| STATION CASINOS INC ITEM 1A RISK FACTORS We face substantial competition in the gaming industry |
| Our Nevada casino properties face competition from all other casinos and hotels in the Las Vegas area, including to some degree, from each other |
| In addition, our casino properties face competition from all smaller non-restricted gaming locations and restricted gaming locations (locations with 15 or fewer slot machines) in the greater Las Vegas area |
| As of December 31, 2005, there were over 1cmam400 restricted gaming locations with almost 15cmam000 slot machines |
| We compete with other hotel/casinos and restricted gaming locations by focusing on repeat customers and attracting these customers through innovative marketing programs |
| Our value-oriented, high-quality approach is designed to generate repeat business |
| Additionally, our casino properties are strategically located and designed to permit convenient access and ample parking, which are critical factors in attracting local visitors and repeat patrons |
| Currently, there are approximately 37 major gaming properties located on or near the Las Vegas Strip, 14 located in the downtown area and several located in other areas of Las Vegas |
| Major additions, expansions or enhancements of existing properties or the construction of new properties by competitors, could also have a material adverse effect on the businesses of our casino properties |
| While past additions to capacity have had little, if any, impact on our casino properties’ hotel occupancy or casino volume to date, there can be no assurance that hotel occupancy or casino volume will not be adversely affected in the future |
| Our Nevada casino properties also face competition from 37 non-restricted gaming locations in the Las Vegas area primarily targeted to the local and the repeat visitor markets |
| One of these competitors opened in December 2005 and some of these competitors have completed expansions and existing competitors and new entrants into these markets are in the planning stages or under construction on other projects |
| Although we have competed strongly in these marketplaces, there can be no assurance that additional capacity will not have a negative impact on our business |
| 13 ______________________________________________________________________ To a lesser extent, our Nevada operations compete with gaming operations in other parts of the state of Nevada, such as Reno, Laughlin and Lake Tahoe, riverboat gaming markets in the Midwest and South, facilities in Atlantic City, New Jersey, casinos located on Native American land and in other parts of the world and with state-sponsored lotteries, on-and-off-track pari-mutuel wagering, card rooms and other forms of legalized gambling |
| In 1997, the Nevada legislature enacted Senate Bill 208 |
| This legislation identified certain gaming enterprise districts wherein casino gaming development would be permitted throughout the Las Vegas valley and established more restrictive criteria for the establishment of new gaming enterprise districts |
| We believe the growth in gaming supply in the Las Vegas locals’ market has been, and will continue to be, limited by the provisions of Senate Bill 208 |
| The gaming industry also includes land-based casinos, dockside casinos, riverboat casinos, racetracks with slots, casinos located on Native American land and other forms of legalized gaming |
| There is intense competition among companies in the gaming industry, some of which have significantly greater resources than we do |
| Several states are currently considering legalizing casino gaming in designated areas |
| Legalized casino gaming in such states and on Native American land will provide strong competition to us and could adversely affect our operations, particularly to the extent that such gaming is conducted in areas close to our operations |
| Native American gaming in California, as it currently exists, has had little, if any impact on our Nevada operations to date, although there are no assurances as to future impact |
| 61 Native American tribes entered into Tribal-State Gaming Compacts (“Compacts”) with the State of California in 1999 and 2000 that are currently in effect |
| Each of these Native American tribes may operate up to two gaming facilities |
| Eight of these Native American tribes are presently not operating a casiNodtta During 2003 through 2005, nine Native American tribes entered into new Compacts with the State of California, of which five Compacts have been ratified by the California Legislature and are currently in effect |
| Three of these nine Native American tribes may operate two gaming facilities and the remaining six Native American tribes may operate one gaming facility, respectively; however, only two of these Native American tribes are presently operating casinos |
| Currently there are 55 Native American casinos in operation in the State of California |
| These Native American tribes are allowed to operate slot machines, lottery games, and banking and percentage games (including “21”) on Native American lands |
| Additionally, during 2004 and 2005, six tribes re-negotiated their compacts, of which five have been ratified by the California Legislature and are currently in effect |
| These re-negotiated compacts allow for the expansion of the respective tribe’s current facilities |
| It is not certain how this or any expansion of Native American gaming in California will affect our Nevada operations given that visitors from California make up Nevada’s largest visitor market |
| Moreover, it is uncertain how soon expansion will affect our interests in Native American gaming in California |
| Increased competition from Native American gaming may result in a decline in our revenues and may have a material adverse effect on our business |
| Certain construction risks may arise during the building of any new property |
| We are currently constructing Red Rock, expanding Santa Fe Station, Fiesta Henderson and Green Valley Ranch and providing or may have to provide, as the case may be, funding for the construction of gaming facilities for the Federated Indians of Graton Rancheria, the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians, the Mechoopda Indian Tribe of Chico Rancheria, California and the North Fork Rancheria of Mono Indians (collectively the “Native American Tribes”) and for Aliante Station |
| We evaluate expansion opportunities as they become available, and we may in the future develop projects in addition to the above listed projects |
| Construction projects, such as the construction of Red Rock, and the expansions of Santa Fe Station, Fiesta Henderson and Green Valley Ranch and the proposed gaming facilities for the Native American 14 ______________________________________________________________________ Tribes, entail significant risks, including shortages of material or skilled labor, unforeseen engineering, environmental or geological problems, work stoppages, weather interference, floods and unanticipated cost increases, any of which can give rise to delays or cost overruns |
| The anticipated costs and construction periods are based upon budgets, conceptual design documents and construction schedule estimates prepared by us in consultation with our architects and contractors |
| Construction, equipment or staffing requirements or problems or difficulties in obtaining any of the requisite licenses, permits, allocations or authorizations from regulatory authorities can increase the cost or delay the construction or opening of each of the proposed facilities or otherwise affect the project’s planned design and features |
| We have not entered into any firm contracts for the expansions of Santa Fe Station or Fiesta Henderson, and we cannot be sure that we will not exceed the budgeted costs of these projects or that the projects will commence operations within the contemplated time frame, if at all |
| Budget overruns and delays with respect to expansion and development projects could have a material adverse impact on our results of operations |
| We may experience difficulty integrating operations of our acquired companies and developed properties and managing our overall growth which could have a material adverse effect on our operating results |
| We may not be able to manage the combined operations of Station Casinos, Inc, including our Red Rock development, the projects with the Native American Tribes and Aliante Station and future acquired companies or acquired or developed properties effectively, or realize any of the anticipated benefits of the acquisitions, including streamlining operations or gaining efficiencies from the elimination of duplicative functions |
| The integration of other companies as assets will require continued dedication of management resources and may temporarily detract attention from our day-to-day business |
| In addition, because we plan to continue to pursue expansion and acquisition opportunities, we face significant challenges not only in managing and integrating the operations of Red Rock and the projects with the Native American Tribes and Aliante Station, but also managing our expansion projects and any other gaming operations we may acquire in the future |
| Management of these new projects will require increased managerial resources, and we intend to continue our efforts to enhance our gaming management team |
| However, there can be no assurances that we will succeed in doing so |
| We rely on key personnel, the loss of the services of whom could materially and adversely affect our results of operations |
| Our ability to operate successfully and competitively is dependent, in part, upon the continued services of certain of our officers and key employees |
| In the event that these officers and/or employees were to leave us, we might not be able to find suitable replacements |
| We believe that the loss of the services of these officers and/or employees could have a material adverse effect on our results of operations |
| We regularly pursue new gaming acquisition and development opportunities and may not be able to recover our investment or successfully expand to additional locations |
| We regularly evaluate and pursue new gaming acquisition and development opportunities in existing and emerging jurisdictions |
| These opportunities have in the past, and may in the future, take the form of joint ventures |
| To the extent that we decide to pursue any new gaming acquisition or development opportunities, our ability to benefit from such investments will depend upon a number of factors including our ability to identify and acquire attractive acquisition opportunities and development sites, our ability to secure required federal, state and local licensees, permits and approvals, which in some jurisdictions are limited in number, certain political factors, the availability of adequate financing on acceptable terms (including waivers of restrictions in existing credit arrangements) and our ability to identify and develop satisfactory relationships with joint venture partners |
| Therefore, we cannot be sure that we will be able to recover our investment in any new gaming development opportunities or acquired facilities, or successfully expand to additional locations |
| We have invested, and will likely continue to invest, in real property in connection with the pursuit of expansion opportunities |
| These investments are subject to the risks generally incident to the ownership of real property, including changes in economic conditions, environmental risks, governmental rules and fiscal policies and other circumstances over which we may have little or no control |
| The development of such properties is also subject to restrictions under our revolving credit facility |
| We cannot be sure that we will be able to recover our investment in any such properties or be able to prevent incurring investment losses |
| We are subject to extensive state and local regulation and licensing and gaming authorities have significant control over our operations which could have an adverse effect on our business |
| Nevada Gaming Regulations The ownership and operation of casino gaming facilities and the manufacture and distribution of gaming devices in Nevada are subject to: (i) the Nevada Gaming Control Act and the rules and regulations promulgated thereunder (collectively, the “Nevada Act”); and (ii) various local ordinances and regulations |
| Our gaming operations in Nevada are subject to the licensing and regulatory control of the Nevada Gaming Commission (the “Nevada Commission”), the Nevada State Gaming Control Board (the “Nevada Board”), the City of Las Vegas, the Clark County Liquor and Gaming Licensing Board (the “Clark County Board”), the City of North Las Vegas, the City of Henderson and certain other local regulatory agencies |
| The Nevada Commission, the Nevada Board, the City of Las Vegas, the Clark County Board, the City of North Las Vegas, the City of Henderson, and certain other local regulatory agencies are collectively referred to as the “Nevada Gaming Authorities” |
| The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal controls and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) providing a source of state and local revenues through taxation and licensing fees |
| Changes in such laws, regulations and procedures could have an adverse effect on our gaming operations |
| Our direct and indirect subsidiaries that conduct gaming operations in Nevada are required to be licensed by the Nevada Gaming Authorities |
| The gaming licenses require the periodic payment of fees and taxes and are not transferable |
| (“LMSI”), Gold Rush Station, LLC (“GRS”) and Magic Star Station, LLC (“MSS”) have received licenses to conduct non-restricted gaming operations |
| In addition, Green Valley Ranch Gaming, LLC (“GVRG”) has received licenses to conduct non-restricted gaming operations at Green Valley Ranch Resort Spa CasiNodtta The Company’s ownership in GVRG is held through an intermediary company known as GV Ranch Station, Inc |
| (“TCAI”) has been licensed to conduct non-restricted gaming operations at Barley’s Casino & Brewing Company (“Barley’s”), a micro brewery and casino located in Henderson, Nevada and Greens Cafe, LLC (“GC’) has been licensed to conduct nonrestricted gaming operations at 16 ______________________________________________________________________ The Greens, a restaurant and bar located in Henderson |
| Station Casinos’ ownership in TCAI and GC is held through an intermediary company known as Green Valley Station, Inc |
| (“GVSI”), which is licensed as a member and manager of TCAI and GC We also own a minority interest in Fiesta Palms, LLC, d |
| Palms Casino Resort, which we hold through our subsidiary, Palms Station, LLC (“PSL”) |
| Station Casinos is registered by the Nevada Commission as a publicly traded corporation (a “Registered Corporation”) and has been found suitable to own the stock of PSHC, BSI, TSL, SSI, TRSI, GVSI, SFSI, GVRS, FSI, RSL, LMSI, GRS and MSS We are also licensed as a manufacturer and distributor of gaming devices |
| PSHC, BSI, SSI, TRSI, GVSI, SFSI, GVRG, FSI and LMSI are each a corporate gaming licensee and TCAI, TSL, GVRG, RSL, GRS, MSS, GC and PSL are each a limited liability company licensee (individually a “Gaming Subsidiary” and collectively the “Gaming Subsidiaries”) under the terms of the Nevada Act |
| As a Registered Corporation, Station Casinos is required periodically to submit detailed financial and operating reports to the Nevada Commission and the Nevada Board and furnish any other information, which the Nevada Commission or the Nevada Board may require |
| No person may become a stockholder or holder of an interest of, or receive any percentage of profits from the Gaming Subsidiaries without first obtaining licenses and approvals from the Nevada Gaming Authorities |
| Station Casinos and the Gaming Subsidiaries have obtained from the Nevada Gaming Authorities the various registrations, findings of suitability, approvals, permits and licenses (individually, a “Gaming License” and collectively, the “Gaming Licenses”) required in order to engage in gaming activities in Nevada |
| The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, a Registered Corporation, such as Station or the Gaming Subsidiaries, which hold licenses, in order to determine whether such individual is suitable or should be licensed as a business associate of a Registered Corporation or a gaming licensee |
| Officers, directors and certain key employees of the Gaming Subsidiaries must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities |
| Our officers, directors and key employees who are actively and directly involved in gaming activities of the Gaming Subsidiaries may be required to be licensed or found suitable by the Nevada Gaming Authorities |
| The Nevada Gaming Authorities may deny an application for licensing for any cause, which they deem reasonable |
| A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation |
| The applicant for licensing or a finding of suitability must pay all the costs of the investigation |
| Changes in licensed positions must be reported to the Nevada Gaming Authorities and, in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in corporate position |
| If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue to have a relationship with Station or the Gaming Subsidiaries, the companies involved would have to sever all relationships with such person |
| In addition, the Nevada Commission may require Station or the Gaming Subsidiaries to terminate the employment of any person who refuses to file the appropriate applications |
| Determinations of suitability or questions pertaining to licensing are not subject to judicial review in Nevada |
| Station and the Gaming Subsidiaries are required to submit detailed financial and operating reports to the Nevada Commission |
| Substantially all material loans, leases, sales of securities and similar financing transactions by us and our Gaming Subsidiaries must be reported to or approved by the Nevada Commission and/or the Nevada Board |
| If it were determined that the Nevada Act was violated by a Gaming Subsidiary, the gaming licenses it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures |
| In addition, Station, the Gaming Subsidiaries and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission |
| Further, a supervisor could be appointed by the Nevada Commission to operate Palace Station, Boulder Station, Texas Station, Sunset Station, Santa Fe Station, Green Valley Ranch, Fiesta 17 ______________________________________________________________________ Rancho, Fiesta Henderson, Wild Wild West, Wildfire, Barley’s, Gold Rush, Magic Star and The Greens and, under certain circumstances, earnings generated during the supervisor’s appointment (except for the reasonable rental value of the premises) could be forfeited to the State of Nevada |
| Limitation, conditioning or suspension of the Gaming Licenses of the Gaming Subsidiaries or the appointment of a supervisor could (and revocation of any Gaming License would) have a material adverse affect on our gaming operations |
| Any beneficial owner of our voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have their suitability as a beneficial owner of our voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the state of Nevada |
| The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation |
| The Nevada Act provides that persons who acquire beneficial ownership of more than 5prca of the voting securities of a Registered Corporation must report the acquisition to the Nevada Commission |
| The Nevada Act also requires that beneficial owners of more than 10prca of the voting securities of a Registered Corporation must apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing |
| An “institutional investor,” as defined in the Nevada Commission’s regulations, which acquires beneficial ownership of more than 10prca, but not more than 15prca of our voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only |
| An institutional investor that has obtained a waiver may, in certain circumstances, hold up to 19prca of our voting securities and maintain its waiver for a limited period of time |
| An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of our Board of Directors, any change in our corporate charter, bylaws, management policies or our operations, or any of our gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding our voting securities for investment purposes only |
| Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in our management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent |
| If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners |
| The applicant is required to pay all costs of the investigation |
| Any person who fails or refuses to apply for a finding of suitability or a license within thirty days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board may be found unsuitable |
| The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner |
| Any stockholder who is found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of a Registered Corporation beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense |
| We are subject to disciplinary action if, after we receive notice that a person is unsuitable to be a stockholder or to have any other relationship with us or our Gaming Subsidiaries, we (i) pay that person any dividend or interest upon our voting securities, (ii) allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pay remuneration in any form to that person for services rendered or otherwise, or (iv) fail to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities including, if necessary, the immediate purchase of said voting securities for cash at fair market value |
| Additionally, the Clark County Board has the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming licensee |
| 18 ______________________________________________________________________ The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security of a Registered Corporation if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada |
| If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction |
| We are required to maintain a current stock ledger in Nevada, which may be examined by the Nevada Gaming Authorities at any time |
| If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities |
| Failure to make such disclosure may be grounds for finding the record holder unsuitable |
| We are also required to render maximum assistance in determining the identity of the beneficial owner |
| The Nevada Commission has the power to require our stock certificates to bear a legend indicating that the securities are subject to the Nevada Act |
| However, to date, the Nevada Commission has not imposed such a requirement on us |
| We may not make a public offering of our securities without the prior approval of the Nevada Commission if the securities or proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes |
| On May 19, 2005, the Nevada Commission granted us prior approval to make public offerings for a period of two years, subject to certain conditions (“Shelf Approval”) |
| The Shelf Approval may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Chairman of the Nevada Board and must be renewed at the end of the two-year approval period |
| The Shelf Approval also applies to any affiliated company wholly owned by Station (an “Affiliate”), which is a publicly traded corporation or would thereby become a publicly traded corporation pursuant to a public offering |
| The Shelf Approval includes approval for us to place restrictions upon the transfer of, and to enter into agreements not to encumber the equity securities of the Gaming Subsidiaries, as applicable, in conjunction with public offerings made under the Shelf Approval, and also includes approval for the Gaming Subsidiaries to guarantee any security issued by, or to hypothecate their assets to secure the payment or performance of any obligations evidenced by a security issued by, Station or an Affiliate in a public offering under the Shelf Approval |
| The Shelf Approval does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered |
| Any representation to the contrary is unlawful |
| Changes in control of the Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby such person obtains control, may not occur without the prior approval of the Nevada Commission |
| Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Board and the Nevada Commission that they meet a variety of stringent standards prior to assuming control of such Registered Corporation |
| The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction |
| The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada corporate gaming licensees, and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming |
| The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada’s gaming industry and to further 19 ______________________________________________________________________ Nevada’s policy to: (i) assure the financial stability of corporate gaming licensees and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs |
| Approvals are, in certain circumstances, required from the Nevada Commission before a Registered Corporation can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated |
| The Nevada Act also requires prior approval of a plan of re-capitalization proposed by the Registered Corporation’s Board of Directors in response to a tender offer made directly to the Registered Corporation’s stockholders for the purpose of acquiring control of the Registered Corporation |
| License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the Nevada licensee’s respective operations are conducted |
| Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated |
| A live entertainment tax is also paid by casino operations where entertainment is furnished in connection with admission charges, the serving or selling of food or refreshments or the selling of any merchandise |
| Nevada licensees that hold a license as an operator of a slot route, or manufacturer’s or distributor’s license also pay certain fees and taxes to the state of Nevada |
| Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively, “Licensees”), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of dlra10cmam000 to pay the expenses of investigation by the Nevada Board of their participation in such foreign gaming |
| The revolving fund is subject to increase or decrease at the discretion of the Nevada Commission |
| Thereafter, licensees are required to comply with certain reporting requirements imposed by the Nevada Act |
| Licensees are also subject to disciplinary action by the Nevada Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities or enter into associations that are harmful to the state of Nevada or its ability to collect gaming taxes and fees, or employ, contract with or associate with a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the grounds of unsuitability or whom a court in the state of Nevada has found guilty of cheating |
| The loss or restriction of our gaming licenses in Nevada would have a material adverse effect on our business and could require us to cease gaming operations in Nevada |
| Nevada Liquor Regulations The sale of alcoholic beverages at Palace Station, Wildfire and Santa Fe Station is subject to licensing control and regulation by the City of Las Vegas |
| Boulder Station and Wild Wild West are subject to liquor licensing control and regulation by the Clark County Board |
| Texas Station and Fiesta Rancho are subject to liquor licensing control and regulation by the City of North Las Vegas |
| Sunset Station, Green Valley Ranch, Fiesta Henderson, Barley’s, Gold Rush, Magic Star and The Greens are subject to liquor licensing control and regulation by the City of Henderson |
| The agencies involved have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material adverse effect on the operations of the Gaming Subsidiaries |
| 20 ______________________________________________________________________ We are subject to Native American gaming regulations which could have an adverse effect on our business |
| The terms and conditions of management contracts and the operation of casinos and all gaming on land held in trust for Native American tribes in the United States are subject to the Indian Gaming Regulatory Act of 1988 (“IGRA”), which is administered by the National Indian Gaming Commission (“NIGC”) and the gaming regulatory agencies of tribal governments |
| IGRA is subject to interpretation by the NIGC and may be subject to judicial and legislative clarification or amendment |
| IGRA established three separate classes of tribal gaming-Class I, Class II and Class III Class I includes all traditional or social games solely for prizes of minimal value played by a tribe in connection with celebrations or ceremonies |
| Class II gaming includes games such as bingo, pull-tabs, punchboards, instant bingo and non-banked card games (those that are not played against the house), such as poker |
| Class III gaming is casino-style gaming and includes banked table games such as blackjack, craps and roulette, and gaming machines such as slots, video poker, lotteries and pari-mutuel wagering |
| Thunder Valley may provide Class II gaming and, as limited by the tribal-state compact, Class III gaming |
| IGRA requires NIGC approval of management contracts for Class II and Class III gaming as well as the review of all agreements collateral to the management contracts |
| The management agreement relating to the Company’s management of the casino owned by the UAIC was approved by the NIGC with respect to Thunder Valley in December 2002 |
| The NIGC will not approve a management contract if a director or a 10prca shareholder of the management company: (i) is an elected member of the governing body of the Indian tribe which is the party to the management contract; (ii) has been or subsequently is convicted of a felony or gaming offense; (iii) has knowingly and willfully provided materially important false information to the NIGC or the tribe; (iv) has refused to respond to questions from the NIGC; or (v) is a person whose prior history, reputation and associations pose a threat to the public interest or to effective gaming regulation and control, or create or enhance the chance of unsuitable activities in gaming or the business and financial arrangements incidental thereto |
| In addition, the NIGC will not approve a management contract if the management company or any of its agents have attempted to unduly influence any decision or process of tribal government relating to gaming, or if the management company has materially breached the terms of the management contract or the tribe’s gaming ordinance or resolution, or a trustee, exercising the skill due diligence that a trustee is commonly held to, would not approve the management contract |
| A management contract can be approved only after the NIGC determines that the contract provides, among other things, for: (i) adequate accounting procedures and verifiable financial reports, which must be furnished to the tribe; (ii) tribal access to the daily operations of the gaming enterprise, including the right to verify daily gross revenues and income; (iii) minimum guaranteed payments to the tribe, which must have priority over the retirement of development and construction costs; (iv) a ceiling on the repayment of such development and construction costs and (v) a contract term not exceeding five years and a management fee not exceeding 30prca of net revenues (as determined by the NIGC); provided that the NIGC may approve up to a seven year term and a management fee not to exceed 40prca of net revenues if the NIGC is satisfied that the capital investment required, and the income projections for the particular gaming activity require the larger fee and longer term |
| There is no periodic or ongoing review of approved contracts by the NIGC The only post-approval action that could result in possible modification or cancellation of a contract would be as the result of an enforcement action taken by the NIGC based on a violation of the law or an issue affecting suitability |
| IGRA prohibits all forms of Class III gaming unless the tribe has entered into a written agreement with the state that specifically authorizes the types of Class III gaming the tribe may offer (a “tribal-state compact”) |
| These compacts provide, among other things, the manner and extent to which each state will conduct background investigations and certify the suitability of the manager, its officers, directors, and key employees to conduct gaming on Native American lands |
| The Company has been licensed by the UAIC’s tribal gaming agency to manage Thunder Valley |
| 21 ______________________________________________________________________ Title 25, Section 81 of the United States Code states that “no agreement shall be made by any person with any tribe of Indians, or individual Indians not citizens of the United States, for the payment or delivery of any money or other thing of value |
| in consideration of services for said Indians relative to their lands |
| unless such contract or agreement be executed and approved” by the Secretary or his or her designee |
| An agreement or contract for services relative to Native American lands which fails to conform with the requirements of Section 81 is void and unenforceable |
| All money or other thing of value paid to any person by any Native American or tribe for or on his or their behalf, on account of such services, in excess of any amount approved by the Secretary or his or her authorized representative will be subject to forfeiture |
| We believe that we have complied with the requirements of section 81 with respect to our management contract for Thunder Valley and intend to comply with Section 81 with respect to any other contract to manage casinos located on Native American land in the United States |
| Native American tribes are sovereign nations with their own governmental systems, which have primary regulatory authority over gaming on land within the tribes’ jurisdiction |
| Therefore, persons engaged in gaming activities, including the Company, are subject to the provisions of tribal ordinances and regulations on gaming |
| These ordinances are subject to review by the NIGC under certain standards established by IGRA The NIGC may determine that some or all of the ordinances require amendment, and that additional requirements, including additional licensing requirements, may be imposed on us |
| We have received no such notification regarding Thunder Valley |
| The possession of valid licenses from the UAIC are ongoing conditions of our management agreement with that tribe |
| Several bills have been introduced in Congress that would amend IGRA While there have been a number of technical amendments to IGRA, to date there have been no material changes |
| Any amendment of IGRA could change the governmental structure and requirements within which Thunder Valley could conduct gaming, and may have an adverse effect on our results of operations or impose additional regulatory or operational burdens |
| California Gaming Regulations In California, licensing and registration requirements for tribal financing sources are governed by the compact, amended compact and by regulations adopted by the California Gambling Control Commission and the Tribal Gaming Authority (the “TGA”) |
| The UAIC’S compact was set to expire on December 31, 2020 |
| The Amended Compact extended the term until December 31, 2030 |
| UAIC’S compact and amended compact require that any person who directly or indirectly extends financing to the UAIC’S gaming facility or gaming operation must be licensed as a “financial source” by the TGA However, as permitted by the compact and amended compact, the TGA has the discretion to exempt federally and state regulated banks, savings and loan associations and other federally and state regulated lending institutions, entities identified by Regulation CGCC-2, subdivision (f) of the California Gambling Control Commission, as well as persons who hold less than 10prca of notes issued by the UAIC or a related entity |
| The Amended Compact further specifies that entities identified by Regulation CGCC-2, subdivision (h) of the California Gambling Control Commission, and persons or entities whose sole connection with extending financing to the UAIC is to provide loan brokerage or debt servicing for a financial source at no cost to the UAIC or the Gaming Operation are not considered financial sources |
| For an applicant who is a non-exempted business entity, these licensing provisions also apply to the entity’s officers, directors, principal management employees, owners (if an unincorporated entity), partners and greater than 10prca shareholders |
| Under the compact and amended compact, a permanent license cannot be issued unless the 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 may be revoked, if the TGA determines the applicant to be unsuitable or otherwise unqualified for a gaming license |
| Each license is subject to review for compliance at least every two years |
| 22 ______________________________________________________________________ Prior to receiving a license, an applicant must apply to the California Gambling Control Commission for a determination of suitability |
| The California Department of Justice, Division of Gambling Control will then conduct an investigation of the applicant following the guidelines set forth in the California Gambling Control Act and will provide its suitability recommendation to the California Gambling Control Commission |
| If the TGA receives notice that the Commission has determined that a person is unsuitable, the compact requires that the TGA revoke any license it has issued to such person |
| The compact and amended compact state that any agreement between the UAIC and a financial source terminates upon revocation or non-renewal of the financial source’s license because of a determination of unsuitability by the California Gambling Control Commission |
| Upon such a termination, UAIC’S only liability is for a bona fide repayment of all outstanding sums (exclusive of interest) owed as of the termination date, exclusive of unpaid accrued interest |
| Further, the UAIC is not permitted to enter into, or continue to make payments under, any financing agreement with anyone whose application to the California Gambling Control Commission for a determination of suitability has been denied or has expired without renewal |
| General Gaming Regulations in Other Jurisdictions If we become involved in gaming operations in any other jurisdictions, such gaming operations will subject us and certain of our officers, directors, key employees, stockholders and other affiliates (“Regulated Persons”) to strict legal and regulatory requirements, including mandatory licensing and approval requirements, suitability requirements, and ongoing regulatory oversight with respect to such gaming operations |
| Such legal and regulatory requirements and oversight will be administered and exercised by the relevant regulatory agency or agencies in each jurisdiction (the “Regulatory Authorities”) |
| The Company and the Regulated Persons will need to satisfy the licensing, approval and suitability requirements of each jurisdiction in which we seek to become involved in gaming operations |
| These requirements vary from jurisdiction to jurisdiction, but generally concern the responsibility, financial stability and character of the owners and managers of gaming operations as well as persons financially interested or involved in gaming operations |
| In general, the procedures for gaming licensing, approval and finding of suitability require Station and each Regulated Person to submit detailed personal history information and financial information to demonstrate that the proposed gaming operation has adequate financial resources generated from suitable sources and adequate procedures to comply with the operating controls and requirements imposed by law and regulation in each jurisdiction, followed by a thorough investigation by such Regulatory Authorities |
| In general, Station and each Regulated Person must pay the costs of such investigation |
| An application for any gaming license, approval or finding of suitability may be denied for any cause that the Regulatory Authorities deem reasonable |
| Once obtained, licenses and approvals may be subject to periodic renewal and generally are not transferable |
| The Regulatory Authorities may at any time revoke, suspend, condition, limit or restrict a license, approval or finding of suitability for any cause that they deem reasonable |
| Fines for violations may be levied against the holder of a license or approval and in certain jurisdictions, gaming operation revenues can be forfeited to the state under certain circumstances |
| There can be no assurance that we will obtain all of the necessary licenses, approvals and findings of suitability or that our officers, directors, key employees, other affiliates and certain other stockholders will satisfy the suitability requirements in one or more jurisdictions, or that such licenses, approvals and findings of suitability, if obtained, will not be revoked, limited, suspended or not renewed in the future |
| Failure by us to obtain, or the loss or suspension of, any necessary licenses, approval or findings of suitability would prevent us from conducting gaming operations in such jurisdiction and possibly in other jurisdictions |
| We may be required to submit detailed financial and operating reports to Regulatory Authorities |
| 23 ______________________________________________________________________ Factors affecting the economy and consumer confidence may harm our operating results |
| Our properties draw a substantial number of customers from the Las Vegas valley, as well as certain geographic areas, including Southern California, Arizona and Utah |
| Adverse economic conditions in any of these regions could have a significant adverse effect on our business, financial condition and results of operations |
| Since all of our properties are located in the Las Vegas valley or Northern California, any terrorist activities or disasters in or around Southern Nevada or Northern California could have a significant adverse effect on our business, financial condition and results of operations |
| Our properties use significant amounts of electricity, natural gas and other forms of energy |
| While no shortages of energy have been experienced, the substantial increases in the cost of electricity, natural gas and gasoline in the United States have and may continue to negatively affect our operating results |
| In addition, energy price increases in the regions that constitute a significant source of customers for our properties could result in a decline in disposable income of potential customers and a corresponding decrease in visitation and spending at our properties, which could negatively impact revenues |
| We depend on key markets and may not be able to continue to attract a sufficient number of guests and gaming customers in Nevada to make our operations profitable |
| Our operating strategy emphasizes attracting and retaining customers from the Las Vegas local and repeat visitor market |
| All of our owned casino properties are dependent upon attracting Las Vegas residents |
| We cannot be sure that we will be able to continue to attract a sufficient number of guests, gaming customers and other visitors in Nevada to make our operations profitable |
| In addition, our operating strategy, including the master-planning of our casinos for future expansion, has been developed, in part, based on expected population growth in Las Vegas |
| There can be no assurance that growth will continue in Las Vegas or that we will be able to successfully adapt to any downturn |
| We may incur losses that are not adequately covered by insurance which may harm our results of operations |
| Although we maintain insurance customary and appropriate for our business, we cannot assure you that insurance will be available or adequate to cover all loss and damage to which our business or our assets might be subjected |
| The lack of adequate insurance for certain types or levels of risk could expose us to significant losses in the event that a catastrophe occurred for which we are underinsured |
| Any losses we incur that are not adequately covered by insurance may decrease our future operating income, require us to find replacements or repairs for destroyed property and reduce the funds available for payments of our obligations |
| Factors affecting tax laws could have an adverse effect on our business |
| The gaming industry represents a significant source of tax revenue, particularly to the State of Nevada and its counties and municipalities |
| From time to time, various state and federal legislators and officials have proposed changes in tax law, or in the administration of such law, affecting the gaming industry |
| The Nevada Legislature concluded their 2005 session and there were no increases in taxes affecting the gaming industry |