Tableof Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**Form 10-K**

** **
| **x**      | ** ** | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                          |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                         |
|       |       | **For the fiscal year ended September 30,  2008**                                                                                                                                                                                                                       |
|       |       | ** **                                                                                                                                                                                                                                                                   |
|       |       | **OR**                                                                                                                                                                                                                                                                       |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                   |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                      |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                   |
| ** ** | ** ** | **For the transition period from                       to                   ** |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                   |
| ** ** | ** ** | **Commission file number 333-117633**                                                                                                                                                                                                                                        |

** **

**SENECA GAMING CORPORATION**

(Exact name ofregistrant as specified in its charter)

 

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

 

**310 Fourth Street**

**Niagara Falls, New York (Seneca Nation Territory)14303**

**(716) 299-1100**

(Address,including zip code, and telephone number,

including areacode, of registrant’s principal executive offices)

 

SecuritiesRegistered Pursuant to Section 12(b) of the Act:

**None**

 

SecuritiesRegistered Pursuant to Section 12(g) of the Act:

**None**

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes  o  No  x

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or15(d) of the Act.

 

Yes  x  No  o

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

 

Yes  x  No  o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in any definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.   x

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company (as each is defined in Rule 12b-2of the Exchange Act).

 

Largeaccerated filer  o        Acceleratedfiler  o        Non-acceleratedfiler  x        Smallerreporting company  o

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

 

Yes  o No  x

 

The registrant is awholly-owned governmental instrumentality of the Seneca Nation of Indians.

 

**DOCUMENTS INCORPORATED BY REFERENCE:     None**

 

 

 

----

Table of Contents

 

**SENECA GAMING CORPORATION**

 

**Form 10-K**

 

**TABLE OF CONTENTS**

 
| **PART I**   | ** **                                                                                                          | ** ** |
|-------------------|---------------------------------------------------------------------------------------------------------------------|------------|
|              |                                                                                                                |       |
| Item 1.           | Business                                                                                                            | 3          |
| Item  1A.         | Risk  Factors                                                                                                       | 24         |
| Item 1B.          | Unresolved  Staff Comments                                                                                          | 42         |
| Item  2.          | Properties                                                                                                          | 42         |
| Item 3.           | Legal Proceedings                                                                                                   | 43         |
| Item 4.           | Submission  of Matters to a Vote of Security Holders                                                                | 48         |
|              |                                                                                                                |       |
| **PART II**  | ** **                                                                                                          | ** ** |
|              |                                                                                                                |       |
| Item 5.           | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 48         |
| Item 6.           | Selected  Financial Data                                                                                            | 48         |
| Item 7.           | Management’s  Discussion and Analysis of Financial Condition and Results of Operation                          | 51         |
| Item 7A.          | Quantitative  and Qualitative Disclosures About Market Risk                                                         | 71         |
| Item 8.           | Financial  Statements and Supplementary Data                                                                        | 72         |
| Item 9.           | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure                               | 72         |
| Item 9A.(T)       | Controls and  Procedures                                                                                            | 72         |
| Item 9B.          | Other Information                                                                                                   | 73         |
|              |                                                                                                                |       |
| **PART III** | ** **                                                                                                          | ** ** |
|              |                                                                                                                |       |
| Item 10.          | Directors,  Executive Officers and Corporate Governance                                                             | 73         |
| Item 11.          | Executive  Compensation                                                                                             | 77         |
| Item 12.          | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    | 85         |
| Item 13.          | Certain  Relationships and Related Transactions                                                                     | 85         |
| Item 14.          | Principal  Accountant Fees and Services                                                                             | 88         |
|              |                                                                                                                |       |
| **PART IV**  | ** **                                                                                                          | ** ** |
|              |                                                                                                                |       |
| Item 15.          | Exhibits  and Financial Statement Schedules                                                                         | 88         |
|              | Signatures                                                                                                          | 89         |

 

**FORWARD-LOOKING STATEMENTS**

 

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

 

Factors that could causeactual results, performance or achievements to differ materially from thoseexpressed or implied by these forward-looking statements include, but are notlimited to, the risk factors set forth in Item 1A. of this Annual Report on Form 10-Kand the risks discussed in our other filings with the Securities and ExchangeCommission.   Readers are cautioned notto place undue reliance on these forward-looking statements which speak only asof the date of this filing.

 

2

----

Table of Contents

 

We assume no obligationto update these forward-looking statements.

 

**PART I**

 

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

 

Except as otherwise indicated by the context, in this Annual Report on Form 10-K,or this Annual Report, we refer to (1) Seneca Gaming Corporation as “SGC”or “the Company,” (2) Seneca Niagara Falls Gaming Corporation, a 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) LewistonGolf Course Corporation, a wholly owned subsidiary of SNFGC, as “LGCC,”, (6) SenecaMassachusetts Gaming Corporation, a wholly owned subsidiary of SGC, as “SMGC,” (7) theSeneca Nation of Indians, as “Nation”, “Seneca Nation” or “Seneca Nation ofIndians,” (8) the Nation-State Gaming Compact between the Seneca Nation ofIndians and New York State, dated August 18, 2002, as the “Compact”, and (9) SGC,SNFGC, STGC, SEGC, LGCC, and SMGC collectively, as “we,” “our,” “ours” and “us.”  SNFGC, STGC, SEGC and LGCC are sometimes collectivelyreferred to as the “restricted subsidiary guarantors”, based on theirrespective guarantees of SGC’s obligations under the senior notes.  Our fiscal year ends on September 30.  “Fiscal 2008” is defined as the fiscal yearended September 30, 2008, “Fiscal 2007” is defined as the fiscal yearended September 30, 2007, and fiscal years prior to 2007 are definedsimilarly within the context of this Annual Report.

 

**General**

 

SGC is wholly owned bythe Nation and chartered to develop, manage and direct all of the Nation’s Class IIIgaming operations on the Nation’s territories in Western New York. SGC waschartered by the Nation in August 2002. In August 2002, the Nation entered into the Compact with New YorkState that provides the Nation with the right to establish and operate three Class IIIgaming facilities in Western New York. We currently operate three Class III gaming facilities in WesternNew York—Seneca Niagara Casino and Hotel, which is located in the City ofNiagara Falls, New York (Niagara Territory) and operated by SNFGC,approximately 20 miles north of Buffalo, New York; Seneca Allegany Casino andHotel, which is located in the City of Salamanca, New York (Allegany Territory)and operated by STGC, approximately 60 miles south of Buffalo, New York and 75miles northeast of Erie, Pennsylvania; and Seneca Buffalo Creek Casino, whichis located in the inner harbor district of Buffalo, New York (Buffalo CreekTerritory) and operated by SEGC. Seneca Niagara Casino and Hotel opened on December 31,2002 (initially, as the Seneca Niagara Casino). Seneca Allegany Casino and Hotel opened on May 1, 2004 (initially,as the Seneca Allegany Casino).  SenecaBuffalo Creek Casino commenced operations on July 3, 2007 in a temporaryfacility.  Our three casinos are locatedon land held in restricted fee by the Nation, which, together with the rightsunder the Compact, allows us to conduct Class III gaming operations inWestern New York. See “Item 3 - Legal Proceedings” for a discussion of variouslegal proceedings potentially affecting our gaming operations in Western NewYork.

 

Our principal executiveoffices are located at 310 Fourth Street, Niagara Falls, New York (NationTerritory) 14303, and our telephone number is (716) 299-1100.  We make available, free of charge, throughour corporate website, www.senecagamingcorporation.com, our Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and, ifapplicable, amendments to those reports filed or furnished pursuant 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, theSEC.  We are not including theinformation contained on our website as a part of, or incorporating it by referenceinto, this Annual Report.

 

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

 

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

 

3

----

Table of Contents

 

**SenecaNiagara Casino and Hotel**

 

Seneca Niagara Casino andHotel is located on approximately 45 acres in the City of Niagara Falls, NewYork (24 of which are currently owned by the Nation and constitute its NiagaraTerritory), and offers gaming, entertainment and related amenities.   Seneca Niagara Casino and Hotel is SGC’sflagship resort property intended to attract mid to high value gaming guestslooking for a full service gaming resort destination.  Seneca Niagara Casino and Hotel is open 24hours per day, seven days per week and is our flagship gaming facility.  We opened our original Niagara Falls gamingfacility on December 31, 2002 in the former Niagara Falls Convention andCivic Center.  Since opening, we havecontinued to invest in facilities and equipment at this property.  On December 15, 2005, we opened ourexpanded gaming floor, which added approximately 950 slot machines and 20 tablegames.  On March 31, 2006, wecompleted the phased opening of our luxury hotel, along with all otheramenities.  SGC’s aggregate capitalinvestment in the Seneca Niagara Casino and Hotel (inclusive of design,construction, furniture, fixtures and equipment) as of September 30, 2008 wasapproximately $521,000,000.

 

As of September 30,2008, Seneca Niagara Casino and Hotel featured:

 
| · |   | over 147,000  square feet of Class III gaming space with 4,112 slot machines; 102  table games, including, but not limited to, blackjack, craps and roulette;  and keno;                                                |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                         |
| · |   | 604 luxury hotel  rooms, including 118 suites of various sizes;                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                         |
| · |   | a full-service  luxury spa, salon, and fitness center;                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                         |
| · |   | food and  beverage amenities, including three full-service themed fine dining  restaurants, a 400-seat international buffet, two casual dining restaurants,  a walk-up delicatessen, a snack bar, and four bars and lounges; |
|   |   |                                                                                                                                                                                                                         |
| · |   | five retail  stores;                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                         |
| · |   | a 25,200  square-foot multi-purpose entertainment and special event facility, and a  468-seat showroom;                                                                                                                      |
|   |   |                                                                                                                                                                                                                         |
| · |   | 8,000 square  feet of conference and banquet space; and                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                         |
| · |   | a 2,300-space  parking garage, surface parking for over 1,400 vehicles, and a transportation  center.                                                                                                                        |

 

*NiagaraFalls Real Estate Acquisitions*

 

In 2002 and pursuant tothe Compact, the Nation acquired from the State of New York approximately 24acres of land and related improvements in the City of Niagara Falls, New York,including the then-Niagara Falls Convention Center.  The State of New York further agreed in theCompact to assist the Nation in whatever manner appropriate, including throughthe exercise of its power of eminent domain, to acquire the remaining acreagewithin the approximate 50-acre footprint in the City of Niagara Falls, NewYork, designated by New York State under the Compact for ownership by theNation. The Compact specifically excluded approximately 1.5 acres of landwithin the footprint owned by a Roman Catholic Church.  Additionally, in July 2006, the Nationagreed to waive its right to acquire approximately one half acre of additionalland within the footprint owned by End Time Handmaidens, Inc., a religiousorganization.  In return for the waiver,the Nation obtained a right of first negotiation and refusal with respect tothe future sale of those parcels.  As aresult of the carve-out relating to the acreage owned by the Roman CatholicChurch, and the Nation’s agreement with End Time Handmaidens, the total acreageof the Niagara Territory upon completion of the condemnation process isanticipated to be approximately 48 acres.

 

We have obtainedpossession of, either through eminent domain proceedings or private purchase,substantially all of the remaining acreage within the footprint, other thancertain streets owned by the City of Niagara Falls providing access to theabove church acreage, and a bike path owned by the New York State Department ofTransportation. We expect to acquire this remaining acreage in 2009.

 

4

----

Table of Contents

 

With the exception ofapproximately two acres of land and a hotel property within the footprint togetheracquired for $7.9 million through a private sale in December 2005,substantially all of our post-2002 acquisitions within the footprint have beenaccomplished through condemnation proceedings pursuant to New York StateEminent Domain Procedure Law, or EDPL. The amounts paid to condemnees from whom we have acquired property aredeemed to be advance payments, in that property owners are entitled to reservetheir rights to challenge the appraised property values determined by thecondemnor’s appraisers.  To date, all recordowners from whom property was acquired pursuant to the EDPL have reservedrights to claim additional compensation. If a court determines that the value for the land and improvements ishigher than the appraised value we paid to a condemnee, then we may be liableto the condemnee for the difference and potentially also responsible forcertain additional costs and payments to the condemnee, such as attorneys’fees. 

 

We continue to proceedwith a master planning process for the development and utilization of the full48-acre Niagara Territory footprint and integration of the Niagara Fallsfacilities with those on or planned for the Allegany and Buffalo CreekTerritories.  As we continue to planfuture development at all three facilities, we intend to have them complementeach other, offering diverse hotel, entertainment and gaming experiences to ourguests.

 

**SenecaAllegany Casino and Hotel**

 

Seneca Allegany Casinoand Hotel, our second Class III gaming facility, is located on the Nation’sAllegany Territory in the City of Salamanca, New York.  Seneca Allegany Casino and Hotel offers Class IIIgaming, entertainment, lodging and related amenities.  Seneca Allegany Casino and Hotel catersprimarily to middle-market, drive-in patrons from its primary and secondarymarkets and is open 24 hours per day, seven days per week.    Seneca Allegany Casino opened on May 1,2004.  On March 30, 2007, we openeda 212-room resort hotel, including food and beverage and other amenities, whichfollowed the December 28, 2006, official opening of a new permanent gamingfloor.  In March 2008, we completedthe conversion of the former temporary casino structure into an event centerand additional administrative office space. SGC’s aggregate capital investment in the Seneca Allegany Casino andHotel (inclusive of design, construction, furniture, fixtures and equipment) asof September 30, 2008 was approximately $361,000,000.

 

As of September 30,2008, Seneca Allegany Casino and Hotel featured:

 
| · |   | over 63,500  square feet of gaming space with approximately 2,330 slot machines and 40  table games, including, but not limited to, blackjack, craps and roulette;                                                             |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                           |
| · |   | 212 luxury hotel  rooms, including 28 suites of various sizes;                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                           |
| · |   | a full-service  luxury spa, salon, and fitness center;                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                           |
| · |   | food and  beverage amenities, including two full-service themed fine dining  restaurants, a 322-seat international buffet, a 24-hour casual dining  restaurant, a walk-up delicatessen, a snack bar, and two bars and lounges; |
|   |   |                                                                                                                                                                                                                           |
| · |   | a multi-faceted  retail store, including logo merchandise, sundries, etc.;                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                           |
| · |   | a 20,000  square-foot multi-purpose entertainment and special event facility; and                                                                                                                                              |
|   |   |                                                                                                                                                                                                                           |
| · |   | a parking garage  for approximately 1,840 vehicles; and surface parking for approximately 1,050  vehicles.                                                                                                                     |

 

Construction on our nextphase of development at Seneca Allegany Casino and Hotel, planned to include anadditional 200 room hotel tower, and up to 30,000 square feet of additionalgaming space and related amenities, for a total estimated cost of up to $130million, was suspended on August 27, 2008 due to various factors,including challenging economic and capital market conditions, demands on ouravailable cash and increased competition and construction costs. See “Item 1A.Risk Factors. We may not be able to generate enough cash flow, or obtainfinancing, to complete our current and any future expansion projects” for adiscussion of related matters.  Wecontinue to monitor these factors and ongoing developments.

 

5

----

Table of Contents

 

**SenecaBuffalo Creek Casino**

 

In addition to SenecaNiagara Casino and Hotel and Seneca Allegany Casino and Hotel, we operatea  third Class III gaming facilitywhich is located in Erie County, New York. This Class III gaming facilityis referred to as Seneca Buffalo Creek Casino.

 

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

 

In order to meet certainrequirements of the Compact, on December 8, 2005 we began construction ofa temporary Class III gaming facility on the Seneca Buffalo CreekTerritory.  On July 3, 2007 we commenced operations at this gamingfacility which consists of approximately 6,000 square feet and features 135slot machines and a snack bar.  During the quarter ended March 31,2008, the temporary facility was expanded to include an additional 109 slotmachines. The current temporary facility is approximately 8,600 square feet,and features 244 slot machines and a snack bar. SGC’s aggregate capital investment as of September 30, 2008 in thetemporary gaming facility in Buffalo, New York (inclusive of design,construction, furniture, fixtures and equipment) was approximately $12,100,000.

 

On October 3,2007, we formally announced our plans for a permanent casino and hotel complexon the Buffalo Creek Territory having an estimated cost of $333 million. Atthat time, the permanent Seneca Buffalo Creek Casino and Hotel was expected tofeature approximately 90,000 square feet of gaming space, 2,000 slot machines,46 table games, a 22-story all-suite hotel, four restaurants, a full-servicespa and salon,  retail and otheramenities and a 2,200-space parking garage. On August 27, 2008 we suspended construction due to variousfactors, including challenging economic and capital market conditions, demandson our available cash, and increased competition and construction costs.  We continue to monitor these factors andongoing developments.  SGC’s aggregatecapital investment as of September 30, 2008 in the permanent gamingfacility in Buffalo, New York was approximately $82,000,000.

 

SGC’sability to continue operation of the temporary Seneca Buffalo Creek Casino, andits ability to complete the permanent Seneca Buffalo Creek Casino and Hotel, aswell as the timing of any opening of the permanent Seneca Buffalo Creek Casinoand Hotel, will depend on various factors as discussed above, as well as theoutcome of existing legal challenges. See “Item 3 - Legal Proceedings” for a discussion of existing legalchallenges regarding our Seneca Buffalo Creek Casino. See also “Item 1A. RiskFactors. We may not be able to generate enough cash flow, or obtain financing,to complete our current and any future expansion projects” for discussion of additionalrisk factors relating to completion of the permanent Seneca Buffalo CreekCasino and Hotel.

 

**Status ofFormer Class II Operations**

 

As of January 1,2005, we transferred all Class II gaming operations to the Nation, whichincluded our poker operations at the Seneca Niagara Casino and Hotel and SenecaAllegany Casino.   The Nation, throughits wholly owned business enterprise, Seneca Gaming & Entertainment,currently operates the Class II poker operations at Seneca Niagara Casinoand Hotel and Seneca Allegany Casino and Hotel, in addition to two Class IIgaming facilities located on the Nation’s Territory in the City of Salamancaand Irving, New York, respectively.   Thetransfer of the Class II operations as of January 1, 2005 wasconsistent with our understanding of the Nation’s Council’s (the Nation’slegislative body) intent that we manage and operate the Nation’s Class IIIoperations and that Council directly manage and operate the Nation’s Class IIoperations.

 

**Lewiston,NY Golf Course Development**

 

In March 2006, weacquired 257 acres of land with the intent to design and build a championshiplevel golf course in Lewiston, New York, approximately eight miles from SenecaNiagara Casino and Hotel.  We selectedthe Robert Trent Jones II firm to design the golf course, which will be namedSeneca Hickory Stick Golf Club. Construction of Seneca Hickory Stick commenced in July 2007, withan anticipated opening in Spring 2010 at an approximate cost of $25.5million.  The Nation formed the LewistonGolf Course Corporation, as a subsidiary of the Seneca Niagara Falls GamingCorporation, to own and operate the golf course.  LGCC has engaged Kemper Sports Management, Inc.to manage and operate Seneca Hickory Stick Golf Club on its behalf.

 

**MassachusettsGaming Development**

 

During Fiscal 2007, atthe request of the SGC board of directors, the Nation’s Council charteredSeneca Massachusetts Gaming Corporation as a wholly-owned subsidiary of SGC toexplore gaming development opportunities in the Commonwealth ofMassachusetts.  We continue to monitorevents in connection with the Commonwealth’s ongoing 

 

6

----

Table of Contents

 

consideration oflegislation allowing for Class III or similar type gaming.

 

**Businessand Marketing Strategy**

 

SGC believes that it isthe premier gaming operator in Western New York State and in the areas ofNorthern Pennsylvania and Ohio located within its primary and secondarymarkets. Since the December 31, 2002 opening of the Seneca Niagara Casino,SGC has invested significantly in the development, expansion and maintenance ofits gaming facilities, including the completion of the hotel and gamingprojects at Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, and the opening of the temporary casino on the Seneca Buffalo CreekTerritory.  These investments have enabledSGC to maintain its position as the premier gaming operator in the regiondescribed above.  To further thatobjective, and to provide for expanded opportunities in the convention andtourism markets, a master planning process continues with respect to theNiagara Falls, Allegany and Buffalo gaming and related facilities. A principalgoal is for the facilities to complement each other, offering diverse hotel,entertainment and gaming experiences for guests.

 

SGC continues to believethe Western New York markets for Class III-type gaming and related hoteland entertainment amenities are underserved, and that the exclusivity providedin the Compact gives SGC the opportunity to serve these markets by providingpatrons with unique entertainment and gaming experiences.

 

SGC’s gaming facilitiesare intended to provide a high-quality and diverse gaming experience that SGCbelieves will add to its patron base and strengthen patron loyalty in eachsegment of the gaming market.  In orderto maximize income from operations, SGC attempts to coordinate advertising,promotions, entertainment and special events to minimize competition among itsgaming facilities, and integrate administrative and information technologyfunctions.  As slot play currentlyrepresents approximately 89% of SGC’s consolidated gross gaming revenues, SGCalso strives to offer the most current selection of slot machines in order toprovide cutting-edge options for guests, and to differentiate it from theregional competition.  SGC plans tocontinue to brand the Seneca name through advertising and promotion of itsSeneca Link Player’s Card, which is accepted at all of SGC’s facilities.The keycomponents of our integrated marketing plan include the following:

 

·           *Promote the Seneca Brand Name.*     Thesuccessful operation of Seneca Niagara Casino and Hotel and Seneca AlleganyCasino and Hotel has established Seneca as a leading gaming brand in theregion.  We plan to continue to capitalizeon this brand recognition by prominently incorporating the Seneca name at allof our gaming and entertainment facilities.

 

·           *Incorporate the Seneca Link Player’s Card.*    We encourage guests to sign up for a Seneca Link Player’s Card, and to usetheir Player’s Card at their venue of choice. Guests accumulate points at our facilities and may redeem them at any ofour casinos.  Our player’s club cardprogram enables us to understand our guest preferences by providing us withvaluable information about our patrons’ gaming activity and use of ourfacilities’ various non-gaming amenities. As of September 30, 2008, we had approximately 1.5 million membersin the Seneca Link Player’s Card database with an average of approximately19,000 new members joining per month during Fiscal 2008.

 

·           *Expand Target Markets and Patron Base.*    Thecompletion of our hotels in Niagara Falls, New York and Salamanca, New York hasenabled us to expand our marketing efforts to higher-value gaming patrons froma wider geographic area.  We continue toevaluate our marketing programs and have increased our efforts to attract moreguests from the region, including New York, Pennsylvania and Ohio, as well ashigher value patrons from New England, New Jersey, New York City, and Toronto,Canada.  We intend to continue to marketto these areas by offering various promotions, including special events forpreferred gaming patrons, use of commissioned, independent representatives orsplinter arrangements, air charters, motor coach tours and organized packagegroup visits.  We have also hired aplayer development staff to attract higher-end gaming guests and have upgradedour entertainment offerings to further brand our properties and to attractrepeat visits, encourage loyalty and attract higher-end gaming guests.

 

·           *Offer Diversified Gaming Experience to Broadest Customer Base.*    Weintend to operate each of our gaming facilities in a manner that will becomplementary. Seneca Niagara Casino and Hotel is SGC’s flagship resortproperty intended to attract to mid to high value gaming guests looking for afull service gaming resort destination. With the opening of the permanent casino and 212-room resort hotel atSeneca Allegany Casino and Hotel, SGC has expanded its marketing efforts toattract guests with higher gaming budgets. SGC intends to 

 

7

----

Table of Contents

 

integratethe marketing of the Seneca Buffalo Creek Casino, as explained below, to guestsof SGC’s Niagara and Allegany casinos. This will offer SGC’s guests a variety of gaming and entertainmentoptions.

 

·           *Utilize an Integrated Marketing Strategy*.    Ourmarketing strategy relies on the high quality of our facilities, the personalservice level of our employees, and an integrated approach of targeted directmail, radio, print and outdoor advertising, promotions, slot and table tournaments,special events, busing, entertainment and player development staff, to attractand retain our patrons and to brand the Seneca name as the premier gaming andentertainment experience in Western New York. We coordinate our marketingevents and the amenities of our facilities to maximize the quality and lengthof stay of patron visits and, currently and in the future, to minimizecompetition among our gaming facilities. Our patron tracking system through theSeneca Link Player’s Card is sophisticated and scaleable and provides us withthe ability to analyze our guests’ gaming preferences.  In addition, we have redesigned the levels ofplayer club options, each based on the level of each guest’s gaming activity,to ensure each level is properly recognized based upon their gamingactivity.  Starting in May 2004, webegan using a “promotional credit” program that provides slot credits to ourpatrons based on the amount of  theirgaming at our facilities. These credits are available on the patron’s SenecaLink Player’s Card when they return for visits. These credits must be playedand cannot be redeemed for cash, which we believe encourages repeat business.

 

·           *Reinvest in and Expand our Gaming Facilities.*    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, subject to the availability of sufficient funds.  To achieve maximum profitability we intend tocontinue to upgrade our slot machines with the most popular products in orderto create a more exciting gaming experience for our patrons. We have alsoinvested in technology, including slot machine “ticket-in/ticket-out”technology, automated ticket redemption machines, player tracking systemenhancements and the development of a Seneca brand inter-property progressivelink. Reinvestment in our gaming facilities will help to ensure that ourpatrons have an enjoyable entertainment experience.

 

·           *Offer the Highest Quality Service.*    Webelieve that we can distinguish our gaming facilities from competitors withconsistent superior patron service, which is a fundamental component of ourbusiness and marketing strategy. We attribute much of our success at SenecaNiagara Casino and Hotel and Seneca Allegany Casino and Hotel to our employees’ability to provide high quality, efficient and friendly service.  We require that each new employee participatein substantial customer service training as part of their orientation.  It is our intention to continue to invest inproviding the highest level of guest service as an integral component of ourlong-term financial success.

 

**Marketand Competition**

 

*Market.*    SenecaNiagara Casino and Hotel is located on the Nation’s Niagara Territory in theCity of Niagara Falls, New York, approximately 20 miles north of Buffalo andapproximately 90 miles west of Rochester. Our primary market for this casinoincludes the cities of Buffalo and Niagara Falls, New York, and covers the areain the United States within an estimated 50 miles of Seneca Niagara Casino andHotel.  Our secondary market includes theCity of Rochester, New York, and covers the area in the United States within anestimated 51 to 100 miles of Seneca Niagara Casino and Hotel.  Our outer markets include Toronto, Canada,Erie and Pittsburgh, Pennsylvania, Ohio, and other areas of New York andOntario, Canada.  We continue to expandour geographic reach with targeted marketing efforts for higher-end gamingpatrons in the New York City area, New England, New Jersey, Michigan, Illinoisand Canada.  In addition, Niagara Fallsis a major tourist destination.

 

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

 

The temporary casino onthe Nation’s Buffalo Creek Territory facility has a limited market due to itssmall size.

 

8

----

Tableof Contents

 

As of September 30,2008, approximately 28% of the approximate 1.5 million Seneca Link Player’sCard members lived in the Buffalo-Niagara area, and approximately 22%, 21%, 21%and 8% lived in Ohio, Pennsylvania, other areas of New York, and Canada,respectively.

 

*Competitionin Immediate Market Area.*

 

The United States andCanadian gaming industries are highly regulated and the overall number ofcasino operations in the Northeast is limited. In recent years, there has beena trend to relax the legal restrictions on entry and to permit the developmentof additional gaming operations. Currently, there are two large casino resorts, Casino Niagara andNiagara Fallsview Casino Resort, and five major racetrack facilities withgaming operations, Fairgrounds Gaming and Raceway, Finger Lakes Gaming andRacetrack, Batavia Downs Gaming and Raceway, Fort Erie Racetrack and Slots andWoodbine Racetrack, within the 100-mile radius that constitutes Seneca NiagaraCasino and Hotel’s immediate market area. Fairgrounds Gaming and Raceway, Fort Erie Racetrack and Slots, andPresque Isle Downs in Erie, Pennsylvania, which opened in February 2007,each directly compete in Seneca Allegany Casino and Hotel’s immediate marketarea.

 

Casino Niagara and Niagara FallsviewCasino Resort are located in Niagara Falls, Ontario, and are both within twomiles of Seneca Niagara Casino and Hotel. Casino Niagara and Niagara FallsviewCasino Resort are owned and operated by the Province of Ontario and managed bythe Hyatt-led Falls Management Company. Casino Niagara offers over 95,000square feet of gaming space including more than 1,700 video gaming machines (“VGMs”),60 table games, three restaurants and three bars. Niagara Fallsview CasinoResort opened in June 2004 and features 200,000 square feet of gamingspace that includes over 3,000 VGMs, over 100 table games, a 374-room Hyatthotel, a spa and various restaurant and entertainment venues. Casino Niagaraand Niagara Fallsview Casino Resort are both located approximately 70 milesfrom Seneca Allegany Casino and Hotel on the outer edge of Seneca AlleganyCasino and Hotel’s primary market area.

 

Fairgrounds Gaming andRaceway (formerly Buffalo Raceway), a racetrack facility in Hamburg, New Yorkoffering approximately 1,000 VGMs in a 27,000 square foot gaming facility, islocated approximately 30 miles and 50 miles from Seneca Niagara Casino andHotel and Seneca Allegany Casino and Hotel, respectively.  Batavia Downs, in Batavia, New York, islocated approximately 50 miles and 70 miles from Seneca Niagara Casino andHotel and Seneca Allegany Casino and Hotel, respectively, and features over 590VGMs.  Finger Lakes Gaming and Race Track in Farmington, New York, islocated approximately 90 miles and 140 miles from Seneca Niagara Casino andHotel and Seneca Allegany Casino and Hotel, respectively, and operates over1,200 VGMs in a video gaming facility. Fort Erie Racetrack and Slots in Fort Erie, Ontario, Canada, is locatedapproximately 15 miles and 60 miles from Seneca Niagara Casino and Hotel andSeneca Allegany Casino and Hotel, respectively, and operates 1,150 VGMs in an85,000 square foot gaming facility. Woodbine Racetrack, a 56,000 square footracetrack facility featuring 1,700 VGMs, is located in Ontario, Canada,approximately 50 miles and 160 miles from Seneca Niagara Casino and Hotel and SenecaAllegany Casino and Hotel, respectively. Presque Isle Downs, a racetrack facility in Erie, Pennsylvania offeringapproximately 2,000 slot machines is located approximately 120 miles and 80miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively.

 

*Competitionin Broader Regional Market.*

 

The Oneida Indian Nation operates agaming facility resort, Turning Stone Resort & Casino, near Syracuse,New York, located approximately 190 miles and 235 miles from Seneca NiagaraCasino and Hotel and Seneca Allegany Casino and Hotel, respectively.  Turning Stone Resort & Casinofeatures approximately 2,400 multi-gaming machines and 85 table games.

 

The St. Regis Mohawk Tribe currentlyoperates a small casino facility, Akwesasne Mohawk Casino, near Hogansburg, NewYork, which is located approximately 350 miles and 390 miles from SenecaNiagara Casino and Hotel and Seneca Allegany Casino and Hotel, respectively.Akwesasne Mohawk Casino features approximately 800 slot machines and 25 tablegames.

 

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

 

9

----

Table of Contents

 

Hotel, respectively);Yonkers Raceway in Yonkers (located approximately 415 miles and 370 miles fromSeneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel,respectively); and Vernon Downs in Vernon (located approximately 195 miles and245 miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively).

 

Competition inPennsylvania includes:  Mount Airy CasinoResort, located in the Pocono Mountains in Northeast Pennsylvania, withapproximately 2,500 slot machines (located approximately 320 miles and 270miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively); Harrah’s Chester Casino and Racetrack in Chester (locatedapproximately 420 miles and 370 miles from Seneca Niagara Casino and Hotel andSeneca Allegany Casino and Hotel, respectively); Hollywood Casino at PennNational in Grantville (located approximately 315 miles and 250 miles fromSeneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel,respectively); and The Meadows in Washington (located approximately 255 milesand 220 miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casinoand Hotel, respectively) .

 

Wheeling Island Racetrackand Gaming Center, located in Wheeling, West Virginia, with approximately 2,400slot machines and 48 table games, is located approximately 290 miles and 250miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively.

 

Mountaineeer Casino,Racetrack and Resort, located in Chester, West Virginia, with approximately3,220 slot machines and over 55 table games, is located approximately 250 milesand 215 miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casinoand Hotel, respectively.

 

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

 

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

 

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

 

*NewMarket Entrants.*

 

Despite the exclusivityin Western New York provided by the Compact, SGC’s casinos face competition inNew York State from both Indian and non-Indian gaming operations. The Compactallows New York State to permit the Tuscarora Indian Nation and the TonawandaBand of Seneca Indians to obtain the right to include gaming devices in acompact without abrogating the exclusivity provisions of the Compact, so longas either tribe locates its proposed gaming facility either on its existingreservations or more than 25 miles from a Nation gaming facility. In addition,New York State could allow other Indian gaming facilities to be located withinour area of exclusivity, in which case the state would forfeit its right toreceive exclusivity fees for the types of Class III games in suchcompetitor’s facility on which we pay an exclusivity fee under the Compact. Ofthe seven federally recognized Indian tribes or nations in New York State otherthan the Nation, only the St. Regis Mohawk Tribe and Oneida Indian Nation ofNew York have signed compacts with New York State to open casinos.

 

In October 2001, NewYork State authorized six new casinos to be run by Indian tribes in the state,each of which was to be permitted to feature Class III slot machines. Thevalidity of the legislation authorizing these casinos was upheld by the NewYork Court of Appeals in Dalton v. Pataki, et al. and Karr v. Pataki, etal.  Three of these authorized casinosare operated by SGC (Seneca Niagara Casino and Hotel, Seneca Allegany Casinoand Hotel and Seneca Buffalo Creek Casino). It was expected that the otherthree casinos, including the casino planned by the St. Regis Mohawk Tribe asdiscussed below, would be located in Sullivan and Ulster Counties in theCatskill region, approximately 325 miles and 275 miles from Seneca NiagaraCasino and Hotel and Seneca Allegany Casino and Hotel, respectively.  In February 2007, the Governor of NewYork State approved plans for a casino by the St. Regis Mohawk Tribe to belocated in Sullivan County, New York. The Tribe had proposed a $600 million Class IIIgaming facility, to be located immediately adjacent to Monticello Raceway inSullivan County, but in January 2008, the U.S. Department of Interiorrejected the Tribe’s right to operate a casino in the Catskills. As a result,no casino development in the Catskills appears imminent.

 

10

----

Tableof Contents

 

The former Governor ofNew York State previously reached settlement agreements, subject to numerouscontingencies, with the following tribes for potential Class III gamingoperations to be located in Sullivan or Ulster counties in the Catskills regionof New York State: the St. Regis Mohawk Tribe, the Seneca-Cayuga Tribe ofOklahoma, the Cayuga Nation of New York, the Oneida Tribe of Indians ofWisconsin and the Stockbridge-Munsee Community Band of Mohican Indians.However, as a result of the U.S. Supreme Court’s decision in City of Sherrill,NY v. Oneida Indian Nation of New York, 414 U.S. 661 (2005), the formerGovernor withdrew pending legislation and land claim settlements with theSeneca-Cayuga Tribe of Oklahoma, the Cayuga Nation of New York, the OneidaTribe of Indians of Wisconsin and the Stockbridge-Munsee Community Band ofMohican Indians.

 

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

 

New York State lawmakers and Governor David Paterson’sadministration are currently considering legislation that would allow the state’svideo-lottery gaming facilities to expand hours and add electronic table games,such as roulette and blackjack. The facilities can now stay open for 16 hours aday or 112 hours a week, but the proposal would allow larger tracks, such asSaratoga Gaming and Raceway and Yonkers Raceway, to stay open for 140 hours perweek and smaller tracks, such as Batavia Downs, to stay open for 128 hours perweek.  Such expanded hours would allowtracks the opportunity to keep their video-lottery parlors open 24 hours a dayfor multiple days each week.

 

In January 2004, Sportsystems(now known as Delaware North Gaming & Entertainment) opened a 1,300VGM facility at Saratoga Raceway in Saratoga Springs, New York.  Shortly thereafter, in February 2004,Finger Lakes Gaming and Race Track in Farmington, New York, opened its videogaming facility.  Fairgrounds Gaming andRaceway in Hamburg, New York, opened its 27,000 square foot gaming facility in March 2004and offers approximately 1,000 VGMs. Monticello Raceway in Monticello, NewYork, opened a gaming facility in June 2004, and offers approximately1,500 VGMs.  Batavia Downs, in Batavia, New York, opened in May 2005and offers approximately 590 VGMs.  The New York Racing Association hasalso granted a right to operate VGMs at the Aqueduct racetrack in Queens, NewYork, approximately 425 miles and 380 miles from Seneca Niagara Casino andHotel and Seneca Allegany Casino and Hotel, respectively. After suspending workon the 4,500 VGM facility from August to December 2003, the projectwas scheduled for completion by mid-2005; however, as of September 30,2006 , the project had been stopped again and VGMs were not in operation at theAqueduct racetrack. Recently, in September 2007, the State of New Yorksolicited proposals for an****experiencedgaming operator to manage and operate the VGM’s at the Aqueduct facility, andformally awarded such rights to Delaware North Companies in October 2008.  Delaware North has since announced plans todevelop a complex with 4,500 VGM’s, in addition to a series of restaurants,hotels, conference and retail amenities. In October 2006, Vernon DownsRacetrack in Vernon, New York, approximately 200 miles and 245 miles fromSeneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel,respectively, commenced operation of a gaming facility offering 1,000 VGM’s,and in July 2006, Tioga Downs, located approximately 190 miles and 160miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively, opened a 750 VGM facility in central New York.  Both Vernon Downs and Tioga Downs areoperated by Nevada Gold, Inc. Finally, Yonkers Raceway near Manhattan, New York, featuresapproximately 5,300 VGMs, in addition to multiple dining amenities and anentertainment lounge.

 

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

 

One of the six “racetrack”licenses was awarded to MTR Gaming Group to build and operate Presque IsleDowns in Erie, Pennsylvania. This facility opened in late February 2007and operates approximately 2,000 slots, and includes dining and entertainmentoptions that include a steakhouse, a buffet and four lounges.  Presque Isle Downs is located approximately120 and 80 miles from Seneca Niagara Casino and Hotel and Seneca AlleganyCasino and Hotel, respectively.  Inaddition, one of 

 

11

----

Table of Contents

 

the licenses for thestand-alone facilities was awarded in the Pittsburgh, Pennsylvania area, asecondary market for Seneca Allegany Casino and Hotel, and an outer market forSeneca Niagara Casino and Hotel.

 

Additionally,  both Indian and non-Indian interests in theCommonwealth of Massachusetts continue to pursue the legalization ofgaming.  Although legislation that wouldhave authorized the operation of up to three resort casinos was voted down bythe Massachusetts legislature in March 2008, the Governor is expected toreintroduce new authorizing legislation in January 2009.  At the same time, the Mashpee Wampanoag  tribe has announced its intent to pursue thenegotiation of a Compact with the Commonwealth of Massachusetts in furtheranceof efforts to place land into trust with the federal government and operate a Class IIIcasino regulated under the Indian Gaming Regulatory Act, or IGRA.

 

We alsoface competition from other non-gaming leisure activities and destinations.

 

If we areunable to compete successfully, our business, financial condition and resultsfrom operations could be materially adversely affected. See “Item 1A. - RiskFactors—We compete with casinos, other forms of gaming and entertainment, andother resort properties. If we are unable to compete successfully, we may notbe able to generate sufficient cash flow to fund our operations or meet our obligationsas they become due.”

 

**Class IIIGaming Compact**

 

The Nation’sCompact with New York State provides the Nation with the right to establish andoperate three Class III gaming facilities in Western New York. The Compactgrants the Nation the exclusive right to operate specifically defined gamingdevices, including slot machines, within a 10,500 square-mile, geographic areain Western New York, beginning on Route 14, approximately 30 miles East ofRochester, and extending westerly throughout New York State. In exchange forthis exclusivity, the Nation pays exclusivity fees to New York State based on apercentage of the slot machine net drop (money dropped into the machines afterpayout but before our expenses). The exclusivity payment is 18% for the firstfour years, 22% for years 5-7 (beginning January 1, 2007), and 25% for theremainder of the term (beginning January 1, 2010). The exclusivity paymentto New York State was approximately $88.6 million for the first nine months ofcalendar 2008, $109.7 million for calendar year 2007,  $83.3 million for calendar year 2006, and$68.3 million for calendar year 2005.  IfNew York State breaches the exclusivity arrangement by, for example, allowing aperson or entity to operate Class III slot machines within the zone ofexclusivity, then the State forfeits the exclusivity fees as to Class IIIslot machines. The Compact allows New York State to permit the Tuscarora IndianNation and the Tonawanda Band of Seneca Indians to obtain the right to includegaming devices in a compact without abrogating the exclusivity provisions ofthe Compact, so long as either tribe locates its proposed gaming facilityeither on its existing reservations or more than 25 miles from a gamingfacility site authorized by the Compact. The Compact provides that the Nationmay acquire property and establish a gaming facility in the City of NiagaraFalls within an approximate 50 acre area designated as land to be developed bythe Nation. Seneca Niagara Casino and Hotel is located within this designatedarea on lands held in restricted fee by the Nation pursuant to the SenecaNation Lands Claim Settlement Act of 1990, or SNLCSA. The two additional Class IIIgaming facilities include the Seneca Allegany Casino and Hotel on the Nation’sAllegany Territory and the Seneca Buffalo Creek Casino on the Nation’s BuffaloCreek Territory.  The Compact is ineffect until December 9, 2016, and will automatically renew for anadditional period of seven years unless either party objects in writing, or itis terminated as a result of any of the following: (1) repeal of IGRA; (2) theNation adopts a referendum revoking the Nation’s authority to conduct Class IIIgaming; or (3) either the Nation or the State commits a Material Breach asdefined by the Compact.

 

**Employees**

 

As of September 30, 2008, SGCemployed approximately 4,040 employees. Of those, Seneca Niagara Casino and Hotel employed approximately 2,800employees; Seneca Allegany Casino and Hotel employed approximately 1,200employees; and  Seneca Buffalo CreekCasino temporary facility employed 40 employees.

 

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

 

12

----

Table of Contents

 

**Seneca Gaming Corporationand the Nation**

 

*SenecaGaming Corporation. *SGC was established by the Nation in August 2002 for theprincipal purpose of developing, constructing, leasing, operating, managing,maintaining, promoting and financing Nation Class III gaming facilitiesestablished in accordance with the Compact. Our Class II operations were transferred to the Nation as of January 1,2005.  For further discussion of ourformer Class II operations, see “Status of Former Class II Operations”,above.  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 arefive subsidiaries under the control, operation and management of SGC: SenecaNiagara Falls Gaming Corporation, established in August 2002 to finance,develop, and operate the Nation’s Class III gaming facility in Niagara Falls,New York; Seneca Erie Gaming Corporation, established in August 2003 tofinance, develop, and operate the Nation’s Class III gaming facility in ErieCounty, New York; Seneca Territory Gaming Corporation, established in September 2003to finance, develop, and operate the Nation’s Class III gaming facility on theNation’s Allegany or Cattaraugus Territories; Lewiston Golf Course Corporation,established in June 2007 to develop and operate SGC’s golf course amenityin Lewiston, New York; and Seneca Massachusetts Gaming Corporation, establishedin August 2007 for the purpose of pursuing the initial planning anddevelopment of potential gaming opportunities in the Commonwealth ofMassachusetts. SNFGC operates the  SenecaNiagara Casino and Hotel located on the Nation’s Niagara Falls Territory inNiagara Falls, New York. STGC operates the Nation’s Seneca Allegany Casino andHotel located in the City of Salamanca, New York on the Nation’s AlleganyTerritory. SEGC operates the temporary Seneca Buffalo Creek Casino located inthe City of Buffalo, New York, on the Nation’s Buffalo Creek Territory, and isengaged in the development of the permanent gaming facility to be located onthe Nation’s Buffalo Creek Territory. SGC’s current corporate structure is as follows:

 

 

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

 

*Seneca Gaming Authority and Class IIIGaming Ordinance. *SGC’sgaming operations are subject to the supervision and regulation of the SenecaGaming Authority, or SGA, which was established by Nation ordinance and isresponsible for overseeing the regulation of all of the Nation’s gamingoperations. The Nation’s Class III gaming ordinance, or Gaming Ordinance,which provides regulatory authority to SGA for the Nation’s Class IIIgaming, was originally adopted on 

 

13

----

Table of Contents

 

August 1, 2002,subsequently amended on November 16, 2002 and approved by the NationalIndian Gaming Commission, or NIGC, on November 26, 2002. The Nationamended the gaming ordinance to extend SGA’s regulatory authority to includejurisdiction over Class II gaming. The amended ordinance was furtheramended in August 2006 to incorporate certain clarifications into theordinance.  This amendment was approvedby the NIGC as of November 6, 2006. More recently, on June 9, 2007, the Nation enacted a new gamingordinance with certain site-specific language applicable to the Buffalo CreekTerritory.  This action was taken inconnection with ongoing litigation challenging the Nation’s right to conduct Class IIIgaming on the Buffalo Creek Territory (*Citizens Against CasinoGambling v. Kempthorne*), in which the judge had vacated the NIGC’sapproval of the Nation’s 2002 gaming ordinance as it pertained to gaming on theBuffalo Creek Territory.  See “Item 3.Legal Proceedings” for discussion of this litigation and related matters.  The amended Ordinance was submitted to theNIGC on June 9, 2007 and was identical to the prior approved ordinanceexcept that the new ordinance’s definition of “Indian Lands” contains a sitespecific legal description of the Buffalo Creek Territory.  This site-specific Ordinance applicable tothe Buffalo Creek Territory was approved by the NIGC on July 2, 2007. Inresponse to ongoing events in connection with the Buffalo Creek litigation, on July 16,2008, the Nation submitted a further amended gaming ordinance to the NIGC, sothat the NIGC could consider the applicability of new Department of Interiorregulations concluding that lands like the Buffalo Creek Territory are exemptfrom Section 20 of IGRA’s prohibition on gaming.  This amended ordinance is currently pendingbefore the NIGC.

 

The SGA consists of fivecommissioners selected by the Nation and is responsible for, among otherthings, monitoring and regulating the standards of operation and standards ofmanagement of all authorized Class III gaming, protecting the assets andintegrity of casino operations, overseeing casino surveillance, monitoring thecompliance of the Nation’s gaming activities with external accounting and auditcontrol procedures, and supervising the licensure of all employees and vendorsof the Nation’s gaming activities. SGA’s authority does not extend toactivities that are not directly related to Class III gaming undertaken bythe Nation under the Compact, such as ownership and operation of our hotels andother non-gaming amenities, or our golf course development activities.  The SGA functions independently andautonomously from the Council in all matters within its purview. While the SGAis responsible for regulatory matters relating to the Nation’s gamingactivities, SGC (or one of its subsidiaries) is responsible for the day-to-daymanagement and operation of the Nation’s Class III gaming activities establishedin accordance with the Compact.  Forfurther discussion of the Seneca Gaming Authority, see “Regulation of theNation, Seneca Gaming Corporation and its Subsidiaries”, below.

 

*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 enrolled population isapproximately 7,700. 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 Seneca Lake in the Finger Lakes region ofNew York. Today, the Seneca Nation holds title to five distinct Territories inWestern 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 in New York State: Allegany, Cattaraugus, Chautauqua,and Erie counties. The Oil Springs Territory is 640 acres, or one square mile, ofland located 43 miles southeast of the Cattaraugus Territory and 24 miles eastof the Allegany Territory. The Allegany Territory is composed of 31,097 acresand includes the City of Salamanca which is located within its territorialboundaries. The Cattaraugus Territory is 35 miles north of Allegany andencompasses 22,012 acres of land. In addition, approximately 24 acres of land(of the approximate 50 acre parcel identified in Appendix I of the Compact) inNiagara Falls and approximately nine acres of land in Erie County have beenconverted into restricted fee lands pursuant to the SNLCSA. By operation offederal law, these lands and other land that may be acquired in the futurepursuant to the SNLCSA, whether in Niagara Falls or Erie County, are subject torestrictions against alienation, constitute Indian country subject to thejurisdiction of the Nation, and qualify as gaming eligible Indian landspursuant to IGRA.  See “Item 3. Legal Proceedings”for discussion of litigation challenging the status of certain of these lands.  For further discussion of land acquisitionsin Niagara Falls, New York, see “Niagara Falls Real Estate Acquisitions”,above.

 

*NationGovernance. *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.These officers alternate between the two principal Territories, Cattaraugus andAllegany, every two years. The next election of the Executive Branch Officerswill be held in November 2010. The Legislative Branch, or the Council, hassixteen members, of which eight members are elected from each of the twoprincipal Territories. Each Councilor is elected to a four-year term, which isstaggered.  The most recent election ofeight Council members was held in November 2008, with the next election tooccur in November 2010.

 

*NationGovernmental Operations. *The Nation currently has administrative departments locatedon both the Allegany and 

 

14

----

Table of Contents

 

CattaraugusTerritories. The Nation’s programs include tribal administration functions aswell as a wide array of community services, including health, environmental,education, recreation and community planning. In order to provide efficientservices to the communities, many departments have offices located on bothTerritories. The tribal administrative executive offices are housed in the twocentral administration buildings located on the Allegany and Cattaraugus Territories:the G.R. Plummer and the William Seneca Buildings, respectively. The otherNation organizational departments are located in buildings adjacent to the maintribal administration building or surrounding area.

 

*NationBusinesses. *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 ConstructionManagement Corporation, Seneca Gaming & Entertainment, Seneca OneStop, Seneca-Iroquois National Museum, and Highbanks Campground. None of theseenterprises is a part of SGC or its subsidiaries or otherwise contributes toits revenue. Individual Seneca entrepreneurs also operate their own businesseson Nation lands. The businesses include, but are not limited to, restaurants,retail shops, hotels, gas stations, and Internet-based businesses.

 

*TribalEmployment Rights**Ordinance*.  Our operations are subject to the Nation’sTribal Employment Rights Ordinance, or TERO, which requires the granting of apreference to enrolled Nation members and other Native Americans in the hiringof employees and in the engagement of certain vendors and contractors.  TERO is implemented by a five membercommission, appointed by the Nation’s Council. With respect to employees, TERO requires that we give preference toqualified Indians in all hiring, promotion, training and all other aspects ofemployment.  With respect to vendors,TERO requires that, in awarding contracts or subcontracts for supplies,services, labor and materials in an amount in excess of $5,000 where themajority of the work will occur on Nation lands, we give preference toIndian-owned firms when contracts are subject to a competitive bidding processand the bids of the Indian-owned firms fall within a defined percentage oramount of the lowest responsive bid (ranging from 1% when the lowest responsivebid is $7 million or more, to $9,000 when the lowest responsive bid is $100,000or less), in each case as specified in TERO. The Nation, through its TERO Commission, has the sole power to determineand certify whether and to what extent a firm is “Indian-owned”.

 

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

 

The conductof our Class III gaming activities on Nation lands is subject to multiplelevels of regulation, including regulation by the Nation through its GamingOrdinances (and the SGA, which has regulatory jurisdiction over the Nation’sgaming activities) and regulation by the State of New York, through the NewYork State Racing and Wagering Board and the New York State Police, each inaccordance with the Compact between the Nation and New York State. See “MaterialAgreements—Nation-State Gaming Compact” for further discussion of theregulatory authority of the SGA and New York State gaming officials.  The federal government also oversees Indiangaming generally pursuant to IGRA and exercises regulatory oversight throughthe NIGC. The Department of Justice also possesses authority to enforce IGRAand the Gambling Devices Act, 15 U.S.C. § 1171-78, more commonly known asthe Johnson Act. The following description of the regulatory environment inwhich gaming takes place and in which SGC and its subsidiaries operate isintended as a summary and is not a complete recitation of all relevant laws.Moreover, because the regulatory environment is dynamic and evolving, it isimpossible to predict how certain provisions will ultimately be interpreted orapplied or how they may affect SGC and its subsidiaries. Changes in such lawsor regulations could, under certain circumstances, have a material adverseeffect on the operations of SGC and its subsidiaries.

 

**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, operations, and relatedactivities of SGC, which events would have a material adverse effect on ourfinancial results.

 

*Waiver ofSovereign Immunity; Court Jurisdiction; Exhaustion of Tribal Remedies.*    Indian nations enjoy sovereign 

 

15

----

Table of Contents

 

immunityfrom unconsented suit similar to that of the states and the United States. AnIndian nation and its wholly owned tribal entities, such as SGC and itssubsidiaries, share in the Indian nation’s sovereign immunity, but may formallywaive their sovereign immunity with respect to suits against them. The Nationand SGC, respectively, granted a limited waiver of sovereign immunity andconsent to suit in connection with the senior notes issued by SGC in 2004 and2005, 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. We sometimes waive our right to require exhaustionof tribal court remedies.  For example,the Nation and SGC, respectively, consented to the jurisdiction of the federaland New York State courts in connection with any action by the trustee toenforce the senior notes and operative documents related thereto and agreed towaive the requirement of exhaustion of tribal court remedies. However, it isnot clear that such a waiver would be effective. Generally, where a dispute asto the existence of jurisdiction in the tribal forum exists, the tribal courtmust first rule as to the limits of its own jurisdiction. In the eventthat a waiver of tribal court jurisdiction is held to be ineffective, therecipient of the waiver (e.g., the trustee and holders of the senior notes) maybe required to enforce their rights and remedies against the Nation or SGC inNation court. In addition, unless the decisions of the Nation court violatesome applicable state or federal law, if any, there may be no effective rightto appeal such decisions in state or federal court.

 

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

 

**TheIndian Gaming Regulatory Act of 1988**

 

*IGRA.*    All gaming activities on Indian landsare subject to IGRA. Congress enacted IGRA in order to establish a system for regulatinggaming activities on Indian lands. IGRA’s purpose is to provide a statutorybasis for the operation of gaming by Indian tribes as a means of promotingtribal economic development, self sufficiency, and strong tribal governments.Congress simultaneously sought to shield Indian gaming from organized crime andother corrupting 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.

 

*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 of, orin connection with, tribal ceremonies or celebrations. Such gaming is subjectto the exclusive jurisdiction of the tribes and is not subject to regulationunder IGRA. Class II gaming includes bingo and similar games, and issubject to tribal regulation and federal oversight by the NIGC. Class IIIgaming, the most heavily regulated of the three classes, 

 

16

----

Table of Contents

 

encompassesall other forms of gaming, and includes slot machines, casino games, bankingcard games, dog racing, and lotteries. Class III gaming is lawful only ifit is (1) authorized by a tribal ordinance, (2) located in a Statethat permits such gaming for any purpose by any person, organization, orentity, and (3) conducted in conformance with a Tribal-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 on 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 States District Court For TheDistrict of Columbia in *Colorado River IndianTribes vs. National Indian Gaming Commission,* ruled “that the [IGRA]does not confer upon the NIGC the authority to issue or enforce [minimuminternal control standards] for Class III gaming.”  Accordingly, theCourt declared unlawful the minimum internal control standards as applied to Class IIIgaming.  On October 26, 2006, the D.C. Circuit Court of Appealsunanimously upheld this decision finding that the Indian Gaming Regulatory Actdoes not grant the NIGC power to impose operational standards on Class IIIgaming.

 

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

 

Tribal-stategaming compacts have been the subject of litigation in thirteen states,including New York State. In 1996, the 

 

17

----

Table of Contents

 

U.S.Supreme Court ruled in the case of *Seminole Tribe of Floridav. Florida* that the provision of IGRA that permits Indian tribes tosue in federal court to force states to negotiate tribal-state gaming compactsin good faith is unconstitutional, as applied to an unconsenting state, byvirtue of the Eleventh Amendment to the U.S. Constitution.

 

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

 

In October 2001,the New York Legislature passed Chapter 383 of the Laws of 2001, or Chapter383, which allowed former Governor Pataki to enter into a gaming compact withthe Seneca Nation of Indians and to enter into gaming compacts with otherIndian tribes for the establishment of three additional casinos in theCatskills. Chapter 383 also approved the installation of VGMs at certainracetracks.

 

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

 

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

 

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

 

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

 

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

 

Pursuant tothe Compact, the Nation may acquire property and establish gaming facilities inthe City of Niagara Falls within the boundaries of the approximate 50 acre areaof land described in Appendix I of the Compact and designated as land to bedeveloped by the Nation in connection with its gaming facilities. The Compactalso authorizes the Nation to establish a gaming facility in Erie County, NewYork and one on the then-existing Nation Territory. Moreover, the Compactauthorizes the Nation to use funds appropriated under the SNLCSA to acquireparcels of land in Niagara Falls and Erie County for gaming purposes.  See “Material Agreements—Nation-State GamingCompact”, below.

 

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 land which could be placedinto restricted fee status. The SNLCSA provides

 

18

----

Table of Contents

 

that unlessthe Secretary of the Interior determines that lands acquired pursuant to theSNLCSA should not be subject to restrictions against alienation, such landsshall be held in restricted fee status by the Nation.

 

Asdetermined by the Secretary of the Interior in connection with the approval ofthe Compact, the Nation will have jurisdiction over lands placed intorestricted fee status pursuant to the SNLCSA. Indeed, lands placed inrestricted status pursuant to the SNLCSA are held in the same legal manner asexisting Nation lands are held and thus, subject to the Nation’s jurisdiction.In addition, the Secretary determined that lands placed into restricted feestatus pursuant to the SNLCSA are Indian lands as defined by IGRA, and theNation is authorized to use such land for gaming purposes pursuant to IGRA,because such lands will be acquired as part of a settlement of a land claim.  See “Item 3. Legal Proceedings” fordiscussion of litigation challenging the status of certain of these lands.

 

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

 

The Nation(as opposed to SGC or its subsidiaries) has acquired approximately 24 acres inNiagara Falls (of the approximate 50 acre area of land described in Appendix Iof the Compact) with funds appropriated under the SNLCSA.  On October 3, 2005, the Nation acquiredapproximately nine acres of land in Erie County with SNLCSA funds.     Byoperation of federal law, these lands and other lands that may be acquired inthe future pursuant to the SNLCSA (in Niagara Falls or Erie County), aresubject to restrictions against alienation, constitute Indian country subjectto the jurisdiction of the Nation, and qualify as gaming eligible Indian landspursuant to IGRA. The Nation’s existing casino and hotel on the Niagara FallsTerritory and existing temporary casino on the Buffalo Creek Territory aresituated on these lands.  See “Item 3.Legal Proceedings” for discussion of litigation challenging the status ofcertain of 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 and Hotel, are locatedwithin the Nation’s Allegany reservation boundaries, thus constituting Indianlands eligible for gaming pursuant to IGRA.

 

*Possible Changes in Federal and State Law.*  Our operations are regulated by Nationlaws, the Compact and federal statutes, most notably IGRA.  Several billshave been proposed during past sessions of Congress that could affect Indiangaming.  Most notably Senator McCain’s S. 2078, the Indian GamingRegulatory Act Amendments of 2006 and Congressman Pombo’s (R-CA) H. 4893,Restricting Indian Gaming to Homelands of Tribes Act of 2006, proposedadditional regulations for tribes and more restrictions on “off-reservation”gaming.   With new leadership in the committees of jurisdiction overIndian Affairs in the 110th Congress, Indian gaming has received very limitedattention.

 

The Department of theInterior has recently published final regulations effective August 25,2008 governing the conduct of gaming on lands taken into trust after October 17,1988.  The regulations on their face do not purport to impair the abilityof the Nation and SGC to expand its gaming operations.  Future gaming legislationor court decisions construing the new regulations could adversely impactexpansion of SGC gaming operations and the future growth of the Nation’srevenue base. In addition, from time to time, various government officials haveproposed taxing Indian casino gaming or otherwise limiting or restricting theconduct of gaming operations by Indian tribes. No assurance can be given thatsuch legislation, if and when enacted by Congress, would not have a materialadverse effect on the operations of SGC. If Congress were to enactcomprehensive amendments to the IGRA, such legislation could have a materialadverse effect on the operations of SGC. In addition, under federal law, gamingon the Nation’s lands may be dependent upon the permissibility under New YorkState law of certain forms of gaming or similar activities. If New York Statewere to make various forms of gaming illegal or against public policy (or thecourts were to similarly rule), or otherwise to take a legal position adverseto SGC, such actions could have a material adverse effect on our ability toconduct our gaming operations as currently conducted. Moreover, the 1996 U.S.Supreme Court decision in Seminole Tribe of Florida v. Florida may permit astate to avoid or refuse to negotiate amendments to existing compacts such asthe Compact.

 

**MaterialAgreements**

 

*Thefollowing summaries of certain material agreements related to our operations,to which the Nation or SGC (or its*

 

19

----

Table of Contents

 

*subsidiaries)is a party, do not purport to be complete and are qualified in their entiretyby reference to the agreements summarized herein. Capitalized terms used butnot otherwise defined herein have the meanings ascribed to such terms in theagreement being summarized (unless otherwise indicated).*

 

*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:

 

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

 

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

 

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

 

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

 

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

 

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

 

20

----

Tableof Contents

 

conduct of Class IIIgaming.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

21

----

Table of Contents

 

*Assignmentand Plan of Distribution Agreement*

 

On May 5, 2004, SGC entered into an Assignment and Plan ofDistribution Agreement, or the Assignment Agreement, with the Nation. Pursuantto this agreement, the Nation has adopted a plan of distribution providing thatin the event of the dissolution or final liquidation of any of these entities,the net liquidation or dissolution proceeds shall be distributed to SGC. TheNation further assigned to SGC all of its rights, title and interest in and tothese proceeds. The Nation entered into the Assignment Agreement because eventhough SNFGC, STGC, and SEGC are owned by SGC, according to the charters of thesesubsidiaries, in the event of a liquidation or dissolution of a subsidiary, theNation, and not SGC, would be entitled to receive the net proceeds of theliquidation or dissolution after all liabilities and obligations of thesubsidiary have been paid, satisfied and discharged. Both the Nation and SGCalso waived their respective sovereign immunity from unconsented suit andconsent to suit in accordance with the Assignment Agreement. Remedies againstthe Nation are generally limited to specific performance. However, in the eventa subsidiary has distributed net liquidation or dissolution proceeds to theNation and the Nation has not transferred those proceeds to SGC, the Nation maybe required to transfer an amount equal to the liquidation proceeds to SGC, orif such remedy is not available, SGC may file a claim for money damages in anamount no greater than the amount of net liquidation or dissolution proceedsnot assigned. Any such money damages for which the Nation is liable are onlypayable from assets held by the Nation, SGC, SNFGC, STGC, or SEGC related tothe gaming business, other than real property held in trust for the Nation bythe United States.

 

*DistributionAgreement*

 

On April 27,2007, SGC entered into a Distribution Agreement among the Nation, the SenecaNation of Indians Capital Improvements Authority, or the Authority, SGC andWells Fargo Bank, as Trustee.

 

The Authority is awholly-owned governmental instrumentality of the Nation formed for the purposeof financing, developing and operating such capital improvements of the Nationas the Nation designates.  On April 27, 2007, the Authority sold anaggregate principal amount of $159,495,000 Special Obligation Bonds to MerrillLynch Pierce Fenner & Smith Incorporated, as the initial purchaser,for sale to qualified institutional buyers and investors outside the UnitedStates in accordance with Regulation S.  The Special Obligation Bondswere issued in two series, one designated Series 2007-A (tax exempt) inthe aggregate principal amount of $119,495,000 (consisting of $32,800,000aggregate principal amount due 2016 bearing interest at a rate of 5.25%, or Series 2007-ABonds due 2016, and $86,695,000 aggregate principal amount due 2023 bearinginterest at a rate of 5.00%, or Series 2007-A Bonds due 2023) and theother designated Series 2007-B (taxable) in the aggregate principal amountof $40,000,000 due 2013 bearing interest at a rate of 6.75% (the Series 2007-BBonds), together with the Series 2007-A Bonds due 2016 and Series 2007-ABonds due 2023, or collectively, the 2007 Bonds).  The 2007 Bonds aregoverned by an Indenture between the Authority and the Trustee dated April 27,2007.  The 2007 Bonds are not obligations of SGC or the Nation, and theissuance of the 2007 Bonds will not give rise to an obligation of the Nation tolevy any tax or make any appropriation for their payment.

 

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

 

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

 

22

----

Table ofContents

 

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

 

Mandatory Sinking FundRedemption

** **

**Series 2007-A Bonds Due December 1, 2016**

 

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

 

**Series 2007-A Bonds Due December 1, 2023**

 

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

 

**Series 2007-B Bonds Due December 1, 2013**

 

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

 

The Authority isrequired to redeem all of the 2007 Bonds, at a redemption price equal to theirprincipal amount plus accrued and unpaid interest, on the last semi-annualpayment date preceding (i) the termination date of the Nation’s Compactwith New York State pursuant to paragraph 4(c) thereof or (ii) thetermination of such Compact pursuant to paragraph 4(d) thereof.

 

The Authority isrequired to redeem all of the Series 2007-A Bonds in the event of aDetermination of Taxability (generally, a final determination by theCommissioner or any District Director of the Internal Revenue Service or adetermination by a 

 

23

----

Table ofContents

 

court of competentjurisdiction that interest on the Series 2007-A Bonds is not excludablefrom gross income for federal income tax purposes under Section 103 of theCode), on a date selected by the Authority but not later than 180 days aftersuch Determination of Taxability, at a redemption price equal to the principalamount thereof plus accrued and unpaid interest to the date of redemption plusa premium equal to 4% of the principal amount thereof.

 

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

 

There is nooptional redemption of the Series 2007-A Bonds due 2016 or of the Series 2007-BBonds.

 

*SeniorSecured Revolving Loan Agreement*

 

Effective June 19,2008, SGC entered into a $50.0 million Senior Secured Revolving Loan Agreement,which matures on June 19, 2009. The maturity date may be extended by SGCat its election (at any time after the six month anniversary of the closingdate and prior to June 19, 2009) for an additional period of six monthsprovided that no default or event of default exists at the time ofelection.  Amounts borrowed under theloan agreement bear interest at either one, three or six-month LIBOR plus oneand one quarter percent (1.25%), or the prime rate (as reported in the *The Wall Street Journal*) plus one quarter percent (.25%).  Any outstanding principal balance shall bepaid on the maturity date.

 

SGC’s obligationsunder the loan agreement are secured by substantially all gaming and relatedassets (including substantially all gaming revenues) not constituting realproperty or improvements.  SGC’sobligations are guaranteed by SNFGC, STGC, SEGC and LGCC.  The guarantors’ obligations are secured bysubstantially all of each guarantor’s gaming and related assets (includingsubstantially all gaming revenues) not constituting real property orimprovements.

 

The loan agreementcontains certain financial covenants requiring minimum consolidated EBITDA of$160 million (on a rolling 12 month basis) and compliance with certainleverage  and coverage ratios. The loanagreement also contains additional customary covenants, including covenantsrestricting the incurrence of additional indebtedness, the creation ofadditional liens and the disposition of assets.

 

**Item 1A.  Risk Factors**

 

In addition to the other information in this Annual Report,the following risk factors should be carefully considered in evaluating SenecaGaming Corporation and our business because such risk factors may have asignificant impact on our business, operating results and financial condition.As a result of the risk factors set forth below and elsewhere in this AnnualReport, actual results could differ materially from those projected in anyforward-looking statements.

 

**We have substantial indebtedness andother financial obligations and commitments which could adversely affect ourfinancial condition and prevent us from fulfilling our obligations, includingour senior notes.**

 

Wehave substantial indebtedness and significant fixed debt service obligations inaddition to our operating expenses. As of September 30, 2008, we had$500.0 million of 7-1⁄4 % senior notes outstanding. The Indenture governing thesenior notes permits us and our subsidiaries to incur additional debt incertain, limited circumstances. If we incur additional debt in the future, therelated risks could increase.

 

Inconnection with an April 2007 issuance of $159.5 million of bonds by agovernmental instrumentality of the Nation (the “Authority Bonds”), we, subjectto any contractual obligations applicable to us, are obligated, pursuant to adistribution agreement governing our distribution obligations with respect tothe Authority Bonds (the “Distribution Agreement”), to make monthlydistributions to the Nation at the times and in the amounts necessary to paythe debt service on such Authority Bonds.  The foregoing distributionobligations are in addition to distribution commitments to the Nation relatingto Compact exclusivity fees, operating lease payments and certain regulatoryand shared services expenses.  From time to time, we also become obligatedor committed to make additional distributions or payments to the Nation whichcould increase the related risks.

 

On June 19, 2008, weentered into a $50.0 million Senior Secured Revolving Loan Agreement, whichmatures on June 19, 2009, unless extended for up to an additional sixmonths. SGC’s obligations under the Senior Secured Revolving Loan 

 

24

----

Table of Contents

 

Agreement are secured bysubstantially all gaming and related assets (including substantially all gamingrevenues) not constituting real property or improvements.  SGC’sobligations are guaranteed by SNFGC, STGC, SEGC and LGCC.  The guarantors’obligations are secured by substantially all of each guarantor’s gaming andrelated assets (including substantially all gaming revenues) not constitutingreal property or improvements.

 

Our high level ofindebtedness and other financial obligations and commitments could have importantconsequences to holders of our senior notes and others, and significant adverseeffects on our business. For example, it could:

 

·                  increase our vulnerability to generaladverse economic and industry conditions or a downturn in our business;

 

·                  limit our ability to obtain additional debt financing for workingcapital, capital expenditures or other purposes;

 

·                  require us to dedicate a substantial portion of our cash flow fromoperations to payments on our indebtedness or to meet our other obligations orcommitments thereby reducing the availability of our cash flow to fund workingcapital, capital expenditures, development projects and other general businesspurposes;

 

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

 

·                  place us at a competitive disadvantage compared to our competitors thathave less debt and other financial obligations and commitments and/or morefinancial resources.

 

If ourindebtedness and other financial obligations and commitments affect ouroperations in these ways, our business, financial condition and results ofoperations could suffer, making it more difficult for us to satisfy suchfinancial obligations.

 

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

 

Ourability to make payments on the senior notes and fulfill our other financialobligations and commitments will depend on our ability to generate cash flowfrom our current and future operations. Our ability to generate sufficient cashflow to satisfy our financial obligations and commitments will depend on ourfuture operating performance, which is subject to many economic, competitive,regulatory and business factors that are beyond our control. If we are not ableto generate sufficient cash flow to pay our financial obligations andcommitments we may need to refinance, or modify such obligations, and commitments,sell assets or reduce or delay capital investments, or seek to raise additionalcapital. For the following reasons, among others, these measures may not beavailable to us on reasonable terms or at all, or, if available, they may notbe adequate to enable us to satisfy our financial obligations, including thesenior notes:

 

·                  our ability to incur additional debt will be limited by the covenantsof the Indenture governing the senior notes, covenants of the DistributionAgreement and covenants under our Senior Secured Revolving Loan Agreement;

 

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

 

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

 

If ourcash flow is insufficient and we are unable to raise additional capital, we maynot be able to satisfy our financial obligations, and commitments includingmaking payments on our senior notes.

 

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

 

25

----

Table of Contents

** **

**secured indebtedness.**

 

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

 

As of September 30, 2008, the net amount of theconsolidated indebtedness of SGC was approximately $496.4 million.  As of September 30, 2008, at SGC’srequest, the lender under the Senior Secured Revolving Loan Agreement hadissued letters of credit totaling approximately $16.8 million. On October 29,2008, SGC borrowed $20 million under the Loan Agreement.  SGC’s obligations under the Senior SecuredRevolving Loan Agreement are secured by substantially all gaming and relatedassets (including substantially all gaming revenues) not constituting realproperty or improvements.  SGC’s obligations are guaranteed by SNFGC,STGC, SEGC and LGCC.  The guarantors’ obligations are secured bysubstantially all of each guarantor’s gaming and related assets (includingsubstantially all gaming revenues) not constituting real property or improvements.

 

We are permitted to incur additional indebtedness inthe future under the terms of the Indenture governing the senior notes theDistribution Agreement, and the Senior Secured Revolving Loan Agreement.

 

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

 

SGC conducts substantially all of its operationsthrough its restricted subsidiaries. Accordingly, SGC relies on dividends fromits restricted subsidiaries to provide funds necessary to meet its obligations,including the payment of principal and interest on the senior notes. Theability of any restricted subsidiary to pay dividends or make cashdistributions to SGC may be contractually restricted. If SGC is unable toaccess the cash flows from its restricted subsidiaries, SGC may have difficultymeeting its obligations and commitments, including the senior notes. Althoughthe Indenture governing the senior notes, the Distribution Agreement and theSenior Secured Revolving Loan Agreement restrict our ability to incuradditional indebtedness, those restrictions are subject to exceptions.

 

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

 

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

 

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

 

We issued the senior notes pursuant to the Indenture.In addition, in connection with our issuance of the senior notes, the Nationentered into the Nation Agreement with the Trustee pursuant to which the Nationagreed not to take certain actions

 

26

----

Table of Contents

 

with respect to us while the senior notes wereoutstanding. References to the “Nation Agreement” are to the Nation Agreementas 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 “Item 1. - Business—Material Agreements—Assignment andPlan of Distribution Agreement.” Under federal law, we and the Nation havesovereign immunity and may not be sued without our and its consent,respectively. In the Indenture governing the senior notes, we do, and, in theNation Agreement and the Assignment Agreement, the Nation does, grant a limitedwaiver of sovereign immunity and consent to suits to interpret or enforce theIndenture governing the senior notes, and the other agreements entered into inconnection with the respective offerings involving the senior notes. Thiswaiver does not extend to all possible claims or remedies that a holder of thesenior notes might allege or seek against us or the Nation. Specifically, thewaiver limits available remedies to specific performance in most cases andlimited money damages equal to the amount of a payment made in prohibition ofthe Indenture governing the senior notes or to the amount of the netliquidation or dissolution proceeds not assigned to SGC; *provided, that*, such money damages areonly payable from assets held by the Nation, SGC, SNFGC, STGC, SEGC or otherrestricted subsidiary and used in connection with a “related business” (asdefined in the Indenture), other than real property held in trust for theNation by the United States. In the event that a New York court would find thatspecific performance is not an available remedy, the trustee and the holders ofthe senior notes may not have an adequate remedy against the Nation under theNation Agreement and the Assignment Agreement. Furthermore, in the event thatthe Nation’s or our limited waiver of sovereign immunity is unenforceable, thetrustee and the holders of the senior notes could be precluded from judiciallyenforcing their rights and remedies under the senior notes, the Indenturegoverning the senior notes, the Nation Agreement, and the Assignment Agreement.

 

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

 

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

 

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

 

The extent to which state courts will assumejurisdiction over disputes involving Indian tribes varies from state to state.The senior notes, the Indenture governing the senior notes and the relatedagreements are governed by the laws of New York State. There is conflictingcase law on the issue of whether state courts can assert jurisdiction overdisputes with Indian tribes or tribal instrumentalities. Federal law providesthat the state courts of New York have jurisdiction over civil mattersinvolving Indians.  However, it ispossible that neither a federal nor a state court would accept jurisdiction toresolve a matter involving the senior notes and the holders of the senior notesmay have no legal recourse to a state or federal court.

 

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

 

27

----

Table of Contents

 

Additionally, dependingon the particular claim asserted, certain disputes may be required to be heardin Nation courts.  For example, the U.S.Supreme Court has held that claims under the federal Indian Civil Rights Actcan only be brought in tribal courts, and lower federal and state courts haveheld, on occasion, that tribal law may only be interpreted in tribal courts.

 

Additionally, anynon-Nation court judgment requiring satisfaction or enforcement within Nationterritories may require that an order for such enforcement be issued by Nationcourts.  Nation courts do not havespecific rules related to granting full faith and credit to judgments ofcourts of the United States or New York State, except to the extent that anapplication for an order of attachment is made in the Nation courts and federallaw requires the Nation courts to give full faith and credit to such ajudgment.

 

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

 

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

 

We may have the right to cause senior note holders todispose of their senior notes, or to redeem their senior notes, if regulationsare promulgated pursuant to which their ownership of the senior notes isdetermined to be unsuitable by the Seneca Gaming Authority or the New YorkState Racing and Wagering Board. In such event, the redemption price will bethe lowest of the amount paid for the senior notes, the principal amount of thesenior notes and the then current fair market value of the senior notes.

 

**It is uncertain whether we or theNation may be subject to the U.S. Bankruptcy Code, which could impair thesenior note holders’ ability to realize on our assets.**

 

It is uncertain whether we or the Nation may be adebtor in a case under the U.S. Bankruptcy Code. Without bankruptcy courtprotection, other creditors might receive preferential payments or otherwiseobtain more than they would have under a bankruptcy court proceeding. If eitherwe or the Nation commence a case under the Bankruptcy Code and the bankruptcycourt does not dismiss the case, payments from the debtor would cease. It isuncertain how long payments under the senior notes could be delayed followingcommencement of a bankruptcy case.

 

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

 

The restricted subsidiary guarantors have incurredsubstantial debt under the guarantees of the senior notes. The incurrence bythe restricted subsidiary guarantors of debt under their guarantees may besubject to review under federal and state fraudulent conveyance laws if abankruptcy, reorganization or rehabilitation case or a lawsuit, including circumstancesin which bankruptcy is not involved, were commenced by, or on behalf of, unpaidcreditors of the restricted subsidiary guarantors at some future date. Federaland state statutes allow courts, under specific circumstances, to voidguarantees and related liens and require note holders to return paymentsreceived from the issuer or the guarantors.

 

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

 

·                  was insolvent;

 

·                  was rendered insolvent by theissuance of the senior notes;

 

·                  was engaged in a business ortransaction for which its remaining assets constituted unreasonably smallcapital; or

 

·                  intended to incur, or believed thatit would incur, debts beyond its ability to repay as those debts matured.

 

If a court were to make such a finding in respect to arestricted subsidiary guarantor’s guarantee, it could void all or a portion ofsuch restricted subsidiary guarantor’s obligations under its guarantee of thesenior notes, subordinate the claim in respect of its guarantee to its otherexisting and future indebtedness or take other actions detrimental to holdersof the senior notes,

 

28

----

Table of Contents

 

including, in certain circumstances, invalidating theguarantees of the senior notes.

 

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

 

There is a risk of a preferential transfer if:

 

·                  arestricted subsidiary guarantor declares bankruptcy or its creditors force itto declare bankruptcy within 90 days (or in certain cases, one year) after apayment on the guarantee; or

 

·                  aguarantee was made in contemplation of insolvency.

 

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

 

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

 

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

 

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

 

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

 

The restricted subsidiary guarantors are wholly owned,directly or indirectly, and controlled by SGC, which is wholly owned andcontrolled by the Nation. Circumstances may occur in which the interests of theNation, the Council or the members of the Nation could be in conflict with theinterests of a holder of the senior notes. In particular, the Nation, theCouncil or the members of the Nation could make business or other decisionsthat may affect a senior note holder. For example, the Nation, subject to therestrictions in the Indenture, the Distribution Agreement, and Senior SecuredRevolving Loan Agreement, could decide to expand our facilities, incur moredebt, increase distributions or other payments to the Nation, dispose of assetsor enter into other transactions that, in their judgment, are in theirinterest, even though these transactions might involve risks to holders of thesenior notes, including making it more difficult for us to make payments on thesenior notes and for the restricted subsidiary guarantors to guarantee thesepayments.  Additionally, the Nation’ssovereign interests may result in policies or decisions that may conflict withthe interests’ of the senior note holders. For example, the Nation maydetermine not to approve a limited waiver of sovereign immunity in connectionwith a potential commercially favorable transaction between us and a thirdparty, based principally on sovereignty considerations rather than customarycommercial considerations, resulting in the loss of that commercially favorablebusiness opportunity. The loss of this opportunity could adversely affect usand, as a result, the senior note holders.

 

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

 

The Nation has a limited number of laws, whichprimarily consist of the Nation’s constitution, a limited number of ordinancesand codes, Council resolutions and judicial interpretations of Nation law.Because the body and scope of the Nation’s laws are not as fully developed asfederal and state law, in many instances under Nation law it is difficult topredict

 

29

----

Table of Contents

 

how and which laws will be applied. In particular, theNation has not adopted a corporate code. Therefore, terms used in this AnnualReport, the Indenture governing the senior notes and other relevant documents,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.

 

**A change in the Nation’s currenttax-exempt status could have a material adverse effect on our ability to repayour financial obligations, including the senior notes.**

 

Based on currentinterpretation of the Internal Revenue Code of 1986, as amended, or the Code,neither the Nation or SGC is subject to federal income or property taxes. Therecan be no assurance that Congress will not reverse or modify the exemption forIndian tribes from federal income or property taxation. Efforts have been madein Congress in the past to amend the Code to provide for taxation of the netincome of tribal business entities. These have included a House ofRepresentatives bill that would have taxed gaming income earned by Indiantribes as unrelated business income subject to corporate tax rates. Although nosuch legislation has been enacted, it could be enacted in the future. Theimposition of federal income tax on our earnings could reduce the amountavailable to us to fulfill our obligations. As a result, future proposals oramendments in this area could materially adversely affect our ability tofulfill our financial obligations, including the senior notes.

 

**We are subject to greater risks thana geographically diverse company.**

 

We currently rely exclusively on cash flow from SenecaNiagara Casino and Hotel and Seneca Allegany Casino and Hotel and, to a lesserextent, Seneca Buffalo Creek Casino temporary facility to meet our obligationsand commitments, including the senior notes. While we expect to expand thegeographic scope of our patron base as a result of our completed expansionprojects, our Seneca Niagara Casino and Hotel relies primarily on patrons fromwithin a 100-mile radius for its cash flow, Seneca Allegany Casino and Hotelrelies primarily on patrons from within an 80-mile radius for its cash flow andSeneca Buffalo Creek Casino temporary facility relies primarily on patrons fromwithin a 30-mile radius. Further, our future expansion plans (currentlysuspended) for additional and expanded casino operations as permitted by theCompact are limited to Western New York. As a result, in addition to oursusceptibility to adverse global and domestic economic, political and businessconditions, any economic downturn in the Western New York region could have amaterial adverse effect on our operations. A regional economic downturn wouldlikely cause a decline in the disposable income of consumers in the Western NewYork region, which could result in a decrease in the number of patrons atSeneca Niagara Casino and Hotel, Seneca Allegany Casino and Hotel and SenecaBuffalo Creek Casino, as well as in the frequency of their visits and theaverage amount that they would each be willing to spend at the casinos. We aresubject to greater risks than more geographically diverse gaming or resortoperations, including:

 

·                  a downturn in national, regional orlocal economic conditions;

 

·                  an increase in competition in NewYork or the Northeastern United States and Canada, particularly for day-trippatrons residing in New York State, including the development of new Indian casinosand the establishment of VGM’s and proposed electronic table games at certainracetracks in New York, and slot machines and traditional or electronic tablegames in Pennsylvania;

 

·                  impeded access due to roadconstruction or closures of primary access routes; and

 

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

 

We cannot assure you that our property, casualty,terrorism and business interruption insurance will be adequate or available tocover all the risks to which our business and assets may be subject. Theoccurrence of any one of the events described above could cause a materialdisruption in our business and make us unable to generate sufficient cash flowto fulfill our financial obligations, including the senior notes.

 

**We compete with casinos, other formsof gaming and entertainment and other resort properties. If we are unable tocompete successfully, we may not be able to generate sufficient cash flow tofund our operations or fulfill our financial obligations as they become due,including the senior notes.**

 

Our casino operations compete with casinos, otherforms of gaming and entertainment, and other resort properties located withinand outside New York State. We face intense competition in our primary andsecondary market areas, in addition to competition from casinos and gamingoperations in our broader regional market. New market entrants in New YorkState,

 

30

----

Tableof Contents

 

Pennsylvania and elsewhere in the Northeastern UnitedStates could also adversely affect our operations and our ability to meet ourfinancial obligations and commitments.**Fora more extensive discussion regarding our competition, see “Item 1. -Business—Market and Competition.”

 

**If we are unable to retain our keypersonnel, our ability to execute our business strategy could be impaired.**

 

The continued services of our key operating andexecutive personnel are important to our future success. The loss of theservices of such key operating and executive personnel could have an adverseimpact on us. There can be no assurance that the services of such personnelwill continue to be made available to us. We do not maintain key person lifeinsurance policies on any of our executives. As previously disclosed, effective February 7, 2007, JohnPasqualoni, SGC’s President and Chief Executive Officer, and Joseph D’Amato,SGC’s Chief Operating Officer, resigned for personal reasons.  Brian Hansberry, SGC’s former General Managerof Seneca Niagara Casino and Hotel was appointed as interim President and ChiefExecutive Officer and as of September 19, 2007, the appointment was made permanent.  Catherine Walker was appointed ChiefOperating Officer on April 25, 2008. Effective April 11, 2008, Patrick M. Fox, SGC’s Chief FinancialOfficer, resigned for personal reasons. David Sheridan was appointed Chief Financial Officer as of July 1,2008.

 

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

 

The operation of the expanded facilities of SenecaNiagara Casino and Hotel and Seneca Allegany Casino and Hotel and the plannedconstruction and opening of a permanent Seneca Buffalo Creek Casino and Hotelwill require us to hire additional qualified executives and managers and asignificant number of additional skilled employees with gaming and hospitalityindustry experience and qualifications. See “Item 3. Legal Proceedings” for adiscussion of litigation affecting, among other matters, our planned permanentSeneca Buffalo Creek Casino and Hotel. There can be no assurance that we willbe able to recruit, train and retain a sufficient number of additionalqualified employees, particularly due to the very small number of workersskilled in the gaming industry that reside in the immediate vicinity of ourcasinos.

 

**The Indenture governing the seniornotes contains various covenants and provisions that limit our management’s discretionin the operation of our business.**

 

The Indenture governing the senior notes includescovenants and provisions that, among other things, restrict our ability to:

 

·                  incur additional debt;

 

·                  make investments;

 

·                  create liens;

 

·                  enter into transactions withaffiliates;

 

·                  sell assets;

 

·                  merge, consolidate or sellsubstantially all of our assets; and

 

·                  make capital expenditures.

 

All of these restrictive covenants may limit ourability to expand our operations or to pursue our business strategies. Changesin business conditions or results of operations, adverse regulatorydevelopments or other events beyond our control may affect our ability tocomply with these and other provisions of the Indenture governing the seniornotes. The breach of any of these covenants could result in a default under thisindebtedness, which could cause those obligations to become due and payable. Ifthis indebtedness were to be accelerated, we cannot assure you that we would beable to pay such indebtedness.

 

**The Senior Secured Revolving Loan Agreement contains variouscovenants and provisions that limit our management’s discretion in theoperation of our business.**

 

TheSenior Secured Revolving Loan Agreement includes covenants and provisions that,among other things, restrict our ability to:

 

·                  incur additional debt;

 

·                  make investments;

 

31

----

Table of Contents

 

·                  create liens;

 

·                  enter into transactions with affiliates;

 

·                  sell assets;

 

·                  merge, consolidate or sell substantially all of ourassets; and

 

·                  make capital expenditures.

 

The Senior Secured Revolving Loan Agreement furtherincludes certain financial covenants requiring minimum consolidated EBITDA of$160 million (on a rolling 12 month basis) and compliance with certain leverageand coverage ratios. All of these covenants may limit our ability to expand ouroperations or to pursue our business strategies. Changes in business conditionsor results of operations, adverse regulatory developments or other eventsbeyond our control may affect our ability to comply with these and otherprovisions of the Senior Secured Revolving Loan Agreement. The breach of any ofthese covenants could result in a default under this indebtedness, which couldcause these obligations to become due and payable. If this indebtedness were tobe accelerated, we cannot assure you that we would be able to pay suchindebtedness.

 

**Our operations could be adverselyaffected during our expansion.**

 

Although construction activities related to ourexpansion projects have been suspended, future construction activities relatingto expansion projects will be planned to minimize disruptions, constructionnoise and debris may disrupt our operations. Unexpected construction delayscould exacerbate or magnify these disruptions. We cannot assure you that futureconstruction activities will not have a material adverse effect on our resultsof operations.

 

**Failure to complete expansionprojects and any other future development projects on budget and on time couldadversely affect our financial condition.**

 

When and if we resume construction at the SenecaAllegany Casino and Hotel and the permanent Seneca Buffalo Creek facility, suchexpansion 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 skilledlabor;

 

·                  material price escalation;

 

·                  failure to generate sufficientoperating cash flow, or obtain financing, to meet our construction needs;

 

·                  potential cash shortages;

 

·                  labor disputes and work stoppages;

 

·                  weather interference or delays;

 

·                  engineering problems;

 

·                  environmental problems;

 

·                  regulatory problems;

 

·                  changes to the plans orspecifications;

 

·                  fire, earthquake, flood and othernatural disasters; and

 

·                  geological, construction, excavationand equipment problems.

 

Failure to complete any expansion project on time andwithin budget may cause us to devote additional resources to the project, whichcould divert time, money and attention away from our casino operations andcould cause our business to 

 

32

----

Table of Contents

 

suffer.

 

Should current challenging economic and capital marketconditions, operating and other demands on our available cash and increasedcompetition and construction costs continue, we may not be able to complete ourcurrently suspended expansion projects, when and if resumed, in a timely manneror at all.

 

**We may not be able to generate enoughcash flow, or obtain financing, to complete our current and any future expansionprojects.**

 

In 2008, we commencedconstruction of our next phase of development at Seneca Allegany Casino andHotel, providing for an additional 200 room hotel, 30,000 square feet ofadditional gaming space, related amenities and landscaping and exteriorenhancements to the property as a whole. In 2008, we also commenced construction of a permanent casino and hotelcomplex on the Buffalo Creek Territory having an estimated cost of $333million, designed to initially feature approximately 90,000 square feet ofgaming space, 2,000 slot machines,46 table games,a 22-story all-suite hotel,2,200-space parking garage, and related dining and other amenities.

 

On August 27, 2008we suspended construction of these projects due to various factors, including challengingeconomic and capital market conditions, operating and other demands on ouravailable cash (including distributions to the Nation and increases inoperating lease payments) and increased competition and constructioncosts.  We continue to monitor thesefactors and ongoing developments.

 

We intend to fund any future expansion projects withcash flow from operations and external financing. There can be no assurancethat we will be able to generate the required amount of cash from ouroperations or obtain financing on acceptable terms, if at all, to complete anyor all of these projects. In addition, distributions and payments to theNation, including distributions pursuant to the Distribution Agreement, willresult in our cash flow being diverted from our expansion projects. During Fiscal2008, we distributed $50.9 million to the Nation pursuant to generaldistribution declarations and $14.9 million to the Nation pursuant to theDistribution Agreement. If we are not able to generate enough cash to pay forour expansion projects or obtain financing with acceptable terms, if at all,our projects may be further delayed. Further, if we incur additional debt tocover the cost of our expansion projects, risks related to indebtedness couldincrease. If we cannot generate enough cash or find alternative sources offunding to expand our operations, our business, financial condition and resultsfrom operations could be materially adversely affected and we may not be ableto make payments on the senior notes or meet our other financial obligationsand commitments.

 

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

 

Our casinos have only been in operation since December 31,2002 (as to the then-Seneca Niagara Falls Casino), May 1, 2004 (as to thethen-Seneca Allegany Casino) and July 3, 2007 (as to the Buffalo CreekCasino temporary facility), respectively, and we have limited experienceoperating our hotels in Niagara Falls and Salmanca, New York. Our currentsuspended expansion plans include constructing and opening a permanent casinoand hotel in Buffalo, New York. We may experience difficulties in operatingmultiple casinos and hotels in a limited geographic region. Further, theaddition of our two hotels and other new and untested amenities to our existingcasinos have many of the same risks inherent in the establishment of a newbusiness enterprise because we have limited operating history in thoseactivities. We may not be able to identify timely or to anticipate all of thematerial risks associated with operating that business or additional casinos.Our lack of operating history in these new ventures may adversely affect ourfuture operating results, ability to generate adequate cash flow and ability tofulfill our obligations and commitments, including the senior notes.

 

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

 

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

 

33

----

Table of Contents

 

**Although litigationchallenging the validity of our Compact and our right to conduct Class IIIgaming in New York State has been unsuccessful to date, the validity of theCompact and our right to conduct Class III gaming in New York State couldstill be challenged in court or otherwise adversely affected by legislation,regulation, or judicial action relating to gaming generally, or our right toconduct Class III gaming, in particular.**

 

In October 2001, the New York Legislature passed Chapter 383of the Laws of 2001, or Chapter 383, which allowed former Governor Pataki toenter into a gaming compact with the Seneca Nation of Indians and to enter intogaming compacts with other Indian tribes for the establishment of threeadditional casinos in the Catskills. Chapter 383 also approved the installationof VGMs at certain racetracks.

 

In January 2002, two actions were filed in the Supreme Courtof the State of New York, County of Albany, challenging the validity of Chapter383. The actions were captioned Dalton v. Pataki, et al, and Karr v. Pataki, etal. 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 theplaintiffs’ complaints in Dalton v. Pataki and held that Chapter 383 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 panel issuedits Opinion and Order declaring the provisions of Chapter 383 authorizing theadditional compacts constitutional, the licensing of VGMs to racetracks to beunconstitutional due to the impermissible revenue distribution scheme set forththerein and the provision of Chapter 383 authorizing the Division of theLottery to participate in the multi-state lottery constitutional.

 

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

 

If New York State were to make various forms of gaming illegal oragainst public policy (or the courts were to similarly rule), or otherwise totake a legal position adverse to us, such actions could affect the ability ofthe Nation to conduct those forms of gaming under the Compact, which could havea material adverse effect on our ability to conduct our gaming operations ascurrently conducted.

 

**Ifour ability to operate Class III gaming facilities on land held inrestricted fee were successfully challenged, it would have a material adverseeffect on our ability to conduct gaming operations in Niagara Falls and ErieCounty pursuant to the Compact.**

 

*Background*

 

Under IGRA, Indian tribes can conduct class III gaming only on “Indian lands”as defined in that Act. “Indian lands,” under IGRA, means “(A) all landswithin the limits of any Indian reservation; and (B) any lands title towhich is either held in trust by the United States for the benefit of anyIndian tribe or individual or held by any Indian tribe or individual subject torestriction by the United States against alienation and over which an Indiantribe exercises governmental power” (25 U.S.C. § 2703(4)).

 

In 1990, Congress enacted the Seneca Nation Land Claims Settlement Act,or SNLCSA, which provides the Nation with fair compensation for use of its landand for the impact on the Nation from prior lease arrangements in the City ofSalamanca, New York. The funds appropriated under the SNLCSA are available forthe Nation to acquire land, which could be placed into restricted fee status.The Compact authorizes the Nation to use funds appropriated under the SNLCSA toacquire parcels of land in Niagara Falls and Erie County for gaming purposes.The U.S. Secretary of the Interior and the National Indian Gaming Commission,or NIGC, have determined that the Nation possesses jurisdiction over landsacquired by the Nation and placed into restricted fee status pursuant toSNLCSA, and that such lands constitute Indian lands under IGRA. Seneca NiagaraCasino and Hotel is located on lands so acquired, and Seneca Buffalo CreekCasino is (as to the temporary facility) and will be (as to the proposedpermanent facility) located on lands so acquired.  It is possible that some person or group couldsuccessfully challenge the Secretary’s conclusion that the Nation is authorizedto use such land for gaming purposes pursuant to IGRA.  If the Secretary’s or the NIGC’sdetermination that the Nation is authorized to use such land for gaming 

 

34

----

Table of Contents

 

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 existing and proposed gaming facilities in Erie County.However, such an adverse determination would not affect the ability of theNation to operate its Seneca Allegany Casino and Hotel, which is located on existingNation reservation territory.

 

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

 

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

 

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

 

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

 

The U.S. Department of Justice has discontinued itsappeal of the January 12, 2007 order in the initial CACGEC federalsuit.  On November 9, 2007, theSecond Circuit Court of Appeals stayed the plaintiffs’ appeal pending theresolution of the second federal court action described below (*Citizens Against Casino Gambling v. Hogen* (1:07-cv-00451-WMS(WDNY)).

 

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

 

35

----

Table of Contents

 

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

 

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

 

On July 12, 2007, CitizensAgainst Casino Gambling in Erie County (CACGEC) filed a secondaction in the United States District Court, Western District of New Yorkagainst the United States Department of Interior, the NIGC and two individualsin their official capacities as Secretary of the Interior and Chairman of theNational Indian Gaming Commission, respectively.  The action seeks declaratory and injunctive reliefunder the Administrative Procedure Act, the Declaratory Judgments Act, and IGRAand is principally directed at the decisions and actions of the defendants inapproving the Nation’s Class III gaming ordinance, and the Indian landopinion issued by the Chairman relative to that approval.  The plaintiffs claim that the defendants havefailed to comply with federal law and have requested that the court takenumerous actions including declaring that the lands acquired by the Nationpursuant to SNLCSA are not Indian lands within the meaning of IGRA.

 

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

 

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

 

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

 

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

 

On July 22, 2008,the United States filed a motion responding to the plaintiffs motion to enforceand requesting that the case be remanded to the NIGC for further consideration.The remand motion is based upon significant changes in the controlling law, asinterpreted by the U.S. Department of Interior.  The Nation simultaneouslyfiled an amicus brief supporting the United States’ motion for remand to theNIGC and opposing the plaintiffs’ motion to enforce.  On August 26,2008, the court issued its decision on the foregoing motions and granted theplaintiffs’ request that the court enforce its July 8, 2008 decision andorder to the extent that the NIGC and its Chairman are directed to carry outtheir enforcement duties under IGRA. The plaintiffs’ motion was denied to theextent that they requested an order that would divest the NIGC of itsdiscretion to determine the type of enforcement action to take.

 

On September 3,2008, the Chairman of the NIGC issued a “notice of violation” or “NOV” to theNation as a result of the August 26, 2008 decision. The NOV asserts thatthe Nation has violated IGRA by operating the Seneca Buffalo Creek Casinowithout an approved Class III gaming ordinance for that facility becausethe gaming ordinance for those lands authorized gaming on lands in Buffalo thatthe district court deemed ineligible for gaming.  The NOV further statesthat although the NIGC disagrees with the district court’s interpretation ofIGRA regarding the Buffalo Creek parcel’s eligibility for gaming under IGRA,the NIGC, at the current time, was bound by the district court’s ruling as tothis particular land parcel absent reconsideration by the district court orreversal on any appeal.  Consequently, the Chairman issued the NOV. TheNOV was not accompanied by a closure order or an assessment of a civil fine.The NOV further states that the Chairman of the NIGC may modify the measuresrequired to correct the alleged violation if the NIGC approves the Nation’s July 16,2008 gaming ordinance amendments.  TheNation immediately appealed the NOV issuance and the administrative appeal isstill pending before an independent administrative law judge. The NIGCrequested a stay of the NOV appeal.

 

On October 21, 2008,the plaintiffs filed a motion seeking an order from the court that would requirethe Chairman of the NIGC to issue orders immediately halting gaming at theSeneca Buffalo Creek facility and holding the NIGC Chairman in contempt for notdoing so sooner.

 

36

----

Table of Contents

 

OnOctober 24, 2008, the U.S. Department of Justice filed a notice ofappeal relating to the court’s July 8, 2008 ruling on whether gaming ispermitted on Nation lands in Buffalo, in addition to the court’s August 26orders (directing the NIGC to issue the NOV and denying the U.S. government’smotion to remand the case to the NIGC for an administrative decision on thebasis of significant changes in controlling regulation).

 

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

 

On December 2, 2008, the plaintiffs filed theirresponse to the Nation’s amicus brief. The plaintiffs’ October 21, 2008 motion remains under advisement.

 

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

 

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

 

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

 

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

 

Although Petitioners haveindicated an intent to appeal the judge’s decision, no notice of appeal hasbeen filed to date.

 

If the plaintiffs were successful, the Nation could be delayed in thecompletion of the Seneca Buffalo Creek Casino and Hotel or could be unable tocomplete the Seneca Buffalo Creek Casino and Hotel.  Certain of thesepetitioners are also plaintiffs in the federal lawsuits filed by CitizensAgainst Casino Gambling in Erie County referenced above.

 

37

----

Table of Contents

 

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

 

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

 

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

 

On October 5, 2007,the plaintiff filed a motion to further amend the complaint to include asdefendants (1) Maurice John, as President of the Seneca Nation of Indians;(2) E. Brian Hansberry, as the new President and CEO of SGC (replacingJohn Pasqualoni); (3) the Nation; and (4) SGC.  On October 25,2007, the Nation filed a response in opposition to that motion asserting that (1) themotion to amend the complaint was not properly before the court because it ispremised upon a finding that the Nation is a necessary and indispensible party,and (2) the motion to amend is futile because the Nation and its officersare protected by sovereign immunity.  As of December 16, 2008, thecourt had not ruled on this motion.

 

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

 

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

 

In December of 2006, the NIGC notified the Nationthat it would be commencing a review of the Nation’s use of gaming revenuesstarting in January 2007.  The NIGCsent its inspection team on-site three times during February and March of2007 to review Nation financial records for fiscal years 2005 and 2006.  On March 7, 2007, following a request bythe Nation that the NIGC clarify the scope of documents its inspection team isreviewing, the NIGC issued a subpoena to obtain certain documents needed tocomplete their review.  On March 8,2007, Nation and SGC staff met with the NIGC inspection team to obtainclarification on the scope of the review and the documents being sought.  The Nation has been cooperating with the NIGCinspection team and has made Nation and SGC staff available to answer questionsthat have arisen during the course of the inspection team’s review.  The NIGC’s review of the Nation’s use of netgaming revenues is ongoing.  The IGRA andNIGC’s implementing regulations do not provide a timeline within which the NIGCmust complete its review.

 

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

 

38

----

Table of Contents

 

tribal member distributions from the operating leasepayments are distributions of net gaming revenues subject to IGRA’srequirements, it may attempt to take enforcement actions against the Nation.

 

IGRA provides for civil penalties for a violation ofthe provisions of IGRA or the regulations promulgated by the NIGC. Such civil enforcementactions include without limitation: notices of violation, issuance of temporaryor permanent closure orders, and assessment of civil fines of up to $25,000 perviolation. IGRA also provides for an opportunity for an appeal and hearingbefore the NIGC with respect to any civil penalty imposed. Judicial review alsoremains available. We cannot predict the outcome of the NIGC’s current reviewof the Nation’s use of net gaming revenues. If the NIGC determines that theNation has violated IGRA and takes enforcement actions against the Nation, suchactions may materially adversely affect our ability to conduct our gamingoperations as currently conducted.

 

**SNFGCmay be subject to material liabilities arising out of the condemnation processthrough which it is acquiring lands in the 50-acre footprint in the City ofNiagara Falls, New York.**

 

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

 

We have obtainedpossession of, either through eminent domain proceedings or private purchase,substantially all of the remaining acreage within the footprint, other thancertain streets owned by the City of Niagara Falls providing access to theabove church parcels, and a bike path owned by the New York State Department ofTransportation. We expect to acquire these remaining parcels in 2009.

 

With the exception ofapproximately two acres of land and a hotel property within the footprinttogether acquired for $7.9 million through a private sale in December 2005,substantially all of our post-2002 real property acquisitions in Niagara Falls,NY have been pursuant to New York State Eminent Domain Procedure Law, or EDPL,using the State’s power of eminent domain (through the Empire State DevelopmentCorporation, or ESDC).  The amounts paidto condemnees from whom the ESDC has acquired property are deemed to be advancepayments, in that property owners are entitled to reserve their rights tochallenge the land and improvement values determined by the condemnor’sappraisers.  The ESDC has made advancedpayments under the EDPL of approximately $31.5 million for the condemnedparcels within the footprint including, in particular, approximately 18 acresof land and related fixtures (a former water park) for an aggregate advancedpayment of $18.0 million, and another hotel property for an aggregate advancedpayment of $8.2 million.

 

Pursuant to the EDPL, NewYork state courts will determine the final purchase price to be paid tocondemnees who elect to challenge the initial appraised value of theirproperty.  To date, all record owners fromwhom property was acquired pursuant to the EDPL have reserved rights to claimadditional compensation.  Four recordowners have filed notices of claim to challenge the fair market valueappraisals utilized by ESDC.   FallsiteLLC and Fallsville Splash, LLC have filed notices of claim in the amounts of$40.0 and $35.0 million for land and trade fixtures, respectively, relating tothe former water park (referenced above) within the footprint.  ESDC’s fair market appraisal for theforegoing was approximately $17.0 million. Intertrust Development has filed a notice of claim for $15.8 million forland and trade fixtures associated with a former Holiday Inn hotel within thefootprint. ESDC’s fair market appraisal for the foregoing (excluding fixtures)was $8.2 million.  Additionally, JFDHoldings has filed a notice of claim for an unspecified amount for land andtrade fixtures associated with a former Pizza Hut restaurant within thefootprint.  ESDC’s fair market appraisalfor the foregoing was approximately $0.4 million.   Valuation proceedings with regard to theformer water park are ongoing with expected completion in early 2009.  We are finalizing a settlement regarding theformer Holiday Inn property which has been approved by the SGC board ofdirectors, but remains subject to approval of the Nation’s Council.

 

39

----

Table of Contents

 

If a court determinesthat the value for the land and improvements is higher than the appraised valuewe paid to a condemnee, then we may be liable to the condemnee for thedifference and potentially also responsible for certain additional costs andpayments to the condemnee, such as attorneys’ fees.  As of September 30, 2008, we haveestablished a reserve in the amount of $6.4 million for such matters, which isincluded as a component of other current liabilities on SGC’s consolidatedbalance sheet.

 

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

 

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

 

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

 

Under various federal, state and local environmentallaws, ordinances and regulations, a current or previous owner or operator ofreal estate may be required to investigate and clean up hazardous or toxicsubstances or chemical releases on or relating to its property and may be heldliable to a governmental entity or to third parties for property damage,personal injury and for investigation and cleanup costs incurred by suchparties in connection with the contamination. Such laws typically imposecleanup responsibility and liability without regard to whether the owner knewof or caused the presence of contaminants. The costs of investigation,remediation or removal of such substances may be substantial. Although neitherwe or the Nation has waived our or its sovereign immunity with regard to suchfederal, state and local environmental legislation, the existence or discoveryof an environmental hazard on any of its lands could result in an assertion ofliability under federal environmental laws and have a significant adverseeffect on the Nation’s relations with the state and the local community.

 

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

 

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

 

**The entity that managed constructionat our luxury hotel expansion project in Niagara Falls, New York, our resorthotel, casino and event center expansion projects in Allegany, and ourtemporary facility in Buffalo, New York,is an entity with limited operatingexperience and limited experience in construction management.**

 

Seneca Construction Management Corporation, or SCMC,is an entity formed and wholly owned by the Nation and organized for thepurpose of managing construction projects. We initially entered intoconstruction management agreements with SCMC in connection with each of theSeneca Allegany Casino resort hotel, casino and event center expansion projectsand the Seneca Niagara Casino luxury hotel expansion project.  SCMC is expected to continue to manageconstruction of both our additional $130 million hotel tower in Allegany and the$333 million permanent Seneca Buffalo Creek Casino and Hotel project if, andwhen, such construction activities resume. SCMC as a company has very limited experience in overseeing and managingconstruction projects.  SCMC may not beable to identify or anticipate all material risks related to managing ourconstruction projects, which could adversely affect our ability to develop andconstruct these projects timely and successfully as well as our business andresults of operations.

 

**Anyadverse changes in the laws regulating our gaming operations or our failure tomaintain licenses required under gaming laws and regulations and other permitsand approvals required under applicable laws and regulations could have amaterial adverse effect on our ability to conduct gaming operations and to fulfillour financial obligations, including the senior notes.**

 

Gaming on the Nation’s land is regulated by Nation laws, the Compact andfederal statutes, most notably the IGRA. Several bills have been proposedduring the recent sessions of Congress that could affect Indian gaming.Notably, though its proposed legislation has yet to be presented to Congress,the Policies and Procedures Subproject of the Bureau of Indian

 

40

----

Table of Contents

 

Affairs has proposed sweeping changes to the federal laws concerningIndians. Certain of such bills, if enacted, could impair the ability of theNation and SGC to expand its gaming operations and adversely impact the futuregrowth of the Nation’s revenue base. In addition, from time to time, variousgovernment officials have proposed taxing Indian casino gaming or otherwiselimiting or restricting the conduct of gaming operations by Indian tribes. Noassurance can be given that such legislation, if and when enacted by Congress,would not have a material adverse effect on our operations. In addition, underfederal law, gaming on the Nation’s lands may be dependent upon the continuedpermissibility under New York law of certain forms of gaming or similaractivities. If New York State were to make various forms of gaming illegal oragainst public policy (or the courts were to similarly rule), or otherwise totake a legal position adverse to the Compact or any of its provisions, suchactions could affect the ability of the Nation to conduct those forms of gamingunder the Compact, which could have a material adverse effect on our ability toconduct our gaming operations as currently conducted. Moreover, the 1996 U.S.Supreme Court decision in Seminole Tribe of Florida v. Florida may permit astate to avoid or refuse to negotiate amendments to existing compacts such asthe Compact.

 

The operation of all gaming on Indian lands is subject to IGRA. For thepast several years, legislation has been introduced in Congress designed toamend this Act. Most of the proposals that have been seriously considered wouldbe prospective in effect and have contained clauses that would grandfatherexisting Indian gaming operations such as Seneca Niagara Casino and Hotel,Seneca Allegany Casino and Hotel, and Seneca Buffalo Creek Casino. However,certain legislative acts have also proposed repealing many of the provisions ofIGRA. We cannot predict the success of future legislative acts. Changes inapplicable laws and regulations or an increase in the cost of compliance withapplicable laws and regulations could limit or materially affect the types ofgaming that we may offer and the revenue our operations generate. Furthermore,if Congress enacted legislation that was applied retroactively, our ability tomeet our outstanding debt and other financial obligations and commitments couldbe adversely affected.

 

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

 

**Weare governmentally owned and will not necessarily be operated in the same wayas if we were a privately owned for-profit business, which may materiallyadversely affect our ability to meet our financial obligations and commitments.**

 

As a sovereign government, the Nation is governed by elected officialswho have responsibility for the welfare of all Nation members. The Nation’selected officials appoint the SGC board of directors and retain certainapproval authority over certain actions by the SGC board of directors. Inmaking decisions relative to appointment of SGC’s board of directors andcertain other aspects of SGC’s gaming business, these officials may considerthe interests of their electorate, instead of pure economic or other businessfactors. Therefore, SGC’s gaming business will not be necessarily operated inthe same manner as a private for-profit business, and we cannot assure you thatthis fact will not materially adversely affect our operations or our ability tomeet our financial obligations and commitments, including the senior notes.

 

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

 

The Nation is governed by a Council, consisting ofsixteen members, of which eight members are elected from each of the twoprincipal Nation territories. Councillors are elected to four-year terms, whichare staggered. 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 Nation territories, thus ensuringthat the occupants of those offices will change at each election. The mostrecent election of the executive branch officers and eight Council members tookplace on November 4, 2008. We cannot assure that the current Council, orany subsequently elected Council, will pursue the same agenda or goals as theprior government, in particular with respect to us, our expansion projects,reinvestment philosophy, or regarding compliance with the Compact or our contractualobligations, such as the covenants contained in the senior notes indenture. Inaddition, the Council acts by majority vote and with respect to any issue orpolicy, a change in views by one or more members could result in a change inthe policy adopted by the Council. Changes in the Council or its policies couldresult in significant changes in our structure or operations or in any plannedexpansion. In particular, the Council appoints the members of SGC’s board ofdirectors and may 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 ten Councillors. The term cause has notbeen defined in SGC’s charter or in Nation law; therefore, it is uncertain howthis term will be interpreted. As a result, a change in the membership ofCouncil or in the views of existing members of Council, adverse to the existingboard or management could result in a 

 

41

----

Table of Contents

 

change in SGC’s board of directors and potentially inSGC’s management. Any such changes could adversely affect our business plan orotherwise result in a material adverse effect in our business, financialcondition, results of operations or ability to meet our financial obligations andcommitments, including the senior notes.

 

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

 

**Item 1B.  Unresolved StaffComments**

 

Notapplicable

 

**Item2.   Properties**

 

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

 

Pursuant tothe Compact, the Nation may acquire property and establish gaming facilities inthe City of Niagara Falls within the boundaries of the approximately 50 acrearea of land described in Appendix I of the Compact and designated as land tobe developed by the Nation in connection with the Nation’s gaming facilities.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.

 

SNFGC hasacquired approximately 45 of the 50 acres of the land in the City of NiagaraFalls, New York, designated by New York State under the Compact for ownershipby the Nation, thus reducing the remaining acreage to be acquired toapproximately 3 acres (Approximately 1.5 acres of land owned by a RomanCatholic Church are carved-out from acquisition under the Compact, and SNFGChas waived its right to acquire approximately one half acre of land designatedin the Compact for ownership by the Nation, in return for a right of firstrefusal to purchase such property if this parcel is offered for sale in thefuture by its owner).  See “Item 1A. -Risk Factors— SNFGC may be subject to material liabilities arising out of thecondemnation process through which it is acquiring lands in the 50-acrefootprint in the City of Niagara Falls, New York” for further discussion of theNiagara Falls condemnation proceedings.

 

The Nationhas acquired from SNFGC approximately 24 acres (of the approximate 50 acresdescribed in Appendix I of the Compact) with funds appropriated under theSNLCSA in Niagara Falls. By operation of federal law, these lands and otherparcels that may be acquired in the future pursuant to the SNLCSA (whether inNiagara Falls or Erie County) are subject to restrictions against alienation,constitute Indian country subject to the jurisdiction of the Nation, andqualify as gaming eligible Indian lands pursuant to IGRA. See “Item 3. LegalProceedings” for a discussion of litigation challenging, among other matters,the status of such lands as eligible for gaming under IGRA. Seneca NiagaraCasino and Hotel and its 2,300 space parking garage are situated on the Nation’srestricted fee lands.

 

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

 

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

 

***Seneca Allegany Casino and Hotel.***    Seneca Allegany Casino and Hotel islocated on the Nation’s Allegany Territory in the City of Salamanca, New York.STGC leases the land on which Seneca Allegany Casino and Hotel is located fromthe Nation. Seneca Allegany Casino and Hotel is located immediately offInterstate 86, approximately 70 miles south of Niagara Falls, New York and iswithin 75 miles of Erie, Pennsylvania, and 165 miles of Cleveland and Akron,Ohio and Pittsburgh,

 

42

----

Table of Contents

 

Pennsylvania.The Nation’s land upon which Seneca Allegany Casino and Hotel is situated is withinthe Nation’s territorial boundaries, and is therefore eligible for gamingpursuant to IGRA.

 

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

 

**Item3.  Legal Proceedings**

 

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

 

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

 

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

 

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

 

43

----

Table of Contents

 

The U.S. Department of Justice has discontinued itsappeal of the January 12, 2007 order in the initial CACGEC federalsuit.  On November 9, 2007, theSecond Circuit Court of Appeals stayed the plaintiffs’ appeal pending theresolution of the second federal court action described below (*Citizens Against Casino Gambling v. Hogen* (1:07-cv-00451-WMS(WDNY)).

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

On July 22, 2008,the United States filed a motion responding to the plaintiffs motion to enforceand requesting that the case be remanded to the NIGC for further consideration.The remand motion is based upon significant changes in the controlling law, asinterpreted by the U.S. Department of Interior.  The Seneca Nation ofIndians simultaneously filed an amicus brief supporting the United States’motion for remand to the NIGC and opposing the plaintiffs’ motion to enforce. On August 26, 2008, the court issued its decision on the foregoing motionsand granted the plaintiffs’ request that the court enforce its July 8,2008 decision and order to the extent that the NIGC and its Chairman aredirected to carry out their enforcement duties under IGRA. The plaintiffs’motion was denied to the extent that they requested an order that would divestthe NIGC of its discretion to determine the type of enforcement action to take.

 

On September 3,2008, the Chairman of the NIGC issued a “notice of violation” or “NOV” to theNation as a result of the August 26, 2008 decision. The NOV asserts thatthe Nation has violated IGRA by operating the Seneca Buffalo Creek Casinowithout an approved Class III gaming ordinance for that facility becausethe gaming ordinance for those lands authorized gaming on lands in Buffalo thatthe district court deemed ineligible for gaming.  The NOV further statesthat although the NIGC disagrees with the district court’s interpretation ofIGRA regarding the Buffalo Creek parcel’s eligibility for gaming under IGRA,the NIGC, at the current time, was bound by the district court’s ruling as tothis particular land parcel absent reconsideration by the district court orreversal on any appeal.  Consequently, the Chairman issued the NOV. TheNOV was not accompanied by a closure order or an assessment of a civil fine.The NOV further states that the Chairman of the NIGC may modify the measuresrequired to correct the alleged violation if the NIGC approves the Nation’s July 16,2008 gaming

 

44

----

Table of Contents

 

ordinanceamendments.  The Nation immediatelyappealed the NOV issuance and the administrative appeal is still pending beforean independent administrative law judge. The NIGC requested a stay of the NOVappeal.

 

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

 

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

 

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

 

On December 2, 2008, the plaintiffs filed theirresponse to the Nation’s amicus brief. The plaintiffs’ October 21, 2008 motion remains under advisement.

 

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

 

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

 

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

 

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

 

AlthoughPetitioners have indicated an intent to appeal the judge’s decision, no noticeof appeal has been filed to date.

 

45

----

Table of Contents

 

If the plaintiffs were successful, the Nation could be delayed in thecompletion of the Seneca Buffalo Creek Casino and Hotel or could be unable tocomplete the Seneca Buffalo Creek Casino and Hotel.  Certain of thesepetitioners are also plaintiffs in the federal lawsuits filed by CitizensAgainst Casino Gambling in Erie County referenced above.

 

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

 

On or about April 6,2006, an action was filed in the United States District Court, Western Districtof New York, by Daniel T. Warren, a pro se plaintiff, against the United Statesof America, the United States Department of the Interior, the National IndianGaming Commission, and five individuals in their official capacities as ActingSecretary of the Interior, Acting Assistant Secretary of the Interior forIndian Affairs and Chairman of the National Indian Gaming Commission, as wellas Governor George E. Pataki, as Governor of the State of New York, and CherylRitchko-Buley, as Chairwoman of the New York State Racing and WageringBoard.    The action initially sought declaratory and injunctiverelief as to numerous matters including declaring that IGRA is unconstitutional,that the Compact violates IGRA, that the New York Constitution is not preemptedby IGRA, that New York does not have the authority under state law to enterinto a tribal state compact under IGRA, that certain actions of the defendantswere not in accordance with law, and that certain lands purchased by the Nationwere not subject to being taken into trust or restricted fee status under theSNLCSA or were not pursuant to settlement of a land claim within the meaning ofIGRA; and enjoining the defendants from taking actions which would furthercasino gambling in the State of New York under IGRA or on any lands acquired bythe Nation pursuant to SNLCSA. On August 16, 2006, the plaintiff amendedhis complaint bringing: a Tenth Amendment challenge to IGRA; a claim that theCompact violates IGRA by providing for gaming which is not otherwise lawful inNew York; a claim that both the Compact and the statute authorizing theGovernor of New York to enter into the Compact violate various provisions of theNew York State Constitution; and a claim that the United States has failed topromulgate regulations for gaming on off-reservation territory, in violation ofits statutory duties.  The effect of such amendment was to limit theclaims remaining in the case, by dropping many of the federal law claims in theoriginal complaint.

 

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

 

On October 5, 2007,the plaintiff filed a motion to further amend the complaint to include asdefendants (1) Maurice John, as President of Nation; (2) E. BrianHansberry, as the new President and CEO of SGC (replacing John Pasqualoni); (3) the  Nation; and (4) SGC.  On October 25,2007, the Nation filed a response in opposition to that motion asserting that (1) themotion to amend the complaint was not properly before the court because it ispremised upon a finding that the Nation is a necessary and indispensible party,and (2) the motion to amend is futile because the Nation and its officersare protected by sovereign immunity.  As of December 16, 2008, thecourt had not ruled on this motion.

 

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

 

***Countyof Erie v. City of Buffalo (NYS Supreme Court, Index No. 2006-10440).***

 

On November 6, 2006,a suit was brought in New York Supreme Court, County of Erie, by the County ofErie, New York, Joel Giambra (as County Executive), and Andrew Eszak (asCommissioner of the County of Erie Department of Environment and Planning),against the City of Buffalo, Mayor Byron Brown and the Buffalo Common Councilseeking to invalidate the agreement pursuant to which SEGC acquired the twoblock section of Fulton Street (bisecting the Buffalo Creek Territory) on thebasis that the City failed to refer the agreement to the County under Section 239-mof the New York State General Municipal Law.

 

Upon taking office on January 1,2008, the newly elected Erie County Executive withdrew the County of Erie fromthe suit, and the action was dismissed on January 4, 2008.

 

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

 

46

----

Table of Contents

 

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

 

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

 

We have obtained possessionof, either through eminent domain proceedings or private purchase,substantially all of the remaining acreage within the footprint, other thancertain streets owned by the City of Niagara Falls providing access to theabove church acreage, and a bike path owned by the New York State Department ofTransportation. We expect to acquire these remaining parcels in 2009.

 

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

 

Pursuant to the EDPL, NewYork state courts will determine the final purchase price to be paid tocondemnees who elect to challenge the initial appraised value of theirproperty.  To date, all record ownersfrom whom property was acquired pursuant to the EDPL have reserved rights toclaim additional compensation.  Fourrecord owners have filed notices of claim to challenge the fair market valueappraisals utilized by ESDC.   On July 26,2006, Fallsite LLC and Fallsville Splash, LLC have filed notices of claim(Index Nos. 126578/06 and 126578/06) in the amounts of $40.0 and $35.0 millionfor land and trade fixtures, respectively, relating to a small former waterpark within the footprint.  ESDC’s fairmarket appraisal value for the foregoing was approximately $17.0 million.  On August 24, 2007, IntertrustDevelopment has filed a notice of claim for $15.8 million (Index No. 127113/06)for land and trade fixtures associated with a former Holiday Inn hotel withinthe footprint. ESDC’s fair market appraisal value for the foregoing was $8.2million.  Valuation proceedings withregard to the former water park and Holiday Inn properties are underway withexpected completion in early 2009. Additionally, on March 28, 2007, JFD Holdings had filed a notice ofclaim (Index No. 127113/06) for an unspecified amount for land and tradefixtures associated with a former Pizza Hut retaurant within thefootprint.  ESDC’s fair market appraisalfor the foregoing was approximately $0.4 million.   Valuation proceedings with regard to theformer water park are underway with expected completion in early 2009.  We are finalizing a settlement with regard tothe former Holiday Inn property, which has been approved by the SGC board ofdirectors, but remains subject to Nation Council approval.

 

If a court determinesthat the value for the land and improvements is higher than the appraised valuewe paid to a condemnee, then we may be liable to the condemnee for thedifference and potentially also responsible for certain additional costs andpayments to the condemnee, such as attorneys’ fees.  As of September 30, 2008, we haveestablished a reserve in the amount of $6.4 million for such matters, which isincluded as a component of other current liabilities on SGC’s consolidatedbalance sheet.

 

47

----

Table of Contents

 

**Item4.  Submission of Matters to a Vote ofSecurity Holders**

 

Not Applicable.

 

**PART II**

 

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

 

Not Applicable.

 

**Item 6.Selected Financial Data**

 

Theselected consolidated financial data set forth below are derived from theaudited financial statements and related notes included in this AnnualReport.  For a more detailed discussionon Fiscal 2006 through 2008 refer to Item 7, “Management’s Discussion andAnalysis of Financial Condition and Results of Operations,”and our auditedfinancial statements and related notes beginning on page F-1.

 

48

----

Table of Contents

 
| ** **                                                                | ** ** | ** **                           | ** ** | **Fiscal Years Ended** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------------------|------------|----------------------------------|------------|------------|------------|
| ** **                                                                | ** ** | **September 30,**               | ** ** |
| ** **                                                                | ** ** | **2008**                             | ** ** | **2007**                         | ** ** | **2006**   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                | ** ** | **(Dollars in Thousands)** | ** ** |
| **Statement  of Operations Data:**                                        | ** ** | ** **                           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues:                                                                 |       |                                 |       |                             |       |       |       |   |   |   |   |
| Gaming                                                                    |       | $                                    | 632,580    |                             | $          | 595,826    |       | $ | 519,620 |   | $ | 440,156 |   | $ | 337,536 |   |
| Food and  beverage                                                        |       | 63,272                               |       | 56,608                           |       | 50,141     |       | 41,689 |   | 31,358 |   |
| Lodging                                                                   |       | 28,757                               |       | 24,352                           |       | 10,654     |       | — |   | — |   |
| Retail,  entertainment and other                                          |       | 25,032                               |       | 20,190                           |       | 19,940     |       | 16,955 |   | 11,797 |   |
|                                                                      |       |                                 |       |                             |       |       |       |   |   |   |   |
| Gross revenues                                                            |       | 749,641                              |       | 696,976                          |       | 600,355    |       | 498,800 |   | 380,691 |   |
| Less:  Promotional allowances                                             |       | (117,553                             | )          | (104,012                         | )          | (77,861    | )          | (49,647 | ) | (24,295 | ) |
|                                                                      |       |                                 |       |                             |       |       |       |   |   |   |   |
| Net revenues                                                              |       | 632,088                              |       | 592,964                          |       | 522,494    |       | 449,153 |   | 356,396 |   |
| Expenses:                                                                 |       |                                 |       |                             |       |       |       |   |   |   |   |
| Gaming                                                                    |       | 169,472                              |       | 153,259                          |       | 129,396    |       | 114,746 |   | 92,531 |   |
| Food and  beverage                                                        |       | 49,907                               |       | 47,863                           |       | 43,485     |       | 34,877 |   | 26,387 |   |
| Lodging                                                                   |       | 15,038                               |       | 11,862                           |       | 6,131      |       | — |   | — |   |
| Retail,  entertainment and other                                          |       | 15,105                               |       | 12,886                           |       | 11,668     |       | 10,418 |   | 7,184 |   |
| Advertising,  general and administrative                                  |       | 187,011                              |       | 153,838                          |       | 131,997    |       | 117,188 |   | 91,552 |   |
| Pre-opening  costs                                                        |       | 286                                  |       | 15,426                           |       | 9,478      |       | 1,509 |   | 4,228 |   |
| Depreciation                                                              |       | 51,081                               |       | 49,597                           |       | 38,992     |       | 26,295 |   | 17,638 |   |
|                                                                      |       |                                 |       |                             |       |       |       |   |   |   |   |
| Total operating  expenses                                                 |       | 487,900                              |       | 444,731                          |       | 371,147    |       | 305,033 |   | 239,520 |   |
| Operating income                                                          |       | 144,188                              |       | 148,233                          |       | 151,347    |       | 144,120 |   | 116,876 |   |
| Other income and  (expense):                                              |       |                                 |       |                             |       |       |       |   |   |   |   |
| Other  non-operating income and (expense), net                            |       | (5,600                               | )          | 3,220                            |       | (558       | )          | (13,301 | ) | — |   |
| Interest income                                                           |       | 1,344                                |       | 3,886                            |       | 5,814      |       | 5,116 |   | 1,535 |   |
| Interest expense                                                          |       | (37,325                              | )          | (36,063                          | )          | (33,198    | )          | (90,366 | ) | (33,702 | ) |
|                                                                      |       |                                 |       |                             |       |       |       |   |   |   |   |
| Net  non-operating expense                                                |       | (41,581                              | )          | (28,957                          | )          | (27,942    | )          | (98,551 | ) | (32,167 | ) |
|                                                                      |       |                                 |       |                             |       |       |       |   |   |   |   |
| Net income                                                                |       | $                                    | 102,607    |                             | $          | 119,276    |       | $ | 123,405 |   | $ | 45,569 |   | $ | 84,709 |   |
|                                                                      |       |                                 |       |                             |       |       |       |   |   |   |   |
| **Other  Financial Data:**                                                | ** ** | ** **                           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| EBITDA(1)                                                                 |       | $                                    | 189,669    |                             | $          | 201,050    |       | $ | 189,781 |   | $ | 157,114 |   | $ | 134,514 |   |
| Cash provided by  operating activities                                    |       | 158,853                              |       | 179,748                          |       | 181,838    |       | 47,652 |   | 143,803 |   |
| Cash used in  investing activities                                        |       | (118,205                             | )          | (125,046                         | )          | (233,582   | )          | (192,147 | ) | (238,703 | ) |
| Cash (used in)  provided by financing activities                          |       | (66,005                              | )          | (54,235                          | )          | (12,528    | )          | 75,367 |   | 246,867 |   |
| Capital  expenditures and payments for land acquisitions and other assets |       | 147,257                              |       | 178,967                          |       | 241,741    |       | 172,684 |   | 180,740 |   |

 

49

----

Table of Contents

 
| ** **                 | ** ** | **As of September 30,** | ** ** |
|----------------------------|------------|----------------------------------------|------------|
| ** **                 | ** ** | **2008**                               | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                 | ** ** | **(Dollars in Thousands)**   | ** ** |
| **Balance  Sheet Data:**   |       |                                   |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents |       | $                                      | 53,305     |   | $ | 78,662 |   | $ | 78,195 |   | $ | 142,467 |   | $ | 211,595 |   |
| Total assets               |       | 935,718                                |       | 885,960 |   | 840,376 |   | 698,848 |   | 584,056 |   |
| Total  liabilities         |       | 644,872                                |       | 655,716 |   | 650,745 |   | 589,423 |   | 497,369 |   |
| Total capital              |       | $                                      | 290,846    |   | $ | 230,244 |   | $ | 189,631 |   | $ | 109,425 |   | $ | 86,687 |   |

 

----

(1)             EBITDArepresents earnings before interest and depreciation. We are not subject toU.S. federal income taxation under current interpretations of the U.S. federaltax code. EBITDA is presented to provide additional information that ourmanagement uses to assess our business and because we believe it is frequentlyused by securities analysts, investors and other interested parties in theevaluation 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$0.3 million, $15.4 million, $9.5 million, $1.5 million, and $4.2 million forFiscal 2008, Fiscal 2007, Fiscal 2006, Fiscal 2005 and Fiscal 2004,respectively.

 

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

 
| ** **            | ** ** | **Fiscal Years Ended September 30,** | ** ** |
|-----------------------|------------|----------------------------------------------------------|------------|
| ** **            | ** ** | **2008**                                                 | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **            | ** ** | **(Dollars in Thousands)**                     | ** ** |
| Net income            |       | $                                                        | 102,607    |   | $ | 119,276 |   | $ | 123,405 |   | $ | 45,569 |   | $ | 84,709 |   |
| Depreciation          |       | 51,081                                                   |       | 49,597 |   | 38,992 |   | 26,295 |   | 17,638 |   |
| Net interest  expense |       | 35,981                                                   |       | 32,177 |   | 27,384 |   | 85,250 |   | 32,167 |   |
|                  |       |                                                     |       |   |   |   |   |   |   |   |   |
| EBITDA                |       | $                                                        | 189,669    |   | $ | 201,050 |   | $ | 189,781 |   | $ | 157,114 |   | $ | 134,514 |   |

 

50

----

Table ofContents

 

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

 

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

 

**Overview**

 

***TheNation and SGC***

 

SGC is wholly owned bythe Nation and chartered to develop, manage and direct all of the Nation’s Class IIIgaming operations on the Nation’s territories in Western New York. SGC waschartered by the Nation in August 2002. In August 2002, the Nation entered into the Compact with New YorkState that provides the Nation with the right to establish and operate three Class IIIgaming facilities in Western New York.  Wecurrently operate three Class III gaming facilities in Western NewYork—Seneca  Niagara Casino and Hotel,which is located in the City of Niagara Falls, New York (Niagara Territory) andoperated by SNFGC, approximately 20 miles north of Buffalo, New York; SenecaAllegany Casino and Hotel, which is located in the City of Salamanca, New York(Allegany Territory) and operated by STGC, approximately 75 miles northeast ofErie, Pennsylvania; and Seneca Buffalo Creek Casino, which is located in theinner harbor district of Buffalo, New York (Buffalo Creek Territory) andoperated by SEGC. Seneca Niagara Casino and Hotel opened on December 31,2002 (initially, as the Seneca Niagara Casino). Seneca Allegany Casino and Hotel opened on May 1, 2004 (initially,as the Seneca Allegany Casino).  SenecaBuffalo Creek Casino commenced operations on July 3, 2007 in a temporaryfacility.  Our three casinos are locatedon land held in restricted fee by the Nation, which, together with the rightsunder the Compact, allows us to conduct Class III gaming operations atthese locations in New York State and to operate the only casino resort gamingfacilities in Western New York State to offer both Class III slot machinesand table games.  See “Item 3. LegalProceedings” for a discussion of litigation challenging, among other matters,the eligibility of certain of these lands for gaming under IGRA.

 

As of September 30,2008, Seneca Niagara Casino and Hotel featured over 147,000 square feet ofgaming space, 4,112 slot machines, 102 table games and 604 hotel rooms; SenecaAllegany Casino and Hotel featured over 63,500 square feet of gaming space,2,330 slot machines, 40 table games and 212 hotel rooms; and the Seneca BuffaloCreek Casino temporary facility featured 244 slot machines and no table games.

 

As of September 30,2008, we had approximately 1.5 million members in the Seneca Link Player’s Carddatabase.  As of September 30, 2008,approximately 28% of the approximate 1.5 million Seneca Link Player’s Cardmembers lived in the Buffalo-Niagara area, and approximately 22%, 21%, 21% and8% lived in Ohio, Pennsylvania, other areas of New York and Canada,respectively.

 

**ExecutiveSummary**

 

***Our Current Operations****.*    Wecurrently operate three Class III gaming facilities, Seneca Niagara Casinoand Hotel, in the City of Niagara Falls, New York (Niagara Territory), SenecaAllegany Casino and Hotel, in the City of Salamanca, New York (AlleganyTerritory), and Seneca Buffalo Creek Casino (slots only temporary facility), inthe City of Buffalo, New York (Buffalo Creek Territory). Our casino operationsinclude gaming, lodging, dining, entertainment, retail and spa and salonservices. For Fiscal 2008 and Fiscal 2007, approximately 92% and 93%,respectively, of our net revenue was derived from our Class III gamingactivities.

 

***Recent Developments. ***During the first twomonths of Fiscal 2009, the Corporation experienced a 4.7% decrease in slothandle and a 15.0% decrease in table games drop, which contributed to adecrease in net revenue of 5.2% when compared to the same two month period ofthe prior year.

 

As a result of the current recession and its impact onour performance as noted above, we announced on December 2, 2008, a planto reduce our workforce to assist in maintaining the ongoing financial healthof the Corporation.  This decision cameafter the proactive implementation of cost saving measures over the past twelvemonths to reduce our expenses and to increase profitability and operatingefficiencies.  While we have beensuccessful in obtaining such efficiencies, we believe it to be prudent tocontinue to be conscious of the economic crisis facing all consumers and the

 

51

----

Table of Contents

 

resulting tightening of consumer spending and itsimpact on the availability of discretionary funds for gaming and entertainmentpurposes.  In addition to a limitedworkforce reduction, we also implemented a wage freeze for certain of ouremployees, salary reductions for senior management and members of our Board ofDirectors, as well as a suspension of our bonus program historically paid in December ofeach year, among other initiatives. While we endeavor to continue to produce operating results generally consistentwith those historically achieved we feel it is prudent to continue to takemeasures to preserve SGC’s financial condition and position us for futuregrowth and success.

 

***Key Performance Indicators****.*    Ouroperating results are dependent on the volume of patrons at our casinos, ourability to attract them for repeat visits and our ability to increase patronrevenue per trip.

 

***Seneca Niagara Casino and Hotel****.*    Priorto the opening of our luxury hotel, Seneca Niagara Casino primarily relied ondrive-in and bus patrons from the Buffalo, Niagara Falls, and Rochester areasin New York and secondarily from Erie, Pennsylvania, Ohio and other parts ofNew York.  Since the opening of the newluxury hotel and expanded gaming and related amenities during Fiscal 2006,Seneca Niagara Casino and Hotel has experienced steady growth in its patronbase.  The expansion of Seneca NiagaraCasino and Hotel, including the addition of our luxury hotel and otheramenities, has enabled us to increase higher-end patron volume, gamingactivity, and length of stay, and extended our geographic market penetrationand appeal to a more diverse demographic base. During Fiscal 2008, our average hotel occupancy rate was approximately94%, approximately 72% of which were complimentary rooms provided to our gamingpatrons.

 

As of September 30,2008, we had paid for substantially all of our completed expansion projects outof cash flow from operations and proceeds of our senior notes. Our completedexpansion projects since the opening of the casino on December 31, 2002include the addition of Turtle Island, a non-smoking casino room; a 2,300-spaceparking garage; the Western Door, an upscale steakhouse; our “Pennies FromHeaven” slot room located on the mezzanine level overlooking our main casino,adding approximately 6,600 square feet of gaming space including 242 additionalticket-in/ticket-out slot machines; and our luxury hotel and relatedamenities.  We opened substantially allpublic areas and the first 10 floors of rooms on December 15, 2005, andcompletely opened the remaining hotel rooms and all amenities on March 31,2006.  The total cost of the luxury hotelexpansion project was approximately $234.0 million.

 

***Seneca Allegany Casino and Hotel****.*    Sinceits opening on May 1, 2004, Seneca Allegany Casino and Hotel has attractedpatrons from the southern portion of Western New York, Erie and Pittsburgh,Pennsylvania and Ohio. As of September 30, 2008, approximately 67% of itspatrons have come from outside New York State. During Fiscal 2008, our average hotel occupancy rate was 97%, of whichapproximately 79% were complimentary rooms provided to our gaming patrons.

 

In July 2005,we opened our 1,840-space parking garage, which cost approximately $32.2 million.  In March 2007, we opened a 212-roomresort hotel, including two fine dining restaurants, a 24-hour casualrestaurant and certain additional amenities after officially opening a newpermanent gaming floor in December 2006. In March 2008, we completed the conversion of the former 120,000square foot temporary casino structure into an events center with a seating capacity for 2,200 people, alongwith additional administrative office space and amenities.   We believe the new resort hotel, permanentcasino and events center provide a first-class gaming experience for ourpatrons, increase their length of stay and maintain the competitive position ofthis facility in light of competition in Pennsylvania, consisting principallyof Presque Isle Downs, a new gaming facility that opened in late February 2007in Erie, Pennsylvania approximately  80miles from the Seneca Allegany Casino and Hotel and 120 miles from the SenecaNiagara Casino and Hotel.  Presque Isledoes not provide table games or lodging, but currently provides approximately2,000 slots and dining and entertainment options that include a steakhouse, abuffet and four lounges.

 

Constructionon our next phase of development at Seneca Allegany Casino and Hotel, which wasplanned to include an additional 200 room hotel tower, and up to 30,000 squarefeet of additional gaming space and related amenities, for a total estimatedcost of up to $130 million, was suspended on August 27, 2008 due tovarious factors, including challenging economic and capital market conditions,operating and other demands on our available cash, and increased competitionand construction costs.  We intend to resumeconstruction upon the stabilization of economic and capital market conditionsand availability of external financing upon acceptable terms.

 

52

----

Table of Contents

 

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

 

On October 3, 2007,we formally announced our plans for a permanent casino and hotel complex on theBuffalo Creek Territory having an estimated cost of $333 million, featuringapproximately 90,000 square feet of gaming space; 2,000 slot machines; 46  table games; a 22-story all-suite hotel; fourrestaurants; a full-service spa and salon; retail and other amenities; and a2,200-space parking garage.

 

On August 27, 2008 we suspendedconstruction due to various factors, including challenging economic and capitalmarket conditions, operating and other demands on our available cash (includingdistributions to the Nation and operating lease payment increases), andincreased competition and construction costs.

 

Ourability to continue to operate the Seneca Buffalo Creek Casino temporaryfacility, our ability to complete the permanent facility, as well as the timingof the construction and opening of the permanent Seneca Buffalo Creek Casino,will depend on various factors, including existing legal challenges and theavailability of financing on acceptable terms. See “Item 3. Legal Proceedings” for a discussion of certain existinglegal challenges.

 

***Seneca Hickory Stick GolfCourse — Lewiston, New York****. *In March 2006,we acquired 257 acres of land with the intent to design and build achampionship level golf course in Lewiston, New York, approximately eight milesfrom Seneca Niagara Casino and Hotel.  Weselected the Robert Trent Jones II firm to design the golf course.  Construction of the golf course commenced in July 2007,with completion scheduled for Spring 2009. To allow for proper grow-in of the course, it is anticipated that theofficial opening of the course will occur in Spring 2010.  The decision as to when to open the golfcourse for play will depend upon how well the course matures throughout the2009 growing season.  The total cost toconstruct the golf course, clubhouse and related amenities is estimated to beapproximately $25.5 million.

 

In light of greater demands on ouravailable cash, increased competition and challenging economic and capitalmarket conditions, the Company, in consultation with the Nation, continues toevaluate the scope, phasing and timing of its clubhouse design for the SenecaHickory Stick Golf Course.  The Companybelieves that it is early enough in the design and construction process toaccommodate appropriate changes to its plans, if necessary.

 

***Class II Gaming Operations****. *In January 2005, we transferred all Class IIoperations to the Nation.  SNFGC andSTGC, respectively, lease space to the Nation for its operation of the Class IIpoker operations at the Seneca Niagara Casino and Hotel and Seneca AlleganyCasino and Hotel.  The leases provide forpayment of costs, to include among other things, space rental and food andbeverage. The transfer of the Class II operations as of January 1,2005 is consistent with our understanding of the Council’s intent that wemanage and operate the Nation’s Class III operations and that the Council,through Seneca Gaming and Entertainment, directly manages and operates theNation’s Class II operations as it has historically done.

 

***Current, Continued and Future Reliance on Cash Flow***. We intend to fund the maintenance of our existingfacilities from our cash flow and cash on hand, to be supplemented withborrowings under the Senior Secured Revolving Loan Agreement, as necessary. Wecurrently rely and expect to continue to rely on our ability to generate cashflow from operations to satisfy our financial obligations and commitments andmaintenance capital expenditure requirements. The resumption of construction on the Seneca Allegany Casino and Hotelexpansion and the permanent Buffalo Creek Casino and Hotel project will dependon our ability to secure necessary external financing on acceptable terms.

 

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

 

***OverallOutlook****.*      SGC believes that it is the premier gamingoperator in Western New York State and in the areas of Northern Pennsylvaniaand Ohio located within its primary and secondary markets. Since the December 31,2002 opening of

 

53

----

Table of Contents

 

the Seneca NiagaraCasino, SGC has invested significantly in the development, expansion andmaintenance of its gaming facilities, including the completion of the hotel andgaming expansion projects at Seneca Niagara Casino and Hotel and Seneca AlleganyCasino and Hotel, the opening of the temporary casino on the Seneca BuffaloCreek Territory.  These investments haveenabled SGC to maintain its position as the premier gaming operator in theregion described above.  To further thatobjective, and to provide for expanded opportunities in the convention andtourism markets, a master planning process continues with respect to theNiagara Falls, Allegany and Buffalo gaming and related facilities. A principalgoal is for the facilities to complement each other, offering diverse hotel,entertainment and gaming experiences for guests.

 

Although the currenteconomic recession and increased regional competition present ongoingchallenges and will require ongoing operational efforts to mitigate the impactof these adverse developments, we continue to believe that the Western New Yorkhotel, entertainment and gaming markets are underserved, and that theexclusivity provided by the Compact will continue to present us with a uniqueopportunity to serve these markets.

 

**Explanation of Key Financial Statement Captions**

 

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

 
|   | · | gaming revenues, which  include revenues from slot machines, table games and keno; |
|--------|--------|------------------------------------------------------------------------------------|

 
|   | · | food and beverage  revenues; |
|--------|--------|------------------------------|

 
|   | · | hotel revenues; and |
|--------|--------|---------------------|

 
|   | · | retail, entertainment  and other revenues, which include revenues from retail shops and spa and  salon services. |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

#####  

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

 

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

 

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

 

Revenues from food andbeverage, hotel, retail, spa and salon, entertainment events and other servicesare recognized at the time the service is performed. Minimum rental revenuethat we receive pursuant to our license agreement for the Brookstone store atthe Seneca Niagara Casino and Hotel is recognized on a straight-line basis overthe term of the lease.

 

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

 

54

----

Table of Contents

 

***Gaming expenses. ***The largest component of gaming expensesis the percentage of slot machine net drop (money dropped into the machinesafter payout but before our expenses) which must be paid to the State of NewYork, pursuant to the Compact, which is referred to as the exclusivitypayment.  The exclusivity payment is 18%for the first four years, 22% for years 5-7 (beginning Januray 1, 2007), and25% for the remainder of the term (beginning January 1, 2010).

 

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

 

***Advertising,general and administrative. ***The largest components of advertising,general and administrative expenses are those charges related to: advertising,marketing, regulatory oversight, insurance, utilities, legal services and theoperating leases with the Nation, which represent amounts paid to the Nationfor the use of the land and certain improvements on which our operations are conducted.

 

***Income from operations. ***Wecalculate income from operations as net revenues less total operating costs andexpenses. Income from operations represents only those amounts that relate toour consolidated operations and excludes interest income, interest expense andother non-operating income and expense.

 

**Critical Accounting Policies and Estimates**

 

Management’s discussion and analysis of our financialcondition, results of operations and liquidity and capital resources are basedon our consolidated financial statements. To prepare our consolidated financialstatements in accordance with accounting principles generally accepted in theUnited States of America, we must make estimates and assumptions that affectthe amounts reported in the consolidated financial statements. We regularlyevaluate these estimates and assumptions, particularly in areas we consider tobe critical accounting estimates, where changes in the estimates andassumptions could have a material impact on our results of operations,financial position and, to a lesser extent, cash flows. There can be noassurance that actual results will not differ from our estimates. To provide anunderstanding of the methodology we apply, our significant accounting policiesand basis of presentation are summarized in Note 2 to our audited consolidatedfinancial statements included in this Annual Report. We believe the followingaccounting policies involve a higher degree of management judgment:

 

***Liability for Unredeemed SenecaLink Player’s Card Points****.*    Patronswho are members of our Seneca Link Player’s Card rewards program earnpromotional points based on the volume and type of their gaming activity. TheSeneca Link Player’s Card accumulates points that are redeemable for food andbeverage at our restaurants, lodging, spa and salon services, free slot playand products offered at our retail stores. Points are accrued and reflected asa current liability on our balance sheets based upon expected redemption ratesand the estimated cost of the service or merchandise to be provided. Managementreviews the adequacy of the accrual for unredeemed points by periodicallyevaluating the historical redemption and projected trends. Actual results coulddiffer from our estimates.

 

***Self-Insurance Reserves****.*    We have financial exposure forportions of our employee benefits programs and general liability reserves. Weaccrue for liabilities based on filed claims and estimates of claims incurredbut not reported. We believe the accruals to cover these costs are adequate,but actual results may vary from the amount accrued.

 

***Property and Equipment****.*    We have a significant amount ofcapital invested in our property and equipment, which is stated at cost lessaccumulated depreciation and amortization. We use judgment in determining if,or when, assets have been impaired and the estimated useful lives of assets.The accuracy of these estimates affects whether or not impairment exists, andthe depreciation and amortization expense recognized in our results ofoperations. Leasehold improvements represent a significant portion of ourproperty and equipment balance. These assets are amortized over the relatedlease term or depreciable life, whichever is shorter. The useful lives assignedto our other property and equipment assets are based on our standard policy,which we believe represents the useful life of each category of asset. Inaccordance with SFAS No. 144, Accounting for the Impairment or Disposal ofLong-Lived Assets, the carrying values of our long-lived assets are reviewedwhen events or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Assets are grouped at the property level whenestimating future undiscounted cash flows for determining whether an asset hasbeen impaired. Management assesses the possibility of asset impairment by usingthe estimates of future undiscounted cash flows, 

 

55

----

Table of Contents

 

which are affected by current operating results,trends and prospects, as well as the effect of obsolescence, demand,competition and other economic factors.

 

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

 

***Regulatory Costs****.    *We have financial exposure forregulatory costs related to oversight provided by the New York State Police (StatePolice) billed but not paid.  There is anongoing dispute between the Nation and the State Police as to the appropriateamount of costs that are due to the State Police for their regulatoryoversight.  As of September 30,2008, we have accrued approximately $24.2 million to cover such costs.  In our opinion, this accrual is adequate, butactual results may vary from the amount accrued.

 

**Operating Results**

 

*Summary of Operating Results*

 

As of September 30, 2008, we own and operate theSeneca Niagara Casino and Hotel in Niagara Falls, New York; the Seneca AlleganyCasino and Hotel in Allegany, New York; and the Seneca Buffalo Creek Casino inBuffalo, New York.  In addition, LewistonGolf Course Corporation was established to operate a golf course which is currentlyunder construction.  All of our revenuesare derived from these operations.

 

The following table summarizes our results fromoperations by property:

 
| ** **                             | ** ** | **Fiscal Years Ended**     | ** ** |
|----------------------------------------|------------|--------------------------------------|------------|
| ** **                             | ** ** | **September 30,**               | ** ** |
| ** **                             | ** ** | **2008**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                             | ** ** | **(Dollars in Thousands)** | ** ** |
| Net revenues:                          |       |                                 |       |   |   |   |   |
| Seneca Niagara  Falls Casino and Hotel |       | $                                    | 432,710    |   | $ | 418,363 |   | $ | 365,820 |   |
| Seneca Allegany  Casino and Hotel      |       | 166,631                              |       | 168,295 |   | 156,666 |   |
| Seneca Buffalo  Creek Casino           |       | 32,747                               |       | 6,306 |   | 8 |   |
| Total                                  |       | $                                    | 632,088    |   | $ | 592,964 |   | $ | 522,494 |   |
| Operating  expenses:                   |       |                                 |       |   |   |   |   |
| Seneca Niagara  Falls Casino and Hotel |       | $                                    | 298,588    |   | $ | 287,362 |   | $ | 254,318 |   |
| Seneca Allegany  Casino and Hotel      |       | 154,144                              |       | 138,144 |   | 111,147 |   |
| Seneca Buffalo  Creek Casino           |       | 30,819                               |       | 17,955 |   | 3,945 |   |
| Seneca Hickory  Stick Golf Course      |       | 234                                  |       | — |   | — |   |
| Seneca Gaming  Corporation             |       | 4,115                                |       | 1,270 |   | 1,737 |   |
| Total                                  |       | $                                    | 487,900    |   | $ | 444,731 |   | $ | 371,147 |   |
|                                   |       |                                 |       |   |   |   |   |
| Operating income                       |       | $                                    | 144,188    |   | $ | 148,233 |   | $ | 151,347 |   |

 

The most importantfactors and trends contributing to our operating performance during Fiscal2008, 2007, and 2006 were:

 

Positive factors andtrends

 

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

 

·**                                         **Theopening of our luxury hotel at Seneca Niagara Casino and Hotel (completed in March 2006),and our resort hotel at Seneca Allegany Casino and Hotel (completed in March 2007),enabling us to better attract higher-end gaming patrons, extend the stay of ourpatrons and expand our geographic marketing reach;

 

56

----

Table of Contents

 

·                                          Theopening of the Seneca Events Centers at Seneca Niagara Casino and Hotel in March 2006,and Seneca Allegany Casino and Hotel in March 2008, respectively, resultingin increased entertainment offerings for our patrons;

 

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

 

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

 

·                                          Ourhistoric capital reinvestment in both our Niagara Falls and Alleganyproperties;

 

·                                          Smokingbans in New York and Canada which came into effect in July 2003 and May 2006,respectively, which have helped to distinguish our properties from competitors;and

 

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

 

*Negative factors and trends*

 

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

 

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

 

·                                          Tumultuousand volatile economic conditions, reduced access to credit, increasingunemployment, and general consumer uncertainty leading to economic recession,reduced consumer spending and an apparent transition to gaming of logisticalconvenience;

 

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

 

·                                          Theeffects of higher fuel prices, which have softened demand for gaming andrelated entertainment offerings and reduced the trip frequency of patronsresiding in our outer markets;

 

·                                          Theeffects of operating lease payments and distributions to the Nation, which havelimited our cash reserves and funds available for construction, capitalreinvestment and liquidity reserves; and

 

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

 

57

----

Table of Contents

 

*GrossRevenues*

 

Grossrevenues consisted of the following:

 
| ** **                       | ** ** | **Fiscal Years Ended**     | ** ** |
|----------------------------------|------------|--------------------------------------|------------|
| ** **                       | ** ** | **September 30,**               | ** ** |
| ** **                       | ** ** | **2008**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                       | ** ** | **(Dollars in Thousands)** | ** ** |
| Gaming                           |       | $                                    | 632,580    |   | $ | 595,826 |   | $ | 519,620 |   |
| Food and  beverage               |       | 63,272                               |       | 56,608 |   | 50,141 |   |
| Lodging                          |       | 28,757                               |       | 24,352 |   | 10,654 |   |
| Retail,  entertainment and other |       | 25,032                               |       | 20,190 |   | 19,940 |   |
| Total                            |       | $                                    | 749,641    |   | $ | 696,976 |   | $ | 600,355 |   |

 

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

 
| ** **                       | ** ** | **Fiscal Years Ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **September 30,**           | ** ** |
| ** **                       | ** ** | **2008**                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| Gaming                           |       | 84.4                             | %          | 85.5 | % | 86.6 | % |
| Food and  beverage               |       | 8.5                              | %          | 8.1 | % | 8.3 | % |
| Lodging                          |       | 3.8                              | %          | 3.5 | % | 1.8 | % |
| Retail,  entertainment and other |       | 3.3                              | %          | 2.9 | % | 3.3 | % |
| Total                            |       | 100.0                            | %          | 100.0 | % | 100.0 | % |

 

*Gaming Revenue*

 

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

 
| ** **                                           | ** ** | **Fiscal Years Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                           | ** ** | **September 30,**           | ** ** |
| ** **                                           | ** ** | **2008**                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| Slot handle                                          |       | $                                | 6,738,084  |   | $ | 6,285,270 |   | $ | 5,536,338 |   |
| Gross slot  revenue                                  |       | $                                | 579,128    |   | $ | 535,764 |   | $ | 471,778 |   |
| Net slot revenue                                     |       | $                                | 513,192    |   | $ | 476,618 |   | $ | 422,858 |   |
| Weighted average  number of slot machines (in units) |       | 6,708                            |       | 6,480 |   | 6,051 |   |
| Gross slot hold  percentage                          |       | 8.59                             | %          | 8.52 | % | 8.52 | % |
| Gross slot win  per unit per day (in dollars)        |       | $                                | 236        |   | $ | 227 |   | $ | 214 |   |
|                                                 |       |                             |       |   |   |   |   |
| Table games drop                                     |       | $                                | 420,474    |   | $ | 452,805 |   | $ | 413,084 |   |
| Gross table  games revenue                           |       | $                                | 68,109     |   | $ | 76,830 |   | $ | 66,701 |   |
| Net table games  revenue                             |       | $                                | 68,033     |   | $ | 76,777 |   | $ | 66,694 |   |
| Weighted average  number of table games (in units)   |       | 142                              |       | 138 |   | 120 |   |
| Table games hold  percentage                         |       | 16.20                            | %          | 16.97 | % | 16.15 | % |
| Table games  revenue per unit per day (in dollars)   |       | $                                | 1,310      |   | $ | 1,524 |   | $ | 1,527 |   |

 

Gamingrevenues during Fiscal 2008 increased when compared to Fiscal 2007 primarilydue to the opening of the Seneca Buffalo Creek Casino temporary facility on July 3,2007, which added 244 slot machines to our gaming portfolio, and facilitatedcontinued growth in our patron base. During Fiscal 2008, our weighted average number of table games and slotmachines were 142 and 6,708, respectively, representing a net increase of 4table games and 228 slot machines when compared to Fiscal 2007.  Despite increasing the weighted averagenumber of slot machines available year over year since 2006, we have continuedto achieve growth in our gross slot win per unit per day through theintroduction of new content to our floor on a regular basis.  During Fiscal 2008, the number of patronsenrolled in our Seneca Link Player’s Card program has steadily increased. As ofSeptember 30, 2008, we had approximately 1.5 million patrons enrolled, anincrease of approximately 100,000 patrons over the number enrolled at September 30,2007.

 

Our gamingrevenue during Fiscal 2007 increased when compared to Fiscal 2006 primarily dueto strong demand at Seneca Niagara Casino and Hotel, and the expansion of ourgaming floor at Seneca Allegany Casino in December 2006, which added37,000 additional square feet of gaming space, including 270 additional slotmachines and 16 additional table games.

 

58

----

Tableof Contents

 

Weimplemented electronic slot bonusing, which is included in slot revenues andpromotional allowances, in July 2004 at Seneca Niagara Casino and in August 2004at Seneca Allegany Casino.  This programallows us to reward our slot patrons, based on their propensity to game, byproviding slot promotional credits for free play directly at the slot machinethrough the use of their Seneca Link Player’s Card. The slot promotionalcredits must be played at a slot machine and cannot be redeemed for cash.  These slot promotional credits amounted to$31.6 million, $26.3 million, and $19.6 million at Seneca Niagara Casino andHotel during Fiscal 2008, 2007, and 2006, respectively, and $19.3 million,$15.7 million, and $10.0 million at Seneca Allegany Casino and Hotel duringFiscal 2008, 2007, and 2006, respectively. The increase in slot promotional credit play during Fiscal 2008 and 2007was primarily due to increased slot play and the increased frequency of certainpromotions which enabled patrons to exchange points earned on Seneca LinkPlayer’s Card points for slot promotional credits.

 

Our netgaming revenue, net of promotional credits of $50.9 million and $42.0 millionduring Fiscal 2008 and 2007, respectively, increased $27.8 million, or 5%, whencomparing the same periods.  DuringFiscal 2008, Seneca Niagara Casino and Hotel’s net gaming revenue increased$6.8 million, or 2% when compared to Fiscal 2007; Seneca Allegany Casino’s netgaming revenue decreased $5.0 million, or 3% when comparing these same periodsprimarily due to the introduction of competition from Presque Isle Downs; andSeneca Buffalo Creek Casino’s net gaming revenue increased $26.0 million, or418% when comparing these same periods, due to the property being open for allof Fiscal 2008 as compared to approximately three months during Fiscal 2007.

 

Our netgaming revenue, net of promotional credits of $42.0 million and $29.6 millionduring Fiscal 2007 and 2006, respectively, increased $63.8 million, or 13%,when comparing these same periods. During Fiscal 2007, Seneca Niagara Casino and Hotel’s net gaming revenueincreased $48.7 million, or 14%, when compared to Fiscal 2006, while SenecaAllegany Casino and Hotel’s net gaming revenue increased $9.0 million, or 6%when comparing these same periods. Seneca Buffalo Creek Casino, which opened on July 3, 2007, had netgaming revenue of $6.2 million during Fiscal 2007.

 

*Food andBeverage Revenue*

 

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

 
| ** **                  | ** ** | **Fiscal Years Ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **September 30,**           | ** ** |
| ** **                  | ** ** | **2008**                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| Covers                      |       | 4,342                            |       | 4,226 |   | 3,929 |   |
| Average Check  (in dollars) |       | $                                | 14.57      |   | $ | 13.40 |   | $ | 12.76 |   |
|                             |            |                                  |            |  |  |  |  |  |  |  |

 

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

 

DuringFiscal 2007, food and beverage revenue increased $6.5 million, or 13% whencompared to Fiscal 2006, to $56.6 million. Seneca Niagara Casino and Hotel contributed $3.8 million of theincrease; Seneca Allegany Casino and Hotel contributed $2.6 million of theincrease, partially due to the opening of two fine dining restaurants and atwenty-four hour casual restaurant in conjunction with the resort hotel openingon March 30, 2007; and Seneca Buffalo Creek Casino accounted for $0.1million of the increase.  During Fiscal2007 and 2006, 56% and 59%, respectively, of our food and beverage revenue werethe result of Seneca Link Player’s Card point redemptions.

 

59

----

Tableof Contents

 

*LodgingRevenue*

 

Thefollowing table presents data related to lodging revenue:

 
| ** **                           | ** ** | **Fiscal Years Ended** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|
| ** **                           | ** ** | **September 30,**           | ** ** |
| ** **                           | ** ** | **2008**                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| Occupied rooms                       |       | 281,924                          |       | 233,286 |   | 60,188 |   |
| Average daily  room rate (ADR)       |       | $                                | 102        |   | $ | 104 |   | $ | 177 |   |
| Occupancy rate                       |       | 95.1                             | %          | 90.2 | % | 85.8 | % |
| Revenue per  available room (REVPAR) |       | $                                | 97         |   | $ | 94 |   | $ | 152 |   |

 

DuringFiscal 2008 our lodging revenue increased by $4.4 million, or 18% when comparedto Fiscal 2007 due to increased occupancy, offset by a slight decrease inaverage rate per occupied room.   SeneceNiagara Casino and Hotel contributed $1.1 million of the increase and SenecaAllegany Casino and Hotel contributed $3.3 million of the increase due to its212-room resort hotel being open for the entire fiscal year compared toapproximately six months during the fiscal year ended September 30, 2007.

 

DuringFiscal 2007 our lodging revenue increased by $13.7 million, or 129% compared toFiscal 2006.  $9.8 million of theincrease was generated by the Seneca Niagara Casino and Hotel as a result ofthe 604-room luxury hotel being open for the entire fiscal year compared toonly a partial year of operation during Fiscal 2006.  Seneca Allegany Casino and Hotel contributed$3.9 million of the increase due to opening the 212-room resort hotel on March 30,2007.

 

*Retail,Entertainment and Other Revenue*

 

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

 

DuringFiscal 2007, our retail, entertainment and other revenue increased by $0.3million, or 2%, compared to the prior fiscal year.  The increase was primarily due to a $1.0million increase in entertainment revenue and a $0.7 million increase in otherrevenue, offset by a $1.4 million decrease in retail revenue.  The decrease in retail revenue is a result ofthe relocation of stores at Seneca Niagara Casino and Hotel during Fiscal 2007,redirected patron traffic patterns at Seneca Allegany Casino and Hotel due toconstruction and also due to patrons redeeming Seneca Link Player’s Card pointsfor slot promotional credits in lieu of retail purchases.

 

*PromotionalAllowances*

 

SGCoperates a complimentary program in which food and beverage, retail,entertainment, and other services are provided to patrons based on pointsearned through the Seneca Link Player’s Card. The retail value of these complimentary items is included in grossrevenues and then deducted as promotional allowances to arrive at net revenues.

 

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

 

| ** **                       | ** ** | **Fiscal Years Ended**     | ** ** |
|----------------------------------|------------|--------------------------------------|------------|
| ** **                       | ** ** | **September 30,**               | ** ** |
| ** **                       | ** ** | **2008**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                       | ** ** | **(Dollars in Thousands)** | ** ** |
| Gaming                           |       | $                                    | 50,917     |   | $ | 41,989 |   | $ | 29,616 |   |
| Food and  beverage               |       | 33,666                               |       | 31,781 |   | 29,271 |   |
| Lodging                          |       | 20,677                               |       | 18,956 |   | 6,712 |   |
| Retail,  entertainment and other |       | 12,293                               |       | 11,286 |   | 12,262 |   |
| Total                            |       | $                                    | 117,553    |   | $ | 104,012 |   | $ | 77,861 |   |

 

60

----

Table of Contents

 

Theestimated cost of providing such promotional allowances was as follows:

 

| ** **                       | ** ** | **Fiscal Years Ended**     | ** ** |
|----------------------------------|------------|--------------------------------------|------------|
| ** **                       | ** ** | **September 30,**               | ** ** |
| ** **                       | ** ** | **2008**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                       | ** ** | **(Dollars in Thousands)** | ** ** |
| Food and  beverage               |       | $                                    | 26,540     |   | $ | 27,071 |   | $ | 25,416 |   |
| Lodging                          |       | 9,450                                |       | 8,672 |   | 3,620 |   |
| Retail,  entertainment and other |       | 9,796                                |       | 9,673 |   | 8,929 |   |
| Total                            |       | $                                    | 45,786     |   | $ | 45,416 |   | $ | 37,965 |   |

 

Promotional allowances as a percentof gaming revenue were 18.6%, 17.5% and 15.0% during Fiscal 2008, 2007 and2006, respectively.  Promotionalallowances increased $13.5 million, or 13% from Fiscal 2007 to Fiscal2008.  The increase is primarily due toan increase in marketing programs encouraging the use of points earned through the Seneca Link Player’s Card to increase tripfrequency and extend trip duration.

 

Promotional allowances increased$26.2 million, or 34% from Fiscal 2006 to Fiscal 2007.  The increase is primarily due to an increasein the frequency of a promotion offered allowing patrons to exchange points earned through the Seneca Link Player’s Card for free slotplay, as well as the increase in points used to purchase lodging and relatedservices due to the opening of our luxury hotel at the Seneca Niagara FallsCasino and Hotel.

 

*DetailedOperating Expense Information*

 
| ** **                               | ** ** | **Fiscal Years Ended**     | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|
| ** **                               | ** ** | **September 30,**               | ** ** |
| ** **                               | ** ** | **2008**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(Dollars in Thousands)** | ** ** |
| Operating  expenses:                     |       |                                 |       |   |   |   |   |
| Gaming                                   |       | $                                    | 169,472    |   | $ | 153,259 |   | $ | 129,396 |   |
| Food and  beverage                       |       | 49,907                               |       | 47,863 |   | 43,485 |   |
| Lodging                                  |       | 15,038                               |       | 11,862 |   | 6,131 |   |
| Retail,  entertainment and other         |       | 15,105                               |       | 12,886 |   | 11,668 |   |
| Advertising,  general and administrative |       | 187,011                              |       | 153,838 |   | 131,997 |   |
| Pre-opening  costs                       |       | 286                                  |       | 15,426 |   | 9,478 |   |
| Depreciation and  amortization           |       | 51,081                               |       | 49,597 |   | 38,992 |   |
|                                     |       |                                 |       |   |   |   |   |
| Operating  expenses                      |       | $                                    | 487,900    |   | $ | 444,731 |   | $ | 371,147 |   |

 

*GamingExpenses*

 

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

 

61

----

Table of Contents

 

Thefollowing tables summarizes the exclusivity fees paid by property:

 
| ** **                        | ** ** | **Fiscal Years Ended**     | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|
| ** **                        | ** ** | **September 30,**               | ** ** |
| ** **                        | ** ** | **2008**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                        | ** ** | **(Dollars in Thousands)** | ** ** |
| Seneca Niagara  Casino and Hotel  |       | $                                    | 77,446     |   | $ | 71,440 |   | $ | 53,823 |   |
| Seneca Allegany  Casino and Hotel |       | 31,160                               |       | 30,503 |   | 25,212 |   |
| Seneca Buffalo  Creek Casino      |       | 7,094                                |       | 1,369 |   | — |   |
| Total                             |       | $                                    | 115,700    |   | $ | 103,312 |   | $ | 79,035 |   |

 

Theincrease in the slot exclusivity fee is attributed to an increase in net slotrevenue and an increase in the exclusivity fee rate from 18% to 22%, effective January 1,2007.  When comparing Fiscal 2008 toFiscal 2007, the increase in slot exclusivity fees resulting from the 4% rateincrease being in effect for the entire fiscal year was $21.0 million.  During Fiscal 2007, the effect of the 4%increase in the exclusivity fee rate was an additional $14.8 million in expensewhen compared to Fiscal 2006.  Pursuantto the Compact, the exclusivity fee will further increase to 25% on January 1,2010.

 

Gamingexpenses as a percent of gaming revenues were 26.7%, 25.7% and 24.9%, forFiscal 2008, 2007 and 2006, respectively.

 

*Food andBeverage Expenses*

 

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

 

DuringFiscal 2008, our food and beverage expenses increased $2.0 million, or 4%, whencompared to Fiscal 2007.  The increasecan be attributed to an increase was food and beverage revenues, offset by adecrease in average food and beverage costs associated with providing suchservices.  Food and beverage expenses asa percentage of food and beverage revenues were 78.9% and 84.5% for Fiscal 2008and 2007, respectively.  The decrease wasdue to a concerted effort to reduce such costs, while maintaining superiorproduct offerings to our patrons.

 

DuringFiscal 2007, our food and beverage expenses increased $4.4 million, or 10% whencompared to Fiscal 2006.  Approximately$1.1 million of the increase was due to an increase in food and beveragerevenues.  The remainder of the increasein expenses can be primarily attributed to an increase in payroll and payrollrelated expenses resulting from an increase in staffing for three newrestaurants and a lounge at Seneca Allegany Casino and Hotel, which opened in March 2007.

 

*LodgingExpenses*

 

Lodgingexpenses represent those costs incurred for the operation of our luxury hoteland spa at Seneca Niagara Falls Casino and Hotel, which partially opened in December 2005and completely opened on March 31, 2006, and our resort hotel and spa atSeneca Allegany Casino and Hotel, which opened on March 30, 2007.

 

Lodgingexpenses increased $3.2 million during Fiscal 2008, or 27%, when compared toFiscal 2007.  The increase is primarilydue to a full year of operation of the resort hotel at Seneca Allegany Casinoand Hotel during Fiscal 2008 compared to six months of operation during Fiscal2007.  The most significant lodgingrelated expenses during Fiscal 2008 were $10.6 million incurred for payroll andpayroll related expenses, $2.2 million in laundry expense and $0.8 million inexpenses related to providing in-room amenities.

 

Lodgingexpenses increased $5.8 million during Fiscal 2007, or 95%, when compared toFiscal 2006.  The increase can beprimarily attributed to the operation of the luxury hotel at the Seneca NiagaraFalls Casino and Hotel for a full year compared to six months of operationduring Fiscal 2006, and the opening of the 212-room resort hotel and amenitiesat Seneca Allegany Casino and Hotel on March 30, 2007.  The most significant lodging related expensesduring Fiscal 2007 were $8.7 million in payroll and payroll related expensesand $1.4 million in laundry expense.  Themajor components of lodging 

 

62

----

Table of Contents

 

expensesduring Fiscal 2006 were payroll and payroll related costs, laundry expense andoperating supplies.

 

Lodgingexpenses as a percent of lodging revenues were 52.3%, 48.7% and 57.5%, forFiscal 2008, 2007 and 2006, respectively.

 

*Retail,Entertainment and Other Expenses*

 

Retail,entertainment and other expenses primarily represent those costs incurred forthe operation of our retail shops and entertainment offerings, to includepayroll and payroll related expenses, the purchase of products offered for salein our retail outlets and contract costs for entertainers.  Retail, entertainment and other expensesincreased $2.2 million during Fiscal 2008, or 17%, when compared to Fiscal2007, primarily due to the increase in contract entertainment costs resultingfrom the opening of the events center at Seneca Allegany Casino and Hotel in March 2008.

 

DuringFiscal 2007, retail, entertainment and other expenses increased $1.2 million,or 11% when compared to Fiscal 2006. This increase was primarily due to higher expenses for headlineentertainment at both Seneca Niagara Casino and Hotel and Seneca AlleganyCasino and Hotel resulting from an increase in both number of shows, andquality of enterainment.

 

*Advertising,General and Administrative Expenses*

 

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

 

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

 

Advertisting,general and administrative expenses increased $21.8 million for Fiscal 2007, or17%, when compared to Fiscal 2006. Significant factors contributing to this increase were a $6.4 millionincrease in payroll and payroll related expenses attributable to an increase inemployees for the operation of the expanded facilites; a $4.7 million increasein Head Lease expense paid to the Nation for rental of land used in theoperation of our facilities; a $3.0 million increase in advertising expenses;and a $2.4 million increase in utilities resulting from an increase inutilization due to the expanded facilities and increased utility costs, such asnatural gas. In addition, regulatory fees and other marketing costs increasednominally.

 

Advertising,general and administrative expenses as a percent of gross revenues were 24.9%,22.1% and 22.0%, for Fiscal 2008, 2007 and 2006, respectively.

 

*Pre-openingExpenses*

 

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

 

Pre-openingexpenses incurred during Fiscal 2007 were $15.4 million which represent costsincurred for the preparation of opening the new 212-room resort hotel, relatedamenities and three restaurants at Seneca Allegany Casino and Hotel, all ofwhich opened on March 30, 2007, and for the temporary facility at SenecaBuffalo Creek Casino, which opened on July 3, 2007 in the inner harbordistrict of Buffalo, New York.  Duringthis period, pre-opening expenses were incurred in conjunction with:  the opening of the new resort hotel and relatedamenities at Seneca Allegany Casino and Hotel, in the amount of $3.6 million;the opening of the Seneca Buffalo Creek property, in the amount of $11.6million, consisting primarily of amounts paid to the Nation for use of the landon which the operations exist; and the opening of a restaurant in July 2007at Seneca Niagara Falls Casino and Hotel, in the amount of $0.2 million.

 

63

----

Table of Contents

* *

*DepreciationExpense*

 

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

 

During Fiscal 2007,depreciation expense was $49.6 million, an increase of $10.6 million, or 27%,when compared to the prior fiscal year. The increase was due to the opening ofthe Seneca Allegany Casino and Hotel, its related amenities and three newrestaurants on March 30, 2007, and also due to the operation of the SenecaNiagara Casino and Hotel in its entirety during Fiscal 2007, as compared toFiscal 2006.

 

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

 

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

 
| ** **                         | ** ** | **Fiscal Years Ended**     | ** ** |
|------------------------------------|------------|--------------------------------------|------------|
| ** **                         | ** ** | **September 30,**               | ** ** |
| ** **                         | ** ** | **2008**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                         | ** ** | **(Dollars in Thousands)** | ** ** |
| *Non-operating  (expenses) income* |       | $                                    | (5,600     | ) | $ | 3,220 |   | $ | 558 |   |
|                                    |            |                                      |            |  |  |  |  |  |  |  |

 

During Fiscal 2008 and2007, we recorded an other-than-temporary loss on one specific investment of$4.2 million and $0.5 million, respectively, as other non-operating expense,and the cost basis of this investment has been reduced accordingly.  During Fiscal 2008 we also recorded $1.4million in lease termination costs as other non-operating expense related toamounts paid to a tenant for early termination of a lease agreement related tospace in the SGC administration building. During Fiscal 2007 and 2006, we had non-operating income of $3.7 millionand $0.6 million, respectively, primarily resulting from the settlement of anon-going arbitration proceeding involving a dispute with the formerconstruction manager for our luxury hotel expansion project in Niagara Falls.

 

*Interest Income*

 

Interest income was $1.3million, $3.8 million and $5.8 million, for Fiscal 2008, 2007 and 2006,respectively.  The decrease in interest incomecan be attributed to the decrease in the average cash balance deposited withfinancial institutions in interest bearing accounts when comparing theseperiods.

 

*Interest Expense*

 

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

 
| ** **          | ** ** | **Fiscal Years Ended**     | ** ** |
|---------------------|------------|--------------------------------------|------------|
| ** **          | ** ** | **September 30,**               | ** ** |
| ** **          | ** ** | **2008**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **          | ** ** | **(Dollars in Thousands)** | ** ** |
| *Interest  expense* |       | $                                    | 37,325     |   | $ | 36,063 |   | $ | 33,198 |   |
|                     |            |                                      |            |  |  |  |  |  |  |  |

 

DuringFiscal 2008, interest expense represents interest on our $500 million aggregateprincipal amount of 71⁄4% senior notes and $3.2 million in amortization ofrelated financing costs and discount, partially offset by $2.2 millioncapitalized interest on our construction activities for the conversion of thetemporary casino structure at Seneca Allegany Casino and Hotel, the permanentcasino at Seneca Buffalo Creek Casino and our Seneca Hickory Stick Golf Course.

 

Interestexpense during Fiscal 2007 represents interest on our $500 million aggregateprincipal amount of 71⁄4% senior notes and $3.2 million in amortization ofrelated financing costs and discount, partially offset by $3.4 millioncapitalized interest during the construction phase of our luxury hotel atSeneca Niagara Falls Casino and Hotel and related to construction activities atthe Seneca Allegany Casino and Hotel. The increase in interest expense of $2.9 million was due to decreasedcapitalized interest when compared to Fiscal 2006, due to the substantialcompletion of construction projects.

 

64

----

Tableof Contents

 

*Net Income*

 

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

 

Net income for Fiscal2007 was $119.3 million, compared to $123.4 million for Fiscal 2006, a decreaseof $4.1 million, or 3%, for the reasons stated above.

 

**Liquidityand Capital Resources**

 

*Cash Flows*

 
| ** **                                            | ** ** | **Year Ended September 30,** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                            | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                            | ** ** | **(Dollars in Thousands)**        | ** ** |
| Net cash  provided by operations                      |       | 158,853                                     |       | 179,748 |   | 181,838 |   |
|                                                  |       |                                        |       |   |   |   |   |
| Investing Cash  Flows                                 |       |                                        |       |   |   |   |   |
| Capital  Expenditures                                 |       | (141,383                                    | )          | (163,648 | ) | (203,729 | ) |
| Payments for  land acquisitions and other assets      |       | (5,874                                      | )          | (15,319 | ) | (38,012 | ) |
| Decrease  (increase) in restricted cash               |       | 14,579                                      |       | 11,221 |   | (25,800 | ) |
| Deposits                                              |       | (127                                        | )          | — |   | 168 |   |
| Sale of  investments, net                             |       | 14,600                                      |       | 42,700 |   | 33,791 |   |
|                                                  |       |                                        |       |   |   |   |   |
| Net cash used in  investing activities                |       | (118,205                                    | )          | (125,046 | ) | (233,582 | ) |
|                                                  |       |                                        |       |   |   |   |   |
| Financing cash  flows                                 |       |                                        |       |   |   |   |   |
| Payment of  deferred financing costs                  |       | —                                      |       | — |   | (682 | ) |
| Capital  contribution from the Nation                 |       | —                                      |       | 3,198 |   | — |   |
| Distributions  paid to the Nation                     |       | (66,005                                     | )          | (57,433 | ) | (11,846 | ) |
|                                                  |       |                                        |       |   |   |   |   |
| Net cash used in  financing activities                |       | (66,005                                     | )          | (54,235 | ) | (12,528 | ) |
|                                                  |       |                                        |       |   |   |   |   |
| Net (decrease)  increase in cash and cash equivalents |       | (25,357                                     | )          | 467 |   | (64,272 | ) |

 

*Cash Flows—Operating Activities.*

 

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

 

The $2.1 million decreasein cash flow from operations during Fiscal 2007 when compared to Fiscal 2006was primarily due to:  a $4.1 milliondecrease in net income; an increase in cash paid for long-term assets and currentliabilities of $9.6 million; offset by an increase in depreciation expense of$10.6 million related to placing the Seneca Niagara Casino and Hotel and theSeneca Allegany Casino and Hotel into service; and an increase in loss ondisposable assets of $1.0 million due to the renovation of our formernightclub.

 

65

----

Tableof Contents

 

*Cash Flows—Investing Activities*.

 

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

 

During Fiscal 2008,capital expenditures were $141.4 million and consisted of: ** **$8.4million of expenditures associated with constructing and equipping the SenecaAllegany Casino & Hotel permanent gaming floor and amenities; $26.5million for the conversion of the temporary gaming facility at Seneca AlleganyCasino and Hotel into an events center with related amenities; $9.7 millionrelating to construction of the resort hotel tower at the Seneca AlleganyCasino & Hotel; $64.8 million relating to construction of thepermanent Seneca Buffalo Creek Casino and Hotel on the Nation’s Buffalo CreekTerritory; and $8.4 million relating to construction of the Seneca HickoryStick Golf Course.  The remaining $23.6 million in capital expenditureswas principally for the acquisition of equipment for existing casino operationsand other maintenance capital expenditures.

 

During Fiscal 2007, cashflows used in investing activities were approximately $125.0 million, comparedto $233.6 million during Fiscal 2006. The decrease of $108.6 million was due to: a decrease in cash paid forproperty and equipment of $40.0 million; a decrease in cash paid for landacquisition of $22.7 million; and a $37.0 million increase in withdrawls fromrestrictd cash; and an increase in net sales of investments of $8.9 million.

 

During Fiscal 2007,capital expenditures were $163.6 million, consisting primarily of:  $101.2 million related to the Seneca AlleganyCasino & Hotel resort hotel construction; $13.7 million for thecompletion of the luxury hotel at the Seneca Niagara Casino & Hotel;$6.8 million related to the construction of the Seneca Buffalo Creek temporarycasino; and $3.8 million related to construction of the Seneca Hickory StickGolf Course.  The remaining $38.1 millionin capital expenditures was for various improvements and maintenance capitalexpenditures.  We also incurred $15.3million in land acquisition costs in Fiscal 2007.

 

*CashFlows—Financing Activities.*

 

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

 

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

 

DuringFiscal 2007, net cash used in financing activities was $54.2 million, comparedto $12.5 million during Fiscal 2006, an increase of $41.7 million.  During Fiscal 2007, distributions to theNation amounted to $57.4 million.  Cashdistributions and dividends were $49.0 million, payments pursuant to SGC’sobligations under the Distribution Agreement were $4.3 million, paymentsrelating to the Salamanca waste water treatment facility for the Nation were$3.0 million, and other distributions of assets were $1.1 million.  Capital contributions from the Nationamounted to $3.2 million for the value of the land used in the operation of theSeneca Buffalo Creek temporary casino.

 

*FinancingConsiderations*

 

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

 

66

----

Table of Contents

 

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

 

*PrincipalDebt Arrangements.*

 

As of September 30,2008, our debt instruments and facilities consisted of the senior notes onwhich we pay a fixed interest rate of 71⁄4%, and a $50.0 millionSenior Secured Revolving Loan Agreement, which matures on June 19, 2009(with an option to extend for six months).Following is a summary of certain material terms of the senior notes, the TermLoan, and the Senior Secured Revolving Loan Agreement.

 

The SeniorNotes.    On May 5,2004 and May 23, 2005, SGC issued $300.0 million and $200.0 million,respectively, in senior notes with fixed interest payable at a rate of 71⁄4% per annumdue 2012, which we refer to collectively as the senior notes, under theIndenture. The notes are currently guaranteed by STGC, SEGC, SNFGC and LGCC.SNFGC became a guarantor of the senior notes upon payment in full of the TermLoan on May 23, 2005. LGCC became a guarantor of the senior notes upon itsformation in accordance with the terms of the Indenture.  Interest on the senior notes is payablesemi-annually on November 1 and May 1. The senior notes mature on May 1,2012. The senior notes are unsecured general obligations. As of September 30,2008, accrued interest on the senior notes was $15.1 million.

 

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.

 

Senior Secured Revolving LoanAgreement. Effective June 19, 2008, SGC entered into a$50.0 million Senior Secured Revolving Loan Agreement, which matures on June 19,2009. The maturity date may be extended by SGC at its election (at any timeafter the six months anniversary of the closing date and prior to June 19,2009) for an additional period of six months provided that no default or eventof default exists at the time of election.  Amounts borrowed under theSenior Secured Revolving Loan Agreement bear interest at either one, three orsix-month LIBOR plus one and one quarter percent (1.25%), or the prime rate (asreported in *The Wall Street Journal*)plus one quarter percent (.25%).  Anyoutstanding principal balance shall be paid on the maturity date.

 

SGC’s obligations underthe Senior Secured Revolving Loan Agreement are secured by substantially allgaming and related assets (including substantially all gaming revenues) notconstituting real property or improvements.  SGC’s obligations areguaranteed by SNFGC, STGC, SEGC and LGCC.  The guarantors’ obligations aresecured by substantially all of each guarantor’s gaming and related assets (includingsubstantially all gaming revenues) not constituting real property orimprovements.

 

The Senior SecuredRevolving Loan Agreement contains certain financial covenants requiring minimumconsolidated EBITDA of $160 million (on a rolling 12 month basis) and compliancewith certain leverage and coverage ratios. The Senior Secured Revolving LoanAgreement also contains additional customary covenants, including covenantsrestricting the incurrence of additional indebtedness, the creation ofadditional liens, and the disposition of assets. As of September 30, 2008,SGC was in compliance with all covenants in the Senior Secured Revolving LoanAgreement.

 

As of September 30,2008, at SGC’s request, the lender under the Senior Secured Revolving LoanAgreement had issued letters of credit totaling $16.8 million, $11.2 million ofwhich may be drawn upon to fund the purchase of certain parcels within the 50acre “footprint” described in the Compact with New York State and designatedfor ownership by the Nation, with the remaining $5.6 million issued inconnection with workers compensation policies and certain other contracts, asrequired.  See “Item 3. LegalProceedings” for a discussion of such acquisitions and related valuationproceedings.  As of September 30, 2008,$33.2 million was available under the Senior Secured Revolving Loan Agreement.

 

On October 29, 2008,SGC borrowed $20.0 million under the Senior Secured Revolving Loan Agreement, leaving$13.2 million available.  We expect todraw down on this remaining amount by the end of the second quarter of Fiscal2009.

 

Effective June 19, 2008, SGC’ssecured reimbursement facilities were terminated and all outstanding letters ofcredit under 

 

67

----

Tableof Contents

 

such facilities were assumed asoutstanding letters of credit under the Senior Secured Revolving Loan Agreement

 

*DistributionAgreement Obligations*

 

On April 27, 2007,SGC entered into a Distribution Agreement among the Nation, the Seneca Nationof Indians Capital Improvements Authority, or the Authority, SGC and WellsFargo Bank, as Trustee, in connection with the Authority’s issuance in twoseries (one tax exempt and the other taxable) of an aggregate principal amountof $159,495,000 special obligation bonds, or the 2007 Bonds.  TheDistribution Agreement obligates SGC, subject to any contractual restrictionsapplicable to SGC (including, but not limited to, those contained in the Indenturegoverning SGC’s 2004 and 2005 senior notes), to make monthly distributions tothe Nation at the times and in the amounts necessary to enable the Authority topay the debt service on the 2007 Bonds as required under the Authority’sindenture.  At the direction of the Nation and the Authority, SGC will paysuch distributions directly to the Trustee.  The Authority’s debt servicecommenced on June 1, 2007.  For the period from June 1, 2007through November 1, 2007, the Authority’s debt service averagedapproximately $0.9 million per month. For the period from December 1, 2007through June 1, 2008, the Authority’s debt service averaged approximately$1.7 million per month.  In June 2008,it was determined that the amortization (debt service) schedule upon which theforegoing $1.7 milliom monthly payment was made, was incorrect.  A corrected amortization schedule wasprovided and, after giving effect to a resulting credit for amounts overpaid,for the period from January 1, 2008 through December 1, 2023, theAuthority’s debt service averages approximately $1.2 million per month.The foregoing debt service averages are based on scheduled payments of interestand principal under the Authority’s indenture and bonds and do not address theeffects of any earlier call for redemption, by acceleration or otherwise. The Distribution Agreement provides that neither the Trustee nor the Authority’sbondholders will have any recourse under the Distribution Agreement to anyrevenues, assets or property of SGC or its subsidiaries should SGC fail tocomply with its distribution obligations.  For the year ended September 30,2008, SGC distributed to the Nation $14.9 million for the Authority’s debtservice on the special obligation bonds.

 

*OtherCommitments*

 

We haveacquired approximately 45 acres in the City of Niagara Falls, New York,designated by New York State under the Compact for ownership by the Nation, andintend to acquire approximately three additional acres. Under the Compact, theNation is required to fund the acquisition of this property, including allrelated costs and expenses. As initial security for the Nation’s obligations topay site acquisition costs and in furtherance of the ongoing condemnationproceeding, the Nation was required to, and did, deliver, to the Empire StateDevelopment Corporation, (ESDC) a letter of credit in the amount of $33.5million representing 150% of the then estimate of the total remaining siteacquisition costs not yet paid by the Nation. On July 13, 2006, we acquired, through the condemnationprocess, approximately 18 acres of land and trade fixtures appurtenant theretofrom Fallsite, LLC, or Fallsite and Fallsville, LLC, or Fallsville, for anaggregate initial advance payment of $18.0 million, which land is a portion ofthe land in the City of Niagara Falls, New York designated under the Compactfor ownership by the Nation. Of thisamount, $7.7 million was drawn on the letter of credit as part of theconsideration for the purchase, leaving $25.8 million available under theletter of credit.  In March 2007,an additional $11.5 million was drawn under the letter of credit to fund theacquisition of 18 additional parcels of land and certainimprovements.    In December 2007, an additional $3.0million was drawn under the letter of credit to fund the acquisition of sevenadditional parcels of land owned by the City of Niagara Falls.  In connection with the closing of the SeniorSecured Revolving Loan Agreement, at SGC’s request, the lender issued lettersof credit totaling $16.8 million, $11.2 million of which may now be drawn uponto fund the purchase of the remaining parcels within the 50 acre “footprint”described in the Compact. If theestimate of such site acquisition costs increases or if certain other eventsoccur, the Nation may have to provide an additional letter of credit or replacethe existing one with one for a larger monetary amount or, if acceptable to theESDC, provide a supplemental cash escrow amount.  Unreimbursed amounts on the letter of creditmay result in automatic draw-downs under the Senior Secured Revolving LoanAgreement.

 

The amounts paid to condemnees fromwhom we have acquired property are deemed to be advance payments. Pursuant tothe New York State Eminent Domain Procedure Law, or EDPL, the New York state courtswill determine the final purchase price to be paid to condemnees who elect tochallenge the initial appraised value of their property.  To date, all record owners from whom propertywas condemned pursuant to the EDPL have reserved rights to claim additionalcompensation.  Four record owners havefiled notices of claim to challenge the fair market value appraisals utilizedby ESDC.  Fallsite LLC and FallsvilleSplash, LLC have filed notices of claim in the amounts of $40.0 and $35.0million for land and trade fixtures, respectively, relating to a small formerwater park within the footprint.  ESDC’sfair market appraisal value for the foregoing was approximately $17.0million.  Intertrust Development hasfiled a notice of claim for $15.8 million for land and trade 

 

68

----

Tableof Contents

 

fixtures associated with a former HolidayInn hotel within the footprint.  ESDC’sfair market appraisal value for the foregoing was $8.2 million (excludingfixtures).  Additionally, JFD Holdingshas filed a notice of claim for an unspecified amount for land and tradefixtures associated with a former Pizza Hut restaurant within thefootprint.  ESDC’s fair market appraisalfor the foregoing was approximately $0.4 million.  Valuation proceedings with regard to theformer water park are underway with expected completion in early 2009.  We are finalizing a settlement with regard tothe former Holiday Inn property, which has been approved by the SGC board ofdirectors, but remains subject to Nation Council approval.  See “Item 3. Legal Proceedings” for adiscussion of our Niagara Falls land acquisitions and related valuationproceedings.

 

If a court determines that the valuefor the land and improvements, including trade fixtures, is higher than whatESDC has determined to be their values, then we may be liable for thedifference and potentially also responsible for certain additional costs andpayments to the applicable condemnee(s), such as their attorney fees.  As of September 30, 2008, we haveestablished a reserve in the amount of $6.4 million for such matters, which isincluded as a component of other current liabilities on SGC’s consolidatedbalance sheet.

 

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

 

*Expansionand Development Plans*.  During the next 18 months, due to liquidityconcerns, ongoing demands on our cash, and the state of the capital markets, itis unlikely that we will make substantial capital investments in our gamingfacilities.

 

In March 2008,we completed the conversion of the former temporary casino facility at SenecaAllegany Casino and Hotel, at a cost of approximately $29.3 million andapproximately $4 million under budget, into an approximate 2,200 seat eventcenter with additional amenities and administrative space.  The exterior landscaping and façadeenhancements, originally planned as part of the conversion of the temporarycasino, have been deferred to the next phase of construction.

 

The next phase ofconstruction, originally planned for an additional 200 room hotel and 30,000square feet of additional gaming and related amenities, was suspended on August 27,2008 due to various factors, including challenging economic and capital marketconditions, operating and other demands on our available cash and increasedcompetition and construction costs.  Asof September 30, 2008, the Company has spent $11.0 million related to thisphase of construction.

 

In March 2008, theCompany completed a 109 slot machine expansion (for a total of 244 slotmachines) of the temporary Seneca Buffalo Creek Casino.  Construction of the permanent Seneca BuffaloCreek Casino and Hotel commenced in January 2008, with completionestimated for Summer 2010.  The permanentcomplex was originally planned to feature 90,000 square feet of gaming spacewith 2,000 slot machines, 45 table games and a 22-story all suite hotel withapproximately 206 rooms.  On August 27,2008 we suspended construction due to various factors, including challengingeconomic and capital market conditions, operating and other demands on ouravailable cash and increased competition and construction costs.  We intend to resume construction upon thestabilization of economic and capital market conditions and at such a time whenexternal financing upon acceptable terms becomes available.  As of September 30, 2008, the Companyhas paid $70.0 million on the construction of the permanent casino andhotel.     See “Executive Summary –Seneca Buffalo Creek Casino,” “Part II. Item 1. – Legal Proceedings,” forinformation regarding the status of, and litigation related to, our SenecaBuffalo Creek Casino.

 

In July 2007, the Companycommenced construction of the Seneca Hickory Stick Golf Course, an 18-holeRobert Trent Jones II designed golf course, located in Lewiston, New York,approximately eight miles from the Seneca Niagara Casino and Hotel. To allowfor proper grow-in of the course, it is anticipated that the official openingof the course will occur in Spring 2010. As of September 30, 2008, the Company has paid $12.5 million on theconstruction, with a total cost to construct the golf course,clubhouse and related amenities estimated to be approximately $25.5million.  In light of greater demands onour available cash, increased competition and challenging economic and capitalmarket conditions, the Company, in consultation with the Nation, continues toevaluate the scope, phasing and timing of its expansion plans, and isreassessing the clubhouse design for the Seneca Hickory Stick Golf Course.  The Company believes that it is early enoughin the design and construction process to accommodate appropriate changes toits plans, if necessary.

 

Taking intoaccount the suspension of existing expansion projects previously noted, weexpect cash generated from our operations, available cash and cash equivalentsand short-term investments as of September 30, 2008, and cash availableunder our Senior Secured Revolving Loan Agreement, to be sufficient to serviceour debt, to satisfy our other financial obligations and commitments, and to 

 

69

----

Tableof Contents

 

meet ourworking capital requirements for the remainder of the current fiscal year.  As stated above, we will rely significantlyon external financing to complete our expansion projects if and when resumed,which may not be available to us, or, if available, may not be on favorable terms,or terms as favorable as those under our existing indebtedness.

 

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

 

We are leveragedand have significant interest payment requirements under the senior notesIndenture and the Senior Secured Revolving Loan Agreement, in addition todistribution obligations under the Distribution Agreement and other commitmentsfrom time to time to the Nation.  We makedistributions to the Nation pursuant to declarations by our board ofdirectors.  During Fiscal 2008, wedistributed $50.9 million to the Nation pursuant to such declarations.  We distributed an additional $14.9 million tothe Nation in Fiscal 2008 pursuant to the Distribution Agreement.  As such, limitations on our capital resourcescould force us to delay or abandon capital projects as well as the constructionand development of proposed expansion projects.

 

**ContractualObligations**

 

Thefollowing table reflects our significant contractual obligations as of September 30,2008:

 
| ** **                                                       | ** ** | **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)                       |       | 76,125                                   |       | 21,750          |       | 43,500 |   | 10,875 |   | — |   |
| Interest  payments on 2005 senior notes(1)                       |       | 50,750                                   |       | 14,500          |       | 29,000 |   | 7,250 |   | — |   |
| Seneca Niagara  Casino operating lease with the Nation(2)        |       | 366,000                                  |       | 24,400          |       | 48,800 |   | 48,800 |   | 244,000 |   |
| Seneca Allegany  Casino operating lease with the Nation(3)       |       | 304,500                                  |       | 20,300          |       | 40,600 |   | 40,600 |   | 203,000 |   |
| Seneca Buffalo  Creek Casino operating lease with the Nation (4) |       | 259,500                                  |       | 17,300          |       | 34,600 |   | 34,600 |   | 173,000 |   |
| Distribution obligations  under Distribution Agreement (5)       |       | 223,238                                  |       | 14,404          |       | 29,657 |   | 29,660 |   | 149,517 |   |
|                                                             |       |                                     |       |            |       |   |   |   |   |   |   |
| Total                                                            |       | $                                        | 1,780,113  |            | $          | 112,654 |   | $ | 226,157 |   | $ | 671,785 |   | $ | 769,517 |   |
|                                                                  |            |                                          |            |                 |            |  |  |  |  |  |  |  |  |  |  |  |

 

----

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

 

(2)                   Amounts represent annual lease payments based uponapproximately $2.0 million per month. See “Item 13 – Certain Relationships and Related Transactions,” “LandLeases from the Nation,” for information regarding annual lease payments.

 

(3)                   Amounts representannual lease payments based upon approximately $1.7 million per month.  See “Item 13 – Certain Relationships andRelated Transactions,” “Land Leases from the Nation,” for information regardingannual lease payments.

 

70

----

Tableof Contents

 

(4)                   Amountsrepresent annual lease payments based upon approximately $1.4 million permonth.  See “Item 13 –Certain Relationships and Related Transactions,” “Land Leases from the Nation,”for information regarding annual lease payments.

 

(5)                   Amountsrepresent annual distributions to the Nation under the Distribution Agreementbased upon the Seneca Nation of Indians Capital Improvements Authority’s debtservice obligations under its 2007 Bonds. The distribution obligations are subject to any contractual restrictionsapplicable to us.  Distributions are mademonthly in accordance with the terms of the Distribution Agreement, began inJune 2007, and will continue through December 2023.

 

**Regulation**

 

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

 

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

 

**RecentAccounting Pronouncements**

 

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”).  This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements.  SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007.

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This statement permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.  The Company does not believe that the adoption of SFAS No. 159 will have any material effect on its results of operations or consolidated financial position.

 

The Company does not believe that the adoption of SFAS 157 or SFAS 159 will have a material effect on its results from 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.

 

On June 19, 2008, we enteredinto the Senior Secured Revolving Loan Agreement that exposes SGC to interestrate risk in that amounts borrowed under the loan agreement will bear interestat either one, three or six-month LIBOR plus one and one quarter percent(1.25%), or the prime rate (as reported in the The Wall Street Journal) plus onequarter percent (.25%).   See 

 

71

----

Tableof Contents

 

“Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Principal DebtArrangements” for further information relating to the Senior Secured RevolvingLoan Agreement.

 

Since oursenior notes are fixed-rate indebtedness, and our obligations under theDistribution Agreement are based upon fixed-rate indebtedness of the Authority,we believe that our overall exposure to market risk in the form of interestrate fluctuations is low.

 

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

 

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

 

**Item9.  Changes and Disagreements withAccountants on Accounting and Financial Disclosure**

 

None.

 

**Item 9A. Controls and Procedures**

 

**Evaluation of DisclosureControls and Procedures**

 

Our management, with theparticipation of our principal executive and financial officers, has evaluatedthe effectiveness of our disclosure controls and procedures, as such term isdefined in Rule 13a-15 and Rule 15d-15 under the Securities ExchangeAct of 1934, as of September 30, 2008. This evaluation has allowed us to make conclusions, as set forth below,regarding the effectiveness of our disclosure controls and procedures.  There are inherent limitations to theeffectiveness of any system of disclosure controls and procedures, includingcost limitations, the possibility of human error, judgments and assumptionsregarding the likelihood of future events, and the circumvention or overridingof the controls and procedures. Accordingly, even effective disclosure controls and procedures can onlyprovide reasonable assurance of achieving the desired control objective.  We believe our disclosure controls andprocedures are designed to provide reasonable assurance that informationrequired to be disclosed in our reports filed under the Securities Exchange Actof 1934, such as this Annual Report on Form 10-K, is recorded, processed,summarized and reported within the time periods specified in the SEC rules andforms. We also believe our disclosure controls and procedures are designed toensure that such information is accumulated and communicated to our managementas appropriate to allow timely decisions regarding required disclosure.

 

Based on the evaluationof the effectiveness of our disclosure controls and procedures, as of September 30,2008, completed by our management, with the participation of our President andChief Executive Officer and Chief Financial Officer (as our principal executiveofficer and principal financial officer, respectively), our President and ChiefExecutive Officer and Chief Financial Officer, have concluded that ourdisclosure controls and procedures were effective.

 

**Changesin Internal Control Over Financial Reporting**

 

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

 

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

 

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

 

Seneca Gaming Corporationmanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting as defined in Rules 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934. Our internal controlover financial reporting is designed to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally acceptedaccounting principles in the United States.

 

Because of the inherentlimitations of internal control over financial reporting, including thepossibility of human error and the circumvention or overriding of controls,material misstatements may not be prevented or detected on a timely basis.Accordingly, even internal controls determined to be effective can provide onlyreasonable assurance with respect to financial 

 

72

----

Tableof Contents

 

statement preparation andpresentation. Furthermore, projections of any evaluation of the effectivenessto future periods are subject to the risk that such controls may becomeinadequate due to changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.

 

Management has conductedan evaluation of the effectiveness of our internal control over financialreporting as of September 30, 2008 based on criteria established in the frameworkin *Internal Control — IntegratedFramework*issued by the Committee of Sponsoring Organizations of theTreadway Commission. Based on its evaluation, management concluded that our internalcontrol over financial reporting was effective as of September 30, 2008.

 

This annual report doesnot include an attestation report of Ernst & Young LLP, our registeredpublic accounting firm, regarding internal control over financial reporting.Management’s report was not subject to attestation by our registered publicaccounting firm pursuant to temporary rules of the SEC that permit us toprovide only management’s report in this annual report.

 

**Item 9B.Other Information**

 

Not applicable.

 

**PART III**

 

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

 

The following table setsforth information concerning our executive officers and directors as of December 29,2008:

 
| **Name**                  | ** ** | **Age** | ** ** | **Position**                                                        |
|---------------------------|------------|---------|------------|---------------------------------------------------------------------|
| E. Brian Hansberry        |       | 54      |       | President and Chief Executive Officer                               |
| Catherine Walker (1)      |       | 53      |       | Chief Operating Officer                                             |
| David Sheridan (2)        |       | 35      |       | Chief Financial Officer                                             |
| Rajat R. Shah (3)         |       | 38      |       | Senior Vice President of Corporate Development and  General Counsel |
| Robert Victoria           |       | 42      |       | Senior Vice President of Marketing                                  |
| Robert Chamberlain (4)    |       | 52      |       | Senior Vice President of Design and Construction                    |
| Kathy George              |       | 39      |       | General Manager of Seneca Niagara Casino and Hotel                  |
| Gus Tsivikis              |       | 54      |       | General Manager of Seneca Allegany Casino and Hotel                 |
| Barry E. Snyder, Sr. |       | 68      |       | Chairman of the Board of Directors                                  |
| Jeffrey Gill              |       | 50      |       | Vice Chairman of the Board of Directors                             |
| Maurice A. John, Sr. |       | 60      |       | Treasurer and Director                                              |
| Maribel Printup           |       | 79      |       | Secretary and Director                                              |
| N. Cochise Redeye         |       | 52      |       | Director                                                            |
| Kevin Seneca (5)          |       | 54      |       | Director                                                            |
| Gloria Heron (5)          |       | 59      |       | Director                                                            |

 

----

(1)                   Ms. Walker was appointed as Chief Operating Officer effectiveApril 25, 2008.

 

(2)                   Mr. Sheridan was appointed Chief Financial Officer effectiveJuly 1, 2008, replacing Patrick M. Fox.

 

73

----

Tableof Contents

 

(3)                   Mr. Shah was appointed General Counsel effective November 13,2008, replacing Barry W. Brandon.

 

(4)                   Mr. Chamberlain was appointed Senior Vice President ofDesign and Construction effective June 26, 2008.

 

(5)                   Appointed to serve as a director by the Nation’s Council effectiveDecember 13, 2008.

 

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

 

(i)                   SGC and/or its subsidiaries agreeing to (a) waive suchcorporation’s sovereign immunity and (b) submit to jurisdiction ofnon-Nation courts;

 

(ii)                any significant expenditure (in excess of $3 million) ofcorporate resources via approval of a comprehensive business plan regardingsuch activity requiring the expenditure;

 

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

 

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

 

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

 

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

 

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

 

(viii)      obtaining financing and issuance of obligations by SGC or itssubsidiaries.

 

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. 

 

***E. Brian Hansberry*** has served as the President and CEO of the Seneca GamingCorporation since September 19, 2007, after having served as the Presidentand CEO in an interim capacity since February 7, 2007.  Prior to that time, Mr. Hansberry servedas the General Manager of Seneca Niagara Casino and Hotel since August 28,2006, and as STGC’s Vice President and Chief Operating Officer since December 2003.Mr. Hansberry joined SGC in October 2002 as a table games shiftmanager and subsequently as table games manager. Mr. Hansberry has over 25years of experience in the gaming industry and 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.

 

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

 

***DavidSheridan***wasappointed our Chief Financial Officer on July 1, 2008.  Prior to his appointment, Mr. Sheridanserved as Chief Financial Officer for the Oneida Indian Nation of New York andits enterprises (including Turning Stone Resort and Casino) from January 2007through February 2008, and as Acting Chief Financial Officer (anappointment involving duties

 

74

----

Table of Contents

 

and responsibilities comparable to those of Chief Financial Officer)for such Nation and enterprises from August 2006 until January 2007. From March 2003 until August 2006 he served as Director of Accountingand Finance for Turning Stone Resort and Casino.  Prior to that time, Mr. Sheridanserved as an Assurance and Business Advisory Services Manager forPricewaterhouseCoopers LLP from July 1996 through March 2003.  Mr. Sheridanis a certified public accountant.

 

***Rajat R. Shah***has served as our Senior Vice President of Corporate Development since May 2,2005, and as General Counsel since November 13, 2008. He also served asDeputy General Counsel from May 2005 through February 2007.  Prior to joining SGC, Mr. Shah was acounsel at the law firm of Akin Gump Strauss Hauer & Feld LLP where hepracticed corporate and securities law, with a concentration in the areas offinance, securities, mergers and acquisitions and joint ventures. From September 1996until July 1998, Mr. Shah worked as an associate at the law firm ofPillsbury Winthrop Shaw Pittman LLP.

 

***Robert Victoria***has served as ourSenior Vice President of Marketing since March 5, 2007.  Prior to that time, he was SNFGC’s VicePresident of Marketing and served in that capacity since April 2006.  From May 2005 to April 2006, Mr. Victoria served as a RegionalVice President of Casino Marketing for Harrah’s Entertainment.  From September 2000to May 2005, Mr. Victoria served as Vice President of CasinoMarketing for Mohegan Sun.  Prior to that time, Mr. Victoria servedas a Vice President of Player Development at Mohegan Sun from 1997 to2000.  Mr. Victoria is also a six year veteran of the U.S. Army wherehe served in military intelligence.

 

***Robert Chamberlain*******has served as our Senior VicePresident of Design and Construction since June 30, 2008. Since 1993, Mr. Chamberlainhas been principal of Chamberlain Engineering, Inc. where he provideddesign, construction and owner representative services to numerous corporateclients throughout the United States. Prior to 1993, Mr. Chamberlain heldstaff and management positions for nationally recognized design firms. Mr. Chamberlain’sinvolvement with the SGC began in January 2006 when he was retained tooversee the planning, design and construction of all the SGC’s capitalprojects. Preceding that, Mr. Chamberlain provided owner representativeservices to Foxwoods Resort Casino for eight years.  Mr. Chamberlain is a registeredprofessional engineer.

 

***Kathy George***has served as General Manager of the Seneca Niagara Casino and Hotel since May 28,2007.  Prior to that time, she served asVice-President of Resort Operations starting in September 2006.  Ms. George joined SGC in August 2005as Director of Hotel Operations to open the 604 room hotel tower in NiagaraFalls.  Prior to joining SGC, Ms. Georgewas employed with Wyndham International for 14 years in various leadershipcapacities including as General Manager for eight years.  Ms. George joined the hospitalityindustry with Wyndham following graduation from Cornell University’s School ofHotel Administration.

 

***Gus Tsivikis***has served as General Manager of the Seneca Allegany Casino and Hotel since August 2006.  Prior to that time, he was Director ofOperations at Seneca Allegany Casino since July 2005, and Director of SlotPerformance at the Borgata Casino and Hotel in Atlantic City, New Jersey, sinceApril 2002.  Mr. Tsivikis hasmore than 20 years experience in the gaming industry and has held managementpositions with Caesar’s casino in Atlantic City, Dover Downs Racetrack andCasino in Los Angeles, Charles Town Race Track in West Virginia, CasinoNiagara, and the Borgata Hotel and Casino.

 

***Barry E. Snyder, Sr.*** has served as Chairman of the board of directors of SGCsince December 2004. Mr. Snyder’s current SGC Board term expired in October 2008and he continues to serve on the Board pending Nation Council action onreappointment or replacement.  Mr. Snyderwas recently elected in November 2008 to serve as the President of theSeneca Nation for a two year term.  Hehad previously served three terms as the President of the Nation, most recentlyfrom November 2004 to November 2006. Mr. Snyder is the formerowner of the Seneca Hawk Tobacco Shop.  Mr. Snyderalso serves on the board of directors of SNFGC, STGC, SEGC, LGCC, and SMGC eachsubsidiaries of SGC.

 

***JeffreyL. Gill***has served as Vice Chairman of the board ofdirectors of SGC since September 2008.  He has been a member of the board ofdirectors of SGC since January 2008.  Mr. Gill’s current SGC Board termexpires in October 2010.  From June2005 through June 2007, Mr. Gill served as Chairman of the Seneca Gaming Authority,after retiring in 2004 as an Erie County, NewYork Sheriff’s Department officer (withsupervisory and special services responsibilities).  Mr. Gill is also the proprietor of afamily-owned business.  Mr. Gillalso serves on the board of directors of SNFGC, STGC, SEGC, and SMGC, eachsubsidiaries of SGC.

 

***Maurice A. John, Sr.*** has served as Treasurer of the board of directors of SGCsince December 2004. Mr. John’s current SGC Board term expired in October 2008and he continues to serve on the Board pending Nation Council action onreappointment or replacement.  Mr. Johnwas elected as the President/CEO of the Nation in November 2006 and servedin that capacity until November 2008. From November 2004 to November 2006, Mr. John served asTreasurer/CFO of the Nation and previously served two terms in the Nation’sCouncil. Mr. John has been a member of the National Council of theNational Museum of the American Indian since 2006, and will serve as a trusteein 2009.  Mr. John has also servedthe Nation as a judge in the Nation’s appellate court. Mr. John was the formerPresident of the Coalition of Indian Controlled 

 

75

----

Tableof Contents

 

SchoolBoards, a national Indian Education Organization. Mr. John has an existingtax lien imposed by the U.S. Government which is a result of his beliefs in thetreaties between the United States of America and the Seneca Nation ofIndians.  Mr. John also serves onthe board of directors of SNFGC, STGC, SEGC, LGCC, SMGC, each subsidiaries ofSGC, and Seneca Construction Management Corporation, an affiliate of SGC whollyowned by the Nation.

*** ***

***Maribel Printup***has served as secretary of the board of directors of SGC since January 2008.She has been a member of the board of directors of SGC since February 2005.  Ms. Printup’s current SGC Board termexpired in October 2008 and she continues to serve on the Board pendingNation Council action on reappointment or replacement.  Ms. Printup currently serves as a chairpersonemeritus of the board of trustees of the Seneca Iroquois National Museum. Ms. Printupalso served as Councilor of the Nation’s Council from 1998 to 2000 and was withthe Bureau of Indian Affairs for 25 years. During the last 10 years in which Ms. Printupwas with the Bureau of Indian Affairs, she served as National ProgramCoordinator for the Johnson O’Malley Program. Ms. Printup also serves on the board of directors of SNFGC, STGC,SEGC, LGCC (serving as its Secretary) and SMGC, each subsidiaries of SGC.

 

***Norman Cochise Redeye*** has served as a member of the board of directors of SGCsince February 2005. Mr. Redeye’s current SGC Board term expired in October 2008and he continues to serve on the Board pending Nation Council action anreappointment or replacement.  Mr. Redeyeis a retired detective from the Erie County Sheriff’s Office, a position heheld since 1981. In addition, Mr. Redeye has served as a Lay Advocate inthe Seneca Nation of Indians Peacemakers’ Court for the past 20 years.  Prior to joining the Erie County, New York,Sheriff’s Department, Mr. Redeye served as a member of the U.S. Air Forcefrom 1974 until 1980.   Mr. Redeyealso serves on the board of directors of SNFGC, STGC, SEGC, LGCC (serving asits Treasurer), and SMGC, each subsidiaries of SGC.

 

***KevinSeneca*** has served as a member of the board of directorsof SGC since December 2008.  Mr. Seneca’scurrent SGC board term expires in October 2010.  From November 2006 to November 2008,Mr. Seneca served as Treasurer of the Seneca Nation, and prior to thattime, Mr. Seneca was a small business operator and tobaccowholesaler.  Mr. Seneca also serves on the board of directors of SNFGC, STGC,SEGC, LGCC and SMGC, each subsidiaries of SGC.

 

***GloriaHeron*** has served as a member of the board of directors ofSGC since December 2008. Ms. Heron’s current SGC board term expiresin October 2009.  For the past eightyears, Ms. Heron has been engaged as a small business owner and, prior tothat time, was a manager with Seneca Gaming and Entertainment.  Ms. Heronalso serves on the board of directors of SNFGC, STGC, SEGC, and SMGC, eachsubsidiaries of SGC.

 

*AuditCommittee of the Board of Directors*

 

Ourboard of directors has established an audit committee to assist it with itsresponsibilities. The board handles all compensation and other mattersdirectly. The principal duties of our audit committee are as follows:

 

·                  to recommend board action related to the dischargeof the board of directors’ responsibilities with respect to overseeing theintegrity of our financial statements, our compliance with legal and regulatoryrequirements, our risk assessment and risk management policies and procedures,and the performance of our internal and external audit functions;

 

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

 

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

 

·                  to perform an annual evaluation of the committeeitself; and

 

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

 

Theaudit committee is comprised of members from the board of directors. Themembers of our audit committee are Maurice A. John, Sr., chairman of thecommittee, N. Cochise Redeye, and Jeffrey L. Gill.

 

*AuditCommittee Financial Expert*

 

Theboard of directors has determined that it does not have an audit committeefinancial expert.  While we are notrequired to 

 

76

----

Tableof Contents

 

havean audit committee financial expert, committee members intend to pursue ongoingprofessional development and training to enhance their financial expertise, andthe board of directors has looked, and expects to continue to look either foran individual meeting the requisite criteria of an audit committee financialexpert to serve on our board and audit committee, or to obtain the benefit ofsuch expertise through the use of one or more outside experts or consultants.

* *

*Code ofEthics*

 

We have adopted a Code ofBusiness Conduct and Ethics applicable to all of our employees, including ourprincipal executive officer, principal financial officer and principalaccounting officer and all other senior executives, and to our directors whenacting in their capacity as directors. Our Code of Business Conduct and Ethicsis designed to set the standards of business conduct and ethics and to helpdirectors and employees resolve ethical issues. The purpose of our Code ofBusiness Conduct and Ethics is to ensure to the greatest possible extent thatour business is conducted in a consistently legal and ethical manner. Employeesmay submit concerns or complaints regarding audit, accounting, internalcontrols or other ethical issues on a confidential basis by means of atoll-free telephone call or an anonymous email. We investigate all concerns andcomplaints.  Our Code of Business Conductand Ethics is available to investors on our website atwww.senecagamingcorporation.com or free of charge upon written request. Anysuch request should be sent by mail to Seneca Gaming Corporation, 310 FourthStreet, Niagara Falls, New York (Seneca Nation Territory) 14303, Attn: GeneralCounsel or should be made by telephone by calling (716) 299-1100.

 

We intend to disclose onour website amendments to, or waivers from, any provision of our Code ofBusiness Conduct and Ethics that applies to our principal executive officer,principal financial officer, principal accounting officer or persons performingsimilar functions, and that relates to any element of the code of ethicsdefinition enumerated in Item 406(b) of Regulation S-K.

 

**Item 11.Executive Compensation**

 

**CompensationDiscussion And Analysis**

 

**Overview**

 

This Item provides ananalysis of our compensation program and policies for our named executiveofficers, the material compensation decisions we have made under such programand policies, and the material factors that we considered in making thosedecisions.  For the purposes of this Item 11, our “named executiveofficers” are as follows:

 

·                  E. Brian Hansberry, President and Chief ExecutiveOfficer;

 

·                  David Sheridan, Chief Financial Officer commencing July 1,2008;

 

·                 Patrick M. Fox, who held the office ofChief Financial Officer until April 11, 2008;

 

·                  Barry W. Brandon, who held the office of Senior VicePresident and General Counsel until November 13, 2008;

 

·                  Rajat Shah, Senior Vice President ofCorporate Development and General Counsel; and

 

·                  Catherine Walker, Chief Operating Officercommencing April 25, 2008.

 

**CompensationObjectives and Philosophy**

 

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

 

In light of this highlycompetitive market, the objectives of our compensation program are to attractexecutive officers, and to motivate and reward named executive officers todrive the successful implementation of the Company’s current and long-termfinancial and operating goals and to encourage retention.

 

77

----

Tableof Contents

 

**Roles inEstablishing Executive Compensation**

** **

Compensation for ournamed executive officers is set by our full board of directors and not by acompensation committee.We do not have a standing compensation committee or committeeperforming similar functions.  The entireboard of directors participates in the consideration of compensation for ournamed executive officers.  The board ofdirectors has historically relied on the recommendations and input of thePresident and CEO in making compensation decisions for the named executive officerssubordinate to the President and CEO, as a component of employment agreementnegotiations.  Additionally, in 2005 andagain in 2007, we engaged Towers Perrin as its independent consultant to assistus in benchmarking executive compensation, and in particular, the compensationfor the President and CEO.  The purposeof the 2005 Towers Perrin engagement was to assess the competiteness of ourexecutive compensation program to help ensure that our compensation program wascompetitive with market levels.

 

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

 

**Overviewof Compensation Program**

 

The key elements of thecompensation package provided to our named executive officers includes:

 

·                  base salary, which provides fixedcompensation based on competitive market practice;

 

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

 

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

 

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

 

We are wholly-owned by,and a governmental instrumentality of, the Nation, and cannot grant equityawards or options to our executives.  Wehave therefore used cash compensation and benefits as the primary components ofexecutive compensation.  Historically,such cash compensation has included a substantial performance based cashbonus.  However, in August 2006, theBoard generally suspended the use of such performanced based bonus for itsexecutives and has instead increased the levels of guaranteed annual basecompensation payable to such executives. The board of directors’ actions were driven in substantial part upon thefact that performance targets and development milestones were easily met inlight of our rapid and substantial growth, and did not serve their intendedpurposes. As described above, our compensation program for named executiveofficers continues to undergo analysis by the board of directors.

 

**Elementsof Named Executive Officer Compensation**

 

*AnnualBase Compensation.*Annual base compensation serves as theprimary component of our executives’ overall compensation.  Annual base compensation amounts are setforth in each named executive officer’s respective employment agreements andare intended to be reasonably related to the base salary levels of executiveofficers of comparable companies in the gaming and hospitality fields and inthe geographical region in which we are located. Our named executive officers’base salary levels were not objectively determined with a formula but insteadreflect levels that the board of directors concluded were appropriate basedupon position, experience and the recommendations of senior executives.  Base salaries are periodically reviewed totake into account such factors as individual past performance and changes induties or responsibilities.  The board ofdirectors reserves the right to award discretionary bonuses or incentivecompensation to executives.

 

78

----

Tableof Contents

 

*SeveranceBenefits.*We providefor severance benefits determined in accordance with each named executiveofficer’s employment agreement.  Theseverance benefits primarily consist of our agreement to pay base compensationfor a defined period following termination, ranging from six to eighteenmonths.

 

*RetirementBenefits.*Named executive officers may elect to participatein retirement plan benefits under our 401(k) plan generally available toall of our full time employees, and are eligible for an employer matchingcontribution.

* *

*OtherCompensation and Perquisites*. In addition to the compensationdescribed above, we also provide the executive officers with other benefits toassist us in remaining competitive in the marketplace and to encourage suchnamed executive officers to remain with us. Although we do not view perquisites as a significant element of ourcomprehensive compensation structure, we do believe that they can be used inconjunction with base salary to attract, motivate and retain individuals in acompetitive environment.  In particular,we have an executive medical reimbursement plan pursuant to which namedexecutive officers are entitled to reimbursement for up to $100,000 inotherwise uncovered medical expenses. We pay all premiums for this plan onbehalf of our named executive officers. As of September 30, 2008, theannual premium cost was approximately $750 plus an 11% processing fee appliedto all eligible reimbursements for each named executive officer covered by thisplan.  Named executive officers are alsoeligible to receive several additional perquisites including reimbursement forgas usage and dry cleaning services, and limited personal use of our resortamenities.

 

We do not have a pensionplan, a non-qualified defined contribution plan, or any other non-qualifieddeferred compensation plans.

 

*Employment Agreements. *We enter into employmentagreements with each of our named executive officers to help ensure theretention of such executive officers. The employment agreements provide, amongother matters, the annual base salary and severance benefits available to thesenamed executive officers.

 

**Elements of CEO Compensation**

** **

Thecompensation terms for Brian Hansberry, our current President and CEO, differfrom those of our other current named executive officers in that he is the onlyexecutive entitled to receive a “retention bonus”, which was in the amount of$532,500 for Fiscal 2008.  This retentionbonsus supplements his annual base compensation of $360,000, which amount wasoriginally established upon Mr. Hansberry’s appointment as the General Managerof the Seneca Niagara Casino and Hotel. The retention bonus is treated in the same manner as Mr. Hansberry’sannual base compensation, and is paid weekly on a pro rata basis.  The foregoing compensation terms were enteredinto upon Mr. Hansberry’s agreement to serve as interim President and CEOand were intended to be superseded in the event Mr. Hansberry wasappointed as the permanent President and CEO. Mr. Hansberry was appointed permanent President and CEO on September 19,2007.  The terms of Mr. Hansberry’snew employment agreement are still under negotiation, and Mr. Hansberrywill be paid under the financial terms set during Fiscal 2008 until the earlierof (a) execution of his new employment agreement or (b) expiration ortermination of the current agreement.

 

**Compensation Committee Report**

** **

We do not have a standingcompensation committee or committee performing similar functions.  Compensation for our named executive officersis set by our full board of directors and not by a compensation committee.The entire board of directorsparticipates in the consideration of compensation for our named executiveofficers.  In such capacity, the board ofdirectors has reviewed and discussed the preceding Compensation Discussion andAnalysis with management, and recommends that the Compensation Discussion andAnalysis be included in this Annual Report on Form 10-K.

 

*Board ofDirectors*

* *

Barry E. Snyder, Sr.

Maurice John, Sr.

Maribel Printup

N. Cochise Redeye

Kevin Seneca

Gloria Heron

 

79

----

Tableof Contents

 

**SUMMARY COMPENSATION TABLE**

 

The following table setsforth information regarding compensation for the fiscal year ended September 30,2008 earned by or paid to our named executive officers.

 
| **Name  and  Principal  Position**                                  | ** ** | **Year**   | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Incentive  Plan  Compensation  ($)** | ** ** | **Change in  Pension Value  and  Nonqualified  Deferred  Compensation  Earnings  ($)** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|---------------------------------------------------------------------|------------|------------|------------|-----------------|------------|----------------|------------|------------------------|------------|-------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|----------------|------------|
| **(a)**                                                             | ** ** | **(b)**    | ** ** | **(c)**         | ** ** | **(d)**        | ** ** | **(e)**                | ** ** | **(f)**                 | ** ** | **(g)**                                            | ** ** | **(h)**                                                                                          | ** ** | **(i)**                               | ** ** | **(j)**        | ** ** |
| ** **                                                          | ** ** | ** ** | ** ** | ** **      | ** ** | ** **     | ** ** | ** **             | ** ** | ** **              | ** ** | ** **                                         | ** ** | ** **                                                                                       | ** ** | ** **                            | ** ** | ** **     | ** ** |
| E. Brian Hansberry                                                  |       | 2008       |       | 360,000         |       | 532,500        | ** ** | **—**             | ** ** | **—**              | ** ** | **—**                                         | ** ** | **—**                                                                                       |       | 15,641                                | (2)        | 908,141        |       |
| President and CEO (1)                                               |       | 2007       |       | 360,000         |       | 304,616        | ** ** | ** **             | ** ** | ** **              | ** ** | ** **                                         | ** ** | ** **                                                                                       |       | 3,277                                 |       | 667,892        |       |
|                                                                |       |       |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                  |       |           |       |
| Patrick M. Fox                                                      |       | 2008       |       | 187,500         | ** ** | **—**     | ** ** | **—**             | ** ** | **—**              | ** ** | **—**                                         | ** ** | **—**                                                                                       |       | 186,329                               | (4)        | 373,829        |       |
| Former Chief Financial Officer (3)                                  |       | 2007       |       | 325,000         |       | —         |       | —                 |       | —                  |       | —                                             |       | —                                                                                           |       | 4,750                                 |       | 329,750        |       |
|                                                                |       |       |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                  |       |           |       |
| David Sheridan                                                      |       | 2008       | ** ** | 81,250          |       | —         |       | —                 |       | —                  |       | —                                             |       | —                                                                                           |       | 208                                   | (6)        | 81,458         | ** ** |
| Chief Financial Officer (5)                                         |       | 2007       | ** ** | —          |       | —         |       | —                 |       | —                  |       | —                                             |       | —                                                                                           |       | —                                |       |  —   | ** ** |
|                                                                |       |       |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                  |       |           |       |
| Barry W. Brandon                                                    |       | 2008       |       | 700,000         |       | —         |       | —                 |       | —                  |       | —                                             |       | —                                                                                           |       | 30,642                                | (8)        | 730,642        |       |
| Former Senior Vice President and General Counsel (7)                |       | 2007       |       | 700,000         |       | —         |       | —                 |       | —                  |       | —                                             |       | —                                                                                           |       | 17,613                                |       | 717,613        |       |
|                                                                |       |       |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                  |       |           |       |
| Rajat Shah                                                          |       | 2008       |       | 700,000         |       | —         |       | —                 |       | —                  |       | —                                             |       | —                                                                                           |       | 15,464                                | (9)        | 715,464        |       |
| Senior Vice President of Corporate Development and  General Counsel |       | 2007       |       | 700,000         |       | —         |       | —                 |       | —                  |       | —                                             |       | —                                                                                           |       | 3,154                                 |       | 703,154        |       |
|                                                                |       |       |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                  |       |           |       |
| Catherine Walker                                                    |       | 2008       | ** ** | 428,366         |       | —         |       | —                 |       | —                  |       | —                                             |       | —                                                                                           |       | 9,269                                 | (11)       | 437,635        | ** ** |
| Chief Operating Officer (10)                                        |       | 2007       | ** ** |  —    |       | —         |       | —                 |       | —                  |       | —                                             |       | —                                                                                           |       |  —                          |       |  —   | ** ** |

 

----

(1)             Mr. Hansberry became our Interim President andCEO on February 7, 2007, and our permanent President and CEO on September 19,2007.  Mr. Hansberry’s currentemployment agreement provides for a “retention bonus” in the amount of $495,000for Fiscal 2007 and $532,500 for Fiscal 2008, in addition to his then-existingbase compensation of $360,000.  Theretention bonus is paid weekly.

 

(2)             All other compensation in column (i) for Mr. Hansberryincludes 401(k) matching contributions from the Company in the amount of$3,075 and $12,566 in the aggregate for limited perquisites which includereimbursement under the Exec-U-Care® medical insurance program, Company-fundeddry cleaning services and gas purchases.

 

(3)             Mr. Fox resigned as our principal financialofficer effective as of April 11, 2008.

 

(4)             All other compensation in column (i) for Mr. Foxincludes severance compensation paid under the executive’s separation agreementin the amount of $160,715, payment for earned vacation in the amount of$12,500, 401(k) matching contributions from the Company in the amount of$3,075 and $10,038 in the aggregate for limited perquisites which include reimbursementunder the Exec-U-Care® medical insurance program, Company-funded dry cleaningservices and gas purchases.

 

(5)             Mr. Sheridan was appointed as our principalfinancial officer effective July 1, 2008.

 

80

----

Table ofContents

 

(6)             All other compensation in column (i) for Mr. Sheridanincludes $208 in the aggregate for limited perquisites which includereimbursement under the Exec-U-Care® medical insurance program, Company-fundeddry cleaning services and gas purchases.

 

(7)             Mr. Brandon’s employment as our Senior VicePresident and General Counsel terminated effective November 13, 2008.

 

(8)             All other compensation in column (i) for Mr. Brandonincludes 401(k) matching contributions from the Company in the amount of$3,075, reimbursement under the Exec-U-Care® medical insurance program, aperquisite, in the amount of $15,832 and $11,735 in the aggregate for limitedperquisites which include Company-funded dry cleaning services and gaspurchases.

 

(9)             All other compensation in column (i) for Mr. Shahincludes 401(k) matching contributions from the Company in the amount of$3,075 and $12,389 in the aggregate for limited perquisites which includereimbursement under the Exec-U-Care® medical insurance program, Company-fundeddry cleaning services and gas purchases.

 

(10)       Ms. Walker was appointed as our Chief OperatingOfficer effective April 25, 2008.

 

(11)       All other compensation in column (i) for Ms. Walkerincludes 401(k) matching contributions from the Company in the amount of$2,856 and $6,413 in the aggregate for limited perquisites which includereimbursement under the Exec-U-Care® medical insurance program, Company-fundeddry cleaning services and gas purchases.

 

**ExecutiveEmployment Agreements**

** **

The primary components ofeach current named executive officer’s compensation described in the aboveSummary Compensation Table are set forth in a written employment agreementbetween SGC and the executive.  Thematerial provisions of such agreements are described below.   Potential payments upon termination and theconditions to such payments are discussed separately below.

 

***E.Brian Hansberry. ***On April 12, 2007, SGC and Mr. Hansberryentered into a new employment agreement effective as of February 7, 2007,with a term continuing through September 30, 2009. Under the employmentagreement, Mr. Hansberry is entitled to annual base compensation of$360,000, with such salary to be reviewed by the board of directors on anannual basis (prior to or in connection with the close of SGC’s fiscal year) atwhich time the board of directors will determine in its sole discretion whetheror not his salary will be increased and the timing thereof.  In additionto base salary, for so long as Mr. Hansberry served as Interim Presidentand Chief Executive Officer, Mr. Hansberry was entitled to, and received,a retention bonus at an annual rate of $495,000 for the fiscal year ending September 30,2007 and $532,500 for the fiscal year ending September 30, 2008.  Mr. Hansberry was selected as thepermanent President and CEO of the Corporation on September 19, 2007.  Mr. Hansberry’s current agreement(intended to address the time period during which he served as interimPresident and CEO) provides that the parties will amend Mr. Hansberry’semployment agreement or will enter into a new agreement to reflect the changein Mr. Hansberry’s position, together with any other applicable changes tothe terms and conditions of Mr. Hansberry’s employment, includingcompensation.  Mr. Hansberry’s new employment agreement remains undernegotiation.  For Fiscal 2009, asnegotiations continue, Mr. Hansberry is being compensated under thefinancial terms established for Fiscal 2008.

 

***DavidSheridan. ***Mr. Sheridan and SGC entered into anemployment agreement effective as of July 1, 2008, pursuant to which Mr. Sheridanserves as Chief Financial Officer of each of SGC, SNFGC, STGC andSEGC through June 30,2011, unless his agreement is terminated earlier pursuant to the terms of theagreement or renewed by subsequent written agreement.  The agreementfurther provides for an annual base salary of $325,000 for the Corporation’sfiscal year ending September 30, 2008, after which time the Corporationshall determine in its discretion whether to increase his salary and the timingthereof.  Mr. Sheridan may also be eligible for a performance bonusin the sole discretion of the Corporation’s board of directors.

 

***RajatR. Shah.***    Mr. Shahand SGC entered into an employment agreement on April 28, 2005, pursuantto which Mr. Shah agreed to serve as Senior Vice President of CorporateDevelopment and Deputy General Counsel of each of SGC, SNFGC, STGC and SEGCthrough September 30, 2008, unless his employment is terminated earlierpursuant to the terms of the agreement or renewed by subsequent writtenagreement. Mr. Shah’s employment agreement was amended as of September 14,2006 to, among other matters, extend the term of the agreement through September 30,2009, and to reflect certain changes to Mr. Shah’s compensation.  Mr. Shah commenced serving as GeneralCounsel effective November 13, 2008, but this change has not yet beenreflected in his employment agreement. Mr. Shah had served as Deputy General Counselfrom May 2005 through January 2007, and continues to serve as Senior VicePresident of Corporate Development.  Mr. Shahis entitled to receive a minimum annual base salary of $700,000 for each offiscal years ending September 30, 2008 and September 30, 2009, withsuch minimum amounts subject to increase based upon negotiations between SGCand Mr. Shah.  Mr. Shah mayalso be eligible for a performance bonus in the sole discretion of theCorporation’s board of directors.

 

81

----

Table of Contents

 

***CatherineWalker. ***Ms. Walker and SGC entered into anemployment agreement effective as of March 16, 2008, pursuant to which Ms. Walkerserves as Chief Operating Officer of each of SGC, SNFGC, STGCand SEGC through March 15, 2011, unless her employment is terminatedearlier pursuant to the terms of the agreement or renewed by subsequent writtenagreement.  Theagreement further provides for an annual base salary of $825,000 for theCorporation’s fiscal year ending September 30, 2008, after which time theCorporation shall determine in its discretion whether to increase her salaryand the timing thereof.  Ms. Walker may also be eligible for a performancebonus in the sole discretion of the Corporation’s board of directors.

 

***Separation Matters***

*** ***

In connection with hisresignation effective as of April 11, 2008, SGC entered into a SeparationAgreement with Mr. Fox providing for, among other matters, termination ofemployment effective as of April 11, 2008, accelerated payment of basecompensation (at a rate of $325,000 per year) for a period of 180 daysfollowing the date of termination, prohibitions against engaging in aCompetitive Business (as defined in the Separation Agreement) or soliciting SGCemployees for a period of 12 months after termination, ongoing agreement toreasonably cooperate with SGC following termination with regard to transitionand related matters, and mutual releases of all claims.  The SeparationAgreement further provided for reimbursement of health insurance premiums andcontinuing participation in Exec-U-Care® for a period of six monthspost-termination. The Corporation’s payment and reimbursement obligationsterminated in October 2008.

 

In connection with hisdeparture from SGC effective as of November 13, 2008, Mr. Brandon isentitled to continued payment of his $700,000 base salary through September 30,2009, subject to a duty to mitigate damages. SGC is further obligated to pay for the cost of (i) Mr. Brandon’spremiums for continuation healthcare coverage under Section 4980B of theInternal Revenue Code of 1986, as amended (COBRA), and (ii) the premiumsfor Exec-u-Care® through the earlier of (x) September 30, 2009, (y) thetime Mr. Brandon is no longer eligible for COBRA continuation coverage, or(z) the time Mr. Brandon obtains comparable healthcare benefits fromany other employer during the severance period.

 

**Potential Payments to NamedExecutive Officers Upon Termination**

** **

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

 

***TriggeringEvents***.  Each namedexecutive officer is entitled to receive severance payments in the event of anytermination of his employment by us, except in the case of the followingevents:

 

·                  Anyof the executive’s license(s) required pursuant to the Compact and/or by theNation’s gaming ordinances are revoked or disapproved;

 

·                  Disapprovalby the NIGC of the issuance of any license by the Nation pursuant to its owngaming ordinances, if any such action renders it unlawful for the executive toperform in the capacity set forth in his employment agreement;

 

·                  Inthe case of Mr. Hansberry, Ms. Walker, and Mr. Shah, if anyevent renders it unlawful for the Nation and/or SGC to continue to conductcasino gaming on the Nation’s territories or if SGC permanently ceases for any reasonwithin SGC’s or the Nation’s control to conduct casino gaming on NationTerritory;

 

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

 

·                  anact of dishonesty intended to result in gain or personal enrichment of theexecutive or others at the expense of SGC or any of its affiliates;

 

·                  thedeliberate and intentional refusal by the executive (except by reason ofdisability) to perform executive’s duties; 

 

·                  actsor omissions of the executive constituting gross negligence in the performanceof the executive’s duties; or

 

·                  Andin the case of Mr. Hansberry, Ms. Walker, and Mr. Sheridan, thefailure to perform any material term or condition of their employmentagreements after written notice thereof from SGC and a reasonable opportunityto cure such failure (as determined by SGC and specified in the notice ofbreach).

 

·                  Theexecutive dies or becomes unable to perform the duties and responsibilities setforth in his employment agreement for a period of 180 days in any 365 day periodby reason of long-term physical or mental disability; or

 

82

----

Table of Contents

 

·                  The executiveresigns or elects to terminate his or her employment agreement for any reason.

 

***Payments*.**  If severance is owed to one of our namedexecutive officers, we will be obligated to continue to pay the executive hisor her base compensation in effect as of the date of termination for aseverance period following his or her termination equal to the lesser of (a) 18 months or (b) the remainder of the employment term specified in theemployment agreement.  Additionally, SGCwill be obligated, to the extent elected by the executive, to pay for the costof (i) the executive’s premiums for continuation healthcare coverage underSection 4980B of the Internal Revenue Code of 1986, as amended (COBRA),and (ii) the premiums for Exec-u-Care® or any similar executive medicalreimbursement insurance plan maintained by SGC on the date the executive’semployment is terminated, for the lesser of (x) the severance period, (y) untilthe executive is no longer eligible for COBRA continuation coverage, or (z) untilExecutive obtains comparable healthcare benefits from any other employer duringthe severance period.

 

The following table setsforth a summary of the estimated payments required to be made by SGC as ifseverance had been triggered under the named executive officers’ employmentagreements on September 30, 2008.

 
| **Name  and  Principal  Position**                                             | ** ** | **Continued Payment  of Base  Compensation  ($)**

**(1)** | ** ** | **Estimated Exec-  U-Care Cost  ($)  (2)** | ** ** | **Estimated  COBRA Cost  ($)  (3)** | ** ** | **Total Severance  Compensation ($)** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                     | ** ** | ** **                                                           | ** ** | ** **                                           | ** ** | ** **                               | ** ** | ** **                                      | ** ** |
| Catherine Walker  Chief Operating Officer                                      |       | 1,237,500                                                            |       | 13,500                                               |       | 5,157                                    |       | 1,256,157                                       |       |
|                                                                           |       |                                                                 |       |                                                 |       |                                     |       |                                            |       |
| Rajat Shah  Senior Vice President of Corporate Development and General Counsel |       | 700,000                                                              |       | 9,000                                                |       | 13,691                                   |       | 722,691                                         |       |
|                                                                           |       |                                                                 |       |                                                 |       |                                     |       |                                            |       |
| Barry W. Brandon, Former  Sr.Vice President and General Counsel (4)            |       | 700,000                                                              |       | 9,000                                                |       | 13,691                                   |       | 722,691                                         |       |
|                                                                           |       |                                                                 |       |                                                 |       |                                     |       |                                            |       |
| David Sheridan  Chief Financial Officer                                        |       | 487,500                                                              |       | 13,500                                               |       | 13,604                                   |       | 514,604                                         |       |
|                                                                           |       |                                                                 |       |                                                 |       |                                     |       |                                            |       |
| E. Brian Hansberry  President and CEO                                          |       | 360,000                                                              |       | 9,000                                                |       | 13,691                                   |       | 382,691                                         |       |

 

----

(1)                                        Severanceis payable to the named executive officers for the lesser of thepost-termination severance period specified in the named executive officer’semployment agreement or the remainder of such executive’s original term ofemployment (as if employment had not been terminated prior to expiration of thespecified term).  The employmentagreements of Messrs. Hansberry, Shah and Brandon expire on September 30,2009.

 

(2)                                       EstimatedExec-U-Care® cost is based on the average experienced total Exec-U-Care® costsfor all individuals and the length of severance period per agreement for eachexecutive, 18 months or 12 months, as applicable.

 

(3)                                       EstimatedCOBRA cost is based on the individual COBRA cost as of October 1, 2008,and the applicable severance period  foreach named executive officer (18 months, or 12 months, as applicable).  Amounts for Messrs. Brandon and Fox arecalculated based upon their actual severance periods calculated from the dateof termination.

 

(4)                                       Mr. Brandon’semployment terminated effective November 13, 2008 and Mr. Brandon iseligible to receive severance compensation until September 30, 2009,subject to the terms of his employment agreement.

 

***ConditionsApplicable to Payment*. **Payment of severance as described above is subject to numerousconditions, as follows:

 

83

----

Tableof Contents

 

·                  Dutyto Mitigate Damages.  Terminatedexecutives are required to mitigate damages by seeking employment with dutiesand salary comparable to those provided for in the employment agreements; ifthe executive obtains  employment, theexecutive is required to reimburse SGC for the amount of the compensation he orshe has received from such other entity for such period, but not to exceed theamount of the compensation SGC shall have paid him or her for such period.

 

·                  Noncompete.  Terminated executives may not (i) enterinto the employ of or render any services to any person, engaged in aCompetitive Business (defined as any gaming establishment which provides to itspatrons games of chance such as slot machines, card games, roulette, andsimilar games in the State of New York or within the 100 mile radius of NationTerritory (as defined in the agreement)); or (ii) become associated withor interested in any Competitive Business (as defined in the agreement) as anindividual, partner, shareholder, member, creditor, director, officer,principal, agent, employee, trustee, consultant, advisor or in any otherrelationship or capacity.  The foregoing applies for a period of 18 monthsin the case of Mr. Hansberry, Ms. Walker, Mr. Shah, Mr. Sheridanand Mr. Brandon, and 12 months in the case of Mr. Fox.

 

·                  Nonsolicitation.  Terminated executives may not directly orindirectly solicit, employ or retain, or have or cause any other person orentity to solicit, employ or retain, any person who is employed or is providingpersonal services to SGC.  Terminated employeesfurther agree not to solicit patrons of SGC. The foregoing applies for a period of 18 months in the case of Mr. Hansberry,Ms. Walker, Mr. Shah, Mr. Sheridan, and Mr. Brandon, and 12months in the case of Mr. Fox.

 

·                  OtherRestrictive Covenants.  Terminatedexecutives agree not to disclose and to protect on an ongoing basis theconfidential and proprietary information of SGC, and further agree not todisparage SGC, its employees or affiliates.

 

·                  Release.  The terminated executive is required to releaseSGC, its employee and affiliates from any and all claims arising out of theexecutive’s employment or termination of employment.

 

**Director Compensation**

** **

SGC’s directors receivethe following compensation: (i) the Chairman of the SGC Board receives a$100,000 annual fee; (ii) each non-Nation employee director receives a$40,000 annual fee; and (iii) each Nation employee director receives $500per meeting.  In addition, we reimburse directors for reasonable traveland other expenses incurred in connection with their duties as directors ofSGC. The directors are also entitled to all other non-compensatory benefitsavailable to our employees, including, but not limited to, health, dental anddisability benefits.

 

**Director Compensation Table**

 

The following table setsforth information regarding compensation for the fiscal year ended September 30,2008 for each member who served on our Board of Directors:

 
| **Name**                     | ** ** | **Year**   | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Incentive  Plan  Compensation  ($)** | ** ** | **Change in  Pension Value  and  Nonqualified  Deferred  Compensation  Earnings  ($)** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|------------------------------|------------|------------|------------|-----------------|------------|----------------|------------|------------------------|------------|-------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|----------------|------------|
| **(a)**                      | ** ** | **(b)**    | ** ** | **(c)**         | ** ** | **(d)**        | ** ** | **(e)**                | ** ** | **(f)**                 | ** ** | **(g)**                                            | ** ** | **(h)**                                                                                          | ** ** | **(i)**                               | ** ** | **(j)**        | ** ** |
| ** **                   | ** ** | ** ** | ** ** | ** **      | ** ** | ** **     | ** ** | ** **             | ** ** | ** **              | ** ** | ** **                                         | ** ** | ** **                                                                                       | ** ** | ** **                            | ** ** | ** **     | ** ** |
| Barry E.  Snyder, Sr.   |       | 2008       |       | $               | 100,000    | ** **     | **—** | ** **             | **—** | ** **              | **—** | ** **                                         | **—** | ** **                                                                                       | **—** | ** **                            | **—** |           | $          | 100,000 |   |
|                         |       |       |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                  |       |           |       |
| N. Cochise Redeye            |       | 2008       |       | $               | 40,000     | ** **     | **—** | ** **             | **—** | ** **              | **—** | ** **                                         | **—** | ** **                                                                                       | **—** | ** **                            | **—** |           | $          | 40,000 |   |
|                         |       |       |       |            |       | ** **     | ** ** | ** **             | ** ** | ** **              | ** ** | ** **                                         | ** ** | ** **                                                                                       | ** ** | ** **                            | ** ** |           |       |   |   |
| Maribel Printup              |       | 2008       |       | $               | 40,000     | ** **     | **—** | ** **             | **—** | ** **              | **—** | ** **                                         | **—** | ** **                                                                                       | **—** | ** **                            | **—** |           | $          | 40,000 |   |
|                         |       |       |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                  |       |           |       |
| Michael A. John              |       | 2008       |       | $               | 40,000     | ** **     | **—** | ** **             | **—** | ** **              | **—** | ** **                                         | **—** | ** **                                                                                       | **—** | ** **                            | **—** |           | $          | 40,000 |   |
|                         |       |       |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                  |       |           |       |
| Maurice  John, Sr.      |       | 2008       |       | $               | 16,500     | ** **     | **—** | ** **             | **—** | ** **              | **—** | ** **                                         | **—** | ** **                                                                                       | **—** | ** **                            | **—** |           | $          | 16,500 |   |
|                         |       |       |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                  |       |           |       |
| Jeffrey L. Gill  (1)         |       | 2008       |       | $               | 30,000     |           | —     |                   | —     |                    | —     |                                               | —     |                                                                                             | —     |                                  | —     |           | $          | 30,000 |   |
|                         |       |       |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                  |       |           |       |
| Martin  Seneca, Jr. (2) |       | 2008       |       | $               | 13,333     | ** **     | **—** | ** **             | **—** | ** **              | **—** | ** **                                         | **—** | ** **                                                                                       | **—** | ** **                            | **—** |           | $          | 13,333 |   |
|                         |       |       |       |            |       |           |       |                   |       |                    |       |                                               |       |                                                                                             |       |                                  |       |           |       |
| Bergal L.  Mitchell (3)      |       | 2008       |       | $               | 40,000     | ** **     | **—** | ** **             | **—** | ** **              | **—** | ** **                                         | **—** | ** **                                                                                       | **—** | ** **                            | **—** |           | $          | 40,000 |   |
|                              |            |            |            |                 |            |                |            |                        |            |                         |            |                                                    |            |                                                                                                  |            |                                       |            |                |            |  |  |  |  |

 

84

----

Table ofContents

 

----

(1)          Commenced boardterm on January 24, 2008.

 

(2)          Board termterminated as of January 24, 2008, upon the appointment of Mr. Gill.

 

(3)          Resigned fromboard of directors effective September 20, 2008.

 

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

*** ***

As referenced above, SGCdoes not have a compensation committee, and the entire board of directorsincluding Maurice John, Sr., and Maribel Printup, each of whom are SGC officersand serve as Treasurer and Secretary, respectively, performs this function. Noexecutive officers of SGC serve on the compensation committee of any otherentity, nor do any SGC executive officers serve as directors of any entitieshaving executive officers who also serve on our board of directors.

 

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

 

We are wholly owned bythe Seneca Nation of Indians.

 

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

 

***Transactions with the Nation***

*** ***

Land Leases from the Nation

 

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

 

The SNFGC Head Lease(dated October 25, 2002) has a term of 21 years and covers use of the landand certain improvements existing at the commencement of such lease,principally including structures formerly known as the Niagara Falls ConventionCenter and Lackey Plaza.  As of October 1, 2005, monthly leasepayments under the SNFGC Head Lease were $1,287,500.  Effective October 1,2006, the lease payments were increased by 3% to $1,326,125 per month, andeffective October 1, 2007, the lease payments were increased by anadditional 3% to $1,365,909 per month, in each case as approved by the board ofdirectors of SGC and SNFGC.  Pursuant to the terms of the Amended andRestated SNFGC Head Lease entered into on March 27, 2008 and effective October 1,2007, lease payments were further increased, at the request of the Nation, to$2,033,333 per month, with such increase effective as of October 1,2007.  On August 1, 2008, at therequest of the Nation, SGC approved an increase in the SNFGC Head Lease to$3,083,333 per month, effective October 1, 2008, and to $3,666,667 permonth, effective October 1, 2009. Such additional increases are conditioned upon compliance with theapplicable requirements of the senior notes Indenture related to affiliatetransactions, and are subject to compliance with all commitments legallybinding upon the Nation or SNFGC, or to which the premises (described in thelease) are subject. The foregoing October 1, 2008 and October 1, 2009, rentincreases have not been implemented by the parties as they continue to take thesteps required to comply with SGC’s senior notes Indenture.  Lease payments may be further increased uponagreement of the parties, provided that no increase may contravene, orconstitute a default under, any agreement, indenture, instrument or othercommitment legally binding upon the Nation or SNFGC, or to which the premises(described in the lease) are subject.

 

The STGC (effective as ofMay 1, 2004) and SEGC (effective as of April 1, 2006) Head Leaseswere formerly oral agreements, which were memorialized in writing on March 2,2007.  Both of these Head Leases cover use of the land which is currentlybeing used or is expected to be used in operating the Seneca Allegany Casinoand Hotel and Seneca Buffalo Creek Casino, respectively.  The STGC andSEGC Head Leases are effective until the date 21 years after the commencementof the Nation’s Class III gaming operations under the Compact.  Withrespect to the STGC Head Lease, as of October 1, 2005, monthly leasepayments were $1,287,500.  Payments were increased by 3%, effective October 1,2006, to $1,326,125 

 

85

----

Tableof Contents

 

per month, and by anadditional 3%, effective October 1, 2007, to $1,365,909 per month, in eachcase as approved by the board of directors of STGC.  Pursuant to anamendment to the STGC Head Lease entered into on March 27, 2008, andeffective as of October 1, 2007, the lease payments were increased , atthe request of the Nation, to $1,691,667 per month.  On August 1, 2008, at the request of theNation, SGC approved increases in the lease payments under the STGC Head Leaseto $2,166,666 per month effective October 1, 2008, and to $2,666,667 permonth effective October 1, 2009.

 

With respect to the SEGCHead Lease,  for the first six months of the term, SEGC made monthly leasepayments of $520,000 to the Nation.  Payments were increased, effective October 1,2006, to $1,250,000, and by an additional 3%, effective October 1, 2007 to$1,287,500, in each case as approved by the board of directors of SEGC. Pursuant to an amendment to the SEGC Head Lease entered into on March 27,2008, and effective as of October 1, 2007, the lease payments wereincreased, at the request of the Nation, to $1,441,667 per month.  On August 1, 2008, at the request of theNation, SGC approved an increase in the lease payments under the SEGC HeadLease to $1,500,000 per month effective October 1, 2008.

 

The August 1, 2008STGC and SEGC lease payment increases are conditioned upon compliance with the applicablerequirements of the senior notes Indenture related to affiliate transactions,and are subject to compliance with all commitments legall y binding upon theNation, STGC or SEGC, as the case may be, or to which the premises (describedin the lease) are subject.  Leasepayments under the STGC and SEGC Head Leases may be further increased uponagreement of the parties, provided that no increase may contravene, orconstitute a default under any agreement, indenture, instrument or othercommitment legally bining upon the Nation, STGC or SEGC, respectively, or towhich the premises (described in the leases) are subject.

 

The foregoing October 1,2008 and October 1, 2009, rent increases have not been implemented by theparties as they continue to take the steps required to comply with SGC’s seniornotes Indenture.

 

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

 
| ** ** | ** ** | **2008**   | ** ** | **2007**               | ** ** | **2006**   | ** ** |
|------------|------------|------------|------------|------------------------|------------|------------|------------|
| ** ** | ** ** | ** ** | ** ** | **(In Millions)** | ** ** | ** ** | ** ** |
| SNFGC      |       | $          | 24.4       |                   | $          | 15.9       |       | $ | 15.5 |   |
| STGC       |       | 20.3       |       | 15.9                   |       | 15.5       |       |
| SEGC       |       | 17.3       |       | 15.0                   |       | 3.1        |       |
|       |       | $          | 62.0       |                   | $          | 46.8       |       | $ | 34.1 |   |

 

Reimbursementof Regulatory Costs

 

Wereimburse the Nation for all of the regulatory costs of the SGA, the New YorkState Racing and Wagering Board and the New York State Police, which areincurred by the Nation. For Fiscal 2008, we incurred approximately $20.5million for regulatory costs, of which $9.6 million was incurred for New YorkState Police and New York State Gaming Officials costs, and $10.9 million wasincurred for charges assessed by the Seneca Gaming Authority.

 

GeneralDistributions

** **

We makedistributions to the Nation pursuant to resolutions adopted by our board ofdirectors for specific projects identified by the Nation and for generalpurposes.  During Fiscal 2008, wedistributed $50.9 million to the Nation pursuant to such resolutions.

 

DistributionAgreement Obligations

 

DuringFiscal 2008, we distributed $14.9 million to the Nation pursuant to SGC’sobligations under the Distribution Agreement. See Item 1 Business—Material Agreements for a description of theDistribution Agreement.

 

New YorkState Exclusivity Fee under the Compact

 

DuringFiscal 2008, SGC distributed approximately $115.7 million to the Nation for thepayment of the exclusivity fee to New York State for revenue generated through September 30,2008.

 

86

----

Table of Contents

 

Class II Poker Operations

 

As of January 1, 2005, we transferred all Class IIoperations to the Nation, including our poker operations.  We lease space within both Seneca NiagaraCasino & Hotel and Seneca Allegany Casino to the Nation for operationof the poker rooms.  During Fiscal 2008,Fiscal 2007, and Fiscal 2006, we recorded $822,000, $695,000, and $806,000, ofrental income, respectively, and at September 30, 2008, and September 30,2007, we had recorded $81,000 and $58,000, respectively, as a receivable fromthe Nation relating to poker room rentals.

** **

ConstructionManagement Services

 

SGC has engaged SenecaConstruction Management Corporation (SCMC) on a project-by-project basis tomanage certain construction projects on behalf of SGC and itssubsidiaries.  SCMC is wholly-owned bythe Nation.  During Fiscal 2008, SGC madepayments to SCMC for construction management fees and other related costs of$6.4 million, primarily attributable to work in connection with the followingprojects:

 

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

 

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

 

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

 

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

 

SGC has also engaged SCMCto perform construction management services for smaller capital improvementprojects on case-by-case basis, including conversion of the former Hushnightclub into the Blues restaurant, and renovations to certain interiorcomponents of the Seneca Niagara Falls Casino and Hotel and adjacent officespace.

 

***Related Party Transactions***

* *

DuringFiscal 2008, STGC paid M&M Allegany Junction approximately $233,000 forleasing the building used by STGC for administrative purposes. Merle Watt, Sr.,the brother of Maribel Printup, a member of our board of directors, is aprincipal owner of M&M Allegany Junction.

 

Reference is made to “Directorsand Executive Officers of the Registrant” for a discussion of certain mattersrelating to the compensation and employment of our executive officers andcompensation of our directors.

 

**Review, Approval or Ratificationof Transactions with Related Persons**

** **

Our audit committeecharter requires that the audit committee review and approve or disapprove allrelated party transactions, and our written Code of Business Conduct and Ethicsfurther requires that any transaction involving a potential conflict ofinterest involving an executive officer or a member of our Board of Directorsmust be disclosed and approved by our full Board of Directors, unless suchtransaction also constitutes a “related party transaction” under the SEC’srules, in which case the transaction must be approved by the AuditCommittee.  Our corporate charter furtherprovides that no director may have an “economic interest” in any of the Company’sactivities.  The foregoing written rules constituteour current written policies relating to approval of related partytransactions.

 

Theagreement between STGC and M&M Allegany Junction has not been formallyreviewed or approved by the Audit 

 

87

----

Tableof Contents

 

Committeeof our board of directors in accordance with the above procedures on the basisthat the terms of the relationship were entered into in the ordinary course ofSTGC’s business in April 2004 prior to Ms. Printup’s appointment tothe Board of Directors in February 2005. It is anticipated that the potential renewal of the agreement in Fiscal2009 will be presented to the Audit Committee for approval.

 

**DirectorIndependence**

 

We area governmental instrumentality of the Nation and are managed by a board ofdirectors of seven members, not less than five of whom must be enrolled membersof the Nation. All directors are currently enrolled members of the Nation. TheNation’s Council, elected by enrolled members of the Nation, alone has thepower to appoint and remove our directors. No member of the Nation’s Councilmay serve on our board of directors, nor may any SGC employee or any personwith an economic interest in any of SGC’s activities.  Barry E. Snyder, Sr., the Chairman of ourBoard of Directors, currently also serves as the President of the Nation. 

 

We are100% owned by the Nation and have issued only debt securities which are notlisted on a national securities exchange or in an inter-dealer quotationsystem. As a result, we are not a listed issuer and a majority of the directorson our board of directors are not required to be independent.

 

**Item14.  Principal Accountant Fees andServices**

 

The following table setsforth the aggregate fees incurred by SGC related to the services of SGC’sindependent registered public accounting firm, Ernst & Young LLP forthe years indicated:

 
| ** **             | ** ** | **Fiscal Year September 30,** | ** ** |
|------------------------|------------|----------------------------------------------|------------|
| ** **             | ** ** | **2008**                                     | ** ** | **2007** | ** ** |
|                   |       |                                         |       |   |   |
| Audit fees(1)          |       | $                                            | 572,217    |   | $ | 592,539 |   |
| Audit-related  fees(2) |       | 240,879                                      |       | 36,933 |   |
| Tax fees(3)            |       | —                                       |       | 6,310 |   |
| Total                  |       | $                                            | 813,096    |   | $ | 635,782 |   |

 

----

(1)          Theaudit fees relate to the audit of SGC’s annual financial statements andquarterly reviews. Audit fees also include services for agreed upon proceduresreports in connection with the National Indian Gaming Commission requirements.

 

(2)          Auditrelated fee relate to audit services for SGC’s employee benefit plan and feesrelated to Sarbanes Oxley Act Section 404 compliance.

 

(3)          Taxfees related to the Lewiston Golf Course project.

 

**Preapprovalof Services Required**

 

Under the policies andprocedures established by our audit committee, each engagement for audit and permissiblenon-audit services to be provided by our independent registered publicaccounting firm must be approved by the audit committee. The preapprovalpolicy prohibits the independent registered public accounting firm fromproviding the following services: bookkeeping or other services related to ouraccounting records or financial statements; financial information systemsdesign and implementation; appraisal or valuation services; fairness opinionsor contribution-in-kind reports; actuarial services; internal audit outsourcingservices; management function services; human resource services; broker-dealer,investment adviser or investment banking services; legal services; and expertservices unrelated to the audit.

 

**PART IV**

 

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

 
| (a)1. and 2. |   | Financial statements required as a part of this  Annual Report on Form 10-K are listed on the “Index to Consolidated  Financial Statements” at page 90 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.             |   | A list of the exhibits required to be filed as part  of this report is set forth in the Exhibit Index immediately following the  Financial Statements, and is incorporated herein by reference.                                                                                                                                                        |
|              |   |                                                                                                                                                                                                                                                                                                                                                   |
| (b)               |   | See item (a)3. above.                                                                                                                                                                                                                                                                                                                                  |
|              |   |                                                                                                                                                                                                                                                                                                                                                   |
| (c)               |   | See item (a)1. and 2. above.                                                                                                                                                                                                                                                                                                                           |

 

88

----

Table ofContents

** **

**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, 2008.

 
|        |   | SENECA GAMING CORPORATION |
|--------|--------|---------------------------|
|   |   |                      |
|   |   |                      |   |
|   |   | By:                       |  /s/ E.  Brian Hansberry |
|   |   |                      | E. Brian Hansberry |
|   |   |                      | President and Chief Executive Officer |

** **

**POWER OF ATTORNEY**

 

Eachperson whose signature appears below constitutes and appoints E. BrianHansberry and David Sheridan, and each or any of them, his or her true andlawful attorney-in-fact and agent, each with full power of substitution andresubstitution, for him or her in his or her name, place and stead, in any andall capacities, to sign on his or her behalf individually and in each capacitystated below any or all amendments to this annual report on Form 10-K andany other documents in connection therewith, with the Securities and ExchangeCommission, granting unto said attorney-in-fact and agent, and each of them,full power and authority to do and perform each and every act and thingrequisite and necessary to be done in and about the premises, as fully to allintents and purposes as he or she might or could do in person, hereby ratifyingand confirming all that such attorneys-in-fact and agent, or his or theirsubstitute or substitutes, may lawfully do or cause to be done by virtuehereof.  This Power of Attorney may besigned in several counterparts.

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this annual reporthas been signed by the following persons on behalf of the registrant and in thecapacities and on the date indicated.

 
| **Signature**                 | ** ** | **Title**                                                             | ** ** | **Date**               |
|-------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------|
| ** **                    |       |                                                                  |       |                   |
| /s/ E. Brian Hansberry        |       | President and Chief Executive Officer (Principal  Executive Officer)  |       | December 29, 2008 |
| E. Brian Hansberry            |       |                                                                  |       |                   |
|                          |       |                                                                  |       |                   |
| /s/ David Sheridan            |       | Chief Financial Officer (Principal Financial and Accounting  Officer) |       | December 29, 2008 |
| David Sheridan                |       |                                                                  |       |                   |
|                          |       |                                                                  |       |                   |
| /s/ Barry E. Snyder, Sr. |       | Chairman of the Board of Directors                                    |       | December 29, 2008 |
| Barry E. Snyder, Sr.     |       |                                                                  |       |                   |
|                          |       |                                                                  |       |                   |
| /s/ Maurice A. John, Sr. |       | Treasurer and Director                                                |       | December 29, 2008 |
| Maurice A. John, Sr.     |       |                                                                  |       |                   |
|                          |       |                                                                  |       |                   |
| /s/ Maribel Printup           |       | Secretary and Director                                                |       | December 29, 2008 |
| Maribel Printup               |       |                                                                  |       |                   |
|                          |       |                                                                  |       |                   |
| /s/ N. Cochise Redeye         |       | Director                                                              |       | December 29, 2008 |
| N. Cochise Redeye             |       |                                                                  |       |                   |
|                          |       |                                                                  |       |                   |
| /s/ Kevin Seneca              |       | Director                                                              |       | December 29, 2008 |
| Kevin Seneca                  |       |                                                                  |       |                   |
|                          |       |                                                                  |       |                   |
| /s/ Gloria Heron              |       | Director                                                              |       | December 29, 2008 |
| Gloria Heron                  |       |                                                                  |       |                   |
|                          |       |                                                                  |       |                   |
|                          |       | Vice Chairman and Director                                            |       |                   |
| Jeffrey L. Gill               |       |                                                                  |       |                   |

 

89

----

Table of Contents

 

**SENECA GAMING CORPORATION**

** **

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

 
| **Audited Consolidated Financial Statements:**                                                                        | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** **                                                                                                            | ** ** | ** ** |
| Report of Independent Registered Public Accounting  Firm                                                              |       | F-1        |
|                                                                                                                  |       |       |
| Consolidated Balance Sheets, as of September 30,  2008 and 2007                                                  |       | F-2        |
|                                                                                                                  |       |       |
| Consolidated Statements of Income and Changes in  Capital, for the years ended September 30, 2008, 2007 and 2006 |       | F-3        |
|                                                                                                                  |       |       |
| Consolidated Statements of Cash Flows, for the years  ended September 30, 2008, 2007, and 2006                   |       | F-4        |
|                                                                                                                  |       |       |
| Notes to Consolidated Financial Statements                                                                            |       | F-5        |

 

90

----

**Table of Contents**

** **

**SENECA GAMING CORPORATION**

** **

**REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM**

** **

The Board of DirectorsSeneca Gaming Corporation

 

We have audited theaccompanying consolidated balance sheets of Seneca Gaming Corporation as of September 30,2008 and 2007, and the related consolidated statements of income and changes incapital, and cash flows for each of the three years in the period ended September 30,2008. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on theseconsolidated 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, 2008 and 2007, and the consolidated resultsof its operations and its cash flows for each of the three years in the periodended September 30, 2008, in conformity with U.S. generally acceptedaccounting principles.

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

 

Buffalo, New YorkDecember 22, 2008

 

F-1

----

Table of Contents

 

**SENECA GAMING CORPORATION**

** **

**CONSOLIDATED BALANCESHEETS**

 
| ** **                                     | ** ** | **September 30,**  | ** ** |
|------------------------------------------------|------------|-------------------------|------------|
| ** **                                     | ** ** | **2008**                | ** ** | **2007** | ** ** |
| ** **                                     | ** ** | **(In Thousands)** | ** ** |
| **Assets**                                     | ** ** | ** **              | ** ** | ** ** | ** ** |
|                                           |       |                    |       |   |   |
| Current assets:                                |       |                    |       |   |   |
| Cash and cash  equivalents                     |       | $                       | 53,305     |   | $ | 78,662 |   |
| Short-term  investments                        |       | 300                     |       | 19,100 |   |
| Receivables from  affiliates                   |       | 81                      |       | 58 |   |
| Other  receivables, net                        |       | 2,624                   |       | 3,585 |   |
| Inventories                                    |       | 4,196                   |       | 4,421 |   |
| Other current  assets                          |       | 9,127                   |       | 8,194 |   |
|                                           |       |                    |       |   |   |
| Total current  assets                          |       | 69,633                  |       | 114,020 |   |
|                                           |       |                    |       |   |   |
| Property and  equipment, net                   |       | 799,335                 |       | 699,381 |   |
| Restricted cash                                |       | —                  |       | 14,579 |   |
| Other long-term  assets                        |       | 66,750                  |       | 57,980 |   |
|                                           |       |                    |       |   |   |
| Total assets                                   |       | 935,718                 |       | 885,960 |   |
|                                           |       |                    |       |   |   |
| **Liabilities  and Shareholders’ Equity** |       |                    |       |   |   |
|                                           |       |                    |       |   |   |
| Current  liabilities:                          |       |                    |       |   |   |
| Trade payables                                 |       | 3,368                   |       | 6,194 |   |
| Construction  payables                         |       | 29,619                  |       | 21,201 |   |
| Distributions  payable to Nation               |       | 24,000                  |       | 48,000 |   |
| Exclusivity fees  payable                      |       | 9,234                   |       | 9,279 |   |
| Accrued interest                               |       | 15,104                  |       | 15,104 |   |
| Accrued  regulatory costs                      |       | 27,888                  |       | 23,240 |   |
| Accrued gaming  liabilities                    |       | 15,657                  |       | 15,100 |   |
| Accrued payroll  and related liabilities       |       | 10,138                  |       | 16,641 |   |
| Other current  liabilities                     |       | 13,511                  |       | 5,610 |   |
|                                           |       |                    |       |   |   |
| Total current  liabilities                     |       | 148,519                 |       | 160,369 |   |
|                                           |       |                    |       |   |   |
| Long-term debt                                 |       | 496,353                 |       | 495,347 |   |
| Total  liabilities                             |       | 644,872                 |       | 655,716 |   |
|                                           |       |                    |       |   |   |
| Capital:                                       |       |                    |       |   |   |
| Retained  earnings                             |       | 290,846                 |       | 230,244 |   |
|                                           |       |                    |       |   |   |
| Total  liabilities and capital                 |       | $                       | 935,718    |   | $ | 885,960 |   |

 

*Seeaccompanying notes*

 

F-2

----

Table of Contents

 

**SENECA GAMING CORPORATION**

** **

**CONSOLIDATED STATEMENTSOF INCOME AND CHANGES IN CAPITAL**

 
| ** **                                                                   | ** ** | **Year Ended September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                   | ** ** | **(In Thousands)**                     | ** ** |
| **Revenues:**                                                                |       |                                        |       |   |   |   |   |
| Gaming                                                                       |       | $                                           | 632,580    |   | $ | 595,826 |   | $ | 519,620 |   |
| Food and  beverage                                                           |       | 63,272                                      |       | 56,608 |   | 50,141 |   |
| Lodging                                                                      |       | 28,757                                      |       | 24,352 |   | 10,654 |   |
| Retail,  entertainment and other                                             |       | 25,032                                      |       | 20,190 |   | 19,940 |   |
| Less:  promotional allowances                                                |       | (117,553                                    | )          | (104,012 | ) | (77,861 | ) |
| Net revenues                                                                 |       | 632,088                                     |       | 592,964 |   | 522,494 |   |
|                                                                         |       |                                        |       |   |   |   |   |
| **Expenses:**                                                                |       |                                        |       |   |   |   |   |
| Gaming                                                                       |       | 169,472                                     |       | 153,259 |   | 129,396 |   |
| Food and  beverage                                                           |       | 49,907                                      |       | 47,863 |   | 43,485 |   |
| Lodging                                                                      |       | 15,038                                      |       | 11,862 |   | 6,131 |   |
| Retail,  entertainment and other                                             |       | 15,105                                      |       | 12,886 |   | 11,668 |   |
| Advertising,  general and administrative                                     |       | 187,011                                     |       | 153,838 |   | 131,997 |   |
| Pre-opening  costs                                                           |       | 286                                         |       | 15,426 |   | 9,478 |   |
| Depreciation and  amortization                                               |       | 51,081                                      |       | 49,597 |   | 38,992 |   |
|                                                                         |       |                                        |       |   |   |   |   |
| Total operating  expenses                                                    |       | 487,900                                     |       | 444,731 |   | 371,147 |   |
|                                                                         |       |                                        |       |   |   |   |   |
| Operating income                                                             |       | 144,188                                     |       | 148,233 |   | 151,347 |   |
|                                                                         |       |                                        |       |   |   |   |   |
| Other  non-operating income and (expenses), net                              |       | (5,600                                      | )          | 3,220 |   | (558 | ) |
| Interest income                                                              |       | 1,344                                       |       | 3.886 |   | 5,814 |   |
| Interest expense                                                             |       | (37,325                                     | )          | (36,063 | ) | (33,198 | ) |
|                                                                         |       |                                        |       |   |   |   |   |
| Net income                                                                   |       | $                                           | 102,607    |   | $ | 119,276 |   | $ | 123,405 |   |
|                                                                         |       |                                        |       |   |   |   |   |
| Beginning  capital balance                                                   |       | 230,244                                     |       | 189,631 |   | 109,425 |   |
| Cash  distributions declared to the Nation                                   |       | (42,005                                     | )          | (81,433 | ) | (35,846 | ) |
| Contribution  from Nation                                                    |       | —                                      |       | 3,198 |   |   |   |
| Distribution of  real property, equipment and leasehold rights to the Nation |       | —                                      |       | (428 | ) | (7,353 | ) |
| Ending capital  balance                                                      |       | $                                           | 290,846    |   | $ | 230,244 |   | $ | 189,631 |   |

 

*See accompanying notes.*

 

F-3

----

**Table of Contents**

** **

**SENECA GAMING CORPORATION**

** **

**CONSOLIDATED STATEMENTSOF CASH FLOWS**

** **
| ** **                                                                          | ** ** | **Year Ended September 30,** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                          | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                          | ** ** | **(In Thousands)**                     | ** ** |
| Cash flows relating to operating activities:               | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                                |       |                                        |       |   |   |   |   |
| Net income                                                                          |       | $                                           | 102,607    |   | $ | 119,276 |   | $ | 123,405 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities - |       |                                        |       |   |   |   |   |
| Depreciation and  amortization                                                      |       | 51,081                                      |       | 49,597 |   | 38,992 |   |
| Loss on disposal  of assets                                                         |       | 166                                         |       | 992 |   | 35 |   |
| Amortization of  deferred financing costs, debt discount                            |       | 3,238                                       |       | 3,232 |   | 3,196 |   |
| Other than  temporary decline in investments                                        |       | 4,200                                       |       | 500 |   | — |   |
| Provision for  bad debts                                                            |       | 292                                         |       | 407 |   | 349 |   |
| Write-off of  acquisition costs                                                     |       | 1,192                                       |       | — |   | 135 |   |
| Other                                                                               |       | —                                      |       | (388 | ) | 5 |   |
| Change in  operating assets and liabilities:                                        |       |                                        |       |   |   |   |   |
| Current assets                                                                      |       | (62                                         | )          | (5,114 | ) | (514 | ) |
| Long-term assets                                                                    |       | (1,193                                      | )          | (13 | ) | — |   |
| Current  liabilities                                                                |       | (2,668                                      | )          | 11,259 |   | 16,235 |   |
|                                                                                |       |                                        |       |   |   |   |   |
| Net cash provided  by operating activities                                          |       | 158,853                                     |       | 179,748 |   | 181,838 |   |
|                                                                                |       |                                        |       |   |   |   |   |
| Cash flows  relating to investing activites:                                        |       |                                        |       |   |   |   |   |
| Purchases of  property and equipment                                                |       | (141,383                                    | )          | (163,648 | ) | (203,729 | ) |
| Land acquisition  costs                                                             |       | (5,874                                      | )          | (15,319 | ) | (38,012 | ) |
| Decrease  (increase) in restricted cash                                             |       | 14,579                                      |       | 11,221 |   | (25,800 | ) |
| Deposits                                                                            |       | (127                                        | )          | — |   | 168 |   |
| Sale of  investments, net                                                           |       | 14,600                                      |       | 42,700 |   | 33,791 |   |
|                                                                                |       |                                        |       |   |   |   |   |
| Net cash used in  investing activities                                              |       | (118,205                                    | )          | (125,046 | ) | (233,582 | ) |
|                                                                                |       |                                        |       |   |   |   |   |
| Cash flows  relating to financing activities:                                       |       |                                        |       |   |   |   |   |
| Payment of  deferred financing costs                                                |       | —                                      |       | — |   | (682 | ) |
| Capital  contribution from the Nation                                               |       | —                                      |       | 3,198 |   | — |   |
| Distributions  paid to the Nation                                                   |       | (66,005                                     | )          | (57,433 | ) | (11,846 | ) |
|                                                                                |       |                                        |       |   |   |   |   |
| Net cash used in  financing activities                                              |       | (66,005                                     | )          | (54,235 | ) | (12,528 | ) |
|                                                                                |       |                                        |       |   |   |   |   |
| Net (decrease)  increase in cash                                                    |       | (25,357                                     | )          | 467 |   | (64,272 | ) |
|                                                                                |       |                                        |       |   |   |   |   |
| Cash balances:                                                                      |       |                                        |       |   |   |   |   |
| Beginning of  period                                                                |       | 78,662                                      |       | 78,195 |   | 142,467 |   |
|                                                                                |       |                                        |       |   |   |   |   |
| End of period                                                                       |       | $                                           | 53,305     |   | $ | 78,662 |   | $ | 78,195 |   |
|                                                                                |       |                                        |       |   |   |   |   |
| Supplemental  disclosures of cash flow information:                                 |       |                                        |       |   |   |   |   |
| Change in  construction payables                                                    |       | $                                           | 8,418      |   | $ | 31,288 |   | $ | (18,254 | ) |
| Cash paid for  interest, net of amounts capitalized                                 |       | 34,088                                      |       | 32,827 |   | 35,364 |   |
| Noncash  investing activities                                                       |       |                                        |       |   |   |   |   |
| Distribution of  property and leasehold rights to the Nation                        |       | $                                           | —     |   | $ | 428 |   | $ | 7,353 |   |
| Reserve for land  acquisitions                                                      |       | 6,400                                       |       | — |   | — |   |
| Insurance  payables capitalized in property and equipment                           |       | 1,040                                       |       | 1,610 |   | — |   |
| Noncash  financing activities                                                       |       |                                        |       |   |   |   |   |
| Cash  distributions to the Nation declared but not paid                             |       | $                                           | 24,000     |   | $ | 48,000 |   | $ | 24,000 |   |

 

*See accompanying notes.*

 

F-4

----

Tableof Contents

 

**SENECA GAMING CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**1. Organization and Basis of Presentation**

 

The consolidatedfinancial statements include the accounts of Seneca Gaming Corporation (SGC)and its wholly owned subsidiaries (collectively, the Company).  In consolidation, all intercompany balancesand transactions have been eliminated.

 

SGC, which was formed on August 1,2002, is wholly owned by the Seneca Nation of Indians, or the Nation. TheNation is a federally recognized Indian tribe with total territorial landcomprising approximately 54,000 acres in the Western New York region. SGC wasorganized by the Nation to operate and manage its Class III Gamingactivities pursuant to the Indian Gaming Regulatory Act of 1988, or IGRA. UnderIGRA, federally recognized Indian tribes are permitted to conduct full-scalecasino gaming operations on tribal land, subject to, among other things, thenegotiation of a compact with the affected state. Pursuant to IGRA, the Nationentered into the Nation-State Gaming Compact with the State of New York dated April 12,2002, or the Compact, which has been approved by the Federal Bureau of IndianAffairs, Department of the Interior. The Compact provides the Nation theexclusive right to conduct Class III gaming activities at three sites inthe western region of the State of New York.

 

The Nation’s Constitutionestablished the Nation’s Council, or the Council, to act as the Nation’slegislative authority. The Council acts on the Nation’s behalf with respect toSGC, and the Council established the Seneca Gaming Authority, or SGA, toregulate the gaming activities of SGC under the Compact.

 

The Council, at therequest of the SGC Board of Directors, chartered three subsidiary corporationsof SGC to operate the three sites authorized by the Compact. In addition, theSGC Board of Directors hired the executive management of SGC, including thePresident and Chief Executive Officer, to oversee, develop, and manage thethree sites. The subsidiary corporations that operate the three sitesauthorized by the Compact are as follows:

 

Seneca Niagara Falls Gaming Corporation, or SNFGC

 

Seneca Territory Gaming Corporation, or STGC

 

Seneca Erie Gaming Corporation, or SEGC

 

SNFGC was formed on August 1,2002 to operate the Nation’s gaming activities in Niagara Falls, New York.Operations at SNFGC’s casino, or Seneca Niagara Casino, commenced December 31,2002.  In connection with the approval ofthe Compact on October 25, 2002, the State of New York transferred to the Nationcertain property upon which the former Niagara Falls, New York, ConventionCenter (the Facility) was located.  Asprovided for in the Compact, the Nation leased 

 

F-5

----

Table of Contents

 

the property to SNFGCpursuant to a lease agreement dated October 25, 2002.  SNFGC then leased the property to the EmpireState Development Corporation (ESDC) pursuant to a sublease agreement dated October 25,2002.  The ESDC then subleased theproperty back to SNFGC under a sub-sublease agreement also dated as of October 25,2002.  The SNFGC casino is located onthis leased property site and operates in the renovated facility.  The sub-sublease agreement with ESDC requiredSNFGC to pay Supplemental Rent of approximately $24 million in the event SNFGCconducted Class III gaming in a structure within the City of Niagara Fallsoutside of the Facility.  TheSupplemental Rent represents the remaining general obligation bonds outstandingissued by ESDC in connection with financing of the Facility in the 1970s.  The sublease and sub-sublease were enteredinto in order to provide ESDC a continuing contractual interest in theFacility.

 

Based on the Company’sexpansion plans, which includes expanded Class III gaming, the liabilityfor payment of the Supplemental Rent became probable.  As a result, the Company negotiated adiscounted payment of $22.0 million, which was paid to ESDC in August 2004.  This payment fulfilled the Nation’s and SNFGC’sobligation under the Compact with respect to such Supplemental Rent and resultsin the termination of both the sublease and sub-sublease.  The Company has recorded the $22.0 millionpayment as leasehold improvements, since it represents an additional cost ofthe facility leased from the Nation. This amount is being amortized over the remaining term of the Compact,through 2023.

 

STGC was formed on September 20,2003 to operate the Nation’s gaming activities in Salamanca, New York on itsterritorial land. From its formation until the May 1, 2004 opening of theSTGC’s casino in Salamanca, or the Seneca Allegany Casino, STGC dedicated itsefforts to the construction and equipping of the Seneca Allegany Casino, hiringand training staff, and obtaining regulatory approvals.

 

SEGC was formed on August 9,2003 to operate the Nation’s gaming activities in Erie County, New York.  On October 3, 2005, the Nation acquiredapproximately nine acres of land in the inner-harbor district of downtownBuffalo.  SEGC commenced construction ofSEGC’s Seneca Buffalo Creek Casino on those nine acres on December 8,2005,and commenced operations at such site upon the opening of a temporaryfacility on July 3, 2007.  Theexclusive right, under the Compact, to establish and operate a third Class IIIgaming facility in Erie County may have terminated if the Nation or SEGC failedto commence Class III gaming operations by December 9, 2007.

 

During Fiscal 2007, the Nation’sCouncil also chartered, at the request of the SGC Board of Directors, twoadditional subsidiary corporations, Lewiston Golf Course Corporation, or LGCC,a subsidiary of SNFGC and Seneca Massachussets Development Corporation, orSMDC.

 

LGCC was formed on July 18,2007 as a new wholly-owned subsidiary of SNFGC to own, develop and operateSNFGC’s planned golf course in Lewiston, New York.

 

SMGC was formed on August 11,2007, as a new wholly-owned subsidiary of SGC to explore developmentopportunities related to gaming in the Commonwealth of Massachusetts.

 

SGC’s fiscal year-end is September 30. Referencesto 2008, 2007, and 2006, represent the years ended September 30, 2008, September 30,2007 and, September 30, 2006, respectively.

 

**2. Summary of Significant Accounting Policies**

 

**Management’s Use ofEstimates**

** **

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. The most significant estimates included in the accompanyingfinancial statements relate to the liability associated with unredeemed SenecaLink Player’s Card points, vested employee benefits, and regulatoryexpenses.  Actual results could differfrom these estimates.

 

F-6

----

Table of Contents

 

**Cash and Cash Equivalents**

 

SGC considers all highly liquid instruments withoriginal maturities of three months or less from the date of purchase to becash equivalents. Cash and cash equivalents are reported at cost, whichapproximates market value.

 

**Short-Term Investments**

 

Short-term investments are classified as available forsale as defined in SFAS No. 115, *Accounting for CertainInvestments in Debt and Equity Securities*.  Investments are stated at fair value.  The Company evaluates investments forconditions that may indicate that an other-than-temporary decline in marketvalue has occurred. In conducting this review, numerous factors are consideredwhich, individually or in combination, may indicate that a decline isother-than-temporary. Based on this evaluation, an other-than-temporary loss onone specific investment of $4.2 million was recorded in 2008, as a component ofother non-operating expenses on the consolidated statement of income for 2008.During Fiscal 2007, the Company recognized an other-than-temporary loss in theamount of $0.5 million related to this specific investment.  The cost basis of this investment has been reducedby the amount of the other-than-temporary loss recorded.

 

Short-term investments at September 30, 2008 and2007 consist of the following:

 

| ** **                                              | ** ** | **September 30,**  | ** ** |
|---------------------------------------------------------|------------|-------------------------|------------|
| ** **                                              | ** ** | **2008**                | ** ** | **2007** | ** ** |
| ** **                                              | ** ** | **(In Thousands)** | ** ** |
|                                                    |       |                    |       |   |   |
| Corporate bond  fund of collateralized debt obligations |       | $                       | 300        |   | $ | 4,500 |   |
| Market auction  preferred stock                         |       | —                  |       | 14,600 |   |
| Total short-term  investments                           |       | $                       | 300        |   | $ | 19,100 |   |

 

Market auction preferredstock has a dividend rate determined periodically (typically less than 90 days)based on an auction mechanism. Notwithstanding the liquidity which may beprovided by the auction process, market auction preferred stock generally doesnot have a scheduled maturity.

 

Realized gains and/orlosses from the sales of short-term investments were not material for all yearspresented.  Also, for all years presentedthere were no unrealized gains or losses recorded in accumulated othercomprehensive income, nor were any amounts reclassified to accumulated othercomprehensive income.

 

**Receivables**

 

Receivables consist primarily of gaming receivablesand non-gaming receivables. Gaming receivables represent credit extended toapproved casino customers.  SGC maintainsan allowance for doubtful accounts, which is based on management’s estimate ofthe amount expected to be uncollectible considering experience and the informationmanagement obtains regarding the creditworthiness of the customer. Thecollectibility of these receivables could be affected by future business oreconomic trends.

 

**Inventories**

 

Inventories, which consist primarily of food,beverage, retail, and operating supplies are stated at the lower of cost ormarket. Cost is determined using the first-in first-out method for retailinventories and using the average cost method for food, beverage and warehouseinventories.

 

**Property and Equipment**

 

Property and equipment are stated at cost.  Costs of major construction and significantimprovements, including interest incurred during the construction offacilities, are capitalized.  Interestincurred for construction related projects are capitalized and amortized overthe life of the related asset using the straight-line method.  The amount of interest capitalized for 2008,2007, and 2006, was approximately $2.2 million, $3.4 million, and $6.3 million,respectively.

 

F-7

----

Table of Contents

 

Depreciation is computed over the estimated usefullives of the assets using the straight-line basis. Amortization of leaseholdimprovements is computed over the lesser of the term of the lease or theestimated useful life. Useful life estimates of asset categories are asfollows:

 

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

 

Maintenance and repair costs are expensed as incurred.Gains or losses on disposition of property and equipment are recognized asincurred.

 

In accordance with the Financial Accounting StandardBoard’s Statement of Financial Accounting Standards No. 144, *Accounting for the Impairment or Disposal of Long-Lived Assets*(SFAS 144), the carrying value of the Company’s assets are reviewed when eventsor changes in circumstances indicate that the carrying amount of an asset maynot be recoverable. If it is determined that an impairment loss has occurredbased on current and future levels of income and expected future cash flows aswell as other factors, then an impairment loss is recognized as a deduction indetermining operating income. SGC management concludes that no such impairmentexists at September 30, 2008.

 

**Deferred Financing Costs**

 

Deferred financing costsinclude costs incurred in connection with issuance of long-term debt. Thesecosts are amortized over the term of the related financing agreement using theeffective interest method. Amortization expense for each of 2008, 2007, and2006, was $2.2 million.

 

**Accrued Regulatory Costs**

 

Accrued regulatory costsrepresent amounts incurred by the Nation for the Seneca Gaming Authority (SGA),which are charged to the Company. Accrued regulatory costs also include amounts incurred by the Nation forNew York State gaming regulatory services, New York State Police, Seneca Nationof Indian Marshals, Buffalo Police and Cattaraugus Sheriff Department services,which are charged to the Company. Accrued regulatory costs as of September 30, 2008 are approximately$27.9 million, which includes $24.2 million of costs accrued, but not paid,related to services provided by the New York State Police.

 

**Accrued Gaming Liabilities**

 

Included in accruedgaming liabilities are the outstanding chip liability, progressive slot machineliability and the customer point liability.

 

Customer point liabilityrepresents the estimated future cost of unredeemed Seneca Link Player’s Clubpoints.  Management reviews the adequacyof this accrual by periodically evaluating the redemption experience andprojected trends.  Actual results coulddiffer from those estimates.

 

**Other Current Liabilities**

 

Estimated accrualsrelated to marketing, and certain other miscellaneous costs are classified inother current liabilities on the accompanying consolidated balance sheets.  Actual results could differ from thoseestimates.

 

**Revenue Recognition**

** **

SGC gaming revenueconsists of the net win from Class III activities, which is the differencebetween gaming amounts wagered and amounts paid to patrons.  Revenue from food and beverage, hotel andlodging, retail, spa, salon, entertainment and other services are recognized atthe time of sale.

 

F-8

----

Table of Contents

 

**Promotional Allowances**

** **

SGC established avoluntary promotional program using the Seneca Link Player’s Card to encouragerepeat business from casino patrons. Members in the club earn points based on gaming activity in the members’accounts.  Points can be redeemed forcertain consumer products including, but not limited to, merchandise, food andbeverage, lodging, spa and salon services. SGC accrues for points expected to be redeemed in the future based uponmanagement’s estimate of outstanding points to be redeemed and the average costof items expected to be redeemed.

 

The retail value of thesesales and services furnished to casino patrons, mainly through SGC’scomplimentary program, is included in gross revenues and then deducted aspromotional allowances to arrive at net revenues.

 

The retail value ofproviding such promotional allowances was included in revenues as follows:

 
| ** **                        | ** ** | **Years Ended September 30,** | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|
| ** **                        | ** ** | **2008**                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                        | ** ** | **(In Thousands)**                      | ** ** |
|                              |       |                                         |       |   |   |   |   |
| Food and  beverage                |       | $                                            | 33,666     |   | $ | 31,781 |   | $ | 29,271 |   |
| Lodging                           |       | 20,677                                       |       | 18,956 |   | 6,712 |   |
| Retail,  entertainment, and other |       | 12,293                                       |       | 11,286 |   | 12,262 |   |
| Gaming                            |       | 50,917                                       |       | 41,989 |   | 29,616 |   |
| Promotional  allowances           |       | $                                            | 117,553    |   | $ | 104,012 |   | $ | 77,861 |   |

 

The estimated cost ofproviding such promotional allowances was as follows:

 
| ** **                        | ** ** | **Years Ended September 30,** | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|
| ** **                        | ** ** | **2008**                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                        | ** ** | **(In Thousands)**                      | ** ** |
|                              |       |                                         |       |   |   |   |   |
| Food and  beverage                |       | $                                            | 26,540     |   | $ | 27,071 |   | $ | 25,416 |   |
| Lodging                           |       | 9,450                                        |       | 8,672 |   | 3,620 |   |
| Retail,  entertainment, and other |       | 9,796                                        |       | 9,673 |   | 8,929 |   |
| Promotional  allowances           |       | $                                            | 45,786     |   | $ | 45,416 |   | $ | 37,965 |   |

 

**Gaming Expenses**

** **

Gaming expenses includethe slot exclusivity fee which the Company is required to pay to the Nation,which in turn is required to pay to the State of New York based on its Compact(see Note 14), the cost of casino operations, and earned Seneca Link Player’sCard points.

 

**Advertising**

** **

Advertising is expensedas incurred and is included in advertising, general and administrativeexpenses.  Advertising expenses for 2008,2007, and 2006, were $8.6 million, $10.6 million, and $7.6 million,respectively.

 

**Pre-opening Costs**

** **

In accordance with theAmerican Institute of Certified Public Accountants’ Statement of Position 98-5,*Reporting on the Costs of Start-up Activities*,pre-opening costs are expensed as incurred. Pre-opening costs in 2008, 2007,and 2006 consist of development costs, incremental personnel costs, legal,marketing, advertising and other direct expenses related to the opening 

 

F-9

----

Table of Contents

 

of the luxury hotel atSNFGC and the resort hotel at STGC, and the development of SEGC including theopening of its temporary Class III gaming facility on July 3,2007.  For the years ended September 30,2008, 2007, and 2006, such costs totaled $0.3 million, $15.4 million, and $9.5million, respectively.

 

**Retirement Savings Plan**

 

The Company sponsors adefined contribution retirement savings plan for its employees.  The Company’s expense relating to this planwas $1.3 million, $0.6 million, and $0.4 million in the fiscal years ended September 30,2008, 2007, and 2006, respectively.  Inaddition, during Fiscal 2008, the Company established a reserve in the amountof $0.4 million to accrue for a voluntary correction related to the definedcontribution retirement savings plan, from which certain employees wereincorrectly excluded.

 

**Income Taxes**

** **

The Nation is a sovereignIndian nation with independent legal jurisdiction over its people and itslands. As an enterprise owned by the Nation, SGC is not subject to federal orstate income taxes.

 

**Fair Value of FinancialInstruments**

** **

The carrying amount ofcash and cash equivalents, short-term investments, receivables, accountspayable, and accrued expenses approximate fair value.

 

Thefair value of long term debt is estimated based on the current rates offered toSGC for debt of the same remaining maturities.  As of September 30,2008, the carrying amount and fair value of long term debt is approximately$496 million and $420 million, respectively.

 

**RecentAccounting Pronouncements**

 

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”).  This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements.  SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007.  The Company does not believe that the adoption of SFAS 157 will have a material effect on its results of operations or consolidated financial position.

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This statement permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.  The Company does not believe that the adoption of SFAS No. 159 will have any material effect on its results of operations or consolidated financial position.

 

**Reclassification**

** **

Certain amounts from theprior year have been reclassified to conform to the current year presentation.

 

**3. Cash and CashEquivalents**

** **

For reporting purposes,cash and cash equivalents include all operating cash and cash on hand.

 

**4. Concentrations of Risk**

** **

Financial instrumentsthat potentially subject SGC to concentrations of risk consist principally ofcash and cash equivalent accounts in financial institutions. SGC maintains itscash balances in several financial institutions. Accounts are insured by theFederal Deposit Insurance Corporation up to $100,000.  The concentration of credit risk in theseuninsured deposits is mitigated by SGC’s policy of placing such deposits withfinancial institutions of high credit ratings. Cash and cash

 

F-10

----

Tableof Contents

 

equivalents exceedingfederally insured limits totaled approximately $24.0 million and $45.9 millionat September 30, 2008 and 2007, respectively.

 

**5.Other Receivables, Net**

 

Components of other receivables, net are as follows:

 
| ** **                       | ** ** | **September 30,**  | ** ** |
|----------------------------------|------------|-------------------------|------------|
| ** **                       | ** ** | **2008**                | ** ** | **2007** | ** ** |
| ** **                       | ** ** | **(In Thousands)** | ** ** |
|                             |       |                    |       |   |   |
| Gaming                           |       | $                       | 1,611      |   | $ | 2,481 |   |
| Non-gaming                       |       | 1,589                   |       | 1,634 |   |
|                             |       | $                       | 3,200      |   | $ | 4,115 |   |
| Allowance for  doubtful accounts |       | (576                    | )          | (530 | ) |
| Receivables, net                 |       | $                       | 2,624      |   | $ | 3,585 |   |

 

**6.Other Current Assets**

 

Components of othercurrent assets are as follows:

 
| ** **            | ** ** | **September 30,**  | ** ** |
|-----------------------|------------|-------------------------|------------|
| ** **            | ** ** | **2008**                | ** ** | **2007** | ** ** |
| ** **            | ** ** | **(In Thousands)** | ** ** |
|                  |       |                    |       |   |   |
| Prepaid expenses      |       | $                       | 8,703      |   | $ | 7,793 |   |
| Other                 |       | 424                     |       | 401 |   |
| Other current  assets |       | $                       | 9,127      |   | $ | 8,194 |   |

 

**7.Property and Equipment, Net**

 

Components of propertyand equipment are as follows:

 
| ** **                                      | ** ** | **September 30,**  | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|
| ** **                                      | ** ** | **2008**                | ** ** | **2007** | ** ** |
| ** **                                      | ** ** | **(In Thousands)** | ** ** |
|                                            |       |                    |       |   |   |
| Land                                            |       | $                       | 2,479      |   | $ | 2,100 |   |
| Buildings                                       |       | 545,230                 |       | 517,057 |   |
| Leasehold  improvements — casino           |       | 122,355                 |       | 114,950 |   |
| Leasehold  improvements — other            |       | 347                     |       | 347 |   |
| Furniture and  equipment                        |       | 204,732                 |       | 188,441 |   |
| Construction-in-progress                        |       | 115,823                 |       | 17,344 |   |
|                                            |       | 990,966                 |       | 840,239 |   |
| Less accumulated  depreciation and amortization |       | (191,631                | )          | (140,858 | ) |
| Property and  equipment, net                    |       | $                       | 799,335    |   | $ | 699,381 |   |

 

F-11

----

Tableof Contents

 

**8.Other Long-Term Assets**

 

Components of other long-termassets are as follows:

 
| ** **                        | ** ** | **September 30,**  | ** ** |
|-----------------------------------|------------|-------------------------|------------|
| ** **                        | ** ** | **2008**                | ** ** | **2007** | ** ** |
| ** **                        | ** ** | **(In Thousands)** | ** ** |
|                              |       |                    |       |   |   |
| Deferred  financing costs, net    |       | $                       | 7,999      |   | $ | 10,231 |   |
| Land to be  distributed to Nation |       | 58,175                  |       | 47,300 |   |
| Deposits and  other               |       | 576                     |       | 449 |   |
|                              |       | $                       | 66,750     |   | $ | 57,980 |   |

 

In 2008 and 2007, theCompany incurred costs toward the acquisition of land totaling $5.9 million and$15.3 million, respectively, which are included in other long-term assets (netof amounts transferred to the Nation) within the accompanying consolidatedbalance sheets.

 

**9. Restricted Cash**

 

**The restricted cash balance at September 30,2007, within the accompanying consolidated balance sheets, represents cash inan interest-bearing bank account which was restricted for use as collateral fora $14.6 million available letter of credit with a bank, established to be drawnupon to fund the intended purchase of certain parcels of land contemplated inthe Compact with New York State, earmarked for ownership by the Nation.  At September 30, 2008, we do not have restrictedcash, rather, letters of credit were issued under the Senior Secured RevolvingLoan Agreement as collateral for this purpose.**

** **

**10.Accrued Regulatory Costs**

** **

Components of accruedregulatory costs are as follows:

 
| ** **                                       | ** ** | **Fiscal Year Ended** | ** ** |
|--------------------------------------------------|------------|---------------------------------|------------|
| ** **                                       | ** ** | **September 30,**          | ** ** |
| ** **                                       | ** ** | **2008**                        | ** ** | **2007** | ** ** |
| ** **                                       | ** ** | **(In Thousands)**         | ** ** |
| Accrued  Regulatory Expense                      |       |                            |       |   |   |
| Seneca Gaming  Authority                         |       | $                               | 934        |   | $ | 2,075 |   |
| New York State  Police                           |       | 24,180                          |       | 19,115 |   |
| New York State  Racing & Wagering (SGO) |       | 1,692                           |       | 1,141 |   |
| Local Law  Enforcement (1)                       |       | 1,082                           |       | 909 |   |
|                                             |       |                            |       |   |   |
| Total Accrued  Regulatory Expense                |       | $                               | 27,888     |   | $ | 23,240 |   |

 

----

(1) Local lawenforcement includes Cattaraugus County Sherrif’s department patrols at SenecaAllegany Casino and Hotel, Buffalo City Police patrols at Seneca Buffalo CreekCasino, and Seneca Nation of Indians Marshals patrols at Seneca Niagara Casinoand Hotel and Seneca Buffalo Creek Casino.

 

**11.Senior Secured Revolving Loan Agreement**

 

**Effective June19, 2008, SGCentered into a $50 million Senior Secured Revolving Loan Agreement.  Amounts borrowed under the Senior SecuredRevolving Loan Agreement bear interest at either one, three or six-month LIBORplus one and one quarter percent (1.25%), or the prime rate (as reported in *The Wall Street Journal*) plus one quarter percent(.25%).  SGC’s obligations under theSenior Secured Revolving Loan Agreement are secured by substantially all gamingand related assets (including substantially all gaming revenues) notconstituting real property or improvements. SGC’s obligations are guaranteed by SNFGC, STGC, SEGC and LGCC.**

** **

**F-12**

----

**Table of Contents**

** **

The Senior SecuredRevolving Loan Agreement contains certain financial covenants requiring minimumconsolidated EBITDA of $160 million (on a rolling 12 month basis) and compliancewith certain leverage  and coverageratios. The Senior Secured Revolving Loan Agreement also contains additionalcustomary covenants, including covenants restricting the incurrence ofadditional indebtedness, the creation of additional liens, and the dispositionof assets. As of September 30, 2008, SGC was in compliance with allcovenants in the Senior Secured Revolving Loan Agreement.

 

As of September 30, 2008,at SGC’s request, the lender under the Senior Secured Revolving Loan Agreementhad issued letters of credit totaling $16.8 million, $11.2 million of which maybe drawn upon to fund the purchase of certain parcels within the 50 acre “footprint”described in the Compact with New York State and designated for ownership bythe Nation, with the remaining $5.6 million issued in connection with workerscompensation policies and certain other contracts, as required.  As of September 30, 2008, $33.2 millionwas available under the Senior Secured Revolving Loan Agreement.

 

On October 29, 2008,SGC borrowed $20.0 million under the Senior Secured Revolving Loan Agreement.

 

**12.Long-Term Debt**

** **

Long-term debt, asdescribed below, consists of the following:

 
| ** **                                                                                        | ** ** | **September 30,**  | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                        | ** ** | **2008**                | ** ** | **2007** | ** ** |
| ** **                                                                                        | ** ** | **(In Thousands)** | ** ** |
|                                                                                              |       |                    |       |   |   |
| 2004 71⁄4% Senior  Notes due 2012                                                              |       | $                       | 300,000    |   | $ | 300,000 |   |
| 2005 71⁄4% Senior  Notes due 2012 plus unamortized discount of $3,647 and $4,653, respectively |       | 196,353                 |       | 195,347 |   |
|                                                                                              |       | $                       | 496,353    |   | $ | 495,347 |   |
| Less current  maturities of long-term debt                                                        |       | —                  |       | — |   |
| Long-term debt                                                                                    |       | $                       | 496,353    |   | $ | 495,347 |   |

 

**71⁄4%Senior Notes due 2012**

 

On May 5, 2004, SGCissued $300.0 million in 71⁄4% senior notes due 2012, or the 2004 seniornotes. The 2004 senior notes are guaranteed by STGC, SEGC and, as of May 23,2005, SNFGC or collectively, the Guarantors. All of the guarantors are wholly owned by SGC and their guarantees arefull, unconditional, joint and several. The net proceeds from the 2004 senior notes were, or will be, used principallyto fund in whole or in part (a) the repayment in May 2004 of vendorequipment financing , (b) SNFGC’s construction and equipping of a 604-roomhotel, (c) the acquisition of the remaining 26 acres in Niagara Falls, asprovided for in the Compact, (d) the payment of $22.0 million in August 2004to satisfy the obligation to the Empire State Development Corporation inconnection with the transfer of certain property to the Nation for use as theSeneca Niagara Casino, and (e) a $25.0 million distribution to theNation.  All assets of SGC come from theproceeds of the offerings of senior notes, along with any intercompany advancesor loans to SGC’s subsidiaries.  SGC hasno independent operating assets or operating activities.

 

On May 23, 2005, SGC issued an additional $200.0million in 71⁄4% senior notes due 2012, Series B, or the 2005 senior notes.The 2005 senior notes are treated as a single class with the 2004 senior notesand are identical to the 2004 senior notes, except for certain tax attributesand prior to November 1, 2005 the amount of interest accrued thereon.  The $200.0 million senior notes were issuedat a discount of $7.0 million.  Thediscount is being amortized on a straight-line basis over the term of thesenior notes which amounted to approximately $1.0 million for the year ended September 30,2008.  Gross proceeds on the 2005 seniornotes were approximately $193.0 million. Such proceeds were, or will be, used to (a) pay in full andterminate on May 23, 2005, the senior secured term loan, or the Term Loan,made by Freemantle Limited, or Freemantle, to SNFGC in November 2002, fora negotiated amount of approximately $126.7 million, representing $80.0 millionin outstanding principal and approximately $46.7 million for interest on suchprincipal, at a prescribed interest rate, that would have otherwise beenpayable if the Term Loan had not been paid on May 23, 2005, but wasinstead paid 81⁄2 months prior to

 

F-13

----

Tableof Contents

 

its November 22, 2007 stated maturity, (b) tofund certain costs associated with the expansion of our operations, (c) topay the fees and expenses associated with the offering of the 2005 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, 2008, aggregate accrued interest and unamortized debtdiscount costs on the 2004 and 2005 senior notes were $15.1 million and$3.6 million, respectively.

 

The Indenture governingthe 2004 and 2005 senior notes contains certain financial and non-financialcovenants. The financial covenants include limitations on restricted paymentsand the incurrence of indebtedness, while the non-financial covenants includereporting obligations and compliance with laws and regulations. As of September 30,2008, SGC was in compliance with all covenants in the Indenture.

 

Maturities of the Company’slong-term debt are as follows:

 
| ** **                            | ** ** | **Maturities**          | ** ** |
|---------------------------------------|------------|-------------------------|------------|
| ** **                            | ** ** | **(in Thousands)** | ** ** |
| Fiscal year  ended September 30: |       |                    |       |
| 2009                                  |       | —                  |       |
| 2010                                  |       | —                  |       |
| 2011                                  |       | —                  |       |
| 2012                                  |       | 500,000                 |       |
| 2013                                  |       | —                  |       |
| Thereafter                            |       | —                  |       |
|                                  |       | $                       | 500,000    |   |
|                                       |            |                         |            |  |

 

**13.Related-Party Transactions**

** **

**LandLeases from the Nation**

** **

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

 

The SNFGC Head Lease(dated October 25, 2002) has a term of 21 years and covers use of the landand certain improvements existing at the commencement of such lease,principally including structures formerly known as the Niagara Falls ConventionCenter and Lackey Plaza.  As of October 1, 2005, monthly leasepayments under the SNFGC Head Lease were $1,287,500.  Effective October 1,2006, the lease payments were increased by 3% to $1,326,125 per month, andeffective October 1, 2007, the lease payments were increased by anadditional 3% to $1,365,909 per month, in each case as approved by the board ofdirectors of SGC and SNFGC.  Pursuant to the terms of the Amended andRestated SNFGC Head Lease entered into on March 27, 2008 and effective October 1,2007, lease payments were further increased , at the request of the Nation, to$2,033,333 per month, with such increase effective as of October 1,2007.  On August 1, 2008, at therequest of the Nation, SGC approved an increase in the SNFGC Head Lease to$3,083,333 per month, effective October 1, 2008, and to $3,666,667 permonth, effective October 1, 2009. Such additional increases are conditioned upon compliance with the applicablerequirements of the senior notes Indenture related to affiliate transactions,and are subject to compliance with all commitments legally binding upon theNation or SNFGC, or to which the premises (described in the lease) aresubject.  The foregoing October 1,2008 and October 1, 2009, rent increases have not been implemented by theparties as they continue to take the steps required to comply with SGC’s seniornotes Indenture.  Lease payments may befurther increased upon agreement of the parties, provided that no increase maycontravene, or constitute a default under, any agreement, indenture, instrumentor other commitment legally binding upon the Nation or SNFGC, or to which thepremises (described in the lease) are subject.

 

F-14

----

Tableof Contents

 

The STGC (effective as ofMay 1, 2004) and SEGC (effective as of April 1, 2006) Head Leaseswere formerly oral agreements, which were memorialized in writing on March 2,2007.  Both of these Head Leases cover use of the land which is currentlybeing used or is expected to be used in operating the Seneca Allegany Casinoand Hotel and Seneca Buffalo Creek Casino, respectively.  The STGC andSEGC Head Leases are effective until the date 21 years after the commencementof the Nation’s Class III gaming operations under the Compact.  Withrespect to the STGC Head Lease, as of October 1, 2005, monthly leasepayments were $1,287,500.  Payments were increased by 3%, effective October 1,2006, to $1,326,125 per month, and by an additional 3%, effective October 1,2007, to $1,365,909 per month, in each case as approved by the board ofdirectors of STGC.  Pursuant to an amendment to the STGC Head Leaseentered into on March 27, 2008, and effective as of October 1, 2007,the lease payments were increased , at the request of the Nation, to $1,691,667per month.  On August 1, 2008, atthe request of the Nation, SGC approved increases in the lease payments underthe STGC Head Lease to $2,166,666 per month effective October 1, 2008, andto $2,666,667 per month effective October 1, 2009.  With respect to the SEGC Head Lease, for the first six months of the term, SEGC made monthly lease payments of$520,000 to the Nation.  Payments were increased, effective October 1,2006, to $1,250,000, and by an additional 3%, effective October 1, 2007 to$1,287,500, in each case as approved by the board of directors of SEGC. Pursuant to an amendment to the SEGC Head Lease entered into on March 27,2008, and effective as of October 1, 2007, the lease payments wereincreased, at the request of the Nation, to $1,441,667 per month.  On August 1, 2008, at the request of theNation, SGC approved an increase in the lease payments under the SEGC Head Leaseto $1,500,000 per month effective October 1, 2008.  The August 1, 2008 STGC and SEGC leasepayment increases are conditioned upon compliance with applicable requirementsof the senior notes Indenture related to affiliate transactions, and aresubject to compliance with all commitments legally binding upon the Nation,STGC or SEGC, as the case may be, or to which the premises (described in thelease) are subject.  The foregoing October 1,2008 and October 1, 2009, rent increases have not been implemented by theparties as they continue to take the steps required to comply with SGC’s seniornotes Indenture.  Lease payments underthe STGC and SEGC Head Leases may be further increased upon agreement of theparties, provided that no increase may contravene, or constitute a defaultunder any agreement, indenture, instrument or other commitment legally biningupon the Nation, STGC or SEGC, respectively, or to which the premises(described in the leases) are subject.

 

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

 
| ** ** | ** ** | **2008**               | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------|------------|------------------------|------------|----------|------------|----------|------------|
| ** ** | ** ** | **(In Millions)** | ** ** |
| SNFGC      |       | $                      | 24.4       |     | $          | 15.9     |       | $ | 15.5 |   |
| STGC       |       | 20.3                   |       | 15.9     |       | 15.5     |       |
| SEGC       |       | 17.3                   |       | 15.0     |       | 3.1      |       |
|       |       | $                      | 62.0       |     | $          | 46.8     |       | $ | 34.1 |   |

 

SNFGC and STGC bothrecord the lease costs as a component of advertising, general andadministrative costs in the accompanying consolidated statements ofincome.  SEGC recorded the lease cost asa component of pre-opening costs in the accompanying consolidated statements ofoperations through June 2007; after opening the temporary Class IIIgaming facility in July 2007, the lease cost was recorded as a componentof advertising, general and administrative expense.

 

**OtherRelated-Party Transactions**

** **

On July 14, 2005, STGC entered into a constructionmanagement agreement with Seneca Construction Management Corporation, or SCMC,a wholly owned corporation of the Nation, to manage the construction of the new212-room hotel and casino at Seneca Allegany Casino.    This project was completed and the hotelopened on March 30, 2007 at a cost of approximately $169.0 million,including equipment and furnishings. Effective September 1, 2005, SNFGC entered into a constructionmanagement agreement with SCMC for the completion of the luxury hotel project atSeneca Niagara Casino.  The hotel waspartially opened on December 15, 2005, and completely opened on March 31,2006.  Total cost of the project was$234.0 million, including equipment and furnishings.  Effective as of December 1, 2005, SEGCentered into an agreement with SCMC for the demolition and land preparationwork in connection with the site for the Seneca Buffalo Creek Casino.  This work was completed at a cost of $2.8million.  For the fiscal years ended September 30,2008, 2007, and 2006, SNFGC, STGC and SEGC have collectively made payments toSCMC for construction management fees and other costs of 

 

F-15

----

Tableof Contents

 

$6.4 million, $4.2 million, and $8.0 million,respectively.  In November 2006,SEGC entered into a construction management agreement with SCMC to manage theconstruction of the temporary Buffalo Creek Casino.  This project was completely opened on July 3,2007 with a cost of approximately $6.8 million, including equipment andfurnishings. In June 2007, STGC entered into a letter of intent with SCMCto manage the fourth phase of construction at Seneca Allegany Casino and Hotel, including, in particular, conversion of the former temporary casino facilityinto an events center and related improvements. This project was completed in March 2008and cost $29.3 million including equipment and furnishings.  In October 2007, SEGC entered into aletter of intent with SCMC to manage the construction of the $333 millionpermanent Seneca Buffalo Creek Casino and Hotel.  Construction on this project was suspended inAugust 2008.  Prior to suspension ofconstruction, construction costs were approximately $51.5 million.

 

As of January 1,2005, the Company transferred all Class II operations to the Nation,including its poker operations.  TheCompany leases space within both Seneca Niagara Casino & Hotel andSeneca Allegany Casino to the Nation for operation of the poker rooms.  During 2008, 2007, and 2006 the Companyrecorded $822,000, $695,000 and $806,000 of rental income, respectively, and atSeptember 30, 2008 and 2007, the Company has recorded $81,000 and $58,000,respectively, as a receivable from the Nation relating to poker room rentals.

 

During 2008 and 2007, theCompany declared cash distributions to the Nation of $42.0 million and $81.4million, respectively.  Cashdistributions of $66.0 million and $57.4 million were paid in 2008 and 2007,respectively.

 

During 2007 and 2006, theCompany distributed real property and leasehold rights acquired, net ofliabilities transferred, for use in its casino operations to the Nation.  The distribution amounts of $0.4 million and$7.4 million for 2007 and 2006, respectively, are based on the acquisitioncosts.  On June 14, 2007, the Nationmade a capital contribution to SEGC of $3.2 million for the value of landpurchased for the development of the Seneca Buffalo Creek Casino.

 

The Company is charged bythe Nation for SGA costs, which are incurred by the Nation. SGA costs chargedto the Company were approximately $10.9 million in 2008, $10.3 million in 2007and $9.8 million in 2006. The Company also incurs costs, which are passedthrough the Nation, for New York State gaming regulatory services, New YorkState Police, Seneca Nation of Indian Marshals, Buffalo Police and CattaraugusSheriff Department services. The Company has recorded expenses of approximately$9.6 million in 2008, $10.4 million in 2007 and $8.8 million in 2006 inconnection with these services.  At September 30,2008 and 2007, approximately $27.9 million and $23.2 million, respectively, ofthe SGA, other regulatory, and police costs are recorded as accrued regulatorycosts in the accompanying consolidated balance sheets.

 

STGC leases office spacein a building owned by the brother of a member of the Company’s board ofdirectors.  During the fiscal years endedSeptember 30, 2008, 2007, and 2006 such lease payments totaledapproximately $233,000, $246,000 and $261,000, respectively.

 

SNFGC, STGC and SEGC,through a competitive bidding process, have purchased goods and services fromDRJ Enterprises, which is owned by the brother-in-law of the Chairman of SGC.Payments to DRJ Enterprises totaled $707,000 and $1,039,000 for the fiscalyears ended September 30, 2008 and 2007, respectively.

 

**14. Commitments and Contingencies**

 

**DistributionAgreement Obligations**

 

On April 27, 2007,SGC entered into a Distribution Agreement among the Nation, the Seneca Nationof Indians Capital Improvements Authority, or the Authority, SGC and WellsFargo Bank, as Trustee, in connection with the Authority’s issuance in twoseries (one tax exempt and the other taxable) of an aggregate principal amountof $159,495,000 special obligation bonds, or the 2007 Bonds.  TheDistribution Agreement obligates SGC, subject to any contractual restrictionsapplicable to SGC (including, but not limited to, those contained in theIndenture governing SGC’s 2004 and 2005 senior notes), to make monthlydistributions to the Nation at the times and in the amounts necessary to enablethe Authority to pay the debt service on the 2007 Bonds as required under theAuthority’s indenture.  At the direction of the Nation and the Authority,SGC will pay such distributions directly to the Trustee.  The Authority’sdebt service commences on June 1, 2007.  For the period from June 1,2007 through November 1, 2007, the Authority’s debt service averagedapproximately $0.9 million per month. For the period from December 1, 2007through June 1, 2008, the Authority’s debt service averages

 

F-16

----

Table of Contents

 

approximately $1.7million per month. In June 2008, it was determined that the amortization(debt service) schedule upon which the foregoing $1.7 million monthly paymentwas made, was incorrect.  A correctedamortization schedule was provided and, after giving effect to a resultingcredit for amounts overpaid, for the period from January 1, 2008 through December 1,2023, the Authority’s debt service averages approximately $1.2 million permonth. The foregoing debt service averages are based on scheduled payments ofinterest and principal under the Authority’s indenture and bonds and do notaddress the effects of any earlier call for redemption, by acceleration orotherwise.  The Distribution Agreement provides that neither the Trusteenor the Authority’s bondholders will have any recourse under the DistributionAgreement to any revenues, assets or property of SGC or its subsidiaries shouldSGC fail to comply with its distribution obligations.  For the periodended September 30, 2008, SGC distributed to the Nation $14.9 million forthe Authority’s debt service on the special obligation bonds.

 

**Litigation**

** **

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

 

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

 

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

 

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

 

F-17

----

Tableof Contents

 

Nation’s June 9, 2007, site-specific ordinance,approved by the NIGC on July 2, 2007. This, the U.S. argues, moots the case as to the NIGC and moots themotion for a stay pending appeal.

 

The U.S. Department of Justice has discontinued itsappeal of the January 12, 2007 order in the initial CACGEC federalsuit.  On November 9, 2007, theSecond Circuit Court of Appeals stayed the plaintiffs’ appeal pending theresolution of the second federal court action described below (*Citizens Against Casino Gambling v. Hogen* (1:07-cv-00451-WMS(WDNY)).

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

On July 22, 2008,the United States filed a motion responding to the plaintiffs motion to enforceand requesting that the case be remanded to the NIGC for further consideration.The remand motion is based upon significant changes in the controlling law, asinterpreted by the U.S. Department of Interior.  The Seneca Nation ofIndians simultaneously filed an amicus brief supporting the United States’motion for remand to the NIGC and opposing the plaintiffs’ motion toenforce.  On August 26, 2008, the court issued its decision on theforegoing motions and granted the plaintiffs’ request that the court enforceits July 8, 2008 decision and order to the extent that the NIGC and itsChairman are directed to carry out their enforcement duties under IGRA. Theplaintiffs’ motion was denied to the extent that they requested an order thatwould divest the NIGC of its discretion to determine the type of enforcementaction to take.

 

On September 3,2008, the Chairman of the NIGC issued a “notice of violation” or “NOV” to theNation as a result of the August 26, 2008 decision. The NOV asserts thatthe Nation has violated IGRA by operating the Seneca Buffalo Creek Casinowithout an approved Class III gaming ordinance for that facility becausethe gaming ordinance for those lands authorized gaming on lands in Buffalo thatthe district court deemed ineligible for gaming.  The NOV further statesthat although the 

 

F-18

----

Tableof Contents

 

NIGC disagrees with thedistrict court’s interpretation of IGRA regarding the Buffalo Creek parcel’seligibility for gaming under IGRA, the NIGC, at the current time, was bound bythe district court’s ruling as to this particular land parcel absentreconsideration by the district court or reversal on any appeal. Consequently, the Chairman issued the NOV. The NOV was not accompanied by aclosure order or an assessment of a civil fine. The NOV further states that theChairman of the NIGC may modify the measures required to correct the allegedviolation if the NIGC approves the Nation’s July 16, 2008 gaming ordinanceamendments.  The Nation immediatelyappealed the NOV issuance and the administrative appeal is still pending beforean independent administrative law judge. The NIGC requested a stay of the NOV appeal.

 

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

 

OnOctober 24, 2008, the U.S. Department of Justice filed a notice ofappeal relating to the court’s July 8, 2008 ruling on whether gaming ispermitted on Nation lands in Buffalo, in addition to the court’s August 26orders (directing the NIGC to issue the NOV and denying the U.S. government’smotion to remand the case to the NIGC for an administrative decision on thebasis of significant changes in controlling regulation).

 

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

 

On December 2, 2008, the plaintiffs filed theirresponse to the Nation’s amicus brief. The plaintiffs’ October 21, 2008 motion remains under advisement.

 

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

 

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

 

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

 

F-19

----

Tableof Contents

 

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

 

Although Petitioners have indicated an intent to appeal the judge’sdecision, no notice of appeal has been filed to date. 

 

If the plaintiffs were successful, the Nation could be delayed in thecompletion of the Seneca Buffalo Creek Casino and Hotel or could be unable tocomplete the Seneca Buffalo Creek Casino and Hotel.  Certain of thesepetitioners are also plaintiffs in the federal lawsuits filed by CitizensAgainst Casino Gambling in Erie County referenced above.

 

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

 

On or about April 6,2006, an action was filed in the United States District Court, Western Districtof New York, by Daniel T. Warren, a pro se plaintiff, against the United Statesof America, the United States Department of the Interior, the National IndianGaming Commission, and five individuals in their official capacities as ActingSecretary of the Interior, Acting Assistant Secretary of the Interior forIndian Affairs and Chairman of the National Indian Gaming Commission, as wellas Governor George E. Pataki, as Governor of the State of New York, and CherylRitchko-Buley, as Chairwoman of the New York State Racing and WageringBoard.    The action initially sought declaratory and injunctiverelief as to numerous matters including declaring that IGRA is unconstitutional,that the Compact violates IGRA, that the New York Constitution is not preemptedby IGRA, that New York does not have the authority under state law to enterinto a tribal state compact under IGRA, that certain actions of the defendantswere not in accordance with law, and that certain lands purchased by the Nationwere not subject to being taken into trust or restricted fee status under theSNLCSA or were not pursuant to settlement of a land claim within the meaning ofIGRA; and enjoining the defendants from taking actions which would furthercasino gambling in the State of New York under IGRA or on any lands acquired bythe Nation pursuant to SNLCSA. On August 16, 2006, the plaintiff amendedhis complaint bringing: a Tenth Amendment challenge to IGRA; a claim that theCompact violates IGRA by providing for gaming which is not otherwise lawful inNew York; a claim that both the Compact and the statute authorizing theGovernor of New York to enter into the Compact violate various provisions ofthe New York State Constitution; and a claim that the United States has failedto promulgate regulations for gaming on off-reservation territory, in violationof its statutory duties.  The effect of such amendment was to limit theclaims remaining in the case, by dropping many of the federal law claims in theoriginal complaint.

 

On December 1, 2006,the court heard argument on the plaintiff’s motion to join (1) Barry E.Snyder, Sr., as President of the Seneca Nation of Indians; (2) JohnPasqualoni, as President and CEO of the Seneca Gaming Corporation; (3) theSeneca Nation of Indians; and/or (4) the Seneca Gaming Corporation, asadditional defendants.

 

On October 5, 2007,the plaintiff filed a motion to further amend the complaint to include asdefendants (1) Maurice

 

John, as President of theSeneca Nation of Indians; (2) E. Brian Hansberry, as the new President andCEO of the Seneca Gaming Corporation (replacing John Pasqualoni); (3) theSeneca Nation of Indians; and (4) the Seneca Gaming Corporation.  On October 25,2007, the Seneca Nation of Indians filed a response in opposition to thatmotion asserting that (1) the motion to amend the complaint was notproperly before the court because it is premised upon a finding that the Nationis a necessary and indispensible party, and (2) the motion to amend isfutile because the Nation and its officers are protected by sovereignimmunity.  As of December 16, 2008, the court had not ruled on thismotion.

 

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

 

***Countyof Erie v. City of Buffalo (NYS Supreme Court, Index No. 2006-10440).***

 

On November 6, 2006,a suit was brought in New York Supreme Court, County of Erie, by the County ofErie, New York, Joel Giambra (as County Executive), and Andrew Eszak (asCommissioner of the County of Erie Department of Environment and Planning),against the City of Buffalo, Mayor Byron Brown and the Buffalo Common Councilseeking to invalidate the

 

F-20

----

Table of Contents

 

agreement pursuant towhich SEGC acquired the two block section of Fulton Street (bisecting theBuffalo Creek Territory) on the basis that the City failed to refer theagreement to the County under Section 239-m of the New York State GeneralMunicipal Law.

 

Upon taking office on January 1,2008, the newly elected Erie County Executive withdrew the County of Erie fromthe suit, and the action was dismissed on January 4, 2008.

 

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

 

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

 

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

 

SGC has obtainedpossession of, either through eminent domain proceedings or private purchase,substantially all of the remaining acreage within the footprint, other thancertain streets owned by the City of Niagara Falls providing access to theabove church parcels, and a bike path owned by the New York State Department ofTransportation. SGC expects to acquire these remaining parcels in 2009.

 

With the exception ofapproximately 2 acres of land and a hotel property within the footprinttogether acquired for $7.9 million through a private sale in December 2005,substantially all of our post-2002 real property acquisitions in Niagara Falls,NY have been pursuant to New York State Eminent Domain Procedure Law, or EDPL,using the State’s power of eminent domain (through the Empire State DevelopmentCorporation, or ESDC.  The amounts paidto condemnees from whom the ESDC has acquired property are deemed to be advancepayments, in that property owners are entitled to reserve their rights tochallenge the land and improvement values determined by the condemnor’sappraisers.  The ESDC has made advancedpayments under the EDPL of approximately $31.5 million for the condemnedparcels within the footprint including, in particular, approximately 18 acresof land and related fixtures (a former water park) for an aggregate advancedpayment of $18.0 million, and another hotel property for an aggregate advancedpayment of $8.2 million (excluding fixtures).   See Note 11.

 

Pursuant to the EDPL, NewYork state courts will determine the final purchase price to be paid tocondemnees who elect to challenge the initial appraised value of theirproperty.  To date, all record ownersfrom whom property was acquired pursuant to the EDPL have reserved rights toclaim additional compensation.  Fourrecord owners have filed notices of claim to challenge the fair market valueappraisals utilized by ESDC.   On July 26,2006, Fallsite LLC and Fallsville Splash, LLC have filed notices of claim(Index Nos. 126578/06 and 126578/06) in the amounts of $40.0 and $35.0 millionfor land and trade fixtures, respectively, relating to a small former waterpark within the footprint.  ESDC’s fairmarket appraisal value for the foregoing was approximately $17.0 million.  On August 24, 2007, IntertrustDevelopment has filed a notice of claim for $15.8 million (Index No. 127113/06)for land and trade fixtures associated with a former Holiday Inn hotel withinthe footprint. ESDC’s fair market appraisal value for the foregoing was $8.2million.  Valuation proceedings withregard to the former water park and Holiday Inn properties are underway withexpected completion in early 2009. Additionally, on March 28, 2007, JFD Holdings had filed a notice ofclaim (Index No. 127113/06) for an unspecified amount for land and tradefixtures associated with a former Pizza Hut retaurant within thefootprint.  ESDC’s fair market appraisalfor the foregoing was approximately $0.4 million.   Valuation proceedings with regard to theformer water park is underway with expected 

 

F-21

----

Table of Contents

 

completion in early 2009.SGC is finalizing a settlement regarding the former Holiday Inn property whichhas been approved by the SGC board of directors, but remains subject toapproval of the Nation’s Council.

 

If a court determinesthat the value for the land and improvements is higher than the appraised valuepaid to a condemnee, then SGC may be liable to the condemnee for the differenceand potentially also responsible for certain additional costs and payments tothe condemnee, such as attorneys’ fees. As of September 30, 2008, a reserve in the amount of $6.4 million wasestablished for such matters included as a component of other currentliabilities on SGC’s consolidated balance sheet.

 

SGC is a defendant inother litigation from time to time in the normal course of business. In theopinion of management, based on the advice of counsel, the aggregate liability,if any, arising from such litigation will not have a material adverse effect onSGC’s financial condition or results of operations.

 

**The Seneca Nation Compact**

** **

As part of its Compact,the Nation agrees to contribute to the State of New York a portion of theproceeds from the operation and conduct of each category of Gaming Device forwhich exclusivity exists, based on the win of such machines (cash dropped intomachines, after payouts but before expenses) and totaled on a cumulativequarterly basis to be adjusted annually at the end of the relevant calendaryear.  However, beginning in February 2005,the Company began advancing to the Nation on a monthly basis the exclusivityfee due for the prior month.  The exclusivityfee to the State of New York for years 1—4 (through December 31, 2006), is18.0%, payable on an annual basis. Thereafter, the exclusivity fee is 22% foryears 5—7 (through December 31, 2009), payable on a semi-annual basis and25.0% for years 8—14 (through December 31, 2016), payable on a quarterlybasis.

 

Amounts payable forexclusivity fees were $9.2 million and $9.3 million at September 30, 2008and 2007, respectively, and are recorded as exclusivity fees payable on theaccompanying consolidated balance sheets. The exclusivity fee expense was$115.7 million, $103.3 million and $79.0 million for the years ended September 30,2008, 2007 and 2006, respectively.

 

**Additional CasinoLocations and Expansion**

** **

As described in Note 1,the Compact provides the Nation the exclusive right to conduct Class IIIgaming activities at three sites in the western region of the State of NewYork.  The Company opened its third Class IIIcasino on July 3, 2007 in a temporary facility in Buffalo New York.  The construction of the Company’s permanentcasino at that site, as well as expansion by STGC at Seneca Allegany Casino andHotel, and the golf course development in Lewiston, New York,  will require significant capital outlays. Theability to complete these projects by the targeted date, or at all, will dependon various factors including cash flow from operations, the availability ofexternal financing with regard to one or more of the projects, certain Nationand governmental approvals, the effects of legal and/or administrativeproceedings, and adherence to projected construction timelines.  In light of greater demands on our availablecash, increased competition and challenging economic and capital marketconditions, the Company, in consultation with the Nation, continues to evaluatethe scope, phasing and timing of its expansion plans on the Allegany andBuffalo Creek territories, and is reassessing the scaling and scope of itsclubhouse design and construction process to accommodate appropriate changes toits plans, if necessary.

 

**Capital Projects**

** **

*Seneca Allegany Casino andHotel. *On March 30, 2007, the Company opened its 212room resort hotel, including two fine dining restaurants, a 24-hour casualrestaurant and certain other amenities, at the Seneca Allegany Casino andHotel.  This expansion followed the December 28,2006 official opening of the permanent gaming floor. The approximate cost ofconstructing and equipping the hotel and expansion project was $169.0million.  In March 2008 theconversion of the former 120,000 square foot temporary casino at the SenecaAllegany Casino and Hotel into an events center, and additional administrationspace was completed at a cost of approximately $29.3 million.  The exterior landscaping and façadeenhancements, originally planned as part of the conversion of the temporarycasino, was deferred to the next phase of construction.  The next phase of construction, whichprovided for an additional 200 room hotel, 30,000 square feet of additionalgaming space and related amenities, landscaping and exterior enhancements tothe property as a whole, commenced in April 2008.  Construction on this phase of development atSeneca Allegany Casino and Hotel was suspended on August 27, 2008 due tovarious factors, including challenging economic and capital market conditions,demands on our 

 

F-22

----

Table of Contents

 

available cash andincreased competition and construction costs. Construction is anticipated to continue upon the stabilization ofeconomic and capital market conditions and at such a time when financing uponacceptable terms becomes available.  Asof September 30, 2008, the Company has spent $11.0 million on design andconstruction relating to this phase of construction.

 

*Seneca Buffalo Creek Casino andHotel. *On July 3, 2007, the Company opened a temporary Class IIIgaming facility at the Seneca Buffalo Creek Territory site (6,000 square feetincluding 125 slot machines and a snack bar) at a cost of approximately $6.8million.  In March 2008, the Companycompleted a 109 slot machine expansion (for a total of 244 slot machines) ofthe temporary Seneca Buffalo Creek Casino.  Construction of the permanentSeneca Buffalo Creek Casino and Hotel, originally expected to approximate$333.0 million, commenced in March 2008 and was anticipated to open inSummer 2010.  The permanent complex is expected to initially feature90,000 square feet of gaming space with 2,000 slot machines and 46 table gamesand a 22-story all suite hotel with approximately 206 rooms.  Planned amenities include a pool, spa andsalon, four restaurants, meeting rooms, a retail outlet and a 2,200-spaceparking garage.  Construction on thisphase of development at Seneca Buffalo Creek Casino and Hotel was suspended on August 27,2008 due to various factors, including challenging economic and capital marketconditions, demands on our available cash and increased competition andconstruction costs.  Construction isanticipated to continue upon the stabilization of economic and capital marketconditions and at such a time when financing with acceptable terms becomesavailable.  As of September 30,2008, the Company has paid $70.0 million on the design and construction of thepermanent casino and hotel.

 

*Seneca Hickory Stick Golf Course**. *In July 2007,the Company commenced construction of the Seneca Hickory Stick Golf Course, an18-hole Robert Trent Jones II designed golf course. The golf course is locatedin Lewiston, New York and is approximately eight miles from the Seneca NiagaraCasino and Hotel.  Completion of the golfcourse is currently scheduled for Spring 2009. To allow for proper grow-in ofthe course, it is anticipated that the official opening at the course willoccur in  Spring 2010. The decision as towhen to open the golf course for play will depend upon how well the coursematures througout the 2009 growing season. As of September 30, 2008, theCompany has paid $12.5 million on the construction with a total cost toconstruct the golf course, clubhouse and related amenities estimated to beapproximately $25.5 million.  In light ofgreater demands on our available cash, increased competition and challenging economicand capital market conditions, the Company, in consultation with the Nation,continues to evaluate the scope, phasing and timing of its clubhouse design forthe Seneca Hickory Stick Golf Course.

 

**Operating Leases**

** **

In addition to the HeadLeases with the Nation (Note 13), the Company rents land and building space, anemployee parking lot, and warehouse space; and administrative space for itsSTGC casino facility, under various operating leases. The lease terms vary fromyearly to 21 years with renewal options. Total rent expense under all operatingleases for 2008, 2007 and 2006 was approximately $62.8 million, $54.4 millionand  $40.6 million, respectively.  The terms of the 2004 and 2005 Senior Notesallow the monthly payments under the SNFGC, STGC, and SEGC head leases toincrease up to 3.0% beginning no earlier than October 2005. Leaseincreases in excess of 3% are subject to additional requirements under theterms of the Indenture governing the Company’s senior notes and theDistribution Agreement.  Estimatedminimum rents due under the operating leases (including the Head Lease and STGCland lease) are as follows:

 
| ** **                            | ** ** | **(In Thousands)** | ** ** |
|---------------------------------------|------------|-------------------------|------------|
| Fiscal year  ended September 30: |       |                    |       |
| 2009                                  |       | 62,296                  |       |
| 2010                                  |       | 62,197                  |       |
| 2011                                  |       | 62,000                  |       |
| 2012                                  |       | 62,000                  |       |
| 2013                                  |       | 62,000                  |       |
| Thereafter                            |       | 620,000                 |       |
|                                  |       | $                       | 930,493    |   |
|                                       |            |                         |            |  |

 

F-23

----

Tableof Contents

 

**EXHIBITINDEX**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 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).                                                                                                                                                                                                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.9*                 |       | Charter of LGCC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.10*                |       | By-Laws of LGCC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 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                  |       | Second Supplemental Indenture dated as of  December 28, 2007, among SGC, the existing subsidiary guarantors party  thereto, Lewiston Golf Course Corporation and Wells Fargo Bank, National  Association, as trustee under the Indenture (incorporated by reference to  Exhibit 4.1 to SGC’s Current Report on Form 8-K filed with the SEC  on January 8, 2008).                                                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.4                  |       | Registration Rights Agreement, dated as of  May 5, 2004, among SGC, the Guarantors party thereto and Merrill  Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith  Incorporated, Banc of America Securities LLC and Wells Fargo Securities, LLC,  as the Initial Purchasers (incorporated by reference to Exhibit 4.2 to  SGC’s Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).                                 |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.5                  |       | Registration Rights Agreement, dated as of  May 23, 2005, among SGC, the Guarantors party thereto and Merrill  Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith  Incorporated, Banc of America Securities LLC and Wells Fargo Securities, LLC,  as the Initial Purchasers (incorporated by reference to Exhibit 4.2 to  SGC’s Quarterly Report on Form 10-Q filed with the SEC on  August 15, 2005).                                      |

 

----

Tableof Contents

 
| 4.6    |   | 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).                                              |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.7    |   | Amendment No. 1, dated May 23, 2005, to  Nation Agreement, dated May 5, 2004, between Seneca Nation of Indians,  Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith  Incorporated, 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). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.8    |   | Assignment and Plan of Distribution Agreement,  entered into and effective as of May 5, 2004, by and between Seneca  Nation of Indians and SGC (incorporated by reference to Exhibit 4.2 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   |   | Agreement of Lease, dated as of October 25,  2002, between Seneca Nation of Indians, as Landlord, and SNFGC, as Tenant, as  amended on December 23, 2002 (incorporated by reference to  Exhibit 10.4 to SGC’s Registration Statement No. 333-117633 filed  with the SEC on July 23, 2004).                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.3   |   | Construction Management Agreement, dated as of  July 14, 2005, between Seneca Construction Management Corporation, as  Construction Manager, and STGC, as Owner (for Seneca Allegany Casino Phase II  Hotel and Casino) (incorporated by reference to Exhibit 10.1 to SGC’s  Current Report on Form 8-K filed with the SEC on July 17, 2005).                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.4+  |   | Employment Agreement, dated July 13, 2004,  between SGC and Barry W. Brandon (incorporated by reference to  Exhibit 10.9 to SGC’s Registration Statement No. 333-117633 filed  with the SEC on July 23, 2004).                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.5+  |   | 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).                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.6+  |   | 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).                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.7+  |   | 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).                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.8+  |   | 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).                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.9+  |   | Amendment No. 1 to Employment Agreement, dated  as of October 1, 2005, between SGC and Barry W. Brandon (incorporated by  reference to Exhibit 10.20 to SGC’s Registration Statement  No. 333-128443 filed with the SEC on November 30, 2005)                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.10+ |   | Amendment No. 1 to Second Amended and Restated  Employment Agreement, dated as of January 30, 2006, between SGC and John  Pasqualoni (incorporated by reference to Exhibit 10.23 to SGC’s  Amendment No. 3 to Registration Statement on Form S-4 filed with  the SEC on February 2, 2006).                                                                                                                                                                                                               |

 

----

Tableof Contents

 
| 10.11+ |   | Amendment No. 2 to Employment Agreement,  effective as of September 14, 2006, between SGC and Barry W. Brandon  (incorporated by reference to Exhibit 10.1 to SGC’s Current Report on  Form 8-K filed with the SEC on September 20, 2006).                                                                 |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.12+ |   | Amendment No. 1 to Employment Agreement,  effective as of September 14, 2006, between SGC and Rajat Shah  (incorporated by reference to Exhibit 10.2 to SGC’s Current Report on  Form 8-K filed with the SEC on September 20, 2006).                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.13+ |   | Amendment No. 1 to Employment Agreement,  entered into on September 14, 2006 and effective as of June 22,  2006, between SGC and Joseph D’Amato (incorporated by reference to  Exhibit 10.3 to SGC’s Current Report on Form 8-K filed with the SEC  on September 20, 2006).                      |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.14+ |   | Amendment No. 1 to Employment Agreement,  entered into on September 14, 2006 and effective as of June 22,  2006, between SGC and Michael Speller (incorporated by reference to  Exhibit 10.4 to SGC’s Current Report on Form 8-K filed with the SEC  on September 20, 2006).                          |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.15+ |   | Employment Agreement, dated December 15, 2006,  and effective as of June 22, 2006, between Seneca Gaming Corporation and  Patrick M. Fox (incorporated by reference to Exhibit 10.29 to SGC’s  Annual Report on Form 10-K filed with the SEC on December 18,  2006).                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.16  |   | Agreement between the City of Buffalo, New York,  Seneca Gaming Corporation, Seneca Erie Gaming Corporation and the Seneca  Nation of Indians, effective November 9, 2006 (incorporated by reference  to Exhibit 10.1 to SGC’s Current Report on Form 8-K filed with the  SEC on November 14, 2006).            |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.17+ |   | Separation Agreement between SGC and John Pasqualoni  effective February 7, 2007 (incorporated by reference to  Exhibit 10.1 to SGC’s Current Report on Form  8-K filed with the  SEC on February 7, 2007).                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.18+ |   | Separation Agreement between SGC and Joseph D’Amato  effective February 7, 2007 (incorporated by reference to  Exhibit 10.2 to SGC’s Current Report on Form  8-K filed with the  SEC on February 7, 2007).                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.19  |   | Head Lease Agreement between STGC and the Nation  dated February 28, 2007 (incorporated by reference to Exhibit 10.1  to SGC’s Current Report on Form 8-K filed with the SEC on March 7,  2007).                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.20  |   | Head Lease Agreement between SEGC and the Nation  dated February 28, 2007 (incorporated by reference to Exhibit 10.2  to SGC’s Current Report on Form 8-K filed with the SEC on March 7,  2007).                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.21+ |   | Employment Agreement, dated April 10, 2007, and  effective as of March 6, 2007, between SGC and Robert Victoria  (incorporated by reference to Exhibit 10.1 to SGC’s Current Report on  Form 8-K filed with the SEC on April 16, 2007).                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.22+ |   | Employment Agreement, dated April 12, 2007, and  effective as of February 7, 2007, between SGC and E. Brian Hansberry  (incorporated by reference to Exhibit 10.1 to SGC’s Current Report on  Form 8-K/A filed with the SEC on April 18, 2007).                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.23  |   | Distribution Agreement, dated April 27, 2007,  among the Nation, the Seneca Nation of Indians Capital Improvements  Authority, SGC and Wells Fargo Bank, National Association, as Trustee  (incorporated by reference to Exhibit 10.1 to SGC’s Current Reporat on  Form 8-K filed with the SEC on May 1, 2007). |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.24  |   | Amended and Restated Head Lease Agreement between  Seneca Niagara Falls Gaming Corporation and the Seneca Nation of Indians  effective as of October 1, 2007 (incorporated by reference to  Exhibit 10.1 to SGC’s Current Report on Form 8-K filed on  April 1, 2008).                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.25  |   | First Amendment to Head Lease Agreement between  Seneca Territory Gaming Corporation and the Seneca Nation of Indians  effective as of October 1, 2007 (incorporated by reference to  Exhibit 10.2 to SGC’s Current Report on Form 8-K filed on  April 1, 2008).                                                |

 

----

Tableof Contents

 
| 10.26   |   | First Amendment to Head Lease Agreement between  Seneca Erie Gaming Corporation and the Seneca Nation of Indians effective as  of October 1, 2007 (incorporated by reference to Exhibit 10.3 to  SGC’s Current Report on Form 8-K filed on April 1, 2008). |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                |
| 10.27+  |   | Separation Agreement between Seneca Gaming  Corporation and Patrick M. Fox dated April 8, 2008 and effective as of  April 11, 2008 (incorporated by reference to Exhibit 10.1 to SGC’s  Current Report on Form 8-K filed on April 8, 2008).           |
|    |   |                                                                                                                                                                                                                                                                                |
| 10.28+  |   | Employment Agreement between Seneca Gaming  Corporation and Catherine A. Walker, dated as of March 16, 2008  (incorporated by reference to Exhibit 10.1 to SGC’s Current Report on  Form 8-K filed on May 1, 2008).                                        |
|    |   |                                                                                                                                                                                                                                                                                |
| 10.29   |   | Loan Agreement by and among Seneca Gaming  Corporation and KeyBank National Association dated as of June 19, 2008  (incorporated by reference to Exhibit 10.1 to SGC’s Current Report  on Form 8-K filed on June 25, 2008).                           |
|    |   |                                                                                                                                                                                                                                                                                |
| 10.30   |   | Employment Agreement, effective as of July 1,  2008, between Seneca Gaming Corporation and David Sheridan (incorporated by  reference to Exhibit 10.1 to SGC’s Current Report on Form 8-K/A  filed on October 28, 2008).                                   |
|    |   |                                                                                                                                                                                                                                                                                |
| 10.31+* |   | Employment Agreement, effective as of June 26,  2008, between Seneca Gaming Corporation and Robert Chamberlain.                                                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                |
| 21.1*   |   | List of SGC  subsidiaries.                                                                                                                                                                                                                                                          |
|    |   |                                                                                                                                                                                                                                                                                |
| 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.                                                                                                                                                                                                              |

 

----

*              Filedherewith.

 

+              Management contract or compensatory planor arrangement

 

----