Company’s last fiscal year that would be required to be reported pursuant to Items 404(a) of Securities and Exchange Commission Regulation S-K if Eldorado were subject to the periodic reporting requirements under the Securities Exchange Act of 1934 that was not so reviewed and approved.

Newport Financing Commitment

On May 12, 2009, Resorts and Newport, an affiliate of the Company, executed an agreement (the “Agreement”) pursuant to which Resorts could, at any time it believed that it might in the reasonably foreseeable future be in default of any of certain provisions of its credit facility, make a written request to Newport for a loan. However, a loan request could not be made after the earlier of the first anniversary of the Agreement, or the maturity date of Resorts’ credit facility (including, for this purpose, any amendments, replacements or extensions thereof). Newport was obligated, within ten days after a written request therefor, to make a loan to Resorts in the amount requested, subject to the limitation in the Agreement on the amount that Resorts was permitted to borrow. Any loan under the Agreement was to bear interest at a rate mutually determined by Resorts and Newport.

 


Resorts paid Newport $25,000 commitment fee at the time the Agreement was executed by the parties. No request for a loan was ever made pursuant to the Agreement, which was terminated on August 18, 2009.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The following table sets forth fees billed by Deloitte & Touche LLP (“Deloitte”), the Company’s principal accounting firm, to the Company for the fiscal years ended December 31, 2009 and 2008.

 

     Year Ended December 31,
     2009    2008

Audit Fees (1)

   $ 132,000    $ 164,000

Tax Fees (2)

     —        5,000
             
   $ 132,000    $ 169,000
             

 

(1) Audit Fees. This category includes fees and expenses billed by Deloitte for the audits of the Company’s financial statements and for the reviews of the financial statements included in the Company’s filings with the Securities and Exchange Commission, including its quarterly and annual reports filed pursuant to Section 13 of the Securities Exchange Act of 1934, as amended.
(2) Tax Fees. This category includes fees and expenses billed by Deloitte for tax compliance and preparation services.


The Board of Managers has established pre-approval policies and procedures pursuant to which the Board of Managers approves the services provided by our principal accounting firm. The services provided to us by our principal accounting firm in 2009 and 2008 were pre-approved by our Board of Managers. Consistent with the Board of Managers’ responsibility for engaging our independent auditors, all audit and permitted non-audit services require pre-approval by the Board of Managers. Requests or applications to provide services that require specific approval by the Board of Managers will be submitted to the Board of Managers by both the independent auditor and Roger A. May, who performs for the Company the services commonly performed by a principal financial officer. Mr. May will immediately report to the Board of Managers any breach of this policy that comes to his attention.


Part IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The following exhibits are filed with, or incorporated by reference in, this report.

 

Exhibit No.

  

Description

  2.1    Subscription Agreement for Class A Unit dated May 31, 2007 (Incorporated by reference to Exhibit No. 2.1 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
  2.2    Subscription Agreement for Class B Units dated May 31, 2007 (Incorporated by reference to Exhibit No. 2.2 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
  3.1    Articles of Organization of NGA HoldCo LLC, dated as of January 4, 2007 (Incorporated by reference to Exhibit No. 3.1 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
  3.2    Amended and Restated Operating Agreement of NGA HoldCo LLC (Incorporated by reference to Exhibit No. 3.2 to Amendment No. 1 to the Company’s registration statement on Form 10-SB filed with the SEC on August 31, 2007 – SEC File No. 000-52734)
  4.1    Operating Agreement of Eldorado HoldCo LLC, dated as of April 1, 2009 (Incorporated by reference to Exhibit 4.1 to the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2009 – SEC File No. 000-52734)
  4.2    Amended and Restated Operating Agreement of Eldorado Resorts LLC dated as of December 14, 2007 (Incorporated by reference to Exhibit No. 4.1 to the Company’s annual report on Form 10-KSB for the year ended December 31, 2007 – SEC File No. 0-52734)
  4.3    Amended and Restated Operating Agreement of Eldorado Resorts LLC, dated as of April 1, 2009 (Incorporated by reference to Exhibit 4.2 to the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2009 – SEC File No. 000-52734)
10.1    Amended and Restated Purchase Agreement dated as of July 20, 2007 by and among Eldorado Resorts LLC, AcquisitionCo LLC and Donald L. Carano (Incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Company’s registration statement on Form 10-SB filed with the SEC on August 31, 2007 – SEC File No. 000-52734)
10.2    Put-Call Agreement dated as of December 14, 2007 (Incorporated by reference to Exhibit No. 10.2 to the Company’s annual report on Form 10-KSB for the year ended December 31, 2007 – SEC File No. 0-52734)
10.3    Registration Rights Agreement dated as of December 14, 2007 (Incorporated by reference to Exhibit No. 10.3 to the Company’s annual report on Form 10-KSB for the year ended December 31, 2007 – SEC File No. 0-52734)
10.4    Assignment and Assumption of Registration Rights Agreement
10.5    Indenture dated April 20, 2004, between Eldorado Resorts LLC, Eldorado Capital Corp. and U.S. Bank National Association, as trustee. (Incorporated by reference to Exhibit 4.1 to the Resorts’ Form 10-Q for the quarterly period ended March 31, 2004 SEC - File No. 333-11811)
10.6    Supplemental Indenture, dated August 11, 2005, by and among Eldorado Resorts LLC, Eldorado Capital Corp. and U.S. Bank National Association. (Incorporated by reference to Exhibit No. 10.38 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.7    Second Supplemental Indenture, dated November 21, 2006, by and among Eldorado Resorts LLC, Eldorado Capital Corp. and U.S. Bank National Association. (Incorporated by reference to Exhibit No. 10.39 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)


Exhibit No.

  

Description

10.8    Supplemental Indenture, dated as of November 20, 2007 (Incorporated by reference to Exhibit No. 10.7 to the Company’s annual report on Form 10-KSB for the year ended December 31, 2007 – SEC File No. 0-52734)
10.9    Environmental Indemnity, entered into as of March 5, 2002 (Incorporated by reference to Exhibit 10.10.6 to Resorts’ Form 10-K for the year ended December 31, 2001 – SEC File No. 333-11811)
10.10    Loan and Aircraft Security Agreement dated as of December 30, 2005 among Eldorado Resorts LLC and Banc of America Leasing & Capital (Incorporated by reference to Exhibit No. 10.8 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.11    Third Amended and Restated Loan Agreement dated as of February 28, 2006 among Eldorado Resorts LLC and Bank of America, N.A. (formerly Bank of America National Trust and Savings Association), as Issuing Bank and Administrative Agent. (Incorporated by reference to Exhibit No. 10.9 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.12    Amendment No. 1 to Third Amended and Restated Loan Agreement (Incorporated by reference to Exhibit No. 10.11 to the Company’s annual report on Form 10-KSB for the year ended December 31, 2007 – SEC File No. 0-52734)
10.13    Amended and Restated Agreement of Joint Venture of Circus and Eldorado Joint Venture by and between Eldorado Limited Liability Company and Galleon, Inc. (Incorporated by reference to Exhibit 3.3 to the Form S-4 Registration Statement of Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. – SEC File No. 333-87202)
10.14    Management Agreement dated as of June 28, 1996 by and between Eldorado Resorts LLC, Recreational Enterprises, Inc. and Hotel-Casino Management, Inc. (Incorporated by reference to Exhibit 10.3 to the Resorts’ and Eldorado Capital Corp’s Form S-4 Registration Statement - SEC File No. 333-11811)
10.15    Lease dated July 21, 1972 by and between C. S. & Y. Associates and Eldorado Hotel Associates. (Incorporated by reference to Exhibit 10.6.1 to the Resorts’ and Eldorado Capital Corp’s Form S-4 Registration Statement - SEC File No. 333-11811)
10.16    Addendum to Lease dated March 20, 1973 by and between C. S. & Y. Associates and Eldorado Hotel Associates. (Incorporated by reference to Exhibit 10.6.2 to Resorts’ and Eldorado Capital Corp.’s Form S-4 Registration Statement - SEC File No. 333-11811)
10.17    Amendment to Lease dated January 1, 1978 by and between C. S. & Y. Associates and Eldorado Hotel Associates. (Incorporated by reference to Exhibit 10.6.3 to Resorts’ and Eldorado Capital Corp’s Form S-4 Registration Statement - SEC File No. 333-11811)
10.18    Amendment to Lease dated January 31, 1985 by and between C. S. & Y. Associates and Eldorado Hotel Associates. (Incorporated by reference to Exhibit 10.6.4 to Resorts’ and Eldorado Capital Corp’s Form S-4 Registration Statement - SEC File No. 333-11811)
10.19    Third Amendment to Lease dated December 24, 1987 by and between C. S. & Y. Associates and Eldorado Hotel Associates. (Incorporated by reference to Exhibit 10.6.5 to Resorts’ and Eldorado Capital Corp’s Form S-4 Registration Statement - SEC File No. 333-11811)
10.20    Second Amended and Restated Credit Agreement, dated as of March 5, 2002, among Circus and Eldorado Joint Venture, the banks referred to therein and Bank of America, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.9.2 to Resorts’ Form 10-K for the year ended December 31, 2001 - SEC File No. 333-11811)
10.21    Guaranty dated as of March 5, 2002, made by Silver Legacy Capital Corp., in favor of Bank of America, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.9.3 to Resorts’ Form 10-K for the year ended December 31, 2001 SEC File No. 333-11811 )


Exhibit No.

  

Description

10.22    Second Amended and Restated Security Agreement, dated as of March 5, 2002, by and between Circus and Eldorado Joint Venture and Bank of America, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.9.4 to the Resorts’ Form 10-K for the year ended December 31, 2001 - SEC File No. 333-11811)
10.23    Guarantor Security Agreement, dated as of March 5, 2002, by and between Silver Legacy Capital Corp. and Bank of America, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.9.5 to Resorts’ Form 10-K for the year ended December 31, 2001 - SEC File No. 333-11811)
10.24    Second Amended and Restated Deed of Trust, dated as of February 26, 2002, but effective March 5, 2002, by and among Circus and Eldorado Joint Venture and Bank of America, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.9.6 to Resorts’ Form 10-K for the year ended December 31, 2001 - SEC File No. 333-11811)
10.25    Second Amended and Restated Assignment of Rent and Revenues entered into as of February 26, 2002, but effective as of March 5, 2002, by and between Circus and Eldorado Joint Venture and Bank of America, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.9.7 to the Resorts’ Form 10-K for the year ended December 31, 2001 - SEC File No. 333-11811 )
10.26    Second Amended and Restated Collateral Account Agreement, dated March 5, 2002, by and between Circus and Eldorado Joint Venture and Bank of America, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.9.8 to the Resorts’ Form 10-K for the year ended December 31, 2001 - SEC File No. 333-11811)
10.27    Intercreditor Agreement, dated as of March 5, 2002, by and among Bank of America, N.A., as administrative agent, The Bank of New York, as trustee, Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. (Incorporated by reference to Exhibit 10.9.9 to the Resorts’ Form 10-K for the year ended December 31, 2001 - SEC File No. 333-11811)
10.28    Indenture, dated as of March 5, 2002, among Circus and Eldorado Joint Venture, Silver Legacy Capital Corp., and The Bank of New York, as trustee. (Incorporated by reference to Exhibit 10.10.1 to the Resorts’ Form 10-K for the year ended December 31, 2001 - SEC File No. 333-11811)
10.29    Deed of Trust, dated as of February 26, 2002, by Circus and Eldorado Joint Venture, to First American Title Company of Nevada for the benefit of the Bank of New York. (Incorporated by reference to Exhibit 10.10.2 to the Resorts’ Form 10-K for the year ended December 31, 2001 - SEC File No. 333-11811)
10.30    Security Agreement, dated as of March 5, 2002, by and between Circus and Eldorado Joint Venture and Silver Legacy Corp. for the benefit of The Bank of New York, as trustee. (Incorporated by reference to Exhibit 10.10.3 to the Resorts’ Form 10-K for the year ended December 31, 2001 - SEC File No. 333-11811)
10.31    Assignment of Rent and Revenues entered into as of February 26, 2002, by and between Circus and Eldorado Joint Venture and The Bank of New York, as trustee. (Incorporated by reference to Exhibit 10.10.4 to the Resorts’ Form 10-K for the year ended December 31, 2001 - SEC File No. 333-11811)
10.32    Collateral Account Agreement, dated as of March 5, 2002, by and among Circus and Eldorado Joint Venture, Silver Legacy Capital Corp., and The Bank of New York, as trustee. (Incorporated by reference to Exhibit 10.10.5 to the Resorts’ Form 10-K for the year ended December 31, 2001 - SEC File No. 333-11811)
10.33    Amendment No. 1 to Second Amended and Restated Credit Agreement dated November 4, 2003 between Circus and Eldorado Joint Venture and Bank of America, N.A. (Incorporated by reference to Exhibit 10.1 to Circus and Eldorado Joint Venture’s Quarterly Report on Form 10-Q for the period ended September 30, 2003–Commission File No. 333-87202)


Exhibit No.

  

Description

10.34    Modification of Second Amended and Restated Construction Deed of Trust, Fixture Filing and Security Agreement with Assignment of Rights dated November 3, 2003 between Circus and Eldorado Joint Venture and Bank of America, N.A. (Incorporated by reference to Exhibit 10.2 to Circus and Eldorado Joint Venture’s Quarterly Report on Form 10-Q for the period ended September 30, 2003–Commission File No. 333-87202)
10.35    Amendment No. 2 to Second Amended and Restated Credit Agreement dated June 15, 2005 between Circus and Eldorado Joint Venture and Bank of America, N.A. (Incorporated by reference to Exhibit 10 to Circus and Eldorado Joint Venture’s Current Report on Form 8-K filed June 20, 2005–Commission File No. 333-87202)
10.36    Amendment No. 3 to Second Amended and Restated Credit Agreement dated March 2, 2006 between Circus and Eldorado Joint Venture and Bank of America, N.A. (Incorporated by reference to Exhibit 10 to Circus and Eldorado Joint Venture’s Current Report on Form 8-K filed March 8, 2006–Commission File No. 333-87202)
10.37    UCC Financing Statement Amendments (Incorporated by reference to Exhibit 4.15 to Circus and Eldorado Joint Venture’s Annual Report on Form 10-K for the year ended December 31, 2006–Commission File No. 333-87202)
10.38    Amendment No. 4 to Second Amended and Restated Credit Agreement as of March 28, 2007 between Circus and Eldorado Joint Venture and Bank of America, N.A. (Incorporated by reference to Exhibit 10.11 to Circus and Eldorado Joint Venture’s Annual Report on Form 10-K for the year ended December 31, 2006–Commission File No. 333-87202)
10.39    Modification of Second Amended and Restated Assignment of Rents and Revenues between Circus and Eldorado Joint Venture and Bank of America, N.A. (Incorporated by reference to Exhibit 10.12 to Circus and Eldorado Joint Venture’s Annual Report on Form 10-K for the year ended December 31, 2006–Commission File No. 333-87202)
10.40    Second Modification of Second Amended and Restated Construction Deed of Trust between Circus and Eldorado Joint Venture and Bank of America, N.A. (Incorporated by reference to Exhibit 10.13 to Circus and Eldorado Joint Venture’s Annual Report on Form 10-K for the year ended December 31, 2006–Commission File No. 333-87202)
10.41    Fifth Amended and Restated Partnership Agreement of Eldorado Casino Shreveport Joint Venture, dated as of July 22, 2005. (Incorporated by reference to Exhibit No. 10.40 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.42    Amendment No. 1, dated as of November 29, 2007, to the Fifth Amended and Restated Joint Venture Agreement of Eldorado Casino Shreveport Joint Venture (Incorporated by reference to Exhibit No. 10.41 to the Company’s annual report on Form 10-KSB for the year ended December 31, 2007 – SEC File No. 0-52734)
10.43    Management Agreement, dated as of July 22, 2005, by and between Eldorado Casino Shreveport Joint Venture and Eldorado Resorts, LLC. (Incorporated by reference to Exhibit No. 10.41 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.44    Amended and Restated Indenture, dated as of July 21, 2005, by and among Eldorado Casino Shreveport Joint Venture, Shreveport Capital Corporation, HCS I, Inc., HCS II, Inc. and U.S. Bank National Association. (Incorporated by reference to Exhibit No. 10.42 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.45    Supplemental Indenture, dated as of November 15, 2007 (Incorporated by reference to Exhibit No. 10.44 to the Company’s annual report on Form 10-KSB for the year ended December 31, 2007 – SEC File No. 0-52734)


Exhibit No.

  

Description

10.46    Fourth Supplemental Indenture, dated as of June 29, 2009, among Eldorado Casino Shreveport Joint Venture, Shreveport Capital Corporation, Eldorado Shreveport #1, LLC, Eldorado Shreveport #2, LLC and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2009 – SEC File No. 000-52734)
10.47    Amended and Restated Security Agreement, dated as of July 21, 2005, by Eldorado Casino Shreveport Joint Venture to U.S. Bank National Association. (Incorporated by reference to Exhibit No. 10.43 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.48    Amended and Restated Security Agreement, dated as of July 21, 2005, by Shreveport Capital Corporation to U.S. Bank National Association. (Incorporated by reference to Exhibit No. 10.44 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.49    Amended and Restated Mortgage, Leasehold Mortgage, and Assignment of Rents and Leases, dated as of July 21, 2005, by the Company. (Incorporated by reference to Exhibit No. 10.45 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.50    First Amendment to and Restatement of First Preferred Ship Mortgage, dated as of July 21, 2005, by Eldorado Casino Shreveport Joint Venture in favor of U.S. Bank National Association (amending 1999 ship mortgage). (Incorporated by reference to Exhibit No. 10.46 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.51    First Amendment to and Restatement of First Preferred Ship Mortgage, dated as of July 21, 2005, by Eldorado Casino Shreveport Joint Venture in favor of U.S. Bank National Association (amending 2001 ship mortgage). (Incorporated by reference to Exhibit No. 10.47 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.52    Membership Interest Pledge Agreement, dated as of July 22, 2005, by Eldorado Resorts, LLC in favor of U.S. Bank National Association. (Incorporated by reference to Exhibit No. 10.48 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.53    Partnership Interest Pledge Agreement, dated as of July 22, 2005, by Eldorado Shreveport #1, LLC in favor of U.S. Bank National Association. (Incorporated by reference to Exhibit No. 10.49 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.54    Partnership Interest Pledge Agreement, dated as of July 22, 2005, by Eldorado Shreveport #2, LLC in favor of U.S. Bank National Association. (Incorporated by reference to Exhibit No. 10.50 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.55    Reaffirmation of Partnership Undertakings, dated as of July 22, 2005, by Eldorado Shreveport #1, LLC, Eldorado Shreveport #2, LLC and Shreveport Gaming Holdings, Inc., a Delaware corporation, in favor of U.S. Bank National Association. (Incorporated by reference to Exhibit No. 10.51 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.56    Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated February 28, 2006 by Eldorado Resorts LLC in favor of First American Title Company of Nevada, as trustee for the benefit of Bank of America, N.A. (Incorporated by reference to Exhibit No. 10.52 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)


Exhibit No.

  

Description

10.57    Third Amended and Restated Security Agreement dated February 28, 2006 by Eldorado Resorts LLC in favor of Bank of America, N.A., as Administrative Agent (Incorporated by reference to Exhibit No. 10.53 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.58    Second Amended and Restated Security Agreement dated February 28, 2006 by Eldorado Capital Corp. in favor of Bank of America, N.A. as Administrative Agent (Incorporated by reference to Exhibit No. 10.54 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.59    Third Amended and Restated Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated February 28, 2006 by Eldorado Resorts LLC and C.S.&Y. Associates in favor of First American Title Company of Nevada as trustee for the benefit of Bank of America, N.A., as Administrative Agent (Incorporated by reference to Exhibit No. 10.55 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.60    Second Amended and Restated Assignment of Rents and Revenues dated February 28, 2006 by Eldorado Resorts LLC in favor of Bank of America, N.A., as Administrative Agent (Incorporated by reference to Exhibit No. 10.56 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.61    Second Amended and Restated Assignment of Subleases and Rents dated February 28, 2006 by Eldorado Resorts LLC in favor of Bank of America, N.A., as Administrative Agent (Incorporated by reference to Exhibit No. 10.57 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.62    Second Amended and Restated Assignment of Equipment Leases dated February 28, 2006 by Eldorado Resorts LLC in favor of Bank of America, N.A., as Administrative Agent (Incorporated by reference to Exhibit No. 10.58 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.63    Second Amended and Restated Guaranty dated February 28, 2006 by Eldorado Capital Corp. in favor of Bank of America, N.A., as Administrative Agent (Incorporated by reference to Exhibit No. 10.59 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
10.64    Agreement, dated May 12, 2009, between Eldorado Resorts LLC and Newport Global Advisors L.P. (Incorporated by reference to Exhibit 10.62 to the Company’s annual report on Form 10-K for the year ended December 31, 2008 – SEC File No. 000-52734)
14.1    Code of Ethics of NGA HoldCo, LLC (Incorporated by reference to Exhibit No. 14.1 to the Company’s annual report on Form 10-KSB for the year ended December 31, 2007 – SEC File No. 000-52734)
21.1    Subsidiaries of NGA HoldCo LLC (Incorporated by reference to Exhibit No. 21.1 to the Company’s registration statement on Form 10-SB filed with the SEC on July 20, 2007 – SEC File No. 000-52734)
31.1    Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification of Principal Executive Officer furnished as required by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of Principal Financial Officer furnished as required by Section 906 of the Sarbanes-Oxley Act of 2002.


INDEX TO FINANCIAL STATEMENTS

 

FINANCIAL STATEMENTS FOR NGA HOLDCO, LLC

  

Report of Independent Registered Public Accounting Firm

   F-2

Consolidated Balance Sheets as of December 31, 2009 and 2008

   F-3

Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007

   F-4

Consolidated Statement of Changes in Members’ Equity for the years ended December  31, 2009, 2008 and 2007

   F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007

   F-6

Notes to Consolidated Financial Statements

   F-7

FINANCIAL STATEMENTS FOR ELDORADO HOLDCO, LLC AND SUBSIDIARIES

  

Independent Auditors’ Report

   F-15

Consolidated Balance Sheets as of December 31, 2009 and 2008

   F-16

Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and 2007

   F-17

Consolidated Statements of Members’ Equity for the Years Ended December  31, 2009, 2008 and 2007

   F-18

Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007

   F-19

Notes to the Consolidated Financial Statements

   F-20

FINANCIAL STATEMENTS FOR CIRCUS AND ELDORADO JOINT VENTURE AND SUBSIDIARY

  

Report of Independent Registered Public Accounting Firm

   F-40

Consolidated Balance Sheets as of December 31, 2009 and 2008

   F-41

Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and 2007

   F-42

Consolidated Statements of Partners’ Equity for the Years Ended December  31, 2009, 2008 and 2007

   F-43

Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007

   F-44

Notes to the Consolidated Financial Statements

   F-45


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

NGA Holdco LLC

The Woodlands, Texas

We have audited the accompanying consolidated balance sheet of NGA Holdco, LLC and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in members’ equity, and cash flows for each of the three years in the period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of NGA Holdco, LLC and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ DELOITTE & TOUCHE LLP
Las Vegas, Nevada
April 14, 2010

 

F-2


NGA HOLDCO, LLC

CONSOLIDATED BALANCE SHEETS

 

     December 31,  
     2009     2008  

ASSETS

    

Current Assets:

    

Cash and cash equivalents

   $ 473,093      $ 262,938   

Federal tax asset

     25,000        235,000   
                

Total current assets

     498,093        497,938   

Deferred federal tax asset

     —          2,472,163   

Investment in Eldorado

     29,328,577        29,666,633   

Due from related party

     5,179,772        5,179,772   
                

Total Assets

   $ 35,006,442      $ 37,816,506   
                

LIABILITIES AND MEMBERS’ EQUITY

    

Current Liabilities:

    

Accounts payable and accrued liabilities

   $ 28,815      $ 22,225   
                

Total current liabilities

     28,815        22,225   

Due to related party

     1,958,636        1,719,870   
                

Total Liabilities

     1,987,451        1,742,095   
                

Members’ Equity:

    

Class A unit (1 Unit issued and outstanding)

     3,806        3,806   

Class B units (9,999 Units issued and outstanding)

     36,322,652        36,322,652   

Accumulated deficit

     (3,307,467     (252,047
                

Total Members’ equity

     33,018,991        36,074,411   
                

Total Liabilities & Members’ equity

   $ 35,006,442      $ 37,816,506   
                

The accompanying notes are an integral part of consolidated financial statements.

 

F-3


NGA HOLDCO, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

 

     For the years ended December 31,  
     2009     2008     2007  

(Loss) Income:

      

Gain on marketable securities

   $ —        $ —        $ 1,992,211   

Interest income

     —          —          3,532,944   

Dividend income

     —          —          61,600   

Equity loss on Eldorado

     (338,056     (4,724,394     (58,824

Impairment in Investment in Eldorado

     —          (3,606,101     —     
                        

Total (loss) income

     (338,056     (8,330,495     5,527,931   

Expenses:

      

Legal, licensing, and other expenses

     245,201        179,625        1,175,648   
                        

Net (loss) income before income taxes

     (583,257     (8,510,120     4,352,283   

Income tax (expense) benefit

     (2,472,163     3,140,560        (668,397
                        

Net (loss) income

   $ (3,055,420   $ (5,369,560   $ 3,683,886   
                        

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4


NGA HOLDCO, LLC

CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ EQUITY

 

     Subscribed
Class A
Unit
   Class B
Units
   Retained
Earnings
(Accumulated
Deficit)
    Total
Members’
Equity
 

Balance, January 1, 2007

   $ 3,806    $ 36,322,652    $ 1,433,627      $ 37,760,085   

Net Income

     —        —        3,683,886        3,683,886   
                              

Balance, December 31, 2007

     3,806      36,322,652      5,117,513        41,443,971   

Net Loss

     —        —        (5,369,560     (5,369,560
                              

Balance, December 31, 2008

     3,806      36,322,652      (252,047     36,074,411   

Net Loss

     —        —        (3,055,420     (3,055,420
                              

Balance, December 31, 2009

   $ 3,806    $ 36,322,652    $ (3,307,467   $ 33,018,991   
                              

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5


NGA HOLDCO, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     For the years ended
December 31,
 
     2009     2008     2007  

CASH FLOWS FROM OPERATING ACTIVITIES:

      

Net (loss) income

   $ (3,055,420   $ (5,369,560   $ 3,683,886   

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

      

Gain on marketable securities

     —          —          (1,992,211

Equity loss on Eldorado

     338,056        4,724,394        58,824   

Impairment in Investment in Eldorado

     —          3,606,101        —     

Decrease (Increase) in federal tax asset

     2,682,163        (2,707,163     —     

Decrease in subscription receivable

     —          —          3,806   

Decrease (Increase) in due from related parties

     —          3,802        (5,183,574

Decrease in accrued interest receivable

     —          —          1,585,224   

Increase (Decrease) in accounts payable and accrued liabilities

     6,590        (221,093     143,318   

Increase in due to related parties

     238,766        635,943        1,032,330   

(Decrease) Increase in federal tax liability

     —          (668,397     668,397   

Distributions from equity investment in Eldorado

     —          258,911        —     
                        

Net cash provided by operating activities:

   $ 210,155      $ 262,938      $ —     
                        

CASH FLOWS FROM INVESTING ACTIVITIES:

      

Net cash (used in) provided by investing activities:

   $ —        $ —        $ —     
                        

CASH FLOWS FROM FINANCING ACTIVITIES:

      

Net cash (used in) provided by financing activities:

   $ —        $ —        $ —     
                        

Net increase in cash

   $ 210,155      $ 262,938      $ —     
                        

Cash at beginning of the year

   $ 262,938      $ —        $ —     
                        

Cash at end of the year

   $ 473,093      $ 262,938      $ —     
                        

NON CASH INVESTING AND FINANCING TRANSACTIONS:

      

Exchange of marketable securities for equity interest in Eldorado

   $ —        $ —        $ 38,314,863   

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6


Table of Contents

NGA HoldCo, LLC

Notes to Consolidated Financial Statements

1. Organization

NGA HoldCo, LLC, a Nevada limited liability company (the “Company”), was formed on January 8, 2007 at the direction of Newport Global Opportunities Fund LP the (“Newport Fund”), a Delaware limited partnership and an affiliate of Newport Global Advisors LP, a Delaware limited partnership (“Newport”). The Company was formed for the primary purpose of holding equity, either directly or indirectly through affiliates, in one or more entities related to the gaming industry. The consolidated financial statements represent the financial position and results of operations of the Company and its two wholly owned subsidiaries; NGA Blocker, LLC (“Blocker”) and NGA Acquisition Co. LLC (“Acquisition Co”).

On December 14, 2007, the date of the closing of its acquisition of a 17.0359% interest in Eldorado Resorts, LLC, a Nevada limited liability company (“Resorts”), the Company transferred in part to Resorts and in part to Donald L. Carano (“Carano”), respectively, free and clear of any liens, ownership of a total of $38,045,363 original principal amount of 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 “New Shreveport Notes”), together with 11,000 preferred shares in exchange for a 17.0359% interest in Resorts. In May 2007, the Newport Fund contributed 100% of the New Shreveport Notes held by the Newport Fund since August 2006 and 11% of the preferred shares held since August 2006 (collectively, the “Eldorado Shreveport Investments”) to the Company. These Eldorado Shreveport Investments were transferred to the Company at the fair value as of the transfer date. The related consolidated statements of operations reflect the interest and dividend income earned from the Eldorado Shreveport Investments since August 2006 and gains on these investments recognized by the Newport Fund from the date of the Letter of Intent between Resorts and the Newport Fund in November 2006 and the date of acquisition of the interest in Resorts on December 14, 2007.

Effective April 1, 2009, Resorts became a wholly-owned subsidiary of Eldorado HoldCo LLC, a Nevada limited liability company (“Eldorado”), when all of the members of Resorts, including Acquisition Co., the subsidiary of the Company through which the Company held its interest in Resorts, exchanged their interests in Resorts for identical interests in Eldorado. Eldorado, which was formed to be a holding company for Resorts, conducts no operations of its own and, other than its ownership of Resorts, has no assets or liabilities. Unless the context otherwise requires, references to Eldorado include its consolidated subsidiaries.

The Company has had no revenue generating business since inception. Its current business plan consists primarily of its holding of a 17.0359% equity interest in Eldorado. Eldorado, through Resorts, owns and operates the Eldorado Hotel and Casino (the “Eldorado-Reno”) located in Reno, Nevada. Through two wholly owned subsidiaries, Resorts owns all of the partnership interests of the Louisiana Partnership, and operates, pursuant to a management agreement, the Eldorado Shreveport Hotel and Casino in Shreveport, Louisiana (the “Eldorado-Shreveport”), which is owned by the Louisiana Partnership. Eldorado Limited Liability Company (“ELLC”), a Nevada limited liability company 96.1858% owned by Resorts, is a 50% joint venture partner in a general partnership that owns and operates the Silver Legacy Resort Casino (“Silver Legacy”), a hotel and casino property adjacent to Eldorado-Reno. Resorts also owns a 21.25% interest in Tamarack Junction, a small casino in South Reno.

The Company’s one issued and outstanding Class A Unit, representing all of its voting equity, is held by NGA VoteCo, LLC, a Nevada limited liability company (“VoteCo”). All of the Company’s issued and outstanding Class B Units, representing all of its non-voting equity, are held by NGA No VoteCo, LLC, a Nevada limited liability company (“InvestCo”). VoteCo is owned by Thomas R. Reeg, Timothy T. Janszen and Ryan L. Langdon, each of whom owns a 30% interest, and Roger A. May, who owns a 10% interest. Messrs. Reeg, Janszen, Langdon and May collectively are referred to as the “VoteCo Equityholders”. InvestCo is owned by Newport, a Delaware limited partnership formed primarily for the purpose of seeking long-term capital appreciation and current income by acquiring, holding and disposing of investments made in distressed debt securities and equities. Newport holds all of InvestCo’s issued and outstanding voting securities. At present, the Company has no plans to issue any additional Class A Units or Class B Units.

The VoteCo Equityholders, through VoteCo, control all matters of the Company that are subject to the vote of members, including the appointment and removal of managers. Messrs. Reeg, Janszen, Langdon and May are the Company’s managers and Mr. Reeg is also the Company’s operating manager. The Class B Units issued to InvestCo allow it and its investors to invest in the Company without having any voting power or power to control the operations or affairs of the Company, except as otherwise required by law. If InvestCo and its investors had any of the power to control the operations or affairs of the Company afforded to the holders of the Class A Units, they and their respective constituent equityholders would generally be required, in connection with the Company’s investment in Eldorado, to be licensed or found suitable under the gaming laws and regulations of the States of Nevada and Louisiana as well as various local regulations in those states.

VoteCo, InvestCo, the Company and each of the Company’s wholly owned subsidiaries are managed by Thomas R. Reeg, the operating manager of each entity. NGA Blocker, LLC, a Nevada limited liability company (“Blocker”), is a holding company that has elected to be taxed as a corporation. Because Blocker is a separately taxed, non-flow through entity, Blocker will be taxed on its share of the income relating to the Company’s investment in Resorts rather than the Company’s investors.

The Company’s acquisition in December 2007 of a 17.0359% interest in Resorts was pursuant to the terms and conditions of a Purchase Agreement, dated July 20, 2007 (the “Purchase Agreement”). The parties to the Purchase Agreement were Resorts, AcquisitionCo, which is the subsidiary through which the Company acquired its interest in Resorts, and Carano, the presiding member of Resorts’ Board of Managers and the Chief Executive Officer of Resorts from whom a portion of the 17.0359% interest was acquired. The closing of this transaction occurred on December 14, 2007 (“Closing”) after necessary gaming licenses were obtained from Nevada and Louisiana, respectively. The Company owns indirectly through its subsidiaries 17.0359% of Eldorado, and Carano or members of his family own directly or indirectly approximately 51% of Eldorado. Carano continues in the same roles in the management of Eldorado in which he served Resorts prior to Closing.

The 17.0359% equity interest in Resorts acquired by the Company included a new 14.47% membership interest acquired directly from Resorts (the “14.47% Interest”) and a previously outstanding 3% membership interest (that, as a result of the issuance of the 14.47% Interest, was reduced to a 2.5659% interest) acquired from Carano (the “2.5659% Interest”). Subject to the closing adjustment described below, in consideration for its equity interest, AcquisitionCo:

 

   

transferred to Resorts, free and clear of any liens, ownership of $31,133,250 original principal amount of the New Shreveport Notes together with the right to all interest paid with respect thereto after the closing date, and

 

   

transferred to Carano, free and clear of any liens, $6,912,113 original principal amount of New Shreveport Notes together with the right to all interest paid with respect thereto after the closing date and a preferred stock equity interest representing a capital contribution amount of $286,889 issued by SGH.

At closing, Resorts and Carano paid Newport in cash the respective amounts owed to AcquisitionCo for interest on the respective amounts of New Shreveport Notes received at closing that was accrued and unpaid through the date of closing.

Under the terms of the Purchase Agreement, Resorts was entitled, prior to or immediately following the Company’s acquisition of its interest in Resorts, to make a distribution to the members of Resorts other than AcquisitionCo of up to $10 million. On July 25, 2007 Resorts made the $10 million distribution to its members which was funded through borrowings under Resorts’ credit facility as permitted by the Purchase Agreement.

 

F-7


2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The Company prepares its financial statements on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid instruments purchased with an original maturity of three months or less at the time of purchase. Cash equivalents are stated at cost plus accrued interest, which approximates fair value.

Investment in Eldorado

The Company accounts for its 17.0359% investment in Eldorado using the equity method of accounting. The Company considers on a quarterly basis whether the fair value of its equity method investment has declined below its carrying value whenever adverse events or changes in circumstances indicate that the recorded value may not be recoverable. If the Company considers any such decline to be other than temporary, then a write-down would be recorded to estimated fair value. Evidence of a loss in value that may be other than temporary might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of our investment or the inability of Eldorado to sustain an earnings capacity that would justify the carrying amount of the investment. In evaluating whether the loss in value is other than temporary, we consider: 1) the length of time and the extent to which the fair value has been less than cost; 2) the financial condition and near-term prospects of Eldorado, including any specific events which may influence the operations of Eldorado; 3) our intent and ability to retain our investment in Eldorado for a period of time sufficient to allow for any anticipated recovery in fair value; 4) the condition and trend of the economic cycle; 5) Eldorado financial performance and projections; 6) trends in the general market; and 7) Eldorado capital strength and liquidity.

In determining whether the fair value of our investment in Eldorado is less than our carrying value, we use a discounted cash flow model as our principal technique. Our model incorporates an estimated weighted-average cost of capital that a market participant would use in evaluating the investment in a purchase transaction. The estimated weighted-average cost of capital is based on the risk free interest rate and other factors such as current risk premiums. We use the discounted cash flow model as it provides greater detail and opportunity to reflect specific facts, circumstances and economic conditions for our investment. Comparable business transactions are often limited in number, the information can be dated, and often require significant adjustments due to differences in the size of the business, markets served and other factors. We therefore believe that in our circumstance, this makes comparisons to business transactions less reliable than the discounted cash flows model. However, we do consider comparable business transactions as a reasonableness test of our principal technique.

In performing this impairment test, we take steps to ensure that appropriate and reasonable cash flow projections and assumptions are used. We also perform sensitivity analyses on the key assumptions used, including the weighted-average cost of capital.

Fair Value of Financial Instruments

The fair value of receivables, investments and accounts payable approximate their carrying value due to the immediate or short term maturity of these financial instruments.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Blocker and AcquisitionCo. All intercompany transactions have been eliminated in consolidation.

Management’s Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Income Taxes

We account for income taxes under the asset and liability method in accordance with authoritative guidance, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We record net deferred tax assets to the extent we believe these assets will be more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would not be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

The current authoritative guidance provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized and in subsequent periods. This interpretation also provides guidance on measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

In the event the Company were to incur interest and penalties related to unrecognized tax benefits as a result of the Company’s current methodology, the Company would recognize such interest and penalties related to such unrecognized tax benefits within the income tax expense line in the NGA HoldCo accompanying consolidated statements of operations. Moreover, such accrued interest and penalties would be included within the related tax liability line in the accompanying balance sheet were they to exist.

Fair Value Measurements

Effective January 1, 2008, the Company adopted the provisions of authoritative guidance regarding fair value measurements, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. This guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company’s adoption of the authoritative guidance did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements

The Company adopted various accounting standards during 2009, none of which had a material effect on its consolidated financial statements.

In addition, certain amendments to Accounting Standards Codification (“ASC”) Topic 810 “Consolidation” become effective for us beginning January 1, 2010. Such amendments include changes to the quantitative approach to determine the primary beneficiary of a variable interest entity (“VIE”). An enterprise must determine if its variable interest or interests give it a controlling financial interest in a VIE by evaluating whether 1) the enterprise has the power to direct activities of the VIE that have a significant effect on economic performance, and 2) the enterprise has an obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The amendments to ASC 810 also require ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE. The adoption of these amendments did not have a material effect on the Company’s consolidated financial statements.

 

F-8


3. Membership Units and Related Rights

The Company’s Operating Agreement has created two classes of membership units, the Class A Units and the Class B Units. VoteCo holds one Class A Unit of the Company, representing the Company’s only outstanding voting equity. InvestCo holds 9,999 Class B Units of the Company, representing all of the Company’s outstanding non-voting equity. With the exception of voting rights, the rights of a Class A Unit and a Class B Unit are identical.

Each of the Company’s membership units, both Class A and Class B, represent a percentage interest in the Company equal to the quotient determined by dividing one by the aggregate number of units, both Class A and Class B, held by all members as of the date of the determination. The economic rights, risks and rewards are all shared by the members ratably according to their respective percentage interests.

Management

The Company is managed by a board of managers which has four members who are Thomas R. Reeg (who is also the Company’s Operating Manager), Timothy T. Janszen, Ryan Langdon and Roger May. Each of the Company’s managers may be removed from the Company’s board of managers at any time, with or without cause, by VoteCo as the holder of all of the Company’s voting equity. A majority of the Company’s managers may remove the Operating Manager from the position of Operating Manager (but not from the position of manager). The approval of a majority of the Company’s managers is required to elect a new Operating Manager, who must be selected from among the members of the Company’s board of managers.

Neither the Company’s board of managers nor the Operating Manager may take, or cause the Company to take, the following actions without the approval of VoteCo as the holder of the Company’s voting equity:

 

   

any material change in the business purpose of the Company or the nature of the business,

 

   

any action that would render it impossible to carry on the ordinary business of the Company,

 

   

any removal or appointment of any Company manager,

 

   

allow any voluntary withdrawal of any member from the Company,

 

   

any assignment for the benefit of creditors, any voluntary bankruptcy of the Company, or any transaction to dissolve, wind up or liquidate the Company, or

 

   

any transaction between the Company and any member or manager of the Company, or any affiliate or direct family member of any member or manager of the Company, that is not made on an arm’s-length basis.

Generally, in all other respects, VoteCo has no power or authority to participate in the management of the Company or to bind or act on behalf of the Company in any way or to render it liable for any purpose. Except as otherwise expressly required by applicable law, InvestCo, as holder of Class B Units, has neither any right to vote on any matters to be voted on by the members of the Company, nor any power or authority to participate in the management of the Company or bind or act on behalf of the Company in any way or render it liable for any purpose.

Subject to the limitations and restrictions set forth in the Company’s operating agreement, the Operating Manager may exercise the following specific rights and powers without any further consent of the Company’s other managers:

 

   

acquire by purchase, lease, or otherwise any personal property which may be necessary, convenient, or incidental to the accomplishment of the purposes of the Company;

 

   

execute any and all agreements, contracts, documents, certifications, and instruments necessary or convenient in connection with the management of the affairs of the Company;

 

   

borrow money and issue evidences of indebtedness necessary, convenient, or incidental to the accomplishment of the purposes of the Company;

 

   

care for and distribute funds to the Company’s members by way of cash, income, return of capital, or otherwise, all in accordance with the provisions of the Company’s operating agreement;

 

   

contract on behalf of the Company for the employment and services of employees and/or independent contractors, such as lawyers and accountants to provide services for the Company;

 

   

ask for, collect, and receive any rents, issues, and profits or income from any property owned by the Company, and disburse Company funds for Company purposes to those persons entitled to receive the same;

 

   

purchase from or through others, contracts of liability, casualty, or other insurance for the protection of the properties or affairs of the Company or the Company’s members, or for any purpose convenient or beneficial to the Company;

 

   

pay all taxes, licenses, or assessments of whatever kind or nature imposed upon or against the Company and for such purposes to make such returns and do all other such acts or things as may be deemed necessary and advisable by the Company’s board of managers;

 

   

establish, maintain, and supervise the deposit of any monies or securities of the Company with federally insured banking institutions or other institutions as may be selected by the Operating Manager, in accounts in the name of the Company with such institutions;

 

   

institute, prosecute, defend, settle, compromise, and dismiss lawsuits or other judicial or administrative proceedings brought on or in behalf of, or against, the Company or the Company’s members in connection with activities arising out of, connected with, or incidental to this Agreement, and to engage counsel or others in connection therewith; and

 

   

perform all ministerial acts and duties relating to the payment of all indebtedness, taxes, and assessments due or to become due with regard to the Company’s assets, and to give and receive notices, reports, and other communications arising out of or in connection with the ownership, indebtedness, or maintenance of the Company’s assets.

Neither the Operating Manager nor any other manager has the authority to do any of the following acts on behalf of the Company without the approval of a majority of the Company’s managers:

 

   

acquire, by purchase, lease, or otherwise, any real property on behalf of the Company;

 

   

give or grant any options, rights of first refusal, deeds of trust, mortgages, pledges, ground leases, security interests, or otherwise encumbering any stock, interest in a business entity, promissory note issued to the Company, or any other asset owned by the Company;

 

   

sell, convey, or refinance any interest, direct or indirect, that may be acquired by the Company in Eldorado;

 

   

cause or permit the Company to extend credit to or make any loans or become a surety, guarantor, endorser, or accommodation endorser for any person or enter into any contracts with respect to the operation or management of the business of the Company;

 

   

release, compromise, assign, or transfer any claims, rights, or benefits of the Company;

 

   

confess a judgment against the Company or submit a Company claim to arbitration;

 

   

file any petition for bankruptcy of the Company;

 

   

distribute any cash or property of the Company, other than as provided in the Company’s operating agreement;

 

   

admit a new member to the Company; or

 

   

do any act in contravention of in the Company’s operating agreement or which would make it impossible or unreasonably burdensome to carry on the business of the Company.

 

F-9


Notwithstanding the foregoing provisions, the Operating Manager has the authority under the Company’s operating agreement to take such actions as he, in his reasonable judgment, deems necessary for the protection and preservation of Company assets if, under the circumstances, in the good faith estimation of the Operating Manager, there is insufficient time to allow the Operating Manager to obtain the approval of the Company’s board of managers to the action and any delay would materially increase the risk to preservation of the Company’s assets.

Distributions

Subject to all applicable gaming approvals, distributions by the Company will be to its members at such times and in such amounts as approved by the Operating Manager in good faith in accordance with the provisions of the Company’s operating agreement and, if and when made, will be distributed by the Company to its members in proportion to their respective percentage interests in the Company. There is no formal agreement between Newport and the Company regarding the settlement of the due to/from related parties, however, it is expected to be settled upon sale of the Company’s investment in Eldorado.

Restrictions on Transfer

Unless approved in advance by the Operating Manager and by applicable gaming authorities, no member of the Company may transfer all or any portion of its membership units. In addition, transfers or issuances of any membership units to any person who was required to be, and has not been, found suitable to be licensed or to hold such membership units by applicable gaming authorities, are prohibited and will be null and void and of no force or effect as of the inception of the attempted transfer or issuance.

Furthermore, as of the date the Company receives notice from any applicable gaming authority that a member of the Company or a transferee of any membership interest in the Company (1) is required to be licensed but is unsuitable to be licensed or (2) is unsuitable to hold a membership interest in the Company, then the unsuitable member or transferee may not, for so long as the unsuitability determination remains in force and effect,

 

   

receive any share of any cash distribution, or any other property or payments upon the dissolution of the Company,

 

   

exercise directly or through a trustee or nominee any voting rights conferred by any membership interest in the Company,

 

   

participate in the management of the business or affairs of the Company, or

 

   

receive any remuneration in any form from the Company for services rendered or otherwise.

Limited Liability and Indemnification

No member of the Company has any liability for the obligations of the Company, except to the extent required by law. To the maximum extent authorized by law, the Company indemnifies any member, as well as any Company manager, employee, agent or representative of the Company from any loss, damage, claim or liability incurred by him, her or it as a result of any act or failure to act (other than as a result of fraud, gross negligence or willful misconduct) performed or not performed by such person as a member, Company manager, employee, agent or representative of the Company, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred.

Under Nevada law, the Company may, in connection with any action or proceeding, indemnify any Company member, manager, employee or agent of the Company against expenses and amounts paid in settlement thereof, if the person acted in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. With respect to derivative suits, indemnification may not be made to a person who has been adjudged by a court of competent jurisdiction to be liable to the Company or for amounts paid, unless it is determined by the court that the person is fairly and reasonably entitled to indemnity for the expenses.

Under the Nevada LLC Act, the Company shall indemnify a Company member, manager, employee or agent of the Company against expenses to the extent that the person has been successful on the merits or otherwise in defense of any of the actions, suites or proceedings described above. Also, the Company may purchase and maintain insurance on behalf of a current or prior Company manager, member, employee or agent of the Company for any liability asserted against such person and liability and expense incurred by him in such capacity.

Member and Company Manager Compensation

No member or manager of the Company is entitled to receive any compensation from the Company for any services rendered to or on behalf of the Company, or otherwise, in his, her or its capacity as a member or manager of the Company. A manager of the Company is entitled to reimbursement from the first available funds of the Company for direct out-of-pocket costs and expenses incurred by the manager on behalf of the Company that directly related to the business and affairs of the Company.

Dissolution and Termination

The Company will be dissolved upon the happening of any of the following events:

 

   

upon the sale or other disposition of all or substantially all of the Company’s assets and receipt of all consideration therefore,

 

   

upon a judicial determination that an event has occurred that makes it unlawful, impossible or impracticable for the Company to carry on the business, or

 

   

upon the determination of VoteCo as the holder of Class A Units that the Company be dissolved.

Following such an event or the determination by a court of competent jurisdiction that the Company has dissolved prior to the occurrence of such an event, the property of the Company, or the proceeds from the sale thereof, will be applied and distributed first to the payment and discharge of all of the Company’s debts and other liabilities to creditors (including members that are creditors), second to establishing any reserves that the managers of the Company determine, in their sole and absolute discretion, are necessary for any contingent, conditional or unmatured liabilities or obligations of the Company, and third to the members of the Company in proportion to their respective percentage interest in the Company.

 

F-10


4. Investments in Marketable Securities

As of January 1, 2007, the Eldorado Shreveport Investments consist of:

 

     January 1,
2007

Shreveport bonds, due 2012, bearing interest at a rate of 10%, interest payable semiannually in February and August

   $ 36,190,652

Preferred Securities of Shreveport Gaming Holdings, Inc. (11,000 shares)

     132,000
      
   $ 36,322,652
      

The bonds and the preferred securities were acquired by Newport through a series of purchases beginning on August 4, 2006.

While these investments were held by Newport and subsequently the Company, the management of Newport periodically reviewed the underlying value of these investments to determine if any impairment indicators existed. Management relies on the underlying financial statements and comparable value multiples in performing their impairment review. Since the initial acquisition of the bonds and preferred securities that comprise the Eldorado Shreveport Investments, Newport has not recorded or identified any impairment charges of declines in market value.

A rollforward of the Eldorado Shreveport Investments follows:

 

Fair value of Shreveport bonds and preferred securities at January 1, 2007

   $ 36,322,652

Gain on marketable securities through December 14, 2007

     1,992,211
      

Fair value of Shreveport bonds and preferred securities at Closing

   $ 38,314,863
      

In February 2007 and August 2007, Newport received identical interest payments of $1,902,268, totaling $3,804,536, which is reflected in due from related party in the consolidated balance sheet at December 31, 2009 and 2008, respectively, as well as, $1,142,974 of interest received from Resorts and $170,658 of interest received from Donald L. Carano, both representing interest accrued through the Closing. Also included in due from related party is a $61,600 preferred dividend received by Newport in October 2007, representing the dividend earned on the 11,000 shares of preferred securities previously owned by the Company. There is no formal agreement between Newport and the Company regarding the settlement of this receivable, however, it is expected to be settled upon sale of the Company’s investment in Eldorado.

5. Investment in Eldorado

In December 2007, in accordance with the Purchase Agreement with Resorts and Carano, the Company, through its wholly owned subsidiary, AcquisitionCo LLC (“AcquisitionCo”) transferred to Resorts and Carano, respectively, free and clear of any liens, ownership of $31,133,250 and $6,912,113 original principal amount of New Shreveport Notes, respectively, together with the right to all interest paid with respect thereto after the closing date in exchange for the 14.47% Interest and the 2.5659% Interest in Resorts. The Company, through AcquisitionCo, also transferred an equity interest of $286,889 related to Shreveport Gaming Holdings, Inc. to Carano. The equity interest in Resorts was recorded at fair value in accordance with the authoritative guidance. Accordingly, the assets received by AcquisitionCo from the exchange were recorded at fair value based on the quoted market price of the investments given up by AcquisitionCo. This accounting treatment is consistent with the authoritative guidance which indicates that quoted market prices are the best evidence of fair value. It was determined that the quoted market prices of AcquisitionCo’s investments were more indicative of fair value as compared to the equity value of a privately held company like Resorts. At the date of the transaction, the fair value of the 17.0359% equity interest exceeded the related percentage of Resorts’ equity book value by approximately $14.8 million, which the Company has determined is an intangible asset.

In the fourth quarter of 2008, the Company finalized its purchase price allocation of the transaction, and attributed approximately $16.1 million of its overall investment in Resorts to approximately $15.4 million in indefinite-lived intangibles assets and approximately $760,000 in definite-lived intangible assets. The fair value adjustments are a result of a difference between the fair value of our investment and the amount of underlying equity in Resorts. Differences attributable to definite-lived intangible assets are amortized based on the estimated useful lives of seven years. During the years ended December 31, 2009, 2008 and 2007, we recorded approximately $108,000, $115,000 and $0, respectively, of amortization related to these intangibles.

The Company’s 17.0359% investment in Eldorado (which was acquired on April 1, 2009 in exchange for its 17.0359% interest originally acquired in Resorts, as described in Note 1) is accounted for under the equity method. The original investment in Resorts was recorded at fair value and is adjusted by the Company’s share of earnings, losses, distributions, and adjustments related to the amortization of definite-lived intangibles of the investment and is recorded in Equity income (loss) on Eldorado on the consolidated statement of operations. Management used a discount rate of 11.0% as one of the components in determining the Company’s fair value as of December 31, 2009. The evaluation was performed as a result of continued softness in Eldorado’s Reno related operations. After incorporating various modifications of the fair value calculation relating to improvements in the debt and equity markets, the changes in projected property level cash flow and lower debt levels when compared to the year-ended December 31, 2008, it was determined that the fair value at December 31, 2009 was approximately $37 million versus the carrying value of $30 million. A 1% change in the discount rate would result in a change of approximately $3.2 to $3.0 million depending on the direction and assuming all other variables are held constant. The Company’s allocated loss related to Eldorado/Resorts for the twelve months ended December 31, 2009 and 2008, respectively, is included as a component of loss on the consolidated statement of operations.

A rollforward of the Company’s equity investment in Eldorado is as follows:

 

    December 31,  
    2009     2008     2007  

Beginning balance

  $ 29,666,633      $ 38,256,039      $ —     

Conversion of New Shreveport Notes and Preferred Equity

    —          —          38,314,863   

Equity loss on Eldorado

    (338,056     (4,724,394     (58,824

Impairment in Investment in Eldorado

    —          (3,606,101     —     

Distributions from Eldorado

    —          (258,911     —     
                       

Ending balance

  $ 29,328,577      $ 29,666,633      $ 38,256,039   
                       

In accordance with authoritative guidance, we review our investment in Resorts for impairment when evidence suggests the absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity which would justify the carrying amount of the investment. Under such authoritative guidance, the Company compared the estimated discounted future cash flows of operations as of December 31, 2009 against the carrying value of the asset and noted the carrying value did not exceed the fair value. As of December 31, 2009 and December 31, 2007, the Company determined that no impairment existed. As of December 31, 2008, the Company recorded an impairment loss of $3.6 million to write down the investment to estimated fair value.

At Closing, Resorts paid Newport $1,142,974 in cash, representing interest accrued and unpaid through the date of Closing on the New Shreveport Notes acquired by Resorts. Carano paid Newport $170,658 in cash, representing interest accrued and unpaid through October 31, 2007 on the New Shreveport Notes acquired by Carano. Upon completion of the Resorts transaction, which occurred on December 14, 2007, Carano or members of his family continued to own 51% of Resorts and Carano continued in his roles in the management of Resorts. Also, at closing, pursuant to the terms of the Purchase Agreement, the Company and the then current members of Resorts entered into an amendment and restatement of Resorts’ operating agreement (the “New Operating Agreement”). Effective April 1, 2009, when Resorts become the wholly owned subsidiary of Eldorado, Eldorado’s members, including AcquisitionCo, entered into an operating agreement with substantially the same terms as those included in the New Operating Agreement (the “Eldorado Operating Agreement”). Eldorado’s board of managers is currently composed of four managers, including AcquisitionCo, Donald L. Carano, Recreational Enterprises, Inc. (“REI”), and Hotel-Casino Management, Inc. (“HCM”). Under the terms of the Eldorado Operating Agreement, REI is entitled to designate a fifth member of Eldorado’s board of managers but, as of the date hereof, has not done so. Under the terms of the Eldorado Operating Agreement, AcquisitionCo designated Thomas R. Reeg, the Company’s operating manager, as its initial representative for all determinations to be made by Eldorado’s board and REI and HCM designated Gary L. Carano and Raymond J. Poncia, Jr., respectively, to continue as their representatives on Eldorado’s board. Under the terms of the Eldorado Operating Agreement, so long as they remain managers of Eldorado, AcquisitionCo, REI and HCM may change their respective representatives from time to time by notice to Eldorado.

Under the terms of the Eldorado Operating Agreement, at any time after the occurrence of a “Material Event” (as defined) or at any time after June 14, 2015 (the “Trigger Date”) AcquisitionCo or its permitted assignee(s) (the “Interest Holder”) will have the right to sell (“Put”) all but not less than all the 14.47% Interest to Eldorado and Eldorado will have the right to purchase (“Call”) all but not less than all of the 14.47% Interest and the 2.5659% Interest (collectively, the “17.0359% Interest”), at a price equal to the fair market value of the interest being acquired without discounts for minority ownership and lack of marketability, as determined by mutual agreement of the Interest Holder and Resorts or, in the event that after 30 days the Interest Holder and Eldorado have not mutually agreed on a purchase price, then at the purchase price determined by the average of two appraisals by nationally recognized appraisers of private companies, provided the two appraisals are within a 5% range of value based upon the lowest of the two appraisals. If the two appraisals are not within the 5% range, the purchase price will be determined by the average of a third mutually acceptable, independent, nationally recognized appraiser of private companies and the next nearest of the first two appraisals unless the third appraisal is at the mid-point of the first two appraisals, in which event the third appraisal will be used to established the fair market value. So long as a Material Event has not occurred, the Interest Holder will have the right to unilaterally extend the Trigger Date for up to two one-year extension periods. Upon exercise of either the Call or the Put, the Eldorado Operating Agreement provides that the transaction close within one year of the exercise of the right unless delayed for necessary approvals from applicable gaming authorities.

These put and call rights have been evaluated from an accounting perspective and Company management has determined that neither the Put nor the Call meets the definition of a derivative pursuant to the authoritative guidance, and therefore have no immediate accounting considerations. Accordingly, the Put and Call rights are not reflected on the Company’s consolidated balance sheet.

As defined in the Eldorado Operating Agreement, a “Material Event” for the purpose of allowing Eldorado to exercise the right to Call the 17.0359% Interest means the loss, forfeiture, surrender or termination of a material license or finding of unsuitability issued by one or more of the applicable gaming authorities with respect to Thomas R. Reeg, AcquisitionCo or any transferee of AcquisitionCo or any affiliate of AcquisitionCo. In the event a Material Event occurs that permits Eldorado to exercise its Call right prior to the Trigger Date, the Interest Holder will be obligated to provide carry back financing to Eldorado on terms and conditions reasonably acceptable to it. If a Call is required or ordered by any applicable gaming authority, the Call will be on the terms provided for in the Eldorado Operating Agreement, unless other terms are required by any of the applicable gaming authorities, in which event the Call will be on those terms.

 

F-11


As defined in the Eldorado Operating Agreement, a “Material Event” for the purpose of allowing the Interest Holder to exercise the right to Put the 14.43% interest to Eldorado means the loss, forfeiture, surrender or termination of a material license or finding of unsuitability by any applicable gaming authority with respect to Eldorado, any affiliate of Eldorado (other than AcquisitionCo or its affiliates), including, but not limited to, the Eldorado-Reno, the Eldorado-Shreveport and Silver Legacy.

In the event of an initial public offering of Eldorado’s equity securities, the Put and Call provisions described above will terminate and be of no further force and effect. In the event of a public offering of equity securities by Eldorado in which any member of Eldorado is allowed to participate, the Interest Holder will have rights under the New Operating Agreement equivalent to those of the other members of Eldorado to sell the equity securities of Eldorado held by the Interest Holder on a pro rata basis with the other members. At Closing under the Purchase Agreement, AcquisitionCo and Resorts entered into a registration rights agreement, which has been assigned to and assumed by Eldorado, that also granted to AcquisitionCo and its permitted assigns certain registration rights relating to their equity interest in Eldorado following any initial public offering of the equity securities of Eldorado.

As a limited liability company, Eldorado is not subject to Federal income tax liability. Because holders of membership interests in Eldorado are required to include their respective shares of Eldorado’s taxable income in their individual income tax returns, Eldorado makes distributions to its members to cover such tax liabilities. Distributions prior to April 1, 2009 were limited in accordance with the provisions of the New Operating Agreement of Resorts, and distributions after April 1, 2009 will be so limited under the Eldorado Operating Agreement. The Eldorado 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 individuals for that year; provided that such distributions will not be made after any event that causes Eldorado to thereafter be taxed under the Internal Revenue Code of 1986, as amended, as a corporation.

Summarized balance sheet information for Eldorado is as follows (in thousands):

 

     December 31,
     2009    2008

Current assets

   $ 46,312    $ 47,106

Investment in joint ventures

     47,913      50,151

Property and equipment, net

     224,153      238,219

Intangible assets, net

     20,945      21,335

Other assets, net

     2,205      2,103
             

Total assets

   $ 341,528    $ 358,914
             

Current liabilities

   $ 29,524    $ 30,252

Long-term liabilities

     190,323      205,326

13% Preferred Equity Interest

     19,289      19,289

Minority Interest

     4,990      5,080

Members’ equity

     97,402      98,967
             

Total liabilities and partners’ equity

   $ 341,528    $ 358,914
             

Summarized results of operations for Eldorado are as follows (in thousands):

 

     December 31,  
     2009     2008     2007  

Net revenues

   $ 271,899      $ 284,822      $ 285,136   

Operating expenses

     (249,856     (263,698     (259,726

Loss on sale/disposition of long-lived assets

     (1,102     (288     (2,387

Acquisition termination charges

     —          (6,840     —     

Equity in Net (Loss) Income of Unconsolidated Affiliates

     (1,218     (3,341     5,610   

Impairment in Investment in Joint Venture

     —          (16,550     —     
                        

Operating income

     19,723        (5,895     28,633   

Other expense

     (21,161     (21,962     (24,175
                        

(Loss) Income before minority interest

     (1,438     (27,857     4,458   

Minority interest

     90        798        (162
                        

Net (loss) income

   $ (1,348   $ (27,059   $ 4,296   
                        

Effective March 1, 1994, ELLC (96% owned by Resorts and 4% minority interest collectively owned by Recreational Enterprises, Inc. and Hotel Casino Management) and Galleon, Inc. (a Nevada corporation and now an indirect wholly owned subsidiary of MGM MIRAGE) entered into a joint venture (the “Silver Legacy Joint Venture”) pursuant to a joint venture agreement to develop the Silver Legacy Resort Casino (the “Silver Legacy”). The Silver Legacy consists of a casino and hotel located in Reno, Nevada, which began operations on July 28, 1995. Each partner owns a 50% interest in the Silver Legacy Joint Venture.

 

F-12


Summarized balance sheet information for the Silver Legacy Joint Venture is as follows (in thousands):

 

     December 31,
     2009    2008

Current assets

   $ 42,210    $ 52,397

Property and equipment, net

     234,886      247,689

Other assets, net

     7,170      7,235
             

Total assets

   $ 284,266    $ 307,321
             

Current liabilities

   $ 18,419    $ 20,422

Long-term liabilities

     150,309      166,421

Partners’ equity

     115,538      120,478
             

Total liabilities and partners’ equity

   $ 284,266    $ 307,321
             

Summarized results of operations for the Silver Legacy Joint Venture are as follows (in thousands):

 

     December 31,  
     2009     2008     2007  

Net revenues

   $ 122,104      $ 139,475      $ 161,980   

Operating expenses

     (117,097     (132,133     (138,243
                        

Operating income

     5,007        7,342        23,737   

Other expense

     (9,731     (16,120     (15,241
                        

Net (loss) income

   $ (4,724   $ (8,778   $ 8,496   
                        

On May 12, 2009, Resorts and Newport executed an agreement (the “Agreement”), which was terminated on August 18, 2009, pursuant to which Resorts might have, at any time it believed that it might in the reasonably foreseeable future have been in default of any of the provisions of Sections 6.13, 6.14, 6.15 or 6.16 of its credit facility, made a written request to Newport for a loan in an amount not to exceed the lesser of (i) the maximum amount which might at the time be borrowed by Resorts without causing it to be in default of the limitations on indebtedness contained in Section 4.09 of the indenture (the “Indenture”) relating to the 9% senior notes due 2014 co-issued by Resorts and its wholly owned subsidiary, Eldorado Capital Corp. (the “9% Notes”), or (ii) such amount which was equal to the greater of (A) the excess of (1) the aggregate unpaid principal balance of the loans made to Resorts under (I) Resorts’ credit facility and (II) the Loan and Aircraft Security Agreement (the “Aircraft Loan Agreement”) dated as of December 30, 2005 between Resorts and Banc of America Leasing and Capital, LLC (including for this purpose any amendments, replacements or extensions thereof) at the time of the written request, over (2) $5,000,000, or (B) at Newport’s option, the amount of the unpaid principal and accrued interest then outstanding under Resorts’ credit facility. On May 13, 2009, Resorts sold to the Louisiana Partnership the aircraft, which served as collateral under the Aircraft Loan Agreement, for $2.7 million in cash and the proceeds were used to pay in full the indebtedness remaining under the Aircraft Loan Agreement and, at December 31, 2009, there was no indebtedness outstanding under Resorts’ credit facility.

Evansville, Indiana

On March 31, 2008, Resorts and a newly formed, wholly owned subsidiary of Resorts (“Resorts Indiana”), entered into a definitive agreement (the “Evansville Agreement”) pursuant to which Resorts Indiana agreed to purchase from Aztar Riverboat Holding Company, LLC (the “Seller”) all of the membership interests in Aztar Indiana Gaming Company, LLC (“Aztar Indiana”), an indirect subsidiary of Tropicana Casinos and Resorts.

On May 5, 2008, Tropicana Entertainment, LLC and certain of its affiliated entities, including Aztar Indiana and the Seller, filed for bankruptcy relief under Chapter 11 of the Bankruptcy Code. As a result of the filing, the Seller became entitled, at its option, to assume or reject prepetition executory contracts such as the Evansville Agreement, subject to approval of the bankruptcy court. On September 22, 2008, the bankruptcy court approved bidding procedures to allow Tropicana to seek higher and better bids to purchase Aztar Indiana. As a result of the process, no higher or better bids were received. Accordingly, a sale hearing was scheduled before the bankruptcy court where Tropicana was to seek the entry of an order approving and authorizing the sale of Aztar Indiana to Resorts pursuant to the Evansville Agreement.

On November 20, 2008, in light of uncertainty regarding whether the acquisition of Casino Aztar would close, Resorts and the Seller agreed to terminate the Evansville Agreement with the following terms of settlement: (i) payment of $5 million of the escrowed deposit to the Seller with the balance, including any accrued interest less escrow costs, being distributed to Resorts, (ii) the right of Resorts to a $5 million credit against any consideration otherwise owed by Resorts in the event of any future agreement of Resorts to acquire Aztar Indiana or an interest therein, and (iii) mutual releases of the parties from any further obligation under the Evansville Agreement. On November 26, 2008 the bankruptcy court approved the terms of settlement and Resorts gave notice of its termination of the commitment for the financing related to the proposed acquisition of Aztar Indiana. As a result of the settlement, Resorts recognized $5 million of the escrow deposit as expense in the fourth quarter of 2008 along with other expenses relating to the transaction of approximately $1.8 million and $0.9 million in fees associated with the financing commitment.

6. Related Parties

InvestCo owns 99.99% of the Company which is a non-voting interest. The other .01% of the Company, which is the only voting interest of the Company, is owned by VoteCo. InvestCo is wholly owned by Newport. In May 2007, Newport contributed 100% of the New Shreveport Notes held by Newport since August 2006 and 11% of the preferred shares held since August 2006 that comprise the Eldorado Shreveport Investments. These Eldorado Shreveport Investments were transferred at fair market value at date of transfer. The related consolidated statements of operations reflect the interest and dividend income earned from the Eldorado Shreveport Investments since August 2006 and gains on these investments recognized by Newport from the date of the Letter of Intent between Resorts and Newport in November 2006 and the date of acquisition of the interest in Resorts on December 14, 2007. Additionally, certain direct expenses incurred by Newport related to the Eldorado Shreveport Investments are reflected within the consolidated statements of operations. VoteCo is responsible for the operations of the Company and is solely owned by the managers of Newport.

At December 31, 2009 and 2008, the Company was owed $5,179,772 and $5,179,772, respectively, from Newport primarily representing $5,118,172 interest earned and received on the Eldorado Shreveport Investments and $61,600 representing the preferred dividend earned and received on 11,000 of Preferred Shreveport shares. At December 31, 2009 and 2008, the Company owed $1,958,636 and $1,719,870, respectively, to Newport for expenses paid on the Company’s behalf. There is no formal agreement outlining the settlement of this receivable and payable between Newport and the Company. Accordingly, this receivable and payable are reflected as non current assets and liabilities at December 31, 2009 and 2008.

7. Income Taxes

Blocker, a wholly owned subsidiary, elected to be taxable as a corporation, effective upon inception, January 8, 2007. The following table summarizes the current and deferred federal income tax expense (benefit) as of December 31:

 

     2009    2008     2007

Federal - current

   $ —      $ (222,300   $ 222,300

Federal - deferred

     2,472,163      (2,918,260     446,097
                     
   $ 2,472,163    $ (3,140,560   $ 668,397
                     

The reconciliation between the Company’s effective tax rate on income (loss) from operations and the statutory tax rate as of December 31 is as follows:

 

     2009     2008     2007  
     Total     Percent     Total     Percent     Total     Percent  

Statutory federal rate

   $ (204,141   (35.00 )%    $ (2,978,542   (35.00 )%    $ 1,523,299      35.00

Amount not subject to corporate income taxes

     84,273      (14.45 )%      147,455      1.73     (848,364   (19.49 )% 

Permanent items

     (56,761   (9.73 )%      (33,689   (0.40 )%      —        —     

Provision to tax return adjustments

     —        —          (283,529   (3.33 )%      —        —     

Benefit of lower tier rates

     —        —          7,745      0.09     (6,538   (0.15 )% 

Change in valuation allowance

     2,648,792      454.14     —        —          —        —     
                                          

Tax at effective rate

   $ 2,472,163      423.86   $ (3,140,560   (36.91 )%    $ 668,397      15.36
                                          

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used to determine taxable income for income tax reporting purposes. Significant components of the Company’s deferred income taxes as of December 31 are as follows:

 

     2009     2008    2007  

Net operating loss carryforward

   $ 627,642      $ 685,593    $ —     

Tax credit carryforward

     108,590        51,829      —     

Basis difference for investment in Eldorado Resorts LLC

     1,912,560        1,734,741      —     
                       

Subtotal

     2,648,792        2,472,163      —     

Less: valuation allowance

     (2,648,792     —        —     
                       

Total deferred tax assets

     —          2,472,163      —     
                       

Basis difference for investment in Eldorado Resorts LLC

     —          —        (446,097
                       

Total deferred tax liability

     —          —        (446,097
                       

Net deferred tax asset

   $ —        $ 2,472,163    $ (446,097
                       

The Company has a federal income tax net operating loss carryforward of $1,793,262 and a federal income tax credit carryforward of $108,590, both of which will expire in 2028.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits as of December 31:

 

     2009    2008    2007

Unrecognized tax benefit - opening balance

   $ —      $ —      $ —  

 

F-13


Gross increases - tax position in prior period

     —        —        —  

Gross increases - tax position in current year

     —        —        —  

Settlements

     —        —        —  

Lapse of statute of limitations

     —        —        —  
                    

Unrecognized tax benefit - ending balance

   $ —      $ —      $ —  

Included in the balance of unrecognized tax benefits as of December 31, 2009, 2008 and 2007 are $0 of tax benefits that, if recognized, would affect the effective tax rate. The Company did not recognize any interest or penalties related to unrecognized tax benefits as income tax expense. The Company does not anticipate that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months of December 31, 2009. The Company is subject to taxation in the U.S. The Company’s U.S. tax return for the year ended December 31, 2009, 2008 and 2007 will be subject to examination by the tax authorities until 2013 and 2012 and 2011, respectively.

Note 8. Subsequent Events

Proposed Acquisition

On February 23, 2010, Black Gaming, LLC (“Black Gaming”) and its directly and indirectly owned subsidiaries, Virgin River Casino Corporation (“Virgin”); B & BB, Inc. (“BBB”); R. Black, Inc. (“Black Inc.”); RBG, LLC (“RBG”); Casablanca Resorts, LLC (“Casablanca”); Oasis Interval Ownership, LLC (“Oasis Own”); Oasis Interval Management, LLC (“Oasis Mgmt”); and Oasis Recreational Properties, Inc. (“Oasis Rec”, and together with Virgin, BBB, Black Inc., RBG, Casablanca, Oasis Own and Oasis Mgmt, the “Debtor Subsidiaries”) filed petitions with the United States Bankruptcy Court for the District of Nevada (the “Bankruptcy Court”) for relief under Title 11, Chapter 11 of the United States Code (the “Bankruptcy Code”). On March 1, 2010, Black Gaming and the Debtor Subsidiaries (together, the “Debtors”) filed with the Bankruptcy Court a Joint Plan of Reorganization (the “Plan”).

If the Plan is confirmed by the Bankruptcy Court and all of the conditions specified in the Plan are satisfied, including but not limited to the receipt of all requisite gaming approvals, then, according to the terms of the Plan, a new entity (“New Black Gaming”) is to acquire all of the assets of Black Gaming, including its direct and indirect ownership interests in the Debtor Subsidiaries and New Black Gaming is to issue to a group of investors, including Newport (the “New Black Gaming Investors”), all of the equity interests in New Black Gaming. Pursuant to an agreement among the New Black Gaming Investors, if the Plan is confirmed by the Bankruptcy Court and all of the conditions specified in the Plan are satisfied, Newport, or an affiliate of Newport, will acquire 40% of the total equity interests in New Black Gaming for $8,222,222 in cash. In addition to the interests issuable to the New Black Gaming Investors, including the 40% interest issuable to Newport or an affiliate of Newport, the Plan provides for the issuance to a class of Black Gaming’s creditors of warrants to purchase five percent of the fully-diluted equity interests in New Black Gaming that will be exercisable for a period of five years and, if exercised in full, would reduce the percentage interest issuable to Newport or an affiliate of Newport from 40% to 38% of New Black Gaming’s equity interest.

If the Plan is confirmed by the Bankruptcy Court and all of the conditions specified in the Plan are satisfied, the Newport Fund intends to acquire the equity interest in New Black Gaming issuable to Newport or an affiliate of Newport and to utilize the Company’s wholly owned subsidiary, AcquisitionCo, to make the acquisition. In that event, the Newport Fund will contribute to InvestCo the full amount of the cash purchase price which in turn will be contributed by InvestCo to the Company, then by the Company to Blocker, and finally by Blocker to AcquisitionCo, which will pay the purchase price and acquire the interest in New Black Gaming. The aforementioned contribution from Newport Fund down to AcquisitionCo will not result in any change in the ownership of InvestCo, the Company, Blocker or AcquisitionCo.

The assets to be acquired by New Black Gaming pursuant to the Plan include the CasaBlanca Hotel & Casino, the Virgin River Hotel & Casino and the Oasis Hotel & Casino, each in Mesquite, Nevada, two championship golf courses, a full-service spa, a bowling center, a gun club, restaurants, and banquet and conference facilities, as more fully described below. The descriptions provided below are based on the information included in the disclosure statement (the “Disclosure Statement”) that accompanied the Plan when it was filed with the Bankruptcy Court.

CasaBlanca Hotel & Casino. The CasaBlanca Hotel & Casino (the “CasaBlanca”) includes a hotel with approximately 472 tower rooms (including 24 suites) and 24 timeshare units and a casino with approximately 27,000 square feet of space. The casino offers approximately 792 video poker and slot machines, 24 table games, a full service race and sports book, lounge entertainment and dancing. The CasaBlanca offers various resort and entertainment amenities, including a golf club, a full service spa, tennis courts, a lagoon swimming pool with a waterfall and slide, a hot tub, a sand volleyball court and an arcade. In addition, the CasaBlanca offers a 320-seat buffet restaurant, a 180-seat 24-hour café, a 136-seat fine dining restaurant, an ice cream parlor, a gift shop and a 10,000 square-foot banquet and conference facility and a 500-seat showroom. The CasaBlanca, situated on approximately 43 acres, has a parking lot with a capacity for approximately 1,940 cars as well as a 45-unit full service R.V. park. Approximately one mile from the CasaBlanca, situated on a 221-acre site, is the CasaBlanca Golf Club featuring an 18-hole, 7,011 yard championship course. The land on which the golf club is located is leased pursuant to a 99-year lease that expires in June 2094.

Virgin River Hotel & Casino. The Virgin River Hotel & Casino (the “Virgin River”) has 717 guest rooms (includes six suites) and a 36,000 square-foot casino with approximately 771 video poker and slot machines, 16 table games, a full service race and sports book, a 183-seat bingo parlor and keno. The Virgin River offers various resort and entertainment amenities, including swimming pools and hot tubs, a 24-lane state-of-the art bowling center, an arcade and a lounge for entertainment and dancing. In addition, the Virgin River offers a 182-seat 24-hour café, a 178-seat buffet restaurant and a gift shop. The Virgin River is situated on an approximately 32-acre site, with a parking lot that has a capacity for approximately 1,650 cars.

Oasis Hotel & Casino. Prior to December 5, 2008, the Oasis Hotel & Casino (the “Oasis”) was a full-service entertainment and resort destination. Due to deteriorating economic conditions, on December 5, 2008, operations at the Oasis were significantly reduced. Under the initially reduced operations, the Oasis offered 144 video poker and slot machines, as well as various resort and entertainment amenities, including golf at the Palm Golf Course, swimming pools and hot tubs, tennis courts, an arcade, a go-kart track, and a miniature golf range. Due to the continued deterioration of economic conditions, in May 2009, the Oasis further reduced operations to 16 video poker and slot machines, the minimum number of machines required to maintain the requisite gaming approvals needed to operate this property’s casino, and golf course operations. The Oasis is situated on an approximately 26-acre site, containing a parking lot with a capacity for approximately 1,800 cars as well as an 80 unit R.V. park. Approximately four miles from the Oasis is the Palms Golf Course featuring an 18-hole, 7,008 yard championship course. The Palms Golf Course straddles the Nevada/Arizona border and is situated on a 256-acre site, of which 180 acres were leased from the State of Arizona pursuant to a lease that expired in May 2008. Oasis Rec is currently seeking to renew the lease and is continuing to pay for the use of this land on terms similar to those of the expired lease.

Virgin River Convention Center. The Virgin River Convention Center, situated on an approximately 14-acre site, has approximately 12,000 square feet of meeting space and 210 hotel rooms. The Virgin River Convention Center is currently used as a special event facility and for overflow hotel traffic from the other properties.

Oasis Ranch and Gun Club. The Oasis Ranch and Gun Club encompasses over 1,000 acres of farmland, game pasture, and river bottom and offers ten stations on a sporting clay course, two trap and skeet fields with 15 stands, and gun safety classes, plus horseback riding, motocross, and hayrides.

The potential acquisition described above is subject to a number of conditions, including, but not limited to, confirmation of the Plan by the Bankruptcy Court and the satisfaction of all applicable conditions, including, but not limited to, the receipt of all requisite gaming approvals required in order for AcquisitionCo to be able to acquire an equity interest in New Black Gaming. There can be no assurance that the Plan will be confirmed by the Bankruptcy Court, or, even if the Plan is confirmed, that all of the applicable conditions will be satisfied.

 

F-14


INDEPENDENT AUDITORS’ REPORT

To the Members of Eldorado HoldCo LLC

Reno, Nevada

We have audited the accompanying balance sheets of Eldorado HoldCo LLC and subsidiaries (the “Company”),previously Eldorado Resorts LLC, as of December 31, 2009 and 2008, and the related statements of operations, members’ equity, and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/ DELOITTE & TOUCHE LLP
Las Vegas, Nevada
April 13, 2010

 

F-15


ELDORADO HOLDCO LLC

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 

     December 31,
     2009    2008
ASSETS      

CURRENT ASSETS:

     

Cash and cash equivalents

   $ 31,320    $ 33,268

Restricted cash

     150      179

Accounts receivable, net

     8,512      7,330

Due from members and affiliates

     259      161

Inventories

     3,090      3,212

Prepaid expenses

     2,981      2,956
             

Total current assets

     46,312      47,106

INVESTMENT IN JOINT VENTURES

     47,913      50,151

PROPERTY AND EQUIPMENT, net

     224,153      238,219

INTANGIBLE ASSETS, net

     20,945      21,335

OTHER ASSETS, net

     2,205      2,103
             

Total assets

   $ 341,528    $ 358,914
             
LIABILITIES AND MEMBERS’ EQUITY      

CURRENT LIABILITIES:

     

Current portion of long-term debt

   $ —      $ 215

Current portion of capital lease obligations

     183      227

Accounts payable

     6,162      6,425

Interest payable

     6,599      6,610

Accrued and other liabilities

     16,376      16,550

Due to members and affiliates

     204      225
             

Total current liabilities

     29,524      30,252

LONG-TERM DEBT, less current portion

     188,958      203,923

CAPITAL LEASE OBLIGATIONS, less current portion

     733      916

13% PREFERRED EQUITY INTEREST, includes interest of $409 in both 2009 and 2008 (Note 9)

     19,289      19,289

OTHER LIABILITIES

     632      487
             

Total liabilities

     239,136      254,867

COMMITMENTS AND CONTINGENCIES (Note 11)

     

EQUITY:

     

Members’ equity

     97,402      98,967

Noncontrolling interest

     4,990      5,080
             

Total members’ equity

     102,392      104,047
             

Total liabilities and members’ equity

   $ 341,528    $ 358,914
             

The accompanying notes are an integral part of these consolidated financial statements.

 

F-16


ELDORADO HOLDCO LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands)

 

     For the years ended December 31,  
     2009     2008     2007  

OPERATING REVENUES:

      

Casino

   $ 222,665      $ 231,087      $ 225,152   

Food, beverage and entertainment

     60,860        63,367        67,049   

Hotel

     24,358        26,658        28,777   

Other

     7,526        7,797        8,046   
                        
     315,409        328,909        329,024   

Less—promotional allowances

     (43,510     (44,087     (43,888
                        

Net operating revenues

     271,899        284,822        285,136   
                        

OPERATING EXPENSES:

      

Casino

     119,024        122,884        118,836   

Food, beverage and entertainment

     42,952        46,368        47,284   

Hotel

     9,613        10,616        10,492   

Other

     10,752        10,733        9,841   

Selling, general and administrative

     43,583        48,681        49,643   

Management fees

     —          500        600   

Depreciation and amortization

     23,932        23,916        23,030   
                        

Operating expenses

     249,856        263,698        259,726   

LOSS ON SALE/DISPOSITION OF LONG-LIVED ASSETS AND PROPERTY AND EQUIPMENT

     (1,102     (288     (2,387

ACQUISITION TERMINATION CHARGES

     —          (6,840     —     

EQUITY IN (LOSS) INCOME OF UNCONSOLIDATED AFFILIATES

     (1,218     (3,341     5,610   

IMPAIRMENT IN INVESTMENT IN JOINT VENTURE

     —          (16,550     —     
     &nb