**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**Form 10-K**

 

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

 

**F****or the fiscal year ended September 30,2005**

 

**Commissionfile number 333-117633**

 

**SENECA GAMING CORPORATION**

(Exact name of registrant as specified in itscharter)

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

 

**310 FourthStreetNiagara Falls, New York (Seneca Nation Territory) 14303(716) 299-1100**

(Address, including zip code, and telephonenumber,including area code, of registrant’s principal executive 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 SecuritiesAct.  Yes  o  No  ý

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or 15(d) of theAct.  Yes  ý  No  o

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes  ý  No  o

 

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

 

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

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act.  Yes  o  No  ý

 

The registrant is a wholly-owned governmentalinstrumentality of the Seneca Nation of Indians.

 

**DOCUMENTSINCORPORATED BY REFERENCE:  None**

 

 

----

 

**SENECA GAMING CORPORATION**

**Form 10-K**

**Table of Contents**

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

 

i

----

 

**FORWARD-LOOKINGSTATEMENTS**

 

ThisAnnual Report contains forward-looking statements intended to qualify for the safeharbor from liability established by the Private Securities Litigation ReformAct of 1995.  The words, believe,anticipate, expect, estimate, intend, plan, project, will be, will continue,will likely 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.

 

Factorsthat could cause actual results, performance or achievements to differmaterially from those expressed or implied by these forward looking statements include,but are not limited to, the risk factors set forth in Item 1A. of this AnnualReport. Readers are cautioned not to place undue reliance on these forward-lookingstatements which speak only as of the date of this filing.

 

We assumeno obligation to update these forward-looking statements.

 

**AVAILABLE INFORMATION**

 

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

 

ii

----

 

**PART I**

** **

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

 

Exceptas 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 whollyowned subsidiary of SGC, as “SNFGC,” (3) Seneca Territory GamingCorporation, a wholly owned subsidiary of SGC, as “STGC,” (4) Seneca ErieGaming Corporation, a wholly owned subsidiary of SGC, as “SEGC,” (5) theSeneca Nation of Indians of New York, as “Nation” or “Seneca Nation of Indians,”and (6) SGC, SNFGC, STGC, and SEGC, collectively, as “we,” “our,” “ours”and “us.”  SNFGC, STGC and SEGC aresometimes collectively referred to as the “Guarantors.”

 

**Overview**

 

SGC iswholly owned by the Nation and chartered to manage all of the Nation’s Class IIIgaming operations. SGC was chartered by the Nation in August 2002. In August 2002,the Nation entered into the Compact with New York State that provides theNation with the right to establish and operate three Class III gamingfacilities in Western New York. We currently operate Seneca Niagara Casino,which is located in the City of Niagara Falls, New York (Niagara Territory), approximately20 miles north of Buffalo, and Seneca Allegany Casino, which is located in theCity of Salamanca, New York (Allegany Territory), approximately 75 miles fromErie, Pennsylvania. Seneca Niagara Casino and Seneca Allegany Casino opened on December 31,2002 and May 1, 2004, respectively. Our two casinos are located on landheld in restricted fee by the United States, which, together with the rightsunder the Compact, allows us to conduct Class III gaming operations in NewYork State and are the only gaming facilities in New York State to offer both Class IIIslot machines and table games. 

 

As of September 30,2005, Seneca Niagara Casino featured over 97,000 square feet of gaming space,with 3,272 slot machines and 79 table games and Seneca Allegany Casino featuredover 55,000 square feet of gaming space with 1,955 slot machines and 24 tablegames. As of September 30, 2005, we had over 942,000 members in the SenecaLink Player’s Card database with an average of approximately 30,000 new membersjoining per month for the prior twelve months. As of September 30, 2005,approximately 32% of the Seneca Link Player’s Card members lived in theBuffalo-Niagara area and the City of Rochester, and approximately 18%, 17% and17% lived in Pennsylvania, Ohio and other areas of New York, respectively. Forthe twelve months ended September 30, 2005, we generated consolidated netrevenue of $449.2 million and net income of $45.6 million. 

 

Factorscontributing to our success include: 

 

•           since their openings, our ability to successfully marketSeneca Niagara Casino and Seneca Allegany Casino to our primary and secondarytarget markets; 

 

•           our ability to enroll over 942,000 patrons in ourcross-property Seneca Link Player’s Card program, which has increased ourability to use effective direct mail and targeted marketing programs toestablish patron loyalty to the Seneca brand at a profitable level; 

 

•           our mix of slot machines, which we believe is superior to ourcompetition and includes the latest product introductions by leading UnitedStates and international slot manufacturers; 

 

•           our use of current information technology, including “ticket-in/ticket-out”slot machines, automated jackpot payment machines, electronic slot bonusing anddatabase programs to increase operating efficiencies; 

 

•           our ability to operate at a high margin, which we achievethrough the careful monitoring and control of labor costs and the effective useof our marketing and advertising expenditures; 

 

•           our continued expansion at and reinvestment in Seneca NiagaraCasino and Seneca Allegany Casino; and 

 

•           our experienced senior management team, which has over 100years of combined gaming experience. 

 

Under theCompact, the Nation has the exclusive right to establish and operate a third Class IIIgaming facility in Erie County, New York.  For further discussion of the Erie Countygaming facility, see “— Seneca Erie Casino” and “Item 2. Properties.” 

 

**Seneca NiagaraCasino**

 

SenecaNiagara Casino is located on approximately 24 acres on the Nation’s Territoryin the City of Niagara Falls, New York, and offers gaming, entertainment andrelated amenities occupying, as of September 30, 2005, approximately126,490 square feet in total, with over 97,000 square feet of gaming space.  See “—Seneca Niagara Casino Expansion” belowregarding additional gaming space which opened on December 15, 2005.  Seneca Niagara Casino is open 24 hours perday, seven days per week and is our flagship gaming facility. We opened SenecaNiagara Casino on December 31, 2002 after 100 days of extensive remodelingand

 

1

----

 

renovation of the former Niagara Falls Convention and Civic Center. Theinitial capital invested to open the Seneca Niagara Casino was approximately$95.2 million. Since opening, Seneca Niagara Casino has achieved strongfinancial and operating results, attracting approximately 15.3 million patronsthrough September 30, 2005. For the twelve months ended September 30,2005, Seneca Niagara Casino generated net revenue of $306.0 million and netincome of $27.7 million. 

 

As of September 30,2005, Seneca Niagara Casino featured: 

 

•           over 97,000 square feet of Class III gaming space with3,272 slot machines, 79 table games, including blackjack, craps and roulette,and keno; 

 

•           a 2,300-space parking garage, with 11 bus bays; 

 

•           additional surface parking for over 600 vehicles; 

 

•           the Bear’s Den, a 468-seat theater; 

 

•           the Thunder Falls Buffet, a 400-seat international buffet; 

 

•           Morrie’s Place, a casual restaurant with approximately 200seats; 

 

•           the Western Door, a steakhouse with approximately 175 diningseats and a 42-seat bar and lounge area; and 

 

•           two snack bars. 

 

SenecaNiagara Casino is conveniently located approximately 20 miles north of Buffaloand approximately 90 miles west of Rochester. Our primary market includes thecities of Buffalo and Niagara Falls and covers the area in the United Stateswithin an estimated 50 miles of Seneca Niagara Casino.  According to a demographic report prepared byClaritas Inc., a marketing information resources company, in 2003 this area hadan adult population of approximately 895,000 and an estimated mean annualhousehold income of more than $55,000. Our secondary market includes the Cityof Rochester and covers the area in the United States within an estimated 51 to100 miles of Seneca Niagara Casino. According to the Claritas demographic report, in 2003 this area had anadult population of approximately 1.6 million and an estimated mean annualhousehold income of more than $57,000. This property’s outer markets includeErie, Pennsylvania, Ohio, other areas of New York and Toronto. In addition,Niagara Falls is a major tourist destination. According to the City of Niagara Falls, New York, Niagara Falls attractsan estimated 12.0 million visitors to the area annually. 

 

We believeseveral competitive factors contribute to our current success, including: 

 

•           an underserved local market with limited gaming andentertainment options; 

 

•           a favorable demographic mix; 

 

•           limited competition; and 

 

•           easy access by major interstate highways. 

 

*Accommodations.    *As of September 30, 2005, Seneca Niagara Casino reliedon independently owned local hotels to provide accommodations to its patrons.Since Seneca Niagara Casino did not own any overnight accommodations as of September 30,2005, we were not able to offer our patrons high-quality lodging amenities and didnot aggressively market to any patron segment requiring overnight stays.  Since the first 10 floors of the luxury hotelare scheduled to officially open on December 30, 2005 (an unofficialopening having occurred on December 15, 2005), we have commenced marketingto patrons with higher gaming budgets. 

 

*Food andBeverage Facilities.    *Asof September 30, 2005, Seneca Niagara Casino featured three restaurants,Western Door, Morrie’s Place and Thunder Falls Buffet, and two snack bars. TheWestern Door is a steakhouse and seats approximately 175 patrons in the diningroom with an additional 42 seats in the bar and lounge.  The Thunder Falls Buffet offers an extensiveinternational selection at a buffet style restaurant and seats approximately400 patrons.  Morrie’s Place, whichprovided casual dining and seated approximately 200 patrons, was closed in October 2005,renovated and reopened as Hush, an upscale ultralounge/nightclub, on December 15,2005.  Due to the quality of ourrestaurants and the success of our business, the Western Door and the ThunderFalls Buffet are popular local dining venues and are often at full capacity.  See “—Seneca Niagara Casino Expansion” belowregarding four additional restaurants, one of which opened on December 15,2005 and two of which are scheduled to open on December 30, 2005.  

 

The easyaccessibility of the food and beverage facilities from the casino floor,particularly at the two snack bars, is designed to encourage gaming patrons tospend longer periods of time at the casino, thereby extending the time spentgaming and

 

2

----

 

enhancing gaming revenue.  As of September 30,2005, Seneca Niagara Casino also had two bars, Club 101 located at the centerof the gaming floor and the Keno bar adjacent to the Keno lounge.   Asnoted above, we opened Hush, an upscale ultralounge/nightclub, on December 15,2005.

 

For thetwelve months ended September 30, 2005, food and beverage sales accountedfor approximately 8.7% of our gross revenue. 

 

*EntertainmentFacility.    *SenecaNiagara Casino’s 468-seat, 5,432 square foot theater, the Bear’s Den, presentslive musical, comedy and theatrical entertainment. Since it opened, the Bear’sDen has hosted a wide range of headline acts, including Sinbad, the Greg AllmanBand, Lou Gramm, Sheena Easton, Kool & the Gang, and Cyndi Lauper.  In addition to the Bear’s Den, Seneca NiagaraCasino provides nightly entertainment in the center of the gaming floor atopClub 101. 

 

*Retail.    *Seneca Niagara Casino features three retail shops offering awide variety of merchandise. The Logo Shop offers official Seneca NiagaraCasino merchandise, as well as a wide selection of affordable gifts. The EightClans Gift Shop features authentic Native American items, including NativeAmerican jewelry, Native American style blankets and bags, soapstone sculpturesand sweet grass baskets. The Players Club Store offers a variety of productsand merchandise at various price ranges, including state-of-the-art andhigh-end merchandise such as electronics, golf clubs, cameras and diamondjewelry. It is used to support our Seneca Link Player’s Card rewards program.  See “— Seneca Niagara Casino Expansion” belowregarding three additional retail shops, two of which opened on December 15,2005 and one of which is scheduled to open on December 30, 2005.  

 

*Parkingand Transportation Facilities.   *Sincemost of Seneca Niagara Casino’s patrons arrive at Seneca Niagara Casino byautomobile, we provide ample space for parking and we have approximately 2,900parking spaces, including a new 2,300-space parking garage which was completedin March 2004. Seneca Niagara Casino provides all valet and guest parkingfree of charge. We believe our parking facilities are adequate to service theparking needs of our patrons. Seneca Niagara Casino also has 11 bus bays and abus program that has accounted for approximately 600 patrons per day to SenecaNiagara Casino during fiscal 2005.

 

**Seneca NiagaraCasino Expansion**

 

Based onSeneca Niagara Casino’s financial performance, growing patron base and marketpenetration in Ohio and Pennsylvania as well as the regions of New York beyondthe Buffalo-Niagara area, we believe that there is considerable opportunity toexpand our facilities. We believe there is substantial demand within ourprimary and secondary markets that remains largely untapped due to the limitedamenities and constraints of our existing facility as well as the lack of hoteloptions in the immediate area for overnight guests. In order to take advantageof this opportunity, we are: 

 

•           constructing a new luxury hotel connected to the existingSeneca Niagara Casino featuring: 

 

•                  604 rooms, including 118 suites of various sizes, with thefirst 10 floors scheduled to officially open on December 30, 2005 and theremaining floors scheduled to open by March 31, 2005; 

 

•                  35,000 square feet of additional gaming space featuringapproximately 950 slot machines and 33 table games (12 of which were relocatedfrom the existing gaming areas), which additional gaming space opened on December15, 2005; 

 

•                  a full-service luxury spa and salon; 

 

•                  a 25,200 square-foot multi-purpose room and an additional8,000 square feet of conference and banquet space, all scheduled to open on December 31,2005; 

 

•                  two specialty restaurants, a 24-hour casual dining restaurantand a deli, with one specialty restaurant having opened on December 27,2005, the casual dining restaurant having opened on December 23, 2005,  and the deli having opened on December 15,2005; and

 

•                  approximately 2,300 square feet of retail space for threestores, with two stores having opened on December 15, 2005 and one scheduledto open on December 30, 2005.

 

•           continuing to move forward with the acquisition of theremaining approximate 24 acres of the approximate 50 acres in the City ofNiagara Falls, New York, designated by New York State under the Compact forownership by the Nation. 

 

By adding604 hotel rooms that will range in price and style and by adding amenitiesincluding restaurants, a spa and a multi-purpose room that can be used forconventions, meeting space, banquets and entertainment events, we expect toattract: 

 

3

----

 

•           a broader mix of players, including more high-value gamingpatrons; 

 

•           patrons from further distances that will stay overnight; and 

 

•           additional patrons from within our immediate market area. 

 

*The New SenecaNiagara Casino Luxury Hotel*

 

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

 

•           a hotel with 604 rooms, including 118 suites of various sizes,with the first 10 floors scheduled to officially open on December 30, 2005and the remaining floors scheduled to open by March 31, 2005; 

 

•           35,000 square feet of additional gaming space featuringapproximately 950 slot machines and 33 table games (12 of which were relocatedfrom the existing gaming areas), which additional gaming space opened on December 15,2005; 

 

•           a full-service luxury spa and salon; 

 

•           a 25,200 square-foot multi-purpose room and an additional8,000 square feet of conference and banquet space, all scheduled to open on December 31,2005; 

 

•           two specialty restaurants, a 24-hour casual dining restaurantand a deli, with one specialty restaurant having opened on December 27,2005, the casual dining restaurant having opened on December 23, 2005, andthe deli having opened on December 15, 2005; and

 

•           approximately 2,300 square feet of retail space, with twostores having opened on December 15, 2005 and one scheduled to open on December 30,2005. 

 

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

 

*Meetingand Conference Space; Multi-purpose Room.    *After completion of the luxury hotel, we plan to leverageSeneca Niagara Casino’s enhanced accommodations and entertainment products toattract convention and group meeting business on a larger scale. To that end,the luxury hotel will offer a 25,200 square foot multi-purpose room and anadditional 8,000 square feet of conference and banquet space. The multi-purposeroom will seat up to 2,250 at concerts and hold up to 150 trade show booths. Weexpect that increased convention and group meeting business will constitute asignificant source of our future visitor growth. 

 

*Full-ServiceLuxury Spa.    *An 18,000square foot full-service luxury spa will be a part of the new luxury hotel. Theluxury spa will offer a range of services, including massage treatments,facials and wraps, as well as saunas, a swimming pool, an exercise room and asalon. 

 

*Diningand Other Amenities.    *Theluxury hotel will also feature a 244-seat, 24-hour coffee shop, two fine diningspecialty restaurants, offering Italian and Asian cuisine, a deli, 24-hour roomservice and a variety of retail shops. 

 

*Designand Construction*.    InOctober 2003, we entered into a guaranteed maximum pricecontract covering all major elements of the design and construction of theluxury hotel with Klewin Building Company, or Klewin, as construction managerresponsible for contract procurement, daily oversight and adherence to theexpansion project schedule and budget. On August 30, 2005, the boardof directors of SNFGC authorized the termination of the design/buildconstruction contract with Klewin after receiving notice by Klewin on August 29,2005 that, effective August 30, 2005, it was terminating the employment ofall of its workforce connected with the Seneca Niagara Casino expansionproject, resulting in Klewin effectively abandoning the expansion project. 

 

Priorto authorizing the termination of Klewin, on August 24, 2005, SNFGC fileda complaint against Klewin and BankNorth, as joint defendants, in the SuperiorCourt for the Judicial District of New London, Connecticut, in connection withapproximately $14.6 million that was paid by SNFGC into an account withBankNorth maintained by Klewin principally for the benefit of thesubcontractors, including the architect, on the Seneca Niagara Casino expansionproject (approximately $11.25 million was for the benefit of suchsubcontractors on the Seneca Niagara Casino expansion project and substantiallyall of the balance was for the benefit of subcontractors on the Seneca AlleganyCasino expansion projects). The account was subsequently “swept” by BankNorth,and, as a result, substantially all of the subcontractors who were entitled tothe approximate $14.6 million wired by

 

4

----

 

SNFGC to Klewin for the benefit of such subcontractors were not paid byKlewin, and this non-payment provided another ground for termination ofKlewin.  We have advanced approximately$900,000 to the architect and approximately $13.7 million to SenecaConstruction Management Company, or SCMC, and SCMC has paid such$13.7 million to the remaining unpaid subcontractors in exchange forassignments by the architect to us and by such remaining subcontractors to SCMC(and then by SCMC to us) of their respective claims against Klewin.  Although we are vigorously seeking recoverythrough legal proceedings, we can provide no assurance that we will be able torecover from Klewin all or any portion of the approximate$14.6 million.  As a result, we haverecorded a $13.3 million charge to earnings relating to amounts unrecovered asof September 30, 2005, net of approximately $1.3 million of managementfees and other amounts otherwise due Klewin. On September 14, 2005, Klewin filed an Application for ImmediateTemporary Injunction seeking a temporary injunction prohibiting us from usingdesign and construction documents and appropriating Klewin employees.  Klewin has also asserted counterclaims alleging,among other matters, tortious interference with their business.  On November 30, 2005, the Court grantedour motion to dismiss Klewin’s counterclaims and Application for ImmediateTemporary Injunction.  Klewin has filedan appeal.  BankNorth has also assertedcounterclaims.  We have filed a newaction against BankNorth.  Reference ismade to “Legal Proceedings” for further discussion regarding this litigationwith Klewin.

 

In connection with the termination ofthe luxury hotel design/build construction contract, the board of directors ofSNFGC authorized senior management to commence discussions with SCMC to enterinto a definitive agreement to complete the Seneca Niagara Casino expansionproject.  The board of directors alsoauthorized SNFGC to immediately engage SCMC to manage the Seneca Niagara Casinoexpansion project while such definitive agreement is negotiated and finalized.

 

We had previously expected the totalcost of constructing and equipping our 604-room luxury hotel to beapproximately $200.0 million, which included$153.0 million in construction costs under the guaranteed maximum fixed pricedesign/build construction contract with Klewin, and approximately $47.0 millionfor furniture, fixtures and equipment. Prior to our filing the complaintagainst Klewin, Klewin orally advised us that construction costs could exceedthe guaranteed maximum contract sum of $153.0 million. We currently expect thatthe total cost of constructing and equipping the luxury hotel will be from $235.0million to $240.0 million, including construction costs of from $177.0 millionto $180.0 million.

 

We began construction of the luxuryhotel on May 18, 2004, will open substantially all public areas and thefirst 10 floors of rooms on or before December 30, 2005, and expect tocomplete the project by March 31, 2006. Although there can be no assurancein part because of the Klewin litigation, we do not currently anticipate thatthe termination of the luxury hotel design/build construction contract withKlewin and the related litigation will materially adversely affect our abilityto complete construction of the Seneca Niagara Casino expansion project onschedule.

 

Additionally,we plan on acquiring the remaining approximate 24 acres of the approximate 50acres in the City of Niagara Falls, New York, designated by New York Stateunder the Compact for ownership by the Nation. Although we continue to attempt to acquire this land from propertyowners and, as of December 28, 2005, have acquired an additionalapproximate two acres (reducing the remaining acreage from 26 to 24 acres),condemnation proceedings by New York State are moving forward.  Reference is made to “Risk Factors—We may notbe able to acquire the remaining approximate 24 acres of the approximate 50acres in the City of Niagara Falls, New York, designated by New York Stateunder the Compact for ownership by the Nation” for additional relatedinformation.

 

**Seneca AlleganyCasino**

 

SenecaAllegany Casino, our second Class III gaming facility, opened on May 1,2004. Seneca Allegany Casino is located on the Nation’s Territory in the Cityof Salamanca, New York. Seneca Allegany Casino offers Class III gaming,entertainment and related amenities, occupying approximately 120,460 squarefeet in total, with over 55,000 square feet of gaming space. The primary marketfor this casino has been the area within 75 miles of Seneca Allegany Casino,which includes Erie, Pennsylvania, and the secondary market has been the areawithin 75 to 175 miles of Seneca Allegany Casino, which includes Cleveland andAkron, Ohio and Pittsburgh, Pennsylvania. Seneca Allegany Casino catersprimarily to middle-market, drive-in patrons from the surrounding area and isopen 24 hours per day, seven days per week. For the twelve months ended September 30,2005, Seneca Allegany Casino generated net revenue of $143.2 million and netincome of $34.7 million. 

 

The cost todevelop and open Seneca Allegany Casino was funded entirely from Seneca NiagaraCasino’s free cash flow in the form of inter-company loans from SGC. 

 

As of September 30,2005, Seneca Allegany Casino featured: 

 

•           over 55,000 square feet of gaming space with 1,955 slotmachines and 24 table games, including blackjack, craps and roulette;

 

•           a parking garage for approximately 1,850 vehicles;

 

5

----

 

•           surface parking for approximately 1,830 vehicles; 

 

•           the Thunder Mountain Buffet, an international buffet; and 

 

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

 

**Seneca AlleganyCasino Expansion**

 

In July 2005,we opened our 1,850-space parking garage and we are constructing a 220-roomhotel and casino at Seneca Allegany Casino. We expect to open all public areasand the first few floors of this hotel and casino in October 2006 and tocomplete the project by the end of December 2006.  We currently expect the total cost tocomplete this expansion project, including the $31.0 million cost of therecently opened parking garage and the cost of furniture, fixtures andequipment, will be from $187.0 million to $198.0 million.  The increase in the original $185.0 million expectedtotal cost for this expansion project is principally attributable to severaldesign changes requested by STGC and the delay in this project caused by suchchanges, and foundation work being done in anticipation of a possible secondhotel tower.  By adding the 1,850-spacecovered parking structure with an enclosed connector into the facility and the220-room hotel and casino, we expect to create a first-class gaming experiencefor our customers and maintain a strong competitive position against potentialfuture competition.  We expect tocontinue to fund this expansion project primarily from cash flow of SenecaAllegany Casino and the balance from borrowings from SGC.  As of September 30, 2005, we have spentapproximately $47.8 million on this expansion.

 

Also in July 2005,we reached a mutual agreement with Klewin (although Klewin is now alleging thatthey entered into this agreement under duress), the then construction managerfor the Seneca Allegany Casino expansion project, to terminate thedesign/construction agreement entered into by STGC and Klewin on September 1,2004 for the construction of the hotel and casino.  In connection with the termination of theagreement, on July 14, 2005, STGC entered into a construction managementagreement with SCMC to manage the construction of the hotel and casino atSeneca Allegany Casino.  

 

**Seneca BuffaloCreek Casino**

 

In additionto Seneca Niagara Casino and Seneca Allegany Casino, the Nation has theexclusive right to construct our third Class III gaming facility in ErieCounty, New York. This new Class III gaming facility, which we refer to asSeneca Buffalo Creek Casino, is expected to cater primarily to the local marketin Buffalo and its suburbs. We initially sought to purchase approximately 57.1acres of property for this facility near the Buffalo-Niagara InternationalAirport in Cheektowaga, New York, or the Cheektowaga Site. As a result oflitigation in connection with our proposed purchase of the Cheektowaga Site andthe time deadlines set forth in the Compact and referenced below, on October 3,2005 the Nation acquired approximately nine acres of land in the historicwaterfront district of downtown Buffalo. We commenced construction of our Erie County gaming facility on thosenine acres, constituting the Nation’s Buffalo Creek Territory, on December 8,2005.  Buffalo Creek Casino is expectedto initially feature:

 

•           1900 to 2200 slot machines;

 

•           30 to 50 table games;

 

•           a specialty restaurant;

 

•           a 24-hour casual dining restaurant;

 

•           a nightclub;

 

•           retail stores; and

 

•           a 2500-space parking garage.

 

The Nation’sexclusive right under the Compact with New York State to establish and operatea Class III gaming facility in Erie County, New York, could have terminatedif the Nation had failed to commence construction of a Class III gamingfacility in Erie County by December 9, 2005 (and we note that we commencedconstruction on December 8, 2005) and may terminate if the Nation fails tocommence Class III gaming operations in Erie County by December 9,2007. We expect to open the Buffalo Creek Casino by the December 9, 2007deadline.  The timing of the opening ofSeneca Buffalo Creek Casino will depend on various factors.  In the event that we are able to open acasino in Erie County, this casino will be owned and operated by SEGC. Weintend to operate Seneca Buffalo Creek Casino in a manner that will complementboth Seneca Niagara Casino and Seneca Allegany Casino.  

 

6

----

 

**RecentDevelopments Affecting Our Class II Operations**

 

On November 2,2004, the Nation held an election for its three Executive Branch officers, thePresident (Chief Executive Officer), Treasurer (Chief Financial Officer) andthe Clerk, and 8 of the 16 members of its legislative branch, or the Council.As part of the initial actions taken by the new government at its first Councilmeeting on November 13, 2004, it appointed a Class II ManagementCommittee to develop policies and procedures to govern the Nation’s Class IIFacilities located on its Allegany Territory, which include our operation ofthe Seneca Allegany Class II Facility. The November 13, 2004resolutions further provide that all revenues generated by the Nation’s Class IIFacilities shall be transferred directly to the Nation instead of to us.Through subsequent discussions with executive officers of the Nation, we wereinformed that, notwithstanding the foregoing resolutions, the Council wantedthe Seneca Allegany Class II Facility transferred to the Nation as of January 1,2005. We were subsequently informed by the Tribal Executives that theseresolutions were intended to include the transfer of all Class IIoperations back to the Nation, which include our poker operations at the SenecaNiagara Casino and Seneca Allegany Casino. 

 

As of January 1,2005, we transferred Seneca Allegany Class II operations to the Nation. Weopened the Seneca Allegany Class II Facility on May 1, 2004. Prior tothe transfer of our Seneca Allegany Class II operations, we investedapproximately $2.4 million in renovating and upgrading the Seneca Allegany Class IIFacility and we received approximately $3.9 million of net revenue from thisfacility.  Since the transfer of the Class IIassets was made at net book value, no gain or loss was recorded on thedisposition.

 

Thetransfer of the Class II operations as of January 1, 2005 isconsistent with our understanding of Council’s intent that we manage andoperate the Nation’s Class III operations and that Council directlymanages and operates the Nation’s Class II operations as it hashistorically done. 

 

**Business andMarketing Strategy**

 

Ourstrategy is to further expand and develop Seneca Niagara Casino and SenecaAllegany Casino and to establish an additional Class III gaming facility onthe Nation’s Buffalo Creek Territory. We believe this strategy will enable usto maintain our position as the premier gaming operator in the region includingNew York, Pennsylvania and Ohio. We intend for all of our gaming facilities toprovide a high-quality and diverse gaming experience that we believe will addto our patron base and strengthen patron loyalty in each segment of the gamingmarket. In order to maximize our income from operations, we will coordinate ouradvertising, promotions, entertainment and special events to minimizecompetition among our gaming facilities, and also integrate our administrativeand information technology functions. We will continue to brand the Seneca namethrough advertising and promotion of our Seneca Link Player’s Card, which isaccepted at all of our facilities. 

 

The keycomponents of our integrated marketing plan include the following: 

 

•           *Promote the Seneca Brand Name.*    The successful opening and operationof Seneca Niagara Casino and Seneca Allegany Casino has established Seneca as aleading gaming brand in the region, including New York, Pennsylvania and Ohio.We plan to capitalize on this brand recognition by prominently incorporatingthe Seneca name at all of our gaming and entertainment facilities. 

 

•           *Incorporate the Seneca Link Player’s Card.*    Until April 30, 2004, we offeredthe Seneca Players Club rewards program to patrons of Seneca Niagara Casino tofoster patron loyalty. With the opening of Seneca Allegany Casino on May 1,2004, we replaced the Seneca Players Club with the Seneca Link Player’s Card,which is accepted at all of our gaming facilities. Patrons may use the SenecaLink Player’s Card to earn points at each of our gaming facilities and redeemthese points at any Seneca casino. Our player’s card provides us with valuableinformation about our patrons and enables us to better understand theirpreferences in order to more effectively serve them at each of our gamingfacilities. As of September 30, 2005, we had over 942,000 members in theSeneca Link Player’s Card database with an average of approximately 30,000 newmembers joining per month for the twelve months ended September 30,2005.  

 

•           *Expand Target Markets and Patron Base.*    We believe the completion of ourplanned luxury hotel at our Seneca Niagara Casino and the parking garage andhotel at our Seneca Allegany Casino will enable us to expand our marketingefforts to higher-value gaming patrons. We plan to substantially increase ourmarketing efforts in the region, including New York, Pennsylvania and Ohio, aswell as Toronto. We intend to market to these areas by offering variouspromotions, including special events for preferred gaming patrons, motor coachtours and organized package group visits. We do not currently marketaggressively to these areas because we do not offer certain types of amenitiesdesirable to prospective patrons in these markets, such as overnightaccommodations. 

 

•           *Offer Gaming Experience to Broadest CustomerBase.*    We intendto operate each of our gaming facilities in a manner that will becomplementary. Seneca Niagara Casino will be our flagship resort propertycatering to mid to high value gaming patrons looking for a full service gamingresort destination. Seneca Allegany Casino targets and we believe

 

7

----

 

Seneca Buffalo Creek Casino will target mid-levelgaming patrons with frequent visits.  SenecaBuffalo Creek Casino is expected to target the local Buffalo market and its suburbs.

 

•           *Utilize an Integrated Marketing Strategy*.    Our marketing strategy relies on anintegrated approach of targeted direct mail, television, radio, print andoutdoor advertising, promotions, slot and table tournaments, special events,bussing and entertainment, to attract and retain our patrons and to brand theSeneca name as the premier gaming and entertainment experience in Western NewYork. We coordinate our marketing events to maximize the quality and length ofstay of patron visits and, in the future, to minimize competition among ourgaming facilities. Our patron tracking system through the Seneca Link Player’sCard is sophisticated and scaleable and provides us with the ability to analyzeour guests’ gaming preferences. Starting in May 2004, we began using a “promotionalcredit” program that provides slot credits to our patrons based on the amountof their gaming at our facilities. These credits are available on the patron’sSeneca Link Player’s Card when they return for visits. These credits must beplayed and cannot be redeemed for cash, which we believe will encourage repeatbusiness. 

 

•           *Reinvest in and Expand our GamingFacilities.*    Webelieve our commitment to develop and reinvest in each of our gaming facilitiesis critical to our continued success and future growth. We intend to reinvestin and expand our gaming facilities to ensure their attractiveness to ourpatrons. To achieve maximum profitability we intend to continue to upgrade ourslot machines with the most popular products in order to create a more excitinggaming experience for our patrons. We will also reinvest in technology,including slot machine “ticket-in/ticket-out” technology, automated ticketredemption machines, player tracking system enhancements and the development ofa Seneca brand inter-property progressive link. Reinvestment in our gamingfacilities will help to ensure that our patrons have an enjoyable entertainmentexperience. 

 

•           *Offer the Highest Quality Service.*    We believe that we can distinguishour gaming facilities with consistent superior patron service, which is afundamental component of our business and marketing strategy. We attribute oursuccess at Seneca Niagara Casino to our employees’ ability to provide efficientand friendly service. We believe that patron care is integral to our continuedsuccess and we intend to provide the highest standard of service at each of ourgaming facilities. 

 

8

----

 

**Seneca NiagaraCasino, Seneca Allegany Casino and Surrounding Area**

 

 

**Market andCompetition**

 

*Market.*    Seneca Niagara Casino is convenientlylocated on the Nation’s Territory in the City of Niagara Falls, New York,approximately 20 miles north of Buffalo and approximately 90 miles west ofRochester. Our primary market includes the cities of Buffalo and Niagara Fallsand covers the area in the United States within an estimated 50 miles of SenecaNiagara Casino. According to a demographic report prepared by Claritas Inc., amarketing information resources company, in 2003 this area had an adultpopulation of approximately 895,000 and an estimated mean annual householdincome of more than $55,000.  Oursecondary market includes the City of Rochester and covers the area in theUnited States within an estimated 51 to 100 miles of Seneca NiagaraCasino.  According to the Claritasdemographic report, in 2003 this area had an adult population of approximately1.6 million and an estimated mean annual household income of more than $57,000.Our outer markets include Erie, Pennsylvania, Ohio, other areas of New York andToronto. In addition, Niagara Falls is a major tourist destination.  According to the City of Niagara Falls, NewYork, Niagara Falls attracts an estimated 12.0 million visitors to the areaannually. Seneca Allegany Casino is located immediately off Interstate 86.Since its opening in May 2004, the primary market for this casino has beenthe area within 75 miles of Seneca Allegany Casino, which includes Erie,Pennsylvania, and the secondary market has been the area within 75 to 175 milesof Seneca Allegany Casino, which includes Cleveland and Akron, Ohio andPittsburgh, Pennsylvania. Seneca Allegany Casino caters primarily tomiddle-market, drive-in patrons from the surrounding area.  Seneca Buffalo Creek Casino is expected to belocated in downtown Buffalo.  The primarymarket for this casino is expected to be downtown Buffalo and its suburbs.  

 

As of September 30,2005, we had over 942,000 members in the Seneca Link Player’s Card database, ofwhich approximately 32% lived in the Buffalo-Niagara area and the City ofRochester. Approximately 18%, 17%, and 17% of the members in the Seneca LinkPlayer’s Card database lived in Pennsylvania, Ohio and other areas of New York,respectively, as of September 30, 2005. 

 

*Competition*.    The United States and Canadiangaming industries are highly regulated and the overall number of casinooperations in the Northeast is limited. In recent years, there has been a trendto relax the legal restrictions on entry and to permit the development ofadditional gaming operations. Currently, there are two casino resorts, CasinoNiagara and Niagara Fallsview Casino Resort, and two video gaming facilities,Finger Lakes Gaming and Racetrack and Buffalo Raceway, within the 100-mileradius that constitutes Seneca Niagara Casino’s immediate market. Batavia Downsis constructing an additional video gaming facility within Seneca NiagaraCasino’s primary market and holds a license to operate VGMs. BuffaloRaceway, a racetrack facility within Seneca Allegany Casino’s primary marketwhich offers approximately 1,000 VGMs is the only direct competition in thiscasino’s primary market. Existing gaming facilities within each of our casinos’primary market area, as well as potentially new market entrants, have

 

9

----

 

and will have a direct effect on our operations. In addition, casinosand gaming-related operations in the broader regional market may also affect usand may reduce our ability to draw patrons. 

 

*CanadianCompetition.*    SenecaNiagara Casino competes with Casino Niagara and Niagara Fallsview Casino Resortwhich are located in Niagara Falls, Ontario, and are both within two miles ofSeneca Niagara Casino. Casino Niagara and Niagara Fallsview Casino Resort areowned 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 slot machines, 60 table games, threerestaurants, and three bars. Niagara Fallsview Casino Resort opened in June 2004.Niagara Fallsview Casino Resort features 180,000 square feet of gaming spaceincluding approximately 3,000 slots, 150 table games, a 374-room Hyatt hotel, aspa and various restaurant and entertainment venues. To a lesser extent, wecompete with Casino Rama, which is north of Toronto and approximately 150 milesnorth of Seneca Niagara Casino and is located on the Chippewas of Mnjikaning(Rama) First Nation’s Territory. Nordic Gaming Corporation also operates aracetrack and video gaming facility located in Fort Erie, Ontario. Thisfacility features 1,200 VGMs and is located approximately 22 miles from SenecaNiagara Casino. 

 

*New YorkState Competition.*  Despite the exclusivity in Western New York provided by the Compact, ourcasinos face competition in New York State from both Indian and non-Indiangaming operations. The Compact allows New York State to permit the TuscaroraIndian Nation and the Tonawanda Band of Seneca Indians to obtain the right toinclude gaming devices in a compact without abrogating the exclusivityprovisions of the Compact, so long as either tribe locates its proposed gamingfacility either on its existing reservations or more than 25 miles from aNation Gaming Facility. In addition, New York State could allow other Indiangaming facilities to be located within our area of exclusivity, in which caseit would forfeit its right to receive exclusivity fees for the types of Class IIIgames in such competitor’s facility on which the Nation pays an exclusivity feeunder the Compact. Of the seven federally recognized Indian nations in New Yorkother than the Nation, only the St. Regis Mohawk Tribe and the Oneida IndianNation of New York have signed compacts with New York State to open casinos. 

 

The St.Regis Mohawk Tribe currently operates a small casino facility near Hogansburg,New York, approximately 350 miles and 390 miles from Seneca Niagara Casino andSeneca Allegany Casino, respectively, and the Oneida Indian Nation operates agaming facility resort near Syracuse, New York, approximately 190 miles and 235miles from Seneca Niagara Casino and Seneca Allegany Casino, respectively. In October 2001,New York State authorized six new casinos to be run by Native Americans in thestate, each of which was to be permitted to feature Class III slotmachines. The State’s legislation authorizing the six new Indian casinos wasrecently upheld by the New York Court of Appeals in *Dalton v.Pataki, et al.,* and *Karr v. Pataki, et al.*Three of these authorized casinos are or will be operated by us (Seneca NiagaraCasino, Seneca Allegany Casino and Seneca Erie Casino). It was expected thatthe other three casinos would be located in Sullivan and Ulster Counties in theCatskill region, approximately 330 miles and 320 miles from Seneca NiagaraCasino and Seneca Allegany Casino, respectively. 

 

TheGovernor previously reached settlement agreements, subject to numerouscontingencies, with the following tribes for Class III gaming operationsto be located in Sullivan or Ulster Counties in the Catskills region: the St.Regis Mohawk Tribe, the Seneca-Cayuga Tribe of Oklahoma, the Cayuga Nation ofNew York, the Oneida Nation of Wisconsin, and the Stockbridge Munsee Community.In connection with these settlement agreements, the Governor introduced a billin the New York State General Assembly which would have, among other things,authorized land claim settlements with the five tribes mentioned above andincreased from three to five the number of authorized Class III gamingfacilities in the Counties of Sullivan and Ulster. In anticipation of thesettlements, the Stockbridge-Munsee Community filed a trust land applicationfor approximately 330 acres in Bridgeville, New York, and the Cayuga IndianNation of New York announced a venture with the owner of the MonticelloRaceway, Empire Resorts, to build a $500 million casino adjacent to theMonticello Raceway. However, as a result of the United States Supreme Court’srecent decision in *City of Sherrill, NY v. OneidaIndian Nation of New York,* 125 S. Ct. 1478 (March 29, 2005),the Governor recently withdrew pending legislation and land claim settlementswith the Seneca-Cayuga Tribe of Oklahoma, the Cayuga Nation of New York, theOneida Nation of Wisconsin, and the Stockbridge Munsee Community. We areadvised that the Governor has found it necessary to review and reevaluate theproposals with these four Indian tribes in light of the recent Supreme Courtdecision. The withdrawal does not include the St. Regis Mohawk Tribe proposal,whose land claim is not affected by the Sherrill case. In light of thesedevelopments, the only casino development that seems imminent in Sullivan orUlster Counties is the one planned by the St. Regis Mohawks. 

 

In 2001,eight racetracks in New York State were awarded licenses to operate VGMs. InJanuary 2004, Sportsystems (now known as Delaware North Gaming &Entertainment) opened a 1,300 machine video gaming facility at Saratoga Racewayin Saratoga Springs, New York, approximately 325 miles and 340 miles fromSeneca Niagara Casino and Seneca Allegany Casino, respectively. This videogaming facility made Saratoga the first racetrack to offer VGMs under the lawenacted over two years ago. Shortly thereafter, in February 2004, FingerLakes Gaming and Race Track in Farmington, New York, approximately 100 milesand 140 miles from Seneca Niagara Casino and Seneca Allegany Casino,respectively, operates over 1,000 VGMs in a video gaming facility. BuffaloRaceway in Hamburg, New York, approximately 30 miles and 50 miles from SenecaNiagara Casino and Seneca Allegany Casino, respectively, opened a 27,000 squarefoot gaming facility in March 2004 and offers nearly 1,000 VGMs. MonticelloRaceway in Monticello, New York, approximately 325 miles and 280 miles fromSeneca Niagara Casino and Seneca Allegany Casino, respectively, opened a gamingfacility on June 30, 2004, with nearly 1,800 VGMs. 

 

10

----

 

BataviaDowns, in Batavia, New York, approximately 50 miles from Seneca Niagara Casino,opened on May 18, 2005, with 586 VGMs. The New York RacingAssociation granted a right to operate VGMs at the Aqueduct racetrack inQueens, New York, approximately 450 miles from Seneca Niagara Casino. Aftersuspending work on the 4,500 video gaming machine facility from August to December 2003,the project was scheduled for completion by mid-2005; however, as of the dateof this prospectus, VGMs are not in operation at the Aqueduct racetrack. In August 2003,Vernon Downs Racetrack in Vernon, New York, approximately 200 miles from SenecaNiagara Casino, commenced construction on an 1,100 to 1,200 machine videogaming facility. Originally scheduled to open in November 2003, the videogaming facility has experienced multiple delays and the timing for openingremains uncertain. Yonkers Raceway near Manhattan is engaged in financing anddevelopment plans for additional video gaming facilities and intends tocommence operations by mid to late 2005. In January 2004, the Governor ofNew York proposed allowing up to eight additional VGM venues in the state.These eight licenses would be awarded in a competitive bid process and could goto the state-owned Off-Track Betting Corporation or other operators. On July 7,2004, the mid-level appellate court held that the New York State legislationauthorizing VGMs was unconstitutional because a portion of the VGM revenue isused for horse-racing breeding funds and to increase track purses. Recently, inApril of 2005, Governor Pataki signed a law providing race tracks with alarger share of proceeds from VGMs and extending VGM authorization through2017. The new law addresses the mid-level appellate decision by omittinglanguage providing payment to purses or breeding funds. 

 

Otherproposed gaming operations in New York State include a Cayuga tribe developmentin Union Springs, New York, approximately 140 miles from Seneca Niagara Casino,which has been approved for a Class II gaming license; a proposed highstakes bingo hall in Aurelius, New York, approximately 150 miles from SenecaNiagara Casino, which is being pursued by the Seneca-Cayuga Tribe of Oklahoma;and a proposed casino in Hampton Bays, New York, approximately 530 miles fromSeneca Niagara Casino, which is being pursued by the Shinnecock Tribe. Thelikelihood and timing of these projects is uncertain at this point in time. 

 

There arealso several federally recognized Indian tribes and unrecognized Indian groupsthat are pursuing casino projects in New York State and other northeastern states,which, if successful and completed, could compete with us. 

 

*OtherRegional Gaming Operations.    *Foxwoods Resort Casino and the Mohegan Sun Casino are locatedin southeastern Connecticut (approximately 460 miles from Seneca NiagaraCasino), operated by the Mashantucket Pequot Tribe of Connecticut and theMohegan Indian Tribe of Connecticut, respectively. There are also numerouscasinos in Atlantic City, New Jersey (approximately 480 miles from the Casino)and VGM gaming operations in West Virginia located approximately 250 to 300miles from Seneca Niagara Casino. 

 

Inaddition, on July 5, 2004, the governor of Pennsylvania signed a billpermitting up to an aggregate of 61,000 slot machines at 14 locations inPennsylvania. The Pennsylvania legislation would permit up to 5,000 slotmachines at proposed or existing racetracks, and 500 slot machines at twoproposed resorts, respectively. These facilities could be located in Pittsburghor Erie, Pennsylvania, which would be in the primary and secondary markets forSeneca Allegany Casino. We also face competition from non-gaming leisureactivities and destinations. 

 

If we areunable to compete successfully, our business, financial condition and resultsof operations could be materially adversely affected. For more detail on thisrisk, please see “Risk Factors—We compete with casinos, other forms of gamingand other resort properties. If we are unable to compete successfully, we maynot be able to generate sufficient cash flow to fund our operations or serviceour debt.” 

 

**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, we pay 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 is 18% for the firstfour years, 22% for years 5-7, and 25% for the remainder of the term; theexclusivity payment to New York State was $57.1 million and $39.0 million forcalendar year 2004 and 2003, respectively. If New York State breaches theexclusivity arrangement by, for example, allowing a person or entity to operateClass III slot machines within the zone of exclusivity, then the Stateforfeits the exclusivity fees as to Class III slot machines. The Compactallows New York State to permit the Tuscarora Indian Nation and the TonawandaBand of Seneca Indians to obtain the right to include gaming devices in acompact without abrogating the exclusivity provisions of the Compact, so longas either tribe locates its proposed gaming facility either on its existingreservations or more than 25 miles from a Nation Gaming Facility. We do notbelieve that these tribes currently plan to open gaming facilities. The Compactprovides that the Nation may acquire property and establish a gaming facilityin the City of Niagara Falls within an approximately 50 acre area designated asland to be developed by the Nation. Seneca Niagara Casino is located on landwithin this designated area on lands held in restricted fee pursuant to theSNLCSA. The two additional Class III gaming facilities include the SenecaAllegany Casino on the Nation’s Allegany Territory, and a third facility in 

 

11

----

 

Erie County.  The Nation’sexclusivity to establish a Class III gaming facility in Erie County couldhave expired on December 9, 2005, if we had not commenced construction of thefacility by December 9, 2005 and may expire on December 9, 2007 if wefail to commence Class III Gaming operations by December 9, 2007. TheCompact expires in December 2016 and may be renewed by the Nation for anadditional seven-year period. 

 

**The Nation’sOther Gaming Operations**

 

The Nation,through its wholly owned business enterprise, Seneca Gaming &Entertainment, operates two Class II gaming facilities located on theNation’s Territory in the City of Salamanca and Irving, New York and the Class IIpoker operations at Seneca Niagara Casino and Seneca Allegany Casino. For thefiscal year ended September 30, 2004, (a) the Irving Class IIfacility generated $18.1 million in net revenue and income from operations of$11.9 million and (b) the Salamanca Class II facility generated $9.1million in net revenue and income from operations of $6.7 million. SenecaGaming & Entertainment is not a guarantor of the notes. From May 1,2004 to December 31, 2004, we operated a Class II facility in theCity of Salamanca, or the Seneca Allegany Class II Facility. Wetransferred the Seneca Allegany Class II Facility and our poker assets andoperations to the Nation on January 1, 2005.

 

**Employees**

** **

As of September 30,2005, SGC employed 3,115 employees.  Ofthose, Seneca Niagara Casino employed 2,252 employees, including 956 casinostaff, 598 food and beverage employees, 134 security staff, 453 administrativeemployees, 80 parking and transportation employees and a management team of 31,and Seneca Allegany Casino employed 863 employees, including 326 casino staff,239 food and beverage employees, 69 security staff, 185 administrativeemployees, 40 parking and transportation employees and a management team of four.

 

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

 

**Seneca Gaming Corporationand the Nation**

** **

*Seneca Gaming Corporation.** *SGC wasestablished by the Nation in August 2002 for the purpose of developing,constructing, leasing, operating, managing, maintaining, promoting andfinancing all of the Nation’s gaming facilities. SGC is a governmentalinstrumentality of the Nation and was established by the Nation pursuant toNation law by a duly enacted resolution of the Council. SGC is wholly owned bythe Nation for economic and governmental purposes and shares in the Nation’ssovereign immunity, which can be waived if the board of directors adopts aresolution waiving immunity in a specific situation and such waiver is approvedby the Nation’s Council. SGC is managed by a board of directors with sevenmembers, not less than five of whom must be enrolled members of the Nation. TheNation’s Council alone has the power to appoint and remove SGC’s directors. 

 

There arethree subsidiary entities under the control, operation and management of SGC:Seneca Niagara Falls Gaming Corporation, established in August 2002 tofinance, develop, and operate the Nation’s gaming facility in downtown NiagaraFalls, Seneca Niagara Casino; Seneca Erie Gaming Corporation, established in August 2003to finance, develop, and operate the Nation’s gaming facility in Erie County;and Seneca Territory Gaming Corporation, established in September 2003 tofinance, develop, and operate the Nation’s gaming facilities on Allegany orCattaraugus Territory. The SNFGC operates the Nation’s Seneca Niagara Casinolocated on Nation lands in downtown Niagara Falls, New York. The STGC operatesthe Nation’s Seneca Allegany Casino, located in the City of Salamanca, New Yorkon the Nation’s Allegany Territory. The Council appoints and has the power toremove the members of the subsidiary entities’ boards of directors. Each of thesubsidiary corporations are required to make periodic financial reports andsubmit an annual report to the SGC board of directors. The SGC board ofdirectors is required to make quarterly and annual reports to the Councilregarding the financial condition of the companies, including but not limitedto, significant problems and accomplishments, future plans, and such otherinformation as the Council deems pertinent. The members of the boards ofdirectors for SGC and its subsidiaries are the same. 

 

*Gaming Authority. *SGC’s gaming operations are subject to the supervision andregulation of the Seneca Gaming Authority, or SGA, which was established byNation ordinance and is responsible for overseeing regulation of the Nation’sgaming operations. The Nation’s gaming ordinance which provides regulatoryauthority to SGA for the Nation’s Class III gaming was adopted on August 1,2002, subsequently amended on November 16, 2002 and approved by the NIGCon November 26, 2002. The Nation amended this gaming ordinance to extendSGA’s regulatory authority to include jurisdiction over Class II gaming.This amendment was approved by the NIGC. The SGA consists of five commissionersselected by the Nation and is responsible for, among other things, monitoringand regulating the standards of operation and standards of management of all authorizedClass III gaming, protecting the assets and integrity of casinooperations, overseeing the casino’s security and surveillance, monitoring thecompliance of the Nation’s gaming operations with external accounting and auditcontrol procedures, and supervising the licensure of all

 

12

----

 

employees and vendors of the Nation’s gaming operations. The SGAfunctions independently and autonomously from the Council in all matters withinits purview. While the SGA is responsible for regulatory matters relating tothe Nation’s gaming activities, SGC (or one of its subsidiary entities) isresponsible for the day-to-day management and operation of the Nation’s Class IIIgaming activities. 

 

*The Nation.*  TheSeneca Nation of Indians is a federally recognized, self-governing Indiannation operating under a Constitution originally adopted in 1848 and mostrecently amended in 1993. The Nation’s current total enrollment population isapproximately 7,400. The Seneca Nation is one of the Six Nations of theIroquois Confederacy that consists of the Seneca, Cayuga, Onondaga, Oneida,Mohawk and Tuscarora nations. The members of the Nation originally lived in thearea between the Genesee River and the Seneca Lake in the Finger Lakes regionof New York. Today, the Seneca Nation holds title to five distinct Territoriesin Western New York State, including land in Niagara Falls and Buffalo and landset aside by the 1794 Treaty of Canandaigua: the Allegany, Cattaraugus and OilSpring Territories. These three Territories designated by the Treaty encompassparts of four counties: the 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 Seneca Nation Land ClaimsSettlement Act of 1990, or SNLCSA. By operation of federal law, these lands andother parcels that may be acquired in the future pursuant to the SNLCSA,whether in Niagara Falls or Erie County, are subject to restrictions againstalienation, constitute Indian country subject to the jurisdiction of theNation, and qualify as gaming eligible Indian lands pursuant to IGRA. 

 

*Nation**Governance**. *The Nation came into formal existence in 1848 when the chiefsystem was replaced by a constitution with elected officials. The Nation’sConstitution provides for three branches of government: executive, legislativeand judicial. The Nation holds an election every two years for its threeExecutive Branch officers: the President, the Treasurer and the Clerk. Theseofficers alternate between the two principal Territories, Cattaraugus andAllegany, every two years. The next election of the Executive Branch Officerswill be held in November 2006. The Legislative Branch, or the Council, hassixteen members, of which eight members are elected from each of the twoprincipal Territories. Each Councillor is elected to a four-year term, which isstaggered. The next election of eight Council members will be in November 2006.

 

*Nation Governmental Operations. *The Nation currently has 31 administrative departmentslocated on both the Allegany and Cattaraugus Territories. The Nation’s programsinclude tribal administration functions as well as a wide array of communityservices, including health, environmental, education, recreation and communityplanning. In order to provide efficient services to the communities, manydepartments have offices located on both Territories. The tribal administrativeexecutive offices are housed in the two central administration buildingslocated on the Allegany and Cattaraugus Territories: the G.R. Plummer and theWilliam Seneca Buildings. The other Nation organizational departments arelocated in buildings adjacent to the main tribal administration building orsurrounding area. 

 

*Nation Businesses. *The Nation enterprises, subdivisions of the Nation’sgovernment, are responsible for the various economic development initiativesundertaken by the Nation other than SGC and its subsidiaries. The Nationenterprises are currently comprised of the following: Seneca Gaming &Entertainment, Seneca One Stop, Seneca-Iroquois National Museum, and HighbanksCampground. None of these enterprises is a part of SGC or its subsidiaries orotherwise contributes to its revenue. Individual Seneca entrepreneurs alsooperate their own businesses on Nation lands. The businesses include, but arenot limited to, restaurants, retail shops, hotels, gas stations, andInternet-based businesses. 

 

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

 

The conductof all Class II and Class III gaming activities on Nation lands issubject to regulation by the Nation through its Gaming Ordinance and inaccordance with the Compact between the Nation and New York State. See “MaterialAgreements—Nation-State Gaming Compact.” The federal government also overseesIndian gaming generally pursuant to IGRA and exercises regulatory oversightthrough the NIGC. The Department of Justice also possesses authority to enforceIGRA and the Gambling Devices Act, 15 U.S.C. § 1171-78, more commonlyknown 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. 

 

13

----

 

*SenecaNation Law and Legal Systems*

* *

*Applicabilityof State and Federal Law.*    TheNation is 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 and related activities of SGCwhich events would have a material adverse effect on our operations andfinancial results. 

 

*Waiver ofSovereign Immunity; Court Jurisdiction; Exhaustion of Tribal Remedies.*    Indian nations enjoy sovereignimmunity from unconsented suit similar to that of the states and the UnitedStates. An Indian nation and its wholly owned tribal entities, such as SGC andits subsidiaries, share in the Indian nation’s sovereign immunity, but mayformally waive their sovereign immunity with respect to suits against them. TheNation and SGC, respectively, granted a limited waiver of sovereign immunityand consent to suit in connection with the senior notes issued by SGC in 2004and 2005, including suits against SGC to enforce its obligation to repay the seniornotes.  Courts have held waivers ofsovereign immunity to be effective, if given explicitly with properauthorization. 

 

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 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. The Nation and SGC, respectively, consented to thejurisdiction of the federal and New York State courts in connection with anyaction by the trustee to enforce the senior notes and operative documentsrelated thereto and agreed to waive the requirement of exhaustion of tribalcourt remedies. However, it is not clear that such a waiver would be effective.Generally, where a dispute as to the existence of jurisdiction in the tribalforum exists, the tribal court must first rule as to the limits of its ownjurisdiction. In the event that a waiver of tribal court jurisdiction is heldto be ineffective, the trustee and holders of the senior notes may be requiredto enforce their rights and remedies against the Nation or SGC in Nation court.In addition, unless the decisions of the Nation court violate some applicablestate or federal law, there may be no effective right to appeal such decisionsin 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 gaming activities on Indian landsare subject to IGRA. Congress enacted IGRA in order to establish a system forregulating gaming activities on Indian lands. IGRA’s purpose is to provide astatutory basis for the operation of gaming by Indian tribes as a means ofpromoting tribal economic development, self sufficiency, and strong tribalgovernments. Congress simultaneously sought to shield Indian gaming fromorganized crime and other corrupting influences, to ensure that the Indiantribe is the primary beneficiary of the gaming operation and that gaming isconducted fairly and honestly by both the operator and players. 

 

*Classesof Gaming.*    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

 

14

----

 

of, or in connection with, tribal ceremonies or celebrations. Suchgaming is subject to the exclusive jurisdiction of the tribes and is notsubject to regulation under IGRA. Class II gaming includes bingo andsimilar games, and is subject to tribal regulation and federal oversight by theNIGC. Class III gaming, the most heavily regulated of the three classes,encompasses all other forms of gaming, and includes slot machines, casinogames, banking card games, dog racing, and lotteries. Class III gaming islawful only if it is (1) authorized by a tribal ordinance, (2) locatedin a State that permits such gaming for any purpose by any person,organization, or entity, and (3) conducted in conformance with aTribal-State compact. 

 

*NationalIndian Gaming Commission.*    TheNIGC, an independent executive agency located in the Department of theInterior, is vested with regulatory authority over gaming activities on Indianlands pursuant to IGRA and its implementing regulations. The NIGC is chargedwith the administration and enforcement of IGRA. The NIGC regulates gaming byIndian tribes, in order to shield tribes from organized crime and othercorrupting influences, to ensure that the Indian tribe is the primarybeneficiary of the gaming operation and that gaming is conducted fairly andhonestly by both the operator and players. Congress aimed to make gaming ameans of promoting tribal economic development, self-sufficiency, and strongtribal governments. To carry out these goals, Congress gave the NIGCsubstantial power, including the authority to initiate enforcement actions,close tribal gaming operations and levy civil fines. Moreover, the NIGC hasauthority to issue regulations governing gaming activities of Indian lands,review and approve Class II and Class III gaming ordinances, reviewand approve management agreements for tribal gaming operations, conductinvestigations and generally monitor Indian gaming activities. IGRA alsoprovides for federal criminal penalties for illegal gaming on Indian land andfor theft from Indian gaming facilities. The Secretary of the Interior retainscertain responsibilities under IGRA, such as the approval of tribal-statecompacts and approval of per capita distribution plans. 

 

*NIGCRegulations Implement Certain Provisions of IGRA*. Theseregulations govern, among other things, the submission and approval of tribalgaming ordinances or resolutions, and require an Indian tribe to have the soleproprietary interest in and responsibility for the conduct of gamingactivities. Pursuant to NIGC regulations, tribes are required to issue gaminglicenses only under certain articulated standards, to conduct or commissionfinancial audits of their gaming enterprises, to perform or commissionbackground investigations of primary management officials and key employees andto maintain facilities in a manner that adequately protects the environment andthe public health and safety. NIGC regulations also set forth a reviewprocedure for tribal licensing of all gaming operation employees and requiretribes to report certain specified information, including information derivedfrom background investigations, to the NIGC.  On August 24, 2005, the United StatesDistrict Court For The District of Columbia in *ColoradoRiver Indian Tribes vs. National Indian Gaming Commission,* ruled “thatthe [IGRA] does not confer upon the NIGC the authority to issue or enforce[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 24, 2005, the NIGCfiled a notice of appeal to the United States Court of Appeals for the Districtof Columbia.  On November 18, 2005, Senate Indian Affairs CommitteeChairman McCain (R-AZ) introduced S. 2078, the Indian Gaming Regulatory ActAmendments of 2005.  S. 2078 makes a number of amendments to IGRA,including authorizing the NIGC to promulgate “regulations addressing minimuminternal control standards for class II gaming and class III gaming activities.” The import of this particular amendment is to essentially overrule the *Colorado River Indian Tribes vs. National IndianGaming Commission* decision*.*

 

*Tribal-StateCompacts.*    UnderIGRA, 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, and one on then already existing Nation Territory. 

 

Tribal-stategaming compacts have been the subject of litigation in thirteen 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 tribes to sue in federal court to force states tonegotiate tribal-state gaming compacts in good faith is unconstitutional, as appliedto an unconsenting state, by virtue 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 the New York State Constitution’s general

 

15

----

 

prohibition on gambling covers Las Vegas-style gaming at casinosoperated pursuant to IGRA by Indian tribes on their Territory lands in NewYork. The plaintiffs also requested an injunction prohibiting the New YorkState from expending any money in furtherance of the gaming compact. 

 

In October 2001,the New York Legislature passed Chapter 383 of the Laws of 2001, or Chapter383, which allowed Governor Pataki to enter into a gaming compact with theSeneca Nation of Indians and to enter into gaming compacts with other Indiantribes 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 legislation that, among other things, authorized theGovernor of New York to execute tribal-state gaming compacts, approved the useof slot machines as games of chance, approved the use of VGMs at racetracks andauthorized the participation of New York State in a multi-state lottery. Theactions are captioned *Dalton v. Pataki, et al.,*and *Karr v. Pataki, et al*. Plaintiffs soughta judgment 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 *Dalton v. Pataki* and held that the legislation isconstitutional. The plaintiffs appealed the Court’s decision to the ThirdDepartment of the New York Supreme Court’s Appellate Division and oral argumentwas held on December 16, 2003. On July 7, 2004, a five judge panelissued its Opinion and Order declaring the legislation at issue, Chapter 383 ofthe Laws of 2001, constitutional as challenged. Notwithstanding theconstitutionality of VGMs, the court declared the licensing of VGMs toracetracks to be unconstitutional due to the impermissible revenue distributionscheme set forth therein. Lastly, the court declared the provision of Chapter383 of the Laws of 2001 authorizing the Division of the Lottery to participatein the multi-state lottery constitutional. 

 

On May 3, 2005, the New York Court of Appealsheld the legislation (including the licensing of VGMs to racetracks) to beconstitutional. In July 2005, the New York Court of Appeals, the State’shighest court, denied a motion to rehear the case.  Appellants filed a writ of certiorari seekingreview by the United States Supreme Court.  On November 28, 2005, the United StatesSupreme Court denied the writ.

 

Although we can provide no assurance, we believe thatany change in New York law will not retroactively invalidate what the State hasagreed to in the Compact. 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. 

 

While noassurance can be given as to litigation in New York State, any invalidation ofthe Nation’s Compact would not affect the Nation’s ability to engage in Class IIGaming. 

 

*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. Fornon-Territory lands to qualify as Indian lands under IGRA, the land must beeither 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 the tribe must exercise governmentalpower over those 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 andone on then already existing Nation Territory. Moreover, the Compact authorizesthe Nation to use funds appropriated under the SNLCSA to acquire parcels ofland in Niagara Falls and Erie County for gaming purposes. 

 

In 1990,Congress enacted the SNLCSA which provides the Nation with fair compensationfor use of its land and for the impact on the Nation from prior leasearrangements in the City of Salamanca, New York. The funds appropriated underthe SNLCSA are available for the Nation to acquire additional land which couldbe placed into restricted fee status. The SNLCSA provides that unless theSecretary of the Interior determines that lands acquired pursuant to the SNLCSAshould not be subject to restrictions against alienation, such lands shall beheld in restricted fee status by the Nation. 

 

16

----

 

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-trust process.  To the extent the Nation acquires lands intrust in the future, it is noted that the land-into-trust process, as comparedto the restricted fee process under the SNLCSA, will be much more cumbersomeand lengthy.

 

As of September 30,2005, the Nation had acquired approximately 24 acres in Niagara Falls (of theapproximate 50 acre area of land described in Appendix I of the Compact) withfunds appropriated under the SNLCSA.  On October 3,2005, the Nation acquired approximately nine acres of land in Erie County withSNLCSA funds.  By operation of federallaw, these lands and other parcels that may be acquired in the future pursuantto the SNLCSA (in Niagara Falls or Erie County), are subject to restrictionsagainst alienation, constitute Indian country subject to the jurisdiction ofthe Nation, and qualify as gaming eligible Indian lands pursuant to IGRA. TheNation’s existing casino on the Niagara Falls Territory is and the plannedcasino on the Buffalo Creek Territory will be 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 then alreadyexisting Nation Territory. The lands upon which the Nation owns, operates andmanages its Territory-based Seneca Allegany Casino, are located within theNation’s Allegany Territory boundaries, thus constituting Indian lands eligiblefor gaming pursuant to IGRA. 

 

*PossibleChanges in Federal and State Law.*    Severalbills have been proposed during the current and recent sessions of Congressthat could affect Indian gaming. Notably, although its proposed legislation hasyet to be presented to Congress, the Policies and Procedures Subproject of theBureau of Indian Affairs has proposed sweeping changes to the federal lawsconcerning Indians. Certain of such bills, if enacted, could impair the abilityof the Nation and SGC to expand its gaming operations and adversely impact thefuture growth of the Nation’s revenue base. In addition, from time to time,various government officials have proposed taxing Indian casino gaming orotherwise limiting or restricting the conduct of gaming operations by Indiantribes. No assurance can be given that such legislation, if and when enacted byCongress, would not have a material adverse effect on the operations of SGC.Senator John McCain, Chairman of the Senate Indian Affairs Committee, has helda couple of hearings regarding possible amendments to the IGRA. As it relates particularlyto off-reservation gaming, there have been several Congressional hearings heldby both the Seneca Indian Affairs Committee and the House Resources Committee.House Resources Committee Chairman Richard Pombo has circulated a draft bill,which has not been introduced, to amend the IGRA to restrict off-reservationgaming activities by tribes. If Congress were to enact comprehensive amendmentsto the 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. 

 

**MaterialAgreements**

 

*Thefollowing summaries of certain material agreements to which the Nation or SGC(or its subsidiaries) is a party do not purport to be complete and arequalified in their entirety by reference to the agreements summarized herein.Capitalized terms used but not otherwise defined herein shall 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 “Regulationof the Nation and Seneca Gaming Corporation and its Subsidiaries—The IndianGaming Regulatory Act of 1988—Tribal-State Compacts.” 

 

The Compactprovides, among other things, that: 

 

17

----

 

(1)  The Nation mayconduct the following games of chance on its lands: baccarat, bang, beat thedealer, best poker hand, blackjack, Caribbean stud poker, chuck-a-luck, craps,gaming devices, hazard, joker seven, keno, let it ride poker, minibaccarat, paigow poker, pai gow tiles, red dog, roulette, sic bo, super pan, under and overseven, wheel games, casino war, Spanish blackjack, multiple action blackjack,and three card poker. The legality of slot machines pursuant to State law,however, is the subject of ongoing State court litigation. See “Regulation ofthe Nation and Seneca Gaming Corporation and its Subsidiaries—The Indian GamingRegulatory Act of 1988—Tribal-State Compacts.” The Compact sets forthspecifications describing and governing the operation of each of these types ofgames by the Nation. 

 

(2)  The Compactprovides for the establishment of the Seneca Gaming Authority, or SGA, whichexercises jurisdiction over and responsibility for the conduct of gamingoperations by the Nation. The SGA was established pursuant to the GamingOrdinance. The New York State Racing and Wagering Board and the New York StatePolice, collectively, the SGO, act in a concurrent regulatory and oversightrole with regard to the Nation’s Class III gaming operations. The SGA isentitled to unfettered access to all areas of the Nation’s gaming facilitiesincluding the surveillance room(s), copies of daily inspection reports as wellas access to the business and accounting records relating to the Nation’sgaming operations during the course of an investigation. Each Nation Class IIIgaming operation must provide reasonable office and reserved parking spaceadjacent to the Class III gaming facilities for the SGO. New York State isempowered to sue to enforce applicable Compact terms and to remedy violationsthrough arbitration or in federal 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)  All gamingemployees 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. 

 

(6)  Anyenterprise that provides goods, supplies or services to a Nation Class IIIgaming operation (other than gaming services, gaming supplies or gaming equipment)in a total amount exceeding $75,000 in a single twelve-month period must beidentified to the board by the Commission. The SGA cooperates with the SGO inany reasonable investigations deemed necessary by the SGO relating to thefitness 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)  The Nation’s Class IIIgaming operations must conform with a detailed set of operational andmanagement standards relating to a variety of matters, including accounting,internal controls, operational procedures, surveillance personnel and thehandling of cash and credit. 

 

(8)  The Nationmust maintain complete and accurate records of all transactions relating to therevenues and costs of its gaming operations. The forms of such accounts must beconsistent with generally accepted accounting principles. An annual audit ofthe financial statements of its gaming operations must be conducted by anindependent certified public accountant in a manner consistent with generallyaccepted auditing standards. 

 

(9)  The Nationreimburses New York State for its costs of oversight under the Compact. Costsinclude staffing, fringe benefits, overhead costs and non-personal services. 

 

(10)  The Nationprohibits the possession of firearms in its Class III gaming facilitiesexcept by persons authorized by law and does not permit persons under the ageof 18 to be admitted to any Class III gaming facility or to place anywager, directly or indirectly. The SGA maintains and shares with the SGA a listof persons barred from the Class III gaming facilities because of criminalhistories or associations posing a threat to gaming integrity or safety. 

 

18

----

 

(11)  As requiredby IGRA and the Nation’s Class III Gaming Ordinance, SGC has constructed,maintained, and operated its gaming facilities in a manner that adequatelyprotects the environment and the public health and safety. 

 

(12)  SGC (or itssubsidiaries) or the Nation on its behalf maintains liability insurance tocompensate injured patrons of Class III gaming facilities. The Nation hasestablished procedures for the adjudication of compensation for tort claims bypatrons of Class III gaming facilities. 

 

(13)  Except fordisputes concerning the games and activities permitted under the Compact, theNation and New York State have established binding arbitration as a method ofresolution of all other disputes concerning compliance with and interpretationof Compact provisions. 

 

(14)  The terms andconditions of the Compact may be modified or amended by written agreement ofboth parties. If the State agrees to permit any other Nation or Indian tribe toconduct a Class III game or activity which has not been authorized underthe Compact, the State shall notify the Nation, which may then conduct suchgame or activity upon adoption of the State’s specifications regarding suchgame or activity. 

 

(15)  The Compactis in effect until December 9, 2016, to be renewed for an additionalperiod of seven years unless either party objects in writing, or terminated asa result of any of the following: (1) repeal of IGRA; (2) the Nationadopts a referendum revoking the Nation’s authority to conduct Class IIIgaming; or (3) either the Nation or the State commits a Material Breach asdefined by the Compact. 

 

(16)  The Compactin no way waives the right of the Nation to request negotiations for amendmentor modification to the Compact with respect to a Class III game oractivity which is to be conducted on Nation lands but which is not permittedunder the provisions of the Compact. 

 

(17)  Except asspecifically 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, 2002, by operation of law, the Compact wasdeemed approved in accordance with IGRA. The Compact took effect on December 9,2002, when notice was published in the Federal Register. 

 

*Assignment**and**Plan ofDistribution 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 pursuant to the charters of each of SNFGC, STGC and SEGC, adopted a plan ofdistribution providing that in the event of the dissolution or finalliquidation of any of these entities, the net liquidation or dissolutionproceeds shall be distributed to SGC. The Nation further assigned to SGC all ofits right, title and interest in and to these proceeds. The Nation entered intothe Assignment Agreement because even though SNFGC, STGC, and SEGC are owned bySGC, according to the charters of these subsidiaries, in the event of a liquidationor dissolution of a subsidiary, the Nation, and not SGC, would be entitled toreceive the net proceeds of the liquidation or dissolution after allliabilities and obligations of the subsidiary have been paid, satisfied anddischarged. Each of the Nation and SGC also waived their respective sovereignimmunity from unconsented suit and consent to suit in accordance with theAssignment Agreement. Remedies against the Nation are generally limited tospecific performance. However, in the event a subsidiary has distributed netliquidation or dissolution proceeds to the Nation and the Nation has nottransferred those proceeds to SGC, the Nation may be required to transfer anamount equal to the liquidation proceeds to SGC, or if such remedy is notavailable, SGC may file a claim for money damages in an amount no greater thanthe amount of net liquidation or dissolution proceeds not assigned. Any suchmoney damages for which the Nation is liable are only payable from assets heldby the Nation, SGC, SNFGC, STGC, or SEGC related to the gaming business, otherthan real property held in trust for the Nation by the United States. 

 

*TermLoan-Nation Agreement*

* *

Inconnection with the Term Loan, the Nation entered into a non-interferenceagreement, or the Term Loan-Nation Agreement, with Freemantle dated November 22,2002. The Term Loan-Nation Agreement contained various covenants, including anagreement that if the Nation or any of its affiliates financed theconstruction, development or operation of any gaming facility in Erie County,New York or any other site other than Seneca Niagara Casino, and if Freemantledoes not finance such additional gaming site, then the Nation would cause theappropriate gaming corporation that operated such additional gaming site toprovide Freemantle with a guarantee of the Term Loan (or portion thereof)and/or such additional collateral for the Term Loan as was deemed reasonablyacceptable by Freemantle, such that the position of Freemantle was maintainedon an equivalent basis to its position existing prior to

 

19

----

 

the development of such additional gaming facility. Upon the payment infull and termination of the Term Loan on May 23, 2005, the TermLoan-Nation Agreement was also terminated. 

 

*FreemantleTermination Agreement*

* *

On May 9,2005, SNFGC, the Nation and Freemantle entered into a Termination Agreement,which set forth the terms for termination of the Term Loan. On May 23,2005, pursuant to the terms of the Termination Agreement, the Term Loan waspaid in full and terminated. Reference is made to “Management’s Discussion andAnalysis of Financial Condition and Results of Operation—Liquidity and CapitalResources” for a more detailed description of the terms of the TerminationAgreement and additional discussion relating to the Term Loan. 

 

*ConstructionAgreements*

* *

On October 15, 2003, SNFGCentered into a design/build construction agreement with Klewin for theconstruction of the 604-room luxury hotel connected to the existing Seneca NiagaraCasino.  Klewin subcontracted with JeterCook & Jepson Architects, Inc. for the overall design of theexpansion project.  This agreement wassubsequently amended. On August 30, 2005, the board of directors of SNFGCauthorized the termination of the design/build construction agreement withKlewin after receiving notice by Klewin on August 29, 2005 that, effectiveAugust 30, 2005, it was terminating the employment of all of its workforceconnected with the Seneca Niagara Casino expansion project. The design/build construction agreement provided that thecost of all of the contract work to be completed under the agreement would notexceed a guaranteed maximum amount of $153.0 million. Prior to thetermination of the construction agreement with Klewin, Klewin orally advised usthat construction costs could exceed the guaranteed maximum contract sum of$153.0 million. We currently expect that the total cost of constructing andequipping the luxury hotel will be from $235.0 million to $240.0 million,including construction costs of from $177.0 million to $180.0 million.****

 

In connection with the termination ofthe construction agreement with Klewin relating to the Seneca Niagara Casinoexpansion project, the board of directors of SNFGC authorized senior managementto commence discussions with SCMC to enter into a definitive agreement tocomplete the Seneca Niagara Casino expansion project.  The board of directors also authorized SNFGCto immediately engage SCMC to manage the Seneca Niagara Casino expansion projectwhile such definitive agreement is negotiated and finalized.

 

On September 1,2004, STGC entered into two separate design/construction agreements with Klewinfor both the construction of Seneca Allegany Casino’s 220-room hotel and casinoand the Seneca Allegany Casino parking garage. The design/build constructionagreements provided that the cost of all of the contract work to be completedunder the agreements would not exceed a guaranteed maximum aggregate amount of$185.0 million, including approximately $15.0 million for furniture, fixturesand equipment. In June 2005, STGC and Klewin entered into a mutual letterof agreement (although Klewin is now alleging that they entered into theagreement under duress), effective as of July 13, 2005, terminating thedesign/construction agreement entered into by the parties on September 1,2004 for the construction of Seneca Allegany Casino’s 220-room hotel andcasino.  Pursuant to the terms of theagreement, STGC paid all amounts payable to Klewin through May 31, 2005and SCMC hired certain employees already hired by Klewin in connection with theSeneca Allegany Casino Hotel project. Due to the current dispute with Klewin, the purchase by SCMC of certainequipment and materials from Klewin, as contemplated by the agreement andattempted by SCMC, has not been completed. Construction on the parking garagewas substantially completed and the parking garage was opened on July 1, 2005.  Construction of all public areas and thefirst few floors of the 220-room hotel and casino is expected to be completedin October 2006 with the entire project expected to be completed by theend of December 2006.  As previouslynoted, the current expected total cost to complete this expansion project isfrom $187.0 million to $198.0 million, with the increase principally due toseveral design changes requested by STGC, the delay in the project caused bysuch changes, and foundation work being done in anticipation of a possiblesecond hotel tower.

 

On July 14,2005, STGC entered into a construction management agreement with SCMC to managethe construction of the 220-room hotel and casino at Seneca Allegany Casino.SCMC replaced Klewin as the prior construction manager for the Seneca AlleganyCasino hotel and casino project. SCMC is responsible for contract procurementand daily oversight of the construction project.  This construction agreement is currently beingamended to provide for, among other matters, an increase in the $123.0 million guaranteedmaximum amount of the cost of all contract work to be completed due to thedesign changes and the related delay in this project and foundation work referencedabove.  If STGC further changes the scopeof the project or finishing materials, the guaranteed maximum amount under thecontract may be further increased.

 

20

----

 

**Real EstateAcquisitions**

 

*NiagaraFalls, New York*.  As of December 28, 2005, SNFGC hasacquired, at a cost of $7.9 million, approximately two acres of the remaining approximate26 acres of the approximate 50 acres in the City of Niagara Falls, New York,designated by New York State under the Compact for ownership by the Nation,thus reducing the remaining acreage from 26 to 24 acres.  These properties have not been distributed tothe Nation.

 

*Buffalo,New York. *On October 3, 2005, the Nation acquired approximatelynine acres of land located within two city blocks in the historic waterfrontdistrict of downtown Buffalo.  These nineacres have been designated as the Erie County gaming site for purposes of theCompact.  We commenced construction ofour Erie County gaming facility on these nine acres, constituting the Nation’sBuffalo Creek Territory, on December 8, 2005.  

 

**Independent Counsel andSpecial Counsel Investigations**

** **

In November 2004,two third-party law firms were appointed by the Nation’s Tribal Council toserve as independent counsel and special counsel, respectively, to conduct areview of all actions taken in the building, financing, management andoperation of the gaming facilities operated within the territory of the Nation,including, but not limited to, the Seneca Niagara Casino and the SenecaAllegany Casino. 

 

On April 5,2005, the Nation’s newly elected government concluded that based on the reportspresented by independent and special counsel to date, they were satisfied andhad no further concerns regarding the operation and management of the Nation’sgaming facilities, including the management and operations of the Nation’s Class IIIgaming facilities by us. The newly elected government was also satisfied thatthe financial transactions conducted by us in connection with our Class IIIgaming operations were conducted at arm’s length, in the best interest of theNation, free of conflicts of interest, and in conformity with applicable laws.The newly elected government, however, having been satisfied with ourmanagement and operation of their Class III gaming operations hadcontinuing concerns regarding unresolved issues raised by independent counselpertaining to the construction of our gaming facilities. Having been satisfiedwith our management and financing of the Nation’s Class III gamingfacilities, the newly elected government directed that independent and specialcounsel brief our board of directors of their findings to date. 

 

On April 7,2005, the independent and special counsel reported their findings to date tothe audit committee of the SGC board of directors. The independent counselreport included, but was not limited to, a supposed lack of documentation forapproximately $6.6 million of change orders in connection with the renovationof the Niagara Falls Convention Center in 100 days to open the Seneca NiagaraCasino on December 31, 2002 and a potential interest free loan to ourconstruction managers for the Seneca Niagara Casino and Seneca Allegany Casino.The supposed lack of supporting documentation for the change orders also led toa concern by the independent counsel that this issue could be a concern withour other construction projects as well. After the report, the audit committeedirected senior management to further investigate the construction relatedissues raised by independent counsel. We subsequently discovered that the schedule presentedand prepared by independent counsel and their forensic accountants contained aclerical error and that the finding regarding an interest free loan to ourconstruction managers was incorrect. The independent counsel and their forensicaccountants concurred with us on this and confirmed this in writing to the auditcommittee. We also extensively reviewed the files of our construction managersand the architects and were able to present and report to the audit committeesufficient supporting documentation for all of the $6.6 million of changeorders cited by the independent counsel. The audit committee after beingpresented with our internal findings instructed that an external forensicaccountant be engaged to confirm our findings, which they have done. 

 

Afterhearing the report of the external forensic accountant, on May 5, 2005,the audit committee concluded that there were no findings that impacted ourfinancial statements or evidence of wrongdoing and that their internal reviewhas been completed. 

 

On September 8,2005, independent counsel issued to us its Final Report.  This Final Report was consistent withindependent counsel’s previous report and findings referenced above.

 

Ourprincipal executive offices are located at Seneca Niagara Casino, 310 FourthStreet, Niagara Falls, New York (Nation Territory) 14303, and our telephonenumber is (716) 299-1100.  Our website is*www.senecagamingcorporation.com*.  The websites for our Seneca Niagara Casinoand Seneca Allegany Casino are located at *www.snfgc.com*and *www.senecaalleganycasino.com*,respectively. The Nation also furnishes information about Seneca Niagara Casinoand Seneca Allegany Casino at *www.sni.org. * The information on these websites is not partof this Annual Report.

 

SenecaNiagara Casino, Seneca Allegany Casino and the Seneca Niagara Casino logo areregistered trademarks in the U.S. All other trademarks, trade names and servicemarks appearing in this prospectus are the property of their respectiveholders.

 

21

----

 

**Item IA.  RiskFactors**

** **

Inaddition to the other information in this Annual Report, you should considercarefully the following risk factors in evaluating Seneca Gaming Corporationand our business.

 

**We havesubstantial indebtedness which could adversely affect our financial conditionand prevent us from fulfilling our obligations.**

 

Wehave substantial indebtedness and have significant fixed debt serviceobligations in addition to our operating expenses. As of September 30,2005, we had $500.0 million of 7-1⁄4 % senior notes outstanding. TheIndenture governing the senior notes permits us and our subsidiaries to incuradditional debt in certain, limited circumstances. If we incur additional debtin the future, the related risks could intensify.

 

Our highlevel of indebtedness could have important consequences to you and significantadverse effects on our business. For example, it could: 

 

•           increase our vulnerability to general adverse economic andindustry conditions or a downturn in our business; 

 

•           limit our ability to obtain additional debt financing forworking capital, capital expenditures or other purposes; 

 

•           require us to dedicate a substantial portion of our cash flowfrom operations to payments on our indebtedness, thereby reducing theavailability of our cash flow to fund working capital, capital expenditures,development projects and other general 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/or more financial resources. 

 

If ourindebtedness affects our operations in these ways, our business, financialcondition and results of operations could suffer, making it more difficult forus to satisfy our obligations under the notes. 

 

**Our failure togenerate sufficient cash flow from our operations could adversely affect ourability to make payments on the senior notes and our other obligations.**

 

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

 

•           our ability to incur additional debt will be limited by thecovenants of the Indenture governing the senior notes; 

 

•           the Indenture governing the senior notes includes covenantswhich limit our ability to create additional liens on or sell our assets; and 

 

•           unlike non-governmental businesses, we are prohibited by lawfrom generating cash through an offering of equity securities. 

 

If our cashflow is insufficient and we are unable to raise additional capital, we may notbe able to service our debt obligations, including making payments on oursenior notes. 

 

**Our obligationsunder the Indenture governing the senior notes are not secured, and the seniornoteholders’right to receive payments on the senior notes is effectivelysubordinated to SGC’s and the Guarantors’ secured indebtedness.**

 

Holders ofSGC’s and the Guarantors’ secured indebtedness will have claims that are priorto the claims of holders of senior notes to the extent of the value of theassets securing the other indebtedness. The Indenture governing the seniornotes permits certain secured indebtedness. The senior notes are effectively subordinated to all of that securedindebtedness. In the event of any distribution or payment in any foreclosure,dissolution, winding-up, liquidation, reorganization, or other bankruptcyproceeding, holders of SGC’s and the Guarantors’ secured indebtedness will haveprior claim to those assets that constitute their collateral. Holders of thesenior notes will participate ratably with all holders of SGC’s and the Guarantors’unsecured indebtedness that is deemed to be of the same class as the seniornotes, and potentially with all of SGC’s and the Guarantors’ other generalcreditors, based upon the respective amounts owed to each holder or creditor,in the remaining assets. In any of the foregoing events, we cannot assuresenior noteholders

 

22

----

 

that there will be sufficient assets to pay amounts due on the seniornotes. As a result, holders of senior notes may receive less, ratably, thanholders of secured indebtedness. 

 

As of September 30,2005, the amount of the consolidated indebtedness of SGC was approximately$493.4 million, of which none is secured indebtedness. We are permitted toincur substantial additional indebtedness in the future under the terms of theIndenture governing the senior notes.  

 

**SGC conductssubstantially all of its operations through its subsidiaries and may be limitedin its ability to access funds from its subsidiaries to service its debt,including the notes.**

 

SGCconducts substantially all of its operations through its subsidiaries.Accordingly, SGC relies on dividends from its subsidiaries to provide fundsnecessary to meet its obligations, including the payment of principal andinterest on the notes. The ability of any subsidiary to pay dividends or makecash distributions to SGC may be contractually restricted. If SGC is unable toaccess the cash flows from its subsidiaries, SGC may have difficulty meetingits debt obligations, including the senior notes.  Although the Indenture governing the seniornotes restricts our ability to incur additional indebtedness, thoserestrictions are subject to exceptions. 

 

**The senior notesare not the obligation of the Nation and the senior noteholders rights as creditorsare limited to the assets of SGC and the Guarantors.**

 

SGC and theGuarantors are liable exclusively for the payment of the senior notes.  The Nation is not obligated for the paymentof the senior notes. The assets of the Nation and its affiliates other than SGCand the Guarantors will not be available to pay the senior notes. Therefore,the senior noteholders’ rights as creditors in a bankruptcy, liquidation orreorganization or similar proceeding would be limited to the assets of SGC andthe Guarantors and the senior noteholders would have no right to the assets ofthe Nation or its other affiliates. 

 

**The seniornoteholders’ ability to enforce their rights or have an adequate remedy againstthe Nation and us may be limited by the sovereign immunity of the Nation andus. If senior noteholders are unable to enforce their rights, they may losetheir entire investment in the senior notes.**

 

We issuedthe senior notes pursuant to the Indenture. In addition, in connection with ourissuance of the senior notes, the Nation entered into the Nation Agreement withthe Trustee pursuant to which the Nation agreed not to take certain actionswith respect to us while the senior notes were outstanding.  References to the “Nation Agreement” are tothe Nation Agreement as amended on May 23, 2005.  On May 5, 2004, the Nation entered intoan assignment and plan of distribution agreement, or the Assignment Agreement,with SGC pursuant to which the Nation assigned to SGC the Nation’s rights tothe net proceeds in the event of a liquidation or dissolution of SNFGC, STGC orSEGC and pursuant to the plan of distribution, the net liquidation ordissolution proceeds of such entities shall be distributed by such entitiesdirectly to SGC. See “Business ---Material Agreements—Assignment and Plan ofDistribution Agreement.” Under federal law, we and the Nation have sovereignimmunity and may not be sued without our and its consent, respectively. In theIndenture governing the senior notes, we do, and, in the Nation Agreement andthe Assignment Agreement, the Nation does, grant a limited waiver of sovereignimmunity and consent to suits to interpret or enforce the Indenture governingthe senior notes, and the other agreements entered into in connection with therespective offerings involving the senior notes.  This waiver does not extend to all possibleclaims or remedies that a holder of the senior notes might allege or seekagainst us or the Nation. Specifically, the waiver limits available remedies tospecific performance in most cases and limited money damages equal to theamount of a payment made in prohibition of the Indenture governing the seniornotes or to the amount of the net liquidation or dissolution proceeds notassigned to SGC; *provided, that*, such moneydamages are only payable from assets held by the Nation, SGC, SNFGC, STGC orSEGC related to the gaming business, other than real property held in trust forthe Nation by the United States. In the event that a New York court would findthat specific performance is not an available remedy, the trustee and theholders of the senior notes may not have an adequate remedy against the Nationunder the Nation Agreement and the Assignment Agreement. Furthermore, in theevent that the Nation’s or our limited waiver of sovereign immunity isunenforceable, 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 weare subject to federal securities laws and could be liable with respect to anycivil or criminal enforcement action brought by the United States government,we and the Nation have not waived our sovereign immunity from private civilsuits, including for violations of the federal securities laws. Accordingly,the holders of the senior notes may not have any remedy against us or theNation for violations of the federal or state securities laws if we raisesovereign immunity as an affirmative defense and it is accepted by theapplicable court of law. 

 

**Uncertaintyexists as to whether a federal or state court would have jurisdiction in anaction related to the senior notes.**

 

Obtainingjurisdiction over an Indian tribe and tribal instrumentalities, such as theNation and us, can be difficult. Often, a commercial dispute with an Indiantribe or instrumentality cannot be heard in federal court because the typicalrequirements for

 

23

----

 

federal jurisdiction are absent. The failure to satisfy therequirements for federal jurisdiction occurs because there is generally nofederal law question involved and there is no diversity of citizenship as anIndian tribe is not considered to be a citizen of a state for purposes ofobtaining federal diversity jurisdiction. 

 

The extentto which state courts will assume jurisdiction over disputes involving Indiantribes varies from state to state. The senior notes, the Indenture governingthe senior notes and the related agreements are governed by the laws of NewYork State. There is conflicting case law on the issue of whether disputes withIndian tribes or instrumentalities should be heard in federal, state or tribalcourt. As a result of these conflicting cases, it is possible that neither afederal nor a state court would accept jurisdiction to resolve a matterinvolving the senior notes and the holders of the senior notes may have nolegal recourse to a state or federal court. 

 

Inaddition, under certain legal doctrines, a federal court or state courtotherwise having jurisdiction may decline to hear a matter involving an Indiantribe and instead defer the matter for disposition in a tribal court or othertribal proceedings. For matters subject to the waiver of sovereign immunity bythe Nation and us, the Nation and we have waived our rights to have thesematters resolved in any tribal court or other proceeding of the Nation. Thereis case law, however, suggesting these rights may not be waived. The Nationpresently has a tribal court, and a federal or state court may defer to thattribal court if, contrary to the waiver of sovereign immunity by us and theNation, we or the Nation seek or allege our right to seek tribal proceedingsfor resolution of a dispute related to the senior notes. The tribal courtsystem is different from federal and state civil courts. For example, there isno requirement that a judge be a lawyer. The tribal court may reach a differentconclusion than the federal or state courts would and this may have a materialadverse effect on the rights of the senior noteholders. Accordingly, holders ofsenior notes or the trustee under the Indenture governing the senior notes mayhave difficulty bringing suits against the Nation and us in federal or statecourt. 

 

**Seniornoteholders may be required to dispose of their senior notes, or their seniornotes may be redeemed, if their ownership of the senior notes jeopardizes ourgaming operations or violates the Compact.**

 

We may havethe right to cause senior noteholders to dispose of their senior notes, or toredeem their senior notes, if regulations are promulgated pursuant to whichtheir ownership of the senior notes is determined to be unsuitable by theSeneca Gaming Authority or the New York State Racing and Wagering Board. Insuch event, the redemption price will be the lowest of the amount paid for thesenior notes, the principal amount of the senior notes and the then currentfair market value of the senior notes.  

 

**It is uncertainwhether we or the Nation may be subject to the U.S. Bankruptcy Code, whichcould impair the senior noteholders’ ability to realize on our assets.**

 

It isuncertain whether we or the Nation may be a debtor in a case under the U.S.Bankruptcy Code. Without bankruptcy court protection, other creditors mightreceive preferential payments or otherwise obtain more than they would haveunder a bankruptcy court proceeding. If either we or the Nation commence a caseunder the Bankruptcy Code and the bankruptcy court does not dismiss the case,payments from the debtor would cease. It is uncertain how long payments underthe senior notes could be delayed following commencement of a bankruptcy case. 

 

**If theguarantees of the senior notes are deemed fraudulent conveyances orpreferential transfers, a court may subordinate or void them.**

 

The Guarantorshave incurred substantial debt under the guarantees of the senior notes. Theincurrence by the Guarantors of debt under their guarantees may be subject toreview under federal and state fraudulent conveyance laws if a bankruptcy,reorganization or rehabilitation case or a lawsuit, including circumstances inwhich bankruptcy is not involved, were commenced by, or on behalf of, unpaidcreditors of our guarantors at some future date. Federal and state statutesallow courts, under specific circumstances, to void guarantees and relatedliens and require noteholders to return payments received from the issuer orthe guarantors. 

 

An unpaidcreditor or representative of creditors could file a lawsuit claiming that theissuance of guarantees constituted a “fraudulent conveyance.” To make such adetermination, a court would have to find that a Guarantor did not receive fairconsideration or reasonably equivalent value for the guarantee, and that, atthe time the guarantee was issued, such Guarantor: 

 

•           was insolvent; 

 

•           was rendered insolvent by the issuance of the senior notes; 

 

•           was engaged in a business or transaction for which itsremaining assets constituted unreasonably small capital; or 

 

•           intended to incur, or believed that it would incur, debtsbeyond its ability to repay as those debts matured. 

 

If a courtwere to make such a finding in respect to a Guarantor’s guarantee, it couldvoid all or a portion of such Guarantor’s obligations under its guarantee ofthe senior notes, subordinate the claim in respect of its guarantee to itsother existing

 

24

----

 

and future indebtedness or take other actions detrimental to holders ofthe senior notes, including, in certain circumstances, invalidating theguarantees of the senior notes. 

 

The measureof insolvency for these purposes will vary depending upon the law of thejurisdiction being applied. Generally, however, a company will be consideredinsolvent for these purposes if the sum of that company’s debts is greater thanthe fair value of all of that company’s property, or if the present fairsalable value of that company’s assets is less than the amount that will berequired to pay its probable liability on its existing debts as they mature.Moreover, regardless of insolvency, a court could void an incurrence ofindebtedness, including the senior notes, if it determined that the transactionwas made with intent to hinder, delay or defraud creditors, or a court couldsubordinate the indebtedness, including the senior notes or the guarantees, tothe claims of all existing and future creditors on similar grounds. We cannotdetermine in advance what standard a court would apply to determine whether wewere “insolvent” in connection with the sale of the senior notes. 

 

There is arisk of a preferential transfer if: 

 

•           a Guarantor declares bankruptcy or its creditors force it todeclare bankruptcy within 90 days (or in certain cases, one year) after apayment on the guarantee; or 

 

•           a guarantee was made in contemplation of insolvency. 

 

A guaranteecould be voided by a court as a preferential transfer. In addition, a courtcould require holders of senior notes to return any payments made on the seniornotes during the 90-day (or one-year) period. 

 

Eachguarantee contains a provision intended to limit the Guarantor’s liability tothe maximum amount that it could incur without causing the incurrence ofobligations under its guarantee to be a fraudulent conveyance. This provisionmay not be effective to protect the guarantees from being voided under afraudulent conveyance law. 

 

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

 

TheIndenture governing the senior notes requires SGC and the Guarantors torepurchase all outstanding notes at 101% of the principal amount thereof plusaccrued and unpaid interest, if any, upon the occurrence of specific kinds ofchange of control events. SGC and the Guarantors may not have sufficient fundsto purchase the senior notes after a change of control. SGC’s and theGuarantors’ failure to purchase the senior notes would be a default under theIndenture governing the senior notes. 

 

**We arecontrolled by the Nation and the interests of the Nation may conflict with theinterests of senior noteholders.**

 

The Guarantorsare wholly owned and controlled by SGC, which is wholly owned and controlled bythe Nation. Circumstances may occur in which the interests of the Nation, theCouncil or the members of the Nation could be in conflict with the interests ofa holder of the senior notes. In particular, the Nation, the Council or themembers of the Nation could make business or other decisions that may affect asenior noteholder. For example, the Nation could decide to expand ourfacilities, incur more debt, dispose of assets or enter into other transactionsthat, in their judgment, are in their interest, even though these transactionsmight involve risks to holders of the senior notes, including making it moredifficult for us to make payments on the senior notes and for the Guarantors toguarantee these payments. 

 

**The Nation has alimited body of laws and has not adopted a corporate code. As a result, legalterms used in this Annual Report, the prospectuses related to the senior notes,the Indenture governing the senior notes and related transaction documents mayhave a different meaning under the laws of the Nation than under laws withwhich you are familiar.**

 

The Nationhas a limited number of laws, which primarily consist of the Nation’sconstitution, a limited number of ordinances and codes, Council resolutions andjudicial interpretations of Nation law. Because the body and scope of theNation’s laws are not as fully developed as federal and state law, in manyinstances under Nation law it is difficult to predict how and which law will beapplied. In particular, the Nation has not adopted a corporate code. Therefore,terms used in this Annual Report, the prospectuses related to the senior notes,the Indenture governing the senior notes and other related transactiondocuments, including, but not limited to, terms such as “liquidation” and “dissolution”that may require application and interpretation of the Nation’s laws may haveno defined meanings under those laws or may have meanings different from whatone is accustomed to finding under laws with which one is familiar. 

 

**We are subject to greater risks than a geographically diverse company.**

 

Wecurrently rely exclusively on cash flow from Seneca Niagara Casino and SenecaAllegany Casino to service our obligations, including the senior notes. Whilewe expect to expand the geographic scope of our patron base as a result of ourexpansion project, our Seneca Niagara Casino relies primarily on patrons fromwithin a 100-mile radius for its cash flow and Seneca Allegany Casino reliesprimarily on patrons from within an 80-mile radius for its cash flow. Further,our future expansion plans for

 

25

----

 

additional casino operations as permitted by the Compact are limited toWestern New York. As a result, in addition to our susceptibility to adverseglobal and domestic economic, political and business conditions, any economicdownturn in the region could have a material adverse effect on our operations.An economic downturn would likely cause a decline in the disposable income ofconsumers in the region, which could result in a decrease in the number ofpatrons at Seneca Niagara Casino and Seneca Allegany Casino, the frequency oftheir visits and the average amount that they would each be willing to spend atthe casinos. We are subject to greater risks than more geographicallydiversified gaming or resort operations and may continue to be subject to theserisks upon completion of our expansion project, including: 

 

•           a downturn in national, regional or local economicconditions; 

 

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

 

•           impeded access due to road construction or closures ofprimary access routes; and 

 

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

 

Although wemaintain insurance customary in our industry (including property, casualty,terrorism and business interruption insurance), we cannot assure you that suchinsurance will be adequate or available to cover all the risks to which ourbusiness and assets may be subject. The occurrence of any one of the eventsdescribed above could cause a material disruption in our business and make usunable to generate sufficient cash flow to make payments on the senior notes. 

 

**We compete withcasinos, other forms of gaming and other resort properties. If we are unable tocompete successfully, we may not be able to generate sufficient cash flow tofund our operations or service our debt.**

 

Our casinooperations compete with casinos, other forms of gaming and other resortproperties located within and outside New York State. The following summarizesthe material risks we face as a result of existing and potential competitionthat may affect our results of operations. For a more extensive discussion of the competitive landscape affectingour operations, see “Business—Market and Competition.”

 

*We faceintense competition in our immediate market area.*

* *

Currently,there are two casino resorts, Casino Niagara and Niagara Fallsview CasinoResort, and two video gaming facilities, Finger Lakes Gaming and Racetrack andBuffalo Raceway, within a 100-mile radius of Seneca Niagara Casino thatconstitutes our immediate market.  CasinoNiagara and Niagara Fallsview Casino Resort are located in Niagara Falls,Ontario, and are both within two miles of Seneca Niagara Casino. Casino Niagaraand Niagara Fallsview Casino Resort are owned and operated by the Province ofOntario and managed by the Hyatt-led Falls Management Company. Casino Niagaraoffers over 95,000 square feet of gaming space including more than 1,700 slotmachines, 60 table games, three restaurants, and three bars.  Niagara Fallsview Casino Resort opened in June 2004.Niagara Fallsview Casino Resort features 180,000 square feet of gaming spaceincluding approximately 3,000 slots, 150 table games, a 374-room Hyatt hotel, aspa and various restaurant and entertainment venues.  Buffalo Raceway, a racetrack facilityoffering approximately 1,000 video gaming machines, or VGMs, in a 27,000 squarefoot gaming facility, is located 30 miles and 50 miles from Seneca NiagaraCasino and Seneca Allegany Casino, respectively.  Finger Lakes Gaming and Race Track inFarmington, New York, approximately 100 miles and 140 miles from Seneca NiagaraCasino and Seneca Allegany Casino, respectively, operates over 1,000 VGMs in avideo gaming facility.  Batavia Downs, inBatavia, New York, approximately 50 miles from Seneca Niagara Casino, features586 VGMs.  In addition, Nordic Gaming Corporation operates the Fort ErieRacetrack, which includes a video gaming facility featuring 1,200 VGMs in FortErie, Ontario, which is located approximately 22 miles from Seneca NiagaraCasino. 

 

*We alsoface competition from casinos and gaming operations in our broader regionalmarket*.

 

Our casinosalso face competition elsewhere in New York State and Ontario.  The St. Regis Mohawk Tribe currently operatesa small casino facility near Hogansburg, New York, approximately 350 miles and390 miles from Seneca Niagara Casino and Seneca Allegany Casino, respectively,and the Oneida Indian Nation operates a gaming facility resort near Syracuse,New York, approximately 190 miles and 235 miles from Seneca Niagara Casino andSeneca Allegany Casino, respectively.  Toa lesser extent, we compete with Casino Rama, which is north of Toronto andapproximately 150 miles north of Seneca Niagara Casino and is located on theChippewas of Mnjikaning (Rama) First Nation’s Territory.  Additionally, four racetracks in New YorkState currently operate VGMs (including Buffalo Raceway in our immediate marketarea).  Delaware North Gaming &Entertainment operates a 1,300 machine video gaming facility at SaratogaRaceway in Saratoga Springs, New York, approximately 325 miles and 340 milesfrom Seneca Niagara Casino and Seneca Allegany Casino, respectively. MonticelloRaceway, which is located in Monticello, New York,

 

26

----

 

approximately 325 miles and 280 miles from Seneca Niagara Casino andSeneca Allegany Casino, respectively, operates a video gaming facility withnearly 1,800 VGMs.  

 

*New marketentrants in New York State and elsewhere in the northeastern United Statescould adversely affect our operation and our ability to meet our financialobligations*.

 

Despite theexclusivity in Western New York provided by the Compact, our casinos facecompetition in New York State from both Indian and non-Indian gamingoperations. The Compact allows New York State to permit the Tuscarora Indian Nationand the Tonawanda Band of Seneca Indians to obtain the right to include gamingdevices in a compact without abrogating the exclusivity provisions of theCompact, so long as either tribe locates its proposed gaming facility either onits existing reservations or more than 25 miles from a Nation Gaming Facility.In addition, New York State could allow other Indian gaming facilities to belocated within our area of exclusivity, in which case it would forfeit itsright to receive exclusivity fees for the types of Class III games in suchcompetitor’s facility on which the Nation pays an exclusivity fee under theCompact. Of the seven federally recognized Indian nations in New York otherthan the Nation, only the St. Regis Mohawk Tribe and the Oneida Indian Nationof New York have signed compacts with New York State to open casinos. 

 

In October 2001,New York State authorized six new casinos to be run by Native Americans in thestate, each of which was to be permitted to feature Class III slotmachines. The State’s legislation authorizing the six new Indian casinos wasrecently upheld by the New York Court of Appeals in *Dalton v.Pataki, et al.,* and *Karr v. Pataki, et al.*Three of these authorized casinos are or will be operated by us (Seneca NiagaraCasino, Seneca Allegany Casino and Seneca Erie Casino). It was expected thatthe other three casinos would be located in Sullivan and Ulster Counties in theCatskill region, approximately 330 miles and 320 miles from Seneca NiagaraCasino and Seneca Allegany Casino, respectively. 

 

TheGovernor previously reached settlement agreements, subject to numerouscontingencies, with the following tribes for Class III gaming operationsto be located in Sullivan or Ulster Counties in the Catskills region: the St.Regis Mohawk Tribe, the Seneca-Cayuga Tribe of Oklahoma, the Cayuga Nation ofNew York, the Oneida Nation of Wisconsin, and the Stockbridge Munsee Community.In connection with these settlement agreements, the Governor introduced a billin the New York State General Assembly which would have, among other things,authorized land claim settlements with the five tribes mentioned above andincreased from three to five the number of authorized Class III gamingfacilities in the Counties of Sullivan and Ulster. In anticipation of thesettlements, the Stockbridge-Munsee Community filed a trust land applicationfor approximately 330 acres in Bridgeville, New York, and the Cayuga IndianNation of New York announced a venture with the owner of the MonticelloRaceway, Empire Resorts, to build a $500 million casino adjacent to theMonticello Raceway. However, as a result of the United States Supreme Court’srecent decision in *City of Sherrill, NY v.Oneida Indian Nation of New York,* 125 S. Ct. 1478 (March 29,2005), the Governor recently withdrew pending legislation and land claimsettlements with the Seneca-Cayuga Tribe of Oklahoma, the Cayuga Nation of NewYork, the Oneida Nation of Wisconsin, and the Stockbridge Munsee Community. Weare advised that the Governor has found it necessary to review and reevaluatethe proposals with these four Indian tribes in light of the recent SupremeCourt decision. The withdrawal does not include the St. Regis Mohawk Tribeproposal, whose land claim is not affected by the Sherrill case. In light ofthese developments, the only casino development that seems imminent in Sullivanor Ulster Counties is the one planned by the St. Regis Mohawks. 

 

In 2001,New York State awarded licenses to eight racetracks to operate VGMs. As discussed above, four have commenced operations.  Operations at certain of the remaining fourracetracks could commence in the near future. In January 2004, the Governor of New York proposed allowing up toeight additional VGM venues in the state. These eight licenses would be awardedin a competitive bid process and could go to the state-owned Off-Track BettingCorporation or other operators. On July 7, 2004, the mid-level appellatecourt held that the New York State legislation authorizing VGMs wasunconstitutional because a portion of the VGM revenue is used for horse-racingbreeding funds and to increase track purses. Recently, in April of 2005,Governor Pataki signed a law providing race tracks with a larger share ofproceeds from VGMs and extending VGM authorization through 2017. The new lawaddresses the mid-level appellate decision by omitting language providingpayment to purses or breeding funds. 

 

Otherproposed gaming operations in New York State include a Cayuga tribe developmentin Union Springs, New York, approximately 140 miles from Seneca Niagara Casino,which has been approved for a Class II gaming license; a proposed highstakes bingo hall in Aurelius, New York, approximately 150 miles from SenecaNiagara Casino, which is being pursued by the Seneca-Cayuga Tribe of Oklahoma;and a proposed casino in Hampton Bays, New York, approximately 530 miles fromSeneca Niagara Casino, which is being pursued by the Shinnecock Tribe. Thelikelihood and timing of these projects is uncertain at this point in time. 

 

There arealso several federally recognized Indian tribes and unrecognized Indian groupsthat are pursuing casino projects in New York State and other northeasternstates, which, if successful and completed, could compete with us. In addition,on July 5, 2004, the governor of Pennsylvania signed a bill permitting upto an aggregate of 61,000 slot machines at 14 locations in Pennsylvania. ThePennsylvania legislation would permit up to 5,000 slot machines at proposed orexisting racetracks, or 500 slot

 

27

----

 

machines at two proposed resorts, respectively. These facilities couldbe located in Pittsburgh or Erie, Pennsylvania, which would be in the primaryand secondary market for Seneca Allegany Casino. 

 

**We depend on ourkey personnel to manage our business effectively and if we are unable to retainour key personnel, our ability to execute our business strategy could beimpaired.**

 

Our futuresuccess depends upon the continued services of certain of our key operating andexecutive personnel. The loss of the services of such key operating andexecutive personnel could have an adverse impact on us. There can be noassurance 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. 

 

**We could facedifficulties in attracting and retaining qualified employees.**

 

Theoperation of the expanded facilities of Seneca Niagara Casino and SenecaAllegany Casino and the expected opening of Seneca Buffalo Creek Casino willrequire us to hire qualified executives, managers and a significant number ofskilled employees with gaming and hospitality industry experience andqualifications. Currently, there is a shortage of skilled labor in the gaming industryin general. We can not assure you that we will be able to recruit, train andretain a sufficient number of qualified employees, particularly due to the verysmall number of workers skilled in the gaming industry that reside in theimmediate vicinity of either casino. 

 

**The Indenturegoverning the senior notes contains various covenants and provisions that limitour management’s discretion in the operation of our business.**

 

TheIndenture governing the senior notes includes covenants and provisions that,among other things, restrict our ability to: 

 

•           incur additional debt; 

 

•           make investments; 

 

•           create liens; 

 

•           enter into transactions with affiliates; 

 

•           sell assets; 

 

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

 

•           make capital expenditures. 

 

All ofthese restrictive covenants may limit our ability to expand our operations orto pursue our business strategies. Changes in business conditions or results ofoperations, adverse regulatory developments or other events beyond our controlmay affect our ability to comply with these and other provisions of theIndenture governing the notes. The breach of any of these covenants couldresult in a default under our indebtedness, which could cause those obligationsto become due and payable. If our indebtedness were to be accelerated, therecan be no assurance that we would be able to pay it. 

 

**Our operationscould be adversely affected during our expansion.**

 

Althoughconstruction activities related to Seneca Niagara Casino and Seneca AlleganyCasino are planned to minimize disruptions, construction noise and debris maydisrupt Seneca Niagara Casino’s and Seneca Allegany Casino’s currentoperations. Unexpected construction delays could exacerbate or magnify thesedisruptions. We cannot assure you that construction activities will not have amaterial adverse effect on our results of operations. 

 

**Failure tocomplete our expansion projects and other future development projects on budgetand on time could adversely affect our financial condition.**

 

Our currentexpansion projects are, and any future expansion projects will be, subject tosignificant development and construction risks, any of which could causeunanticipated cost increases and delays. These include, among others, thefollowing: 

 

•           shortages of material and skilled labor; 

 

28

----

 

•    failure to generate sufficient operating cash flow to meetour expansion needs; 

 

•    labor disputes and work stoppages; 

 

•    weather interference or delays; 

 

•    engineering problems; 

 

•    environmental problems; 

 

•    regulatory problems; 

 

•    increased distributions or headlease payments to the Nationdelaying construction timetables; 

 

•    changes to the plans or specifications; 

 

•    fire, earthquake, flood and other natural disasters; and 

 

•    geological, construction, excavation and equipment problems. 

 

In October 2003, weentered into a guaranteed maximum price contract covering all major elements ofthe design and construction of the luxury hotel with Klewin, as constructionmanager responsible for contract procurement, daily oversight and adherence tothe expansion project schedule and budget. On August 30, 2005, theboard of directors of SNFGC authorized the termination of the design/buildconstruction contract with Klewin after receiving notice by Klewin on August 29,2005 that, effective August 30, 2005, it was terminating the employment ofall of its workforce connected with the Seneca Niagara Casino expansionproject, resulting in Klewin effectively abandoning the expansion project. 

 

Until recently, we expected the costof constructing and equipping our 604-room luxury hotel to be approximately$200.0 million, which included $153.0million in construction costs under the guaranteed maximum fixed pricedesign/build construction contract with Klewin, and approximately $47.0 millionfor furniture, fixtures and equipment. Prior to the termination of thedesign/build construction contract with Klewin, Klewin orally advised us thatconstruction costs could exceed the guaranteed maximum contract sum of $153.0million. We currently expect that the cost of constructing and equipping theluxury hotel will be from $235.0 million to $240.0 million, includingconstruction costs of from $177.0 million to $180.0 million.

 

We cannotprovide assurance that total costs for constructing and equipping the SenecaNiagara Casino luxury hotel will not exceed $240.0 million or that thetotal costs for the Seneca Allegany Casino hotel and casino, including thegarage, will not exceed $198.0 million.  In addition, though we do notcurrently anticipate that the termination of the luxury hotel design/buildconstruction contract with Klewin and the related litigation or the agreedtermination of the hotel and casino design/build contract will materiallyadversely affect our ability to complete construction of the Seneca NiagaraCasino and Seneca Allegany Casino expansion projects on schedule, in partbecause of the Klewin litigation we cannot assure you that such projects willin fact open on schedule.  Failure to complete the projects on time andwithin our budget may cause us to devote additional resources to the projects,which could divert our time and attention away from our operation of SenecaNiagara Casino and Seneca Allegany Casino and could cause our business tosuffer.

 

Referenceis made to “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Executive Summary” regarding matters related to theguaranteed maximum price contract with Klewin for the Seneca Niagara Casinoluxury hotel.

 

Inaddition, we may not be able to complete our other expansion plans in a timelymanner or at all. 

 

**We may not beable to generate enough cash flow to complete our current and future expansionprojects.**

 

We intendto fund a portion of our current and future expansion projects with cash flowsfrom operations. We cannot provide assurance that we will be able to generatethe required amount of cash from our operations to complete any or all of theseprojects. In addition, distributions or increased headlease payments to theNation beyond what is currently anticipated will result in our cash flow beingdiverted from the construction of our hotels. If we are not able to generateenough cash to pay for our expansion projects, our projects may be delayed andwe may need to find additional sources of funds, which may not be available onterms acceptable to us, if at all. Further, if we incur additional debt tocover the cost of our expansion projects, risks related to our indebtednesscould intensify. If we cannot generate enough cash or find alternative sourcesof funding to expand our operations, our business, financial condition andresults of operations could be materially adversely affected and we may not beable to make payments on the senior notes. 

 

29

----

 

**We have limitedexperience operating casinos and hotels in Western New York.**

 

While ourcurrent senior management has over 100 years of combined experience managingsignificant gaming facilities with hotels, our casinos have been in operationsince December 31, 2002 and May 1, 2004, respectively, and we do nothave experience operating a hotel in Niagara Falls or Salamanca, New York. Ourexpansion plans include opening an additional casino in Western New York andthe addition of a luxury hotel and other amenities for Seneca Niagara Casinoand a resort hotel for Seneca Allegany Casino. We may experience difficultiesin operating more than one casino in a limited geographic region. Further, theaddition of two hotels and other new and untested amenities to our existing casinoshave many of the same risks inherent in the establishment of a new businessenterprise since we have no operating history in those activities. We may notbe able to timely identify or anticipate all of the material risks associatedwith operating that business or additional casinos. Our lack of operatinghistory in these new ventures may adversely affect our future operatingresults, ability to generate adequate cash flow and ability to make payments onthe senior notes. 

 

**Our businesscould be affected by weather-related factors and seasonality.**

 

Our resultsof operations may be adversely affected by weather-related and seasonalfactors. Since opening, Seneca Niagara Casino’s and Seneca Allegany Casino’sgaming revenue have not been materially impacted 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 both of our casinos to ensure adequate cash flow during expected periods oflower revenue, we cannot provide assurance that weather-related and seasonalfactors will 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. 

 

**Although therecent litigation challenging the validity of our Compact and our right toconduct Class III gaming in New York State was unsuccessful, the validityof our Compact and our right to conduct Class III gaming in New York Statecould still be challenged or otherwise adversely affected.**

 

In October 2001,the New York Legislature passed Chapter 383 of the Laws of 2001, or Chapter383, which allowed Governor Pataki to enter into a gaming compact with theSeneca Nation of Indians and to enter into gaming compacts with other Indiantribes 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 legislation that, among other things, authorized theGovernor of New York to execute tribal-state gaming compacts, approved the useof slot machines as games of chance, approved the use of video lotteryterminals at racetracks and authorized the participation of New York State in amulti-state lottery. The actions are captioned *Dalton v.Pataki, et al.,* and *Karr v. Pataki, et al*.Plaintiffs sought a judgment declaring the legislation unconstitutional andenjoining its implementation. These two cases were consolidated and we refer toboth cases below as *Dalton v. Pataki*.

 

On July 17,2003, the New York Supreme Court dismissed the plaintiffs’ complaints in *Dalton v. Pataki* and held that the legislation isconstitutional. The plaintiffs appealed the Court’s decision to the ThirdDepartment of the New York Supreme Court’s Appellate Division and oral argumentwas held on December 16, 2003. On July 7, 2004, a five judge panelissued its Opinion and Order declaring the legislation at issue, Chapter 383 ofthe Laws of 2001, constitutional as challenged. Notwithstanding theconstitutionality of VGMs, the court declared the licensing of VGMs toracetracks to be unconstitutional due to the impermissible revenue distributionscheme set forth therein. Lastly, the court declared the provision of Chapter383 of the Laws of 2001 authorizing the Division of the Lottery to participatein the multi-state lottery constitutional. 

 

On May 3,2005, the New York Court of Appeals held the legislation (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.

 

Althoughwe can provide no assurance, we believe that any change in New York law willnot retroactively invalidate what the State has agreed to in the Compact. IfNew York State were to make various forms of gaming illegal or against publicpolicy (or the courts were to similarly rule), or otherwise to take a legalposition adverse to SGC, such actions could have a material adverse effect onour ability to conduct our gaming operations as currently conducted.  

 

30

----

 

**If our abilityto operate Class III gaming facilities on land held in restricted fee weresuccessfully challenged, it would have a material adverse effect on our abilityto conduct gaming operations in Niagara Falls and Erie County pursuant to theCompact.**

 

The Compactauthorizes the Nation to use funds appropriated under the Seneca Nation LandClaims Settlement Act, or SNLCSA, to acquire parcels of land in Niagara Fallsand Erie County for gaming purposes. In 1990, Congress enacted 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 additional land, which could be placed into restricted fee status.As previously determined by the U.S. Secretary of the Interior, the Nationpossesses jurisdiction over lands placed into restricted fee status pursuant toSNLCSA, and such lands constitute gaming eligible Indian lands as defined bythe Indian Gaming Regulatory Act, or IGRA. While we believe that there issubstantial support for the Secretary’s determination that lands placed intorestricted fee pursuant to SNLCSA qualify as gaming eligible Indian lands asdefined by IGRA, including the lands upon which Seneca Niagara Casino islocated, it is possible that some person or group could successfully challengethe Secretary’s conclusion that the Nation is authorized to use such land forgaming purposes pursuant to IGRA.  

 

If theSecretary’s determination that the Nation is authorized to use such land forgaming purposes pursuant to IGRA were successfully challenged, the Nation wouldbe unable to conduct any gaming under IGRA at its current gaming facility inNiagara Falls or proposed gaming facility in Erie County. However, such anadverse determination would not affect the ability of the Nation to operate itsSeneca Allegany Casino, which is located on existing Nation reservationterritory. 

 

In May 2005,a petition was filed by Daniel T. Warren before the NIGC claiming that the landacquired by the Nation in Niagara Falls and proposed to be acquired in ErieCounty do not fall within the “discretionary grant” or “settlement lands”exemptions to the IGRA prohibition of Class III gaming on Indian land andrequesting that gaming on such lands be declared illegal.  While the Nation believes that this petitionis without merit, there can be no assurance that the petitioner’s claim willnot be granted.

 

**We may not beable to acquire the remaining****approximate 24 acres of theapproximate 50 acres in the City of Niagara Falls, New York, designated by NewYork State under the Compact for ownership by the Nation.**** **

 

Consistent with the terms of theCompact, we intend to acquire the remaining approximate 24 acres of theapproximate 50 acres in the City of Niagara Falls, New York, designated by NewYork State under the Compact for ownership by the Nation.  Also consistent with the terms of theCompact, the New York State Urban Development Corporation d/b/a Empire StateDevelopment Corporation, or ESDC, is assisting the Nation in acquiring thisland from property owners, including through the exercise of the power ofeminent domain.  The ESDC recently issuedand published its Determinations and Findings pursuant to the New YorkEminent Domain Procedure Law Section 204 in connection with theacquisition of the remaining land through the power of eminent domain.  There can be no assurance that ESDC will besuccessful in acquiring the land through condemnation proceedings.  In connection with the condemnationproceedings, two parties have challenged such proceedings, and we can provideno assurance that such challenges will not be successful.  Failure to acquire the additional land couldadversely impact our future operations.

 

**Terrorism andwar may directly or indirectly harm our business.**

 

Thestrength and profitability of our business will depend on consumer demand forcasino resorts in general and for the type of luxury amenities Seneca NiagaraCasino offers. Changes in consumer preferences or discretionary consumerspending could harm our business. The terrorist attacks of September 11,2001 and ongoing terrorist and war activities in the United States and elsewhere,have had a negative impact on travel and leisure expenditures, includinglodging, gaming and tourism. We cannot predict the extent to which terroristactivities may continue to affect us, directly or indirectly, in the future. Anextended period of reduced discretionary spending and/or disruptions ordeclines in travel, conferences and conventions could significantly harm ouroperations. 

 

**We may besubject to material environmental liability as a result of unknownenvironmental hazards.**

 

Undervarious federal, state and local environmental laws, ordinances andregulations, a current or previous owner or operator of real estate may berequired to investigate and clean up hazardous or toxic substances or chemicalreleases on or relating to its property and may be held liable to agovernmental entity or to third parties for property damage, personal injuryand for investigation and cleanup costs incurred by such parties in connectionwith the contamination. Such laws typically impose cleanup responsibility andliability without regard to whether the owner knew of or caused the presence ofcontaminants. The costs of investigation, remediation or removal of suchsubstances may be substantial. Although the Nation has not waived its sovereignimmunity with regard to such federal, state and local environmentallegislation, the existence or discovery of an environmental hazard on any ofits lands could result in an assertion of liability under federal environmentallaws and have a significant adverse effect on the Nation’s relations with thestate and the local community. 

 

31

----

 

**We rely in parton federal and in part on common law trade name protection to protect certainof our trademarks.**

 

We rely inpart on federal and in part on common law trade name protection to protectcertain of our trademarks. We may face claims by third parties for allegedtrade name infringement. Any resulting claims, if successful, could require usto cease using one or more of the names used in our business or require us topay to use these names. 

 

**The entity thatis managing the construction of our existing luxury hotel and casino expansionprojects is a newly-formed entity with limited operating experience and limitedexperience in construction management.**

 

SenecaConstruction Management Corporation, or SCMC, is a newly-formed entityorganized for the purpose of managing construction projects.  We have entered into a constructionmanagement agreement with SCMC in connection with each of the Seneca AlleganyCasino hotel and casino and Seneca Niagara Casino luxury hotel expansionprojects.  Although SCMC hashired key personnel who are knowledgeable and experienced in managing largeconstruction projects, SCMC, as a newly-formed entity, has very limitedexperience in overseeing and managing construction projects.  SCMC may not be able to identify oranticipate all material risks related to managing our construction projects,which could adversely affect our ability to timely and successfully develop andconstruct these projects as well as our business and results of operations.  

 

**A change in ourcurrent tax-exempt status could have a material adverse effect on our abilityto repay our obligations under the senior notes.**

 

A change inour current tax-exempt status could have a material adverse effect on ourability to repay our obligations under the senior notes. Based on our currentinterpretations of federal tax law, we will continue to treat our income as notbeing subject to federal income tax. However, we have not sought a privateletter ruling from the Internal Revenue Service, or the IRS, confirming thatinterpretation. 

 

SGC andeach of its subsidiaries are instrumentalities of the Nation’s government andchartered under the laws of the Nation. Under current law, the Nation is notsubject to federal income tax and we do not believe that SGC or the Guarantors,as instrumentalities of the Nation’s government, are so subject. The IRS, priorto 1996, took the position that tribal corporations wholly owned by a tribewere treated the same as the tribe and not subject to federal income tax.However, in 1996, the IRS publicly announced that it was taking the issue undersubmission and intended to study it further, and did not state whether any suchfuture guidance would be prospective only or be retroactive. When the IRSchanged its position on the federal tax status of state chartered corporationswholly owned by a tribe (stating that such entities were taxable), it made suchchange prospective and provided a transition period with retroactive relief ifthe form of the corporation was modified. Following the IRS public announcementin 1996, some tribal corporations have obtained private letter rulings from theIRS to the effect that their operations would not be subject to federal incometax. Private letter rulings cannot be relied upon by other taxpayers. As of thedate of this Annual Report, the IRS had not issued definitive guidance uponwhich we could rely as to whether it agreed or disagreed that tribalcorporations are subject to federal income tax, or, if subject to federalincome tax in some circumstances and not others, the circumstances in which atribal corporation would be subject to federal income tax. Consequently, thereis no controlling legal authority that supports or is contrary to our positionthat we are not subject to federal income tax. If our interpretations areincorrect, or if the applicable tax law changes in this regard, our cash flowand ability to service our obligations under the senior notes may be adverselyaffected. 

 

Effortshave been made in Congress over the past several years to tax the income oftribal business enterprises. These have included a House of Representativesbill that would have taxed gaming income earned by Indian tribes as businessincome subject to corporate tax rates. Although that legislation has not beenenacted, similar legislation could be enacted in the future. Any futurelegislation permitting the taxation of the Nation or our business could have amaterial adverse effect on our business, financial condition, results ofoperations or ability to pay our obligations under the senior notes. 

 

**Any adversechanges in the laws regulating our gaming operations or failure to maintainlicenses required under gaming laws and regulations and other permits andapprovals required under applicable laws and regulations could have a materialadverse effect on our ability to conduct gaming operations and on our abilityto fulfill our obligations under the senior notes.**

 

Gaming onthe Nation’s land is regulated by Nation laws, the Compact and federalstatutes, most notably the IGRA. Several bills have been proposed during thecurrent and recent sessions of Congress that could affect Indian gaming.Notably, though its proposed legislation has yet to be presented to Congress,the Policies and Procedures Subproject of the Bureau of Indian Affairs hasproposed sweeping changes to the federal laws concerning Indians. Certain ofsuch bills, if enacted, could impair the ability of the Nation and SGC toexpand its gaming operations and adversely impact the future growth of theNation’s revenue base. In addition, from time to time, various governmentofficials have proposed taxing Indian casino gaming or otherwise limiting orrestricting the conduct of gaming operations by Indian tribes. No assurance canbe given that such legislation, if and when enacted by Congress, would not havea material adverse effect on the operations of SGC. In addition, under federallaw, gaming on the Nation’s lands may be dependent upon the permissibilityunder New York law of certain forms of gaming or similar activities. If NewYork State were to

 

32

----

 

make various forms of gaming illegal or against public policy (or thecourts were to similarly rule), or otherwise to take a legal position adverseto the Compact or any of its provisions, such actions could have a materialadverse effect on our ability to conduct our gaming operations as currently conducted.Moreover, a 1996 U.S. Supreme Court decision may permit a state to avoid orrefuse to negotiate amendments to existing compacts such as the Compact. 

 

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

 

Under theCompact and federal, state and Nation law we are required to maintain certainlicenses, permits and approvals in order to conduct gaming operations. Failureto maintain such licenses, permits and approvals could have a material adverseaffect on our ability to conduct gaming operations and on our ability to makepayment on our obligations under the senior notes. 

 

**Changes in themembership of the Council, its policies or the Nation’s constitution couldadversely affect our operations.**

 

The Nationis governed by a Council, consisting of sixteen members, of which eight membersare elected from each of the two principal Territories. Councillors are electedto four-year terms, which are staggered. The Nation holds an election every twoyears for its three executive branch officers: the President, the Treasurer andthe Clerk. These officers alternate between the two principal Territories. Thenext election of the executive branch officers and eight Council members willtake place in November 2006. If there is a significant change in thecomposition of the Council, the new Council may not pursue the same agenda orgoals as the current government, in particular with respect to us, ourexpansion project or compliance with the Compact and our other obligationsincluding the covenants contained in the Indenture (including, but not limitedto, timely payment of the exclusivity fee and our public filings). 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 addition, the Council appoints the members of SGC’s board of directors. TheCouncil may also remove a member of SGC’s board of directors for cause eitherupon the recommendation of a majority of SGC’s board of directors, or upon itsown initiative with a vote of at least twelve Councillors. The term cause has notbeen defined in SGC’s charter or in Nation law, and therefore, we do not knowhow this term will be interpreted. As a result, a change in the membership orviews of existing members of Council adverse to the existing board ormanagement could result in a change in SGC’s board of directors and potentiallyin SGC’s management. Any such changes could adversely affect our business planor otherwise result in a material adverse effect in our business, financialcondition, results of operations or ability to make payments on the senior notes.See “Directors and Executive Officers of the Registrant” for a discussionregarding the more active role the new Seneca government has taken in managingour affairs. 

 

Further,while we believe that under the Nation’s constitution, adopted in 1848 and lastamended in 1993, a referendum may only be called by the Council, ourinterpretation of the Nation’s constitution could be incorrect or theconstitution may be amended in the future to provide that the Seneca people maycall a referendum without the approval of the Council. If the constitution wereamended to allow the Seneca people to call for a referendum directly, theNation may adopt laws adversely affecting our business and results ofoperations. 

 

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

 

*Seneca Niagara Casino.*    Seneca Niagara Casino is located on Nation Territory inNiagara Falls, New York, in the former Niagara Falls Convention and CivicCenter, which we lease from the Nation. Seneca Niagara Casino is locatedapproximately 20 miles north of Buffalo, New York and approximately 90 mileswest 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.The Compact 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. 

 

As of September 30,2005, the Nation had acquired approximately 24 acres (of the approximate 50acre area of land described in Appendix I of the Compact) with fundsappropriated under the SNLCSA in Niagara Falls. By operation of federal law,these lands and other parcels that may be acquired in the future pursuant tothe SNLCSA (whether in Niagara Falls or Erie) are subject

 

33

----

 

to restrictions against alienation, constitute Indian country subjectto the jurisdiction of the Nation, and qualify as gaming eligible Indian landspursuant to IGRA. Seneca Niagara Casino, its 2,300 space parking garage and theluxury hotel under construction are situated on the Nation’s restricted feelands.  The Nation intends to acquire theremaining acres (of the approximately 50 acre area of land described inAppendix I of the Compact) pursuant to the Compact. 

 

As of December 28,2005, SNFGC has acquired, at a cost of $7.9 million, approximately two acres ofthe remaining approximate 26 acres of the approximate 50 acres in the City ofNiagara Falls, New York, designated by New York State under the Compact forownership by the Nation, thus reducing the remaining acreage from 26 to 24acres.  These properties have not beendistributed to the Nation.

 

*SenecaAllegany Casino.*    SenecaAllegany Casino is located on the Nation’s Allegany Territory in the City ofSalamanca, New York. STGC leases the gaming facility in which Seneca AlleganyCasino is located from the Nation. Seneca Allegany Casino is locatedimmediately off Interstate 86, approximately 70 miles south of Niagara Falls,New York and is within 75 miles of Erie, Pennsylvania, and 165 miles ofCleveland and Akron, Ohio and Pittsburgh, Pennsylvania. The land upon which theNation owns and operates Seneca Allegany Casino is within the Nation’s territorialboundaries, and is therefore eligible for gaming pursuant to IGRA. 

 

*Seneca Buffalo Creek Casino.*    OnOctober 3, 2005, the Nation acquired approximately nine acres of landlocated within two city blocks in the historic waterfront district of downtownBuffalo, designating these nine acres as the Erie County gaming site forpurposes of the Compact.  We commencedconstruction of our Erie County gaming facility on these nine acres in downtownBuffalo on December 8, 2005.  Theapproximate nine acres acquired in Erie County were acquired with fundsappropriated under the SNLCSA.  

 

*Irving, New York*.  SGC owns approximately 113 acres in Irving,New York.  This acreage is not currentlybeing used in our gaming operations.

 

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

 

In October 2001,the New York Legislature passed Chapter 383 of the Laws of 2001, or Chapter383, which allowed Governor Pataki to enter into a gaming compact with theSeneca Nation of Indians and to enter into gaming compacts with other Indiantribes 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 legislation that, among other things, authorized theGovernor of New York to execute tribal-state gaming compacts, approved the useof slot machines as games of chance, approved the use of VGMs at racetracks andauthorized the participation of New York State in a multi-state lottery. Theactions are captioned *Dalton v. Pataki, et al.,*and *Karr v. Pataki, et al*. Plaintiffs soughta judgment declaring the legislation unconstitutional and enjoining itsimplementation. These two cases were consolidated and we refer to both casesbelow as *Dalton v. Pataki* (5 N.Y. 3rd243 (N.Y. 2005), petition for cert. filed 74 USLW 3162 (Sept. 16, 2005) (NO.05-361)).

 

On July 17,2003, the New York Supreme Court dismissed the plaintiffs’ complaints in *Dalton v. Pataki* and held that the legislation isconstitutional. The plaintiffs appealed the Court’s decision to the ThirdDepartment of the New York Supreme Court’s Appellate Division and oral argumentwas held on December 16, 2003. On July 7, 2004, a five judge panelissued its Opinion and Order declaring the legislation at issue, Chapter 383 ofthe Laws of 2001, constitutional as challenged. Notwithstanding theconstitutionality of VGMs, the court declared the licensing of VGMs toracetracks to be unconstitutional due to the impermissible revenue distributionscheme set forth therein. Lastly, the court declared the provision of Chapter383 of the Laws of 2001 authorizing the Division of the Lottery to participatein the multi-state lottery constitutional. 

 

On May 3,2005, the New York Court of Appeals held the legislation (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.

 

Althoughwe can provide no assurance, we believe that any change in New York law willnot retroactively invalidate what the State has agreed to in the Compact. IfNew York State were to make various forms of gaming illegal or against publicpolicy (or the courts were to similarly rule), or otherwise to take a legalposition adverse to SGC, such actions could have a material adverse effect onour ability to conduct our gaming operations as currently conducted. 

 

The Compactprovides that the Nation may acquire property and establish a gaming facilityin Erie County, at a location in the City of Buffalo to be determined by theNation, or at such other site as may be determined by the Nation in the event asite in the City of Buffalo is rejected by the Nation for any reason. In May 2004,various parties, including the Mayor of the City of Buffalo,

 

34

----

 

filed a complaint against Governor Pataki, New York State, the Town ofCheektowaga and Uniland to prohibit the sale of the Cheektowaga Site to us onthe basis that the Nation’s ability, pursuant to the Compact, to locate a Class IIIgaming facility anywhere in Erie County in the event a site in the City ofBuffalo is rejected by the Nation for any reason is unconstitutional. On June 16,2004, Justice Makowski of the Supreme Court of the State of New York agreedwith the plaintiffs and held (*Huron v Pataki*,5 Misc. 3d 648, 785 N.Y.S. 2d 827 (N.Y. Sup. Erie County, 2004)) that theCompact provision allowing the Nation to locate a Class III gamingfacility in Erie County outside the City of Buffalo is unconstitutional. TheCourt’s decision further permanently restrained and enjoined (1) GovernorPataki and New York State from any action or activity that would assist theNation in owning and operating a Class III gaming casino in Erie Countyother than the City of Buffalo and (2) Uniland from the sale or transferof the Cheektowaga Site to us.  On April 27,2005, the Town of Cheektowaga filed a brief to appeal the Supreme Courtdecision.  On November 10, 2005, theFourth Appellate Division ruled unanimously against the Town of Cheektowaga’sappeal (for the reasons stated in the Court’s opinion at 5 Misc. 3d 648).

 

Inconnection with this litigation, on May 25, 2005, the Supreme Court of theState of New York issued an order (*Concern, Inc. v.Pataki,*7 Misc. 3d 1030(A), 2005 WL 1310478 (N.Y. Sup. Erie County))requiring New York State to comply with the requirements of SEQRA, whichincludes preparing an environmental impact statement in respect of theCheektowaga Site and the proposed acquisition and development of the casinobefore any further actions may be taken in respect of (a) constructing,maintaining or operating a Class III gaming facility on the CheektowagaSite or (b) the sale of the Cheektowaga Site to the Nation for suchpurposes.  On August 22, 2005, NewYork State filed a notice of appeal.  Asa result of the ongoing litigation referenced above and time deadlines setforth in the Compact, on October 3, 2005 the Nation acquired approximatelynine acres of land in the historic waterfront district of downtown Buffalo.  We commenced construction of our Erie Countygaming facility on these nine acres on December 8, 2005.

 

On December 29,2003, certain tribal members filed an action for a temporary restraining orderin Peacemakers’ Court, the Nation’s trial level court, against G. MichaelBrown, as President and CEO of SNFGC, and SNFGC attempting to enjoin Mr. Brownand SNFGC from making any exclusivity payments to New York State pursuant tothe Compact. The plaintiffs alleged that New York State “materially breached”the Compact by promulgating rules regarding the collection of taxes onreservation sales to non-Indian purchasers. On December 31, 2003, thePeacemakers’ Court dismissed the plaintiffs’ complaint. On January 3,2004, the plaintiffs filed an appeal to the Nation’s Court of Appeals, the Nation’sintermediate level court. On August 11, 2004, the Court of Appeals issued “benchrulings” and determined, among other matters, that SGC and its subsidiaries areunconstitutional and legal nullities. On August 17, 2004, the Nation’sSupreme Appellate Court, the Nation’s highest court of appeals, overturned theCourt of Appeal’s bench rulings in their entirety and reaffirmed that theNation’s Council had appropriately and validly established SGC and itssubsidiaries and that these entities possessed sovereign immunity from suit. Inaddition, the Supreme Appellate Court noted that by filing an application forthe Writ of Permission, the “bench rulings” were automatically stayed pursuantto Seneca Civil Procedure Rules and the Court of Appeals no longer hasjurisdiction over the underlying matter pertaining to the payment of theexclusivity fee to New York State. Notwithstanding this decision, on September 16,2004, the Court of Appeals held that the Supreme Appellate Court’s August 17,2004 decision was illegal, invalid and of no force and effect due to theviolation of Seneca Nation of Indians Rules of Appellate Procedure, amongother reasons. The Court of Appeals remanded the case to the Peacemakers’ Courtand ordered this court to convene and hear the original case with its benchrulings in effect within 30 days of the September 16, 2004 Court ofAppeals Order. The Peacemaker’s court did not convene by October 16, 2004to consider the matter, as required by the Court of Appeals’ Order, and as ofthis date has not convened to consider the matter. However, the Senior PolicyAdvisor and Counsel to the Nation has delivered a legal opinion dated May 4,2005 to the SGC board of directors stating the following: 

 

Thus, the action of the Court of Appeals on September 16thpurporting to set aside the Supreme Appellate Court’s decision of August 17this of no force and effect because the Supreme Appellate Court’s decision of August 17thwas “final” by its terms. The Nation’s Constitution makes no provision forreview of Supreme Appellate Court decisions by the Court of Appeals under anycircumstances. As a result, the Council’s decision of August 17th is finaland the Nation’s gaming corporations are constitutional and valid legalentities. 

 

On October 18, 2004, the Peacemakers’Court, due to a perceived conflict of interest of elected Nation officialsserving as members of the boards of directors of the SGC and its subsidiaries,ordered that all directors of SGC and its subsidiaries who are or plan to becandidates in the Nation’s elections scheduled for November 2, 2004 mustresign as directors of the SGC and its subsidiaries. The Peacemakers’ Courtfurther ordered that no present or newly elected Tribal Councilor may serve onthe boards of directors of SGC and its subsidiaries due to a perceived conflictof interest and that any present Tribal Councilors who are directors of SGC andits subsidiaries must resign their directorships immediately. On November 10,2004, the Peacemakers’ Court withdrew its October 18, 2004 order.

 

In May 2005,a petition was filed by Daniel T. Warren before the National Indian GamingCommission claiming that the land acquired by the Nation in Niagara Falls andproposed to be acquired in Erie County do not fall within the “discretionarygrant” or “settlement lands” exemptions to the IGRA prohibition of Class IIIgaming on Indian land and requesting that gaming on such lands

 

35

----

 

be declared illegal. While the Nation believes that this petition iswithout merit, there can be no assurance that the petitioner’s claim will notbe granted.

 

On August 24, 2005, SNFGC fileda complaint against Klewin and BankNorth, as joint defendants, in the SuperiorCourt for the Judicial District of New London, Connecticut. The suit was filedto obtain immediate injunctive relief in conjunction with a pending demand forarbitration by SNFGC related to Klewin ‘s failure to make required payments tothe subcontractors for the construction of Seneca Niagara Casino’s new luxuryhotel. SNFGC filed the complaint in order to enjoin the defendants fromutilizing approximately $14.6 million paid by SNFGC into an account withBankNorth in the name of Klewin, which was set up by SNFGC principally for thepurpose of paying Klewin’s subcontractors (including the architect) on theconstruction project. SNFGC was subsequently informed by Klewin thatapproximately $14.6 million paid by SNFGC into the account was “swept” byBankNorth and, as a result, several subcontractors (including the architect)were not paid by Klewin. Among other things, the complaint seeks temporary andpermanent injunctive relief requiring that the defendants return to the accountthe approximate $14.6 million that has been removed from that account andtemporary and permanent injunctive relief enjoining defendants from utilizingthe approximate $14.6 million that has been removed from the account,other than for payment of Klewin’s subcontractors on the constructionprojects.  We subsequently advanced fundsdirectly to the architect and to SCMC for payment to the remainingsubcontractors.

 

On August 25, 2005, the partiesappeared before the court and agreed to a stipulated immediate order freezingthe remaining balance of approximately $5.5 million in the account pending ahearing on SNFGC’s application for temporary and permanent injunctive relief,subject to limited draw rights of not more than $350,000 per week permitted toKlewin for its operating expenses pursuant to a budget to be submitted byKlewin weekly. We intend to seek recovery of all amounts already withdrawn fromthe account, except to the extent disbursed for appropriate purposes. On September 14,2005, Klewin filed an Application for Immediate Temporary Injunction seeking atemporary injunction prohibiting us from using design and constructiondocuments and appropriating Klewin employees. Klewin has also asserted counterclaims alleging, among other matters,tortious interference with their business. A hearing related to these counterclaims and the temporary injunction washeld on November 22, 2005 and on November 30, 2005, the Court grantedour motion to dismiss Klewin’s counterclaims and Application for ImmediateTemporary Injunction.  Klewin has filedan appeal.  On November 23, 2005,BankNorth filed an answer asserting, among other matters, certain counterclaimsincluding the request for a declaratory judgment to the effect that they wouldbe permitted to retain approximately $9.1 million of the$14.6 million swept from the Klewin account.  We have filed a new action against BankNorthalleging, among other matters, diversion of trust funds in violation of Section 77of the New York Lien Law and conversion. We can provide no assurance that we will be able to recover all or anyportion of the approximate $14.6 million. Reference is made to “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Executive Summary” for further discussion regarding the Klewinmatter.  The docket number for theConnecticut proceeding is CV05-4004218 and the Judge is the Honorable SeymourL. Hendel.  We are advised that thestipulation order was placed on the record and may not be on file andavailable.

 

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

 

NotApplicable.

 

36

----

 

**PART II**

 

**Item5****.****Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities**

 

NotApplicable.

 

**Item6****.****Selected Financial Data**

 

The Nationestablished Seneca Gaming Corporation as a wholly owned entity to operate allof the Nation’s Class III gaming and resort-related activities. Theselected consolidated financial data set forth below as of and for the periodended September 30, 2002 and as of and for the fiscal years ended September 30,2003, September 30, 2004 and September 30, 2005 have been derivedfrom our audited financial statements included in this Annual Report.  This information should be read with ourfinancial statements and the related notes included in this Annual Reportbeginning on page F-1. You should also read the following information inconjunction with “Management’s Discussion and Analysis of Financial Conditionand Results of Operations.” 

 
| ** **                                                                | ** ** | **Period from  Inception to  September 30,** | ** ** | **Fiscal Year Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                | ** ** | **2002**                                          | ** ** | **2003**                                  | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                                                | ** ** | **(dollars in thousands)**                        | ** ** |
| **Statement  of Operations Data:**                                        |       |                                              |       |                                      |       |   |   |   |   |
| Revenues:                                                                 |       |                                              |       |                                      |       |   |   |   |   |
| Gaming                                                                    |       | $                                                 | —     |                                      | $          | 184,332 |   | $ | 337,536 |   | $ | 440,156 |   |
| Food and  beverage                                                        |       | —                                            |       | 16,158                                    |       | 31,358 |   | 41,689 |   |
| Retail and other                                                          |       | —                                            |       | 4,823                                     |       | 11,797 |   | 16,955 |   |
|                                                                      |       |                                              |       |                                      |       |   |   |   |   |
| Gross revenues                                                            |       | —                                            |       | 205,313                                   |       | 380,691 |   | 498,800 |   |
| Less:  Promotional allowances                                             |       | —                                            |       | (9,557                                    | )          | (24,295 | ) | (49,647 | ) |
|                                                                      |       |                                              |       |                                      |       |   |   |   |   |
| Net revenues                                                              |       | —                                            |       | 195,756                                   |       | 356,396 |   | 449,153 |   |
| Expenses:                                                                 |       |                                              |       |                                      |       |   |   |   |   |
| Gaming                                                                    |       | —                                            |       | 53,686                                    |       | 92,531 |   | 114,746 |   |
| Food and  beverage                                                        |       | —                                            |       | 15,856                                    |       | 26,387 |   | 34,877 |   |
| Retail,  entertainment and other                                          |       | —                                            |       | 2,732                                     |       | 7,184 |   | 10,418 |   |
| Advertising,  general and administrative                                  |       | —                                            |       | 42,176                                    |       | 91,552 |   | 117,188 |   |
| Pre-opening  costs                                                        |       | 2,961                                             |       | 7,155                                     |       | 4,228 |   | 1,509 |   |
| Depreciation and  amortization                                            |       | —                                            |       | 8,723                                     |       | 17,638 |   | 26,295 |   |
|                                                                      |       |                                              |       |                                      |       |   |   |   |   |
| Total operating  expenses                                                 |       | 2,961                                             |       | 130,328                                   |       | 239,520 |   | 305,033 |   |
| Operating income  (loss)                                                  |       | (2,961                                            | )          | 65,428                                    |       | 116,876 |   | 144,120 |   |
| Other income and  (expense):                                              |       |                                              |       |                                      |       |   |   |   |   |
| Non-recurring  construction charge                                        |       | —                                            |       | —                                    |       | — |   | (13,301 | ) |
| Interest income                                                           |       | —                                            |       | 44                                        |       | 1,535 |   | 5,116 |   |
| Interest expense                                                          |       | —                                            |       | (15,515                                   | )          | (33,702 | ) | (90,366 | ) |
|                                                                      |       |                                              |       |                                      |       |   |   |   |   |
| Net other  expense                                                        |       | —                                            |       | (15,471                                   | )          | (32,167 | ) | (98,551 | ) |
|                                                                      |       |                                              |       |                                      |       |   |   |   |   |
| Net income  (loss)                                                        |       | $                                                 | (2,961     | )                                         | $          | 49,957 |   | $ | 84,709 |   | $ | 45,569 |   |
|                                                                      |       |                                              |       |                                      |       |   |   |   |   |
| **Other  Financial Data:**                                                |       |                                              |       |                                      |       |   |   |   |   |
| EBITDA(1)                                                                 |       | $                                                 | (2,961     | )                                         | $          | 74,151 |   | $ | 134,514 |   | $ | 157,114 |   |
| Cash provided by  (used in) operating activities                          |       | (69                                               | )          | 97,720                                    |       | 143,803 |   | 47,652 |   |
| Cash used in  investing activities                                        |       | (39                                               | )          | (118,963                                  | )          | (238,703 | ) | (192,147 | ) |
| Cash provided by  financing activities                                    |       | 240                                               |       | 80,739                                    |       | 246,867 |   | 75,367 |   |
| Capital  expenditures and payments for land acquisitions and other assets |       | 39                                                |       | 118,963                                   |       | 180,740 |   | 172,684 |   |
| Ratio of  earnings to fixed charges(2)                                    |       | —                                            |       | 3.9                                       | x          | 3.4 | x | 1.4 | x |
|                                                                           |            |                                                   |            |                                           |            |  |  |  |  |  |  |  |  |  |

 

37

----

 
| ** **                | ** ** | **As of September 30,** | ** ** |
|---------------------------|------------|------------------------------|------------|
| ** **                | ** ** | **2002**                     | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                | ** ** | **(dollars in thousands)**   | ** ** |
| **Balance Sheet Data:**   |       |                         |       |   |   |   |   |   |   |
| Cash and cash equivalents |       | $                            | 132        |   | $ | 59,628 |   | $ | 211,595 |   | $ | 142,467 |   |
| Total assets              |       | 2,883                        |       | 181,749 |   | 584,056 |   | 698,848 |   |
| Total liabilities         |       | 5,844                        |       | 134,753 |   | 497,369 |   | 589,423 |   |
| Total capital             |       | $                            | (2,961     | ) | $ | 46,996 |   | $ | 86,687 |   | $ | 109,425 |   |
|                           |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)      EBITDArepresents earnings before interest, depreciation and amortization. We are notsubject to U.S. federal income taxation under current interpretations of theU.S. federal tax code. EBITDA is presented to provide additional informationthat our management uses to assess our business and because we believe it isfrequently used by securities analysts, investors and other interested partiesin the evaluation of companies in our industry. However, other companies in ourindustry may calculate EBITDA differently than we do. EBITDA is not ameasurement of financial condition or profitability under generally acceptedaccounting principles and should not be considered as an alternative to cashflow from operating activities or as a measure of liquidity or an alternativeto net income as indicators of our operating performance or any other measuresof performance derived in accordance with generally accepted accountingprinciples. 

 

EBITDA includes pre-opening costs of approximately$3.0 million, $7.2 million, $4.2 million, and $1.5 million for the period frominception to September 30, 2002, the fiscal year ended September 30,2003, the fiscal year ended September 30, 2004, and the fiscal year ended September 30,2005, 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. 

 
| ** **                     | ** ** | **Period from  Inception to  September 30,** | ** ** | **Fiscal Year Ended  September 30,** | ** ** |
|--------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                     | ** ** | **2002**                                          | ** ** | **2003**                                  | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                     | ** ** | **(dollars in thousands)**                        | ** ** |
| Net income (loss)              |       | $                                                 | (2,961     | )                                         | $          | 49,957 |   | $ | 84,709 |   | $ | 45,569 |   |
| Depreciation and  amortization |       | —                                            |       | 8,723                                     |       | 17,638 |   | 26,295 |   |
| Net interest  expense          |       | —                                            |       | 15,471                                    |       | 32,167 |   | 85,250 |   |
|                           |       |                                              |       |                                      |       |   |   |   |   |
| EBITDA                         |       | $                                                 | (2,961     | )                                         | $          | 74,151 |   | $ | 134,514 |   | $ | 157,114 |   |
|                                |            |                                                   |            |                                           |            |  |  |  |  |  |  |  |  |  |

 

(2)      The ratioof earnings to fixed charges is computed by dividing earnings by fixed charges.For purposes of determining the ratio of earnings to fixed charges, the term “earnings”is the amount resulting from adding (i) net income, (ii) fixedcharges and (iii) amortization of capitalized interest, less the amount ofinterest capitalized. The term “fixed charges” is the amount resulting fromadding (i) interest expense whether expensed or capitalized, and (ii) theamortization of debt financing costs. Note that for the fiscal year ended September 30, 2005, this ratioincludes the effect of a $49.2 million charge to earnings, recorded as interestexpense, relating to the early extinguishment of the Term Loan, and anon-recurring charge to earnings relating to the Klewin matter, as discussedbelow.

 

**Item7****.****Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

*Youshould read the following discussion and analysis in conjunction with the section titled“Selected Consolidated Financial and Other Data” and the financial statementsand related notes included elsewhere in this Annual Report. References hereinto years are to fiscal years of Seneca Gaming Corporation unless otherwisenoted. Our fiscal year is from October 1 through September 30.*

 

38

----

 

**Overview**

 

SenecaGaming Corporation is wholly owned by the Seneca Nation of Indians of New Yorkand chartered to manage and direct all of the Nation’s Class III gamingoperations. The Nation entered into a Compact with New York State on August 18,2002 that provides the Nation with the right to establish and operate three Class IIIgaming facilities in Western New York. We opened our first Class IIIgaming facility on Nation Territory in the City of Niagara Falls, New York on December 31,2002, featuring principally Class III slot machines and table games. Thisfacility is operated by our wholly owned subsidiary SNFGC. From August 1,2002 to September 30, 2002, SNFGC operated as a development stage companyand devoted its efforts to obtaining regulatory and governmental approvals,securing financing, recruiting and training employees and overseeing therenovation of the Niagara Falls Convention and Civic Center. On May 1,2004, we opened our second Class III gaming facility, Seneca AlleganyCasino, on the Nation’s Territory in the City of Salamanca, New York. Thisfacility features Class III slot machines and table games. We formed STGCon September 20, 2003 as a wholly owned subsidiary to operate thisfacility. Please note that our Selected Consolidated Financial and Other Data,the financial statements and related notes included elsewhere in this reportand the following discussion and analysis only include 17 months of operatingresults for Seneca Allegany Casino. 

 

Given ourshort operating history and limited operations at SNFGC in the fiscal yearended September 30, 2002, we believe comparisons between the fiscal yearended September 30, 2003 and the fiscal year ended September 30,2002, are not meaningful. Therefore, these comparisons are not discussed below.Also, since our Seneca Allegany Casino was open for only five months during thefiscal year ended September 30, 2004, comparisons between the fiscal year endedSeptember 30, 2004 and September 30, 2005 are less meaningful in somerespects.

 

Under theCompact, the Nation has the right to establish and operate a third Class IIIgaming facility in Erie County, New York.  If the Nation had failed to commenceconstruction of a Class III gaming facility in Erie County by December 9,2005, the Nation’s exclusive right under the Compact to own and operate a Class IIIgaming facility in Erie County could have terminated, and if the Nation failsto commence Class III gaming operations in Erie County by December 9,2007, the Nation’s exclusive right under the Compact to own and operate a Class IIIgaming facility in Erie County may terminate. As a result of the Cheektowaga Sitelitigation and time deadlines set forth in the Compact and referenced above, onOctober 3, 2005 the Nation acquired approximately nine acres of land inthe historic waterfront district of downtown Buffalo.  We commenced construction of our Erie County gamingfacility on these nine acres on December 8, 2005.

 

**ExecutiveSummary**

 

*OurCurrent Operations.*    Wecurrently operate two Class III gaming facilities, Seneca Niagara Casino,in the City of Niagara Falls, New York, and Seneca Allegany Casino, in the Cityof Salamanca, New York. Our casino operations include gaming, dining,entertainment and retail. For the fiscal years ended September 30, 2004and September 30, 2005, approximately 93% and 94%, respectively, of ournet revenue was derived from our Class III gaming activities. 

 

*KeyPerformance Indicators.*    Ouroperating results are dependent on the volume of profitable patrons at ourcasinos and our ability to attract them for repeat visits. 

 

*SenecaNiagara Casino.*    SenecaNiagara Casino currently relies primarily on drive-in and bus patrons from theBuffalo, Niagara Falls, and Rochester areas in New York and secondarily fromErie, Pennsylvania, Ohio and other parts of New York. Since opening on December 31,2002, Seneca Niagara Casino has experienced steady growth in its patron base.We believe that the proposed expansion of Seneca Niagara Casino, including theaddition of our luxury hotel and other amenities, will enable us to increaseprofitable patron volume and gaming activity, extend our geographic penetrationand appeal to a more diverse demographic base. The first phase of thisexpansion is expected to open by December 30, 2005, and will add over35,000 square feet of gaming space, approximately 300 rooms, and variousamenities. 

 

As of September 30,2005, we had paid for substantially all of our completed expansion projects outof cash flow from operations. Our completed expansion projects include theaddition of Turtle Island, a non-smoking casino room, the Blue Heron Club, agaming salon designed exclusively for high stakes table game patrons, a new2,300-space parking garage, and the Western Door, an upscale steakhouse. In May 2004,we opened a non-smoking poker room with sixteen tables. In June 2004, weopened our “Pennies From Heaven” slot room located on the mezzanine leveloverlooking our main casino, adding approximately 6,600 square feet of gamingspace and 242 additional ticketed slot machines. In addition, this projectadded approximately 7,800 square feet of banquet space for up to 350 patrons. 

 

In October 2003, weentered into a guaranteed maximum price contract covering all major elements ofthe design and construction of the luxury hotel with Klewin, as constructionmanager responsible for contract procurement, daily

 

39

----

 

oversight and adherence to the expansion project schedule andbudget. On August 30, 2005, the board of directors of SNFGC authorized thetermination of the design/build construction contract with Klewin after receivingnotice by Klewin on August 29, 2005 that, effective August 30, 2005,it was terminating the employment of all of its workforce connected with theSeneca Niagara Casino expansion project, resulting in Klewin effectivelyabandoning the expansion project. 

 

Priorto authorizing the termination of Klewin, on August 24, 2005, SNFGC fileda complaint against Klewin and BankNorth, as joint defendants, in the SuperiorCourt for the Judicial District of New London, Connecticut, in connection withapproximately $14.6 million that was paid by SNFGC into an account withBankNorth maintained by Klewin principally for the benefit of thesubcontractors, including the architect, on the Seneca Niagara Casino expansionproject (approximately $11.25 million was for the benefit of suchsubcontractors on the Seneca Niagara Casino expansion project and substantiallyall of the balance was for the benefit of subcontractors on the Seneca AlleganyCasino expansion projects). The account was subsequently “swept” by BankNorth,and, as a result, substantially all of the subcontractors who were entitled tothe approximate $14.6 million wired by SNFGC to Klewin for the benefit ofsuch subcontractors were not paid by Klewin, and this non-payment providedanother ground for termination of Klewin.  We have advanced approximately $900,000 to thearchitect and approximately $13.7 million to SCMC and SCMC has paid such$13.7 million to the remaining unpaid subcontractors in exchange forassignments by the architect to us and by such subcontractors to SCMC (and thenby SCMC to us) of their respective claims against Klewin.  Although we are vigorously seeking recoverythrough legal proceedings, we can provide no assurance that we will be able torecover from Klewin all or any portion of the approximate$14.6 million.  As a result, we haverecorded a $13.3 million charge to earnings relating to amounts unrecovered asof September 30, 2005, net of approximately $1.3 million in managementfees and other amounts due to Klewin.  OnSeptember 14, 2005, Klewin filed an Application for Immediate TemporaryInjunction seeking a temporary injunction prohibiting us from using design andconstruction documents and appropriating Klewin employees.  Klewin has also asserted counterclaimsalleging, among other matters, tortious interference with their business.  On November 30, 2005, the Court grantedour motion to dismiss Klewin’s counterclaims and Application for ImmediateTemporary Injunction.  Klewin has filedan appeal.  BankNorth has also assertedcounterclaims and we have filed a new action against BankNorth.  Reference is made to “Legal Proceedings” forfurther discussion regarding this litigation with Klewin.

 

In connection with the termination ofthe luxury hotel design/build construction contract, the board of directors ofSNFGC authorized senior management to commence discussions with SCMC to enterinto a definitive agreement to complete the Seneca Niagara Casino expansionproject.  The board of directors alsoauthorized SNFGC to immediately engage SCMC to manage the Seneca Niagara Casinoexpansion project while such definitive agreement is negotiated andfinalized.  We do not currentlyanticipate that the termination of the luxury hotel design/build constructioncontract with Klewin will materially adversely affect our ability to completeconstruction of the Seneca Niagara Casino expansion project on schedule.  Work on the project continues.  We opened substantially all public areas andthe first 10 floors of rooms on December 15, 2005, and expect to completethe project by March 31, 2006.

 

We had previously expected the totalcost of constructing and equipping our 604-room luxury hotel to beapproximately $200.0 million, which included$153.0 million in construction costs under the guaranteed maximum fixed pricedesign/build construction contract with Klewin, and approximately $47.0 millionfor furniture, fixtures and equipment. Prior to our filing the complaintagainst Klewin, Klewin orally advised us that construction costs could exceedthe guaranteed maximum contract sum of $153.0 million. We currently expect thatthe total cost of constructing and equipping the luxury hotel will be from $235.0million to $240.0 million, including construction costs of from $177.0 millionto $180.0 million.** **The expected increase inconstruction costs is due to factors that existed prior to our termination ofKlewin and, as a result, such expected increase is not due to the terminationof Klewin (although in light of our position that the contract was a maximumprice contract, the termination of the contract with Klewin could be deemed tohave triggered the expected increase in construction costs).  The financial impact of any additionalconstruction costs over the initial estimate of $153.0 million will bereflected as additional depreciation expense on our future statements ofincome.  Based on our analysis ofprojected future cash flows from this project, the present value of future cashflows should be sufficient to cover the fair market value of the improvements,and as such, we do not expect any impairment charge to be necessary in relationto the additional cost of construction.

 

*SenecaAllegany Casino.*    Sinceits opening on May 1, 2004, Seneca Allegany Casino has experienced steadygrowth in its patron base, net revenue, and profitability. Seneca AlleganyCasino has attracted patrons from the southern portion of Western New York,Erie and Pittsburgh, Pennsylvania and Ohio. From opening through September 30,2005, approximately 65% of its patrons have come from outside New York State. 

 

In September 2004,we converted and divided Seneca Allegany Casino’s existing 450-seat bingo areainto a non-smoking poker room with 16 tables and a non-smoking casino with 185slot machines. At the same time, we relocated our existing 450-seat bingooperations at Seneca Allegany Casino to the site of Seneca Gaming &Entertainment’s former Class

 

40

----

 

II gaming operations, or the Seneca Allegany Class II Facility, inSalamanca, New York, that included bingo, four poker tables and 200 Class IIvideo gaming machines. The Seneca Allegany Class II Facility is locatedless than a mile from Seneca Allegany Casino. Seneca Gaming &Entertainment ceased operating the Seneca Allegany Class II Facility priorto the opening of Seneca Allegany Casino. 

 

On November 2,2004, the Nation held an election for its three Executive Branch officers, thePresident (Chief Executive Officer), Treasurer (Chief Financial Officer) andthe Clerk, and 8 of the 16 members of its legislative branch, or the Council.As part of the initial actions taken by the new government at its first Councilmeeting on November 13, 2004, it appointed a Class II ManagementCommittee to develop policies and procedures to govern the Nation’s Class IIFacilities located on its Allegany Territory, which include our operation ofthe Seneca Allegany Class II Facility. The November 13, 2004resolutions further provide that all revenues generated by the Nation’s Class IIfacilities shall be transferred directly to the Nation instead of to us.Through subsequent discussions with executive officers of the Nation, we wereinformed that, notwithstanding the foregoing resolutions, the Council wantedthe Seneca Allegany Class II Facility transferred to the Nation as of January 1,2005. We were subsequently informed by the Tribal Executives that theseresolutions were intended to include the transfer of all Class IIoperations back to the Nation, which include our poker operations, a Class IIgame, at the Seneca Niagara Casino and Seneca Allegany Casino. 

 

As of January 1,2005, we transferred Seneca Allegany Class II operations to the Nation. Weopened the Seneca Allegany Class II Facility on May 1, 2004. Duringthe five months ended September 30, 2004 and the fiscal year ended September 30,2005, we invested approximately $2.1 million and $0.4 million, respectively, inrenovating and upgrading the Seneca Allegany Class II Facility andreceived approximately $2.5 million and $1.4 million, respectively, of netrevenue from this facility during these periods. 

 

As of January 1,2005, separate management selected by the Nation runs the poker operations atthe Seneca Niagara Casino and Seneca Allegany Casino.  The related leases cover the costs, amongother things, of rental and services provided by us, including accounting, andfood and beverage. We opened the poker rooms at the Seneca Niagara Casino andSeneca Allegany Class II Facility on May 14, 2004 and May 1,2004, respectively. We did not open a poker room at the Seneca Allegany Casinountil October 1, 2004. From the opening of the poker rooms at SenecaNiagara Casino and Seneca Allegany Class II Facility through September 30,2004, and for the fiscal year ended September 30, 2005, we receivedapproximately $2.7 million and $2.0 million, respectively, of net pokerrevenue.  

 

Thetransfer of the Class II operations as of January 1, 2005 isconsistent with our understanding of the Council’s intent that we manage andoperate the Nation’s Class III operations and that the Council, throughSeneca Gaming and Entertainment, directly manages and operates the Nation’s Class IIoperations as it has historically done. 

 

We recordedin January 2005 the value of the improvements, video lottery terminals,and other costs we incurred to improve the Seneca Allegany Class IIFacility of $2.4 million as an equity distribution to the Nation. 

 

In July 2005,we opened our 1,850-space parking garage and we are constructing a 220-roomhotel and casino at Seneca Allegany Casino. We believe this expansion isnecessary to provide a first-class gaming experience for our patrons and tomaintain the competitive position of the facility in light of expected futurecompetition in Pennsylvania.  Wecurrently expect the total cost to complete this expansion project, includingthe $31.0 million cost of the recently opened parking garage and the cost offurniture, fixtures and equipment, will be from $187.0 million to $198.0 million.  The increase in the original $185.0 million expectedtotal cost for this expansion project is principally attributable to severaldesign changes requested by STGC and the delay in the project caused by suchchanges, and foundation work being done in anticipation of a possible secondhotel tower.  We plan to continue to fundthis expansion with cash flows from operations and cash on hand.  We expect to open all public areas and thefirst few floors of rooms of this hotel and casino in October 2006and to complete the project by the end of December 2006.  The opening of the garage and hotel waspreviously delayed due to weather and construction issues. The constructionissues related to a portion of the garage being out of acceptable plumbtolerance limits. The remedial work done on the garage by the prior constructionmanager has not, to date, resulted in any additional cost to us and all costs,to date, have been borne entirely by the prior construction manager.   

 

Also in July 2005,we reached a mutual agreement with Klewin (now alleged by Klewin to have beenentered into under duress), the then construction manager of SenecaAllegany Casino’s 220-room hotel and casino, toterminate the design/construction agreement entered into by STGC and Klewin on September 1,2004 for the construction of the hotel and casino.  In connection with the termination of theagreement, on July 14, 2005, STGC entered into a construction managementagreement with SCMC to manage the construction of the hotel and casino atSeneca Allegany Casino.  The expectedincrease in construction costs for the hotel and casino discussed above was notattributable to the termination of Klewin, and the termination of Klewin onthis project is not expected to have any impact on our operations.

 

41

----

 

We fundedall the construction, equipment and pre-opening costs of Seneca Allegany Casinoentirely from Seneca Niagara Casino’s free cash flow, in the form ofintercompany loans from SGC.

 

*Current,Continued and Future Reliance on Cash Flow*. We have purchased the site of our expected futurecasino in Erie County and intend to fund the maintenance of our facilities andour planned future expansion projects from our cash flow and cash on hand. Wecurrently rely and will continue to rely on our ability to generate cash flowfrom operations to repay our debt financing. 

 

*Seasonality*.  As of September 30,2005, our results of operations had not been seasonal in nature. 

 

*OverallOutlook.*    Asdiscussed in more detail above, since inception, we have invested heavily in ouroperations and plan to continue to do so during fiscal 2006.  We believe that investments in additionalgaming space and non-gaming amenities at our facilities and our exclusiveability to offer Class III gaming in Western New York, will enable us to capitalizeon what we believe is an underserved market in Western New York, Pennsylvaniaand parts of Ohio.

 

**CriticalAccounting Policies and Estimates**

 

Management’sdiscussion and analysis of our financial condition, results of operations andliquidity and capital resources are based on our consolidated financialstatements. To prepare our consolidated financial statements in accordance withaccounting principles generally accepted in the United States of America, wemust make estimates and assumptions that affect the amounts reported in theconsolidated financial statements. We regularly evaluate these estimates andassumptions, particularly in areas we consider to be critical accountingestimates, where changes in the estimates and assumptions could have a materialimpact on our results of operations, financial position and, to a lesserextent, cash flows. There can be no assurance that actual results will notdiffer from our estimates. To provide an understanding of the methodology weapply, our significant accounting policies and basis of presentation aresummarized in Note 2 to our audited consolidated financial statements includedin this Annual Report for the year ended September 30, 2005. We believethe following accounting policies involve a higher degree of managementjudgment. 

 

*Liabilityfor Unredeemed Seneca Link 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 andbeverages at our restaurants and products offered at our retail stores. Pointsare accrued and reflected as current liabilities on our balance sheets basedupon expected redemption rates and the estimated cost of the service ormerchandise to be provided. Management reviews the adequacy of the accrual forunredeemed points by periodically evaluating the historical redemption andprojected trends. Actual results could differ from our estimates. 

 

*Self-InsuranceReserves.*    Wehave financial exposure for portions of our employee benefits programs andgeneral liability reserves. We accrue for liabilities based on filed claims andestimates of claims incurred but not reported. In our opinion our accruals tocover these costs are adequate, but actual results may vary from the amountaccrued. 

 

*Propertyand Equipment.*    Wehave a significant amount of capital invested in our property and equipment,which is stated at cost less accumulated depreciation and amortization. We usejudgment in determining if or when assets have been impaired and the estimateduseful lives of assets. The accuracy of these estimates affects whether or notimpairment exists, and the depreciation and amortization expense recognized inour results of operations. Leasehold improvements represent a significantportion of our property and equipment balance. These assets are amortized overthe lesser of the related lease term or the estimated life of the assets. Theuseful lives assigned to our other property and equipment assets are based onour standard policy, which we believe represents the useful life of eachcategory of asset. In accordance with SFAS No. 144, Accounting for theImpairment or Disposal of Long-Lived Assets, the carrying values of ourlong-lived assets are reviewed when events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. Assets are groupedat the property level when estimating future cash flows for determining whetheran asset has been impaired. Management assesses the possibility of assetimpairment by using the estimates of future cash flows, which are affected bycurrent operating results, trends and prospects, as well as the effect ofobsolescence, demand, competition and other economic factors. 

 

*RegulatoryCosts.    *We have financial exposure for unbilled regulatorycosts related to oversight provided by the New York State Police (StatePolice).  There is an on-going disputebetween the Nation and the State Police as to the appropriate amount of coststhat are due to the State Police for their regulatory oversight.  As of September 30, 2005, we have accruedapproximately $6.5 million to cover such costs. In our opinion, this accrual is adequate, but actual results may varyfrom the amount accrued.

 

Ouranalysis of cash flows represents our best estimates at the time of the review.However, changes in these assumptions due to actual market conditions thatcause less favorable results than our estimates may result in impairment in thefuture. 

 

42

----

 

**OperatingResults**

 

*OperatingResults*

* *
| ** **                               | ** ** | **Fiscal Year Ended  September** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **2003**                         | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                               | ** ** | **(dollars in thousands)**       | ** ** |
| Net revenue                              |       | $                                | 195,756    |   | $ | 356,396 |   | $ | 449,153 |   |
| Operating expenses:                      |       |                             |       |   |   |   |   |
| Gaming                                   |       | 53,686                           |       | 92,531 |   | 114,746 |   |
| Food and  beverage                       |       | 15,856                           |       | 26,387 |   | 34,877 |   |
| Retail,  entertainment and other         |       | 2,732                            |       | 7,184 |   | 10,418 |   |
| Advertising,  general and administrative |       | 42,176                           |       | 91,552 |   | 117,188 |   |
| Pre-opening  costs                       |       | 7,155                            |       | 4,228 |   | 1,509 |   |
| Depreciation and  amortization           |       | 8,723                            |       | 17,638 |   | 26,295 |   |
|                                     |       |                             |       |   |   |   |   |
| Operating income                         |       | $                                | 65,428     |   | $ | 116,876 |   | $ | 114,120 |   |

 

The mostimportant factors and trends contributing to our operating performance duringthe fiscal year ended September 30, 2004 and the fiscal year ended September 30,2005 were: 

 

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

 

•    Our ability to enroll over 942,000 patrons in ourcross-property Seneca Link Player’s Card program, which has increased ourability to use effective direct mail and targeted marketing programs toestablish patron loyalty to the Seneca brand at a profitable level. 

 

•    Our mix of slot machines, which we believe is superior to ourcompetition and includes the latest product introductions by leading UnitedStates and international slot manufacturers. 

 

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

 

•    Our ability to operate at a high margin, which we achievethrough the careful monitoring and control of labor costs and the effective useof our marketing and advertising expenditures. 

 

•    Our continued expansion at and reinvestment in both of ourproperties. 

 

43

----

 

*Detailed RevenueInformation*

* *
| ** **                       | ** ** | **Fiscal Year Ended  September 30,** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| ** **                       | ** ** | **2003**                                  | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                       | ** ** | **(dollars in thousands)**                | ** ** |
| Gaming revenue:                  |       |                                      |       |   |   |   |   |
| Slots                            |       | $                                         | 147,658    |   | $ | 275,129 |   | $ | 372,116 |   |
| Table games                      |       | 36,479                                    |       | 57,045 |   | 64,030 |   |
| Other                            |       | 195                                       |       | 5,362 |   | 4,010 |   |
|                             |       |                                      |       |   |   |   |   |
| Gaming revenue                   |       | 184,332                                   |       | 337,536 |   | 440,156 |   |
| Non-gaming revenue:              |       |                                      |       |   |   |   |   |
| Food and  beverage               |       | 16,158                                    |       | 31,358 |   | 41,689 |   |
| Retail,  entertainment and other |       | 4,823                                     |       | 11,797 |   | 16,955 |   |
|                             |       |                                      |       |   |   |   |   |
| Non-gaming  revenue              |       | 20,981                                    |       | $ | 43,155 |   | 58,644 |   |
| Less promotional allowance       |       | (9,557                                    | )          | (24,295 | ) | (49,647 | ) |
|                             |       |                                      |       |   |   |   |   |
| Net revenues                     |       | $                                         | 195,756    |   | $ | 356,396 |   | $ | 449,153 |   |

 

Our gamingrevenue for the fiscal year ended September 30, 2005 increased relative tolast year due primarily to the opening of Seneca Allegany Casino on May 1,2004, which added approximately 1,886 slot machines and 24 table games to ouroperations, the addition of 315 slot machines at Seneca Niagara Casino andcontinued growth in our patron database. In addition, in July 2004 atSeneca Niagara Casino and in August 2004 at Seneca Allegany Casino, weimplemented electronic slot bonusing which are included in slot revenues andpromotional allowances.  This programallows us to reward our slot patrons, based on their propensity to game, byproviding free slot play directly at the slot machine through the use of theirSeneca Link Player’s Card. The free slot play must be played at a slot machine,and cannot be redeemed for cash.  Theamount totaled $9.6 million and $1.4 million at Seneca Niagara Casino duringfiscal 2005 and 2004, respectively, and $5.7 million and $0.1 million at SenecaAllegany Casino during fiscal 2005 and 2004, respectively.  As of September 30, 2005, our casinos hadan aggregate of 103 table games and 5,227 slot machines available to ourpatrons, representing a net decrease of 18 table games and a net increase of 285slot machines from September 30, 2004.  During these periods the number of patronsenrolled in our Seneca Link Player’s Card program has steadily increased. As ofSeptember 30, 2005, we had over 942,000 patrons enrolled, an increase ofapproximately 382,000 patrons over the number enrolled at September 30,2004. 

 

Our netgaming revenue, net of promotional credits of $15.2 million and $1.5 million in2005 and 2004, respectively,  increased $88.9million, or 26%, for the fiscal year ended September 30, 2005 relative tothe fiscal year ended September 30, 2004.  During the fiscal year ended September 30,2005, Seneca Niagara Casino’s net gaming revenue increased $0.3 million, whileSeneca Allegany Casino accounted for $88.6 million of our increased net gamingrevenue for the fiscal year ended September 30, 2005, mainly due to anadditional seven months of operations in the current fiscal year.

 

Our netgaming revenue increased $151.7 million, or 82%, for the fiscal year ended September 30,2004 relative to the fiscal year ended September 30, 2003.  During the fiscal year ended September 30,2004, Seneca Niagara Casino net gaming revenue increased $103.8 million,primarily due to an additional three months of operations in fiscal 2004 inrelation to fiscal 2003.  Seneca AlleganyCasino opened on May 1, 2004 and accounted for $47.9 million of ourincreased net gaming revenue for the fiscal year ended September 30, 2004.

 

Our foodand beverage revenue and retail revenue have increased in direct relation toour increase in gaming revenue. There is a direct relation of our food andbeverage revenue and retail revenue to our gaming revenue because a significantportion of this revenue is from players’ point redemptions.  For the fiscal year ended September 30,2005, 56% of our food and beverage and 88% of our retail revenue representedplayers’ point redemptions.  For the fiscalyear ended September 30, 2005, food and beverage revenue increased $10.3million, or 33% to $41.7 million.  SenecaNiagara Casino contributed $2.3 million of the increase due to higher gamingrevenue and seven additional months operation of our steakhouse.  Seneca Allegany Casino contributed $8.0million of the increase, due mainly to an additional seven months of operationsduring the 2005 fiscal year.  For thefiscal year ended September 30, 2004, approximately 50% of our food andbeverage and 85% of our retail revenue represented players’ pointredemptions.  For the fiscal year ended September 30,2004, food and beverage revenue increased $15.2 million, or 94%, to $31.4million.  For the fiscal year ended September 30,2004, Seneca Niagara Casino contributed $11.3 million of the increase primarilydue to higher gaming revenue, increased

 

44

----

 

utilization of players’ points and the opening in May 2004 of oursteakhouse.  Seneca Allegany Casinogenerated $3.9 million in food and beverage revenue during its five months ofoperations during the fiscal year ended September 30, 2004.

 

For thefiscal year ended September 30, 2005, our retail, entertainment and otherrevenue increased by $5.2 million, or 44% compared to the fiscal year ended September 30,2004.  The increase was primarilyattributable to higher revenue at our Seneca Allegany Casino of $3.4 milliondue to an additional seven months of operations in 2005, and a $1.8 millionincrease at Seneca Niagara Casino, due to higher gaming revenue.

 

For the fiscalyear ended September 30, 2004, our retail, entertainment and other revenueincreased by $6.9 million, or 145% compared to the fiscal year ended September 30,2003.  The increase for the fiscal yearended September 30, 2004 was primarily due to higher revenue at our SenecaNiagara Casino of $6.0 million for the fiscal year. 

 

*DetailedOperating Expenses Information*

 
| ** **                               | ** ** | **Fiscal Year Ended  September 30,** | ** ** |
|------------------------------------------|------------|-------------------------------------------|------------|
| ** **                               | ** ** | **2003**                                  | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                               | ** ** | **(dollars in thousands)**                | ** ** |
| Operating expenses:                      |       |                                      |       |   |   |   |   |
| Gaming                                   |       | $                                         | 53,686     |   | $ | 92,531 |   | $ | 114,746 |   |
| Food and  beverage                       |       | 15,856                                    |       | 26,387 |   | 34,877 |   |
| Retail,  entertainment and other         |       | 2,732                                     |       | 7,184 |   | 10,418 |   |
| Advertising,  general and administrative |       | 42,176                                    |       | 91,552 |   | 117,188 |   |
| Pre-opening  costs                       |       | 7,155                                     |       | 4,228 |   | 1,509 |   |
| Depreciation and  amortization           |       | 8,723                                     |       | 17,638 |   | 26,295 |   |
|                                     |       |                                      |       |   |   |   |   |
| Operating expenses                       |       | $                                         | 130,328    |   | $ | 239,520 |   | $ | 305,033 |   |

 

The mostimportant factors making up our operating expenses during the fiscal year endedSeptember 30, 2005 and the fiscal year ended September 30, 2004 arethe following: 

 

Gaming expensesprincipally consist of costs incurred from operating our table games and slotmachines, of which the primary components are related payroll and employeebenefit costs, and the slot exclusivity fee due to New York State pursuant tothe Compact. For the fiscal years ended September 30, 2005, 2004 and 2003,the slot exclusivity fee was $67.3 million, $51.6 million and $28.8 million,respectively.  For fiscal years ended September 30,2005, 2004 and 2003, Seneca Niagara Casino incurred a slot exclusivity fee of $45.0million, $44.0 million and $28.8 million, respectively.  Seneca Allegany Casino’s share of this expensefor the fiscal years ended September 30, 2005, 2004 and 2003 was $22.3million, $7.6 million and $0, respectively. The increase in the slot exclusivity fee was attributed to higher slotrevenue.  Currently, the exclusivity feeis 18% of the slot machine net drop (money dropped into the machines afterpayout but before our expenses). This fee will increase to 22% on January 1,2007 and to 25% on January 1, 2010. 

 

Food andbeverage expenses are costs we incur for the operation of our restaurants,snack bars and beverage outlets. The primary components of these expenses arethe cost of food and beverages, and related payroll and employee benefitexpenses.  For the fiscal year ended September 30,2005 our food and beverage costs increased $8.5 million, or 32% respectively,from the comparable 2004 period.  Thisincrease was due to the higher food and beverage revenue at both casinos of$10.3 million, along with payroll and other expenses relating to the additionalseven months of operation of the steakhouse at Seneca Niagara Casino duringfiscal 2005.  For the fiscal year ended September 30,2004, our food and beverage costs increased $10.5 million, or 66%, from thecomparable 2003 period. This increase was primarily due to the higher food andbeverage revenue at Seneca Niagara Casino, and costs associated with the May 2004opening and operating of our steakhouse, and $3.6 million of food and beveragecosts at Seneca Allegany Casino incurred since its May 1, 2004 opening.  

 

Retail,entertainment and other expenses represent our costs to operate our retailshops and entertainment offerings. The components of these expenses includerelated payroll and employee benefit costs, the purchase of products offeredfor sale in our retail outlets, and contract costs for entertainers.  For the fiscal year ended September 30,2005 these costs increased approximately $3.2 million, or 44%.  The increase was principally attributable tohigher point redemptions by our patrons at Seneca Niagara Casino and SenecaAllegany Casino for retail merchandise, and also to higher revenues at SenecaAllegany Casino due to the additional seven months of operations in fiscal 2005as compared to 2004.  For the fiscal

 

45

----

 

year ended September 30, 2004, these costs increased approximately$4.5 million, or 163%.  This increase wasprincipally attributable to higher point redemptions by our patrons at SenecaNiagara Casino for retail merchandise.

 

Advertising,general and administrative expenses are incurred to support our operations.  These expenses consist primarily of relatedpayroll and employee benefits costs, regulatory, advertising, rent, marketing,insurance, legal and energy costs.  Forthe fiscal year ended September 30, 2005, these expenses were $117.2million compared to $91.6 million during the same period in 2004.  This represents an increase of $25.6 million,or 28%.  The increase was mainly due to a$27.2 million increase at Seneca Allegany Casino attributable to an additionalseven months of operations during 2005.  Forthe fiscal year ended September 30, 2005, regulatory costs increased $5.0million or 44.6%.  In addition, we madelease payments to the Nation for the land upon which we operate Seneca NiagaraCasino and Seneca Allegany Casino totaling $26.8 million and $15.8 millionduring the fiscal years ended September 30, 2005 and 2004, respectively.  Seneca Niagara Casino advertising, general andadministrative expenses decreased $2.5 million for the fiscal year ended September 30,2005 relative to the same period in 2004, mainly due to a $1.4 million decreasein promotional expenses.  For the fiscalyear ended September 30, 2004, these expenses were $91.6 million comparedto $42.2 million during the same period in 2003.  This represents an increase of $49.4 million,or 117%.  Seneca Niagara Casinoadvertising, general and administrative expenses increased $33.4 million forthe fiscal year ended September 30, 2004 relative to the same period in2003.  Of this increase, $9.0 millionrepresents increased lease payments made to the Nation for the land andbuilding used for the casino, which increased from $3.0 million in 2003 to$12.0 million in 2004.  The remainder ofthe increase for the fiscal year ended September 30, 2004 was attributableto higher advertising and promotional expenses to support increased gamingactivities.  Seneca Allegany Casinoincurred $15.2 million in such expenses since their May 1, 2004 opening toSeptember 30, 2004, including $3.8 million of lease payments made to theNation for the land on which it operates.  For the fiscal year ended September 30,2004, regulatory costs increased $5.4 million or 93.4%.  Special events and advertising expensesincreased $5.2 million or 138.5%.  Inaddition, we made lease payments to the Nation for the land upon which weoperate Seneca Niagara Casino and Seneca Allegany Casino totaling $15.8 millionand $3.0 million during the fiscal years ended September 30, 2004 and2003, respectively.

 

Pre-openingexpenses are costs we incurred principally in connection with the May 1,2004 opening of Seneca Allegany Casino, and the anticipated December 2005expansion at Seneca Niagara Casino including the opening of the luxury hotel.  These expenses include employee costs, legal,marketing and advertising expenses and other direct expenses related to theopening of our casinos.  Pre-openingexpenses associated with the opening of Seneca Allegany Casino wereapproximately $3.8 million during the fiscal year ended September 30,2004.  In addition, we incurredpre-opening expenses at Seneca Niagara Casino during fiscal 2005 ofapproximately $0.6 million in connection with the expected opening of our new luxuryhotel in December 2005.  We alsoincurred approximately $0.9 million for development expenses related to ourfuture Erie County gaming site that we have acquired for our third Class IIIcasino. 

 

*Non-OperatingExpenses*

 

The followingtable summarizes information related to interest on our long term debt: 

 
| ** **       | ** ** | **Fiscal Year Ended  September 30,** | ** ** |
|------------------|------------|-------------------------------------------|------------|
| ** **       | ** ** | **2003**                                  | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **       | ** ** | **(dollars in thousands)**                | ** ** |
| Interest expense |       | $                                         | 15,515     |   | $ | 33,702 |   | $ | 90,366 |   |
|                  |            |                                           |            |  |  |  |  |  |  |  |

 

Ourinterest cost for the fiscal year ended September 30, 2005 increased $56.7million, which is inclusive of $49.2 million relating to the early prepaymentof SNFGC’s Term Loan, a $12.7 million increase in interest expense relating tothe seven additional months of interest on the $300 million aggregate principalamount of the 2004 senior notes, issued in May 2004 by SGC, and $4.8million increased interest expense relating to the $200 million aggregateprincipal amount of the 2005 senior notes, issued in May 2005.  These amounts were partially offset by lowerinterest on SNFGC’s Term Loan, due to the 2005 prepayment.  Prior to its extinguishment in May 2005,the Term Loan required us to make monthly interest payments on the outstandingbalance at one-month LIBOR plus 29%.  Asof September 30, 2005, 2004 and 2003, $0, $80.0 million and $57.3 millionwere outstanding, respectively, under the Term Loan.

 

For thefiscal year ended September 30, 2004, our interest costs were $33.7million, an increase of $18.2 million, or 117% over the 2003 fiscal year.  This increases resulted from the issuance ofthe 2004 senior notes and the increased amount outstanding under the TermLoan.  

 

Prior tothe offering of the 2004 senior notes, SNFGC and STGC had financingarrangements with slot machine vendors that initially provided approximately$37.3 million and $18.1 million, respectively, of gaming equipment financing.We used operating cash flow and proceeds from the 2004 senior notes offering torepay these loans in full in May 2004. 

 

46

----

 

*Net Income*

* *

Net income for thefiscal year ended September 20, 3005 was $45.6 million compared to $84.7million in the comparable 2004 period, a decrease of $39.1 million, or46%.  This decrease was mainlyattributable to the charge to earnings of approximately $49.2 million incurredpursuant to the early extinguishment of the Term Loan, the $13.3 millionnon-recurring Klewin charge and increased interest expense related to oursenior notes, partially offset by the increase in net income from theoperations of the Seneca Allegany Casino, which opened May 1, 2004.

 

**Liquidity andCapital Resources**

 

*Cash Flows*

* *
| ** **                                           | ** ** | **Fiscal Year Ended  September 30,** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                           | ** ** | **2003**                                  | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                           | ** ** | **(dollars in thousands)**                | ** ** |
| Net cash provided by operations                      |       | $                                         | 97,720     |   | $ | 143,803 |   | $ | 47,652 |   |
| Investing cash flows                                 |       |                                      |       |   |   |   |   |
| Capital  expenditures                                |       | (111,607                                  | )          | (168,704 | ) | (171,011 | ) |
| Payments for  land acquisitions and other assets     |       | (7,356                                    | )          | (12,036 | ) | (1,673 | ) |
| Refund of  deposits                                  |       | —                                    |       | — |   | 700 |   |
| Purchase of  investments                             |       | —                                    |       | (57,963 | ) | (20,163 | ) |
|                                                 |       |                                      |       |   |   |   |   |
| Net cash used in  investing activities               |       | $                                         | (118,963   | ) | $ | (238,703 | ) | $ | (192,147 | ) |
| Financing cash flows                                 |       |                                      |       |   |   |   |   |
| Proceeds from  the Term Loan                         |       | 57,300                                    |       | 22,700 |   | — |   |
| Proceeds from  the 2004 notes                        |       | —                                    |       | 300,000 |   | — |   |
| Proceeds from  the 2005 notes                        |       | —                                    |       | — |   | 193,000 |   |
| Proceeds from  notes payable, equipment and other    |       | 37,344                                    |       | 19,266 |   | — |   |
| Repayment of  notes payable, equipment and other     |       | (8,487                                    | )          | (46,916 | ) | (325 | ) |
| Repayments from  note payable to the Nation          |       | (250                                      | )          | — |   | — |   |
| Repayment of  Term Loan                              |       | —                                    |       | — |   | (80,000 | ) |
| Payment to  sinking fund, net                        |       | —                                    |       | (6,048 | ) | (11,917 | ) |
| Purchase of  interest rate caps                      |       | —                                    |       | (2,188 | ) | — |   |
| Proceeds from  sale of interest rate caps            |       | —                                    |       | — |   | 683 |   |
| Payment of  deferred financing costs                 |       | (5,168                                    | )          | (11,937 | ) | (4,982 | ) |
| Cash dividends  to the Nation                        |       | —                                    |       | (28,010 | ) | (21,092 | ) |
|                                                 |       |                                      |       |   |   |   |   |
| Net cash  provided by financing activities           |       | 80,739                                    |       | 246,867 |   | 75,367 |   |
|                                                 |       |                                      |       |   |   |   |   |
| Net increase (decrease) in cash and cash equivalents |       | $                                         | 59,496     |   | $ | 151,967 |   | $ | (69,128 | ) |

 

*CashFlows—Operating Activities.  *The decrease in cash flows from operations during the12 months ended September 30, 2005 compared to the same period in 2004 wasprimarily due to a $39.1 million decrease in net income which resulted from a$49.2 million charge to income relating to the negotiated payment in full andtermination of the Term Loan in May 2005 and the $13.3 million Klewincharge, partially offset by higher net income at Seneca Allegany Casino of$26.1 million due to an additional seven months of operations in 2005.  In addition to the net income decrease,working capital outflows resulted from the payment during 2005 of 12 months ofaccrued exclusivity fees incurred in 2004. During 2005, exclusivity fees were paid by the Company monthly as incurred.  The increase in cash flows from operationsduring the fiscal year ended September 30, 2004 compared to the sameperiod in 2003 was primarily due to higher net income which resulted from threeadditional months of operations at Seneca Niagara Casino during this period,increased marketing and deeper

 

47

----

 

market penetration, the opening of the 2,300-space connected parkinggarage at our Seneca Niagara Casino, the increase in the membership of ourSeneca Link Player’s Card program, and the May 1, 2004 opening of SenecaAllegany Casino.  

 

*CashFlows—Investing Activities.    *Our capital expenditures of $171.0 million during the 12months ended September 30, 2005 were comprised of $117.0 million of costsassociated with the Seneca Niagara Casino, including $86.5 million inconstruction costs related to the luxury hotel, and $54.0 million related tothe construction and equipping of our Seneca Allegany Casino.  We also incurred costs toward landacquisition in 2005 and 2004 of $1.7 million and $12.0 million, respectively.

 

During thefiscal year ended September 30, 2004, we invested $48.0 million incollateralized market auction preferred stock and $9.9 million in a U.S.Government entity short-term note. These investments do not meet the definitionof a cash equivalent.  Market auctionpreferred stock (MAPS) has a dividend rate determined periodically (typicallyless than 90 days) based on an auction mechanism.  MAPS are typically secured by the issuingfunds’ underlying investment portfolio, which must maintain a 2-to-1 minimumnet asset coverage ratio. Notwithstanding the liquidity which may be provided by the auctionprocess, market auction preferred stock generally does not have a scheduledmaturity.  During the fiscal year ended September 30,2005, we invested an additional $20.1 million in similar instruments.

 

*CashFlows—Financing Activities.   *Weborrowed the remaining $22.7 million that was available under the Term Loan on April 15,2004. On May 23, 2005, we paid the Term Loan in full.  The negotiated payment in full of the TermLoan resulted in a charge to earnings on the early extinguishment of the TermLoan of approximately $49.2 million, including the write-off of $2.5 million ofdeferred financing costs. Prior to its payment, we were obligated to payinterest on the outstanding balance at LIBOR plus 29%. In addition, SNFGC wasobligated to maintain a minimum cash balance of $10.0 million and a pro ratashare of the sinking fund obligation. In addition, in the year ended September 30,2003, we borrowed an aggregate $37.3 million from vendors to finance theinitial equipment for Seneca Niagara Casino at interest rates ranging from 6.0%to 6.42% for 36 months. The outstanding balances of these loans were paid infull in May 2004, and we recognized a gain, net of the write-off ofdeferred finance fees related to these financings of $415,000. This gain isincluded in Other Income in our Statement of Operations for the fiscal yearended September 30, 2004. 

 

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, or will be, usedprincipally to fund in whole or in part: (1) SNFGC’s construction andequipping of the luxury hotel, which we originally expected to (i) cost$200.0 million and (ii) be fully completed by March 31, 2006; (2) theacquisition of the remaining approximate 24 acres of the approximate 50 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 the vendor equipmentfinancing referenced above, which occurred in May 2004; and (5) a$25.0 million distribution to the 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 senior notesreceiving gross proceeds of $193.0 million (as the issue price was 96.5% sincethe 2005 notes were issued with original issue discount).  Of the $193.0 million gross proceeds, as of September 30,2005, approximately $126.7 million had been used to pay in full the Term Loanand approximately $4.7 million had been used to pay fees and expensesassociated with the offering of the 2005 senior notes.  The remaining $61.6 million in gross proceedswill be used to fund certain costs associated with the expansion of ouroperations, for general corporate purposes and to pay additional fees andexpenses associated with the offering of the 2005 senior notes, including therelated exchange offer.

 

Inaddition, we purchased two interest rate caps in May 2004 for $2.2 millionthat effectively capped the Term Loan interest at 29% plus 4% on the one monthLIBOR.  In June 2005, we sold thetwo interest rate caps for $0.7 million in connection with the termination ofthe Term Loan.

 

*PrincipalDebt Arrangements.   *As of September 30,2005, our long-term debt consisted of the notes on which we pay a fixedinterest rate of 71⁄4%. Following is a summary of certain material terms of thenotes and the Term Loan. 

 

The Notes.    On May 5, 2004 and May 23,2005, SGC issued $300.0 million and $200.0 million, respectively, in seniornotes with fixed interest payable at a rate of 71⁄4% per annum due 2012, which werefer to collectively as the senior notes, under the Indenture. The notes arecurrently guaranteed by STGC, SEGC and SNFGC. SNFGC became a guarantor of thesenior notes upon payment in full of the Term Loan on May 23, 2005.Interest on the senior notes is payable semi-annually on November 1 and May 1.The senior notes mature on May 1, 2012. The senior notes are unsecuredgeneral obligations. As of September 30, 2005, accrued interest on the seniornotes was $14.2  million. 

 

48

----

 

TheIndenture contains certain covenants, including limitations on restrictedpayments and the incurrence of indebtedness and reporting obligations. As ofthe date of this Annual Report, SGC is in compliance with all of its covenantrequirements in the Indenture. 

 

Term Loan.    On November 22, 2002, SNFGCentered into a five-year Term Loan with Freemantle, which required Freemantleto provide $80.0 million in financing for the initial construction of the SNFGCcasino facility and other related costs. Immediately prior to payment in fullon May 23, 2005 and as of September 30, 2004, $80.0 million wasoutstanding under the Term Loan.  SNFGCpaid interest on a monthly basis in arrears at one-month LIBOR plus 29%.  In addition, SNFGC incurred an availabilityfee of 0.5% per month on any unborrowed balance.

 

Prior tothe payment in full of the Term Loan, SNFGC was obligated to make payments intoa sinking fund account to be held for the benefit of and as additional collateralfor Freemantle. Payments of $6.0 million and $12.0 million were made in December 2003and 2004, respectively, into the sinking fund. Commencing January 1, 2005and through December 31, 2006, equal quarterly payments of $5.5 millioneach were due on or before the last day of each calendar quarter.  Prior to the payment in full of the Term Loan,the sinking fund consisted of $23.5 million. After payment in full of the Term Loan, all funds in the sinking fundwere released and $5.5 million and $18.0 million were reclassified as cash andcash equivalents and short-term investments, respectively.

 

On May 9,2005, SNFGC, the Nation and Freemantle entered into a Termination Agreement toterminate the Term Loan and to allow SNFGC to pay in full the Term Loan at anegotiated amount, which occurred on May 23, 2005. Pursuant to the termsof the Termination Agreement and in full payment of the Term Loan, we paid anamount equal to approximately $126.7 million, representing (i) theoutstanding principal of $80.0 million under the Term Loan plus (ii) theaggregate amount of interest on such principal at a prescribed interest ratethat would have otherwise been payable if the Term Loan had not been paid on May 23,2005, but was instead paid 81⁄2 months prior to its November 22, 2007 statedmaturity, which amount was approximately $46.7 million.  The payment in full of the Term Loan reducedthe future interest payments that would have otherwise been payable under theTerm Loan if it had not been paid in full by approximately $18.0 million. Thepayment in full of the Term Loan, however, resulted in a charge to earnings onthe early extinguishment of the Term Loan of approximately $49.2 million,including the write off of $2.5 million of deferred financing costs. Theprescribed interest rate was one-month LIBOR as of May 18, 2005 plus 29%.A significant portion of the proceeds from the offering of the 2005 seniornotes were used to pay in full the Term Loan.  Upon payment in full of the Term Loan, SNFGCbecame a full and unconditional guarantor of the 2004 and 2005 senior notes.

 

The abovedescriptions of the senior notes, the Term Loan and the Termination Agreementare only a summary. You should review the Indenture, the Term Loan agreementand the Termination Agreement for an understanding of all of the terms andconditions of these financing arrangements. 

 

During thenext 24 months, we plan to make substantial capital improvements to our gamingfacilities. In May 2004, at Seneca Niagara Casino we commencedconstruction of a new 604-room luxury hotel, including 35,000 square feet ofadditional gaming space and with approximately 950 slot machines. Untilrecently, we expected the total cost of constructing and equipping this hotelto be approximately $200.0 million, representing $153.0 million inconstruction costs pursuant to a guaranteed maximum fixed price design andconstruction contract for the luxury hotel, which included a constructioncontingency of approximately $8.6 million, and approximately$47.0 million for furniture, fixtures and equipment. We had based our$200.0 million estimate on the guaranteed maximum contract sum of $153.0million provided by Klewin in February 2004. Prior to thetermination of this design/build construction contract with Klewin, Klewinorally advised us that construction costs could exceed the guaranteed maximumcontract sum of $153.0 million.** **The current expected total cost toconstruct and equip the luxury hotel is from $235.0 million to $240.0 million,including construction costs of from $177.0 million to $180.0 million.** **Seneca Niagara Casino will remain open during theconstruction and completion of the luxury hotel, with the first phase openingon or before December 30, 2005 and the project to be completed by March 31,2006. Reference is made to “—Executive Summary” regarding additional mattersrelated to the guaranteed maximum price contract with Klewin for the SenecaNiagara Casino luxury hotel.

 

We intendto acquire the remaining approximate 24 acres of the approximate 50 acres inthe City of Niagara Falls, New York, designated by New York State under theCompact for ownership by the Nation. Under the Compact, the Nation is requiredto fund the acquisition of this property, including all related costs andexpenses. As initial security for the Nation’s obligations to pay siteacquisition costs and in furtherance of the ongoing condemnation proceeding,the Nation was required to deliver, and has delivered, to ESDC a letter ofcredit in the amount of $33.5 million representing 150% of the then estimate ofthe total remaining site acquisition costs not yet paid by the Nation.  If the estimate of such site acquisitioncosts increases or if certain other events occur, the Nation may have toprovide an additional letter of credit or replace the existing one with

 

49

----

 

one for a larger monetary amount or, if acceptable to the ESDC, providea supplemental cash escrow amount.  Thisoutstanding letter of credit is 100% cash collateralized (with cash and cashequivalents) by us.

 

Pursuant toagreements entered into in furtherance of the Compact, SNFGC was obligated topay to ESDC the principal due on certain bonds (issued by ESDC in connectionwith the 1970s construction of the Niagara Falls Convention Center) upon theopening of a permanent gaming facility in the City of Niagara Falls, New York.The principal amount due was $23.9 million. ESDC accepted an early, discountedpayment of approximately $22.0 million in full satisfaction of our $23.9million obligation under the Compact. This payment was made on August 16,2004. 

 

We haveconstructed a 1,850 space-parking garage and are constructing a 220-room hoteland casino at our Seneca Allegany Casino. The current expected total cost to complete this project is from $187.0million to $198.0 million.  The garageopened on July 1, 2005.  We expectto open all public areas and the first few floors of this hotel and casino in October 2006and to complete the project by the end of December 2006. 

 

We expectcash generated from our operations, available cash and cash equivalents andshort-term investments as of September 30, 2005 to be sufficient to fundour expansion plans described above, service our debt, and meet our workingcapital requirements for the near future. However, our ability to fund ouroperations, make planned capital expenditures and service our debt depends onour future operating performance and cash flow, which are in turn subject toprevailing economic conditions and to financial, business and other factors,some of which are beyond our control. Additionally, unlike traditionalcorporations, we are prohibited by law from generating cash through an offeringof equity securities and our ability to incur additional indebtedness islimited under the terms of the Indenture governing the notes. 

 

We arehighly leveraged and have significant interest payment requirements under thenotes. As such, limitations on our capital resources could force us to delay orabandon capital projects as well as the construction and development of newproperties. 

 

**Contractual Obligations**

 

Thefollowing table reflects our significant contractual obligations as of September 30,2005.  

 
| ** **                                                 | ** ** | **Payment due by period** | ** ** |
|------------------------------------------------------------|------------|---------------------------|------------|
| **Contractual Obligations**                                | ** ** | **Total**                 | ** ** | **1 Year** | ** ** | **2-3  Years** | ** ** | **4-5  Years** | ** ** | **After 5  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)                 |       | 152,250                   |       | 21,750 |   | 43,500 |   | 43,500 |   | 43,500 |   |
| Interest  payments on 2005 senior notes(1)                 |       | 100,586                   |       | 13,586 |   | 29,000 |   | 29,000 |   | 29,000 |   |
| Seneca Niagara Casino hotel construction(2)                |       | 79,000                    |       | 79,000 |   | — |   | — |   | — |   |
| Seneca Allegany  Casino construction projects              |       | 119,200                   |       | 89,000 |   | 30,200 |   | — |   | — |   |
| Seneca Niagara  Casino operating lease with the Nation(3)  |       | 361,757                   |       | 15,450 |   | 32,305 |   | 34,272 |   | 279,730 |   |
| Seneca Allegany  Casino operating lease with the Nation(4) |       | 361,757                   |       | 15,450 |   | 32,305 |   | 34,272 |   | 279,730 |   |
|                                                       |       |                      |       |   |   |   |   |   |   |   |   |
| Total                                                      |       | $                         | 1,674,550  |   | $ | 234,236 |   | $ | 167,310 |   | $ | 141,044 |   | $ | 1,131,960 |   |
|                                                            |            |                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)      Interest onthe 2004 and 2005 senior notes is 7.25%. Interest on the 2005 senior notes is calculated from May 23, 2005forward.

(2)      Untilrecently, we expected the total cost of constructing and equipping our 604-roomluxury hotel to be approximately $200.0 million, which included $153.0 million in construction costs under the guaranteedmaximum fixed price design/build construction contract with Klewin, and approximately$47.0 million for furniture, fixtures and equipment. We currently expect thatthe total cost of constructing and equipping the luxury hotel will be from $235.0million to $240.0 million, including construction costs of from $177.0 millionto $180.0 million.  As previously noted,the expected increase in construction costs is attributable to factors thatexisted prior to the termination of the construction contract with Klewin.

(3)      Amountsrepresent annual lease payments based upon $1.25 million per month, an increaseof 3% on October 1, 2005 and an assumed 3% increase on each October 1thereafter through the term of the Compact. Annual increases must be authorized by the board of directors of SGC and,subject to compliance with the terms of the Indenture governing the seniornotes, may exceed 3%.

 

50

----

 

(4)      Amountsrepresent annual lease payments based upon $1.25 million per month, an increaseof 3% on October 1, 2005 and an assumed 3% increase on each October 1thereafter through the term of the Compact.Annual increases must be authorized by the board of directors and, subject tocompliance with the terms of the Indenture governing the senior notes, mayexceed 3%.

 

**Regulation**

 

Ouroperations are regulated by Nation laws, the Compact and federal statutes, mostnotably the Indian Gaming Regulatory Act, or IGRA. Several bills have beenproposed during the current and recent sessions of U.S. Congress that couldaffect Indian gaming. Notably, though its proposed legislation has yet to bepresented to Congress, the Policies and Procedures Subproject of the Bureau ofIndian Affairs has proposed sweeping changes to the federal laws concerningIndians. Certain of such bills, if enacted, could impair the ability of theNation and SGC to expand gaming operations and adversely impact the futuregrowth of the Nation’s revenue base. In addition, from time to time, variousgovernment officials have proposed taxing Indian casino gaming or otherwiselimiting or restricting the conduct of gaming operations by Indian tribes. Wecannot assure you that such legislation, if and when enacted by Congress, wouldnot have a material adverse effect on the operations of SGC. Senator JohnMcCain, Chairman of the Senate Indian Affairs Committee, has held a couple ofhearings regarding possible amendments to the IGRA. As it relates particularlyto off-reservation gaming, there have been several Congressional hearings heldby both the Seneca Indian Affairs Committee and the House Resources Committee.House Resources Committee Chairman Richard Pombo has circulated a draft bill,which has not been introduced, to amend the IGRA to restrict off-reservationgaming activities by tribes. If Congress were to enact comprehensive amendmentsto the 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 rule similarly),or otherwise to take a legal position adverse to the Compact or any of itsprovisions, such actions could have a material adverse effect on the ability ofour casinos to conduct their gaming operations as currently conducted.Moreover, a 1996 U.S. Supreme Court decision may permit a state to avoid orrefuse to negotiate amendments to existing compacts such as the Compact. 

 

**Recent AccountingPronouncements**

 

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions” (“SFAS 153”). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange have commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for fiscal years beginning after June 15, 2005.  We do not believe that the adoption of SFAS 153 will have a material effect on our results of operations or consolidated financial position.

 

In May 2005, the Financial Accounting Standards Board, issued Statement of Financial Accounting Standards SFAS No. 154, “Accounting Changes and Error Corrections”(“SFAS 154”). SFAS 154 replaces APB No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements” and establishes retrospective application as the required method for reporting a change in accounting principle. The reporting of a correction of an error by restating previously issued financial statements is also addressed. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.  We do not believe that the adoption of SFAS 154 will have a material effect on our results of operations or consolidated financial position.

 

**Item 7A****.****Quantitative and Qualitative Disclosures about Market 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 commodity prices.Prior to the payment in full of our Term Loan on May 23, 2005, our primaryexposure to market risk was interest rate risk associated with the Term Loansince it constituted variable rate debt. Since the payment in full of the TermLoan, we believe that our exposure to market risk in the form of interest ratefluctuations is low. Our outstanding notes are fixed-rate indebtedness. 

 

**Item8.****FinancialStatements and Supplementary Data**

 

Ourconsolidated financial 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.

 

51

----

 

**Item9.****  Changes and Disagreements with Accountants onAccounting and Financial Disclosure**

 

None.

 

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

 

**Evaluation of DisclosureControls and Procedures**

** **

Ourmanagement, with the participation of our principal executive and financialofficers, has evaluated the effectiveness of our disclosure controls andprocedures, as such term is defined in Rule 13a-15 and Rule 15d-15under the Securities Exchange Act of 1934, as of September 30, 2005.  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 disclosurecontrols and procedures can only provide reasonable assurance of achieving thedesired control objective.  We believeour disclosure controls and procedures are designed to provide reasonableassurance that information required to be disclosed in our reports filed underthe Securities Exchange Act of 1934, such as this Annual Report 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.

 

Basedon the evaluation of the effectiveness of our disclosure controls andprocedures, as of September 30, 2005, completed by our management, withthe participation of our President and Chief Executive Officer and Senior VicePresident of Finance and Administration (as our principal executive officer andprincipal financial officer), our President and Chief Executive Officer andSenior Vice President of Finance and Administration, have concluded that ourdisclosure controls and procedures were effective.

 

**Changesin Internal Control Over Financial Reporting**

 

There hasbeen no change in our internal control over financial reporting during ourfourth fiscal quarter that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

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

 

Notapplicable.  

 

52

----

 

**PART III**

 

**Item10****.****Directors and Executive Officers of the Registrant**

 

Thefollowing table sets forth information concerning our executive officers anddirectors as of September 30, 2005:

 
| **Name**                    | ** ** | **Age** | ** ** | **Position**                                                               |
|-----------------------------|------------|---------|------------|----------------------------------------------------------------------------|
| John  Pasqualoni(1)         |       | 59      |       | President and  Chief Executive Officer                                     |
| Joseph D’Amato         |       | 57      |       | Senior Vice  President of Finance and Administration                       |
| Annette Smith(2)            |       | 44      |       | Chief Financial  Officer                                                   |
| Barry W. Brandon            |       | 44      |       | Senior Vice  President and General Counsel                                 |
| Rajat R. Shah               |       | 34      |       | Senior Vice  President of Corporate Development and Deputy General Counsel |
| Michael Speller             |       | 50      |       | Senior Vice  President of Table Games and Poker                            |
| Brian Hansberry             |       | 51      |       | STGC Vice  President and Chief Operating Officer                           |
| Barry E.  Snyder, Sr.  |       | 66      |       | Chairman of the  Board of Directors                                        |
| Bergal L.  Mitchell III     |       | 32      |       | Vice Chairman of  the Board of Directors                                   |
| Maurice A.  John, Sr.  |       | 57      |       | Treasurer and  Director                                                    |
| Martin E.  Seneca, Jr. |       | 63      |       | Secretary and  Director                                                    |
| N. Cochise  Redeye          |       | 49      |       | Director                                                                   |
| Maribel Printup             |       | 76      |       | Director                                                                   |

 

----

(1)      Mr. Pasqualoniwas appointed President and Chief Executive Officer on June 21, 2005,having previously served as interim President and Chief Executive Officer.

 

(2)      Ms. Smithcommenced a medical leave of absence in October 2005.  Although Ms. Smith serves as ChiefFinancial Officer, Mr. D’Amato is our principal financial and accountingofficer. 

 

The Councilalone has the power to appoint and remove directors from SGC and each of itssubsidiaries. Since the most recent election on November 2, 2004, the newCouncil has taken a more active role in managing our affairs. As previouslydiscussed, the transfer of the Seneca Allegany Class II Facility and thepoker room leases at the Seneca Niagara Casino and Seneca Allegany Casino tothe Nation as of January 1, 2005 was part of the initial actions taken bythe new Council at its first meeting on November 13, 2004. In addition,the President of the Nation has subsequently issued two executive ordersaffecting the management of SGC and its subsidiaries. By executive orders in November 2004,the Nation’s President (1) established a Gaming Management Task Force toreview the management and operation of the Nation’s Class III gamingfacilities within 120 days of the executive order and (2) imposed certaintemporary cost containment measures on the operations of the casinos requiringpre-approval from the Nation’s President or Treasurer before certainexpenditures are made by us. 

 

Inaddition, on December 20, 2004, the Council amended each of the chartersof SGC and its subsidiaries requiring more oversight by the Council. Theseamendments include, but are not limited to, Council approval of: 

 

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

 

(ii)  anysignificant expenditure of corporate resources via approval of a comprehensivebusiness plan regarding such activity requiring the expenditure; 

 

(iii)  terminationof the operation of any gaming facility; 

 

(iv)  anyamendments to any of the bylaws of SGC and its subsidiaries; 

 

(v)  anyagreements with any government or governmental agency or entity; 

 

(vi)  incurrenceof any significant guarantees or liabilities by SGC or its subsidiaries; 

 

(vii)  anyintercompany loans; purchase of real property and significant expenditures forpersonal property; and 

 

(viii)  obtainingfinancing and issuance of obligations by SGC or its subsidiaries. 

 

53

----

 

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. 

 

***John Pasqualoni***has been our President and Chief Executive Officer since June 21, 2005.Prior to his election to that position, Mr. Pasqualoni served briefly asour interim President and Chief Executive Officer and Chief Operating Officer ofall our gaming operations. Prior to his appointment as Chief Operating Officerin February 2005, Mr. Pasqualoni was our Senior Vice President, SlotOperations/Marketing. Mr. Pasqualoni has been with SGC since October 2002.Previously, Mr. Pasqualoni was employed by Resorts International Hotel andCasino in Atlantic City from November 2001 to October 2002 andattained the position of Senior Vice President of Slot Operations/Promotions.From June 1999 to November 2001, Mr. Pasqualoni was a gamingindustry consultant to Louisiana Downs and Resorts International Hotel andCasino. From March 1998 to June 1999, Mr. Pasqualoni was apartner at Top Gun Gaming, LLC, a slot machine development company. From 1993to 1998, Mr. Pasqualoni was Vice President of Slot Operations and CasinoMarketing at the Foxwoods Resort Casino. Additionally, he has worked in slotmanagement positions at several casinos and hotel gaming complexes, includingthe Frontier Hotel in Las Vegas, Bally’s Park Place Casino, Tropicana Casino,the Hilton/Trump’s Castle and Trump Plaza Hotel Casino in Atlantic City and theLucayan Beach Hotel Resort in the Bahamas. 

 

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

 

***Annette Smith***has been our Chief Financial Officer since July 2003. Mrs. Smith wasa member of the boards of directors of SGC and SNFGC from August 2002 to December 2004.In February 2003, Ms. Smith was appointed Treasurer of bothcorporations and served in such capacity until December 2004. Ms. Smithalso serves as Chief Financial Officer of SEGC and STGC. From 1991 untiljoining SGC in 2003, Ms. Smith was employed by Chautauqua County,initially as its Budget Director, and subsequently as Director of Managementand Budget. Ms. Smith received a Bachelor of Science degree in BusinessAdministration and Accounting from Rochester Institute of Technology. Ms. Smithis an enrolled member of the Nation. 

 

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

 

***Rajat R. Shah***has served as our Senior Vice President of Corporate Development and DeputyGeneral Counsel since May 2, 2005. Prior to joining SGC, Mr. Shah wasa counsel at the law firm of Akin Gump Strauss Hauer & Feld LLP wherehe practiced corporate and securities law, with a concentration in the areas offinance, securities, mergers and acquisitions and joint ventures. From September 1996until July 1998, Mr. Shah worked as an associate at the law firm ofPillsbury Winthrop Shaw Pittman LLP. Mr. Shah earned his B.A. in 1993 fromGettysburg College and his J.D. in 1996 from Vanderbilt University. 

 

***Michael F. Speller*** has served as our Senior Vice President of Table Games andPoker since June 2004. From September 2002 to June 2004, Mr. Spellerserved as our Vice President of Table Games. From 1999 to September 2002, Mr. Spellerworked as an independent gaming consultant. Mr. Speller has over 30 yearsof gaming experience in both domestic and international gaming jurisdictions.He has worked with major casino operators including the Tropicana in AtlanticCity, Coral Casino Group in London, England, Resorts International in ParadiseIsland, Bahamas, and Foxwoods Resort and

 

54

----

 

Casino in Connecticut. He has extensive senior management experience atthe chief executive officer, chief operating officer and general managerlevels. 

 

***Brian Hansberry***has served as STGC’s Vice President and Chief Operating Officer since December 2003.Mr. Hansberry joined us in October 2002 as a table games shiftmanager and subsequently as tables games manager. Mr. Hansberry has over25 years of experience in the gaming industry. He has worked for several gamingcorporations including Resorts International Casino and The Sands Casino Hotelin Atlantic City, and Players Island Casino Isle of Capri in Louisiana. Mr. Hansberryhas experience in operations, marketing and administration, and has held thepositions of Director of Operations and Vice President of Operations andAdministration. He is a 1977 graduate of Rutgers University. 

 

***Barry E. Snyder, Sr.*** has served as Chairman of the board of directors of SGCsince December 2004. Mr. Snyder is currently the President of theNation and previously served the Nation in this capacity on two occasions. Mr. Snyderis the owner of the Seneca Hawk Tobacco Shop. 

 

***Bergal L. Mitchell, III*** has served as a member and Vice Chairman of the board ofdirectors of SGC since August 2002 and December 2004, respectively. Mr. Mitchellwas a member of Council from November 2000 to November 2004. Mr. Mitchellhas been employed by Ross John Enterprise since 1996 where he has held variousbusiness development positions. 

 

***Maurice A. John, Sr.*** has served as Treasurer of the board of directors of SGCsince December 2004. Mr. John is currently the Treasurer of theNation and previously served two terms in tribal Council. Mr. John hasalso served the Nation as a judge in the Nation’s appellate court. Mr. Johnwas the former President of the Coalition of Indian Controlled School Boards, anational Indian Education Organization. Mr. John has an existing tax lienimposed by the U.S. Government which is a result of his beliefs in the treatiesbetween the United States of America and the Seneca Nation of Indians. 

 

***Martin E. Seneca, Jr.*** has served as Secretary of the board of directors of SGCsince December 2004. Mr. Seneca is a lawyer in private practice. Hereceived his J.D. from Harvard Law School. He is a former White House Fellowand a former Deputy Commissioner of the Bureau of Indian Affairs. 

 

***Norman Cochise Redeye*** has served as a member of the board of directors of SGCsince February 2005. Mr. Redeye currently works as a detective in theErie County Sheriff’s Office, a position he has held since 1981. In addition, Mr. Redeyehas served as a Lay Advocate in the Seneca Nation of Indians Peacemakers’ Courtfor the past 20 years. Since 2004, Mr. Redeye has also served as a memberof the board of directors of the SEGC. Prior to joining the Erie County Sheriff’sOffice, Mr. Redeye served as a member of the U.S. Air Force from 1974until 1980. 

 

***Maribel Printup***has served as a member of the board of directors of SGC since February 2005.Ms. Printup currently chairs the board of trustees of the Seneca IroquoisNational Museum. Ms. Printup also served as Councilor of the Council from1998 to 2000 and was with the Bureau of Indian Affairs for 25 years. During thelast 10 years in which Ms. Printup was with the Bureau of Indian Affairs,she served as National Program Coordinator for the Johnson O’Malley Program. Ms. Printupreceived a Bachelors degree in business administration from St. BonaventureUniversity in 1971 and a Masters degree from Pennsylvania State UniversityState College in education in 1975. 

 

*AuditCommittee of the Board of Directors*

* *

Our board ofdirectors 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

 

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

 

55

----

 

The auditcommittee is comprised of members from the board of directors. The members of ouraudit committee are Martin E. Seneca, Jr., chairman of the committee,Bergal L. Mitchell III and Maurice A. John, Sr.

 

*AuditCommittee Financial Expert*

 

The board ofdirectors has determined that it does not have an audit committee financialexpert, meaning that no person has past employment experience in finance oraccounting, requisite professional certification in accounting or any othercomparable experience or background, which results in the individual’sfinancial sophistication, including being or having been a chief executiveofficer, chief financial officer or other senior officer with financialoversight responsibilities.  While we arenot required to have an audit committee financial expert, the board ofdirectors has looked, and expects to continue to look, for an individualmeeting the requisite criteria of an audit committee financial expert to serveon our board and audit committee.

 

*DirectorCompensation*

* *

Ourdirectors receive the following compensation: (i) the Chairman of theBoard receives a $100,000 annual fee; (ii) each non-Nation employeedirector receives a $40,000 annual fee; and (iii) each Nation employeedirector receives $500 per meeting.  Inaddition, we reimburse directors for travel and other expenses incurred inconnection with their duties as directors of SGC and each director hascomplimentary privileges of $1,000 per month at each of our casinos. Nationexecutives who also serve as directors have unlimited complimentary privilegesat both of our casinos. These complimentary privileges are to be used by ourdirectors solely for business purposes.  Thedirectors are also entitled to all other non-compensatory benefits available toour employees, including, but not limited to, health, dental and disabilitybenefits. We have no employee directors. The amended charters of SGC and itssubsidiaries prohibit any of our employees from serving as one of ourdirectors. 

 

*Codeof Ethics*

* *

Wehave adopted a Code of Business Conduct and Ethics applicable to all of ouremployees, including our principal executive officer, principal financial officerand principal accounting officer and all other senior financial executives, andto our directors when acting in their capacity as directors. Our Code ofBusiness Conduct and Ethics is designed to set the standards of businessconduct and ethics and to help directors and employees resolve ethical issues.The purpose of our Code of Business Conduct and Ethics is to ensure to thegreatest possible extent that our business is conducted in a consistently legaland ethical manner. Employees may submit concerns or complaints regardingaudit, accounting, internal controls or other ethical issues on a confidentialbasis by means of a toll-free telephone call or an anonymous email. Weinvestigate all concerns and complaints.  Our Code of Business Conduct and Ethics is availableto investors on our website at www.senecagamingcorporation.com or free ofcharge upon written request. Any such request should be sent by mail to SenecaGaming Corporation, 310 Fourth Street Niagara Falls, New York (Seneca NationTerritory) 14303, Attn: General Counsel or should be made by telephone bycalling (716) 299-1100.

 

Weintend to disclose on our website amendments to, or waivers from, any provisionof our Code of Business Conduct and Ethics that applies to our principal executiveofficer, principal financial officer, principal accounting officer or personsperforming similar functions, and that relates to any element of the code ofethics definition enumerated in Item 406(b) of Regulation S-K.  

 

56

----

 

**Item11****.****Executive Compensation**

 

Thefollowing table sets forth the compensation earned during the last three fiscalyears by our Chief Executive Officer and our four most highly compensatedexecutive officers other than the Chief Executive Officer whose totalcompensation exceeded $100,000 for the year ended September 30, 2005: 

 

**Summary Compensation Table**

 
| ** **                                                                                   | ** ** | ** ** | ** ** | ** **              | ** ** | ** **                | ** ** | **Other  compensation** | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------|------------|-------------------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                                                                                   | ** ** | ** ** | ** ** | **Annual compensation** | ** ** | **401(k) Plan  Matching** | ** ** |
| **Name and Principal Position**                                                              | ** ** | **Year**   | ** ** | **Salary($)**           | ** ** | **Bonus($)(1)**           | ** ** | **Contributions**       | ** ** |
| G. Michael Brown(2)                                                                          |       | 2005       |       | $                       | 442,459    |                      | $          | 350,000                 |       | $ | 2,179 |   |
| Former Chief Executive  Officer                                                              |       | 2004       |       | 625,000                 |       | 500,000                   |       | 4,250                   |       |
|                                                                                         |       | 2003       |       | 633,186                 |       | 600,000                   |       | —                  |       |
|                                                                                         |       |       |       |                    |       |                      |       |                    |       |
| John Pasqualoni                                                                              |       | 2005       |       | 520,335                 |       | 187,500                   |       | 2,625                   |       |
| Current Chief Executive  Officer and Former Senior Vice President, Slot Operations/Marketing |       | 2004  2003 |       | 266,250 215,347         |       | 262,500 225,000           |       | 2,606  —           |       |
|                                                                                         |       |       |       |                    |       |                      |       |                    |       |
| Joseph D’Amato                                                                          |       | 2005       |       | 376,434                 |       | 187,500                   |       | 5,954                   |       |
| Senior Vice President,  Finance and Administration                                           |       | 2004       |       | 249,327                 |       | 262,500                   |       | 3,531                   |       |
|                                                                                         |       | 2003       |       | 160,000                 |       | 200,000                   |       | —                  |       |
|                                                                                         |       |       |       |                    |       |                      |       |                    |       |
| Michael F. Speller                                                                           |       | 2005       |       | 290,727                 |       | 125,000                   |       | 2,621                   |       |
| Senior Vice President  of Table Games and Poker                                              |       | 2004       |       | 203,750                 |       | 137,500                   |       | 2,054                   |       |
|                                                                                         |       | 2003       |       | 175,244                 |       | 180,000                   |       | —                  |       |
|                                                                                         |       |       |       |                    |       |                      |       |                    |       |
| Barry Brandon                                                                                |       | 2005       |       | 376,030                 |       | 187,500                   |       | 4,404                   |       |
| Senior Vice President  and General Counsel                                                   |       | 2004       |       | 54,601                  |       | 106,250                   |       | —                  |       |
|                                                                                         |       | 2003       |       |                    |       |                      |       |                    |       |
|                                                                                         |       |       |       |                    |       |                      |       |                    |       |
| Annette Smith                                                                                |       | 2005       |       | 250,717                 |       | 125,000                   |       | 2,427                   |       |
| Chief Financial Officer                                                                      |       | 2004       |       | 203,750                 |       | 137,500                   |       | 1,592                   |       |
|                                                                                         |       | 2003       |       | 50,000                  |       | 100,000                   |       | —                  |       |
|                                                                                              |            |            |            |                         |            |                           |            |                         |            |  |  |  |

 

----

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

(2)      G. MichaelBrown resigned as Chief Executive Officer on April 6, 2005.

 

**EmploymentAgreements**

 

SGC hasentered into employment agreements with several of its executive officers, thematerial terms of which are summarized below. 

 

***John Pasqualoni.*** ****In connection with his election as interim President andChief Executive Officer, Mr. Pasqualoni and SGC entered into a secondamended and restated employment agreement on April 6, 2005.  SGC and Mr. Pasqualoni are currentlynegotiating the terms of a new employment agreement.

 

Mr. Pasqualoniis entitled to an annual base salary of $390,000 for the period commencing June 1,2004 and ending September 30, 2005, $415,000 for the fiscal year ending September 30,2006, and $440,000 for the fiscal year ending September 30, 2007, with asalary review by the board of directors each fiscal year thereafter at whichtime the board of directors shall determine whether, in its sole discretion, Mr. Pasqualoni’sbase salary shall be increased. Mr. Pasqualoni also receives a monthlyretention payment of $20,000 until such time as his new employment agreement isfinalized.

 

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

 

57

----

 

If Mr. Pasqualoni’semployment is terminated for any reason other than for cause, his death ordisability, the loss by the Nation of its ability to conduct gaming activities,or the loss by Mr. Pasqualoni of his license to work at the Nation’sgaming facilities, we are obligated to: (i) pay Mr. Pasqualoni hisearned, but unpaid, base salary through the termination date, (ii) pay Mr. Pasqualonia pro-rata performance bonus for the year of his termination, and (iii) continueto pay his base salary in effect as of the date of termination for a periodfollowing his termination equal to the lesser of (A) 18 months or (B) theremainder of the period ending on the termination date. Following thetermination of his employment, Mr. Pasqualoni has a duty to mitigate damagesby seeking employment with duties and salary comparable to those provided byus, and if he obtains such employment, he shall reimburse us the amount of thecompensation he has received from such other entity for such period, but not toexceed the amount of the compensation we have paid him for such period. 

 

***Joseph D’Amato.***    Mr. D’Amatoand SGC entered into an amended and restated employment agreement on July 13,2004, pursuant to which Mr. D’Amato will serve as Senior Vice President ofFinance and Administration of each of SGC, SNFGC, STGC and SEGC through September 30,2007, unless his employment is earlier terminated pursuant to the terms of theagreement or renewed by subsequent written agreement. Mr. D’Amato isentitled to an annual base salary of $375,000 for the period commencing June 1,2004 and ending September 30, 2005, $400,000 for the fiscal year ending September 30,2006, and $425,000 for the fiscal year ending September 30, 2007, with asalary review by the board of directors each fiscal year thereafter at whichtime the board of directors shall determine whether, in its sole discretion, Mr. D’Amato’sbase salary shall be increased. Mr. D’Amato is also eligible for an annualperformance bonus. For the fiscal year ending September 30, 2005, Mr. D’Amatowas eligible for an annual performance bonus equal to $187,500 if SGC’sConsolidated EBITDA for the 2005 fiscal year is at least $140.0 million. Thisperformance bonus was paid to Mr. D’Amato in November 2005.  For the fiscal year ending September 30,2006, Mr. D’Amato will be eligible for an annual performance bonus equalto $200,000 if SGC’s Consolidated EBITDA for the 2006 fiscal year is at least$145.0 million. For the fiscal year ending September 30, 2007, Mr. D’Amatowill be eligible for an annual performance bonus equal to $212,500 if SGC’sConsolidated EBITDA for the 2007 fiscal year is at least $147.0 million. Mr. D’Amatois eligible for a milestone bonus of (i) $50,000 if Seneca Erie Casino isopened for business to the public on or prior to September 30, 2006, and (ii) anadditional $50,000 if the luxury hotel for Seneca Niagara Casino is opened forbusiness to the public on or prior to September 30, 2006. In addition, Mr. D’Amatoreceived a signing bonus of $75,000 in connection with entering into hisemployment agreement. 

 

If Mr. D’Amato’semployment is terminated for any reason other than for cause, his death ordisability, the loss by the Nation of its ability to conduct gaming activities,or the loss by Mr. D’Amato of his license to work at the Nation’s gamingfacilities, we are obligated to: (i) pay Mr. D’Amato his earned, butunpaid, base salary through the termination date, (ii) pay Mr. D’Amatoa pro-rata performance bonus for the year of his termination, and (iii) continueto pay his base salary in effect as of the date of termination for a periodfollowing his termination equal to the lesser of (A) 18 months or (B) theremainder of the period ending on the termination date. Following thetermination of his employment, Mr. D’Amato has a duty to mitigate damagesby seeking employment with duties and salary comparable to those provided byus, and if he obtains such employment, he shall reimburse us the amount of thecompensation he has received from such other entity for such period, but not toexceed the amount of the compensation we have paid him for such period. 

 

***Michael F. Speller.***    Mr. Speller and SGC entered intoan amended and restated employment agreement on July 13, 2004, pursuant towhich Mr. Speller will serve as Senior Vice President of Table Games andPoker of each of SGC, SNFGC, STGC and SEGC through September 30, 2007,unless his employment is terminated earlier pursuant to the terms of theagreement or renewed by subsequent written agreement. Mr. Speller is entitledto an annual base salary of $225,000 for the period commencing June 1,2004 and ending September 30, 2004, $290,000 for the fiscal year ending September 30,2005, $315,000 for the fiscal year ending September 30, 2006 and $340,000for the fiscal year ending September 30, 2007, with a salary review by theboard of directors each fiscal year thereafter at which time the board ofdirectors shall determine whether, in its sole discretion, Mr. Speller’sbase salary shall be increased. Mr. Speller is also eligible for an annualperformance bonus. For the fiscal year ending September 30, 2005, Mr. Spellerwas eligible for an annual performance bonus equal to $125,000 if SGC’sConsolidated EBITDA for the 2005 fiscal year is at least $140.0 million. Thisperformance bonus was paid to Mr. Speller in November 2005.  For the fiscal year ending September 30,2006, Mr. Speller will be eligible for an annual performance bonus equalto $150,000 if SGC’s Consolidated EBITDA for the 2006 fiscal year is at least$145.0 million. For the fiscal year ending September 30, 2007, Mr. Spellerwill be eligible for an annual performance bonus equal to $175,000 if SGC’sConsolidated EBITDA for the 2007 fiscal year is at least $147.0 million. Mr. Spelleris eligible for a milestone bonus of (i) $25,000 if Seneca Erie Casino isopened for business to the public on or prior to September 30, 2006, and (ii) anadditional $25,000 if the luxury hotel for Seneca Niagara Casino is opened forbusiness to the public on or prior to September 30, 2006. In addition, Mr. Spellerreceived a signing bonus of $25,000 in connection with entering into hisemployment agreement. 

 

If Mr. Speller’semployment is terminated for any reason other than for cause, his death ordisability, the loss by the Nation of its ability to conduct gaming activities,or the loss by Mr. Speller of his license to work at the Nation’s gaming

 

58

----

 

facilities, we are obligated to: (i) pay Mr. Speller hisearned, but unpaid, base salary through the termination date, (ii) pay Mr. Spellera pro-rata performance bonus for the year of his termination, and (iii) continueto pay his base salary in effect as of the date of termination for a periodfollowing his termination equal to the lesser of (A) 18 months or (B) theremainder of the period ending on the termination date. Following thetermination of his employment, Mr. Speller has a duty to mitigate damagesby seeking employment with duties and salary comparable to those provided by us,and if he obtains such employment, he shall reimburse us the amount of thecompensation he has received from such other entity for such period, but not toexceed the amount of the compensation we have paid him for such period. 

 

***Barry W. Brandon.***    Mr. Brandon and SGC entered intoan employment agreement on July 13, 2004, and an amendment to suchagreement effective October 1, 2005, pursuant to which Mr. Brandonwill serve as Senior Vice President and General Counsel of each of SGC, SNFGC,STGC and SEGC from August 1, 2004 through September 30, 2007, unlesshis employment is earlier terminated pursuant to the terms of the agreement orrenewed by subsequent written agreement. Mr. Brandon is entitled to anannual base salary of $375,000 for the period commencing August 1, 2004and ending September 30, 2005, $700,000 for the fiscal year ending September 30,2006, and $637,000 for the fiscal year ending September 30, 2007, with asalary review by the board of directors each fiscal year thereafter, at whichtime the board of directors shall determine whether, in its sole discretion, Mr. Brandon’sbase salary shall be increased.  For thefiscal years ending prior to October 1, 2005, the effective date of theamendment to Mr. Brandon’s employment agreement, Mr. Brandon is alsoeligible for an annual performance bonus. For the fiscal year ending September 30, 2005, Mr. Brandon waseligible for an annual performance bonus equal to $187,500 if SGC’sConsolidated EBITDA for the 2005 fiscal year is at least $140.0 million.  This performance bonus was paid to Mr. Brandonin November 2005.   Mr. Brandon received a signing bonus of$75,000 in connection with entering into his employment agreement. 

 

If Mr. Brandon’semployment is terminated for any reason other than for cause, his death ordisability, the loss by the Nation of its ability to conduct gaming activities,or the loss by Mr. Brandon of his license to work at the Nation’s gamingfacilities, we are obligated to: (i) pay Mr. Brandon his earned, butunpaid, base salary through the termination date and (ii) continue to payhis base salary in effect as of the date of termination for a period followinghis termination equal to the lesser of (A) 18 months or (B) theremainder of the period ending on the termination date. Following thetermination of his employment, Mr. Brandon has a duty to mitigate damagesby seeking employment with duties and salary comparable to those provided byus, and if he obtains such employment, he shall reimburse us the amount of thecompensation he has received from such other entity for such period, but not toexceed the amount of the compensation we have paid him for such period. 

 

We willalso reimburse Mr. Brandon for reasonable travel expenses between his homein the Washington, D.C. metropolitan area and Niagara Falls New York. If eitherwe or Mr. Brandon determine that it is necessary for Mr. Brandon torelocate to Niagara Falls, New York, we will reimburse Mr. Brandon forcustomary and reasonable relocation expenses. 

 

***Annette Smith.***    Ms. Smithand SGC entered into an amended and restated employment agreement on July 13,2004, pursuant to which Ms. Smith will serve as Treasurer and ChiefFinancial Officer of each of SGC, SNFGC, STGC and SEGC through September 30,2007, unless her employment is earlier terminated pursuant to the terms of theagreement or renewed by subsequent written agreement. Ms. Smith isentitled to an annual base salary of $225,000 for the period commencing June 1,2004 and ending September 30, 2004, $250,000 for the fiscal year ending September 30,2005, $275,000 for the fiscal year ending September 30, 2006, and $300,000for the fiscal year ending September 30, 2007, with a salary review by theboard of directors each fiscal year thereafter at which time the board of directorsshall determine whether, in its sole discretion, Ms. Smith’s base salaryshall be increased. Ms. Smith is also eligible for an annual performancebonus. For the fiscal year ending September 30, 2005, Ms. Smith willbe eligible for an annual performance bonus equal to $125,000 if SGC’sConsolidated EBITDA for the 2005 fiscal year is at least $140.0 million. Forthe fiscal year ending September 30, 2006, Ms. Smith will be eligiblefor an annual performance bonus equal to $150,000 if SGC’s Consolidated EBITDAfor the 2006 fiscal year is at least $145.0 million. For the fiscal year endingSeptember 30, 2007, Ms. Smith will be eligible for an annualperformance bonus equal to $175,000 if SGC’s Consolidated EBITDA for the 2007fiscal year is at least $147.0 million. Ms. Smith is eligible for amilestone bonus of (i) $25,000 if Seneca Erie Casino is opened forbusiness to the public on or prior to September 30, 2006, and (ii) anadditional $25,000 if the luxury hotel for Seneca Niagara Casino is opened forbusiness to the public on or prior to September 30, 2006. In addition, Ms. Smithreceived a signing bonus of $25,000 in connection with entering her employmentagreement. 

 

If Ms. Smith’semployment is terminated for any reason other than for cause, her death ordisability, the loss by the Nation of its ability to conduct gaming activities,or the loss by Ms. Smith of her license to work at the Nation’s gamingfacilities, we are obligated to: (i) pay Ms. Smith her earned, butunpaid, base salary through the termination date, (ii) pay Ms. Smitha pro-rata performance bonus for the year of her termination, and (iii) continueto pay her base salary in effect as of the date of termination for a periodfollowing her termination equal to the lesser of (A) 18 months or (B) theremainder of the period ending on the termination date. Following thetermination of her employment, Ms. Smith has a duty to mitigate damages byseeking employment with duties and salary comparable to those provided by us,and if she obtains such

 

59

----

 

employment, she shall reimburse us the amount of the compensation shehas received from such other entity for such period, but not to exceed theamount of the compensation we have paid her for such period. 

 

***Rajat R. Shah.***    Mr. Shahand SGC entered into an employment agreement on April 28, 2005, pursuantto which Mr. Shah will serve as Senior Vice President of CorporateDevelopment and Deputy General Counsel of each of SGC, SNFGC, STGC and SEGC throughSeptember 30, 2008, unless his employment is terminated earlier pursuantto the terms of the agreement or renewed by subsequent written agreement. Mr. Shahis entitled to receive an amount equal to $295,625 from the period commencing May 2,2005 and ending September 30, 2005, an annual salary of $700,000 for thefiscal year ending September 30, 2006, an annual salary of $637,500 forthe fiscal year ending September 30, 2007 and an annual salary of $725,000for the fiscal year ending September 30, 2008, with a salary review by theboard of directors each fiscal year thereafter at which time the board ofdirectors shall determine whether, in its sole discretion, Mr. Shah’s basesalary will be increased. 

 

If Mr. Shah’semployment is terminated for any reason other than for cause, his death ordisability, the loss by the Nation of its ability to conduct gaming activities,or the loss by Mr. Shah of his license to work at the Nation’s gamingfacilities, we are obligated to: (i) pay Mr. Shah his earned, but unpaid,base salary through the termination date, and (ii) continue to pay hisbase salary in effect as of the date of termination for a period following histermination equal to the lesser of (A) 18 months or (B) the remainderof the period ending on the termination date. Following the termination of hisemployment, Mr. Shah has a duty to mitigate damages by seeking employmentwith duties and salary comparable to those provided by us, and if he obtainssuch employment, he shall reimburse us the amount of the compensation he hasreceived from such other entity for such period, but not to exceed the amountof the compensation we have paid him for such period. 

 

We willalso reimburse Mr. Shah for customary and reasonable relocation expensesassociated with his relocation to Niagara Falls, New York. 

 

***G. Michael Brown***.  Mr. Brown resigned as President andChief Executive Officer on April 6, 2005. In connection with his resignation, Mr. Brown and SGC entered intoa separation agreement and consulting agreement on April 6, 2005 pursuantto which Mr. Brown received a severance payment of $975,000 on April 6,2005. Pursuant to the agreement, Mr. Brown agreed to serve as a consultantto SGC until the earlier of (i) December 31, 2005, (ii) theopening of the luxury spa hotel at Seneca Niagara Casino, (iii) a materialbreach of Mr. Brown’s obligations under the agreement, (iv) terminationof the agreement by either party at their sole discretion, or (v) Mr. Brown’srevocation of certain releases contained in the agreement.  On July 5, 2005, SGC terminated Mr. Brown’sconsulting agreement. 

 

**MedicalReimbursement Plan**

 

We have inplace an executive medical reimbursement plan pursuant to which members of oursenior management are entitled to reimbursement for up to $100,000 in otherwiseuncovered medical expenses. We pay all premiums for this plan on behalf of oursenior executives. As of September 30, 2005, the annual cost was approximately$5,700 for each member of senior management covered by this plan. 

 

**Item12****.****Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters**

 

We arewholly owned by the Seneca Nation of Indians.

 

**Item13****.****Certain Relationships and Related Transactions**

 

*Transactions with the Nation*

* *

The Nationentered into an operating lease agreement with SNFGC on October 25, 2002for use of the land and the building where the Seneca Niagara Casino currentlyoperates. The Seneca Niagara Casino lease term expires in 2023.   During the fiscal year ended September 30,2005, SNFGC made lease payments to the Nation of $13.0 million.  On June 16, 2005, the lease paymentswere increased to $1.25 million per month effective June 1, 2005.  Rent is payable only to the extent thatsufficient funds are available from the net proceeds derived from the operationof the Seneca Niagara Casino and other commercial activities related to theoperation of that casino. 

 

STGCacquired and assumed long-term leases entered into by Sandra Abrams and ValentFarms, LLC with the Nation on December 29, 2003 and February 19,2003, respectively. Seneca Allegany Casino was built on land occupied

 

60

----

 

pursuant to such leases. Pursuant to the terms of the Indenturegoverning the senior notes, the monthly payments to the Nation under the leaseswith SNFGC and STGC are limited to $1.25 million each with annual increases upto 3.0% beginning no earlier than October 2005.

 

STGC leases the land upon which theSeneca Allegany Casino operates from the Nation pursuant to an oral lease agreement. From May through September 2004,STGC paid a monthly lease payment of $750,000 to the Nation; from October 2004through February 2005, STGC paid a monthly lease payment of $1.0 million;thereafter, payments of $1.25 million per month have been made. During the fiscalyear ended September 30, 2005, STGC made lease payments to the Nation of $13.8million.  

 

We reimburse the Nation for all ofthe regulatory costs of the SGA, the New York State Racing and Wagering Boardand the New York State Police, which are incurred by the Nation. For the fiscalyear ended September 30, 2005, we incurred approximately $16.1 million forregulatory costs. 

 

In October 2003, SNFGCdistributed land with an acquisition cost of approximately $11.9 million to theNation. 

 

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

 

In January 2005,STGC distributed land with an acquisition cost of $2.4 million to the Nation.

 

In June andSeptember 2004, SNFGC distributed land to the Nation with aggregateacquisition cost of $4.1 million.

 

In October,2005, SEGC distributed land with an acquisition cost of approximately $3.8million to the Nation.

 

We makedistributions to the Nation pursuant to resolutions adopted by our board ofdirectors for specific projects identified by the Nation and for generalpurposes. In March 2004, SGC declared a dividend to the Nation of $3.0million, which amount was paid to the Nation in installments through September 30,2004. We also declared a dividend of $655,000 for a proposed water and sewerproject of the Nation, which was paid in November 2004.  During the fiscal year ended September 30,2005, we distributed an additional $21.0 million to the Nation. We intendto continue to make distributions to the Nation subject to the restrictions setforth in the Indenture governing the senior notes. 

 

On May 5,2004, we distributed $25.0 million of the 2004 notes proceeds to the Nation. 

 

In January 2004and January 2005, SGC distributed approximately $39.0 million and $57.1million, respectively, to the Nation for payment of the exclusivity fee to NewYork State for revenue generated through December 31, 2003 and December 31,2004, respectively.  Since January 2005through September 30, 2005, SGC has distributedapproximately $50.8  million to theNation for the payment of the exclusivity fee to New York State for revenuegenerated through August 31, 2005.

 

As of January 1,2005, we transferred Seneca Allegany and all other Class II operations tothe Nation.

 

On July 14,2005, STGC entered into a construction management agreement with SCMC to managethe construction of the 220-room hotel and casino at Seneca Allegany Casino.  This construction agreement is currently beingamended to provide for, among other matters, an increase in the $123.0 million guaranteedmaximum amount of the cost of all contract work to be completed due to severaldesign changes requested by STGC and the delay in the project caused by suchchanges, and foundation work being done in anticipation of a possible secondhotel tower.

 

61

----

 

On August 30,2005, in connection with the termination of the design/build constructioncontract with Klewin relating to the Seneca Niagara Casino expansion project,the board of directors of SNFGC authorized senior management to commencediscussions with SCMC to enter into a definitive agreement to complete theSeneca Niagara Casino expansion project. The board of directors also authorized SNFGC to immediately engage SCMCto manage the Seneca Niagara Casino expansion project while such definitiveagreement is negotiated and finalized.  Inconnection with SCMC’s management of this and other expansion projects aspreviously disclosed, we advanced approximately $13.7 million to SCMC forpayment of amounts due to subcontractors other than the architect (representingamounts not paid by Klewin to such subcontractors out of the BankNorthaccount).  In addition, we expect the finalizedagreement with SCMC to cover renovation services to be provided by SCMC withrespect to existing Seneca Niagara Casino facilities in connection with theopening of the luxury hotel. 

 

**Related PartyTransactions**

 

Mr. Brownis a partner at a law firm which provided legal services to SGC. During thefiscal year ended September 30, 2004, SGC incurred legal fees of $183,000and an additional $82,000 after September 30, 2004, primarily forregulatory and Compact matters, from that firm. Mr. Brown did not receiveany remuneration from the law firm during the fiscal year ended September 30,2004 and was not actively involved in its management. We ceased doing businesswith this law firm effective November 8, 2004. 

 

During thefiscal years ended September 30, 2005 and 2004, SGC purchased an aggregateof $248,000 and $675,000 of tobacco products from KW Seneca Tobacco, which isowned by Kevin Seneca, a member of the Council and a previous Seneca GamingAuthority commissioner.  

 

During thefiscal years ended September 30, 2005 and 2004, SGC purchased an aggregateof $104,000 and $147,000 of bottled water from Wahta Springs, which is owned byArthur Montour, Jr., a former member of the Council. As of November 2,2004, Mr. Montour was no longer a member of the Council.  

 

SGC agreedto sponsor the Native American Games which is organized by the Buffalo SportsSociety, of which Bergal Mitchell, one of our directors, is a member. Duringthe fiscal year ended September 30, 2004, SGC provided the Buffalo SportsSociety with an aggregate of $150,000 in cash and services.

 

During thefiscal years ended September 30, 2005 and 2004, STGC paid M&M AlleganyJunction approximately $258,000 and $118,000 for leasing the building used bySTGC for administrative purposes. M&M Allegany Junction is owned by MerleWatt, Sr., the brother of Maribel Printup, a member of our board ofdirectors.  

 

Referenceis made to “Directors and Executive Officers of the Registrant” for adiscussion of certainmatters relating to the compensation and employment of our officers andcompensation of our directors.

 

**Item14****.****  Principal Accountant Fees and Services**

 

Thefollowing table sets forth the aggregate fees incurred by SGC related to theservices of SGC’s independent registered public accounting firm, Ernst &Young LLP for the years indicated:

 
| ** **            | ** ** | **Fiscal Year September 30,** | ** ** |
|-----------------------|------------|------------------------------------|------------|
| ** **            | ** ** | **2004**                           | ** ** | **2005** | ** ** |
|                  |       |                               |       |   |   |
| Audit fees(1)         |       | $                                  | 797,238    |   | $ | 763,054 |   |
| Audit-related fees(2) |       |                               |       | 17,923 |   |
| Tax fees              |       | 7,400                              |       | — |   |
| All other fees(3)     |       | 65,201                             |       | — |   |
| Total                 |       | $                                  | 869,839    |   | $ | 780,977 |   |

 

----

(1)   The audit feesrelate to the audit of SGC’s annual financial statements and quarterly reviews.Audit fees also include services for agreed upon procedures reports inconnection with the National Indian Gaming Commission requirements. For 2004,this amount also includes fees related to the 2004 senior note offering of$258,340, including Ernst & Young LLP consent included in theRegistration Statement on Form S-4 and comfort letter procedures.  For 2005, this amount also includes feesrelated to the 2005 senior note offering of $179,150, including Ernst &Young LLP consent included in the Registration Statement on Form S-4 andcomfort letter procedures.  

(2)   Audit related feesrelate to audit services for the Company’s employee benefit plan.

(3)   All other feesrelate to post construction compliance and cost assessment procedure reports.

 

62

----

 

**Preapprovalof Services Required**

 

Underthe policies and procedures established by our audit committee, each engagementfor audit and permissible non-audit services to be provided by our independentregistered public accounting firm must be approved by the auditcommittee. The preapproval policy prohibits the independent registeredpublic accounting firm from providing the following services: bookkeeping orother services related to our accounting records or financial statements;financial information systems design and implementation; appraisal or valuationservices; fairness opinions or contribution-in-kind reports; actuarialservices; internal audit outsourcing services; management function services;human resource services; broker-dealer, investment adviser or investmentbanking services; legal services; and expert services unrelated to the audit.

 

63

----

 

**PART IV**

** **

**Item15****.****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 F-1  herein. All financial statements schedules are omitted since the required  information is included in the financial statements or the notes thereto, or  is not applicable. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| (a)3.  | Exhibits |
|--------|----------|
|   |     |   |   |
|   | 1.1      |   | Purchase  Agreement, dated April 29, 2004, by and among SGC, the Guarantors  defined therein 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 1.1 to SGC’s Registration Statement  No. 333-117633 filed with the SEC on July 23, 2004). |
|   |     |   |   |
|   | 1.2      |   | Purchase  Agreement, dated May 18, 2005, by and among SGC, the Guarantors as  defined therein 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 1.1 to SGC’s Quarterly Report on Form 10-Q  filed with the SEC on August 15, 2005). |
|   |     |   |   |
|   | 3.1      |   | Fifth Amended  and Restated Charter of SGC (incorporated by reference to Exhibit 3.1 to  SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005). |
|   |     |   |   |
|   | 3.2      |   | Second Amended  and Restated By-Laws of SGC (incorporated by reference to Exhibit 3.1 to  SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005). |
|   |     |   |   |
|   | 3.3      |   | Third Amended  and Restated Charter of SNFGC (incorporated by reference to Exhibit 3.1  to SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005). |
|   |     |   |   |
|   | 3.4      |   | Third Amended  and Restated By-Laws of SNFGC (incorporated by reference to Exhibit 3.1  to SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005). |
|   |     |   |   |
|   | 3.5      |   | Second Amended  and Restated Charter of STGC (incorporated by reference to Exhibit 3.1  to SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005). |
|   |     |   |   |
|   | 3.6      |   | Amended and  Restated By-Laws of STGC (incorporated by reference to Exhibit 3.1 to  SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005). |
|   |     |   |   |
|   | 3.7      |   | Second Amended  and Restated Charter of SEGC (incorporated by reference to Exhibit 3.1  to SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005). |
|   |     |   |   |
|   | 3.8      |   | Amended and  Restated By-Laws of SEGC (incorporated by reference to Exhibit 3.1 to  SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005). |
|   |     |   |   |
|   | 4.1      |   | Indenture, dated  as of May 5, 2004, among SGC, 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, 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      |   | 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). |

 

64

----

 
|   | 4.4    |   | 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).                                                                                           |
|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 4.5    |   | Nation  Agreement, dated May 5, 2004, between Seneca Nation of Indians, Merrill  Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith  Incorporated, Bank of America Securities LLC and Wells Fargo Securities, LLC,  collectively as the Initial Purchasers, and Wells Fargo Bank, National  Association, as Trustee (incorporated by reference to Exhibit 4.3 to  SGC’s Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).                                             |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 4.6    |   | 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, Bank of America  Securities LLC and Wells Fargo Securities, LLC, collectively as the Initial  Purchasers, and Wells Fargo Bank, National Association, as Trustee  (incorporated by reference to Exhibit 4.3 to SGC’s Quarterly Report on  Form 10-Q filed with the SEC on August 15, 2005). |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 4.7    |   | Assignment and  Plan of Distribution Agreement, entered into and effective as of May 5,  2004, by and between Seneca Nation of Indians and SGC (incorporated by  reference to Exhibit 4.2 to SGC’s Registration Statement  No. 333-117633 filed with the SEC on July 23, 2004).                                                                                                                                                                                                                                    |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.1   |   | Nation-State  Gaming Compact between the Seneca Nation of Indians and 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   |   | Term Loan Agreement, dated as of November 22,  2002, between Freemantle Limited, as Lender, and SNFGC, as Borrower, as  amended by Amendment No. 1 on December 6, 2002 (incorporated by  reference to Exhibit 10.2 to SGC’s Registration Statement  No. 333-117633 filed with the SEC on July 23, 2004).                                                                                                                                                                                                 |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.3   |   | Amendment  No. 2 to Term Loan Agreement, dated April 22, 2004, between  Freemantle Limited, as Lender, and SNFGC as Borrower (incorporated by reference  to Exhibit 10.14 to SGC’s Registration Statement No. 333-117633  filed with the SEC on August 18, 2004).                                                                                                                                                                                                                                             |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.4   |   | Nation  Agreement, dated as of November 22, 2002, between Freemantle Limited, as  Lender, and the Seneca Nation of Indians (incorporated by reference to  Exhibit 10.3 to SGC’s Registration Statement No. 333-117633 filed  with the SEC on July 23, 2004).                                                                                                                                                                                                                                                       |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.5   |   | Amendment  No. 1 to Nation Agreement, dated April 22, 2004, between Freemantle  Limited, as Lender, and the Seneca Nation of Indians (incorporated by  reference to Exhibit 10.15 to SGC’s Registration Statement  No. 333-117633 filed with the SEC on August 18, 2004).                                                                                                                                                                                                                                     |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.6   |   | Term Loan  Termination Agreement, dated as of May 9, 2005, between Freemantle  Limited, as Lender, and SNFGC, as Borrower (incorporated by reference to  Exhibit 10.1 to SGC’s Current Report on Form 8-K filed with the SEC  on May 10, 2005).                                                                                                                                                                                                                                                                    |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.7   |   | Agreement of  Lease (“Head Lease Agreement”), dated as of October 25, 2002, between  Seneca Nation of Indians, as Landlord, and SNFGC, as Tenant, as amended on  December 23, 2002 (incorporated by reference to Exhibit 10.4 to  SGC’s Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).                                                                                                                                                                                |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.8   |   | Non-binding  Letter of Intent regarding Offer to Purchase Airborne Business Park Site,  executed on April 9, 2004, between Uniland Development Company and SEGC  (incorporated by reference to Exhibit 10.5 to SGC’s Registration  Statement No. 333-117633 filed with the SEC on July 23, 2004).                                                                                                                                                                                                                  |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.9   |   | Agreement, dated  as of October 15, 2003, between SNFGC, as Owner, and Klewin Building  Company, Inc., as Design/Builder (for Seneca Niagara Casino luxury  hotel) (incorporated by reference to Exhibit 10.6 to SGC’s Registration  Statement No. 333-117633 filed with the SEC on August 18, 2004).                                                                                                                                                                                                         |

 

65

----

 
|   | 10.10  |   | First Amendment  to Design/Build Agreement, dated as of February 10, 2004, by and between  SNFGC, as Owner, and Klewin Building Company, Inc., as Design/Builder  (for Seneca Niagara Casino Hotel) (incorporated by reference to  Exhibit 10.7 to SGC’s Registration Statement No. 333-117633 filed  with the SEC on August 18, 2004).                                       |
|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.11  |   | Agreement, dated  as of September 1, 2004, between SNFGC, as Owner, and Klewin Building Company, Inc.,  as Design/Builder (for Seneca Allegany Casino Parking Garage) (incorporated  by reference to Exhibit 10.10 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                   |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.12  |   | Agreement, dated as of September 1, 2004,  between STGC, as Owner, and Klewin Building Company, Inc., as  Design/Builder (for Seneca Allegany Casino hotel and casino) (incorporated by  reference to Exhibit 10.11 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                  |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.13  |   | 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 17, 2005).                                     |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.14  |   | Letter of  Agreement, dated June 29, 2005, for Mutual Termination of the Agreement  dated September 1, 2004 between SNFGC, as Owner, and Klewin Building  Company, Inc., as Design/Builder (for Seneca Allegany Casino Phase II  Hotel and Casino) (incorporated by reference to Exhibit 10.2 to SGC’s  Current Report on Form 8-K filed with the SEC on July 17, 2005). |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.15  | +      | 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).                                                                                                                                                                     |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.16  | +      | Amended and  Restated Employment Agreement, dated April 13, 2004, between SGC and G.  Michael Brown (incorporated by reference to Exhibit 10.8 to SGC’s  Registration Statement No. 33-117633 filed with the SEC on July 23,  2004).                                                                                                                                               |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.17  | +      | Amended and  Restated Employment Agreement, dated July 13, 2004, between SGC and  Annette Mohawk Smith (incorporated by reference to Exhibit 10.10 to  SGC’s Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).                                                                                                                                          |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.18  | +      | Second Amended and Restated Employment Agreement,  dated April 6, 2005, between SGC and John Pasqualoni (incorporated by  reference to Exhibit 10.16 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                                                                                      |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.19  | +      | Amended and  Restated Employment Agreement, dated July 13, 2004, between SGC and  Joseph D’Amato (incorporated by reference to Exhibit 10.12 to SGC’s Registration  Statement No. 333-117633 filed with the SEC on July 23, 2004).                                                                                                                                            |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.20  | +      | Amended and  Restated Employment Agreement, dated July 13, 2004, between SGC and  Michael F. Speller (incorporated by reference to Exhibit 10.13 to SGC’s  Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).                                                                                                                                            |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.21  | +      | Employment  Agreement, dated April 28, 2005, between SGC and Rajat Shah  (incorporated by reference to Exhibit 10.11 to SGC’s Annual Report on  Form 10-K filed with the SEC on May 9, 2005).                                                                                                                                                                                      |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.22  | +      | Separation and  Consulting Agreement, dated April 6, 2005, between SGC and C. Michael  Brown (incorporated by reference to Exhibit 10.1 to Current Report on  Form 8-K filed with the SEC on April 6, 2005).                                                                                                                                                                            |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.23  | +      | 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)                                                                                                                                |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 12.1   | *      | Statement  regarding Computation of Ratios.                                                                                                                                                                                                                                                                                                                                                                 |

 

66

----

 
|   | 21.1   | *      | List of  Subsidiaries of SGC.                                                   |
|--------|--------|--------|---------------------------------------------------------------------------------|
|   |   |   |                                                                            |
|   | 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.          |

 

----

*      Filed herewith.

 

+      Managementcontract or compensatory plan or arrangement.

 

(b)           Seeitem (a)3. above

 

(c)           Seeitem (a)1. and 2. above.

 

67

----

 

**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 29th day of December, 2005.

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

 

**POWER OF ATTORNEY**

 

Eachperson whose signature appears below constitutes and appoints John Pasqualoniand Joseph A. D’Amato, 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, fullpower and authority to do and perform each and every act and thing requisiteand necessary to be done in and about the premises, as fully to all intents andpurposes as he or she might or could do in person, hereby ratifying andconfirming 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 report hasbeen signed by the following persons on behalf of the registrant and in thecapacities and on the date indicated.

 
| **Signature**                  | ** ** | **Title**                                                                                        | ** ** | **Date**          |
|--------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|-------------------|
| ** **                     |       |                                                                                             |       |              |
| /s/ John Pasqualoni            |       | President and  Chief Executive Officer (Principal  Executive Officer)                            |       | December 29, 2005 |
| John Pasqualoni                |       |                                                                                             |       |              |
|                           |       |                                                                                             |       |              |
| /s/ Joseph A. D’Amato     |       | Senior Vice  President, Finance and Administration  (Principal Financial and Accounting Officer) |       | December 29, 2005 |
| Joseph A. D’Amato         |       |                                                                                             |       |              |
|                           |       |                                                                                             |       |              |
| /s/ Barry E. Snyder, Sr.  |       | Chairman of the  Board of Directors                                                              |       | December 29, 2005 |
| Barry E. Snyder, Sr.      |       |                                                                                             |       |              |
|                           |       |                                                                                             |       |              |
| /s/ Bergal L. Mitchell III     |       | Vice Chairman of  the Board of Directors                                                         |       | December 29, 2005 |
| Bergal L. Mitchell III         |       |                                                                                             |       |              |
|                           |       |                                                                                             |       |              |
| /s/ Maurice A. John, Sr.  |       | Treasurer and  Director                                                                          |       | December 29, 2005 |
| Maurice A. John, Sr.      |       |                                                                                             |       |              |
|                           |       |                                                                                             |       |              |
| /s/ N. Cochise Redeye          |       | Director                                                                                         |       | December 29, 2005 |
| N. Cochise Redeye              |       |                                                                                             |       |              |
|                           |       |                                                                                             |       |              |
| /s/ Maribel Printup            |       | Director                                                                                         |       | December 29, 2005 |
| Maribel Printup                |       |                                                                                             |       |              |
|                           |       |                                                                                             |       |              |
| /s/ Martin E. Seneca, Jr. |       | Director                                                                                         |       | December 29, 2005 |
| Martin E. Seneca, Jr.     |       |                                                                                             |       |              |

 

68

----

 

**SENECA GAMING CORPORATION**

 

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

 
| **Audited  Consolidated Financial Statements:**                                                                          | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                               | ** ** |
| Report of Independent Registered Public Accounting  Firm                                                                 |       |
|                                                                                                                     |       |
| Consolidated Balance Sheets, as of September 30,  2005 and 2004                                                     |       |
|                                                                                                                     |       |
| Consolidated Statement of Operations and Changes in  Capital, for the years ended September 30, 2005, 2004 and 2003 |       |
|                                                                                                                     |       |
| Consolidated Statements of Cash Flows, for the years  ended September 30, 2005, 2004 and 2003                       |       |
|                                                                                                                     |       |
| Notes to Consolidated Financial Statements                                                                               |       |

 

F-1

----

 

**SENECA GAMING CORPORATION**

 

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

The Board of Directors

Seneca Gaming Corporation

 

We have audited theaccompanying consolidated balance sheets of Seneca Gaming Corporation as of September 30,2005 and 2004, and the related consolidated statements of operations andchanges in capital, and cash flows for each of the three years in the periodended September 30, 2005. 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, 2005 and 2004, and the consolidated resultsof its operations and its cash flows for each of the three years in the periodended September 30, 2005, in conformity with U.S. generally acceptedaccounting principles. 

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

 

Buffalo, New York

December 12,2005

 

F-2

----

 

**SENECA GAMING CORPORATION**

 

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                        | ** ** | **September 30** | ** ** |
|-----------------------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                        | ** ** | **(In Thousands)**    | ** ** |
| **Assets**                        |       |                  |       |   |   |
| Cash and cash equivalents         |       | $                     | 142,467    |   | $ | 211,595 |   |
| Short-term investments            |       | 96,091                |       | 57,963 |   |
| Receivables from Nation           |       | 875                   |       | — |   |
| Other receivables, net            |       | 1,979                 |       | 1,348 |   |
| Inventories                       |       | 2,095                 |       | 2,123 |   |
| Other current assets              |       | 6,437                 |       | 3,171 |   |
| Total current assets              |       | 249,944               |       | 276,200 |   |
| Property and equipment, net       |       | 430,418               |       | 282,797 |   |
| Other long-term assets            |       | 18,486                |       | 25,059 |   |
| Total assets                      |       | $                     | 698,848    |   | $ | 584,056 |   |
|                              |       |                  |       |   |   |
| **Liabilities and capital**       |       |                  |       |   |   |
| Current portion of long-term debt |       | $                     | —     |   | $ | 325 |   |
| Trade payables                    |       | 3,898                 |       | 3,415 |   |
| Accrued interest                  |       | 14,218                |       | 10,866 |   |
| Construction payables - SCMC      |       | 10,894                |       | — |   |
| Construction payables - other     |       | 23,341                |       | 28,807 |   |
| Exclusivity fees                  |       | 5,717                 |       | 41,549 |   |
| Dividend payable to the Nation    |       | —                |       | 655 |   |
| Other current liabilities         |       | 38,003                |       | 31,752 |   |
| Total current liabilities         |       | 96,071                |       | 117,369 |   |
| Long-term debt                    |       | 493,352               |       | 380,000 |   |
| Total liabilities                 |       | 589,423               |       | 497,369 |   |
| Capital:                          |       |                  |       |   |   |
| Retained  earnings                |       | 109,425               |       | 86,687 |   |
| Total liabilities and capital     |       | $                     | 698,848    |   | $ | 584,056 |   |

* *

*Seeaccompanying notes.*

 

F-3

----

 

**SENECA GAMING CORPORATION**

 

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

 
| ** **                                                                   | ** ** | **Year ended  September 30,  2005** | ** ** | **Year ended  September 30,  2004** | ** ** | **Year ended  September 30,  2003** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                   | ** ** | **(In Thousands)**                            | ** ** |
| **Revenues**                                                                 |       |                                          |       |                                          |       |                                          |       |
| Gaming                                                                       |       | $                                             | 440,156    |                                          | $          | 337,536                                       |       | $ | 184,332 |   |
| Food and beverage                                                            |       | 41,689                                        |       | 31,358                                        |       | 16,158                                        |       |
| Retail, entertainment and other                                              |       | 16,955                                        |       | 11,797                                        |       | 4,823                                         |       |
| Less promotional allowances                                                  |       | (49,647                                       | )          | (24,295                                       | )          | (9,557                                        | )          |
| Net revenues                                                                 |       | 449,153                                       |       | 356,396                                       |       | 195,756                                       |       |
|                                                                         |       |                                          |       |                                          |       |                                          |       |
| **Expenses**                                                                 |       |                                          |       |                                          |       |                                          |       |
| Gaming                                                                       |       | 114,746                                       |       | 92,531                                        |       | 53,686                                        |       |
| Food and beverage                                                            |       | 34,877                                        |       | 26,387                                        |       | 15,856                                        |       |
| Retail, entertainment and other                                              |       | 10,418                                        |       | 7,184                                         |       | 2,732                                         |       |
| Advertising, general and administrative                                      |       | 117,188                                       |       | 91,552                                        |       | 42,176                                        |       |
| Pre-opening costs                                                            |       | 1,509                                         |       | 4,228                                         |       | 7,155                                         |       |
| Depreciation and amortization                                                |       | 26,295                                        |       | 17,638                                        |       | 8,723                                         |       |
| Total operating expenses                                                     |       | 305,033                                       |       | 239,520                                       |       | 130,328                                       |       |
| Operating income                                                             |       | 144,120                                       |       | 116,876                                       |       | 65,428                                        |       |
| Non-recurring construction charge                                            |       | (13,301                                       | )          | —                                        |       | —                                        |       |
| Interest income                                                              |       | 5,116                                         |       | 1,535                                         |       | 44                                            |       |
| Interest expense                                                             |       | (90,366                                       | )          | (33,702                                       | )          | (15,515                                       | )          |
| Net income                                                                   |       | 45,569                                        |       | 84,709                                        |       | 49,957                                        |       |
| Beginning capital balance (deficit)                                          |       | 86,687                                        |       | 46,996                                        |       | (2,961                                        | )          |
| Dividends  declared to the Nation                                            |       | (20,438                                       | )          | (28,665                                       | )          | —                                        |       |
| Distribution of  real property, equipment and leasehold rights to the Nation |       | (2,393                                        | )          | (16,353                                       | )          | —                                        |       |
| Ending capital balance                                                       |       | $                                             | 109,425    |                                          | $          | 86,687                                        |       | $ | 46,996 |   |

 

*Seeaccompanying notes.*

 

F-4

----

 

**SENECA GAMING CORPORATION**

* *

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                | ** ** | **Year ended  September 30,  2005** | ** ** | **Year ended  September 30,  2004** | ** ** | **Year ended  September 30,  2003** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                | ** ** | **(In Thousands)**                       | ** ** |
| **Cash  flows provided by operating activities**                                          |       |                                     |       |                                     |       |                                     |       |
| Net income                                                                                |       | $                                        | 45,569     |                                     | $          | 84,709                                   |       | $ | 49,957 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:        |       |                                     |       |                                     |       |                                     |       |
| Depreciation and  amortization                                                            |       | 26,295                                   |       | 17,638                                   |       | 8,723                                    |       |
| Amortization of  deferred financing costs                                                 |       | 2,445                                    |       | 1,735                                    |       | 937                                      |       |
| Provision for  bad debts                                                                  |       | 171                                      |       | 96                                       |       | 70                                       |       |
| Fair market  value adjustment of interest rate cap                                        |       | 177                                      |       | 1,328                                    |       | —                                   |       |
| Write-off of  deferred financing costs                                                    |       | 2,468                                    |       |                                     |       |                                     |       |
| Other                                                                                     |       | 1,315                                    |       | (264                                     | )          | —                                   |       |
| Changes in  operating assets and liabilities:                                             |       |                                     |       |                                     |       |                                     |       |
| Current assets                                                                            |       | (4,947                                   | )          | (1,713                                   | )          | (5,092                                   | )          |
| Long-term assets                                                                          |       | (149                                     | )          | (1,287                                   | )          | —                                   |       |
| Current  liabilities                                                                      |       | (25,692                                  | )          | 41,561                                   |       | 45,533                                   |       |
| Due to Nation  for developmental and organizational costs                                 |       | —                                   |       | —                                   |       | (2,408                                   | )          |
| Net cash  provided by operating activities                                                |       | 47,652                                   |       | 143,803                                  |       | 97,720                                   |       |
|                                                                                      |       |                                     |       |                                     |       |                                     |       |
| **Investing  activities**                                                                 |       |                                     |       |                                     |       |                                     |       |
| Purchases of  property and equipment                                                      |       | (171,011                                 | )          | (168,704                                 | )          | (111,607                                 | )          |
| Payments for  real property acquisitions to be distributed to the Nation and other assets |       | (1,673                                   | )          | (12,036                                  | )          | (7,356                                   | )          |
| Refund of  deposits                                                                       |       | 700                                      |       | —                                   |       | —                                   |       |
| Purchase of  short-term investments                                                       |       | (20,163                                  | )          | (57,963                                  | )          | —                                   |       |
| Net cash used in  investing activities                                                    |       | (192,147                                 | )          | (238,703                                 | )          | (118,963                                 | )          |
|                                                                                      |       |                                     |       |                                     |       |                                     |       |
| **Financing  activities**                                                                 |       |                                     |       |                                     |       |                                     |       |
| Proceeds from  senior notes                                                               |       | 193,000                                  |       | 300,000                                  |       | —                                   |       |
| Proceeds from  term loan                                                                  |       | —                                   |       | 22,700                                   |       | 57,300                                   |       |
| Repayment of  term loan                                                                   |       | (80,000                                  | )          | —                                   |       | —                                   |       |
| Payments to  sinking fund, net                                                            |       | (11,917                                  | )          | (6,048                                   | )          | —                                   |       |
| Purchase of  interest rate caps                                                           |       | —                                   |       | (2,188                                   | )          | —                                   |       |
| Proceeds from  sale of interest rate caps                                                 |       | 683                                      |       | —                                   |       | —                                   |       |
| Proceeds from  notes payable—equipment                                               |       | —                                   |       | 19,266                                   |       | 37,344                                   |       |
| Repayments of  notes payable—equipment                                               |       | (325                                     | )          | (46,916                                  | )          | (8,487                                   | )          |
| Net repayments  from note payable to Nation                                               |       | —                                   |       | —                                   |       | (250                                     | )          |
| Payment of  deferred financing costs                                                      |       | (4,982                                   | )          | (11,937                                  | )          | (5,168                                   | )          |
| Dividends paid  to the Nation                                                             |       | (21,092                                  | )          | (28,010                                  | )          | —                                   |       |
| Net cash  provided by financing activities                                                |       | 75,367                                   |       | 246,867                                  |       | 80,739                                   |       |
| Decrease/increase  in cash and cash equivalents                                           |       | (69,128                                  | )          | 151,967                                  |       | 59,496                                   |       |
| Cash and cash  equivalents at beginning of year                                           |       | 211,595                                  |       | 59,628                                   |       | 132                                      |       |
| Cash and cash  equivalents at end of year                                                 |       | $                                        | 142,467    |                                     | $          | 211,595                                  |       | $ | 59,628 |   |
| **Supplemental  disclosures of cash flow information**                                    |       |                                     |       |                                     |       |                                     |       |
| Cash paid for  interest, net of amounts capitalized                                       |       | $                                        | 81,748     |                                     | $          | 21,213                                   |       | $ | 13,138 |   |
| Noncash  investing activities:                                                            |       |                                     |       |                                     |       |                                     |       |
| Distribution of  property and leasehold rights to the Nation                              |       | $                                        | 2,393      |                                     | $          | 16,353                                   |       | $ | — |   |
| Discount  received upon extinguishment of long-term debt                                  |       | $                                        | —     |                                     | $          | 882                                      |       | $ | — |   |

 

*See accompanyingnotes.*

 

F-5

----

 

**SENECA GAMING CORPORATION**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**1. Organization and Basis ofPresentation**

 

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 wasformed on August 1, 2002, is wholly owned by the Seneca Nation of Indians,or the Nation. The Nation is a federally recognized Indian tribe with totalterritorial land comprising approximately 54,000 acres in the Western New Yorkregion. SGC was organized by the Nation to operate and manage its Class IIIGaming activities pursuant to the Indian Gaming Regulatory Act of 1988, orIGRA. Under IGRA, federally recognized Indian tribes are permitted to conductfull-scale casino gaming operations on tribal land, subject to, among otherthings, the negotiation of a compact with the affected state. Pursuant to IGRA,the Nation entered into the Nation-State Gaming Compact with the State of NewYork dated April 12, 2002, or the Compact, which has been approved by theFederal Bureau of Indian Affairs, Department of the Interior. The Compactprovides the Nation the exclusive right to conduct Class III gaming activitiesat three sites in the western region of the State of New York.

 

TheNation’s Constitution established the Tribal Council, or the Council, to act asthe Nation’s legislative authority. The Council acts on the Nation’s behalfwith respect to SGC, and the Council established the Seneca Gaming Authority,or SGA, to regulate the gaming activities of SGC under the Compact.

 

TheCouncil, at the request of the SGC Board of Directors, chartered threesubsidiary corporations of SGC to operate the three sites authorized by theCompact. In addition, the SGC Board of Directors hired the executive managementof SGC, including the President and Chief Executive Officer, to oversee,develop, and manage the three sites. The subsidiary corporations are asfollows:

 

Seneca Niagara Falls Gaming Corporation, or SNFGC

 

Seneca Territory Gaming Corporation, or STGC

 

Seneca Erie Gaming Corporation, or SEGC

 

SNFGCwas formed on August 1, 2002 to operate the Nation’s gaming activities inNiagara Falls, New York. Operations at SNFGC’s casino, or Seneca NiagaraCasino, commenced December 31, 2002. In connection with the approval of the Compact on October 25, 2002,the State of New York transferred to the Nation certain property upon which theformer Niagara Falls, New York, Convention Center (the Facility) waslocated.  As provided for in the Compact,the Nation leased the property to SNFGC pursuant to a lease agreement dated October 25,2002.  SNFGC then leased the property tothe Empire State Development Corporation (ESDC) pursuant to a subleaseagreement dated October 25, 2002. The ESDC then subleased the property back to SNFGC under a sub-subleaseagreement also dated as of October 25, 2002.  The SNFGC casino is located on this leasedproperty 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 the Facility.

 

Basedon the Company’s expansion plans, which includes expanded Class IIIgaming, the liability for payment of the Supplemental Rent becameprobable.  As a result, the Companynegotiated a discounted 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.

 

STGCwas formed on September 20, 2003 to operate the Nation’s gaming activitiesin Salamanca, New York on its territorial land. From its formation until the May 1,2004 opening of the STGC’s casino in Salamanca, or the Seneca Allegany Casino,STGC dedicated its efforts to the construction and equipping of the Seneca AlleganyCasino, hiring and training staff, and obtaining regulatory approvals.

 

SEGC was formed on August 9, 2003 to operate theNation’s gaming activities in Erie County, New York and had originally selecteda site for this facility near the Buffalo-Niagara International Airport inCheektowaga, New York, or the Cheektowaga Site. As a result of ongoinglitigation and time deadlines set forth in the Compact, on October 3, 2005the Nation acquired approximately nine acres of land in the historic waterfrontdistrict of downtown Buffalo.  SEGC commenced

 

F-6

----

 

**SENECA GAMING CORPORATION**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)**

 

construction of SEGC’s Erie County gaming facility on those nine acreson December 8, 2005.  The exclusiveright, under the Compact, to establish and operate a third Class IIIgaming facility in Erie County may terminate if the Nation or SEGC fails tocommence Class III gaming operations by December 9, 2007.

 

SGC’s fiscal year-end is September 30.References to 2005, 2004, and 2003 represent the years ended September 30,2005, September 30, 2004, and September 30, 2003, respectively. SGC’sfinancial position at September 30, 2003, and results of operations andcash flows for 2003, consist principally of SNFGC’s activities. As described inNote 11, the Nation incurs certain costs for regulatory and other expensesthat are passed through to the Company on a dollar-for-dollar basis.

 

**2. Summary of Significant AccountingPolicies**

 

**Cash and Cash Equivalents**

 

Cash and cash equivalentsinclude investments with initial maturities of three months or less. Cash andcash equivalents are carried at cost, which approximates market value.

 

**Short-Term Investments**

 

Investments with anoriginal maturity of greater than three months to one year, and collateralizedmarket auction preferred stock, are stated at fair value. 

 

Short-term investments atSeptember 30, 2005 consist of the following:

 
| ** **                      | ** ** | **Cost**           | ** ** | **Fair Value** | ** ** |
|---------------------------------|------------|--------------------|------------|----------------|------------|
| ** **                      | ** ** | **(In Thousands)** | ** ** |
|                            |       |               |       |           |       |
| U.S. Government  agency notes   |       | $                  | 18,091     |           | $          | 18,091 |   |
| Market auction  preferred stock |       | 78,000             |       | 78,000         |       |
| Total short-term investments    |       | $                  | 96,091     |           | $          | 96,091 |   |

 

U.S.Government agency notes have maturities of less than one year. Market auctionpreferred stock has a dividend rate determined periodically (typically lessthan 90 days) based on an auction mechanism. Notwithstanding the liquiditywhich may be provided by the auction process, market auction preferred stockgenerally does not have a scheduled maturity. Short-term investments are classified as available for sale as definedin SFAS No. 115.  Realized gainsand/or losses from the sales of short-term investments were not material forall years presented.  Also, for all yearspresented there were no unrealized gains or losses recorded in accumulatedother comprehensive income, nor were any amounts reclassified to accumulatedother comprehensive income.

 

**Receivables**

 

Receivables consistprimarily of gaming receivables and non-gaming receivables. Gaming receivablesrepresent credit extended to approved casino customers. The Company 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 collectibility of these receivables could be affected by future business oreconomic trends.

 

**Inventories**

 

Inventories consistprincipally of food and beverage, retail, and operating supplies. Inventoriesare stated at the lower of cost or market. Cost is determined using thefirst-in first-out method for retail and warehouse inventories and using theaverage cost method for food and beverage inventories.

 

**Property and Equipment**

 

Property and equipment arestated at cost. Depreciation is provided over the estimated useful lives of theassets using the straight-line basis. Amortization of leasehold improvements isover the lesser of the term of the lease or the estimated useful life. Usefullife estimates of asset categories are as follows:

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

 

F-7

----

 

**SENECA GAMING CORPORATION**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)**

 

The cost of significantimprovements is capitalized. Costs of normal repairs and maintenance arecharged to expense as incurred. Gains or losses on disposition of property andequipment are included in the determination of income. Interest incurred forconstruction related projects are capitalized and amortized over the life ofthe related asset using the straight-line method. The interest rate used was71⁄4%, 71⁄4% and 301⁄2% during 2005, 2004 and 2003, respectively. The amount ofinterest capitalized for 2005, 2004 and 2003 was approximately $5,054,000,$654,000 and $1,416,000, respectively.

 

In accordance with theFinancial Accounting Standard Board’s Statement of Financial AccountingStandards No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets* (SFAS 144), the carryingvalue of the Company’s assets are reviewed when events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. If it is determined that an impairment loss has occurred based oncurrent and future levels of income and expected future cash flows as well asother factors, then an impairment loss is recognized as a deduction indetermining operating income. SGC management concludes that no such impairmentexists at September 30, 2005.

 

**Deferred Financing Costs**

 

Deferred financing costs include costs incurred inconnection with issuance of long-term debt. These costs are amortized over theterm of the related financing agreement. Amortization expense for 2005, 2004,and 2003, was $2,445,000, $1,735,000 and $937,000, respectively.

 

**Other Current Liabilities**

 

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

 

**Advertising**

** **

The Company expenses advertising costs as incurred.Total advertising expenses for 2005, 2004 and 2003 were $6,123,000, $5,665,000and $2,454,000, respectively. 

 

**Pre-openingCosts**

** **

In accordance with the American Institute of CertifiedPublic Accountants’ Statement of Position 98-5, *Reporting on the Costs of Start-up Activities*, pre-openingcosts are expensed as incurred. Pre-opening costs in 2005, 2004 and 2003consist of development costs in obtaining Class III gaming approval aswell as employee costs, legal, marketing and advertising expenses, and otherdirect expenses related to the opening of SNFGC and STGC, and the developmentof SEGC. For the years ended September 30, 2005, 2004 and 2003, such coststotaled $1,509,000, $4,228,000 and $7,155,000, respectively.

 

**CasinoRevenues**

** **

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

 

**PromotionalAllowances**

** **

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

 

F-8

----

 

**SENECA GAMING CORPORATION**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)**

 

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

 
| ** **                       | ** ** | **Years Ended September 30** | ** ** |
|----------------------------------|------------|-----------------------------------|------------|
| ** **                       | ** ** | **2005**                          | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                       | ** ** | **(In Thousands)**                | ** ** |
|                             |       |                              |       |   |   |   |   |
| Food and beverage                |       | $                                 | 23,769     |   | $ | 15,636 |   | $ | 7,037 |   |
| Retail, entertainment, and other |       | 10,631                            |       | 7,182 |   | 2,520 |   |
| Promotional allowances           |       | $                                 | 34,400     |   | $ | 22,818 |   | $ | 9,557 |   |

 

Promotional allowances per the accompanyingconsolidated statements of income includes promotional credits for free slotplay offered to our patrons of $15,247 and $1,477 for the years ended September 30,2005 and 2004, respectively.

 

The estimated cost of providing such promotionalallowances was as follows:

 
| ** **                       | ** ** | **Years Ended September 30** | ** ** |
|----------------------------------|------------|-----------------------------------|------------|
| ** **                       | ** ** | **2005**                          | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                       | ** ** | **(In Thousands)**                | ** ** |
|                             |       |                              |       |   |   |   |   |
| Food and beverage                |       | $                                 | 21,225     |   | $ | 13,299 |   | $ | 6,913 |   |
| Retail, entertainment, and other |       | 8,082                             |       | 5,205 |   | 1,862 |   |
| Promotional allowances           |       | $                                 | 29,307     |   | $ | 18,504 |   | $ | 8,775 |   |

 

**GamingExpenses**

** **

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

 

**Retirement Savings Plan**

 

The Company sponsors a defined contribution retirementsavings plan for its employees.  TheCompany’s expense relating to this plan was $306,000 and $136,000 in the fiscalyears ended September 30, 2005 and 2004, respectively.

 

**IncomeTaxes**

** **

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

 

**FairValue of Financial Instruments**

** **

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

 

**RecentAccounting Pronouncements**

 

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions” (“SFAS 153”). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange have commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for fiscal years beginning after June 15, 2005.  The Company does not believe that the adoption of SFAS 153 will have a material effect on its results of operations or consolidated financial position.

 

F-9

 

**SENECA GAMING CORPORATION**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)**

 

In May 2005, the Financial Accounting Standards Board, Issued Statement of Financial Accounting Standards SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”).  SFAS 154 replaces APB No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements” and establishes retrospective application as the required method for reporting a change in accounting principle.  The reporting of a correction of an error by restating previously issued financial statements is also addressed.  SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.  The Company does not believe that the adoption of SFAS 154 will have a material effect on its results of operations or consolidated financial position.

 

**Management’sUse of Estimates**

** **

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

 

**Reclassification**

** **

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

 

**3.Cash and Cash Equivalents**

** **

At September 30, 2005 and 2004, the Company hadcash and cash equivalents of $142.5 million and $211.6 million, respectively.For reporting purposes, cash and cash equivalents include all operating cashand in-house funds.

 

**4.Concentration of Credit Risk**

** **

Financial instruments that potentially subject SGC toconcentrations of credit risk consist principally of cash and cash equivalentaccounts in financial institutions. SGC maintains its cash balances in severalfinancial institutions. Accounts are insured by the Federal Deposit Insurance Corporationup to $100,000. Cash and cash equivalents exceeding federally insured limitstotaled approximately $117.0 million and $190.6 million at September 30,2005 and 2004, respectively.

 

**5.Other Receivables, Net**

** **

Components of other receivables, net are as follows:

 
| ** **                      | ** ** | **September 30** | ** ** |
|---------------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                      | ** ** | **(In Thousands)**    | ** ** |
|                            |       |                  |       |   |   |
| Gaming                          |       | $                     | 1,127      |   | $ | 936 |   |
| Non-gaming                      |       | 1,126                 |       | 579 |   |
|                            |       | 2,253                 |       | 1,515 |   |
| Allowance for doubtful accounts |       | (274                  | )          | (167 | ) |
| Receivables, net                |       | $                     | 1,979      |   | $ | 1,348 |   |

 

**6.Other Current Assets**

** **

Components of other current assets are as follows: 

 
| ** **           | ** ** | **September 30** | ** ** |
|----------------------|------------|-----------------------|------------|
| ** **           | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **           | ** ** | **(In Thousands)**    | ** ** |
|                 |       |                  |       |   |   |
| Prepaid expenses     |       | $                     | 6,192      |   | $ | 2,919 |   |
| Other                |       | 245                   |       | 252 |   |
| Other current assets |       | $                     | 6,437      |   | $ | 3,171 |   |

 

F-10

----

 

**SENECA GAMING CORPORATION**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)**

 

**7.Property and Equipment, Net**

** **

Components of property and equipment are as follows:

 
| ** **                                     | ** ** | **September 30** | ** ** |
|------------------------------------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                                     | ** ** | **(In Thousands)**    | ** ** |
|                                           |       |                  |       |   |   |
| Buildings                                      |       | $                     | 105,004    |   | $ | 69,011 |   |
| Leasehold improvements – casino           |       | 105,412               |       | 103,889 |   |
| Leasehold improvements – other            |       | 345                   |       | 345 |   |
| Furniture and equipment                        |       | 101,944               |       | 88,175 |   |
| Construction-in-progress                       |       | 170,275               |       | 47,738 |   |
|                                           |       | 482,980               |       | 309,158 |   |
| Less accumulated depreciation and amortization |       | (52,562               | )          | (26,361 | ) |
| Property and equipment, net                    |       | $                     | 430,418    |   | $ | 282,797 |   |

 

**8.Other Long-Term Assets**

** **

Components of other long-term assets are as follows:

 
| ** **                          | ** ** | **September 30** | ** ** |
|-------------------------------------|------------|-----------------------|------------|
| ** **                          | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                          | ** ** | **(In Thousands)**    | ** ** |
|                                |       |                  |       |   |   |
| Deferred financing costs, net       |       | $                     | 13,981     |   | $ | 13,976 |   |
| Restricted Cash – Sinking Fund |       | —                |       | 6,048 |   |
| Land to be distributed to Nation    |       | 3,901                 |       | 2,888 |   |
| Deposits                            |       | 604                   |       | 1,287 |   |
| Other                               |       | —                |       | 860 |   |
|                                |       | $                     | 18,486     |   | $ | 25,059 |   |

 

In 2005 and 2004, the Company incurred costs towardthe acquisition of land totaling $1.7 million and $2.9 million, respectively,which, net of $0.8 million related to a potential SEGC casino site which waswritten off, are included in other long-term assets on the accompanying balancesheet. 

 

During 2005, the Company made deposits to a sinkingfund required by the Freemantle Term Loan, in the amount of $17.5 million.  Upon termination of the Term Loan in May 2005,the $23.5 million of deposited funds plus accumulated earnings was transferred,$18.0 million to short-term investments and $5.6 million  to cash and cash equivalents.

 

**9.Other Current Liabilities**

** **

Components of other current liabilities are asfollows:

 
| ** **                                      | ** ** | **September 30** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                                      | ** ** | **(In Thousands)**    | ** ** |
|                                            |       |                  |       |   |   |
| Accrued salaries, wages, and benefits           |       | $                     | 7,522      |   | $ | 6,770 |   |
| Regulatory fees and police and sheriff services |       | 9,347                 |       | 5,186 |   |
| Gaming liabilities                              |       | 11,875                |       | 7,792 |   |
| Other accrued expenses                          |       | 9,259                 |       | 12,004 |   |
| Other current liabilities                       |       | $                     | 38,003     |   | $ | 31,752 |   |

 

F-11

----

 

**SENECA GAMING CORPORATION**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)**

 

**10.Long-Term Debt**

** **

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

 
| ** **                                | ** ** | **September 30** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                                | ** ** | **(In Thousands)**    | ** ** |
|                                      |       |                  |       |   |   |
| 2004 71⁄4% Senior Notes due 2012       |       | $                     | 300,000    |   | $ | 300,000 |   |
| 2005 71⁄4% Senior Notes due 2012       |       | 193,352               |       | — |   |
| Term loan                                 |       | —                |       | 80,000 |   |
| Equipment financing and other             |       | —                |       | 325 |   |
|                                      |       | 493,352               |       | 380,325 |   |
| Less current maturities of long-term debt |       | —                |       | (325 | ) |
| Long-term debt                            |       | $                     | 493,352    |   | $ | 380,000 |   |

 

**71⁄4%Senior Notes due 2012**

** **

On May 5,2004, SGC issued $300.0 million in 71⁄4% senior notes due 2012, or the 2004senior notes. 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.  Thenet proceeds from the 2004 senior notes were, or will be, used principally tofund in whole or in part (a) the repayment in May 2004 of vendorequipment financing (discussed below), (b) SNFGC’s construction andequipping of a 604-room hotel, (c) the acquisition of the remaining 26acres in Niagara Falls, as provided for in the Compact, (d) the payment of$22.0 million in August 2004 to satisfy the obligation to the Empire StateDevelopment Corporation in connection with the transfer of certain property tothe Nation for use as the Seneca Niagara Casino, and (e) a $25.0 milliondistribution to the Nation.  All assetsof SGC come from the proceeds of the offerings of senior notes, along with anyintercompany advances or loans to SGC’s subsidiaries.  SGC has no independent operating assets oroperating activities.

 

On May 23,2005, SGC issued an additional $200.0 million in 71⁄4% senior notes due 2012, Series B,or the 2005 senior notes. The 2005 senior notes are treated as a single classwith the 2004 senior notes and are identical to the 2004 senior notes, exceptfor certain tax attributes and prior to November 1, 2005 the amount of interestaccrued thereon.  Gross proceeds on the2005 senior notes were approximately $193.0 million.  Such proceeds were, or will be, used to (a) payin full and terminate on May 23, 2005, the senior secured term loan, orthe Term Loan, made by Freemantle Limited, or Freemantle, to SNFGC in November 2002,for a negotiated amount of approximately $126.7 million, representing $80.0million in outstanding 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) to pay thefees and expenses associated with the offering of the 2005 senior notes, and(d) for general corporate purposes. Interest on the 2004 and 2005 senior notes is payable semi-annually on November 1and May 1. The 2004 and 2005 senior notes are unsecured and rank equally.As of September 30, 2005, aggregate accrued interest on the 2004 and 2005senior notes was $14.2 million.

 

The Indenturegoverning the 2004 and 2005 senior notes contains certain financial andnon-financial covenants. The financial covenants include limitations onrestricted payments and the incurrence of indebtedness, while the non-financialcovenants include reporting obligations and compliance with laws andregulations. As of September 30, 2005, SGC was in compliance with allcovenants in the Indenture applicable to it. 

 

**TermLoan**

** **

SNFGCentered into a five-year Term Loan with Freemantle Limited (Lender) dated November 22,2002. The Term Loan required that the Lender provide $80.0 million in financingfor the initial construction of the SNFGC casino facility and other relatedcosts. As of September 30, 2005 and 2004, $0 and $80.0 million wereoutstanding, respectively.  As discussedabove, on May 23, 2005, the Term Loan was paid in full. The negotiatedpayment in full of the Term Loan resulted in a charge to earnings on the earlyextinguishment of the Term Loan of approximately $49.2 million, including thewrite-off of $2.5 million of deferred financing costs.  These amounts are included in interestexpense.

 

Uponrepayment of the Term Loan, SNFGC became a full and unconditional guarantor ofthe 2004 and 2005 notes.

 

F-12

----

 

**SENECA GAMING CORPORATION**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)**

 

**EquipmentFinancing**

** **

During 2003, SNFGC entered into five financingarrangements with certain slot machine vendors providing approximately $37.0million to finance SNFGC’s gaming equipment, including its slot machines.Interest rates on these loans ranged from 6.0% to 6.42%. These loans were retiredin May 2004 using proceeds from the Company’s 2004 Senior Notes. A gain of$415,000 was recognized in 2004, net of a $467,000 write-off of deferredfinancing costs related to these loans.

 

During 2004, STGC entered into four financingarrangements with certain slot machine vendors providing approximately $18.1million to finance STGC’s slot machine purchases. Interest rates on these loansranged from 6.0% to 8.0%. These notes were retired in May 2004 from theproceeds of the Company’s 2004 Senior Notes.

 

**DerivativeInstruments**

** **

SGC isconsidered an “end user” of derivative instruments and engages in derivativetransactions for risk management purposes only. Effective on May 25, 2004,SGC entered into two interest rate cap agreements for an aggregate notionalamount of $80.0 million, equal to the then outstanding balance of the TermLoan. The instruments were purchased for approximately $1.1 million each,$2.2 million in total. Periodic changes in the fair market value of theinstruments were recorded as adjustments to interest expense. Both instrumentswere sold in the third quarter of 2005 subsequent to the payment in full andtermination of the Term Loan.  Grossproceeds from the sale of these instruments was $0.7 million.

 

Maturities of the Company’s long-term debt are asfollows:

 

| ** **                           | ** ** | **Maturities** | ** ** |
|--------------------------------------|------------|----------------|------------|
| ** **                           | ** ** | ** **     | ** ** |
| Fiscal year ended September 30: |       |           |       |
| 2006                                 |       | $              | —     |   |
| 2007                                 |       | —         |       |
| 2008                                 |       | —         |       |
| 2009                                 |       | —         |       |
| 2010                                 |       | —         |       |
| Thereafter                           |       | 500,000        |       |
|                                 |       | $              | 500,000    |   |

 

**11.Related-Party Transactions**

** **

**LandLeases from the Nation**

** **

The Nation entered into an operating lease agreement(Head Lease) with SNFGC on October 25, 2002, for use of the land and thebuilding which is currently the Seneca Niagara Casino. The Seneca NiagaraCasino lease term is for 21 years and requires monthly rent payments of $1.0million.  Rent payments commenced July 1,2003. Rent payments were increased to $1.25 million per month, effective June1, 2005.  Rent is payable only to theextent that sufficient funds are available, measured on an annual basis, fromthe net proceeds derived from the operation of the casino facility and othercommercial activities related to the operation of the casino. If on an annualbasis sufficient funds are not available, any shortfall in the rent amount doesnot accumulate.  Due to the related partynature of this lease, which can be effectively modified by the Nation, theCompany records lease expense monthly equal to the payment amount for therespective month.  During the fiscalyears ended September 30, 2005, 2004 and 2003, SNFGC made lease paymentsto the Nation of $13.0 million, $12.0 million and $3.0 million, respectively.  The lease contains no renewal options orescalation clauses.

 

STGC leases theland upon which the Seneca Allegany Casino operates from the Nation pursuant toan oral agreement. From May through September 2004, STGC paid amonthly lease payment of $750,000.  Themonthly lease payment was increased to $1.0 million effective October 1,2004 and to $1.25 million effective March 1, 2005.  During the fiscal years ended September 30,2005, 2004 and 2003, STGC made lease payments to the Nation of $13.8 million, $3.8million and $0, respectively.  There isno present oral agreement as to renewal options or escalation.

 

Beginning October 1,2005, and each October 1 thereafter, the lease payments for both leasesmay increase by 3%, per the provisions of the indenture relating to the seniornotes.

 

F-13

----

 

**SENECA GAMING CORPORATION**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)**

 

**OtherRelated-Party Transactions**

** **

On July 14,2005, STGC entered into a construction management agreement with SenecaConstruction Management Corporation, or SCMC, a wholly owned corporation of theNation, to manage the construction of the new 220-room hotel and casino atSeneca Allegany Casino. SCMC replaces Klewin Gaming & Hospitality, Inc.,or Klewin, the prior construction manager for the Seneca Allegany Casino hoteland casino project. SCMC will be responsible for contract procurement and dailyoversight of the construction project. The original construction agreementprovides that the cost of all of the contract work to be completed under theagreement will not exceed a guaranteed maximum amount of $123.0 million.  This construction agreement is currently beingamended to provide for, among other matters, an increase in the $123.0 millionguaranteed maximum amount of the cost of all contract work to be completed dueto the design changes and the related delay in this project and foundation workreferenced above.  If STGC furtherchanges the scope of the project or finishing materials, the guaranteed maximumamount under the contract may be further increased.

 

In connection withthe termination of the luxury hotel design/build construction contract, theboard of directors of SNFGC authorized senior management to commencediscussions with SCMC to enter into a definitive agreement to complete theSeneca Niagara Casino expansion project. The board of directors also authorized SNFGC to immediately engage SCMCto manage the Seneca Niagara Casino expansion project while such definitiveagreement is negotiated and finalized.

 

As of January 1,2005, the Company transferred all Class II operations to the Nation,including its poker operations.  The netbook value of the equipment transferred of approximately $2.4 million wasrecorded as an equity transaction.  TheCompany leases space within both Seneca Niagara Casino & Hotel andSeneca Allegany Casino for operation of the poker rooms by the Nation.  During 2005, the Company recorded $875,000 ofrental income and at September 30, 2005, the Company has recorded $875,000as a receivable from the Nation relating to poker room rentals.

 

During 2005 and 2004, the Company declared dividendsto the Nation of $20.4 million and $28.7 million, respectively.  Dividends of $21.1 million and $28.0 millionwere paid in 2005 and 2004, respectively.

 

During 2004, the Company distributed real property andleasehold rights acquired, net of liabilities transferred, for use in itscasino operations to the Nation.  Thedistribution amount of $16.4 million for 2004 is based on the acquisitioncosts.

 

The Company is charged by the Nation for SGA costs,which are incurred by the Nation. SGA costs charged to the Company wereapproximately $8.7 million in 2005, $6.2 million in 2004 and $3.6 million in2003. The Company also incurs costs which are passed through the Nation for NewYork State gaming regulatory services and New York State Police and CattaraugusCounty Sheriff Department services. The Company has recorded expenses ofapproximately $7.4 million in 2005, $5.0 million in 2004 and $2.6 million in2003 in connection with these services. At September 30, 2005 and 2004,approximately $9.3 million and $5.2 million, respectively, of the SGA, otherregulatory, and police costs are recorded as other current liabilities.

 

SGC incurred legal fees of $82,000, $183,000 and$229,000 primarily for regulatory and compact matters during 2005, 2004 and2003, respectively, from a law firm that specializes in gaming regulatoryissues in which the former President/CEO of SGC is a partner. The formerPresident/CEO did not receive any remuneration from the law firm during 2004.  The Company ceased using the services of thislaw firm effective November 8, 2004.

 

During 2005, 2004 and 2003, the Company purchased$248,000, $689,000 and $317,000, respectively, of tobacco products from anentity in which the owner is an SGA Commissioner.

 

During 2005, 2004 and 2003, the Company purchased$104,000, $158,000 and $38,000 of bottled water from an entity, which is ownedby a member of the Council. As of November 2, 2004, this individual is nolonger a member of the Council. 

 

STGC leases officespace in a building owned by the brother of a member of the Company’s board ofdirectors.  During the fiscal years endedSeptember 30, 2005 and 2004, such lease payments totaled approximately$258,000 and $118,000, respectively.

 

F-14

----

 

**SENECA GAMING CORPORATION**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)**

 

**12.Commitments and Contingencies**

** **

**Litigation**

** **

On August 24, 2005, SNFGC fileda complaint against Klewin and BankNorth, as joint defendants, in the SuperiorCourt for the Judicial District of New London, Connecticut. The suit was filedto obtain immediate injunctive relief in conjunction with a pending demand forarbitration by SNFGC related to Klewin ‘s failure to make required payments tothe subcontractors for the construction of Seneca Niagara Casino’s new luxuryhotel. SNFGC filed the complaint in order to enjoin the defendants fromutilizing approximately $14.6 million paid by SNFGC (approximately $11.25million was for the benefit of subcontractors on the Seneca Niagara Casinoproject and the balance related to the Seneca Allegany Casino expansionprojects) into an account with BankNorth in the name of Klewin, which was setup by SNFGC principally for the purpose of paying Klewin’s subcontractors(including the architect) on the construction project. SNFGC was subsequentlyinformed by Klewin that approximately $14.6 million paid by SNFGC into theaccount was “swept” by BankNorth and, as a result, several subcontractors(including the architect) were not paid by Klewin. Among other things, thecomplaint seeks temporary and permanent injunctive relief requiring that thedefendants return to the account the approximate $14.6 million that hasbeen removed from that account and temporary and permanent injunctive reliefenjoining defendants from utilizing the approximate $14.6 million that hasbeen removed from the account, other than for payment of Klewin’ssubcontractors on the construction projects. SNFGC intends to advance funds to the architect and has advanced fundsto SCMC for payment to the remaining subcontractors.

 

On August 25, 2005, the partiesappeared before the court and agreed to a stipulated immediate order freezingthe remaining balance of approximately $5.5 million in the account pending ahearing on SNFGC’s application for temporary and permanent injunctive relief,subject to limited draw rights of not more than $350,000 per week permitted toKlewin for its operating expenses pursuant to a budget to be submitted byKlewin weekly.  The Company intends toseek recovery of all amounts already withdrawn from the account, except to theextent disbursed for appropriate purposes. On September 14, 2005, Klewinfiled an Application for Immediate Temporary Injunction seeking a temporaryinjunction prohibiting the Company from using design and construction documentsand appropriating Klewin employees. Klewin has also asserted counterclaims alleging, among other matters,tortious interference with their business. A hearing related to these counterclaims and the temporary injunctionwas held on November 22, 2005 and on November 30, 2005, the Courtgranted the Company’s motion to dismiss Klewin’s counterclaims and Applicationfor Immediate Temporary Injunction.  On November 23,2005, BankNorth filed an answer asserting, among other matters, certaincounterclaims including a request for a declaratory judgment to the effect thatBankNorth would be permitted to retain approximately $9.1 million of the$14.6 million swept from the Klewin account.  The Company can provide no assurance that itwill be able to recover all or any portion of the approximate$14.6 million.  As such, the Companyhas recorded a $13.3 million charge to earnings, representing the unrecoveredamounts above, net of $1.3 million of management fees and other amounts whichwere otherwise due Klewin.

 

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

 

**TheSeneca Nation Compact**

** **

As part of its Compact, the Nation agrees tocontribute to the State of New York a portion of the proceeds from theoperation and conduct of each category of Gaming Device for which exclusivityexists, based on the win of such machines (cash dropped into machines, afterpayouts but before expenses) and totaled on a cumulative quarterly basis to beadjusted annually at the end of the relevant calendar year.  However, beginning in February 2005, theCompany began advancing to the Nation on a monthly basis the exclusivity feedue for the prior month.  The exclusivityfee to the State of New York for years 1–4 (through December 31, 2006), is18.0% paid on an annual basis. Thereafter, the exclusivity fee is 22% for years5–7 (through December 31, 2009), on a semi-annual basis and 25.0% foryears 8–14 (through December 31, 2016), on a quarterly basis. 

 

Amounts payable for exclusivity fees were $5.7million, $41.5 million and $28.9 million at September 30, 2005, 2004 and2003, respectively, and are recorded as exclusivity fees on the accompanyingbalance sheet. The exclusivity fee expense was $67.3 million, $51.6 million and$28.9 million for the years ended September 30, 2005, 2004 and 2003,respectively.

 

F-15

----

 

**SENECA GAMING CORPORATION**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (continued)**

 

**AdditionalCasino Locations and Expansion**

** **

As described in Note 1, the Compact provides theNation the exclusive right to conduct Class III gaming activities at threesites in the western region of the State of New York.  The construction of our third casino site in ErieCounty as well as expansion to SNFGC and STGC will require significant capitaloutlays. The amount and timing of these capital expenditures are dependent onvarious factors including financing availability, certain Nation andgovernmental approvals, construction timelines, and the performance of its twooperating casinos.

 

**CapitalProjects**

** **

On May 18, 2004, the Company began constructionof a hotel connected to the existing Seneca Niagara Casino featuringapproximately 600 rooms, approximately 950 slot machines, and variousamenities. The hotel will cost approximately $235.0 to $240.0  million to complete, including allconstruction costs and costs associated with furniture, fixtures, andequipment. 

 

During 2004, the Company began to construct a parkinggarage and perform site preparation work for a hotel connected to the existingSeneca Allegany Casino featuring 220 rooms.  STGC estimates that the parking garage andhotel will cost between $187.0 million and $198.0 million to complete,including all construction costs and costs associated with furniture, fixtures,and equipment.   The parking garageportion of this amount is approximately $31.0 million.  The Company has capitalized $47.8 million asof September 30, 2005 for these projects.

 

The Seneca Niagara Casino hotel is expected topartially open during December 2005 and be completely opened by March 2006.  The Seneca Allegany Casino parking garage wasopen to the public on July 1, 2005, while the hotel is expected topartially open in October 2006, and be completely opened by December 2006.

 

**OperatingLeases**

** **

In addition to its Head Lease with the Nation (Note11), the Company rents land and building space, an employee parking lot, andwarehouse space; and administrative space for its STGC casino facility, undervarious operating leases. The lease terms vary from yearly to 21 years withrenewal options. Total rent expense under all operating leases for 2005, 2004and 2003 was approximately $32.7 million, $21.0 million and $4.0 million,respectively.  The terms of the 2004Senior Notes limit the monthly payments under the SNFGC Head Lease and STGCland lease to $1.25 million with annual increases up to 3.0% beginning noearlier than October 2005. Estimated minimum rents due under the operatingleases (including the Head Lease and STGC land lease) are as follows:

** **

| ** **                           | ** ** | **(In Thousands)** | ** ** |
|--------------------------------------|------------|--------------------|------------|
| Fiscal year ended September 30: | * *   | * *           | * *   |
| 2006                                 |       | $                  | 31,070     |   |
| 2007                                 |       | 32,002             |       |
| 2008                                 |       | 32,962             |       |
| 2009                                 |       | 33,884             |       |
| 2010                                 |       | 34,778             |       |
| Thereafter                           |       | 523,638            |       |
|                                 |       | $                  | 688,334    |   |

 

F-16

----

 
| **Exhibits** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 1.1          |       | Purchase  Agreement, dated April 29, 2004, by and among SGC, the Guarantors  defined therein 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 1.1 to SGC’s Registration Statement  No. 333-117633 filed with the SEC on July 23, 2004).                                      |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 1.2          |       | Purchase  Agreement, dated May 18, 2005, by and among SGC, the Guarantors as  defined therein 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 1.1 to SGC’s Quarterly Report on Form 10-Q  filed with the SEC on August 15, 2005).                                           |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.1          |       | Fifth Amended  and Restated Charter of SGC (incorporated by reference to Exhibit 3.1 to  SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005).                                                                                                                                                                                                                                                                                                     |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.2          |       | Second Amended  and Restated By-Laws of SGC (incorporated by reference to Exhibit 3.1 to  SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005).                                                                                                                                                                                                                                                                                                    |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.3          |       | Third Amended  and Restated Charter of SNFGC (incorporated by reference to Exhibit 3.1  to SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005).                                                                                                                                                                                                                                                                                                   |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.4          |       | Third Amended  and Restated By-Laws of SNFGC (incorporated by reference to Exhibit 3.1  to SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005).                                                                                                                                                                                                                                                                                                   |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.5          |       | Second Amended  and Restated Charter of STGC (incorporated by reference to Exhibit 3.1  to SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005).                                                                                                                                                                                                                                                                                                   |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.6          |       | Amended and  Restated By-Laws of STGC (incorporated by reference to Exhibit 3.1 to  SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005).                                                                                                                                                                                                                                                                                                          |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.7          |       | Second Amended  and Restated Charter of SEGC (incorporated by reference to Exhibit 3.1  to SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005).                                                                                                                                                                                                                                                                                                   |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.8          |       | Amended and  Restated By-Laws of SEGC (incorporated by reference to Exhibit 3.1 to  SGC’s Annual Report on Form 10-K filed with the SEC on May 9,  2005).                                                                                                                                                                                                                                                                                                          |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.1          |       | Indenture, dated  as of May 5, 2004, among SGC, 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, 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          |       | 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).                                 |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.4          |       | 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).                                      |

 

----

 
| 4.5    |   | Nation  Agreement, dated May 5, 2004, between Seneca Nation of Indians, Merrill  Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith  Incorporated, Bank of America Securities LLC and Wells Fargo Securities, LLC,  collectively as the Initial Purchasers, and Wells Fargo Bank, National  Association, as Trustee (incorporated by reference to Exhibit 4.3 to  SGC’s Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).                                             |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.6    |   | 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, Bank of America  Securities LLC and Wells Fargo Securities, LLC, collectively as the Initial  Purchasers, and Wells Fargo Bank, National Association, as Trustee  (incorporated by reference to Exhibit 4.3 to SGC’s Quarterly Report on  Form 10-Q filed with the SEC on August 15, 2005). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.7    |   | Assignment and  Plan of Distribution Agreement, entered into and effective as of May 5,  2004, by and between Seneca Nation of Indians and SGC (incorporated by  reference to Exhibit 4.2 to SGC’s Registration Statement  No. 333-117633 filed with the SEC on July 23, 2004).                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.1   |   | Nation-State  Gaming Compact between the Seneca Nation of Indians and 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   |   | Term Loan Agreement, dated as of November 22,  2002, between Freemantle Limited, as Lender, and SNFGC, as Borrower, as  amended by Amendment No. 1 on December 6, 2002 (incorporated by  reference to Exhibit 10.2 to SGC’s Registration Statement No. 333-117633  filed with the SEC on July 23, 2004).                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.3   |   | Amendment  No. 2 to Term Loan Agreement, dated April 22, 2004, between  Freemantle Limited, as Lender, and SNFGC as Borrower (incorporated by  reference to Exhibit 10.14 to SGC’s Registration Statement  No. 333-117633 filed with the SEC on August 18, 2004).                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.4   |   | Nation  Agreement, dated as of November 22, 2002, between Freemantle Limited, as  Lender, and the Seneca Nation of Indians (incorporated by reference to  Exhibit 10.3 to SGC’s Registration Statement No. 333-117633 filed  with the SEC on July 23, 2004).                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.5   |   | Amendment  No. 1 to Nation Agreement, dated April 22, 2004, between Freemantle  Limited, as Lender, and the Seneca Nation of Indians (incorporated by  reference to Exhibit 10.15 to SGC’s Registration Statement  No. 333-117633 filed with the SEC on August 18, 2004).                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.6   |   | Term Loan  Termination Agreement, dated as of May 9, 2005, between Freemantle  Limited, as Lender, and SNFGC, as Borrower (incorporated by reference to  Exhibit 10.1 to SGC’s Current Report on Form 8-K filed with the SEC  on May 10, 2005).                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.7   |   | Agreement of  Lease (“Head Lease Agreement”), dated as of October 25, 2002, between  Seneca Nation of Indians, as Landlord, and SNFGC, as Tenant, as amended on  December 23, 2002 (incorporated by reference to Exhibit 10.4 to  SGC’s Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.8   |   | Non-binding  Letter of Intent regarding Offer to Purchase Airborne Business Park Site,  executed on April 9, 2004, between Uniland Development Company and SEGC  (incorporated by reference to Exhibit 10.5 to SGC’s Registration  Statement No. 333-117633 filed with the SEC on July 23, 2004).                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.9   |   | Agreement, dated  as of October 15, 2003, between SNFGC, as Owner, and Klewin Building  Company, Inc., as Design/Builder (for Seneca Niagara Casino luxury  hotel) (incorporated by reference to Exhibit 10.6 to SGC’s Registration  Statement No. 333-117633 filed with the SEC on August 18, 2004).                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.10  |   | First Amendment  to Design/Build Agreement, dated as of February 10, 2004, by and between  SNFGC, as Owner, and Klewin Building Company, Inc., as Design/Builder  (for Seneca Niagara Casino Hotel) (incorporated by reference to  Exhibit 10.7 to SGC’s Registration Statement No. 333-117633 filed  with the SEC on August 18, 2004).                                                                                                                                                                       |

 

----

 
| 10.11  |   | Agreement, dated  as of September 1, 2004, between SNFGC, as Owner, and Klewin Building  Company, Inc., as Design/Builder (for Seneca Allegany Casino Parking  Garage) (incorporated by reference to Exhibit 10.10 to SGC’s Annual  Report on Form 10-K filed with the SEC on May 9, 2005).                                                                                   |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.12  |   | Agreement, dated as of September 1, 2004,  between STGC, as Owner, and Klewin Building Company, Inc., as  Design/Builder (for Seneca Allegany Casino hotel and casino) (incorporated by  reference to Exhibit 10.11 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.13  |   | 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 17, 2005).                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.14  |   | Letter of  Agreement, dated June 29, 2005, for Mutual Termination of the Agreement  dated September 1, 2004 between SNFGC, as Owner, and Klewin Building  Company, Inc., as Design/Builder (for Seneca Allegany Casino Phase II  Hotel and Casino) (incorporated by reference to Exhibit 10.2 to SGC’s  Current Report on Form 8-K filed with the SEC on July 17, 2005). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.15  | +      | 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).                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.16  | +      | Amended and  Restated Employment Agreement, dated April 13, 2004, between SGC and G.  Michael Brown (incorporated by reference to Exhibit 10.8 to SGC’s  Registration Statement No. 33-117633 filed with the SEC on July 23,  2004).                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.17  | +      | Amended and  Restated Employment Agreement, dated July 13, 2004, between SGC and  Annette Mohawk Smith (incorporated by reference to Exhibit 10.10 to  SGC’s Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.18  | +      | Second Amended and Restated Employment Agreement,  dated April 6, 2005, between SGC and John Pasqualoni (incorporated by  reference to Exhibit 10.16 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.19  | +      | Amended and  Restated Employment Agreement, dated July 13, 2004, between SGC and  Joseph D’Amato (incorporated by reference to Exhibit 10.12 to SGC’s  Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.20  | +      | Amended and  Restated Employment Agreement, dated July 13, 2004, between SGC and  Michael F. Speller (incorporated by reference to Exhibit 10.13 to SGC’s  Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.21  | +      | Employment  Agreement, dated April 28, 2005, between SGC and Rajat Shah  (incorporated by reference to Exhibit 10.11 to SGC’s Annual Report on  Form 10-K filed with the SEC on May 9, 2005).                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.22  | +      | Separation and  Consulting Agreement, dated April 6, 2005, between SGC and C. Michael  Brown (incorporated by reference to Exhibit 10.1 to Current Report on  Form 8-K filed with the SEC on April 6, 2005).                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.23  | +      | 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)                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 12.1   | *      | Statement  regarding Computation of Ratios.                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 21.1   | *      | List of  Subsidiaries of SGC.                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 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. |

 

----

*      Filed herewith.

 

+      Managementcontract or compensatory plan or arrangement.

 

(b)           Seeitem (a)3. above

 

(c)           Seeitem (a)1. and 2. above.

 

----