Tableof Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D. C. 20549**

 

----

 

**FORM 10-K**

 

**(Mark One)**

 

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

 

**for the fiscal year ended December 31,2008**

 

**OR**

 

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

 

**for the transition period from            to           **

 

**CommissionFile Number: 333-115186**

 

**RIVER ROCK ENTERTAINMENT AUTHORITY**(Exact name of registrantas specified in its charter)

 

| **Not Applicable**                                              | ** ** | **68-0490898**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

**3250 Highway128 EastGeyserville, California 95441(707) 857-2777**

(Address, including zip code, and telephonenumber, including area code, of registrant’s principal executive offices)

 

----

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 

| **Title of  Each Class** | ** ** | **Name of  Each Exchange  On Which Registered** |
|--------------------------|------------|-------------------------------------------------|
| **NONE**                 | ** ** | **NONE**                                        |

 

Securitiesregistered pursuant to Section 12(g) of the Act: Title of Class**NONE**

 

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

 

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

 

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

 

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

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company (asdefined in Exchange Act Rule 12b-2). Large Accelerated Filer o Accelerated Filer o Non-accelerated Filer x Smaller reporting company o

 

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

 

Theaggregate market value of common stock held by non-affiliates of the registrantwas $0 on the last business day of the registrant’s most recently completedsecond fiscal quarter (June 30, 2008).

 

Theregistrant has no outstanding common equity.

 

**Documents Incorporated By Reference**

 

None.

 

 

 

----

Table of Contents

** **

**RIVER ROCKENTERTAINMENT AUTHORITY**

 

**INDEX TO FORM 10-K**

 
| ** **    | ** **                                                                                                          | ** ** | **Page Number** |
|---------------|---------------------------------------------------------------------------------------------------------------------|------------|----------------------|
|          |                                                                                                                |       |                 |
| PART I   |
|          |
| Item 1.       | Business                                                                                                            |       | 4                    |
| Item 1A.      | Risk Factors                                                                                                        |       | 19                   |
| Item 2.       | Properties                                                                                                          |       | 25                   |
| Item 3.       | Legal Proceedings                                                                                                   |       | 26                   |
| Item 4.       | Submission  of Matters to a Vote of Security Holders                                                                |       | 26                   |
|          |                                                                                                                |       |                 |
| PART II  |
|          |
| Item 5.       | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |       | 26                   |
| Item 6.       | Selected  Financial Data                                                                                            |       | 27                   |
| Item 7.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |       | 30                   |
| Item 7A.      | Quantitative  and Qualitative Disclosure About Market Risk                                                          |       | 39                   |
| Item 8.       | Financial  Statements and Supplementary Data                                                                        |       | 40                   |
| Item 9.       | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure                               |       | 40                   |
| Item 9A.      | Controls and  Procedures                                                                                            |       | 40                   |
| Item 9B.      | Other Information                                                                                                   |       | 41                   |
|          |                                                                                                                |       |                 |
| PART III |
|          |
| Item 10.      | Directors  and Executive Officers of the Registrant                                                                 |       | 42                   |
| Item 11.      | Executive  Compensation                                                                                             |       | 44                   |
| Item 12.      | Security  Ownership of Certain Beneficial Owners and Management                                                     |       | 48                   |
| Item 13.      | Certain  Relationships and Related Transactions, and Director Independence                                          |       | 48                   |
| Item 14.      | Principal  Accountant Fees and Services                                                                             |       | 50                   |
|          |                                                                                                                |       |                 |
| PART IV  |
|          |
| Item 15.      | Exhibits,  Financial Statement Schedules and Reports on Form 8-K                                               |       | 50                   |
|               |                                                                                                                     |            |                      |  |

 

2

----

Table of Contents

 

**CAUTIONARYSTATEMENT**

 

     *Except for the historical financial informationcontained herein, the matters discussed in this report on Form 10-K (aswell as documents incorporated herein by reference) may be consideredforward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. Such forward-looking statements are basedupon current expectations that involve risks and uncertainties and includedeclarations regarding the intent, belief or current expectations of us and ourmanagement and may be signified by the words “believes,” “anticipates,” “plan,”“expects,” “intends” and similar expressions. Our actual results and the timingof certain events may differ significantly from the results discussed in theforward-looking statements. Factors that might cause such a discrepancyinclude, but are not limited to, those discussed in “Risk Factors” andelsewhere in this report. All forward-looking statements in this document arebased on information available to us as of the date hereof, and we assume noobligation to update any such forward-looking statements, whether as a resultof new information, future events, or otherwise. All discussion in this reportshould be read in conjunction with our financial statements and theaccompanying notes contained in this report.*

 

*References in this Form 10-K to the “Authority”and the “Tribe” are to the River Rock Entertainment Authority and the Dry CreekRancheria Band of Pomo Indians, respectively. The terms “we,” “us” and “our”refer to the Authority.*

 

3

----

Tableof Contents

 

**PART I**

 

**Item 1. Business.**

 

**OVERVIEW**

 

River Rock Entertainment Authority (“we,” “us,” “our” or the “Authority”)is a governmental instrumentality of the Dry Creek Rancheria Band of PomoIndians of California (the “Tribe”). The Tribe is a federally recognized Indiantribe with 989 enrolled members, with an approximately 75-acre reservation inSonoma County, California (“Sonoma County” or the “County”). We were formed in2003 as an unincorporated governmental instrumentality of the Tribe, to own andoperate the River Rock Casino in Sonoma County, California. The River RockCasino had previously operated as a wholly-owned governmental operatingproperty of the Tribe.

 

The Indian Gaming Regulatory Act of 1988, (“IGRA”) as amended, permitsfederally recognized Indian tribes to conduct casino gaming operations oncertain Indian lands, subject to, among other things, the negotiation of acompact with the affected state. The Tribe and the State of California enteredinto a compact (the “Compact”) in September, 1999 which became legallyeffective when it was approved by the U.S. Department of the Interior andnotice of approval was published in the Federal Register in May, 2000. TheCompact authorizes certain forms of Class III casino gaming, includingslot machines and house-banked card games.

 

Ouraddress is 3250 Highway 128 East, Geyserville, California 95441 and ourtelephone number is (707) 857-2777.

 

**Our River Rock Casino**

 

We own and operate the River Rock Casino, a gaming and entertainmentfacility located on the Tribe’s reservation, approximately 75 miles north ofSan Francisco, California. Our 62,000 square-foot gaming and entertainmentfacility, which is located in the Alexander Valley, has views of thesurrounding countryside, is open 24-hours a day, seven days a week, and currentlyfeatures:

 

·                  35,500 square feet of gaming space containing1,570 slot and video poker gaming machines, 22 table games featuring Blackjack,Three Card Poker, Mini Baccarat and Pai Gow Poker, and 6 tables featuring TexasHold’em Poker. We offer state-of-the-art gaming devices including video poker,video keno, progressive slots and guest favorites, such as Red Hot 7’s, HotShot, Jackpot Party, Quick Hits, Mystery Temple, Quick Strike and other variousthemes;

 

·                  bothsmoking and non-smoking gaming rooms in order to satisfy customer preferences;

 

·                  the Players Club, a player tracking systemwhich offers our guests incentives for additional play;

 

·                  the Quail Run Restaurant, offering 24-hourmenu dining, with lunch, dinner and Sunday brunch buffets, and 152 indoor seatsand 96 outdoor seats, overlooking the Alexander Valley wine region and theRussian River;

 

4

----

Table of Contents

 

·                  two snack bars, a lounge, the Oak Bar, whichoffers “bar top” video poker games in an elegant setting, a gift shop and ahistoric and contemporary Pomo basketry and art display;

 

·                  alcohol service, as a result of the May 2008issuance of our liquor license;

 

·                  three parking structures and an adjacentparking lot allows us to accommodate approximately 1,584 customer vehicles;

 

·                  anArts and Crafts California Bungalow-style design and furnishings, incorporatingNative American elements, that feature a cultural arts collection of traditionaland contemporary Pomo art, including historical basketry for which the Tribe isknown. The interior of our gaming facility utilizes an extensive amount ofwooden casework and natural rock to emphasize the architectural style foundthroughout California wine country. In keeping with this motif, our gamingfacility’s counters are constructed of natural stone and wood, and oakwainscoting grace the food and beverage facilities; and

 

·                  alocation in the heart of the beautiful Alexander Valley with spectacular viewsof the surrounding countryside. Guests entering our gaming facility are treatedto a large, open-beamed Porte cochere that faces out towards sweeping vistas ofAlexander Valley vineyards. Our gaming and entertainment facility was designedto capitalize on the scenic vistas with the food and beverage facilitiesstrategically placed to feature the expansive views.

 

In addition, to enhance the comfort of our guests, we have installed astate-of-the-art ventilation system that greatly reduces cigarette smoke andimpurities, circulates air from the ground level and provides 100% fresh-airreturn. Our gaming facility also incorporates other environmentally sensitiveengineering features, including irrigation using surplus wastewater andnon-intrusive lighting in the parking lot. Furthermore, our state-of-the-artback-up and redundant generators are designed to provide electricity in theevent of a power failure.

 

We maintain a digital surveillance system that tracks the entire casinofloor to secure our facility and operations. We employ a 65 officer securityforce.

 

**Competitive** Strengths

** **

We believe the following strengths have and will continue to contributeto our success:

 

*Attractive Location with Convenient Access. *Our gaming facility is conveniently locatedoff of Highway 101, a four-lane highway that serves as a major thoroughfarebetween Los Angeles and Oregon.  Highway 101 travels directly through thenearby cities of San Francisco, San Rafael, Petaluma and Santa Rosa.  Currently CALTRANS estimates of AverageAnnual Daily Traffic (AADT) on Highway 101 to be around 43,400 north and southbound vehicles.  In addition, the nearbyairport in Santa Rosa provides easy access for patrons traveling to winecountry.

 

*Strong Market Demographics. *Our gaming facility is easily accessible byall the approximately 6.9 million residents of the San Francisco Bay areamarket which include the major metropolitan cities of San Francisco, Oaklandand the smaller cities of San Rafael, Berkeley, Santa Rosa, and Petaluma. Wealso benefit from the 7 million annual visitors to Sonoma County and 

 

5

----

Table of Contents

 

5 million annual visitors to Napa County whichis known for their world-renowned wineries and related tourist attractions.

 

*Limited Competitive Environment and High Barriers toEntry.*     Class IIIcasino gaming may not be conducted in California other than on certain landsheld for the benefit of federally recognized Indian tribes and pursuant tonegotiated compacts with California and approved by the U.S. Secretary of theInterior. We believe these restrictions significantly limit potential futurecompetition. We are not subject to any betting limits on Indian gamingactivities.

 

*High Quality Products and Amenities.*  Ourgaming facility offers state-of-the-art gaming devices and table games in anupscale, relaxed gaming environment. Our gaming devices feature comprehensive,integrated cashless technology permitting faster wagering and payouts. Inaddition, our restaurant offers premium food and beverages and was designed tocapitalize on the spectacular views of the Alexander Valley. Our gaming andfood and beverage facilities emphasize a high level of customer service,created and maintained through comprehensive employee training.

 

*Emphasis on Gaming Devices.*     Our gamingfacility emphasizes slot and video poker gaming devices, which we believe,based on industry studies, represents the most consistently profitable andlowest risk segment of the gaming business. We offer a wide variety of gamesnot only to attract guests but also to encourage them to play for longer periodsof time.

 

*Tax Free Cash Flow from Operations.*     We currentlygenerate significant cash flow from operations. In addition, because these aregovernmental operations, they are not subject to any local, state or federalincome taxes.

 

*Experienced Senior Management Team and Staff.*  Ourmanagement team is led by seasoned executives who have significant industryexperience, leadership and expertise in operations, marketing, finance anddevelopment.  Members of this team havepreviously worked at premier local and destination casinos for commercial andtribally owned casinos.  We believe ourmanagement team and our experienced staff provides superior employee andcustomer care product quality, and an in-depth understanding of the targetmarket and how to maintain return business which enhances our competitiveposition.

 

**Business and Marketing Strategies**

 

Our business strategy is to grow our business to not only capture agreater share of our growing market, but also expand our target patron base toa broader demographic with the following competitive business strategies:

 

*Marketing & Promotions:* Our advertising methods include radio, astrong emphasis on email blasts, billboards, TV, newspaper, magazines, busbillboards, signature shuttles, rack cards and direct mail.  The direct mail program that will be enhancednext year will be tiered by player based on player status.  This direct mail method will include couponsand information regarding up and coming promotions which will be tailored totarget our high end players. Over the years, we have analyzed promotions andplayer demand and have continued with the successful promotions which have ledto increased revenues.  Promotions thathave proven successful and increased revenues are car giveaways, cash spins, and“Gas and Cash”.  Along with continuedpromotions, we will also be adding tournaments. Marketing will be putting more emphasis on direct mail to the ethnicmarketing, i.e. Latino and Asian signature markets in the Bay area.  With giveaways and promotions throughout theyear, we will be able to continue to provide cutting edge entertainment.

 

*Capitalize on Our Prime Location and Appeal of Sonoma County*. We market our Casino to our local customerbase and to our broader regional market and international patrons traveling tothe area as part of the Sonoma Valley resort destination.  The picturesque Alexander Valley region inthe 

 

6

----

Table of Contents

 

heartof Sonoma County is a world-renowned tourist destination. We intend tocapitalize on its appeal, including its reputation as one of California’spremier wine producing regions, to further expand our customer base. SonomaCounty receives over 7 million tourists annually and over 5 milliontourists visit Napa County annually.  Ourmarketing message emphasizes the convenient access to our facility.

 

*Partners Program*.Partnerships with local businesses have created economic growth and strongcommunity relations with local wineries, hotels, Chamber of Commerce and localbusinesses.  In return, promoting oneanother will help increase tourism and bring in new potential customers toSonoma County and our Casino.  Ourvisitor’s office located in downtown Healdsburg provides tourists detailed andlocal area information on the casino and highlights those in the partnersprogram with maps, lodging and transportation options.

 

*Increase Time on Device and Win Per Unit*.  Weutilize state-of-the-art technology and sophisticated player tracking softwaresystem which provides a customized and tailored gaming environment thatgenerates increased time spent on a device and enhances the likelihood ofreturn business.  This data base helps usto determine our premier players and target their favorite games, and alsohelps us create a relationship with those patrons.

 

*Continue to Develop our Appeal to the Asian Market*.  TheAsian market constitutes 20% of the Bay Area population and 31% of the SanFrancisco population.  We continuecultivating our Asian market customer base through our bus program from SanFrancisco’s Chinatown with our targeted gaming promotions.  In an effort to further increase our marketexposure, we have increased our Asian targeted media and we have begunparticipating in Asian community events.

 

*Expand Marketing and Promotion Programs*.  Wewill monitor the effectiveness of our advertising and brand awareness effortsthrough an extensive research analysis program and evaluate it against measurableobjectives such as first name recall for our gaming facility and satisfiedresident response rates. From our database, we are able to track our repeatbusiness. Our database also provides us with information on new playersign-ups, which in 2008, has grown by 45,000. We have also promoted morefrequent and longer visits and increased wagering at off-peak demand periodsthrough promotions such as our “Hot Nights, Cool Cash” and “Pick Your Dream Car”programs. These promotions offer customers cash rewards on weekday nights andhas resulted in increased net revenue whenever offered.

 

*Supplement Demand with Our Bus Program*.    We intend tosupplement our overall demand with our line and charter bus program to providecustomer transportation to our gaming facility. We believe that this programenabled us to maximize our number of guests during the off-peak times. Our guests have appreciated the convenience offered by this program and we haveexperienced an increase in the use of our bus program.  We operated anaverage of approximately 32 buses a day in 2008. Our bus program brings guestsfrom San Francisco, San Mateo, Contra Costa, Alameda and Marin Counties. On our River Rock line runs, guests pay between $10 to $15 roundtrip to andfrom our casino. Upon arrival, they receive an incentive package in the rangeof $15 to $25 towards use on gaming in our casino. Our special charter busguests also receive $20 towards use on gaming in our casino.

 

**COMPETITION**

 

*Other Casinos In and Around Our Market*

 

Federal and California law currently permits Class III casinogaming only on federally recognized tribal lands pursuant to compactsnegotiated with the State of California and approved by the U.S. Secretary ofthe Interior. Class II gaming for tribes is permitted only on federallyrecognized tribal lands. There are currently 55 tribes operating 56 compactedgaming facilities in the State of California. The closest existing competitorsare the Hopland Sho-ka-wah Casino, located approximately 35 miles and 40 minutesdriving time north of the Tribe’s reservation; the Konocti Vista 

 

7

----

Table of Contents

 

Casino,located approximately 45 miles and one hour and ten minutes driving timenortheast of the Tribe’s reservation; the Thunder Valley Casino, locatedapproximately 124 miles and two hours and forty-five minutes driving time eastof the Tribe’s reservation; and Cache Creek Indian Casino and Bingo, locatedapproximately 95 miles and two hours and fifteen minutes driving time east ofthe Tribe’s reservation. In addition, several potential competitors areattempting to develop and open casinos near our Casino.

 

The greatest competition may come from the proposed Graton Rancheriacasino. In April 2003, the Federated Indians of the Graton Rancheria, alsoknown as the Coast Miwoks, announced plans to purchase land in Sonoma Countynear Highway 37 and Lakeville Highway, approximately 20 miles south of our gamingfacility and closer to San Francisco than our reservation. The proposedlocation would lie directly between our Casino and the majority of the 7million population base of the San Francisco Bay area. The announced plansinclude construction of a casino-hotel complex that will be managed by StationCasinos, Inc. based in Las Vegas, Nevada. The proposed facility wouldhouse approximately 2,000 slot machines, 120 card tables and bingo, as well asa 300-room hotel, five restaurants and a theater with up to 2,000 seats. As aresult of environmental opposition to the development of such location, theFederated Indians of the Graton Rancheria announced plans to move the proposedcasino-hotel complex to a site near Rohnert Park, California. The Rohnert ParkCity Council has approved an agreement with the Federated Indians of the GratonRancheria to share revenues with Rohnert Park and various community groups,approximately $200.0 million over 20 years, to offset the impact of theproposed project.

 

In May 2008, the U.S. Department of Interior published in theFederal Register a notice to take the proposed Rohnert Park site into federaltrust on behalf of the Graton Rancheria. This represents a significant steptowards the development of a casino at Rohnert Park, as do the separateagreements negotiated between the Graton Rancheria and Sonoma County and MarinCounty, whereby the counties pledged to not challenge the land-into-trustdecision and the Graton Rancheria agreed not to build any additional casinos inSonoma or Marin counties. The U.S. Department of Interior’s land-into-trustdecision has, however, been challenged by citizens groups opposed to a casinoin Rohnert Park. Under established policy, the Department will not actuallytake the land into trust — a prerequisite for gaming to occur there — until thelitigation is resolved. Another obstacle facing the proposed Graton Rancheriacasino is the ability to obtain financing for the project.  In addition, the Graton Rancheria will alsoneed to enter into a tribal-state compact with the State of California beforeit can operate Class III gaming at the Rohnert Park site.

 

The Hopland Sho-ka-wah Casino is located several miles east of Highway101 on Route 175. The facility features a 40,000 square foot casino offering550 slot machines, 6 table games and a small 3 table poker room. The facilitycontains a small cafe-type food and beverage area, a bar and a fine-diningsteak house. Entertainment is provided occasionally, which includes musicalacts and boxing. Hopland operates a small bus program but does not operate ahotel.

 

East of the Sho-ka-wah Casino is the Konocti Casino in Lakeport,California. Lakeport is located approximately 37 miles from Cloverdale withaccess off Highway 20. The casino houses 660 slot machines and 8 table games.The facility also offers an 80-room hotel and marina with small pool as well asa 74-space recreational vehicle park. The food and beverage program includes asmall restaurant, buffet and a new full-service restaurant serving liquor.

 

The Thunder Valley Casino opened in June 2003 and is located atthe intersection of Highway 65 and Interstate 80 just outside of Sacramento,California. The Nevada-style property offers over 2,400 slot machines and 98table games that include blackjack, baccarat, and a variety of poker gamesincluding Let It Ride and Pai Gow. The facility features a salon, privatedining rooms, bars and butler service. In addition, it houses a 500-seat buffetand various fast food options, including Fat Burger, Panda Express andStarbucks, and fine dining options such as Austin’s Steakhouse. The facilityalso features a nightclub, and live entertainment is offered every twoweeks.  In 2008, the Thunder ValleyCasino announced plans to build a new 650-room, 23-story hotel featuring a spa,family center and 

 

8

----

Table of Contents

 

otheramenities.  Thunder Valley also planned to construct a 3,000-seatperforming arts center, and to expand the casino to include three newrestaurants, more gaming space and new poker room, and a parking structurecapable of holding 5,000 cars.  ThunderValley obtained financing for the expansion, which began in July 2008 butwas halted in November 2008.  Thecasino recently announced plans to continue with the expansion, but the projecthas been scaled down to include a 15-story hotel with 400 rooms; a 700-seat,10,000-square-feet multipurpose entertainment center in place of the performingarts center; and a 7-story parking structure with approximately 3,500 spaces.

 

The Cache Creek Casino is located approximately 50 miles west ofSacramento. The Cache Creek Casino recently expanded its facility to 2,900 slotmachines. The casino recently added a 28-table poker room and houses over 140table games including blackjack, Texas Hold’em, Pai Gow and Caribbean Stud. Thefacility also includes a 200-room luxury hotel, an 8 restaurant outlets, anentertainment pavilion with seating for 600, a spa and outdoor pool, an 18-holegolf course, and a 1,883 spot parking structure. The facility is in the processof expanding its restaurant offerings, and has recently announced plans to addmore shops, parking, and expand its gaming floor, and to add more than 500 slotmachines, a 10-story hotel tower with 467 rooms, and a 62,500 square-footconvention center capable of seating 2,300.

 

The Lytton Band of Pomo Indians currently operates a 70,000 square-footcasino with 1,050 Class II electronic bingo machines on the 9-acre site ofa card room in San Pablo, near Oakland, California, on land that was placed intrust for the tribe through congressional legislation. The Lytton Band signed acompact with Governor Arnold Schwarzenegger for operating Class III casinogaming on the San Pablo site, but the state legislature withheld its approval.In May 2007, legislation was introduced in the U.S. Senate, which has thesupport of the Lytton Band, that would require the Lytton Band to forego any Class IIImachines at the San Pablo site and instead limit itself to operating itsexisting Class II machines. This legislation was passed by the Senate in November 2007and referred to the Committee on Natural Resources of the U.S. House ofRepresentatives, but no further action was taken.  In January 2009, the legislation wasagain introduced in the U.S. Senate.  Itwas read twice and referred to the Senate Committee on Indian Affairs, but nofurther action has been taken.

 

The Twin Pine Casino, owned and operated by the Middletown Rancheria ofPomo Indians, is located approximately 4 miles off of Highway 29 in NapaCounty, approximately 34 miles and one hour driving time from our gaming andentertainment facility. The Twin Pine Casino currently offers 12,000 squarefeet of gaming space, with more than 400 slot machines and 8 table gamesincluding blackjack and poker, and houses a café. The Middletown Rancheria hasannounced plans to add a 60-room hotel, which is tentatively scheduled to openin March 2009, and to expand the facility to include 50,000 square feet ofgaming space with approximately 700 slot machines and 20 table games, threefood areas, and a wine tasting room.

 

There are a number of other Indian tribes, including the Scotts ValleyBand of Pomo Indians and the Guidiville Band of Pomo Indians, that haveannounced preliminary plans to develop gaming projects in the San Francisco Bayarea.

 

The Guidiville Band hopes to have transferred to it land at the formerPoint Molate Naval Base in Richmond, California on which it hopes to operate acasino along with a 1,100-room hotel, theater, convention center, and retailshops, but the project is still in its early stages, as the land transfer hasnot been approved and environmental reviews must be completed.  In January 2009, two environmentalgroups filed a lawsuit against the City of Richmond, the Guidiville Band andits financial backer and developer in an effort to stop the transfer of theland.

 

The Scotts Valley Band hopes to build a 225,000 square-foot casinocomplex and five-story parking garage on a 29.87-acre site in Contra CostaCounty, near Richmond, California.  In March 2008, the Bureau ofIndian Affairs announced the filing of the Final Environmental Impact Statementfor the proposed project.  In August 2008,the Contra Costa County Superior Court struck down a municipal servicesagreement between the City of Richmond and the Scotts Valley Band on 

 

9

----

Table of Contents

 

theground that the City failed to conduct the proper environmental reviews beforesigning the agreement.

 

The Cloverdale Rancheria has announced preliminary plans to build a596,000 square-foot hotel/spa and casino resort some ten miles north of ourCasino on U.S. Highway 101, and they and their financial backers have purchasedapproximately 79 acres for the proposed facility. The environmental reviewprocess for the proposed Cloverdale Rancheria project began in July 2008.

 

Each of these proposed projects faces numerous obstacles in addition toenvironmental approvals, including the negotiation and approval of a compactwith the State of California, approval from the U.S. Department of Interior totake the land on which the project would be located into federal trust onbehalf of the tribe, and determinations from appropriate federal agencies thatthe tribes may conduct gaming on these lands pursuant to the Indian GamingRegulatory Act.

 

We also compete with other forms of gaming such as statewide lotteries,live and simulcast pari-mutuel wagering and card rooms.

 

In May 2007, Governor Schwarzenegger proposed that the CaliforniaState Lottery be leased to a private concessionaire to increase its revenue andefficiency. Part of the Governor’s proposal includes authorizing the useof instant lottery video terminals that resemble and operate like slot machinesat locations including horse racing tracks and card rooms. Approval of thisproposal would require a two-thirds affirmative vote of the state legislatureand could require a constitutional amendment to the Constitution of the Stateof California. While it is uncertain whether or when this proposal will beapproved, its implementation could adversely affect our and other Indiancasinos’ competitive positions.

 

Otherinitiatives expanding competitive forms of gaming have been approved and may,from time to time, be approved by state or local authorities. Examples includethe passage in California of recent legislation expanding off-site betting onhorse races through expanded advance deposit wagering and increased satellitewagering sites, and a legislative proposal in the California Assembly in February 2007to amend the California Penal Code to expand permitted bingo games bycharitable organizations to include electronic bingo cards.

 

**EMPLOYEE AND LABOR RELATIONS**

 

As of December 31, 2008, we had 625 full and part-time employees.Our employees are not covered by any collective bargaining agreements. Webelieve that our relations with our employees are good. However, provisions ina labor ordinance the Tribe was required to adopt as part of the 1999 compactagreement, permits opportunities for unions to attempt to organize our laborforce. In addition, a recent decision by the United States Court of Appeals forthe District of Columbia upheld a finding by the National Labor RelationsBoard, that the National Labor Relations Act is applicable to tribal casinos.

 

**REGULATION**

 

**General**

 

We are subject to special federal and tribal laws applicable tocommercial relationships with tribes and the management and financing ofcasinos owned by an Indian tribe. In addition, we are regulated by certainfederal laws applicable to the gaming industry generally, with respect to theuse of certain gaming equipment, and specifically applicable to the Indiangaming market. We are also regulated by the provisions of the Compact, whichhave been ratified under state law and are based in part on the Californiaconstitution and other state laws and policies. The following description ofthe regulatory environment, in which Indian gaming takes place and in which weoperate our gaming 

 

10

----

Table of Contents

 

facility,is only a summary and not a complete recitation of all applicable law.Moreover, our regulatory environment is more susceptible to changes in publicpolicy considerations than others. Changes in these laws could have a materialadverse impact on our operations.

 

**Applicability of Federal Law**

 

Federally recognized Indian tribes are independent governments,subordinate to the United States, with sovereign powers, except as those powersmay have been limited by Congress, by treaty, or, in certain instances, by thepublic policy of the state in which the tribe’s lands are located. The power ofIndian tribes to enact their own laws to regulate gaming derives from theirsovereign right to govern and regulate their own affairs, particularly where itis consistent with federal law and the state’s public policy. Indian tribesmaintain their own governmental systems and often their own judicial systems.Indian tribes have the right to tax persons and businesses conducting businesson Indian lands and also have the right to require licenses and to impose otherforms of regulations and regulatory fees on persons and businesses operating ontheir lands.

 

**The Indian Gaming Regulatory Act of 1988**

 

*Regulatory Authority.*     Since 1988, thesovereign right of tribes to operate and regulate gaming on their lands hasbeen subjected to the provisions of the Indian Gaming Regulatory Act of 1988 (“IGRA”).IGRA is administered by the National Indian Gaming Commission (“NIGC”), anindependent agency within the U.S. Department of Interior that exercisescertain regulatory responsibilities in connection with Indian gaming on behalfof the United States. The NIGC has authority to issue regulations governingtribal gaming activities, approve tribal ordinances for regulating Class IIand Class III gaming (as described below), approve management agreementsfor gaming facilities, conduct investigations and generally monitor tribalgaming. The Bureau of Indian Affairs, which is a bureau of the U.S. Departmentof the Interior, retains certain responsibilities under IGRA, such as theapproval of per capita distribution plans of gaming revenues to individualtribal members and the approval of transfers of lands into trust status forgaming. The Bureau of Indian Affairs also has responsibility to review andapprove land leases and other agreements relating to Indian lands. Criminalenforcement is a shared responsibility of the U.S. Department of Justice, and,depending on the terms of a tribal-state compact that is in effect, the statein which the tribe is located, and the tribe.

 

The NIGC is empowered to inspect and audit all Indian gamingfacilities, conduct background checks on certain persons associated with Indiangaming, hold hearings, issue subpoenas, take depositions, adopt regulations,assess fees and impose civil penalties for violations of IGRA. IGRA alsoprovides for federal criminal penalties for illegal gaming on Indian land andfor theft from Indian gaming facilities. The NIGC has adopted rules implementingcertain provisions of IGRA. These rules govern, among other things, thesubmission and approval of tribal gaming ordinances or resolutions and themaintenance of minimum internal control standards for the operation of gamblinggames and equipment. IGRA and the NIGC regulations require an Indian tribe tohave the sole proprietary interest in, and to maintain a high level ofresponsibility for, the conduct of any gaming on its lands. Tribes are requiredto issue gaming licenses under articulated standards, conduct or commissionfinancial audits of their gaming enterprises, perform or commission backgroundinvestigations for primary management officials and key employees, and maintainfacilities in a manner that adequately protects the environment and the publichealth and safety. These rules also set out review and reportingprocedures for tribal licensing and background activities.

 

*Classes of Gaming.*     IGRA classifiesgaming that may be conducted on Indian lands into three categories: Class Igaming includes social games solely for prizes of minimal value or traditionalforms of Indian gaming engaged in by individuals as part of, or in connectionwith, tribal ceremonies or celebrations. Class II gaming includes bingoand pull tabs, lotto, punch boards, tip jars, instant bingo and other gamessimilar to bingo if those games are played at the same location as bingo isplayed, and non-banked card games (such as poker) if permitted within thestate. Class III gaming includes all 

 

11

----

Table of Contents

 

otherforms of gaming, such as slot machines, table games, lotteries, sports bettingand pari-mutuel wagering.

 

Class I gaming on Indian lands is within the exclusivejurisdiction of Indian tribes and is not subject to federal regulation underIGRA. Class II gaming is permitted on Indian lands if:

 

·                  the state in which the Indian lands liepermits that gaming for any purpose by any person, organization or entity;

·                  the gaming is not otherwise specificallyprohibited on Indian lands by federal law;

·                  the gaming is conducted in accordance with atribal ordinance or resolution that has been approved by the NIGC;

·                  an Indian tribe has sole proprietary interestand responsibility for the conduct of gaming; and

·                  the primary management officials and keyemployees are tribally licensed and several other requirements are met.

 

Class III gaming is permitted on Indian lands if the conditionsapplicable to Class II gaming are met and, in addition, the gaming isconducted in conformity with the terms of a tribal-state compact (a writtenagreement between a tribe and the government of the state within whoseboundaries the tribe’s lands lie).

 

*Tribal-State Compacts.*     IGRA requiresIndian tribes to enter into tribal-state compacts in order to conduct Class IIIgaming. These tribal-state compacts may include provisions for the allocationof criminal and civil jurisdiction between the state and the Indian tribenecessary for the enforcement of these laws and regulations, taxation by theIndian tribe of the Class III gaming activity, remedies for breach,standards for the operation of the Class III gaming activity andmaintenance of the gaming facility, including licensing, and certain othersubjects that are directly related to the operation of gaming activities.

 

Tribal-state compacts usually specify the types of permitted games,establish technical standards for gaming devices, entitle the state to inspectcasinos, require background investigations and licensing of casino employees,and require the tribe to pay a portion of the state’s expenses for establishingand maintaining agencies that participate in the regulatory process provided inthe compact. Some tribal-state compacts are for set terms, while others are forindefinite durations.

 

The Tribe entered into a Compact with the State of California in September 1999,which became effective in May 2000, that permits the Tribe to engage insome levels of Class III gaming. The Compact will expire on December 31,2020. For additional information see “Part I. Item 1. Business—Descriptionof Material Agreements—The Compact.”

 

*Tribal Ordinances.*     Under IGRA,except to the extent otherwise provided in a tribal-state compact as describedbelow, and subject to certain oversight and enforcement authority by the NIGC,Indian tribal governments have primary regulatory authority over gaming on landwithin a tribe’s jurisdiction. Therefore, our gaming operations and personsengaged in gaming activities are subject to the provisions of the Tribe’sordinances and regulations regarding gaming. The Tribe maintains a fullystaffed tribal gaming agency (“TGA”), known as the Dry Creek Gaming Commission,to carry out the Tribe’s regulatory responsibilities under IGRA, its ordinancesand the compact.

 

IGRA requires that the NIGC review tribal gaming ordinances andauthorizes the NIGC to approve these ordinances only if they meet requirementsrelating to:

 

·                  the ownership, security, personnelbackground, recordkeeping and auditing of a tribe’s gaming enterprises;

 

12

----

Table of Contents

 

·                  the use of the revenues from that gaming; and

·                  the protection of the environment and thepublic health and safety.

 

**Licensing and Registration Requirements of the Compact andState Regulation**

 

*Compact.*     The Compact requires that any person whodirectly or indirectly extends financing to the Tribe’s gaming facility orgaming operation must be licensed as a “financial source” by the TGA. However,as permitted by the Compact, the TGA has exempted federally- andstate-regulated banks and savings and loan associations, as well as persons whohold less than 10% of our $200.0 million of 9-3/4% Senior Notes, due 2011 (the “Notes”).For an applicant who is a non-exempt business entity, these licensingprovisions also apply to the entity’s officers, directors, principal managementemployees, owners (if an unincorporated entity), partners and greater than 10%shareholders. Under the Compact, a permanent license cannot be issued unlessthe TGA has conducted an investigation as to the suitability of the applicant.Any application for a gaming license may be denied, and any license issued maybe revoked, if the TGA determines the applicant to be unsuitable or otherwiseunqualified for a gaming license. Each license is subject to review forcompliance at least every two years.

 

Prior to receiving a license, an applicant must apply to the CaliforniaGambling Control Commission (“CGCC”) for a determination of suitability. If theTGA receives notice that the CGCC has determined that a person is unsuitable,the Compact requires that the TGA revoke any license it has issued to suchperson.

 

The Compact states that any agreement between the Tribe and a “financialsource” terminates upon revocation or non-renewal of the financial source’slicense because of a determination of unsuitability by the CGCC. Upon such atermination, the Tribe’s only liability is for repayment of all outstandingsums owed as of the termination date, exclusive of unpaid accrued interest.Further, the Tribe is not permitted to enter into, or continue to make paymentsunder, any financing agreement with anyone whose application to the CGCC for adetermination of suitability has been denied or has expired without renewal.

 

*State and Tribal Regulation.*     The CGCC andthe TGA, pursuant to the authority created in a tribal-state joint powers boardknown as the “Association,” have both adopted regulations that simplify thelicensing and registration process for certain large institutional investors,both in the initial distribution of certain debt securities and the secondarymarket.

 

Under these regulations, certain regulated financial institutions withat least $100.0 million invested in non-affiliated securities may takeadvantage of an abbreviated licensing and certification process. Theregulations do not require any licensing or registration for persons purchasingdebt securities in the secondary market. However, unless a holder of debtsecurities is licensed or exempt from licensing, neither the holder nor theTrustee on the holder’s behalf will have any right to enforce any paymentobligation relating to the debt securities. In addition, neither the Trusteenor the Tribe may make any payment of principal or interest on the debtsecurities as a result of any enforcement action or default acceleration ofdebt security payments, except to a person who is licensed or exempt fromlicensing.

 

**Gaming Device Licenses**

 

The Compact permits the Tribe to operate up to 350 gaming deviceswithout licenses.  From March 2000through December 2001, the Tribe obtained 1,250 gaming device licensesthrough a process conducted by a public accounting firm retained by a number oftribes under the Compact, thus permitting the Tribe to operate up to a total of1,600 gaming devices. Following the allocation, the California Attorney Generalopined that only the CGCC has the authority to issue gaming device licensesunder the compacts, and the Governor of California ordered the CGCC to controland monitor 

 

13

----

Table of Contents

 

thegaming device licensing process. In June 2002, the CGCC ratified allgaming device license issued to the Tribe and the other tribes in the earlierprocess.

 

In accordance with the Compact and California law, the Tribe isobligated to remit certain fees to the CGCC on a quarterly basis for inclusionin a Revenue Sharing Trust Fund (“RSTF”) maintained by the State of California.The RSTF is for the benefit of tribes that have no or limited gaming. The RSTFfees are fixed amounts per device, calculated on an annual basis and paidquarterly. We pay these fees on behalf of the Tribe. RSTF fees for the yearsended December 31, 2008 and 2007 were $1.3 million for each year.

 

In the summer of 2006, Governor Schwarzenegger renegotiated fivecompacts with five Southern California tribes which took effect in January 2008.The new compact amendments allow the tribes who agreed to the amendment to haveadditional slot machines, while imposing additional significant annual paymentsto the State of California and requiring extensive mitigation and compensationto impacted local communities and provisions affecting customers andemployees.  In the summer of 2008, theState entered into a compact with a tribe in Central California that containssimilar terms and provisions.  The Tribehas not sought or entered into an amendment of its Compact.

 

**Issuance of Liquor License**

 

InMarch 2008, the Tribe and the Sonoma County Board of Supervisors enteredinto a Memorandum of Agreement (the “MOA”) that, among other things, settledseveral long-standing legal disputes between Sonoma County and the Tribe, andwill provide a binding framework for resolving future disputes.   Under the MOA, the County agreed to drop itsopposition to the Tribe’s application for a liquor license.  In a related action, the Alexander ValleyAssociation (“AVA”), a local business and residents association which has longobjected to the issuance of a liquor license, agreed to withdraw its objectionsto the license and has persuaded its members and a number of other protestorsto do likewise.

 

InMay 2008, the California Department of Alcoholic Beverage Control issued aliquor license to our gaming and entertainment facility.  However, the Tribe has agreed to restrict thesale of alcohol to wine and beer between the hours of 11 a.m. and 5 p.m.on weekdays, and to stop serving alcohol altogether at midnight except forFriday and Saturday nights and the nights before holidays. The Tribe has alsoagreed not to serve liquor on the Casino floor, although patrons may bringdrinks purchased at the restaurant or bar on to the Casino floor. Therestrictions may be renegotiated following the first to occur of the three yearanniversary of the MOA or the opening of a hotel, which is anticipated to occurwithin the next two to three years.

 

**DRY CREEK RANCHERIA BAND OF POMO INDIANS**

 

**Tribal Administration**

 

TheDry Creek Rancheria Band of Pomo Indians is a federally recognized,self-governing Indian tribe with 989 enrolled members. The reservation wasestablished in 1915 under the authority of an Executive Order dated January 12,1891. Pursuant to the Tribe’s Articles of Association, the Tribe is governed bya Tribal Council composed of all voting members. Certain authority is delegatedto elected tribal officers who comprise the Board of Directors, consisting of aChairperson, a Vice Chairperson, a Secretary/Treasurer and twomembers-at-large..  The members of theBoard of Directors of the Tribe are the same members as our Board of Directors,but they do not serve in the same capacity.

 

14

----

Table of Contents

 

**The Tribal Gaming Commission**

 

TheTribe enacted a tribal gaming ordinance in April 1997, which was approvedby the NIGC in September 1997. Among other matters, the gaming ordinancecreated and established the TGA as a governmental subdivision of the Tribe. TheTGA consists of three commissioners and supporting staff and is vested with theauthority to regulate all gaming activity conducted on the Tribe’s lands.

 

EachTGA Gaming Commissioner is appointed by the Tribal Council to serve a four-yearterm. The tribal gaming ordinance and the Compact require that eachCommissioner undergo a comprehensive background check prior to his or herassuming office. Pursuant to the tribal gaming ordinance, the TGA isresponsible for, among other matters, inspection of all gaming operationswithin the Tribe’s reservation boundaries, enforcement of all provisions of thetribal gaming ordinance, investigation of all allegations of violations of thetribal gaming ordinance, conducting or arranging for background investigationsof all applicants for tribal gaming licenses and issuing gaming licenses inaccordance with the tribal gaming ordinance and the Compact. Under law, ourCasino cannot operate without TGA regulation. Therefore, the costs of suchregulation, including the cost of operating the TGA have, since commencement ofoperations of the River Rock Casino, been paid by us and will continue to bepaid by us.

 

**DESCRIPTION OF MATERIAL AGREEMENTS**

 

*The following is a summary of the material terms of ourmaterial agreements and material agreements of the Tribe relating to ourCasino. This summary does not restate these agreements in their entirety. Weurge you to read these agreements because they, and not these summaries, defineour rights and obligations, and the rights and obligations of the Tribe,contained in the agreements. Copies of these agreements are included asexhibits to this Form 10-K.*

 

**The Compact**

 

InSeptember 1999, the State of California and the Tribe entered into aCompact. Under its terms, the Compact was not effective until ratified bystatute and a supporting state constitutional amendment was passed by theCalifornia voters. On March 7, 2000, the California voters amended thestate constitution and enacted the Indian Self-Reliance Amendment. TheAmendment permits federally recognized Indian tribes to conduct Class IIIgaming in California, in accordance with compacts between such tribes and theState of California, subject to approval by the Secretary of the Interior. In May 2000,the Secretary of the Interior approved the Compact, and that approval becameeffective when it was published in the Federal Register on May 16, 2000.

 

Underthe Compact, the gaming activities that may be offered by the Tribe include upto 2,000 Class III gaming devices, banked and percentage card games, andany devices or games that are authorized by the California State Lottery,provided that the Tribe does not offer such games through use of the Internetunless others in California are permitted to do so.

 

TheCompact establishes limitations on Class III gaming that may restrict ourgaming activities. Among those, which are of importance to our gaming facility,are those that require the Tribe to adopt and comply with California lawsprohibiting cashing any check drawn against any public fund, free or reducedprice alcoholic beverages, food or lodging as an incentive, the extension ofcredit for gaming activities, and persons under 18 (or under 21 if alcohol maybe consumed) to be present in any room where Class III gaming is offered,other than simply to pass through the room.

 

TheCompact requires the State of California and the Tribe to establish a methodfor licensing all key employees of a gaming entity and issuing work permits forother service employees. While the Tribe, as a sovereign governmental entity,is not required to be licensed, the California Gambling Control Act applies toall others associated with Class III gaming at our gaming facility. Tofacilitate 

 

15

----

Table of Contents

 

that licensing and complywith all other provisions of IGRA, in 1997 the Tribe adopted a tribal gamingordinance establishing the TGA. The Chairman of the NIGC approved the Tribe’sgaming ordinance in 1997.

 

Underthe Compact, all persons connected with our gaming facility are required to belicensed or to submit to a background investigation under IGRA. All “Gaming Employees”and “Gaming Resource Suppliers” (as defined in the Compact) and certain otherpersons must be licensed by the TGA. Licenses granted by the TGA are subject toreview and renewal every two years. Holders of licenses granted by the TGAmust, except in limited circumstances, also be determined suitable by the CGCCto be employed by us.

 

TheCompact requires the Tribe to adopt and enforce regulations to ensure thephysical safety of casino patrons, to prevent illegal activity, to maintain theregularity and integrity of gaming operations, and to require an annual auditconducted by an independent certified public accountant.

 

TheCompact requires the Tribe to carry public liability insurance with initiallimits of at least $5.0 million for personal injury and property damageclaims. The Tribe is required to waive its sovereign immunity to the extent ofthe $5.0 million liability insurance limits.

 

TheCompact also requires the Tribe to adopt and comply with standards no lessstringent than federal workplace and occupational health and safety standards,and to adopt and comply with standards no less stringent than federal and statelaws prohibiting employment discrimination. However, our tribal gamingordinance permits us to give preference to Indians in employment matters.

 

TheCompact also mandates that the Tribe must follow certain procedures to assessthe off-reservation environmental impact of any reservation constructionexpansion projects. The procedures require the Tribe to give notice of acovered project, to determine whether a project will have any significantadverse environmental impact, to accept and respond to comments, to consultwith the county board of supervisors, and to hold a public meeting.

 

**The Notes and the Indenture**

 

OnNovember 7, 2003, we issued and sold our Notes in a private placement tocertain “qualified institutional buyers” pursuant to Regulation 144A of theSecurities Act of 1933, as amended (the “Notes Offering”). On June 21,2004, pursuant to a registration rights agreement entered into in connectionwith the issuance of the Notes, we consummated an offer to exchange all of theNotes for $200.0 million in aggregate principal amount of 9-3/4% senior notesdue 2011 (the “Outstanding Notes”) registered with the Securities and ExchangeCommission. The terms of the Outstanding Notes are substantially identical tothe terms of the Notes, except that the transfer restrictions and registrationrights applicable to the Notes do not apply to the Outstanding Notes. We didnot receive any additional proceeds from the exchange offer. The OutstandingNotes and the Notes were issued under an Indenture, dated as of November 7,2003 (the “Indenture”), among us, the Tribe and U.S. Bank National Association,as trustee. The terms of the Outstanding Notes include those stated in theIndenture, as well as those made part of the Indenture by reference to theTrust Indenture Act of 1939, as amended.

 

Thenet proceeds from the Notes Offering were used to repay a majority of ouroutstanding indebtedness, to fund the completion of three parking structuresand related infrastructure improvements, to fund the settlement of litigationinvolving the Tribe, to fund the acquisition of real property adjacent to theTribe’s reservation, to build an additional access road to the Tribe’sreservation through such property, and to repay outstanding indebtedness of theTribe.

 

TheOutstanding Notes bear interest at a fixed rate of 9-3/4% per year, and matureon November 1, 2011. The Outstanding Notes are secured by a first prioritypledge of our revenues and 

 

16

----

Table of Contents

 

substantially all of ourexisting and future tangible and intangible personal property. The OutstandingNotes are senior debt.  As furtherdescribed in the Indenture, the Outstanding Notes are subject to optional andmandatory redemption, and in some cases, holders of the Outstanding Notes maybe required to surrender them for redemption by us (or to otherwise dispose ofthe Outstanding Notes) if certain gaming regulations are not satisfied.

 

TheIndenture includes affirmative and negative covenants that limit our ability toborrow money, create liens, sell assets, engage in transactions withaffiliates, engage in other businesses, open other gaming facilities, engage incertain mergers and consolidations, make certain investments, make certainaccelerated payments on our indebtedness that is subordinated to the OutstandingNotes, and make payments to the Tribe.

 

**Cash Collateral and Disbursement Agreement**

 

Pursuantto the Cash Collateral and Disbursement Agreement among U.S. Bank NationalAssociation and Wells Fargo Bank, N.A. as disbursement agents, U.S. BankNational Association, as the trustee for the holders of the Outstanding Notes,Merritt & Harris, our independent construction consultant, the Tribeand us, a portion of the net proceeds of the Notes Offering was placed into aconstruction disbursement account, a construction escrow account, the DuganProperty improvements account, and an operating account, all to be disbursed bythe disbursement agents pursuant to the Cash Collateral and DisbursementAgreement.

 

*Construction Disbursement Account.*     Approximately$61.1 million of the net proceeds of the Notes Offering was deposited intoa construction disbursement account and was used to fund the design andconstruction of our expansion project. All funds in the constructiondisbursement account are pledged to the trustee for the benefit of itself, andthe holders of the Outstanding Notes, until disbursed by U.S. Bank NationalAssociation in accordance with the Cash Collateral and Disbursement Agreement.Approximately $3.5 million from the proceeds from the Notes Offering wereused to reimburse the Tribe for payments made to Swinerton Builders prior tothe sale of the Notes. The construction disbursement account had $2.6 million remaining as of December 31, 2008.

 

*Construction Escrow Account.*     $10.0 millionof the net proceeds of the Notes Offering was deposited into a constructionescrow account to fund qualifying construction cost overruns.  All funds in the construction escrow accountare pledged to the trustee for the benefit of itself and the holders of theOutstanding Notes until disbursed by U.S. Bank National Association inaccordance with the Cash Collateral and Disbursement Agreement.  Weused $10.0 million in the account to pay off the Subordinated Note on March 13,2005.  The construction escrow accounthas $0.1 million remaining as of December 31, 2008.

 

*Dugan Property Improvements Account.*     $5.0 millionof the net proceeds of the Notes Offering was deposited into the Dugan Propertyimprovements account and will be used to build an additional access road to theTribe’s reservation. All such funds will be held in the Dugan Propertyimprovements account and pledged to the trustee for the benefit of itself andthe holders of the Outstanding Notes until disbursed by U.S. Bank NationalAssociation in accordance with the Cash Collateral and Disbursement Agreement.Subject to certain exceptions, U.S. Bank National Association, as thedisbursement agent, will disburse funds from the Dugan Property improvementsaccount only upon certification by us that we have adequate funds to completethe road project, and upon the satisfaction of the other disbursementconditions set forth in the Cash Collateral and Disbursement Agreement. TheDugan Property improvements account had $4.3 million remaining as of December 31,2008.

 

*Operating Account.*     We deposit all of our cash and cashequivalents in excess of $2.0 million into our operating account with Bankof America, N.A. on a daily basis.  Allsuch funds are held in the operating account and pledged to the trustee for thebenefit of itself and the holders of 

 

17

----

Table of Contents

 

the Outstanding Notes untildisbursed in accordance with the terms of the Cash Collateral and DisbursementAgreement. Funds may generally be disbursed by Bank of America, N.A. from theoperating account for all purposes permitted by the Indenture.

 

*Investments; Pledge of Accounts.*     Ourdisbursement agent is required to invest any money held by it in the collateralaccounts established pursuant to the Cash Collateral and DisbursementAgreement, in cash equivalents and such government securities, as may bedirected in writing by us from time to time. Any income or gain realized as aresult of such investment is required to be held as part of the applicableaccount and reinvested as provided in the Cash Collateral and DisbursementAgreement. All funds, securities and other assets in the collateral accountsestablished pursuant to the Cash Collateral and Disbursement Agreement arepledged to the trustee for the benefit of the holders of the Outstanding Notes.

 

**Memorandum of Agreement between the Tribe and Sonoma County,California**

 

On March 18, 2008, the Tribe and the Sonoma County Board ofSupervisors entered into a memorandum of agreement (“MOA”) that will, amongother things, settle several long-standing legal disputes between Sonoma Countyand the Tribe and provide a binding framework for resolving futuredisputes.  The MOA enables the Tribe tomove forward with its proposed resort development project, including a new andexpanded “Tuscan-themed” casino and hotel with luxury resort amenities. Under the MOA, the County agreed to drop its opposition to the Tribe’sapplication for a liquor license and we obtained our liquor license for thecasino on May 29, 2008.

 

Under the MOA, the Tribe agreed to restrict the sale of alcohol to wineand beer between the hours of 11 a.m. and 5 p.m. on weekdays, and tostop serving alcohol at midnight except for Friday and Saturday nights and thenights before holidays. The restrictions may be renegotiated following thefirst to occur of three years or the opening of a hotel, which is projected tooccur within the next two to three years.

 

In addition, the MOA commits the County Sheriff’s Department and FireMarshall to provide public safety and fire investigation services to the casinoand the Tribe’s future gaming projects on the reservation and provides detailedagreements on off-reservation impact mitigation measures.  Pursuant to theMOA, the County withdrew its opposition to the Tribe’s application to take intotrust an approximately 18-acre parcel of land adjacent to the Tribe’sreservation (the “Dugan Property”).  Previously, the trust application hadbeen approved by the Department of the Interior, which approval had beenopposed by the County.

 

Pursuant to the MOA, the Tribe has agreed to pay the County $75 millionin mitigation fees over the next 12 years, subject to adjustment under certaincircumstances described in the MOA, to offset the potential losses and impactsto the County resulting from the Tribe’s various ongoing projects and tosupport the services being provided by the County.  The Tribe paid $3.0 million on April 17,2008 and $4.5 million on September 20, 2008.  Future payments are scheduled to take placeas follows: $2.8 million no later than June 30, 2009; $5.0 million uponthe earlier of March 18, 2011 or the opening of phase one of the resortproject; $5.0 million on July 1st of the subsequent year but no later than July 1,2011; and $5.0 million plus 4% compounded annually on July 1 of eachsubsequent year until the entire $75.0 million has been paid.

 

In addition, the Tribe has agreed to pay a fee in lieu of the County’sTransient Occupancy Tax in the amount of 9% of the rental charges collected onoccupied hotel rooms.  Such fees are required to be paid quarterly untilfive years after the later to occur of the termination of the MOA, as may beextended, or the Tribe’s Compact with the State.

 

18

----

Table of Contents

 

We believe the MOA will have significant positive impacts on the futureconduct of our business and our and the Tribe’s ability to develop ourexpansions plans and construct our proposed hotel and casino resort.

 

**Lease for Casino**

 

InMay 2002, the Tribe entered into a lease with Sprung Instant Structures, Inc.for two dome-shaped structures that house our gaming facility. The leaseagreement was assigned to us and was renewed through August 17, 2007.Monthly payments are $36,230. At the end of the lease term, at our option, 100%of the first four lease payments or, if all such payments have been timelymade, 40% of the last twenty four lease payments will be credited towards the$1.5 million purchase price, which would result in a purchase price of$1.1 million.  Since the expirationof the lease on August 17, 2007, we have maintained the lease payments ona month to month basis.

 

**Development and Loan Agreement**

 

The Tribe entered into a Development and LoanAgreement with Dry Creek Casino, LLC (“DCC”) on August 26, 2001,which has been amended from time to time (as amended, the “Development Agreement”).In consideration of DCC providing credit enhancement and other services underthe Development Agreement, the Tribe was obligated to pay DCC a CreditEnhancement Fee (the “Credit Enhancement Fee”). The Credit Enhancement Fee wasdefined as 20% of our net income before distributions to the Tribe plusdepreciation and amortization plus annual interest on $25.0 million principalamount of the Senior Notes less revenues from sales of alcoholic beverages. TheCredit Enhancement Fee was required to be paid monthly for a period of fiveyears commencing on June 1, 2003.

 

We had the right to terminate the DevelopmentAgreement by exercising a buy-out option (the “Buy-Out Option”) and did so on January 31,2007.  Subsequently on March 2, 2007, we and DCC signed a mutualagreement to fix the amounts due to DCC in respect of such exercise to the sumof $11.4 million, less the amount paid after we exercised the Buy-Out Option of$0.7 million. The net payment of $10.6 million was made in March 2007 and expensed infull in the three months ended March 31, 2007.  Credit EnhancementFee expense was $0 and $11.3 million for the years ended December 31, 2008 and 2007, respectively.

 

**Item 1A.  Risk Factors**

 

*The following is a description of what we consider our keychallenges and risks:*

 

**RisksRelated to Our Business**

 

***We have a substantial amount ofindebtedness that could adversely affect our financial condition and prevent usfrom fulfilling our obligations under the Outstanding Notes.***

 

Asof December 31, 2008, we had approximately $199.0 million, net ofunamortized issue discount of $1.0 million, of indebtedness outstanding,represented by our Outstanding Notes. Our substantial indebtedness could haveimportant consequences and significant effects on our business and futureoperations. For example, it could:

 

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

 

·                  limit our ability to fund future workingcapital, capital expenditures and other general operating requirements;

 

19

----

Table of Contents

 

·                  require us to dedicate a substantial portionof our cash flow from operations to repay our outstanding indebtedness, therebyreducing the availability of our cash flow to fund working capital, capitalexpenditures, development and other general operating requirements;

 

·                  place us at a competitive disadvantagecompared to our competitors that have less debt or greater resources; and

 

·                  limit our ability to borrow additional funds.

 

Theoccurrence of any one of these events or conditions could have a materialadverse effect on our business, financial condition, results of operations,prospects, ability to service or otherwise satisfy our obligations under theOutstanding Notes. In addition, the Indenture permits us to incur debt inaddition to the Outstanding Notes in certain circumstances. If we were to incuradditional debt, the related risks could intensify.

 

***We will require a significant amountof cash to service our indebtedness and fund our gaming operations. Our abilityto generate cash depends on many factors beyond our control.***

 

Ourability to make payments on and refinance our debt, including the OutstandingNotes, and to fund our gaming operations, will depend on our ability togenerate cash flow from our gaming operations. Our ability to generatesufficient cash flow to satisfy our debt obligations will depend on our futureoperating performance that is subject to many economic, competitive, regulatoryand business factors that are beyond our control. If we are not able togenerate sufficient cash flow to service our debt obligations, we may need torefinance or restructure our debt, sell assets, reduce or delay capitalinvestments or seek to raise additional capital. These measures may not beavailable to us or, if available, they may not be sufficient to enable us tosatisfy our obligations under the Outstanding Notes and may restrict ourability to pay operating expenses. If our cash flow is insufficient and we areunable to implement one or more of these alternatives, we may not be able toservice our debt obligations or fund our gaming operations.

 

***Since we depend on operations in asingle location, certain events that we cannot control may adversely affect thebusiness performance of our gaming facility.***

 

Werely primarily on guests living within 100 miles of our Casino. We relyexclusively on cash flow from our Casino to service our obligations, includingour obligations under the Outstanding Notes. Therefore, we are subject togreater risks than more geographically diversified gaming operations,including:

 

·                  a decline in the economies of the local areaswhere our guests are located or a decline in the number of gaming guests fromthese areas for any reason;

 

·                  a downturn in regional or local economicconditions;

 

·                  an increase in competition in the local areaswhere our guests reside;

 

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

 

·                  natural and other disasters and climateconditions in the surrounding area.

 

20

----

Table of Contents

 

Theoccurrence of any of the events or conditions described above could cause amaterial disruption in our business and cause us to be unable to generatesufficient cash flow to make payments on the Outstanding Notes.

 

***We have experienced landslides andmay not be insured against damage resulting from landslides.***

 

Althoughwe maintain insurance customary in our industry, including earthquakeinsurance, our insurance coverage may not be adequate to cover all the risks towhich our business and assets may be subject to. Although we have experienced twolandslides since our operations began, our landslide-related insurance islimited to events incident to earthquakes. Although neither landslide disruptedour operations or our expansion project, including the excavation, retainingwall and parking structures, the insurance is intended for futurelandslides.  A landslide could occur inthe future that could materially disrupt our operations and materially affectour financial condition.

 

***We face competition from otherCalifornia Indian casinos, casinos located in Nevada and elsewhere and otherforms of gaming.***

 

Thegaming industry is very competitive. We face or will face competition fromexisting and proposed Indian gaming facilities in the surrounding area, andelsewhere in California, and with casino gaming in Nevada, including gamingfacilities that could be located closer to the San Francisco Bay area. We alsocompete with card rooms located in the surrounding area, and other forms ofgaming that are legal in California, including on and off-track wagering andthe California State Lottery, as well as with non-gaming leisure activities,and the availability of such alternative gaming and non-gaming activities whichmay increase in the future. Many of our competitors have substantially greaterresources and name recognition than our Casino. In addition, we may also facecompetition in our market from new facilities that may be built by other Indiantribes in the future.

 

***Restrictive covenants in theIndenture may limit our ability to expand our operations and to pursue ourbusiness strategies.***

 

TheIndenture includes covenants that limit our ability to borrow money, makeinvestments, create liens, sell assets, engage in transactions with affiliates,engage in other businesses, open other gaming facilities and engage in mergersor consolidations. These restrictive covenants may limit our ability to expandour operations and to pursue our business strategies. If we are unable tocapitalize on business opportunities, we may be unable to make payments on theOutstanding Notes. Additionally, a violation of any of these restrictivecovenants would constitute a default under the Indenture.

 

***Risks related to environmentalmatters could have an adverse effect on us.***

 

We are subject to various federal laws and tribal ordinances andregulations, and the Compact which governs activities or operations that mayhave adverse environmental effects, such as discharges to air and water, aswell as handling and disposal of hazardous material or solid or hazardouswaste. Environmental laws enacted in the future may create material obligationsor liabilities which may have a material adverse effect on us. In addition,certain provisions of the Compact regarding environmental matters may be thesubject of renegotiation with the State of California and could limit anyfuture physical expansion of our gaming facility. If so, such limitations mayhave a material adverse effect on our operations.

 

Pursuantto and in accordance with the Compact, the Tribe adopted an ordinance providingfor the preparation and circulation by the Tribe of an environmental studyconcerning potential off-reservation environmental impacts of any renovation,modification, and construction or development project relating to or associatedwith the gaming facility. Among other things, the Compact requires that infashioning the ordinance, the Tribe must make a good faith effort toincorporate the policies and purposes of the National Environmental Policy Actand the California Environmental Quality Act 

 

21

----

Table of Contents

 

consistent with the Tribe’sgovernmental interests. The Compact’s environmental provisions are identical tosuch provisions in compacts for all other California tribes that entered intocompacts in or around 1999. The Tribe believes it has complied, and intends tocontinue to comply, with all applicable requirements in its environmentalordinance, but the County of Sonoma has taken issue with the Tribe’s positionand claims that the Compact’s environmental requirements are not beingfulfilled. The State could claim the Tribe is in breach of the Compact and seekto have the Compact terminated.

 

***Our business and assets could becomeliable for claims asserted against the Tribe if the Tribe waives its sovereignimmunity with respect to our business or assets or if tribal law intended tolimit such liability is ineffective.***

 

Weare an unincorporated instrumentality of the Tribe, formed pursuant to a law ofthe Tribe. This tribal law also provides that our obligations and otherliabilities are not those of the Tribe and that the obligations and liabilitiesof the Tribe are not ours. This law is untested and generally has no direct counterpartin other areas of the law. If this law should prove to be ineffective atlimiting our liability, our business and assets could become subject to claimsasserted against the Tribe or its assets. Similarly, we would be liable forsuch claims if the Tribe waived its sovereign immunity (with respect to whichwe have no control) to an extent that allowed enforcement of such claimsagainst our business or assets.

 

##### ***Changes in U.S. or regional economic conditions could adversely affectthe profitability of our business.***

##### *** ***

A decrease in economic activity in theUnited States, particularly in the State of California, could adversely affectdemand for our business, thus reducing our revenue and earnings.  A decline in economic conditions could reduceattendance and spending at our Casino. In addition, an increase in price levels generally, or in price levelsin a particular sector, could result in a shift in consumer demand away fromthe entertainment we offer, which could also adversely affect our revenues and,at the same time, increase our costs.

 

***Our business is subject tocontingencies beyond our control, including the aftermath of terrorist acts andwars, which may significantly and adversely affect our business, financialcondition, results of operations and ability to make payments on the Notes.***

 

The United States’ ongoing militarycampaign against terrorism and continued violence, conflicts and instability inother areas of the world have created many economic and politicaluncertainties, some of which may affect our ability to attract customersoutside our current primary market as well as our operations andprofitability.  The potential short-termand long-term effects that these and other similar situations and events mayhave for our customers, our primary and secondary markets and the U.S. economyin general are uncertain.  These andother similar future events could have a significant impact on the number ofcustomers visiting our Casino and, as a result, may have a material adverseeffect on our business, financial condition, results of operations and abilityto make payments on the Notes.

 

***Acts of terrorism maynegatively impact our future profits.***

 

Terrorist attacks and other acts of war orhostility have created many economic and political uncertainties.  We cannot predict the extent to whichterrorism, security alerts, war, or hostilities throughout the world, willcontinue to directly or indirectly impact our business and results.  As a consequence of the threat of terroristattacks and other acts of war or hostility in the future, premiums for avariety of insurance products have increased, and some types of insurance areno longer available.  Given currentconditions in the global insurance markets, we are predominantly uninsured forlosses 

 

22

----

Table of Contents

 

and interruptions caused by terrorist actsand acts of war.  If any such event wereto affect our properties, we likely would be adversely impacted.

 

***A variety of uncontrollableevents and natural disasters may reduce demand for our Casino.***

 

Demand for our Casino is partly dependenton the general environment for travel and tourism.  The environment for travel and tourism can besignificantly adversely affected in the United States or in specific regions asa result of a variety of factors beyond our control, including adverse weatherconditions or natural disasters (such as excessive heat or rain, hurricanes andearthquakes); health concerns; and international, political or militarydevelopments.  These events, and otherssuch as fluctuations in travel and energy costs, may also damage our ability toprovide our services or to obtain insurance coverage with respect to theseevents.

 

***Highway and bridge construction projectshave impacted the length of travel to our Casino by certain customers.***

 

On January 7, 2008, Caltrans began construction on a 3.3-milestretch of Highway 101 from Santa Rosa (Steele Lane) to Windsor (River Road),California, approximately 20 miles south of our Casino.  The project isintended to widen Highway 101 resulting in an additional third lane in eachdirection.  The project requires the closure of one lane of Highway 101 inboth directions from 11 p.m. to 5 a.m., Monday through Thursday, andfrom 12:00 a.m. to 5 a.m. on Fridays.  All lanes will be openduring daylight hours and weekends. The project will also involve the closureof certain freeway entrance and exit ramps and some local streets.  Thelane widening project is expected to be completed in the summer of 2010. Therecurrently has been no major impact from this project on our operations.  However, potentially there may be futurerisks that could have an impact on our operations as a result of this project.

 

***The loss of management andother key personnel could significantly harm our business.***

 

Our ability tomaintain our competitive position is dependent to a large degree on the effortsand skills of the senior management team. In addition to the senior management team, the operation of our Casinowill require other qualified and skilled employees with gaming and hospitalityindustry experience and qualifications. Currently, there is a shortage of skilled labor in the gaming industryin general.  In addition, we are subjectto the policy of Tribal hiring preference that requires us to give preferenceto members of the Tribe. Despite these limitations, our future success dependsupon, among other things, our ability to attract and retain senior managementand highly qualified employees. Currently, approximately 90 percent of the employees at the Casino arenot members of the Tribe. We compete with other potential employers foremployees, and we may not succeed in hiring or retaining the executives andother employees that we may need, particularly due to the very small number ofworkers skilled in the gaming industry that reside in the immediate vicinity ofour businesses.

 

Currently, we have a vacancy in the officeof the Chief Executive Officer and are conducting a search to fill thevacancy.  We do not have employmentagreements with any key executives or employees other than with our ChiefOperations Officer, and Chief Financial Officer.  We do not maintain key-man life insurancepolicies for any of our executives.  Asudden loss or inability to replace key employees could have a material adverseeffect on our financial condition and results of operation.

 

***A recent federal court decisioncould lead to unionization in the tribal gaming industry*.**

 

A recent decision by the United StatesCourt of Appeals for the District of Columbia upheld a finding by the NationalLabor Relations Board that the National Labor Relations Act is applicable totribal casinos.  This decision could leadto unionization activities, which could adversely affect our operations.

 

***Energy price increases mayadversely affect our costs of operations and our revenues.***

 

Our Casino uses significant amounts ofelectricity, natural gas and other forms of energy.  While we have not experienced any shortagesof energy to date, the recent substantial increases in the 

 

23

----

Table of Contents

 

cost of energy in the United States couldnegatively impact our operating results. In addition, energy price increases could result in a decline indisposable income of potential customers and a corresponding decrease invisitation to our gaming and hotel facilities, which could negatively impactour revenues.

 

***Our business is particularly sensitive toreductions in discretionary consumer spending as a result of downturns in theeconomy*****.**

 

Consumerdemand for gaming properties, such as ours, are particularly sensitive to downturnsin the economy and the corresponding impact on discretionary spending onleisure activities. Changes in discretionary consumer spending or consumerpreferences brought about by factors such as perceived or actual generaleconomic conditions, the current housing crisis and the credit crisis, theimpact of high energy and food costs, the increased cost of travel, thepotential for continued bank failures, perceived or actual disposable consumerincome and wealth, effects of the current recession and changes in consumerconfidence in the economy, or fears of war and future acts of terrorism couldfurther reduce customer demand for the amenities that we offer, thus imposingpractical limits on pricing and harming our operations.

 

Thecurrent housing crisis and economic slowdown in the United States has resultedin a significant decline in the amount of tourism and spending on gamingoperations. If this decline continues, our financial condition, results ofoperations and cash flows may be adversely affected.

 

**RisksRelating to the Indian Gaming Industry**

 

***Our gaming operations areextensively regulated by federal laws and the Compact, and non-compliance withthese laws or the Compact by us or the Tribe, as well as changes in the laws orfuture interpretations of the laws or the Compact, could have a materialadverse effect on our gaming operations.***

 

Gamingon the Tribe’s reservation is regulated extensively by federal, state andtribal regulatory bodies, including the NIGC, the CGCC, the CaliforniaDepartment of Justice and the TGA. The Compact imposes ongoing complianceobligations on us. Our failure to observe any of these obligations could resultin a breach of the Compact and the loss of our right to conduct gaming.

 

Changesin applicable laws or regulations, or future interpretation of these laws orregulations could limit or materially affect the types of gaming that we mayoffer and, consequently, our revenue. Congress has regulatory authority overIndian affairs and can establish and change the terms upon which Indian tribesmay conduct gaming. Currently, the operation of all gaming on Indian lands issubject to IGRA. For the past several years, legislation has been introduced inCongress designed to amend IGRA, including proposed legislation limiting the scopeof gaming that can be offered and the conditions under which gaming may beoffered. While none of the substantive proposed amendments to IGRA haveproceeded very far in the legislative process, we cannot predict theramifications of future congressional legislative acts. It is possible thatfuture legislation may result in a material adverse effect on our operations.

 

***Tribal-state compacts arerenegotiable and the outcome of any renegotiation may negatively impact ourcompetitive position or otherwise adversely affect our financial condition,results of operations or cash flows.***

 

InMarch 2003, the State of California requested renegotiations with theTribe and other tribes with respect to matters related to the number of slotmachines permitted at tribal casinos under tribal-state gaming compacts, theway in which slot machine licenses are allocated within the state under thosecompacts, and the fees charged for slot machine licenses. We did notrenegotiate the terms of our compact, although some other tribes in Californiahave done so. Those renegotiations, plus the addition 

 

24

----

Table of Contents

 

of new compacts the Statemay be entering into with tribes in our market area that were not previouslyengaged in gaming, may have negative effects on our competitive position, andour results of operations could be materially and adversely affected. Even ifour negotiations with the State of California were to result in an increase inthe number of slot machines we could operate, the State has indicated that anyincrease could result in higher license fees being imposed, which, in light ofpossible other competition, could result in lower revenues. In addition, theState’s willingness to renegotiate over slot machine limits has been tied toits imposition of further regulations on Indian gaming, particularly on thesubject of greater County involvement, provisions favoring negotiating opportunitiesfor organized labor, and other non-economic issues. The effect of the State’sinjection of those issues into the renegotiation process, and the resistance ofsome tribes to renegotiate because of those issues, could have a negativeimpact on the public’s view of Indian gaming, the effect of which we cannotpredict. Finally, any amendment to our compact or any other compact in theState requires the approval of the tribe, the Governor, the Californialegislature and the U.S. Secretary of the Interior. Some renegotiated (and new)compacts have been approved through that process, but the public debate thathas surrounded those renegotiations and the approval process could have anegative impact on Indian gaming generally within the State and on a nationallevel, the likelihood or extent of which cannot be predicted.

 

***A change in our current non-taxablestatus could have a material adverse effect on our cash flow and ability tofulfill our obligations under the Outstanding Notes.***

 

Basedon current interpretations of U.S. tax laws, we are not now, and it isanticipated that we will not be, a taxable entity for U.S. federal income taxpurposes. If these interpretations are reversed or modified, or if the federaltax law changes in this regard, our cash flow, results of operations, financialconditions and our ability to fulfill our obligations under the OutstandingNotes would be adversely affected.

 

Effortshave been made in Congress over the past several years to tax the income oftribal business enterprises. These have included a House of Representativesbill that would have taxed gaming income earned by Indian tribes as businessincome subject to corporate tax rates. Although such legislation was notenacted, similar legislation could be passed in the future. Future legislationin this area could materially adversely affect our ability to fulfill ourobligations under the Outstanding Notes.

 

**Item 2. Properties.**

 

OurCasino is located on the Tribe’s 75-acre reservation near Geyserville, locatedin the heart of the Alexander Valley in Sonoma County, California. We do notown the land on which our gaming business is located. The use of tribal land isprovided to us free of rent by the Tribe. The United States government holdsall the real property underlying our facility in trust for the benefit of theTribe.

 

Wemade a distribution to the Tribe from the net proceeds of the Notes Offering toenable the Tribe to acquire and develop an approximately 18-acre parcel of landadjacent to the reservation (the “Dugan Property”). Title to the parcel willinitially be held by the Tribe, although the Tribe is seeking to have theparcel taken into trust for the Tribe’s benefit. The Tribe has granted usaccess to any benefits the property may have for our Casino, including roadaccess and water rights. As of December 31, 2008, we had $4.3 million remaining in an improvements account which was funded from proceedsfrom the Notes Offering to be used primarily to build an additional access roadto the Tribe’s reservation through the Dugan Property. The Dugan Property maybe subject to certain zoning, use, environmental and other restrictions,permits and processes under county and state law, including but not limited tocertain agreements that have been made relative to the Dugan Property regardingagricultural use limitations and related property tax benefits. We havecompleted the initial planning on the road from the Dugan Property to the Tribe’sreservation.

 

25

----

Table of Contents

 

**Item 3. Legal Proceedings.**

 

*Runyan Litigation*

 

On March 7, 2008, Norman Runyan, our formerChief Operations Officer, filed suit against us, the Casino and Mr. HarveyHopkins, the Chairman of the Tribe and a member of our Board, in the SonomaCounty Superior Court. Mr. Runyan’s complaint asserted causes of actionsfor breach of contract, wrongful termination in violation of public policy,intentional interference with contract and intentional infliction of emotionaldistress. He sought unspecified compensatory and punitive damages. Mr. Runyanalleged that he was wrongfully terminated from his employment because heopposed certain alleged actions on the part of the defendants, includingcontracts for construction work allegedly performed on the reservation byaffiliates of the Tribe and Mr. Hopkins. Mr. Runyan claimed that thework violated the Indenture and that Mr. Runyan was forced to resign fromhis employment in violation of public policy after protesting that the allegedwork violated the Indenture, the Compact, and the Securities Exchange Act of1934. He also claimed that the defendants unlawfully discriminated against himin connection with his status as a debtor under the Bankruptcy Code. Webelieved that Mr. Runyan’s lawsuit is based on erroneous information andis without merit, and we and the Tribe vigorously defended against it.

 

On October 17, 2008, the judge of the SonomaCounty Superior Court signed an Order dismissing the lawsuit filed by NormanRunyan against us, the Casino and Mr. Harvey Hopkins, the Chairman of theTribe and a member of our Board.  On December 3,2008, the Order was entered and the case was dismissed.

 

On January 14, 2009, Mr. Runyan filed aPetition for Order Compelling Arbitration with the Sonoma County SuperiorCourt, and on January 30, 2009, he filed a Motion for Order CompellingArbitration.  In both the Petition andthe Motion, Mr. Runyan seeks to have the Court issue an order compellingarbitration of the claims asserted in the complaint that was dismissed by thecourt in December 2008.  We believe,based on the fact that Mr. Runyan entered into a Severance Agreement andGeneral Release with us, the Casino, and other released parties, that there isno basis for Mr. Runyan to seek arbitration of his claims.  Accordingly, we, the Casino, and Mr. Hopkinsplan to file a hybrid motion to quash summons and dismiss the Petition andMotion, together with an opposition to Mr. Runyan’s Motion.

 

*Other Legal Matters*

 

We are involved in other litigation and disputesfrom time to time in the ordinary course of business with vendors and patrons.The Authority believes that the aggregate liability, if any, arising from suchlitigation or disputes will not have a material adverse effect on its resultsof operations, financial condition or cash flows.

 

**Item 4. Submission of Matters to aVote of Security Holders.**

 

None.

 

**PART II**

 

**Item 5. Market for Registrant’sCommon Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities.**

 

We have not issued or sold any equity securities.

 

26

----

Table of Contents

 

**Item 6. Selected Financial Data**.

 

RiverRock Casino has historically operated as a separate wholly owned operatingproperty of the Tribe. We were formed as an unincorporated instrumentality ofthe Tribe to own and operate the River Rock Casino. Upon the issuance of ourNotes, the Tribe reorganized so that its gaming business became owned andoperated by us. This reorganization was accounted for as a reorganization ofentities under common control. In accordance with Statement of FinancialAccounting Standards 141, “Business Combinations,” the assets and liabilitiesof the casino operating property are presented by us on a historical costbasis.

 

Thefollowing table presents summary historical statements of revenues andexpenses, balance sheet and other data for the periods presented and should beread in conjunction with Item 7 — “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” our financial statements andthe related notes thereto, all included elsewhere in this Form 10-K. The historicalfinancial data for the years ended December 31, 2008, 2007 and 2006 havebeen derived from our audited historical financial statements includedelsewhere in this report. The following table sets forth our statement ofoperations for the years ended December 31, 2008, 2007, 2006, 2005 and2004.

 

27

----

Tableof Contents

 

**STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND DEFICIT**

**YEARS ENDED DECEMBER 31, 2008, 2007, 2006, 2005, AND 2004**

 
| ** **                                      | ** ** | **Year Ended**        | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** |
|-------------------------------------------------|------------|----------------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **December 31,**      | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                      | ** ** | **2008**                   | ** ** | **2007**              | ** ** | **2006**              | ** ** | **2005**              | ** ** | **2004**              | ** ** |
| ** **                                      | ** ** | **(Dollars in thousands)** | ** ** |
| **Statement of Revenues and Expenses:**         |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| ** **                                      |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| Revenues                                        |       |                       |       |                  |       |                  |       |                  |       |                  |       |
|                                            |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| Casino                                          |       | $                          | 136,727    |                  | $          | 145,714               |       | $                     | 136,294    |                  | $          | 132,831 |   | $ | 101,605 |   |
| Food, beverage & retail                |       | 7,880                      |       | 7,516                 |       | 6,244                 |       | 6,920                 |       | 4,959                 |       |
| Other                                           |       | 598                        |       | 615                   |       | 623                   |       | 663                   |       | 575                   |       |
|                                            |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| Gross revenues                                  |       | 145,204                    |       | 153,845               |       | 143,161               |       | 140,414               |       | 107,139               |       |
|                                            |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| Promotional allowance                           |       | (14,632                    | )          | (14,467               | )          | (12,542               | )          | (6,856                | )          | (2,632                | )          |
|                                            |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| Net revenues                                    |       | 130,573                    |       | 139,378               |       | 130,619               |       | 133,558               |       | 104,507               |       |
|                                            |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| Operating Expenses                              |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| Casino                                          |       | 20,787                     |       | 23,376                |       | 20,454                |       | 19,187                |       | 16,909                |       |
| Food, beverage & retail                |       | 7,063                      |       | 4,640                 |       | 5,997                 |       | 6,311                 |       | 4,516                 |       |
| Selling, general and administrative             |       | 43,506                     |       | 43,978                |       | 39,903                |       | 46,174                |       | 39,009                |       |
| Depreciation                                    |       | 10,025                     |       | 11,801                |       | 11,503                |       | 11,012                |       | 6,390                 |       |
| Credit enhancement fee                          |       | —                     |       | 11,349                |       | 8,079                 |       | 7,669                 |       | 5,112                 |       |
| Gaming commission and surveillance expense  (a) |       | 3,695                      |       | 3,023                 |       | 3,154                 |       | 2,773                 |       | 1,780                 |       |
| Compact revenue sharing trust fund              |       | 1,335                      |       | 1,335                 |       | 1,335                 |       | 1,335                 |       | 1,335                 |       |
|                                            |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| Total Operating expenses                        |       | 86,411                     |       | 99,502                |       | 90,425                |       | 94,461                |       | 75,050                |       |
|                                            |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| Income from operations                          |       | 44,162                     |       | 39,876                |       | 40,194                |       | 39,097                |       | 29,458                |       |
|                                            |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| Interest expense, net                           |       | (20,865                    | )          | (20,872               | )          | (20,884               | )          | (21,047               | )          | (17,446               | )          |
| Interest income                                 |       | 1,006                      |       | 1,701                 |       | 1,046                 |       | 332                   |       | 499                   |       |
| Gain (loss) on sale of assets                   |       | —                     |       | 4                     |       | (126                  | )          | (104                  | )          | (63                   | )          |
| Other income (expense), net                     |       | —                     |       | 1                     |       | (1                    | )          | (2                    | )          | (1                    | )          |
|                                            |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| Other expense-net                               |       | (19,859                    | )          | (19,166               | )          | (19,965               | )          | (20,821               | )          | (17,011               | )          |
|                                            |       |                       |       |                  |       |                  |       |                  |       |                  |       |
| Income before distribution to the Tribe (b)     |       | $                          | 24,303     |                  | $          | 20,710                |       | $                     | 20,229     |                  | $          | 18,276 |   | $ | 12,447 |   |

 

28

----

Table of Contents

 
| ** **                                                 | ** ** | **Year Ended**                  | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** |
|------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                 | ** ** | **December 31,**                | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                                 | ** ** | **2008**                             | ** ** | **2007**              | ** ** | **2006**              | ** ** | **2005**              | ** ** | **2004**              | ** ** |
| ** **                                                 | ** ** | **(Dollars in Thousands)** | ** ** |
| Other Financial Data:                                      |       |                                 |       |                  |       |                  |       |                  |       |                  |       |
| Net cash provided by operating activities                  |       | $                                    | 54,617     |                  | $          | 65,215                |       | $                     | 60,550     |                  | $          | 55,749 |   | $ | 38,128 |   |
| Net cash used in capital and related financing  activities |       | $                                    | (60,888    | )                | $          | (40,505               | )     | $                     | (32,557    | )                | $          | (45,870 | )   | $ | (29,292 | ) |
| Net cash provided by investing activites                   |       | $                                    | 1,006      |                  | $          | 1,701                 |       | $                     | 1,046      |                  | $          | 332 |   | $ | 499 |   |
| Net cash used in non-capital financing  activities         |       | $                                    | (13,919    | )                     | $          | (12,427               | )          | $                     | (14,140    | )                     | $          | (11,180 | ) | $ | (7,613 | ) |
| EBITDA (c)                                                 |       | $                                    | 55,193     |                  | $          | 53,383                |       | $                     | 52,615     |                  | $          | 50,335 |   | $ | 36,283 |   |
| Capital expenditures                                       |       | $                                    | 41,698     |                  | $          | 8,193                 |       | $                     | 4,475      |                  | $          | 17,456 |   | $ | 57,741 |   |
| Ratio of earnings to fixed charges                         |       | 2.11                                 | X     | 1.95                  | X     | 1.92                  | X     | 1.83                  | X     | 1.37                  | X          |
| Total Assets                                               |       | $                                    | 194,570    |                  | $          | 184,504               |       | $                     | 174,869    |                  | $          | 167,678 |   | $ | 174,813 |   |
| Long term liabilities                                      |       | $                                    | 199,046    |                  | $          | 198,748               |       | $                     | 198,500    |                  | $          | 198,243 |   | $ | 197,823 |   |
| Distributions to Tribe                                     |       | $                                    | 13,919     |                  | $          | 12,427                |       | $                     | 15,521     |                  | $          | 11,180 |   | $ | 7,613 |   |

 

The following table reconciles EBITDA and net cash provided by operatingactivities for the periods indicated:

 
| ** **                                               | ** ** | **Year Ended**                  | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** |
|----------------------------------------------------------|------------|--------------------------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                               | ** ** | **December 31,**                | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                               | ** ** | **2008**                             | ** ** | **2007**              | ** ** | **2006**              | ** ** | **2005**              | ** ** | **2004**              | ** ** |
| ** **                                               | ** ** | **(Dollars in Thousands)** | ** ** |
| ** **                                               | ** ** | ** **                           | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** |
| Net cash provided by operating activities                |       | $                                    | 54,617     |                  | $          | 65,215                |       | $                     | 60,550     |                  | $          | 55,749 |   | $ | 38,128 |   |
| Increase (decrease) in accounts receivable               |       | (239                                 | )          | 104                   |       | 110                   |       | 39                    |       | (53                   | )          |
| Increase (decrease) in inventories                       |       | 16                                   |       | (7                    | )          | 1                     |       | (224                  | )          | 233                   |       |
| Increase (decrease) in prepaid and other  current assets |       | (190                                 | )          | 32                    |       | (32                   | )          | 654                   |       | (109                  | )          |
| (Increase) decrease in accounts payable  trade credit    |       | 518                                  |       | (1,062                | )          | (322                  | )          | 1,220                 |       | 2,787                 |       |
| (Increase) decrease in accrued liabilities               |       | (535                                 | )          | (1,256                | )          | (533                  | )          | 338                   |       | (27                   | )          |
| Gain (Loss) on sale of fixed assets                      |       | —                               |       | 5                     |       | (126                  | )          | (104                  | )          | (63                   | )          |
| Interest income received                                 |       | 1,006                                |       | 1,701                 |       | 1,046                 |       | 332                   |       | 499                   |       |
| Credit enhancement fee                                   |       | —                               |       | (11,349               | )          | (8,079                | )          | (7,669                | )          | (5,112                | )          |
|                                                     |       |                                 |       |                  |       |                  |       |                  |       |                  |       |
| **EBITDA (c)**                                           |       | $                                    | 55,193     |                  | $          | 53,383                |       | $                     | 52,615     |                  | $          | 50,335 |   | $ | 36,283 |   |

 

----

 (a) Pursuant to the regulation, thetribal gaming agency (“TGA”) charged us a flat monthly fee of $323,930 to coverall operating expenses incurred by the TGA and surveillance, which are directlyrelated and necessary to the regulation of our Casino. Following the end ofeach calendar quarter, the TGA must reconcile the monthly regulatory fee andactual operating expenses and make necessary adjustments.  As of July 1, 2005, the TGA andsurveillance expenses are being recorded in Gaming Commission and surveillanceexpenses on the Statement of Revenues, Expenses and Changes in FundBalance.  TGA and surveillance expensesfor the twelve months ended December 31, 2008, and 2007 were $3,694,674and $3,023,303, respectively.

 

 (b) Our financial statements are preparedin accordance with Governmental Accounting Standards Board (“GASB”)pronouncements. There are differences between financial statements prepared inaccordance with GASB pronouncements and those prepared in accordance withFinancial Accounting Standards Board (“FASB”) pronouncements. The Statements of

 

29

----

Table of Contents

 

Revenues,Expenses and Changes in Fund (deficit) Equity are a combined statement underGASB pronouncements. FASB pronouncements allow a statement of income oroperations and a separate statement of owners’ or shareholders’ (deficit)equity, which is where distributions to owners would be presented under FASBpronouncements. The amount shown above as income (loss) before distributions tothe Tribe would not be different if we followed all FASB pronouncements todetermine net income and would be the most comparable amount to net incomecomputed under FASB pronouncements. River Rock Entertainment Authority is aseparate fund of the Tribe, a governmental entity, and, as such, there is noowners’ or shareholders’ (deficit) equity as traditionally represented underFASB pronouncements. The most comparable measure of owners’ (deficit) equity ispresented on the River Rock Entertainment Authority balance sheet as fund(deficit) equity.

 

 (c) “EBITDA” is income (loss) beforedistributions to Tribe plus interest, taxes, depreciation and amortization. EBITDAdoes not represent and should not be considered an alternative to net income orcash flow from operations, as determined by Generally Accepted AccountingPrinciples.  Moreover, our methodologiesand practices in determining EBITDA may not be comparable to those used byother companies. EBITDA is included in this Form 10-K because it is abasis upon which we assess our liquidity and because certain covenants in theIndenture are tied to similar measures. EBITDA is also included in this Form 10-Kbecause we believe that it presents useful information regarding our ability toservice and incur indebtedness. EBITDA does not take into account our debtservice requirements and, accordingly, is not necessarily indicative of amountsthat may be available for debt service.

 

**Item 7.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

 

Thefollowing discussion and analysis of our financial condition and results ofoperations should be read in conjunction with the accompanying financialstatements and related notes beginning on page 28 of this Annual Report onForm 10-K, Item 6 — “Selected Financial Data” and Part I. Item 1. “Business.”

 

**Overview**

 

*General*

 

Wehave historically operated as a separate wholly-owned operating property of theTribe. We were formed as an unincorporated governmental instrumentality of theTribe to own and operate the River Rock Casino. Upon the issuance of our Notes,the Tribe reorganized so that its gaming business became owned and operated byus. This reorganization was accounted for as a reorganization of entities undercommon control. In accordance with Statement of Financial Accounting Standards141, “Business Combinations,” the assets and liabilities of the Casino arepresented by us on a historical cost basis.

 

Weoffer Class III slot and video poker gaming machines, house banked tablegames (including Blackjack, Three card poker, Mini-baccarat and Pai Gow poker),Poker, featuring Texas Hold’em, comprehensive food and beverage offerings, andgoods for sale in our gift shop.

 

OnNovember 7, 2003, we issued the Notes. A portion of the net proceeds fromthe sale of the Notes was used to fund three new parking structures, andrelated infrastructure improvements, to repay various debts and accruedexpenses of the Tribe, as well as to increase our cash on hand. The balance ofthe net proceeds was used to fund a land purchase by the Tribe and settlelitigation of the Tribe. The Notes are secured by a first priority pledge ofour revenues and substantially all of our existing and future tangible andintangible personal property.

 

Atthe beginning of 2003, we started our infrastructure projects, including theexcavation of a hillside and the construction of retaining walls. In April 2003,we began the design process for the three new parking structures. The parkingstructure portion of the expansion project was completed in two phases and ourexisting gaming facility remained open during construction. On October 29,2004, we obtained a temporary certificate of occupancy to open the entire firstparking structure for self and valet parking. On December 1, 2004, wereceived a certificate of substantial completion on the first parkingstructure. The second phase, which included our second and third parkingstructures with approximately 445 and approximately 470 spaces, respectively,opened on December 29, 2004. Since

 

30

----

Table of Contents

 

December 31,2006, we have had enough parking spaces available to accommodate a total ofapproximately 1,584 customer parked vehicles.

 

**Critical Accounting Policies and Estimates**

 

Wehave identified certain critical accounting policies and estimates that affectour more significant judgments and estimates used in the preparation of ourfinancial statements. The preparation of our financial statements, inconformity with accounting principles generally accepted in the United Statesof America, requires that we make estimates and judgments that affect thereported amounts of assets and liabilities, revenues and expenses, and relateddisclosures of contingent assets and liabilities. On an on-going basis, weevaluate those estimates, including those related to asset impairment, accrualsfor our promotional slot club, compensation and related benefits, revenuerecognition, allowance for doubtful accounts, contingencies and litigation.These estimates are based on the information that is currently available to usand on various other assumptions that we believe to be reasonable under thecircumstances. Actual results could vary from those estimates under differentassumptions or conditions. We believe that the following critical accountingpolicies affect significant judgments and estimates used in the preparation ofour financial statements:

 

·                  Casino Revenues — In accordance with industrypractice, casino revenue is recognized as the net win from gaming activities,which is the difference between gaming wins and losses. Casino revenues are netof accruals for anticipated payouts of progressive slot jackpots.

 

·                  Propertyand Equipment — Property and equipment are stated at cost. Depreciation andamortization are computed using the straight-line method over the estimateduseful lives of the assets as follows:

 
| Buildings and improvements        |   | 21  years |
|-----------------------------------|--------|-----------|
| Furniture, fixtures and equipment |   | 5  years  |

 

·                  We evaluate our property and equipment forimpairment in accordance with the Financial Accounting Standards Board’sStatement of Financial Accounting Standards No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets.” When events or circumstances indicate that an asset should be reviewedfor impairment, we compare the undiscounted cash flow derived from the asset orasset group to the net carrying value. If an impairment is indicated, theimpairment loss is measured by the amount in which the carrying value of theasset or asset group exceeds its fair value. Fair value is measured bycomparable sales, solicited offers or discounted cash flow models.

 

·                  Accrued Progressive Slot Jackpots — Accruedprogressive slot jackpots consist of estimates for prizes relating to variousgames that have accumulated jackpots. We have recorded the cost of theseanticipated payouts as a reduction of casino revenues and the cost is includedas a component of accrued liabilities.

 

·                  Contingencies — We assess our exposure toloss contingencies, including legal matters, and provide for an exposure if itis judged to be probable and estimable. If the actual loss from a contingencydiffers from management’s estimate, operating results could be materiallyimpacted. As of December 31, 2008, we have determined that no accruals forclaims and legal actions are required. If circumstances surrounding claims and 

 

31

----

Table of Contents

 

legal actions change, the addition ofaccruals for such items in future periods may be required, which accruals maybe material.

 

AccountingStandards — There are differences between financial statements prepared inaccordance with Governmental Accounting Standards Board (“GASB”) pronouncementsand those prepared in accordance with Financial Accounting Standards Board (“FASB”)pronouncements. The statement of revenues, expenses and fund deficit is acombined statement under GASB pronouncements. FASB pronouncements allow astatement of income or operations and a statement of owners’ or shareholders’(deficit) equity, which is where distributions to owners would be presentedunder FASB pronouncements. The amount shown on our statement of revenues,expenses and fund deficit as income before distributions to the Tribe, wouldnot be different if we followed all FASB pronouncements to determine netincome, and would be the most comparable amount to net income computed underFASB pronouncements. We are an unincorporated instrumentality created by triballaw and accounted for as a separate fund of the Tribe.  As such, there is no owners’ or shareholders’(deficit) equity as traditionally represented under FASB pronouncements. Themost comparable measure of owners’ (deficit) equity presented on our balancesheet would be Fund Deficit.

 

**Results of Operations**

 

**Quarterly Results of Operations**

 

Thefollowing table sets forth unaudited quarterly operations data for each fullquarter for the past three years. In our opinion, this data reflects alladjustments, consisting only of normal recurring adjustments, necessary for afair presentation of the data. The results of operations for any quarter arenot necessarily indicative of the results of operations for a full year or anyfuture period. Certain amounts from prior quarters have been reclassified to beconsistent with our current presentation, i.e. surveillance costs are nowincluded in Gaming commission expense. We expect our quarterly operating results to vary significantly infuture periods.

 

32

----

Tableof Contents

 
| ** **                                          | ** ** | **Quarters Ended** | ** ** |
|-----------------------------------------------------|------------|-------------------------|------------|
| ** **                                          | ** ** | **December 31,**   | ** ** | **September 30,** | ** ** | **June 30,** | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **September 30,** | ** ** | **June 30,** | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **September 30,** | ** ** | **June 30,** | ** ** | **March 31,** | ** ** |
| ** **                                          | ** ** | **2008**                | ** ** | **2008** | ** ** | **2008** | ** ** | **2008** | ** ** | **2007** | ** ** | **2007** | ** ** | **2007** | ** ** | **2007** | ** ** | **2006** | ** ** | **2006** | ** ** | **2006** | ** ** | **2006** | ** ** |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Statement of Revenues and Expenses:                 |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                            |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Casino                                              |       | $                       | 32,946     |   | $ | 34,361 |   | $ | 34,690 |   | $ | 34,731 |   | $ | 37,462 |   | $ | 36,578 |   | $ | 36,215 |   | $ | 35,459 |   | $ | 35,717 |   | $ | 35,704 |   | $ | 32,352 |   | $ | 32,521 |   |
| Food, beverage and retail                           |       | 1,940                   |       | 1,870 |   | 2,170 |   | 1,899 |   | 2,034 |   | 1,967 |   | 1,800 |   | 1,715 |   | 1,607 |   | 1,656 |   | 1,505 |   | 1,476 |   |
| Other                                               |       | 265                     |       | 30 |   | 154 |   | 149 |   | 144 |   | 151 |   | 161 |   | 160 |   | 169 |   | 156 |   | 145 |   | 153 |   |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross revenues                                      |       | 35,151                  |       | 36,261 |   | 37,015 |   | 36,779 |   | 39,640 |   | 38,696 |   | 38,175 |   | 37,334 |   | 37,493 |   | 37,516 |   | 34,002 |   | 34,150 |   |
| Promotional allowances                              |       | (3,709                  | )          | (3,960 | ) | (3,357 | ) | (3,606 | ) | (4,163 | ) | (3,671 | ) | (3,403 | ) | (3,230 | ) | (3,121 | ) | (3,954 | ) | (2,940 | ) | (2,526 | ) |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net revenues                                        |       | 31,442                  |       | 32,301 |   | 33,172 |   | 33,172 |   | 35,476 |   | 35,025 |   | 34,772 |   | 34,104 |   | 34,372 |   | 33,562 |   | 31,062 |   | 31,624 |   |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating Expenses                                  |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Casino                                              |       | 5,714                   |       | 5,173 |   | 4,862 |   | 5,038 |   | 7,888 |   | 5,312 |   | 4,981 |   | 5,195 |   | 5,253 |   | 5,192 |   | 4,970 |   | 5,039 |   |
| Food, beverage and retail                           |       | 1,144                   |       | 1,689 |   | 2,505 |   | 1,725 |   | 514 |   | 1,270 |   | 1,414 |   | 1,442 |   | 1,442 |   | 1,570 |   | 1,468 |   | 1,517 |   |
| Selling, general and administrative                 |       | 11,529                  |       | 9,778 |   | 11,781 |   | 10,418 |   | 12,079 |   | 10,967 |   | 11,096 |   | 9,837 |   | 9,372 |   | 9,533 |   | 9,608 |   | 11,390 |   |
| Depreciation                                        |       | 2,337                   |       | 2,337 |   | 2,410 |   | 2,940 |   | 2,908 |   | 2,968 |   | 2,997 |   | 2,928 |   | 2,887 |   | 2,884 |   | 2,872 |   | 2,861 |   |
| Credit enhancement fee                              |       | —                  |       | — |   | — |   | — |   | — |   | — |   | — |   | 11,349 |   | 2,304 |   | 2,313 |   | 1,859 |   | 1,602 |   |
| Gaming commission expense                           |       | 1,032                   |       | 807 |   | 854 |   | 1,002 |   | 780 |   | 748 |   | 820 |   | 675 |   | 1,033 |   | 673 |   | 726 |   | 723 |   |
| Compact revenue sharing trust fund                  |       | 334                     |       | 334 |   | 334 |   | 334 |   | 334 |   | 333 |   | 333 |   | 334 |   | 334 |   | 333 |   | 334 |   | 334 |   |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total operating expenses                            |       | 22,091                  |       | 20,118 |   | 22,746 |   | 21,457 |   | 24,503 |   | 21,598 |   | 21,641 |   | 31,760 |   | 22,625 |   | 22,498 |   | 21,837 |   | 23,466 |   |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income from operations                              |       | 9,351                   |       | 12,183 |   | 10,912 |   | 11,715 |   | 10,973 |   | 13,427 |   | 13,131 |   | 2,344 |   | 11,747 |   | 11,064 |   | 9,225 |   | 8,158 |   |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other expense - Net                                 |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                    |       | (5,215                  | )          | (5,216 | ) | (5,217 | ) | (5,217 | ) | (5,217 | ) | (5,219 | ) | (5,217 | ) | (5,219 | ) | (5,219 | ) | (5,219 | ) | (5,221 | ) | (5,225 | ) |
| Interest income                                     |       | 24                      |       | 227 |   | 266 |   | 488 |   | 479 |   | 504 |   | 351 |   | 368 |   | 342 |   | 301 |   | 211 |   | 192 |   |
| Gain (loss) on sale of assets                       |       | —                  |       | — |   | — |   | — |   | — |   | — |   | — |   | 5 |   | — |   | (85 | ) | (37 | ) | (3 | ) |
| Other income (expense), net                         |       | 9                       |       |   | — |   |   | (1 | ) |   | (9 | ) | — |   | 2 |   | — |   | — |   | — |   | (1 | ) |   |   |   |   |
|                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Expense, Net                                  |       | (5,183                  | )          | (4,989 | ) | (4,952 | ) | (4,737 | ) | (4,739 | ) | (4,713 | ) | (4,867 | ) | (4,846 | ) | (4,877 | ) | (5,004 | ) | (5,047 | ) | (5,036 | ) |
| ** **                                          | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income (loss) before distribution to the  Tribe (a) |       | $                       | 4,168      |   | $ | 7,195 |   | $ | 5,962 |   | $ | 6,978 |   | $ | 6,234 |   | $ | 8,714 |   | $ | 8,264 |   | $ | (2,502 | ) | $ | 6,870 |   | $ | 6,060 |   | $ | 4,178 |   | $ | 3,122 |   |

 

----

 (a) Our financial statements are preparedin accordance with Governmental Accounting Standards Board (“GASB”)pronouncements. There are differences between financial statements prepared inaccordance with GASB pronouncements and those prepared in accordance withFinancial Accounting Standards Board (“FASB”) pronouncements. The Statements ofRevenues, Expenses and Changes in Fund (deficit) Equity are a combinedstatement under GASB pronouncements. FASB pronouncements allow a statement ofincome or operations and a separate statement of owners’ or shareholders’(deficit) equity, which is where distributions to owners would be presentedunder FASB pronouncements. The amount shown above as income (loss) beforedistributions to the Tribe would not be different if we followed all FASBpronouncements to determine net income and would be the most comparable amountto net income computed under FASB pronouncements. River Rock EntertainmentAuthority is a separate fund of the Tribe, a governmental entity, and, as such,there is no owners’ or shareholders’ (deficit) equity as traditionallyrepresented under FASB pronouncements. The most comparable measure of owners’(deficit) equity is presented on the River Rock Entertainment Authority balancesheet as fund (deficit) equity.

 

33

----

Table of Contents

 

**Results of Operations — Fiscal Years ended December 31,2008 and 2007**

 

*Net Revenues*. Net revenues for the fiscal year ended December 31, 2008 (“FY2008”) decreased by $8.8 million to $130.6 from $139.4 million for the fiscalyear ended December 31, 2007 (“FY 2007”). The decrease is attributed to anational and regional economic slowdown. Approximately 95.3% of our net revenues, net of respective promotionalallowances, were from gaming activities for FY 2008.  We generated $110.2 million, or 84.4% of netrevenues, net of respective promotional allowances of $12.0 million, fromgaming devices, and $14.3 million, or 10.9% of net revenues, net of respectivepromotional allowances of $0.2 million, from table games for FY 2008, ascompared to $118.9 million, or 85.3% of our net revenues, net of respectivepromotional allowances of $11.4 million, from gaming devices and $15.2 million,or 10.9% of our net revenues, net of respective promotional allowances of $0.2million, from table games for FY 2007.

 

ForFY 2008, we generated $7.9 million in food, beverage and retail sales, comparedto $7.5 million for FY 2007.  Theincrease is primarily due to the May 2008 issuance of our alcohol licenseresulting in alcohol sales that were non-existent in 2007.  The retail value of our food and beverageprovided to customers without charge is included in gross revenues and thendeducted as promotional allowances. Such allowances for FY 2008 and FY 2007were $2.4 million and $2.9 million, respectively.  We do not provide complimentary alcoholicbeverages to our patrons.

 

*Promotional Allowances*. Promotional allowances for the FY 2008 were $14.6 million, or 11.2%of net revenues, compared to $14.5 million, or 10.4% of net revenues, for FY2007.  The increase in promotionalallowances is attributable to the expanded use of e-coupons.  E-coupons cannot be cashed out and requiresthe patron to use their Players Club card.

 

*Operating expenses*. Operating expenses for FY 2008 were $86.4 million, or 66.2% of netrevenues, compared to $99.5 million, or 71.4% of net revenues, for FY 2007. Thedecrease in operating expenses is primarily attributable to the elimination ofthe Credit Enhancement Fee in FY 2008 which totaled $11.3 million in FY 2007.

 

Casinoexpense includes costs associated with our gaming operations and an allocationof food and beverage expense related to the costs of complimentary activities.Casino expense for FY 2008 decreased to $20.8 million, or 16.7% of Casinorevenues net of promotional allowances, from $23.4 million, or 17.4% of Casinorevenues net of promotional allowances, for FY 2007. The decrease in Casinoexpense is attributable to decreases in participation fees, players club pointsand wide-area progressive commission.

 

Food,beverage and retail expense for FY 2008 was $7.1 million, or 147.9% of food,beverage and retail revenue net of promotional allowances, increasing from $4.6million, or 99.5% of food, beverage and retail revenue net of promotionalallowances for FY 2007.  We haveincreased our use of promotional food and beverage as part of our marketinginitiatives. Our food and beverage expense ratio is still significantly higherthan industry average because we have utilized these amenities as anopportunity to build customer loyalty rather than as a source of income.

 

Selling,general and administrative expense for FY 2008 decreased by $0.5 million to$43.5 million, or 33.3% of net revenues, from $44.0 million, or 31.6% of netrevenues, from FY 2007. The decrease in selling, general and administrativeexpense is attributable to the decrease in advertising expenses and legal feesrelated to obtaining our liquor license.

 

Depreciationexpense for FY 2008 was $10.0 million compared to $11.8 million FY 2007.  Depreciation expense was computed using thestraight-line method over the useful lives of property, plant and equipment.The decrease in depreciation expense is due to fully depreciated assets.

 

CreditEnhancement Fee expense was no longer applicable in FY 2008 compared to $11.3million in FY 2007.  We began paying thecredit enhancement fee to DCC in June 2003. We had the right to terminatethe Development Agreement by exercising a buy-out option and did so on January 31,2007.

 

GamingCommission and surveillance expenses for FY 2008 were $3.7 million compared to$3.0 million FY 2007.   The increase isdue to increases in audit fees, wages and benefits, legal fees and training.

 

34

----

Table of Contents

 

Compactrevenue sharing trust fund expense remained the same at $1.3 million for bothFY 2008 and 2007. Compact revenue sharing trust fund expense includes paymentsassociated with operating 1,600 gaming devices. These fees became payable bythe Tribe when we commenced operations in September 2002, and are based onthe number of our gaming device licenses. Compact revenue sharing trust fundexpense includes payments to the Revenue Sharing Trust Fund (“RSTF”) asrequired by our Compact with the State of California. The Tribe is obligated toremit certain fees to the California Gambling Control Commission on a quarterlybasis for inclusion in the RSTF.  TheRSTF is for the benefit of tribes that have no or limited gaming. We pay thesefees on behalf of the Tribe.

 

*Income from operations.* Income from operations for FY 2008 was $44.2million, or 33.8% of net revenues, compared to $39.9 million, or 28.6% of netrevenues, for FY 2007.

 

*Other expense, net.* Other expense, net for FY 2008 increased to $19.9 million, or 15.2% ofnet revenues, from $19.2 million, or 13.8% of net revenues, for FY 2007.  Other expense, net, included $1.0 million ofinterest income for FY 2008 compared to $1.7 million of interest income for FY2007.  The decrease in interest incomewas due to a significant drop in interest rates and the decline of investedfunds.  

 

*Income before distributions to the Tribe*. Income before distributions to the Tribefor FY 2008 increased by $3.6 million to $24.3 million, or 18.6% of netrevenues, from $20.7 million, or 14.9% of net revenues, for FY 2007.

 

**Results of Operations — Fiscal Years ended December 31,2007 and 2006**

 

*Net Revenues*. Net revenues for the fiscal year ended December 31, 2007 (“FY2007”), increased by $8.8 million to $139.4 million, from $130.6 million forthe fiscal year ended December 31, 2006 (“FY 2006”). The increase isattributed to improved access to our Casino in FY 2007 following the lack ofaccessibility to our Casino due to the damage and resulting closure of theGeyserville Bridge in Geyserville, California from January 1, 2006 throughAugust 18, 2006 (the “Geyserville Bridge Closure”). Approximately 96.2% ofour net revenues, net of respective promotional allowances, were from gamingactivities for FY 2007. We generated $118.9 million, or 85.3% of our netrevenues, net of respective promotional allowances of $11.4 million, fromgaming devices and $15.2 million, or 10.9% of our net revenues, net ofrespective promotional allowances of $0.2 million, from table games for FY2007, compared to $111.4 million from gaming devices, or 85.3% of our netrevenues, net of respective promotional allowances of $10.2 million, and $14.5million, or 11.1% of our net revenues, net of respective promotional allowancesof $0.2 million, from table games for FY 2006. Our win per slot machine per dayincreased to $207 in FY 2007 from $194 in FY 2006.

 

ForFY 2007, we generated $7.5 million in food, beverage and retail sales, comparedto $6.2 million, for FY 2006.  Theincrease is primarily due to improved access to our Casino in FY 2007 followingthe Geyserville Bridge Closure during the first eight months of 2006. Theretail value of our food and beverage provided to customers without charge isincluded in gross revenues and then deducted as promotional allowances. Suchallowances were $2.9 million and $2.3 million for FY 2007 and FY 2006,respectively.

 

*Promotional Allowances*. Promotional allowances for the FY 2007 were $14.5 million, or 10.4%of net revenues, compared to $12.5 million, or 9.7% of net revenues, for FY2006. The increase in promotional allowances is attributable to the expandeduse of e-coupons.  E-coupons cannot becashed out and requires the patron to use their Players Club card.

 

*Operating expenses*. Operating expenses for FY 2007 were $99.5 million, or 71.4% of netrevenues, compared to $90.4 million, or 69.2% of net revenues, for FY 2006. Theincrease in operating expenses is attributable to the increased costsassociated with the early buy-out of the Credit Enhancement Fee and increasedcosts in selling, general and administrative expenses from changing advertisingagencies and enhanced marketing and guest service initiatives.

 

Casinoexpense includes costs associated with our gaming operations and an allocationof food and beverage expense related to the costs of complimentary activities.Casino expense for FY 2007 increased to $23.4 million, or 17.4% of Casinorevenues, from $20.5 million, or 16.2% of Casino revenues, for FY 2006, net ofrespective promotional allowances. The increase in Casino expense isattributable to an increase in labor costs in gaming operations and an increasein participation fees and commissions on wide area progressive slot machines.

 

35

----

Table of Contents

 

Food,beverage and retail expense for FY 2007 was $4.6 million, or 99.5% of food, beverageand retail revenue, decreasing from $6.0 million, or 150.6% of food, beverageand retail revenue for FY 2006, net of respective promotional allowances. Wehave increased our retail prices to offset the use of promotional food andbeverage as part of our marketing initiatives. Our food and beverage expenseratio is still significantly higher than industry average because we haveutilized these amenities as an opportunity to build customer loyalty ratherthan as a source of income.

 

Selling,general and administrative expense for FY 2007 increased by $4.1 million to$44.0 million, or 31.6% of net revenues, from $39.9 million, or 30.5% of netrevenues, for FY 2006, net of respective promotional allowances. The increasein selling, general and administrative expense is attributable to increases in payroll,increased advertising costs from restructuring the marketing department’sapproach to focus more on direct marketing and the change in our advertisingagency.  These efforts led to increasedcosts in television, radio and newsprint media as compared to 2006.

 

Depreciationexpense for FY 2007 was $11.8 million compared to $11.5 million for FY 2006.Depreciation expense was computed using the straight-line method over theuseful lives of property, plant and equipment. The increase in depreciationexpense is due to the addition of depreciable assets.

 

Credit Enhancement Fee expense for FY 2007 was $11.3 million comparedto $8.1 million for FY 2006.  We began paying the credit enhancement fee toDCC in June 2003. We hadthe right to terminate the Development Agreement by exercising a buy-outoption  and did so on January 31,2007.  Subsequently on March 2,2007, we signed with DCC a mutual agreement to fix the amounts due to DCC inrespect of such exercise to the sum of $11,350,000 less the amount paid afterwe exercised the buy-out option of $737,491. The net payment of $10,612,509 wasmade in March 2007 and was expensed in full in the three months ended March 31,2007.

 

GamingCommission and surveillance expenses for FY 2007 and FY 2006 were $3.0 millionand $3.2 million, respectively.   Thedecrease is due to decreased costs and increased efficiencies from normalizedoperations in regulatory and surveillance.

 

Compactrevenue sharing trust fund expense remained the same at $1.3 million for FY2007 and 2006. Compact revenue sharing trust fund expense includes paymentsassociated with operating 1,600 gaming devices. These fees became payable bythe Tribe when we commenced operations in September 2002, and are based onthe number of our gaming device licenses. Compact revenue sharing trust fundexpense includes payments to the Revenue Sharing Trust Fund (“RSTF”) asrequired by our Compact with the State of California. The Tribe is obligated toremit certain fees to the California Gambling Control Commission on a quarterlybasis for inclusion in the RSTF. The RSTF is for the benefit of tribes thathave no or limited gaming. We pay these fees on behalf of the Tribe.

 

*Income from operations.* Income from operations for FY 2007 was $39.9million, or 28.6% of net revenues, compared to $40.2 million, or 30.8% of netrevenues, for FY 2006.

 

*Other expense, net.* Other expense, net for FY 2007 decreased to $19.2 million, or 13.8% ofnet revenues, from $20.0 million, or 15.3% of net revenues, for FY 2006.  Other expense, net included $1.7 million ofinterest income for FY 2007, compared to $1.0 million of interest income, forFY 2006.  No interest costs werecapitalized in 2007.

 

*Income before distributions to the Tribe*. Income before distributions to the Tribefor FY 2007 increased by $0.5 million, to $20.7 million, or 14.9% of netrevenues, from $20.2 million, or 15.5% of net revenues, for FY 2006.

 

**Liquidity and Capital Resources**

 

Sinceour inception, we have funded our capital expenditures and working capitalrequirements primarily through operating cash flow, debt financing, gamingequipment supplier financing, and other financing.

 

Constructionof our Casino and infrastructure improvements commenced on April 1, 2002.The first portion of our gaming facility was completed in September 2002.As of December 31, 2008, we had spent approximately $164.5 million on theplanning, development and construction of our gaming facility, infrastructureand furniture, fixtures and equipment, excluding the proposed future expansionproject. We financed the development with borrowings and development advances.

 

36

----

Table of Contents

 

Asof December 31, 2008, we spent $0.3 million on the development of landadjacent to the Tribe’s reservation (the “Dugan Property”) which is expected toinclude an additional access road to our Casino. We have $4.3 million remainingin a restricted account funded from the proceeds of our Notes Offering for thedevelopment of the Dugan Property.

 

Ourcapital expenditures for FY 2008 and 2007 were $41.2 million and$8.2 million, respectively. The increase in 2008 is attributable to thework completed and reimbursed to the Tribe for master plan development costsfor our proposed expansion project and infrastructure improvements, whichincludes the construction of the lower Acorn Road.

 

Asof December 31, 2008, we had cash and cash equivalents of $27.3 million,as compared to $46.5 million as of December 31, 2007.  As of December 31, 2008, we hadrestricted cash of $7.1 million, as compared to $7.3 million as of December 31,2007.

 

Restrictedcash consists of net proceeds from the Notes Offering and investment earningsthereon set aside in construction financing accounts, for construction costsfor the three parking structures, infrastructure improvements and constructioncontingencies. It also includes funds that are reserved for additional constructioncontingencies and the funds for the development of the Dugan Property. Ourrestricted cash is held in escrow accounts that can only be used for authorizedconstruction disbursements until the related projects are completed.

 

Ourprincipal source of liquidity for uses other than our expansion project duringFY 2008 consisted of cash flow from operating activities.  Net cash provided by operating activities forFY 2008 was $54.6 million, a decrease of $10.6 million, from $65.2 million forFY 2007. The decrease in our net cash provided by operations is a result of theeconomic downturn during FY 2008.  Netcash provided by operating activities for FY 2007 increased by $4.6 million,from $60.6 million for FY 2006.

 

Netcash used in capital and related financing activities for FY 2008 was $60.9million, as compared to $40.5 million for FY 2007.  Cash flow used in capital and relatedfinancing activities was primarily for the purchase of property and equipmentand interest paid on the Notes.  Theincrease is primary attributable to the addition of property and equipment as aresult of work completed and reimbursed to the Tribe for master plandevelopment costs for our proposed expansion project and infrastructureimprovements, which includes the construction of the lower Acorn Road,increasing cash used in capital and related financing activities by $33.8million.  This increase was then offsetprimarily by the elimination of the credit enhancement fee in FY 2008 comparedto $11.3 million in FY 2007.

 

Netcash used in non-capital financing activities for FY 2008 was $13.9 million, anincrease of $1.5 million from $12.4 million for FY 2007.  Net cash used in non-capital financingactivities consist of distributions to the Tribe.

 

Webelieve that existing cash balances, cash from operations, as well as permitteddisbursements from our restricted cash escrow accounts will provide adequatefunds for our working capital needs, planned capital expenditures and debtservice requirements for the foreseeable future. However, our ability to fundour operations, make planned capital expenditures, make scheduled debt paymentsand refinance our indebtedness depends on our future operating performance andcash flow, which, in turn, are subject to prevailing economic conditions and tofinancial, business and other factors, some of which are beyond our control.Additionally, the Indenture limits our ability to incur additionalindebtedness. See Item 1 — “Business — Material Agreements — The Notes and theRelated Indenture.”

 

On June 28, 2007, we and the Tribe announced plans to build adestination resort as more fully described in the press release furnished as anexhibit to our Form 8-K dated June 28, 2007. The proposed projectincludes the construction of a casino, hotel and spa, several food and beveragevenues, parking and storage, administrative facilities, a garden and terraceplaza, balconies and terraces, a retail area, conference facilities, and backof house facilities. The proposed project includes three above-ground levels anda hotel tower (up to eight levels) and four below-ground levels. We do notcurrently have adequate liquidity or cash flow to finance the project asproposed. We will consider various sources of liquidity to finance the firstphase of the proposed project.

 

The Tribe has incurred expenses on our behalf that relate to the masterplanning of the proposed resort and Tribal infrastructure that benefit us.  Total expenses incurred and subsequentlyreimbursed to the Tribe for the year ended December 31, 2008 were $36.0million.

 

37

----

Table of Contents

 

The Tribe has incurred an additional $21.0 million in costs relating tothe master planning of the proposed resort. While the Tribe has not made anyrequest to us for reimbursement of such amount, it may request reimbursementfrom us in the future.  While we have no obligation to pay such amountswhen requested and any such reimbursement would need to be approved bymanagement and our Board of Directors, there is a possibility that such requestfor reimbursement may be made by the Tribe. Prior to making any reimbursementpayment, we will consider various factors, including, but not limited to, whetherthe costs incurred were actually related to the master planning, whether suchcosts are beneficial to our gaming business and expansion plans, thereasonableness of such costs, the availability of cash and whether thereimbursement payment is in compliance with the covenants in the Indenture forthe Outstanding Notes.

 

On March 18, 2008, the Tribe and the Sonoma County Board ofSupervisors entered into a memorandum of agreement (“MOA”) that will, amongother things, settle several long-standing legal disputes between Sonoma Countyand the Tribe and provide a binding framework for resolving futuredisputes.  We believe the MOA will have significant positive impacts onthe future conduct of our business and the Tribe’s ability to develop ourexpansions plans and construct our proposed hotel and casino resort. Pursuant to the MOA, the Tribe has agreed to pay the County up to $75 millionin mitigation fees over the next 12 years to offset impacts of the potentiallosses and impacts to the County resulting from the Tribe’s various ongoingprojects and are intended to support the services being provided by theCounty.  In addition to the mitigation fees, the Tribe will pay a fee inlieu of the County’s Transient Occupancy Tax in the amount of 9% of the rentalcollected on occupied hotel rooms, to be paid quarterly and continuing for fiveyears after the later to occur of the termination of the MOA, as may beextended, or the Tribe’s Compact with the State (which is now terminable in2020 at the earliest), which fees may be applied to programs and services thatserve to promote tourism in the County. Such in lieu fees could total as muchas $25 million during the term of the MOA.  It is currently unclear to uswhat, if any, amounts we will be requested to pay to the Tribe to fund itsobligations pursuant to the MOA.

 

**Contractual Obligations as of December 31, 2008**

 

The following table summarizes our contractualobligations and commitments as of December 31, 2008:

 
| ** **                     | ** ** | **Total** | ** **  | **1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** **  |
|--------------------------------|------------|-----------|-------------|-----------------|------------|--------------------|------------|--------------------|-------------|
| Long-term debt obligations (a) |       | $         | 200,012,291 |            | $          | 10,828             |       | $                  | 200,001,463 |   | $ | — |   |
| Capital lease obligations      |       | 34,182    |        | 34,182          |       | —             |       | —             |        |
| Operating lease obligations    |       | 912,076   |        | 265,115         |       | 469,103            |       | 177,858            |        |
|                           |       |      |        |            |       |               |       |               |        |
| Total obligations (b)          |       | $         | 200,958,549 |            | $          | 310,125            |       | $                  | 200,470,566 |   | $ | 177,858 |   |

 

----

(a)           Excluded from long-term debtobligations above are interest payments of $19.5 million in 1 year, $35.8million in 2-3 years, and $0 million in 4-5 years.

(b)           The Compact requires us to pay aquarterly fee of $0.3 million to the RSTF based on the number of our licensedgaming devices. Total obligations do not include the RSTF payments.

 

**Regulation and Taxes**

 

Weare subject to extensive regulation by the tribal gaming agency, the CaliforniaGambling Control Commission and the National Indian Gaming Commission. Changesin applicable laws or regulations could have a significant impact on ouroperations.

 

OnMarch 18, 2008, the Tribe and the Sonoma County Board of Supervisorsentered into the MOA that, among other things, settled several long-standinglegal disputes between Sonoma County and the Tribe, and will provide a bindingframework for resolving future disputes.  Under the MOA, the County agreed to drop its opposition to the Tribe’sapplication for a liquor license.  In arelated action, the Alexander Valley Association (“AVA”), a local business andresidents association which has long objected to the issuance of a liquorlicense, agreed to withdraw its objections to the license and has persuaded itsmembers and a number of other protestors to do likewise.

 

38

----

Table of Contents

 

OnMay 29, 2008, the California Department of Alcoholic Beverage Controlissued a liquor license to our gaming and entertainment facility.  However, the Tribe has agreed to restrict thesale of alcohol to wine and beer between the hours of 11 a.m. and 5 p.m.on weekdays, and to stop serving alcohol altogether at midnight except forFriday and Saturday nights and the nights before holidays. The Tribe has alsoagreed not to serve liquor on the Casino floor, although patrons may bringdrinks purchased at the restaurant or bar on to the Casino floor. Therestrictions may be renegotiated following the first to occur of the three yearanniversary of the MOA or the opening of a hotel, which is anticipated to occurwithin the next two to three years.

 

Inaddition, the MOA commits the County Sheriff’s Department and Fire Marshall toproviding public safety and fire services to the Casino and the Tribe’s futuregaming projects on the Rancheria, provides detailed agreements on offreservation impact mitigation measures, and permits the Tribe’s application totake the Dugan Property into trust, which has already been approved by theDepartment of the Interior (“DOI”) but was appealed by the DOI, to move forwardwithout further County opposition.

 

TheTribe has agreed to pay the County up to $75 million in mitigation fees overthe next 12 years to offset impacts of the potential losses and impacts to theCounty resulting from the Tribe’s various ongoing projects and are intended tosupport the services being provided by the County.  In addition to the mitigation fees, the Tribewill pay a fee in lieu of the County’s Transient Occupancy Tax in the amount of9% of the rental collected on occupied hotel rooms, to be paid quarterly andcontinuing for five years after the later to occur of the termination of theMOA, as may be extended, or the Tribe’s Compact with the State (which is nowterminable in 2020 at the earliest), which fees may be applied to programs andservices that serve to promote tourism in the County. Such in lieu fees couldtotal as much as $25 million during the term of the MOA.

 

We believe the MOA will have significant positive impacts on the futureconduct of our business and our and the Tribe’s ability to develop ourexpansions plans and construct our proposed hotel and casino resort.

 

Sincewe are an unincorporated governmental instrumentality of the Tribe located onreservation land held in trust by the United States of America, we are notsubject to federal or state income taxes. Various efforts have been made inCongress over the past several years to enact legislation that would subjectthe income of tribal governmental business entities, such as us, to federalincome tax. Although no such legislation has been enacted, similar legislationcould be passed in the future. It is not possible to determine with certaintythe likelihood of possible changes in tax law or in the administration of suchlaw. Such changes, if adopted, could have a material adverse effect on ouroperating results and cash flow from operations.

 

**Impact of Inflation**

 

Absentchanges in competitive and economic conditions or in specific prices affectingthe casino industry, we do not expect that inflation will have a significantimpact on our gaming facility operations. Changes in specific prices, such asfuel and transportation prices, relative to the general rate of inflation mayhave a material adverse effect on the casino industry in general.

 

**Seasonality**

 

Weanticipate that activity at our gaming facility may be modestly seasonal withstronger results expected during the summer due in part to the relativelyhigher levels of tourism during such times of the year. In addition, ouroperations may be impacted by adverse weather conditions and fluctuations inthe tourism business. Accordingly, our results may fluctuate from quarter toquarter and the results of one quarter may not be indicative of resultsexpected from future quarters.

 

**Item 7A. Quantitative andQualitative Disclosure About Market Risk.**

 

Marketrisk is the risk of loss arising from adverse changes in market rates andprices, such as interest rates, foreign currency exchange rates and commodityprices.

 

39

----

Table of Contents

 

ThroughDecember 31, 2008, we had not invested in derivative or foreigncurrency-based financial instruments. Additionally, we primarily have fixedrate debt. As such, we do not believe we have material exposure to market risk.

 

**Item 8. Financial Statements andSupplementary Data.**

 

Ourfinancial statements and notes thereto, referred to in Item 15(A) (1) ofthis Form 10-K, are filed as part of this report and appear in this Form 10-Kbeginning on page 51.

 

**Item 9. Changes in andDisagreements with Accountants on Accounting and Financial Disclosure.**

 

None.

 

**Item 9A. Controls and Procedures.**

 

**Evaluation of Disclosure Controls and Procedures**

 

Asof the end of the period covered by this Annual Report, management performed,with the participation of our General Manager and Chief Financial Officer, anevaluation of the effectiveness of our disclosure controls and procedures asdefined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act.Our disclosure controls and procedures are designed to provide reasonableassurance that information required to be disclosed in the report we file orsubmit under the Exchange Act is recorded, processed, summarized, and reportedwithin the time periods specified in the SEC’s forms, and that such informationis accumulated and communicated to our management including our General Managerand our Chief Financial Officer, to allow timely decisions regarding requireddisclosures.  Based on the evaluation, our General Manager and ChiefFinancial Officer concluded that, as of December 31, 2008, our disclosurecontrols and procedures were effective.

 

*Management’s Report on Internal Control Over FinancialReporting*

 

Managementis responsible for establishing and maintaining adequate internal control overfinancial reporting, as defined in Rules 13a-15(f) and 15d-15(f) ofthe Exchange Act.  Internal control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements in accordance withGAAP.  Because of its inherent limitations, internal control overfinancial reporting may not prevent or detect misstatements.   Also, projection of any evaluation ofeffectiveness to future periods is subject to the risk that controls may becomeinadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.

 

Amaterial weakness is a deficiency, or a combination of deficiencies, ininternal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of our annual or interim financialstatements will not be prevented or detected on a timely basis.

 

Managementhas conducted, with the participation of our General Manager and our ChiefFinancial Officer, an assessment, including testing of the effectiveness of ourinternal control over financial reporting as of December 31, 2008. Management’s assessment of internal control over financial reporting wasconducted using the criteria in Internal Control—Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).Based on that assessment, management has concluded that our internal controlover financial reporting was effective as of December 31, 2008.

 

**Remediation of Material Weaknesses in Internal Control OverFinancial Reporting**

 

InItem 9A of our Annual Report on Form 10K for the fiscal year ended December 31,2007, management reported four (4) material weaknesses in its internalcontrol over financial reporting.

 

Specifically,

 

1.               The Authority placed reliance on the externalauditors to review and adjust the quarterly and annual financial statements, tomonitor new accounting principles, and to ensure compliance with SEC disclosurerequirements.

 

40

----

Table of Contents

 

2.               The Tribe contracted and paid for materialcapital expenditures and other Tribal department expenses on behalf of theAuthority.  The Tribe submitted invoicesto the Authority for reimbursement of these costs.  The signing officials (CEO and CFO) had novisibility to the specific nature of the capital expenditures or Tribaldepartment expenses being presented for reimbursement on invoices from theTribe.  Supporting documentation for theinvoices was not being furnished with the invoice to the signing officials, andas such, the signers could not ensure that a material error or omission toConstruction in Progress (“CIP”) or expense accounts would be discovered on atimely basis.

 

3.               Subsequent to the completion of the annualfinancial statement review process, Financial Management discovered acomputational error in the National Progressive Slot accruals and related feeswhich required a reclassification entry. The initial internal control procedures did not detect an error in thepercentage breakdown between the progressive slot accruals included with netrevenue and related progressive slot fees that should have been classified asan operating expense to the Casino Expenses balance.  A reclassification entry for approximately$1.7 million has been reflected in the financial statements.

 

4.               The Authority did not maintain effectivepolicies and procedures related to fixed assets.  In addition, the Authority does not have aformal procedure for assessing potential asset impairments.

 

Management’sremediation plan to address the material weaknesses described above wassubstantially completed in 2008 and included the following steps taken tostrengthen the Authority’s internal control over financial reporting.

 

1.               Management has reduced its reliance on theexternal auditors by hiring more qualified personnel and reorganizing theresponsibilities that manage the financial statement preparation, review andfiling of SEC reports, and has implemented additional oversight and reviewprocesses. Management also now subscribes to a service that provides regularupdates and research capabilities related to SEC and accounting pronouncements.In addition, the Authority’s public filings are reviewed by outside SECcounsel.

 

2.               Management has gained the needed visibilityto inter-governmental Tribal capital projects and expenses. Management hasregular meetings with the CFO of the Tribe to ensure good communication ismaintained between the Authority and the Tribe. The purpose of these meetings is to gather all data necessary to gainthe understanding necessary to account properly for Construction in Progressand inter-governmental expenses prior to the commencement of a contract with aselected vendor for CIP projects and prior to the Authority’s quarterly orannual closing process.  All underlyingsupport for CIP is now required before management signoff and approval.

 

3.               The National Progressive Slot accruals andrelated fees account reconciliations are now performed at a level that willappropriately identify errors on a timely basis.

 

4.               Management has reduced its exposure to amaterial weakness in fixed asset accounting by hiring more qualified financialreporting personnel.  The Authority hasnow assigned the monitoring of fixed asset accounting to the Director ofFinance hired in 2008.

 

**Changes in Internal Control Over Financial Reporting**

 

Otherthan the control improvements discussed above, there have been no changes inour internal control over financial reporting during the fourth quarter ended December 31,2008 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**Item 9B. Other Information.**

 

None.

 

41

----

Tableof Contents

 

**PART III**

 

**Item 10. Directors and ExecutiveOfficers of the Registrant.**

 

Wewere formed in 2003 as an unincorporated instrumentality of the Tribe. We aregoverned by a five-member Board of Directors consisting of the same fivemembers as those of the Tribe’s Board of Directors. The Tribe’s Board ofDirectors is elected biennially by the Tribal Council (the approximately 564voting members of the Tribe), and consists of five members, including aChairperson, a Vice Chairperson, a Secretary-Treasurer. The Secretary-Treasurerposition has been vacant since December 12, 2006.  Our last election took place on October 7,2006.  The elections for our Board of Directors, originally scheduled forthe late fall of 2008, have been postponed pending the resolution of the statusof certain voting members of the Tribe. The Tribe intends to resolve these issues expeditiously and reschedulethe elections for the spring of 2009. The members of our Board of Directors will serve for so long as theyserve on the Tribe’s Board of Directors.

 

**Our Board of Directors**

 

Thetable below sets forth information about the current members of our Board ofDirectors:

 
| **Name**                      | ** ** | **Age** | ** ** | **Position(s) Held** | ** ** |
|-------------------------------|------------|---------|------------|---------------------------|------------|
|                          |       |    |       |                      |       |
| Betty  Arterberry             |       | 61      |       | Chairperson               |       |
| Margie  Rojes                 |       | 62      |       | Vice Chairperson          |       |
| Harvey  Hopkins               |       | 60      |       | Member                    |       |
| Augusto  “Gus” Pina |       | 65      |       | Member                    |       |
| Gabriel  Nevarez              |       | 45      |       | Member                    |       |

 

*Betty Arterberry*has served as Chairperson of our Board of Directors since July 18, 2006.Prior to that, Ms. Arterberry served as Vice Chairperson since ourinception. On July 18, 2006, Ms. Arterberry assumed the title ofChairperson of the Authority while also serving as the Vice Chairperson of theTribe’s Board of Directors. Prior thereto, Ms. Arterberry previouslyserved as the Tribe’s Secretary-Treasurer for three consecutive two-year terms.Ms. Arterberry is currently employed at Sonoma County Indian HealthProject as Chief Administrative Officer where she has worked since 1977. Ms. Arterberryis a member of the National Congress of American Indians and the CaliforniaNations Indian Gaming Association and serves on various other national, stateand tribal associations.

 

*Margie Rojes*has served as Vice Chairperson of our Board of Directors since December 12,2006.  Prior to that, Ms. Rojesserved as our Secretary-Treasurer of our Board of Directors since ourinception. Ms. Rojes has also served as the Secretary-Treasurer of theTribe’s Board of Directors since September 9, 2001. Ms. Rojes servedas member of the Board of Directors for the Tribe for the last four terms since1994. Ms. Rojes retired from the Windsor Elementary School District after20 years of service. Ms. Rojes is a member of the National Congress ofAmerican Indians and the California Nations Indian Gaming Association and isthe tribal delegate for Indian Child and Family Preservation Program. She alsoserves as a member of the Finance and Legislative Committees for the Tribe.

 

*Harvey Hopkins* has served as Chairperson of the Tribe’s Board of Directors since November 20,2004.  Mr. Hopkins served as ourChairperson from November 20, 2004 to July 14, 2006. Mr. Hopkinsbegan a professional career in construction in 1970 and has been a licensedexcavating contractor for 29 years.  He grew up in Santa Rosa, California,and has been a lifelong member of the Dry Creek Rancheria.  He and hiswife have also been in the trucking business for the last 16 years andcurrently own American Indian Management Inc. Trucking Company.  Additionally,Mr. Hopkins worked for American Civil Constructors West Coast for the past15 years.

 

*Augusto “Gus” Pina* has served as a member of our Board of Directors since November 20,2004. Mr. Pina retired as vice president of the Santa Rosa office of Bankof the West. Prior to joining Bank of the West in 1992, Mr. Pina served invarious managerial positions at Crocker Bank and Bank of America. Mr. Pinawas honorably discharged from the US Navy in 1964. Except during his service tothe US Navy, Mr. Pina has lived in Sonoma County his entire 

 

42

----

Table of Contents

 

life. He has been a memberof Rotary International, Cotati Planning Commissioner, Cotati ChamberPresident, former board member of KRCB channel 22 and a former member of thePetaluma Boys & Girls Club.

 

*Gabe Nevarez* has served as a member of our Board of Directors since October 7,2006. Mr. Nevarez had served on the Tribe’s Board of Directors as amember-at-large from 1998 through 2004. He had previously served on theAuthority’s Board of Directors as a member-at-large from its inception through November 2004.Mr. Nevarez has been employed in retail sales in Santa Rosa, CA since1986. Mr. Nevarez has previously served as a member of the Enrollment,Personnel, Housing and Legislative Committees of the Tribe.

 

**Executive Officers**

 

Thetable below sets forth information about certain key executive officers as of December 31,2008.

 

| **Name**           | ** ** | **Age** | ** ** | **Position(s) Held**                 |
|--------------------|------------|---------|------------|-------------------------------------------|
| Shawn S. Smyth     |       | 60      |       | Chief  Executive Officer; General Manager |
| John Cirrincione   |       | 46      |       | Chief  Operations Officer                 |
| Joseph R. Callahan |       | 56      |       | Chief  Financial Officer                  |

 

On January 22, 2009, Mr. Shawn S. Smyth left the positions ofChief Executive Officer and General Manager to pursue other interests.  Mr. John Cirrincione was immediatelyappointed as the Acting General Manager of the Casino.  We are currently conducting a search for anew Chief Executive Officer.  Set forthbelow is a brief description of the business experience of our key executiveofficers. The following descriptions for our officers include employment byRiver Rock Casino as our predecessor.

 

**ShawnS. Smyth** has been our Chief Executive Officer and General Manager since April 13,2006.  Mr. Smyth has more than 26 years experience in the gamingindustry. He has been responsible for developing, enhancing and expandingoperations at several Native American properties. Most recently, he was theGeneral Manager of Paradise Casinos in Yuma, Arizona, where he oversaw a Tribalproperty containing two adjacent casinos. Prior to that, he was Chief ExecutiveOfficer of the Seven Feathers Hotel and Casino Resort in Canyonville, Oregon,where he was responsible for daily operations, strategic planning and masterplan development. His previous experience also includes 15 years as the ChiefExecutive Officer of Carson Valley Inn Properties in Minden, Nevada.

 

*John Cirrincione* has been our Chief Operations Officer since October 7,2008.  Mr. Cirrincione has 23 years experience in the gamingindustry, most recently as General Manager of Downstream Casino Resort, ahigh-end casino facility with 2,100 slots, 45 games, 5 restaurants, 226 hotelrooms and a 36 hole golf course in Quapaw, Oklahoma.  Mr. Cirrincionewas part of the project team credited with bringing the resort fromgroundbreaking to operation within 10 months and 26 days. Prior positionsinclude serving as General Manager of Gila River Gaming Enterprises, Inc.in Chandler, Arizona, Director of Operations for the Sands Hotel Casino inReno, Nevada from 1999 through 2003 and as a Casino Manager and start up teamwith Thunder Valley Casino Resort in Lincoln, California. Additionally, Mr. Cirrincionewas employed by Mystic Lake Hotel Casino in Prior Lake, Minnesota, as Directorof Table Games Operations, and as Assistant Director of Table Games for theAtlantis Casino Resort in Reno, Nevada. He graduated with a BS inCommunications from the State University of New York College at Fredonia in1984, and became certified in gaming management at the University of Nevada in1994.

 

**JosephR. Callahan**has been our Chief Financial Officer since August 8, 2007.  Mr. Callahan has a diverse CasinoExecutive background in Finance and Accounting, Hotel, Food and Beverage andGaming Operations. Most recently, Mr. Callahan worked for Fantasy SpringsCasino in Indio, California where he had been the Director of Accounting andFinance since 2005.  Prior to that he spent 5 years with Mohegan Sun wherehe was Finance Director specializing in Strategic Planning and Analysis andLabor and Productivity.  Mr. Callahanhas also spent several years working for Station Casinos in Las Vegas,Nevada as an Analyst, Finance Director and also Director of HotelOperations.  In 1994, Colonel Callahan retired from the U.S. Air Forceafter 20 years of service.

 

43

----

Table of Contents

 

**Code of Ethics**

 

We have adopted a code of ethics that applies to all of our executiveofficers, including our Chief Executive Officer and Chief Financial Officer.Our code of ethics is available on our website at *www.riverrockcasino.com* under “Contact Us/InvestorRelations/Corporate Governance.” We will provide a copy of our code of ethicsto any person upon request in writing to us at our address.

 

**Audit Committee of the Board of Directors; Financial Expert**

 

Wedo not have a separate audit committee of our board of directors. Our fullboard of directors has assumed the audit functions of our casino except thatour TGA is responsible under our Compact to hire, monitor the performance ofand, if necessary, replace the independent auditors and to approve anysignificant non-audit relationship with the independent auditors and assess theindependent auditor’s qualifications and independence.

 

Ourboard of directors has determined that it does not have an audit committeefinancial expert.

 

**Item 11. Executive Compensation.**

 

**Compensation Discussion and Analysis**

 

**Philosophy**

 

Ourcompensation policies are designed to attract and retain key employees,motivating them to achieve and rewarding them for superior performance. We choose to pay competitive levels of base compensation and discretionarybonuses in order to attract and retain the necessary executive talent, rewardannual performance and provide incentive for their balanced focus on long-termstrategic goals as well as short-term performance. Since we believe theperformance of every employee is important to our success, we are mindful ofthe effect of executive compensation on all of our employees.

 

Webelieve that the compensation of our officers should reflect their success asan individual and as a management team, in attaining key operating objectives,such as growth of revenues and operating earnings. We believe that theperformance of the officers in managing our company, considered in light ofgeneral economic and specific company, industry and competitive conditions,should be the basis for determining their overall compensation. In setting ourofficers’ compensation, we intend to be competitive with other gamingcompanies. Our discretionary cash bonuses are an important element of ourability to recruit and retain talented employees and reward achievement sincewe do not pay any equity-based compensation.

 

**Overview of Compensation and Process**

 

Inlieu of a compensation committee, our Board of Directors acts as a whole tomake determinations regarding compensation of our executive officers. Elementsof compensation for our executives include: salary, incentive bonus, andbenefits such as health, disability, life insurance and perquisites. Basesalaries for our non-contracted executives and discretionary bonuses for allexecutives are set for our officers annually by the Board of Directors.

 

Aspart of its annual review of officer compensation, our Board of Directors takesinto account each officer’s total compensation from prior years, as well asinformation contained in compensation surveys. After reviewing the abovefactors, our Board of Directors makes the ultimate compensationdeterminations.  Compensationdeterminations relating to incentive bonuses to our Chief Executive Officer,Chief Operations Officer and Chief Financial Officer, as well as basecompensation, are determined solely by our Board of Directors.

 

Thefollowing are certain factors that our Board of Directors will also take intoaccount in determining the various components of our executive officers’ totalcompensation package:

 

·                  Performance against corporate and individualobjectives for the previous year;

·                  Difficulty of achieving desired results inthe coming year;

·                  Value of their unique skills and capabilitiesto support our long-term performance;

 

44

----

Tableof Contents

 

·                  Performance of their managementresponsibilities;

·                  Responsibility and authority of each positionrelative to other positions within the Authority; and

·                  Contributions as a member of the seniormanagement team.

 

Theseelements fit into our overall compensation objectives by helping to secure thefuture potential of our operations, providing proper compliance and regulatoryguidance, and helping to create a cohesive team.

 

Inaddition to wages, the Authority provides all employees including executiveswith 401(k) match at 100% up to 5% of gross annual pay, paid medical,dental, vision and life insurance.  TheAuthority also provides insurance for dependents while paying for 50% ofemployee dependent premiums.

 

**Overview of Director Compensation and Procedures**

 

Wereview the level of compensation of our directors on an annual basis. Todetermine how appropriate the current level of compensation for our directorsis, we have historically obtained data from a number of different sources suchas salary surveys and industry standards.

 

**Retention Agreements**

 

Wedo not have individual retention agreements with any employee except for severancearrangements with our Chief Executive Officer, Chief Operations Officer andChief Financial Officer contained in their respective employment contracts thatare discussed in Item 11 under “Employment Agreements.”

 

  **Compensation Committee Interlocks andInsider Participation**

 

Nomember of the Board of Directors has served as one of our officers or employeesat any time. None of our executive officers serve as a member of the Board ofDirectors of any other company that has an executive officer serving as amember of our Board.

 

**Boardof Directors**Report**

 

OurBoard of Directors has reviewed the Compensation Discussion and Analysis anddiscussed that analysis with management. Based on its review and discussionswith management, the Board of Directors has approved the CompensationDiscussion and Analysis and it is to be included in our Annual Report on Form 10-Kfor 2008. This report is provided by our full Board of Directors:

 

BettyArterberry, Chairperson

MargieRojes, Vice Chairperson

HarveyHopkins, Member

GusPina, Member

GabeNevarez, Member

 

**Executive Officers**

 

The following table provides summary information concerningcompensation of our Chief Executive Officer, current and former ChiefOperations Officer, current and Chief Financial Officer and our two most highlycompensated executive officers for each of our fiscal years ended December 31,2008, 2007 and 2006:

 

45

----

Table of Contents

** **
| **Name and Principal Position** | ** ** | **Year**              | ** ** | **Salary** | ** ** | **Bonus (a)** | ** ** | **Other  Compensation (b)** | ** ** | **Total** | ** ** |
|------------------------------------------------|------------|-----------------------|------------|------------|------------|--------------------|------------|----------------------------------|------------|-----------|------------|
| ** **                                     | ** ** | **(In Dollars)** | ** ** |
| Shawn S. Smyth (c)                             |       | 2008                  |       | 298,268    |       | 75,000             |       | 12,979                           |       | 386,247   |       |
| Chief Executive Officer                        |       | 2007                  |       | 324,038    |       | 51,500             |       | 18,753                           |       | 394,291   |       |
|                                           |       | 2006                  |       | 182,692    |       | —             |       | 10,393                           |       | 193,085   |       |
|                                           |       |                  |       |       |       |               |       |                             |       |      |       |
| Norman Runyan                                  |       | 2008                  |       | —     |       | —             |       | —                           |       | —    |       |
| Chief Operations Officer (d)                   |       | 2007                  |       | 380,265    |       | 66,875             |       | 13,910                           |       | 461,050   |       |
|                                           |       | 2006                  |       | 263,317    |       | 62,500             |       | 13,467                           |       | 339,284   |       |
|                                           |       |                  |       |       |       |               |       |                             |       |      |       |
| John Cirrincione                               |       | 2008                  |       | 41,992     |       | —             |       | 1,821                            |       | 43,813    |       |
| Chief Operations Officer (e)                   |       | 2007                  |       | —     |       | —             |       | —                           |       | —    |       |
|                                           |       | 2006                  |       | —     |       | —             |       | —                           |       | —    |       |
|                                           |       |                  |       |       |       |               |       |                             |       |      |       |
| David B. Wolfe                                 |       | 2008                  |       | —     |       | —             |       | —                           |       | —    |       |
| Chief Financial Officer (f)                    |       | 2007                  |       | 56,438     |       | —             |       | 1,865                            |       | 58,303    |       |
|                                           |       | 2006                  |       | 66,807     |       | 11,250             |       | 1,975                            |       | 80,032    |       |
|                                           |       |                  |       |       |       |               |       |                             |       |      |       |
| Joseph R. Callahan                             |       | 2008                  |       | 225,702    |       | 25,000             |       | 6,808                            |       | 257,510   |       |
| Chief Financial Officer (g)                    |       | 2007                  |       | 78,346     |       | 19,587             |       | 2,182                            |       | 100,115   |       |
|                                           |       | 2006                  |       | —     |       | —             |       | —                           |       | —    |       |
|                                           |       |                  |       |       |       |               |       |                             |       |      |       |
| Anthony J. Averitt                             |       | 2008                  |       | 174,403    |       | —             |       | 9,858                            |       | 184,261   |       |
| Marketing Manager                              |       | 2007                  |       | 179,357    |       | 26,434             |       | 7,658                            |       | 213,449   |       |
|                                           |       | 2006                  |       | 181,651    |       | 19,063             |       | 13,075                           |       | 213,789   |       |
|                                           |       |                  |       |       |       |               |       |                             |       |      |       |
| William D. Carnahan                            |       | 2008                  |       | 160,604    |       | 18,960             |       | 7,435                            |       | 186,999   |       |
| Slot Manager                                   |       | 2007                  |       | 151,650    |       | 22,789             |       | 8,723                            |       | 183,162   |       |
|                                           |       | 2006                  |       | 151,289    |       | 21,704             |       | 7,512                            |       | 180,505   |       |

 

----

(a)Dollar amounts for bonuses are not guaranteed and represent the maximum amountthat the principal officer may receive.

(b)“Other Compensation” includes medical, dental, vision and other health benefitsprovided.

(c)Shawn S. Smyth began serving as our Chief Executive Officer in April 2006and left the office in January 2009.

(d)Norman Runyan, our former Chief Operations Officer, served until hisresignation on November 14, 2007.

(e)John Cirricione began serving as our Chief Operations Officer as of October 7,2008.

(f)David B. Wolfe, our former Chief Financial Officer, served until hisresignation on April 11, 2007.

(g)Joseph R. Callahan began serving as our Chief Financial Officer as of August 8,2007.

 

**Employment Agreements**

 

We amended an employment agreement with Mr. ShawnSmyth on July 30, 2007 to continue to serve as our Chief ExecutiveOfficer. This three year amendment to the original employment agreementcommenced as of July 30, 2007, and provides Mr. Smyth a base annualsalary of $300,000 and a discretionary bonus, as determined by our Board, ofnot more than 25% of his annual salary based on various criteria.  Mr. Smyth left as our Chief ExecutiveOfficer and General Manager on January 22, 2009.  Mr. Smyth’s severance package was $89,386.  In addition to his severance package, Mr. Smythreceived $50,000 as settlement and release of any and all claims that Mr. Smythmay have had.

 

We entered into an employment agreement with Mr. JosephR. Callahan on October 17, 2007 effective as of August 8, 2007 toserve as our Chief Financial Officer. This three year employment agreementcommenced on August 8, 2007, and provides Mr. Callahan an annualsalary of $225,000 and a discretionary bonus, as determined by our Board, ofnot more than 25% of his annual salary based on various criteria.  If Mr. Callahan’s employment isterminated for other 

 

46

----

Table of Contents

 

reasons set forth in the employment agreement including death ordisability, Mr. Callahan will be entitled to his salary for threemonths.  Either party may terminate theagreement with a 30 day written notice.

 

We entered into an employment agreement with Mr. JohnCirrincione on October 8, 2008 effective as of October 7, 2008 toserve as our Chief Operations Officer. This three year employment agreement commenced on October 7, 2008,and provides Mr. Cirrincione an annual salary of $275,000 and adiscretionary bonus, as determined by our Board, of not more than 25% of hisannual salary based on various criteria. If Mr. Cirrincione’s employment is terminated for other reasons setforth in the employment agreement including death or disability, Mr. Cirrincionewill be entitled to his salary for three months.  Either party may terminate the agreement witha 30 day written notice.

 

We have no other employment agreements withour principal executive officers. Compensation for our principal executive officers other than thosesubject to employment agreements is set based on the following criteria:

 

·                  Performance against corporate and individualobjectives for the previous year;

·                  Difficulty of achieving desired results inthe coming year;

·                  Value of their unique skills and capabilitiesto support our long-term performance;

·                  Performance of their managementresponsibilities;

·                  Responsibility and authority of each positionrelative to other positions within the Authority; and

·                  Contributions as a member of the seniormanagement team.

 

**Potential Payments to Named Executive Officers UponTermination**

 

Pursuantto their employment agreements, Messrs. Smyth, Callahan and Cirrincioneare entitled to potential severance payments upon certain terminations ofemployment.   The terms and conditions for when severance paymentsare triggered, how payment amounts are determined, and what conditions areattached to the executive’s receipt of severance payments are substantiallysimilar for all named executive officers.

 

Triggering Events: each of Messrs. Smyth, Callahan andCirrincione is entitled to receive severance payments in the event of anytermination of his employment as a result of the following events:

 

·                  The executive dies or becomes unable toperform the duties and responsibilities set forth in his employment agreementby reason of long-term physical or mental disability, defined as a period ofdisability that exceeds three (3) months;

·                  The Authority shall for any reason cease tooperate the Casino; or

·                  The Authority shall give the executive ninety(90) days’ written notice of executive’s termination.

 

Payments**. **If severance is owed to any of Messrs. Smyth, Callahan andCirrincione, we will be obligated to continue to pay the executive his basecompensation in effect as of the date of termination for a severance periodfollowing termination equal to three months. Additionally, we will beobligated, to the extent elected by the executive, to continue all employeebenefits for that three month period.

 

Thefollowing table sets forth a summary of the estimated payments required to bemade by us as if severance had been triggered under our employment agreementson December 31, 2008:

 
| **Name and   Principal Position** | ** ** | **Continued  Payment  of Base  Compensation** | ** ** | **Continued  PTO  Accrual** | ** ** | **Employee  Benefits** | ** ** | **Total  Severance  Compensation** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------|------------|-----------------------------|------------|------------------------|------------|------------------------------------|------------|
| Shawn S. Smyth, Former Chief Executive  Officer  |       | $                                                  | 75,000     |                        | $          | 9,935                  |       | $                                  | 4,451      |   | $ | 89,386 |   |
| John Cirrincione, Chief Operating Officer        |       | 68,750                                             |       | 6,585                       |       | 2,731                  |       | 78,066                             |       |
| Joseph R. Callahan, Chief Financial Officer      |       | 56,250                                             |       | 6,361                       |       | 1,708                  |       | 64,319                             |       |
|                                                  |            |                                                    |            |                             |            |                        |            |                                    |            |  |  |  |  |

 

47

----

Table of Contents

 

**Compensation of Our Board**

 

We are governed by a five-member Board ofDirectors consisting of the same five members as those of the Tribe’s Board ofDirectors. The Tribe compensates members of each Board of Directors for theservices they render. In 2008, we reimbursed the Tribe for 50% of the totalcompensation of the Board members reflecting an estimate of the total timeallocable to Authority Board matters. The members of the Board of Directorsreceived the following amounts for their service as members of the Tribe’sBoard of Directors and as members of the Authority’s Board of Directors for thefiscal year 2008:

 

| **Name**           | ** ** | **Title**         | ** ** | **Fees Paid  in Cash** | ** ** | **All Other  Compensation** | ** ** | **Total** | ** ** |
|--------------------|------------|-------------------|------------|----------------------------------|------------|----------------------------------|------------|-----------|------------|
|               |       |              |       |                             |       |                             |       |      |       |
| Betty Arterberry   |       | Chairperson       |       | $                                | 70,000     |                             | $          | —    |       | $ | 70,000 |   |
| Margie Rojes       |       | Vice  Chairperson |       | 60,000                           |       | —                           |       | 60,000    |       |
| Harvey Hopkins (a) |       | Board Member      |       | 100,000                          |       | —                           |       | 100,000   |       |
| Gus Pina           |       | Board Member      |       | 40,000                           |       | —                           |       | 40,000    |       |
| Gabe Nevarez       |       | Board Member      |       | 40,000                           |       | —                           |       | 40,000    |       |
|                    |            |                   |            |                                  |            |                                  |            |           |            |  |  |  |

 

----

**(a)  Mr. Hopkins is Chairman of the Board ofDirectors of the Tribe.**

 

**Item 12. Security Ownership ofCertain Beneficial Owners and Management.**

 

We have no outstanding equity securities.

 

**Item 13.****CertainRelationships and Related Transactions, and Director Independence.**

 

Distributions to the Tribe were $13.9 million, $12.4million and $15.5 million for the years ended December 31, 2008, 2007 and2006, respectively. Under the Indenture, we currently are restricted from makingpayments to the Tribe other than payments specifically permitted by ourIndenture.

 

The Tribe has incurred expenseson behalf of the Authority that relate to the master planning of the proposedresort and Tribal infrastructure that benefit the Authority.  Total expenses incurred and subsequently reimbursedto the Tribe for the twelve months ended December 31, 2008 and 2007 were$36.0 million and $4.6 million.  Noamounts were incurred or reimbursed in 2006 or 2005.

 

The Tribe has incurred an additional $21.0million in costs relating to the master planning of the proposed resort. Whilethe Tribe has not made any request to us for reimbursement of such amount, itmay request reimbursement from us in the future.  While we have noobligation to pay such amounts when requested and any such reimbursement wouldneed to be approved by management and our Board of Directors, there is apossibility that such request for reimbursement may be made by the Tribe. Priorto making any reimbursement payment, we will consider various factors,including, but not limited to, whether the costs incurred were actually relatedto the master planning, whether such costs are beneficial to our gamingbusiness and expansion plans, the reasonableness of such costs, theavailability of cash and whether the reimbursement payment is in compliancewith the covenants in the Indenture for the Outstanding Notes.

 

The Tribe has incurred expenses on behalf ofthe Authority that relate to the development of land adjacent to the Tribe’sreservation, the Dugan Property, which is expected to include an additionalaccess road to our Casino for the benefit of the Authority.  Total expenses incurred and subsequentlyreimbursed to the Tribe for the twelve months ended December 31, 2008 and2007 were $0.3 million and $0, respectively.

 

TheTribe enacted a tribal gaming ordinance in April 1997, which, among othermatters, created and established the TGA as a governmental subdivision of theTribe. The TGA is responsible for the regulation of all gaming activitiesconducted by the Tribe or us on tribal lands. We pay for various expenses ofthe TGA (gaming commission expense), surveillance, plant operations, humanresources, and warehouse. All of these departments are operated by the Tribe.These expenses include but are not limited to payroll and related expenses,legal and other operational expenses. These expenses were $4.2 million, $7.2 million and $6.2 million for theyears ended December 31, 2008, 2007 and 2006.  In 

 

48

----

Table of Contents

 

2007 and 2006, thepurchasing department was operated by the Tribe.  However, in 2008, we began operating thisdepartment.

 

TheTribe is obligated to remit certain fees to the CGCC on a quarterly basis forinclusion in the RSTF. The RSTF is for the benefit of tribes in California thathave no or limited gaming. We pay these fees on behalf of the Tribe. Compactrevenue sharing trust fund expense remained the same at $1.3 million for theyears ended December 31, 2008 2007 and 2006. Compact revenue sharing trustfund expense includes payments associated with operating 1,600 gaming devices.These fees became payable by the Tribe when we commenced operations in September 2002,and are based on the number of our gaming device licenses. Compact revenuesharing trust fund expense includes payments to the RSTF as required by ourCompact with the State of California.

 

OnApril 16, 2008, we pledged a cash gift, on behalf of the Tribe, toHealthcare Foundation, our local hospital, in the amount of$1.8 million.  Commencing May 2008,this cash donation shall be provided at the monthly rate of $30,000 over thecourse of five years.  This cash donationis a gift and not part of any revenue sharing agreement with any state or localgovernment.

 

Wereserved 50 recreational vehicle spaces and 10 campsite spaces at Alexander RVPark and Campground for casino guests. Alexander RV Park and Campground is a wholly owned subsidiary of theTribe.  The cost of reserving the parkingspaces and campsite spaces was $0.3 million in 2008.

 

Pursuant to the MOA, theTribe has agreed to pay the County up to $75 million in mitigation fees overthe next 12 years to offset impacts of the potential losses and impacts to theCounty resulting from the Tribe’s various ongoing projects and are intended tosupport the services being provided by the County.  In addition to the mitigation fees, the Tribewill pay a fee in lieu of the County’s Transient Occupancy Tax in the amount of9% of the rental collected on occupied hotel rooms, to be paid quarterly andcontinuing for five years after the later to occur of the termination of theMOA, as may be extended, or the Tribe’s Compact with the State (which is nowterminable in 2020 at the earliest), which fees may be applied to programs andservices that serve to promote tourism in the County. Such in lieu fees couldtotal as much as $25 million during the term of the MOA.  It is currently unclear to us what amounts,if any, we will be requested to pay to the Tribe to fund its obligationspursuant to the MOA.

 

**Review, Approval or Ratification of Transactions with RelatedPersons**

 

OurBoard of Directors reviews and approves or disapproves all related partytransactions, and our written Code of Business Conduct and Ethics furtherrequires that any transaction involving a potential conflict of interestinvolving an executive or an employee must be disclosed and approved by ourfull Board of Directors.

 

**Director Independence**

 

Weare a governmental instrumentality of the Tribe and are managed by a board ofdirectors of five members, all of whom are enrolled members of the Tribe. Ourboard of directors is constituted by the same persons who constitute the boardof directors of the Tribe.  The board ofdirectors of the Tribe is elected biannually by the enrolled members of theTribe, who alone have the power to appoint and remove our directors. Mr. HarveyHopkins, a member of our board of directors, has been serving as the Chairmanof the board of directors of the Tribe since 2004.

 

Weare 100% owned by the Tribe and have issued only debt securities which are notlisted on a national securities exchange or in an inter-dealer quotationsystem. As a result, we are not a listed issuer and a majority of the directorson our board of directors are not required to be independent.

 

49

----

Table of Contents

 

**Item 14.  Principal Accounting Fees and Services.**

 

Thefollowing table sets forth the aggregate fees billed for professional servicesrendered by Deloitte & Touche LLP, for the audit of our annualfinancial statements as well as the aggregate fees billed for audit-relatedservices and all other services rendered for the years ended December 31,2008 and 2007.

 
| ** **         | ** ** | **Fiscal Year  2008** | ** ** | **Fiscal Year  2007** | ** ** |
|--------------------|------------|----------------------------|------------|----------------------------|------------|
|               |       |                       |       |                       |       |
| Audit Fees         |       | $                          | 230,396    |                       | $          | 438,510 |   |
| Audit-Related Fees |       | 25,000                     |       | 21,820                     |       |
| All Other Fees     |       | —                     |       | —                     |       |
|                    |            |                            |            |                            |            |  |  |

 

Thecategory of “Audit Fees” includes fees for our annual audit, quarterly reviewsand services rendered in connection with statutory and regulatory filings, orengagements for those fiscal years.

 

Thecategory of “Audit-Related Fees” includes aggregate fees billed in each of thelast two fiscal years, for assurance and related services by the principalaccountant, that are reasonably related to the performance of the audit orreview of the Authority’s financial statements.

 

Thecategory of “All Other Fees” includes aggregate fees billed in each of the lasttwo fiscal years which are not covered by the above categories.

 

Allabove audit services were pre-approved by the TGA, which, under the Compact,has responsibility for ensuring that the audit is performed. The TGA concludedthat the provision of such services by Deloitte & Touche LLP wascompatible with the maintenance of that firm’s independence in the conduct ofauditing functions. The TGA’s outside auditor independence policy provides forpre-approval of all services performed by the outside auditors.

 

**PART IV**

 

**Item 15. Exhibits and FinancialStatement Schedules.**

 

**A. Financial Statements**

 

(a) *Documents filed as part of this report.*

 

1.The following financial statements of the Authority and the Report of Deloitte &Touche LLP, independent registered public accounting firm, appear on pages 55through 73 of this Form 10-K and are incorporated by reference in Part II,Item 8:

 

Reportof Independent Registered Public Accounting Firm

 

BalanceSheets of the River Rock Entertainment Authority as of December 31, 2008and 2007

 

Statementsof Revenues, Expenses and Changes in Fund Deficit for the Years Ended December 31,2008, 2007 and 2006

 

Statementsof Cash Flows for the Years Ended December 31, 2008, 2007 and 2006

 

Notesto Financial Statements for the Years Ended December 31, 2008, 2007 and2006

 

50

----

Table of Contents

 

2.List of financial statement schedules. All schedules are omitted because theyare not applicable or the required information is shown in the financialstatements or notes thereto.

 

3.List of exhibits required by Item 601 of Regulation S-K. See part (c) below.

 

**B. Exhibits.**

 

Theexhibits to this Form 10-K are listed on the exhibit index, which appearselsewhere herein and is incorporated herein by reference.

 

**EXHIBITINDEX**

 

| **Exhibit No.** | ** ** | **Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                  |       | Dry  Creek Rancheria Band of Pomo Indians Ordinance No. 03-10-25-003 setting  forth the River Rock Entertainment Authority Act of 2003 (filed as  Exhibit 3.1 to the Authority’s Registration Statement on Form S-4  (the “Form S-4”), filed with the SEC on May 5, 2004 (SEC File  No. 333-115186), and incorporated by reference herein)                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.2                  |       | Dry  Creek Rancheria Band of Pomo Indians Tribal Council Resolution  No. 03-10-25-002 (the River Rock Entertainment Authority and Bond Resolution  Act) approving, among other things, creation of the River Rock Entertainment  Authority (filed as Exhibit 3.2 to the Authority’s Registration  Statement on Form S-4, filed with the SEC on May 5, 2004) (SEC File  No. 333-115186), and incorporated by reference herein)            |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.3                  |       | Dry  Creek Rancheria Band of Pomo Indians Ordinance No. 97-08-04, as amended  October 25, 2003, authorizing and regulating gaming on the Dry Creek  Band of Pomo Indians Rancheria (filed as Exhibit 3.3 to the  Form S-4, and incorporated by reference herein)                                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.1                  |       | Indenture,  dated as of November 7, 2003, by and among the Authority, the Tribe and  U.S. Bank National Association, as trustee (the “Trustee”), together with the  Exhibits attached thereto (filed as Exhibit 4.1 to the Form S-4,  and incorporated by reference herein)                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.2                  |       | Form of  Global 9 3⁄4% Senior Note due 2011 (contained in the Indenture filed as  Exhibit 4.1 herewith) (filed as Exhibit 4.2 to the Form S-4,  and incorporated by reference herein)                                                                                                                                                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.1                 |       | Tribal-State  Compact between the Dry Creek Rancheria Band of Pomo Indians and the State of  California, effective May 2000 (filed as Exhibit 10.1 to the  Form S-4, and incorporated by reference herein)                                                                                                                                                                                                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.2                 |       | Cash  Collateral and Disbursement Agreement, dated as of November 7, 2003 (the  “Cash Collateral Agreement”), by and among the Trustee, U.S. Bank National  Association, as USB disbursement agent, Wells Fargo Bank, N.A., as  disbursement agent, Merritt & Harris, Inc., as independent  construction consultant, the Authority and the Tribe (filed as  Exhibit 10.2 to the Form S-4, and incorporated by reference herein) |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.3                 |       | Amendment  No. 1 to Cash Collateral Agreement, dated as of November 17, 2003,  by and among the Trustee, U.S. Bank National Association, as USB disbursement  agent, Wells Fargo Bank, N.A., as disbursement agent, Merritt &  Harris, Inc., as independent construction consultant, the Authority and  the Tribe (filed as Exhibit 10.3 to the Form S-4, and incorporated  by reference herein)                                     |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.4                 |       | U.S.  Bank National Association Control Agreement, dated as of November 7,  2003, by and among the Trustee, U.S. Bank National Association, as  disbursement agent, securities intermediary and depository bank, the  Authority and the Tribe (filed as Exhibit 10.4 to the Form S-4, and  incorporated by reference herein)                                                                                                                            |

 

51

----

Table of Contents

 

| 10.5   |   | Wells  Fargo Bank, N.A. Control Agreement, dated as of November 7, 2003, by and  among the Trustee, Wells Fargo Bank, N.A., as depository bank, the Authority  and the Tribe (filed as Exhibit 10.5 to the Form S-4, and  incorporated by reference herein)                   |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                         |
| 10.6   |   | Wells  Fargo Bank, N.A. side letter dated December 1, 2003, from Wells Fargo  Bank, N.A. to the Trustee (filed as Exhibit 10.6 to the Form S-4,  and incorporated by reference herein)                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10.7   |   | Pledge  and Security Agreement, dated as of November 7, 2003, by and among the  Authority, the Tribe and the Trustee (filed as Exhibit 10.7 the  Form S-4, and incorporated by reference herein)                                                                              |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10.8   |   | Employment  Agreement, dated as of April 17, 2006, by and between the Tribe and  Shawn S. Smyth (filed as Exhibit 10.1 to the Form 8-K filed with  the SEC on April 19, 2006, and incorporated by reference herein)                                                      |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10.9   |   | Employment  Agreement, dated as of August 8, 2007, by and between the Authority and  Joseph R. Callahan (filed as Exhibit 10.1 to the Form 8-K filed  with the SEC on October 23, 2007, and incorporated by reference herein)                                            |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10.10  |   | Agreement,  dated as of April 1, 2004, by and between the Authority and Swinerton  Builders (filed as Exhibit 10.19 to the Form S-4, and incorporated  by reference herein)                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10.11  |   | Lease  Agreement, dated as of May 30, 2002, by and between the Tribe and Sprung  Instant Structures, Inc. (filed as Exhibit 10.20 to the  Form S-4, and incorporated by reference herein)

                                                                         |
| 10.12  |   | Amendment  No. 1 to Lease Agreement, dated as of February 26, 2004, by and  between the Tribe and Sprung Instant Structures, Inc. (filed as  Exhibit 10.21 to the Form S-4, and incorporated by reference  herein)

                                           |
| 10.13  |   | Amendment  No. 2 to Lease Agreement, dated as of August 29, 2005, by and  between the Tribe and Sprung Instant Structures, Inc. (filed as  Exhibit 10.20 to the Form 10-K filed with the SEC on April 17,  2007, and incorporated by reference herein)

  |
| 10.14  |   | Memorandum  of Agreement between the Dry Creek Rancheria Band of Pomo Indians and the  County of Sonoma, California, together with exhibits thereto (filed as  Exhibit 10.22 to the Form 10-K filed with the SEC on April 14,  2008, and incorporated by reference herein)    |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10.15  |   | Employment  Agreement, dated as of October 7, 2008, by and between the Authority and  John Cirrincione (filed as Exhibit 10.1 to the Form 8-K/A filed with  the SEC on October 14, 2008, and incorporated by reference herein)                                           |
|   |   |                                                                                                                                                                                                                                                                                         |
| 12.1   |   | Statement  of Calculation of Ratio of Earnings to Fixed Charges (filed herewith as  Exhibit 12.1)

                                                                                                                                                                                |
| 14.1   |   | Code  of Ethics (filed as Exhibit 14.1 to the Form 10-K filed with the  SEC on March 30, 2006, and incorporated herein by reference)                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                         |
| 31.1   |   | Certification  by John Cirrincione, Acting General Manager, pursuant to Exchange Act  Rules 13a-14(a) and 15d-14(a) (filed herewith)                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                         |
| 31.2   |   | Certification  by Joseph R. Callahan, Chief Financial Officer, pursuant to Exchange Act  Rules 13a-14(a) and 15d-14(a) (filed herewith)                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                         |
| 32.1*  |   | Certification  by John Cirrincione, Acting General Manager, pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (furnished herewith)                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                         |
| 32.2*  |   | Certification  by Joseph R. Callahan, Chief Financial Officer, pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (furnished herewith)                                                                                     |

 

52

----

Table of Contents

 

----

*               Thesecertifications are being furnished solely to accompany this annual reportpursuant to 18 U.S.C. Section 1350, and are not being filed for purposesof Section 18 of the Securities Exchange Act of 1934 and are not to beincorporated by reference into any filing of River Rock Entertainment Authoritywhether made before or after the date hereof, regardless of any general incorporationlanguage in such filing.

 

**C. Supplemental Information to be Furnished With ReportsFiled Pursuant to Section 15(d) of the Act by Registrants Which HaveNot Registered Securities Pursuant to Section 12 of the Act**

 

Theregistrant has not sent an annual report or proxy statement to securityholders. The registrant will not be sending an annual report or proxy statementto its security holders subsequent to the filing of this Form 10-K.

 

Exhibit 12.1

 

STATEMENT OF CALCULATION OFRATIO OF EARNINGS TO FIXED CHARGES (Dollars in Thousands)

 

Forthe purpose of calculating the ratio of earnings to fixed charges, “earnings”represent income before income taxes plus fixed charges. “Fixed charges”consist of (a) interest expensed and capitalized; (b) amortized premiums,discounts and capitalized expenses related to indebtedness; and (c) anestimate of the interest within rental expenses.

 
| ** **                                | ** ** | **Fiscal Year Ended**      | ** ** |
|-------------------------------------------|------------|--------------------------------------|------------|
| ** **                                | ** ** | **2008**                             | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                | ** ** | **(Dollars in Thousands)** | ** ** |
| **Earnings:**                             |       |                                 |       |   |   |   |   |   |   |   |   |
| Income before Distributions to the Tribe  |       | $                                    | 24,303     |   | $ | 20,710 |   | $ | 20,229 |   | $ | 18,276 |   | $ | 12,447 |   |
|                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| **Fixed charges**                         |       |                                 |       |   |   |   |   |   |   |   |   |
| Exp (Inc Amort of Debt Costs)             |       | 22,224                               |       | 22,231 |   | 22,243 |   | 22,406 |   | 22,822 |   |
| Less Capitalized Interest                 |       | —                               |       | — |   | — |   | — |   | (4,017 | ) |
| Estimated Interest within Rental Expenses |       | —                               |       | — |   | — |   | — |   | — |   |
| Total Fixed Charges                       |       | 22,224                               |       | 22,231 |   | 22,243 |   | 22,406 |   | 18,805 |   |
|                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Amort of Capitalized Interest             |       | 318                                  |       | 318 |   | 318 |   | 318 |   | 318 |   |
| Less Capitalized Interest                 |       | —                               |       | — |   | — |   | — |   | (4,017 | ) |
| Total                                     |       | 318                                  |       | 318 |   | 318 |   | 318 |   | (3,699 | ) |
|                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Total Earnings                            |       | 46,844                               |       | 43,259 |   | 42,790 |   | 41,000 |   | 31,570 |   |
| Fixed Charges                             |       | 22,224                               |       | 22,231 |   | 22,243 |   | 22,406 |   | 22,822 |   |
| **Ratio of Earnings to Fixed Charges**    |       | 2.11                                 | X     | 1.95 | X  | 1.92 | X  | 1.83 | X  | 1.37 | X |
|                                           |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

53

----

Tableof Contents

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

TheBoard of Directors of River Rock Entertainment Authority

 

Wehave audited the accompanying balance sheets of the River Rock EntertainmentAuthority (the “Authority”), a governmental instrumentality of the Dry CreekRancheria Band of Pomo Indians (the “Tribe”), as of December 31, 2008 and2007 and the related statements of revenues, expenses and changes in funddeficit and of cash flows for each of the three years in the period ended December 31,2008.  These financial statements are theresponsibility of the Authority’s management. Our responsibility is to expressan opinion on the financial statements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. The Authority is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances but not for the purpose of expressing anopinion on the effectiveness of the Authority’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

Inour opinion, such financial statements present fairly, in all materialrespects, the financial position of the River Rock Entertainment Authority asof December 31, 2008 and 2007, and the revenues and expenditures andchanges in fund deficit and the cash flows for each of the three years in theperiod ended December 31, 2008 in conformity with accounting principlesgenerally accepted in the United States of America.

 

RiverRock Entertainment Authority is an unincorporated instrumentality of the Tribeand is not a separate legal entity. These financial statements reflect thefinancial position of the River Rock Entertainment Authority, its revenues andexpenditures and changes in net assets and its cash flows and do not purport torepresent the financial position and activity of the Tribe as a whole.

 

/s/Deloitte & Touche LLP

 

SanFrancisco, CAMarch 30, 2009

 

54

----

Table of Contents

 

**RIVER ROCKENTERTAINMENT AUTHORITY**

**(A Governmental Instrumentality of the Dry CreekRancheria Band of Pomo Indians)**

 

**BALANCE SHEETS**

**DECEMBER 31, 2008 AND 2007**

 
| ** **                                      | ** ** | **December 31, 2008** | ** **  | **December 31, 2007** | ** ** |
|-------------------------------------------------|------------|---------------------------------|-------------|---------------------------------|------------|
| ** **                                      |       |                            |        |                            |       |
| **ASSETS**                                      |       |                            |        |                            |       |
|                                            |       |                            |        |                            |       |
| CURRENT ASSETS:                                 |       |                            |        |                            |       |
| Cash and cash equivalents                       |       | $                               | 27,348,392  |                            | $          | 46,533,389 |   |
| Restricted cash-current                         |       | —                          |        | 466,517                         |       |
| Accounts receivable                             |       | 68,486                          |        | 307,386                         |       |
| Inventories                                     |       | 169,022                         |        | 153,215                         |       |
| Prepaid expenses and other current assets       |       | 1,238,195                       |        | 1,427,891                       |       |
|                                            |       |                            |        |                            |       |
| Total current assets                            |       | 28,824,095                      |        | 48,888,398                      |       |
|                                            |       |                            |        |                            |       |
| RESTRICTED CASH - net of current                |       | 7,090,273                       |        | 6,868,956                       |       |
|                                            |       |                            |        |                            |       |
| PROPERTY AND EQUIPMENT:                         |       |                            |        |                            |       |
| Buildings and building improvements             |       | 130,357,841                     |        | 129,642,521                     |       |
| Furniture, fixtures and equipment               |       | 34,143,554                      |        | 29,969,430                      |       |
|                                            |       |                            |        |                            |       |
| Accumulated depreciation                        |       | (54,484,916                     | )           | (44,460,665                     | )          |
| Construction in progress                        |       | 45,599,195                      |        | 9,256,830                       |       |
|                                            |       |                            |        |                            |       |
| Property and equipment-net                      |       | 155,615,674                     |        | 124,408,116                     |       |
|                                            |       |                            |        |                            |       |
| DEPOSITS AND OTHER ASSETS                       |       | 3,039,529                       |        | 4,339,002                       |       |
|                                            |       |                            |        |                            |       |
| TOTAL ASSETS                                    |       | $                               | 194,569,571 |                            | $          | 184,504,472 |   |
|                                            |       |                            |        |                            |       |
| **LIABILITIES AND FUND DEFICIT**                |       |                            |        |                            |       |
|                                            |       |                            |        |                            |       |
| CURRENT LIABILITIES:                            |       |                            |        |                            |       |
| Accounts payable:                               |       |                            |        |                            |       |
| Trade                                           |       | $                               | 3,045,712   |                            | $          | 3,563,243 |   |
| Construction                                    |       | —                          |        | 466,517                         |       |
| Accrued liabilities                             |       | 8,102,078                       |        | 7,566,821                       |       |
| Current maturities of long-term debt            |       | 45,011                          |        | 213,172                         |       |
|                                            |       |                            |        |                            |       |
| Total current liabilities                       |       | 11,192,801                      |        | 11,809,753                      |       |
|                                            |       |                            |        |                            |       |
| LONG-TERM DEBT - net of current maturities      |       | 199,045,924                     |        | 198,747,638                     |       |
|                                            |       |                            |        |                            |       |
| Total long-term liabilities                     |       | 199,045,924                     |        | 198,747,638                     |       |
|                                            |       |                            |        |                            |       |
| COMMITMENTS AND CONTINGENCIES                   |       |                            |        |                            |       |
|                                            |       |                            |        |                            |       |
| FUND DEFICIT:                                   |       |                            |        |                            |       |
| Invested in capital assets-net of related  debt |       | (43,475,261                     | )           | (74,552,694                     | )          |
| Restricted for capital projects                 |       | 7,090,273                       |        | 7,335,473                       |       |
| Unrestricted                                    |       | 20,715,834                      |        | 41,164,302                      |       |
|                                            |       |                            |        |                            |       |
| Total fund deficit                              |       | (15,669,154                     | )           | (26,052,919                     | )          |
|                                            |       |                            |        |                            |       |
| TOTAL LIABILITIES AND FUND DEFICIT              |       | $                               | 194,569,571 |                            | $          | 184,504,472 |   |

 

The accompanying notes are an integral partof these financial statements.

 

55

----

Table of Contents

 

**RIVER ROCKENTERTAINMENT AUTHORITY**

**(A Governmental Instrumentality of the Dry CreekRancheria Band of Pomo Indians)**

** **

**STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND DEFICIT**

**YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006**

 
| ** **                                 | ** ** | **2008**    | ** **  | **2007**    | ** ** | **2006**    | ** ** |
|--------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
|                                       |       |        |        |        |       |        |       |
| REVENUES:                                  |       |        |        |        |       |        |       |
|                                       |       |        |        |        |       |        |       |
| Casino                                     |       | $           | 136,727,316 |        | $          | 145,714,135 |       | $ | 136,294,029 |   |
| Food, beverage & retail           |       | 7,879,974   |        | 7,516,412   |       | 6,244,262   |       |
| Other                                      |       | 597,458     |        | 614,939     |       | 622,605     |       |
|                                       |       |        |        |        |       |        |       |
| Gross revenues                             |       | 145,204,748 |        | 153,845,486 |       | 143,160,896 |       |
|                                       |       |        |        |        |       |        |       |
| Promotional allowances                     |       | (14,632,207 | )           | (14,467,530 | )          | (12,541,699 | )          |
|                                       |       |        |        |        |       |        |       |
| Net revenues                               |       | 130,572,541 |        | 139,377,956 |       | 130,619,197 |       |
|                                       |       |        |        |        |       |        |       |
| OPERATING EXPENSES:                        |       |        |        |        |       |        |       |
| Casino                                     |       | 20,787,385  |        | 23,375,622  |       | 20,454,077  |       |
| Food, beverage & retail           |       | 7,063,259   |        | 4,640,121   |       | 5,996,913   |       |
| Selling, general and administrative        |       | 43,506,106  |        | 43,978,609  |       | 39,903,231  |       |
| Depreciation                               |       | 10,024,251  |        | 11,800,855  |       | 11,502,565  |       |
| Credit enhancement fee                     |       | —      |        | 11,348,897  |       | 8,078,806   |       |
| Gaming commission and surveillance expense |       | 3,694,674   |        | 3,023,303   |       | 3,154,384   |       |
| Compact revenue sharing trust fund         |       | 1,335,000   |        | 1,335,000   |       | 1,335,000   |       |
|                                       |       |        |        |        |       |        |       |
| Total Operating expenses                   |       | 86,410,675  |        | 99,502,407  |       | 90,424,976  |       |
|                                       |       |        |        |        |       |        |       |
| INCOME FROM OPERATIONS                     |       | 44,161,866  |        | 39,875,549  |       | 40,194,221  |       |
|                                       |       |        |        |        |       |        |       |
| OTHER EXPENSE-Net:                         |       |        |        |        |       |        |       |
| Interest expense                           |       | (20,864,558 | )           | (20,871,677 | )          | (20,883,967 | )          |
| Interest income                            |       | 1,005,517   |        | 1,700,885   |       | 1,045,942   |       |
| Gain (loss) on sale of assets              |       | —      |        | 4,547       |       | (126,394    | )          |
| Other income (expense), net                |       | —      |        | 869         |       | (640        | )          |
|                                       |       |        |        |        |       |        |       |
| Other expense-net                          |       | (19,859,041 | )           | (19,165,376 | )          | (19,965,059 | )          |
|                                       |       |        |        |        |       |        |       |
| INCOME BEFORE DISTRIBUTIONS TO TRIBE       |       | 24,302,825  |        | 20,710,173  |       | 20,229,162  |       |
|                                       |       |        |        |        |       |        |       |
| TRIBAL CONTRIBUTIONS (DISTRIBUTIONS):      |       |        |        |        |       |        |       |
| Contributions from the Tribe               |       | —      |        | —      |       | 1,381,137   |       |
| Distributions to the Tribe                 |       | (13,919,060 | )           | (12,427,200 | )          | (15,521,137 | )          |
|                                       |       |        |        |        |       |        |       |
| NET INCOME AFTER TRIBAL DISTRIBUTIONS      |       | 10,383,765  |        | 8,282,973   |       | 6,089,162   |       |
|                                       |       |        |        |        |       |        |       |
| FUND DEFICIT-Beginning of period           |       | (26,052,919 | )           | (34,335,892 | )          | (40,425,054 | )          |
|                                       |       |        |        |        |       |        |       |
| FUND DEFICIT-End of period                 |       | $           | (15,669,154 | )           | $          | (26,052,919 | )          | $ | (34,335,892 | ) |

 

The accompanying notes are an integral partof these financial statements.

 

56

----

Table of Contents

 

**RIVER ROCK ENTERTAINMENT AUTHORITY**

**(A Governmental Instrumentality ofthe Dry Creek Rancheria Band of Pomo Indians)**

** **

**STATEMENTS OF CASH FLOWS**

**YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006**

 
| ** **                                                 | ** ** | **2008**    | ** **  | **2007**    | ** ** | **2006**    | ** ** |
|------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                      |       |        |        |        |       |        |       |
| Cash received from gaming winnings and  concessions        |       | $           | 130,811,441 |        | $          | 139,274,125 |       | $ | 130,439,469 |   |
| Cash paid for salaries and benefits                        |       | (30,864,008 | )           | (28,936,485 | )          | (27,675,936 | )          |
| Cash paid to suppliers                                     |       | (43,995,801 | )           | (43,787,259 | )          | (40,878,038 | )          |
| Cash paid for compact revenue sharing trust  fund          |       | (1,335,000  | )           | (1,335,000  | )          | (1,335,000  | )          |
|                                                       |       |        |        |        |       |        |       |
| Net cash provided by operating activities                  |       | 54,616,632  |        | 65,215,381  |       | 60,550,495  |       |
|                                                       |       |        |        |        |       |        |       |
| CASH FLOWS FROM CAPITAL AND RELATED FINANCING  ACTIVITIES: |       |        |        |        |       |        |       |
| Payments of long-term debt                                 |       | (207,125    | )           | (835,207    | )          | (522,311    | )          |
| Purchases of property and equipment                        |       | (41,698,326 | )           | (7,876,958  | )          | (4,474,546  | )          |
| Change in restricted cash                                  |       | 245,200     |        | (87,220     | )          | 125,228     |       |
| Interest paid                                              |       | (19,505,613 | )           | (19,512,732 | )          | (19,525,022 | )          |
| Credit enhancement fee                                     |       | —      |        | (12,131,967 | )          | (7,981,395  | )          |
| Proceeds from sale of fixed assets                         |       | —      |        | 33,445      |       | 27,350      |       |
| Other                                                      |       | 277,778     |        | (94,039     | )          | (206,398    | )          |
|                                                       |       |        |        |        |       |        |       |
| Net cash used in capital and related  financing activities |       | (60,888,086 | )           | (40,504,678 | )          | (32,557,094 | )          |
|                                                       |       |        |        |        |       |        |       |
| CASH FLOW FROM INVESTING ACTIVITIES:                       |       |        |        |        |       |        |       |
| Interest Income                                            |       | 1,005,517   |        | 1,700,885   |       | 1,045,942   |       |
|                                                       |       |        |        |        |       |        |       |
| CASH FLOW FROM NON-CAPITAL FINANCING  ACTIVITIES:          |       |        |        |        |       |        |       |
| Distributions to Tribe                                     |       | (13,919,060 | )           | (12,427,200 | )          | (15,521,137 | )          |
| Contributions from Tribe                                   |       | —      |        | —      |       | 1,381,137   |       |
| Net cash used in non-capital financing  activites          |       | (13,919,060 | )           | (12,427,200 | )          | (14,140,000 | )          |
|                                                       |       |        |        |        |       |        |       |
| CHANGE IN CASH AND CASH EQUIVALENTS                        |       | (19,184,997 | )           | 13,984,388  |       | 14,899,343  |       |
|                                                       |       |        |        |        |       |        |       |
| CASH AND CASH EQUIVALENTS, Beginning of the  period        |       | 46,533,389  |        | 32,549,001  |       | 17,649,658  |       |
|                                                       |       |        |        |        |       |        |       |
| CASH AND CASH EQUIVALENTS, End of the  period              |       | $           | 27,348,392  |        | $          | 46,533,389  |       | $ | 32,549,001 |   |

 

57

----

Table of Contents

 

**RIVER ROCK ENTERTAINMENT AUTHORITY**

**(A Governmental Instrumentality ofthe Dry Creek Rancheria Band of Pomo Indians)**

** **

**STATEMENTS OF CASH FLOWS (CONTINUED)**

**YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006**
| ** **                                                                                            | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                                                                                  |       |       |       |       |       |       |       |
| RECONCILIATION OF INCOME BEFORE  DISTRIBUTIONS TO TRIBE TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |       |       |       |       |       |       |       |
| Income before Distributions to Tribe                                                                  |       | $          | 24,302,825 |       | $          | 20,710,173 |       | $ | 20,229,162 |   |
|                                                                                                  |       |       |       |       |       |       |       |
| Adjustments to reconcile operating income  to net cash provided by operating activities:              |       |       |       |       |       |       |       |
| Depreciation                                                                                          |       | 10,024,251 |       | 11,800,855 |       | 11,502,565 |       |
| Interest Expense, net                                                                                 |       | 20,864,558 |       | 20,871,677 |       | 20,883,967 |       |
| Interest Income                                                                                       |       | (1,005,517 | )          | (1,700,885 | )          | (1,045,942 | )          |
| Credit enhancement fee                                                                                |       | —     |       | 11,348,897 |       | 8,078,806  |       |
| Gain (Loss) on sale of assets                                                                         |       | —     |       | (4,547     | )          | 126,394    |       |
| Changes in operating assets and  liabilities:                                                         |       |       |       |       |       |       |       |
| Accounts receivable                                                                                   |       | 238,900    |       | (103,831   | )          | (110,303   | )          |
| Inventories                                                                                           |       | (15,807    | )          | 7,386      |       | (1,167     | )          |
| Prepaid expenses and other current assets                                                             |       | 189,696    |       | (31,602    | )          | 31,617     |       |
| Accounts payable                                                                                      |       | (517,531   | )          | 1,061,537  |       | 322,195    |       |
| Accrued liabilities                                                                                   |       | 535,257    |       | 1,255,721  |       | 533,201    |       |
| Total adjustments                                                                                     |       | 30,313,807 |       | 44,505,208 |       | 40,321,333 |       |
|                                                                                                  |       |       |       |       |       |       |       |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                             |       | $          | 54,616,632 |       | $          | 65,215,381 |       | $ | 60,550,495 |   |
|                                                                                                  |       |       |       |       |       |       |       |
| SUPLLEMENTARY SCHEDULE OF NONCASH CAPITAL  AND RELATED FINANCING ACTIVITIES:                          |       |       |       |       |       |       |       |
| Acquisition of property and equipment  through third party financing                                  |       | $          | —     |       | $          | 316,080    |       | $ | 980,995 |   |
| Acquisition of property and equipment  through Accounts Payable Construction                          |       | $          | —     |       | $          | —     |       | $ | 467,997 |   |

 

The accompanying notes are an integral partof these financial statements.

 

58

----

Table of Contents

 

**RIVER ROCK ENTERTAINMENTAUTHORITY (A Governmental Instrumentality of the Dry Creek Rancheria Band of PomoIndians)**

 

1.                              DESCRIPTIONOF BUSINESS

 

River Rock Entertainment Authority (the “Authority”)is a governmental instrumentality of the Dry Creek Rancheria Band of PomoIndians (the “Tribe”), a federally recognized Indian tribe. River Rock Casino(the “Casino”) is a governmental development project of the Authority. TheCasino offers Class III gaming (as defined by the Indian Gaming RegulatoryAct of 1988, as amended) on tribal land located in Geyserville, California. Thelegal authority for slot machines and table games is provided by the Tribe’sgaming compact with the State of California (the “Compact”), which was enteredinto in September 1999 and became effective upon approval by the Secretaryof Interior on May 5, 2000.  The Compact expires on December 31,2020.

 

The Authority was formed as an unincorporated instrumentalityof the Tribe on November 5, 2003 pursuant to a reorganization whereby theTribe’s gaming business became owned and operated by the Authority. Thisreorganization was accounted for as a reorganization of entities under commoncontrol. Accordingly, after the reorganization, the assets and liabilities ofthe Casino’s operating property were presented by the Authority on ahistorical-cost basis.

 

The Authority operates as a separate, wholly ownedoperating unit of the Tribe and is not a separate legal entity. These financialstatements reflect the financial position and activity of only the Authorityand do not purport to represent the financial position and activity of theTribe.

 

2.                              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

*AccountingStandards*—The Authority prepares its financial statements inaccordance with accounting principles generally accepted in the United Statesof America (“GAAP”). The financial statements presented are prepared on theaccrual basis of accounting from the accounts and financial transactions of theAuthority. GAAP requires the Authority to apply all applicable pronouncementsof the Governmental Accounting Standards Board (“GASB”). The Authority is alsorequired to follow Financial Accounting Standards Board (“FASB”) Statements andInterpretations, Accounting Principles Board Opinions and Accounting ResearchBulletins issued on or before November 30, 1989, unless thosepronouncements conflict with or contradict GASB pronouncements.  TheAuthority is given the option whether to apply all FASB Statements andInterpretations issued after November 30, 1989, except for those thatconflict with or contradict GASB pronouncements. Accordingly, the Authority haselected to implement non-conflicting FASB Statements and Interpretations issuedafter November 30, 1989.

 

There are differences between financialstatements prepared in accordance with GASB pronouncements and those preparedin accordance with FASB pronouncements. The statements of revenues, expensesand changes in fund deficit are a combined statement under GASB pronouncements.FASB pronouncements allow a statement of income or operations and a separatestatement of owners’ or shareholders’ (deficit) equity, which is wheredistributions to owners would be presented under FASB pronouncements.  Theamount shown as income before distributions to Tribe would not be different ifthe Authority followed all FASB pronouncements to determine net income andwould be the most comparable amount to net income computed under FASB pronouncements.The Authority is a separate fund of the Tribe, a governmental entity, and assuch there is no owners’ or shareholders’ (deficit) equity as traditionallyrepresented under FASB pronouncements.  The most comparable measure ofowners’ (deficit) equity is presented on the Authority’s balance sheet as fund(deficit) equity.

 

*Recent Accounting Pronouncements-*The Authority adopted the required provisionsof Statement of Financial Accounting Standards (“SFAS”) No. 157 “*Fair Value Measurements*” (“SFAS No. 157”)on January 1, 2008.  SFAS No. 157 clarifies the principle thatfair value should be based on the assumptions market participants would usewhen pricing an asset or liability and establishes a fair value hierarchy thatprioritizes the information used to develop those assumptions. SFAS No. 157establishes a fair value hierarchy for disclosure of the inputs used to measurefair values. This hierarchy prioritizes the inputs into three broad levels.Level 1 inputs are quoted prices (unadjusted) in active markets for identicalassets or liabilities. Level 2 inputs are quoted prices for similar assets andliabilities in active markets or inputs that are observable for similar assetsor liabilities, either directly or indirectly through market corroboration, forsubstantially the full term of the financial instrument. Level 3 inputs areunobservable inputs which reflect assumptions developed by management tomeasure assets and liabilities at fair value. A financial asset or 

 

59

----

Table of Contents

 

liability’s classification within the hierarchy is determined based onthe lowest level input that is significant to the fair value measurement.  There was no material impact to the condensedfinancial statements upon the adoption of SFAS No. 157.

 

The Authority adopted the provisions of SFAS No. 159,“*The Fair Value Option for Financial Assetsand Financial Liabilities**Includingan amendment of FASB Statement No. 115*” (“SFAS No. 159”)on January 1, 2008. SFAS No. 159 provides a company with the optionto measure selected financial instruments and certain other items at fair valueat specified election dates. Upon adoption, the Authority has not elected toapply SFAS No. 159 to measure selected financial instruments and certainother items; therefore, there was no impact to the financial statements uponadoption of SFAS No. 159. Subsequent to the initial adoption of SFAS No. 159on January 1, 2008, the Authority has not made any elections during theyear ended December 31, 2008.

 

 *Use of Estimates*—Thepreparation of financial statements in conformity with GAAP requires managementto make estimates and assumptions that affect the reported amounts of revenuesand expenses during the reporting period. Actual results could differ fromthese estimates.

 

*Cash and Cash Equivalents*—The Authority considers all highly liquidinvestments with a maturity of three months or less at date of purchase as cashequivalents. The carrying amount of cash and cash equivalents approximates itsfair value. Cash and cash equivalents include cash on hand, cash on depositwith banks and highly liquid investments. The Federal Deposit Insurance Corporation (“FDIC”) has insured $250,000of the cash on deposit with the banks. The Authority believes that there islittle risk of loss regarding the uninsured amounts of cash and cashequivalents on deposit with the banks.

 

*Inventories*—Inventories, consisting principally ofgaming supplies and food and beverage items, are stated at the lower of cost(first-in, first-out) or market value.

 

*Restricted Cash*—Restricted cash consists of estimatedconstruction expenses for three parking structures, related infrastructureimprovements and construction contingencies. It also includes funds that arereserved for additional construction contingencies and the funds necessary todevelop an approximately 18 acre parcel of land adjacent to the Tribe’sreservation. These funds are held in escrow accounts which are restricted forauthorized construction disbursements. These escrow accounts are invested inCDs, which generate interest on a monthly basis. The FDIC has insured $250,000of this balance. The Authority believes that there is little risk of loss regardingthe uninsured amounts of restricted cash held in the escrow account. Restrictedcash was $7,090,273 and $7,335,473 at December 31, 2008 and December 31,2007, respectively.  As of December 31,2008, restricted cash includes amounts available for construction of $2,769,081and land development funds of $4,321,192.

 

Property and Equipment—Property and equipmentare stated at cost. Depreciation and amortization are computed using thestraight-line method over the estimated useful lives of the assets as follows:

 

| Buildings and improvements        |   | 21 years |   |
|-----------------------------------|--------|----------|--------|
| Furniture, fixtures and equipment |   | 5 years  |   |

 

The Authority evaluates its property andequipment for impairment in accordance with the FASB’s SFAS No. 144, “*Accounting**for the Impairment or Disposal of Long-Lived Assets.” *Whenevents or circumstances indicate that an asset should be reviewed forimpairment, the Authority compares the undiscounted cash flows derived from theasset or asset group to the net carrying value. If impairment is indicated, theimpairment loss is measured by the amount in which the carrying value of theasset or asset group exceeds its fair value. Fair value is measured bycomparable sales, solicited offers or discounted cash flow models. We did nothave any recorded impairments in the statement of revenues, expenses andchanges in fund deficit for the periods presented.

 

*Capitalized Interes*t—The interest cost associated with majordevelopment and construction projects is capitalized and included in the costof the asset. Capitalization of interest ceases when the project issubstantially complete or development activity is suspended.  There was no capitalized interest for theyears ended December 31, 2008 and 2007.

 

*Depositsand Other Assets*—As of December 31, 2008 and December 31,2007, deposits and other assets include $2,897,142 and $3,918,837 in bond legalfees and other issuance costs related to the issuance of the Authority’s 9 3⁄4%Senior Notes due 2011 (the “Senior Notes”) under the Indenture, dated November 7,2003 (the “Indenture”); $0 and 

 

60

----

Table of Contents

 

$350,485 of deferred financing fees; $0 and$41,883 of equipment deposits; $126,487 and $11,372 of performance deposits and$15,900 and $16,425 of rental deposits.  Deferred loan costs are amortizedusing the effective interest method to interest expense over the term of therelated financial arrangement.

 

*AccruedLiabilities*—Accrued liabilities consist of accrued interest,accrued payroll and other accrued liabilities.

 

*Accrued Progressive Slot Jackpots*—Accrued progressive slot jackpots consist ofestimates for prizes relating to various games that have accumulated jackpots.The Authority has recorded the cost of these anticipated payouts as a reductionof Casino revenues, and the cost is included as a component of accruedliabilities.

 

*AccruedSlot Players Club*—In accordance with Emerging Issues TaskForce Issue No. 00-22, “*Accounting for ‘Points’and Certain Other Time-based or Volume-Based Sales Incentive Offers and Offersfor Free Products or Services to Be Delivered in the Future*,” theAuthority has recorded a liability related to prizes and cash incentives earnedby the members of our Players Club and have adjusted the liability for theestimated future breakage. The Authority has recorded the cost of the estimatedredemption of the liability related to prizes as an operating expense and theestimated redemption of the liability related to cash as promotional allowancein the accompanying statements of revenues, expenses and changes in funddeficit.

 

*Casino Revenues*—In accordance with industry practice, theAuthority recognizes as casino revenue the net win from gaming activities,which is the difference between gaming wins and losses. Casino revenues are netof accruals for anticipated payouts of progressive slot jackpots.

 

*Food, Beverage and Retail*—The Authority recognizes as food, beverageand retail revenues the proceeds from its food, beverage and gift shop sales.The Authority continues to distribute non-alcoholic beverages free of charge inthe gaming area for playing guests.  Theretail value of these free beverages is also included in food, beverage andretail revenue.

 

Other Revenues—Other revenues are comprisedof commissions on ATM and vending machine transactions.

 

*PromotionalAllowances*—The retail value of food and beverages provided tocustomers without charge or at a discount is included in food, beverage andretail revenues and then deducted as promotional allowances. Such amounts thatare included in food, beverage, and retail revenues for the years ended December 31,2008, 2007 and 2006 were $2,386,172, $2,897,660 and $2,160,035,respectively.  The distribution of electronic coupons (e-coupons) to customers isincluded in Casino revenues and is also deducted as promotionalallowances.  The total e-coupons for theyears ended December 31, 2008, 2007 and 2006 were $10,398,776, $9,562,441and $8,788,573, respectively.  Theredemption of cash incentives earned by the Players Club members is alsorecorded as promotional allowances.  Thetotal cash incentives for the years ended December 31, 2008, 2007 and 2006were $1,847,259, $2,007,429 and $1,593,091, respectively.

 

*Food andBeverage Expenses*—Foodand beverage expenses include cost of goods sold related to providing food andbeverage to our customers. The estimated costs of providing complimentaryservices are reclassified from food, beverage and retail costs to Casinoexpenses.  The estimated costs of such complementary services were$4,440,552, $5,801,400 and $3,845,342 for the years ended December 31,2008, 2007 and 2006, respectively.

 

*Advertising Costs*—Advertising costs are expensed the firsttime advertising takes place. Advertising costs included in selling, generaland administrative expenses were $6,310,057, $7,910,198 and $5,210,739 for theyears ended December 31, 2008, 2007 and 2006, respectively.

 

*Gaming Commission and Surveillance Expenses*—The Authority pays for various expenses forthe Tribal Gaming Commission and surveillance. Tribal Gaming Commission expenses are reported as Gaming Commission andsurveillance expense on the Statement of Revenues, Expenses and Changes in FundDeficit. Gaming Commission and surveillance expenses for the years ended December 31,2008, 2007 and 2006 were $3,694,674, $3,023,303 and $3,154,384, respectively.

 

*Income Taxes*—As a governmental instrumentality of the DryCreek Rancheria Band of Pomo Indians, a federally recognized Indian tribe, theAuthority is a nontaxable entity for purposes of federal and state incometaxes.

 

61

----

Table of Contents

 

*Distributions to Tribe*—Distributions to Tribe are made up ofpermitted payments under the covenants of the Indenture.  They areincluded in the statements of revenues, expenses and changes in fund deficit asdistributions to Tribe allowed pursuant to the Indenture.  Total distributionsto the Tribe for the years ended December 31, 2008, 2007 and 2006 were$13,919,060, $12,427,200 and $15,121,137, respectively.

 

**3.**        CERTAIN RISKS AND UNCERTAINTIES

 

The Authority’s operations are dependent onthe continued licensing and qualification of the Authority by the Tribal GamingCommission. Such licensing and qualification are reviewed periodically by theTribal Gaming Commission and regulatory agencies of the State of California.The Authority believes that no events or circumstances have arisen that wouldhave an adverse effect on the Casino’s ability to continue its licensing andqualification by the Tribal Gaming Commission or regulatory agencies of theState of California to operate the Authority.

 

**4.**        RELATED PARTIES

** **

The Authority has been constructed on federalland beneficially owned by the Tribe. The Authority does not pay the Tribe forthe use of the land.

 

The Authority pays for various expenses for thefollowing departments operated by the Tribe:  Tribal Gaming Commission,surveillance, plant operations, human resources and warehouse.  Thesedepartmental expenses include but are not limited to payroll and relatedexpenses, legal, and other operational expenses.

 

Total amounts billed by the Tribe to the Casino forthese departments, excluding Tribal Gaming Commission and surveillance, were$4,158,064, $4,178,576 and $3,188,736 for the years ended December 31,2008, 2007 and 2006, respectively. They are recorded as a component of selling,general and administrative expenses.

 

 TheAuthority pays for various expenses for the Tribal Gaming Commission andsurveillance.  The Tribal GamingCommission and surveillance expenses are recorded in Gaming Commission andsurveillance expenses on the Statement of Revenues, Expenses and Changes inFund Deficit.  Gaming Commission andsurveillance expenses were $3,694,674, $3,023,303 and $3,154,384for the yearsended December 31, 2008, 2007 and 2006, respectively.

 

The Tribe has incurred expenses on behalf ofthe Authority that relate to the development of land adjacent to the Tribe’sreservation, the Dugan Property, which is expected to include an additionalaccess road to our Casino for the benefit of the Authority.  Total expenses incurred and subsequentlyreimbursed to the Tribe for the twelve months ended December 31, 2008 and2007 were $0.3 million and $0, respectively.

 

The Tribe has incurred expenses on behalf ofthe Authority that relate to the master planning for the proposed resort andTribal infrastructure that benefit the Authority. The Authority reimbursed$36.0 million to the Tribe for these expenses for the year ended December 31,2008. These expenses were capitalized and reflected inconstruction-in-progress. The reimbursed costs consisted of engineering anddesign costs related to the proposed master plan development, includingelectrical, HVAC, landscaping, interior design services and consulting fees forlegal, branding, feasibility, public relations services, as well as theconstruction of the lower Acorn Road. While the Tribe has not made any additionalrequest to the Authority for reimbursement, it may request additionalreimbursements from the Authority in the future. While the Authority has noobligation to pay such amounts when requested, and any such reimbursement wouldneed to be approved by management and the Board of Directors of the Authority,there is a possibility that such request for reimbursement may be made by theTribe. Prior to making any reimbursement payment, the Authority will considervarious factors, including, but not limited to, whether the costs incurred wereactually related to the master planning, whether such costs are beneficial tothe gaming business and expansion plans of the Authority, the reasonableness ofsuch costs, the availability of cash and whether the reimbursement payment isin compliance with the covenants in the Indenture.

 

**5.**                            DEVELOPMENT AND LOAN AGREEMENT

 

The Tribe entered into a Development and LoanAgreement with Dry Creek Casino, LLC (“DCC”) on August 26, 2001,which has been amended from time to time (as amended, the “DevelopmentAgreement”). In consideration of DCC providing credit enhancement and otherservices under the Development Agreement, the Tribe was obligated to pay DCC aCredit Enhancement Fee (the “Credit Enhancement Fee”). The Credit EnhancementFee was defined as 20% 

 

62

----

Table of Contents

 

of the Authority’s net income before distributions to the Tribe plusdepreciation and amortization plus annual interest on $25.0 million principalamount of the Senior Notes less revenues from sales of alcoholic beverages. TheCredit Enhancement Fee was required to be paid monthly for a period of fiveyears commencing on June 1, 2003.

 

The Authority had the right to terminate theDevelopment Agreement by exercising a buy-out option (the “Buy-Out Option”) anddid so on January 31, 2007. Subsequently on March 2, 2007, the Authority and DCC signed amutual agreement to fix the amounts due to DCC in respect of such exercise tothe sum of $11,350,000 less the amount paid after the Authority exercised thebuy-out option of $737,491.  The netpayment of $10,612,509 was made in March 2007 and expensed in full in thethree months ended March 31, 2007. Credit Enhancement Fee expense was $0, and $11,348,897 for each of theyears ended December 31, 2008 and 2007, respectively.

 

**6.**                            CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

Cash and cash equivalents and restricted cashconsisted of the following as of December 31, 2008 and December 31,2007:

 
| ** **                                           | ** ** | **December 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
|                                                 |       |                            |       |                            |       |
| Operating accounts                                   |       | $                               | 9,221,163  |                            | $          | 6,352,843 |   |
| Money Market Accounts                                |       | 12,157,902                      |       | 3,000,298                       |       |
| Short Term Investments                               |       | —                          |       | 31,013,947                      |       |
| Cash on hand                                         |       | 5,969,327                       |       | 6,166,301                       |       |
|                                                 |       |                            |       |                            |       |
| Cash and cash equivalents                            |       | 27,348,392                      |       | 46,533,389                      |       |
| Restricted cash                                      |       | 7,090,273                       |       | 7,335,473                       |       |
|                                                 |       |                            |       |                            |       |
| Total cash and cash equivalents and  restricted cash |       | $                               | 34,438,665 |                            | $          | 53,868,862 |   |

 

The Authority’s cash inbanks and cash equivalents (the “Investments”) are categorized by level ofcredit risk assumed by the Authority. Category 1 includes cash that isinsured or registered or for which the investments are held by the Authority orits agent in the Authority’s name. Category 2 includes uninsured andunregistered investments for which the investments are held by the counterparty’strust department or agent in the Authority’s name. Category 3 includesuninsured and unregistered investments for which the investments are held bythe counterparty’s agent but not in the Authority’s name. At December 31,2008, the Authority had $9,221,163 cash in banks ($250,000 of which is FDICinsured — Category 1), $12,157,902 in Money Market accounts and $0 in shortterm investments which are Category 2 investments, and $7,090,273 restrictedcash in bank ($250,000 of which is FDIC insured — Category 1) which is aCategory 3 investment.  Amounts inCategory 2 and Category 3 investments are invested in short term, highly liquidcash equivalents and investments.  As of December 31,2008 and 2007, these amounts are composed of money market accounts in theamount of $12,157,902 and $3,000,298, respectively and A1/P1 securities in theamount of $0 and $31,013,947, respectively.

 

63

----

Table of Contents

 

**7.**                                       PROPERTY AND EQUIPMENT

 

Property and equipment at December 31, 2008 and December 31,2007 consisted of the following:

 
| ** **                        | ** ** | **Balance,**          | ** **  | ** **    | ** ** | ** **       | ** ** | **Balance,**          | ** ** |
|-----------------------------------|------------|-----------------------|-------------|---------------|------------|------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **December 31,** | ** **  | ** **    | ** ** | ** **       | ** ** | **December 31,** | ** ** |
| ** **                        | ** ** | **2007**              | ** **  | **Additions** | ** ** | **Dispositions** | ** ** | **2008**              | ** ** |
| ** **                        | ** ** | ** **            | ** **  | ** **    | ** ** | ** **       | ** ** | ** **            | ** ** |
| Buildings and improvements        |       | $                     | 129,642,521 |          | $          | 715,320          |       | $                     | —     |   | $ | 130,357,841 |   |
| Furniture, fixtures and equipment |       | 29,969,430            |        | 4,174,124     |       | —           |       | 34,143,554            |       |
| Less accumulated depreciation     |       | (44,460,665           | )           | (10,024,251   | )          | —           |       | (54,484,916           | )          |
|                              |       |                  |        |          |       |             |       |                  |       |
|                              |       | 115,151,286           |        | (5,134,807    | )          | —           |       | 110,016,479           |       |
|                              |       |                  |        |          |       |             |       |                  |       |
| Construction in progress          |       | 9,256,830             |        | 36,342,365    |       | —           |       | 45,599,195            |       |
|                              |       |                  |        |          |       |             |       |                  |       |
| Property and equipment—net   |       | $                     | 124,408,116 |          | $          | 31,207,558       |       | $                     | —     |   | $ | 155,615,674 |   |

 

Construction in progressconsists of payments to the Tribe and various vendors related to the Authority’smaster plan development and land improvements. Substantially all of the Authority’spersonal property is pledged as collateral to secure its debt.  At December 31, 2008 and 2007, theAuthority had $220,628 and $415,639 in capital lease assets with relatedaccumulated depreciation of $155,728 and $203,781.

 

**8.**                                       ACCRUED LIABILITIES

** **

Accruedliabilities consisted of the following as of December 31, 2008 and December 31,2007:

 
| ** **                                 | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2008**              | ** ** | **2007**              | ** ** |
|                                       |       |                  |       |                  |       |
| Accrued in-house progressive slot jackpots |       | $                     | 1,531,747  |                  | $          | 1,081,121 |   |
| Accrued payroll and related benefits       |       | 2,285,481             |       | 2,296,131             |       |
| Accrued interest                           |       | 3,250,000             |       | 3,250,000             |       |
| Accrued other expenses                     |       | 1,034,850             |       | 939,569               |       |
| Total accrued liabilities                  |       | $                     | 8,102,078  |                  | $          | 7,566,821 |   |

 

64

----

Table of Contents

 

**9.**                            LONG-TERM DEBT

 

Long-term debt consisted of the following asof December 31, 2008 and December 31, 2007:

 
| ** **                                                                                    | ** ** | **December 31,** | ** **  | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-----------------------|-------------|-----------------------|------------|
| ** **                                                                                    | ** ** | **2008**              | ** **  | **2007**              | ** ** |
| ** **                                                                                    | ** ** | ** **            | ** **  | ** **            | ** ** |
| 9-3/4% Senior Notes, net of unamortized  issue discount of $955,538 and $1,292,789. Due 2011. |       | $                     | 199,044,462 |                  | $          | 198,707,212 |   |
| Vehicles & Slot Notes                                                                |       | 12,291                |        | 15,306                |       |
| Lease obligations                                                                             |       | 34,182                |        | 238,293               |       |
|                                                                                          |       |                  |        |                  |       |
| Total Long-Term Debt                                                                          |       | 199,090,935           |        | 198,960,811           |       |
| Less: current portion                                                                         |       | (45,011               | )           | (213,173              | )          |
|                                                                                          |       |                  |        |                  |       |
| Total long-term debt - net of current  maturities                                             |       | $                     | 199,045,924 |                  | $          | 198,747,638 |   |

 

Maturity schedule — Annual requirements toretire long-term debt at December 31, 2008:

 
| ** ** | ** ** | **Principal** | ** **  | **Interest** | ** ** | **Total**   | ** ** |
|------------|------------|---------------|-------------|--------------|------------|-------------|------------|
| 2009       |       | $             | 45,011      |         | $          | 19,500,733  |       | $ | 19,545,744 |   |
| 2010       |       | 1,463         |        | 19,500,000   |       | 19,501,463  |       |
| 2011       |       | 200,000,000   |        | 16,250,000   |       | 216,250,000 |       |
| 2012       |       | —        |        | —       |       | —      |       |
| 2013       |       | —        |        | —       |       | —      |       |
|       |       | $             | 200,046,474 |         | $          | 55,250,733  |       | $ | 255,297,207 |   |

 

On November 7, 2003,the Authority issued the Senior Notes. The proceeds were utilized to fund anexpansion project, which included three parking structures, relatedinfrastructure improvements, repayment of various debt and advances and fundpayment of various accruals and payables, as well as to increase cash on hand.The proceeds were also utilized to fund a land purchase and settlelitigation.  The Senior Notes are collateralized by a first prioritypledge of the Authority’s revenue and substantially all of the existing andfuture tangible and intangible personal property. The Authority may redeem theSenior Notes prior to maturity, in whole or in part, through October 31,2009 at a redemption price that is at a premium to the principal amount of theSenior Notes (expressed as percentages of principal amount) and from November 1,2009 and thereafter at par, plus accrued and unpaid interest.

 

FairValue—The Authority’s long-term debt is recorded at an amortized historicalcost basis.  The fair value of long-termdebt was $150,000,000 as of December 31, 2008.

 

**10.**                      LEASES

 

The Authority leases a sprung structure,which is accounted for as an operating lease. Such lease expense was $434,760and $434,760 for the years ended December 31, 2008 and 2007. The Authorityrenewed the lease agreement on August 17, 2005 for $36,230 per month fortwenty four (24) months ending August 17, 2007.  Since the expiration of the lease on August 17, 2007, theAuthority has maintained the lease payments on a month to month basis.

 

On February 21, 2007, the Authority entered into a one year operating lease for office andpromotional space commencing February 21, 2007 and expiring February 20,2008.  The monthly lease fee was $600 permonth.  On February 21, 2008, theAuthority extended the lease for three years, commencing on February 21,2008 and expiring on February 20, 2011. The extended lease fee is $625 per month for the firstyear, with adjustments for the Consumer Price Index and property taxes in thesecond and third years.

 

65

----

Table of Contents

 

On August 30, 2007, the Authority entered into a five year operating lease agreement foroffice and showroom space commencing October 1, 2007 and expiring on September 30,2012.  The monthly lease fee for the initialyear was $16,630.  As of October 1,2008, the monthly lease fee increased to $17,129.  Lease expenses for 2008 totalled $201,057.

 

On September 1, 2004, the Authorityentered into a five year capital lease to purchase two licenses to operatethree-card poker tables in the amount of $120,000.  The capital lease is at 7.20% interest withmonthly lease fees of $2,390 and with a $1 buyout at the end of the lease term,expiring August 31, 2009.

 

OnApril 25, 2006, the Authority entered into a thirty-six month capitallease to purchase 5 Deck Mate poker shufflers in the amount of $61,827. The capital lease is at 7.92% interest with monthly lease fees of $1,937 andwith a $1 buyout at the end of the lease term, expiring April 30, 2009.

 

OnAugust 1, 2006, the Authority entered into a thirty-six month capitallease to purchase 2 licenses to operate pai gow poker tables in the amount of$38,800.  The capital lease is at 4.26% interest with monthly lease feesof $1,150 and with a $1 buyout at the end of the lease term, expiring July 31,2009.

 

Leaseexpenses of $254,945 and $336,622 for the years ended December 31, 2008and 2007, respectively, are included in general and administrative expenses inthe accompanying statement of revenues, expenses and changes in funddeficit.  Expected remaining payments under operating leases are $265,115,$243,024, $226,079, $173,583 and $4,275 for the years ending December 31,2009 thru 2013, respectively.

 

**11.**                      LEGAL MATTERS

** **

*Runyan Litigation*

 

On March 7, 2008, Norman Runyan, our formerChief Operations Officer, filed suit against the Authority, the Casino and Mr. HarveyHopkins, the Chairman of the Tribe and a member of the Authority’s Board, inthe Sonoma County Superior Court. Mr. Runyan’s complaint asserted causesof actions for breach of contract, wrongful termination in violation of publicpolicy, intentional interference with contract and intentional infliction ofemotional distress. He sought unspecified compensatory and punitive damages. Mr. Runyanalleged that he was wrongfully terminated from his employment because heopposed certain alleged actions on the part of the defendants, includingcontracts for construction work allegedly performed on the reservation byaffiliates of the Tribe and Mr. Hopkins. Mr. Runyan claimed that thework violated the Indenture and that Mr. Runyan was forced to resign fromhis employment in violation of public policy after protesting that the allegedwork violated the Indenture, the Compact, and the Securities Exchange Act of1934. He also claimed that the defendants unlawfully discriminated against himin connection with his status as a debtor under the Bankruptcy Code. Webelieved that Mr. Runyan’s lawsuit is based on erroneous information andis without merit, and we and the Tribe vigorously defended against it. 

 

On October 17, 2008, the judge of the SonomaCounty Superior Court signed an Order dismissing the lawsuit filed by NormanRunyan against the Authority, the Casino and Mr. Harvey Hopkins, theChairman of the Tribe and a member of the Authority’s Board.  On December 3, 2008, the Order wasentered and the case was dismissed.

 

On January 14, 2009, Mr. Runyan filed aPetition for Order Compelling Arbitration with the Sonoma County SuperiorCourt, and on January 30, 2009, he filed a Motion for Order CompellingArbitration.  In both the Petition andthe Motion, Mr. Runyan seeks to have the Court issue an order compellingarbitration of the claims asserted in the complaint that was dismissed by thecourt in December 2008.  TheAuthority believes, based on fact that Mr. Runyan entered into a SeveranceAgreement and General Release with the Authority, the Casino, and otherreleased parties, that there is no basis for Mr. Runyan to seekarbitration of his claims.  TheAuthority, the Casino, and Mr. Hopkins plan to file a hybrid motion toquash summons and dismiss the Petition and Motion, together with an oppositionto Mr. Runyan’s Motion.

 

*Other Legal Matters*

 

The Authority is involved in other litigation anddisputes from time to time in the ordinary course of business with vendors andpatrons. The Authority believes that the aggregate liability, if any, arisingfrom such litigation or disputes will not have a material adverse effect on itsresults of operations, financial condition or cash flows.

 

66

----

Table of Contents

 

12.                      COMPACT REVENUESHARING TRUST FUND

** **

The Compact requires the Authority to pay aquarterly fee to the State of California’s revenue sharing trust fund, based onthe number of licensed gaming devices operated by the Tribe. Revenue sharingtrust fund fees assessed were $1,335,000 for each of the years ended December 31,2008, 2007 and 2006.

 

13.                      COMMITMENTS AND CONTINGENCIES

 

The Authority is an unincorporated instrumentality of the Tribe formedpursuant to an adopted law of the Tribe. While the Authority is not a separatecorporation or other legal entity distinct from the Tribe, this tribal lawallows the Authority to own and operate its business. This tribal law alsoprovides that the Authority’s obligations and other liabilities are not thoseof the Tribe and that the obligations and liabilities of the Tribe are notthose of the Authority. This law is untested and generally has no directcounterpart in other areas of the law. If this law should prove to beineffective at limiting the Authority’s liability, the Authority’s business andassets could become subject to claims asserted against the Tribe or its assets.Similarly, the Authority would be liable for such claims if the Tribe waivedits sovereign immunity to an extent that allowed enforcement of such claimsagainst the Authority’s business or assets.

 

On March 18, 2008, the Tribe and the Sonoma County Board ofSupervisors entered into a memorandum of agreement (“MOA”) that is expected tosettle several long-standing legal disputes between Sonoma County (the “County”)and the Tribe and provide a binding framework for resolving futuredisputes.  Pursuant to the MOA, the Tribe has agreed to pay the County upto $75 million in mitigation fees over the next 12 years to offset thepotential losses and impacts to the County resulting from the Tribe’s variousongoing projects and to support the services being provided by theCounty.  In addition to the mitigation fees, the Tribe will pay a fee inlieu of the County’s Transient Occupancy Tax in the amount of 9% of the rentalcollected on occupied hotel rooms, to be paid quarterly and continuing for fiveyears after the later to occur of the termination of the MOA, as may beextended, or the Tribe’s Compact with the State (which is now terminable in2020 at the earliest), which fees may be applied to programs and services thatserve to promote tourism in the County. Such in lieu fees could total as muchas $25 million during the term of the MOA.

 

67

----

Tableof Contents

 

**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, on March 31, 2009.

 
|   | RIVER  ROCK ENTERTAINMENT AUTHORITY |
|--------|-------------------------------------|
|   |                                |
|   | By:                                 | /s/  John Cirrincione |
|   |                                | Name:  John Cirrincione |
|   |                                | Title:  Chief Operations Officer and Acting General Manager |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed by the following persons on behalf of River Rock EntertainmentAuthority and in the capacities and on the dates indicated.

 
| By:    | /s/  Betty Arterberry                                                        |   |
|--------|------------------------------------------------------------------------------|--------|
|   | Name:  Betty Arterberry                                                      |   |
|   | Title:  Chairperson                                                          |   |
|   | Date:   March 31, 2009                                             |   |
|   |                                                                         |   |
| By:    | /s/  Margie Rojes                                                            |   |
|   | Name:  Margie Rojes                                                          |   |
|   | Title:  Vice Chairperson                                                     |   |
|   | Date:   March 31, 2009                                             |   |
|   |                                                                         |   |
| By:    | /s/  Harvey Hopkins                                                          |   |
|   | Name:  Harvey Hopkins                                                        |   |
|   | Title:  Member                                                               |   |
|   | Date:   March 31, 2009                                             |   |
|   |                                                                         |   |
| By:    | /s/  Augusto (Gus) Pina                                                      |   |
|   | Name:  Augusto (Gus) Pina                                                    |   |
|   | Title:  Member                                                               |   |
|   | Date:   March 31, 2009                                             |   |
|   |                                                                         |   |
| By:    | /s/  Gabe Nevarez                                                            |   |
|   | Name:  Gabe Nevarez                                                          |   |
|   | Title:  Member                                                               |   |
|   | Date:   March 31, 2009                                             |   |
|   |                                                                         |   |
| By:    | /s/  John Cirrincione                                                        |   |
|   | Name:  John Cirrincione                                                      |   |
|   | Title:  Chief Operations Officer and Acting General Manager                  |   |
|   | Date:   March 31, 2009                                             |   |
|   |                                                                         |   |
| By:    | /s/  Joseph R. Callahan                                                      |   |
|   | Name:  Joseph R. Callahan                                                    |   |
|   | Title:  Chief Financial Officer (Principal Financial and Accounting Officer) |
|   | Date:  March 31, 2009                                                   |   |

 

68

----