** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**Form 10-K**

 

**ANNUAL REPORT PURSUANT TOSECTION 13 OR 15(D) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

F**or thefiscal year ended September 30, 2004**

 

**Commissionfile****number 333-117633**

 

**SENECA GAMING CORPORATION**

(Exact name of registrant as specified in itscharter)

 
| **Not  Applicable**                                                                                                          | ** ** | **54-2122988**           |
|------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|
| (I.R.S. Employer  Identification No.)                                                                                        |       | (State of Incorporation) |
| ** **                                                                                                                   | ** ** | ** **               |
| **310 Fourth  Street  Niagara Falls, New York (Seneca Nation Territory) 14303  (716) 299-1100**                         |
| (Address, including zip  code, and telephone number,  including area code, of registrant’s principal executive offices) |
|                                                                                                                         |       |                     |
| Securities Registered  Pursuant to Section 12(b) of the Act:                                                       |
| **None**                                                                                                                     |
|                                                                                                                         |       |                     |
| Securities Registered  Pursuant to Section 12(g) of the Act:                                                       |
| **None**                                                                                                                     |

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes  o No  ý

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in any definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the act). Yes  o  No  ý

 

**DOCUMENTS INCORPORATED BY REFERENCE:  None**

 

 

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**SENECAGAMING CORPORATION**

**Form 10-K**

**Tableof Contents**

 
|          |                                                                                                                | **PAGE** |
|---------------|---------------------------------------------------------------------------------------------------------------------|----------|
| PART I   |                                                                                                                | 1        |
|          |                                                                                                                |     |
| Item  1.      | Business                                                                                                            | 1        |
| Item  2.      | Properties                                                                                                          | 14       |
| Item 3.       | Legal Proceedings                                                                                                   | 14       |
| Item  4.      | Submission  of Matters to a Vote of Security Holders                                                                | 16       |
|          |                                                                                                                |     |
| PART II  |                                                                                                                | 17       |
|          |                                                                                                                |     |
| Item 5.       | Market for Registrant’s  Common Equity, Related Stockholder Matters and Issuer Purchases of Equity  Securities | 17       |
| Item 6.       | Selected Financial Data                                                                                             | 17       |
| Item 7.       | Management’s Discussion and  Analysis of Financial Condition and Results of Operation                          | 18       |
| Item 7A.      | Quantitative  and Qualitative Disclosures About Market Risk                                                         | 38       |
| Item 8.       | Financial  Statements and Supplementary Data                                                                        | 38       |
| Item 9.       | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure                               | 38       |
| Item  9A.     | Controls  and Procedures                                                                                            | 38       |
| Item 9B.      | Other  Information                                                                                                  | 39       |
|          |                                                                                                                |     |
| PART III |                                                                                                                | 40       |
|          |                                                                                                                |     |
| Item 10.      | Directors  and Executive Officers of the Registrant                                                                 | 40       |
| Item 11.      | Executive  Compensation                                                                                             | 44       |
| Item 12.      | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    | 47       |
| Item 13.      | Certain  Relationships and Related Transactions                                                                     | 48       |
| Item 14.      | Principal  Accounting Fees and Services                                                                             | 48       |
|          |                                                                                                                |     |
| PART IV  |                                                                                                                | 50       |
|          |                                                                                                                |     |
| Item 15.      | Exhibits,  Financial Statement Schedules and Reports on Form 8-K                                               | 50       |
|          |                                                                                                                |     |
| SIGNATURES    |                                                                                                                | 53       |

 

Except as otherwiseindicated by the context, in this Annual Report on Form 10-K, or thisAnnual Report, we refer to (1) Seneca Gaming Corporation as “SGC” or “theCompany,” (2) Seneca Niagara Falls Gaming Corporation, a wholly ownedsubsidiary of SGC, as “SNFGC,” (3) Seneca Territory Gaming Corporation, awholly owned subsidiary of SGC, as “STGC,” (4) Seneca Erie GamingCorporation, a wholly owned subsidiary of SGC, as “SEGC,” (5) the SenecaNation of Indians of New York, as “Nation” or “Seneca Nation of Indians,”(6) earnings before interest, taxes, depreciation and amortization, as “EBITDA,”and (7) SGC, SNFGC, STGC, and SEGC, collectively, as “we,” “our,” “ours”and “us.”

 

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**FORWARD-LOOKING STATEMENTS**

** **

Statements contained inthis Annual Report and in future filings with the Securities and ExchangeCommission, or the SEC, in our press releases or in our other publiccommunications that are not purely historical facts are forward-lookingstatements. Statements looking forward in time are included in this AnnualReport pursuant to the safe harbor provision of the Private SecuritiesLitigation Reform Act of 1995. Such forward-looking statements include, withoutlimitation, any statement that may predict, forecast, indicate, or imply futureresults, performance, or achievements, and may contain the words, believe,anticipate, expect, estimate, intend, plan, project, will be, will continue,will likely result, and any variations of such words with similar meanings.These statements are not guarantees of future performance and are subject tocertain risks and uncertainties that are difficult to predict, therefore, actualresults may differ materially from those expressed or forecasted in any suchforward-looking statements.

 

Factors that would causeor contribute to such differences include, but are not limited to, the riskfactors contained or referenced under the heading Managements Discussion andAnalysis of Financial Condition and Results of Operations – Factors ThatMay Affect Future Results set forth in this Annual Report. We operate in avery competitive and rapidly changing environment. New risk factors can ariseand it is not possible for our management to predict all such risk factors, norcan it assess the impact of all such risk factors on our business or the extentto which any factor, or combination of factors, may cause actual results todiffer materially from those contained in any forward-looking statements. Giventhese risks and uncertainties, readers are cautioned not to place unduereliance on forward-looking statements that only speak as of the date of thisfiling.

 

We undertake noobligation to publicly revise these forward-looking statements to reflectevents, circumstances or the occurrence of unanticipated events that occursubsequent to the date of this Annual Report on Form 10-K.

 

**AVAILABLEINFORMATION**

 

**Wemake available, free of charge, through our internet website,www.senecagamingcorporation.com, our Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and ifapplicable, amendments to those reports filed or furnished pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934 as soon asreasonably practicable after they are electronically filed with, or furnishedto, the SEC. We are not including the information contained on our website as apart of, or incorporating it by reference into, this Annual Report.**

 

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**PART I**

** **

**Item 1.****   Business**

 

***Overview***

 

Seneca Gaming Corporationis wholly owned by the Seneca Nation of Indians of New York and chartered tomanage all of the Nation’s Class III gaming operations. SGC was chartered bythe Nation in August 2002. SGC’s wholly owned subsidiaries, Seneca NiagaraFalls Gaming Corporation, Seneca Erie Gaming Corporation and Seneca TerritoryGaming Corporation were chartered in August 2002, August 2003 andSeptember 2003, respectively. In August 2002 the Nation entered intoa Compact with New York State that provides the Nation with the right toestablish and operate three Class III gaming facilities in Western NewYork. See “—Class III Gaming Compact.” We currently operate Seneca Niagara Casino and Seneca Allegany Casino,which opened on December 31, 2002 and May 1, 2004, respectively. TheSeneca Niagara Casino and Seneca Allegany Casino are owned and operated bySNFGC and STGC, respectively. Our two casinos are located on land held inrestricted fee by the United States, which, together with the rights under the Compact,allows us to conduct Class III gaming operations in the State of New York. Ourtwo casinos are the only gaming facilities in New York State to offer bothClass III slot machines and table games.

 

Under the Compact, theNation also has an exclusive right to establish and operate a thirdClass III gaming facility in Erie County, New York. This exclusive rightmay terminate if the Nation fails to commence construction of a Class IIIgaming facility in Erie County by December 9, 2005 or if the Nation failsto commence Class III Gaming operations within sixty (60) months ofDecember 9, 2002. On April 9, 2004, we entered into a non-bindingletter of intent with Uniland Development Company, or Uniland, to purchaseapproximately 57.1 acres of property for this facility near the Buffalo-NiagaraInternational Airport in Cheektowaga, New York, or the Cheektowaga Site. InMay 2004, various parties, including the Mayor of the City of Buffalo,filed a complaint against Governor Pataki, the State of New York, the Town ofCheektowaga and Uniland to prohibit the sale of the Cheektowaga Site to us. OnJune 16, 2004, Justice Makowski of the Supreme Court of the State of NewYork agreed with the plaintiffs and held that the Compact provision allowingthe Nation to locate a Class III gaming facility anywhere in Erie Countyin the event a site in the City of Buffalo is rejected by the Nation for anyreason is unconstitutional. On April 27, 2005, the Town of Cheektowagafiled a brief to appeal the Supreme Court decision and we support its decisionto appeal. See “Item 3—Legal Proceedings” for further discussion of thislitigation. As a result of the ongoing litigation, the Nation and SGC may consideralternative sites. In the event that we are able to open a casino in ErieCounty, this casino will be owned and operated by SEGC.

 

***Seneca Niagara Casino***

 

Seneca Niagara Casino islocated on approximately 24 acres on the Nation’s Territory in the City ofNiagara Falls, New York, approximately 20 miles north of Buffalo, and offersgaming, entertainment and related amenities occupying approximately 128,000square feet in total, with over 100,000 square feet of gaming space. SenecaNiagara Casino is open 24 hours per day, seven days per week and is ourflagship gaming facility. We opened Seneca Niagara Casino on December 31,2002. As of September 30, 2004, Seneca Niagara Casino featured:

 

•      over100,000 square feet of gaming space with 3,241 slot machines, 98 table games,including blackjack, craps, and roulette, and keno;

 

•      a2,300-space parking garage, with 11 bus bays;

 

•      additionalsurface parking for over 600 vehicles;

 

•      theBear’s Den, a 468-seat theater;

 

•      theThunder Falls Buffet, a 400-seat international buffet;

 

•      Morrie’sPlace, approximately  200-seat casualrestaurant;

 

•      theWestern Door, a steakhouse with approximately 160 dining seats and a 36-seatbar and lounge area; and

 

•      two snack bars.

 

*Accommodations.***  Seneca Niagara Casinocurrently relies on independently owned local hotels to provide accommodationsto its patrons. Since Seneca Niagara Casino does not currently own anyovernight accommodations, we have not been able to offer our patronshigh-quality lodging amenities and have not aggressively marketed to any patronsegment requiring overnight stays. We will continue to focus our marketingefforts on the profitable drive-in and bus markets, and the planned luxuryhotel. Seneca Niagara Casino will use the luxury hotel to market to patronswith higher gaming budgets.

 

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*Food and Beverage Facilities.***  Seneca Niagara Casinofeatures three restaurants and two snack bars. The Western Door is a steakhouseand seats approximately 160 patrons in the dining room with an additional 36seats in the bar and lounge. Morrie’s Place provides casual dining and seatsfor approximately 200 patrons and the Thunder Falls Buffet offers an extensiveinternational selection at a buffet style restaurant and seats approximately400 patrons. Due to the quality of our restaurants and the success of ourbusiness, the Western Door, Morrie’s Place and the Thunder Falls Buffet arepopular local dining venues and are often at full capacity.

 

The easy accessibility ofthe food and beverage facilities from the casino floor, particularly at the twosnack bars, is designed to encourage gaming patrons to spend longer periods oftime at the casino, thereby extending the time spent gaming and enhancinggaming revenue. Seneca Niagara Casino also has two bars—Club 101 located at thecenter of the gaming floor and the Keno bar adjacent to the Keno lounge. Forthe 12-months ended September 30, 2004, food and beverage sales accountedfor approximately 8%****of our gross revenue.

 

*Entertainment Facility.***  Seneca Niagara Casino’s468-seat, 5,432 square foot theater, the Bear’s Den, presents live musical,comedy and theatrical entertainment. Since it opened, the Bear’s Den has hosteda wide range of headline acts, including the Charlie Daniels Band, Sinbad,David Crosby, Lou Rawls, Alice Cooper, Eddie Money, Williams and Ree, TanyaTucker and Cyndi Lauper. In addition to the Bear’s Den, Seneca Niagara Casinoprovides nightly entertainment in the center of the gaming floor atop Club 101.

 

*Retail.***  Seneca Niagara Casino features three retailshops offering a wide variety of merchandise. The Logo Shop offers officialSeneca Niagara Casino merchandise, as well as a wide selection of affordablegifts. The Eight Clans Gift Shop features authentic Native American items,including Native American jewelry, Native American style blankets and bags,soapstone sculptures and sweet grass baskets. The Players Club Store offers avariety of products and merchandise at various price ranges, includingstate-of-the-art and high-end merchandise such as electronics, golf clubs,cameras and diamond jewelry. It is used to support our Seneca Link Player’sCard rewards program.

 

*Parking and Transportation Facilities.***  Since most of Seneca NiagaraCasino’s patrons arrive at Seneca Niagara Casino by automobile, we provideample space for parking and we have approximately 2,900 parking spaces,including a new 2,300-space parking garage, which was completed inMarch 2004. Seneca Niagara Casino provides all valet and guest parkingfree of charge. We believe our parking facilities are adequate to service theparking needs of our patrons. Seneca Niagara Casino also has a bus program thathas accounted for approximately 1,000 patrons per day to Seneca Niagara Casinosince the opening of 11 new bus bays in March 2004.

 

**SenecaNiagara Casino Expansion**

** **

We believe that there issubstantial demand within 100 miles of the Seneca Niagara Casino that remainslargely untapped due to the limited amenities and constraints of our existingfacility as well as the lack of hotel options in the immediate area forovernight guests. In order to take advantage of this opportunity, we are:

 

•      constructinga new 604-room luxury hotel connected to the existing Seneca Niagara Casino;and

 

•      acquiringthe remaining approximately 26 acres of the approximately 50 acres in the Cityof Niagara Falls, New York, designated by New York State under the Compact forownership by the Nation.

 

By adding 604 hotel roomsthat will range in price and style and by adding amenities includingrestaurants, a spa and a multi-purpose room that can be used for conventions,meeting space, banquets and entertainment events, we expect to attract:

 

•      abroader mix of players, including more high-value gaming patrons;

 

•      patronsfrom further distances that will stay overnight; and

 

•      additional patrons from within our immediate market area.

 

TheNew Seneca Niagara Casino Luxury Hotel. We aim toaccommodate growing demand and to leverage our position as the premier gamingfacility in Western New York by significantly expanding our portfolio ofgaming, leisure and entertainment offerings, and amenities. The majorcomponents of the expansion are expected to include the following:

 

•      a hotelwith 604 rooms, including 118 suites of various sizes;

 

•      35,000square feet of additional gaming space featuring approximately 950 slotmachines;

 

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•      afull-service luxury spa and salon;

 

•      a25,200 square-foot multi-purpose room and an additional 8,000 square feet ofconference and banquet space;

 

•      twospecialty restaurants and a 24-hour casual dining restaurant; and

 

•      approximately 2,300 square feet of retail space.

 

*Rooms.***  Our new luxury hotel will feature 486 standardrooms and 118 suites. A standard room will be approximately 450 square feet insize. The suites will range in size from about 700 square feet to 1,850 squarefeet.

 

*Meeting and Conference Space; Multi-purpose Room.***  After completion of theluxury hotel, we plan to leverage Seneca Niagara Casino’s enhancedaccommodations and entertainment products to attract convention and groupmeeting business on a larger scale. To that end, the new luxury hotel willoffer a 25,200 square foot multi-purpose room and an additional 8,000 squarefeet of conference and banquet space. We expect that the multi-purpose roomwill seat up to 2,250 at concerts and could hold up to 150 trade show booths.We further expect that increased convention and group meeting business willconstitute a significant source of our future visitor growth.

 

*Full-Service Luxury Spa.***  An 18,000 square footfull-service luxury spa will be a part of the new luxury hotel. The luxury spawill offer a range of services, including massage treatments, facials and wraps,as well as saunas, a swimming pool, an exercise room and a salon.

 

*Dining and Other Amenities.***  The luxury hotel will alsofeature a 244-seat, 24-hour coffee shop, two specialty restaurants, includingan Asian restaurant, 24-hour room service and a variety of retail shops.

 

Other.We recently completed remodeling our approximately 14,400 square foot mezzaninelevel of the casino to provide an additional 6,600 square feet of gaming spacewith 242 additional slot machines and a banquet area for up to 350 people. Wealso intend to acquire an additional estimated 26 acres of real estatedesignated as land to be developed by the Nation under the Compact with NewYork State which will enable us to further expand our gaming and entertainmentfacility in the City of Niagara Falls.

 

Designand Construction. Klewin Building Company, Inc.,or Klewin, has managed the construction of all of our projects to date,including the renovation of the former Niagara Falls Convention and CivicCenter for Seneca Niagara Casino. Klewin has also managed the development ofour new high-end steakhouse. We have signed a guaranteed maximum price contractcovering all major elements of the design and construction of the luxury hotelwith Klewin as construction manager responsible for contract procurement, dailyoversight and adherence to the expansion project schedule and budget. Weexpect the cost of constructing and equipping our 604-room luxury hotel to beapproximately $200.0 million, which includes $153.0 million inconstruction costs under a guaranteed maximum fixed price design andconstruction contract, and approximately $47.0 million for furniture,fixtures and equipment. We began construction of this hotel on May 18,2004, expect to open all public areas and the first 10 floors of rooms byDecember 2005, and complete the project by March 2006.

 

**Seneca Allegany Casino**

** **

Seneca Allegany Casino,our second Class III gaming facility, opened on May 1, 2004. SenecaAllegany Casino is located on the Nation’s Territory in the City of Salamanca,New York. Seneca Allegany Casino offers Class III gaming, entertainmentand related amenities, occupying approximately 120,450 square feet in total,with 53,000 Square feet of gaming space. During its initial five months ofoperations, the primary market for this casino has been the area within 75miles of Seneca Allegany Casino, which includes Erie, Pennsylvania, and thesecondary market has been the area within 75 to 175 miles of Seneca AlleganyCasino, which includes Cleveland and Akron, Ohio and Pittsburgh, Pennsylvania.Seneca Allegany Casino caters primarily to middle-market, drive-in patrons fromthe surrounding area and is open 24 hours per day, seven days per week

 

Seneca Allegany Casinocost approximately $75.8 million to develop and open, which was fundedentirely from our free cash flow in the form of inter-company loans from SGC.

 

As of September 30,2004, Seneca Allegany Casino featured:

 

•      over53,000 square feet of gaming space with 1,701 slot machines and 24 table games,including blackjack, craps and roulette;

 

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•      surfaceparking for approximately 1,250 vehicles;

 

•      theThunder Mountain Buffet, an international buffet; and

 

•      a snack bar, retail store and bar and lounge.

 

**SenecaAllegany Casino Expansion**

** **

In July 2004, weapproved plans to construct a 1,850-space parking garage and a 225-room hotel,which we expect to complete in August  2005 andNovember 2006, respectively, for approximately $185.0 million, includingfurniture, fixtures and equipment. We expect to fund both of these expansionprojects primarily from cash flow of Seneca Allegany Casino and the balancefrom borrowings from SGC.  The opening ofthe garage and hotel has been delayed due to weather and construction issues.  The construction issues have been resolvedwith no additional out of pocket cost to us.

 

In September 2004, we converted and divided SenecaAllegany Casino’s existing 450-seat bingo area into a non-smoking poker roomwith 16 tables and a non-smoking casino with 185 slot machines. At the sametime, we relocated our existing 450-seat bingo operations at Seneca AlleganyCasino to the site of Seneca Gaming &Entertainment’s former Class II gaming operations, or the Seneca AlleganyClass II Facility, in Salamanca, New York, that included bingo, four pokertables and 200 Class II video gaming machines. The Seneca Allegany CasinoClass II Facility is located less than a mile from Seneca Allegany Casino.Seneca Gaming & Entertainment ceased operating the Seneca AlleganyClass II Facility prior to the opening of Seneca Allegany Casino. Wecurrently lease the Seneca Allegany Class II Facility from the Nation.

 

**RecentDevelopments Affecting Our Class II Operations**

** **

On November 2, 2004,the Nation held an election for its three Executive Branch officers, thePresident (Chief Executive Officer), Treasurer (Chief Financial Officer) andthe Clerk, and 8 of the 16 members of its legislative branch, or the Council.As part of the initial actions taken by the new government (the “New SenecaGovernment”) at its first Council meeting on November 13, 2004, itappointed a Class II Management Committee to develop policies andprocedures to govern the Nation’s Class II facilities located on itsAllegany Territory, which include our operation of Seneca Gaming &Entertainment’s former Class II gaming operations, or the Seneca AlleganyClass II Facility, in Salamanca, New York. The November 13, 2004 resolutions further provide that all revenuesgenerated by the Nation’s Class II facilities shall be transferreddirectly to the Nation instead of to us. Through subsequent discussions withexecutive officers of the Nation, we were informed that, notwithstanding theforegoing resolutions, the Council wanted the Seneca Allegany Class IIFacility transferred to the Nation as of January 1, 2005. We weresubsequently informed by Tribal executives that these resolutions were intendedto include the transfer of all Class II operations back to the Nation,which include our poker operations, a Class II game, at the Seneca NiagaraCasino and Seneca Allegany Casino.

 

As ofJanuary 1, 2005, we transferred Seneca Allegany Class II operationsto the Nation.  We opened the SenecaAllegany Class II Facility on May 1, 2004.  During the five months ended September 30,2004, we invested approximately $2.1 million in renovating and upgrading theSeneca Allegany Class II Facility and during the twelve months endedSeptember 30, 2004, we received approximately $2.5 million of net revenue fromthis facility.

 

The transfer of theClass II operations is consistent with our understanding of Council’sintent that we manage and operate the Nation’s Class III operations andthat Council directly manages and operates the Nation’s Class IIoperations as it has historically done.

 

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**Business and Marketing Strategy**

** **

Our strategy is tofurther expand and develop Seneca Niagara Casino and Seneca Allegany Casino andto establish an additional Class III gaming facility in Erie County, NewYork. We believe this strategy will enable us to maintain our position as thepremier gaming operator in the region including New York, Pennsylvania andOhio. We intend for all of our gaming facilities to provide a high-quality anddiverse gaming experience that we believe will add to our patron base andstrengthen patron loyalty in each segment of the gaming market. In order tomaximize our income from operations, we will coordinate our advertising,promotions, entertainment and special events to minimize competition among ourgaming facilities, and also integrate our administrative and informationtechnology functions. We will continue to brand the Seneca name throughadvertising and promotion of our Seneca Link Player’s Card, which is acceptedat all of our facilities.

 

The key components of ourintegrated marketing plan include the following:

 

*Promotethe Seneca Brand Name.*  The successful opening andoperation of Seneca Niagara Casino and Seneca Allegany Casino has establishedSeneca as a leading gaming brand in the region, including New York,Pennsylvania and Ohio. We plan to capitalize on this brand recognition byprominently incorporating the Seneca name at all of our gaming andentertainment facilities.

 

*Incorporatethe Seneca Link Player’s Card.*  UntilApril 30, 2004, we offered the Seneca Players Club rewards program topatrons of Seneca Niagara Casino to foster patron loyalty. With the opening ofSeneca Allegany Casino on May 1, 2004, we replaced the Seneca Players Clubwith the Seneca Link Player’s Card, which is accepted at all of our gamingfacilities. Patrons may use the Seneca Link Player’s Card to earn points ateach of our gaming facilities and redeem these points at any Seneca casino. Ourplayer’s card provides us with valuable information about our patrons andenables us to better understand their preferences in order to more effectivelyserve them at each of our gaming facilities. As of September 30, 2004, wehad over 560,000 members in the Seneca Link Player’s Card database.

 

*ExpandTarget Markets and Patron Base.*  We believe thecompletion of our planned luxury hotel at our Seneca Niagara Casino and theparking garage and hotel at our Seneca Allegany Casino will enable us to expandour marketing efforts to higher-value gaming patrons. We plan to substantiallyincrease our marketing efforts in the region, including New York, Pennsylvaniaand Ohio, as well as Toronto. We intend to market to these areas by offeringvarious promotions, including special events for preferred gaming patrons,motor coach tours and organized package group visits. We do not currentlymarket aggressively to these areas because we do not offer certain types ofamenities desirable to prospective patrons in these markets, such as overnightaccommodations.

 

*OfferGaming Experience to Broadest Customer Base.*  Weintend to operate each of our gaming facilities in a manner that will becomplementary. Seneca Niagara Casino will be our flagship resort propertycatering to mid to high value gaming patrons looking for a full service gamingresort destination. Seneca Allegany Casino targets and we believe Seneca ErieCasino will target mid-level gaming patrons with frequent visits. Seneca ErieCasino will specifically target the local Buffalo market.

 

*Utilizean Integrated Marketing Strategy*.   Our marketingstrategy relies on an integrated approach of targeted direct mail, television,radio, print and outdoor advertising, promotions, slot and table tournaments,special events, bussing and entertainment, to attract and retain our patronsand to brand the Seneca name as the premier gaming and entertainment experiencein Western New York. We coordinate our marketing events to maximize the qualityand length of stay of patron visits and, in the future, to minimize competitionamong our gaming facilities. Our patron tracking system through the Seneca LinkPlayer’s Card is sophisticated and scaleable and provides us with the abilityto analyze our guests’ gaming preferences. Starting in May 2004, we beganusing a “promotional credit” program that provides slot credits to our patronsbased on the amount of their gaming at our facilities. These credits areavailable on the patron’s Seneca Link Player’s Card when they return forvisits. These credits must be played and cannot be redeemed for cash, which webelieve will encourage repeat business.

 

*Reinvestin and Expand our Gaming Facilities.*  We believeour commitment to develop and reinvest in each of our gaming facilities iscritical to our continued success and future growth. We intend to reinvest andexpand our gaming facilities to ensure their attractiveness to our patrons. Toachieve maximum profitability we intend to continue to upgrade our slotmachines with the most popular products in order to create a more excitinggaming experience for our patrons. We will also reinvest in technology,including slot machine “ticket-in/ticket-out” technology, automated ticketredemption machines, player tracking system enhancements and the development ofa Seneca brand inter-property progressive link. Reinvestment in our gamingfacilities will help to ensure that our patrons have an enjoyable entertainmentexperience.

 

*Offerthe Highest Quality Service.*  We believe that wecan distinguish our gaming facilities with consistent superior patron service,which is a fundamental component of our business and marketing strategy. Weattribute our success at Seneca

 

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Niagara Casino to our employees’ ability to provideefficient and friendly service. We believe that patroncare is integral to our continued success and we intend to provide the higheststandard of service at each of our gaming facilities.

 

**Market and Competition**

** **

*Market.***  Seneca Niagara Casino is conveniently locatedon the Nation’s Territory in the City of Niagara Falls, New York, approximately20 miles north of Buffalo and approximately 90 miles west of Rochester. Ourprimary market includes the cities of Buffalo and Niagara Falls and covers thearea in the United States within an estimated 50 miles of Seneca NiagaraCasino. This area has an adult population of approximately 895,000 and a meanannual household income of more than $55,000. Our secondary market includes theCity of Rochester and covers the area in the United States within an estimated51 to 100 miles of Seneca Niagara Casino. This area has an adult population ofapproximately 1.6 million and a mean annual household income of more than$57,000. Our outer markets include Erie, Pennsylvania, Ohio, other areas of NewYork and Toronto. In addition, Niagara Falls is a major tourist destination,attracting an estimated 12.0 million visitors to the area annually. SenecaAllegany Casino is located immediately off Interstate 86. During its initialfive months of operations, the primary market for this casino has been the areawithin 75 miles of Seneca Allegany Casino, which includes Erie, Pennsylvania,and the secondary market has been the area within 75 to 175 miles of SenecaAllegany Casino, which includes Cleveland and Akron, Ohio and Pittsburgh,Pennsylvania. Seneca Allegany Casino caters primarily to middle-market,drive-in patrons from the surrounding area.

 

As of September 30,2004, we had over 560,000 members in the Seneca Link Player’s Card database. Asof September 30, 2004, approximately 44.4% of the Seneca Link Player’sCard members lived in the Buffalo-Niagara area and the City of Rochester. Inaddition, approximately 13.5%, 12.7%, and 12.3% lived in Ohio, Pennsylvania andother areas of New York, respectively.

 

*Competition*.   The UnitedStates and Canadian gaming industries are highly regulated and the overallnumber of casino operations in the Northeast is limited. In recent years, therehas been a trend to relax the legal restrictions on entry and to permit the developmentof additional gaming operations. Currently, there are two casino resorts,Casino Niagara and Niagara Fallsview Casino Resort, and two video gamingfacilities, Finger Lakes Gaming and Racetrack and Buffalo Raceway, within the100-mile radius that constitutes Seneca Niagara Casino’s immediate market.Batavia Downs is constructing an additional video gaming facility within SenecaNiagara Casino’s primary market and holds a license to operate video gamingmachines, or VGMs. Buffalo Raceway, a racetrack facility within SenecaAllegany Casino’s primary market that offers 1,000 VGMs, is the onlydirect competition in this casino’s primary market. Existing gaming facilitieswithin each of our casinos’ primary market area, as well as potentially newmarket entrants, have and will have a direct effect on our operations. Inaddition, casinos and gaming-related operations in the broader regional marketmay also affect us and may reduce our ability to draw patrons.

 

*Canadian Competition.***  Seneca Niagara Casinocompetes with Casino Niagara and Niagara Fallsview Casino Resort, both of whichare located in Niagara Falls, Ontario and are within two miles of SenecaNiagara Casino. Casino Niagara and Niagara Fallsview Casino Resort are ownedand operated by the Province of Ontario and managed by the Hyatt-led FallsManagement Company. Casino Niagara offers 100,000 square feet of gaming spaceincluding more than 2,800 slot machines, 135 table games, four restaurants, andeight bars. Niagara Fallsview Casino Resort opened in June 2004. NiagaraFallsview Casino Resort features 180,000 square feet of gaming space including3,000 slots, 150 table games, a 368-room Hyatt hotel, a spa and variousrestaurant and entertainment venues. To a lesser extent, we compete with CasinoRama, which is north of Toronto and approximately 150 miles north of SenecaNiagara Casino and is located on the Chippewas of Mnjikaning (Rama) FirstNation’s Territory. Nordic Gaming Corporation also operates a racetrack andvideo gaming facility located in Fort Erie, Ontario. This facility features1,200 VGMs and is located approximately 22 miles from Seneca NiagaraCasino.

 

*New York State Competition.***  Despite the exclusivity inWestern New York provided by the Compact, our casinos face competition in NewYork State from both Indian and non-Indian gaming operations. The Compactallows New York State to permit the Tuscarora Indian Nation and the TonawandaBand of Seneca Indians to obtain the right to include gaming devices in acompact without abrogating the exclusivity provisions of the Compact, so longas either tribe locates its proposed gaming facility either on its existingreservations or more than 25 miles from a Nation Gaming Facility. In addition,New York State could allow other Indian gaming facilities to be located withinour area of exclusivity, in which case it would forfeit its right to receiveexclusivity fees for the types of Class III games in such competitor’sfacility on which the Nation pays an exclusivity fee under the Compact. Of theseven federally recognized Indian nations in New York other than the Nation,only the St. Regis Mohawk Tribe and the Oneida Indian Nation of New York havesigned compacts with New York State to open casinos.

 

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The St. Regis Mohawk Tribe currently operates a smallcasino facility near Hogansburg, New York, approximately 350 miles and 390miles from Seneca Niagara Casino and Seneca Allegany Casino, respectively, andthe Oneida Indian Nation operates a gaming facility resort near Syracuse, NewYork, approximately 190 miles and 235 miles from Seneca Niagara Casino andSeneca Allegany Casino, respectively. In October 2001, New York Stateauthorized six new casinos to be run by Native Americans in the state, each ofwhich was to be permitted to feature Class III slot machines. The State’slegislation authorizing the six new Indian casinos was recently upheld by theNew York Court of Appeals in *Dalton v. Pataki, et al.,*and *Karr v. Pataki, et al.*  Three of these authorized casinos are or willbe operated by us (Seneca Niagara Casino, Seneca Allegany Casino and SenecaErie Casino). It was expected that the other three casinos would  be located in Sullivan and UlsterCounties in the Catskill region, approximately 330 miles and 320 miles fromSeneca Niagara Casino and Seneca Allegany Casino, respectively.

 

The Governor previously reached settlement agreements,subject to numerous contingencies, with the following tribes for Class IIIgaming operations to be located in Sullivan or Ulster Counties in the Catskillsregion: the St. Regis Mohawk Tribe, the Seneca-Cayuga Tribe of Oklahoma, theCayuga Nation of New York, the Oneida Nation of Wisconsin, and the StockbridgeMunsee Community.  In connection withthese settlement agreements, the Governor introduced a bill in the New YorkState General Assembly which would have, among other things, authorized landclaim settlements with the five tribes mentioned above and increased from threeto five the number of authorized Class III gaming facilities in the Counties ofSullivan and Ulster.  In anticipation ofthe settlements, the Stockbridge-Munsee Community filed a trust landapplication for approximately 330 acres in Bridgeville, New York, and theCayuga Indian Nation of New York announced a venture with the owner of theMonticello Raceway, Empire Resorts, to build a $500 million casino adjacent tothe Monticello Raceway.  However, as aresult of the United States Supreme Court’s recent decision in *City of Sherrill, NY v. Oneida Indian Nation of New York*,125 S. Ct. 1478 (March 29, 2005), the Governor recently withdrew pendinglegislation and land claim settlements with the Seneca-Cayuga Tribe ofOklahoma, the Cayuga Nation of New York, the Oneida Nation of Wisconsin, andthe Stockbridge Munsee Community. We are advised that the Governor has found itnecessary to review and reevaluate the proposals with these four Indian tribesin light of the recent Supreme Court decision. The withdrawal does not includethe St. Regis Mohawk Tribe proposal, whose land claim is not affected by theSherrill case.  In light of thesedevelopments, the only casino development that seems imminent in Sullivan orUlster Counties is the one planned by the St. Regis Mohawks.

 

In 2001, eight racetracksin New York State were awarded licenses to operate video gaming machines, orVGMs. In January 2004, Sportsystems opened a 1,300-machine videogaming facility at Saratoga Raceway in Saratoga Springs, New York,approximately 325 miles and 340 miles from Seneca Niagara Casino and SenecaAllegany Casino, respectively. This video gaming facility made Saratoga thefirst racetrack to offer VGMs under the law enacted over two years ago.Shortly thereafter, in February 2004, Finger Lakes Gaming and Race Trackin Farmington, New York, approximately 100 miles and 140 miles from SenecaNiagara Casino and Seneca Allegany Casino, respectively, opened a 1,010-machinevideo gaming facility. Buffalo Raceway in Hamburg, New York, approximately 30miles and 50 miles from Seneca Niagara Casino and Seneca Allegany Casino,respectively, opened a 27,000 square foot gaming facility in March 2004and offers nearly 1,000 VGMs. Monticello Raceway in Monticello, New York,approximately 325 miles and 280 miles from Seneca Niagara Casino and SenecaAllegany Casino, respectively, opened a gaming facility on June 30, 2004,with approximately one-half of its planned 1,743 VGMs installed. BataviaDowns, in Batavia, New York, approximately 50 miles from Seneca Niagara Casino,on May 18, 2005, with 568 VGMs. The New York Racing Association granted a rightto operate VGMs at the Aqueduct racetrack in Queens, New York,approximately 450 miles from Seneca Niagara Casino. After suspending work onthe 4,500 video gaming machine facility from August to December 2003,the project is now scheduled for completion in 2005. In August 2003,Vernon Downs Racetrack in Vernon, New York, approximately 200 miles from SenecaNiagara Casino, commenced construction on a 1,100- to 1,200-machine videogaming facility. Originally scheduled to open in November 2003, the videogaming facility has experienced multiple delays and the timing for openingremains uncertain. Yonkers Raceway near Manhattan is engaged in financing anddevelopment plans for additional video gaming facilities and intends tocommence operations by mid to late 2005. In January 2004, the Governor ofNew York proposed allowing up to eight additional VGM venues in the state.These eightlicenses would be awarded in a competitive bid process and could go to thestate-owned Off-Track Betting Corporation or other operators. On July 7,2004, the mid-level appellate court held that the New York State legislationauthorizing recently, in April 2005, the governor of New York signed a lawproviding race tracks with a larger share of proceeds from VGMs and extendingVGM authorization through 2017. The new law addresses the mid-level appellatedecision by omitting language providing payment to purses or breeding funds. VGMs was unconstitutional because a portion of the VGMrevenue is used for horse-racing breeding funds and to increase track purses.

 

Other proposed gamingoperations in New York State include a Cayuga tribe development in UnionSprings, New York, approximately 140 miles from Seneca Niagara Casino, whichhas been approved for a Class II gaming license; a proposed high stakesbingo hall in Aurelius, New York, approximately 150 miles from Seneca NiagaraCasino, which is being pursued by the Seneca-Cayuga Tribe of Oklahoma; and aproposed casino in Hampton Bays, New York, approximately 530 miles from SenecaNiagara Casino, which is being pursued by the Shinnecock Tribe. The likelihoodand timing of these projects is uncertain at this point in time.

 

There are also severalfederally recognized Indian tribes and unrecognized Indian groups that arepursuing casino projects in New York State and other northeastern states,which, if successful and completed, could compete with us.

 

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*Other Regional Gaming Operations.***  Foxwoods Resort Casino andthe Mohegan Sun Casino are located in southeastern Connecticut (approximately460 miles from Seneca Niagara Casino), operated by the Mashantucket PequotTribe of Connecticut and the Mohegan Indian Tribe of Connecticut, respectively.There are also numerous casinos in Atlantic City, New Jersey (approximately 480miles from the Casino). In addition, there are VGM gaming operations in WestVirginia located approximately 250 to 300 miles from Seneca Niagara Casino. Inaddition, on July 5, 2004, the governor of Pennsylvania signed a billpermitting up to an aggregate of 61,000 slot machines at 14 locations inPennsylvania. The Pennsylvania legislation would permit up to 5,000 slotmachines at proposed or existing racetracks, or 500 slot machines at two proposedresorts, respectively. These facilities could be located in Pittsburgh or Erie,Pennsylvania, which would be in the primary and secondary markets for SenecaAllegany Casino. We also face competition from non-gaming leisure activitiesand destinations.

 

If we are unable tocompete successfully, our business, financial condition and results ofoperations could be materially adversely affected.

 

**Class III Gaming Compact**

** **

The Nation’s Compact withNew York State provides the Nation with the right to establish and operatethree Class III gaming facilities in Western New York. The Compact grantsthe Nation the exclusive right to operate specifically defined gaming devices,including slot machines, within a 10,500 square-mile, geographic area in WesternNew York, beginning on Route 14, approximately 30 miles East of Rochester, andextending westerly throughout New York State. In exchange for this exclusivity,we pay exclusivity fees to New York State based on a percentage of the slotmachine net drop (money dropped into the machines after payout but before ourexpenses). The exclusivity payment is 18% for the first four years, 22% for theyears 5-7, and 25% for the remainder of the term; the exclusivity payment toNew York State was $39.0 million for calendar year 2003. If New York Statebreaches the exclusivity arrangement by, for example, allowing a person orentity to operate Class III slot machines within the zone of exclusivity,then the State forfeits the exclusivity fees as to Class III slotmachines. The Compact allows New York State to permit the Tuscarora IndianNation and the Tonawanda Band of Seneca Indians to obtain the right to includegaming devices in a compact without abrogating the exclusivity provisions ofthe Compact, so long as either tribe located its proposed gaming facilityeither on its existing reservations or more than 25 miles from a Nation GamingFacility. We do not believe that these tribes plan to open gaming facilities.The Compact provides that the Nation may acquire property and establish agaming facility in the City of Niagara Falls within an approximately 50 acrearea designated as land to be developed by the Nation. Seneca Niagara Casino islocated on land within this designated area on lands held in restricted feepursuant to the Seneca Nation Land Claims Settlement Act of 1990, or SNLCSA.The two additional Class III gaming facilities include the recently openedSeneca Allegany Casino on existing Nation Territory, and a third facility at ayet to be determined site in Erie County. The Nation’s exclusivity to establisha Class III gaming facility in Erie County may expire on December 9,2005, if we do not commence construction for the facility by December 9,2005 or fail to commence Class III Gaming operations within 60 months ofDecember 9, 2002. The Compact expires in December 2016 and may berenewed by the Nation for an additional seven-year period.

 

**The Nation’s Other Gaming Operations**

** **

The Nation, through itswholly owned business enterprise, Seneca Gaming & Entertainment,operates two Class II gaming facilities located on the Nation’s Territoryin the City of Salamanca and Irving, New York. For the fiscal year endedSeptember 30, 2004, (a) the Irving Class II facility generated $18.1 millionin net revenue and income from operations of $11.9 million and (b) theSalamanca Class II facility generated $4.1 million in net gaming revenue andincome from operations of $6.7 million. From May 1, 2004 to December 31, 2004, we operated aClass II facility in the City of Salamanca. We transferred the SenecaAllegany Class II Facility and our poker assets and operations to theNation on January 1, 2005. See “—Recent Developments Affecting OurClass II Operations.”

 

**Employees**

** **

As of September 30,2004, SGC employed 3,276 employees. Of those, Seneca Niagara Casino employed2,305 employees, including 1,008 casino staff, 621 food and beverage employees,130 security staff, 441 administrative employees, 83 parking and transportationemployees, and a management team of 22; Seneca Allegany Casino employed 971employees, including 448 casino staff, 219 food and beverage employees, 74security staff, 182 administrative employees, 46 parking and transportationemployees, and a management team of two.

 

We consider relationswith our employees to be good.  None ofour employees are currently members of any labor union or similar organization.

 

**Seneca Gaming Corporation and the Nation**

** **

*SenecaGaming Corporation.*SGC was established by the Nation inAugust 2002 for the purpose of developing, constructing, leasing,operating, managing, maintaining, promoting and financing all of the Nation’sgaming facilities. SGC is a governmental instrumentality of the Nation and wasestablished by the Nation pursuant to Nation law by a duly enacted resolutionof the Council. SGC is wholly owned by the Nation for economic and governmentalpurposes and shares in the

 

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Nation’s sovereign immunity, which can be waived if the board ofdirectors adopts a resolution waiving immunity in a specific situation and suchwaiver is approved by the Nation’s Council. SGC ismanaged by a board of directors with seven members, not less than five of whommust be enrolled members of the Nation. The Nation’s Council alone has thepower to appoint and remove SGC’s directors.

 

There are threesubsidiary entities under the control, operation and management of SGC: SenecaNiagara Falls Gaming Corporation, established in August 2002 to finance,develop, and operate the Nation’s gaming facility in downtown Niagara Falls,Seneca Niagara Casino; Seneca Erie Gaming Corporation, established inAugust 2003 to finance, develop, and operate the Nation’s gaming facilityin Erie County; and Seneca Territory Gaming Corporation, established inSeptember 2003 to finance, develop, and operate the Nation’s gamingfacilities on Allegany or Cattaraugus Territory. The SNFGC operates the Nation’sSeneca Niagara Casino located on Nation lands in downtown Niagara Falls, NewYork. The STGC operates the Nation’s Seneca Allegany Casino, located in theCity of Salamanca, New York on the Nation’s Allegany Territory. The Councilappoints and has the power to remove the members of the subsidiary entities’boards of directors. Each of the subsidiary corporations are required to makeperiodic financial reports and submit an annual report to the SGC board ofdirectors. The SGC board of directors is required to make quarterly and annualreports to the Council regarding the financial condition of the companies,including but not limited to, significant problems and accomplishments, futureplans, and such other information as the Council deems pertinent.  The members of the boards of directors forSGC and its subsidiaries are the same.

 

*Gaming Authority.** *SGC’sgaming operations are subject to the supervision and regulation of the SenecaGaming Authority, or SGA, which was established by Nation ordinance and isresponsible for overseeing regulation of the Nation’s gaming operations. TheNation’s gaming ordinance which provides regulatory authority to SGA for theNation’s Class III gaming was adopted on August 1, 2002, subsequentlyamended on November 16, 2002 and approved by the National Indian GamingCommission, or NIGC, on November 26, 2002. The Nation amended this gamingordinance to extend SGA’s regulatory authority to include jurisdiction overClass II gaming. This amendment was approved by the NIGC. The SGA consistsof five commissioners selected by the Nation and is responsible for, amongother things, monitoring and regulating the standards of operation andstandards of management of all authorized Class III gaming, protecting theassets and integrity of casino operations, overseeing the casino’s security andsurveillance, monitoring the compliance of the Nation’s gaming operations withexternal accounting and audit control procedures, and supervising the licensureof all employees and vendors of the Nation’s gaming operations. The SGAfunctions independently and autonomously from the Council in all matters withinits purview. While the SGA is responsible for regulatory matters relating tothe Nation’s gaming activities, SGC (or one of its subsidiary entities) isresponsible for the day-to-day management and operation of the Nation’s gamingactivities other than the Class II gaming activities at the Irving, NewYork gaming facility, which is operated by Seneca Gaming &Entertainment.

 

*The Nation.***  The Seneca Nation of Indiansis a federally recognized, self-governing Indian nation operating under aConstitution originally adopted in 1848 and most recently amended in 1993. TheNation’s current total enrollment population is approximately 7,300. The SenecaNation is one of the Six Nations of the Iroquois Confederacy that consists ofthe Seneca, Cayuga, Onondaga, Oneida, Mohawk and Tuscarora nations. The membersof the Nation originally lived in the area between the Genesee River and theSeneca Lake in the Finger Lakes region of New York. Today, the Seneca Nationholds title to four distinct Territories in Western New York State, includingland in Niagara Falls and on land set aside by the 1794 Treaty of Canandaigua:the Allegany, Cattaraugus and Oil Spring Territories. These Territoriesencompass parts of four counties: the Allegany, Cattaraugus, Chautauqua, andErie counties. The Oil Springs Territory is 640 acres, or one square mile, ofland located 43 miles southeast of the Cattaraugus Territory and 24 miles eastof the Allegany Territory. The Allegany Territory is composed of 31,097 acresand includes the City of Salamanca which is located within its territorialboundaries. The Cattaraugus Territory is 35 miles north of Allegany andencompasses 22,012 acres of land. In addition, approximately 24 acres of land(of the approximately 50 acre parcel identified in Appendix I of the Compact)have been converted into restricted fee lands pursuant to the Seneca NationLand Claims Settlement Act of 1990, or SNLCSA. By operation of federal law,these lands and other parcels that may be acquired in the future pursuant tothe SNLCSA, whether in Niagara Falls or Erie County, are subject torestrictions against alienation, constitute Indian country subject to thejurisdiction of the Nation, and qualify as gaming eligible Indian landspursuant to IGRA.

 

*Nation Governance.** *TheNation came into formal existence in 1848 when the chief system was replaced bya constitution with elected officials. The Nation’s Constitution provides forthree branches of government: executive, legislative and judicial. The Nationholds an election every two years for its three Executive Branch officers: thePresident, Treasurer and the Clerk. These officers alternate between the twoprincipal Territories, Cattaraugus and Allegany, every two years. The nextelection of the Executive Branch Officers will be held in November 2006.The Legislative Branch, or the Council, has

 

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sixteen members, of which eightmembers are elected from each of the two principal Territories. Each Councilloris elected to a four-year term, which is staggered. The next election of eightCouncil members will be in November 2006.

 

*Nation Governmental Operations.** *TheNation currently has 31 administrative departments located on both the Alleganyand Cattaraugus Territories. The Nation’s programs include tribaladministration functions as well as a wide array of community services,including health, environmental, education, recreation and community planning.In order to provide efficient services to the communities, many departmentshave offices located on both Territories. The tribal administrative executiveoffices are housed in the two central administration buildings located on theAllegany and Cattaraugus Territories: the G.R. Plummer and the William SenecaBuildings. The other Nation organizational departments are located in buildingsadjacent to the main tribal administration building or surrounding area.

 

*Nation Businesses.** *TheNation enterprises, subdivisions of the Nation’s government, are responsiblefor the various economic development initiatives undertaken by the Nation otherthan SGC and its subsidiaries. The Nation enterprises are currently comprisedof the following: Seneca Gaming & Entertainment, Seneca One Stop,Seneca-Iroquois National Museum, and Highbanks Campground. None of theseenterprises is a part of SGC or its subsidiaries or otherwise contributes toits revenue. Individual Seneca entrepreneurs also operate their own businesseson Nation lands. The businesses include, but are not limited to, restaurants,retail shops, hotels, gas stations, and Internet-based businesses.

 

**Regulationof the Nation, Seneca Gaming Corporation and its Subsidiaries**

 

The conduct of allClass II and Class III gaming activities on Nation lands is subjectto regulation by the Nation through its Gaming Ordinance and in accordance withthe Compact between the Nation and New York State. The federal government alsooversees Indian gaming generally pursuant to IGRA and exercises regulatoryoversight through the National Indian Gaming Commission, or NIGC. The Departmentof Justice also possesses authority to enforce IGRA and the Gambling DevicesAct, 15 U.S.C. o1171-78, morecommonly known as the Johnson Act. The following description of the regulatoryenvironment in which gaming takes place and in which SGC and its subsidiariesoperate is intended as a summary and is not a complete recitation of allrelevant laws. Moreover, because the regulatory environment is dynamic andevolving, it is impossible to predict how certain provisions will ultimately beinterpreted or applied or how they may affect SGC and its subsidiaries. Changesin such laws or regulations could, under certain circumstances, have a materialadverse effect on the operations of SGC and its subsidiaries.

 

Seneca Nation Lawand Legal Systems 

 

*Applicability of State and Federal Law.***  The Nation is an Indiantribal government with certain sovereign powers. The Nation’s ability to enactits own laws and regulations to regulate gaming activities derives from theexercise of the Nation’s inherent sovereign powers, recognized by the UnitedStates in the 1794 Treaty of Canandaigua and in subsequent federal courtopinions. It is the position of the United States, and federal courts haveuniformly held, that Indian nations are subject to certain federal laws and certainstate laws where federal law so prescribes. It is therefore possible that afederal agency with whose regulations the Nation may not be currently complyingcould object to such noncompliance. If an agency sought to enforce compliance,such agency action and any resultant federal court ruling could result in thedisruption of construction and related activities of SGC which events wouldhave a material adverse effect on the operations and financial results of thecasino operations.

 

*Waiver of Sovereign Immunity; Court Jurisdiction; Exhaustionof Tribal Remedies.***  Indian nations enjoy sovereign immunity from unconsentedsuit similar to that of the states and the United States. An Indian nation andits wholly owned tribal entities, such as SGC and its subsidiaries, share inthe Indian nation’s sovereign immunity, but may formally waive their sovereignimmunity with respect to suits against them. Courts have held waivers ofsovereign immunity to be effective, if given explicitly with properauthorization.

 

The remedies availableagainst an Indian nation also depend, at least in part, upon the jurisdictionof courts and the rules of comity and doctrines requiring initialexhaustion of remedies in tribal tribunals and, as to some judicial remedies,the particular nation’s consent to jurisdictional provisions contained in thedisputed agreements. The U.S. Supreme Court has ruled that state courts do nothave jurisdiction over actions involving Indians or Indian tribes and arisingwithin Indian country unless Congress specifically grants jurisdiction to thosecourts. Congress has allowed the courts of New York State to hear certainmatters involving Indians and occurring on Indian lands in New York, althougheach situation must be analyzed on a case-by-case basis.

 

The Nation’s judiciarybranch is comprised of separate Peacemaker, Appellate, and Surrogate Courts.The Nation court system has its own clerks and facilities and has heardnumerous civil cases.

 

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The U.S. Supreme Courthas held that, under certain circumstances, where a tribal court exists, theremedies and jurisdictional questions in that forum must first be exhaustedbefore the claim can properly be heard by federal courts that would otherwisehave jurisdiction. Generally, where a dispute as to the existence ofjurisdiction in the tribal forum exists, the tribal court must firstrule as to the limits of its own jurisdiction. In the event that a waiverof tribal court jurisdiction is held to be ineffective, third parties may berequired to enforce their rights and remedies against the Nation or SGC inNation court. In addition, unless the decisions of the Nation court violatesome applicable state or federal law, there may be no effective right to appealsuch decisions in state or federal court.

 

The Federal Court ofAppeals for the Second Circuit (which has appellate jurisdiction over federaldistrict courts located in New York State) has ruled that if a non-member of atribe asserts a claim against a tribe based on state or federal law, and not ontribal law, and no prior tribal court proceedings are pending, a federal courtgenerally may adjudicate the claim without requiring the plaintiff to exhausttribal court remedies. A similar ruling by a New York State appellate courtconcluded that the state trial court properly proceeded with adjudicating adispute rather than requiring the plaintiff to exhaust tribal court remedieswhere the dispute was among tribal members involving issues not concerning internaltribal affairs, the state court had jurisdiction concurrent with tribal courtsover the issues and no case was currently pending before the tribal court.Courts in other states and federal judicial circuits have reached differentconclusions, and it cannot be certain whether a court in New York State willdefer exercising jurisdiction over a case until after the appropriate tribalcourt has had an opportunity to adjudicate the matter, even where there is awaiver of exhaustion of tribal court remedies.

 

*TheIndian Gaming Regulatory Act of 1988*

* *

*IGRA.***  All gaming activities on Indian lands aresubject to IGRA. Congress enacted IGRA in order to establish a system forregulating gaming activities on Indian lands. IGRA’s purpose is to provide astatutory basis for the operation of gaming by Indian tribes as a means ofpromoting tribal economic development, self sufficiency, and strong tribalgovernments. Congress simultaneously sought to shield Indian gaming fromorganized crime and other corrupting influences, to ensure that the Indiantribe is the primary beneficiary of the gaming operation and that gaming isconducted fairly and honestly by both the operator and players.

 

*Classes of Gaming.***  IGRA divides gaming intothree classes, each of which is regulated differently. Class I gamingencompasses social games solely for prizes of minimal value or traditionalforms of Indian gaming engaged in by individuals as a part of, or in connectionwith, tribal ceremonies or celebrations. Such gaming is subject to the exclusivejurisdiction of the tribes and is not subject to regulation under IGRA.Class II gaming includes bingo and similar games, and is subject to tribalregulation and federal oversight by the NIGC. Class III gaming, the mostheavily regulated of the three classes, encompasses all other forms of gaming,and includes slot machines, casino games, banking card games, dog racing, andlotteries. Class III gaming is lawful only if it is (1) authorized bya tribal ordinance, (2) located in a State that permits such gaming forany purpose by any person, organization, or entity, and (3) conducted inconformance with a Tribal-State compact.

 

*National Indian Gaming Commission.***  The NIGC, an independentexecutive agency located in the Department of the Interior, is vested withregulatory authority over gaming activities on Indian lands pursuant to IGRAand its implementing regulations. The NIGC is charged with the administrationand enforcement of IGRA. The NIGC regulates gaming by Indian tribes, in orderto shield tribes from organized crime and other corrupting influences, toensure that the Indian tribe is the primary beneficiary of the gaming operationand that gaming is conducted fairly and honestly by both the operator andplayers. Congress aimed to make gaming a means ofpromoting tribal economic development, self-sufficiency, and strong tribalgovernments. To carry out these goals, Congress gave the NIGC substantialpower, including the authority to initiate enforcement actions, close tribalgaming operations and levy civil fines. Moreover, the NIGC has authority toissue regulations governing gaming activities of Indian lands, review andapprove Class II and Class III gaming ordinances, review and approvemanagement agreements for tribal gaming operations, conduct investigations andgenerally monitor Indian gaming activities. IGRA also provides for federalcriminal penalties for illegal gaming on Indian land and for theft from Indiangaming facilities. The Secretary of the Interior retains certain responsibilitiesunder IGRA, such as the approval of tribal-state compacts and approval of percapita distribution plans.

 

NIGC regulationsimplement certain provisions of IGRA. These regulations govern, among otherthings, the submission and approval of tribal gaming ordinances or resolutions,and require an Indian tribe to have the sole proprietary interest in andresponsibility for the conduct of gaming activities. Pursuant to NIGCregulations, tribes are required to issue gaming licenses only under certainarticulated standards, to conduct or commission financial audits of theirgaming enterprises, to perform or commission background investigations ofprimary management officials and key employees and to maintain facilities in amanner that adequately protects the environment and the public health andsafety. NIGC regulations also set forth a review procedure for tribal licensingof all gaming operation employees and require tribes to report certainspecified information, including information derived from background investigations,to the NIGC. The NIGC has recently promugated Comprehensive new regulationsgoverning minimum internal control standards that must be met in the conduct ofboth Class II and Class III gaming operations. Some tribes have filed suit challengingthe authority of the NIGC to apply these regulations to Class III gaming andtheir final status has not been resolved.

 

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*Tribal-State Compacts.***  Under IGRA, Class IIIgaming activities are lawful on Indian lands only if such activities areconducted in conformance with a Tribal-State compact. A Tribal-State gamingcompact is the product of negotiation by a tribe and a state which sets theterms by which the tribe may conduct Class III gaming. IGRA contemplatesthat states and tribes will utilize the compacting process to address publicpolicy issues of mutual concern. IGRA provides a representative list of thetypes of provisions that may be included in a Tribal-State compact. Among otherthings, Congress sought through the compact process to accommodate significantgovernmental interests of the states. At the same time, IGRA’s compactingprocess affords reciprocal protection for the significant governmentalinterests of tribes by requiring a state to negotiate over a form ofClass III gaming as long as the State permits it for any purpose by anyperson. The mechanism for entering into a Tribal-State compact is set forth inIGRA.

 

The Compact was executedon August 18, 2002, and deemed approved by the Secretary of the Interioron October 25, 2002 pursuant to IGRA. After taking effect onDecember 9, 2002 when notice was published in the Federal Register, theCompact authorized the Nation to own and operate three Class III gamingfacilities, two off-Territory in the City of NiagaraFalls and in Erie County, and one on current Nation Territory.

 

Tribal-state compactshave been the subject of litigation in thirteen states, including New York. In1996, the U.S. Supreme Court ruled in the case of *Seminole Tribe of Florida v. Florida* that the provision ofIGRA that permits Indian tribes to sue in federal court to force states tonegotiate tribal-state gaming compacts in good faith is unconstitutional, asapplied to an unconsenting State, by virtue of the Eleventh Amendment to theU.S. Constitution.

 

In 1999, certainlegislators, organizations and individuals opposed to casino gambling brought alawsuit: (1) challenging the validity of the 1993 gaming compact betweenNew York State and the St. Regis Mohawk Tribe under the separation of powersprovisions in the New York State Constitution; and (2) seeking adeclaration that the New York State Constitution’s general prohibition ongambling covers Las Vegas-style gaming at casinos operated pursuant to IGRA byIndian tribes on their Territory lands in New York. The plaintiffs alsorequested an injunction prohibiting the New York State from expending any moneyin furtherance of the gaming compact.

 

In October 2001, theNew York Legislature passed Chapter 383 of the Laws of 2001, or Chapter 383,which allowed Governor Pataki to enter into a gaming compact with the SenecaNation of Indians and to enter into gaming compacts with other Indian tribesfor the establishment of three additional casinos in the Catskills. Chapter 383also approved the installation of VGMs at certain racetracks.

 

In January 2002, twoactions were filed in the Supreme Court of the State of New York, County ofAlbany, challenging legislation that, among other things, authorized theGovernor of New York to execute tribal-state gaming compacts, approved the useof slot machines as games of chance, approved the use of video lotteryterminals at racetracks and authorized the participation of New York State in amulti-state lottery. The actions were consolidated and are captioned *Dalton v. Pataki, et al.,* and *Karr v. Pataki, et al*. Plaintiffs seek a judgment declaring the legislation unconstitutionaland enjoining its implementation. These two cases were consolidated and werefer to both cases below as Dalton v. Pataki.

* *

On July 17, 2003,the New York Supreme Court dismissed the plaintiffs’ complaints in Dalton v.Pataki and held that the legislation is constitutional. The plaintiffs appealedthe Court’s decision to the Third Department of the New York Supreme Court’sAppellate Division and oral argument was held on December 16, 2003. OnJuly 7, 2004, a five judge panel issued its Opinion and Order declaringthe legislation at issue, Chapter 383 of the Laws of 2001, constitutional aschallenged. Notwithstanding the constitutionality of VGMs, the court declaredthe licensing of VGMs to racetracks to be unconstitutional due to theimpermissible revenue distribution scheme set forth therein. Lastly, the courtdeclared the provision of Chapter 383 of the Laws of 2001 authorizing theDivision of the Lottery to participate in the multi-state lotteryconstitutional on May 3, 2005, The New York Court of Appeals held thelegislation (including the licensing of VGMs to racetracks) to be constitutional.It is expected that the appellants will seek review by the United StatesSupreme Court. No assurance can be given that the ultimate result of thislitigation will be to uphold the constitutionality of Chapter 383 and thevalidity of the Compact.

 

If the U.S. Supreme Courtwere to review the case and subsequently rule that Chapter 383 violatesthe New York Constitution and if there were a subsequent ruling that theCompact is invalid, the Nation could not continue to operate Class III gamingat Seneca Niagara Casino, Seneca Allegany Casino or any other casino it mayestablish. In that event the Nation could operate a Class II casino withvarious Class II electronic games. If New York Statewere to make various forms of gaming illegal or against public policy (that arelawful under the new regulations promulgated by the NIGC in 2003.  Although we can provide no assurances, the believe that any change in New York law will notretroactively invalidate what the State has agreed to in the Compact. or the courts were to similarly rule), or otherwise to takea legal position adverse to SGC, such actions could have a material adverseeffect on our ability to conduct our gaming operations as currently conducted.

 

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While no assurance can begiven as to litigation in New York State, any invalidation of the Nation’sCompact would not affect the Nation’s ability to engage in Class IIGaming.

 

*Indian Lands.***  In order for the Nation toconduct gaming pursuant to the Compact, it must do so on Indian lands withinits jurisdiction. Indian lands include, but are not limited to, lands locatedwithin the boundaries of an Indian Territory. For non-Territory lands toqualify as Indian lands under IGRA, the land must be held in either trust bythe United States for the benefit of any Indian tribe or individual, or held byany Indian tribe or individual subject to restriction by the United Statesagainst alienation, and the tribe must exercise governmental power over thoselands.

 

As it relates to landsthat have been acquired in trust or restricted fee status for gaming purposesafter October 17, 1988, IGRA generally prohibits gaming on such landsunless certain conditions are met. As relevant here, lands that are acquired aspart of a settlement of a land claim are exempt from the prohibition againstgaming on lands acquired after the enactment of IGRA.

 

Pursuant to the Compact,the Nation may acquire property and establish gaming facilities in the City ofNiagara Falls within the boundaries of the approximately 50 acre area of landdescribed in Appendix I of the Compact and designated as land to bedeveloped by the Nation in connection with its gaming facilities. The Compactalso authorizes the Nation to establish a gaming facility in Erie County andone on current Nation Territory. Moreover, the Compact authorizes the Nation touse funds appropriated under the SNLCSA to acquire parcels of land in NiagaraFalls and Erie County for gaming purposes.

 

In 1990, Congress enactedthe SNLCSA, which provides the Nation with fair compensation for use of itsland and for the impact on the Nation from prior lease arrangements in the Cityof Salamanca, New York. The funds appropriated under the SNLCSA are availablefor the Nation to acquire additional land that could be placed into restrictedfee status. The SNLCSA provides that unless the Secretary of the Interiordetermines that lands acquired pursuant to the SNLCSA should not be subject torestrictions against alienation, such lands shall be held in restricted feestatus by the Nation.

 

As determined by theSecretary of the Interior in connection with the approval of the Compact, theNation will have jurisdiction over lands placed into restricted fee statuspursuant to the SNLCSA. Indeed, lands placed in restricted status pursuant tothe SNLCSA are held in the same legal manner as existing Nation’s lands areheld and thus, subject to the Nation’s jurisdiction. In addition, the Secretarydetermined that lands placed into restricted fee status pursuant to the SNLCSAare Indian lands as defined by IGRA, and the Nation is authorized to use suchland for gaming purposes pursuant to IGRA, because such lands will be acquiredas part of a settlement of a land claim.

 

As of September 30, 2004,the Nation had acquired approximately 24 acres (of the approximately 50 acrearea of land described in Appendix I of the Compact) with fundsappropriated under the SNLCSA. By operation of federal law, these lands andother parcels that may be acquired in the future pursuant to the SNLCSA (inNiagara Falls or Erie County), are subject to restrictions against alienation,constitute Indian country subject to the jurisdiction of the Nation, andqualify as gaming eligible Indian lands pursuant to IGRA. The Nation’s existingcasino in Niagara Falls is situated on these lands.

 

In addition to the twooff-Territory sites in Niagara Falls and Erie County, the Compact alsoauthorizes the Nation to establish a gaming facility on current NationTerritory. The lands upon which the Nation owns, operates and manages itsTerritory-based Seneca Allegany Casino, are located within the Nation’sTerritory boundaries, thus constituting Indian lands eligible for gamingpursuant to IGRA.

 

*Possible Changes in Federal and State Law.***  Several bills have beenproposed during the current and recent sessions of Congress that could affectIndian gaming. Notably, although its proposed legislation has yet to bepresented to Congress, the Policies and Procedures Subproject of the Bureau ofIndian Affairs has proposed sweeping changes to the federal laws concerningIndians. Certain of such bills, if enacted, could impair the ability of theNation and SGC to expand its gaming operations and adversely impact the futuregrowth of the Nation’s revenue base. In addition, from time to time, variousgovernment officials have proposed taxing Indian casino gaming or otherwiselimiting or restricting the conduct of gaming operations by Indian tribes. Noassurance can be given that such legislation, if and when enacted by Congress,would not have a material adverse effect on the operations of SGC. Senator JohnMcCain, Chairman of the Senate Indian Committee, has announced a series ofhearings to consider a variety of possible amendments to IGRA. If Congress wereto enact comprehensive amendments to IGRA, such legislation could have amaterial effect on the operations of SGC. In addition, under federal law,gaming on the Nation’s lands may be dependent upon the permissibility under NewYork law of certain forms of gaming or similar activities. If New York Statewere to make various forms of gaming illegal or against public policy (or thecourts were to similarly rule), or otherwise to take a legal position adverseto SGC, such actions could have a material adverse effect on our ability toconduct our gaming operations as currently conducted.

 

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**Item 2.****   Properties**

 

*Seneca Niagara Casino.*  Seneca Niagara Casino is located on NationTerritory in Niagara Falls, New York, in the former Niagara Falls Conventionand Civic Center, which we lease from the Nation. Seneca Niagara Casino islocated approximately 20 miles north of Buffalo, New York and approximately 90miles west of Rochester, New York.

 

Pursuant to the Compact,the Nation may acquire property and establish gaming facilities in the City ofNiagara Falls within the boundaries of the approximately 50 acre area of landdescribed in Appendix I of the Compact and designated as land to bedeveloped by the Nation in connection with the Nation’s gaming facilities. TheCompact also authorizes the Nation to establish a gaming facility in ErieCounty and one on current Nation Territory. The Compact authorizes the Nationto use funds appropriated under the Seneca Nation Land Claims Settlement Act of1990, or SNLCSA, to acquire parcels of land in Niagara Falls and Erie Countyfor gaming purposes.

 

As of September 30, 2004,the Nation had acquired approximately 24 acres (of the approximately 50 acrearea of land described in Appendix I of the Compact) with funds appropriatedunder the SNLCSA in Niagara Falls. By operation of federal law, these lands andother parcels that may be acquired in the future pursuant to the SNLCSA(whether in Niagara Falls or Erie), are subject to restrictions againstalienation, constitute Indian country subject to the jurisdiction of theNation, and qualify as gaming eligible Indian lands pursuant to IGRA. SenecaNiagara Casino, its 2,300-space parking garage, and the contemplated luxuryhotel, are situated on the Nation’s restricted fee lands. The Nation intends toacquire the remaining acres (of the approximately 50 acre area of landdescribed in Appendix I of the Compact) pursuant to the Compact.

 

To the extent requiredunder federal law, the United States Department of the Interior issued Findingsof No Significant Impact with respect to the conversion of the approximately 24acres (of the approximately 50 acres of land designated under our Compact forownership and development by the Nation) into restricted fee lands, determiningthat the conversions would not result in significant impacts to the quality ofthe human environment.

 

*Seneca Allegany Casino.*  Seneca Allegany Casino is located on theNation’s Allegany Territory in the City of Salamanca, New York. STGC leases thegaming facility in which Seneca Allegany Casino is located from the Nation.Seneca Allegany Casino is located immediately off Interstate 86, approximately70 miles south of Niagara Falls, New York and is within 75 miles of Erie,Pennsylvania, and 165 miles of Cleveland and Akron, Ohio and Pittsburgh,Pennsylvania. The land upon which the Nation owns and operates Seneca AlleganyCasino is within the Nation’s territorial boundaries, and is therefore eligiblefor gaming pursuant to IGRA.

 

On April 9, 2004, weentered into a non-binding letter of intent with Uniland to purchase theCheektowaga Site, located in Erie County, New York. The purchase of theCheektowaga Site has been delayed for various reasons, including ongoinglitigation. See Legal Proceedings.

 

**Item 3.****  Legal Proceedings**

** **

In October 2001, theNew York Legislature passed Chapter 383 of the Laws of 2001, or Chapter 383,which allowed Governor Pataki to enter into a gaming compact with the SenecaNation of Indians and to enter into gaming compacts with other Indian tribesfor the establishment of three additional casinos in the Catskills. Chapter 383also approved the installation of VGMs at certain racetracks.

 

In January 2002, twoactions were filed in the Supreme Court of the State of New York, County ofAlbany, challenging legislation that, among other things, authorized theGovernor of New York to execute tribal-state gaming compacts, approved the useof slot machines as games of chance, approved the use of video lotteryterminals at racetracks and authorized the participation of New York State in amulti-state lottery. The actions are captioned *Daltonv. Pataki, et al.,* and *Karr v.Pataki, et al*. Plaintiffs seek a judgment declaring the legislationunconstitutional and enjoining its implementation. These two cases wereconsolidated and we refer to both cases below as Dalton v. Pataki.

* *

On July 17, 2003,the New York Supreme Court dismissed the plaintiffs’ complaints in Dalton v.Pataki and held that the legislation is constitutional. The plaintiffs appealedthe Court’s decision to the Third Department of the New York Supreme Court’sAppellate Division and oral argument was held on December 16, 2003. OnJuly 7, 2004, a five-judge panel issued its Opinion and Order declaringlegislation at issue, Chapter 383 of the Laws of 2001, constitutional aschallenged. Notwithstanding the constitutionality of VGMs, the court declaredthe licensing of VGMs to racetracks to be unconstitutional due to theimpermissible revenue distribution scheme set forth therein. Lastly, the courtdeclared the provision of Chapter 383 of the Laws of 2001 authorizing theDivision of the Lottery to participate in the multi-state lotteryconstitutional. On May 3, 2005, the New York Court of Appeals held thelegislation (including the licensing of VGMs to racetracks) to beconstitutional. It is expected that the appellants will seek review by theUnited States Supreme Court. No assurance can be given that the ultimate resultof this litigation will be to uphold the constitutionality of Chapter 383 andthe

 

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validity of the Compact.

 

If the U.S. Supreme Courtwere to review the case and subsequently rule that Chapter 383 violatesthe New York Constitution and if there were a subsequent ruling that theCompact is invalid, the Nation could not continue to operate Class IIIgaming at Seneca Niagara Casino, Seneca Allegany Casino or any other casino itmay establish. In that event the Nation could operate a Class II casinowith various Class II electronic games that are lawful under the newregulations promulgated by the NIGC in 2003.  Although we can provide no assurances, webelieve that any change in New York law will not retroactively invalidate whatthe State has agreed to in the Compact.  IfNew York State were to make various forms of gaming illegal or against publicpolicy (or the courts were to similarly rule), or otherwise to take a legalposition adverse to SGC, such actions could have a material adverse effect onour ability to conduct our gaming operations as currently conducted.

 

The Compact provides thatthe Nation may acquire property and establish a gaming facility in Erie County,at a location in the City of Buffalo to be determined by the Nation, or at suchother site as may be determined by the Nation in the event a site in the Cityof Buffalo is rejected by the Nation for any reason. In May 2004, variousparties, including the Mayor of the City of Buffalo, filed a complaint againstGovernor Pataki, the State of New York, the Town of Cheektowaga and Uniland toprohibit the sale of the Cheektowaga Site to us on the basis that the Nation’sability, pursuant to the Compact, to locate a Class III gaming facilityanywhere in Erie County in the event a site in the City of Buffalo is rejectedby the Nation for any reason is unconstitutional. On June 16, 2004,Justice Makowski of the Supreme Court of the State of New York agreed with theplaintiffs and held that the Compact provision allowing the Nation to locate aClass III gaming facility in Erie County outside the City of Buffalo isunconstitutional. The Court’s decision further permanently restrained andenjoined (1) Governor Pataki and the State of New York from any action oractivity that would assist the Nation in owning and operating a Class IIIgaming casino in Erie County other than the City of Buffalo and(2) Uniland from the sale or transfer of the Cheektowaga Site to us. Wedisagree with the Court’s finding. On April 27, 2005, the Town ofCheektowaga filed a brief to appeal the Supreme Court decision and we support itsdecision to appeal. Subsequent to the Supreme Court decision, Uniland requestedcertain amendments to the executed letter of intent for the Cheektowaga Site.We are evaluating their requested changes, but can provide you with noassurance that we will be able to reach a mutually acceptable agreement withUniland, that Justice Makowski’s decision will be successfully appealed, orthat we will be able to commence construction or begin operation of our thirdClass III gaming facility in the City of Buffalo or Erie County prior tothe termination of our exclusivity period. As a result of the ongoinglitigation, the Nation and SGC may consider alternative sites.

 

On December 29,2003, certain tribal members filed an action for a temporary restraining orderin Peacemakers’ Court, the Nation’s trial level court, against G. MichaelBrown, as President and CEO of SNFGC, and SNFGC attempting to enjoinMr. Brown and SNFGC from making any exclusivity payments to New York Statepursuant to the Compact. The plaintiffs alleged that New York State “materiallybreached” the Compact by promulgating rules regarding the collection oftaxes on reservation sales to non-Indian purchasers. On December 31, 2003,the Peacemakers’ Court dismissed the plaintiffs’ complaint. On January 3,2004, the plaintiffs filed an appeal to the Nation’s Court of Appeals, theNation’s intermediate level court. On August 11, 2004, the Court ofAppeals issued “bench rulings” and determined, among other matters, that SGC andits subsidiaries are unconstitutional and legal nullities. On August 17,2004, the Nation’s Supreme Appellate Court, the Nation’s highest court ofappeals, overturned the Court of Appeal’s bench rulings in their entirety andreaffirmed that the Nation’s Council had appropriately and validly establishedSGC and its subsidiaries and that these entities possessed sovereign immunityfrom suit. In addition, the Supreme Appellate Court noted that by filing anapplication for the Writ of Permission, the “bench rulings” were automaticallystayed pursuant to Seneca Civil Procedure Rules and the Court of Appealsno longer has jurisdiction over the underlying matter pertaining to the paymentof the exclusivity fee to New York State. Notwithstanding this decision, on September 16,2004, the Court of Appeals held that the Supreme Appellate Court’sAugust 17, 2004 decision was illegal, invalid and of no force and effectdue to the violation of Seneca Nation of Indians Rules of AppellateProcedure, among other reasons. The Court of Appeals remanded the case to thePeacemakers’ Court and ordered this court to convene and hear the original casewith its bench rulings in effect within 30 days of the September 16, 2004Court of Appeals Order. The Peacemaker’s court did not convene byOctober 16, 2004 to consider the matter, as required by the Court ofAppeals’ Order, and as of this date has not convened to consider thematter.  However, the Senior PolicyAdvisor and Counsel to the Nation has delivered alegal opinion dated May 4, 2005 to the SGC board of directors stating thefollowing:

 

Thus, the action of theCourt of Appeals on September 16th purporting to set aside theSupreme Appellate Court’s decision of August 17th is of noforce and effect because the Supreme Appellate Court’s decision ofAugust 17th was “final” by its terms.  The Nation’s Constitution makes no provisionfor review of Supreme Appellate Court decisions by the Court of Appeals underany circumstances.  As a result, theCouncil’s decision of August 17th is final and the Nation’sgaming corporations are constitutional and valid legal entities.

 

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OnOctober 18, 2004, the Peacemakers’ Court, due to a perceived conflict ofinterest of elected Nation officials serving as members of the boards ofdirectors of the SGC and its subsidiaries, ordered that all directors of SGCand its subsidiaries who are or plan to be candidates in the Nation’s electionsscheduled for November 2, 2004 must resign as directors of the SGC and itssubsidiaries. The Peacemakers’ Court further ordered that no present or newlyelected Tribal Councilor may serve on the boards of directors of SGC and itssubsidiaries due to a perceived conflict of interest and that any presentTribal Councilors who are directors of SGC and its subsidiaries must resigntheir directorships immediately. On November 10, 2004, the Peacemakers’Court withdrew its October 18, 2004 order.

 

**Item 4.****  Submission ofMatters to a Vote of Security Holders**

 

Not Applicable.

 

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**PART II**

 

**Item 5****.****Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities**

 

We have not issued orsold any equity securities.

 

**Item 6****.****Selected Financial Data**

** **

The Nation establishedSeneca Gaming Corporation as a wholly owned entity to operate all of the Nation’sgaming and resort-related activities. The selected consolidated financial dataset forth below as of and for the period ended September 30, 2002 and asof and for the years ended September 30, 2003 and 2004 have been derivedfrom our audited financial statements. This information should be read with ourfinancial statements and the related notes included in this report. You shouldalso read the following information in conjunction with the “Item 7—Management’sDiscussion and Analysis of Financial Condition and Results of Operations.”Until May 1, 2004, our only operating casino was Seneca Niagara Casino.

 
| ** **                                           | ** ** | **Fiscal Year  Ended  September 30,** | ** ** | **Period from  Inception to  September 30,** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------|------------|
| **(dollars in thousands)**                           | ** ** | **2004**                                   | ** ** | **2003**                                          | ** ** | **2002** | ** ** |
| ** **                                           | ** ** | ** **                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Statement  of Operations Data:**                   |       |                                       |       |                                              |       |   |   |
| Revenues:                                            |       |                                       |       |                                              |       |   |   |
| Gaming                                               |       | $                                          | 337,536    |                                              | $          | 184,332 |   | $ | — |   |
| Food and  beverage                                   |       | 31,358                                     |       | 16,158                                            |       | — |   |
| Retail and other                                     |       | 11,797                                     |       | 4,823                                             |       | — |   |
| Gross revenues                                       |       | 380,691                                    |       | 205,313                                           |       | — |   |
| Less:  Promotional allowances                        |       | (24,295                                    | )          | (9,557                                            | )          | — |   |
| Net revenues                                         |       | 356,396                                    |       | 195,756                                           |       | — |   |
| Expenses:                                            |       |                                       |       |                                              |       |   |   |
| Gaming                                               |       | 92,531                                     |       | 53,686                                            |       | — |   |
| Food and  beverage                                   |       | 26,387                                     |       | 15,856                                            |       | — |   |
| Retail, entertainment  and other                     |       | 7,184                                      |       | 2,732                                             |       | — |   |
| Advertising,  general and administrative             |       | 91,552                                     |       | 42,176                                            |       | — |   |
| Preopening costs                                     |       | 4,228                                      |       | 7,155                                             |       | 2,961 |   |
| Depreciation and  amortization                       |       | 17,638                                     |       | 8,723                                             |       | — |   |
| Total operating  expenses                            |       | 239,520                                    |       | 130,328                                           |       | 2,961 |   |
| Operating income  (loss)                             |       | 116,876                                    |       | 65,428                                            |       | (2,961 | ) |
| Other income and  (expense):                         |       |                                       |       |                                              |       |   |   |
| Interest income                                      |       | 1,535                                      |       | 44                                                |       | — |   |
| Interest expense                                     |       | (33,702                                    | )          | (15,515                                           | )          | — |   |
| Net other income  (expense)                          |       | (32,167                                    | )          | (15,471                                           | )          | — |   |
| Net income  (loss)                                   |       | $                                          | 84,709     |                                              | $          | 49,957 |   | $ | (2,961 | ) |
| **Other  Financial Data:**                           |       |                                       |       |                                              |       |   |   |
| EBITDA(1)                                            |       | $                                          | 134,514    |                                              | $          | 74,151 |   | $ | (2,961 | ) |
| Net cash  provided by (used in) operating activities |       | 143,803                                    |       | 97,720                                            |       | (69 | ) |
| Net cash used in  investment activities              |       | 238,703                                    |       | 118,693                                           |       | 39 |   |
| Net cash provided  by financing activities           |       | 246,867                                    |       | 80,739                                            |       | 240 |   |
| Ratio of  earnings to fixed charges(2)               |       | 3.4                                        | x          | 3.9                                               | x          | — |   |

 

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| ** **                          | ** ** | **Fiscal Year  Ended  September 30,** | ** ** | **Period from  Inception to  September 30,** | ** ** |
|-------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------|------------|
| **(dollars in thousands)**          | ** ** | **2004**                                   | ** ** | **2003**                                          | ** ** | **2002** | ** ** |
| ** **                          | ** ** | ** **                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Property  Data(3):**              |       |                                       |       |                                              |       |   |   |
| Square footage  of gaming space     |       | $                                          | 153,749    |                                              | $          | 90,454 |   | $ | — |   |
| Average number  of slot machines    |       | 4,724                                      |       | 2,741                                             |       | — |   |
| Slot machine  daily win per unit($) |       | 196                                        |       | 213                                               |       | — |   |
| Average number  of table games      |       | 131                                        |       | 104                                               |       | — |   |
| Table game daily  win per unit($)   |       | 1,479                                      |       | 1,291                                             |       | — |   |
|                                     |            |                                            |            |                                                   |            |  |  |  |  |  |

 
|                       |   | **September 30,** |    |
|----------------------------|--------|------------------------|---------|
|                       |   | **2004**               |    | **2003** |   | **2002** |   |
|                       |   |                   |    |   |   |   |   |
| Cash and cash  equivalents |   | $                      | 211,595 |   | $ | 59,628 |   | $ | 132 |   |
| Total assets               |   | 584,056                |    | 181,749 |   | 2,883 |   |
| Total long-term  debt      |   | 380,325                |    | 86,157 |   | — |   |
| Total  liabilities         |   | 497,369                |    | 134,753 |   | 5,844 |   |
| Total capital  (deficit)   |   | 86,687                 |    | 46,996 |   | (2,961 | ) |
|                            |        |                        |         |  |  |  |  |  |  |  |

 

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(1)     EBITDA represents earnings before interest,depreciation and amortization. We are not subject to U.S. federal income taxationunder current interpretations of the U.S. federal tax code. EBITDA is presentedto provide additionalinformation that our management uses to assess our business and because webelieve it is frequently used by securities analysts, investors and other interestedparties in the evaluation of companies in our industry. However, othercompanies in our industry may calculate EBITDA differently than we do. EBITDAis not a measurement of financial condition or profitability under generallyaccepted accounting principles and should not be considered as analternative to cash flow from operating activities or as a measure of liquidityor an alternative to net income as indicators of our operating performance orany other measures of performance derived in accordance with generally acceptedaccounting principles.

 

Thefollowing table sets forth a reconciliation of net income to EBITDA, whichmanagement believes is the most nearly equivalent measure under U.S. generallyaccepted accounting principles. The adjustments set forth below are thoserelevant to the periods presented.

 
|                           |   | **Fiscal Year  Ended  September 30,** | ** ** | **Period from  Inception to  September 30,** | ** ** |
|--------------------------------|--------|--------------------------------------------|------------|---------------------------------------------------|------------|
| **(dollars in thousands)**     |   | **2004**                                   | ** ** | **2003**                                          | ** ** | **2002** | ** ** |
| ** **                     |   | ** **                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net income  (loss)             |   | $                                          | 84,709     |                                              | $          | 49,957 |   | $ | (2,961 | ) |
| Depreciation and  amortization |   | 17,638                                     |       | 8,723                                             | ** ** | **—** | ** ** |
| Net interest  expense          |   | 32,167                                     |       | 15,471                                            | ** ** | **—** | ** ** |
| EBITDA                         |   | $                                          | 134,514    |                                              | $          | 74,151 |   | $ | (2,961 | ) |

 

(2)     The ratio of earnings to fixed charges iscomputed by dividing earnings by fixed charges. For purposes of determining theratio of earnings to fixed charges, the term “earnings” is the amount resultingfrom adding (i) net income, (ii) fixed charges and(iii) amortization of capitalized interest, less the amount of interestcapitalized. The term “fixed charges” is the amount resulting from adding(i) interest expense whether expensed or capitalized, and (ii) theamortization of debt financing costs.

 

(3)     The casino square footage is given as ofthe end of each period presented. The average number of slot machines and tablegames represents the average over the period presented. Slot machine win perunit refers to total slot machine revenue for a given period divided by theaverage number of slot machines operating in that period divided by the numberof days in that period. Table game daily win per unit refers to total tablegames revenue for a given period divided by the average number of table gamesoperating in that period divided by the number of days in that period.

 

**Item 7****.****Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

** **

*Youshould read the following discussion and analysis in conjunction with thesection titled Selected Consolidated Financial and Other Data and thefinancial statements and related notes included in this report at “Item 8—**Financial Statements and Supplementary Data.”References below to years are to fiscal years of Seneca Gaming Corporationunless otherwise noted. Seneca Gaming Corporation’s fiscal year is fromOctober 1 through September 30.*

 

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**Overview**

** **

Seneca Gaming Corporationis wholly owned by the Seneca Nation of Indians of New York and chartered tomanage and direct all of the Nation’s Class III gaming operations. The Nationentered into a Compact with New York State on August 18, 2002 thatprovides the Nation with the right to establish and operate threeClass III gaming facilities in Western New York. We opened our firstClass III gaming facility on Nation Territory in the City of Niagara Falls,New York on December 31, 2002, featuring principally Class III slotmachines and table games. This facility is operated by our wholly ownedsubsidiary SNFGC. From August 1, 2002 to September 30, 2002, SNFGCoperated as a development stage company and devoted its efforts to obtainingregulatory and governmental approvals, securing financing, recruiting andtraining employees and overseeing the renovation of the Niagara FallsConvention and Civic Center. On May 1 2004, wse opened our secondClass III gaming facility, Seneca Allegany Casino, on the Nation’sTerritory in the City of Salamanca, New York. This facility principallyfeatures Class III slot machines and table games. We formed STGC onSeptember 20, 2003 as a wholly owned subsidiary to operate this facility.Please note that our Selected Consolidated Financial and Other Data, thefinancial statements and related notes included elsewhere in this report andthe following discussion and analysis only include five months of operatingresults for Seneca Allegany Casino.

 

Given our short operatinghistory and limited operations at SNFGC in the fiscal year endedSeptember 30, 2002, we believe comparisons between the fiscal year endedSeptember 30, 2003 and the fiscal year ended September 30, 2002, arenot meaningful. Therefore, these comparisons are not discussed below.

 

Under the Compact, theNation has the right to establish and operate a third Class III gamingfacility in Erie County, New York. If the Nation fails to commence constructionof a Class III gaming facility in Erie County by December 9, 2005, orif the Nation fails to commence Class III Gaming operations byDecember 9, 2007, the Nation’s exclusive right under the Compact to ownand operate a Class III gaming facility in Erie County may terminate. OnApril 9, 2004, we entered into a non-binding letter of intent with Unilandto purchase the Cheektowaga Site. The letter of intent provides that ourpurchase of this property is subject to our ability to enter into a definitivepurchase agreement, have this land placed in restricted fee for gaming by theU.S. Department of the Interior and Uniland’s ability to enter into anagreement with the Town of Cheektowaga for various make-whole benefits forUniland. In May 2004, various parties, including the Mayor of the City ofBuffalo, filed a complaint against Governor Pataki, the State of New York, theTown of Cheektowaga and Uniland to prohibit the sale of the Cheektowaga Site tous on the basis that the Nation’s ability, pursuant to the Compact, to locate aClass III gaming facility anywhere in Erie County in the event a site inthe City of Buffalo is rejected by the Nation for any reason isunconstitutional. On June 16, 2004, Justice Makowski of the Supreme Courtof the State of New York agreed with the plaintiffs and held that the Compactprovision allowing the Nation to locate a Class III gaming facility inErie County outside the City of Buffalo is unconstitutional. The Court’sdecision further permanently restrained and enjoined (1) Governor Patakiand the State of New York from any action or activity that would assist theNation in owning and operating a Class III gaming casino in Erie Countyother than the City of Buffalo and (2) Uniland from the sale or transferof the Cheektowaga Site to us. On April 27, 2005, the Town of Cheektowagafiled a brief to appeal the Supreme Court decision and we support its decisionto appeal. Subsequent to the Supreme Court decision, Uniland requested certainamendments to the executed letter of intent for the Cheektowaga Site. We areevaluating their requested changes, but can provide you with no assurance thatwe will be able to reach a mutually acceptable agreement with Uniland, thatJustice Makowski’s decision will be successfully appealed, or that we will beable to commence construction of our third Class III gaming facility inthe City of Buffalo or Erie County prior to the termination of our exclusivityperiod.  As a result of the ongoinglitigation, the Nation and SGC may consider alternative sites.

 

**Executive Summary**

** **

* Our Current Operations.*  Wecurrently operate two Class III gaming facilities, Seneca Niagara Casino,in the City of Niagara Falls, New York, and Seneca Allegany Casino, in the Cityof Salamanca, New York. Our casino operations include gaming, dining,entertainment and retail. For the 12-months ended September 30, 2004,approximately 93%, of our net revenue was derived from our Class IIIgaming activities.

 

*Key Performance Indicators.***  Our operating results aredependent on the volume of profitable patrons at our casinos and our ability toattract them for repeat visits.

 

*Seneca Niagara Casino.***  Seneca Niagara Casinocurrently relies primarily on drive-in and bus patrons from the Buffalo,Niagara Falls, and Rochester areas in New York and secondarily from the Erie, Pennsylvaniaarea, Ohio and other parts of New York. Since opening on December 31,2002, Seneca Niagara Casino has experienced steady growth in its patron base,net revenue and profitability. We believe that the proposed expansion of SenecaNiagara Casino, including the addition of a luxury hotel and other amenities,will enable us to increase profitable patron volume and gaming activity, extendour geographic penetration and appeal to a more diverse demographic base. Thefirst phase of this expansion is expected to open by December 2005, andwill add over 35,000 square feet of gaming space, 300 rooms, a multi-purposeroom for conventions, banquets and entertainment events, and an 18,000square-foot spa.

 

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As of September 30, 2004,we had paid for substantially all of our completed expansion projects out ofcash flow from operations. Our completed expansion projects include theaddition of Turtle Island, a non-smoking casino room, the Blue Heron Club, agaming salon designed exclusively for high stakes table game patrons, a new2,300-space parking garage, and the Western Door, an upscale steakhouse. InMay 2004, we opened a non-smoking poker room with sixteen tables. InJune 2004, we opened our Pennies from Heaven slot room located on themezzanine level overlooking our main casino, adding approximately 6,600 squarefeet of gaming space and 242 additional ticketed slot machines. In addition,this project added approximately 7,800 square feet of banquet space for up to350 patrons.

 

*Seneca Allegany Casino.***  During its first five monthsof operation, Seneca Allegany Casino experienced steady growth in its patronbase, net revenue, and profitability. Seneca Allegany Casino has attractedpatrons from the southern portion of Western New York, Erie and PittsburghPennsylvania, and Ohio. Through September 30, 2004, 63.9% of its patronshave come from outside the State of New York.

 

In September 2004,we converted and divided Seneca Allegany Casino’s existing 450-seat bingo areainto a non-smoking poker room with 16 tables and a non-smoking casino with 185slot machines. At the same time, we relocated our existing 450-seat bingooperations at Seneca Allegany Casino to the site of Seneca Gaming &Entertainment’s former Class II gaming operations, or the Seneca AlleganyClass II Facility, in Salamanca, New York, that included bingo, four pokertables and 200 Class II video gaming machines. The Seneca AlleganyClass II Facility is located less than a mile from Seneca Allegany Casino.Seneca Gaming & Entertainment ceased operating the Seneca AlleganyClass II Facility prior to the opening of Seneca Allegany Casino.

 

On November 2, 2004,the Nation held an election for its three Executive Branch officers, thePresident (Chief Executive Officer), Treasurer (Chief Financial Officer) andthe Clerk, and 8 of the 16 members of its legislative branch, or the Council.As part of the initial actions taken by the new government (the “New SenecaGovernment”) at its first Council meeting on November 13, 2004, itappointed a Class II Management Committee to develop policies andprocedures to govern the Nation’s Class II Facilities located on itsAllegany Territory, which include our operation of the Seneca AlleganyClass II Facility.  The November 13,2004 resolutions further provide that all revenues generated by the Nation’sClass II facilities shall be transferred directly to the Nation instead ofto us. Through subsequent discussions with executive officers of the Nation, wewere informed that, notwithstanding the foregoing resolutions, the Councilwanted the Seneca Allegany Class II Facility transferred to the Nation asof January 1, 2005. We were subsequently informed by the Tribal Executivesthat these resolutions were intended to include the transfer of allClass II operations back to the Nation, which include our pokeroperations, a Class II game, at the Seneca Niagara Casino and SenecaAllegany Casino.

 

As of January 1,2005, we transferred Seneca Allegany Class II operations to the Nation.  We opened the Seneca Allegany Class IIFacility on May 1, 2004.  During thefive months ended September 30, 2004, we invested approximately $2.1million in renovating and upgrading the Seneca Allegany Class II Facilityand received approximately $2.5 million of net revenue from this facilityduring this period.

 

As of January 1,2005, separate management selected by the Nation runs the poker operations atthe Seneca Niagara Casino and Seneca Allegany Casino.  Leases for both poker rooms with the Nationare being finalized. These leases will cover the costs, among other things, ofrental and services provided by us, including accounting, and food andbeverage. We opened the poker rooms at the Seneca Niagara Casino and SenecaAllegany Class II Facility on May 14, 2004 and May 1, 2004,respectively.  We did not open a pokerroom at the Seneca Allegany Casino until October 1, 2004.  From the opening of the poker rooms at SenecaNiagara Casino and Seneca Allegany Class II Facility throughSeptember 30, 2004, we received approximately $2.7 million of net poker revenue.

 

The transfer of theClass II operations is consistent with our understanding of Council’sintent that we manage and operate the Nation’s Class III operations andthat Council directly manages and operates the Nation’s Class IIoperations as it has historically done.

 

We intend torecord the value of the improvements, video lottery terminals, and other costswe incurred to improve the Seneca Allegany Class II Facility as an equitydistribution to the Nation. Our current estimate of the value to be distributedis approximately $2.2 million.

 

We have recently adoptedplans to construct a 1,850-space parking garage and a 225-room hotel at SenecaAllegany Casino. We believe this expansion is necessary to provide afirst-class gaming experience for our patrons and to maintain the competitiveposition of the facility in light of expected future competition inPennsylvania. We expect that this expansion will cost between $180.0 million to$185.0 million and plan to fund this expansion with cash flows fromoperations and cash on

 

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hand. We expect the garage toopen in August 2005 and the hotel to open by November 2006. Theopening of the garage and hotel has been delayed due to weather andconstruction issues. The construction issues relate to a portion of the garagebeing out of acceptable plumb tolerance limits. The SGC board of directors has accepted the recommendation of the garage’sconstruction manager to dismantle partially, to the extent necessary, andreassemble, to correct the out of plumb condition with the southeast portion ofthe garage. The Board accepted this recommendation because, based on theconstruction manager’s representation, it will correct the problem withcertainty. We believe that any remedial work done on the garage by the constructionmanager will not result in any additional cost to us and any cost will be borneentirely by the construction manager.

 

We funded all theconstruction, equipment and preopening costs of Seneca Allegany Casino entirelyfrom Seneca Niagara Casino’s free cash flow, in the form of inter-company loansfrom SGC. We intend to purchase the site of our future casino in Erie Countyfrom our cash flow. We currently rely and will continue to rely on our abilityto generate cash flow from operations to repay our debt financing, fund themaintenance of our facilities and provide funds for our planned futureexpansions.

 

As of September 30, 2004,our results of operations had not been seasonal in nature.

 

*Overall Outlook.***  As discussed in more detailabove, since inception, we have invested heavily in our operations and plan tocontinue to do so during fiscal 2005 and 2006. We believe that investments inadditional gaming space and non-gaming amenities at our facilities and ourexclusive ability to offer Class III gaming in Western New York, willenable us to capitalize on what we believe is an underserved market in WesternNew York, Pennsylvania and parts of Ohio.

 

**Critical Accounting Policies and Estimates**

** **

Management’s discussionand analysis of our results of operations and liquidity and capital resourcesare based on our consolidated financial statements. To prepare our consolidatedfinancial statements in accordance with accounting principles generallyaccepted in the United States of America, we must make estimates andassumptions that affect the amounts reported in the consolidated financialstatements. We regularly evaluate these estimates and assumptions, particularlyin areas we consider to be critical accounting estimates, where changes in theestimates and assumptions could have a material impact on our results ofoperations, financial position and, to a lesser extent, cash flows. There canbe no assurance that actual results will not differ from our estimates. Toprovide an understanding of the methodology we apply, our significantaccounting policies and basis of presentation are summarized in Note 2 toour audited consolidated financial statements included at Item 8 for the yearended September 30, 2004. We believe the following accounting policiesinvolve a higher degree of management judgment.

 

*Liability for Unredeemed Seneca Link Player’s Card Points.***  Patrons who are members ofour Seneca Link Player’s Card rewards program earn promotional points based onthe volume and type of their gaming activity. The Seneca Link Player’s Cardaccumulates points that are redeemable for food and beverages at ourrestaurants and products offered at our retail stores. Points are accrued andreflected as current liabilities on our balance sheets based upon expectedredemption rates and the estimated cost of the service or merchandise to beprovided. Management reviews the adequacy of the accrual for unredeemed pointsby periodically evaluating the historical redemption and projected trends.Actual results could differ from our estimates.

 

*Self-Insurance Reserves.***  We have financial exposuresfor portions of our employee benefits programs and general liability reserves.We accrue for liabilities based on filed claims and estimates of claimsincurred but not reported. In our opinion our accruals to cover these costs areadequate, but actual results may vary from the amount accrued.

 

*Property and Equipment.***  We have a significant amountof capital invested in our property and equipment, which is stated at cost lessaccumulated depreciation and amortization. We use judgment in determining if orwhen assets have been impaired and the estimated useful lives of assets. Theaccuracy of these estimates affects whether or not impairment exists, and thedepreciation and amortization expense recognized in our results of operations.Leasehold improvements represent a significant portion of our property andequipment balance. These assets are amortized over the lesser of the relatedlease term or the estimated life of the assets. The useful lives assigned toour other property and equipment assets are based on our standard policy, whichwe believe represents the useful life of each category of asset. In accordancewith SFAS No. 144, Accounting for the Impairment or Disposal of Long-LivedAssets, the carrying values of our long-lived assets are reviewed when eventsor changes in circumstances indicate that the carrying amount of an asset maynot be recoverable. Assets are grouped at the property level when estimatingfuture cash flows for determining whether an asset has been impaired.Management assesses the possibility of asset impairment by using the estimatesof future cash flows, which are affected by current operating results, trendsand prospects, as well as the effect of obsolescence, demand, competition andother economic factors.

 

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Our analysis of cashflows represents our best estimates at the time of the review. However, changesin these assumptions due to actual market conditions that cause less favorableresults than our estimates may result in impairments in the future.

 

**Operating Results**

** **

*OperatingResults*

 
| ** **                               | ** ** | **Fiscal Year  Ended  September 30,** | ** ** | **Period from  Inception to  September 30,** | ** ** |
|------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------|------------|
| **(dollars in thousands)**               | ** ** | **2004**                                   | ** ** | **2003**                                          | ** ** | **2002** | ** ** |
| ** **                               | ** ** | ** **                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net revenue                              |       | $                                          | 356,396    |                                              | $          | 195,756 | ** ** | **$** | **—** | ** ** |
| Operating  expenses:                     |       |                                       |       |                                              |       |   |   |
| Gaming                                   |       | 92,531                                     |       | 53,686                                            | ** ** | **—** | ** ** |
| Food and  beverage                       |       | 26,387                                     |       | 15,856                                            | ** ** | **—** | ** ** |
| Retail,  entertainment and other         |       | 7,184                                      |       | 2,732                                             | ** ** | **—** | ** ** |
| Advertising,  general and administrative |       | 91,552                                     |       | 42,176                                            | ** ** | **—** | ** ** |
| Preopening costs                         |       | 4,228                                      |       | 7,155                                             |       | 2,961 |   |
| Depreciation and  amortization           |       | 17,638                                     |       | 8,723                                             | ** ** | **—** | ** ** |
| Operating income                         |       | $                                          | 116,876    |                                              | $          | 65,428 |   | $ | (2,961 | ) |

* *

The most important factors and trends contributing to our operatingperformance during the 12-months ended September 30, 2004 were:

 

•      Ourability to successfully market Seneca Niagara Casino and, since its May 1,2004 opening, Seneca Allegany Casino, to our primary and secondary markets target.

 

•      Ourability to enroll over 560,000 patrons in our cross-property Seneca Link Player’sCard program, which has increased our ability to use effective direct mail andtargeted marketing programs to establish patron loyalty to the Seneca brand ata profitable level.

 

•      Our mixof slot machines, which we believe is superior to our competition and includesthe latest product introductions by leading United States and internationalslot manufacturers.

 

•      Our useof current information technology, including “ticket-in/ticket-out” slotmachines, automated jackpot payment machines, electronic slot bonusing anddatabase programs to increase operating efficiencies.

 

•      Ourability to operate at a high margin, which we achieve through the carefulmonitoring and control of labor costs and the effective use of our marketingand advertising expenditures.

 

•      Ourcontinued expansion at and reinvestment in Seneca Niagara Casino and ourMay 1, 2004 opening of Seneca Allegany Casino.

 

*DetailedRevenue Information*

 
| ** **                       | ** ** | **Fiscal Year  Ended  September 30,** | ** ** | **Period from Inception to  September 30,** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|--------------------------------------------------|------------|
| **(dollars in thousands)**       | ** ** | **2004**                                   | ** ** | **2003**                                         | ** ** | **2002** | ** ** |
| ** **                       | ** ** | ** **                                 | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Gaming revenue:                  |       |                                       |       |                                             |       |   |   |
| Slots                            |       | $                                          | 275,129    |                                             | $          | 147,658 | ** ** | **$** | **—** | ** ** |
| Table games                      |       | 57,045                                     |       | 36,479                                           | ** ** | **—** | ** ** |
| Other                            |       | 5,362                                      |       | 195                                              | ** ** | **—** | ** ** |
| Gaming revenue                   |       | 337,536                                    |       | 184,332                                          | ** ** | **—** | ** ** |
| Non-gaming  revenue:             |       |                                       |       |                                             |       |   |   |
| Food and  beverage               |       | 31,358                                     |       | 16,158                                           | ** ** | **—** | ** ** |
| Retail,  entertainment and other |       | 11,797                                     |       | 4,823                                            | ** ** | **—** | ** ** |
| Non-gaming  revenue              |       | 43,155                                     |       | 20,981                                           | ** ** | **—** | ** ** |
| Less promotional  allowance      |       | (24,295                                    | )          | (9,557                                           | )          | **—** | ** ** |
| Net revenues                     |       | $                                          | 356,396    |                                             | $          | 195,756 | ** ** | **$** | **—** | ** ** |

 

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Our gaming revenue forthe 12-months ended September 30, 2004 increased relative to the lastfiscal year due primarily to the opening of Seneca Allegany Casino onMay 1, 2004, which added approximately 1,700 slot machines and 21 tablegames to our operations, the addition of 242 slot machines at Seneca NiagaraCasino, an additional three months of operation in fiscal year 2004 at SenecaNiagara Casino, and an approximately 95% increase in our patron database. Inaddition, in July 2004 at Seneca Niagara Casino and in August 2004 atSeneca Allegany Casino, we implemented electronic slot bonusing which areincluded in slot revenues and promotional allowances. This program allows us toreward our slot patrons, based on their propensity to game, by providing freeslot play directly at the slot machine through the use of their Seneca LinkPlayer’s Card. The free slot play must be played at a slot machine, and cannotbe redeemed for cash. The amount totaled $1.4 at Seneca Niagara Casino, and$67,000 at Seneca Allegany Casino through September 30, 2004. As ofSeptember 30, 2004, our casinos had an aggregate of 122 table games, 32poker tables, and 4,942 slot machines available to our patrons, representing anet increase of 21 table games, 32 poker tables and 2,020 slot machines fromSeptember 30, 2003. During these periods the number of patrons enrolled inour Seneca Link Player’s Card program has steadily increased. As ofSeptember 30, 2004, we had over 560,000 patrons enrolled, an increase ofapproximately 273,000 patrons over the number enrolled at September 30,2003.

 

Our net gaming revenueincreased $151.7 million, or 82%, for the 12-months endedSeptember 30, 2004 relative to the fiscal year ended September 30,2003. During the 12-months ended September 30, 2004, Seneca Niagara Casinonet gaming revenue increased $103.8 million, or 56%. The May 1, 2004opening of Seneca Allegany Casino accounted for $47.9 million of ourincreased net gaming revenue for the fiscal year ended September 30, 2004.

 

Our food and beveragerevenue and retail revenue have increased in direct relation to our increase ingaming revenue. There is a direct relation between our food and beveragerevenue and retail revenue to our gaming revenue because a significant portionof this revenue is from players’ point redemptions. For the 12-months endedSeptember 30, 2004, 53% of our food and beverage and 85% of our retailrevenue represented players’ point redemptions. For the 12-months endedSeptember 30, 2004, food and beverage revenue increased $15.2 million,or 94% to $31.4 million. For the 12-months ended September 30, 2004,Seneca Niagara Casino contributed $11.3 million of the increase due tohigher gaming revenue and the opening in May 2004 of our steakhouse.Seneca Allegany Casino generated $3.9 million in food and beverage revenuesince its May 1, 2004 opening.

 

For the 12-months endedSeptember 30, 2004, our retail, entertainment and other revenue increasedby $6.9 million, or 145% compared to the fiscal year endedSeptember 30, 2003. The increase is primarily attributed to higher revenueat our Seneca and other Niagara Casino of $6.0 million for the 12-monthperiod. The increase was due to higher gaming revenue, and the addition ofretail revenue of $918,000 at Seneca Allegany Casino

 

*DetailedOperating Expenses Information*

 
| ** **                               | ** ** | **Fiscal Year  Ended  September 30,** | ** ** | **Period from  Inception to  September 30,** | ** ** |
|------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------|------------|
| **(dollars in thousands)**               | ** ** | **2004**                                   | ** ** | **2003**                                          | ** ** | **2002** | ** ** |
| ** **                               | ** ** | ** **                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Operating  expenses:                     |       |                                       |       |                                              |       |   |   |
| Gaming                                   |       | $                                          | 92,531     |                                              | $          | 53,686 | ** ** | **$** | **—** | ** ** |
| Food and  beverage                       |       | 26,387                                     |       | 15,856                                            | ** ** | **—** | ** ** |
| Retail,  entertainment and other         |       | 7,184                                      |       | 2,732                                             | ** ** | **—** | ** ** |
| Advertising,  general and administrative |       | 91,552                                     |       | 42,176                                            | ** ** | **—** | ** ** |
| Preopening costs                         |       | 4,228                                      |       | 7,155                                             |       | 2,961 |   |
| Depreciation and  amortization           |       | 17,638                                     |       | 8,723                                             | ** ** | **—** | ** ** |
| Operating  expenses                      |       | $                                          | 239,520    |                                              | $          | 130,328 |   | $ | 2,961 |   |

* *

Gaming expensesprincipally consist of costs incurred from operating our table games and slotmachines, of which the primary components are related payroll and employeebenefit costs, and the slot exclusivity fee due to New York State pursuant tothe Compact. For the fiscal years ended September 30, 2004 and 2003, theslot exclusivity fee was $51.6 million and $28.9 million,respectively and these amounts were transferred by SGC to the Nation in January2004 and 2005, respectively. Seneca Allegany Casino incurred a slot exclusivityfee of $7.6 million during the period since its May 1, 2004 opening.The increase in the Seneca Niagara Casino portion of the slot exclusivity feeis attributed to higher slot revenue. Currently, the exclusivity fee is 18% ofthe slot machine net drop (money dropped into the machines after payout butbefore our expenses). This fee will increase to 22% on January 1, 2007 andto 25% on January 1, 2010.

 

Food and beverageexpenses are costs we incur for the operation of our restaurants, snack barsand beverage outlets. The primary components of these expenses are the cost offood and beverages, and related payroll and employee benefit expenses.

 

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For the 12-months ended September 30, 2004, our food and beveragecosts increased $10.5 million, or 66% from the comparable 2003 period.This increase was due to the higher food and beverage revenue at Seneca NiagaraCasino, and costs associated with the May 2004 opening and operating ofour steakhouse, and $3.6 million of food and beverage costs at SenecaAllegany Casino incurred since its May 1, 2004 opening.

 

Retail, entertainment andother expenses represent our costs to operate our retail shops and entertainmentofferings. The components of these expenses include related payroll andemployee benefit costs, the purchase of products offered for sale in our retailoutlets, and contract costs for entertainers. For the 12-months endedSeptember 30, 2004 these costs increased approximately $4.5 million,or 163%. The increase is principally attributed to higher point redemptions byour patrons at Seneca Niagara Casino for retail merchandise.

 

Advertising, general andadministrative expenses are incurred to support our operations. These expensesconsist primarily of related payroll and employee benefits costs, regulatory,advertising, rent, marketing, insurance, legal and energy costs. For the12-month period ended September 30, 2004, these expenses were $91.6 millioncompared to $42.2 million during the same period in 2003. This representsan increase of $49.4 million, or 117%. Seneca Allegany Casino incurred$15.2 million in such expenses since their May 1, 2004 opening.  For the 12-months ended September 30, 2004regulatory costs increased $5.4 million or 93.4%. Special events andadvertising expenses increased $5.2 million or 138.5%. In addition, we madelease payments to the Nation for the land upon which we operate Seneca NiagaraCasino and Seneca Allegany Casino totaling $15.8 million and$3.0 million during the 12-months ended September 30, 2004 and 2003,respectively.

 

Seneca Niagara Casinoadvertising, general and administrative expenses increased $33.4 millionfor the 12-months ended September 30, 2004 relative to the same period in2003. Of this increase, $9.0 million represents increased lease paymentsmade to the Nation for the land and building used for the casino, the leasepayments increased from $3.0 million in 2003 to $12.0 million in 2004. The remainderof the increase is attributable to higher advertising and promotional expensesto support increased gaming activities. Seneca Allegany Casino incurred$15.2 million in such expenses since their May 1, 2004 opening,including $3.8 million of lease payments made to the Nation for the landon which it operates.

 

Preopening expenses arecosts we incurred principally in connection with the December 31, 2002opening of the Seneca Niagara Casino and the May 1, 2004 opening of SenecaAllegany Casino. These expenses include employee costs, legal, marketing andadvertising expenses and other direct expenses related to the opening of ourcasinos. Preopening expenses associated with the opening of Seneca AlleganyCasino were approximately $3.8 million during the 12-month period endedSeptember 30, 2004. In addition, we incurred pre-opening expenses atSeneca Niagara Casino of approximately $169,000 in connection with the openingof our steakhouse and poker room in May 2004. We also incurred approximately$286,000 for development expenses related to our future Erie County site thatwe are attempting to acquire for our third Class III casino.

 

*InterestIncome and Expense*

* *

The following tablesummarizes information related to interest on our long-term debt:

 
| ** **                 | ** ** | **Fiscal Year  Ended  September 30,** | ** ** | **Period from  Inception to  September 30,** | ** ** |
|----------------------------|------------|--------------------------------------------|------------|---------------------------------------------------|------------|
| **(dollars in thousands)** | ** ** | **2004**                                   | ** ** | **2003**                                          | ** ** | **2002** | ** ** |
| ** **                 | ** ** | ** **                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Interest expense           |       | $                                          | 33,702     |                                              | $          | 15,515 | ** ** | **$** | **—** | ** ** |
| Interest income            |       | 1,535                                      |       | 44                                                | ** ** | **—** | ** ** |
|                            |            |                                            |            |                                                   |            |  |  |  |  |  |

 

Our interest cost for the12-months ended September 30, 2004 is attributable to the$300 million aggregate principal amount of the Notes, issued inMay 2004 by SGC, SNFGC’s term loan, equipment financing, net ofcapitalized interest, and the fair value adjustments for interest rate caps. Theterm loan requires us to make monthly interest payments on the outstandingbalance at one-month LIBOR plus 29%. As of September 30, 2004 and 2003,$80.0 million and $57.3 million were outstanding respectively underthe term loan. For the 12-months ended September 30, 2004, our netinterest costs were $30.4 million, an increase of $15.9 million, or109%, over the comparable period in 2003. This increase results from theissuance of the senior notes in May 2004 and the increased amountoutstanding under the term loan.

 

Prior to the offering ofthe Notes, SNFGC and STGC had financing arrangements with slot machine vendorsthat initially provided approximately $37.3 million and$18.1 million, respectively, of gaming equipment financing. We usedoperating cash flow and proceeds from the Note offering to repay these loans infull in May 2004.

 

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**Liquidity and Capital Resources**

** **

*CashFlows*

 
| ** **                                        | ** ** | **Fiscal Year  Ended  September 30,** |    | **Period from  Inception to  September 30,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------|---------|---------------------------------------------------|------------|
| **(dollars in thousands)**                        | ** ** | **2004**                                   |    | **2003**                                          |       | **2002** | ** ** |
| ** **                                        | ** ** | ** **                                 |    | ** **                                        |       | ** ** | ** ** |
| Net cash  provided by (used in) operations        |       | $                                          | 143,803 |                                              | $          | 97,720 |   | $ | (69 | ) |
| Investing cash  flows                             |       |                                       |    |                                              |       |   |   |
| Capital  expenditures                             |       | (168,704                                   | )       | (111,607                                          | )          | (39 | ) |
| Payments for  land acquisitions and other assets  |       | (12,036                                    | )       | (7,356                                            | )          | **—** | ** ** |
| Purchase of  investments                          |       | (57,963                                    | )       | **—**                                        |       | **—** | ** ** |
| Net cash used in  investing activities            |       | (238,703                                   | )       | (118,963                                          | )          | (39 | ) |
| Financing cash  flows                             |       |                                       |    |                                              |       |   |   |
| Proceeds from  term loan                          |       | 22,700                                     |    | 57,300                                            |       | **—** | ** ** |
| Proceeds from  Notes                              |       | 300,000                                    |    | **—**                                        |       | **—** | ** ** |
| Proceeds from  notes payable, equipment and other |       | 19,266                                     |    | 37,344                                            |       | 250 |   |
| Repayment of  notes payable, equipment and other  |       | (46,916                                    | )       | (8,487                                            | )          | **—** | ** ** |
| Repayments from  note payable to the Nation       | ** ** | **—**                                 |    | (250                                              | )          | **—** | ** ** |
| Payment to  sinking fund                          |       | (6,048                                     | )       | **—**                                        |       | **—** | ** ** |
| Purchase of interest  rate caps                   |       | (2,188                                     | )       | **—**                                        |       | **—** | ** ** |
| Payment of  deferred financing costs              |       | (11,937                                    | )       | (5,168                                            | )          | (10 | ) |
| Cash dividends  to the Nation                     |       | (28,010                                    | )       | **—**                                        |       | **—** | ** ** |
| Net cash  provided by financing activities        |       | 246,867                                    |    | 80,739                                            |       | 240 |   |
| Net increase in  cash and cash equivalents        |       | $                                          | 151,967 |                                              | $          | 59,496 |   | $ | 132 |   |

 

*Cash Flows—Operating Activities.***  The increase in cash flowsfrom operations during the 12-months ended September 30, 2004 compared tothe same period in 2003 is primarily due to higher net income which resultedfrom three additional months of operations at Seneca Niagara Casino during thisperiod, increased marketing and deeper market penetration, the opening of the2,300-space connected parking garage at our Seneca Niagara Casino, the increasein the membership of our Seneca Link Player’s Card program, and the May 1,2004 opening of Seneca Allegany Casino.

 

*Cash Flows—Investing Activities.***  Our capital expenditures of$168.7 million during the 12-months ended September 30, 2004 werecomprised of $87.5 million of costs associated at the Seneca NiagaraCasino related to the expansion projects discussed above and $81.2 millionrelated to the construction and equipping of our Seneca Allegany Casino, Wealso incurred costs toward land acquisition in 2004 and 2003 of $12.0 millionand $7.2 million, respectively.

 

During 2004, we invested$48.0 million in collateralized market auction preferred stock and $9.9 millionin a U.S. Government entity short-term note. These investments do not meet thedefinition of a cash equivalent. Market auction preferred stock has a dividendrate determined periodically (typically less than 90 days) based on an auctionmechanism. Notwithstanding the liquidity which may be provided by the auctionprocess, market auction preferred stock generally does not have a scheduledmaturity.

 

*Cash Flows—Financing Activities.***  We borrowed the remaining$22.7 million that was available under the term loan on April 15,2004. We are obligated to pay interest on the outstanding balance at LIBOR plus29%. In addition, SNFGC is obligated to maintain a minimum cash balance of$10.0 million and a pro rata share of the sinking fund obligation, whichrequires a payment of $12.0 million by December 31, 2004. Inaddition, we borrowed $37.3 million from vendors to finance the initialequipment for Seneca Niagara Casino at interest rates ranging from 6.0% to6.42% for 36 months. The outstanding balance of these loans was paid infull in May 2004, and we recognized a gain, net of the write-off ofdeferred finance fees related to this financing of $415,000. This gain isincluded in Other Income in our Statement of Operations for the 12-months endedSeptember 30, 2004.

 

In May 2004, SGCsold $300.0 million of Notes, with net proceeds to SGC of $288.7 millionafter financing costs. These proceeds are used principally to fund SNFGC’sconstruction and equipping of the luxury hotel, which we expect to(i) cost $200.0 million and (ii) be fully completed by March 31,2006; the acquisition of the remaining approximately 26 acres of the approximately50 acres in the City of Niagara Falls, New York, the payment of the EmpireState Development Corporation, or ESDC, bonds to the State of New York, whichwere paid off on August 16, 2004 for $22.0 million, and the payment of theequipment notes mentioned previously.

 

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We purchased two interestrate caps in May 2004 for $2.2 million that cap the term loaninterest at 29% plus 4% on the thirty-day LIBOR. As part of the$300.0 million Note offering we paid the Nation a dividend of$25 million.

 

*Principal Debt Arrangements.***  As of September 30,2004, our long-term debt consists of the Notes on which we pay a fixed interestrate of 7.25%, and the $80.0 million on our term loan, upon which we payvariable interest based on LIBOR plus 29%.  Following is a summary of certain material terms of the Notes and theterm loan.

 

TheNotes.  OnMay 5, 2004, SGC issued $300.0 million in senior notes with fixed interestpayable at a rate of 7.25% per annum due 2012. These securities are guaranteedby STGC and SEGC.  SNFGC will guaranteethe debt securities after repayment of the term loan inNovember 2007.  Interest on theNotes is payable semi-annually on November 1 and May 1. The Notesmature on May 1, 2012. The Notes are unsecured general obligations and areeffectively junior to the term loan to the extent of the collateral securingthe term loan. As of September 30, 2004, accrued interest on the Notes was$8.8 million.

 

The Notes indenturecontains certain covenants, including limitations on restricted payments andthe incurrence of indebtedness and reporting obligations. As ofJanuary 28, 2005, SGC has been in compliance with all of its respectivecovenant requirements, other than its financial reporting requirement, which itsatisfied upon the filing of its Annual Report on Form 10-K for the yearended September 30, 2004, or the 2004 Form 10-K, with the Securitiesand Exchange Commission, or SEC, on May 9, 2005 and the filing of our QuarterlyReport on Form 10-Q for the period ended December 31, 2004 with theSEC on May 9, 2005.  The reportswere delayed due to the independent investigation called for by the Council,which we disclosed in a Current Report on Form 8-K filed with the SEC onDecember 3, 2004 and January 13, 2005.  See “Item 9B—Other Information” for adiscussion regarding the conclusion of the independent investigation. Thecovenants contained in the indenture permit the Company to borrow an additional$15.0 million for equipment and obtain an unsecured subordinate credit facilityup to $150.0 million less the amount remaining under the term loan.

 

TermLoan.  SNFGCentered into a five-year term loan with Freemantle Limited, or the Lender,dated November 22, 2002. The term loan requires that the Lender provide$80.0 million in financing for the initial construction of the SNFGC casinofacility and other related costs. As of September 30, 2004 and 2003, $80.0million and $57.3 million were outstanding respectively. The entire outstandingbalance is due on November 22, 2007. SNFGC pays interest on a monthlybasis in arrears at the one-month LIBOR (1.67% at September 30, 2004) plustwenty-nine percent (29%). In addition, SNFGC incurred an availability fee of0.5% per month on any unborrowed balance. On April 15, 2004, SNFGCborrowed the remaining $22.7 million available under the term loan.

 

SNFGC has pledgedsubstantially all of its assets as collateral for the outstanding amounts dueunder the term loan.  SNFGC is alsoobligated to make payments into a sinking fund account to be held for thebenefit of and as additional collateral for the Lender. Payments of $6.0million and $12.0 million were made in December 2003 and 2004,respectively, into the sinking fund. Commencing January 1, 2005 and through December 31, 2006,equal quarterly payments for $5.5 million each are due on or before the lastday of each calendar quarter, resulting in annual payments of $22.0 million.Commencing January 1, 2007 through the maturity date of the term loan, November 22,2007, three equal quarterly payments are due on or before the last day of thefirst three calendar quarters and one final payment is due on the maturitydate, of $4.5 million, or $18.0 million in total. SNFGC may satisfy theseamounts by entering into an unconditional bank loan commitment or irrevocablestandby letter of credit for the benefit of the lender.

 

The term loan containsvarious covenants; these include, but are not limited to, restrictions onSNFGC’s ability to pay dividends, guarantee of debt, limitations on additionalborrowings, uses of cash, minimum debt coverage, anddebt coverage threshold ratios. The term loan requires SNFGC to maintain, atall times through the maturity of the term loan, a minimum cash balance of$10.0 million. In addition, the term loan requires SNFGC to establish asegregated bank account where its operating andinvestment cash is maintained. In the event of default, as defined in the termloan, the Lender has recourse to these funds as additional collateral. SNFGCmay obtain a release of the collateral pledged as support for the borrowings bydepositing funds sufficient to cover the $80.0 million principal balance of theterm loan and all cumulative successive interest payments due until thematurity date of the term loan. Based upon the $80.0 million principal amountborrowed under the term loan, the total funding required at September 30,2004, in addition to the Sinking Fund balance of $6.0 million at that date,would be approximately $152.0 million. As of January 28, 2005, SGC hasbeen in compliance with all of its respective covenant requirements, other thanits financial reporting requirement, which it satisfied upon the filing of the2004 Form 10-K with the SEC on May 9, 2005 and the filing of ourQuarterly Report on Form 10-Q for the period ended December 31, 2004with the SEC on May 9, 2005.  Thereports were delayed due to the independent investigation called for by theCouncil, which we disclosed in a Current Report on Form 8-K filed with theSEC on December 3, 2004 and January 13, 2005.  See “Item 9B—Other Information” for adiscussion regarding the conclusion of the independent investigation.

 

SNFGC, the Nation and theLender, have reached a tentative agreement to terminate the term loan, allowingSNFGC to pay the term loan at a negotiated amount. The parties are still in theprocess of finalizing a definitive agreement to effectuate the payment of thenegotiated amount. At this time, we cannot provide any assurance that theparties will be able to agree to a definitive agreement.

 

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The above descriptions ofthe Notes and term loan agreement are only a summary.  You should review the Notes indenture andterm loan agreement for an understanding of all of the terms and conditions ofthese financing arrangements.  The Notesindenture and term loan agreement are filed herewith as Exhibits 4.1 and10.2, respectively, and are incorporated herein by reference.

 

During the next 18 to20 months, we plan to make substantial capital improvements to our gamingfacilities. In May 2004, at Seneca Niagara Casino we commencedconstruction of a new 604-room luxury hotel, including 35,000 square feet ofadditional gaming space and with approximately 950 slot machines. We expect thecost of constructing and equipping of this hotel to be approximately$200.0 million, which includes $153.0 million in construction costspursuant to a guaranteed maximum fixed price design and construction contractfor the luxury hotel, which includes a construction contingency ofapproximately $8.6 million, and approximately $47.0 million forfurniture, fixtures and equipment. Seneca Niagara Casino will remain openduring the construction and completion of the luxury hotel.

 

The Nation intends toacquire the remaining approximately 26 acres of the approximately 50 acres inthe City of Niagara Falls, New York, designated by New York State under theCompact for ownership by the Nation. Under the Compact, the Nation is requiredto fund the acquisition of this property, including all related costs andexpenses. As initial security for the Nation’s obligations to pay siteacquisition costs and as a condition to the initiation of the condemnationproceeding, the Nation must deliver to the Empire State Development Corporation,or the ESDC, a letter of credit or cash escrow in the aggregate amount of thegreater of (a) 150% of the estimate of the total remaining siteacquisition costs not yet paid by the Nation, and (b) any other amountrequired by the court, or the Escrow Amount. We continue to attempt to acquirethis land, if possible, through negotiations with current owners. We presentlyestimate 150% of site acquisition costs to be approximately $30.0 million.

 

Pursuant to agreementsentered into in furtherance of the Compact, SNFGC was obligated to pay the ESDCthe principal due on the bonds incurred in connection with the construction ofthe Niagara Falls Convention Center upon the opening of a permanent gamingfacility in the City of Niagara Falls, New York. The principal amount due was$23.9 million. ESDC accepted an early, discounted payment of approximately$22.0 million in full satisfaction of our $23.9 million obligationunder the Compact**.**This payment was made on August 16, 2004.

 

In July 2004, wecommenced construction of a 1,850 space-parking garage and a 225-room hotel atour Seneca Allegany Casino. The estimated cost to construct and equip thisexpansion is between $180.0 million and $185.0 million. We expect thegarage to open in August 2005 and the hotel by November 2006. Weexpect cash generated from our operations and available cash as ofSeptember 30, 2004 to be sufficient to fund our expansion plans describedabove, service our debt, and meet our working capital requirements for the nearfuture. However, our ability to fund our operations, make planned capitalexpenditures and service our debt depends on our future operating performanceand cash flow, which are in turn subject to prevailing economic conditions andto financial, business and other factors, some of which are beyond our control.Additionally, unlike traditional corporations, we are prohibited by law fromgenerating cash through an offering of equity securities and, our ability toincur additional indebtedness is limited under the terms of (i) theindenture governing the Notes, and (ii) the term loan.

 

We are highly leveragedand have significant interest and sinking fund payment requirements pursuant toour Notes and term loan agreement. As such, limitations on our capitalresources could force us to delay or abandon capital projects as well as theconstruction and development of new properties.

 

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**Contractual Obligations and Commercial Commitments**

** **

The following tablereflects our significant contractual obligations and other commercialcommitments as of September 30, 2004: 

 
| ** **                                                        | ** ** | **Payment due by period** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------|------------|
| **Contractual Obligations  (dollars in thousands)**               | ** ** | **Total**                 | ** ** | **1 Year** | ** ** | **2-3  Years** | ** ** | **4-5  Years** | ** ** | **After 5  Years** | ** ** |
|                                                              |       |                      |       |   |   |   |   |   |   |   |   |
| Deposits into  sinking fund to be used for repayment of term loan |       | $                         | 74,000     |   | $ | 28,500 |   | $ | 41,000 |   | $ | 4,500 |   | $ | — |   |
| Principal amount  of term loan                                    |       | 80,000                    |       | — |   | — |   | 80,000 |   | — |   |
| Principal amount  of 7.25% notes                                  |       | 300,000                   |       | — |   | — |   | — |   | 300,000 |   |
| Interest  payments (1)                                            |       | 242,090                   |       | 46,286 |   | 92,572 |   | 47,044 |   | 56,188 |   |
| Seneca Niagara  Casino hotel construction                         |       | 122,000                   |       | 84,900 |   | 37,100 |   | — |   | — |   |
| Seneca Allegany  Casino construction projects                     |       | 145,000                   |       | 73,100 |   | 71,900 |   | — |   | — |   |
| Seneca Niagara  Casino operating lease                            |       | 231,000                   |       | 12,000 |   | 24,000 |   | 24,000 |   | 171,000 |   |
| Seneca Allegany  Casino operating lease (2)                       |       | 287,500                   |       | 13,750 |   | 30,000 |   | 30,000 |   | 213,750 |   |
| Total                                                             |       | $                         | 1,481,590  |   | $ | 258,536 |   | $ | 296,572 |   | $ | 185,544 |   | $ | 740,938 |   |

 

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(1)            Intereston long-term debt consists of estimated interest on the term loan at theSeptember 30, 2004 interest rate of 30.67% and interest at 7.25% on theNotes.

 

(2)            Amountsrepresent current commitment of $1.25 million per month beginning inMarch 2005 for the lease payment through the term of the Compact.

 

**Regulation**

** **

Our operations areregulated by Nation laws, the Compact and federal statutes, most notably theIndian Gaming Regulatory Act, or IGRA. Several bills have been proposed duringthe current and recent sessions of U.S. Congress that could affect Indian gaming.Notably, though its proposed legislation has yet to be presented to Congress,the Policies and Procedures Subproject of the Bureau of Indian Affairs hasproposed sweeping changes to the federal laws concerning Indians. Certain ofsuch bills, if enacted, could impair the ability of the Nation and SGC toexpand its gaming operations and adversely impact the future growth of theNation’s revenue base. In addition, from time to time, various governmentofficials have proposed taxing Indian casino gaming or otherwise limiting orrestricting the conduct of gaming operations by Indian tribes. We cannot assureyou that such legislation, if and when enacted by Congress, would not have amaterial adverse effect on the operations of SGC.  Senator John McCain, Chairman of the SenateIndian Committee, has announced a series of hearings to consider a variety ofpossible amendments to IGRA. If Congress were to enact comprehensive amendmentsto IGRA, such legislation could have a material affect on the operations of SGC.In addition, under federal law, gaming on the Nation’s lands may be dependentupon the permissibility under New York law of certain forms of gaming orsimilar activities. If New York State were to make various forms of gamingillegal or against public policy (or the courts were to rule similarly),or otherwise to take a legal position adverse to the Compact or any of itsprovisions, such actions could have a material adverse effect on the ability ofour casinos to conduct their gaming operations as currently conducted.Moreover, a 1996 U.S. Supreme Court decision may permit a state to avoid orrefuse to negotiate amendments to existing compacts such as the Compact.

 

**New Accounting Pronouncements**

** **

There are no accountingstandards that have not yet been adopted which are expected to have a materialimpact on our financial reporting.

 

**Factors That May Affect Future Results**

** **

In addition to the otherinformation in this Annual Report, you should consider carefully the followingfactors in evaluating Seneca Gaming Corporation and our business.

** **

**We have incurred a substantial amount of indebtedness,which could adversely affect our financial condition and prevent us fromfulfilling our obligations under our outstanding obligations.**

** **

We have incurredsubstantial indebtedness and have significant fixed debt service obligations inaddition to our operating expenses. As of September 30, 2004, we had$300.0 million of Notes and $80.0 million outstanding under a seniorsecured term loan entered into by SNFGC, or the term loan. The indenturegoverning the Notes and the term loan permit us and our subsidiaries to incuradditional debt in certain limited circumstances. If we incur additional debtin the future, the related risks could intensify.

 

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Our high level ofindebtedness could have important consequences to our creditors and significantadverse effects on our business. For example, it could:

 

•                  increase our vulnerability to general adverseeconomic and industry conditions or a downturn in our business;

 

•                  limit our ability to obtain additional debtfinancing for working capital, capital expenditures or other purposes;

 

•                  require us to dedicate a substantial portion ofour cash flow from operations to payments on our indebtedness, thereby reducingthe availability of our cash flow to fund working capital, capitalexpenditures, development projects and other general business purposes;

 

•                  limit our flexibility in planning for, or reactingto, changes in our business and the industry in which we operate; and

 

•                  place us at a competitive disadvantage compared toour competitors that have less debt and/or more financial resources.

 

If our indebtednessaffects our operations in these ways, our business, financial condition andresults of operations could suffer, making it more difficult for us to satisfyour obligations under our outstanding debt arrangements.

 

**Our failure to generate sufficient cash flow from ouroperations could adversely affect our ability to make payments on ouroutstanding debt obligations.**

** **

Our ability to makepayments on our outstanding Notes and the term loan will depend on our abilityto generate cash flow from our current and future operations. Our ability togenerate sufficient cash flow to satisfy our obligations will depend on ourfuture operating performance, which is subject to many economic, competitive,regulatory and business factors that are beyond our control. If we are not ableto generate sufficient cash flow to service our debt obligations, we may needto refinance or restructure our debt, sell assets or reduce or delay capitalinvestments, or seek to raise additional capital. For the following reasons,among others, these measures may not be available to us on reasonable terms orat all, or, if available, they may not be adequate to enable us to satisfy ouroutstanding debt obligations:

 

•                  our ability to incur additional debt will belimited by the covenants of the indenture governing the Notes and by the termloan;

 

•                  the ability of SNFGC to pay cash dividends to usis limited by the financial covenants contained in the term loan;

 

•                  in the event additional financing is allowed underthe indenture governing the Notes and the term loan, the encumbrances on ourassets due to their use as security for the term loan may discourage financialinstitutions from agreeing to provide us with additional financing;

 

•                  the indenture governing the Notes and the termloan include covenants which limit our ability to create additional liens on orsell our assets;

 

•                  unlike non-governmental businesses, we areprohibited by law from generating cash through an offering of equitysecurities; and

 

•                  in the event of a sale of our assets as permittedunder the indenture governing the Notes, our ability to maximize the value ofour assets will be decreased because their value will be limited by theencumbrances on our assets due to their use as security for the term loan.

 

If our cash flow isinsufficient and we are unable to raise additional capital, we may not be ableto service our debt obligations, including making payments on the Notes and theterm loan.

 

**We are subject to greater risks than a geographicallydiverse company.**

** **

We currently relyexclusively on cash flow from Seneca Niagara Casino and Seneca Allegany Casinoto service our obligations, including the Notes. While we expect to expand thegeographic scope of our patron base as a result of our expansion project, ourSeneca Niagara Casino relies primarily on patrons from within a 100-mile radiusfor its cash flow and Seneca Allegany Casino relies primarily on patrons fromwithin an 80-mile radius for its cash flow. Further, our future expansion plansfor additional casino operations as permitted by the Compact are limited toWestern New York. As a result, in addition to our susceptibility to adverseglobal and domestic economic, political and business conditions, any economicdownturn in the region could have a material adverse effect on our operations.An economic downturn would likely cause a decline in the disposable income ofconsumers in the region, which could result in a decrease in the number ofpatrons at Seneca Niagara Casino and Seneca Allegany Casino, the frequency oftheir visits and the average amount that they would

 

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each be willing to spend at thecasinos. We are subject to greater risks than more geographically diversifiedgaming or resort operations and may continue to be subject to these risks uponcompletion of our expansion project, including:

 

•                  a downturn in national, regional or local economicconditions;

 

•                  an increase in competition in New York State orthe Northeastern United States and Canada, particularly for day-trip patronsresiding in New York State, including as a result of recent legislationpermitting new Indian casinos and video gaming machines at certain racetracks;

 

•                  impeded access due to road construction orclosures of primary access routes; and

 

•                  adverse weather, and natural and other disasters in theNortheastern United States and Canada.

 

Although we maintaininsurance customary in our industry (including property, casualty, terrorismand business interruption insurance), we cannot assure you that such insurancewill be adequate or available to cover all the risks to which our business andassets may be subject. The occurrence of any one of the events described abovecould cause a material disruption in our business and make us unable togenerate sufficient cash flow to make payments on the Notes.

 

**We compete with casinos, other forms of gaming andother resort properties. If we are unable to compete successfully, we will notbe able to generate sufficient cash flow to make payments on our outstandingdebt obligations.**

** **

Our casino operationscompete with casinos, other forms of gaming and other resort properties locatedwithin and outside New York State. Currently, there are two casino resorts,Casino Niagara and Niagara Fallsview Casino Resort, and two video gamingfacilities, Finger Lakes Gaming and Racetrack and Buffalo Raceway, within the100-mile radius that constitutes Seneca Niagara Casino’s and Seneca AlleganyCasino’s primary market. Existing gaming facilities within our casino’s primarymarket area, as well as potentially new market entrants, have and will have adirect effect on our operations. In addition, casinos and gaming-relatedoperations in our broader regional market may also affect us and may reduce ourability to draw patrons.

 

Seneca Niagara Casinocompetes with Casino Niagara and Niagara Fallsview Casino Resort which arelocated in Niagara Falls, Ontario, and are both within two miles of SenecaNiagara Casino. Casino Niagara and Niagara Fallsview Casino Resort are ownedand operated by the Province of Ontario and managed by the Hyatt-led FallsManagement Company. Casino Niagara offers 100,000 square feet of gaming spaceincluding more than 2,800 slot machines, 135 table games, four restaurants, andeight bars. Niagara Fallsview Casino Resort opened in June 2004. NiagaraFallsview Casino Resort features 180,000 square feet of gaming space including3,000 slots, 150 table games, a 368-room Hyatt hotel, a spa and variousrestaurant and entertainment venues. To a lesser extent, we compete with CasinoRama, which is north of Toronto and approximately 150 miles north of SenecaNiagara Casino and is located on the Chippewas of Mnjikaning (Rama) FirstNation’s Territory. Nordic Gaming Corporation also operates a racetrack andvideo gaming facility located in Fort Erie, Ontario. This facility features1,200 VGMs and is located approximately 22 miles from Seneca NiagaraCasino.

 

Seneca Allegany Casinocompetes with Buffalo Raceway, a racetrack facility offering approximately1,000 VGMs in a 27,000 square foot gaming facility. Buffalo Raceway islocated approximately 50 miles from us. At the present time, there are no otherdirect gaming facilities that compete with Seneca Allegany Casino. To a lesserextent, we compete with other recreational amenities offered in the area.

 

Despite the exclusivityin Western New York provided by the Compact, our casinos face competition inNew York State from both Indian and non-Indian gaming operations. The Compactallows New York State to permit the Tuscarora Indian Nation and the TonawandaBand of Seneca Indians to obtain the right to include gaming devices in acompact without abrogating the exclusivity provisions of the Compact, so longas either tribe locates its proposed gaming facility either on its existingreservations or more than 25 miles from a Nation Gaming Facility. In addition,New York State could allow other Indian gaming facilities to be located withinour area of exclusivity, in which case it would forfeit its right to receiveexclusivity fees for the types of Class III games in such competitor’sfacility on which the Nation pays an exclusivity fee under the Compact. Of theseven federally recognized Indian nations in New York other than the Nation,only the St. Regis Mohawk Tribe and the Oneida Indian Nation of New York havesigned compacts with New York State to open casinos.

 

The St. Regis MohawkTribe currently operates a small casino facility near Hogansburg, New York,approximately 350 miles and 390 miles from Seneca Niagara Casino and SenecaAllegany Casino, respectively, and the Oneida Indian Nation operates a gamingfacility resort near Syracuse, New York, approximately 190 miles and 235 milesfrom Seneca Niagara Casino and Seneca Allegany Casino, respectively. In October2001, New York State authorized six new casinos to be run by Native Americansin the state, each of which was to be permitted to feature Class III slotmachines. The State’s legislation authorizing the six new Indian casinos wasrecently upheld by the New York Court of Appeals in *Dalton v. Pataki, et al.,*and *Karr v. Pataki, et al*. Three of these authorized casinos are or will be operated by us (SenecaNiagara Casino, Seneca Allegany Casino and Seneca Erie Casino). It was expectedthat the other three casinos would  be located in Sullivan and UlsterCounties in the Catskill region, approximately 330 miles and 320 miles fromSeneca Niagara Casino and Seneca Allegany Casino, respectively.

 

The Governor previouslyreached settlement agreements, subject to numerous contingencies, with thefollowing tribes for Class III gaming operations to be located in Sullivan orUlster Counties in the Catskills region: the St. Regis Mohawk Tribe, theSeneca-Cayuga Tribe of Oklahoma, the Cayuga Nation of New York, the OneidaNation of Wisconsin, and the Stockbridge Munsee Community.  In connection with these settlementagreements, the Governor introduced a bill in the New York State GeneralAssembly which would have, among other things, authorized land claimsettlements with the five tribes mentioned above and increased from three tofive the number of authorized Class III gaming facilities in the Counties ofSullivan and Ulster.  In anticipation ofthe settlements, the Stockbridge-Munsee Community filed a trust landapplication for approximately 330 acres in Bridgeville, New York, and theCayuga Indian Nation of New York announced a venture with the owner of theMonticello Raceway, Empire Resorts, to build a $500 million casino adjacent tothe Monticello Raceway.  However, as aresult of the United States Supreme Court’s recent decision in *City of Sherrill, NY v. Oneida Indian Nation of New York*,125 S. Ct. 1478 (March 29, 2005), the Governor recently withdrew pendinglegislation and land claim settlements with the Seneca-Cayuga Tribe ofOklahoma, the Cayuga Nation of New York, the Oneida Nation of Wisconsin, andthe Stockbridge Munsee Community. We are advised that  the Governor has found it necessary toreview and reevaluate the proposals with these four Indian tribes in light ofthe recent Supreme Court decision. The withdrawal does not include the St.Regis Mohawk Tribe proposal, whose land claim is not affected by the Sherrillcase.  In light of these developments,the only casino development that seems imminent in Sullivan or Ulster Countiesis the one planned by the St. Regis Mohawks.

 

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In 2001, eight racetracksin New York State were awarded licenses to operate video gaming machines, orVGMs. In January 2004, Sportsystems opened a 1,300-machine videogaming facility at Saratoga Raceway in Saratoga Springs, New York,approximately 325 miles and 340 miles from Seneca Niagara Casino and SenecaAllegany Casino, respectively. This video gaming facility made Saratoga thefirst racetrack to offer VGMs under the law enacted over two years ago.Shortly thereafter, in February 2004, Finger Lakes Gaming and Race Trackin Farmington, New York, approximately 100 miles and 140 miles from SenecaNiagara Casino and Seneca Allegany Casino, respectively, opened a 1,010-machinevideo gaming facility. Buffalo Raceway in Hamburg, New York, approximately 30miles and 50 miles from Seneca Niagara Casino and Seneca Allegany Casino,respectively, opened a 27,000 square foot gaming facility in March 2004and offers nearly 1,000 VGMs. Monticello Raceway in Monticello, New York,approximately 325 miles and 280 miles from Seneca Niagara Casino and SenecaAllegany Casino, respectively, opened a gaming facility on June 30, 2004,with approximately one-half of its planned 1,743 VGMs installed.

 

Batavia Downs, inBatavia, New York, approximately 50 miles from Seneca Niagara Casino, isscheduled to open on May 18, 2005, with 586 VGMs. The New York RacingAssociation granted a right to operate VGMs at the Aqueduct racetrack inQueens, New York, approximately 450 miles from Seneca Niagara Casino. Aftersuspending work on the 4,500 video gaming machine facility from August toDecember 2003, the project is now scheduled for completion in late 2004 orearly 2005. In August 2003, Vernon Downs Racetrack in Vernon, New York,approximately 200 miles from Seneca Niagara Casino, commenced construction on a1,100- to 1,200-machine video gaming facility. Originally scheduled to open inNovember 2003, the video gaming facility has experienced multiple delaysand the timing for opening remains uncertain. Yonkers Raceway near Manhattan isengaged in financing and development plans for additional video gamingfacilities and intends to commence operations by mid to late 2005. InJanuary 2004, the Governor of New York proposed allowing up to eightadditional VGM venues in the state. These eight licenses would be awarded in acompetitive bid process and could go to the state-owned Off-Track BettingCorporation or other operators. On July 7, 2004, the mid-level appellatecourt held that the New York State legislation authorizing VGMs Recently,in April 2005, the governor of New York signed a law providing race tracks witha larger share of proceeds from VGMs and extending VGM authorization through2017.  The new law addresses themid-level appellate decision by omitting language providing payment to pursesbreeding funds was unconstitutional because a portion of the VGM revenue isused for horse-racing breeding funds and to increase track purses.

 

Other proposed gamingoperations in New York State include a Cayuga tribe development in UnionSprings, New York, approximately 140 miles from Seneca Niagara Casino, whichhas been approved for a Class II gaming license; a proposed high stakesbingo hall in Aurelius, New York, approximately 150 miles from Seneca NiagaraCasino, which is being pursued by the Seneca-Cayuga Tribe of Oklahoma; and aproposed casino in Hampton Bays, New York, approximately 530 miles from SenecaNiagara Casino, which is being pursued by the Shinnecock Tribe. The likelihoodand timing of these projects is uncertain at this point in time.

 

There are also severalfederally recognized Indian tribes and unrecognized Indian groups that arepursuing casino projects in New York State and other northeastern states,which, if successful and completed, could compete with us. In addition, onJuly 5, 2004, the governor of Pennsylvania signed a bill permitting up toan aggregate of 61,000 slot machines at 14 locations in Pennsylvania. ThePennsylvania legislation would permit up to 5,000 slot machines at proposed or existingracetracks, or 500 slot machines at two proposed resorts, respectively. Thesefacilities could be located in Pittsburgh or Erie, Pennsylvania, which would bein the primary and secondary market for Seneca Allegany Casino. We also facecompetition from non-gaming leisure activities and destinations.

 

**We depend on our key personnel to manage our businesseffectively and if we are unable to hire additional personnel or retainexisting personnel, our ability to execute our business strategy could beimpaired.**

** **

Our future successdepends upon the continued services of our executive officers. The loss of theservices of certain key operating and executive personnel currently employed byus could have an adverse impact on us. There can be no assurance

 

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that the services of suchpersonnel will continue to be made available to us. We do not maintain keyperson life insurance policies on any of our executives.

 

**We could face difficulties in attracting and retainingqualified employees.**

** **

The operation of theexpanded facilities of Seneca Niagara Casino and Seneca Allegany Casino and theopening of Seneca Erie Casino will require us to hire qualified executives,managers and a significant number of skilled employees with gaming andhospitality industry experience and qualifications. Currently, there is ashortage of skilled labor in the gaming industry in general. We can not assureyou that we will be able to recruit, train and retain a sufficient number ofqualified employees, particularly due to the very small number of workersskilled in the gaming industry that reside in the immediate vicinity of eithercasino.

 

**The indenture governing the Notes and the term loancontains various covenants and provisions that limit our management’sdiscretion in the operation of our business.**

** **

The indenture governingthe Notes and the term loan includes covenants and provisions that, among otherthings, restrict our ability to:

 

•                  incur additional debt;

 

•                  make investments;

 

•                  create liens;

 

•                  enter into transactions with affiliates;

 

•                  sell assets;

 

•                  merge, consolidate or sell substantially all ofour assets; and

 

•                  make capital expenditures.

 

All of these restrictivecovenants may limit our ability to expand our operations or to pursue ourbusiness strategies. Changes in business conditions or results of operations,adverse regulatory developments or other events beyond our control may affectour ability to comply with these and other provisions of the indenturegoverning the Notes and the term loan. The breach of any of these covenantscould result in a default under our indebtedness, which could cause thoseobligations to become due and payable. If our indebtedness were to beaccelerated, there can be no assurance that we would be able to pay it.

 

**Our operations could be adversely affected during ourexpansion.**

** **

Although constructionactivities related to Seneca Niagara Casino and Seneca Allegany Casino areplanned to minimize disruptions, construction noise and debris may disrupt SenecaNiagara Casino and Seneca Allegany Casino’s current operations. Unexpectedconstruction delays could exacerbate or magnify these disruptions. We cannotassure you that construction activities will not have a material adverse effecton our results of operations.

 

**Failure to complete our hotel and garage projects andother future development projects on budget and on time could adversely affectour financial condition.**

** **

Our current expansionproject is, and any future expansion project will be, subject to significantdevelopment and construction risks, any of which could cause unanticipated costincreases and delays. These include, among others, the following:

 

•                  shortages of material and skilled labor;

 

•                  failure to generate sufficient operating cash flowto meet our expansion needs;

 

•                  labor disputes and work stoppages;

 

•                  weather interference or delays;

 

•                  engineering problems;

 

•                  environmental problems;

 

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•                  regulatory problems;

 

•                  increased distributions or headlease payments tothe Nation delaying construction timetables;

 

•                  changes to the plans or specifications;

 

•                  fire, earthquake, flood and other naturaldisasters; and

 

•                  geological, construction, excavation and equipment problems.

 

We have entered into adesign/build guaranteed maximum price contract for the design and constructionof our hotels. The guaranteed maximum price is based upon plans andspecifications that are only partially complete. If we make a change to theplans or upgrade the quality of the fixtures, the final price may exceed ourguaranteed maximum price. While we have the right under the guaranteed maximumprice contract to challenge any change orders submitted by the contractor andwe would expect the final amount of all change orders to be negotiated by usand the contractor, the final determination of any change order may increasethe guaranteed maximum price causing us to exceed the allocated constructionbudget. There can be no assurance that changes in the scope of either projectwill not be required.

 

We cannot provideassurance that construction costs of our two new hotels will be completedwithin our budget or that new operations will open onschedule. Failure to complete the project on time and within our budget maycause us to devote additional resources to the project, which could divert ourtime and attention away from our operation of Seneca Niagara Casino and SenecaAllegany Casino and could cause our business to suffer.

 

In addition, we may notbe able to complete our other expansion programs in a timely manner or at all.For example, in April 2004, we entered into a purchase and sale agreementto acquire a hotel located near Seneca Niagara Casino which would have providedus with 400 mid-tier hotel rooms to market to our patrons. After completing ourdue diligence, we were unable to complete the acquisition and in June 2004we terminated the purchase and sale agreement.

 

**We may not be able to generate enough cash flow tocomplete our current and future expansion projects.**

** **

We intend to fund aportion of our current and future expansion projects with cash flows fromoperations. We cannot provide assurance that we will be able to generate therequired amount of cash from our operations to complete any or all of these projects.In addition, distributions or increased headlease payments to the Nation beyondwhat is currently anticipated will result in our cash flow being diverted fromthe construction of our hotels. If we are not able to generate enough cash topay for our expansion projects, our projects may be delayed and we may need tofind additional sources of funds, which may not be available on termsacceptable to us, if at all. Further, if we incur additional debt to cover thecost of our expansion projects, risks related to our indebtedness couldintensify. If we cannot generate enough cash or find alternative sources offunding to expand our operations, our business, financial condition and resultsof operations could be materially adversely affected and we may not be able tomake payments on the Notes.

 

**We have limited experience operating casinos andhotels in Western New York.**

** **

While our current seniormanagement has over 100 years of combined experience managing significantgaming facilities with hotels, our casinos have been in operation sinceDecember 31, 2002 and May 1, 2004, respectively and we do not haveexperience operating a hotel in Niagara Falls or Salamanca, New York. Ourexpansion plans include opening an additional casino in Western New York andthe addition of a luxury hotel and other amenities for Seneca Niagara Casinoand a resort hotel for Seneca Allegany Casino. We may experience difficultiesin operating more than one casino in a limited geographic region. Further, theaddition of two hotels and other new and untested amenities to our existingcasinos have many of the same risks inherent in the establishment of a newbusiness enterprise since we have no operating history in those activities. Wemay not be able to timely identify or anticipate all of the material risksassociated with operating that business or additional casinos. Our lack ofoperating history in these new ventures may adversely affect our futureoperating results, ability to generate adequate cash flow and ability to makepayments on the Notes.

 

**Our business could be affected by weather-relatedfactors and seasonality.**

** **

Our results of operationsmay be adversely affected by weather-related and seasonal factors. Sinceopening, Seneca Niagara Casino’s and Seneca Allegany Casino’s gaming revenuehave not been materially impacted by severe weather conditions, but severewinter weather conditions may deter or prevent patrons from reaching our gamingfacilities or undertaking day trips. In addition, some recreational activities,such as tourism, are curtailed during the winter months.

 

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Although our cash flow management system assumes seasonal fluctuationsin gaming revenue for both of our casinos to ensure adequate cash flow duringexpected periods of lower revenue, we cannot provide assurance thatweather-related and seasonal factors will not have a material adverse effect onour operations. Our limited operating history makes it difficult to predict thefuture effects of seasonality on our business, if any.

 

**There is pending litigation challenging the validityof our Compact and our right to conduct Class III gaming in New York Stateand our right to locate a Class III gaming facility in Erie County outsidethe City of Buffalo.**

** **

In October 2001, theNew York Legislature passed Chapter 383 of the Laws of 2001, or Chapter 383,which allowed Governor Pataki to enter into a gaming compact with the SenecaNation of Indians and to enter into gaming compacts with other Indian tribesfor the establishment of three additional casinos in the Catskills. Chapter 383also approved the installation of VGMs at certain racetracks.

 

In January 2002, twoactions were filed in the Supreme Court of the State of New York, County ofAlbany, challenging legislation that, among other things, authorized theGovernor of New York to execute tribal-state gaming compacts, approved the useof slot machines as games of chance, approved the use of video lotteryterminals at racetracks and authorized the participation of New York State in amulti-state lottery. The actions are captioned *Daltonv. Pataki, et al.,* and *Karr v.Pataki, et al*. Plaintiffs seek a judgment declaring the legislationunconstitutional and enjoining its implementation.  These two cases were consolidated and werefer to both cases below as Dalton v. Pataki.”

* *

On July 17, 2003,the New York Supreme Court dismissed the plaintiffs’ complaints in Dalton v.Pataki and held that the legislation is constitutional. The plaintiffs appealedthe Court’s decision to the Third Department of the New York Supreme Court’sAppellate Division and oral argument was held on December 16, 2003. OnJuly 7, 2004, a five-judge panel issued its Opinion and Order declaringthe legislation at issue, Chapter 383 of the Laws of 2001, constitutional aschallenged. Notwithstanding the constitutionality of VGMs, the court declaredthe licensing of VGMs to racetracks to be unconstitutional due to theimpermissible revenue distribution scheme set forth therein. Lastly, the courtdeclared the provision of Chapter 383 of the Laws of 2001 authorizing theDivision of the Lottery to participate in the multi-state lotteryconstitutional. On may 3, 2005, the New York Court ofAppeals held the legislation (including the licensing of VGMs to racetracks) tobe constitutional. It is expected that the appellants will seek review by theUnited States Supreme Court. No assurance can be given that the ultimate resultof this litigation will be to uphold the constitutionality of Chapter 383 andthe validity of the Compact.

 

If the U.S. Supreme Courtwere to review the case and subsequently rule that Chapter 383 violatesthe New York Constitution and if there were a subsequent ruling that theCompact is invalid, the Nation could not continue to operate Class IIIgaming at Seneca Niagara Casino Seneca Allegany Casino or any other casino itmay establish. In that event the Nation could operate a Class II casinowith various Class II electronic games that are lawful under the newregulations promulgated by the National Indian Gaming Commission in 2003.Although we can provide no assurances, we believe that any change in New Yorklaw will not retroactively invalidate what the State has agreed to in theCompact. If New York State were to make various forms of gaming illegal oragainst public policy (or the courts were to similarly rule), or otherwise totake a legal position adverse to SGC, such actions could have a materialadverse effect on our ability to conduct our gaming operations as currentlyconducted.

 

The Compact provides thatthe Nation may acquire property and establish a gaming facility in Erie County,at a location in the City of Buffalo to be determined by the Nation, or at suchother site as may be determined by the Nation in the event a site in the City ofBuffalo is rejected by the Nation for any reason. In May 2004, variousparties, including the Mayor of the City of Buffalo, filed a complaint againstGovernor Pataki, the State of New York, the Town of Cheektowaga and Uniland toprohibit the sale of the Cheektowaga Site to us on the basis that the Nation’sability, pursuant to the Compact, to locate a Class III gaming facilityanywhere in Erie County in the event a site in the City of Buffalo is rejectedby the Nation for any reason is unconstitutional. On June 16, 2004,Justice Makowski of the Supreme Court of the State of New York agreed with theplaintiffs and held that the Compact provision allowing the Nation to locate aClass III gaming facility in Erie County outside the City of Buffalo isunconstitutional. The Court’s decision further permanently restrained andenjoined (1) Governor Pataki and the State of New York from any action oractivity that would assist the Nation in owning and operating a Class IIIgaming casino in Erie County other than the City of Buffalo and(2) Uniland from the sale or transfer of the Cheektowaga Site to us. Wedisagree with the Court’s finding. On April 27, 2005, the Town ofCheektowaga filed a briefs to appeal the Supreme Courtdecision and we support its decisions to appeal. We support their decision toappeal. Subsequent to this decision, Uniland requested certain amendments tothe executed letter of intent for the Cheektowaga Site. We are evaluating theirrequested changes, but can provide you with no assurance that we will be ableto reach a mutually acceptable agreement with Uniland, that Justice Makowski’sdecision will be successfully appealed, or

 

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that we will be able to commence construction of our third Class IIIgaming facility in the City of Buffalo or Erie County prior to the terminationof our exclusivity period.

 

**If our ability to operate Class III gamingfacilities on land held in restricted fee were successfully challenged, itwould have a material adverse effect on our ability to conduct gamingoperations in Niagara Falls and Erie County pursuant to the Compact.**

** **

The Compact authorizesthe Nation to use funds appropriated under the Seneca Nation Land ClaimsSettlement Act, or SNLCSA, to acquire parcels of land in Niagara Falls and ErieCounty for gaming purposes. In 1990, Congress enacted SNLCSA, which providesthe Nation with fair compensation for use of its land and for the impact on theNation from prior lease arrangements in the City of Salamanca, New York. Thefunds appropriated under the SNLCSA are available for the Nation to acquireadditional land, which could be placed into restricted fee status. Aspreviously determined by the U.S. Secretary of the Interior, the Nationpossesses jurisdiction over lands placed into restricted fee status pursuant toSNLCSA, and such lands constitute gaming eligible Indian lands as defined bythe Indian Gaming Regulatory Act, or IGRA. While there is substantial supportfor the Secretary’s determination that lands placed into restricted feepursuant to SNLCSA qualify as gaming eligible Indian lands as defined by IGRA,including the lands upon which Seneca Niagara Casino is located, it is possiblethat some person or group could challenge the Secretary’s conclusion that theNation is authorized to use such land for gaming purposes pursuant to IGRA. Ifthe Secretary’s determination were successfully challenged, the Nation would beunable to conduct any gaming under IGRA in the current Niagara Falls facility.However, such an adverse determination would not affect the ability of theNation to operate its Seneca Allegany Casino, which is located on existingNation reservation territory.

 

**Terrorism and war may directly or indirectly harm ourbusiness.**

** **

The strength and profitabilityof our business will depend on consumer demand for casino resorts in generaland for the type of luxury amenities Seneca Niagara Casino offers. Changes inconsumer preferences or discretionary consumer spending could harm ourbusiness. The terrorist attacks of September 11, 2001 and ongoingterrorist and war activities in the United States and elsewhere,have had a negative impact on travel and leisure expenditures, includinglodging, gaming and tourism.

 

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We cannot predict the extent to which the events of September 11,2001 may continue to affect us, directly or indirectly, in the future. Anextended period of reduced discretionary spending and/or disruptions ordeclines in travel, conferences and conventions could significantly harm ouroperations.

 

**We may be subject to material environmental liabilityas a result of unknown environmental hazards.**

** **

Under various federal,state and local environmental laws, ordinances and regulations, a current or previousowner or operator of real estate may be required to investigate and clean uphazardous or toxic substances or chemical releases on or relating to itsproperty and may be held liable to a governmental entity or to third partiesfor property damage, personal injury and for investigation and cleanup costsincurred by such parties in connection with the contamination. Such lawstypically impose cleanup responsibility and liability without regard to whetherthe owner knew of or caused the presence of contaminants. The costs ofinvestigation, remediation or removal of such substances may be substantial.Although the Nation has not waived its sovereign immunity with regard to suchfederal, state and local environmental legislation, the existence or discoveryof an environmental hazard on any of its lands could result in an assertion ofliability under federal environmental laws and have a significant adverseeffect on the Nation’s relations with the state and the local community.

 

**We rely in part on federal and in part on common lawtrade name protection to protect certain of our trademarks.**

** **

We rely in part onfederal and in part on common law trade name protection to protect certain ofour trademarks. We may face claims by third parties for alleged trade nameinfringement. Any resulting claims, if successful, could require us to ceaseusing one or more of the names used in our business or require us to pay to usethese names.

 

**A change in our current tax-exempt status could have amaterial adverse effect on our ability to repay our obligations.**

** **

A change in our currenttax-exempt status could have a material adverse effect on our ability to repayour debt obligations. Based on our current interpretations of federal tax law,we will continue to treat our income as not being subject to federal incometax. However, we have not sought a private letter ruling from the InternalRevenue Service, or the IRS, confirming that interpretation.

 

SGC and each of thesubsidiaries are instrumentalities of the Nation’s government and charteredunder the laws of the Nation. Under current law, the Nation is not subject tofederal income tax and we do not believe that SGC or the guarantors, asinstrumentalities of the Nation’s government, are so subject. The IRS, prior to1996, took the position that tribal corporations wholly owned by a tribe weretreated the same as the tribe and not subject to federal income tax. However,in 1996, the IRS publicly announced that it was taking the issue undersubmission and intended to study it further, and did not state whether any suchfuture guidance would be prospective only or be retroactive. When the IRSchanged its position on the federal tax status of state chartered corporationswholly owned by a tribe (stating that such entities were taxable), it made suchchange prospective and provided a transition period with retroactive relief ifthe form of the corporation was modified. Following the IRS public announcementin 1996, some tribal corporations have obtained private letter rulings from theIRS to the effect that their operations would not be subject to federal incometax. Private letter rulings cannot be relied upon by other taxpayers. As ofMay 2, 2005, the IRS had not issued definitive guidance upon which wecould rely as to whether it agreed or disagreed that tribal corporations aresubject to federal income tax, or, if subject to federal income tax in somecircumstances and not others, the circumstances in which a tribal corporationwould be subject to federal income tax. Consequently, there is no controllinglegal authority that supports or is contrary to our position that we are notsubject to federal income tax. If our interpretations are incorrect, or if theapplicable tax law changes in this regard, our cash flow and ability to serviceour debt obligations may be adversely affected.

 

Efforts have been made inCongress over the past several years to tax the income of tribal businessenterprises. These have included a House of Representatives bill that wouldhave taxed gaming income earned by Indian tribes as business income subject tocorporate tax rates. Although that legislation has not been enacted, similarlegislation could be enacted in the future. Any future legislation permittingthe taxation of the Nation or our business could have a material adverse effecton our business, financial condition, results of operations or ability to makepayments on our debt obligations.

 

**Any adverse changes in the laws regulating our gamingoperations or failure to maintain licenses required under gaming laws andregulations and other permits and approvals required under applicable laws andregulations could have a material adverse effect on our ability to conductgaming operations and on our ability to fulfill our outstanding debtobligations.**

** **

Gaming on the Nation’sland is regulated by Nation laws, the Compact and federal statutes, mostnotably the IGRA. Several bills have been proposed during the current andrecent sessions of Congress that could affect Indian gaming. Notably,

 

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though its proposed legislationhas yet to be presented to Congress, the Policies and Procedures Subproject ofthe Bureau of Indian Affairs has proposed sweeping changes to the federal lawsconcerning Indians. Certain of such bills, if enacted, could impair the abilityof the Nation and SGC to expand its gaming operations and adversely impact thefuture growth of the Nation’s revenue base. In addition, from time to time,various government officials have proposed taxing Indian casino gaming orotherwise limiting or restricting the conduct of gaming operations by Indiantribes. No assurance can be given that such legislation, if and when enacted byCongress, would not have a material adverse effect on the operations of SGC. Inaddition, under federal law, gaming on the Nation’s lands may be dependent uponthe permissibility under New York law of certain forms of gaming or similaractivities. If New York State were to make various forms of gaming illegal oragainst public policy (or the courts were to similarly rule), or otherwise totake a legal position adverse to the Compact or any of its provisions, suchactions could have a material adverse effect on our ability to conduct ourgaming operations as currently conducted. Moreover, a 1996 U.S. Supreme Courtdecision may permit a state to avoid or refuse to negotiate amendments toexisting compacts such as the Compact.

 

Currently, the operationof all gaming on Indian lands is subject to IGRA. For the past several years,legislation has been introduced in Congress designed to address numerousperceived problems with this Act. Most of the proposals that have beenseriously considered would be prospective in effect and have contained clausesthat would grandfather existing Indian gaming operations such as Seneca NiagaraCasino. However, certain legislative acts have also proposed repealing many ofthe provisions of IGRA. While none of the substantive proposed amendments toIGRA has proceeded out of committee hearings to a vote by either house ofCongress, we cannot predict the success of future legislative acts. Changes inapplicable laws and regulations or an increase in the cost of compliance withapplicable laws and regulations could limit or materially affect the types ofgaming that we may offer and the revenue our operations generate. Furthermore,if Congress enacted legislation that was applied retroactively, our ability tomeet our obligations under our outstanding debt obligations could be adverselyaffected.

 

Under the Compact andfederal, state and Nation law we are required to maintain certain licenses,permits and approvals in order to conduct gaming operations. Failure tomaintain such licenses, permits and approvals couldhave a material adverse affect on our ability to conduct gaming operations andon our ability to make payment on our outstanding debt obligations.

 

**Changes in the membership of the Council, its policiesor the Nation’s constitution could adversely affect our operations.**

** **

The Nation is governed bya Council, consisting of sixteen members, of which eight members are electedfrom each of the two principal Territories. Councillors are elected tofour-year terms, which are staggered. The Nation holds an election every twoyears for its three executive branch officers: the President, the Treasurer andthe Clerk. These officers alternate between the two principal Territories. Thenext election of the executive branch officers and eight Council members willtake place in November 2006. If there is a significant change in thecomposition of the Council, the new Council may not pursue the same agenda orgoals as the current government, in particular with respect and our publicfilings to us, our expansion project or compliance with the Compact and ourother obligations including the covenants contained in the indenture governingthe Notes (including, but not limited to, timely payment of the exclusivity feeand our ability to make timely public filings) . Inaddition, the Council acts by majority vote and with respect to any issue orpolicy, a change in views by one or more members could result in a change inthe policy adopted by the Council. Changes in the Council or its policies couldresult in significant changes in our structure or operations or in our planned expansion.In addition, the Council appoints the members of SGC’s board of directors. TheCouncil may also remove a member of SGC’s board of directors for cause eitherupon the recommendation of a majority of SGC’s board of directors, or upon itsown initiative with a vote of at least twelve Councillors. The term cause hasnot been defined in SGC’s charter or in Nation law, and therefore, we do notknow how this term will be interpreted. As a result, a change in the membershipor views of existing members of Council adverse to the existing board ormanagement could result in a change in SGC’s board of directors and potentiallyin SGC’s management. Any such changes could adversely affect our business planor otherwise result in a material adverse effect in our business, financialcondition, results of operations or ability to make payments on the Notes. See“Item 10—Directors and Executive Officers of the Registrant” for a discussionregarding the more active role the New Seneca Government has taken in managing ouraffairs.

 

Further, while we believethat under the Nation’s constitution, adopted in 1848 and last amended in 1993,a referendum may only be called by the Council, our interpretation of theNation’s constitution could be incorrect or the constitution may be amended inthe future to provide that the Seneca people may call a referendum without theapproval of the Council. If the constitution were amended to allow the Senecapeople to call for a referendum directly, the Nation may adopt laws adverselyaffecting our business and results of operations.

 

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**Item 7A****.****Quantitative andQualitative Disclosures about Market Risk**

 

Market risk is the riskof loss arising from adverse changes in market rates and prices, such asinterest rates, foreign currency exchange rates and commodity prices. Ourprimary exposure to market risk is interest rate risk associated with the termloan. We currently have $80.0 million of variable rate debt based on LIBORoutstanding. Based on this $80.0 million balance a 100 basis-point (1.0%)increase in LIBOR would result in an increase to our annual interest expense ofapproximately $800,000. We purchased two interest rate caps on May 26,2004 covering the entire $80.0 million balance of the term loan. The termloan bears interest at the one-month LIBOR (1.67% at September 30, 2004)plus 29%. These derivatives cap our LIBOR at 4%, effectively capping ourinterest rate at 33% and expire simultaneously with the termination of the termloan. Our outstanding Notes are fixed-rate indebtedness.

 

**Item 8.****Financial Statements and Supplementary Data**

** **

Ourconsolidated financial statements and notes thereto, referred to in Item 15(a)(1) of this Form 10-K, are filed as part of thisreport and appear in this Form 10-K beginning on page F-1.

 

**Item 9.****  Changes and Disagreements with Accountants onAccounting and Financial Disclosure**

** **

None.

 

**Item9A.****Controls and Procedures**

** **

**Evaluation of Disclosure Controls and Procedures**

** **

We have evaluated theeffectiveness of the design and operation of our disclosure controls andprocedures, as such term is defined in Rule 13a-15 and Rule 15d-15under the Securities Exchange Act of 1934, as of September 30, 2004, whichincluded an evaluation of disclosure controls and procedures applicable to theperiod covered by  thisperiodic report. This evaluation has allowed us to make conclusions, as setforth below, regarding the state of our disclosure controls andprocedures.  There are inherentlimitations to the effectiveness of any system of disclosure controls andprocedures, including cost limitations, the possibility of human error,judgments and assumptions regarding the likelihood of future events, and thecircumvention or overriding of the controls and procedures.  Accordingly, even effective disclosurecontrols and procedures can only provide reasonable assurance of achieving thedesired control objective.  We believeour disclosure controls and procedures are designed to provide reasonableassurance that information required to be disclosed in our reports filed underthe Securities Exchange Act of 1934, such as this annual report onForm 10-K, is recorded, processed, summarized and reported within the timeperiods specified in the SEC rules and forms. We also believe ourdisclosure controls and procedures are designed to ensure that such informationis accumulated and communicated to our management to allow timely decisionsregarding required disclosure, and that they are designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof our financial statements in conformity with generally accepted accountingprinciples.

 

We carried out anevaluation as of September 30, 2004, under the supervision and with theparticipation of our management, including our former President and ChiefExecutive Officer, who resigned effective April 6, 2005, and our interimPresident and Chief Executive Officer, Chief Financial Officer and Senior VicePresident of Finance and Administration, of the effectiveness of our disclosurecontrols and procedures. Our evaluation process included the identification,review and evaluation of the effectiveness of our disclosure controls andprocedures as of September 30, 2004. Based on the foregoing evaluation by our management, including ourformer and interim President and Chief Executive Officer, Chief FinancialOfficer and Senior Vice President of Finance and Administration, we concludedthat our disclosure controls and procedures were effective at the reasonableassurance level.

 

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**Changes in Internal Control Over Financial Reporting**

** **

There have been nochanges in our internal control over financial reporting during our fourthfiscal quarter that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

**Item 9B****.****Other Information**

** **

As previously disclosedin our Current Report on Form 8-K filed with the SEC on April 6,2005, effective April 6, 2005, G. Michael Brown resigned as our Presidentand Chief Executive Officer. Our board of directors elected John Pasqualoni asinterim President & CEO, effectiveApril 6, 2005. Mr. Brown will continue to assist us as an outsideconsultant until the end of the year.

 

Aswe previously disclosed in our Current Report on Form 8-K filed on December 3,2004 and January 13, 2005 (which are incorporated herein by reference), one ofthe initial actions taken by the newly elected government of the Seneca Nationsof Indians was to appoint an independent and special counsel to investigate andreview the management and operations of the Nation’s gaming facilities,including, but not limited to, all financing and construction transactionsentered into by the Seneca Gaming Corporation and its subsidiaries.

 

OnApril 5, 2005, the Nation’s newly elected government concluded that based onthe reports presented by independent and special counsel to date that they weresatisfied and had no further concerns regarding the operation and management ofthe Nation’s gaming facilities, including the management and operations of theNation’s Class III gaming facilities by us. The newly elected government wasalso satisfied that the financial transactions conducted by us in connectionwith our Class III gaming operations were conducted at arm’s length, in thebest interest of the Nation, free of conflicts of interest, and in conformitywith applicable laws. The newly elected government, however, having beensatisfied with our management and operation of their Class III gamingoperations had continuing concerns regarding unresolved issues raised byindependent counsel pertaining to the construction of our gaming facilities.Having been satisfied with our management and financing of the Nation’s ClassIII gaming facilities, the newly elected government directed that independentand special counsel brief our board of directors of their findings to date.

 

OnApril 7, 2005, the independent and special counsel reported their findings todate to the audit committee of the SGC board of directors. This reportincluded, but was not limited to a supposed lack of documentation forapproximately $6.6 million of change orders in connection with the renovationof the Niagara Falls Convention Center in 100 days to open the Seneca NiagaraCasino on December 31, 2002 and a potential interest free loan to ourconstruction managers for the Seneca Niagara Casino and Seneca AlleganyCasino.  The supposed lack of supportingdocumentation for the change orders also led to a concern by the independentcounsel that this issue could be a concern with our other construction projectsas well.  After the report, the auditcommittee directed senior management to further investigate the constructionrelated issues raised by independent counsel. We subsequently discovered thatthe schedule presented and prepared by independent counsel and their forensicaccountants contained a clerical error and that the finding regarding aninterest free loan to our construction managers was incorrect. The independentcounsel and their forensic accountants concurred with us on this and confirmedthis in writing to the audit committee. We also extensively reviewed the filesof our construction managers and the architects and were able to present and reportto the audit committee sufficient supporting documentation for all of the $6.6million of change orders cited by the independent counsel. The audit committeeafter being presented with our internal findings instructed that an externalforensic accountant be engaged to confirm our findings, which they have done.

 

After hearing the report of the external forensicaccountant on May 5, 2005, the audit committee concluded that there were nofindings that impacted our financial statements or evidence of wrongdoing andthat their internal review has been completed.

 

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**PART III**

 

**Item 10****.****Directors and Executive Officers of the Registrant**

 

The following table setsforth information concerning our executive officers and directors as ofApril 30, 2005:

 
| **Name**                    | ** ** | **Age** | ** ** | **Position**                                                                |
|-----------------------------|------------|---------|------------|-----------------------------------------------------------------------------|
| John Pasqualoni(1)          |       | 59      |       | Interim  President and Chief Executive Officer                              |
| Joseph D’Amato         |       | 57      |       | Senior Vice President  of Finance and Administration                        |
| Annette Smith               |       | 44      |       | Chief Financial Officer                                                     |
| Barry W. Brandon            |       | 45      |       | Senior Vice President  and General Counsel                                  |
| Rajat R. Shah(2)            |       | 33      |       | Senior Vice President  of Corporate Development and  Deputy General Counsel |
| Michael Speller             |       | 50      |       | Senior Vice President  of Table Games and Poker                             |
| Brian Hansberry             |       | 50      |       | STGC Vice President and  Chief Operating Officer                            |
| Barry E.  Snyder, Sr.  |       | 65      |       | Chairman of the Board  of Directors                                         |
| Bergal L. Mitchell III      |       | 31      |       | Vice Chairman of the  Board of Directors                                    |
| Maurice A.  John, Sr.  |       | 57      |       | Treasurer and Director                                                      |
| Martin E.  Seneca, Jr. |       | 63      |       | Secretary and Director                                                      |
| N. Cochise Redeye           |       | 48      |       | Director                                                                    |
| Maribel Printup             |       | 75      |       | Director                                                                    |
| G. Michael Brown(3)         |       | 58      |       | President and Chief  Executive Officer                                      |

 

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(1)                                  Mr. Pasqualoni was appointed our interimPresident and Chief Executive Officer effective April 6, 2005.

(2)                                  Mr. Shah was appointed Senior VicePresident of Corporate Development and Deputy General Counsel effectiveMay 2, 2005.

(3)                                  Mr. Brown resigned as President and ChiefExecutive Officer on April 6, 2005.

 

 

The Council, alone hasthe power to appoint and remove directors from SGC and each of itssubsidiaries.  Since the most recentelection on November 2, 2004, the New Seneca Government has taken a moreactive role in managing our affairs. As previously discussed, the transfer ofthe Seneca Allegany Class II Facility to and the poker room leases at theSeneca Niagara Casino and Seneca Allegany Casino with the Nation as ofJanuary 1, 2005 was part of the initial actions taken by the New SenecaGovernment at its first meeting on November 13, 2004. In addition, thePresident of the Nation has subsequently issued two executive orders affectingthe management of SGC and its subsidiaries. By executive orders inNovember 2004, the Nation’s President (1) established a GamingManagement Task Force to review the management and operation of the Nation’sClass III gaming facilities within 120 days of the executive order and(2) imposed certain temporary cost containment measures on the operationsof the casinos requiring pre-approval from the Nation’s President or Treasurerbefore certain expenditures are made by us.

 

In addition, onDecember 20, 2004, the Council amended each of the charters of SGC and itssubsidiaries requiring more oversight by the Council. These amendments include,but are not limited to, Council approval of:

 

(i)                                     SGCand/or its subsidiaries agreeing to (a) waive such corporation’s sovereignimmunity and (b) submit to jurisdiction of non-Nation courts;

 

(ii)                                  any significant expenditure of corporate resources viaapproval of a comprehensive business plan regarding such activity requiring theexpenditure;

 

(iii)                               termination of the operation of any gaming facility;

 

(iv)                              any amendments to any of the bylaws of SGC and itssubsidiaries;

 

(v)                                 any agreements with any government or governmental agency orentity;

 

(vi)                              incurrence of any significant guarantees or liabilities bySGC or its subsidiaries;

 

(vii)                           any intercompany loans; purchase of real property andsignificant expenditures for personal property; and

 

(viii)                        obtaining financing and issuance of obligations by SGC orits subsidiaries.

 

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These amendments also(i) prohibit SGC and its subsidiaries from engaging in any activities topolitically influence any Indian nation, federal, state, or local government ortheir officials (ii) clarify that the requirement that board members shall nothave been convicted of a “Felong” to involve only those offenses set forthunder the Indian Major Crimes Act (18 U.S.C. §1153) and (iii) change theboard membership requirement to require at least five members of each board tobe enrolled members of the Nation and that no members of Council may serve onthe boards of directors. The amended charters for each of SGC, SNFGC, STGC andSEGC are attached hereto as Exhibits 3.1, 3.3, 3.5 and 3.7,respectively.  The members of the boardsof directors for SGC, SNFGC, STGC and SEGC are the same.

 

***John Pasqualoni*** has been our interimPresident and Chief Executive Officer since April 6, 2005. Prior to hiselection to that position, Mr. Pasqualoni served briefly as ChiefOperating Officer of all our gaming operations. Prior to his appointment as Chief Operating Officer inFebruary 2005, Mr. Pasqualoni was our Senior Vice President, Slot Operations/Marketing.  Mr. Pasqualoni has been with SGC sinceOctober 2002. Previously, Mr. Pasqualoni was employed by ResortsInternational Hotel and Casino in Atlantic City from November 2001 toOctober 2002 and attained the position of Senior Vice President of SlotOperations/Promotions. From June 1999 to November 2001,Mr. Pasqualoni was a gaming industry consultant to Louisiana Downs andResorts International Hotel and Casino. From March 1998 to June 1999,Mr. Pasqualoni was a partner at Top Gun Gaming, LLC, aslot machine development company. From 1993 to 1998, Mr. Pasqualoni wasVice President of Slot Operations and Casino Marketing at the Foxwoods ResortCasino. Additionally, he has worked in slot management positions at severalcasinos and hotel gaming complexes, including the Frontier Hotel in Las Vegas,Bally’s Park Place Casino, Tropicana Casino, the Hilton/Trump’s Castle andTrump Plaza Hotel Casino in Atlantic City and the Lucayan Beach Hotel Resort inthe Bahamas.

 

***Joseph D’Amato*** has served as ourSenior Vice President of Finance and Administration since July 2004 andhas been with SGC since December 2002. Mr. D’Amato also serves asSenior Vice President of Finance and Administration of SNFGC, SEGC and STGC.From August 2000 to November 2002, he was Senior Vice President ofFinance/ CFO of Resorts International Casino in Atlantic City. Prior to joiningResorts, he was employed for over three years by the Trump Organization,serving as the COO of Trump’s riverboat operation in Gary, Indiana and then asVice President of Finance/CFO of Trump Marina. Prior to his employment atTrump, Mr. D’Amato held various financial management positions withBally’s Casinos in Atlantic City, including Vice President of Finance andAdministration, Vice President of Finance and Treasurer. Mr. D’Amato is agraduate of LaSalle University where he earned a Bachelor of Science inAccounting and a Master of Business Administration. He also earned a Master ofScience in Taxation from Widener University. Mr. D’Amato is a CertifiedPublic Accountant in New Jersey and Pennsylvania.

 

***Annette Smith*** has been our ChiefFinancial Officer since July 2003. Mrs. Smith was a member of the boards of directors of SGC and SNFGCfrom August 2002 to December 2004. In February 2003, Ms. Smith was appointed Treasurer of bothcorporations and served in such capacity until December 2004.  Ms. Smith also serves as Chief FinancialOfficer of SEGC and STGC. From 1991 until joining SGC in 2003, Ms. Smithwas employed by Chautauqua County, initially as its Budget Director, andsubsequently as Director of Management and Budget. Ms. Smith received aBachelor of Science degree in Business Administration and Accounting fromRochester Institute of Technology. Ms. Smith is an enrolled member of theNation.

 

***Barry W. Brandon*** has served as ourSenior Vice President and General Counsel since August 2004. Prior toaccepting his current position with SGC, he was a partner at the law firm ofAkin Gump Strauss Hauer & Feld LLP where he practiced federal Indianlaw and policy. From April 1998 to December 2000, Mr. Brandonserved first as the General Counsel and then the Chief of Staff of the NationalIndian Gaming Commission in Washington, D.C. From June 1997 toApril 1998, he was the Deputy Director of the Secretary’s Office on IndianWater Rights at the U.S. Department of the Interior. From September 1994to June 1997, Mr. Brandon served as Senior Trial Attorney at the U.S.Department of Justice, Indian Resources Section.

 

***RajatR. Shah*** has served as our Senior Vice President ofCorporate Development and Deputy General Counsel since May 2005.  Prior to joining SGC, Mr. Shah was acounsel at the law firm of Akin Gump Strauss Hauer & Feld LLP where hepracticed corporate and securities law, with a concentration in the areas offinance, securities, mergers and acquisitions and joint ventures. FromSeptember 1996 until July 1998, Mr. Shah worked as an associateat the law firm of

 

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Pillsbury Winthrop Shaw Pittman LLP.Mr. Shah earned his B.A. in 1993 from Gettysburg College and his J.D.in 1996 from Vanderbilt University.

 

***Michael F. Speller*** has served as ourSenior Vice President of Table Games and Poker since June 2004. FromSeptember 2002 to June 2004, Mr. Speller served as our VicePresident of Table Games. From 1999 to September 2002, Mr. Spellerworked as an independent gaming consultant. Mr. Speller has over thirtyyears of gaming experience in both domestic and international gamingjurisdictions. He has worked with major casino operators including theTropicana in Atlantic City, Coral Casino Group in London, England, ResortsInternational in Paradise Island, Bahamas, and Foxwoods Resort and Casino inConnecticut. He has extensive senior management experience at the chief executiveofficer, chief operating officer and general manager levels.

 

***Brian Hansberry*** has served as STGC’sVice President and Chief Operating Officer since December 2003.Mr. Hansberry joined us in October 2002 as a table games shiftmanager and subsequently as tables games manager.Mr. Hansberry has over twenty-five years of experience in the gamingindustry. He has worked for several gaming corporations including ResortsInternational Casino and The Sands Casino Hotel in Atlantic City, and PlayersIsland Casino Isle of Capri in Louisiana. Mr. Hansberry has experience inoperations, marketing and administration, and has held the positions ofDirector of Operations and Vice President of Operations and Administration. Heis a 1977 graduate of Rutgers University.

 

***Barry E. Snyder, Sr.*** has served as Chairmanof the board of directors of SGC since December 2004.  Mr. Snyder is currently the President ofthe Nation and previously served the Nation in this capacity on two occasions.  Mr. Snyder is the owner of the SenecaHawk Tobacco Shop.

 

***Bergal L. Mitchell, III has*** served as a member and ViceChairman of the board of directors of SGC since August 2002 andDecember 2004, respectively. Mr. Mitchell was a member of Councilfrom November 2000 to November 2004. Mr. Mitchell has been employed by Ross John Enterprise since 1996where he has held various business development positions.

 

***Maurice A. John, Sr.***  has served asTreasurer of the board of directors of SGC since December 2004.  Mr. John is currently the Treasurer ofthe Nation and previously served two terms in tribal Council.  Mr. John has also served the Nation as ajudge in the Nation’s appellate court. Mr. John was the former President of the Coalition of Indian ControlledSchool Boards, a national Indian Education Organization.  Mr. John has an existing tax lienimposed by the U.S. Government which is a result of his beliefs in the treatiesbetween the United States of America and the Seneca Nation of Indians.

 

***Martin E. Seneca, Jr.*** has servedas Secretary of the board of directors of SGC since December 2004.  Mr. Seneca is a lawyer in privatepractice.  He received his J.D. fromHarvard Law School.  He is a former WhiteHouse Fellow and a former Deputy Commissioner of the Bureau of Indian Affairs.

 

***Norman Cochise Redeye*** has served as amember of the board of directors of SGC since February 2005.  Mr. Redeye currently works as adetective in the Erie County Sheriff’s Office, a position he has held since1981.  In addition, Mr. Redeye hasserved as a Lay Advocate in the Seneca Nation of Indians Peacemakers’ Court forthe past 20 years.  Since 2004,Mr. Redeye has also served as a member of the board of directors of SEGC.  Prior to joining the Erie County Sheriff’sOffice, Mr. Redeye served as a member of the U.S. Air Force from 1974until 1980.

 

***Maribel Printup***has served as a memberof the board of directors of SGC since February 2005.  Ms. Printup currently chairs the boardof trustees of the Seneca Iroquois National Museum.  Ms. Printup also served as Councilor ofthe Council from 1998 to 2000 and was with the Bureau of Indian Affairs for 25years.  During the last 10 years in whichMs. Printup was with the Bureau of Indian Affairs, she served as NationalProgram Coordinator for the Johnson O’Malley Program.  Ms. Printup received a Bachelors degreein business administration from St Bonaventure University in 1971 and a Mastersdegree from Pennsylvania State University State College in education in 1975.

 

***G.Michael Brown*** was our President and Chief ExecutiveOfficer from August 2002 until April 2005. Until April 2005, Mr. Brown also served as President and ChiefExecutive Officer of SNFGC, SEGC and STGC. Prior to joining our company, Mr. Brownserved as President and Chief Executive Officer of the Mashantucket PequotTribe’s Foxwoods Resort Casino in Connecticut from 1993 to 1997. Mr. Brown alsopracticed law at the law firm Brown & Carroll from April 1982 throughDecember 2002, where he concentrated on gaming issues and has served asDirector of the New Jersey Division of Gaming Enforcement from 1979 to 1982.Mr. Brown resigned as President and Chief Executive Officer effectiveApril 6, 2005.

 

*AuditCommittee of the Board of Directors*

* *

Our board of directorshas established an audit committee to assist it with its responsibilities. Theboard handles all compensation and other matters directly. The principal dutiesof our audit committee are as follows:

 

•                  to recommend board action related to the dischargeof the board of directors’ responsibilities with respect to overseeing theintegrity of our financial statements, our compliance with legal and regulatoryrequirements, our risk

 

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assessment and risk management policies and procedures, and theperformance of our internal and external audit functions;

 

•                  to hire, monitor the performance of and, ifnecessary, replace the independent auditors;

 

•                  to approve any significant non-audit relationshipwith the independent auditors and assess the independent auditor’squalifications and independence;

 

•                  to perform an annual evaluation of the committeeitself; and

 

•                  to undertake any other action deemed appropriate ornecessary by the board of directors or applicable rules or regulations.

 

*AuditCommittee Financial Expert*

 

The board of directorshas determined that it does not have an audit committee financial expert,meaning that no person has past employment experience in finance or accounting,requisite professional certification in accounting or any other comparableexperience or background, which results in the individual’s financialsophistication, including being or having been a chief executive officer, chieffinancial officer or other senior officer with financial oversightresponsibilities. The audit committee is comprised of members from the board ofdirectors. The members of our audit committee are Martin E. Seneca, Jr.,chairman of the committee, Bergal L. Mitchell III and Maurice A. John, Sr.

 

*DirectorCompensation*

* *

EffectiveDecember 21, 2004, our board of directors receives the followingcompensation: (i) Chairman of the Board, receivesa $100,000 annual fee; (ii) non-Nation employee directors receive a$40,000 annual fee; and (iii) Nation employee directors receive $500 permeeting.  Prior to December 21,2004, our directors received a flat fee of $500 for in-person meetings per dayfor each meeting in which such director participated, including committeemeetings held on days when the board of directors did not meet. In addition, wereimburse directors for travel and other expenses incurred in connection withtheir duties as directors of SGC and each director has complimentary privilegesof $1,000 per month at each of our casinos. Nation executives who also serve as directors have unlimitedcomplimentary privileges at both of our casinos. The directors are alsoentitled to all other non-compensatory benefits available to our employees,including, but not limited to, health, dental and disability benefits. We haveno employee directors. The amended charters of SGC and its subsidiariesprohibit any of our employees from serving as one of our directors.

 

*Code ofEthics*

* *

We have adopted a Code ofBusiness Conduct and Ethics applicable to all of our employees, including ourChief Executive Officer, Chief Financial Officer, Principal Accounting Officerand all other senior financial executives, and to our directors when acting intheir capacity as directors. Our Code of Business Conduct and Ethics isdesigned to set the standards of business conduct and ethics and to helpdirectors and employees resolve ethical issues. The purpose of our Code ofBusiness Conduct and Ethics is to ensure to the greatest possible extent thatour business is conducted in a consistently legal and ethical manner. Employeesmay submit concerns or complaints regarding audit, accounting, internalcontrols or other ethical issues on a confidential basis by means of atoll-free telephone call or an anonymous email. We investigate all concerns andcomplaints. Copies of our Code of Business Conduct and Ethics are available toinvestors on our website at www.senecagamingcorporation.com or free of chargeupon written request. Any such request should be sent by mail to Seneca GamingCorporation, 310 Fourth Street Niagara Falls, New York (Seneca NationTerritory) 14303, Attn: General Counsel or should be made by telephone bycalling (716) 299-1100.

 

We intend to disclose onour website amendments to, or waivers from, any provision of our Code ofBusiness Conduct and Ethics that apply to our Chief Executive Officer, ChiefFinancial Officer, Principal Accounting Officer and persons performing similarfunctions and amendments to, or waivers from, any provision which relates toany element of our Code of Business Conduct and Ethics described in Item406(b) of Regulation S-K.

 

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**Item 11****.****Executive Compensation**

 

Thefollowing table sets forth the cash compensation paid by the Company to itsChief Executive Officer and each of its most highly compensated executiveofficers whose total cash compensation exceeded $100,000 for each of the twoyears in the period ended September 30, 2004:

 

**Summary Compensation Table**

 
| ** **                                         | ** ** | ** ** | ** ** | **Other  compensation** | ** ** |
|----------------------------------------------------|------------|------------|------------|-------------------------|------------|
| ** **                                         | ** ** | ** ** | ** ** | **Annual compensation** | ** ** | **401(k) Plan  Matching** | ** ** |
| **Name and Principal Position**                    | ** ** | **Year**   | ** ** | **Salary($)**           | ** ** | **Bonus($)(1)** | ** ** | **Contributions** | ** ** |
|                                               |       |       |       |                    |       |   |   |   |   |
| G. Michael Brown                                   |       | 2004       |       | $                       | 625,000    |   | $ | 500,000 |   | $ | 4,250 |   |
| Chief Executive  Officer                           |       | 2003       |       | 633,186                 |       | 600,000 |   | — |   |
|                                               |       |       |       |                    |       |   |   |   |   |
| Annette Smith                                      |       | 2004       |       | 203,750                 |       | 137,500 |   | 1,592 |   |
| Chief Financial  Officer                           |       | 2003       |       | 50,000                  |       | 100,000 |   | — |   |
|                                               |       |       |       |                    |       |   |   |   |   |
| John Pasqualoni                                    |       | 2004       |       | 266,250                 |       | 262,500 |   | 2,606 |   |
| Senior Vice  President, Slot Operations/Marketing  |       | 2003       |       | 215,347                 |       | 225,000 |   | — |   |
|                                               |       |       |       |                    |       |   |   |   |   |
| Joseph D’Amato                                |       | 2004       |       | 249,327                 |       | 262,500 |   | 3,531 |   |
| Senior Vice  President, Finance and Administration |       | 2003       |       | 160,000                 |       | 200,000 |   | — |   |
|                                               |       |       |       |                    |       |   |   |   |   |
| Michael F.  Speller                                |       | 2004       |       | 203,750                 |       | 137,500 |   | 2,054 |   |
| Senior Vice  President of Table Games and Poker    |       | 2003       |       | 175,244                 |       | 180,000 |   | — |   |
|                                                    |            |            |            |                         |            |  |  |  |  |  |  |  |

 

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(1)          For 2003,bonuses were earned and paid on a calendar year basis and not a fiscal yearbasis.

 

*EmploymentAgreements and Compensation Arrangements*

 

SGC has entered intoemployment agreements with several of its executive officers, the materialterms of which are summarized below.

 

***G. Michael Brown***.  Mr. Brown and SGC entered into aseparation agreement and consulting agreement on April 6, 2005 pursuant towhich Mr. Brown received a severance payment of $975,000 on April 6,2005.  Pursuant to the agreement, Mr. Brownwill serve as a consultant to SGC until the earlier of(i) December 31, 2005, (ii) the opening of the luxury spa hotelat Seneca Niagara Casino, (iii) a material breach by Mr. Brown’sobligations under the agreement, (iv) termination of the agreement byeither party at their sole discretion, or (v) Mr. Brown’s revocationof certain releases contained in the agreement.

 

***JohnPasqualoni***. Mr. Pasqualoni and SGC entered into asecond amended and restated employment agreement on April 6, 2005,pursuant to which Mr. Pasqualoni will serve as interim President and ChiefExecutive Officer of each of SGC, SNFGC, STGC and SEGC.  SGC is currently in the process of conductinga limited search for an individual to serve as its permanent President andChief Executive Officer, which search includes consideration of Mr. Pasqualonifor such position. In the event that SGC does not select Mr. Pasqualoni asits permanent President and Chief Executive Officer, then Mr. Pasqualonishall, at the time such permanent President and Chief Executive Officer takesoffice, serve as the Chief Operating Officer of SGC.

 

Mr. Pasqualoniis entitled to an annual base salary of $390,000 for the period commencingJune 1, 2004 and ending September 30, 2005, $415,000 for the fiscalyear ending September 30, 2006, and $440,000 for the fiscal year endingSeptember 30, 2007, with a salary review by the board of directors eachfiscal year thereafter at which time the board of directors shall determinewhether, in its sole discretion, Mr. Pasqualoni’s base salary shall beincreased. Mr. Pasqualoni also receives a monthly retention bonus of$20,000 until such time as the permanent President and Chief Executive Officertakes office.  If Mr. Pasqualoni isnot selected as permanent President and Chief Executive Officer,Mr. Pasqualoni will resume his position as Chief Operating Officer and beentitled to an annual base salary of $425,000 for the period commencingJune 1, 2004 and ending September 30, 2005, $450,000 for the fiscalyear ending September 30, 2006, and

 

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$475,000for the fiscal year ending September 30, 2007, with a salary review by theboard of directors each fiscal year thereafter at which time the board ofdirectors shall determine whether, in its sole discretion,Mr. Pasqualoni’s base salary shall be increased.

 

Mr. Pasqualoniis also eligible for an annual performance bonus.  For the fiscal year ending September 30,2005, Mr. Pasqualoni will be eligible for an annual performance bonusequal to $187,500 if SGC’s Consolidated EBITDA for the 2005 fiscal year is atleast $140.0 million. For the fiscal year ending September 30, 2006,Mr. Pasqualoni will be eligible for an annual performance bonus equal to(A) $200,000 and (B) $100,000 if SGC’s Consolidated EBITDA for the2006 fiscal year is at least (Y) $145.0 million and (Z) $147.0million.  For the fiscal year endingSeptember 30, 2007, Mr. Pasqualoni will be eligible for an annualperformance bonus equal to $212,500 if SGC’s Consolidated EBITDA for the 2007fiscal year is at least $147.0 million.

 

If Mr. Pasqualoni’semployment is terminated for any reason other than for cause, his death ordisability, the loss by the Nation of its ability to conduct gaming activities,or the loss by Mr. Pasqualoni of his license to work at the Nation’s gamingfacilities, we are obligated to: (i) pay Mr. Pasqualoni his earned,but unpaid, base salary through the termination date, (ii) payMr. Pasqualoni a pro-rata performance bonus for the year of histermination, and (iii) continue to pay his base salary in effect as of thedate of termination for a period following his termination equal to the lesserof (A) 18 months or (B) the remainder of the period ending onthe termination date. Following the termination of his employment,Mr. Pasqualoni has a duty to mitigate damages by seeking employment withduties and salary comparable to those provided by us, and if he obtains suchemployment, he shall reimburse us the amount of the compensation he hasreceived from such other entity for such period, but not to exceed the amountof the compensation we have paid him for such period.

 

***Joseph D’Amato***. Mr. D’Amato and SGC entered intoan amended and restated employment agreement on July 13, 2004, pursuant towhich Mr. D’Amato will serve as Senior Vice President of Finance and Administrationof each of SGC, SNFGC, STGC and SEGC through September 30, 2007, unlesshis employment is earlier terminated pursuant to the terms of the agreement orrenewed by subsequent written agreement. Mr. D’Amato is entitled to anannual base salary of $375,000 for the period commencing June 1, 2004 andending September 30, 2005, $400,000 for the fiscal year endingSeptember 30, 2006, and $425,000 for the fiscal year endingSeptember 30, 2007, with a salary review by the board of directors eachfiscal year thereafter at which time the board of directors shall determinewhether, in its sole discretion, Mr. D’Amato’s base salary shall beincreased. Mr. D’Amato is also eligible for an annual performance bonus.For the fiscal year ending September 30, 2005, Mr. D’Amato will beeligible for an annual performance bonus equal to $187,500 if SGC’sConsolidated EBITDA for the 2005 fiscal year is at least $140.0 million.For the fiscal year ending September 30, 2006, Mr. D’Amato will beeligible for an annual performance bonus equal to $200,000 if SGC’sConsolidated EBITDA for the 2006 fiscal year is at least $145.0 million.For the fiscal year ending September 30, 2007, Mr. D’Amato will beeligible for an annual performance bonus equal to $212,500 if SGC’s ConsolidatedEBITDA for the 2007 fiscal year is at least $147.0 million.Mr. D’Amato is eligible for a milestone bonus of (i) $50,000 ifSeneca Erie Casino is opened for business to the public on or prior toSeptember 30, 2006, and (ii) an additional $50,000 if the luxuryhotel for Seneca Niagara Casino is opened for business to the public on orprior to September 30, 2006. In addition, Mr. D’Amato received asigning bonus of $75,000 in connection with entering into his employmentagreement.

 

If Mr. D’Amato’semployment is terminated for any reason other than for cause, his death ordisability, the loss by the Nation of its ability to conduct gaming activities,or the loss by Mr. D’Amato of his license to work at the Nation’s gamingfacilities, we are obligated to: (i) pay Mr. D’Amato his earned, butunpaid, base salary through the termination date, (ii) payMr. D’Amato a pro-rata performance bonus for the year of his termination,and (iii) continue to pay his base salary in effect as of the date oftermination for a period following his termination equal to the lesser of(A) 18 months or (B) the remainder of the period ending on thetermination date. Following the termination of his employment, Mr. D’Amatohas a duty to mitigate damages by seeking employment with duties and salarycomparable to those provided by us, and if he obtains such employment, he shallreimburse us the amount of the compensation he has received from such otherentity for such period, but not to exceed the amount of the compensation wehave paid him for such period.

 

***Annette Smith***. Ms. Smith and SGC entered intoan amended and restated employment agreement on July 13, 2004, pursuant towhich Ms. Smith will serve as Treasurer and Chief Financial Officer ofeach of SGC, SNFGC, STGC and SEGC through September 30, 2007, unless heremployment is earlier terminated pursuant to the terms of the agreement orrenewed by subsequent written agreement. Ms. Smith is entitled to anannual base salary of $225,000 for the period commencing June 1, 2004 andending September 30, 2004, $250,000 for the fiscal year endingSeptember 30, 2005, $275,000 for the fiscal year ending September 30,2006, and $300,000 for the fiscal year ending September 30, 2007, with asalary review by the board of directors each fiscal year thereafter at whichtime the board of directors shall determine whether, in its sole discretion,Ms. Smith’s base salary shall be increased. Ms. Smith is alsoeligible for an annual performance bonus. For the

 

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fiscalyear ending September 30, 2005, Ms. Smith will be eligible for anannual performance bonus equal to $125,000 if SGC’s Consolidated EBITDA (asdefined in the Indenture governing the Notes) for the 2005 fiscal year is atleast $140.0 million. For the fiscal year ending September 30, 2006,Ms. Smith will be eligible for an annual performance bonus equal to$150,000 if SGC’s Consolidated EBITDA for the 2006 fiscal year is at least$145.0 million. For the fiscal year ending September 30, 2007,Ms. Smith will be eligible for an annual performance bonus equal to$175,000 if SGC’s Consolidated EBITDA for the 2007 fiscal year is at least$147.0 million. Ms. Smith is eligible for a milestone bonus of(i) $25,000 if Seneca Erie Casino is opened for business to the public onor prior to September 30, 2006, and (ii) an additional $25,000 if theluxury hotel for Seneca Niagara Casino is opened for business to the public onor prior to September 30, 2006. In addition, Ms. Smith received a signingbonus of $25,000 in connection with entering her employment agreement.

 

If Ms. Smith’semployment is terminated for any reason other than for cause, her death ordisability, the loss by the Nation of its ability to conduct gaming activities,or the loss by Ms. Smith of her license to work at the Nation’s gamingfacilities, we are obligated to: (i) pay Ms. Smith her earned, butunpaid, base salary through the termination date, (ii) pay Ms. Smitha pro-rata performance bonus for the year of her termination, and(iii) continue to pay her base salary in effect as of the date oftermination for a period following her termination equal to the lesser of(A) 18 months or (B) the remainder of the period ending on thetermination date. Following the termination of her employment, Ms. Smithhas a duty to mitigate damages by seeking employment with duties and salarycomparable to those provided by us, and if she obtains such employment, sheshall reimburse us the amount of the compensation she has received from such other entity for suchperiod, but not to exceed the amount of the compensation we have paid her forsuch period.

 

***Barry W. Brandon***.Mr. Brandon and SGC entered into an employment agreement on July 13,2004, pursuant to which Mr. Brandon will serve as Senior Vice President andGeneral Counsel of each of SGC, SNFGC, STGC and SEGC from August 1, 2004,through September 30, 2007, unless his employment is earlier terminatedpursuant to the terms of the agreement or renewed by subsequent writtenagreement. Mr. Brandon is entitled to an annual base salary of $375,000for the period commencing August 1, 2004 and ending September 30,2005, $400,000 for the fiscal year ending September 30, 2006, and $425,000for the fiscal year ending September 30, 2007, with a salary review by theboard of directors each fiscal year thereafter, at which time the board ofdirectors shall determine whether, in its sole discretion, Mr. Brandon’sbase salary shall be increased. Mr. Brandon is also eligible for an annualperformance bonus. For the fiscal year ending September 30, 2005,Mr. Brandon will be eligible for an annual performance bonus equal to$187,500 if SGC’s Consolidated EBITDA for the 2005 fiscal year is at least$140.0 million. For the fiscal year ending September 30, 2006,Mr. Brandon will be eligible for an annual performance bonus equal to$200,000 if SGC’s Consolidated EBITDA for the 2006 fiscal year is at least$145.0 million. For the fiscal year ending September 30, 2007,Mr. Brandon will be eligible for an annual performance bonus equal to$212,500 if SGC’s Consolidated EBITDA for the 2007 fiscal year is at least$147.0 million. Mr. Brandon is eligible for a milestone bonus of(i) $50,000 if Seneca Erie Casino is opened for business to the public onor prior to September 30, 2006, and (ii) an additional $50,000 if theluxury hotel for Seneca Niagara Casino is opened for business to the public onor prior to September 30, 2006. In addition, Mr. Brandon received asigning bonus of $75,000 in connection with entering into his employment agreement.

 

If Mr. Brandon’semployment is terminated for any reason other than for cause, his death ordisability, the loss by the Nation of its ability to conduct gaming activities,or the loss by Mr. Brandon of his license to work at the Nation’s gamingfacilities, we are obligated to: (i) pay Mr. Brandon his earned, butunpaid, base salary through the termination date, (ii) payMr. Brandon a pro-rata performance bonus for the year of his termination,and (iii) continue to pay his base salary in effect as of the date oftermination for a period following his termination equal to the lesser of(A) 18 months or (B) the remainder of the period ending on thetermination date. Following the termination of his employment, Mr. Brandonhas a duty to mitigate damages by seeking employment with duties and salarycomparable to those provided by us, and if he obtains such employment, he shallreimburse us the amount of the compensation he has received from such otherentity for such period, but not to exceed the amount of the compensation wehave paid him for such period.

 

We will also reimburseMr. Brandon for reasonable travel expenses between his home in theWashington, D.C. metropolitan area and Niagara Falls New York. If either we orMr. Brandon determine that it is necessary for Mr. Brandon torelocate to Niagara Falls, New York, we will reimburse Mr. Brandon for customaryand reasonable relocation expenses.

 

***RajatR. Shah***. Mr. Shah and SGC entered into an employment agreement onApril 28, 2005, pursuant to which Mr. Shah will serve as Senior VicePresident of Corporate Development and Deputy General Counsel of each of SGC,SNFGC, STGC and SEGC through September 30, 2008, unless his employment isterminated earlier pursuant to the terms of the agreement or renewed by subsequentwritten agreement.  Mr. Shah isentitled to receive an amount equal to $296,625 from the period commencingMay 2, 2005 and ending September 30, 2005, an annual salary of$700,000 for the fiscal year ending September 30, 2006, an annual salaryof $637,500 for the fiscal year ending September 30, 2007 and an annualsalary of

 

46

----

 

$725,000 for the fiscalyear ending September 30, 2008, with a salary review by the board ofdirectors each fiscal year thereafter at which time the board of directorsshall determine whether, in its sole discretion, Mr. Shah’s base salarywill be increased.

 

If Mr. Shah’semployment is terminated for any reason other than for cause, his death ordisability, the loss by the Nation of its ability to conduct gaming activities,or the loss by Mr. Shah of his license to work at the Nation’s gamingfacilities, we are obligated to: (i) pay Mr. Shah his earned, butunpaid, base salary through the termination date, (ii) pay Mr. Shah apro-rata performance bonus for the year of his termination, and(iii) continue to pay his base salary in effect as of the date oftermination for a period following his termination equal to the lesser of(A) 18 months (B) the remainder of the period ending on thetermination date. Following the termination of his employment, Mr. Shahhas a duty to mitigate damages by seeking employment with duties and salarycomparable to those provided by us, and if he obtains such employment, he shallreimburse us the amount of the compensation he has received from such otherentity for such period, but not to exceed the amount of the compensation wehave paid him for such period.

 

We will also reimburseMr. Shah for customary and reasonable relocation expenses associated withhis relocation to Niagara Falls, New York.

 

***Michael F. Speller*****.********Mr. Spellerand SGC entered into an amended and restated employment agreement onJuly 13, 2004, pursuant to which Mr. Speller will serve as SeniorVice President of Table Games and Poker of each of SGC, SNFGC, STGC and SEGCthrough September 30, 2007, unless his employment is terminated earlierpursuant to the terms of the agreement or renewed by subsequent writtenagreement. Mr. Speller is entitled to an annual base salary of $225,000for the period commencing June 1, 2004 and ending September 30, 2004,$290,000 for the fiscal year ending September 30, 2005, $315,000 for thefiscal year ending September 30, 2006 and $340,000 for the fiscal yearending September 30, 2007, with a salary review by the board of directorseach fiscal year thereafter at which time the board of directors shalldetermine whether, in its sole discretion, Mr. Speller’s base salary shallbe increased. Mr. Speller is also eligible for an annual performance bonus.For the fiscal year ending September 30, 2005, Mr. Speller will beeligible for an annual performance bonus equal to $125,000 if SGC’sConsolidated EBITDA for the 2005 fiscal year is at least $140.0 million.For the fiscal year ending September 30, 2006, Mr. Speller will beeligible for an annual performance bonus equal to $150,000 if SGC’sConsolidated EBITDA for the 2006 fiscal year is at least $145.0 million.For the fiscal year ending September 30, 2007, Mr. Speller will beeligible for an annual performance bonus equal to $175,000 if SGC’sConsolidated EBITDA for the 2007 fiscal year is at least $147.0 million.Mr. Speller is eligible for a milestone bonus of (i) $25,000 ifSeneca Erie Casino is opened for business to the public on or prior toSeptember 30, 2006, and (ii) an additional $25,000 if the luxuryhotel for Seneca Niagara Casino is opened for business to the public on orprior to September 30, 2006. In addition, Mr. Speller received asigning bonus of $25,000 in connection with entering into his employmentagreement.

 

If Mr. Speller’semployment is terminated for any reason other than for cause, his death ordisability, the loss by the Nation of its ability to conduct gaming activities,or the loss by Mr. Speller of his license to work at the Nation’s gamingfacilities, we are obligated to: (i) pay Mr. Speller his earned, butunpaid, base salary through the termination date, (ii) payMr. Speller a pro-rata performance bonus for the year of his termination,and (iii) continue to pay his base salary in effect as of the date oftermination for a period following his termination equal to the lesser of(A) 18 months or (B) the remainder of the period ending on thetermination date. Following the termination of his employment, Mr. Spellerhas a duty to mitigate damages by seeking employment with duties and salarycomparable to those provided by us, and if he obtains such employment, he shallreimburse us the amount of the compensation he has received from such otherentity for such period, but not to exceed the amount of the compensation wehave paid him for such period.

 

*MedicalReimbursement Plan*

* *

We have in place anexecutive medical reimbursement plan pursuant to which members of our seniormanagement are entitled to reimbursement for up to $100,000 in otherwiseuncovered medical expenses. We pay all premiums for this plan on behalf of oursenior executives. As of September 30, 2004 the annual cost was $8,200 foreach member of senior management covered by this plan.

 

**Item 12****.****Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters**

 

We are wholly owned bythe Seneca Nation of Indians.

 

47

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**Item 13****.****Certain Relationships and Related Transactions**

 

*Transactionswith the Nation*

* *

During the fiscal yearended September 30, 2004, SNFGC made lease payments to the Nation of$12.0 million.

 

STGC acquired and assumedlong-term leases entered into by Sandra Abrams and Valent Farms, LLC with theNation on December 29, 2003 and February 19, 2003, respectively.Seneca Allegany Casino was built on land occupied pursuant to such leases.Pursuant to the terms of the indenture governing the Notes, the monthly paymentsto the Nation under these leases are limited to $1.25 million with annualincreases up to 3.0% beginning no earlier than October 2005.

 

From May throughSeptember 2004 STGC paid a monthly lease payment of $750,000 to theNation; from October 2004 through February 2005 STGC paid a monthlylease payment of $1.0 million; thereafter, payments of $1.25 million per monthhave been made. STGC and the Nation are finalizing a written lease for the landupon which the Seneca Allegany Casino operates. During the fiscal year endedSeptember 30, 2004, STGC made lease payments to the Nation of$3.8 million.

 

We reimburse the Nationfor all of the regulatory costs of the SGA, the New York State Racing andWagering Board and the New York State Police, which are incurred by the Nation.For the year ended September 30, 2004, we incurred approximately $11.2 millionfor regulatory costs.

 

In October 2003,SNFGC distributed land with an acquisition cost of approximately$11.9 million to the Nation.

 

In January 2004,STGC distributed land with an acquisition cost of approximately$4.5 million to the Nation.

 

We make distributions tothe Nation pursuant to resolutions adopted by our board of directors forspecific projects identified by the Nation and for general purposes. InMarch 2004, SGC declared a dividend to the Nation of $3.0 million, whichamount was paid to the Nation in installments through September 2004. Wealso declared a dividend of $655,000 for a proposed water and sewer project ofthe Nation, which was paid in November 2004. We intend to continue to makedistributions to the Nation subject to the restrictions set forth in theindenture governing the Notes and the term loan.

 

On May 5, 2004, wedistributed $25.0 million of the Note proceeds to the Nation.

 

In January 2004, SGCdistributed approximately $39.0 million to the Nation for payment of theexclusivity fee to New York State for revenue generated throughDecember 31, 2003.

 

*Related-PartyTransactions*

* *

Mr. Brown is apartner at a law firm that provides legal service to SGC. During the fiscalyear ended September 30, 2004, SGC incurred legal fees of $183,000,primarily for regulatory and Compact matters, fromthat firm. Mr. Brown did not receive any remuneration from the law firmduring 2004 and was not actively involved in its management. We ceased doingbusiness with this law firm effective November 8, 2004.

* *

During the fiscal yearended September 30, 2004, SGC purchased an aggregate of $689,000 oftobacco products from KW Seneca Tobacco, which is owned by Kevin Seneca, amember of the Seneca Council and a previous Seneca Gaming Authoritycommissioner.

 

During the fiscal yearended September 30, 2004, SGC purchased an aggregate of $158,000 ofbottled water from Wahta Springs, which is owned by Arthur Montour, Jr., aformer member of the Council. As of November 2, 2004, Mr. Montour wasno longer a member of the Council.

 

SGC agreed to sponsor theNative American Games, which is organized by the Buffalo Sports Society, ofwhich Bergal Mitchell, one of our directors, is a member. During the fiscalyear ended September 30, 2004, SGC provided the Buffalo Sports Societywith an aggregate of $150,000 in cash and services.

 

During the fiscal yearended September 30, 2004, STGC paid M&M Allegany Junction approximately $118,000for leasing the building used by STGC for administrative purposes.  M&M Allegany Junction is owned by MerkeWatt, Sr., The brother of Maribel Printup, a member of our board of directors.

 

**Item 14****.****  Independent Registered Public Accounting FirmFees and Services**

 

The following table setsforth the aggregate fees incurred by the Company related to the services of theCompany’s independent registered public accounting firm, Ernst & YoungLLP for the years indicated:

 

48

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| ** **          | ** ** | **Fiscal Year September 30,** | ** ** |
|---------------------|------------|------------------------------------|------------|
| ** **          | ** ** | **2004**                           | ** ** | **2003** | ** ** |
|                |       |                               |       |   |   |
| Audit fees(1)       |       | $                                  | 797,238    |   | $ | 172,600 |   |
| Audit-related  fees |       | —                             |       | — |   |
| Tax fees            |       | 7,400                              |       | 2,848 |   |
| All other  fees(2)  |       | 65,201                             |       | 78,606 |   |
| Total               |       | $                                  | 869,839    |   | $ | 254,054 |   |

 

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(1)          Theaudit fees relate to the audit of SGC’s annual financial statements andquarterly reviews. Audit fees also include services for agreed upon proceduresreports in connection with the National Indian Gaming Commission requirements.For 2004, this amount also includes fees related to the 2004 note offering of$258,340, including Ernst & Young LLP consent included in theRegistration Statement on Form S-4 and comfort letter procedures.

 

(2)          Allother fees relate to post construction compliance and cost assessment procedurereports.

 

**Preapproval of Services Required**

 

Under the policiesand procedures established by our audit committee, all engagements for auditand permissible non-audit services to be provided by our independent registeredpublic accounting firm must be preapproved by the audit committee. Thepreapproval policy prohibits the independent registered public accounting firmfrom providing the following services: bookkeeping or other services related toour accounting records or financial statements; financial information systemsdesign and implementation; appraisal or valuation services; fairness opinionsor contribution-in-kind reports; actuarial services; internal audit outsourcingservices; management function services; human resource services; broker-dealer,investment adviser or investment banking services; legal services; and expertservices unrelated to the audit.

 

49

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**PART IV**

** **

**Item 15****.****Exhibits and Financial Statement Schedules**

 

| (a)(1) & (2) |   | Financial statements as  required as a part of this report are listed on the “Index to Consolidated  Financial Statements” at page F-1 herein. All financial statements  schedules are omitted since the required information is included in the  financial statements or the notes thereto, or is not applicable. |
|-----------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

(a)(3)                    Exhibits

 

| 3.1    | *  | Fifth Amended and  Restated Charter of Seneca Gaming Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.2    | *       | Second Amended and  Restated By-Laws of Seneca Gaming Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.3    | *       | Third Amended and  Restated Charter of Seneca Niagara Falls Gaming Corporation                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.4    | *       | Third Amended and  Restated By-Laws of Seneca Niagara Falls Gaming Corporation                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.5    | *       | Second Amended and  Restated Charter of Seneca Territory Gaming Corporation                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.6    | *       | Amended and Restated  By-Laws of Seneca Territory Gaming Corporation                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.7    | *       | Second Amended and  Restated Charter of Seneca Erie Gaming Corporation                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.8    | *       | Amended and Restated  By-Laws of Seneca Erie Gaming Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.1    |    | Indenture, dated  as of May 5, 2004, among SGC, the Guarantors as defined therein, SNFGC  and Wells Fargo Bank, National Association, as Trustee, relating to our  $300,000,000 principal amount 7.25% Senior Notes due 2012 (including form of  note) (incorporated by reference to Exhibit 4.1 to SGC’s Registration  Statement No. 333-117633 filed with the SEC on July 23, 2004).                                                                                |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.2    |    | Registration Rights  Agreement, dated as of May 5, 2004, by and among SGC, the Guarantors  party thereto and Merrill Lynch & Co., Merrill Lynch, Pierce,  Fenner & Smith Incorporated, Banc of America Securities LLC and  Wells Fargo Securities, LLC, as the Initial Purchasers (incorporated by  reference to Exhibit 4.2 to SGC’s Registration Statement  No. 333-117633 filed with the SEC on July 23, 2004).                                  |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.3    |    | Nation Agreement, dated  May 5, 2004, between Seneca Nation of Indians, Merrill Lynch &  Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bank of  America Securities LLC and Wells Fargo Securities, LLC, collectively as the  Initial Purchasers, and Wells Fargo Bank, National Association, as Trustee  (incorporated by reference to Exhibit 4.3 to SGC’s Registration  Statement No. 333-117633 filed with the SEC on July 23, 2004). |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.4    |    | Assignment and Plan of  Distribution Agreement, entered into and effective as of May 5, 2004, by  and between Seneca Nation of Indians and SGC (incorporated by reference to  Exhibit 4.2 to SGC’s Registration Statement No. 333-117633 filed  with the SEC on July 23, 2004).                                                                                                                                                                                       |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.1   |    | Nation-State Gaming  Compact between the Seneca Nation of Indians and the State of New York,  effective December 9, 2002 (incorporated by reference to  Exhibit 10.1 to SGC’s Registration Statement No. 333-117633 filed  with the SEC on July 23, 2004).                                                                                                                                                                                                            |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.2   |    | Term Loan Agreement,  dated as of November 22, 2002, between Freemantle Limited, as Lender,  and SNFGC, as Borrower, as amended by Amendment No. 1 on  December 6, 2002 (incorporated by reference to Exhibit 4.2 to SGC’s  Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).                                                                                                                                                    |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.3   |    | Amendment No. 2 to  Term Loan Agreement, dated April 22, 2004, between Freemantle Limited,  as Lender, and SNFGC as Borrower (incorporated by reference to  Exhibit 10.14 to SGC’s                                                                                                                                                                                                                                                                                         |

 

50

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|   |   | Registration Statement  No. 333-117633 filed with the SEC on August 18, 2004).                                                                                                                                                                                                                                                                              |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.4   |   | Nation Agreement, dated  as of November 22, 2002, between Freemantle Limited, as Lender, and the  Seneca Nation of Indians (incorporated by reference to Exhibit 10.3 to  SGC’s Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.5   |   | Amendment No. 1 to  Nation Agreement, dated April 22, 2004, between Freemantle Limited, as  Lender, and the Seneca Nation of Indians (incorporated by reference to  Exhibit 10.15 to SGC’s Registration Statement No. 333-117633 filed  with the SEC on August 18, 2004).                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.6   |   | Agreement of Lease  (“Head Lease Agreement”), dated as of October 25, 2002, between Seneca  Nation of Indians, as Landlord, and SNFGC, as Tenant, as amended on  December 23, 2002 (incorporated by reference to Exhibit 10.4 to  SGC’s Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.7   |   | Non-binding Letter of  Intent regarding Offer to Purchase Airborne Business Park Site, executed on  April 9, 2004, between Uniland Development Company and SEGC  (incorporated by reference to Exhibit 10.5 to SGC’s Registration  Statement No. 333-117633 filed with the SEC on July 23, 2004).                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.8   |   | Agreement, dated as of  October 15, 2003, between SNFGC, as Owner, and Klewin Building Company, Inc.,  as Design/Builder (incorporated by reference to Exhibit 10.6 to SGC’s  Registration Statement No. 333-117633 filed with the SEC on  August 18, 2004).                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.9   |   | First Amendment to  Design/Build Agreement, dated as of February 10, 2004, by and between  SNFGC, as Owner, and Klewin Building Company, Inc., as Design/Builder  (for Seneca Niagara Casino Hotel) (incorporated by reference to  Exhibit 10.7 to SGC’s Registration Statement No. 333-117633 filed  with the SEC on August 18, 2004). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.10  | *      | Agreement, dated as of  September 1, 2004, between STGC, as Owner, and Klewin Building  Company, Inc., as Design/Builder (for Seneca Allegany Casino Parking  Garage).                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.11  | *      | Agreement, dated as of  September 1, 2004, between STGC, as Owner and Klewin Building  Company, Inc., as Design/Builder (for Seneca Allegany Casino Phase II  Hotel and Casino).                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.12  | +      | Amended and Restated  Employment Agreement, dated April 13, 2004, between SGC and G. Michael  Brown (incorporated by reference to Exhibit 10.8 to SGC’s Registration  Statement No. 333-117633 filed with the SEC on July 23, 2004).                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.13  | +      | Separation and  Consulting Agreement, dated April 6, 2005, between SGC and G. Michael  Brown (incorporated by reference to Exhibit 10.1 to Current Report on  Form 8-K filed with the SEC on April 6, 2005).                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.14  | +      | Employment Agreement,  dated July 13, 2004, between SGC and Barry W. Brandon (incorporated by  reference to Exhibit 10.9 to SGC’s Registration Statement  No. 333-117633 filed with the SEC on July 23, 2004).                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.15  | +      | Amended and Restated  Employment Agreement, dated July 13, 2004, between SGC and Annette Smith  (incorporated by reference to Exhibit 10.10 to SGC’s Registration  Statement No. 333-117633 filed with the SEC on July 23, 2004).                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.16  | *+     | Second Amended and  Restated Employment Agreement, dated April 6, 2005, between SGC and John  Pasqualoni.                                                                                                                                                                                                                                                        |

 

51

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| 10.17  | +  | Amended and Restated  Employment Agreement, dated July 13, 2004, between SGC and Joseph  D’Amato (incorporated by reference to Exhibit 10.12 to SGC’s  Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004). |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                              |
| 10.18  | +       | Amended and Restated  Employment Agreement, dated July 13, 2004, between SGC and Michael F.  Speller (incorporated by reference to Exhibit 10.13 to SGC’s  Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).  |
|   |    |                                                                                                                                                                                                                                                              |
| 10.19  | *+      |  Employment Agreement, dated April 28,  2005, between SGC and Rajat Shah.                                                                                                                                                                               |
|   |    |                                                                                                                                                                                                                                                              |
| 12.1   | *       | Statement regarding  Computation of Ratios.                                                                                                                                                                                                                       |
|   |    |                                                                                                                                                                                                                                                              |
| 21.1   | *       | List of Subsidiaries of  SGC.                                                                                                                                                                                                                                     |
|   |    |                                                                                                                                                                                                                                                              |
| 24.1   | *       | Power of Attorney  (included on page 53).                                                                                                                                                                                                                    |
|   |    |                                                                                                                                                                                                                                                              |
| 31.1   | *       | Certification of John  Pasqualoni, Principal Executive Officer, pursuant to Rule 13a-14 and  15d-14 of the Securities Exchange Act of 1934.                                                                                                                  |
|   |    |                                                                                                                                                                                                                                                              |
| 31.2   | *       | Certification of Joseph  A. D’Amato, Principal Financial Officer, pursuant to Rule 13a-14 and  15d-14 of the Securities Exchange Act of 1934.                                                                                                           |
|   |    |                                                                                                                                                                                                                                                              |
| 32.1   | *  | Certification of John  Pasqualoni, Principal Executive Officer and Joseph A. D’Amato, Principal  Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                     |

 

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*                   Filedherewith.

 

+                   Managementcontract or compensatory plan or arrangement.

 

(b)                                 Seeitem (a)(1) & (2) above

 

(c)                                  Seeitem (a)(3) above.

 

52

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**SIGNATURES**

** **

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this annual report to be signed on itsbehalf by the undersigned, thereunto duly authorized, in Niagara Falls, Stateof New York, on the 9th day of May 2005.

 
|   | SENECA GAMING  CORPORATION |
|--------|----------------------------|
|   |                       |   |
|   | By:                        | /s/ John  Pasqualoni |   |
|   |                       | John Pasqualoni |
|   |                       | Interim  President and Chief Executive Officer |

 

KNOW ALL PERSONS BY THESEPRESENTS, that each person whose signature appears below constitutes andappoints John Pasqualoni and Barry W. Brandon, and each or any of them, his orher attorneys-in-fact, each with the power of substitution, for him or her inany and all capacities to sign any and all amendments to this report onForm 10-K and any other documents in connection therewith, with theSecurities and Exchange Commission, granting unto said attorneys-in-fact, andeach of them, full power and authority to do and perform each and every act andthing requisite and necessary to be done in and about the premises, as fully toall intents and purposes as he might or could do in person, hereby ratifyingand confirming all that such attorneys-in-fact, or his or their substitute orsubstitutes, may lawfully do or cause to be done by virtue hereof. This Powerof Attorney may be signed in several counterparts.

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Registrant and in thecapacities and on the dates indicated. 

 
| **Signature**                  | ** ** | **Title**                                                                                        | ** ** | **Date**         |
|--------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|------------------|
| ** **                     | ** ** | ** **                                                                                       | ** ** | ** **       |
| /s/ John Pasqualoni            |       | Interim  President and Chief Executive Officer (Principal Executive Officer)                     |       | May 9, 2005 |
| John Pasqualoni                |       |                                                                                             |       |             |
|                           |       |                                                                                             |       |             |
| /s/ Annette M. Smith           |       | Chief Financial  Officer                                                                         |       | May 6, 2005 |
| Annette M. Smith               |       |                                                                                             |       |             |
|                           |       |                                                                                             |       |             |
| /s/ Joseph A. D’Amato     |       | Senior Vice  President, Finance and Administration (Principal Financial and Accounting  Officer) |       | May 9, 2005 |
| Joseph A. D’Amato         |       |                                                                                             |       |             |
|                           |       |                                                                                             |       |             |
| /s/ Barry E. Snyder, Sr.  |       | Chairman of the  Board of Directors                                                              |       | May 5, 2005 |
| Barry E. Snyder, Sr.      |       |                                                                                             |       |             |
|                           |       |                                                                                             |       |             |
| /s/ Bergal L. Mitchell III     |       | Vice Chairman of  the Board of Directors                                                         |       | May 5, 2005 |
| Bergal L. Mitchell III         |       |                                                                                             |       |             |
|                           |       |                                                                                             |       |             |
| /s/ Maurice A. John, Sr.  |       | Treasurer and  Director                                                                          |       | May 5, 2005 |
| Maurice A. John, Sr.      |       |                                                                                             |       |             |
|                           |       |                                                                                             |       |             |
| /s/ N. Cochise Redeye          |       | Director                                                                                         |       | May 5, 2005 |
| N. Cochise Redeye              |       |                                                                                             |       |             |
|                           |       |                                                                                             |       |             |
| /s/ Maribel Printup            |       | Director                                                                                         |       | May 5, 2005 |
| Maribel Printup                |       |                                                                                             |       |             |
|                           |       |                                                                                             |       |             |
| /s/ Martin E. Seneca, Jr. |       | Director                                                                                         |       | May 5, 2005 |
| Martin E. Seneca, Jr.     |       |                                                                                             |       |             |

 

53

----

 

**SENECA GAMING CORPORATION**

 

**INDEX TOCONSOLIDATED FINANCIAL STATEMENTS**

 
|                                                                                                                                                                                                | **Page**   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Audited Consolidated Financial  Statements:**                                                                                                                                                     | ** ** |
| ** **                                                                                                                                                                                          | ** ** |
| Report  of Independent Registered Public Accounting Firm                                                                                                                                            | F-2        |
|                                                                                                                                                                                                |       |
| Consolidated Balance  Sheets, as of September 30, 2004 and 2003                                                                                                                                | F-3        |
|                                                                                                                                                                                                |       |
| Consolidated  Statement of Operations and Changes in Capital, for the years ended  September 30, 2004 and 2003 and the period from August 1, 2002  (inception) to September 30, 2002 | F-4        |
|                                                                                                                                                                                                |       |
| Consolidated  Statements of Cash Flows, for the years ended September 30, 2004 and  2003 and the period from August 1, 2002 (inception) to  September 30, 2002                       | F-5        |
|                                                                                                                                                                                                |       |
| Notes to Consolidated  Financial Statements                                                                                                                                                         | F-6        |

 

F-1

----

 

**SENECA GAMING CORPORATION**

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

** **

The Board of Directors

Seneca Gaming Corporation

 

We have audited the accompanying consolidated balancesheets of Seneca Gaming Corporation as of September 30, 2004 and 2003, andthe related consolidated statements of operations and changes in capital, andcash flows for each of the two years in the period ended September 30,2004, and for the period from August 1, 2002 (inception) throughSeptember 30, 2002. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting. Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the consolidatedfinancial position of Seneca Gaming Corporation at September 30, 2004 and2003, and the consolidated results of its operations and its cash flows foreach of the two years in the period ended September 30, 2004, and for theperiod from August 1, 2002 (inception) through September 30, 2002, inconformity with U.S. generally accepted accounting principles.

 

|   | /s/  Ernst & Young LLP |
|--------|---------------------------------|

 

November 12, 2004,

exceptfor Note 14

asto which the date

is May 5,2005

 

F-2

----

 

**SENECA GAMING CORPORATION**

 

**CONSOLIDATED BALANCE SHEETS**

** **
| ** **                         | ** ** | **September 30** | ** ** |
|------------------------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2004**              | ** ** | **2003** | ** ** |
| ** **                         | ** ** | **(In Thousands)**    | ** ** |
| **Assets**                         |       |                  |       |   |   |
| Cash and cash  equivalents         |       | $                     | 211,595    |   | $ | 59,628 |   |
| Short-term  investments            |       | 57,963                |       | — |   |
| Receivables, net                   |       | 1,348                 |       | 1,792 |   |
| Inventories                        |       | 2,123                 |       | 1,059 |   |
| Other current  assets              |       | 3,171                 |       | 2,174 |   |
| Total current  assets              |       | 276,200               |       | 64,653 |   |
| Property and  equipment, net       |       | 282,797               |       | 105,499 |   |
| Other long-term  assets            |       | 25,059                |       | 11,597 |   |
| Total assets                       |       | $                     | 584,056    |   | $ | 181,749 |   |
|                               |       |                  |       |   |   |
| **Liabilities  and capital**       |       |                  |       |   |   |
| Current portion  of long-term debt |       | $                     | 325        |   | $ | 12,214 |   |
| Trade payables                     |       | 3,415                 |       | 1,243 |   |
| Accrued interest                   |       | 10,866                |       | 1,440 |   |
| Construction  payables             |       | 28,807                |       | 2,575 |   |
| Exclusivity fees                   |       | 41,549                |       | 28,858 |   |
| Dividend payable  to the Nation    |       | 655                   |       | — |   |
| Other current  liabilities         |       | 31,752                |       | 14,480 |   |
| Total current  liabilities         |       | 117,369               |       | 60,810 |   |
| Long-term debt                     |       | 380,000               |       | 73,943 |   |
| Total  liabilities                 |       | 497,369               |       | 134,753 |   |
| Capital:                           |       |                  |       |   |   |
| Retained  earnings                 |       | 86,687                |       | 46,996 |   |
| Total  liabilities and capital     |       | $                     | 584,056    |   | $ | 181,749 |   |

* *

*See accompanying notes.*

 

F-3

----

 

**SENECA GAMING CORPORATION**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN CAPITAL**

 
| ** **                                                      | ** ** | **Year ended  September 30,  2004** | ** ** | **Year ended  September 30,  2003** | ** ** | **Period from  Inception to  September 30,  2002** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **(In Thousands)**                            | ** ** |
| **Revenues**                                                    |       |                                          |       |                                          |       |                                                         |       |
| Gaming                                                          |       | $                                             | 337,536    |                                          | $          | 184,332                                                      |       | $ | — |   |
| Food and  beverage                                              |       | 31,358                                        |       | 16,158                                        |       | —                                                       |       |
| Retail,  entertainment and other                                |       | 11,797                                        |       | 4,823                                         |       | —                                                       |       |
| Less promotional  allowances                                    |       | (24,295                                       | )          | (9,557                                        | )          | —                                                       |       |
| Net revenues                                                    |       | 356,396                                       |       | 195,756                                       |       | —                                                       |       |
|                                                            |       |                                          |       |                                          |       |                                                         |       |
| **Expenses**                                                    |       |                                          |       |                                          |       |                                                         |       |
| Gaming                                                          |       | 92,531                                        |       | 53,686                                        |       | —                                                       |       |
| Food and  beverage                                              |       | 26,387                                        |       | 15,856                                        |       | —                                                       |       |
| Retail,  entertainment and other                                |       | 7,184                                         |       | 2,732                                         |       | —                                                       |       |
| Advertising,  general and administrative                        |       | 91,552                                        |       | 42,176                                        |       | —                                                       |       |
| Pre-opening  costs                                              |       | 4,228                                         |       | 7,155                                         |       | 2,961                                                        |       |
| Depreciation and  amortization                                  |       | 17,638                                        |       | 8,723                                         |       | —                                                       |       |
| Total operating  expenses                                       |       | 239,520                                       |       | 130,328                                       |       | 2,961                                                        |       |
| Operating income  (loss)                                        |       | 116,876                                       |       | 65,428                                        |       | (2,961                                                       | )          |
| Interest income                                                 |       | 1,535                                         |       | 44                                            |       | —                                                       |       |
| Interest expense                                                |       | (33,702                                       | )          | (15,515                                       | )          | —                                                       |       |
| Net income  (loss)                                              |       | 84,709                                        |       | 49,957                                        |       | (2,961                                                       | )          |
| Beginning  capital balance (deficit)                            |       | 46,996                                        |       | (2,961                                        | )          | —                                                       |       |
| Dividends to the  Nation                                        |       | (28,665                                       | )          | —                                        |       | —                                                       |       |
| Real property  and leasehold rights distributions to the Nation |       | (16,353                                       | )          | —                                        |       | —                                                       |       |
| Ending capital  balance (deficit)                               |       | $                                             | 86,687     |                                          | $          | 46,996                                                       |       | $ | (2,961 | ) |

 

*See accompanying notes.*

 

F-4

----

 

**SENECA GAMING CORPORATION**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                           | ** ** | **Year ended  September 30,  2004** | ** ** | **Year ended  September 30,  2003** | ** ** | **Period from  Inception to  September 30,  2002** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                                           | ** ** | **(In Thousands)**                       | ** ** |
| **Cash  flows provided by (used in) operating activities**                                           |       |                                     |       |                                     |       |                                                         |       |
| Net income  (loss)                                                                                   |       | $                                        | 84,709     |                                     | $          | 49,957                                                       |       | $ | (2,961 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |                                     |       |                                     |       |                                                         |       |
| Depreciation and  amortization                                                                       |       | 17,638                                   |       | 8,723                                    |       | —                                                       |       |
| Amortization of  deferred financing costs                                                            |       | 1,735                                    |       | 937                                      |       | —                                                       |       |
| Provision for  bad debts                                                                             |       | 96                                       |       | 70                                       |       | —                                                       |       |
| Fair market  value adjustment of interest rate cap                                                   |       | 1,328                                    |       | —                                   |       | —                                                       |       |
| Gain on  extiguishment of long-term debt                                                             |       | (415                                     | )          | —                                   |       | —                                                       |       |
| Loss on land  option expiration                                                                      |       | 151                                      |       | —                                   |       | —                                                       |       |
| Changes in  operating assets and liabilities:                                                        |       |                                     |       |                                     |       |                                                         |       |
| Current assets                                                                                       |       | (1,713                                   | )          | (5,092                                   | )          | (3                                                           | )          |
| Long-term assets                                                                                     |       | (1,287                                   | )          | —                                   |       | —                                                       |       |
| Current  liabilities                                                                                 |       | 41,561                                   |       | 45,533                                   |       | 487                                                          |       |
| Due to Nation  for developmental and organizational costs                                            |       | —                                   |       | (2,408                                   | )          | 2,408                                                        |       |
| Net cash  provided by (used in) operating activities                                                 |       | 143,803                                  |       | 97,720                                   |       | (69                                                          | )          |
|                                                                                                 |       |                                     |       |                                     |       |                                                         |       |
| **Investing  activities**                                                                            |       |                                     |       |                                     |       |                                                         |       |
| Purchases of  property and equipment                                                                 |       | (168,704                                 | )          | (111,607                                 | )          | (39                                                          | )          |
| Payments for  real property acquisitions to be distributed to the Nation and other assets            |       | (12,036                                  | )          | (7,356                                   | )          | —                                                       |       |
| Purchase of  short-term investments                                                                  |       | (57,963                                  | )          | —                                   |       | —                                                       |       |
| Net cash used in  investing activities                                                               |       | (238,703                                 | )          | (118,963                                 | )          | (39                                                          | )          |
|                                                                                                 |       |                                     |       |                                     |       |                                                         |       |
| **Financing  activities**                                                                            |       |                                     |       |                                     |       |                                                         |       |
| Proceeds from  senior notes                                                                          |       | 300,000                                  |       | —                                   |       | —                                                       |       |
| Proceeds from  term loan                                                                             |       | 22,700                                   |       | 57,300                                   |       | —                                                       |       |
| Payments to  sinking fund                                                                            |       | (6,048                                   | )          | —                                   |       | —                                                       |       |
| Purchase of  interest rate caps                                                                      |       | (2,188                                   | )          | —                                   |       | —                                                       |       |
| Proceeds from  notes payable—equipment                                                          |       | 19,266                                   |       | 37,344                                   |       | 250                                                          |       |
| Repayments of  notes payable—equipment                                                          |       | (46,916                                  | )          | (8,487                                   | )          |                                                         |       |
| Net repayments  from note payable to Nation                                                          |       | —                                   |       | (250                                     | )          | —                                                       |       |
| Payment of  deferred financing costs                                                                 |       | (11,937                                  | )          | (5,168                                   | )          | (10                                                          | )          |
| Dividends paid  to the Nation                                                                        |       | (28,010                                  | )          | —                                   |       | —                                                       |       |
| Net cash  provided by financing activities                                                           |       | 246,867                                  |       | 80,739                                   |       | 240                                                          |       |
| Increase in cash  and cash equivalents                                                               |       | 151,967                                  |       | 59,496                                   |       | 132                                                          |       |
| Cash and cash  equivalents at beginning of year                                                      |       | 59,628                                   |       | 132                                      |       | —                                                       |       |
| Cash and cash  equivalents at end of year                                                            |       | $                                        | 211,595    |                                     | $          | 59,628                                                       |       | $ | 132 |   |
| **Supplemental  disclosures of cash flow information**                                               |       |                                     |       |                                     |       |                                                         |       |
| Cash paid for  interest, net of amounts capitalized                                                  |       | $                                        | 21,213     |                                     | $          | 13,138                                                       |       | $ | — |   |
| Noncash  investing activies:                                                                         |       |                                     |       |                                     |       |                                                         |       |
| Real property  and leasehold rights distributions to the Nation                                      |       | $                                        | 16,353     |                                     | $          | —                                                       |       | $ | — |   |
| Discount  received upon extinguishment of long-term debt                                             |       | $                                        | 882        |                                     | $          | —                                                       |       | $ | — |   |

 

*See accompanying notes.*

 

F-5

----

 

**SENECA GAMING CORPORATION**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**Years ended September 30, 2004and 2003**

 

**1. Organization and Basis ofPresentation**

** **

The consolidated financial statements include theaccounts of Seneca Gaming Corporation (SGC) and its wholly owned subsidiaries(collectively, the Company). In consolidation, all intercompany balances andtransactions have been eliminated.

 

SGC, which was formed on August 1, 2002, iswholly owned by the Seneca Nation of Indians (the Nation). The Nation is a federallyrecognized Indian tribe with total territorial land comprising approximately54,000 acres in the Western New York region. SGC was organized by the Nation tooperate and manage its Class III Gaming activities pursuant to the IndianGaming Regulatory Act of 1988 (IGRA). Under IGRA, federally recognized Indiantribes are permitted to conduct full-scale casino gaming operations on triballand, subject to, among other things, the negotiation of a compact with theaffected state. Pursuant to IGRA, the Nation entered into the Nation-StateGaming Compact with the State of New York dated April 12, 2002 (theCompact), which has been approved by the Bureau of Indian Affairs, Departmentof the Interior. The Compact provides the Nation the exclusive right to conductClass III gaming activities at three sites in the western region of theState of New York.

 

The Nation’s Constitution established the TribalCouncil (the Council) to act as the Nation’s legislative authority. The Councilacts on the Nation’s behalf with respect to SGC, and the Council establishedthe Seneca Gaming Authority (SGA) to regulate the gaming activities of SGCunder the Compact.

 

The Council, at the request of the SGC Board ofDirectors, chartered three subsidiary corporations of SGC to operate the threesites authorized by the Compact. In addition, the SGC Board of Directors hiredthe executive management of SGC, including the President/Chief ExecutiveOfficer, to oversee, develop, and manage the three sites. The subsidiarycorporations are as follows:

 

•                  SenecaNiagara Falls Gaming Corporation (SNFGC)

 

•                  SenecaTerritory Gaming Corporation (STGC)

 

•                  SenecaErie Gaming Corporation (SEGC)

 

SNFGC was formed on August 1, 2002 to operate theNation’s gaming activities in Niagara Falls, New York and was in thedevelopment stage through December 30, 2002, as it devoted most of itsefforts to obtaining regulatory and governmental approvals, securing financing,recruiting and training personnel, and overseeing facility renovation.Operations at SNFGC’s casino (Seneca Niagara Casino) commencedDecember 31, 2002.

 

In connection with the approval of the Compact onOctober 25, 2002, the State of New York transferred to the Nation certainproperty upon which the former Niagara Falls, New York, Convention Center (theFacility) was located. The Nation leased the property to SNFGC pursuant to alease agreement dated October 25, 2002. SNFGC then leased the property tothe Empire State Development Corporation (ESDC) pursuant to a subleaseagreement dated October 25, 2002. The ESDC then subleased the propertyback to SNFGC under a sub-sublease agreement also dated as of October 25,2002. The SNFGC casino is located on this leased property site and operates inthe renovated facility. The sub-sublease agreement with ESDC required theCompany to pay Supplemental Rent of approximately $24 million in the eventSNFGC conducted Class III gaming in a structure within the City of NiagaraFalls outside of the Facility. The Supplemental Rent represents the remaininggeneral obligation bonds outstanding issued by ESDC in connection with originalfinancing of the Facility. Based on the Company’s expansion plans, whichincludes expanded Class III gaming, the liability for payment of theSupplemental Rent became probable. As a result, the Company negotiated adiscounted payment of $22.0 million, which was paid to ESDC inAugust 2004. This payment fulfilled the Nation’s and SNFGC’s obligationunder the Compact with respect to such Supplemental Rent and results in thetermination of both the sublease and sub-sublease. The Company has recorded the$22.0 million payment as leasehold improvements.

 

STGC was formed on September 20, 2003, to operatethe Nation’s gaming activities in Salamanca, New York on its territorial land.From its formation until the May 1, 2004, opening of STGC’s casino inSalamanca (Seneca Allegany Casino), STGC dedicated its efforts to theconstruction and equipping of the casino, and the hiring and training of staff.

 

F-6

----

 

SEGC was formed on August 9, 2003, to operate theNation’s gaming activities in Erie County, New York and has selected a site forthis facility near the Buffalo-Niagara International Airport in Cheektowaga,New York. The purchase of this site is currently subject to litigation and SEGCis considering alternative sites. The exclusive right, underthe Compact, for the third site may terminate if the Nation or SEGC fails tocommence construction of a Class III gaming facility in Erie County, NewYork by December 9, 2005, or if the Nation or SEGC fails to commenceClass III gaming operations by December 9, 2007.

 

SGC’s fiscal year-end is September 30. Referencesto 2004, 2003, and 2002 represent the years ended September 30, 2004,September 30, 2003, and the period from August 1, 2002 toSeptember 30, 2002, respectively. SGC’s financial position atSeptember 30, 2003 and 2002, and results of operations and cash flows for2003 and 2002, consist principally of SNFGC’s activities. The Company believesthat all expenses incurred by the Nation on behalf of the Company have beenproperly allocated to the Company.

 

**2. Summary of Significant AccountingPolicies**

 

**Cash and Cash Equivalents**

 

Cash and cash equivalents include investments withinitial maturities of three months or less. Cash and cash equivalents arecarried at cost, which approximates market value.

 

**Short-Term Investments**

** **

Investments with an original maturity of greater thanthree months to one year, and collateralized market auction preferred stock, arestated at fair value. There were no short-term investments atSeptember 30, 2003.

 

Short-term investments at September 30, 2004consist of the following:

 
| ** **                      | ** ** | **Cost**           | ** ** | **Fair Value** | ** ** |
|---------------------------------|------------|--------------------|------------|----------------|------------|
| ** **                      | ** ** | **(In Thousands)** | ** ** |
|                            |       |               |       |           |       |
| U.S. Government  agency notes   |       | $                  | 9,963      |           | $          | 9,963 |   |
| Market auction  preferred stock |       | 48,000             |       | 48,000         |       |
| Total short-term  investments   |       | $                  | 57,963     |           | $          | 57,963 |   |

 

U.S. Government agencynotes have maturities of less than one year. Market auction preferred stock hasa dividend rate determined periodically (typically less than 90 days) based onan auction mechanism. Notwithstanding the liquidity which may be provided bythe auction process, market auction preferred stock generally does not have ascheduled maturity.

 

**Receivables**

** **

Receivables consist primarily of gaming receivablesand nongaming receivables. Gaming receivables represent credit extended to approved casino customers. The Company maintains anallowance for doubtful accounts which is based on management’s estimate of theamount expected to be uncollectible considering experience and the informationmanagement obtains regarding the creditworthiness of the customer. Thecollectibility of these receivables could be affected by future business oreconomic trends.

 

**Inventories**

** **

Inventories consist principally of food and beverage,retail, and operating supplies. Inventories are stated at the lower of cost ormarket. Cost is determined using the first-in first-out method for retail andwarehouse inventories and using the average cost method for food and beverageinventories.

 

F-7

----

 

**Property and Equipment**

 

Property and equipment are stated at cost.Depreciation is provided over the estimated useful lives of the assets usingthe straight-line basis. Amortization of leasehold improvements is over thelesser of the term of the lease or the estimated useful life. Useful lifeestimates of asset categories are as follows:

 
| Buildings                            | 40 years         |   |
|--------------------------------------|------------------|--------|
| Leasehold improvements – casino | 10–21 years |   |
| Leasehold improvements – other  | 4–5 years   |   |
| Furniture and equipment              | 3–7 years   |   |

 

The cost of significant improvements is capitalized.Costs of normal repairs and maintenance are charged to expense as incurred.Gains or losses on disposition of property and equipment are included in thedetermination of income. Interest incurred for construction related projectsare capitalized and amortized over the life of the related asset using thestraight-line method. The interest rate used was 71⁄4% and 301⁄2% during 2004 and2003, respectively. The amount of interest capitalized for 2004 and 2003 wasapproximately $654,000 and $1,416,000, respectively.

 

In accordance with the Financial Accounting StandardBoard’s Statement of Financial Accounting Standards No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets* (SFAS 144), the carrying value of the Company’sassets are reviewed when events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. If it is determined that animpairment loss has occurred based on current and future levels of income andexpected future cash flows as well as other factors, then an impairment loss isrecognized as a deduction in determining operating income. SGC managementconcludes that no such impairment exists at September 30, 2004.

 

**Deferred Financing Costs**

** **

Deferred financing costs include costs incurred inconnection with issuance of long-term debt. These costs are amortized over theterm of the related financing agreement. Amortization expense for 2004, 2003,and 2002, was $1,735,000, $937,000, and $0, respectively.

 

**Other Current Liabilities**

** **

Accruals for estimates of vested employee benefits,unredeemed Seneca Link Player’s Card points, marketing, and regulatory costsare classified in other current liabilities on the accompanying balance sheet.Management reviews the adequacy of the unredeemed Seneca Link Player’s Cardaccrual by periodically evaluating the historical redemption experience andprojected trends. Actual results could differ from those estimates.

 

**Advertising**

** **

The Company expenses advertising costs as incurred.Total advertising expenses for 2004, 2003, and 2002 were $5,665,000,$2,454,000, and $0, respectively.

 

**Preopening Costs**

** **

In accordance with the American Institute of CertifiedPublic Accountants’ Statement of Position 98-5, *Reporting on the Costs of Start-up Activities*, preopeningcosts are expensed as incurred. Preopening costs in 2004, 2003, and 2002consist of development costs in obtaining Class III gaming approval aswell as employee costs, legal, marketing and advertising expenses, and otherdirect expenses related to the opening of SNFGC and STGC. For the years endedSeptember 30, 2004, 2003, and 2002, such costs totaled $4,228,000,$7,155,000, and $2,961,000, respectively.

 

F-8

----

 

**Casino Revenues**

 

SGC recognizes casino revenue as gaming wins lessgaming losses. Revenues from food and beverage, retail, entertainment, andother services are recognized at the time the service is performed.

 

**PromotionalAllowances**

** **

SGC operates a complimentary program in which food andbeverage, retail, entertainment, and other services are provided to guestsbased on points that are earned through the Company’s Seneca Link Player’sCard. The retail value of these complimentary items is included in grossrevenues and then deducted as promotional allowances to arrive at net revenues.

 

The retail value of providing such promotionalallowances was included in revenues as follows:

 
| ** **                        | ** ** | **Years Ended September 30** | ** ** |
|-----------------------------------|------------|-----------------------------------|------------|
| ** **                        | ** ** | **2004**                          | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                        | ** ** | **(In Thousands)**                | ** ** |
|                              |       |                              |       |   |   |   |   |
| Food and  beverage                |       | $                                 | 15,636     |   | $ | 7,037 |   | $ | — |   |
| Retail,  entertainment, and other |       | 8,659                             |       | 2,520 |   | — |   |
| Promotional  allowances           |       | $                                 | 24,295     |   | $ | 9,557 |   | $ | — |   |

 

The estimated cost of providing such promotionalallowances was as follows:

 
| ** **                        | ** ** | **Years Ended September 30** | ** ** |
|-----------------------------------|------------|-----------------------------------|------------|
| ** **                        | ** ** | **2004**                          | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                        | ** ** | **(In Thousands)**                | ** ** |
|                              |       |                              |       |   |   |   |   |
| Food and  beverage                |       | $                                 | 13,299     |   | $ | 6,913 |   | $ | — |   |
| Retail,  entertainment, and other |       | 5,205                             |       | 1,862 |   | — |   |
| Promotional  allowances           |       | $                                 | 18,504     |   | $ | 8,775 |   | $ | — |   |

 

**Gaming Expenses**

** **

Gaming expenses include the slot exclusivity fee whichthe Company is required to pay to the State of New York based on its Compact(see Note 12), casino operations, and earned Seneca Link Player’s Card points.The Company accrues for Seneca Link Player’s Card points expected to beredeemed in the future based on the cost of items expected to be redeemed.

 

**Income Taxes**

** **

The Nation is a sovereign Indian nation withindependent legal jurisdiction over its people and its lands. As an enterpriseowned by the Nation, SGC is not subject to federal or state income taxes.

 

**Fair Value ofFinancial Instruments**

** **

The fair value amounts presented below are reported tosatisfy the disclosure requirements of SFAS No. 107, *Disclosures About Fair Valueof Financial Instruments*and are not necessarily indicative of theamount SGC could realize or settle its financial instruments for in a currentmarket exchange.

 

The carrying amount of cash and cash equivalents,short-term investments, receivables, accounts payable, and accrued expenses,and the equipment financing loans approximate fair value.

 

F-9

----

 

The estimated fair value of the $80.0 million TermLoan defined in Note 10 has been calculated based on the future cash flows tobe made under the Term Loan. Due to the unique nature of the sovereign nationstatus of SGC’s ownership, and restrictions on gaming applicable toorganizations without approved tribal status, current market interest rates fora similar loan provided under similar circumstances, are not readilydeterminable. Applying interest rates of 7% to 15% to the future cash flows,based on the $80.0 million outstanding balance at September 30, 2004,results in fair values ranging from $136.8 million (a 7% interest rate) to$116.6 million (a 15% interest rate). These amounts are less than the aggregatepayments, which would be required to obtain satisfactory defeasance of the TermLoan (see Note 10). The fair value of the 2004 Senior Notes, described in Note10, is $310.0 million, and is based on quoted market price.

 

**Management’s Useof Estimates**

** **

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the amountsreported in the financial statements and accompanying notes. The mostsignificant estimates included in the accompanying financial statements relateto the liability associated with unredeemed Seneca Link Player’s Card points,vested employee benefits, and regulatory costs. Actual amounts could differfrom these estimates.

 

**Reclassification**

** **

Certain amounts from the prior year have beenreclassified to conform to the current year presentation.

 

**3. Cash and CashEquivalents**

** **

At September 30, 2004 and 2003, the Company hadcash and cash equivalents of $211.6 million and $59.6 million, respectively.For reporting purposes, cash and cash equivalents include all operating cashand in-house funds.

 

**4. Concentrationof Credit Risk**

** **

Financial instruments that potentially subject SGC toconcentrations of credit risk consist principally of cash and cash equivalentaccounts in financial institutions. SGC maintains its cash balances in severalfinancial institutions. Accounts are insured by the Federal Deposit InsuranceCorporation up to $100,000. Cash and cash equivalents exceeding federallyinsured limits totaled approximately $190.6 million and $44.8 million atSeptember 30, 2004 and 2003, respectively.

 

**5. Receivables,Net**

** **

Components of receivables, net are as follows:

 
| ** **                       | ** ** | **September 30** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2004**              | ** ** | **2003** | ** ** |
| ** **                       | ** ** | **(In Thousands)**    | ** ** |
|                             |       |                  |       |   |   |
| Gaming                           |       | $                     | 936        |   | $ | 454 |   |
| Nongaming                        |       | 579                   |       | 1,408 |   |
|                             |       | 1,515                 |       | 1,862 |   |
| Allowance for  doubtful accounts |       | (167                  | )          | (70 | ) |
| Receivables, net                 |       | $                     | 1,348      |   | $ | 1,792 |   |

 

**6. Other CurrentAssets**

 

Components of other current assets are as follows: 

 

F-10

----

 
| ** **            | ** ** | **September 30** | ** ** |
|-----------------------|------------|-----------------------|------------|
| ** **            | ** ** | **2004**              | ** ** | **2003** | ** ** |
| ** **            | ** ** | **(In Thousands)**    | ** ** |
|                  |       |                  |       |   |   |
| Prepaid expenses      |       | $                     | 2,919      |   | $ | 1,515 |   |
| Deposits              |       | 80                    |       | 559 |   |
| Other                 |       | 172                   |       | 100 |   |
| Other current  assets |       | $                     | 3,171      |   | $ | 2,174 |   |

 

**7. Property andEquipment, Net**

** **

Components of property and equipment are as follows:

 
| ** **                                      | ** ** | **September 30** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2004**              | ** ** | **2003** | ** ** |
| ** **                                      | ** ** | **(In Thousands)**    | ** ** |
|                                            |       |                  |       |   |   |
| Buildings                                       |       | $                     | 69,011     |   | $ | — |   |
| Leasehold improvements  – casino           |       | 103,889               |       | 64,146 |   |
| Leasehold  improvements – other            |       | 345                   |       | 345 |   |
| Furniture and  equipment                        |       | 88,175                |       | 46,837 |   |
| Construction-in-progress                        |       | 47,738                |       | 2,894 |   |
|                                            |       | 309,158               |       | 114,222 |   |
| Less accumulated  depreciation and amortization |       | (26,361               | )          | (8,723 | ) |
| Property and  equipment, net                    |       | $                     | 282,797    |   | $ | 105,499 |   |

 

**8. Other Long-TermAssets**

 

Components of other long-term assets are as follows:

 
| ** **                           | ** ** | **September 30** | ** ** |
|--------------------------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **2004**              | ** ** | **2003** | ** ** |
| ** **                           | ** ** | **(In Thousands)**    | ** ** |
|                                 |       |                  |       |   |   |
| Deferred  financing costs, net       |       | $                     | 13,976     |   | $ | 4,241 |   |
| Restricted Cash  – Sinking Fund |       | 6,048                 |       | — |   |
| Land to be  distributed to Nation    |       | 2,888                 |       | 7,155 |   |
| Deposits                             |       | 1,287                 |       | — |   |
| Other                                |       | 860                   |       | 201 |   |
|                                 |       | $                     | 25,059     |   | $ | 11,597 |   |

 

In 2004, the Company incurred costs toward theacquisition of land totaling $2.9 million which is included in other long-termassets on the accompanying balance sheet. The Company is in the process ofacquiring approximately 24 acres of real property adjacent to its existingproperty in Niagara Falls. At September 30, 2004, costs totaling $1.1 millionrelating to these acquisitions are included in other long-term assets. Inaddition, the Company acquired two parcels of land for $1.7 million adjacent tothe Nation’s Cattaraugus Territory for future development. It is intended thatthese land parcels will be distributed to the Nation.

 

In 2003, the Company acquired approximately 5.25 acresof land adjacent to its existing property in Niagara Falls for approximately$2.0 million from the City of Niagara Falls. This land is used for guestparking. This property was distributed to the Nation in October 2003.

 

F-11

----

 

In September 2003, the Company acquiredapproximately 3.9 acres of land adjacent to its existing property in NiagaraFalls for approximately $5.1 million. The Company acquired this land from theCity of Niagara Falls, Niagara Frontier Transportation Authority, and leaseholdinterests from a private corporation. The Company constructed a parking garageon this site. This property was also distributed to the Nation inOctober 2003.

 

**9. Other CurrentLiabilities**

** **

Components of other current liabilities are asfollows:

 
| ** **                                       | ** ** | **September 30** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2004**              | ** ** | **2003** | ** ** |
| ** **                                       | ** ** | **(In Thousands)**    | ** ** |
|                                             |       |                  |       |   |   |
| Accrued  salaries, wages, and benefits           |       | $                     | 6,770      |   | $ | 5,055 |   |
| Regulatory fees  and police and sheriff services |       | 5,186                 |       | 2,764 |   |
| Gaming  liabilities                              |       | 7,792                 |       | 4,075 |   |
| Other accrued  expenses                          |       | 12,004                |       | 2,586 |   |
| Other current  liabilities                       |       | $                     | 31,752     |   | $ | 14,480 |   |

 

**10. Long-Term Debt**

 

Long-term debt, as described below, consists of thefollowing:

 
| ** **                                 | ** ** | **September 30** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2004**              | ** ** | **2003** | ** ** |
| ** **                                 | ** ** | **(In Thousands)**    | ** ** |
|                                       |       |                  |       |   |   |
| 2004 71⁄4% Senior  Notes due 2012       |       | $                     | 300,000    |   | $ | — |   |
| Term loan                                  |       | 80,000                |       | 57,300 |   |
| Equipment  financing and other             |       | 325                   |       | 28,857 |   |
|                                       |       | 380,325               |       | 86,157 |   |
| Less current  maturities of long-term debt |       | (325                  | )          | (12,214 | ) |
| Long-term debt                             |       | $                     | 380,000    |   | $ | 73,943 |   |

 

**2004 71⁄4% SeniorNotes due 2012**

** **

On May 5, 2004, SGC issued $300.0 million insenior notes with fixed interest payable at a rate of 71⁄4% per annum due 2012(2004 Senior Notes). These securities are guaranteed by SGC, STGC, and SEGC(collectively, the Guarantors). SNFGC (the Non-Guarantor) will guarantee thedebt securities after repayment of its Term Loan in November 2007.

 

The proceeds from this financing were used torepurchase all of the outstanding equipment notes and will be used principallyto fund SNFGC’s construction and equipping of a 604-room hotel, and theacquisition of land in Niagara Falls, as provided in the Compact. In addition,the Company used $22.0 million of the proceeds to satisfy the obligation toESDC described in Note 1. Interest on the 2004 Senior Notes is payablesemi-annually on November 1 and May 1. The 2004 Senior Notes matureon May 1, 2012. The 2004 Senior Notes are uncollateralized generalobligations and effectively junior to the Term Loan to the extent of the valueof the assets securing the Term Loan. As of September 30, 2004, accruedinterest on the 2004 Senior Notes was $8.8 million.

 

The 2004 Senior Notes indenture contains certainfinancial and nonfinancial covenants. The financial covenants includelimitations on restricted payments and the incurrence of indebtedness, whilethe nonfinancial covenants include reporting obligations and compliance withlaws and regulations. As of September 30, 2004, SGC complied with all ofits respective covenant requirements, except as discussed in Note 14. Thecovenants contained

 

F-12

----

 

in the indenture permit theCompany to borrow an additional $15.0 million for equipment and obtain a securedor unsecured credit facility up to $150.0 million less the amount remainingunder the Term Loan.

 

**Term Loan**

** **

SNFGC entered into a five-year Term Loan withFreemantle Limited (Lender) dated November 22, 2002. The Term Loanrequires that the Lender provide $80.0 million in financing for the initialconstruction of the SNFGC casino facility and other related costs. As ofSeptember 30, 2004 and 2003, $80.0 million and $57.3 million wereoutstanding respectively. The entire outstanding balance is due onNovember 22, 2007.

 

SNFGC pays interest on a monthly basis in arrears atthe one-month LIBOR (1.67% for September 2004) plus 29%. In addition,SNFGC incurred an availability fee of 0.5% on any unborrowed balance. OnApril 15, 2004, SNFGC, as required, borrowed the remaining $22.7 millionavailable under the Term Loan.

 

SNFGC has pledged substantially all of its assets ascollateral for the outstanding amounts due under the Term Loan. SNFGC is alsoobligated to make payments into a sinking fund account to be held for thebenefit of and as additional collateral for the Lender. A payment of $6.0million was made in December of 2003 into the sinking fund. An annualpayment to the sinking fund of $12.0 million is due on or beforeDecember 31, 2004. Commencing January 1, 2005 and throughDecember 31, 2006, equal quarterly payments for $5.5 million each are dueon or before the last day of each calendar quarter, resulting in annualpayments of $22.0 million. Commencing January 1, 2007 through the maturitydate of the Term Loan, November 22, 2007, three equal quarterly paymentsare due on or before the last day of the first three calendar quarters and onefinal payment is due on the maturity date, of $4.5 million, or $18.0 million intotal. At the maturity date the sinking funds balance will be equal to theoutstanding Term Loan balance of $80 million. SNFGC may satisfy these amountsby entering into an unconditional bank loan commitment or irrevocable standbyletter of credit for the benefit of the Lender.

 

The Term Loan contains various covenants; theseinclude, but are not limited to, restrictions on SNFGC’s ability to paydividends, guarantee of debt, limitations on additional borrowings, uses of cash, minimum debt coverage, and debt coveragethreshold ratios. As of September 30, 2004, SNFGC complied with all itsrespective covenant requirements, except as discussed in Note 14. In addition,the Term Loan requires SNFGC to maintain, at all times through the maturity ofthe Term Loan, a minimum cash balance of $10.0 million, plus an amount equal tothe pro rata quarterly or annual required amount of unpaid deposits to thesinking fund. In addition, the Term Loan requires SNFGC to establish asegregated bank account where its operating andinvestment cash is maintained. In the event of default, as defined in the TermLoan, the Lender has recourse to these funds as additional collateral. SNFGCmay obtain a release of the collateral pledged as support for the borrowings bydepositing funds sufficient to cover the $80.0 million principal balance of theTerm Loan and all cumulative successive interest payments due until thematurity date of the Term Loan. Based upon the $80.0 million principal amountborrowed under the Term Loan, the total funding required at September 30,2004, in addition to the Sinking Fund balance, would be approximately $152.0million.

 

**EquipmentFinancing**

** **

SNFGC entered into five financing arrangements withcertain slot machine vendors providing approximately $37.3 million to financeSNFGC’s gaming equipment, including its slot machines. Interest rates on theseloans ranged from 6.0% to 6.42%. These loans were retired in May 2004using proceeds from the Company’s 2004 Senior Notes. A gain of $415,000 wasrecognized, net of a $467,000 write-off of deferred financing costs related tothese loans.

 

STGC entered into four financing arrangements withcertain slot machine vendors providing approximately $18.1 million to financeSTGC’s slot machine purchases. Interest rates on these loans ranged from 6.0%to 8.0%. These notes were retired in May 2004 from the proceeds of theCompany’s 2004 Senior Notes.

 

F-13

----

 

**DerivativeInstruments**

** **

SGC is considered an “end user” of derivativeinstruments and engages in derivative transactions for risk management purposesonly. Effective May 25, 2004, SGC entered into two interest rate capagreements for an aggregate notional amount of $80.0 million, equal to theoutstanding balance of the Term Loan. The instruments were purchased forapproximately $1.1 million each, $2.2 million in total. Both instrumentsterminate on November 22, 2007, simultaneously with the Term Loan.Interest rate caps limit the Company’s exposure on the Term Loan to 29% plus 4%on the 30-day LIBOR, effectively capping the interest rate on the Term Loan at33%.

 

The aggregate fair market value change of SGC’sderivative instruments was $1.3 million and is recorded as a component ofinterest expense for the fiscal year ended September 30, 2004, as theCompany is not using hedge accounting. The fair value of the interest rate capsat September 30, 2004, is $860,000 and is classified as other long-termassets in the accompanying balance sheet.

 

Maturities of the Company’s long-term debt andrequired sinking fund deposits are as follows:

 
| ** **                            | ** ** | **Maturities**     | ** ** | **Required  Sinking  Fund Deposits** | ** ** |
|---------------------------------------|------------|--------------------|------------|--------------------------------------|------------|
| ** **                            | ** ** | **(In Thousands)** | ** ** |
|                                  |       |               |       |                                 |       |
| Fiscal year  ended September 30: |       |               |       |                                 |       |
| 2005                                  |       | $                  | 325        |                                 | $          | 28,500 |   |
| 2006                                  |       | —             |       | 22,000                               |       |
| 2007                                  |       | —             |       | 19,000                               |       |
| 2008                                  |       | 80,000             |       | 4,500                                |       |
| 2009                                  |       | —             |       | —                               |       |
| Thereafter                            |       | 300,000            |       | —                               |       |
|                                  |       | $                  | 380,325    |                                 | $          | 74,000 |   |

 

**11. Related-PartyTransactions**

** **

**Land Leases fromthe Nation**

** **

The Nation entered into an operating lease agreement(Head Lease) with SNFGC on October 25, 2002, for use of the land and thebuilding which is currently the Seneca Niagara Casino. The Seneca NiagaraCasino lease term is for 21 years and requires monthly rent payments of $1.0million. Rent payments commenced July 1, 2003. Rent is payable only to theextent that sufficient funds are available from the net proceeds derived fromthe operation of the casino facility and other commercial activities related tothe operation of the casino. Rent payments aresubordinate to the payment required under the Term Loan. During the fiscalyears ended September 30, 2004 and 2003, SNFGC made lease payments to theNation of $12.0 million and $3.0 million, respectively.

 

STGC leases the land upon which the Seneca AlleganyCasino operates from the Nation pursuant to an oral agreement. FromMay through September 2004, STGC paid a monthly lease payment of$750,000. STGC and the Nation are finalizing a written lease for this land.During the fiscal year ended September 30, 2004, STGC made lease paymentsto the Nation of $3.8 million.

 

**OtherRelated-Party Transactions**

** **

During 2004, the Company declared dividends to theNation of $28.7 million of which $28.0 million was paid in 2004.

 

During 2004, the Company distributed real property andleasehold rights acquired, for use in its casino operations to the Nation. Thedistribution amounts of $16.4 million are based on the acquisition costs.

 

F-14

----

 

The Company is charged by the Nation for SGA costs,which are incurred by the Nation. SGA costs charged to the Company wereapproximately $6.2 million in 2004 and $3.6 million in 2003. The Company alsoincurs costs which are passed through the Nation for New York State gamingregulatory services and New York State Police and Cattaraugus County SheriffDepartment services. The Company has recorded expenses of approximately $5.0million in 2004 and $2.6 million in 2003 in connection with these services. AtSeptember 30, 2004 and 2003, approximately $5.2 million and $2.8 million,respectively, of the SGA, other regulatory, and police costs are recorded asother current liabilities.

 

SGC incurred legal fees of $183,000 and $229,000primarily for regulatory and compact matters during 2004 and 2003,respectively, from a law firm that specializes in gaming regulatory issues inwhich the President/CEO of SGC is a partner. The President/CEO did not receiveany remuneration from the law firm during 2004, and is not actively involved inits management. The Company ceased using the services of this law firmeffective November 8, 2004.

 

During 2004 and 2003, the Company purchased $689,000and $317,000, respectively, of tobacco products from an entity in which theowner is an SGA Commissioner.

 

During 2004 and 2003, the Company purchased $158,000and $38,000 of bottled water from an entity, which is owned by a member of theCouncil. As of November 2, 2004, this individual is no longer a member ofthe Council.

 

In November 2002, the Company reimbursed theNation $2,408,000 representing the development costs incurred by the Nation inobtaining Class III gaming approval and other SGC formation costs. Thisamount was recorded as a liability at September 30, 2002. In addition, theNation advanced $1 million to the Company on a short-term basis throughOctober 2002 for operating cash needs; this advance was repaid by the Companyto the Nation in November 2002.

 

**12. Commitmentsand Contingencies**

** **

**Litigation**

** **

In October 2001, the New York Legislature passedlegislation, which allowed Governor Pataki to enter into a gaming compact withthe Seneca Nation of Indians and to enter into gaming compacts with otherIndian tribes for the establishment of three additional casinos.

 

In January 2002, anti-gaming activists filedsuit, Dalton v. Pataki, seeking a declaratory judgment that the legislation isunconstitutional in light of the New York State Constitution’s generalprohibition on gambling. On July 17, 2003, the New York Supreme Courtdismissed the plaintiffs’ complaints in Dalton v. Pataki and held that thelegislation is constitutional. On July 7, 2004, following appeal by the plaintiffs,the Appellate Division likewise found the legislation enabling the Compact tobe constitutional. The plaintiffs may seek review by the United States SupremeCourt. No assurance can be given that the ultimate result of this litigationwill be to uphold the constitutionality of the legislation and the validity ofthe Compact. The State of New York is defending the validity of the legislationand the validity of compacts entered into under its authority.

 

The Company is a defendant in certain litigation inthe normal course of business. In the opinion of management, based on theadvice of counsel, the aggregate liability, if any, arising from suchlitigation will not have a material adverse effect on the Company’s financialcondition or results of operations.

 

**The Seneca NationCompact**

** **

As part of its Compact, the Nation agrees tocontribute to the State of New York a portion of the proceeds from theoperation and conduct of each category of Gaming Device for which exclusivityexists, based on the win of such machines (cash dropped into machines, afterpayouts but before expenses) and totaled on a cumulative quarterly basis to beadjusted annually at the end of the relevant calendar year. The exclusivity feeto the State of New York

 

F-15

----

 

for years 1–4 (throughDecember 31, 2006), is 18.0% paid on an annual basis. Thereafter, theexclusivity fee is 22% for years 5–7 (through December 31, 2009), on asemi-annual basis and 25.0% for years 8–14 (through December 31, 2016), ona quarterly basis.

 

Amounts due to New York State were $41.5 million and$28.9 million at September 30, 2004 and 2003, respectively, and arerecorded as exclusivity fees on the accompanying balance sheet. The exclusivityfee expense was $51.6 million and $28.9 million for the years endedSeptember 30, 2004 and 2003, respectively.

 

**Additional CasinoLocations and Expansion**

** **

As described in Note 1, the Compact provides theNation the exclusive right to conduct Class III gaming activities at threesites in the western region of the State of New York. The Nation is in theprocess of site selection for the third site in Erie County, New York. Thisfacility as well as expansion to SNFGC and STGC will require significantcapital outlays. The amount and timing of these capital expenditures aredependent on various factors including financing availability, certain Nationand governmental approvals, construction timelines, and the performance of itstwo operating casinos.

 

**Capital Projects**

** **

On May 18, 2004, the Company began constructionof a hotel connected to the existing Seneca Niagara Casino featuring 604 rooms,approximately 950 slot machines, and various amenities. The hotel will costapproximately $200.0 million to complete, including all construction costs andcosts associated with furniture, fixtures, and equipment.

 

During 2004, the Company began to construct a parkinggarage and perform site preparation work for a hotel connected to the existingSeneca Allegany Casino featuring approximately 225 rooms. The Company estimatesthat the parking garage and hotel will cost between $180.0 million and $185.0million to complete, including all construction costs and costs associated withfurniture, fixtures, and equipment.

 

The Company has capitalized, asconstruction-in-progress, $47.7 million during the fiscal year endedSeptember 30, 2004 for these projects. The Seneca Niagara Casino hotel isexpected to partially open by November 2005 and be completely opened byMarch 2006, while the estimated completion dates for the Seneca AlleganyCasino parking garage and hotel are January 2005 and April 2006,respectively.

 

**Operating Leases**

** **

In addition to its Head Lease with the Nation (Note11), the Company rents land and building space for the SNFGC casino facility,an employee parking lot, and warehouse space; and administrative space for itsSTGC casino facility, under various operating leases. The lease terms vary fromyearly to 21 years with renewal options. Total rent expense under all operatingleases for 2004 and 2003 was approximately $21.0 million $4.0 million,respectively. As described in Note 11, STGC is currently negotiating a writtenland lease with the Nation. The Company has included in the following schedules$1.0 million per month from October 2004 through February 2005, and$1.25 million per month from March 2005 through the remainder of theCompact term as the estimated payments for this lease. The terms of the 2004Senior Notes limit the monthly payments under the SNFGC Head Lease and STGC landlease to $1.25 million with annual increases up to 3.0% beginning no earlierthan October 2005. Estimated minimum rents due under the operating leases(including the Head Lease and STGC land lease) are as follows:

 
| **Fiscal year ended  September 30:** | ** ** | **(In Thousands)** | ** ** |
|-------------------------------------------|------------|--------------------|------------|
| 2005                                      |       | $                  | 29,154     |   |
| 2006                                      |       | 28,104             |       |
| 2007                                      |       | 27,746             |       |
| 2008                                      |       | 27,334             |       |
| 2009                                      |       | 27,236             |       |
| Thereafter                                |       | 385,809            |       |
|                                      |       | $                  | 525,383    |   |

 

F-16

----

 

**13. CondensedConsolidating Financial Statement Information**

 

SGC (the Parent) is the issuer of the 2004 SeniorNotes. These Notes are guaranteed by SGC, STGC, and SEGC (collectively theGuarantors). SNFGC (the Non-Guarantor) will not guarantee the debt securitiesuntil after repayment of its existing Term Loan in November 2007.

 

Condensed consolidating financial information for theParent and Guarantors and Non-Guarantor is as follows:

 
| ** **                              | ** ** | **Condensed Consolidating Balance Sheet  September 30, 2004** | ** ** |
|-----------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                              | ** ** | **Parent and Guarantors**                                          | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                              | ** ** | **(In Thousands)**                                                 | ** ** |
|                                    |       |                                                               |       |   |   |   |   |   |   |
| Assets                                  |       |                                                               |       |   |   |   |   |   |   |
| Cash and cash  equivalents              |       | $                                                                  | 157,288    |   | $ | 54,307 |   | $ | — |   | $ | 211,595 |   |
| Short-term  investments                 |       | 57,963                                                             |       | — |   | — |   | 57,963 |   |
| Other current  assets                   |       | 1,204                                                              |       | 5,438 |   | — |   | 6,642 |   |
| Total current  assets                   |       | 216,455                                                            |       | 59,745 |   | — |   | 276,200 |   |
| Property and  equipment, net            |       | 95,629                                                             |       | 187,168 |   | — |   | 282,797 |   |
| Other long-term  assets                 |       | 13,244                                                             |       | 11,815 |   | — |   | 25,059 |   |
| Investment in  non-guarantor subsidiary |       | 111,166                                                            |       | — |   | (111,166 | ) | — |   |
| Total assets                            |       | $                                                                  | 436,494    |   | $ | 258,728 |   | $ | (111,166 | ) | $ | 584,056 |   |
|                                    |       |                                                               |       |   |   |   |   |   |   |
| Liabilities and  capital                |       |                                                               |       |   |   |   |   |   |   |
| Current  liabilities                    |       | $                                                                  | 49,807     |   | $ | 67,562 |   | $ | — |   | $ | 117,369 |   |
| Long-term debt                          |       | 300,000                                                            |       | 80,000 |   | — |   | 380,000 |   |
| Total capital                           |       | 86,687                                                             |       | 111,166 |   | (111,166 | ) | 86,687 |   |
| Total  liabilities and capital          |       | $                                                                  | 436,494    |   | $ | 258,728 |   | $ | (111,166 | ) | $ | 584,056 |   |

 
| ** **                                      | ** ** | **Condensed Consolidating Statement of Income for the  Year Ended September 30, 2004** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **Parent and  Guarantors**                                                                  | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                      | ** ** | **(In Thousands)**                                                                          | ** ** |
|                                            |       |                                                                                        |       |   |   |   |   |   |   |
| Net revenues                                    |       | $                                                                                           | 50,518     |   | $ | 305,878 |   | $ | — |   | $ | 356,396 |   |
| Expenses                                        |       |                                                                                        |       |   |   |   |   |   |   |
| Gaming and other  operations                    |       | 17,802                                                                                      |       | 108,300 |   | — |   | 126,102 |   |
| Advertising,  general, and administrative       |       | 15,969                                                                                      |       | 75,583 |   | — |   | 91,552 |   |
| Preopening costs                                |       | 4,059                                                                                       |       | 169 |   | — |   | 4,228 |   |
| Depreciation and  amortization                  |       | 2,925                                                                                       |       | 14,713 |   | — |   | 17,638 |   |
| Total operating  expenses                       |       | $                                                                                           | 40,755     |   | $ | 198,765 |   | — |   | $ | 239,520 |   |
| Operating income                                |       | 9,763                                                                                       |       | 107,113 |   | — |   | 116,876 |   |
| Interest income                                 |       | 1,385                                                                                       |       | 150 |   |   |   | 1,535 |   |
| Interest expense                                |       | (9,489                                                                                      | )          | (24,213 | ) |   |   | (33,702 | ) |
| Equity in  earnings of non-guarantor subsidiary |       | 83,050                                                                                      |       | — |   | (83,050 | ) | — |   |
| Net income                                      |       | $                                                                                           | 84,709     |   | $ | 83,050 |   | $ | (83,050 | ) | $ | 84,709 |   |

 

F-17

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| ** **                                            | ** ** | **Condensed Consolidating Statement of Cash Flows for the  Year Ended September 30, 2004** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| ** **                                            | ** ** | **Parent and  Guarantors**                                                                      | ** ** | **Non-Guarantor** | ** ** | **Total** | ** ** |
| ** **                                            | ** ** | **(In Thousands)**                                                                              | ** ** |
|                                                  |       |                                                                                            |       |   |   |   |   |
| Net cash flows  provided by operations                |       | $                                                                                               | 32,762     |   | $ | 111,044 |   | $ | 143,806 |   |
| Net cash used in  investing activities                |       | (143,515                                                                                        | )          | (95,191 | ) | (238,706 | ) |
| Financing  activities:                                |       |                                                                                            |       |   |   |   |   |
| Proceeds from  term loan and notes payable            |       | 19,266                                                                                          |       | 22,700 |   | 41,966 |   |
| Proceeds from  senior notes                           |       | 300,000                                                                                         |       | — |   | 300,000 |   |
| Payments to  sinking fund                             |       | —                                                                                          |       | (6,048 | ) | (6,048 | ) |
| Purchase of  interest rate cap                        |       | —                                                                                          |       | (2,188 | ) | (2,188 | ) |
| Repayment of  notes payable                           |       | (18,941                                                                                         | )          | (27,975 | ) | (46,916 | ) |
| Payment of  deferred financing costs                  |       | (11,276                                                                                         | )          | (661 | ) | (11,937 | ) |
| Dividends paid  to the Nation                         |       | (28,010                                                                                         | )          | — |   | (28,010 | ) |
| Intercompany  transactions                            |       | 7,002                                                                                           |       | (7,002 | ) | — |   |
| Net cash  provided by (used in) financing activities  |       | 268,041                                                                                         |       | (21,174 | ) | 246,867 |   |
| Net increase  (decrease) in cash and cash equivalents |       | 157,288                                                                                         |       | (5,321 | ) | 151,967 |   |
| Cash and cash  equivalents at beginning of period     |       | —                                                                                          |       | 59,628 |   | 59,628 |   |
| Cash and cash  equivalents at end of period           |       | $                                                                                               | 157,288    |   | $ | 54,307 |   | $ | 211,595 |   |

 

As of September 30,2003, the consolidated financial statements consist almost entirely of thefinancial position and results of operations and cash flowsof SNFGC (the Non-Guarantor).

 

F-18

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**14.Subsequent Events**

** **

On November 13, 2004, the Tribal Councilappointed an independent counsel and special counsel to conduct a review of allactions taken by the Company with respect to the building, financing,management, and operation of the Company’s gaming facilities, for the expressedpurpose of determining if these actions occurred in accordance with therespective company charters and the laws of the Nation, New York State, and theUnited States of America.

 

On April 5, 2005, the Tribal Council passed aresolution stating that based on the evidence presented by the independentcounsel and special counsel the Tribal Council conclusively determined that theNation’s gaming facilities managed by the Company have been financed, operated,and managed in accordance with their respective company charters and the lawsof the Nation, New York State, and the United States of America.  The Tribal Council referred certainunresolved matters involving the construction of SNFGC and STGC casinos to theaudit committee of SGC for further action.

 

On May 5, 2005, the audit committee of SGC, afterobtaining the report of forensic accountants retained by the audit committee ofSGC to further review such construction matters, concluded that there were nofindings affecting the financial statements. The audit committee of SGC also determined that were no unresolvedfinancial reporting matters arising from the internal review and the internalreview was therefore complete.

 

The Company, including its subsidiary SNFGC, was incompliance with all covenants of the 2004 Senior Notes and the Term Loan exceptfor its financial reporting covenants which are satisfied with the issuance ofthe Company’s and SNFGC’s financial statements for the year ended September 30,2004, and the filing of the Company’s Annual Report on Form 10-K for theyear ended September 30, 2004, and the filing of the Company’s QuarterlyReport on Form 10-Q for the quarter ended December 31, 2004 with theSecurities and Exchange Commission. The filings of the Forms 10-K and 10-Qwhich management expects to complete by May 9, 2005, will cure theseviolations.

 

On November 27,2004, the Company was notified by the Tribal Council that the Class IIgaming activities (poker, bingo, and video gaming machines) currently operatedby the Company would be transferred to the Nation’s Class II gamingdivision. The Company had net revenues from the Class II gaming operationsof approximately $4.7 million in 2004. The transfer was completed on January 1,2005.

 

F-19

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