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EX-32.2 - EXHIBIT 32.2 - NGA Holdco, LLCa2291610-kexhibit322.htm
EX-32.1 - EXHIBIT 32.1 - NGA Holdco, LLCa2291610-kexhibit321.htm
EX-31.2 - EXHIBIT 31.2 - NGA Holdco, LLCa2291610-kexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - NGA Holdco, LLCa2291610-kexhibit311.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549 
FORM 10-K
(Mark One)
ý
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 2016
¨
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.)
21 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  ý
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  ý
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  ý    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  ý    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.    ý
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
¨  (Do not check if smaller reporting company)
Smaller reporting company
ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.    Yes  ¨    No  ý
State the aggregate market value of the voting and non-voting common equity held by non-affiliates. None. 
DOCUMENTS INCORPORATED BY REFERENCE
None




NGA Holdco, LLC
 
 
 
 
 
TABLE OF CONTENTS
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Part 1
 
ITEM 1.
BUSINESS.
THE COMPANY
Overview of the Company
NGA Holdco, LLC, a Nevada limited liability company ("NGA"), was formed on January 8, 2007 at the direction of Newport Global Opportunities Fund LP, a Delaware limited partnership (“NGOF”) and an affiliate of Newport Global Advisors LP, a Delaware limited partnership (“Newport”). NGA was formed for the primary purpose of holding equity, directly or indirectly through its subsidiaries, in one or more entities related to the gaming industry. NGA 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. References to the "Company" are to NGA and, unless the context otherwise requires, its subsidiaries.
The Company has had no revenue generating business since inception. The Company's business plan consists primarily of gaming industry related investments including its holding, through AcquisitionCo, of a 40% equity interest (the “Mesquite Interest”) in Mesquite Gaming LLC, a Nevada limited liability company (“Mesquite”), a loan to Mesquite, and ownership, as of the end of the fiscal year covered by this report, of 3,554,922 publicly traded shares of Eldorado Resorts, Inc. ("ERI,"




formerly known as Eclair Holdings Company) common stock, $0.00001 par value, representing an approximate 7.6% ownership interest in ERI (the "ERI shares"). The Company originally acquired 4,030,440 shares of ERI on September 19, 2014, pursuant to a merger agreement between MTR Gaming, Inc. ("MTR") and Eldorado HoldCo LLC (“Eldorado”), a previously unconsolidated investee of the Company in which the Company held an approximate 17.0359% equity interest (the "ERI Merger"). During the period from January 26, 2016 through March 29, 2016, the Company liquidated all of its ownership interest in ERI through the sale in open market transactions of a total of 4,030,440 shares of ERI's common stock representing at December 31, 2015 (based on the public reports of ERI) approximately 8.6% of such shares issued and outstanding. 
ERI currently owns and operates (1) three casino resorts in Reno, Nevada, the Eldorado Hotel & Casino, Circus Circus Reno, and Silver Legacy Resort Casino, (2) the Eldorado Resort Casino Shreveport located in Shreveport, Louisiana, (3) Eldorado Gaming Scioto Downs located in Columbus, Ohio, (4) Mountaineer Casino Racetrack & Resort located in Chester, West Virginia, (5) Presque Isle Downs & Casino located in Erie, Pennsylvania. Combined, the seven properties contained at December 31, 2015 approximately 4,900 hotel rooms, 300 table and poker games, 45 restaurants and 10,300 slot machines and video lottery terminals (based on the public reports of ERI).
Prior to the ERI merger, Eldorado owned a 21.25% interest in Tamarack Crossing, LLC ("Tamarack") that owned and operated Tamarack Junction, a casino in south Reno. On September 1, 2014, and as a condition to closing the ERI Merger, Eldorado distributed on a pro-rata basis to its members (including the Company) its equity interest in Tamarack. The Company contemporaneously sold its equity interest in Tamarack for $1,350,000, the estimated fair value of the in-kind distribution.
The Company's 40% Mesquite Interest was acquired August 1, 2011 (the “Mesquite Acquisition”), in exchange for $8,222,222 in cash, of which $7,222,222 and $1,000,000 were contributed to the Company by NGOF and Newport Global Credit Fund (“NGCF"), respectively. Mesquite is engaged in the casino resort industry in Mesquite, Nevada through wholly owned subsidiaries that own and operate the CasaBlanca Resort/Golf/Spa, the Virgin River Hotel/Casino/Bingo, two championship golf courses, a full-service spa, a bowling center, restaurants, and banquet and conference facilities. Mesquite also owns real estate on which another hotel & casino was located prior to its demolition in 2013.
The Company has no current plans to acquire any equity interest in another entity.
Formed in 2005, Newport is a Texas-based investment management firm focused on 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 9 employees, with its primary office in The Woodlands, TX. Newport’s principals include Timothy T. Janszen, CEO, Ryan Langdon, Senior Managing Director, and Roger A. May, Senior Managing Director. Collectively, the principals have over 40 years of experience investing in the high yield and distressed debt markets. Newport is registered with the Securities and Exchange Commission (the "Commission") as an investment adviser under the Investment Advisers Act of 1940, as amended. Newport is investment manager of NGOF, NGCF and Newport Global Opportunities Fund I-A LP, a Delaware limited partnership ("NGOF I-A") which purchased NGOF's ownership interest in NGA No VoteCo, LLC, a Nevada limited liability company ("InvestCo") on January 7, 2016. The funds managed by Newport are private investment funds which seek attractive long-term risk adjusted returns by capitalizing on investments in the distressed debt markets and possibly control-oriented investments.
Ownership of the Company
NGA'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 NGA's issued and outstanding Class B Units, representing all of its non-voting equity, are held by InvestCo. At present, NGA has no plans to issue any additional Class A or Class B Units.
VoteCo is owned by Timothy T. Janszen and Ryan L. Langdon, each of whom owns a 42.85% interest, and Roger A. May, who owns a 14.3% interest. Messrs. Janszen, Langdon and May collectively are referred to as the “VoteCo Equityholders." As mentioned above, NGOF sold its ownership interest in InvestCo to NGOF I-A on January 7, 2016. As a result, InvestCo is owned by NGOF I-A and NGCF, which collectively hold all of InvestCo’s issued and outstanding voting securities. As the change in ownership had no effect on the Company's operations, the term "Newport Funds" will be used here to describe NGCF and NGOF collectively prior to January 7, 2016 and NGCF and NGOF I-A collectively subsequent to January 7, 2016.
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 NGA's board of managers, and Mr. Janszen is NGA'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

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and their respective constituent equityholders would generally be required to be licensed or found suitable under applicable gaming laws and regulations, including those of the State of Nevada.
Management of the Company
A majority of NGA's managers may remove the operating manager from such position. The approval of a majority of the managers is required to elect a new operating manager, who must be selected from among the members of NGA's board of managers. Neither NGA's board of managers nor the operating manager may take, or cause NGA to take, the following actions without the approval of VoteCo:
Materially change the business purpose of NGA or the nature of the business,
Act to render it impossible to carry on the ordinary business of NGA,
Remove or appoint any manager,
Allow any voluntary withdrawal of any member from NGA,
Make any assignment for the benefit of creditors, any voluntary bankruptcy of NGA, or enter into any transaction to dissolve, wind up or liquidate NGA, or
Enter into any transaction between NGA and any member or manager of NGA, or any affiliate or direct family member of any member or manager of NGA, 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 NGA or to bind or act on behalf of NGA in any way or to render it liable for any purpose. Except as otherwise expressly required by applicable law, InvestCo has neither any right to vote on any matters to be voted on by the members of NGA, nor any power or authority to participate in the management of NGA or bind or act on behalf of NGA in any way or render it liable for any purpose.
Neither the operating manager nor any other manager has the authority to do any of the following acts on behalf of NGA without the approval of a majority of NGA's managers:
Acquire, by purchase, lease, or otherwise, any real property on behalf of NGA;
Give or grant any option, right of first refusal, deed of trust, mortgage, pledge, ground lease, security interest, or otherwise encumber any stock, interest in a business entity, promissory note issued to NGA, or any other asset owned by NGA;
Sell, convey, or refinance any interest, direct or indirect, in NGA’s unconsolidated investees;
Cause or permit NGA to extend credit to or make any loan or become a surety, guarantor, endorser, or accommodation endorser for any person or enter into any contract with respect to the operation or management of the business of NGA;
Release, compromise, assign, or transfer any claim, right, or benefit of NGA;
Confess a judgment against NGA or submit an NGA claim to arbitration;
File any petition for bankruptcy of NGA;
Distribute any cash or property of NGA, other than as provided in NGA’s operating agreement;
Admit a new member to NGA; or
Do any act in contravention of NGA’s operating agreement or do any act which would make it impossible or unreasonably burdensome to carry on the business of NGA.
Notwithstanding the foregoing provisions, the operating manager has the authority under NGA’s operating agreement to take such actions as he, in his reasonable judgment, deems necessary for the protection and preservation of NGA assets if, under the circumstances, in his good faith estimation, there is insufficient time to obtain the approval of NGA’s board of managers and any delay would materially increase the risk to preservation of NGA’s assets.
Restrictions on Transfer
Unless approved in advance by the operating manager and by applicable gaming authorities, no member of NGA may transfer all or any portion of its membership units.

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Member and Manager Compensation
No member or manager of NGA, Blocker or AcquisitionCo 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 NGA, Blocker or AcquisitionCo. A manager of NGA is entitled to reimbursement from the first available funds for direct out-of-pocket costs and expenses incurred by the manager on behalf of the Company that directly relate to the business and affairs of the Company.
Dissolution and Termination
NGA will be dissolved upon the happening of any of the following events:
Sale or other disposition of all or substantially all of NGA’s assets and receipt of all consideration therefor,
Determination that an event has occurred that makes it unlawful, impossible or impracticable for NGA to carry on its business, or
VoteCo decides NGA will be dissolved.
Following such an event or the determination by a court of competent jurisdiction that NGA has dissolved prior to the occurrence of such an event, the property of NGA, or the proceeds from the sale thereof, will be applied and distributed first to the payment and discharge of all of NGA’s debts and other liabilities to creditors (including members that are creditors), second to establishing any reserves that the managers of NGA determine, in their sole and absolute discretion, are necessary for any contingent, conditional or unmatured liabilities or obligations of NGA, and third to the members of NGA in proportion to their respective percentage interest in NGA.
Organizational Diagram
The diagram below depicts the general ownership of the entities related to the Company and its subsidiaries, as well as the Company’s ownership interests in ERI and Mesquite as of February 29, 2016.
*
Includes Anthony Toti (25%) and Michael J. Gaughan Family, LLC (35%).

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The diagram below depicts the general ownership of the entities related to the Company and its subsidiaries, as well as the Company’s ownership interest in Mesquite as of the date of this report.
Investment in ERI
During all of the fiscal year covered by this report, and until March 29, 2016, NGA owned interests in both ERI and Mesquite. On March 29, 2016, NGA completed the liquidation of its ownership interest in ERI. Thus, as of the date of this report the only interest it continues to own is its interest in Mesquite. The following discussion of gaming regulation and licensing includes a discussion for Nevada, which is applicable to both ERI and Mesquite, as well as discussions for Louisiana, West Virginia, Pennsylvania and Ohio, each of which is applicable only to ERI, in which NGA ceased to have any ownership interest on March 29, 2016.
ERI's common stock is registered under the Securities and Exchange act of 1934 (the "Exchange Act") and is traded on the NASDAQ Stock Market under the trading symbol ERI. The Company did not, prior to the liquidation of its ERI investment, exercise significant influence over ERI and our ERI shares were accounted for as available-for-sale securities carried at estimated fair value. The Company acquired its interest in ERI by converting its 17.0359% equity interest in Eldorado on September 19, 2014, when Eldorado and MTR merged. As a result of the merger, the Company acquired 4,030,440 shares of ERI common stock, $0.00001 par value, including post-closing adjustments, representing approximately 8.6% of such shares then outstanding. Upon conversion, the fair market value of the ERI shares, based on then current trading activity, was approximately $7.1 million less than the carrying value of the Eldorado Interest prior to the merger, resulting in a write-down of such value and a charge to other comprehensive loss. Subsequently through February 29, 2016, unrealized holding gains of approximately $21.3 million were recorded. During the period from January 26, 2016 through March 29, 2016, the Company liquidated its ownership interest in ERI through the sale in open market transactions of all of its 4,030,440 shares of ERI's common stock resulting in a realized gain of approximately $17.7 million, $2.2 million of which had been realized as of February 29, 2016. The original cost of the Company’s investment in Eldorado in 2007 (prior to subsequent impairment charges and equity in the earnings (losses) of the investee through September 18, 2014) was approximately $38 million, the quoted market price of debt and equity securities exchanged for the Company's interest in Eldorado.
Information about ERI included in this annual report has been abstracted from ERI’s Annual Report on Form 10-K for the year ended December 31, 2015.
ERI is a gaming and hospitality company established in 1973 that owns and operates gaming facilities located in Louisiana, Nevada, Ohio, Pennsylvania and West Virginia. Its primary source of revenue is gaming, but it uses its hotels, restaurants, bars, shops and other services to attract customers to its properties. Eldorado was founded as a family business by the Carano family and, through ERI, continues to maintain a commitment to customer service, high-quality food and beverage

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and outstanding amenities. ERI’s management believes that an extraordinary level of personal service and the variety, quality and attractive pricing of ERI's food and beverage outlets are important factors in attracting customers to ERI's properties and building customer loyalty. ERI owns and operates the following properties:
Eldorado Resort Casino Shreveport ("Eldorado-Shreveport") - A 403-room, all suite art deco-style hotel and tri-level riverboat dockside casino situated on the Red River in Shreveport, Louisiana;
Eldorado Resort Casino Reno ("Eldorado-Reno") - An 814-room hotel, casino and entertainment facility located in downtown Reno, Nevada;
Silver Legacy Resort Casino ("Silver Legacy") - A 1,711-room themed hotel and casino located adjacent to, and connected via a skywalk to Eldorado-Reno and Circus Circus Reno;
Circus Circus Reno ("Circus Reno") - A 1,571-room hotel-casino and entertainment complex located in downtown Reno, Nevada;
Mountaineer Casino, Racetrack and Resort ("Mountaineer") - A 354-room resort with a casino and live thoroughbred horse racing located on the Ohio River at the northern tip of West Virginia's northwestern panhandle;
Presque Isle Downs and Casino ("Presque Isle Downs") - A casino and live thoroughbred horse racing facility with slot machines, table games and poker located in Erie, Pennsylvania; and
Eldorado Gaming Scioto Downs - A live thoroughbred horse racing facility with video lottery terminals located in Columbus, Ohio.
Scioto Downs, through its subsidiary RacelineBet, Inc., also operates Racelinebet.com, a national account wagering service that offers online and telephone wagering on horse races as a marketing affiliate of TwinSpires.com, an affiliate of Churchill Downs, Inc.
As of December 31, 2015, the seven properties included, in the aggregate, 486,600 square feet of casino space, containing approximately 10,300 slot machines and VLTs, 300 table and poker games, 45 restaurants and 4,900 hotel rooms. ERI aggregates its properties into three reportable business segments: (i) Nevada; (ii) Louisiana; and (iii) Eastern as follows:
 
Casino Square Feet
Slot Machines
VLTs
Table and Poker Games
Hotel Rooms
Nevada
 
 
 
 
 
   Eldorado-Reno
76,500
1,191
N/A
57
814
   Silver Legacy
89,200
1,350
N/A
63
1,711
   Circus Reno
55,000
908
N/A
34
1,571
Louisiana
 
 
 
 
 
   Eldorado-Shreveport
28,200
1,361
N/A
60
403
Eastern
 
 
 
 
 
   Mountaineer
93,300
1,748
N/A
49
354
   Presque Isle Downs
61,400
1,580
N/A
41
N/A
   Scioto Downs
83,000
N/A
2,143
N/A
N/A
Nevada
The Eldorado Reno, Silver Legacy and Circus Reno properties, (the “Reno Tri-Properties”) are connected in a “seamless” manner by enclosed, climate controlled corridors. These enclosed corridors serve as entertainment bridge ways between the three properties and house slot machines, restaurants and retail shops. The Reno Tri-Properties 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, 23 restaurants and enough parking to accommodate approximately 6,100 vehicles, and as of December 31, 2015, approximately 3,400 slot machines and 150 table and poker games. ERI management believes that the centralized location and critical mass of these three properties, together with the ease of access between the facilities, provide significant advantages over other freestanding hotel/casinos in the Reno market.
Eldorado-Reno. The Eldorado-Reno is centrally located in downtown Reno. Reno is the second largest metropolitan area in Nevada, with a population of approximately 450,000, and is located at the base of the Sierra Nevada Mountains along Interstate 80, approximately 60 miles from South Lake Tahoe, 135 miles east of Sacramento, California and 225 miles east of San Francisco.
Eldorado-Reno offers:

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Approximately 76,500 square feet of gaming space, with approximately 1,200 slot machines and 57 table and poker games;
814 finely-appointed guest rooms, including 134 suites, which include "Eldorado Player's Spa Suites" with bedside spas and one or two bedroom suites;
Nationally recognized cuisine which ranges from buffet to gourmet in nine dining venues, which have an aggregate seating capacity of more than 1,400;
An approximately 560-seat showroom, a VIP lounge, three retail shops, a versatile 12,010 square foot convention center and an outdoor plaza located diagonally to Eldorado-Reno which hosts a variety of special events; and
Parking facilities for over 1,100 vehicles, including an approximately 640-space self-park garage, a 120-space surface parking lot and a 350-space valet parking facility.
Silver Legacy Resort Casino. Silver Legacy, formerly a joint venture between ERI and MGM Resorts International (the “Silver Legacy Joint Venture”) in which ERI acquired the remaining 50% interest on November 24, 2015, opened in July 1995. Silver Legacy is the tallest building in northern Nevada consisting of 37-, 34- and 31-floor tiers. Silver Legacy’s opulent interior showcases a casino built around Sam Fairchild’s 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. The Silver Legacy is centrally located in downtown Reno, Nevada.
Silver Legacy offers:
Approximately 89,200 square feet of gaming space, with approximately 1,300 slot machines and 63 table games;
1,711 finely-appointed guest rooms, including 141 player spa suites, eight penthouse suites and seven hospitality suites;
Eight restaurants, which have an aggregate seating capacity of more than 1,000, offering award winning dining cuisine; and
Retail shops, exercise and spa facilities, a beauty salon, an outdoor swimming pool and sundeck and a parking garage which can accommodate approximately 1,800 vehicles.
Circus Reno. Circus Reno, which ERI acquired on November 24, 2015, is an iconic, circus-themed hotel-casino and entertainment complex with two hotel towers. It is conveniently located as the first casino directly off of Interstate 80 when entering downtown Reno, Nevada.
Circus Reno offers:
Approximately 55,000 square feet of gaming space, with approximately 900 slot machines and 34 table games;
1,571 hotel rooms, including 67 mini suites, four executive suites and four VIP suites;
3,200 parking spaces including a surface lot and two garages;
Two fine dining restaurants, a buffet and three casual dining restaurants; and
A midway featuring a total of 158 games, live circus acts, an arcade and a full service wedding chapel with reception services for groups of 25 or more.
Louisiana
Eldorado-Shreveport. The Eldorado-Shreveport, which is located in Shreveport, Louisiana, the largest gaming market in the state, is a premier resort-casino located adjacent to Interstate 20, a major highway that connects the Shreveport market with the attractive feeder markets of East Texas and Dallas/Fort Worth.
Eldorado-Shreveport offers:
A location that positions Eldorado-Shreveport as the first casino that customers reach when driving to Shreveport from its primary feeder markets, primarily in Texas, and the Shreveport Regional Airport;
A purpose-built 80,634-square foot barge that houses 28,200 square feet of gaming space, as measured by the actual footprint of the gaming equipment, offering approximately 1,400 slots, 52 table games and a poker room with eight tables;
Numerous restaurants and entertainment amenities, including a gourmet steakhouse, VIP check-in, a premium quality bar and a retail store;

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An 85-foot wide seamless entrance that connects the casino to the land-based pavilion on all three levels resulting in the feel of a land-based casino;
A luxurious 403-room, all-suite, hotel, with updated rooms featuring modern décor and flat screen TVs;
Part of the only “cluster” in the Shreveport market that allows for walkable visits between two gaming facilities;
A 380-seat ballroom with four breakout rooms, a 5,940-square foot spa, a fitness center and salon, a premium players’ club and an entertainment show room; and
Two parking lots and an eight-story parking garage providing approximately 1,800 parking spaces that connects directly to the pavilion by an enclosed walkway, including valet parking for approximately 300 cars.
Eastern
Mountaineer Casino, Racetrack & Resort. Mountaineer is one of only four racetracks in West Virginia currently permitted to operate slot machines and traditional casino table gaming. Mountaineer is located on the Ohio River at the northern tip of West Virginia's northwestern panhandle, approximately thirty miles from the Pittsburgh International Airport and a one-hour drive from downtown Pittsburgh. Mountaineer is a diverse gaming, entertainment and convention complex with:
93,300 square feet of gaming space housing approximately 1,700 slot machines, 37 casino table games (including blackjack, craps, roulette and other games), and 12 poker tables;
354 hotel rooms, including the 256-room, 219,000 square foot Grande Hotel at Mountaineer, 27 suites, a full-service spa and salon, a retail plaza, indoor and outdoor swimming pools and a golf course;
12,090 square feet of convention space, which can accommodate seated meals for groups of up to 575, as well as smaller meetings in more intimate break-out rooms that can accommodate 75 people and entertainment events for approximately 1,500 guests;
Live thoroughbred horse racing conducted from March through December on a one-mile dirt surface or a 7/8 mile grass surface with expansive clubhouse, restaurant, bars and concessions, as well as grandstand viewing areas with enclosed seating for 3,570 patrons;
On-site pari-mutuel wagering and thoroughbred, harness and greyhound racing simulcast from other prominent tracks, as well as wagering on Mountaineer's races at over 1,400 sites to which the races are simulcast;
A 69,000 square foot theater and events center that seats approximately 5,000 patrons for concerts and other entertainment offerings; and
Surface parking for approximately 5,300 vehicles.
Presque Isle Downs & Casino. Presque Isle Downs & Casino ("Presque Isle Downs"), located in Erie, Pennsylvania, opened for business in 2007 and commenced table gaming operations in 2010. The 153,400 square foot facility consists of:
61,400 square feet of gaming space housing approximately 1,600 slot machines, 32 casino table games and a nine table poker room;
Live thoroughbred horse racing conducted from May through September on a one-mile track with a state-of-the-art one-mile synthetic racing surface with grandstand, barns, paddock and related facilities, and indoor and outdoor seating for approximately 750 patrons;
On-site pari-mutuel wagering and thoroughbred and harness racing simulcast from other prominent tracks, as well as wagering on Presque Isle Downs' races at over 1,200 sites to which the races are simulcast; and
Surface parking for approximately 3,200 vehicles.
Scioto Downs. Scioto Downs is located in the heart of Central Ohio, off Highway 23/South High Street, approximately eight miles from downtown Columbus. Columbus is the largest metropolitan area within the state of Ohio with a population of approximately 835,000 and a greater metropolitan area of approximately 2.0 million within 60 miles of downtown.
Scioto Downs currently offers:
83,000 square feet of gaming space housing approximately 2,140 VLTs (with the ability to install up to 2,500 VLTs), including a 3,200 square foot outdoor gaming patio;
The Brew Brothers, a new microbrewery and restaurant which opened in October 2015, that seats approximately 230 patrons and offers live entertainment;
Six full service bars and six restaurants ranging from fine dining to a buffet;

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Live standard bred harness horse racing conducted from May through mid-September with barns, paddock and related facilities for the horses, drivers and trainers, that can accommodate over 2,600 patrons for live racing as well as a Summer Concert Series, featuring national acts;
On-site pari-mutuel wagering and thoroughbred, harness and greyhound racing simulcast from other prominent tracks, as well as wagering on Scioto Downs' races at over 800 sites to which the races are simulcast; and
Surface parking for approximately 3,500 vehicles.
ERI's Investment in Silver Legacy Joint Venture
Background. The Silver Legacy Resort Casino was developed by the Silver Legacy Joint Venture, then an unconsolidated investee of Resorts, subject to its joint venture agreement dated March 1, 1994.
On November 24, 2015, ERI, through a wholly owned subsidiary, consummated the acquisition of all of the assets and properties of Circus Circus Reno ("Circus Reno") and the 50% membership interest in the Silver Legacy Joint Venture owned by Galleon, Inc. (collectively, the “Circus Reno/Silver Legacy Purchase”). Eldorado also exercised its right to acquire the 3.8% interest in Eldorado Limited Liability Company (“ELLC”) held by certain of its affiliates and shareholders. As a result of these transactions, ELLC and CC-Reno LLC, a newly formed Nevada limited liability company, became wholly-owned subsidiaries of ERI, and Silver Legacy became an indirect wholly owned subsidiary of ERI.
Eldorado's equity in income (losses) related to the Silver Legacy for the 2015 period prior to Circus Reno/Silver Legacy Purchase and for the year ended December 31, 2014 amounted to $3.5 and $2.0 million, respectively.
ERI's Business Strategy
ERI is a gaming and hospitality company established in 1973 that owns and operates gaming facilities located in Louisiana, Nevada, Ohio, Pennsylvania and West Virginia. Its primary source of revenue is gaming, but it uses its hotels, restaurants, bars, shops and other services to attract customers to its properties. Eldorado was founded as a family business by the Carano family and continues, through ERI, to maintain its commitment to customer service, high-quality food and beverage and outstanding amenities. ERI believes that an extraordinary level of personal service and the variety, quality and attractive pricing of food and beverage in ERI's outlets are important factors in attracting customers to ERI's properties and building customer loyalty.
ERI’s Operations
The following table highlights the results of ERI’s operations (dollars in thousand) for the years ended December 31, 2015 and 2014. 2014 amounts include information for MTR Gaming beginning September 19, 2014:
 
2015
 
2014
 
Percent
Increase (Decrease)
Net operating revenues
$
719,784

 
$
361,823

 
98.9

%
Operating expenses
648,270

 
339,478

 
91.0

%
Equity in income of unconsolidated affiliates
3,460

 
2,705

 
27.9

%
Operating income
72,516

 
17,555

 
313.1

%
Net income (loss) attributable to ERI
$
114,183

 
$
(14,425
)
 
891.6

%

10



The following table highlights ERI’s sources of net operating revenues (dollars in thousands):
 
 
2015
 
2014
 
Percent
Increase (Decrease)
Gaming and Pari-Mutuel Commissions:
 
 

 
 

 
 

 
  Nevada
 
$
74,626

 
$
61,946

 
20.5

%
  Louisiana
 
125,371

 
123,228

 
1.7

%
  Eastern
 
423,261

 
115,660

 
266.0

%
    Total Gaming and Pari-Mutuel Commissions
 
623,258

 
300,834

 
107.2

%
Non-gaming:
 
 

 
 

 
 

 
  Nevada
 
72,214

 
57,625

 
25.3

%
  Louisiana
 
37,273

 
37,386

 
(0.3
)
%
  Eastern
 
51,796

 
14,427

 
259.0

%
Total Non-gaming
 
161,283

 
109,438

 
47.4

%
Promotional allowances:
 
 

 
 

 
 

 
  Nevada
 
(19,038
)
)
(15,876
)
 
19.9

%
  Louisiana
 
(26,302
)
)
(26,654
)
 
(1.3
)
%
  Eastern
 
(19,417
)
)
(5,919
)
 
228.0

%
Total Promotional Allowances
 
(64,757
)
)
(48,449
)
 
33.7

%
 
 
 
 
 
 
 
 
Net operating revenues
 
$
719,784

 
$
361,823

 
 
 
ERI’s Seasonality
Casino, hotel and racing operations in ERI's markets are subject to seasonal variation. Winter conditions can frequently adversely affect transportation routes to each of ERI's properties and also may cause cancellations of live horse racing at Mountaineer, Scioto Downs and Presque Isle Downs. As a result, unfavorable seasonal conditions could have a material adverse effect on ERI's operations.
ERI’s Employees
As of December 31, 2015, ERI had approximately 7,800 employees and 11 collective bargaining agreements covering approximately 1,100 employees.
ERI's Markets and Competition
General
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 ERI does. 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 ERI's markets or changes to gaming laws in states surrounding Nevada, Louisiana, West Virginia, Pennsylvania, or Ohio could increase competition and could adversely affect ERI's operations. ERI 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, card clubs, riverboat casinos and other forms of legalized gambling. In addition, various forms of internet gaming have been approved in Nevada and New Jersey and legislation permitting internet gaming has been proposed by the federal government and other states. The expansion of internet gaming in Nevada and other jurisdictions could result in significant additional competition.
Nevada segment
Of the 30 casinos currently operating in the Reno market, ERI believes that its Nevada properties compete principally with the six hotel-casinos which, similarly to Eldorado-Reno and Silver Legacy, each generate at least $36 million in annual gaming revenues. At this time, ERI 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. ERI 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 ERI's financial condition or results of operations.

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ERI's Nevada properties also compete with hotel-casinos located in the nearby Lake Tahoe region as well as those in other areas of Nevada, including Las Vegas. A substantial number of customers travel to both Reno and the Lake Tahoe area during their visits. Consequently, ERI believes that its success is influenced to some degree by the success of the Lake Tahoe market. The number of visitors increased during the year ended December 31, 2015 compared with the prior year, and while ERI does not anticipate a significant change in the popularity of either Reno or Lake Tahoe as tourist destination areas in the foreseeable future, any decline could adversely affect ERI's operations.
Since visitors from California comprise a significant portion of ERI's customer base, ERI's Nevada properties also compete with Native American gaming operations in California. In total, the State of California has signed and ratified compacts with 72 Native American tribes, and there are currently 60 Native American casinos operating in California, including casinos located in northern California, which ERI considers to be a significant target market. These Native American tribes are allowed to operate slot machines, lottery games and banking and percentage games on Native American lands.
ERI's management believes that the Reno market draws over 50% of its visitors from California. As northern California Native American gaming operations have expanded, ERI believes that the increasing competition generated by these gaming operations has negatively impacted, and may continue to negatively impact, principally drive-in, day-trip visitor traffic from ERI's Nevada properties' main feeder markets in northern California.  
Louisiana Segment
The Shreveport/Bossier City, Louisiana gaming market is characterized by intense competition and the market has not grown appreciably since Eldorado-Shreveport opened in December 2000. Eldorado-Shreveport competes directly with five casinos, all but one of which have operated in the Shreveport/Bossier City market for several years and have established customer bases. In addition, Eldorado-Shreveport also competes with the slot machine facility at Harrah’s Louisiana Casino and Racetrack located in Bossier City and WinStar Casino and casino facilities owned by the Choctaw Nation located in Oklahoma. Casino gaming is currently prohibited in several jurisdictions from which the Shreveport/Bossier City market draws customers, primarily Texas. The Texas legislature has from time to time considered proposals to legalize gaming. Any such proposal would require an amendment to the Texas State constitution, which requires approval by two-thirds of the Texas State Legislature and approval by a majority of votes cast in a statewide voter referendum. Such approvals would legalize gaming in Texas notwithstanding vetoes by the Governor of casino gambling bills. There can be no assurance that casino gaming will not be approved in Texas in the future, which would have a material adverse effect on Eldorado-Shreveport's business. Eldorado-Shreveport competes with several Native American casinos located in Oklahoma, certain of which are located near its core Texas markets. Because Eldorado-Shreveport draws a significant amount of customers from the Dallas/Fort Worth, Texas area, but is located approximately 190 miles from that area, ERI believes that Eldorado-Shreveport will continue to face increased competition from gaming operations in Oklahoma and would face significant competition that may have a material adverse effect on its business and results of operations if casino gaming were to be approved in Texas.
In June 2013, construction was completed on a hotel casino in Bossier City across the Red River from Eldorado-Shreveport. In December 2014, a new luxury, land-based casino opened in Lake Charles, Louisiana approximately 200 miles south of Eldorado-Shreveport, but closer to the Houston, Texas market.
Eastern Segment
Mountaineer, Presque Isle Downs and Scioto Downs primarily compete with gaming facilities located in West Virginia, Ohio and Pennsylvania, including, to a certain extent, each other, and gaming locations located in neighboring states including New York, Indiana and Michigan. In particular, Mountaineer (and to a lesser extent Presque Isle Downs) competes with other gaming facilities located in Pennsylvania, including The Rivers Casino located in downtown Pittsburgh, Pennsylvania and The Meadows Racetrack and Casino located in Washington, Pennsylvania, approximately 50 miles southeast of Mountaineer. An additional license has been granted for a casino to be located in Lawrence County, Pennsylvania, approximately 45 miles from Mountaineer and 90 miles from Presque Isle Downs, which would result in further competition for both of those properties. Further, gaming facilities in Ohio that have recently commenced operations, including the Horseshoe Casino Cleveland, Hollywood Casino Columbus, ThistleDown Racino, Northfield Park and Beulah Park, present significant competition for Mountaineer, Presque Isle Downs and Scioto Downs.
Mountaineer competes with smaller gaming operations conducted in local bars and fraternal organizations. West Virginia law permits limited video lottery machines ("LVLs") in local bars and fraternal organizations. The West Virginia Lottery Commission authorizes up to 7,500 slot machines in these facilities throughout West Virginia. No more than five slot machines are allowed in each establishment licensed to sell alcoholic beverages, and no more than ten slot machines are allowed in each licensed fraternal organization. As of December 31, 2015, there was a total of approximately 1,000 LVL's in bars and fraternal organizations in Hancock county, West Virginia (where Mountaineer is located) and the two neighboring counties (Brooke and Ohio counties). Although the bars and fraternal organizations housing these machines lack poker and table gaming, as well as the amenities and ambiance of the Mountaineer facility, they do compete with Mountaineer, particularly for the local patronage.

12



While there are three other tracks and one resort in West Virginia that offer slot machine and table gaming, only one, Wheeling Island Casino, lies within Mountaineer's primary market in Wheeling, West Virginia. Wheeling Island Casino currently operates approximately 1,400 slot machines, nine poker tables, and 22 casino table games.
Scioto Downs has also competed with smaller gaming operations in Ohio commonly referred to as Internet/sweepstakes cafes. These establishments offer services including internet time and computer access, in addition to offering games such as poker and games that operate like slot machines. In March 2013, the Ohio General Assembly passed legislation which effectively bans the Internet cafes by defining use of the computers in these facilities as illegal gambling. Efforts have been underway to enforce the closure of the internet cafes.
Mountaineer's, and to a lesser extent Presque Isle Downs', racing and pari-mutuel operations compete directly for wagering dollars with racing and pari-mutuel operations at a variety of other horse and greyhound racetracks that conduct pari-mutuel gaming, including Wheeling Island Casino, in Wheeling, West Virginia; ThistleDown and Northfield Park, in Cleveland, Ohio; Beulah Park, in Austintown Ohio, and The Meadows Racetrack & Casino, in Washington, Pennsylvania. Wheeling Island Casino conducts pari-mutuel greyhound racing, simulcasting and casino gaming. Both ThistleDown and Northfield Park conduct pari-mutuel horse racing, with video lottery gaming which commenced in 2013. Beulah Park was relocated from Columbus, Ohio to Austintown, Ohio in 2014 and conducts pari-mutuel wagering, simulcasting and video lottery gaming. The Meadows Racetrack & Casino conducts live harness racing, simulcasting and casino gaming. Mountaineer (and to a lesser extent, Presque Isle Downs) also will compete with Valley View Downs in Lawrence County, Pennsylvania, if it is constructed and opened. Since commencing export simulcasting in August 2000, Mountaineer competes with racetracks across the country to have its signal carried by off-track wagering parlors. Mountaineer, Presque Isle Downs and Scioto Downs also competes for wagering dollars with off-track wagering facilities in Ohio and Pennsylvania, and competes with other racetracks for participation by quality racehorses.
General
All of ERI's gaming operations also compete to a lesser extent with operations in other locations, including Native American lands, and with other forms of legalized gaming in the United States, including state-sponsored lotteries, on- and off-track wagering, high-stakes bingo, card parlors, and the emergence of Internet gaming, including proposals at the state and federal levels that would legalize various forms of internet gaming. In addition, casinos in Canada have likewise recently begun advertising and increasing promotional activities in ERI's target markets.
Mesquite
The diagram below depicts the current organizational structure of Mesquite and its subsidiaries.
Investment in Mesquite
Mesquite is engaged in the hotel casino industry in Mesquite, Nevada through its wholly owned subsidiaries, C & HRV, LLC (doing business as Virgin River Hotel/Casino/Bingo) and VRCC, LLC and its wholly owned subsidiaries, 5.47 RBI, LLC and RBG, LLC (doing business as CasaBlanca Resort/Golf/Spa) and its wholly owned subsidiary CasaBlanca Resorts, LLC (doing business as the Oasis Resort and Casino prior to its demolition in 2013) and its wholly owned subsidiaries Oasis Interval Ownership, LLC, Oasis Interval Management, LLC and Oasis Recreational Properties, Inc. Mesquite's operations include

13



approximately 213,000 square feet of casino space, containing 1,610 slot machines, 36 table games, and 1,187 hotel rooms, 371 of which are non-operational rooms located on the site that housed the Oasis prior to its demolition.
On August 1, 2011, the Company acquired its 40% Mesquite Interest, which is accounted for using the equity method of accounting, in exchange for $8,222,222 in cash that was contributed to the Company by the Newport Funds in July 2011. The Mesquite Acquisition was completed upon the transfer to Mesquite of all of the assets of Black Gaming, LLC (“Black Gaming”), including Black Gaming’s direct and indirect ownership interests in its subsidiaries. The transfer of the Black Gaming assets to Mesquite and the acquisition by AcquisitionCo of the Mesquite Interest were pursuant to a joint plan of reorganization filed by Black Gaming and its subsidiaries with the United States Bankruptcy Court for the District of Nevada on March 1, 2010, and approved by the Court on June 28, 2010.
On August 1, 2011, Mesquite completed the issuance of $62.5 million of Senior Secured Notes under Mesquite’s New Loan Facility that provided for interest at an annual rate of LIBOR (1.5% floor and 4.5% ceiling) plus 700 basis points and were due and payable August 1, 2016 (the “Mesquite Senior Notes”), and entered into a new $10 million senior secured credit facility (the "Mesquite Credit Facility"). Interest and principal on the Mesquite Senior Notes and interest on the Mesquite Credit Facility were payable quarterly.
On August 22, 2013, Mesquite completed its refinancing of the indebtedness then outstanding under the Mesquite Senior Notes and the Mesquite Credit Facility utilizing the following: (a) $20 million of First Lien Notes issued to Nevada State Bank, due and payable August 22, 2019, that provide for interest at a 30 day LIBOR rate effective on the first day of each month plus an applicable margin which is determined by reference to Mesquite's senior leverage ratio (5.25% for a ratio greater than 2:1 and 4.75% for a ratio less than or equal to 2:1), (b) a three-year term, $6 million First Lien Revolver with Nevada State Bank, due and payable August 22, 2016, which is subject to the same interest terms as the First Lien Notes plus 0.25% quarterly on the unused principal portion of the First Lien Revolver, and (c) $35 million of Second Lien Notes issued to Wilmington Trust, due and payable February 21, 2020, that provide for no principal amortization and payment of interest on the unpaid principal amount at the rate of 7% per annum until January 2, 2015, and at the rate of 8% per annum thereafter.
The Second Lien note holders include the Company ($14 million) and other lenders not affiliated with the Company but which have (or their beneficial owners have) ownership interests in Mesquite.
Mesquite’s Gaming Properties
Virgin River Hotel/Casino/Bingo. The Virgin River Hotel & Casino (the “Virgin River”) has 717 guest rooms (including six suites) and a 36,000 square-foot casino with approximately 831 video poker and slot machines, 12 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 several affordable dining options, including a 182-seat 24-hour restaurant, the Chuckwagon, and a 178-seat buffet restaurant, Sierra’s Buffet, which has been voted the #1 buffet in Mesquite on multiple occasions. The Virgin River is situated on an approximately 32-acre site, with a parking lot that has a capacity for approximately 1,650 cars.
CasaBlanca Resort/Golf/Spa. The CasaBlanca Resort & 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 837 video poker and slot machines, 25 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 the Smorgasbord Buffett, a 320-seat buffet restaurant, The Fez, a 180-seat café, Katherine’s, 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.
Other Assets. Demolition of another hotel casino on Mesquite's Oasis site was completed during 2013. The only remaining structures on the Oasis site are two buildings used for timeshares and a skywalk across Mesquite Boulevard. Also remaining on the site are 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 site is the Palms Golf Course featuring an 18-hole, 7,008 yard championship course. The Palms Golf Course is located in Arizona just across the Nevada border and is situated on a 256-acre site, of which 108 acres are leased from the State of Arizona pursuant to a lease that expired in May 2015. On March 18, 2015, Mesquite paid the first years rent of $128,000 (which includes a $1,000 renewal fee) under a new lease covering May 13, 2015 through May 12, 2016 and near that same time filed the required paperwork necessary to appeal the land value and lease payment with the Arizona State Land Department. In February 2016, the appraisal on the 108 acres was received at $1,140,000 and a proposed lease of 10 years, with a flat annual payment of $79,800 during years 1 - 5 and a flat annual payment of $83,790 during years 6

14



- 10 was approved by the Arizona State Land Department Commissioner on February 16, 2016. At this time Mesquite is still awaiting final approval from the Arizona State Land Department Board of Appeals on the proposed lease.
Management of Mesquite
Mesquite’s board of managers (the “Mesquite Board”) is currently composed of five managers who are selected from Mesquite’s two Class A Member Groups, the Black Member Group, which selects three Managers, and the Newport Member Group, which selects the remaining two Managers. The current Managers chosen by the Newport Member Group are Timothy T. Janszen, the Company’s operating manager, and Ryan L. Langdon, one of the Company’s Senior Managing Directors, while the current Managers chosen by the Black Member Group include individuals who were managers of Black Gaming prior to the Mesquite transaction. Under the terms of the Mesquite Operating Agreement, so long as AcquisitionCo remains a Class A Member of Mesquite, it may change its respective representatives on the Mesquite Board from time to time by notice to Mesquite. Any manager of Mesquite may be removed from office with cause upon a vote of at least two-thirds (2/3) of Mesquite’s Class A Membership interests.
Subject to the limitations described below, and except as otherwise delegated to Mesquite’s Chairman (the “Mesquite Chairman”), Chief Executive Officer (the “Mesquite CEO”), Chief Operating Officer (the “Mesquite COO”), or Chief Financial Officer (the “Mesquite CFO”), the Mesquite Board has control over the management of the business and affairs of Mesquite. Each manager has one vote and actions of the Mesquite Board generally require a majority vote of the managers. The members of the Mesquite Board are required to be licensed or found suitable by the relevant Nevada gaming authorities in order to engage in the management of Mesquite. For further information about these licensing and suitability requirements, see “Laws and Regulations” below.
The Mesquite 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 Mesquite Board or the Mesquite Operating Agreement, including the supervision, direction and control of the day-to-day business and affairs of Mesquite. In addition to this general authority, the Mesquite CEO may execute with the Mesquite Chairman or any other officer of Mesquite authorized by the Managers, such documents and instruments as may have been authorized by resolution of the Managers, except such documents and instruments, the signing or execution of which has been expressly delegated or reserved by the Mesquite Operating Agreement or the Managers to some other officer or agent of Mesquite, or as shall be required by law to be otherwise executed.
Under the Mesquite Operating Agreement, the Mesquite Board and the Mesquite CEO each has the right if, as and when it is necessary or appropriate on behalf of Mesquite, subject to the terms and conditions of the Mesquite Operating Agreement, to do the following:
Mortgage, finance, refinance, sell, convey, assign, lease, transfer, exchange or otherwise dispose of or encumber Mesquite property, whether real or personal;
Borrow money (whether from a Member or an unrelated party), issue evidence of indebtedness and secure the same by mortgage, deed of trust, security agreement, pledge, assignment or other lien or security interest;
Enter into, sign on behalf of Mesquite and perform contracts and agreements of any kind or nature necessary or desirable for (i) the acquisition, financing, management, subdivision, development, improvement, lease, rental, operation and/or division of real property, (ii) the erection of buildings and other improvements on real property and/or (iii) the demolition or refurbishing of improvements, including contracts and agreements with any Member or Manager and/or any principal or affiliate of any Member or Manager;
Invest Mesquite funds and do all acts which they deem necessary or appropriate for the protection and preservation of Mesquite assets;
Pay Mesquite obligations, including tax obligations, and appeal, compromise or settle, and institute, prosecute and defend any and all decisions, actions or claims in favor of or against Mesquite or relating to its business;
Enter into and execute on behalf of Mesquite any and all documents or instruments of any kind which they deem appropriate in exercising their authority under the provisions of the Mesquite Operating Agreement and/or carrying out the purposes of Mesquite, including, without limiting the foregoing, powers of attorney, joint venture and partnership agreements, limited-liability company operating agreements, management agreements, leases, rental agreements, construction contracts, architectural contracts, engineering contracts, sale contracts, escrow instructions, easements, covenants, conditions, restrictions, deeds, development agreements, deeds of trust, promissory notes, security agreements, assignments of rents and leases and Uniform Commercial Code financing statements, advertising agreements, insuring agreements and maintenance contracts;
Exercise such further powers and to do such other acts as are necessary or appropriate in carrying out their rights and duties under the Mesquite Operating Agreement;

15



Rent and lease real and personal Mesquite property and rent and lease real and personal property of others for the benefit of Mesquite on such terms and conditions and for such periods as they deem to be in the best interest of Mesquite;
Make elections to cause the basis of Mesquite property to be adjusted for federal income tax purposes in the event of a transfer or assignment of a Member’s interest by a Member, the death of a Member or the distribution of any property of Mesquite to a Member;
Exercise any and all rights of Mesquite incident to the ownership by Mesquite of stock, a venture interest, member’s interest, partnership interest, beneficial or trustee interest or other interest in any business enterprise or entity, including the right to attend meetings, vote and give consent or approval;
Apply and petition with government agencies, departments and entities for master plan and general plan amendments, rezoning, use permits, variances, vacations, subdivisions, condition waivers, design review approvals, building permits and other similar licenses and approvals related to property; and
Execute and deliver easements, rights of entry and right-of-way dedications relative to property;
Without the affirmative vote or written consent of at least four (4) of Mesquite’s Managers and Class A Members holding Eligible Units totaling at least two-thirds (2/3) of the Eligible Units held by all Class A Members, neither the Mesquite Board nor the Mesquite CEO has the right to do any of the following:
Admit additional Members to Mesquite other than a substituted Member for an existing Member or pursuant to exercise of currently outstanding warrants (the "Warrants");
Sell, transfer, convey or encumber all or substantially all Mesquite property;
Incur an indebtedness obligation or series of related indebtedness obligations, whether directly by Mesquite or through any of its subsidiaries, in excess of three million dollars ($3,000,000);
Enter into any transaction or series of related transactions for the purchase or sale of assets by Mesquite or any of its subsidiaries in which the purchase or sale price exceeds $3,000,000;
Issue additional Units or warrants other than the Warrants and Units issued pursuant to the Warrants;
Merger Mesquite with or into any other entity;
Any distributions made pursuant to the provisions of Section 5.4 of the Mesquite Operating Agreement;
Merger of any subsidiary of Mesquite with or into any entity other than Mesquite or another wholly owned subsidiary of Mesquite;
Issue additional equity interests in any subsidiary of Mesquite to a party other than Mesquite or a wholly owned subsidiary of Mesquite; or
Transfer any equity interest in any subsidiary of Mesquite to a party other than Mesquite or a wholly owned subsidiary of Mesquite.
Mesquite's Business Strategy
Mesquite’s operating strategy emphasizes attracting and retaining customers primarily from the Utah, Las Vegas and Mesquite markets and, to a lesser extent, out-of-town visitors traveling through Mesquite on I-15. Mesquite’s properties attract customers through:
Innovative, frequent and high-profile promotional programs directed towards the Utah, Las Vegas and Mesquite markets;
Offering Mesquite’s customers the latest in technology;
Focused marketing efforts targeting Mesquite’s customer database; and
The development of strong relationships with Mesquite’s current customers, along with efforts to build relationships with potential new customers.
Providing a High-Value Experience. Because Mesquite targets repeat customers, it’s committed to providing a high-value entertainment experience for the customers in its restaurants, hotels, casinos and other amenities. Mesquite believes that the value offered by the restaurants at each of its casino properties is a major factor in attracting local gaming customers, as dining is a primary motivation for casino visits by many locals. Through its restaurants, each of which has a distinct style of cuisine, Mesquite’s casino properties offer generous portions of high-quality food at reasonable prices. Mesquite’s operating strategy focuses on slot and video poker machine play. Its target market consists of frequent gaming patrons who seek a friendly atmosphere and convenience. Because locals and repeat visitors demand variety and quality in their slot and video poker

16



machine play, Mesquite offers the latest in slot and video poker technology at its casino properties. As part of its commitment to providing a quality entertainment experience for its patrons, Mesquite is dedicated to ensuring a high level of customer satisfaction and loyalty by providing attentive customer service in a friendly, casual atmosphere.
Marketing and Promotion. Mesquite employs a marketing strategy that utilizes frequent high-profile promotional programs in order to attract customers and establish a high level of name recognition. In addition to advertising through television, radio and newspaper, Mesquite has created new branded promotions, such as its Lot-A-Bucks product and cash incentive promotions.
Mesquite’s player rewards program allows guests to earn points based on their level of gaming activity. Participants in the program can redeem points at any of Mesquite’s properties for cash and complimentary slot play, food, beverage, hotel rooms, merchandise, golf rounds and spa services.
Mesquite is heavily focused on driving customer traffic with the latest products for slots, bingo and keno. Mesquite believes that these products create sustainable competitive advantages and will continue to distinguish it from its competition.
Mesquite’s management endeavors to instill among its employees a sense of loyalty. Toward this end, Mesquite’s management takes a hands-on approach through active and direct involvement with employees at all levels. Mesquite’s management believes that it has very good employee relations.
Mesquite's Operations
The primary source of Mesquite’s 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 Mesquite’s net revenues on a dollar (in thousands) and percentage basis of the major activities at Mesquite’s properties for each of the years ended December 31, 2015 and 2014:
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Casino(1)
$
63,534

 
64.8
 %
 
$
61,858

 
65.2
 %
Food, Beverage and Entertainment(2)
25,911

 
26.4
 %
 
24,904

 
26.2
 %
Hotel(2)
17,770

 
18.1
 %
 
16,967

 
17.9
 %
Other(2)
9,202

 
9.4
 %
 
8,977

 
9.5
 %
Gross revenues
116,417

 
118.7
 %
 
112,706

 
118.8
 %
Less:
 
 
 
 
 
 
 
Promotional allowances(2)
(18,304
)
 
(18.7
)%
 
(17,814
)
 
(18.8
)%
Net revenues
$
98,113

 
100.0
 %
 
$
94,892

 
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 promotional allowances to arrive at net revenue.
Mesquite's Seasonality
Mesquite’s results of operations tend to be seasonal in nature with the first half of the year showing higher revenues and operating profits.
Mesquite's Employees
As of December 31, 2015, Mesquite employed approximately 1,466 employees, none of whom are covered by a collective bargaining agreement. Mesquite believes that it has a good relationship with its employees.

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Mesquite's Market and Competition
Market description. Mesquite has a population of approximately 16,970 according to the most recently available census data, and is located in the Virgin River Valley adjacent to the Arizona state line and 80 miles northeast of Las Vegas along Interstate 15. Mesquite is a market that attracts both “drive-in” visitors and visitors who are passing through on their way to other destinations by offering gaming as well as other summer and winter recreational activities. In addition to gaming, the Mesquite area features national parks and forests, mountains and lakes and offers year-round opportunities for outdoor activities of all types.
The Mesquite area enjoys relatively mild weather, with abundant sunshine throughout the year and low humidity. Mesquite’s annual snowfall is modest, although heavier snowfall in the mountain passes around Mesquite does occur. Considered by many to be a golfer’s paradise, Mesquite has seven championship courses including the nationally-ranked Wolf Creek Golf Club and the new Conestoga Golf Club. Mesquite also offers world-class mountain biking, ATVing and hiking trails, nature tours, sky diving, and more.
According to the Las Vegas Convention and Visitors Authority (the “Visitors Authority”), the Mesquite area attracted an estimated 1.2 million visitors during each of the years ended December 31, 2015 and 2014. Based on information reported by the Visitors Authority and the Nevada State Gaming Control Board, gaming revenues for the Mesquite gaming markets were $114.1 million, $113 million and $113.1 million in 2015, 2014 and 2013, respectively.
Competitors generally. Mesquite faces competition in the market in which its gaming facilities are located as well as in or near any geographic area from which it attracts or expects to attract a significant number of its customers. As a result, Mesquite’s casino properties face direct competition from all other casinos and hotels in the Las Vegas, Nevada region and the Wendover, Nevada region as well as the California gaming market.
Many of Mesquite’s competitors have significantly greater name recognition and financial, marketing and other resources than Mesquite. Mesquite also competes, to some extent, with other forms of gaming on both a local and national level, including state-sponsored lotteries, internet gaming, on- and off-track wagering and card parlors. The recent and continued expansion of legalized casino gaming to new jurisdictions throughout the United States has increased competition faced by Mesquite and will continue to do so in the future. Additionally, if gaming were legalized or expanded in jurisdictions near Mesquite’s properties or any geographic area from which it expects to attract a significant number of its customers, Mesquite could face additional competition which could have a material adverse impact on its business, financial condition and results of operations. There can be no assurance that Mesquite will be able to continue to compete successfully in its existing markets or that it will be able to compete successfully against any such future competition.
Competitors, Mesquite, Nevada. There are three operating hotel-casinos in Mesquite, Nevada, two of which are owned by Mesquite. Mesquite suspended operations at another of its hotel-casinos, the Oasis, on June 30, 2009 and surrendered its gaming license related to that property. Mesquite continued to use the hotel rooms, RV Park and timeshares at the Oasis until the recent demolition discussed previously and continues to utilize the timeshares now that the demolition is complete, as the structures housing those properties remain. As of December 31, 2015 there were approximately 1,712 hotel rooms in Mesquite, Nevada, 1,560 of which are owned by Mesquite. Within the three operating hotel-casinos there are eight dining options, five of which are located at Mesquite properties. Mesquite also competes with free standing dining facilities in Mesquite, Nevada. The only other licensed resort gaming facility in Mesquite is the Eureka Casino Hotel (the “Eureka”). Mesquite believes that the hotel casinos are sufficiently distinct and diversified such that each property caters to a different type of clientele. For instance, the CasaBlanca, which contains a spacious casino floor and a tower hotel, appeals to the customer who seeks to enjoy a mega resort type experience that is away from the hustle and bustle of Las Vegas. On the other hand, the Virgin River caters to the local Mesquite customer who is more likely to be attracted by the intimate gaming atmosphere and amenities such as a bowling alley. With 210 rooms and 3 dining facilities, Mesquite believes that the Eureka targets the local Mesquite customer and competes directly with the Virgin River. There is no limit on the number of gaming licenses that may be granted in Mesquite or in some of the other gaming markets in which Mesquite competes. In particular, other than zoning limitations and licensing requirements of the City of Mesquite, there are no restrictions on additional casinos being constructed and opened in Mesquite, including by competitors that may have greater financial and other resources than Mesquite.
Competitors, Las Vegas, Nevada. Many of Mesquite’s competitors in the Las Vegas market have significantly greater name recognition and financial, marketing and other resources than does Mesquite. However, Mesquite’s focus on providing value-oriented amenities with a quality casino experience attracts many Las Vegas locals who want to enjoy a weekend getaway. In response to challenges resulting from the most recent economic downturn and an increased inventory of rooms, many properties in the Las Vegas market have significantly reduced their room rates, which has made it more difficult for Mesquite to compete with those properties.
Competitors, West Wendover, Nevada. West Wendover, Nevada is located on the eastern border of Nevada in Elko County. The city is contiguous with Wendover, Utah and is approximately 120 miles west of Salt Lake City, Utah, less than half the distance between Mesquite and Salt Lake City, Utah. According to the Nevada State Gaming Control Board, the West

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Wendover casinos collectively contain approximately 4,000 slot machines and 160 games and tables as of December 31, 2015. Mesquite competes with these casinos for gaming customers located in Salt Lake City, Utah and the outlying areas. Nonetheless, Mesquite believes that it benefits from a more favorable climate and more attractive amenities. In West Wendover, during September through December, the average number of days with precipitation ranges from five to nine days with temperatures ranging from 38 to 58 degrees Fahrenheit. Mesquite, on the other hand, has on average three to four days of precipitation with temperatures ranging from 48 to approximately 72 degrees Fahrenheit during the same period.
Competitors, California Gaming Market. Reference is made to the discussion appearing under “ERI's Markets and Competition - Nevada Segment” regarding the development of Native American casinos in the state of California.
LAWS AND REGULATIONS
Introductory Explanation
During all of the fiscal year covered by this report, and until March 29, 2016, NGA owned interests in both ERI and Mesquite. On March 29, 2016, NGA completed the liquidation of its ownership interest in ERI. Thus, as of the date of this report the only interest it continues to own is its interest in Mesquite. The following discussion of gaming regulation and licensing includes a discussion for Nevada, which is applicable to both ERI and Mesquite, as well as discussions for Louisiana, West Virginia, Pennsylvania and Ohio, each of which is applicable only to ERI, in which NGA ceased to have any ownership interest on March 29, 2016.
Gaming Regulation Overview
ERI and Mesquite 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 Louisiana, Nevada, Ohio, Pennsylvania or West Virginia, where their operations are conducted, those regulations could impose additional 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 jurisdictions in which ERI and Mesquite conduct operations which, if enacted, could adversely affect the tax, regulatory, operational or other aspects of the gaming industry and those operations. ERI and Mesquite 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 ERI's and/or Mesquite's, or their subsidiaries’ operations.
Some jurisdictions, including those in which ERI and Mesquite are licensed, empower their regulators to investigate participation by licensees in gaming outside their jurisdiction and require licensees to file periodic reports regarding 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 ERI and Mesquite have operations, and under their organizational documents, certain of their securities are subject to restrictions 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.
NGA has been approved by the applicable gaming authorities to hold equity interests in ERI and Mesquite and is subject to extensive ongoing regulation by the gaming authorities of these jurisdictions.
Nevada Regulation and Licensing
The ownership and operation of casino gaming facilities in Nevada are subject to the Nevada Gaming Control Act (the “Nevada Act”) and regulations promulgated thereunder and 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;
Provide reliable record keeping and require the filing of periodic reports with the Nevada Gaming Authorities;

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Prevent cheating and fraudulent practices;
Maintain a Gaming Compliance and Reporting Plan, including the establishment of a Gaming Compliance Committee and the retention of a Corporate Compliance Officer; and
Provide a source of state and local revenues through taxation and licensing fees.
Changes in these laws, regulations and procedures could have an adverse effect on gaming operations at Nevada casinos, including those of ERI and Mesquite.
ERI is registered by the Nevada Commission as a publicly traded corporation (a “Registered Corporation”) that is authorized to own all of the membership interests of Eldorado. As a Registered Corporation, ERI is required to submit periodic detailed financial and operating reports to the Nevada Commission and to furnish any other information which the Nevada Commission may require. Eldorado is approved and registered as a private holding company authorized to own and control all of the membership interests of Resorts. Resorts, which owns and operates Eldorado-Reno, and Mesquite, which owns and operates Virgin River and CasaBlanca, are licensed by the Nevada Gaming Authorities as corporate licensees (“Corporate Licensees”) under the terms of the Nevada Act. Each of Eldorado-Reno, Silver Legacy, Virgin River and CasaBlanca are licensed as non-restricted (casino) gaming operations under Nevada law. No person may become a member of, or receive any percentage of the profits from, Eldorado or Mesquite without first obtaining licenses and approvals from the Nevada Gaming Authorities. All of the members of Eldorado and Mesquite have obtained the licenses and approvals necessary to own their respective interests in Eldorado and Mesquite, respectively. 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, Circus Reno and Silver Legacy. Likewise, Mesquite 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 Virgin River and CasaBlanca and to own its interests in VRCC, LLC and C & HRV, LLC.
Prior to the closing of the Resorts Transaction, NGA and its affiliated entities and controlling persons obtained certain approvals from the Nevada Gaming Authorities. These approvals included the following:
NGA was registered as a publicly traded corporation as that term is defined by the Nevada Act,
NGA, 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 NGA, 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. Similarly, prior to the closing of the Mesquite Acquistion, NGA and its affiliated entities and controlling persons obtained certain approvals from the Nevada Gaming Authorities including, among others:
NGA was confirmed as being registered as a publicly traded corporation as that term is defined by the Nevada Act,
NGA, VoteCo, Blocker, and AcquisitionCo were confirmed as being registered as holding or intermediary companies and were found suitable in such capacities, and
The VoteCo equityholders were confirmed as being licensed as members and managers, as applicable, of VoteCo and found suitable as controlling managers, as applicable, of NGA, Blocker, and AcquisitionCo.
The Nevada Gaming Authorities have found NGA, VoteCo, Blocker and AcquisitionCo and each such company’s respective members and managers suitable in connection with the interests held in ERI and Mesquite. While the direct and indirect holders of Class B Membership Units of NGA are not mandatorily required to be found suitable in connection with NGA’s holdings in ERI and Mesquite, 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 NGA. NGA has been approved to be registered by the Nevada Commission as a “publicly traded corporation” as that term is defined in the Nevada Act. NGA 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 NGA 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 NGA’s membership units or any other securities of NGA will be listed for trading or trade with any frequency.
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

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NGA 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 ERI, Mesquite, NGA, 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 Eldorado and Mesquite Transactions. 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 ERI or its Nevada licensed subsidiaries, Mesquite, NGA, 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 ERI, any of ERI's Nevada licensed subsidiaries, Mesquite, NGA, VoteCo, Blocker or AcquisitionCo, the gaming licenses and approvals of the violating entity 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 ERI's and Mesquite’s Nevada operations 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 ERI's and Mesquite's casino revenues and cause NGA to suffer financial loss.
The Second Revised Order of Registration issued on July 28, 2011 by the Nevada Commission in connection with the Company’s holdings in Eldorado and Mesquite (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 Units of Eldorado or Mesquite or any other security convertible into or exchangeable for Class A Membership Units or Class B Membership Units of Eldorado or Mesquite, without the prior approval of the Nevada Commission, and (2) prohibit NGA from declaring cash dividends or distributions on any class of membership unit of NGA 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 NGA, 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 NGA, 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 NGA 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 25%, 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 29% 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

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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 determine 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. NGA 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 NGA or to have any other relationship with NGA, NGA:
Pays that person any dividend or interest with respect to voting securities of NGA,
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.
NGA 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 NGA 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

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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.
The Company is registered with the United States Securities and Exchange Commission (SEC) and is required by Nevada Gaming Regulations to comply with the SEC's periodic reporting requirements.  Recently, the Nevada Gaming Regulations were amended to allow for possible exemption from such requirements.  Subsequent to February 29, 2016, the Company requested a hearing with the Nevada regulators to determine whether the Company qualifies for the exemption.  If it is determined during the hearing, which is scheduled for July 2016, that the Company qualifies for the exemption, the Company intends to discontinue the filing of periodic reports with the SEC. 
Louisiana Regulation and Licensing
In the State of Louisiana, ERI, 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 to:
Develop a historic riverboat industry that will assist in the growth of the tourism market;
License and supervise the riverboat industry from the period of construction through actual operation;
Regulate the operators, manufacturers, suppliers and distributors of gaming devices; and
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 were 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 operating.
ERI 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 directors, 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 any riverboat operator 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. Eldorado-Shreveport, as operated by Eldorado subsidiaries, currently holds all required licenses and approvals for operation of the casino. The current Louisiana riverboat gaming license of Eldorado-Shreveport is valid for five years and will expire on October 14, 2019.
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 corporation, limited liability

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company, or partnership entity, then the shareholders, members, or partners of the entity must also submit to investigation. The sale or transfer of an 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 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.
The Riverboat Act or rules adopted pursuant thereto contain certain restrictions and conditions relating to the operation of riverboat gaming, including the following: (1) agents of the Gaming Control Board are permitted on board at any time during gaming operations; (2) gaming devices, equipment and supplies may only be purchased or leased from permitted suppliers; (3) gaming may only take place in the designated gaming area while the riverboat is upon a designated river or waterway; (4) gaming equipment may not be possessed, maintained or exhibited by any person on a riverboat except in the specifically designated gaming area, or a secure area used for inspection, repair or storage of such equipment; (5) wagers may be received only from a person present on a licensed riverboat; (6) persons under 21 are not permitted on gaming vessels; (7) except for slot machine play, wagers may be made only with chips or electronic cards purchased from the licensee aboard a riverboat; (8) licensees may only use docking facilities for which they are licensed and may only board and discharge passengers at the riverboat’s licensed berth; (9) licensees must have adequate protection and indemnity insurance; (10) licensees must have all necessary federal and state licenses, certificates and other regulatory approvals prior to operating a riverboat; and (11) gaming may only be conducted in accordance with the terms of the license, the Riverboat Act and the rules and regulations adopted by the Gaming Control Board. 
Fees for conducting gaming activities on a riverboat include (1) $50,000 per riverboat for the first year of operation and $100,000 per year per riverboat thereafter plus (2) a percentage of net gaming proceeds (gross revenue).  In March 2001, Louisiana passed Act 3 of the 1st Extraordinary Legislative Session, which allows riverboat gaming licensees to operate dockside.  In consideration of this change, the tax on gaming revenues was increased to 21.5%.
The Riverboat Act also authorizes the City of Shreveport to assess a boarding fee, up to $3.00.  In lieu of the boarding fee, Eldorado-Shreveport's previous owner negotiated a payment in an amount equal to 3.225% of the gross revenues (“Net Gaming Proceeds”) of the riverboat to be paid to the City of Shreveport and 0.5375% of the Net Gaming Proceeds of the riverboat to be paid to the Bossier Parish School Board.  In May 2005, Eldorado-Shreveport's previous owner and the Bossier Parish Police Jury concluded an agreement under which Eldorado-Shreveport began paying a percentage of its net gaming proceeds, to the Bossier Parish Police Jury.  Such payments were initially in the amount of 0.3% of its net gaming proceeds during 2006, and subsequently increased to 0.4% and 0.5% effective January 1, 2007 and 2008, respectively.  The payments are in addition to those under Eldorado-Shreveport's ground lease and are in lieu of both admission fees and any sales or use tax for complimentary goods or services. 
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.
West Virginia Regulation and Licensing
In the State of West Virginia, ERI owns and operates, through MTR and its wholly owned subsidiary, Mountaineer Park, Inc., Mountaineer Casino, Racetrack & Resort in Chester, West Virginia, which offers live thoroughbred racing with pari-mutuel wagering, simulcast racing with pari-mutuel wagering, televised racing with pari-mutuel wagering, racetrack video lottery games and lottery racetrack table games. The operation and management of Mountaineer are subject to extensive

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regulation by the West Virginia Racing Commission (the “WV Racing Commission”) and the West Virginia Lottery Commission (the “WVLC”). The racing and pari-mutuel wagering activities are licensed and regulated by the WV Racing Commission. Racetrack video lottery games and lottery racetrack table games are licensed and regulated by the WVLC.  Holding a valid racing license is required in order to be issued and hold a racetrack video lottery license and a lottery table games license cannot be issued unless the applicant for the license holds a racetrack video lottery license. 
Horse Racing and Pari-Mutuel Wagering. The WV Racing Commission, which is comprised of three members appointed by the Governor of West Virginia, regulates live racing, simulcast racing, televised racing and pari-mutuel wagering. Racing and pari-mutuel wagering are governed by the applicable West Virginia statutes and legislative rules promulgated by the WV Racing Commission.  Mountaineer is licensed by the WV Racing Commission, which license is renewed annually unless the WV Racing Commission rejects the application for renewal for good cause. The licensee pays an annual license tax as well as daily license taxes and pari-mutuel wagering taxes to the WV Racing Commission.  The racing statutes, including the taxes, are subject to change by the West Virginia legislature. The legislative rules promulgated by the WV Racing Commission are subject to amendment by the WV Racing Commission, but changes to the rules need to be approved by the West Virginia legislature.  Licenses are not transferable. 
As part of its application for renewal of its license, Mountaineer must disclose substantial information to the WV Racing Commission and notify the WV Racing Commission of changes in material information during the license year. This information includes the following: 
The names and addresses of all Mountaineer directors and stockholders;
The names and addresses of key employees of Mountaineer;
The dates and locations of race meetings;
The hours of operation on each race day;
A list of names of all required race officials;
A current and accurate financial statement of Mountaineer certified by an independent certified public accountant; and
Any other information required by the WV Racing Commission. 
Employees of Mountaineer engaged in racing and/or pari-mutuel wagering must have permits issued by the WV Racing Commission before they engage in employment in a racing or pari-mutuel wagering occupation. The WV Racing Commission charges each applicant for a permit, or for renewal of a permit, a permit fee that may be paid by the licensee. The WV Racing Commission may suspend, revoke or not renew licenses and permits in the event the licensee or permit holder violates the racing statutes or rules promulgated by the WV Racing Commission. The WV Racing Commission may also require fingerprints and background checks from all applicants for a permit as well as from officers, board members and key employees of Mountaineer. 
The WV Racing Commission approves live racing days as wells as simulcast and televised racing. The WV Racing Commission has broad powers to investigate, monitor and oversee all aspects of racing and pari-mutuel wagering.  The WV Racing Commission and its personnel have the right of access to any and all parts of the grounds of Mountaineer, and the WV Racing Commission may audit or examine the books and records of Mountaineer. 
If the WV Racing Commission were to suspend, revoke or not renew Mountaineer’s racing license, Mountaineer would have to stop offering racetrack video lottery games for play and stop offering lottery race track table games. 
West Virginia levies various taxes and fees on racing and pari-mutuel wagering activities, imposes limits on the commissions Mountaineer may receive from these activities and specifies how some portions of these commissions must be expended by the licensee. Changes in these laws could have a significant impact on the profitability of Mountaineer. 
Racetrack Video Lottery. Racetrack video lottery is regulated by the WVLC, which is comprised of seven members appointed by the Governor of West Virginia including the executive director of the WVLC (the “WV Executive Director”).  The WVLC has promulgated rules approved by the West Virginia legislature under which racetrack video lottery games are played and conducted. Under West Virginia law, Mountaineer’s racetrack video lottery license is not transferrable.  Additionally, the transfer of more than five percent of the equity interest, or voting interest, in Mountaineer or any other licensee must be approved by the WVLC before the transfer is finalized. In order to lawfully conduct racetrack video lottery, Mountaineer must maintain its racing license issued by the WV Racing Commission as well as it racetrack video lottery license.  Only the holder of a racing license is authorized to hold a racetrack video lottery license. 
In order to maintain its racetrack video lottery license, Mountaineer is required to inform the WVLC when information provided in its last renewal application changes.  Updating may be required because of changes in Mountaineer’s direct or indirect ownership, changes in management including members of the board of directors, changes in key personnel or changes

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in financing.  Mountaineer must annually apply to renew its race track video lottery license. This information includes but is not limited to:
Information about all holding companies, intermediaries, subsidiaries and affiliates of Mountaineer;
Any criminal charges or convictions of Mountaineer and employees engaged in gaming related activity;
Name, address, employer identification number or social security number, date of birth, compensation, any criminal charges or convictions and fingerprints for each of Mountaineer’s officers and directors as well as key employees having the ability to control or influence gaming activity. This requirement extends to officers, directors and key employees of a parent corporation;
A description of the stock of Mountaineer, and of all holding companies, intermediaries, subsidiaries and affiliates of Mountaineer;
Proof that Mountaineer holds a racing license issued by the WV Racing Commission;
Audited financial statements for Mountaineer and for any parent or holding company;
Information about all of the stock or equity interests Mountaineer holds in other entities;
A description of any civil litigation to which Mountaineer, or any holding company, subsidiary or affiliate of Mountaineer, is or was a party;
Information about any judgment, order or consent order pertaining to a violation of federal antitrust, trade regulation or securities laws, or of similar laws of any state, province or country, entered against Mountaineer or any holding company of Mountaineer;
Information regarding any bankruptcy or insolvency proceedings of Mountaineer or any director, officer or key employee of Mountaineer or of any parent corporation or other holding company;
 Information regarding the licensing history of Mountaineer, any director, officer or key employee of Mountaineer or of any parent or other holding company;
Mountaineer’s security and surveillance plan;
Consent to background checks for Mountaineer officers, directors and key employees and similar personnel of any parent corporation or holding company having directly or indirectly the power to control or influence gaming decisions by Mountaineer or any of its employees, which includes furnishing fingerprints;
A commitment to deliver acceptable forms of credit (e.g., surety bond) and evidence of insurance, meeting the requirements of the WVLC;
A commitment to purchase only authorized video lottery terminals and to maintain and timely repair such terminals using authorized technicians and parts;
A commitment to acquire video lottery terminals only from technology providers approved by the WVLC; and
Any other information or agreement the WVLC may require. 
Each time Mountaineer submits additional information to the WVLC in connection with Mountaineer’s racetrack video lottery license, or fails to timely submit such information, the WVLC and the WV Executive Director have discretion to suspend, revoke or reconsider the application for Mountaineer’s racetrack video lottery license.  If the racetrack video lottery license is suspended, revoked or not renewed, Mountaineer would have to cease operation of its racetrack video lottery games, as well as its lottery racetrack table games. Mountaineer’s racetrack video lottery license is subject to suspension, revocation or nonrenewal as provided for in the racetrack video lottery statutes and rules of the WVLC. Civil money penalties and criminal penalties may be imposed for certain violations of the lottery statutes and rules of the WVLC. 
The racetrack video lottery license may be suspended or revoked or not renewed in the event Mountaineer does any of the following:
Fails to comply with West Virginia’s racetrack video lottery statutes;
Fails to comply with the rules, terms and conditions, policies, orders and directives of the WVLC or of the WV Executive Director;
Fails to maintain any required surety bond, insurance, or insurance coverage required by the WVLC;
Makes a false or fraudulent statement or representation in connection with its application for renewal of its racetrack video lottery license or in any other document reasonably required by the WVLC or the WV Executive Director;
Fails to promptly and accurately settle accounts of racetrack video lottery transactions and pay the WVLC amounts due to the WVLC from racetrack video lottery transactions;

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Fails to credit or pay a winning racetrack video lottery participant;
Allows an underage person to play racetrack video lottery games, or pays an underage person a video lottery prize payment;
Fails to maintain adequate and sufficient security;
Offers a video lottery game that has not been approved by the WV Executive Director or the WVLC;
Allows a video lottery terminal to be repaired by an unauthorized person;
Uses a video lottery terminal that has not been authorized and approved by the WV Executive Director;
Fails to comply with the Americans with Disabilities Act of 1990;
Fails to provide required notice or to obtain required approval prior to relocating or transporting a video lottery terminal;
Fails to make capital improvements as required by the WVLC by rule, policy, order or directive;
Fails to meet financial obligations necessary for the continued operation of racetrack video lottery;
Acts in a manner that impacts or has the likelihood of impacting the efficient operation or integrity of video lottery; or
Fails to adhere to any terms and conditions set forth in the order of the WVLC approving Mountaineer’s application for a license or for renewal thereof. 
The WV Executive Director or the WVLC may also suspend or revoke Mountaineers racetrack video lottery license if Mountaineer or any officer or director or any employee engaged in gaming activity, or any officer or director or key employee of any parent corporation or holding company is convicted of criminal violations that may negatively impact the integrity of the lottery, or if any of them have experience, character or general fitness that the WV Executive Director believes would be inconsistent with the public interest, convenience or trust. 
As necessary for reasons related to public safety, convenience or trust which require immediate action, the WV Executive Director may order the immediate and indefinite disabling of all or a portion of Mountaineer’s racetrack video lottery terminals in accordance with rules of the WVLC. 
The WVLC and the WV Executive Director have broad powers under the racetrack video lottery statutes to investigate and monitor racetrack video lottery operations.  All racetrack video lottery terminals in operation for play must be connected to the WVLC’s computer system.  The WV Executive Director and employees of the Commission may at any time examine, inspect, test or access for any purposes all records, files, equipment, other documents, video lottery terminals, and hardware and software used in connection with video lottery.  Mountaineer must allow inspections of its licensed premises at any time as authorized by the WV Executive Director. 
The WVLC also has the power and authority, for good cause and without notice or a warrant, at any time, to do any of the following:
Inspect any racetrack video lottery terminals, central monitoring system, or associated equipment and software about, on or around Mountaineer’s facilities;
Inspect and examine all premises in which Mountaineer conducts racetrack video lottery gaming or has any authorized video lottery terminals, central monitoring system, or associated equipment and software designed, built, constructed, assembled, manufactured, sold, distributed, or serviced, or in which records of those activities are prepared or maintained;
Seize summarily and remove from Mountaineer’s premises and impound, assume physical control of, or disable any video lottery terminals, central monitoring system, or associated equipment and software for the purposes of examination and inspection;
Inspect, examine and audit books, records, and documents concerning Mountaineer’s racetrack video lottery gaming activities, including financial records of parent corporations, subsidiary corporations, affiliate corporations or similar business entities related to Mountaineer’s racetrack video lottery gaming activities; and
Seize, impound, or assume physical control of books, records, ledgers, cash boxes and their contents, a counting room or its equipment, or other physical objects relating to racetrack video lottery gaming. 
Pursuant to the racetrack video lottery statues, Mountaineer receives a commission equal to 46.5% of the net terminal income from the play of racetrack video lottery games.  “Net terminal income” is generally defined as credits played less video lottery prize winnings, less an amount deducted by the WVLC to reimburse the WVLC for its actual costs for administering racetrack video lottery at the licensed racetrack. 

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Additionally, the West Virginia Legislature has established a fund for modernization of racetrack video lottery terminals into which the WVLC annually deposits a portion of the amount it retains for administration of racetrack video lottery games.  An account is established for Mountaineer and for each of the other racetracks.  Mountaineer may draw annually from its account matching dollars to help pay the expense of upgrading and modernizing its racetrack video lottery terminals. For every two dollars a licensee spends on certain equipment, it is authorized to receive one dollar in recoupment from the fund.  In the event there remains a balance unspent by a licensee at the end of the year, that amount may be carried forward for one year, after which such amount reverts to the West Virginia State Lottery Fund.  The West Virginia Licensed Racetrack Modernization Fund is currently authorized to be funded through the fiscal year ending June 30, 2020. A change to these statutes could have a significant impact on the profitability of Mountaineer’s racetrack video lottery gaming business and revenues. 
Mountaineer employees involved with racetrack video lottery gaming are also required to obtain and maintain a license from the WVLC prior to being involved in racetrack video lottery gaming.  An application for a racetrack video lottery gaming employee license may be denied if the applicant has been convicted of certain offenses involving moral turpitude, illegal gambling, fraud or misrepresentation or if the person is not qualified for the position for which the application for a license is submitted. 
Lottery Racetrack Table Games. Lottery racetrack table games are regulated by the WVLC. The WVLC has promulgated rules approved by the West Virginia legislature under which lottery racetrack table games are played. Under West Virginia law, Mountaineer’s lottery racetrack table games license is not transferrable. Additionally, the transfer of more than five percent of the equity interest or voting interest in Mountaineer or any parent corporation or holding company must be approved by the WVLC before the transfer is finalized. 
In order to lawfully conduct lottery racetrack table games, Mountaineer must maintain its racing license issued by the WV Racing Commission and its racetrack video lottery license issued by the WVLC as well as its lottery table games license.  Only the holder of a racing license and a racetrack video lottery license is authorized to hold a lottery racetrack table games license. In order to maintain its racetrack lottery table games license, Mountaineer is required to inform the WVLC when information provided in its last renewal application changes.  Updating may be required because of changes in Mountaineer’s direct or indirect ownership, changes in management including members of the board of directors, changes in key personnel or changes in financing.  Mountaineer must annually apply to renew its lottery racetrack table games license.  The information required for this license is similar to that previously discussed for renewal of a racetrack video lottery license. 
Each time Mountaineer submits additional information to the WVLC in connection with Mountaineer’s lottery racetrack table games license, or fails to timely submit such information, the WVLC and the WV Executive Director have discretion to suspend, revoke or reconsider Mountaineers lottery racetrack table games license. Mountaineers lottery racetrack table games license is subject to suspension, revocation or nonrenewal as provided for in the lottery racetrack table games statutes and rules of the WVLC. Civil money penalties and criminal penalties may be imposed for certain violations of the lottery statutes and rules of the WVLC. The lottery racetrack table games license may be suspended or revoked or not renewed for the same reasons previously discussed for suspension, revocation or nonrenewal of a racetrack video lottery license. 
The WV Executive Director or the WVLC may also suspend or revoke Mountaineers lottery racetrack table games license if Mountaineer or any officer or director or any employee engaged in gaming activity, or any officer or director or key employee of any parent corporation or holding company is convicted of criminal violations that may negatively impact the integrity of the West Virginia Lottery, or if any of them have experience, character or general fitness that the WV Executive Director believes would be inconsistent with the public interest, convenience or trust. 
The WVLC and the WV Executive Director have broad powers under the lottery racetrack table game statutes to investigate and monitor racetrack table game operations. The WV Executive Director and employees of the WVLC may at any time examine, inspect, test or access for any purposes all records, files, equipment, and other documents used in connection with lottery racetrack tables games operation and play. Mountaineer must allow inspections of its licensed premises at any time as authorized by the WV Executive Director. 
The WVLC also has the power and authority, for good cause and without notice or a warrant, to at any time, to do any of the following:
Inspect any racetrack table games or related equipment on or around Mountaineers facilities;
Inspect and examine all premises in which Mountaineer conducts lottery racetrack table games or stores related equipment;
Seize summarily and remove from Mountaineer’s premises and impound, assume physical control of, any racetrack table games or associated equipment for the purposes of examination and inspection;
Inspect, examine and audit books, records, and documents concerning Mountaineers lottery racetrack table games activities, including financial records of parent corporations, subsidiary corporations, affiliate corporations or similar business entities related to Mountaineers racetrack lottery table gaming activities; and

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Seize, impound, or assume physical control of books, records, ledgers, cash boxes and their contents, a counting room or its equipment, or other physical objects relating to lottery racetrack table gaming activity.
Pursuant to the lottery racetrack table games statute, Mountaineer must annually pay to the WVLC a lottery racetrack table games license fee of $2.5 million that is due when the application for renewal is filed with the WVLC.  Additionally, Mountaineer pays a weekly tax equal to 35% of the adjusted gross receipts from table game activity during the preceding week. A change to these statutes could have a significant impact on the profitability of Mountaineer’s lottery racetrack table game gaming business and revenues. 
Mountaineer employees involved with lottery racetrack table games are also required to obtain and maintain a license from the WVLC prior to being involved in racetrack table gaming activity. An application for a racetrack video lottery gaming employee license may be denied if the applicant has been convicted of certain offenses involving moral turpitude, illegal gambling, fraud or misrepresentation or if the person is not qualified for the position for which the application for a license is submitted. 
Pennsylvania Regulation and Licensing 
In the State of Pennsylvania, ERI owns and operates, through MTR and its wholly owned subsidiary, Presque Isle Downs, Inc., Presque Isle Downs & Casino in Erie, Pennsylvania. Presque Isle Downs is subject to rules and regulations promulgated the Pennsylvania Gaming Control Board (“PGCB”), the Pennsylvania Racing Commission (the “PA Racing Commission”) and the requirements of other agencies. 
Pennsylvania Gaming Control Board. The PGCB was created in 2004 by the Pennsylvania Race Horse Development and Gaming Act (the “Gaming Act”).  The PGCB consists of seven voting members, three are appointed by the Governor of the Commonwealth of Pennsylvania and one by each of the four legislative caucuses. A super-majority vote consisting of each of the legislative commissioners and at least one gubernatorial commissioner is required for PGCB decisions.  The Secretary of Revenue, the Secretary of Agriculture, and the Treasurer of the Commonwealth serve as ex officio members of the PGCB.  Generally, the PGCB is mandated to protect the public through the regulation and policing of all activities involving gaming. 
Under the Gaming Act, the PGCB is authorized to issue licenses to three categories of operators.  Presque Isle Downs is a “Category 1” licensee, which is reserved for owners and operators of horse race tracks.  Initially, slot machines were the only form of gaming that could be provided by Category 1 licensees (other than pari-mutuel betting on horse races). Category 1 licensees are permitted up to 5,000 slot machines. In January 2010, the Pennsylvania legislature amended the Gaming Act to permit Category 1 licensees to operate table games, including poker, black jack, baccarat, roulette, and craps. Category 1 licensees may petition the PGCB for permission to operate up to 250 tables. Presque Isle Downs currently has 1,720 slot machines and 46 table games. 
Category 1 licensees, like Presque Isle, are assessed an initial license fee of $50,000,000.  The license fee for the Table Games Certificate was $16,500,000.  Licensees also must pay taxes on slot machine “gross terminal revenues” (the difference between wagers and pay-outs) in the following amounts:
34% to the Commonwealth of Pennsylvania;
2% to the local county in which the gaming facility is located;
2% to the local municipality in which the gaming facility is located, subject to a minimum of $10.0 million;
5% to the Pennsylvania Gaming Economic Development Tourism Fund; and
12% to support the horse race industry. 
There is an additional requirement to repay a loan obtained from the Commonwealth of Pennsylvania to cover the initial regulatory start-up costs before any of Pennsylvania’s casinos began operations.  The repayment amount of $63.8 million is a ten-year requirement assessed against each property’s gross terminal revenue according to a formula established per a pronouncement of the PGCB dated July 11, 2011.  The formula averages the property’s percentage annual gross terminal revenue of the total from all properties each year with its cumulative percentage of all gross terminal revenue generated since gaming commenced in the Commonwealth of Pennsylvania.  The average obtained is applied against the $6.38 million payment to be made each year, with the final payment due on January 1, 2021. 
The following tax rates apply to table games and are based on “daily gross table games revenue” (calculated in essentially the same manner as “gross terminal revenue”):
12% to the Commonwealth of Pennsylvania on non-electronic table games;
34% to the Commonwealth of Pennsylvania on fully electronic table games; and
2% to the local municipalities in which the gaming facility is located on all games.

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A deposit of $1.5 million to cover weekly withdrawals of the property’s share of the cost of regulation is required to be maintained and the amount withdrawn must be replenished weekly. 
Any person who acquires beneficial ownership of 5% or more of the voting securities of the licensee or an entity that controls the licensee will be required to apply to the PGCB for licensure, obtain licensure and remain licensed. Licensure requires, among other things, that the applicant establish by clear and convincing evidence the applicant’s good character, honesty and integrity.  Additionally, any trust that holds 5% or more of the voting securities of a licensee or any entity that controls the licensee is required to be licensed by the PGCB and each individual who is a grantor, trustee or beneficiary of the trust is also required to be licensed by the PGCB.  Under certain circumstances and under the regulations of the PGCB, an “institutional investor” as defined under the regulations of the PGCB, which acquires beneficial ownership of 5% or more, but less than 10%, of the voting securities of a licensee or of any entity that controls the licensee, may be waived from licensure by the PGCB provided the institutional investor files an Institutional Notice of Ownership Form with the PGCB Bureau of Licensing and has filed, and remains eligible to file, a statement of beneficial ownership on Schedule 13G with the SEC as a result of this ownership interest.  In addition, any beneficial owner of our voting securities, regardless of the number of shares beneficially owned, may be required at the discretion of the PGCB to file an application for licensure. 
In the event a security holder is required to be found qualified and is not found qualified, the security holder may be required by the PGCB to divest its interest at a price not exceeding the cost of the interest. Key employees, vendors, suppliers, slot machine manufacturers and management companies are also required to be licensed. The PGCB reserves the right to require any investor or person associated with a licensee to be licensed. Licensees are prohibited from making any political contributions to Pennsylvania candidates or political parties. 
The Gaming Act also requires that a slot machine licensee shall notify the PGCB and receive the PGCB’s consent prior to any “change in control” of the slot machine licensee.  A change in control is defined as the acquisition by a person or group of persons acting in concert of more than twenty percent of the slot machine licensee’s securities or other ownership interests or the purchaser of the assets, other than in the ordinary course of business, of any slot machine licensee.  The person or entity purchasing the assets which results in a change of control is required to: (1) independently qualify for a license in accordance with the licensing requirements of the Gaming Act and (2) pay a license fee of up to $50,000,000.  The Gaming Act provides that the PGCB may in its discretion reduce but not eliminate the requirement that a license fee of $50,000,000 be paid.  On December 18, 2007, the PGCB approved a presumptive fee for a change of control of $2.5 million, unless special circumstances would dictate otherwise.  The PGCB may provide up to 120 days for any person who is required to apply for a license and who is found not qualified to completely divest the person’s ownership interest. 
Pennsylvania Racing Commission. Under the Race Horse Industry Reform Act (the “Racing Act”), the PA Racing Commission is mandated to supervise thoroughbred horse race meetings in Pennsylvania at which pari-mutuel betting is conducted. The PA Racing Commission is also charged with licensing operators of thoroughbred horse race tracks and other persons involved in the thoroughbred horse race industry in Pennsylvania. The Racing Act authorizes the PA Racing Commission to issue up to six operator licenses. The Pennsylvania Harness Racing Commission is authorized to issue up to five licenses to operate harness racing tracks. 
The Racing Act and regulations promulgated by the PA Racing Commission provide detailed regulations relating to such things as wagering, simulcasting, sale of liquor, maintenance of grounds and facilities, and operation of races.  However, the provisions in the Racing Act and the PA Racing Commission’s regulations relating to licensing are quite general in nature.  They provide that 17 types of persons and/or entities must be licensed, including owners, trainers, jockeys, veterinarians, and all track employees.  The PA Racing Commission’s regulations provide that all licenses will be issued at the discretion of the PA Racing Commission’s director of licensing, subject to review by the PA Racing Commission.  In exercising this discretion, the director is mandated to consider if the applicant:
Has been convicted of a crime involving moral turpitude;
Has engaged in bookmaking or another form of illegal gambling;
Has been found guilty of fraud or misrepresentation in connection with racing or breeding;
Has been found guilty of a violation or attempt to violate a law, rule or regulation of racing in a jurisdiction for which suspension from racing might be imposed in the jurisdiction;
Has violated rules, regulations or order of the PA Racing Commission; and
Is not financially responsible.
Prospective licensees are required to file an application on forms prescribed by the PA Racing Commission, agree to be fingerprinted as required by the PA Racing Commission, and agree to full disclosure and investigation of criminal and employment records. The PA Racing Commission also requires payment of application fees and licensing fees for each person and entity licensed ranging from an annual license fee for track employees of $5 to an application fee for an operator’s license of $1,000. 

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The PA Racing Commission’s regulations also provide that a person or corporation to whom a licensee’s stock is “transferred” must, contemporaneously with the transfer, submit to the PA Racing Commission an affidavit containing certain information regarding the transferee. A “transfer” is defined as a sale, transfer or exchange of stock or the creation of a beneficial, legal or equitable interest therein. 
As a matter of practice, the PA Racing Commission typically requires applications to be filed by entities and individuals that are also required to file applications with the PGCB under the Gaming Act. Additionally, the PA Racing Commission typically does not conduct its own background investigation into applicants if the PGCB is conducting background investigations regarding those applicants. Rather, the PA Racing Commission will review the investigation conducted by the PGCB when deciding whether to grant a license. 
As the holder of a Category 1 license, Presque Isle Downs has the obligation to create a fund to be used for the improvement and maintenance of the backside area of its racetrack with an amount of not less than $250,000 or more than $1.0 million annually for a five-year period beginning in 2017. 
Ohio Regulation and Licensing
In the state of Ohio, ERI owns and operates, through MTR and its wholly owned subsidiary, Scioto Downs, Inc. (together with its own wholly owned subsidiaries, “SDI”), the Scioto Downs Racino in Columbus, Ohio. Scioto Downs offers live harness racing, onsite pari-mutuel wagering, and thoroughbred, harness and greyhound race simulcast and wagering (collectively, “Live Racing”), and VLTs. 
The operation and management of Scioto Downs are subject to extensive state regulation.  Live Racing and VLT gaming are each regulated by statute, regulation and rule.  SDI’s VLT gaming operations are also regulated by the terms and conditions of SDI’s Video Lottery Sales Agent License (“VLT Gaming License”) from the Ohio Lottery Commission (“OLC”). 
Live Racing. The Ohio State Racing Commission (“OSRC”), which is comprised of 5 members appointed by the Governor of the State of Ohio, has regulatory oversight of Live Racing in Ohio. The OSRC establishes the rules and conditions for Live Racing and the forms of wagering that are permitted, and issues permits for Live Racing.  SDI must maintain a permit with OSRC in order to lawfully offer Live Racing.  Such permits are issued for one year and are renewable.  OSRC shall renew Live Racing permits unless OSRC rejects the application for renewal for good cause. 
In connection with obtaining and maintaining its Live Racing permit, SDI must disclose substantial information to OSRC, including the following:
The names and addresses of all SDI directors and stockholders;
The dates and locations of race meetings;
The hours of operation on each racing day;
A list of names of all required race officials;
Current accurate financial statements of SDI prepared and certified by an independent certified public accountant; and
Other information as OSRC requires.
SDI’s Live Racing permit is neither assignable nor transferrable. OSRC may suspend, diminish or revoke SDI’s Live Racing permit in the event that SDI violates the rules or conditions prescribed and promulgated by OSRC. 
OSRC has broad authority to regulate Live Racing. OSRC regulation of SDI’s Live Racing includes regulating the days and hours that SDI may conduct live harness racing, the number of live races conducted by SDI, the number of days each year that SDI provides simulcast wagering, the races for which SDI may provide simulcast wagering and the equipment and facility requirements for Live Racing. OSRC also has broad powers to investigate, monitor and police Live Racing. OSRC has the right of full and complete entry to any and all parts of the grounds of SDI. OSRC may at any time engage auditors to examine the books and records of SDI. Upon demand from OSRC, SDI must furnish OSRC a full and complete statement of receipts, expenditures, attendance and such other information as OSRC may require. If OSRC were to suspend, diminish, revoke or refuse to renew SDI’s Live Racing permit, SDI would have to stop providing Live Racing and VLT gaming (see below). 
Ohio law assesses special taxes on money wagered on Live Racing and sets the limit on the amount of money wagered on Live Racing that SDI may retain.  Changes in these laws could have a significant impact on the profitability of SDI’s Live Racing business. 
SDI employees and other persons (“Live Racing Personnel”) involved in providing Live Racing at SDI facilities must have licenses issued by OSRC prior to such employment or involvement.  It is SDI’s responsibility to have all Racing Personnel fingerprinted before gaining access to SDI’s racing premises.  OSRC may issue, deny, suspend or revoke licenses to Live Racing Personnel as is in the public interest for the purpose of maintaining a proper control over horse racing.  OSRC, as

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is in the public interest for the purpose of maintaining proper control over horse racing, also may rule any person off SDI’s Live Racing premises. 
VLT Gaming. VLT gaming is regulated by OLC, which is comprised of 9 members appointed by the Governor of the State of Ohio. The executive officer of OLC is a director (“Ohio Director”) who is appointed by the Governor of the State of Ohio.  OLC has the authority to promulgate rules under which VLT gaming may be conducted, and issues and oversees VLT gaming licenses. 
Under Ohio law, SDI’s VLT Gaming License is not transferrable for five years after its initial issuance.  Any ownership interest in SDI, directly or indirectly, through the immediate holding company of SDI, that is acquired after the date that SDI’s VLT Gaming License was issued by a person or entity not previously holding an ownership interest in SDI, which would result in such person or entity obtaining control of SDI is considered a “transfer.” In this context, “control” means any of the following:
Holding fifty per cent or more of the outstanding voting securities of SDI;
Having the right in the event of dissolution to fifty per cent or more of the assets of SDI; or
Having the contractual power presently to designate fifty percent or more of the directors of SDI.
SDI’s VLT Gaming License was issued on or about May 22, 2012.  Any strategic transaction involving SDI that constitutes a “transfer” of SDI, within the meaning discussed above, before the fifth anniversary of the issuance of SDI’s VLT Gaming License may result in the suspension, modification or revocation of SDI’s VLT Gaming License. A suspension or revocation of SDI’s VLT Gaming License would necessitate the cessation of SDI’s VLT Gaming operations. 
In order to lawfully conduct VLT Gaming, SDI must maintain a Live Racing permit from OSRC and a VLT Gaming License from OLC.  Only the holder of a Live Racing permit from OSRC is authorized to hold a VLT Gaming License. In order to maintain its VLT Gaming License, SDI is required to keep its VLT Gaming License application updated and complete. Updates may be required because of changes to SDI’s ownership, management or business, or because the Ohio Director updates the application requirements.  SDI must annually make application to renew its VLT Gaming License and every three years SDI must resubmit a complete VLT Gaming License application.
The amount of information SDI is required to disclose and keep updated on its VLT Gaming License application is extensive.  SDI’s VLT Gaming License application includes information about SDI and SDI’s Principals (defined below), including, but not limited to:
Information about all holding companies, intermediaries, subsidiaries and affiliates of SDI;
Any criminal charges or convictions of SDI;
Name, address, employer identification number or social security number, date of birth, compensation and any criminal charges or convictions for each of SDI’s officers, directors, and shareholders having directly or indirectly an ownership interest of five percent or more in SDI (collectively, “SDI’s Principals”);
A description of all bonus, profit sharing, pension, retirement, deferred compensation and similar plans of SDI;
A description the stock of SDI, and of all holding companies, intermediaries, subsidiaries and affiliates of SDI;
Proof that SDI holds a Live Racing permit;
A description of all debt of SDI, and of all holding companies, intermediaries, subsidiaries and affiliates of SDI;
A list of the holders of debt of SDI, and all holding companies, intermediaries, subsidiaries and affiliates of SDI;
A description of any securities options of SDI and the identification of persons holding such options;
Information regarding the banks, savings and loan associations and other financial institutions of SDI;
Information about all the stock that SDI holds in other entities;
A description of any civil litigation to which SDI, or any holding company, subsidiary or affiliate of SDI, is or was a party;
Information about any judgment, order, consent decree or consent order pertaining to a violation of federal antitrust, trade regulation or securities laws, or of similar laws of any state province or country, entered against SDI;
Information regarding any bankruptcy or insolvency proceedings of SDI or certain SDI Principals;
Information regarding the licensing history of SDI and SDI Principals;
Information relating to contributions and disbursements of SDI and SDI Principals;
A business plan for the Scioto Downs Racino;

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SDI’s security and surveillance plan;
Consent to background checks for SDI and SDI’s Principals;
A commitment to deliver acceptable forms of credit (e.g., surety bond) and evidence of insurance, meeting the requirements of the Ohio Director;
A schedule of all fixtures and equipment;
A commitment to maintain and timely repair video lottery terminals;
A commitment to purchase or lease video lottery terminals only from technology providers approved by the Ohio Director;
An agreement to clearly separate between the Live Racing wagering and the VLT gaming areas at the Scioto Downs Racino;
An agreement to a capital improvement plan in accordance with the Ohio Director’s standards and timetable; and
Disclosure of all employees of SDI who earn over $150,000 in annual compensation. 
Each time SDI submits additional information to OLC in connection with SDI’s VLT Gaming License, the Ohio Director maintains discretion to suspend, revoke or reconsider the application or otherwise modify the conditions of the issuance of SDI’s VLT Gaming License. If SDI’s VLT Gaming License is suspended, revoked or not renewed, SDI would have to cease its VLT Gaming business. SDI’s VLT Gaming License is subject to suspension, modification, revocation or fines as authorized by statute, rule, regulation, policy order or directive of OLC or the Ohio Director. 
The Ohio Director may suspend or revoke SDI’s VLT Gaming License in the event that SDI does any of the following:
Fails to comply with Ohio’s lottery law;
Fails to comply with the rules, terms and conditions, policies, orders and directives of OLC or the Ohio Director;
Fails to maintain any insurance, coverage and bonds required by the Ohio Director;
Makes a fraudulent misrepresentation in connection with its VLT Gaming License application;
Fails to promptly and accurately settle the accounts of lottery transactions and pay OLC amounts due to OLC from video lottery sales;
Fails to credit or pay a winning video lottery participant;
Allows an underage person to play video lottery games, or pays an underage person a video lottery prize payment;
Fails to maintain adequate and sufficient security;
Offers a video lottery game that has not been approved by the Ohio Director or OLC;
Uses a video lottery terminal that has not been authorized and approved by the Ohio Director;
Fails to comply with the Americans with Disabilities Act of 1990;
Fails to provide required notice or to obtain required approval prior to relocating or transporting a video lottery terminal;
Fails to make capital improvements as required by OLC rule, regulation, policy, order or directive;
Fails to meet financial obligations necessary for the continued operation of video lottery;
Acts in a manner that impacts or has the likelihood of impacting the efficient operation or integrity of video lottery; or
Fails to adhere to all the terms and conditions set forth in SDI’s licensing agreement with OLC. 
The Ohio Director may also suspend or revoke SDI’s VLT Gaming License if SDI or any SDI Principal is convicted of criminal violations that may negatively impact the integrity of the lottery, or if any of them have experience, character or general fitness that the Ohio Director believes would be inconsistent with the public interest, convenience or trust. 
As necessary for reasons related to public safety, convenience or trust which require immediate action, the Ohio Director may order the immediate and indefinite disabling of all or a portion of SDI’s VLT Gaming operations and removal of video lottery equipment at SDI’s VLT Gaming facility.  In the event of such action, the Ohio Director must give SDI a subsequent opportunity for an adjudication hearing. 
OLC and the Auditor of the State of Ohio have broad powers under Ohio law to investigate and monitor VLT Gaming operations. They may at any time examine, inspect, test or access for any purposes all records, files, equipment, other documents, video lottery terminals, and hardware and software used in connection with video lottery. SDI must allow

33



inspections of its licensed premises at any time as authorized by the Ohio Director. Under the terms and conditions of SDI’s VLT Gaming License, SDI has also consented to OLC having the power and authority with good cause shown, without notice and without warrant at any time, to do any of the following: 
Inspect any video lottery terminals, central monitoring system, or associated equipment and software about, on or around SDI’s facilities;
Inspect and examine all premises in which SDI conducts VLT gaming or any authorized video lottery terminals, central monitoring system, or associated equipment and software designed, built, constructed, assembled, manufactured, sold, distributed, or serviced, or in which records of those activities are prepared or maintained;
Seize summarily and remove from SDI’s premises and impound, assume physical control of, or disable any video lottery terminals, central monitoring system, or associated equipment and software for the purposes of examination and inspection;
Inspect, examine and audit books, records, and documents concerning SDI’s VLT gaming activities, including financial records of parent corporations, subsidiary corporations, affiliate corporations or similar business entities related to SDI’s VLT gaming activities; and
Seize, impound, or assume physical control of books, records, ledgers, cash boxes and their contents, a counting room or its equipment, or other physical objects relating to VLT Gaming.
Pursuant to paragraph (A) of rule 3770:2-3-08 of the Ohio Administrative Code and the terms of SDI’s VLT Gaming License, OLC will pay SDI a commission in the amount of 66.5% of the video lottery terminal income generated by SDI. “Video lottery terminal income” is defined as credits played, less value credits, less video lottery prize winnings. Additionally, by rule of OSRC or by agreement between SDI and the horseman’s association, a percentage of SDI’s VLT Gaming commission shall be paid to OSRC for the benefit of horse breeding and racing in Ohio. Accordingly, pursuant to an agreement with the relevant horseman’s association, effective January 1, 2014, 10.5% of SDI’s VLT Gaming commission will be paid to OSRC for the benefit of the horseman’s association. A change to these regulations could have a significant impact on the profitability of SDI’s VLT Gaming business. 
SDI employees involved with VLT gaming are also required to obtain and maintain a license from OLC prior to being involved in video lottery licensed activities.  An application for a VLT gaming employee license may be denied if the applicant has been convicted of certain offenses involving moral turpitude, illegal gambling, fraud or misrepresentation.
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. The Company is unable to predict the extent to which these requirements, if extended, might impede or otherwise adversely affect the operations or those of its investees.
Regulations adopted by the Financial Crimes Enforcement Network of the Treasury Department require the reporting of suspicious activity and 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 Virgin River and CasaBlanca 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 ERI's and/or Mesquite's operations.
Virgin River and CasaBlanca 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. Mesquite believes that it and its subsidiaries have obtained all required licenses and permits and that their business, which is conducted through their subsidiaries, is conducted in substantial compliance with applicable laws.
Environmental Matters
Mesquite is subject to various federal, state and local environmental laws, ordinances and regulations, including those governing discharges to air and water, the generation, handling, management and disposal of petroleum products and hazardous substances, and the health and safety of Mesquite’s employees. Permits may be required for Mesquite’s operations and these

34



permits are subject to renewal, modification and, in some cases, revocation. In addition, as a property owner and operator, Mesquite may be liable for the costs of investigating and remediating hazardous substances or petroleum products on, under, or in its properties, without regard to whether Mesquite knew of, or caused, the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time they occurred. The presence of, or failure to remediate properly, the substances may adversely affect Mesquite’s ability to sell, rent or operate its properties or to borrow funds using the properties as collateral. Additionally, Mesquite may be subject to claims by third parties based on damages and costs resulting from environmental contamination emanating from its properties.
Mesquite has reviewed environmental assessments, and limited soil and groundwater testing, relating to its properties. As a result, Mesquite has become aware that there is contamination present on some of its properties apparently due to past operations, which included a truck stop and a gas station. In particular, groundwater contamination at Mesquite’s Oasis property (which appears to have migrated onto its CasaBlanca property) is the subject of investigation and cleanup activities being conducted by WSR, Inc. (“WSR”), the prior owners of the Oasis. The water supply for the Oasis property and the CasaBlanca property does not come from ground water that has been contaminated. Although Mesquite believes that the prior owners are responsible for such matters under an indemnity agreement it negotiated at the time it purchased the Oasis, there can be no assurance that Mesquite will not incur costs related to this matter. Further, Mesquite could be held strictly liable for the environmental clean-up of the contaminated properties. In anticipation of marketing the golf course property during 2006, CasaBlanca Resorts, LLC, entered into several agreements with WSR to terminate WSR’s remaining rights in the golf course property, among other matters, for approximately $1.1 million. Pursuant to the agreements, the funds paid to WSR are to be used by WSR to remediate the existing environmental liability at the Oasis site which continues to be an obligation of WSR.
Mesquite does not anticipate any material adverse effects on its earnings or competitive position relating to environmental matters, but it is possible that future developments could lead to material environmental compliance costs or other liabilities for Mesquite and that these costs could have a material adverse effect on its business and financial condition.
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 it owned equity interests in ERI and Mesquite during all of the fiscal year covered by this report and until March 29, 2016, when it liquidated its interest in ERI. ERI and Mesquite each owns real estate and personal property associated with the following casino resorts, as more fully described in Item 1 of this report:
ERI's properties consist of the following:
Eldorado-Reno is situated on an approximately 159,000 square foot parcel at 345 North Virginia Street, Reno, Nevada. Resorts, a wholly owned subsidiary of Eldorado, 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 "CSY Lease"). The lease expires on June 30, 2027. Annual rent is equal to the greater of (i) $400,000 or (ii) an amount based on a decreasing percentage of Eldorado-Reno’s gross gaming revenues ranging from 3% of the first $6.5 million of gross gaming revenues to 0.1% of gross gaming revenues in excess of $75.0 million. Rent pursuant to the CSY Lease amounted to approximately $0.6 million in each of the years ended December 31, 2015, 2014 and 2013. On May 30, 2011, the Company and C. S. & Y. Associates entered into a fourth amendment to the CSY Lease. C. S. & Y. Associates agreed to execute and deliver the deeds of trust encumbering the approximately 30,000 square feet leased from C. S. & Y. Associates on which a portion of Eldorado-Reno is located as security for the Senior Secured Notes and the Secured Credit Facility. In exchange for this subordination, a fee of $0.1 million was paid annually during the term of the indenture relating to the Senior Secured Notes. As a result of the July 2015 refinancing, the subordination was eliminated. As of February 29, 2016, substantially all of ERI's assets, including the Eldorado-Reno, were pledged to secure its outstanding indebtedness under various senior secured notes and credit obligations.
Silver Legacy is situated on two parcels adjacent to the Eldorado-Reno and 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. As of February 29, 2016, substantially all of ERI's assets, including the Silver Legacy, were pledged to secure its outstanding indebtedness under various senior secured notes and credit obligations.

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Circus Circus Reno is situated on approximately ten acres of land in Reno, Nevada. As of February 29, 2016, substantially all of ERI's assets, including the Circus Circus Reno, were pledged to secure its outstanding indebtedness under various senior secured notes and credit obligations.
Eldorado-Shreveport is situated on approximately nine acres of leased land in Shreveport, Louisiana. As of February 29, 2016, substantially all of ERI's assets, including the Eldorado-Shreveport, were pledged to secure its outstanding indebtedness under various senior secured notes and credit obligations.
Mountaineer Casino Racetrack & Resort is situated on approximately 1,730 acres of land in Chester, Hancock County, West Virginia. The land, which is owned by ERI, includes approximately 1,250 acres of land that are considered non-operating real properties that ERI intends to sell. As of February 29, 2016, substantially all of ERI's assets, including the Mountaineer Casino Racetrack & Resort, were pledged to secure its outstanding indebtedness under various senior secured notes and credit obligations.
Presque Isle Downs & Casino is located on approximately 272 acres of land that ERI owns in Summit Township, Erie County, Pennsylvania. As of February 29, 2016, substantially all of ERI's assets, including the Presque Isle Downs & Casino, were pledged to secure its outstanding indebtedness under various senior secured notes and credit obligations.
Scioto Downs is located on approximately 208 acres of land that ERI owns in Columbus, Ohio. As of February 29, 2016, substantially all of ERI's assets, including the Scioto Downs, were pledged to secure its outstanding indebtedness under various senior secured notes and credit obligations.
Mesquite's properties consist of the following:
Virgin River Hotel/Casino/Bingo is situated on an approximately 32-acre site in Mesquite, Nevada that is owned by Mesquite. As of February 29, 2016, the repayment of approximately $15.5 million and $35 million of indebtedness was secured by a first lien deed of trust and second lien deed of trust, respectively, on, and a security interest in, substantially all of Mesquite’s real property interests and fixtures, including the Virgin River Hotel/Casino/Bingo.
CasaBlanca Resort/Golf/Spa is situated on approximately 43 acres in Mesquite, Nevada that is owned by Mesquite. 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. As of February 29, 2016, the repayment of approximately $15.5 million and $35 million of indebtedness was secured by a first lien deed of trust and second lien deed of trust, respectively, on, and a security interest in, substantially all of Mesquite’s real property interests and fixtures, including the CasaBlanca Resort/Golf/Spa.
Oasis Hotel & Casino, which was demolished in 2013 leaving two buildings used for timeshares and a skywalk across Mesquite Boulevard remaining, was situated on an approximately 26-acre site in Mesquite, Nevada that continues to be owned by Mesquite. Approximately four miles from that site 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 109 acres are leased from the State of Arizona pursuant to a lease that expired in May 2015. Mesquite has paid the first years rent of $128,000 (which includes a $1,000 renewal fee) under a new lease covering May 13, 2015 through May 12, 2016. At this time Mesquite is awaiting final approval from the Arizona State Land Department on a proposed ten-year lease. As of February 29, 2016, the repayment of approximately $15.5 million and $35 million of indebtedness was secured by a first lien deed of trust and second lien deed of trust, respectively, on, and a security interest in, substantially all of Mesquite’s real property interests and fixtures, including the land on which the Oasis was situated.
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.
MINE SAFETY DISCLOSURES.
Not applicable.
Part II

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

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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 holder of record of all the Company’s 9,999 Class B Units. The Company did not issue any equity securities during the year ended February 29, 2016, 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 the year ended February 29, 2016.
On January 7, 2016, in connection with the sale of NGOF's ownership interest in InvestCo to NGOF I-A, the Company distributed approximately $1.1 million to NGOF. The Company does not expect to pay any dividends or other distributions in the foreseeable future.
Reference is made to the information appearing under the caption “Equity Compensation Plans” in Item 12 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
NGA HoldCo, LLC, a Nevada limited liability company (“NGA”), was formed on January 8, 2007 at the direction of Newport Global Opportunities Fund LP, a Delaware limited partnership (“NGOF”) and an affiliate of Newport Global Advisors LP, a Delaware limited partnership (“Newport”). NGA was formed for the primary purpose of holding equity, directly or indirectly through its subsidiaries, in one or more entities related to the gaming industry. NGA has two wholly owned subsidiaries, NGA Blocker, LLC, a Nevada limited liability company (“Blocker”), and NGA AcquisitionCo, LLC, a Nevada limited liability company owned indirectly through Blocker (“AcquisitionCo”), each of which was formed on January 8, 2007 (collectively with NGA, the “Company”).
The Company’s activities consist solely of holding substantial, non-controlling, equity interests in gaming enterprises and a related loan to one of the enterprises. See Note 3 to the Consolidated Financial Statements for information about ownership and management of the Company.
The Company's holdings during all of the fiscal year ended February 29, 2016 consisted of a 40% equity interest in Mesquite Gaming LLC (“Mesquite”), a loan to Mesquite, and publicly-traded shares of common stock of Eldorado Resorts, Inc. (“ERI” formerly known as Eclair Holdings Company), representing approximately 7.6% of ERI's outstanding common shares. On March 29, 2016, the Company completed the liquidation of all of its investment in ERI common stock.
Background
The Company’s previous 17.0359% equity interest (the "Eldorado Interest") in Eldorado Holdco, LLC ("Eldorado")and current 40% equity interest in Mesquite (the "Mesquite Interest") were effectively acquired on December 14, 2007 and August 1, 2011, respectively. On September 19, 2014, upon consummation of a merger between MTR Gaming, Inc. ("MTR") and Eldorado (the "ERI Merger"), and in accordance with an Agreement and Plan of Merger, dated as of September 9, 2013, as amended on November 18, 2013, February 13, 2014 and May 13, 2014, by and among MTR, Eldorado, Eldorado Resorts, Inc. ("ERI," a Nevada corporation formerly known as Eclair Holdings Company) and certain affiliates of ERI and Eldorado (the “Merger Agreement”), 4,030,440 shares, including post-closing adjustments, of ERI common stock, $0.00001 par value, representing an approximate 8.6% ownership interest (the "ERI shares"), were received by the Company in exchange for the Eldorado Interest.
On August 1, 2011, the Company acquired its interest in Mesquite in exchange for $8,222,222 in cash. Mesquite is engaged in the casino resort industry in Mesquite, Nevada through wholly owned subsidiaries that own and operate the CasaBlanca Resort/Casino/Golf/Spa, the Virgin River Hotel/Casino/Bingo, two championship golf courses, a full-service spa, a bowling center, a gun club, restaurants, and banquet and conference facilities. Mesquite also owns real estate on which another hotel & casino was located prior to its demolition in 2013.

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On August 22, 2013, the Company through Blocker loaned $14 million to Mesquite under a Second Lien Credit Agreement, dated as of August 22, 2013 (the “Credit Agreement”), pursuant to which Mesquite borrowed a total of $35 million from the Company and other lenders not affiliated with the Company for the purpose of refinancing a portion of its then existing indebtedness utilizing the proceeds from the borrowings under the Credit Agreement. Each of the other lenders under the Credit Agreement, consisting of limited liability companies and trusts, has an ownership interest in Mesquite or has one or more members or beneficiaries who hold an ownership interest in Mesquite. The repayment of the indebtedness outstanding under the Credit Agreement is secured by a second lien on substantially all of Mesquite’s real property, including that relating


to its Casablanca Resort & Casino, its Virgin River Hotel and Casino, and real estate on which another hotel & casino was situated prior to its demolition in 2013, each located in Mesquite, Nevada. The indebtedness outstanding under the Credit Agreement may, at the option of Mesquite, be prepaid in whole or in part, at any time without penalty, and repayment of the indebtedness may be accelerated upon the occurrence of an event of default, in accordance with the terms of the Credit Agreement.
During the period from January 26, 2016 through March 29, 2016, the Company liquidated its ownership interest in ERI through the sale in open market transactions of a total of 4,030,440 shares of ERI's common stock representing at December 31, 2015 (based on the public reports of ERI) approximately 8.6% of such shares issued and outstanding. The Company's results of operations subsequent to its liquidation of the ERI shares will differ significantly from those prior to the liquidation.
ERI
As a result of the ERI Merger, the Company’s previous 17.0359% equity interest in Eldorado, which was accounted for using the equity method, was converted to 4,030,440 shares, including post-closing adjustments, of ERI common stock, which are classified, and accounted for, as available-for-sale securities. Upon conversion, the fair market value of the ERI shares, based on then current trading activity, was less than the carrying value of the equity interest in Eldorado prior to the ERI Merger, resulting in a write down of such value and a charge to other comprehensive loss for an unrealized holding loss of approximately $7.1 million. Commencing September 19, 2014 through February 28, 2015, additional adjustments to carrying value of the ERI shares based on trading activity resulted in an unrealized holding gain of approximately $21.3 million. During the period from January 26, 2016 through March 29, 2016, the Company liquidated its ownership interest in ERI through the sale in open market transactions of a total of 4,030,440 shares of ERI's common stock representing at December 31, 2015 (based on the public reports of ERI) approximately 8.6% of such shares issued and outstanding. The transactions resulted in a realized gain of approximately $17.7 million, $2.2 million of which had been recognized as of February 29,2016.
The post-merger operations of ERI represent a consolidation of the pre-merger operations of Eldorado and those of MTR Gaming, Inc. ("MTR") in accordance with the terms of the Merger Agreement. As a condition of the ERI Merger, Eldorado disposed of a 21.25% interest in Tamarack Junction, a small casino in south Reno.
On November 24, 2015, Eldorado, through a wholly owned subsidiary, consummated the acquisition of all of the assets and properties of Circus Circus Reno ("Circus Reno") and the 50% membership interest in the Silver Legacy Joint Venture owned by Galleon, Inc. (collectively, the “Circus Reno/Silver Legacy Purchase”). Eldorado also exercised its right to acquire the 3.8% interest in Eldorado Limited Liability Company (“ELLC”) held by certain of its affiliates and shareholders. As a result of these transactions, ELLC and CC-Reno LLC, a newly formed Nevada limited liability company, became wholly-owned subsidiaries of ERI, and Silver Legacy became an indirect wholly owned subsidiary of ERI.
As a result of the ERI Merger and the Circus Reno/Silver Legacy Purchase, ERI owns and operates (1) three casino resorts in Reno, Nevada, the Eldorado Hotel & Casino, Circus Circus Reno, and Silver Legacy Resort Casino, (2) Eldorado Resort Casino Shreveport located in Shreveport, Louisiana, (3) Scioto Downs Racino located in Columbus, Ohio, (4) Mountaineer Casino Racetrack & Resort located in Chester, West Virginia, and (5) Presque Isle Downs & Casino located in Erie, Pennsylvania. Combined, the seven properties contain approximately 4,900 hotel rooms, 300 table and poker games, 45 restaurants and 10,300 slot machines and video lottery terminals.
Management notes that a comparative discussion regarding the revenues and expenses of ERI's year ended December 31, 2015 and ERI's year ended December 31, 2014 is not included here as the properties owned, and thus the income and expenses recorded, during the periods are not consistent enough so that the discussion would be meaningful. See the discussion under the caption "ERI's Operations" in Item 1 of this report for ERI's operational highlights and sources of revenues.
Mesquite
Mesquite is engaged in the hotel casino industry in Mesquite, Nevada and owns and operates the Virgin River Hotel/Casino/Bingo and the CasaBlanca Resort/Golf/Spa. In addition to casino hotel activities, Mesquites’ operations also include vacation ownership interval sales, two golf courses, a bowling center, and banquet and conference facilities.
On August 1, 2011, Mesquite completed the issuance of $62.5 million of Senior Secured Notes under Mesquite’s New Loan Facility that provided for interest at an annual rate of LIBOR (1.5% floor and 4.5% ceiling) plus 700 basis points and

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were due and payable August 1, 2016 (the “Mesquite Senior Notes”), and entered into a new $10 million senior secured revolving credit facility. Interest and principal on the Mesquite Senior Notes and interest on the senior secured revolving credit facility were payable quarterly.
On August 22, 2013, Mesquite completed its refinancing of the indebtedness then outstanding under the Mesquite Senior Notes and the senior secured credit facility utilizing the proceeds from the following: (a) $20 million of First Lien Notes issued to Nevada State Bank, due and payable August 22, 2019, that provide for interest at a 30 day LIBOR rate effective on the first day of each month plus an applicable margin which is determined by reference to Mesquite's senior leverage ratio (5.25% for a ratio greater than 2:1 and 4.75% for a ratio less than or equal to 2:1), (b) a three-year term, $6 million First Lien Revolver with Nevada State Bank, which is subject to the same interest terms as the First Lien Notes plus 0.25% quarterly on the unused principal portion of the First Lien Revolver, and (c) $35 million of Second Lien Notes issued to Wilmington Trust, due and payable February 21, 2020, that provide for no principal amortization and the payment of interest on the unpaid principal amount at the rate of 7% per annum over the period from August 22, 2013 to January 2, 2015, and at the rate of 8% per annum thereafter.
Operational highlights for Mesquite for its fiscal year ended December 31, 2015 included net operating revenues of approximately $98.1 million and operating expenses of approximately $90.8 million, compared with $94.9 million and $90.1 million for the year ended December 31, 2014 . Interest expense during 2015 was approximately $4.2 million and net income was approximately $3.1 million, compared with interest expense of approximately $3.8 million and net income of approximately $0.8 million for the year ended December 31, 2014. The increase in net income of approximately $2.3 million was due primarily to a $3.2 million increase in net operating revenues partially offset by $0.7 million and $0.2 million increases in operating expenses and interest expense, respectively.
Results of Operations, Year Ended February 29, 2016 Compared to the Year Ended February 28, 2015
For the year ended February 29, 2016, the Company’s equity in the net income of its unconsolidated investee, Mesquite, was approximately $1.2 million. This is compared to equity in the net income of unconsolidated investees of approximately $0.2 million during the year ended February 28, 2015, with Mesquite and Eldorado accounting for an approximate $0.3 million gain and $0.1 million loss, respectively. The increase in equity in net income of unconsolidated investees is attributable to a $3.2 million increase in Mesquite's net operating revenues, partially offset by $0.7 million and $0.2 million increases in operating expenses and interest expense, respectively.
The Company's expenses of $0.3 million for the year ended February 29, 2016 were approximately $35,000 higher than those for the year ended February 28, 2015, and net income for the year ended February 29, 2016 increased approximately $3.0 million primarily due to the $2.2 million realized gain on the sale of marketable securities. Equity in the net income of unconsolidated investees increased approximately $1.0 million, while income taxes increased approximately $0.3 million.
The Company's results of operations subsequent to its liquidation of the ERI shares will differ significantly from those prior to the liquidation. Incorporated by reference is the information in Note 4 of the Notes to Consolidated Financial Statements incorporated by reference to Item 8 of this report.
Liquidity and Capital Resources
During the years ended February 29, 2016 and February 28, 2015, the Company incurred costs of approximately $0.3 million and $0.2 million, respectively, associated with the Company’s ownership of its interests in ERI and Mesquite.
For the year ending February 28, 2017, the Company expects to incur approximately $0.2 million in costs associated with the Company’s ownership of its interests in ERI and Mesquite. These costs are expected to be funded by the Newport Funds. The Company has no current plans to make any additional investments and thus believes it has the resources to fund its operations and commitments during the year ending February 28, 2017.
Critical Accounting Estimates and Policies
Prior to September 19, 2014, the Company's 17.0359% and 40% investments in Eldorado and Mesquite, respectively, were both accounted for using the equity method of accounting. Subsequent to September 19, 2014, the Mesquite Interest continues to be accounted for using the equity method; however, the ERI shares (which were received upon conversion of the Eldorado Interest) are classified, and accounted for, as available-for-sale securities. Accordingly, except for the ERI shares which were, until sold by the Company, accounted for at estimated fair value based on current trading activity (Level 1 inputs) as required by GAAP, the Company measures all of its assets and liabilities on the historical cost basis of accounting except as required by GAAP. The Company's assets are evaluated at least annually (and more frequently when circumstances warrant) to determine if events or changes in circumstances indicate that the carrying value may not be recoverable. Examples of such events or changes in circumstances that might indicate impairment testing is warranted might include an adverse change in the legal, regulatory or business climate relative to gaming nationally or in the jurisdictions in which any Company investee

39



operates, or a significant long-term decline in historical or forecasted earnings or cash flows of the investee or the fair value of its property or business, possibly as a result of competitive or other economic or political factors. In evaluating whether a loss in value is other than temporary, the Company considers: (1) the length of time and the extent to which the fair value or market value has been less than cost; (2) the financial condition and near-term prospects of the investee, including any specific events which may influence the operations; (3) the Company’s intent and ability to retain its investments in the investee 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) the investee’s historical and forecasted financial performance; (6) trends in the general market; and (7) the investee’s capital strength and liquidity.
In determining whether the carrying value of the Company’s investment in Mesquite is less than its estimated fair value of the investment, a discounted cash flow approach to value is used and is based on Level 3 inputs as defined by GAAP. The Company’s valuation model incorporates an estimated weighted-average cost of capital (effectively, a discount rate) and terminal value multiples that are used by market participants. The estimated weighted-average cost of capital is based on the risk free interest rate at the time, adjusted for specific risk factors. The Company also considers the metrics of specific business transactions that may be comparable to varying degrees. The weight assigned to these approaches to value in the Company’s impairment evaluation may vary from period to period depending upon evolving events. Forecasted prospective financial information used in the model is based on management’s expected course of action. Sensitivity analyses are also performed related to key assumptions used, including possible variations in the weighted-average cost of capital and terminal value multiples, among others. Level 1 inputs as defined by GAAP were utilized in the evaluation of the ERI shares.
The Company did not record any impairment for the years ended February 29, 2016 and February 28, 2015 related to its equity method investments in Eldorado and Mesquite.
Equity in the net income (loss) and other comprehensive income (loss) of unconsolidated investee
The Company recognizes equity in the net income (loss) and other comprehensive income (loss) of its unconsolidated investees on a calendar year basis (through September 18, 2014 for Eldorado). For example, the Company’s net income for the year ended February 29, 2016 included equity in the net income of Mesquite for Mesquite's year ended December 31, 2015.
Available-for-sale securities
The Company's ERI shares, which were received upon conversion of the Eldorado Interest on September 19, 2014, were classified, and accounted for, as available-for-sale securities and were carried at estimated fair value based on current trading activity (Level 1 inputs). All realized gains and losses on the ERI shares were included in net income, while unrealized gains and losses were included in the Company's consolidated statements of operations as a component of other comprehensive income.
Recently Issued Accounting Standards
No recently issued accounting pronouncements not yet adopted are expected to have a material impact on our future financial position, results of operations, or cash flows.
Off Balance Sheet Arrangements
The Company currently has no off-balance sheet arrangements.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the financial statements included on pages F-1 through F-14, which financial statements are incorporated herein by this reference.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A.
CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures

40



As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), an evaluation was performed by management, with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective as of February 29, 2016.
Changes in Internal Control Over Financial Reporting
As required by Rule 13a-15(d) under the Exchange Act, our management, including our principal executive officer and principal financial officer, has evaluated our internal control over financial reporting. Based on that evaluation, there have been no changes in our internal control over financial reporting 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, with the participation of our principal executive officer and principal financial officer, assessed the effectiveness of the Company’s 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 its assessment, management has concluded that, as of February 29, 2016, 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 independent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the Commission.
ITEM 9B.
OTHER INFORMATION.
None
Part III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
NGA is managed by a board of managers which has three members who are Timothy T. Janszen (who is also NGA’s Operating Manager), Ryan Langdon and Roger May. Each of NGA’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 NGA’s voting equity. A majority of NGA’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 NGA’s managers is required to elect a new Operating Manager, who must be selected from among the members of NGA’s board of managers. Other than its Operating Manager, NGA does not have any executive officers.
Each of NGA’s managers is the owner of an equity interest in VoteCo, which holds all of NGA’s voting equity, and collectively they own all of VoteCo’s equity interests. Because of NGA’s structure, which gives all of its voting power to VoteCo, and because NGA pays no compensation, it believes the attribute that best qualifies each of its 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 NGA’s managers to hold his position.

41



The following table sets forth information as of the date of this report, regarding each manager of NGA and Mesquite and ERI's board of directors.
Name
Age
 
Position(s)
Timothy T. Janszen(1)
52
 
Manager of the Company and Mesquite and Operating Manager of the Company
Ryan Langdon(2)
43
 
Manager of the Company and Mesquite
Roger A. May(3)
50
 
Manager of the Company
Katherine Ann Banuelos(4)
36
 
Manager of Mesquite
Anthony Toti(5)
55
 
Manager of Mesquite
Brendan Gaughan(6)
40
 
Manager of Mesquite
(1)
Mr. Janszen has been a manager of NGA since July 1, 2007 and its operating manager since December 1, 2010. In his capacity as NGA’s Operating Manager, Mr. Janszen performs certain services for NGA commonly performed by a principal executive officer. Mr. Janszen is also one of the two members of Mesquite’s board of managers designated as such by AcquisitionCo, which became a member of Mesquite’s board of managers upon the closing of the Company’s acquisition of its interest in Mesquite on August 1, 2011.
(2)
Mr. Langdon has been a manager of NGA since July 1, 2007 and is one of the two members of Mesquite’s board of managers designated as such by AcquisitionCo, which became a member of Mesquite’s board of managers upon the closing of NGA’s acquisition of its interest in Mesquite on August 1, 2011.
(3)
Mr. May has been a manager of NGA since July 1, 2007. In his capacity as a manager of NGA, Mr. May performs certain services for NGA commonly performed by a principal financial officer.
(4)
Mrs. Banuelos has been a member of Mesquite’s Board of Managers since August 2011.
(5)
Mr. Toti has served as Mesquite's Chief Executive Officer and Chairman of Mesquite’s Board of Managers since August 2011, and as Mesquite's Chief Operating Officer since January 2014.
(6)
Mr. Gaughan has served as a member of Mesquite’s Board of Managers since January 2014.
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 that of 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 that of 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.

42



Katherine Ann Banuelos. Mrs. Banuelos has been a member of Mesquite’s Board of Managers since August 1, 2011. She received a Bachelor of Science in Hotel Administration with an emphasis in Gaming from the University of Nevada, Las Vegas in 2001 and received her first key employee gaming license in 1999 at the age of twenty-one. Mrs. Banuelos has been a management consultant for the Michael J. Gaughan Airport Slot Concession and currently manages the Rocking K Ranch in Weatherford, TX and operates and manages the Rocking K Arena in Las Vegas, NV where she, her husband, and daughter breed and train champion cutting horses.
Anthony Toti. Mr. Toti has served as Chief Executive Officer and Chairman of the Board for Mesquite Gaming, LLC since August 1, 2011. Mr. Toti served as Vice President of Gaming Operations from November 2007 through December 2008 and as Chief Operating Officer from December 2008 through August 1, 2011 for Black Gaming, LLC. Mr. Toti has approximately 32 years of experience in the gaming industry, including Director of Casino Operations at the Suncoast Hotel and Casino from October 2006 to October 2007. From July 2000 to October 2006, Mr. Toti served as Casino Manager at the Suncoast Hotel and Casino.
Brendan Gaughan. Mr. Gaughan has been a member of Mesquite's Board of Managers since January 1, 2014. He received a Bachelor of Science in Business Administration with an emphasis in Human Resources while at Georgetown University. Mr. Gaughan drives the RCR No. 62 South Point Hotel and Casino Chevrolet Camaro for the Richard Childress Racing team in the NASCAR Nationwide Series.
Audit Committee Financial Expert
NGA’s Board of Managers, which does not have a separate audit committee, has determined that Timothy T. Janszen, who is a member of the Board of Managers and NGA’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, 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. Janszen’s business experience which appears above. The Board of Managers has also determined that no member of the Board of Managers, including Mr. Janszen, is “independent” as that term is defined under current rules of the New York Stock Exchange (the “NYSE”). None of NGA’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 Exchange Act requires NGA's 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 beneficial ownership and changes in beneficial 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 March 1, 2015 through February 29, 2016.
Code of Ethics
NGA’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 reports and other documents that the Company 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;

43



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.
NGA’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 NGA and, accordingly, no compensation for such services has been paid to the Company’s managers by or on behalf of NGA. NGA’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. Janszen 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. NGA’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. During the year ended February 29, 2016, NGA did not have any named executive officers other than its Operating Manager, Timothy T. Janszen, who during the year performed services for the Company commonly performed by a principal executive officer, for which he received no compensation from the Company. Roger A. May, a Manager of NGA, performed services for the Company during the year ended February 29, 2016 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 NGA’s voting securities by all persons known to be the beneficial owners of more than 5% of any voting class of NGA 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) 
Timothy T. Janszen(4)
Class A Units
 
1 Unit
 
(5)
 
100
%
 
(5) 
Ryan Langdon(6)
Class A Units
 
1 Unit
 
(5)
 
100
%
 
(5) 
Roger A. May(7)
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 NGA, which is the only Class A Unit of NGA that is issued and outstanding.
(4)
Timothy T. Janszen is a member of NGA’s and VoteCo’s board of managers and the operating manager of VoteCo and NGA.
(5)
Timothy T. Janszen, Ryan Langdon and Roger A. May (collectively, the “VoteCo Equityholders”) are the voting members of VoteCo, holding 42.85, 42.85 and 14.3 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 NGA directly held by VoteCo.
(6)
Mr. Langdon is a member of NGA’s and VoteCo’s board of managers.
(7)
Mr. May is a member of NGA’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 NGA’s managers, Timothy T. Janszen, Ryan Langdon and Roger A. May, of each class of equity securities of NGA, NGA’s parent, VoteCo, and NGA’s subsidiaries, Blocker and AcquisitionCo, of which he owns any beneficial interest. Mr. Janszen, who is NGA’s operating manager, and performs services for NGA commonly performed by a principal financial officer, is NGA’s only named executive officer.

44



Name of NGA Manager(1)
Title of Class of Securities
 
Amount and Nature of
Beneficial Ownership(2)
 
 
 
Percent of Class
 
 
Timothy T. Janszen(3)
VoteCo Units
 
42.85 Units
 
(4)
 
42.85
%
 
(4)
 
NGA Class A Units
 
1 Unit
 
(5)
 
100
%
 
(5)
 
Blocker Units
 
100 Units
 
(6)
 
100
%
 
(6)
 
AcquisitionCo Units
 
100 Units
 
(7)
 
100
%
 
(7)
Ryan Langdon(8)
VoteCo Units
 
42.85 Units
 
(9)
 
42.85
%
 
(9)
 
NGA Class A Units
 
1 Unit
 
(5)
 
100
%
 
(5)
 
Blocker Units
 
100 Units
 
(6)
 
100
%
 
(6)
 
AcquisitionCo Units
 
100 Units
 
(7)
 
100
%
 
(7)
Roger A. May(10)
VoteCo Units
 
14.3 Units
 
(11)
 
14.3
%
 
(11)
 
NGA Class A Units
 
1 Unit
 
(5)
 
100
%
 
(5)
 
Blocker Units
 
100 Units
 
(6)
 
100
%
 
(6)
 
AcquisitionCo Units
 
100 Units
 
(7)
 
100
%
 
(7)
Company Managers and Executive Officers of NGA as a Group (3 persons)(12)
NGA 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 NGA 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)
Timothy T. Janszen is the operating manager of VoteCo, NGA, Blocker and AcquisitionCo. Mr. Janszen performs services for the Company commonly performed by a principal executive officer.
(4)
Timothy T. Janszen is the listed owner of these securities.
(5)
VoteCo is the listed owner of one Class A Unit of NGA, which is the only Class A Unit of NGA that is issued and outstanding. 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 NGA, representing the only Class A Unit of NGA issued and outstanding, directly held by VoteCo.
(6)
NGA is the listed owner of all 100 Blocker Units. 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 NGA.
(7)
Blocker is the listed owner of all 100 AcquisitionCo Units. 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)
Ryan Langdon is a manager of VoteCo, NGA, Blocker and AcquisitionCo.
(9)
Ryan Langdon is the listed owner of these securities.
(10)
Roger A. May is a manager of VoteCo, NGA, Blocker and AcquisitionCo. Mr. May performs services for NGA commonly performed by a principal financial officer or a principal accounting officer.
(11)
Roger A. May is the listed owner of these securities.
(12)
NGA currently has no executive officers, but Timothy T. Janszen, NGA’s operating manager, performs services for NGA commonly performed by a principal executive officer and Roger A. May, a manager of NGA, performs services for NGA 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 February 29, 2016 for the Company, which has no equity compensation plan.
Equity Compensation Plan Information

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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 securities 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
NGA’s Board of Managers has determined that none of NGA’s managers is “independent” as that term is defined under current rules of the New York Stock Exchange (the “NYSE”). None of NGA’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 NGA in the future.
The Board of Managers of Mesquite has determined that no member of Mesquite’s Board of Managers is “independent” as that term is defined under current rules of the NYSE. None of Mesquite’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 Mesquite in the future.
NGA’s Parent
NGA’s only parent is VoteCo, which holds 100% of the voting securities of NGA. The equity owners of VoteCo are Timothy T. Janszen and Ryan Langdon, each of whom owns a 42.85% interest, and Roger A. May, who owns a 14.3% interest. 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 NGA directly held by VoteCo.
Related Transactions
The Company
On January 26, 2016, the Company, through AcquisitionCo, made a loan to NGOF I-A. The loan was in the principal amount of $4,900,000. The principal amount of the loan is due and payable 180 days following the date of the loan. Interest on the unpaid principal amount from time to time outstanding is payable at a rate of 5% per annum. NGOF I-A may, without premium or penalty, prepay all or any portion of the outstanding principal balance, provided the prepayment is accompanied by payment of the accrued interest on the amount of principal prepaid, calculated to the date of the prepayment. The promissory note evidencing the loan, which may not be assigned or transferred by the Company without the prior written consent of NGOF I-A, contains customary default provisions. AcquisitionCo funded the loan to the NGOF I-A utilizing funds borrowed simultaneously from Credit Suisse in like amount which was fully repaid on February 5, 2016. On April 1, 2016, the Company distributed the proceeds from the sale of ERI shares and reclassified the $4.9 million loan amount, along with approximately $65,000 related to expenses incurred in connection with the Company's ownership in ERI, as a distribution to NGOF I-A.
In 2007, NGOF received on behalf of (but did not remit to) the Company $5,118,172 of interest and $61,600 of preferred dividends related to investments of the Company which have historically been reflected in the Company's balance sheets as due from the Newport Funds. In connection with the January 7, 2016 sale by NGOF of its ownership interest in InvestCo to NGOF I-A, the $5,179,792 due from the Newport Funds was reclassified as a distribution to NGOF.
At February 29, 2016 and February 28, 2015, the Company owed $0.1 million and $3.7 million, respectively, to the Newport Funds for expenses paid on the Company’s behalf since inception of the Company. The Newport Funds have agreed to waive demand of payment of the amounts advanced to the Company through March 1, 2018, and, accordingly, the liability is also reflected as long-term. During 2016, the Company repaid approximately $3.8 million to NGOF.

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ERI
The following summarizes the related party transactions of ERI, which was an investee of the Company during all of the fiscal year covered by this report and thereafter until the Company completed its liquidation of its ERI investment on March 29, 2016 (based on ERI's public disclosure).
Prior to the consummation of the ERI Merger, Resorts was party to a management agreement (the "Eldorado Management Agreement") with Recreational Enterprises, Inc. ("REI") and Hotel Casino Management ("HCM"), pursuant to which REI and HCM (collectively, the "Managers") agreed to (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 agreed to pay the Managers a management fee not to exceed 1.5% of Resorts' annual net revenues, not to exceed $0.6 million per year. REI is beneficially owned by members of the Carano family and HCM is beneficially owned by members of the Poncia family. The Carano family and Poncia family hold significant ownership interests in ERI. Management fees were not paid subsequent to the consummation of the merger of Eldorado and MTR. In 2015, Donald L. Carano and Raymond J. Poncia received remuneration in the amount of $0.4 million and $0.2 million, respectively, for their services as consultants to ERI and its subsidiaries in lieu of the management fees previously paid under the terms of the Eldorado Management Agreement.
Eldorado owns the entire parcel on which Eldorado-Reno is located, except for approximately 30,000 square feet which is leased from C. S. & Y. Associates, a general partnership of which Donald Carano is a general partner (the "CSY Lease"). The CSY Lease expires on June 30, 2027. Annual rent is equal to the greater of (1) $0.4 million or (2) an amount based on a decreasing percentage of the Eldorado's gross gaming revenues ranging from 3% of the first $6.5 million of gross gaming revenues to 0.1% of gross gaming revenues in excess of $75.0 million. Rent pursuant to the CSY Lease amounted to approximately $0.6 million in each of the years ended December 31, 2015, 2014 and 2013. On May 30, 2011, Eldorado and C. S. & Y. Associates entered into a fourth amendment to the CSY Lease. C. S. & Y. Associates agreed to execute and deliver the deeds of trust encumbering the approximately 30,000 square feet leased from C. S. & Y. Associates on which a portion of Eldorado-Reno is located as security for the Senior Secured Notes and the Secured Credit Facility. In exchange for this subordination, a fee of $0.1 million will be paid annually during the term of the indenture relating to the Senior Secured Notes. In each of the years 2015, 2014 and 2013, Eldorado paid $0.1 million to C. S. & Y. Associates for this subordination. As a result of ERI's July 2015 refinancing, the subordination was subsequently eliminated.
For the period beginning January 1, 2015 to April 15, 2016, members of the Carano family who are related to Gary L. Carano, Anthony L. Carano and Donald L. Carano and a member of Robert M. Jones' family were paid compensation in connection with their positions at Eldorado Reno and ERI as follows:

Name
 
Relationship
 
Position
 
Entity
 
Compensation including Perquisites (3)
 
2015
RSUs(4)
 
2016
RSUs(5)
 
Total
Gene Carano
 
Brother of Gary L. Carano and son of Donald L. Carano
 
Senior Vice President of Regional Operations
 
Company
 
$
682,972

 
$
144,918

 
$
200,000

 
$
1,027,890

Gregg Carano
 
Brother of Gary L. Carano and son of Donald L. Carano
 
Senior Vice President Food and Beverage
 
Company
 
$
652,074

 
$
144,918

 
$
187,500

 
$
984,492

Rhonda Carano
 
Wife of Donald L. Carano
 
Senior Vice President of Design and Development(1)
 
Company
 
$
389,646

 
$
72,460

 
$
75,000

 
$
537,106

Cindy Carano
 
Sister of Gary L. Carano and daughter of Donald L. Carano
 
Executive Director of Hotel Operations
 
Silver Legacy and Eldorado Reno
 
$
308,179

 
$

 
$

 
$
308,179

Glenn Carano
 
Brother of Gary L. Carano and son of Donald L. Carano
 
General Manager(2)
 
Silver Legacy and Eldorado Reno
 
$
306,673

 
$

 
$
194,000

 
$
500,673

Josh Jones
 
Son of Robert M. Jones
 
Senior Financial Analyst
 
Company
 
$
194,233

 
$
25,000

 
$
45,000

 
$
264,233


(1)Rhonda Carano was previously the Senior Vice President of Creative and Brand Strategies until her position changed effective 2016.
(2)Glenn T. Carano was the General Manager of Silver Legacy and received $339,500 in compensation from the Silver Legacy from January 1, 2015 to November 23, 2015. As a result of the Circus Reno/Silver Legacy Purchase, which was consummated on November 24, 2015, Mr. Glenn Carano was also named General Manager of Eldorado Reno and became an employee of ERI.
(3)Includes base salary, bonus and perquisites comprised of 401(k) match, company paid memberships and life insurance premiums. 
(4)Represents performance and time-based RSUs granted January 23, 2015 at $4.03 per share at 100% target.
(5)Represents performance and time-based RSUs granted January 22, 2016 at $10.74 per share at 100% target.

47



  Beginning in December 2015 through April 15, 2016, Gregg Carano had the use of a residence rented by ERI in Columbus, Ohio which averages rent of approximately $2,300 a month.
        In conjunction with the Circus Reno/Silver Legacy Purchase, Eldorado consummated the acquisition of the other 50% membership interest in the Silver Legacy Joint Venture owned by Galleon, Inc. and also exercised its right to acquire the 3.8% interest in ELLC held by certain affiliates of ERI. As a result of these transactions, ELLC and Silver Legacy both became indirect wholly owned subsidiaries of ERI. As consideration for the non-controlling interest, ERI issued 373,135 shares of common stock. ERI valued the shares at the market price on the day the shares were issued to the non-controlling interest holders. The value of the total consideration paid was $3.6 million.
ERI's Approval of Related Party Transactions
ERI's Code of Ethics and Business Conduct (the "ERI Code") requires that any proposed transaction between ERI and a related party, or in which a related party would have a direct or indirect material interest, be promptly disclosed to the ERI's Compliance Committee. The ERI Compliance Committee is required to disclose such proposed transactions promptly to the ERI's Audit Committee.
ERI's Audit Committee Charter requires the ERI Audit Committee to review and approve all related party transactions of ERI. Any director having an interest in the transaction is not permitted to vote on such transaction. The ERI Audit Committee will determine whether or not to approve any such transaction on a case-by-case basis and in accordance with the provisions of the ERI Audit Committee Charter and the ERI Code, including the standards set forth in the Conflicts of Interest Policy contained in the ERI Code. Under the ERI Code, a "related party" is any of the following:
an executive officer of ERI;
a director (or director nominee) of ERI;
an immediate family member of any ERI executive officer or director (or director nominee);
a beneficial owner of five percent or more of any class of the ERI's voting securities;
an entity in which one of the above described persons has a substantial ownership interest or control of such entity; or
any other person or entity that would be deemed to be a related person under Item 404 of SEC Regulation S-K or applicable NASDAQ rules and regulations.
Mesquite
The following summarizes the related party transactions of our investee, Mesquite.
Mesquite Travel Center – FC C-Store LLC, (the “Travel Center”) is partly owned by Anthony Toti ("Mr. Toti"), Mesquite's Chief Executive Officer, and by Robert R. Black, Sr. (“Mr. Black”), Mesquite's former Chief Operating Officer and part owner of Mesquite until December 18, 2014. Mr. Toti sold his ownership in the Travel Center effective March 27, 2015. Mesquite obtains gasoline for department vehicles from the Travel Center. For the period from January 1, 2015 through March 27, 2015, and for the years ended December 31, 2014 and 2013, the Travel Center charged Mesquite approximately $9,000, $45,000 and $42,000, respectively.
Mesquite provided management and other services to Grand Destinations Vacation Club ("GDVC"), Peppermill Palms Property Owners ("PPPOA"), and CasaBlanca Vacation Club ("CBVC"), three related parties that manage and operate the home owners associations of the vacation intervals at the Mesquite properties. The consolidated balance sheets of Mesquite, included in Note 4 to the Notes to Consolidated Financial Statements in Item 15 of this report, contain receivables of approximately $5,600, $4,136 and $875 as of December 31, 2015, and payables of approximately $69,769, $4,166 and $7,640 as of December 31, 2014 for GDVC, PPPOA, and CBVC, respectively.
On August 22, 2013, Mesquite refinanced its debt, of which $35 million was refinanced by related parties of Mesquite's officers and equity owners. $10.5 million was loaned to Mesquite by entities managed by the managing member of a 35% equity owner. $10.5 million was loaned to Mesquite by the father of Mesquite's Chief Executive Officer and 25% equity owner of Mesquite. $14 million was loaned to Mesquite by NGA Blocker LLC, a subsidiary of the Company. For a description of the terms of the loan, see Note 6 of the Notes to Consolidated Financial Statements.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table sets forth fees billed to the Company for the fiscal years ended February 29, 2016 and February 28, 2015 by the Company’s registered public accounting firm, Piercy, Bowler, Taylor & Kern, Certified Public Accountants and Business Advisors, a Professional Corporation (“PBTK”).

48



 
Year Ended
 
February 29,
2016
 
February 28,
2015
Audit Fees (1)
$
63,000

 
$
102,476

All Other Fees

 

 
$
63,000

 
$
102,476

(1)
Audit Fees. This category includes fees and expenses billed by PBTK 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.
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 2016 and 2015 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.

49



Part IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as a part of the report:
Description
Page No.
 
 
Report of Independent Registered Public Accounting Firm
F-2
 
 
Consolidated Balance Sheets
F-3
 
 
Consolidated Statements of Operations
F-4
 
 
Consolidated Statement of Changes in Members’ Equity
F-5
 
 
Consolidated Statements of Cash Flows
F-6
 
 
Notes to Consolidated Financial Statements
F-7
(b) Exhibits The exhibits in the accompanying Exhibit Index are incorporated by reference into this Item 15.

50



NGA HoldCo, LLC and Subsidiaries
Consolidated Financial Statements
Table of Contents

F-1



REPORT OF 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 February 29, 2016 and February 28, 2015, and the related consolidated statements of operations, changes in members’ equity, and cash flows for the years then ended (collectively, the Consolidated Financial Statements). 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 audit.
We conducted our audit 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 audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company as of February 29, 2016 and February 28, 2015, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ PIERCY BOWLER TAYLOR & KERN
Las Vegas, Nevada
May 31, 2016


F-2



NGA HOLDCO, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 2016 AND FEBRUARY 28, 2015
 
2016
 
2015
ASSETS
 
 
 
Current Assets:
 
 
 
Cash
$
770,927

 
$
4,306,170

Marketable securities, Eldorado Resorts, Inc.
35,584,769

 

Note receivable, Newport Funds
4,900,000

 

Income tax receivable
91,080

 

 
41,346,776

 
4,306,170

Other Assets:
 
 
 
Marketable securities, Eldorado Resorts, Inc.

 
18,540,023

Investment in Mesquite
4,618,422

 
4,282,422

Note receivable, Mesquite
14,000,000

 
14,000,000

Due from the Newport Funds

 
5,179,772

 
$
59,965,198

 
$
46,308,387

LIABILITIES AND MEMBERS’ EQUITY
 
 
 
Current liabilities, consisting of accounts payable and accrued expenses
43,276

 
1,712

 
 
 
 
Deferred tax liability, non-current
1,253,354

 

Long-term amounts due to the Newport Funds
102,657

 
3,687,854

 
1,399,287

 
3,689,566

Members’ Equity:
 
 
 
Class A unit (1 Unit issued and outstanding)
3,806

 
3,806

Class B units (9,999 Units issued and outstanding)
57,544,874

 
57,544,874

Accumulated other comprehensive income (loss)
12,958,031

 
(5,197,086
)
Accumulated deficit, net of accumulated distributions of $6,316,757 in 2016
(11,940,800
)
 
(9,732,773
)
 
58,565,911

 
42,618,821

 
$
59,965,198

 
$
46,308,387

See notes to consolidated financial statements.

F-3



NGA HOLDCO, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015
 
2016
 
2015
Realized gain on the sale of marketable securities
$
2,158,888

 
$

Interest Income
1,132,444

 
1,003,333

Equity in net income of unconsolidated investees
1,236,000

 
199,613

Professional fees and other expenses
(282,012
)
 
(237,964
)
Income before income taxes
4,245,320

 
964,982

Income tax benefit (expense)
(136,590
)
 
163,241

Net income
4,108,730

 
1,128,223

Equity in other comprehensive loss of unconsolidated investee

 
(27,058
)
Reversal of equity in other comprehensive income of unconsolidated investee previously accounted for using the equity method

 
(274,818
)
Unrealized gain (loss) on marketable securities, net of income taxes
20,314,005

 
(5,197,086
)
Comprehensive income (loss)
$
24,422,735

 
$
(4,370,739
)
See notes to consolidated financial statements.

F-4



NGA HOLDCO, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ EQUITY
FOR THE YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015
 
Subscribed
Class A
Unit
 
Class B
Units
 
Accumulated
Deficit
 
Other Comprehensive Income (Loss)
 
Total
Members’
Equity
Balance, February 28, 2014
$
3,806

 
$
57,544,874

 
$
(10,860,996
)
 
$
301,876

 
$
46,989,560

Net income

 

 
1,128,223

 

 
1,128,223

Equity in other comprehensive loss of unconsolidated investee

 

 

 
(27,058
)
 
(27,058
)
Reversal of other comprehensive income of prior unconsolidated investee

 

 

 
(274,818
)
 
(274,818
)
Other comprehensive loss on marketable securities

 

 

 
(5,197,086
)
 
(5,197,086
)
Balance, February 28, 2015
$
3,806

 
$
57,544,874

 
$
(9,732,773
)
 
$
(5,197,086
)
 
$
42,618,821

Net income

 

 
4,108,730

 

 
4,108,730

Realized gain on the sale of marketable securities

 

 

 
(2,158,888
)
 
(2,158,888
)
Other comprehensive income on marketable securities, net of taxes

 

 

 
20,314,005

 
20,314,005

Distributions of amounts receivable from the Newport Funds

 

 
(5,179,772
)
 

 
(5,179,772
)
Distributions of cash

 

 
(1,136,985
)
 

 
(1,136,985
)
Balance, February 29, 2016
$
3,806

 
$
57,544,874

 
$
(11,940,800
)
 
$
12,958,031

 
$
58,565,911

=See notes to consolidated financial statements.

F-5



NGA HOLDCO, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015
 
 
2016
 
2015
Operating activities:
 
 
 
 
Net income
 
$
4,108,730

 
$
1,128,223

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Realized gain on sale of marketable securities
 
(2,158,888
)
 

Equity in net income of unconsolidated investees
 
(1,236,000
)
 
(199,613
)
Deferred federal income tax benefit
 
(436,818
)
 
 
Increase in income tax receivable
 
(91,080
)
 

Increase in accounts payable and accrued expenses
 
41,564

 
902

Increase (decrease) in federal tax liability
 

 
(163,241
)
    Net cash provided by operating activities
 
227,508

 
766,271

 
 
 
 
 
Investing activities:
 
 
 
 
Loan to Newport Funds
 
(4,900,000
)
 

Proceeds from sale of marketable securities
 
4,959,431

 

Proceeds from sale of investment in Tamarack Crossings, LLC
 

 
1,350,000

Distributions received from unconsolidated investees
 
900,000

 
269,000

    Net cash provided by investing activities
 
959,431

 
1,619,000

 
 
 
 
 
Financing activities:
 
 
 
 
Proceeds from borrowings, Credit Suisse
 
4,900,000

 

Repayment of borrowings, Credit Suisse
 
(4,900,000
)
 

Advances received from the Newport Funds
 
238,578

 
237,062

Repayment of advances received from the Newport Funds
 
(3,823,775
)
 

Distributions
 
(1,136,985
)
 

    Net cash (used in) provided by financing activities
 
(4,722,182
)
 
237,062

 
 
 
 
 
Net (decrease) increase in cash
 
(3,535,243
)
 
2,622,333

 
 
 
 
 
Cash, beginning of period
 
4,306,170

 
1,683,837

 
 
 
 
 
Cash, end of period
 
$
770,927

 
$
4,306,170

 
 
 
 
 
Non-cash investing activity:
 
 
 
 
 
 
 
 
 
Distribution to members of amounts due from the Newport Funds
 
$
5,179,772

 
$

 
 
 
 
 
Distribution received from Eldorado consisting of an interest in Tamarack Crossing, LLC
 
$

 
$
1,350,000

See notes to consolidated financial statements.

F-6



NGA HOLDCO, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2015 AND 2014
1. Organization
Business activities
NGA HoldCo, LLC, a Nevada limited liability company (“NGA”), was formed on January 8, 2007 at the direction of Newport Global Opportunities Fund LP, a Delaware limited partnership (“NGOF”) and an affiliate of Newport Global Advisors LP, a Delaware limited partnership (“Newport”). NGA was formed for the primary purpose of holding equity, directly or indirectly through its subsidiaries, 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 (collectively with NGA, the “Company”).
The Company has had no revenue generating business since inception. The Company's operations consist primarily of gaming industry related investments including its holding, through AcquisitionCo, of a 40% equity interest in Mesquite Gaming LLC, a Nevada limited liability company (“Mesquite”), a loan to Mesquite, and ownership as of the end of the fiscal year ended February 29, 2016 of 3,554,922 publicly traded shares of Eldorado Resorts, Inc. ("ERI," formerly known as Eclair Holdings Company) common stock, $0.00001 par value, representing an approximate 7.6% ownership interest in ERI (the "ERI shares"). 4,030,440 ERI shares were acquired September 19, 2014, upon consummation of a merger between MTR Gaming, Inc. ("MTR") and Eldorado Holdco, LLC ("Eldorado"), a previously unconsolidated investee of the Company in which the Company held an approximate 17.0359% equity interest (the "ERI Merger"). During the period from January 26, 2016 through March 29, 2016, the Company liquidated its ownership interest in ERI through sales in multiple open market transactions of a total of 4,030,440 shares of ERI's common stock representing at December 31, 2015 (based on the public reports of ERI) approximately 8.6% of such shares issued and outstanding. The transactions resulted in a realized gain of approximately $17.7 million, $2.2 million of which had been recognized as of February 29,2016.
ERI currently owns and operates (1) three casino resorts located in Reno, Nevada, the Eldorado Hotel & Casino, the Silver Legacy Resort Casino, and the Circus Circus Reno, (2) the Eldorado Resort Casino Shreveport located in Shreveport, Louisiana, (3) Scioto Downs Racino located in Columbus, OH, (4) Mountaineer Casino Racetrack & Resort located in Chester, WV, and (5) Presque Isle Downs & Casino located in Erie, PA. Combined, the seven properties contain approximately 4,900 hotel rooms, 300 table games, 45 restaurants and 10,300 slot machines and video lottery terminals.
Eldorado previously owned a 21.25% interest in Tamarack Crossing, LLC ("Tamarack") that owns and operates Tamarack Junction, a casino in south Reno. On September 1, 2014, and as a condition to closing the ERI Merger, Eldorado distributed on a pro-rata basis to its members (including the Company) its equity interest in Tamarack. The Company contemporaneously sold its equity interest in Tamarack for $1,350,000, the estimated fair value of the in-kind distribution.
The Company's 40% Mesquite Interest was acquired August 1, 2011 (the “Mesquite Acquisition”), in exchange for $8,222,222 in cash, of which $7,222,222 and $1,000,000 were contributed to the Company by NGOF and Newport Global Credit Fund (“NGCF”), respectively. Mesquite is engaged in the casino resort industry in Mesquite, Nevada through wholly owned subsidiaries that own and operate the CasaBlanca Resort/Golf/Spa, the Virgin River Hotel/Casino/Bingo, two championship golf courses, a full-service spa, a bowling center, restaurants, and banquet and conference facilities. Mesquite also owns real estate on which another hotel & casino was located prior to its demolition in 2013.
The Company has no current plans to acquire any equity interest in another entity.
Formed in 2005, Newport is a Texas-based investment management firm focused on 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 9 employees, with its primary office in The Woodlands, TX. Newport’s principals include Timothy T. Janszen, CEO, Ryan Langdon, Senior Managing Director, and Roger A. May, Senior Managing Director. Collectively, the principals have over 40 years of experience investing in the high yield and distressed debt markets. Newport is registered with the Securities and Exchange Commission (the "Commission") as an investment adviser under the Investment Advisers Act of 1940, as amended. Newport is investment manager of NGOF, NGCF and Newport Global Opportunities Fund I-A LP, a Delaware limited partnership ("NGOF I-A") which purchased NGOF's ownership interest in NGA No VoteCo, LLC, a Nevada limited liability company ("InvestCo") on January 7, 2016. As the change in ownership had no effect on the Company's operations, the term "Newport Funds" will be used here to describe NGCF and NGOF collectively prior to January 7, 2016 and NGCF and NGOF I-A collectively subsequent to January 7, 2016. The Newport Funds, which began investing in 2006, are private investment funds

F-7



that seek attractive long-term risk adjusted returns by capitalizing on investments in the distressed debt markets and possibly control-oriented investments.
Concentrations and economic uncertainties
NGA and its consolidated subsidiaries expect to be economically dependent upon relatively few investments in the gaming industry. The United States recently experienced a recession accompanied by, among other things, weakness in the commercial and investment banking systems resulting in reduced credit and capital financing availability, and highly curtailed gaming, other recreational, construction and real estate market activities and general discretionary consumer spending. Although capital market activity and liquidity are reported to have improved of late, the recovery from this recession period is fragile and there can be no assurance that the Company’s business and that of its investees, which have been severely affected by the downturn, will fully recover to pre-recession levels. In addition, the Company carries cash on deposit with financial institutions substantially in excess of federally-insured limits. The extent of any loss that might be incurred as a result of uninsured deposits in the event of a future failure of a bank or other financial institutions is not subject to estimation at this time.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Accounting and Presentation
The Company prepares its consolidated financial statements on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements of the Company include the accounts of NGA and its two wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
The Company's investment in Mesquite is accounted for using the equity method of accounting as was its investment in Eldorado until the ERI Merger on September 19, 2014. Commencing September 19, 2014, the ERI shares received in the ERI Merger are classified, and accounted for, as available-for-sale marketable securities and are carried at estimated fair value based on trading activity (Level 1 inputs as defined by GAAP). Realized gains on the ERI shares are included in net income, while unrealized gains and losses are included in the Company's consolidated statements of operations as a component of other comprehensive income. The Company recognizes equity in the net income (loss) and other comprehensive income (loss) of its unconsolidated investees accounted for using the equity method on a calendar year basis. For example, the Company’s net income for the year ended February 29, 2016 includes equity in the net income of Mesquite for the year ended December 31, 2015. Accordingly, except for the ERI shares and otherwise as required by GAAP and disclosed herein, the Company measures all of its assets and liabilities on the historical cost basis.
The Company's investments are evaluated at least annually (and more frequently when circumstances warrant) to determine if events or changes in circumstances indicate that the carrying value may not be recoverable. Examples of such events or changes in circumstances that might indicate impairment testing is warranted might include, as applicable, prolonged periods of the trading value of available-for-sale securities being less than cost, an adverse change in the legal, regulatory or business climate relative to gaming nationally or in the jurisdictions in which the Company’s investees operate, or a significant long-term decline in historical or forecasted earnings or cash flows of the investee or the fair value of its property or business, possibly as a result of competitive or other economic or political factors. In evaluating whether a loss in value is other than temporary, the Company considers: (1) the length of time and the extent to which the fair value or market value has been less than cost; (2) the financial condition and near-term prospects of the investee, including any specific events which may influence the operations; (3) the Company’s intent and ability to retain its investments in the investee 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) the investee’s historical and forecasted financial performance; (6) trends in the general market; (7) the investee’s capital strength and liquidity; and (8) the reaction to changes in markets and specific performance of the Company's investments by the investing public.
In determining whether the carrying value of the Company’s investment in Mesquite is less than its estimated fair value, a discounted cash flow approach to value is used and is based on Level 3 inputs as defined by GAAP. The Company’s valuation model incorporates an estimated weighted-average cost of capital (effectively, a discount rate) and terminal value multiples that are used by market participants. The estimated weighted-average cost of capital is based on the risk-free interest rate at the time, adjusted for specific risk factors. The Company also considers the metrics of specific business transactions that may be comparable to varying degrees. The weight assigned to these approaches to value in the Company’s impairment evaluation may vary from period to period depending upon evolving events. Forecasted prospective financial information used in the model is based on management’s expected course of action. Sensitivity analyses are also performed related to key assumptions used, including possible variations in the weighted-average cost of capital and terminal value multiples, among others.

F-8



Use of estimates
Timely preparation of financial statements in accordance with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting periods. Actual results could differ from those estimates. Management estimates that the Company will eventually sell its investments following an expected economic recovery at a price sufficient to realize the carrying value of the Company’s assets. Such estimate related to Mesquite is subject to material variation over the next year.
Income Taxes
The Company records estimated penalties and interest, if any, related to income tax matters, including uncertain tax positions, if any, as a component of income tax expense (Note 7). At least annually, management evaluates positions taken (or to be taken) on tax returns that remain subject to examination by federal and state authorities (i.e., tax years 2012 and thereafter) to determine if there are “uncertain tax positions” as defined by GAAP.
Members’ capital
Allocations of net income and distributions to the Members are determined in accordance with the Company’s operating agreement.
3. Ownership and Management of the Company
Ownership
NGA’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 NGA’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”). At present, the Company has no plans to issue any additional Class A or Class B Units.
VoteCo is owned by Timothy T. Janszen and Ryan L. Langdon, each of whom owns a 42.85% interest, and Roger A. May, who owns a 14.3% interest. Messrs. Janszen, Langdon and May collectively are referred to as the “VoteCo Equityholders." On January 7, 2016, NGOF sold its ownership interest in InvestCo to Newport Global Opportunities Fund I-A LP, a Delaware limited partnership managed by Newport ("NGOF I-A"). Subsequently, InvestCo is owned by NGOF I-A and NGCF, which collectively hold all of InvestCo’s issued and outstanding voting securities.
Management
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 NGA’s board of managers, and Mr. Janszen is NGA’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 to be licensed or found suitable under the gaming laws and regulations of the State of Nevada.
Neither NGA’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 NGA’s voting equity:
Materially change the business purpose of the Company or the nature of the business,
Act to render it impossible to carry on the ordinary business of the Company,
Remove or appoint any Company manager,
Allow any voluntary withdrawal of any member from the Company,
Make 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
Make 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 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.

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 his good faith estimation, there is insufficient time to obtain the approval of the Company’s board of managers and any delay would materially increase the risk to preservation of the Company’s assets.
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.
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.
4. Marketable Securities, Eldorado Resorts, Inc.
Effective September 19, 2014, as a result of the ERI Merger, the Company’s previous 17.0359% equity interest in Eldorado was converted into 4,030,440 shares (including post-closing adjustments) of ERI common stock, $0.00001 par value, representing approximately 8.6% of such shares then outstanding. Upon conversion, the fair market value of the ERI shares, based on then current trading activity, was approximately $7.1 million less than the carrying value of the Eldorado Interest prior to the ERI Merger, resulting in a write down of the Company's investment and a charge to other comprehensive loss. Subsequently through February 29, 2016, additional adjustments to carrying value of the ERI shares based on trading activity resulted in an unrealized holding gain of approximately 21.3 million. During the period from January 26, 2016 through March 29, 2016, the Company liquidated its ownership interest in ERI through sales in multiple open market transactions. The transactions resulted in a realized gain of $17.7 million, including $2.2 million during the year ended February 29, 2016.
The original cost of the Company’s investment in Eldorado in December14, 2007 (prior to subsequent impairment charges and the recording of equity in the earnings (losses) of the investee through September 18, 2014) was approximately $38 million, the then quoted market price of debt and equity securities exchanged for the interest in Eldorado.
The Company did not record any impairment related to its equity method investment in Eldorado during the years ended February 29, 2016 and February 28, 2015.
The ERI Merger was accounted for as a reverse acquisition in which Eldorado was the acquirer for accounting purposes. The following tables present condensed financial information of ERI and Eldorado as of December 31, 2015 and 2014, respectively, and for the years then ended (in thousands). Management notes that comparability between the two periods is affected by the exclusion of MTR prior to September 19, 2014.
 
2015
 
2014
Balance Sheets
 
 
 
Current assets
$
116,179

 
$
117,493

Restricted cash

 
2,500

Investment in and advances to unconsolidated affiliate
1,286

 
14,009

Property and equipment, net
625,416

 
456,139

Other assets, net
582,127

 
581,418

Total assets
$
1,325,008

 
$
1,171,559

 
 
 
 
Current liabilities
$
105,710

 
$
91,844

Other liabilities
948,631

 
928,093

Members' equity
270,667

 
151,622

Total liabilities and members' equity
$
1,325,008

 
$
1,171,559

 
2015
 
2014
Statements of Operations
 
 
 
Net operating revenues
$
719,784

 
$
361,823

Operating income
$
72,516

 
$
17,555

Net income (loss)
$
114,183

 
$
(14,425
)
Other comprehensive loss
$
(75
)
 
$
(1,685
)
Comprehensive income (loss)
$
114,108

 
$
(16,110
)

F-10



The following tables present condensed financial information of the Silver Legacy Joint Venture as of December 31, 2014 and for the period from January 1, 2015 through November 23, 2015 when it became wholly owned by ERI (in thousands).
 
December 31, 2014
Balance Sheets
 
Current assets
$
30,563

Property and equipment, net
190,592

Other assets, net
6,412

Total assets
$
227,567

 
 
Current liabilities
$
18,707

Other liabilities
89,322

Partners' equity
119,538

Total liabilities and partners' equity
$
227,567

 
Period from January 1, 2015
through
November 23, 2015
 
For the year ended December 31, 2014
Statements of Operations
 
 
 
Net operating revenues
$
117,029

 
$
127,095

Operating income
$
26,241

 
$
15,009

Net income
$
7,195

 
$
5,402

Other comprehensive loss - minimum pension liability adjustment
$

 
$
(3,544
)
Comprehensive income
$
7,195

 
$
1,858

5. Investment in Mesquite
Changes in the Company’s investment in Mesquite during 2016 and 2015 are as follows:
 
2016
 
2015
Balance, beginning of year
$
4,282,422

 
$
4,244,222

Distributions received
(900,000
)
 
(269,000
)