**Table ofContents**

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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**Form 10-K**

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| **x** | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------------|

 

**For the fiscal year endedSeptember 30, 2009**

** **

**OR**

 

| **o** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|---------------------------------------------------------------------------------------------------------|

 

**For thetransition period from                   to                   **

** **

**Commissionfile number 333-117633**

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**SENECAGAMING CORPORATION**

(Exact name of registrant as specified in its charter)

 

| **Not  Applicable**       | ** ** | **54-2122988**                        |
|---------------------------|------------|---------------------------------------|
| (State of  Incorporation) |       | (I.R.S. Employer  Identification No.) |

 

**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 principalexecutive offices)

 

Securities Registered Pursuant to Section 12(b) ofthe Act:

**None**

** **

Securities Registered Pursuant to Section 12(g) ofthe Act:

**None**

** **

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

 

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

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes  o  No  x

 

(Note:As a voluntary filer, not subject to the filing requirements, the registrantfiled all reports under Section 13 or 15(d) of the Exchange Act during thepreceding 12 months.)

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes  o  No  o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in any definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.  x

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company (as eachis defined in Rule 12b-2 of the Exchange Act).

 

| Large accelerated filer  o |   | Accelerated filer  o         |
|--------------------------------------|--------|----------------------------------------|
|                                 |   |                                   |
| Non-accelerated filer  x   |   | Smaller reporting company  o |

 

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

 

At December 22, 2009, the registrant had no outstandingshares of common stock.The registrant is a wholly-owned governmental instrumentality of the SenecaNation of Indians.

 

**DOCUMENTS INCORPORATED BY REFERENCE:     None**

 

 

 

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**SENECA GAMING CORPORATION**

 

**Form 10-K**

 

**TABLE OF CONTENTS**

 
| **PART I**   | ** **                                                                                                          | ** ** |
|-------------------|---------------------------------------------------------------------------------------------------------------------|------------|
|              |                                                                                                                |       |
| Item 1.           | Business                                                                                                            | 4          |
| Item 1A.          | Risk Factors                                                                                                        | 29         |
| Item 1B.          | Unresolved  Staff Comments                                                                                          | 48         |
| Item 2.           | Properties                                                                                                          | 48         |
| Item 3.           | Legal Proceedings                                                                                                   | 49         |
| Item 4.           | Submission  of Matters to a Vote of Security Holders                                                                | 56         |
|              |                                                                                                                |       |
| **PART II**  | ** **                                                                                                          | ** ** |
|              |                                                                                                                |       |
| Item 5.           | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 56         |
| Item 6.           | Selected  Financial Data                                                                                            | 56         |
| Item 7.           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 59         |
| Item 7A.          | Quantitative  and Qualitative Disclosures About Market Risk                                                         | 84         |
| Item 8.           | Financial  Statements and Supplementary Data                                                                        | 84         |
| Item 9.           | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure                               | 84         |
| Item 9A(T).       | Controls and  Procedures                                                                                            | 84         |
| Item 9B.          | Other Information                                                                                                   | 85         |
|              |                                                                                                                |       |
| **PART III** | ** **                                                                                                          | ** ** |
|              |                                                                                                                |       |
| Item 10.          | Directors,  Executive Officers and Corporate Governance                                                             | 86         |
| Item 11.          | Executive Compensation                                                                                              | 91         |
| Item 12.          | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    | 101        |
| Item 13.          | Certain  Relationships and Related Transactions, and Director Independence                                          | 101        |
| Item 14.          | Principal  Accounting Fees and Services                                                                             | 104        |
|              |                                                                                                                |       |
| **PART IV**  | ** **                                                                                                          | ** ** |
|              |                                                                                                                |       |
| Item 15.          | Exhibits  and Financial Statement Schedules                                                                         | 105        |
|              | Signatures                                                                                                          | 106        |

 

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**CAUTIONARYNOTE REGARDING FORWARD-LOOKING STATEMENTS**

 

This Annual Report on Form 10-Kcontains forward-looking statements intended to qualify for the safe harbor fromliability established by the Private Securities Litigation Reform Act of1995.  The words “believe,” “anticipate,”“expect,” “estimate,” “intend,” “plan,” “project,” “will be,” “will continue,” “willlikely result,” and similar expressions, as they relate to us or ourmanagement, indicate forward-looking statements.  Similarly, statements that describe ourplans, business, strategy or goals are all forward-looking statements.  These forward-looking statements are subjectto numerous risks, uncertainties and other factors that could cause actualresults, performance or achievements to differ materially from those expressedin or implied by these forward-looking statements.

 

Factors that could causeactual results, performance or achievements to differ materially from thoseexpressed in or implied by these forward-looking statements include, but arenot limited to, the risk factors described under Item 1A of this Annual Reporton Form 10-K.   Readers arecautioned not to place undue reliance on these forward-looking statements whichspeak only as of the date of this filing. In addition to the risk factorsdescribed under Item 1A of this Annual Report on Form 10-K, the followingimportant factors, among others, could affect our future financial condition orresults of operations, causing actual results to differ materially from thoseexpressed in the forward-looking statements: the local, regional, national, orglobal economic climate, our substantial indebtedness and ability to meet ourfinancial obligations and operate in accordance with the restrictions pursuantto such indebtedness, our incurrence of any additional indebtedness, theavailability of financing, our failure to generate cash flows, increasedcompetition, changes in federal Indian law, issues relating to the Nation-StateGaming Compact between the Seneca Nation of Indians and New York State, thecontrol of our company by the Seneca Nation of Indians of New York, changes inthe membership of the Nation’s Council (the Nation’s legislative body) orNation policies, changes in gaming laws or regulations, ongoing or futurelitigation challenging our ability to conduct gaming operations, changes infederal or state tax laws or the administration of such laws, our failure toretain existing management, fill current vacancies, and attract new personnel, ourlimited experience operating casinos, hotels, and the golf course we intend toopen, seasonality and weather-related factors, investigative reviews byregulatory authorities relating to our gaming revenues, and acts of war orterrorism.

 

We assume no obligationto update these forward-looking statements.

 

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**PART I**

 

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

 

Except as otherwise indicated by the context, in this Annual Report on Form 10-K,or this Annual Report, we refer to (1) Seneca Gaming Corporation as “SGC”or “the Company,” (2) Seneca Niagara Falls Gaming Corporation, a wholly-ownedsubsidiary of SGC, as “SNFGC,” (3) Seneca Territory Gaming Corporation, a wholly-ownedsubsidiary of SGC, as “STGC,” (4) Seneca Erie Gaming Corporation, a wholly-ownedsubsidiary of SGC, as “SEGC,” (5) Lewiston Golf Course Corporation, a wholly-ownedsubsidiary of SNFGC, as “LGCC,” (6) Seneca Massachusetts GamingCorporation, a former wholly-owned subsidiary of SGC, that was dissolved on April 11,2009, as “SMGC,” (7) the Seneca Nation of Indians of New York, as “Nation,”“Seneca Nation” or “Seneca Nation of Indians,” (8) the Nation-State GamingCompact between the Seneca Nation of Indians and New York State, dated August 18,2002, as the “Compact,” and (9) SGC, SNFGC, STGC, SEGC, LGCC, and SMGCcollectively, as “we,” “our,” “ours” and “us.” SNFGC, STGC, SEGC and LGCC are sometimes collectively referred to as the“restricted subsidiary guarantors,” based on their respective guarantees of SGC’sobligations under the senior notes.  Ourfiscal year ends on September 30.  “Fiscal2009” is defined as the fiscal year ended September 30, 2009,  “Fiscal 2008” is defined as the fiscal yearended September 30, 2008, and fiscal years prior to 2008 are definedsimilarly within the context of this Annual Report.

 

**Overview**

 

SGC is wholly-owned bythe Nation and chartered to develop, manage and direct all of the Nation’s Class IIIgaming operations on the Nation’s territories in Western New York. SGC waschartered by the Nation in August 2002. In August 2002, the Nation entered into the Compact with New YorkState that provides the Nation with the right to establish and operate three Class IIIgaming facilities in Western New York. Class III gaming, the most heavilyregulated of the gaming classes, includes, among other things, slot machinesand casino table games (other than poker). For a description of the classes ofgaming, see “The Indian Gaming Regulatory Act of 1988-Classes of Gaming” below. We currently operate three Class III gamingfacilities in Western New York—Seneca Niagara Casino and Hotel, which islocated in the City of Niagara Falls, New York (Niagara Territory) and operatedby SNFGC, approximately 20 miles north of Buffalo, New York; Seneca AlleganyCasino and Hotel, which is located in the City of Salamanca, New York (AlleganyTerritory) and operated by STGC, approximately 60 miles south of Buffalo, NewYork and 75 miles northeast of Erie, Pennsylvania; and Seneca Buffalo CreekCasino, which is located in the inner harbor district of Buffalo, New York(Buffalo Creek Territory) and operated by SEGC. Seneca Niagara Casino and Hotelopened on December 31, 2002 (initially, as the Seneca Niagara Casino).  Seneca Allegany Casino and Hotel opened on May 1,2004 (initially, as the Seneca Allegany Casino).  Seneca Buffalo Creek Casino commencedoperations on July 3, 2007 in a temporary facility.  Our three casinos are located on land held inrestricted fee by the Nation, which, together with the rights under theCompact, allows us to conduct Class III gaming operations in Western NewYork.

 

Our principal executiveoffices are located at 310 Fourth Street, Niagara Falls, New York (NationTerritory) 14303, and our telephone number is (716) 299-1100.  We make available, free of charge, throughour 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, if applicable, amendments to thosereports filed or furnished pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934 as soon as reasonably practicable after theyare electronically filed with, or furnished to, the SEC.  We are not including the informationcontained on our website as a part of, or incorporating it by reference into,this Annual Report.

 

The websites for ourSeneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel propertiesare located at *www.senecaniagaracasino.com* and *www.senecaalleganycasino.com*, respectively. The Nation alsofurnishes information about SGC and its properties at *www.sni.org. * The information on these websites is not part of,or incorporated by reference into, this Annual Report.

 

SENECA GAMINGCORPORATION, SENECA NIAGARA CASINO, SENECA NIAGARA CASINO AND HOTEL,  SENECA ALLEGANY CASINO, SENECA ALLEGANYCASINO AND HOTEL, SENECA BUFFALO CREEK CASINO, SENECA PLAYERS CLUB, SENECALINK, and THE WESTERN DOOR are registered trademarks in the U.S.  All other trademarks, trade names and servicemarks appearing in this Annual Report are the property of their respectiveholders.

 

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**SenecaNiagara Casino and Hotel**

 

Seneca Niagara Casino andHotel is located on approximately 45 acres in the City of Niagara Falls, New York(24 of which are currently owned by the Nation and constitute its Niagara Territory),and offers gaming, entertainment, lodging and related amenities. Seneca NiagaraCasino and Hotel is SGC’s flagship resort property catering to mid to high valuegaming guests looking for a full service gaming resort destination.  Seneca Niagara Casino and Hotel is open 24 hoursper day, seven days per week and is our flagship gaming facility.  We opened our original Niagara Falls gaming facilityon December 31, 2002 in the former Niagara Falls Convention and Civic Center.  Since opening, we have continued to invest infacilities and equipment at this property. On December 15, 2005, we opened our expanded gaming floor, which added approximately950 slot machines and 20 table games.  OnMarch 31, 2006, we completed the phased opening of our luxury hotel, along withall other amenities.  SGC’s aggregate capitalinvestment in the Seneca Niagara Casino and Hotel as of September 30, 2009 is approximately$530.0 million.

 

As of September 30,2009, Seneca Niagara Casino and Hotel featured:

 

·   over 147,000 square feet of Class III gamingspace with 4,062 slot machines; 104 table games, including, but not limited to,blackjack, craps and roulette; and keno;

 

·   604 luxury hotel rooms, including 118 suites of varioussizes;

 

·   a full-service luxury spa, salon, and fitness center;

 

·   food and beverage amenities, including threefull-service themed fine dining restaurants, a 400-seat international buffet,two casual dining restaurants, a walk-up delicatessen, a snack bar, and fourbars and lounges;

 

·   five retailstores;

 

·   a 25,200square-foot multi-purpose entertainment and special event facility, which canseat up to 2,400 for concerts, and can also be used for meetings, banquets andsmall conventions;

 

·   a 468-seatshowroom;

 

·   8,000square feet of conference and banquet space; and

 

·   a 2,130-spaceparking garage, surface parking for over 1,500 vehicles, and a transportationcenter.

 

*NiagaraFalls Real Estate Acquisitions*

 

In 2002 and pursuant to the Compact, the Nationacquired from the State of New York approximately 24 acres of land and relatedimprovements in the City of Niagara Falls, New York, including the then-NiagaraFalls Convention and Civic Center.  TheState of New York further agreed in the Compact to assist the Nation inwhatever manner appropriate, including through the exercise of its power ofeminent domain, to acquire the remaining acreage within the approximate 50-acrefootprint in the City of Niagara Falls, New York, designated by New York Stateunder the Compact for ownership by the Nation. The Compact specificallyexcluded approximately 1.5 acres of land within the footprint owned by a RomanCatholic Church.  Additionally, in July 2006,the Nation agreed to waive its right to acquire approximately one half acre ofadditional land within the footprint owned by End Time Handmaidens, Inc.,a religious organization.  In return forthe waiver, the Nation obtained a right of first negotiation and refusal withrespect to the future sale of the parcels. As a result of the carve-out relating to the parcels owned by the RomanCatholic Church, and the Nation’s agreement with End Time Handmaidens, thetotal acreage of the Niagara Territory upon completion of the condemnationprocess is anticipated to be approximately 48 acres.

 

We have obtainedpossession of, either through eminent domain proceedings or private purchase,substantially all of the 

 

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remaining acreage withinthe footprint, other than certain streets and alleys owned by the City ofNiagara Falls providing access to the above church parcels, and a bicycle pathowned by the New York State Department of Transportation. We expect to acquirethe above Niagara Falls city street and alley parcels by early 2010, withacquisition of the NYSDOT bike path requiring further dialogue with New YorkState.

 

With the exception ofapproximately two acres of land and a hotel property within the footprintacquired for $7.9 million through a private sale in December 2005, substantiallyall of our post-2002 acquisitions within the footprint have been accomplishedthrough condemnation proceedings pursuant to New York State Eminent DomainProcedure Law, or EDPL.  The amounts paidto condemnees from whom we have acquired property are deemed to be advancepayments, in that property owners are entitled to reserve their rights tochallenge the appraised property values determined by the condemnor’sappraisers.  To date, all record ownersfrom whom property was acquired pursuant to the EDPL have reserved rights toclaim additional compensation.  If acourt determines that the value for the land and improvements is higher thanthe appraised value we paid to a condemnee, then we may be liable to thecondemnee for the difference and potentially also responsible for certainadditional costs and payments to the condemnee, such as attorneys’ fees.   As of September 30, 2009, $1.7 millionof the previously recorded reserve of $6.4 million remained for such matters andis included in the other current and long-term liabilities sections on SGC’sconsolidated balance sheet.

 

In 2006, we began masterplanning activities for the remaining approximately 24 acres of undevelopedland contained in the Niagara Falls footprint. As of September 30, 2009, these master planning activities havebeen suspended due to the continuation of weak economic conditions, adversecredit market conditions and an uncertain economic outlook.  As a result of these circumstances animpairment charge was recognized related to these activities in Fiscal 2009, inthe amount of approximately $3.5 million.

 

**SenecaAllegany Casino and Hotel**

 

Seneca Allegany Casinoand Hotel, our second Class III gaming facility, is located on the Nation’sAllegany Territory in the City of Salamanca, New York.  Seneca Allegany Casino and Hotel offers Class IIIgaming, entertainment, lodging and related amenities.  Seneca Allegany Casino and Hotel catersprimarily to middle-market, drive-in patrons from its primary and secondarymarkets and is open 24 hours per day, seven days per week. Seneca AlleganyCasino opened on May 1, 2004.  On March 30,2007, we opened a 212-room resort hotel, including food and beverage and other amenities,which followed the December 28, 2006, official opening of a new permanentgaming floor.  In March 2008, wecompleted the conversion of the former temporary casino structure into an eventcenter and additional administrative office space.  SGC’s aggregate capital investment in the SenecaAllegany Casino and Hotel as of September 30, 2009 is approximately $346.0million.

 

As of September 30,2009, Seneca Allegany Casino and Hotel featured:

 

·   over 63,500 square feet of gaming space withapproximately 2,265 slot machines and 41 table games, including, but notlimited to, blackjack, craps and roulette;

 

·   212 luxury hotel rooms, including 28 suites of varioussizes;

 

·   a full-service luxury spa, salon, and fitness center;

 

·   food and beverage amenities, including twofull-service themed fine dining restaurants, a 322-seat international buffet, a24-hour casual dining restaurant, a walk-up delicatessen, a snack bar, and twobars and lounges;

 

·   a multi-faceted retail store, including logomerchandise, sundries, etc.;

 

·   a 20,000 square-foot multi-purpose entertainment andspecial event facility, which can seat up to 2,200 for concerts, and can alsobe used for meetings, banquets and small conventions; and

 

·   a parking garage for approximately 1,850 vehicles and surfaceparking for approximately 1,000 vehicles.

 

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Construction on our nextphase of development at Seneca Allegany Casino and Hotel, which was planned toinclude an additional 200 room hotel tower, and up to 30,000 square feet ofadditional gaming space and related amenities, for a total estimated cost of approximately$130 million, was suspended in August 2008 for reasons including:  the continuing economic recession; inabilityto obtain construction financing at reasonable interest rates; and operatingand other demands on our available cash, such as our payments and distributionsto the Nation.  As of September 30,2009, due to the continuation of weak economic conditions, adverse creditmarket conditions and an uncertain economic outlook, construction remainedsuspended indefinitely.  As a result ofthese circumstances an impairment charge was recognized for costs incurredrelated to these activities in Fiscal 2009, in the amount of approximately $17.1million.

 

**SenecaBuffalo Creek Casino**

 

In addition to SenecaNiagara Casino and Hotel and Seneca Allegany Casino and Hotel, we operate a  third Class III gaming facility which islocated in Buffalo, New York. This Class III gaming facility is referredto as Seneca Buffalo Creek Casino.

 

On October 3, 2005,the Nation acquired approximately nine acres of land in the inner-harbordistrict of downtown Buffalo, which constitutes the Nation’s Buffalo CreekTerritory.  Initially, the nine acreparcel was bisected by a two block section of Fulton Street, a street owned  by the City of Buffalo.  In November 2006, we acquired this twoblock section of Fulton Street from the City of Buffalo for a purchase price of$631,600.

 

On December 8, 2005,we began construction of a temporary Class III gaming facility on theSeneca Buffalo Creek Territory, in accordance with the requirements of theCompact.  On July 3, 2007 wecommenced operations at this gaming facility, which consists of approximately6,000 square feet and features 135 slot machines and a snack bar.  During the quarter ended March 31, 2008,the temporary facility was expanded to include an additional 109 slot machines.The current temporary facility is approximately 8,600 square feet, and features244 slot machines and a snack bar.  SGC’saggregate capital investment as of September 30, 2009 in the temporarygaming facility in Buffalo, New York is approximately $12.5 million.

 

Construction on our nextphase of development at Seneca Buffalo Creek Casino and Hotel, which wasplanned to include approximately 90,000 square feet of gaming space; 2,000 slotmachines; 45 table games; a 22-story all-suite hotel; four restaurants; afull-service spa and salon; retail and other amenities; and a 2,200-spaceparking garage, for a total estimated cost of approximately $333 million, wassuspended in August 2008 for reasons including: the continuing economic recession; inability to obtain constructionfinancing at reasonable interest rates; and operating and other demands on ouravailable cash, such as our payments and distributions to the Nation.  As of September 30, 2009, due to thecontinuation of weak economic conditions, adverse credit market conditions andan uncertain economic outlook, construction remained suspended indefinitely.  As a result of these circumstances animpairment charge was recognized related to these activities in Fiscal 2009, inthe amount of approximately $87.0 million.

 

On August 8, 2009,the Nation offered SEGC a $9 million unsecured loan for purposes of expandingthe Buffalo Creek Casino temporary facility to include up to 250 additionalslot machines.  If utilized by SEGC, the loanwill carry an interest rate of 5% per annum with principal and interest payableover a 12 month period commencing on the 15th day of the calendar monthfollowing the opening of the expansion. Although the SEGC Board of Directors,on August 14, 2009, accepted these terms, SEGC has not yet drawn upon the loan or executed a note for it. On October 19,2009 we broke ground on the expansion, which will add approximately 5,300square feet of gaming space to the facility and will accommodate 200 to 250additional slot machines. The expansion is due to be completed in spring 2010.

 

Our ability to continueto operate the Seneca Buffalo Creek Casino temporary facility will depend onvarious factors, including existing legal challenges.  See “Item 3 — Legal Proceedings” for adiscussion of existing legal challenges regarding our Seneca Buffalo CreekCasino.

 

**Status ofFormer Class II Operations**

 

In January 2005, wetransferred all Class II gaming operations to the Nation, which includedour poker operations at the Seneca Niagara Casino and Hotel and Seneca AlleganyCasino. Class II gaming includes bingo, poker and similar games, and issubject to tribal regulation and federal oversight by the National IndianGaming Commission, or NIGC. For a description 

 

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of the classes of gaming,see “The Indian Gaming Regulatory Act of 1988 -Classes of Gaming” below. The transfer of the Class II operations in January 2005was consistent with our understanding of the Seneca Nation Tribal Council’s(the Nation’s legislative body) intent that we manage and operate the Nation’s Class IIIoperations and that Council directly manage and operate the Nation’s Class IIoperations.

 

The Nation, through its wholly-ownedbusiness enterprise, Seneca Gaming & Entertainment, operates the Class IIpoker operations at Seneca Niagara Casino and Hotel, in addition to two Class IIgaming facilities located on the Nation’s Territories in Salamanca and Irving,New York, respectively. On November 9, 2009, Seneca Gaming andEntertainment relocated its poker operations at Seneca Allegany Casino to a newfacility located within one mile of our Salamanca, New York property.

 

**Lewiston,NY Golf Course Development**

 

In March 2006, weacquired 257 acres of land with the intent to design and build a championshiplevel golf course in Lewiston, New York, approximately eight miles from SenecaNiagara Casino and Hotel.  We selected theRobert Trent Jones II firm to design the golf course, which will be namedSeneca Hickory Stick Golf Club.  Constructionof Seneca Hickory Stick commenced in July 2007 and it is anticipated thatthe official opening of the course will occur in 2010.  The total cost to construct the golf courseand related amenities is estimated to be approximately $25.5 million. TheNation formed the Lewiston Golf Course Corporation, as a subsidiary of theSeneca Niagara Falls Gaming Corporation, to own and operate the golf course.  LGCC has engaged Kemper Sports Management, Inc.to manage and operate Seneca Hickory Stick on its behalf.

 

**MassachusettsGaming Development**

 

Seneca MassachusettsGaming Corporation, a wholly-owned subsidiary of SGC, formed on August 11,2007 to explore development opportunities related to gaming in the Commonwealthof Massachusetts, was dissolved by the Nation’s Council on April 11, 2009,and its assets were transferred to SGC.

 

**Businessand Marketing Strategy**

 

SGC believes that it isthe premier gaming operator in Western New York State and in the areas ofNorthern Pennsylvania and Ohio located within its primary and secondarymarkets. Since the December 31, 2002 opening of the Seneca Niagara Casino,SGC has invested significantly in the development, expansion and maintenance ofits gaming facilities, including the completion of the hotel and gaming projectsat Seneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel, and theopening of the temporary casino on the Seneca Buffalo Creek Territory.  These investments enable SGC to maintain itsposition as the premier gaming operator in the region described above. Aprincipal goal is for the facilities to complement each other, offering diversehotel, entertainment and gaming experiences for guests.

 

SGC continues to believethe exclusivity provided in the Compact gives SGC the opportunity to serve theWestern New York market by providing patrons with unique entertainment andgaming experiences.

 

SGC’s gaming facilitiesare intended to provide a high-quality and diverse gaming experience that SGCbelieves will add to its patron base and strengthen patron loyalty in eachsegment of the gaming market.  In orderto maximize income from operations, SGC attempts to coordinate advertising,promotions, entertainment and special events to minimize competition among itsgaming facilities, and integrate administrative and information technologyfunctions.  As slot play currentlyrepresents approximately 90% of SGC’s consolidated gross gaming revenues, SGCalso strives to offer the most current selection of slot machines in order toprovide cutting-edge options for guests, and to differentiate it from theregional competition.  SGC plans to continueto brand the Seneca name through advertising and promotion of its Seneca LinkPlayer’s Card, which is accepted at all of SGC’s facilities. The key componentsof our integrated marketing plan include the following:

 

·   *Promote the Seneca Brand Name.*     The successfuloperation of Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel has established Seneca as a leading gaming brand in the region.  We plan to continue to capitalize on thisbrand recognition by prominently incorporating the Seneca name at all of ourgaming and entertainment facilities.

 

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·   *Incorporate the Seneca Link Player’s Card.*     We encourageguests to sign up for a Seneca Link Player’s Card, and to use their Player’sCard at their venue of choice.  Guestsaccumulate points at our facilities and may redeem them at any of ourcasinos.  Our player’s club card programenables us to understand our guest preferences by providing us with valuableinformation about our patrons’ gaming activity and use of our facilities’various non-gaming amenities.  As of September 30,2009, we had approximately 560,000 active members in the Seneca Link Player’sCard database each with at least one rated trip to our properties during Fiscal2009.

 

·   *Expand Target Markets and Patron Base.*    The completion ofour hotels in Niagara Falls, New York and Salamanca, New York has enabled us toexpand our marketing efforts to higher-value gaming patrons from a wider geographicarea.  We continue to evaluate ourmarketing programs and have continued our efforts to attract more guests fromthe region, including New York, Pennsylvania and Ohio, as well as higher-valuepatrons from New England, New Jersey, New York City, and Toronto, Canada.  We intend to continue to market to theseareas by offering various promotions, including special events for preferredgaming patrons, use of commissioned, independent representatives or splinterarrangements, air charters, motor coach tours and organized package groupvisits.  We have also recently expandedour player development staff and have upgraded our entertainment offerings tofurther brand our properties and to attract repeat visits, encourage loyaltyand attract guests with higher gaming budgets.

 

·   *Offer Diversified Gaming Experience to BroadestCustomer Base.*    Weintend to operate each of our gaming facilities in a manner that will becomplementary. Seneca Niagara Casino and Hotel is SGC’s flagship resortproperty catering to mid to high value gaming guests looking for a full servicegaming resort destination.  With theopening of the permanent casino and 212-room resort hotel at Seneca AlleganyCasino and Hotel, SGC expanded its marketing efforts to attract guests withhigher gaming budgets. SGC integrates the marketing of the Seneca Buffalo CreekCasino, as explained below, to guests of SGC’s Niagara and Allegany casinos,which provides SGC’s guests a variety of gaming and entertainment options.

 

·   *Utilize an Integrated Marketing Strategy*.    Our marketingstrategy relies on the high quality of our facilities, the personal servicelevel of our employees, and an integrated approach of targeted direct mail,radio, print and outdoor advertising, promotions, slot and table tournaments,special events, bussing, entertainment and player development staff, to attractand retain our patrons and to brand the Seneca name as the premier gaming andentertainment experience in Western New York. We coordinate our marketingevents and the amenities of our facilities to maximize the quality and lengthof stay of patron visits and to minimize competition among our gamingfacilities. Our patron tracking system through the Seneca Link Player’s Card issophisticated and scalable and provides us with the ability to analyze ourguests’ gaming preferences.  In addition,we recently redesigned the levels of player club options, each based on thelevel of each guest’s gaming activity, to ensure each level is properlyrecognized based upon their gaming activity. Starting in May 2004, we began using a “promotional credit” programthat provides slot credits to our patrons based on the amount of  their gaming at our facilities. These creditsare available 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 encourages repeat business.

 

·   *Reinvest in our Gaming Facilities.*    We believe ourcommitment to reinvest in each of our gaming facilities is critical to our continuedsuccess and future growth. We intend to reinvest in our gaming facilities toensure their attractiveness to our patrons, subject to the availability ofsufficient funds and the improvement of current economic conditions.  To increase our profitability we intend toupgrade our slot machines with the most popular products in order to create amore exciting gaming experience for our patrons. We have also invested intechnology, including slot machine “ticket-in/ticket-out” technology, automatedticket redemption machines, player tracking system enhancements and thedevelopment of a Seneca brand inter-property progressive link. Reinvestment inour gaming facilities will help to ensure that our patrons have an enjoyableentertainment experience.

 

·   *Offer the Highest Quality Service.*    We believe thatwe can distinguish our gaming facilities from competitors with consistentsuperior patron service, as evidenced by our achieving the AAA Four DiamondAward at both Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, which is a fundamental component of our business and marketing strategy.We attribute much of our success at Seneca 

 

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Niagara Casino and Hotel and Seneca Allegany Casinoand Hotel to our employees’ ability to provide high quality, efficient andfriendly service.  We require that eachnew employee participate in substantial customer service training as part oftheir orientation.  It is our intentionto continue to invest in providing the highest level of guest service as anintegral component of our long-term financial success.

 

**Marketand Competition**

 

*Market*

 

Seneca Niagara Casino andHotel is located on the Nation’s Niagara Territory in the City of NiagaraFalls, New York, approximately 20 miles north of Buffalo and approximately 90miles west of Rochester. Our primary market for this property includes thecities of Buffalo and Niagara Falls, New York, and covers the area in theUnited States within an estimated 50 miles of Seneca Niagara Casino andHotel.  Our secondary market includes theCity of Rochester, New York, and covers the area in the United States within anestimated 51 to 100 miles of Seneca Niagara Casino and Hotel.  Our outer markets include Toronto, Canada, Erieand Pittsburgh, Pennsylvania, Ohio, and other areas of New York and Ontario,Canada.  We continue to seek to expandour geographic reach with targeted marketing efforts for higher-end gamingpatrons in the New York City area, New England, New Jersey, Michigan, Illinoisand Canada.  In addition, Niagara Fallsis a major tourist destination, and we attempt to draw patrons from its touristbase.

 

Seneca Allegany Casino andHotel is located immediately off Interstate 86 in southwestern New York. Sinceits opening in May 2004, the primary market for this property has been thearea within 75 miles of the casino, which includes Erie, Pennsylvania.  The secondary market has been the area within75 to 175 miles of the casino, which includes Cleveland and Akron, Ohio andPittsburgh, Pennsylvania.  Since opening,the Seneca Allegany Casino has catered primarily to middle-market, drive-inpatrons from its primary and secondary markets. With the opening of our 212-room resort hotel in March 2007, weimplemented additional targeted marketing programs focused on expanding ourgeographic reach.

 

The temporary casino onthe Nation’s Buffalo Creek Territory facility is designed for the conveniencegamer.

 

As of September 30,2009, approximately 52% of the 560,000 active Seneca Link Player’s Card memberslive in New York State, and approximately 17%, 16%, and 9% live in Pennsylvania,Ohio and Canada, respectively.

 

*Competition in Immediate MarketArea.*

 

The United States andCanadian gaming industries are highly regulated and the overall number ofcasino operations in the Northeast is limited. In recent years, there has beena trend to relax the legal restrictions on entry and to permit the developmentof additional gaming operations. While we believe that we are the premiergaming operator in Western New York State and in the areas of NorthernPennsylvania and Ohio located within our primary and secondary markets, we faceintense competition in these markets. Currently, there are two large casinoresorts, Casino Niagara and Niagara Fallsview Casino Resort, and five majorracetrack facilities with gaming operations, Fairgrounds Gaming and Raceway,Finger Lakes Gaming and Racetrack, Batavia Downs Gaming and Raceway, Fort ErieRacetrack and Slots and Woodbine Racetrack, within the 100-mile radius thatconstitutes Seneca Niagara Casino and Hotel’s immediate market area.  Fairgrounds Gaming and Raceway, Fort ErieRacetrack and Slots and Presque Isle Downs in Erie, Pennsylvania, which openedin February 2007, each directly compete in Seneca Allegany Casino andHotel’s immediate market area.

 

Casino Niagara and Niagara Fallsview Casino Resort arelocated in Niagara Falls, Ontario, and are both within two miles of SenecaNiagara Casino and Hotel. Casino Niagara and Niagara Fallsview Casino Resortare owned and operated by the Province of Ontario and managed by the Hyatt-ledFalls Management Company. Casino Niagara offers over 95,000 square feet ofgaming space including more than 1,700 video gaming machines, or VGMs, 60 tablegames, three restaurants and three bars. Niagara Fallsview Casino Resort openedin June 2004 and features 200,000 square feet of gaming space thatincludes over 3,000 VGMs, over 100 table games, a 374-room Hyatt hotel, a spaand various restaurant and entertainment venues. Casino Niagara and NiagaraFallsview Casino Resort are both located approximately 70 miles from SenecaAllegany Casino and Hotel on the outer edge of Seneca Allegany Casino and Hotel’sprimary market area.

 

Fairgrounds Gaming andRaceway (formerly Buffalo Raceway), a racetrack facility in Hamburg, New Yorkoffering over 950 VGMs in a 27,000 square foot gaming facility, is locatedapproximately 30 miles and 50 miles from Seneca Niagara Casino and Hotel andSeneca Allegany Casino and Hotel, respectively.  Batavia Downs, in Batavia, New York, islocated 

 

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approximately 55 milesand 75 miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casinoand Hotel, respectively, and features approximately 600 VGMs.  FingerLakes Gaming and Race Track in Farmington, New York, is located approximately90 miles and 140 miles from Seneca Niagara Casino and Hotel and Seneca AlleganyCasino and Hotel, respectively, and operates approximately 1,200 VGMs in avideo gaming facility.  Fort ErieRacetrack and Slots in Fort Erie, Ontario, Canada, is located approximately 15miles and 60 miles from Seneca Niagara Casino and Hotel and Seneca AlleganyCasino and Hotel, respectively, and operates 1,000 VGMs in a 75,000 square footgaming facility. Woodbine Racetrack, a 56,000 square foot racetrack facilityfeaturing over 2,000 VGMs, is located in Ontario, Canada, approximately 50miles and 160 miles from Seneca Niagara Casino and Hotel and Seneca AlleganyCasino and Hotel, respectively.  PresqueIsle Downs, a racetrack facility in Erie, Pennsylvania offering approximately2,000 slot machines, is located approximately 120 miles and 80 miles fromSeneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel,respectively.

 

*Competition in Broader RegionalMarket.*

 

Outside of our immediate market area, we also facecompetition in our broader regional market. The Oneida Indian Nation operates agaming facility resort, Turning Stone Resort & Casino, near Syracuse,New York, located approximately 190 miles and 235 miles from Seneca NiagaraCasino and Hotel and Seneca Allegany Casino and Hotel, respectively.  Turning Stone Resort & Casinofeatures approximately 2,400 multi-gaming machines and 80 table games.

 

The St. Regis Mohawk Tribe currentlyoperates a small casino facility, Akwesasne Mohawk Casino, near Hogansburg, NewYork, which is located approximately 350 miles and 390 miles from SenecaNiagara Casino and Hotel and Seneca Allegany Casino and Hotel, respectively.Akwesasne Mohawk Casino features approximately 1,600 slot machines and 20 tablegames.

 

Competition elsewhere inNew York State includes other racetracks that operate VGMs, including:  Saratoga Raceway in Saratoga Springs (locatedapproximately 325 miles and 340 miles from Seneca Niagara Casino and Hotel andSeneca Allegany Casino and Hotel, respectively); Monticello Raceway inMonticello (located approximately 325 miles and 280 miles from Seneca NiagaraCasino and Hotel and Seneca Allegany Casino and Hotel, respectively); TiogaDowns in Nichols (located approximately 190 miles and 160 miles from SenecaNiagara Casino and Hotel and Seneca Allegany Casino and Hotel, respectively);Yonkers Raceway in Yonkers (located approximately 415 miles and 370 miles fromSeneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel,respectively); and Vernon Downs in Vernon (located approximately 195 miles and245 miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively).

 

Competition inPennsylvania includes:  Rivers Casino,located in Pittsburgh, which opened August 10, 2009 (located approximately240 miles and 190 miles from Seneca Niagara Casino and Hotel and SenecaAllegany Casino and Hotel, respectively); Mount Airy Casino Resort, located inthe Pocono Mountains in Northeast Pennsylvania (located approximately 320 milesand 270 miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casinoand Hotel, respectively); Sands Casino Resort Bethlehem, located in Bethlehem (locatedapproximately 350 miles and 310 miles from Seneca Niagara Casino and Hotel andSeneca Allegany Casino and Hotel, respectively); Harrah’s Chester Casino andRacetrack in Chester (located approximately 420 miles and 370 miles from SenecaNiagara Casino and Hotel and Seneca Allegany Casino and Hotel, respectively); PhiladelphiaPark Casino and Racetrack in Bensalem (located approximately 420 miles and 370miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively); Hollywood Casino at Penn National in Grantville (locatedapproximately 315 miles and 250 miles from Seneca Niagara Casino and Hotel andSeneca Allegany Casino and Hotel, respectively); The Meadows Racetrack andCasino in Meadow Lands (located approximately 255 miles and 220 miles fromSeneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel,respectively); and Mohegan Sun at Pocono Downs in Wilkes-Barre (locatedapproximately 300 miles and 250 miles from Seneca Niagara Casino and Hotel andSeneca Allegany Casino and Hotel, respectively).

 

Competition in WestVirginia includes: Wheeling Island Racetrack and Gaming Center, located inWheeling, is located approximately 290 miles and 250 miles from Seneca NiagaraCasino and Hotel and Seneca Allegany Casino and Hotel, respectively. MountaineerCasino, Racetrack and Resort, located in Chester, is approximately 250 milesand 215 miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casinoand Hotel, respectively.

 

Foxwoods Resort Casino,owned and operated by the Mashantucket Pequot Tribe, and the Mohegan SunCasino, owned and operated by the Mohegan Tribe of Indians of Connecticut are eachlocated in southeastern Connecticut, approximately 460 miles and 480 miles fromSeneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel,respectively.

 

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To a lesser extent, SGCcompetes with Casino Rama, which is north of Toronto and located approximately150 miles and 240 miles from Seneca Niagara Casino and Hotel and SenecaAllegany Casino and Hotel, respectively.

 

There are also numerouscasinos in Atlantic City, New Jersey (approximately 480 miles and 430 milesfrom the Seneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel,respectively) with which SGC competes.

 

*New Market Entrants*

 

*New York State Indian GamingOperations*

 

Despite the exclusivityin Western New York provided by the Compact, SGC’s 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 long aseither 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 the state would forfeit its right toreceive exclusivity fees for the types of Class III games in suchcompetitor’s facility on which we pay an exclusivity fee under the Compact. Ofthe seven federally recognized Indian tribes or nations in New York State otherthan the Nation, only the St. Regis Mohawk Tribe and Oneida Indian Nation ofNew York have signed compacts with New York State to open casinos.

 

In October 2001, NewYork State authorized six new casinos to be run by Indian tribes in the state,each of which was to be permitted to feature Class III slot machines. Thevalidity of the legislation authorizing these casinos was upheld by the NewYork Court of Appeals in Dalton v. Pataki, et al. and Karr v. Pataki, etal.  Three of these authorized casinosare operated by SGC (Seneca Niagara Casino and Hotel, Seneca Allegany Casinoand Hotel and Seneca Buffalo Creek Casino). It was expected that the otherthree casinos, including the casino planned by the St. Regis Mohawk Tribe,would be located in Sullivan and Ulster Counties in the Catskill region,approximately 325 miles and 275 miles from Seneca Niagara Casino and Hotel andSeneca Allegany Casino and Hotel, respectively. In February 2007, the Governor of New York State approved plans fora casino by the St. Regis Mohawk Tribe to be located in Sullivan County, NewYork. The Tribe had proposed a $600 million Class III gaming facility, tobe located immediately adjacent to Monticello Raceway in Sullivan County, butin January 2008, the U.S. Department of the Interior rejected the Tribe’sright to operate a casino in the Catskills.

 

In April 2009, theSullivan County Legislature approved an agreement with the Nation, the SenecaCatskills Gaming Corporation, and Sullivan County to develop a Class IIIGaming casino on 63 acres of land in the town of Thompson. The casinodevelopment at this property, if ultimately permitted and carried out, wouldlikely be a property of the Nation separate from SGC. Such a property would beapproximately 325 miles and 275 miles from Seneca Niagara Casino and Hotel andSeneca Allegany Casino and Hotel, respectively.

 

New York State previouslyreached settlement agreements, subject to numerous contingencies, with thefollowing tribes for potential Class III gaming operations to be locatedin Sullivan or Ulster counties in the Catskills region of New York State: theSt. Regis Mohawk Tribe, the Seneca-Cayuga Tribe of Oklahoma, the Cayuga Nationof New York, the Oneida Tribe of Indians of Wisconsin and the Stockbridge-MunseeCommunity Band of Mohican Indians. However, as a result of the U.S. SupremeCourt’s decision in City of Sherrill, NY v. Oneida Indian Nation of New York,414 U.S. 661 (2005), the then Governor withdrew pending legislation and landclaim settlements with the Seneca-Cayuga Tribe of Oklahoma, the Cayuga Nationof New York, the Oneida Tribe of Indians of Wisconsin and theStockbridge-Munsee Community Band of Mohican Indians.

 

*New York State Racetracks*

 

In 2001, New York State awardedlicenses to eight racetracks to operate VGMs. In April 2005, theGovernor of the State of New York signed a law providing race tracks with alarger share of proceeds from VGMs and extending VGM authorization through2017. This law also allows for up to eight additional VGM venues in New YorkState.  These eight licenses would beawarded in a competitive bid process to the state-owned Off-Track BettingCorporation or other operators which may be located in our primary and secondarymarkets.

 

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The New York State government currently is consideringlegislation that would allow the state’s video-lottery gaming facilities toexpand hours and add electronic table games, such as roulette and blackjack.The facilities can now stay open for 16 hours a day or 112 hours a week, butthe proposal would allow larger tracks, such as Saratoga Gaming and Raceway andYonkers Raceway, to stay open for 140 hours per week and smaller tracks, suchas Batavia Downs, to stay open for 128 hours per week.  Such expanded hours would allow tracks theopportunity to keep their video-lottery parlors open 24 hours a day formultiple days each week. The New York legislature, during its 2009 regularsession, failed to enact new legislation to expand hours and legalizeelectronic table games at racinos in the state, including Empire City inYonkers and Aqueduct in Queens. The State Lottery has taken the legal positionthat electronic versions of roulette, baccarat, blackjack and craps are legalin the state and may be introduced as early as 2010. Additionally, GovernorPatterson reopened the bidding process for a developer to build and operatevideo lottery terminals, or VLTs, at Aqueduct Racetrack, with that facilityexpected to open within two years. In May 2009, seven developers filed newbids to develop the Aqueduct facility. The Shinnecock Indian Nation on LongIsland also is reportedly under active consideration for federal recognition bythe Bureau of Indian Affairs, or BIA, and has plans for gaming, if recognized,and has reservation land taken into trust. Several federally-recognized Indiantribes, including the Nation, as well as the St. Regis Mohawk Tribe and theStockbridge-Munsee Tribe of Wisconsin have renewed plans to pursue tribalcasinos in the Catskills region of New York, with newly announced support fromNew York’s state officials and the state’s congressional delegation. Anydevelopment at this property, if ultimately permitted and carried out, wouldlikely be a property of the Nation separate from SGC.

 

In January 2004, Sportsystems(now known as Delaware North Gaming & Entertainment) opened a 1,300VGM facility at Saratoga Raceway in Saratoga Springs, New York.  Shortly thereafter, in February 2004,Finger Lakes Gaming and Race Track in Farmington, New York, opened its videogaming facility.  Fairgrounds Gaming andRaceway in Hamburg, New York, opened its 27,000 square foot gaming facility in March 2004and offers approximately 1,000 VGMs. Monticello Raceway in Monticello, NewYork, opened a gaming facility in June 2004, and offers approximately1,500 VGMs.  Batavia Downs, in Batavia, New York, opened in May 2005and offers approximately 600 VGMs.  The New York Racing Association hasalso granted a right to operate VGMs at the Aqueduct racetrack in Queens, NewYork, approximately 425 miles and 380 miles from Seneca Niagara Casino andHotel and Seneca Allegany Casino and Hotel, respectively. After suspending workon the 4,500 VGM facility from August to December 2003, the projectwas scheduled for completion by mid-2005; however, as of September 30,2006 , the project had been stopped again and VGMs were not in operation at theAqueduct racetrack. Recently, in September 2007, the State of New Yorksolicited proposals for an****experiencedgaming operator to manage and operate the VGM’s at the Aqueduct facility, andformally awarded such rights to Delaware North Companies in October 2008.  Delaware North announced plans to develop acomplex with 4,500 VGM’s, in addition to a series of restaurants, hotels,conference and retail amenities. Delaware North later withdrew from thedevelopment, and the State of New York is again soliciting proposals fromexperienced gaming companies to develop a similar type facility. In October 2006,Vernon Downs Racetrack in Vernon, New York, approximately 200 miles and 245miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively, commenced operation of a gaming facility offering 1,000VGM’s, and in July 2006, Tioga Downs, located approximately 190 miles and160 miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively, opened a 750 VGM facility in central New York.  Both Vernon Downs and Tioga Downs areoperated by Nevada Gold, Inc. Finally, Yonkers Raceway near Manhattan, New York, featuresapproximately 5,300 VGMs, in addition to multiple dining amenities and anentertainment lounge.

 

*Pennsylvania Casinos andRacetracks*

 

On July 5, 2004, theGovernor of Pennsylvania signed a bill permitting up to an aggregate of 61,000slot machines at 14 locations in Pennsylvania. The Pennsylvania legislation permits up to 5,000 slot machines at sevenproposed or existing racetracks, five stand-alone gaming facilities with up to5,000 slot machines each, and 500 slot machines at two existing resorts.  On December 20, 2006, the PennsylvaniaGaming Control Board awarded 11 permanent slot licenses, each allowing up to5,000 slot machines. Six licenses were earmarked for proposed or existingracetracks (which had already received conditional licenses in early 2006) andanother five licenses were awarded for stand-alone gaming facilities.

 

One of the six “racetrack”licenses was awarded to MTR Gaming Group to build and operate Presque IsleDowns in Erie, Pennsylvania. This facility opened in late February 2007and operates approximately 2,000 slots, and includes dining and entertainmentoptions that include a steakhouse, a buffet and four lounges.  Presque Isle Downs is located approximately120 and 80 miles from Seneca Niagara Casino and Hotel and Seneca AlleganyCasino and Hotel, respectively.  Inaddition, one of the licenses for the stand-alone facilities was awarded in thePittsburgh, Pennsylvania area, a secondary market for Seneca Allegany Casinoand Hotel, and an outer market for Seneca Niagara Casino and Hotel. RiversCasino opened in August 2009 and operates approximately 3,000 slots, andincludes dining and entertainment options that include a steakhouse, a buffetand 

 

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four lounges.  Rivers Casino is located in Pittsburgh,approximately 240 and 190 miles from Seneca Niagara Casino and Hotel and SenecaAllegany Casino and Hotel, respectively.

 

During 2009, thePennsylvania state legislature added tax revenue from the legalization of tablegames to the proposed state budget. Currently the state only offers legalizedslot machine gambling. Table games legislation remains under negotiation in thestate legislature. This legislation may also increase the number of slotmachines allowed at “resort casinos” in Pennsylvania.

 

*Ohio Casinos*

 

On November 3, 2009,the voters of Ohio approved a proposal for a casino to be located in each ofOhio’s four largest cities: Cleveland, Cincinnati, Toledo, and Columbus. Acasino in Cleveland will increase competition at Seneca Allegany Casino andHotel, likely commencing in 2012. Cleveland is approximately 180 and 220 milesfrom the Seneca Allegany Casino and Hotel and the Seneca Niagara Falls Casinoand Hotel, respectively. Casinos in Cincinnati, Toledo and Columbus willincrease competition to a lesser extent, as these cities are at least 290 and300 miles from the Seneca Allegany Casino and Hotel and the Seneca NiagaraFalls Casino, respectively.

 

*MassachusettsGaming*

 

In theCommonwealth of Massachusetts, new legislation, which has been reported to havethe support of new legislative leadership and the continued support of theGovernor, is expected to be introduced and debated in the fall of 2009 topermit state-licensed gaming at multiple locations throughout the state, andstate regulators are reportedly drafting regulations to administer the newsystem, if enacted. Also, the federally-recognized Mashpee Wampanoag Tribecontinues to pursue the establishment of its initial reservation in Mashpee andMiddleboro, as well as a large gaming facility in Middleboro. In April 2009,the tribe announced that the casino will likely be smaller and may take longerthan originally anticipated. If gaming facilities are permitted to operate inMassachusetts, these facilities could compete with us in our broader regionalmarket.

 

*Non-GamingCompetition*

 

We alsoface competition from other non-gaming leisure activities and destinations inthe geographic areas referred to above.

 

If we areunable to compete successfully, our business, financial condition and resultsfrom operations could be materially adversely affected. See “Item 1A — RiskFactors — We compete with casinos, other forms of gaming and other resortproperties. If we are unable to compete successfully, we may not be able togenerate sufficient cash flows to fund our operations or meet our obligationsas they become due.”

 

*Seasonality*

 

We have generally observed seasonalincreases in gaming activity during the spring and summer months and decreasesin gaming activity during the winter months associated with inclement weather.

 

**Class IIIGaming Compact**

 

The Nation’sCompact with New York State provides the Nation with the right to establish andoperate three Class III gaming facilities in Western New York. The Compactgrants the Nation the exclusive right to operate specifically defined gamingdevices, including slot machines, within a 10,500 square-mile, geographic areain Western New York, beginning on Route 14, approximately 30 miles East ofRochester, and extending westerly throughout New York State. In exchange forthis exclusivity, the Nation pays exclusivity fees to New York State based on apercentage of the slot machine net drop (money dropped into the machines afterpayout but before our expenses). The exclusivity payment was 18% for the firstfour years, has been 22% for years 5-7 (beginning January 1, 2007), andwill be 25% for the remainder of the term (beginning January 1, 2010). Theexclusivity payment to New York State was approximately $106.0 million, $115.7million, $103.4 million, $79.1 million and $67.4 million for Fiscal 2009, 2008,2007, 2006 and 2005, respectively.  IfNew York State breaches the exclusivity arrangement by, for example, allowing aperson or entity to operate Class III slot machines within the zone ofexclusivity, then the State forfeits the exclusivity fees as to Class IIIslot machines. The Compact allows New 

 

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York Stateto permit the Tuscarora Indian Nation and the Tonawanda Band of Seneca Indiansto obtain the right to include gaming devices in a compact without abrogatingthe exclusivity provisions of the Compact, so long as either tribe locates itsproposed gaming facility either on its existing reservations or more than 25miles from a gaming facility site authorized by the Compact. The Compactprovides that the Nation may acquire property and establish a gaming facilityin the City of Niagara Falls within an approximate 50 acre area designated as landto be developed by the Nation. Seneca Niagara Casino and Hotel is located onland within this designated area on lands held in restricted fee pursuant tothe Seneca Nation Lands Claim Settlement Act of 1990, or SNLCSA. The twoadditional Class III gaming facilities include the Seneca Allegany Casinoand Hotel on the Nation’s Allegany Territory and the Seneca Buffalo CreekCasino on the Nation’s Buffalo Creek Territory. The Compact is in effect until December 9, 2016, and willautomatically renew for an additional period of seven years unless either partyobjects in writing, or it is terminated as a result of any of the following: (1) therepeal of the Indian Gaming Regulatory Act of 1988, or IGRA; (2) theNation’s adoption of a referendum revoking the Nation’s authority to conduct Class IIIgaming; or (3) either the Nation or the State commits a “Material Breach”as defined by the Compact.

 

**Employees**

 

As of September 30, 2009, SGCemployed approximately 3,640 employees. Of those, the Seneca Niagara Casino and Hotel employed approximately2,510 employees; the Seneca Allegany Casino and Hotel employed approximately1,080 employees; and the Seneca Buffalo Creek Casino temporary facilityemployed 50 employees.

 

We considerrelations with our employees to be good. None of our employees are currentlymembers of any labor union or similar organization.

 

**Seneca Gaming Corporation and the Nation**

 

*SenecaGaming Corporation. *SGC was established by the Nation in August 2002 for thepurpose of developing, constructing, leasing, operating, managing, maintaining,promoting and financing Nation gaming facilities, including without limitationany Class III gaming facilities established in accordance with theCompact.  Our Class II operationswere transferred to the Nation as of January 1, 2005.  For further discussion of our former Class IIoperations, see “Status of Former Class II Operations,” above.  SGC is a governmental instrumentality of theNation and was established by the Nation pursuant to Nation law by a duly enactedresolution of the Council. SGC is wholly-owned by the Nation for economic andgovernmental purposes and shares in the Nation’s sovereign immunity, which canbe waived if the board of directors adopts a resolution waiving immunity in aspecific situation and such waiver 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 arefour subsidiaries 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 Niagara Falls, New York;Seneca Erie Gaming Corporation, established in August 2003 to finance,develop, and operate the Nation’s gaming facility in Erie County, New York;Seneca Territory Gaming Corporation, established in September 2003 tofinance, develop, and operate the Nation’s gaming facilities on the Nation’sAllegany or Cattaraugus Territories; and Lewiston Golf Course Corporation,established in June 2007 to develop and operate SGC’s golf course amenityin Lewiston, New York. Seneca Massachusetts Gaming Corporation, formerly a wholly-ownedsubsidiary of SGC, formed on August 11, 2007 to explore developmentopportunities related to gaming in the Commonwealth of Massachusetts, wasdissolved by the Nation’s Council on April 11, 2009, and its assets weretransferred to SGC. SNFGC operates the Seneca Niagara Casino and Hotel locatedon the Nation’s Niagara Falls Territory in Niagara Falls, New York. STGCoperates the Nation’s Seneca Allegany Casino and Hotel located in the City ofSalamanca, New York on the Nation’s Allegany Territory. SEGC operates thetemporary Seneca Buffalo Creek Casino located in the City of Buffalo, New York,on the Nation’s Buffalo Creek Territory. SGC’s current corporate structure is as follows:

 

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**

 

Each of SGC’ssubsidiaries is required to make periodic financial reports and submit anannual report to the SGC board of directors. The SGC board of directors isrequired to make quarterly and annual reports to the Council regarding thefinancial condition of the companies, including but not limited to, significantproblems and accomplishments, future plans, and such other information as theCouncil deems pertinent. The SGC board of directors is also required to providemonthly reports to Council regarding certain budgetary and relatedmatters.  The members of the boards ofdirectors of SGC and its subsidiaries are the same.

 

*Seneca Gaming Authority and Class IIIGaming Ordinance. *SGC’s gaming operations are subject tothe supervision and regulation of the Seneca Gaming Authority, or SGA, whichwas established by Nation ordinance and is responsible for overseeing theregulation of all of the Nation’s gaming operations. The Nation’s Class IIIgaming ordinance, or Gaming Ordinance, which provides regulatory authority toSGA for the Nation’s Class III gaming, was originally adopted on August 1,2002, subsequently amended on November 16, 2002 and approved by theNational Indian Gaming Commission, or NIGC, on November 26, 2002. TheNation amended the gaming ordinance to extend SGA’s regulatory authority toinclude jurisdiction over Class II gaming. The amended ordinance wasfurther amended in August 2006 to incorporate certain clarifications intothe ordinance.  This amendment wasapproved by the NIGC as of November 6, 2006.  On June 9, 2007, the Nation enacted anew gaming ordinance with certain site-specific language applicable to theBuffalo Creek Territory.  This action wastaken in connection with ongoing litigation challenging the Nation’s right toconduct Class III gaming on the Buffalo Creek Territory (*Citizens Against Casino Gambling v. Kempthorne*), in whichthe judge had vacated the NIGC’s approval of the Nation’s 2002 gaming ordinanceas it pertained to gaming on the Buffalo Creek Territory.  The amended Ordinance was submitted to theNIGC on June 9, 2007 and was identical to the prior approved ordinanceexcept that the new ordinance’s definition of “Indian Lands” contains a sitespecific legal description of the Buffalo Creek Territory.  This site-specific Ordinance applicable tothe Buffalo Creek Territory was approved by the NIGC on July 2, 2007. Inresponse to ongoing events in connection with the Buffalo Creek litigation, on July 16,2008, the Nation submitted a further amended gaming ordinance to the NIGC, sothat the NIGC could consider the applicability of new Department of the Interiorregulations concluding that lands like Buffalo Creek Territory are exempt from Section 20of IGRA’s prohibition on gaming. The NIGC approved the amended ordinance on January 20,2009.  This approval has been challengedin a lawsuit brought by Citizens Against Casino Gambling in Erie County.  For additional information regarding thestatus of, and litigation relating to, our Seneca Buffalo Creek Casino, seediscussion of “CACGEC III” under “Item 3 – Legal Proceedings”.

 

The SGA consists of fivecommissioners selected by the Nation and is responsible for, among otherthings, monitoring and regulating the standards of operation and standards ofmanagement of all authorized Class III gaming, protecting the assets andintegrity of casino operations, overseeing casino surveillance, monitoring thecompliance of the Nation’s gaming activities with external accounting and auditcontrol procedures, and supervising the licensure of all employees and vendorsof the Nation’s gaming activities. The SGA functions independently andautonomously from the Council in all matters within its purview. The SGA’s statutoryauthority confers on it responsibility only for regulatory matters relating tothe Nation’s gaming activities, and leaves SGC (or one of its subsidiaries)responsible for the day-to-day management and operation of the Nation’s Class IIIgaming activities.  In practice, the SGA’sregulatory approach and practices drive significant management decisions,command a material portion of the time of SGC’s senior management and have hada material effect on SGC’s 

 

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ability to recruit andretain personnel.  For further discussionof the Seneca Gaming Authority, see “Regulation of the Nation, Seneca GamingCorporation and its Subsidiaries,” below and “Item 1A — Risk Factors.” 

 

*The Nation*

 

The Seneca Nation ofIndians is a federally recognized, self-governing Indian nation operating undera Constitution originally adopted in 1848 and most recently amended in 1993.The Nation’s current total enrolled population is approximately 7,800. TheSeneca Nation is one of the Six Nations of the Iroquois Confederacy thatconsists of the Seneca, Cayuga, Onondaga, Oneida, Mohawk and Tuscarora nations.The members of the Nation originally lived in the area between the GeneseeRiver and Seneca Lake in the Finger Lakes region of New York. Today, the SenecaNation holds title to five distinct Territories in Western New York State,including land in Niagara Falls and Buffalo and land set aside by the 1794Treaty of Canandaigua: the Allegany, Cattaraugus and Oil Spring Territories.These three Territories designated by the Treaty encompass parts of fourcounties in New York State: Allegany, Cattaraugus, Chautauqua, and Eriecounties. The Oil Springs Territory is 640 acres, or one square mile, of landlocated 43 miles southeast of the Cattaraugus Territory and 24 miles east ofthe Allegany Territory. The Allegany Territory is composed of 31,097 acres andincludes 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 approximate 50 acre parcel identified in Appendix I of the Compact) inNiagara Falls and approximately nine acres of land in Erie County have beenconverted into restricted fee lands pursuant to the SNLCSA. By operation offederal law, these lands and other parcels that may be acquired in the futurepursuant to the 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.  For further discussionof land acquisitions in Niagara Falls, New York, see “Niagara Falls Real EstateAcquisitions,” above.

 

*NationGovernance*

 

The Nationcame into formal existence in 1848 when the chief system was replaced by aconstitution 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, the Treasurer and the Clerk. These officers alternatebetween the two principal Territories, Cattaraugus and Allegany, every twoyears. The next election of the Executive Branch Officers will be held in November 2010.The Legislative Branch, or the Council, has sixteen members, of which eightmembers are elected from each of the two principal Territories. Each Counciloris elected to a four-year term, which is staggered.  The most recent election of eight Councilmembers was held in November 2008, with the next election to occur in November 2010.

 

*NationGovernmental Operations*

 

The Nationcurrently has administrative departments located on both the Allegany andCattaraugus Territories. The Nation’s programs include tribal administrationfunctions as well as a wide array of community services, including health,environmental, education, recreation and community planning. In order toprovide efficient services to the communities, many departments have officeslocated on both Territories. The tribal administrative executive offices arehoused in the two central administration buildings located on the Allegany andCattaraugus Territories: the G.R. Plummer and the William Seneca Buildings,respectively. The other Nation organizational departments are located inbuildings adjacent to the main tribal administration building or surroundingarea.

 

*NationBusinesses*

 

The Nationenterprises, subdivisions of the Nation’s government, are responsible for thevarious economic development initiatives undertaken by the Nation other thanSGC and its subsidiaries. The Nation enterprises are currently comprised of thefollowing: Seneca Construction Management Corporation, Seneca Gaming &Entertainment, Seneca One Stop, Seneca-Iroquois National Museum, and HighbanksCampground. The Nation has also formed Seneca Catskills Gaming Corporation, asa wholly-owned governmental instrumentality of the Nation, to developprospective gaming operations in the Catskills region of New York State. Noneof these enterprises is a part of SGC or its subsidiaries or otherwisecontributes to its revenue. Individual Seneca entrepreneurs also operate theirown businesses on Nation lands. The businesses include, but are not limited to,restaurants, retail shops, hotels, gas stations, and Internet-based businesses.

 

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*TribalEmployment Rights**Ordinance*

 

Our operations are subject to theNation’s Tribal Employment Rights Ordinance, or TERO, which requires thegranting of a preference to enrolled Nation members and other Native Americansin the hiring of employees.  Prior to February 14,2009, it granted a similar preference in the engagement of certain vendors andcontractors.  TERO is implemented by afive member commission, appointed by the Nation’s Council.  With respect to employees, TERO requires thatwe give preference to qualified Indians in all hiring, promotion, training andall other aspects of employment.  With respectto vendors, TERO required that, in awarding contracts or subcontracts forsupplies, services, labor and materials in an amount in excess of $5,000 wherethe majority of the work will occur on Nation lands, we give preference toIndian-owned firms when contracts are subject to a competitive bidding process andthe bids of the Indian-owned firms fall within a defined percentage or amountof the lowest responsive bid (ranging from 1% when the lowest responsive bid is$7 million or more, to $9,000 when the lowest responsive bid is $100,000 orless), in each case as specified in TERO. The Nation, through its TERO Commission, possessed the sole power todetermine and certify whether and to what extent a firm is “Indian-owned”.

 

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

 

The conductof our Class III gaming activities on Nation lands is subject to multiplelevels of regulation, including regulation by the Nation through its GamingOrdinance (and the SGA, which has regulatory jurisdiction over the Nation’sgaming activities) and regulation by the State of New York, through the NewYork State Racing and Wagering Board and the New York State Police, each inaccordance with the Compact between the Nation and New York State. See “CertainMaterial Agreements of SGC and the Nation—Nation-State Gaming Compact” forfurther discussion of the regulatory authority of the SGA and New York Stategaming officials.  The federal governmentalso oversees Indian gaming generally pursuant to IGRA and exercises regulatoryoversight through the NIGC. The Department of Justice also possesses authorityto enforce IGRA and the Gambling Devices Act, 15 U.S.C. § 1171-78, 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.

 

**SenecaNation Law and Legal Systems**

 

*Applicabilityof State and Federal Law*

 

The Nationis an Indian tribal government with certain sovereign powers. The Nation’sability to enact its own laws and regulations to regulate gaming activitiesderives from the exercise of the Nation’s inherent sovereign powers, recognizedby the United States in the 1794 Treaty of Canandaigua and in subsequentfederal court opinions. It is the position of the United States, and federalcourts have uniformly held, that Indian nations are subject to certain federallaws and certain state laws where federal law so prescribes. It is thereforepossible that a federal agency with whose regulations the Nation may not becurrently complying could object to such noncompliance. If an agency sought toenforce compliance, such agency action and any resultant federal court rulingcould result in the disruption of construction, operations, and relatedactivities of SGC, which events would have a material adverse effect on ourfinancial results.

 

*Waiver ofSovereign Immunity; Court Jurisdiction; Exhaustion of Tribal Remedies*

 

Indiannations enjoy sovereign immunity from unconsented suit similar to that of thestates and the United States. An Indian nation and its wholly-owned tribalentities, such as SGC and its subsidiaries, share in the Indian nation’ssovereign immunity, but may formally waive their sovereign immunity withrespect to suits against them. The Nation and SGC, respectively, granted alimited waiver of sovereign immunity and consent to suit in connection with thesenior notes issued by SGC in 2004 and 2005, including suits against SGC toenforce its obligation to repay the senior notes.  Courts have held waivers of sovereignimmunity to be effective, if given explicitly with proper authorization.

 

Theremedies available against an Indian nation also depend, at least in part, uponthe jurisdiction of courts and the rules of comity and doctrines requiringinitial exhaustion of remedies in tribal tribunals and, as to some judicialremedies, the particular nation’s consent to jurisdictional provisionscontained in the disputed agreements. The U.S. Supreme Court has 

 

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ruled thatstate courts do not have jurisdiction over actions involving Indians or Indiantribes and arising within Indian country unless Congress specifically grantsjurisdiction to those courts. Congress has allowed the courts of New York Stateto hear certain matters involving Indians and occurring on Indian lands in NewYork, although each situation must be analyzed on a case-by-case basis.

 

The Nation’sjudiciary branch is comprised of separate Peacemaker, Appellate, and SurrogateCourts. The Nation court system has its own clerks and facilities and has heardnumerous civil cases.

 

The U.S.Supreme Court has held that, under certain circumstances, where a tribal courtexists, the remedies and jurisdictional questions in that forum must first beexhausted before the claim can properly be heard by federal courts that wouldotherwise have jurisdiction. We sometimes waive our right to require exhaustionof tribal court remedies.  For example,the Nation and SGC, respectively, consented to the jurisdiction of the federaland New York State courts in connection with any action by the trustee toenforce the senior notes and operative documents related thereto and agreed towaive the requirement of exhaustion of tribal court remedies. However, it isnot clear that such a waiver would be effective. Generally, where a dispute asto the existence of jurisdiction in the tribal forum exists, the tribal courtmust first rule as to the limits of its own jurisdiction. In the eventthat a waiver of tribal court jurisdiction is held to be ineffective, therecipient of the waiver (e.g., the trustee and holders of the senior notes) maybe required 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, if any, there may be no effective rightto appeal such decisions in state or federal court.

 

The FederalCourt of Appeals for the Second Circuit (which has appellate jurisdiction overfederal district courts located in New York State) has ruled that if anon-member of a tribe asserts a claim against a tribe based on state or federallaw, and not on tribal law, and no prior tribal court proceedings are pending,a federal court generally may adjudicate the claim without requiring theplaintiff to exhaust tribal court remedies. A similar ruling by a New YorkState appellate court concluded that the state trial court properly proceededwith adjudicating a dispute rather than requiring the plaintiff to exhausttribal court remedies where the dispute was among tribal members involvingissues not concerning internal tribal affairs, the state court had jurisdictionconcurrent with tribal courts over the issues and no case was currently pendingbefore the tribal court. Courts in other states and federal judicial circuitshave reached different conclusions, and it cannot be certain whether a court inNew York State will defer exercising jurisdiction over a case until after theappropriate tribal court has had an opportunity to adjudicate the matter, evenwhere there is a waiver of exhaustion of tribal court remedies.

 

**TheIndian Gaming Regulatory Act of 1988**

 

*IGRA*

 

All gamingactivities on Indian lands are subject to IGRA. Congress enacted IGRA in orderto establish a system for regulating gaming activities on Indian lands. IGRA’spurpose is to provide a statutory basis for the operation of gaming by Indiantribes as a means of promoting tribal economic development, self sufficiency,and strong tribal governments. Congress simultaneously sought to shield Indiangaming from organized crime and other corrupting influences, to ensure that theIndian tribe is the primary beneficiary of the gaming operation and that gamingis conducted fairly and honestly by both the operator and players.

 

*Classes ofGaming*

 

IGRAdivides gaming into three classes, each of which is regulated differently. Class Igaming encompasses social games solely for prizes of minimal value ortraditional forms of Indian gaming engaged in by individuals as a part of, orin connection with, tribal ceremonies or celebrations. Such gaming is subjectto the exclusive jurisdiction of the tribes and is not subject to regulationunder IGRA. Class II gaming includes bingo, poker and similar games, andis subject to tribal regulation and federal oversight by the NIGC. Class IIIgaming, the most heavily regulated of the three classes, encompasses all otherforms of gaming, and includes slot machines, casino games, banking card games,dog racing, and lotteries. Class III gaming is lawful only if it is (1) authorizedby a 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.

 

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*NationalIndian Gaming Commission*

 

The NIGC,an independent executive agency located in the Department of the Interior, isvested with regulatory authority over gaming activities on Indian landspursuant to IGRA and its implementing regulations. The NIGC is charged with theadministration and enforcement of IGRA. The NIGC regulates gaming by Indiantribes, in order to shield tribes from organized crime and other corruptinginfluences, to ensure that the Indian tribe is the primary beneficiary of thegaming operation and that gaming is conducted fairly and honestly by both theoperator and players. Congress aimed to make gaming a means of promoting tribaleconomic development, self-sufficiency, and strong tribal governments. To carryout these goals, Congress gave the NIGC substantial power, including theauthority to initiate enforcement actions, close tribal gaming operations andlevy civil fines. Moreover, the NIGC has authority to issue regulationsgoverning gaming activities of Indian lands, review and approve Class IIand Class III gaming ordinances, review and approve management agreementsfor tribal gaming operations, conduct investigations and generally monitorIndian gaming activities. IGRA also provides for federal criminal penalties forillegal gaming on Indian land and for theft from Indian gaming facilities. TheSecretary of the Interior retains certain responsibilities under IGRA, such asthe approval of tribal-state compacts and approval of per capita distributionplans.

 

*NIGCRegulations Implement Certain Provisions of IGRA*

 

These regulations govern,among other things, the submission and approval of tribal gaming ordinances orresolutions, and require an Indian tribe to have the sole proprietary interestin and responsibility 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 backgroundinvestigations, to the NIGC.  On August 24,2005, the United States District Court For The District of Columbia in *Colorado River Indian Tribes vs. National Indian Gaming Commission,*ruled “that the [IGRA] does not confer upon the NIGC the authority to issue orenforce [minimum internal control standards] for Class III gaming.” Accordingly, the Court declared unlawful the minimum internal control standardsas applied to Class III gaming.  On October 26, 2006, the D.C.Circuit Court of Appeals unanimously upheld this decision finding that theIndian Gaming Regulatory Act does not grant the NIGC power to imposeoperational standards on Class III gaming.

 

On November 18,2005, Senate Indian Affairs Committee Chairman McCain (R-AZ) introduced S.2078, the Indian Gaming Regulatory Act Amendments of 2005.  S. 2078 makesa number of amendments to IGRA, including authorizing the NIGC to promulgate “regulationsaddressing minimum internal control standards for class II gaming and class IIIgaming activities.”  The import of this particular amendment would havebeen to essentially overrule the *Colorado River IndianTribes vs. National Indian Gaming Commission* decision***.***

 

*Tribal-StateCompacts*

 

Under IGRA,Class III gaming activities are lawful on Indian lands only if suchactivities are conducted in conformance with a Tribal-State gaming compact. ATribal-State gaming compact is the product of negotiation by a tribe and astate which sets the terms by which the tribe may conduct Class IIIgaming. IGRA contemplates that states and tribes will utilize the compactingprocess to address public policy issues of mutual concern. IGRA provides arepresentative list of the types of provisions that may be included in aTribal-State gaming compact. Among other things, Congress sought through thecompact process to accommodate significant governmental interests of thestates. At the same time, IGRA’s compacting process affords reciprocalprotection for the significant governmental interests of tribes by requiring astate to negotiate over a form of Class III gaming as long as the statepermits it for any purpose by any person. The mechanism for entering into aTribal-State gaming compact is set forth in IGRA.

 

The Nation’sCompact was executed on August 18, 2002, and deemed approved by theSecretary of the Interior on October 25, 2002 pursuant to IGRA. Aftertaking effect on December 9, 2002, when notice was published in theFederal Register, the Compact authorized the Nation to own and operate three Class IIIgaming facilities, two then off-Territory in the City of Niagara Falls and inErie County, New York, and one on the already existing Nation Territory.

 

Tribal-stategaming compacts have been the subject of litigation in a number of states,including New York State. In 1996, the U.S. Supreme Court ruled in the case of *Seminole Tribe of Florida v. Florida* that the provision ofIGRA that permits Indian 

 

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tribes tosue in federal court to force states to negotiate tribal-state gaming compactsin good faith is unconstitutional, as applied to an unconsenting state, byvirtue of the Eleventh Amendment to the U.S. Constitution.

 

In 1999,certain legislators, organizations and individuals opposed to casino gamblingbrought a lawsuit: (1) challenging the validity of the 1993 gaming compactbetween New York State and the St. Regis Mohawk Tribe under the separation ofpowers provisions in the New York State Constitution; and (2) seeking adeclaration that New York State Constitution’s general prohibition on gamblingcovers Las Vegas-style gaming at casinos operated pursuant to IGRA by Indiantribes on their Territory lands in New York. The plaintiffs also requested aninjunction prohibiting New York State from expending any money in furtheranceof the gaming compact.  The lawsuit wasmade moot by the subsequent approval by the New York State Legislature of the1993 compact.

 

In October 2001,the New York Legislature passed Chapter 383 of the Laws of 2001, or Chapter383, which allowed former 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 the Catskills.Chapter 383 also approved the installation of VGMs at certain racetracks.

 

In January 2002,two actions were filed in the Supreme Court of the State of New York, County ofAlbany, challenging the validity of Chapter 383. The actions were captionedDalton v. Pataki, et al, and Karr v. Pataki, et al. Plaintiffs sought ajudgment declaring the legislation unconstitutional and enjoining itsimplementation. These two cases were consolidated and we refer to both casesbelow as Dalton v. Pataki.

 

On July 17,2003, the New York Supreme Court dismissed the plaintiffs’ complaints in Daltonv. Pataki and held that Chapter 383 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. On July 7,2004, a five-judge panel issued its Opinion and Order declaring the provisionsof Chapter 383 authorizing the additional compacts constitutional, thelicensing of VGMs to racetracks to be unconstitutional due to the impermissiblerevenue distribution scheme set forth therein and the provision of Chapter 383authorizing the Division of the Lottery to participate in the multi-statelottery constitutional.

 

On May 3,2005, the New York Court of Appeals held all of Chapter 383 (including thelicensing of VGMs to racetracks) to be constitutional. In July 2005, theNew York Court of Appeals, the State’s highest court, denied a motion to rehearthe case.  Appellants filed a writ ofcertiorari seeking review by the United States Supreme Court.  On November 28, 2005, the United StatesSupreme Court denied the writ.

 

*IndianLands*

 

In orderfor the Nation to conduct gaming pursuant to the Compact, it must do so onIndian lands within its jurisdiction. Indian lands include, but are not limitedto, lands located within the boundaries of an Indian territory. For non-territorylands to qualify as Indian lands under IGRA, the land must be either held intrust by the United States for the benefit of any Indian tribe or individual,or held by any Indian tribe or individual subject to restriction by the UnitedStates against alienation, and the tribe must exercise governmental power overthose lands.

 

As itrelates to lands that have been acquired in trust or restricted fee status forgaming purposes after October 17, 1988, IGRA generally prohibits gaming onsuch lands unless certain conditions are met. As relevant to date, lands thatare acquired as part of a settlement of a land claim are exempt from theprohibition against gaming on lands acquired after the enactment of IGRA.

 

Pursuant tothe Compact, the Nation may acquire property and establish gaming facilities inthe City of Niagara Falls within the boundaries of the approximate 50 acre areaof land described 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, NewYork and one on the already existing Nation Territory. Moreover, the Compactauthorizes the Nation to use funds appropriated under the SNLCSA to acquireparcels of land in Niagara Falls and Erie County for gaming purposes.  See “Certain Material Agreements of SGC andthe Nation—Nation-State Gaming Compact,” below.

 

In 1990,Congress enacted the SNLCSA which provides the Nation with fair compensationfor use of its land and for the 

 

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impact onthe Nation from prior lease arrangements in the City of Salamanca, New York.The funds appropriated under the SNLCSA are available for the Nation to acquireland which could be placed into restricted fee status. The SNLCSA provides thatunless the Secretary of the Interior determines that lands acquired pursuant tothe SNLCSA should not be subject to restrictions against alienation, such landsshall be held in restricted fee status by the Nation.

 

Asdetermined by the Secretary of the Interior in connection with the approval ofthe Compact, the Nation will have jurisdiction over lands placed intorestricted fee status pursuant to the SNLCSA. Indeed, lands placed inrestricted status pursuant to the SNLCSA are held in the same legal manner asexisting Nation lands are held and thus, subject to the Nation’s jurisdiction.In addition, the Secretary determined that lands placed into restricted feestatus pursuant to the SNLCSA are Indian lands as defined by IGRA, and theNation is authorized to use such land for gaming purposes pursuant to IGRA,because such lands will be acquired as part of a settlement of a land claim.

 

In thefuture, if and when all funds appropriated under the SNLCSA have been used bythe Nation, the Nation may acquire lands in fee status and then request suchlands to be held in trust on its behalf through the land-into-trustprocess.  To the extent the Nationacquires lands in trust in the future, it is noted that the land-into-trustprocess, as compared to the restricted fee process under the SNLCSA, will bemuch more cumbersome and lengthy.

 

The Nation(as opposed to SGC or its subsidiaries) has acquired approximately 24 acres inNiagara Falls (of the approximate 50 acre area of land described in Appendix Iof the Compact) with funds appropriated under the SNLCSA.  On October 3, 2005, the Nation acquiredapproximately nine acres of land in Erie County with SNLCSA funds.     By operation of federal law, these landsand other 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 and hotel on the Niagara Falls Territory and existing temporary casinoon the Buffalo Creek Territory are situated on these lands.

 

In additionto the two then off-Territory sites in Niagara Falls and Erie County, theCompact also authorizes the Nation to establish a gaming facility on thenalready existing Nation Territory. The lands upon which the Nation owns,operates and manages its Territory-based Seneca Allegany Casino and Hotel, arelocated within the Nation’s Allegany reservation boundaries, thus constitutingIndian lands eligible for gaming pursuant to IGRA.

 

*Possible Changes in Federal and State Law*

 

Our operations areregulated by Nation laws, the Compact and federal statutes, most notablyIGRA.  Changes with respect to any applicable laws potentially couldaffect our operations.

 

The Department of theInterior has recently published final regulations effective August 25,2008 governing the conduct of gaming on lands taken into trust after October 17,1988.  The regulations on their face do not purport to impair the abilityof the Nation and SGC to expand its gaming operations.  Future gaminglegislation or court decisions construing the new regulations could adverselyimpact expansion of SGC gaming operations and the future growth of the Nation’srevenue base. In addition, from time to time, various government officials haveproposed taxing Indian casino gaming or otherwise limiting or restricting theconduct of gaming operations by Indian tribes. No assurance can be given thatsuch legislation, if and when enacted by Congress, would not have a materialadverse effect on the operations of SGC. If Congress were to enactcomprehensive amendments to the IGRA, such legislation could have a materialadverse effect on the operations of SGC. In addition, under federal law, gamingon the Nation’s lands may be dependent upon the permissibility under New YorkState 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. Moreover, the 1996 U.S. SupremeCourt decision in *Seminole Tribe of Florida v. Florida*may permit a state to avoid or refuse to negotiate amendments to existingcompacts such as the Compact.

 

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**CertainMaterial Agreements of SGC and the Nation**

 

*Thefollowing summaries of certain material agreements related to our operations,to which the Nation or SGC (or its subsidiaries) is a party, do not purport tobe complete and are qualified in their entirety by reference to the agreementssummarized herein, which are included as exhibits to this Annual Report on Form 10-K.Capitalized terms used but not otherwise defined herein have the meaningsascribed to such terms in the agreement being summarized (unless otherwiseindicated).*

 

*Nation-StateGaming Compact*

 

The Nationengages in Class III gaming activities in accordance with the Compact,approved on October 25, 2002. The Compact was negotiated between theNation and New York State in accordance with the provisions of IGRA applicableto the conduct of Class III gaming operations by Indian tribes. See “TheIndian Gaming Regulatory Act of 1988—Tribal-State Compacts,” above.

 

The Compactprovides, among other things, that:

 

(1)  TheNation may conduct the following games of chance on its lands: baccarat, bang,beat the dealer, best poker hand, blackjack, Caribbean stud poker,chuck-a-luck, craps, gaming devices, hazard, joker seven, keno, let it ridepoker, minibaccarat, pai gow poker, pai gow tiles, red dog, roulette, sic bo,super pan, under and over seven, wheel games, casino war, Spanish blackjack,multiple action blackjack, and three card poker. The legality of slot machinespursuant to State law, however, is the subject of ongoing State courtlitigation. See “The Indian Gaming Regulatory Act of 1988—Tribal-State Compacts,”above. The Compact sets forth specifications describing and governing theoperation of each of these types of games by the Nation.

 

(2)  TheCompact provides for the establishment of the SGA, which exercises jurisdictionover and responsibility for the conduct of gaming operations by the Nation. TheSGA was established pursuant to the Gaming Ordinance. The New York State Racingand Wagering Board and the New York State Police, collectively, the SGO, act ina concurrent regulatory and oversight role with regard to the Nation’s Class IIIgaming operations. The SGA is entitled to unfettered access to all areas of theNation’s gaming facilities including the surveillance room(s), copies of dailyinspection reports as well as access to the business and accounting recordsrelating to the Nation’s gaming operations during the course of aninvestigation. Each Nation Class III gaming operation must providereasonable office and reserved parking space adjacent to the Class IIIgaming facilities for the SGO. New York State is empowered to sue to enforceapplicable Compact terms and to remedy violations through arbitration or infederal court.

 

(3)  Lawenforcement responsibilities relating to the Nation’s Class III gamingoperations are concurrent between the Nation Law Enforcement Agency and the NewYork State Police as a matter of federal law. Nothing in the Compact alters thejurisdiction of New York State, if any, over Indian land as provided byapplicable law. Members of the New York State Police in the course of officialduties have unfettered access to all areas of the Class III gaming andauxiliary facilities, subject only to State and federal constitutionallimitations. As stated, the Nation Law Enforcement Agency may exerciseconcurrent authority with that of the New York State Police to maintain publicorder and safety, to the extent authorized by federal law.

 

(4)  Allgaming employees are required to apply for, and obtain, a valid gaming employeelicense issued by the SGA, following a fingerprint check by the New York StateDivision of Criminal Justice Services, a background investigation by the NewYork State Police, and a suitability determination by the SGO. Applicants mustsubmit a license application to the SGA concerning personal and family history,personal and business references, criminal conviction record, businessactivities, financial affairs, gaming industry experience, gaming schooleducation and general educational background. The SGA may in specifiedcircumstances suspend, revoke or deny a renewal of any gaming license.

 

(5)  Anyenterprise providing gaming services, gaming supplies or gaming equipment to aNation Class III gaming operation must hold a current valid gaming serviceregistration issued by the SGA.

 

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(6)  Anyenterprise that provides goods, supplies or services to a Nation Class IIIgaming operation (other than gaming services, gaming supplies or gamingequipment) in a total amount exceeding $75,000 in a single twelve-month periodmust be identified to the SGO by the Commission. The SGA cooperates with theSGO in any reasonable investigations deemed necessary by the SGO relating tothe fitness of any such enterprise to engage in any business with a Nation Class IIIgaming operation. The SGO may bar such an enterprise from providing such goods,supplies or services upon a determination of a threat to the effectiveregulation of Class III gaming or danger of unfair or illegal practices,methods and activities in the conduct of Class III gaming.

 

(7)  TheNation’s Class III gaming operations must conform with a detailed set ofoperational and management standards relating to a variety of matters,including accounting, internal controls, operational procedures, surveillancepersonnel and the handling of cash and credit.

 

(8)  TheNation must maintain complete and accurate records of all transactions relatingto the revenues and costs of its gaming operations. The forms of such accountsmust be consistent with generally accepted accounting principles. An annualaudit of the financial statements of its gaming operations must be conducted byan independent certified public accountant in a manner consistent withgenerally accepted auditing standards.

 

(9)  TheNation reimburses New York State for its costs of oversight under the Compact.Costs include staffing, fringe benefits, overhead costs and non-personalservices.

 

(10)  TheNation prohibits the possession of firearms in its Class III gamingfacilities except by persons authorized by law and does not permit personsunder the age of 18 to be admitted to any Class III gaming facility or toplace any wager, directly or indirectly. The SGA maintains and shares with SGCa list of persons barred from the Class III gaming facilities because ofcriminal histories or associations posing a threat to gaming integrity orsafety.

 

(11)  Asrequired by IGRA and the Gaming Ordinance, SGC has constructed, maintained, andoperated its gaming facilities in a manner that adequately protects theenvironment and the public health and safety.

 

(12)  SGC(or its subsidiaries) or the Nation on its behalf maintains liability insuranceto compensate injured patrons of Class III gaming facilities. The Nationhas established procedures for the adjudication of compensation for tort claimsby patrons of Class III gaming facilities.

 

(13)  Exceptfor disputes concerning the games and activities permitted under the Compact,the Nation and New York State have established binding arbitration as a methodof resolution of all other disputes concerning compliance with and interpretationof Compact provisions.

 

(14)  Theterms and conditions of the Compact may be modified or amended by writtenagreement of both parties. If the State agrees to permit any other Indiannation or tribe to conduct a Class III game or activity which has not beenauthorized under the Compact, the State shall notify the Nation, which may thenconduct such game or activity upon adoption of the State’s specificationsregarding such game or activity.

 

(15)  TheCompact is in effect until December 9, 2016, to be renewed for anadditional period of seven years unless either party objects in writing, orterminated as a result of any of the following: (1) repeal of IGRA; (2) theNation adopts a referendum revoking the Nation’s authority to conduct Class IIIgaming; or (3) either the Nation or the State commits a Material Breach(as defined by the Compact).

 

(16)  TheCompact in no way waives the right of the Nation to request negotiations foramendment or modification to the Compact with respect to a Class III gameor activity which is to be conducted on Nation lands but which is not permittedunder the provisions of the Compact.

 

(17)  Exceptas specifically provided in the Compact, neither New York State nor the Nationwaived its sovereign immunity by entering into the Compact.

 

ThePresident of the Nation and the Governor of New York signed the Compact on August 18,2002, and, on October 25, 

 

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2002, byoperation of law, the Compact was deemed approved in accordance with IGRA. TheCompact took effect on December 9, 2002, when notice was published in theFederal Register.

 

*Assignmentand Plan of Distribution Agreement*

 

On May 5,2004, SGC entered into an Assignment and Plan of Distribution Agreement, or theAssignment Agreement, with the Nation. Pursuant to this agreement, the Nationhas adopted a plan of distribution providing that in the event of thedissolution or final liquidation of any of these entities, the net liquidationor dissolution proceeds shall be distributed to SGC. The Nation furtherassigned to SGC all of its rights, title and interest in and to these proceeds.The Nation entered into the Assignment Agreement because even though SNFGC,STGC, and SEGC are owned by SGC, according to the charters of thesesubsidiaries, in the event of a liquidation or dissolution of a subsidiary, theNation, and not SGC, would be entitled to receive the net proceeds of the liquidationor dissolution after all liabilities and obligations of the subsidiary havebeen paid, satisfied and discharged. Both the Nation and SGC also waived theirrespective sovereign immunity from unconsented suit and consent to suit inaccordance with the Assignment Agreement. Remedies against the Nation aregenerally limited to specific performance. However, in the event a subsidiaryhas distributed net liquidation or dissolution proceeds to the Nation and theNation has not transferred those proceeds to SGC, the Nation may be required totransfer an amount equal to the liquidation proceeds to SGC, or if such remedyis not available, SGC may file a claim for money damages in an amount nogreater than the amount of net liquidation or dissolution proceeds notassigned. Any such money damages for which the Nation is liable are onlypayable from assets held by the Nation, SGC, SNFGC, STGC, or SEGC related tothe gaming business, other than real property held in trust for the Nation bythe United States.

 

*DistributionAgreement*

 

On April 27,2007, SGC entered into a Distribution Agreement, or the Distribution Agreement,among the Nation, the Seneca Nation of Indians Capital Improvements Authority,or the Authority, SGC and Wells Fargo Bank, National Association as Trustee.

 

The Authority is awholly-owned governmental instrumentality of the Nation formed for the purposeof financing, developing and operating such capital improvements of the Nationas the Nation designates.  On April 27, 2007, the Authority sold anaggregate principal amount of $159.5 million Special Obligation Bonds toMerrill Lynch Pierce Fenner & Smith Incorporated, as the initialpurchaser, for sale to qualified institutional buyers and investors outside theUnited States in accordance with Regulation S.  The SpecialObligation Bonds were issued in two series, one designated Series 2007-A(tax exempt) in the aggregate principal amount of $119.5 million (consisting of$32.8 million aggregate principal amount due 2016 bearing interest at a rate of5.25%, or Series 2007-A Bonds due 2016, and $86.7 million aggregateprincipal amount due 2023 bearing interest at a rate of 5.00%, or Series 2007-ABonds due 2023) and the other designated Series 2007-B (taxable) in theaggregate principal amount of $40.0 million due 2013 bearing interest at a rateof 6.75% (the Series 2007-B Bonds), together with the Series 2007-ABonds due 2016 and Series 2007-A Bonds due 2023, or collectively, the 2007Bonds).  The 2007 Bonds are governed by an Indenture between the Authorityand the Trustee dated April 27, 2007.  The 2007 Bonds are notobligations of SGC or the Nation, and the issuance of the 2007 Bonds will notgive rise to an obligation of the Nation to levy any tax or make anyappropriation for their payment.

 

The Authorityintends to pay the debt service on the 2007 Bonds from certain Distributions(as defined in the Distribution Agreement) that SGC makes to the Nation and, atthe direction of the Nation and the Authority, pays directly to the Trusteeunder the Distribution Agreement.  The Distribution Agreement obligatesSGC, subject to any contractual restrictions applicable to it, to make monthlyDistributions to the Nation at the times and in the amounts necessary to enablethe Authority to pay the debt service on the 2007 Bonds as required under theAuthority’s Indenture.  The Distribution Agreement obligates the Nationnot to permit SGC to enter into any contractual obligation that wouldmaterially adversely affect SGC’s ability to comply with its monthly Distributionobligations under the Distribution Agreement (with it agreed that contractualobligations comparable to those in SGC’s Indenture would not be deemed toviolate or breach this covenant). Existing or future contractual obligations ofSGC, SGC’s obligations to make the Excluded Payments (as defined in theDistribution Agreement) as well as the results of SGC’s and its consolidatedsubsidiaries’ gaming operations, may prevent SGC from making theseDistributions at the times and in the amounts sufficient to enable theAuthority to pay the principal of, premium, if any, and interest on the 2007Bonds when due whether on their scheduled payment dates, by earlier call forredemption, by acceleration or otherwise.  The Distribution Agreementprovides that neither the Trustee nor the Authority’s bondholders will have anyrecourse under the Distribution Agreement to any revenues, assets or propertyof SGC or its subsidiaries should SGC fail to comply with its Distributionobligations.  The 2007 Bonds are limited recourse obligations of theAuthority payable solely from the Trust Estate (as defined in the DistributionAgreement), consisting almost exclusively 

 

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of the PledgedDistributions (as defined in the Distribution Agreement).  Recourse to theNation with respect to its obligations is limited to the Pledged Distributions.

 

Interest on the2007 Bonds, commencing on the issue date, was payable on December 1, 2007,and continues to be payable on each June 1 and December 1 thereafter.

 

The Authority isrequired to redeem the 2007 Bonds at a redemption price equal to the principalamount of the 2007 Bonds to be redeemed plus accrued and unpaid interest to theredemption date, on June 1 and December 1 in the years and in theprincipal amounts set forth below, subject to certain credits as provided forin the Authority’s Indenture.

 

Mandatory Sinking Fund Redemption

 

**Series 2007-ABonds Due December 1, 2016**

 

| **Date**   | ** ** | **Principal Amount** | ** ** |
|------------|------------|----------------------|------------|
| 06/01/2013 |       | $                    | 2,010,000  |   |
| 12/01/2013 |       | $                    | 2,005,000  |   |
| 06/01/2014 |       | $                    | 4,555,000  |   |
| 12/01/2014 |       | $                    | 4,550,000  |   |
| 06/01/2015 |       | $                    | 4,790,000  |   |
| 12/01/2015 |       | $                    | 4,795,000  |   |
| 06/01/2016 |       | $                    | 5,045,000  |   |
| 12/01/2016 |       | $                    | 5,050,000  |   |

 

**Series 2007-ABonds Due December 1, 2023**

 

| **Date**   | ** ** | **Principal Amount** | ** ** |
|------------|------------|----------------------|------------|
| 06/01/2017 |       | $                    | 5,310,000  |   |
| 12/01/2017 |       | $                    | 5,315,000  |   |
| 06/01/2018 |       | $                    | 5,580,000  |   |
| 12/01/2018 |       | $                    | 5,585,000  |   |
| 06/01/2019 |       | $                    | 5,865,000  |   |
| 12/01/2019 |       | $                    | 5,865,000  |   |
| 06/01/2020 |       | $                    | 6,165,000  |   |
| 12/01/2020 |       | $                    | 6,160,000  |   |
| 06/01/2021 |       | $                    | 6,475,000  |   |
| 12/01/2021 |       | $                    | 6,475,000  |   |
| 06/01/2022 |       | $                    | 6,805,000  |   |
| 12/01/2022 |       | $                    | 6,800,000  |   |
| 06/01/2023 |       | $                    | 7,150,000  |   |
| 12/01/2023 |       | $                    | 7,145,000  |   |

 

**Series 2007-BBonds Due December 1, 2013**

 

| **Date**   | ** ** | **Principal Amount** | ** ** |
|------------|------------|----------------------|------------|
| 06/01/2008 |       | $                    | 3,085,000  |   |
| 12/01/2008 |       | $                    | 3,090,000  |   |
| 06/01/2009 |       | $                    | 3,300,000  |   |
| 12/01/2009 |       | $                    | 3,300,000  |   |
| 06/01/2010 |       | $                    | 3,525,000  |   |
| 12/01/2010 |       | $                    | 3,530,000  |   |
| 06/01/2011 |       | $                    | 3,765,000  |   |
| 12/01/2011 |       | $                    | 3,770,000  |   |
| 06/01/2012 |       | $                    | 4,025,000  |   |
| 12/01/2012 |       | $                    | 4,030,000  |   |
| 06/01/2013 |       | $                    | 2,285,000  |   |
| 12/01/2013 |       | $                    | 2,295,000  |   |

 

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The Authority is requiredto redeem all of the 2007 Bonds, at a redemption price equal to their principalamount plus accrued and unpaid interest, on the last semi-annual payment datepreceding (i) the termination date of the Nation’s Compact with New YorkState pursuant to paragraph 4(c) thereof or (ii) the termination ofsuch Compact pursuant to paragraph 4(d) thereof.

 

The Authority is requiredto redeem all of the Series 2007-A Bonds in the event of a Determinationof Taxability (generally, a final determination by the Commissioner or anyDistrict Director of the Internal Revenue Service or a determination by a courtof competent jurisdiction that interest on the Series 2007-A Bonds is notexcludable from gross income for federal income tax purposes under Section 103of the Code), on a date selected by the Authority but not later than 180 daysafter such Determination of Taxability, at a redemption price equal to theprincipal amount thereof plus accrued and unpaid interest to the date ofredemption plus a premium equal to 4% of the principal amount thereof.

 

The Authority may, at itsoption, redeem at any time on June 1, 2017 and on any business daythereafter, all, or from time to time any part of, the Series 2007-A Bondsdue 2023 prior to maturity, at a redemption price equal to 100% of theprincipal amount of the respective Series 2007-A Bonds due 2023 then beingredeemed plus accrued and unpaid interest to the redemption date.

 

There is no optionalredemption of the Series 2007-A Bonds due 2016 or of the Series 2007-BBonds.

 

*SeniorSecured Revolving Loan Agreement*

 

Effective June 19,2008, SGC entered into a $50.0 million Senior Secured Revolving Loan Agreement,which matured on June 19, 2009, subject to extension by SGC at itselection (at any time after the six months anniversary of the closing date andprior to June 19, 2009) for an additional period of six months providedthat no default or event of default existed at the time of election.  On June 11, 2009, SGC exercised thiselection, extending the maturity date to December 19, 2009, and onDecember 18, 2009, further extended the maturity date to December 31, 2011.

 

SGC’s obligations underthe Senior Secured Revolving Loan Agreement are secured by substantially allgaming and related assets (including substantially all gaming revenues) notconstituting real property or improvements. SGC’s obligations are guaranteed by SNFGC, STGC, SEGC and LGCC.  The guarantors’ obligations are secured bysubstantially all of each guarantor’s gaming and related assets (includingsubstantially all gaming revenues) not constituting real property orimprovements. The Senior Secured Revolving Loan Agreement contains certain financialcovenants requiring minimum consolidated EBITDA of $160 million (on a rolling12 month basis) and compliance with certain leverage and coverage ratios. TheSenior Secured Revolving Loan Agreement also contains additional customarycovenants, including covenants restricting the incurrence of additionalindebtedness, the creation of additional liens and the disposition of assets.

 

As of September 30,2009, at SGC’s request, the lender under the Senior Secured Revolving LoanAgreement had issued letters of credit totaling $19.6 million, $13.2 million ofwhich may be drawn upon to fund the purchase of certain parcels within the 50acre “footprint” described in the Compact with New York State and designatedfor ownership by the Nation, with the remaining $6.4 million issued inconnection with worker’s compensation policies and certain other contracts, asrequired.  On October 29, 2008, SGCborrowed $20.0 million under the Senior Secured Revolving Loan Agreement.  During the third quarter of Fiscal 2009, SGCpaid $20.0 million on the Senior Secured Revolving Loan Agreement, leaving nooutstanding balance at September 30, 2009.

 

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**Effective December 18, 2009, SGC amended theSenior Secured Revolving Loan Agreement to further extend the maturity dateuntil December 31, 2011. Amounts borrowed under the Amended Senior SecuredRevolving Loan Agreement continue to bear interest at either one, three orsix-month LIBOR plus one and one quarter percent (1.25%), or the prime rate (asreported in The Wall Street Journal) plus one quarter percent (0.25%), with anyoutstanding principal balance to be paid by, or on, the new maturity date.  The $50.0 million commitment reduces intandem with any reduction in the letter of credit requirement imposed by the EmpireState Development Corporation, or ESDC (as described below in “Item 7 — Management’sDiscussion and Analysis of Financial Condition and Results of Operation — Liquidityand Capital Resources — Other Commitments”), up to an aggregate reduction of$10.0 million.  The Amended SeniorSecured Revolving Loan Agreement requires that SGC maintain all of its depositand investment accounts with the lender, subject to limited exceptions forcertain existing accounts.**

** **

**SGC’s obligations under the Amended Senior SecuredRevolving Loan Agreement continue to be secured by substantially all gaming andrelated assets (including substantially all gaming revenues) not constitutingreal property or improvements. SGC’s obligations are guaranteed by SNFGC, STGC,SEGC and LGCC, and the guarantors’ obligations continue to be secured bysubstantially all of each guarantor’s gaming and related assets (includingsubstantially all gaming revenues) not constituting real property orimprovements. The Amended Senior Secured Revolving Loan Agreement modifiescertain of the financial covenants contained in the Senior Secured RevolvingLoan Agreement, including reducing the minimum consolidated EBITDA covenantfrom $160 million to $145 million (on a rolling 12 month basis) while modifyingthe total leverage ratio (of total funded debt to EBITDA) to a limit of 3.5 to1.0.  The Amended Senior SecuredRevolving Loan Agreement also continues to contain additional customarycovenants, including covenants restricting the incurrence of additionalindebtedness, the creation of additional liens and the disposition of assets.As of September 30, 2009, SGC was in compliance with all covenants in theSenior Secured Revolving Loan Agreement, and as of the date of this AnnualReport, SGC was in compliance with all such covenants in the Amended SeniorSecured Revolving Loan Agreement.**

** **

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** **

**Item 1A.  Risk Factors**

 

In addition to the other information in this AnnualReport, including the matters addressed in “Cautionary Note Regarding Forward-LookingStatements” on page 1, the following risk factors should be carefullyconsidered in evaluating Seneca Gaming Corporation and our business becausesuch risk factors may have a significant impact on our business, operatingresults and financial condition. As a result of the risk factors set forthbelow and elsewhere in this Annual Report, actual results could differmaterially from those projected in any forward-looking statements. We mayamend, supplement, or add to the risk factors described below from time to timein future reports with the SEC.

 

**Risks Relating to Our Indebtedness**

 

**We have substantial indebtedness andother financial obligations which could adversely affect our financialcondition and prevent us from fulfilling our obligations, including our seniornotes.**

 

We have substantialindebtedness and significant fixed debt service obligations in addition to ouroperating expenses. As of September 30, 2009, we had $500.0 million of 7-1⁄4% senior notes outstanding. The Indenture governing the senior notes permits usand our subsidiaries to incur additional debt in certain, limitedcircumstances. If we incur additional debt in the future, the related riskscould increase.

 

In connection with an April 2007issuance of $159.5 million of bonds by a governmental instrumentality of theNation (the “Authority Bonds”), we, subject to any contractual obligationsapplicable to us, are obligated, pursuant to a distribution agreement governingour distribution obligations with respect to the Authority Bonds (the “DistributionAgreement”), to make monthly distributions to the Nation at the times and inthe amounts necessary to pay the debt service on such Authority Bonds. The foregoing distribution obligations are in addition to distributioncommitments to the Nation relating to Compact exclusivity fees, Head Leasepayments and certain regulatory and shared services expenses.  If webecome obligated or committed to make additional distributions or payments tothe Nation in the future, the related risks could increase.

 

Effective June 19, 2008, SGC entered into a $50.0million Senior Secured Revolving Loan Agreement, which matured on June 19,2009, subject to extension by SGC at its election (at any time after the sixmonths anniversary of the closing date and prior to June 19, 2009) for anadditional period of six months provided that no default or event of defaultexisted at the time of election.  On June 11,2009, SGC exercised this election, extending the maturity date to December 19,2009.

 

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Effective December 18, 2009, SGC amended theSenior Secured Revolving Loan Agreement to further extend the maturity dateuntil December 31, 2011. Amounts borrowed under the Amended Senior SecuredRevolving Loan Agreement continue to bear interest at either one, three orsix-month LIBOR plus one and one quarter percent (1.25%), or the prime rate (asreported in The Wall Street Journal) plus one quarter percent (0.25%), with anyoutstanding principal balance to be paid by, or on, the new maturity date.  The $50.0 million commitment reduces intandem with any reduction in the letter of credit requirement imposed by ESDC(as described below), up to an aggregate reduction of $10.0 million.  The Amended Senior Secured Revolving LoanAgreement requires that SGC maintain all of its deposit and investment accountswith the lender, subject to limited exceptions for certain existing accounts.

 

SGC’s obligations under the Amended Senior SecuredRevolving Loan Agreement continue to be secured by substantially all gaming andrelated assets (including substantially all gaming revenues) not constitutingreal property or improvements. SGC’s obligations are guaranteed by SNFGC, STGC,SEGC and LGCC, and the guarantors’ obligations continue to be secured bysubstantially all of each guarantor’s gaming and related assets (includingsubstantially all gaming revenues) not constituting real property or improvements.The Amended Senior Secured Revolving Loan Agreement modifies certain of thefinancial covenants contained in the Senior Secured Revolving Loan Agreement,including reducing the minimum consolidated EBITDA covenant from $160 millionto $145 million (on a rolling 12 month basis) while modifying the totalleverage ratio (of total funded debt to EBITDA) to a limit of 3.5 to 1.0.  The Amended Senior Secured Revolving LoanAgreement also continues to contain additional customary covenants, includingcovenants restricting the incurrence of additional indebtedness, the creationof additional liens and the disposition of assets.

 

Our high level of indebtedness, our distributionobligations and commitments could have important consequences to holders of oursenior notes and significant adverse effects on our business. For example, itcould:

 

·                  increase our vulnerability to general adverse economicand industry conditions or a downturn in our business;

 

·                  limit our ability to obtain additional debt financingfor working capital, capital expenditures, development projects or otherpurposes;

 

·                  require us to dedicate a substantial portion of ourcash flow from operations to payments on our indebtedness or to meet ourdistribution obligations, thereby reducing the availability of our cash flow tofund working capital, capital expenditures, development projects and othergeneral business purposes;

 

·                  limit our flexibility in planning for, or reacting to,changes in our business and the industry in which we operate; and

 

·                  place us at a competitive disadvantage compared to ourcompetitors that have less debt and other financial obligations and/or morefinancial resources.

 

If our indebtedness anddistribution obligations and commitments affect our operations in these ways,our business, financial condition and results of operations could suffer,making it more difficult for us to satisfy our financial obligations.

 

**Despite current indebtedness levels andrestrictive covenants, we may incur additional indebtedness in the future,which would intensify our leverage risks.**

 

Although the Indenture governing the senior notes, theDistribution Agreement, and the Senior Secured Revolving Loan Agreementrestrict us and our subsidiaries from incurring additional indebtedness, theserestrictions are subject to exceptions and qualifications in certain, limitedcircumstances.  If we and/or oursubsidiaries incur additional indebtedness, the risks that they and we now faceas a result of our indebtedness could intensify.  If our financial condition or operatingresults deteriorate, our relations with our creditors and lenders may bematerially and adversely affected.

 

**Our failure to generate sufficientcash flow from our operations could adversely affect our ability to makepayments on our senior notes and fulfill our other financial obligations.**

 

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Our ability to makepayments on the senior notes and fulfill our other financial obligations willdepend on our ability to generate cash flow from our current and futureoperations. Our ability to generate sufficient cash flow to satisfy ourfinancial obligations will depend on our future operating performance, which issubject to many economic, competitive, regulatory and business factors that arebeyond our control. If we are not able to generate sufficient cash flow toservice our financial obligations, we may need to refinance or restructure suchobligations, sell assets or reduce or delay capital investments, or seek toraise additional capital. Additionally, our senior notes mature in 2012, and wewill need to refinance or satisfy this debt as it matures.  For the following reasons, among others, thesemeasures may not be available to us on reasonable terms or at all, or, ifavailable, they may not be adequate to enable us to satisfy our financialobligations, including the senior notes:

 

·                  our ability to incur additional debt will be limited by the covenantsof the Indenture governing the senior notes, covenants of the DistributionAgreement and covenants under our $50.0 million Amended Senior SecuredRevolving Loan Agreement;

 

·                  the Indenture governing the senior notes and the loan agreement governingour Amended Senior Secured Revolving Loan Agreement include covenants whichlimit our ability to create additional liens on or sell our assets and thecovenants of the Distribution Agreement limit our ability to sell our assets;

 

·                  unlike non-governmental businesses, we are prohibited by law fromgenerating cash through an offering of equity securities; and

 

·                  based on general economic or market conditions, including if currentmarket conditions and the instability in the global credit markets and the deteriorationin the public debt markets continue, our ability to refinance on favorableterms may be limited.

 

If our cash flow isinsufficient and we are unable to raise additional capital, we may not be ableto satisfy our financial obligations, including making payments on our seniornotes.

 

**Our obligations under the Indenturegoverning the senior notes are not secured, and the senior note holders’ rightsto receive payments on the senior notes are effectively subordinated to SGC’sand the restricted subsidiary guarantors’ secured indebtedness.**

 

Holders of SGC’s and the restricted subsidiaryguarantors’ secured indebtedness will have claims that are prior to the claimsof holders of senior notes to the extent of the value of the assets securingthe other indebtedness. The Indenture governing the senior notes permitscertain secured indebtedness. The senior notes are effectively subordinated toall of that secured indebtedness. In the event of any distribution or paymentin any foreclosure, dissolution, winding-up, liquidation, reorganization, orother bankruptcy proceeding, holders of SGC’s and the restricted subsidiaryguarantors’ secured indebtedness will have prior claim to those assets thatconstitute their collateral. Holders of the senior notes will participateratably with all holders of SGC’s and the restricted subsidiary guarantors’unsecured indebtedness that is deemed to be of the same class as the seniornotes, and potentially with all of SGC’s and the restricted subsidiaryguarantors’ other general creditors, based upon the respective amounts owed toeach holder or creditor, in the remaining assets. In any of the foregoingevents, we cannot assure senior note holders that there will be sufficientassets to pay amounts due on the senior notes. As a result, holders of seniornotes may receive less, ratably, than holders of secured indebtedness.

 

As of September 30, 2009, the net amount of theconsolidated indebtedness of SGC was approximately $497.4 million.

 

Effective June 19, 2008, SGC entered into a $50.0 million SeniorSecured Revolving Loan Agreement, which matured on June 19, 2009, subjectto extension by SGC at its election (at any time after the six monthsanniversary of the closing date and prior to June 19, 2009) for anadditional period of six months provided that no default or event of defaultexisted at the time of election.  On June 11,2009, SGC exercised this election to extend the maturity date to December 19,2009.  As of September 30, 2009, atSGC’s request, the lender under the Senior Secured Revolving Loan Agreement hadissued letters of credit totaling $19.6 million, $13.2 million of which may bedrawn upon to fund the purchase of certain parcels within the 50 acre “footprint”described in the Compact with New York State and designated for ownership bythe Nation, with the remaining $6.4 million issued in connection with worker’scompensation policies and certain other contracts, as required.  On October 29, 2008, SGC borrowed $20.0million under the Senior Secured Revolving Loan Agreement.  During the third

 

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quarter of fiscal year 2009, SGC paid $20.0 million on the SeniorSecured Revolving Loan Agreement, leaving no outstanding balance at September 30,2009.  The Loan Agreement containscertain financial and non-financial covenants including restricting theincurrence of additional indebtedness, the creation of additional liens and thedisposition of assets. SGC’s obligations under the Senior Secured RevolvingLoan Agreement are secured by substantially all gaming and related assets(including substantially all gaming revenues) not constituting real property orimprovements.  SGC’s obligations are guaranteed by SNFGC, STGC, SEGC andLGCC.  The guarantors’ obligations are secured by substantially all ofeach guarantor’s gaming and related assets (including substantially all gamingrevenues) not constituting real property or improvements.

 

Effective December 18, 2009, SGC amended the Senior SecuredRevolving Loan Agreement to further extend the maturity date until December 31,2011. Amounts borrowed under the Amended Senior Secured Revolving LoanAgreement continue to bear interest at either one, three or six-month LIBORplus one and one quarter percent (1.25%), or the prime rate (as reported in TheWall Street Journal) plus one quarter percent (0.25%), with any outstandingprincipal balance to be paid by, or on, the new maturity date.  The $50.0 million commitment reduces intandem with any reduction in the letter of credit requirement imposed by ESDC(as described below), up to an aggregate reduction of $10.0 million.  The Amended Senior Secured Revolving LoanAgreement requires that SGC maintain all of its deposit and investment accountswith the lender, subject to limited exceptions for certain existing accounts.

 

SGC’s obligations under the Amended Senior Secured Revolving LoanAgreement continue to be secured by substantially all gaming and related assets(including substantially all gaming revenues) not constituting real property orimprovements. SGC’s obligations are guaranteed by SNFGC, STGC, SEGC and LGCC,and the guarantors’ obligations continue to be secured by substantially all ofeach guarantor’s gaming and related assets (including substantially all gamingrevenues) not constituting real property or improvements. The Amended SeniorSecured Revolving Loan Agreement modifies certain of the financial covenantscontained in the Senior Secured Revolving Loan Agreement, including reducingthe minimum consolidated EBITDA covenant from $160 million to $145 million (ona rolling 12 month basis) while modifying the total leverage ratio (of totalfunded debt to EBITDA) to a limit of 3.5 to 1.0.  The Amended Senior Secured Revolving LoanAgreement also continues to contain additional customary covenants, includingcovenants restricting the incurrence of additional indebtedness, the creationof additional liens and the disposition of assets.

 

**SGC conducts substantially all of itsoperations through its restricted subsidiaries and may be limited in itsability to access funds from its restricted subsidiaries to meet its financialobligations, including the senior notes.**

 

SGC conducts substantially all of its operationsthrough its restricted subsidiaries. Accordingly, SGC relies on dividends fromits restricted subsidiaries to provide funds necessary to meet its obligations,including the payment of principal and interest on the senior notes. The abilityof any restricted subsidiary to pay dividends or make cash distributions to SGCmay be contractually restricted. If SGC is unable to access the cash flows fromits restricted subsidiaries, SGC may have difficulty meeting its financialobligations, including the senior notes.

 

**The senior notes are not theobligation of the Nation and the senior note holders’ rights as creditors arelimited to the assets of SGC and the restricted subsidiary guarantors.**

 

SGC and the restricted subsidiary guarantors are liableexclusively for the payment of the senior notes. The Nation is not obligatedfor the payment of the senior notes. The assets of the Nation and itsaffiliates other than SGC and the restricted subsidiary guarantors will not beavailable to pay the senior notes. Therefore, the senior note holders’ rightsas creditors in a bankruptcy, liquidation or reorganization or similarproceeding would be limited to the assets of SGC and the restricted subsidiaryguarantors and the senior note holders would have no right to the assets of theNation or its other affiliates.

 

**The senior note holders’ ability toenforce their rights or have an adequate remedy against the Nation and us maybe limited by the sovereign immunity of the Nation and us. If senior noteholders are unable to enforce their rights, they may lose their entireinvestment in the senior notes.**

 

We issued the senior notes pursuant to the Indenture.In addition, in connection with our issuance of the senior notes, the Nationentered into the Nation Agreement with the Trustee pursuant to which the Nationagreed not to take certain actions with respect to us while the senior noteswere outstanding. References to the “Nation Agreement” are to the NationAgreement as amended on May 23, 2005. On May 5, 2004, the Nationentered into an assignment and plan of distribution

 

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agreement, or the Assignment Agreement, with SGC pursuantto which the Nation assigned to SGC the Nation’s rights to the net proceeds inthe event of a liquidation or dissolution of SNFGC, STGC or SEGC and pursuantto the plan of distribution, the net liquidation or dissolution proceeds ofsuch entities shall be distributed by such entities directly to SGC. See “Item1 — Business—Certain Material Agreements of SGC and the Nation—Assignment andPlan of Distribution Agreement.” Under federal law, we and the Nation havesovereign immunity and may not be sued without our and its consent,respectively. In the Indenture governing the senior notes, we do, and, in theNation Agreement and the Assignment Agreement, the Nation does, grant a limitedwaiver of sovereign immunity and consent to suits to interpret or enforce theIndenture governing the senior notes, and the other agreements entered into inconnection with the respective offerings involving the senior notes. Thiswaiver does not extend to all possible claims or remedies that a holder of thesenior notes might allege or seek against us or the Nation. Specifically, thewaiver limits available remedies to specific performance in most cases andlimited money damages equal to the amount of a payment made in prohibition ofthe Indenture governing the senior notes or to the amount of the netliquidation or dissolution proceeds not assigned to SGC; *provided, that*, such money damages areonly payable from assets held by the Nation, SGC, SNFGC, STGC, SEGC or otherrestricted subsidiary and used in connection with a “related business” (asdefined in the Indenture), other than real property held in trust for theNation by the United States. In the event that a New York court would find thatspecific performance is not an available remedy, the trustee and the holders ofthe senior notes may not have an adequate remedy against the Nation under theNation Agreement and the Assignment Agreement. Furthermore, in the event thatthe Nation’s or our limited waiver of sovereign immunity is held to beunenforceable, the trustee and the holders of the senior notes could beprecluded from judicially enforcing their rights and remedies under the seniornotes, the Indenture governing the senior notes, the Nation Agreement, and theAssignment Agreement.

 

Although we are subject to federal securities laws andcould be liable with respect to any civil or criminal enforcement actionbrought by the United States government, we and the Nation have not waived oursovereign immunity from private civil suits, including for violations of thefederal securities laws. Accordingly, the holders of the senior notes may nothave any remedy against us or the Nation for violations of the federal or statesecurities laws if we raise sovereign immunity as an affirmative defense and itis accepted by the applicable court of law.

 

**Uncertainty exists as to whether afederal or state court would have jurisdiction in an action related to thesenior notes.**

 

Obtaining jurisdiction over an Indian tribe and tribalinstrumentalities, such as the Nation and us, can be difficult. Often, acommercial dispute with an Indian tribe or tribal instrumentality cannot beheard in federal court because the typical requirements for federaljurisdiction are absent. The failure to satisfy the requirements for federaljurisdiction occurs because there is generally no federal law question involvedand there is no diversity of citizenship because an Indian tribe is notconsidered to be a citizen of a state for purposes of obtaining federaldiversity jurisdiction.

 

The extent to which state courts will assumejurisdiction over disputes involving Indian tribes varies from state to state.The senior notes, the Indenture governing the senior notes and the relatedagreements are governed by the laws of New York State. There is conflicting caselaw on the issue of whether state courts can assert jurisdiction over disputeswith Indian tribes or tribal instrumentalities. Federal law provides that thestate courts of New York have jurisdiction over civil matters involvingIndians.  However, it is possible thatneither a federal nor a state court would accept jurisdiction to resolve amatter involving the senior notes and the holders of the senior notes may haveno legal recourse to a state or federal court.

 

Under certain legal doctrines, a federal court orstate court otherwise having jurisdiction may decline to hear a matterinvolving an Indian tribe and instead defer the matter for disposition in atribal court or other tribal proceedings. For matters subject to the waiver ofsovereign immunity by the Nation and us, the Nation and we have waived ourrights to have these matters resolved in any tribal court or other proceedingof the Nation. There is case law, however, suggesting these rights may not bewaived. The Nation has a tribal court system, and a federal or state court maydefer to such Nation courts if, contrary to the waiver of sovereign immunity byus and the Nation, we or the Nation seek or allege our or their right to seektribal proceedings for resolution of a dispute related to the senior notes. TheNation court system is different from federal and state civil courts. Forexample, there is no requirement that a judge be a lawyer and the Nation’shighest court, the Supreme court, is comprised of the sixteen Nation Councilorswho are the elected Councilors to the Nation’s Council, the governing body ofthe Nation, and the Nation’s President. The Nation courts may reach a differentconclusion than the federal or state courts would and this may have a materialadverse effect on the rights of the senior note holders.

 

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Additionally, depending on the particular claim asserted, certaindisputes may be required to be heard in Nation courts.  For example, the U.S. Supreme Court has heldthat claims under the federal Indian Civil Rights Act can only be brought intribal courts, and lower federal and state courts have held, on occasion, thattribal law may only be interpreted in tribal courts.

 

Additionally, any non-Nation court judgment requiring satisfaction orenforcement within Nation territories may require that an order for suchenforcement be issued by Nation courts. Nation courts do not have specific rules related to granting fullfaith and credit to judgments of courts of the United States or New York State,except to the extent that an application for an order of attachment is made inthe Nation courts and federal law requires the Nation courts to give full faithand credit to such a judgment.

 

Accordingly, holders of senior notes or the trusteeunder the Indenture governing the senior notes may have difficulty bringingsuits against the Nation and us in federal or state court.

 

**Senior note holders may be requiredto dispose of their senior notes, or their senior notes may be redeemed, iftheir ownership of the senior notes jeopardizes our gaming operations orviolates the Compact.**

 

We may have the right to cause senior note holders todispose of their senior notes, or to redeem their senior notes, if regulationsare promulgated pursuant to which their ownership of the senior notes isdetermined to be unsuitable by the Seneca Gaming Authority or the New YorkState Racing and Wagering Board. In such event, the redemption price will bethe lowest of the amount paid for the senior notes, the principal amount of thesenior notes and the then current fair market value of the senior notes, whichmeans the senior note holders could fail to receive their anticipated return ontheir investments.  Our ability to makesuch a redemption will be dependent upon our financial condition at the time.

 

**It is uncertain whether we or theNation may be subject to the U.S. Bankruptcy Code, which could impair thesenior note holders’ ability to be repaid from the sale of our assets if we areunable to meet our financial obligations.**

 

It is uncertain whether we or the Nation may besubject to federal bankruptcy laws. Without bankruptcy court protection, othercreditors might receive preferential payments or otherwise obtain more thanthey would have under a bankruptcy court proceeding. If either we or the Nationcommence a case under the Bankruptcy Code and the bankruptcy court does notdismiss the case, payments from the debtor would cease. It is uncertain howlong payments under the senior notes could be delayed following commencement ofa bankruptcy case.

 

**If the guarantees of the senior notesare deemed fraudulent conveyances or preferential transfers, a court maysubordinate or void them.**

 

The restricted subsidiary guarantors have incurredsubstantial debt under the guarantees of the senior notes. The incurrence bythe restricted subsidiary guarantors of debt under their guarantees may besubject to review under federal and state fraudulent conveyance laws if abankruptcy, reorganization or rehabilitation case or a lawsuit, includingcircumstances in which bankruptcy is not involved, were commenced by, or onbehalf of, unpaid creditors of the restricted subsidiary guarantors at somefuture date. Federal and state statutes allow courts, under specific circumstances,to void guarantees and related liens and require note holders to returnpayments received from the issuer or the guarantors.

 

An unpaid creditor or representative of creditorscould file a lawsuit claiming that the issuance of guarantees constituted a “fraudulentconveyance.” To make such a determination, a court would have to find that arestricted subsidiary guarantor did not receive fair consideration orreasonably equivalent value for the guarantee, and that, at the time theguarantee was issued, such restricted subsidiary guarantor:

 

·                  was insolvent;

 

·                  was renderedinsolvent by the issuance of the senior notes;

 

·                  was engaged in abusiness or transaction for which its remaining assets constituted unreasonablysmall capital; or

 

·                  intended toincur, or believed that it would incur, debts beyond its ability to repay asthose debts matured.

 

If a court were to make such a finding in respect to arestricted subsidiary guarantor’s guarantee, it could void all or a portion ofsuch restricted subsidiary guarantor’s obligations under its guarantee of thesenior notes, subordinate the claim in respect

 

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of its guarantee to its other existing and futureindebtedness or take other actions detrimental to holders of the senior notes,including, in certain circumstances, invalidating the guarantees of the seniornotes.

 

The measure of insolvency for these purposes will varydepending upon the law of the jurisdiction being applied. Generally, however, acompany will be considered insolvent for these purposes if the sum of thatcompany’s debts is greater than the fair value of all of that company’sproperty, or if the present fair salable value of that company’s assets is lessthan the amount that will be required to pay its probable liability on itsexisting debts as they mature. Moreover, regardless of insolvency, a courtcould void an incurrence of indebtedness, including the senior notes, if itdetermined that the transaction was made with intent to hinder, delay ordefraud creditors, or a court could subordinate the indebtedness, including thesenior notes or the guarantees, to the claims of all existing and futurecreditors on similar grounds. We cannot determine in advance what standard acourt would apply to determine whether we were “insolvent” in connection withthe sale of the senior notes.

 

There is a risk of a preferential transfer if:

 

·                  a restrictedsubsidiary guarantor declares bankruptcy or its creditors force it to declarebankruptcy within 90 days (or in certain cases, one year) after a payment onthe guarantee; or

 

·                  a guarantee wasmade in contemplation of insolvency.

 

A guarantee could be voided by a court as apreferential transfer. In addition, a court could require holders of seniornotes to return any payments made on the senior notes during the 90-day (orone-year) period.

 

Each guarantee contains a provision intended to limitthe restricted subsidiary guarantor’s liability to the maximum amount that itcould incur without causing the incurrence of obligations under its guaranteeto be a fraudulent conveyance. This provision may not be effective to protectthe guarantees from being voided under a fraudulent conveyance law.

 

**SGC and the restricted subsidiaryguarantors may not be able to repurchase senior notes upon a change of control.**

 

The Indenture governing the senior notes requires SGCand the restricted subsidiary guarantors to repurchase all outstanding notes at101% of the principal amount thereof plus accrued and unpaid interest, if any,upon the occurrence of specific kinds of change of control events. SGC and therestricted subsidiary guarantors may not have sufficient funds to purchase thesenior notes after a change of control. SGC’s and the restricted subsidiaryguarantors’ failure to purchase the senior notes would be a default under theIndenture governing the senior notes.

 

**The Indenture governing the seniornotes and the Amended Senior Secured Revolving Loan Agreement contain variouscovenants and provisions that limit our management’s discretion in theoperation of our business.**

 

The Indenture governing the senior notes and theSenior Secured Revolving Loan Agreement include covenants and provisions that,among other things, restrict our ability to:

 

·                  incur additionaldebt;

 

·                  makeinvestments;

 

·                  create liens;

 

·                  enter intotransactions with affiliates;

 

·                  sell assets;

 

·                  merge,consolidate or sell substantially all of our assets; and

 

·                  make capitalexpenditures.

 

The Amended Senior Secured Revolving Loan Agreementfurther includes certain financial covenants requiring SGC to achieve minimumEBITDA of $160.0 million (on a rolling 12 month basis) and maintain a totalleverage ratio (of total funded debt to EBITDA) of not more than 3.5 to1.0.  All of these restrictive covenantsmay limit our ability to expand our operations or to pursue our businessstrategies. Changes in business conditions or results of operations, adverseregulatory developments or other events beyond our control may affect ourability to comply with these and other provisions of the Indenture governingthe senior notes. The breach of any of these covenants could result in adefault under the Indenture 

 

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governing the senior notes and the Senior SecuredRevolving Loan Agreement, which could cause those obligations to becomeimmediately due and payable. If our indebtedness were to be accelerated, wecannot assure you that we would be able to pay such indebtedness.

 

**Risks Relating to our Relationship to the Nation**

 

**We are controlled by the Nation andthe interests of the Nation may conflict with the interests of senior noteholders.**

 

The restricted subsidiary guarantors are wholly-owned,directly or indirectly, and controlled by SGC, which in turn is wholly-ownedand controlled by the Nation. Circumstances may occur in which the interests ofthe Nation, the Council or the members of the Nation could be in conflict withthe interests of a holder of the senior notes. In particular, the Nation, theCouncil or the members of the Nation could make business or other decisionsthat may affect a senior note holder. For example, the Nation, subject to therestrictions in the Indenture, the Distribution Agreement, and Senior SecuredRevolving Loan Agreement, could decide to expand our facilities, incur moredebt, increase distributions or other payments to the Nation, dispose of assetsor enter into other transactions that, in its judgment, are in its interest,even though these transactions might involve risks to holders of the seniornotes, including making it more difficult for us to make payments on the seniornotes and for the restricted subsidiary guarantors to guarantee thesepayments.  Additionally, the Nation’ssovereign interests may result in policies or decisions that may conflict withthe interests of the senior note holders. For example, the Nation may determinenot to approve a limited waiver of sovereign immunity in connection with apotential commercially favorable transaction between us and a third party,based principally on sovereignty considerations rather than customarycommercial considerations, resulting in the loss of that commercially favorablebusiness opportunity. The loss of this opportunity could adversely affect usand, as a result, the senior note holders.

 

**The Nation has a limited body of lawsand has not adopted a corporate code. As a result, legal terms used in thisAnnual Report, the Indenture governing the senior notes and other relevantdocuments may have different meanings under the laws of the Nation than underlaws with which you are familiar.**

 

The Nation has a limited number of laws, which primarily consist of theNation’s constitution, a limited number of ordinances and codes, Councilresolutions and judicial interpretations of Nation law. Because the body andscope of the Nation’s laws are not as fully developed as federal and state law,in many instances under Nation law it is difficult to predict how and whichlaws will be applied. In particular, the Nation has not adopted a corporatecode. Therefore, terms used in this Annual Report, the Indenture governing thesenior notes and other relevant documents, including, but not limited to, termssuch as “liquidation” and “dissolution” that may require application andinterpretation of the Nation’s laws may have no defined meanings under thoselaws or may have meanings different from what one is accustomed to findingunder laws with which one is familiar.

 

**We are governmentallyowned and will not necessarily be operated in the same way as if we were aprivately owned for-profit business, which may materially adversely affect ourability to meet our financial obligations.**

 

As a sovereign government, the Nation isgoverned by elected officials who have responsibility for the welfare of allNation members. The Nation’s elected officials appoint the SGC board of directorsand retain certain approval authority over certain actions by the SGC board ofdirectors. In making decisions relative to appointment of SGC’s board ofdirectors and certain other aspects of SGC’s gaming business, these officialsmay consider the interests of their electorate, instead of pure economic orother business factors. Therefore, SGC’s gaming business will not benecessarily operated in the same manner as a private for-profit business, andwe cannot assure you that this fact will not materially adversely affect seniornote holders.

 

**A change in the Nation’s current tax-exempt statuscould have a material adverse effect on our ability to repay our financialobligations, including the senior notes.**

 

Based on current interpretation of the InternalRevenue Code of 1986, as amended, or the Code, neither the Nation or SGC issubject to federal income or property taxes. There can be no assurance thatCongress will not reverse or modify the exemption for Indian tribes fromfederal income or property taxation. Efforts have been made in Congress in thepast to amend the Code to provide for taxation of the net income of tribalbusiness entities. These efforts have included a House of Representatives billthat would have taxed gaming income earned by Indian tribes as unrelatedbusiness income subject to corporate tax rates. Although no such legislationhas been enacted, it could be enacted in the future. The imposition of federal

 

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income tax on our earnings could reduce the amountavailable to us to fulfill our obligations. As a result, future proposals oramendments in this area could have a material adverse effect on our financialresults and ability to fulfill our financial obligations, including the seniornotes.

 

**Changes in the membership of theCouncil, its policies or the Nation’s constitution could adversely affect ouroperations.**

 

The Nation is governed by a Council, consisting ofsixteen members, of which eight members are elected from each of the twoprincipal Nation territories. Councilors are elected to four-year terms, whichare staggered. The Nation holds an election every two years for its three executivebranch officers: the President, the Treasurer and the Clerk. These officersalternate between the two principal Nation territories, thus ensuring that theoccupants of those offices will change at each election. The most recentelection of the executive branch officers and eight Council members took placeon November 4, 2008. We cannot assure that the current Council, or anysubsequently elected Council, will pursue the same agenda or goals as the priorgovernment, in particular with respect to us, our expansion projects,reinvestment philosophy, or regarding compliance with the Compact and our otherobligations including the covenants contained in the Indenture. In addition,the Council acts by majority vote and with respect to any issue or policy, achange in views by one or more members could result in a change in the policyadopted by the Council. Changes in the Council or its policies could result insignificant changes in our structure or operations or in our planned expansion.In particular, the Council appoints the members of SGC’s board of directors andmay remove a member of SGC’s board of directors for cause either upon therecommendation of a majority of SGC’s board of directors, or upon its owninitiative with a vote of at least ten Councilors. The term cause has not beendefined in SGC’s charter or in Nation law; therefore, it is uncertain how thisterm will be interpreted. As a result, a change in the membership of Council orin the 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 from operations or ability to meet our financialobligations, including the senior notes.

 

Further, while we believe that under the Nation’sconstitution, adopted in 1848 and last amended in 1993, a referendum may onlybe called by the Council, our interpretation of the Nation’s constitution couldbe incorrect or the constitution may be amended in the future to provide thatthe Seneca people may call a referendum without the approval of the Council. Ifthe constitution were amended to allow the Seneca people to call for areferendum directly, the Nation may, through the referendum process, adopt lawsadversely affecting our business and results of operations.

 

**Risks Relating to our Business**

 

**Our business is particularlysensitive to reductions in discretionary consumer spending as a result ofdownturns in the economy.**

 

Consumer demand for casino hotel properties, such as ours, areparticularly sensitive to downturns in the economy and the corresponding impacton discretionary spending on leisure activities. Changes in discretionaryconsumer spending or consumer preferences brought about by factors such asperceived or the current economic conditions, housing crisis and credit crisis,the impact of high energy and food costs, the increased cost of travel, thepotential for continued bank failures, perceived or actual disposable consumerincome and wealth, effects of the current recession and changes in consumerconfidence in the economy, or fears of war and future acts of terrorism couldfurther reduce customer demand for the amenities that we offer, thus imposingpractical limits on pricing and harming our operations.  Even an uncertain economic outlook, such aswe are currently experiencing, may adversely affect consumer spending at ourgaming facilities and related operations, because consumers tend to spend lessin anticipation of ongoing economic challenges or further potential downturns.

 

**We are subject to greater risks thana geographically diverse company due to our location in Western New York, andare particularly susceptible to conditions affecting this region.**

 

We currently rely exclusively on cash flow from SenecaNiagara Casino and Hotel and Seneca Allegany Casino and Hotel and, to a lesserextent, Seneca Buffalo Creek Casino temporary facility to service our financialobligations, including the senior notes. While we expect to continue to expandthe geographic scope of our patron base, our Seneca Niagara Casino and Hotelrelies primarily on patrons from within a 100-mile radius for its cash flow,Seneca Allegany Casino and Hotel relies

 

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primarily on patrons from within an 80-mile radius forits cash flow and Seneca Buffalo Creek Casino temporary facility reliesprimarily on patrons from within a 30-mile radius. Further, any futureexpansion plans for additional casino operations as permitted by the Compactare limited to Western New York. As a result, in addition to our susceptibilityto adverse global and domestic economic, political and business conditions, anyeconomic downturn in, or negative conditions unique to, the Western New Yorkregion could have a material adverse effect on our operations. Risksattributable to the geographic concentration of our operations include exposureto the following:

 

·                  regionaleconomic downturns that would likely reduce disposable income of consumers inthe Western New York region, which could result in decreases in the number ofpatrons visiting our facilities, trip frequency, trip duration, and amountsspent by patrons;

 

·                  increases incompetition in New York or the Northeastern United States and Canada,particularly for day-trip patrons residing in New York State, including thedevelopment of new Indian casinos and the establishment of VGM’s and proposedelectronic table games at certain racetracks in New York, and slot machines andtraditional or electronic table games in Pennsylvania;

 

·                  impeded accessto our facilities due to road construction or closures of primary accessroutes; and

 

·                  adverse weather,and natural and other disasters in the Northeastern United States and Canada.

 

The occurrence of any one of the events describedabove could cause a material disruption in our business and make us unable togenerate sufficient cash flows to fulfill our financial obligations, includingthe senior notes. Furthermore, we cannot assure you that our property,casualty, terrorism and business interruption insurance will be adequate oravailable to cover all the risks to which our business and assets may besubject, and such insurance would not apply at all to losses resulting fromeconomic or competition-related risks.

 

**Wecompete with casinos, other forms of gaming and entertainment and other resortproperties. If we are unable to compete successfully, we may not be able togenerate sufficient cash flow to fund our operations or fulfill our financialobligations as they become due, including the senior notes.**

 

Our casino operations compete with casinos, otherforms of gaming and entertainment, and other resort properties located withinand outside New York State. We face intense competition in our primary andsecondary market areas, in addition to competition from casinos and gamingoperations in our broader regional market. New market entrants in New YorkState, Pennsylvania and elsewhere in the Northeastern United States could alsoadversely affect our operations and our ability to meet our financialobligations.**For a more extensivediscussion regarding our competition, see “Item 1 — Business—Market andCompetition.”

 

**If we are unable to retain our keypersonnel, or to fill current vacancies at the positions of Chief ExecutiveOfficer, General Manager of the Seneca Niagara Casino and Hotel, and GeneralCounsel, our ability to execute our business strategy could be impaired.**

 

The continued services of our key operating andexecutive personnel are important to our future success. The loss of theservices of such key operating and executive personnel could have an adverseimpact on our business, operating results and financial condition. There can beno assurance that the services of such personnel will continue to be madeavailable to us. We do not maintain key person life insurance policies on anyof our executives. Additionally, we recently experienced several changes in ourexecutive management team, and have not yet filled vacancies at the positionsof Chief Executive Officer, General Manager of the Seneca Niagara Casino andHotel and General Counsel.   Aspreviously disclosed, SGC announced the termination of its President and CEO,Brian Hansberry, effective April 24, 2009. Additionally, effective September 2,2009, Rajat Shah, SGC’s Senior Vice President of Corporate Development andGeneral Counsel, was informed that his employment agreement would not berenewed following its expiration on September 30, 2009. Catherine Walker,our Chief Operating Officer, is serving as our principal executiveofficer.  Our inability to retain ourcurrent senior managers or to fill our current senior management vacanciescould have a materially adverse effect on our operations.

 

**We could face difficulties inattracting and retaining qualified employees.**

 

The operation ofthe expanded facilities of Seneca Niagara Casino and Hotel and Seneca AlleganyCasino and Hotel and the expected expansion of the temporary Seneca BuffaloCreek Casino will require us to hire additional qualified executives andmanagers and a significant number of additional skilled employees with gamingand hospitality industry experience and

 

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qualifications.There can be no assurance that we will be able to recruit, train and retain asufficient number of additional qualified employees, particularly due to thevery small number of workers skilled in the gaming industry that reside in theimmediate vicinity of our casinos.

 

**We have limited experience operatingcasinos and hotels in Western New York.**

 

Our casinos have been in operation since December 31,2002 (as to the then-Seneca Niagara Falls Casino), May 1, 2004 (as to thethen-Seneca Allegany Casino) and July 3, 2007 (as to the Buffalo CreekCasino temporary facility), respectively, and we have limited experienceoperating our hotels in Niagara Falls and Salamanca, New York. We mayexperience difficulties in operating multiple casinos and hotels in a limitedgeographic region. Further, our two hotels and other amenities to our casinoshave many of the same risks inherent in the establishment of a new businessenterprise because we have limited operating history in those activities. Wemay not be able to identify timely or to 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 fulfillour financial obligations, including the senior notes.

 

**We may not be successful in openingour golf course in Lewiston, New York in 2010, due to our lack of experience inthis business and a variety of other factors, many of which are beyond ourcontrol.**

 

We have invested and expectto continue to invest in the development of the Lewiston, New York golf course,Seneca Hickory Stick, by our subsidiary LGCC. Construction of the course commenced in July 2007, with ananticipated opening in 2010 at an approximate cost of $25.5 million.  LGCC has engaged Kemper Sports Management, Inc.to manage and operate the course on its behalf.

 

We have no experienceopening and operating a golf course, and accordingly, we may not be able toidentify or anticipate all of the material risks associated with thisbusiness.  There are substantial risksand uncertainties associated with this new line of business.  We may not achieve our initial timetables foropening, and as a result, our profitability or reputation may be harmed.  Once opened, the course may fail to attractthe necessary number of patrons to achieve profitability.  In addition to market risks, golf courseoperations are subject to operating risks such as adverse weather conditions,including heavy prolonged rain, snow, or cold temperatures, blight or otherdiseases affecting grass or other vegetation, and costs of equipment andsupplies.  Failure to successfully managethese risks could affect our future operating results, ability to generateadequate cash flows and ability to fulfill our financial obligations, includingthe senior notes.

 

**Our business could be affected byweather-related factors and seasonality.**

 

Our results of operations may be adversely affected byweather-related and seasonal factors. Since opening, Seneca Niagara Casino andHotel’s, Seneca Allegany Casino and Hotel’s and Seneca Buffalo Creek Casino’sgaming revenue have not been materially affected by severe weather conditions,but severe winter weather conditions may deter or prevent patrons from reachingour gaming facilities or undertaking day trips. In addition, some recreationalactivities, such as tourism, are curtailed during the winter months. Althoughour cash flow management system assumes seasonal fluctuations in gaming revenuefor our casinos to ensure adequate cash flow during expected periods of lowerrevenue, there can be no assurance that weather-related and seasonal factorswill not have a material adverse effect on our operations. Our limitedoperating history makes it difficult to predict the future effects ofseasonality on our business, if any.

 

**Terrorism and war may directly or indirectly harmour business.**

 

The strength and profitability of our business willdepend on consumer demand for casino resorts in general and for the type ofamenities Seneca Niagara Casino and Hotel and Seneca Allegany Casino and Hoteloffer. Changes in consumer preferences or discretionary consumer spending couldharm our business. The terrorist attacks of September 11, 2001 and ongoingterrorist and war activities in the United States and elsewhere, have had anegative impact on travel and leisure expenditures, including lodging, gamingand tourism. We cannot predict the extent to which terrorist activities maycontinue to affect us, directly or indirectly, in the future. An extendedperiod of reduced discretionary spending and/or disruptions or declines intravel, conferences and conventions could significantly harm our operations.

 

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**Risks Relating to Litigation and Regulation**

** **

**Although litigation challenging thevalidity of our Compact and our right to conduct Class III gaming in NewYork State has been unsuccessful to date, the validity of the Compact and ourright to conduct Class III gaming in New York State could still bechallenged in court or otherwise adversely affected by legislation, regulation,or judicial action relating to gaming generally, or our right to conduct Class IIIgaming, in particular.**

 

In October 2001, the New YorkLegislature passed Chapter 383 of the Laws of 2001, or Chapter 383, whichallowed former Governor Pataki to enter into a gaming compact with the Nationand to enter into gaming compacts with other Indian tribes for theestablishment of three additional casinos in the Catskills. Chapter 383 alsoapproved the installation of VGMs at certain racetracks.

 

In January 2002, two actionswere filed in the Supreme Court of the State of New York, County of Albany,challenging the validity of Chapter 383. The actions were captioned Dalton v.Pataki, et al, and Karr v. Pataki, et al. Plaintiffs sought a judgmentdeclaring the legislation unconstitutional and enjoining its implementation.These two cases were consolidated and we refer to both cases below as Dalton v.Pataki.

 

On July 17, 2003, the New YorkSupreme Court dismissed the plaintiffs’ complaints in Dalton v. Pataki and heldthat Chapter 383 is constitutional. The plaintiffs appealed the Court’sdecision to the Third Department of the New York Supreme Court’s AppellateDivision and oral argument was held on December 16, 2003. On July 7,2004, a five-judge panel issued its Opinion and Order declaring the provisionsof Chapter 383 authorizing the additional compacts constitutional, thelicensing of VGMs to racetracks to be unconstitutional due to the impermissiblerevenue distribution scheme set forth therein and the provision of Chapter 383authorizing the Division of the Lottery to participate in the multi-statelottery constitutional.

 

On May 3, 2005, the New YorkCourt of Appeals held all of Chapter 383 (including the licensing of VGMs toracetracks) to be constitutional. In July 2005, the New York Court ofAppeals, the State’s highest court, denied a motion to rehear the case. Appellants filed a writ of certiorari seeking review by the United StatesSupreme Court.  On November 28, 2005, the United States Supreme Courtdenied the writ.

 

If New York State were to makevarious forms of gaming illegal or against public policy (or the courts were tosimilarly rule), or otherwise to take a legal position adverse to us, suchactions could affect the ability of the Nation to conduct those forms of gamingunder the Compact, which could have a material adverse effect on our ability toconduct our gaming operations as currently conducted.

** **

**If our ability tooperate Class III gaming facilities on land held in restricted fee by theNation were successfully challenged, it would have a material adverse effect onour ability to conduct gaming operations in Niagara Falls and Erie Countypursuant to the Compact.**

* *

*Background*

 

Under IGRA,Indian tribes can conduct class III gaming only on “Indian lands” as defined inthat Act. “Indian lands,” under IGRA, means “(A) all lands within thelimits of any Indian reservation; and (B) any lands title to which iseither held in trust by the United States for the benefit of any Indian tribeor individual or held by any Indian tribe or individual subject to restrictionby the United States against alienation and over which an Indian tribeexercises governmental power” (25 U.S.C. § 2703(4)).

 

In 1990,Congress enacted the Seneca Nation Land Claims Settlement Act, or SNLCSA, whichprovides the Nation with fair compensation for use of its land and for theimpact on the Nation from prior lease arrangements in the City of Salamanca,New York. The funds appropriated under the SNLCSA are available for the Nationto acquire land, which could be placed into restricted fee status. The Compactauthorizes the Nation to use funds appropriated under the SNLCSA to acquireparcels of land in Niagara Falls and Erie County for gaming purposes. The U.S.Secretary of the Interior and the National Indian Gaming Commission, or NIGC,have determined that the Nation possesses jurisdiction over lands acquired bythe Nation and placed into restricted fee status pursuant to SNLCSA, and thatsuch lands constitute Indian lands under IGRA. Seneca Niagara Casino and Hotelis located on lands so acquired, as is the Seneca Buffalo Creek Casinotemporary facility. It is possible that some person or group could successfullychallenge the Secretary’s conclusion that the Nation is authorized to use suchland for gaming purposes pursuant to IGRA. If the Secretary’s or the NIGC’s determination that the Nation isauthorized to use such land for gaming

 

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purposes pursuantto IGRA were successfully challenged, the Nation would be unable to conduct anygaming under IGRA at its current gaming facility in Niagara Falls or existinggaming facility in Erie County. However, such an adverse determination wouldnot affect the ability of the Nation to operate its Seneca Allegany Casino andHotel, which is located on existing Nation reservation territory.

 

***Citizens Against Casino Gambling in Erie County v. Kempthorne(1:06-cv-00001-WMS (WDNY)) (formerly Citizens Against Casino Gambling v.Norton)*****— CACGEC I**

 

In January 2006,an action was filed in the United States District Court, Western District ofNew York by various plaintiffs against the United States Department of the Interior,the National Indian Gaming Commission and three individuals in their officialcapacities as Secretary of the Interior, Acting Assistant Secretary of theInterior for Indian Affairs and Chairman of the NIGC.  The action seeksdeclaratory and injunctive relief under the Administrative Procedure Act, the DeclaratoryJudgments Act, the National Historic Preservation Act, or NHPA, the NationalEnvironmental Policy Act, or NEPA, and the Indian Gaming Regulatory Act and isprincipally directed at the decisions and actions of the defendants that permitthe construction and operation of our Seneca Buffalo Creek Casino.  Theplaintiffs claim that the defendants have failed to comply with NEPA, NHPA, andIGRA and have requested that the Court take numerous actions includingdeclaring that the twoparcels consisting of approximately nine acres in Buffalo, New York, or the Buffalo Parcels, acquired by the Nation pursuant to SNLCSA arenot Indian lands within the meaning of IGRA and declaring that the Nation’sCompact violates IGRA. On November 1, 2006, oral argument was heard on thedefendant’s motion to dismiss for lack of jurisdiction, on the Nation’s amicusmotion to dismiss based upon failure to join the Nation as a necessary partyand sovereign immunity, and on the plaintiff’s motion for summary judgment.

 

On January 12, 2007, the district court vacated the NIGC’sapproval of the Nation’s 2002 gaming ordinance as it pertains to gamingconducted on the Buffalo Parcels and remanded the decision to the NIGC todetermine whether the Buffalo Parcels constitute “Indian lands” underIGRA.  The court also granted thedefendant’s motion to dismiss for lack of subject matter jurisdiction, deniedthe Nation’s motion to dismiss (holding, in part, that the Nation was not anecessary party because the U.S. government’s interests were aligned with thoseof the Nation and that the U.S. government (through the U.S. Department ofJustice) was vigorously defending the case), and denied, as moot, the plaintiff’smotion for summary judgment.  In reaching its decision to dismiss on thebasis of a lack of subject matter jurisdiction, the court determined that,notwithstanding the U.S. Department of Interior’s prior determination that theNation’s Buffalo Creek Territory constitutes “Indian lands” within the meaningof the IGRA, the NIGC must make its own “Indian lands” determination, andordered that the Nation’s 2002 gaming ordinance (which had been approved by theNIGC) be vacated insofar as it permits Class III gaming on the Nation’sBuffalo Creek Territory. The court specifically limited its holding to theNation’s Buffalo Creek Territory. After the court denied the government’smotion for reconsideration, both the plaintiffs and the defendantsappealed.  On January 29, 2007, theU.S. Department of Justice filed a motion for reconsideration, which was deniedby the court on April 20, 2007, noting that the government asserted no newarguments.

 

On June 9, 2007, the Nation enacted and submitted to the NIGC an amended gaming site-specific Class III gaming ordinance.  The amended ordinance was identical to the prior approved ordinance, exceptthe new Ordinance’sdefinition of “NationLands” now contains a site-specific legal description of the BuffaloParcels.  The definition also states that the land specified isheld by the Nation in restricted fee pursuant to the SNLCSA.  On June 19, 2007, the defendants andplaintiffs filed notices of appeal.  On June 25,2007, the plaintiffs filed a motion for a stay of the proceedings remanded tothe NIGC pending the outcome of the appeal. The NIGC approved the new ordinance on July 2, 2007.  On July 3, 2007, the defendants filed anotice of NIGC approval of the ordinance revising the definition of “NationLands”.  On August, 6, 2007, thedefendants filed a response to the plaintiffs’ motion to stay, stating that thegaming ordinance at issue in this case is superseded by the Nation’s June 9,2007, site-specific ordinance, approved by the NIGC on July 2, 2007.  This, the U.S. argues, moots the case as tothe NIGC and moots the motion for a stay pending appeal.

 

The U.S. Department of Justice has discontinued its appeal of the January 12,2007 order in the initial CACGEC federal suit. On November 9, 2007, the Second Circuit Court of Appeals stayed theplaintiffs’ appeal pending the resolution of the second federal court actiondescribed below (*Citizens Against Casino Gambling v. Hogen*(1:07-cv-00451-WMS (WDNY)). On July 24, 2009, the Second Circuit Court ofAppeals issued an order withdrawing the appeal from active consideration byconsent without prejudice to reinstatement. On December 10, 2009, the SecondCircuit Court of Appeals granted the plaintiffs’ request for reactivation ofthe appeal.

 

Although the court permitted the Nation to file a brief as amicuscuriae, the Nation is not a party to this action, and as such, neither it norSGC has the ability to direct or control any aspect of the litigation.

 

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If the plaintiffs are successful, the Nation could be unable to conductany gaming upon lands acquired by the Nation pursuant to the SNLCSA.

 

***Citizens Against Casino Gambling in Erie County v. Hogen(1:07-cv-00451-WMS (WDNY))*****— CACGEC II**

 

On July 12, 2007, Citizens Against Casino Gambling in Erie County  (CACGEC) filed a second action in the United States District Court, Western District ofNew York against the United States Department of the Interior, the NIGC and twoindividuals in their official capacities as Secretary of the Interior andChairman of the National Indian Gaming Commission, respectively.  The action seeks declaratory and injunctiverelief under the Administrative Procedure Act, the Declaratory Judgments Act,and IGRA and is principally directed at the decisions and actions of thedefendants in approving the Nation’s Class III gaming ordinance, and theIndian land opinion issued by the Chairman relative to that approval.  The plaintiffs claim that the defendants havefailed to comply with federal law and have requested that the court takenumerous actions including declaring that the lands acquired by the Nationpursuant to SNLCSA are not Indian lands within the meaning of IGRA.

 

Plaintiffs moved for summary judgment and defendantsmoved to dismiss.  Neither the Nation nor SGC is party to thisaction.  The Nation filed an amicus brief on the “Indian lands” issues.

 

On July 8, 2008, the court issued its decisionand order finding (a) that the NIGC’s determination that the Nation’sBuffalo Creek Territory is “Indian country” was in accord with Congress’ intentin enacting the SNLCSA, and (b) that the NIGC’s July 2, 2007determination that the Nation’s Buffalo Creek Territory is gaming-eligible landpursuant to the IGRA’s settlement of a land claim exception is arbitrary,capricious, and not in accordance with the law.

 

The court’s decision didnot provide for injunctive relief, and SGC has continued its operations at theSeneca Buffalo Creek Casino.  Plaintiffs subsequently filed a motion on July 14,2008 to force the court to enforce its judgment.

 

In response to ongoing events in the litigation, on July 16, 2008,the Nation submitted a new gaming ordinance to the NIGC, so that the NIGC couldconsider the applicability of new Department of the Interior regulationsconcluding that lands like Buffalo Creek Territory are exempt from Section 20of IGRA’s prohibition on gaming.

 

On July 22, 2008, the United States filed amotion responding to the plaintiffs motion to enforce and requesting that thecase be remanded to the NIGC for further consideration. The remand motion isbased upon significant changes in the controlling law, as interpreted by theU.S. Department of the Interior.  The Nation simultaneously filed anamicus brief supporting the United States’ motion for remand to the NIGC andopposing the plaintiffs’ motion to enforce.  On August 26, 2008, thecourt issued its decision on the foregoing motions and granted the plaintiffs’request that the court enforce its July 8, 2008 decision and order to theextent that the NIGC and its Chairman are directed to carry out theirenforcement duties under IGRA. The plaintiffs’ motion was denied to the extentthat they requested an order that would divest the NIGC of its discretion todetermine the type of enforcement action to take.

 

On September 3, 2008, the Chairman of the NIGCissued a “notice of violation” or “NOV” to the Nation as a result of the August 26,2008 decision. The NOV asserts that the Nation has violated IGRA by operatingthe Seneca Buffalo Creek Casino without an approved Class III gamingordinance for that facility because the gaming ordinance for those landsauthorized gaming on lands in Buffalo that the district court deemed ineligiblefor gaming.  The NOV further states that although the NIGC disagrees withthe district court’s interpretation of IGRA regarding the Buffalo Parcels’eligibility for gaming under IGRA, the NIGC, at the current time, was bound bythe district court’s ruling as to this particular land parcel absentreconsideration by the district court or reversal on any appeal. Consequently, the Chairman issued the NOV. The NOV was not accompanied by aclosure order or an assessment of a civil fine. The NOV further states that theChairman of the NIGC may modify the measures required to correct the allegedviolation if the NIGC approves the Nation’s July 16, 2008 gaming ordinanceamendments.  The Nation immediatelyappealed the NOV issuance and the administrative appeal is still pending beforean independent administrative law judge. The NIGC requested a stay of the NOVappeal.

 

On October 21, 2008, the plaintiffs filed amotion seeking an order from the court that would require the Chairman of theNIGC to issue orders immediately halting gaming at the Seneca Buffalo Creekfacility and holding the NIGC Chairman in contempt for not doing so sooner.

 

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On October 24, 2008, the U.S. Department of Justice filed anotice of appeal relating to the court’s July 8, 2008 ruling on whethergaming is permitted on Nation lands in Buffalo, in addition to the court’s August 26,2008 orders (directing the NIGC to issue the NOV and denying the U.S.government’s motion to remand the case to the NIGC for an administrativedecision on the basis of significant changes in controlling regulation).

 

On November 4, 2008, the Seneca Nation of Indians filed a motionfor leave to file an amicus brief in response to the plaintiffs’ motion toenforce and motion to hold NIGC Chairman Hogen in contempt for failing to closethe Buffalo Creek casino.  The United States also filed a response on thatday.  On November 14, 2008, the plaintiffs filed a reply briefrequesting additional time to respond to the Nation’s amicus brief if the courtgranted the Nation’s motion allowing it to submit an amicus brief.  On November 17,2008, the court granted the Nation’s motion to file the amicus brief and to beheard at argument.  The court further ordered that the Nation formallyfile its amicus brief by November 20, 2008, which it did, and set a December 2,2008 deadline for filing responses to the Nation’s brief.

 

On December 2, 2008, the plaintiffs filed their response to theNation’s amicus brief.  On January 20,2009, NIGC Chairman Hogen approved the SNI’s amended ordinance.  The court reviewed the Chairman’s findingsand found them to be predicated on an analysis different from any advanced bythe parties.  This new analysis ispresumed valid unless and until it becomes the subject of a successful legalchallenge.  As such, the Chairman’sJanuary 20, 2009 ordinance approval rendered moot the plaintiffs’ motion toenforce the Court’s vacatur of the July 2, 2007 ordinance approval.  Accordingly, on January 30, 2009, the courtdenied the plaintiffs’ October 21, 2008 motion for order to enforce.

 

If the plaintiffs are successful, the Nation could be unable to conductany Class III gaming upon lands acquired by the Nation pursuant to theSNLCSA, including the Buffalo Creek Territory.

 

**Citizens Against Casino Gambling in Erie County v.Hogen (1:2009-cv-00291 (WDNY)) — CACGEC III**

 

On March 31, 2009, Citizens Against Casino Gambling in ErieCounty  (CACGEC) filed a third action inthe United States District Court, Western District of New York against theChairman of the NIGC, the United States Department of the Interior, the NIGC,the Secretary of the Interior and the President of the United States.  The action seeks declaratory and injunctiverelief under the Administrative Procedure Act, the Declaratory Judgments Act,and the Indian Gaming Regulatory Act and is principally directed at thedecision by the NIGC Chairman, on January 20, 2009, to approve the SenecaNation’s amendments to its Class III Gaming Ordinance regarding the Nation’sBuffalo Creek Territory.  The NIGCChairman concluded that IGRA’s general prohibition against gaming on landsacquired after its enactment in 1988 does not apply to lands, such as theBuffalo Creek Territory, that are held in restricted fee.   The plaintiffs claim that, in approving theNation’s Class III Gaming ordinance on January 20, 2009, the NIGCChairman ignored the intention of Congress. The plaintiffs also make several claims that go beyond their priorlawsuits.  Most notably, they challengethe constitutionality of the land purchase provisions contained in the SNLCSA,and attempt to challenge in a more extensive fashion than they had previouslythe validity of the Nation-State Gaming Compact.

 

On June 15, 2009, the Nation moved to intervene as a defendant inCACGEC III.  The Nation’s proposedintervention and participation as a defendant are expressly restricted to thethree claims for relief specified in the plaintiffs’ complaint, namely:  (1) whether, as restricted fee landsover which the Nation exerts governmental authority, the Buffalo CreekTerritory qualifies as “Indian lands” under IGRA; (2) whether the BuffaloCreek Territory is subject to the general prohibition found in section 2719 ofIGRA against gaming on trust lands acquired after IGRA’s effective date eventhough the Territory consists of restricted fee, rather than trust, lands; and (3) whether,if the Buffalo Creek Territory is subject to Section 2719’s generalprohibition, Class III gaming may nevertheless proceed on it because theBuffalo Creek Territory was acquired in settlement of a land claim.

 

The plaintiffs are opposing the Nation’s motion which is pending beforethe Court.

 

The United States has filed a motion for partial dismissal.  The motion remains pending.

 

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If the plaintiffs ultimately succeed in this action,or in their pending appeals in the CACGEC I and CACGEC II proceedings, the SGCmay be unable to conduct any Class III gaming at its existing properties.

 

***Scott v. Pataki (NYS Supreme Court, Erie County, Index No. 001189/06)***

 

On February 1, 2006,an action was filed in the New York Supreme Court, County of Erie, by variouspetitioners against George E. Pataki, in his official capacity as Governor ofthe State of New York; State Gaming Officials of the New York State WageringBoard; City of Buffalo; Common Council of the City of Buffalo; Anthony Masielloin his previous capacity as Mayor of Buffalo; Byron Brown in his capacity asMayor of Buffalo; City of Buffalo Department of Public Works; Buffalo SewerAuthority; and Niagara Frontier Transportation Authority.  The actioninitially sought declaratory and injunctive relief under the StateEnvironmental Quality Review Act, or SEQRA; the First Parks, Recreation,Historic Preservation Law, or PRHPL; First City Environmental Review Ordinance,or CERO; and Freedom of Information Law, or FOIL, and is principally directedat the decisions and actions of the defendants in connection with our SenecaBuffalo Creek Casino.  The plaintiffs initially claimed that thedefendants had failed to comply with SEQRA, PRHPL, CERO and FOIL and requestedthat the court take numerous actions including directing compliance with SEQRA,PRHPL, CERO and FOIL and restraining further action relating to the developmentof our Seneca Buffalo Creek Casino.  In May 2006, the petitionersfurther sought to enjoin demolition activity on the nine acre casino site, butthe court declined to grant a preliminary injunction preventingdemolition.  In June 2006, the petitioners amended their Petition todrop their claims against Governor Pataki, the State Gaming Officials and theNiagara Frontier Transportation Authority, and added the Buffalo Department ofEconomic Development, Permits and Inspections as a party. The amended Petitionalso dropped all claims except for the SEQRA and CERO claims. In October 2006,the plaintiffs moved for an injunction to prevent an agreement between SEGC andthe City of Buffalo (relating to the development of the Seneca Buffalo CreekCasino) from being executed and performed, which motion was denied based upon afailure to show a likelihood of success on the merits.  The plaintiffsappealed this ruling to the New York Supreme Court Appellate Division.  OnMarch 16, 2007, the Appellate Division unanimously affirmed the denial ofthe injunction.

 

A hearing was held on themerits of the petition in September 2007.  On July 3, 2008, theCourt dismissed the Petitioners’ claims holding: (1) that the CommonCouncil of the City of Buffalo properly reviewed the environmental impact ofthe construction of the Buffalo Creek Casino, and fully complied with SEQR andCERO; (2) that the abandonment and sale of Fulton Street was properlyapproved by the Common Council of the City of Buffalo; (3) that the Nationis a necessary and indispensible party to the lawsuit; and (4) thatPetitioner’s substantive claims are without merit.

 

On November 13, 2009, theNYS Supreme Court, Appellate Division unanimously affirmed the July 3, 2008decision.

 

If the plaintiffs were successful, the Nation could have been delayed inthe completion of the expansion of Seneca Buffalo Creek Casino temporaryfacility.  Certain of these petitioners are also plaintiffs in the federallawsuits filed by Citizens Against Casino Gambling in Erie County referencedabove.

*** ***

***Warren v. United States (1:06-c-00226-JTE (WDNY))***

 

On or about April 6,2006, an action was filed in the United States District Court, Western Districtof New York, by Daniel T. Warren, a pro se plaintiff, against the United Statesof America, the United States Department of the Interior, the National IndianGaming Commission, and five individuals in their official capacities as ActingSecretary of the Interior, Acting Assistant Secretary of the Interior forIndian Affairs and Chairman of the National Indian Gaming Commission, as wellas Governor George E. Pataki, as Governor of the State of New York, and CherylRitchko-Buley, as Chairwoman of the New York State Racing and Wagering Board.The action initially sought declaratory and injunctive relief as to numerousmatters including declaring that IGRA is unconstitutional, that the Compactviolates IGRA, that the New York Constitution is not preempted by IGRA, thatNew York does not have the authority under state law to enter into a tribalstate compact under IGRA, that certain actions of the defendants were not inaccordance with law, and that certain lands purchased by the Nation were notsubject to being taken into trust or restricted fee status under the SNLCSA orwere not pursuant to settlement of a land claim within the meaning of IGRA; andenjoining the defendants from taking actions which would further casinogambling in the State of New York under IGRA or on any lands acquired by theNation pursuant to SNLCSA. On August 16, 2006, the plaintiff amended hiscomplaint bringing: a Tenth Amendment challenge to IGRA; a claim that theCompact violates IGRA by providing for gaming which is not otherwise lawful inNew York; a claim that both the Compact and the statute authorizing theGovernor of New York to enter into the Compact violate various provisions ofthe New York State Constitution; and a claim that the United States has failedto promulgate regulations for gaming on off-reservation territory, 

 

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in violation of itsstatutory duties.  The effect of suchamendment was to limit the claims remaining in the case, by dropping many ofthe federal law claims in the original complaint.

 

On December 1, 2006,the court heard argument on the plaintiff’s motion to join (1) Barry E.Snyder, Sr., as President of the Nation; (2) John Pasqualoni, asPresident and CEO of SGC; (3) the Nation; and/or (4) SGC, asadditional defendants.

 

On October 5, 2007,the plaintiff filed a motion to further amend the complaint to include asdefendants (1) Maurice John, as President of Nation; (2) E. BrianHansberry, as the new President and CEO of SGC (replacing John Pasqualoni); (3) theNation; and (4) SGC.  On October 25,2007, the Nation filed a response in opposition to that motion asserting that (1) themotion to amend the complaint was not properly before the court because it ispremised upon a finding that the Nation is a necessary and indispensible party,and (2) the motion to amend is futile because the Nation and its officersare protected by sovereign immunity.  On August 11,2008, the court ordered the clerk to strike the Nation’s responses to motionsfiled by plaintiff because the Nation had not been granted permission toparticipate as amicus curiae and had not renewed its motion in thatregard.  On August 22, 2008, theNation filed a motion for leave to file brief amicus curiae.

 

On March 16, 2009, theplaintiff filed a motion to amend/correct the amended complaint.  On March 23, 2009, the court dismissedas moot both plaintiff’s October 5, 2007 motion to amend/correct the amendedcomplaint and the Nation’s August 22, 2008 motion for leave to file briefamicus curiae in opposition to the plaintiff’s motion.  On April 29, 2009, the Nation filed amotion for leave to appear as amicus curiae. On June 15, 2009, the court granted the Nation’s April 29,2009 request to file a brief amicus curiae. On June 16, 2009, the Nation filed its response to plaintiff’s March 16,2009 motion to amend/correct the amended complaint.

 

Dispositive motions todismiss on behalf of both the plaintiff and the defendants have not yet beenheard by the court.  In addition, stillpending before the court is the motion on behalf of the Seneca entities andofficers in opposition to being joined as defendants to the lawsuit on, amongother things, sovereign immunity grounds. If the plaintiff is successful in this lawsuit, the Nation would beunable to conduct any Class III gaming upon lands acquired pursuant toSNLCSA.

 

**The current review by the NIGC of the Nation’suse of gaming revenues could materially adversely affect our operations.**

** **

In December of 2006, the NIGC notified the Nationthat it would be commencing a review of the Nation’s use of gaming revenuesstarting in January 2007.  The NIGCsent its inspection team on-site three times during February and March of2007 to review Nation financial records for fiscal years 2005 and 2006.  On March 7, 2007, following a request bythe Nation that the NIGC clarify the scope of documents its inspection team isreviewing, the NIGC issued a subpoena to obtain certain documents needed tocomplete their review.  On March 8,2007, Nation and SGC staff met with the NIGC inspection team to obtainclarification on the scope of the review and the documents being sought.  The Nation has been cooperating with the NIGCinspection team and has made Nation and SGC staff available to answer questionsthat have arisen during the course of the inspection team’s review.  The NIGC’s review of the Nation’s use of netgaming revenues is ongoing.  There is notimeline within which the NIGC must complete its review.

 

Under IGRA, net revenues from tribal gaming operationsmay only be used for the following purposes: (i) to fund tribal governmentoperations or programs; (ii) to provide for the general welfare of theIndian tribe and its members; (iii) to promote economic development; (iv) todonate to charitable organizations; or (v) to help fund operations oflocal government agencies. Under IGRA tribal member distributions of net gamingrevenues may only be made pursuant to a revenue allocation plan approved by theBureau of Indian Affairs, Department of the Interior, or DOI. The Nation makestribal member distributions from revenues it receives from our Head Leasepayments. If the NIGC or DOI determines that the tribal member distributionsfrom the operating lease payments are distributions of net gaming revenuessubject to IGRA’s requirements, it may attempt to take enforcement actionsagainst the Nation.

 

IGRA provides for civil penalties for a violation ofthe provisions of IGRA or the regulations promulgated by the NIGC. Such civilenforcement actions include without limitation: notices of violation, issuanceof temporary or permanent closure orders, and assessment of civil fines of upto $25,000 per violation. IGRA also provides for an opportunity for an appealand hearing before the NIGC with respect to any civil penalty imposed. Judicialreview also remains available. We cannot predict the outcome of the NIGC’scurrent review of the Nation’s use of net gaming revenues. If the NIGCdetermines that the Nation has violated IGRA and takes enforcement actionsagainst the Nation, such actions may materially adversely affect our ability toconduct our gaming operations as currently conducted.

 

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**SNFGC may be subject to material liabilities arising out of thecondemnation process through which it is acquiring lands in the 50-acrefootprint in the City of Niagara Falls, New York.**

** **

In 2002 and pursuant to the Compact, the Nationacquired from the State of New York approximately 24 acres of land and relatedimprovements in the City of Niagara Falls, New York, including the then-NiagaraFalls Convention Center.  The State of NewYork further agreed in the Compact to assist the Nation in whatever mannerappropriate, including through the exercise of its power of eminent domain, toacquire the remaining acreage within the approximately 50-acre footprint in theCity of Niagara Falls, New York, designated by New York State under the Compactfor ownership by the Nation. The Compact specifically excluded approximately1.5 acres of land within the footprint owned by a Roman Catholic Church.  Additionally, in July 2006, the Nationagreed to waive its right to acquire approximately one half acre of additionalland within the footprint owned by End Time Handmaidens, Inc., a religiousorganization.  In return for the waiver,the Nation obtained a right of first negotiation and refusal with respect tothe future sale of the parcels.  As aresult of the carve-out relating to the parcels owned by the Roman CatholicChurch, and the Nation’s agreement with End Time Handmaidens, the total acreageof the Niagara Territory upon completion of the condemnation process isanticipated to be approximately 48 acres.

 

We have obtainedpossession of, either through eminent domain proceedings or private purchase,substantially all of the remaining acreage within the footprint, other thancertain streets and alleys owned by the City of Niagara Falls providing accessto the above church parcels, and a bicycle path owned by the New York StateDepartment of Transportation. We expect to acquire the above Niagara Falls citystreet and alley parcels by early 2010, with acquisition of the NYSDOT bikepath requiring further dialogue with New York State.

 

With the exception ofapproximately 2 acres of land and a hotel property within the footprintacquired for $7.9 million through a private sale in December 2005, substantiallyall of our post-2002 real property acquisitions in Niagara Falls, NY have beenpursuant to New York State Eminent Domain Procedure Law, or EDPL, using theState’s power of eminent domain (through the Empire State DevelopmentCorporation, or ESDC).

 

The amounts paid tocondemnees from whom we have acquired property are deemed to be advancepayments. Pursuant to the EDPL, the New York state courts will determine thefinal purchase price to be paid to condemnees who elect to challenge theinitial appraised value of their property. To date, all record owners from whom property was condemned pursuant tothe EDPL have reserved rights to claim additional compensation.

 

Fallsite LLC andFallsville Splash, LLC have filed notices of claim in the amounts of $40.0million and $35.0 million for land and trade fixtures, respectively, relatingto a former water park within the footprint. ESDC’s fair market appraisal value for the foregoing was approximately$17.0 million.  If a court determinesthat the value for the land and improvements, including trade fixtures, ishigher than what ESDC has determined to be their appraised values, then we maybe liable for the difference and potentially also responsible for certainadditional costs and payments to the applicable condemnee(s), such as theirattorneys’ fees.  The valuation trialproceedings with regard to the former water park are complete, but a finaljudgment is still pending.

 

Intertrust Developmenthad filed a notice of claim for $15.8 million for land and trade fixturesassociated with a former Holiday Inn hotel within the footprint. ESDC’s fairmarket appraisal value for the foregoing was $8.2 million (excludingfixtures).  We have agreed to asettlement of this matter with Intertrust, whereby Intertrust has received anadditional $3.8 million in addition to the appraisal value of $8.2 million, andwe have agreed to purchase, for our business promotional use, tickets toFallsview Waterpark, an affiliate of Intertrust, for $2.5 million to be paid inthree installments over three years. Pursuant to the stipulation of settlement, Intertrust has executed arelease of SNFGC, ESDC and the Seneca Nation of Indians with respect to thevaluation proceeding, and ESDC and Intertrust shall file a stipulation ofdiscontinuance.

 

JFD Holdings has filed anotice of claim for $1.1 million for a parcel of land at 621 Niagara Streetwithin the footprint.  ESDC’s fair marketappraisal for the foregoing is approximately $550,000.  No trial date has yet been set.

 

Also, three individualshave filed notices of claim with respect to four parcels within the footprintseeking $955,000, in aggregate, for the four parcels.  ESDC’s fair-market appraisal for the fourproperties, in aggregate, is $185,000. No trial dates have been set.

 

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If a court determinesthat the value for the land and improvements is higher than the appraised valuewe paid to a condemnee, then we may be liable to the condemnee for thedifference and potentially also responsible for certain additional costs andpayments to the condemnee, such as attorneys’ fees. As of September 30,2009, $1.7 million of the previously recorded reserve of $6.4 million remainedfor such matters and is included in the current and long-term liabilitiessections on SGC’s consolidated balance sheet. Should our liability be greater than our reserve for such matters, itcould have a negative impact on our income and financial condition.

 

**We may be subject to materialenvironmental liability as a result of unknown environmental hazards.**

 

Under various federal, state and local environmentallaws, ordinances and regulations, a current or previous owner or operator ofreal estate may be required to investigate and clean up hazardous or toxicsubstances or chemical releases on or relating to its property and may be heldliable to a governmental entity or to third parties for property damage,personal injury and for investigation and cleanup costs incurred by suchparties in connection with the contamination. Such laws typically imposecleanup responsibility and liability without regard to whether the owner knewof or caused the presence of contaminants. The costs of investigation,remediation or removal of such substances may be substantial. Although neitherwe or the Nation has waived our or its sovereign immunity with regard to suchfederal, state and local environmental legislation, the existence or discovery ofan 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 inpart on common law trade name protection to protect certain of our trademarks.**

 

We rely in part on federal and in part on common lawtrade name protection to protect certain of our trademarks. We may face claimsby third parties for alleged trade name infringement. Any resulting claims, ifsuccessful, could require us to cease using one or more of the names used inour business or require us to pay to use these names.

 

**Any adverse changes in the laws regulating our gaming operations or ourfailure to maintain licenses required under gaming laws and regulations andother permits and approvals required under applicable laws and regulationscould have a material adverse effect on our ability to conduct gamingoperations and to fulfill our financial obligations, including the seniornotes.**

** **

Gaming on the Nation’s land is regulated by Nation laws, the Compact andfederal statutes, most notably the IGRA. Several bills have been proposedduring the recent sessions of Congress that could affect Indian gaming. Certainof such 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. No assurance canbe given that such legislation, if and when enacted by Congress, would not havea material adverse effect on our operations. In addition, under federal law,gaming on the Nation’s lands may be dependent upon the continued permissibilityunder New York law of certain forms of gaming or similar activities. If NewYork 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 the Compact or any of its provisions, such actions couldaffect the ability of the Nation to conduct those forms of gaming under theCompact, which could have a material adverse effect on our ability to conductour gaming operations as currently conducted. Moreover, the 1996 U.S. SupremeCourt decision in *Seminole Tribe of Florida v. Florida*may permit a state to avoid or refuse to negotiate amendments to existingcompacts such as the Compact.

 

The operation of all gaming on Indian lands is subject to IGRA. For thepast several years, legislation has been introduced in Congress designed toamend this Act. Most of the proposals that have been seriously considered wouldbe prospective in effect and have contained clauses that would grandfatherexisting Indian gaming operations such as Seneca Niagara Casino and Hotel,Seneca Allegany Casino and Hotel, and Seneca Buffalo Creek Casino. However,certain legislative acts have also proposed repealing many of the provisions ofIGRA. 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 outstanding debt and other financial obligations could be adverselyaffected.

 

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Under the Compact and federal, state and Nation law, we are required tomaintain certain licenses, permits and approvals in order to conduct gamingoperations. Failure to maintain such licenses, permits and approvals could havea material adverse affect on our ability to conduct gaming operations and tofulfill our financial obligations, including the senior notes.

 

**Regulatoryactions by the Seneca Gaming Authority could affect our operations adversely.**

 

SGC’s gaming operations are subject to the supervision and regulationof the Seneca Gaming Authority, or SGA, discussed above under “Item 1 —Business Seneca Gaming Corporation and the Nation — Seneca Gaming Authority andClass III Gaming Ordinance.”  We believethat our regulatory environment may be more restrictive and involve a higherdegree of regulatory oversight than in many jurisdictions, including New Jerseyand Nevada.  We believe that the SGA’s enforcement andcompliance activities, generally, have resulted in greater compliance-relatedcosts (including time of management, and legal and accounting costs),operational inefficiencies and competitive disadvantages, and have had negativeeffects on SGC’s ability to retain and recruit key personnel due to perceiveddifferences between our regulatory environment and that found in otherjurisdictions.

 

**Item 1B.  Unresolved StaffComments**

 

Notapplicable

 

**Item2.   Properties**

 

Ourthree casinos and related amenities (other than the Hickory Stick Golf Coursein Lewiston, NY) are located on land held in restricted fee by the Nation,which, together with rights under the Compact, allows us to conduct Class IIIgaming operations in Western New York. Our subsidiaries lease the land for each casino from the Nation pursuantto leases (Head Leases) with the Nation. We believe our existing properties collectively are sufficient toconduct our operations.  See “Item 3 — LegalProceedings” for a description of ongoing litigation, some of which relates toour right to conduct gaming operations on these properties.

 

***Seneca Niagara Casino and Hotel.***    Seneca Niagara Casino and Hotel islocated on Nation Territory in Niagara Falls, New York. Seneca Niagara Casinoand Hotel is located approximately 20 miles north of Buffalo, New York andapproximately 90 miles west of Rochester, New York.

 

Pursuant tothe Compact, the Nation may acquire property and establish gaming facilities inthe City of Niagara Falls within the boundaries of the approximately 50 acrearea of land described in Appendix I of the Compact and designated as land tobe developed 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 the Nation’s Allegany Territory. The Compact authorizes theNation to use funds appropriated under the SNLCSA to acquire parcels of land inNiagara Falls and Erie County for gaming purposes.

 

SNFGC hasacquired approximately 45 of the 50 acres of the land in the City of NiagaraFalls, New York, designated by New York State under the Compact for ownershipby the Nation, thus reducing the remaining acreage to be acquired toapproximately 3 acres (SNFGC has waived its right to acquire approximately twoacres of land designated in the Compact for ownership by the Nation, in returnfor a right of first refusal to purchase such property if this two-acre parcelis offered for sale in the future by its owners, a religiousorganization).  See “Item 1A — RiskFactors— SNFGC may be subject to material liabilities arising out of thecondemnation process through which it is acquiring lands in the 50-acrefootprint in the City of Niagara Falls, New York” for further description ofthe Niagara Falls condemnation proceedings.

 

The Nationhas acquired from SNFGC approximately 24 acres (of the approximate 50 acresdescribed in Appendix I of the Compact) with funds appropriated under theSNLCSA in Niagara Falls. By operation of federal law, these lands and otherparcels that may be acquired in the future pursuant to the SNLCSA (whether 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. Seneca Niagara Casinoand Hotel and its 2,130 space parking garage are situated on 

 

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the Nation’srestricted fee lands.

 

In March 2006,we acquired 257 acres of land with the intent to design and build achampionship level golf course in Lewiston, New York, approximately 8 milesfrom Seneca Niagara Casino and Hotel.  Weselected the Robert Trent Jones II firm to design the golf course.  The project is nearing completion and is beingdeveloped by LGCC as an amenity to the Seneca Niagara Casino and Hotel.

 

For furtherinformation relating to the real estate acquisitions of the Nation, SGC and itssubsidiaries, see “Item 1 — Business — Seneca Niagara Casino and Hotel —Niagara Falls Real Estate Acquisitions,” above.

 

***Seneca Allegany Casino and Hotel.***    Seneca Allegany Casino and Hotel islocated on the Nation’s Allegany Territory in the City of Salamanca, New York.STGC leases the land on which Seneca Allegany Casino and Hotel is located fromthe Nation. Seneca Allegany Casino and Hotel is located immediately offInterstate 86, approximately 70 miles south of Niagara Falls, New York and iswithin 75 miles of Erie, Pennsylvania, and 165 miles of Cleveland and Akron,Ohio and Pittsburgh, Pennsylvania. The land upon which the Nation owns and STGCoperates Seneca Allegany Casino and Hotel is situated within the Nation’sterritorial boundaries, and is therefore eligible for gaming pursuant to IGRA.

 

***Seneca Buffalo Creek Casino.***    The temporary Seneca Buffalo CreekCasino is located on approximately nine acres of land in the inner harbordistrict of Buffalo, New York, which constitute the Nation’s Buffalo CreekTerritory.  SEGC leases the land on whichthe temporary Seneca Buffalo Creek Casino is located from the Nation.  The land on which the temporary casino islocated was acquired by the Nation using funds appropriated under the SNLCSA.

 

**Item3.  Legal Proceedings**

 

***CitizensAgainst Casino Gambling in Erie County v. Kempthorne (1:06-cv-00001-WMS (WDNY))(formerly Citizens Against Casino Gambling v. Norton)*****— CACGEC I**

 

In January 2006, an action was filed in the United States DistrictCourt, Western District of New York by various plaintiffs against the UnitedStates Department of the Interior, the National Indian Gaming Commission andthree individuals in their official capacities as Secretary of the Interior,Acting Assistant Secretary of the Interior for Indian Affairs and Chairman ofthe NIGC.  The action seeks declaratory and injunctive relief under theAdministrative Procedure Act, the Declaratory Judgments Act, the NationalHistoric Preservation Act, or NHPA, the National Environmental Policy Act, orNEPA, and the Indian Gaming Regulatory Act and is principally directed at thedecisions and actions of the defendants that permit the construction andoperation of our Seneca Buffalo Creek Casino.  The plaintiffs claim thatthe defendants have failed to comply with NEPA, NHPA, and IGRA and haverequested that the court take numerous actions including declaring that the two parcels consisting of approximatelynine acres in Buffalo, New York, or the Buffalo Parcels, acquired by the Nation pursuant to SNLCSA arenot Indian lands within the meaning of IGRA and declaring that the Nation’sCompact violates IGRA. On November 1, 2006, oral argument was heard on thedefendant’s motion to dismiss for lack of jurisdiction, on the Nation’s amicusmotion to dismiss based upon failure to join the Nation as a necessary partyand sovereign immunity, and on the plaintiff’s motion for summary judgment.

 

On January 12, 2007, the district court vacatedthe NIGC’s approval of the Nation’s 2002 gaming ordinance as it pertains togaming conducted on the Buffalo Parcel and remanded the decision to the NIGC todetermine whether the Buffalo Parcels constitute “Indian lands” underIGRA.  The court also granted thedefendant’s motion to dismiss for lack of subject matter jurisdiction, deniedthe Nation’s motion to dismiss (holding, in part, that the Nation was not anecessary party because the U.S. government’s interests were aligned with thoseof the Nation and that the U.S. government (through the U.S. Department ofJustice) was vigorously defending the case), and denied, as moot, the plaintiff’smotion for summary judgment.  In reaching its decision to dismiss on thebasis of a lack of subject matter jurisdiction, the court determined that,notwithstanding the U.S. Department of the Interior’s prior determination thatthe Nation’s Buffalo Creek Territory constitutes “Indian lands” within themeaning of the IGRA, the NIGC must make its own “Indian lands” determination,and ordered that the Nation’s 2002 gaming ordinance (which had been approved bythe NIGC) be vacated insofar as it permits Class III gaming on the Nation’sBuffalo Creek Territory. The court specifically limited its holding to theNation’s Buffalo Creek Territory. After the court denied the government’smotion for reconsideration, both the plaintiffs and the defendantsappealed.  On January 29, 2007, theU.S. Department of Justice filed a motion for reconsideration, which was deniedby the court on April 20, 2007, noting that the government asserted no newarguments.

 

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On June 9, 2007,the Nation enacted and submitted to the NIGC anamended gaming site-specificClass III gaming ordinance. The amended ordinance was identical to the priorapproved ordinance, except the new Ordinance’s definition of “Nation Lands” now containsa site-specific legal description of the Buffalo Parcels.  The definition also states that the land specified isheld by the Nation in restricted fee pursuant to the SNLCSA.  On June 19, 2007, the defendants andplaintiffs filed notices of appeal.  On June 25,2007, the plaintiffs filed a motion for a stay of the proceedings remanded tothe NIGC pending the outcome of the appeal. The NIGC approved the new ordinance on July 2, 2007.  On July 3, 2007, the defendants filed anotice of NIGC approval of the ordinance revising the definition of “NationLands.”  On August, 6, 2007, thedefendants filed a response to the plaintiffs’ motion to stay, stating that thegaming ordinance at issue in this case is superseded by the Nation’s June 9,2007, site-specific ordinance, approved by the NIGC on July 2, 2007.  This, the U.S. argues, moots the case as tothe NIGC and moots the motion for a stay pending appeal.

 

The U.S. Department of Justice has discontinued itsappeal of the January 12, 2007 order in the initial CACGEC federalsuit.  On November 9, 2007, theSecond Circuit Court of Appeals stayed the plaintiffs’ appeal pending theresolution of the second federal court action described below (*Citizens Against Casino Gambling in Erie County v. Hogen*(1:07-cv-00451-WMS (WDNY)). On July 24, 2009, the Second Circuit Court ofAppeals issued an order withdrawing the appeal from active consideration byconsent without prejudice to reinstatement. On December 10, 2009, the SecondCircuit Court of Appeals granted the plaintiffs’ request for reactivation ofthe appeal.

 

Although the court permitted the Nation to file abrief as amicus curiae, the Nation is not a party to this action, and as such,neither it nor SGC has the ability to direct or control any aspect of thelitigation.

 

If the plaintiffs are successful, the Nation could beunable to conduct any gaming upon lands acquired by the Nation pursuant to theSNLCSA.

 

***CitizensAgainst Casino Gambling in Erie County v. Hogen (1:07-cv-00451-WMS (WDNY))*****— CACGEC II**

 

On July 12, 2007, Citizens Against Casino Gambling in Erie County (CACGEC) filed a second action in the United States District Court, Western District ofNew York against the United States Department of the Interior, the NIGC and twoindividuals in their official capacities as Secretary of the Interior andChairman of the National Indian Gaming Commission, respectively.  The action seeks declaratory and injunctiverelief under the Administrative Procedure Act, the Declaratory Judgments Act,and the Indian Gaming Regulatory Act and is principally directed at thedecisions and actions of the defendants in approving the Nation’s class IIIgaming ordinance, and the Indian land opinion issued by the Chairman relativeto that approval.  The plaintiffs claimthat the defendants have failed to comply with federal law and have requestedthat the Court take numerous actions including declaring that the landsacquired by the Nation pursuant to SNLCSA are not Indian lands within themeaning of IGRA.

 

Plaintiffs moved forsummary judgment and defendants moved to dismiss.  Neither the Nation norSGC is party to this action.  The Nation filed an amicus brief on the “Indianlands” issues.

 

On July 8, 2008, thecourt issued its decision and order finding (a) that the NIGC’sdetermination that the Nation’s Buffalo Creek Territory is “Indian country” wasin accord with Congress’ intent in enacting the SNLCSA, and (b) that theNIGC’s July 2, 2007 determination that the Nation’s Buffalo CreekTerritory is gaming-eligible land pursuant to the IGRA’s settlement of a land claimexception is arbitrary, capricious, and not in accordance with the law.

 

Thecourt’s decision did not provide for injunctive relief, and SGC has continuedits operations at the Seneca Buffalo Creek Casino.  Plaintiffssubsequently filed a motion on July 14, 2008 to force the court to enforceits judgment.

 

In response to ongoingevents in the litigation, on July 16, 2008, the Nation submitted a newgaming ordinance to the NIGC, so that the NIGC could consider the applicabilityof new Department of the Interior regulations concluding that lands likeBuffalo Creek Territory are exempt from Section 20 of IGRA’s prohibitionon gaming.

 

On July 22, 2008,the United States filed a motion responding to the plaintiffs motion to enforceand requesting that the case be remanded to the NIGC for further consideration.The remand motion is based upon significant changes in the controlling law, asinterpreted by the U.S. Department of the Interior.  The Seneca Nation ofIndians simultaneously filed an amicus brief supporting the United States’motion for remand to the NIGC and opposing the plaintiffs’ motion toenforce.  On August 26, 

 

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2008, the court issuedits decision on the foregoing motions and granted the plaintiffs’ request thatthe court enforce its July 8, 2008 decision and order to the extent thatthe NIGC and its Chairman are directed to carry out their enforcement dutiesunder IGRA. The plaintiffs’ motion was denied to the extent that they requestedan order that would divest the NIGC of its discretion to determine the type ofenforcement action to take.

 

On September 3,2008, the Chairman of the NIGC issued a “notice of violation” or “NOV” to theNation as a result of the August 26, 2008 decision. The NOV asserts thatthe Nation has violated IGRA by operating the Seneca Buffalo Creek Casinowithout an approved Class III gaming ordinance for that facility becausethe gaming ordinance for those lands authorized gaming on lands in Buffalo thatthe district court deemed ineligible for gaming.  The NOV further statesthat although the NIGC disagrees with the district court’s interpretation ofIGRA regarding the Buffalo Parcels’ eligibility for gaming under IGRA, theNIGC, at the current time, was bound by the district court’s ruling as to thisparticular land parcel absent reconsideration by the district court or reversalon any appeal.  Consequently, the Chairman issued the NOV. The NOV was notaccompanied by a closure order or an assessment of a civil fine. The NOVfurther states that the Chairman of the NIGC may modify the measures requiredto correct the alleged violation if the NIGC approves the Nation’s July 16,2008 gaming ordinance amendments.  TheNation immediately appealed the NOV issuance and the administrative appeal isstill pending before an independent administrative law judge. The NIGCrequested a stay of the NOV appeal.

 

On October 21, 2008,the plaintiffs filed a motion seeking an order from the court that wouldrequire the Chairman of the NIGC to issue orders immediately halting gaming atthe Seneca Buffalo Creek facility and holding the NIGC Chairman in contempt fornot doing so sooner.

 

OnOctober 24, 2008,the U.S. Department of Justice filed a notice of appeal relating to the court’sJuly 8, 2008 ruling on whether gaming is permitted on Nation lands inBuffalo, in addition to the court’s August 26, 2008 orders(directing the NIGC to issue the NOV and denying the U.S. government’s motionto remand the case to the NIGC for an administrative decision on the basis ofsignificant changes in controlling regulation).

 

On November 4, 2008, the Seneca Nation of Indiansfiled a motion for leave to file an amicus brief in response to the plaintiffs’motion to enforce and motion to hold NIGC Chairman Hogen in contempt forfailing to close the Buffalo Creek casino.  The United States also filed aresponse on that day.  On November 14, 2008, the plaintiffs filed areply brief requesting additional time to respond to the Nation’s amicus briefif the court granted the Nation’s motion allowing it to submit an amicusbrief.  On November 17, 2008, the court granted the Nation’s motionto file the amicus brief and to be heard at argument.  The court furtherordered that the Nation formally file its amicus brief by November 20,2008, which it did, and set a December 2, 2008 deadline for filingresponses to the Nation’s brief.

 

On December 2, 2008, the plaintiffs filed theirresponse to the Nation’s amicus brief. On January 20, 2009, NIGC Chairman Hogen approved the SNI’s amendedordinance.  The court reviewed theChairman’s findings and found them to be predicated on an analysis differentfrom any advanced by the parties.  Thisnew analysis is presumed valid unless and until it becomes the subject of asuccessful legal challenge.  As such, theChairman’s January 20, 2009 ordinance approval rendered moot plaintiff’smotion to enforce the Court’s vacatur of the July 2, 2007 ordinanceapproval.  Accordingly, on January 30,2009, the court denied the plaintiffs’ October 21, 2008 motion for orderto enforce.

 

If the plaintiffs are successful, the Nation could beunable to conduct any Class III gaming upon lands acquired by the Nationpursuant to the SNLCSA, including the Buffalo Creek Territory.

 

**Citizens Against Casino Gambling in Erie County v.Hogen (1:2009-cv-00291 (WDNY)) — CACGEC III**

 

On March 31, 2009, Citizens Against CasinoGambling in Erie County (CACGEC) filed a third action in the United StatesDistrict Court, Western District of New York against the Chairman of the NIGC,the United States Department of the Interior, the NIGC, the Secretary of theInterior and the President of the United States.  The action seeks declaratory and injunctiverelief under the Administrative Procedure Act, the Declaratory Judgments Act,and the Indian Gaming Regulatory Act and is principally directed at thedecision by the NIGC Chairman, on January 20, 2009, to approve the SenecaNation’s amendments to its Class III Gaming Ordinance regarding the Nation’sBuffalo Creek Territory.  The NIGCChairman concluded that IGRA’s general prohibition against gaming on landsacquired after its enactment in 1988 does not apply to lands, such as theBuffalo Creek Territory, that are held in restricted fee.   The plaintiffs claim that, in approving theNation’s Class III Gaming ordinance on January 20, 2009, the NIGCChairman ignored the intention of Congress. The plaintiffs also make several 

 

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claims that go beyond their prior lawsuits.  Most notably, they challenge theconstitutionality of the land purchase provisions contained in the SNLCSA, andattempt to challenge in a more extensive fashion than they had previously thevalidity of the Nation-State Gaming Compact.

 

On June 15, 2009, the Nation moved to interveneas a defendant in CACGEC III.  The Nation’sproposed intervention and participation as a defendant are expressly restrictedto the three claims for relief specified in the plaintiffs’ complaint,namely:  (1) whether, as restrictedfee lands over which the Nation exerts governmental authority, the Buffalo CreekTerritory qualifies as “Indian lands” under IGRA; (2) whether the BuffaloCreek Territory is subject to the general prohibition found in section 2719 ofIGRA against gaming on trust lands acquired after IGRA’s effective date eventhough the Territory consists of restricted fee, rather than trust, lands; and (3) whether,if the Buffalo Creek Territory is subject to Section 2719’s generalprohibition, Class III gaming may nevertheless proceed on it because theBuffalo Creek Territory was acquired in settlement of a land claim.

 

The plaintiffs are opposing the Nation’s motion whichis pending before the Court.

 

The United States has filed a motion for partialdismissal.  The motion remains pending.

 

If the plaintiffs ultimately succeed in this action,or in their pending appeals in the CACGEC I and CACGEC II proceedings, the SGCmay be unable to conduct any Class III gaming at its existing properties.

 

***Scott v. Pataki (NYS Supreme Court, Erie County, Index No. 001189/06)***

 

On February 1, 2006,an action was filed in the New York Supreme Court, County of Erie, by variouspetitioners against George E. Pataki, in his official capacity as Governor ofthe State of New York; State Gaming Officials of the New York State WageringBoard; City of Buffalo; Common Council of the City of Buffalo; Anthony Masielloin his previous capacity as Mayor of Buffalo; Byron Brown in his capacity asMayor of Buffalo; City of Buffalo Department of Public Works; Buffalo SewerAuthority; and Niagara Frontier Transportation Authority.  The actioninitially sought declaratory and injunctive relief under the StateEnvironmental Quality Review Act, or SEQRA; the First Parks, Recreation,Historic Preservation Law, or PRHPL; First City Environmental ReviewOrdination, or CERO; and Freedom of Information Law, or FOIL, and isprincipally directed at the decisions and actions of the defendants inconnection with our Seneca Buffalo Creek Casino.  The plaintiffs initiallyclaimed that the defendants had failed to comply with SEQRA, PRHPL, CERO andFOIL and requested that the court take numerous actions including directingcompliance with SEQRA, PRHPL, CERO and FOIL and restraining further actionrelating to the development of our Seneca Buffalo Creek Casino.  In May 2006,the petitioners further sought to enjoin demolition activity on the nine acrecasino site, but the court declined to grant a preliminary injunctionpreventing demolition.  In June 2006, the petitioners amended theirPetition to drop their claims against Governor Pataki, the State GamingOfficials and the Niagara Frontier Transportation Authority, and added theBuffalo Department of Economic Development, Permits and Inspections as a party.The amended Petition also dropped all claims except for the SEQRA and CEROclaims. In October 2006, the plaintiffs moved for an injunction to preventan agreement between SEGC and the City of Buffalo (relating to the developmentof the Seneca Buffalo Creek Casino) from being executed and performed, whichmotion was denied based upon a failure to show a likelihood of success on themerits.  The plaintiffs appealed this ruling to the New York Supreme CourtAppellate Division.  On March 16, 2007, the Appellate Divisionunanimously affirmed the denial of the injunction.

 

A hearing was held on themerits of the petition in September 2007.  On July 3, 2008, thecourt dismissed the Petitioners’ claims holding: (1) that the CommonCouncil of the City of Buffalo properly reviewed the environmental impact ofthe construction of the Buffalo Creek Casino, and fully complied with SEQR andCERO; (2) that the abandonment and sale of Fulton Street was properlyapproved by the Common Council of the City of Buffalo; (3) that the SenecaNation of Indians is a necessary and indispensible party to the lawsuit; and (4) thatPetitioner’s substantive claims are without merit.

 

On November 13, 2009, the NYS Supreme Court Appellate Division unanimouslyaffirmed the earlier July 3, 2008 decision.

 

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If the plaintiffs were successful, the Nation could have been delayed inthe completion of the expansion Seneca Buffalo Creek Casino temporary facility. Certain of these petitioners are also plaintiffs in the federal lawsuits filedby Citizens Against Casino Gambling in Erie County referenced above.

 

***Warren v. United States (1:06-c-00226-JTE (WDNY))***

 

On or about April 6,2006, an action was filed in the United States District Court, Western Districtof New York, by Daniel T. Warren, a pro se plaintiff, against the United Statesof America, the United States Department of the Interior, the National IndianGaming Commission, and five individuals in their official capacities as ActingSecretary of the Interior, Acting Assistant Secretary of the Interior forIndian Affairs and Chairman of the National Indian Gaming Commission, as wellas Governor George E. Pataki, as Governor of the State of New York, and CherylRitchko-Buley, as Chairwoman of the New York State Racing and WageringBoard.    The action initially sought declaratory and injunctiverelief as to numerous matters including declaring that IGRA isunconstitutional, that the Compact violates IGRA, that the New YorkConstitution is not preempted by IGRA, that New York does not have theauthority under state law to enter into a tribal state compact under IGRA, thatcertain actions of the defendants were not in accordance with law, and thatcertain lands purchased by the Nation were not subject to being taken intotrust or restricted fee status under the SNLCSA or were not pursuant tosettlement of a land claim within the meaning of IGRA; and enjoining thedefendants from taking actions which would further casino gambling in the Stateof New York under IGRA or on any lands acquired by the Nation pursuant toSNLCSA. On August 16, 2006, the plaintiff amended his complaint bringing:a Tenth Amendment challenge to IGRA; a claim that the Compact violates IGRA byproviding for gaming which is not otherwise lawful in New York; a claim thatboth the Compact and the statute authorizing the Governor of New York to enterinto the Compact violate various provisions of the New York State Constitution;and a claim that the United States has failed to promulgate regulations forgaming on off-reservation territory, in violation of its statutoryduties.  The effect of such amendment was to limit the claims remaining inthe case, by dropping many of the federal law claims in the original complaint.

 

On December 1, 2006,the court heard argument on the plaintiff’s motion to join (1) Barry E.Snyder, Sr., as President of the Nation; (2) John Pasqualoni, asPresident and CEO of SGC; (3) the Nation; and/or (4) SGC, asadditional defendants.

 

On October 5, 2007,the plaintiff filed a motion to further amend the complaint to include asdefendants (1) Maurice John, as President of the Nation; (2) E. BrianHansberry, as the new President and CEO of SGC (replacing John Pasqualoni); (3) theNation; and (4) SGC.  On October 25, 2007, the Nation filed aresponse in opposition to that motion asserting that (1) the motion toamend the complaint was not properly before the court because it is premisedupon a finding that the Nation is a necessary and indispensible party, and (2) themotion to amend is futile because the Nation and its officers are protected bysovereign immunity.  On August 11, 2008, the court ordered the clerkto strike the Nation’s responses to motions filed by plaintiff because theNation had not been granted permission to participate as amicus curiae and hadnot renewed its motion in that regard. On August 22, 2008, the Nation filed a motion for leave to filebrief amicus curiae.

 

On March 16, 2009, theplaintiff filed a motion to the amend/correct amended complaint.  On March 23, 2009, the court dismissedas moot both plaintiff’s October 5, 2007 motion to the amend/correctamended complaint and the Nation’s August 22, 2008 motion for leave tofile brief amicus curiae in opposition to plaintiff’s motion.  On April 29, 2009, the Nation filed amotion for leave to appear as amicus curiae. On June 15, 2009, the court granted the Nation’s April 29,2009 request to file a brief amicus curiae. On June 16, 2009, the Nation filed its response to plaintiff’s March 16,2009 motion to amend/correct the amended complaint.

 

Dispositive motions todismiss on behalf of both the plaintiff and the defendants have not yet beenheard by the court.  In addition, still pending before the court is themotion on behalf of the Seneca entities and officers in opposition to beingjoined as defendants to the lawsuit on, among other things, sovereign immunitygrounds.  If the plaintiff is successful in this lawsuit, the Nation wouldbe unable to conduct any Class III gaming upon lands acquired pursuant toSNLCSA.

 

***Inthe matter of the Petition of New York State Urban Development Corporationd/b/a Empire State Development Corporation (NYS Supreme Court, Niagara County)***

 

**Valuation Proceedings Pursuant toNew York Eminent Domain Procedure Law**

 

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In 2002 and pursuant to the Compact, the Nationacquired from the State of New York approximately 24 acres of land and relatedimprovements in the City of Niagara Falls, New York, including the then-NiagaraFalls Convention Center.  The State ofNew York further agreed in the Compact to assist the Nation in whatever mannerappropriate, including through the exercise of its power of eminent domain, toacquire the remaining acreage within the approximately 50-acre footprint in theCity of Niagara Falls, New York, designated by New York State under the Compactfor ownership by the Nation. The Compact specifically excluded approximately1.5 acres of land within the footprint owned by a Roman Catholic Church.  Additionally, in July 2006, the Nationagreed to waive its right to acquire approximately one half acre of additionalland within the footprint owned by End Time Handmaidens, Inc., a religiousorganization.  In return for the waiver,the Nation obtained a right of first negotiation and refusal with respect tothe future sale of the parcels.  As aresult of the carve-out relating to the parcels owned by the Roman CatholicChurch, and the Nation’s agreement with End Time Handmaidens, the total acreageof the Niagara Territory upon completion of the condemnation process isanticipated to be approximately 48 acres.

 

We have obtainedpossession of, either through eminent domain proceedings or private purchase,substantially all of the remaining acreage within the footprint, other thancertain streets and alleys owned by the City of Niagara Falls providing accessto the above church parcels, and a bicycle path owned by the New York StateDepartment of Transportation, or NYSDOT. We expect to acquire the above NiagaraFalls city street and alley parcels by early 2010, with acquisition of theNYSDOT bike path requiring further dialogue with New York State.

 

With the exception ofapproximately 2 acres of land and a hotel property within the footprintacquired for $7.9 million through a private sale in December 2005,substantially all of our post-2002 real property acquisitions in Niagara Falls,NY have been pursuant to New York State Eminent Domain Procedure Law, or EDPL,using the State’s power of eminent domain (through the Empire State DevelopmentCorporation, ESDC).  The amounts paid tocondemnees from whom the ESDC has acquired property are deemed to be advancepayments, in that property owners are entitled to reserve their rights tochallenge the land and improvement values determined by the condemnor’sappraisers.  The ESDC has made advancedpayments under the EDPL of approximately $31.5 million for the condemnedparcels within the footprint including, in particular, approximately 18 acresof land and related fixtures (a former water park) for an aggregate advancedpayment of $18.0 million, and another hotel property for an aggregate advancedpayment of $8.2 million (excluding fixtures).   See “Item 7 — Management’s Discussion and Analysis of Financial Conditionand Results of Operations—Liquidity and Capital Resources — Other Commitments”for information regarding a letter of credit established as initial securityfor the Nation’s obligations to pay site acquisition costs and in furtheranceof the ongoing condemnation proceedings.

 

Pursuant to the EDPL, NewYork state courts will determine the final purchase price to be paid tocondemnees who elect to challenge the initial appraised value of theirproperty.  To date, all record ownersfrom whom property was acquired pursuant to the EDPL have reserved rights toclaim additional compensation.  Fourrecord owners have filed notices of claim to challenge the fair market valueappraisals utilized by ESDC. Fallsite LLC and Fallsville Splash, LLC have filednotices of claim in the amounts of $40.0 million and $35.0 million for land andtrade fixtures, respectively, relating to a former water park within thefootprint.  ESDC’s fair market appraisalvalue for the foregoing was approximately $17.0 million.  If a court determines that the value for theland and improvements, including trade fixtures, is higher than what ESDC hasdetermined to be their appraised values, then we may be liable for the differenceand potentially also responsible for certain additional costs and payments tothe applicable condemnee(s), such as their attorneys’ fees.  The valuation trial proceedings with regardto the former water park are complete. The decision of the court is pending andis expected in early 2010.

 

Intertrust Developmenthad filed a notice of claim for $15.8 million for land and trade fixturesassociated with a former Holiday Inn hotel within the footprint. ESDC’s fairmarket appraisal value for the foregoing was $8.2 million (excludingfixtures).  We have agreed to asettlement of this matter with Intertrust, whereby Intertrust has received anadditional $3.8 million in addition to the appraisal value of $8.2 million, andwhereby we have agreed to purchase, for our business promotional use, ticketsto Fallsview Waterpark, an affiliate of Intertrust, for $2.5 million to be paidin three installments over three years. Pursuant to the stipulation of settlement, Intertrust has executed arelease of SNFGC, ESDC and the Seneca Nation of Indians with respect to thevaluation proceeding, and ESDC and Intertrust shall file a stipulation ofdiscontinuance.

 

Additionally, JFDHoldings has filed a notice of claim for $1.1 million for a parcel of land at621 Niagara Street within the footprint. ESDC’s fair market appraisal for the foregoing is approximately$550,000.  No trial date has yet beenset. Also, three individuals have filed notices of claim with respect to fourparcels within the footprint seeking $955,000, in aggregate, for the fourparcels.  ESDC’s fair-market appraisalfor the four properties, in aggregate, is $185,000.  No trial dates have been set.

 

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If a court determinesthat the value for the land and improvements is higher than the appraised valuewe paid to a condemnee, then we may be liable to the condemnee for thedifference and potentially also responsible for certain additional costs andpayments to the condemnee, such as attorneys’ fees.  As of September 30, 2009, $1.7 millionof the previously recorded reserve of $6.4 million remained for such mattersand is included in the current and long-term liabilities sections on SGC’sconsolidated balance sheet.  Should ourliability be greater than our reserve for such matters, it could have anegative impact on our income and financial condition.

 

***SenecaGaming Authority Proposed Notices of Violation issued to the Seneca GamingCorporation and Employees dated July 13, 2009.***

 

**Summary**

 

On July 14, 2009,SGC received a proposed Notice of Violation dated July 13, 2009, or the2009 NOV, from the Seneca Gaming Authority, or the SGA, alleging fifteenviolations of certain sections of the Class III Gaming Ordinance and theSeneca Nation of Indians-State of New York Compact (“Compact”), as well as ourCharter.  In addition to SGC, elevenemployees received similar notices arising out of the same set of facts,alleging from five to twelve violations of the provisions noted above. Each ofthe alleged violations is attributable to SGC’s accounting treatment of analleged table games inventory (i.e., gaming chips) discrepancy of $25,971 thatarose due to a single human error during an ordinary course table games move onApril 3, 2009.  The initial noticesfrom the SGA indicated that each of the alleged violations carried with it apotential fine of $500 per day per violation imposed from the date of theinitial alleged infraction, April 3, 2009, or approximately $1,000,000 forthe SGC and approximately $8,000,000 in the aggregate for the elevenindividuals as of August 14, 2009. On August 17, 2009, SGC and eachof the affected employees received a proposed final assessment, which includedproposed fines of $10,000 payable by SGC, and proposed fines payable by fourout of the eleven individual employees cited originally, ranging from $500 to$2,500.

 

On December 18, 2009, the SGA Commission determined that the SGA’saction with respect to seven of the affected individuals did not constitute a“Notice of Violation” and that the matter had been settled from the SGA’sperspective (confirming that the matter would not have any negative licensingimplications for the individuals).  Alsoon that date, the SGC and the SGA entered into a settlement agreement pursuantto which the proposed Notices of Violation issued to the four remainingindividuals (with proposed fines ranging from $500 to $2,500) were vacated anddismissed in their entirety, while the SGA agreed that the proposed Notice ofViolation issued to SGC would be vacated and dismissed without further actionof the SGA on March 15, 2010.  Thesettlement agreement requires that the SGC engage in certain compliance-relatedefforts, and remit to the SGA an administrative fine of $10,000 to cover SGAcosts.  In connection with this SGAenforcement matter, the SGC indemnified the affected employees for theirdefense costs pursuant to mandatory Charter indemnification provisions andaction of the SGC board of directors.

 

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***SenecaGaming Corporation v. Merrill Lynch Pierce Fenner & Smith Incorporated***

 

On August 6, 2009,The Corporation filed suit in the United States District Court for the SouthernDistrict of New York, alleging fraudulent conduct on the part of Merrill Lynchin inducing SGC to purchase auction-rate securrities.  The claim alleges that Merrill Lynchrepresented the securities as highly liquid and collateralized by residentialmortgages.  SGC discovered subsequentlythat the securities were illiquid and not collateralized by residentialmortgages, but rather, by complex derivative instruments, and that thesecurities had become worthless.  SGC’ssuit seeks $5 million in damages.

 

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

 

Not Applicable.

 

**PART II**

 

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

 

Not Applicable.

 

**Item 6.Selected Financial Data**

 

Theselected consolidated financial data set forth below are derived from ouraudited financial statements and related notes for Fiscal 2007 through 2009.This information is only a summary and should be read in conjunction with “Item7 — Management’s Discussion and Analysis of Financial Condition and Results ofOperations,” and our audited financial statements and related notes beginningon page F-1.

 

The resultsfor past accounting periods are not necessarily indicative of the resultsexpected for any future accounting period.

 

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| ** **                                                                | ** ** | **Fiscal Years Ended**     | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                | ** ** | **September 30,**               | ** ** |
| ** **                                                                | ** ** | **2009**                             | ** ** | **2008(1)** | ** ** | **2007(1)** | ** ** | **2006(1)** | ** ** | **2005** | ** ** |
| ** **                                                                | ** ** | **(Dollars in Thousands)** | ** ** |
| **Statement of Operations Data:**                                         | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues:                                                                 |       |                                 |       |   |   |   |   |   |   |   |   |
| Gaming                                                                    |       | $                                    | 586,774    |   | $ | 632,580 |   | $ | 595,826 |   | $ | 519,620 |   | $ | 440,156 |   |
| Food  and beverage                                                        |       | 58,476                               |       | 63,272 |   | 56,608 |   | 50,141 |   | 41,689 |   |
| Lodging                                                                   |       | 24,252                               |       | 28,757 |   | 24,352 |   | 10,654 |   | — |   |
| Retail,  entertainment and other                                          |       | 23,259                               |       | 25,032 |   | 20,190 |   | 19,940 |   | 16,955 |   |
|                                                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Gross  revenues                                                           |       | 692,761                              |       | 749,641 |   | 696,976 |   | 600,355 |   | 498,800 |   |
| Less:  Promotional allowances                                             |       | (113,251                             | )          | (117,553 | ) | (104,012 | ) | (77,861 | ) | (49,647 | ) |
|                                                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Net  revenues                                                             |       | 579,510                              |       | 632,088 |   | 592,964 |   | 522,494 |   | 449,153 |   |
| Expenses:                                                                 |       |                                 |       |   |   |   |   |   |   |   |   |
| Gaming                                                                    |       | 152,199                              |       | 169,472 |   | 153,259 |   | 129,396 |   | 114,746 |   |
| Food  and beverage                                                        |       | 44,505                               |       | 49,907 |   | 47,863 |   | 43,485 |   | 34,877 |   |
| Lodging                                                                   |       | 12,368                               |       | 13,191 |   | 10,218 |   | 5,505 |   | — |   |
| Retail,  entertainment and other                                          |       | 14,188                               |       | 16,952 |   | 14,530 |   | 12,294 |   | 10,418 |   |
| Advertising,  general and administrative                                  |       | 182,172                              |       | 187,011 |   | 153,838 |   | 131,997 |   | 117,188 |   |
| Pre-opening  costs                                                        |       | 363                                  |       | 286 |   | 15,426 |   | 9,478 |   | 1,509 |   |
| Depreciation                                                              |       | 47,850                               |       | 51,081 |   | 49,597 |   | 38,992 |   | 26,295 |   |
| Impairment  of property and equipment                                     |       | 107,557                              |       | — |   | — |   | — |   | — |   |
|                                                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Total  operating expenses                                                 |       | 561,202                              |       | 487,900 |   | 444,731 |   | 371,147 |   | 305,033 |   |
| Operating  income                                                         |       | 18,308                               |       | 144,188 |   | 148,233 |   | 151,347 |   | 144,120 |   |
| Other  income and (expense):                                              |       |                                 |       |   |   |   |   |   |   |   |   |
| Other  non-operating income and (expenses), net                           |       | 287                                  |       | (5,600 | ) | 3,220 |   | (558 | ) | (13,301 | ) |
| Interest  income                                                          |       | 214                                  |       | 1,344 |   | 3,886 |   | 5,814 |   | 5,116 |   |
| Interest  expense                                                         |       | (38,179                              | )          | (37,325 | ) | (36,063 | ) | (33,198 | ) | (90,366 | ) |
|                                                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Net  non-operating expense                                                |       | (37,678                              | )          | (41,581 | ) | (28,957 | ) | (27,942 | ) | (98,551 | ) |
|                                                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Net  (loss) income                                                        |       | $                                    | (19,370    | ) | $ | 102,607 |   | $ | 119,276 |   | $ | 123,405 |   | $ | 45,569 |   |
|                                                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| **Other Financial Data:**                                                 | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|  EBITDA(2)                                                           |       | $                                    | 174,002    |   | $ | 189,669 |   | $ | 201,050 |   | $ | 189,781 |   | $ | 157,114 |   |
| Cash  provided by operating activities                                    |       | 138,791                              |       | 158,853 |   | 179,748 |   | 181,838 |   | 47,652 |   |
| Cash  used in investing activities                                        |       | (52,263                              | )          | (118,205 | ) | (125,046 | ) | (233,582 | ) | (192,147 | ) |
| Cash  (used in) provided by financing activities                          |       | (56,603                              | )          | (66,005 | ) | (54,235 | ) | (12,528 | ) | 75,367 |   |
| Capital  expenditures and payments for land acquisitions and other assets |       | 52,345                               |       | 147,257 |   | 178,967 |   | 241,741 |   | 172,684 |   |

 

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| ** **                 | ** ** | **As of September 30,** | ** ** |
|----------------------------|------------|----------------------------------------|------------|
| ** **                 | ** ** | **2009**                               | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                 | ** ** | **(Dollars in Thousands)**   | ** ** |
| **Balance Sheet Data:**    |       |                                   |       |   |   |   |   |   |   |   |   |
| Cash  and cash equivalents |       | $                                      | 83,230     |   | $ | 53,305 |   | $ | 78,662 |   | $ | 78,195 |   | $ | 142,467 |   |
| Total  assets              |       | 841,928                                |       | 935,718 |   | 885,960 |   | 840,376 |   | 698,848 |   |
| Total  liabilities         |       | 602,119                                |       | 644,872 |   | 655,716 |   | 650,745 |   | 589,423 |   |
| Total  capital             |       | $                                      | 239,809    |   | $ | 290,846 |   | $ | 230,244 |   | $ | 189,631 |   | $ | 109,425 |   |

 

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(1)    Certain operating expensesfrom 2008, 2007 and 2006 have been reclassified between the Lodging and Retail,Entertainment and Other categories to conform to the current year presentation.

 

(2)    EBITDA represents earningsbefore interest and depreciation, and for Fiscal 2009, the impairment ofproperty and equipment. We are not subject to U.S. federal income taxationunder current interpretations of the U.S. federal tax code. EBITDA is presentedto provide additional information that our management uses to assess ourbusiness and because we believe it is frequently used by securities analysts,investors and other interested parties in the evaluation of companies in ourindustry. However, other companies in our industry may calculate EBITDAdifferently than we do. EBITDA is not a measurement of financial condition orprofitability under generally accepted accounting principles and should not beconsidered as an alternative to cash flow from operating activities or as ameasure of liquidity or an alternative to net income as indicators of ouroperating performance or any other measures of performance derived inaccordance with generally accepted accounting principles.

 

EBITDA includes pre-opening costs of approximately$0.4 million, $0.3 million, $15.4 million, $9.5 million and $1.5 million forFiscal 2009, Fiscal 2008, Fiscal 2007, Fiscal 2006 and Fiscal 2005,respectively.

 

The following table sets forth a reconciliation of netincome to EBITDA, which management believes is the most nearly equivalentmeasure under U.S. generally accepted accounting principles. The adjustmentsset forth below are those relevant to the periods presented.

 
| ** **                            | ** ** | **Fiscal Years Ended September 30,** | ** ** |
|---------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                            | ** ** | **2009**                                                 | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                            | ** ** | **(Dollars in Thousands)**                     | ** ** |
| Net  (loss) income                    |       | $                                                        | (19,370    | ) | $ | 102,607 |   | $ | 119,276 |   | $ | 123,405 |   | $ | 45,569 |   |
| Depreciation                          |       | 47,850                                                   |       | 51,081 |   | 49,597 |   | 38,992 |   | 26,295 |   |
| Impairment  of property and equipment |       | 107,557                                                  |       | — |   | — |   | — |   | — |   |
| Net  interest expense                 |       | 37,965                                                   |       | 35,981 |   | 32,177 |   | 27,384 |   | 85,250 |   |
|                                  |       |                                                     |       |   |   |   |   |   |   |   |   |
| EBITDA                                |       | $                                                        | 174,002    |   | $ | 189,669 |   | $ | 201,050 |   | $ | 189,781 |   | $ | 157,114 |   |

 

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

 

*You should read the following discussion andanalysis in conjunction with the section titled “Selected ConsolidatedFinancial and Other Data” and the financial statements and related notesincluded elsewhere in this Annual Report. References herein to years are tofiscal years of Seneca Gaming Corporation unless otherwise noted. Our fiscalyear is from October 1 through September 30.*

 

**Overview**

 

***TheNation and******sgc***

 

SGC is wholly-owned bythe Nation and chartered to develop, manage and direct all of the Nation’s Class IIIgaming operations on the Nation’s territories in Western New York. SGC waschartered by the Nation in August 2002. In August 2002, the Nation entered into the Compact with New YorkState that provides the Nation with the right to establish and operate three Class IIIgaming facilities in Western New York.  Class IIIgaming, the most heavily regulated of the gaming classes includes, among otherthings, slot machines and table games.  We currently operate three Class III gaming facilities in WesternNew York—Seneca  Niagara Casino andHotel, which is located in the City of Niagara Falls, New York (NiagaraTerritory) and operated by SNFGC, approximately 20 miles north of Buffalo, NewYork; Seneca Allegany Casino and Hotel, which is located in the City ofSalamanca, New York (Allegany Territory) and operated by STGC, approximately 75miles northeast of Erie, Pennsylvania; and Seneca Buffalo Creek Casino, whichis located in the inner harbor district of Buffalo, New York (Buffalo CreekTerritory) and operated by SEGC. Seneca Niagara Casino and Hotel opened on December 31,2002 (initially, as the Seneca Niagara Casino). Seneca Allegany Casino and Hotel opened on May 1, 2004 (initially,as the Seneca Allegany Casino).  SenecaBuffalo Creek Casino commenced operations on July 3, 2007 in a temporaryfacility.  Our three casinos are locatedon land held in restricted fee by the Nation, which, together with the rightsunder the Compact, allows us to conduct Class III gaming operations atthese locations in New York State and are the only casino resort gamingfacilities in Western New York State to offer both Class III slot machinesand table games.

 

As of September 30,2009, Seneca Niagara Casino and Hotel featured over 147,000 square feet ofgaming space, 4,062 slot machines, 104 table games and 604 hotel rooms; SenecaAllegany Casino and Hotel featured over 63,500 square feet of gaming space,2,265 slot machines, 41 table games and 212 hotel rooms; and the Seneca BuffaloCreek Casino temporary facility featured 244 slot machines and no table games.

 

As of September 30,2009, we had approximately 560,000 active members in the Seneca Link Player’sCard database each with at least one rated trip to our properties during Fiscal2009. As of September 30, 2009, approximately 52% of the 560,000 activeSeneca Link Player’s Card members live in New York State, and approximately17%, 16%, and 9% lived in Pennsylvania, Ohio and Canada, respectively.

 

**ExecutiveSummary**

 

***Our Current Operations****.*    Wecurrently operate three Class III gaming facilities, Seneca Niagara Casinoand Hotel, in the City of Niagara Falls, New York (Niagara Territory), theSeneca Allegany Casino and Hotel, in the City of Salamanca, New York (AlleganyTerritory), and the Seneca Buffalo Creek Casino (slots only temporaryfacility), in the City of Buffalo, New York (Buffalo Creek Territory). Ourcasino operations include gaming, lodging, dining, entertainment, retail andspa and salon services. For both Fiscal 2009 and Fiscal 2008, approximately 92%of our net revenue was derived from our Class III gaming activities.

 

***Recent Developments. ***The ongoing recessionhas continued to negatively impact our operating performance and results,primarily due to reduced consumer discretionary spending on gaming andentertainment.  Over the past eighteenmonths, we have attempted to mitigate the effects of the economic recessionthrough implementation of expense reduction measures and efforts to increaseoperational efficiencies.

 

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As previously noted, on August 27, 2008, theconstruction activities at Seneca Allegany Casino and Hotel and Seneca BuffaloCreek Casino and Hotel were suspended for reasons including:  the economic recession; inability to obtainconstruction financing at reasonable interest rates; and operating and otherdemands on our available cash, such as our payments to the Nation.  As of September 30, 2009, due to thecontinuation of weak economic conditions, adverse credit market conditions andan uncertain economic outlook, such construction remains suspendedindefinitely.  Furthermore, certainplanning efforts related to the future expansion of the Seneca Niagara propertyhave been suspended for the same reasons. As a result of these circumstances an impairment charge of $107.6million was recognized during Fiscal 2009.

 

In December 2008, we implemented a multifacetedplan to further reduce expenses, including, but not limited to: an approximatefive percent temporary workforce reduction; a wage freeze for all employeesearning in excess of $70,000 per year; voluntary temporary salary reductionsfor senior management; and suspension of our bonus program, historically paidin December of each year.  While wehave successfully reduced certain expenses and increased certain operationalefficiencies, we anticipate continuing to take measures to help preserve SGC’sfinancial condition, maintain adequate liquidity and position us for futuregrowth and success, and endeavor to do so in a manner that will not compromisethe quality or levels of our offerings and services provided at each of ourproperties.

 

Following discussions with the Nation in February 2009,our payments and distributions to the Nation were reduced in an effort toenhance our liquidity position, provide cash for priority maintenance capitalexpenditures and to begin to fund a reserve for potential repurchase orrepayment of our senior debt.  Themeasures resulting from the joint planning initiatives with the Nation includedprincipally, rescission of a Fiscal 2008 Council request for $20.0 millionrelating to certain capital improvement projects of the Nation, a reduction inmonthly distributions to the Nation from the then-current level of $4.0 millionper month to $3.0 million per month commencing in March 2009, theapplication of $5.0 million previously distributed to the Nation for thecapital improvement projects described above as a credit against SGC’s monthlydistribution obligations, and a $5.0 million reduction in rent for Fiscal 2009under our Head Leases with the Nation.

 

In furtherance of improving SGC’s liquidity, in October 2009the Nation reduced anticipated 2010 monthly distributions, exclusive of amountsrequired under the Distribution Agreement, to $30.0 million for Fiscal 2010,compared to $42.0 million for Fiscal 2009. As a result of these efforts,combined with SGC’s efforts to create operating efficiencies, SGC repaid the$20.0 million outstanding balance under the Senior Secured Revolving LoanAgreement during the third quarter of Fiscal 2009 and SGC’s depository cashbalances increased to approximately $61.8 million at September 30, 2009from $18.8 million, net of the $20.0 million proceeds drawn under the SeniorSecured Revolving Loan Agreement, as of March 31, 2009. SGC hasimplemented, and intends to continue to implement a strategy to fund a $125.0million reserve prior to May 2012 to reduce its future borrowing costs,while also maintaining adequate operating cash reserves.

 

On October 19, 2009 we broke ground on a BuffaloCreek Casino temporary facility expansion, which will add approximately 5,300square feet of gaming space to the facility and will accommodate 200 to 250additional slot machines. The expansion is due to be completed in spring 2010.

 

The Nation has offered SEGC a $9.0 million unsecuredloan for purposes of financing the Buffalo Creek facility expansion.  If utilized, the potential loan would carryan interest rate of 5% per annum with principal and interest payable over a 12month period commencing on the 15th day of the calendar month following theopening of the expansion. The note would be prepayable at any time withoutpenalty.

 

Effective December 18, 2009, SGC amended itsSenior Secured Revolving Loan Agreement to extend the maturity date until December 31,2011. Amounts borrowed under the Amended Senior Secured Revolving LoanAgreement continue to bear interest at either one, three or six-month LIBORplus one and one quarter percent (1.25%), or the prime rate (as reported in TheWall Street Journal) plus one quarter percent (0.25%), with any outstandingprincipal balance to be paid by, or on, the new maturity date.  The $50.0 million commitment reduces intandem with any reduction in the letter of credit requirement imposed by ESDC(as described below), up to an aggregate reduction of $10.0 million.  The Amended Senior Secured Revolving LoanAgreement requires that SGC maintain all of its deposit and investment accountswith the lender, subject to limited exceptions for certain existing accounts.The Amended Senior Secured Revolving Loan Agreement also modifies certain ofthe financial covenants contained in the Senior Secured Revolving LoanAgreement, including reducing the minimum consolidated EBITDA covenant from $160million to $145 million (on a rolling 12 month basis) while modifying the totalleverage ratio (of total funded debt to EBITDA) to a limit of 3.5 to 1.0.

 

***Key Performance Indicators****.*    Ouroperating results are dependent on the volume of patrons at our casinos, ourability to 

 

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attractthem for repeat visits and the ability to increase patron revenue per trip.

 

***Seneca Niagara Casino and Hotel****.*    Priorto the opening of our luxury hotel, Seneca Niagara Casino primarily relied ondrive-in and bus patrons from the Buffalo, Niagara Falls, and Rochester areasin New York and secondarily from Erie, Pennsylvania, Ohio and other parts ofNew York.  Since the opening of the newluxury hotel and expanded gaming and related amenities during Fiscal 2006,Seneca Niagara Casino and Hotel had experienced steady growth in its patronbase until Fiscal 2009 with the advent of the ongoing economic downturn, whichhas negatively impacted our operating performance.  The expansion of Seneca Niagara Casino andHotel, including the addition of our luxury hotel and other amenities, hasenabled us, apart from the impact of the current economic downturn, to increasethe volume of patrons with higher gaming budgets, gaming activity, and lengthof stay and has extended our geographic market penetration and appeal to a morediverse demographic base.  During Fiscal2009 and Fiscal 2008, our average hotel occupancy rates were approximately 95%and 94%, respectively.  During theseperiods, approximately 71% and 72% of our occupied rooms, respectively, werecomplimentary rooms provided to our gaming patrons.

 

We paid forsubstantially all of our completed expansion projects out of cash flow fromoperations and proceeds of our senior notes. Our completed expansion projectssince the opening of the casino on December 31, 2002 include the additionof Turtle Island, a non-smoking casino room; a 2,130-space parking garage; theWestern Door, an upscale steakhouse; our “Pennies From Heaven” slot roomlocated on the mezzanine level overlooking our main casino, addingapproximately 6,600 square feet of gaming space including 242 additionalticket-in/ticket-out slot machines; and our luxury hotel and relatedamenities.  We opened substantially allpublic areas and the first 10 floors of hotel rooms on December 15, 2005,and completely opened the remaining hotel rooms and all amenities on March 31,2006.  The total cost of the luxury hotelexpansion project was approximately $234.0 million.

 

In 2006, webegan master planning activities for the remaining approximately 24 acres ofundeveloped land contained in the Niagara Falls footprint.  During August 2008, these master planningactivities were suspended due to the continuation of weak economic conditions,adverse credit market conditions and an uncertain economic outlook.  As a result of these circumstances animpairment charge of $3.5 million was recognized during Fiscal 2009 related tothese activities.

 

***Seneca Allegany Casino and Hotel****.*    Sinceits opening on May 1, 2004, Seneca Allegany Casino and Hotel has attractedpatrons from the southern portion of Western New York, Erie and Pittsburgh,Pennsylvania and Ohio. As of September 30, 2009, approximately 67% of itspatrons have come from outside New York State. During Fiscal 2009 and 2008, our average occupancy rate wasapproximately 96% and 97%, respectively and of those occupied rooms, 81% and79%, respectively, were complimentary rooms provided to our gaming patrons.

 

In July 2005,we opened our 1,850-space parking garage, which cost approximately $32.2million.  In March 2007, we opened a212-room resort hotel, including two fine dining restaurants, a 24-hour casualrestaurant and certain additional amenities after officially opening a newpermanent gaming floor in December 2006. In March 2008, we completed the conversion of the former temporarycasino structure into an events center with a seating capacity for 2,200people, along with additional administrative office space.   We believe the new resort hotel, permanentcasino and events center provide a first-class gaming experience for ourpatrons, increase their length of stay and maintain the competitive position ofthis facility in light of competition in Pennsylvania, consisting principallyof Presque Isle Downs, a new gaming facility that opened in late February 2007in Erie, Pennsylvania approximately  80miles from the Seneca Allegany Casino and Hotel and 120 miles from the SenecaNiagara Casino and Hotel.  Presque Isledoes not provide table games or lodging, but currently provides approximately2,000 slots and dining and entertainment options that include a steakhouse, abuffet and four lounges.  Additionally,in August 2009, the Rivers Casino in downtown Pittsburgh, Pennsylvania(located approximately 240 miles and 190 miles from Seneca Niagara Casino andHotel and Seneca Allegany Casino and Hotel, respectively) opened with 3,000slot machines and various food, beverage and entertainment venues.

 

Constructionon our next phase of development at Seneca Allegany Casino and Hotel, which wasplanned to include an additional 200 room hotel tower, and up to 30,000 squarefeet of additional gaming space and related amenities, for a total estimatedcost of up to $130 million, was suspended in August 2008 for reasonsincluding:  the continuing economicrecession; inability to obtain construction financing at reasonable interestrates; and operating and other demands on our available cash, such as ourpayments and distributions to the Nation. As of September 30, 2009, due to the continuation of weak economicconditions, adverse credit market conditions and an uncertain economic outlook,construction remained suspended indefinitely. As a result of these circumstances an impairment charge was recognizedrelated to these activities in Fiscal 2009, in the amount of 

 

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approximately$17.1 million.

 

***Seneca Buffalo CreekCasino****.*    OnOctober 3, 2005, the Nation acquired approximately nine acres of land inthe inner-harbor district of Buffalo, New York. Initially, the nine acre parcel was bisected by a two-block section of astreet owned by the City of Buffalo (Fulton Street).  In November 2006, we acquired thetwo-block section of Fulton Street from the City of Buffalo for a purchaseprice of $0.6 million to create a contiguous 9-acre parcel fordevelopment.  In order to meet therequirements of the Compact, on December 8, 2005 we began construction ofa temporary Class III gaming facility on the Seneca Buffalo CreekTerritory.  On July 3, 2007 we beganoperating the temporary Class III gaming facility (approximately 6,000square feet) featuring 135 slot machines and a snack bar.  During the quarter ended March 31, 2008the temporary facility was expanded to include an additional 109 slotmachines.  The current temporary facilityis approximately 8,600 square feet, and features 244 slot machines and a snackbar.

 

Construction on our nextphase of development at Seneca Buffalo Creek Casino and Hotel, which wasplanned to include approximately 90,000 square feet of gaming space; 2,000 slotmachines; 45 table games; a 22-story all-suite hotel; four restaurants; afull-service spa and salon; retail and other amenities; and a 2,200-spaceparking garage, for a total estimated cost of approximately $333.0 million, wassuspended in August 2008 for reasons including: the continuing economic recession; inability to obtain constructionfinancing at reasonable interest rates; and operating and other demands on ouravailable cash, such as our payments and distributions to the Nation.  As of September 30, 2009, due to thecontinuation of weak economic conditions, adverse credit market conditions andan uncertain economic outlook, construction remains suspendedindefinitely.  As a result of thesecircumstances an impairment charge was recognized related to these activitiesin Fiscal 2009, in the amount of approximately $87.0 million.

 

As previously noted, on October 19,2009 we broke ground on an expansion to the existing temporary facility, whichwill add approximately 5,300 square feet of gaming space and will accommodate200 to 250 additional slot machines. The expansion is due to be completed inspring 2010.

 

Our ability to continueto operate the Seneca Buffalo Creek Casino temporary facility will depend onvarious factors, including existing legal challenges and the availability offinancing on acceptable terms.  See “Item3 — Legal Proceedings” for a discussion of existing legal challenges regardingour Seneca Buffalo Creek Casino.

 

***Seneca Hickory Stick GolfClub — Lewiston, New York****. *In March 2006,we acquired 257 acres of land with the intent to design and build achampionship level golf course in Lewiston, New York, approximately eight milesfrom Seneca Niagara Casino and Hotel.  Weselected the Robert Trent Jones II firm to design the golf course.  Construction of the golf course commenced in July 2007and it is anticipated that the official opening of the course will occur in2010. LGCC has engaged Kemper Sports Management, Inc. to manage andoperate the course. The total cost to construct the golf course, clubhouse andrelated amenities is estimated to be approximately $25.5 million.

 

***Class II Gaming Operations****. *In January 2005, we transferred all Class II gamingoperations to the Nation, which included our poker operations at the SenecaNiagara Casino and Hotel and Seneca Allegany Casino.  The transfer of the Class II operationsin January 2005 was consistent with our understanding of the Seneca NationTribal Council’s (the Nation’s legislative body) intent that we manage andoperate the Nation’s Class III operations and that Council directly manageand operate the Nation’s Class II operations.

 

The Nation,through its wholly-owned business enterprise, Seneca Gaming &Entertainment, operates the Class II poker operations at Seneca NiagaraCasino and Hotel, in addition to two Class II gaming facilities located onthe Nation’s Territories in Salamanca and Irving, New York, respectively. On November 9,2009, Seneca Gaming and Entertainment relocated its poker operations at SenecaAllegany Casino to a new facility located within one mile of our property.

 

***Current, Continued and Future Reliance on Cash Flow***. We intend to fund the maintenance of our existingfacilities from our future cash flow and current cash on hand. We currentlyrely and will continue to rely on our ability to generate cash flow fromoperations to satisfy our financial obligations and maintenance capitalexpenditure requirements.

 

***Seasonality***.  We have generally observed seasonal increasesin gaming activity during the spring and summer months and decreases in gamingactivity during the winter months associated with inclement weather.

 

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***OverallOutlook****.* SGCbelieves that it is the premier gaming operator in Western New York State andin the areas of Northern Pennsylvania and Ohio located within its primary andsecondary markets. Since the December 31, 2002 opening of the SenecaNiagara Casino, SGC has invested significantly in the development, expansionand maintenance of its gaming facilities, including the completion of the hoteland gaming expansion projects at Seneca Niagara Casino and Hotel and SenecaAllegany Casino and Hotel, and the opening of the temporary casino on theSeneca Buffalo Creek Territory.  Theseinvestments have enabled SGC to maintain its position as the premier gamingoperator in the region described above. To further that objective, and to provide for expanded opportunities inthe convention and tourism markets, SGC will continue to explore opportunitieswith respect to the Niagara Falls, Allegany and Buffalo gaming and relatedfacilities, subject to the availability of necessary funding. A principal goalis for the facilities to complement each other, offering diverse hotel,entertainment and gaming experiences for our guests.

 

The current economicrecession and increased regional competition have presented operationalchallenges resulting in lower net revenues and impairment charges relating tocertain construction activities, and we expect that such challenges maycontinue. We believe that we are positioned to weather such challenges andconditions, based in part upon our efforts, and those of the Nation in workingwith SGC to mitigate the impact of these adverse developments.  We also continue to believe, notwithstandingthese challenges, the Class III gaming exclusivity provided by the Compactwill continue to present us with a competitive advantage to serve the WesternNew York hotel, entertainment and gaming markets.  As highlighted above in “Recent Developments,”we continue to engage in joint financing planning initiatives with the Nationto assess our financial condition and liquidity needs, and to help ensure thatappropriate strategic plans are being developed and implemented to meet ourliquidity and maintenance capital expenditure requirements and the ongoingchallenges presented by the current economic environment.  Management intends to continue to work closelywith the Nation to help ensure cash generated from operations, available cashand cash equivalents and short-term investments are sufficient to service ourdebt, satisfy our other financial obligations and commitments and meet ourworking capital requirements for the upcoming fiscal year.

 

**Explanation of Key Financial Statement Captions**

 

***Gross revenues. ***Our gross revenues are derived primarilyfrom the following four sources:

 
| · | gaming revenues, which  include revenues from slot machines, table games and keno;                               |
|--------|------------------------------------------------------------------------------------------------------------------|
| · | food and beverage  revenues;                                                                                     |
| · | hotel revenues; and                                                                                              |
| · | retail, entertainment  and other revenues, which include revenues from retail shops and spa and  salon services. |

#####  

Our largest component ofrevenues is gaming revenues, which is recognized as amounts wagered less prizespaid out, and is comprised primarily of revenues from our slot machines andtable games. Revenues from slot machines are the largest component of ourgaming revenues. Gross slot revenues, also referred to as gross slot win, representall amounts played in the slot machines reduced by both (1) winnings paidout and (2) slot tickets issued but not redeemed.

 

Other commonly used termsin the discussion of revenues from slot machines include progressive slotmachines, progressive jackpots, net slot revenues, slot handle, gross slot holdpercentage and net slot hold percentage. Progressive slot machines retain aportion of each amount wagered and aggregate these amounts with similar amountsfrom other slot machines in order to create one-time winnings that aresubstantially larger than those paid in the ordinary course of play. We referto such aggregated amounts as progressive jackpots. Wide-area progressivejackpot amounts are paid by a third party vendor and we remit a weekly paymentto the vendor based on a percentage of the slot handle for each wide-areaprogressive slot machine. We accrue in-house progressive jackpot amounts untilpaid, and such accrued amounts are deducted from gross slot revenues, alongwith wide-area progressive jackpot amounts, to arrive at net slot revenues,also referred to as net slot win. Net slot revenues are included in gamingrevenues in the accompanying consolidated statements of operations. Slot handleis the total amount wagered by patrons on slot machines during the period.Gross slot hold percentage is the gross slot win as a percentage of slothandle. Net slot hold percentage is the net slot win as a percentage of slothandle.

 

Commonly used terms inthe discussion of revenues from table games include table games revenues, tablegames drop and table games hold percentage. Table games revenues represents theclosing table games inventory plus table games drop and credit slips for coinsor chips returned to the casino cage, less opening table games inventory,discounts provided on patron losses, free bet coupons and chip fills to thetables. Table games drop is the total amount of cash, free bet coupons, cashadvance drafts, customer deposit withdrawals, safekeeping withdrawals andcredit issued at the table contained in the locked container at each gamingtable. Table games hold percentage is the table games revenues as a percentageof table games drop.

 

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Revenues from food andbeverage, hotel, retail, spa and salon, entertainment events and other servicesare recognized at the time the service is performed.

 

***Promotional allowances. ***Weoperate a program for our guests, without membership fees, called the SenecaLink Player’s Card. This program provides complimentary food, beverages, hotel,retail, entertainment and other services to guests based on points that areawarded for guests’ gaming activities. These points may be used to purchase,among other things, items at the retail stores, spa and salon and restaurantslocated within our properties. Points also may be used to purchase hotelservices and tickets to entertainment events. The retail value of points areincluded in gross revenues when redeemed at our facilities and then deducted aspromotional allowances to arrive at net revenues.

 

***Gaming expenses. ***The largest component of gaming expensesis the percentage of slot machine net drop (money dropped into the machinesafter payout but before our expenses) which must be paid to the State of NewYork, pursuant to the Compact, which is referred to as the exclusivitypayment.  The exclusivity payment was 18%for the first four calendar years (January 1, 2002 through December 31,2006), has been 22% for years 5-7 (January 1, 2007 through December 31,2009), and will be 25% for the remainder of the current term of the Compact(beginning January 1, 2010).

 

Gaming expenses alsoinclude, among other things, expenses associated with operation of slotmachines, table games, keno, certain marketing expenses, and promotionalexpenses for the Seneca Link Player’s Card points redeemed at our hotel,restaurants and retail outlets, as well as a third party tenant retail shop.

 

***Advertising,general and administrative. ***The largest components of advertising,general and administrative expenses are those charges related to: advertising,marketing, regulatory oversight, insurance, utilities, legal services and theHead Leases with the Nation, which represent amounts paid to the Nation for theuse of the land and certain improvements on which our operations are located.

 

***Operating Income. ***We calculate income from operations asnet revenues less total operating costs and expenses. Income from operationsrepresents only those amounts that relate to our consolidated operations andexcludes interest income, interest expense and other non-operating income andexpense.

 

**Critical Accounting Policies and Estimates**

 

Management’s discussion and analysis of our financialcondition, results of operations and liquidity and capital resources are basedon our consolidated financial statements. To prepare our consolidated financialstatements in accordance with accounting principles generally accepted in theUnited States, we must make estimates and assumptions that affect the amountsreported in the consolidated financial statements. We regularly evaluate theseestimates and assumptions, particularly in areas we consider to be criticalaccounting estimates, where changes in the estimates and assumptions could havea material impact on our results of operations, financial position and, to alesser extent, cash flows. Actual results may differ from our estimates, whichcould materially affect the reported results. To provide an understanding ofthe methodology we apply, our significant accounting policies and basis ofpresentation are summarized in Note 2 to our audited consolidated financialstatements included in this Annual Report. We believe the accounting policiesdescribed below involve a higher degree of management judgment:

 

***Liability for Unredeemed SenecaLink Player’s Card Points****.*    Patronswho are members of our Seneca Link Player’s Card rewards program earnpromotional points based on the volume and type of their gaming activity. TheSeneca Link Player’s Card accumulates points that are redeemable for food andbeverage at our restaurants, lodging, spa and salon services, free slot playand products offered at our retail stores. Points are accrued and reflected asa current liability on our consolidated 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 exposure forportions of our employee benefits programs and general liability reserves. We accruefor liabilities based on filed claims and estimates of claims incurred but notreported. We believe the accruals to cover these costs are adequate, but actualresults may vary from the amount accrued on our consolidated balance sheets.

 

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***Property and Equipment****.*    We have a significant amount ofcapital invested in our property and equipment, which is stated at cost lessaccumulated depreciation. We use judgment in determining if, or when, assetshave been impaired and the estimated useful lives of assets. The accuracy ofthese estimates affects whether or not impairment exists, and the depreciationexpense recognized in our results of operations. Leasehold improvementsrepresent a significant portion of our property and equipment balance. Theseassets are amortized over the related lease term or depreciable life, whicheveris shorter. The useful lives assigned to our other property and equipmentassets are based on our standard policy, which we believe represents the usefullife of each category of asset. In accordance with the Financial AccountingStandards Board’s, or FASB’s, Accounting Standards Codification, or ASC360,  *Property, Plant, andEquipment*, the carrying values of our long-lived assets are reviewedwhen events or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Assets are grouped at the property level whenestimating future undiscounted cash flows for determining whether an asset hasbeen impaired. Management assesses the possibility of asset impairment by usingthe estimates of future undiscounted cash flows, which are affected by currentoperating results, trends and prospects, as well as the effect of obsolescence,demand, competition and other economic factors.

 

Our analysis of undiscounted cash flows represents ourbest estimates at the time of the review. However, changes in these assumptionsdue to actual market conditions that cause less favorable results than ourestimates may result in impairment in the future.

 

***Regulatory Costs****.    *We have financial exposure forregulatory costs related to oversight provided by the New York State Police(State Police) billed but not paid. There is an ongoing dispute between the Nation and the State Police asto the appropriate amount of costs that are due to the State Police for theirregulatory oversight.  As of September 30,2009, we have accrued approximately $30.1 million to cover such costs.  We believe this accrual is adequate, butactual results may differ from the amount accrued on our consolidated balancesheets.

 

**Operating Results**

 

*Summary of Operating Results*

 

As of September 30, 2009, we own and operate theSeneca Niagara Casino and Hotel in Niagara Falls, New York; the Seneca AlleganyCasino and Hotel in Salamanca, New York; and the Seneca Buffalo Creek Casino inBuffalo, New York.  In addition, LewistonGolf Course Corporation was established to operate a golf course that iscurrently under construction.  All of ourrevenues are derived from our operations at our completed facilities.

 

The following table summarizes our results fromoperations by corporation and/or facility:

 
| ** **                             | ** ** | **Fiscal Years Ended**     | ** ** |
|----------------------------------------|------------|--------------------------------------|------------|
| ** **                             | ** ** | **September 30,**               | ** ** |
| ** **                             | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                             | ** ** | **(Dollars in Thousands)** | ** ** |
| Net  revenues:                         |       |                                 |       |   |   |   |   |
| Seneca  Niagara Falls Casino and Hotel |       | $                                    | 386,127    |   | $ | 432,710 |   | $ | 418,363 |   |
| Seneca  Allegany Casino and Hotel      |       | 152,259                              |       | 166,631 |   | 168,295 |   |
| Seneca  Buffalo Creek Casino           |       | 41,124                               |       | 32,747 |   | 6,306 |   |
| Total                                  |       | $                                    | 579,510    |   | $ | 632,088 |   | $ | 592,964 |   |
|                                   |       |                                 |       |   |   |   |   |
| Operating  expenses:                   |       |                                 |       |   |   |   |   |
| Seneca  Niagara Falls Casino and Hotel |       | $                                    | 280,715    |   | $ | 298,588 |   | $ | 287,362 |   |
| Seneca  Allegany Casino and Hotel      |       | 159,606                              |       | 154,144 |   | 138,144 |   |
| Seneca  Buffalo Creek Casino           |       | 118,253                              |       | 30,819 |   | 17,955 |   |
| Seneca  Hickory Stick Golf Club        |       | 363                                  |       | 234 |   | — |   |
| Seneca  Gaming Corporation             |       | 2,265                                |       | 4,115 |   | 1,270 |   |
| Total                                  |       | $                                    | 561,202    |   | $ | 487,900 |   | $ | 444,731 |   |
|                                   |       |                                 |       |   |   |   |   |
| Operating  income (loss):              |       |                                 |       |   |   |   |   |
| Seneca  Niagara Falls Casino and Hotel |       | $                                    | 105,412    |   | $ | 134,122 |   | $ | 131,001 |   |
| Seneca  Allegany Casino and Hotel      |       | (7,347                               | )          | 12,487 |   | 30,151 |   |
| Seneca  Buffalo Creek Casino           |       | (77,129                              | )          | 1,928 |   | (11,649 | ) |
| Seneca  Hickory Stick Golf Club        |       | (363                                 | )          | (234 | ) | — |   |
| Seneca  Gaming Corporation             |       | (2,265                               | )          | (4,115 | ) | (1,270 | ) |
| Total                                  |       | $                                    | 18,308     |   | $ | 144,188 |   | $ | 148,233 |   |

 

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The most importantfactors and trends contributing to our operating performance during Fiscal 2009were:

 

·                                          Theongoing economic recession, which has reduced consumer spending and encouragedan apparent transition to gaming of logistical convenience;

 

·                                          Adversecredit market conditions which have reduced the availability, and increased thecost, of capital for expansion projects to generate additional revenues;

 

·                                          Recognitionof an impairment charge in the amount of $107.6 million related to costsincurred on certain construction and development projects;

 

·                                          Limitedmaintenance capital investment in both our Niagara Falls and Alleganyproperties;

 

·                                          Additionalmarketing by New York racinos which may be attributable, in part, to recent NewYork State legislation providing financial support for marketing to racinos;

 

·                                          Recruitmentand retention issues pertaining to key members of the management team,including, but not limited to, recruitment of a new Chief Executive Officer,General Manager of the Seneca Niagara Casino and Hotel and General Counsel.

 

·                                          Thereduction of expenses attributable to implementation of operating initiatives,which included:  a   continued focus on hotel yield management;reduced food and beverage costs as a percentage of food and beverage revenue;repricing of our food and beverage products; initiatives to increase our cashpaying patrons; reduced marketing costs; and labor efficiencies achievedthrough active monitoring of scheduling activities and a reduction inworkforce;

 

·                                          Therescission of a Fiscal 2008 Council request for $20 million, a reduction inmonthly distributions to the Nation from the current level of $4 million permonth to $3 million per month commencing in March 2009, and a reduction inHead Leases payments for Fiscal 2009 from $81 million to $76 million;

 

·                                          Extensionof hours of operation of the Buffalo Creek facility, effective February 2009;

 

·                                          Increasedpromotional room rates offered to casino hotel guests, designed to maintainoccupancy levels to support gaming and non-gaming revenues; and

 

·                                          Theeffects of increased Head Lease payments to the Nation from $62 million to $76million, which have reduced our cash reserves and funds available forconstruction, capital reinvestment and liquidity reserves;

 

The most important factors and trends contributing toour operating performance during Fiscal 2008 were:

 

·                                          Theopening of our temporary facility on the Buffalo Creek Territory in July 2007,which was in operation for all of Fiscal 2008, compared to approximately threemonths during Fiscal 2007;

 

·                                          Expansionof our temporary facility on the Buffalo Creek Territory during the secondquarter of 2008 to include an additional 109 slot machines;

 

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·                                          Ourability to enroll patrons in our cross-property Seneca Link Player’s Cardprogram, which continues to facilitate the use of effective direct mail andtargeted marketing programs to establish patron loyalty to the Seneca brand ata profitable level;

 

·                                          Ourmix of slot machines, which we believe is superior to our competition andincludes the latest product offerings by leading slot manufacturers, andpromotes the ongoing development of a Seneca brand inter-property progressivelink;

 

·                                          Operatinginitiatives which include:  continuedfocus on hotel yield management; reduced food and beverage costs as a percentof food and beverage revenue; repricing of our food and beverage products;initiative to increase our cash paying patrons; and labor efficiencies achievedthrough active monitoring of scheduling activities;

 

·                                          Afour percentage point increase in the slot exclusivity fee rate paid to theState of New York from 18% to 22%, effective January 1, 2007, pursuant tothe Compact;

 

·                                          Theopening in February 2007 of a competing gaming facility at Presque IsleDowns in Erie, Pennsylvania, approximately 80 miles from the Seneca AlleganyCasino and Hotel and 120 miles from the Seneca Niagara Casino and Hotel,offering approximately 2,000 slot machines;

 

·                                          Tumultuousand volatile economic conditions and general consumer uncertainty leading toreduced consumer spending and an apparent transition to gaming of logisticalconvenience;

 

·                                          Adversecredit market conditions which have negatively impacted availability of fundingsources to complete construction at a borrowing rate which provides for adesirable return on investment;

 

·                                          Increasesin payments to the Nation, which have limited our cash reserves and fundsavailable for construction, capital reinvestment and liquidity reserves; and

 

·                                          Reducedcapital reinvestment in both our Niagara Falls and Allegany properties.

* *

*GrossRevenues*

 

Grossrevenues consisted of the following:

 
| ** **                       | ** ** | **Fiscal Years Ended**     | ** ** |
|----------------------------------|------------|--------------------------------------|------------|
| ** **                       | ** ** | **September 30,**               | ** ** |
| ** **                       | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                       | ** ** | **(Dollars in Thousands)** | ** ** |
| Gaming                           |       | $                                    | 586,774    |   | $ | 632,580 |   | $ | 595,826 |   |
| Food  and beverage               |       | 58,476                               |       | 63,272 |   | 56,608 |   |
| Lodging                          |       | 24,252                               |       | 28,757 |   | 24,352 |   |
| Retail,  entertainment and other |       | 23,259                               |       | 25,032 |   | 20,190 |   |
| Total                            |       | $                                    | 692,761    |   | $ | 749,641 |   | $ | 696,976 |   |

 

The table below summarizes thepercentage of gross revenues from each revenue source:

 
| ** **                       | ** ** | **Fiscal Years Ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **September 30,**           | ** ** |
| ** **                       | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| Gaming                           |       | 84.7                             | %          | 84.4 | % | 85.5 | % |
| Food  and beverage               |       | 8.4                              | %          | 8.5 | % | 8.1 | % |
| Lodging                          |       | 3.5                              | %          | 3.8 | % | 3.5 | % |
| Retail,  entertainment and other |       | 3.4                              | %          | 3.3 | % | 2.9 | % |
| Total                            |       | 100.0                            | %          | 100.0 | % | 100.0 | % |

 

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Each revenue source contributing toour gross revenues is described below.

* *

*Gaming Revenue*

 

2009 Compared to 2008

 

Our gaming revenue for Fiscal 2009decreased $45.8 million or 7%, when compared to Fiscal 2008, primarily due tothe impact of adverse economic conditions which reduced consumer demand forgaming and entertainment offerings.

 

Our net gaming revenue, net ofpromotional credits of $55.5 million and $50.9 million in Fiscal 2009 and 2008,respectively, decreased $50.4 million, or 9%, when comparing theseperiods.  During Fiscal 2009, SenecaNiagara Casino and Hotel’s net gaming revenue decreased $44.7 million, or 11%;Seneca Allegany Casino and Hotel’s net gaming revenue decreased $13.8 million,or 9%; and Seneca Buffalo Creek Casino’s net gaming revenue increased $8.1million, or 25% when compared to Fiscal 2008.

 

2008Compared to 2007

 

Our gamingrevenue for Fiscal 2008 increased $36.7 million or 6%, when compared to Fiscal2007, primarily due to the opening of the Seneca Buffalo Creek temporaryfacility in July 2007, which added 244 slot machines to our gamingportfolio, and facilitated continued growth in our patron base.

 

Our netgaming revenue, net of promotional credits of $50.9 million and $42.0 millionin Fiscal 2008 and 2007, respectively, increased $27.8 million, or 5%, whencomparing these periods.  During Fiscal2008, Seneca Niagara Casino and Hotel’s net gaming revenue increased $6.8million, or 2%; Seneca Allegany Casino and Hotel’s net gaming revenue decreased$5.0 million, or 3%; and Seneca Buffalo Creek Casino’s net gaming revenueincreased $26.0 million, or 418% when compared to Fiscal 2007.

 

Revenues from slot machines are thelargest component of our gaming revenues. The following table presents data related to slot revenues (inthousands, except where noted):

 
| ** **                                           | ** ** | **Fiscal Years Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                           | ** ** | **September 30,**           | ** ** |
| ** **                                           | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| Slot  handle                                         |       | $                                | 6,255,252  |   | $ | 6,738,084 |   | $ | 6,285,270 |   |
| Gross  slot revenue                                  |       | $                                | 540,524    |   | $ | 579,128 |   | $ | 535,764 |   |
| Net  slot revenue                                    |       | $                                | 472,336    |   | $ | 513,192 |   | $ | 476,618 |   |
| Weighted  average number of slot machines (in units) |       | 6,646                            |       | 6,708 |   | 6,480 |   |
| Gross  slot hold percentage                          |       | 8.64                             | %          | 8.59 | % | 8.52 | % |
| Gross  slot win per unit per day (in dollars)        |       | $                                | 223        |   | $ | 236 |   | $ | 227 |   |

 

2009Compared to 2008

 

Net slotrevenue decreased $40.9 million, or 8%, when comparing Fiscal 2009 to 2008.Slot promotional credits, which are recorded in gross slot revenues andpromotional allowances, amounted to $36.5 million and $31.6 million at SenecaNiagara Casino and Hotel during Fiscal 2009 and 2008, respectively, and $19.0million and $19.3 million at Seneca Allegany Casino 

 

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and Hotelduring the same periods.  During Fiscal2009, slot promotional credit play increased at Seneca Niagara Falls Casino andHotel due to increased marketing promotions offering slot promotional creditsand decreased at Seneca Allegany Casino and Hotel primarily due to decreasedslot play.

 

2008Compared to 2007

 

Net slotrevenue increased $36.6 million, or 8%, when comparing Fiscal 2008 to 2007.Slot promotional credits, which are recorded in gross slot revenues andpromotional allowances, amounted to $31.6 million and $26.3 million at SenecaNiagara Casino and Hotel during Fiscal 2008 and 2007, respectively, and $19.3million and $15.7 million at Seneca Allegany Casino and Hotel during the sameperiods.  During Fiscal 2008, slot promotionalcredit play increased at both properties primarily due to increased slot playand the increased frequency of certain promotions which enabled patrons toexchange points earned on their Seneca Link Player’s Card for promotionalcredits.

 

The following table presents datarelated to table game revenues (in thousands, except where noted):

 
| ** **                                         | ** ** | **Fiscal Years Ended** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **September 30,**           | ** ** |
| ** **                                         | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| Table  games drop                                  |       | $                                | 369,591    |   | $ | 420,474 |   | $ | 452,805 |   |
| Net  table games revenue                           |       | $                                | 58,478     |   | $ | 68,033 |   | $ | 76,777 |   |
| Weighted  average number of table games (in units) |       | 144                              |       | 142 |   | 138 |   |
| Table  games hold percentage                       |       | 15.77                            | %          | 16.20 | % | 16.97 | % |
| Table  games revenue per unit per day (in dollars) |       | $                                | 1,110      |   | $ | 1,310 |   | $ | 1,524 |   |

 

2009Compared to 2008

 

Net tablegames revenue decreased $9.6 million, or 14%, when comparing Fiscal 2009 to2008.  During Fiscal 2009, Seneca NiagaraCasino and Hotel’s net table games revenue decreased $7.0 million, or 14% andSeneca Allegany Casino and Hotel’s net gaming revenue decreased $2.6 million,or 15% when compared to Fiscal 2008. The decrease was due to those factorspreviously noted, as well as a decrease in the table games hold percentage whencomparing these same periods.

 

2008Compared to 2007

 

Net tablegames revenue decreased $8.7 million, or 11%, when comparing Fiscal 2008 to2007.  During Fiscal 2008, Seneca NiagaraCasino and Hotel’s net table games revenue decreased $5.9 million, or 10% andSeneca Allegany Casino and Hotel’s net gaming revenue decreased $2.8 million,or 15% when compared to Fiscal 2007. The decrease was attributable primarily toa decrease in the table games hold percentage when comparing these sameperiods.

 

*Food andBeverage Revenue*

 

Thefollowing table presents data related to food and beverage revenue (inthousands, except where noted):

 
| ** **                  | ** ** | **Fiscal Years Ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **September 30,**           | ** ** |
| ** **                  | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| Covers                      |       | 3,947                            |       | 4,342 |   | 4,226 |   |
| Average  Check (in dollars) |       | $                                | 14.82      |   | $ | 14.57 |   | $ | 13.40 |   |
|                             |            |                                  |            |  |  |  |  |  |  |  |

 

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2009Compared to 2008

 

DuringFiscal 2009, our consolidated food and beverage revenue decreased $4.8 million,or 8% when compared to Fiscal 2008, due primarily to negative economicconditions leading to a widespread decrease in overall consumer spending, whichresulted in a decrease in the number of patrons visiting our casinos andrestaurants, reflected as a decrease in covers, offset by an increase in theaverage revenue per check.  Seneca NiagaraCasino and Hotel’s food and beverage revenue accounted for $4.3 million of thedecrease; Seneca Allegany Casino and Hotel’s food and beverage revenueaccounted for $0.5 million of the decrease; and Seneca Buffalo Creek Casino’sfood and beverage revenue remained flat compared to the prior year.  During Fiscal 2009 and 2008, 52% and 55%,respectively, of our food and beverage revenue were the result of Seneca LinkPlayer’s Card point redemptions.

 

2008Compared to 2007

 

DuringFiscal 2008, food and beverage revenue increased $6.7 million, or 12% whencompared to Fiscal 2007, to $63.3 million. Seneca Niagara Casino and Hotel contributed $4.8 million of theincrease; Seneca Allegany Casino and Hotel contributed $1.6 million of theincrease; and Seneca Buffalo Creek Casino accounted for $0.3 million of theincrease.  During Fiscal 2008 revenuesfrom food and beverage cash sales increased 16% when compared to Fiscal2007.  During Fiscal 2008 and 2007, 55%and 56%, respectively, of our food and beverage revenue were the result ofSeneca Link Player’s Card point redemptions.

 

*LodgingRevenue*

 

Thefollowing table presents data related to lodging revenue:

 
| ** **                           | ** ** | **Fiscal Years Ended** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|
| ** **                           | ** ** | **September 30,**           | ** ** |
| ** **                           | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| Occupied  rooms                      |       | 280,915                          |       | 281,924 |   | 233,286 |   |
| Average  daily room rate (ADR)       |       | $                                | 86         |   | $ | 102 |   | $ | 104 |   |
| Occupancy  rate                      |       | 95.2                             | %          | 95.1 | % | 90.2 | % |
| Revenue  per available room (REVPAR) |       | $                                | 82         |   | $ | 97 |   | $ | 94 |   |

 

2009Compared to 2008

 

DuringFiscal 2009, our lodging revenue decreased by $4.5 million, or 16%, whencompared to Fiscal 2008, primarily due to a decrease in average rate peroccupied room.  During 2009, SGCcontinued to offer hotel room rates at discounted prices in an effort tocontinue to stimulate casino patron visitation and encourage longer tripduration.  Seneca Niagara Casino andHotel’s lodging revenue accounted for $3.4 million of the decrease and SenecaAllegany Casino and Hotel’s lodging revenue accounted for $1.1 million of thedecrease.  During Fiscal 2009 and 2008,73% and 74%, respectively, of our lodging revenue was the result of Seneca LinkPlayer’s Card point redemptions.

 

2008Compared to 2007

 

DuringFiscal 2008 our lodging revenue increased by $4.4 million, or 18% when comparedto Fiscal 2007 due to increased occupancy, offset by a slight decrease inaverage rate per occupied room.   SenecaNiagara Casino and Hotel contributed $1.1 million of the increase and SenecaAllegany Casino and Hotel contributed $3.3 million of the increase due to its212-room resort hotel being open for the entire fiscal year compared toapproximately six months during the fiscal year ended September 30, 2007.During Fiscal 2008 and 2007, 74% and 78%, respectively, of our lodging revenuewas the result of Seneca Link Player’s Card point redemptions.

 

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*Retail,Entertainment and Other Revenue*

 

2009Compared to 2008

 

DuringFiscal 2009, our retail, entertainment and other revenue decreased $1.8million, or 7%, when compared to Fiscal 2008 primarily due to the impact ofadverse economic conditions which reduced consumer demand for gaming andentertainment offerings.  During Fiscal2009 and 2008, 76% of our retail revenue, and 53% of our entertainment revenue,respectively, was attributable to Seneca Link Player’s Card point redemptions.

 

2008Compared to 2007

 

DuringFiscal 2008, our retail, entertainment and other revenue increased by $4.8million, or 24%, compared to the prior fiscal year.  The increase was primarily attributable tohigher entertainment revenue due to the opening of the event center at SenecaAllegany Casino and Hotel in March 2008 and higher commissions received onATM and credit cash advance services. During Fiscal 2008 and 2007, 76% and 82%, respectively, of our retailrevenue, and 53% and 61% of our entertainment revenue, respectively, wasattributable to Seneca Link Player’s Card point redemptions.

 

*PromotionalAllowances*

 

SGCoperates a complimentary program in which food and beverage, retail, entertainment,and other services are provided to patrons based on points earned through theSeneca Link Player’s Card.  The retailvalue of these complimentary items is included in gross revenues and thendeducted as promotional allowances to arrive at net revenues.

 

The retailvalue of providing such promotional allowances was included in revenues asfollows:

 
| ** **                       | ** ** | **Fiscal Years Ended**     | ** ** |
|----------------------------------|------------|--------------------------------------|------------|
| ** **                       | ** ** | **September 30,**               | ** ** |
| ** **                       | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                       | ** ** | **(Dollars in Thousands)** | ** ** |
| Gaming                           |       | $                                    | 55,519     |   | $ | 50,917 |   | $ | 41,989 |   |
| Food  and beverage               |       | 30,357                               |       | 34,577 |   | 31,781 |   |
| Lodging                          |       | 17,803                               |       | 21,094 |   | 18,956 |   |
| Retail,  entertainment and other |       | 9,572                                |       | 10,965 |   | 11,286 |   |
| Total                            |       | $                                    | 113,251    |   | $ | 117,553 |   | $ | 104,012 |   |

 

Theestimated cost of providing such promotional allowances was as follows:

 
| ** **                       | ** ** | **Fiscal Years Ended**     | ** ** |
|----------------------------------|------------|--------------------------------------|------------|
| ** **                       | ** ** | **September 30,**               | ** ** |
| ** **                       | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                       | ** ** | **(Dollars in Thousands)** | ** ** |
| Food  and beverage               |       | $                                    | 22,272     |   | $ | 26,540 |   | $ | 27,071 |   |
| Lodging                          |       | 8,759                                |       | 9,450 |   | 8,672 |   |
| Retail,  entertainment and other |       | 8,020                                |       | 9,874 |   | 9,673 |   |
| Total                            |       | $                                    | 39,051     |   | $ | 45,864 |   | $ | 45,416 |   |

 

Promotional allowances as a percentof gaming revenue were 19.3%, 18.6% and 17.5% during Fiscal 2009, 2008 and2007, respectively.

 

2009 Compared to 2008

 

Promotional allowances decreased $4.3million, or 4%, when comparing Fiscal 2009 to Fiscal 2008. As shown in thetable, 

 

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above, gaming promotional allowancesincreased $4.6 million while Food and Beverage, Lodging, and Retail, Entertainmentand Other promotional allowances decreased $4.2 million, $3.3 million and $1.4million, respectively.

 

2008 Compared to 2007

 

Promotional allowances increased$13.5 million, or 13% from Fiscal 2007 to Fiscal 2008.  The increase is primarily due to an increasein marketing programs encouraging the use of points earnedthrough the Seneca Link Player’s Card to increase trip frequency and extendtrip duration.

* *

*DetailedOperating Expense Information*

 
| ** **                               | ** ** | **Fiscal Years Ended**     | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|
| ** **                               | ** ** | **September 30,**               | ** ** |
| ** **                               | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                               | ** ** | **(Dollars in Thousands)** | ** ** |
| Operating  expenses:                     |       |                                 |       |   |   |   |   |
| Gaming                                   |       | $                                    | 152,199    |   | $ | 169,472 |   | $ | 153,259 |   |
| Food  and beverage                       |       | 44,505                               |       | 49,907 |   | 47,863 |   |
| Lodging                                  |       | 12,368                               |       | 13,191 |   | 10,218 |   |
| Retail,  entertainment and other         |       | 14,188                               |       | 16,952 |   | 14,530 |   |
| Advertising,  general and administrative |       | 182,172                              |       | 187,011 |   | 153,838 |   |
| Pre-opening  costs                       |       | 363                                  |       | 286 |   | 15,426 |   |
| Depreciation  and amortization           |       | 47,850                               |       | 51,081 |   | 49,597 |   |
| Impairment  of property and equipment    |       | 107,557                              |       | — |   | — |   |
|                                     |       |                                 |       |   |   |   |   |
| Operating  expenses                      |       | $                                    | 561,202    |   | $ | 487,900 |   | $ | 444,731 |   |

 

*GamingExpenses*

 

Gamingexpenses principally consist of costs incurred from operating our table gamesand slot machines, of which, the primary components are payroll and payrollrelated costs and the slot exclusivity fee paid to New York State pursuant tothe Compact.

 

Thefollowing tables summarizes the exclusivity fees expense by property:

 
| ** **                        | ** ** | **Fiscal Years Ended**     | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|
| ** **                        | ** ** | **September 30,**               | ** ** |
| ** **                        | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                        | ** ** | **(Dollars in Thousands)** | ** ** |
| Seneca  Niagara Casino and Hotel  |       | $                                    | 68,628     |   | $ | 77,446 |   | $ | 71,440 |   |
| Seneca  Allegany Casino and Hotel |       | 28,452                               |       | 31,160 |   | 30,503 |   |
| Seneca  Buffalo Creek Casino      |       | 8,878                                |       | 7,094 |   | 1,369 |   |
| Total                             |       | $                                    | 105,958    |   | $ | 115,700 |   | $ | 103,312 |   |

 

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2009Compared to 2008

 

The slotexclusivity fee decreased $9.7 million, from $115.7 million in Fiscal 2008 to$106.0 million for Fiscal 2009, due to a decrease in net slot revenues.

 

2008Compared to 2007

 

Theincrease in the slot exclusivity fee is attributed to an increase in net slotrevenue and an increase in the exclusivity fee rate from 18% to 22%, effective January 1,2007.  When comparing Fiscal 2008 toFiscal 2007, the increase in slot exclusivity fees resulting from the 4% rateincrease being in effect for the entire fiscal year was $21.0 million.

 

Gamingexpenses as a percent of gaming revenues were 25.9%, 26.7% and 25.7%, forFiscal 2009, 2008 and 2007, respectively.

* *

*Food andBeverage Expenses*

 

Food andbeverage expenses represent those costs incurred for the operation of ourrestaurants, snack bars and beverage outlets. The primary components of theseexpenses are the cost of food and beverage and payroll and payroll relatedexpenses for team members providing the services.

 

2009Compared to 2008

 

DuringFiscal 2009, food and beverage costs decreased $5.4 million, or 11%, whencompared to Fiscal 2008, due to lower volumes, reflected as a decrease incovers (as discussed above), and a continued concerted effort to reduce allcomponents of such costs, while maintaining superior product offerings to ourpatrons. The number of covers decreased 9% for Fiscal 2009, when compared toFiscal 2008, contributing approximately $2.0 million to the decrease. Loweraverage costs of goods sold of 9% contributed approximately $1.8 million to thedecrease. Lower payroll and other operating expenses of $1.0 million and $0.6million, respectively, also contributed to the decrease.

 

2008Compared to 2007

 

DuringFiscal 2008, our food and beverage expenses increased $2.0 million, or 4%, whencompared to Fiscal 2007.  The increasecan be attributed to an increase in food and beverage revenues, offset by adecrease in average food and beverage costs associated with providing suchservices.

 

Food andbeverage expenses as a percentage of food and beverage revenues were 76.1%,78.9% and 84.5% for Fiscal 2009, 2008 and 2007, respectively.

* *

*LodgingExpenses*

 

Lodgingexpenses represent those costs incurred for the operation of our luxury hotelat Seneca Niagara Casino and Hotel and our resort hotel at Seneca AlleganyCasino and Hotel.  The components ofthese expenses include payroll and payroll related expenses, guest amenitysupplies, laundry and other expenses.

 

2009Compared to 2008

 

DuringFiscal 2009, lodging expenses decreased $0.8 million, or 6%, as compared toFiscal 2008.  The decrease is primarilydue to a $0.7 million decrease in payroll and related expenses.

 

2008Compared to 2007

 

Lodgingexpenses increased $3.0 million during Fiscal 2008, or 29%, when compared toFiscal 2007.  The increase is primarilydue to a full year of operation of the resort hotel at Seneca Allegany Casinoand Hotel during Fiscal 2008 compared to six months of operation during Fiscal2007.  The most significant lodgingrelated expenses during Fiscal 2008 were $8.9 million incurred for payroll andpayroll related expenses, $2.1 million in laundry expense and $0.8 million inexpenses related to providing in-room amenities.

 

Lodgingexpenses as a percent of lodging revenues were 51.0%, 45.9% and 42.0%, forFiscal 2009, 2008 and 2007, 

 

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respectively.

* *

*Retail,Entertainment and Other Expenses*

 

Retail,entertainment and other expenses primarily represent those costs incurred forthe operation of our retail shops and spas and entertainment offerings. Thecomponents of these expenses include payroll and payroll related expenses, thepurchase of products offered for sale in our retail outlets and spas andcontract costs for entertainers.

 

2009Compared to 2008

 

For Fiscal2009, these costs decreased approximately $2.8 million, or 16%, compared toFiscal 2008, due principally to a $2.2 million decrease in headlineentertainment costs and a $0.9 million decrease in retail cost of sales, offsetby a $0.3 million increase in payroll and payroll related costs.

 

2008Compared to 2007

 

Retail,entertainment and other expenses increased $2.4 million during Fiscal 2008, or17%, when compared to Fiscal 2007, primarily due to the increase in contractentertainment costs resulting from the opening of the events center at SenecaAllegany Casino and Hotel in March 2008.

 

Retail,entertainment and other expenses as a percentage of retail, entertainment andother revenues were 61.0%, 67.7% and 72.0%, for Fiscal 2009, 2008 and 2007,respectively.

* *

*Advertising,General and Administrative Expenses*

 

Advertising,general and administrative expenses consist primarily of payroll and payrollrelated expenses, regulatory fees, advertising and marketing costs, Head Leaseexpense, insurance, legal and utility costs.

 

2009Compared to 2008

 

Advertising,general and administrative expenses decreased $4.8 million during Fiscal 2009,or 3%, when compared to Fiscal 2008. The decrease was primarily due to a $14.0million increase in Head Lease expense, offset by a decrease of $5.8 million inmarketing related expenses including: advertising expense of $1.9 million, promotionalexpense of $2.4 million and special events expense of $1.5 million; a decreaseof $4.7 million in payroll and related expenses; a $2.2 million decrease inutility costs; a $1.3 million decrease in outside services (primarily relatedto tour bus services); a $0.7 million decrease in insurance expenses; a $0.6million decrease in professional services expenses; a $0.5 million decrease insupplies expenses and a $1.7 million decrease in various other operatingexpenses.  Furthermore, during Fiscal 2008,a non-recurring write off of $1.2 million was recognized related to externaldevelopment costs associated with Seneca Massachusetts Gaming Corporation.

 

2008Compared to 2007

 

Advertising,general and administrative expenses increased $33.1 million during Fiscal 2008,or 22%, when compared to Fiscal 2007. The increase was primarily due to a $26.4 million increase in Head Leaseexpense paid to the Nation for rental of land used in the operation of ourfacilities; a $3.8 million increase in promotional expenses; a $1.9 millionincrease in utilities resulting from an increase in utilization due to theexpanded facilities and increased utility costs, such as natural gas; and a$0.5 increase in insurance expenses.

 

Advertising,general and administrative expenses as a percent of gross revenues were 26.3%,24.9% and 22.1%, for Fiscal 2009, 2008 and 2007, respectively.

* *

*Pre-openingExpenses*

 

Pre-openingexpenses are non-recurring costs incurred to support the expected opening ofnew facilities.

 

DuringFiscal 2009, pre-opening expenses incurred were primarily related to theconstruction and preparation of the Seneca 

 

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HickoryStick Golf Club, to be operated by the Lewiston Golf Course Corporation.  During Fiscal 2009, pre-opening expensesincreased $0.1 million, or 27%, when compared to Fiscal 2008.

 

DuringFiscal 2008, pre-opening expenses incurred were primarily related to thepreparation of the Seneca Hickory Stick Golf Club, to be operated by LewistonGolf Course Corporation.  Pre-openingexpenses decreased $15.1 million during Fiscal 2008 due to the opening of theresort hotel at Seneca Allegany Casino and Hotel and the temporary casino atSeneca Buffalo Creek Casino during Fiscal 2007.

* *

*DepreciationExpense*

 

DuringFiscal 2009, depreciation expense was $47.9 million, a decrease of $3.2million, or 6%, when compared to the prior fiscal year.

 

DuringFiscal 2008, depreciation expense was $51.1 million, an increase of $1.5million, or 3%, when compared to the prior fiscal year.

* *

*Impairment of Property andEquipment*

 

On August 27, 2008,the construction activities at Seneca Allegany Casino and Hotel and SenecaBuffalo Creek Casino, as previously described, were suspended for reasonsincluding:  the economic recession;inability to obtain construction financing at reasonable interest rates; andoperating and other demands on our available cash, such as our payments and distributionsto the Nation.  As of September 30,2009, due to the continuation of weak economic conditions, adverse creditmarket conditions and an uncertain economic outlook, construction remainedsuspended indefinitely.  Furthermore,certain master planning efforts related to the future expansion of the SenecaNiagara Falls property were suspended for the same reasons.  As a result of these circumstances animpairment charge of $107.6 million was recognized during Fiscal 2009 basedupon an estimate of the net realizable value based on an estimate ofundiscounted cash flows that projected no future benefit.  The reported fair value of zero is consideredto be level three within the fair value hierarchy as established by ASC 820, *Fair Value Measurements and Disclosures*.  Level three inputs are defined as inputs forwhich significant valuation assumptions are unobservable in a market andtherefore value is based on the best available data, some of which isinternally developed and considers risk premiums that a market participantwould require.

 

*Other Non-Operating Income and(Expenses), net*

 

The following tablesummarizes information related to other non-operating income and expenses:

 
| ** **                        | ** ** | **Fiscal Years Ended**     | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|
| ** **                        | ** ** | **September 30,**               | ** ** |
| ** **                        | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                        | ** ** | **(Dollars in Thousands)** | ** ** |
| *Non-operating income (expenses)* |       | $                                    | 287        |   | $ | (5,600 | ) | $ | 3,220 |   |
|                                   |            |                                      |            |  |  |  |  |  |  |  |

 

During Fiscal 2009 werecorded an other-than-temporary loss on one specific investment of $0.2million, as other non-operating expense, and the cost basis of this investmenthas been reduced accordingly.  Alsoduring Fiscal 2009 we recorded the reversal of an unapplied constructionsettlement claims reserve of $0.5 million, as other non-operating income.During Fiscal 2008 we recorded an other-than-temporary loss on one specificinvestment of $4.2 million, as other non-operating expense, and the cost basisof this investment has been reduced accordingly. Also during Fiscal 2008 werecorded $1.4 million in lease termination costs as other non-operating expenserelated to amounts paid to a tenant for early termination of a lease agreementrelated to space in the SGC administration building.  During Fiscal 2007, we had non-operatingincome of $3.7 million, primarily resulting from the settlement of an on-goingarbitration proceeding involving a dispute with the former construction managerfor our luxury hotel expansion project in Niagara Falls.

 

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*Interest Income*

 

Interest income was $0.2million, $1.3 million and $3.9 million, for Fiscal 2009, 2008 and 2007,respectively.  The decrease in interestincome can be attributed to the decrease in the average cash balance on depositwith financial institutions in interest bearing accounts when comparing theseperiods.

 

*Interest Expense*

 

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

 
| ** **         | ** ** | **Fiscal Years Ended**     | ** ** |
|--------------------|------------|--------------------------------------|------------|
| ** **         | ** ** | **September 30,**               | ** ** |
| ** **         | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **         | ** ** | **(Dollars in Thousands)** | ** ** |
| *Interest expense* |       | $                                    | 38,179     |   | $ | 37,325 |   | $ | 36,063 |   |
|                    |            |                                      |            |  |  |  |  |  |  |  |

 

DuringFiscal 2009, interest expense consisted primarily of interest on our $500million aggregate principal amount of 71⁄4% senior notes, including $3.2 millionof amortization related to financing costs and discount, which was partiallyoffset by $1.6 million of capitalized interest on our construction activitiesfor our Seneca Hickory Stick Golf Club.

 

During Fiscal 2008, interest expenserepresents interest on our $500 million aggregate principal amount of 71⁄4%senior notes and $3.2 million in amortization of related financing costs anddiscount, partially offset by $2.2 million of capitalized interest on ourconstruction activities for the conversion of the temporary casino structure atSeneca Allegany Casino and Hotel, the permanent casino at Seneca Buffalo CreekCasino and our Seneca Hickory Stick Golf Club.

* *

*Net (Loss) Income*

 

Net loss for Fiscal 2009was $19.4 million, compared to $102.6 million of net income for Fiscal 2008, adecrease of $122.0 million, for the reasons stated above.

 

Net income for Fiscal2008 was $102.6 million, compared to $119.3 million for Fiscal 2007, a decreaseof $16.7 million, or 14%, for the reasons stated above.

** **

**Liquidityand Capital Resources**

* *

*Cash Flows*

 
| ** **                                             | ** ** | **Year Ended September 30,** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                             | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                             | ** ** | **(Dollars in Thousands)**        | ** ** |
| Net  cash provided by operations                       |       | $                                 | 138,791    |   | $ | 158,853 |   | $ | 179,748 |   |
|                                                   |       |                              |       |   |   |   |   |
| Investing  Cash Flows                                  |       |                              |       |   |   |   |   |
| Capital  Expenditures                                  |       | (46,097                           | )          | (141,383 | ) | (163,648 | ) |
| Payments  for land acquisitions and other assets       |       | (6,248                            | )          | (5,874 | ) | (15,319 | ) |
| Decrease  in restricted cash                           |       | —                            |       | 14,579 |   | 11,221 |   |
| Deposits                                               |       | 82                                |       | (127 | ) | — |   |
| Sale  of investments, net                              |       | —                            |       | 14,600 |   | 42,700 |   |
|                                                   |       |                              |       |   |   |   |   |
| Net  cash used in investing activities                 |       | (52,263                           | )          | (118,205 | ) | (125,046 | ) |
|                                                   |       |                              |       |   |   |   |   |
| Financing  cash flows                                  |       |                              |       |   |   |   |   |
| Proceeds  from senior secured revolving loan agreement |       | 20,000                            |       | — |   | — |   |
| Payments  on senior secured revolving loan agreement   |       | (20,000                           | )          | — |   | — |   |
| Capital  contribution from the Nation                  |       | —                            |       | — |   | 3,198 |   |
| Distributions  paid to the Nation                      |       | (56,603                           | )          | (66,005 | ) | (57,433 | ) |
|                                                   |       |                              |       |   |   |   |   |
| Net  cash used in financing activities                 |       | (56,603                           | )          | (66,005 | ) | (54,235 | ) |
|                                                   |       |                              |       |   |   |   |   |
| Net  increase (decrease) in cash and cash equivalents  |       | 29,925                            |       | (25,357 | ) | 467 |   |
|                                                        |            |                                   |            |  |  |  |  |  |  |  |

 

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*Cash Flows—Operating Activities.*

 

2009 Compared to 2008

 

The $20.1 milliondecrease in cash flows from operations during Fiscal 2009 as compared to Fiscal2008 was due primarily to the $14.0 million increase in Head Lease expense,discussed above, and lower cash receipts from customers, resulting from reducedgaming revenue due to the ongoing economic downturn.

 

2008 Compared to 2007

 

The $20.9 milliondecrease in cash flow from operations during Fiscal 2008 as compared to Fiscal2007 was primarily due to:  a $16.7million decrease in net income, as previously described; an increase in netcash paid for current liabilities of $13.9 million; offset by an increase indepreciation expense of $1.5 million; an increase in an other than temporaryloss in investments of $3.7 million; an increase in write off of costs relatedto certain development projects in the amount of $1.2 million; and a decreasein net cash paid for, or an increase in cash received from, current andlong-term assets of $3.9 million.

* *

*Cash Flows—Investing Activities*.

 

2009 Compared to 2008

 

During Fiscal 2009, cashflows used in investing activities were approximately $52.3 million, comparedto $118.2 million during Fiscal 2008. The decrease of $65.9 million was primarily due to: a decrease in cashpaid for property and equipment of $95.3 million, offset by a decrease inproceeds from the sale of investments of $14.6 million and a $14.6 milliondecrease in cash provided by the release of restricted cash.

 

During Fiscal 2009,capital expenditures were $46.1 million compared to $141.4 million in Fiscal2008 and consisted of:  $15.6 millionrelating to the construction of the permanent Seneca Buffalo Creek Casino and Hotelon the Nation’s Buffalo Creek Territory; $6.9 million associated withpre-construction costs relating to the additional hotel tower at the SenecaAllegany Casino and Hotel; $5.2 million relating to construction of the SenecaHickory Stick Golf Club; and $1.0 million for the conversion of the temporarygaming facility at Seneca Allegany Casino and Hotel into an events center, withrelated amenities.  The remaining $17.4million in capital expenditures were principally for maintenance capitalexpenditures and the acquisition of equipment for existing casinooperations.  Our land acquisitions of$6.2 million include legal expenses and other acquisition costs related tocertain parcels within the 50 acre “footprint” described in the Compact withNew York State and designated for ownership by the Nation.

 

2008 Compared to 2007

 

During Fiscal 2008, cashflows used in investing activities were approximately $118.2 million, comparedto $125.0 million during Fiscal 2007. The decrease of $6.8 million was due to: a decrease in cash paid forproperty and equipment of $22.3 million; a decrease in cash paid for landacquisition of $9.4 million; and a $3.4 million increase in withdrawals fromrestricted cash; offset by a decrease in net sales of investments of $28.1 million.

 

During Fiscal 2008,capital expenditures were $141.4 million compared to $163.6 million duringFiscal 2007 and consisted of: ** **$8.4 million of expendituresassociated with the constructing and equipping the Seneca Allegany Casino &Hotel permanent gaming floor and amenities; $26.5 million for the conversion ofthe temporary gaming facility at Seneca Allegany Casino and Hotel into anevents center with related amenities; $9.7 million relating to constructionof the resort hotel tower at the Seneca Allegany Casino & Hotel;$64.8 million relating to construction of the permanent Seneca Buffalo CreekCasino and Hotel on the Nation’s Buffalo Creek 

 

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Territory; and $8.4million relating to construction of the Seneca Hickory Stick Golf Club. The remaining $23.6 million in capital expenditures was principally for theacquisition of equipment for existing casino operations and other maintenancecapital expenditures.

 

*CashFlows—Financing Activities.*

 

2009Compared to 2008

 

DuringFiscal 2009, net cash used in financing activities was $56.6 million, comparedto $66.0 million during Fiscal 2008, a decrease of $9.4 million.  The decrease was due to a decrease indistributions paid to the Nation of $9.4 million. Cash distributions were $42.2million and payments pursuant to the Distribution Agreement were $14.4 million.

 

2008Compared to 2007

 

DuringFiscal 2008, net cash used in financing activities was $66.0 million, comparedto $54.2 million during Fiscal 2007, an increase of $11.8 million.

 

DuringFiscal 2008, distributions to the Nation amounted to $66.0 million.  Cash distributions and dividends were $50.9million, payments pursuant to SGC’s obligations under the DistributionAgreement were $14.9 million, and other distributions of assets were $0.2million.

* *

*FinancingConsiderations*

 

In May 2004,SGC sold $300.0 million of 2004 senior notes, with net proceeds to SGC of$288.7 million after financing costs. These net proceeds were used principallyto fund in whole or in part: (1) SNFGC’s construction and equipping of theluxury hotel, which was completed and opened on March 31, 2006; (2) theacquisition of the remaining approximate 24 acres of the approximate 48 acresin the City of Niagara Falls, New York; (3) the payment of the EmpireState Development Corporation bonds to New York State, which were paid off on August 16,2004 for $22.0 million; (4) the repayment of a vendor equipment financing,which occurred in May 2004; and (5) a $25.0 million distribution tothe Nation, which was made in Fiscal 2004.

 

In May 2005,SGC sold $200.0 million of 2005 senior notes as an add-on to the 2004 seniornotes receiving gross proceeds of $193.0 million (as the issue price was 96.5%since the 2005 notes were issued with original issue discount).  Of the $193.0 million gross proceeds,approximately $126.7 million was used to pay in full a Term Loan andapproximately $4.7 million was used to pay fees and expenses associated withthe offering of the 2005 senior notes. The remaining $61.6 million in gross proceeds was used principally tofund certain costs associated with the expansion of our operations and forgeneral corporate purposes.

* *

*PrincipalDebt Arrangements.*

 

As of September 30,2009, our debt instruments consisted of the senior notes on which we pay afixed interest rate of 71⁄4%, and a $50.0 million Amended Senior SecuredRevolving Loan Agreement, which matures on December 31, 2011. Following is a summary of certain material terms of thesenior notes, the Term Loan, and the Senior Secured Revolving Loan Agreement.

 

The SeniorNotes.    On May 5,2004 and May 23, 2005, SGC issued $300.0 million and $200.0 million,respectively, in senior notes with fixed interest payable at a rate of 71⁄4% perannum due 2012, which we refer to collectively as the senior notes, under theIndenture. The notes are currently guaranteed by STGC, SEGC, SNFGC and LGCC.SNFGC became a guarantor of the senior notes upon payment in full of the TermLoan on May 23, 2005. LGCC became a guarantor of the senior notes upon itsformation in accordance with the terms of the Indenture.  Interest on the senior notes is payablesemi-annually on November 1 and May 1. The senior notes mature on May 1,2012. The senior notes are unsecured general obligations. As of September 30,2009, accrued interest on the senior notes was $15.1 million.

 

TheIndenture contains certain covenants, including limitations on restricted paymentsand the incurrence of indebtedness and reporting obligations. As of the date ofthis Annual Report, SGC is in compliance with all of its covenant requirementsin the Indenture.

 

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Amended Senior Secured Revolving LoanAgreement. Effective June 19, 2008, SGC entered into a$50.0 million Senior Secured Revolving Loan Agreement, which matured on June 19,2009, subject to extension by SGC at its election (at any time after the sixmonths anniversary of the closing date and prior to June 19, 2009) for anadditional period of six months provided that no default or event of defaultexisted at the time of election.  On June 11,2009, SGC exercised this election, extending the maturity date to December 19,2009.  Amounts borrowed under the SeniorSecured Revolving Loan Agreement bear interest at either one, three orsix-month LIBOR plus one and one quarter percent (1.25%), or the prime rate (asreported in The Wall Street Journal) plus one quarter percent (0.25%).  Any outstanding principal balance shall bepaid by, or on, the maturity date.

 

SGC’s obligations under the SeniorSecured Revolving Loan Agreement are secured by substantially all gaming andrelated assets (including substantially all gaming revenues) not constitutingreal property or improvements.  SGC’sobligations are guaranteed by SNFGC, STGC, SEGC and LGCC.  The guarantors’ obligations are secured bysubstantially all of each guarantor’s gaming and related assets (includingsubstantially all gaming revenues) not constituting real property orimprovements. The Senior Secured Revolving Loan Agreement contains certainfinancial covenants requiring minimum consolidated EBITDA of $160 million (on arolling 12 month basis) and compliance with certain leverage and coverageratios. The Senior Secured Revolving Loan Agreement also contains additionalcustomary covenants, including covenants restricting the incurrence ofadditional indebtedness, the creation of additional liens and the dispositionof assets. As of September 30, 2009, SGC was in compliance with allcovenants in the Senior Secured Revolving Loan Agreement.

 

As of September 30, 2009, at SGC’srequest, the lender under the Senior Secured Revolving Loan Agreement hadissued letters of credit totaling $19.6 million, $13.2 million of which may bedrawn upon to fund the purchase of certain parcels within the 50 acre “footprint”described in the Compact with New York State and designated for ownership bythe Nation, with the remaining $6.4 million issued in connection with worker’scompensation policies and certain other contracts, as required.  On October 29, 2008, SGC borrowed $20.0million under the Senior Secured Revolving Loan Agreement.  During the third quarter of fiscal year 2009,SGC paid $20.0 million on the Senior Secured Revolving Loan Agreement, leavingno outstanding balance at September 30, 2009.

 

Effective December 18, 2009, SGCamended the Senior Secured Revolving Loan Agreement to further extend thematurity date until December 31, 2011. Amounts borrowed under the AmendedSenior Secured Revolving Loan Agreement continue to bear interest at eitherone, three or six-month LIBOR plus one and one quarter percent (1.25%), or theprime rate (as reported in The Wall Street Journal) plus one quarter percent(0.25%), with any outstanding principal balance to be paid by, or on, the newmaturity date.  The $50.0 millioncommitment reduces in tandem with any reduction in the letter of creditrequirement imposed by ESDC (as described above), up to an aggregate reductionof $10.0 million.  The Amended SeniorSecured Revolving Loan Agreement requires that SGC maintain all of its depositand investment accounts with the lender, subject to limited exceptions forcertain existing accounts.

 

SGC’s obligations under the AmendedSenior Secured Revolving Loan Agreement continue to be secured by substantiallyall gaming and related assets (including substantially all gaming revenues) notconstituting real property or improvements. SGC’s obligations are guaranteed bySNFGC, STGC, SEGC and LGCC, and the guarantors’ obligations continue to besecured by substantially all of each guarantor’s gaming and related assets(including substantially all gaming revenues) not constituting real property orimprovements. The Amended Senior Secured Revolving Loan Agreement modifiescertain of the financial covenants contained in the Senior Secured RevolvingLoan Agreement, including reducing the minimum consolidated EBITDA covenantfrom $160 million to $145 million (on a rolling 12 month basis) while modifyingthe total leverage ratio (of total funded debt to EBITDA) to a limit of 3.5 to1.0.  The Amended Senior Secured RevolvingLoan Agreement also continues to contain additional customary covenants,including covenants restricting the incurrence of additional indebtedness, thecreation of additional liens and the disposition of assets.  As of the date of this Annual Report, SGC wasin compliance with all covenants in the Amended Senior Secured Revolving LoanAgreement.

* *

*DistributionAgreement Obligations*

 

On April 27, 2007,SGC entered into a Distribution Agreement among the Nation, the Seneca Nationof Indians Capital Improvements Authority, or the Authority, SGC and WellsFargo Bank, National Association as Trustee, in connection with the Authority’sissuance in two series (one tax exempt and the other taxable) of an aggregateprincipal amount of $159,495,000 special obligation bonds, or the 2007Bonds.  The Distribution Agreement obligates SGC, subject to anycontractual restrictions applicable to SGC (including, but not limited to,those contained in the Indenture governing SGC’s 2004 and 2005 senior notes),to make monthly distributions to the Nation at the times and in the amountsnecessary to enable the Authority to pay 

 

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the debt service on the2007 Bonds as required under the Authority’s indenture.  At the directionof the Nation and the Authority, SGC will pay such distributions directly tothe Trustee.  The Authority’s debt service commenced on June 1,2007.  For the period from June 1, 2007 through November 1,2007, the Authority’s debt service averaged approximately $0.9 million permonth. For the period from December 1, 2007 through June 1, 2008, theAuthority’s debt service averaged approximately $1.7 million per month.  In June 2008, it was determined that theamortization (debt service) schedule upon which the foregoing $1.7 millionmonthly payment was made, was incorrect. A corrected amortization schedule was provided and, after giving effectto a resulting credit for amounts overpaid, for the period from January 1,2008 through December 1, 2023, the Authority’s debt service averagesapproximately $1.2 million per month. The foregoing debt service averagesare based on scheduled payments of interest and principal under the Authority’sindenture and bonds and do not address the effects of any earlier call forredemption, by acceleration or otherwise.  The Distribution Agreementprovides that neither the Trustee nor the Authority’s bondholders will have anyrecourse under the Distribution Agreement to any revenues, assets or propertyof SGC or its subsidiaries should SGC fail to comply with its distributionobligations.  For the period ended September 30, 2009, SGCdistributed to the Nation $14.4 million for the Authority’s debt service on thespecial obligation bonds.

* *

*OtherCommitments*

 

We haveacquired approximately 45 acres in the City of Niagara Falls, New York,designated by New York State under the Compact for ownership by the Nation, andintend to acquire approximately three additional acres. Under the Compact, theNation is required to fund the acquisition of this property, including allrelated costs and expenses. As initial security for the Nation’s obligations topay site acquisition costs and in furtherance of the ongoing condemnationproceeding, the Nation was required to deliver, and has delivered, to theEmpire State Development Corporation, (ESDC) a letter of credit in the amountof $33.5 million representing 150% of the then estimate of the total remainingsite acquisition costs not yet paid by the Nation.  On July 13, 2006, we acquired,through the condemnation process, approximately 18 acres of land and tradefixtures appurtenant thereto from Fallsite, LLC, or Fallsite and Fallsville,LLC, or Fallsville, for an aggregate initial advance payment of $18.0 million,which land is a portion of the land in the City of Niagara Falls, New Yorkdesignated under the Compact for ownership by the Nation. Of this amount, $7.7 million was drawn on the letter ofcredit as part of the consideration for the purchase, leaving $25.8 millionavailable under the letter of credit.  In March 2007,an additional $11.5 million was drawn under the letter of credit to fund theacquisition of 18 additional parcels of land and certainimprovements.    In December 2007, an additional $3.0million was drawn under the letter of credit to fund the acquisition of sevenadditional parcels of land owned by the City of Niagara Falls.  In connection with the closing of the SeniorSecured Revolving Loan Agreement, at SGC’s request, the lender issued lettersof credit totaling $19.6 million, $13.2 million of which may now be drawn uponto fund any court-awarded amounts or settlements arising out of valuationproceedings relating to the purchase of the remaining parcels within the 50acre “footprint” described in the Compact. Ifthe estimate of such site acquisition costs increases or if certain otherevents occur, the Nation may have to provide an additional letter of credit orreplace the existing one with one for a larger monetary amount or, ifacceptable to the ESDC, provide a supplemental cash escrow amount.  Unreimbursed amounts on the letter of creditmay result in automatic draw-downs under the Senior Secured Revolving LoanAgreement.

 

The amounts paid to condemnees fromwhom we have acquired property are deemed to be advance payments. Pursuant tothe New York State Eminent Domain Procedure Law, or EDPL, the New York statecourts will determine the final purchase price to be paid to condemnees whoelect to challenge the initial appraised value of their property.  To date, all record owners from whom propertywas condemned pursuant to the EDPL have reserved rights to claim additionalcompensation.  Four record owners havefiled notices of claim to challenge the fair market value appraisals utilizedby ESDC. Fallsite LLC and Fallsville Splash, LLC have filed notices of claim inthe amounts of $40.0 million and $35.0 million for land and trade fixtures,respectively, relating to a former water park within the footprint.  ESDC’s fair market appraisal value for theforegoing was approximately $17.0 million. If a court determines that the value for the land and improvements,including trade fixtures, is higher than what ESDC has determined to be theirappraised values, then we may be liable for the difference and potentially alsoresponsible for certain additional costs and payments to the applicablecondemnee(s), such as their attorneys’ fees. The valuation trial proceedings with regard to the former water park arecomplete. The decision of the court is pending and is expected in early 2010.Intertrust Development had filed a notice of claim for $15.8 million for landand trade fixtures associated with a former Holiday Inn hotel within thefootprint. ESDC’s fair market appraisal value for the foregoing was $8.2million (excluding fixtures).  We haveagreed to a settlement of this matter with Intertrust, whereby Intertrust hasreceived an additional $3.8 million in addition to the appraisal value of $8.2million, and whereby we have agreed to purchase, for our business promotionaluse, tickets to Fallsview Waterpark, an affiliate of Intertrust, for $2.5million to be paid in three installments over three years.  Pursuant to the stipulation of settlement,Intertrust has executed a release of SNFGC, ESDC and the Seneca Nation ofIndians with respect to the valuation proceeding, and ESDC and Intertrust agreeto 

 

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file a stipulation of discontinuance.Additionally, JFD Holdings has filed a notice of claim for $1.1 million for aparcel of land at 621 Niagara Street within the footprint.  ESDC’s fair market appraisal for theforegoing is approximately $550,000.  Notrial date has yet been set. Also, three individuals have filed notices ofclaim with respect to four parcels within the footprint seeking $955,000, inaggregate, for the four parcels.  ESDC’sfair-market appraisal for the four properties, in aggregate, is $185,000.  No trial dates have been set.

 

If a court determines that the valuefor the land and improvements, including trade fixtures, is higher than whatESDC has determined to be their values, then we may be liable for thedifference and potentially also responsible for certain additional costs andpayments to the applicable condemnee(s), such as their attorneys’ fees.  As of September 30, 2009, $1.7 millionof the previously recorded reserve of $6.4 million remained for such mattersand is included in the other current and long-term liabilities sections on SGC’sconsolidated balance sheet.  Should ourliability be greater than our reserve for such matters, it could have anegative impact on our income and financial condition.

 

The additional land acquired by SNFGCin Niagara Falls, New York within the 50-acre “footprint” has not yet beentransferred to the Nation. We can provide no assurance that, upon transfer ofsuch land to the Nation, restricted fee status for such land will be sought bythe Nation or, if sought, approved.

* *

*Expansionand Development Plans*

 

On October 19, 2009 we brokeground on an expansion of our Seneca Buffalo Creek temporary facility, whichwill add approximately 5,300 square feet of gaming space and will accommodate200 to 250 additional slot machines. The expansion is due to be completed inspring 2010. The Nation has offered SEGC a $9million unsecured loan for purposes of financing this project.   If utilized, the proposed loan would carryan interest rate of 5% per annum with principal and interest payable monthlyover a 12 month period commencing on the 15th day of the calendar monthfollowing the opening of the expansion. Notwithstanding this project, during the next 18 months, due toliquidity concerns, ongoing demands on our cash, and the state of the capitalmarkets, it is unlikely that we will make substantial capital investments inour gaming facilities.

 

In March 2008, theCompany completed a 109 slot machine expansion (for a total of 244 slotmachines) of the temporary Seneca Buffalo Creek Casino.  Construction of the permanent Seneca BuffaloCreek Casino and Hotel commenced in January 2008, with completionestimated for Summer 2010.  The permanentcomplex was originally planned to feature 90,000 square feet of gaming spacewith 2,000 slot machines, 45 table games and a 22-story all suite hotel withapproximately 206 rooms.  We suspendedconstruction on the permanent Seneca Buffalo Creek Casino and Hotel in August 2008for reasons including:  the continuingeconomic recession; inability to obtain construction financing at reasonableinterest rates; and operating and other demands on our available cash, such asour payments to the Nation.  As of September 30,2009, due to the continuation of weak economic conditions, adverse creditmarket conditions and an uncertain economic outlook construction remainedsuspended indefinitely.  As a result ofthese circumstances and an impairment charge of $87.0 million was recognizedfor costs incurred related to this project in Fiscal 2009.

 

In March 2008,we completed the conversion of the former temporary casino facility at SenecaAllegany Casino and Hotel, at a cost of approximately $29.3 million andapproximately $4 million under budget, into an approximate 2,300 seat eventscenter with additional administrative and support space.  The exterior landscaping and façadeenhancements, originally planned as part of the conversion of the temporarycasino, have been deferred to the next phase of construction.

 

Construction on our nextphase of development at Seneca Allegany Casino and Hotel, which was planned toinclude an additional 200 room hotel tower, and up to 30,000 square feet ofadditional gaming space and related amenities, for a total estimated cost of upto $130 million, was suspended for reasons including:  the continuing economic recession; inabilityto obtain construction financing at reasonable interest rates; and operatingand other demands on our available cash, such as our payments and distributionsto the Nation.  As of September 30,2009, due to the continuation of weak economic conditions, adverse creditmarket conditions and an uncertain economic outlook, construction remainedsuspended indefinitely.  As a result ofthese circumstances an impairment charge of $17.1 million was recognized inFiscal 2009 for costs incurred related to this project.

 

In July 2007, the Companycommenced construction of the Seneca Hickory Stick Golf Club, an 18-hole RobertTrent Jones II designed golf course, located in Lewiston, New York,approximately eight miles from the Seneca Niagara Casino and Hotel. It isanticipated that the official opening of the course will occur in 2010.  As of September 30, 2009, the Companyhas incurred $20.8 million for the purchase of land and construction, with atotal cost to construct the golf course and related amenities estimated to beapproximately $25.5 million.

 

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Taking intoaccount the suspension of construction activities previously noted, we expectcash generated from our operations, available cash and cash equivalents andshort-term investments as of September 30, 2009 to be sufficient toservice our debt, satisfy our other financial obligations, and to meet ourworking capital requirements for the remainder of the current fiscal year.

 

Our abilityto fund our operations, make planned capital expenditures, service our debt andsatisfy our other financial obligations depends on our future operatingperformance and cash flow, which are in turn subject to prevailing economicconditions and to financial, business and other factors, some of which arebeyond our control. Additionally, unlike traditional corporations, we areprohibited by law from obtaining capital through an offering of equitysecurities and our ability to incur additional indebtedness is limited underthe terms of the Indenture governing the senior notes, the DistributionAgreement and the Senior Secured Revolving Loan Agreement.

 

We areleveraged and have significant interest payment requirements under the seniornotes Indenture, in addition to distribution obligations under the DistributionAgreement and other commitments from time to time to the Nation. We make distributions to the Nationpursuant to declarations by our board of directors.  During Fiscal 2009,we distributed $42.2 million to the Nation pursuant to such declarations. Wedistributed an additional $14.4 million to the Nation in Fiscal 2009 pursuantto the Distribution Agreement. As such,limitations on our capital resources could force us to delay or abandon capitalprojects as well as the construction and development of proposed expansionprojects.

** **

**ContractualObligations**

 

Thefollowing table reflects our significant contractual obligations as of September 30,2009:

 
| ** **                                                  | ** ** | **Payment due by period** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                  | ** ** | ** **                               | ** ** | ** ** | ** ** | **2  - 3** | ** ** | **4  - 5** | ** ** | **After 5** | ** ** |
| **Contractual Obligations**                            | ** ** | **Total**                                | ** ** | **1 Year** | ** ** | **Years** | ** ** | **Years** | ** ** | **Years** | ** ** |
| **(Dollars in Thousands)**                        | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Principal  amount of the 2004 senior notes                  |       | $                                        | 300,000    |   | $ | — |   | $ | 300,000 |   | $ | — |   | $ | — |   |
| Principal  amount of the 2005 senior notes                  |       | 200,000                                  |       | — |   | 200,000 |   | — |   | — |   |
| Interest  payments on 2004 senior notes(1)                  |       | 54,375                                   |       | 21,750 |   | 32,625 |   | — |   | — |   |
| Interest  payments on 2005 senior notes(1)                  |       | 36,250                                   |       | 14,500 |   | 21,750 |   | — |   | — |   |
| Seneca  Niagara Casino Head Lease with the Nation(2)        |       | 541,298                                  |       | 36,087 |   | 72,173 |   | 72,173 |   | 333,800 |   |
| Seneca  Allegany Casino Head Lease with the Nation(3)       |       | 360,000                                  |       | 24,000 |   | 48,000 |   | 48,000 |   | 222,000 |   |
| Seneca  Buffalo Creek Casino Head Lease with the Nation (4) |       | 238,703                                  |       | 15,914 |   | 31,827 |   | 31,827 |   | 147,200 |   |
| Distribution  Agreement for municipal bonds (5)             |       | 208,834                                  |       | 14,830 |   | 29,657 |   | 29,661 |   | 134,686 |   |
|                                                        |       |                                     |       |   |   |   |   |   |   |   |   |
| Total                                                       |       | $                                        | 1,939,459  |   | $ | 127,080 |   | $ | 736,032 |   | $ | 181,661 |   | $ | 837,686 |   |

 

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(1)                   Interest on the 2004 and 2005 senior notes is 7.25%.

 

(2)                   Amounts represent annual lease payments based uponapproximately $3.0 million per month. See “Item 13 — Certain Relationships and Related Transactions andDirector Independence — Transactions with the Nation — Land Leases from theNation,” for information regarding annual lease payments.

 

(3)                   Amounts representannual lease payments based upon approximately $2.0 million per month.  See “Item 13 — Certain Relationships and RelatedTransactions andDirector Independence — Transactions with the Nation — Land Leasesfrom the Nation,” for information regarding annual lease 

 

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payments.

 

(4)                   Amountsrepresent annual lease payments based upon approximately $1.3 million permonth.  See “Item 13 —Certain Relationships and Related Transactions and Director Independence — Transactions with the NationLand Leases from the Nation,” for information regardingannual lease payments.

 

(5)               The Distribution Agreement with theNation covers principal and interest payments for the Seneca Nation of IndiansCapital Improvements Authority bonds with an aggregate principal amount of$159.5 million.  Payments are mademonthly per the Distribution Agreement beginning in June 2007 and willcontinue through December 2023.

 

**Regulation**

 

Ouroperations are regulated by Nation laws, the Compact and federal statutes, mostnotably IGRA.  Several bills have beenproposed during past sessions of Congress that could affect Indian gaming.  Most notably Senator McCain’s S. 2078, theIndian Gaming Regulatory Act Amendments of 2006 and Congressman Pombo’s (R-CA)H. 4893, Restricting Indian Gaming to Homelands of Tribes Act of 2006, proposedadditional regulations for tribes and more restrictions on “off-reservation”gaming.   With new leadership in thecommittees of jurisdiction over Indian Affairs in the 110th Congress, Indian gaminghas received very limited attention.

 

TheDepartment of the Interior has recently published final regulations effective August 25,2008 governing the conduct of gaming on lands taken into trust after October 17,1988.  The regulations on their face donot purport to impair the ability of the Nation and SGC to expand its gamingoperations.  Future gaming legislation orcourt decisions construing the new regulations could adversely impact expansionof SGC gaming operations and the future growth of the Nation’s revenue base. Inaddition, from time to time, various government officials have proposed taxingIndian casino gaming or otherwise limiting or restricting the conduct of gamingoperations by Indian tribes. No assurance can be given that such legislation,if and when enacted by Congress, would not have a material adverse effect onthe operations of SGC. If Congress were to enact comprehensive amendments tothe IGRA, such legislation could have a material adverse effect on theoperations of SGC. In addition, under federal law, gaming on the Nation’s landsmay be dependent upon the permissibility under New York law of certain forms ofgaming or similar activities. If New York State were to make various forms ofgaming illegal or against public policy (or the courts were to similarly rule),or otherwise to take a legal position adverse to SGC, such actions could have amaterial adverse effect on our ability to conduct our gaming operations ascurrently conducted. Moreover, the 1996 U.S. Supreme Court decision in *Seminole Tribe of Florida v. Florida* may permit a state toavoid or refuse to negotiate amendments to existing compacts such as theCompact.

** **

**RecentAccounting Pronouncements**

 

During September 2009, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — A Replacement of FASB Statement No. 162, (the “Codification”) (previously “SFAS 168”) became effective. Accordingly, the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification became the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. The implementation of the Codification did not have an impact on our consolidated financial statements, as it did not modify any existing authoritative GAAP.

 

Subsequent to the adoption of the Codification, any change to the source of authoritative GAAP will be communicated through an Accounting Standards Update (“ASU”). ASUs will be published by the FASB for all authoritative GAAP promulgated by the FASB, regardless of the form in which such guidance may have been issued prior to release of the Codification. Prior to inclusion in an ASU, the standard-setting organizations and regulatory agencies continue to issue proposed changes to the accounting standards in previous form (e.g., FASB Statements of Financial Accounting Standards, Emerging Issues Task Force (“EITF”) Abstracts, FASB Staff Positions, SEC Staff Accounting Bulletins, etc.).

 

A variety of additional proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our consolidated financial statements.

** **

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** **

**Item 7A. Quantitative and Qualitative Disclosures AboutMarket Risk**

 

Market riskis the risk of loss arising from adverse changes in market rates and prices,such as interest rates, foreign currency exchange rates and commodityprices.  Our primary exposure to marketrisk is interest rate risk associated with variable rate indebtedness pursuantto our Amended Senior Secured Revolving Loan Agreement.

 

Effective June 19, 2008, SGCentered into a $50.0 million Senior Secured Revolving Loan Agreement, whichmatured on June 19, 2009, subject to extension by SGC at its election (atany time after the six months anniversary of the closing date and prior to June 19,2009) for an additional period of six months provided that no default or eventof default existed at the time of election. On June 11, 2009, SGC exercised this election, extending thematurity date to December 19, 2009. Effective December XX, 2009, SGC amended the $50.0 million SeniorSecured Revolving Loan Agreement, further extending the maturity date to December 31,2011. Amounts borrowed under the Amended Senior Secured Revolving LoanAgreement bear interest at either one, three or six-month LIBOR plus one andone quarter percent (1.25%), or the prime rate (as reported in The Wall StreetJournal) plus one quarter percent (0.25%).  See “Item 7 — Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Liquidity and Capital Resources — PrincipalDebt Arrangements” for further information relating to the Senior SecuredRevolving Loan Agreement.

 

Since oursenior notes are fixed-rate indebtedness, and our obligations under theDistribution Agreement are based upon fixed-rate indebtedness of the Authority,we believe that our overall exposure to market risk in the form of interestrate fluctuations is low.  Due to thesignificant portion of outstanding debt being fixed rate indebtedness, webelieve a 100 basis point change in interest rates would not have a materialeffect on our consolidated financial statements in Fiscal 2008 and Fiscal 2009.

** **

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

 

Our consolidatedfinancial statements and notes thereto, referred to in Item 15(a)(1) ofthis Annual Report, are filed as part of this Annual Report and appearbeginning on page F-1.

** **

**Item9.  Changes in and Disagreements WithAccountants on Accounting and Financial Disclosure**

 

None.

** **

**Item 9A(T). Controls and Procedures**

** **

**Evaluation of Disclosure Controls and Procedures**

 

Our management, with theparticipation of our principal executive and financial officers, has evaluatedthe effectiveness of our disclosure controls and procedures, as such term isdefined in Rule 13a-15(e) and Rule 15d-15(e) under theSecurities Exchange Act of 1934, as of September 30, 2009.  This evaluation has allowed us to makeconclusions, as set forth below, regarding the effectiveness of our disclosurecontrols and procedures.  There areinherent limitations to the effectiveness of any system of disclosure controlsand procedures, 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 disclosure controlsand procedures can only provide reasonable assurance of achieving the desiredcontrol objective.  We believe ourdisclosure controls and procedures are designed to provide reasonable assurancethat information required to be disclosed in our reports filed under theSecurities Exchange Act of 1934, such as this Annual Report on Form 10-K,is recorded, processed, summarized and reported within the time periodsspecified in the SEC rules and forms. We also believe our disclosurecontrols and procedures are designed to ensure that such information isaccumulated and communicated to our management as appropriate to allow timelydecisions regarding required disclosure.

 

Based on the evaluationof the effectiveness of our disclosure controls and procedures, as of September 30,2009, completed by our management, with the participation of our ChiefOperating Officer and Chief Financial Officer (as our principal executiveofficer and principal financial officer, respectively), our Chief OperatingOfficer and Chief Financial Officer, have concluded that our disclosurecontrols and procedures were effective.

 

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**Management’sReport On Internal Control Over Financial Reporting**

 

Seneca Gaming Corporationmanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting as defined in Rules 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934. The Corporation’sinternal control over financial reporting is designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles in the United States.

 

Because of the inherentlimitations of internal control over financial reporting, including thepossibility of human error and the circumvention or overriding of controls,material misstatements may not be prevented or detected on a timely basis.Accordingly, even internal controls determined to be effective can provide onlyreasonable assurance with respect to financial statement preparation andpresentation. Furthermore, projections of any evaluation of the effectivenessto future periods are subject to the risk that such controls may becomeinadequate due to changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.

 

Management has assessedthe effectiveness of the Corporation’s internal control over financialreporting as of September 30, 2009 based upon the criteria set forth in areport entitled *Internal Control —Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on its assessment, managementhas concluded that the Corporation maintained effective internal control overfinancial reporting as of September 30, 2009.

 

This annual report doesnot include an attestation report of Ernst & Young LLP, theCorporation’s independent registered public accounting firm, regarding internalcontrol over financial reporting. Management’s report was not subject toattestation by the Corporation’s independent registered public accounting firmpursuant to temporary rules of the Securities and Exchange Commission thatpermit the Corporation to provide only management’s report in this annualreport.

 

**Changesin Internal Control Over Financial Reporting**

 

There has been no changein our internal control over financial reporting during our fourth fiscalquarter that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 
|   |                          |   |   |                          |
|--------|-------------------------------|--------|--------|-------------------------------|
| By:    | /s/ Catherine Walker          |   | By:    | /s/ David Sheridan            |
|   |                          |   |   |                          |
|   | Catherine Walker              |   |   | David Sheridan                |
|   | Chief Operating Officer       |   |   | Chief Financial Officer       |
|   | (Principal Executive Officer) |   |   | (Principal Financial Officer) |

 

**Item 9B.Other Information**

 

The following disclosureis made in lieu of disclosures under **Item 1.01. Entry Into aMaterial Definitive Agreement**, and **Item2.03.  Creation of a Direct FinancialObligation**, on a CurrentReport on Form 8-K.

 

**December 18,2009 Amendment of $50 Million Senior Secured Loan Agreement**

 

On June 19, 2008,SGC entered into a one year Senior Secured Revolving Loan Agreement withKeyBank National Association that established a $50 million senior securedrevolving credit facility.  SGC established the credit facility forworking capital purposes, and to obtain the release of approximately $16.8million of cash which had previously been held by KeyBank as collateral foroutstanding letters of credit.  SGC’s obligations under the creditfacility are secured by substantially all gaming and related assets (includinggaming revenues) not constituting real property or improvements.  SGC’sobligations are guaranteed by each of the following wholly-owned subsidiariesof SGC:  Seneca Niagara Falls Gaming Corporation, Seneca Territory GamingCorporation, Seneca Erie Gaming Corporation and Lewiston Golf Course Corporation(collectively, the “Guarantors”).  The Guarantors’ obligations are securedby substantially all of each Guarantor’s gaming and related assets (includinggaming revenues) not constituting real property or improvements.

 

The June 19, 2009maturity date could be extended by SGC at its election (at any time after thesix months anniversary of the closing date and prior to June 19, 2009) foran additional period of six months provided that no default or event of defaultexists at the time of election.  SGC exercisedthat election extending the maturity date to December 19, 2009.

 

Effective December 18, 2009, SGC amended itsSenior Secured Revolving Loan Agreement, pursuant to a First Amendment to LoanAgreement, to further extend the maturity date until December 31, 2011.Amounts borrowed under the Amended Senior Secured Revolving Loan Agreementcontinue to bear interest at either one, three or six-month LIBOR plus one andone quarter percent (1.25%), or the prime rate (as reported in The Wall StreetJournal) plus one quarter percent (0.25%), with any outstanding principalbalance to be paid by, or on, the new maturity date.  The $50.0 million commitment reduces intandem with any reduction in the letter of credit requirement imposed by ESDC(as described above), up to an aggregate reduction of $10.0 million.  The Amended Senior Secured Revolving LoanAgreement requires that SGC maintain all of its deposit and investment accountswith the lender, subject to limited exceptions for certain existing accounts.The Amended Senior Secured Revolving Loan Agreement also modifies certain ofthe financial covenants contained in the Senior Secured Revolving LoanAgreement, including reducing the minimum consolidated EBITDA covenant from$160 million to $145 million (on a rolling 12 month basis) while modifying thetotal leverage ratio (of total funded debt to EBITDA) to a limit of 3.5 to 1.0.

 

The forgoing descriptionof the Senior Secured Loan Agreement does not purport to be complete and isqualified in its entirety by reference to the full text of the First Amendmentto Loan Agreement attached as Exhibit 10.29 to this Annual Report on Form 10-K.

 

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**PART III**

** **

**Item 10.Directors, Executive Officers and Corporate Governance**

 

The following table setsforth information concerning our executive officers and directors as of thedate of this Annual Report on Form 10-K:

 
| **Name**             | ** ** | **Age** | ** ** | **Position**                                                          |
|----------------------|------------|---------|------------|-----------------------------------------------------------------------|
| Catherine Walker (1) |       | 54      |       | Chief Operating Officer (Principal Executive  Officer)                |
| David Sheridan       |       | 36      |       | Chief Financial Officer (Principal Financial and  Accounting Officer) |
| Robert Chamberlain   |       | 53      |       | Senior Vice President of Design and Construction                      |
| James Wise (2)       |       | 51      |       | Senior Vice President of Marketing                                    |

 

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| Jeffrey Gill (3)      |   | 51 |   | Chairman of the Board of Directors      |
|-----------------------|--------|----|--------|-----------------------------------------|
| Robert E. Mele (4)    |   | 51 |   | Vice Chairman of the Board of Directors |
| Kevin W. Seneca       |   | 55 |   | Treasurer and Director                  |
| Karen Karsten (4)     |   | 42 |   | Secretary and Director                  |
| Richard K. Nephew (4) |   | 69 |   | Director                                |
| Ina K. Locke (4)      |   | 58 |   | Director                                |
| Mark I. Halftown (4)  |   | 39 |   | Director                                |

 

----

(1)                   Ms. Walker was appointed as Chief Operating Officer on April 25,2008 and has served as principal executive officer since April 24,2009.

 

(2)                   Mr. Wise was appointed Senior Vice President ofMarketing on November 30, 2009.

 

(3)                   Elected as Chairman of the Board on September 25, 2009.

 

(4)                   Appointed to serve as a Director by the Nation’s Council on September 4,2009.

 

The Councilalone has the power to appoint and remove directors to and from the board ofdirectors of SGC and each of its subsidiaries. Since November 2004, theCouncil has taken a more active role in managing our affairs. On December 20,2004, the Council amended each of the charters of SGC and its subsidiariesrequiring more oversight by the Council. These amendments include, but are notlimited to, Council approval of:

 
| (i)    |   | SGC and/or its  subsidiaries agreeing to (a) waive such corporation’s sovereign immunity  and (b) submit to jurisdiction of non-Nation courts;                    |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                             |
| (ii)   |   | any significant  expenditure (in excess of $3 million) of corporate resources via approval of  a comprehensive business plan regarding such activity requiring the  expenditure; |
|   |   |                                                                                                                                                                             |
| (iii)  |   | termination of  the operation of any gaming facility;                                                                                                                            |
|   |   |                                                                                                                                                                             |
| (iv)   |   | any amendments  to any of the bylaws of SGC and its subsidiaries;                                                                                                                |
|   |   |                                                                                                                                                                             |
| (v)    |   | any agreements  with any government or governmental agency or entity;                                                                                                            |
|   |   |                                                                                                                                                                             |
| (vi)   |   | incurrence of  any significant guarantees or liabilities by SGC or its subsidiaries;                                                                                             |
|   |   |                                                                                                                                                                             |
| (vii)  |   | any intercompany  loans; purchase of real property and significant expenditures for personal  property; and                                                                      |
|   |   |                                                                                                                                                                             |
| (viii) |   | obtaining  financing and issuance of obligations by SGC or its subsidiaries.                                                                                                     |

 

Theseamendments also (i) prohibit SGC and its subsidiaries from engaging in anyactivities to politically influence any Indian nation, federal, state, or localgovernment or their officials, (ii) clarify that the requirement thatboard members shall not have been convicted of a “Felony” to involve only thoseoffenses set forth under the Indian Major Crimes Act (18 U.S.C. §1153) and (iii) changethe board membership requirement to require at least five members of each boardto be enrolled members of the Nation and that no members of Council may serveon the boards of directors. As previously discussed, all of our Class IIgaming operations were transferred to the Nation as of January 1, 2005.

 

On April 23,2009, the Council approved additional amendments to the Charters of SGC and itssubsidiaries.  The principal changes wereas follows:  (1) prohibiting Nationelected officials (such as the President, Treasurer or Clerk) from beingeligible to serve on the board of directors; (2) clarifying that publicnotice of board vacancies shall be made by February 1 of each year, thatboard candidates shall apply to Council for consideration and shall beinterviewed, and that vacancies shall be filled following at least 30 dayspublic notice, unless in the event of an emergency; (3) adding arequirement that board members be certified by the SGA as having met thesubstantive standards necessary to obtain a license from the SGA if suchcandidate were a “Class III Gaming Key Employee” (as defined in the Nation’sClass III Gaming Ordinance), (4) providing that at least one boardmember shall possess a Master of Business Administration or Juris Doctorate degree,be a Certified 

 

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PublicAccountant, or have at least ten years experience as a senior manager or boardmember of a publicly held gaming corporation; (5) detailing board members’fiduciary duties to SGC, including duties or care, loyalty and obedience, and (6) providingthat SGC shall hold a meeting open to the Seneca public on the fourth Saturdayof January, April, July, and October every year for purposes of providinginformation to the Seneca public on the health and well-being of the Company.

*** ***

***CatherineWalker***wasappointed our Chief Operating Officer on April 25, 2008 and has served asour principal executive officer since April 24, 2009.  Ms. Walker has been a casino executivesince 1995, and joined SGC from the Trump Marina Hotel Casino in Atlantic City,New Jersey, where she had served as General Manager since December 2003. Prior to that time, she served as General Manager of the Trump Taj Mahal Casinoin Atlantic City from April 2003 to December 2003, and as GeneralManager of the Trump Indiana Hotel Casino in Gary, Indiana from August 2000to April 2003.  Ms. Walker’s professional experience also includesserving in managerial positions with Harrah’s Casino in East Chicago, Indianaand Players Island Hotel Casino in Lake Charles, Louisiana, in addition toserving for 13 years as an Assistant General Counsel with the New Jersey CasinoControl Commission.

*** ***

***DavidSheridan***wasappointed our Chief Financial Officer on July 1, 2008.  Prior to his appointment, Mr. Sheridanserved as Chief Financial Officer for the Oneida Indian Nation of New York andits enterprises (including Turning Stone Resort and Casino) from January 2007through February 2008, and as Acting Chief Financial Officer (anappointment involving duties and responsibilities comparable to those of ChiefFinancial Officer) for such Nation and enterprises from August 2006 until January 2007. From March 2003 until August 2006 he served as Director of Accountingand Finance for Turning Stone Resort and Casino.  Prior to that time, Mr. Sheridanserved as an Assurance and Business Advisory Services Manager forPricewaterhouseCoopers LLP from July 1996 through March 2003.  Mr. Sheridanis a certified public accountant.

*** ***

***Robert Chamberlain*******was appointed Senior Vice Presidentof Design and Construction on June 30, 2008. Prior to that time, Mr. Chamberlainwas principal of Chamberlain Engineering, Inc. where he provided design,construction and owner representative services to numerous corporate clientsthroughout the United States. Prior to 1993, Mr. Chamberlain held staffand management positions for internationally recognized design firms. Mr. Chamberlain’sinvolvement with the SGC began in January 2006 when he was retained tooversee the planning, design and construction of all the SGC’s capitalprojects. Preceding that, Mr. Chamberlain provided owner’s representativeservices to Foxwoods Resort Casino for eight years.  Mr. Chamberlain is a registeredprofessional engineer.

*** ***

***James Wise***wasappointed Senior Vice President of Marketing on November 30, 2009. Priorto that time, Mr. Wise was Vice President of Marketing at the Mohegan Sunat Pocono Downs since May 2006, Corporate Director of Communications atArgosy Gaming Company since April 2003, and Corporate Marketing Directorat Hollywood Casino Corporation since 1998. Mr. Wise has more than 20years experience in the gaming industry and has held management positions withthe Tropicana Hotel and Casino in Atlantic City, the Sands Hotel and Casino inAtlantic City, and the Mohegan Sun at Pocono Downs in Pennsylvania.

*** ***

***JeffreyL. Gill***wasappointed Chairman of the board of directors of SGC on September 25, 2009,after having served as Vice Chairman of the board of directors of SGC since September 2008.  He has been a member of the board ofdirectors of SGC since January 2008.  Mr. Gill’s current SGC Board termexpires at the Board’s first meeting after March 31, 2010. From June 2005to June 2007, Mr. Gill served as Chairman of the Seneca GamingAuthority.  Mr. Gill retired as anErie County, New York Sheriff’s Deputy in December 2004.   Mr. Gill also serves on the board ofdirectors of SNFGC, STGC, SEGC and LGCC, each subsidiaries of SGC.

*** ***

***RobertE. Mele***hasserved as Vice Chairman of the board of directors of SGC since September 2009.  Mr. Mele’s current SGC Board termexpires at the Board’s first meeting after March 31, 2012.  Mr. Mele has approximately 30years of financial experience and knowledge serving in numerous seniorexecutive and management positions, both domestically and internationally. He currently serves as Chief FinancialOfficer of Seneca Construction Management Corporation, an affiliate of SGC, aposition he has held since 2005.  Priorto that time, Mr. Mele was involved in community development activities inMexico City, after serving as Vice President of Finance and Administration /Acting CEO of Diveo Internet de Mexico 

 

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during2001 and 2002, and Vice President of Finance and Administration for MCM Telecomfrom 1996 to 2001, both in Mexico City, Mexico. Mr. Mele is a graduate of Harvard University and the Wharton Schoolof Business.  Mr. Mele also serveson the board of directors of SNFGC, STGC, SEGC and LGCC, each subsidiaries ofSGC.

*** ***

***KevinSeneca*** hasserved as Treasurer of the board of directors of SGC since September 2009. He has served asa member of the board of directors of SGC since December 2008.  Mr. Seneca’s current SGC board termexpires at the Board’s first meetingafter March 31, 2010.  From November 2006to November 2008, Mr. Seneca served as Treasurer of the SenecaNation, and prior to that time, Mr. Seneca was a small business operatorand tobacco wholesaler.  Mr. Seneca also serves on the board ofdirectors of SNFGC, STGC, SEGC and LGCC, each subsidiaries of SGC, in additionto Seneca Catskills Gaming Corporation, an affiliate of SGC.

*** ***

***KarenKarsten*** hasserved as Secretary of the board of directors of SGC since September 2009. Ms. Karsten’scurrent SGC Board term expires at the Board’s first meeting after March 31,2011. Prior to her board appointment, Ms. Karsten was employed inmanagerial capacities with the SGC as Executive Director of Entertainment from2006 to 2009, Entertainment Director during 2005 to 2006, and EntertainmentManager from 2002 to 2005. Ms. Karsten also serves on the board ofdirectors of SNFGC, STGC, SEGC and LGCC, each subsidiaries of SGC.

*** ***

***RichardK. Nephew*** hasserved as a member of the board of directors of SGC since September 2009.  Mr. Nephew’scurrent SGC Board term expires at the Board’s first meeting after March 31,2011.  Mr. Nephew’s priorbusiness experience includes serving as Chairman of the Nation’s Class IIGaming Commission, Chairman of the Seneca Nation Investment Board, Chairman ofthe Seneca Nation Economic Development Corporation; and 33 years experiencewith the Federal Bureau of Indian Affairs, in their Office of Trust andEconomic Development, Division of Financial Assistance from 1960 to 1993. Mr. Nephew also serves on the board ofdirectors of SNFGC, STGC, SEGC and LGCC, each subsidiaries of SGC.

 

***InaK. Locke*** hasserved as a member of the board of directors of SGC since September 2009. Ms. Locke’s currentSGC Board term expires at the Board’s first meeting after March 31,2011.  Ms. Locke currently serves asa Senior Health Information Assistant for the Seneca Nation Health Department,a position she has held since 2005.  Ms. Locke’sprior experience includes approximately 25 years experience with the SenecaNation of Indians Health Department, service as a Commissioner on the Nation’sImport Export Commission, service as an elected member of Tribal Council,Commissioner with the Seneca Nation Housing Authority, and service as Board ofEducation Member.  Ms. Locke alsoserves on the board of directors of SNFGC, STGC, SEGC and LGCC, each subsidiariesof SGC.

*** ***

***MarkI. Halftown***has served as a member of the board of directors of SGC since September 2009. Mr. Halftown’scurrent SGC Board term expires at the Board’s first meeting after March 31,2012. Mr. Halftown has served as Budget Monitor for the Seneca NationHealth Department since July 2007, after previously serving as FinanceOfficer for Seneca Smoke Shop from June 2002 to April 2007.  Mr. Halftown’s other experience includesservice as a Finance Specialist for the Seneca Nation Health Center, ProgramDirector for the Seneca Nation Mortgage Program; and internal auditor for theSeneca Nation Fiscal Affairs Department. Mr. Halftown also serves onthe board of directors of SNFGC, STGC, SEGC and LGCC, each subsidiaries of SGC.

* *

*AuditCommittee of the Board of Directors*

 

Ourboard of directors has established an audit committee to assist it with itsresponsibilities. The board handles all compensation and other mattersdirectly. The principal duties of 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 assessment and risk management policies and procedures,and the performance 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

 

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·                  to undertake any other action deemed appropriateor necessary by the board of directors or applicable rules or regulations.

 

Theaudit committee is comprised of members from the board of directors. Themembers of our audit committee are Kevin W. Seneca, Chairman of the committee,Robert E. Mele, Karen Karsten, Richard K. Nephew and Mark I. Halftown.

* *

*AuditCommittee Financial Expert*

 

The SGCAudit Committee does not have an audit committee financial expert for purposesof Item 407(d)(5)(ii) of Regulation S-K, as adopted by the SEC.  While we are not required to have an auditcommittee financial expert, the board of directors believes that the additionof Robert E. Mele to the Audit Committee in September 2009, provides a greatbenefit to the Board’s Audit Committee given Mr. Mele’s financial backgroundand experience.

* *

*Code ofEthics*

 

We have adopted a Code ofBusiness Conduct and Ethics applicable to all of our employees, including ourprincipal executive officer, principal financial officer and principalaccounting officer and all other senior executives, and to our directors whenacting in their capacity as directors. Our Code of Business Conduct and Ethicsis designed 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.  Our Code of Business Conductand Ethics is available to investors on our website atwww.senecagamingcorporation.com or free of charge upon written request. Anysuch request should be sent by mail to Seneca Gaming Corporation, 310 FourthStreet, Niagara Falls, New York (Seneca Nation Territory) 14303, Attn: GeneralCounsel or should be made by telephone by calling (716) 299-1100.

 

We intend to disclose onour website amendments to, or waivers from, any provision of our Code of BusinessConduct and Ethics that applies to our principal executive officer, principalfinancial officer, principal accounting officer or persons performing similarfunctions, and that relates to any element of the code of ethics definitionenumerated in Item 406(b) of Regulation S-K.

 

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**Item 11.Executive Compensation**

** **

**Compensation Discussion and Analysis**

** **

**Overview**

 

This Item provides an analysis of our compensationprogram and policies for our named executive officers in Fiscal 2009, thematerial compensation decisions we have made under such program and policies,and the material factors that we considered in making those decisions. For the purposes of this Item 11, our “named executive officers” are asfollows:

 

·      CatherineWalker, Chief Operating Officer and current principal executive officer;

 

·      E.Brian Hansberry, who held the office of President and Chief Executive Officeruntil April 24, 2009;

 

·      DavidSheridan, Chief Financial Officer;

 

·      BarryW. Brandon, who held the office of Senior Vice President and General Counseluntil November 13, 2008;

 

·                 Rajat Shah, who held the office of  Senior Vice President of CorporateDevelopment and General Counsel until September 2, 2009; and

 

·                 Robert Chamberlain, Senior Vice President of Designand Construction.

 

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**CompensationObjectives and Philosophy**

 

Since commencingoperations in December 2002, we have experienced and continue toexperience rapid growth in both the size and sophistication of ourbusiness.  Attracting, retaining andmotivating well-qualified executives in this dynamic environment has been andwill continue to be essential to our success.  Given the specialized knowledge required of gaming executives, and inthe Indian gaming industry in particular, we believe the market to recruit topexecutive talent to Western New York is highly competitive.

 

In light of this highlycompetitive market, the objectives of our compensation program are to attractexecutive officers, to encourage retention and to motivate and reward theseofficers to drive the successful implementation of our current and long-termfinancial and operating goals.

** **

**Roles inEstablishing Executive Compensation**

 

Compensation for ournamed executive officers is set by our full board of directors and not by acompensation committee.We do not have a standing compensation committee or committeeperforming similar functions.  The entireboard of directors participates in the consideration of compensation for ournamed executive officers.  The board ofdirectors has historically relied on the recommendations and input of thePresident and CEO in making compensation decisions for the named executiveofficers subordinate to the President and CEO, as a component of employmentagreement negotiations.  Additionally, in2005 and again in 2007, we engaged Towers Perrin, Forster & Crosby, Inc.,or Towers Perrin, as its independent consultant to assist us in setting executivecompensation, and in particular, the compensation for the President andCEO.  The purpose of the 2005 TowersPerrin engagement was to assess the competitiveness of our executivecompensation program to help ensure that our compensation program wascompetitive with market levels.

 

The board of directorsretained Towers Perrin again in November 2007 to review our currentcompensation program for executives and to provide analysis and recommendationsfor better aligning our compensation program with our short and long termgoals.  Under its most recent engagement,Towers Perrin reported directly to the board of directors and did not performservices for management. However, the President and CEO and other seniormanagement participated in a number of meetings and telephone calls with TowersPerrin and the board of directors with regard to Towers Perrin’s services. Alldecisions with respect to accepting or rejecting recommendations of thecompensation consultant are made by the board of directors.

 

**Overviewof Compensation Program**

 

The primary element ofour named executive officers’ compensation is annualbase salary, which provides fixed compensation basedon competitive market practice.  Inaddition to base salaries, compensation packages provided to our namedexecutive officers include the following secondary elements:

 

·                  severance benefits for terminations undercertain cases, as provided in the named executive officers’ respectiveemployment agreements;

 

·                  matching contributions to the named executive officerswho participate in our 401(k) Plan; and

 

·                  other benefits including health and dental insurance,and limited perquisites.

 

We are wholly-owned by,and a governmental instrumentality of, the Nation, and cannot grant equityawards or options to our executives.  Wehave therefore used cash compensation and benefits as the primary components ofexecutive compensation.  Since the Boardof Directors generally suspended performance-based bonuses in August 2006,cash compensation has been in the form of base salaries. Our compensationprogram for named executive officers continues to undergo analysis by the boardof directors.

 

**Elementsof Named Executive Officer Compensation**

 

*AnnualBase Compensation.*Annualbase salaries serve as the primary component of our executives’ overallcompensation. While the board considers the value of the secondary elements ofcompensation when establishing an executive officer’s overall compensationpackage, we anticipate that the executive will derive a substantial portion ofhis or her compensation directly from base salary and we set salariesaccordingly.  Annual base compensationamounts are set forth in each named executive officer’s respective employmentagreements and are intended to be reasonably related to the base salary levelsof 

 

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executive officers ofcomparable companies in the gaming and hospitality fields and in thegeographical region in which we are located. Our named executive officers’ basesalary levels were not objectively determined with a formula but insteadreflect levels that the board of directors concluded were appropriate basedupon position, experience and the recommendations of senior executives.

 

*CEORetention Bonus*.  Thecompensation terms for Brian Hansberry, who served as our President and CEOuntil April 24, 2009, differ from those of our other current namedexecutive officers in that he was the only executive entitled to receive a “retentionbonus,” which was in the amount of $532,500 for Fiscal 2009.  This retention bonus supplemented his annualbase compensation of $360,000, which amount was originally established upon Mr. Hansberry’sappointment as General Manager of the Seneca Niagara Casino and Hotel.  The retention bonus was treated in the samemanner as Mr. Hansberry’s annual base compensation, and was paid weekly ona pro rata basis.  The foregoingcompensation terms for the retention bonus were entered into upon Mr. Hansberry’sagreement to serve as interim President and CEO and were intended to besuperseded in the event Mr. Hansberry was appointed as the permanentPresident and CEO.  Mr. Hansberrywas appointed permanent President and CEO on September 19, 2007.  The terms of Mr. Hansberry’s newemployment agreement were never formally negotiated, and Mr. Hansberrycontinued to be paid under the financial terms set during Fiscal 2008 until histermination.  The board believes that theuse of the retention bonus was appropriate given the exceptional circumstances,and that it was necessary to facilitate a smooth transition following Mr. Hansberry’spromotion.

 

*SeveranceBenefits.*Each named executive officer’s employment agreementprovides for the payment of severance benefits upon the executive’s departurefrom our company in certain specified circumstances.  The severance benefits primarily consist ofour agreement to pay the named executive officer’s base compensation for adefined period following termination equal to the lesser of (a) 18 months or(b) the remainder of the employment term specified in the employment agreement.  For a description of the events that triggerthe payment of severance and the amounts of the payments, see “PotentialPayments to Named Executives Upon Termination,” below.  The board has provided for severance benefitsin employment agreements because it believes such provisions have beencustomary in the industry and are important for recruiting and attracting topexecutive talent to SGC, and to the Western New York region.

 

*OtherCompensation and Perquisites*. In addition to the compensation described above, wealso provide the executive officers with other benefits to assist us inremaining competitive in the marketplace and to encourage such named executiveofficers to remain with us.  Although wedo not view perquisites as a significant element of our comprehensivecompensation structure, we do believe that they can be used in conjunction withbase salary to attract, motivate and retain individuals in a competitiveenvironment.  In particular, we have anexecutive medical reimbursement plan, Exec-U-Care®, pursuant to which namedexecutive officers are entitled to reimbursement for up to $100,000 inotherwise uncovered medical expenses. We pay all premiums for this plan onbehalf of our named executive officers. As of September 30, 2009, theannual premium cost was approximately $6,900 plus an 11% processing fee appliedto all eligible reimbursements for each named executive officer covered by thisplan.

 

We do not have a pensionplan, a non-qualified defined contribution plan, or any other non-qualifieddeferred compensation plans. Named executive officers may elect to participatein retirement plan benefits under our 401(k) plan generally available toall of our employees, and are eligible for an employer matching contribution.

 

*Employment Agreements. *Through Fiscal 2009, we have entered into employmentagreements with each of our named executive officers.  The employment agreements provide, amongother matters, the amount and form of compensation available to these namedexecutive officers.  The board believesthat it is customary in the industry for members of senior management to haveemployment agreements, and that in line with its objective of being competitivein the marketplace and attracting desirable executives, it has been in the SGC’sbest interest to establish these agreements. In addition to providing the details of the executive’s compensation,our employment agreements commit our executives to a multi-year term, which theboard believes should encourage retention. Furthermore, these agreements include protective provisions, such asnoncompetition and nonsolicitation covenants that the board believes aresignificant to protecting SGC’s long-term interests.  Each employment agreement was the product ofarms’-length negotiations between the board of directors and the then-currentPresident and CEO (for executives subordinate thereto), and the executive.  For a description of the employmentagreements, see “Executive Employment Agreements,” below.

 

**Compensation Committee Report**

 

We do not have a standingcompensation committee or committee performing similar functions.  Compensation for our named executive officersis set by our full board of directors and not by a compensation committee.The entire board of 

 

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directors participates inthe consideration of compensation for our named executive officers.  In such capacity, the board of directors hasreviewed and discussed the preceding Compensation Discussion and Analysis with management,and recommends that the Compensation Discussion and Analysis be included inthis Annual Report on Form 10-K.

* *

*Board ofDirectors*

 

Jeffrey L. Gill

Robert E. Mele

Kevin W. Seneca

Karen Karsten

Richard K. Nephew

Ina K. Locke

Mark I. Halftown

 

**SUMMARY COMPENSATION TABLE**

 

The following table setsforth information regarding compensation for the fiscal year ended September 30,2009 earned by or paid to our named executive officers.

 
| **Name  and  Principal  Position**                                                          | ** ** | **Year**         | ** ** | **Salary  ($)**           | ** ** | **Bonus  ($)**                 | ** ** | **Stock********Awards********($)** | ** ** | **Option********Awards********($)** | ** ** | **Non-Equity********Incentive********Plan********Compensation********($)** | ** ** | **Change in********Pension Value********and********Nonqualified********Deferred********Compensation********Earnings********($)** | ** ** | **All Other  Compensation   ($)** | ** ** | **Total********($)**      | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------|------------|---------------------------|------------|--------------------------------|------------|------------------------------------|------------|-------------------------------------|------------|----------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------|------------|
| **(a)**                                                                                     | ** ** | **(b)**          | ** ** | **(c)**                   | ** ** | **(d)**                        | ** ** | **(e)**                            | ** ** | **(f)**                             | ** ** | **(g)**                                                                    | ** ** | **(h)**                                                                                                                          | ** ** | **(i)**                                | ** ** | **(j)**                   | ** ** |
| ** **                                                                                  | ** ** | ** **       | ** ** | ** **                | ** ** | ** **                     | ** ** | ** **                         | ** ** | ** **                          | ** ** | ** **                                                                 | ** ** | ** **                                                                                                                       | ** ** | ** **                             | ** ** | ** **                | ** ** |
| Catherine Walker 

Chief Operating  Officer (1)                                             |       | 2009  2008       |       | 804,375  428,366          | ** ** | **—****—**           | ** ** | **—****—**               | ** ** | **—****—**                | ** ** | **—****—**                                                       | ** ** | **—****—**                                                                                                             |       | 13,675  8,607                          | (2)        | 818,050  436,973          |       |
|                                                                                        |       |             |       |                      |       |                           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                   |       |                      |       |
| E. Brian Hansberry

Former President  and CEO (3)                                           |       | 2009  2008  2007 |       | 524,344  360,000  360,000 | ** ** | **—**  532,500 304,616    | ** ** | **—****—****—**     | ** ** | **—****—****—**      | ** ** | **—****—****—**                                             | ** ** | **—****—  —**                                                                                                     |       | 164,719  13,851  3,277                 | (4)        | 689.063  906,351  667.892 |       |
|                                                                                        |       |             |       |                      |       |                           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                   |       |                      |       |
| David Sheridan 

Chief Financial Officer                                                    |       | 2009  2008       |       | 325,000   81,250          | ** ** | **—  —**             | ** ** | **—****—**               | ** ** | **—****—**                | ** ** | **—****—**                                                       | ** ** | **—****—**                                                                                                             |       | 28,646 62                              | (5)        | 353,646  81,312           |       |
|                                                                                        |       |             |       |                      |       |                           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                   |       |                      |       |
| Rajat Shah 

Former Senior  Vice President of Corporate Development and General Counsel (6) |       | 2009  2008  2007 |       | 700,000  700,000  700,000 | ** ** | **—****—****—** | ** ** | **—****—****—**     | ** ** | **—  —  —**          | ** ** | **—****—****—**                                             | ** ** | **—  —****—**                                                                                                     |       | 13,307  12,389  3,154                  | (7)        | 713,307  712,389  703,154 |       |
|                                                                                        |       |             |       |                      |       |                           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                   |       |                      |       |
| Barry W. Brandon 

Former Senior  Vice President and General Counsel (8)                    |       | 2009  2008  2007 |       | 107,692  700,000  700,000 | ** ** | **—****—****—** | ** ** | **—  —****—**       | ** ** | **—****—****—**      | ** ** | **—****—****—**                                             | ** ** | **—****—****—**                                                                                                   |       | 623,001  23,117  17,613                | (9)        | 730,693  723,117  717,613 |       |
|                                                                                        |       |             |       |                      |       |                           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                   |       |                      |       |
| Robert Chamberlain 

Senior Vice  President of Design and Construction                      |       | 2009  2008       |       | 546,880  126,923          | ** ** | **—  —**             | ** ** | **—  —**                 | ** ** | **—  —**                  | ** ** | **—  —**                                                         | ** ** | **—****—**                                                                                                             |       | 2,882**—**                        | (10)       | 549,762  126,923          |       |

 

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| (1)    |   | Ms. Walker was  appointed as Chief Operating Officer on April 25, 2008 and has served as  Principal Executive Officer since April 24, 2009.                                                                                                                                                                                                                                                                                           |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (2)    |   | All other compensation  in column (i) for Ms. Walker includes 401(k) matching  contributions from the Company in the amount of $3,894 and $9,781 in the  aggregate for limited perquisites which include reimbursement under the  Exec-U-Care® medical insurance program, reimbursement of disability insurance  premiums and Company-funded dry cleaning services.                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (3)    |   | Mr. Hansberry’s  employment as our President and CEO terminated effective April 24, 2009.                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (4)    |   | All other compensation  in column (i) for Mr. Hansberry includes severance compensation  earned under the executive’s employment agreement in the amount of $155,275,  401(k) matching contributions from the Company in the amount of $3,675  and $5,769 in the aggregate for limited perquisites which include  reimbursement under the Exec-U-Care® medical insurance program and  Company-funded dry cleaning services. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (5)    |   | All other compensation  in column (i) for Mr. Sheridan includes reimbursement of relocation  expenses of $15,878, 401(k) matching contributions from the Company in  the amount of $1,594 and $11,174 in the aggregate for limited perquisites which  include reimbursement under the Exec-U-Care® medical insurance program and  Company-funded dry cleaning services.                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (6)    |   | Mr. Shah’s  employment as our Senior Vice President of Corporate Development and General  Counsel terminated effective September 2, 2009.                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (7)    |   | All other compensation  in column (i) for Mr. Shah includes 401(k) matching  contributions from the Company in the amount of $3,675 and $9,632 in the  aggregate for limited perquisites which include reimbursement under the  Exec-U-Care® medical insurance program and Company-funded dry cleaning  services.                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (8)    |   | Mr. Brandon’s  employment as our Senior Vice President and General Counsel terminated  effective November 13, 2008.                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (9)    |   | All other compensation  in column (i) for Mr. Brandon includes severance compensation paid  under the executive’s separation agreement in the amount of $611,538 and  $11,463 in the aggregate for limited perquisites which include reimbursement  under the Exec-U-Care® medical insurance program and Company-funded dry  cleaning services.                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (10)   |   | All other compensation  in column (i) for Mr. Chamberlain includes 401(k) matching  contributions from the Company in the amount of $2,523 and $359 in the  aggregate for limited perquisites which include Company-funded dry cleaning  services.                                                                                                                                                                                    |

 

**ExecutiveEmployment Agreements**

 

The primary components ofthe compensation of each currently employed named executive officer are setforth in written employment agreements between SGC and the executive.  The material provisions of such existingagreements are described below.  Potential payments upon termination (for currently employed namedexecutive officers) and actual payments upon termination (for three namedexecutive officers terminated during Fiscal 2009) and certain conditions tosuch payments are discussed separately, below.

 

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***CatherineWalker. ***Ms. Walker and SGC entered into anemployment agreement as of March 16, 2008, pursuant to which Ms. Walkeragrees to serve as Chief Operating Officer of each of SGC, SNFGC, STGCand SEGC through March 15, 2011, unless her employment is terminatedearlier pursuant to the terms of the agreement or renewed by subsequent writtenagreement.  Theagreement further provides for an annual base salary of $825,000 for SGC’sfiscal year ending September 30, 2008, after which time SGC shalldetermine in its discretion whether to increase her salary and the timingthereof.  Ms. Walker’s annual base salary has not been increased bythe board of directors. Ms. Walker may also be eligible for a performancebonus in the sole discretion of SGC’s board of directors.

*** ***

***DavidSheridan. ***Mr. Sheridan and SGC entered into anemployment agreement as of July 1, 2008, pursuant to which Mr. Sheridanagrees to serve as Chief Financial Officer of each of SGC, SNFGC, STGC andSEGC through June 30,2011.  The agreement further provides for an annual base salary of$325,000 for the SGC’s fiscal year ending September 30, 2008, after whichtime the SGC shall determine in its discretion whether to increase his salaryand the timing thereof.  Mr. Sheridan’s annual base salary has notbeen increased by the board of directors. Mr. Sheridan may also be eligible for a performance bonus in thesole discretion of the SGC’s board of directors.

 

***Robert Chamberlain.***  Mr. Chamberlain and SGC entered into anemployment agreement as of June 26, 2008, pursuant to which Mr. Chamberlainagrees to serve as Senior Vice President of Design and Construction of each ofSGC, SNFGC, STGC and SEGC through June 25, 2011.  The agreement further provides for an annualbase salary of $550,000 for the SGC’s fiscal year ending September 30,2008, after which time the SGC shall determine in its discretion whether to increase his salary andthe timing thereof.  Mr. Chamberlain’sannual base salary has not been increased by the board of directors.  Mr. Chamberlain may also be eligible fora performance bonus in the sole discretion of the SGC’s board of directors.

 

**Potential Payments to NamedExecutives Upon Termination**

 

Pursuant to theiremployment agreements, our named executive officers are entitled to potentialseverance payments upon certain terminations of employment.   The terms and conditions for when severancepayments are triggered, how payment amounts are determined, and what conditionsare attached to the executive’s receipt of severance payments are substantiallysimilar for all named executive officers, except to the extent described below.

 

***TriggeringEvents***.  Each named executive officer is entitled toreceive severance payments in the event of any termination of his employment byus, except in the case of the following events:

 

·                  Any of the executive’s license(s) requiredpursuant to the Compact and/or by the Nation’s gaming ordinances are revoked ordisapproved;

·                  Disapproval by the NIGC of the issuanceof any license by the Nation pursuant to its own gaming ordinances, if any suchaction renders it unlawful for the executive to perform in the capacity setforth in his employment agreement;

·                  In the case of Ms. Walker, if anyevent renders it unlawful for the Nation and/or SGC to continue to conductcasino gaming on the Nation’s territories or if SGC permanently ceases for anyreason within SGC’s or the Nation’s control to conduct casino gaming on NationTerritory;

·                  The executive commits an act constituting“Cause,” which is defined to mean:

 

·                  an act of dishonesty intended to resultin gain or personal enrichment of the executive or others at the expense of SGCor any of its affiliates;

·                  the deliberate and intentional refusal bythe executive (except by reason of disability) to perform executive’s duties;or

·                  acts or omissions of the executiveconstituting gross negligence in the performance of the executive’s duties;

·                  the failure to perform any material termor condition of their employment agreements after written notice thereof fromSGC and a reasonable opportunity to cure such failure (as determined by SGC andspecified in the notice of breach).

 

·                 The executive dies or becomes unable to perform the duties andresponsibilities set forth in his employment agreement for a period of 180 daysin any 365 day period by reason of long-term physical or mental disability; or

·                 The executive resigns or elects to terminate his or her employmentagreement for any reason.

 

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***Payments*****.**  If severanceis owed to one of our named executive officers, under existing employmentagreements, we will be obligated to continue to pay the executive his or herbase compensation in effect as of the date of termination for a severanceperiod following his or her termination equal to the lesser of (a) 18 months or(b) the remainder of the employment term specified in the employmentagreement.  Additionally, SGC will beobligated, to the extent elected by the executive, to pay for the cost of (i) theexecutive’s premiums for continuation healthcare coverage under Section 4980Bof the Internal Revenue Code of 1986, as amended (COBRA), and (ii) thepremiums for Exec-u-Care® or any similar executive medical reimbursementinsurance plan maintained by SGC on the date the executive’s employment isterminated, for the lesser of (x) the severance period, (y) until theexecutive is no longer eligible for COBRA continuation coverage, or (z) untilExecutive obtains comparable healthcare benefits from any other employer duringthe severance period.

 

The following table setsforth a summary of the estimated payments required to be made by SGC as ifseverance had been triggered under the named executive officers’ employmentagreements on September 30, 2009.

 
| **Name  and  Principal  Position**                                     | ** ** | **Continued Payment  of Base  Compensation********($)********(1)** | ** ** | **Estimated Exec-********U-Care Cost********($)********(2)** | ** ** | **Estimated********COBRA Cost  ($)********(3)** | ** ** | **Total Severance********Compensation ($)** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                             | ** ** | ** **                                                         | ** ** | ** **                                                   | ** ** | ** **                                      | ** ** | ** **                                       | ** ** |
| Catherine Walker 

Chief Operating Officer                             |       | 1,237,500                                                          |       | 10,307                                                       |       | 6,572                                           |       | 1,254,379                                        |       |
|                                                                   |       |                                                               |       |                                                         |       |                                            |       |                                             |       |
| David Sheridan 

Chief Financial Officer                               |       | 487,500                                                            |       | 10,307                                                       |       | 6,572                                           |       | 504,379                                          |       |
|                                                                   |       |                                                               |       |                                                         |       |                                            |       |                                             |       |
| Robert Chamberlain 

Senior Vice  President of Design and Construction |       | 825,000                                                            |       | 10,307                                                       |       | 6,572                                           |       | 841,879                                          |       |

 

----

| (1)    |   | Severance is payable to  the named executive officers for the lesser of the post-termination severance  period specified in the named executive officer’s employment agreement or the  remainder of such executive’s original term of employment (as if the employment  agreement had not been terminated prior to expiration of the specified term). |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| (2)    |   | Estimated Exec-U-Care®  cost is based on the average experienced total Exec-U-Care® costs for all  individuals and the applicable severance period, per agreement, for each  named executive officer (18 months, or 12 months, as applicable).                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| (3)    |   | Estimated COBRA cost is  based on the individual COBRA cost as of October 1, 2009, and the  applicable severance period, per agreement, for each named executive officer  (18 months, or 12 months, as applicable).                                                                                                                                        |

 

***ConditionsApplicable to Payment*****. **Payment of severance as described aboveis subject to numerous conditions, as follows:

 

·                  Duty to Mitigate Damages.  Terminated executives are required tomitigate damages by seeking employment with duties and salary comparable tothose provided for in the employment agreements; if the executive obtains  employment, the executive is required toreimburse SGC for the amount of the compensation he or she has received fromsuch other entity for such period, but not to exceed the amount of thecompensation SGC shall have paid him or her for such period.

·                  Noncompete.  Terminated executives may not (i) enterinto the employ of or render any services to any person, engaged in aCompetitive Business (defined as any gaming establishment which provides to itspatrons games of chance such as slot machines, card games, roulette, andsimilar games in the State of New York or within the 100 mile radius of NationTerritory (as defined in the agreement)); or (ii) become associated withor interested in any Competitive Business (as defined in the agreement) as anindividual, partner, shareholder, member, creditor, director, officer,principal, agent, employee, trustee, consultant, advisor or in any otherrelationship or capacity.  The foregoing applies for a period of 18months.

 

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·                  Nonsolicitation.  Terminated executives may not directly orindirectly solicit, employ or retain, or have or cause any other person orentity to solicit, employ or retain, any person who is employed or is providingpersonal services to the Company. Terminated employees further agree not to solicit patrons of SGC.  The foregoing applies for a period of 18months.

·                  Other Restrictive Covenants.  Terminated executives agree not to discloseand to protect on an ongoing basis the confidential and proprietary informationof SGC, and further agree not to disparage SGC, its employees or affiliates.

·                  Release. The terminated executive is required to release SGC, its employee andaffiliates from any and all claims arising out of the executive’s employment ortermination of employment.

 

The following table setsforth a summary of actual amounts payable by SGC through September 30,2009 for Mr. Hansberry, Mr. Brandon and Mr. Shah as a result oftheir respective terminations of service during Fiscal 2009.

 
| **Name  and  Principal  Position**                                                          | ** ** | **Continued Payment  of Base  Compensation********($)********(1)** | ** ** | **Actual Exec-********U-Care Cost********($)** | ** ** | **Actual********COBRA Cost  ($)** | ** ** | **Total Severance********Compensation ($)** | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                  | ** ** | ** **                                                         | ** ** | ** **                                     | ** ** | ** **                        | ** ** | ** **                                       | ** ** |
| E. Brian Hansberry 

Former President and CEO (2)                                           |       | 155,275                                                            |       | 2,158                                          |       | 5,655                             |       | 163,088                                          |       |
|                                                                                        |       |                                                               |       |                                           |       |                              |       |                                             |       |
| Barry W. Brandon 

Former Senior  Vice President and General Counsel (3)                    |       | 611,538                                                            |       | 10,990                                         |       | 9,614                             |       | 632,142                                          |       |
|                                                                                        |       |                                                               |       |                                           |       |                              |       |                                             |       |
| Rajat Shah 

Former Senior  Vice President of Corporate Development and General Counsel (4) |       | 53,846                                                             |       | 158                                            |       | —                            |       | 54,004                                           |       |

 

----

(1)                                        Severance was payable to each of theterminated employees from the date of termination through September 30,2009.

 

(2)                                        Mr. Hansberry’s employment as ourPresident and CEO terminated effective April 24, 2009.

 

(3)                                       Mr. Brandon’s employment as ourSenior Vice President and General Counsel terminated effective November 13,2008.

 

(4)                                       Mr. Shah’s employment as our SeniorVice President of Corporate Development and General Counsel terminatedeffective September 2, 2009.

 

The employment agreementsfor each of the above terminated executives contain noncompetition,nonsolicitation and related restrictive covenants applicable for eighteenmonths following termination for any reason.

 

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**Director Compensation**

 

SGC’s directors receivethe following compensation: (i) the Chairman of the SGC Board receives a$100,000 annual fee; (ii) each non-Nation employee director receives a$40,000 annual fee; and (iii) each Nation employee director receives $500per meeting.  In addition, we reimburse directors for travel and otherexpenses incurred in connection with their duties as directors of SGC. Thedirectors are also eligible to participate in certain other non-compensatorybenefits available to our employees, including, but not limited to, health,dental and disability benefits.

 

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**Director Compensation Table**

 

The following table setsforth information regarding compensation for the fiscal year ended September 30,2009 for each member who served on our Board of Directors:

 
| **Name**                                 | ** ** | **Year**   | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Stock********Awards********($)** | ** ** | **Option********Awards********($)** | ** ** | **Non-Equity********Incentive********Plan********Compensation********($)** | ** ** | **Change in********Pension Value********and********Nonqualified********Deferred********Compensation********Earnings********($)** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total********($)** | ** ** |
|------------------------------------------|------------|------------|------------|-----------------|------------|----------------|------------|------------------------------------|------------|-------------------------------------|------------|----------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|----------------------|------------|
| **(a)**                                  | ** ** | **(b)**    | ** ** | **(c)**         | ** ** | **(d)**        | ** ** | **(e)**                            | ** ** | **(f)**                             | ** ** | **(g)**                                                                    | ** ** | **(h)**                                                                                                                          | ** ** | **(i)**                               | ** ** | **(j)**              | ** ** |
| ** **                               | ** ** | ** ** | ** ** | ** **      | ** ** | ** **     | ** ** | ** **                         | ** ** | ** **                          | ** ** | ** **                                                                 | ** ** | ** **                                                                                                                       | ** ** | ** **                            | ** ** | ** **           | ** ** |
| Jeffrey  L. Gill (1)                     |       | 2009       |       | $               | 37,662     | ** **     | **—** | ** **                         | **—** | ** **                          | **—** | ** **                                                                 | **—** | ** **                                                                                                                       | **—** | ** **                            | **—** |                 | $          | 37,662 |   |
|                                     |       |       |       |            |       |           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                  |       |                 |       |
| Robert  E. Mele (2) (3)             |       | 2009       |       | $               | 1,425      | ** **     | **—** | ** **                         | **—** | ** **                          | **—** | ** **                                                                 | **—** | ** **                                                                                                                       | **—** | ** **                            | **—** |                 | $          | 1,425 |   |
|                                     |       |       |       |            |       |           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                  |       |                 |       |
| Kevin  W. Seneca (4) (5)            |       | 2009       |       | $               | 33,511     | ** **     | **—** | ** **                         | **—** | ** **                          | **—** | ** **                                                                 | **—** | ** **                                                                                                                       | **—** | ** **                            | **—** |                 | $          | 33,511 |   |
|                                     |       |       |       |            |       |           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                  |       |                 |       |
| Karen  Karsten (2) (6)              |       | 2009       |       | $               | 1,425      | ** **     | **—** | ** **                         | **—** | ** **                          | **—** | ** **                                                                 | **—** | ** **                                                                                                                       | **—** | ** **                            | **—** |                 | $          | 1,425 |   |
|                                     |       |       |       |            |       |           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                  |       |                 |       |
| Richard  K. Nephew (2)                   |       | 2009       |       | $               | 1,425      | ** **     | **—** | ** **                         | **—** | ** **                          | **—** | ** **                                                                 | **—** | ** **                                                                                                                       | **—** | ** **                            | **—** |                 | $          | 1,425 |   |
|                                     |       |       |       |            |       |           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                  |       |                 |       |
| Ina  K. Locke (2)                        |       | 2009       |       | $               | 2,000      |           | —     |                               | —     |                                | —     |                                                                       | —     |                                                                                                                             | —     |                                  | —     |                 | $          | 2,000 |   |
|                                     |       |       |       |            |       |           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                  |       |                 |       |
| Mark  I. Halftown (2)                    |       | 2009       |       | $               | 2,000      |           | —     |                               | —     |                                | —     |                                                                       | —     |                                                                                                                             | —     |                                  | —     |                 | $          | 2,000 |   |
|                                     |       |       |       |            |       |           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                  |       |                 |       |
| N. Cochise Redeye (7) (8)           |       | 2009       |       | $               | 69,271     | ** **     | **—** | ** **                         | **—** | ** **                          | **—** | ** **                                                                 | **—** | ** **                                                                                                                       | **—** | ** **                            | **—** |                 | $          | 69,271 |   |
|                                     |       |       |       |            |       |           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                  |       |                 |       |
| Maurice  John, Sr. (7) (9)     |       | 2009       |       | $               | 33,195     | ** **     | **—** | ** **                         | **—** | ** **                          | **—** | ** **                                                                 | **—** | ** **                                                                                                                       | **—** | ** **                            | **—** |                 | $          | 33,195 |   |
|                                     |       |       |       |            |       |           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                  |       |                 |       |
| Maribel Printup (7)                      |       | 2009       |       | $               | 36,670     | ** **     | **—** | ** **                         | **—** | ** **                          | **—** | ** **                                                                 | **—** | ** **                                                                                                                       | **—** | ** **                            | **—** |                 | $          | 36,670 |   |
|                                     |       |       |       |            |       |           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                  |       |                 |       |
| Gloria Heron (7)                         |       | 2009       |       | $               | 32,086     | ** **     | **—** | ** **                         | **—** | ** **                          | **—** | ** **                                                                 | **—** | ** **                                                                                                                       | **—** | ** **                            | **—** |                 | $          | 32,086 |   |
|                                     |       |       |       |            |       |           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                  |       |                 |       |
| Barry E. Snyder, Sr. (10) (11) |       | 2009       |       | $               | 41,578     | ** **     | **—** | ** **                         | **—** | ** **                          | **—** | ** **                                                                 | **—** | ** **                                                                                                                       | **—** | ** **                            | **—** |                 | $          | 41,578 |   |
|                                     |       |       |       |            |       |           |       |                               |       |                                |       |                                                                       |       |                                                                                                                             |       |                                  |       |                 |       |
| Michael  A. John (12)                    |       | 2009       |       | $               | 1,095      | ** **     | **—** | ** **                         | **—** | ** **                          | **—** | ** **                                                                 | **—** | ** **                                                                                                                       | **—** | ** **                            | **—** |                 | $          | 1,095 |   |

 

----

| (1)    | Elected  Chairman of the board of directors on September 25, 2009.                                  |
|--------|----------------------------------------------------------------------------------------------------------|
|   |                                                                                                     |
| (2)    | Commenced  board term on September 11, 2009.                                                        |
|   |                                                                                                     |
| (3)    | Appointed  Vice-Chairman of the board of directors on September 25, 2009.                           |
|   |                                                                                                     |
| (4)    | Commenced  board term on December 13, 2008.                                                         |
|   |                                                                                                     |
| (5)    | Appointed  Treasurer of the board of directors on August 8, 2009.                                   |
|   |                                                                                                     |
| (6)    | Appointed  Secretary of the board of directors on September 25, 2009.                               |
|   |                                                                                                     |
| (7)    | Board  term expired effective September 11, 2009, upon the appointment of a  successor.             |
|   |                                                                                                     |
| (8)    | Served  as Chairman of the board of directors from March 19, 2009 through  September 11, 2009. |
|   |                                                                                                     |
| (9)    | Suspended  from the board of directors on August 8, 2009.                                           |
|   |                                                                                                     |
| (10)   | Resigned  from the board of directors effective March 19, 2009.                                     |
|   |                                                                                                     |
| (11)   | Salary effective November 13, 2008, subsequent to expiration of  term as Seneca Nation President.   |

 

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| (12) | Resigned  from the board of directors effective November 11, 2008. |
|------|-------------------------------------------------------------------------|

 

***Compensation Committee Interlocks and Insider Participation***

 

As referenced above, SGCdoes not have a compensation committee, and the entire board of directorsperforms this function.  No executiveofficer of SGC has served as a member of the board of directors or compensationcommittee of another entity, one of whose executive officers served as a memberof the board of directors of SGC.  Inaddition to the SGC Board, Brian Hansberry, as President and CEO, participatedin deliberations regarding executed compensation decisions for certain of ourother named executive officers.

 

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

 

We are wholly-owned by,and a governmental instrumentality of, the Seneca Nation of Indians, and we areprohibited by law from generating cash through an offering of equitysecurities.

** **

**Item 13.Certain Relationships and Related Transactions, and Director Independence**

*** ***

***Transactions with the Nation***

 

Land Leases from the Nation

 

The Nation has enteredinto operating lease agreements (each a Head Lease) with each of SNFGC, STGCand SEGC.  Due to the related party nature of these leases, which can beeffectively modified by the Nation, SGC records monthly lease expense equal tothe required payment amount for the respective month.  Lease paymentincreases under the Head Leases are restricted under the terms of the Indenturegoverning the senior notes and the Distribution Agreement.  The foregoingleases contain no renewal options or escalation clauses.

 

The SNFGC Head Lease(dated October 25, 2002) which expires on December 31, 2023 andcovers use of the land and certain improvements existing at the commencement ofsuch Head Lease, principally including structures formerly known as the NiagaraFalls Convention Center and Lackey Plaza. Effective October 1, 2007, the monthly payments were $1,365,909 permonth, as approved by the board of directors of SGC and SNFGC.  Pursuant to the terms of the Amended andRestated SNFGC Head Lease entered into on March 27, 2008, and effective October 1,2007, payments were further increased, at the request of the Nation, to$2,033,333 per month, with such increase effective as of October 1,2007.  On August 1, 2008, at therequest of the Nation, SGC approved an increase in the SNFGC Head Lease to$3,083,333 per month, effective October 1, 2008, and to $3,666,667 permonth, effective October 1, 2009. On March 19, 2009 SNFGC entered into an amendment to the foregoingHead Lease agreement with the Nation, which reduced payments to $3,007,208 permonth effective October 1, 2008 and eliminated the increase that wouldhave taken effect as of October 1, 2009.

 

The STGC Head Lease(effective as of May 1, 2004) which expires on December 31, 2023 andcovers use of the land which is currently being used in operating the SenecaAllegany Casino and Hotel.  Effective October 1,2007, the monthly payments were $1,365,909, as approved by the board ofdirectors of STGC.  Pursuant to anamendment to the STGC Head Lease entered into on March 27, 2008, andeffective as of October 1, 2007, the payments were increased, at therequest of the Nation, to $1,691,667 per month. On August 1, 2008, at the request of the Nation, SGC approvedincreases in the payments under the STGC Head Lease to $2,166,666 per montheffective October 1, 2008, and to $2,666,667 per month effective October 1,2009.  On March 19, 2009 STGCentered into an amendment to the foregoing Head Lease agreement with theNation, which reduced payments to $2 million per month effective October 1,2008 and eliminated the increase that would have taken effect as of October 1,2009.

 

The SEGC Head Lease(effective as of April 1, 2006) which expires on December 31, 2023and covers use of the land which is currently being used in operating theSeneca Buffalo Creek Casino.  Effective October 1,2007, the monthly payments were $1,287,500, as approved by the board ofdirectors of SEGC.  Pursuant to anamendment to the SEGC Head Lease entered into on March 27, 2008, andeffective as of October 1, 2007, the payments were increased, at therequest of the Nation, to $1,441,667 per month. On August 1, 2008, at therequest of the Nation, SGC approved an increase in the payments under the SEGCHead Lease to $1,500,000 per month effective October 1, 2008 andthereafter.  On March 19, 2009 SEGCentered into an amendment to the foregoing Head Lease agreement with theNation, which reduced payments to $1,326,125 per month effective October 1,2008.

 

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In connection with the March 19,2009 Head Lease amendments described above, for purposes of compliance with itsIndenture governing the Senior Notes and the Distribution Agreement, SGCobtained and delivered to Wells Fargo, N.A. (as trustee under the Indenturegoverning the Senior Notes) written fair market value rent opinions from anindependent financial advisor with regard to the SNFGC and STGC Head Leaseamendments (as required by the Indenture). The SEGC Head Lease amendment reflects a 3% per annum (for two years)increase in rent as permitted by the Indenture. The Corporation also delivered to Wells Fargo, N.A. (as trustee underthe indenture governing the Nation’s municipal bonds and a party to theDistribution Agreement) an additional certification required pursuant to theDistribution Agreement.  Further oradditional increases in rent payable under the Head Lease agreements arerestricted under the terms of the Corporation’s Indenture governing its SeniorNotes and the Distribution Agreement, and are subject to compliance with allapplicable contractual commitments of the Corporation and the Nation, such thatno increase may contravene, or constitute a default under any agreement,indenture, instrument or other commitment legally binding upon the Nation,SNFGC, STGC or SEGC, respectively, or to which the premises (described in theHead Leases) are subject.

 

Expenses resulting fromthe above Head Lease agreements were as follows for the fiscal years ended September 30:

 
| ** ** | ** ** | **2009**          | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------|------------|-------------------|------------|----------|------------|----------|------------|
| ** ** | ** ** | **(In Millions)** | ** ** |
| SNFGC      |       | $                 | 36.1       |     | $          | 24.4     |       | $ | 15.9 |   |
| STGC       |       | 24.0              |       | 20.3     |       | 15.9     |       |
| SEGC       |       | 15.9              |       | 17.3     |       | 15.0     |       |
|       |       | $                 | 76.0       |     | $          | 62.0     |       | $ | 46.8 |   |

 

RegulatoryServices

 

SGCis charged by the Nation for its costs incurred related to the operation of SGAgaming regulatory services.  Theseinclude:  a) costs incurred solely anddirectly in connection with regulatory services and oversight of SGC’s gamingoperations and which are therefore 100% allocable to SGC; and b) anadministration fee, assessed by the Nation for costs indirectly incurred inconjunction with the operation and regulation of the Corporation, which isfixed as a percentage of direct costs, currently set at 20%, as determined bythe Nation in its performance of administration of the SGA and its oversight ofthe Company. During September 2009, the administration fee percentage wasreduced by the Nation from 29.56% to 20%, with retroactive application toFiscal 2009.  Such costs wereapproximately $9.7 million and $10.9 million for Fiscal 2009 and 2008, respectively.

 

SGCis also charged by the Nation for its costs incurred related to servicesprovided by the New York State Racing and Wagering Board, New York StatePolice, Seneca Nation of Indians Marshals, Buffalo Police and CattaraugusCounty Sheriff Department solely and directly in connection with SGC’soperations, which costs were approximately $10.8 million and $9.6 million forthe Fiscal 2009 and 2008, respectively.

 

AtSeptember 30, 2009 and 2008, approximately $33.7 million and $27.9million, respectively, were recorded as “accrued regulatory costs” in theaccompanying consolidated balance sheets, for the payment of such New YorkState related regulatory costs.

 

Distributionsto the Nation

* *

*General Distributions*

 

We makedistributions to the Nation pursuant to resolutions adopted by our board ofdirectors for specific projects identified by the Nation and for generalpurposes.  During Fiscal 2009, wedistributed $42.2 million to the Nation pursuant to such resolutions.

* *

*Distribution Agreement Obligations*

 

DuringFiscal 2009, we distributed $14.4 million to the Nation pursuant to SGC’sobligations under the Distribution 

 

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Agreement.  See “Item 1 — Business—Certain MaterialAgreements of SGC and the Nation” for a detailed description of theDistribution Agreement.

* *

*New York State Exclusivity Fee under the Compact*

 

DuringFiscal 2009, SGC distributed approximately $106.0 million to the Nation for thepayment of the exclusivity fee to New York State.

 

Class II Poker Operations

 

In January 2005, wetransferred all Class II gaming operations to the Nation, which includedour poker operations at the Seneca Niagara Casino and Hotel and Seneca AlleganyCasino. Class II gaming includes bingo and similar games, and is subjectto tribal regulation and federal oversight by the NIGC. For a description ofthe classes of gaming, see “Item 1 — Business — The Indian Gaming RegulatoryAct of 1988 - Classes of Gaming” below. The transferof the Class II operations in January 2005 was consistent with ourunderstanding of the Seneca Nation Tribal Council’s (the Nation’s legislativebody) intent that we manage and operate the Nation’s Class III operationsand that Council directly manage and operate the Nation’s Class IIoperations. The Nation, through its wholly-owned business enterprise, SenecaGaming & Entertainment, operates the Class II poker operations atSeneca Niagara Casino and Hotel, in addition to two Class II gamingfacilities located on the Nation’s Territories in Salamanca and Irving, NewYork, respectively. On November 9, 2009, Seneca Gaming and Entertainmentrelocated its poker operations at Seneca Allegany Casino to a new facilitylocated within one mile of our property. During Fiscal 2009, Fiscal 2008, and Fiscal 2007, we recorded $829,000,$822,000, and $695,000, of rental income, respectively, and at September 30,2009, September 30, 2008, and September 30, 2007, we had recorded$469,000, $81,000 and $58,000, respectively, as a receivable from the Nationrelating to poker room rentals.

 

UnsecuredNation Loan

 

On August 8,2009, the Nation offered SEGC a $9 million unsecured loan for purposes ofexpanding the Buffalo Creek Casino temporary facility to include up to 250additional slot machines.  The SEGC Boardof Directors, on August 14, 2009, approved the terms of the loan, whichinclude an interest rate of 5% per annum with principal and interest payableover a 12 month period commencing on the 15th day of the calendar monthfollowing the opening of the expansion (expected to occur in Spring 2010).  SEGC has not yet determined whether it willutilize this loan being extended by the Nation.

 

ConstructionManagement Services

 

SGC has engaged SenecaConstruction Management Corporation, or SCMC, on a project-by-project basis tomanage certain construction projects on behalf of SGC and itssubsidiaries.  SCMC is wholly-owned bythe Nation.  During Fiscal 2009, SGC madepayments to SCMC for construction management fees and other related costs of$1.8 million, primarily attributable to work in connection with the followingprojects:

 

In July 2005,STGC entered into a construction management agreement with SCMC to manage theconstruction of the 212-room resort hotel and casino at Seneca AlleganyCasino.  This project was completelyopened on March 30, 2007, and cost approximately $169.0 million includingthe cost of equipment and furnishings.

 

In November 2006,SEGC entered into a construction management agreement with SCMC to manageconstruction of the temporary Seneca Buffalo Creek Casino.  This project was completely opened on July 3,2007 and cost $6.8 million including equipment and furnishings.

 

Effective June 2007,STGC entered into a construction management agreement with SCMC to manage theconstruction of the fourth phase of construction at Seneca Allegany Casino,including, in particular, conversion of the former temporary casino facilityinto an events center and related improvements. This project was completed in March 2008 and cost $29.3 millionincluding equipment and furnishings.

 

Effective October 2007,SEGC entered into a letter of intent with SCMC to manage the construction ofthe $333 million permanent Seneca Buffalo Creek Casino and Hotel.   Construction on this project was suspendedin August 2008, however, prior to suspension of construction costs wereapproximately $51.5 million.

 

In September 2009,SEGC entered into a construction management agreement with SCMC to manageconstruction of an 

 

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additional expansion ofthe temporary Seneca Buffalo Creek Casino.

 

SGC also has engaged SCMCto perform construction management services for smaller capital improvementprojects on case-by-case basis, including conversion of the former Hushnightclub into the Blues restaurant, and renovations to certain interiorcomponents of the Seneca Niagara Falls Casino and Hotel and adjacent officespace.

 

***Related Party Transactions***

 

DuringFiscal 2009, STGC paid M&M Allegany Junction approximately $252,000 forleasing the building used by STGC for administrative purposes. Merle Watt, Sr.,the brother of Maribel Printup, a member of our board of directors until September 2009,is a principal owner of M&M Allegany Junction.

 

Reference is made to “Item11 — Executive Compensation” for a discussion of certain matters relating tothe compensation and employment of our officers and compensation of ourdirectors.

** **

**Review, Approval or Ratificationof Transactions with Related Persons**

 

Our corporate charterprovides that no director may have an “economic interest” in any of the Company’sactivities.  Our audit committee charterfurther requires that the audit committee review and approve or disapprove allrelated party transactions, and our written Code of Business Conduct and Ethicsrequires that any transaction involving a potential conflict of interestinvolving an executive officer or a member of our Board of Directors must bedisclosed and approved by our full Board of Directors, unless such transactionalso constitutes a “related party transaction” under the SEC’s rules, in whichcase the transaction must be approved by the Audit Committee.  During Fiscal 2009, the Audit Committeeadopted a formal policy to further detail the process for identifying andobtaining approval of related party transactions. As of the date of this AnnualReport, such policy continues to be in the process of implementation, with fullimplementation expected in early 2010. In addition, on an annual basis, eachdirector and executive officer completes a Directors’ and Officers’Questionnaire that requires disclosure of any transactions with SGC or itssubsidiaries in which the individual, or any member of the individual’s family,has a direct or indirect material interest. The foregoing written rules constitute our current written policiesrelating to approval of related party transactions.

 

Theagreement between STGC and M&M Allegany Junction has not been formallyreviewed or approved by the Audit Committee of our board of directors inaccordance with the above procedures on the basis that the terms of therelationship were entered into in the ordinary course of STGC’s business in April 2004prior to Ms. Printup’s appointment to the Board of Directors in February 2005.

** **

**DirectorIndependence**

 

SGC isnot a listed issuer with securities listed on a national securities exchange orinter-dealer quotation system with requirements that a majority of the board ofdirectors be “independent.”  Accordingly,SGC is not subject to rules requiring certain of its directors to beindependent.  We believe all of ourcurrent directors would meet the NYSE definition of “independent” except forKaren Karsten, Robert Mele and Kevin Seneca. Even if SGC were a listed issuer, the board believes that SGC would beable to rely on at least one exemption from these director independencestandards in that it is both a controlled company (having one owner, the SenecaNation of Indians) and has only debt (as opposed to equity) securitiesoutstanding.

 

**Item14.  Principal Accounting Fees andServices**

 

The following table setsforth the aggregate fees incurred by SGC related to the services of SGC’sindependent registered public accounting firm, Ernst & Young LLP forthe years indicated:

 
| ** **             | ** ** | **Fiscal Year September 30,** | ** ** |
|------------------------|------------|----------------------------------------------|------------|
| ** **             | ** ** | **2009**                                     | ** ** | **2008** | ** ** |
|                   |       |                                         |       |   |   |
| Audit  fees(1)         |       | $                                            | 657,473    |   | $ | 776,523 |   |
| Audit-related  fees(2) |       | 24,500                                       |       | 42,100 |   |
| Tax  fees(3)           |       | 1,975                                        |       | — |   |
| Total                  |       | $                                            | 683,948    |   | $ | 818,623 |   |

 

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----

| (1)    | The audit fees  relate to the audit of SGC’s annual financial statements and quarterly  reviews, including procedures performed for compliance with Section 404.  Audit fees also include services for agreed upon procedures reports in  connection with the National Indian Gaming Commission requirements. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                    |
| (2)    | Audit related  fees relate to audit services for SGC’s employee benefit plan.                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                    |
| (3)    | Tax fees relate  to services provided for Income and Payroll reporting for Directors of SGC.                                                                                                                                                                                                                            |

 

**Pre-approvalof Services Required**

 

Under the policies andprocedures established by our audit committee, each engagement for audit andpermissible non-audit services to be provided by our independent registeredpublic accounting firm must be approved by the audit committee. Thepre-approval 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.

** **

**PART IV**

 

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

 
| (a)1. and 2. |   | Financial statements required as a part of this  Annual Report on Form 10-K are listed on the “Index to Consolidated  Financial Statements” at page 105 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.             |   | The exhibits to this Form 10-K are listed on  the exhibit index, which appears elsewhere herein and is incorporated herein  by reference.                                                                                                                                                                                                          |
|              |   |                                                                                                                                                                                                                                                                                                                                                    |
| (b)               |   | See item (a)3. above.                                                                                                                                                                                                                                                                                                                                   |
|              |   |                                                                                                                                                                                                                                                                                                                                                    |
| (c)               |   | See item (a)1. and 2. above.                                                                                                                                                                                                                                                                                                                            |

 

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**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) the Securities ExchangeAct of 1934, the registrant has duly caused this annual report to be signed onits behalf by the undersigned, thereunto duly authorized, in Niagara Falls,State of New York, on the 22nd day of December, 2009.

 
|   |   | SENECA GAMING CORPORATION |
|--------|--------|---------------------------|
|   |   |                      |
|   |   | By:                       | /s/ Catherine Walker |
|   |   |                      |   |
|   |   |                      | Catherine Walker |
|   |   |                      | Chief Operating Officer |
|   |   |                      | (Principal Executive Officer) |

 

**POWER OF ATTORNEY**

 

Eachperson whose signature appears below constitutes and appoints Catherine Walkerand David Sheridan, and each or any of them, his or her true and lawfulattorney-in-fact and agent, each with full power of substitution andresubstitution, for him or her in his or her name, place and stead, in any andall capacities, to sign on his or her behalf individually and in each capacitystated below any or all amendments to this annual report on Form 10-K andany other documents in connection therewith, with the Securities and ExchangeCommission, granting unto said attorney-in-fact and agent, and each of them,full power and authority to do and perform each and every act and thingrequisite and necessary to be done in and about the premises, as fully to allintents and purposes as he or she might or could do in person, hereby ratifyingand confirming all that such attorneys-in-fact and agent, or his or theirsubstitute or substitutes, may lawfully do or cause to be done by virtuehereof.  This Power of Attorney may besigned in several counterparts.

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this annual reporthas been signed by the following persons on behalf of the registrant and in thecapacities and on the date indicated.

 
| **Signature**         | ** ** | **Title**                                                             | ** ** | **Date**               |
|-----------------------|------------|-----------------------------------------------------------------------|------------|------------------------|
| ** **            |       |                                                                  |       |                   |
| /s/ Catherine Walker  |       | Chief Operating Officer (Principal Executive  Officer)                |       | December 22, 2009 |
| Catherine Walker      |       |                                                                  |       |                   |
|                  |       |                                                                  |       |                   |
| /s/ David Sheridan    |       | Chief Financial Officer (Principal Financial and  Accounting Officer) |       | December 22, 2009 |
| David Sheridan        |       |                                                                  |       |                   |
|                  |       |                                                                  |       |                   |
| /s/ Jeffrey L. Gill   |       | Chairman of the Board of Directors                                    |       | December 22, 2009 |
| Jeffrey L. Gill       |       |                                                                  |       |                   |
|                  |       |                                                                  |       |                   |
| /s/ Robert E. Mele    |       | Vice Chairman and Director                                            |       | December 22, 2009 |
| Robert E. Mele        |       |                                                                  |       |                   |
|                  |       |                                                                  |       |                   |
| /s/ Kevin W. Seneca   |       | Treasurer and Director                                                |       | December 22, 2009 |
| Kevin W. Seneca       |       |                                                                  |       |                   |
|                  |       |                                                                  |       |                   |
| /s/ Karen Karsten     |       | Secretary and Director                                                |       | December 22, 2009 |
| Karen Karsten         |       |                                                                  |       |                   |
|                  |       |                                                                  |       |                   |
| /s/ Richard K. Nephew |       | Director                                                              |       | December 22, 2009 |
| Richard K. Nephew     |       |                                                                  |       |                   |
|                  |       |                                                                  |       |                   |
| /s/ Ina K. Locke      |       | Director                                                              |       | December 22, 2009 |
| Ina K. Locke          |       |                                                                  |       |                   |
|                  |       |                                                                  |       |                   |
| /s/ Mark I. Halftown  |       | Director                                                              |       | December 22, 2009 |
| Mark I. Halftown      |       |                                                                  |       |                   |

 

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** **

**SENECA GAMING CORPORATION**

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

 
| **Audited Consolidated Financial Statements:**                                                                             | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                 | ** ** |
| Report  of Independent Registered Public Accounting Firm                                                                   | F-1        |
|                                                                                                                       |       |
| Consolidated Balance Sheets, as of  September 30, 2009 and 2008                                                       | F-2        |
|                                                                                                                       |       |
| Consolidated Statements of  Operations and Changes in Capital, for the years ended September 30,  2009, 2008 and 2007 | F-3        |
|                                                                                                                       |       |
| Consolidated  Statements of Cash Flows, for the years ended September 30, 2009, 2008,  and 2007                       | F-4        |
|                                                                                                                       |       |
| Notes to  Consolidated Financial Statements                                                                                | F-5        |

 

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** **

**SENECA GAMING CORPORATION**

** **

**REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM**

** **

The Board of DirectorsSeneca Gaming Corporation

 

We have audited theaccompanying consolidated balance sheets of Seneca Gaming Corporation as of September 30,2009 and 2008, and the related consolidated statements of operations andchanges in capital, and cash flows for each of the three years in the periodended September 30, 2009. 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 auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. We were not engaged to perform an audit of theCompany’s internal control over financial reporting. Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no suchopinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Seneca GamingCorporation at September 30, 2009 and 2008, and the consolidated resultsof its operations and its cash flows for each of the three years in the periodended September 30, 2009, in conformity with U.S. generally acceptedaccounting principles.

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

 

Buffalo, New YorkDecember 22, 2009

 

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Table of Contents

**SENECA GAMING CORPORATION**

 

**CONSOLIDATED BALANCESHEETS**

 
| ** **                                    | ** ** | **September 30,** | ** ** |
|-----------------------------------------------|------------|------------------------|------------|
| ** **                                    | ** ** | **2009**               | ** ** | **2008** | ** ** |
| ** **                                    | ** ** | **(In Thousands)**     | ** ** |
| **Assets**                                    |       |                   |       |   |   |
|                                          |       |                   |       |   |   |
| Current  assets:                              |       |                   |       |   |   |
| Cash  and cash equivalents                    |       | $                      | 83,230     |   | $ | 53,305 |   |
| Short-term  investments                       |       | 113                    |       | 300 |   |
| Receivables  from the Nation                  |       | 6,201                  |       | 81 |   |
| Other  receivables, net                       |       | 2,539                  |       | 2,624 |   |
| Inventories                                   |       | 4,046                  |       | 4,196 |   |
| Other  current assets                         |       | 10,369                 |       | 9,127 |   |
|                                          |       |                   |       |   |   |
| Total  current assets                         |       | 106,498                |       | 69,633 |   |
|                                          |       |                   |       |   |   |
| Property  and equipment, net                  |       | 670,111                |       | 799,335 |   |
| Other  long-term assets                       |       | 65,319                 |       | 66,750 |   |
|                                          |       |                   |       |   |   |
| Total  assets                                 |       | 841,928                |       | 935,718 |   |
|                                          |       |                   |       |   |   |
| **Liabilities and Shareholders’ Equity** |       |                   |       |   |   |
|                                          |       |                   |       |   |   |
| Current  liabilities:                         |       |                   |       |   |   |
| Trade  payables                               |       | 2,328                  |       | 3,368 |   |
| Construction  payables                        |       | 9,373                  |       | 29,619 |   |
| Distributions  payable to the Nation          |       | 3,727                  |       | 24,000 |   |
| Exclusivity  fees payable                     |       | 8,220                  |       | 9,234 |   |
| Accrued  interest payable                     |       | 15,104                 |       | 15,104 |   |
| Accrued  regulatory costs                     |       | 33,683                 |       | 27,888 |   |
| Accrued  gaming liabilities                   |       | 15,113                 |       | 15,657 |   |
| Accrued  payroll and related liabilities      |       | 9,652                  |       | 10,138 |   |
| Other  current liabilities                    |       | 6,722                  |       | 13,511 |   |
|                                          |       |                   |       |   |   |
| Total  current liabilities                    |       | 103,922                |       | 148,519 |   |
|                                          |       |                   |       |   |   |
| Long-term  debt                               |       | 497,363                |       | 496,353 |   |
| Other  long-term liabilities                  |       | 834                    |       | — |   |
| Total  liabilities                            |       | 602,119                |       | 644,872 |   |
|                                          |       |                   |       |   |   |
| Capital:                                      |       |                   |       |   |   |
| Retained  earnings                            |       | 239,809                |       | 290,846 |   |
|                                          |       |                   |       |   |   |
| Total  liabilities and capital                |       | $                      | 841,928    |   | $ | 935,718 |   |

 

*Seeaccompanying notes*

 

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** **

**SENECA GAMING CORPORATION**

** **

**CONSOLIDATED STATEMENTSOF OPERATIONS AND CHANGES IN CAPITAL**

 
| ** **                                                                   | ** ** | **Year Ended September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                   | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                                   | ** ** | **(In Thousands)**                | ** ** |
| **Revenues:**                                                                |       |                              |       |   |   |   |   |
| Gaming                                                                       |       | $                                 | 586,774    |   | $ | 632,580 |   | $ | 595,826 |   |
| Food  and beverage                                                           |       | 58,476                            |       | 63,272 |   | 56,608 |   |
| Lodging                                                                      |       | 24,252                            |       | 28,757 |   | 24,352 |   |
| Retail,  entertainment and other                                             |       | 23,259                            |       | 25,032 |   | 20,190 |   |
| Promotional  allowances                                                      |       | (113,251                          | )          | (117,553 | ) | (104,012 | ) |
| Net  revenues                                                                |       | $                                 | 579,510    |   | $ | 632,088 |   | $ | 592,964 |   |
|                                                                         |       |                              |       |   |   |   |   |
| **Expenses:**                                                                |       |                              |       |   |   |   |   |
| Gaming                                                                       |       | 152,199                           |       | 169,472 |   | 153,259 |   |
| Food  and beverage                                                           |       | 44,505                            |       | 49,907 |   | 47,863 |   |
| Lodging                                                                      |       | 12,368                            |       | 13,191 |   | 10,218 |   |
| Retail,  entertainment and other                                             |       | 14,188                            |       | 16,952 |   | 14,530 |   |
| Advertising,  general and administrative                                     |       | 182,172                           |       | 187,011 |   | 153,838 |   |
| Pre-opening  costs                                                           |       | 363                               |       | 286 |   | 15,426 |   |
| Depreciation  and amortization                                               |       | 47,850                            |       | 51,081 |   | 49,597 |   |
| Impairment  of property and equipment                                        |       | 107,557                           |       | — |   | — |   |
|                                                                         |       |                              |       |   |   |   |   |
| Total  operating expenses                                                    |       | 561,202                           |       | 487,900 |   | 444,731 |   |
|                                                                         |       |                              |       |   |   |   |   |
| Operating  income                                                            |       | 18,308                            |       | 144,188 |   | 148,233 |   |
|                                                                         |       |                              |       |   |   |   |   |
| Other  non-operating income and (expenses), net                              |       | 287                               |       | (5,600 | ) | 3,220 |   |
| Interest  income                                                             |       | 214                               |       | 1,344 |   | 3,886 |   |
| Interest  expense                                                            |       | (38,179                           | )          | (37,325 | ) | (36,063 | ) |
|                                                                         |       |                              |       |   |   |   |   |
| Net  (loss) income                                                           |       | $                                 | (19,370    | ) | $ | 102,607 |   | $ | 119,276 |   |
|                                                                         |       |                              |       |   |   |   |   |
| Beginning  capital balance                                                   |       | 290,846                           |       | 230,244 |   | 189,631 |   |
| Cash  distributions declared to the Nation                                   |       | (36,768                           | )          | (42,005 | ) | (81,433 | ) |
| Contribution  from the Nation                                                |       | 5,101                             |       | — |   | 3,198 |   |
| Distribution  of real property, equipment and leasehold rights to the Nation |       | —                            |       | — |   | (428 | ) |
| Ending  capital balance                                                      |       | $                                 | 239,809    |   | $ | 290,846 |   | $ | 230,244 |   |

 

*See accompanying notes.*

 

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**Table of Contents**

** **

**SENECA GAMING CORPORATION**

** **

**CONSOLIDATED STATEMENTSOF CASH FLOWS**

** **
| ** **                                                                                 | ** ** | **Year Ended September 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                 | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                                                 | ** ** | **(In Thousands)**                | ** ** |
| Cash  flows relating to operating activities:                                              |       |                              |       |   |   |   |   |
|                                                                                       |       |                              |       |   |   |   |   |
| Net  (loss) income                                                                         |       | $                                 | (19,370    | ) | $ | 102,607 |   | $ | 119,276 |   |
| Adjustments  to reconcile net (loss) income to net cash provided by operating activities - |       |                              |       |   |   |   |   |
| Depreciation  and amortization                                                             |       | 47,850                            |       | 51,081 |   | 49,597 |   |
| Loss  on disposal of assets                                                                |       | 155                               |       | 166 |   | 992 |   |
| Amortization  of deferred financing costs, debt discount                                   |       | 3,243                             |       | 3,238 |   | 3,232 |   |
| Other  than temporary decline in investments                                               |       | 187                               |       | 4,200 |   | 500 |   |
| Provision  for bad debts                                                                   |       | 424                               |       | 292 |   | 407 |   |
| Write-off  of acquisition costs                                                            |       | —                            |       | 1,192 |   | — |   |
| Impairment  of property and equipment                                                      |       | 107,557                           |       | — |   | — |   |
| Non-cash  distribution to the Nation                                                       |       | (438                              | )          | — |   | — |   |
| Other                                                                                      |       | (487                              | )          | — |   | (388 | ) |
| Change  in operating assets and liabilities:                                               |       |                              |       |   |   |   |   |
| Current  assets                                                                            |       | (1,819                            | )          | (62 | ) | (5,114 | ) |
| Long-term  assets                                                                          |       | —                            |       | (1,193 | ) | (13 | ) |
| Current  liabilities                                                                       |       | 1,489                             |       | (2,668 | ) | 11,259 |   |
|                                                                                       |       |                              |       |   |   |   |   |
| Net  cash provided by operating activities                                                 |       | 138,791                           |       | 158,853 |   | 179,748 |   |
|                                                                                       |       |                              |       |   |   |   |   |
| Cash  flows relating to investing activities:                                              |       |                              |       |   |   |   |   |
| Purchases  of property and equipment                                                       |       | (46,097                           | )          | (141,383 | ) | (163,648 | ) |
| Land  acquisition costs                                                                    |       | (6,248                            | )          | (5,874 | ) | (15,319 | ) |
| Decrease  in restricted cash                                                               |       | —                            |       | 14,579 |   | 11,221 |   |
| Deposits                                                                                   |       | 82                                |       | (127 | ) | — |   |
| Sale  of investments, net                                                                  |       | —                            |       | 14,600 |   | 42,700 |   |
|                                                                                       |       |                              |       |   |   |   |   |
| Net  cash used in investing activities                                                     |       | (52,263                           | )          | (118,205 | ) | (125,046 | ) |
|                                                                                       |       |                              |       |   |   |   |   |
| Cash  flows relating to financing activities:                                              |       |                              |       |   |   |   |   |
| Proceeds  from senior secured revolving loan agreement                                     |       | 20,000                            |       | — |   | — |   |
| Payments  on senior secured revolving loan agreement                                       |       | (20,000                           | )          | — |   | — |   |
| Capital  contribution from the Nation                                                      |       | —                            |       | — |   | 3,198 |   |
| Distributions  paid to the Nation                                                          |       | (56,603                           | )          | (66,005 | ) | (57,433 | ) |
|                                                                                       |       |                              |       |   |   |   |   |
| Net  cash used in financing activities                                                     |       | (56,603                           | )          | (66,005 | ) | (54,235 | ) |
|                                                                                       |       |                              |       |   |   |   |   |
| Net  increase (decrease) in cash                                                           |       | 29,925                            |       | (25,357 | ) | 467 |   |
|                                                                                       |       |                              |       |   |   |   |   |
| Cash  balances:                                                                            |       |                              |       |   |   |   |   |
| Beginning  of period                                                                       |       | 53,305                            |       | 78,662 |   | 78,195 |   |
|                                                                                       |       |                              |       |   |   |   |   |
| End  of period                                                                             |       | $                                 | 83,230     |   | $ | 53,305 |   | $ | 78,662 |   |
|                                                                                       |       |                              |       |   |   |   |   |   |   |   |
| Supplemental  disclosures of cash flow information:                                        |       |                              |       |   |   |   |   |
| Change  in construction payables                                                           |       | $                                 | (20,246    | ) | $ | 8,418 |   | $ | 31,288 |   |
| Cash  paid for interest, net of amounts capitalized                                        |       | 34,936                            |       | 34,088 |   | 32,827 |   |
| Noncash  investing activities                                                              |       |                              |       |   |   |   |   |
| Distribution  of property and leasehold rights to the Nation                               |       | $                                 | —     |   | $ | — |   | $ | 428 |   |
| Reserve  for land acquisitions                                                             |       | —                            |       | 6,400 |   | — |   |
| Insurance  payables capitalized in property and equipment                                  |       | 1,040                             |       | 1,040 |   | 1,610 |   |
| Noncash  financing activities                                                              |       |                              |       |   |   |   |   |
| Cash  distributions to the Nation declared but not paid                                    |       | $                                 | 3,727      |   | $ | 24,000 |   | $ | 48,000 |   |
| Non-cash  distribution declared to the Nation                                              |       | 438                               |       | — |   | — |   |
| Capital  contribution receivable from the Nation                                           |       | (5,101                            | )          | — |   | — |   |

 

*See accompanying notes.*

 

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**SENECA GAMING CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**1. Organization and Basis of Presentation**

 

The consolidatedfinancial statements include the accounts of Seneca Gaming Corporation (SGC)and its wholly-owned subsidiaries (collectively, the Company).  In consolidation, all intercompany balancesand transactions have been eliminated.

 

SGC, which was formed on August 1,2002, is wholly-owned by the Seneca Nation of Indians, or the Nation.  The Nation is a federally recognized Indiantribe with total territorial land comprising approximately 54,000 acres in theWestern New York region.  SGC wasorganized by the Nation to operate and manage its Class III gamingactivities on the Nation’s territories pursuant to the Indian Gaming RegulatoryAct of 1988, or IGRA.  Under IGRA,federally recognized Indian tribes are permitted to conduct full-scale casinogaming operations on tribal land, subject to, among other things, thenegotiation of a compact with the affected state.  Pursuant to IGRA, in August 2002, theNation entered into the Nation-State Gaming Compact with the State of New York,or the Compact, which has been approved by the Federal Bureau of IndianAffairs, Department of the Interior.  TheCompact became effective in December 2002 and expires in December 2016and automatically renews for an additional seven year period unless either theNation or the State of New York objects in writing, in which case the partiesare required to negotiate in good faith to address the objecting party’sconcerns, with only the issue of a party’s good faith subject to third partydispute resolution.  The Compact providesthat its terms will remain in effect during the pendency of suchnegotiations.  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’s Constitutionestablished the Nation’s Council, or the Council, to act as the Nation’slegislative authority. The Council acts on the Nation’s behalf with respect toSGC, and the Council established the Seneca Gaming Authority, or SGA, toregulate the gaming activities of SGC under the Compact.

 

The Council, at therequest of the SGC Board of Directors, chartered three subsidiary corporationsof SGC to operate the three sites authorized by the Compact. In addition, theSGC Board of Directors hired the executive management of SGC, including thePresident and Chief Executive Officer, to oversee, develop, and manage thethree sites. The subsidiary corporations that operate the three sitesauthorized by the Compact are as follows:

 

Seneca Niagara Falls Gaming Corporation, or SNFGC

 

Seneca Territory Gaming Corporation, or STGC

 

Seneca Erie Gaming Corporation, or SEGC

 

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SNFGC was formed on August 1,2002 to operate the Nation’s gaming activities in Niagara Falls, New York.Operations at SNFGC’s casino, or Seneca Niagara Casino, commenced December 31,2002.  In connection with the approval ofthe Compact on October 25, 2002, the State of New York transferred to theNation certain property upon which the former Niagara Falls, New York,Convention Center (the Facility) was located. As provided for in the Compact, the Nation leased the property to SNFGCpursuant to a lease agreement dated October 25, 2002.  SNFGC then leased the property to the EmpireState Development Corporation (ESDC) pursuant to a sublease agreement dated October 25,2002.  The ESDC then subleased theproperty back to SNFGC under a sub-sublease agreement also dated as of October 25,2002.  The SNFGC casino is located onthis leased property site and operates in the renovated facility.  The sub-sublease agreement with ESDC requiredSNFGC to pay Supplemental Rent of approximately $24 million in the event SNFGCconducted Class III gaming in a structure within the City of Niagara Fallsoutside of the Facility.  TheSupplemental Rent represents the remaining general obligation bonds outstandingissued by ESDC in connection with financing of the Facility in the 1970s.  The sublease and sub-sublease were enteredinto in order to provide ESDC a continuing contractual interest in theFacility.

 

Based on the Company’sexpansion plans, which includes expanded Class III gaming, the liabilityfor payment of the Supplemental Rent became probable.  As a result, the Company negotiated adiscounted payment of $22.0 million, which was paid to ESDC in August 2004.  This payment fulfilled the Nation’s and SNFGC’sobligation under the Compact with respect to such Supplemental Rent and resultsin the termination of both the sublease and sub-sublease.  The Company has recorded the $22.0 millionpayment as leasehold improvements, since it represents an additional cost ofthe facility leased from the Nation. This amount is being amortized over the remaining term of the Compact,through 2023.

 

STGC was formed on September 20,2003 to operate the Nation’s Class III gaming activities in Salamanca, NewYork on the Nation’s then-existing territorial land. Operations at STGC’scasino, or Seneca Allegany Casino, commenced May 1, 2004 utilizing anapproximate 120,000 square foot temporary structure.  On March 30, 2007, the phased opening ofthe permanent gaming facility and resort hotel was completed, which included apermanent 63,500 square foot gaming facility (adding 12,000 square feet ofadditional gaming space to the original temporary gaming facility), a 212-roomresort hotel, two fine dining restaurants, a 24 hour casual restaurant, a spa andfitness center, and retail and other amenities. In March 2008, STGC completed a conversion of the formerapproximate 120,000 square foot temporary casino structure into an eventscenter and multi-purpose room with a seating capacity for 2,200 people, alongwith additional administrative and support space.  The entire complex, including the SenecaAllegany Casino, resort hotel, and events center, is referred to as the SenecaAllegany Casino and Hotel.

 

SEGC was formed on August 9,2003 to operate the Nation’s Class III gaming activities in Erie County,New York.  On October 3, 2005, theNation acquired approximately nine acres of land in the inner-harbor districtof downtown Buffalo, New York.  SEGCcommenced construction of its Seneca Buffalo Creek Casino on those nine acreson December 8, 2005, and on July 3, 2007 commenced Class IIIgaming on such property in a temporary facility, in fulfillment of therequirement set forth in the Nation’s Compact with the State of New York.  The temporary facility features approximately8,600 square feet and includes 244 slot machines and a snack bar.  Various plaintiffs have filed suit in federaland state court challenging the Nation’s right to conduct Class III gamingon the Nation’s nine acre Buffalo Creek Territory.  On July 8, 2008, in a federal suitcaptioned Citizens Against Casino Gambling in Erie County (CACGEC) v. Hogen,the Court issued its decision and order finding that, although the Nation’sBuffalo Creek Territory is “Indian country”, the National Indian GamingCommission, or NIGC,’s determination that the Nation’s Buffalo Creek Territoryis gaming-eligible land pursuant to the IGRA’s settlement of a land claimexception was “arbitrary, capricious, and not in accordance with the law”.  The Court’s decision did not provide forinjunctive relief, and SEGC has continued its operations at the Seneca BuffaloCreek Casino.  Plaintiffs subsequentlyfiled a motion on July 14, 2008 to force the court to enforce itsjudgment.

 

On January 20, 2009,the NIGC approved an amended Class III Gaming Ordinance that had beensubmitted by the Nation and concluded that, based upon new Department ofInterior regulations, IGRA’s general prohibition against gaming onafter-acquired lands did not apply to lands such as the Buffalo Creek Territorythat are held in restricted fee, and that gaming on the Nation’s Buffalo CreekTerritory is not precluded by IGRA. Subsequently, on January 30, 2009, the District Court denied theplaintiffs’ motion to enforce, and further concluded that the NIGC’s newanalysis is presumed valid unless it becomes the subject of a successful legalchallenge.

 

On March 31, 2009,plaintiffs in the litigation noted in the foregoing paragraph filed suit tochallenge the NIGC’s approval of the amended Class III GamingOrdinance.   On June 15, 2009, theNation moved to intervene as a defendant in CACGEC III for certain limitedclaims.  The plaintiffs are opposing theNation’s motion and as of December 22, 2009, the Nation’s motion was stillpending before the Court. See “Note 13 — Commitments and Contingencies,” foradditional information regarding the status of, and litigation related to, theSeneca Buffalo Creek Casino.

 

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If the plaintiffs aresuccessful in any of the Buffalo Creek-related legal proceedings, the SEGC maybe unable to continue Class III gaming at the existing Seneca BuffaloCreek Casino.

 

The Nation’s Council hasalso chartered, at the request of the SGC Board of Directors, an additionalsubsidiary corporation, Lewiston Golf Course Corporation, or LGCC, awholly-owned subsidiary of SNFGC.  LGCCwas formed on July 18, 2007 by the Nation’s Council, as a new wholly-ownedsubsidiary of SNFGC to own, develop and operate SGC’s planned golf course inLewiston, New York.

 

Seneca MassachusettsGaming Corporation, a wholly-owned subsidiary of SGC, formed on August 11,2007 to explore development opportunities related to gaming in the Commonwealthof Massachusetts, was dissolved by the Nation’s Council on April 11, 2009,and its assets transferred to SGC.

 

SGC’s fiscal year-end is September 30. Referencesto Fiscal 2009, Fiscal 2008, and Fiscal 2007, represent the twelve month periodended September 30, 2009, September 30, 2008 and, September 30,2007, respectively.

 

**2. Summary of Significant Accounting Policies**

 

**Management’s Use ofEstimates**

** **

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. The most significant estimates included in the accompanyingfinancial statements relate to the liability associated with unredeemed SenecaLink Player’s Card points, vested employee benefits, and regulatoryexpenses.  Actual results could differfrom these estimates.

 

**Cash and Cash Equivalents**

 

SGC considers all highly liquid instruments withoriginal maturities of three months or less from the date of purchase to becash equivalents. Cash and cash equivalents are reported at cost, whichapproximates market value.

 

**Short-Term Investments**

 

Short-term investments are classified as available forsale as defined in the Financial Accounting Standards Board (“FASB”) AccountingStandards Codification (“ASC”) 320, *Investments — Debt andEquity Securities*. Investments are stated at fair value. The Company evaluates investments for conditions that may indicate thatan other-than-temporary decline in market value has occurred. In conductingthis review, numerous factors are considered which, individually or incombination, may indicate that a decline is other-than-temporary. Based on thisevaluation, an other-than-temporary loss on one specific investment of $0.2million was recorded in 2009, as a component of other non-operating expenses onthe consolidated statement of operations for 2009. During Fiscal 2008, theCompany recognized an other-than-temporary loss in the amount of $4.2 millionrelated to this specific investment.  Thecost basis of this investment has been reduced by the amount of theother-than-temporary loss recorded.

 

Short-term investments of$112,500 and $300,000 at September 30, 2009 and 2008, respectively,  consist of a corporate bond fund ofcollateralized debt obligations.

 

Realized gains and/orlosses from the sales of short-term investments were not material for all yearspresented.  Also, for all years presentedthere were no unrealized gains or losses recorded in accumulated other comprehensiveincome, nor were any amounts reclassified to accumulated other comprehensiveincome.

 

**Receivablesfrom the Nation**

 

At September 30,2009, SNFGC and SEGC were due amounts of $5.1 million and $0.6 million,respectively, for the value of land purchased for the development of theseproperties. Also, at September 30 , 2009 and 2008, we had recorded$469,000 and $81,000, respectively, as a receivable from the Nation relating topoker room rentals.

 

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**Receivables**

 

Receivables consist primarily of gaming receivablesand non-gaming receivables. Gaming receivables represent credit extended toapproved casino customers.  SGC maintainsan allowance for doubtful accounts, which is based on management’s estimate ofthe amount expected to be uncollectible considering experience and theinformation management obtains regarding the creditworthiness of the customer.The collectability of these receivables could be affected by future business oreconomic trends.

 

**Inventories**

 

Inventories, which consist primarily of food,beverage, retail, and operating supplies are stated at the lower of cost ormarket. Cost is determined using the first-in first-out method for retailinventories and using the average cost method for food, beverage and warehouseinventories.

 

**Property and Equipment**

 

Property and equipment are stated at cost.  Costs of major construction and significantimprovements, including interest incurred during the construction offacilities, are capitalized.  Interestincurred for construction related projects are capitalized and amortized overthe life of the related asset using the straight-line method.  The amount of interest capitalized for 2009,2008, and 2007, was approximately $1.6 million, $2.2 million, and $3.4 million,respectively.

 

Depreciation is computed over the estimated usefullives of the assets using the straight-line basis. Amortization of leaseholdimprovements is computed over the lesser of the term of the lease or theestimated useful life. Useful life estimates of asset categories are asfollows:

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

 

Maintenance and repair costs are expensed as incurred.Gains or losses on disposition of property and equipment are recognized asincurred.

 

In accordance with ASC 360, *Property,Plant and Equipment*, the carrying value of the Company’s assets arereviewed when events or changes in circumstances indicate that the carryingamount 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.

 

On August 27, 2008, the construction activitiesat Seneca Allegany Casino and Hotel and Seneca Buffalo Creek Casino and Hotelwere suspended for various reasons including: the economic recession; inability to obtain construction financing atreasonable interest rates; and operating and other demands on our availablecash, such as our payments to the Nation. As of September 30, 2009, due to the continuation of weak economicconditions, adverse credit market conditions and an uncertain economic outlook,construction remains suspended indefinitely. Furthermore, certain master planning efforts related to the futureexpansion of the Niagara Falls property have been suspended for the foreseeablefuture for the same reasons.  As a resultof these circumstances an impairment charge of $107.6 million was recognizedduring Fiscal 2009 based upon an estimate of the net realizable value based onan estimate of undiscounted cash flows that projected no future benefit.  The reported fair value of zero is consideredto be level three within the fair value hierarchy as established by ASC 820, *Fair Value Measurements and Disclosures*.  Level three inputs are defined as inputs forwhich significant valuation assumptions are unobservable in a market andtherefore value is based on the best available data, some of which isinternally developed and considers risk premiums that a market participantwould require. Refer to Note 2, Fair Value of Financial Instruments, forfurther discussion of the fair value hierarchy. The impairment charge relates to the construction and design activitiesof the following entities:

 

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| ** ** | ** ** | **Fiscal Year Ended  September 30,** | ** ** |
|------------|------------|------------------------------------------------|------------|
| ** ** | ** ** | **2009**                                       | ** ** | **2008** | ** ** |
| ** ** | ** ** | **(In Millions of Dollars)**    | ** ** |
|       |       |                                           |       |   |   |
| SNFGC      |       | $                                              | 3,500      |   | $ | — |   |
| STGC       |       | 17,036                                         |       | — |   |
| SEGC       |       | 87,021                                         |       | — |   |
|       |       | $                                              | 107,557    |   | $ | — |   |

 

**Deferred Financing Costs**

 

Deferred financing costsinclude costs incurred in connection with issuance of long-term debt. Thesecosts are amortized over the term of the related financing agreement using theeffective interest method. Amortization expense for each of 2009, 2008, and2007, was $2.2 million.

 

**Accrued Regulatory Costs**

 

Accrued regulatory costsrepresent amounts incurred by the Nation for the Seneca Gaming Authority (SGA),which are charged to the Company. Accrued regulatory costs also include amounts incurred by the Nation forNew York State gaming regulatory services, New York State Police, Seneca Nationof Indian Marshals, Buffalo Police and Cattaraugus Sheriff Department services,which are charged to the Company. Accrued regulatory costs as of September 30, 2009 are approximately$33.7 million, which includes $30.1 million of costs accrued, but not paid,related to services provided by the New York State Police.

 

**Accrued Gaming Liabilities**

 

Included in accruedgaming liabilities are the outstanding chip liability, progressive slot machineliability and the customer point liability.

 

Customer point liabilityrepresents the estimated future cost of unredeemed Seneca Link Player’s Clubpoints.  Management reviews the adequacyof this accrual by periodically evaluating the redemption experience andprojected trends.  Actual results coulddiffer from those estimates.

 

**Other Current Liabilities**

 

Estimated accrualsrelated to marketing, and certain other miscellaneous costs are classified inother current liabilities on the accompanying consolidated balance sheets.  Actual results could differ from thoseestimates.

 

**Revenue Recognition**

** **

SGC gaming revenueconsists of the net win from Class III activities, which is the differencebetween gaming amounts wagered and amounts paid to patrons.  Revenue from food and beverage, hotel andlodging, retail, spa, salon, entertainment and other services are recognized atthe time of sale.

 

**Promotional Allowances**

** **

SGC established avoluntary promotional program using the Seneca Link Player’s Card to encouragerepeat business from casino patrons. Members in the club earn points based on gaming activity in the members’accounts.  Points can be redeemed forcertain consumer products including, but not limited to, merchandise, food andbeverage, lodging, spa and salon services. SGC accrues for points expected to be redeemed in the future based uponmanagement’s estimate of outstanding points to be redeemed and the average costof items expected to be redeemed.

 

The retail value of thesesales and services furnished to casino patrons, mainly through SGC’scomplimentary program, is included in gross revenues and then deducted aspromotional allowances to arrive at net revenues.

 

The retail value ofproviding such promotional allowances was included in revenues as follows:

 

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| ** **                        | ** ** | **Years Ended September 30,** | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|
| ** **                        | ** ** | **2009**                                     | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                        | ** ** | **(In Thousands)**                      | ** ** |
|                              |       |                                         |       |   |   |   |   |
| Food  and beverage                |       | $                                            | 30,357     |   | $ | 34,577 |   | $ | 31,781 |   |
| Lodging                           |       | 17,803                                       |       | 21,094 |   | 18,956 |   |
| Retail,  entertainment, and other |       | 9,572                                        |       | 10,965 |   | 11,286 |   |
| Promotional  slot credits         |       | 55,519                                       |       | 50,917 |   | 41,989 |   |
| Total  promotional allowances     |       | $                                            | 113,251    |   | $ | 117,553 |   | $ | 104,012 |   |

 

The estimated cost ofproviding such promotional allowances was as follows:

 
| ** **                        | ** ** | **Years Ended September 30,** | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|
| ** **                        | ** ** | **2009**                                     | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                        | ** ** | **(In Thousands)**                      | ** ** |
|                              |       |                                         |       |   |   |   |   |
| Food  and beverage                |       | $                                            | 22,272     |   | $ | 26,540 |   | $ | 27,071 |   |
| Lodging                           |       | 8,759                                        |       | 9,450 |   | 8,672 |   |
| Retail,  entertainment, and other |       | 8,020                                        |       | 9,874 |   | 9,673 |   |
| Promotional  allowances           |       | $                                            | 39,051     |   | $ | 45,864 |   | $ | 45,416 |   |

 

**Gaming Expenses**

** **

Gaming expenses includethe slot exclusivity fee which the Company is required to pay to the Nation,which in turn is required to pay to the State of New York based on its Compact(see Note 13), the cost of casino operations, and earned Seneca Link Player’sCard points.

 

**Advertising**

** **

Advertising is expensedas incurred and is included in advertising, general and administrative expenseson the consolidated statements of operations. Advertising expenses for 2009, 2008, and 2007, were $6.7 million, $8.6million, and $10.6 million, respectively.

 

**Pre-opening Costs**

** **

Pre-opening costs areexpensed as incurred. Pre-opening costs in 2009, 2008, and 2007 consist ofdevelopment costs, incremental personnel costs, legal, marketing, advertisingand other direct expenses related to the opening of the Lewiston Golf Course,the opening of the luxury hotel at SNFGC and the resort hotel at STGC, and thedevelopment of SEGC including the opening of its temporary Class IIIgaming facility on July 3, 2007. For the years ended September 30, 2009, 2008, and 2007, such coststotaled $0.4 million, $0.3 million, and $15.4 million, respectively.

 

**Retirement Savings Plan**

 

The Company sponsors adefined contribution retirement savings plan for its employees.  The Company’s expense relating to this planwas $0.9 million, $1.3 million, and $0.6 million in the fiscal years ended September 30,2009, 2008, and 2007, respectively.  Inaddition, during Fiscal 2008, the Company established a reserve in the amountof $0.4 million to accrue for a voluntary correction related to the definedcontribution retirement savings plan, from which certain employees were incorrectlyexcluded. In Fiscal 2009 the voluntary correction was calculated to be $0.3million. The Company filed a submission with the Internal Revenue Service underthe IRS Voluntary Compliance Program on October 14, 2009 for approval ofthe operational error identified.

 

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** **

**Income Taxes**

 

The Nation is a sovereignIndian nation with independent legal jurisdiction over its people and itslands. As an enterprise owned by the Nation, SGC is not subject to federal orstate income taxes.

** **

**Fair Value of FinancialInstruments**

 

On October 1, 2008,we adopted Codification Topic 820, Fair Value Measurements and Disclosures (“CodificationTopic 820”). Codification Topic 820 does not determine or affect thecircumstances under which fair value measurements are used, but defines fairvalue, expands disclosure requirements around fair value and specifies ahierarchy of valuation techniques based on whether the inputs to thosevaluation techniques are observable or unobservable. Observable inputs reflectmarket data obtained from independent sources, while unobservable inputsreflect the Company’s market assumptions. These inputs create the followingfair value hierarchy:

 

·                  Level 1:  Quoted prices foridentical instruments in active markets.

 

·                  Level 2:  Quoted prices forsimilar instruments in active markets; quoted prices for identical or similarinstruments in markets that are not active; and model-derived valuations in whichall significant inputs and significant value drivers are observable in activemarkets.

 

·                  Level 3:  Valuations derived fromvaluation techniques in which one or more significant inputs or significantvalue drivers are unobservable.

 

This hierarchy requiresus to use observable market data, when available, and to minimize the use ofunobservable inputs when determining fair value. For some products or incertain market conditions, observable inputs may not be available.

 

We adopted previouslyissued FASB Staff Position No. 157-4, Determining Fair Value When theVolume and Level of Activity for the Asset or Liability Have SignificantlyDecreased and Identifying Transactions That Are Not Orderly (“FSP FAS 157-4”),which has been subsequently classified in Codification Topic 820, Section 65,Transition Related to FASB Staff Position No. 157-4, and providesadditional guidance for estimating fair value in accordance with CodificationTopic 820, when the volume and level of activity for the asset or liabilityhave significantly decreased. This standard also includes guidance on how toidentify circumstances that indicate that a transaction is not orderly andemphasizes that even if there has been a significant decrease in the volume andlevel of activity for the asset or liability and regardless of the valuationtechniques used, the objective of a fair value measurement remains the same.FSP FAS 157-4 was effective for the period ended September 30, 2009 and,as applied prospectively, did not have a material impact on the consolidatedfinancial statements.

 

The fair values of certain of the Company’s financialinstruments, including cash and cash equivalents, accounts receivable and othercurrent liabilities, approximate their recorded carrying amounts because oftheir short-term nature.

 

The fair value of long termdebt is estimated based on the current rates offered to SGC for debt of thesame remaining maturities.  As of September 30, 2009, the carryingamount and fair value of long term debt is approximately $497 million and $470million, respectively.

 

**RecentAccounting Pronouncements**

 

During September 2009, The FASBAccounting Standards Codification and the Hierarchy of Generally AcceptedAccounting Principles — A Replacement of FASB Statement No. 162, (the “Codification”)(previously “SFAS 168”) became effective. Accordingly, the Financial AccountingStandards Board (the “FASB”) Accounting Standards Codification became thesource of authoritative accounting principles recognized by the FASB to beapplied by nongovernmental entities in the preparation of financial statementsin conformity with GAAP. The implementation of the Codification did not have animpact on the consolidated financial statements, as it did not modify anyexisting authoritative GAAP

 

Subsequent to the adoption of theCodification, any change to the source of authoritative GAAP will becommunicated through an Accounting Standards Update (“ASU”). ASUs will bepublished by the FASB for all authoritative GAAP promulgated by the FASB,regardless of the form in which such guidance may have been issued prior torelease of the Codification. Prior to inclusion in an ASU, the standard-settingorganizations and regulatory agencies continue to issue proposed changes to theaccounting standards in previous form (e.g., FASB Statements of FinancialAccounting Standards, 

 

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Emerging Issues Task Force (“EITF”) Abstracts,FASB Staff Positions, SEC Staff Accounting Bulletins, etc.).

 

A variety of additional proposed orotherwise potential accounting standards are currently under study bystandard-setting organizations and certain regulatory agencies. Because of thetentative and preliminary nature of such proposed standards, we have not yetdetermined the effect, if any, that the implementation of such proposedstandards would have on the consolidated financial statements.

** **

**Reclassification**

 

Certain amounts from theprior year have been reclassified to conform to the current year presentation.

** **

**Subsequent Events**

On April 5, 2009, weadopted SFAS No. 165, Subsequent Events (“SFAS” 165”) prior to adoption ofthe Codification. SFAS 165, subsequently codified as Topic 855, SubsequentEvents, of the Codification, establishes general standards of accounting forand disclosure of events that occur after the balance sheet date but before thefinancial statements are issued. The adoption of this standard did not have amaterial impact on the consolidated financial statements, but may affect thedisclosure of subsequent events in the footnotes thereto.

 

**Effective December 18, 2009, SGC amended theSenior Secured Revolving Loan Agreement to further extend the maturity dateuntil December 31, 2011. Amounts borrowed under the Amended Senior SecuredRevolving Loan Agreement continue to bear interest at either one, three orsix-month LIBOR plus one and one quarter percent (1.25%), or the prime rate (asreported in The Wall Street Journal) plus one quarter percent (0.25%), with anyoutstanding principal balance to be paid by, or on, the new maturity date.  The $50.0 million commitment reduces intandem with any reduction in the letter of credit requirement imposed by ESDC(as described below), up to an aggregate reduction of $10.0 million.  The Amended Senior Secured Revolving LoanAgreement requires that SGC maintain all of its deposit and investment accountswith the lender, subject to limited exceptions for certain existing accounts.**

** **

**SGC’s obligations under the Amended Senior SecuredRevolving Loan Agreement continue to be secured by substantially all gaming andrelated assets (including substantially all gaming revenues) not constitutingreal property or improvements. SGC’s obligations are guaranteed by SNFGC, STGC,SEGC and LGCC, and the guarantors’ obligations continue to be secured bysubstantially all of each guarantor’s gaming and related assets (includingsubstantially all gaming revenues) not constituting real property or improvements.The Amended Senior Secured Revolving Loan Agreement modifies certain of thefinancial covenants contained in the Senior Secured Revolving Loan Agreement,including reducing the minimum consolidated EBITDA covenant from $160 millionto $145 million (on a rolling 12 month basis) while modifying the totalleverage ratio (of total funded debt to EBITDA) to a limit of 3.5 to 1.0.  The Amended Senior Secured Revolving LoanAgreement also continues to contain additional customary covenants, includingcovenants restricting the incurrence of additional indebtedness, the creationof additional liens and the disposition of assets.**

** **

We have evaluatedsubsequent events from October 1, 2009 through December 22, 2009,which is the issuance date of these audited consolidated financial statements.We made no significant changes to the consolidated financial statements as aresult of the subsequent events evaluation.

** **

**3. Cash and CashEquivalents**

 

For reporting purposes,cash and cash equivalents include all operating cash and cash on hand.

** **

**4. Concentrations of Risk**

 

Financial instrumentsthat potentially subject SGC to concentrations of risk consist principally ofcash and cash equivalent accounts in financial institutions. SGC maintains itscash balances in several financial institutions. Accounts are insured by theFederal Deposit Insurance Corporation up to $250,000.  The concentration of credit risk in theseuninsured deposits is mitigated by SGC’s policy of placing such deposits withfinancial institutions of high credit ratings. Cash and cash equivalentsexceeding federally insured limits totaled approximately $56.9 million and$24.0 million at September 30, 2009 and 2008, respectively.

** **

**F-12**

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**Table of Contents**

** **

**5. Other Receivables, Net**

** **

Components of otherreceivables, net are as follows:

 
|                             |   | **September 30,**  |   |
|----------------------------------|--------|-------------------------|--------|
|                             |   | **2009**                |   | **2008** |   |
|                             |   | **(In Thousands)** |   |
|                             |   |                    |   |   |   |
| Gaming                           |   | $                       | 1,484  |   | $ | 1,611 |   |
| Non-gaming                       |   | 1,680                   |   | 1,589 |   |
|                             |   | 3,164                   |   | 3,200 |   |
| Allowance  for doubtful accounts |   | (625                    | )      | (576 | ) |
| Receivables,  net                |   | $                       | 2,539  |   | $ | 2,624 |   |

 

**6. Other Current Assets**

** **

Components of othercurrent assets are as follows:

 
| ** **            | ** ** | **September 30,**  | ** ** |
|-----------------------|------------|-------------------------|------------|
| ** **            | ** ** | **2009**                | ** ** | **2008** | ** ** |
| ** **            | ** ** | **(In Thousands)** | ** ** |
|                  |       |                    |       |   |   |
| Prepaid  expenses     |       | $                       | 9,794      |   | $ | 8,703 |   |
| Other                 |       | 575                     |       | 424 |   |
| Other  current assets |       | $                       | 10,369     |   | $ | 9,127 |   |

 

**7. Property andEquipment, Net**

** **

Components of propertyand equipment are as follows:

 
|                                            |   | **September 30,**  |    |
|-------------------------------------------------|--------|-------------------------|---------|
|                                            |   | **2009**                |    | **2008** |   |
|                                            |   | **(In Thousands)** |    |
|                                            |   |                    |    |   |   |
| Land                                            |   | $                       | 2,479   |   | $ | 2,479 |   |
| Buildings                                       |   | 551,384                 |    | 545,230 |   |
| Leasehold  improvements — casino           |   | 125,960                 |    | 122,355 |   |
| Leasehold  improvements — other            |   | 347                     |    | 347 |   |
| Furniture  and equipment                        |   | 208,151                 |    | 204,732 |   |
| Construction-in-progress                        |   | 20,467                  |    | 115,823 |   |
|                                            |   | 908,788                 |    | 990,966 |   |
| Less  accumulated depreciation and amortization |   | (238,677                | )       | (191,631 | ) |
| Property  and equipment, net                    |   | $                       | 670,111 |   | $ | 799,335 |   |

 

**8. Other Long-Term Assets**

** **

Components of otherlong-term assets are as follows:

 
|                              |   | **September 30,**  |   |
|-----------------------------------|--------|-------------------------|--------|
|                              |   | **2009**                |   | **2008** |   |
|                              |   | **(In Thousands)** |   |
|                              |   |                    |   |   |   |
| Deferred  financing costs, net    |   | $                       | 5,766  |   | $ | 7,999 |   |
| Land  to be distributed to Nation |   | 59,059                  |   | 58,175 |   |
| Deposits  and other               |   | 494                     |   | 576 |   |
|                              |   | $                       | 65,319 |   | $ | 66,750 |   |

 

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**9. Accrued RegulatoryCosts**

** **

Components of accruedregulatory costs are as follows:

 
| ** **                                       | ** ** | **Fiscal Year Ended** | ** ** |
|--------------------------------------------------|------------|---------------------------------|------------|
| ** **                                       | ** ** | **September 30,**          | ** ** |
| ** **                                       | ** ** | **2009**                        | ** ** | **2008** | ** ** |
| ** **                                       | ** ** | **(In Thousands)**         | ** ** |
| Accrued  Regulatory Expense                      |       |                            |       |   |   |
| Seneca  Gaming Authority                         |       | $                               | 380        |   | $ | 934 |   |
| New  York State Police                           |       | 30,150                          |       | 24,180 |   |
| New  York State Racing & Wagering (SGO) |       | 2,320                           |       | 1,692 |   |
| Local  Law Enforcement (1)                       |       | 833                             |       | 1,082 |   |
|                                             |       |                            |       |   |   |
| Total  Accrued Regulatory Expense                |       | $                               | 33,683     |   | $ | 27,888 |   |

 

----

(1) Local lawenforcement includes Cattaraugus County Sherriff’s department patrols at SenecaAllegany Casino and Hotel, Buffalo City Police patrols at Seneca Buffalo CreekCasino, and Seneca Nation of Indians Marshals patrols at Seneca Niagara Casinoand Hotel and Seneca Buffalo Creek Casino.

** **

**10. Senior Secured Revolving Loan Agreement**

** **

**Effective June 19, 2008, SGC entered into a$50.0 million Senior Secured Revolving Loan Agreement, which matured on June 19,2009, subject to extension by SGC at its election (at any time after the sixmonths anniversary of the closing date and prior to June 19, 2009) for anadditional period of six months provided that no default or event of defaultexisted at the time of election.  On June 11,2009, SGC exercised this election, extending the maturity date to December 19,2009. Amounts borrowed under the Senior Secured Revolving Loan Agreement bearinterest at either one, three or six-month LIBOR plus one and one quarterpercent (1.25%), or the prime rate (as reported in The Wall Street Journal)plus one quarter percent (0.25%).  Anyoutstanding principal balance shall be paid by, or on, the maturity date.**

** **

**SGC’s obligations under the Senior Secured RevolvingLoan Agreement are secured by substantially all gaming and related assets(including substantially all gaming revenues) not constituting real property orimprovements.  SGC’s obligations areguaranteed by SNFGC, STGC, SEGC and LGCC. The guarantors’ obligations are secured by substantially all of eachguarantor’s gaming and related assets (including substantially all gamingrevenues) not constituting real property or improvements. The Senior SecuredRevolving Loan Agreement contains certain financial covenants requiring minimumconsolidated EBITDA of $160 million (on a rolling 12 month basis) andcompliance with certain leverage and coverage ratios. The Senior SecuredRevolving Loan Agreement also contains additional customary covenants,including covenants restricting the incurrence of additional indebtedness, thecreation of additional liens and the disposition of assets. As of September 30,2009, SGC was in compliance with all covenants in the Senior Secured RevolvingLoan Agreement.**

** **

**As of September 30, 2009, at SGC’s request, thelender under the Senior Secured Revolving Loan Agreement had issued letters ofcredit totaling $19.6 million, $13.2 million of which may be drawn upon to fundthe purchase of certain parcels within the 50 acre “footprint” described in theCompact with New York State and designated for ownership by the Nation, withthe remaining $6.4 million issued in connection with worker’s compensationpolicies and certain other contracts, as required.  On October 29, 2008, SGC borrowed $20.0million under the Senior Secured Revolving Loan Agreement.  During the third quarter of Fiscal 2009, SGCpaid $20.0 million on the Senior Secured Revolving Loan Agreement, leaving nooutstanding balance at September 30, 2009.**

** **

**Effective December 18, 2009, SGC amended theSenior Secured Revolving Loan Agreement to further extend the maturity dateuntil December 31, 2011. Amounts borrowed under the Amended Senior SecuredRevolving Loan Agreement**

** **

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** **

**continue to bear interest at either one, three orsix-month LIBOR plus one and one quarter percent (1.25%), or the prime rate (asreported in The Wall Street Journal) plus one quarter percent (0.25%), with anyoutstanding principal balance to be paid by, or on, the new maturity date.  The $50.0 million commitment reduces intandem with any reduction in the letter of credit requirement imposed by ESDC(as described above), up to an aggregate reduction of $10.0 million.  The Amended Senior Secured Revolving LoanAgreement requires that SGC maintain all of its deposit and investment accountswith the lender, subject to limited exceptions for certain existing accounts.**

** **

**SGC’s obligations under the Amended Senior SecuredRevolving Loan Agreement continue to be secured by substantially all gaming andrelated assets (including substantially all gaming revenues) not constitutingreal property or improvements. SGC’s obligations are guaranteed by SNFGC, STGC,SEGC and LGCC, and the guarantors’ obligations continue to be secured bysubstantially all of each guarantor’s gaming and related assets (includingsubstantially all gaming revenues) not constituting real property orimprovements. The Amended Senior Secured Revolving Loan Agreement modifiescertain of the financial covenants contained in the Senior Secured RevolvingLoan Agreement, including reducing the minimum consolidated EBITDA covenantfrom $160 million to $145 million (on a rolling 12 month basis) while modifyingthe total leverage ratio (of total funded debt to EBITDA) to a limit of 3.5 to1.0.  The Amended Senior SecuredRevolving Loan Agreement also continues to contain additional customarycovenants, including covenants restricting the incurrence of additionalindebtedness, the creation of additional liens and the disposition of assets.**

** **

**11. Long-Term Debt**

 

Long-term debt, asdescribed below, consists of the following:

 
| ** **                                                                                         | ** ** | **September 30,**  | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                         | ** ** | **2009**                | ** ** | **2008** | ** ** |
| ** **                                                                                         | ** ** | **(In Thousands)** | ** ** |
|                                                                                               |       |                    |       |   |   |
| 2004  71⁄4% Senior Notes due 2012                                                               |       | $                       | 300,000    |   | $ | 300,000 |   |
| 2005  71⁄4% Senior Notes due 2012 plus unamortized discount of $2,637 and $3,647,  respectively |       | 197,363                 |       | 196,353 |   |
|                                                                                               |       | $                       | 497,363    |   | $ | 496,353 |   |
| Less  current maturities of long-term debt                                                         |       | —                  |       | — |   |
| Long-term  debt                                                                                    |       | $                       | 497,363    |   | $ | 496,353 |   |

 

**71⁄4% Senior Notes due 2012**

** **

On May 5, 2004, SGCissued $300.0 million in 71⁄4% senior notes due 2012, or the 2004 seniornotes. The 2004 senior notes are guaranteed by STGC, SEGC and, as of May 23,2005, SNFGC or collectively, the Guarantors. All of the guarantors are wholly-owned by SGC and their guarantees arefull, unconditional, joint and several. The net proceeds from the 2004 senior notes were, or will be, usedprincipally to fund in whole or in part (a) the repayment in May 2004of vendor equipment financing , (b) SNFGC’s construction and equipping ofa 604-room hotel, (c) the acquisition of the remaining 26 acres in NiagaraFalls, as provided for in the Compact, (d) the payment of $22.0 million inAugust 2004 to satisfy the obligation to the Empire State DevelopmentCorporation in connection with the transfer of certain property to the Nationfor use as the Seneca Niagara Casino, and (e) a $25.0 million distributionto the Nation.  All assets of SGC comefrom the proceeds of the offerings of senior notes, along with any intercompanyadvances or loans to SGC’s subsidiaries. SGC has no independent operating assets or operating activities.

 

On May 23, 2005, SGC issued an additional $200.0million in 71⁄4% senior notes due 2012, Series B, or the 2005 senior notes.The 2005 senior notes are treated as a single class with the 2004 senior notesand are identical to the 2004 senior notes, except for certain tax attributesand prior to November 1, 2005 the amount of interest accrued thereon.  The $200.0 million senior notes were issuedat a discount of $7.0 million.  Thediscount is being amortized over the term of the senior notes which amounted toapproximately $1.0 million for the year ended September 30, 2009.  Gross proceeds on the 2005 senior notes wereapproximately $193.0 million.  Suchproceeds were, or will be, used to (a) pay in full and terminate on May 23,2005, the senior secured term loan, or the Term Loan, made by FreemantleLimited, or Freemantle, to SNFGC in November 2002, for a negotiated amountof approximately $126.7 million, representing $80.0 million in outstanding 

 

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principal and approximately $46.7 million for intereston such principal, at a prescribed interest rate, that would have otherwisebeen payable if the Term Loan had not been paid on May 23, 2005, but wasinstead paid 81⁄2 months prior to its November 22, 2007 stated maturity, (b) tofund certain costs associated with the expansion of our operations, (c) topay the fees and expenses associated with the offering of the 2005 seniornotes, and (d) for general corporate purposes.  Interest on the 2004 and 2005 senior notes ispayable semi-annually on November 1 and May 1. The 2004 and 2005senior notes are unsecured and rank equally. As of September 30, 2009,aggregate accrued interest and unamortized debt discount costs on the 2004 and2005 senior notes were $15.1 million and $2.6 million, respectively.

 

The Senior NotesIndenture contains certain negative and affirmative covenants. The negativecovenants include limitations on restricted payments and the incurrence ofindebtedness, while the affirmative covenants include reporting obligations andcompliance with laws. As of September 30, 2009, SGC was in compliance withall covenants in the Indenture.

 

Maturities of the Company’slong-term debt are as follows:

 
| ** **                            | ** ** | **Maturities**      | ** ** |
|---------------------------------------|------------|---------------------|------------|
| ** **                            | ** ** | **(in  Thousands)** | ** ** |
| Fiscal  year ended September 30: |       |                |       |
| 2010                                  |       | —              |       |
| 2011                                  |       | —              |       |
| 2012                                  |       | 500,000             |       |
| 2013                                  |       | —              |       |
| 2014                                  |       | —              |       |
| Thereafter                            |       | —              |       |
|                                  |       | $                   | 500,000    |   |
|                                       |            |                     |            |  |

** **

**12. Related-PartyTransactions**

** **

**Land Leases from theNation**

** **

**The Nation has entered intooperating lease agreements (each a Head Lease) with each of SNFGC, STGC andSEGC.  Due to the related party nature ofthese leases, which can be effectively modified by the Nation, SGC recordsmonthly lease expense equal to the required payment amount for the respectivemonth.  Lease payment increases under theHead Leases are restricted under the terms of the Indenture governing thesenior notes and the Distribution Agreement. The foregoing leases contain no renewal options or escalation clauses.**

** **

**The SNFGC Head Lease (dated October 25, 2002) whichexpires on December 31, 2023 and covers use of the land and certainimprovements existing at the commencement of such Head Lease, principallyincluding structures formerly known as the Niagara Falls Convention Center andLackey Plaza.  Effective October 1,2007, the monthly payments were $1,365,909 per month, as approved by the boardof directors of SGC and SNFGC.  Pursuantto the terms of the Amended and Restated SNFGC Head Lease entered into on March 27,2008, and effective October 1, 2007, payments were further increased, atthe request of the Nation, to $2,033,333 per month, with such increaseeffective as of October 1, 2007.  OnAugust 1, 2008, at the request of the Nation, SGC approved an increase inthe SNFGC Head Lease to $3,083,333 per month, effective October 1, 2008,and to $3,666,667 per month, effective October 1, 2009.  On March 19, 2009 SNFGC entered into anamendment to the foregoing Head Lease agreement with the Nation, which reducedpayments to $3,007,208 per month effective October 1, 2008 and eliminatedthe increase that would have taken effect as of October 1, 2009.**

** **

**The STGC Head Lease (effective as of May 1, 2004) whichexpires on December 31, 2023 and covers use of the land which is currentlybeing used in operating the Seneca Allegany Casino and Hotel.  Effective October 1, 2007, the monthlypayments were $1,365,909, as approved by the board of directors of STGC.  Pursuant to an amendment to the STGC HeadLease entered into on March 27, 2008, and effective as of October 1,2007, the payments were increased, at the request of the Nation, to $1,691,667per month.  On August 1, 2008, atthe request of the Nation, SGC approved increases in the payments under theSTGC Head Lease to $2,166,666 per month effective October 1, 2008, and to$2,666,667 per month effective October 1, 2009.  On March 19, 2009 STGC entered into anamendment to the foregoing Head Lease agreement with the Nation, which reducedpayments to $2 million per month effective October 1, 2008 and eliminatedthe increase that would**

 

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**have taken effect as of October 1, 2009.**

** **

**The SEGC Head Lease (effective as of April 1, 2006)which expires on December 31, 2023 and covers use of the land which iscurrently being used in operating the Seneca Buffalo Creek Casino.  Effective October 1, 2007, the monthlypayments were $1,287,500, as approved by the board of directors of SEGC.  Pursuant to an amendment to the SEGC HeadLease entered into on March 27, 2008, and effective as of October 1,2007, the payments were increased, at the request of the Nation, to $1,441,667per month. On August 1, 2008, at the request of the Nation, SGC approvedan increase in the payments under the SEGC Head Lease to $1,500,000 per montheffective October 1, 2008 and thereafter. On March 19, 2009 SEGC entered into an amendment to the foregoingHead Lease agreement with the Nation, which reduced payments to $1,326,125 permonth effective October 1, 2008.**

** **

**In connection with the March 19, 2009 Head Leaseamendments described above, for purposes of compliance with its Indenturegoverning the Senior Notes and the Distribution Agreement, SGC obtained anddelivered to Wells Fargo, N.A. (as trustee under the Indenture governing theSenior Notes) written fair market value rent opinions from an independent financialadvisor with regard to the SNFGC and STGC Head Lease amendments (as required bythe Indenture).  The SEGC Head Leaseamendment reflects a 3% per annum (for two years) increase in rent as permittedby the Indenture.  The Corporation alsodelivered to Wells Fargo, N.A. (as trustee under the indenture governing theNation’s municipal bonds and a party to the Distribution Agreement) anadditional certification required pursuant to the Distribution Agreement.  Further or additional increases in rent payableunder the Head Lease agreements are restricted under the terms of theCorporation’s Indenture governing its Senior Notes and the DistributionAgreement, and are subject to compliance with all applicable contractualcommitments of the Corporation and the Nation, such that no increase maycontravene, or constitute a default under any agreement, indenture, instrumentor other commitment legally binding upon the Nation, SNFGC, STGC or SEGC,respectively, or to which the premises (described in the Head Leases) aresubject.**

** **

Expenses resulting fromthe above Head Lease agreements were as follows for the fiscal years ended September 30:

 
| ** ** | ** ** | **2009**          | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------|------------|-------------------|------------|----------|------------|----------|------------|
| ** ** | ** ** | **(In Millions)** | ** ** |
| SNFGC      |       | $                 | 36.1       |     | $          | 24.4     |       | $ | 15.9 |   |
| STGC       |       | 24.0              |       | 20.3     |       | 15.9     |       |
| SEGC       |       | 15.9              |       | 17.3     |       | 15.0     |       |
|       |       | $                 | 76.0       |     | $          | 62.0     |       | $ | 46.8 |   |

 

SNFGC and STGC bothrecord the Head Lease costs as a component of advertising, general andadministrative costs in the accompanying consolidated statements ofoperations.  SEGC recorded the Head Leasecost as a component of pre-opening costs in the accompanying consolidatedstatements of operations through June 2007; after opening the temporary Class IIIgaming facility in July 2007, the Head Lease cost was recorded as acomponent of advertising, general and administrative expense.

 

**Other Related-PartyTransactions**

** **

Effective as of December 1, 2005, SEGC enteredinto an agreement with SCMC for the demolition and land preparation work inconnection with the site for the Seneca Buffalo Creek Casino.  This work was completed at a cost of $2.8million.  For the fiscal years ended September 30,2009, 2008, and 2007, SNFGC, STGC and SEGC have collectively made payments toSCMC for construction management fees and other costs of $1.8 million, $6.4million, and $4.2 million, respectively. In November 2006, SEGC entered into a construction managementagreement with SCMC to manage the construction of the temporary Buffalo CreekCasino.  This project was completelyopened on July 3, 2007 with a cost of approximately $6.8 million,including equipment and furnishings. In June 2007, STGC entered into aletter of intent with SCMC to manage the fourth phase of construction at SenecaAllegany Casino and Hotel, including, in particular, conversion of the formertemporary casino facility into an events center and related improvements. Thisproject was completed in March 2008 and cost $29.3 million includingequipment and furnishings.  In October 2007,SEGC entered into a letter of intent with SCMC to manage the construction ofthe $333 million permanent Seneca Buffalo Creek Casino and Hotel.  Construction on this project was suspended inAugust 2008.  Prior to suspension ofconstruction, construction costs were approximately $51.5 million. In September 2009,SEGC entered into a construction management agreement with SCMC forconstruction of the expansion of the temporary Seneca Buffalo Creek Casino.

 

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As of January 1,2005, the Company transferred all Class II operations to the Nation,including its poker operations.  TheCompany leases space within both Seneca Niagara Casino & Hotel andSeneca Allegany Casino to the Nation for operation of the poker rooms. On November 9,2009, the Class II poker operations relocated its poker operations inSeneca Allegany Casino to a new facility located within one mile of the property.During 2009, 2008, and 2007 the Company recorded $829,000, $822,000 and$695,000 of rental income, respectively, and at September 30, 2009 and2008, the Company has recorded $469,000 and $81,000, respectively, as areceivable from the Nation relating to poker room rentals.

 

During 2009, 2008 and2007, the Company declared cash distributions to the Nation of $36.8 million,$42.0 million and $81.4 million, respectively. Cash distributions of $56.6 million, $66.0 million and $57.4 millionwere paid in 2009, 2008 and 2007, respectively. In July 2008, SGC declaredcash distributions to the Nation totaling $20 million, of which $10 million waspayable in each of fiscal year 2009 and 2010. These amounts were to be payable in ten equal monthly payments of $1million beginning October 1, 2008 and 2009, respectively.  During Fiscal 2009, SGC paid cashdistributions of $5 million to the Nation pursuant to the foregoingdistribution declarations.  In February 2009,the Nation passed a resolution rescinding its July 2008 distributionrequest, and SGC rescinded its related distribution declaration.  Distributions paid in accordance with SGC’s July 2008resolution were then applied toward future distributions.  In March and April 2009, SGCapplied $3 million and $2 million, respectively, previously distributed to theNation pursuant to the SGC’s July 2008 declaration toward the regularmonthly distributions that would otherwise have been made during those months.

 

During 2007 the Companydistributed real property and leasehold rights acquired, net of liabilitiestransferred, for use in its casino operations to the Nation.  The distribution amount of $0.4 million wasbased on the acquisition costs.  On June 14,2007, the Nation made a capital contribution to SEGC of $3.2 million for thevalue of land purchased for the development of the Seneca Buffalo Creek Casino.At September 30, 2009, SNFGC has recorded a capital contributionreceivable from the Nation, in the amount of $5.1 million, for the value ofland purchased for the development of the Seneca Niagara Falls Casino andHotel.  SNFGC received the $5.1 millionfrom the Nation on December 16, 2009.

 

SGC is charged by theNation for its costs incurred related to the operation of SGA gaming regulatoryservices.  These include:  a) costs incurred solely and directly inconnection with regulatory services and oversight of SGC’s gaming operationsand which are therefore 100% allocable to SGC; and b) an administration fee,assessed by the Nation for costs indirectly incurred in conjunction with theoperation and regulation of the Corporation, which is fixed as a percentage ofdirect costs, currently set at 20%, as determined by the Nation in itsperformance of administration of the SGA and its oversight of the Company. DuringSeptember 2009, the administration fee percentage was reduced from 29.56%to 20%, with retroactive application to Fiscal 2009. Such costs wereapproximately $9.7 million, $10.9 million and $10.3 million for Fiscal 2009,2008 and 2007, respectively. SGC is also charged by the Nation for its costsincurred related to services provided by the New York State Racing and WageringBoard, New York State Police, Seneca Nation of Indians Marshals, Buffalo Policeand Cattaraugus County Sheriff Department solely and directly in connectionwith SGC’s operations, which costs were approximately $10.8 million, $9.6million and $10.4 million for Fiscal 2009, 2008 and 2007, respectively. At September 30,2009 and 2008, approximately $33.7 million and $27.9 million, respectively,were recorded as “accrued regulatory costs” in the accompanying consolidatedbalance sheets, for the payment of such New York State related regulatorycosts.

 

STGC leases office spacein a building owned by the brother of a former member of the Company’s board ofdirectors, who served on the board until September 2009.  During the fiscal years ended September 30,2009, 2008, and 2007 such lease payments totaled approximately $252,000,$233,000 and $246,000, respectively.

 

SNFGC, STGC and SEGC,through a competitive bidding process, have purchased goods and services fromDRJ Enterprises, which is owned by the brother-in-law of the former Chairman ofSGC. Payments to DRJ Enterprises totaled $68,000 and $707,000 and $1,039,000for the fiscal years ended September 30, 2009, 2008 and 2007,respectively.

 

On August 8, 2009,the Nation offered SEGC a $9 million unsecured loan for purposes of expandingthe Buffalo Creek Casino temporary facility to include up to 250 additionalslot machines.  The SEGC Board ofDirectors, on August 14, 2009, approved the terms of the loan, whichinclude an interest rate of 5% per annum with principal and interest payableover a 12 month period commencing on the 15th day of the calendar monthfollowing the opening of the expansion (expect to occur in Spring 2010).  SEGC has not yet determined whether it willutilize this loan being extended by the Nation.

 

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**13. Commitments and Contingencies**

 

**DistributionAgreement Obligations**

 

On April 27, 2007,SGC entered into a Distribution Agreement among the Nation, the Seneca Nationof Indians Capital Improvements Authority, or the Authority, SGC and WellsFargo Bank, as Trustee, in connection with the Authority’s issuance in twoseries (one tax exempt and the other taxable) of an aggregate principal amountof $159,495,000 special obligation bonds, or the 2007 Bonds.  TheDistribution Agreement obligates SGC, subject to any contractual restrictionsapplicable to SGC (including, but not limited to, those contained in theIndenture governing SGC’s 2004 and 2005 senior notes), to make monthlydistributions to the Nation at the times and in the amounts necessary to enablethe Authority to pay the debt service on the 2007 Bonds as required under theAuthority’s indenture.  At the direction of the Nation and the Authority,SGC will pay such distributions directly to the Trustee.  The Authority’sdebt service commences on June 1, 2007.  For the period from June 1,2007 through November 1, 2007, the Authority’s debt service averagedapproximately $0.9 million per month. For the period from December 1, 2007through June 1, 2008, the Authority’s debt service averages approximately$1.7 million per month. In June 2008, it was determined that theamortization (debt service) schedule upon which the foregoing $1.7 millionmonthly payment was made, was incorrect. A corrected amortization schedule was provided and, after giving effectto a resulting credit for amounts overpaid, for the period from January 1,2008 through December 1, 2023, the Authority’s debt service averagesapproximately $1.2 million per month. The foregoing debt service averagesare based on scheduled payments of interest and principal under the Authority’sindenture and bonds and do not address the effects of any earlier call forredemption, by acceleration or otherwise.  The Distribution Agreementprovides that neither the Trustee nor the Authority’s bondholders will have anyrecourse under the Distribution Agreement to any revenues, assets or propertyof SGC or its subsidiaries should SGC fail to comply with its distributionobligations.  For the period ended September 30, 2009, SGC distributedto the Nation $14.4 million for the Authority’s debt service on the specialobligation bonds.

 

**Litigation**

** **

***CitizensAgainst Casino Gambling in Erie County v. Kempthorne (1:06-cv-00001-WMS (WDNY))(formerly Citizens Against Casino Gambling v. Norton)*****— CACGEC I**

 

In January 2006, an action was filed in the United States DistrictCourt, Western District of New York by various plaintiffs against the UnitedStates Department of the Interior, the National Indian Gaming Commission andthree individuals in their official capacities as Secretary of the Interior,Acting Assistant Secretary of the Interior for Indian Affairs and Chairman ofthe NIGC.  The action seeks declaratory and injunctive relief under theAdministrative Procedure Act, the Declaratory Judgments Act, the NationalHistoric Preservation Act, or NHPA, the National Environmental Policy Act, orNEPA, and the Indian Gaming Regulatory Act and is principally directed at thedecisions and actions of the defendants that permit the construction andoperation of the Seneca Buffalo Creek Casino.  The plaintiffs claim thatthe defendants have failed to comply with NEPA, NHPA, and IGRA and haverequested that the court take numerous actions including declaring that the two parcels consisting of approximatelynine acres in Buffalo, New York, or Buffalo Parcels, acquired by the Nation pursuant to the Seneca Nation Lands Claim SettlementAct of 1990, or SNLCSA are not Indianlands within the meaning of IGRA and declaring that the Nation’s Compactviolates IGRA. On November 1, 2006, oral argument was heard on thedefendant’s motion to dismiss for lack of jurisdiction, on the Nation’s amicusmotion to dismiss based upon failure to join the Nation as a necessary partyand sovereign immunity, and on the plaintiff’s motion for summary judgment.

 

On January 12, 2007, the district court vacatedthe NIGC’s approval of the Nation’s 2002 gaming ordinance as it pertains togaming conducted on the Buffalo Parcels and remanded the decision to the NIGCto determine whether the Buffalo Parcels constitute “Indian lands” underIGRA.  The court also granted thedefendant’s motion to dismiss for lack of subject matter jurisdiction, deniedthe Nation’s motion to dismiss (holding, in part, that the Nation was not anecessary party because the U.S. government’s interests were aligned with thoseof the Nation and that the U.S. government (through the U.S. Department ofJustice) was vigorously defending the case), and denied, as moot, the plaintiff’smotion for summary judgment.  In reaching its decision to dismiss on thebasis of a lack of subject matter jurisdiction, the court determined that,notwithstanding the U.S. Department of Interior’s prior determination that theNation’s Buffalo Creek Territory constitutes “Indian lands” within the meaningof the IGRA, the NIGC must make its own “Indian lands” determination, andordered that the Nation’s 2002 gaming ordinance (which had been approved by theNIGC) be vacated insofar as it permits Class III gaming on the Nation’sBuffalo Creek Territory. The court specifically limited its holding to theNation’s Buffalo Creek Territory. After the court denied the government’smotion for reconsideration, both the plaintiffs and the defendantsappealed.  On January 29, 2007, theU.S. Department of Justice filed a motion for reconsideration, which was deniedby the court on April 20, 2007, noting that the government asserted no newarguments.

 

On June 9, 2007,the Nation enacted and submitted to the NIGC anamended gaming site-specificClass III gaming ordinance. The amended ordinance was identical to the priorapproved ordinance, except the new Ordinance’s definition of “Nation

 

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lands” now contains asite-specific legal description of the Buffalo Parcels.  The definition also states that the land specified isheld by the Nation in restricted fee pursuant to the SNLCSA.  On June 19, 2007, the defendants andplaintiffs filed notices of appeal.  On June 25,2007, the plaintiffs filed a motion for a stay of the proceedings remanded tothe NIGC pending the outcome of the appeal. The NIGC approved the new ordinance on July 2, 2007.  On July 3, 2007, the defendants filed anotice of NIGC approval of the ordinance revising the definition of “Nation lands”.  On August, 6, 2007, the defendants filed aresponse to the plaintiffs’ motion to stay, stating that the gaming ordinanceat issue in this case is superseded by the Nation’s June 9, 2007,site-specific ordinance, approved by the NIGC on July 2, 2007.  This, the U.S. argues, moots the case as tothe NIGC and moots the motion for a stay pending appeal.

 

The U.S. Department of Justice has discontinued itsappeal of the January 12, 2007 order in the initial CACGEC federalsuit.  On November 9, 2007, theSecond Circuit Court of Appeals stayed the plaintiffs’ appeal pending theresolution of the second federal court action described below (*Citizens Against Casino Gambling v. Hogen* (1:07-cv-00451-WMS(WDNY)). On July 24, 2009, the Second Circuit Court of Appeals issued anorder withdrawing the appeal from active consideration by consent withoutprejudice to reinstatement.  OnDecember 10, 2009, the Second Circuit Court of Appeals granted theplaintiffs’ request for reactivation of the appeal.

 

Although the court permitted the Nation to file abrief as amicus curiae, the Nation is not a party to this action, and as such,neither it nor SGC has the ability to direct or control any aspect of thelitigation.

 

If the plaintiffs are successful, the Nation could beunable to conduct any gaming upon lands acquired by the Nation pursuant to theSNLCSA.

 

***CitizensAgainst Casino Gambling in Erie County v. Hogen (1:07-cv-00451-WMS (WDNY))*****— CACGEC II**

 

On July 12, 2007, Citizens Against Casino Gambling in Erie County  (CACGEC) filed a second action in the United States District Court, Western District ofNew York against the United States Department of the Interior, the NIGC and twoindividuals in their official capacities as Secretary of the Interior andChairman of the National Indian Gaming Commission, respectively.  The action seeks declaratory and injunctiverelief under the Administrative Procedure Act, the Declaratory Judgments Act,and the Indian Gaming Regulatory Act and is principally directed at thedecisions and actions of the defendants in approving the Nation’s class IIIgaming ordinance, and the Indian lands opinion issued by the Chairman relativeto that approval.  The plaintiffs claimthat the defendants have failed to comply with federal law and have requestedthat the court take numerous actions including declaring that the landsacquired by the Nation pursuant to SNLCSA are not Indian lands within themeaning of IGRA.

 

Plaintiffs moved forsummary judgment and defendants moved to dismiss.  Neither the Nation norSGC is party to this action.  The Nation filed an amicus brief on the “Indianlands” issues.

 

On July 8, 2008, thecourt issued its decision and order finding (a) that the NIGC’sdetermination that the Nation’s Buffalo Creek Territory is “Indian country” wasin accord with Congress’ intent in enacting the SNLCSA, and (b) that theNIGC’s July 2, 2007 determination that the Nation’s Buffalo CreekTerritory is gaming-eligible land pursuant to the IGRA’s settlement of a landclaim exception is arbitrary, capricious, and not in accordance with the law.

 

Thecourt’s decision did not provide for injunctive relief, and SGC has continuedits operations at the Seneca Buffalo Creek Casino.  Plaintiffssubsequently filed a motion on July 14, 2008 to force the court to enforceits judgment.

 

In response to ongoingevents in the litigation, on July 16, 2008, the Nation submitted a newgaming ordinance to the NIGC, so that the NIGC could consider the applicabilityof new Department of the Interior regulations concluding that lands likeBuffalo Creek Territory are exempt from Section 20 of IGRA’s prohibitionon gaming.

 

On July 22, 2008,the United States filed a motion responding to the plaintiffs motion to enforceand requesting that the case be remanded to the NIGC for further consideration.The remand motion is based upon significant changes in the controlling law, asinterpreted by the U.S. Department of the Interior.  The Seneca Nation ofIndians simultaneously filed an amicus brief supporting the United States’motion for remand to the NIGC and opposing the plaintiffs’ motion toenforce.  On August 26, 2008, the court issued its decision on theforegoing motions and granted the plaintiffs’ request that the court enforceits July 8, 2008 decision and order to the extent that the NIGC and itsChairman are directed to carry out their enforcement

 

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duties under IGRA. Theplaintiffs’ motion was denied to the extent that they requested an order thatwould divest the NIGC of its discretion to determine the type of enforcementaction to take.

 

On September 3,2008, the Chairman of the NIGC issued a “notice of violation” or “NOV” to theNation as a result of the August 26, 2008 decision. The NOV asserts thatthe Nation has violated IGRA by operating the Seneca Buffalo Creek Casinowithout an approved Class III gaming ordinance for that facility becausethe gaming ordinance for those lands authorized gaming on lands in Buffalo thatthe district court deemed ineligible for gaming.  The NOV further statesthat although the NIGC disagrees with the district court’s interpretation ofIGRA regarding the Buffalo Parcels eligibility for gaming under IGRA, the NIGC,at the current time, was bound by the district court’s ruling as to thisparticular land parcel absent reconsideration by the district court or reversalon any appeal.  Consequently, the Chairman issued the NOV. The NOV was notaccompanied by a closure order or an assessment of a civil fine. The NOVfurther states that the Chairman of the NIGC may modify the measures requiredto correct the alleged violation if the NIGC approves the Nation’s July 16,2008 gaming ordinance amendments.  TheNation immediately appealed the NOV issuance and the administrative appeal isstill pending before an independent administrative law judge.  The NIGC requested a stay of the NOV appeal.

 

On October 21, 2008,the plaintiffs filed a motion seeking an order from the court that wouldrequire the Chairman of the NIGC to issue orders immediately halting gaming atthe Seneca Buffalo Creek facility and holding the NIGC Chairman in contempt fornot doing so sooner.

 

OnOctober 24,2008, the U.S. Department of Justice filed a notice of appeal relating to thecourt’s July 8, 2008 ruling on whether gaming is permitted on Nation landsin Buffalo, in addition to the court’s August 26, 2008 orders(directing the NIGC to issue the NOV and denying the U.S. government’s motionto remand the case to the NIGC for an administrative decision on the basis ofsignificant changes in controlling regulation).

 

On November 4, 2008, the Seneca Nation of Indiansfiled a motion for leave to file an amicus brief in response to the plaintiffs’motion to enforce and motion to hold NIGC Chairman Hogen in contempt forfailing to close the Buffalo Creek casino.  The United States also filed aresponse on that day.  On November 14, 2008, the plaintiffs filed areply brief requesting additional time to respond to the Nation’s amicus briefif the court granted the Nation’s motion allowing it to submit an amicusbrief.  On November 17, 2008, the court granted the Nation’s motionto file the amicus brief and to be heard at argument.  The court furtherordered that the Nation formally file its amicus brief by November 20,2008, which it did, and set a December 2, 2008 deadline for filingresponses to the Nation’s brief.

 

On December 2, 2008, the plaintiffs filed theirresponse to the Nation’s amicus brief. On January 20, 2009, NIGC Chairman Hogen approved the SNI’s amendedordinance.  The court reviewed theChairman’s findings and found them to be predicated on an analysis differentfrom any advanced by the parties.  Thisnew analysis is presumed valid unless and until it becomes the subject of asuccessful legal challenge.  As such, theChairman’s January 20, 2009 ordinance approval rendered moot plaintiff’smotion to enforce the Court’s vacatur of the July 2, 2007 ordinanceapproval.  Accordingly, on January 30,2009, the court denied the plaintiffs’ October 21, 2008 motion for orderto enforce.

 

If the plaintiffs are successful, the Nation could beunable to conduct any Class III gaming upon lands acquired by the Nationpursuant to the SNLCSA, including the Buffalo Creek Territory.

 

***Citizens Against Casino Gamblingin Erie County v. Hogen (1:2009-cv-00291 (WDNY)) — CACGEC III***

 

On March 31, 2009, Citizens Against Casino Gamblingin Erie County  (CACGEC) filed a thirdaction in the United States District Court, Western District of New Yorkagainst the Chairman of the NIGC, the United States Department of the Interior,the NIGC, the Secretary of the Interior and the President of the UnitedStates.  The action seeks declaratory andinjunctive relief under the Administrative Procedure Act, the DeclaratoryJudgments Act, and the Indian Gaming Regulatory Act and is principally directedat the decision by the NIGC Chairman, on January 20, 2009, to approve theSeneca Nation’s amendments to its Class III Gaming Ordinance regarding theNation’s Buffalo Creek Territory.  TheNIGC Chairman concluded that IGRA’s general prohibition against gaming on landsacquired after its enactment in 1988 does not apply to lands, such as theBuffalo Creek Territory, that are held in restricted fee.   The plaintiffs claim that, in approving theNation’s Class III Gaming ordinance on January 20, 2009, the NIGCChairman ignored the intention of Congress. The plaintiffs also make several claims that go beyond their priorlawsuits.  Most notably, they challengethe constitutionality of the land purchase provisions contained in the SNLCSA,and attempt to challenge in a more extensive fashion than they had previouslythe validity of the Nation-State Gaming Compact.

 

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On June 15, 2009, the Nation moved to interveneas a defendant in CACGEC III.  The Nation’sproposed intervention and participation as a defendant are expressly restrictedto the three claims for relief specified in the plaintiffs’ complaint,namely:  (1) whether, as restrictedfee lands over which the Nation exerts governmental authority, the BuffaloCreek Territory qualifies as “Indian lands” under IGRA; (2) whether theBuffalo Creek Territory is subject to the general prohibition found in section2719 of IGRA against gaming on trust lands acquired after IGRA’s effective dateeven though the Territory consists of restricted fee, rather than trust, lands;and (3) whether, if the Buffalo Creek Territory is subject to Section 2719’sgeneral prohibition, Class III gaming may nevertheless proceed on itbecause the Buffalo Creek Territory was acquired in settlement of a land claim.

 

The plaintiffs are opposing the Nation’s motion and asof December 22, 2009, the Nation’s motion was still pending before theCourt.

 

The United States has filed a motion for partial dismissal.  The motion remains pending before the Courtas of December 22, 2009.

 

If the plaintiffs ultimately succeed in this action,or in their pending appeals in the CACGEC I and CACGEC II proceedings, the SGCmay be unable to conduct any Class III gaming at its existing properties.

 

***Scott v. Pataki (NYS Supreme Court, Erie County, Index No. 001189/06)***

 

On February 1, 2006,an action was filed in the New York Supreme Court, County of Erie, by variouspetitioners against George E. Pataki, in his official capacity as Governor ofthe State of New York; State Gaming Officials of the New York State WageringBoard; City of Buffalo; Common Council of the City of Buffalo; Anthony Masielloin his previous capacity as Mayor of Buffalo; Byron Brown in his capacity asMayor of Buffalo; City of Buffalo Department of Public Works; Buffalo SewerAuthority; and Niagara Frontier Transportation Authority.  The actioninitially sought declaratory and injunctive relief under the StateEnvironmental Quality Review Act, or SEQRA,; the First Parks, Recreation,Historic Preservation Law, or PRHPL; First City Environmental ReviewOrdination, or CERO; and Freedom of Information Law, or FOIL, and isprincipally directed at the decisions and actions of the defendants inconnection with the Seneca Buffalo Creek Casino.  The plaintiffs initiallyclaimed that the defendants had failed to comply with SEQRA, PRHPL, CERO andFOIL and requested that the court take numerous actions including directingcompliance with SEQRA, PRHPL, CERO and FOIL and restraining further actionrelating to the development of the Seneca Buffalo Creek Casino.  In May 2006,the petitioners further sought to enjoin demolition activity on the nine acrecasino site, but the court declined to grant a preliminary injunctionpreventing demolition.  In June 2006, the petitioners amended theirPetition to drop their claims against Governor Pataki, the State GamingOfficials and the Niagara Frontier Transportation Authority, and added theBuffalo Department of Economic Development, Permits and Inspections as a party.The amended Petition also dropped all claims except for the SEQRA and CEROclaims. In October 2006, the plaintiffs moved for an injunction to preventan agreement between SEGC and the City of Buffalo (relating to the developmentof the Seneca Buffalo Creek Casino) from being executed and performed, whichmotion was denied based upon a failure to show a likelihood of success on themerits.  The plaintiffs appealed this ruling to the New York Supreme CourtAppellate Division.  On March 16, 2007, the Appellate Divisionunanimously affirmed the denial of the injunction.

 

A hearing was held on themerits of the petition in September 2007.  On July 3, 2008, thecourt dismissed the Petitioners’ claims holding: (1) that the CommonCouncil of the City of Buffalo properly reviewed the environmental impact ofthe construction of the Buffalo Creek Casino, and fully complied with SEQR andCERO; (2) that the abandonment and sale of Fulton Street was properlyapproved by the Common Council of the City of Buffalo; (3) that the SenecaNation of Indians is a necessary and indispensible party to the lawsuit; and (4) thatPetitioner’s substantive claims are without merit.

 

On November 13, 2009, the NYS Supreme Court Appellate Division unanimously affirmedthe July 3, 2008 decision.

 

If the plaintiffs were successful, the Nation could have been delayed inthe completion of the expansion of Seneca Buffalo Creek Casino temporaryfacility.  Certain of these petitioners are also plaintiffs in the federallawsuits filed by Citizens Against Casino Gambling in Erie County referencedabove.

 

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***Warren v. United States (1:06-c-00226-JTE (WDNY))***

 

On or about April 6,2006, an action was filed in the United States District Court, Western Districtof New York, by Daniel T. Warren, a pro se plaintiff, against the United Statesof America, the United States Department of the Interior, the National IndianGaming Commission, and five individuals in their official capacities as ActingSecretary of the Interior, Acting Assistant Secretary of the Interior forIndian Affairs and Chairman of the National Indian Gaming Commission, as wellas Governor George E. Pataki, as Governor of the State of New York, and CherylRitchko-Buley, as Chairwoman of the New York State Racing and WageringBoard.    The action initially sought declaratory and injunctiverelief as to numerous matters including declaring that IGRA isunconstitutional, that the Compact violates IGRA, that the New YorkConstitution is not preempted by IGRA, that New York does not have theauthority under state law to enter into a tribal state compact under IGRA, thatcertain actions of the defendants were not in accordance with law, and thatcertain lands purchased by the Nation were not subject to being taken intotrust or restricted fee status under the SNLCSA or were not pursuant tosettlement of a land claim within the meaning of IGRA; and enjoining thedefendants from taking actions which would further casino gambling in the Stateof New York under IGRA or on any lands acquired by the Nation pursuant toSNLCSA. On August 16, 2006, the plaintiff amended his complaint bringing:a Tenth Amendment challenge to IGRA; a claim that the Compact violates IGRA byproviding for gaming which is not otherwise lawful in New York; a claim thatboth the Compact and the statute authorizing the Governor of New York to enterinto the Compact violate various provisions of the New York State Constitution;and a claim that the United States has failed to promulgate regulations forgaming on off-reservation territory, in violation of its statutoryduties.  The effect of such amendment was to limit the claims remaining inthe case, by dropping many of the federal law claims in the original complaint.

 

On December 1, 2006,the court heard argument on the plaintiff’s motion to join (1) Barry E.Snyder, Sr., as President of the Nation; (2) John Pasqualoni, asPresident and CEO of SGC; (3) the Nation; and/or (4) SGC, asadditional defendants.

 

On October 5, 2007,the plaintiff filed a motion to further amend the complaint to include asdefendants (1) Maurice John, as President of the Nation; (2) E. BrianHansberry, as the new President and CEO of SGC (replacing John Pasqualoni); (3) theNation; and (4) SGC.  On October 25, 2007, the Nation filed aresponse in opposition to that motion asserting that (1) the motion toamend the complaint was not properly before the court because it is premisedupon a finding that the Nation is a necessary and indispensible party, and (2) themotion to amend is futile because the Nation and its officers are protected bysovereign immunity.  On August 11, 2008, the court ordered the clerkto strike the Nation’s responses to motions filed by plaintiff because theNation had not been granted permission to participate as amicus curiae and hadnot renewed its motion in that regard. On August 22, 2008, the Nation filed a motion for leave to filebrief amicus curiae.

 

On March 16, 2009, theplaintiff filed a motion to the amend/correct amended complaint.  On March 23, 2009, the court dismissedas moot both plaintiff’s October 5, 2007 motion to the amend/correctamended complaint and the Nation’s August 22, 2008 motion for leave tofile brief amicus curiae in opposition to plaintiff’s motion.  On April 29, 2009, the Nation filed amotion for leave to appear as amicus curiae. On June 15, 2009, the court granted the Nation’s April 29,2009 request to file a brief amicus curiae. On June 16, 2009, the Nation filed its response to plaintiff’s March 16,2009 motion to amend/correct amended complaint.

 

Dispositive motions todismiss on behalf of both the plaintiff and the defendants have not yet beenheard by the court.  In addition, still pending before the court is themotion on behalf of the Seneca entities and officers in opposition to beingjoined as defendants to the lawsuit on, among other things, sovereign immunitygrounds.  If the plaintiff is successful in this lawsuit, the Nation wouldbe unable to conduct any Class III gaming upon lands acquired pursuant toSNLCSA.

 

***Inthe matter of the Petition of New York State Urban Development Corporationd/b/a Empire State Development Corporation (NYS Supreme Court, Niagara County)***

 

**Valuation Proceedings Pursuant toNew York Eminent Domain Procedure Law**

 

In 2002 and pursuant to the Compact, the Nationacquired from the State of New York approximately 24 acres of land and relatedimprovements in the City of Niagara Falls, New York, including the then-NiagaraFalls Convention Center.  The State ofNew York further agreed in the Compact to assist the Nation in whatever mannerappropriate, including through the exercise of its power of eminent domain, toacquire the remaining acreage within the approximate 50-acre footprint in theCity of Niagara Falls, New York, designated by New York State under the Compactfor ownership by the Nation. The Compact specifically excluded approximately1.5 acres of land within the footprint owned by a Roman Catholic Church.  Additionally, in July 2006, the Nationagreed to waive its right to acquire approximately one half acre of additionalland within the footprint owned by End Time Handmaidens, Inc., a religiousorganization.  In return for the waiver,the Nation obtained a right of first negotiation and refusal with respect tothe future sale of the parcels.  As aresult of the carve-out

 

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relating to the parcels owned by the Roman CatholicChurch, and the Nation’s agreement with End Time Handmaidens, the total acreageof the Niagara Territory upon completion of the condemnation process isanticipated to be approximately 48 acres.

 

We have obtainedpossession of, either through eminent domain proceedings or private purchase,substantially all of the remaining acreage within the footprint, other thancertain streets and alleys owned by the City of Niagara Falls providing accessto the above church parcels, and a bicycle path owned by the New York StateDepartment of Transportation. We expect to acquire the above Niagara Falls citystreet and alley parcels by early 2010, with acquisition of the NYSDOT bikepath requiring further dialogue with New York State.

 

Substantially all of thepost-2002 real property acquisitions in Niagara Falls, NY have been pursuant toNew York State Eminent Domain Procedure Law, or EDPL, using the State’s powerof eminent domain (through the Empire State Development Corporation, orESDC.  The amounts paid to condemneesfrom whom the ESDC has acquired property are deemed to be advance payments, inthat property owners are entitled to reserve their rights to challenge the landand improvement values determined by the condemnor’s appraisers.  The ESDC has made advanced payments under theEDPL of approximately $31.5 million for the condemned parcels within thefootprint including, in particular, approximately 18 acres of land and relatedfixtures (a former water park) for an aggregate advanced payment of $18.0million, and another hotel property for an aggregate advanced payment of $8.2million (excluding fixtures).    See Note10.

 

Pursuant to the EDPL, NewYork state courts will determine the final purchase price to be paid tocondemnees who elect to challenge the initial appraised value of theirproperty.  To date, all record ownersfrom whom property was acquired pursuant to the EDPL have reserved rights toclaim additional compensation.  Fourrecord owners have filed notices of claim to challenge the fair market valueappraisals utilized by ESDC. Fallsite LLC and Fallsville Splash, LLC have filednotices of claim in the amounts of $40.0 million and $35.0 million for land andtrade fixtures, respectively, relating to a former water park within thefootprint.  ESDC’s fair market appraisalvalue for the foregoing was approximately $17.0 million.  If a court determines that the value for theland and improvements, including trade fixtures, is higher than what ESDC hasdetermined to be their appraised values, then we may be liable for thedifference and potentially also responsible for certain additional costs andpayments to the applicable condemnee(s), such as their attorney fees.  The valuation trial proceedings with regardto the former water park are complete. The decision of the court is pending andis expected in early 2010. Intertrust Development had filed a notice of claimfor $15.8 million for land and trade fixtures associated with a former HolidayInn hotel within the footprint. ESDC’s fair market appraisal value for theforegoing was $8.2 million (excluding fixtures).  We have agreed to a settlement of this matterwith Intertrust, whereby Intertrust has received an additional $3.8 million inaddition to the appraisal value of $8.2 million, and whereby we have agreed topurchase, for business promotional use, tickets to Fallsview Waterpark, anaffiliate of Intertrust, for $2.5 million to be paid in three installments overthree years.  Pursuant to the stipulationof settlement, Intertrust  has executed arelease of SNFGC, ESDC and the Seneca Nation of Indians with respect to thevaluation proceeding, and ESDC and Intertrust shall file a stipulation ofdiscontinuance. Additionally, JFD Holdings has filed a notice of claim for $1.1million for a parcel of land at 621 Niagara Street within the footprint.  ESDC’s fair market appraisal for theforegoing is approximately $550,000.  Notrial date has yet been set. Also, three individuals have filed notices ofclaim with respect to four parcels within the footprint seeking $955,000, inaggregate, for the four parcels.  ESDC’sfair-market appraisal for the four properties, in aggregate, is $185,000.  No trial dates have been set.

 

If a court determinesthat the value for the land and improvements is higher than the appraised valuepaid to a condemnee, then SGC may be liable to the condemnee for the differenceand potentially also responsible for certain additional costs and payments tothe condemnee, such as attorneys’ fees. As of September 30, 2009, $1.7 million of the previously recordedreserve of $6.4 million remained for such matters and is included in the othercurrent and long-term liabilities sections on SGC’s consolidated balancesheet.  Should the liability be greaterthan our reserve for such matters, it could have a negative impact on incomeand financial condition.

 

SGC is a defendant inother litigation from time to time in the normal course of business. In theopinion of management, based on the advice of counsel, the aggregate liability,if any, arising from such litigation will not have a material adverse effect onSGC’s financial condition or results of operations.

 

**The Seneca Nation Compact**

** **

As part of its Compact,the Nation agrees to contribute to the State of New York a portion of theproceeds from the operation and conduct of each category of Gaming Device forwhich exclusivity exists, based on the win of such machines (cash dropped intomachines, after payouts but before expenses) and totaled on a cumulativequarterly basis to be adjusted annually

 

F-24

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Table of Contents

 

at the end of therelevant calendar year.  However,beginning in February 2005, the Company began advancing to the Nation on amonthly basis the exclusivity fee due for the prior month.  The exclusivity fee to the State of New Yorkfor years 1—4 (through December 31, 2006), was 18.0%, payable on an annualbasis. Thereafter, the exclusivity fee is 22% for years 5—7 (through December 31,2009), payable on a semi-annual basis and will be 25.0% for years 8—14 (throughDecember 31, 2016), payable on a quarterly basis.

 

Amounts payable forexclusivity fees were $8.2 million and $9.2 million at September 30, 2009and 2008, respectively, and are recorded as exclusivity fees payable on theaccompanying consolidated balance sheets. The exclusivity fee expense was$106.0 million, $115.7 million and $103.3 million for the years ended September 30,2009, 2008 and 2007, respectively.

 

**Additional CasinoLocations and Expansion**

** **

As described in Note 1,the Compact provides the Nation the exclusive right to conduct Class IIIgaming activities at three sites in the western region of the State of NewYork.  The Company opened its third Class IIIcasino on July 3, 2007 in a temporary facility in Buffalo, New York.  The construction of a permanent casino atthat site, as well as any expansion by STGC at Seneca Allegany Casino and Hotelwill require significant capital outlays. The ability to recommence theseprojects (which have been suspended indefinitely)will depend on various factors including cash flow from operations, theavailability of external financing with regard to one or more of the projects,certain Nation and governmental approvals, and the effects of legal and/oradministrative proceedings. Refer to Note 13, *Commitmentsand Contingencies*, under the heading, “Capital Projects” for furtherinformation.

 

**Capital Projects**

** **

**On August 27, 2008, theconstruction activities at Seneca Allegany Casino and Hotel and Seneca BuffaloCreek Casino, each described below, were suspended for reasons including:  the economic recession; inability to obtainconstruction financing at reasonable interest rates; and operating and otherdemands on available cash, such as payments to the Nation.  As of September 30, 2009, due to thecontinuation of weak economic conditions, adverse credit market conditions andan uncertain economic outlook, construction remained suspendedindefinitely.  Furthermore, certainplanning efforts related to the future expansion of the Seneca Niagara Fallsproperty were suspended for the same reasons. As a result of these circumstances an impairment charge of $107.6million was recognized during Fiscal 2009. Nonetheless, SGC will continue to explore alternative future expansionand development options.**

** **

***Seneca Niagara Falls Casino andHotel***.  In 2006, we beganmaster planning activities for the remaining approximately 24 acres ofundeveloped land contained in the Niagara Falls footprint.  As of September 30, 2009, these masterplanning activities have been suspended due to the continuation of weakeconomic conditions, adverse credit market conditions and an uncertain economicoutlook.  As a result of thesecircumstances an impairment charge was recognized related to these activitiesin Fiscal 2009, in the amount of approximately $3.5 million.

** **

***Seneca Allegany Casino and Hotel***.  On March 30, 2007, STGC officiallyopened its 212 room resort hotel, including two fine dining restaurants, a24-hour casual restaurant and certain other amenities, at the Seneca AlleganyCasino and Hotel.  This expansion followedthe December 28, 2006 official opening of the permanent gaming floor. Theapproximate cost of constructing and equipping the hotel and expansion projectwas $169.0 million.  In March 2008,STGC completed the conversion of the former temporary casino at the Seneca AlleganyCasino and Hotel into a 120,000 square foot events center, and additionaladministration space, at a cost of approximately $29.3 million.  Construction on the next phase of developmentat Seneca Allegany Casino and Hotel, which was planned to include an additional200 room hotel tower, and up to 30,000 square feet of additional gaming spaceand related amenities, for a total estimated cost of approximately $130million, was suspended for the reasons discussed above.  As of September 30, 2009, due to thecontinuation of weak economic conditions, adverse credit market conditions andan uncertain economic outlook, construction remained suspendedindefinitely.  As a result of thesecircumstances an impairment charge was recognized for costs incurred related tothese activities in Fiscal 2009, in the amount of approximately $17.1 million.

** **

***Seneca Buffalo Creek Casino***.  On July 3, 2007, the Company opened atemporary Class III gaming facility at the Seneca Buffalo Creek Territorysite (6,000 square feet including 135 slot machines and a snack bar) at a costof approximately $6.8 million.  In March 2008,the Company completed a 109 slot machine expansion (for a total of 244 slotmachines) of the temporary Seneca Buffalo Creek Casino.  Construction on the next phase of developmentat Seneca Buffalo Creek Casino and Hotel, which was planned to includeapproximately 90,000 square feet of gaming space; 2,000 slot machines; 45 table

** **

**F-25**

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**Table of Contents**

** **

**games; a 22-story all-suite hotel;four restaurants; a full-service spa and salon; retail and other amenities; anda 2,200-space parking garage, for a total estimated cost of approximately $333million, was suspended for reasons discussed above.  As of September 30, 2009, due to thecontinuation of weak economic conditions, adverse credit market conditions andan uncertain economic outlook, construction remained suspendedindefinitely.  As a result of thesecircumstances an impairment charge was recognized related to these activitiesin Fiscal 2009, in the amount of approximately $87.0 million..**

** **

**On October 19, 2009 we brokeground on the expansion of the temporary facility, which will add approximately5,300 square feet of gaming space to the facility and will accommodate 200 to250 additional slot machines. The expansion is due to be completed in spring2010.**

** **

***Seneca Hickory Stick Golf Club***.  In July 2007, the Company commencedconstruction of the Seneca Hickory Stick Golf Club, an 18-hole Robert TrentJones II designed golf course. The golf course is located in Lewiston, New Yorkand is approximately eight miles from the Seneca Niagara Casino and Hotel.  Completion of golf course construction andofficial course opening are currently scheduled for 2010. As of September 30,2009, the Company has incurred $20.8 million for the purchase of land andconstruction, with a total cost to construct the golf course, clubhouse andrelated amenities estimated to be approximately $25.5 million.

** **

**Operating Leases**

** **

In addition to the HeadLeases with the Nation (Note 12), the Company rents land and building space, anemployee parking lot (through September 2009), and warehouse space; andadministrative space for its STGC casino facility, under various operatingleases. The lease terms vary from yearly to 21 years with renewal options.Total rent expense under all operating leases for 2009, 2008 and 2007 wasapproximately $76.6 million, $62.8 million and $54.4 million, respectively.  Theterms of the 2004 and 2005 Senior Notes allow the monthly payments under theSNFGC, STGC, and SEGC Head leases to increase up to 3.0% beginning no earlierthan October 2005. Lease increases in excess of 3% are subject to additionalrequirements under the terms of the Indenture governing the Company’s seniornotes and the Distribution Agreement. Estimated minimum rents due under the operating leases (including theHead Lease and STGC land lease) are as follows:

 
| ** **                            | ** ** | **(In Thousands)** | ** ** |
|---------------------------------------|------------|-------------------------|------------|
| Fiscal  year ended September 30: |       |                    |       |
| 2010                                  |       | $                       | 76,197     |   |
| 2011                                  |       | 76,000                  |       |
| 2012                                  |       | 76,000                  |       |
| 2013                                  |       | 76,000                  |       |
| 2014                                  |       | 76,000                  |       |
| Thereafter                            |       | 703,000                 |       |
|                                  |       | $                       | 1,083,197  |   |

 

F-26

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**EXHIBITINDEX**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **           | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1*                 |       | Sixth Amended and Restated Charter of SGC.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.2                  |       | Second Amended and Restated By-Laws of SGC  (incorporated by reference to Exhibit 3.2 to SGC’s Annual Report on  Form 10-K filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                            |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.3*                 |       | Fourth Amended and Restated Charter of SNFGC.                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.4                  |       | Third Amended and Restated By-Laws of SNFGC  (incorporated by reference to Exhibit 3.4 to SGC’s Annual Report on  Form 10-K filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.5*                 |       | Third Amended and Restated Charter of STGC.                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.6                  |       | Amended and Restated By-Laws of STGC (incorporated  by reference to Exhibit 3.6 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.7*                 |       | Third Amended and Restated Charter of SEGC.                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.8                  |       | Amended and Restated By-Laws of SEGC (incorporated  by reference to Exhibit 3.8 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.9*                 |       | Amended and Restated Charter of LGCC.                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.10*                |       | By-Laws of LGCC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.1                  |       | Indenture, dated as of May 5, 2004, among SGC,  SNFGC, the Guarantors as defined therein and Wells Fargo Bank, National  Association, as Trustee, relating to our $300,000,000 principal amount of 71⁄4%  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                  |       | Supplemental Indenture, dated as of May 23,  2005, to the Indenture, dated as of May 5, 2004, among SGC, SNFGC, the  Guarantors as defined therein and Wells Fargo Bank, National Association, as  Trustee, relating to our $200,000,000 principal amount of 71⁄4% Senior Notes  due 2012, Series B (including form of note) (incorporated by reference  to Exhibit 4.1 to SGC’s Quarterly Report on Form 10-Q filed with  the SEC on August 15, 2005). |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.3                  |       | Second Supplemental Indenture dated as of  December 28, 2007, among SGC, the existing subsidiary guarantors party  thereto, Lewiston Golf Course Corporation and Wells Fargo Bank, National  Association, as trustee under the Indenture (incorporated by reference to  Exhibit 4.1 to SGC’s Current Report on Form 8-K filed with the SEC  on January 8, 2008).                                                                                                     |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.4                  |       | Registration Rights Agreement, dated as of  May 5, 2004, 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).                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.5                  |       | Registration Rights Agreement, dated as of  May 23, 2005, 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 Quarterly Report on Form 10-Q filed with the SEC on August 15,  2005).                                             |

 

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| 4.6    |   | Nation Agreement, dated May 5, 2004, between  Seneca Nation of Indians, Merrill Lynch & Co., Merrill Lynch,  Pierce, Fenner & Smith Incorporated, Banc 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).                                              |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.7    |   | Amendment No. 1, dated May 23, 2005, to  Nation Agreement, dated May 5, 2004, between Seneca Nation of Indians,  Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith  Incorporated, Banc 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 Quarterly Report on Form 10-Q filed with the SEC on  August 15, 2005). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.8    |   | 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 4.4 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 New York State, 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   |   | Agreement of Lease, 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).                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.3   |   | Construction Management Agreement, dated as of  July 14, 2005, between Seneca Construction Management Corporation, as  Construction Manager, and STGC, as Owner (for Seneca Allegany Casino Phase II  Hotel and Casino) (incorporated by reference to Exhibit 10.1 to SGC’s  Current Report on Form 8-K filed with the SEC on July 18, 2005).                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.4   | +      | 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).                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.5   | +      | Employment Agreement, dated April 28, 2005,  between SGC and Rajat Shah (incorporated by reference to Exhibit 10.20  to SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005).                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.6   | +      | Amendment No. 1 to Employment Agreement, dated  as of October 1, 2005, between SGC and Barry W. Brandon (incorporated by  reference to Exhibit 10.20 to SGC’s Registration Statement  No. 333-128443 filed with the SEC on November 30, 2005)                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.7   | +      | Amendment No. 2 to Employment Agreement,  effective as of September 14, 2006, between SGC and Barry W. Brandon  (incorporated by reference to Exhibit 10.1 to SGC’s Current Report on  Form 8-K filed with the SEC on September 20, 2006).                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.8   | +      | Amendment No. 1 to Employment Agreement,  effective as of September 14, 2006, between SGC and Rajat Shah  (incorporated by reference to Exhibit 10.2 to SGC’s Current Report on  Form 8-K filed with the SEC on September 20, 2006).                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.9   |   | Agreement between the City of Buffalo, New York,  Seneca Gaming Corporation, Seneca Erie Gaming Corporation and the Seneca  Nation of Indians, effective November 9, 2006 (incorporated by reference  to Exhibit 10.1 to SGC’s Current Report on Form 8-K filed with the  SEC on November 14, 2006).                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.10  | +      | Separation Agreement between SGC and John Pasqualoni  effective February 7, 2007 (incorporated by reference to  Exhibit 10.1 to SGC’s Current Report on Form  8-K filed with the  SEC on February 7, 2007).                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.11  | +      | Separation Agreement between SGC and Joseph D’Amato  effective February 7, 2007 (incorporated by reference to  Exhibit 10.2 to SGC’s Current Report on Form  8-K filed with the  SEC on February 7, 2007).                                                                                                                                                                                                                                                                                                    |

 

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| 10.12  |   | Head Lease Agreement between STGC and the Nation  dated February 28, 2007 (incorporated by reference to Exhibit 10.1  to SGC’s Current Report on Form 8-K filed with the SEC on March 8,  2007).                                                                                                               |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.13  |   | Head Lease Agreement between SEGC and the Nation  dated February 28, 2007 (incorporated by reference to Exhibit 10.2  to SGC’s Current Report on Form 8-K filed with the SEC on March 8,  2007).                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.14  | +      | Employment Agreement, dated April 10, 2007, and  effective as of March 5, 2007, between SGC and Robert Victoria  (incorporated by reference to Exhibit 10.1 to SGC’s Current Report on  Form 8-K filed with the SEC on April 16, 2007).                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.15  | +      | Employment Agreement, dated April 12, 2007, and  effective as of February 7, 2007, between SGC and E. Brian Hansberry  (incorporated by reference to Exhibit 10.1 to SGC’s Current Report on  Form 8-K/A filed with the SEC on April 18, 2007).                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.16  |   | Distribution Agreement, dated April 27, 2007,  among the Nation, the Seneca Nation of Indians Capital Improvements  Authority, SGC and Wells Fargo Bank, National Association, as Trustee  (incorporated by reference to Exhibit 10.1 to SGC’s Current Report on  Form 8-K filed with the SEC on May 1, 2007). |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.17  |   | Amended and Restated Head Lease Agreement between  Seneca Niagara Falls Gaming Corporation and the Seneca Nation of Indians  effective as of October 1, 2007 (incorporated by reference to  Exhibit 10.1 to SGC’s Current Report on Form 8-K filed on  April 1, 2008).                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.18  |   | First Amendment to Head Lease Agreement between  Seneca Territory Gaming Corporation and the Seneca Nation of Indians  effective as of October 1, 2007 (incorporated by reference to  Exhibit 10.2 to SGC’s Current Report on Form 8-K filed on  April 1, 2008).                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.19  |   | First Amendment to Head Lease Agreement between  Seneca Erie Gaming Corporation and the Seneca Nation of Indians effective as  of October 1, 2007 (incorporated by reference to Exhibit 10.3 to  SGC’s Current Report on Form 8-K filed on April 1, 2008).                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.20  | +      | Separation Agreement between Seneca Gaming  Corporation and Patrick M. Fox dated April 8, 2008 and effective as of  April 11, 2008 (incorporated by reference to Exhibit 10.1 to SGC’s  Current Report on Form 8-K filed on April 8, 2008).                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.21  | +      | Employment Agreement between Seneca Gaming  Corporation and Catherine A. Walker, dated as of March 16, 2008  (incorporated by reference to Exhibit 10.1 to SGC’s Current Report on  Form 8-K filed on May 1, 2008).                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.22  |   | Loan Agreement by and among Seneca Gaming Corporation  and KeyBank National Association dated as of June 19, 2008 (incorporated  by reference to Exhibit 10.1 to SGC’s Current Report  on Form 8-K filed on June 25, 2008).                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.23  | +      | Employment Agreement, effective as of July 1,  2008, between Seneca Gaming Corporation and David Sheridan (incorporated by  reference to Exhibit 10.1 to SGC’s Current Report on Form 8-K/A  filed on October 28, 2008).                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.24  |   | First Amendment to the  Amended and Restated Head Lease Agreement between Seneca Niagara Falls Gaming  Corporation and the Seneca Nation of Indians, effective as of October 1,  2008 (incorporated by reference to Exhibit 10.1 to SGC’s Current Report  on Form 8-K filed on March 24, 2009).                |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.25  |   | Second Amendment to  Head Lease Agreement between Seneca Territory Gaming Corporation and the  Seneca Nation of Indians, effective as of October 1, 2008 (incorporated  by reference to Exhibit 10.2 to SGC’s Current Report on Form 8-K  filed on March 24, 2009).                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.26  |   | Second  Amendment to Head Lease Agreement between Seneca Erie Gaming Corporation and  the Seneca Nation of Indians, effective as of October 1, 2008  (incorporated by reference to Exhibit 10.3 to SGC’s Current Report on  Form 8-K filed on March 24, 2009).                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.27  |   | Employment Agreement,  effective as of July 1, 2008, between Seneca Gaming Corporation and  David Sheridan (incorporated by reference to Exhibit 10.1 to SGC’s  Current Report on Form 8-K/A filed on October 28, 2008).                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.28  | +      | Employment Agreement, effective as of June 26,  2008, between Seneca Gaming Corporation and Robert Chamberlain (incorporated  by reference to Exhibit 10.31 to SGC’s Annual Report on Form 10-K filed on  December 29, 2008).                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 10.29  | *      | First Amendment to Loan Agreement by and among  Seneca Gaming Corporation and KeyBank National Association dated as of  December 18, 2009.                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                    |
| 21.1*  |   | List of SGC  subsidiaries.                                                                                                                                                                                                                                                                                                              |

 

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Tableof Contents

 
| 24.1*  |   | Power of Attorney  (included on the signature page of this Annual Report). |
|--------|--------|---------------------------------------------------------------------------------|
|   |   |                                                                            |
| 31.1*  |   | Certification pursuant  to Section 302 of the Sarbanes-Oxley Act.          |
|   |   |                                                                            |
| 31.2*  |   | Certification pursuant  to Section 302 of the Sarbanes-Oxley Act.          |
|   |   |                                                                            |
| 32.1*  |   | Certification pursuant  to Section 906 of the Sarbanes-Oxley Act.          |

 

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| *      |   | Filed herewith.                                          |
|--------|--------|----------------------------------------------------------|
|   |   |                                                     |
| +      |   | Management contract or  compensatory plan or arrangement |

 

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