DEFM14A 1 a07-13127_1defm14a.htm DEFM14A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the Registrant  x

Filed by a Party other than the Registrant  o

Check the appropriate box:

o

Preliminary Proxy Statement

o

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material Pursuant to §240.14a-12

 

Station Casinos, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

o

No fee required.

o

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

Station Casinos, Inc. common stock, par value $0.01 per share

 

(2)

Aggregate number of securities to which transaction applies:

 

 

57,276,150 shares of Station Casinos, Inc. common stock outstanding and 2,141,057 options to purchase Station common stock.

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

Calculated solely for the purpose of determining the filing fee. The transaction valuation is determined based upon the sum of (a) the product of (i) 57,276,150 shares of Station common stock outstanding on July 5, 2007, and (ii) the merger consideration of $90.00 per share (equal to $5,154,853,500) and (b) an aggregate of $166,862,810 expected to be paid upon the cancellation of outstanding options having an exercise price less than $90.00 (the “Total Consideration”). The filing fee, calculated in accordance with Exchange Act Rule 0-11(c)(1), was determined by multiplying 0.00003070 by the Total Consideration.

 

(4)

Proposed maximum aggregate value of transaction:

 

 

$5,321,715,710

 

(5)

Total fee paid:

 

 

$163,376.67

x

Fee paid previously with preliminary materials.

o

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

Amount Previously Paid:

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

Filing Party:

 

 

 

 

(4)

Date Filed:

 

 

 

 




GRAPHIC

IMPORTANT SPECIAL MEETING OF STOCKHOLDERS

AUGUST 13, 2007

July 9, 2007

Dear Fellow Stockholder:

You are cordially invited to attend a special meeting of stockholders of Station Casinos, Inc., a Nevada corporation (“Station”), to be held on Monday, August 13, 2007 at 2:00 p.m. local time, at Red Rock Casino Resort Spa, 11011 West Charleston Boulevard, Las Vegas, Nevada. The attached proxy statement provides information regarding the matters to be acted on at the special meeting, including at any adjournment or postponement thereof.

At the special meeting, you will be asked to consider and vote upon a proposal to approve an Agreement and Plan of Merger, dated as of February 23, 2007 and amended as of May 4, 2007, entered into among Station, Fertitta Colony Partners LLC, a Nevada limited liability company (“Parent”), and FCP Acquisition Sub, a Nevada corporation and a wholly-owned subsidiary of Parent (“Merger Sub”). Pursuant to the terms of the merger agreement, Merger Sub will be merged with and into Station and as a result Station will continue as the surviving corporation. Following the consummation of the merger, approximately 25% of the issued and outstanding shares of non-voting common stock of Station will be owned by Fertitta Partners LLC, a Nevada limited liability company which will be owned by affiliates of Frank J. Fertitta III, Chairman and Chief Executive Officer of Station, Lorenzo J. Fertitta, Vice Chairman and President of Station, Blake L. Sartini and Delise F. Sartini (“Fertitta Partners”). The remaining 75% of the issued and outstanding shares of non-voting common stock of Station will be owned by FCP Holding, Inc., a Nevada corporation and a wholly-owned subsidiary of Parent (“FCP HoldCo”). Parent will be owned by an affiliate of Colony Capital LLC and affiliates of Frank J. Fertitta III and Lorenzo J. Fertitta. Substantially simultaneously with the consummation of the merger, shares of voting common stock of Station will be issued for nominal consideration to FCP VoteCo LLC, a Nevada limited liability company (“FCP VoteCo”) which will be owned by Frank J. Fertitta III, Lorenzo J. Fertitta and Thomas J. Barrack, Jr., the Chairman and Chief Executive Officer of Colony Capital, LLC.

If the merger agreement is approved and the merger is consummated, each share of Station common stock, including any rights associated therewith (other than shares of Station common stock owned by Parent, Merger Sub, FCP HoldCo, Fertitta Partners or any wholly-owned subsidiary of Station or shares of Station common stock held in treasury by us), will be cancelled and converted into the right to receive $90.00 in cash, without interest. Frank J. Fertitta III, Lorenzo J. Fertitta, Blake L. Sartini and Delise F. Sartini (collectively, the “Rollover Stockholders”) have agreed to contribute a portion of the shares of Station common stock that they beneficially own to Fertitta Partners and, subject to specified exceptions, to vote all of the shares of common stock beneficially owned by them in favor of the merger. Each share of Station common stock beneficially owned by the Rollover Stockholders that is not contributed to Fertitta Partners will be sold to Parent for $90.00 of cash consideration or cancelled and converted into the right to receive $90.00 in cash, without interest. Following the consummation of the merger, Station will be privately owned through FCP HoldCo, Fertitta Partners and FCP VoteCo. A copy of the merger agreement is included as Annex A to the attached proxy statement and a copy of the amendment to the merger agreement is included as Annex B to the attached proxy statement.




On February 23, 2007, our board of directors, after considering factors including the unanimous determination and recommendation of a special committee comprised entirely of independent directors, unanimously determined (with Frank J. Fertitta III and Lorenzo J. Fertitta taking no part in the vote) that the merger and the merger agreement are fair to and in the best interests of Station and the stockholders of Station, other than the Rollover Stockholders, and approved the merger agreement. In arriving at their recommendation of the merger agreement, our board of directors and the special committee carefully considered a number of factors which are described in the accompanying proxy statement. Our board of directors unanimously recommends (with Frank J. Fertitta III and Lorenzo J. Fertitta taking no part in such recommendation) that you vote FOR the approval of the merger agreement.

When you consider the recommendation of our board of directors to approve the merger agreement, you should be aware that some of our directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of our stockholders generally.

The attached proxy statement provides you with detailed information about the special meeting, the merger agreement and the merger. You are urged to read the entire document carefully. You may also obtain more information about Station from documents we have filed with the Securities and Exchange Commission.

Regardless of the number of shares you own, your vote is very important.   The affirmative vote of the holders of (1) at least two-thirds of all of the outstanding shares of Station common stock entitled to vote, which vote we sometimes refer to in this proxy statement as the Two-Thirds Vote, and (2) a majority of the outstanding shares of Station common stock (other than shares of Station common stock held by Parent, Merger Sub, the Rollover Stockholders or any of their respective affiliates) present, in person or by proxy, and voting at the special meeting, which vote we sometimes refer to in this proxy statement as the Majority-Minority Vote and together with the Two-Thirds Vote, the Requisite Stockholder Vote, is required to approve the merger agreement.

If you fail to vote on the merger agreement, the effect will be the same as a vote against the approval of the merger agreement for purposes of the Two-Thirds Vote, but will not affect the Majority-Minority Vote. Once you have read the accompanying materials, please vote on the proposals submitted to stockholders at the special meeting, whether or not you plan to attend the meeting, by signing, dating and mailing the enclosed proxy card or by voting your shares by telephone or Internet by following the instructions on your proxy card. If you receive more than one proxy card because you own shares that are registered differently, please vote all of your shares shown on all of your proxy cards. If your shares are held in “street name” by your broker, your broker will be unable to vote your shares without instructions from you. You should instruct your broker to vote your shares, following the procedures provided by your broker. Failure to instruct your broker to vote your shares will have exactly the same effect as voting against the approval of the merger agreement.

Voting by proxy will not prevent you from voting your shares in person in the manner described in the attached proxy statement if you subsequently choose to attend the special meeting.

On behalf of your board of directors, thank you for your cooperation and support.

Sincerely,

 

GRAPHIC

GRAPHIC

James E. Nave, D.V.M.

Frank J. Fertitta III

Chairman of the Special Committee

Chairman of the Board and Chief Executive Officer

 




NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE MERGER, OR PASSED UPON THE FAIRNESS OR MERITS OF THE MERGER OR THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THE ENCLOSED PROXY STATEMENT. ANY CONTRARY REPRESENTATION IS A CRIMINAL OFFENSE.

This proxy statement is dated July 9, 2007, and it and the proxy card are first being mailed to stockholders on or about July 11, 2007.

IMPORTANT

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE SIGN, DATE AND PROMPTLY MAIL YOUR PROXY CARD OR VOTE BY TELEPHONE OR VIA THE INTERNET AT YOUR EARLIEST CONVENIENCE.

If you have any questions or need assistance voting your shares, please call D.F. King & Co., Inc., which is assisting us in the solicitation of proxies, toll-free at (888) 886-4425.




STATION CASINOS, INC.

NOTICE OF SPECIAL MEETING

TO BE HELD AUGUST 13, 2007

July 9, 2007

On Monday, August 13, 2007, Station Casinos, Inc. (“Station”) will hold a special meeting of stockholders at Red Rock Casino Resort Spa, 11011 West Charleston Boulevard, Las Vegas, Nevada. The meeting will begin at 2:00 p.m. local time.

Only holders of shares of Station common stock, par value $0.01 per share, of record at the close of business on June 14, 2007, may vote at this meeting or any adjournments or postponements that may take place. At the meeting stockholders will be asked to:

·       consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of February 23, 2007 and amended as of May 4, 2007, among Station, Fertitta Colony Partners LLC, a Nevada limited liability company (“Parent”), and FCP Acquisition Sub, a Nevada corporation and a wholly-owned subsidiary of Parent (“Merger Sub”);

·       approve any motion to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the foregoing proposal; and

·       transact such other business as may properly come before the special meeting or any adjournment or postponement of the special meeting.

Your board of directors (with Frank J. Fertitta III and Lorenzo J. Fertitta taking no part in the vote or recommendation) has unanimously approved and recommends that you vote FOR the approval of the merger agreement and FOR the adjournment proposal, which are discussed in more detail in the attached proxy statement.

When you consider the recommendation of our board of directors to approve the merger agreement, you should be aware that some of our directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of our stockholders generally.

Regardless of the number of shares you own, your vote is very important. The affirmative vote of the holders of (1) at least two-thirds of all of the outstanding shares of Station common stock then entitled to vote, which vote we sometimes refer to in this proxy statement as the Two-Thirds Vote, and (2) a majority of the outstanding shares of Station common stock (other than shares of Station common stock held by Parent, Merger Sub, the Rollover Stockholders or any of their respective affiliates) present, in person or by proxy, and voting at the special meeting, which vote we sometimes refer to in this proxy statement as the Majority-Minority Vote and together with the Two-Thirds Vote, the Requisite Stockholder Vote, is required to approve the merger agreement.

If you fail to vote on the merger agreement, the effect will be the same as a vote against the approval of the merger agreement for purposes of the Two-Thirds Vote, but will not affect the Majority-Minority Vote.




We hope you will be able to attend the meeting, but whether or not you plan to attend, please vote your shares by:

·       signing and returning the enclosed proxy card as soon as possible;

·       calling the toll-free number listed on the proxy card; or

·       accessing the Internet as instructed on the proxy card.

Voting by proxy will not prevent you from voting your shares in person in the manner described in the attached proxy statement if you subsequently choose to attend the special meeting. If you hold your shares through a bank, broker or custodian, you must obtain a legal proxy from such custodian in order to vote in person at the meeting. You should not send in your certificates representing shares of Station common stock until you receive instructions to do so.

By Order of the Board of Directors,

GRAPHIC

Frank J. Fertitta III, Chairman of the Board and Chief Executive Officer




TABLE OF CONTENTS

 

Page

 

SUMMARY TERM SHEET

 

 

1

 

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

 

 

11

 

 

Why am I receiving this proxy statement and proxy card?

 

 

11

 

 

Where and when is the Special Meeting?

 

 

11

 

 

What matters will be voted on at the Special Meeting?

 

 

11

 

 

What will a Station stockholder receive when the merger occurs?

 

 

11

 

 

How does Station’s board of directors recommend that I vote on the proposals?

 

 

11

 

 

Who is entitled to vote at the Special Meeting?

 

 

12

 

 

What constitutes a quorum for the Special Meeting?

 

 

12

 

 

What vote is required to approve the merger agreement and to approve the adjournment proposal?

 

 

12

 

 

How do Station’s directors and executive officers intend to vote?

 

 

12

 

 

What effects will the proposed merger have on Station?

 

 

12

 

 

What happens if the merger is not consummated?

 

 

13

 

 

When do you expect the merger to be consummated? What is the “marketing period”?

 

 

13

 

 

What should I do now?

 

 

13

 

 

How do I vote?

 

 

13

 

 

Can I vote by telephone or electronically?

 

 

14

 

 

If my shares are held in “street name” by my broker, banker or other nominee will my broker or banker vote my shares for me?

 

 

14

 

 

What do I do if I participate in the Station Casinos, Inc. and Affiliates 401(k) Retirement Plan?

 

 

14

 

 

What does it mean if I receive more than one proxy card?

 

 

14

 

 

May I change my vote?

 

 

14

 

 

How are votes counted?

 

 

15

 

 

What happens if I sell my shares before the Special Meeting?

 

 

15

 

 

Will any other business be conducted at the Special Meeting?

 

 

15

 

 

Should I send in my stock certificates now?

 

 

15

 

 

What are the material United States federal income tax consequences of the transaction to stockholders?

 

 

15

 

 

Do stockholders have dissenters’ rights?

 

 

16

 

 

Who is soliciting my proxy?

 

 

16

 

 

Who can help answer my questions?

 

 

16

 

 

SPECIAL FACTORS

 

 

17

 

 

Background of the Merger

 

 

17

 

 

Recommendation of the Special Committee and Board of Directors; Reasons for Recommending Approval of the Merger Agreement

 

 

26

 

 

Opinion of Financial Advisor

 

 

35

 

 

Report of CB Richard Ellis

 

 

42

 

 

Evaluation of a Leveraged Recapitalization

 

 

44

 

 

Position of Frank J. Fertitta III, Lorenzo J. Fertitta, Parent, Merger Sub, Fertitta Partners, FCP HoldCo, FCP VoteCo, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. as to Fairness

 

 

45

 

 

Purposes and Reasons of Frank J. Fertitta III and Lorenzo J. Fertitta for the Merger

 

 

46

 

 

Purposes and Reasons for the Merger of Parent, Merger Sub, Fertitta Partners, FCP VoteCo, FCP HoldCo, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr.

 

 

46

 

 

Purposes, Reasons and Plans for Station after the Merger

 

 

47

 

 

Effects of the Merger

 

 

48

 

 

i




 

Projected Financial Information

 

 

50

 

 

Interests of Certain Persons in the Merger

 

 

52

 

 

Arrangements with Respect to Station, Fertitta Partners and Parent Following the Merger

 

 

57

 

 

Material United States Federal Income Tax Consequences

 

 

62

 

 

Financing of the Merger

 

 

64

 

 

Estimated Fees and Expenses

 

 

69

 

 

The Voting Agreement

 

 

70

 

 

The Limited Guarantee

 

 

70

 

 

Regulatory Approvals

 

 

71

 

 

Accounting Treatment of the Merger

 

 

76

 

 

Litigation Related to the Merger

 

 

76

 

 

Provisions for Unaffiliated Security Holders

 

 

78

 

 

Dissenters’ Rights of Stockholders

 

 

78

 

 

THE SPECIAL MEETING

 

 

79

 

 

Date, Time and Place

 

 

79

 

 

Purpose

 

 

79

 

 

Station Board Recommendation

 

 

79

 

 

Record Date, Outstanding Shares and Voting Rights

 

 

79

 

 

Vote Required

 

 

79

 

 

Voting of Proxies

 

 

80

 

 

Revocation of Proxies

 

 

80

 

 

Solicitation of Proxies and Expenses

 

 

81

 

 

Adjournment of the Special Meeting

 

 

81

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

 

82

 

 

THE MERGER AGREEMENT

 

 

83

 

 

The Merger

 

 

83

 

 

Closing; Effective Time; Marketing Period

 

 

83

 

 

Merger Consideration

 

 

84

 

 

Treatment of Options and Restricted Shares

 

 

84

 

 

Stock Options

 

 

84

 

 

Restricted Shares

 

 

85

 

 

Payment for the Shares of Common Stock

 

 

85

 

 

Representations and Warranties

 

 

86

 

 

Conduct of Business Prior to Closing

 

 

88

 

 

Agreement to Take Further Action and to Use Reasonable Best Efforts; Consents and Governmental Approvals

 

 

91

 

 

General; HSR Act

 

 

91

 

 

Gaming Approvals

 

 

92

 

 

Access to Information

 

 

93

 

 

Takeover Statutes

 

 

93

 

 

Financing

 

 

94

 

 

Cooperation of Station

 

 

94

 

 

Debt and Equity Financing

 

 

95

 

 

Existing Indebtedness

 

 

96

 

 

Vesting of Equity Awards

 

 

96

 

 

Conditions to the Merger

 

 

96

 

 

Conditions to Each Party’s Obligations

 

 

96

 

 

Conditions to Parent’s and Merger Sub’s Obligations

 

 

97

 

 

Conditions to Station’s Obligations

 

 

97

 

 

ii




 

Restrictions on Solicitations of Other Offers

 

 

97

 

 

Recommendation Withdrawal/Termination in Connection with a Superior Proposal

 

 

100

 

 

Termination of the Merger Agreement

 

 

100

 

 

Termination Fees and Expenses

 

 

101

 

 

Payable by Station

 

 

101

 

 

Payable by Parent

 

 

102

 

 

Notices of Certain Events

 

 

103

 

 

Indemnification and Insurance

 

 

103

 

 

Employee Benefits

 

 

104

 

 

Amendment and Waiver

 

 

105

 

 

Specific Performance

 

 

105

 

 

Remedies

 

 

105

 

 

OTHER MATTERS

 

 

106

 

 

Other Matters for Action at the Special Meeting

 

 

106

 

 

Future Stockholder Proposals

 

 

106

 

 

Householding of Special Meeting Materials

 

 

106

 

 

OTHER IMPORTANT INFORMATION REGARDING STATION

 

 

107

 

 

Directors and Executive Officers of Station

 

 

107

 

 

Selected Historical Consolidated Financial Data

 

 

110

 

 

Price Range of Common Stock and Dividend Information

 

 

112

 

 

Market Information

 

 

112

 

 

Holders

 

 

112

 

 

Dividends

 

 

112

 

 

Security Ownership of Certain Beneficial Owners and Management

 

 

113

 

 

Security Ownership of Parent, Merger Sub, Fertitta Partners, FCP HoldCo, FCP VoteCo, FC Investor, Colony and Colony Acquisitions

 

 

114

 

 

Prior Purchases and Sales of Station Common Stock

 

 

114

 

 

Ratio of Earnings to Fixed Charges (amounts in thousands)

 

 

116

 

 

Book Value Per Share

 

 

116

 

 

IMPORTANT INFORMATION REGARDING THE PARTIES TO THE TRANSACTION

 

 

117

 

 

Fertitta Colony Partners LLC

 

 

117

 

 

FCP Acquisition Sub

 

 

117

 

 

Fertitta Partners LLC

 

 

118

 

 

FCP Holding, Inc.

 

 

118

 

 

FCP VoteCo LLC

 

 

118

 

 

Frank J. Fertitta III

 

 

119

 

 

Lorenzo J. Fertitta

 

 

119

 

 

FC Investor, LLC

 

 

120

 

 

Colony Capital Acquisitions, LLC

 

 

120

 

 

Colony Capital, LLC

 

 

121

 

 

Thomas J. Barrack, Jr.

 

 

121

 

 

WHERE YOU CAN FIND MORE INFORMATION

 

 

122

 

 

ANNEX A—Agreement and Plan of Merger

 

 

A-1

 

 

ANNEX B—Amendment to Merger Agreement

 

 

B-1

 

 

ANNEX C—Opinion of Bear, Stearns & Co.

 

 

C-1

 

 

 

iii




SUMMARY TERM SHEET

The following summary, together with “Questions and Answers About the Special Meeting and the Merger,” highlights selected information contained in this proxy statement. It may not contain all of the information that might be important in your consideration of the proposed merger. We encourage you to read carefully this proxy statement and the documents we have incorporated by reference into this proxy statement before voting. See “Where You Can Find More Information” on page 122. In this proxy statement, the terms “Station”, “the Company”, “we”, “our”, “ours” and “us” refer to Station Casinos, Inc. and its subsidiaries. Where appropriate, we have set forth a section and page reference directing you to a more complete description of the topics described in this summary.

The Parties to the Merger (Pages 107 and 117).

Station Casinos, Inc., a Nevada corporation, is a gaming and entertainment company that currently owns and operates nine major hotel/casino properties (one of which is 50% owned) under the Station and Fiesta brand names and seven smaller casino properties (two of which are 50% owned) in the Las Vegas metropolitan area. We also manage a casino in Sacramento, California for a Native American tribe. Each of our casinos located in the Las Vegas metropolitan area caters primarily to local Las Vegas area residents.

Fertitta Colony Partners LLC, which we sometimes refer to in this proxy statement as Parent, is a Nevada limited liability company that will, following the consummation of the merger, own through its wholly-owned subsidiary FCP Holding, Inc., a Nevada corporation, which we sometimes refer to in this proxy statement as FCP HoldCo, approximately 75% of the issued and outstanding shares of non-voting common stock of Station. Immediately prior to the merger, Parent will be owned by affiliates of Frank J. Fertitta III, Chairman and Chief Executive Officer of Station, Lorenzo J. Fertitta, Vice Chairman and President of Station, and FC Investor, LLC, which we sometimes refer to in this proxy statement as FC Investor and which is a Delaware limited liability company and an affiliate of Colony Capital, LLC, which we sometimes refer to in this proxy statement as Colony or the Equity Investor, and Colony Capital Acquisitions, LLC, which we sometimes refer to in this proxy statement as Colony Acquisitions.

Fertitta Partners LLC, which we sometimes refer to in the proxy statement as Fertitta Partners, is a Nevada limited liability company that will, following the consummation of the merger, own approximately 25% of the issued and outstanding shares of non-voting common stock of Station. Immediately prior to the consummation of the merger, Fertitta Partners will be owned by affiliates of Frank J. Fertitta III, Lorenzo J. Fertitta, Blake L. Sartini and Delise F. Sartini (collectively referred to in this proxy statement as the “Rollover Stockholders”). Certain members of the management of Station may be granted or may otherwise acquire membership interests in Parent and Fertitta Partners.

FCP VoteCo LLC, which we sometimes refer to in this proxy statement as FCP VoteCo, is a Nevada limited liability company that will, following the consummation of the merger and the substantially simultaneous issuance and sale of voting common stock of Station for nominal consideration, own all of the issued and outstanding shares of voting common stock of Station. It is currently anticipated that there will be 1,000,000 shares of outstanding non-voting common stock of Station for each outstanding share of voting common stock of Station. Immediately prior to the consummation of the merger, each of Frank J. Fertitta III, Lorenzo J. Fertitta and Thomas J. Barrack, Jr., the Chairman and Chief Executive Officer of the Equity Investor, will own a one-third interest in FCP VoteCo.

The Rollover Stockholders have agreed to contribute a portion of their shares of Station common stock to Fertitta Partners in exchange for a portion of the equity interests of Fertitta Partners and, subject to specified exceptions, to vote their shares of common stock in favor of the merger.

1




FCP Acquisition Sub, which we sometimes refer to in this proxy statement as Merger Sub, is a Nevada corporation and currently is a wholly-owned subsidiary of Parent. Immediately prior to the consummation of the merger, Merger Sub will be a wholly owned subsidiary of FCP HoldCo.

The Proposal (Pages 48 and 83).

You are being asked to consider and vote to approve the Agreement and Plan of Merger, dated as of February 23, 2007 and amended as of May 4, 2007, by and among Station, Parent and Merger Sub (as amended, the “merger agreement”), pursuant to which Merger Sub will be merged with and into Station. Station will be the surviving company in the merger, which we refer to as the surviving corporation. As a result of the merger, Station’s stockholders, other than the Rollover Stockholders, Parent, FCP HoldCo, Fertitta Partners, FCP VoteCo, the Equity Investor and Colony Acquisitions will no longer have a direct or indirect equity interest in Station and Station common stock will no longer be listed on the New York Stock Exchange, which we refer to as the NYSE. The surviving corporation will, however, continue to file periodic reports with the Securities and Exchange Commission, which we refer to as the SEC, because the voting common stock of the surviving corporation will be registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, and such reports may be required by indentures governing the outstanding indebtedness of the surviving corporation or applicable law.

Merger Consideration (Page 84).

If the merger is consummated, holders of shares of outstanding Station common stock (other than shares of Station common stock owned by Parent, Merger Sub, FCP HoldCo, Fertitta Partners or any wholly-owned subsidiary of Station or shares of Station common stock held in treasury by us) will be entitled to receive $90.00 in cash, without interest, which we sometimes refer to as the merger consideration, for each share of Station common stock owned at the effective time of the merger. Each share of Station common stock beneficially owned by the Rollover Stockholders that is not contributed to Fertitta Partners will be sold to Parent for $90.00 of cash consideration or cancelled and converted into the right to receive $90.00 in cash, without interest. Parent, the surviving corporation and the disbursing agent designated by Parent will be entitled to deduct and withhold from the merger consideration any amounts required to be deducted and withheld under any applicable tax law, and any amounts so withheld shall be treated as having been paid to the holder from whose merger consideration the amounts were so deducted and withheld.

Treatment of Outstanding Options and Restricted Stock (Page 84).

If the merger is consummated, all outstanding options to purchase shares of Station common stock granted under a Station plan and not exercised prior to the merger will vest and be cancelled and converted into the right to receive a cash payment equal to the number of shares of Station common stock subject to the options multiplied by the amount by which $90.00 exceeds the option exercise price, without interest. At the effective time of the merger, each share of Station restricted stock will vest and be cancelled and converted into the right to receive $90.00 in cash, without interest.

Interests of Certain Persons in the Merger (Page 52).

In considering the proposal to approve the merger agreement, you should be aware that some Station stockholders, directors, officers and employees have interests in the merger that may be different from, or in addition to, your interests as a Station stockholder generally, including:

·       accelerated vesting and cash-out of options, restricted stock and other stock-based awards held by directors, officers and employees of Station, which will result in the payment of consideration in the

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approximate amounts of $367.7 million to Station’s directors and officers and $47.2 million to Station’s other employees;

·       compensation arrangements between Parent or its affiliates, including Station, and members of senior management of Station, including total compensation packages valued at approximately $6 million per year in the case of Frank J. Fertitta III and $3.5 million per year in the case of Lorenzo J. Fertitta;

·       ownership of equity interests in and certain governance rights with respect to Station, Parent, FCP HoldCo, Fertitta Partners and FCP VoteCo, including Frank J. Fertitta III’s and Lorenzo J. Fertitta’s anticipated direct and indirect ownership of approximately 15.0% of the equity interests in Parent, approximately 85.5% of the equity interests in Fertitta Partners and two-thirds of the equity interests in FCP VoteCo, as well as their interests in approximately 20.9% of Station’s net book value and earnings following the consummation of the merger; and

·       continued indemnification and increased directors’ and officers’ liability insurance coverage in the amount of $300 million to be provided by Parent and the surviving corporation.

The special committee and Station’s board of directors were aware of these interests and considered them, among other matters, prior to providing their respective recommendations with respect to the merger agreement.

Requisite Stockholder Vote (Page 79).

The affirmative vote of the holders of (1) at least two-thirds of all of the outstanding shares of Station common stock entitled to vote, which vote we sometimes refer to in this proxy statement as the Two-Thirds Vote, and (2) a majority of the outstanding shares of Station common stock (other than shares of Station common stock held by Parent, Merger Sub, the Rollover Stockholders or any of their respective affiliates) present, in person or by proxy, and voting at the special meeting, which vote we sometimes refer to in this proxy statement as the Majority-Minority Vote and, together with the Two-Thirds Vote, the Requisite Stockholder Vote, is required to approve the merger agreement. Approval of the adjournment proposal requires the affirmative vote of the holders of a majority of the shares of Station common stock present, in person or by proxy, and entitled to vote at the special meeting on that matter. Pursuant to a voting agreement among the Rollover Stockholders, Parent and Station, the Rollover Stockholders have agreed to vote all of their shares, which comprise 24% of Station’s outstanding common stock not including shares issuable upon the exercise of stock options held by such Rollover Stockholders, FOR the approval of the merger agreement, subject to specified exceptions. If you fail to vote on the merger agreement, the effect will be the same as a vote against the approval of the merger agreement for purposes of the Two-Thirds Vote but will have no effect on the Majority-Minority Vote.

Share Ownership of Directors and Executive Officers (Pages 55 and 70).

As of June 14, 2007, the record date, the directors and executive officers of Station held and were entitled to vote, in the aggregate, shares of our common stock representing approximately 22.2% of the outstanding shares. We believe our directors and executive officers intend to vote all of their shares of our common stock FOR the approval of the merger agreement and FOR the adjournment proposal. In addition, the Rollover Stockholders have entered into a voting agreement with Parent and Station in which they agreed to vote all of their shares, which comprise 24% of Station’s outstanding common stock not including shares issuable upon the exercise of stock options held by such Rollover Stockholders, FOR the approval of the merger agreement, subject to specified exceptions. Frank J. Fertitta III and Lorenzo J. Fertitta together currently own approximately 19.8% of the outstanding shares of Station, and we estimate that immediately following the consummation of the merger, they will indirectly own approximately 20.9% of the outstanding shares of Station. The outcome of the Two-Thirds Vote is not assured by virtue of the

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voting agreement and the shares subject to the voting agreement have no effect on the outcome of the Majority-Minority Vote.

Recommendations (Pages 11, 26 and 79).

Our board of directors formed a special committee of independent and disinterested directors on November 15, 2006 for purposes of reviewing, evaluating and, as appropriate, negotiating the proposal made by Frank J. Fertitta III and Lorenzo J. Fertitta or any unsolicited alternative proposal, and, as appropriate, rejecting or recommending to our full board of directors the proposal made by Frank J. Fertitta III and Lorenzo J. Fertitta or any unsolicited alternative proposal. The special committee has unanimously determined that the merger agreement and the merger are fair to and in the best interests of Station and the unaffiliated stockholders of Station (by which we mean the stockholders other than the Rollover Stockholders), and has recommended to the full Station board of directors that the board of directors approve the merger agreement and that the stockholders of Station approve the merger agreement. The members of the special committee comprise a majority of our board of directors, with the only other members being Frank J. Fertitta III and Lorenzo J. Fertitta. After considering factors including the unanimous recommendation of the special committee, Station’s board of directors (with Frank J. Fertitta III and Lorenzo J. Fertitta taking no part in the vote or recommendation) has unanimously:

·       determined that the merger agreement and the merger are fair to and in the best interests of Station and the unaffiliated stockholders of Station;

·       approved the merger agreement; and

·       recommended that Station’s stockholders approve the merger agreement.

Accordingly, the special committee and the board of directors (with Frank J. Fertitta III and Lorenzo J. Fertitta taking no part in the recommendation) unanimously recommend that you vote FOR the approval of the merger agreement.

Opinion of Bear, Stearns & Co. Inc. (Page 35).

The special committee received an opinion from its financial advisor, Bear, Stearns & Co. Inc. (“Bear Stearns”), delivered orally at the special committee meeting on February 23, 2007, and subsequently confirmed in writing, that, as of February 23, 2007, the date of the opinion, based upon and subject to the factors and assumptions and limitations, qualifications and other conditions contained in the opinion, the merger consideration of $90.00 per share to be received by the holders of shares of the Company’s common stock (other than the Rollover Stockholders) pursuant to the merger agreement was fair, from a financial point of view, to such holders, as described in the opinion of Bear Stearns, which is attached as Annex C to this proxy statement. We encourage you to read carefully this opinion in its entirety. The opinion of Bear Stearns was provided to the special committee in connection with its evaluation of the merger does not address any other aspect of the merger and does not constitute a recommendation to any stockholder as to how you should vote on any matter at the special meeting.

Report of CB Richard Ellis (Page 42).

The special committee received a report from CB Richard Ellis (“CBRE”), an independent real estate firm, with respect to Station’s undeveloped land holdings. The report is attached as an exhibit to the Schedule 13e-3 filed with the SEC in connection with the merger and incorporated herein by reference. We encourage you to read carefully this report in its entirety. The report of CBRE was provided to the special committee in connection with its evaluation of the merger, does not address any other aspect of the merger and does not constitute a recommendation to any stockholder as to how you should vote on any matter at the special meeting.

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What We Need to Do to Consummate the Merger (Page 96).

We will consummate the merger only if the conditions set forth in the merger agreement are satisfied or waived. These conditions include, among others:

·       approval of the merger agreement by the Requisite Stockholder Vote;

·       the absence of any legal restraint or prohibition preventing the consummation of the merger and the other transactions contemplated by the merger agreement;

·       the expiration or early termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we call the HSR Act;

·       the receipt of other regulatory approvals as described below under “Special Factors—Regulatory Approvals” beginning on page 71;

·       the representations and warranties of Station with respect to capitalization of Station and its subsidiaries, being true and correct in all material respects, and all other representations and warranties of Station being true and correct in all respects, except where the failure to be true and correct has not had, and would not be reasonably likely to have, a material adverse effect on Station and its subsidiaries taken as a whole;

·       the representations and warranties of Parent and Merger Sub that are qualified as to materiality being true and correct, and those representations and warranties of Parent and Merger Sub that are not qualified as to materiality being true and correct in all material respects; and

·       Station’s and Parent’s performance in all material respects of all of their respective obligations and compliance in all material respects with all of their respective agreements in the merger agreement.

At any time before the merger, to the extent legally allowed, the board of directors of Station, if approved by the special committee or a majority of the disinterested directors if the special committee no longer exists, may waive compliance with any of the conditions to Parent and Merger Sub’s obligations contained in the merger agreement without the approval of its stockholders and Parent and Merger Sub may waive compliance with any of Station’s conditions contained in the merger agreement. As of the date of this proxy statement, none of Station, Parent or Merger Sub expects that any condition will be waived.

Regulatory Approvals That Must be Obtained (Page 71).

In addition to the early termination of the applicable waiting period under the HSR Act from the Antitrust Division of the Department of Justice (the “DOJ”) and the Federal Trade Commission (the “FTC”), which occurred on March 20, 2007, we will need to receive approvals from various gaming authorities, including , the Nevada State Gaming Control Board, the Nevada Gaming Commission, the Clark County Liquor and Gaming Licensing Board, the cities of Las Vegas, North Las Vegas and Henderson, Nevada, the California Gambling Commission, the United Auburn Indian Community—Tribal Gaming Agency and the National Indian Gaming Commission.

When the Merger Will Be Consummated (Page 13).

We anticipate consummating the merger in the second half of 2007, subject to approval of the merger agreement by Station’s stockholders and the satisfaction of the other closing conditions set forth in the merger agreement.

Termination of the Merger Agreement (Page 100).

The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after stockholder approval has been obtained:

·       by mutual written consent of Station (acting on the direction of the special committee) and Parent and Merger Sub; or

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·       by either Station (with the prior approval of the special committee) or Parent if:

·        the effective time shall not have occurred on or before February 23, 2008 (the “End Date”), unless the failure of the party seeking to exercise such termination right to perform its obligation under the merger agreement has been the principal cause of the failure of the merger to be consummated by such time. Such “End Date” shall be automatically extended until May 23, 2008 if all of the conditions to the consummation of the merger were or were capable of being satisfied other than relating to a gaming approval and Parent provides written notice of such extension prior to February 23, 2008;

·        a temporary restraining order, preliminary or permanent injunction or other judgment, order or law prohibits, restrains or renders illegal the consummation of the merger and such legal restraint has become final and non-appealable, provided that such right to terminate the merger agreement shall not be available to any party whose breach of any provision of the merger agreement has been the principal cause of or resulted in the application or imposition of such restraint; or

·        our stockholders, at the special meeting or at any adjournment or postponement thereof at which the merger agreement was voted on, fail to approve the merger agreement by the Requisite Stockholder Vote; or

·       by Station (with the prior approval of the special committee) if:

·        a breach of or failure to perform any representation, warranty, covenant or agreement on the part of Parent or Merger Sub set forth in the merger agreement shall have occurred and such breach or failure to perform would result in a failure of a condition to Station’s obligation to consummate the merger and cannot be cured within 60 calendar days following notice to Parent, provided that we are not then in material breach of the merger agreement;

·        prior to obtaining the Requisite Stockholder Vote, we receive a Company Acquisition Proposal and our board of directors (acting through the special committee if it still exists, or otherwise by resolution of a majority of its disinterested directors) has concluded in good faith that such proposal constitutes a Superior Proposal; however we may not terminate the merger agreement pursuant to the foregoing unless:

·       we have complied in all material respects with the conditions described in “—Restrictions on Solicitation of Other Offers;”

·       we pay the termination fee in compliance with the requirements of described in “—Termination Fees and Expenses;” and

·       our board of directors concurrently approves and we concurrently enter into a definitive agreement with respect to such Superior Proposal; or

·       by Parent or Merger Sub if:

·        a breach of or failure to perform any representation, warranty, covenant or agreement on our part set forth in the merger agreement shall have occurred and such breach or failure to perform would result in a failure of a condition of Parent’s or Merger Sub’s obligation to consummate the merger and cannot be cured within 60 calendar days following notice of such breach to us; provided that Parent or Merger Sub is not in material breach of the merger agreement;

·        our board of directors or any committee thereof withdraws or modifies in a manner adverse to Parent or Merger Sub its recommendation that our stockholders approve the merger agreement, or publicly proposes to take such action;

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·        our board of directors or any committee thereof shall have approved or recommended to our stockholders a Company Acquisition Proposal other than the merger, or shall have resolved to take such action; or

·        we willfully breach our covenants under the merger agreement relating to solicitations, Company Acquisition Proposals and board recommendation changes in any manner materially adverse to Parent and Merger Sub.

A “Company Acquisition Proposal” means any inquiry, proposal or offer from any person or group of persons other than Parent, Merger Sub or their respective affiliates relating to any direct or indirect acquisition or purchase (whether in a single transaction or a series of transactions) of a business or businesses that constitutes 30% or more of the cash flow, net revenues, net income or assets of Station and its subsidiaries, taken as a whole, or 30% or more of any class or series of equity securities of Station, any tender offer or exchange offer that if consummated would result in any person or group of persons beneficially owning 30% or more of any class or series of equity securities of Station, or any merger, reorganization, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving Station (or any subsidiary or subsidiaries of Station whose business or businesses constitute(s) 30% or more of the cash flow, net revenues, net income or assets of Station and its subsidiaries, taken as a whole).

A “Superior Proposal” means a Company Acquisition Proposal (except the references therein to “30%” shall be replaced by “50%”), which was not obtained in violation of the merger agreement provisions relating to solicitations, Company Acquisition Proposals, and board recommendation changes and which Station’s board of directors (acting through the special committee if it still exists, or otherwise by resolution of a majority of its disinterested directors) in good faith determines, would, if consummated, result in a transaction that is more favorable from a financial point of view to the stockholders of Station (in their capacities as stockholders) (other than the Rollover Stockholders) than the transactions contemplated by the merger agreement (x) after consultation with its financial advisor, (y) after taking into account the likelihood of consummation of such transaction on the terms set forth therein (as compared to the terms of the merger agreement), including, without limitation, the relative likelihood of obtaining the Requisite Stockholder Vote, and (z) after taking into account all appropriate legal (after consultation with its outside counsel), financial (including the financing terms of any such proposal), regulatory (including the relative likelihood of obtaining the requisite approvals under applicable gaming laws) or other aspects of such proposal, including, without limitation, the identity of the third party making such proposal and the terms of any written proposal by Parent to amend or modify the terms of the merger and the other transactions contemplated by the merger agreement.

Termination Fees and Expenses (Page 101).

Payable by Station

We have agreed to reimburse Parent’s and Merger Sub’s reasonable out-of-pocket fees and expenses incurred by them or their affiliates in connection with the merger agreement, up to $40 million in the aggregate, (x) if the merger agreement is terminated by us or Parent because at our stockholders’ meeting or any adjournment thereof at which the merger agreement has been voted upon, our stockholders fail to approve the merger agreement by the Majority-Minority Vote and the termination fee is not otherwise payable under the merger agreement or (y) if Parent terminates the merger agreement because of a breach of any representation, warranty, covenant or agreement by us, which would cause the conditions to the obligations of Parent and Merger Sub to consummate the merger not to be satisfied and such breach is not cured within 60 calendar days following notice of such breach to us. If we become obligated to pay a termination fee under the merger agreement after payment of such expenses, the amount previously paid to Parent as an expense reimbursement will be credited toward the termination fee amount payable by us.

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We must pay a termination fee of $160 million to Parent as promptly as possible (but in any event within four business days) under the following conditions:

·       we terminate the merger agreement because, prior to obtaining the Requisite Stockholder Vote, we receive a Company Acquisition Proposal and our board of directors (acting through the special committee if it still exists, or otherwise by resolution of a majority of its disinterested directors) has concluded in good faith that such proposal constitutes a Superior Proposal (except that if the Company Acquisition Proposal is received prior to 11:59 p.m., Pacific Standard Time on the 30th business day following the date of the merger agreement; or April 6, 2007 (the “No-Shop Period Start Date”), the termination fee shall be $106 million);

·       Parent terminates the merger agreement because our board of directors approved or recommended to our stockholders to adopt a Company Acquisition Proposal other than the merger contemplated by this merger agreement or we willfully breach our covenants under the merger agreement relating to solicitations, Company Acquisition Proposals and board recommendation changes in any manner materially adverse to Parent and Merger Sub;

·       Parent terminates the merger agreement because our board of directors withdrew, modified or publicly proposed to do so in a manner adverse to Parent and Merger Sub its recommendation that our stockholders approve the merger agreement, and prior to such withdrawal, a Company Acquisition Proposal had been publicly announced or otherwise communicated or made known to the special committee, or any person had publicly announced or communicated or made known a bona fide intention, whether or not conditional, to make a Company Acquisition Proposal; or

·       we or Parent terminate the merger agreement because our stockholders fail to approve the merger agreement by the Requisite Stockholder Vote, and (a) prior to the special meeting a Company Acquisition Proposal had been publicly announced or otherwise communicated or made known to the special committee, or any person had publicly announced or communicated or made known a bona fide intention, whether or not conditional, to make a Company Acquisition Proposal, (b) such Company Acquisition Proposal is not withdrawn or terminated prior to the special meeting, and (c) within twelve (12) months after such termination, we or any of our subsidiaries enter into a definitive agreement with respect to, or consummate, any Company Acquisition Proposal (whether or not the same as that originally announced) (provided that for purposes of this provision only, references in the definition of “Company Acquisition Proposal” to “30%” shall be replaced with “50%”).

Payable by Parent

Parent must pay us a reverse termination fee of $160 million as promptly as possible (but in any event within four business days) if we terminate the merger agreement due to a breach of Parent’s or Merger Sub’s representations, warranties, covenants or agreements, including failure to deposit with the disbursing agent sufficient funds to make all payments pursuant to the merger agreement.

In the alternative, Parent must pay us a regulatory termination fee of $106 million as promptly as possible (but in any event within four business days) if we (with the prior approval of the special committee) or Parent terminate the merger agreement because the merger is not consummated by the End Date, and

·       Parent and Merger Sub have not obtained all of the gaming approvals required under the merger agreement (which failure was not meaningfully contributed to by us);

·       all other conditions to closing pursuant to the merger agreement have been satisfied (or are capable of being satisfied at the closing of the merger); and

·       we are not in material breach of the merger agreement.

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Financing of the Merger (Page 64).

Parent estimates that the total amount of funds necessary to consummate the merger and related transactions is anticipated to be approximately $5.7 billion, consisting of:

·       approximately $4.5 billion to pay Station stockholders and holders of options or restricted shares amounts due to them under the merger agreement assuming a purchase price of $90.00 per share (net of the exercise price for options and net of the value of the equity rollover shares of Station common stock contributed to Fertitta Partners by the Rollover Stockholders);

·       approximately $1.1 billion to repay certain existing indebtedness; and

·       approximately $100 million to pay fees and expenses in connection with the merger.

These payments are expected to be funded by a combination of (A) equity contributions by affiliates of the Equity Investor and other investors in Parent and (B) debt financing. Parent has obtained equity and debt financing commitments described below in connection with the transactions contemplated by the merger agreement.

Equity Financing

Parent has received an equity commitment letter from FC Investor, pursuant to which, subject to the conditions contained therein, FC Investor has agreed to contribute up to an aggregate of approximately $2.6 billion in cash. Parent also received rollover commitments from the Rollover Stockholders of 9,672,021 shares of Station common stock having an aggregate value of approximately $870.5 million based on the per share merger consideration, which rollover commitments Parent subsequently assigned to Fertitta Partners.

Debt Financing

Parent has received debt commitment letters from prospective arrangers and lenders to provide, subject to the conditions set forth therein:

·       to the surviving corporation, up to $500 million of senior secured credit facilities (of which $350 million is expected to be drawn at the closing of the merger) for the purpose of repaying or refinancing certain existing revolving indebtedness of Station and its subsidiaries as well as for providing ongoing working capital for other general corporate purposes of the surviving corporation and its subsidiaries; and

·       to a wholly-owned, unrestricted special purpose subsidiary of Station, up to $2.725 billion of mortgage loans and/or related mezzanine financing for the merger and paying fees and expenses in connection therewith.

Parent has agreed to use its reasonable best efforts to arrange the debt financing on the terms and conditions described in the debt commitment letters. The closing of the merger is not conditioned on the receipt of financing.

Restrictions on Solicitations of Other Offers (Page 97).

The merger agreement provides that during the period beginning on the date of the merger agreement and continuing until the No-Shop Period Start Date we were permitted to:

·       initiate, solicit and encourage, publicly or otherwise, any Company Acquisition Proposal including by way of providing access to non-public information pursuant to one or more confidentiality agreements that are consistent with Station’s past practice for transactions involving unaffiliated third-parties; and

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·       enter into and maintain discussions or negotiations with respect to Company Acquisition Proposals or otherwise cooperate with or assist or participate in, or facilitate, any such inquiries, proposals, discussions or negotiations.

From and after the No-Shop Period Start Date, we have agreed that we, our subsidiaries and representatives will not, subject to certain exceptions discussed below:

·       initiate, solicit or knowingly encourage (including by way of providing information) the submission of any inquiries, proposals or offers that constitute or may reasonably be expected to lead to any Company Acquisition Proposal or engage in any discussions or negotiations with respect thereto or otherwise cooperate with or assist or participate in, or knowingly facilitate any such inquiries, proposals, discussions or negotiations; or

·       approve or recommend, or publicly propose to approve or recommend, any Company Acquisition Proposal or enter into any merger agreement, letter of intent, agreement in principle, share purchase agreement, asset purchase agreement or share exchange agreement, option agreement or other similar agreement providing for or relating to a Company Acquisition Proposal or enter into any agreement or agreement in principle requiring us to abandon, terminate or fail to consummate the transactions contemplated by the merger agreement or breach our obligations thereunder or propose or agree to do any of the foregoing.

Prior to terminating the merger agreement or entering into an agreement with respect to any such Company Acquisition Proposal, we are required to comply with certain terms of the merger agreement described under “The Merger Agreement—Recommendation Withdrawal/Termination in Connection with a Superior Proposal.”

Notwithstanding the foregoing, under certain circumstances, our board of directors (acting through the special committee if it still exists) may respond to a bona fide unsolicited Company Acquisition Proposal or terminate the merger agreement and enter into an acquisition agreement with respect to a Superior Proposal, so long as we comply with certain terms of the merger agreement described under “The Merger Agreement—Recommendation Withdrawal/Termination in Connection with a Superior Proposal.”

Material United States Federal Income Tax Consequences (Page 62).

The receipt of cash in exchange for shares of Station common stock pursuant to the merger will be a taxable sale transaction for United States federal income tax purposes. In general, you will recognize gain or loss in the merger in an amount equal to the difference, if any, between the cash you receive and your tax basis in Station common stock surrendered. Payment of the cash consideration with respect to the disposition of shares of Station common stock pursuant to the merger may be subject to information reporting and United States federal backup withholding tax at the applicable rate (currently 28%), unless a holder of Station common stock properly certifies its taxpayer identification number or otherwise establishes an exemption from backup withholding and complies with all other applicable requirements of the backup withholding rules. Tax matters are very complicated. The tax consequences of the merger to you will depend upon your particular circumstances. You should consult your tax advisor for a full understanding of the U.S. federal, state, local, non-U.S. and other tax consequences of the merger to you.

Accounting Treatment of the Merger (Page 76).

The merger is expected to be accounted for as a business combination using the purchase method of accounting for financial accounting purposes, whereby the estimated purchase price would be allocated to the assets and liabilities of Station based on their relative fair values following Statement of Financial Accounting Standards No. 141, Business Combinations.

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers briefly address some questions you may have regarding the special meeting and the proposed merger. These questions and answers may not address all questions that may be important to you as a stockholder of Station. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

Q:             Why am I receiving this proxy statement and proxy card?

A:               You are being asked to consider and vote upon a proposal to approve a merger agreement that we entered into on February 23, 2007, as amended on May 4, 2007. The merger agreement is attached as Annex A to this proxy statement and the amendment to the merger agreement is attached as Annex B to this proxy statement. We urge you to read it carefully. See “The Merger Agreement” beginning on page 83.

Q:             Where and when is the Special Meeting?

A:               We will hold a special meeting of stockholders of Station on Monday, August 13, 2007 at 2:00 p.m. local time, at the Red Rock Casino Resort Spa, 11011 West Charleston Boulevard, Las Vegas, Nevada (the “Special Meeting”).

Q:             What matters will be voted on at the Special Meeting?

A:               You will be asked to consider and vote on the following proposals:

·       to approve the merger agreement;

·       to approve any motion to adjourn the Special Meeting, if necessary or appropriate, to a later date to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the proposal on the merger agreement; and

·       to transact such other business as may properly come before the Special Meeting or any adjournment or postponement of the Special Meeting.

Q:             What will a Station stockholder receive when the merger occurs?

A:               For every share of Station common stock owned at the effective time of the merger, a stockholder will have the right to receive $90.00 in cash, without interest. This does not apply to shares of Station common stock owned by Parent, Merger Sub, FCP HoldCo, Fertitta Partners or any wholly-owned subsidiary of Station or shares of Station common stock held in treasury by us. As a result of the merger, Station stockholders, other than the Rollover Stockholders, Parent, FCP HoldCo, Fertitta Partners, FCP VoteCo, FC Investor, the Equity Investor and Colony Acquisitions, will no longer have a direct or indirect equity interest in Station.

Q:             How does Station’s board of directors recommend that I vote on the proposals?

A:               The board of directors (with Frank J. Fertitta III and Lorenzo J. Fertitta taking no part in the vote) recommends that you vote:

·       FOR the proposal to approve the merger agreement; and

·       FOR the adjournment proposal.

You should read “Special Factors—Reasons for the Merger: Recommendations of the Special Committee; Fairness of the Merger” for a discussion of factors that our board of directors considered

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in deciding to recommend the approval of the merger agreement. See also “Special Factors—Interests of Certain Persons in the Merger.”

Q:             Who is entitled to vote at the Special Meeting?

A:               The record date for the Special Meeting is June 14, 2007 (the “Record Date”). Only holders of Station common stock at the close of business on the Record Date are entitled to notice of, and to vote at, the Special Meeting or any adjournment or postponement thereof. On the Record Date, there were 57,276,414 shares of common stock outstanding. Each share of common stock is entitled to one (1) vote on all matters presented at the Special Meeting. Holders of unexercised options will not be entitled to vote at the Special Meeting.

Q:             What constitutes a quorum for the Special Meeting?

A:               The presence, in person or by proxy, of stockholders holding at least a majority of the voting power of our stock outstanding on the Record Date will constitute a quorum for the Special Meeting. The shares of common stock held by the Rollover Stockholders, if present, in person or by proxy, will count towards determining whether a quorum exists.

Q:             What vote is required to approve the merger agreement and to approve the adjournment proposal?

A:               Approval of the merger agreement requires the Requisite Stockholder Vote. If you fail to vote on the merger agreement, the effect will be the same as a vote against the approval of the merger agreement for purposes of the Two-Thirds Vote but will have no effect on the Majority-Minority Vote. Approval of an adjournment of the Special Meeting requires only the affirmative vote of the holders of a majority of the shares of Station common stock present, in person or by proxy, and entitled to vote at the Special Meeting on that matter. In connection with the merger agreement, the Rollover Stockholders have also entered into a voting agreement with Parent and Station in which they have agreed to vote all of the shares of Station common stock beneficially owned by them in favor of the approval of the merger agreement and against any competing transaction, subject to specified exceptions.

Q:             How do Station’s directors and executive officers intend to vote?

A:               As of the Record Date, the directors and executive officers of Station held and are entitled to vote, in the aggregate, shares of our common stock representing approximately 22.2% of the outstanding shares. We believe our directors and executive officers intend to vote all of their shares of our common stock FOR the approval of the merger agreement and FOR the adjournment proposal. Moreover, the Rollover Stockholders have entered into a voting agreement with Parent and Station in which they have agreed to vote all of the shares of Station common stock beneficially owned by them in favor of the approval of the merger agreement and against any competing transaction, subject to specified exceptions.

Q:             What effects will the proposed merger have on Station?

A:               This is a “going private” transaction. As a result of the proposed merger, we will cease to be a publicly-traded company and will be directly owned by FCP HoldCo, Fertitta Partners and FCP VoteCo. You will no longer have any interest in our future earnings or growth In addition, upon consummation of the proposed merger, our common stock will no longer be listed on any exchange or quotation system, including the NYSE. We will, however, continue to file periodic reports with the SEC because our voting common stock will be registered pursuant to Section 12 of the Exchange Act

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and such reports may be required by the indentures governing our outstanding indebtedness or applicable law. See the section captioned “Special Factors—Effects of the Merger” on page 48.

Q:             What happens if the merger is not consummated?

A:               If the merger agreement is not approved by our stockholders or if the merger is not consummated for any other reason, stockholders will not receive any payment for their shares in connection with the merger. Instead, Station will remain an independent public company and our common stock will continue to be listed and traded on the NYSE. Under specified circumstances, Station may be required to pay Parent a termination fee or reimburse Parent for its out-of-pocket expenses, or Parent and Merger Sub may be required to pay us a reverse termination fee or a regulatory termination fee, in each case as described under the caption “The Merger Agreement—Termination Fees and Expenses” on page 101.

Q:             When do you expect the merger to be consummated? What is the “marketing period”?

A:               We expect the merger to close in the second half of 2007. In order to consummate the merger, we must obtain the Requisite Stockholder Vote and other closing conditions under the merger agreement must be satisfied or waived, as permitted by law. In addition, the merger is not required to close until the completion of a 15-business day “marketing period” that Parent can use to complete its financing of the merger. The marketing period will begin no earlier than three business days after we have obtained stockholder approval and have satisfied other specified conditions under the merger agreement and is intended to begin on the date that is reasonably believed in good faith by Parent’s Nevada counsel to be thirty days prior to the date that required gaming approvals will be obtained.

Q:             What should I do now?

A:               We urge you to read this proxy statement carefully, including its annexes, and to consider how the transaction affects you as a stockholder. You also may want to review the documents referenced under “Where You Can Find More Information” on page 122. Then simply mark, sign, date and promptly mail the enclosed proxy card in the postage-paid envelope provided. Should you prefer, you may deliver your proxy via telephone or via the Internet in accordance with the instructions on the enclosed proxy card or the voting instruction form received from any broker, bank or other nominee that may hold shares of Station common stock on your behalf. Please act as soon as possible so that your shares of Station common stock will be voted at the Special Meeting.

Q:             How do I vote?

A:               Please indicate on your proxy card how you want to vote, and sign and mail your proxy card in the enclosed return envelope as soon as possible so that your shares will be represented and voted at the Special Meeting. In addition, you may deliver your proxy via telephone or via the Internet in accordance with the instructions on the enclosed proxy card or the voting instruction form received from any broker, bank or other nominee that may hold shares of Station common stock on your behalf. If you sign your proxy and do not indicate how you want to vote, your shares will be voted FOR the approval of the merger agreement, FOR the adjournment of the Special Meeting, if necessary, to solicit additional proxies, and in accordance with the recommendations of our board of directors on any other matters properly brought before the Special Meeting for a vote. Please remember that if you fail to vote on the merger agreement, the effect will be the same as a vote against the approval of the merger agreement for purposes of the Two-Thirds Vote, but will have no effect on the Majority-Minority Vote.

If your shares are held by a broker, bank or other nominee, see below.

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Q:             Can I vote by telephone or electronically?

A:               If you hold your shares as a stockholder of record, you may vote by telephone or the Internet by following the instructions set forth on the enclosed proxy card.

If your shares are held by a broker, bank, or other nominee, often referred to as held in “street name,” please refer to the instructions forwarded by the bank, broker or nominee for telephone or Internet voting instructions. You may also contact your broker, bank or other nominee to determine whether you will be able to vote by telephone or electronically.

Q:             If my shares are held in “street name” by my broker, banker or other nominee will my broker or banker vote my shares for me?

A:               Your broker or banker will not vote your shares of Station common stock without specific instructions from you. You should instruct your broker or banker to vote your shares of Station common stock by following the instructions provided to you by such firm. You should also contact the person responsible for your account to make certain that your shares of Station common stock are voted. Without your instructions, your shares of Station common stock will not be voted, which will have the effect of a vote against approval of the merger agreement for purposes of the Two-Thirds Vote, but will have no effect on the Majority-Minority Vote.

Q:             What do I do if I participate in the Station Casinos, Inc. and Affiliates 401(k) Retirement Plan?

A:               If you participate in the Station Casinos, Inc. and Affiliates 401(k) Retirement Plan, you may give voting instructions as to the number of shares of common stock equivalent to the interest in Station common stock credited to your account as of the Record Date. You may provide voting instructions to Scudder Trust Company, the trustee, by completing and returning the proxy card accompanying this proxy statement. The trustee will vote your shares in accordance with your duly executed instructions received by August 9, 2007. If you do not send instructions, the trustee will vote the number of shares equal to the share equivalents credited to your account in the same proportion that it votes shares in your plan for which it did receive timely instructions. You may revoke previously given voting instructions before August 9, 2007, by submitting to the trustee either a written notice of revocation or a properly completed and signed proxy card bearing a later date. Your voting instructions will be kept confidential by the trustee.

Q:             What does it mean if I receive more than one proxy card?

A:               It means that you have multiple accounts at the transfer agent and/or with brokers, banks or other nominees. Please sign and return all proxy cards to ensure that all your shares are voted.

Q:             May I change my vote?

A:               Yes. You may change your vote at any time before your proxy is voted at the Special Meeting, subject to the limitations described below. You may do this in a number of ways. First, you may send us a written notice stating that you would like to revoke your proxy. Second, you may complete and submit a new proxy card bearing a later date. If you choose either of these two methods, you must submit your notice of revocation or your new proxy card to the secretary of Station, at the address under “Other Important Information Regarding Station” on page 107, and your notice of revocation or your new proxy card must be received prior to the Special Meeting. You may also submit a later-dated proxy using the telephone or Internet voting procedures on the proxy card so long as you do so before the deadline of 11:59 a.m., CDT, on August 12, 2007. Third, you may attend the Special Meeting and vote in person. Simply attending the Special Meeting, without voting in person, will not revoke your proxy. If your shares are held in “street name” and you have instructed a broker to vote your shares,

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you must follow directions received from your broker to change your vote or to vote at the Special Meeting.

Q:             How are votes counted?

A:               For the proposal to approve the merger agreement, you may vote FOR, AGAINST or ABSTAIN. If you abstain, it will have the same effect as if you voted against the approval of the merger agreement for purposes of the Two-Thirds Vote but will have no effect on the Majority-Minority Vote. In addition, if your shares are held in the name of a broker, bank or other nominee, your broker, bank or other nominee will not be entitled to vote your shares in the absence of specific instructions.

For the proposal to adjourn the Special Meeting, if necessary, to solicit additional proxies, you may vote FOR, AGAINST or ABSTAIN. Abstentions will count for the purpose of determining whether a quorum is present, but will have the same effect as a vote against the proposal to adjourn the meeting, which requires the vote of the holders of a majority of the shares of Station common stock present or represented by proxy at the meeting and entitled to vote on the matter.

If you sign your proxy card without indicating your vote, your shares will be voted FOR the approval of the merger agreement and FOR the adjournment of the Special Meeting, if necessary, to solicit additional proxies, and in accordance with the recommendations of our board of directors on any other matters properly brought before the Special Meeting for a vote.

Q:             What happens if I sell my shares before the Special Meeting?

A:               The Record Date of the Special Meeting is earlier than the Special Meeting and the date that the merger, if approved, is expected to be consummated. If you transfer your shares of Station common stock after the Record Date but before the Special Meeting, you will retain your right to vote at the Special Meeting, but will transfer the right to receive the merger consideration. In order to receive the merger consideration, you must hold shares upon consummation of the merger.

Q:             Will any other business be conducted at the Special Meeting?

A:               Our board of directors knows of no business, other than as set forth in the attached Notice of Special Meeting, that will be presented at the Special Meeting. If any other proposal properly comes before the stockholders for a vote at the Special Meeting, the persons named in the proxy card that accompanies this proxy statement will, to the extent permitted by law and to the extent we were not notified of the proposal in a reasonable amount of time before our solicitation, vote your shares in accordance with their judgment on such matter.

Q:             Should I send in my stock certificates now?

A:               No. If you hold certificates representing shares of Station common stock, you will be sent a letter of transmittal with detailed written instructions for exchanging your Station common stock certificates for the merger consideration after the merger is consummated. Please do not send your certificates in now.

Q:             What are the material United States federal income tax consequences of the transaction to stockholders?

A:               In general, your receipt of cash in exchange for shares of Station common stock pursuant to the merger will be a taxable sale transaction for United States federal income tax purposes. Since the tax consequences of the merger to you will depend on your particular circumstances, you should consult your tax advisor for a full understanding of the U.S. federal, state, local, non-U.S. and other tax consequences of the merger to you.

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Q:             Do stockholders have dissenters’ rights?

A:               No. Under Nevada law, which governs the rights of Station’s stockholders, stockholders of Station are not entitled to rights of appraisal or dissent in connection with the proposals included in this proxy statement.

Q:             Who is soliciting my vote?

A:               This proxy solicitation is being made and paid for by Station. In addition, we have retained D.F. King & Co., Inc. (“D. F. King”) to assist in the solicitation. We will pay D. F. King approximately $35,000 plus out-of-pocket expenses for its assistance. Our directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or by other means of communication. These persons will not be paid additional remuneration for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of Station common stock that the brokers and fiduciaries hold of record. We will reimburse them for their reasonable out-of-pocket expenses.

Q:             Who can help answer my questions?

A:               If you have any questions about the merger or if you need additional copies of this proxy statement or the enclosed proxy card, you should contact D.F. King, which is acting as the proxy solicitation agent and information agent in connection with the merger, at the following address.

D.F. King & Co., Inc.
48 Wall Street
New York, New York 10005
Call Toll-Free: 1-888-886-4425

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SPECIAL FACTORS

Background of the Merger

In mid-August 2006, Frank J. Fertitta III, our Chairman of the Board and Chief Executive Officer, and Lorenzo J. Fertitta, our Vice Chairman of the Board and President, began discussions with certain members of Station’s senior management group regarding the possibility of a going-private transaction led by Frank J. Fertitta III and Lorenzo J. Fertitta. The factors that led to such discussions at that time included recent going-private transactions involving other public gaming companies, the desire to discuss strategies for maximizing stockholder value, the decline in Station’s stock price from a historical high and perceived efficiencies of being privately-held as opposed to remaining public. Due to the sensitive and preliminary nature of such a discussion, the senior management group was limited to a few individuals. Principally, these individuals included William W. Warner, our Executive Vice President and Chief Operating Officer, Richard J. Haskins, our Executive Vice President, General Counsel and Secretary, and Thomas M. Friel, our then Vice President of Finance and, as of March 28, 2007, our Executive Vice President, Chief Accounting Officer and Treasurer. Also included in these early discussions were representatives of Milbank, Tweed, Hadley & McCloy LLP (“Milbank”), Station’s regular outside legal counsel, and Deutsche Bank Securities Inc. (“Deutsche Bank”), one of Station’s lenders and regular financial advisors.

During subsequent weeks, Frank J. Fertitta III and Lorenzo J. Fertitta, senior management and the professional advisors continued to explore legal and financial issues. As part of this exploration, Frank J. Fertitta III and Lorenzo J. Feritta gave summary consideration to transaction structures involving stock repurchases or a leveraged recapitalization. While they believed that such structures could have resulted in comparable value to the stockholders, they also believed that such alternatives would likely have restricted Station’s abililty to grow its business due to the additional debt required to effect such transactions and could have negatively impacted the price and volatility of Station’s stock.

In mid-September, 2006, Frank J. Fertitta III and Lorenzo J. Fertitta met on a confidential basis with representatives of a prominent real estate development firm (“Firm A”). Frank J. Fertitta III and Lorenzo J. Fertitta approached Firm A as a potential investor in a possible going-private transaction because Station had an ongoing business relationship with Firm A. At this meeting, the concept of a going-private transaction was discussed generally. In connection with such discussion, on September 19, 2006, Station entered into a confidentiality agreement with Firm A.

On October 7, 2006, a meeting was held among Frank J. Fertitta III, Lorenzo J. Fertitta, senior management, a representative of Milbank and a legal representative of Firm A. At this meeting, the Firm A representative expressed his preliminary thoughts on how Firm A might be interested in participating in a going-private transaction with Frank J. Fertitta III and Lorenzo J. Fertitta. The representative of Firm A proposed to contact a number of high net worth individuals, both domestic and foreign.  Frank J. Fertitta III and Lorenzo J. Fertitta rejected this approach for a number of reasons, including uncertainty as to execution, concerns about maintaining the confidentiality of the proposed transaction and regulatory concerns. After this meeting, Frank J. Fertitta III and Lorenzo J. Fertitta determined to approach select private equity firms through Deutsche Bank. No further meetings relating to a transaction were held with Firm A.

On October 9, 2006, the board of directors held a special meeting, with Mr. Haskins and a representative of Milbank also in attendance. At that meeting, Frank J. Fertitta III and Lorenzo J. Fertitta informed the board that they desired to explore the possibility of a going-private transaction with respect to Station. Frank J. Fertitta III noted that Frank J. Fertitta III and Lorenzo J. Fertitta’s plans were preliminary because, among other things, they had not obtained the required equity and debt financing and had not determined whether a transaction would be viable from an economic point of view. The

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representative of Milbank informed the board that Frank J. Fertitta III and Lorenzo J. Fertitta had asked Milbank to represent them in connection with any transaction, subject to board approval.

Frank J. Fertitta III asked the board to authorize (i) Frank J. Fertitta III and Lorenzo J. Fertitta to explore the feasibility of a transaction with a targeted number of private equity firms or other sources of equity funding, subject to the execution of customary confidentiality agreements approved by Mr. Haskins, (ii) Frank J. Fertitta III and Lorenzo J. Fertitta to retain professional advisors, including Milbank as legal counsel and Deutsche Bank as financial advisor to Frank J. Fertitta III and Lorenzo J. Fertitta, to assist them in exploring a potential transaction, and (iii) Station to pay the fees and expenses of any such professional advisors retained by Frank J. Fertitta III and Lorenzo J. Fertitta in connection with a transaction. As discussed below, these fees and expenses were later limited to $40 million. Frank J. Fertitta III, Lorenzo J. Fertitta and Milbank were excused from the meeting, and the independent directors met with Mr. Haskins and discussed Frank J. Fertitta III and Lorenzo J. Fertitta’s request. After Frank J. Fertitta III, Lorenzo J. Fertitta and Milbank rejoined the meeting, the board of directors unanimously, with Frank J. Fertitta III and Lorenzo J. Fertitta taking no part in the vote, approved Frank J. Fertitta III’s request. Dr. Nave, one of our independent directors, asked Frank J. Fertitta III and Lorenzo J. Fertitta to give the board of directors reasonable notice if their exploration of a transaction developed to the point where a proposal was reasonably likely.

On October 11, 2006, Station entered into separate confidentiality agreements with Deutsche Bank and a private equity firm (“Firm B”), with which Deutsche Bank had initiated contact. On that same date, a meeting was held among Frank J. Fertitta, Lorenzo J. Fertitta, Mr. Warner, a representative of Deutsche Bank and representatives of Firm B. On October 12, 2006, Station entered into a confidentiality agreement with Colony. On that same date, a meeting was held among Frank J. Fertitta III, Lorenzo J. Fertitta, Mr. Warner, a representative of Deutsche Bank, and Thomas J. Barrack, Jr. of Colony, which had recently participated in a going-private transaction involving another gaming company and was one of the few private equity firms that had acquired gaming assets in Nevada.

Throughout the remainder of the month of October 2006, Frank J. Fertitta III, Lorenzo J. Fertitta, senior management and representatives of Deutsche Bank and Colony and their respective legal counsel conducted due diligence and worked on a preliminary term sheet for a going-private transaction and strategic financing alternatives.

In late October 2006, Station entered into a confidentiality agreement with another private equity firm (“Firm C”), with which Deutsche Bank had initiated contact. A few days later, Deutsche Bank arranged a meeting in Las Vegas with Frank J. Fertitta III, Lorenzo J. Fertitta, Mr. Warner, a representative of Milbank and representatives of Firm C. No further meetings relating to the transaction were held with Firm C. Also throughout the remainder of the month of October 2006, Frank J. Fertitta III, Lorenzo J. Fertitta, senior management and representatives of Firm B conducted due diligence and worked on a preliminary term sheet for a going-private transaction.

On November 1, 2006, Station, Colony and Ernst & Young LLP (“E&Y”), Station’s independent accounting firm, executed a conflict waiver letter. The waiver related to Colony’s request that Station authorize E&Y to perform accounting and tax due diligence on behalf of Colony in connection with the going-private transaction. Dr. Nave, as chairman of the audit committee, granted E&Y permission to perform the requested services. The scope of services provided by E&Y to Colony primarily included an analysis of Station’s historical earnings and accounting policies and procedures which was not material to the going-private transaction. E&Y did not provide any valuation services of Station, nor did E&Y provide a report or opinion relating to the merger consideration or the fairness of the merger consideration to be offered to Station’s unaffiliated stockholders.

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In early November 2006, another meeting was held among Frank J. Fertitta III, Lorenzo J. Fertitta, a representative of Deutsche Bank and representatives of Firm B. No further meetings relating to the transaction were held with Firm B.

Discussions with both Firm B and Firm C terminated because neither firm agreed to act as a co-investor with Colony in a potential going-private transaction on the terms that had been agreed to by Frank J. Fertitta III, Lorenzo J. Fertitta and Colony.

On November 3, 2006, the board of directors held a special meeting, with Mr. Haskins and a representative of Milbank in attendance. At that meeting, Frank J. Fertitta III and Lorenzo J. Fertitta updated the board of directors regarding the status of Frank J. Fertitta III and Lorenzo J. Fertitta’s exploration of a possible going-private transaction with respect to Station. Frank J. Fertitta III stated that Frank J. Fertitta III and Lorenzo J. Fertitta had discussed a possible transaction with four private equity investors, all of whom had entered into confidentiality agreements with Station. He stated that Deutsche Bank had prepared indicative term sheets for debt financing alternatives. He also stated that Frank J. Fertitta III and Lorenzo J. Fertitta’s legal, financial and accounting advisors had analyzed various possible deal structures. He further noted that, while they were continuing to explore the viability of a potential transaction, Frank J. Fertitta III and Lorenzo J. Fertitta indicated that it was reasonably likely that they would make a proposal regarding a possible transaction in the near future. Frank J. Fertitta III, Lorenzo J. Fertitta and the representative of Milbank were then excused from the meeting, and the independent directors met with Mr. Haskins to discuss appropriate next steps, including retaining outside legal counsel and a financial advisor.

On November 7, 2006, the independent directors of the board held a special meeting to interview a law firm identified by the independent directors as potential outside legal counsel. At that meeting, the independent directors interviewed representatives of Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”). After deliberation, the independent directors determined to retain Skadden as outside legal counsel to the special committee, subject to the formation of the special committee and authorization of the special committee to retain legal counsel. This determination by the independent directors was based on a number of factors, including the reputation and experience of Skadden in mergers and acquisitions transactions, particularly in the gaming industry, and its experience in representing special committees in considering proposals relating to going-private transactions. After being selected, Skadden reviewed with the independent directors the fiduciary duties generally applicable to the actions of a special committee and discussed with those directors their independence for purposes of serving on the special committee. Skadden also advised the independent directors that it might be appropriate for the special committee to engage in its own study of strategic alternatives for Station.

On November 15, 2006, the board of directors held a special meeting, with Mr. Haskins and a representative of Milbank in attendance. At that meeting, the board of directors determined that establishing a special committee of independent directors was in the best interests of Station and its stockholders. The special committee consisted of all of the independent directors of Station’s board:  Lee S. Isgur, Lowell H. Lebermann, Jr., Robert E. Lewis and Dr. Nave. After discussion, the board of directors unanimously approved resolutions establishing the special committee and delegating to the special committee the exclusive power and authority to (i) negotiate a confidentiality agreement with Frank J. Fertitta III and Lorenzo J. Fertitta and any other participants in a potential transaction and supervise their due diligence investigation, (ii) enter into negotiations with Frank J. Fertitta III, Lorenzo J. Fertitta and any other participants with respect to a potential transaction, (iii) review, evaluate and negotiate with Frank J. Fertitta III, Lorenzo J. Fertitta and any other participants with respect to a possible transaction, (iv) report its recommendations with respect to a possible transaction to the board, (v) negotiate definitive agreements with respect to a potential transaction and (vi) take such actions with respect to any other proposals, offers or expressions of interest for a business combination transaction with Station on an unsolicited basis; provided, that any such actions with respect to a transaction with a third

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party after the execution of definitive agreements with Frank J. Fertitta III and Lorenzo J. Fertitta would be in compliance with the terms and conditions of such agreements. The special committee was also empowered to establish the fees to be paid to its members and to retain legal, financial and other advisors to assist the special committee in the fulfillment of its duties. The resolutions also provided that Station shall, to the fullest extent permitted by Nevada law, indemnify the members of the special committee. Thereafter the special committee retained Skadden as outside legal counsel.

On November 16, 2006, the special committee held a meeting in the Los Angeles offices of Skadden, at which representatives of Skadden participated. All members of the special committee were present at this meeting and all other meetings of the special committee. The special committee discussed the retention of Nevada counsel to advise it on issues of Nevada law. The special committee interviewed Kummer Kaempfer Bonner Renshaw & Ferrario (“Kummer Kaempfer”) as potential Nevada counsel and, after deliberation, the special committee selected Kummer Kaempfer in light of their experience in representing Nevada companies, including those in the gaming industry, and their experience in gaming regulatory matters. The special committee then discussed the retention of a financial advisor, and interviewed representatives of one investment banking firm. The representatives discussed their experience in and perspectives on the gaming industry, their initial view of the process of evaluating a proposal from Frank J. Fertitta III and Lorenzo J. Fertitta and information about their firm. They also answered questions from the special committee regarding their firm’s respective relationships with Station or representatives of Frank J. Fertitta III and Lorenzo J. Fertitta or others that might pose potential conflicts. Representatives of Skadden discussed with the special committee the retention of a real estate valuation firm to advise the special committee with respect to Station’s undeveloped land.

During that meeting, the special committee selected Dr. Nave to serve as chairman of the special committee. The special committee also discussed the fee to be paid to members of the special committee, and unanimously determined that the members of the special committee be paid $60,000, and the chairman be paid $90,000, with such fees to be payable upon receipt of an offer, in addition to Station’s regular fee for each meeting of a board committee.

On November 30, 2006, the special committee met at the Los Angeles offices of Skadden. At that meeting, the special committee interviewed representatives of two additional investment banks as a potential financial advisor. These representatives discussed their respective experience in and perspectives on the gaming industry, their initial view of the process of evaluating a proposal from Frank J. Fertitta III and Lorenzo J. Fertitta and information about their respective firms. They also answered questions from the special committee regarding their firms’ respective relationships with Station or representatives of Frank J. Fertitta III and Lorenzo J. Fertitta or others that might pose potential conflicts. After discussion and consideration of the presentation of the three investment banks, the special committee selected Bear Stearns as its financial advisor, subject to negotiation of the terms of an engagement letter. This determination by the special committee was based on Bear Stearns’ experience with transactions of the type that the special committee might consider, Bear Stearns’ experience in the gaming industry, the commitment of Bear Stearns’ senior investment bankers to be personally involved in the representation of the special committee, and the absence of any potential conflict of interest that would impair Bear Stearns’ ability to render an opinion or to act as the financial advisor to the special committee.

At that meeting, representatives of Skadden also informed the special committee that Milbank had informed Skadden that Frank J. Fertitta III and Lorenzo J. Fertitta intended to submit a proposal over the weekend. Representatives of Skadden and Kummer Kaempfer then discussed with the special committee resolutions that had been proposed by Milbank to approve an operating agreement of Parent and related agreements among the members of Parent and their financing sources, to the limited extent that such agreements might cause such entities or individuals to be deemed an “interested stockholder” under Nevada’s business combination statute. The special committee determined that Skadden and Kummer Kaempfer should discuss the resolutions with Milbank and circulate the final version of the resolutions to

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the special committee. The special committee also discussed asking Parent to enter into a confidentiality agreement in connection with the approval of the resolutions.

On December 1, 2006, Parent entered into a confidentiality agreement with Station, and the special committee approved the aforementioned resolutions by unanimous written consent.

On December 2, 2006, the board of directors received a letter from Parent in which Parent proposed to acquire all of Station’s outstanding shares of common stock for $82.00 per share in cash. According to the proposal letter, Parent had received financing commitments sufficient to consummate the proposed transaction. The proposal letter was accompanied by equity funding commitments from the Rollover Stockholders and Colony and debt financing commitments from Deutsche Bank Trust Company Americas and German American Capital Corporation. The letter stated that it did not constitute a binding commitment by Parent and that such commitment would be subject to execution of definitive agreements.

On December 3, 2006, the special committee held a meeting with its legal advisors. At that meeting, representatives of Skadden reviewed with the special committee the terms of the proposal letter received from Parent. The special committee approved a press release to be issued by Station announcing the receipt of the Parent proposal letter. Representatives of Skadden reviewed with the special committee the terms of the Bear Stearns engagement letter that Skadden had negotiated with Bear Stearns and the special committee approved the Bear Stearns engagement letter. The special committee also discussed potential real estate valuation firms to advise the special committee with respect to Station’s undeveloped land, and after further discussion, requested Kummer Kaempfer to contact CBRE.

On December 4, 2006, Station issued a press release announcing the receipt of the proposal letter from Parent. The press release announced the establishment of the special committee to review the proposal and that the special committee had been authorized to review any alternative proposals that may be received. The press release also announced the retention of Bear Stearns as financial advisor and Skadden and Kummer Kaempfer as legal advisors to the special committee.

On December 4, 2006, Milbank delivered a draft merger agreement to Skadden.

Following their respective engagement, the special committee’s legal and financial advisors began to conduct a due diligence review of Station. As part of their due diligence review, on December 7, 2006, representatives of Bear Stearns and Skadden met with Station’s senior management, including Mr. Haskins, Mr. Warner and Glenn C. Christenson, our then Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer, to review the business and operations of Station and management’s projections. At these meetings, members of management answered questions from the special committee’s advisors. Frank J. Fertitta III and Lorenzo J. Fertitta also participated in part of these meetings.

On December 8, 2006, the special committee held a meeting at the offices of Kummer Kaempfer in Las Vegas with its legal advisors. At the meeting, the special committee discussed the retention of a real estate valuation firm to advise the special committee with respect to Station’s undeveloped land. The special committee interviewed CBRE and determined to retain CBRE, subject to the negotiation of an engagement letter satisfactory to the special committee and its advisors. Such determination was based on CBRE’s experience in the gaming industry in general and in Las Vegas and Reno in particular, and CBRE’s reputation in the real estate industry.

On December 14, 2006, the board of directors held a regularly scheduled meeting at Station’s Red Rock Casino Resort Spa in Summerlin, Nevada (the “Red Rock Resort”). Immediately after the conclusion of the board meeting, the special committee met with its legal advisors. Representatives of Skadden and Kummer Kaempfer discussed the retention of CBRE. The special committee determined that counsel should continue to negotiate the CBRE engagement letter and authorized Dr. Nave to execute the letter.

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Representatives of Bear Stearns were then invited to join the special committee meeting in order to update the special committee on its activities since it had been retained, including the December 7 meeting with Station’s senior management. Representatives of Bear Stearns informed the special committee that they had received a few phone calls from strategic entities and private equity firms, but that none of the callers had given an indication of interest. Bear Stearns reviewed trading in Station’s stock, transaction value and ownership of Station’s stock, a preliminary analysis of Parent’s sources and uses of funds and the terms of Station’s outstanding debt. The special committee determined to meet the following week to receive a preliminary report from Bear Stearns on their financial analyses and a preliminary report from Skadden on the draft merger agreement provided by Parent

On December 21, 2006, the special committee held a meeting at the offices of Kummer Kaempfer in Las Vegas, together with its legal and financial advisors. Representatives of Bear Stearns reviewed the management projections, certain historical financial and operating information with respect to Station, Station’s industry position and a comparison of Station’s financial and operating information with that of other gaming companies, the trading history of Station’s stock and valuation and trading trends for other gaming companies, certain equity analysts’ statements with respect to Station and their preliminary valuation analyses. In addition, at the special committee’s request, Bear Stearns provided information regarding potential returns on investment for Parent based on certain assumptions discussed with the special committee. Following the presentation of Bear Stearns, representatives of Skadden discussed provisions in the draft merger agreement provided by Parent. After discussion and consideration of the draft merger agreement, Skadden indicated that they expected to be in a position to provide a markup of the draft merger agreement to the special committee for its review within the next couple of days. The special committee determined that it should meet to discuss the markup of the draft merger agreement before distributing it to Parent. The special committee instructed Skadden to contact Milbank to negotiate the proposed merger agreement before having Bear Stearns respond to Deustche Bank regarding Parent’s per share offer price as the special committee was not yet prepared to negotiate price.

On January 2, 2007, the special committee met with its legal advisors at the Las Vegas offices of Kummer Kaempfer. Representatives of Skadden reviewed the markup of the draft merger agreement and addressed the special committee’s questions and comments regarding the agreement. The special committee determined to ask Parent for additional provisions in the agreement, including:

·       a requirement that the Rollover Stockholders vote in favor of a superior proposal, as such term was defined in the draft merger agreement,

·       a reverse termination fee, payable by Parent and Merger Sub under the merger agreement in certain circumstances,

·       a limited guarantee from Colony, under which affiliates of Colony would guarantee the payment of the reverse termination fee,

·       the allocation of risk of Station’s representations and warranties being untrue as between Frank J. Fertitta III and Lorenzo J. Fertitta and Station,

·       the right of Station’s stockholders to continue to receive a quarterly dividend until the closing of any transaction, and

·       the requirement that the merger agreement be approved by a majority of the stockholders voting on the proposal other than the Rollover Stockholders.

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The special committee discussed the Rollover Stockholders’ ownership of approximately 27% of Station’s outstanding shares, including shares of common stock issuable upon exercise of stock options held by the Rollover Stockholders, and the requirement in Station’s charter that a merger be approved by two-thirds of Station’s outstanding shares. While the Rollover Stockholders do not own a sufficient number of shares to block by themselves a two-thirds vote in favor of a merger agreement with a third party, the special committee expressed concerns that the charter provision and the Rollover Stockholders’ ownership stake, taken together, could discourage any competing bids to acquire Station.

On January 4, 2007, Skadden provided a markup of the draft merger agreement to Milbank, and on January 9, 2007, Milbank distributed a revised merger agreement to Skadden and Kummer Kaempfer. On January 12, 2007, representatives of Milbank and Willkie Farr & Gallagher LLP, counsel to Colony (“Willkie”), met with representatives of Skadden at the Los Angeles offices of Skadden and discussed the draft merger agreement and other related agreements.

On January 19, 2007, the special committee met with its legal and financial advisors at the offices of Kummer Kaempfer in Las Vegas. At this meeting, the special committee’s legal and financial advisors discussed with the special committee communications from stockholders regarding the stockholders’ views of the value of Station’s common stock. Representatives of Skadden updated the special committee regarding the negotiations with Milbank and Willkie regarding the draft merger agreement and discussed the outstanding issues raised by the draft merger agreement. The issues included the unwillingness of the Rollover Stockholders to agree to vote in favor of a superior proposal from a third party and of Parent to have Station continue to pay quarterly dividends until the closing. Bear Stearns updated and expanded their preliminary financial analyses from the December 21, 2006 presentation to include a leveraged recapitalization analysis of Station. The special committee did not view a leveraged recapitalization of the Company as a compelling alternative to Parent's proposal due to the long-term viability of effectuating a leveraged recapitalization transaction, the potential disruption to the Company's stockholder base and the risk that such a transaction would not be appropriately rewarded in the public markets. After considering the terms of the proposed merger agreement and the $82.00 per share offer price, the special committee discussed with its legal and financial advisors how best to proceed with respect to Parent’s proposal. The special committee considered alternative courses of action, including rejecting the proposal, and the special committee unanimously determined that Bear Stearns communicate to Deutsche Bank that the special committee was not prepared to accept $82.00 per share as the special committee, based in part on the advice and analysis of Bear Stearns, determined such price to be too low.

On January 23, 2007, Skadden provided a revised merger agreement to Milbank, and between January 24, 2007 and January 26, 2007, representatives of Skadden and Milbank continued to negotiate the draft merger agreement.

On January 26, 2007, the special committee held a meeting at the Las Vegas offices of Kummer Kaempfer, at which its legal and financial advisors participated. The special committee discussed a letter received from a purported representative of a group of Station’s stockholders.  In the letter, the stockholder representative claimed that the offer of $82.00 per share significantly undervalued the Company based on a valuation accompanying the letter and requested that Dr. Nave be removed from the special committee due to his lack of independence with respect to Frank J. Fertitta III and Lorenzo J. Fertitta.  The letter cited a transaction in which Dr. Nave purportedly negotiated a merger between a company for which Dr. Nave served as a director and another company in which the Fertittas were large shareholders.  At the meeting, Dr. Nave described his role in the transaction and answered questions from the other members of the special committee, Skadden and Kummer Kaempfer. Dr. Nave explained to the special committee that he has served on the board of directors of Western Alliance Bancorporation, a publicly traded company of which he is currently the fifth largest shareholder, since 1994, and in connection with Western Alliance Bancorporation’s acquisition of Nevada First Bank and Intermountain First Bancorporation in March 2006, Dr. Nave met on one occasion with the chairman of the board of directors of Nevada First Bank to discuss issues relating to the purchase price and Western Alliance Bancorporation’s stock. Dr. Nave informed the special committee that neither Frank J. Fertitta III nor

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Lorenzo J. Fertitta played any role in the negotiation of the acquisition. At the time of such acquisition, Frank J. Fertitta III’s and Lorenzo J. Fertitta’s interest in Intermountain First Bancorporation was less than 1.0%. Dr. Nave informed the special committee that he was prepared to resign from the committee if any of the other members determined such action would be appropriate or necessary.

Dr. Nave was then excused from the meeting, and the other members of the special committee discussed Dr. Nave’s continued service on the committee. After consideration of the information regarding Dr. Nave’s participation in the transaction, the remaining three members of the special committee unanimously determined that Dr. Nave’s independence was not compromised and that he should continue to serve on the special committee and to serve as chairman of the special committee, and that Dr. Nave’s continued participation was valuable to the disinterested stockholders.

Dr. Nave then rejoined the meeting. Representatives of Skadden updated the special committee as to negotiations with Milbank regarding the draft merger agreement.

Representatives of Bear Stearns then reviewed with the special committee an analysis of the valuation submitted by the stockholder representative.  At the request of the special committee, Bear Stearns reconciled such valuation with its preliminary valuation at the time, which reconciliation revealed certain inaccuracies contained in the stockholder representative’s letter from the information available to Bear Stearns.  In light of such reconciliation, the special committee did not consider such valuation for purposes of its evaluation of Parent’s proposal.  Bear Stearns then presented an updated preliminary valuation analysis that was substantially similar to the January 19 presentation. Following the presentation of Bear Stearns, the special committee discussed with its legal and financial advisors the appropriate next step with respect to the Parent proposal. The special committee considered that it was probable that there would not be a competing bid due to the Rollover Stockholders’ ownership in Station and the provision in Station’s charter requiring a two-thirds vote of the outstanding shares to approve a transaction. The special committee determined that it would have to negotiate an acceptable price with Parent or reject Parent’s proposal altogether. After further discussion, the special committee requested that, as a negotiating position, Bear Stearns contact Deutsche Bank in order to advise Parent that it would need to increase its offer price substantially. The special committee instructed Bear Stearns to indicate to Deutsche Bank that the per share price should be in the range of $92.00 to $95.00 and to discuss with Deutsche Bank the Bear Stearns analyses in support of the special committee’s negotiating position.

On February 6 and February 9, 2007, representatives of Bear Stearns and Deutsche Bank met at the New York offices of Bear Stearns to discuss the Bear Stearns analyses that supported a higher per share offer price from Parent. At the conclusion of the meeting on February 9, 2007, representatives of Deutsche Bank indicated that they thought Parent would be prepared to offer $88.00 per share if all outstanding issues on the draft merger agreement were resolved as proposed by Deutsche Bank, and requested that Bear Stearns discuss such proposal with the special committee.

On February 14, 2007, the special committee and its advisors met at the offices of Kummer Kaempfer in Las Vegas. At the meeting, representatives of Bear Stearns updated the special meeting regarding the meetings with Deutsche Bank and presented an updated preliminary valuation analysis reflecting a conceptual offer price of $88.00 per share. Representatives of Skadden then reviewed with the special committee the outstanding issues in the draft merger agreement. After consideration of the issues identified in the draft merger agreement, the special committee instructed Skadden to respond to Milbank regarding the outstanding issues. The special committee determined that after Skadden had discussed the issues on the draft merger agreement with Milbank, Dr. Nave should contact Frank J. Fertitta III regarding a meeting to discuss the per share price. The special committee unanimously authorized and directed Dr. Nave to negotiate the best price reasonably available, and to reject any proposal less than $90.00 per share, plus the continued payment of quarterly dividends.

After the meeting, representatives of Skadden and Milbank continued to work on the draft merger agreement, and representatives of Skadden reported the status of those discussions to Dr. Nave. On February 21, 2007, Dr. Nave met with Frank J. Fertitta III and Lorenzo J. Fertitta at the Red Rock Resort.

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After lengthy discussions, Frank J. Fertitta III and Lorenzo J. Fertitta agreed that Parent would increase its offer to $90.00 per share, plus the continued payment of dividends, subject to satisfactory resolution of the outstanding issues on the merger agreement.

On February 22, 2007, the special committee met with its advisors at the Las Vegas offices of Kummer Kaempfer. Mr. Isgur participated by telephone. At this meeting, Skadden reviewed with the special committee its fiduciary duties. Dr. Nave reported to the special committee on his meeting with Frank J. Fertitta III and Lorenzo J. Fertitta. Dr. Nave updated the special committee that in his view, after his negotiations with Frank J. Fertitta III and Lorenzo J. Fertitta, Frank J. Fertitta III and Lorenzo J. Fertitta would not pay more than $90.00 per share, plus dividends. Representatives of Skadden reviewed with the special committee the open issues in the merger agreement, which included the amount of the expense reimbursement payable by Station to Parent in the limited circumstances provided in the merger agreement. Representatives of Bear Stearns then joined the meeting and reviewed with the special committee its financial analyses of the $90.00 per share price. Bear Stearns noted to the special committee that the materials and financial analyses it presented at the meeting were consistent with the financial analyses previously presented to the special committee, updated for developments since the prior materials. After making its presentation, Bear Stearns informed the special committee that it was prepared to deliver its opinion to the special committee that $90.00 per share was fair, from a financial point of view, to the public stockholders of Station, excluding the Rollover Stockholders.

The special committee discussed that Station issued a press release on December 4, 2006 announcing receipt of the Parent proposal to acquire Station for $82.00 per share, and no third party solicitations had been received. Bear Stearns reviewed with the special committee a list of entities to be contacted during the 30 business day “go shop” solicitation period contemplated by the merger agreement, and the special committee suggested additional names for the list. The special committee authorized Bear Stearns to contact those entities in accordance with the terms of the merger agreement following execution of the merger agreement. Bear Stearns was then excused from the meeting.

Representatives of Skadden then reviewed with the special committee in detail the terms of the sale and leaseback transaction agreements to be entered into in connection with the debt financing of the merger and the terms of the merger agreement. The meeting was adjourned prior to the completion of review of the merger agreement, and the special committee agreed to reconvene the following morning. The special committee directed Skadden to continue to work on the merger agreement with Milbank.

The special committee reconvened on February 23, 2007 at the Las Vegas offices of Kummer Kaempfer with all members present, together with its legal advisors. At the meeting, representatives of Kummer Kaempfer reviewed with the special committee its fiduciary duties. Representatives of Skadden completed the review of the merger agreement with the special committee, including material changes in the draft of the agreement presented to the committee, and reviewed the terms of the other transaction documents, including the voting agreement and the limited guarantee to be provided by affiliates of Colony. Bear Stearns delivered its oral opinion, subsequently confirmed in writing, to the special committee that, as of February 23, 2007, the date of the opinion, and based upon and subject to the factors, assumptions, limitations, qualifications and other conditions set forth in the opinion, the merger consideration of $90.00 per share to be received pursuant to the merger agreement by the public holders of shares of the Company’s common stock (other than the Rollover Stockholders) was fair, from a financial point of view, to such holders. The special committee also received the opinion of the investment bank retained to deliver the opinion required by the Company’s indentures in connection with the sale and leaseback transaction proposed by Parent in the merger agreement and the debt financing commitments. The special committee then resolved unanimously to recommend that the board approve the merger and adopt the merger agreement and that the board recommend that the stockholders approve the merger agreement. The special committee also unanimously determined that the terms of the sale and leaseback transaction, taken together, are fair and reasonable to Station and its subsidiaries participating in such transaction, and no less favorable to Station and such subsidiaries, as terms that would be obtainable at the time for a comparable transaction with an unrelated third person.

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Following the special committee meeting, the board held a telephonic meeting, in which all of the directors participated. At this meeting, Dr. Nave presented the report and recommendation of the special committee. The board approved, with Frank J. Fertitta III and Lorenzo J. Fertitta taking no part in the vote, the merger and the merger agreement, the voting agreement and the limited guarantee, and recommended approval of the merger agreement to Station’s stockholders, and unanimously approved other related actions, including resolutions expanding the authority of the special committee to solicit alternative proposals in accordance with the solicitation provisions of the merger agreement and limiting Frank J. Fertitta III and Lorenzo J. Fertitta’s fee and expense reimbursement to $40 million. After the meeting, representatives of Skadden and Milbank completed certain minor details on the merger agreement and other related documents reflective of comments from the special committee. Definitive financing and equity commitments were delivered, and the merger agreement and the other related documents were executed. The Company issued a press release announcing the transaction prior to the opening of trading on February 26, 2007.

During the 30 business day “go-shop” period following the execution of the merger agreement, Bear Stearns contacted 44 parties, including domestic and foreign strategic investors and financial investors, to solicit their interest in a possible alternative transaction. Only two of these parties requested a confidentiality agreement, which would permit them access to confidential information about the Company, and although a form of agreement was provided to these parties, neither executed a confidentiality agreement. At the conclusion of the “go-shop” process, Bear Stearns informed the special committee that it had not received any indications of interest or other proposals with respect to a possible alternative transaction. Pursuant to the requirements of the merger agreement, on April 9, 2007, the chairman of the special committee informed Parent that the Company was not participating in discussions or negotiations with any person. On April 11, 2007, the special committee held a meeting at which Bear Stearns reported on their solicitation efforts during the “go-shop” period.

On May 3, 2007, the special committee held a meeting to consider the proposed amendment to the merger agreement. At the meeting, representatives of Skadden reviewed the proposed amendment with the special committee and, after further discussion, the special committee unanimously approved the amendment to the merger agreement.

Recommendation of the Special Committee and Board of Directors; Reasons for Recommending Approval of the Merger Agreement

The Special Committee.   In anticipation of receiving a proposal from Frank J. Fertitta III and Lorenzo J. Fertitta, on November 15, 2006, the board of directors established a special committee consisting of all of the independent directors, Dr. Nave, who served as chairman, and Messrs. Isgur, Lebermann and Lewis, to consider any proposal received from Frank J. Fertitta III and Lorenzo J. Fertitta and any unsolicited proposals that were received. See “—Background of the Merger” for more information about the formation and authority of the special committee. The special committee retained Bear Stearns as its financial advisor and Skadden and Kummer Kaempfer as its legal advisors. The special committee oversaw financial and legal due diligence performed by its advisors, conducted an extensive review and evaluation of Parent’s proposal and conducted arms’-length negotiations with Parent and its representatives with respect to the merger agreement and various other agreements relating to the merger. On February 23, 2007, the special committee, after considering the presentations and advice of its financial and legal advisors, unanimously, among other things, determined that the merger and the merger agreement are fair to and in the best interests of Station and the stockholders of Station, other than the Rollover Stockholders. The special committee also unanimously recommended to the board of directors that the board of directors determine that the merger and the merger agreement are fair to and in the best interests of Station and the stockholders of Station, other than the Rollover Stockholders, and recommend to Station’s stockholders that they vote to approve the merger agreement.

In the course of reaching the determinations and decisions and making the recommendations described above, the special committee considered the following substantive positive factors and potential

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benefits of the merger and the merger agreement, each of which the special committee believed supported its decision:

·       That the special committee viewed the merger consideration of $90.00 per share (as well as Station’s ability, under the merger agreement, to continue to pay its regular quarterly dividend of $0.2875 per share and the likelihood of stockholders receiving at least two additional dividend payments before the closing of the merger) as more favorable to Station’s stockholders (other than the Rollover Stockholders) than the potential value that might result from the other alternatives reasonably available to Station of pursuing other strategic initiatives such as stock repurchases or a leveraged recapitalization or continuing with Station’s current business plan.  While a stock repurchase or a leveraged recapitalization could have resulted in comparable value to the stockholders, such alternatives would likely have restricted the Company's ability to grow its business due to the additional debt required to effect such transactions. See “—Evaluation of a Leveraged Recapitalization” for more information regarding the special committee’s consideration of a leveraged recapitalization. By contrast, the merger maximizes stockholder value by providing stockholder liquidity, without the risk to stockholders of a business plan constrained by a highly leveraged capital structure.

·       That the proposed merger consideration was all cash, so that the transaction allows Station’s stockholders (other than the Rollover Stockholders with respect to the shares they contribute to Fertitta Partners) to realize immediately a fair value, in cash, for their investment and provides such stockholders certainty of value for their shares.

·       That the special committee viewed the merger consideration as fair in light of the committee’s familiarity with Station’s business, assets, operations, financial condition, strategy and prospects, as well as Station’s historical and projected financial performance.

·       The current and historical market prices of Station’s common stock, including the market price of Station’s common stock relative to those of other participants in Station’s industries and general market indices, which historical information was presented to the special committee as background material by its financial advisor Bear Stearns.  The fact that Station’s stock price had generally traded in-line with other industry participants during the period from December 2005 through February 2007 and Station’s stock price had performed below the S&P 500 Index since the third quarter of 2006 until the initial offer by Parent; Station’s stock repurchases during 2006 of approximately 12.7 million shares at an average price per share of approximately $69.21, for a total of approximately $877.1 million and the fact that the merger consideration of $90.00 per share represented a premium of approximately 30% to the closing price of Station’s common stock on December 1, 2006, the last trading day before Parent’s proposal was made public and a premium of approximately 10% to the $82.00 per share originally proposed by Parent.

·       The opinion the special committee received from its financial advisor, Bear Stearns, delivered orally at the special committee meeting on February 23, 2007, and subsequently confirmed in writing, that, as of February 23, 2007, the date of the opinion, and based upon and subject to the factors, assumptions, limitations, qualifications and other conditions set forth in the opinion, the merger consideration of $90.00 per share to be received pursuant to the merger agreement by the public holders of shares of Station common stock (other than the Rollover Stockholders) was fair, from a financial view point, to such holders.

·       The presentation by Bear Stearns to the special committee on February 22, 2007 in connection with the foregoing opinion, which is described under “—Opinion of Financial Advisor”.

·       The special committee’s belief that $90.00 per share, plus Station’s ability to continue to pay its regular quarterly dividend of $0.2875 per share, was the highest consideration that could be negotiated with Parent.

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·       The efforts made by the special committee and its advisors to negotiate and execute a merger agreement favorable to Station under the circumstances and the fact that the negotiations regarding the merger agreement were held on an arms’-length basis.

·       The fact that no alternative acquisition proposal for Station had been submitted since the announcement of Parent’s initial proposal on December 4, 2006.

·       The terms and conditions of the merger agreement, including:

·        the requirement that the merger agreement be approved by the affirmative vote of a majority of those stockholders voting on the proposal other than the Rollover Stockholders;

·        the requirement that the merger agreement be approved by the affirmative vote of two-thirds of the outstanding shares of common stock, which would require that, in addition to the shares held by the Rollover Stockholders, an additional approximately 42% of the total outstanding shares (representing approximately 56% of the shares not owned by the Rollover Stockholders) must vote in favor of approving the merger agreement;

·        Station’s ability, under the merger agreement, to continue to pay its regular quarterly dividend of $0.2875 per share;

·        the absence of a financing condition to Parent’s obligation to consummate the transaction;

·        the provision of the merger agreement providing the special committee with a 30-business day post-signing “go shop period” during which the special committee would solicit third party interest in a transaction with Station and, after such 30-business day period, would permit the special committee to respond to unsolicited proposals prior to the stockholder vote, subject to specified conditions as more fully described below under “The Merger—Restrictions on Solicitation of Other Offers;”

·        the provision of the merger agreement that, subject to compliance with the terms of and conditions of the merger agreement, if a third party has proposed an alternative transaction that is a “superior proposal” as defined in the merger agreement, the board is permitted, prior to the adoption of the merger agreement by Station’s stockholders, to change its recommendation, approve or recommend a “superior proposal” or, upon the payment of a termination fee ($106 million if a third party has proposed an alternative transaction during the “go shop period,” which alternative transaction then constituted a “superior proposal,” or $160 million if a “superior proposal” is proposed by another third party after the “go shop period”, representing approximately 2% and 3% of the total equity value of the transaction, respectively), terminate the merger agreement in order to enter into a definitive agreement with respect to the “superior proposal” as more fully described below under “The Merger Agreement—Recommendation Withdrawal/Termination in Connection with a Superior Proposal;”

·        the commitment by Parent to provide (for one year from the effective date of the merger) Station’s employees with compensation, severance and benefits that are substantially comparable in the aggregate (other than equity-based compensation) provided to such employees immediately prior to the merger; and

·        that Station would not have to establish the existence and amount of its damages in the event of a failure of the merger to be completed under specified circumstances in which Parent would be required to pay the $160 million reverse termination fee or the $106 million regulatory termination fee if Parent were unable to obtain gaming approvals for the merger.

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·       That Parent delivered debt financing commitments from reputable lenders that, together with the equity commitments received from the Rollover Stockholders and affiliates of Colony, are sufficient to pay the aggregate merger consideration.

·       The special committee’s belief that it was fully informed about the extent to which the interests of Frank J. Fertitta III and Lorenzo J. Fertitta in the merger differed from those of Station’s other stockholders.

·       That Station’s executive officers, other than Frank J. Fertitta III and Lorenzo J. Fertitta, had no agreements with Parent at the time of execution of the merger agreement.

·       The presentations by Kummer Kaempfer, the special committee’s Nevada gaming regulatory counsel, as to the likelihood and timing of approval of the merger agreement under applicable gaming laws, including the fact that certain gaming licenses are already held by Frank J. Fertitta III, Lorenzo J. Fertitta and principals of Colony.

·       That certain affiliates of Colony had entered into a limited guarantee with Station, providing support for the payment of the $160 million reverse termination fee (and the $106 million regulatory termination fee) and other obligations payable by Parent to Station under specified circumstances.

In the course of reaching the determinations and decisions, and making the recommendations, described above, the special committee considered the following risks and potentially negative factors relating to the merger agreement, the merger and the other transactions contemplated thereby:

·       That Station’s stockholders, other than the Rollover Stockholders, will have no ongoing equity participation in Station following the merger, and that such stockholders will cease to participate in Station’s future earnings or growth, if any, including any appreciation in value on a long-term basis related to Station’s significant land holdings in the Las Vegas valley and the development of new casinos on those properties, or to benefit from increases, if any, in the value of Station’s common stock, and will not participate in any potential future sale of Station to a third party.

·       That Parent and its investors could realize significant returns on their equity investment in Parent from the merger. Bear Stearns prepared for the special committee an illustration of the hypothetical returns that the Parent could achieve on its equity investment. Assumptions in this illustration included achievement of management's projections including the development of Station's land held for development with existing development plans and discounting these projections utilizing a range of discount rates and terminal multiples, achievement of a range of management's estimate of the value of Station's land held for development with no existing development plans (which were assumed to be divested at the closing of the merger), achievement of management's projections for Station's Native American casino management contracts over their terms and discounting the cash flow from these projections, and an assumed capitalization and financing sources and uses primarily based on the draft financing commitments previously provided by Parent and its financing sources. This illustration produced internal rates of return for the equity investments in Parent of 16.1% to 28.1%. This illustration was not part of Bear Stearns' opinion to the special committee and the actual returns achieved by Parent and its investors may be higher or lower than as presented in this illustration.

·       That the $90.00 price per share (plus regular quarterly dividends of $0.2875 per share) is the maximum amount per share receivable by Station’s stockholders unless the merger agreement is terminated in accordance with its terms.

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·       That the special committee was not authorized to solicit alternative proposals prior to the signing of the merger agreement, although the special committee was authorized to respond to unsolicited proposals.

·       That other competing transactions could trigger the change in control provisions under the Company’s indentures and the employment agreements with executive officers, and the impact of such additional costs under such circumstances.

·       The participation of Frank J. Fertitta III and Lorenzo J. Fertitta in the merger and the fact that Frank J. Fertitta III and Lorenzo J. Fertitta have interests in the transaction that are different from, or in addition to, those of Station’s unaffiliated stockholders.

·       The merger agreement contains restrictions on the conduct of Station’s business prior to the completion of the merger, generally requiring Station to conduct its business only in the ordinary course, subject to specific limitations, which may delay or prevent Station from undertaking business opportunities that may arise pending completion of the merger and the length of time between signing and closing when these restrictions are in place, due to the time needed to obtain gaming regulatory approvals.

·       That the closing of the transaction is not expected to occur shortly following the stockholder vote due to the need to obtain gaming regulatory approvals and may be further delayed in connection with the receipt of gaming regulatory approvals for an additional three months past the outside closing date of twelve months, which extended time period may be mitigated in part by the ability of Station to continue to declare and pay regular quarterly dividends.

·       The risks and costs to Station if the merger does not close, including the diversion of management and employee attention, potential employee attrition and the potential effect on business and customer relationships.

·       That the receipt of cash in exchange for shares of Station common stock pursuant to the merger will be a taxable sale transaction for U.S. federal income tax purposes.

·       That Station stockholders do not have dissenters’ rights under Nevada law.

·       That the Rollover Stockholders’ ownership of approximately 27% of the outstanding common stock, including shares of common stock issuable upon exercise of stock options held by the Rollover Stockholders, the requirement in Station’s charter that a merger be approved by two-thirds of Station’s outstanding common stock would require that a competing offer receive the approval of approximately 88% of the outstanding common stock not owned by the Rollover Stockholders if the Rollover Stockholders did not vote in favor of the competing offer, the fact that the Rollover Stockholders would not agree to the special committee’s request that they give up their discretion to vote their shares and, instead, agree in advance to vote in favor of any competing proposal which the special committee might deem to be a Superior Proposal and the potential chilling impact this could have on third parties considering making competing offers.

·       The merger agreement’s limitations on Station’s ability to solicit other offers after the “go shop” period, although the special committee is authorized to respond to unsolicited proposals meeting specified criteria.

·       The possibility that, under the merger agreement, Station may be required to pay a termination fee of $160 million ($106 million in specified circumstances) or reimburse up to $40 million of Parent’s expenses, which expense reimbursement will be credited against the termination fee to the extent it becomes due.

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·       If the merger is not completed, Station will be required to pay its fees and expenses associated with the transaction.

·       That Parent’s maximum exposure for wrongfully failing to close or breaching the merger agreement, even if the breach is willful or deliberate, is limited to $160 million or $106 million, depending on the circumstances.

·       That Parent’s obligation to consummate the merger is subject to certain conditions outside of Station’s control.

In the course of reaching the determinations and decisions, and making the recommendations, described above, the special committee also considered the following factors relating to the procedural safeguards that the special committee believes were and are present to ensure the fairness of the merger and to permit the special committee to represent the interests of Station’s unaffiliated stockholders, each of which the special committee believed supported its decision and provided assurance of the fairness of the merger to Station and Station’s unaffiliated stockholders:

·       That the special committee consists solely of independent and disinterested directors who are not employees of Station and have no financial interest in the merger that is different from that of the unaffiliated stockholders (other than the acceleration of restricted stock and options to acquire shares of Company common stock).

·       That the members of the special committee were adequately compensated for their services and that their compensation for serving on the special committee was in no way contingent on their approving the merger agreement and taking the other actions described in this proxy statement.

·       That the special committee retained and was advised by Skadden and Kummer Kaempfer, its legal counsel.

·       That the special committee retained and was advised by Bear Stearns, its financial advisor.

·       That, after Station issued a press release on December 4, 2006 announcing receipt of the Parent proposal to acquire Station for $82 per share, no third party solicitations were received.

·       That the special committee received an opinion from its financial advisor, Bear Stearns, delivered orally at the special committee meeting on February 23, 2007, and subsequently confirmed in writing, that, as of February 23, 2007, the date of the opinion, and based upon and subject to the factors, assumptions, limitations, qualifications and other conditions set forth in the opinion, the merger consideration of $90.00 per share to be received pursuant to the merger agreement by the public holders of shares of Station common stock (other than the Rollover Stockholders) was fair, from a financial point of view, to Station and such holders.

·       That the special committee was involved in extensive deliberations over a period of almost three months regarding the proposal, and was provided with access to Station’s management in connection with the due diligence conducted by its advisors.

·       That the special committee, with the assistance of its legal and financial advisors, negotiated on an arms’-length basis with Parent and its representatives.

·       The requirement that the merger agreement be approved by the affirmative vote of a majority of those stockholders voting on the proposal other than the Rollover Stockholders;

·       The requirement that the merger agreement be approved by the affirmative vote of two-thirds of the outstanding shares of common stock, which would require that, in addition to the shares held by the Rollover Stockholders, an additional approximately 42% of the total outstanding shares

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(representing approximately 56% of the shares not owned by the Rollover Stockholders) must vote in favor of approving the merger agreement.

·       That the special committee had ultimate authority to decide whether or not to proceed with a transaction or any alternative thereto, subject to the board of director’s approval of the merger agreement, where the members of the special committee comprised a majority of the board of directors, as required by Nevada law.

·       That the special committee was aware that it had no obligation to recommend any transaction, including the proposal put forth by Frank J. Fertitta III and Lorenzo J. Fertitta.

·       That Station would be permitted to solicit proposals during a 30-business day post-signing “go shop period” and, thereafter, under certain circumstances to respond to inquiries regarding acquisition proposals and, upon payment of a termination fee, to terminate the merger agreement in order to enter into an agreement for a “superior proposal” as defined in the merger agreement.

·       That the special committee made its evaluation of the merger agreement and the merger based upon the factors discussed in this proxy statement, independent of members of the board who were Rollover Stockholders and with knowledge of the interests of such director participants in the merger.

The special committee did not consider net book value in determining the fairness of the merger to Station’s stockholders, other than the Rollover Stockholders, because of its belief that net book value, which is an accounting concept that is not commonly used as a valuation metric in the gaming industry, does not reflect historical or projected cash flows from continuing operations and thus does not reflect the value of Station or the market trading prices for Station’s common stock. In addition, the special committee did not consider liquidation value in determining the fairness of the merger to Station and Station’s stockholders, other than the Rollover Stockholders, because of its belief that liquidation value does not present a meaningful valuation for Station and its business as Station’s value is derived from cash flows generated from its continuing operations rather than the value of assets that might be realized in a liquidation. The special committee considered the analyses and the opinion of Bear Stearns, among other factors considered, in the course of reaching its decision that the merger is fair to Station and Station’s stockholders other than the Rollover Stockholders, and to recommend to Station’s board of directors that the board of directors approve the merger agreement. The special committee adopted the analyses and conclusions of Bear Stearns.

The foregoing discussion of the information and factors considered by the special committee includes the material factors considered by the special committee. In view of the variety of factors considered in connection with its evaluation of the merger, the special committee did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The special committee approved and recommends the merger agreement and the merger based upon the totality of the information presented to and considered by it.

The Board of Directors.   The board of directors consists of six directors, two of whom, Frank J. Fertitta III and Lorenzo J. Fertitta, will be Rollover Stockholders and have interests in the merger different from the interests of Station’s unaffiliated stockholders generally. The board of directors established the special committee, consisting of all of the independent directors, and empowered it to study, review, evaluate, negotiate and, if appropriate, make a recommendation to the board of directors regarding the proposal from Frank J. Fertitta III and Lorenzo J. Fertitta and any unsolicited proposals that were received. Thus, a majority of the board of directors consisted of the members of the special committee. Frank J. Fertitta III, the Chairman and Chief Executive Officer of Station, and Lorenzo J. Fertitta, the Vice Chairman and President of Station, who have each agreed to contribute a portion of

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their equity securities in Station to Fertitta Partners in exchange for an equity investment in Fertitta Partners, recused themselves from the deliberations and the vote due to their involvement in the transaction. On February 23, 2007, the board of directors met to consider the report and recommendation of the special committee. On the basis of the special committee’s recommendation and the other factors described below, Station’s board of directors unanimously, with Frank J. Fertitta III and Lorenzo J. Fertitta taking no part in the vote:

·       determined that the merger and the merger agreement are fair to, and are advisable to and in the best interests of, Station and the stockholders of Station other than the Rollover Stockholders,

·       approved the voting agreement and the limited guarantee; and

·       recommended that Station’s stockholders vote to approve the merger agreement.

·       Station’s board of directors unanimously:

·       took all actions so that the merger agreement, the voting agreement and the operating agreement of Parent would not be subject to the Nevada business combination statutes or any other applicable merger, anti-takeover or similar statute or regulation,

·       took all actions so that the Rollover Stockholders, Colony, Parent and their affiliates would not be an “acquiring person” under Station’s stockholder rights plan,

·       amended prior resolutions to limit the expense reimbursement payable to Frank J. Fertitta III and Lorenzo J. Fertitta to $40 million, and

·       approved various related resolutions.

In determining that the merger agreement is fair to, and is advisable to and in the best interests of, Station and the unaffiliated stockholders of Station, and approving the merger agreement, and recommending that Station’s stockholders vote for the approval of the merger agreement, the board of directors considered a number of factors, including the following material factors:

·       The unanimous determination and recommendation of the special committee;

·       The fact that the merger consideration and the other terms of the merger agreement resulted from negotiations between the special committee and Parent, and the board of directors’ belief that $90.00 per share, plus Station’s ability to continue to pay its regular quarterly dividend of $0.2875 per share, was the highest consideration that could be negotiated with Parent; and

·       The factors considered by the special committee, including the positive factors and potential benefits of the merger agreement, the risks and potentially negative factors relating to the merger agreement, the fairness opinion received by the special committee and the factors relating to procedural safeguards described below.

The foregoing discussion of the information and factors considered by Station’s board of directors includes the material factors considered by the board of directors. In view of the variety of factors considered in connection with its evaluation of the merger, Station’s board of directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The board of directors approved and recommends the merger agreement based upon the totality of the information presented to and considered by it.

The board of directors did not consider net book value in determining the fairness of the merger to Station’s stockholders, other than the Rollover Stockholders, because of its belief, after considering the factors considered by the special committee, that net book value, which is an accounting concept that is not

33




commonly used as a valuation metric in the gaming industry, does not reflect historical or projected cash flows from continuing operations and thus does not reflect the value of Station or the market trading prices for Station’s common stock. In addition, the board of directors did not consider liquidation value in determining the fairness of the merger to Station and Station’s stockholders, other than the Rollover Stockholders, because of its belief, after considering the factors considered by the special committee, that liquidation value does not present a meaningful valuation for Station and its business as Station’s value is derived from cash flows generated from its continuing operations rather than the value of assets that might be realized in a liquidation.

The board of directors believes that the merger is procedurally fair because the terms of the merger agreement require the affirmative vote of a majority of those stockholders voting on the proposal other than the Rollover Stockholders and despite the fact that the board of directors did not retain an unaffiliated representative other than the special committee to act solely on behalf of the Company’s stockholders, other than the Rollover Stockholders, for purposes of negotiating the terms of the merger agreement. The board of directors believes it was not necessary to retain any additional unaffiliated representative to act on behalf of Station’s stockholders, other than the Rollover Stockholders, in light of the independence, absence of conflicts of interest and role and actions of the special committee.

Our board of directors recommends that you vote FOR the approval of the merger agreement.

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Opinion of Financial Advisor

Opinion of Bear, Stearns & Co.

Pursuant to an engagement letter dated December 3, 2006, Station engaged Bear Stearns to act as financial advisor to the special committee in connection with the review of possible offers to acquire the Company by any acquirer. In addition, to the extent requested by the special committee, Bear Stearns agreed to render a fairness opinion with respect to a possible sale of the Company. In selecting Bear Stearns, the special committee considered, among other things, the fact that Bear Stearns is an internationally recognized investment banking firm with substantial experience advising companies in the gaming industry as well as substantial experience providing strategic advisory services. Bear Stearns, as part of its investment banking business, is continuously engaged in the evaluation of businesses and their debt and equity securities in connection with mergers and acquisitions, underwritings, private placements and other securities offerings, senior credit financings, valuations and general corporate advisory services.

At the February 23, 2007 meeting of the special committee, Bear Stearns delivered its oral opinion, which was subsequently confirmed in writing, that, as of February 23, 2007, and based upon and subject to the assumptions, qualifications and limitations set forth in the written opinion, the merger consideration to be received is fair, from a financial point of view, to the public stockholders of Station, excluding the Rollover Stockholders.

The full text of Bear Stearns’ written opinion is attached as Annex C to this proxy statement and you should read the opinion carefully and in its entirety. The opinion sets forth the assumptions made, some of the matters considered and qualifications to and limitations of the review undertaken by Bear Stearns. The Bear Stearns opinion is subject to the assumptions, limitations, qualifications and other conditions contained therein and is necessarily based on economic, market and other conditions and the information made available to Bear Stearns as of the date of the Bear Stearns opinion. Bear Stearns assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of the opinion.

In reading the discussion of the fairness opinion set forth below, you should be aware that Bear Stearns’ opinion:

·       was provided to the special committee for its benefit and use;

·       does not constitute a recommendation to the special committee or any stockholder of Station as to how to vote in connection with the merger or otherwise; and

·       did not address Station’s underlying business decision to pursue the merger, the relative merits of the merger as compared to any alternative business strategies that might exist for Station or the effects of any other transaction in which Station might engage.

Station did not provide specific instructions to, or place any limitations on, Bear Stearns with respect to the procedures to be followed or factors to be considered by it in performing its analyses or providing its opinion.

In connection with rendering its opinion, Bear Stearns:

·       reviewed a draft of the merger agreement and voting agreement dated February 23, 2007;

·       reviewed Station’s Annual Reports to Shareholders and Annual Reports on Form 10-K for the years ended December 31, 2005 and 2004, its Quarterly Reports on Form 10-Q for the periods ended March 31, 2006, June 30, 2006 and September 30, 2006, its preliminary results for the year ended December 31, 2006 and its Current Reports on Form 8-K filed since December 31, 2005;

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·       reviewed certain operating and financial information relating to Station’s business and prospects, including projections for the six years ended December 31, 2012, all as prepared and provided to Bear Stearns by Station’s management;

·       met with certain members of Station’s senior management to discuss Station’s businesses, operations, historical and projected financial results and future prospects;

·       reviewed the historical prices, trading multiples and trading volume of the common shares of Station;

·       reviewed publicly available financial data, stock market performance data and trading multiples of companies which Bear Stearns deemed generally comparable to Station;

·       reviewed the terms of recent mergers and acquisitions involving companies which Bear Stearns deemed generally comparable to Station;

·       performed discounted cash flow analyses based on the projections for Station furnished to Bear Stearns;

·       reviewed independent, third party appraisals of Station’s undeveloped land holdings; and

·       conducted such other studies, analyses, inquiries and investigations as Bear Stearns deemed appropriate.

Bear Stearns relied upon and assumed, without independent verification, the accuracy and completeness of the financial and other information provided to or discussed with Bear Stearns by Station or obtained by Bear Stearns from public sources, including, without limitation, the projections referred to above. With respect to the projections, Bear Stearns relied on representations that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the senior management of Station as to the expected future performance of Station. Bear Stearns did not assume any responsibility for the independent verification of any such information, including, without limitation, the projections, and Bear Stearns further relied upon the assurances of the senior management of Station that they were unaware of any facts that would make the information and projections incomplete or misleading.

In arriving at its opinion, Bear Stearns did not perform or obtain any independent appraisal of the assets or liabilities (contingent or otherwise) of Station, nor was Bear Stearns furnished with any such appraisals, other than an appraisal of Station’s undeveloped land holdings carried out by third party consultants at the instruction of the special committee. Bear Stearns did not solicit indications of interest from third parties regarding a potential transaction with Station prior to the execution of the merger agreement; however, in accordance with the merger agreement, Station was permitted to, and did, with the assistance of Bear Stearns, solicit other parties during the period beginning on the date of the merger agreement and continuing for 30 business days thereafter, as described above in “Background of the Merger.”  Bear Stearns did not review or consider the terms of the amendment to the merger agreement dated May 4, 2007, which was entered into after the date of Bear Stearns’ opinion. Bear Stearns assumed that the merger will be consummated in a timely manner and in accordance with the terms of the merger agreement without any limitations, restrictions, conditions, amendments or modifications, regulatory or otherwise, that collectively would have a material adverse effect on Station.

Bear Stearns did not express any opinion as to the price or range of prices at which the shares of common stock of Station may trade subsequent to the announcement of the merger.

Material Financial Analyses of Bear Stearns

The following is a brief summary of the material financial analyses performed by Bear Stearns and presented to the special committee in connection with rendering its fairness opinion.

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Some of the financial analyses summarized below include summary data and information presented in tabular format. In order to understand fully the financial analyses, the summary data and tables must be read together with the full text of the analyses. Considering the summary data and tables alone could create a misleading or incomplete view of Bear Stearns’ financial analyses.

For purposes of Bear Stearns’ analysis of Station, and with the understanding of the special committee, Bear Stearns separately analyzed Station’s operations based upon the following four components of its business:

·       Existing Nevada Operations:  Station is the owner and operator of 13 Las Vegas casinos and has a significant interest in an additional three casino joint ventures.

·       Land Held for DevelopmentCurrent Development Plans:  This component represents the four planned future casino developments on land parcels Station currently owns which Station’s management expects to develop prior to 2012, the end of its forecast period.

·       Land Held for DevelopmentNo Current Development Plans:  This component represents Station’s land holdings that Station’s management does not expect to be developed prior to 2012.

·       Native American Contracts:  Station offers development and management services to Native American tribes. Station has one such operating facility under contract and three additional contracts signed for properties under development.

In order to value each of Station’s segments, Bear Stearns performed various analyses on the various components of Station’s business and then combined the business components in order to evaluate the fairness of the consideration in the merger.

Comparable Trading Analysis

Bear Stearns’ comparable trading analysis factored in multiples of comparable companies when valuing the Existing Nevada Operations. Values for the other components of Station’s business were calculated based on methodologies indicated below.

Existing Nevada Operations

Existing Nevada Operations encompass Station’s 13 existing Las Vegas-based casino properties, as well as Station’s interests in three joint venture casino properties.

Bear Stearns reviewed certain financial information for Station and compared that information to the corresponding financial information, ratios and public market multiples of selected publicly traded companies in the gaming industry. Bear Stearns further classified the companies that were included for purposes of its analysis as a function of their respective equity market capitalizations, as “Large-Cap Operators” and “Mid-Cap Operators:”

“Large-Cap Operators”:

·       Boyd Gaming Corp.

·       Penn National Gaming, Inc.

“Mid-Cap Operators”:

·       Ameristar Casinos, Inc.

·       Great Canadian Gaming Corp.

·       Isle of Capri Casinos, Inc.

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·       Pinnacle Entertainment, Inc.

·       Trump Entertainment Resorts, Inc.

These companies were selected, among other reasons, because they share similar business characteristics to Station, they operate in the gaming industry and they have similar operating profiles to Station. While none of the companies listed is identical to Station, Bear Stearns made judgments and assumptions concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading values of the selected companies. Financial information, ratios and public market values for Wynn Resorts Ltd. and Las Vegas Sands Corp. were reviewed by Bear Stearns but were excluded from the analysis because the financial data of these companies was affected by the value of their interests in Macau operations. Financial information, ratios and public market values for Harrah’s Entertainment Inc. and MGM Mirage were also reviewed by Bear Stearns but excluded from the analysis because the financial data of these companies was affected by the impact of non-operating activities or publicly announced strategic transactions.

For the companies noted above, Bear Stearns calculated the multiples of their respective February 21, 2007 closing stock prices to calendar year 2007 and 2008 earnings estimates and multiples of enterprise value (calculated as equity value plus debt and minority interest, less cash and cash equivalents) to calendar year 2007 and 2008 estimated earnings before interest, tax, depreciation and amortization, or EBITDA, and compared these measures to the corresponding multiples for Station. For purposes of its analyses, Bear Stearns also deducted projected restricted stock amortization from management’s estimates of Station’s 2007 and 2008 projected EBITDA. Estimated financial data for the selected public companies were based on publicly available information, including SEC filings and First Call consensus estimates.

From this analysis, Bear Stearns observed that for the comparable public companies, the relevant ratio (based on an analysis of the companies Bear Stearns deemed most comparable) of total enterprise value to 2007 forward EBITDA (EV/2007 EBITDA) ranged from 9.0x to 11.0x, and that the relevant ratio (based on an analysis of the companies Bear Stearns deemed most comparable) of EV/2008 EBITDA ranged from 8.0x to 10.0x.

Land Held for Development—Current Development Plans

Land Held for Development—Current Development Plans represents Station’s portfolio of four future real estate properties that management expects to develop during the period reflected in the management forecasts.

Discounted Cash Flow Analysis.   Bear Stearns valued Station’s Land Held for Development—Current Development Plans using a discounted cash flow analysis similar to the discounted cash flow analysis that it performed for the Existing Nevada Operations, described below. Bear Stearns selected a discount rate range of 8.5% to 9.5%. Bear Stearns noted that expected cash flows from future developments could be considered speculative and involve greater risk than the cash flows from Existing Nevada Operations and therefore could be discounted at a higher discount rate than that applied to the cash flows from Existing Nevada Operations. The terminal value of these cash flows was calculated using a last-twelve-months (LTM) EBITDA multiple range of 9.5x to 10.5x. In estimating the terminal value multiples, Bear Stearns considered that the four properties to be developed are expected to have strong growth prospects in 2012, as they are expected to begin operations between 2009 and 2012.

CB Richard Ellis Value Estimates.   In addition, the special committee engaged CBRE to provide estimates of the value of the land for which Station has current development plans. See “Report of CB Richard Ellis” below. The values that CBRE estimated are strictly for the real estate and do not take into account the value created by developing the properties. CBRE estimated a value range of $259 million to $311 million for these four properties.

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For purposes of its opinion, Bear Stearns utilized the value estimates determined in its discounted cash flow analysis described above, which were higher than CBRE’s range.

Land Held for Development—No Current Development Plans

Land Held for Development—No Current Development Plans represents Station’s portfolio of land on which Station’s management does not expect to be developed prior to 2012, the end of its forecast period.

Management Estimates.   Station’s management estimated the value of the Land Held for Development—No Current Development Plans to be between $1.2 billion and $1.7 billion. Management’s estimate was primarily based on recent transactions in the Las Vegas market, as well as their overall knowledge of the market. Bear Stearns noted that Station’s management has extensive expertise in the Las Vegas real estate market, which encompasses the substantial majority of properties included in Land Held for Development—No Current Development Plans.

CB Richard Ellis Value Estimates.   The special committee engaged CBRE to provide estimates of the value of the Land Held for Development—No Current Development Plans. See “Report of CB Richard Ellis” below. CBRE estimated the value of Station’s portfolio of Land Held for Development—No Current Development Plans to be between $858 million to $1.2 billion. Management’s and CBRE’s estimates were substantially similar for all properties except one, the Wild Wild West site. Bear Stearns observed that the difference between the two estimates for this property accounted for most of the difference between the respective value ranges of Station’s Land Held for Development—No Current Development Plans.

For purposes of its opinion, Bear Stearns utilized management’s value estimates, which were higher than CBRE’s range.

Native American Contracts

Native American Contracts represents development and management services provided to Native American tribes.

Discounted Cash Flow Analysis.   Bear Stearns valued Station’s Native American Contracts using a discounted cash flow analysis. Bear Stearns applied a discount rate range of 8.5% to 9.5%. Bear Stearns noted that three of the four facilities to be managed under the Native American contracts have yet to be developed. In addition, Bear Stearns noted that the cash flows derived from the Native American Contracts involve greater risk and could be discounted at a higher discount rate as compared to cash flows generated by Existing Nevada Operations. Bear Stearns assumed no terminal value for the contracts due to the finite terms of the contracts.

Based on the various analyses described above,  Bear Stearns calculated the following ranges of implied equity value per share of Station’s common stock:

Comparable Trading Valuation Analysis

 

Implied Price Per Share

 

 

 

Low

 

Mid

 

High

 

Based on 2007 Existing Nevada Operations EBITDA

 

$

60.37

 

$

76.14

 

$

92.00

 

Based on 2008 Existing Nevada Operations EBITDA

 

$

62.35

 

$

79.52

 

$

96.80

 

 

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Comparable Transaction Analysis

Bear Stearns’ comparable transaction analysis factored in multiples of comparable transactions when valuing the Existing Nevada Operations. Values for the other components of Station’s business were calculated based on methodologies indicated in the comparable trading analysis section above.

Bear Stearns reviewed certain precedent gaming transactions over the last ten years. Bear Stearns focused its analysis on the following three transactions, as they represent the most recent activity in the gaming sector. Using publicly available information, including Wall Street research, Bear Stearns calculated forward EBITDA multiples for the selected comparable precedent transactions, as follows:

Date Announced

 

 

 

Target

 

Acquirer

 

Enterprise
Value/Forward EBITDA

 

December 2006

 

Harrah’s Entertainment, Inc.

 

Texas Pacific Group/
Apollo Management, L.P.

 

 

10.4x

 

 

May 2006

 

Aztar Corporation

 

Columbia Sussex Corp.

 

 

11.0x

 

 

May 2006

 

Kerzner International Ltd.

 

Investor Consortium

 

 

12.7x

 

 

 

From this analysis, Bear Stearns observed that the relevant ratio of EV/2007 EBITDA ranged from 10.0x to 12.0x.

Based on the various analyses described above,  Bear Stearns calculated the following ranges of implied equity value per share of Station’s common stock:

Comparable Transaction Valuation Analysis

 

Implied Price Per Share

 

 

 

Low

 

Mid

 

High

 

Based on 2007 Existing Nevada Operations EBITDA

 

$

69.65

 

$

85.42

 

$

101.28

 

 

Discounted Cash Flow Analysis

Bear Stearns’ discounted cash flow analysis factored in discounted unlevered free cash flows when valuing the Existing Nevada Operations and is described below. Values for the other components of Station’s business were calculated based on methodologies indicated in the comparable trading analysis section above.

Bear Stearns performed a discounted cash flow analysis for the purpose of determining a range of implied present values for Station’s Existing Nevada Operations. Bear Stearns calculated the estimated free cash flows for Station’s Existing Nevada Operations for the years 2007 to 2012 based on management’s projections. Bear Stearns used discount rates ranging from 8.5% to 9.5% and a range of terminal LTM EBITDA multiples (applied to 2012 EBITDA) of 8.5x to 9.5x. The discount rates were based on Bear Stearns’ judgment of the weighted average cost of Station’s capital. In estimating the terminal EBITDA multiples, Bear Stearns considered Station’s and comparable companies’ current and historical trading multiples, noting that current market multiples are on the high end when compared to historical levels.

Based on the various analyses described above,  Bear Stearns calculated the following ranges of implied equity value per share of Station’s common stock:

Discounted Cash Flow Valuation Analysis

 

Low

 

Mid

 

High

 

Implied Price Per Share

 

$

74.87

 

$

87.65

 

$

100.83

 

 

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Sum-of-the-Parts Analysis

Bear Stearns reviewed the individual properties within Station’s Existing Nevada Operations to determine an illustrative range of 2007 EV/EBITDA multiples on an asset by asset basis. The multiple ranges selected reflect Bear Stearns’ judgment regarding the markets, growth prospects, profitability and other characteristics of each of the individual properties. The multiples applied to Station’s individual properties ranged from 7.0-9.0x to 10.0-12.0x. Bear Stearns applied these multiples to management’s forecasted 2007 EBITDA for each of the individual properties and forecasted corporate expenses for the period. Values for the other components of Station’s business were calculated based on methodologies indicated in the comparable trading and comparable transactions analysis sections above.

Based on the various analyses described above, Bear Stearns calculated the following ranges of implied equity value per share of Station’s common stock:

Sum-of-the-Parts Valuation Analysis

 

Low

 

Mid

 

High

 

Implied Price Per Share

 

$

63.79

 

$

79.56

 

$

95.42

 

 

Bear Stearns based its analysis on assumptions that it deemed reasonable, including assumptions concerning general business and economic conditions and industry-specific factors. Bear Stearns did not form an opinion as to whether any individual analysis or factor, whether positive or negative, considered in isolation, supported or failed to support the Bear Stearns opinion. In arriving at its opinion, Bear Stearns considered the results of all its analyses and did not attribute any particular weight to any one analysis or factor. Bear Stearns arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole and believes that the totality of the factors considered and analyses performed by Bear Stearns in connection with its opinion operated collectively to support its determination as to the fairness of the consideration to be received by the stockholders of Station. The analyses performed by Bear Stearns, particularly those based on estimates and projections, are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. None of the public companies used in the comparable company analysis described above are identical to Station, and none of the precedent transactions used in the precedent transactions analysis described above are identical to the merger. Accordingly, an analysis of publicly traded comparable companies and comparable precedent transactions is not mathematical; rather it involves complex considerations and judgments concerning the differences in financial and operating characteristics of the companies and precedent transactions and other factors that could affect the value of Station and the public trading values of the companies and precedent transactions to which they were compared. The analyses do not purport to be appraisals or to reflect the prices at which any securities may trade at the present time or at any time in the future.

The Bear Stearns opinion was just one of the many factors taken into consideration by the special committee. Consequently, Bear Stearns’ analysis should not be viewed as determinative of the decision of the special committee with respect to the fairness of the consideration to be received, from a financial point of view, by the public stockholders of Station, excluding the Rollover Stockholders.

Pursuant to the terms of Bear Stearns’ engagement letter, Station has agreed to pay Bear Stearns a transaction fee of $12.0 million for Bear Stearns’ services, a substantial portion of which is contingent on successful consummation of the merger. As of the date hereof, Station has paid Bear Stearns a retainer fee of $250,000 and a fee of $1,500,000 at the time of Bear Stearns’ delivery of its fairness opinion to the special committee. In addition, Station has agreed to reimburse Bear Stearns for certain expenses and to indemnify Bear Stearns against certain liabilities arising out of or in connection with Bear Stearns’ engagement. Bear Stearns has been previously engaged by Station to provide certain investment banking and other services and by certain Rollover Stockholders to provide brokerage services, in each case in matters unrelated to the merger, for which it received, or expects to receive, customary fees. However,

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Bear Stearns has not received any fees for corporate finance, investment banking or other advisory services from Station within the past two years, other than in connection with the transaction as noted above. Various individuals and entities affiliated with Bear Stearns may have passive minority investments in private equity funds managed by Colony. In addition, Bear Stearns in the past has been engaged by Colony or its affiliates to provide certain investment banking and other services in matters unrelated to the merger, for which Bear Stearns has received, or expects to receive, customary fees.

In the ordinary course of business, Bear Stearns and its affiliates may actively trade the equity and debt securities and/or debt of Station and its respective affiliates for Bear Stearns’ own account and for the account of Bear Stearns’ customers and, accordingly, may at any time hold a long or short position in such securities or bank debt.

Report of CB Richard Ellis

Selection and Qualification of Real Estate Services Firm

In connection with its evaluation of possible offers to acquire Station, the special committee engaged CBRE, an independent real estate services firm, to estimate the value of the undeveloped land holdings owned by Station. In selecting CBRE, the special committee considered, among other things, the fact that CBRE is a nationally recognized real estate services firm with substantial experience in advising companies in the gaming industry in general and in Las Vegas and Reno in particular. During the prior two years, no material relationship has existed between CBRE and Station. CBRE was paid $150,000 for its report. During the past two years, Station has paid an additional $5,000 to CBRE in connection with CBRE’s services which consisted of high level appraisal work performed by CBRE with respect to certain of Station’s undeveloped land holdings.

CBRE is the largest commercial real estate services provider in the world. The Global Gaming Group business unit of CBRE provides a wide array of advisory and transactional services that are specific to the gaming industry, including valuation of land for hotel and casino development.

Summary of Approaches and Methodologies Employed

In its January 2007 valuation report, CBRE evaluated and provided a range of values for the undeveloped land holdings of Station. The values provided were not appraised values of the undeveloped land holdings as the valuation report was not performed by a licensed appraiser in conformity with the Uniform Standards of Professional Appraisal Practice. In evaluating the land holdings, CBRE considered current market trends, sales comparables and proprietary market knowledge to place a range of values on each individual site. The range of values provided by CBRE were based on what Station would likely expect to receive should it decide to market and sell the properties in the current real estate market. CBRE estimated an overall time frame of 12 months to market and complete a transaction.

No conditions or limitations on the scope of CBRE’s investigation or the methods and procedures to be followed in preparing the valuation were imposed by the special committee.

Summary of Valuation of Undeveloped Land Holdings

The summary set forth below describes the material conclusions reached by CBRE based on the sales comparison approach and subject to the assumptions and limitations described below.

Cactus.   Cactus is a 60.7 acre site located on the west side of Las Vegas Boulevard and is bordered on the east by Interstate 15. CBRE compared Cactus with four properties that were sold between September 2005 and November 2006 in the immediate area. The most relevant comparable transaction was a November 2006 sale of 31.57 acres for approximately $3,200,000 per acre. Based on the sales comparables and current market conditions, CBRE estimated the value of the Cactus site to be $151,750,000 to $182,100,000.

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Castaways.   Castaways is a 25.86 acre site located on Fremont Street on the southern edge of Downtown Las Vegas. There were a limited number of sales comparables for the Castaways site because of its location in a mature neighborhood without the availability of large development sites. CBRE compared Castaways with four properties that were sold between September 2005 and October 2006, which were zoned commercial parcels in areas similar to the Castaways site. Based on the size of the Castaways site and its zoning allowing for gaming, CBRE estimated the value of the Castaways site to be $19,395,000 to $32,325,000.

Durango.   Durango is a 70.98 acre site located in the southwest portion of the Las Vegas Valley. There were no comparable sales for this site because state legislation limits the location of neighborhood casinos within the Las Vegas Valley. Further, there were no sales in the past three years of true neighborhood casino sites. Properties located on South Las Vegas Boulevard have the closest characteristics to the Durango site. Based on sales comparables on South Las Vegas Boulevard, CBRE estimated the value of the Durango site to be $167,500,000 to $201,000,000.

Flamingo.   Flamingo is a 42.0 acre site located in the community of Summerlin. As in the case of the Durango site, there were no sales comparables for the Flamingo site, and based on sales comparables on South Las Vegas Boulevard, CBRE estimated the value of the Flamingo site to be $122,500,000 to $196,000,000.

Losee.   Losee is a 54.0 acre site located within the City of North Las Vegas’ future master planned community. CBRE compared the Losee site with three properties that were sold between September 2005 and August 2006. Due to the size of the site and the limited services currently available in the surrounding area, CBRE estimated the value of the Losee site to be $29,403,000 to $30,579,120, assuming a residential use for the site.

Sunset/Lindell.   Sunset/Lindell is a 12.04 acre site located within the Clark County unincorporated Township of Enterprise and is zoned for retail development. The majority of the site is deed restricted to prevent residential uses. CBRE compared the Sunset/Lindell site with five properties that were sold between May 2006 and September 2006. Due to the projected use and the lack of a prominent location to Interstate 215, CBRE estimated the value of the Sunset/Lindell site to be $12,000,000.

Wild Wild West.   Wild Wild West is a 69.27 acre site located on the west side of Interstate 15 and is bordered by Tropicana Avenue on the South. CBRE compared the Wild Wild West site to three properties that were sold between May 2006 and November 2006 in the immediate area. Based on the sales comparables and current market conditions, CBRE estimated the value of the Wild Wild West site to be $346,500,000 to $485,100,000.

Reno Bayer.   Reno Bayer is a 92.607 acre site located in South Reno and is zoned tourist commercial allowing for unrestricted gaming. There were few sales comparable to the Reno Bayer site. Station is currently under contract to purchase 84.673 acres of the property for approximately $12.93 per square foot. The most comparable purchase was an August 2006 purchase of 21.0 acres for approximately $12.48 per square foot, which was also zoned tourist commercial. Based on the current market conditions and significant development in the immediate area, CBRE estimated the value of the Reno Bayer site to be $51,500,000 to $53,500,000.

Reno Convention Center.   Reno Convention Center is a 7.934 acre site located in central Reno adjacent to the Reno-Sparks Convention Center. The Reno Convention Center site is unique in that it is a large undeveloped site in central Reno and its entitlements allow for a highly dense development. Based on high density residential projects throughout Reno, CBRE estimated the value of the Reno Convention Center site to be $8,640,125 to $9,331,335.

Graton.   Graton is a 23.0 acre site located in the County of Sonoma and near the City of Rohnert Park. There were few comparable sales of property in the marketplace. The most comparable sale was a March 2006 sale of two related parcels totaling 10.14 acres for an average of $13.58 per square foot. Based on the sales comparables, CBRE estimated the value of the Graton site to be $13,605,530 to $15,529,140.

43




Boulder.   Boulder is an 8.0 acre site located adjacent to Station’s Boulder Station Hotel & Casino. CBRE compared the Boulder site to seven properties that were sold between January 2005 and August 2006. Due to the limited frontage and access to a high traffic street, CBRE estimated the value of the Boulder site to be $5,227,200 to $5,575,680, assuming multifamily residential use for the site.

Fiesta Henderson.   Fiesta Henderson is an approximately 15.0 acre site adjacent to Station’s Fiesta Henderson Casino Hotel. CBRE compared the Fiesta Henderson site to four properties that were sold between April 2006 and October 2006. Based on sales comparables, CBRE estimated the value of the Fiesta Henderson site to be $8,494,200 to $10,545,000, assuming rental or entry-level residential use for the site.

Red Rock.   Red Rock is an 8.2 acre site adjacent to Station’s Red Rock Casino Resort Spa. CBRE compared the Red Rock site to six properties that were sold between May 2005 and October 2006. The site is located in the immediate area of a regional retail mall and professional business center. Due to the location of the site and the potential for mixed-use development at the site, CBRE estimated the value of the Red Rock site to be $21,431,520 to $26,789,400.

Sunset.   Sunset is a 5.0 acre site adjacent to Station’s Sunset Station Hotel & Casino and near the regional retail center associated with the Galleria Mall. CBRE compared the Sunset site to six properties that were sold between December 2005 and October 2006. Due to the existing improvements at the site, such as paving, utilities and landscaping, CBRE estimated the value of the Sunset site to be $8,712,000 to $9,147,000.

Thunder Valley.   Thunder Valley is an approximately 188.0 acre site located south of the Thunder Valley Casino in Sacramento, California, which is a casino managed by Station on behalf of the United Auburn Indian Community. CBRE compared the Thunder Valley site to 14 properties that were sold between January 2001 and May 2005. Due to the planned developments in the immediate area, CBRE estimated the value of the Thunder Valley site to be $31,602,780 and $40,946,400.

The foregoing summary of the CBRE report does not purport to be complete and is qualified in its entirety by reference to the copy of such report attached as an exhibit to the Schedule 13e-3 filed with the SEC in connection with the merger and incorporated herein by reference.

Evaluation of a Leveraged Recapitalization

As noted above in “Background of the Merger,” at its January 19, 2007 meeting the special committee considered a leveraged recapitalization transaction in which additional debt would be incurred to fund a special dividend to Station’s common stockholders as a possible alternative to Parent’s proposal. To facilitate the special committee’s consideration, Bear Stearns included a preliminary leveraged recapitalization analysis for discussion at that January 19, 2007 meeting, which estimated the theoretical value that Station’s stockholders might receive in such a scenario. In the leveraged recapitalization analysis, Bear Stearns analyzed Station’s incurrence of the same amount of leverage as assumed in Parent’s proposal under alternative scenarios in which Station’s existing public indebtedness remained outstanding (Scenario 1) or was refinanced (Scenario 2). The analysis compared the additional equity value that those recapitalization scenarios could provide to Station’s projected equity valuation under certain methodologies, as well as the impact of increased leverage on Station’s cost of equity. Using multiples of management’s estimated 2007 EBITDA for Station’s existing Nevada operations and based on an illustrative per share dividend of $33.80 in Scenario 1, and $30.73 in Scenario 2, the leveraged recapitalization analysis indicated a range of implied equity values per share of Station’s common stock that when added to the dividend in Scenario 1 resulted in total equity value per share of $66.83 to $84.83, and in Scenario 2 resulted in total equity value per share of $63.88 to $81.95. Bear Stearns also estimated a range of the theoretical additional value that might result from a recapitalization transaction at a range of costs of equity for the recapitalized company, based upon a discounted present value of Station’s theoretical future stock price. Utilizing this methodology, Bear Stearns observed that at a constant EBITDA multiple and cost of equity, a leveraged recapitalization could theoretically provide from $6.80 to

44




$11.15 in additional value per share of Station’s common stock. However, Bear Stearns also noted that the increased leverage following a recapitalization could significantly increase Station’s cost of equity resulting in lower valuations for Station’s common stock.

The preliminary leveraged recapitalization analyses described above were performed by Bear Stearns on a preliminary basis solely for the benefit and use of the special committee in its assessment of potential alternatives to the Parent’s proposed transaction. No portion of the preliminary leveraged recapitalization analysis was incorporated into or formed any part of the analyses that Bear Stearns performed for purposes of its fairness opinion. The analyses performed by Bear Stearns for purposes of its opinion and described in this proxy statement, and the related assumptions, limitations, qualifications and other conditions referred to therein, are described or referred to in the section above entitled “Opinion of Financial Advisor—Opinion of Bear Stearns.” Bear Stearns has not expressed any conclusion or opinion as to the price or range of prices at which the shares of Station’s common stock may trade at any time subsequent to the announcement of the merger, whether or not the merger is consummated.

A copy of the preliminary leveraged recapitalization analysis is attached as an exhibit to the Schedule 13e-3 filed with the SEC in connection with the merger.

Position of Frank J. Fertitta III, Lorenzo J. Fertitta, Parent, Merger Sub, Fertitta Partners, FCP HoldCo, FCP VoteCo, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. as to Fairness

Because of their interests in the merger, neither Frank J. Fertitta III nor Lorenzo J. Fertitta voted or otherwise participated in the deliberations of the special committee or the board of directors when the special committee voted to recommend, and the board of directors approved, the merger agreement. Frank J. Fertitta III and Lorenzo J. Fertitta have interests in the merger that are different from, and in addition to, those of the other stockholders of Station. These interests are described under “—Interests of Certain Persons in the Merger.”  Further, the view of Frank J. Fertitta III, Lorenzo J. Fertitta, Parent, Merger Sub, Fertitta Partners, FCP HoldCo, FCP VoteCo, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. as to the fairness of the proposed merger should not be construed as a recommendation to any stockholder as to how such stockholder should vote on the proposal to approve the merger agreement.

The interests of the unaffiliated stockholders of Station were represented by the special committee comprised of the independent directors, which had the exclusive authority to review, evaluate and negotiate the terms and conditions of the merger agreement on behalf of Station, with the assistance of the special committee’s independent financial and legal advisors. Accordingly, Frank J. Fertitta III, Lorenzo J. Fertitta, Parent, Merger Sub, Fertitta Partners, FCP HoldCo, FCP VoteCo, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. did not undertake a formal evaluation of the merger or engage a financial adviser for that purpose. Frank J. Fertitta III, Lorenzo J. Fertitta, Parent, Merger Sub, Fertitta Partners, FCP HoldCo, FCP VoteCo, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. believe that the merger agreement and the merger are substantively and procedurally fair to the unaffiliated stockholders on the basis of the factors described under “Recommendation of the Special Committee and Board of Directors; Reasons for Recommending Approval of the Merger Agreement” and agree with the analyses and conclusions of the special committee and board of directors, based upon the reasonableness of those analyses and conclusions, which they adopt, and their respective knowledge of Station, as well as the factors considered by, and the findings of, the special committee and the board of directors with respect to the fairness of the merger to such unaffiliated stockholders. In addition, Frank J. Fertitta III, Lorenzo J. Fertitta, Parent, Merger Sub, Fertitta Partners, FCP HoldCo, FCP VoteCo, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. considered the fact that the special committee received, solely for its benefit and use, an opinion from Bear Stearns to the effect that, as of the date of its opinion, and based upon and subject to the factors, assumptions, limitations, qualifications and other conditions set forth in the opinion, the merger consideration of $90.00 per share to be received pursuant to the merger agreement by the public holders of shares of Station common stock (other than the Rollover Stockholders) is fair, from a financial point of view, to such holders. See “Recommendation of

45




the Special Committee and Board of Directors; Reasons for Recommending Approval of the Merger Agreement.”

Although Frank J. Fertitta III and Lorenzo J. Fertitta are current directors and officers of Station, because of their differing interests in the merger, they did not participate in the board’s or special committee’s evaluation or approval of the merger agreement. For these reasons, Frank J. Fertitta III and Lorenzo J. Fertitta do not believe that their interests in the merger influenced the decision of the special committee or the board of directors with respect to recommending the merger agreement or the merger.

The foregoing discussion of the information and factors considered and given weight by Frank J. Fertitta III, Lorenzo J. Fertitta, Parent, Merger Sub, Fertitta Partners, FCP HoldCo, FCP VoteCo, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. in connection with the fairness of the merger agreement and the merger is not intended to be exhaustive but is believed to include all material factors considered by Frank J. Fertitta III, Lorenzo J. Fertitta, Parent, Merger Sub, Fertitta Partners, FCP HoldCo, FCP VoteCo, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. Frank J. Fertitta III, Lorenzo J. Fertitta, Parent, Merger Sub, Fertitta Partners, FCP HoldCo, FCP VoteCo, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the merger agreement and the merger. Frank J. Fertitta III, Lorenzo J. Fertitta, Parent, Merger Sub, Fertitta Partners, FCP HoldCo, FCP VoteCo, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. believe that the foregoing factors provide a reasonable basis for their belief that the merger is fair to Station and its unaffiliated stockholders.

Purposes and Reasons of Frank J. Fertitta III and Lorenzo J. Fertitta for the Merger

For Frank J. Fertitta III and Lorenzo J. Fertitta the primary purpose of the merger is to immediately realize in cash the value of a portion of their respective holdings in Station and, through their contribution of a portion of their shares of Station common stock to Fertitta Partners in exchange for an equity interest in Fertitta Partners, to benefit from any future earnings and growth of Station after its stock ceases to be publicly traded. Frank J. Fertitta III and Lorenzo J. Fertitta also believe that, as Station has evaluated and will continue to evaluate following the merger alternatives to enhance stockholder value, the merger will provide Station with greater operating flexibility, allowing management to concentrate on long-term growth, reduce its focus on the quarter-to-quarter performance often emphasized by the public markets and pursue alternatives that Station would not have as a public company.

Purposes and Reasons for the Merger of Parent, Merger Sub, Fertitta Partners, FCP VoteCo, FCP HoldCo, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr.

If the proposed merger is completed, Station will become a direct subsidiary of Fertitta Partners, FCP VoteCo and FCP HoldCo and an indirect subsidiary of Parent, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. For Parent, Fertitta Partners, FCP VoteCo, FCP HoldCo and Merger Sub, the purpose of the merger is to effectuate the transactions contemplated by the merger agreement. For FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr., the purpose of the merger is to allow them to own indirect equity interests in Station and to bear the rewards and risks of such ownership after shares of Station common stock cease to be publicly traded.

FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. believe that it is best for Station to operate as a privately held entity. As a privately held entity, Station will have greater operating flexibility, allowing management to concentrate on long-term growth, reduce its focus on the quarter-to-quarter performance often emphasized by the public markets and pursue alternatives that Station would not have as a public company. Moreover, FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. believe that Station’s future business prospects can be improved through their active participation in the strategic direction and operations of Station. Although FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. believe that there will be significant opportunities associated with

46




their investment in Station, they realize that there are also substantial risks (including the risks and uncertainties relating to Station’s prospects, including the prospects described in management’s projections summarized under “Special Factors—Projected Financial Information”).

FC Investor, Colony, Colony Acquisitions and Thomas J. Barrack, Jr. believe that structuring the transaction as a “going private” merger transaction is preferable to other transaction structures because (i) it will enable Parent (through its 100% ownership of FCP HoldCo), Fertitta Partners, FCP VoteCo to acquire all of the outstanding shares of Station at the same time, (ii) it represents an opportunity for Station’s unaffiliated stockholders to receive a premium for their shares and (iii) it also allows the Rollover Stockholders to maintain a significant portion of their investment in Station.

Purposes, Reasons and Plans for Station after the Merger

The purpose of the merger for Station is to enable its stockholders (including the Rollover Stockholders to the extent that they receive cash in the merger) to immediately realize the value of their investment in Station through their receipt of the per share merger consideration of $90.00 in cash, representing a premium of approximately 30% to the closing market price of Station common stock on December 1, 2006, the last trading day before the public announcement of the proposed merger, and approximately 35% to the average closing prices of Station’s common stock for the 30-day period ending on December 1, 2006. For the reasons discussed under “—Recommendation of the Special Committee and of Board of Directors; Reasons for Recommending Approval of the Merger Agreement,” the board of directors of Station unanimously determined (with Frank J. Fertitta III and Lorenzo J. Fertitta taking no part in the vote) that the merger agreement and the merger are fair to and in the best interests of Station and the unaffiliated stockholders of Station.

It is expected that, upon consummation of the merger, the operations of Station will be conducted substantially as they currently are being conducted except that Station’s common stock will cease to be publicly traded and will no longer be listed on any exchange or quotation system, including the NYSE, so price quotations will no longer be available. Station will not be subject to many of the obligations and constraints, and the related direct and indirect costs, associated with having publicly traded equity securities. Station will, however, continue to file periodic reports with the SEC because the voting common stock of the surviving corporation will be registered pursuant to Section 12 of the Exchange Act and such reports may be required by indentures governing the outstanding indebtedness of the surviving corporation or applicable law.

Following the merger, Station’s management will continue to evaluate and review Station’s business and operations and may develop new plans and proposals or elect to pursue acquisitions, management or other opportunities that they consider appropriate to maximize the value of Station.

If the merger agreement is not approved by Station’s stockholders or if the merger is not consummated for any other reason, stockholders will not receive any payment for their shares in connection with the merger. Instead, Station will remain an independent public company and the Station common stock will continue to be listed and traded on the NYSE. In addition, if the merger is not consummated, we expect that, except as noted below, management will operate Station’s business in a manner similar to the manner in which it is being operated today and that Station’s stockholders will continue to be subject to the same risks and opportunities as they currently are. Accordingly, if the merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your Station shares. From time to time, Station’s board of directors will evaluate and review, among other things, the business operations, properties, dividend policy and capitalization of Station and make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to enhance stockholders’ value, potentially including any of the transactions described above. If the merger agreement is not approved by Station’s stockholders or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to Station will be

47




offered, or that the business, prospects, results of operations or stock price of Station will not be adversely impacted or that the management team will remain intact.

In addition, in the limited circumstances described below under “The Merger Agreement—Termination Fees and Expenses”, Station will be required to pay a termination fee of $160 million or $106 million in certain circumstances and/or to reimburse Parent’s and Merger Sub’s out-of-pocket expenses for the transaction, up to $40 million in the aggregate, which would be credited against the termination fee if it becomes payable.

Effects of the Merger

If the merger is consummated, Merger Sub will be merged with and into Station, with Station continuing as the surviving corporation. Following the consummation of the merger, approximately 25% of the issued and outstanding shares of non-voting common stock of Station will be owned by Fertitta Partners and the remaining 75% of the issued and outstanding shares of non-voting common stock of Station will be owned by FCP HoldCo. Substantially simultaneously with the consummation of the merger, shares of voting common stock of Station will be issued for nominal consideration to FCP VoteCo.

Upon the consummation of the merger, each share of Station common stock issued and outstanding immediately prior to the effective time of the merger (other than shares owned by Parent, Merger Sub, FCP HoldCo, Fertitta Partners or any wholly-owned subsidiary of Station or held in treasury by us) will be converted into the right to receive $90.00 in cash, without interest. Upon consummation of the merger, all outstanding options to purchase shares of Station common stock granted under any of our employee or director equity plans, whether vested or unvested, will at the effective time of the merger become fully vested and be cancelled and converted into the right to receive a cash payment equal to the number of shares of Station common stock underlying the options multiplied by the amount by which $90.00 exceeds the option exercise price, without interest. At the effective time of the merger, each share of Station restricted stock will vest in full and be cancelled and converted into $90.00 in cash.

Following the merger, Station will be a privately held company directly owned by FCP HoldCo, Fertitta Partners and FCP VoteCo. Immediately prior to the merger, the Rollover Stockholders will contribute an aggregate of 9,672,021 shares of Station common stock to Fertitta Partners, which will own approximately 25% of the issued and outstanding shares of non-voting common stock of Station following the consummation of the merger, and FC Investor will contribute approximately $2.6 billion in cash to Parent, which will indirectly own approximately 75% of the issued and outstanding shares of non-voting common stock of Station following the consummation of the merger. The equity rollover of each of the Rollover Stockholders and the equity contribution of FC Investor are more fully described under “—Interests of Certain Persons in the Merger.” A table detailing the expected capitalization of Station, Fertitta Partners and Parent following the merger is set forth under “—Arrangements with Respect to Station, Fertitta Partners and Parent Following the Merger.”

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If the merger is consummated, Station’s stockholders who are not Rollover Stockholders will have no interest in Station’s net book value or net earnings after the merger. The table below sets forth the direct and indirect interests in Station’s book value and net earnings of Frank J. Fertitta III, Lorenzo J. Fertitta, BLS Family Investments LLC, a Nevada limited liability company managed by Blake L. Sartini and Delise F. Sartini (“BLS Family Investments”), the Blake L. Sartini and Delise F. Sartini Family Trust; of which Blake L. Sartini and Delise F. Sartini are trustees (the “Sartini Family Trust” and together with BLS Family Investments, the “Sartini-Related Stockholders”),  and Parent prior to and immediately following the merger, based on Station’s net book value as of December 31, 2006 and net income of Station for the year ended December 31, 2006.

 

 

Ownership Prior to the Merger

 

Ownership After the Merger

 

Name

 

 

 

Net Book Value

 

Earnings

 

Net Book Value

 

Earnings

 

 

 

%

 

$ in Thousands

 

$ in Thousands

 

%

 

$ in thousands

 

$ in thousands

 

Frank J. Fertitta III(1)

 

9.9

%

 

$

(18,499

)

 

 

$

10,911

 

 

10.4

%

 

(19,353

)

 

 

$

11,375

 

 

Lorenzo J. Fertitta(1)

 

9.9

%

 

(18,499

)

 

 

10,911

 

 

10.5

%

 

(19,636

)

 

 

11,542

 

 

Sartini-Related Stockholders(1)

 

6.8

%

 

(12,706

)

 

 

7,494

 

 

4.3

%

 

(8,043

)

 

 

4,727

 

 

Parent

 

 

 

 

 

 

 

 

74.8

%

 

(139,770

)

 

 

82,439

 

 


(1)          Following the consummation of the merger, Frank J. Fertitta III, Lorenzo J. Fertitta and the Sartini-Related Stockholders will have an indirect interest in Station’s net book value and earnings as a result of their membership interests in Fertitta Partners and, in the case of Frank J. Fertitta III and Lorenzo J. Fertitta, their membership interests in Parent.

A primary benefit of the merger to Station’s stockholders who are not Rollover Stockholders will be the right of such stockholders to receive a cash payment of $90.00, without interest, for each share of Station common stock held by such stockholders as described above, an approximately 30% premium over the closing market price of Station common stock on December 1, 2006, the last trading day preceding the public announcement of the proposed transaction, and approximately 35% premium over the average closing prices of Station’s common stock for the 30-day period ending on December 1, 2006. Additionally, such stockholders will avoid the risk of any possible decrease in the future earnings, growth or value of Station following the merger.

The primary detriments of the merger to such stockholders include the lack of interest of such stockholders in the potential future earnings, growth or value of Station. Additionally, the receipt of cash in exchange for shares of Station common stock pursuant to the merger will be a taxable sale transaction for U.S. federal income tax purposes.

In connection with the merger, Frank J. Fertitta III and Lorenzo J. Fertitta will receive benefits and be subject to obligations in connection with the merger that are different from, or in addition to, the benefits of Station’s stockholders generally. These incremental benefits and detriments include (i) the right to a continued ownership interest in Station following the consummation of the merger,  (ii) in the case of Frank J. Fertitta III and Lorenzo J. Fertitta, employment agreements with Station and (iii) certain additional economic and governance rights with respect to Station, Fertitta Partners and Parent following the merger. These incremental benefits and detriments are described in more detail under “Interests of Certain Persons in the Merger.”

The primary benefits of the merger to Frank J. Fertitta III and Lorenzo J. Fertitta include the receipt of cash consideration for a portion of the shares of Station common stock that they own and proportionate shares, based on the shares of Station common stock that they contribute to Fertitta Partners, of all the potential future earnings and growth of Station which, if Station successfully executes its business strategies, could be substantial. Additionally, following the merger, Station will be a private company directly owned by FCP HoldCo, Fertitta Partners and FCP VoteCo and any additional investors in Parent and Fertitta Partners permitted by such persons, and as such will be relieved of the burdens imposed on companies with publicly traded equity, including the requirements and restrictions on trading that Station’s

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directors, officers and beneficial owners of more than 10% of the shares of Station common stock face as a result of the provisions of Section 16 of the Exchange Act. Additionally, following the merger, Frank J. Fertitta III and Lorenzo J. Fertitta will each retain their officer positions with the surviving corporation.

The primary detriments of the merger to Frank J. Fertitta III and Lorenzo J. Fertitta include the fact that all of the risk of any possible decrease in the earnings, growth or value of Station following the merger will be borne by FCP HoldCo and Fertitta Partners and any additional investors in Parent and Fertitta Partners permitted by such persons. Additionally, the indirect investment of the investors in Station through Parent and Fertitta Partners will not be liquid, with no public trading market for such securities, and the equity securities of Parent and Fertitta Partners will be subject to restrictions on transfer pursuant to the terms of the operating agreements of such entities.

Station’s common stock is currently registered under the Exchange Act and is quoted on the NYSE under the symbol “STN”. As a result of the merger, Station, as the surviving corporation, will become a privately held corporation, and there will be no public market for its common stock. After the merger, Station common stock will cease to be quoted on the NYSE, and price quotations with respect to sales of shares of Station common stock in the public market will no longer be available. The surviving corporation will, however, continue to file periodic reports with the SEC because the voting common stock of the surviving corporation will be registered pursuant Exchange Act, and such reports may be required by indentures governing the outstanding indebtedness of the surviving corporation or applicable law.

At the effective time of the merger, the directors of Merger Sub will become the directors of the surviving corporation and the current officers of Station will become the officers of the surviving corporation. The articles of incorporation of Station, as amended to read in its entirety as the articles of incorporation of Merger Sub as in effect immediately prior to the effective time of the merger, will become the articles of incorporation of the surviving corporation and the bylaws of Station, as amended to read in its entirety as the bylaws of Merger Sub as in effect immediately prior to the effective time of the merger, will become the bylaws of the surviving corporation.

Projected Financial Information

Station’s senior management does not as a matter of course make public projections as to future performance or earnings beyond the current and the following fiscal year and is especially reluctant to make projections for extended earnings periods due to the unpredictability of the underlying assumptions and estimates. However, non-public prospective financial information for the six years ending December 31, 2012 were prepared by Station’s senior management and made available to Parent, FCP HoldCo, Fertitta Partners, FCP VoteCo and the Equity Investor as well as to the board of directors, the special committee and the special committee’s financial advisor in connection with their respective considerations of the merger.

We have included the material projections in this proxy statement to give our stockholders access to certain nonpublic information considered by Parent, FCP HoldCo, Fertitta Partners, FCP VoteCo and the Equity Investor, the special committee, the special committee’s financial advisor and the board of directors for purposes of considering and evaluating the merger. The inclusion of this information should not be regarded as an indication that Parent, FCP HoldCo, Fertitta Partners, FCP VoteCo and the Equity Investor, Frank J. Fertitta III, Lorenzo J. Fertitta, special committee or board of directors, special committee’s financial advisor, or any other recipient of this information considered, or now considers, it to be a reliable prediction of future results.

Station has advised the recipients of the projections that its internal financial forecasts upon which the projections were based are subjective in many respects. The projections reflect numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict and beyond Station’s control. The projections also reflect estimates and assumptions related to the business of Station that are inherently subject to significant economic, political, and competitive uncertainties, all of which are difficult to predict and many of which

50




are beyond Station’s control. The projections make assumptions about the development and opening of several planned new casino projects, which are subject to uncertainties regarding the timing and cost of development and construction as well as market and consumer acceptance of the newly developed projects. As a result, there can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than projected. The financial projections were prepared for internal use and to assist Parent, FCP HoldCo, Fertitta Partners, FCP VoteCo and the Equity Investor and the financial advisor to the special committee with their respective due diligence investigations of Station and not with a view toward public disclosure or toward complying with GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The projected financial information included herein has been prepared by, and is the responsibility of Station’s management, and none of Parent, FCP HoldCo, Fertitta Partners, FCP VoteCo and the Equity Investor, the special committee or the special committee’s financial advisor was involved in the preparation of the projected financial information or has any responsibility for the projected financial information. Ernst & Young LLP, Station’s independent registered public accounting firm, has not examined or compiled any of the accompanying projected financial information, and accordingly, Ernst & Young LLP does not express an opinion or any other form of assurance with respect thereto. The Ernst & Young LLP report incorporated by reference in this proxy statement relates to Station’s historical financial information. It does not extend to the projected financial information and should not be read to do so.

Projections of this type are based on estimates and assumptions that are inherently subject to factors such as industry performance, general business, economic, regulatory, market and financial conditions, as well as changes to the business, financial condition or results of operations of Station, including the factors described under “Cautionary Statement Regarding Forward-Looking Information,” which factors may cause the financial projections or the underlying assumptions to be inaccurate. Since the projections cover multiple years, such information by its nature becomes less reliable with each successive year. The financial projections do not take into account any circumstances or events occurring after the date they were prepared.

Readers of this proxy statement are cautioned not to place undue reliance on the material projections set forth below. No one has made or makes any representation to any stockholder regarding the information included in these projections.

The projected financial information has been prepared on a basis consistent with the accounting principles used in the historical financial statements. For the foregoing reasons, as well as the basis and assumptions on which the financial projections were compiled, the inclusion of the material projections in this proxy statement should not be regarded as an indication that such projections will be an accurate prediction of future events, and they should not be relied on as such. Except as required by applicable securities laws, Station does not intend to update, or otherwise revise the material projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions are shown to be incorrect.

Station prepared its initial financial projections, as set forth below, during the fourth quarter of 2006.

Summary Financial Projections (amounts in thousands)

 

 

2007

 

2008

 

2009

 

2010

 

2011

 

2012

 

EBITDA(1)

 

$

664,577

 

$

749,544

 

$

861,654

 

$

1,010,726

 

$

1,079,604

 

$

1,221,174

 

Capital expenditures

 

395,732

 

294,220

 

626,804

 

213,996

 

599,996

 

160,000

 

Operating Income

 

484,349

 

568,614

 

661,962

 

777,038

 

845,916

 

953,490

 


(1)          EBITDA consists of net income plus income tax provision, interest, depreciation, amortization, development expense and other non-recurring costs.

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A number of key assumptions were made in preparing the base case projections, including:

·       The substantial completion of the master-planned expansions at Red Rock Casino Resort Spa, Green Valley Ranch Resort Spa Casino and Santa Fe Station Hotel & Casino by the end of the fourth quarter of 2007.

·       The opening of the tribal casino of the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians, a federally recognized Native American tribe commonly referred to as the Gun Lake Tribe, in Michigan during the first half of 2009.

·       The opening of Aliante Station hotel and casino in North Las Vegas, Nevada (a 50/50 joint venture) at the beginning of 2009 with a projected construction cost to Station of $650 million.

·       The opening of  Durango Station hotel and casino in Las Vegas, Nevada at the beginning of 2010 with a projected construction cost of $700 million.

·       The opening of the tribal casino of the Federated Indians of Graton Rancheria in Northern California in the second half of 2010.

·       The opening of a hotel casino project in Reno, Nevada at the beginning of 2012 with a projected construction cost of $700 million.

Interests of Certain Persons in the Merger

In considering the recommendation of the special committee and the board of directors with respect to the merger agreement, you should be aware that certain officers and directors of Station have interests in the transaction that are different from, and/or in addition to, the interests of Station’s stockholders generally. Station’s board of directors and the special committee were aware of such interests and considered them, among other matters, in reaching their decisions to approve the merger agreement and recommend that Station’s stockholders vote FOR approving the merger agreement. Although no discussions to date have taken place with any directors, one or more directors may be asked in the future to serve as a director of the surviving corporation or one of its subsidiaries after the merger.

Interests of Frank J. Fertitta III and Lorenzo J. Fertitta

Equity Rollover.   In connection with the merger agreement, Frank J. Fertitta III, Chairman and Chief Executive Officer of Station, and Lorenzo J. Fertitta, Vice Chairman and President of Station, entered into equity rollover commitment letters with Parent, which were subsequently assigned to Fertitta Partners. Pursuant to the equity rollover commitment letters,  (i) Frank J. Fertitta III has agreed to contribute 3,979,884 shares of Station common stock to Fertitta Partners immediately prior to the consummation of the merger in exchange for Class A Units of Fertitta Partners valued at $358,189,560 based on the per share merger consideration, and (ii) Lorenzo J. Fertitta has agreed to contribute 4,038,153 shares of Station common stock to Fertitta Partners immediately prior to the consummation of the merger in exchange for Class A Units of Fertitta Partners valued at $363,433,770 based on the per share merger consideration. The Class A Units of Fertitta Partners will be issued to affiliates of Frank J. Fertitta III and Lorenzo J. Fertitta, the other Rollover Stockholders and any additional investors permitted by them pro rata based on the capital contributed to Fertitta Partners. These contributions of Station common stock to Fertitta Partners in exchange for Class A Units of Fertitta Partners are intended to be tax-free transactions for U.S. federal income tax purposes. The foregoing summaries of the equity rollover commitment letters of Frank J. Fertitta III and Lorenzo J. Fertitta do not purport to be complete and are qualified in their entirety by reference to the copies of such agreements attached as exhibits to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference. A table setting forth the contributions of Frank J. Fertitta III and Lorenzo J. Fertitta and the Class A Units of Fertitta Partners to be issued in respect of such contributions, as well as the expected ownership of equity securities of each of

52




Fertitta Partners and Parent immediately following the merger, is set forth under “—Arrangements With Respect to Station, Fertitta Partners and Parent Following the Merger.”  In addition, upon the consummation of the merger agreement, Frank J. Fertitta III and Lorenzo J. Fertitta will receive cash payments in connection with both the shares of common stock owned by them that will be converted into the right to receive cash payments and the accelerated vesting and cash-out of options and restricted stock held by them. Please see “—Interests of Directors and Officers of Station” below for more information.

Voting Agreement.   In connection with the merger agreement, Frank J. Fertitta III and Lorenzo J. Fertitta have also entered into a voting agreement with Station, Parent and the other Rollover Stockholders whereby each of them has agreed to vote all of his shares of Station common stock in favor of the approval of the merger agreement and against any competing transaction, subject to specified exceptions. Pursuant to the voting agreement, each of Frank J. Fertitta III and Lorenzo J. Fertitta has also agreed to certain restrictions on the transfer of his shares and certain other restrictions on his rights as a holder of Station common stock. All of the shares of Station common stock beneficially owned by Frank J. Fertitta III and Lorenzo J. Fertitta are subject to the voting agreement. The voting agreement will terminate if the merger agreement is terminated. The foregoing summary of the voting agreement does not purport to be complete and is qualified in its entirety by reference to the copy of such agreement attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference. The voting agreement is more fully described below in “—The Voting Agreement”.

First Amended and Restated Operating Agreement of Parent; Interests in Parent Following the Merger.   Concurrently with the execution of the merger agreement, Frank J. Fertitta III, Lorenzo J. Fertitta and FC Investor entered into a first amended and restated operating agreement of Parent, as the members of Parent, which sets forth the terms and conditions governing the relationship among Frank J. Fertitta III, Lorenzo J. Fertitta and FC Investor with respect to the merger agreement prior to the closing of the transactions contemplated by the merger agreement.

Among other things, the first amended and restated operating agreement of Parent sets forth the required vote of Frank J. Fertitta III, Lorenzo J. Fertitta and FC Investor required to take any action on behalf of Parent with respect to the merger agreement or the transactions contemplated thereby. In general, Parent may only take actions with respect to the merger agreement with the consent of (i) the contributing members with a majority of the equity commitments of all Rollover Stockholders that are party to the first amended and restated operating agreement of Parent (the “Majority Contributing Stockholder Members”) and (ii) FC Investor. Such level of consent is required to enter into any amendments to the merger agreement, to waive any conditions of the merger agreement, to terminate the merger agreement, to approve any actions or decisions of Parent with respect to debt financing and to approve certain actions of Station for which consent by Parent is required pursuant to the merger agreement. Actions of Parent not related to the merger transaction or the voting agreement generally require the consent of the Majority Contributing Stockholder Members and the consent of FC Investor is not required.

The first amended and restated operating agreement of Parent also governs the entitlement of the members of Parent to any termination fee payable by Station to Parent pursuant to the terms and conditions of the merger agreement, and the responsibility for any reverse termination fee or regulatory termination fee payable by Parent to Station (or with respect to which Station has exercised rights pursuant to the limited guarantee executed by affiliates of FC Investor in favor of Station). The first amended and restated operating agreement provides that any termination fee under the merger agreement will be applied first to repay costs incurred by Parent and then will be distributed to the members of Parent in proportion to the equity commitments of each. In the event that the merger is not consummated because of a breach of the merger agreement or the voting agreement described above caused by a member of Parent, then any fees and expenses incurred by Parent, Merger Sub and the members of Parent, including any reverse termination fee payable by Parent to Station, shall be the responsibility of the member of

53




Parent causing such breach. In the event that the merger is not consummated as a result of a breach of the merger agreement by Parent due to the failure of Parent or Station to receive the debt financing as a result of facts known to Frank J. Fertitta III or Lorenzo J. Fertitta before the date of the merger agreement, the existence of which prevents Parent, Station or any subsidiary of Station from making certain representations and warranties to potential lenders, then Frank J. Fertitta III and Lorenzo J. Fertitta shall be responsible for the costs and expenses incurred by Parent, Merger Sub and members of Parent, including any reverse termination fee payable by Parent to Station. In the event that the merger is not consummated and no member of Parent shall have caused a breach of the merger agreement or the voting agreement, then any reverse termination fee payable by Parent to Station shall be the responsibility of the members of Parent in proportion to the equity commitments of each, except that FC Investor shall be responsible for the aggregate expenses of Parent in excess of $15,000,000.

The first amended and restated operating agreement of Parent contemplates that, at closing, affiliates of the Rollover Stockholders and the Equity Investor will execute a second amended and restated operating agreement of Parent, which will govern the rights and obligations of the parties with respect to Parent and Station following the closing. It is also expected that Frank J. Fertitta III and Lorenzo J. Fertitta will enter into amended and restated employment agreements with Station that will be effective following the closing. The second amended and restated operating agreement of Parent and the new employment agreements, and the rights and obligations of the parties thereto, are more fully described below under “—Arrangements With Respect To Station, Fertitta Partners And Parent Following The Merger.”

The foregoing summary of the first amended and restated operating agreement of Parent does not purport to be complete and is qualified in its entirety by reference to the copy of such agreement attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.

Interests of the Sartini-Related Stockholders

Neither Blake L. Sartini nor Delise F. Sartini is currently a director or officer of Station. Delise F. Sartini is a former director of Station, is the sister of Frank J. Fertitta III and Lorenzo J. Fertitta and is married to Blake L. Sartini. In addition to being the brother-in-law of Frank J. Fertitta III and Lorenzo J. Fertitta, Blake L. Sartini is a former director and a former executive officer of Station and is married to Delise F. Sartini.

Equity Rollover.   In connection with the merger agreement, the Sartini-Related Stockholders have entered into an equity rollover commitment letter with Parent, which was subsequently assigned to Fertitta Partners, pursuant to which the Sartini-Related Stockholders have agreed to contribute an aggregate of 1,653,984 shares of Station common stock to Fertitta Partners immediately prior to the consummation of the merger in exchange for Class A Units of Fertitta Partners valued at $148,858,560 based on the per share merger consideration. Class A Units of Fertitta Partners will be issued to affiliates of the Sartini-Related Stockholders, the other Rollover Stockholders and any additional investors permitted by them pro rata based on the capital contributed to Fertitta Partners. These contributions of Station common stock to Fertitta Partners in exchange for Class A Units of Fertitta Partners are intended to be tax-free transactions for U.S. federal income tax purposes. The foregoing summary of the equity rollover commitment letter of the Sartini-Related Stockholders does not purport to be complete and is qualified in its entirety by reference to the copy of such agreement attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.

54




A table setting forth the contributions of the Sartini-Related Stockholders and the Class A Units of Fertitta Partners to be issued in respect of such contributions, as well as the expected ownership of each of the other Rollover Stockholders in Fertitta Partners immediately following the merger, is set forth under “—Arrangements With Respect to Station, Fertitta Partners and Parent Following the Merger.”  In addition, upon the consummation of the merger agreement, the Sartini-Related Stockholders will receive cash consideration of approximately $201,062,970 in connection with 2,234,033 shares of common stock owned by them that will be converted into the right to receive cash payments.

Voting Agreement.   In connection with the merger agreement, the Sartini-Related Stockholders have also entered into a voting agreement with Parent and the other Rollover Stockholders whereby each of the Sartini-Related Stockholders has agreed to vote all of its shares of Station common stock in favor of the approval of the merger agreement and against any competing transaction, subject to specified exceptions. Pursuant to the voting agreement, each of the Sartini-Related Stockholders has also agreed to certain restrictions on the transfer of its shares and certain other restrictions on its rights as a holder of Station common stock. All of the shares of Station common stock beneficially owned by the Sartini-Related Stockholders are subject to the voting agreement. The voting agreement is more fully described below in “—The Voting Agreement”.

Interests of Directors and Officers of Station

Retention of Directors and Officers; Continuation of Indemnities.   Pursuant to the merger agreement, (i) the board of directors of Station after the consummation of the merger will consist of Frank J. Fertitta III, Lorenzo J. Fertitta and Thomas J. Barrack, Jr., and (ii) the officers of Station after the consummation of the merger shall be the same persons who held office immediately prior to the consummation of the merger (including Frank J. Fertitta III and Lorenzo J. Fertitta), in each case until their respective successors are duly elected or appointed and qualified. After the consummation of the merger, Station will, pursuant to the merger agreement, comply with all of its existing obligations to indemnify and hold harmless present and former officers and directors against certain liabilities. Parent has agreed to provide or cause the surviving corporation to provide a “tail” directors’ and officers’ insurance policy with a claims period of at least six years after the effective time with coverage in an amount equal to at least 150% of the directors’ and officers’ coverage maintained by Station as of the date of the merger agreement. Station has further agreed to use commercially reasonable efforts to increase the amount of such insurance coverage to 300% of the amount of Station’s current policies, as more fully described below in “The Merger Agreement—Indemnification and Insurance.”

Treatment of Outstanding Options, Restricted Stock and Stock-Based Awards.   As of July 5, 2007, there were approximately 2,141,057 shares of Station common stock subject to options granted under our equity incentive plans and 2,741,264 shares of unvested restricted stock outstanding. Upon the consummation of the merger, all of our equity compensation awards, including awards held by our directors and executive officers, will be subject to the following treatment:

·       all stock options granted under any of our employee or director equity plans, whether vested or unvested, will vest and be cancelled and converted into the right to receive a cash payment equal to the number of shares of Station common stock underlying such options multiplied by the amount by which $90.00 exceeds the option exercise price, without interest; and

·       each share of unvested restricted stock will vest and be cancelled and converted into the right to receive $90.00 in cash.

The table below sets forth, as of May 31, 2007, for each of our directors, executive officers, and for such persons as a group:

·       the number of vested stock options held by such persons (no unvested stock options are held by such persons);

55




·       the cash payment that may be made in respect of such stock options upon consummation of the merger;

·       the number of shares of unvested restricted stock;

·       the aggregate cash payment that will be made in respect of shares of unvested restricted stock;

·       the number of owned shares of common stock held by such persons that will be sold to Parent for cash consideration of $90.00 per share or converted into the right to receive cash payments upon consummation of the merger; and

·       the total cash payment that will be made in respect of such shares upon consummation of the merger.

 

 

Options

 

Restricted Stock

 

Owned Shares

 

 

 

 

 

Vested
Options

 

Weighted
Average
Exercise
Price of
Vested
Options

 

Resulting
Consideration(1)

 

Unvested
Shares

 

Resulting
Consideration

 

Shares(2)

 

Resulting
Consideration

 

Total
Consideration

 

Directors:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Frank J. Fertitta, III(3)

 

663,900

 

 

$

11.77

 

 

 

$

51,937,115

 

 

 

726,370

 

 

 

$

65,373,300

 

 

 

348,266

 

 

 

$

31,343,940

 

 

 

$

148,654,355

 

 

Lorenzo J. Fertitta(4)

 

661,400

 

 

11.62

 

 

 

51,841,100

 

 

 

616,271

 

 

 

55,464,390

 

 

 

419,694

 

 

 

37,772,460

 

 

 

145,077,950

 

 

Robert E. Lewis

 

 

 

 

 

 

 

 

 

10,000

 

 

 

900,000

 

 

 

7,500

 

 

 

675,000

 

 

 

1,575,000

 

 

Lowell H. Lebermann, Jr.

 

22,500

 

 

13.48

 

 

 

1,721,700

 

 

 

9,000

 

 

 

810,000

 

 

 

3,000

 

 

 

270,000

 

 

 

2,801,700

 

 

James E. Nave, D.V.M.

 

30,000

 

 

13.61

 

 

 

2,291,700

 

 

 

9,000

 

 

 

810,000

 

 

 

6,000

 

 

 

540,000

 

 

 

3,641,700

 

 

Lee S. Isgur

 

 

 

 

 

 

 

 

 

12,000

 

 

 

1,080,000

 

 

 

12,500

 

 

 

1,125,000

 

 

 

2,205,000

 

 

Executive Officers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glenn C. Christenson(5)

 

110,000

 

 

$

10.07

 

 

 

$

8,792,000

 

 

 

256,614

 

 

 

$

23,095,260

 

 

 

222,243

 

 

 

$

20,001,870

 

 

 

$

51,889,130

 

 

Scott M Nielson

 

217,207

 

 

10.37

 

 

 

17,295,506

 

 

 

240,814

 

 

 

21,673,260

 

 

 

255,039

 

 

 

22,953,510

 

 

 

61,922,276

 

 

William W. Warner

 

130,000

 

 

12.69

 

 

 

10,050,000

 

 

 

350,444

 

 

 

31,539,960

 

 

 

37,768

 

 

 

3,399,120

 

 

 

44,989,080

 

 

Richard J. Haskins

 

24,000

 

 

13.02

 

 

 

1,847,600

 

 

 

173,504

 

 

 

15,615,360

 

 

 

26,698

 

 

 

2,402,820

 

 

 

19,865,780

 

 

Thomas M. Friel

 

30,900

 

 

15.01

 

 

 

2,317,287

 

 

 

36,000

 

 

 

3,240,000

 

 

 

9,651

 

 

 

868,590

 

 

 

6,425,877

 

 


(1)              The amounts set forth in this “Resulting Consideration” column are calculated based on the actual exercise prices underlying the related options, as opposed to the weighted average exercise price per share of vested options.

(2)              The numbers set forth in this “Owned Shares” column do not include shares owned by Frank J. Fertitta III and Lorenzo J. Fertitta which will be contributed to Fertitta Partners in exchange for Class A Units of Fertitta Partners.

(3)              Frank J. Fertitta III is Chairman and Chief Executive Officer of Station.

(4)              Lorenzo J. Fertitta is Vice Chairman and President of Station.

(5)              As described below, on March 29, 2007 Station and Mr. Christenson entered into a Separation Agreement and General Release, pursuant to which Mr. Christenson’s employment with Station terminated effective March 30, 2007.

Investment by Certain Members of Management in Fertitta Partners.   Certain members of Station’s management may be permitted to participate in the proposed merger by contributing shares of Station common stock and/or cash to Fertitta Partners in exchange for Class A Units issued by Fertitta Partners; however, no agreements have been reached with respect to such participation. By virtue of these investments, unlike Station’s other stockholders, these members of management will have an opportunity to share in the growth of Fertitta Partners after the proposed merger.

Separation Agreement and Release with Mr. Christenson.   On March 29, 2007, Station and Mr. Christenson entered into a Separation Agreement and General Release (the “Separation Agreement”), pursuant to which Mr. Christenson’s employment with Station terminated effective March 30, 2007. In connection with the Separation Agreement, on March 29, 2007, Station and Mr. Christenson also entered into a Consulting Agreement (the “Consulting Agreement”), pursuant to which Mr. Christenson agreed to provide consulting services to Station until the earlier of the closing date of the transaction contemplated by the merger agreement and March 31, 2009, unless the Consulting Agreement is otherwise terminated pursuant to the terms thereof. The Separation Agreement provides that all vested Company stock options held by Mr. Christenson as of the termination of his employment shall remain fully exercisable until the earlier of the closing date of the transactions contemplated by the

56




merger agreement and the expiration of Mr. Christenson’s term of engagement under the Consulting Agreement. The Separation Agreement also provides that all Company restricted stock held by Mr. Christenson as of the termination of his employment shall continue to vest in accordance with the terms of the applicable awards until the earlier of the closing date of the transactions contemplated by the merger agreement and the expiration of Mr. Christenson’s term of engagement under the Consulting Agreement. The Separation Agreement further provides that if the Merger Agreement is terminated in certain circumstances, the provisions of the Separation Agreement and the Consulting Agreement shall terminate, and Mr. Christenson’s employment agreement shall be restored as if his employment with Station had not been terminated.

Arrangements with Respect to Station, Fertitta Partners and Parent Following the Merger

In connection with the merger, Station will become a privately held company. Following the consummation of the merger, approximately 25% of the issued and outstanding shares of non-voting common stock of Station will be owned by Fertitta Partners and the remaining 75% of the issued and outstanding shares of non-voting common stock of Station will be owned by FCP HoldCo. Substantially simultaneously with the consummation of the merger, shares of voting common stock of Station will be issued for nominal consideration to FCP VoteCo. By virtue of the equity rollovers described above, the Rollover Stockholders will acquire Class A Units issued by Fertitta Partners. In addition, certain of our directors, officers and other members of management will receive economic interests in Fertitta Partners and Parent by virtue of their ownership of Class B or Class C Units as described below. As a result, certain of our directors, officers and other members of management, or their affiliates, will be parties to the operating agreement of Fertitta Partners and the second amended and restated operating agreement of Parent entered into at closing and will have rights and obligations under such agreements with respect to Fertitta Partners and Parent, respectively, and their respective members. In addition, it is expected that Fertitta Partners, FCP HoldCo and FCP VoteCo will enter into a stockholders agreement with respect to their ownership of voting and non-voting common stock of Station and that Frank J. Fertitta III, Lorenzo J. Fertitta and Thomas J. Barrack, Jr. will enter into an operating agreement of FCP VoteCo. The terms of the operating agreements for Fertitta Partners, Parent and FCP VoteCo and the stockholders agreement for Station are subject to continuing negotiation but are expected to have the following terms:

Governance.   Pursuant to the operating agreements of Parent and FCP VoteCo and the stockholders agreement for Station, boards of managers will have broad authority over the operations of Parent and FCP VoteCo, and a board of directors will have broad authority over the operations of Station. The boards of managers of Parent and FCP VoteCo and the board of directors of Station will initially consist of three members. The members of such boards of managers and board of directors will initially be Frank J. Fertitta III, Lorenzo J. Fertitta and Thomas J. Barrack, Jr. Such boards of managers and board of directors may have up to five (5) members, of which affiliates of Frank J. Fertitta III and Lorenzo J. Fertitta will be entitled to appoint three (3) members and affiliates of the Equity Investor will be entitled to appoint two members. Each of Frank J. Fertitta III and Lorenzo J. Fertitta will be named as members of such boards of managers and board of directors as long as he serves as Chief Executive Officer and President, respectively, of Parent, Station or any subsidiary of Parent. The vote of a majority of the members of such boards of managers or board of directors will constitute the action of the board of managers or board of directors, as applicable, but specified actions will require the approval of a member of the board of managers or board of directors, as applicable, designated by the Equity Investor. Pursuant to the operating agreement of Fertitta Partners, the board of managers will consist of two members, who will initially be Frank J. Fertitta III and Lorenzo J. Fertitta.

The amended and restated certificate of incorporation of Merger Sub, which will become the certificate of incorporation of the surviving corporation, will provide for one class of non-voting common stock and one class of voting common stock. Following the consummation of the merger, approximately 25% of the issued and outstanding shares of non-voting common stock of Station will be owned by Fertitta

57




Partners and the remaining 75% of the issued and outstanding shares of non-voting common stock of Station will be owned by FCP HoldCo. Following the consummation of the merger, all of the issued and outstanding shares of voting common stock of Station will be owned by FCP VoteCo. Immediately prior to the consummation of the merger, each of Frank J. Fertitta III, Lorenzo J. Fertitta and Thomas J. Barrack, Jr. will own a one-third interest in FCP VoteCo. It is currently anticipated that there will be 1,000,000 shares of non-voting common stock of Station outstanding for each share of outstanding voting common stock of Station.

Economic Rights.   Generally, the economic rights in Parent and Fertitta Partners will initially be divided into three classes of units—Class A Units, Class B Units, and Class C Units (as defined in the second amended and restated operating agreement of Parent and the operating agreement of Fertitta Partners). A supermajority of the board of managers of Parent or Fertitta Partners, as applicable, may also authorize additional classes of Units of Parent or Fertitta Partners, respectively, having such rights, terms, conditions and prices as such board of managers may determine. Concurrently with the execution of the second amended and restated operating agreement of Parent, FC Investor shall make capital contributions to Parent in exchange for Class A Units of Parent pursuant to the equity commitment described more fully in the section entitled “—Interests of Certain Persons in the Merger” above. Concurrently with the execution of the operating agreement of Fertitta Partners, affiliates of the Rollover Stockholders shall make capital contributions to Fertitta Partners in exchange for Class A Units of Fertitta Partners pursuant to the rollover commitments described more fully in the section entitled “—Interests of Certain Persons in the Merger”. Class A Units of Parent and Fertitta Partners will be voting interests, while Class B Units and Class C Units of Parent and Fertitta Partners will be non-voting.

Class B Units will be issued by each of Parent and Fertitta Partners to affiliates of Frank J. Fertitta III and Lorenzo J. Fertitta and will represent fifteen percent (15%) of the total outstanding Class A Units and Class B Units (pro forma for the issuance of the Class A Units and Class B Units) of Parent and Fertitta Partners, respectively. The Class C Units may be issued from time to time by each of Parent and Fertitta Partners  to members of Station’s management and may represent in the aggregate up to five percent (5%) of the outstanding Class A Units and Class B Units of Parent and Fertitta Partners, respectively. The Class C Units shall vest ratably over the first four (4) anniversaries following the date of grant.

Distributions in respect of the units of Parent and Fertitta Partners shall be made first pro rata to holders of the Class A Units until such holders have received distributions in an amount per unit equal to the initial basis of a Class A Unit acquired for cash upon execution of the second amended and restated operating agreement (the “Initial Cost Basis”), second pro rata to the holders of Class B Units until such members have received distributions in an amount per Unit equal to the Initial Cost Basis, and thereafter to all respective holders of Class A Units, Class B Units and Class C Units that have reached the specified threshold in proportion to their respective percentage interests.

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The table below sets forth the expected capitalization of Parent immediately following the merger, detailing (a) the contribution made by FC Investor in respect of its Class A Units of Parent, (b) the Class A Units owned by FC Investor and (c) the Class B Units owned by affiliates of Frank J. Fertitta III and Lorenzo J. Fertitta. At this time, no Class C Units have been granted to members of management of Station.

Capitalization of Parent Immediately Following the Merger

 

 

Capital Contributions

 

 

 

 

 

 

 

 

 

 

 

Contributed
Shares of
Station
Common
Stock

 

Imputed
Value

 

Cash

 

Class A
Units

 

% of Class
A Units

 

Class B
Units

 

% of Class
B Units

 

Frank J. Fertitta III

 

 

 

 

 

 

 

 

 

 

 

 

226,684,686

 

 

49.6

%

 

Lorenzo J. Fertitta

 

 

 

 

 

 

 

 

 

 

 

 

230,003,549

 

 

50.4

%

 

FC Investor

 

 

 

 

 

 

 

$

2,587,900,000

 

2,587,900,000

 

 

100

%

 

 

 

 

 

TOTAL

 

 

 

 

 

 

 

$

2,587,900,000

 

2,587,900,000

 

 

100

%

 

456,688,235

 

 

100

%

 

 

The table below sets forth the expected capitalization of Fertitta Partners immediately following the merger, detailing (a) the contributions made by each of the Rollover Stockholders in respect of their Class A Units of Fertitta Partners, (b) the Class A Units owned by each of the Rollover Stockholders, and (c) the Class B Units owned by affiliates of Frank J. Fertitta III and Lorenzo J. Fertitta. At this time, no Class C Units have been granted to members of management of Station.

Capitalization of Fertitta Partners Immediately Following the Merger

 

 

Capital Contributions

 

 

 

 

 

 

 

 

 

 

 

Contributed
Shares of
Station
Common
Stock

 

Imputed
Value

 

Class A
Units

 

% of Class
A Units

 

Class B
Units

 

% of Class
B Units

 

Frank J. Fertitta

 

 

3,979,884

 

 

$

358,189,560

 

358,189,560

 

 

41.1

%

 

76,249,049

 

 

49.6

%

 

Lorenzo J. Fertitta

 

 

4,038,153

 

 

363,433,770

 

363,433,770

 

 

41.8

%

 

77,365,402

 

 

50.4

%

 

Blake & Delise Sartini

 

 

1,653,984

 

 

148,858,560

 

148,858,560

 

 

17.1

%

 

 

 

 

 

FC Investor

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

 

9,672,021

 

 

$

870,481,890

 

870,481,890

 

 

100

%

 

153,614,451

 

 

100

%

 

 

The table below sets forth the expected capitalization of Station immediately following the merger, detailing (a) the non-voting common stock owned by each of FCP HoldCo and Fertitta Partners, and (b) the voting common stock owned by FCP VoteCo.

Capitalization of Station Immediately Following the Merger

 

 

Non-
Voting
Common
Stock

 

Imputed
Value

 

% of
Non-
Voting
Common
Stock

 

Voting
Common
Stock

 

% of
Voting
Common
Stock

 

% of
Total
Common
Stock

 

FCP HoldCo

 

28,754,444

 

$2,587,900,000

 

 

74.8

%

 

 

 

 

 

 

 

 

74.8

%

 

Fertitta Partners

 

9,672,021

 

870,481,890

 

 

25.2

%

 

 

 

 

 

 

 

 

25.2

%

 

FCP VoteCo

 

 

 

 

 

 

 

38.4

 

 

 

100

%

 

 

*

 

 

TOTAL

 

38,426,465

 

$

3,458,381,890

 

 

100

%

 

 

38.4

 

 

 

100

%

 

 

100

%

 

 


*                     Less than one percent

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Other Provisions.   The operating agreements for Parent, Fertitta Partners and FCP VoteCo and the stockholders agreement for Station will contain provisions relating to transfers of the Units or shares, as applicable, including tag along provisions, and, in the case of Parent and Fertitta Partners, rights to require a purchase by the Parent or Fertitta Partners, respectively, or sale by the holder of Class C Units upon certain types of termination of employment of the holder of such Units. The stockholders agreement of Station will also contain rights to require an initial public offering of a successor corporation to Parent or subsidiary of Parent beginning on the fourth anniversary of the merger and ending on the seventh anniversary in the case of rights held by affiliates of Frank J. Fertitta III and Lorenzo J. Fertitta and at any time on or after the seventh anniversary in the case of affiliates of the Equity Investor.

Management Arrangements

It is expected that Frank J. Fertitta III and Lorenzo J. Fertitta will enter into amended and restated employment agreements with Station that will be effective following the closing. The terms of Frank J. Fertitta III and Lorenzo J. Fertitta’s employment agreements with Station are subject to continuing negotiation but are expected to have the terms described below. Additionally, we expect that Station will enter into employment arrangements with other members of our management team, the terms of which are currently under negotiation.

The employment agreements of Frank J. Fertitta III and Lorenzo J. Fertitta with Station will govern the terms of such persons’ employment with Station following the closing. For purposes of this section only, we refer to Frank J. Fertitta III and Lorenzo J. Fertitta as “Executive Officers”.

Pursuant to the terms of his employment agreement, Frank J. Fertitta III will agree to serve as the Chief Executive Officer and Chairman of the board of directors of Parent, FCP Holdco and Station. Pursuant to the terms of his employment agreement, Lorenzo J. Fertitta will agree to serve as the President and Vice Chairman of the board of directors of Parent, FCP Holdco and Station. Each employment agreement shall terminate on the fifth anniversary of the date of the agreement, but is subject to automatic five-year extensions unless Station or the Executive Officer gives notice at least six months prior to the end of the then-current term or unless the employment agreement is otherwise terminated pursuant to the terms thereof; provided, however, that as long as Frank J. Fertitta III and Lorenzo J. Fertitta maintain agreed upon minimum levels of ownership of the outstanding Class A Units in Fertitta Partners, Station shall have no right to notify either Executive Officer that the term of his employment agreement may not be extended. Each employment agreement provides that the Executive Officer shall devote reasonable time and attention to the business and affairs of Station and does not prohibit the Executive Officer from engaging in charitable and community affairs or managing personal investments during the term of his employment.

Each employment agreement provides for a base salary (to be reviewed annually for increase but not decrease), an annual cash bonus to be based on the Executive Officer’s performance and to be determined by Station’s Board of Directors with a minimum annual cash bonus of (i) in the case of Lorenzo J. Fertitta, no less than 50% of 150% of his then-current base salary, and (ii) in the case of Frank J. Fertitta III, no less than 50% of 200% of his then current base salary), a supplemental performance bonus to be paid if Station and its subsidiaries exceed, by 10% or more, certain target financial performance benchmarks established by the board of directors of Station, participation in Station’s Deferred Compensation Plan, and the inclusion of the Executive Officer in all benefit plans and programs of Station made available to Station’s executive officers or salaried employees generally. Frank J. Fertitta III’s annual base salary for the first year of his employment with Station is $2,500,000. Lorenzo J. Fertitta’s annual base salary for the first year of his employment with Station is $1,930,000. The employment agreements provide that the Executive Officers shall not be entitled to receive any equity-based compensation without the approval of a majority of Station’s board of directors, including the members of the board designated by affiliates of the Equity Investor.

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Each Executive Officer will also be entitled to certain other benefits and perquisites in addition to those made available to Station’s management generally. These other benefits include participation in the Supplemental Executive Retirement Plan (the “SERP”), participation in Station’s Special Long-Term Disability Plan, group health insurance coverage through such executive group health insurance plan as Station may select, and supplemental life insurance in the amount of not less than $70 million aggregate coverage for Frank J. Fertitta III and $35 million aggregate coverage for Lorenzo J. Fertitta. Perquisites include but are not limited to personal security services, use of an automobile, payment or reimbursement for the cost of an annual physical examination, four weeks of vacation per year, and payment or reimbursement of initiation and annual membership fees for a country club, lunch club or fitness club.

The amended and restated employment agreements will also provide for payments to be made to the Executive Officers if their employment is terminated as a result of death or disability or for cause or good reason and for payments to be made upon the consummation of certain change of control transactions.

Indemnification and Insurance

The merger agreement provides that all rights to indemnification, exculpation and advancement existing in favor of our current or former directors, officers, employees and agents as provided in our and our subsidiaries’ organizational documents, or in any indemnification agreement or arrangement as in effect as of the date of the merger agreement, with respect to matters occurring prior to or at the effective time of the merger will survive the consummation of the merger and will continue in full force and effect during and after the closing of the merger.

After the consummation of the merger, Station will, pursuant to the merger agreement, comply with all of its existing obligations to indemnify and hold harmless present and former officers and directors against certain liabilities. Parent has agreed to provide or cause the surviving corporation to provide a “tail” directors’ and officers’ insurance policy with a claims period of at least six years after the effective time with coverage in an amount equal to at least 150% of the directors’ and officers’ coverage maintained by Station as of the date of the merger agreement. Station has further agreed to use commercially reasonable efforts to increase the amount of such insurance coverage to 300% of the amount of Station’s current policies.

The indemnification and insurance provisions of the merger agreement are more fully described under “The Merger Agreement—Indemnification and Insurance”.

Continued Benefits

To the extent that any of our executive officers remains employed by the surviving corporation, each will be entitled to receive compensation and benefits following the merger. For a period of one year following the effective time of the merger, Parent has agreed to cause the surviving corporation to maintain for the benefit of each employee of Station and its subsidiaries employed immediately prior to the effective time compensation and benefits that are substantially comparable in the aggregate to the benefits provided under our benefit plans prior to the closing of the merger (other than equity based benefits).

Parent has agreed to cause the surviving corporation to recognize the service of such employees with us prior to the consummation of the merger for purposes of eligibility and vesting (but not for benefits accrual purposes, except for purposes of vacation and severance) with respect to any benefit plan, programs, policies and arrangements maintained for the benefit of all employees prior to the consummation of the merger to the same extent as was taken into account under our benefit plans prior to the closing of the merger. Additionally, the surviving corporation will give such employees credit for any deductibles and maximum out-of-pocket limitations satisfied prior to the closing of the merger.

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The provisions of the merger agreement relating to continued employee benefits are more fully described under “The Merger Agreement—Employee Benefits.”

Special Committee Compensation

We agreed to pay Dr. James E. Nave, D.V.M. a one-time fee of $90,000 for serving as chairman of the special committee and each of Lee S. Isgur, Lowell H. Lebermann, Jr. and Robert E. Lewis a one-time fee of $60,000 for serving on the special committee payable upon receipt of the offer. Additionally, each member of the special committee receives $1,500 for each meeting attended and the committee chair receives $2,500 for each meeting attended. In addition, we have agreed to indemnify each member of the special committee in respect of liabilities for acts or omissions arising out of such member’s acts as a special committee member.

Material United States Federal Income Tax Consequences

The following summarizes the material United States federal income tax consequences of the merger to U.S. Holders (as defined below) of shares of Station common stock who exchange such shares for the cash consideration pursuant to the merger. This summary is based upon the Internal Revenue Code of 1986, as amended, which we refer to as the Internal Revenue Code, existing regulations promulgated thereunder, published rulings and court decisions, all as in effect and existing on the date of this proxy statement and all of which are subject to change at any time, which change may be retroactive or prospective. No rulings have been sought or are expected to be sought from the Internal Revenue Service with respect to any of the tax consequences discussed below, and no assurance can be given that the IRS will not take contrary positions. Unless otherwise specifically noted, this summary applies only to U.S. Holders (as defined below) that hold their shares of Station common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code.

This summary addresses only the material United States federal income tax consequences, and not all tax consequences, of the merger that may be relevant to U.S. Holders of shares of Station common stock. It also does not address any of the tax consequences of the merger to holders of shares of Station common stock that are Non-U.S. Holders (as defined below) or to holders that may be subject to special treatment under United States federal income tax law, such as, for example, financial institutions, real estate investment trusts, personal holding companies, tax-exempt organizations, regulated investment companies, partnerships (including any entity or arrangement treated as a partnership for United States federal income tax purposes) and persons holding Station common stock through a partnership, persons who hold shares of Station common stock as part of straddle, hedge, conversion, constructive sale or other integrated transaction or whose functional currency is not the U.S. dollar, traders in securities who elect to use the mark-to-market method of accounting, persons who acquired their Station common stock through the exercise of employee stock options or other compensation arrangements, insurance companies, S corporations, brokers and dealers in securities or currencies and certain U.S. expatriates. Further, this summary does not address the United States federal estate, gift or alternative minimum tax consequences of the merger, or any state, local or non-U.S. tax consequences of the merger, or the United States federal income tax consequences to any person that will own actually or constructively shares of Station capital stock following the merger. For example, this summary does not address the United States federal income tax consequences of the merger to the Rollover Stockholders, the Equity Investor or persons related to the Rollover Stockholders or the Equity Investor under applicable constructive ownership rules.

Each holder of shares of Station common stock should consult its tax advisor regarding the tax consequences of the merger in light of such holder’s particular situation, including any tax consequences that may arise under the laws of any state, local or non-U.S. taxing jurisdiction and the possible effects of changes in United States federal or other tax laws.

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A “U.S. Holder” means a beneficial owner of shares of Station common stock that, for United States federal income tax purposes, is:

·       a citizen or individual resident of the United States;

·       a corporation, including any entity treated as a corporation for United States federal income tax purposes, created or organized in the United States or under the laws of the United States, any State thereof or the District of Columbia;

·       an estate, the income of which is subject to United States federal income tax without regard to its source; or

·       a trust, if:

·        a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or

·        it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person.

If a partnership holds shares of Station common stock, the tax treatment of each of its partners generally will depend upon the status of such partner and the activities of the partnership. A partner of a partnership holding shares of Station common stock should consult its own tax advisors regarding the United States federal income tax consequences of the merger.

A “Non-U.S. Holder” means a beneficial owner of shares of Station common stock that is not a U.S. Holder. We urge holders of shares of Station common stock that are Non-U.S. Holders to consult their own tax advisors regarding the United States tax consequences of the merger.

Disposition of Shares of Station Common Stock

The exchange of shares of Station common stock for the cash consideration pursuant to the merger will be a taxable sale transaction for United States federal income tax purposes. In general, a U.S. Holder who receives the cash consideration in exchange for shares of Station common stock pursuant to the merger will recognize gain or loss for United States federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received and the U.S. Holder’s adjusted tax basis in the shares of Station common stock sold. Gain or loss will be determined separately for each block of shares (that is, shares acquired at the same cost in a single transaction). The gain or loss will generally be capital gain or loss, and will generally be long-term capital gain or loss if, on the date of the merger, the shares of Station common stock exchanged pursuant to the merger were held for more than one year. In the case of stockholders who are individuals, long-term capital gain is currently eligible for reduced rates of United States federal income tax. There are limitations on the deductibility of capital losses.

Backup Withholding Tax and Information Reporting

Payment of the cash consideration with respect to the exchange of shares of Station common stock pursuant to the merger may be subject to information reporting and United States federal backup withholding tax at the applicable rate (currently 28%), unless a holder of Station common stock properly certifies its taxpayer identification number or otherwise establishes an exemption from backup withholding and complies with all other applicable requirements of the backup withholding rules. Each beneficial owner of shares of Station common stock that is a U.S. Holder should complete and sign the substitute Form W-9 that will be part of the letter of transmittal to be returned to the disbursing agent in order to provide the information and certification necessary to avoid backup withholding, unless an applicable exemption exists and is otherwise proved in a manner acceptable to the disbursing agent. Backup

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withholding is not an additional tax. Any amounts so withheld may be allowed as a refund or a credit against such holder’s United States federal income tax liability, if any, provided that the required information is properly and timely furnished to the IRS.

Financing of the Merger

Parent estimates that the total amount of funds necessary to consummate the proposed merger and the related transactions, including related customary fees and expenses, is approximately $5.7 billion, consisting of:

·       approximately $4.5 billion to pay Station stockholders and holders of options or restricted shares amounts due to them under the merger agreement, assuming a purchase price of $90.00 per share (net of the exercise price for options and net of the value of the equity rollover shares of Station common stock contributed to Fertitta Partners by the Rollover Stockholders);

·       approximately $1.1 billion to repay certain existing indebtedness; and

·       approximately $100 million to pay fees and expenses in connection with the merger.

These payments are expected to be funded by a combination of (A) equity contributions by affiliates of the Equity Investor and other investors in Parent and (B) debt financing. Parent and Fertitta Partners have obtained equity and debt financing commitments described below in connection with the transactions contemplated by the merger agreement. Parent’s and Fertitta Partner’s proposed equity and debt financing may change after the date hereof. The merger agreement permits changes to Parent’s financing under specified circumstances. As part of the equity contributions, the Rollover Stockholders will contribute to Fertitta Partners an aggregate of 9,672,021 shares of Station common stock. The total funded indebtedness of Station and its subsidiaries following the merger is expected to be approximately $5.4 billion.

Pursuant to the merger agreement, Station is obligated to provide, and cause its subsidiaries to provide, and use reasonable best efforts to cause their representatives to provide, all cooperation reasonably requested by Parent in connection with the financing, including providing reasonably required information relating to Station, participating in meetings, presentations, drafting sessions, due diligence sessions, road shows and sessions with rating agencies in connection with the financing, assisting in the preparation of certain documents for the financing, executing and delivering certain documents relating to the pledge of collateral and other matters ancillary to the financing that are reasonably requested by Parent, furnishing Parent and its financing sources with readily-available historical financial and other pertinent information regarding Station as may be reasonably requested by Parent, using commercially reasonable efforts to obtain accountants’ comfort letters, legal opinions, surveys and title insurance as may be requested by Parent or the lenders under the debt financing commitments, using commercially reasonable efforts to provide monthly financial statements within 25 days of the end of each month prior to the closing, taking all actions reasonably necessary to permit the prospective lenders involved in the financing to evaluate Station’s current assets, cash management and accounting systems, policies and procedures relating thereto for the purpose of establishing collateral arrangements and establish bank and other accounts and blocked account agreements and lock box arrangements in connection with the foregoing, and taking all corporate action reasonably necessary to permit the consummation of the debt financing and to permit the proceeds of the debt financing to be made available to Station.

The following arrangements are intended to provide the necessary financing for the merger:

Equity Financing

Parent has received an equity commitment letter from FC Investor pursuant to which FC Investor has committed to contribute up to an aggregate of approximately $2.6 billion in cash to Parent in connection with the proposed merger and in exchange for which FC Investor will receive Class A Units of Parent. The

64




obligation to fund commitments under the equity commitment letter is subject to the satisfaction or waiver of all conditions precedent to Parent’s obligations to consummate the merger (other than such conditions the satisfaction of which is dependent upon the making of such contribution, which shall be deemed satisfied). In addition, the obligation to fund the commitment shall terminate automatically upon the date that is ten business days following termination of the merger agreement so long as no claim for performance or monetary damages is made on or before such date.

In addition to the equity commitments described above, as of the date hereof, Frank J. Fertitta III and Lorenzo J. Fertitta have delivered to Parent equity rollover commitment letters, which were subsequently assigned by Parent to Fertitta Partners, whereby such Rollover Stockholders have committed to contribute an aggregate of 8,018,037 shares of Station common stock to Fertitta Partners in exchange for Class A Units of Fertitta Partners. In addition, the Sartini-Related Stockholders have delivered to Parent an equity rollover commitment letter, which was subsequently assigned to Fertitta Partners, whereby such Rollover Stockholders have committed to contribute 1,653,984 shares of Station common stock to Fertitta Partners in exchange for Class A Units of Fertitta Partners. The obligation to make such contributions is subject to the satisfaction or waiver of all conditions precedent to Parent’s obligations to consummate the merger (other than such conditions the satisfaction of which is dependent upon the making of such contribution, which shall be deemed satisfied). In addition, the obligation to fund the commitments shall terminate automatically upon the date that is ten business days following termination of the merger agreement so long as no claim for performance or monetary damages is made on or before such date. The rollover commitments of the Rollover Stockholders are more fully described under “Special Factors—Effects of the Merger” and “Special Factors—Interests of Certain Persons in the Merger.”

Debt Financing

Parent has received debt commitment letters, each dated as of May 3, 2007, from prospective arrangers and lenders (the “Lender Parties”) to provide, subject to the conditions set forth therein:

·       to the surviving corporation, up to $500 million of senior secured credit facilities (of which $350 million is expected to be drawn at the closing of the merger, as described below) for the purpose of repaying or refinancing certain existing revolving indebtedness of Station’s subsidiaries, as well as for providing ongoing working capital and for other general corporate purposes of the surviving corporation and its subsidiaries; and

·       to the CMBS Borrower (as defined under the caption “CMBS Loan” below), a group of newly created, wholly-owned special purpose subsidiaries of the surviving corporation, up to $2.725 billion of mortgage loans and/or related mezzanine financing (collectively, “CMBS Loans”), for the purpose of financing the merger and paying fees and expenses incurred in connection with the merger.

The debt commitments expire at the earlier of (a) May 23, 2008 or (b) the termination of the merger agreement.

The documentation governing the senior secured credit facilities and the CMBS Loans has not been finalized. In addition, the financing is subject to the right of the Lender Parties and the borrowers to change certain terms (but not the conditions or the aggregate amount) of the financing. Accordingly, the actual terms and amounts of such facilities may differ from those described below.

Parent has agreed to use its commercially reasonable best efforts to assist in the syndication of the debt financing on the terms and conditions described in the debt commitment letters. If any portion of the debt financing becomes unavailable on the terms and conditions contemplated in the debt commitment letters, Parent shall use its reasonable best efforts to obtain alternative financing on terms no less favorable

65




to Parent and Merger Sub, in an amount sufficient to consummate the transactions contemplated by the merger agreement, as promptly as possible.

Although the debt financing described in this proxy statement is not subject to due diligence or “market out” conditions, such financing may not be considered assured. As of the date of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described herein is not available as anticipated.

Conditions Precedent to the Debt Commitments.   The availability of the senior secured credit facilities is subject to, among other things:

·       consummation of the merger in accordance with the merger agreement in the form executed on February 23, 2007, as amended, modified or waived with the reasonable approval of all of the Commitment Parties that are party to the May 3, 2007 commitment letters;

·       proof of insurance coverage reasonably acceptable to the arranger;

·       the equity contribution being made and representing at least 32.5% of the consideration payable under the merger agreement;

·       subject to certain qualifications, delivery of an acceptable environmental report of each of the properties included as collateral for the senior secured credit facilities;

·       the repayment of certain existing debt guaranteed by Station, and the absence of certain types of other debt or preferred equity;

·       no material adverse effect, as defined in the merger agreement, shall have occurred;

·       affiliates of the Equity Investor, Frank J. Fertitta III and Lorenzo J. Fertitta beneficially owning or controlling, directly or indirectly, 70% of the voting equity of Parent;

·       payment of required fees and expenses;

·       negotiation, execution and delivery of definitive documentation, delivery of customary opinions, documents and certificates, and, subject to certain exceptions and qualifications, granting and perfecting security interests in certain collateral; and

·       receipt of material governmental and third party approvals in connection with the financing and the continuing operations of the surviving corporation and its subsidiaries.

The availability of the CMBS Loans is subject to CMBS Borrower being in a position to substantially contemporaneously satisfy all of the conditions to the senior credit facilities and a number of additional conditions, including among other things:

·       delivery of irrevocable (subject only to payment of premiums at closing) title insurance commitments with respect to the fee and ground leasehold interests in the real property being transferred to CMBS Borrower or owned by its newly acquired wholly owned subsidiaries to be included as collateral for the CMBS Loans (collectively, the “CMBS Property”);

·       delivery of the executed master lease of the CMBS Property back to Station and the executed sub-leases from Station to its respective operating subsidiaries; and

·       delivery of acceptable estoppel certificates from the ground lessor and any fee mortgagee thereof with respect to each CMBS Property that is a lessee’s interest under a ground lease.

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Senior Secured Credit Facilities

The borrower under the senior secured credit facilities at the closing of the merger will be the surviving corporation. The senior secured credit facilities will be comprised of a $500.0 million revolving loan facility with a term of six years ($350 million of which is expected to be drawn in part as of the closing date of the merger). The revolving credit facility will include sublimits for the issuance of letters of credit and swingline loans and will be available in U.S. dollars, in each case with sublimits to be agreed upon. In addition, so long as no default exists or would result therefrom, Station will have the right at any time after the merger to request that additional commitments be provided under the senior secured credit facilities or a new secured term loan facility, in either case in an amount not to exceed $450.0 million, as long as such incremental fundings do not mature earlier than the original commitment and are on terms and conditions substantially the same as, and secured on a pari passu basis with, the initial revolving credit facility. None of the lenders under the mutual revolving credit facility shall be obligated to provide such additional commitments.

Deutsche Bank Securities, Inc. and JPMorgan Securities, Inc. will act as joint lead arrangers and joint book running managers for the senior secured credit facilities. Deutsche Bank Trust Company Americas will act as sole administrative agent for the senior secured credit facilities. JPMorgan Chase Bank, N.A. will act as syndication agent for the senior secured credit facilities.

Interest Rate.   Loans under the senior secured credit facilities are expected to bear interest, at Station’s option, at a rate equal to the adjusted Eurodollar rate or an alternate base rate, in each case plus a spread. After Station delivers financial statements for the first full fiscal quarter ending after the effective date of the merger, interest rates under the senior secured credit facilities will be subject to change based on a total leverage ratio (which means the ratio of Station’s total indebtedness to EBITDA), with step-downs as agreed upon between Station and the arrangers.

Guarantors.   All obligations under the senior secured credit facilities and under any interest rate protection or other hedging arrangement entered into with a Lender Party or any of its affiliates will be unconditionally guaranteed jointly and severally at the closing of the merger by each direct and indirect, existing and future domestic wholly owned subsidiary of Station (which we sometimes refer to as the guarantors and, together with Station, as the loan parties), except certain designated unrestricted subsidiaries.

Security.   Subject to compliance with applicable gaming laws and certain other limitations and exceptions, the obligations of Station under the senior secured credit facilities, and under any interest rate protection or other hedging arrangement entered into with a lender or any of its affiliates, will be secured, subject to permitted liens and other agreed upon exceptions, by (i) all the capital stock of Station and our majority owned subsidiaries other than unrestricted subsidiaries and excluding interests in joint ventures; (ii) the land, improvements and other real property relating to Red Rock, Texas Station and any future capital project with a budget over $100 million or upon any other property generating over $10 million of adjusted EBITDA, and, if permitted under the CMBS Loan, the loan parties’ leasehold interests in the real estate securing the CMBS Loan, all excluding any fee and/or ground lease interests of CMBS Borrower in any such property securing the CMBS Loan; (iii) all other assets of the loan parties, including intellectual property; and (iv) a second lien in all furniture, fixtures and equipment, which we refer to as FF&E, and the FF&E reserve accounts that are located at the real estate securing the CMBS Loan (a) owned by a guarantor subtenant (first lien is in favor of borrower as master sub-lessor under the subleases of such real estate by the applicable sub-lease guarantors to secure such sub-lessee’s obligations under such subleases) and (b) owned by borrower (first lien is in favor of the landlord under the master lease of such real estate by the borrower to secure borrower’s obligations under such master lease). If certain security is not provided at the closing of the merger despite the use of commercially reasonable efforts to so provide, the delivery of such security will not be a condition precedent to the availability of the

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senior secured credit facilities on the closing date, but instead will be required to be delivered following the closing date, pursuant to arrangements to be agreed upon.

Other Terms.   The senior secured credit facilities will contain customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, investments, sales of assets, mergers and consolidations, prepayments of subordinated indebtedness, liens and dividends and other distributions. The senior secured credit facilities will also include customary events of default, including a change of control to be defined.

CMBS Loans

In connection with the CMBS Loan financing, certain Station subsidiaries (the “Operating Subsidiaries”) entered into a purchase and sale agreement with a newly created wholly-owned “special purpose” subsidiary of Station, which will, immediately prior to the closing of the CMBS Loans, assign the purchase and sale agreement to an affiliate, a newly created “special purpose” subsidiary of Station (the “CMBS Borrower”). Pursuant to such purchase and sale agreement, the Operating Subsidiaries’ equity interests in their wholly-owned subsidiaries that own substantially all fee and leasehold real property comprising Palace Station, Boulder Station, Sunset Station, Santa Fe Station, Fiesta Rancho and Fiesta Henderson (collectively, the “CMBS Property”) will be sold to CMBS Borrower following which such CMBS Property will be leased back to Station, which will in turn sublease the CMBS Property back to the Operating Subsidiaries in a sale and leaseback transaction.

The CMBS Loan requires the creation of one or more wholly owned unrestricted direct and indirect special purpose subsidiaries (collectively, the “Real Estate Borrowers”), the most remote of which will be the CMBS Borrower, and on or prior to the closing of the merger, the following will occur:

·       each parcel of the CMBS Property will be contributed by the applicable Operating Subsidiary of Station that currently owns or leases the same to a newly created subsidiary (each, a “Real Estate Subsidiary” and collectively, the “Real Estate Subsidiaries”) that is wholly owned by such Operating Subsidiary;

·       Shortly before the closing of the CMBS Loans, Parent will form a number of wholly-owned “special purpose” entities, the first of which will be the subsidiary of Merger Sub, the second of which will be a subsidiary of the first subsidiary, and the last of which will be CMBS Borrower, a subsidiary of the third or fourth subsidiary, as applicable. (Each of such subsidiaries other than CMBS Borrower are referred to as “MezzCo” and they are collectively referred to as “MezzCos”);

·       concurrently with the closing of a portion of the CMBS Loan to CMBS Borrower each MezzCo will borrow a portion of the CMBS Loan from a mezzanine lender and contribute the proceeds thereof and other equity contribution proceeds received from its parent to its subsidiary and ultimately to CMBS Borrower;

·       CMBS Borrower will use the proceeds of the CMBS Loan and equity contributions to purchase the equity of the Real Estate Subsidiaries from the Operating Subsidiaries;

·       the CMBS Borrower will merge each of its newly acquired Real Estate Subsidiaries with and into itself, such that the CMBS Borrower will directly own or lease all of the CMBS Property;

·       upon the consummation of the transaction, the CMBS Borrower, the MezzCos and the Operating Subsidiaries will be directly and indirectly wholly owned subsidiaries of Station under an “OpCo / PropCo” structure;

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·       the CMBS Borrower, an unrestricted subsidiary of Station and sometimes referred to as PropCo, will then lease the CMBS Property to Station, which will in turn sublease each parcel of the CMBS Property to the restricted Operating Subsidiary that has continuously operated and will continue to operate the same (each an “OpCo”); and

·       the CMBS Borrower and its intermediate holding companies, MezzCos, will enter into the CMBS Loans.

The expectation as to the CMBS Loans is that the Real Estate Borrowers will enter into up to $2.725 billion aggregate principal amount of mortgage loans and related mezzanine financing. The CMBS Loans will have an initial term of two years from the closing of the merger, subject to the CMBS Borrower’s option to exercise three one-year extensions, for a maximum term of five years. Interest on the CMBS Loans will equal the London interbank offer rate (“LIBOR”) plus a specified spread. FCP HoldCo, Fertitta Partners and FCP VoteCo will execute a guaranty with respect to certain “recourse carve out” obligations of CMBS Borrower. CMBS Borrower will be required to hedge the interest rate such that inclusive of the spread, it will not exceed 7.5%.

Security.   The CMBS Loans are expected to be secured by, among other things, (a) a perfected first priority fee and/or leasehold deed of trust on each CMBS Property, (b) a first priority blanket assignment of all of CMBS Borrower’s rights and interests under the master lease and all other leases, rents and profits payable to CMBS Borrower as landlord/sublessor with respect to each CMBS Property, (c) an assignment of the related interest rate hedge arrangements, (d) a first priority and perfected security interest in all other real property interests including certain personal property, licenses, permits, contract rights, general intangibles and other assets of CMBS Borrower used in connection with the operation, maintenance and management of each CMBS Property, and (e) with respect to any mezzanine financing forming part of the CMBS Loan, a first priority pledge of 100% of the equity interests in CMBS Borrower and any applicable subsidiaries created under CMBS Borrower for purposes of effectuating the mezzanine financing.

Other Terms.   The CMBS Loan will contain representations and warranties and affirmative and negative covenants that are customary for financings of that type, such as a lease shortfall reserve if the lease coverage ratio falls below 90% of the closing date lease coverage ratio for two consecutive quarters, but will not contain any other financial maintenance covenants and will not impair the operation of the properties. The CMBS Loans will also include customary events of default.

Estimated Fees and Expenses

Except as set forth below, Station will not pay any fees or commissions to any broker, dealer or other person in connection with the merger. If Station’s stockholders do not approve the merger under certain circumstances described under “The Merger Agreement—Termination,” Station has agreed to reimburse Parent for reasonable out-of-pocket fees and expenses (including reasonable legal fees and expenses) up to $40 million in the aggregate incurred by Parent, Merger Sub or their respective affiliates in connection with the transactions contemplated by the merger agreement, credited in certain circumstances against any required termination fee that becomes payable by Station.

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The following is an estimate of fees and expenses to be incurred by Station in connection with the merger:

Legal

 

$

3,025,000

 

Financial Advisors

 

$

15,001,000

 

Accounting

 

$

40,000

 

Printing and Mailing

 

$

110,000

 

SEC Filing Fees

 

$

163,377

 

Disbursing Agent

 

$

20,000

 

Proxy Solicitation and Information Agent

 

$

35,000

 

Miscellaneous

 

$

5,110,000

 

Total

 

$

23,504,377

 

 

In addition, it is expected that Parent, Merger Sub and/or the Equity Investor will incur approximately $81.7 million of financing costs as well as legal and other advisory fees.

The Voting Agreement

In connection with the transactions contemplated by the merger agreement, the Rollover Stockholders, Parent and Station entered into a voting agreement dated as of February 23, 2007, pursuant to which the Rollover Stockholders agreed, subject to certain conditions, to vote their Station common stock (i) in favor of the approval of the merger agreement and the approval of the transactions contemplated thereby, including the merger, (ii) in favor of the approval of any other matter to be approved by the stockholders of Station to facilitate the transactions contemplated by the merger agreement, including the merger, (iii) against any Company Acquisition Proposal or any transaction contemplated by such Company Acquisition Proposal, (iv) against any proposal made in opposition to, or in competition or inconsistent with, the merger or the merger agreement, including the approval thereof or the consummation thereof, including any amendment of Station’s organization documents or other proposal or transaction involving Station or any of its subsidiaries which amendment or other proposal or transaction would in any matter impede, interfere with, materially delay, frustrate, prevent or nullify or result in a breach of any representation or warranty, covenant, agreement or other obligation of Station or any of its subsidiaries under or with respect to the merger agreement or any of the transactions contemplated thereby, (v) against any extraordinary dividend, distribution or recapitalization by Station or change in the capital structure of Station (other than pursuant to or explicitly permitted by the merger agreement) and (vi) against any action or agreement that would reasonably be expected to result in any condition to the consummation of the merger not being fulfilled.

The obligations to vote for or against the matters described, as the case may be, in the immediately preceding paragraph will survive until the earliest to occur of (i) the effective time of the merger agreement, (ii) the termination of the merger agreement in accordance with its terms and (iii) the written agreement of Parent and Station to terminate the voting agreement.

The foregoing summary of the voting agreement does not purport to be complete and is qualified in its entirety by reference to the copy of such agreement attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.

The Limited Guarantee

In connection with the merger agreement, certain affiliates of the Equity Investor, namely, Colony Investor VII, L.P., a Delaware limited partnership, Colony Investor VIII, L.P., a Delaware limited partnership, and Colony Parallel Investors VIII Holdings, L.P., a Delaware limited partnership, provided

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us with a limited guarantee, dated as of February 23, 2007 which was subsequently reaffirmed on May 4, 2007 (the “Guarantee”), of payment of the $160 million reverse termination fee or $106 million regulatory termination fee payable by Parent, if any (as such fees are further described in the section entitled “The Merger Agreement—Termination Fees and Expenses”), as well as Parent’s obligation for breach and indemnification and expense reimbursement obligations under the merger agreement, up to a maximum amount of $175 million. The Guarantee will remain in full force and effect until the earliest to occur of (i) the effective time of the merger and payment of all obligations due by Parent and Merger Sub under the merger agreement at such time, (ii) the termination of the merger agreement by the mutual consent of us, on the one hand, and Parent and Merger Sub, on the other hand, (iii) the termination of the merger agreement by Parent or us on or after February 23, 2008 (or May 23, 2008, in certain circumstances) unless Parent is obligated to pay the $106 million regulatory termination fee, in which case the Guarantee shall terminate upon Parent’s payment in full of such regulatory termination fee, (iv) the termination of the merger agreement by us if our board of directors (acting through the special committee if it still exists) has concluded in good faith that a Company Acquisition Proposal constitutes a Superior Proposal, or (v) the termination of the merger agreement (A) by Parent because a temporary restraining order, preliminary or permanent injunction or other judgment, order or law prohibits, restrains or renders illegal the consummation of the merger, (B) by Parent because the stockholders of Station fail to approve the merger agreement by the Requisite Stockholder Vote at the Special Meeting or any adjournment or postponement of that meeting or (C) by Parent or Merger Sub if (1) we have breached or failed to perform any of our representations, warranties, covenants or agreements, and such breach or failure to perform would result in a failure of a condition to Parent’s or Merger Sub’s obligation to consummate the merger and, if capable of being cured, cannot be cured within sixty (60) days following notice of such breach to Station, (2) the board of directors of Station or any committee of the board of directors withdraws or modifies, or publicly proposes to withdraw or modify, its recommendation, or approves or recommends any alternative proposal (or resolves to do so) or (3) Station willfully breaches its covenants under the merger agreement relating to solicitations, Company Acquisition Proposals and board recommendation changes in any respect materially adverse to Parent and Merger Sub. The Guarantee is our sole recourse against the Equity Investor; however the Guarantee does not limit our rights against Parent and Merger Sub.

The foregoing summary of the Guarantee does not purport to be complete and is qualified in its entirety by reference to the copy of such agreement attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.

Regulatory Approvals

The following discussion summarizes the material regulatory requirements that we believe relate to the merger, although we may determine that additional consents from or notifications to governmental agencies are necessary or appropriate.

In the merger agreement, the parties have agreed to cooperate with each other to make all filings with governmental authorities and to obtain all governmental approvals and consents necessary to consummate the merger, subject to certain exceptions and limitations. It is a condition to the consummation of the merger that required governmental consents and approvals shall have been obtained before the effective date of the merger.

The failure to obtain the required approval of the merger, comply with the procedural requirements prescribed by any applicable gaming regulatory authority, or of Station or Parent to qualify or make disclosures or applications as required under the laws and regulations of any applicable gaming regulatory authority may result in the loss of license or denial of application for licensure in any such applicable jurisdiction.

Nevada Gaming Regulation.   As a result of Station’s ownership and operation of Palace Station Hotel & Casino, Boulder Station Hotel & Casino, Texas Station Gambling Hall & Hotel, Sunset Station

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Hotel & Casino, Santa Fe Station Hotel & Casino, Red Rock Casino Resort Spa, Fiesta Rancho Casino Hotel, Fiesta Henderson Casino Hotel, Wild Wild West Gambling Hall & Hotel, Wildfire Casino, Magic Star Casino, Gold Rush Casino, Lake Mead Casino, Green Valley Ranch Resort Spa Casino, Barley’s Casino & Brewing Company and The Greens Gaming and Dining, Station is, and upon consummation of the merger, will be, subject to the jurisdiction of the Nevada gaming authorities. The ownership and operation of casino gaming facilities in Nevada are subject to the Nevada Gaming Control Act and  the regulations of the Nevada Gaming Commission (collectively the “Nevada Act”), and various local ordinances and regulations. Station’s respective gaming operations 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 Clark County Liquor and Gaming Licensing Board and applicable local liquor and gaming authorities of the cities of Las Vegas, Henderson and North Las Vegas, Nevada (collectively the “Nevada Gaming Authorities”).

The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy that are concerned with, among other things:

·       the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity;

·       the establishment and maintenance of responsible accounting practices and procedures;

·       the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record-keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities;

·       the prevention of cheating and fraudulent practices; and

·       the establishment of a source of state and local revenues through taxation and licensing fees.

The Nevada Act provides that the acquisition of control of a registered publicly traded corporation such as Station must have the prior approval of the Nevada Commission. The Nevada Board reviews and investigates applications and makes recommendations on those applications to the Nevada Commission for final action. FCP VoteCo will file applications with the Nevada Board for approval of the acquisition of control of Station and for associated approvals, and will also file related applications with all appropriate local jurisdictions. Station is currently registered by the Nevada Commission as a publicly traded corporation (a “Registered Company”) and has been found suitable to own its gaming subsidiaries that have licensed gaming facilities in Nevada.

In seeking approval of the merger, Station and FCP VoteCo must satisfy the Nevada Board and the Nevada Commission on a variety of standards prior to the consummation of the merger. The Nevada Board and the Nevada Commission will consider all relevant material facts in determining whether to grant this approval, and may consider not only the effects of the merger but also any other facts that are deemed relevant. Such facts may include, among others:

·       the business history of Parent, including its record of financial stability, integrity and success of its operations;

·       the current business activities of Parent;

·       the adequacy of the proposed financing; and

·       whether the merger will create a significant risk that Station, Parent or their subsidiaries will not satisfy their financial obligations as they become due or satisfy all financial and regulatory requirements imposed by the Nevada Act.

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As described in “Arrangements With Respect To Station, Fertitta Partners and Parent Following The Merger” above, Station intends to voluntarily register its voting common stock pursuant to Section 12(g) of the Exchange Act. The registration of Station’s voting common stock pursuant to the Exchange Act will require Station to register with the Nevada Commission as a Registered Company and, as such, Station will be required to periodically submit detailed financial and operating reports to the Nevada Gaming Authorities and furnish any other information that the Nevada Gaming Authorities may require. At any time, the Nevada Commission has the power to investigate and require a finding of suitability of any record or beneficial owner of Station’s voting securities. The Nevada Act requires any person who acquires more than 5% of any class of voting securities of a publicly traded corporation, as reported to the SEC, to report the acquisition to the Nevada Commission, and such person may be required to be found suitable. Also, any person who becomes a beneficial owner of more than 10% of any class of voting sec