** **

**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, 2007**                                                                                                      |
| ** **                                                                                                                                                  |
| **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 GAMINGCORPORATION**

(Exactname of registrant as specified in its charter)

 

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

 

**310 Fourth Street**

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

**(716) 299-1100**

(Address,including zip code, and telephone number,

includingarea code, 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 or anon-accelerated filer (as defined in Rule 12b-2 of the act).

 

Large accerated filer  o        Acceleratedfiler  o        Non-acceleratedfiler  x

 

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

 

Yes  oNo  x

 

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

 

**DOCUMENTS INCORPORATED BY REFERENCE:     None**

 

 

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**SENECA GAMING CORPORATION**

 

**Form 10-K**

 

**TABLE OF CONTENTS**

 
| **PART I**   | ** **                                                                                                          | **Page Number** |
|-------------------|---------------------------------------------------------------------------------------------------------------------|-----------------|
|              |                                                                                                                |            |
| Item 1.           | Business                                                                                                            | 3               |
| Item 1A.          | Risk Factors                                                                                                        | 25              |
| Item 1B.          | Unresolved  Staff Comments                                                                                          | 40              |
| Item 2.           | Properties                                                                                                          | 40              |
| Item 3.           | Legal Proceedings                                                                                                   | 41              |
| Item 4.           | Submission  of Matters to a Vote of Security Holders                                                                | 46              |
|              |                                                                                                                |            |
| **PART II**  | ** **                                                                                                          | ** **      |
|              |                                                                                                                |            |
| Item 5.           | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 46              |
| Item 6.           | Selected  Financial Data                                                                                            | 46              |
| Item 7.           | Management’s  Discussion and Analysis of Financial Condition and Results of Operation                          | 49              |
| Item 7A.          | Quantitative  and Qualitative Disclosures About Market Risk                                                         | 64              |
| Item 8.           | Financial  Statements and Supplementary Data                                                                        | 64              |
| Item 9.           | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure                               | 64              |
| Item 9A.          | Controls and  Procedures                                                                                            | 64              |
| Item 9B.          | Other Information                                                                                                   | 64              |
|              |                                                                                                                |            |
| **PART III** | ** **                                                                                                          | ** **      |
|              |                                                                                                                |            |
| Item 10.          | Directors,  Executive Officers and Corporate Governance                                                             | 65              |
| Item 11.          | Executive  Compensation                                                                                             | 69              |
| Item 12.          | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    | 76              |
| Item 13.          | Certain  Relationships and Related Transactions, and Director Independence                                          | 77              |
| Item 14.          | Principal  Accountant Fees and Services                                                                             | 79              |
|              |                                                                                                                |            |
| **PART IV**  | ** **                                                                                                          | ** **      |
|              |                                                                                                                |            |
| Item 15.          | Exhibits  and Financial Statement Schedules                                                                         | 80              |
|              | Signatures                                                                                                          | 84              |

 

**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 “believe”, “anticipate”,“expect”, “estimate”, “intend”, “plan”, “project”, “will be”, “will continue”, “willlikely result”, and similar expressions, as they relate to us or ourmanagement, indicate forward-looking statements.  Similarly, statements that describe ourplans, business, strategy or goals are all forward-looking statements.  These forward-looking statements are subjectto numerous risks, uncertainties and other factors that could cause actualresults, performance or achievements to differ materially from those expressedin or implied by these forward-looking statements.

 

Factors that could causeactual results, performance or achievements to differ materially from thoseexpressed 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.We assume no obligation to update theseforward-looking statements.

 

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**AVAILABLE INFORMATION**

 

**We makeavailable, free of charge, through our internet website,www.senecagamingcorporation.com, our Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and, ifapplicable, amendments to those reports filed or furnished pursuant 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 byreference into, this Annual Report on Form 10-K.**

 

**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 of New York, as “Nation”, “Seneca Nation” or “SenecaNation of Indians,” (8) the Nation-State Gaming Compact between the SenecaNation of Indians 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 andLGCC are sometimes collectively referred to as the “restricted subsidiaryguarantors”, based on their respective guarantees of SGC’s obligations underthe senior notes.  Our fiscal year endson September 30.  “Fiscal 2007” isdefined as the fiscal year ended September 30, 2007, “Fiscal 2006” isdefined as the fiscal year ended September 30, 2006, and fiscal yearsprior to 2006 are defined similarly within the context of this Annual Report onForm 10-K.

 

**Overview**

 

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

 

As of September 30,2007, Seneca Niagara Casino and Hotel featured over 147,000 square feet ofgaming space, with 4,199 slot machines and 102 table games.  Seneca Allegany Casino and Hotel featuredover 68,000 square feet of gaming space with 2,336 slot machines and 41 tablegames, and Seneca Buffalo Creek Casino (operating in a temporary facility)featured approximately 6,000 square feet of gaming space, 135 slot machines anda snack bar.   As of September 30,2007, we had approximately 1.4 million members in the Seneca Link Player’s Carddatabase with an average of approximately 18,000 new members joining per monthfor the prior twelve months.  As of September 30,2007, approximately 20% of the Seneca Link Player’s Card members lived in theBuffalo-Niagara area, and approximately 5%, 19%, 15%, and 40% lived in Canada,Pennsylvania, Ohio and other areas of New York, respectively.

 

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Factors contributing toour success include:

 

·    since their openings, our ability to successfullymarket Seneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel toour primary and secondary target markets;

 

·    withthe addition of our luxury hotels on the Niagara and Allegany Territories, theability to increase patron count, length of stay and attract higher-end gamingguests from a broader geographic area;

 

·    ourability to enroll approximately 1.4 million patrons in our cross-propertySeneca Link Player’s Card program, which has increased our ability to useeffective direct mail and targeted marketing programs to establish patronloyalty to the Seneca brand at a profitable level;

 

·    ourentertainment options, offering varied quality acts to our patrons;

 

·    ourmix of slot machines, which we believe is superior to our competition andincludes the latest product introductions by leading United States andinternational slot manufacturers;

 

·    ouruse of current information technology, including “ticket-in/ticket-out” slotmachines, automated jackpot payment machines, ticket redemption units, andelectronic slot bonusing and database programs to increase operatingefficiencies;

 

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

 

·    ourcontinued expansion at and reinvestment in our properties; and

 

·    ourexperienced senior management team.

 

Our principal executiveoffices are located at 345 Third Street, Niagara Falls, New York 14303 (NiagaraTerritory), and our telephone number is (716) 299-1100.  Our website is *www.senecagamingcorporation.com*.  The website for the Seneca Gaming Corporationis located at *www.senecagamingcorporation.com*. * *The websites for ourSeneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel arelocated at *www.senecaniagaracasino.com*, *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 this Annual Report.

 

SENECA NIAGARA CASINO,SENECA NIAGARA CASINO and Design, BEAR’S DEN, EIGHT CLANS, SENECA LINK andDesign, THE WESTERN DOOR A SENECA STEAKHOUSE and Design, THUNDER MOUNTAINBUFFET and Design, TURTLE ISLAND and Design, BLUE HERON CLUB, JAVA CAFÉ andDesign (New York State Registration), SENECA ALLEGANY CASINO and Design, SENECACHAIRMANS CLUB, SENECA PLAYERS CLUB, and SENECA SELECT CLUB are registeredtrademarks in the U.S.  All othertrademarks, trade names and service marks appearing in this Annual Report arethe property of their respective holders.

 

**SenecaNiagara Casino and Hotel**

 

Seneca Niagara Casino andHotel is located on approximately 24 acres on the Nation’s Niagara Territory inthe City of Niagara Falls, New York, and offers gaming, entertainment andrelated amenities, with over 147,000 square feet of gaming space.  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.  The initial capitalinvested to open was approximately $95.2 million. Since then, we have continuedto 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, as described below.  Totalcost of constructing and equipping our luxury hotel and expansion project was$234.0 million.   Since partial openingon December 30, 2005, Seneca Niagara Casino and Hotel has achieved strongfinancial and operating results.

 

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As of September 30,2007, Seneca Niagara Casino and Hotel featured:

 

·    over147,000 square feet of Class III gaming space with 4,199 slot machines,102 table games, including blackjack, craps and roulette, and keno;

 

·   604 hotel rooms, including 118 suites of varioussizes;

 

·   a full-service luxury spa and salon;

 

·   the Thunder Falls Buffet, a 400-seat internationalbuffet;

 

·   The Western Door steakhouse, a 160-seat fine dining restaurantthat includes a 36-seat bar and lounge area;

 

·   La Cascata, a 120-seat Italian fine diningrestaurant;

 

·   Three Sisters Café, a 24-hour casual diningrestaurant with seating for more than 200;

 

·   Koi, a 70-seat fine dining restaurant featuring aPan-Asian menu;

 

·   Blues, a 120-seat casual dining restaurant featuringbarbecue and southern cuisine, which opened on July 6, 2007

 

·   Morrie’s Express, a walk-up delicatessen withseating for 30;

 

·   four bars;

 

·   a snack bar;

 

·   five retail stores;

 

·   the Seneca Events Center, a 25,200 square-footmulti-purpose entertainment/event facility, which can seat up to 2,200 (forentertainment events);

 

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

 

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

 

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

 

·    additionalsurface parking for over 1,400 vehicles.

 

We believe numerouscompetitive factors contribute to our current success, including:

 

·    anunderserved local market with limited gaming and entertainment options;

 

·    afavorable demographic mix;

 

·    limitedcompetition from competitors within New York State;

 

·    easyaccess by major interstate highways;

 

·    ouremphasis on employee customer service training;

 

·    thestrength of the Canadian dollar, which has helped to increase Canadianpatronage; and

 

·    thesmoking ban, effective May 31, 2006, in the Canadian gaming facilitieswithin our competitive market

 

5

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*Accommodations.    * Seneca Niagara Casinoand Hotel’s luxury hotel tower is adjacent, and connected to our originalgaming facility, and features 486 well-appointed rooms, 86 corner suites, 22one-bedroom suites, and 10 penthouse suites. The third floor at Seneca NiagaraCasino and Hotel features a full-service spa and salon, fitness room andswimming pool. The luxury hotel has allowed us to market Seneca Niagara Casino &Hotel to patrons with higher gaming budgets, patrons from further distancesthat will stay overnight, and additional patrons from within our immediatemarket area.

 

*Food andBeverage Facilities. * SenecaNiagara Casino and Hotel features six restaurants, four bars, a walk-up deli,and one snack bar. The Western Door is a steakhouse which seats approximately160 patrons in the dining room, with seating for an additional 36 patrons inthe bar and lounge. La Cascata is a fine dining Italian restaurant which seatsapproximately 120 patrons, while Koi, located adjacent to La Cascata, offersPan-Asian cuisine with seating for approximately 70 patrons. Blues, a 120-seatcasual dining restaurant featuring barbecue and southern cuisine, opened on July 6,2007 in the location of our former nightclub, Hush.  Three Sisters Café is open 24 hours per day,seven days per week, and offers seating for 200 patrons, with counter seatingfor an additional 8 patrons. Thunder Falls Buffet offers an expansiveinternational selection of cuisine at a buffet style restaurant with seatingfor approximately 400 patrons.

 

Seneca Niagara Casino andHotel has four bars: Club 101, located at the center of the original gamingfloor; The Lobby Bar, located in the hotel lobby; Aces Bar, located in theexpanded gaming floor; and the Keno bar, located adjacent to our Keno lounge.

 

For Fiscal 2007, food andbeverage sales accounted for approximately 8.3% of our gross revenue at SenecaNiagara Casino and Hotel.

 

*EntertainmentFacilities* Located onthe luxury hotel’s second floor, the Seneca Events Center can seat up to 2,200for performances, and can also be used for banquets, dinner performances andgatherings of many sizes. Since opening on December 31, 2005, the SenecaEvents Center has hosted numerous well-known performers and acts, including ZZTop, Brooks & Dunn, Bill Cosby, Steely Dan, and GooGoo Dolls.  In addition to entertainment, themulti-purpose room can hold up to 150 trade show booths.

 

The 468-seat Bear’s DenShowroom provides patrons with the opportunity to see quality entertainment inan intimate setting. The Bear’s Den has hosted such headliners as the CharlieDaniels Band, 10,000 Maniacs, Natalie Cole, Gregg Allman and David Sanborn.

 

In addition to the SenecaEvents Center and The Bear’s Den Showroom, Seneca Niagara Casino and Hotelfeatures live entertainment at Club 101 every weekend.

 

*Retail.*  Seneca Niagara Casino and Hotel’s five retailshops offer a wide variety of merchandise. The Men’s Logo Shop offers officialSeneca Niagara Casino and Hotel merchandise for men. The Newsstand offers avariety of reading material, snacks and soft drinks, as well as other personalitems for our patrons. Sky Boutique features official Seneca Niagara Casino andHotel merchandise for women and a wide selection of high-end merchandise, includingjewelry, purses and jeweled accessories. The Eight Clans Gift Shop featuresauthentic Native American items, including Native American jewelry, NativeAmerican style blankets and bags, soapstone sculptures and sweet grass baskets.The Players Club Store offers an inventory of products and merchandise atvarious price ranges, including state-of-the-art and high-end merchandise suchas electronics, golf clubs, cameras and diamond jewelry. It is primarily usedto support our Seneca Players Club Card rewards program.

 

*Full-ServiceLuxury Spa.    *Seneca Niagara Casino andHotel also incorporates an 18,000 square foot full-service luxury spa.  The luxury spa offers a wide range ofservices, including massage treatments, facials and wraps, as well as saunas, aswimming pool, an exercise room and a salon.

 

*Parking and TransportationFacilities*.  Since mostof Seneca Niagara Casino and Hotel’s patrons arrive by automobile, we endeavorto provide ample space for parking. We have approximately 3,700 available parkingspaces, including a 2,300-space parking garage. Seneca Niagara Casino &Hotel offers all valet and self-parking services free of charge. We believe ourparking facilities are adequate to service the parking needs of ourpatrons.   Seneca Niagara Casino andHotel also has 11 bus bays and a bus program that has accounted forapproximately 342 patrons per day to Seneca Niagara Casino during Fiscal 2007.

 

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*NiagaraFalls Real Estate Acquisitions*

 

We continue to move forward with the acquisition ofthe remaining acreage of the approximate 50-acre footprint in the City ofNiagara Falls, New York, designated by New York State under the Compact forownership by the Nation. The Compact specifically excluded approximately 1.5acres of land within the footprint owned by a Roman Catholic Church.  Additionally, in July 2006, the Nationagreed to waive its right to acquire approximately one half acre of additionalland within the footprint owned by End Time Handmaidens, Inc., a religiousorganization.  In return for the waiver,the Nation obtained a right of first negotiation and refusal with respect tothe future sale of the parcels.  As aresult of the carve-out relating to the parcels owned by the Roman Catholic Church,and the Nation’s agreement with the End Time Handmaidens, the total acreage ofthe Niagara Territory upon completion of the condemnation process isanticipated to be approximately 48 acres.

 

As of December 19,2007, we have obtained possession either through eminent domain or privatepurchase substantially all of the remaining acreage within the footprint, otherthan certain 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 early 2008.

 

With the exception ofapproximately 2 acres of land and a hotel property within the footprintacquired for $7.9 million through a private sale in December 2005,substantially all of our acquisitions within the footprint have beenaccomplished through condemnation proceedings pursuant to New York StateEminent Domain Procedure Law (EDPL).  Theamounts paid to condemnees from whom we have acquired property are deemed to beadvance payments, in that property owners are entitled to reserve their rightsto challenge the appraised property values determined by the condemnor’sappraisers.  To date, all record ownersfrom whom property was acquired pursuant to the EDPL have reserved rights toclaim additional compensation.  If acourt determines that the value for the land and improvements (includingfixtures) is higher than the appraised value we paid to a condemnee, then wemay be liable to the condemnee for the difference and potentially alsoresponsible for certain additional costs and payments to the condemnee, such asattorneys’ fees.

 

We have commenced amaster planning process with respect to development and utilization of the full48-acre Niagara Territory footprint described above and integration of theNiagara Falls facilities with those on or planned for the Allegany and BuffaloCreek Territories.  As we develop ourfacilities, we intend to have them complement each other, offering diversehotel, entertainment and gaming experiences to our guests.

 

**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 two fine dining restaurants, a 24-hourcasual restaurant and certain amenities, at Seneca Allegany Casino and Hotel,which followed the December 28, 2006, official opening of a new permanentgaming floor.

 

As of September 30,2007, Seneca Allegany Casino and Hotel featured:

 

·    over  68,000 square feet of gaming space withapproximately 2,336 slot machines and 41 table games, including blackjack,craps and roulette;

 

·   212 hotel rooms, including 28 suites of varioussizes;

 

·   a full-service luxury spa and salon;

 

·   the Thunder Mountain Buffet, a 322-seatinternational buffet;

 

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·   The Western Door steakhouse, a 152-seat fine diningrestaurant;

 

·   Patria, a 110-seat Italian fine dining restaurant;

 

·   Seneca Café, a 24-hour casual dining restaurant withseating for 204;

 

·   a snack bar, retail store and 2 bars and lounges;

 

·   a parking garage for approximately 1,850 vehicles;and

 

·   surface parking for approximately 1,000 vehicles.

 

We are converting theformer approximate 120,000 square foot temporary casino structure into anevents center with a seating capacity for 1,700 people, along with additionaladministrative and support space.  Weestimate that the conversion of the temporary casino structure will becompleted by mid-February 2008 at a cost of approximately $40.0 million.

 

We have further commenceddesign and development of an additional 179 to 204 room hotel tower, with up to31,000 square feet of additional gaming space and related amenities, for anestimated cost of up to $130 million. The completion date for this additionalhotel tower is estimated to be mid-2009.

 

**SenecaBuffalo Creek Casino**

 

In addition to SenecaNiagara Casino and Hotel and Seneca Allegany Casino and Hotel, the Nation hasthe exclusive right to construct our third Class III gaming facility inErie County, New York. This new Class III gaming facility is referred toas 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 to complete fulfilling the requirement of the Compact.  Initially, the nine acre parcel was bisectedby a two block section of a street owned by the City of Buffalo (Fulton Street). In November 2006, we acquired the two block section of FultonStreet from the City of Buffalo for a purchase price of $631,600.

 

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 began operating a temporary Class IIIgaming facility at this location.  This temporary facility isapproximately 6,000 square feet, and features 135 slot machines and a snackbar.  We have commenced design and development of an expansion of thetemporary Seneca Buffalo Creek Casino that will add 109 slot machines at anestimated cost of $3.2 million, including equipment and furnishings.  Completion of this expansion is expected inSpring 2008.  The Seneca Buffalo CreekCasino is owned and operated by SEGC.

 

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. The permanentSeneca Buffalo Creek Casino and Hotel is expected to initially feature:

 

·    approximately90,000 square feet of gaming space;

 

·    2,000slot machines;

 

·    45table games;

 

·    a22-story all-suite hotel;

 

·    fourrestaurants;

 

·    afull-service spa and salon;

 

·    retailand other amenities; and

 

·    a2,500-space parking garage.

 

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The casino portion of theproject is expected to open in Spring 2010, followed approximately three monthslater by the opening of the hotel complex.

 

SGC’s ability to continueoperation of the temporary Seneca Buffalo Creek Casino, and its ability tocomplete the permanent Seneca Buffalo Creek Casino and Hotel, as well as thetiming of the opening of the permanent Seneca Buffalo Creek Casino and Hotel,will depend on various factors, including existing legal challenges. See “Item3 - Legal Proceedings” for a discussion of existing legal challenges regardingour Seneca Buffalo Creek Casino.

 

**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 Seneca AlleganyCasino.   The Nation, through its whollyowned business enterprise, Seneca Gaming & Entertainment, currentlyoperates the Class II poker operations at Seneca Niagara Casino and Hoteland Seneca Allegany Casino and Hotel, in addition to two Class II gamingfacilities located on the Nation’s Territory in the City of Salamanca andIrving, New York, respectively.   Thetransfer of the Class II operations as of January 1, 2005 was consistentwith our understanding of the Nation’s Council’s (the Nation’s legislativebody) intent that we manage and operate the Nation’s Class III operationsand that Council directly manage and operate the Nation’s Class IIoperations.

 

**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.  Construction of the golf course commenced in July 2007,with an anticipated opening in Summer 2009 at an approximate cost of $26.0million.  The Nation formed the LewistonGolf Course Corporation, as a subsidiary of the Seneca Niagara Falls GamingCorporation, to own and operate the golf course.

 

**MassachusettsGaming Development**

** **

During Fiscal 2007, theNation’s Council chartered, at the request of the SGC board of directors,Seneca Massachusetts Gaming Corporation (SMGC) to explore gaming developmentopportunities in the Commonwealth of Massachusetts. SMGC has entered into arelationship with the Wampanoag Tribe of Gay Head (Aquinnah) to jointly engagein preliminary development activities, including legislative activities andmarket and site analysis, as the Massachusetts legislature considerslegislation allowing for Class III gaming.

 

**Businessand Marketing Strategy**

 

SGC believes that it isthe premier gaming operator in Western New York State and in the areas of NorthernPennsylvania and Ohio located within its primary and secondary markets. Sincethe December 31, 2002 opening of the Seneca Niagara Casino, SGC hasinvested significantly in the development, expansion and maintenance of itsgaming facilities, including the completing of the hotel and gaming projects atSeneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel, and theopening of the temporary casino on the Seneca Buffalo Creek Territory. Investmentsare planned to continue in 2008 with the completion of the conversion of theformer temporary Seneca Allegany Casino into an events center with relatedamenities, the start of construction on the second hotel tower at SenecaAllegany Casino and Hotel and the start of construction of the permanent gamingfacility on the Seneca Buffalo Creek Territory. These planned investments areexpected to enable SGC to maintain its position as the premier gaming operatorin the region described above.  Tofurther that objective, and to provide for expanded opportunities in theconvention and tourism markets, a master planning process has commenced withrespect to the Niagara Falls, Allegany and Buffalo gaming and relatedfacilities. A principal goal is for the facilities to complement each other,offering diverse hotel, entertainment and gaming experiences for our guests.

 

SGC believes the WesternNew York hotel, entertainment and gaming markets are significantly underserved,and that the exclusivity provided in the Compact gives SGC the opportunity toserve these markets by providing patrons with unique entertainment and gamingexperiences.

 

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 each segmentof the gaming market.  In order tomaximize income from operations, SGC will coordinate advertising, promotions,entertainment and special events to minimize competition among its gamingfacilities, and integrate administrative and information technologyfunctions.  As slot play currentlyrepresents approximately 88% 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 will continueto brand the Seneca name through advertising and promotion of its Seneca LinkPlayer’s Card, which is accepted at all of SGC’s facilities.The key componentsof our integrated marketing plan include the following:

 

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·    *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 capitalize on thisbrand recognition by prominently incorporating the Seneca name at all of ourgaming 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 games 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, 2007, we had approximately 1.4 million membersin the Seneca Link Player’s Card database with an average of approximately18,000 new members joining per month for Fiscal 2007.

 

·    *Expand Target Markets and Patron Base.*    Thecompletion of our hotels in Niagara Falls, New York and Salamanca, New Yorkhave enabled us to expand our marketing efforts to higher-value gaming patronsfrom a wider geographic area.  Wecontinue to evaluate our marketing programs and have increased our efforts toattract more guests from the region, including New York, Pennsylvania and Ohio,as well as higher value patrons from New England, New Jersey, New York City,and Toronto, Canada.  We intend to continueto market to these areas by offering various promotions, including specialevents for preferred gaming patrons, use of commissioned, independentrepresentatives or splinter arrangements, air charters, motor coach tours andorganized package group visits.  We havealso hired a player development staff and an Asian marketing team to attracthigher-end gaming guests and have upgraded our entertainment offerings tofurther brand our properties and to attract repeat visits, encourage loyaltyand attract higher-end gaming guests. The same philosophy will be implemented in the opening of our eventscenter at the Seneca Allegany Casino and Hotel in mid-February 2008.

 

·    *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 catering to mid to high value gaming guests looking for a full servicegaming resort destination.  With theopening of the permanent casino and 212-room resort hotel at Seneca AlleganyCasino and Hotel, SGC has expanded its marketing efforts to attract guests withhigher gaming budgets. SGC intends to integrate the marketing of the SenecaBuffalo Creek Casino, as explained below, to guests of SGC’s Niagara andAllegany casinos.  This will offer SGC’sguests a variety of gaming and entertainment options.

 

·    *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 tabletournaments, special events, bussing, entertainment and player developmentstaff, to attract and retain our patrons and to brand the Seneca name as thepremier gaming and entertainment experience in Western New York. We coordinateour marketing events and the amenities of our facilities to maximize thequality and length of stay of patron visits and, currently and in the future,to minimize competition among our gaming facilities. Our patron tracking systemthrough the Seneca Link Player’s Card is sophisticated and scaleable andprovides us with the 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. To achieve maximum profitability we intend to continue to upgrade ourslot machines with the most popular products in order to create a more excitinggaming experience for our patrons. We have also invested in technology,including slot machine “ticket-in/ticket-out” technology, automated ticketredemption machines, player tracking system enhancements and the development ofa Seneca brand inter-property progressive link. Reinvestment in our gamingfacilities will help to ensure that our patrons have an enjoyable entertainmentexperience.

 

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·    *Offer the Highest Quality Service.*    Webelieve that we can distinguish our gaming facilities with consistent superiorpatron service, which is a fundamental component of our business and marketingstrategy. We attribute much of our success at Seneca Niagara Casino and Hoteland Seneca Allegany Casino and Hotel to our employees’ ability to provideefficient and friendly service.  DuringFiscal 2006, we made an investment of approximately $1.0 million to develop a “fourstar” customer service training program for all our then-existing employees,and we now require that each new employee participate in this customer servicetraining as part of their orientation. It is our intention to continue to invest in providing the highest levelof guest service, as we believe that offering our patrons the highest levels ofservice is an integral component of our long-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.  With the opening of our604-room luxury hotel, we continue to expand our geographic reach with targetedmarketing efforts for higher-end gaming patrons in the New York City area, NewEngland, New Jersey, Detroit, Michigan, Illinois and Canada.  In addition, Niagara Falls is a major touristdestination.

 

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, wehave implemented additional targeted marketing programs focused on expandingour geographic reach.

 

The Seneca Buffalo Creek temporaryfacility on the Nation’s Buffalo Creek Territory has a limited market due toits small size.

 

As of September 30,2007, approximately 20% of the approximate 1.4 million Seneca Link Player’sCard members lived in the Buffalo-Niagara area, and approximately 5%, 19%, 15%and 40% lived in Canada, Pennsylvania, Ohio and other areas of New York,respectively.

 

SGC competes with casinos,other forms of gaming and other resort properties located within and outsideNew York State, and faces intense competition in its immediate market area.

 

*Competitionin Immediate Market*.       Currently, there are two large casinoresorts, Casino Niagara and Niagara Fallsview Casino Resort, and five majorracetrack facilities with gaming operations, Fairgrounds Gaming and Raceway,Finger Lakes Gaming and Racetrack, Batavia Downs Gaming and Raceway, Fort ErieRacetrack and Slots and Woodbine Racetrack, within the 100-mile radius thatconstitutes Seneca Niagara Casino and Hotel’s immediate market area.  Fairgrounds Gaming and Raceway, Fort ErieRacetrack and Slots, and Presque Isle Downs in Erie, Pennsylvania, which openedin February 2007, each directly compete in Seneca Allegany Casino andHotel’s immediate market area.

 

Casino Niagara and Niagara Fallsview Casino Resort arelocated in Niagara Falls, Ontario, and are both within two miles of SenecaNiagara Casino and Hotel. Casino Niagara and Niagara Fallsview Casino Resortare owned and operated by the Province of Ontario and managed by the Hyatt-ledFalls Management Company. Casino Niagara offers over 95,000 square feet ofgaming space including more than 1,800 video gaming machines (“VGMs”), 80 tablegames, three restaurants and three bars. Niagara Fallsview Casino Resort openedin June 2004. Niagara Fallsview Casino Resort features 180,000 square feetof gaming space that includes over 3,000 VGMs, 150 table games, a 374-roomHyatt hotel, a spa and various restaurant and entertainment venues. CasinoNiagara and Niagara Fallsview Casino Resort are both located approximately 70miles from Seneca Allegany Casino and Hotel on the outer edge of SenecaAllegany Casino and Hotel’s primary market area.

 

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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. Finger Lakes Gamingand Race Track in Farmington, New York, is located approximately 90 miles and140 miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively, and operates over 1,200 VGMs in a video gaming facility.Batavia Downs, in Batavia, New York, is located approximately 50 miles and 70miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively, and features over 590 VGMs.  Fort Erie Racetrack andSlots in Fort Erie, Ontario, Canada, is located approximately 15 miles and 60miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively, and operates over 1,200 VGMs in an 85,000 square footgaming facility. Woodbine Racetrack, a 56,000 square foot racetrack facilityfeaturing 1,700 VGMs, is located in Ontario, Canada, approximately 50 miles and160 miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively. Presque Isle Downs, which opened in February 2007,features approximately 2,000 slots, and is located approximately 120 and 80miles from Seneca Niagara Casino and Hotel and Seneca Allegany Casino andHotel, respectively.

 

*Competition in Broader Regional Market.*

 

SGC also faces competition elsewhere in New York State andCanada. The Oneida Indian Nation operates a gaming facility resort, TurningStone Resort & Casino, near Syracuse, New York, located approximately190 miles and 235 miles from Seneca Niagara Casino and Hotel and SenecaAllegany Casino and Hotel, respectively. Turning Stone Resort & Casino features approximately 2,400 VGMsand 80 table games.

 

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

 

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, and with other racetracks in New YorkState that operate VGMs, including Saratoga Raceway in Saratoga Springs(located approximately 325 miles and 340 miles from Seneca Niagara Casino andHotel and Seneca Allegany Casino and Hotel, respectively) and Monticello Racewayin Monticello (located approximately 325 miles and 280 miles from SenecaNiagara Casino and Hotel and Seneca Allegany Casino and Hotel, respectively).

 

*New Market Entrants in New YorkState and Elsewhere in the Northeastern United States.*

 

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 (which number includes the Nation’s twoexisting and one planned casino) to be run by Indian tribes in the state, eachof which was to be permitted to feature Class III slot machines. Thevalidity of the legislation authorizing these casinos was recently upheld bythe New York Court of Appeals in Dalton v. Pataki, et al. and Karr v. Pataki,et al.  Three of these authorized casinosare or will be operated by SGC (Seneca Niagara Casino and Hotel, SenecaAllegany Casino and Hotel and Seneca Buffalo Creek Casino). It was expectedthat the other three casinos, including the casino planned by the St. RegisMohawk Tribe as discussed below, would be located in Sullivan and UlsterCounties in the Catskill region, approximately 325 miles and 275 miles fromSeneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel,respectively.  However, the only casinodevelopment that we believe to be imminent in Sullivan or Ulster County, NewYork is the development planned by the St. Regis Mohawks. In February 2007,the Governor of New York State approved plans for a casino by the St. RegisMohawk Tribe to be located in Sullivan County, New York. The proposed $600.0million Class III gaming facility, to be located immediately adjacent toMonticello Raceway in Sullivan County, is expected to consist of 200,000 squarefeet of gaming floor, including 3,500 slot machines and 150 table games. Thisproject is still subject to additional regulatory approvals before gaming cancommence.

 

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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 recent decision in City ofSherrill, NY v. Oneida Indian Nation of New York, 414 U.S. 661 (2005), theformer Governor withdrew pending legislation and land claim settlements withthe Seneca-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, the then-Governorof the State of New York signed a law providing race tracks with a larger shareof proceeds from VGMs and extending VGM authorization through 2017. This lawalso allows for up to eight additional VGM venues in New York State.  These eight licenses would be awarded in acompetitive bid process to the state-owned Off-Track Betting Corporation orother operators which may be located in our primary and secondary markets.

 

In January 2004, Sportsystems(now known as Delaware North Gaming & Entertainment) opened a 1,300machine video gaming facility at Saratoga Raceway in Saratoga Springs, NewYork.  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 video gaming machine facility from August to December 2003,the project was 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.  In October 2006, Vernon Downs Racetrackin Vernon, New York, approximately 200 miles and 245 miles from Seneca NiagaraCasino and Hotel and Seneca Allegany Casino and Hotel, respectively, commencedoperation of a gaming facility offering 1,000 VGM’s, and in July 2006,Tioga Downs, located approximately 190 miles and 160 miles from Seneca NiagaraCasino and Hotel and Seneca Allegany Casino and Hotel, respectively, opened a750 VGM facility in central New York. Both Vernon Downs and Tioga Downs are operated by Nevada Gold, Inc.  Finally, Yonkers Raceway near Manhattan, NewYork, completed construction of a gaming facility in October 2006 whichnow features approximately 5,500 VGM’s.

 

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, respectfully.  Inaddition, one of the licenses for the stand-alone facilities was awarded in thePittsburgh, Pennsylvania area, a secondary market for Seneca Allegany Casinoand Hotel, and an outer market for Seneca Niagara Casino and Hotel.

 

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, arelocated in southeastern Connecticut (approximately 460 miles and 480 miles fromSeneca Niagara Casino and Hotel and Seneca Allegany Casino and Hotel,respectively). Additionally, in October 2007, Mount Airy Casino Resort,located in the Pocono Mountains in Northeast Pennsylvania, opened withapproximately 2,500 slot machines.  Thereare also numerous casinos in Atlantic City, New Jersey (approximately 480 milesand 430 miles from the Seneca Niagara Casino and Hotel and Seneca AlleganyCasino and Hotel, respectively) with which SGC competes.

 

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Additionally,the Commonwealth of Massachusetts is considering legislation to allow up tothree resort casinos in Massachusetts, and Rhode Island and Maine are alsoconsidering approving forms of gaming. We also face competition from other non-gaming leisure activities anddestinations.

 

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

 

**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 $52.3 million for the first six months ofcalendar 2007,  $83.3 million forcalendar year 2006, and $68.3 million for calendar year 2005.  If New York State breaches the exclusivityarrangement by, for example, allowing a person or entity to operate Class IIIslot machines within the zone of exclusivity, then the State forfeits theexclusivity fees as to Class III slot machines. The Compact allows NewYork State to permit the Tuscarora Indian Nation and the Tonawanda Band ofSeneca Indians to obtain the right to include gaming devices in a compact withoutabrogating the exclusivity provisions of the Compact, so long as either tribelocates its proposed gaming facility either on its existing reservations ormore than 25 miles from a gaming facility site authorized by the Compact. TheCompact provides that the Nation may acquire property and establish a gamingfacility in the City of Niagara Falls within an approximate 50 acre areadesignated as land to be developed by the Nation. Seneca Niagara Casino andHotel is located on land within this designated area on lands held inrestricted fee pursuant to the Seneca Nation Lands Claim Settlement Act of 1990(SNLCSA). The two additional Class III gaming facilities include theSeneca Allegany Casino on the Nation’s Allegany Territory, and the SenecaBuffalo Creek Casino on the Nation’s Buffalo Creek Territory.  The Compact is in effect until December 9,2016, and will automatically renew for an additional period of seven yearsunless either party objects in writing, or it is terminated as a result of anyof the following: (1) repeal of the Indian Gaming Regulatory Act, or IGRA;(2) the Nation adopts a referendum revoking the Nation’s authority toconduct Class III gaming; or (3) either the Nation or the Statecommits a Material Breach as defined by the Compact.

 

**Employees**

 

As of September 30, 2007, SGCemployed 4,737 employees.  Of those,Seneca Niagara Casino and Hotel employed 2,926 employees, including 939 casinostaff, 772 food and beverage employees, 310 hotel employees, 140 securitystaff, 610 administrative employees, 116 parking and transportation employeesand a management team of 39, and Seneca Allegany Casino and Hotel employed1,770 employees, including 890 casino staff, 439 food and beverage employees,107 hotel employees, 84 security staff, 203 administrative employees, 36parking and transportation employees and a management team of 11 and the SenecaBuffalo Creek Casino temporary facility employed 41 employees, including 18casino staff, 10 food and beverage employees, and 13 security staff.

 

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

 

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**Seneca Gaming Corporationand the Nation**

 

*SenecaGaming Corporation. *SGC was established by the Nation in August 2002 for thepurpose of developing, constructing, leasing, operating, managing, maintaining,promoting and financing Nation gaming facilities, including without limitationany Class III gaming facilities established in accordance with theCompact.  Our Class II operationswere transferred to the Nation as of January 1, 2005.  For further discussion of our former Class IIoperations, see “Status of Former Class II Operations”, above.  SGC is a governmental instrumentality of theNation and was established by the Nation pursuant to Nation law by a dulyenacted resolution of the Council. SGC is wholly owned by the Nation foreconomic and governmental purposes and shares in the Nation’s sovereignimmunity, which can be waived if the board of directors adopts a resolutionwaiving immunity in a specific situation and such waiver is approved by theNation’s Council. SGC is managed by a board of directors with seven members,not less than five of whom must be enrolled members of the Nation. The Nation’sCouncil 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 gaming facility in Niagara Falls, New York;Seneca Erie Gaming Corporation, established in August 2003 to finance,develop, and operate the Nation’s gaming facility in Erie County, New York;Seneca Territory Gaming Corporation, established in September 2003 tofinance, develop, and operate the Nation’s gaming facilities on the Nation’sAllegany or Cattaraugus Territories; 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 a potential gaming opportunity 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 and construction of the permanent gaming facility tobe located on the Nation’s Buffalo Creek Territory.  Each of SGC’s subsidiaries is required tomake periodic financial reports and submit an annual report to the SGC board ofdirectors. The SGC board of directors is required to make quarterly and annualreports to the Council regarding the financial condition of the companies,including but not limited to, significant problems and accomplishments, futureplans, and such other information as the Council deems pertinent. The SGC boardof directors is also required to provide monthly reports to Council regardingcertain budgetary and related matters. With the exception of the Lewiston Golf Course Corporation, the membersof the boards of directors of SGC and its subsidiaries are the same.

 

*SenecaGaming Authority. *SGC’s gaming operations are subject to the supervision andregulation of the Seneca Gaming Authority, or SGA, which was established byNation ordinance and is responsible for overseeing regulation of all of theNation’s gaming operations. The Nation’s gaming ordinance which provides regulatoryauthority to SGA for the Nation’s Class III gaming was originally adoptedon August 1, 2002, subsequently amended on November 16, 2002 andapproved by the National Indian Gaming Commission (NIGC) on November 26,2002. The Nation amended the gaming ordinance to extend SGA’s regulatoryauthority to include jurisdiction over Class II gaming. The amendedordinance was further amended in August 2006 to incorporate certainclarifications into the ordinance.  Thisamendment was approved by the NIGC as of November 6, 2006.  Most recently, on June 9, 2007, theNation enacted a new, site-specific Class III gaming ordinance applicableto the Buffalo Creek Territory.  Thisaction was taken in connection with ongoing litigation challenging the Nation’sright to conduct Class III gaming on the Buffalo Creek Territory (*Citizens Against Casino Gambling v. Kempthorne*), in whichthe judge had vacated the NIGC’s approval of the Nation’s 2002 gaming ordinanceas it pertained to gaming on the Buffalo Creek Territory.  The amended Ordinance was submitted to theNIGC on June 9, 2007, and was identical to the prior approved ordinanceexcept that the new ordinance’s definition of “Indian Lands” contains a sitespecific legal description of the Buffalo Creek Territory.  This site-specific Ordinance applicable tothe Buffalo Creek Territory was approved by the NIGC on July 2, 2007.

 

The SGAconsists of five commissioners selected by the Nation and is responsible for,among other things, monitoring and regulating the standards of operation andstandards of management of all authorized Class III gaming, protecting theassets and integrity of casino operations, overseeing casino security andsurveillance, monitoring the compliance of the Nation’s gaming activities withexternal accounting and audit control procedures, and supervising the licensureof all employees and vendors of the Nation’s gaming activities. SGA’s authoritydoes not extend to activities that are not directly related to Class IIIgaming undertaken by the Nation under the Compact, such as ownership andoperation of our hotels and other amenities, or our golf course developmentactivities.  The SGA functionsindependently and autonomously from the Council in all matters within its purview.While the SGA is responsible for regulatory matters relating to the Nation’sgaming activities, SGC (or one of its subsidiaries) is responsible for theday-to-day management and operation of the Nation’s Class III gamingactivities.  For further discussion ofthe Seneca Gaming Authority, see “Regulation of the Nation, Seneca GamingCorporation and its Subsidiaries”, below.

 

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*TheNation.*  The Seneca Nation ofIndians is a federally recognized, self-governing Indian nation operating undera Constitution originally adopted in 1848 and most recently amended in 1993.The Nation’s current total enrollment population is approximately 7,600. TheSeneca Nation is one of the Six Nations of the Iroquois Confederacy thatconsists of the Seneca, Cayuga, Onondaga, Oneida, Mohawk and Tuscarora nations.The members of the Nation originally lived in the area between the GeneseeRiver and Seneca Lake in the Finger Lakes region of New York. Today, the SenecaNation holds title to five distinct Territories in Western New York State,including land in Niagara Falls and Buffalo and land set aside by the 1794Treaty of Canandaigua: the Allegany, Cattaraugus and Oil Spring Territories.These three Territories designated by the Treaty encompass parts of fourcounties in New York State: Allegany, Cattaraugus, Chautauqua, and Eriecounties. The Oil Springs Territory is 640 acres, or one square mile, of landlocated 43 miles southeast of the Cattaraugus Territory and 24 miles east ofthe Allegany Territory. The Allegany Territory is composed of 31,097 acres andincludes the City of Salamanca which is located within its territorialboundaries. The Cattaraugus Territory is 35 miles north of Allegany andencompasses 22,012 acres of land. In addition, approximately 24 acres of land(of the approximate 50 acre parcel identified in Appendix I of the Compact) inNiagara Falls and approximately nine acres of land in Erie County have beenconverted into restricted fee lands pursuant to the Seneca Land ClaimsSettlement Act of 1990, or SNLCSA. By operation of federal law, these lands andother parcels that may be acquired in the future pursuant to the SNLCSA,whether in Niagara Falls or Erie County, are subject to restrictions againstalienation, constitute Indian country subject to the jurisdiction of theNation, and qualify as gaming eligible Indian lands pursuant to the IndianGaming Regulatory Act (IGRA).  See Item3. Litigation, for discussion of pending federal and state actions challengingthis conclusion, and for further discussion of land acquisitions in NiagaraFalls, 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. Theseofficers alternate between the two principal Territories, Cattaraugus andAllegany, every two years. The next election of the Executive Branch Officerswill be held in November 2008. The Legislative Branch, or the Council, hassixteen members, of which eight members are elected from each of the twoprincipal Territories. Each Councillor is elected to a four-year term, which isstaggered.  The most recent election ofeight Council members was held in November 2006, with the next election tooccur in November 2008.

 

*NationGovernmental Operations. *The Nation currently has administrative departments locatedon both the Allegany and Cattaraugus Territories. The Nation’s programs includetribal administration functions as well as a wide array of community services,including health, environmental, education, recreation and community planning.In order to provide efficient services to the communities, many departmentshave offices located on both Territories. The tribal administrative executiveoffices are housed in the two central administration buildings located on theAllegany and Cattaraugus Territories: the G.R. Plummer and the William SenecaBuildings, respectively. The other Nation organizational departments arelocated in buildings adjacent to the main tribal administration building orsurrounding 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 ManagementDevelopment Corporation, Seneca Catskills Gaming Corporation, SenecaConstruction Management Corporation, Seneca Gaming & Entertainment(which operates the Nation’s Class II gaming businesses), Seneca One Stop,Seneca-Iroquois National Museum, and Highbanks Campground. None of theseenterprises is a part of SGC or its subsidiaries or otherwise contributes toits revenue. Individual Seneca entrepreneurs also operate their own businesseson Nation lands. The businesses include, but are not limited to, restaurants,retail shops, hotels, gas stations, and Internet-based businesses.

 

*TribalEmployment Rights**Ordinance*.  Our operations are subject to the Nation’sTribal Employment Rights Ordinance (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 $250 where the majorityof the work will occur on Nation lands, we give preference to Indian-ownedfirms when contracts are subject to a competitive bidding process and the bidsof the Indian-owned firms fall within a defined percentage or amount of thelowest responsive bid (ranging from 1% when the lowest responsive bid is $7million or more, to $9,000 when the lowest responsive bid is $100,000 or less),in each case as specified in the ordinance. The Nation, through its TERO Commission, has the sole power to determineand certify whether and to what extent a firm is “Indian-owned”.

 

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**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 gaming ordinances(and the SGA, which has regulatory jurisdiction over the Nation’s gamingactivities) and regulation by the State of New York, through the New York StateRacing and Wagering Board and the New York State Police, each in accordancewith 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 activities derivesfrom the exercise of the Nation’s inherent sovereign powers, recognized by theUnited States in the 1794 Treaty of Canandaigua and in subsequent federal courtopinions. It is the position of the United States, and federal courts haveuniformly held, that Indian nations are subject to certain federal laws andcertain state laws where federal law so prescribes. It is therefore possiblethat a federal agency with whose regulations the Nation may not be currentlycomplying could object to such noncompliance. If an agency sought to enforcecompliance, such agency action and any resultant federal court ruling couldresult in the disruption of construction and related activities of SGC whichevents would have a material adverse effect on our operations and financialresults.

 

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

 

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The FederalCourt of Appeals for the Second Circuit (which has appellate jurisdiction overfederal district courts located in New York State) has ruled that if a non-memberof a tribe asserts a claim against a tribe based on state or federal law, andnot on tribal law, and no prior tribal court proceedings are pending, a federalcourt generally may adjudicate the claim without requiring the plaintiff toexhaust tribal court remedies. A similar ruling by a New York State appellatecourt concluded that the state trial court properly proceeded with adjudicatinga dispute rather than requiring the plaintiff to exhaust tribal court remedieswhere the dispute was among tribal members involving issues not concerninginternal tribal affairs, the state court had jurisdiction concurrent withtribal courts over the issues and no case was currently pending before thetribal court. Courts in other states and federal judicial circuits have reacheddifferent conclusions, and it cannot be certain whether a court in New YorkState will defer exercising jurisdiction over a case until after theappropriate tribal court has had an opportunity to adjudicate the matter, evenwhere there is a waiver of exhaustion of tribal court remedies.

 

**TheIndian Gaming Regulatory Act of 1988**

 

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

 

*Classesof Gaming.*    IGRAdivides gaming into three classes, each of which is regulated differently. Class Igaming encompasses social games solely for prizes of minimal value ortraditional forms of Indian gaming engaged in by individuals as a part 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, encompasses all otherforms of gaming, and includes slot machines, casino games, banking card games,dog racing, and lotteries. Class III gaming is lawful only if it is (1) authorizedby a tribal ordinance, (2) located in a State that permits such gaming forany purpose by any person, organization, or entity, and (3) conducted inconformance with a Tribal-State compact.

 

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

 

*NIGCRegulations Implement Certain Provisions of IGRA*. Theseregulations govern, among other things, the submission and approval of tribalgaming ordinances or resolutions, and require an Indian tribe to have the soleproprietary interest in and responsibility for the conduct of gamingactivities. Pursuant to NIGC regulations, tribes are required to issue gaminglicenses only under certain articulated standards, to conduct or commissionfinancial audits of their gaming enterprises, to perform or commissionbackground investigations of primary management officials and key employees andto maintain facilities in a manner that adequately protects the environment andthe public health and safety. NIGC regulations also set forth a reviewprocedure for tribal licensing of all gaming operation employees and requiretribes to report certain specified information, including information derivedfrom background investigations, to the NIGC. On August 24, 2005, the United States District 

 

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Court For The District ofColumbia in *Colorado River Indian Tribes vs. National IndianGaming Commission,* ruled “that the [IGRA] does not confer upon theNIGC the authority to issue or enforce [minimum internal control standards] forClass III gaming.”  Accordingly, the Court declared unlawful theminimum internal control standards as applied to Class III gaming. On October 26, 2006, the D.C. Circuit Court of Appeals unanimously upheldthis decision finding that the Indian Gaming Regulatory Act does not grant theNIGC power to impose operational standards on Class III gaming.

 

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

 

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

 

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

 

In October 2001,the New York Legislature passed Chapter 383 of the Laws of 2001 (“Chapter 383”),which allowed former Governor Pataki to enter into a gaming compact with theSeneca Nation of Indians and to enter into gaming compacts with other Indiantribes for the establishment of three additional casinos in the Catskills.Chapter 383 also approved the installation of VGMs at certain racetracks.

 

In January 2002,two actions were filed in the Supreme Court of the State of New York, County ofAlbany, challenging 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.

 

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

 

*IndianLands.*    In orderfor the Nation to conduct gaming pursuant to the Compact, it must do so onIndian lands within its jurisdiction. Indian lands include, but are not limitedto, lands located within the boundaries of an Indian Territory. Fornon-Territory lands to qualify as Indian lands under IGRA, the land must beeither held in trust by the United States for the benefit of any Indian tribeor individual, or held by any Indian tribe or individual subject to restrictionby the United States against alienation, and the tribe must exercisegovernmental power over those lands.

 

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

 

Pursuant tothe Compact, the Nation may acquire property and establish gaming facilities inthe City of Niagara Falls within the boundaries of the approximate 50 acre areaof land described in Appendix I of the Compact and designated as land to bedeveloped by the Nation in connection with its gaming facilities. The Compactalso authorizes the Nation to establish a gaming facility in Erie County, NewYork and one on then already existing Nation Territory. Moreover, the Compactauthorizes the Nation to use funds appropriated under the SNLCSA to acquireparcels of land in Niagara Falls and Erie County for gaming purposes.  See “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 that unless the Secretary ofthe Interior determines that lands acquired pursuant to the SNLCSA should notbe subject to restrictions against alienation, such lands shall be held inrestricted fee status by the Nation.

 

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

 

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

 

As of December 19,2007, the Nation (as opposed to SGC or its subsidiaries) had acquiredapproximately 24 acres in Niagara Falls (of the approximate 50 acre area ofland described in Appendix I of the Compact) with funds appropriated under theSNLCSA.  On October 3, 2005, theNation acquired approximately nine acres of land in Erie County with SNLCSAfunds.     By operation of federal law, theselands and other parcels that may be acquired in the future pursuant to theSNLCSA (in Niagara Falls or Erie County), are subject to restrictions againstalienation, constitute Indian country subject to the jurisdiction of theNation, and qualify as gaming eligible Indian lands pursuant to IGRA. TheNation’s existing casino and hotel on the Niagara Falls Territory and existingtemporary casino on the Buffalo Creek Territory are, and the planned permanentcasino and hotel on the Buffalo Creek Territory will be, situated on theselands.

 

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

 

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*PossibleChanges in Federal and State Law.*    Severalbills have been proposed during past sessions of Congress that could affectIndian gaming.  Most notably SenatorMcCain’s S. 2078, the Indian Gaming Regulatory ActAmendments of 2005 and Congressman Pombo’s (R-CA) H. 4893, Restricting IndianGaming to Homelands of Tribes Act of 2006, propose additional regulations fortribes and more restrictions on “off-reservation” gaming.  Also, theadministration has published proposed regulations relative to off-reservationgaming.  Certain of such bills andregulations, if enacted, could impair the ability of the Nation and SGC toexpand its gaming operations and adversely impact 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 Yorklaw of certain forms of gaming or similar activities. If New York State were tomake various forms of gaming illegal or against public policy (or the courtswere to similarly rule), or otherwise to take a legal position adverse to SGC,such actions could have a material adverse effect on our ability to conduct ourgaming operations as currently conducted.

 

**MaterialAgreements**

 

*Thefollowing summaries of certain material agreements in effect as of December 28,2007 related to our operations, to which the Nation or SGC (or itssubsidiaries) is a party do not purport to be complete and are qualified intheir entirety by reference to the agreements summarized herein. Capitalizedterms used but not otherwise defined herein have the meanings ascribed to suchterms in the agreement 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 Seneca Gaming Authority, or SGA,which exercises jurisdiction over and responsibility for the conduct of gamingoperations by the Nation. The SGA was established pursuant to the GamingOrdinance. The New York State Racing and Wagering Board and the New York State Police,collectively, the SGO, act in a concurrent regulatory and oversight role withregard to the Nation’s Class III gaming operations. The SGA is entitled tounfettered access to all areas of the Nation’s gaming facilities including thesurveillance room(s), copies of daily inspection reports as well as access tothe business and accounting records relating to the Nation’s gaming operationsduring the course of an investigation. Each Nation Class III gamingoperation must provide reasonable office and reserved parking space adjacent tothe Class III gaming facilities for the SGO. New York State is empoweredto sue to enforce applicable Compact terms and to remedy violations througharbitration or in federal court.

 

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(3)  Law enforcement responsibilities relating tothe Nation’s Class III gaming operations are concurrent between the NationLaw Enforcement Agency and the New York State Police as a matter of federallaw. Nothing in the Compact alters the jurisdiction of New York State, if any,over Indian land as provided by applicable law. Members of the New York StatePolice in the course of official duties have unfettered access to all areas ofthe Class III gaming and auxiliary facilities, subject only to State andfederal constitutional limitations. As stated, the Nation Law EnforcementAgency may exercise concurrent authority with that of the New York State Policeto maintain public order 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 board by the Commission. The SGA cooperates with theSGO in any reasonable investigations deemed necessary by the SGO relating tothe fitness of any such enterprise to engage in any business with a Nation Class IIIgaming operation. The SGO may bar such an enterprise from providing such goods,supplies or services upon a determination of a threat to the effectiveregulation of Class III gaming or danger of unfair or illegal practices,methods and activities in the conduct of Class III gaming.

 

(7)  TheNation’s Class III gaming operations must conform with a detailed set ofoperational and management standards relating to a variety of matters, includingaccounting, internal controls, operational procedures, surveillance personneland 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 Nation’s Class III Gaming Ordinance, SGC hasconstructed, maintained, and operated its gaming facilities in a manner thatadequately protects the environment 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.

 

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(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 Nation orIndian tribe to conduct a Class III game or activity which has not beenauthorized under the Compact, the State shall notify the Nation, which may thenconduct such game or activity upon adoption of the State’s specificationsregarding such game or activity.

 

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

 

*Assignmentand Plan of Distribution Agreement*

 

On May 5,2004, SGC entered into an Assignment and Plan of Distribution Agreement, or theAssignment Agreement, with the Nation. Pursuant to this agreement, the Nationhas adopted a plan of distribution providing that in the event of thedissolution or final liquidation of any of these entities, the net liquidationor dissolution proceeds shall be distributed to SGC. The Nation furtherassigned to SGC all of its rights, title and interest in and to these proceeds.The Nation entered into the Assignment Agreement because even though SNFGC,STGC, and SEGC are owned by SGC, according to the charters of thesesubsidiaries, in the event of a liquidation or dissolution of a subsidiary, theNation, and not SGC, would be entitled to receive the net proceeds of 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 the Nationand the Nation has not transferred those proceeds to SGC, the Nation may berequired to transfer an amount equal to the liquidation proceeds to SGC, or ifsuch 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, we 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 anewly formed, wholly-owned governmental instrumentality of the Nation formedfor the purpose of financing, developing and operating such capitalimprovements of the Nation as the Nation designates.  On April 27,2007, the Authority sold an aggregate principal amount of $159,495,000 SpecialObligation Bonds to Merrill Lynch Pierce Fenner & Smith Incorporated,as the initial purchaser, for sale to qualified institutional buyers andinvestors outside the United States in accordance with Regulation S. The Special Obligation Bonds were issued in two series, one designated Series 2007-A(tax exempt) in the aggregate principal amount of $119,495,000 (consisting of$32,800,000 aggregate principal amount due 2016 bearing interest at a rate of5.25%, or Series 2007-A Bonds due 2016, and $86,695,000 aggregateprincipal amount due 2023 bearing interest at a rate of 5.00%, or Series 2007-ABonds due 2023) and the other designated Series 2007-B (taxable) in theaggregate principal amount of $40,000,000 due 2013 bearing interest at a rateof 6.75% (the Series 2007-B Bonds), together with the Series 2007-ABonds due 2016 and Series 2007-A Bonds due 2023, or collectively, the 2007Bonds).  The 2007 Bonds are governed by an Indenture between the Authorityand the Trustee dated April 27, 2007.  The 2007 Bonds are notobligations of SGC or the Nation, and the issuance of the 2007 Bonds will notgive rise to an obligation of the Nation to levy any tax or make anyappropriation for their payment.

 

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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, consisting almost exclusivelyof the Pledged Distributions (as defined in the Distribution Agreement). Recourse to the Nation with respect to its obligations is limited to thePledged Distributions.

 

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

 

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

 

Mandatory Sinking Fund Redemption

 

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

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

 

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**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 court of competent jurisdiction that interest on the Series 2007-ABonds is not excludable from gross income for federal income tax purposes underSection 103 of the Code), on a date selected by the Authority but notlater than 180 days after such Determination of Taxability, at a redemptionprice equal to the principal amount thereof plus accrued and unpaid interest tothe date of redemption plus a premium equal to 4% of the principal amountthereof.

 

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.

 

**Item 1A.  Risk Factors**

 

In addition to the other information in this AnnualReport, the following risk factors should be carefully considered in evaluatingSeneca Gaming 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 which could adversely affect our financialcondition and prevent us from fulfilling our obligations, including our seniornotes.**

 

We have substantial indebtedness and significant fixeddebt service obligations in addition to our operating expenses. As of September 30,2007, we had $500.0 million of 7-1⁄4 % senior notes outstanding. The Indenturegoverning the senior notes permits us and our subsidiaries to incur additionaldebt in certain, limited circumstances. If we incur additional debt in thefuture, the related risks could increase.

 

In connection with an April 2007 issuance of$159.5 million of bonds by a governmental instrumentality of the Nation (the “AuthorityBonds”), we, subject to any contractual obligations applicable to us, areobligated, pursuant to a distribution agreement governing our distributionobligations with respect to the Authority Bonds (the “Distribution Agreement”),to make monthly distributions to the Nation at the times and in the amountsnecessary to pay the debt service on such Authority Bonds.  The foregoing distribution obligations are inaddition to distribution commitments to the Nation relating to Compactexclusivity fees, operating lease payments and certain regulatory and sharedservices expenses.  If we becomeobligated or committed to make additional distributions or payments to theNation in the future, the related risks could increase.

 

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

 

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

 

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

 

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

 

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

 

·      place us at a competitive disadvantage comparedto our competitors that have less debt and other financial obligations and/ormore financial resources.

 

If our indebtedness and distribution obligations andcommitments affect our operations in these ways, our business, financialcondition and results of operations could suffer, making it more difficult forus to satisfy our financial 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.**

 

Our ability to make payments on the senior notes andfulfill our other financial obligations will depend on our ability to generatecash flow from our current and future operations. Our ability to generatesufficient cash flow to satisfy our financial obligations will depend on ourfuture operating performance, which is subject to many economic, competitive,regulatory and business factors that are beyond our control. If we are not ableto generate sufficient cash flow to service our financial obligations, we mayneed to refinance or restructure such obligations, sell assets or reduce ordelay capital investments, or seek to raise additional capital. For thefollowing reasons, among others, these measures may not be available to us onreasonable terms or at all, or, if available, they may not be adequate toenable us to satisfy our financial obligations, including the senior notes:

 

·      our ability to incur additional debt will belimited by the covenants of the Indenture governing the senior notes and thecovenants of the Distribution Agreement;

 

·      the Indenture governing the senior notes includescovenants which limit our ability to create additional liens on or sell ourassets and the covenants of the Distribution Agreement limit our ability tosell our assets; and

 

·      unlike non-governmental businesses, we areprohibited by law from generating cash through an offering of equity securities.

 

If our cash flow is insufficient and we are unable toraise additional capital, we may not be able to satisfy our financialobligations, including making 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’ secured indebtedness.**

 

Holders of SGC’s and the restricted subsidiaryguarantors’ secured indebtedness will have claims that are prior to the claimsof holders of senior notes to the extent of the value of the assets securingthe other indebtedness. The Indenture governing the senior notes permitscertain secured indebtedness. The senior notes are effectively subordinated toall of that secured indebtedness. In the event of any distribution or paymentin any foreclosure, dissolution, winding-up, liquidation, reorganization, orother bankruptcy proceeding, holders of SGC’s and the restricted subsidiaryguarantors’ secured indebtedness will have prior claim to those assets thatconstitute their collateral. Holders of the senior notes will participateratably with all holders of SGC’s and the restricted subsidiary guarantors’unsecured indebtedness that is deemed to be of the same class as the seniornotes, and potentially with all of SGC’s and the restricted subsidiaryguarantors’ other general 

 

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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, 2007, the amount of theconsolidated indebtedness of SGC was approximately $495.3 million, of whichnone is secured indebtedness. We are permitted to incur substantial additionalindebtedness in the future under the terms of the Indenture governing thesenior notes and the Distribution 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, including the senior notes. Although the Indenturegoverning the senior notes and the Distribution Agreement restrict our abilityto incur additional 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 notobligated for the payment of the senior notes. The assets of the Nation and itsaffiliates other than SGC and the restricted subsidiary guarantors will not be availableto pay the senior notes. Therefore, the senior note holders’ rights ascreditors in a bankruptcy, liquidation or reorganization or similar proceedingwould be limited to the assets of SGC and the restricted subsidiary guarantorsand the senior note holders would have no right to the assets of the Nation orits other affiliates.

 

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

 

We issued the senior notes pursuant to the Indenture.In addition, in connection with our issuance of the senior notes, the Nationentered into the Nation Agreement with the Trustee pursuant to which the Nationagreed not to take certain actions with respect to us while the senior noteswere outstanding. References to the “Nation Agreement” are to the NationAgreement as amended on May 23, 2005. On May 5, 2004, the Nationentered into an assignment and plan of distribution agreement, or theAssignment Agreement, with SGC pursuant to which the Nation assigned to SGC theNation’s rights to the net proceeds in the event of a liquidation or dissolutionof SNFGC, STGC or SEGC and pursuant to the plan of distribution, the netliquidation or dissolution proceeds of such entities shall be distributed bysuch entities directly to SGC. See “Item 1. - Business –– MaterialAgreements—Assignment and Plan of Distribution Agreement.” Under federal law,we and the Nation have sovereign immunity and may not be sued without our andits consent, respectively. In the Indenture governing the senior notes, we do,and, in the Nation Agreement and the Assignment Agreement, the Nation does,grant a limited waiver of sovereign immunity and consent to suits to interpretor enforce the Indenture governing the senior notes, and the other agreementsentered into in connection with the respective offerings involving the seniornotes. This waiver does not extend to all possible claims or remedies that aholder of the senior notes might allege or seek against us or the Nation.Specifically, the waiver limits available remedies to specific performance inmost cases and limited money damages equal to the amount of a payment made inprohibition of the Indenture governing the senior notes or to the amount of thenet liquidation 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.

 

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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.

 

**Uncertaintyexists as to whether a federal or state court would have jurisdiction in anaction related to the senior 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 (“Nation Courts”), and a federalor state court may defer to such Nation Courts if, contrary to the waiver ofsovereign immunity by us and the Nation, we or the Nation seek or allege our ortheir right to seek tribal proceedings for resolution of a dispute related tothe senior notes. The Nation court system is different from federal and statecivil courts. For example, there is no requirement that a judge be a lawyer andthe Nation’s highest court, the Supreme Court, is comprised of the sixteenNation Councillors who are the elected Councillors to the Nation’s Council, thegoverning body of the Nation, and the Nation’s President. The Nation Courts mayreach a different conclusion than the federal or state courts would and thismay have a material adverse effect on the rights of the senior note holders.

 

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.

 

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**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, includingcircumstances in which bankruptcy is not involved, were commenced by, or onbehalf of, unpaid creditors of the restricted subsidiary guarantors at somefuture date. Federal and state statutes allow courts, under specificcircumstances, to void guarantees and related liens and require note holders toreturn payments received from the issuer or the guarantors.

 

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

 

·      was insolvent;

 

·      was rendered insolvent by the issuance of thesenior notes;

 

·      was engaged in a business or transaction forwhich its remaining assets constituted unreasonably small capital; or

 

·      intended to incur, or believed that it wouldincur, 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, 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.

 

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**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 and the Distribution Agreement, could decide toexpand our facilities, incur more debt, increase distributions or otherpayments to the Nation, dispose of assets or enter into other transactionsthat, in their judgment, are in their interest, even though these transactionsmight involve risks to holders of the senior notes, including making it moredifficult for us to make payments on the senior notes and for the restrictedsubsidiary guarantors to guarantee these payments.  Additionally, the Nation’s sovereigninterests may result in policies or decisions that may conflict with theinterests’ of the senior note holders. For example, the Nation may determinenot to approve a limited waiver of sovereign immunity in connection with apotential commercially favorable transaction between us and a third party,based principally on sovereignty considerations rather than customarycommercial considerations, resulting in the loss of that commercially favorablebusiness opportunity. The loss of this opportunity could adversely affect usand, as a result, the senior note holders.

 

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

 

The Nation has a limited number of laws, 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 how and which laws will be applied. In particular, the Nation has notadopted a corporate code. Therefore, terms used in this Annual Report, theIndenture governing the senior notes and other relevant documents, including,but not limited to, terms such as “liquidation” and “dissolution” that mayrequire application and interpretation of the Nation’s laws may have no definedmeanings under those laws or may have meanings different from what one isaccustomed 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 (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 service ourobligations, including the senior notes. 

 

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While we expect to expand the geographic scope of ourpatron base as a result of our expansion projects, our Seneca Niagara Casinoand Hotel relies primarily on patrons from within a 100-mile radius for itscash flow, Seneca Allegany Casino and Hotel relies primarily on patrons fromwithin an 80-mile radius for its cash flow and Seneca Buffalo Creek Casinotemporary facility relies primarily on patrons from within a 30-mile radius.Further, our future expansion plans for additional casino operations aspermitted by the Compact are limited to Western New York. As a result, inaddition to our susceptibility to adverse global and domestic economic,political and business conditions, any economic downturn in the Western NewYork region could have a material adverse effect on our operations. An economicdownturn would likely cause a decline in the disposable income of consumers inthe Western New York region, which could result in a decrease in the number ofpatrons at Seneca Niagara Casino and Hotel, Seneca Allegany Casino and Hoteland Seneca Buffalo Creek Casino, as well as in the frequency of their visitsand the average amount that they would each be willing to spend at the casinos.We are subject to greater risks than more geographically diverse gaming orresort operations, including:

 

·      a downturn in national, regional or localeconomic conditions;

 

·      an increase in competition in New York or theNortheastern United States and Canada, particularly for day-trip patronsresiding in New York State, including the development of new Indian casinos andthe establishment of video gaming machines at certain racetracks in New Yorkand Pennsylvania;

 

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

 

·      adverse weather, and natural and other disastersin 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 other resort properties. If we are unable to competesuccessfully, we may not be able to generate sufficient cash flow to fund ouroperations or fulfill our financial obligations, including the senior notes.**

 

Our casino operations compete with casinos, otherforms of gaming and other resort properties located within and outside New YorkState. We face intense competition in our primary and secondary market areas,in addition to competition from casinos and gaming operations in our broaderregional market. New market entrants in New York State and elsewhere in theNortheastern United States could also adversely affect our operations and ourability to meet our financial obligations.**Fora more extensive discussion regarding our competition, see “Item 1. - Business—Marketand 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 madepermanent.

 

**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 expectedopening of the permanent Seneca Buffalo Creek Casino and Hotel will require usto hire additional qualified executives and managers and a significant numberof additional skilled employees with gaming and hospitality industry experienceand qualifications. Currently, there is a shortage of skilled labor in thegaming industry in general. There can be no assurance that we will be able torecruit, train and retain a sufficient number of additional qualifiedemployees, particularly due to the very small number of workers skilled in thegaming industry that reside in the immediate vicinity of our casinos.

 

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**The Indenture governing the seniornotes contains various covenants and provisions that limit our management’sdiscretion in 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 ourindebtedness, which could cause those obligations to become due and payable. Ifour indebtedness were to be accelerated, we cannot assure you that we would beable to pay such indebtedness.

 

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

 

Although construction activities related to ourexpansion projects are planned to minimize disruptions, construction noise and 

debris may disrupt our operations. Unexpectedconstruction delays could exacerbate or magnify these disruptions. We cannotassure you that construction activities will not have a material adverse effecton our results of operations.

 

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

 

Our current expansion projects (including thepermanent Seneca Buffalo Creek facility) are, and any future expansion projectswill be, subject to significant development and construction risks, any ofwhich could cause unanticipated cost increases and delays. These include, amongothers, the following:

 

·                  shortages of material and skilledlabor;

 

·                  failure to generate sufficientoperating cash flow to meet our construction needs;

 

·                  labor disputes and work stoppages;

 

·                  weather interference or delays;

 

·                  engineering problems;

 

·                  environmental problems;

 

·                  regulatory problems;

 

·                  potential cash shortages;

 

·                  changes to the plans orspecifications;

 

·                  fire, earthquake, flood and othernatural disasters; and

 

·                  geological, construction, excavationand equipment problems.

 

Failure to complete our expansion projects on time andwithin our budgets may cause us to devote additional resources to the projects,which could divert time, money and attention away from our casino operationsand could cause our business to suffer.

 

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In addition, we may not be able to complete ourexpansion plans, including the permanent Seneca Buffalo Creek Casino and Hotel,in a timely manner or at all.

 

**We may not be able to generate enoughcash flow to complete our current and future expansion projects.**

 

We intend to commenceconstruction of our next phase of development at Seneca Allegany Casino andHotel in early 2008, which will include an additional 179 to 204 room hoteltower, and up to 31,000 square feet of additional gaming space and relatedamenities, for a total estimated cost of up to $130 million.

 

We further intend tocommence construction in early 2008 of a permanent casino and hotel complex onthe Buffalo Creek Territory having an estimated cost of $333 million. The permanentSeneca Buffalo Creek Casino and Hotel is expected to initially featureapproximately 90,000 square feet of gaming space, 2,000 slot machines,45 tablegames,a 22-story all-suite hotel, 2,500-space parking garage, and relateddining and other amenities.

 

We intend to fund a portion of our current and futureexpansion projects with cash flow from operations. There can be no assurancethat we will be able to generate the required amount of cash from ouroperations to complete any or all of these projects. In addition, distributionsand payments to the Nation, including distributions pursuant to theDistribution Agreement, will result in our cash flow being diverted from ourexpansion projects. If we are not able to generate enough cash to pay for ourexpansion projects, our projects may be delayed and we may need to findadditional sources of funds, which may not be available on terms acceptable tous, if at all. Further, if we incur additional debt to cover the cost of ourexpansion projects, risks related to our indebtedness could increase. If wecannot generate enough cash or find alternative sources of funding to expandour operations, our business, financial condition and results of operationscould be materially adversely affected and we may not be able to make paymentson the senior notes or meet our other financial obligations.

 

**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 expansion plansinclude opening a permanent casino and 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, 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 and Seneca Allegany Casino and Hotel’s gaming revenue have not beenmaterially affected by severe weather conditions, but severe winter weatherconditions may deter or prevent patrons from reaching our gaming facilities orundertaking day trips. In addition, some recreational activities, such astourism, are curtailed during the winter months. Although our cash flowmanagement system assumes seasonal fluctuations in gaming revenue for both ofour casinos to ensure adequate cash flow during expected periods of lowerrevenue, there can be no assurance that weather-related and seasonal factorswill not have a material adverse effect on our operations. Our limitedoperating history makes it difficult to predict the future effects ofseasonality on our business, if any.

 

**Althoughlitigation challenging 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.**

 

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In October 2001, the New York Legislature passed Chapter 383of the Laws of 2001 (“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 panelissued its Opinion and Order declaring the provisions of Chapter 383authorizing the additional compacts constitutional, the licensing of VGMs toracetracks to be unconstitutional due to the impermissible revenue distributionscheme set forth therein and the provision of Chapter 383 authorizing theDivision of the Lottery to participate in the multi-state lotteryconstitutional.

 

On May 3, 2005, the New York Court of Appeals held all ofChapter 383 (including the licensing of VGMs to racetracks) to beconstitutional. In July 2005, the New York Court of Appeals, the State’shighest court, denied a motion to rehear the case.  Appellants filed awrit of certiorari seeking 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.

 

**If our ability to operate Class III gaming facilities on land heldin restricted fee were successfully challenged, it would have a materialadverse effect on our ability to conduct gaming operations in Niagara Falls andErie County pursuant to the Compact.**

 

*Background*

 

Under IGRA, Indian tribes can conduct class III gaming only on “Indianlands” as defined in that Act. “Indian lands,” under IGRA, means “(A) alllands within the limits of any Indian reservation; and (B) any lands titleto which 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 (“NIGC”)have determined that the Nation possesses jurisdiction over lands acquired bythe Nation and placed into restricted fee status pursuant to SNLCSA, and thatsuch lands constitute Indian lands under IGRA. Seneca Niagara Casino and Hotelis located on lands so acquired, and Seneca Buffalo Creek Casino is (as to thetemporary facility) and will be (as to the proposed permanent facility) locatedon lands so acquired.  It is possiblethat some person or group could successfully challenge the Secretary’sconclusion that the Nation is authorized to use such land for gaming purposespursuant to IGRA.  If the Secretary’s orthe NIGC’s determination that the Nation is authorized to use such land forgaming purposes pursuant to IGRA were successfully challenged, the Nation wouldbe unable to conduct any gaming under IGRA at its current gaming facility in NiagaraFalls or existing and proposed gaming facilities in Erie County. However, suchan adverse determination would not affect the ability of the Nation to operateits Seneca Allegany Casino and Hotel, which is located on existing Nationreservation territory.

 

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

 

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 (“NHPA”), the National Environmental Policy Act (“NEPA”)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 landsacquired by the Nation pursuant to SNLCSA are not Indian lands within themeaning of IGRA and declaring that the Nation’s Compact violates IGRA. On November 1,2006, oral argument was heard on the defendant’s motion to dismiss for lack ofjurisdiction, on the Nation’s amicus motion to dismiss based upon failure tojoin the Nation as a necessary party and sovereign immunity, and on theplaintiff’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 Creek Territory and remanded the decision tothe NIGC to determine whether the Buffalo Creek Territory constitutes “IndianLands” under IGRA.  The court alsogranted the defendant’s motion to dismiss for lack of subject matterjurisdiction, denied the Nation’s motion to dismiss (holding, in part, that theNation was not a necessary party because the U.S. government’s interests werealigned with those of 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 motion for summary judgment.  In reaching its decision todismiss on the basis of a lack of subject matter jurisdiction, the courtdetermined that, notwithstanding the U.S. Department of Interior’s priordetermination that the Nation’s Buffalo Creek Territory constitutes “IndianLands” within the meaning of the IGRA, the NIGC must make its own “Indian Lands”determination, and ordered that the Nation’s 2002 gaming ordinance (which hadbeen approved by the NIGC) be vacated insofar as it permits Class IIIgaming on the Nation’s Buffalo Creek Territory. The court specifically limitedits holding to the Nation’s Buffalo Creek Territory. After the court denied thegovernment’s motion 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 Creek Territory.  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 this suit.  On November 9, 2007, the Second CircuitCourt of Appeals stayed the plaintiffs’ appeal pending the resolution of thesecond federal court action described below (*CitizensAgainst Casino Gambling v. Kempthorne* (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.

 

*Citizens Against Casino Gamblingin Erie County v. Kempthorne (1:07-cv-00451-WMS (WDNY))*

 

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.

 

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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.

 

Both parties have moved for summary judgment.  The Nation has also filed a motion forpermission to file an amicus brief on the “Indian Lands” issues.  Briefing is ongoing and the motions have notyet been decided. TheNation is not a party to this action, and as such, neither it nor SGC has theability to direct or control any aspect of the litigation.

 

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

 

SGC intends to commence construction of the permanentfacility at Seneca Buffalo Creek Casino notwithstanding the pendency of theforegoing litigation, but SGC may be delayed in the opening of its permanentSeneca Buffalo Creek Casino, or unable to conduct Class III gaming on theBuffalo Creek Territory, based upon the status and outcome of such litigation.

 

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

 

On February 1, 2006, an action was filed in the New York SupremeCourt, County of Erie, by various petitioners against George E. Pataki, in hisofficial capacity as Governor of the State of New York; State Gaming Officialsof the New York State Wagering Board; City of Buffalo; Common Council of theCity of Buffalo; Anthony Masiello in his previous capacity as Mayor of Buffalo;Byron Brown in his capacity as Mayor of Buffalo; City of Buffalo Department ofPublic Works; Buffalo Sewer Authority; and Niagara Frontier TransportationAuthority.  The action initially sought declaratory and injunctive reliefunder the State Environmental Quality Review Act (“SEQRA”); the First Parks,Recreation, Historic Preservation Law (“PRHPL”); First City EnvironmentalReview Ordination (“CERO”); and Freedom of Information Law (“FOIL”) and isprincipally directed at the decisions and actions of the defendants inconnection with our Seneca Buffalo Creek Casino.  The plaintiffs initiallyclaimed that the defendants had failed to comply with SEQRA, PRHPL, CERO andFOIL and requested that the Court take numerous actions including directingcompliance with SEQRA, PRHPL, CERO and FOIL and restraining further actionrelating to the development of our Seneca Buffalo Creek Casino.  In May 2006,the petitioners further sought to enjoin demolition activity on the nine acrecasino site, but the court declined to grant a preliminary injunctionpreventing demolition.  In June 2006,the petitioners amended their Petition to drop their claims against GovernorPataki, the State Gaming Officials and the Niagara Frontier TransportationAuthority, and added the Buffalo Department of Economic Development, Permitsand Inspections as a party. The amended Petition also dropped all claims exceptfor the SEQRA and CERO claims. In October 2006, the plaintiffs moved foran injunction to prevent an agreement between SEGC and the City of Buffalo(relating to the development of the Seneca Buffalo Creek Casino) from beingexecuted and performed, which motion was denied based upon a failure to show a likelihood of successon the merits.  The plaintiffs appealed this ruling to the New YorkSupreme Court Appellate Division.  On March 16, 2007, the AppellateDivision unanimously affirmed the denial of the injunction.

 

A hearing was held on the merits of the petition in September 2007.  No decision has been rendered.

 

If the plaintiffs are successful, the Nation may be delayed in thecompletion of the Seneca Buffalo Creek Casino and Hotel at this site or may beunable to complete the Seneca Buffalo Creek Casino and Hotel at thissite.  Certain of these petitioners are also plaintiffs in the federallawsuits filed by Citizens Against Casino Gambling in Erie County referencedabove.

 

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

 

**On or about April 6,2006, an action was filed in the United States District Court, Western Districtof New York, by Daniel T. Warren, a pro se plaintiff, against the United Statesof America, the United States Department of the Interior, the National IndianGaming Commission, and five individuals in their official capacities as ActingSecretary of the Interior, Acting Assistant Secretary of the Interior forIndian Affairs and Chairman of the National Indian Gaming Commission, as wellas Governor George E. Pataki, as Governor of the State of New York, and CherylRitchko-Buley, as Chairwoman of the New York State Racing and WageringBoard.    The action initiallysought declaratory and injunctive relief as to**

 

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**numerous mattersincluding declaring that IGRA is unconstitutional, that the Compact violatesIGRA, that the New York Constitution is not preempted by IGRA, that New Yorkdoes not have the authority under state law to enter into a tribal statecompact under IGRA, that certain actions of the defendants were not inaccordance with law, and that certain lands purchased by the Nation were notsubject to being taken into trust or restricted fee status under the SNLCSA orwere not pursuant to settlement of a land claim within the meaning of IGRA; andenjoining the defendants from taking actions which would further casinogambling in the State of New York under IGRA or on any lands acquired by theNation pursuant to SNLCSA. On August 16, 2006, the plaintiff amended hiscomplaint bringing: a Tenth Amendment challenge to IGRA; a claim that theCompact violates IGRA by providing for gaming which is not otherwise lawful inNew York; a claim that both the Compact and the statute authorizing theGovernor of New York to enter into the Compact violate various provisions ofthe New York State Constitution; and a claim that the United States has failedto promulgate regulations for gaming on off-reservation territory, in violationof its statutory duties.    Theeffect of such amendment was to limit the claims remaining in the case, bydropping 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 the Seneca Gaming Corporation; (3) theSeneca Nation of Indians; and/or (4) the Seneca Gaming Corporation, asadditional defendants.  **

** **

On October 5, 2007, the plaintiff fileda motion to further amend the complaint to include as defendants (1) MauriceJohn, as President of the Seneca Nation of Indians; (2) E. BrianHansberry, as the new President and CEO of the Seneca Gaming Corporation(replacing John Pasqualoni); (3) the Seneca Nation of Indians; and (4) theSeneca Gaming Corporation.  On October 25,2007, the Seneca Nation of Indians filed a response in opposition to thatmotion as well, pointing out (1) that the motion to amend the complaintwas not properly before the court because it is premised upon a finding thatthe Nation is a necessary and indispensible party, and (2) that the motionto amend is futile because the Nation and its officers are protected bysovereign immunity.  As of December 5, 2007, the courthad not ruled on this motion.

** **

**Dispositivemotions to dismiss on behalf of both the plaintiff and the defendants have notyet been heard by the court.  Inaddition, still pending before the court is the motion on behalf of the Senecaentities and officers in opposition to being joined as defendants to thelawsuit on, among other things, sovereign immunity grounds. **Ifthe plaintiff is successful in this lawsuit, the Nation would be unable toconduct any gaming upon lands acquired pursuant to SNLCSA.

** **

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

** **

In December 2006, the NIGC notified the Nation that itwould be commencing a review of the Nation’s use of gaming revenues starting inJanuary 2007.  The NIGC has sent itsinspection team on-site three times during February and March of 2007to 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.  As of December 5, 2007, the NIGC’sreview of the Nation’s use of net gaming revenues is ongoing.  The IGRA and NIGC’s implementing regulationsdo not provide a timeline within which the NIGC must complete its review.

 

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

 

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

 

**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.**

** **

Pursuant to the Compact,New York State has agreed to assist the Nation, in whatever manner appropriate,including the exercise of the power of eminent domain, to obtain the landswithin the approximate 50-acre “footprint” described in the Compact.  In the event New York State does acquire suchlands through eminent domain, it further agreed to convey those lands to theNation at a price equal to the State’s cost of acquisition.  With the exception of approximately 2 acresof land and a hotel property within the footprint acquired for $7.9 millionthrough a private sale in December 2005, substantially all of our realproperty acquisitions in Niagara Falls, NY have been pursuant to New York StateEminent Domain Procedure Law (EDPL) using the State’s power of eminent domain(through the Empire State Development Corporation (ESDC)).  The amounts paid to condemnees from whom theESDC has acquired property are deemed to be advance payments, in that propertyowners are entitled to reserve their rights to challenge the land andimprovement values determined by the condemnor’s appraisers.  Through December 28, 2007, the ESDC hasmade advanced payments under the EDPL of approximately $30.0 million for thecondemned parcels within the footprint including, in particular, approximately18 acres of land and related fixtures (a former water park) for an aggregateadvanced payment of $18.0 million, and another hotel property for an aggregateadvanced payment 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 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.   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 $17.0 million.  IntertrustDevelopment has filed a notice of claim for $15.8 million for land and improvements(including trade fixtures) associated with a former Holiday Inn hotel withinthe footprint. ESDC’s fair market appraisal for the foregoing was $8.2million.  Additionally, JFD Holdings hasfiled a notice of claim for an unspecified amount for land and improvements(including trade fixtures) associated with a former Pizza Hut restaurant withinthe footprint.  ESDC’s fair marketappraisal for the foregoing was approximately $0.4 million.

 

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.

 

**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

 

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contaminants. The costs of investigation, remediationor removal of such substances may be substantial. Although neither we or theNation has waived our or its sovereign immunity with regard to such federal,state and local environmental legislation, the existence or discovery of anenvironmental 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 project in Niagara Falls, New York and our resort hotel andcasino expansion project in Allegany is an entity with limited operatingexperience and limited experience in construction management.**

 

SCMC is an entity formed and wholly owned by theNation and organized for the purpose of managing construction projects. Weinitially entered into construction management agreements with SCMC inconnection with each of the Seneca Allegany Casino resort hotel and casinoexpansion project and the Seneca Niagara Casino luxury hotel expansionproject.  SCMC is now managing the $40.0million conversion of our former temporary casino facility at Seneca AlleganyCasino and Hotel into an events center with related improvements, and isexpected to manage construction of both our additional $130.0 million hoteltower in Allegany and the $333 million permanent Seneca Buffalo Creek Casinoand Hotel project.  SCMC has very limitedexperience in overseeing and managing construction projects.  SCMC may not be able to identify oranticipate all material risks related to managing our construction projects,which could adversely affect our ability to develop and construct theseprojects timely and successfully as well as our business and results ofoperations.

 

**Any adverse changes in the laws regulating our gaming operations or ourfailure to maintain licenses required under gaming laws and regulations andother permits and approvals required under applicable laws and regulationscould have a material adverse effect on our ability to conduct gaming operationsand to fulfill our 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 Affairs hasproposed sweeping changes to the federal laws concerning Indians. Certain ofsuch bills, if enacted, could impair the ability of the Nation and SGC toexpand its gaming operations and adversely impact the future growth of theNation’s revenue base. In addition, from time to time, various governmentofficials have proposed taxing Indian casino gaming or otherwise limiting orrestricting the conduct of gaming operations by Indian tribes. No assurance canbe given that such legislation, if and when enacted by Congress, would not havea material adverse effect on our operations. In addition, under federal law,gaming on the Nation’s lands may be dependent upon the continued permissibilityunder New York law of certain forms of gaming or similar activities. If NewYork State were to make various forms of gaming illegal or against publicpolicy (or the courts were to similarly rule), or otherwise to take a legalposition adverse to the Compact or any of its provisions, such actions couldaffect the ability of the Nation to conduct those forms of gaming under theCompact, which could have a material adverse effect on our ability to conductour gaming operations as currently conducted. Moreover, a 1996 U.S. SupremeCourt decision may permit a state to avoid or refuse to negotiate amendments toexisting compacts such as the Compact.

 

The operation of all gaming on Indian lands is subject to IGRA. For thepast several years, legislation has been introduced in Congress designed toamend this Act. Most of the proposals that have been seriously considered wouldbe prospective in effect and have contained clauses that would grandfatherexisting Indian gaming operations such as Seneca Niagara Casino and Hotel andSeneca Allegany Casino and Hotel. However, certain legislative acts have alsoproposed repealing many of the provisions of IGRA. We cannot predict thesuccess of future legislative acts. Changes in applicable laws and regulationsor an increase in the cost of compliance with applicable laws and regulationscould limit or materially affect the types of gaming that we may offer and therevenue our operations generate. Furthermore, if Congress enacted legislationthat was applied retroactively, our ability to meet our outstanding debt andother financial obligations could be adversely affected.

 

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

 

**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.**

 

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 senior note holders.

 

**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 7, 2006. 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 orregarding compliance with the Compact and our other obligations including thecovenants contained in the Indenture. In addition, the Council acts by majorityvote and with respect to any issue or policy, a change in views by one or moremembers could result in a change in the policy adopted by the Council. Changesin the Council or its policies could result in significant changes in ourstructure or operations or in our planned expansion. In particular, the Councilappoints the members of SGC’s board of directors and may remove a member of SGC’sboard of directors for cause either upon the recommendation of a majority ofSGC’s board of directors, or upon its own initiative with a vote of at leastten Councillors. The term cause has not been defined in SGC’s charter or inNation law; therefore, it is uncertain how this term will be interpreted. As aresult, a change in the membership of Council or in the views of existingmembers of Council, adverse to the existing board or management could result ina change in SGC’s board of directors and potentially in SGC’s management. Anysuch changes could adversely affect our business plan or otherwise result in amaterial adverse effect in our business, financial condition, results ofoperations or ability to meet our financial obligations, including the seniornotes.

 

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**

 

*SenecaNiagara Casino and Hotel.*    SenecaNiagara Casino and Hotel is located on Nation Territory in Niagara Falls, NewYork. Seneca Niagara Casino and Hotel is located approximately 20 miles northof Buffalo, New York and approximately 90 miles west of Rochester, New York.

 

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

 

As of December 28,2007, SNFGC has acquired approximately 45 of the 50 acres of the land in theCity of Niagara Falls, New York, designated by New York State under the Compactfor ownership by the Nation, thus reducing the remaining acreage to be acquiredto approximately 3 acres (SNFGC has waived its right to acquire approximatelytwo acres of land designated in the Compact for ownership by the Nation, in returnfor a right of first refusal to purchase such property if this two-acre parcelis offered for sale in the future by its owners, a religiousorganization).  See “Item 1A. - RiskFactors— SNFGC may be subject to material liabilities arising out of thecondemnation process through which it is acquiring lands in the 50-acrefootprint in the City of Niagara Falls, New York” for further description ofthe Niagara Falls condemnation proceedings.

 

As of December 28,2007, the Nation had acquired approximately 24 acres (of the approximate 50acres described in Appendix I of the Compact) with funds appropriated under theSNLCSA in Niagara Falls. By operation of federal law, these lands and otherparcels that may be acquired in the future pursuant to the SNLCSA (whether inNiagara Falls or Erie County) are subject to restrictions against alienation,constitute Indian country subject to the jurisdiction of the Nation, andqualify as gaming eligible Indian lands pursuant to IGRA. Seneca Niagara Casinoand Hotel and its 2,300 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.

 

*SenecaAllegany Casino and Hotel.*    SenecaAllegany Casino and Hotel is located on the Nation’s Allegany Territory in theCity of Salamanca, New York. STGC leases the land on which Seneca AlleganyCasino and Hotel is located from the Nation. Seneca Allegany Casino and Hotelis located immediately off Interstate 86, approximately 70 miles south of NiagaraFalls, New York and is within 75 miles of Erie, Pennsylvania, and 165 miles ofCleveland and Akron, Ohio and Pittsburgh, Pennsylvania. The land upon whichSeneca Allegany Casino and Hotel is situated is within the Nation’s territorialboundaries, and is therefore eligible for gaming pursuant to IGRA.

 

*SenecaBuffalo Creek Casino.*    Thetemporary Seneca Buffalo Creek Casino is located on approximately nine acres ofland in the inner harbor district of Buffalo, New York, which constitute theNation’s Buffalo Creek Territory.  SEGCleases the land on which the temporary Seneca Buffalo Creek Casino is locatedfrom the Nation.  The land on which thetemporary casino is located was acquired by the Nation using funds appropriatedunder the SNLCSA.

 

*Irving,New York*. SGC owns approximately 113 acres in Irving, New York.  This acreage is not currently being used inour gaming operations.

 

**Item3.  Legal Proceedings**

 

***SenecaNiagara Falls Gaming Corporation v. Klewin Building Company, Inc.*****(American Arbitration No. 15110 00691 05; Arbitration before the Arbitration Panel of James W. Gresens,Robert A. Dean, and S. Thomas Aiston (Arbitration))**

 

***SNFGCand STGC, as assignees v. T.D. BankNorth, N.A. (Niagara County Supreme Court;Index No. 124716*****)**

 

On October 15, 2003,SNFGC and Klewin entered into an Owner-Design/Builder Agreement whereby Klewinagreed to design and build a hotel, casino and spa for SNFGC for a guaranteedmaximum price of $153,048,497.  On August 10,2005, SNFGC provided Klewin with a notice of default because of Klewin’sfailure to pay the architect and Klewin’s

 

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acknowledgement that itwould not deliver the project within the guaranteed maximum price.  A second notice of default was issued basedon Klewin’s failure to pay its subcontractors. These matters have been thesubject of arbitration proceedings pursuant to the arbitration clause in thecontract.

 

On December 23,2005, SNFGC and STGC filed a related complaint in Niagara County Supreme Courtseeking to recover monies taken by T.D. BankNorth, N.A. that were originallydirected to the Klewin subcontractors and to the architect, along with an awardof attorneys’ fees, under  Section 77of the New York Lien Law and under the theory of common law conversion (*SNFGC and STGC, as assignees v. T.D. BankNorth, N.A. (Niagara CountySupreme Court; Index No. 124716*)).  SNFGC and STGC commenced the action asassignees of the claims of the subcontractors and the architect.  On February 27, 2006, BankNorth filed amotion to dismiss the action, claiming that the trust fund provisions of theNew York Lien Law do not apply and the Connecticut action was filed first,before the New York action.  An orderdenying BankNorth’s motion to dismiss was filed on May 24, 2006.  BankNorth served its answer to SNFGC’scomplaint on June 28, 2006, and also filed a motion to reargue and renewits prior motion to dismiss. On December 8, 2006, the court granted thedefendant’s motion to reargue and granted the defendant’s previously deniedmotion for summary judgment.

 

On May 7, 2007, theparties were to have commenced the Klewin arbitration hearing before the panelof arbitrators. Commencement of such hearing was adjourned in anticipation ofan expected global settlement of the Klewin arbitration matter and relatedBankNorth litigation.

 

On June 6, 2007, wereached formal resolution with each of Klewin and Banknorth, the collectiveterms of which provide for the following: (a) Klewin’s stipulation to anarbitration award in our favor in the amount of approximately $14.5 million; (b) Klewin’sconsent to release to us in satisfaction of the arbitration award approximately$3.6 million, which is the balance remaining from the approximately $14.5million that we deposited into a Banknorth account in August 2005 for thebenefit of the architect and the subcontractors on our Niagara Falls hotelproject and other construction projects; (c) our agreement to continue tosatisfy all valid subcontractor and vendor claims in conjunction with the aboveconstruction projects arising after June 30, 2005; (d) Klewin’sagreement to provide us with copies of monthly internally prepared financialstatements for 2007, as well as copies of tax returns for tax years 2006 and2007 when filed, with the understanding that should Klewin be found within 2007to be in possession of any unencumbered assets or revenues not previouslydisclosed by Klewin during the litigation, such unencumbered assets or revenueswill be used to satisfy the above $14.5 million arbitration award; (e) agreementsbetween the parties to voluntarily discontinue all pending legal actionsbetween them as soon as practicable, and no more than thirty (30) days after wereceive the $3.6 million sum described above; and (f) the exchange ofmutual releases among SNFGC, STGC, Klewin and Banknorth.  The foregoing legal actions have since beenvoluntarily discontinued by the parties in accordance with the terms of thesettlement agreement.

 

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

 

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 (“NHPA”), the National Environmental Policy Act (“NEPA”)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 landsacquired by the Nation pursuant to SNLCSA are not Indian lands within themeaning of IGRA and declaring that the Nation’s Compact violates IGRA. On November 1,2006, oral argument was heard on the defendant’s motion to dismiss for lack ofjurisdiction, on the Nation’s amicus motion to dismiss based upon failure tojoin the Nation as a necessary party and sovereign immunity, and on theplaintiff’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 Creek Territory and remanded the decision tothe NIGC to determine whether the Buffalo Creek Territory constitutes “IndianLands” under IGRA.  The court alsogranted the defendant’s motion to dismiss for lack of subject matterjurisdiction, denied the Nation’s motion to dismiss (holding, in part, that theNation was not a necessary party because the U.S. government’s interests werealigned with those of the Nation and that the U.S. government (through the U.S.

 

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Department of Justice) was vigorously defending thecase), and denied, as moot, the plaintiff’s motion for summary judgment. In reaching its decision to dismiss on the basis of a lack of subject matterjurisdiction, the court determined that, notwithstanding the U.S. Department ofInterior’s prior determination that the Nation’s Buffalo Creek Territoryconstitutes “Indian Lands” within the meaning of the IGRA, the NIGC must makeits own “Indian Lands” determination, and ordered that the Nation’s 2002 gamingordinance (which had been approved by the NIGC) be vacated insofar as itpermits Class III gaming on the Nation’s Buffalo Creek Territory. The courtspecifically limited its holding to the Nation’s Buffalo Creek Territory. Afterthe court denied the government’s motion for reconsideration, both theplaintiffs and the defendants appealed. On January 29, 2007, the U.S. Department of Justice filed a motionfor reconsideration, which was denied by the court on April 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 prior approved ordinance, exceptthe new Ordinance’sdefinition of “NationLands” now contains a site-specific legal description of the Buffalo CreekTerritory.  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 this suit.  On November 9, 2007, the Second CircuitCourt of Appeals stayed the plaintiffs’ appeal pending the resolution of thesecond federal court action described below (*CitizensAgainst Casino Gambling v. Kempthorne* (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. Kempthorne (1:07-cv-00451-WMS (WDNY))***

 

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.

 

Both parties have moved for summary judgment.  The Nation has also filed a motion forpermission to file an amicus brief on the “Indian Lands” issues.  Briefing is ongoing and the motions have notyet been decided. TheNation is not a party to this action, and as such, neither it nor SGC has theability to direct or control any aspect of the litigation.

 

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

 

SGC intends to commence construction of the permanentfacility at Seneca Buffalo Creek Casino notwithstanding the pendency of theforegoing litigation, but SGC may be delayed in the opening of its permanentSeneca Buffalo Creek Casino, or unable to conduct Class III gaming on theBuffalo Creek Territory, based upon the status and outcome of such litigation.

 

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

 

On February 1, 2006, an action was filed in the New York SupremeCourt, County of Erie, by various petitioners against George E. Pataki, in hisofficial capacity as Governor of the State of New York; State Gaming Officialsof the New York State Wagering Board; City of Buffalo; Common Council of theCity of Buffalo; Anthony Masiello in his previous capacity as Mayor of Buffalo;Byron Brown in his capacity as Mayor of Buffalo; City of Buffalo Department ofPublic Works; Buffalo Sewer Authority; and Niagara Frontier TransportationAuthority.  The action initially sought declaratory and injunctive reliefunder the State Environmental Quality Review Act (“SEQRA”); the First Parks,Recreation, Historic Preservation Law (“PRHPL”); First City EnvironmentalReview Ordination (“CERO”); and Freedom of Information Law (“FOIL”) and isprincipally directed at the decisions and actions of the defendants inconnection with our Seneca Buffalo Creek Casino.  The plaintiffs initiallyclaimed that the defendants had failed to comply with SEQRA, PRHPL, CERO andFOIL and requested that the Court take numerous actions including directingcompliance with SEQRA, PRHPL, CERO and FOIL and restraining further actionrelating to the development of our Seneca Buffalo Creek Casino.  In May 2006,the petitioners further sought to enjoin demolition activity on the nine acrecasino site, but the court declined to grant a preliminary injunctionpreventing demolition.  In June 2006,the petitioners amended their Petition to drop their claims against GovernorPataki, the State Gaming Officials and the Niagara Frontier TransportationAuthority, and added the Buffalo Department of Economic Development, Permitsand Inspections as a party. The amended Petition also dropped all claims exceptfor the SEQRA and CERO claims. In October 2006, the plaintiffs moved foran injunction to prevent an agreement between SEGC and the City of Buffalo(relating to the development of the Seneca Buffalo Creek Casino) from beingexecuted and performed, which motion was denied based upon a failure to show a likelihood of successon the merits.  The plaintiffs appealed this ruling to the New YorkSupreme Court Appellate Division.  On March 16, 2007, the AppellateDivision unanimously affirmed the denial of the injunction.

 

A hearing was held on the merits of the petition in September 2007.  No decision has been rendered.

 

If the plaintiffs are successful, the Nation may be delayed in thecompletion of the Seneca Buffalo Creek Casino and Hotel at this site or may beunable to complete the Seneca Buffalo Creek Casino and Hotel at thissite.  Certain of these petitioners are also plaintiffs in the federallawsuits filed by Citizens Against Casino Gambling in Erie County referencedabove.

 

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

 

**On or about April 6,2006, an action was filed in the United States District Court, Western Districtof New York, by Daniel T. Warren, a pro se plaintiff, against the United Statesof America, the United States Department of the Interior, the National IndianGaming Commission, and five individuals in their official capacities as ActingSecretary of the Interior, Acting Assistant Secretary of the Interior forIndian Affairs and Chairman of the National Indian Gaming Commission, as wellas Governor George E. Pataki, as Governor of the State of New York, and CherylRitchko-Buley, as Chairwoman of the New York State Racing and WageringBoard.    The action initiallysought declaratory and injunctive relief as to numerous matters includingdeclaring that IGRA is unconstitutional, that the Compact violates IGRA, thatthe New York Constitution is not preempted by IGRA, that New York does not havethe authority under state law to enter into a tribal state compact under IGRA,that certain actions of the defendants were not in accordance with law, andthat certain 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 statutory duties.    The effect of such amendment was tolimit the claims remaining in the case, by dropping many of the federal lawclaims 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 the Seneca Gaming Corporation; (3) theSeneca Nation of Indians; and/or (4) the Seneca Gaming Corporation, asadditional defendants.**

 

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On October 5, 2007, the plaintiff fileda motion to further amend the complaint to include as defendants (1) MauriceJohn, as President of the Seneca Nation of Indians; (2) E. BrianHansberry, as the new President and CEO of the Seneca Gaming Corporation(replacing John Pasqualoni); (3) the Seneca Nation of Indians; and (4) theSeneca Gaming Corporation.  On October 25,2007, the Seneca Nation of Indians filed a response in opposition to thatmotion as well, pointing out (1) that the motion to amend the complaintwas not properly before the court because it is premised upon a finding thatthe Nation is a necessary and indispensible party, and (2) that the motionto amend is futile because the Nation and its officers are protected bysovereign immunity.  As of December 5, 2007, the courthad not ruled on this motion.

 

**Dispositivemotions to dismiss on behalf of both the plaintiff and the defendants have notyet been heard by the court.  Inaddition, still pending before the court is the motion on behalf of the Senecaentities and officers in opposition to being joined as defendants to thelawsuit on, among other things, sovereign immunity grounds. **Ifthe plaintiff is successful in this lawsuit, the Nation would be unable toconduct any gaming upon lands acquired pursuant to SNLCSA.

** **

***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. The defendants filed a motion to dismiss on December 1, 2006, whichis pending before the court.  If theplaintiffs are successful, the Nation may be delayed in the completion of theSeneca Buffalo Creek Casino and Hotel or may be unable to complete the SenecaBuffalo Creek Casino and Hotel as planned.

 

***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**

 

Pursuant to the Compact,New York State agrees to assist the Nation, in whatever manner appropriate,including the exercise of the power of eminent domain, to obtain the landswithin the approximate 50-acre “footprint” described in the Compact.  In the event New York State does acquire suchlands through eminent domain, it further agrees to convey those lands to theNation at a price equal to the State’s cost of acquisition.  With the exception of approximately two acresof land and a hotel property within the footprint acquired for $7.9 millionthrough a private sale in December 2005, substantially all of our realproperty acquisitions in Niagara Falls, NY have been pursuant to New York StateEminent Domain Procedure Law (EDPL) using the State’s power of eminent domain(through the Empire State Development Corporation (ESDC)).  The amounts paid to condemnees from whom theESDC has acquired property are deemed to be advance payments, in that propertyowners are entitled to reserve their rights to challenge the land andimprovement values (including fixtures) determined by the condemnor’sappraisers.  Through December 28,2007, the ESDC has made advanced payments under the EDPL of approximately $30.0million for the condemned parcels within the footprint including, inparticular, approximately 18 acres of land and improvements (a former waterpark) for an aggregate advanced payment of $18.0 million, and another hotelproperty for an aggregate advanced payment of $8.2 million.    See “Item 7.  Management’s Discussion and Analysis ofFinancial condition and Results of Operations—*Liquidityand Capital Resources, Other Commitments*” for information regardinga letter 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 $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 $8.2 million.  Additionally, on March 28, 2007, JFDHoldings had filed a notice of claim (Index No. 127113/06) for anunspecified amount for land and trade fixtures associated with a former PizzaHut retaurant within the footprint.  ESDC’sfair market appraisal for the foregoing was approximately $0.4 million.

 

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If a court determinesthat the value for the land and improvements is higher than the appraised valuewe paid to a condemnee, then we may be liable to the condemnee for thedifference and potentially also responsible for certain additional costs andpayments to the condemnee, such as attorneys’ fees.

 

**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 included in this Annual Report.  For a more detailed discussion on Fiscal 2005through 2007, refer to Item 7, “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,”and our audited financialstatements and related notes beginning on page F-1.

 

46

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| ** **                                                                | ** ** | **Fiscal Year Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                | ** ** | ** **                                          |
| ** **                                                                | ** ** | **2007**                                            | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                | ** ** | ** **                                          | ** ** | **(Dollars in Thousands)** | ** ** | ** ** | ** ** |
| **Statement  of Operations Data:**                                        | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues:                                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Gaming                                                                    |       | $                                                   | 595,826    |   | $ | 519,620 |   | $ | 440,156 |   | $ | 337,536 |   | $ | 184,332 |   |
| Food and  beverage                                                        |       | 56,608                                              |       | 50,141 |   | 41,689 |   | 31,358 |   | 16,158 |   |
| Lodging                                                                   |       | 24,352                                              |       | 10,654 |   | — |   | — |   | — |   |
| Retail and other                                                          |       | 20,190                                              |       | 19,940 |   | 16,955 |   | 11,797 |   | 4,823 |   |
|                                                                      |       |                                                |       |   |   |   |   |   |   |   |   |
| Gross revenues                                                            |       | 696,976                                             |       | 600,355 |   | 498,800 |   | 380,691 |   | 205,313 |   |
| Less:  Promotional allowances                                             |       | (104,012                                            | )          | (77,861 | ) | (49,647 | ) | (24,295 | ) | (9,557 | ) |
|                                                                      |       |                                                |       |   |   |   |   |   |   |   |   |
| Net revenues                                                              |       | 592,964                                             |       | 522,494 |   | 449,153 |   | 356,396 |   | 195,756 |   |
| Expenses:                                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Gaming                                                                    |       | 153,259                                             |       | 129,396 |   | 114,746 |   | 92,531 |   | 53,686 |   |
| Food and  beverage                                                        |       | 47,863                                              |       | 43,485 |   | 34,877 |   | 26,387 |   | 15,856 |   |
| Lodging                                                                   |       | 11,862                                              |       | 6,131 |   | — |   | — |   | — |   |
| Retail,  entertainment and other                                          |       | 12,886                                              |       | 11,668 |   | 10,418 |   | 7,184 |   | 2,732 |   |
| Advertising,  general and administrative                                  |       | 153,838                                             |       | 131,997 |   | 117,188 |   | 91,552 |   | 42,176 |   |
| Pre-opening  costs                                                        |       | 15,426                                              |       | 9,478 |   | 1,509 |   | 4,228 |   | 7,155 |   |
| Depreciation and  amortization                                            |       | 49,597                                              |       | 38,992 |   | 26,295 |   | 17,638 |   | 8,723 |   |
|                                                                      |       |                                                |       |   |   |   |   |   |   |   |   |
| Total operating  expenses                                                 |       | 444,731                                             |       | 371,147 |   | 305,033 |   | 239,520 |   | 130,328 |   |
| Operating income                                                          |       | 148,233                                             |       | 151,347 |   | 144,120 |   | 116,876 |   | 65,428 |   |
| Other income and  (expense):                                              |       |                                                |       |   |   |   |   |   |   |   |   |
| Other  non-operating income and (expenses), net                           |       | 3,720                                               |       | (558 | ) | (13,301 | ) | — |   | — |   |
| Interest income                                                           |       | 3,386                                               |       | 5,814 |   | 5,116 |   | 1,535 |   | 44 |   |
| Interest expense                                                          |       | (36,063                                             | )          | (33,198 | ) | (90,366 | ) | (33,702 | ) | (15,515 | ) |
|                                                                      |       |                                                |       |   |   |   |   |   |   |   |   |
| Net  non-operating expense                                                |       | (28,957                                             | )          | (27,942 | ) | (98,551 | ) | (32,167 | ) | (15,471 | ) |
|                                                                      |       |                                                |       |   |   |   |   |   |   |   |   |
| Net income                                                                |       | 119,276                                             |       | $ | 123,405 |   | $ | 45,569 |   | $ | 84,709 |   | $ | 49,957 |   |
|                                                                      |       |                                                |       |   |   |   |   |   |   |   |   |
| **Other  Financial Data:**                                                | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| EBITDA(1)                                                                 |       | $                                                   | 201,550    |   | $ | 189,781 |   | $ | 157,114 |   | $ | 134,514 |   | $ | 74,151 |   |
| Cash provided by  operating activities                                    |       | 179,748                                             |       | 181,838 |   | 47,652 |   | 143,803 |   | 97,720 |   |
| Cash used in  investing activities                                        |       | (125,046                                            | )          | (233,582 | ) | (192,147 | ) | (238,703 | ) | (118,963 | ) |
| Cash (used in)  provided by financing activities                          |       | (54,235                                             | )          | (12,528 | ) | 75,367 |   | 246,867 |   | 80,739 |   |
| Capital  expenditures and payments for land acquisitions and other assets |       | 178,967                                             |       | 241,741 |   | 172,684 |   | 180,740 |   | 118,963 |   |
| Ratio of  earnings to fixed charges(2)                                    |       | 3.9                                                 | x     | 4.0 | x | 1.4 | x | 3.4 | x | 3.9 | x |

 

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| ** **                 | ** ** | **As of September 30,** | ** ** |
|----------------------------|------------|----------------------------------------|------------|
| ** **                 | ** ** | **2007**                               | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                 | ** ** | ** **                             | ** ** | **(Dollars in Thousands)** | ** ** | ** ** | ** ** |
| **Balance  Sheet Data:**   |       |                                   |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents |       | $                                      | 78,662     |   | $ | 78,195 |   | $ | 142,467 |   | $ | 211,595 |   | $ | 59,628 |   |
| Total assets               |       | 885,960                                |       | 840,376 |   | 698,848 |   | 584,056 |   | 181,749 |   |
| Total  liabilities         |       | 655,716                                |       | 650,745 |   | 589,423 |   | 497,369 |   | 134,753 |   |
| Total capital              |       | $                                      | 230,244    |   | $ | 189,631 |   | $ | 109,425 |   | $ | 86,687 |   | $ | 46,996 |   |

 

----

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

 

EBITDA includes pre-opening costs of approximately$15.4 million, $9.5 million, $1.5 million, $4.2 million, and $7.2 million forFiscal 2007, Fiscal 2006, Fiscal 2005, Fiscal 2004, and Fiscal 2003,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 Year Ended September 30,** | ** ** |
|--------------------------------|------------|---------------------------------------------------------|------------|
| ** **                     | ** ** | **2007**                                                | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                     | ** ** | ** **                                              | ** ** | **(Dollars in Thousands)** | ** ** | ** ** | ** ** |
| Net income                     |       | $                                                       | 119,276    |   | $ | 123,405 |   | $ | 45,569 |   | $ | 84,709 |   | $ | 49,957 |   |
| Depreciation and  amortization |       | 49,597                                                  |       | 38,992 |   | 26,295 |   | 17,638 |   | 8,723 |   |
| Net interest  expense          |       | 32,677                                                  |       | 27,384 |   | 85,250 |   | 32,167 |   | 15,471 |   |
|                           |       |                                                    |       |   |   |   |   |   |   |   |   |
| EBITDA                         |       | $                                                       | 201,550    |   | $ | 189,781 |   | $ | 157,114 |   | $ | 134,514 |   | $ | 74,151 |   |

 

(2)          Theratio of earnings to fixed charges is computed by dividing earnings by fixedcharges. For purposes of determining the ratio of earnings to fixed charges,the term “earnings” is the amount resulting from adding (i) net income, (ii) fixedcharges and (iii) amortization of capitalized interest, less the amount ofinterest capitalized. The term “fixed charges” is the amount resulting fromadding (i) interest expense whether expensed or capitalized, and (ii) theamortization of debt financing costs. Note that for the fiscal year ended September 30, 2005, this ratioincludes the effect of a $49.2 million charge to earnings, recorded as interestexpense, relating to the early extinguishment of the Term Loan, and a $13.3million non-recurring charge to earnings relating to the Klewin matter, asdiscussed below.

 

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

 

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

 

**Overview**

 

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 andHotel, which is located in the City of Niagara Falls, New York (NiagaraTerritory) and operated by SNFGC, approximately 20 miles north of Buffalo, NewYork, Seneca Allegany Casino and Hotel, which is located in the City ofSalamanca, New York (Allegany Territory) and operated by STGC, approximately 75miles northeast of Erie, Pennsylvania, and Seneca Buffalo Creek Casino, whichis located in the inner harbor district of Buffalo, New York (Buffalo CreekTerritory) and operated by SEGC. Seneca Niagara Casino and Hotel opened on December 31,2002 (initially, as the Seneca Niagara Casino). Seneca Allegany Casino and Hotel opened on May 1, 2004 (initially,as the Seneca Allegany Casino).  SenecaBuffalo Creek Casino commenced operations on July 3, 2007 in a temporaryfacility.  Our three casinos are locatedon land held in restricted fee by the United States, which, together with therights under the Compact, allows us to conduct Class III gaming operationsat these locations in New York State and are the only gaming facilities in NewYork State to offer both Class III slot machines and table games.

 

As of September 30,2007, Seneca Niagara Casino and Hotel featured over 147,000 square feet ofgaming space, 4,199 slot machines, 102 table games and 604 hotel rooms, andSeneca Allegany Casino and Hotel featured over 68,000 square feet of gamingspace, 2,336 slot machines, 41 table games and 212 hotel rooms.  As of September 30, 2007, we hadapproximately 1.4 million members in the Seneca Link Player’s Card databasewith an average of approximately 18,000 new members joining per month for theprior twelve months.  As of September 30,2007, approximately 20% of the approximate 1.4 million Seneca Link Player’sCard members lived in the Buffalo-Niagara area, and approximately 5%, 19%, 15%and 40% lived in Canada, Pennsylvania, Ohio and other areas of New York,respectively.  For Fiscal 2007, wegenerated consolidated net revenue of $593.0 million and net income of $119.3million.

 

Under theCompact, the Nation has the right to establish and operate a third Class IIIgaming facility in Erie County, New York. On July 3, 2007, we opened our Seneca Buffalo Creek Casino in atemporary facility.  The casino currentlyhas 135 Class III slot machines, and a snack bar.  We plan to open our permanent Class IIIgaming facility and hotel on this site in 2010. See Item 1A Risk Factors *“If our ability to operateClass III gaming facilities on land held in restricted fee weresuccessfully challenged, it would have a material adverse effect on our abilityto conduct gaming operations in Niagara Falls and Erie County pursuant to theCompact*” for information regarding ongoing challenges to the Nation’sright to conduct Class III gaming.

 

**ExecutiveSummary**

 

*OurCurrent Operations.*    Wecurrently operate three Class III gaming facilities, Seneca Niagara Casinoand Hotel, in the City of Niagara Falls, New York (Niagara Territory), theSeneca Allegany Casino and Hotel, in the City of Salamanca, New York (AlleganyTerritory), and the Seneca Buffalo Creek Casino (temporary facility), in theCity of Buffalo, New York (Buffalo Creek Territory). Our casino operationsinclude gaming, lodging, dining, entertainment and retail. For Fiscal 2007 andFiscal 2006, approximately 93% and 94%, respectively, of our net revenue wasderived from our Class III gaming activities.

 

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

 

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*Seneca Niagara Casino and Hotel.*    Prior to the opening of our luxury hotel, Seneca NiagaraCasino primarily relied on drive-in and bus patrons from the Buffalo, NiagaraFalls, and Rochester areas in New York and secondarily from Erie, Pennsylvania,Ohio and other parts of New York.  Sincethe opening of the new luxury hotel and expanded gaming and related amenitiesduring Fiscal 2006, Seneca Niagara Casino and Hotel has experienced steadygrowth in its patron base, which growth has continued during Fiscal 2007. Webelieve that the expansion of Seneca Niagara Casino and Hotel, including theaddition of our luxury hotel and other amenities, has enabled us to increasehigher-end patron volume, gaming activity and length of stay and extended ourgeographic penetration and appeal to a more diverse demographic base.  For Fiscal 2007, our average hotel occupancyrate has been approximately 90%.  Duringthe same period approximately 75% of our occupied rooms were complimentaryrooms for our gaming patrons.

 

As of September 30,2007, 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 and 242 additionalticketed slot machines and our luxury hotel with expanded gaming floor andrelated amenities.  We openedsubstantially all public areas and the first 10 floors of rooms on December 15,2005, and completely opened the remaining hotel rooms and all amenities on March 31,2006.  The total cost of the luxury hotelexpansion project was approximately $234.0 million.

 

*SenecaAllegany Casino and Hotel.*    Sinceits opening on May 1, 2004, Seneca Allegany Casino and Hotel hasexperienced steady growth in its patron base, net revenue, and profitability.Seneca Allegany Casino and Hotel has attracted patrons from the southernportion of Western New York, Erie and Pittsburgh, Pennsylvania and Ohio. Fromopening through September 30, 2007, approximately 65% of its patrons havecome from outside New York State.

 

In July 2005,we opened our 1,850-space parking garage, which cost approximately $32.2million.  In March 2007, we opened a212-room resort hotel, including two fine dining restaurants, a 24-hour casualrestaurant and certain amenities after officially opening a new permanentgaming floor in December 2006. Since the opening of the resort hotel on March 30, 2007, through September 30,2007, our average occupancy rate has been 94% and of those occupied rooms, 77%have been complimentary for our gaming patrons. We expect the total cost to construct and equip the resort hotel andpermanent casino will be approximately $169.0 million.  We funded the construction, equipment andpre-opening costs of Seneca Allegany Casino and Hotel from cash flow fromoperations in Niagara Falls and Allegany and proceeds of our senior notes.

 

As of September 30,2007, we have capitalized approximately $168.1 million of costs related to theresort hotel and permanent casino expansion project. We are converting theformer approximate 120,000 square foot temporary casino structure into anevents center with a seating capacity for 1,700 people, along with additionaladministrative and support space.  Weestimate that the cost of this conversion, including extensive landscaping andfaçade enhancements, will be approximately $40 million. We plan to fund thisadditional construction with cash flows from operations and cash on hand.  We estimate that the conversion of thetemporary casino structure (excluding landscape and facade enhancements) willbe completed by mid-February 2008. We believe the new resort hotel, permanent casino and events center willprovide a first-class gaming experience for our patrons, increase their lengthof stay and maintain the competitive position of this facility in light ofcompetition in Pennsylvania, consisting principally of Presque Isle Downs, anew gaming facility that opened in late February 2007 in Erie, Pennsylvania,approximately  80 miles from the SenecaAllegany Casino and Hotel and 120 miles from the Seneca Niagara Casino andHotel.  Presque Isle does not providetable games or lodging, but currently provides approximately 2,000 slots anddining and entertainment options that include a steakhouse, a buffet and fourlounges.

 

We intendto commence construction of our next phase of development at Seneca AlleganyCasino and Hotel in early 2008, which will include an additional 179 to 204room hotel tower, and up to 31,000 square feet of additional gaming space andrelated amenities, for a total estimated cost of up to $130 million. Completionof this next phase of construction is targeted for mid-2009.

 

*Seneca BuffaloCreek Casino.*    On October 3,2005, the Nation acquired approximately nine acres of land in the inner-harbordistrict 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.  This temporary facility is approximately6,000 square feet, and features 135 slot machines and a snack bar.  The total cost to

 

50

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construct and equip the temporaryfacility was approximately $6.8 million. We intend to expand the temporary facility to include an additional 109slot machines at a cost of approximately $3.2 million including equipment andfurnishings, with such expansion estimated for completion in Spring 2008.

 

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. The permanentSeneca Buffalo Creek Casino and Hotel is expected to initially feature:  approximately 90,000 square feet of gamingspace; 2,000 slot machines; 45 table games; a 22-story all-suite hotel; fourrestaurants; a full-service spa and salon; retail and other amenities; and a2,500-space parking garage.

 

Our ability to continue to operatethe Seneca Buffalo Creek Casino temporary facility, and our ability to completethe permanent facility, as well as the timing of the opening of the permanentSeneca Buffalo Creek Casino, will depend on various factors, including existinglegal challenges and the availability of financing on acceptable terms, asdiscussed below.

 

*Class IIGaming 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 cover thecosts, among other things, of space rental and food and beverage. The transferof the Class II operations as of January 1, 2005 is consistent withour understanding of the Council’s intent that we manage and operate the Nation’sClass III operations and that the Council, through Seneca Gaming andEntertainment, directly manages and operates the Nation’s Class IIoperations as it has historically done.

 

*Current,Continued and Future Reliance on Cash Flow*.We intend to fund the maintenance of our existing facilities and our plannedfuture expansion in Allegany from our cash flow and cash on hand. We currentlyrely and will continue to rely on our ability to generate cash flow fromoperations to satisfy our financial obligations and maintenance capitalexpenditure requirements.

 

Theconstruction of the permanent Buffalo Creek Casino and Hotel ($333 million) isexpected to be funded one-third from cash flow and two-thirds through debtfinancing.  The successful completion ofthe permanent Buffalo Creek Casino and Hotel project will depend on our abilityto secure necessary financing on acceptable terms.

 

*Seasonality*.  Due to the continuedconstruction and expansion activity during our initial years of operation, wehave not yet been able to clearly determine the effect of seasonality on ouroperations.

 

*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 the Seneca Niagara Casino, SGC has invested significantly inthe development, expansion and maintenance of its gaming facilities, includingthe completing of the hotel and gaming projects at Seneca Niagara Casino andHotel and Seneca Allegany Casino and Hotel, and the opening of the temporarycasino on the Seneca Buffalo Creek Territory. Investments are planned to continuein 2008 with the completion of the conversion of the former temporary SenecaAllegany Casino into an events center with related amenities, the start ofconstruction on the second hotel tower at Seneca Allegany Casino and Hotel, andthe start of construction of the permanent gaming facility on the SenecaBuffalo Creek Territory. These planned investments are expected to enable SGCto maintain its position as the premier gaming operator in the region describedabove.  To further that objective, and toprovide for expanded opportunities in the convention and tourism markets, amaster planning process has commenced with respect to the Niagara Falls,Allegany and Buffalo gaming and related facilities. A principal goal is for thefacilities to complement each other, offering diverse hotel, entertainment andgaming experiences for our guests.

 

SGC believes the WesternNew York hotel, entertainment and gaming markets are significantly underserved,and that the exclusivity provided in the Compact gives SGC the opportunity toserve these markets by providing patrons with unique entertainment and gamingexperiences.

 

**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,

 

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particularly in areas we consider to be criticalaccounting estimates, where changes in the estimates and assumptions could havea material impact on our results of operations, financial position and, to alesser extent, cash flows. There can be no assurance that actual results willnot differ from our estimates. To provide an understanding of the methodologywe apply, our significant accounting policies and basis of presentation aresummarized in Note 2 to our audited consolidated financial statements includedin this Annual Report for the year ended September 30, 2007. We believethe following accounting policies involve a higher degree of managementjudgment.

 

*Liability for Unredeemed Seneca Link Player’s CardPoints.*    Patrons who are members of ourSeneca Link Player’s Card rewards program earn promotional points based on thevolume and type of their gaming activity. The Seneca Link Player’s Cardaccumulates points that are redeemable for food and beverages at ourrestaurants, hotel stays and products offered at our retail stores. Points areaccrued and reflected as current liabilities on our balance sheets based uponexpected redemption rates and the estimated cost of the service or merchandiseto be provided. Management reviews the adequacy of the accrual for unredeemedpoints by periodically evaluating the historical redemption and projectedtrends. Actual results could differ from our estimates.

 

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

 

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

 

Our analysis of cash flows represents our bestestimates at the time of the review. However, changes in these assumptions dueto actual market conditions that cause less favorable results than ourestimates may result in impairment in the future.

 

*Regulatory Costs.    *Wehave financial exposure for unbilled regulatory costs related to oversightprovided by the New York State Police (State Police).  There is an on-going dispute between theNation and the State Police as to the appropriate amount of costs that are dueto the State Police for their regulatory oversight.  As of September 30, 2007, we haveaccrued approximately $19.1 million to cover such costs.  In our opinion, this accrual is adequate, butactual results may vary from the amount accrued.

 

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**Operating Results**

 

*Operating Results*

 
| ** **                               | ** ** | **Fiscal Year Ended**      | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|
| ** **                               | ** ** | **September 30,**               | ** ** |
| ** **                               | ** ** | **2007**                             | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                               | ** ** | **(Dollars in Thousands)** | ** ** |
| Net revenue                              |       | $                                    | 592,964    |   | $ | 522,494 |   | $ | 449,153 |   |
| Operating  expenses:                     |       |                                 |       |   |   |   |   |
| Gaming                                   |       | 153,259                              |       | 129,396 |   | 114,746 |   |
| Food and  beverage                       |       | 47,863                               |       | 43,485 |   | 34,877 |   |
| Lodging                                  |       | 11,862                               |       | 6,131 |   | — |   |
| Retail,  entertainment and other         |       | 12,886                               |       | 11,668 |   | 10,418 |   |
| Advertising,  general and administrative |       | 153,838                              |       | 131,997 |   | 117,188 |   |
| Pre-opening  costs                       |       | 15,426                               |       | 9,478 |   | 1,509 |   |
| Depreciation and  amortization           |       | 49,597                               |       | 38,992 |   | 26,295 |   |
|                                     |       |                                 |       |   |   |   |   |
| Operating income                         |       | $                                    | 148,233    |   | $ | 151,347 |   | $ | 144,120 |   |

 

The most importantfactors and trends contributing to our operating performance during Fiscal2007, 2006 and 2005 were:

 

*Positive factors and trends*

 

·                                          Ourability to successfully market Seneca Niagara Casino and Hotel and SenecaAllegany Casino and Hotel to our primary and secondary target markets.

 

·**                                         **Ouropening of the luxury hotel at Seneca Niagara Casino and Hotel, enabling us tobetter attract higher-end gaming guests, extend the stay of our guests andexpand our geographic marketing reach.

 

·                                          Ouropening of the Seneca Events Center at Seneca Niagara Casino and Hotel,resulting in increased entertainment offerings for our guests.

 

·                                          Ouropening of the resort hotel and permanent gaming floor at Seneca AlleganyCasino and Hotel.

 

·                                          Ourability to enroll approximately 1.4 million patrons in our cross-propertySeneca Link Player’s Card program, which has increased our ability to useeffective direct mail and targeted marketing programs to establish patronloyalty to the Seneca brand at a profitable level.

 

·                                          Ourmix of slot machines, which we believe is superior to our competition andincludes the latest product introductions by leading United States andinternational slot manufacturers.

 

·                                          Ouruse of current information technology, including “ticket-in/ticket-out” slotmachines, automated jackpot payment machines, ticket redemption units,electronic slot bonusing and database programs to increase operatingefficiencies.

 

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

 

·                                          Ourcontinued expansion at and reinvestment in both our Niagara Falls and Alleganyproperties.

 

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·                                          Thesmoking ban in Canada and the strong Canadian dollar have increased the numbersof gaming patrons from Canada.

 

*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.

 

*DetailedRevenue Information*

 
| ** **                       | ** ** | **Fiscal Year Ended**      | ** ** |
|----------------------------------|------------|--------------------------------------|------------|
| ** **                       | ** ** | **September 30,**               | ** ** |
| ** **                       | ** ** | **2007**                             | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                       | ** ** | **(Dollars in Thousands)** | ** ** |
| Gaming revenue:                  |       |                                 |       |   |   |   |   |
| Slots                            |       | $                                    | 518,598    |   | $ | 452,473 |   | $ | 372,116 |   |
| Table games                      |       | 76,787                               |       | 66,694 |   | 64,030 |   |
| Other                            |       | 441                                  |       | 453 |   | 4,010 |   |
|                             |       |                                 |       |   |   |   |   |
| Gaming revenue                   |       | 595,826                              |       | 519,620 |   | 440,156 |   |
| Non-gaming  revenue:             |       |                                 |       |   |   |   |   |
| Food and  beverage               |       | 56,608                               |       | 50,141 |   | 41,689 |   |
| Lodging                          |       | 24,352                               |       | 10,654 |   | — |   |
| Retail,  entertainment and other |       | 20,190                               |       | 19,940 |   | 16,955 |   |
|                             |       |                                 |       |   |   |   |   |
| Non-gaming  revenue              |       | 101,150                              |       | 80,735 |   | 58,644 |   |
| Less promotional  allowance      |       | (104,012                             | )          | (77,861 | ) | (49,647 | ) |
|                             |       |                                 |       |   |   |   |   |
| Net revenues                     |       | $                                    | 592,964    |   | $ | 522,494 |   | $ | 449,153 |   |

 

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Our gaming revenue for Fiscal 2007 increased relative toFiscal 2006 primarily due to strong demand at Seneca Niagara Casino and Hotel,plus the expansion of our gaming floor at Seneca Allegany Casino in December 2006which added 37,000 additional square feet of gaming space with 270 additionalslot machines and 16 additional table games. Our gaming revenue for Fiscal 2006 increased relative to Fiscal 2005primarily due to the December 15, 2005 opening of our expanded gaming areaat Seneca Niagara Casino and Hotel, which added approximately 950 slot machinesand 20 additional table games, and the complete opening of our 604-room luxuryhotel on March 31, 2006.  Inaddition, in July 2004 at Seneca Niagara Casino and in August 2004 atSeneca Allegany Casino, we implemented electronic slot bonusing which areincluded in slot revenues and promotional allowances.  This program allows us to reward our slotpatrons, based on their propensity to game, by providing free slot playdirectly at the slot machine through the use of their Seneca Link Player’sCard. The free slot play must be played at a slot machine, and cannot beredeemed for cash.  The amount of freeslot play totaled  $26.3 million, $19.6million, and $9.6 million at Seneca Niagara Casino and Hotel during fiscal2007, 2006, and 2005, respectively, and $15.7 million, $10.0 million, and $5.7million at Seneca Allegany Casino and Hotel during Fiscal 2007, 2006, and 2005,respectively.  The large increase in freeslot play during Fiscal 2007 and Fiscal 2006 was partially due to selectedpromotions during the year that allowed patrons to exchange Seneca Link Player’sCard points for free slot play.  As of September 30,2007, our casinos had an aggregate of 143 table games and 6,670 slot machinesavailable to our patrons, representing a net increase of 20 table games and anet increase of 378 slot machines from September 30, 2006.  During these periods the number of patronsenrolled in our Seneca Link Player’s Card program has steadily increased. As ofSeptember 30, 2007, we had approximately 1.4 million patrons enrolled, anincrease of approximately 200,000 patrons over the number enrolled at September 30,2006.

 

Our netgaming revenue, net of promotional credits of $42.0 million and $29.6 millionin 2007 and 2006, respectively, increased $63.8 million, or 13%, for Fiscal2007 relative to Fiscal 2006.  During Fiscal2007, Seneca Niagara Casino and Hotel’s net gaming revenue increased $48.7million, or 14%, while Seneca Allegany Casino and Hotel’s net gaming revenueincreased $9.0 million, or 6% over the same period.  Seneca Buffalo Creek Casino, which opened on July 3,2007, now has 135 slot machines, and had net gaming revenue of $6.2 million forFiscal 2007.

 

Our netgaming revenue, net of promotional credits of $29.6 million and $15.2 millionin 2006 and 2005, respectively, increased $65.1 million, or 15%, for Fiscal2006 relative to Fiscal 2005.  DuringFiscal 2006, Seneca Niagara Casino and Hotel’s net gaming revenue increased$51.3 million, or 18%, while Seneca Allegany Casino’s net gaming revenueincreased $13.8 million, or 10% over the same period.

 

Our foodand beverage revenue and retail revenue have increased in direct relation toour increase in gaming revenue. There is a direct relation of our food andbeverage revenue and retail revenue to our gaming revenue because a significantportion of this revenue results from players’ point redemptions.  For Fiscal 2007 and 2006, 59% and 62%,respectively, of our food and beverage and 85% and 89%, respectively, of ourretail revenue represented complimentaries, primarily from players’ pointredemptions.  For Fiscal 2007, food andbeverage revenue increased $6.5 million, or 13% to $56.6 million.  Seneca Niagara Casino and Hotel accounted for$3.8 million of the increase, Seneca Allegany Casino and Hotel accounted for$2.6 million of the increase, partially due to the opening of two fine diningrestaurants and a twenty-four hour casual restaurant in conjunction with theresort hotel opening on March 30, 2007, and Seneca Buffalo Creek Casinoaccounted for $0.1 million of the increase.

 

For Fiscal2006 and 2005, 62% and 57%, respectively, of our food and beverage revenue and89% and 86%, respectively, of our retail revenue represented playercomplimentaries, primarily from players’ point redemptions.  For Fiscal 2006, food and beverage revenueincreased $8.5 million, or 20% to $50.1 million.  Seneca Niagara Casino and Hotel contributed$7.3 million of the increase due to the addition of three full servicerestaurants, a deli and two additional bars, all opened by January 31,2006.  The then-Seneca Allegany Casinoaccounted for $1.2 million of the increase, as increased gaming play generatedhigher player point redemptions for food and beverage.

 

For Fiscal2007 our lodging revenue increased by $13.7 million, or 129% compared to Fiscal2006.  $9.8 million of the increase wasfrom Seneca Niagara Casino and Hotel due to experiencing a full fiscal year ofthe entire 604-room hotel being open as compared to Fiscal 2006.  Lodging revenue representing $3.9 million ofthe increase was contributed by Seneca Allegany Casino and Hotel, which openedon March 30, 2007 with 212 hotel rooms.

 

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On December 30, 2005, we officially opened the first tenfloors of our 604-room luxury hotel at Seneca Niagara Casino and Hotel, withthe full opening occurring on March 31, 2006.  Lodging revenue for Fiscal 2006 of $10.7million represents sales of occupied rooms during the period.  Incidental income from other amenities withinthe hotel are classified with retail, entertainment and other revenue.

 

For Fiscal2007, our retail, entertainment and other revenue increased by $0.3 million, or2% compared to Fiscal 2006.  The increasefor Fiscal 2007 was primarily due to a $1.0 million increase in entertainmentrevenue and a $0.7 million increase in other revenue offset by a $1.4 milliondecrease in retail revenue.  The decreasein retail revenue is a result of the relocation of stores at Seneca NiagaraCasino and Hotel during Fiscal 2007, construction disruption at Seneca AlleganyCasino and Hotel, and shifting of point redemptions from retail outlets topromotional credits.

 

For Fiscal2006, our retail, entertainment and other revenue increased by $3.0 million, or18% compared to Fiscal 2005.  Theincrease for Fiscal 2006 was primarily due to a $1.3 million increase inentertainment revenue at Seneca Niagara Casino and Hotel, due to the opening ofour Seneca Events Center in December 2005. In addition, retail revenue at both of our properties increased acombined $0.5 million for Fiscal 2006, in relation to the prior year, due toincreased player point redemptions for retail merchandise generated from highergaming revenue, and other revenue increased $1.2 million.

 

*DetailedOperating Expenses Information*

 
| ** **                               | ** ** | **Fiscal Year Ended**      | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|
| ** **                               | ** ** | **September 30,**               | ** ** |
| ** **                               | ** ** | **2007**                             | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                               | ** ** | **(Dollars in Thousands)** | ** ** |
| Operating  expenses:                     |       |                                 |       |   |   |   |   |
| Gaming                                   |       | $                                    | 153,259    |   | $ | 129,396 |   | $ | 114,746 |   |
| Food and  beverage                       |       | 47,863                               |       | 43,485 |   | 34,877 |   |
| Lodging                                  |       | 11,862                               |       | 6,131 |   | — |   |
| Retail,  entertainment and other         |       | 12,886                               |       | 11,668 |   | 10,418 |   |
| Advertising,  general and administrative |       | 153,838                              |       | 131,997 |   | 117,188 |   |
| Pre-opening  costs                       |       | 15,426                               |       | 9,478 |   | 1,509 |   |
| Depreciation and  amortization           |       | 49,597                               |       | 38,992 |   | 26,295 |   |
|                                     |       |                                 |       |   |   |   |   |
| Operating  expenses                      |       | $                                    | 444,731    |   | $ | 371,147 |   | $ | 305,033 |   |

 

The mostimportant factors making up our operating expenses during Fiscal 2007, 2006 and2005 are the following:

 

Gamingexpenses principally consist of costs incurred from operating our table gamesand slot machines, of which the primary components are related payroll andemployee benefit costs, and the slot exclusivity fee due to New York Statepursuant to the Compact. For Fiscal 2007, 2006 and 2005, the slot exclusivityfee expense was $103.3 million, $79.0 million, and $67.3 million, respectively.  For Fiscal 2007, 2006 and 2005, SenecaNiagara Casino and Hotel incurred a slot exclusivity fee of $71.4 million,$53.8 million, and $45.0 million, respectively. Seneca Allegany Casino and Hotel’s slot exclusivity fees for Fiscal2007, 2006 and 2005 were $30.5 million, $25.2 million, and $22.3 million,respectively.  For Fiscal 2007, SenecaBuffalo Creek Casino incurred $1.4 million in slot exclusivity feeexpense.  The increase in the slotexclusivity fee is partly attributed to higher slot revenue, and partly to anincrease in the exclusivity fee rate from 18% to 22% effective January 1,2007.  For Fiscal 2007 the effect of the4% increase in the exclusivity fee rate was an additional $14.8 million inexpense as compared to Fiscal 2006.  Theexclusivity fee rate will further increase to 25% on January 1, 2010.

 

Food andbeverage expenses are costs we incur for the operation of our restaurants,snack bars and beverage outlets. The primary components of these expenses arethe cost of food and beverages, and related payroll and employee benefitexpenses.  For Fiscal 2007, our food andbeverage costs increased $4.4 million, or 10% from Fiscal 2006.  Approximately $1.1 million of the increase isdue to increased food and beverage cost of sales in relation to the increase infood and beverage revenues.

 

56

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Theremainder of the increase in expenses is primarily due to higher payroll andbenefits expenses from an increase in 

headcountfor the three new restaurants and one new bar at Seneca Allegany Casino andHotel which opened in March 2007, and from increased health insuranceexpenses at all properties.

 

For Fiscal2006, our food and beverage costs increased $8.6 million, or 25%, from thecomparable 2005 period. This increase was primarily due to a $7.8 millionincrease in food and beverage expenses at Seneca Niagara Casino and Hotel,particularly labor cost increases from the addition of three full-servicerestaurants, a deli and two new bars in conjunction with the opening of the luxuryhotel in December 2005.  Theremaining increase in expenses was due to higher cost of sales relating tohigher redemptions of players club points for food and beverages at both ourcasinos, resulting from higher gaming play in Fiscal 2006 in relation to Fiscal2005.

 

Lodgingexpenses are costs we incur for the operation of our luxury hotel and spa inNiagara Falls, which partially opened in December 2005 and completelyopened on March 31, 2006, and our resort hotel and spa on the AlleganyTerritory, which opened on March 30, 2007. Lodging expenses for Fiscal2007 increased $5.8 million, or 95% compared to Fiscal 2006.  The reason for the large increase is due to afull year of operation of the hotel in Niagara Falls in Fiscal 2007 compared tobeing fully operational for only 6 months of Fiscal 2006, and the opening ofthe 212 room hotel at Seneca Allegany Casino on March 30, 2007 withrelated amenities and an associated increase in hotel employees.  The largest component of lodging expensesduring Fiscal 2007 were $8.7 million in payroll and benefits expense and $1.4million in laundry expense.  The majorcomponents of lodging expenses during Fiscal 2006 were payroll and benefitscosts, laundry expense and operating supplies.

 

Retail,entertainment and other expenses represent our costs to operate our retailshops and entertainment offerings. The components of these expenses includerelated payroll and employee benefit costs, the purchase of products offeredfor sale in our retail outlets, and contract costs for entertainers.  For Fiscal 2007 retail, entertainment andother expenses increased $1.2 million, or 11% compared to Fiscal 2006.  This was primarily due to higher expenses forheadline entertainment at both Seneca Niagara Casino and Hotel and Seneca AlleganyCasino and Hotel resulting from an increase in both number of shows, andquality of enterainment in Fiscal 2007.

 

Retail,entertainment and other expenses for Fiscal 2006, increased approximately $1.3million, or 11% compared to Fiscal 2005. This change was principally attributable to a $1.0 million increase incontract entertainment costs due to a greater number and quality of shows atSeneca Niagara Casino and Hotel’s Seneca Events Center, along with a $0.3million increase in retail cost of sales at Seneca Allegany Casino, due tohigher player’s club point redemptions during Fiscal 2006.

 

Advertising,general and administrative expenses are incurred to support ouroperations.  These expenses consistprimarily of related payroll and employee benefits costs, regulatory,advertising, rent, marketing, insurance, legal and energy costs.  For Fiscal 2007 advertisting, general andadministrative expenses increased $21.8 million, or 17% compared to Fiscal2006.  The more significant factorscontributing to this increase were a $6.4 million increase in payroll andrelated benefits expense attributable to an increase in headcounts related tofacilities expansion and additional executive management personnel, a $4.7million increase in lease expenses payable to the Nation for rental of landupon which we operate our casinos, a $3.0 million increase in advertisingexpenses, and $2.4 million increase in energy costs. The remainder of theincrease was due to higher regulatory and marketing costs.

 

For Fiscal2006, these expenses were $132.0 million compared with $117.2 million in Fiscal2005, an increase of $14.8 million, or 13%. The increase was due to several factors, including a $4.2 millionincrease in lease expense payable to the Nation for rental of the land uponwhich we operate our casinos, a $2.4 million increase in regulatory costs(particularly for New York State Police expenses), a $2.3 million increase inenergy costs (particularly for natural gas to support the new luxury hotel andexpanded facilities at Seneca Niagara Casino and Hotel) and a $1.5 millionincrease in advertising costs (related to the new luxury hotel and relatedamenities and significant entertainment events).  The remaining increase was primarily due tohigher labor and benefits costs relating to an increased number of employeeshired to support the expanded facilities at Seneca Niagara Casino and Hotel.

 

Pre-openingexpenses for Fiscal 2007 were costs incurred primarily for the preparation ofopening the new 212 room resort hotel, related amenities, and three restaurantsat Seneca Allegany Casino and Hotel, which opened on March 30, 2007, andfor the temporary facility at Seneca Buffalo Creek Casino, which opened on July 3,2007 in the inner harbor district of Buffalo, New York.  For Fiscal 2007, pre-opening expenses were$15.4 million, and primarily made up of Seneca Buffalo Creek pre-opening expenses of $11.6 million, with most ofthat expense due to the lease paid to the Nation for use of the land

 

57

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for ourgaming operations, $3.6 million of the pre-opening expenses were related to theopening of the new resort hotel and related amenities at Seneca Allegany Casinoand Hotel in Fiscal 2007, and $0.2 million for pre-opening expenses at SenecaNiagara Falls Casino and Hotel for the Blues restaurant which opened in July 2007.

 

DuringFiscal 2006 and Fiscal 2005, we incurred pre-opening expenses at Seneca NiagaraCasino and Hotel of approximately $5.1 million and $0.6 million, respectively.  During Fiscal 2006 and 2005, we also incurredapproximately $3.9 million for development expenses related to our plannedSeneca Buffalo Creek Casino, including $3.1 million in 2006 lease expense paidto the Nation.

 

Depreciation andamortization expense for Fiscal 2007 was $49.6 million, an increase of $10.6million, or 27% over Fiscal 2006.  Theincrease was due to the opening of the Seneca Allegany Casino and Hotel,related amenities, and three new restaurants on March 30, 2007 and thefull operation of the Seneca Niagara Casino and Hotel in Fiscal 2007 ascompared to Fiscal 2006.

 

For Fiscal 2006,depreciation and amortization expense was $39.0 million, an increase of $12.7million, or 48% over Fiscal 2005.  Thisincrease was principally due to the addition of the luxury hotel at SenecaNiagara Casino and Hotel in December 2005, along with the increaseddepreciation in Fiscal 2006 relating to the parking garage at Seneca AlleganyCasino, which opened July 1, 2005.

 

*Non-Operating Expenses*

 

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

 
| ** **          | ** ** | **Fiscal Year Ended**      | ** ** |
|---------------------|------------|--------------------------------------|------------|
| ** **          | ** ** | **September 30,**               | ** ** |
| ** **          | ** ** | **2007**                             | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **          | ** ** | **(Dollars in Thousands)** | ** ** |
| *Interest  expense* |       | $                                    | 36,063     |   | $ | 33,198 |   | $ | 90,366 |   |
|                     |            |                                      |            |  |  |  |  |  |  |  |

 

Interestexpense for 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 debt discount, partially offset by $3.4 millioncapitalized interest during the construction phase of our luxury hotel inNiagara Falls and on our construction activities for our Seneca AlleganyCasino.  The increase in interest expenseof $2.9 million was due to decreased capitalized interest compared to Fiscal2006 due to the wrap up of construction projects.  The decrease in interest expense in Fiscal2006 compared to Fiscal 2005 is due to the extinguishment in May 2005 ofthe Term Loan that was at a rate of LIBOR plus 29%.

 

*Net Income*

 

Net income for Fiscal2007 was $119.3 million compared to $123.4 million for Fiscal 2006, a decreaseof $4.1 million, or 3%.  The increase innet revenue of $70.4 million was offset by increases in operating expensesof  $73.6 million, including an increaseof $10.6 million in depreciation expense, and a $5.9 million increase in pre-openingexpense.  Non-operating expense increaseddue to a $2.4 million decrease in interest income, and a $2.8 million decreasein capitalized interest offset by a $3.1 million increase in othernon-operating income resulting from the settlement of an ongoing arbitrationproceeding involving Klewin Building Company, Inc. and related proceedingsinvolving T.D. BankNorth, N.A.

 

Net income for Fiscal2006 was $123.4 million compared to $45.6 million for the comparable 2005period, an increase of $77.8 million, or 171%. This increase was mainly attributable to the charge to earnings inFiscal 2005 of approximately $49.2 million incurred pursuant to the earlyextinguishment of the Term Loan, the $13.3 million non-recurring constructioncharge in Fiscal 2005 and the favorable financial impact of the December 15,2005 opening of our expanded casino gaming area and the opening of our 604-roomluxury hotel at Seneca Niagara Casino and Hotel during Fiscal 2006.

 

58

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**Liquidityand Capital Resources**

 

*Cash Flows*

 
| ** **                                            | ** ** | **Year Ended September 30,** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                            | ** ** | **(Dollars in Thousands)**        | ** ** |
| Net cash  provided by operations                      |       | 179,748                                     |       | 181,838 |   | 47,652 |   |
|                                                  |       |                                        |       |   |   |   |   |
| Investing Cash  Flows                                 |       |                                        |       |   |   |   |   |
| Capital  Expenditures                                 |       | (163,648                                    | )          | (203,729 | ) | (171,011 | ) |
| Payments for  land acquisitions and other assets      |       | (15,319                                     | )          | (38,012 | ) | (1,673 | ) |
| Withdrawal from  (deposit to) restricted cash         |       | 11,221                                      |       | (25,800 | ) | — |   |
| Refund of  deposits                                   |       | —                                      |       | 168 |   | 700 |   |
| Sales  (purchases) of investments, net                |       | 42,700                                      |       | 33,791 |   | (20,163 | ) |
|                                                  |       |                                        |       |   |   |   |   |
| Net cash used in  investing activities                |       | (125,046                                    | )          | (233,582 | ) | (192,147 | ) |
|                                                  |       |                                        |       |   |   |   |   |
| Financing cash  flows                                 |       |                                        |       |   |   |   |   |
| Proceeds from  long-term debt                         |       | —                                      |       | — |   | 193,000 |   |
| Repayment of  long-term debt                          |       | —                                      |       | — |   | (80,325 | ) |
| Payments to  sinking fund, net                        |       | —                                      |       | — |   | (11,917 | ) |
| Proceeds from  sale of interest rate caps             |       | —                                      |       | — |   | 683 |   |
| Payment of  deferred financing costs                  |       | —                                      |       | (682 | ) | (4,982 | ) |
| Capital  contribution from the Nation                 |       | 3,198                                       |       | — |   | — |   |
| Distributions  paid to the Nation                     |       | (57,433                                     | )          | (11,846 | ) | (21,092 | ) |
|                                                  |       |                                        |       |   |   |   |   |
| Net cash (used  in) provided by financing activities  |       | (54,235                                     | )          | (12,528 | ) | 75,367 |   |
|                                                  |       |                                        |       |   |   |   |   |
| Net increase  (decrease) in cash and cash equivalents |       | 467                                         |       | (64,272 | ) | (69,128 | ) |

 

*Cash Flows—Operating Activities.*

 

The decrease in cash flowfrom operations during Fiscal 2007 compared to Fiscal 2006 was due to a $4.1million decrease in net income affected by pre-opening costs associated withthe Seneca Buffalo Creek Casino temporary facility opening and lease payments, another-than-temporary loss on one specific investment of $0.5 million, andoffset by increased depreciation costs for the Seneca Niagara Casino and Hotel,and the Seneca Allegany Casino and Hotel, and decreases in current assets andcurrent liabilities. Subsequent to year-end this investment declined in valueby an additional amount approximating $2.5 million.

 

The increase in cashflows from operations during Fiscal 2006 compared to the same period in 2005was primarily due to a $77.8 million increase in net income which wasprincipally due to the absence of a $49.2 million interest expense chargeduring Fiscal 2005 relating to the early extinguishment of the Term Loan, andthe absence of a $13.3 million non-recurring construction charge, along withthe favorable financial results relating to the opening of the 604-room luxuryhotel, including 35,000 square feet of additional gaming space at SenecaNiagara Casino and Hotel during Fiscal 2006.

 

*CashFlows—Investing Activities*.   Fiscal2007 capital expenditures were $163.6 million with $101.2 million related tothe Seneca Allegany Hotel construction, and $13.7 million for the completion ofthe luxury hotel in Niagara Falls and the remaining capital expendituresrelated to equipping and maintaining our facilities.  We also incurred $15.3 million in landacquisition costs in Fiscal 2007.  Wereceived $42.7 million as a result of sales of investments during Fiscal 2007.

 

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Our capitalexpenditures of $203.7 million during Fiscal 2006 were comprised of $143.5million of costs associated with the construction and equipping of the SenecaNiagara Casino and Hotel, and $59.2 million related to the construction andequipping of our Seneca Allegany Casino. We also incurred costs toward land acquisition in 2006 and 2005 of $38.0million and $1.7 million, respectively.

 

*CashFlows—Financing Activities.   *InFiscal 2007 we paid $57.4 million in distributions to the Nation.  Cash distributions and dividends were $49.0million, payments pursuant to SGC’s distribution obligations under theDistribution Agreement were $4.3 million, payments relating to the Salamancawaste water treatment facility for the Nation were $3.0 million, and otherdistributions were $1.1 million.  Wereceived $3.2 million in capital contributions from the Nation during Fiscal2007 for the value of  SEGC land.

 

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, or will be, usedprincipally to fund in whole or in part: (1) SNFGC’s construction andequipping of the luxury hotel, which was completed and opened on March 31,2006; (2) the acquisition of the remaining approximate 24 acres of theapproximate 48 acres in the City of Niagara Falls, New York; (3) thepayment of the Empire State Development Corporation bonds to New York State,which were paid off on August 16, 2004 for $22.0 million; (4) therepayment of the vendor equipment financing, which occurred in May 2004;and (5) a $25.0 million distribution to the Nation, which was made infiscal 2004.

 

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

 

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

 

*PrincipalDebt Arrangements.   *As of September 30,2007, our long-term debt consisted of the senior notes on which we pay a fixedinterest rate of 71⁄4%. Following is a summary of certain material terms of thesenior notes and the Term Loan.

 

The SeniorNotes.    On May 5,2004 and May 23, 2005, SGC issued $300.0 million and $200.0 million,respectively, in senior notes with fixed interest payable at a rate of 71⁄4% perannum due 2012, which we refer to collectively as the senior notes, under theIndenture. The notes are currently guaranteed by STGC, SEGC, SNFGC and LGCC.SNFGC became a guarantor of the senior notes upon payment in full of the TermLoan on May 23, 2005. LGCC became a guarantor of the senior notes upon itsformation in accordance with the terms of the Indenture.  Interest on the senior notes is payable semi-annuallyon November 1 and May 1. The senior notes mature on May 1, 2012.The senior notes are unsecured general obligations. As of September 30,2007, 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.

 

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

 

On May 9,2005, SNFGC, the Nation and Freemantle entered into a Termination Agreement toterminate the Term Loan and to allow SNFGC to pay in full the Term Loan at anegotiated amount, which occurred on May 23, 2005. Pursuant to the termsof the Termination Agreement and in full payment of the Term Loan, we paid anamount equal to approximately $126.7 million, representing (i) theoutstanding principal of $80.0 million under the Term Loan plus (ii) theaggregate amount of interest on such principal at a prescribed interest ratethat would have otherwise been payable if the Term Loan had not been

 

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paid on May 23,2005, but was instead paid 81⁄2 months prior to its November 22, 2007 statedmaturity, which amount was approximately $46.7 million.  The payment in full of the Term Loan reducedthe future interest payments that would have otherwise been payable under theTerm Loan if it had not been paid in full by approximately $18.0 million. Thepayment in full of the Term Loan, however, resulted in a charge to earnings onthe early extinguishment of the Term Loan of approximately $49.2 million,including the write off of $2.5 million of deferred financing costs. Theprescribed interest rate was one-month LIBOR as of May 18, 2005 plus 29%.A significant portion of the proceeds from the offering of the 2005 seniornotes were used to pay in full the Term Loan. Upon payment in full of the Term Loan, SNFGC became a full andunconditional guarantor of the 2004 and 2005 senior notes.

 

*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 December 1, 2007, the Authority’s debt service averaged approximately$0.9 million per month. For the period from January 1, 2008 through December 1,2013, the Authority’s debt service averages approximately $1.8 million permonth. For the period from June 1, 2014 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 to complywith its distribution obligations.  For the period ended September 30,2007, SGC distributed to the Nation $4.3 million for the Authority’s debtservice on the 2007 Bonds.

 

Referenceis made to the Indenture and Distribution Agreement for an understanding of allterms of such financing arrangements.

 

*OtherCommitments*

 

We haveacquired approximately 45 acres in the City of Niagara Falls, New York,designated by New York State under the Compact for ownership by the Nation, andintend to acquire approximately three additional acres. Under the Compact, theNation is required to fund the acquisition of this property, including allrelated costs and expenses. As initial security for the Nation’s obligations topay site acquisition costs and in furtherance of the ongoing condemnationproceeding, the Nation was required to deliver, and has delivered, to theEmpire State Development Corporation, (ESDC) a letter of credit in the amountof $33.5 million representing 150% of the then estimate of the total remainingsite acquisition costs not yet paid by the Nation.  On July 13, 2006, we acquired,through the condemnation process, approximately 18 acres of land and improvements(including fixtures) from Fallsite, LLC, or Fallsite and Fallsville, LLC, orFallsville, for an aggregate initial advance payment of $18.0 million, whichland is a portion of the land in the City of Niagara Falls, New York designatedunder the Compact for ownership by the Nation.Of this amount, $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.  The current letter of credit amount has beenreduced to approximately $11.2 million. Ifthe estimate of such site acquisition costs increases or if certain otherevents occur, the Nation may have to provide an additional letter of credit orreplace the existing one with one for a larger monetary amount or, if acceptableto the ESDC, provide a supplemental cash escrow amount.  This outstanding letter of credit is 100%cash collateralized (with cash and cash equivalents) by us.

 

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Theamounts paid to condemnees from whom we have acquired property are deemed to beadvance payments. Pursuant to the New York State Eminent Domain Procedure Law,the New York state courts will determine the final purchase price to be paid tosuch condemnees.   If the New York state courts determine that thevalue for the land and trade fixtures is higher than what ESDC has determinedto be their values, then we would be liable for the difference and potentiallyalso responsible for certain additional costs and payments to the applicablecondemnee(s), such as their attorney fees. The additional land we recentlyacquired has not yet been transferred to the Nation. We can provide noassurance that, upon transfer of such land to the Nation, restricted fee statusfor such land will be sought by the Nation or, if sought, approved.

 

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

 

We haveconstructed a 1,850 space-parking garage at a cost of $32.2 million, and haveconstructed a 212-room resort hotel and casino at our Seneca Allegany Casinoand Hotel.  The current expected totalcost to complete the hotel and permanent casino project is approximately $169.0million.  We are converting the formerapproximate 120,000 square foot temporary casino structure into an eventscenter with a seating capacity for 1,700 people, along with additionaladministrative and support space.  Weestimate that the cost of this conversion, including extensive landscaping andfaçade enhancements, will be approximately $40 million. We further intend tocommence construction in late Spring 2008 of an additional 179 to 204 roomhotel tower, up to 31,000 square feet of additional gaming space and relatedamenities, for an estimated cost of up to $130 million.

 

Wecommenced construction in July 2007 of a Robert Trent Jones II design golfcourse in Lewiston, New York, at an estimated cost of $26.0 million.  We further intend to commence construction inearly 2008 of our permanent Seneca Buffalo Creek Casino on the Buffalo CreekTerritory, at an estimated cost of $333.0 million.

 

We expect cashgenerated from our operations, available cash and cash equivalents andshort-term investments as of September 30, 2007 to be sufficient to fundour expansion plans on the Allegany Territory described above, the LewistonGolf Course project, and approximately one-third of our Buffalo Creekexpansion, to service our debt and satisfy our other financial obligations, andto meet our working capital requirements for the current fiscal year. However,our ability to fund our operations, make planned capital expenditures, serviceour debt and satisfy our other financial obligations 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. Completion of the permanent Seneca Buffalo Creekfacility will also depend upon our ability to obtain external debt financingupon acceptable terms. Additionally, unlike traditional corporations, we areprohibited by law from generating cash through an offering of equity securitiesand our ability to incur additional indebtedness is limited under the terms ofthe Indenture governing the senior notes and the Distribution Agreement. Referenceis made to**Item 1A. Risk Factors—*“SGC may not be able togenerate enough cash flow to complete its current and future expansionprojects”,*for discussion of risks relating to our ability togenerate cash flow.

 

We arehighly leveraged and have significant interest payment requirements under thesenior notes, and distribution obligations under the Distribution Agreement. Assuch, limitations on our capital resources could force us to delay or abandoncapital projects as well as the construction and development of proposedexpansion projects.

 

**ContractualObligations**

 

Thefollowing table reflects our significant contractual obligations as of September 30,2007.

 
| ** **                                                   | ** ** | **Payment due by period** | ** ** | ** **      | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------|------------|-----------------|------------|
| ** **                                                   | ** ** | ** **                               | ** ** | ** **      | ** ** | **2 - 3** | ** ** | **4 - 5** | ** ** | **After 5** | ** ** |
| **Contractual Obligations**                             | ** ** | **Total**                                | ** ** | **1 Year** | ** ** | **Years** | ** ** | **Years** | ** ** | **Years** | ** ** |
| **(Dollars in Thousands)**                         | ** ** | ** **                               | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Principal amount  of the 2004 senior notes                   |       | $                                        | 300,000    |            | $          | 0 |   | $ | 0 |   | $ | 0 |   | $ | 300,000 |   |
| Principal amount  of the 2005 senior notes                   |       | 200,000                                  |       | —          |       | — |   | — |   | 200,000 |   |
| Interest  payments on 2004 senior notes(1)                   |       | 108,750                                  |       | 21,750          |       | 43,500 |   | 43,500 |   | — |   |
| Interest  payments on 2005 senior notes(1)                   |       | 72,500                                   |       | 14,500          |       | 29,000 |   | 29,000 |   | — |   |
| Seneca Allegany  Casino construction projects                |       | 28,400                                   |       | 28,400          |       | — |   | — |   | — |   |
| Seneca Niagara  Casino operating lease with the Nation(2)    |       | 330,391                                  |       | 16,391          |       | 34,272 |   | 36,359 |   | 243,369 |   |
| Seneca Allegany  Casino operating lease with the Nation(2)   |       | 330,391                                  |       | 16,391          |       | 34,272 |   | 36,359 |   | 243,369 |   |
| Seneca Buffalo  Creek Casino operating lease with the Nation |       | 311,424                                  |       | 15,450          |       | 32,304 |   | 34,272 |   | 229,398 |   |
| Distribution  obligations under Distribution Agreement (3)   |       | 280,999                                  |       | 19,253          |       | 43,169 |   | 45,081 |   | 173,496 |   |
|                                                         |       |                                     |       |            |       |   |   |   |   |   |   |
| Total                                                        |       | $                                        | 1,962,855  |            | $          | 132,135 |   | $ | 216,517 |   | $ | 224,571 |   | $ | 1,389,632 |   |
|                                                              |            |                                          |            |                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

(2)                  Amountsrepresent annual lease payments based upon $1.3 million per month, an increaseof 3% on October 1, 2007 and an assumed 3% increase on each October 1thereafter through the term of the Compact. Annual increases must be authorized by the board of directors of SGCand, subject to compliance with the terms of the Indenture governing the seniornotes, may exceed 3%.

 

(3)                  Amounts represent annual distributions tothe Nation under the Distribution Agreement based upon the Seneca Nation ofIndians Capital Improvements Authority’s debt service obligations under its2007 Bonds.  The distribution obligationsare subject to any contractual restrictions applicable to us. Distributions aremade monthly in accordance with the terms of the Distribution Agreement, beganin June 2007 and will continue through December 2023.

 

**Regulation**

 

Ouroperations are regulated by Nation laws, the Compact and federal statutes, mostnotably the Indian Gaming Regulatory Act, or IGRA. Several bills have beenproposed during past sessions of Congress that could affect Indian gaming.  Most notably Senator McCain’s S. 2078, the IndianGaming 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, Indiangaming has received very limited attention. In fact, fewer Indian gaming related bills have been introduced and few,if any, committee hearings have been held related to Indian gaming.

 

Theadministration also has published proposed regulations relative tooff-reservation gaming.  Certain of suchbills and regulations, if enacted, could impair the ability of the Nation andSGC to expand its gaming operations and adversely impact the future growth ofthe Nation’s revenue base. In addition, from time to time, various governmentofficials have proposed taxing Indian casino gaming or otherwise limiting orrestricting the conduct of gaming operations by Indian tribes. No assurance canbe given that such legislation, if and when enacted by Congress, would not havea material adverse effect on the operations of SGC. 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 Yorklaw of certain forms of gaming or similar activities. If New York State were tomake various forms of gaming illegal or against public policy (or the courtswere to similarly rule), or otherwise to take a legal position adverse to SGC,such actions could have a material adverse effect on our ability to conduct ourgaming operations as currently conducted. Moreover, a 1996 U.S. Supreme Courtdecision may permit a state to avoid or refuse to negotiate amendments toexisting compacts such as the Compact.

 

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**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 157 or SFAS 159 will have a material effect on its results of operations or consolidated financial position.

 

**Item 7A. Quantitative and Qualitative Disclosuresabout 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 commodityprices.  Since our senior notes arefixed-rate indebtedness, and our distribution obligations under theDistribution Agreement are based upon fixed-rate indebtedness of the Authority,we believe that our exposure to market risk in the form of interest ratefluctuations is low.  

 

We also haveinvestments in a corporate bond fund of collateralized debt obligations, whichhave equity price risk.  See Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations, *Cash Flows -Operating Activities*,for information regarding such investments.

 

**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 Disclosure Controls and Procedures**

 

Our management, with theparticipation of our principal executive and financial officers, has evaluatedthe effectiveness of our disclosure controls and procedures, as such term isdefined in Rule 13a-15 and Rule 15d-15 under the Securities ExchangeAct of 1934, as of September 30, 2007. 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 management asappropriate to allow timely decisions regarding required disclosure.

 

Based on the evaluationof the effectiveness of our disclosure controls and procedures, as of September 30,2007, 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 9B.Other Information**

 

Not applicable.

 

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**PART III**

 

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

 

The following table setsforth information concerning our executive officers and directors as of December 28,2007:

 
| **Name**                   | ** ** | **Age** | ** ** | **Position**                                        |
|----------------------------|------------|---------|------------|-----------------------------------------------------|
| E. Brian Hansberry (1)     |       | 53      |       | President and Chief Executive Officer               |
| Patrick M. Fox             |       | 55      |       | Chief Financial Officer                             |
| Barry W. Brandon           |       | 46      |       | Senior Vice President and General Counsel           |
| Rajat R. Shah              |       | 36      |       | Senior Vice President of Corporate Development      |
| Robert Victoria (2)        |       | 40      |       | Senior Vice President of Marketing                  |
| Kathy George               |       | 38      |       | General Manager of Seneca Niagara Casino and Hotel  |
| Gus Tsivikis               |       | 53      |       | General Manager of Seneca Allegany Casino and Hotel |
| Barry E. Snyder, Sr.  |       | 67      |       | Chairman of the Board of Directors                  |
| Bergal L. Mitchell III     |       | 34      |       | Vice Chairman of the Board of Directors             |
| Maurice A. John, Sr.  |       | 59      |       | Treasurer and Director                              |
| Martin E. Seneca, Jr. |       | 66      |       | Secretary and Director                              |
| N. Cochise Redeye          |       | 51      |       | Director                                            |
| Maribel Printup            |       | 78      |       | Director                                            |
| Michael L. John            |       | 39      |       | Director                                            |

 

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(1)                  Mr. Hansberrywas appointed Interim President and CEO on February 7, 2007, havingpreviously served as General Manager of the Seneca Niagara Casino andHotel.  Mr. Hansberry wassubsequently appointed as the permanent President and CEO on September 19,2007.

 

(2)                  Mr. Victoriawas appointed Senior Vice President of Marketing on March 5, 2007, havingpreviously served as Vice President of Marketing.

 

The Councilalone has the power to appoint and remove directors to and from the board ofdirectors of SGC and each of its subsidiaries. Since the Council election in November 2004,the Council has taken a more active role in managing our affairs. As previouslydiscussed, all of our Class II gaming operations were transferred to theNation as of January 1, 2005, as part of the initial actions taken bythe  then-new Council at its firstmeeting on November 13, 2004. In addition, the then-President of theNation subsequently issued two executive orders affecting the management of SGCand its subsidiaries. By executive orders in November 2004, the Nation’sPresident (1) established a Gaming Management Task Force to review themanagement and operation of the Nation’s Class III gaming facilitieswithin 120 days of the executive order and (2) imposed certain temporarycost containment measures on the operations of the casinos requiringpre-approval from the Nation’s President or Treasurer before certainexpenditures are made by us.  Inaddition, on December 20, 2004, the Council amended each of the chartersof SGC and its subsidiaries requiring more oversight by the Council. Theseamendments include, but are not limited to, Council approval of:

 

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

 

(ii)  anysignificant expenditure (in excess of $3 million) of corporate resources viaapproval of a comprehensive business plan regarding such activity requiring theexpenditure;

 

(iii)  terminationof the operation of any gaming facility;

 

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

 

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

 

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

 

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

 

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

 

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 Gaming Corporationsince September 19, 2007, after having served as the President and CEO inan 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.

 

***Patrick M. Fox***was appointed our Chief Financial Officer on June 22, 2006.  Prior to his appointment, Mr. Fox servedas Vice President of Finance since October 24, 2005.  For the four months prior to October 24,2005, Mr. Fox served as Financial Controller of Majestic Star Casino.  From April 2004 through May 2005, Mr. Foxserved as Chief Financial Officer of Prairie Meadows Racetrack &Casino and from November 2001 through April 2004 he served as ChiefFinancial Officer of Trump Indiana, Inc. (which corporation filed forbankruptcy shortly after April 2004). Prior to such time, Mr. Fox served as Director of Finance of theCarlson Group, an engineering and architectural firm, from February 2001through September 2001.  Prior to February 2001,and for approximately 25 years, he was with Arthur Andersen and Accenture(formerly Andersen Consulting) where he held several auditing and managementpositions.  Mr. Fox is a certifiedpublic accountant.

 

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

 

***Rajat R. Shah***has served as our Senior Vice President of Corporate Development since May 2,2005. He also served as Deputy 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.

 

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***Kathy George*** has served as General Manager of the Seneca Niagara Casinoand Hotel since May 28, 2007.  Priorto that time, she served as Vice-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 of Operationsat 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 expires in October 2008.  Mr. Snyder served as  the President of the Nation from November 2004to November 2006, and previously served the Nation in this capacity on twoother occasions. Mr. Snyder is the former owner of the Seneca Hawk TobaccoShop.   Mr. Snyder also serves onthe board of directors of SNFGC, STGC, SEGC, LGCC, and SMGC each subsidiariesof SGC.

 

***Bergal L. Mitchell, III*** has served as a member and Vice Chairman of the board ofdirectors of SGC since August 2002 and December 2004, respectively. Mr. Mitchell’sBoard term expired in October 2007 and he is currently serving until he isreappointed or a successor is appointed in his place.  Mr. Mitchell was a member of Councilfrom November 2000 to November 2004. Mr. Mitchell has beenemployed by Ross John Enterprise since 1996 where he has held various businessdevelopment positions.  Mr. Mitchellalso serves on the board of directors of SNFGC, STGC, SEGC, and SMGC, each subsidiariesof 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 expires in October 2008.  Mr. John was elected as the President ofthe Nation in November 2006.  From November 2004to November 2006, Mr. John served as Treasurer of the Nation andpreviously served two terms in the Nation’s Council. Mr. John has alsoserved the Nation as a judge in the Nation’s appellate court. Mr. John wasthe former President of the Coalition of Indian Controlled School Boards, anational Indian Education Organization. Mr. John has an existing tax lienimposed by the U.S. Government which is a result of his beliefs in the treatiesbetween the United States of America and the Seneca Nation of Indians.  Mr. John also serves on the board ofdirectors of SNFGC, STGC, SEGC, LGCC, SMGC, each subsidiaries of SGC, andSeneca Construction Management Corporation, an affiliate of SGC wholly owned bythe Nation.

 

***Martin E. Seneca, Jr.*** has served as Secretary of the board of directors of SGCsince December 2004. Mr. Seneca’s SGC Board term expired in October 2007and he is currently serving until he is reappointed or a successor is appointedin his place.  Mr. Seneca currentlyengages in the private practice of law and serves as a special legal advisor tothe President of the Nation. He received his J.D. from Harvard Law School. Heis a former White House Fellow and a former Deputy Commissioner of the Bureauof Indian Affairs. Mr. Seneca also serves on the board of directors ofSNFGC, STGC, SEGC, 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 expires in October 2008.Mr. Redeye is a retired detective from the Erie County Sheriff’s Office, aposition he held since 1981. In addition, Mr. Redeye has served as a LayAdvocate in the Seneca Nation of Indians Peacemakers’ Court for the past 20years.  Prior to joining the Erie County,New York, Sheriff’s Department, Mr. Redeye served as a member of the U.S.Air Force from 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.

 

***Maribel Printup***has served as a member of the board of directors of SGC since February 2005.Ms. Printup’s current SGC Board term expires in October 2008. Ms. Printupcurrently serves as a chairperson emeritus of the board of trustees of theSeneca Iroquois National Museum. Ms. Printup also served as Councilor ofthe Nation’s Council from 1998 to 2000 and was with the Bureau of IndianAffairs for 25 years. During the last 10 years in which Ms. Printup waswith the Bureau of Indian Affairs, she served as National Program Coordinatorfor the Johnson O’Malley Program.  Ms. Printupalso serves on the board of directors of SNFGC, STGC, SEGC, LGCC (serving asits Secretary) and SMGC, each subsidiaries of SGC.

 

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***Michael L. John***hasserved as a member of the board of directors of SGC since November 2006.  Mr. John’s current SGC Board termexpires in October 2009. Mr. John served as member of the Nation’sCouncil from November 1998 through November 2006, and as Chief ofStaff for the Seneca Nation of Indians from November 2004 through November 2006.  Mr. John also served as TERO Chairmanfrom 2000 through 2006, and as Chairman of the Nation’s Compact NegotiationsCommittee from 1998 through 2000.  Mr. Johnalso serves on the board of directors of SNFGC, STGC, SEGC, LGCC (serving asChairman) and SMGC, each subsidiaries of SGC.

 

*AuditCommittee of the Board of Directors*

 

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

 

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

 

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

 

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

 

·                  to perform an annual evaluation of the committeeitself; and

 

·                  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 Martin E. Seneca, Jr., chairman of thecommittee, Bergal L. Mitchell III, Maurice A. John, Sr. and Michael L.John.

 

*AuditCommittee Financial Expert*

 

Theboard of directors has determined that it does not have an audit committeefinancial expert, meaning that no person has past employment experience infinance or accounting, requisite professional certification in accounting orany other comparable experience or background, which results in the individual’sfinancial sophistication, including being or having been a chief executiveofficer, chief financial officer or other senior officer with financialoversight responsibilities.  While we arenot required to have an audit committee financial expert, the board ofdirectors has looked, and expects to continue to look either for an individualmeeting the requisite criteria of an audit committee financial expert to serveon our board and audit committee, or to obtain the benefit of such expertisethrough 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 at www.senecagamingcorporation.comor free of charge upon written request. Any such request should be sent by mailto Seneca Gaming Corporation, 345 Third Street, Niagara Falls, New York (SenecaNation Territory) 14303, Attn: General Counsel or should be made by telephoneby 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.

 

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**Item 11.Executive Compensation**

 

**Compensation Discussion And Analysis**

 

**Overview**

 

This Item providesan analysis 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, who hasserved  as our principal executiveofficer since February 7, 2007

 

·   Patrick M. Fox, ChiefFinancial Officer

 

·   Rajat Shah, Senior VicePresident of Corporate Development

 

·   Barry W. Brandon, SeniorVice President and General Counsel

 

·   Robert Victoria, Senior VicePresident of Marketing

 

·   John Pasqualoni, who was ourprincipal executive officer until February 7, 2007

 

·  Joseph M. D’Amato, who heldthe office of Chief Operating Officer until February 7, 2007

 

**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 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 annual and long-termfinancial and operating goals and to encourage retention of named executiveofficers.

 

**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 significantly on the recommendations andinput of senior management in making compensation decisions as a component ofemployment agreement negotiations. Additionally, in 2005, we engaged Towers Perrin as our independentconsultant to assist us in benchmarking executive compensation.  The purpose of the 2005 Towers Perrinengagement was to assess the competiteness of our executive compensationprogram to help ensure that our compensation program was competitive withmarket levels.

 

The board of directorsrecently retained Towers Perrin again in November 2007 to review ourcurrent compensation program for executives and to provide analysis andrecommendations for better aligning our compensation program with our short andlong term goals.  Under its most recentengagement, Towers Perrin reports directly to the board of directors and doesnot perform services for management. However, the Chief Executive Officer andother senior management have participated in a number of meetings and telephonecalls with Towers Perrin and the board of directors with regard to TowersPerrin’s services. All decisions with respect to accepting or rejectingrecommendations of the compensation consultant will be made by the board ofdirectors.

 

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**Overviewof Compensation Program**

 

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

 

·                  base salary, which provides fixed compensation basedon competitive market practice;

 

·                  severance benefits for terminations under certaincases, as provided in the named executive officers’ respective employmentagreements;

 

·                  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 director’s actions were driven in substantial part upon thefact that performance targets were easily met in light of our rapid andsubstantial growth, and did not serve their intended purpose. As describedabove, our compensation program for named executive officers is undergoingongoing analysis by the board of directors, in particular, through theengagement of an independent compensation consultant.

 

**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.

 

*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, 2007, theannual premium cost was approximately $250 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.

 

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*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 is in the amount of$495,000 annually for Fiscal 2007 and $532,500 annually for Fiscal 2008.  This retention bonus supplements his annualbase compensation of $360,000, which amount was originally established upon Mr. Hansberry’sappointment as the General Manager of the Seneca Niagara Casino and Hotel.  The retention bonus is treated in the samemanner as Mr. Hansberry’s annual base compensation, and is paid weekly ona pro rata basis.  The foregoingcompensation terms were entered into upon Mr. Hansberry’s agreement to serveas interim President and CEO and were intended to be superseded in the event Mr. Hansberrywas appointed as the permanent President and CEO.  Mr. Hansberry was appointed permanentPresident and CEO on September 19, 2007. The terms of Mr. Hansberry’s new employment agreement are stillunder negotiation.

 

**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.

Bergal L. Mitchell

Martin Seneca, Jr.

N. Cochise Redeye

Maribel Printup

Michael A. John

Maurice John, Sr.

 

**SUMMARY COMPENSATION TABLE**

 

The following table setsforth information regarding compensation for the fiscal year ended September 30,2007 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 President and CEO (1)                    |       | 2007       |       | 360,000    |       | 304,616    | (2)        | **—**        | ** ** | **—**         | ** ** | **—**                                    | ** ** | **—**                                                                         | ** ** | 3,277                            |       | 667,892   |       |
|                                                        |       |       |       |       |       |       |       |              |       |               |       |                                          |       |                                                                               |       |                             |       |      |       |
| Patrick M. Fox  Chief Financial Officer                     |       | 2007       |       | 325,000    | ** ** | **—** | ** ** | **—**        | ** ** | **—**         | ** ** | **—**                                    | ** ** | **—**                                                                         |       | 4,750                            |       | 329,750   |       |
|                                                        |       |       |       |       |       |       |       |              |       |               |       |                                          |       |                                                                               |       |                             |       |      |       |
| Barry W. Brandon  Senior Vice President and General Counsel |       | 2007       |       | 700,000    | ** ** | **—** | ** ** | **—**        | ** ** | **—**         | ** ** | **—**                                    | ** ** | **—**                                                                         |       | 17,613                           | (3)        | 717,613   |       |
|                                                        |       |       |       |       |       |       |       |              |       |               |       |                                          |       |                                                                               |       |                             |       |      |       |
| Rajat Shah  Senior Vice President of Corporate Development  |       | 2007       |       | 700,000    | ** ** | **—** | ** ** | **—**        | ** ** | **—**         | ** ** | **—**                                    | ** ** | **—**                                                                         |       | 3,154                            |       | 703,154   |       |
|                                                        |       |       |       |       |       |       |       |              |       |               |       |                                          |       |                                                                               |       |                             |       |      |       |
| Robert Victoria  Senior Vice President of Marketing         |       | 2007       |       | 249,712    |       |       | 91,397     | (4)               | **—** | ** **         | **—** | ** **                                    | **—** | ** **                                                                         | **—** | ** **                       | 88         |      | 341,197    |   |
|                                                        |       |       |       |       |       |       |       |              |       |               |       |                                          |       |                                                                               |       |                             |       |      |       |
| John Pasqualoni  Former President and CEO (5)               |       | 2007       |       | 337,509    | ** ** | **—** | ** ** | **—**        | ** ** | **—**         | ** ** | **—**                                    | ** ** | **—**                                                                         |       | 421,959                          | (6)   | 759,468   |       |
|                                                        |       |       |       |       |       |       |       |              |       |               |       |                                          |       |                                                                               |       |                             |       |      |       |
| Joseph M. D’Amato  Former Chief Operating Officer (7)  |       | 2007       |       | 301,432    | ** ** | **—** | ** ** | **—**        | ** ** | **—**         | ** ** | **—**                                    | ** ** | **—**                                                                         |       | 345,523                          | (8)   | 646,955   |       |
|                                                             |            |            |            |            |            |            |            |                   |            |                    |            |                                               |            |                                                                                    |            |                                  |            |           |            |        |  |

 

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(1)             Mr. Hansberry became our Interim President andCEO on February 7, 2007, and our permanent President and CEO on September 19,2007.

 

(2)             Mr. Hansberry’s current employment agreementprovides for a “retention bonus” in the amount of $495,000 annually for Fiscal2007 and $532,500 for Fiscal 2008, in addition to his then-existing basecompensation of $360,000.  The bonus ispaid weekly.  The foregoing compensationterms are expected to be superseded upon finalization of Mr. Hansberry’snew employment agreement.

 

(3)             All other compensation in column (i) for Mr. Brandonconsists primarily of 401(k) matching contributions from the Company inthe amount of $3,075, and reimbursement under the Exec-u-care medical insuranceprogram, a perquisite, in the amount of $12,541.  Other perquisites included in all other compensationare SGC-funded dry cleaning services and limited personal use of casinoamenities.

 

(4)             Mr. Victoria earned a bonus in Fiscal 2006 priorto being appointed Senior Vice President of Marketing.  This bonus was paid in Fiscal 2007.

 

(5)             Mr. Pasqualoni resigned as our President and CEOeffective February 7, 2007.

 

(6)             All other compensation in column (i) for Mr. Pasqualoniincludes severance compensation paid under the executive’s separation agreementin the amount of $ $304,533, payment for earned vacation in the amount of$114,216, and 401(k) matching contributions from the Company in the amountof $2,906.

 

(7)             Mr. D’Amato resigned as our Chief OperatingOfficer effective February 7, 2007.

 

(8)             All other compensation in column (i) for Mr. D’Amatoincludes severance compensation paid under the executive’s separation agreementin the amount of $271,978, payment for earned vacation in the amount of$70,271, and 401(k) matching contributions from the Company in the amountof $3,075.

 

**ExecutiveEmployment Agreements**

 

The primary components ofeach current named executive’s compensation described in the above SummaryCompensation Table are set forth in written employment agreements between SGCand the executive.  The materialprovisions 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 pursuant to which Mr.Hansberry agreed to service as Interim President and CEO of SGC and each of itswholly owned subsidiaries. Under the employment agreement, Mr. Hansberryis entitled to annual base compensation of $360,000, with such salary to bereviewed by the board of directors on an annual basis (prior to or inconnection with the close of SGC’s fiscal year) at which time the board ofdirectors shall determine in its sole discretion whether or not his salary willbe increased and the timing thereof.  In addition to base salary, for solong as Mr. Hansberry serves as Interim President and Chief ExecutiveOfficer, Mr. Hansberry receives a retention bonus at an annual rate of$495,000 for the fiscal year ending September 30, 2007 and $532,500 forthe fiscal year ending September 30, 2008. Mr. Hansberry was selected as the permanent President and CEO ofthe Corporation on September 19, 2007. In such

 

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event, the agreementprovides that the parties will amend Mr. Hansberry’s employment agreementor will enter into a new agreement to reflect the change in Mr. Hansberry’sposition, together with any other applicable changes to the terms andconditions of Mr. Hansberry’s employment, including compensation.  Mr. Hansberry’snew employment agreement remains under negotiation.

 

***Patrick M. Fox.*****   **Mr. Fox and SGC entered into an employment agreement on October 24,2005, pursuant to which Mr. Fox agreed to serve as Vice President ofFinance of each of SGC, SNFGC, STGC and SEGC from October 24, 2005 throughOctober 23, 2007, unless his employment is earlier terminated pursuant tothe terms of the agreement or renewed by subsequent written agreement. Mr. Fox’semployment agreement was amended as of June 22, 2006 to, among othermatters, reflect Mr. Fox’s appointment as Chief Financial Officer, extendthe term of the agreement through June 21, 2008, and to reflect certainchanges to Mr. Fox’s compensation.  Mr. Foxis entitled to an annual base salary of $170,000 for the period commencing October 24,2005 and ending June 21, 2006.  Asof June 22, 2006, Mr. Fox’s annual base salary is $325,000.  Mr. Fox’s salary is subject to review onan annual basis.

 

***Rajat R. 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 is entitled to receive anamount equal to $295,625 from the period commencing May 2, 2005 and endingSeptember 30, 2005, an annual salary of $700,000 for the fiscal yearending September 30, 2006, an annual salary of $700,000 for the fiscalyear ending September 30, 2007, and a minimum annual base salary of$700,000 for each of fiscal years ending September 30, 2008 and September 30,2009, with such minimum amounts subject to increase based upon negotiationsbetween SGC and Mr. Shah.

 

***Barry W. Brandon.***    Mr. Brandon and SGC entered intoan employment agreement on July 13, 2004, and an amendment to suchagreement effective October 1, 2005, pursuant to which Mr. Brandonagreed to serve as Senior Vice President and General Counsel of each of SGC,SNFGC, STGC and SEGC from August 1, 2004 through September 30, 2007,unless his employment is earlier terminated pursuant to the terms of theagreement or renewed by subsequent written agreement. Mr. Brandon’semployment agreement was amended as of September 14, 2006 to, among othermatters, extend the term of the agreement through September 30, 2009, andto reflect certain changes to Mr. Brandon’s compensation.  Mr. Brandon is entitled to an annualbase salary of $375,000 for the period commencing August 1, 2004 andending September 30, 2005, $700,000 for the fiscal year ending September 30,2006, and $700,000 for the fiscal year ending September 30, 2007, and aminimum annual base salary of $700,000 for each of the fiscal years ending September 30,2008 and September 30, 2009, with such minimum amounts subject to increasebased upon negotiations between SGC and Mr. Brandon.  For the fiscal year ending September 30,2005, Mr. Brandon was entitled to an annual performance bonus equal to$187,500 if SGC’s Consolidated EBITDA for the 2005 fiscal year was at least$140.0 million.  This performance bonuswas paid to Mr. Brandon in November 2005.   Mr. Brandon received a signing bonus of$75,000 in connection with entering into his employment agreement.

 

***RobertVictoria. ***Mr. Victoria and SGC entered into anemployment agreement as of March 5, 2007, pursuant to which Mr. Victoriaagreed to serve as Senior Vice President of Marketing of each of SGC, SNFGC,STGC and SEGC from March 5, 2007 through September 30, 2009. The agreement provides for an annual base salary of $325,000 for SGC’s fiscalyear ending September 30, 2007, after which time the board of directorsshall determine in its discretion whether to increase his salary and the timingthereof.  Mr. Victoria may also be eligible for a discretionary bonusin the sole discretion of the board of directors.

 

***Separation and Consulting Agreements***

 

In connection with theirresignations, SGC entered into Separation Agreements with each of Messrs. Pasqualoniand D’Amato.  Each separation agreement provides for, among other matters,termination of employment as of February 7, 2007, accelerated payment ofbase compensation for a period of 120 days (i.e., the notice period under theirexisting employment agreements for voluntary termination) following the date oftermination, prohibitions against engaging in a competitive business (asdefined in the agreements) or soliciting SGC employees for a period of 18months after termination, ongoing agreement to reasonably cooperate with SGCfollowing termination with regard to transition and related matters, and mutualreleases of all claims.

 

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**Potential Payments to NamedExecutives Upon Termination**

 

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

 

***TriggeringEvents***.  Each 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 bythe Nation’s gaming ordinances is 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;

·                  Ifany event renders it unlawful for the Nation and/or SGC to continue to conductcasino gaming on the Nation’s territories or if SGC permanently ceases for anyreason within SGC’s or the Nation’s control to conduct casino gaming on NationTerritory;

·                  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; or

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

·                  Andin the case of Messrs. Hansberry, Fox and Victoria, the failure to performany material term or condition of their respective employment agreements afterwritten notice thereof from SGC and a reasonable opportunity to cure suchfailure (as determined by SGC and specified in the notice of breach).

·                  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 dayperiod by reason of long-term physical or mental disability

·                  Theexecutive resigns or elects to terminate his employment agreement for anyreason.

 

***Payments*.**  If severance is owed to one of our namedexecutive officers, we will be obligated to continue to pay the executive hisbase compensation in effect as of the date of termination for a severanceperiod following his termination equal to the lesser of (a)  a specifiednumber of months (18 months in the case of Mr. Hansberry, Mr. Shah orMr. Brandon, 12 months in the case of Mr. Victoria, and six months inthe case of Mr. Fox)  or (b) theremainder of the employment term specified in the employment agreement.  Additionally, in the case of Mr. Hansberry,Mr. Shah and Mr. Brandon, SGC will be obligated, to the extentelected by the executive, to pay for the cost of (i) the executive’spremiums for continuation healthcare coverage under Section 4980B of theInternal Revenue Code of 1986, as amended (COBRA), and (ii) the premiumsfor Exec-u-Care® or any similar executive medical reimbursement insurance planmaintained by SGC on the date the executive’s employment is terminated, for thelesser of (x) the severance period, (y) until the executive is nolonger eligible for COBRA continuation coverage, or (z) until Executiveobtains comparable healthcare benefits from any other employer during theseverance period.

 

The following table setsforth a summary of the estimated payments to be made by SGC in the eventseverance is triggered under the named executive officers’ employmentagreements.

 

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| **Name  and  Principal  Position**                          | ** ** | **Continued Payment   of Base   Compensation  ($)  (1)** | ** ** | **Estimated Exec-  U-Care Cost  ($)  (2)** | ** ** | **Estimated  COBRA Cost  ($)  (3)** | ** ** | **Total Severance  Compensation ($)** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                  | ** ** | ** **                                               | ** ** | ** **                                 | ** ** | ** **                          | ** ** | ** **                                 | ** ** |
| E. Brian  Hansberry  President and CEO                      |       | 1,338,750                                                |       | 12,600                                     |       | 20,131                              |       | 1,381,481                                  |       |
|                                                        |       |                                                     |       |                                       |       |                                |       |                                       |       |
| Barry W. Brandon  Senior Vice President and General Counsel |       | 1,000,000                                                |       | 12,600                                     |       | 20,131                              |       | 1,032,731                                  |       |
|                                                        |       |                                                     |       |                                       |       |                                |       |                                       |       |
| Rajat Shah  Senior Vice President of Corporate Development  |       | 1,000,000                                                |       | 12,600                                     |       | 19,780                              |       | 1,032,380                                  |       |
|                                                        |       |                                                     |       |                                       |       |                                |       |                                       |       |
| Robert Victoria  Senior Vice President of Marketing         |       | 325,000                                                  |       | 8,400                                      |       | 13,186                              |       | 346,586                                    |       |
|                                                        |       |                                                     |       |                                       |       |                                |       |                                       |       |
| Patrick M. Fox  Chief Financial Officer                     |       | 162,500                                                  |       | 4,200                                      |       | 6,593                               |       | 173,293                                    |       |

 

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(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 the employment agreement had not been terminated prior toexpiration of the specified term).  Thecalculation in the table assumes that severance is payable over the full periodspecified in the named executive officers’ employment agreements (18 months inthe case of Messrs. Hansberry, Shah and Brandon, 12 months in the case of Mr. Victoriaand six months in the case of Mr. Fox). Mr. Fox’s employment agreement expires on June 21, 2008.  For purposes of the above table, we havecalculated the severance payable based upon the full six month period providedfor in his employment agreement.

(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, 12 months or 6 months, as applicable.

(3)                                       EstimatedCOBRA cost is based on the individual COBRA cost as of October 1, 2007,and the applicable severance period  foreach named executive officer (18 months, 12 months or six months, as applicable).

 

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

 

·                  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 hehas received from such other entity for such period, but not to exceed theamount of the compensation SGC shall have paid him 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, Mr. Shah and Mr. Brandon, and 12months in the case of Mr. Victoria and 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

 

75

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the Company.  Terminated employees further agree not tosolicit patrons of SGC.  The foregoingapplies for a period of 18 months in the case of Mr. Hansberry, Mr. Shahand Mr. Brandon, and 12 months in the case of Mr. Victoria and 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 torelease SGC, its employee and affiliates from any and all claims arising out ofthe executive’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 travel and otherexpenses incurred in connection with their duties as directors of SGC. Thedirectors are also entitled to all other non-compensatory benefits available toour employees, including, but not limited to, health, dental and disabilitybenefits.

 

**Director Compensation Table**

 

The following table setsforth information regarding compensation for the fiscal year ended September 30,2007 for each director 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. |       | 2007       |       | 100,000    | ** ** | **—** | ** ** | **—**        | ** ** | **—**         | ** ** | **—**                                    | ** ** | **—**                                                                        | ** ** | **—**                       |       | 100,000    |       |
|                      |       |       |       |       |       |       |       |              |       |               |       |                                          |       |                                                                              |       |                             |       |       |       |
| Bergal L. Mitchell        |       | 2007       |       | 40,000     | ** ** | **—** | ** ** | **—**        | ** ** | **—**         | ** ** | **—**                                    | ** ** | **—**                                                                        | ** ** | **—**                       |       | 40,000     |       |
|                      |       |       |       |       |       |       |       |              |       |               |       |                                          |       |                                                                              |       |                             |       |       |       |
| Martin Seneca, Jr.   |       | 2007       |       | 40,000     | ** ** | **—** | ** ** | **—**        | ** ** | **—**         | ** ** | **—**                                    | ** ** | **—**                                                                        | ** ** | **—**                       |       | 40,000     |       |
|                      |       |       |       |       |       |       |       |              |       |               |       |                                          |       |                                                                              |       |                             |       |       |       |
| N. Cochise Redeye         |       | 2007       |       | 40,000     | ** ** | **—** | ** ** | **—**        | ** ** | **—**         | ** ** | **—**                                    | ** ** | **—**                                                                        | ** ** | **—**                       |       | 40,000     |       |
|                      |       |       |       |       |       | ** ** | ** ** | ** **        | ** ** | ** **         | ** ** | ** **                                    | ** ** | ** **                                                                        | ** ** | ** **                       | ** ** |       |       |   |   |
| Maribel Printup           |       | 2007       |       | 40,000     | ** ** | **—** | ** ** | **—**        | ** ** | **—**         | ** ** | **—**                                    | ** ** | **—**                                                                        | ** ** | **—**                       |       | 40,000     |       |
|                      |       |       |       |       |       |       |       |              |       |               |       |                                          |       |                                                                              |       |                             |       |       |       |
| Michael A. John           |       | 2007       |       | 39,781     | ** ** | **—** | ** ** | **—**        | ** ** | **—**         | ** ** | **—**                                    | ** ** | **—**                                                                        | ** ** | **—**                       |       | 39,781     |       |
|                      |       |       |       |       |       |       |       |              |       |               |       |                                          |       |                                                                              |       |                             |       |       |       |
| Maurice John, Sr.    |       | 2007       |       | 10,500     | ** ** | **—** | ** ** | **—**        | ** ** | **—**         | ** ** | **—**                                    | ** ** | **—**                                                                        | ** ** | **—**                       |       | 10,500     |       |
|                           |            |            |            |            |            |            |            |                   |            |                    |            |                                               |            |                                                                                   |            |                                  |            |            |            |  |  |

 

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

 

As referenced above, SGCdoes not currently have a compensation committee, and the entire board ofdirectors, including 

Maurice John, Sr., andMartin Seneca, Jr., each of whom are SGC officers and serve as Treasurer andSecretary, respectively, performs the functions typically exercised by such acommittee.

 

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

 

We are wholly owned bythe Seneca Nation of Indians.

 

76

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**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.  The lease payments may be further increasedby up to 3% each October 1, subject to approval by the board of directorsof SNFGC, compliance with the terms of the Indenture governing SGC’s seniornotes and compliance with the Distribution Agreement.  Lease paymentsunder the SNFGC Head Lease are payable only to the extent that sufficient fundsare available, measured on an annual basis, from the net proceeds derived fromthe operation of the casino facilities and other related operations.  Ifon an annual basis sufficient funds are not available, any shortfall in therent amount does not accumulate.

 

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 (which wasDecember 31, 2002).  With respect to the STGC Head Lease, as of October 1,2005, monthly lease payments were $1,287,500.  On December 11, 2006,the lease payments were increased by 3% effective October 1, 2006, to$1,326,125 per month, as approved by the board of directors of STGC.  Withrespect to the SEGC Head Lease,  for the first six months of the term,SEGC made monthly lease payments of $520,000 to the Nation.  Effective October 1,2006, the SEGC board of directors approved an increase to SEGC’s monthly leasepayments to $1,250,000.  Each October 1, annual rent under both theSTGC and SEGC Head Leases will increase to 103% of the prior year’s annualrent, provided that no increase in annual rent will be effective if it violatesor results in a default under, any agreement, indenture, instrument or othercommitment legally binding upon STGC or SEGC (or the Nation), or to which theleased premises are subject.  Annual Head Lease payment increases inexcess of 3% are subject to compliance with the terms of the Indenturegoverning SGC’s senior notes and the Distribution Agreement.

 

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 2007, we incurred approximately $20.7million for regulatory costs, of which $10.4 million was incurred for New YorkState Police and New York State Gaming Officials costs, and $10.3 million wasincurred for Seneca Gaming Authority costs.

 

RealProperty Distributions

 

DuringFiscal 2007, SGC distributed to the Nation acquired real property of $0.4million for use in its casino and other related entertainment operations.  Such distribution amounts were based on theacquisition cost of the real property. On June 14, 2007, the Nation paid SEGC $3.2 million for the valueof land purchased for the development of the Seneca Buffalo Creek Casino, whichhas been treated as a capital contribution.

 

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 2007, wedistributed $49.0 million to the Nation pursuant to such resolutions.

 

77

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DuringFiscal 2007, an additional $3.0 million was distributed to the Nation inconnection with a wastewater treatment project in the City of Salamanca, NewYork.  All other distributions of assetsto the Nation were $1.1 million during Fiscal 2007.

 

We intendto continue to make distributions to the Nation subject to the restrictions setforth in the Indenture governing the senior notes and the DistributionAgreement.

 

DistributionObligations Under the Distribution Agreement

 

DuringFiscal 2007, we distributed $4.3 million to the Nation pursuant to ourdistribution obligations under the Distribution Agreement.  See Item 1. Business—Material Agreements, fora description of the Distribution Agreement.

 

New YorkState Exclusivity Fee under the Compact

 

DuringFiscal 2007, SGC distributed approximately $101.4 million to the Nation for thepayment of the exclusivity fee to New York State for revenue generated through September 30,2007.

 

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 2007,we recorded $695,000 of rental income, and at September 30, 2007, we hadrecorded $58,000 as a receivable from the Nation relating to poker roomrentals.

 

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 2007, SGC madepayments to SCMC for construction management fees and other related costs of$4.2 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.

 

In June 2007, STGCentered into a letter of intent with SCMC to manage the construction of thefourth phase of contruction at Seneca Allegany Casino, including, inparticular, converion of the former temporary casino facility into an eventscenter and related improvements.  Theapproximate cost of this project is estimated to be $40.0 million, withcompletion targeted for February 2008.

 

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 Transaction with M&M Allegany Junction***

 

DuringFiscal 2007, STGC paid M&M Allegany Junction approximately $246,000 forleasing the building used by STGC for administrative purposes. M&M AlleganyJunction is owned by Merle Watt, Sr., the brother of Maribel Printup, amember of our board of directors.

 

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

 

78

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

 

Our audit committeecharter requires that the audit committee review and approve all related partytransactions, and our Code of Business Conduct and Ethics further requires thatany transaction involving a potential conflict of interest involving anexecutive officer or director must be disclosed and approved by our full boardof directors, unless such transaction also constitutes a “related partytransaction” under the SEC’s rules, in which case the transaction must beapproved by the audit committee.  Ourcorporate charter further provides that no director may have an “economicinterest” in any of our activities.  Theforegoing written rules constitute our current written policies relatingto approval of related party transactions.

 

Theagreement between STGC and M&M Allegany Junction has not been formallyreviewed or approved by the audit committee in accordance with the aboveprocedures on the basis that the terms of the relationship were entered into inthe ordinary course of STGC’s business in April 2004 prior to Ms. Printup’sappointment to the board of directors in February 2005.

 

**Director Independence**

 

Weare a governmental instrumental instrumentality of the Nation and are managedby a board of directors with seven members, not less than five of whom must beenrolled members of the Nation.  Alldirectors are currently enrolled members of the Nation.  The Nation’s Council, elected by enrolledmembers of the Nation, alone has the power to appoint and remove ourdirectors.  No member of the Nation’sCouncil may serve on our board of directors. Each of our directors receives compensation for service as adirector.  Our audit committee iscomprised of four members of our board of directors.  We have no nominating or compensationcommittee.  Maurice A. John, Sr., a director,currently also serves as the President of the Nation.

 

**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,** | ** ** |
|-----------------------|------------|----------------------------------------------|------------|
| ** **            | ** ** | **2007**                                     | ** ** | **2006** | ** ** |
|                  |       |                                         |       |   |   |
| Audit fees(1)         |       | $                                            | 590,259    |   | $ | 632,323 |   |
| Audit-related fees(2) |       | 36,933                                       |       | 31,568 |   |
| Tax fees(3)           |       | 6,310                                        |       | — |   |
| All other fees(4)     |       | 2,280                                        |       | 18,940 |   |
| Total                 |       | $                                            | 635,782    |   | $ | 682,831 |   |

 

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

 

(2)          Auditrelated fees relate to audit services for SGC’s employee benefit plan.

 

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

 

(4)          Allother fees relate to Section 404 compliance procedures.

 

**Preapprovalof Services Required**

 

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

 

79

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**PART IV**

**Item 15. Exhibits and Financial StatementSchedules**

 
| (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         herein. All financial statements schedules are omitted since the required  information is included in the financial statements or the notes thereto, or  is not applicable. |
|-------------------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |   |   |                                                                                                                                                                                                                                                                                                                                                                                      |   |
| (a)3.             |   |   | Exhibits                                                                                                                                                                                                                                                                                                                                                                                  |
|              |   |   |                                                                                                                                                                                                                                                                                                                                                                                      |   |
|              | 1.1    |   |                                                                                                                                                                                                                                                                                                                                                                                      | Purchase Agreement, dated April 29, 2004, by  and among SGC, the Guarantors defined therein and Merrill Lynch &  Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of  America Securities LLC and Wells Fargo Securities, LLC, as the Initial  Purchasers (incorporated by reference to Exhibit 1.1 to SGC’s  Registration Statement No. 333-117633 filed with the SEC on July 23,  2004). |
|              |   |   |                                                                                                                                                                                                                                                                                                                                                                                      |   |
|              | 1.2    |   |                                                                                                                                                                                                                                                                                                                                                                                      | Purchase Agreement, dated May 18, 2005, by and  among SGC, the Guarantors as defined therein and Merrill Lynch &  Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of  America Securities LLC and Wells Fargo Securities, LLC, as the Initial  Purchasers (incorporated by reference to Exhibit 1.1 to SGC’s Quarterly  Report on Form 10-Q filed with the SEC on August 15, 2005). |
|              |   |   |                                                                                                                                                                                                                                                                                                                                                                                      |   |
|              | 3.1    |   |                                                                                                                                                                                                                                                                                                                                                                                      | Fifth Amended and Restated Charter of SGC  (incorporated by reference to Exhibit 3.1 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005). |
|              |   |   |                                                                                                                                                                                                                                                                                                                                                                                      |   |
|              | 3.2    |   |                                                                                                                                                                                                                                                                                                                                                                                      | Second Amended and Restated By-Laws of SGC (incorporated  by reference to Exhibit 3.1 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005). |

 
|   | 3.3    |   |   | Third Amended and Restated Charter of SNFGC  (incorporated by reference to Exhibit 3.1 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                    |
|--------|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 3.4    |   |   | Third Amended and Restated By-Laws of SNFGC  (incorporated by reference to Exhibit 3.1 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                    |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 3.5    |   |   | Second Amended and Restated Charter of STGC (incorporated  by reference to Exhibit 3.1 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                    |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 3.6    |   |   | Amended and Restated By-Laws of STGC (incorporated  by reference to Exhibit 3.1 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                           |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 3.7    |   |   | Second Amended and Restated Charter of SEGC  (incorporated by reference to Exhibit 3.1 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                    |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 3.8    |   |   | Amended and Restated By-Laws of SEGC (incorporated  by reference to Exhibit 3.1 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                           |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 4.1    |   |   | Indenture, dated as of May 5, 2004, among SGC,  the Guarantors as defined therein and Wells Fargo Bank, National Association,  as Trustee, relating to our $300,000,000 principal amount of 71⁄4% Senior Notes  due 2012 (including form of note) (incorporated by reference to Exhibit 4.1  to SGC’s Registration Statement No. 333-117633 filed with the SEC on July 23,  2004).                                                                         |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 4.2    |   |   | Supplemental Indenture, dated as of May 23,  2005, to the Indenture, dated as of May 5, 2004, among SGC, the  Guarantors as defined therein and Wells Fargo Bank, National Association, as  Trustee, relating to our $200,000,000 principal amount of 71⁄4% Senior Notes  due 2012, Series B (including form of note) (incorporated by reference  to Exhibit 4.1 to SGC’s Quarterly Report on Form 10-Q filed with  the SEC on August 15, 2005). |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | 4.3    |   |   | Registration Rights Agreement, dated as of May 5,  2004, among SGC, the Guarantors party thereto and Merrill Lynch &  Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of  America Securities LLC and Wells Fargo Securities, LLC, as the Initial  Purchasers (incorporated by reference to Exhibit 4.2 to SGC’s  Registration Statement No. 333-117633 filed with the SEC on July 23,  2004).                                 |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

 

80

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|   | 4.4    |   |   | Registration Rights Agreement, dated as of May 23,  2005, among SGC, the Guarantors party thereto and Merrill Lynch &  Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of  America Securities LLC and Wells Fargo Securities, LLC, as the Initial  Purchasers (incorporated by reference to Exhibit 4.2 to SGC’s Quarterly  Report on Form 10-Q filed with the SEC on August 15, 2005).                                                                                            |
|--------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 4.5    |   |   | Nation Agreement, dated May 5, 2004, between  Seneca Nation of Indians, Merrill Lynch & Co., Merrill Lynch,  Pierce, Fenner & Smith Incorporated, Bank of America Securities LLC  and Wells Fargo Securities, LLC, collectively as the Initial Purchasers, and  Wells Fargo Bank, National Association, as Trustee (incorporated by reference  to Exhibit 4.3 to SGC’s Registration Statement No. 333-117633 filed  with the SEC on July 23, 2004).                                              |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 4.6    |   |   | Amendment No. 1, dated May 23, 2005, to  Nation Agreement, dated May 5, 2004, between Seneca Nation of Indians,  Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith  Incorporated, Bank of America Securities LLC and Wells Fargo Securities, LLC,  collectively as the Initial Purchasers, and Wells Fargo Bank, National  Association, as Trustee (incorporated by reference to Exhibit 4.3 to SGC’s  Quarterly Report on Form 10-Q filed with the SEC on August 15,  2005). |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 4.7    |   |   | Assignment and Plan of Distribution Agreement,  entered into and effective as of May 5, 2004, by and between Seneca  Nation of Indians and SGC (incorporated by reference to Exhibit 4.2 to  SGC’s Registration Statement No. 333-117633 filed with the SEC on July 23,  2004).                                                                                                                                                                                                                                    |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.1   |   |   | Nation-State Gaming Compact between the Seneca  Nation of Indians and New York State, effective December 9, 2002  (incorporated by reference to Exhibit 10.1 to SGC’s Registration  Statement No. 333-117633 filed with the SEC on July 23, 2004).                                                                                                                                                                                                                                                                 |

 
|   | 10.2   |   |   | 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   |   |   | Agreement, dated as of October 15, 2003, between  SNFGC, as Owner, and Klewin Building Company, Inc., as Design/Builder  (for Seneca Niagara Casino luxury hotel) (incorporated by reference to Exhibit 10.6  to SGC’s Registration Statement No. 333-117633 filed with the SEC on August 18,  2004).

                                                                  |
|   | 10.4   |   |   | First Amendment to Design/Build Agreement, dated as  of February 10, 2004, by and between SNFGC, as Owner, and Klewin  Building Company, Inc., as Design/Builder (for Seneca Niagara Casino  Hotel) (incorporated by reference to Exhibit 10.7 to SGC’s Registration  Statement No. 333-117633 filed with the SEC on August 18, 2004).                                        |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.5   |   |   | Agreement, dated as of September 1, 2004,  between SNFGC, as Owner, and Klewin Building Company, Inc., as  Design/Builder (for Seneca Allegany Casino Parking Garage) (incorporated by  reference to Exhibit 10.10 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                   |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.6   |   |   | Agreement, dated as of September 1, 2004,  between STGC, as Owner, and Klewin Building Company, Inc., as  Design/Builder (for Seneca Allegany Casino hotel and casino) (incorporated by  reference to Exhibit 10.11 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                  |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.7   |   |   | 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).                                      |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.8   |   |   | Letter of Agreement, dated June 29, 2005, for  Mutual Termination of the Agreement dated September 1, 2004 between  SNFGC, as Owner, and Klewin Building Company, Inc., as Design/Builder  (for Seneca Allegany Casino Phase II Hotel and Casino) (incorporated by  reference to Exhibit 10.2 to SGC’s Current Report on Form 8-K filed  with the SEC on July 17, 2005). |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |

 

81

----

 
|   | 10.9+  |   |   | 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).                                                                                       |
|--------|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                                                                                                                          |
|   | 10.10+ |   |   | Amended and Restated Employment Agreement, dated April 13,  2004, between SGC and G. Michael Brown (incorporated by reference to Exhibit 10.8  to SGC’s Registration Statement No. 33-117633 filed with the SEC on July 23,  2004).                                                                  |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                          |
|   | 10.11+ |   |   | Amended and Restated Employment Agreement, dated July 13,  2004, between SGC and Annette Mohawk Smith (incorporated by reference to Exhibit 10.10  to SGC’s Registration Statement No. 333-117633 filed with the SEC on July 23,  2004).                                                             |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                          |
|   | 10.12+ |   |   | 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).                                                                        |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                          |
|   | 10.13+ |   |   | 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).                                                              |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                          |
|   | 10.14+ |   |   | 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).                                                               |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                          |
|   | 10.15+ |   |   | 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).                                                                                                        |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                          |
|   | 10.16+ |   |   | 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).                                                  |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                          |
|   | 10.17+ |   |   | 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). |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                          |
|   | 10.18+ |   |   | Letter of Resignation and Mutual Release of all  Claims, dated as of April 28, 2006, executed by Annette Smith and SGC  (incorporated by reference to Exhibit 10.1 to SGC’s Current Report on  8-K filed with the SEC on May 4, 2006).                                                                    |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                          |
|   | 10.19+ |   |   | 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).                                                      |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                          |
|   | 10.20+ |   |   | 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).                                                            |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                          |
|   | 10.21+ |   |   | 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).           |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                          |
|   | 10.22+ |   |   | 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).               |

 

82

----

 
|   | 10.23+ |   |   | 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).                                                                                              |
|--------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | 10.24  |   |   | Construction Management Agreement, entered into January 12,  2006 and effective as of September 1, 2005, between SNFGC, as Owner, and  Seneca Construction Management Corporation, as Construction Manager  (incorporated by reference to Exhibit 10.21 to SGC’s Amendment No. 2  to Registration Statement on Form S-4 filed with the SEC on January 17,  2006). |

 
|   | 10.25  |   |   | First Amendment to Construction Management  Agreement, dated as of January 12, 2006, by and between Seneca  Construction Management Corporation, as Construction Manager, and STGC, as  Owner (incorporated by reference to Exhibit 10.22 to SGC’s Amendment No. 2  to Registration Statement on Form S-4 filed with the SEC on January 17,  2006). |
|--------|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                              |
|   | 10.26  |   |   | 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).                                                     |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                              |
|   | 10.27+ |   |   | 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).                                                                                                                                              |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                              |
|   | 10.28+ |   |   | 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).                                                                                                                                          |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                              |
|   | 10.29  |   |   | 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).                                                                                                                                                         |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                              |
|   | 10.30  |   |   | 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).                                                                                                                                                         |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                              |
|   | 10.31+ |   |   | 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).                                                                                                             |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                              |
|   | 10.32+ |   |   | 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).                                                                                                     |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                              |
|   | 10.33  |   |   | 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).                                          |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                              |
|   | 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.

 

+                   Managementcontract or compensatory plan or arrangement.

 

(b)           See item (a)3. above

 

(c)           See item (a)1. and 2. above.

 

83

----

 

**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 28th day of December, 2007.

 
|   |   | 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 Patrick M. Fox, 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 28, 2007 |
| E. Brian  Hansberry         |       |                                                                  |       |              |
|                        |       |                                                                  |       |              |
| /s/ Patrick M.  Fox         |       | Chief Financial Officer  (Principal Financial and Accounting Officer) |       | December 28, 2007 |
| Patrick M. Fox              |       |                                                                  |       |              |
|                        |       |                                                                  |       |              |
| /s/ Barry E.  Snyder, Sr.   |       | Chairman of the Board  of Directors                                   |       | December 28, 2007 |
| Barry E. Snyder,  Sr.       |       |                                                                  |       |              |
|                        |       |                                                                  |       |              |
| /s/ Bergal L.  Mitchell III |       | Vice Chairman of the  Board of Directors                              |       | December 28, 2007 |
| Bergal L.  Mitchell III     |       |                                                                  |       |              |
|                        |       |                                                                  |       |              |
| /s/ Maurice A.  John, Sr.   |       | Treasurer and Director                                                |       | December 28, 2007 |
| Maurice A. John,  Sr.       |       |                                                                  |       |              |
|                        |       |                                                                  |       |              |
| /s/ N. Cochise  Redeye      |       | Director                                                              |       | December 28, 2007 |
| N. Cochise  Redeye          |       |                                                                  |       |              |
|                        |       |                                                                  |       |              |
| /s/ Maribel  Printup        |       | Director                                                              |       | December 28, 2007 |
| Maribel Printup             |       |                                                                  |       |              |
|                        |       |                                                                  |       |              |
| /s/ Martin E.  Seneca, Jr.  |       | Director                                                              |       | December 28, 2007 |
| Martin E.  Seneca, Jr.      |       |                                                                  |       |              |
|                        |       |                                                                  |       |              |
| /s/ Michael L.  John        |       | Director                                                              |       | December 28, 2007 |
| Michael L. John             |       |                                                                  |       |              |

 

84

----

 

**SENECAGAMING CORPORATION**

 

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**

** **
| **Audited  Consolidated Financial Statements:**                                                                  |   |   |
|------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                             |   |   |
| Report of Independent Registered Public Accounting Firm                                                          |   | F-1    |
|                                                                                                             |   |   |
| Consolidated Balance Sheets, as of September 30, 2007  and 2006                                                  |   | F-2    |
|                                                                                                             |   |   |
| Consolidated Statements of Income and Changes in  Capital, for the years ended September 30, 2007, 2006 and 2005 |   | F-3    |
|                                                                                                             |   |   |
| Consolidated Statements of Cash Flows, for the years  ended September 30, 2007, 2006 and 2005                    |   | F-4    |
|                                                                                                             |   |   |
| Notes to Consolidated Financial Statements                                                                       |   | F-5    |

 

 

----

** **

**SENECAGAMING CORPORATION**

** **

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

** **

The Board of DirectorsSeneca Gaming Corporation

 

We have audited theaccompanying consolidated balance sheets of Seneca Gaming Corporation as of September 30,2007 and 2006, and the related consolidated statements of income and changes incapital, and cash flows for each of the three years in the period ended September 30,2007. 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, 2007 and 2006, and the consolidated resultsof its operations and its cash flows for each of the three years in the periodended September 30, 2007, in conformity with U.S. generally acceptedaccounting principles.

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

 

Buffalo, New York 

December 20, 2007

 

F-1

----

 

**SENECAGAMING CORPORATION**

** **

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                     | ** ** | ** **              | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                     | ** ** | **September 30,**  | ** ** |
| ** **                                     | ** ** | **2007**                | ** ** | **2006**   | ** ** |
| ** **                                     | ** ** | **(In Thousands)** | ** ** |
| **Assets**                                     |       |                    |       |       |       |
| ** **                                     |       |                    |       |       |       |
| Current assets:                                |       |                    |       |       |       |
| Cash and cash  equivalents                     |       | $                       | 78,662     |       | $          | 78,195 |   |
| Short-term  investments                        |       | 19,100                  |       | 62,300     |       |
| Receivables from  affiliates                   |       | 58                      |       | 410        |       |
| Other  receivables, net                        |       | 3,585                   |       | 2,139      |       |
| Inventories                                    |       | 4,421                   |       | 2,734      |       |
| Other current  assets                          |       | 8,194                   |       | 6,268      |       |
|                                           |       |                    |       |       |       |
| Total current  assets                          |       | 114,020                 |       | 152,046    |       |
|                                           |       |                    |       |       |       |
| Property and  equipment, net                   |       | 699,381                 |       | 615,207    |       |
| Restricted cash                                |       | 14,579                  |       | 25,800     |       |
| Other long-term  assets                        |       | 57,980                  |       | 47,323     |       |
|                                           |       |                    |       |       |       |
| Total assets                                   |       | 885,960                 |       | 840,376    |       |
|                                           |       |                    |       |       |       |
| **Liabilities  and Shareholders’ Equity** |       |                    |       |       |       |
|                                           |       |                    |       |       |       |
| Current  liabilities:                          |       |                    |       |       |       |
| Trade payables                                 |       | 6,194                   |       | 4,939      |       |
| Construction  payables - SCMC                  |       | 21,201                  |       | 52,489     |       |
| Distributions  payable to Nation               |       | 48,000                  |       | 24,000     |       |
| Exclusivity fees  payable                      |       | 9,279                   |       | 7,263      |       |
| Accrued interest                               |       | 15,104                  |       | 15,104     |       |
| Customer point  liability                      |       | 9,578                   |       | 11,632     |       |
| Accrued  regulatory costs                      |       | 23,240                  |       | 14,700     |       |
| Other current  liabilities                     |       | 27,773                  |       | 26,271     |       |
|                                           |       |                    |       |       |       |
| Total current  liabilities                     |       | 160,369                 |       | 156,398    |       |
|                                           |       |                    |       |       |       |
| Long-term debt                                 |       | 495,347                 |       | 494,347    |       |
|                                           |       |                    |       |       |       |
| Total  liabilities                             |       | 655,716                 |       | 650,745    |       |
|                                           |       |                    |       |       |       |
| Capital:                                       |       |                    |       |       |       |
| Retained  earnings                             |       | 230,244                 |       | 189,631    |       |
|                                           |       |                    |       |       |       |
| Total  liabilities and capital                 |       | $                       | 885,960    |       | $          | 840,376 |   |

 

*Seeaccompanying notes*

** **

**F-2**

----

** **

**SENECAGAMING CORPORATION**

** **

**CONSOLIDATED STATEMENTS OF INCOME AND CHANGES INCAPITAL**

 
| ** **                                                                   | ** ** | **Year Ended September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                   | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                   | ** ** | **(In Thousands)**                     | ** ** |
| **Revenues:**                                                                |       |                                        |       |   |   |   |   |
| Gaming                                                                       |       | $                                           | 595,826    |   | $ | 519,620 |   | $ | 440,156 |   |
| Food and  beverage                                                           |       | 56,608                                      |       | 50,141 |   | 41,689 |   |
| Lodging                                                                      |       | 24,352                                      |       | 10,654 |   | — |   |
| Retail,  entertainment and other                                             |       | 20,190                                      |       | 19,940 |   | 16,955 |   |
| Less:  promotional allowances                                                |       | (104,012                                    | )          | (77,861 | ) | (49,647 | ) |
|                                                                         |       | 592,964                                     |       | 522,494 |   | 449,153 |   |
|                                                                         |       |                                        |       |   |   |   |   |
| **Expenses:**                                                                |       |                                        |       |   |   |   |   |
| Gaming                                                                       |       | 153,259                                     |       | 129,396 |   | 114,746 |   |
| Food and  beverage                                                           |       | 47,863                                      |       | 43,485 |   | 34,877 |   |
| Lodging                                                                      |       | 11,862                                      |       | 6,131 |   | — |   |
| Retail,  entertainment and other                                             |       | 12,886                                      |       | 11,668 |   | 10,418 |   |
| Advertising,  general and administrative                                     |       | 153,838                                     |       | 131,997 |   | 117,188 |   |
| Pre-opening costs                                                            |       | 15,426                                      |       | 9,478 |   | 1,509 |   |
| Depreciation and  amortization                                               |       | 49,597                                      |       | 38,992 |   | 26,295 |   |
|                                                                         |       |                                        |       |   |   |   |   |
| Total operating  expenses                                                    |       | 444,731                                     |       | 371,147 |   | 305,033 |   |
|                                                                         |       |                                        |       |   |   |   |   |
| Operating income                                                             |       | 148,233                                     |       | 151,347 |   | 144,120 |   |
| Other  non-operating income and (expenses), net                              |       | 3,720                                       |       | (558 | ) | (13,301 | ) |
| Interest income                                                              |       | 3,386                                       |       | 5,814 |   | 5,116 |   |
| Interest expense                                                             |       | (36,063                                     | )          | (33,198 | ) | (90,366 | ) |
|                                                                         |       |                                        |       |   |   |   |   |
| Net income                                                                   |       | $                                           | 119,276    |   | $ | 123,405 |   | $ | 45,569 |   |
|                                                                         |       |                                        |       |   |   |   |   |
| Beginning  capital balance                                                   |       | 189,631                                     |       | 109,425 |   | 86,687 |   |
| Cash  distributions declared to the Nation                                   |       | (81,433                                     | )          | (35,846 | ) | (20,438 | ) |
| Capital  Contribution from the Nation                                        |       | 3,198                                       |       |   |   |   |   |
| Distribution of  real property, equipment and leasehold rights to the Nation |       | (428                                        | )          | (7,353 | ) | (2,393 | ) |
| Ending capital  balance                                                      |       | $                                           | 230,244    |   | $ | 189,631 |   | $ | 109,425 |   |

 

*See accompanying notes.*

 

F-3

----

** **

**SENECAGAMING CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

** **
| ** **                                                                          | ** ** | **Year Ended September 30,** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                          | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                          | ** ** | **(In Thousands)**                     | ** ** |
| Cash flows relating to operating activities:               | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                                | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                          |       | $                                           | 119,276    |   | $ | 123,405 |   | $ | 45,569 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities - |       |                                        |       |   |   |   |   |
| Depreciation and  amortization                                                      |       | 49,597                                      |       | 38,992 |   | 26,295 |   |
| Loss on disposal  of assets                                                         |       | 992                                         |       | 35 |   | 62 |   |
| Amortization of  deferred financing costs, debt discount                            |       | 3,232                                       |       | 3,196 |   | 2,445 |   |
| Other than  temporary decline in investments                                        |       | 500                                         |       | — |   | — |   |
| Provision for  bad debts                                                            |       | 407                                         |       | 349 |   | 171 |   |
| Write-off of  acquisition costs                                                     |       | —                                      |       | 135 |   | 2,468 |   |
| Fair market  value adjustment of interest rate cap                                  |       | —                                      |       | — |   | 177 |   |
| Other                                                                               |       | (388                                        | )          | 5 |   | 1,253 |   |
| Change in  operating assets and liabilities:                                        |       |                                        |       |   |   |   |   |
| Current assets                                                                      |       | (5,114                                      | )          | (514 | ) | (4,947 | ) |
| Long-term assets                                                                    |       | (13                                         | )          | — |   | (149 | ) |
| Current  liabilities                                                                |       | 11,259                                      |       | 16,235 |   | (25,692 | ) |
|                                                                                |       |                                        |       |   |   |   |   |
| Net cash  provided by operating activities                                          |       | 179,748                                     |       | 181,838 |   | 47,652 |   |
|                                                                                |       |                                        |       |   |   |   |   |
| Cash flows  relating to investing activites:                                        |       |                                        |       |   |   |   |   |
| Purchases of  property and equipment                                                |       | (163,648                                    | )          | (203,729 | ) | (171,011 | ) |
| Land acquisition  costs                                                             |       | (15,319                                     | )          | (38,012 | ) | (1,673 | ) |
| Withdrawal from  (deposit to) restricted cash                                       |       | 11,221                                      |       | (25,800 | ) | — |   |
| Refund of  deposits                                                                 |       | —                                      |       | 168 |   | 700 |   |
| Sales  (purchases) of investments, net                                              |       | 42,700                                      |       | 33,791 |   | (20,163 | ) |
|                                                                                |       |                                        |       |   |   |   |   |
| Net cash used in  investing activities                                              |       | (125,046                                    | )          | (233,582 | ) | (192,147 | ) |
|                                                                                |       |                                        |       |   |   |   |   |
| Cash flows  relating to financing activities:                                       |       |                                        |       |   |   |   |   |
| Proceeds from  long-term debt                                                       |       | —                                      |       | — |   | 193,000 |   |
| Repayment of  long-term debt                                                        |       | —                                      |       | — |   | (80,325 | ) |
| Payments to  sinking fund, net                                                      |       | —                                      |       | — |   | (11,917 | ) |
| Proceeds from  sale of interest rate caps                                           |       | —                                      |       | — |   | 683 |   |
| Payment of  deferred financing costs                                                |       | —                                      |       | (682 | ) | (4,982 | ) |
| Capital  contribution from the Nation                                               |       | 3,198                                       |       | — |   | — |   |
| Distributions  paid to the Nation                                                   |       | (57,433                                     | )          | (11,846 | ) | (21,092 | ) |
|                                                                                |       |                                        |       |   |   |   |   |
| Net cash (used  in) provided by financing activities                                |       | (54,235                                     | )          | (12,528 | ) | 75,367 |   |
|                                                                                |       |                                        |       |   |   |   |   |
| Net increase  (decrease) in cash                                                    |       | 467                                         |       | (64,272 | ) | (69,128 | ) |
|                                                                                |       |                                        |       |   |   |   |   |
| Cash balances:                                                                      |       |                                        |       |   |   |   |   |
| Beginning of  period                                                                |       | 78,195                                      |       | 142,467 |   | 211,595 |   |
|                                                                                |       |                                        |       |   |   |   |   |
| End of period                                                                       |       | $                                           | 78,662     |   | $ | 78,195 |   | $ | 142,467 |   |
| **Supplemental  disclosures of cash flow information**                              |       |                                        |       |   |   |   |   |
| Cash paid for  interest, net of amounts capitalized                                 |       | $                                           | 32,827     |   | $ | 35,364 |   | $ | 81,748 |   |
|                                                                                |       |                                        |       |   |   |   |   |
| Noncash  investing activities:                                                      |       |                                        |       |   |   |   |   |
| Distribution of  property and leasehold rights to the Nation                        |       | $                                           | 428        |   | $ | 7,353 |   | $ | 2,393 |   |
| Insurance  payables capitalized in property and equipment                           |       | 1,610                                       |       | — |   | — |   |
| Noncash  financing activities:                                                      |       |                                        |       |   |   |   |   |
| Cash  distributions to the Nation declared but not paid                             |       | $                                           | 48,000     |   | $ | 24,000 |   | — |   |
| Discount  received upon extinguishment of long term debt                            |       | —                                      |       | — |   | 882 |   |

* *

*See accompanyingnotes.*

* *

F-4

----

 

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

 

Based on the Company’sexpansion plans, which includes expanded Class III gaming, the liabilityfor payment of the Supplemental Rent became probable.  As a result, the Company negotiated adiscounted payment of $22.0 million, which was paid to ESDC in August 2004. This payment fulfilled the Nation’s andSNFGC’s obligation under the Compact with respect to such Supplemental Rent andresults in 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.

 

F-5

----

 

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.

 

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 Gaming Corporation, or SMGC.

 

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 2007, 2006, and 2005, represent the years ended September 30, 2007, September 30,2006 and, September 30, 2005, respectively.  As described in Note 10, the Nationincurs certain costs for regulatory and other expenses that are passed throughto the Company on a dollar-for-dollar basis.

 

**2. Summary of Significant Accounting Policies**

 

**Cash and Cash Equivalents**

 

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

 

**Short-Term Investments**

 

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 $0.5 million was recorded in 2007, as a component ofinterest income, net on the consolidated statement of income for 2007. The costbasis of this investment has been reduced by the amount of theother-than-temporary loss recorded. Subsequent to year-end this investment declined in value by anadditional amount approximating $2.5 million.

 

Short-term investments at September 30, 2007 and2006 consist of the following:

 
| ** **                                              | ** ** | **September 30,**  | ** ** |
|---------------------------------------------------------|------------|-------------------------|------------|
| ** **                                              | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **                                              | ** ** | **(In Thousands)** | ** ** |
| ** **                                              | ** ** | ** **              | ** ** | ** ** | ** ** |
| Corporate bond fund  of collateralized debt obligations |       | $                       | 4,500      |   | $ | 20,000 |   |
| Market auction  preferred stock                         |       | 14,600                  |       | 42,300 |   |
| Total short-term  investments                           |       | $                       | 19,100     |   | $ | 62,300 |   |

 

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.

 

F-6

----

 

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

 

**Receivables**

 

Receivables consist primarily of gaming receivablesand non-gaming receivables. Gaming receivables represent credit extended toapproved casino customers. The Company maintains an allowance for doubtfulaccounts which is based on management’s estimate of the amount expected to beuncollectible considering experience and the information management obtainsregarding the creditworthiness of the customer. The collectibility of thesereceivables could be affected by future business or economic trends.

 

**Inventories**

 

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

 

**Property and Equipment**

 

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

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

 

The cost of significant improvements is capitalized.Costs of normal repairs and maintenance are charged to expense as incurred.Gains or losses on disposition of property and equipment are included in thedetermination of income. Interest incurred for construction related projectsare capitalized and amortized over the life of the related asset using thestraight-line method. The interest rate used was 71⁄4% in all years presented.The amount of interest capitalized for 2007, 2006, and 2005 was approximately$3,423,000, $6,250,000, and $5,054,000, respectively.

 

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, 2007.

 

**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.Amortization expense for 2007, 2006, and 2005 was $2,232,000, $2,201,000, and$2,445,000, respectively.

 

**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.

 

F-7

----

 

**Accrued Regulatory Costs**

 

Accrued regulatory costsrepresent amounts incurred by the Nation for the Seneca Gaming Authority (SGA)which are then charged to the Company. Accrued regulatory costs also includeamounts incurred by the Nation for New York State services, New York StatePolice services and Cattaraugus Sheriff Department services, which are chargedto the Company.  Accrued regulatory costsas of September 30, 2007 are approximately $23.2 million, which includes$19.1 million of costs accrued, but not paid, to the New York State Police.

 

**Other Current Liabilities**

 

Accruals for estimates ofvested employee benefits, marketing, and certain other costs are classified inother current liabilities on the accompanying consolidated balance sheets.  Actual results could differ from those estimates.

 

**Advertising**

** **

The Company expensesadvertising costs as incurred. Total advertising expenses for 2007, 2006, and2005 were $10,600,000, $7,579,000, and $6,123,000, respectively.

 

**Pre-openingCosts**

** **

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 2007, 2006 and2005 consist of development costs in obtaining Class III gaming approvalas well as employee costs, legal, marketing and advertising expenses, and otherdirect expenses related to the opening of SNFGC and STGC, and the developmentof SEGC including the opening of its temporary Class III gaming facilityon July 3, 2007.  For the yearsended September 30, 2007, 2006 and 2005, such costs totaled $15,426,000,$9,478,000, and $1,509,000, respectively. Of the $15.4 million in pre-opening for Fiscal 2007, $11.3 millionrelated to lease costs at SEGC that were paid to the Nation.

 

**CasinoRevenues**

** **

SGC recognizes casinorevenue as gaming wins less gaming losses. Revenues from food and beverage, retail, entertainment, and otherservices are recognized at the time the service is performed.

 

**PromotionalAllowances**

** **

SGC operates acomplimentary program in which food and beverage, retail, entertainment, andother services are provided to guests based on points that are earned throughthe Company’s Seneca Link Player’s Card. The retail value of thesecomplimentary items 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,** | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|
| ** **                        | ** ** | **2007**                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                        | ** ** | **(In Thousands)**                      | ** ** |
|                              |       |                                         |       |   |   |   |   |
| Food and  beverage                |       | $                                            | 31,781     |   | $ | 29,271 |   | $ | 23,769 |   |
| Lodging                           |       | 18,956                                       |       | 6,712 |   | — |   |
| Retail,  entertainment, and other |       | 11,286                                       |       | 12,262 |   | 10,631 |   |
| Promotional slot  credits         |       | 41,989                                       |       | 29,616 |   | 15,247 |   |
| Promotional  allowances           |       | $                                            | 104,012    |   | $ | 77,861 |   | $ | 49,647 |   |

 

F-8

----

 

The estimated cost ofproviding such promotional allowances was as follows:

 
| ** **                        | ** ** | **Years Ended September 30,** | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|
| ** **                        | ** ** | **2007**                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                        | ** ** | **(In Thousands)**                      | ** ** |
|                              |       |                                         |       |   |   |   |   |
| Food and  beverage                |       | $                                            | 27,071     |   | $ | 25,416 |   | $ | 19,885 |   |
| Lodging                           |       | 8,672                                        |       | 3,620 |   | — |   |
| Retail,  entertainment, and other |       | 9,673                                        |       | 8,929 |   | 8,082 |   |
| Promotional  allowances           |       | $                                            | 45,416     |   | $ | 37,965 |   | $ | 27,967 |   |

 

**GamingExpenses**

** **

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. The Company accrues for Seneca Link Player’s Card points expectedto be redeemed in the future based on the cost of items expected to beredeemed.

 

**Retirement Savings Plan**

 

The Company sponsors adefined contribution retirement savings plan for its employees.  The Company’s expense relating to this planwas $591,000,  $434,000, and $306,000 inthe fiscal years ended September 30, 2007, 2006, and 2005, respectively.

 

**IncomeTaxes**

** **

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.

 

**FairValue of Financial Instruments**

** **

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

 

**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.

 

**Management’sUse of Estimates**

** **

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 amounts reported in the financial statementsand accompanying notes. The most significant estimates included in theaccompanying financial statements relate to the liability associated withunredeemed Seneca Link Player’s Card points, vested employee benefits, andregulatory costs. Actual amounts could differ from these estimates.

 

**Reclassification**

** **

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

 

F-9

----

 

**3.Cash and Cash Equivalents**

** **

For reporting purposes,cash and cash equivalents include all operating cash and in-house funds.

 

**4.Concentration of Credit Risk**

** **

Financial instrumentsthat potentially subject SGC to concentrations of credit risk consistprincipally of cash and cash equivalent accounts in financial institutions. SGCmaintains its cash balances in several financial institutions. Accounts areinsured by the Federal Deposit Insurance Corporation up to $100,000. Cash andcash equivalents exceeding federally insured limits totaled approximately $45.9million and $48.1 million at September 30, 2007 and 2006, respectively.

 

**5.Other Receivables, Net**

** **

Components of otherreceivables, net are as follows:

 
| ** **                       | ** ** | **September 30,**  | ** ** |
|----------------------------------|------------|-------------------------|------------|
| ** **                       | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **                       | ** ** | **(In Thousands)** | ** ** |
|                             |       |                    |       |   |   |
| Gaming                           |       | $                       | 2,481      |   | $ | 1,311 |   |
| Non-gaming                       |       | 1,634                   |       | 1,291 |   |
|                             |       | $                       | 4,115      |   | 2,602 |   |
| Allowance for  doubtful accounts |       | (530                    | )          | (463 | ) |
| Receivables, net                 |       | 3,585                   |       | $ | 2,139 |   |

 

**6.Other Current Assets**

** **

Components of othercurrent assets are as follows:

 

| ** **            | ** ** | **September 30,**  | ** ** |
|-----------------------|------------|-------------------------|------------|
| ** **            | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **            | ** ** | **(In Thousands)** | ** ** |
|                  |       |                    |       |   |   |
| Prepaid expenses      |       | $                       | 7,793      |   | $ | 5,939 |   |
| Other                 |       | 401                     |       | 329 |   |
| Other current  assets |       | $                       | 8,194      |   | $ | 6,268 |   |

 

F-10

----

** **

**7. Property andEquipment, Net**

** **

Components of propertyand equipment are as follows:

 
| ** **                                     | ** ** | **September 30,**  | ** ** |
|------------------------------------------------|------------|-------------------------|------------|
| ** **                                     | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **                                     | ** ** | **(In Thousands)** | ** ** |
|                                           |       |                    |       |   |   |
| Land                                           |       | $                       | 2,100      |   | $ | 0 |   |
| Buildings                                      |       | 517,057                 |       | 344,530 |   |
| Leasehold improvements — casino           |       | 114,950                 |       | 106,085 |   |
| Leasehold improvements — other            |       | 347                     |       | 345 |   |
| Furniture and equipment                        |       | 188,441                 |       | 152,152 |   |
| Construction-in-progress                       |       | 17,344                  |       | 103,485 |   |
|                                           |       | 840,239                 |       | 706,597 |   |
|                                           |       |                    |       |   |   |
| Less accumulated depreciation and amortization |       | (140,858                | )          | (91,390 | ) |
| Property and equipment, net                    |       | $                       | 699,381    |   | $ | 615,207 |   |

 

**8. Other Long-Term Assets**

** **

Components of otherlong-term assets are as follows:

 
| ** **                       | ** ** | **September 30,**  | ** ** |
|----------------------------------|------------|-------------------------|------------|
| ** **                       | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **                       | ** ** | **(In Thousands)** | ** ** |
|                             |       |                    |       |   |   |
| Deferred financing costs, net    |       | $                       | 10,231     |   | $ | 12,463 |   |
| Land to be distributed to Nation |       | 47,300                  |       | 31,982 |   |
| Deposits and other               |       | 449                     |       | 2,878 |   |
|                             |       | $                       | 57,980     |   | $ | 47,323 |   |

 

In 2007 and 2006, theCompany incurred costs toward the acquisition of land totaling $15.3 millionand $38.0 million, respectively, which are included in other long-term assets(net of amounts transferred to the Nation) within the accompanying consolidatedbalance sheets.

 

**9. Restricted Cash**

 

**The restricted cash balancewithin the accompanying consolidated balance sheets represents cash in aninterest-bearing bank account which is restricted for use as collateral for anavailable letter of credit with a bank, which will be drawn upon to fund theintended purchase of certain parcels of land contemplated in the Compact withNew York State, earmarked for ownership by the Nation.  As of September 30, 2007 and 2006, thisrestricted cash was $14.6 million and $25.8 million, respectively.**

** **

**F-11**

----

** **

**10. Accrued RegulatoryCosts**

** **

Components of accruedregulatory costs are as follows:

 
| ** **                                      | ** ** | **Fiscal Year Ended** | ** ** |
|-------------------------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **September 30,**          | ** ** |
| ** **                                      | ** ** | **2007**                        | ** ** | **2006** | ** ** |
| ** **                                      | ** ** | **(In Thousands)**         | ** ** |
| Accrued Regulatory Expense                      |       |                            |       |   |   |
| Seneca Gaming Authority                         |       | $                               | 2,075      |   | $ | 989 |   |
| New York State Police                           |       | 19,115                          |       | 12,100 |   |
| New York State Racing & Wagering (SGO) |       | 1,141                           |       | 1,133 |   |
| Local Law Enforcement (1)                       |       | 909                             |       | 478 |   |
|                                            |       |                            |       |   |   |
| Total Accrued Regulatory Expense                |       | $                               | 23,240     |   | $ | 14,700 |   |

 

----

(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 Marshalls patrols at Seneca Niagara Casinoand Hotel and Seneca Buffalo Creek Casino.

 

**11. Other CurrentLiabilities**

** **

Components of othercurrent liabilities are as follows:

 
| ** **                            | ** ** | **September 30,**  | ** ** |
|---------------------------------------|------------|-------------------------|------------|
| ** **                            | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **                            | ** ** | **(In Thousands)** | ** ** |
|                                  |       |                    |       |   |   |
| Accrued salaries, wages, and benefits |       | $                       | 14,141     |   | $ | 11,925 |   |
| Gaming liabilities                    |       | 3,169                   |       | 3,713 |   |
| Other accrued expenses                |       | 10,463                  |       | 10,633 |   |
| Other current liabilities             |       | $                       | 27,773     |   | $ | 26,271 |   |

 

**12. Long-Term Debt**

** **

Long-term debt, asdescribed below, consists of the following:

 
| ** **                                | ** ** | **September 30,**  | ** ** |
|-------------------------------------------|------------|-------------------------|------------|
| ** **                                | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **(In Thousands)** | ** ** |
|                                      |       |                    |       |   |   |
| 2004 71⁄4% Senior Notes due 2012       |       | $                       | 300,000    |   | $ | 300,000 |   |
| 2005 71⁄4% Senior Notes due 2012       |       | 195,347                 |       | 194,347 |   |
|                                      |       | $                       | 495,347    |   | 494,347 |   |
| Less current maturities of long-term debt |       | —                  |       | — |   |
| Long-term debt                            |       | $                       | 495,347    |   | $ | 494,347 |   |

 

 

F-12

----

 

**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 whollyowned by SGC and their guarantees are full, unconditional, joint and several. Thenet proceeds from the 2004 senior notes were, or will be, used principally tofund in whole or in part (a) the repayment in May 2004 of vendorequipment financing , (b) SNFGC’s construction and equipping of a 604-room hotel,(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 the SenecaNiagara Casino, and (e) a $25.0 million distribution to the Nation. Allassets of SGC come from the proceeds of the offerings of senior notes, alongwith any intercompany advances or loans to SGC’s subsidiaries. SGC has noindependent operating assets or operating activities.

 

On May 23, 2005, SGCissued an additional $200.0 million in 71⁄4% senior notes due 2012, Series B,or the 2005 senior notes. The 2005 senior notes are treated as a single class withthe 2004 senior notes and are identical to the 2004 senior notes, except forcertain tax attributes and prior to November 1, 2005 the amount ofinterest accrued thereon. Gross proceeds on the 2005 senior notes wereapproximately $193.0 million. Such proceeds were, or will be, used to (a) payin full and terminate on May 23, 2005, the senior secured term loan, orthe Term Loan, made by Freemantle Limited, or Freemantle, to SNFGC in November 2002,for a negotiated amount of approximately $126.7 million, representing $80.0million in outstanding principal and approximately $46.7 million for intereston such principal, at a prescribed interest rate, that would have otherwisebeen payable if the Term Loan had not been paid on May 23, 2005, but wasinstead paid 81⁄2 months prior to its November 22, 2007 stated maturity, (b) tofund certain costs associated with the expansion of Company operations, (c) topay the fees and expenses associated with the offering of the 2005 seniornotes, and (d) for general corporate purposes. Interest on the 2004 and2005 senior notes is payable semi-annually on November 1 and May 1.The 2004 and 2005 senior notes are unsecured and rank equally. As of September 30,2007, aggregate accrued interest and unamortized debt discount costs on the2004 and 2005 senior notes were $15.1 million and $4.7 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 30,2007, SGC was in compliance with all covenants in the Indenture applicable toit.

 

**Term Loan**

** **

SNFGC entered into afive-year Term Loan with Freemantle Limited (Lender) dated November 22,2002. The Term Loan required that the Lender provide $80.0 million in financingfor the initial construction of the SNFGC casino facility and other relatedcosts. As discussed above, on May 23, 2005, the Term Loan was paid infull. The negotiated payment in full of the Term Loan resulted in a charge toearnings on the early extinguishment of the Term Loan of approximately $49.2million, including the write-off of $2.5 million of deferred financing costs. Theseamounts are included in interest expense in the accompanying consolidatedstatements of income.

 

Upon repayment of theTerm Loan, SNFGC became a full and unconditional guarantor of the 2004 and 2005notes.

 

**Derivative Instruments**

** **

SGC is considered an “enduser” of derivative instruments and engages in derivative transactions for riskmanagement purposes only. Effective on May 25, 2004, SGC entered into twointerest rate cap agreements for an aggregate notional amount of$80.0 million, equal to the then outstanding balance of the Term Loan. Theinstruments were purchased for approximately $1.1 million each,$2.2 million in total. Periodic changes in the fair market value of theinstruments were recorded as adjustments to interest expense. Both instruments weresold in the third quarter of 2005 subsequent to the payment in full andtermination of the Term Loan. Gross proceeds from the sale of these instrumentswas $0.7 million.

 

F-13

----

 

Maturities of the Company’slong-term debt are as follows:

 
| ** **                           | ** ** | **Maturities**          | ** ** |
|--------------------------------------|------------|-------------------------|------------|
| ** **                           | ** ** | **(in Thousands)** | ** ** |
| Fiscal year ended September 30: |       |                    |       |
| 2008                                 |       | $                       | —     |   |
| 2009                                 |       | —                  |       |
| 2010                                 |       | —                  |       |
| 2011                                 |       | —                  |       |
| 2012                                 |       | 500,000                 |       |
|                                 |       | $                       | 500,000    |   |

** **

**13. Related-PartyTransactions**

** **

**Land Leases from theNation**

** **

TheNation has entered into operating lease agreements (each a Head Lease) witheach of SNFGC, STGC and SEGC. Due to the related party nature of these leases,which can be effectively modified by the Nation, SGC records monthly leaseexpense equal to the required payment amount for the respective month. Leasepayment increases under the Head Leases are restricted under the terms of theIndenture governing the senior notes. These leases contain no renewal optionsor escalation clauses.

 

TheSNFGC Head Lease (dated October 25, 2002) has a term of 21 years andcovers use of the land and certain improvements existing at the commencement ofsuch lease, principally including structures formerly known as the NiagaraFalls Convention Center and Lackey Plaza. As of October 1, 2005, monthlylease payments under the SNFGC Head Lease were $1,287,500. On December 11,2006, the lease payments were increased by 3% effective October 1, 2006,to $1,326,125 per month, as approved by the board of directors of SGC and SNFGC.The lease payments may be further increased by up to 3% each October 1,subject to approval by the board of directors of SNFGC, compliance with theterms of the Indenture governing SGC’s senior notes and compliance with theDistribution Agreement. Lease payments under the SNFGC Head Lease are payableonly to the extent that sufficient funds are available, measured on an annualbasis, from the net proceeds derived from the operation of the casinofacilities and other related operations. If on an annual basis sufficient fundsare not available, any shortfall in the rent amount does not accumulate.

 

TheSTGC (effective as of May 1, 2004) and SEGC (effective as of April 1,2006) Head Leases were formerly oral agreements, which were memorialized inwriting on March 2, 2007. Both of these Head Leases cover use of the landwhich is currently being used or is expected to be used in operating the SenecaAllegany Casino and Hotel and Seneca Buffalo Creek Casino, respectively. TheSTGC and SEGC Head Leases are effective until the date 21 years after thecommencement of the Nation’s Class III gaming operations under the Compact(which was December 31, 2002). With respect to the STGC Head Lease, as of October 1,2005, monthly lease payments were $1,287,500. On December 11, 2006, thelease payments were increased by 3% effective October 1, 2006, to$1,326,125 per month, as approved by the board of directors of STGC. Withrespect to the SEGC Head Lease,  for the first six months of the term,SEGC made monthly lease payments of $520,000 to the Nation. Effective October 1,2006, the SEGC board of directors approved an increase to SEGC’s monthly leasepayments to $1,250,000. Each October 1, annual rent under both the STGCand SEGC Head Leases will increase to 103% of the prior year’s annual rent,provided that no increase in annual rent will be effective if it violates orresults in a default under, any agreement, indenture, instrument or othercommitment legally binding upon STGC or SEGC (or the Nation), or to which theleased premises are subject.

 

HeadLease payment increases in excess of 3% are subject to compliance with theapplicable terms of the Indenture governing SGC’s senior notes and theDistribution Agreement, including the Indenture’s requirement that SGC obtain awritten opinion from an independent financial advisor stating that the terms ofthe transaction are fair, from a financial point of view, to the applicable SGCsubsidiary.

 

Expenses resulting fromthe above lease agreements were as follows for the fiscal years ended September 30,2007, 2006 and 2005 :

 
|   |   | **2007**               |   | **2006** |   | **2005** |   |
|--------|--------|------------------------|--------|----------|--------|----------|--------|
|   |   | **(In Millions)** |   |
| SNFGC  |   | $                      | 15.9   |     | $      | 15.5     |   | $ | 13.0 |   |
| STGC   |   | 15.9                   |   | 15.5     |   | 13.8     |   |
| SEGC   |   | 15.0                   |   | 3.1      |   | —   |   |
|   |   | $                      | 46.8   |     | $      | 34.1     |   | $ | 26.8 |   |

 

F-14

----

 

SNFGC and STGC bothrecord the lease costs as a component of advertising, general andadministrative costs in the accompanying consolidated statements of income. SEGCrecorded the lease cost as a component of pre-opening costs in the accompanyingconsolidated statements of operations through June 2007; after opening thetemporary Class III gaming facility in July 2007, the lease cost wasrecorded as a component of advertising, general and administrative expense.

 

**Other Related-PartyTransactions**

** **

On July 14, 2005,STGC entered into a construction management agreement with Seneca ConstructionManagement Corporation, or SCMC, a wholly owned corporation of the Nation, tomanage the construction of the new 212-room hotel and casino at SenecaAllegany Casino.   This project was completedand the hotel opened on March 30, 2007 at a cost of approximately $169.0million. Effective September 1, 2005, SNFGC entered into a constructionmanagement agreement with SCMC for the completion of the luxury hotel projectat Seneca Niagara Casino. The hotel was partially opened on December 15,2005, and completely opened on March 31, 2006. Total cost of the projectwas $234.0 million. Effective as of December 1, 2005, SEGC entered into anagreement with SCMC for the demolition and land preparation work in connectionwith the site for the Seneca Buffalo Creek Casino. This work was completedat a cost of $2.8 million. For the fiscal years ended September 30, 2007,2006, and 2005, SNFGC, STGC and SEGC have collectively made payments to SCMCfor construction management fees and other costs of $4.2 million, $8.0 millionand $0.6 million, respectively. In November 2006, SEGC entered into aconstruction management agreement with SCMC to manage the construction of thetemporary 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, which is the conversion of the former temporary facility into a 120,000square foot events center and related improvements, including additionaladministrative space and exterior landscape and façade enhancements. Theapproximate cost for the fourth phase of construction is estimated to be $40.0million, including equipment and furnishings.

 

As of January 1,2005, the Company transferred all Class II operations to the Nation,including its poker operations. The Company leases space within both SenecaNiagara Casino & Hotel and Seneca Allegany Casino to the Nation foroperation of the poker rooms. During 2007, 2006, and 2005 the Company recorded$695,000 and $806,000, and $875,000 of rental income, respectively, and at September 30,2007 and 2006, the Company has recorded $58,000 and $410,000, respectively, asa receivable from the Nation relating to poker room rentals.

 

During 2007 and 2006, theCompany declared cash distributions to the Nation of $81.4 million and $35.8million, respectively. Cash distributions of $57.4 million and $11.8 millionwere paid in 2007 and 2006, 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. Thedistribution amounts of $0.4 million and $7.4 million for 2007 and 2006,respectively, are based on the acquisition costs. On June 14, 2007, theNation made a capital contribution to SEGC of $3.2 million for the value ofland purchased 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 $10.3 million in 2007, $9.8 million in 2006and $8.7 million in 2005. The Company also incurs costs which are passedthrough the Nation for New York State gaming regulatory services and New YorkState Police and Cattaraugus County Sheriff Department services. The Companyhas recorded expenses of approximately $10.4 million in 2007, $8.8 million in2006 and $7.4 million in 2005 in connection with these services.

 

STGC leases office spacein a building owned by the brother of a member of the Company’s board ofdirectors. During the fiscal years ended September 30, 2007, 2006,and 2005such lease payments totaled approximately $246,000 and $261,000, and $258,000,respectively.

 

During the fiscal yearsended September 30, 2007, and 2006, SNFGC paid Romano Gatland, or RGBK, Inc.approximately $121,000 and $131,000, respectively, for design services. Aprincipal of this firm is a brother-in-law of SGC’s former Senior VicePresident of Gaming Operations (whose resignation was effective in June 2007).

 

F-15

----

 

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 $1,039,000 for the fiscal year ended September 30,2007.

 

**14. Commitments and Contingencies**

 

**Distribution Obligations Under Distribution Agreement**

 

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, in connection with the Authority’s issuance intwo series (one tax exempt and the other taxable) of an aggregateprincipal amount of $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, SGCwill pay such distributions directly to the Trustee. The Authority’s debtservice commenced on June 1, 2007. For the period from June 1, 2007through December 1, 2007, the Authority’s debt service averagedapproximately $0.9 million per month. For the period from January 1, 2008through December 1, 2013, the Authority’s debt service averagesapproximately $1.8 million per month. For the period from June 1, 2014through December 1, 2023, the Authority’s debt service averagesapproximately $1.2 million per month. The foregoing debt service averagesare based on scheduled payments of interest and principal under the Authority’sindenture and bonds and do not address the effects of any earlier call forredemption, by acceleration or otherwise. The Distribution Agreement providesthat neither the Trustee nor the Authority’s bondholders will have any recourseunder the Distribution Agreement to any revenues, assets or property of SGC orits subsidiaries should SGC fail to comply with its distribution obligations. Forthe period ended September 30, 2007, SGC distributed to the Nation $4.3million for the Authority’s debt service on the 2007 Bonds.

 

**Litigation**

** **

***Citizens Against Casino Gambling v. Kempthorne(1:06-cv-00001-WMS (WDNY)) (formerly Citizens Against Casino Gambling v.Norton)***

 

In January 2006, an action was filed inthe United States District Court, Western District of New York by variousplaintiffs against the United States Department of Interior, the NationalIndian Gaming Commission and three individuals in their official capacities asSecretary of the Interior, Acting Assistant Secretary of the Interior forIndian Affairs and Chairman of the NIGC. The action seeks declaratory andinjunctive relief under the Administrative Procedure Act, the DeclaratoryJudgments Act, the National Historic Preservation Act (“NHPA”), the NationalEnvironmental Policy Act (“NEPA”) and the Indian Regulatory Gaming Act and isprincipally directed at the decisions and actions of the defendants that permitthe construction and operation of the Company’s Seneca Buffalo Creek Casino. Theplaintiffs claim that the defendants have failed to comply with NEPA, NHPA, andIGRA and have requested that the Court take numerous actions includingdeclaring that the lands acquired by the Nation pursuant to the Seneca Nation Land Claims SettlementAct of 1990 (SNLCSA) are not Indian lands within the meaning of IGRA anddeclaring that the Nation’s Compact violates IGRA. On November 1, 2006,oral argument was heard on the defendant’s motion to dismiss for lack ofjurisdiction, on the Nation’s amicus motion to dismiss based upon failure tojoin the Nation as a necessary party and sovereign immunity, and on theplaintiff’s motion for summary judgment.

 

On January 12, 2007,the district court vacated the NIGC’s approval of the Nation’s 2002 gamingordinance as it pertains to gaming conducted on the Buffalo Creek Territory andremanded the decision to the NIGC to determine whether the Buffalo CreekTerritory constitutes “Indian Lands” under IGRA. 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 the basisof 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 defendants appealed. OnJanuary 29, 2007, the U.S. Department of Justice filed a motion forreconsideration, which was denied by the court on April 20, 2007, notingthat the government asserted no new arguments.

 

F-16

----

 

On June 9, 2007, the Nation enacted and submitted to the NIGC an amended gaming site-specific Class III gaming ordinance.The amended ordinance was identical to the priorapproved ordinance, except the new Ordinance’s definition of “Nation Lands” now containsa site-specific legal description of the Buffalo Creek Territory. The definition also states that the landspecified is held by the Nation in restricted fee pursuant to the SNLCSA. On June 19,2007, the defendants and plaintiffs 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 ordinanceon July 2, 2007. On July 3, 2007, the defendants filed a notice ofNIGC approval of the ordinance revising the definition of “Nation Lands”. OnAugust, 6, 2007, the defendants filed a response to the plaintiffs’ motion tostay, stating that the gaming ordinance at issue in this case is superseded bythe Nation’s June 9, 2007, site-specific ordinance, approved by the NIGCon July 2, 2007. This, the U.S. argues, moots the case as to the NIGC andmoots the motion for a stay pending appeal.

 

The U.S. Department ofJustice has discontinued its appeal of the January 12, 2007 order in thissuit. On November 9, 2007, the Second Circuit Court of Appeals stayed theplaintiffs’ appeal pending the resolution of the second federal court actiondescribed below (*Citizens Against Casino Gambling v.Kempthorne* (1:07-cv-00451-WMS (WDNY)).

 

Although the courtpermitted the Nation to file a brief as amicus curiae, the Nation is not aparty to this action, and as such, neither it nor SGC has the ability to director control any aspect of the litigation.

 

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

 

*CitizensAgainst Casino Gambling in Erie County v. Kempthorne (1:07-cv-00451-WMS (WDNY))*

 

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 actionseeks declaratory and injunctive relief under the Administrative Procedure Act,the Declaratory Judgments Act, and the Indian Regulatory Gaming Act and isprincipally 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 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.

 

Both parties have moved for summary judgment.The Nation has also filed a motion for permission to file an amicus brief onthe “Indian Lands” issues. Briefing is ongoing and the motions have not yetbeen decided. TheNation is not a party to this action, and as such, neither it nor SGC has theability to direct or control any aspect of the litigation.

 

If the plaintiffs aresuccessful, the Nation could be unable to conduct any gaming upon landsacquired by the Nation pursuant to the SNLCSA.

 

*In the Matter of Seneca Niagara Falls GamingCorporation and Seneca Territory Gaming Corporation, Claimants, and KlewinBuilding Company, Inc. and C.R. Klewin Gaming & Hospitality, Inc.,Respondents (American Arbitration Association No. 15 110 00691 05;Arbitration before the Arbitration Panel of James W. Gresens, Robert A. Dean,and S. Thomas Aiston)*.

 

On October 15,2003, SNFGC and Klewin Building Company, Inc. (or Klewin) entered into anOwner-Design/Builder Agreement whereby Klewin agreed to design and build ahotel, casino and spa for SNFGC in Niagara Falls, New York for a guaranteedmaximum price of $153,048,497. On August 10, 2005, SNFGC provided Klewinwith a notice of default because of Klewin’s failure to pay the architect andKlewin’s acknowledgement that it would not deliver the project within theguaranteed maximum price. A second notice of default was issued based on Klewin’sfailure to pay its subcontractors. These matters have been the subject ofarbitration proceedings pursuant to the arbitration clause in the contract.

 

F-17

----

 

On May 7,2007, the parties were to have commenced the arbitration hearing before thepanel of arbitrators. Commencement of such hearing was adjourned inanticipation of an expected global settlement of this matter and relatedlitigation between SGC and both Klewin and T.D. Banknorth, N.A. (Banknorth).

 

On June 6, 2007, SGCreached formal resolution with each of Klewin and Banknorth, the collectiveterms of which provide for the following: (a) Klewin’s stipulation to anarbitration award in the Company’s favor in the amount of approximately $14.5million; (b) Klewin’s consent to release to SGC in satisfaction of thearbitration award approximately $3.6 million, which is the balance remainingfrom the approximately $14.5 million that SGC deposited into a Banknorthaccount in August 2005 for the benefit of the architect and thesubcontractors on the Company’s Niagara Falls hotel project and otherconstruction projects; (c) SGC’s agreement to continue to satisfy allvalid subcontractor and vendor claims in conjunction with the aboveconstruction projects arising after June 30, 2005; (d) Klewin’sagreement to provide SGC with copies of monthly internally prepared financialstatements for 2007, as well as copies of tax returns for tax years 2006 and2007 when filed, with the understanding that should Klewin be found within 2007to be in possession of any unencumbered assets or revenues not previouslydisclosed by Klewin during the litigation, such unencumbered assets or revenueswill be used to satisfy the above $14.5 million arbitration award; (e) agreementsbetween the parties to voluntarily discontinue all pending legal actionsbetween them as soon as practicable, and no more than thirty (30) days afterSGC receives the $3.6 million sum described above; and (f) the exchange ofmutual releases among SNFGC, STGC, Klewin and Banknorth. The foregoing actionshave since been voluntarily discontinued by the parties.

 

The receipt of the $3.6million sum described above has been recorded as a component of othernon-operating income (expenses), net, on the consolidated statements of income.

 

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

 

On February 1, 2006, an action wasfiled in the New York Supreme Court, County of Erie, by various petitionersagainst George E. Pataki, in his official capacity as Governor of the State ofNew York; State Gaming Officials of the New York State Wagering Board; City ofBuffalo; Common Council of the City of Buffalo; Anthony Masiello in hisprevious capacity as Mayor of Buffalo; Byron Brown in his capacity as Mayor ofBuffalo; City of Buffalo Department of Public Works; Buffalo Sewer Authority;and Niagara Frontier Transportation Authority. The action initially soughtdeclaratory and injunctive relief under the State Environmental Quality ReviewAct (“SEQRA”); the First Parks, Recreation, Historic Preservation Law (“PRHPL”);First City Environmental Review Ordination (“CERO”); and Freedom of InformationLaw (“FOIL”) and is principally directed at the decisions and actions of thedefendants in connection with our Seneca Buffalo Creek Casino. Theplaintiffs initially claimed that the defendants had failed to comply withSEQRA, PRHPL, CERO and FOIL and requested that the Court take numerous actionsincluding directing compliance with SEQRA, PRHPL, CERO and FOIL and restrainingfurther action relating to the development of our Seneca Buffalo Creek Casino. InMay 2006, the petitioners further sought to enjoin demolition activity onthe nine acre casino site, but the court declined to grant a preliminaryinjunction preventing demolition. In June 2006, the petitioners amendedtheir Petition to drop their claims against Governor Pataki, the State GamingOfficials and the Niagara Frontier Transportation Authority, and added theBuffalo Department of Economic Development, Permits and Inspections as a party.The amended Petition also dropped all claims except for the SEQRA and CEROclaims. In October 2006, the plaintiffs moved for an injunction to preventan agreement between SEGC and the City of Buffalo (relating to the developmentof the Seneca Buffalo Creek Casino) from being executed and performed, whichmotion was denied basedupon a failure to show a likelihood of success on the merits. The plaintiffsappealed this ruling to the New York Supreme Court Appellate Division. On March 16,2007, the Appellate Division unanimously affirmed the denial of the injunction.

 

A hearing was held on themerits of the petition in September 2007. No decision has been rendered.

 

If the plaintiffs are successful, the Nationmay be delayed in the completion of the Seneca Buffalo Creek Casino andHotel at this site or may be unable to complete the Seneca Buffalo CreekCasino and Hotel at this site. Certain of these petitioners are also plaintiffsin the federal lawsuits filed by Citizens Against Casino Gambling in ErieCounty referenced above.

 

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

 

**Onor about April 6, 2006, an action was filed in the United States DistrictCourt, Western District of New York, by Daniel T. Warren, a pro se plaintiff,against the United States of America, the United States Department of theInterior, the National Indian Gaming Commission, and five individuals in theirofficial capacities as Acting Secretary of the Interior, Acting**

** **

**F-18**

----

** **

**AssistantSecretary of the Interior for Indian Affairs and Chairman of the NationalIndian Gaming Commission, as well as Governor George E. Pataki, as Governor ofthe State of New York, and Cheryl Ritchko-Buley, as Chairwoman of the New YorkState Racing and Wagering Board.   The action initially sought declaratoryand injunctive relief 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 statutory duties.  The effect of such amendment was to limit the claims remaining in the case, bydropping many of the federal law claims in the original complaint.**

** **

**OnDecember 1, 2006, the court heard argument on the plaintiff’s motion tojoin (1) Barry E. Snyder, Sr., as President of the Seneca Nation ofIndians; (2) John Pasqualoni, as President and CEO of the Seneca GamingCorporation; (3) the Seneca Nation of Indians; and/or (4) the SenecaGaming Corporation, 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 the Seneca GamingCorporation (replacing John Pasqualoni); (3) the Seneca Nation of Indians;and (4) the Seneca Gaming Corporation. On October 25, 2007, theSeneca Nation of Indians filed a response in opposition to that motion as well,pointing out (1) that the motion to amend the complaint was not properlybefore the court because it is premised upon a finding that the Nation is anecessary and indispensible party, and (2) that the motion to amend isfutile because the Nation and its officers are protected by sovereign immunity.As of December 5, 2007, the court had not ruled on this motion.

 

**Dispositive motions to dismiss on behalf of both theplaintiff and the defendants have not yet been heard by the court. In addition,still pending before the court is the motion on behalf of the Seneca entitiesand officers in opposition to being joined as defendants to the lawsuit on,among other things, sovereign immunity grounds.**Ifthe plaintiff is successful in this lawsuit, the Nation would be unable toconduct any gaming upon lands acquired pursuant to SNLCSA.

** **

*County ofErie 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) onthe basis that the City failed to refer the agreement to the County under Section 239-mof the New York State General Municipal Law. The defendants filed a motion todismiss on December 1, 2006, which is pending before the court. If theplaintiffs are successful, the Nation may be delayed in the completion ofthe Seneca Buffalo Creek Casino or may be unable to complete the SenecaBuffalo Creek Casino as planned.

 

*In thematter of the Petition of New York State Urban Development Corporation d/b/aEmpire State Development Corporation (NYS Supreme Court, Niagara County)*

 

Valuation ProceedingsPursuant to New York Eminent Domain Procedure Law

 

Pursuant to the Compact,New York State agrees to assist the Nation, in whatever manner appropriate,including the exercise of the power of eminent domain, to obtain the landswithin the approximate 50-acre “footprint” described in the Compact. In theevent New York State does acquire such lands through eminent domain, it furtheragrees to convey those lands to the Nation at a price equal to the State’s costof acquisition. With the exception of approximately two acres of land and ahotel property within the footprint acquired for $7.9 million through a privatesale in December 2005, substantially all of our real property acquisitionsin Niagara Falls, NY have been pursuant to New York State Eminent DomainProcedure Law (EDPL) using the State’s power of eminent domain (through theEmpire State Development Corporation (ESDC)). The amounts paid to condemneesfrom whom the ESDC has acquired property are deemed to be advance payments, inthat property owners are 

 

F-19

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entitled to reserve theirrights to challenge the land and improvement values determined by the condemnor’sappraisers. The ESDC has made advanced payments under the EDPL of approximately$30.0 million for the condemned parcels within the footprint including, inparticular, approximately 18 acres of land and improvements (a former waterpark) for an aggregate advanced payment of $18.0 million, and another hotelproperty for an aggregate advanced payment 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 their property.To date, all record owners from whom property was acquired pursuant to the EDPLhave reserved rights to claim additional compensation. 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 (Index Nos. 126578/06 and 126578/06) inthe amounts of $40.0 and $35.0 million for land and improvements (includingtrade fixtures), respectively, relating to a small former water park within thefootprint. The aggregate ESDC appraisal value for the foregoing was $17.0million. Intertrust Development has filed a notice of claim for $15.8 million(Index No. 127113/06) for land and improvements (including trade fixtures)associated with a former Holiday Inn hotel within the footprint. The aggregateESDC appraisal value for the foregoing was $8.2 million. Additionally, JFDHoldings has filed a notice of claim (Index No. 127113/06) for anunspecified amount for land and improvements (including trade fixtures)associated with a former Pizza Hut restaurant within the footprint. Theaggregate ESDC appraisal for the foregoing was approximately $0.4 million.

 

If a court determinesthat the value for the land and improvements is higher than the appraised valuethe Company paid to a condemnee, then the Company may be liable to the condemneefor the difference and potentially also responsible for certain additionalcosts and payments to the condemnee, such as attorneys’ fees.

 

The Company is adefendant in certain other litigation 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 onthe Company’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 tothe Nation on a monthly basis the exclusivity fee due for the prior month. Theexclusivity fee to the State of New York for years 1–4 (through December 31,2006), is 18.0%, payable on an annual basis. Thereafter, the exclusivity fee is22% for years 5–7 (through December 31, 2009), payable on a semi-annual basisand 25.0% for years 8–14 (through December 31, 2016), payable on aquarterly basis.

 

Amounts payable forexclusivity fees were $9.3 million and $7.3 million at September 30, 2007and 2006, respectively, and are recorded as exclusivity fees payable on theaccompanying consolidated balance sheets. The exclusivity fee expense was$103.3 million, $79.0 million and $67.3 million for the years ended September 30,2007, 2006 and 2005, 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 New York.The Company opened its third Class III casino on July 3, 2007 in atemporary facility in Buffalo New York. The construction of the Company’spermanent casino at that site, as well as expansion by STGC at Seneca AlleganyCasino will require significant capital outlays. The amount and timing of thesecapital expenditures are dependent on various factors including financingavailability, certain Nation and governmental approvals, constructiontimelines, and the performance of its three operating casinos.

 

**Capital Projects**

** **

On March 30, 2007,the Company opened its 212 room resort hotel, including two fine diningrestaurants, a 24-hour casual restaurant and certain other amenities, at theSeneca Allegany Casino and Hotel; this followed the December 28, 2006,official opening of the permanent gaming floor. The estimated cost ofconstructing and equipping the hotel and expansion project is $169.0 million. Currentlyunder construction at the Seneca Allegany Casino and Hotel  is the conversion of the 

 

F-20

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former temporary casinointo a 120,000 square foot events center, additional administration space andexterior landscaping and façade enhancements.. The estimated cost of thisproject is approximately $40.0 million and is expected to completed in Spring2008.

 

We intend to commenceconstruction of our next phase of development at Seneca Allegany Casino andHotel in early 2008, which will include an additonal 179 to 204 room hoteltower, and up to 31,000 square feet of additional gaming space and relatedamenities, for a total estimated cost of up to $130 million.

 

On July 3, 2007, theCompany opened a temporary Class III gaming facility at the Seneca BuffaloCreek Territory site (6,000 square feet including 125 slot machines and a snackbar) at a cost of $6.8 million. The Company is also finalizing the design andconstruction bid packages for a permanent Class III gaming facility on theSeneca Buffalo Creek Territory. The cost to construct and equip the SenecaBuffalo Creek Casino permanent facility is currently expected to beapproximately $333.0 million.

 

The Company isconstructing a golf course in Lewiston, New York that will have an estimatedcost of $26.0 million. The golf course under development is a Robert TrentJones, Jr. designed course and is to include a related clubhouse, retail,and food and beverage operations. In Fiscal 2007, $4.5 million was spent forgolf course design and construction costs.

 

**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 2007, 2006, and 2005 was approximately $54.4 million, $40.6 million,and $32.7 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 the terms of the Indenture governingthe Company’s senior notes and the Distribution Agreement. Estimated minimumrents due under the operating leases (including the Head Lease and STGC landlease) are as follows:

 
| ** **                           | ** ** | **(In Thousands)** | ** ** |
|--------------------------------------|------------|-------------------------|------------|
| Fiscal year ended September 30: |       |                    |       |
| 2008                                 |       | $                       | 49,042     |   |
| 2009                                 |       | 49,801                  |       |
| 2010                                 |       | 51,169                  |       |
| 2011                                 |       | 52,704                  |       |
| 2012                                 |       | 54,285                  |       |
| Thereafter                           |       | 716,136                 |       |
|                                 |       | $                       | 973,137    |   |

 
| **Exhibits** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 1.1          |       | Purchase Agreement, dated April 29, 2004, by  and among SGC, the Guarantors defined therein and Merrill Lynch &  Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of  America Securities LLC and Wells Fargo Securities, LLC, as the Initial  Purchasers (incorporated by reference to Exhibit 1.1 to SGC’s  Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004). |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 1.2          |       | Purchase Agreement, dated May 18, 2005, by and  among SGC, the Guarantors as defined therein and Merrill Lynch &  Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of  America Securities LLC and Wells Fargo Securities, LLC, as the Initial  Purchasers (incorporated by reference to Exhibit 1.1 to SGC’s Quarterly  Report on Form 10-Q filed with the SEC on August 15, 2005).       |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.1          |       | Fifth Amended and Restated Charter of SGC  (incorporated by reference to Exhibit 3.1 to SGC’s Annual Report on  Form 10-K filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                 |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.2          |       | Second Amended and Restated By-Laws of SGC  (incorporated by reference to Exhibit 3.1 to SGC’s Annual Report on  Form 10-K filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                |

 

F-21

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| 3.3    |   | Third Amended and Restated Charter of SNFGC  (incorporated by reference to Exhibit 3.1 to SGC’s Annual Report on  Form 10-K filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.4    |   | Third Amended and Restated By-Laws of SNFGC  (incorporated by reference to Exhibit 3.1 to SGC’s Annual Report on  Form 10-K filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.5    |   | Second Amended and Restated Charter of STGC  (incorporated by reference to Exhibit 3.1 to SGC’s Annual Report on  Form 10-K filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.6    |   | Amended and Restated By-Laws of STGC (incorporated  by reference to Exhibit 3.1 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.7    |   | Second Amended and Restated Charter of SEGC  (incorporated by reference to Exhibit 3.1 to SGC’s Annual Report on  Form 10-K filed with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.8    |   | Amended and Restated By-Laws of SEGC (incorporated  by reference to Exhibit 3.1 to SGC’s Annual Report on Form 10-K filed  with the SEC on May 9, 2005).                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.1    |   | Indenture, dated as of May 5, 2004, among SGC,  the Guarantors as defined therein and Wells Fargo Bank, National Association,  as Trustee, relating to our $300,000,000 principal amount of 71⁄4% Senior Notes  due 2012 (including form of note) (incorporated by reference to  Exhibit 4.1 to SGC’s Registration Statement No. 333-117633 filed  with the SEC on July 23, 2004).                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.2    |   | Supplemental Indenture, dated as of May 23,  2005, to the Indenture, dated as of May 5, 2004, among SGC, the  Guarantors as defined therein and Wells Fargo Bank, National Association, as  Trustee, relating to our $200,000,000 principal amount of 71⁄4% Senior Notes  due 2012, Series B (including form of note) (incorporated by  reference to Exhibit 4.1 to SGC’s Quarterly Report on Form 10-Q  filed with the SEC on August 15, 2005).                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.3    |   | Registration Rights Agreement, dated as of  May 5, 2004, among SGC, the Guarantors party thereto and Merrill  Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith  Incorporated, Banc of America Securities LLC and Wells Fargo Securities, LLC,  as the Initial Purchasers (incorporated by reference to Exhibit 4.2 to  SGC’s Registration Statement No. 333-117633 filed with the SEC on  July 23, 2004).                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.4    |   | Registration Rights Agreement, dated as of  May 23, 2005, among SGC, the Guarantors party thereto and Merrill  Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith  Incorporated, Banc of America Securities LLC and Wells Fargo Securities, LLC,  as the Initial Purchasers (incorporated by reference to Exhibit 4.2 to  SGC’s Quarterly Report on Form 10-Q filed with the SEC on  August 15, 2005).                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.5    |   | Nation Agreement, dated May 5, 2004, between  Seneca Nation of Indians, Merrill Lynch & Co., Merrill Lynch,  Pierce, Fenner & Smith Incorporated, Bank of America Securities LLC  and Wells Fargo Securities, LLC, collectively as the Initial Purchasers, and  Wells Fargo Bank, National Association, as Trustee (incorporated by reference  to Exhibit 4.3 to SGC’s Registration Statement No. 333-117633 filed  with the SEC on July 23, 2004).                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.6    |   | Amendment No. 1, dated May 23, 2005, to  Nation Agreement, dated May 5, 2004, between Seneca Nation of Indians,  Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith  Incorporated, Bank of America Securities LLC and Wells Fargo Securities, LLC,  collectively as the Initial Purchasers, and Wells Fargo Bank, National  Association, as Trustee (incorporated by reference to Exhibit 4.3 to  SGC’s Quarterly Report on Form 10-Q filed with the SEC on August 15,  2005). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.7    |   | Assignment and Plan of Distribution Agreement,  entered into and effective as of May 5, 2004, by and between Seneca  Nation of Indians and SGC (incorporated by reference to Exhibit 4.2 to  SGC’s Registration Statement No. 333-117633 filed with the SEC on July 23,  2004).                                                                                                                                                                                                                                    |

 

F-22

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| 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   |   | Agreement, dated as of October 15, 2003,  between SNFGC, as Owner, and Klewin Building Company, Inc., as  Design/Builder (for Seneca Niagara Casino luxury hotel) (incorporated by  reference to Exhibit 10.6 to SGC’s Registration Statement  No. 333-117633 filed with the SEC on August 18, 2004).                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.4   |   | First Amendment to Design/Build Agreement, dated as  of February 10, 2004, by and between SNFGC, as Owner, and Klewin  Building Company, Inc., as Design/Builder (for Seneca Niagara Casino  Hotel) (incorporated by reference to Exhibit 10.7 to SGC’s Registration  Statement No. 333-117633 filed with the SEC on August 18, 2004).                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.5   |   | Agreement, dated as of September 1, 2004,  between SNFGC, as Owner, and Klewin Building Company, Inc., as  Design/Builder (for Seneca Allegany Casino Parking Garage) (incorporated by  reference to Exhibit 10.10 to SGC’s Annual Report on Form 10-K  filed with the SEC on May 9, 2005).                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.6   |   | Agreement, dated as of September 1, 2004,  between STGC, as Owner, and Klewin Building Company, Inc., as  Design/Builder (for Seneca Allegany Casino hotel and casino) (incorporated by  reference to Exhibit 10.11 to SGC’s Annual Report on Form 10-K filed  with the SEC on May 9, 2005).                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.7   |   | 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).                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.8   |   | Letter of Agreement, dated June 29, 2005, for  Mutual Termination of the Agreement dated September 1, 2004 between  SNFGC, as Owner, and Klewin Building Company, Inc., as Design/Builder  (for Seneca Allegany Casino Phase II Hotel and Casino) (incorporated by  reference to Exhibit 10.2 to SGC’s Current Report on Form 8-K filed  with the SEC on July 17, 2005). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.9   | +      | 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).                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.10  | +      | Amended and Restated Employment Agreement, dated  April 13, 2004, between SGC and G. Michael Brown (incorporated by  reference to Exhibit 10.8 to SGC’s Registration Statement  No. 33-117633 filed with the SEC on July 23, 2004).                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.11  | +      | Amended and Restated Employment Agreement, dated  July 13, 2004, between SGC and Annette Mohawk Smith (incorporated by  reference to Exhibit 10.10 to SGC’s Registration Statement  No. 333-117633 filed with the SEC on July 23, 2004).                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.12  | +      | 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).                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.13  | +      | 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).                                                                                                                                            |

 

F-23

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| 10.14  | +      | 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).                                                                                                                                      |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.15  | +      | 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).                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.16  | +      | 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)                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.17  | +      | 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).                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.18  | +      | Letter of Resignation and Mutual Release of all  Claims, dated as of April 28, 2006, executed by Annette Smith and SGC  (incorporated by reference to Exhibit 10.1 to SGC’s Current Report on  8-K filed with the SEC on May 4, 2006).                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.19  | +      | 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).                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.20  | +      | 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).                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.21  | +      | 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).                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.22  | +      | 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).                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.23  | +      | 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).                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.24  |   | Construction Management Agreement, entered into  January 12, 2006 and effective as of September 1, 2005, between  SNFGC, as Owner, and Seneca Construction Management Corporation, as  Construction Manager (incorporated by reference to Exhibit 10.21 to  SGC’s Amendment No. 2 to Registration Statement on Form S-4 filed  with the SEC on January 17, 2006). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.25  |   | First Amendment to Construction Management  Agreement, dated as of January 12, 2006, by and between Seneca  Construction Management Corporation, as Construction Manager, and STGC, as  Owner (incorporated by reference to Exhibit 10.22 to SGC’s Amendment  No. 2 to Registration Statement on Form S-4 filed with the SEC on  January 17, 2006).                    |

 

F-24

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| 10.26  |   | 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).            |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                 |
| 10.27  | +      | 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).                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                 |
| 10.28  | +      | 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).                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                 |
| 10.29  |   | 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).                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                 |
| 10.30  |   | 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).                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                 |
| 10.31  | +      | 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).                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                 |
| 10.32  | +      | 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).                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                 |
| 10.33  |   | 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). |
|   |   |                                                                                                                                                                                                                                                                                                                 |
| 21.1   | *      | List of Subsidiaries of SGC.                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                 |
| 24.1   | *      | Power of Attorney (included on the signature page of  this Annual Report).                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                 |
| 31.1   | *      | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act.                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                 |
| 31.2   | *      | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act.                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                 |
| 32.1   | *      | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act.                                                                                                                                                                                                                                                    |

 

----

*Filed herewith.

 

+Management contract or compensatory plan orarrangement.

 

(b)See item (a)3. above.

 

(c)See item (a)1. and 2. above.

 

F-25

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