STATION CASINOS INC, PRE 14A, 1997-12-16

STATION CASINOS INC
PRE 14A, 1997-12-16
MISCELLANEOUS AMUSEMENT & RECREATION

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<PAGE>
PRELIMINARY COPY
THESE MATERIALS CONSTITUTE PRELIMINARY PROXY MATERIALS FILED WITH
RESPECT TO THE FORTHCOMING SPECIAL MEETING OF STOCKHOLDERS. CERTAIN
INFORMATION IS PRESENTED AS IT IS EXPECTED TO EXIST WHEN (AND IF)
DEFINITIVE PROXY MATERIALS ARE MAILED TO STOCKHOLDERS, AND WILL BE
REVISED TO REFLECT ACTUAL FACTS AT THAT TIME.
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
DECEMBER 16, 1997.
--------------------------
--------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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 / /

Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12

STATION CASINOS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)

APPROXIMATE DATE OF DISTRIBUTION OF THE DEFINITIVE
PROXY MATERIAL TO THE REGISTRANT'S STOCKHOLDERS: , 1998

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (check appropriate box):

/X/ No fee required.
/ / 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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.

/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
, 1998

Dear Fellow Stockholder:

You are cordially invited to attend a Special Meeting of Station Casinos,
Inc. (the "Company") to be held beginning at , .m. (local time) on
, 1998 at Sunset Station Hotel & Casino, 1301 West Sunset
Road, Henderson, Nevada. At the Special Meeting you will be asked to consider
amendments (the "Charter Amendments") to the Company's Amended and Restated
Articles of Incorporation to:

(a) increase the authorized shares of the Company to 360,000,000 shares
consisting of 300,000,000 shares of Common Stock and 60,000,000 shares of
Preferred Stock;

(b) add certain transfer restrictions and related provisions with
respect to the Company's capital stock desirable for the Company to protect
its status as a real estate investment trust ("REIT") for federal income tax
purposes; and

The Charter Amendments are being sought in connection with the Company's
plans to convert to a REIT for federal income tax purposes. As a REIT, the
Company will continue to own (or lease) the land, buildings and other
improvements and related assets of its six casino entertainment properties. The
Company expects that its conversion to a REIT will be completed in March 1998.

In order to comply with certain tax rules which generally will prohibit the
Company, as a REIT, from operating its properties, the Company intends to
spin-off to its common stockholders the stock of a newly formed subsidiary
("OpCo") which will lease (or sublease) the properties from the Company and
manage them. OpCo will assume the name "Station Casinos, Inc." The spin-off is
expected to be effective at or prior to the time the Company converts to a REIT.

The Company also intends to sell approximately 29 million newly issued
shares of common stock (plus over-allotment option) in an underwritten public
offering. The Company is seeking to raise approximately $350 million in proceeds
from the offering prior to underwriters' discount and costs associated with the
offering. The spin-off of OpCo is expected to be completed upon consummation of
the stock offering. In addition, certain stockholders intend to sell
approximately two million shares in the offering, primarily to pay taxes
associated with the spin-off. Management believes that the spin-off will not
create a taxable event for a substantial majority of the Company's other
stockholders.

The proposed election of REIT status by the Company, spin-off of Opco and
related financing transactions (the "Reorganization Transactions") are more
fully described in the accompanying Proxy Statement. The consummation of the
Reorganization Transactions is not conditioned upon the adoption of the proposed
Charter Amendments. The Company intends to consummate the Reorganization
Transactions regardless of whether the Charter Amendments are approved at the
Special Meeting. If the Charter Amendments are approved at the Special Meeting,
they will not become effective unless and until the Reorganization Transactions
are consummated. In addition, no commitments are currently in place with respect
to any of the financing transactions anticipated in connection with the
Reorganization Transactions, and the Company expects that the precise nature and
composition of such financing transactions may not be fully determined by the
time of the Special Meeting. There can be no assurance that the terms of the
Reorganization Transactions will not change significantly after the Special
Meeting. In addition, the consummation of the Reorganization Transactions is
conditioned upon a number of factors, including approval of Nevada and Missouri
gaming authorities. Consequently, regardless of whether the Charter Amendments
are approved at the Special Meeting, there can be no assurance that the
Reorganization Transactions will occur as scheduled or at all.

The Board of Directors of the Company believes the Charter Amendments are in
the best interests of stockholders and unanimously recommends that you vote FOR
the Charter Amendments. The executive officers and directors of the Company hold
approximately 42.8% of the outstanding Common Stock and are expected to vote in
favor of the Charter Amendments. Also enclosed is a form of proxy solicited by
the Board of Directors in connection with the Special Meeting. Please carefully
review and consider all of the enclosed information.

Whether or not you expect to attend the Special Meeting, it is very
important that your shares be represented, and it would therefore be helpful if
you would return your signed and dated proxy promptly; please use the enclosed
postage prepaid envelope to return the executed proxy card. If you attend the
Special Meeting,
<PAGE>
you may revoke the proxy at that time by voting in person. If you have any
questions regarding the Charter Amendments, please call D.F. King & Co., Inc.
toll free at (800) 549-6864.

Sincerely,
Frank J. Fertitta III
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
STATION CASINOS, INC.
2411 WEST SAHARA AVENUE
LAS VEGAS, NEVADA 89102

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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD: , 1998
TO BE HELD AT: SUNSET STATION HOTEL & CASINO

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To the Stockholders:

NOTICE is hereby given that a Special Meeting of Stockholders (the
"Meeting") of Station Casinos, Inc. (the "Company") will be held at Sunset
Station Hotel & Casino, 1301 West Sunset Road, Henderson, Nevada on ,
1998, beginning at .m. local time, for the following purposes:

1. To amend the Company's Amended and Restated Articles of Incorporation
(the "Charter Amendments") to:

(a) increase the authorized shares of the Company to 360,000,000 shares,
consisting of 300,000,000 shares of Common Stock and 60,000,000
shares of Preferred Stock;

(b) add certain transfer restrictions and related provisions with respect
to the Company's capital stock desirable for the Company to protect
its status as a real estate investment trust for federal income tax
purposes;

2. To consider and transact such other business as may properly come before
the Meeting or any adjournment thereof;

all as more fully described in the accompanying Proxy Statement.

Holders of the Common Stock at the close of business on , 1998,
the record date fixed by the Company's board of directors (the "Board of
Directors"), are entitled to notice of and to vote at the Meeting. No business
other than the proposals described in this notice is expected to be considered
at the Meeting or any adjournment. The Board of Directors urges all stockholders
of record to exercise their right to vote at the meeting personally or by proxy
FOR the Charter Amendments. Accordingly, we are sending you the following Proxy
Statement and the enclosed proxy card.

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SPECIFY YOUR VOTE ON
THE ACCOMPANYING PROXY CARD AND SIGN, DATE AND RETURN IT AS PROMPTLY AS POSSIBLE
IN THE ENCLOSED PRE-ADDRESSED, POSTAGE-PAID ENVELOPE.

Your prompt response will be appreciated.

By Order of the Board of Directors

Scott M. Nielson
SECRETARY

Las Vegas, Nevada
, 1998
<PAGE>
STATION CASINOS, INC.

2411 WEST SAHARA AVENUE
LAS VEGAS, NEVADA 89102

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PROXY STATEMENT

---------------------

The accompanying proxy is solicited by the board of directors (the "Board of
Directors") of Station Casinos, Inc. (the "Company") to be used at the Special
Meeting of Stockholders on , 1998 (the "Meeting"), to be held at Sunset
Station Hotel & Casino, 1301 West Sunset Road, Henderson, Nevada beginning at
.m. local time. This Proxy Statement and the enclosed form of proxy are
being sent to stockholders on or about , 1998.

At the Meeting, stockholders will be asked to consider and vote upon
amendments (the "Charter Amendments") of the Company's Amended and Restated
Articles of Incorporation to:

(a) increase the authorized shares of the Company to 360,000,000 shares
consisting of 300,000,000 shares of the Company's common stock, par value
$.01 per share ("Common Stock"), and 60,000,000 shares of the Company's
preferred stock, par value $.01 per share ("Preferred Stock");

(b) add certain transfer restrictions and related provisions with respect to
the Company's capital stock desirable for the Company to protect its
status as a real estate investment trust for federal income tax purposes;
and

The Board of Directors recommends that each stockholder vote FOR the Charter
Amendments.

The Company's shares are listed and traded on the New York Stock Exchange
("NYSE") under the symbol "STN."

Any questions or request for assistance may be directed to the Information
Agent at the telephone numbers set forth below. Requests for additional proxy
cards or copies of this Proxy Statement may be directed to the Information Agent
and such additional materials will be provided promptly at the Company's
expense. Stockholders may also contact their local broker, dealer, commercial
bank or trust company for assistance concerning the matters set forth herein.

The Information Agent is:
D.F. King & Co., Inc
77 Water Street
New York, New York 10005
(800) 549-6864 (Toll Free)

------------------------

For questions addressed to the Company, please contact:

Station Casinos, Inc.
2411 West Sahara Avenue
Las Vegas, Nevada 89102
(702) 367-2411
Attention: Investor Relations
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY........................................ 1
The Special Meeting.......................... 1
Vote Required................................ 1
Recommendation of the Board of Directors..... 1
Dissenter's Rights........................... 2
Background and Purpose of the Vote........... 2
The Reorganization Transactions.............. 3
Relationship Between Station REIT and OpCo... 6
Business Strategy............................ 6
Growth Strategy.............................. 7
Continued Master Planned Development......... 7
Acquisition and Development Within the Las
Vegas Market............................... 7
Acquisition and Development Outside the Las
Vegas Market............................... 8
Distribution and Dividend Policy............. 9
Sources and Uses............................. 10
Summary Consolidated Financial Data of
Station REIT............................... 11
Summary Combined Financial Data of OpCo...... 13
Summary Unaudited Pro Forma Financial Data of
Station REIT............................... 15
Summary Unaudited Pro Forma Financial Data of
OpCo....................................... 16
THE SPECIAL MEETING AND VOTING................. 17
DISSENTERS' RIGHTS OF APPRAISAL................ 18
CERTAIN CONSIDERATIONS......................... 19
New Business Strategy; Newly Organized
Entity; No Operating History............... 19
Dependence of Station REIT on OpCo........... 19
Lack of Control by Station REIT Over
Hotel/Casino Properties.................... 20
Conflicts of Interest........................ 20
Risks of Leverage............................ 20
Ability to Maintain Distributions............ 22
Hotel/Casino Industry Risks.................. 22
Competition for Investment Opportunities..... 25

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PAGE
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<S> <C>
Uninsured and Underinsured Losses............ 25
Acquisition and Development Risks............ 25
Failure to Qualify as a REIT................. 25
Adverse Effects of REIT Minimum Distribution
Requirements............................... 26
Limitations on Acquisitions and Changes in
Control.................................... 27
Effect of Market Interest Rates on Price of
Common Stock and Cost of Funds............. 28
Risk of Future Revisions in Policies and
Strategies by Board of Directors........... 28
Limited Relevance of Financial Information... 28
Potential Liabilities Due to Fraudulent
Transfer Considerations and Legal Dividend
Requirements............................... 28
Dilution..................................... 29
Payment of Dividends......................... 30
Certain Anti-Takeover Effects................ 30
DISTRIBUTION AND DIVIDEND POLICY............... 32
STATION REIT PRO FORMA CAPITALIZATION.......... 34
OPCO PRO FORMA CAPITALIZATION.................. 35
SOURCES AND USES............................... 36
SELECTED CONSOLIDATED FINANCIAL DATA OF THE
COMPANY...................................... 37
MANAGEMENT'S DISCUSSION AN ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF THE COMPANY............................... 39
SELECTED COMBINED FINANCIAL DATA OF OPCO....... 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF OPCO...................................... 50
</TABLE>

i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
BUSINESS STRATEGY.............................. 59
Historical Overview.......................... 59
Growth Strategy.............................. 59
Operating Strategy........................... 63
Capital Strategy............................. 63
Distribution and Dividend Policy............. 64
REGULATION AND LICENSING....................... 65
THE DISTRIBUTION............................... 72
RELATIONSHIP BETWEEN STATION REIT AND OPCO..... 74
PRINCIPAL STOCKHOLDERS......................... 81
MANAGEMENT AFTER THE REORGANIZATION............ 82
DESCRIPTION OF CERTAIN NEW INDEBTEDNESS........ 84
DESCRIPTION OF CAPITAL STOCK................... 85
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN
ACTIVITIES................................... 91
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS...... 94
OTHER MATTERS.................................. 107
STOCKHOLDER PROPOSALS.......................... 107
ADDITIONAL INFORMATION......................... 107
GLOSSARY....................................... 108
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..... F-1
EXHIBITS
A. Certain Provisions of the Nevada Revised
Statutes................................... A-1
B. Form of Amended and Restated Articles of
Incorporation*............................. B-1
</TABLE>

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*To be filed by Amendment.

ii
<PAGE>
SUMMARY

THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY STATEMENT AND IN THE
ATTACHED EXHIBITS. STOCKHOLDERS ARE URGED TO READ THIS PROXY STATEMENT AND THE
ATTACHED EXHIBITS, AND IN PARTICULAR THE SECTION ENTITLED "CERTAIN
CONSIDERATIONS," CAREFULLY AND IN THEIR ENTIRETY. UNLESS THE CONTEXT OTHERWISE
REQUIRES, REFERENCES IN THIS PROXY STATEMENT TO THE "COMPANY" SHALL BE DEEMED TO
REFER TO STATION CASINOS, INC. AS IT EXISTS PRIOR TO CONSUMMATION OF THE
REORGANIZATION TRANSACTIONS (AS DEFINED HEREIN), AND REFERENCES TO "STATION
REIT" SHALL BE DEEMED TO REFER TO STATION CASINOS, INC. AS IT EXISTS IMMEDIATELY
AFTER THE REORGANIZATION TRANSACTIONS (AT WHICH TIME STATION CASINOS, INC. WILL
BE RENAMED "STATION ENTERTAINMENT PROPERTIES, INC."). UNLESS THE CONTEXT
OTHERWISE REQUIRES, (I) REFERENCES IN THIS PROXY STATEMENT TO CORPORATE ENTITIES
SHALL BE DEEMED TO REFER TO SUCH ENTITIES AND THEIR DIRECT AND INDIRECT
SUBSIDIARIES AND (II) THE INFORMATION IN THIS PROXY STATEMENT IS BASED ON THE
ASSUMPTION THAT NO DISSENTERS' RIGHTS WILL BE EXERCISED AND THE CHARTER
AMENDMENTS WILL BE APPROVED AT THE MEETING (AS DEFINED HEREIN). TERMS USED IN
THIS PROXY STATEMENT WITHOUT DEFINITION HAVE THE MEANINGS SET FORTH IN THE
ATTACHED GLOSSARY.

THE SPECIAL MEETING

A special meeting of stockholders (the "Meeting") of Station Casinos, Inc.
(the "Company") will be held at Palace Station Hotel & Casino, 1301 West Sunset
Road, Henderson, Nevada on , 1998, beginning at .m. local time.
Holders of record of shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), at the close of business on , 1998, the
record date (the "Record Date") fixed by the Company's board of directors (the
"Board of Directors"), are entitled to notice of and to vote at the Meeting. At
the Meeting, stockholders will be asked to consider and vote upon amendments
(the "Charter Amendments") of the Company's Amended and Restated Articles of
Incorporation (the "Articles") to: (a) increase the authorized shares of the
Company to 360,000,000 shares consisting of 300,000,000 shares of Common Stock
and 60,000,000 shares of the Company's preferred stock, par value $.01 per share
(the "Preferred Stock"); (b) add certain transfer restrictions and related
provisions with respect to the Company's capital stock desirable for the Company
to protect its status as a real estate investment trust ("REIT") for federal
income tax purposes pursuant to the Internal Revenue Code of 1986, as amended
(the "Code"); and (c) change the name of the Company to "Station Entertainment
Properties, Inc." See "Description of Capital Stock--Terms of Stock as Modified
by the Charter Amendments."

VOTE REQUIRED

Article IX of the Articles requires the affirmative vote of not less than
sixty-six and two-thirds percent (66 2/3%) of the voting power of all
outstanding shares of the Common Stock to adopt the Charter Amendments. Shares
as to which a stockholder abstains or withholds from voting on the Charter
Amendments will have the effect of a vote against the Charter Amendments. The
executive officers and directors of the Company hold approximately 42.8% of the
outstanding Common Stock and are expected to vote in favor of the Charter
Amendments. See "Principal Stockholders."

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors believes the Charter Amendments are in the best
interests of the Company and its stockholders and unanimously recommends that
stockholders vote FOR the Charter Amendments. Approval of the adoption of the
Charter Amendments will permit the consummation of the transactions described in
the Proxy Statement. There can be no assurance, however, that such transactions
will occur, and if such transactions do not occur, the Charter Amendments will
not become effective.

1
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DISSENTERS' RIGHTS

If the Charter Amendments are approved at the Meeting and become effective,
owners of Common Stock not voting in favor of the Charter Amendments will be
entitled to assert dissenters' rights under Nevada Revised Statutes ("NRS")
Sections 92A.300 through 92A.500. A copy of these sections is attached hereto as
Exhibit A.

BACKGROUND AND PURPOSE OF THE VOTE

The Company has operated as a multi-jurisdictional gaming company prior to
the Reorganization Transactions (as defined herein). Subject to approval and the
adoption of the Charter Amendments and certain other conditions, Station REIT
will function as a self-administered REIT. Station REIT initially will hold the
land, buildings and other improvements, and certain related assets, comprising
the six casino entertainment properties owned and operated by the Company prior
to the Reorganization Transactions (collectively, the "Initial Properties"):
Palace Station Hotel & Casino, Boulder Station Hotel & Casino, Texas Station
Gambling Hall & Hotel and Sunset Station Hotel & Casino, in Las Vegas, and
Station Casino Kansas City and Station Casino St. Charles, in Kansas City and
St. Charles, Missouri respectively.

Station REIT will be required to comply with certain tax rules that
generally will prohibit Station REIT from operating its properties. Accordingly,
the Initial Properties will be leased or subleased (the "Leases") to a
corporation which was recently formed as a wholly-owned subsidiary of the
Company ("OpCo") to manage and operate and lease or sublease the Initial
Properties and other casino properties. OpCo will also hold certain assets
intrinsic to the operation of the Company's historical business. As part of the
Reorganization Transactions, stock of OpCo will be distributed to holders of
record of the Common Stock as a dividend (the "Distribution"), Station REIT will
change its name to "Station Entertainment Properties, Inc." and OpCo will assume
the name "Station Casinos, Inc."

The Board of Directors and management believe that by permitting the Company
to function as a REIT and by transferring operations of the Company and related
assets to OpCo through the Reorganization Transactions described in this Proxy
Statement, certain benefits will accrue to holders of the Common Stock. Although
there can be no assurance that the Reorganization Transactions will occur or
that they will have the intended results, the Board of Directors and management
believe that if the Reorganization Transactions occur, the value of the Common
Stock will increase because of the tax advantages that apply to REITs and
because of the value placed on REIT stock by the securities markets generally.
The Board of Directors and management also believe that as a REIT, Station REIT
would be able more readily to access capital and that its improved balance sheet
would better allow Station REIT to implement its strategy of master-planned
development and acquisitions outlined below. See "--Business Strategy." The
Board of Directors and management believe continuation of the Company's
master-planned development would allow Station REIT and OpCo to take advantage
of significant value in the real estate it currently holds. In addition, Station
REIT's common stockholders would receive quarterly dividends as required to be
paid pursuant to the provisions governing qualification of REITs. See "Certain
Federal Income Tax Considerations--Annual Distribution Requirements."

2
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THE REORGANIZATION TRANSACTIONS

The Company currently expects that, subject to approval of the Charter
Amendments and the satisfaction of certain other conditions, the Company and
OpCo would make the following transfers in connection with the Reorganization
Transactions:

<TABLE>
<CAPTION>
TRANSFERS BY THE COMPANY TO OPCO(1) CONSIDERATION TO THE COMPANY FROM OPCO
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
- All working capital and inventory at the - Intermediate Notes (2)
Initial Properties - OpCo Preferred Stock (3)
- Furniture, fixtures and equipment - OpCo Common Stock (4)
- Gaming vessels
- Substantially all other personal property,
including intellectual property
- Certain liabilities
- The capital stock of certain subsidiaries
</TABLE>

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(1) Such assets, together with liabilities assumed by OpCo, are referred to
herein as the "Transferred Assets."

(2) Promissory notes to be issued by OpCo in an aggregate principal amount of
$105 million (the "Intermediate Notes"). The Intermediate Notes will be
repaid by OpCo upon consummation of the Reorganization Transactions.

(3) 20,000,000 shares of Series A Cumulative Non-Voting Preferred Stock of OpCo
(the "OpCo Preferred Stock"). The Company will include 10,000,000 shares of
OpCo Preferred Stock in the Distribution and will sell the remaining OpCo
Preferred Stock to unaffiliated third parties upon consummation of the
Reorganization Transactions.

(4) The common stock, no par value, of OpCo (the "OpCo Common Stock"). All of
the shares of OpCo Common Stock will be included in the Distribution.

3
<PAGE>
The Reorganization Transactions consist principally of the transactions
summarized below:

FIGURE 1:

[GRAPH]

- The Company will form OpCo and its subsidiaries

- The Company will cause the transfer of the Transferred Assets to limited
liability companies that are subsidiaries of OpCo.

- In exchange for the Transferred Assets, OpCo will issue the (i)
Intermediate Notes, (ii) OpCo Common Stock and (iii) OpCo Preferred Stock
to the Company.

- The Company will receive stockholder approval of adoption of the Charter
Amendments.

- -------------------------------------------------------------

FIGURE 2:

[GRAPH]

- The Company and certain selling stockholders (the "Selling Stockholders")
will offer shares of Common Stock pursuant to a registered public
offering, subject to increase by up to 15% to permit customary
over-allotment options to be granted to the underwriters (the
"Offerings").

- The Company will distribute (i) all of the OpCo Common Stock and (ii) a
portion of the OpCo Preferred Stock to the Company's common stockholders
as of the Distribution record date as a dividend.

- The Company will sell the remaining portion of the OpCo Preferred Stock
(together with that received by certain of the Selling Stockholders in the
Distribution) to unaffiliated third parties.

- Upon closing of the OpCo bank facility, OpCo will pay the Company $105
million to repay the Intermediate Notes (See Figure 3).

4
<PAGE>
FIGURE 3:

[GRAPH]

- To obtain certain tax treatment for Station REIT, certain affiliated
stockholders of OpCo will exchange the OpCo Common Stock owned by them for
a series of non-voting common stock of OpCo ("OpCo B Stock"). See
"Principal Stockholders."

- Subsidiaries of the Company will enter into the Leases with subsidiaries
of OpCo.

- The Company and the Selling Stockholders will consummate the Offerings

- The Company will utilize the proceeds from (i) the retirement of the
Intermediate Notes, (ii) the sale of the undistributed portion of OpCo
Preferred Stock, (iii) the Offerings and (iv) the Bank Facility (as
defined herein) to retire debt and repay certain other obligations. See
"Sources and Uses."

- The Company will change its name to "Station Entertainment Properties,
Inc." and OpCo will change its name to "Station Casinos, Inc."

- The Company will change its fiscal and taxable year to a calendar year.

- The Company will elect REIT status on or prior to March 31, 1998.
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The consummation of the Reorganization Transactions (the "Closing") is not
conditioned upon the adoption of the proposed Charter Amendments. The Company
intends to consummate the Reorganization Transactions regardless of whether the
Charter Amendments are approved at the Meeting. If the Charter Amendments are
approved at the Meeting, they will not become effective unless and until the
Reorganization Transactions are consummated. In addition, no commitments are
currently in place with respect to any of the financing transactions anticipated
in connection with the Reorganization Transactions, and the Company expects that
the precise nature and composition of such financing transactions may not be
fully determined by the time of the Meeting. There can be no assurance that the
terms of the Reorganization Transactions will not change significantly after the
Meeting. In addition, the consummation of the Reorganization Transactions is
conditioned upon a number of factors, including approval of Nevada and Missouri
gaming authorities. Consequently, regardless of whether the Charter Amendments
are approved at the Meeting, there can be no assurance that the Reorganization
Transactions will occur as scheduled or at all.

5
<PAGE>
RELATIONSHIP BETWEEN STATION REIT AND OPCO

OpCo's management team initially will consist primarily of the management
team that currently operates the Initial Properties. Such individuals will not
be employed by Station REIT after the Closing, except that Mr. Frank J. Fertitta
III will be employed by both Station REIT and OpCo. Certain of the initial
directors of the companies will be the same, although it is expected that a
majority of the directors of Station REIT will be independent directors and will
not participate on the OpCo board of directors. Station REIT will give OpCo a
right of first offer to manage any hotel/casino properties that Station REIT
acquires or develops in the Las Vegas locals market (unless Station REIT elects
to retain current management at an acquired property), and OpCo will give
Station REIT a right of first offer to acquire or finance certain real estate
and related assets in connection with opportunities or transactions OpCo may
pursue. Station REIT initially will share executive office space and facilities,
as well as certain corporate services personnel, with OpCo and will bear its
allocable share of the expenses thereof pursuant to the Transition Services
Agreement (as defined herein). See "Certain Considerations--Conflicts of
Interest," "Relationship Between Station REIT and OpCo after the Distribution,"
"Management After the Reorganization," and OpCo's historical and pro forma
combined financial statements included in this Proxy Statement.

Station REIT will lease all of the Initial Properties to OpCo, which will
operate the Initial Properties. Each Lease is a long-term, triple net lease that
requires OpCo to pay substantially all expenses associated with the operation of
such Initial Property, including taxes and other governmental charges,
insurance, utilities, service, maintenance and any ground lease payments. Each
Lease will provide for (x) base rent (with certain annual escalations) and (y)
percentage rent (based on gross receipts in excess of specified threshold
amounts) and will have initial terms ranging from 13 to 15 years, which, at the
option of OpCo, generally may be extended for six additional five year periods.
The Leases for the Initial Properties have an initial aggregate base rent of
$126 million and such Leases provide for incremental base rent at an 11% lease
rate based on the incremental amount invested in the related property. The
Leases generally grant Station REIT certain approval rights with respect to any
eligible Capital Project (as defined herein) that OpCo may be considering.
Further, such Leases require OpCo to give Station REIT the opportunity to
finance, and receive such incremental base rent from, such Capital Projects OpCo
may be considering. Management intends to seek leases with respect to additional
properties it may develop or acquire generally on terms that are similar to the
Leases on the Initial Properties.

BUSINESS STRATEGY

HISTORICAL OVERVIEW

The Company has been a leading Las Vegas hotel/casino operator, catering
primarily to local residents and repeat visitors. The Initial Properties have
over 10,000 slot and video poker machines in Las Vegas, more than any other
owner/operator in the entire Las Vegas market. The Company targets the full-
service locals and repeat visitors segment of the Las Vegas gaming market. Slot
and video poker machines at the Company's Las Vegas properties account for
approximately 38% of the installed base of machines within the Las Vegas locals
market. Consequently, management believes the Initial Properties in Las Vegas
are well-positioned to continue to benefit from the business and population
growth in Las Vegas and its surrounding areas. The Company has implemented its
long-term Las Vegas business strategy by developing four fully-integrated
entertainment destinations in key population centers in each quadrant of the Las
Vegas market. Each of these Initial Properties has been master-planned for
future expansion in order to capitalize on Las Vegas' expected population
growth. In applying a similar philosophy of identifying projects with long-term
potential in the locals' market niche, the Company has diversified into two
major markets in Missouri. Management believes that its track record of
sustained growth in its target market is attributable to its philosophy of
developing long-term competitive assets. Specifically, management believes that
its ability to secure properties in high traffic areas having ease of access and
high visibility has provided the Initial Properties with a long-term competitive
advantage.

6
<PAGE>
GROWTH STRATEGY

Station REIT's growth strategy is expected to encompass three key elements:
(1) continued master-planned development of the Initial Properties; (2)
acquisitions and development of casino properties within Las Vegas; and (3)
acquisitions and development of casino properties outside of Las Vegas. In
addition, Station REIT will benefit from growth at the Initial Properties to the
extent it realizes additional Lease revenues. OpCo is expected to initiate
master-planned development at the Initial Properties and seek to participate in
acquisitions and development by Station REIT when such opportunities fit with
OpCo's growth plans and OpCo is not otherwise precluded from such participation.

Continued Master-Planned Development

Each of the Initial Properties was designed to facilitate staged,
master-planned development. The Company has successfully implemented this
strategy at several of the Initial Properties. For example, Palace Station was
opened in 1976 as a 5,000 square foot facility. Today, Palace Station
encompasses 287,000 square feet with 2,250 slot and video poker machines, 1,028
hotel rooms, five full-service restaurants, 3,700 parking spaces and
approximately 20,000 square feet of banquet and convention space. Similarly,
since their respective openings in 1994 and 1995, operating performance at
Boulder Station and Texas Station has benefited from the execution of
master-planned development, including Boulder Station's parking structure and
movie theater complex additions and Texas Station's parking structure and bingo
parlor additions.

The emphasis of the master plan at each of the Initial Properties has been
the development of diversified entertainment destinations for a targeted
customer base. To further this strategy, management has secured exclusive
arrangements with certain third-party tenants such as Act III Theaters and Kid's
Quest child care facilities. In addition, several of the Initial Properties have
sufficient acreage for management to pursue "build-to-suit" retail/entertainment
opportunities. Management believes that the establishment of these tenant
relationships will generate incremental Lease revenues, diversify the tenant
base and drive additional traffic through the Initial Properties, thereby
increasing the opportunity for additional percentage rent. The Company has
budgeted $80 million for potential investments at the Initial Properties in Las
Vegas during calendar 1998.

OpCo is expected to initiate this master-planned development at each of the
Initial Properties when it determines that economic conditions warrant expansion
and will produce revenues sufficiently in excess of those needed to pay for such
capital improvements or the increased rents at the Initial Properties if Station
REIT elects to finance such development. See "Relationship Between Station--REIT
and OpCo--The Leases."

Acquisitions and Development Within the Las Vegas Market

Management believes that Las Vegas' rapidly growing population creates
attractive acquisition and development opportunities for Station REIT and growth
and additional management opportunities for OpCo. From 1990 to 1996, the cities
of Las Vegas and its suburb Henderson were the sixth and first fastest growing
metropolitan areas in the United States. Management has significant expertise in
the Las Vegas market, where approximately 82% of the base Lease revenues
initially will be generated by OpCo. Management believes that its locals market
expertise, leading market position and strong capitalization will afford Station
REIT an advantage over many other potential acquirors.

Station REIT intends to identify Las Vegas properties with attributes that
are compatible with its master-plan development strategy. These characteristics
include: (a) a central location, (b) convenient highway access, (c) ample
parking and (d) adequate acreage for growth. Management believes that Las Vegas
also offers acquisition opportunities for Station REIT outside the locals
market.

OpCo is expected to exercise its rights to manage properties acquired or
developed by Station REIT to the extent they are within the Las Vegas locals
market and, with respect to acquired properties, Station REIT does not elect to
retain current management. OpCo also may manage properties Station REIT

7
<PAGE>
acquires or develops in Las Vegas outside the locals market to the extent, OpCo
and Station REIT reach mutually satisfactory terms. OpCo does not have a right
of first offer to manage properties held by Station REIT in Las Vegas outside
the locals market. Subject to Station REIT's right of first offer, OpCo also is
expected to develop and manage properties independently of Station REIT.

Acquisitions and Development Outside the Las Vegas Market

Gaming outside of the Las Vegas market has experienced substantial growth
over the last decade. In addition to the developed markets of Atlantic City, New
Jersey and other markets in Nevada, the gaming industry has expanded into
several new jurisdictions including Illinois, Missouri, Louisiana and
Mississippi. Management believes that many of these gaming markets are largely
dependent on attracting customers from local and regional surrounding
communities. Consequently, these markets are similar to the Las Vegas locals and
repeat visitors market and provide opportunities for Station REIT to employ its
investment philosophy. Additionally, management believes that many
owner/operators within these markets are relatively undercapitalized and will be
required to invest additional capital if their properties are to remain
competitive. As a result of Station REIT's improved balance sheet, management
believes it will be well-positioned to pursue acquisition and development
opportunities in these markets.

OpCo also may manage properties Station REIT acquires or develops outside
the Las Vegas market to the extent OpCo and Station REIT reach mutually
satisfactory terms. OpCo does not have a right of first offer to manage
properties held by Station REIT outside the Las Vegas locals market. Subject to
Station REIT's right of first offer, OpCo also is expected to develop and manage
properties independently of Station REIT.

OPERATING STRATEGY

Station REIT will enter into triple-net leases with OpCo and, potentially,
other third-party lessees for gaming, hotel and entertainment facilities.
Management anticipates the long-term lease arrangements with these lessees will
require the lessee to maintain the property and provide opportunities for
Station REIT to participate in revenue growth. Station REIT also may invest in
non-gaming entertainment facilities and enter into leases with third-party
lessees to enhance the overall diversification of its real estate portfolio.
Station REIT's existing lease arrangements with Act III and Kids Quest are
examples of the type of tenant relationship management intends to pursue.

OpCo expects to continue the management and operating strategy currently
employed by the Company. The operating strategy at the Initial Properties
emphasizes attracting and retaining customers primarily from the local and
repeat visitor markets. The Initial Casino Properties attract customers from
their local markets through innovative, frequent and high-profile promotional
programs, focused marketing efforts, convenient locations and from the repeat
visitor market through aggressive marketing and the development of strong
relationships with specifically targeted travel wholesalers.

CAPITAL STRATEGY

Upon completion of the Reorganization Transactions, Station REIT's long-term
indebtedness will be reduced by over $350 million, and Station REIT expects to
have $500 million available for borrowing under a new bank credit facility (the
"Bank Facility"). Management believes that these improvements in its capital
structure and the anticipated increase in its access to additional capital will
improve the competitive position of Station REIT in pursuing its growth
strategy. Management intends to utilize moderate leverage to grow its portfolio
of real estate assets. Currently, management anticipates a maximum debt to
market capitalization ratio of 50%. Station REIT intends that distributions to
holders of Common Stock will increase with any growth in Funds From Operations
(as defined herein). See "--Distribution and Dividend Policy."

Upon completion of the Reorganization Transactions, OpCo expects to have a
$150 million new bank credit facility of which $105 million will be drawn in to
repay the Intermediate Notes.

8
<PAGE>
DISTRIBUTION AND DIVIDEND POLICY

Station REIT is expected to make regular quarterly distributions to holders
of Common Stock initially equal to $ per share, which, on an annualized
basis, would be equal to $ per share. The first distribution, for the period
from the Closing to June 30, 1998, is expected to equal the anticipated regular
quarterly distribution. Station REIT's Board of Directors will periodically
determine the actual distribution rate in its sole discretion. The estimate of
anticipated initial quarterly distributions relates only to periods ending on or
prior to December 31, 1998, and no assurance can be given as to the amount of
distributions, if any, after that date. Station REIT's actual Funds From
Operations will be affected by a number of factors, including operations at the
Initial Properties.

The Company established the initial distribution amount based upon pro forma
Funds From Operations for its latest twelve month period, as further adjusted as
described in footnote (1) below. "Funds From Operations" as defined by the
National Association of Real Estate Investment Trusts is net income (loss)
computed in accordance with generally accepted accounting principles, excluding
gains (or losses) from debt restructuring or sales of property, plus
depreciation and amortization on real estate assets and after adjustments, if
any, for unconsolidated partnerships and joint ventures. Station REIT's "Cash
Available for Distribution," which is Funds From Operations adjusted for certain
non-cash items, less reserves for capital expenditures, is not expected to be
materially different from its Funds From Operations, principally because under
the Leases, OpCo will be responsible for substantially all maintenance capital
expenditures. See "--Summary Consolidated Financial Data of Station REIT" for
information regarding cash flows provided by operating, investing and financing
activities. The Company believes that such pro forma financial information, with
the enumerated adjustments, provides a reasonable basis for setting the initial
distribution rate. The foregoing is being set forth solely to describe the
setting of the initial distribution amount, and should not be construed as a
forecast of Station REIT's results of operations or liquidity. See "Distribution
Policy."

The following table sets forth certain unaudited, supplementally adjusted
pro forma financial information for the twelve months ended September 30, 1997.

<TABLE>
<CAPTION>
SUPPLEMENTAL ADJUSTED
PRO FORMA TWELVE MONTHS
ENDED
SEPTEMBER 30, 1997(1)
------------------------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C>
Gross revenues...................................................... $ 131,820
--------
Expenses(2)......................................................... 63,920
Depreciation........................................................ 13,320
--------
Funds From Operations(3)............................................ 67,900
--------
--------
Initial Funds From Operations per share(3)(4)....................... $ 1.06
--------
--------
</TABLE>

- ------------------------
(1) Represents the pro forma results of operations for the period presented,
determined on the basis set forth in Station Casinos, Inc. Unaudited Pro
Forma Consolidated Statements of Operations and as adjusted to reflect (a)
annualized Lease revenues, and associated expenses, as if each of the
Initial Properties had been in operation from October 1, 1996, and (b) the
redemption by Station REIT of all of its 9 5/8% Senior Subordinated Notes
due 2003 with borrowings under the Bank Facility, as if the same had
occurred on October 1, 1996. Although Station REIT is expected to redeem or
repurchase such notes (see footnote (1) of Notes to Station REIT Pro Forma
Capitalization), no assurance may be given that such event will in fact
occur on the assumed terms or at all.

(2) Consists of interest expense and preferred stock dividends, rental expense
and general and administrative expense.

(3) Industry analysts generally consider Funds From Operations to be an
appropriate measure of the performance of an equity REIT. Funds From
Operations should not be considered an alternative to net income as an
indicator of Station REIT's operating performance or to cash flow as a
measure of liquidity.

(4) Based on approximately 64.3 million shares of Common Stock outstanding upon
completion of the Offerings. Excludes shares of Common Stock issuable upon
(a) conversion of outstanding convertible securities and (b) the
underwriters' exercise, if any, of the over-allotment options. See "Station
REIT Pro Forma Capitalization" and "Description of Capital Stock."

9
<PAGE>
OpCo does not intend to pay dividends on the OpCo Common Stock in the
foreseeable future so that it may reinvest its earnings in the development of
its business. The payment of dividends on the OpCo Common Stock in the future
will be at the discretion of the OpCo board of directors. Restrictions imposed
by OpCo's debt obligations and the OpCo Preferred Stock are also expected to
limit the payment of dividends by OpCo to common stockholders.

SOURCES AND USES

The following table sets forth the combined proposed sources and uses of the
proceeds to the Company and OpCo, respectively of the Reorganization
Transactions. No commitments are currently in place with respect to any of the
financing anticipated to be required by the Company or OpCo, respectively, in
connection with the Reorganization Transactions, and the Company expects that
the precise nature and composition of such financing may not be fully determined
by the time of the Meeting. See "Station REIT Pro Forma Capitalization,"
"Station Casinos, Inc. Unaudited Pro Forma Consolidated Balance Sheet," "OpCo
Pro Forma Capitalization," "Station Casinos, Inc. Unaudited Pro Forma
Consolidated Statements of Operations" and "Station Operating Company, Inc.
Unaudited Pro Forma Combined Balance Sheet."

THE COMPANY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SOURCES
<S> <C>
Gross proceeds to the Company from
the Offerings(1).................... $ 350,000
Proceeds from repayment of
Intermediate Notes.................. 105,000
Gross Proceeds from the resale of the
OpCo Preferred Stock................ 10,000
---------------
Total Sources...................... $ 465,000
---------------
---------------

<CAPTION>
USES
<S> <C>
Sunset Loan Agreement(2)............. $ 104,892
Sunset Operating Lease(3)............ 35,700
Current Bank Facility(4)............. 216,372
Repayment of certain
obligations(5)...................... 52,014
Transaction Costs and Available
Cash(6)(7).......................... 56,022
---------------
Total Uses......................... $ 465,000
---------------
---------------
</TABLE>

- ------------------------------

(1) The Company will receive no proceeds from the sale of Common Stock by the
Selling Stockholders.

(2) Construction/Term Loan Agreement dated as of September 25, 1996, among
Sunset Station, Inc. ("SSI") and Bank of America National Trust and Savings
Association, Bank of Scotland, Societe Generale (collectively, the "Banks")
and each of the other lenders party thereto (the "Sunset Loan Agreement").
Represents the balance at September 30, 1997 (including accrued interest),
although actual amounts may vary upon consummation of the Offerings and the
Reorganization Transactions.

(3) Operating lease dated as of September 25, 1996, among the Company and First
Security Trust Company of Nevada used for the purchase of FF&E at Sunset
Station.

(4) Amended and Restated Reducing Revolving Loan Agreement dated as of March 19,
1996, as amended, among Palace Station Hotel & Casino, Inc. ("PSHC"),
Boulder Station, Inc. ("BSI"), Texas Station, Inc. ("TSI"), Kansas City
Station Corporation and St. Charles Riverfront Station, Inc., the Banks and
the other lenders party thereto (the "Current Bank Facility"). Represents
the balance at September 30, 1997, (including accrued interest), although
actual amounts may vary upon consummation of the Offerings and the
Reorganization Transactions.
(5) The Company will repay certain obligations associated with certain assets
that are not assumed by OpCo.
(6) Excludes the effect of any decision by holders of Common Stock to assert
dissenters' rights relating to the Charter Amendments.

(7) The Company also expects to incur approximately $3 million of financing
costs in connection with the $500 million Bank Facility it expects to obtain
upon consummation of the Offerings and the Reorganization Transactions. See
"Station REIT Pro Forma Capitalization."

OPCO
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SOURCES
<S> <C>
OpCo bank facility(1)...................... $ 105,000
---------
Total Sources............................ $ 105,000
---------
---------

USES
<S> <C>
Repayment of Intermediate Notes............ $ 105,000
---------
Total Uses............................... $ 105,000
---------
---------
</TABLE>

- ------------------------------

(1) It is anticipated that OpCo will obtain a bank facility of $150 million. See
"OpCo Pro Forma Capitalization" and "Station Operating Company Unaudited Pro
Forma Combined Balance Sheet."

10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF STATION REIT

The summary consolidated financial data presented below as of and for the
Company's fiscal years ended March 31, 1993, 1994, 1995, 1996 and 1997 have been
derived from consolidated financial statements which, except for 1993 and 1994,
are contained elsewhere in this Proxy Statement. The summary consolidated
financial data presented below as of and for the years ended March 31, 1993 and
1994 and the six months ended September 30, 1997 and 1996 are derived from
unaudited consolidated financial statements; however, in the opinion of the
Company, all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the Company's financial position and results of
operations for such period have been included. The summary consolidated
financial data set forth below are qualified in their entirety by, and should be
read in conjunction with the "Station Casinos, Inc. Unaudited Pro Forma
Consolidated Balance Sheet," "Station Casinos, Inc. Unaudited Pro Forma
Consolidated Statements of Operations," "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Station REIT" and the
consolidated financial statements, the notes thereto and other financial and
statistical information included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>

<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................... $ 149,895 $ 169,543 $ 290,278 $ 466,857 $ 583,515 $ 273,474 $ 367,613
Depreciation and amortization.............. 10,935 12,976 22,220 35,039 44,589 20,092 33,169
Preopening expenses........................ -- -- 19,378 2,436 31,820 -- 10,866
Operating income........................... 26,857 25,696 6,388 69,464 58,123 46,622 31,518
Interest expense, net...................... (8,949) (9,179) (19,967) (30,563) (36,698) (16,260) (35,713)
Income (loss) before income taxes.......... 17,940 20,445 (11,419) 40,051 21,378 30,428 (9,191)
Net income (loss).......................... -- 9,417 (7,942) 25,472 13,763 19,577 (5,933)
Preferred stock dividends.................. -- -- -- (53) (7,245) (3,622) (3,622)
Net income (loss) applicable to common
stock.................................... -- 9,417 (7,942) 25,419 6,518 15,955 (9,555)
Pro forma net income (unaudited)(1)........ 11,840 12,309 -- -- -- -- --
Earnings per share:
Earnings (loss) per common share........... $ -- $ -- $ (0.26) $ 0.75 $ 0.18 $ 0.45 $ (0.27)
Pro forma earnings per share
(unaudited)(1)........................... $ 0.44 $ 0.42 $ -- $ -- $ -- $ -- $ --

OTHER DATA(2):
Number of hotel rooms...................... 1,028 1,028 1,328 1,528 1,708 1,528 2,106
Average daily occupancy rate:..............
Palace Station........................... 94% 97% 95% 94% 95% 97% 96%
Boulder Station.......................... -- 92% 93% 94% 98% 98% 98%
Sunset Station........................... -- -- -- -- -- -- 92%
Texas Station............................ -- -- -- 86% 95% 96% 91%
Station Casino Kansas City............... -- -- -- -- 95% -- 91%
Casino square footage...................... 84,000 84,000 206,000 278,000 432,000 278,000 512,000
Number of slot machines.................... 3,202 3,323 7,020 9,555 13,008 9,449 15,345
Capital expenditures(3).................... $ 15,504 $ 102,687 $ 163,884 $ 307,745 $ 506,096 $ 218,797 $ 103,561
EBITDA(4).................................. 37,792 41,743 47,986 106,939 136,548 66,714 75,553
EBITDAR(5) 37,792 41,983 50,563 113,476 139,906 69,178 80,656
Cash flows provided by (used in):
Operating activities..................... $ 29,658 $ 23,685 $ 48,494 $ 77,953 $ 111,803 $ 52,177 $ 54,644
Investing activities..................... (14,867) (111,072) (157,585) (266,935) (479,008) (195,853) (182,958)
Financing activities..................... (10,309) 92,073 109,893 286,889 294,859 59,432 129,715
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
AS OF MARCH 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
AS OF
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 11,473 $ 16,159 $ 16,961 $ 114,868 $ 42,522 $ 43,923
Total assets................................. 185,110 301,486 436,538 827,314 1,234,118 1,308,675
Long-term debt............................... 133,215 159,460 299,814 464,998 760,963 899,994
Stockholders' equity......................... 37,153 95,791 87,886 278,470 298,848 289,501
</TABLE>

- ------------------------------

(1) Reflects provisions for federal income taxes (assuming a 34% effective tax
rate for both periods) as if the Company had not been treated as an S
corporation during the year ended March 31, 1993.

(2) Other Data relating to the number of hotel rooms, the casino square footage
and the number of slot machines represent end of period data.

(3) Capital expenditures for the fiscal year ended March 31, 1994 included $52.8
million related to the development of Station Casino St. Charles and $31.9
million related to the development of Boulder Station. Capital expenditures
for the fiscal year ended March 31, 1995 include $52.9 million related to
the development of Station Casino St. Charles and $90.7 million related to
the development of Boulder Station. Capital expenditures for the fiscal year
ended March 31, 1996 include $84.9 million related to the acquisition and
completion of Texas Station, $25.0 million related to the parking garage and
entertainment complex at Boulder Station, $62.8 million related to the
development and construction of Station Casino Kansas City, $29.7 million
related to the development and construction of Sunset Station and $39.4
million related to the St. Charles Expansion Project (as defined herein).
Capital expenditures for the fiscal year ended March 31, 1997 included
$211.1 million related to the development and construction of Station Casino
Kansas City, $112.8 million related to the development and construction of
Sunset Station and $99.6 million related to the development and construction
of the St. Charles Expansion Project. Capital expenditures for the six
months ended September 30, 1997 include $40.7 million related to the
development and construction of Sunset Station, and $23.9 million related to
the development and construction of the St. Charles Expansion Project.

(4) "EBITDA" consists of operating income and, in the case of Station Casino St.
Charles, lease income of $3.1 million relating to the Station Casino St.
Charles riverboat in fiscal year 1994, plus depreciation and amortization,
including preopening expenses and a restructuring charge in 1997. EBITDA
should not be construed as an alternative to operating income as an
indicator of the Company's operating performance, or as an alternative to
cash provided by operating activities as a measure of liquidity. The Company
has presented EBITDA solely as supplemental disclosure because the Company
believes that certain investors consider this information useful in the
evaluation of the financial performance of companies with substantial
depreciation and amortization.

(5) "EBITDAR" consists of EBITDA plus lease expenses. EBITDAR should not be
construed as an alternative to operating income as an indicator of the
Company's operating performance, or as an alternative to cash provided by
operating activities as a measure of liquidity. The Company has presented
EBITDAR solely as supplemental disclosure because the Company believes that
certain investors consider this information useful in the evaluation of the
financial performance of companies with substantial depreciation,
amortization and lease expenses.

12
<PAGE>
SUMMARY COMBINED FINANCIAL DATA OF OPCO

The summary combined financial data presented below as of and for OpCo's
fiscal years ended March 31, 1993, 1994, 1995, 1996 and 1997 have been derived
from combined financial statements which, except for 1993 and 1994, are
contained elsewhere in this Proxy Statement. The summary combined financial data
presented below as of and for the years ended March 31, 1993 and 1994 and the
six months ended September 30, 1997 and 1996 are derived from unaudited combined
financial statements; however, in the opinion of OpCo, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
OpCo's financial position and results of operations for such period have been
included. The summary combined financial data set forth below are qualified in
their entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
OpCo" and the combined financial statements, the notes thereto and other
financial and statistical information included elsewhere in this Proxy
Statement. The following summary combined financial data of OpCo relates to the
business of OpCo as it was operated as a part of the Company and may not reflect
the results of operations or financial position that would have been obtained
had OpCo been a separate, publicly held company during such periods. In
particular, the effect of Lease payments that would have been incurred by OpCo
are not reflected. Also, OpCo will incur interest expense on its bank credit
facility and will be required to pay dividends on the OpCo Preferred Stock,
neither of which is reflected. In addition, the combined historical financial
statements of OpCo include certain expenses that, upon completion of the
Reorganization Transactions, will not be included in future OpCo financial
statements. Such expenses include (i) an intercompany expense for depreciation
on real estate assets held by Station REIT which OpCo will lease or sublease and
(ii) interest expense on certain obligations of Station REIT which OpCo will not
assume. See "Summary Unaudited Pro Forma Financial Data of OpCo."

<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA(2):
Number of hotel rooms...................... 1,028 1,028 1,328 1,528 1,708 1,528 2,106
Average daily occupancy rate:
Palace Station........................... 94% 97% 95% 94% 95% 97% 96%
Boulder Station.......................... -- 92% 93% 94% 98% 98% 98%
Sunset Station........................... -- -- -- -- -- -- 92%
Texas Station............................ -- -- -- 86% 95% 96% 91%
Station Casino Kansas City............... -- -- -- -- 95% -- 91%
Casino square footage...................... 84,000 84,000 206,000 278,000 432,000 278,000 512,000
Number of slot machines.................... 3,202 3,323 7,020 9,555 13,008 9,449 15,345
Capital expenditures....................... $ 6,311 $ 24,485 $ 144,624 $ 85,780 $ 251,386 $ 35,252 $ 43,707
EBITDA(3).................................. 37,792 41,743 47,986 106,939 136,548 66,714 75,553
EBITDAR(4) 37,792 41,983 50,563 113,476 139,906 69,178 80,656
Cash flows provided by (used in):
Operating activities..................... $ 28,822 $ 30,910 $ 58,257 $ 88,479 $ 127,813 $ 55,288 $ 62,033
Investing activities..................... (7,158) (44,728) (132,373) (74,633) (285,108) (37,225) (48,787)
Financing activities..................... (17,173) 18,495 74,918 84,061 84,949 (102,307) (11,845)
</TABLE>

13
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
AS OF
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>

<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 11,482 $ 16,159 $ 16,961 $ 114,868 $ 42,522 $ 43,923
Total assets................................. 86,084 135,098 249,530 398,091 557,313 580,857
Long-term debt............................... 126,642 48,561 114,923 76,580 377,897 368,564
Investment by Station Casinos, Inc........... (65,809) 47,990 83,694 269,452 95,616 112,349
</TABLE>

- ------------------------------

(1) Reflects provisions for federal income taxes (assuming a 34% effective tax
rate for both periods) as if OpCo had not been treated as an S corporation
during the year ended March 31, 1993.

(2) Other Data relating to the number of hotel rooms, the casino square footage
and the number of slot machines represent end of period data.

(3) "EBITDA" consists of operating income and, in the case of Station Casino St.
Charles, lease income of $3.1 million relating to the Station Casino St.
Charles riverboat in fiscal year 1994, plus depreciation and amortization,
including preopening expenses, intercompany expense related to depreciation
on real estate assets to be held by Station REIT and a restructuring charge
in 1997. EBITDA should not be construed as an alternative to operating
income as an indicator of OpCo's operating performance, or as an alternative
to cash provided by operating activities as a measure of liquidity. OpCo has
presented EBITDA solely as supplemental disclosure because OpCo believes
that certain investors consider this information useful in the evaluation of
the financial performance of companies with substantial depreciation and
amortization.

(4) "EBITDAR" consists of EBITDA plus lease expenses. EBITDAR should not be
construed as an alternative to operating income as an indicator of OpCo's
operating performance, or as an alternative to cash provided by operating
activities as a measure of liquidity. OpCo has presented EBITDAR solely as
supplemental disclosure because OpCo believes that certain investors
consider this information useful in the evaluation of the financial
performance of companies with substantial depreciation, amortization and
lease expenses.

14
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA OF STATION REIT

The following summary unaudited pro forma financial data make adjustments to
the Company's historical statements of operations as if the Reorganization
Transactions had occurred on April 1, 1996 and make adjustments to the Company's
historical balance sheet as if the Reorganization Transactions had occurred on
September 30, 1997. See "Station Casinos, Inc. Unaudited Pro Forma Consolidated
Balance Sheet" and "Station Casinos, Inc. Unaudited Pro Forma Consolidated
Statements of Operations" for a description of the pro forma adjustments made in
the preparation of the pro forma financial data. The pro forma financial
statements of Station REIT do not purport to be indicative of the future results
of operations or financial position of Station REIT or what the results of
operations would have been if the Reorganization Transactions had occurred on
the dates indicated.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
MARCH 31, 1997 SEPTEMBER 30, 1997
---------------- ------------------
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Rental revenues:
Palace Station.......................................................... $ 24,000 $ 12,000
Boulder Station......................................................... 35,000 17,500
Texas Station........................................................... 14,000 7,000
Sunset Station.......................................................... -- (1) 7,875(1)
Station Casino St. Charles.............................................. 13,000 6,500
Station Casino Kansas City.............................................. 2,708(1) 6,500
-------- --------
Total lease revenues.................................................... 88,708 57,375
Pass-through revenue(2)................................................... 3,525 2,610
-------- --------
Gross revenue(2).......................................................... 92,233 59,985
Corporate expenses.......................................................... 3,000 1,500
Rental expense(1)........................................................... 3,525 2,610
Depreciation................................................................ 7,970 6,242
-------- --------
Operating income............................................................ 77,738 49,633
Interest expense, net....................................................... (20,263) (18,959)
-------- --------
Net income.................................................................. 57,475 30,674
Preferred stock dividends................................................... (7,245) (3,622)
-------- --------
Net income applicable to common stock....................................... $ 50,230 $ 27,052
-------- --------
-------- --------
Earnings per common share(3)................................................ $ 0.78 $ 0.42
-------- --------
-------- --------
OTHER FINANCIAL DATA:
Net income applicable to common stock....................................... $ 50,230 $ 27,052
Add: Depreciation........................................................... 7,970 6,242
-------- --------
Funds From Operations(4).................................................... $ 58,200 $ 33,294
-------- --------
-------- --------
Funds From Operations per common share(3)(4)................................ $ 0.90 $ 0.52
-------- --------
-------- --------
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
-----------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................... $ 28,272
Total assets....................................................................... 777,306
Long-term debt..................................................................... 531,430
Stockholders' equity............................................................... 219,410
</TABLE>

- --------------------------

(1) Reflects less than a full year's operations for Sunset Station, which,
commenced operations on June 10, 1997, and Station Casino Kansas City,
which, commenced operations on January 16, 1997. The aggregate annualized
lease revenues for all Initial Properties, had they been open for a full
twelve months, would have been $126 million.

(2) Represents the amount of pass-through rents with respect to head leases on
the Initial Properties.

(3) Excludes the Common Stock issuable upon conversion of the Convertible
Preferred Stock (as defined herein) and exercise of options.

(4) Funds From Operations represents cash flow from operations because there are
no pro forma working capital adjustments. Industry analysts generally
consider Funds From Operations to be an appropriate measure of the
performance of an equity REIT. Funds From Operations should not be
considered an alternative to net income as an indicator of Station REIT's
operating performance or to cash flow as a measure of liquidity.

15
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA OF OPCO

The following summary unaudited pro forma financial data make adjustments to
OpCo's historical statement of operations as if the Reorganization Transactions
had occurred on April 1, 1996 and make adjustments to OpCo's historical balance
sheet as if the Reorganization Transactions had occurred on September 30, 1997.
See "Station Operating Company Unaudited Pro Forma Combined Balance Sheet" and
"Station Operating Company Unaudited Pro Forma Combined Statements of
Operations" for a description of the pro forma adjustments made in the
preparation of the pro forma financial data. The pro forma financial statements
of OpCo do not purport to be indicative of the future results of operations or
financial position of OpCo or what the results of operations would have been if
the Reorganization Transaction had occurred on the dates indicated.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
MARCH 31, SEPTEMBER 30,
1997 1997
----------- -------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenues:
Casino.......................................................................... $ 450,013 $ 282,700
Food and beverage............................................................... 92,220 63,577
Room............................................................................ 27,420 17,218
Other........................................................................... 48,957 28,676
----------- -------------
Gross revenues.................................................................. 618,610 392,171
Promotional allowances.......................................................... (35,095) (24,558)
----------- -------------
Net revenues.................................................................... 583,515 367,613
----------- -------------
Operating costs and expenses:
Casino.......................................................................... 203,857 137,592
Food and beverage............................................................... 68,994 44,862
Room............................................................................ 10,318 6,481
Other........................................................................... 23,927 13,481
Lease expense................................................................... 88,708 57,375
Selling, general and administrative............................................. 120,285 81,896
Corporate expenses.............................................................. 18,284 7,644
Restructuring charge............................................................ 2,016 --
Development expenses............................................................ 1,302 104
Depreciation and amortization................................................... 36,619 26,927
Preopening expenses............................................................. 31,820 10,866
----------- -------------
Total costs and expenses........................................................ 606,130 387,228
----------- -------------
Operating loss.................................................................... (22,615) (19,615)
Interest expense, net........................................................... (9,592) (4,795)
Other........................................................................... (47) (4,996)
----------- -------------
Loss before income taxes.......................................................... (32,254) (29,406)
Income tax benefit................................................................ 11,900 10,584
----------- -------------
Net loss.......................................................................... (20,354) (18,822)
Preferred stock dividends......................................................... (2,400) (1,200)
----------- -------------
Net loss applicable to common stock............................................... $ (22,754) $ (20,022)
----------- -------------
----------- -------------
Loss per share.................................................................... $ (11.38) $ (10.01 )
----------- -------------
----------- -------------
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
-----------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 43,923
Total assets.......................................................................... 573,092
Long term debt........................................................................ 105,000
Preferred stock....................................................................... 20,000
Stockholders' equity.................................................................. 308,504
</TABLE>

16
<PAGE>
THE SPECIAL MEETING AND VOTING

THE SPECIAL MEETING

The Meeting will be held at Sunset Station Hotel & Casino, 1301 West Sunset
Road, Henderson, Nevada on , 1998, beginning at .m. local time.
Holders of record of shares of the Common Stock at the close of business on
, 1998, (the "Record Date"), are entitled to notice of and to vote at
the Meeting. At the Meeting, stockholders will be asked to consider and vote
upon Charter Amendments which will:

(a) increase the authorized shares of the Company to 360,000,000 shares
consisting of 300,000,000 shares of Common Stock and 60,000,000 shares of
Preferred Stock;

(b) add certain transfer restrictions preventing transfers that would
result in the transferee (other than certain stockholders) constructively
holding in excess of 5.5% of the capital stock of Station REIT and related
provisions desirable for the Company to protect its status as a real estate
investment trust for federal income tax purposes; and

See "Description of Capital Stock--Terms of Stock as Modified by Charter
Amendments." The Charter Amendments, if approved, will not become effective
unless and until the Closing. The Closing is conditioned upon a number of
factors, including approval of Nevada and Missouri gaming authorities. There can
be no assurance that the Closing will occur or will not be delayed. No
commitments are currently in place with respect to any of the financing
transactions anticipated in connection with the Reorganization Transactions, and
the Company expects that the precise nature and composition of such financing
may not be fully determined by the time of the Meeting. Consequently, there can
be no assurance that the terms of the Reorganization Transactions will not
change significantly after the Meeting from those currently contemplated as
described herein.

REVOCATION OF PROXIES

Any stockholder giving a proxy may revoke it at any time prior to its
exercise at the Meeting by giving notice of such revocation either personally or
in writing to the Secretary of the Company at the Company's executive offices,
by subsequently executing and delivering another proxy or by voting in person at
the Meeting. Attendance at the Meeting will not, by itself, constitute
revocation of a proxy.

VOTING

Shares represented by duly executed and unrevoked proxies on the enclosed
form of proxy received by the Company will be voted at the Meeting in accordance
with the specifications made therein by the stockholders returning such proxies,
unless authority to do so is withheld. If no specification is made, shares
represented by duly executed and unrevoked proxies in the enclosed form will be
voted FOR the Charter Amendments and, with respect to any other matter that may
properly come before the meeting, in the discretion of the persons voting the
respective proxies.

The cost of preparing, assembling and mailing the proxy materials will be
borne by the Company. The Company has retained D.F. King & Co., Inc. to solicit
proxies at an estimated cost of $7,500.

Only holders of record, at the close of business on the Record Date, of the
Common Stock, will be entitled to notice of and to vote at the Meeting. On the
Record Date, there were [ ] shares of Common Stock outstanding. Each
share of Common Stock is entitled to one vote on the Charter Amendments.

17
<PAGE>
VOTE REQUIRED

Article IX of the Articles requires the affirmative vote of not less than
sixty-six and two-thirds percent (66 2/3%) of the voting power of all shares of
the Common Stock to approve the adoption of the Charter Amendments. Shares as to
which a stockholder abstains or withholds from voting on the Charter Amendments
will be treated as a vote against the Charter Amendments. The executive officers
and directors of the Company hold approximately 42.8% of the outstanding Common
Stock and are expected to vote in favor of approval of the Charter Amendments.
See "Principal Stockholders."

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors believes the Charter Amendments are in the best
interests of the Company and its stockholders and unanimously recommends that
stockholders vote FOR the Charter Amendments. Although there can be no
assurances that the Reorganization Transactions will occur or that they will
have the intended results, the Board of Directors believes that if the
Reorganization Transactions occur, the value of the Common Stock would increase
because of the tax advantages that apply to REITs and because of the value
placed on REIT stock by the securities markets generally. The Board of Directors
also believes that as a REIT, Station REIT would be able more readily to access
capital and that its improved balance sheet would better allow Station REIT to
implement the Company's strategy of master-planned development and acquisitions
outlined below. See "--Business Strategy." The Board of Directors believes
continuation of the Company's master-planned development would allow Station
REIT and OpCo to take advantage of significant value in the real estate it
currently holds. In addition, Station REIT's common stockholders would receive
quarterly dividends as required to be paid pursuant to the provisions governing
qualification of REITs. See "Certain Federal Income Tax Considerations--Annual
distribution Requirements."

DISSENTERS' RIGHTS OF APPRAISAL

NRS 92A.300 through 92A.500, the "Rights of Dissenting Owners" statutes,
provide that a stockholder of a company is entitled to dissent from certain
corporate actions, and to obtain the statutorily prescribed fair value of the
stockholder's shares of Common Stock. "Fair value" equals the value of a
stockholder's shares of Common Stock immediately before the effectuation of the
corporate action to which the stockholder objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would be
inequitable. Although a stockholder is entitled to dissent from and obtain
payment of the fair value of the stockholder's shares of Common Stock, the
stockholder may not challenge the corporate action creating such entitlement
unless the action is unlawful or fraudulent with respect to the stockholder or
the Company. If a stockholder wishes to assert dissenter's rights, that
stockholder must: (i) deliver to the Company, before a vote on the corporate
action is taken, written notice of the stockholder's intent to demand payment
for the stockholder's shares of Common Stock should the corporate action take
effect, and (ii) not vote the stockholder's shares of Common Stock in favor of
the proposed corporate action. A failure to vote against the adoption of the
Charter Amendments will not be considered a waiver of the stockholder's
dissenters' rights. A stockholder who does not satisfy the foregoing
requirements is not entitled to payment for that stockholder's shares of Common
Stock under Nevada's Rights of Dissenting Owners statutes.

All stockholders that meet the requirements of NRS 92A.300 through 92A.500
are entitled to dissent from the vote in favor of the Charter Amendments.
Therefore, the Company advises each stockholder, before such stockholder decides
whether to vote in favor of the Charter Amendments, to read the complete text of
the Rights of Dissenting Owners statute, a copy of which is attached hereto as
Exhibit A. After the Meeting, the Company will provide all stockholders who
satisfy the statute's requirements with a Dissenter's Notice which will set
forth where and when a demand for payment must be made.

18
<PAGE>
CERTAIN CONSIDERATIONS

EXCEPT FOR HISTORICAL INFORMATION CONTAINED IN THIS PROXY STATEMENT, THE
MATTERS DISCUSSED HEREIN CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"), SUCH AS BUSINESS STRATEGY, EXPECTED LEASE INCOME, EXPECTED
INCOME OF OPERATIONS, ABILITY TO QUALIFY AS A REIT, PLANS FOR FUTURE EXPANSIONS,
CAPITAL SPENDING AND FINANCIAL RESOURCES INCLUDING WORDS SUCH AS "ANTICIPATE,"
"BELIEVE," "PLAN," "ESTIMATE," "EXPECT," "INTEND" AND OTHER SIMILAR EXPRESSIONS.
SUCH FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN, AND INVESTORS MUST
RECOGNIZE THAT ACTUAL RESULTS MAY DIFFER FROM MANAGEMENT'S EXPECTATIONS. COMPANY
STOCKHOLDERS WILL CONTINUE TO BE SUBJECT TO THE SAME CONSIDERATIONS AND RISKS
INHERENT IN THE BUSINESS OF THE COMPANY AS CURRENTLY CONDUCTED. IN ADDITION,
STOCKHOLDERS SHOULD CONSIDER THE FOLLOWING KEY FACTORS AFFECTING FUTURE
OPERATIONS OF STATION REIT AND OPCO IN ADDITION TO THE OTHER INFORMATION SET
FORTH IN THIS PROXY WHICH STOCKHOLDERS SHOULD READ CAREFULLY AND IN THEIR
ENTIRETY.

NEW BUSINESS STRATEGY; NEWLY ORGANIZED ENTITY; NO OPERATING HISTORY

If the Reorganization Transactions occur and the Charter Amendments become
effective, the Company will cease to conduct gaming operations and instead will
limit its activities generally to holding and developing real estate and
associated assets. Management of the Company has no experience operating as a
REIT or acquiring additional properties. Station REIT will need to rely on OpCo
to generate sufficient cash flow from the operation of the Initial Properties to
enable OpCo to meet the rent obligations under the Leases. OpCo has been
recently organized and has no operating history.

Station REIT will hold the real estate and associated assets with respect to
the Initial Properties and OpCo will manage and operate the Initial Properties.
Although there will be certain rights of first offer between Station REIT and
OpCo, there can be no assurance that all hotel/casino properties held by Station
REIT will be operated by OpCo in the future or that the real estate and
associated assets of all hotel/casino properties managed and operated by OpCo
will be held by Station REIT. See "Relationship Between Station REIT and
OpCo--Cooperation Agreement."

DEPENDENCE OF STATION REIT ON OPCO

OpCo will be the lessee of all the Initial Properties. Station REIT's
initial revenues, and its ability to make distributions to its stockholders,
initially will depend on rental payments by OpCo under the Leases (which will
depend entirely on OpCo's ability to generate sufficient cash flow from the
Initial Properties). OpCo is expected to have sufficient assets, income and
access to financing to enable it to satisfy its obligations under the Leases at
the time of the Closing; however, there can be no assurance that OpCo will have
such assets, income and access to financing in the future. See "Station
Operating Company Combined Statements of Operations," "Station Operating Company
Combined Statements of Cash Flows," "Station Operating Company Unaudited Pro
Forma Combined Balance Sheet" and "Station Operating Company Unaudited Pro Forma
Combined Statements of Operations."

Due to Station REIT's initial dependence on OpCo's rental payments as the
principal source of Station REIT's revenues, Station REIT may be limited in its
ability to fully enforce its rights under the Leases or to terminate the Leases.
Failure by OpCo to materially comply with the terms of a Lease or to maintain
required Gaming Licenses (as defined herein) could require Station REIT to find
another lessee to lease such Initial Property since, as a REIT, Station REIT is
generally precluded from operating its properties. In the event of a default by
OpCo, there could be a decrease or cessation of rental payments or, in the case
of ground-leased Initial Properties, Station REIT would be required to make the
ground lease payments or lose the applicable Initial Property. Moreover, there
can be no assurance that OpCo will elect to renew a Lease upon expiration of its
initial term, which would also force Station REIT to find a suitable replacement
lessee. In either circumstance, Station REIT may be unable to locate a suitable
lessee at similar rental rates, which would have the effect of reducing Station
REIT's rental revenues. See

19
<PAGE>
"Relationship Between Station REIT and OpCo--The Leases," "--Hotel/Casino
Industry Risks--Regulation" and "--Conflicts of Interest."

LACK OF CONTROL BY STATION REIT OVER HOTEL/CASINO PROPERTIES

Station REIT also will be dependent on the ability of OpCo, as net lessee
under the Leases, to manage the Initial Properties, and will grant OpCo certain
rights of first offer to lease casino properties in the Las Vegas locals market
area subsequently acquired or developed by Station REIT. To maintain its status
as a REIT, Station REIT will not be able to operate the Initial Properties or
any such subsequently acquired or developed properties. As a result, Station
REIT will be unable to implement strategic business decisions directly with
respect to the marketing of its properties, such as decisions with respect to
marketing casino operations, the setting of room rates, changes in gaming or
food and beverage operations and certain similar decisions. Station REIT may be
unable to take action if it believes OpCo is operating one of the Initial
Properties inefficiently or in a manner adverse to Station REIT's interests,
unless a specific material default exists under the Lease. In the case of such a
default Station REIT's redress will be limited to terminating the applicable
Lease and seeking to recover damages from OpCo. See "Relationship Between
Station REIT and OpCo--The Leases." In addition, lenders to OpCo may limit
Station REIT's termination rights. If a Lease is terminated, Station REIT will
be required to find another suitable lessee or risk losing its qualification to
be a REIT. In addition, Station REIT will be unable directly to control
decisions to expand the Initial Properties. See "--Dependence of Station REIT on
OpCo."

CONFLICTS OF INTEREST

GENERAL

Because of the pre-existing and continuing ownership interests and
interrelationships of the parties involved, there are inherent conflicts of
interest with respect to the Reorganization Transactions. See "Summary--The
Reorganization Transactions" and "Policies and Objectives with Respect to
Certain Activities--Conflicts of Interest Policies." Consequently, the terms of
the Reorganization Transactions, including the Leases, will not reflect
arm's-length negotiations between independent parties. Management believes the
Leases reflect terms that would have been obtained in arm's-length negotiations.
Mr. Frank J. Fertitta III, Chairman of the Board, President and Chief Executive
Officer of Station REIT will hold the same position at OpCo and four directors
of OpCo and Station REIT will be the same. As a result, most decisions relating
to the contractual and other business relationships between Station REIT and
OpCo will be subject to conflicts in interests and loyalties.

CONFLICTING DEMANDS FOR MANAGEMENT TIME

Mr. Frank J. Fertitta III, Chairman of the Board, President and Chief
Executive Officer of Station REIT will hold the same positions at OpCo.
Therefore, Mr. Fertitta will be subject to competing demands on his time.

CONFLICTING CORPORATE OBJECTIVES AND INHERENT CONFLICTS OF INTEREST

OpCo and Station REIT will be permitted to pursue business opportunities
independently from one another subject to certain rights of first offer. See
"Relationship Between Station REIT and OpCo--The Cooperation Agreement." In
addition, certain business relations between the two companies will be subject
to inherent conflicts of interest.

20
<PAGE>
RISKS OF LEVERAGE

STATION REIT

As of September 30, 1997, after giving effect to the Reorganization
Transactions and application of the net proceeds therefrom, Station REIT would
have had approximately $553.2 million of indebtedness and other liabilities
(including construction payables) outstanding on a consolidated basis. Station
REIT initially will be entirely dependent upon Lease payments from OpCo to meet
its interest expense and principal repayment obligations under its existing
indebtedness and dividend payment obligations under the Convertible Preferred
Stock, and all such obligations need to be made before distributions for any
period are made to holders of Common Stock.

Station REIT expects to obtain a commitment for the Bank Facility under
which Station REIT would have $500 million total availability. The Bank Facility
is expected to be secured by substantially all of the assets of Station REIT
(including without limitation the Initial Properties and the Leases) and its
significant subsidiaries. A portion of the availability may be used to fund the
master-planned development of its hotel/casino properties, acquisition and
development of additional hotel/casino properties, Station REIT's intended
repurchase or redemption of the 9 5/8% Senior Subordinated Notes due 2003 and
general corporate purposes. See "Station REIT Pro Forma Capitalization."

Subject to limitations in the Bank Facility and the Existing Indentures (as
defined herein), Station REIT may borrow additional amounts from the same or
other lenders in the future, or may issue corporate debt securities in public or
private offerings. Certain of such additional borrowings may be secured by
properties and leasehold interests held by Station REIT. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Company--Liquidity and Capital Resources," "Policies and Objectives with Respect
to Certain Activities--Financing" and "Description of Certain New Indebtedness."

There can be no assurances that Station REIT will be able to meet its debt
service obligations and, to the extent that it cannot, Station REIT risks the
loss of some or all of its assets, including the Initial Properties, to
foreclosure. Adverse economic conditions could cause the terms on which
borrowings become available to be unfavorable. In such circumstances, if Station
REIT is in need of capital to repay indebtedness in accordance with its terms or
otherwise it could be required to liquidate one or more investments in
hotel/casino properties at times which may not permit realization of the maximum
return on such investments.

OPCO

After giving effect to the Reorganization Transactions and consummation of
the OpCo bank facility financing, OpCo would have had approximately $180.8
million of indebtedness and other outstanding liabilities (including trade
payables but excluding guarantees of obligations of its subsidiaries under the
Leases). OpCo will be entirely dependent upon payments from its subsidiaries to
meet its interest expense and principal repayment obligations under the terms of
its bank facility and its dividend payment obligations under the OpCo Preferred
Stock.

OpCo expects to obtain a commitment for a bank facility for an aggregate
principal amount of $150 million of which $45 million will be available for
borrowings after repayment of the Intermediate Notes. The OpCo bank facility is
expected to be secured by substantially all of the assets of OpCo (including
without limitation OpCo's leasehold interests under the Leases) and its
significant subsidiaries.

Subject to limitations in the bank facility, OpCo may borrow additional
amounts from the same or other lenders in the future, or may issue corporate
debt securities in public or private offerings. Certain of such additional
borrowings may be secured by properties and leasehold interests held by OpCo.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of OpCo-- Liquidity and Capital Resources," and "Description of
Certain New Indebtedness."

21
<PAGE>
There can be no assurances that OpCo will be able to meet its debt service
obligations and, to the extent that it cannot, OpCo risks the loss of some or
all of its assets to foreclosure. Adverse economic conditions could cause the
terms on which borrowings become available to be unfavorable. In such
circumstances, if OpCo is in need of capital to repay indebtedness in accordance
with its terms or otherwise it could be required to liquidate assets at times
which may not permit realization of the maximum return on such investments.

ABILITY TO MAINTAIN DISTRIBUTIONS

Station REIT's estimated initial annual distribution to stockholders is
approximately $ per share. See "Distribution Policy." There can be no
assurance Station REIT will be able to distribute dividends at this level, or at
all, in the future. Decreases in Funds From Operations due to unfinanced
expenditures for acquisitions or development of hotel/casino properties or
increases in the number of shares of Common Stock outstanding without
commensurate increases in Funds From Operations each would adversely affect the
ability of Station REIT to maintain distributions to common stockholders. In
addition, Station REIT's indebtedness will restrict dividends. See "Description
of Certain New Indebtedness." To qualify as a REIT for federal tax purposes,
Station REIT will be required to pay out at least 95% of its net income as
distributions each year to its stockholders. See "Adverse Effects of REIT
Minimum Distribution Requirements." Consequently Station REIT's ability to pay
distributions to qualify as a REIT for federal tax purposes is expected to
depend in part on its ability to generate Funds From Operations and consummate
equity offerings.

HOTEL/CASINO INDUSTRY RISKS

COMPETITION

Through its dependence upon lease payments as its sole source of revenue,
Station REIT will be subject to competitive pressures in the hotel/casino
industry. The ability of OpCo and other lessees to generate profits and pay rent
under the Leases may be adversely impacted by such competition.

Intense competition exists among companies in the gaming industry, many of
which have significantly greater resources than OpCo and may have greater
resources than other lessees. Palace Station, Boulder Station, Texas Station and
Sunset Station face competition from all other casinos and hotels in the Las
Vegas area, including, to some degree, from each other. Such competition
includes at least eight hotel/ casino properties targeted primarily towards
local residents and repeat visitors, as well as numerous non-hotel gaming
facilities targeted towards local residents. Several direct competitors of the
Initial Properties have major expansion projects planned. Major expansions or
enhancements of existing properties or the construction of new properties by
competitors could have a material adverse effect on the business of Palace
Station, Boulder Station, Texas Station and Sunset Station and, thereby
adversely affect OpCo's ability to pay rent under the Leases. Other gaming
operators own undeveloped properties on which gaming facilities could be
developed in the immediate vicinity of Texas Station and Sunset Station, and at
least two operators are exploring development opportunities in the immediate
vicinity of Sunset Station.

Station Casino Kansas City, which opened January 16, 1997, competes
primarily with other gaming operations in and around Kansas City, Missouri.
Currently, there are four gaming facilities being operated in the Kansas City
market in addition to Station Casino Kansas City. Gaming has been approved by
local voters in jurisdictions near Kansas City, including St. Josephs (which
currently has one gaming riverboat in operation), and other cities and counties
along the Missouri River. Any new gaming operations developed near Kansas City
would likely provide significant competition to Station Casino Kansas City.

Station Casino St. Charles competes primarily with other gaming operations
in and around St. Louis, Missouri. Currently, in addition to Station Casino St.
Charles, there are five other gaming operators in the St. Louis market,
including a shared facility in Maryland Heights which opened in March 1997 and
which caused a significant decline in revenues at Station Casino St. Charles.
While there has been a decline in revenues at Station Casino St. Charles since
the opening of the Maryland Heights facility, OpCo is

22
<PAGE>
expected to continue steps begun by the Company to mitigate the effects of such
competition. Additionally, two of the five competitors operating in the St.
Louis market are located in Illinois, which does not impose a $500 loss limit.
Gaming also has been approved by local voters in jurisdictions near St. Louis,
including St. Charles, and other cities and counties along the Mississippi and
Missouri Rivers. Any new gaming operations developed near St. Louis would likely
provide significant competition to Station Casino St. Charles. Gaming laws in
surrounding states and in other areas may be amended in ways that would increase
the competition to Station Casino St. Charles and Station Casino Kansas City.
This increasing competition could have a material adverse effect on OpCo's
business and, thereby adversely effect OpCo's ability to pay rent under the
Leases.

UNCERTAIN EFFECT OF RECENT COURT DECISION

On January 16, 1997, the Company's gaming license in Kansas City was
formally issued for its facility which is located in a man made basin filled
with water piped in from the surface of the Missouri River. In reliance on
numerous approvals from the Missouri Commission (the "Missouri Commission")
specific to the configuration and granted prior to the formal issuance of its
gaming license, the Company built and opened the Station Casino Kansas City
facility. The license issued to the Company and the resolutions related thereto
specifically acknowledge that the Missouri Commission had reviewed and approved
this configuration. On November 24, 1997, the Supreme Court of Missouri, in a
case challenging the gaming licenses of certain operators who compete with
Station Casino St. Charles, located in Maryland Heights, Missouri, ruled that
gaming may occur only in artificial spaces that are contiguous to the surface
stream of the Missouri and Mississippi rivers. The case was remanded to trial
court for a factual determination as to whether such competing operators meet
this requirement. As a result of this decision, the Missouri Commission may also
review this issue as it relates to the relicensing of Station Casino Kansas
City. Such relicensing hearing is scheduled to occur in January 1998. Because of
the open questions raised but not answered in the Missouri Supreme Court's
decision, and because the Company is not subject to any claim with regard to
this matter at this time, the Company cannot predict what effect the Missouri
Supreme Court ruling or Missouri Commission's actions at such relicensing
hearing will have on operations at Station Casino Kansas City, and cannot
provide any assurance that there will not be a material adverse impact. The
Company does not believe the court ruling will have an adverse impact on the
Station Casino St. Charles operations.

OPERATING COSTS AND CAPITAL EXPENDITURES; HOTEL/CASINO RENOVATION

Hotel/casino properties in general, including the Initial Properties, have
an ongoing need for renovations and other capital improvements, particularly in
older structures, including periodic replacement or refurbishment of FF&E. Under
the terms of the Leases, OpCo is obligated to pay for all capital expenditures
and other expenses for the maintenance, repair, restoration or refurbishment of
the Initial Properties other than certain material Capital Projects. See
"Relationship Between Station REIT and OpCo--The Leases." There can be no
assurance OpCo or any other lessee of Station REIT's hotel/casino properties
will be able to meet its obligations to maintain such properties in which case
Station REIT may be required to make such expenditures. OpCo may not undertake
any Capital Project that materially adds to, further materially improves or
effects a complete or substantially complete refurbishment of any Initial
Property without the approval of Station REIT. If Station REIT approves any such
Capital Projects, it may elect to finance such material Capital Projects subject
to the Lease with OpCo. If Station REIT elects not to finance such material
Capital Projects it will not receive additional Lease revenues from such Capital
Projects. Such material Capital Projects may be necessary to ensure the
continued competitiveness of the hotel/casino properties and failure to complete
such projects may have a material adverse impact on the ability of OpCo to make
Lease payments, and, therefore, Station REIT's ability to make expected
distributions to its stockholders. In addition, Station REIT may acquire
hotel/casino properties in the future that require significant renovation.
Renovation of hotel/casino properties involves certain risks, including the
possibility of environmental problems, construction cost overruns and delays,
uncertainties as

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to market demand or deterioration in market demand after commencement of
renovation and the emergence of unanticipated competition from hotels.

REGULATION

The ownership and operation of casino gaming facilities is subject to
extensive state and local regulation. The states of Nevada and Missouri and the
applicable local authorities require various licenses, findings of suitability,
registrations, permits and approvals (individually, a "Gaming License" and
collectively, "Gaming Licenses") to be held by Station REIT, OpCo (once it is a
Registered Corporation (as defined herein)) and their respective subsidiaries.
The Nevada Gaming Commission (the "Nevada Commission") and the Missouri
Commission may, among other things, limit, condition, suspend or revoke a Gaming
License to own the stock of any of Station REIT's or OpCo's Nevada or Missouri
subsidiaries, respectively, for any cause deemed reasonable by such licensing
authority. The Missouri Commission may also have the right to review the
validity of the Company's Gaming License for Station Casino Kansas City at a
relicensing hearing scheduled to occur in January 1998. Substantial fines or
forfeiture of assets for violations of gaming laws or regulations may be levied
against Station REIT, Opco, their respective subsidiaries and the persons
involved. The suspension or revocation of any of Station REIT's or OpCo's Gaming
Licenses or the levy on Station REIT or OpCo of substantial fines or forfeiture
of assets would have a material adverse effect on the ownership and leasing of
Station REIT's hotel/casino properties or the operation of hotel/casino
properties by OpCo.

Station REIT and OpCo expect to be able to obtain all Gaming Licenses
necessary for the ownership, leasing and operation of the Initial Properties and
approvals of the Reorganization Transactions. However, Gaming Licenses and
related approvals are deemed to be privileges under Nevada and Missouri law, and
no assurances can be given that any new Gaming Licenses that may be required in
the future will be given or that existing ones will not be revoked or that
approval of the Reorganization Transactions, if required, will be obtained. Any
expansion of Station REIT's hotel/casino property holdings or OpCo's gaming
operations in Nevada, Missouri or into new jurisdictions will require various
Gaming Licenses and approvals of the relevant gaming authorities, which approval
process can be time-consuming and costly and has no assurance of success.

Gaming authorities have the authority generally to require that any record
or beneficial owner of the Station REIT's or OpCo's securities, including Common
Stock, file an application and be investigated for a finding of suitability. If
a record or beneficial owner of Common Stock is required by any Gaming Authority
to be found suitable, such owner will be required to apply for a finding of
suitability within 30 days after request of such Gaming Authority or within such
earlier period prescribed by such Gaming Authority. The applicant for a finding
of suitability must pay all costs of the investigation for such finding of
suitability. If a record or beneficial owner is required to be found suitable
and is not found suitable by such Gaming Authority, such owner may be required
pursuant to the terms of the Articles or law to dispose of the Common Stock. See
"Regulation and Licensing" and "Description of Capital Stock."

OpCo, as the operator of Initial Properties, will be subject to gaming
regulations on its gaming activities similar to those applicable to the Company
prior to the Distribution. Any failure by OpCo to obtain and maintain Gaming
Licenses necessary for the operation of gaming activities at the Initial
Properties could materially adversely impact such operations and OpCo's ability
to generate profits and to make Lease payments and, therefore, Station REIT's
ability to make distributions. No assurances can be given that OpCo will obtain
and maintain such Gaming Licenses.

UNCERTAIN EFFECT OF NATIONAL GAMBLING COMMISSION

The U.S. Congress has created the National Gambling Impact and Policy
Commission to conduct a comprehensive study of all matters relating to the
economic and social impact of gaming in the United States. The enabling
legislation provides that, not later than two years after the enactment of such
legislation, the commission would be required to issue a report containing its
findings and conclusions, together with recommendations for legislation and
administrative actions. Any such recommendations, if

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enacted into law, could adversely impact the gaming industry and have a material
adverse effect on Station REIT's or OpCo's business, financial condition or
results of operations.

From time to time, certain legislators have proposed the imposition of a
federal tax on gross gaming revenues. Any such tax could have a material adverse
effect on Station REIT's or OpCo's business, financial condition or results of
operations.

COMPETITION FOR INVESTMENT OPPORTUNITIES

Station REIT may compete for investment opportunities with entities that
have substantially greater financial resources than Station REIT. These entities
may generally be able to accept more risk than Station REIT can prudently
manage, including risks with respect to the creditworthiness of a hotel/casino
operator or the geographic proximity of its investments. Competition may
generally reduce the number of suitable investment opportunities available to
Station REIT and increase the bargaining power of property owners seeking to
sell.

UNINSURED AND UNDERINSURED LOSSES

Each Lease specifies comprehensive insurance be maintained by OpCo
substantially at the levels currently maintained with respect to each of the
Initial Properties including liability, fire and extended coverage. Leases for
subsequently acquired hotels will contain similar provisions. There are certain
types of losses, generally of a catastrophic nature, such as earthquake and
floods, however, that may be uninsurable or not economically insurable.
Insurance coverage may not be sufficient to pay the full current market value or
current replacement cost of a loss. Inflation, changes in building codes and
ordinances, environmental considerations, and other factors also might make it
infeasible to use insurance proceeds to replace the property after such property
has been damaged or destroyed. Under such circumstances, the insurance proceeds
received might not be adequate to restore the economic position with respect to
such property.

ACQUISITION AND DEVELOPMENT RISKS

Station REIT is expected to pursue acquisitions of additional hotel/casino
properties and, under appropriate circumstances, may pursue new hotel/casino
property or other entertainment-oriented development opportunities. Acquisitions
entail risks that investments will fail to perform in accordance with
expectations and that estimates of the cost of improvements necessary to market
acquired properties will prove inaccurate, as well as general investment risks
associated with any new real estate investment. New project development is
subject to numerous risks, including risks of construction delays or cost
overruns that may increase project costs, new project commencement risks such as
receipt of zoning, occupancy and other required governmental approvals and
permits and the incurrence of development costs in connection with projects that
are not pursued to completion. The fact that Station REIT must distribute 95% of
its net taxable income in order to maintain its qualification as a REIT may
limit Station REIT's ability to rely upon lease income from the Initial
Properties or subsequently acquired properties to finance acquisitions or new
developments. As a result, if debt or equity financing were not available on
acceptable terms, further acquisitions or development activities might be
curtailed or Cash Available for Distribution might be adversely affected.

FAILURE TO QUALIFY AS A REIT

Station REIT is expected to operate and to cause its subsidiaries to operate
so as to qualify as a REIT for federal income tax purposes. The Company has not
operated as a REIT historically. The continued qualification of Station REIT as
a REIT will depend on its continuing ability to meet various requirements
concerning, among other things, the ownership of its outstanding stock, the
nature of its assets, the sources of its income, and the amount of its
distributions to its stockholders. If Station REIT were to fail to qualify

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as a REIT in any taxable year, it would not be allowed a deduction for
distributions to stockholders in computing its taxable income and would be
subject to federal income tax (including any applicable minimum tax) on its
taxable income at regular corporate rates. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretation. The complexity of these
provisions is greater in the case of Station REIT because of the Reorganization
Transactions that Station REIT has undertaken in order to qualify as a REIT,
including the distribution of OpCo Common Stock and OpCo Preferred Stock and the
elimination of any earnings and profits accumulated before the qualification of
Station REIT as a REIT. Complexity is also greater in the case of a REIT that
owns casinos and leases them to an operating company whose ownership may
substantially overlap with the ownership of the REIT. Qualification as a REIT
also involves the determination of various factual matters and circumstances not
entirely in Station REIT's control. Unless entitled to relief under certain Code
provisions, Station REIT also would be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification was lost.
As a result, Station REIT's Cash Available for Distribution would be reduced for
each of the years involved. Although Station REIT currently is expected to
operate in a manner designed to qualify as a REIT, it is possible that future
economic, market, legal, tax or other considerations may cause the Board of
Directors to revoke the REIT election. See "Certain Federal Income Tax
Considerations."

TAX RISKS FROM RELATED PARTY RENTALS

If Station REIT and OpCo are treated by the Service as being under common
control, the Service will be authorized to reallocate income and deductions
between them to reflect arms' length terms. Were the Service successfully to
establish that rents were excessive, (i) OpCo would be denied a deduction for
the excessive portion, (ii) OpCo would be subject to a penalty on the portion
deemed excessive and (iii) OpCo shareholders would be deemed to have received a
distribution that was then contributed to the capital of Station REIT. To the
extent that rents were insufficient, Station REIT (i) would be subject to a
penalty on the portion deemed insufficient and (ii) would be deemed to have made
a distribution to its shareholders equal to the insufficiency. Management
believes the Leases reflect terms that would have been obtained in arm's-length
negotiations.

ADVERSE EFFECTS OF REIT MINIMUM DISTRIBUTION REQUIREMENTS

In order to qualify as a REIT, Station REIT generally will be required each
year to distribute to its stockholders at least 95% of its net taxable income
(excluding any net capital gain). In addition, Station REIT will be subject to a
4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it during (or required to be paid during) any calendar
year are less than the sum of (i) 85% of its ordinary income for that year, (ii)
95% of its capital gain net income for that year (other than capital gain income
which Station REIT elects to retain and pay tax on) and (iii) 100% of its
undistributed income from prior years. Pursuant to recently enacted legislation,
Station REIT may elect to retain rather than distribute its net long-term
capital gains. The effect of such an election is that (i) Station REIT is
required to pay the tax on such gains, (ii) U.S. Stockholders (as defined
herein), while required to include their proportionate share of the
undistributed long-term capital gains in income, will receive a credit or refund
for their share of the tax paid by Station REIT, and (iii) the basis of a U.S.
Stockholder's stock would be increased by the amount of the undistributed
long-term capital gains (minus the amount of capital gains tax paid by Station
REIT) included in the U.S. Stockholder's long-term capital gains.

Station REIT will be required to make distributions to its stockholders to
comply with the 95% distribution requirement and to avoid the nondeductible
excise tax. Station REIT's Funds From Operations will be generated primarily by
its share of the income from the Leases. Differences in timing between taxable
income and Funds From Operations could require Station REIT to borrow funds on a
short-term basis to meet the 95% distribution requirement and to avoid the
nondeductible excise tax. Restrictions in

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Station REIT's indebtedness and Convertible Preferred Stock could preclude it
from meeting the 95% distribution requirement.

Distributions by Station REIT will be determined by Station REIT's Board of
Directors (the "Board of Directors") and will be dependent on a number of
factors, including the amount of Station REIT's Funds From Operations, Station
REIT's financial condition, any decision by the Board of Directors to reinvest
funds rather than to distribute such funds, Station REIT's capital expenditures,
the annual distribution requirements under the REIT provisions of the Code and
such other factors as the Board of Directors deems relevant. For federal income
tax purposes, distributions paid to stockholders may consist of ordinary income,
capital gains, nontaxable return of capital, or a combination thereof. Station
REIT will provide its stockholders with an annual statement as to its
designation of the taxability of distributions. See "Certain Federal Income Tax
Considerations--Annual Distribution Requirements."

LIMITATIONS ON ACQUISITIONS AND CHANGES IN CONTROL

OWNERSHIP LIMIT; RENTS FROM REAL PROPERTY

In order for Station REIT to maintain its qualification as a REIT, no more
than 50% of the value of its outstanding stock may be owned, directly or
constructively, by five or fewer individuals or entities (as set forth in the
Code and as referred to herein as "Individual"). Upon consummation of the
Offering, the Articles will, subject to adoption of the Charter Amendments,
prohibit, subject to certain exceptions, direct, indirect and constructive
ownership of more than 5.5% of the outstanding shares of capital stock of
Station REIT by any Individual (except for certain existing stockholders who
will be prohibited from owning, directly or indirectly, actually or
constructively, more than 28.0% in the aggregate of the outstanding capital
stock of the Company) (the "Ownership Limit"). See "Certain Federal Income Tax
Provisions--Organizational Requirements." The constructive ownership rules are
complex and may cause shares of capital stock owned directly or constructively
by a group of related individuals or entities to be constructively owned by one
individual or entity. As a result, the acquisition of less than 5.5% of the
outstanding shares of Station REIT's capital stock (or the acquisition of an
interest in an entity which owns shares of Station REIT's capital stock) by an
individual or entity could cause that individual or entity (or another
individual or entity) to own constructively in excess of 5.5% of the outstanding
shares of Station REIT's capital stock and thus subject such shares of Station
REIT's capital stock to the Ownership Limit. As a result, the acquisition
(directly or indirectly) of less than 5.5% of the outstanding capital stock of
Station REIT by an individual or entity could cause constructive ownership of
more than 5.5% of the outstanding capital stock of Station REIT. A transfer of
shares to a person who, as a result of the transfer violates the Ownership
Limit, may be void under some circumstances or may be transferred to a trust,
for the benefit of one or more qualified charitable organizations designated by
Station REIT, with the intended transferee having only a right to share (to the
extent of the transferee's original purchase price for such shares) in proceeds
from the trust's sale of such shares. See "Certain Federal Income Tax
Considerations--Organizational Requirements" for additional information
regarding the Ownership Limit.

In order for Station REIT to maintain its qualification as a REIT,
substantially all rent under the Leases must qualify as "rents from real
property." Such qualification depends on the rents satisfying a number of
complex requirements, including the requirement that the rents not be measured
by the income or profits of OpCo (other than rents based on a fixed percentage
of receipts or sales) and the requirement that Station REIT not own (directly,
indirectly or constructively) 10% or more of the total number of OpCo shares
outstanding or 10% or more of the voting power of OpCo capital stock. If Station
REIT does not maintain its qualification as a REIT its income will be subject to
corporate level taxation and requalification may be difficult.

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POSSIBLE TAXATION ON CAPITAL GAINS

Pursuant to an election to be made by Station REIT and to be made by its
subsidiaries under Internal Revenue Service Notice 88-19, if during the ten-year
period beginning on the first day (the "Qualification Date") of the first
taxable year for which Station REIT qualified as a REIT, Station REIT or any
such subsidiary recognizes gain on the disposition of any property (including,
any partnership interest) held by Station REIT or any such subsidiary, then, to
the extent of the excess of (i) the fair market value of such property as of the
Qualification Date over (ii) the adjusted income tax basis of Station REIT or
any such subsidiary in such property ("built-in gain") as of the Qualification
Date, Station REIT and such subsidiary as the case may be, will be required to
pay a corporate level federal income tax on such at the highest regular
corporate rate. The amount of gain upon which Station REIT will be required to
pay tax will not exceed Station REIT's aggregate net built-in gain as of the
Qualification Date, I.E. the amount by which the fair market value of all its
assets exceeded then adjusted income tax basis on that date. Station REIT and
its subsidiaries are not currently expected to dispose of any such property in a
manner that would trigger such tax consequences but there can be no assurance
that such dispositions will not occur in the future.

Distribution to stockholders are taxable as dividends to the extent of
Station REIT's current and accumulated earnings and profits. Station REIT's
earnings and profits would be increased by a gain on the sale of property. That
gain will include built-in gain as of the Qualification Date.

TAX RISKS FROM RELATED PARTY RENTALS

EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK AND COST OF FUNDS

One of the factors that may influence the price of the Common Stock in
public trading markets will be the annual yield from distributions by Station
REIT on the Common Stock as compared to yields on other financial instruments.
Thus, an increase in market interest rates will result in higher yields on other
financial instruments, which could adversely affect the market price of the
shares of Common Stock. In addition, increases in market interest rates could
increase the cost of funds borrowed to make future investments.

RISK OF FUTURE REVISIONS IN POLICIES AND STRATEGIES BY BOARD OF DIRECTORS

Station REIT will establish investment policies and operating policies and
strategies, certain of which are described in this Proxy Statement. These
policies may be amended or revised from time to time at the discretion of the
Board of Directors without a vote of Station REIT's stockholders. The ultimate
effect of any change in the policies and strategies set forth in this Proxy
Statement on a holder of Common Stock may be positive or negative. See "Policies
and Objectives with Respect to Certain Activities."

LIMITED RELEVANCE OF FINANCIAL INFORMATION

The historical combined and pro forma financial information included in this
Proxy Statement may not necessarily reflect the results of operations, financial
position and cash flows of OpCo or Station REIT in the future or the results of
operations, financial position and cash flows had OpCo operated as a separate
stand-alone entity, had the Company operated as a REIT and had the entities
operated under the relationships they will have in the future during the periods
presented. The financial information included

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herein does not reflect a number of significant changes that may occur in the
funding and operations of OpCo or Station REIT as a result of or in connection
with the Reorganization Transactions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations of OpCo," "Station Operating
Company Combined Balance Sheets," "Station Operating Company Combined Statements
of Operations" "Station Operating Company Combined Statements of Cash Flows,"
"Station Operating Company Notes to Combined Financial Statements,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Station REIT," "Station Casinos, Inc. Unaudited Pro Forma
Consolidated Balance Sheet," "Station Casinos, Inc. Unaudited Pro Forma
Consolidated Statements of Operations," "Station Casinos, Inc. Consolidated
Statements of Cash Flows," and "Station Casinos, Inc. Notes to Consolidated
Financial Statements."

POTENTIAL LIABILITIES DUE TO FRAUDULENT TRANSFER CONSIDERATIONS AND LEGAL
DIVIDEND REQUIREMENTS

The Distribution is subject to review under federal and state fraudulent
conveyance laws. Under these laws, if a court in a lawsuit by an unpaid creditor
or a representative of creditors (such as a trustee or debtor-in-possession in
bankruptcy of the Company or any of its respective subsidiaries) were to
determine that the Company did not receive fair consideration or reasonably
equivalent value for distributing the stock distributed in the Distribution and,
at the time of Distribution, the Company or any of its subsidiaries (i) were
insolvent or would be rendered insolvent, (ii) were to have had unreasonably
small capital with which to carry on its business and all businesses in which it
intended to engage, or (iii) were to have intended to incur, or believed it
would incur, debts beyond its ability to repay such debts as they would mature,
then such court could order the holders of the stock distributed in the
Distribution to return the value of the stock and any dividends paid thereon,
bar future dividend and redemption payments on the stock, and invalidate, in
whole or in part, the Distribution, as a fraudulent conveyance.

The measure of insolvency for purposes of the fraudulent conveyance laws
will vary depending on which jurisdiction's law is applied. Generally, however,
an entity would be considered insolvent if the present fair saleable value of
its assets is less than (i) the amount of its liabilities (including contingent
liabilities) or (ii) the amount that will be required to pay its probable
liabilities on its existing debts as they become absolute and mature. No
assurance can be given as to what standard a court would apply in determining
insolvency or that a court would not determine that the Company or any of its
subsidiaries was "insolvent" at the time of or after giving effect to the
Distribution.

In addition, the Distribution is subject to review under state corporate
distribution statutes. Under the NRS, a corporation may not pay dividends to its
stockholders if after giving effect to such dividend (i) the corporation would
not be able to pay its debts as they become due in the usual course of business
or (ii) the corporation's total assets would be less than the sum of its total
liabilities plus the amount that would be needed, if the corporation were to be
dissolved at the time of the dividend, to satisfy the preferential rights upon
dissolution of stockholders whose preferential rights are superior to those
receiving the dividend. Although the Distribution is intended to be made in such
a manner as to comply with the NRS, no assurance can be given that a court will
not later determine that the Distribution was unlawful.

The Board of Directors of the Company believes that (i) the Company and each
of its subsidiaries will be solvent (in accordance with the foregoing
definitions) at the time of the Distribution, will be able to repay its debts as
they mature following the Distribution and will have sufficient capital to carry
on their respective businesses and (ii) the Distribution will be made entirely
in compliance with Section 78.288 of the NRS. There is no certainty, however,
that a court would reach the same conclusions in determining whether the Company
was insolvent at the time of, or after giving effect to, the Distribution or
whether lawful funds were available for the Distribution.

The Distribution Agreement (as defined herein) and certain of the ancillary
agreements to the Distribution Agreement provide for the allocation, immediately
prior to the Distribution, of certain debt of the Company. Further, pursuant to
the Distribution Agreement, from and after the date of the Distribution (the
"Distribution Date"), each of the Company and OpCo will be responsible for the
debts, liabilities

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<PAGE>
and other obligations related to the businesses which it owns and operates
following the consummation of the Distribution. It is possible that a court
would disregard the allocation agreed to among the parties, and require OpCo or
the Company to assume responsibility for obligations allocated to the other,
particularly if the other were to refuse or to be unable to pay or perform the
subject allocated obligations. See "Relationship Between Station REIT and OpCo."

DILUTION

As part of the Reorganization Transaction, the Company intends to consummate
the Offerings. As a result of the Offerings, holders of Common Stock will
experience substantial dilution. See "Summary Unaudited Pro Forma Financial Data
of Station REIT."

ABSENCE OF PRIOR TRADING MARKET FOR OPCO CAPITAL STOCK

There can be no assurance as to the prices at which OpCo Common Stock and
OpCo Preferred Stock will trade. Until the OpCo Common Stock and the OpCo
Preferred Stock are fully distributed and an orderly market develops, the prices
at which such shares trade may fluctuate significantly and may be lower or
higher than the price that would be expected for a fully distributed issue.
Prices for shares of OpCo Common Stock and OpCo Preferred Stock will be
determined in the marketplace and may be influenced by many factors, including
the depth and liquidity of the market for the shares, investor perception of
OpCo, changes in economic conditions in the gaming industry and general economic
and market conditions. In addition, the stock market often experiences
significant price fluctuations that are unrelated to the operating performance
of the specific companies whose stock is traded. Market fluctuations, as well as
economic conditions, could have a materially adverse impact on the market price
of the shares of OpCo Common Stock and Opco Preferred Stock.

PAYMENT OF DIVIDENDS

OpCo does not intend to pay cash dividends on the OpCo Common Stock in the
foreseeable future so that it may reinvest its earnings in the development of
its business. The payment of dividends on the OpCo Common Stock in the future
will be at the discretion of the board of directors of OpCo. Restrictions
imposed by the OpCo bank facility, the OpCo Preferred Stock and other securities
or agreements of OpCo are expected to limit the payment of dividends by OpCo. No
assurance can be given that OpCo will pay any dividends.

CERTAIN ANTI-TAKEOVER EFFECTS

Upon consummation of the Distribution, certain provisions of OpCo's Articles
of Incorporation (the "OpCo Articles") and OpCo's Bylaws (the "OpCo Bylaws") and
Nevada statutory law could discourage potential acquisition proposals and could
delay or prevent a change in control of OpCo. Such provisions could diminish the
opportunities for a holder of OpCo Common Stock to participate in tender offers,
including tender offers at a price above the then current market price for the
OpCo Common Stock and could also inhibit fluctuations in the market price of the
OpCo Common Stock that could result from takeover attempts.

OpCo will be authorized to issue additional shares of OpCo Preferred Stock
(the "Additional Preferred Stock") in addition to the currently outstanding
shares of OpCo Preferred Stock. The OpCo board of directors, without further
action by the holders of OpCo Common Stock may issue shares of Additional
Preferred Stock in one or more series and may fix or alter the rights,
preferences, privileges and restrictions of shares constituting any wholly
unissued series of Additional Preferred Stock. Except as described above, the
OpCo board of directors, without further approval by holders of OpCo Common
Stock, may issue shares of Additional Preferred Stock with rights that could
adversely affect the rights of

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the holders of OpCo Common Stock. The issuance of shares of Additional Preferred
Stock under certain circumstances could have the effect of delaying or
preventing a change of control of OpCo or other corporate action.

In addition, the preferred stock purchase rights to be issued pursuant to a
rights agreement and NRS Section 78.200 will provide discount purchase rights to
common stockholders of OpCo in connection with certain acquisitions of
beneficial ownership of or tenders offers for 10% or more of the outstanding
shares of OpCo Common Stock. The effect of the foregoing may be to inhibit a
change in control of OpCo that has not been approved by the Board of Directors
of OpCo and which may be beneficial to the holders of the distributed OpCo
Common Stock.

OpCo will have a classified Board of Directors consisting of three classes,
each class serving for a term of three years. According to the OpCo Articles,
vacancies that occur on the OpCo board of directors will be filled by a majority
vote of the directors then in office and directors so chosen will hold office
for a term expiring at the next annual meeting of stockholders at which the term
of the class to which the directors whose vacancy was filled have been elected
expires. The classification has the effect of making it more difficult for
holders of OpCo Common Stock to change the composition of the Board in a short
period of time, thereby discouraging a third-party from making a tender offer or
otherwise attempting to obtain control of OpCo.

Chapter 78 of the NRS may delay or increase the difficulty of acquisitions
or changes of control of OpCo. Sections 78.378 to 78.3793 of the NRS (i) limit
the ability of persons who acquire certain threshold amounts of OpCo Common
Stock to exercise voting rights in such shares acquired within 90 days
immediately preceding the acquisition of such threshold amounts unless a
majority of the disinterested stockholders of OpCo confer such voting rights and
(ii) entitle dissenting stockholders in such a vote to certain fair payment
rights. Sections 78.411 to 78.444 of the NRS restrict combinations with persons
who acquire certain threshold amounts of OpCo Common Stock for three years after
such acquisition unless the combination or purchase is approved by the OpCo
board of directors prior to the acquisition or, subject to additional
limitations, the stockholders.

The Nevada legislature has declared that some corporation acquisitions
opposed by management, repurchases of voting securities and some corporate
defensive tactics affecting Nevada corporate gaming licensees and Registered
Corporations that are affiliated with those operations, may be injurious to
stable and productive corporate gaming. The Nevada Commission (as defined
herein) has established a regulatory scheme to ameliorate the potentially
adverse effects of these business practices which regulatory scheme could
inhibit a change in control of OpCo. See "Regulation and Licensing."

31
<PAGE>
DISTRIBUTION AND DIVIDEND POLICY

STATION REIT

Station REIT is expected to make regular quarterly distributions to its
stockholders. Station REIT's first distribution, for the period from the Closing
to June 30, 1998, is expected to equal the anticipated regular quarterly
distribution of $ per share of Common Stock, which, on an annualized basis,
will represent a distribution rate of $ per share. There can be no assurances
that Station REIT will meet or maintain such distribution rate. See "Certain
Considerations--Ability to Maintain Distributions."

The Company established the initial distribution amount based upon pro forma
Funds From Operations for its latest twelve month period, as further adjusted as
described in footnote (1) below. "Funds From Operations" as defined by the
National Association of Real Estate Investment Trusts is net income (loss)
computed in accordance with generally accepted accounting principles, excluding
gains (or losses) from debt restructuring or sales of property, plus
depreciation and amortization on real estate assets and after adjustments, if
any, for unconsolidated partnerships and joint ventures. Station REIT's "Cash
Available for Distribution," which is Funds From Operations adjusted for certain
non-cash items, less reserves for capital expenditures, is not expected to be
materially different from its Funds From Operations, principally because under
the Leases, OpCo is responsible for substantially all maintenance capital
expenditures. See "Station Casino, Inc. Statements of Cash Flows" for
information regarding cash flows provided by operating, investing and financing
activities. The Company believes that such pro forma financial information, with
the enumerated adjustments, provides a reasonable basis for setting the initial
distribution rate. The foregoing is being set forth solely to describe the
setting of the initial distribution rate and should not be construed as a
forecast of Station REIT's results of operations or liquidity.

The following table sets forth certain unaudited, supplementally adjusted
pro forma financial information for the twelve month period ended September 30,
1997.

- ------------------------
(1) Represents the pro forma results of operations for the period presented,
determined on the basis set forth in Station Casinos, Inc. Unaudited Pro
Forma Consolidated Statements of Operations and as adjusted to reflect (a)
annualized Lease revenues, and associated expenses, as if each of the
Initial Properties had been in operation from October 1, 1996, and (b) the
redemption by Station REIT of all of its 9 5/8% Senior Subordinated Notes
due 2003 with borrowings under the Bank Facility, as if the same had
occurred on October 1, 1996. Although Station REIT is expected to redeem or
repurchase such notes (see footnote (1) of Notes to Station REIT Pro Forma
Capitalization), no assurance may given that such event will in fact occur
on the assumed terms or at all.

(2) Consists of interest expense and preferred stock dividends, rental expense
and general and administrative expense.

Subject to restrictions under its debt instruments and other obligations,
the Board of Directors, in its sole discretion, will determine the actual
distribution amount and rate based on Station REIT's actual

32
<PAGE>
results of operations, economic conditions, tax considerations (including those
related to REITs) and other factors.

Station REIT is expected to maintain the anticipated initial distribution
rate for the remainder of 1998, unless actual results of operations, economic
conditions or other factors differ from those indicated by the estimated results
for the twelve months ended September 30, 1997 described herein. The estimate of
anticipated initial quarterly distributions relates only to periods ending on or
prior to December 31, 1998, and no assurance can be given as to the rate of
distributions, if any, after that date. Station REIT's actual Funds From
Operations will be affected by a number of factors, including operations at the
Initial Properties. The timing and amount of distributions made by Station REIT
will be determined by the Board of Directors and will depend on a number of
factors, including the amount of Funds From Operations, Station REIT's financial
condition, capital expenditure requirements for Station REIT's properties, the
annual distribution requirements under the REIT provisions of the Code and such
other factors as the Board of Directors may deem relevant. For a discussion of
the tax treatment of distributions to holders of shares of Common Stock, see
"Federal Income Tax Considerations."

In order to maintain its qualification as a REIT, Station REIT must make
annual distributions to its stockholders of at least 95% of its taxable income
(which does not include net capital gains). Under certain circumstances, Station
REIT may be required to make distributions in excess of Funds From Operations in
order to meet such distribution requirements. In such event, Station REIT
presently would be expected to borrow funds, or to sell assets for cash, to the
extent necessary to obtain cash sufficient to make the distributions required to
retain its qualification as a REIT for federal income tax purposes. See "Federal
Income Tax Considerations--Annual Distribution Requirements."

Station REIT anticipates that its cash flow from the Leases will be
sufficient to enable it to make distributions at the estimated initial rate. To
the extent that cash flow from operations were to be insufficient during any
quarter, Station REIT is expected to utilize other cash on hand or borrowings
under the Bank Facility to make such distributions. No assurance can be given,
however, that Station REIT will make distributions in the future at the
initially estimated rate, or at all. See "Risk Factors--Ability to Maintain
Distributions."

It presently is anticipated that additional acquisitions and developments,
including initial capital improvements thereto, will be financed primarily
through borrowings under the Bank Facility, other debt financing or the issuance
of additional equity securities. To the extent that such financing is
insufficient to meet all of such cash needs, or the cost of such financing
exceeds the cash flow generated by the acquired or developed properties for any
period, funds available for distribution could be reduced. See "Certain
Considerations--Ability to Maintain Distributions."

OPCO

OpCo does not intend to pay cash dividends on the OpCo Common Stock for the
foreseeable future so that it may reinvest its earnings in the development of
its business. The payment of dividends on the OpCo Common Stock in the future
will be at the discretion of OpCo's board of Directors. Restrictions imposed by
OpCo's debt obligations and the OpCo Preferred Stock also are expected to limit
the payment and dividends by OpCo to Common Stockholders. See "Certain
Considerations--Payment of Dividends."

33
<PAGE>
STATION REIT PRO FORMA CAPITALIZATION

The following table sets forth the historical consolidated cash and
capitalization of the Company at September 30, 1997, and on a pro forma basis to
reflect the net proceeds to the Company of the Reorganization Transactions. This
table should be read in conjunction with the more detailed information and
financial statements appearing elsewhere in this Proxy Statement.

<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
-------------------------
HISTORICAL PRO FORMA
------------ -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.............................................................. $ 43,923 $ 28,272
------------ -----------
------------ -----------
Current Bank Facility.................................................................. $ 214,000 $ --
9 5/8% Senior Subordinated Notes due 2003(1)........................................... 186,638 186,638
10 1/8% Senior Subordinated Notes due 2006(1).......................................... 196,862 196,862
9 3/4% Senior Subordinated Notes due 2007(1)........................................... 144,452 144,452
Sunset Station First Mortgage Note..................................................... 103,000 --
Other long-term debt, less current portion............................................. 40,740 3,371
------------ -----------
------------ -----------
Total long-term debt, less current portion(2).......................................... 885,692 531,323
------------ -----------
Stockholders' Equity:
Preferred stock; par value $.01; 5,000,000 shares authorized (60,000,000 as adjusted
to reflect the Charter Amendments); 2,070,000 convertible preferred shares issued
and outstanding.................................................................... 103,500 103,500
Common stock; par value $.01; 90,000,000 shares authorized (300,000,000 as adjusted
to reflect the Charter Amendments); 35,306,657 shares issued and outstanding;
(64,306,657 as adjusted for the Offerings)(3)...................................... 353 643
Additional paid-in capital............................................................. 167,154 492,114
Deferred compensation--restricted stock................................................ (774) (774)
Retained earnings(deficit)............................................................. 19,268 (376,073)
------------ -----------
Total stockholders' equity............................................................. $ 289,501 $ 219,410
------------ -----------
Total capitalization............................................................... $ 1,175,193 $ 750,733
------------ -----------
------------ -----------
</TABLE>

- ------------------------

(1) Historical and Pro Forma amounts are net of combined original issue
discount of $13.0 million as of September 30, 1997. The 9 5/8% Senior
Subordinated Notes due 2003 are expected to be repaid with borrowings under
the Bank Facility and first become redeemable in June 1998.

(2) The Company expects that the Bank Facility will provide for borrowings up to
an aggregate of $500 million. See "Description of Certain New Indebtedness."

(3) Excludes the shares of Common Stock issuable upon conversion of the
Preferred Stock, approximately 5.5 million shares subject to outstanding
options issued under the Company's Stock Compensation Program and
approximately 0.8 million shares available for grant thereunder as of
September 30, 1997.

34
<PAGE>
OPCO PRO FORMA CAPITALIZATION

The following table sets forth the historical combined cash and
capitalization of OpCo at September 30, 1997, and on a pro forma basis to
reflect the net proceeds to OpCo of the Reorganization Transactions. This table
should be read in conjunction with the more detailed information and financial
statements appearing elsewhere in this Proxy Statement.

<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
-------------------------
HISTORICAL PRO FORMA
------------ -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.............................................................. $ 43,923 $ 43,923
------------ -----------
------------ -----------
Current Bank Facility.................................................................. $ 214,000 $ --
Sunset Station First Mortgage Note..................................................... 103,000 --
New OpCo bank facility................................................................. -- 105,000
Other long-term debt, less current portion............................................. 37,369 --
------------ -----------
Total long-term debt, less current portion(1).......................................... 354,369 105,000
------------ -----------
Preferred Stock; no par value; 50,000,000 shares authorized; 20,000,000 shares
OpCo Preferred Stock issued and outstanding; mandatorily redeemable after ten
years.............................................................................. -- 20,000
------------ -----------
Investment by the Company.............................................................. 112,349 --
------------ -----------
Stockholders' Equity:
Common stock; no par value; 20,000,000 shares authorized; 2,017,523 shares issued and
outstanding (2).................................................................... -- --
OpCo B Stock, no par value; 15,000 shares authorized; 7,214 shares issued and
outstanding........................................................................ -- --
Additional paid-in capital............................................................. -- 308,504
------------ -----------
Total stockholders' equity............................................................. $ -- $ 308,504
------------ -----------
Total capitalization............................................................... $ 466,718 $ 433,504
------------ -----------
------------ -----------
</TABLE>

- ------------------------------

(1) The Company expects that the Bank Facility will provide for borrowings up to
an aggregate of $150 million. See "Description of Certain Indebtedness."

(2) Excludes the shares of OpCo Common Stock issuable upon conversion of the
OpCo B Stock and shares subject to outstanding options issued under the OpCo
Stock Compensation Program.

35
<PAGE>
SOURCES AND USES

The following table sets forth the proposed sources and uses of the proceeds
to the Company and OpCo, respectively, of the the Reorganization Transactions.
No commitments are currently in place with respect to any of the financing
anticipated to be required by the Company in connection with the Reorganization
Transactions, and the Company expects that the precise nature and composition of
such financing may not be fully determined by the time of the Meeting. See
"Station REIT Pro Forma Capitalization," "OpCo Pro Forma Capitalization,"
"Station Casinos, Inc. Unaudited Pro Forma Consolidated Balance Sheet" and
"Station Operating Company Unaudited Pro Forma Combined Balance Sheet."

THE COMPANY

(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SOURCES
<S> <C>
Gross Proceeds to the Company from the
Offerings(1)............................ $ 350,000
Proceeds from repayment of Intermediate
Notes................................... 105,000
Gross Proceeds from the resale of the OpCo
Preferred Stock......................... 10,000
----------
Total Sources........................... $ 465,000
----------
----------

<CAPTION>
USES
<S> <C>
Sunset Loan Agreement(2).................. $ 104,892
Sunset Operating Lease(3)................. 35,700
Current Bank Facility(4).................. 216,372
Repayment of certain obligations(5)....... 52,014
Transaction Costs and Available
Cash(6)(7).............................. 56,022
----------

Total Uses.............................. $ 465,000
----------
----------
</TABLE>

- ------------------------

(1) The Company will receive no proceeds from the sale of Common Stock by the
Selling Stockholders.

(2) Represents the balance at September 30, 1997 (including accrued interest),
although actual amounts at the Closing may vary.

(3) Used for the purchase of FF&E at Sunset Station.

(4) Represents the balance at September 30, 1997 (including accrued interest),
although actual amounts at the Closing may vary.
(5) The Company expects to repay certain obligations associated with certain
assets that are not assumed by OpCo.

(6) Excludes the effect of any decision by holders of Common Stock to assert
dissenters' rights.
(7) The Company also expects to incur approximately $3 million of financing
costs in connection with the $500 million Bank Facility it expects to obtain
at the Closing. See "Station REIT Pro Forma Capitalization."

OPCO

(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SOURCES
<S> <C>
OpCo bank facility(1)..................... $ 105,000
----------
Total Sources........................... $ 105,000
----------
----------

USES
<S> <C>
Repayment of Intermediate Notes........... $ 105,000
----------
Total Uses.............................. $ 105,000
----------
----------
</TABLE>

- ------------------------

(1) It is anticipated that OpCo will obtain a bank facility of $150 million.
See "OpCo Pro Forma Capitalization" and "Station Operating Company
Unaudited Pro Forma Combined Balance Sheet" and "Station Operating Company
Unaudited Pro Forma Combined Statement of Operations."

The figures in the preceding tables and footnotes are estimates that are
considered reasonable, however, there can be no assurance that the estimates
will be accurate.

36
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY

The selected consolidated financial data presented below as of and for the
Company's fiscal years ended March 31, 1993, 1994, 1995, 1996 and 1997 have been
derived from consolidated financial statements which, except for 1993 and 1994,
are contained elsewhere in this Proxy Statement. The selected consolidated
financial data presented below as of and for the six months ended September 30,
1997 and 1996 are derived from unaudited consolidated financial statements;
however, in the opinion of the Company, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the Company's
financial position and results of operations for such period have been included.
The selected consolidated financial data set forth below are qualified in their
entirety by, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations of the Company"
and the consolidated financial statements, the notes thereto and other financial
and statistical information included elsewhere in this Proxy Statement.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Casino................................... $ 100,426 $ 109,090 $ 210,534 $ 358,495 $ 450,013 $ 212,072 $ 282,700
Food and beverage........................ 25,157 26,078 43,208 73,057 92,220 42,626 63,577
Room..................................... 12,373 14,360 17,690 23,614 27,420 12,658 17,218
Other.................................... 20,743 31,226 36,561 39,099 48,957 22,752 28,676
--------- --------- --------- --------- --------- --------- ---------
Gross revenues......................... 158,699 180,754 307,993 494,265 618,610 290,108 392,171
Less promotional allowances.............. (8,804) (11,211) (17,715) (27,408) (35,095) (16,634) (24,558)
--------- --------- --------- --------- --------- --------- ---------
Net revenues........................... 149,895 169,543 290,278 466,857 583,515 273,474 367,613
--------- --------- --------- --------- --------- --------- ---------
Operating costs and expenses:
Casino................................... 42,185 47,492 92,812 150,805 203,857 93,278 137,592
Food and beverage........................ 20,184 19,528 34,045 57,659 68,994 32,275 44,862
Room..................................... 5,398 5,439 7,014 9,147 10,318 5,097 6,481
Other.................................... 15,822 22,432 27,270 24,902 23,927 11,260 13,481
Selling, general and administrative...... 28,514 26,269 60,810 97,466 120,285 55,606 81,896
Corporate expenses....................... -- 7,920 13,141 15,979 18,284 8,642 7,644
Restructuring charge..................... -- -- -- -- 2,016 -- --
Development expenses..................... -- 1,791 7,200 3,960 1,302 602 104
Depreciation and amortization............ 10,935 12,976 22,220 35,039 44,589 20,092 33,169
Preopening expenses...................... -- -- 19,378 2,436 31,820 -- 10,866
--------- --------- --------- --------- --------- --------- ---------
Total operating costs and expenses..... 123,038 143,847 283,890 397,393 525,392 226,852 336,095
--------- --------- --------- --------- --------- --------- ---------
Operating income........................... 26,857 25,696 6,388 69,464 58,123 46,622 31,518
Interest expense, net...................... (8,949) (9,179) (19,967) (30,563) (36,698) (16,260) (35,713)
Other income (expense)..................... 32 2,192 2,160 1,150 (47) 66 (4,996)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes.......... 17,940 18,709 (11,419) 40,051 21,378 30,428 (9,191)
Income tax (provision) benefit............. -- (4,806) 3,477 (14,579) (7,615) (10,851) 3,258
Reinstatement of deferred taxes............ -- (4,486) -- -- -- -- --
Pro forma income taxes (unaudited)(1)...... (6,100) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).......................... -- 9,417 (7,942) 25,472 13,763 19,577 (5,933)
Preferred stock dividends.................. -- -- -- (53) (7,245) (3,622) (3,622)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) applicable to common
stock.................................... $ -- $ 9,417 $ (7,942) $ 25,419 $ 6,518 $ 15,955 $ (9,555)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income after income taxes
(unaudited)(1)........................... $ 11,840 $ 12,309 $ -- $ -- $ -- $ -- $ --
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per share:
Earnings (loss) per common share........... $ -- $ -- $ (0.26) $ 0.75 $ 0.18 $ 0.45 $ (0.27)
Pro forma earnings per share
(unaudited)(1)........................... $ 0.44 $ 0.42 $ -- $ -- $ -- $ -- $ --
Weighted average common shares
outstanding.............................. -- -- 30,113 33,918 35,316 35,314 35,310
Pro forma weighted average common shares
outstanding (unaudited).................. 26,681 29,413 -- -- -- -- --
</TABLE>

37
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>

<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA(2):
Number of hotel rooms...................... 1,028 1,028 1,328 1,528 1,708 1,528 2,106
Average daily occupancy rate:..............
Palace Station........................... 94% 97% 95% 94% 95% 97% 96%
Boulder Station.......................... -- 92% 93% 94% 98% 98% 98%
Sunset Station........................... -- -- -- -- -- -- 92%
Texas Station............................ -- -- -- 86% 95% 96% 91%
Station Casino Kansas City............... -- -- -- -- 95% -- 91%
Casino square footage...................... 84,000 84,000 206,000 278,000 432,000 278,000 512,000
Number of slot machines.................... 3,202 3,323 7,020 9,555 13,008 9,449 15,345
Capital expenditures(3).................... $ 15,504 $ 102,687 $ 163,884 $ 307,745 $ 506,096 $ 218,797 $ 103,561
EBITDA(4).................................. 37,792 41,743 47,986 106,939 136,548 66,714 75,553
EBITDAR(5) 37,792 41,983 50,563 113,476 139,906 69,178 80,656
Cash flows provided by (used in):
Operating activities..................... $ 29,658 $ 23,685 $ 48,494 $ 77,953 $ 111,803 $ 52,177 $ 54,644
Investing activities..................... (14,867) (111,072) (157,585) (266,935) (479,008) (195,853) (182,958)
Financing activities..................... (10,309) 92,073 109,893 286,889 294,859 59,432 129,715
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
AS OF
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 11,473 $ 16,159 $ 16,961 $ 114,868 $ 42,522 $ 43,923
Total assets................................. 185,110 301,486 436,538 827,314 1,234,118 1,308,675
Long-term debt............................... 133,215 159,460 299,814 464,998 760,963 899,994
Stockholders' equity......................... 37,153 95,791 87,886 278,470 298,848 289,501
</TABLE>

- ------------------------------

(1) Reflects provisions for federal income taxes (assuming a 34% effective tax
rate for both periods) as if the Company had not been treated as an S
corporation during the year ended March 31, 1993.

(2) Other Data relating to the number of hotel rooms, the casino square footage
and the number of slot machines represent end of period data.

(3) Capital expenditures for the fiscal year ended March 31, 1994 included $52.8
million related to the development of Station Casino St. Charles and $31.9
million related to the development of Boulder Station. Capital expenditures
for the fiscal year ended March 31, 1995 include $52.9 million related to
the development of Station Casino St. Charles and $90.7 million related to
the development of Boulder Station. Capital expenditures for the fiscal year
ended March 31, 1996 include $84.9 million related to the acquisition and
completion of Texas Station, $25.0 million related to the parking garage and
entertainment complex at Boulder Station, $62.8 million related to the
development and construction of Station Casino Kansas City, $29.7 million
related to the development and construction of Sunset Station and $39.4
million related to the St. Charles Expansion Project. Capital expenditures
for the fiscal year ended March 31, 1997 included $211.1 million related to
the development and construction of Station Casino Kansas City, $112.8
million related to the development and construction of Sunset Station and
$99.6 million related to the development and construction of the St. Charles
Expansion Project. Capital expenditures for the six months ended September
30, 1997 include $40.7 million related to the development and construction
of Sunset Station, and $23.9 million related to the development and
construction of the St. Charles Expansion Project.

(4) "EBITDA" consists of operating income and, in the case of Station Casino St.
Charles, lease income of $3.1 million relating to the Station Casino St.
Charles riverboat in fiscal year 1994, plus depreciation and amortization,
including preopening expenses and a restructuring charge in 1997. EBITDA
should not be construed as an alternative to operating income as an
indicator of the Company's operating performance, or as an alternative to
cash provided by operating activities as a measure of liquidity. the Company
has presented EBITDA solely as supplemental disclosure because the Company
believes that certain investors consider this information useful in the
evaluation of the financial performance of companies with substantial
depreciation and amortization.

(5) "EBITDAR" consists of EBITDA plus lease expenses. EBITDAR should not be
construed as an alternative to operating income as an indicator of the
Company operating performance, or as an alternative to cash provided by
operating activities as a measure of liquidity. The Company has presented
EBITDAR solely as supplemental disclosure because the Company believes that
certain investors consider this information useful in the evaluation of the
financial performance of companies with substantial depreciation,
amortization and lease expenses.

38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE COMPANY

The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the consolidated financial statements
and notes thereto included elsewhere in this Proxy Statement.

RESULTS OF OPERATIONS

OVERVIEW:

The following discussion and analysis addresses the historical results of
operations of the Company prior to the Reorganization Transactions. Upon
completion of the Reorganization Transactions, Station REIT's revenues will be
generated by rent payments from OpCo under the Leases with respect to the
Initial Properties. OpCo's ability to make payments to Station REIT under the
Leases will accordingly be dependent upon OpCo's ability to generate cash flow
from the operation of the Initial Properties. See "Certain
Consideration--Dependence of Station REIT on OpCo." Station REIT's Funds From
Operations is anticipated to be the Lease revenues from OpCo less (i)
"pass-through" rental expense on the head leases, (ii) corporate expenses and
(iii) depreciation. Annual corporate expenses will reflect the reduced size of
management relative to historical operations, and are estimated to have been
approximately $3 million had the Reorganization Transactions occurred on April
1, 1996. See "Station Casinos, Inc. Unaudited Pro Forma Financial Statements."
There can be no assurance that the actual level of corporate expenses
experienced by Station REIT in the future will not be higher.

The following table highlights the historical results of operations for the
Company:

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED MARCH 31, ENDED SEPTEMBER 30,
---------------------------------- ----------------------
NEVADA OPERATIONS: 1995 1996 1997 1996 1997
- ----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
PALACE STATION
Net revenues......................................... $ 133,313 $ 131,178 $ 133,464 $ 68,500 $ 63,390
Operating income..................................... $ 31,390 $ 28,615 $ 30,802 $ 16,185 $ 13,988
EBITDA(1)............................................ $ 41,285 $ 38,225 $ 38,890 $ 20,230 $ 18,214

BOULDER STATION
Net revenues......................................... $ 64,645 $ 118,040 $ 143,039 $ 70,044 $ 69,083
Operating income(2).................................. $ 5,450 $ 28,103 $ 37,728 $ 18,213 $ 18,846
EBITDA(1)............................................ $ 16,842 $ 35,650 $ 48,553 $ 23,467 $ 24,742

TEXAS STATION
Net revenues......................................... $ -- $ 55,098 $ 80,690 $ 39,804 $ 42,657
Operating income..................................... $ -- $ 3,903 $ 4,062 $ 1,848 $ 4,656
EBITDA(1)............................................ $ -- $ 8,904 $ 12,462 $ 5,339 $ 9,068

SUNSET STATION
Net revenues......................................... $ -- $ -- $ -- $ -- $ 42,150
Operating (loss)(3).................................. $ -- $ -- $ -- $ -- $ (3,386)
EBITDAR(1)........................................... $ -- $ -- $ -- $ -- $ 11,827
EBITDA(1)............................................ $ -- $ -- $ -- $ -- $ 9,276

TOTAL NEVADA OPERATIONS:
Net revenues......................................... $ 197,958 $ 304,316 $ 357,193 $ 178,348 $ 217,280
Operating income..................................... $ 36,840 $ 60,621 $ 72,592 $ 36,246 $ 34,104
EBITDA(1)............................................ $ 58,127 $ 82,779 $ 99,905 $ 49,036 $ 61,300
</TABLE>

39
<PAGE>

MISSOURI OPERATIONS:
- -----------------------------------------------------
STATION CASINO ST. CHARLES
Net revenues......................................... $ 58,384 $ 129,878 $ 158,760 $ 80,817 $ 61,150
Operating income (loss)(4)........................... $ (12,039) $ 28,058 $ 34,996 $ 18,230 $ 6,590
EBITDA(1)............................................ $ 5,632 $ 39,627 $ 47,144 $ 24,082 $ 13,147

STATION CASINO KANSAS CITY
Net revenues......................................... $ -- $ -- $ 39,071 $ -- $ 74,994
Operating loss(5).................................... $ -- $ -- $ (30,701) $ -- $ (2,314)
EBITDA(1)............................................ $ -- $ -- $ 3,536 $ -- $ 6,518

TOTAL MISSOURI OPERATIONS:
Net revenues......................................... $ 58,384 $ 129,878 $ 197,831 $ 80,817 $ 136,144
Operating income (loss).............................. $ (12,039) $ 28,058 $ 4,295 $ 18,230 $ 4,276
EBITDA(1)............................................ $ 5,632 $ 39,627 $ 50,680 $ 24,082 $ 19,665

STATION CASINOS, INC. AND OTHER:
- -----------------------------------------------------
Net revenues......................................... $ 33,936 $ 32,663 $ 28,491 $ 14,309 $ 14,189
Operating loss....................................... $ (18,413) $ (19,215) $ (18,764) $ (7,854) $ (6,862)
EBITDA(1)............................................ $ (15,773) $ (15,467) $ (14,037) $ (6,404) $ (5,412)
</TABLE>

- ------------------------------

(1) "EBITDA" consists of operating income plus depreciation and amortization,
including preopening expenses. "EBITDAR" consists of operating income plus
depreciation, amortization, preopening expenses and rent expense. EBITDA and
EBITDAR should not be construed as alternatives to operating income as an
indicator of the Company's operating performance, or as alternatives to cash
provided by operating activities as a measure of liquidity. The Company has
presented EBITDA and EBITDAR solely as supplemental disclosure because the
Company believes that certain investors consider this information useful in
the evaluation of the financial performance of companies with substantial
depreciation and amortization, preopening expenses and rent expense.

(2) Operating income for Boulder Station for the fiscal year ended March 31,
1995, includes preopening expenses of $7.5 million.

(3) Operating loss for Sunset Station for the six months ended September 30,
1997, includes preopening expenses of $10.7 million.

(4) Operating loss for Station Casino St. Charles for the fiscal year ended
March 31, 1995, includes preopening expenses of $11.9 million.

(5) Operating loss for Station Casino Kansas City for the fiscal year ended
March 31, 1997, includes preopening expenses of $31.1 million.

SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1996.

Consolidated net revenues increased 34.4% to $367.6 million for the six
months ended September 30, 1997, from $273.5 million in the prior year. The
Company's operations in Nevada (the "Nevada Operations") contributed $217.3
million of net revenues for the six months ended September 30, 1997, an increase
of 21.6% over the prior year. This increase in net revenues is due primarily to
the opening of Sunset Station in June 1997, as well as the continued improvement
at Texas Station. These increases were offset by a decline of 7.5% in net
revenues at Palace Station due to a lower table games hold percentage as
compared to the prior year and competitive market conditions in the tour and
travel segment of Palace Station's business which had a negative impact on
casino revenues, as well as hotel room rates and occupancy, especially during
the second quarter. In addition, net revenues at Boulder Station declined 1.4%
due primarily to the opening of Sunset Station. The Company's operations in
Missouri (the "Missouri Operations") contributed $136.1 million of net revenues
for the six months ended September 30, 1997, an increase of 68.5% over the prior
year. This increase in net revenues is due to Station Casino Kansas City which
opened in January 1997, offset by a decline of 24.3% in net revenues at Station
Casino

40
<PAGE>
St. Charles due to increased competition in the St. Louis market with the
opening of a new hotel/casino in Maryland Heights in March 1997.

Consolidated operating income decreased 32.4% to $31.5 million for the six
months ended September 30, 1997, from $46.6 million in the prior year. Operating
income of the Nevada Operations decreased 5.9% to $34.1 million for the six
months ended September 30, 1997, from $36.2 million in the prior year. Excluding
a $10.9 million write-off of preopening expenses primarily related to the
opening of Sunset Station, the Nevada Operations generated operating income of
$45.0 million, an increase of 24.1% over the prior year. Operating income of the
Missouri Operations declined 76.5% to $4.3 million for the six months ended
September 30, 1997, from $18.2 million in the prior year. This is due primarily
to a decrease of $11.6 million at Station Casino St. Charles attributed to
increased competition and an operating loss of $2.3 million at Station Casino
Kansas City. The decline in consolidated operating income, an increase in net
interest expense of $19.5 million, and the expiration of certain option payments
to lease or acquire land for future development resulting in an expense of $5.0
million, resulted in a net loss applicable to common stock of $9.6 million, or a
loss per common share of $0.27 for the six months ended September 30, 1997,
compared to net income applicable to common stock of $16.0 million, or earnings
per common share of $0.45 in the prior year.

CASINO. Casino revenues increased 33.3% to $282.7 million for the six
months ended September 30, 1997, from $212.1 million in the prior year. This
increase is due to the opening of Sunset Station in June 1997, the opening of
Station Casino Kansas City in January 1997 and improvements at Texas Station,
offset by decreases at Palace Station and Station Casino St. Charles due to the
factors noted above.

Casino expenses increased 47.5% to $137.6 million for the six months ended
September 30, 1997, from $93.3 million in the prior year. This increase in
casino expenses is consistent with the increase in casino revenues noted above.
The casino net profit margin decreased to 51.3% for the six months ended
September 30, 1997, from 56.0% in the prior year. The Nevada Operations
experienced a slight increase in net casino margin, while the Missouri
Operations were negatively impacted in St. Charles due to the increased
competition and Station Casino Kansas City which has a lower margin due to the
start-up nature of its operations, and its late entry into the Kansas City
market. In addition, the Missouri Operations have a lower margin than the
Company's combined margin, due primarily to higher gaming tax rates in Missouri
as compared to Nevada.

FOOD AND BEVERAGE. Food and beverage revenues increased 49.2% to $63.6
million for the six months ended September 30, 1997, from $42.6 million in the
prior year. This increase is due to the opening of Station Casino Kansas City
and Sunset Station as noted above.

Food and beverage net profit margins improved to 29.4% for the six months
ended September 30, 1997, from 24.3% in the prior year. These increases in
margin are due to improvement at the Nevada Operations primarily as a result of
continued focus on cost control.

ROOM. Room revenues increased 36.0% to $17.2 million for the six months
ended September 30, 1997, from $12.7 million in the prior year. This increase is
due primarily to the opening of Station Casino Kansas City and Sunset Station
which added 632 rooms for a total of 2,160 rooms company-wide. Room occupancy
company-wide decreased to 95% from 97%, while the average daily room rate
increased to $49 from $46 during the six months ended September 30, 1997.

OTHER. Other revenues increased 26.0% to $28.7 million for the six months
ended September 30, 1997, from $22.8 million in the prior year. This increase is
due primarily to the addition of Station Casino Kansas City and Sunset Station.
Revenues from the Company's slot route business increased 19.3% to $12.1 million
for the six months ended September 30, 1997.

41
<PAGE>
percentage of net revenues increased to 22.3% for the six months ended September
30, 1997, from 20.3% in the prior year. This increase is due primarily to the
new operations at Sunset Station and Kansas City Station which, as new
properties, tend to have a higher percentage of SG&A to net revenues.

CORPORATE EXPENSES. Corporate expenses decreased 11.5% to $7.6 million for
the six months ended September 30, 1997, from $8.6 million in the prior year.
For the six months ended September 30, 1997, corporate expenses declined to 2.1%
of net revenues from 3.2% in the prior year.

DEVELOPMENT EXPENSES. Development expenses continue to decrease. Such costs
are incurred by the Company in its efforts to identify and pursue potential
gaming opportunities in selected jurisdictions, including those in which gaming
has not been approved. The Company expenses development costs including
lobbying, legal and consulting until such time as the jurisdiction has approved
gaming and the Company has identified a specific site. Costs incurred subsequent
to these criteria being met are capitalized.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
65.1% to $33.2 million for the six months ended September 30, 1997, from $20.1
million in the prior year. This increase is due primarily to the addition of
Station Casino Kansas City and Sunset Station.

PREOPENING EXPENSES. The Company capitalizes preopening expenses associated
with its construction projects, including Sunset Station which opened June 10,
1997. These amounts are expensed upon the opening of the related project. During
the six months ended September 30, 1997, the Company expensed preopening
expenses of $10.9 million related primarily to Sunset Station.

INTEREST EXPENSE, NET. Interest costs incurred (expensed and capitalized)
increased 72.8% to $45.2 million for the six months ended September 30, 1997.
This increase is primarily attributable to added interest costs associated with
the 9 3/4% senior subordinated notes issued by the Company in April 1997,
borrowings under the Sunset Station loan agreement and borrowings under the
reducing revolving credit facility.

FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

Consolidated net revenues increased 25.0% to $583.5 million for the fiscal
year ended March 31, 1997, from $466.9 million in the prior year. The Company's
Nevada Operations contributed $357.2 million of net revenues for the fiscal year
ended March 31, 1997, an increase of 17.4% over the prior year. This increase is
primarily due to improved operations at Boulder Station and the operations of
Texas Station which opened in July 1995. The Company's Missouri Operations
contributed $197.8 million of net revenues for the fiscal year ended March 31,
1997, an increase of 52.3% over the prior year. This increase is due to the
opening of Station Casino Kansas City in January 1997, as well as an increase in
revenues at Station Casino St. Charles. For the fiscal year ended March 31,
1996, net revenues and operating income at Station Casino St. Charles were
adversely impacted by flooding on the Missouri River, which closed operations
for 16 days and disrupted operations through the balance of the first quarter of
fiscal year 1996. During the fiscal year ended March 31, 1997, the improved
results at Station Casino St. Charles were achieved despite disruption created
from the construction of a new parking garage and elevated roadway, which opened
in May 1996, and construction related to the further development of the
property's master plan. Flooding on the Missouri River did occur again in May
1996. The newly completed parking garage and elevated roadway served one of its
intended purposes in minimizing business disruption caused by the flood.
Additionally, results at Station Casino St. Charles were adversely impacted with
the opening of a new hotel/casino in March 1997.

Consolidated operating income decreased 16.3% to $58.1 million for the
fiscal year ended March 31, 1997, from $69.5 million in the prior year.
Operating income at the Nevada Operations increased 19.8% to $72.6 million from
$60.6 million in the prior year. Operating income at the Missouri Operations
were negatively impacted by the write-off of preopening expenses for Station
Casino Kansas City and a one-time restructuring charge from the implementation
of a plan to reduce costs and improve efficiency which

42
<PAGE>
resulted primarily in employee severance payments. Operating income at Station
Casino St. Charles increased 24.7% to $35.0 million. For the fiscal year ended
March 31, 1997, these results, including an increase in net interest expense of
$6.1 million, a decrease in the income tax provision of $7.0 million and
dividends of $7.2 million on the convertible preferred stock issued in March
1996, resulted in net income applicable to common stock of $6.5 million, or
earnings per common share of $0.18, compared to net income applicable to common
stock of $25.4 million or earnings per common share of $0.75 in the prior year.

CASINO. Casino revenues increased 25.5% to $450.0 million for the fiscal
year ended March 31, 1997, from $358.5 million in the prior year. This increase
is due to the opening of Station Casino Kansas City, a full year of operations
at Texas Station, as well as improved results at both Boulder Station and
Station Casino St. Charles. Casino revenues increased $42.8 million and $51.6
million for the Nevada Operations and Missouri Operations, respectively. Station
Casino Kansas City generated casino revenue of $29.9 million since opening in
January 1997.

Casino expenses increased 35.2% to $203.9 million for the fiscal year ended
March 31, 1997, from $150.8 million in the prior year. These increases in casino
expenses are consistent with the increases in casino revenues discussed above.

Casino net profit margin decreased to 54.7% from 57.9% in the prior year.
This decrease is due to a slight decrease at the Nevada Operations and a lower
margin at Station Casino Kansas City due to the start-up nature of the new
operations. In addition, the Missouri Operations have a lower margin than the
Company's combined margin due primarily to higher gaming tax rates in Missouri
as compared to Nevada.

FOOD AND BEVERAGE. Food and beverage revenues increased 26.2% to $92.2
million for the fiscal year ended March 31, 1997, from $73.1 million in the
prior year. This improvement is primarily due to an increase in food and
beverage revenues at Station Casino St. Charles of $5.0 million resulting from
two new full-service restaurant facilities which opened in October 1995, an
increase of $5.0 million at Texas Station and $7.5 million from Station Casino
Kansas City.

Food and beverage net profit margins improved to 25.2% for the fiscal year
ended March 31, 1997, from 21.1% in the prior year. This increase in net margins
is primarily due to improvements at the Nevada Operations, especially Texas
Station, as a result of continued focus on cost control and strong margins at
Station Casino St. Charles with the addition of the two full-service
restaurants.

ROOM. Room revenues increased 16.1% to $27.4 million for the fiscal year
ended March 31, 1997, from $23.6 million in the prior year. This increase is due
primarily to the addition of Texas Station with a total of 200 rooms which
contributed an increase of $1.6 million of room revenues and Station Casino
Kansas City with a total of 180 rooms which contributed $1.2 million of room
revenues for the fiscal year ended March 31, 1997. The company-wide room
occupancy increased to 96% from 94%, while the average daily room rate increased
to $48 from $46.

OTHER. Other revenues increased 25.2% to $49.0 million for the fiscal year
ended March 31, 1997, from $39.1 million in the prior year. This increase is due
to $2.3 million for the Company's interest in the operating income of Barley's
Casino & Brewing Company which opened in January 1996, $3.1 million of lease
income from the lease of a riverboat gaming facility, combined increases in
other revenues at the Company's other operating properties of $7.5 million,
offset by lost revenues of $3.0 million from the sale of vending assets of
Southwest Services which were sold in September 1995. The riverboat gaming
facility lease terminated in August 1997. Revenues from the Company's slot route
business remained constant at $21.0 million.

SELLING, GENERAL AND ADMINISTRATIVE. SG&A increased 23.4% to $120.3 million
for the fiscal year ended March 31, 1997, from $97.5 million in the prior year.
This increase is primarily due to the addition of Texas Station in July 1995 and
Station Casino Kansas City in January 1997. SG&A as a percentage of net revenues
decreased slightly to 20.6% from 20.9% in the prior year.

43
<PAGE>
CORPORATE EXPENSES. Corporate expenses increased 14.4% to $18.3 million for
the fiscal year ended March 31, 1997, from $16.0 million in the prior year.
These increases are attributable to increases in personnel infrastructure to
manage the Company's new properties and projects under development. Corporate
expenses decreased to 3.1% of net revenues for the fiscal year ended March 31,
1997, from 3.4% in the prior year.

DEVELOPMENT EXPENSES. Development expenses decreased significantly for the
fiscal year ended March 31, 1997 compared to the prior year. This decrease is
the result of reduced efforts to identify potential gaming opportunities. Such
costs are incurred by the Company in its efforts to identify and pursue
potential gaming opportunities in selected jurisdictions, including those in
which gaming has not been approved. The Company expenses development costs
including lobbying, legal and consulting until such time as the jurisdiction has
approved gaming and the Company has identified a specific site. Costs incurred
subsequent to these criteria being met are capitalized.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
27.3% to $44.6 million for the fiscal year ended March 31, 1997, from $35.0
million in the prior year. Station Casino Kansas City contributed $2.8 million
of this increase, while Texas Station contributed $3.8 million. Depreciation
expense increased at Boulder Station primarily as a result of the parking garage
and entertainment facilities added during mid-fiscal year 1996 as well as at
Station Casino St. Charles primarily as a result of the parking garage which
opened in May 1996. These increases were offset by a decrease in depreciation
expense at Palace Station.

PREOPENING EXPENSES. The Company capitalizes significant preopening
expenses associated with its construction projects, including Station Casino
Kansas City which opened January 16, 1997, and Sunset Station. These amounts are
expensed upon the opening of the related project and could have a material
adverse impact on the Company's earnings. During the fiscal year ended March 31,
1997 the Company expensed preopening expenses of $31.8 million substantially
related to Station Casino Kansas City. Preopening expenses for the fiscal year
ended March 31, 1996 relate to the opening of the new restaurant facilities at
Station Casino St. Charles, the theater and parking garage at Boulder Station,
the opening of Texas Station in July 1995 and the opening at Barley's Casino &
Brewing Company in January 1996.

INTEREST EXPENSE, NET. Interest costs incurred (expensed and capitalized)
increased 59.2% to $58.8 million for the fiscal year ended March 31, 1997. This
increase is primarily attributable to added interest costs associated with the
10 1/8% Senior Subordinated Notes issued by the Company in March 1996 and
borrowings under the reducing revolving credit facility. During the first
quarter of fiscal year 1997, the Company recorded interest income of $0.7
million from investments in tax free municipal securities purchased with the
excess proceeds of the public offerings completed in March 1996.

FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

The Company's results of operations include the operations of Texas Station
located in northwest Las Vegas which opened on July 12, 1995, operations for the
full fiscal year ended March 31, 1996 at Boulder Station, which opened on August
23, 1994, and full-scale gaming at Station Casino St. Charles which opened on a
limited basis on May 27, 1994. Operations at Station Casino St. Charles were
limited for a significant portion of fiscal year 1995 due to the unexpected
decision of the Missouri Supreme Court in January 1994 that certain games of
chance were prohibited under the Missouri Constitution. On November 8, 1994, by
referendum, the Missouri voters amended the Missouri Constitution to permit
full-scale gaming. Full-scale operations began at Station Casino St. Charles on
December 9, 1994.

Consolidated net revenues increased 60.8% to $466.9 million for the fiscal
year ended March 31, 1996, as compared to $290.3 million for the prior year.
This increase is due to the factors noted in the preceding paragraph. Station
Casino St. Charles contributed $129.9 million of net revenues, an increase of
$71.5 million as compared to the prior year, while Boulder Station contributed
$118.0 million of net revenues, an increase of $53.4 million as compared to the
prior year. Texas Station contributed $55.1 million of net

44
<PAGE>
revenues during the fiscal year. For the fiscal year ended March 31, 1996, net
revenues and operating income of Station Casino St. Charles were negatively
impacted by the flooding of the Missouri River which led to the closing of the
property from May 17 through June 1, 1995, and disruption of operations
throughout the balance of the first quarter of fiscal year 1996. The operations
of Station Casino St. Charles were further disrupted by ongoing construction,
including a new parking garage and elevated roadway which opened in May 1996.

Consolidated operating income increased $63.1 million to $69.5 million for
the fiscal year ended March 31, 1996, as compared to $6.4 million for the prior
year. This improvement is due to the new and expanded operations discussed
above. In addition, contributing to the lower operating income for the fiscal
year ended March 31, 1995 were preopening expenses of $19.4 million related to
the opening of Boulder Station and Station Casino St. Charles. The Company did
not incur a large amount of preopening expenses in connection with the Texas
Station acquisition due to the fact that Texas Station was substantially ready
to open upon acquisition. This improvement in operating income, partially offset
by an increase in net interest expense of $10.6 million and an increase of $18.1
million in the income tax provision, resulted in net income applicable to common
stock of $25.4 million, or earnings per common share of $0.75 for fiscal year
1996.

CASINO. Casino revenues increased 70.3% to $358.5 million for the fiscal
year ended March 31, 1996, as compared to $210.5 million for the prior year.
This increase is directly related to $40.1 million in casino revenues generated
by the new Texas Station property and combined casino revenue increases
generated by Station Casino St. Charles and Boulder Station of $110.2 million.
For the fiscal year ended March 31, 1996, casino revenues at Palace Station
decreased $2.2 million or 2.3% as compared to the prior year, primarily as a
result of a decline in sports book revenue. Management believes that Palace
Station's revenues were negatively impacted by road construction at Interstate
15 and Sahara Avenue. This construction was substantially completed in October
1995. In addition, two of the restaurants at Palace Station were closed for
remodeling during different parts of the fiscal year which management believes
also had a negative impact on casino revenues. Both restaurants have been
reopened. Revenues at the Southwest Company's Louisiana Downs Race Track video
poker operation (all but a 1% interest of which the Company sold in September
1997) declined by $2.2 million for the fiscal year ended March 31, 1996 as
compared to the prior year. This decrease is a result of increased competition
in northwest Louisiana from riverboats opened in the first two quarters of
fiscal year 1995.

Casino expenses increased 62.5% to $150.8 million for the fiscal year ended
March 31, 1996, as compared to $92.8 million for the prior year. This increase
in casino expenses is consistent with the increase in casino revenues discussed
above. Casino net profit margin improved to 57.9% from 55.9% during the prior
year. This improvement comes primarily from the operations at Station Casino St.
Charles where the casino profit margin was 53.1% for the fiscal year ended March
31, 1996, compared to 45.0% for the prior year. The improvement at Station
Casino St. Charles was primarily due to increased revenues generated as a result
of the Missouri vote which allowed full-scale gaming beginning in December 1994.
The increased revenues allowed for substantial operational efficiencies. The
casino net profit margins at Station Casino St. Charles are lower than the
Company's combined margin primarily due to higher gaming tax rates in Missouri
as compared to Nevada.

FOOD AND BEVERAGE. Food and beverage revenues increased $29.8 million or
69.1% for the fiscal year ended March 31, 1996, as compared to the prior year.
This increase is due to food and beverage revenues of $15.1 million at the newly
opened Texas Station property and combined food and beverage revenue increases
at Station Casino St. Charles and Boulder Station of $14.2 million. Food and
beverage revenues at Station Casino St. Charles increased with the opening of
two full service restaurants in October 1995.

Food and beverage net profit margins remained relatively flat, with a margin
of 21.1% in fiscal year 1996. Net profit margins for Boulder Station improved
significantly over the prior year from 5.4% to 17.8% for the fiscal year ended
March 31, 1996. Management believes that the low margin experienced in the prior
year was due to typical initial operating inefficiencies of a new property. In
fiscal year 1996 the

45
<PAGE>
increase in margin at Boulder Station was due to efficiencies resulting from
effective cost control measures implemented. The net profit margin at Texas
Station was 9.7% which management attributes primarily to initial operating
inefficiencies typical for a new property.

ROOM. Room revenues increased 33.5% to $23.6 million for the fiscal year
ended March 31, 1996, as compared to $17.7 million for the prior year. This
increase is due primarily to the addition of Texas Station and a full year of
operations at Boulder Station. Texas Station, with a total of 200 rooms,
contributed $2.1 million of the increase. Boulder Station, with a total of 300
rooms, contributed $2.7 million of the increase. Palace Station contributed an
increase of $1.1 million over the prior year. The company-wide room occupancy
rate declined from 95% in the prior year to 94% for the fiscal year ended March
31, 1996, while the average daily room rate increased from $41 to $46.

OTHER. Other revenues increased $2.5 million or 6.9% to $39.1 million for
the fiscal year ended March 31, 1996, as compared to the prior year. This
increase is due primarily to increased slot route revenues of $4.0 million and
an increase in other revenues at Boulder Station of $1.8 million. In addition,
Texas Station added $1.8 million of other revenues during the fiscal year ended
March 31, 1996. These increases were offset by decreases in operating revenues
resulting after the sale of certain assets of the pay phone division at the end
of fiscal year 1995 and the vending division in the middle of fiscal year 1996.

SELLING, GENERAL AND ADMINISTRATIVE. SG&A increased $36.7 million or 60.3%
for the fiscal year ended March 31, 1996, as compared to the prior year. This
increase is primarily due to the operations at Station Casino St. Charles and
Boulder Station, which combined, contributed an increase of $20.5 million over
the prior year. In addition, Texas Station added $14.8 million of SG&A for the
fiscal year ended March 31, 1996. SG&A as a percentage of net revenues remained
consistent at 20.9%.

CORPORATE EXPENSES. Corporate expenses increased $2.8 million or 21.6% to
$16.0 million for the fiscal year ended March 31, 1996, as compared to the prior
year. This increase is attributable to increases in personnel and other
infrastructure costs required to manage the Company's new properties and
expansion plans for fiscal years 1997 and beyond. Corporate expenses declined to
3.4% of net revenues for the fiscal year ended March 31, 1996, as compared to
4.5% in the prior year.

DEVELOPMENT EXPENSES. Development expenses decreased significantly for the
fiscal year ended March 31, 1996, compared to the prior year. This decrease was
the result of reduced efforts to identify potential gaming opportunities.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$12.8 million or 57.7% to $35.0 million for the fiscal year ended March 31,
1996. This increase is attributed to increases of $3.5 million at Boulder
Station and $5.2 million at Station Casino St. Charles due to expansions at
these facilities. In addition, Texas Station generated $4.1 million of
depreciation and amortization for the fiscal year ended March 31, 1996.

INTEREST EXPENSE, NET. Interest costs incurred (expensed and capitalized)
for the fiscal year ended March 31, 1996 were $36.7 million, a 41.5% increase
over the prior year. This increase is primarily attributable to increases in
term note and revolving line of credit balances as a result of the capital
required for the Company's expansion strategy.

Other income includes a $1.2 million gain recorded as a result of the sale
of certain assets of the vending division of Southwest Services, Inc.

LIQUIDITY AND CAPITAL RESOURCES

HISTORICAL

During the six months ended September 30, 1997, the Company's sources of
capital included net proceeds of $144.3 million from the issuance of 9 3/4%
Senior Subordinated Notes, which were used to re-pay amounts outstanding under
the Current Bank Facility, cash flows from operating activities of

46
<PAGE>
$54.6 million, and borrowings under the Sunset Loan Agreement of $57.0 million.
At September 30, 1997, the Company had available borrowings of $116.0 million
under its reducing revolving credit facility, subject to covenant restrictions,
$7.0 million under the Sunset Loan Agreement and $43.9 million in cash and cash
equivalents.

During the six months ended September 30, 1997, total capital expenditures
were approximately $103.6 million, of which approximately (i) $40.7 million was
associated with the development and construction of Sunset Station, (ii) $23.9
million was associated with the development and construction of the expansion
project at Station Casino St. Charles, (iii) $7.0 million was associated with
the acquisition of land adjacent to Boulder Station, and (iv) $32.0 million was
associated with various other projects, maintenance capital expenditures and net
construction period interest.

STATION REIT PRO FORMA

Station REIT's primary requirements during 1998 are expected to include (i)
the payment of construction contracts payable of approximately $7.2 million as
of September 30, 1997, (ii) the possible repurchase or redemption of the 9 5/8%
Senior Subordinated Notes due 2003 in June of 1998, (iii) costs of construction
associated with Boulder Station, Texas Station and Sunset Station, (iv)
principal and interest payments on indebtedness, (v) dividend payments on
Convertible Preferred Stock and on the Common Stock and (vi) general corporate
purposes.

Upon completion of the Reorganization Transactions, Station REIT's long-term
indebtedness will be reduced by approximately $354.4 million, and Station REIT
expects to have $500 million available for borrowing under the Bank Facility.
See "Station REIT Pro Forma Capitalization" and "Description of Certain New
Indebtedness." The Company believes the Reorganization Transactions will improve
its financial position through these changes in its capital structure, in
addition to the benefits expected to result from the changes summarized in
"--Results of Operations--Overview." Primary liquidity requirements during 1998
are expected to be met from net cash provided by operations. See "Distribution
Policy."

Management has identified approximately $80 million of potential investments
that it expects would be made at the Initial Properties in Las Vegas during
1998. These investments continue the master-planned development at Boulder
Station, Texas Station and Sunset Station. All of these projects are expected to
be completed in the first quarter of calendar year 1999. At Boulder Station, the
next phase of expansion includes the addition of 20,000 square feet of banquet
and meeting space estimated to cost $13 million (excluding construction period
interest). At Texas Station, the next phase of expansion includes adding 168
hotel rooms, approximately 21,360 square feet of casino space, a 2,000-space
parking garage, a 10,000 square-foot food court with six to ten fast food
tenants and a 10,000 square foot child care facility estimated to cost $40
million (excluding construction period interest). Management estimates that the
size and scope of this project may cause some disruption to current operations.
At Sunset Station, the next phase of expansion includes a 2,088-space parking
garage, and the addition of 13,670 square feet of casino space with an
additional 300 slot machines at a cost of $28 million, (excluding construction
period interest). In addition, the Company is in negotiations with Act III
Theaters to develop a 12-screen theater which would raise the total cost to $36
million.

The Lease payments, borrowings under the Bank Facility, proceeds from the
Offerings and existing cash balances are expected to be adequate to satisfy
Station REIT's anticipated uses of capital during 1998. The Company continually
evaluates its financing needs. If more attractive financing alternatives become
available to the Company, the Company may pursue these financing plans assuming
such financing would be permitted under its existing debt agreements and other
applicable agreements. See "Description of Certain New Indebtedness."

47
<PAGE>
SELECTED COMBINED FINANCIAL DATA OF OPCO

The selected combined financial data presented below as of and for OpCo's
fiscal years ended March 31, 1993, 1994, 1995, 1996 and 1997 have been derived
from combined financial statements which, except for 1993 and 1994, are
contained elsewhere in this Proxy Statement. The selected combined financial
data presented below as of and for years ended March 31, 1993 and 1994 and the
six months ended September 30, 1997 and 1996 are derived from unaudited combined
financial statements; however, in the opinion of OpCo, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
OpCo's financial position and results of operations for such period have been
included. The selected combined financial data set forth below are qualified in
their entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
OpCo" and the combined financial statements, the notes thereto and other
financial and statistical information included elsewhere in this Proxy
Statement. The following selected combined financial data of OpCo relates to the
business of OpCo as it was operated as a part of the Company and may not reflect
the results of operations or financial position that would have been obtained
had OpCo been a separate, publicly held company during such periods. In
particular, the effect of Lease payments that would have been incurred by OpCo
are not reflected. See "Summary Unaudited Pro Forma Financial Data of OpCo."

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Casino................................... $ 100,426 $ 109,090 $ 210,534 $ 358,495 $ 450,013 $ 212,072 $ 282,700
Food and beverage........................ 25,157 26,078 43,208 73,057 92,220 42,626 63,577
Room..................................... 12,373 14,360 17,690 23,614 27,420 12,658 17,218
Other.................................... 20,743 31,226 36,561 39,099 48,957 22,752 28,676
--------- --------- --------- --------- --------- --------- ---------
Gross revenues......................... 158,699 180,754 307,993 494,265 618,610 290,108 392,171
Less promotional allowances.............. (8,804) (11,211) (17,715) (27,408) (35,095) (16,634) (24,558)
--------- --------- --------- --------- --------- --------- ---------
Net revenues........................... 149,895 169,543 290,278 466,857 583,515 273,474 367,613
--------- --------- --------- --------- --------- --------- ---------
Operating costs and expenses:
Casino................................... 42,185 47,492 92,812 150,805 203,857 93,278 137,592
Food and beverage........................ 20,184 19,528 34,045 57,659 68,994 32,275 44,862
Room..................................... 5,398 5,439 7,014 9,147 10,318 5,097 6,481
Other.................................... 15,822 22,432 27,270 24,902 23,927 11,260 13,481
Selling, general and administrative...... 28,514 26,269 60,810 97,466 120,285 55,606 81,896
Corporate expenses....................... -- 7,920 13,141 15,979 18,284 8,642 7,644
Restructuring charge..................... -- -- -- -- 2,016 -- --
Development expenses..................... -- 1,791 7,200 3,960 1,302 602 104
Intercompany expense..................... 2,070 1,929 3,333 5,202 7,970 3,655 6,242
Depreciation and amortization............ 8,865 11,047 18,887 29,837 36,619 16,437 26,927
Preopening expenses...................... -- -- 19,378 2,436 31,820 -- 10,866
--------- --------- --------- --------- --------- --------- ---------
Total operating costs and expenses..... 123,038 143,847 283,890 397,393 525,392 226,852 336,095
--------- --------- --------- --------- --------- --------- ---------
Operating income........................... 26,857 25,696 6,388 69,464 58,123 46,622 31,518
Interest expense, net...................... (8,949) (7,443) (6,980) (10,546) (7,413) (3,479) (6,172)
Other income (expense), net................ 32 2,192 2,160 1,150 (47) 67 (4,996)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes................. 17,940 20,445 1,568 60,068 50,663 43,210 20,350
Income tax provision....................... -- (4,148) (812) (21,596) (17,121) (15,152) (6,830)
Reinstatement of deferred taxes............ -- (3,232) -- -- -- -- --
Pro forma income taxes (unaudited)(1)...... (6,260) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income................................. $ -- $ 13,065 $ 756 $ 38,472 $ 33,542 $ 28,058 $ 13,520
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income after income taxes
(unaudited)(1)........................... $ 11,680 $ 13,494 $ -- $ -- $ -- $ -- $ --
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>

48
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>

- ------------------------------

(1) Reflects provisions for federal income taxes (assuming a 34% effective tax
rate for both periods) as if OpCo had not been treated as an S corporation
during the year ended March 31, 1993.

(2) Other Data relating to the number of hotel rooms, the casino square footage
and the number of slot machines represent end of period data.

49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF OPCO

The following discussion and analysis should be read in conjunction with
"Selected Combined Financial Data of OpCo" and the combined financial statements
and notes thereto included elsewhere in this Proxy Statement.

RESULTS OF OPERATIONS

OVERVIEW:

Historical results set forth in the Station Operating Company Combined
Balance Sheet and Station Operating Company Combined Statements of Operations
should not be taken as indicative of future operations. Such financial
statements relate to the business of OpCo as it was operated as a part of the
Company and may not reflect the financial position that would have been obtained
had OpCo been a separate publicly held company during such periods. Upon
completion of the Reorganization Transactions OpCo will incur significant rent
expense under the Leases. The ability of OpCo to make payments under the Leases
will be dependent upon its ability to generate cash flow from the operation of
the Initial Casino Properties. Any profits generated by OpCo after the Lease
payments, property tax, and property and casualty insurance will be retained by
OpCo.

The following table highlights the historical results of operations for
OpCo:

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED MARCH 31, ENDED SEPTEMBER 30,
---------------------------------- ----------------------
1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NEVADA OPERATIONS:
- -----------------------------------------------------
PALACE STATION
Net revenues......................................... $ 133,313 $ 131,178 $ 133,464 $ 68,500 $ 63,390
Operating income..................................... $ 31,390 $ 28,615 $ 30,802 $ 16,185 $ 13,988
EBITDA(1)............................................ $ 41,285 $ 38,225 $ 38,890 $ 20,230 $ 18,214

50
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED MARCH 31, ENDED SEPTEMBER 30,
---------------------------------- ----------------------
1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MISSOURI OPERATIONS:
- -----------------------------------------------------
STATION CASINO ST. CHARLES
Net revenues......................................... $ 58,384 $ 129,878 $ 158,760 $ 80,817 $ 61,150
Operating income (loss)(3)(4)........................ $ (12,039) $ 28,058 $ 34,996 $ 18,230 $ 6,590
EBITDA(1)............................................ $ 5,632 $ 39,627 $ 47,144 $ 24,082 $ 13,147

CORPORATE AND OTHER:
- -----------------------------------------------------
Net revenues......................................... $ 33,936 $ 32,663 $ 28,491 $ 14,309 $ 14,189
Operating loss....................................... $ (18,413) $ (19,215) $ (18,764) $ (7,854) $ (6,862)
EBITDA(1)............................................ $ (15,773) $ (15,467) $ (14,037) $ (6,404) $ (5,412)
</TABLE>

- ------------------------------

(1) "EBITDA" consists of operating income plus depreciation and amortization,
including preopening expenses and intercompany expense related to
depreciation on real estate assets to be held by Station REIT. "EBITDAR"
consists of operating income plus depreciation, amortization, preopening
expenses, intercompany expense related to depreciation on real estate assets
to be held by Station REIT and rent expense. EBITDA and EBITDAR should not
be construed as alternatives to operating income as an indicator of OpCo's
operating performance, or as alternatives to cash provided by operating
activities as a measure of liquidity. EBITDA and EBITDAR are presented
solely as supplemental disclosure because management believes that certain
investors consider this information useful in the evaluation of the
financial performance of companies with substantial depreciation and
amortization, preopening expenses and rent expense.

(2) Operating income for Boulder Station for the fiscal year ended March 31,
1995, includes preopening expenses of $7.5 million.

(3) Operating loss for Sunset Station for the six months ended September 30,
1997, includes preopening expenses of $10.7 million.

(4) Operating loss for Station Casino St. Charles for the fiscal year ended
March 31, 1995, includes preopening expenses of $11.9 million.

(5) Operating loss for Station Casino Kansas City for the fiscal year ended
March 31, 1997, includes preopening expenses of $31.1 million.

51
<PAGE>
SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1996.

Combined net revenues increased 34.4% to $367.6 million for the six months
ended September 30, 1997, from $273.5 million in the prior year. The Nevada
Operations contributed $217.3 million of net revenues for the six months ended
September 30, 1997, an increase of 21.6% over the prior year. This increase in
net revenues is due primarily to the opening of Sunset Station in June 1997, as
well as the continued improvement at Texas Station. These increases were offset
by a decline of 7.5% in net revenues at Palace Station due to a lower table
games hold percentage as compared to the prior year and competitive market
conditions in the tour and travel segment of Palace Station's business which had
a negative impact on casino revenues, as well as hotel room rates and occupancy,
especially during the second quarter. In addition, net revenues at Boulder
Station declined 1.4% due primarily to the opening of Sunset Station. The
Missouri Operations contributed $136.1 million of net revenues for the six
months ended September 30, 1997, an increase of 68.5% over the prior year. This
increase in net revenues is due to Station Casino Kansas City which opened in
January 1997, offset by a decline of 24.3% in net revenues at Station Casino St.
Charles due to increased competition in the St. Louis market with the opening of
a new hotel/casino in Maryland Heights in March 1997.

Combined operating income decreased 32.4% to $31.5 million for the six
months ended September 30, 1997, from $46.6 million in the prior year. Operating
income at the Nevada Operations decreased 5.9% to $34.1 million for the six
months ended September 30, 1997, from $36.2 million in the prior year. Excluding
a $10.9 million write-off of preopening expenses primarily related to the
opening of Sunset Station, the Nevada Operations generated operating income of
$45.0 million, an increase of 24.1% over the prior year. Operating income at the
Missouri Operations declined 76.5% to $4.3 million for the six months ended
September 30, 1997, from $18.2 million in the prior year. This is due primarily
to a decrease of $11.6 million at Station Casino St. Charles attributed to
increased competition and an operating loss of $2.3 million at Station Casino
Kansas City. The decline in combined operating income, an increase in net
interest expense of $2.7 million, and the expiration of certain option payments
to lease or acquire land for future development resulting in an expense of $5.0
million, resulted in net income of $13.5 million for the six months ended
September 30, 1997, compared to net income of $28.1 million in the prior year.

Casino expenses increased 47.5% to $137.6 million for the six months ended
September 30, 1997, from $93.3 million in the prior year. This increase in
casino expenses is consistent with the increase in casino revenues noted above.
The casino net profit margin decreased to 51.3% for the six months ended
September 30, 1997, from 56.0% in the prior year. The Nevada Operations
experienced a slight increase in net casino margin, while the Missouri
Operations were negatively impacted in St. Charles due to the increased
competition and Station Casino Kansas City which has a lower margin due to the
start-up nature of its operations, and its late entry into the Kansas City
market. In addition, the Missouri Operations have a lower margin than OpCo's
combined margin would have had, due primarily to higher gaming tax rates in
Missouri as compared to Nevada.

ROOM. Room revenues increased 36.0% to $17.2 million for the six months
ended September 30, 1997, from $12.7 million in the prior year. This increase is
due primarily to the opening of Station Casino

52
<PAGE>
Kansas City and Sunset Station which added 632 rooms for a total of 2,160 rooms
company-wide. Room occupancy company-wide decreased to 95% from 97%, while the
average daily room rate increased to $49 from $46 during the six months ended
September 30, 1997.

OTHER. Other revenues increased 26.0% to $28.7 million for the six months
ended September 30, 1997, from $22.8 million in the prior year. This increase is
due primarily to the addition of Station Casino Kansas City and Sunset Station.
Revenues from the slot route business increased 19.3% to $12.1 million for the
six months ended September 30, 1997.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses ("SG&A") increased 47.3% to $81.9 million for the six months ended
September 30, 1997, from $55.6 million in the prior year. This increase is due
to the addition of Station Casino Kansas City and Sunset Station. SG&A as a
percentage of net revenues increased to 22.3% for the six months ended September
30, 1997, from 20.3% in the prior year. This increase is due primarily to the
new operations at Sunset Station and Station Casino Kansas City which, as new
properties, tend to have a higher percentage of SG&A to net revenues.

DEVELOPMENT EXPENSES. Development expenses continue to decrease. Such costs
are incurred in connection with efforts to identify and pursue potential gaming
opportunities in selected jurisdictions, including those in which gaming has not
been approved. Development costs including lobbying, legal and consulting are
expensed until such time as the jurisdiction has approved gaming and a specific
site has been identified. Costs incurred subsequent to these criteria being met
are capitalized.

INTERCOMPANY EXPENSE. Intercompany expense represents depreciation or real
estate assets to be held by Station REIT which OpCo historically has utilized in
conducting its hotel/casino operations. Intercompany expense increased 70.8% to
$6.2 million for the six months ended September 30, 1997 from $3.7 million in
the prior year. This increase is due primarily to the addition of Station Casino
Kansas City and Sunset Station.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
63.8% to $26.9 million for the six months ended September 30, 1997, from $16.4
million in the prior year. This increase is due primarily to the addition of
Station Casino Kansas City and Sunset Station.

PREOPENING EXPENSES. Preopening expenses associated with construction
projects are capitalized, including Sunset Station which opened June 10, 1997.
These amounts are expensed upon the opening of the related project. During the
six months ended September 30, 1997, preopening expenses of $10.9 million
related primarily to Sunset Station were expensed.

INTEREST EXPENSE, NET. Interest expense increased 77.4% to $6.2 million for
the six months ended September 30, 1997, primarily due to increased borrowings
under the reducing revolving credit facility and the Sunset Station Loan
Agreement.

FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

Combined net revenues increased 25.0% to $583.5 million for the fiscal year
ended March 31, 1997, from $466.9 million in the prior year. The Nevada
Operations contributed $357.2 million of net revenues for the fiscal year ended
March 31, 1997, an increase of 17.4% over the prior year. This increase is
primarily due to improved operations at Boulder Station and the operations of
Texas Station which opened in July 1995. The Missouri Operations contributed
$197.8 million of net revenues for the fiscal year ended March 31, 1997, an
increase of 52.3% over the prior year. This increase is due to the opening of
Station Casino Kansas City in January 1997, as well as an increase in revenues
at Station Casino St. Charles. For the fiscal year ended March 31, 1996, net
revenues and operating income at Station Casino St. Charles

53
<PAGE>
were adversely impacted by flooding on the Missouri River, which closed
operations for 16 days and disrupted operations through the balance of the first
quarter of fiscal year 1996. During the fiscal year ended March 31, 1997, the
improved results at Station Casino St. Charles were achieved despite disruption
created from the construction of a new parking garage and elevated roadway,
which opened in May 1996, and construction related to the further development of
the property's master plan. Flooding on the Missouri River did occur again in
May 1996. The newly completed parking garage and elevated roadway served one of
its intended purposes in minimizing business disruption caused by the flood.
Additionally, results at Station Casino St. Charles were adversely impacted with
the opening of a new hotel/casino in March 1997.

Combined operating income decreased 16.3% to $58.1 million for the fiscal
year ended March 31, 1997, from $69.5 million in the prior year. Operating
income at the Nevada Operations increased 19.8% to $72.6 million from $60.6
million in the prior year. Operating income at the Missouri Operations were
negatively impacted by the write-off of preopening expenses for Station Casino
Kansas City and a one-time restructuring charge from the implementation of a
plan to reduce costs and improve efficiency which resulted primarily in employee
severance payments. Operating income at Station Casino St. Charles increased
24.7% to $35.0 million. For the fiscal year ended March 31, 1997, these results,
including a decrease in net interest expense of $3.1 million, a decrease in the
income tax provision of $4.5 million resulted in net income of $33.5 million,
compared to net income of $38.5 million in the prior year.

Casino net profit margin decreased to 54.7% from 57.9% in the prior year.
This decrease is due to a slight decrease at the Nevada Operations and a lower
margin at Station Casino Kansas City due to the start-up nature of the new
operations. In addition, the Missouri Operations have a lower margin than OpCo's
combined margin due primarily to higher gaming tax rates in Missouri as compared
to Nevada.

ROOM. Room revenues increased 16.1% to $27.4 million for the fiscal year
ended March 31, 1997, from $23.6 million in the prior year. This increase is due
primarily to the addition of Texas Station with a total of 200 rooms which
contributed an increase of $1.6 million of room revenues and Station Casino
Kansas City with a total of 180 rooms which contributed $1.2 million of room
revenues for the fiscal year ended March 31, 1997. Room occupancy increased to
96% from 94%, while the average daily room rate increased to $48 from $46.

54
<PAGE>
OTHER. Other revenues increased 25.2% to $49.0 million for the fiscal year
ended March 31, 1997, from $39.1 million in the prior year. This increase is due
to $2.3 million from OpCo's interest in the operating income of Barley's Casino
& Brewing Company which opened in January 1996, $3.1 million of lease income
from the lease of a riverboat gaming facility, combined increases in other
revenues at the other operating properties of $7.5 million, offset by lost
revenues of $3.0 million from the sale of vending assets of Southwest Services
which were sold in September 1995. The riverboat gaming facility lease will
terminate in August 1997. Revenues from the slot route business remained
constant at $21.0 million.

CORPORATE EXPENSES. Corporate expenses increased 14.4% to $18.3 million for
the fiscal year ended March 31, 1997, from $16.0 million in the prior year.
These increases are attributable to increases in personnel infrastructure to
manage new properties and projects under development. Corporate expenses
decreased to 3.1% of net revenues for the fiscal year ended March 31, 1997, from
3.4% in the prior year.

INTERCOMPANY EXPENSE. Intercompany expense represents depreciation of real
estate assets to be held by Station REIT which OpCo historically has utilized in
conducting its hotel/casino operations. Intercompany expense increased 53.2% to
$8.0 million for the fiscal year ended March 31, 1997 from $5.2 million in the
prior year. Station Casino Kansas City contributed $0.5 million of the increase,
Texas Station contributed $0.6 million, Boulder Station contributed $0.7 million
and Station Casino St. Charles contributed $0.8 million.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
22.7% to $36.6 million for the fiscal year ended March 31, 1997, from $29.8
million in the prior year. Station Casino Kansas City contributed $2.4 million
of this increase, while Texas Station contributed $3.3 million. These increases
were offset by a decrease in depreciation expense at Palace Station.

PREOPENING EXPENSES. Preopening expenses associated with construction
projects are capitalized, including Station Casino Kansas City which opened
January 16, 1997, and Sunset Station. These amounts are expensed upon the
opening of the related project and could have a material adverse impact on
earnings. During the fiscal year ended March 31, 1997, OpCo expensed $31.8
million of preopening expenses substantially related to Station Casino Kansas
City. Preopening expenses for the fiscal year ended March 31, 1996 relate to the
opening of the new restaurant facilities at Station Casino St. Charles, the
theater and parking garage at Boulder Station, the opening of Texas Station in
July 1995 and the opening at Barley's Casino & Brewing Company in January 1996.

INTEREST EXPENSE, NET. Interest expense decreased 29.7% to $7.4 million for
the fiscal year ended March 31, 1997, primarily due to increased capitalization
of interest and lower outstanding indebtedness on the bank credit facility for
most of the year.

FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

Results of operations include the operations of Texas Station located in
northwest Las Vegas which opened on July 12, 1995, operations for the full
fiscal year ended March 31, 1996 at Boulder Station, which opened on August 23,
1994, and full-scale gaming at Station Casino St. Charles which opened on a
limited basis on May 27, 1994. Operations at Station Casino St. Charles were
limited for a significant portion of fiscal year 1995 due to the unexpected
decision of the Missouri Supreme Court in January 1994 that certain games of
chance were prohibited under the Missouri Constitution. On November 8, 1994, by

55
<PAGE>
referendum, the Missouri voters amended the Missouri Constitution to permit
full-scale gaming. Full-scale operations began at Station Casino St. Charles on
December 9, 1994.

Combined net revenues increased 60.8% to $466.9 million for the fiscal year
ended March 31, 1996, as compared to $290.3 million for the prior year. This
increase is due to the factors noted in the preceding paragraph. Station Casino
St. Charles contributed $129.9 million of net revenues, an increase of $71.5
million as compared to the prior year, while Boulder Station contributed $118.0
million of net revenues, an increase of $53.4 million as compared to the prior
year. Texas Station contributed $55.1 million of net revenues during the current
fiscal year. For the fiscal year ended March 31, 1996, net revenues and
operating income of Station Casino St. Charles were negatively impacted by the
flooding of the Missouri River which led to the closing of the property from May
17 through June 1, 1995, and disruption of operations throughout the balance of
the first quarter. The operations of Station Casino St. Charles were further
disrupted by ongoing construction, including a new parking garage and elevated
roadway which opened in May 1996.

Combined operating income increased $63.1 million to $69.5 million for the
fiscal year ended March 31, 1996, as compared to $6.4 million for the prior
year. This improvement is due to the new and expanded operations discussed
above. In addition, contributing to the lower operating income for the fiscal
year ended March 31, 1995 were preopening expenses of $19.4 million related to
the opening of Boulder Station and Station Casino St. Charles. Significant
preopening expenses were not incurred in connection with the Texas Station
acquisition due to the fact that Texas Station was substantially ready to open
upon acquisition. This improvement in operating income, partially offset by an
increase in net interest expense of $3.6 million and an increase of $20.8
million in the income tax provision, resulted in net income $38.5 million for
fiscal year 1996.

CASINO. Casino revenues increased 70.3% to $358.5 million for the fiscal
year ended March 31, 1996, as compared to $210.5 million for the prior year.
This increase is directly related to $40.1 million in casino revenues generated
by the new Texas Station property and combined casino revenue increases
generated by Station Casino St. Charles and Boulder Station of $110.2 million.
For the fiscal year ended March 31, 1996, casino revenues at Palace Station
decreased $2.2 million or 2.3% as compared to the prior year, primarily as a
result of a decline in sports book revenue. Management believes that Palace
Station's revenues were negatively impacted by road construction at Interstate
15 and Sahara Avenue. This construction was substantially completed in October
1995. In addition, two of the restaurants at Palace Station were closed for
remodeling during different parts of the fiscal year which management believes
also had a negative impact on casino revenues. Both restaurants have been
reopened. Revenues at the Southwest Company's Louisiana Downs Race Track video
poker operation (all but a one percent interest of which was sold in September
1997) declined by $2.2 million for the fiscal year ended March 31, 1996 as
compared to the prior year. This decrease is a result of increased competition
in northwest Louisiana from riverboats opened in the first two quarters of
fiscal year 1995.

Casino expenses increased 62.5% to $150.8 million for the fiscal year ended
March 31, 1996, as compared to $92.8 million for the prior year. This increase
in casino expenses is consistent with the increase in casino revenues discussed
above. Casino net profit margin improved to 57.9% from 55.9% during the prior
year. This improvement comes primarily from the operations at Station Casino St.
Charles where the casino profit margin was 53.1% for the fiscal year ended March
31, 1996, compared to 45.0% for the prior year. The improvement at Station
Casino St. Charles was primarily due to increased revenues generated as a result
of the Missouri vote which allowed full-scale gaming beginning in December 1994.
The increased revenues allowed for substantial operational efficiencies. The
casino net profit margins at Station Casino St. Charles are lower than the
combined margin primarily due to higher gaming tax rates in Missouri as compared
to Nevada.

56
<PAGE>
increases at Station Casino St. Charles and Boulder Station of $14.2 million.
Food and beverage revenues at Station Casino St. Charles increased with the
opening of two full service restaurants in October 1995.

Food and beverage net profit margins have remained relatively flat, with a
margin of 21.1% in fiscal year 1996. Net profit margins for Boulder Station have
improved significantly over the prior year from 5.4% to 17.8% for the fiscal
year ended March 31, 1996. Management believes that the low margin experienced
in the prior year was due to typical initial operating inefficiencies of a new
property. In fiscal year 1996 the increase in margin at Boulder Station was due
to efficiencies resulting from effective cost control measures implemented. The
net profit margin at Texas Station was 9.7% which management attributes
primarily to initial operating inefficiencies typical for a new property.

ROOM. Room revenues increased 33.5% to $23.6 million for the fiscal year
ended March 31, 1996, as compared to $17.7 million for the prior year. This
increase is due primarily to the addition of Texas Station and a full year of
operations at Boulder Station. Texas Station, with a total of 200 rooms,
contributed $2.1 million of the increase. Boulder Station, with a total of 300
rooms, contributed $2.7 million of the increase. Palace Station contributed an
increase of $1.1 million over the prior year. Room occupancy rate declined from
95% in the prior year to 94% for the fiscal year ended March 31, 1996, while the
average daily room rate increased from $41 to $46.

CORPORATE EXPENSES. Corporate expenses increased $2.8 million or 21.6% to
$16.0 million for the fiscal year ended March 31, 1996, as compared to the prior
year. This increase is attributable to increases in personnel and other
infrastructure costs required to manage new properties and expansion plans for
fiscal years 1997 and beyond. Corporate expenses declined to 3.4% of net
revenues for the fiscal year ended March 31, 1996, as compared to 4.5% in the
prior year.

INTERCOMPANY EXPENSE. Intercompany expense represents depreciation of real
estate assets to be held by Station REIT which OpCo historically has utilized in
conducting its hotel/casino operation. Intercompany expense increased 56.1% to
$5.2 million for the fiscal year ended March 31, 1996 from $3.3 million in the
prior year. This increase is primarily attributable to an increase of $1.0
million at Boulder Station and $0.7 million of depreciation expense on real
estate assets at Texas Station for the fiscal year ended March 31, 1996.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$11.0 million or 57.9% to $29.8 million for the fiscal year ended March 31,
1996. This increase is attributed to increases of $2.5 million at Boulder
Station and $5.1 million at Station Casino St. Charles due to expansions at
these facilities. In addition, Texas Station generated $3.6 million of
depreciation and amortization for the fiscal year ended March 31, 1996.

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INTEREST EXPENSE, NET. Interest expense for the fiscal year ended March 31,
1996 increased $3.6 million, a 51.1% increase over the prior year, primarily due
to increased amounts outstanding under the bank credit facility.

OTHER INCOME. Other income includes a $1.2 million gain recorded as a
result of the sale of certain assets of the vending division of Southwest
Services, Inc.

LIQUIDITY AND CAPITAL RESOURCES

HISTORICAL

The primary sources of capital have been cash flow generated from
operations, investments by the Company, proceeds from the Company's reducing
revolving credit facility and the Sunset Loan Agreement, and vendor and lease
financing of equipment. As of September 30, 1997, OpCo would have had $43.9
million in cash and cash equivalents.

During the six months ended September 30, 1997, total capital expenditures
were approximately $43.7 million, primarily associated with equipment purchased
for the completion of Sunset Station, continued construction in St. Charles and
maintenance capital expenditures at the Initial Properties.

OPCO PRO FORMA

Concurrently with the Distribution, OpCo expects to enter into a bank credit
agreement with a syndicate of banks (the "OpCo Lenders") pursuant to which the
OpCo Lenders will provide to OpCo a $150 million reducing revolving bank credit
facility. Loans made pursuant to which the bank facility will bear interest at a
variable rate, based on LIBOR or at an alternate rate based upon a designated
bank's prime rate or the federal funds rate. The bank facility will contain
customary covenants with respect to OpCo including negative pledges, limitations
on other debt, financial covenants relating to tangible net worth, interest
coverage, and maximum debt to cash flow level and limitation on investments and
the payment of dividends. Funds borrowed under the bank facility will be used to
repay the Intermediate Notes in the amount of $105 million.

Subsequent to the Distribution, one of OpCo's principal use of funds will be
payments required under the Leases. Pursuant to the Leases, OpCo will lease
certain real property necessary to the operation of the gaming activities of the
Initial Properties from Station REIT. Each Lease will have primary terms ranging
from 13 to 15 years and will be renewable for six five-year renewal terms. The
Lease provides for OpCo to pay monthly a fixed base rent, percentage rent and
add-on rent, each as defined in the Leases.

OpCo's primary requirements during fiscal year 1998 are expected to include
(i) Lease payments, (ii) maintenance capital expenditures, (iii) principal and
interest payments on indebtedness, (iv) dividend payments on the OpCo Preferred
Stock and (v) general corporate purposes.

It is expected that OpCo's cash balances, cash flows from operations, vendor
and lease financing of equipment and borrowings under the OpCo bank facility
will be adequate to satisfy OpCo's anticipated working capital and capital
expenditures requirements for at least the next twelve months. There can be no
assurance, however, that the amounts available from such sources will be
sufficient. OpCo may be required to seek additional capital in the form of
public debt offerings or additional bank financing. OpCo's ability to borrow
amounts under the OpCo bank facility or obtain other sources of capital will be
limited if OpCo does not meet certain financial ratios as required by the OpCo
bank facility. OpCo, however, expects to continually evaluate its financing
needs. If more attractive financing alternatives become available to OpCo, OpCo
may amend its financing plans.

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BUSINESS STRATEGY

HISTORICAL OVERVIEW

The Company has been a leading Las Vegas hotel/casino operator, catering
primarily to local residents and repeat visitors. The Initial Properties have
over 10,000 slot and video poker machines in Las Vegas, more than any other
owner/operator in the entire Las Vegas market. The Company targets the full-
service locals and repeat visitors segment of the Las Vegas gaming market. Slot
and video poker machines at the Company's Las Vegas properties account for
approximately 38% of the installed base of machines within its targeted market.
Consequently, management believes the Initial Properties in Las Vegas are
well-positioned to continue to benefit from the business and population growth
in Las Vegas and its surrounding areas. The Company has implemented its
long-term Las Vegas business strategy by developing four fully-integrated
entertainment destinations in key population centers in each quadrant of the Las
Vegas market. Each of these Initial Properties has been master-planned for
future expansion in order to capitalize on Las Vegas' expected population
growth. In applying a similar philosophy of identifying projects with long-term
potential in the locals' market niche, the Company has diversified into two
major markets in Missouri. Management believes that its track record of
sustained growth in its target market is attributable to its philosophy of
developing long-term competitive assets. Specifically, management believes that
its ability to secure properties in high traffic areas having ease of access and
high visibility has provided the Initial Properties with a long-term competitive
advantage.

GROWTH STRATEGY

CONTINUED MASTER-PLANNED DEVELOPMENT

OpCo is expected to initiate this master-planned development at each of the
Initial Properties when it determines that economic conditions warrants
expansion and will produce revenues sufficiently in excess of

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those needed to pay for such capital improvements or the increased rents at the
Initial Properties if Station REIT elects to finance such development. See
"Relationship Between Station REIT and OpCo--The Leases."

The following paragraphs summarize the master-planned expansions at each
Initial Property:

LAS VEGAS PROPERTIES

- PALACE STATION

As are all of the Initial Properties, Palace Station is master planned for
further growth. The master plan includes a total of 3,000 hotel rooms,
approximately 148,000 square feet of casino space, 3,200 slot machines and 90
table games. Additionally, the expanded Palace Station would offer approximately
50,000 square feet of rentable banquet space, a Kid's Quest child-care facility,
an expanded arcade, expanded retail lease space, an estimated 5,600 parking
spaces, a Las Vegas-style showroom and several new restaurants, bars and other
entertainment amenities. This master plan is designed to be executed in multiple
phases over several years. At the present time, no decision as to the timing or
budget of the master planned expansion at Palace Station has been made.
Furthermore, the execution of any expansion is dependent upon initiation by OpCo
pursuant to the Leases, obtaining necessary regulatory approval, an assessment
of current market conditions and the ability of Station REIT to finance the
expansion.

- BOULDER STATION

NEAR-TERM EXPANSION. The next phase of expansion at Boulder Station is
planned to be the addition of banquet and meeting space ("Boulder Phase One") to
the property. Boulder Phase One would add approximately 20,000 square feet of
banquet and meeting space at an estimated cost of $13 million. Boulder Phase One
construction is expected to commence in the second quarter of 1998 and would
likely be completed in the first quarter of calendar year 1999.

MASTER PLANNED EXPANSION. At the completion of Boulder Phase One, OpCo is
expected to evaluate market conditions and the timing and scope of the next
phase of the master-planned development at Boulder Station. Boulder Station
after completion of the potential master-planned development would offer 1,500
hotel rooms, 140,000 square feet of casino space with 3,500 slot and video poker
machines and 50 table games, a 23-screen Act III movie theater complex, a
bowling center, several restaurant concepts and additional lease space for food
and retail uses. At the present time, there exists no definitive plans, designs
or budgets for a project of this scope. Furthermore the execution of any
expansion is dependent upon initiation by OpCo pursuant to the Leases, obtaining
necessary regulatory approvals, an assessment of current market conditions and
the ability of Station REIT to finance the expansion.

- TEXAS STATION

NEAR TERM EXPANSION. To accommodate future growth, Texas Station has been
master-planned for additional hotel rooms, casino space and entertainment
facilities. The first phase of such master-planned development at Texas Station
("Texas Phase One") is anticipated to add 168 hotel rooms, 21,360 square feet of
casino space accommodating an additional 600 slot machines, a 2,000-space
parking garage, a 10,000 square-foot food court with six to ten fast food
outlets and a 10,000-square foot Kid's Quest child-care facility. At the
completion of Texas Phase One, Texas Station would have a total of 368 hotel
rooms, approximately 96,360 square feet of casino space, 2,585 slot machines,
and 5,500 parking spaces. Similar to Boulder Station, Sunset Station, and Kansas
City Station, the Kid's Quest child care facility at Texas Station would be
adjacent to the Act III movie theaters. The lease agreement with Kid's Quest at
Texas Station is expected to be substantially the same as the agreements at the
other Initial Properties.

Station REIT anticipates that Texas Phase One will be completed by the first
quarter of calendar year 1999 at a total cost of approximately $40 million.
Disruption from the construction of Texas Phase One should be expected.

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MASTER PLANNED EXPANSION. After OpCo assesses the Texas Phase One
expansion initial operating results, it is expected that OpCo will further
evaluate and determine the appropriate scope and timing of completion of the
next phase of master-planned development. Texas Station after completion of the
potential master-planned development, which is designed to be executed over
several years, would offer 700 hotel rooms, 127,000 square feet of casino space
with approximately 3,500 slots and video poker machines and 50 table games, over
55,000 square feet of banquet and meeting space, a 24-screen Act III movie
theater, 42,000 square feet of space for the purpose of retail leasing or an
entertainment venue, additional arcade space and a 70-lane bowling alley.
Currently, there are neither definitive construction plans nor budgets for any
further portion of the master-planned development and the scope of any project
may vary significantly from that which has been described. Furthermore, the
execution of any expansion is dependent upon initiation by OpCo pursuant to the
Leases, regulatory approval, market conditions and the ability of Station REIT
to finance the expansion.

- SUNSET STATION

NEAR TERM EXPANSION. The first phase of the master-planned development at
Sunset Station ("Sunset Phase One") includes a 2,088-space parking garage, an
addition of 13 screens to the Act III movie theater complex and 13,670 square
feet of casino space with an additional 300 slot and video poker machines.
Subsequent to the completion of Sunset Phase One, Sunset Station would have
approximately 5,800 parking spaces, 93,000 square feet of casino space and 3,000
slot machines. The construction of Sunset Phase One, which is expected to cost
approximately $28 million is expected to be completed by the first quarter of
calendar 1999. In addition, Station REIT is currently in discussions with Act
III to develop an additional 12-screen theater which would raise the total cost
at Sunset Phase One to $36 million.

MASTER PLANNED EXPANSION. The Sunset Station master-planned development,
which is designed to be executed over several years would offer 2,000 hotel
rooms, 130,000 square feet of casino space, 60,550 square feet of banquet and
meeting space, a bowling center and additional leasable space for retail and
entertainment venues. No decision has been made as to the timing of Sunset
Station's master plan and the design could change before the commencement of any
portion of the master plan. Furthermore, the execution of any expansion is
dependent upon initiation by OpCo pursuant to the Leases, obtaining necessary
regulatory approvals, assessment of current market conditions and the ability of
Station REIT to finance the expansion.

FUTURE LAND DEVELOPMENT. Sunset Station is located on 100-acres of which
only approximately 70 acres have been developed and will be leased to OpCo.
Station REIT is currently evaluating potential development plans for such
property not under lease to OpCo. Uses for the land could include a life-style
entertainment retail center, as well as the development of several pads for
various build-to-suit retail, restaurant and entertainment concepts and a
199-gaming machine bar and restaurant. Timing and definitive plans have not yet
been determined for the development. The development of the land is dependent
upon market conditions and the availability of financing.

- ADDITIONAL PROPERTY

Station REIT also owns a 27-acre parcel of real property located at
Boulder Highway and Nellis Boulevard in Clark County, Nevada (the "Wild Wild
West Property"), across Boulder Highway from two existing hotel/casinos. The
Wild Wild West Property is zoned for a resort hotel and has obtained all of the
entitlements necessary for such development. The Wild Wild West Property was
also designated in a recently enacted statute (S.B. 208), as being permanently
"grandfathered" into the Clark County gaming enterprise district so that the
right to develop a hotel/casino on this property will not expire. The Wild Wild
West Property also is suitable for commercial, retail or high density
residential uses.

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MISSOURI CASINO PROPERTIES

- STATION CASINO KANSAS CITY

MASTER PLANNED EXPANSION. Station Casino Kansas City is master-planned
for multi-phased growth including additional hotel rooms, restaurants, other
entertainment facilities, a parking garage and banquet and meeting space.
Furthermore, the execution of any expansion is dependent upon initiation by OpCo
pursuant to the Leases, obtaining required regulatory approval, assessment of
current market conditions and the ability of Station REIT to finance the
expansion.

FUTURE LAND DEVELOPMENT. Station Casino Kansas City is located on
171-acres of land of which only approximately 85 acres have been developed and
will be leased to OpCo. Station REIT is currently considering entering into
options for the development of the remainder of the real property and is
evaluating the sale or lease of certain parcels for the development of
complimentary hotel rooms, separate and apart from the existing hotel. Station
REIT is also currently evaluating the development of a significant retail
facility on a portion of this real property. At the current time, no decisions
have been made as to the future use of the real property. Furthermore, it is
expected that Station REIT will not make any decisions concerning the
development of the residual property until it is determined that Station Casino
Kansas City's regulatory and competitive environment warrants further
investment.

- STATION CASINO ST. CHARLES

MASTER-PLANNED EXPANSION. Station Casino St. Charles is master planned to
be a complete gaming and entertainment destination, similar to Station Casino
Kansas City. The St. Charles master plan includes two new gaming vessels to be
located in a recently completed protective basin contiguous to the Missouri
River, a uniquely designed retail and entertainment complex, a full-service
hotel, banquet and meeting facilities and an additional parking structure. The
new gaming vessels will offer up to a combined 140,000 square feet of gaming
space with 3,000 slot machines and 190 gaming tables. The master-planned
entertainment complex is expected to include a 14-screen Act III movie theater,
a 600-seat Feast-Around-the-World Buffet, a Kid's Quest child-care facility, and
various leased and OpCo operated restaurants and fast-food venues. Opportunities
for a third party to develop and lease certain portions of the entertainment
complex are expected to be explored. A decision concerning further development
of the master planned expansion at Station Casino St. Charles will likely not be
made until it is determined that the regulatory and operating environment
warrants further investment. Furthermore, the execution of any expansion is
dependent upon initiation by OpCo pursuant to the Leases, obtaining necessary
regulatory approval, assessment of current market conditions and the ability of
Station REIT to finance the expansion.

ACQUISITIONS AND DEVELOPMENT WITHIN THE LAS VEGAS MARKET

Station REIT intends to identify Las Vegas properties with attributes that
are compatible with its master-planned development strategy. These
characteristics include: (a) a central location, (b) convenient highway access,
(c) ample parking and (d) adequate acreage for growth. Management believes that
Las Vegas also offers acquisition opportunities for Station REIT outside the
locals market.

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OpCo is expected to exercise its rights to manage properties acquired or
developed by Station REIT to the extent they are within the Las Vegas locals
market and, with respect to acquired properties, Station REIT does not elect to
retain current management. OpCo also may manage properties Station REIT acquires
or develops in Las Vegas outside the locals market to the extent OpCo and
Station REIT reach mutually satisfactory terms. OpCo does not have a right of
first offer to manage properties held by Station REIT in Las Vegas outside the
locals market. Subject to Station REIT's rights of first offer, OpCo also is
expected to develop and manage properties independently of Station REIT within
the Las Vegas Market.

ACQUISITIONS AND DEVELOPMENT OUTSIDE THE LAS VEGAS MARKET

OpCo also may manage properties Station REIT acquires or develops outside
the Las Vegas market to the extent OpCo and Station REIT reach mutually
satisfactory terms. OpCo does not have a right of first offer to manage
properties held by Station REIT outside the Las Vegas locals market. Subject to
Station REIT's right of first offer, OpCo is expected to develop and manage
properties independently of Station REIT outside the Las Vegas Market.

OPERATING STRATEGY

OpCo expects to continue the management and operating strategy currently
employed by the Company. The operating strategy at the Initial Casino Properties
emphasizes attracting and retaining customers primarily from the local and
repeat visitor markets. The Initial Casino Properties attract customers from
their local markets through innovative, frequent and high-profile promotional
programs, focused marketing efforts and convenient locations, and from the
repeat visitor market through aggressive marketing and the development of strong
relationships with specifically targeted travel wholesalers.

CAPITAL STRATEGY

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capitalization ratio of 50%. Station REIT intends that distributions to holders
of Common Stock will increase with any growth in Funds From Operations (as
defined herein). See "--Distribution Policy."

Upon completion of the Reorganization Transactions, OpCo expects to have $45
million available for borrowing under a new bank credit facility and $105
million in long-term debt incurred to repay the Intermediate Notes.

DISTRIBUTION AND DIVIDEND POLICY

OpCo does not intend to pay cash dividends on the OpCo Common Stock in the
foreseeable future so that it may reinvest its earnings in the development of
its business. The payment of dividends on the OpCo Common Stock in the future
will be at the discretion of the board of directors of OpCo. Restrictions
imposed by the OpCo bank facility and other securities or agreements of OpCo are
expected to limit the payment of dividends by OpCo. No assurance can be given
that OpCo will pay any dividends.

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REGULATION AND LICENSING

NEVADA GAMING REGULATIONS

The ownership and operation of casino gaming facilities, the operation of
gaming device routes and the manufacture, selling and distribution of gaming
devices for use or play in Nevada or for distribution outside of Nevada are
subject to the Nevada Gaming Control Act (the "Nevada Act") and various local
ordinances and regulations, and to the licensing and regulatory control of the
Nevada Commission, the Nevada State Gaming Control Board ("Nevada Board"), and
various other local city and county regulatory agencies (collectively, the
"Nevada Gaming Authorities").

The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal 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; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on OpCo's gaming operations and the
Company's ability to participate in the Leases.

Although the Company is currently licensed to conduct gaming operations at
the Initial Properties, the Company's direct and indirect subsidiaries that will
have an interest in earnings from gaming operations through the Leases (a
"Gaming Interest") in Nevada are required to be licensed by the Nevada Gaming
Authorities. PSHC is required to be licensed to have a Gaming Interest at Palace
Station. BSI is required to be licensed to have a Gaming Interest at Boulder
Station and TSI is required to be licensed to have a Gaming Interest at Texas
Station and SSI is required to be licensed to have a Gaming Interest at Sunset
Station. The Company is and OpCo will be required to be registered by the Nevada
Commission as a publicly traded corporation (a "Registered Corporation"). The
Company has been found suitable to own the stock of PSHC, BSI, TSI and SSI
(individually, a "Gaming Subsidiary" and, collectively, the "Gaming
Subsidiaries") under the terms of the Nevada Act. OpCo will be required to be
found suitable to own the stock of its subsidiaries that will operate the
Initial Properties (individually, an "OpCo Gaming Subsidiary" and, collectively,
the "OpCo Gaming Subsidiaries") and to own the capital stock of certain
subsidiaries included in the Transferred Assets, including Southwest Gaming
Services, Inc. and Green Valley Station, Inc. which owns approximately 50% of a
casino and brew pub located in southeast Las Vegas. The OpCo Gaming Subsidiaries
will be required to be licensed to conduct gaming operations. As a Registered
Corporation, the Company is and OpCo will be required periodically to submit
detailed financial and operating reports to the Nevada Commission and the Nevada
Board and furnish any other information which the Nevada Commission or the
Nevada Board may require. No person may become a stockholder or holder of an
interest of, or receive any percentage of profits from the Gaming Subsidiaries
or the OpCo Gaming Subsidiaries without first obtaining Gaming Licenses and
approvals from the Nevada Gaming Authorities. The Company, the Gaming
Subsidiaries, OpCo and the OpCo Gaming Subsidiaries will be required to obtain
from the Nevada Gaming Authorities the Gaming Licenses required in order to have
a Gaming Interest in gaming activities in Nevada, and to conduct gaming
operations at the Initial Properties in Nevada, respectively. The following
regulatory requirements are currently applicable to the Company and the Gaming
Subsidiaries, and will be to OpCo and the OpCo Gaming Subsidiaries upon their
receipt of all necessary Gaming Licenses and approvals from the Nevada Gaming
Authorities to conduct gaming operations at the Initial Properties. OpCo and the
OpCo Gaming Subsidiaries have not yet obtained Gaming Licenses required in order
to conduct gaming operations in Nevada. The Company and the Gaming Subsidiaries
have not yet obtained Gaming Licenses required in order to have a Gaming
Interest.

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No assurances can be given that such Gaming Licenses will be obtained, or that
any required approvals of the Reorganization Transactions will be obtained, or
that they will be obtained on a timely basis.

The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, a Registered
Corporation, such as the Company or OpCo, or the Gaming Subsidiaries or the OpCo
Gaming Subsidiaries, which holds a license, in order to determine whether such
individual is suitable or should be licensed as a business associate of a
Registered Corporation or a gaming licensee. Officers, directors and certain key
employees of the Gaming Subsidiaries and the OpCo Gaming Subsidiaries must file
applications with the Nevada Gaming Authorities and will be required to be
licensed or found suitable by the Nevada Gaming Authorities in connection with
the Reorganization Transactions. Officers, directors and key employees of the
Company and OpCo who are actively and directly involved in gaming activities of
the Gaming Subsidiaries and the OpCo Gaming Subsidiaries may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for licensing for any cause which they deem
reasonable. A finding of suitability is comparable to licensing, and both
require submission of detailed personal and financial information followed by a
thorough investigation. The applicant for licensing or a finding of suitability
must pay all the costs of the investigation. Changes in licensed positions must
be reported to the Nevada Gaming Authorities and in addition to their authority
to deny an application for a finding of suitability or licensure, the Nevada
Gaming Authorities have jurisdiction to disapprove a change in a corporate or
company position.

If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, OpCo, the Gaming Subsidiaries or the OpCo Gaming
Subsidiaries, the companies involved would have to sever all relationships with
such person. In addition, the Nevada Commission may require the Company, OpCo,
the Gaming Subsidiaries or the OpCo Gaming Subsidiaries to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.

The Company and the Gaming Subsidiaries are required, and OpCo and the OpCo
Gaming Subsidiaries will be required, to submit detailed financial and operating
reports to the Nevada Commission. Substantially all material loans, leases,
sales of securities and similar financing transactions by the Gaming
Subsidiaries and the OpCo Gaming Subsidiaries will be required to be reported to
or approved by the Nevada Commission.

If it were determined that the Nevada Act was violated by a Gaming
Subsidiary or an OpCo Gaming Subsidiary, the Gaming Licenses it holds could be
limited, conditioned, suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, the Company, OpCo, the Gaming
Subsidiaries, the OpCo Gaming Subsidiaries and the persons involved could be
subject to substantial fines for each separate violation of the Nevada Act at
the discretion of the Nevada Commission. Limitation, conditioning or suspension
of the Gaming Licenses of the Gaming Subsidiaries or the OpCo Gaming
Subsidiaries or the appointment of a supervisor could (and revocation of any
Gaming License would) materially adversely affect the business operations of the
Company and its ability to have a Gaming Interest.

Any beneficial holder of the Station REIT's or OpCo's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and have his suitability as a beneficial holder of
Station REIT's or OpCo's voting securities determined if the Nevada Commission
has reason to believe that such ownership would otherwise be inconsistent with
the declared policies of the State of Nevada. The applicant must pay all costs
of investigation incurred by the Nevada Gaming Authorities in conducting any
such investigation.

The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a Registered Corporation's voting securities apply to
the Nevada Commission for a finding of suitability within thirty days after the
Chairman

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of the Nevada Board mails the written notice requiring such filing. Under
certain circumstances, an "institutional investor," as defined in the Nevada
Act, which acquires more than 10%, but not more than 15%, of a Registered
Corporation's voting securities may apply to the Nevada Commission for a waiver
of such finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Registered Corporation, any change in the Registered Corporation's
corporate charter, bylaws, management, policies or operations of the Registered
Corporation, or any of its gaming affiliates, or any other action which the
Nevada Commission finds to be inconsistent with holding the Registered
Corporation's voting securities for investment purposes only. Activities which
are not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders; (ii)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent. If
the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.

Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the voting securities
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. The Company is and OpCo will be subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company or the
Gaming Subsidiaries, OpCo or the OpCo Gaming Subsidiaries, respectively, the
Company or OpCo, respectively, (i) pays that person any dividend or interest
upon voting securities of the Company or OpCo, respectively, (ii) allows that
person, directly or indirectly, any voting right conferred through securities
held by that person, (iii) pays remuneration in any form to that person for
services rendered or otherwise, or (iv) fails to pursue all lawful efforts to
require such unsuitable person to relinquish his voting securities including,
necessary, the immediate purchase of said voting securities for cash at fair
market value.

The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation, to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.

The Company is, and OpCo will be, required to maintain a current stock
ledger in Nevada which may be examined by the Nevada Gaming Authorities at any
time. If any securities are held in trust by an agent or by a nominee, the
record holder may be required to disclose the identity of the beneficial owner
to the Nevada Gaming Authorities. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. The Company is, and OpCo will
be, required to render maximum assistance in determining the identity of the
beneficial owner. The Nevada Commission has the power to require the Company's
and OpCo's stock certificates to bear a legend indicating that the securities
are subject to the Nevada Act. However, to date, the Nevada Commission has not
imposed such a requirement on the Company and it is unknown whether such a
requirement will be imposed on OpCo.

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The Company may not and OpCo will not be permitted to, make a public
offering of its securities without the prior approval of the Nevada Commission
if the securities or proceeds therefrom are intended to be used to construct,
acquire or finance gaming facilities in Nevada, or to retire or extend
obligations incurred for such purposes. On March 20, 1997, the Nevada Commission
granted the Company prior approval to make public offerings for a period of two
years, subject to certain conditions ("Shelf Approval"). However, the Shelf
Approval may be rescinded for good cause without prior notice upon the issuance
of an interlocutory stop order by the Chairman of the Nevada Board and must be
renewed at the end of the two year approval period. The Shelf Approval also
applies to any affiliated company wholly-owned by the Company (an "Affiliate")
which is a publicly traded corporation or would thereby become a publicly traded
corporation pursuant to a public offering. The Shelf Approval also includes
approval to place restrictions upon and enter into agreements not to encumber
equity securities of the Gaming Subsidiaries, and for the Gaming Subsidiaries to
guarantee any security issued by, or to hypothecate their assets to secure the
payment or performance of any obligations issued by, the Company or an Affiliate
in a public offering under the Shelf Approval. The Shelf Approval does not
constitute a finding, recommendation or approval by the Nevada Commission or the
Nevada Board as to the accuracy or adequacy of the prospectus or the investment
merits of the securities offered. Any representation to the contrary is
unlawful. The sale of Common stock pursuant to the Offerings will qualify as a
public offering (as such term is defined in the Nevada Act) and will be made
pursuant to the Shelf Approval. OpCo will seek approval similar to the Shelf
Approval.

Changes in control of the Company or OpCo through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby such person obtains control, may not, and, in the
case of OpCo, will not be permitted to, occur without the prior approval of the
Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and Nevada Commission and meet a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.

The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada corporate gaming licensees, and Registered Corporations that
are affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's board of directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.

Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada

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Commission if they knowingly violate any laws of the foreign jurisdiction
pertaining to the foreign gaming operations, fail to conduct the foreign gaming
operations in accordance with the standards of honesty and integrity required of
Nevada gaming operations, engage in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees, or employ a person in
the foreign operations who has been denied a license or finding of suitability
in Nevada on the ground of personal unsuitability.

NEVADA LIQUOR REGULATIONS

The sale of alcoholic beverages at Palace Station and Boulder Station is
subject to licensing, control and regulation by the City of Las Vegas and the
Clark County Board, respectively. Texas Station is subject to licensing control
and regulation of the City of North Las Vegas. Sunset Station is subject to the
licensing, control and regulation of the City of Henderson. All licenses are
revocable and are not transferable. The agencies involved have full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on the
operations of the OpCo Gaming Subsidiaries and therefore, impact the ability of
OpCo to make Lease payments.

MISSOURI GAMING REGULATIONS

Gaming was originally authorized in the State of Missouri and the City of
St. Charles on November 3, 1992, although no governmental action was taken to
enforce or implement the original law. On April 29, 1993, Missouri enacted the
Missouri Gaming Law which replaced the original law and established the Missouri
Commission, which is responsible for the licensing and regulation of riverboat
gaming in Missouri. The Missouri Commission has discretion to approve gaming
license applications for both permanently moored ("dockside") riverboat casinos
and powered ("excursion") riverboat casinos. On September 20, 1993, the Company
filed its initial application with the Missouri Commission for either a dockside
or a cruising gaming license in St. Charles, Missouri, which license was issued
on May 27, 1994, thereby making the Company one of the first two entrants in the
Missouri riverboat gaming market.

However, due to both a January 25, 1994, ruling by the Missouri Supreme
Court which held that games of chance, including certain games authorized under
the Missouri Gaming Law such as bingo and keno, constitute "lotteries" and were
therefore prohibited under the Missouri Constitution and the failure of a state
wide election on April 5, 1994, to adopt a constitutional amendment that would
have exempted excursion boats and floating facilities from such constitutional
prohibition on lotteries, the Company commenced operations only with those games
which involve some element of skill ("limited gaming"), such as poker and
blackjack, that would be constitutionally permissible. The authorization of both
games of skill and games of chance ("full-scale gaming") occurred on November 9,
1994 with passage by Missouri voters of a constitutional amendment virtually
identical to the measure which was defeated on April 5, 1994. Full-scale gaming
became effective on December 9, 1994, and by the end of December 1994, the
Company was conducting full scale gaming on both its excursion and dockside
casinos in St. Charles, Missouri.

Opponents of gaming in Missouri have brought several legal challenges to
gaming in the past and may possibly bring similar challenges in the future.
There can be no assurances that any future challenges, if brought, would not
further interfere with full-scale gaming operations in Missouri, including the
operations of the Company and its subsidiaries. The Supreme Court of Missouri
has recently ruled, in a case, involving certain operators who compete with
Station Casino St. Charles in Maryland Heights, Missouri, that gaming may occur
only in artificial spaces that are contiguous to the surface stream on the
Missouri and Mississippi rivers. The Company cannot predict the effect this
ruling may have on operations at Station Casino Kansas City.

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On January 16, 1997, the Missouri Commission granted Station Casino Kansas
City a Class A and Class B Excursion Gambling Boat license to own and operate
the River King and River Queen floating gaming facilities.

Under the Missouri Gaming Law, the ownership and operation of riverboat
gaming facilities in Missouri are subject to extensive state and local
regulation. By virtue of its gaming license in Missouri, the Company, any
subsidiaries it has or it may form and certain of its officers and employees are
subject to the Missouri Gaming Law and the regulations of the Missouri
Commission. Upon obtaining Gaming Licenses in Missouri, OpCo and subsidiaries it
has or may form and certain of its officers and employees will be subject to the
laws and regulations of the Missouri Commission.

As part of the application and licensing process for a gaming license, the
applicant must submit detailed financial, operating and other reports to the
Missouri Commission. Each applicant has an ongoing duty to update the
information provided to the Missouri Commission in the application. In addition
to the information required of the applicant, directors, officers and other key
persons must submit Personal Disclosure Forms which include detailed personal
financial information and are subject to thorough investigations. All gaming
employees must obtain an occupational license issued by the Missouri Commission.
Operators' licenses are issued through application to the Missouri Commission,
which requires, among other things, (a) investigations into an applicant's
character, financial responsibility and experience qualifications and (b) that
applicants furnish (i) an affirmative action plan for the hiring and training of
minorities and women and (ii) an economic development or impact report. License
fees are a minimum of $50,000 for the initial application and $25,000 annually
thereafter.

The Missouri Commission may revoke or suspend gaming licenses and impose
other penalties for violation of the Missouri Gaming Law and the rules and
regulations which may be promulgated thereunder, including, without limitation,
forfeiture of all gaming equipment used for improper gaming and fines of up to
three times an operator's highest daily gross adjusted receipts during the
preceding twelve months. The gaming licenses may not be transferred nor pledged
as collateral, and the Missouri Gaming Law regulations bar a licensee from
taking any of the following actions without 15 days' prior notice to, and
approval by, the Missouri Commission: any issuance of an ownership interest of
five percent or more of the issued and outstanding ownership interest, any
private incurrence of debt by the licensee or any holding company of $1,000,000
or more, and any public issuance of debt by a licensee or its holding company.
The Missouri Commission may reopen the licensing hearing of the applicable
gaming licensee prior to or following the consummation date to consider the
effect of the transaction on the gaming licensee's suitability. In addition, the
licensee must notify the Missouri Commission of other transactions, including
the transfer of five percent or more of an ownership interest in the licensee or
holding company, the pledge of five percent or more of the ownership interest in
a license or holding company, and any transaction of at least $1,000,000. The
restrictions on transfer of ownership apply to the Company and its subsidiaries.

The Missouri Gaming Law imposes operational requirements on riverboat
operators, including a charge of two dollars per gaming customer that licensees
must pay to the Missouri Commission, certain minimum payout requirements, a 20%
tax on adjusted gross receipts, prohibitions against providing credit to gaming
customers (except for the use of credit cards and cashing checks) and a
requirement that each licensee reimburse the Missouri Commission for all costs
of any Missouri Commission staff necessary to protect the public on the
licensee's riverboat. Licensees must also submit audited quarterly financial
reports to the Missouri Commission and pay the associated auditing fees. Other
areas of operation which are subject to regulation under Missouri rules are the
size, denomination and handling of chips and tokens; the surveillance methods
and computer monitoring of electronic games; accounting and audit methods and
procedures; and approval of an extensive internal control system. The Missouri
rules also require that all of an operator's purchases of chips, tokens, dice,
playing cards and electronic gaming devices must be acquired from suppliers
licensed by the Missouri Commission. The Missouri Gaming Law provides for a loss
limit of $500 per person per excursion and requires licensees to maintain
scheduled excursions with

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boarding and disembarking times regardless of whether the riverboat cruises.
Although the Missouri Gaming Law provides no limit on the amount of riverboat
space that may be used for gaming, the Missouri Commission is empowered to
impose such space limitations through the adoption of rules and regulations.
Additionally, United States Coast Guard safety regulations could affect the
amount of riverboat space that may be devoted to gaming. The Missouri Gaming Law
also includes requirements as to the form of riverboats, which must resemble
Missouri's riverboat history to the extent practicable and include certain
non-gaming amenities. All eleven licensees in Missouri are authorized to conduct
all or a portion of their operations on a dockside basis.

With respect to the availability of dockside gaming, which may be more
profitable than excursion gaming, the Missouri Commission is empowered to
determine on a site-by-site basis where such gaming is appropriate and shall be
permitted.

GENERAL GAMING REGULATIONS IN OTHER JURISDICTIONS

If Station REIT becomes involved in gaming operations in any other
jurisdictions, such gaming operations will subject Station REIT, OpCo or certain
of their officers, directors, key employees, stockholders and other affiliates
("Regulated Persons") to strict legal and regulatory requirements, including
mandatory licensing and approval requirements, suitability requirements, and
ongoing regulatory oversight with respect to such gaming operations. Such legal
and regulatory requirements and oversight will be administered and exercised by
the relevant regulatory agency or agencies in each jurisdiction (the "Regulatory
Authorities"). Station REIT, OpCo and the Regulated Persons will need to satisfy
the licensing, approval and suitability requirements of each jurisdiction in
which Station REIT seeks to become involved in gaming operations. These
requirements vary from jurisdiction to jurisdiction, but generally concern the
responsibility, financial stability and character of the owners and managers of
gaming operations as well as persons financially interested or involved in
gaming operations. In general, the procedures for gaming licensing, approval and
finding of suitability require Station REIT, OpCo and each Regulated Person to
submit detailed personal history information and financial information to
demonstrate that the proposed gaming operation has adequate financial resources
generated from suitable sources and adequate procedures to comply with the
operating controls and requirements imposed by law and regulation in each
jurisdiction, followed by a thorough investigation by such Regulatory
Authorities. In general, Station REIT, OpCo and each Regulated Person must pay
the costs of such investigation. An application for any Gaming License or
approval may be denied for any cause that the Regulatory Authorities deem
reasonable. Once obtained, Gaming Licenses and approvals may be subject to
periodic renewal and generally are not transferable. The Regulatory Authorities
may at any time revoke, suspend, condition, limit or restrict a Gaming License
or approval for any cause they deem reasonable. Fines for violations may be
levied against the holder of a Gaming License or approval and in certain
jurisdictions, gaming operation revenues can be forfeited to the state under
certain circumstances. There can be no assurance that Station REIT or OpCo will
obtain all of the necessary Gaming Licenses and approvals or that its officers,
directors, key employees, other affiliates and certain other stockholders will
satisfy the suitability requirements in one or more jurisdictions, or that such
Gaming Licenses or approvals, if obtained, will not be revoked or renewed in the
future.

Failure by Station REIT or OpCo to obtain, or the loss or suspension of, any
necessary Gaming Licenses or approval would prevent Station REIT or OpCo from
having an interest in gaming operations in such jurisdiction and possibly in
other jurisdictions. Station REIT or OpCo may be required to submit detailed
financial and operating reports to Regulatory Authorities.

The laws, regulations and procedures pertaining to gaming are subject to the
interpretation of the Regulatory Authorities and may be amended. Any changes in
such laws, regulations, or their interpretations could have a material adverse
effect on the Station REIT or OpCo.

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THE DISTRIBUTION

The Company's Board of Directors has decided to separate the Company into
two publicly held companies: (i) OpCo, a recently formed corporation which will
own and operate the Transferred Assets and which will lease the Initial
Properties and (ii) the Company, which will elect to be treated as a REIT for
federal income tax purposes. The Distribution is necessary in order to allow the
Company to convert to a REIT.

A stockholder who elects to hold shares of both Station REIT and OpCo will
initially have the same ownership interest in the companies after the
Distribution as such stockholder had in the Company before the Distribution
except as such ownership interest in the Company may be diluted as a result of
the Offerings. As a result of the Distribution, however, current stockholders
and other investors will have the ability to make separate investment decisions
regarding each business.

The Distribution will be reflected in the Company's financial statements as
a charge against stockholder's equity. As of September 30, 1997, the effect on
the Company of the Distribution (assuming the consummation of the Reorganization
Transactions, including the Offering) would be to reduce the Company's
stockholder's equity by approximately $70.1 million.

The Distribution is expected to be made on the basis of one share of OpCo
Common Stock and approximately five shares of OpCo Preferred Stock for every
17.5 shares of the Company Common Stock outstanding on the Record Date. Pursuant
to adjustments made in accordance with the terms of the Convertible Preferred
Stock, the conversion price of the Convertible Preferred Stock will be adjusted
to reflect the decrease in the value of assets distributed to holders of the
Company Common Stock pursuant to the Distribution. See "Description of Capital
Stock--Terms of Preferred Stock Generally" and "-- Convertible Preferred Stock."

The actual number of shares of OpCo Common Stock and OpCo Preferred Stock to
be distributed will depend on the number of shares of the Common Stock
outstanding on the Record Date. Based upon the approximately 35.3 million shares
of the Common Stock outstanding on September 30, 1997, OpCo estimates that
approximately two million shares of OpCo Common Stock and ten million shares of
OpCo Preferred Stock will be distributed to holders of the Common Stock.

The Distribution will not affect the number of, or the rights attaching to,
outstanding shares of the Common Stock. Certificates representing outstanding
shares of the Common Stock will continue to represent rights to purchase the
Preferred Shares (as defined herein) pursuant to the Rights Agreement, dated
October 6, 1997, between the Company and Continental Stock Transfer & Trust
Company (the "Rights Agreement"). See "Description of Capital Stock--Terms of
Common Stock Generally."

There has not been any established public trading for the OpCo Common Stock
or the OpCo Preferred Stock. It is currently anticipated that OpCo Common Stock
and OpCo Preferred Stock will be approved for listing on the Nasdaq prior to the
Distribution. The Common Stock is expected to trade on a regular basis through
the date of the Distribution and to be acompanied by due bills representing the
OpCo Common Stock and OpCo Preferred Stock to be distributed in the
Distribution.

There can be no assurance as to the prices at which OpCo Common Stock and
OpCo Preferred Stock will trade before or after the Distribution Date. Until the
OpCo Common Stock and the OpCo Preferred Stock are fully distributed and an
orderly market develops, the prices at which such shares trade may fluctuate
significantly and may be lower or higher than the price that would be expected
for a fully distributed issue. Prices for shares of OpCo Common Stock and OpCo
Preferred Stock will be determined in the marketplace and may be influenced by
many factors, including the depth and liquidity of the market for the shares,
investor perception of OpCo, OpCo's dividend policy changes in economic
conditions in the gaming industry and general economic and market conditions. In
addition, the stock market often experiences significant price fluctuations that
are unrelated to the operating performance of the specific companies whose stock
is traded. Market fluctuations, as well as economic conditions, could have a

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materially adverse impact on the market price of the shares of OpCo Common Stock
and Opco Preferred Stock. See "Certain Considerations--Absence of Prior Trading
Market for OpCo Capital Stock." Such prices may also be affected by the
anti-takeover provisions in the OpCo Articles and the OpCo By-Laws. See "Certain
Considerations--Certain Anti-Takeover Effects."

The shares of OpCo Common Stock and OpCo Preferred Stock to be received by
holders of the Common Stock in the Distribution will be freely transferable,
unless a holder is deemed to be an "affiliate" of OpCo under the Securities Act.
Persons who may be deemed affiliates of OpCo after the Distribution generally
include individuals or entities that control, are controlled by, or are under
common control with OpCo and may include certain of OpCo's officers and
directors. Persons who are affiliates of OpCo will be permitted to sell their
shares of OpCo Common Stock and OpCo Preferred Stock only pursuant to an
effective registration statement under the Securities Act or an exemption from
the registration requirements of the Securities Act, such as exemptions afforded
by Section 4(2) of the Securities Act or Rule 144 thereunder.

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RELATIONSHIP BETWEEN STATION REIT AND OPCO

For purposes of governing certain of the ongoing relationships between
Station REIT and OpCo after the Distribution and to provide for an orderly
transition on the date of the Distribution (the "Distribution Date"), Station
REIT and OpCo intend to enter into the Leases, the Distribution Agreement and
the various agreements described below. The discussion below is a summary of
certain provisions of the Distribution Agreement, the Cooperation Agreement, the
Tax Allocation Agreement, the Transition Services Agreement, the Employee
Benefits Agreement and the Intellectual Property Agreement. The Summary does not
purport to be complete. Reference is made to the complete provisions of, and
such summary is qualified in its entirety by reference to, forms of such
agreements. There can be no assurances however, that the Company will consummate
the Distribution.

THE LEASES

The following description of the Leases does not purport to be complete but
contains a summary of all material provisions of the Leases.

Concurrently with the Distribution, Station REIT will lease certain real
property necessary to the operation of gaming activities at the Initial
Properties to certain subsidiaries of OpCo, the obligations of which will be
guaranteed by OpCo, pursuant to the Leases. The Leases will, in most cases, be
subleases made in accordance with the terms of head leases held by Station REIT.
Each Lease will include land, buildings, structures and other improvements on
the land, easements and similar appurtenances to the land and improvements, and
permanently fixed equipment, machinery and other fixtures relating to the
operation of the Initial Properties. Each Lease will be between the operating
subsidiary of Station REIT that owns the Initial Property and, in the case of
Initial Property located in Nevada, a Nevada limited liability company of which
OpCo is the sole member and, in the case of Initial Property located in
Missouri, a Missouri limited liability company of which OpCo is the sole member.

The Leases will have primary terms ranging from 13 to 15 years (the "Base
Term"). Upon the agreement of Station REIT and OpCo, the Leases may be extended
for six five-year renewal terms beyond the Base Term ("Renewal Term") except
that the Lease at Palace Station may not be extended past five years prior to
the expiration of the relevant head lease. The Base Term and Renewal Term of
each Lease will be subject to termination upon default and certain other
contingencies described in the Lease. Assurance as to Value."

USE OF THE LEASED PROPERTY

The Leases will require that OpCo utilize the Initial Properties solely for
the operation of first class casinos and hotels and related uses and as Station
REIT may otherwise consent (which consent may be granted or withheld in its
discretion). OpCo will have the responsibility to maintain all licenses,
certificates and permits necessary in order for it to operate the Initial
Property as a hotel/casino property.

RENTAL AMOUNTS

For the Base Term and each Renewal Term, rent will equal the sum of (i) Base
Rent, (ii) Percentage Rent, (iii) Add-on Rent and (iv) a pass-through of rental
amounts due on the underlying head lease, if any (each as described below). Base
Rent will be payable in 12 equal installments, increased as of each anniversary
of the first day of the Base Term by an amount equal to the CPI Percentage (as
defined herein) multiplied by the Base Rent in effect immediately prior to such
anniversaries. The CPI Percentage is the percentage, not less than 100% and not
more than 104%, derived from dividing the relevant consumer price index (the
"CPI") on the measurement date by the CPI on the first day of the 12-month
period ending on such measurement date (the "CPI Percentage"). If Station REIT
receives a ruling from the Service confirming that the computation of Percentage
Rent in this form is consistent with qualification as a REIT, Percentage Rent
will be additional rent, calculated by multiplying fixed percentages by the
excess

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of gaming gross receipts (net "winnings," I.E., the gross amount wagered less
casino losses) and other gross receipts (generally, all revenues, receipts and
income from all sources, subject to certain exclusions) for the preceding year
in excess of the Hurdle Amount (as defined in the Leases) with respect to such
Initial Property. The Hurdle Amount will be increased, upon completion of an
Approved Capital Project (as defined herein), by an amount equal to the quotient
obtained by dividing the Add-On Rent for one year resulting from such Approved
Capital Project by a percentage. Percentage Rent is payable quarterly with
annual adjustments based on actual results. Revenues at the Initial Properties
are currently insufficient to trigger Percentage Rent payment obligations and is
not expected to trigger such obligations for at least two years. If Station REIT
does not obtain a ruling from the Service, Percentage Rents will be determined
on an alternate basis with gross gaming revenues being determined as a total
amount wagered at certain games. Add-On Rent will be an annual amount, payable
monthly in advance, in 12 equal installments, equal to the portion of the cost
of any Approved Capital Project paid for by, or financed with recourse to,
Station REIT multiplied by the greater of (i) 11% per annum and (ii) a
percentage per annum fixed at closing of this Offering to yield 11% per annum
when added to the rate on U.S. Treasuries having a term to maturity of ten
years, increased as of each anniversary of the first date of the Base Term
(commencing with the first such anniversary that is at least one month following
the substantial completion of the relevant Approved Capital Project) to an
amount equal to the CPI Percentage of the Add-On Rent in effect immediately
prior to such anniversary.

Each Lease is what is commonly known as a triple net lease or an absolute
net lease. OpCo will be required to pay for (i) all insurance required in
connection with the Initial Properties and the business conducted on the Initial
Properties, (ii) all taxes levied on or with respect to the Initial Properties
(other than taxes on the net income of Station REIT) and (iii) all utilities and
other services necessary or appropriate for the Initial Property and the
business conducted on the Initial Property.

MAINTENANCE, MODIFICATION AND CAPITAL ADDITIONS

OpCo will be required to maintain the Initial Properties in good repair and
condition, making all repairs required by law, provided that any Capital Project
shall require the prior approval of Station REIT. OpCo will be required to pay
for all Maintenance Capital Expenditures. Maintenance Capital Expenditures are
all capital expenditures and other expenses for the maintenance, repair,
restoration or refurbishment of the Initial Property (other than a Capital
Project). OpCo will also be required under the Leases to upgrade, replace,
repair and otherwise maintain FF&E at the Initial Property in first-rate
condition. To the extent a Capital Project is required by law or in order for
the Initial Property to be repaired or restored to a condition appropriate to
the operation of the Initial Property, the Leases will require Station REIT to
provide such financing.

OpCo may not undertake any Capital Project that materially adds to, further
materially improves or effects a complete or substantially complete
refurbishment of the Initial Property (a "Capital Project") without the prior
approval of Station REIT (which may be denied or granted in its discretion and
upon such conditions as Station REIT may elect). If approved (an "Approved
Capital Project"), Station REIT may at its option, elect to pay for, or finance
with recourse to it, all or part of the cost of such Approved Capital Project,
in which case Add-on Rent will become applicable as provided above. To the
extent Station REIT has not elected to pay for, or finance with recourse to it,
any part of such cost, OpCo will not be permitted to commence any such Approved
Capital Project unless it has demonstrated to the reasonable satisfaction of
Station REIT that it has the funds or the financing reasonably estimated to be
necessary to complete such Capital Project. In the event that OpCo obtains such
funds or financing independent from Station REIT, Station REIT will not be
entitled to Add-On Rent with respect to such Capital Project. Any Approved
Capital Project will become the property of Station REIT and subject to the
Lease as part of the Initial Property.

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INSURANCE

OpCo will be required to maintain insurance for the Initial Properties at a
level at least comparable to that currently in place at the Initial Properties.

ENVIRONMENTAL MATTERS

Each Lease will provide that OpCo will indemnify Station REIT (and its
officers, directors and stockholders) against any environmental claims
(including penalties and clean up costs) resulting from any condition existing
at, on or under the Initial Properties at any time before the first day of the
Base Term. OpCo will also indemnify Station REIT (and its officers, directors
and stockholders) against any environmental claim (including penalties and clean
up costs) resulting from any condition arising, or permitted to deteriorate, on
or after such first day (including as a result of migration from adjacent
properties not owned or operated by Station REIT or any of its affiliates other
than OpCo and its direct affiliates).

ASSIGNMENT AND SUBLETTING

Each Lease will provide that, subject to certain financing exceptions, OpCo
may not assign, sublease or otherwise transfer the Lease or any portion of the
Initial Property as a whole (or in substantial part) without the consent of
Station REIT, which (except in the case of a Change of Control (as defined
herein)) may not be unreasonably withheld if the proposed assignee is
sufficiently credit worthy, has the expertise to operate the Initial Property
and has a favorable business reputation and character; however, no such
assignment or sublease shall be permitted unless all other leases of real
property between the Station REIT or any affiliate of the Station REIT and OpCo
and any affiliate are concurrently so being assigned or subleased to the same
assignee and OpCo and each such affiliate are concurrently assigning to such
assignee all or substantially all personal property related to such Initial
Property and such other real property. In the case of a Change of Control in
which the new Lessee is adequately credit worthy and expert, and Station REIT
still elects to terminate the Leases, Station REIT will be required to pay to
OpCo an amount equal to the value to OpCo of the Leases. The Lessee may sublease
portions of the Initial Property for restaurants, gift shops and other retail
stores customarily found in hotels or casinos without the consent of the Lessor
subject, however, to there being no material alteration in the character of the
Initial Property or in the nature of the business conducted on such Initial
Property and to requirements of the Code with which the Station REIT must comply
to retain REIT status. A "Change of Control" under the Leases includes any of
(a) a change in the composition of the board of directors of either OpCo or the
ultimate corporate parent of OpCo (the "Parent") such that at the end of any
period of 12 consecutive months the persons constituting a majority of such
board of directors are not the same as the persons constituting a majority at
the start of such period (or persons appointed by such majority), (b) the sale
or other disposition by the Parent of any part of its interest in the Lessee
(other than a bona fide pledge in connection with a commercial financing) or (c)
any merger or consolidation involving the Parent as a result of which the
stockholders of the Parent immediately prior to such event do not own at least
50% of the capital stock of the surviving entity. A Change of Control will
constitute an assignment for purposes of the Leases.

MORTGAGE ENCUMBRANCE

Pursuant to the Leases, OpCo will have the right to encumber its rights
under the Leases to one or more financing entities, and the Leases will contain
customary mortgagee protection provisions; provided that such financing entities
(a) recognize the option described below and (b) agree to defer any foreclosure
and like remedies during the option exercise period.

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OPTION

In addition to, and without derogation of, any remedies available upon an
Event of Default (as defined herein), Station REIT will have the option under
each of the Leases, exercisable by notice to OpCo within a substantial period of
time of Station REIT learning of such Event of Default, to purchase (or cause a
third party to purchase) all or any part of the personal property of OpCo
located at the Initial Property or, wherever located, used by it in connection
with the Initial Property at a price equal to the greater of (a) the then fair
market value of such property and (b) amounts necessary to pay all financing
secured by personal property. Station REIT also will have this purchase right
upon termination of a Lease.

EVENTS OF DEFAULT

An "Event of Default" will be deemed to have occurred under any Lease if,
among other things, OpCo fails to pay rent or other amounts within 10 days after
notice; fails to comply with covenants continuing for 30 days or, so long as
diligent efforts to cure such failure are being made, such longer period (not
over 120 days) as is necessary to cure such failure; abandons the Initial
Property; loss of gaming licenses; defaults under any other lease to OpCo or an
affiliate of OpCo (other than Station REIT and its direct affiliates) from
Station REIT or an affiliate of Station REIT (other than OpCo and its direct
affiliates) involving the failure to pay rent or other charges or the failure to
maintain insurance; experiences certain bankruptcy or insolvency events. In
addition to its other remedies with respect to an Event of Default, Station REIT
will be able to enforce guarantees made by OpCo with respect to each Lease.

MISCELLANEOUS

The Leases will be governed by the law of the jurisdiction in which the
Initial Property is located.

COOPERATION AGREEMENT

Assuming the Distribution occurs, Station REIT and OpCo intend to enter into
a cooperation agreement (the "Cooperation Agreement") to provide each other with
rights to participate in certain transactions. The Cooperation Agreement is
expected to provide, subject to certain terms, that Station REIT will provide
OpCo with a right of first offer to become the lessee of any real property
acquired or developed by Station REIT and operated as a locals-oriented casino
gaming facility in the Las Vegas locals market and its surrounding areas
(generally excluding the Las Vegas Strip and downtown Las Vegas), provided that
OpCo and Station REIT negotiate a mutually satisfactory lease arrangement and
Station REIT determines, in its sole discretion, that OpCo is qualified to be
the lessee. As to opportunities for OpCo to become the lessee of any assets
under such a lease arrangement, the Cooperation Agreement is expected to provide
that Station REIT must provide OpCo with written notice of the lessee
opportunity. During the 45 days following such notice, OpCo will have a right of
first offer to become a lessee and the right to negotiate with Station REIT on
an exclusive basis regarding the terms and conditions of the lease. If a
mutually satisfactory agreement cannot be reached within the 45-day period (or
such longer period to which OpCo and Station REIT may agree), Station REIT may
offer the opportunity to others for a period of one year thereafter before it
must again offer the opportunity to OpCo in accordance with the procedures
specified above. Station REIT will not be required to provide OpCo with a right
of first offer when Station REIT elects to retain management at properties it
acquires.

Under the Cooperation Agreement, OpCo is expected to agree not to acquire or
make (i) investments in real estate which, for purposes of the Cooperation
Agreement, includes the provision of services related to real estate and
investment in hotel properties, real estate mortgages, real estate derivatives
or entities that invest in real estate assets or (ii) any other investments that
may be structured in a manner that qualifies under the federal income tax
requirements applicable to REITs unless it has provided written notice to
Station REIT of the material terms and conditions of the acquisition or
investment opportunity,

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<PAGE>
and Station REIT has determined not to pursue such acquisitions or investments
either by providing written notice to OpCo rejecting the opportunity within 10
days from the date of receipt of notice of the opportunity or by allowing such
10-day period to lapse. OpCo is also expected to agree to assist Station REIT in
structuring and consummating any such acquisition or investment which Station
REIT elects to pursue, on terms determined by Station REIT. OpCo will be
permitted, in the absence of real estate investment opportunity, to provide
services for such properties.

Each of Station REIT and OpCo are expected to have the right to terminate
the Cooperation Agreement in the event of a change of control of the other
party.

DISTRIBUTION AGREEMENT

Assuming the Distribution occurs, Station REIT and OpCo expect to enter into
a distribution agreement (the "Distribution Agreement") which will provide for,
among other things, the principal corporate transactions required to effect the
Distribution, the transfer to OpCo of the Transferred Assets in exchange for the
issuance by OpCo to Station REIT of the OpCo Common Stock, the OpCo Preferred
Stock and the Intermediate Notes, the division between Station REIT and OpCo of
certain liabilities, the transition to OpCo's status as a company separate and
independent from Station REIT and certain other agreements governing the
relationship between Station REIT and OpCo after the Distribution.

Pursuant to the Distribution Agreement, OpCo would indemnify Station REIT
against most liabilities relating to OpCo operations, whether such liabilities
arise on, prior to, or after the Distribution Date, except for liabilities
arising out of events or occurrences prior to the Distribution Date that are
covered by Station REIT's insurance and are not also covered by OpCo's
insurance. Station REIT is expected to indemnify OpCo against all other
liabilities relating to such operations before, on or after the Distribution
Date. In addition, the Distribution Agreement is expected to provide that each
of OpCo and Station REIT will indemnify the other against all liabilities
arising under the Exchange Act. The Distribution Agreement would include
procedures for notice and payment of such claims and generally provides that the
indemnifying party may assume the defense of a claim or suit brought by a third
party. None of the foregoing indemnities applies to tax or employee benefit
claims or liabilities, which are addressed in the Tax Allocation Agreement and
the Employee Benefits Agreement respectively, as described below.

The Distribution Agreement is expected to provide that each of Station REIT
and OpCo would be granted access to certain records and information in the
possession of the other, and require retention of all such information for a
period of five years and the provision of notice and an opportunity to copy such
information prior to its destruction thereafter. In addition, the Distribution
Agreement is expected to provide allocate shared privileges with respect to
certain information and require consent of the non-waiving party before such
privilege can be waived. The Distribution Agreement is also is expected to
impose certain confidentiality obligations on each of OpCo and Station REIT.

The Distribution Agreement is expected to provide for the allocation of
benefits between Station REIT and OpCo under existing insurance policies after
the Distribution Date, and set forth procedures for the administration of
insured claims.

TAX ALLOCATION AGREEMENT

Assuming the Distribution occurs, Station REIT and OpCo expect to enter into
a tax allocation agreement on or prior to the Distribution Date (the "Tax
Allocation Agreement") which will allocate responsibility for U.S. federal
income and various other taxes ("Taxes") among the companies.

In general, pursuant to the Tax Allocation Agreement, Station REIT is
expected to be liable for the U.S. federal income taxes payable with respect to
the returns of Station REIT consolidated group (which prior to the Distribution
Date includes OpCo and its subsidiaries) as well as certain other Taxes payable
with respect to returns attributable to OpCo operations for periods ending on or
prior to the Distribution

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<PAGE>
Date. OpCo and its subsidiaries would be liable for Taxes payable with respect
to returns filed after the Distribution Date that are attributable to OpCo
operations after the Distribution Date. If, in connection with a Tax audit
contest, or the filing of an amended return, a taxing authority adjusts Station
REIT's consolidated federal income tax return or any other return described
above with respect to which Station REIT was liable for payment of Taxes,
Station REIT would be liable for the resulting Tax assessments or would be
entitled to the resulting Tax refund. Similarly, OpCo would be responsible for
the Tax assessments and entitled to the Tax refunds, in connection with the
above described returns with respect to which OpCo was liable for payment of
Taxes. Station REIT, in general, would be responsible for Tax assessments and
would be entitled to the Tax refunds in connection with returns originally filed
prior to the Distribution Date.

TRANSITION SERVICES AGREEMENT

Assuming the Distribution occurs, Station REIT and OpCo expect to enter into
a Transition Services Agreement prior to the Distribution Date (the "Transition
Services Agreement") pursuant to which, in exchange for the fees specified in
the Transition Services Agreement, OpCo would agree to continue to provide
certain administrative and other services typical for public companies to
Station REIT in connection with Station REIT's operations including marketing,
information services, human resources, accounting, payroll processing,
regulatory compliance, tax filing assistance and legal services. In general,
these services would be provided at a price deemed by the board of directors of
the respective providers to be fair market value. In this agreement, the
respective service provider will undertake to provide the same degree of care
and diligence as it uses in providing these services to itself and its
subsidiaries. The Transition Services Agreement would expire one year from the
Distribution Date and would include provisions for a termination of the
agreement in the event of a change in control of either of the parties.

EMPLOYEE BENEFITS AGREEMENT

Assuming the Distribution occurs, Station REIT and OpCo expect to enter into
an agreement with regard to their respective liabilities for employee
benefit-related matters for Station REIT and OpCo Employees (as defined herein)
for periods before and after the Distribution Date and to provide for certain
other employee benefit matters (the "Employee Benefits Agreement"). Station REIT
would assign, and OpCo would assume, the assets and liabilities attributable to
the account balances of employees of OpCo ("OpCo Employees") under its 401(k)
plan and the OpCo 401(k) plan would become effective as of the Coverage Date (as
defined in the Employee Benefits Agreement). OpCo will adopt and assume such
plan, effective as of the Coverage Date and Station REIT would withdraw its
sponsorship of its plan.

The Employee Benefits Agreement would also provide that OpCo will establish
and assume employee welfare benefit plans for salaried employees, effective as
of the Coverage Date, providing medical, long-term disability, flexible spending
and life insurance and other welfare benefits to OpCo Employees which are
generally comparable to those provided by Station REIT at such time. In
addition, OpCo would assume sponsorship of certain insured welfare benefit plans
covering hourly OpCo Employees (subject to any required consent of the insurer)
and the cafeteria plan, and Station REIT would withdraw as sponsor of such
plans, effective as of the Coverage Date. Effective as of the Distribution Date,
OpCo would assume all accrued liabilities for vacation pay for OpCo Employees.
Station REIT's long term disability plan for salaried employees would be assumed
by OpCo and will, at OpCo's expense, continue to cover individuals who are
totally disabled on the Coverage Date and who would have become OpCo Employees
if in active employment on the Coverage Date for so long as such individuals
remain totally disabled. Effective on the Coverage Date, OpCo will assume sole
responsibility for all OpCo Employees who are on medical leave from Station
REIT.

The Employee Benefits Agreement would also provide for the establishment of
certain incentive and pension benefit plans, effective as of the Coverage Date,
providing certain equity-based and deferred

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<PAGE>
compensation benefits to certain OpCo employees which are generally comparable
to those provided by Station REIT at such time. In connection with this
establishment, OpCo would assume and become liable for certain obligations
payable to OpCo employees under these plans. In addition, on or before the
Distribution Date all outstanding shares of Station REIT's restricted stock may
in the sole discretion of Station REIT become vested and the holder's rights to
such stock would thereafter be non-forfeitable.

INTELLECTUAL PROPERTY AGREEMENT

Assuming the Distribution occurs, OpCo and Station REIT expect to enter into
an intellectual property agreement (the "Intellectual Property Agreement")
providing for the allocation and acknowledgement of certain Intellectual
Property used in connection with the Initial Properties, including those
trademarks used in connection with the operation of the Initial Properties. The
Intellectual Property Agreement would provide for the transfer of ownership of
certain Intellectual Property to Opco in partial exchange for the Intermediate
Notes. Opco would license certain Intellectual Property which it owns, and which
is used solely or primarily in the operation of the Initial Properties, to
Station REIT on a royalty-free, nonexclusive basis, subject to the limitations
set forth in the Intellectual Property Agreement.

Under the Intellectual Property Agreement, certain intellectual property
transferred to OpCo by Station REIT, including the trademarks used in connection
with the Initial Properties would be licensed to Station REIT. No license fees
would be required to be paid by Station REIT under the Intellectual Property
Agreement.

The Intellectual Property Agreement would provide for termination of the
agreement in the event of a change in control of OpCo or Station REIT, or if
necessary to safeguard the intellectual property or the goodwill associated
therewith, or symbolized thereby, from injury or devaluation.

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PRINCIPAL STOCKHOLDERS

The following table sets forth, as of November 30, 1997, certain information
regarding the shares of Common Stock beneficially owned by each stockholder who
is known by the Company to beneficially own in excess of 5% of the outstanding
shares of Common Stock, by each director and named executive officer and by all
executive officers and directors as a group.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF SHARES
-------------------------
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER(2) CLASS
- ------------------------------------------------------------------------------------------ ------------ -----------
<S> <C> <C>
Frank J. Fertitta III..................................................................... 5,611,290 15.6
Blake L. Sartini(3)....................................................................... 4,851,703 13.7
Lorenzo J. Fertitta(3).................................................................... 4,776,802 13.5
Delise F. Sartini(3)...................................................................... 4,727,010 13.4
The Capital Group Companies(4)............................................................ 3,317,830 9.4
Columbia Funds Management Company(5)...................................................... 2,176,600 6.2
Glenn C. Christenson...................................................................... 172,335 *
Scott M. Nielson.......................................................................... 153,816 *
R. Hal Dean(6)............................................................................ 41,765 *
Lowell H. Lebermann, Jr.(6)............................................................... 21,000 *
Executive Officers and Directors as a Group (8 persons)................................... 15,641,148 42.8
</TABLE>

- ------------------------

* Less than one percent

(1) Excludes the shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock.

(2) Unless otherwise indicated in the footnotes to this table and subject to
the community property laws where applicable, each of the stockholders
named in this table has sole voting and investment power with respect to
the shares shown as beneficially owned. The address of each of the
stockholders named in this table is: c/o Station Casinos, Inc., 2411 West
Sahara Avenue, Las Vegas, Nevada 89102.

(3) Of the total number of shares reported in this table, the following are the
approximate number of vested options beneficially owned by each individual
in the table: Frank J. Fertitta III 742,410; Blake L. Sartini 137,124;
Delise F. Sartini 12,432; Lorenzo J. Fertitta 84,150; Glenn C. Christenson
134,135; Scott M. Nielson 109,816; R. Hal Dean 20,000 and Lowell H.
Lebermann, Jr. 20,000.

(4) Reflects beneficial ownership shared by Blake and Delise Sartini. Blake and
Delise Sartini do not, however, share beneficial ownership of the vested
options reflected in note (3) and thus have different total ownership
figures.

(5) As reported in a Schedule 13G dated February 14, 1997 and filed with the
Securities and Exchange Commission (the "Commission"). Beneficial ownership
is disclaimed. The Capital Group Companies, Inc. reports that it is the
parent holding company of a group of investment management companies which
hold the reported stock and that Capital Research and Management Company,
one of such subsidiaries, is the beneficial owner of 2,609,470 shares.
Includes 1,263,830 shares resulting from the assumed conversion of the
Company's Convertible Preferred Stock.

(6) As reported in a Schedule 13G dated February 10, 1997 and filed with the
Commission. Beneficial ownership is disclaimed.

(7) Messrs. Lebermann and Dean and Ms. Sartini will not be directors of Station
REIT after the Reorganization Transactions but each of the directors listed
above will be directors of OpCo.

Subsequent to the Distribution and as part of the Offerings, Mr. Frank J.
Fertitta III, Mr. Blake L. Sartini and Mr. Lorenzo J. Fertitta and certain of
their affiliates expect to sell an aggregate of approximately 2.0 million shares
of Common Stock primarily in order to pay taxes incurred in connection with the
Reorganization Transactions. Initially, the percentage ownership of OpCo Common
Stock and OpCo Preferred Stock held by such persons will be pro rata with their
ownership of Common Stock, except that, to obtain certain tax treatment for the
Company, OpCo Common Stock held by or on behalf of Mr. Frank J. Fertitta III,
Mr. Blake L. Sartini, Mr. Lorenzo J. Fertitta, Ms. Delise F. Sartini and certain
of their affiliates will be exchanged for OpCo B Stock. In addition, in order to
obtain certain tax treatment for the Company, such persons expect to sell the
approximately $4.2 million in liquidation preference of the OpCo Preferred Stock
received by them in the Distribution to third parties pursuant to a pre-arranged
agreement.

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<PAGE>
MANAGEMENT AFTER THE REORGANIZATION

Upon consummation of the Reorganization Transactions, each of Messrs.
Christenson, Sartini, and Nielson will resign his positions as an executive
officer of Station REIT. Ms. Sartini and Messrs. Dean and Lebermann each will
resign their respective positions as a director of Station REIT.

The following table sets forth the directors and executive officers who will
serve in such capacities for Station REIT and certain of its subsidiaries
following the Reorganization Transactions. The directors of Station REIT serve
staggered terms. All directors will hold their positions until the annual
meeting of stockholders at which their term expires or until their respective
successors are elected and qualified. Executive officers will be elected by and
serve at the discretion of the Board of Directors until their successors are
duly chosen and qualified. A biography for Mr. Frank J. Fertitta III appears
above.

<TABLE>
<CAPTION>
EXPIRATION
OF TERM AS
NAME AGE POSITION DIRECTOR
- ---------------------------------- --- ----------------------------------------------------------- -------------
<S> <C> <C> <C>
Frank J. Fertitta III............. 35 Chairman of the Board, President and 1999
Chief Executive Officer
William W. Warner................. 33 Executive Vice President, Chief Financial Officer and
Treasurer
Glenn C. Christenson.............. 48 Director 1998
Blake L. Sartini.................. 38 Director 1998
Lorenzo J. Fertitta............... 28 Director 1999
5 Independent Directors*
</TABLE>

- ------------------------

* The Board of Directors of Station REIT intends to designate five independent
directors.

FRANK J. FERTITTA III. Mr. Fertitta has served as Chairman of the Board of
the Company since February 1993, Chief Executive Officer since July 1992 and
President of the Company since 1989. He has held senior management positions
since 1985, when he was named General Manager of PSHC. He was elected a director
of the Company in 1986, at which time he was also appointed Executive Vice
President and Chief Operating Officer. In 1992, he co-founded Station Casino St.
Charles and has served as Chairman of the Board of Directors of that company
since that time.

WILLIAM WARNER. Mr. Warner will become Executive Vice President, Chief
Financial Officer and Treasurer of Station REIT upon the consummation of the
Reorganization Transactions. Mr. Warner has served as Vice President of Finance
of the Company since August, 1995 and since August 1993 he served as Director of
Finance. Prior to his employment by the Company, Mr. Warner served as controller
of Kent Co. Capital Corporation from 1991 to 1993 and from 1986 to 1991 he
served with the international accounting firm Arthur Andersen LLP, most recently
as an Audit Manager. Mr. Warner will not be employed by OpCo.

GLENN C. CHRISTENSON. Mr. Christenson has served as Executive Vice
President of the Company since February 1994 and Chief Administrative Officer
since March 1997. From 1989 to 1993, he served as Vice President. He has served
as Chief Financial Officer since 1989, as Treasurer since 1992 and as a director
since 1993. Mr. Christenson is a Certified Public Accountant. From 1983 to 1989,
he was a partner of the international accounting firm of Deloitte Haskins &
Sells (now Deloitte & Touche), where he served as partner-in-charge of audit
services for the Nevada practice and National Audit partner for the Hospitality
Industry. Mr. Christenson has served on the Board of Directors of the Nevada
Resort Association and was Chairman of the Nevada Resort Associations's Internal
Revenue Service Liaison Committee.

BLAKE L. SARTINI. Mr. Sartini has served as Executive Vice President of the
Company since February 1994 and also serves as Chief Operating Officer. From
February 1994 to March 1997 he also served as

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President--Nevada Operations of Station REIT. From 1991 to 1993, he served as
Vice President of Gaming Operations. He has served as a director since 1993 and
has over 14 years of experience in the hotel and casino industry. From 1985 to
1990, Mr. Sartini held various management positions at the Company and has
served as President of Southwest Gaming Services, Inc., a subsidiary of the
Company prior to the Reorganization Transactions ("Southwest Gaming"), since
January 1993. In 1992, he co-founded Station Casino St. Charles and serves as
its Vice President.

LORENZO J. FERTITTA. Mr. Fertitta has served as a director of the Company
since 1991. He has served as President and Chief Executive Officer of Fertitta
Enterprises, Inc. since June 1993, where he is responsible for managing an
investment portfolio consisting of marketable securities and real property. From
time to time, the investment portfolio contains investments in other gaming
operations. Mr. Fertitta was a co-founder of Southwest Gaming in 1990 and of
Station Casino St. Charles in 1992 and has served on their respective boards
since their inception. From 1991 to 1993, he served as Vice President of the
Company. Mr. Fertitta serves as a commissioner on the Nevada State Athletic
Commission.

OPCO

In connection with the formation of OpCo and consummation of the
Reorganization Transactions, the current executive officers and directors of the
Company will be appointed to positions at OpCo equivalent to those they hold
currently at the Company. In addition, the board of directors of OpCo will
appoint one new independent director. The board of directors of OpCo will serve
staggered terms. Mr. Frank J. Fertitta III, Mr. Glenn C. Christenson and Mr.
Blake L. Sartini will serve until 2001. Mr. Lorenzo J. Fertitta, Ms. Delise
Sartini and will serve until 2000 and Mr. R. Hal Dean, Mr. Lowell H.
Lebermann, Jr. and will serve until 1999.

EMPLOYMENT AGREEMENTS

Station REIT and each of Frank J. Fertitta III and William W. Warner intend
to enter into employment agreements (the "Employment Agreements"). Messrs.
Christenson, Nielson and Sartini will no longer be employed by Station REIT
after the Distribution and will agree to waive all rights under employment
agreements with Station REIT in exchange for substantially similar employment
agreements with OpCo (Messrs. Fertitta, Warner, Christenson, Nielson and
Sartini; together, the "Executive Officers"). The Employment Agreements provide
that the Executive Officers shall devote reasonable time and attention to the
business and affairs of Station REIT. The Employment Agreements will be subject
to automatic 60-month extensions after completion of their respective terms,
unless terminated by Station REIT or the respective Executive Officer. Each
Employment Agreement will provide for a base salary (to be reviewed annually for
an increase but not a decrease), an annual cash bonus in an amount determined by
the Board of Directors as of January 1 of each calendar year, and the inclusion
of the Executive Officer in all plans and programs of Station REIT made
available to Station REIT's Executive Officers or salaried employees generally.
At Station REIT, the Executive Officers' annual base salaries initially will be
$500,000 and $225,000 for Messrs. Fertitta and Warner, respectively. At OpCo,
the Executive Officers' annual base salaries initially will be $500,000,
$535,000, $520,000 and $395,000 for Messrs. Fertitta, Christenson, Sartini and
Nielson, respectively. The Executive Officers are also entitled to life
insurance and certain other benefits and perquisites. Each of the Executive
Officers will be entitled to receive extended or lump-sum payments and other
benefits (A) in the event such Executive Officer's employment is terminated (i)
by Station REIT other than for Cause (as defined in his Employment Agreement) or
(ii) by the Executive Officer for Good Reason (as defined in his Employment
Agreement, including Station REIT's failure to perform certain material
obligations thereunder, including a material reduction in such Executive
Officer's responsibilities, a Change of Control or Station REIT's failure to
extend such Executive Officer's initial term of employment) and (B) in the event
of a Change of Control (as defined in his Employment Agreement). Such payments
and benefits, particularly in connection with a Change of Control, could be
substantial and could have the effect of delaying or preventing a Change of
Control of Station REIT.

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<PAGE>
DESCRIPTION OF CERTAIN NEW INDEBTEDNESS

In addition to existing indebtedness of the Company, Station REIT expects to
enter into the Bank Facility. OpCo is also expected to enter into a bank
facility. Each of the new bank facilities is described below. See "Station REIT
Pro Forma Capitalization" and "OpCo Pro Forma Capitalization."

STATION REIT

The Company currently has no commitment with respect to the Bank Facility.
Based on preliminary discussions, however, the Company expects the Bank Facility
to be a senior secured reducing revolving loan facility with a term loan feature
providing for borrowings up to an aggregate principal amount of $500 million.
The Bank Facility is expected to be secured by substantially all of the assets
of Station REIT (including without limitation the Initial Properties and the
Leases) and its significant subsidiaries and Station REIT's significant
subsidiaries will also guarantee the borrowings under the Bank Facility. Such
security arrangements are subject to prior approval of the Nevada Commission.
The Company expects borrowings under the Bank Facility to bear interest at a
margin above the bank's prime rate or a eurodollar rate, as selected by Station
REIT. The margin above such rates, and the fee on the unfunded portions of the
Bank Facility is expected to vary quarterly based on a measurement of Station
REIT's leverage.

The Company expects the Bank Facility to contain certain financial and other
covenants, including, a minimum consolidated net worth, limitations on
indebtedness, a minimum interest coverage ratio, minimum lease revenue and
limitations on capital expenditures and acquisitions.

The Company expects the Bank Facility to contain customary events of default
and remedies and to be cross-defaulted to Station REIT's Existing Senior
Subordinated Notes. There can be no assurance that the Bank Facility will be
obtained.

OPCO

OpCo currently has no commitment with respect to its expected new bank
facility. Based on preliminary discussions, however, OpCo expects its bank
facility to be a senior secured term loan facility with a revolving loan feature
providing for borrowings up to an aggregate principal amount of $150 million.

The OpCo bank facility will be secured by substantially all of the assets of
OpCo and its significant subsidiaries. OpCo's significant subsidiaries also will
guarantee the borrowings under the OpCo bank facility. OpCo expects borrowings
under its bank facility to bear interest at a margin above the bank's prime rate
or a eurodollar rate, as selected by OpCo. The margin above such rates, and the
fee on the unfunded portions of the OpCo bank facility will vary quarterly based
on a measurement of OpCo's leverage.

OpCo expects the OpCo bank facility to contain certain financial and other
covenants, including, a minimum consolidated net worth, a maximum total
leverage, a minimum fixed charge coverage ratio, a minimum EBITDA and
limitations on capital expenditures and other indebtedness and to certain
customary events of defaults and remedies.

OpCo's bank facility is expected to contain customary events of default and
remedies. There can be no assurance that the OpCo bank facility will be
obtained.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

STATION REIT

GENERAL

If approved by the stockholders as set forth in this Proxy Statement, and
subject to certain conditions set forth herein, the Company will adopt the
Charter Amendments which will (a) increase the authorized shares of the Company
from 95,000,000 shares consisting of 90,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock to 360,000,000 shares consisting of
300,000,000 shares of Common Stock and 60,000,000 shares of Preferred Stock; (b)
add certain transfer restrictions and related provisions with respect to the
Company's capital stock or desirable for the Company to protect its status as a
real estate investment trust for federal income tax purposes; and (c) change the
name of the Company to "Station Entertainment Properties, Inc." The additional
shares of Common Stock are expected to be issued in connection with acquisitions
by the Company of hotel/casino properties. Such shares of Common Stock will also
be issued pursuant to the Company's stock compensation and other employee
benefit programs. It is impracticable to describe the transactions in connection
with which such shares will be issued as they are not yet determined. Such
issuances will have no effect on the rights of existing security holders unless
such issuances are issuance of Preferred Stock in which case the effect will be
as set forth in the designation of rights, preferences and privileges passed by
the Board of Directors of the Company.

TERMS OF CAPITAL STOCK

TERMS OF COMMON STOCK GENERALLY

The Company is authorized to issue up to 90,000,000 shares of Common Stock,
35,306,657 shares of which were issued and outstanding as of September 30, 1997.
Pursuant to this Proxy Statement, the Company is soliciting the consent of its
stockholders to increase the number of authorized shares of Common Stock to
300,000,000. Each holder of the Common Stock is entitled to one vote for each
share held of record on each matter submitted to a vote of stockholders. Holders
of the Common Stock have no cumulative voting, conversion, redemption or
preemptive rights or other rights to subscribe for additional shares except
pursuant to the Rights Plan (as described herein). Subject to any preferences
that may be granted to the holders of the Preferred Stock, each holder of Common
Stock is entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor as well as any
distributions to the stockholders and, in the event of liquidation, dissolution
or winding up of the Company, is entitled to share ratably in all assets of the
Company remaining after payment of liabilities. In addition, ownership of the
Common Stock is subject to regulation by the Nevada Gaming Authorities. See
"Regulation and Licensing."

RIGHTS PLAN

On October 6, 1997, the Company declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of Common Stock. The
dividend was paid on October 21, 1997. One Right will automatically attach to
each share of Common Stock issued thereafter (including the shares to be issued
in the Offerings). Each Right entitles the registered holder to purchase from
the Company one one-hundredth of a share of Series A Preferred Stock, par value
$0.01 per share ("Preferred Shares") of the Company at a price of $40.00 per one
one-hundredth of a Preferred Share, subject to adjustment. The Rights will be
amended so as not to be exercisable until the earlier of 10 days following a
public announcement that a person or group of affiliated or associated persons
have acquired beneficial ownership of 5.5% or more of the outstanding Common
Stock ("Acquiring Person") or 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any person
or group of affiliated persons becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 5.5% or more of the outstanding Common Stock.

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The Rights will expire on October 21, 2007. Acquiring Persons do not have the
same rights to receive Common Stock as other holders upon exercise of the
Rights. Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of one one-hundredth interest in a Preferred Share
purchasable upon exercise of each Right should approximate the value of one
Common Share. In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, the proper provisions will be made so that
each holder of a Right, other than Rights beneficially owned by the Acquiring
Person (which will thereafter become void), will thereafter have the right to
receive upon exercise that number of Common Shares having a market value of two
times the exercise price of the Right. In the event that the Company is acquired
in a merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold after a person or group has become
an Acquiring Person, proper provision will be made so that each holder of a
Right will thereafter have the right to receive, upon exercise thereof, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the
Right. Because of the characteristics of the Rights in connection with a person
or group of affiliated or associated persons becoming an Acquiring Person, the
Rights may have the effect of making an acquisition of the Company more
difficult and may discourage such an acquisition.

TERMS OF COMMON STOCK AS MODIFIED BY THE CHARTER AMENDMENTS

For the Station REIT to qualify as a REIT under the Code, it must meet
certain requirements concerning the ownership of its outstanding stock.
Specifically, not more than 50% in value of Station REIT's outstanding stock may
be owned, actually or constructively under the applicable attribution provisions
of the Code, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year) or during a proportionate part of a shorter taxable year, and Station REIT
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year (other than the first year) or during a proportionate part of a
shorter taxable year. See "Certain Federal Income Tax
Considerations--Organizational Requirements." Because the Company expects to
qualify as a REIT, the Board of Directors will adopt, and the stockholders will
be asked, prior to the Offerings, to approve, the Charter Amendments limiting
the acquisition of shares of Station REIT 's capital stock (the "Ownership
Limitation Provision").

The Ownership Limitation Provision provides that, subject to certain
exceptions specified in the Articles, no person may own, or be deemed to own by
virtue of the applicable attribution provisions of the Code, more than 5.5% of
any class of Station REIT's outstanding capital stock (the "Ownership Limit").
The Board of Directors may, but in no event will be required to, waive the
Ownership Limit if it determines that such ownership will not jeopardize Station
REIT's status as a REIT. As a condition of such waiver, the Board of Directors
may require opinions of counsel satisfactory to it and undertakings or
representations from the applicant with respect to preserving the REIT status of
Station REIT. The Ownership Limitation Provision will not apply if the Board of
Directors and the holders of at least 66 2/3% of the outstanding shares of
capital stock entitled to vote on such matter determine that it is no longer in
the best interest of Station REIT to attempt to qualify, or to continue to
qualify, as a REIT.

Any purported transfer of capital stock of Station REIT and any other event
that would otherwise result in any person or entity violating the Ownership
Limit will be void and of no force or effect as to that number of shares in
excess of the Ownership Limit and the purported transferee (the "Prohibited
Transferee") shall acquire no right or interest (or, in the case of any event
other than a purported transfer, the person or entity holding record title to
any such shares in excess of the Ownership Limit (the "Prohibited Owner") shall
cease to own any right or interest) in such excess shares. In addition, if any
transfer of capital stock of Station REIT or any other event otherwise would
cause Station REIT to become "closely held" under the Code or otherwise to fail
to qualify as a REIT under the Code, then any such purported transfer will be
void and of no force or effect as to that number of shares in excess of the
number that could have been transferred without such result and the Prohibited
Transferee shall acquire no right or interest (or, in the case of any event
other than a transfer, the Prohibited Owner shall cease to

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own any right or interest) in such excess shares. Also, if any purported
transfer of capital stock of Station REIT or any other event would otherwise
cause the Company to own, or be deemed to own by virtue of the applicable
attribution provisions of the Code, 10% or more of the ownership interests in
OpCo or in any sublessee, then any such purported transfer will be void and of
no force or effect as to that number of shares in excess of the number that
could have been transferred without such result, and the Prohibited Transferee
shall acquire no right or interest (or, in the case of any event other than a
transfer, the Prohibited Owner shall cease to own any right or interest) in such
excess shares.

Any such excess shares described above will be transferred automatically, by
operation of law, to a trust, the beneficiary of which will be a qualified
charitable organization selected by Station REIT (the "Beneficiary"). The
trustee of the trust who shall be designated by Station REIT and be unaffiliated
with Station REIT and any Prohibited Owner, will be empowered to sell such
excess shares to a qualified person or entity and distribute to a Prohibited
Transferee an amount equal to the lesser of the price paid by the Prohibited
Transferee for such excess shares or the sales proceeds received by the trust
for such excess shares. In the case of any excess shares resulting from any
event other than a transfer, or from a transfer for no consideration, the
trustee will be empowered to sell such excess shares to a qualified person or
entity and distribute to the Prohibited Owner an amount equal to the lesser of
the fair market valve of such excess shares on the date of such event or the
sales proceeds received by the trust for such excess shares. Prior to a sale of
any such excess shares by the trust, the trustee will be entitled to receive, in
trust for the benefit of the Beneficiary, all dividends and other distributions
paid by Station REIT with respect to such excess shares, and also will be
entitled to exercise all voting rights with respect to such excess shares.

Any purported transfer of capital stock of Station REIT that would otherwise
cause Station REIT to be beneficially owned by fewer than 100 persons will be
null and void in its entirety, and the intended transferee will acquire no
rights in such stock.

The Ownership Limitation Provision may have the effect of precluding an
acquisition of control of the Company without approval of the Board of
Directors.

TERMS OF PREFERRED STOCK GENERALLY

The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock. In connection with this Proxy Statement, the Company is soliciting the
consent of its stockholders to increase the number of authorized shares of
Preferred Stock to 60,000,000. In March 1996, the Company completed an offering
of 1,800,000 shares of $3.50 Convertible Preferred Stock (the "Convertible
Preferred Stock"). In April 1996, the underwriters exercised the over allotment
option of an additional 270,000 shares of the Convertible Preferred Stock. The
Board of Directors, without further action by the holders of Common Stock or the
Convertible Preferred Stock, may issue shares of Preferred Stock in one or more
series and may fix or alter the rights, preferences, privileges and
restrictions, including the voting rights, redemption provisions (including
sinking fund provisions), dividend rights, dividend rates, liquidation rates,
liquidation preferences, conversion rights and the description and number of
shares constituting any wholly unissued series of Preferred Stock. Except as
described above, the Board of Directors, without further stockholder approval,
may issue shares of Preferred Stock with rights that could adversely affect the
rights of the holders of Common Stock or the Convertible Preferred Stock. The
issuance of shares of Preferred Stock under certain circumstances could have the
effect of delaying or preventing a change of control of the Company or other
corporate action.

CONVERTIBLE PREFERRED STOCK

As of September 30, 1997, the Company has 2,070,000 shares of Convertible
Preferred Stock outstanding, each with a liquidation preference of $50.00 per
share plus an amount equal to any accumulated and unpaid dividends at the annual
rate of $3.50 per share, or 7.0% of such liquidation preference. Such dividends
accrue and are cumulative from the date of issuance and are payable quarterly.
The Convertible Preferred Stock is convertible at the option of the holder
thereof at any time, unless

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previously redeemed, into shares of Common Stock at an initial conversion price
of $15.35, subject to adjustment in certain circumstances. As a result of the
Distribution, following the consummation of the Reorganization Transactions, the
Convertible Preferred Stock will be adjusted in accordance with its terms, as
described below. See "--Treatment of Convertible Preferred Stock in the
Distribution." The Company may reduce the conversion price of the Convertible
Preferred Stock by any amount for any period of at least 20 days, so long as the
decrease is irrevocable during such period. The Convertible Preferred Stock is
redeemable, at the option of the Company, in whole or in part, for shares of
Common Stock, at any time after March 15, 1999, initially at a price of $52.45
per share of Convertible Preferred Stock, and thereafter at prices decreasing
annually to $50.00 per share of Convertible Preferred Stock on and after March
15, 2006, plus accrued and unpaid dividends. The Common Stock to be issued is
determined by dividing the redemption price by the lower of the average daily
closing price for the Company's Common Stock for the preceding 20 trading days
or the closing price of the Company's Common Stock on the first business day
preceding the date of the redemption notice. Any fractional shares would be paid
in cash. There is no mandatory sinking fund obligation with respect to the
Convertible Preferred Stock. The holders of the Convertible Preferred Stock do
not have any voting rights, except as required by applicable law and except
that, among other things, whenever accrued and unpaid dividends on the
Convertible Preferred Stock are equal to or exceed the equivalent of six
quarterly dividends payable on the Convertible Preferred Stock, the holders of
the Convertible Preferred Stock, voting separately as a class with the holders
of any other series of parity stock upon which like voting rights have been
conferred and are exercisable, will be entitled to elect two directors to the
Board of Directors until dividend arrearage has been paid or amounts have been
set apart for such payment. The Convertible Preferred Stock is senior to the
Common Stock with respect to dividends and upon liquidation, dissolution or
winding-up.

TREATMENT OF CONVERTIBLE PREFERRED STOCK IN THE DISTRIBUTION

Each holder of Convertible Preferred Stock will have the conversion price
for such holder's Convertible Preferred Stock adjusted to reflect the value of
assets distributed to holders of Common Stock pursuant to the Distribution. The
existing conversion price of $15.35 for the Convertible Preferred Stock will be
adjusted by multiplying such conversion price by a fraction (a) the numerator of
which is (x) the current market price per share of the Common Stock on the
associated record date less (y) the fair market value on such record date of the
portion of the assets so distributed to the holder of one share of Common Stock,
and (b) the denominator of which is such current market price per share of
Common Stock on such record date. The fair market value of the assets
distributed in the Distribution will be determined by the Board of Directors.

Holders of Convertible Preferred Stock will not receive shares of OpCo
Common Stock and OpCo Preferred Stock in the Distribution unless such holders
have converted such Convertible Preferred Stock into and are holders of record
of Station REIT Common Stock on the record date for the Distribution.

OPCO

TERMS OF CAPITAL STOCK

TERMS OF COMMON STOCK

OpCo will be authorized to issue up to an aggregate of 20 million shares of
OpCo Common Stock of which approximately two million are expected to be
distributed to holders of Station REIT Common Stock pursuant to the Distribution
based on the approximately 35.3 million shares of Station REIT Common Stock
outstanding as of September 30, 1997 and a distribution ratio of one share of
OpCo Common Stock for every 17.5 shares of Station REIT Common Stock. Each
holder of the OpCo Common Stock will be entitled to one vote for each share held
of record on each matter submitted to a vote of stockholders. Holders of the
OpCo Common Stock will have no cumulative voting, conversion, redemption or
preemptive rights or other rights to subscribe for additional shares. Subject to
any preferences that may be granted to the holders of OpCo's preferred stock,
each holder of OpCo Common Stock will be entitled to receive

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ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor as well as any distributions to the stockholders and,
in the event of liquidation, dissolution or winding up of OpCo, will be entitled
to share ratably in all assets of OpCo remaining after payment of liabilities.
In addition, ownership of the OpCo Common Stock is subject to regulation by the
Nevada Gaming Authorities. See "Regulation and Licensing."

CLASS B COMMON STOCK

OpCo will be authorized to issue up to an aggregate of 15,000 shares of OpCo
B Stock 7,214 of which are expected to be issued upon the conversion of certain
shares of OpCo Common Stock immediately following the Distribution. Holders of
the OpCo B Stock, except as described herein, will have no voting rights and no
conversion, redemption or preemptive rights or other rights to subscribe for
additional shares. Subject to any preferences that may be granted to the holders
of OpCo's preferred stock, each holder of OpCo B Stock will be entitled to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor as well as any distributions to the
stockholders and, in the event of liquidation, dissolution or winding up of
OpCo, will be entitled to share ratably in all assets of OpCo remaining after
payment of liabilities, in each case, as if each such holder held 100 shares of
OpCo Common Stock for each share of OpCo B Stock held by such holder.

The holders of the OpCo B Stock are entitled to receive dividends and other
distributions when dividends or other distributions are made to holders of OpCo
Common Stock as if each such holder held 100 shares of OpCo Common Stock for
each share of OpCo B Stock held by such holder. Each share of OpCo B Stock will
automatically convert to 100 shares of OpCo Common Stock upon sale to any
stockholder other than the initial holders and their affiliates. If certain
stockholders of Station REIT, in combination with their affiliates beneficially
own in excess of 9.9% of the outstanding shares of OpCo Common Stock, any and
all amounts of OpCo Common Stock held by such stockholders and their affiliates
collectively in excess of 9.9% automatically and on a pro-rata basis among all
such stockholders and their affiliates will convert into OpCo B Stock on the
basis of 100 shares of OpCo Common Stock for each share of OpCo B Stock. In
addition, if the number of shares of OpCo Common Stock plus the number of shares
of OpCo B Stock beneficially owned by such stockholders and their affiliates
exceeds 9.9% of the number of all such shares outstanding, the shares of OpCo
Common Stock held by such stockholders and their affiliates automatically and on
a pro-rata basis among all such stockholders and their affiliates will convert
into OpCo B Stock on the basis of 100 shares of OpCo Common Stock for each share
of OpCo B Stock until the number of shares of OpCo Common Stock and OpCo B Stock
held by such stockholders and their affiliates is less than 9.9% of the total
number of all such shares outstading. In addition, if Station REIT loses it
status under federal tax law as a REIT, OpCo B Stock will automatically convert
to OpCo Common Stock on the basis of 100 shares of OpCo Common Stock for each
share of OpCo B Stock.

OPCO RIGHTS PLAN

OpCo will have a plan that grants rights substantially similar to the Rights
Plan with respect to the Common Stock, except that the relevant beneficial
ownership triggers in the OpCo rights plan will be 10% rather than 5.5% as under
the Rights Plan. See "Station REIT--Terms of Capital Stock--Rights Plan."

TERMS OF PREFERRED STOCK GENERALLY

OpCo will be authorized to issue up to 50 million shares of its preferred
stock, no par value per share (the "Additional Preferred Stock"). 20 million
shares of OpCo Preferred Stock will be issued in connection with the
Reorganization Transaction to Station REIT. The Board of Directors, without
further action by the holders of OpCo Common Stock or holders of OpCo Preferred
Stock may issue shares of Additional Preferred Stock in one or more series and
may fix or alter the rights, preferences, privileges and

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restrictions, including the voting rights, redemption provisions (including
sinking fund provisions), dividend rights, dividend rates, liquidation rates,
liquidation preferences, conversion rights and the description and number of
shares constituting any wholly unissued series of Additional Preferred Stock.
Except as described above, the Board of Directors, without further stockholder
approval, may issue shares of Additional Preferred Stock with rights that could
adversely affect the rights of the holders of OpCo Common Stock. Such additional
Preferred Stock will be required to be junior in liquidation and right of
payment of dividends to the OpCo Preferred Stock. The issuance of shares of
Additional Preferred Stock under certain circumstances could have the effect of
delaying or preventing a change of control of OpCo or other corporate action.

OPCO PREFERRED STOCK

The following is a summary of the terms of the OpCo Preferred Stock. This
description is not intended to be complete and is subject to and qualified in
its entirety by reference to the Resolutions Authorizing and Fixing the Terms
and Conditions of the Series A % Cumulative Preferred Stock adopted by OpCo.

TERM. The OpCo Preferred Stock is mandatorily redeemable on the tenth
anniversary of the date of original issuance thereof.

LIQUIDATION VALUE AND DIVIDENDS. Each share of OpCo Preferred Stock has a
per share liquidation value of $1.00 and the aggregate liquidation value for the
OpCo Preferred Stock is $20 million. Subject to the prior rights of holders of
Senior Stock (as defined herein), holders of OpCo Preferred Stock are entitled
to receive, when declared, cash dividends at a rate of $ per share per year.
Such dividends shall be cumulative, shall accrue without interest from the date
of issuance and shall be payable quarterly in areas on the first day of each
, , and , commencing , 1998. Dividends accrued from the date
of issuance to and including , 1998 shall be payable on the first dividend
payment date.

VOTING. The holders of OpCo Preferred Stock will have no right to vote
except (i) as required by Nevada law, (ii) as described in "Ranking" below, and
(iii) if OpCo fails to pay dividends equal to two full quarterly dividends, the
holders of the OpCo Preferred Stock have the right, voting as a separate class,
to elect two new directors to OpCo's Board of Directors, which right shall
continue until all outstanding dividends have been declared and paid and
quarterly dividends have been declared and paid for four consecutive quarters.
In addition, OpCo shall not, without the affirmative vote of a majority of the
outstanding shares of OpCo Preferred Stock voting as a single class, (i) amend,
alter or repeal any provision of the OpCo Articles or any resolution of the OpCo
board of directors, so as to (A) amend or waive any terms of any OpCo Preferred
Stock, (B) increase or decrease the number of authorized shares of OpCo
Preferred Stock, (C) exchange, reclassify or cancel all or part of the OpCo
Preferred Stock, (D) exchange, or create a right of exchange of, shares of
another class of stock into OpCo Preferred Stock, (E) change the designations,
preferences limitations or relative rights of the shares of OpCo Preferred
Stock, (F) change the shares of OpCo Preferred Stock into the same or a
different number of shares of OpCo Preferred Stock or of another class of stock,
(G) divide the shares of OpCo Preferred Stock into series and fix the
designation of such series, and the variations on the relative rights and
preferences between the shares of such series, or (H) cancel, reduce or
otherwise affect accrued dividends on the OpCo Preferred Stock, (ii) create,
authorize or issue, or increase the rights and preferences or authorized amount
of any Senior Stock or Parity Stock (as defined herein) or purchase rights for,
or securities convertible into, Senior Stock or Parity Stock, or (iii)
liquidate, dissolve or wind up, (iv) effect certain extraordinary transactions,
or (v) participate in any exchange if the OpCo Preferred Stock will be included
in the exchange.

REDEMPTION AND REPURCHASE RIGHTS. The redemption price payable upon
exercise of the holders' option is the sum of the liquidation value, cumulative
and unpaid dividends, and a redemption premium of

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$ per share. The OpCo Preferred Stock is redeemable, in whole but not in
part, at the option of OpCo at any time on or after the fifth anniversary of the
date of original issuance of the OpCo Preferred Stock upon not less than 15 nor
more than 60 days' prior written notice. The redemption price payable upon the
exercise of OpCo's option is the sum of the liquidation value and the cumulative
and unpaid dividends. The OpCo Preferred Stock is mandatorily redeemable on the
tenth anniversary of the date of the original issuance thereof. In addition,
upon an OpCo Change of Control, OpCo is required to offer to repurchase all of
the OpCo Preferred Stock for cash for the lesser of and the price that would
apply if the shares were redeemed as of such date. For purposes of the
foregoing, an "OpCo Change of Control" means that any person or group obtains
ownership or control of more than 50% of the voting power of OpCo entitled to
vote in the election of directors.

RANKING. With respect to dividends and upon liquidation, the OpCo Preferred
Stock ranks (i) junior to any series of Additional Preferred Stock the terms of
which specifically provide that such series ranks senior to the OpCo Preferred
Stock (the "Senior Stock"), (ii) PARI PASSU with each other series of OpCo
Preferred Stock and with any other series of Preferred Stock the terms of which
specifically provide that such series ranks PARI PASSU with the OpCo Preferred
Stock (the "Parity Stock") and (iii) senior to the Common Stock and any other
series of Preferred Stock the terms of which specifically provide that such
series is junior and subordinate to the OpCo Preferred Stock (the "Junior
Stock"). Issuance of Senior Stock, Parity Stock or additional shares of OpCo
Preferred Stock require the vote of a majority of holders of the OpCo Preferred
Stock voting separately as a class.

Unless all dividends on the OpCo Preferred Stock for all past quarterly
dividend periods have been paid or declared and a sum sufficient for the payment
thereof set apart, no dividends whatsoever, whether in cash or property, will be
paid, declared, or set apart for payment, and no distribution will be made on
any Junior Stock, other than a dividend or distribution payable in Junior Stock
or warrants or other rights to purchase Junior Stock, nor will any shares of any
Junior Stock be purchased, redeemed or otherwise acquired for a consideration by
OpCo or any subsidiary of OpCo.

In the event of any voluntary or involuntary liquidation, dissolution, or
winding up of OpCo, before any distribution or payment is made to the holders of
Junior Stock, the holders of shares of the OpCo Preferred Stock, subject to the
prior rights of the holders of Senior Stock, if any, and the equal rights of
holders of Parity Stock, are entitled to be paid first the amount of all accrued
and unpaid dividends at the date of such distribution or payment and then an
amount equal to $1.00 per share.

AMENDMENTS AND WAIVERS. Amendments, waivers and issuances of Senior Stock,
Parity Stock or additional shares of OpCo Preferred Stock require the vote of a
majority of holders of the OpCo Preferred Stock, voting separately as a class.

POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of Station REIT's expected policies with
respect to investment, financing, conflicts of interest and certain other
activities. The policies with respect to these activities have been determined
by the Board of Directors and may be amended or revised from time to time at the
discretion of the Board of Directors without a vote of the stockholders of
Station REIT, except that changes in certain policies with respect to conflicts
of interest must be consistent with legal requirements. OpCo will retain
substantially the same policies and objectives as the Company has had prior to
the Reorganization Transactions.

INVESTMENT POLICIES

INVESTMENTS IN ACQUIRED OR DEVELOPED REAL ESTATE

During the past three years, the Company has acquired interests in or
developed real properties and improvements at Sunset Station, Station Casino
Kansas City, Texas Station and various properties held for development. Various
properties held for development have also been sold during such period.

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In addition to the Initial Properties, Station REIT intends to acquire or
develop equity interests in hotel/casino properties and related properties in
Las Vegas and other parts of the United States directly or through entities
controlled by Station REIT. Station REIT's investment objective is to maximize
its Funds From Operations and enhance stockholder value by acquiring additional
hotel/casino properties and, under appropriate circumstances, by developing
selected additional hotel/casino properties that meet one or more of Station
REIT's investment criteria, by completing various master-planned developments at
its hotel/casino properties and by participating in increased revenue from the
Initial Properties and any subsequently acquired hotel/casino properties through
participating leases. Station REIT will acquire assets primarily for income.
Such investments may be financed, in whole or in part, with excess cash flow,
borrowings or subsequent issuances of shares of Common Stock or other securities
issued by Station REIT or entities controlled by Station REIT or in which
Station REIT participates. Station REIT will have no limit on the amount or
percentage of assets represented by any specific property.

Station REIT and OpCo intend to enter into the Cooperation Agreement whereby
each company will agree to grant the other certain rights of first offer. See
"Relationship between Station REIT and OpCo-- Cooperation Agreement."

INVESTMENTS IN OTHER ENTITIES

Station REIT may also participate with other entities in property ownership,
through joint ventures or other types of co-ownership. Equity investments may be
subject to existing mortgage financing and other indebtedness that may have
priority over the equity interest of Station REIT.

INVESTMENTS IN REAL ESTATE MORTGAGES AND SECURITIES OF OTHER ISSUERS

While Station REIT will emphasize equity real estate investments, it may, in
its discretion, invest in mortgage and other real estate interests, including
securities of REITs and other issuers. Station REIT will have no limit on the
amount or percentage of assets represented by one investment or investment type.
Station REIT does not presently intend to invest in securities of REITs or other
issuers. Station REIT may invest in or originate participating or convertible
mortgages if it concludes that by doing so it may benefit from the cash flow or
any appreciation in the value of the subject property. Such mortgages are
similar to equity participation, because they permit the lender to either
participate in increasing revenues from the property or convert some or all of
the mortgage to equity.

FINANCING

Prior to the Reorganization Transactions, the Company financed its
operations through borrowings under a reducing revolving credit facility and
various debt and equity issuances. See "Description of Certain New Indebtedness"
and "Description of Capital Stock." Station REIT intends to make additional
investments in hotel/casino properties and may incur indebtedness to make such
investments or to meet the distribution requirements imposed by the REIT
provisions of the Code, to the extent that cash flow from Station REIT's
investments and working capital is insufficient for such purposes. Station REIT
intends to maintain a ratio of a total debt to market capitalization of less
than 50%. The Board of Directors may, however, reevaluate this ratio from time
to time and there can be no assurance that Station REIT will retain this policy.

To ensure that Station REIT has sufficient liquidity to conduct its
operations, including making investments in additional hotel/casino properties,
completed master-planned developments, developing additional hotel/casino
properties and funding its anticipated distribution obligations and financing
costs, Station REIT expects to obtain a commitment for the $500 million Bank
Facility. See "Station REIT Pro Forma Capitalization." Station REIT may seek to
increase the size of the Bank Facility or to arrange other borrowing to fund
investments in additional hotel/casino properties or for other purposes. The
Bank Facility will be secured by first mortgage liens on the Initial Properties
and a mortgage lien on subsequently acquired properties that are purchased with
borrowings under the Bank Facility. Such agreements will be

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subject to prior approval of the Nevada Commission. Upon completion of the
Offerings, Station REIT will have substantial outstanding indebtedness. See
"Certain Considerations--Risks of Leverage."

If the Board of Directors determines to raise additional equity capital, the
Board will have the authority, without stockholder approval, to issue additional
shares of Common Stock or other securities in any manner (and on such terms and
for such consideration) as it deems appropriate, including in exchange for
property. Existing stockholders have no preemptive right to purchase shares
issued in any such offering, and any such offering might cause a dilution of a
stockholder's investment in Station REIT. Station REIT does not have a policy
limiting the number or amount of mortgages that may be placed on any particular
property, but mortgage financing instruments may, and usually do, limit
additional indebtedness on such properties.

In addition, if the Board of Directors determines it to be the most
efficient way for Station REIT to meet its obligations, the Board will have the
authority, without stockholder approval in most instances, to sell assets of
Station REIT.

CONFLICTS OF INTEREST POLICIES

OpCo and Station REIT will be permitted to pursue business opportunities
independently from one another, subject to certain rights of first offer. See
"Relationship Between Station REIT and OpCo-- Cooperation Agreement." As a
result, the corporate objectives of OpCo and Station REIT may not align and
decisions of management at each may be subject to conflicts of interest. In
addition, certain business relations between the two companies will be subject
to inherent conflicts of interest. See "Certain Considerations--Conflicts of
Interest."

Station REIT will adopt certain policies to minimize potential conflicts of
interest with respect to its Board of Directors and officers. Station REIT's
Board of Directors is subject to certain provisions of Nevada law, which are
designed to eliminate or minimize certain potential conflicts of interest. There
can be no assurance, however, that these policies and provisions always will be
successful in eliminating the influence of such conflicts, and as a result most
decisions relating to the contractual and other business relationships between
Station REIT and OpCo will be subject to conflicts of interest and loyalties.

PROVISIONS OF NEVADA LAW

Pursuant to Nevada law, each director will be subject to restrictions
relating to misappropriation of corporate opportunities by such director or such
director's affiliates. Nevada law provides that a transaction with Station REIT
in which a director or officer of Station REIT has a direct or indirect interest
is not voidable by Station REIT solely because of the director's or officer's
interest in the transaction if (i) the material facts of the transaction and the
director's or officer's interest are disclosed to or known by the directors or a
committee and noted in the minutes, and the transaction is approved, authorized
or ratified by the disinterested directors, (ii) the material facts of the
transaction and the director's or officers's interest are disclosed to or known
by the stockholders entitled to vote and the transaction is approved or ratified
by the stockholders, (iii) the material facts are not disclosed or known to the
director or officer at the time the transaction is brought before the directors
for action, or (iv) the transaction is established to have been fair to Station
REIT at the time it was authorized or approved.

OTHER POLICIES

Station REIT intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. Station REIT does not
intend to (i) invest in the securities of other issuers for the purpose of
exercising control over such issuers, (ii) underwrite securities of other
issuers, (iii) actively trade in loans or other investments or (iv) make loans
to third parties, including without limitation officers, directors or other
affiliates of Station REIT, other than special purpose investments in mortgages,
including participating or convertible mortgages, and other real estate
interests. See "--Investments in Real Estate Mortgages and Securities of Other
Issuers." Station REIT may, under certain circumstances, purchase its capital
stock in the open market or otherwise. Station REIT has no present

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intention of causing Station REIT to repurchase any shares of its capital stock,
and any such action would be taken only in conformity with applicable federal
and state laws and the requirements for qualifying as a REIT unless, because of
changed circumstances or changes in the Code (or in Treasury Regulations),
Station REIT's Board of Directors determines that it is no longer in the best
interests of Station REIT to qualify as a REIT.

Station REIT intends to publish and distribute to stockholders, in
accordance with NYSE rules, annual reports containing financial statements
prepared in accordance with generally accepted accounting principles and
certified by Station REIT's independent public accountants.

Station REIT currently intends to make investments and operate its business
at all times in such a manner as to be consistent with the requirements of the
Code to qualify as a REIT. Future economic, market, legal, tax or other
considerations, however, may cause the Board of Directors, to determine that it
is in the best interests of Station REIT and its stockholders to revoke its REIT
status.

WORKING CAPITAL RESERVES

Station REIT will maintain working capital reserves in amounts that the
Board of Directors determines to be adequate to meet normal contingencies in
connection with the operation of Station REIT's business and investments.

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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following summary of material federal income tax considerations
regarding the Reorganization Transactions is based upon current law, is for
general information only and is not tax advice. The information set forth below,
to the extent that it constitutes summaries of legal matters or legal
conclusions, has been reviewed by Milbank, Tweed, Hadley & McCloy, and it is
their opinion that such information is accurate in all material respects. The
discussion below is based on existing federal income tax law, which is subject
to change, with possible retroactive effect. The discussion below does not
address all aspects of taxation that may be relevant in the particular
circumstances of each stockholder or to certain types of stockholders (including
insurance companies, tax-exempt entities, financial institutions or broker-
dealers, foreign corporations and persons who are not citizens or residents of
the United States, except to the extent discussed) subject to special treatment
under the federal income tax laws.

STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR INDIVIDUAL TAX ADVISORS
CONCERNING THE CONSEQUENCES OF THE OWNERSHIP AND SALE OF COMMON STOCK, OPCO
COMMON STOCK AND OPCO PREFERRED STOCK UNDER FEDERAL, STATE, LOCAL AND FOREIGN
TAX LAWS, INCLUDING THE EFFECT OF POSSIBLE CHANGES IN TAX LAW.

TAXATION OF STATION REIT

GENERAL

Station REIT will elect to be taxed as a REIT under Sections 856 through 860
of the Code and the applicable Treasury Regulations (the "REIT Requirements"),
which are the requirements for qualifying as a REIT, commencing with its taxable
year ending December 31, 1998. Station REIT believes that, commencing with its
taxable year ending December 31, 1998, it will be owned and organized and will
operate in such a manner as to qualify for taxation as a REIT under the Code,
and Station REIT intends to continue to operate in such a manner, but no
assurance can be given that it will operate in a manner so as to qualify or
remain qualified.

The REIT Requirements are technical and complex. The following discussion
sets forth only the material aspects of those requirements. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof.

In the opinion of Milbank, Tweed, Hadley & McCloy, commencing with Station
REIT's taxable year ending December 31, 1998, Station REIT will be organized in
conformity with the requirements for qualification as a REIT, and its proposed
method of operation will enable it to meet the requirements for qualification
and taxation as a REIT under the Code. It must be emphasized that this opinion
is based on certain factual assumptions relating to the organization and
operation of Station REIT and is conditioned upon certain representations made
by Station REIT as to factual matters, such as the organization and expected
manner of operation of Station REIT. In addition, this opinion is based upon
factual assumptions and representations of Station REIT concerning its business
and assets. Moreover, such qualification and taxation as a REIT depends upon
Station REIT's ability to meet, through actual annual operating results,
distribution levels and diversity of stock ownership, the various qualification
tests imposed under the Code discussed below, the results of which will not be
reviewed by Milbank, Tweed, Hadley & McCloy on a continuing basis. Satisfaction
of these tests both as an initial and ongoing matter is more complicated in the
case of a REIT, such as Station REIT, that owns properties leased to an
operating company with which it was historically related and has common
stockholders, directors and officers. No assurance can be given that the actual
results of Station REIT's operation for any one taxable year will satisfy such
requirements. See "--Failure to Qualify."

If Station REIT qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on that portion of its ordinary income
or capital gain that is currently distributed to stockholders. Such treatment
substantially eliminates the federal "double taxation" on earnings (at the
corporate and the stockholder levels) that generally results from investment in
a corporation.

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Despite the REIT election, Station REIT may be subject to federal income and
excise tax as follows:

First, Station REIT will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains.

Second, under certain circumstances, Station REIT may be subject to the
"alternative minimum tax" on certain of its items of tax preferences, if
any.

Third, if Station REIT has (i) net income from the sale or other
disposition of "foreclosure property" that is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying net
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income.

Fourth, if Station REIT has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business, other
than sales of foreclosure property and sales that qualify for a statutory
safe harbor), such income will be subject to a 100% tax.

Fifth, if Station REIT should fail to satisfy the 75% gross income test
or the 95% gross income test (as discussed below), but has nonetheless
maintained its qualification as a REIT because certain other requirements
have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which Station REIT fails the
75% or 95% test, multiplied by a fraction intended to reflect Station REIT's
profitability.

Sixth, if Station REIT should fail to distribute, or fail to be treated
as having distributed, with respect to each calendar year at least the sum
of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year, (other than capital gain income
Station REIT elects to retain and pay tax on) and (iii) any undistributed
taxable income from prior periods, Station REIT would be subject to a 4%
excise tax on the excess of such required distribution over the amounts
actually distributed.

Seventh, if Station REIT should receive rents from OpCo deemed not to be
fair market value rents or if Station REIT misvalues its assets, Station
REIT may be liable for valuation penalties.

Station REIT will own appreciated assets that it held before electing to be
treated as a REIT. If such appreciated property is sold within the 10-year
period following Station REIT's qualification as a REIT, Station REIT will
generally be subject to regular corporate tax on that gain to the extent of the
built-in gain in that property at the time Station REIT becomes a REIT. The
total amount of gain on which Station REIT can be taxed is limited to its net
built-in gain at the time it became a REIT, I.E. the excess of the aggregate
fair market value of its assets at the time it became a REIT over the adjusted
tax bases of those assets at that time. In certain circumstances, Station REIT
may also be subject to tax on the disposition of any appreciated assets that it
acquires from a taxable corporation in a transaction in which any gain on the
transfer is not fully recognized. Station REIT may have a net operating loss
carryover to its first year as a REIT. That carryover may be available to offset
recognized net built-in gain. If so, Station REIT will only be able to offset
90% of that gain for alternative minimum tax purposes.

ORGANIZATIONAL REQUIREMENTS

The Code defines a REIT as a corporation, trust, or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for the REIT Requirements; (iv) that is not a bank, an insurance company or
certain other specified types of financial institutions; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) not more than 50% in
value of the outstanding stock of which is owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include private foundations
and certain pension trusts and other entities) at any time during the last half
of each taxable year; and (vii) meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) through (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335

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days of a taxable year of 12 months, or during a proportionate part of a taxable
year of less than 12 months. Conditions (v) and (vi) will not apply until after
the first taxable year for which an election is made to be taxed as a REIT. For
purposes of condition (vi), certain tax-exempt entities are generally treated as
individuals, and the beneficiaries of a pension trust that qualifies under
Section 401(a) of the Code and that holds shares of a REIT will be treated as
holding shares of the REIT in proportion to their actuarial interests in the
pension trust. See "--Taxation of United States Stockholders--Treatment of
Tax-Exempt Stockholders." In addition, if a REIT fails to satisfy condition (vi)
for any taxable year, the REIT will nonetheless be deemed to have satisfied the
condition if it complied with Treasury regulations requiring the maintenance of
records to ascertain ownership and did not know (and would not have known using
reasonable diligence) that it was closely held for the year.

The Company expects Station REIT will satisfy conditions (v) and (vi). In
addition, Station REIT's Articles provide for restrictions preventing any person
(other than certain stockholders) from owning more than 5.5% of Station REIT's
outstanding capital stock. Ownership by certain of Station REIT's stockholders
is restricted to 28.0% of Station REIT's outstanding capital stock. In addition,
Station REIT will request on an annual basis of certain stockholders, and those
stockholders will be required to provide, information relating to the number of
shares actually or constructively owned by the Stockholder. Such transfer
restrictions are described in "Description of Capital Stock--REIT Status
Restrictions on Transfer." Ownership for purposes of conditions (v) and (vi) is
defined using certain constructive ownership rules. As a result, the acquisition
of less than 5.5% of Station REIT capital stock by an individual or entity may
cause that individual or entity to constructively own more than 5.5% of such
stock, thereby triggering the transfer restrictions described above.

In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. Although Station REIT's taxable year is not currently
the calendar year, Station REIT has made an application to the Service to change
its taxable year to the calendar year. Station REIT has no reason to believe
that its application will not be granted. Further, in order to be treated as a
REIT, a corporation may not have earnings and profits accumulated in periods
before it elected REIT status. Station REIT believes that the Reorganization
Transactions will cause it to recognize losses and deductions which will
eliminate any of its earnings and profits accumulated in pre-REIT periods.

In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership will retain the same character in the
hands of the REIT for purposes of the REIT Requirements, including satisfying
the gross income tests and the assets test.

INCOME TESTS

In order to maintain qualification as a REIT, Station REIT must annually
satisfy two gross income requirements. First, at least 75% of Station REIT's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (such as interest on obligations
secured by mortgages on real property, certain "rents from real property" or
gain on the sale or exchange of such property and certain fees with respect to
agreements to make or acquire mortgage loans), from certain types of temporary
investments or certain other types of gross income. Second, at least 95% of
Station REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments as aforesaid and from dividends, interest, and gain from the sale or
other disposition of stock or securities and certain other types of gross income
(or from any combination of the foregoing).

In order to qualify as a REIT, the income received by Station REIT pursuant
to the Leases must constitute "rents from real property." Pursuant to the
Leases, OpCo will lease from Station REIT the Initial Properties for periods of
13 to 15 years, not including certain renewal rights. The Leases provide that
OpCo will be obligated to pay to Station REIT (i) the Base Rent plus Percentage
Rent (collectively, the "Rents") and (ii) Add-On Rent. Percentage Rent is
calculated by multiplying fixed percentages by the

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excess of gaming gross revenues (the calculation of which will depend on
obtaining a ruling from the Service as described below) and other gross receipts
over a threshold amount. Both Base Rent and the thresholds in Percentage Rent
formulas will be adjusted for inflation. Base Rent accrues and is required to be
paid monthly. Percentage Rent is payable quarterly, with annual adjustments
based on actual results.

Rents received by Station REIT will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the Leases must be respected as true leases
for federal income tax purposes and not treated as service contracts, joint
ventures or some other type of arrangement. The determination of whether the
Leases are true leases depends on an analysis of all the surrounding facts and
circumstances. In making such a determination, courts have considered a variety
of factors, including the following: (i) the intent of the parties, (ii) form of
the agreement, (iii) the degree of control over the property that is retained by
the property owner (E.G., whether the lessee has substantial control over the
operation of the property or whether the lessee was required to use its best
efforts to perform its obligations under the agreement), and (iv) the extent to
which the property owner retains the risk of loss with respect to the property
(E.G., whether the lessee bears the risk of increases in operating expenses or
the risk of damage to the property) or the potential for economic gains (E.G.,
appreciation) with respect to the property.

Milbank, Tweed, Hadley & McCloy is of the opinion that the Leases will be
treated as true leases for federal income tax purposes. Such opinion is based,
in part, on the following facts: (i) the Leases are styled as leases (E.G.,
Station REIT holds legal title to the Initial Properties and the Leases give
OpCo the right to possession of the Initial Properties) and Station REIT and
OpCo have represented that they intend their relationship to be that of a lessor
and lessee, (ii) lessor will obtain possession of the Initial Properties for a
significant period after the maturity of the Leases, (iii) Station REIT has
represented that the Initial Properties will have significant residual value
after the expiration of the terms of the Leases, even after there is taken into
account all possible renewals, (iv) the Initial Properties do not constitute
limited use property, (v) the Leases do not provide OpCo with the right to
purchase the Initial Properties at a bargain price, (vi) Station REIT will be
entitled to receive significant rental income under the Leases and (vii) the
Rents are fair market rents.

Investors should be aware that there are no controlling Treasury
Regulations, published rulings or judicial decisions involving leases with terms
substantially the same as the Leases that discuss whether such leases constitute
true leases for federal income tax purposes. Therefore, the opinion of Milbank,
Tweed, Hadley & McCloy with respect to the relationship between Station REIT and
OpCo is based upon all of the facts and circumstances and upon rulings and
judicial decisions involving situations that are considered to be analogous.
Opinions of counsel are not binding upon the Service or any court, and there can
be no complete assurance that the Service will not successfully assert a
contrary position. If the Leases are recharacterized as service contracts or
partnership agreements, rather than true leases, part or all of the payments
that Station REIT receives from OpCo would not be considered rent or would not
otherwise satisfy the various requirements for qualification as "rents from real
property." In that case, Station REIT likely would not be able to satisfy either
the 75% or 95% gross income tests and, as a result, would lose its REIT status.

Another requirement for qualification of the Rents as "rents from real
property" is that the Percentage Rent must not be based in whole or in part on
the income or profits of any person. The Percentage Rent, however, will qualify
as "rents from real property" if it is based on percentages of receipts or sales
and the percentages (i) are fixed at the time the Leases are entered into, (ii)
are not renegotiated during the term of the Leases in a manner that has the
effect of basing Percentage Rent on income or profits and (iii) conform with
normal business practice. The Percentage Rent is based on fixed percentages of
the gross revenues from the Initial Properties that are established in the
Leases. In the case of gaming revenues, gross revenues consists of net
"winnings," I.E., the gross amount wagered less casino losses. There is no
authority on whether rents based on gross gaming revenues qualify as rents from
real property. Station REIT has requested a ruling from the Service that these
rents so qualify. Until a ruling is forthcoming, Station REIT will base
Percentage Rent on the gross amount wagered at certain games. In

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either event, Station REIT has represented that the percentages (i) will not be
renegotiated during the terms of the Leases in a manner that has the effect of
basing the Percentage Rent on income or profits and (ii) while there are few
leases providing for Percentage Rents in the gaming industry, the Percentage
Rents are consistent with normal business practice. Milbank, Tweed, Hadley &
McCloy is of the opinion that the Percentage Rents will constitute rents from
real property. Moreover, Station REIT has represented that, with respect to
other hotel/casino properties that it acquires in the future, it will not charge
rent for any property that is based in whole or in part on the income or profits
of any person (except by reason of being based on a fixed percentage of gross
revenues, as described above).

A third requirement for qualification of the Rents as "rents from real
property" is that Station REIT must not own, actually or constructively, 10% or
more of the total combined voting power of all classes of OpCo stock entitled to
vote or 10% or more of the total number of shares of all classes of OpCo stock.
The constructive ownership rules generally provide that, if 10% or more in value
of the stock of Station REIT is owned, directly or indirectly, by or for any
person, Station REIT is considered as owning the stock owned, directly or
indirectly, by or for such person. Station REIT initially will not own any stock
of OpCo. However, certain stockholders each of whom owns more than 10% in value
of shares of Station REIT capital stock also own shares of OpCo capital stock.
Under the relevant attribution rules, Station REIT is deemed to own any OpCo
stock owned by these stockholders. OpCo has been capitalized using two classes
of common (voting and non-voting) and one class of preferred stock (the "Voting
Shares" and "Non-Voting Shares") so that none of these stockholders will own
more than 10% in voting power of all classes of OpCo shares entitled to vote or
more than 10% of the total number of shares of all classes of OpCo capital
stock. This capital structure prevents Station REIT from being deemed to own
(through attribution from certain 10% or greater stockholders of Station REIT)
more than either 10% in voting power or 10% in number of OpCo shares. The
Non-Voting Shares can be converted into Voting Shares, but only if Station REIT
would not be deemed to own converted shares (E.G., if the shares are transferred
to a person not owning 10% or more in value of Station REIT stock). The OpCo
Articles of Incorporation will prohibit any person from owning (actually or
constructively) either 10% or more of the voting power or 10% in number of OpCo
shares if that person's shares are attributable to Station REIT. The Service
could refuse to give effect to the use of two classes of common stock or could
treat holders of Non-Voting Shares as holding the Voting Shares into which such
shares can be converted. Milbank, Tweed, Hadley & McCloy is of the opinion that
the use of two classes of common stock represents real differences in economic
and voting rights which cannot be ignored and that holders of Non-Voting Shares
should not be deemed to own Voting Shares until the condition preventing the
conversion of the Non-Voting Shares into Voting Shares has been satisfied and,
accordingly, that rents received by Station REIT from OpCo will not be
disqualified as rents from real property by reason of a violation of this
requirement. However, there can be no absolute assurance that an attempt by the
Service to recharacterize the capital structure of OpCo would not be successful.
In addition, holders of Non-Voting Shares may be treated as owning Voting Shares
as a result of application of the attribution rules.

In addition to the above requirements, if rent attributable to personal
property, leased in connection with a lease of real property, is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
Station REIT generally must not operate or manage the property or furnish or
render services to tenants, other than through an "independent contractor" from
whom Station REIT derives no revenue. The "independent contractor" requirement,
however, does not apply to the extent the services provided by Station REIT are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant."
Station REIT does not and will not (i) derive rental income attributable to
personal property (other than personal property leased in connection with the
lease of real property, the amount of which is less than 15% of the total rent
received under the lease), or (ii) perform services considered to be rendered to
the occupant of the property, other than through an independent contractor from
whom Station REIT derives no revenue.

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If the Lease payments do not represent fair market value rentals and the
Service determined that Station REIT and OpCo are under common control, the
Service may reallocate income between Station REIT and OpCo. The reallocation
could cause all or some of the Lease payments to fail to qualify as "rents from
real property" and may cause Station REIT or OpCo to be subject to valuation
penalties. Station REIT believes, based on certain appraisals, that the Lease
payments represent fair market rentals.

RELIEF PROVISIONS

If Station REIT fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if certain relief provisions of the Code apply. These relief provisions will be
generally apply if Station REIT's failure to meet such tests was due to
reasonable cause and not due to willful neglect, Station REIT attaches a
schedule of the sources of its income to its return, and any incorrect
information on the schedule was not due to fraud with intent to evade tax. Under
certain circumstances, Station REIT may prefer not to have the relief provisions
apply.

ASSET TESTS

At the close of each quarter of its taxable year, Station REIT must satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of Station REIT's total assets must be represented by real estate assets
(including stock or debt instruments that do not otherwise qualify as real
estate assets and that are not held for not more than one year that were
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of Station REIT), cash, cash items, and government
securities. Second, not more than 25% of Station REIT's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by Station REIT may not exceed 5% of the value of Station
REIT's total assets and Station REIT may not own more than 10% of any one
issuer's outstanding voting securities.

After initially meeting the asset tests at the close of any quarter, Station
REIT will not lose its status as a REIT if it fails to satisfy the asset tests
at the end of a later quarter solely by reason of changes in asset values. If
the failure to satisfy the asset tests results from an acquisition of securities
or other property during a quarter, the failure can be cured by disposition of
sufficient nonqualifying assets within 30 days after the close of that quarter.
Station REIT intends to maintain adequate records of the value of its assets to
ensure compliance with the asset tests, and to take such action within 30 days
after the close of any quarter as may be required to cure any noncompliance but
no assurance can be given that such asset tests will be met.

ANNUAL DISTRIBUTION REQUIREMENTS

In order to be treated as a REIT, Station REIT is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (A) the sum of (i) 95% of Station REIT's "REIT taxable income"
(computed without regard to the dividends paid deduction and Station REIT's net
capital gain) plus (ii) 95% of the net income, if any, from foreclosure property
in excess of the special tax on income from foreclosure property, minus (B) the
sum of certain items of noncash income. Such distributions must be paid in the
taxable year to which they relate or in the following taxable year if declared
before Station REIT timely files its tax return for such year and if paid on or
before the first regular dividend payment after such declaration. To the extent
that Station REIT does not distribute (or is not treated as having distributed)
all of its net capital gain or distributes (or is treated as having distributed)
at least 95%, but less than 100% of its "REIT taxable income," as adjusted, it
will be subject to tax thereon at regular ordinary and capital gains corporate
tax rates. If a REIT so elects, the net capital gain retained by it will be
treated having been (i) distributed to its stockholders, (ii) taxed at the
stockholder level and (iii) contributed to the REIT in amount equal to the gain
less the tax. In such a case, stockholders will receive certain tax credits and
basis adjustments reflecting the deemed distribution and deemed payment of taxes
by stockholders. The Code also permits a stockholder to elect to be treated for
tax purposes as having (i) received a distribution in the amount specified in
the election and (ii) contributed the amount thereof to the capital of Station
REIT. If Station REIT should fail to distribute

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during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain net income for such year
(other than capital gain income which Station REIT elects to retain and pay tax
on), and (iii) any undistributed taxable income from prior periods, Station REIT
would be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. Pursuant to recently enacted legislation,
Station REIT may elect to retain rather than distribute its net long-term
capital gains. The effect of such an election is that (i) Station REIT is
required to pay the tax on such gains, (ii) U.S. Stockholders, while required to
include their proportionate share of the undistributed long-term capital gain in
income, will receive a credit or refund for their share of the tax paid by
Station REIT, and (iii) the basis of a U.S. Stockholder's stock would be
increased by the amount of the undistributed long-term capital gains (minus the
amount of capital gains tax paid by Station REIT) included in the U.S.
Stockholder's long-term capital gains. Station REIT intends to make timely
distributions sufficient to satisfy the annual distribution requirement.

"REIT taxable income" is the taxable income of a REIT, which generally is
computed in the same fashion as the taxable income of any corporation, except
that (i) certain deductions are not available, such as the deduction for
dividends received, (ii) it may deduct dividends paid (or deemed paid) during
the taxable year, (iii) net capital gains and losses are excluded, and (iv)
certain other adjustments are made.

It is possible that, from time to time, Station REIT may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in calculating the taxable income of Station REIT. In the event
that such an insufficiency or such timing differences occur, in order to meet
the 95% distribution requirement Station REIT may find it necessary to arrange
for borrowings or to pay dividends in the form of taxable stock dividends if it
is practicable to do so.

Under certain circumstances, Station REIT may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in Station REIT's
deduction for dividends paid for the earlier year. Thus, Station REIT may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, Station REIT will be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.

FAILURE TO QUALIFY

If Station REIT fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions described above do not apply, Station REIT will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to stockholders in any year in
which Station REIT fails to qualify will not be deductible by Station REIT and
they will not be required to be made. In such event, to the extent of current
and accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless entitled to relief under specific statutory provisions, Station REIT will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost, and will not be
permitted to requalify unless it distributes any earnings and profits
attributable to the period when it failed to qualify. In addition, it would be
subject to tax on any built-in gains on property held during the period during
which it did not qualify if it sold such property within 10 years of
requalification, to the extent of its net built-in gain at the time of
requalification. It is not possible to state whether in all circumstances
Station REIT would be entitled to such statutory relief.

TAXATION OF UNITED STATES STOCKHOLDERS

As used herein, the term "U.S. Stockholder" means a holder of Common Stock
that is for United States federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership, or other entity created
or organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income

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taxation regardless of its source or (iv) 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.

DISTRIBUTIONS GENERALLY

As long as Station REIT qualifies as a REIT, distributions to a United
States Stockholder up to the amount of Station REIT's current or accumulated
earnings and profits (and not designated as capital gains dividends) will be
taken into account as ordinary income and will not be eligible for the
dividends-received deduction for corporations. Distributions that are designated
by Station REIT as capital gain dividends will be treated as long-term capital
gain (to the extent they do not exceed Station REIT's actual net capital gain)
for the taxable year without regard to the period for which the stockholder has
held its stock. However, corporate stockholders may be required to treat up to
20% of certain capital gains dividends as ordinary income, pursuant to Section
291(d) of the Code. Individuals are generally subject to differing rates of tax
on various transactions giving rise to long-term capital gains or losses. In
general, the long-term capital gains rate is (i) 28% on capital gain from the
sale or exchange of assets held for more than one year but not more than 18
months, (ii) 20% on capital gain from the sale or exchange of assets held for
more than 18 months and (iii) 25% on capital gain from the sale or exchange of
certain depreciable real estate eligible for the 20% rate up to the amount of
depreciation deductions taken with respect to the real estate. Subject to
certain limitations concerning the classification of Station REIT's long-term
capital gains, Station REIT may designate a capital gain dividend as a 28% rate
distribution, a 25% rate distribution or a 20% rate distribution. If Station
REIT elects to retain capital gains rather than distribute them, a U.S.
stockholder will be deemed to receive a capital gain dividend equal to the
amount of such retained capital gains. Such gains are subject to apportionnment
among the three rate groups set forth above. In such a case, a stockholder will
receive certain tax credits and basis adjustments reflecting the deemed
distribution and deemed payment of taxes by the stockholder. A distribution in
excess of current or accumulated earnings and profits will first be treated as a
tax-free return of capital, reducing the tax basis in the United States
Stockholder's Common Stock, and a distribution in excess of the United States
Stockholder's tax basis in its Common Stock will be taxable gain realized from
the sale of such shares. Dividends declared by Station REIT in October, November
or December of any year payable to a stockholder of record on a specified date
in any such month shall be treated as both paid by Station REIT and received by
the stockholder on December 31 of such year, provided that the dividend is
actually paid by Station REIT during January of the following calendar year.
Stockholders may not claim the benefit of any tax losses of Station REIT on
their own income tax returns.

Station REIT will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by Station REIT up to the amount required
to be distributed in order to avoid imposition of the 4% excise tax discussed
under "--Taxation of Station REIT--General" and "--Taxation of Station
REIT--Annual Distribution Requirements" above. As a result, stockholders may be
required to treat as taxable dividends certain distributions that would
otherwise result in tax-free returns of capital. Moreover, any "deficiency
dividend" will be treated as a "dividend" (an ordinary dividend or a capital
gain dividend, as the case may be), regardless of Station REIT's earnings and
profits.

Losses incurred on the sale or exchange of Common Stock held for less than
six months will be deemed a long-term capital loss to the extent of any capital
gain dividends received by the selling stockholder with respect to such stock.

TREATMENT OF TAX-EXEMPT STOCKHOLDERS

Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. However, they are subject to taxation
on their unrelated businesses taxable income ("UBTI"). While many investments in
real estate generate UBTI, the Service has published a ruling that dividend
distributions from a REIT to an exempt employee pension trust do not constitute
UBTI, provided that the shares of the

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REIT are not otherwise used in an unrelated trade or business of the exempt
employee pension trust. Based on this ruling, amounts distributed by Station
REIT to Exempt Organizations generally should not constitute UBTI. However, if
an Exempt Organization finances its acquisition of the Common Stock with debt, a
portion of its income from Station REIT will constitute UBTI pursuant to the
"debt financed property" rules. In addition, in certain circumstances, a pension
trust that owns more than 10% of Station REIT's stock is required to treat a
percentage of the dividends from Station REIT as UBTI. This rule applies to a
pension trust holding more than 10% of Station REIT's stock only if (i) the
percentage of income of Station REIT that is UBTI (determined as if Station REIT
were a pension trust) is at least 5%, (ii) Station REIT qualifies as a REIT by
reason of the modification of the 5/50 Rule that allows beneficiaries of the
pension trust to be treated as holding shares of Station REIT in proportion to
their actuarial interests in the pension trust, and (iii) either (A) one pension
trust owns more than 25% of the value of Station REIT's stock or (B) a group of
pension trusts individually holding more than 10% of the value of Station REIT's
stock collectively owns more than 50% of the value of Station REIT's stock.

TAXATION OF FOREIGN STOCKHOLDERS

The rules governing United States income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships, and foreign trusts and
estates holding common stock (collectively, "Foreign Stockholders") are complex,
and no attempt will be made herein to provide more than a summary of such rules.
A Foreign Stockholder should consult with its own tax advisor to determine the
effect of federal, state, and local and country of tax residence income tax laws
on an investment in Station REIT, including any reporting requirements.

In general, a Foreign Stockholder will be subject to regular United States
income tax to the same extent as a United States Stockholder with respect to
income or gain derived from its investment in Station REIT if under all facts
and circumstances such income or gain is "effectively connected" with such
stockholder's conduct of a trade or business in the United States. In general, a
Foreign stockholder will not be considered engaged in a United States trade or
business solely as a result of its ownership of the Common Stock. See "Certain
Federal Income Tax Considerations--Taxation of United States Stockholders." A
corporate Foreign Stockholder that receives income that is effectively connected
with a United States trade or business may also be subject to the branch profits
tax under Section 884 of the Code, which is payable in addition to the regular
United States corporate income tax. The following discussion will apply to a
Foreign Stockholder whose income or gain derived from investment in Station
REIT, is in light of the facts and circumstances, not so effectively connected.

The Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA")
significantly affects the federal income tax treatment of the sale or exchange
of shares in REITs held by a Foreign Stockholder. Under FIRPTA, gain or loss
realized on the sale or exchange of a "United States real property interest"
("USRPI") by a foreign taxpayer is treated by statute as effectively connected
with a U.S. trade or business as a matter of law, without regard to the
particular facts and circumstances. A distribution of cash to a Foreign
Stockholder that is not attributable to gain from sales or exchanges by Station
REIT of USRPIs and not designated by Station REIT as a capital gain dividend is
not subject to FIRPTA but generally will be subject to the withholding of United
States federal income tax at a rate of 30%, unless (i) a lower treaty rate
applies or (ii) the Foreign Stockholder files an IRS Form 4224 with the
withholding agent certifying that the investment to which the distribution
relates is effectively connected to a United States trade or business of such
Foreign Stockholder. A Foreign Stockholder who receives a distribution that has
been subject to such withholding tax may file a claim for refund to the extent
the withholding has been imposed on a portion of such distributions representing
amounts in excess of current and accumulated earnings and profits.

Under FIRPTA, distributions of proceeds attributable to gain from Station
REIT's sale or exchange of a USRPI are subject to income tax at the normal
capital gains rates applicable to United States stockholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of a nonresident alien individual). Also, these distributions may be
subject to a 30% branch profits tax

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in the hands of a corporate Foreign Stockholder not entitled to a treaty
exemption or reduced rate of tax. Treasury Regulations require the withholding
of 35% of any distribution that could be designated by Station REIT as a capital
gain dividend. This amount is creditable against the Foreign Stockholder's tax
liability. It should be noted that the 35% withholding tax rate on capital gain
dividends is higher than the maximum rate (which may be 20%, 25% or 28% on
capital gains of individuals depending on all the facts and circumstances) on
long-term capital gains of individuals. Capital gain dividends not attributable
to gain on the sale or exchange of USRPIs are not subject to United States
taxation if there is no requirement of withholding.

If Station REIT is a "domestically-controlled REIT," a sale of Common Stock
by a Foreign Stockholder generally will not be subject to United States
taxation. A domestically-controlled REIT is a REIT in which, at all times during
a specified testing period, less than 50% in value of its shares is held
directly or indirectly, under Code attribution rules, by Foreign Stockholders.
It is currently anticipated that Station REIT will be a domestically-controlled
REIT and, therefore, the sale of the Common Stock will not be subject to
taxation under FIRPTA. However, no assurance can be given that Station REIT will
be a domestically-controlled REIT and, even if it is, that it will be able so to
demonstrate.

If Station REIT is not a domestically-controlled REIT, a sale of Common
Stock will be subject to tax under FIRPTA as a sale of a USRPI. Gain or loss
from the sale is deemed effectively connected with a United States trade or
business unless (i) the Common Stock is "regularly traded" (as defined by
applicable Treasury Regulations) on an established securities market during the
quarter in which the Common Stock was sold and the selling stockholder holds,
directly or indirectly, 5% or less of the Common Stock during the five-year
period ending on the date of disposition. The applicable Treasury Regulations
that define "regularly traded" for this purpose may be interpreted to provide
that a security will not be "regularly traded" for any calendar quarter during
which 100 or fewer persons (treating related persons as one person) in the
aggregate own 50% or more of such security or the quarterly trading volume is
less than 7.5% of the average number of the issued and outstanding shares of
such security (2.5% if there are 2,500 or more stockholders of record). In the
event that the Common Stock is not "regularly traded" and Station REIT did not
at that time constitute a domestically-controlled REIT, a Foreign Stockholder
(without regard to its ownership percentage of Common Stock) must treat as
effectively connected with a United States trade or business any gain or loss on
any sale or other disposition of Common Stock that occurs within a calendar
quarter during which the Common Stock was not "regularly traded" and the shares
were a USRPI.

If the gain on the sale of Station REIT's Common Stock were subject to
taxation under FIRPTA, the Foreign Stockholder would be subject to the same
treatment as a United States Stockholder with respect to such gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of a nonresident alien individual). Notwithstanding the foregoing, capital
gain from sale of shares of a REIT not subject to FIRPTA will nonetheless be
taxable to a Foreign Stockholder who is an individual (under rules generally
applicable to United States Stockholders) if such person is in the United States
for 183 days or more during the taxable year of disposition and certain other
conditions apply. In any event, a purchaser of Common Stock from a Foreign
Stockholder will not be required under FIRPTA to withhold on the purchase price
if the purchased Common Stock is "regularly traded" on an established securities
market or if Station REIT is a domestically-controlled REIT. Otherwise, under
FIRPTA the purchaser of Common Stock may be required to withhold 10% of the
purchase price and remit such amount to the Service.

Shares of Station REIT owned by a nonresident alien decedent are subject to
United States federal estate tax (which is imposed at rates up to 55%) unless an
estate tax treaty binding upon the United States provides otherwise.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

Station REIT will report to its stockholders and the Service the amount of
dividends paid or deemed paid during each calendar year, and the amount of tax
withheld, if any.

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UNITED STATES STOCKHOLDERS

Under certain circumstances, a United States Stockholder may be subject to
backup withholding at a rate of 31% on payments made with respect to, or cash
proceeds of a sale or exchange of, Common Stock. Backup withholding will apply
only if the holder (i) fails to furnish the person required to withhold with its
Taxpayer Identification Number ("TIN") which, for an individual, would be his or
her Social Security Number, (ii) furnishes an incorrect TIN, (iii) is notified
by the Service that it has failed properly to report payments of interest and
dividends, or (iv) under certain circumstances, fails to certify, under penalty
of perjury, that it has furnished a correct TIN and has not been notified by the
Service that it is subject to backup withholding for failure to report interest
and dividend payments. Backup withholding will not apply with respect to
payments made to certain exempt recipients, such as corporations and tax-exempt
organizations. A United States Stockholder should consult with a tax advisor
regarding qualification for exemption from backup withholding and the procedure
for obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a
United States Stockholder will be allowed as a credit against such United States
Stockholder's United States federal income tax liability and may entitle such
United States Stockholder to a refund, provided that the required information is
furnished to the Service.

FOREIGN STOCKHOLDERS

Additional issues may arise pertaining to information reporting and backup
withholding with respect to Foreign Stockholders, and a Foreign Stockholder
should consult with a tax advisor with respect to any such information reporting
and backup withholding requirements. Backup withholding with respect to a
Foreign Stockholder is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a Foreign Stockholder will be allowed
as a credit against any United States federal income tax liability of such
Foreign Stockholder. If withholding results in an overpayment of taxes, a refund
may be obtained provided that the required information is furnished to the
Service.

ORDINARY DIVIDEND DISTRIBUTIONS

Distributions by Station REIT that constitute dividends from ordinary income
are subject to a U.S. withholding tax of 30% which may be reduced by tax treaty.
Recently, the United States has announced an objective of excluding REIT
dividends from the withholding tax rate reductions contained in tax treaties and
has announced that it will endeavor to renegotiate several recently renegotiated
treaties. To the extent the dividend distribution is not made from earnings and
profits and the stockholder has sufficient basis in the shares, it is a return
of capital that is not subject to tax, although it is subject to the 30%
withholding tax (or withholding at the applicable treaty rate), which may, upon
application, be refunded. The amount received as a return of capital will be
applied to reduce the stockholder's basis in its stock. Once basis is reduced to
zero, any additional amounts distributed represent capital gains, which are
deemed income that is effectively connected to a U.S. trade or business and
taxed as discussed above.

OTHER TAX CONSEQUENCES

Station REIT and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of Station REIT
and its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in Station REIT.

THE DISTRIBUTION

A Company stockholder will include the fair market value of shares of OpCo
Common Stock and OpCo Preferred Stock (the "Distributed Shares") received
pursuant to the Distribution in gross income as

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ordinary dividend income only to the extent of the stockholder's share of the
current or accumulated tax earnings and profits of the Company, as determined
for United States federal income tax purposes. Because the Company will
recognize substantial losses for tax purposes upon its transfer of the
Transferred Assets to OpCo, the Company does not currently expect to have
current or accumulated tax earnings and profits. Consequently, a Company
stockholder will not have dividend income but will be required to reduce its
basis in its shares of the Company Common Stock by the excess value of the
Distributed Shares. A stockholder whose basis in its shares of the Company stock
is thereby reduced to zero will recognize capital gain in the amount of any
remaining value of Distributed Shares received. See "--Ownership and Disposition
of Distributed Shares."

Although the matter is not free from doubt, a participant in the odd-lot
program in connection with the Distribution (the "Odd-Lot Program") (or a
recipient of cash in lieu of fractional shares) will generally be treated as if
it received the Distributed Shares pursuant to the Distribution and then sold
such Distributed Shares. Accordingly, such a stockholder will recognize capital
gain to the extent that the fair market value of the Distributed Shares being
sold on its behalf exceeds its basis in its shares of Common Stock in respect of
which it receives the Distributed Shares as described above. A participant in
the Odd-Lot Program (or a recipient of cash in lieu of fractional shares) will
be deemed to receive a basis in the Distributed Shares deemed received by it
equal to the fair market value of the shares. In addition, such participant
might have to recognize gain or loss upon the sale of the Dstributed Shares by
the distribution agent. If the value of the Distributed Shares on the
Distribution Date varies from the amount received by the Distribution Agent,
stockholders participating in the Odd-Lot Program (or a recipient of cash in
lieu of fractional shares) are advised to consult their own tax advisors
regardng the United States federal income tax consequences to that of the
Distribution.

A Company stockholder that is a corporation will generally be entitled to a
dividends received deduction in amount equal to 70 percent (80 percent if it
owns at least 20 percent in vote and value of all shares of the Company stock)
of the amount of the Distribution received by it that is a dividend. The Company
does not expect to have current or accumulated earnings and profits; therefore
no part of the Distribution should be treated as a dividend.

OWNERSHIP AND DISPOSITION OF DISTRIBUTED SHARES

TAXATION OF DIVIDENDS AND STOCK DISTRIBUTIONS. Holders of Distributed
Shares generally will treat the gross amount of any cash dividends paid by OpCo
as dividend income for United States federal income tax purposes to the extent
of OpCo's then current or accumulated tax earnings and profits. The amount of a
distribution that exceeds OpCo's current or accumulated tax earnings and profits
will reduce a holder's basis in its Distributed Shares to the extent of such
basis, and any amount of a distribution in excess of such holder's basis will be
capital gain to the holder. Corporate holders of Distributed Shares will
generally be entitled to a dividends received deduction with respect to any such
dividends as described above in the immediately preceding paragraph. Dividends
paid to foreign stockholders will be subject to a 30% withholding tax. The rate
of tax may be reduced by applicable treaties.

SALE OR OTHER DISPOSITION. The sale or other disposition (including, in
some cases, redemption) of the Distributed Shares generally will result in the
recognition of capital gain or loss to the holder in an amount equal to the
difference between the amount realized and the holder's adjusted basis in the
Distributed Shares. A holder's adjusted basis in Distributed Shares generally
will be the fair market value of such shares as of the date of the Distribution,
reduced (but not below zero) by the amount of any distributions received with
respect to such shares that are not treated as dividends. If the holder has held
its Distributed Shares for more than one year, such capital gain or loss will be
long-term capital gain or loss. Individual holders are subject to a 28 percent
tax on long-term capital gains, but are subject to only a maximum 20 percent tax
on such gain if they have held the Distributed Shares for more than 18 months.
Corporate holders are subject to a 35 percent tax on all capital gain,
regardless of the period they hold Distributed

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Shares. A holder's holding period for Distributed Shares acquired in the
Distribution will begin on the date of the Distribution.

Capital losses are generally deductible to the extent of capital gains.
Non-corporate taxpayers may deduct the excess of capital losses over capital
gains, whether long-term or short-term, in an amount up to $3,000 a year ($1,500
in the case of a married individual filing separately). Non-corporate taxpayers
may carry forward unused capital losses indefinitely. Unused capital losses of a
corporation may be carried back three years and carried forward five years.

Shares of the Company owned by a nonresident alien decedent are subject to
United States federal estate tax (which is imposed at rates up to 55%) unless an
estate tax treaty binding upon the United States provides otherwise.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

The Company will report to its stockholders and the Service the amount of
dividends paid or deemed paid during each calendar year, and the amount of tax
withheld, if any.

UNITED STATES STOCKHOLDERS

FOREIGN STOCKHOLDERS

OTHER TAX CONSEQUENCES

The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.

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OTHER MATTERS

The Board of Directors is not aware of any other matters to be presented at
the meeting. If any other matters should properly come before the meeting, the
persons named in the proxy will vote the proxies according to their best
judgment.

STOCKHOLDER PROPOSALS

Stockholder proposals, if any, that may be considered for inclusion in the
Company's proxy materials for the 1998 Annual Meeting must be received by the
Company at its offices at 2411 West Sahara Avenue, Las Vegas, Nevada 89102 not
later than March 3, 1998.

ADDITIONAL INFORMATION

The Company is subject to the informational reporting requirements of the
Exchange Act and in accordance therewith, files reports, proxy and information
statements and other information with the Commission. Such reports, proxy and
information statements and other information may be inspected and copied at the
public reference facilities of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, as well as at the following Regional
Offices: 7 World Trade Center, 14th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Commission by mail at prescribed rates. Requests should be
directed to the Commission's Public Reference Section, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Commission maintains a website (http:/www.sec.gov) that contains such reports,
proxy statements and other information filed by the Company. Information filed
by the Company can be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005. Information may be obtained from the Company at 2411 West
Sahara Avenue, Las Vegas, Nevada 89102, Attention: Investor Relations, telephone
(702) 367-2411.

Following the Distribution, OpCo will be required to comply with the
reporting requirements of the Exchange Act and, in accordance therewith, to file
annual and quarterly reports, proxy statements and other information with the
SEC. Additionally, OpCo will be required to provide annual reports containing
audited financial statements to its stockholders in connection with its annual
meetings of stockholders. After the Distribution, such reports, proxy statements
and other information will be available to be inspected and copied at the public
reference facilities of the SEC or obtained by mail or over the internet from
the SEC, as described above.

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GLOSSARY

Unless the context otherwise requires, the following capitalized terms will
have the meanings set forth below for the purposes of this Proxy Statement:

"Boulder Station" means Boulder Station Hotel & Casino, the casino and hotel
operated by BSI.

"BSI" means Boulder Station Inc., a Nevada corporation.

"Cash Available for Distribution" means Funds From Operations adjusted for
certain non-cash items, less reserves for capital expenditures.

"Code" means the Internal Revenue Code of 1986, as amended.

"Common Stock" means the common stock, par value $.01 per share, of the
Company.

"Company" means Station Casinos, Inc. as it exists prior to the consummation
of the Reorganization Transactions.

"Convertible Preferred Stock" means shares of the Series A Preferred Stock,
par value $.01 per share, of the Company.

"Current Bank Facility" means the Amended and Restated Reducing Revolving
Loan Agreement dated as of March 19, 1996, as amended, among PSHC, BSI, TSI,
SCRSI, KCSC, the Banks and the other lenders party thereto.

"Distribution" means the distribution by the Company of the common stock of
OpCo to the Company's stockholders as a dividend.

"Existing Indentures" means the indentures governing the Existing Senior
Subordinated Notes.

"Existing Senior Subordinated Notes" means collectively the Company's $193
million aggregate principal amount of 9 5/8% Senior Subordinated Notes, $198
million aggregate principal amount 10 1/8% Senior Subordinated Notes and $150
million aggregate principal amount 9 3/4% Senior Subordinated Notes.

"FF&E" means furniture, fixtures and equipment.

"Funds From Operations" means net income (loss) computed in accordance with
generally accepted accounting principles, excluding gains (or losses) from debt
restructuring or sales of property, plus depreciation and amortization on real
estate assets and after adjustments for unconsolidated partnerships and joint
ventures.

"Gaming Licenses" means collectively the various registrations, findings of
suitability, approvals, permits and licenses required in order to have an
interest in gaming activities in Nevada.

"head lease" means a ground lease from the fee owner of the referenced
property.

"Initial Properties" means substantially all of the real property assets,
including land, buildings, structures and other improvements on the land,
easements and similar appurtenances to the land and improvements and permanently
fixed equipment, machinery and improvements and other fixtures, and certain
other assets of the six casino properties owned and operated by the Company
prior to the Reorganization Transactions.

"Leases" means the participating leases between OpCo and Station REIT
regarding the Initial Properties.

"OpCo" means Station Operating Company, Inc., a Nevada corporation.

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"Ownership Limit" means that the limit specified in the Articles, that no
person may own, or be deemed to own by virtue of the applicable attribution
provisions of the Code, more than 5.0% of any class of Station REIT's
outstanding capital stock.

"Palace Station" means Palace Station Hotel & Casino the hotel and casino
operated by PSHC.

"Percentage Rent" has the meaning ascribed to that term in the Section
entitled "Revenue Growth From Existing Property."

"Preferred Stock" means the preferred stock, par value $.01 per share of the
Company.

"PSHC" means Palace Station Hotel & Casino, Inc., a Nevada corporation.

"REIT" means a real estate investment trust as defined in Section 856 of the
Code.

"Reorganization Transaction" means the transaction described in the Section
entitled "Summary-- Reorganization Transactions."

"Service" means the Internal Revenue Service.

"SSI" means Sunset Station, Inc., a Nevada corporation.

"Station Casino Kansas City" means the a riverboat-themed dockside gaming
and entertainment complex operated by KCSC.

"Station Casino St. Charles" means Station Casino St. Charles a
riverboat-themed dockside gaming and entertainment complex operated by SCRSI.

"Station REIT" means Station Casinos, Inc., a Nevada corporation and its
subsidiaries, collectively as it exists immediately after the Reorganization
Transactions at which time such entity will be renamed "Station Entertainment
Properties, Inc."

"Sunset Station" means Sunset Station Hotel and Casino, the hotel and casino
operated by SSI.

"Transferred Assets" means the assets and liabilities transferred to certain
subsidiaries of OpCo as described in the section entitled "Summary--The
Reorganization Transactions."

"TSI" means Texas Station, Inc., a Nevada corporation.

"Texas Station" means Texas Station Gambling Hall & Hotel, the hotel and
gambling hall operated by TSI.

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INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Station Casinos, Inc. Unaudited Pro Forma Consolidated Balance Sheet................. F-3

Station Casinos, Inc. Unaudited Pro Forma Consolidated Statements of Operations...... F-5

Report of Independent Public Accountants............................................. F-8

Station Casinos, Inc. Consolidated Balance Sheets.................................... F-9

Station Casinos, Inc. Consolidated Statements of Operations.......................... F-10

Station Casinos, Inc. Consolidated Statements of Stockholders' Equity................ F-11

Station Casinos, Inc. Consolidated Statements of Cash Flows.......................... F-12

Station Casinos, Inc. Notes to Consolidated Financial Statements..................... F-13

Station Operating Company Unaudited Pro Forma Combined Balance Sheet................. F-33

Station Operating Company Unaudited Pro Forma Combined Statements of Operations...... F-35

Report of Independent Public Accountants............................................. F-38

Station Operating Company Combined Balance Sheets.................................... F-39

Station Operating Company Combined Statements of Operations.......................... F-40

Station Operating Company Combined Statements of Cash Flows.......................... F-41

Station Operating Company Notes to Combined Financial Statements..................... F-42
</TABLE>

F-1
<PAGE>
STATION CASINOS, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following Unaudited Pro Forma Consolidated Financial Statements make
adjustments to the historical statements of operations of Station Casinos, Inc.
(the "Company") as if the Reorganization Transactions had occurred on April 1,
1996 and make adjustments to the Company's historical balance sheet as if the
Reorganization Transactions had occurred on September 30, 1997. The Unaudited
Pro Forma Consolidated Financial Statements are provided for comparative
purposes only and do not purport to be indicative of the results which actually
would have been obtained if the Reorganization Transactions had been effected on
the dates indicated or the results which may be obtained in the future. No
commitments are currently in place with respect to any of the financing
anticipated to be required by the Company in connection with the Reorganization
Transactions. The Unaudited Pro Forma Consolidated Financial Statements do not
make adjustments for certain non-recurring costs expected to be incurred to
implement the Reorganization Transactions.

F-2
<PAGE>
STATION CASINOS, INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents........................................... $ 43,923 $ (43,923)(1) $ 28,272
28,272(2)
Accounts receivable................................................. 12,487 (12,487)(1) --
Income tax refund receivable........................................ -- 18,850(3) 18,850
Inventories......................................................... 4,360 (4,360)(1) --
Prepaid gaming taxes................................................ 6,657 (6,657)(1) --
Prepaid expenses and other.......................................... 14,920 (14,920)(1) --
---------- ----------- -----------
Total current assets.............................................. 82,347 (35,225) 47,122

Property and equipment, net......................................... 1,138,825 (447,485)(4) 691,340
Land held for development........................................... 26,449 (7,599)(1) 18,850
Other assets, net................................................... 61,054 (44,060)(1) 19,994
3,000(5)
---------- ----------- -----------
Total assets...................................................... $1,308,675 $(531,369) $777,306
---------- ----------- -----------
---------- ----------- -----------

Current portion of long-term debt................................... $ 14,302 $ (14,195)(1) $ 107
Accounts payable.................................................... 16,383 (16,383)(1) --
Accrued payroll and related......................................... 16,015 (16,015)(1) --
Construction contracts payable...................................... 19,931 (12,698)(1) 7,233
Accrued interest payable............................................ 18,932 (4,714)(5) 14,218
Accrued expenses and other.......................................... 31,000 (30,686)(1) 314
---------- ----------- -----------
Total current liabilities......................................... 116,563 (94,691) 21,872

Long-term debt, less current portion................................ 885,692 (354,369)(6) 531,323
Deferred income taxes, net.......................................... 16,919 (12,218)(4) 4,701
---------- ----------- -----------
Total liabilities................................................. 1,019,174 (461,278) 557,896

Preferred stock..................................................... 103,500 -- 103,500
Common stock........................................................ 353 290(2) 643
Additional paid-in capital.......................................... 167,154 324,960(2) 492,114
Deferred compensation............................................... (774) -- (774)
Retained earnings (deficit)......................................... 19,268 (395,341)(7) (376,073)
---------- ----------- -----------
Total stockholders' equity........................................ 289,501 (70,091) 219,410
---------- ----------- -----------
Total liabilities and stockholders' equity........................ $1,308,675 $(531,369) $777,306
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

F-3
<PAGE>
STATION CASINOS, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 1997

(1) Represents the contribution to OpCo of the Transferred Assets, other than
property and equipment.

(2) Represents the unused portion of the net proceeds to Station REIT from the
issuance of 29.0 million shares of common stock in the Offerings.

(3) Represents the estimated income tax refund of $18.9 million that results
from the Company's carryback generated from the Reorganization Transactions.
A valuation allowance has been established to reserve the remaining deferred
tax asset of approximately $35.8 million.

(4) Represents the contribution to OpCo of the Transferred Assets comprising
property and equipment.

(5) Represents deferred financing fees, net of amortization, with respect to the
anticipated Bank Facility.

(6) Represents the repayment of the Current Bank Facility ($214.0 million at
September 30, 1997), the Sunset Loan Agreement ($103.0 million at September
30, 1997) and certain obligations that are not assumed by OpCo ($51.6
million at September 30, 1997), and the related accrued interest payable.

(7) Principally represents the elimination of Station REIT's equity investment
in OpCo as a result of the Reorganization Transactions.

F-4
<PAGE>
STATION CASINOS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Operating revenues:
Casino......................................................... $ 282,700 $(282,700)(1) $ --
Food and beverage.............................................. 63,577 (63,577)(1) --
Room........................................................... 17,218 (17,218)(1) --
Other.......................................................... 28,676 (28,676)(1) --
Rental income.................................................. -- 57,375(2) 57,375
2,610(3) 2,610
---------- ----------- -----------
Gross revenues................................................... 392,171 (332,186) 59,985
Promotional allowances........................................... (24,558) 24,558(1) --
---------- ----------- -----------
Net revenues..................................................... 367,613 (307,628) 59,985
---------- ----------- -----------
Operating costs and expenses:
Casino......................................................... 137,592 (137,592)(1) --
Food and beverage.............................................. 44,862 (44,862)(1) --
Room........................................................... 6,481 (6,481)(1) --
Other.......................................................... 13,481 (13,481)(1) --
Selling, general and administrative............................ 81,896 (81,896)(1) --
2,610(3) 2,610
Corporate expense.............................................. 7,644 (6,144)(4) 1,500
Development expenses........................................... 104 (104)(1) --
Depreciation and amortization.................................. 33,169 (26,927)(5) 6,242
Preopening expenses............................................ 10,866 (10,866)(1) --
---------- ----------- -----------
Total costs and expenses......................................... 336,095 (325,743) 10,352
---------- ----------- -----------
Operating income................................................. 31,518 18,115 49,633
Interest expense, net............................................ (35,713) 16,754(6) (18,959)
Other income (expense), net...................................... (4,996) 4,996(1) --
---------- ----------- -----------
Income (loss) before income taxes................................ (9,191) 39,865 30,674
Income tax (provision) benefit................................... 3,258 (3,258)(1) --
---------- ----------- -----------
Net (loss) income................................................ (5,933) 36,607 30,674
Preferred stock dividends........................................ (3,622) -- (3,622)
---------- ----------- -----------
Net (loss) income applicable to common stock..................... $ (9,555) $ 36,607 $ 27,052
---------- ----------- -----------
---------- ----------- -----------
Net (loss) income per share of common stock...................... $ (0.27) $ 1.26 $ 0.42(7)
---------- ----------- -----------
---------- ----------- -----------
Weighted average shares outstanding.............................. 35,310 29,000 64,310
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

F-5
<PAGE>
STATION CASINOS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED MARCH 31, 1997

Operating costs and expenses:
Casino......................................................... 203,857 (203,857)(1) --
Food and beverage.............................................. 68,994 (68,994)(1) --
Room........................................................... 10,318 (10,318)(1) --
Other.......................................................... 23,927 (23,927)(1) --
Selling, general and administrative............................ 120,285 (120,285)(1) 3,525
3,525(3)
Corporate expense.............................................. 18,284 (15,284)(4) 3,000
Restructuring charge........................................... 2,016 (2,016)(1) --
Development expenses........................................... 1,302 (1,302)(1) --
Depreciation and amortization.................................. 44,589 (36,619)(5) 7,970
Preopening expenses............................................ 31,820 (31,820)(1) --
---------- ----------- -----------
Total costs and expenses......................................... 525,392 (510,897) 14,495
---------- ----------- -----------

Operating income................................................. 58,123 19,615 77,738

Interest expense, net............................................ (36,698) 16,435(6) (20,263)

Other income (expense), net...................................... (47) 47(1) --
---------- ----------- -----------
Income before income taxes....................................... 21,378 36,097 57,475
Income tax (provision) benefit................................... (7,615) 7,615(1) --
---------- ----------- -----------
Net income....................................................... 13,763 43,712 57,475
Preferred stock dividends........................................ (7,245) -- (7,245)
---------- ----------- -----------
Net income applicable to common stock............................ $ 6,518 $ 43,712 $ 50,230
---------- ----------- -----------
---------- ----------- -----------

Net income per share of common stock............................. $ 0.18 $ 1.51 $ 0.78(7)
---------- ----------- -----------
---------- ----------- -----------

Weighted average shares outstanding.............................. 35,316 29,000 64,316
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

F-6
<PAGE>
STATION CASINOS, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED SEPTEMBER 30, 1997 AND YEAR ENDED MARCH 31, 1997

(1) Represents the adjustments to remove the revenues and expenses related to
conducting the operations of the Initial Properties.

(2) Represents pro forma lease revenues which would have been generated during
the respective periods pursuant to the Leases between Station REIT and OpCo.
Station Casino Kansas City and Sunset Station commenced operations on
January 16, 1997 and June 10, 1997, respectively. The annual lease revenues
contemplated by the Leases have been prorated accordingly.

(3) Represents pass-through rents with respect to head leases on the Initial
Properties.

(4) Represents the decrease in corporate expenses of the Company as a result of
the Reorganization Transactions. Pro forma corporate expenses for Station
REIT for the periods presented includes the estimated service fees payable
to OpCo under the Transition Services Agreement. There can be no assurance
that the actual level of corporate expenses experienced by Station REIT in
the future will not be higher.

(5) Represents the reduction in depreciation expense resulting from the transfer
of the Transferred Assets.

(6) Represents the adjustment to interest expense for (a) the repayment of the
indebtedness and other obligations reflected in note (6) of Notes to
Unaudited Pro Forma Consolidated Balance Sheet and (b) amortization of
deferred financing fees with respect to the anticipated Bank Facility. It
does not reflect non-recurring costs of approximately $10.4 million related
to the write-off of debt issuance costs.

(7) Net income per common share is based on earnings divided by the weighted
average number of common shares outstanding (exclusive of shares underlying
convertible securities) and 29.0 million common shares estimated to be
issued with the Offerings.

F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Station Casinos, Inc.:

We have audited the accompanying consolidated balance sheets of Station
Casinos, Inc. (a Nevada corporation) and subsidiaries as of March 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Station Casinos, Inc. and
subsidiaries as of March 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1997, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Las Vegas, Nevada
April 23, 1997 (except for Note 5
as to which the date is June 27, 1997
and Note 14 as to which the date is
November 24, 1997)

F-8
<PAGE>
STATION CASINOS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31,
------------------------
1997 1996
------------ ---------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS, EXCEPT SHARE
DATA)
ASSETS

Current assets:
Cash and cash equivalents............................................. $ 42,522 $ 114,868 $ 43,923
Accounts and notes receivable, net.................................... 7,852 5,151 12,487
Inventories........................................................... 3,473 2,299 4,360
Prepaid gaming taxes.................................................. 4,291 3,726 6,657
Prepaid expenses and other............................................ 11,231 7,395 14,920
------------ ---------- -------------
Total current assets................................................ 69,369 133,439 82,347

Property and equipment, net........................................... 1,069,052 616,211 1,138,825
Land held for development............................................. 26,354 28,934 26,449
Other assets, net..................................................... 69,343 48,730 61,054
------------ ---------- -------------
Total assets........................................................ $ 1,234,118 $ 827,314 $ 1,308,675
------------ ---------- -------------
------------ ---------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt..................................... $ 18,807 $ 23,256 $ 14,302
Accounts payable...................................................... 21,106 11,091 16,383
Accrued payroll and related........................................... 13,460 11,519 16,015
Construction contracts payable........................................ 94,835 27,879 19,931
Accrued interest payable.............................................. 10,625 6,875 18,932
Accrued expenses and other current liabilities........................ 26,433 16,706 31,000
------------ ---------- -------------
Total current liabilities........................................... 185,266 97,326 116,563

Long-term debt, less current portion.................................... 742,156 441,742 885,692
Deferred income taxes, net.............................................. 7,848 9,776 16,919
------------ ---------- -------------
Total liabilities................................................... 935,270 548,844 1,019,174
------------ ---------- -------------

Commitments and contingencies (Note 6)

Stockholders' equity:
Preferred stock, par value $.01; authorized 5,000,000 shares;
2,070,000, 1,800,000 and 2,070,000 convertible preferred shares
issued and outstanding.............................................. 103,500 90,000 103,500
Common stock, par value $.01; authorized 90,000,000 shares;
35,318,057, 35,303,346 and 35,306,657 shares issued and
outstanding......................................................... 353 353 353
Additional paid-in capital............................................ 167,397 167,623 167,154
Deferred compensation--restricted stock............................... (1,225) (1,811) (774)
Retained earnings..................................................... 28,823 22,305 19,268
------------ ---------- -------------
Total stockholders' equity.......................................... 298,848 278,470 289,501
------------ ---------- -------------
Total liabilities and stockholders' equity.......................... $ 1,234,118 $ 827,314 $ 1,308,675
------------ ---------- -------------
------------ ---------- -------------
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-9
<PAGE>
STATION CASINOS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER
FOR THE YEARS ENDED MARCH 31, 30,
------------------------------------------- ----------------------------
1997 1996 1995 1997 1996
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Casino............................. $ 450,013 $ 358,495 $ 210,534 $ 282,700 $ 212,072
Food and beverage.................. 92,220 73,057 43,208 63,577 42,626
Room............................... 27,420 23,614 17,690 17,218 12,658
Other.............................. 48,957 39,099 36,561 28,676 22,752
------------- ------------- ------------- ------------- -------------
Gross revenues................... 618,610 494,265 307,993 392,171 290,108
Promotional allowances............. (35,095) (27,408) (17,715) (24,558) (16,634)
------------- ------------- ------------- ------------- -------------
Net revenues..................... 583,515 466,857 290,278 367,613 273,474
------------- ------------- ------------- ------------- -------------
Operating costs and expenses:
Casino............................. 203,857 150,805 92,812 137,592 93,278
Food and beverage.................. 68,994 57,659 34,045 44,862 32,275
Room............................... 10,318 9,147 7,014 6,481 5,097
Other.............................. 23,927 24,902 27,270 13,481 11,260
Selling, general and
administrative................... 120,285 97,466 60,810 81,896 55,606
Corporate expense.................. 18,284 15,979 13,141 7,644 8,642
Restructuring charge............... 2,016 -- -- -- --
Development expenses............... 1,302 3,960 7,200 104 602
Depreciation and amortization...... 44,589 35,039 22,220 33,169 20,092
Preopening expenses................ 31,820 2,436 19,378 10,866 --
------------- ------------- ------------- ------------- -------------
525,392 397,393 283,890 336,095 226,852
------------- ------------- ------------- ------------- -------------
Operating income..................... 58,123 69,464 6,388 31,518 46,622
Other income (expense):
Interest expense, net.............. (36,698) (30,563) (19,967) (35,713) (16,260)
Other.............................. (47) 1,150 2,160 (4,996) 66
------------- ------------- ------------- ------------- -------------
(36,745) (29,413) (17,807) (40,709) (16,194)
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes.... 21,378 40,051 (11,419) (9,191) 30,428
Income tax (provision) benefit....... (7,615) (14,579) 3,477 3,258 (10,851)
------------- ------------- ------------- ------------- -------------
Net income (loss).................... 13,763 25,472 (7,942) (5,933) 19,577
Preferred stock dividends............ (7,245) (53) -- (3,622) (3,622)
------------- ------------- ------------- ------------- -------------
Net income (loss) applicable to
common stock....................... $ 6,518 $ 25,419 $ (7,942) $ (9,555) $ 15,955
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Earnings (loss) per common share..... $ 0.18 $ 0.75 $ (0.26) $ (0.27) $ 0.45
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted average common shares
outstanding........................ 35,316,077 33,917,646 30,112,851 35,310,457 35,314,107
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-10
<PAGE>
STATION CASINOS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
DEFERRED RETAINED
ADDITIONAL COMPENSATION- EARNINGS TOTAL
PREFERRED COMMON PAID-IN RESTRICTED (ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL STOCK DEFICIT) EQUITY
---------- ----------- ---------- ------------- ------------ ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1994............ $ -- $ 300 $ 90,663 -- $ 4,828 $ 95,791

Restricted stock grant (Note 9)..... -- 1 2,929 (2,930) -- --

Amortization of deferred
compensation...................... -- -- -- 37 -- 37

Net loss............................ -- -- -- -- (7,942) (7,942)
---------- ----- ---------- ------------- ------------ ------------

Balances, March 31, 1995............ -- 301 93,592 (2,893) (3,114) 87,886

Issuance of common stock (Note 7)... -- 52 77,309 -- -- 77,361

Issuance of preferred stock (Note
7)................................ 90,000 -- (3,278) -- -- 86,722

Amortization of deferred
compensation...................... -- -- -- 1,082 -- 1,082

Preferred stock dividends........... -- -- -- -- (53) (53)

Net income.......................... -- -- -- -- 25,472 25,472
---------- ----- ---------- ------------- ------------ ------------

Balances March 31, 1996............. 90,000 353 167,623 (1,811) 22,305 278,470

Issuance of preferred stock (Note
7)................................ 13,500 -- (405) -- -- 13,095

Exercise of stock options........... -- -- 179 -- -- 179

Amortization of deferred
compensation...................... -- -- -- 586 -- 586

Preferred stock dividends........... -- -- -- -- (7,245) (7,245)

Net income.......................... -- -- -- -- 13,763 13,763
---------- ----- ---------- ------------- ------------ ------------

Balances March 31, 1997............. 103,500 353 167,397 (1,225) 28,823 298,848

Amortization of deferred
compensation (unaudited).......... -- -- -- 208 -- 208

Cancellation of restricted stock
options (unaudited)............... -- -- (243) 243 -- --

Preferred stock dividends
(unaudited)....................... -- -- -- -- (3,622) (3,622)

Net loss (unaudited)................ -- -- -- -- (5,933) (5,933)
---------- ----- ---------- ------------- ------------ ------------

Balances September 30, 1997
(unaudited)....................... $ 103,500 $ 353 $ 167,154 $ (774) $ 19,268 $ 289,501
---------- ----- ---------- ------------- ------------ ------------
---------- ----- ---------- ------------- ------------ ------------
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-11
<PAGE>
STATION CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEARS ENDED MARCH 31, SEPTEMBER 30,
------------------------------- --------------------
1997 1996 1995 1997 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Cash flows from operating activities:
Net income(loss).......................................... $ 13,763 $ 25,472 $ (7,942) $ (5,933) $ 19,577
--------- --------- --------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 44,589 35,039 22,220 33,169 20,092
Amortization of debt discount and issuance costs........ 5,279 3,141 1,211 3,282 2,439
Preopening expenses..................................... 31,820 2,436 19,378 10,866 --
(Decrease) increase in deferred income taxes............ (3,752) 8,995 (5,449) 7,290 4,621
Changes in assets and liabilities:
Increase in accounts and notes receivable, net........ (1,151) (522) (955) (4,635) (1,392)
Increase in inventories and prepaid expenses and
other............................................... (3,751) (2,428) (3,152) (5,161) (3,377)
(Decrease) increase in accounts payable............... 10,015 (2,710) 10,547 (4,723) 6,481
Increase in accrued expenses and other current
liabilities......................................... 13,723 4,822 12,041 13,896 3,006
Other, net.............................................. 1,268 3,708 595 6,593 730
--------- --------- --------- --------- ---------
Total adjustments................................... 98,040 52,481 56,436 60,577 32,600
--------- --------- --------- --------- ---------
Net cash provided by operating activities........... 111,803 77,953 48,494 54,644 52,177
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures.................................... (505,735) (279,340) (141,165) (100,029) (218,436)
Proceeds from sale of land, property and equipment...... 8,900 6,578 12,483 2,399 --
Land held for development............................... (36) (5,018) (5,507) (95) --
Other long-term assets.................................. (15,772) (1,638) (2,489) -- --
Refund on land held for development..................... -- -- 9,500 -- --
Increase (decrease) in construction contracts payable... 66,956 21,460 (10,337) (74,904) 27,193
Preopening expenses..................................... (31,820) (2,436) (19,378) (8,550) --
Other, net.............................................. (1,501) (6,541) (692) (1,779) (4,610)
--------- --------- --------- --------- ---------
Net cash used in investing activities............... (479,008) (266,935) (157,585) (182,958) (195,853)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Borrowings (payments) under bank facility, net.......... 277,000 (65,000) 37,000 (63,000) 73,000
Borrowings under Sunset loan agreement.................. 46,000 -- -- 57,000 --
Proceeds from notes payable............................. 2,250 42,438 13,757 15,730 --
Principal payments on notes payable..................... (30,444) (34,958) (8,195) (19,631) (19,482)
Proceeds from the issuance of common stock.............. -- 78,246 -- -- --
Proceeds from the issuance of senior subordinated
notes................................................. -- 191,292 72,091 144,287 --
Proceeds from the issuance of preferred stock........... 13,095 87,300 -- -- 13,095
Distributions paid to stockholders...................... -- -- (4,014) -- --
Dividends paid on preferred stock....................... (6,985) -- -- (3,622) (3,362)
Debt issuance costs and other, net...................... (6,057) (12,429) (746) (1,049) (3,819)
--------- --------- --------- --------- ---------
Net cash provided by financing activities........... 294,859 286,889 109,893 129,715 59,432
--------- --------- --------- --------- ---------
Cash and cash equivalents:
(Decrease) increase in cash and cash equivalents........ (72,346) 97,907 802 1,401 (84,244)
Balance, beginning of year.............................. 114,868 16,961 16,159 42,522 114,868
--------- --------- --------- --------- ---------
Balance, end of year.................................... $ 42,522 $ 114,868 $ 16,961 $ 43,923 $ 30,624
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental cash flow disclosures:
Cash paid for interest, net of amounts capitalized...... $ 28,577 $ 27,817 $ 17,021 $ 24,510 $ 13,832
Cash paid for income taxes, net......................... $ 9,250 $ 8,668 $ 1,303 $ -- $ 4,450
Property and equipment purchases financed by debt....... $ 361 $ 28,405 $ 22,719 $ 3,532 $ 361
Assets sold for note receivable......................... $ 1,550 $ -- $ -- $ -- $ --
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-12
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

BASIS OF PRESENTATION AND ORGANIZATION

Station Casinos, Inc. (the "Company"), a Nevada Corporation, is an
established multi-jurisdictional gaming enterprise that currently owns and
operates four hotel/casino properties in Las Vegas, Nevada, a gaming and
entertainment complex in St. Charles, Missouri and a gaming and entertainment
complex in Kansas City, Missouri. The Company also owns and provides slot route
management services in Southern Nevada and Louisiana.

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Palace Station Hotel & Casino, Inc. ("Palace
Station"), Boulder Station, Inc. ("Boulder Station"), Texas Station, Inc.
("Texas Station"), Sunset Station, Inc. ("Sunset Station"), St. Charles
Riverfront Station, Inc. ("Station Casino St. Charles"), Kansas City Station
Corporation ("Station Casino Kansas City"), and Southwest Gaming Services, Inc.
("SGSI"). The Company owns a 50% interest in Town Center Amusements, Inc. d.b.a.
Barley's Casino & Brewing Company. The Company accounts for this investment
using the equity method of accounting. All significant intercompany balances and
transactions have been eliminated.

INTERIM PERIODS

The Consolidated Financial Statements for the six months ended September 30,
1997 and 1996 and related amounts in the Notes to the Consolidated Financial
Statements are unaudited, but in the opinion of management reflect all normal
and recurring adjustments necessary for a fair presentation of the results of
those periods.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include investments purchased with an original
maturity of 90 days or less.

INVENTORIES

Inventories are stated at the lower of cost or market; cost being determined
on a first-in, first-out basis.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets or the terms of the capitalized lease, whichever is less. Costs of major
improvements are capitalized, while costs of normal repairs and maintenance are
charged to expense as incurred.

F-13
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
(CONTINUED)
CAPITALIZATION OF INTEREST

The Company capitalizes interest costs associated with debt incurred in
connection with major construction projects. Interest capitalization ceases once
the project is complete. When no debt is specifically identified as being
incurred in connection with such construction projects, the Company capitalizes
interest on amounts expended on the project at the Company's average cost of
borrowed money. Interest capitalized for the fiscal years ended March 31, 1997,
1996 and 1995 and the six months ended September 30, 1997 and 1996 was
approximately $21.1 million, $6.1 million, $6.0 million, $9.1 million and $9.0
million, respectively.

DEBT ISSUANCE COSTS

Debt issuance costs incurred in connection with the issuance of long-term
debt are capitalized and amortized to interest expense over the terms of the
related debt agreements.

DEVELOPMENT ACTIVITIES

The Company expenses all internal salaries and related expenses with respect
to development activities. Other development costs, including legal, lobbying,
and consulting are expensed, until such time as the jurisdiction has approved
gaming and the Company has a specific site identified. Costs incurred subsequent
to these criteria being met are capitalized. At March 31, 1997 and 1996 and
September 30, 1997, the Company had capitalized costs of $0.7 million, $1.3
million and $0 million, respectively, related to various development projects.
These costs are included in other assets, net in the accompanying consolidated
balance sheets.

PREOPENING EXPENSES

Prior to the opening of a facility, all operating expenses, including
incremental salaries and wages, related thereto are capitalized as preopening
expenses. At March 31, 1997, $2.4 million of preopening expenses related to a
new hotel/casino under construction known as Sunset Station had been capitalized
and are included in other assets, net in the accompanying consolidated balance
sheets. The Company expenses preopening expenses upon the opening of the related
facility. During the fiscal year ended March 31, 1995, the Company incurred
preopening expenses of $7.5 million and $11.9 million related to Boulder Station
and Station Casino St. Charles, respectively. During the fiscal year ended March
31, 1996, the Company incurred preopening expenses of $2.4 million related to
new projects for Texas Station and Barley's Casino & Brewing Company and
expansion projects at Boulder Station and Station Casino St. Charles. During the
fiscal year ended March 31, 1997, the Company incurred preopening expenses of
$31.8 million substantially related to the opening of Station Casino Kansas
City. During the six months ended September 30, 1997, the Company incurred
preopening expenses of $10.9 million substantially related to the opening of
Sunset Station.

REVENUES AND PROMOTIONAL ALLOWANCES

In accordance with industry practice, the Company recognizes as casino
revenues the net win from gaming activities, which is the difference between
gaming wins and losses. All other revenues are recognized as the service is
provided. Revenues include the retail value of accommodations and food and
beverage provided on a complimentary basis to customers. The estimated
departmental costs of providing

F-14
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
(CONTINUED)
such promotional allowances are included in casino costs and expenses and
consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED ENDED
MARCH 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1997 1996
--------- --------- --------- --------- ---------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Food and beverage...................... $ 27,418 $ 23,483 $ 14,276 $ 18,387 $ 13,964
Room................................... 1,439 1,203 874 1,073 561
Other.................................. 1,263 653 313 1,483 649
--------- --------- --------- --------- ---------
Total.............................. $ 30,120 $ 25,339 $ 15,463 $ 20,943 $ 15,174
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

EARNINGS (LOSS) PER COMMON SHARE

Earnings (loss) per common share is computed by dividing net income (loss)
applicable to common stock by the weighted average common shares outstanding
during the period. Earnings per share assuming full dilution is not presented
because the exercise of stock options and the conversion of the convertible
preferred stock does not have a dilutive effect on the per share amounts.

The Financial Accounting Standards Board has issued Statement on Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which is effective
for fiscal years ending after December 15, 1997. This statement replaces primary
earnings per share ("EPS") with basic EPS. No dilution for potentially dilutive
securities is included in basic EPS. This statement also requires, when applying
the treasury stock method for diluted EPS to compute dilution for options and
warrants, to use average share price for the period, rather than the more
dilutive greater of the average share price or end-of-period share price. The
Company will adopt SFAS No. 128 in the fiscal year ending March 31, 1998.
Management believes the adoption of SFAS No. 128 will have no impact on the
Company's previously reported earnings per share.

2. ACCOUNTS AND NOTES RECEIVABLE

Components of accounts and notes receivable are as follows (amounts in
thousands):

<TABLE>
<CAPTION>
MARCH 31,
--------------------
1997 1996
--------- --------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Casino................................................... $ 3,698 $ 2,569 $ 5,697
Hotel.................................................... 1,331 1,144 1,575
Other.................................................... 3,876 2,082 7,175
--------- --------- -------------
8,905 5,795 14,447
Allowance for doubtful accounts.......................... (1,053) (644) (1,960)
--------- --------- -------------
Accounts and notes receivable, net................... $ 7,852 $ 5,151 $ 12,487
--------- --------- -------------
--------- --------- -------------
</TABLE>

F-15
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (amounts in thousands):

<TABLE>
<CAPTION>
ESTIMATED LIFE MARCH 31, MARCH 31, SEPTEMBER 30,
(YEARS) 1997 1996 1997
--------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Land................................ -- $ 27,718 $ 16,962 $ 35,800
Land leases acquired................ 48-52 4,395 4,395 4,427
Buildings and leasehold
improvements...................... 31-45 554,294 285,558 721,167
Boats and barges.................... 20-45 123,774 81,463 123,774
Furniture, fixtures and equipment... 3-7 192,546 163,580 208,762
Construction in progress............ -- 273,188 165,513 181,380
------------ ----------- -------------
1,175,915 717,471 1,275,310
Accumulated depreciation and
amortization...................... (106,863) (101,260) (136,485)
------------ ----------- -------------
Property and equipment, net......... $ 1,069,052 $ 616,211 $ 1,138,825
------------ ----------- -------------
------------ ----------- -------------
</TABLE>

At March 31, 1997 and 1996 and September 30, 1997, substantially all
property and equipment of the Company is pledged as collateral for long-term
debt.

4. LAND HELD FOR DEVELOPMENT

The Company has acquired several parcels of land in various jurisdictions as
part of the Company's development activities. The Company's decision whether to
proceed with any new gaming opportunity is dependent upon future economic and
regulatory factors, the availability of financing and competitive and strategic
considerations. As many of these considerations are beyond the Company's
control, no assurances can be made that the Company will be able to obtain
appropriate licensing or be able to secure additional, acceptable financing in
order to proceed with any particular project. At March 31, 1997 and 1996 and
September 30, 1997, $22.6 million, $22.7 million and $22.6 million,
respectively, of land had been acquired for potential gaming projects in
jurisdictions where gaming has been approved. In addition, at March 31, 1997 and
1996 and September 30, 1997, $3.7 million, $6.2 million and $3.7 million,
respectively, of land had been acquired in certain jurisdictions where gaming
has not yet been approved. No assurances can be made that these jurisdictions
will approve gaming in the future.

The Company has entered into various purchase agreements whereby the Company
has the option to acquire or lease land for development of potential new gaming
projects totaling $31.3 million and $34.2 million at March 31, 1997 and 1996,
respectively. In consideration for these options, the Company has paid or placed
in escrow $6.0 million and $2.4 million at March 31, 1997 and 1996,
respectively. Should the Company not exercise its option to acquire or lease the
land, it would forfeit all amounts paid or placed in escrow as of March 31,
1997. In June 1997, $5 million of expired option payments were expensed. Such
amounts are included in other income/expense in the accompanying consolidated
statements of operations. As of March 31, 1997 and 1996 these option payments
are included in other assets, net in the accompanying consolidated balance
sheets.

F-16
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LONG-TERM DEBT

Long-term debt consists of the following (amounts in thousands):

<TABLE>
<CAPTION>
MARCH 31, MARCH 31, SEPTEMBER 30,
1997 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
(UNAUDITED)
STATION CASINOS, INC. (EXCLUDING SUNSET STATION):
Reducing revolving credit facility, secured by substantially all of the
assets of Palace Station, Boulder Station, Texas Station, Station Casino
St. Charles and Station Casino Kansas City, $368 million limit at March
31, 1997, reducing quarterly by varying amounts until September 2000
when the remaining principal balance is due, interest at a margin above
the bank's prime rate or the Eurodollar Rate (7.89% at March 31,
1997)................................................................... $ 277,000 $ -- $ 214,000
9 5/8% senior subordinated notes, payable interest only semi-annually,
principal due June 1, 2003, net of unamortized discount of $6.8 million
at March 31, 1997....................................................... 186,248 185,531 186,638
9 3/4% senior subordinated notes, payable interest only semi-annually,
principal due April 15, 2007, net of unamortized discount of $5.5
million at September 30, 1997........................................... -- -- 144,452
10 1/8% senior subordinated notes, payable interest only semi-annually,
principal due March 15, 2006, net of unamortized discount of $1.2
million at March 31, 1997............................................... 196,818 196,737 196,862
Notes payable to banks and others, collateralized by slot machines and
related equipment, monthly installments including interest ranging from
7.47% to 7.94%.......................................................... 15,952 24,726 32,717
Capital lease obligations, collateralized by furniture and equipment...... 7,703 12,171 5,096
Other long-term debt...................................................... 31,242 45,833 17,229
---------- ---------- -------------
Sub-total............................................................. 714,963 464,998 796,994
SUNSET STATION, INC.:
$110 million Sunset Station first mortgage construction/term loan
agreement, secured by substantially all of the assets of Sunset Station,
interest at a margin of 375 basis points above the Eurodollar Rate
(9.37% at March 31, 1997), due September 2000........................... 46,000 -- 103,000
---------- ---------- -------------
Total long-term debt.................................................. 760,963 464,998 899,994
Current portion of long-term debt......................................... (18,807) (23,256) (14,302)
---------- ---------- -------------
Total long-term debt, less current portion............................ $ 742,156 $ 441,742 $ 885,692
---------- ---------- -------------
---------- ---------- -------------
</TABLE>

In June 1993, the Company completed an offering at par of $110 million in
9 5/8% senior subordinated notes due in June 2003. In May 1994, the Company
completed an offering of $83 million in senior subordinated notes that rank PARI
PASSU with the existing $110 million senior subordinated notes, and have
identical maturities and covenants as the original issue. The $83 million senior
subordinated notes have a coupon rate of 9 5/8% and were priced to yield 11.5%
to maturity. The discount on the $83 million senior

F-17
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LONG-TERM DEBT (CONTINUED)
subordinated notes has been recorded as a reduction to long-term debt in the
accompanying consolidated balance sheets.

In March 1996, the Company completed an offering of $198 million of senior
subordinated notes due in March 2006, that rank PARI PASSU with the existing
$193 million of senior subordinated notes. The $198 million senior subordinated
notes have a coupon rate of 10 1/8% and were priced to yield 10.24% to maturity.
The discount on the $198 million senior subordinated notes has been recorded as
a reduction to long-term debt in the accompanying consolidated balance sheets.

In April 1997, the Company completed an offering of $150 million of senior
subordinated notes due in April 2007, that rank PARI PASSU with the Company's
existing senior subordinated notes. The $150 million senior subordinated notes
have a coupon rate of 9 3/4% and were priced to yield 10.37% to maturity. The
discount on the $150 million senior subordinated notes is recorded as a
reduction to long-term debt. Proceeds from the offering were used to pay down
amounts outstanding under the reducing revolving credit facility.

The indentures governing the Company's senior subordinated notes ("the
Indentures") contain certain customary financial and other covenants, which
among other things, govern the Company and certain of its subsidiaries ability
to incur indebtedness (except, as specifically allowed) unless after giving
effect thereto, a 2.0 to 1.0 pro forma Consolidated Coverage Ratio (as defined
in the Indentures) has been met. As of March 31, 1997 and September 30, 1997,
the Company's Consolidated Coverage Ratio was 2.66 to 1.00 and 2.17 to 1.00,
respectively.

On July 5, 1995, the Company obtained a $275 million reducing revolving
credit facility. On March 25, 1996, the Company amended and restated this bank
facility, providing for borrowings up to an aggregate principal amount of $400
million. On March 21, 1997 and June 27, 1997, the Company obtained certain
amendments to the reducing revolving bank credit facility in order to enhance
its borrowing capacity (the "Bank Facility"). The Bank Facility is secured by
substantially all the assets of Palace Station, Boulder Station, Texas Station,
Station Casino St. Charles and Station Casino Kansas City (collectively, the
"Borrowers"). The Company and SGSI guarantee the borrowings under the Bank
Facility (collectively, the "Guarantors"). The Bank Facility matures on
September 30, 2000 and reduces quarterly by varying amounts (including $8
million for the fiscal quarter ending on June 30, 1997 and $10 million for each
quarter ending September 30, 1997, December 31, 1997 and March 31, 1998).
Borrowings under the Bank Facility bear interest at a margin above the bank's
prime rate or LIBOR, as selected by the Company. The margin above such rates,
and the fee on the unfunded portions of the Bank Facility, will vary quarterly
based on the combined Borrower's and the Company's consolidated ratio of funded
debt to earnings before interest, taxes, depreciation and amortization
("EBITDA").

The Bank Facility contains certain financial and other covenants. These
include a maximum funded debt to EBITDA ratio for the Borrowers combined of 3.00
to 1.00 for each fiscal quarter through June 30, 1997, 2.75 to 1.00 for each
fiscal quarter through June 30, 1998, and 2.50 to 1.00 for each fiscal quarter
thereafter, a minimum fixed charge coverage ratio for the preceding four
quarters for the Borrowers combined of 1.35 to 1.00 for periods March 31, 1996
through June 30, 1998, and 1.50 to 1.00 for periods thereafter, a limitation on
indebtedness, and limitations on capital expenditures. As of March 31, 1997 and
September 30, 1997, the Borrowers funded debt to EBITDA ratio was 1.97 to 1.00
and 1.95 to 1.00, respectively, and the fixed charge coverage ratio for the
proceeding four quarters ended March 31, 1997 and September 30, 1997 was 2.54 to
1.00 and 1.57 to 1.00, respectively. A tranche of the Bank Facility

F-18
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LONG-TERM DEBT (CONTINUED)
contains a minimum tangible net worth requirement for Palace Station (as
defined) and certain restrictions on distributions of cash from Palace Station
to the Company. As of March 31, 1997 and September 30, 1997, Palace Station's
tangible net worth exceeded the requirement by approximately $7 million and $7.7
million, respectively. These covenants limit Palace Station's ability to make
payments to the Company, a significant source of anticipated cash for the
Company.

In addition, the Bank Facility has financial covenants relating to the
Company. These include prohibitions on dividends on or redemptions of the
Company's common stock, restrictions on repayment of any subordinated debt,
limitations on indebtedness beyond existing indebtedness, the Company's senior
subordinated notes and up to $25 million of purchase money indebtedness, minimum
consolidated net worth requirements for the Company of $165 million plus post
October 1, 1995 preopening expenses, 95% of post October 1, 1995 net income (not
reduced by net losses) and 100% of net equity offering proceeds, and limitations
on capital expenditures. As of March 31, 1997 and September 30, 1997, the
Company's consolidated net worth exceeded the requirement by approximately $20
million and $18 million, respectively. The Bank Facility also includes a maximum
funded debt to EBITDA (adjusted for preopening expenses) ratio including
annualized EBITDA (adjusted for preopening expenses) for any new venture, as
defined, open less than a year for the Company on a consolidated basis of 5.00
to 1.00 for the fiscal quarter ended March 31, 1997, 5.25 to 1.00 for each
fiscal quarter through December 31, 1997, 5.00 to 1.00 for each fiscal quarter
through June 30, 1998, 4.75 to 1.00 for the fiscal quarter ending September 30,
1998, 4.50 to 1.00 for the fiscal quarter ending December 31, 1998, 4.25 to 1.00
for each fiscal quarter through June 30, 1999, 4.00 to 1.00 for the fiscal
quarter ending September 30, 1999 and 3.75 to 1.00 thereafter. As previously
discussed, in June 1997, the Company obtained an amendment to the Bank Facility.
This amendment modified the covenant restricting the maximum consolidated funded
debt to EBITDA ratio as follows: 5.75 to 1.00 for the fiscal quarter ended June
30, 1997, 5.85 to 1.00 for the fiscal quarter ended September 30, 1997, 5.75 to
1.00 for the fiscal quarters ending December 31, 1997 and March 31, 1998, 5.00
to 1.00 for the fiscal quarter ending June 30, 1998, 4.75 to 1.00 for the fiscal
quarter ending September 30, 1998, 4.50 to 1.00 for the fiscal quarter ending
December 31, 1998, 4.25 to 1.00 for each fiscal quarter through June 30, 1999,
4.00 to 1.00 for the fiscal quarter ending September 30, 1999 and 3.75 to 1.00
thereafter. In addition, in July 1997, the Company reduced the total amount
available under the Bank Facility by $30 million. As a result, no additional
reductions are required until June 30, 1998, at which time the Bank Facility
will reduce by $22.4 million each fiscal quarter through March 31, 2000. As of
March 31, 1997 and September 30, 1997, the Company's funded debt to EBITDA ratio
was 4.54 to 1.00. and 5.74 to 1.00, respectively. Such consolidated calculations
for the Company do not include Sunset Station (see below). In addition, the Bank
Facility prohibits the Company from holding cash and cash equivalents in excess
of the sum of the amounts necessary to make the next scheduled interest or
dividend payments on the Company's senior subordinated notes and the Convertible
Preferred Stock (see Note 7), the amounts necessary to fund casino bankroll in
the ordinary course of business, and $2,000,000. The Guarantors waive certain
defenses and rights including rights of subrogation and reimbursement. The Bank
Facility contains customary events of default and remedies and is
cross-defaulted to the Company's senior subordinated notes and the Change of
Control Triggering Event as defined in the Indentures.

On September 25, 1996, Sunset Station, a wholly-owned subsidiary of the
Company, entered into a Construction/Term Loan Agreement (the "Sunset Loan
Agreement") with Bank of America National Trust and Savings Association, Bank of
Scotland, Societe Generale and each of the other lenders party to such
agreement, pursuant to which Sunset Station received a commitment for $110
million to finance the remaining development and construction costs of Sunset
Station. The Company also entered into an

F-19
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LONG-TERM DEBT (CONTINUED)

operating lease for certain furniture, fixtures and equipment with a cost of $40
million to be subleased to Sunset Station as part of the Sunset Station Project
(See Note 6).

The Sunset Loan Agreement includes a first mortgage term note in the amount
of $110 million (the "Sunset Note") which is non-recourse to the Company, except
as to certain construction matters pursuant to a completion guarantee dated as
of September 25, 1996, executed by the Company on behalf of Sunset Station and
except that the Company has pledged all of the stock of Sunset Station as
security for the Sunset Loan Agreement. The Sunset Note is to reduce $1.8
million for each fiscal quarter ending March 1998 through December 1998, $2.3
million for each fiscal quarter ending March 1999 through December 1999, and
$2.0 million for the fiscal quarters ending March 2000 and June 2000 and matures
in September 2000. In addition, the Sunset Note is subject to prepayment
subsequent to July 1998 by an amount equal to a specified percentage of Excess
Cash Flow, as defined. The Sunset Note carries an interest rate of 375 basis
points above the Eurodollar Rate (as defined in the Sunset Loan Agreement). The
Sunset Note is secured by substantially all of the assets of Sunset Station,
including a deed of trust with respect to the real property on which Sunset
Station is being constructed, a portion of which is subject to a lease from the
Company to Sunset Station, and the remainder of which property is owned by
Sunset Station and a security agreement as to all tangible and intangible
personal property including Sunset Station's rights under an operating lease for
certain furniture, fixtures and equipment to be used by Sunset Station.

The Sunset Loan Agreement contains certain customary financial and other
covenants (related exclusively to Sunset Station) including a minimum fixed
charge coverage ratio as of the last day of any quarter after the opening of
Sunset Station of not less than 1.10 to 1.00, a maximum senior funded debt to
EBITDA (adjusted for certain cash contributions or advances by the Company)
ratio after opening of 4.50 to 1.00 for the first full quarter, reducing by 0.25
on certain quarters thereafter to 3.25 to 1.00 for the tenth quarter and each
quarter thereafter, and a minimum net worth as of any quarter end after opening
of not less than $52 million plus 80% of net income (not reduced by net losses)
for each quarter after opening, plus 100% of certain additional equity
contributions by the Company and Supplemental Loans, as defined. As of September
30, 1997, Sunset Station's fixed charge coverage ratio was 4.55 to 1.00 and the
funded debt to EBITDA ratio was 3.50 to 1.00. As of September 30, 1997, Sunset
Station's net worth exceeded the minimum requirement by approximately $8
million. In addition, the agreement places restrictions on indebtedness and
guarantees, dividends, stock redemptions, mergers, acquisitions, sale of assets
or sale of stock in subsidiaries and limitations on capital expenditures.

In addition, the Company has provided a funding commitment to Sunset Station
of up to an additional $25 million pursuant to a supplemental loan agreement
(the "Supplemental Loan Agreement"). The Sunset Loan Agreement requires Sunset
Station to draw amounts under the Supplemental Loan Agreement in the event of
the failure of certain financial covenants under the Sunset Loan Agreement.
Loans under this funding commitment may be drawn down beginning on the last day
of the first full calendar quarter ending after Sunset Station opens for
business in the amount of up to $10 million during the first year after such
date, up to $10 million during the second year after such date and up to $5
million during the third year after such date. The Supplemental Loan Agreement
also provides for an additional, separate funding commitment up to $40 million
in connection with a purchase option for certain furniture, fixtures and
equipment under the Sunset Operating Lease. Sunset Station will pay interest at
a rate per annum equal to the three-month Eurodollar Rate, the interest being
payable solely in the form of commensurate additions to the principal of the
Supplemental Loans. The Supplemental Loan Agreement expires in

F-20
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LONG-TERM DEBT (CONTINUED)
September 2001. The funding commitments under the Supplemental Loan Agreement
are subject to limitations imposed by the indentures governing the Company's
existing senior subordinated notes and the Bank Facility.

In order to manage the interest rate risk associated with the Sunset Note,
Sunset Station entered into an interest rate swap agreement with Bank of America
National Trust and Savings Association. This agreement swaps the variable rate
interest pursuant to the Sunset Note to a fixed rate of 9.58% on $35 million
notional amount as of January 1997 increasing to $60 million at March 1997, $90
million at June 1997, $100 million at September 1997 and then decreasing to $95
million at June 1998. The agreement expires in December 1998. The difference
paid or received pursuant to the swap agreement is accrued as interest rates
change and recognized as an adjustment to interest expense on the Sunset Note.
Sunset Station is exposed to credit risk in the event of non-performance by the
counterparty to the agreement. The Company believes the risk of non-performance
by the counterparty is minimal. As of March 31, 1997, the market value of this
interest rate swap was $1.0 million.

The estimated fair value of the Company's long-term debt at March 31, 1997
was approximately $755.6 million, compared to its book value of approximately
$761.0 million. The estimated fair value amounts were based on quoted market
prices on or about March 31, 1997 for the Company's debt securities that are
publicly traded. For debt securities that are not publicly traded, fair value
was estimated based on the quoted market prices for similar issues or the
current rates offered to the Company for debt having the same remaining
maturities.

Scheduled maturities of long-term debt are as follows (amounts in
thousands):

<TABLE>
<CAPTION>
MARCH 31,
----------
<S> <C>
1998.............................................................................. $ 18,807
1999.............................................................................. 12,948
2000.............................................................................. 11,141
2001.............................................................................. 333,373
2002.............................................................................. 1,288
Thereafter........................................................................ 383,406
----------
Total......................................................................... $ 760,963
----------
----------
</TABLE>

6. COMMITMENTS AND CONTINGENCIES

STATION CASINO ST. CHARLES

In September 1994, Station Casino St. Charles entered into an agreement for
property acquisitions with the City of St. Charles, Missouri which allows for
the acquisition by the Company of property within a designated 107-acre
Redevelopment Project Area, a portion of which is adjacent to Station Casino St.
Charles. This land is being acquired for the construction of a mixed use
development which may include retail space, a hotel, office space, convention
space or restaurants. The Company has a right to terminate the agreement if all
related acquisition costs exceed $13.7 million. As of March 31, 1997, the
Company has incurred $3.4 million of acquisition costs included in property and
equipment, net in the accompanying consolidated balance sheets.

F-21
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
BOULDER STATION LEASE

The Company entered into a ground lease for 27 acres of land on which
Boulder Station is located. The Company leases this land from a trust pursuant
to a long-term ground lease. The trustee of this trust is Bank of America NT&SA,
the beneficiary of which is KB Enterprises, an affiliated company owned by Frank
J. Fertitta, Jr. and Victoria K. Fertitta (the "Related Lessor"), the parents of
Frank J. Fertitta III, Chairman of the Board and Chief Executive Officer of the
Company. The lease has a term of 65 years with monthly payments of $125,000
through June 1998. In June 1998, and every ten years thereafter, the rent will
be adjusted to the product of the fair market value of the land and the greater
of (i) the then prevailing annual rate of return for comparably situated
property or (ii) 8% per year. The rent will be further adjusted in June 2003,
and every ten years thereafter by a cost of living factor. In no event will the
rent for any period be less than the immediately prior period. Pursuant to the
ground lease, the Company has an option, exercisable at five-year intervals
beginning in June 1998, to purchase the land at fair market value. The Company's
leasehold interest in the property is subject to a lien to secure borrowings
under the Bank Facility.

TEXAS STATION LEASE

The Company entered into a ground lease for 47 acres of land on which Texas
Station is located. The Company leases this land from a trust pursuant to a
long-term ground lease. The trustee of this trust is Bank of America NT&SA, the
beneficiary of which is Texas Gambling Hall & Hotel, Inc. an affiliate company
of the Related Lessor. The lease has a term of 65 years with monthly rental
payments of $150,000 through July 2000. In July 2000, and every ten years
thereafter, the rent will be adjusted to the product of the fair market value of
the land and the greater of (i) the then prevailing annual rate of return being
realized for owners of comparable land in Clark County or (ii) 8% per year. The
rent will be further adjusted by a cost of living factor after the first ten
years and every ten years thereafter. In no event will the rent for any period
be less than the immediately prior period. Pursuant to the ground lease, the
Company will have an option, exercisable at five-year intervals beginning in May
2000, to purchase the land at fair market value. The Company's leasehold
interest in the property is subject to a lien to secure borrowings under the
Bank Facility.

SUNSET STATION LEASE

In June 1994, the Company entered into a lease agreement for approximately
47.5 acres of land in the Southeast area of Las Vegas on which Sunset Station is
being developed. The lease has a term of 65 years with monthly rental payments
of $120,000, adjusted on each subsequent five-year anniversary by a cost of
living factor. On the seventh anniversary of the lease, the Company has an
option to purchase this land for $23.8 million. Additionally, on the seventh
anniversary of the lease, the lessor has an option to sell this land to the
Company for $21.8 million.

STATION CASINO KANSAS CITY LEASE

The Company has entered into a joint venture which owns the land on which
Station Casino Kansas City is located. At March 31, 1997 and September 30, 1997,
$3.5 million related to this investment is included in other assets, net in the
accompanying consolidated balance sheets.

F-22
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In April 1994, Station Casino Kansas City entered into an agreement with the
joint venture to lease this land. The agreement requires monthly payments of
$85,000 through March 31, 1997 and $90,000 through the remainder of the lease
term. The lease expires March 31, 2006, with an option to extend the lease for
up to eight renewal periods of ten years each, plus one additional seven year
period. Commencing April 1, 1998 and every anniversary thereafter, the rent
shall be adjusted by a cost of living factor. In connection with the joint
venture agreement, the Company received an option providing for the right to
acquire the joint venture partner's interest in this joint venture. The Company
has the option to acquire this interest at any time after April 1, 2002 through
April 1, 2011 for $11.7 million, however, commencing April 1, 1998 the purchase
price will be adjusted by a cost of living factor of not more than 5% or less
than 2% per annum. At March 31, 1997 and September 30, 1997, $2.6 million paid
by the Company in consideration for this option is included in other assets, net
in the accompanying consolidated balance sheets.

SOUTHERN FLORIDA

In October 1994, the Company entered into an agreement to form a limited
partnership with the existing operator of a pari-mutuel facility in Southern
Florida. In the event casino gaming is approved by the voters of Florida by
October 2000 and in the event the site is licensed by the state, the Company
will be obligated to make capital contributions to the partnership totaling $35
million, reduced by credits for amounts previously contributed to any Florida
gaming referendum campaign.

OPERATING LEASES

The Company leases several parcels of land and equipment used in operations
at Palace Station, Boulder Station, Texas Station, Station Casino St. Charles
and Station Casino Kansas City and for land on which Sunset Station is being
developed. Leases on various parcels ranging from 13 acres to 171 acres have
terms expiring between March 2006 and July 2060. Future minimum lease payments
required under these operating leases and other noncancelable operating leases
are as follows for the years ending (amounts in thousands):

<TABLE>
<CAPTION>
FUTURE MINIMUM LEASE PAYMENTS MARCH 31,
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1998.............................................................................. $ 6,423
1999.............................................................................. 6,296
2000.............................................................................. 5,932
2001.............................................................................. 5,932
2002.............................................................................. 5,932
Thereafter........................................................................ 280,479
----------
Total......................................................................... $ 310,994
----------
----------
</TABLE>

Rent expense totaled approximately $5.4 million, $6.5 million and $4.9
million for the years ended March 31, 1997, 1996 and 1995, respectively. Rents
of $2.2 million and $2.1 million were capitalized in connection with the
construction of Station Casino Kansas City and Sunset Station for the fiscal
years ended March 31, 1997 and 1996, respectively.

F-23
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
During fiscal 1995, the Company sold approximately $13.0 million of
equipment and leased it back under lease agreements ranging from three to seven
years. The transactions produced gains of approximately $665,000 which have been
deferred and are being amortized against lease expense over the remaining lease
terms.

EQUIPMENT LEASE

In connection with the Sunset Loan Agreement, the Company entered into an
operating lease for furniture, fixtures and equipment (the "Equipment") with a
cost of $40 million, dated as of September 25, 1996 (the "Sunset Operating
Lease") with First Security Trust Company of Nevada. The Sunset Operating Lease
expires in October 2000 and carries a lease rate of 225 basis points above the
Eurodollar Rate. The Company has entered into a sublease with Sunset Station for
the Equipment pursuant to an operating lease with financial terms substantially
similar to the Sunset Operating Lease. As of September 30, 1997 $35.7 million of
equipment had been leased and no further draw on this facility will be made. In
the event that Sunset Station elects to purchase the Equipment, the Company has
provided a funding commitment up to the amount necessary for such purchase
pursuant to the Supplemental Loan Agreement (subject to the limitations on
funding contained in the Supplemental Loan Agreement) (See Note 5). In
connection with the Sunset Operating Lease, the Company also entered into a
participation agreement, dated as of September 25, 1996 (the "Participation
Agreement") with the trustee, as lessor under the Sunset Operating Lease, and
holders of beneficial interests in the Lessor Trust (the "Holders"). Pursuant to
the Participation Agreement, the Holders will advance funds to the trustee for
the purchase by the trustee of, or to reimburse the Company for, the purchase of
the Equipment, which will then be leased to the Company, and in turn subleased
to Sunset Station. Pursuant to the Participation Agreement, the Company also
agreed to indemnify the Lessor and the Holders against certain liabilities.

LEGAL MATTERS

The Company is a litigant in legal matters arising in the normal course of
business. In the opinion of management, all pending legal matters are either
adequately covered by insurance or, if not insured, will not have a material
adverse effect on the financial position or the results of operations of the
Company.

7. STOCKHOLDER'S EQUITY

In July 1995, the Company completed a public offering of 5,175,000 shares of
common stock at $16 per share generating net proceeds of approximately $78.2
million, before deducting $0.8 million of offering costs paid by the Company.
The proceeds from this offering were primarily used to acquire the assets of
Texas Station located in North Las Vegas, which commenced operations July 12,
1995. The seller of the assets is a wholly-owned subsidiary of a trust of which
the Related Lessor is the sole trustee (the "Seller"). The purchase price of
such assets was an amount equal to the Seller's out-of-pocket costs incurred in
connection with the financing, development and construction of the hotel/casino
through the closing date. At closing, the Company paid $62.8 million to the
Seller and assumed various liabilities and contracts to complete construction of
the facility. The total cost of the property was approximately $84.9 million.
The land on which the Texas Station facility is situated is being leased to the
Company by the Seller pursuant to a long-term ground lease (See Note 6).

In March 1996, the Company completed a public offering of 1,800,000 shares
of convertible preferred stock (the "Convertible Preferred Stock") at $50.00 per
share generating net proceeds of approximately

F-24
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDER'S EQUITY (CONTINUED)
$87.3 million, before deducting $0.6 million of offering costs paid by the
Company. In April 1996, the underwriters exercised their option to purchase an
additional 270,000 shares of the Convertible Preferred Stock generating net
proceeds to the Company of approximately $13.1 million. The Convertible
Preferred Stock is convertible at an initial conversion rate of 3.2573 shares of
common stock for each share of Convertible Preferred Stock. The Convertible
Preferred Stock is redeemable, at the option of the Company in whole or in part,
for shares of the Company's common stock at any time after March 15, 1999,
initially at a redemption price of $52.45 per share and thereafter at prices
decreasing annually to $50.00 per share of Convertible Preferred Stock on and
after March 15, 2006, plus accrued and unpaid dividends. The common shares to be
issued is determined by dividing the redemption price by the lower of the
average daily closing price for the Company's common stock for the preceding 20
trading days or the closing price of the Company's common stock on the first
business day preceding the date of the redemption notice. Any fractional shares
would be paid in cash. Dividends on the Convertible Preferred Stock of $3.50 per
share annually, accrue and are cumulative from the date of issuance. The
Convertible Preferred Stock has a liquidation preference of $50.00 per share,
plus accrued and unpaid dividends.

8. RELATED PARTIES

The Company has employed McNabb/McNabb/DeSoto/Salter & Co. ("MMDS") to
provide advertising and marketing research services. Certain stockholders of the
Company own a 50% interest in MMDS. During the fiscal years ended March 31,
1997, 1996 and 1995 the Company paid MMDS $27.2 million, $17.4 million and $12.7
million respectively, for advertising, market research and other costs related
to these activities. In management's opinion, these transactions were conducted
with terms as fair to the Company as could have been obtained from unaffiliated
companies. In April 1997, the Company purchased the assets of MMDS for
approximately $0.8 million.

9. BENEFIT PLANS

STOCK COMPENSATION PROGRAM

The Company has adopted a Stock Compensation Program (the "Program") which
includes (i) an Incentive Stock Option Plan for the grant of incentive stock
options, (ii) a Compensatory Stock Option Plan providing for the grant of
non-qualified stock options, and (iii) a Restricted Shares Plan providing for
the grant of restricted shares of common stock. Officers, key employees,
directors (whether employee directors or non-employee directors) and independent
contractors or agents of the Company and its subsidiaries are eligible to
participate in the program. However, only employees of the Company and its
subsidiaries are eligible to receive incentive stock options.

A maximum of 6,307,000 shares of common stock have been reserved for
issuance under the Program. Options are granted at the current market price at
the date of grant. The plan provides for a variety of vesting schedules, ranging
from immediate to twenty percent a year for five years, to be determined at the
time of grant. All options have an exercise period of ten years from the date of
grant.

F-25
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. BENEFIT PLANS (CONTINUED)

The Program will terminate ten years from the date of adoption, unless
terminated earlier by the Board of Directors, and no options or restricted
shares may be granted under the Program after such date. Summarized information
for the Program is as follows:

<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ------------------------ -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding Beginning of the Year......... 2,697,012 $ 16.24 2,372,100 $ 19.05 1,943,725 $ 20.09
Granted................................. 2,160,822 $ 14.01 1,593,305 $ 13.42 541,750 $ 15.50
Exercised............................... (14,711) $ 12.16 (46) $ 12.00 -- $ --
Cancelled............................... (410,941) $ 15.70 (1,268,347) $ 17.95 (113,375) $ 19.89
---------- ----------- ----------
Outstanding End of the Year............... 4,432,182 $ 15.22 2,697,012 $ 16.24 2,372,100 $ 19.05
---------- ----------- ----------
---------- ----------- ----------
Restricted Stock Grants................... -- -- 170,500
---------- ----------- ----------
---------- ----------- ----------
Exercisable at End of Year................ 1,408,893 $ 16.50 993,032 $ 16.67 721,200 $ 20.06
---------- ----------- ----------
---------- ----------- ----------
Options Available for Grant............... 1,689,561 649,942 479,910
---------- ----------- ----------
---------- ----------- ----------
</TABLE>

The following table summarizes information about the options outstanding at
March 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ---------------------------
AVERAGE WEIGHTED NUMBER WEIGHTED
NUMBER REMAINING AVERAGE EXCERCISABLE AVERAGE
OUTSTANDING AT CONTRACTUAL EXERCISE AT MARCH 31, EXERCISE
RANGE OF EXERCISE PRICES MARCH 31, 1997 LIFE PRICE 1997 PRICE
- ---------------------------------------------- -------------- --------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
$ 9.38 - $ 9.88............................... 228,000 9.9 $ 9.50 -- $ --
$11.63 - $13.75............................... 890,081 7.3 $ 12.07 549,284 $ 12.04
$14.38 - $15.00............................... 2,149,101 8.9 $ 14.59 100,709 $ 14.44
$18.00 - $20.00............................... 1,075,000 6.3 $ 19.72 695,900 $ 19.83
$22.00 - $22.00............................... 90,000 2.8 $ 22.00 63,000 $ 22.00
--
-------------- ----------- -------------- -----------
4,432,182 7.9 $ 15.22 1,408,893 $ 16.50
--
--
-------------- ----------- -------------- -----------
-------------- ----------- -------------- -----------
</TABLE>

Restricted stock grants in the amount of 170,500 shares were issued during
the fiscal year ended March 31, 1995. The effect of these grants is to increase
the issued and outstanding shares of the Company's common stock and decrease the
number of shares available for grant in the plan. Deferred compensation is
recorded for the restricted stock grants equal to the market value of the
Company's common stock on the date of grant. The deferred compensation is
amortized over the period the restricted stock vests and recorded as
compensation expense in selling, general, and administrative expense in the
accompanying consolidated statements of operations.

The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Program. Accordingly, compensation expense recognized was
different than what would have been otherwise recognized under the fair value
based method defined in SFAS No. 123, "Accounting for Stock-Based Compensation".
Had compensation expense for the plans been determined in accordance with SFAS

F-26
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. BENEFIT PLANS (CONTINUED)
No. 123, the effect on the Company's net income applicable to common stock and
earnings per common share would have been as follows (amounts in thousands,
except per share data):

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Net income applicable to common stock:
As reported......................................................... $ 6,518 $ 25,419
Proforma............................................................ $ 3,640 $ 23,562

Earnings per common share:
As reported......................................................... $ 0.18 $ 0.75
Proforma............................................................ $ 0.10 $ 0.69
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing method with the following assumptions: (i) no
dividends, (ii) expected volatility for both years of 45.5%, (iii) risk free
interest rate of 6.46% for 1997 and 6.04% for 1996, and (iv) the expected
average life of 3.92 years for 1997 and 3.05 years for 1996. The weighted
average fair value of options granted in 1997 and 1996 were $5.64 and $4.91,
respectively.

Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to April 1, 1995, the resulting pro forma net income may
not be representative of that to be expected in future years.

In May 1995, the Board of Directors of the Company authorized the repricing
of 1,156,900 options with option prices ranging from $13.00 to $20.00. Options
held by certain members of the Company's Board of Directors, including the
Chairman and Chief Executive Officer of the Company were not repriced. The
effect of the repricing of all the subject options was the cancellation of
1,116,500 options and the reissuance of 872,680 options ("replacement options")
with a price of $12.00 (market value at date of the repricing) which are
included in granted and canceled options in the table above. The number of
replacement options was determined, based upon a valuation model, so that the
value of the replacement options was equivalent to the value of the options
originally granted.

401(K) PLANS

The Company has a defined contribution 401(k) plan, which covers all
employees who meet certain age and length of service requirements and allows an
employer contribution up to 25 percent of the first four percent of each
participating employee's compensation. Plan participants can elect to defer
before tax compensation through payroll deductions. These deferrals are
regulated under Section 401(k) of the Internal Revenue Code. The Company's
matching contribution was $442,000, $293,000, and $203,000 for the fiscal years
ended March 31, 1997, 1996 and 1995, respectively.

10. EXECUTIVE COMPENSATION PLANS

The Company has employment agreements with certain of its executive
officers. These contracts provide for, among other things, an annual base salary
with annual adjustments and an annual cash bonus equal to at least 5 percent of
the executive's base salary, and supplemental long-term disability and
supplemental life insurance benefits in excess of the Company's normal coverage
for employees. The Company elected to self-insure with respect to the long-term
disability benefits. In addition, the Company

F-27
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. EXECUTIVE COMPENSATION PLANS (CONTINUED)
has adopted a Supplemental Executive Retirement Plan for its Chief Executive
Officer and a Supplemental Management Retirement Plan for certain key executives
as selected by the Human Resources Committee of the Company's Board of
Directors. Other executive plans include a Deferred Compensation Plan and a
Long-Term Stay-On Performance Incentive Plan. The expenses related to these
plans are included in corporate expenses in the accompanying consolidated
statements of operations.

11. RESTRUCTURING CHARGE

In March 1997, the Company introduced a plan designed to reduce costs and
improve efficiency of operations. This plan resulted in a one-time charge to
earnings in the fourth quarter of fiscal 1997 totaling $2,016,000, primarily
related to employee severance payments.

12. INCOME TAXES

The Company files a consolidated federal income tax return. The provision
(benefit) for income taxes consists of the following (amounts in thousands):

Deferred...................................................... 1,741 9,421 (3,145)
--------- --------- ---------
Total income taxes........................................ $ 7,615 $ 14,579 $ (3,477)
--------- --------- ---------
--------- --------- ---------
</TABLE>

The income tax provision (benefit) differs from that computed at the federal
statutory corporate tax rate as follows:

<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate........................................... 35.0% 35.0% (35.0)%
State income taxes, net of federal benefit....................... (5.5) 0.6 (6.0)
Meals and entertainment.......................................... 0.2 0.6 4.1
Other, net....................................................... 5.9 0.2 6.5
--- --- ---------
Effective tax rate............................................... 35.6% 36.4% (30.4)%
--- --- ---------
--- --- ---------
</TABLE>

F-28
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. INCOME TAXES (CONTINUED)
The tax effects of significant temporary differences representing net
deferred tax assets and liabilities are as follows (amounts in thousands):

<TABLE>
<CAPTION>
MARCH 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Current:
Accrued vacation, bonuses and group insurance......................................... $ 2,981 $ 2,119
Prepaid gaming taxes.................................................................. (1,341) (1,177)
Other................................................................................. 2,261 1,135
---------- ----------
Total current......................................................................... 3,901 2,077
---------- ----------
Long-term:
Preopening and other costs, net of amortization..................................... 15,077 4,485
State deferred taxes................................................................ 1,907 462
Alternative minimum tax credits..................................................... 9,000 4,600
---------- ----------
Total long-term....................................................................... 25,984 9,547
---------- ----------
Total deferred tax assets............................................................. 29,885 11,624
---------- ----------
Deferred tax liabilities:
Long-term:
Temporary differences related to property and equipment............................. (32,583) (18,201)
Other............................................................................... (1,249) (1,122)
---------- ----------
Total deferred tax liabilities........................................................ (33,832) (19,323)
---------- ----------
Net................................................................................... $ (3,947) $ (7,699)
---------- ----------
---------- ----------
</TABLE>

The excess of the alternative minimum tax over the regular Federal income
tax is a tax credit which can be carried forward indefinitely to reduce future
regular Federal income tax liabilities. The Company did not record a valuation
allowance at March 31, 1997 relating to recorded tax benefits because all
benefits are likely to be realized.

F-29
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
INCOME NET INCOME
(LOSS) (LOSS) EARNINGS
OPERATING BEFORE APPLICABLE (LOSS) PER
NET INCOME INCOME TO COMMON COMMON
REVENUES (LOSS) TAXES STOCK SHARE
---------- ---------- ---------- ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1997
First quarter.......................................... $ 135,440 $ 22,813 $ 14,581 $ 7,648 $ 0.22
Second quarter......................................... $ 138,034 $ 23,809 $ 15,847 $ 8,307 $ 0.24
Third quarter.......................................... $ 133,767 $ 21,536 $ 13,789 $ 6,944 $ 0.20
Fourth quarter......................................... $ 176,274 $ (10,035) $ (22,839) $ (16,381) $ (0.46)
YEAR ENDED MARCH 31, 1996
First quarter.......................................... $ 94,145 $ 13,043 $ 5,530 $ 3,511 $ 0.12
Second quarter......................................... $ 119,850 $ 17,666 $ 11,459 $ 7,257 $ 0.21
Third quarter.......................................... $ 122,929 $ 18,969 $ 11,509 $ 7,360 $ 0.21
Fourth quarter......................................... $ 129,933 $ 19,786 $ 11,553 $ 7,291 $ 0.21
YEAR ENDED MARCH 31, 1995
First quarter.......................................... $ 47,672 $ (8,361) $ (11,055) $ (7,399) $ (0.25)
Second quarter......................................... $ 62,384 $ (6,962) $ (11,428) $ (7,379) $ (0.25)
Third quarter.......................................... $ 83,641 $ 6,295 $ 807 $ 483 $ 0.02
Fourth quarter......................................... $ 96,581 $ 15,416 $ 10,257 $ 6,353 $ 0.22
</TABLE>

14. SUBSEQUENT EVENT

On January 16, 1997, the Company's gaming license in Kansas City was
formally issued for its facility which is located in a man-made basin filled
with water piped in from the surface of the Missouri River. In reliance on
numerous approvals from the Missouri Gaming Commission specific to the
configuration and granted prior to the formal issuance of its gaming license,
the Company built and opened the Station Casino Kansas City facility. The
license issued to the Company and the resolutions related thereto specifically
acknowledge that the Missouri Gaming Commission had reviewed and approved this
configuration. On November 24, 1997, the Supreme Court of Missouri, in a case
challenging the gaming licenses issued to certain competing operators of Station
Casino St. Charles located in Maryland Heights, Missouri, ruled that gaming may
occur only in artificial spaces that are contiguous to the surface stream of the
Missouri and Mississippi Rivers. AKIN V. MISSOURI GAMING COMMISSION, Case No.
79594, Missouri Supreme Court (November 1997). The case was remanded to the
trial court for a factual determination as to whether such competing facilities
meet this standard. The Missouri Gaming Commission may also have the right to
review the validity of Station Casino Kansas City's current configuration in
connection with the Company's relicensing hearing scheduled to occur in January
1998.

Because of the uncertainties caused by the Missouri Supreme Court's
decision, and because the Company is not subject to any claim with regard to
this matter at this time, the Company cannot predict what effect the Missouri
Supreme Court ruling or Missouri Gaming Commission actions at such relicensing
hearing will have on operations at Station Casino Kansas City. At this time,
based on discussions with Missouri legal counsel, management believes that it
has potentially meritorious defenses if a lawsuit or

F-30
<PAGE>
STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. SUBSEQUENT EVENT (CONTINUED)
administrative action based on this ruling were to be brought. In addition,
based on its current understanding of the ruling, management believes that if it
were to be required to take remedial action with respect to Station Casino
Kansas City, such remediation could be completed at a cost that would not have a
material adverse effect on the Company's financial condition. However,
management cannot provide any assurance as to whether the Station Casino Kansas
City facility would be found to comply with the guidelines described in the
Missouri Supreme Court ruling, whether it would be permitted to modify the
facility to comply with such standards or whether the Company's legal defenses,
legislative avenues or other means available to permit continued use of its
current configuraton would succeed. Further, it is unclear, in the event of a
determination of non-compliance, what penalty or sanction, if any, including a
possible temporary or permanent closure, could be imposed on Station Casino
Kansas City. The Company and its Missouri legal counsel do not believe the court
ruling will have an adverse impact on the Station Casino St. Charles operations.

F-31
<PAGE>
STATION OPERATING COMPANY
PRO FORMA COMBINED FINANCIAL STATEMENTS

The following Unaudited Pro Forma Combined Financial Statements make
adjustments to the historical statements of operations of OpCo as if the
Reorganization Transactions had occurred on April 1, 1996 and make adjustments
to the OpCo's historical balance sheet as if the Reorganization Transactions had
occurred on September 30, 1997. The Unaudited Pro Forma Combined Financial
Statements are provided for comparative purposes only and do not purport to be
indicative of the results which actually would have been obtained if the
Reorganization Transactions had been effected on the dates indicated or the
results which may be obtained in the future. No commitments are currently in
place with respect to any of the financing anticipated to be required by Station
REIT in connection with the Reorganization Transactions. The Unaudited Pro Forma
Combined Financial Statements do not make adjustments for certain non-recurring
costs expected to be incurred to implement the Reorganization Transactions.

F-32
<PAGE>
STATION OPERATING COMPANY

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

AS OF SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents............................................... $ 43,923 $ -- $ 43,923
Accounts receivable..................................................... 12,487 -- 12,487
Inventories............................................................. 4,360 -- 4,360
Prepaid gaming taxes.................................................... 6,657 -- 6,657
Prepaid expenses and other.............................................. 14,920 -- 14,920
---------- ----------- -----------
Total current assets.................................................. 82,347 -- 82,347
Property and equipment, net............................................. 447,485 -- 447,485
Land held for development............................................... 7,599 -- 7,599
Other assets, net....................................................... 43,426 (7,765)(1) 35,661
---------- ----------- -----------
Total assets.......................................................... $ 580,857 $ (7,765) $ 573,092
---------- ----------- -----------
---------- ----------- -----------

Current portion of long-term debt....................................... $ 14,195 $ (14,195)(2) $ --
Accounts payable........................................................ 16,383 -- 16,383
Accrued payroll and related............................................. 16,015 -- 16,015
Construction contracts payable.......................................... 12,698 -- 12,698
Accrued expenses and other current liabilities.......................... 32,998 (2,312)(2) 30,686
---------- ----------- -----------
Total current liabilities............................................. 92,289 (16,507) 75,782
Long-term debt, less current portion.................................... 354,369 (354,369)(2) --
105,000(3) 105,000
Deferred income taxes, net.............................................. 21,850 41,956(4) 63,806
---------- ----------- -----------
Total liabilities..................................................... 468,508 (223,920) 244,588
Mandatory redeemable preferred stock.................................... -- 20,000(5) 20,000
Investment by Station Casinos, Inc...................................... 112,349 (112,349)(6) --
Common stock............................................................ -- -- --
Additional paid-in capital.............................................. -- 308,504(6) 308,504
---------- ----------- -----------
Total liabilities and Investment by Station Casinos, Inc./ Stockholders'
equity................................................................ $ 580,857 $ (7,765) $ 573,092
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

F-33
<PAGE>
STATION OPERATING COMPANY

NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET

AS OF SEPTEMBER 30, 1997

(1) Represents deferred financing fees with respect to the expected OpCo Bank
Facility and the elimination of deferred financing fees related to Station
REIT's Current Bank Facility and the Sunset Note.

(2) Represents Station REIT's repayment of the Current Bank Facility, the Sunset
Note, certain other obligations, and the related accrued interest with
proceeds from the expected Station REIT common stock offering.

(3) Represents borrowings under the expected OpCo Bank Facility, which would be
applied to repay the Intermediate Note.

(4) The Transferred Assets recorded in OpCo's financial statements will be
recorded at their historical book value. For tax purposes, the Transferred
Assets will be recorded by OpCo at a new tax basis equal to the estimated
aggregate fair market value of OpCo's Common Stock, OpCo Preferred Stock and
Intermediate Note issued to Station REIT. The change in tax basis in
comparison to the historical book value of the Transferred Assets recorded
in the historical financial statements creates a deferred tax liability
under Statement of Financial Accounting Standards No. 109--"Accounting for
Income Taxes."

(5) Represents 20 million shares of OpCo Preferred Stock issued to Station REIT
with an aggregate liquidation value of $20.0 million.

(6) Represents the recapitalization of OpCo as a result of the Reorganization
Transaction and the consideration given to Station REIT for the Transferred
Assets.

F-34
<PAGE>
STATION OPERATING COMPANY

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Casino.................................................................... $ 282,700 $ -- $ 282,700
Food and beverage......................................................... 63,577 -- 63,577
Room...................................................................... 17,218 -- 17,218
Other..................................................................... 28,676 -- 28,676
---------- ----------- -----------
Gross revenues.............................................................. 392,171 -- 392,171
Promotional allowances...................................................... (24,558) -- (24,558)
---------- ----------- -----------
Net revenues................................................................ 367,613 -- 367,613
---------- ----------- -----------
Operating costs and expenses:
Casino.................................................................... 137,592 -- 137,592
Food and beverage......................................................... 44,862 -- 44,862
Room...................................................................... 6,481 -- 6,481
Other..................................................................... 13,481 -- 13,481
Lease expense............................................................. -- 57,375(1) 57,375
Selling, general and administrative....................................... 81,896 -- 81,896
Corporate expense......................................................... 7,644 -- 7,644
Development expenses...................................................... 104 -- 104
Intercompany expense...................................................... 6,242 (6,242)(2) --
Depreciation and amortization............................................. 26,927 26,927
Preopening expenses....................................................... 10,866 -- 10,866
---------- ----------- -----------
Total costs and expenses.................................................... 336,095 51,133 387,228
---------- ----------- -----------
Operating income (loss)..................................................... 31,518 (51,133) (19,615)
Interest expense, net....................................................... (6,172) 1,377(3) (4,795)
Other income (expense), net................................................. (4,996) -- (4,996)
---------- ----------- -----------
Income (loss) before income taxes........................................... 20,350 (49,756) (29,406)
Income tax (provision) benefit.............................................. (6,830) 17,414(4) 10,584
---------- ----------- -----------
Net income (loss)........................................................... 13,520 (32,342) (18,822)
Preferred stock dividends................................................... -- (1,200)(6) (1,200)
---------- ----------- -----------
Net income (loss) applicable to common stock................................ $ 13,520 $ (33,542) $ (20,022)
---------- ----------- -----------
---------- ----------- -----------
Net loss per common share................................................... $ (10.01)(6)
-----------
-----------
Weighted average shares outstanding......................................... 2,000
-----------
-----------
</TABLE>

F-35
<PAGE>
STATION OPERATING COMPANY

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED MARCH 31, 1997

Interest expense, net.................................................... (7,413) (2,179)(3) (9,592)

Other income (expense), net.............................................. (47) -- (47)
---------- ----------- -----------
Income (loss) before income taxes........................................ 50,663 (82,917) (32,254)
Income tax (provision) benefit........................................... (17,121) 29,021(4) 11,900
---------- ----------- -----------
Net income (loss)........................................................ 33,542 (53,896) (20,354)
Preferred stock dividends................................................ -- (2,400)(5) (2,400)
---------- ----------- -----------
Net income (loss) applicable to common stock............................. $ 33,542 $ (56,296) $ (22,754)
---------- ----------- -----------
---------- ----------- -----------
Net (loss) per common share.............................................. $ (11.38)(6)
-----------
-----------
Weighted average shares outstanding...................................... 2,000
-----------
-----------
</TABLE>

F-36
<PAGE>
STATION OPERATING COMPANY

NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED SEPTEMBER 30, 1997 AND YEAR ENDED MARCH 31, 1997

(1) Represents pro forma lease expense which will have been incurred during the
respective periods pursuant to the Leases between OpCo and Station REIT.
Station Casino Kansas City and Sunset Station commenced operations on
January 16, 1997 and June 10, 1997 respectively. The annual lease expenses
have been prorated accordingly.

(2) Represents the adjustment to eliminate the intercompany expense related to
depreciation on real estate assets held by Station REIT which OpCo has
historically utilized in conducting its hotel/casino operations.

(3) Represents the adjustment to eliminate interest expense related to Station
REIT's Current Bank Facility and the Sunset Note, and record interest
expense at an assumed rate of 8.5% per annum (actual rate may vary) on
$105.0 million of expected borrowings under OpCo's Bank Facility needed to
repay the Intermediate Note and the related amortization of debt financing
fees.

(4) Represents the adjustment to the tax provision (benefit) due to the net
effect of the pro forma adjustments on the respective statements of
operations. The statutory rate of 35% has been used.

(5) Represents the dividends on the OpCo Preferred Stock issued as partial
consideration for the Transferred Assets for which OpCo issued to Station
REIT of its Preferred Stock with an aggregate liquidation value of $20.0
million.

(6) Net loss per common share is based on earnings after assumed OpCo Preferred
Stock dividend requirements ($2.4 million for the year ended March 31, 1997
and $1.2 million for the six months ended September 30, 1997) divided by the
weighted average number of common shares outstanding during the periods
(assumed to be 2 million shares during all periods based on the issuance of
one share of OpCo Common Stock for every 17.5 shares of Station REIT Common
Stock outstanding as of the Record Date).

F-37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholder of
Station Operating Company:

We have audited the accompanying combined balance sheets of Station
Operating Company (a Nevada corporation and wholly owned subsidiary of Station
Casinos, Inc.) and subsidiaries as of March 31, 1997 and 1996, and the related
combined statements of operations and cash flows for each of the three years in
the period ended March 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Station Operating Company as
of March 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1997, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Las Vegas, Nevada
November 21, 1997 (except for Note 13
as to which the date is November 24, 1997)

F-38
<PAGE>
STATION OPERATING COMPANY

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31,
------------------------
1997 1996
------------ ---------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
ASSETS

Property and equipment, net........................................... 431,324 225,223 447,485
Land held for development............................................. 7,599 10,082 7,599
Other assets, net..................................................... 49,021 29,347 43,426
------------ ---------- -------------
$ 557,313 $ 398,091 $ 580,857
------------ ---------- -------------
------------ ---------- -------------

LIABILITIES AND INVESTMENT BY STATION CASINOS, INC.

Current liabilities:
Current portion of long-term debt..................................... $ 18,807 $ 23,256 $ 14,195
Accounts payable...................................................... 21,106 11,091 16,383
Accrued payroll and related........................................... 13,460 11,519 16,015
Construction contracts payable........................................ 7,941 2,116 12,698
Accrued expenses and other current liabilities........................ 27,110 17,093 32,998
------------ ---------- -------------
Total current liabilities........................................... 88,424 65,075 92,289

Long-term debt, less current portion.................................... 359,090 53,324 354,369
Deferred income taxes, net.............................................. 14,183 10,240 21,850
------------ ---------- -------------
Total liabilities................................................... 461,697 128,639 468,508
------------ ---------- -------------

Commitments and contingencies (Note 7)

Investment by Station Casino, Inc....................................... 95,616 269,452 112,349
------------ ---------- -------------
$ 557,313 $ 398,091 $ 580,857
------------ ---------- -------------
------------ ---------- -------------
</TABLE>

The accompanying notes are an integral part of these combined statements.

F-39
<PAGE>
STATION OPERATING COMPANY

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEARS ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------- ----------------------
1997 1996 1995 1997 1996
------------- ------------- ------------- ---------- ----------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Casino................................... $ 450,013 $ 358,495 $ 210,534 $ 282,700 $ 212,072
Food and beverage........................ 92,220 73,057 43,208 63,577 42,626
Room..................................... 27,420 23,614 17,690 17,218 12,658
Other.................................... 48,957 39,099 36,561 28,676 22,752
------------- ------------- ------------- ---------- ----------
Gross revenues......................... 618,610 494,265 307,993 392,171 290,108
Promotional allowances................... (35,095) (27,408) (17,715) (24,558) (16,634)
------------- ------------- ------------- ---------- ----------
Net revenues........................... 583,515 466,857 290,278 367,613 273,474
------------- ------------- ------------- ---------- ----------
Operating costs and expenses:
Casino................................... 203,857 150,805 92,812 137,592 93,278
Food and beverage........................ 68,994 57,659 34,045 44,862 32,275
Room..................................... 10,318 9,147 7,014 6,481 5,097
Other.................................... 23,927 24,902 27,270 13,481 11,260
Selling, general and administrative...... 120,285 97,466 60,810 81,896 55,606
Corporate expenses....................... 18,284 15,979 13,141 7,644 8,642
Restructuring charge..................... 2,016 -- -- -- --
Development expenses..................... 1,302 3,960 7,200 104 602
Intercompany expense..................... 7,970 5,202 3,333 6,242 3,655
Depreciation and amortization............ 36,619 29,837 18,887 26,927 16,437
Preopening expenses...................... 31,820 2,436 19,378 10,866 --
------------- ------------- ------------- ---------- ----------
525,392 397,393 283,890 336,095 226,852
------------- ------------- ------------- ---------- ----------
Operating income........................... 58,123 69,464 6,388 31,518 46,622
Other income (expense):
Interest expense, net.................... (7,413) (10,546) (6,980) (6,172) (3,479)
Other.................................... (47) 1,150 2,160 (4,996) 67
------------- ------------- ------------- ---------- ----------
(7,460) (9,396) (4,820) (11,168) (3,412)
------------- ------------- ------------- ---------- ----------
Income before income taxes................. 50,663 60,068 1,568 20,350 43,210
Income tax provision....................... (17,121) (21,596) (812) (6,830) (15,152)
------------- ------------- ------------- ---------- ----------
Net income................................. $ 33,542 $ 38,472 $ 756 $ 13,520 $ 28,058
------------- ------------- ------------- ---------- ----------
------------- ------------- ------------- ---------- ----------
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
MARCH 31, SEPTEMBER 30,
----------- -------------
1997 1997
----------- -------------
<S> <C> <C>
Supplemental Pro Forma Presentation (unaudited)
Net income:...................................................... $ 33,542 $ 13,520
----------- -------------
----------- -------------
Pro forma adjustment to intercompany, interest expense and lease
expense
Intercompany expense............................................. 7,970 6,242
Interest expense................................................. (2,179) 1,377
Lease expense.................................................... (88,708) (57,375)
Related income taxes............................................. 29,021 17,414
----------- -------------
Pro forma net loss after intercompany expense, interest expense and
lease expense.................................................... $ (20,354) $ (18,822)
----------- -------------
----------- -------------
</TABLE>

The accompanying notes are an integral part of these combined statements.

F-40
<PAGE>
STATION OPERATING COMPANY
COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEARS ENDED MARCH 31, SEPTEMBER 30,
------------------------------- --------------------
1997 1996 1995 1997 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Cash flows from operating activities:
Net income................................................ $ 33,542 $ 38,472 $ 756 $ 13,520 $ 28,058
--------- --------- --------- --------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Intercompany expense.................................... 7,970 5,202 3,333 6,242 3,655
Depreciation and amortization........................... 36,619 29,837 18,887 26,927 16,437
Preopening expenses..................................... 31,820 2,436 19,378 10,866 --
(Decrease) increase in deferred income taxes............ 2,118 10,847 (5,916) 5,886 5,018
Changes in assets and liabilities:
Increase in accounts and notes receivable, net........ (1,151) (522) (955) (4,635) (1,393)
Increase in inventories and prepaid expenses and
other............................................... (3,750) (2,430) (3,335) (5,161) (3,376)
(Decrease) increase in accounts payable............... 10,015 (2,710) 8,332 (4,723) 6,481
Increase (decrease) in accrued expenses and other
current liabilities................................. 10,523 4,474 10,577 6,911 (64)
Other, net.............................................. 107 2,873 7,200 6,200 472
--------- --------- --------- --------- ---------
Total adjustments................................... 94,271 50,007 57,501 48,513 27,230
--------- --------- --------- --------- ---------
Net cash provided by operating activities........... 127,813 88,479 58,257 62,033 55,288
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures.................................... (251,025) (64,616) (121,905) (43,707) (34,891)
Proceeds from sale of land, property and equipment...... 8,900 6,578 12,483 2,399 8,227
Land held for development............................... (119) (354) (5,978) -- (111)
Other long-term assets.................................. (15,410) (4,818) 3,553 (4,616) (5,587)
Increase (decrease) in construction contracts payable... 5,825 (2,427) (1,490) 4,757 3,917
Preopening expenses..................................... (31,820) (2,436) (19,378) (8,550) (6,620)
Other, net.............................................. (1,459) (6,560) 342 930 (2,160)
--------- --------- --------- --------- ---------
Net cash used in investing activities............... (285,108) (74,633) (132,373) (48,787) (37,225)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Borrowings (payments) under bank facility, net.......... 277,000 (65,000) 37,000 (63,000) 73,000
Borrowings under Sunset loan agreement.................. 46,000 -- -- 57,000 --
Proceeds from notes payable............................. 2,250 42,438 13,757 15,730 --
Principal payments on notes payable..................... (24,294) (34,958) (8,195) (19,577) (13,332)
Investment by Station Casinos, Inc...................... (215,348) 142,283 31,759 (3,029) (161,975)
Other net............................................... (659) (702) 597 1,031 --
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities........................................ 84,949 84,061 74,918 (11,845) (102,307)
--------- --------- --------- --------- ---------
Cash and cash equivalents:
(Decrease) increase in cash and cash equivalents........ (72,346) 97,907 802 1,401 (84,244)
Balance, beginning of year.............................. 114,868 16,961 16,159 42,522 114,868
--------- --------- --------- --------- ---------
Balance, end of year.................................... $ 42,522 $ 114,868 $ 16,961 $ 43,923 $ 30,624
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental cash flow disclosures:
Cash paid for interest, net of amounts capitalized...... $ 7,665 $ 9,498 $ 6,170 $ 5,792 $ 3,928
Property and equipment purchases financed by debt....... $ 361 $ 21,164 $ 22,719 $ -- $ 361
</TABLE>

The accompanying notes are an integral part of these combined statements.

F-41
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS

1. FORMATION OF STATION OPERATING COMPANY AND BASIS OF PRESENTATION

Station Casinos, Inc. ("STN") is an established multi-jurisdictional gaming
enterprise that currently owns and operates four hotel/casino properties in Las
Vegas, Nevada, a gaming and entertainment complex in St. Charles, Missouri and a
gaming and entertainment complex in Kansas City, Missouri. STN also owns and
provides slot route management services in Southern Nevada and Louisiana. STN's
wholly-owned subsidiaries include: Palace Station Hotel & Casino, Inc. ("Palace
Station"), Boulder Station, Inc. ("Boulder Station"), Texas Station, Inc.
("Texas Station"), Sunset Station, Inc. ("Sunset Station"), St. Charles
Riverfront Station, Inc. ("Station Casino St. Charles"), Kansas City Station
Corporation ("Station Casino Kansas City"), and Southwest Gaming Services, Inc.
("SGSI") (collectively, the "Casino Properties"). STN owns a 50% interest in
Town Center Amusements, Inc. d.b.a. Barley's Casino & Brewing Company. This
investment is accounted for using the equity method of accounting.

On November 24, 1997, the Board of Directors of STN approved in principle,
subject to formal declaration of a dividend, a plan for the distribution (the
"Distribution") to holders of STN common stock (on a one share for 17.5 shares
basis) of all outstanding shares of common stock of Station Operating Company, a
Nevada Corporation and a wholly-owned subsidiary of Station Casinos, Inc., (the
"Company" or "OpCo"). For purposes of these combined financial statements, all
references to "OpCo" shall mean certain real estate and substantially all
non-real estate assets and liabilities ("Transferred Assets and Liabilities")
associated with managing the gaming operations related to STN that will be
transferred to OpCo prior to the Distribution. STN will retain substantially all
the real estate assets and certain bank and public debt and convert to a real
estate investment trust for federal income tax purposes. OpCo will operate the
gaming business. Under the proposed plan, OpCo will become a publicly traded
company that will include all of STN's current hotel/casino operations.

These combined financial statements present the financial position, results
of operations and cash flows of OpCo as if it were a separate entity for all
periods presented. STN's historical basis in the Transferred Assets and
Liabilities of OpCo has been carried over. All material intercompany
transactions and balances between OpCo, its subsidiaries and the combined
affiliates which include the Transferred Assets and Liabilities have been
eliminated in combination. Changes in the Investment by Station Casinos, Inc.
reflected in the accompanying combined financial statements represent the net
income of OpCo plus the net change in cash transferred between OpCo and STN and
certain non-cash items.

The accompanying combined financial statements assume that OpCo has operated
as a unit of STN for all periods presented, utilizing STN's centralized systems
for cash management, employee benefit plans, insurance and administrative
services. As a result, substantially all cash received by OpCo is reflected as
deposited in and commingled with STN's corporate funds. Similarly, operating
expenses, capital expenditures and other cash requirements of OpCo are reflected
as paid by STN and charged directly or allocated to OpCo. In the opinion of
management, STN's methods for allocating costs are believed to be reasonable.
However, such costs are not necessarily indicative of the costs that would have
been incurred if OpCo had been operated as an unaffiliated entity. It is not
practicable to estimate those costs on a stand-alone basis.

For purposes of governing certain of the ongoing relationships between OpCo
and STN after the Distribution and to provide for an orderly transition, OpCo
and STN will enter into various agreements including a Distribution Agreement,
Post-Distribution Tax Allocation Agreement, Post-Distribution Transition
Services Agreement, Post-Distribution Employee Benefits Agreement,
Post-Distribution Intellectual Property Agreement and various real estate lease
agreements. Effective as of the Distribution date, these agreements will
provide, among other things that (i) in consideration for the Transferred Assets
and Liabilities, OpCo will issue to STN an intermediate note, OpCo common stock
and OpCo mandatory redeemable preferred stock; (ii) OpCo will lease from STN
certain real estate assets on which STN's

F-42
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. FORMATION OF STATION OPERATING COMPANY AND BASIS OF PRESENTATION (CONTINUED)
gaming operations are currently operated and OpCo will operate and manage such
real estate as gaming facilities; (iii) OpCo will enter into sub-leases with STN
to lease real and personal property necessary to the operation of the Casino
Properties that contain terms that are similar to those entered into by STN with
the respective existing lessors (See Note 7); and (iv) establish employee
benefit plans similar to STN's current plans.

INTERIM PERIODS

The combined financial statements for the six months ended September 30,
1997 and 1996 and related amounts in the notes to the combined financial
statements are unaudited, but in the opinion of management, reflect all normal
and recurring adjustments necessary for a fair presentation of the results of
these interim periods.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include investments purchased with an original
maturity of 90 days or less.

INVENTORIES

Inventories are stated at the lower of cost or market; cost being determined
on a first-in, first-out basis.

PROPERTY AND EQUIPMENT

CAPITALIZATION OF INTEREST

Interest cost associated with debt incurred in connection with major
construction projects is capitalized. Interest capitalization ceases once the
project is complete. When no debt is specifically identified as being incurred
in connection with such construction projects, interest on amounts expended on
the project is capitalized based on the average cost of borrowings. Interest
cost associated with STN's debt that was incurred in connection with the
construction of OpCo's assets has been reflected in the Investment by STN
caption in the accompanying combined balance sheets. Interest capitalized for
the fiscal years ended March 31, 1997, 1996, and 1995, and for the six months
ended September 30, 1997 and 1996, was approximately $1.9 million, $0, $0, $2.5
million and $650,000, respectively.

DEBT ISSUANCE COSTS

Debt issuance costs incurred in connection with borrowings are capitalized
and amortized to interest expense over the terms of the related debt agreements,
using the effective interest method or method which approximates the effective
interest method.

F-43
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEVELOPMENT ACTIVITIES

All internal salaries and related expenses with respect to development
activities are expensed as incurred. Other development costs, including legal,
lobbying, and consulting are expensed, until such time as the jurisdiction has
approved gaming and a specific site has been identified. Costs incurred
subsequent to these criteria being met are capitalized. At March 31, 1997 and
1996 and September 30, 1997, capitalized costs of $0.7 million, $1.3 million and
$0 million, respectively, related to various development projects are included
in other assets, net in the accompanying combined balance sheets.

PREOPENING EXPENSES

Prior to the opening of a facility, all operating expenses, including
incremental salaries and wages related thereto are capitalized as preopening
expenses. At March 31, 1997, $2.4 million of preopening expenses related to
Sunset Station had been capitalized and are included in other assets, net in the
accompanying combined balance sheets. Upon the opening of the related facility,
preopening costs are expensed. During the fiscal year ended March 31, 1995, the
Company incurred preopening expenses of $7.5 million and $11.9 million related
to Boulder Station and Station Casino St. Charles, respectively. During the
fiscal year ended March 31, 1996, preopening expenses of $2.4 million related to
new projects for Texas Station and Barley's Casino & Brewing Company and
expansion projects at Boulder Station and Station Casino St. Charles were
incurred. During the fiscal year ended March 31, 1997, preopening expenses of
$31.8 million substantially related to the opening of Station Casino Kansas City
were incurred. During the six months ended September 30, 1997, preopening
expenses of $10.9 million substantially related to the opening of Sunset Station
were incurred.

REVENUES AND PROMOTIONAL ALLOWANCES

In accordance with industry practice, casino revenues represent the net win
from gaming activities, which is the difference between gaming wins and losses.
All other revenues are recognized as the service is provided. Revenues include
the retail value of accommodations and food and beverage provided on a
complimentary basis to customers. The estimated departmental costs of providing
such promotional allowances are included in casino costs and expenses and
consist of the following (amounts in thousands):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
MARCH 31, ENDED SEPTEMBER 30,
1997 1996 1995 1997 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
--------------------
<S> <C> <C> <C> <C> <C>
Food and beverage................................ $ 27,418 $ 23,483 $ 14,276 $ 18,387 $ 13,964
Room............................................. 1,439 1,203 874 1,073 561
Other............................................ 1,263 653 313 1,483 649
--------- --------- --------- --------- ---------
Total...................................... $ 30,120 $ 25,339 $ 15,463 $ 20,943 $ 15,174
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

INCOME TAXES

OpCo has adopted Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes." SFAS No. 109 requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in financial statements or tax returns. In
addition, SFAS No. 109 requires an allocation of current and deferred tax
expense for those entities of a group that file a consolidated tax return that
are issuing separate financial statements as if the entity had computed such
amounts on a stand-alone basis. Neither OpCo nor the Casino Properties have a
formal tax

F-44
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
sharing agreement with STN. The taxable income or loss from the activities of
OpCo have been included in the consolidated tax return of STN for the periods
presented in the accompanying combined financial statements. Effective the date
of Distribution, OpCo will become a stand-alone tax paying entity.

INTERCOMPANY EXPENSE

Intercompany expense represents depreciation on real estate assets held by
STN which OpCo has historically utilized in conducting its hotel/casino
operations. Such real estate assets will be leased by OpCo from STN commencing
on the date of Distribution.

EARNINGS (LOSS) PER COMMON SHARE

Given OpCo's lack of a capital structure separate from STN and the changes
to be effected by the Distribution, historical earnings per share amounts are
not presented in the accompanying combined financial statements as they are not
considered to be meaningful.

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which is effective
for fiscal years ending after December 15, 1997. This statement replaces primary
earnings per share ("EPS") with basic EPS. No dilution for potentially dilutive
securities is included in basic EPS. This statement also requires when applying
the treasury stock method for diluted EPS to compute dilution for options and
warrants, to use average share price for the period, rather than the more
dilutive greater of the average share price or end-of-period share price. OpCo
will adopt SFAS No. 128 subsequent to the Distribution.

USE OF ESTIMATES

SUPPLEMENTAL PRO-FORMA PRESENTATION (UNAUDITED)

The supplemental pro-forma presentation is presented as if the Distribution
had been completed as of the beginning of the fiscal year ended March 31, 1997
and as of the beginning of the six-month period ended September 30, 1997 to
reflect the lease payments to STN, remove the intercompany expense related to
depreciation described above and interest expense related to debt that will not
exist subsequent to the date of Distribution and reflect the interest expense
related to OpCo's proposed borrowings. This supplemental pro-forma presentation
is necessary to assess the financial impact of the Distribution.

3. ACCOUNTS AND NOTES RECEIVABLE

Components of accounts and notes receivable are as follows (amounts in
thousands):

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996 1997
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Casino.............................................................. $ 3,698 $ 2,569 $ 5,697
Hotel............................................................... 1,331 1,144 1,575
Other............................................................... 3,876 2,082 7,175
--------- --------- -------------
8,905 5,795 14,447
Allowance for doubtful accounts..................................... (1,053) (644) (1,960)
--------- --------- -------------
Accounts and notes receivable, net.......................... $ 7,852 $ 5,151 $ 12,487
--------- --------- -------------
--------- --------- -------------
</TABLE>

F-45
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (amounts in thousands):

<TABLE>
<CAPTION>
ESTIMATED LIFE MARCH 31, SEPTEMBER 30,
(YEARS) 1997 1996 1997
--------------- ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Boats and barges................................ 20-45 $ 123,774 $ 81,463 $ 123,774
Furniture, fixtures and equipment............... 3-7 320,871 202,975 338,388
Construction in progress........................ -- 54,062 12,231 77,108
---------- ---------- -------------
498,707 296,669 539,270
Accumulated depreciation and
amortization.................................. (67,383) (71,446) (91,785)
---------- ---------- -------------
Property and equipment, net............. $ 431,324 $ 225,223 $ 447,485
---------- ---------- -------------
---------- ---------- -------------
</TABLE>

5. LAND HELD FOR DEVELOPMENT

STN has acquired several parcels of land in various jurisdictions as part of
its development activities which are included in the accompanying combined
balance sheets. A decision whether to proceed with any new gaming opportunity is
dependent upon future economic and regulatory factors, the availability of
financing and competitive and strategic considerations. No assurances can be
made that appropriate licensing or acceptable financing can be obtained in order
to proceed with any particular project. Included in the accompanying combined
balance sheets at March 31, 1997 and 1996 and September 30, 1997, is $6.2
million, $6.4 million and $6.3 million, respectively, of land which had been
acquired for potential gaming projects in jurisdictions where gaming has been
approved. In addition, included in the accompanying combined balance sheets of
OpCo at March 31, 1997 and 1996 and September 30, 1997, is $1.3 million, $3.7
million and $1.2 million, respectively, of land that has been acquired in
certain jurisdictions where gaming has not yet been approved. No assurances can
be made that these jurisdictions will approve gaming in the future.

STN also entered into various purchase agreements whereby it has the option
to acquire or lease land for development of potential new gaming projects
totaling $31.3 million and $34.2 million at March 31, 1997 and 1996,
respectively. In consideration for these options, STN paid or placed in escrow
$6.0 million and $2.4 million at March 31, 1997 and 1996, respectively. Such
option payments are included in other assets, net in the accompanying combined
balance sheets of OpCo. If the options to acquire or lease the land are not
exercised, all amounts paid or placed in escrow are forfeited. In June 1997, $5
million of expired option payments were expensed and are included in other
income/expense in the accompanying combined statements of operations.

F-46
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. LONG-TERM DEBT

In addition to obligations directly owed by OpCo, certain of its
subsidiaries have extended certain guarantees, and pledged substantially all of
their assets to secure STN's reducing revolving credit facility. Long-term debt
of OpCo therefore consists of the following (amounts in thousands):

<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
OpCo (excluding Sunset Station) 1997 1996
----------- ---------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
STN's reducing revolving credit facility, secured by substantially all of
the assets of Palace Station, Boulder Station, Texas Station, Station
Casino St. Charles and Station Casino Kansas City, $368 million limit at
March 31, 1997, reducing quarterly by varying amounts until September
2000 when the remaining principal balance is due, interest at a margin
above the bank's prime rate or the Eurodollar Rate (7.89% at March 31,
1997).................................................................... $ 277,000 $ $ 214,000

Term loan agreement, collateralized by a preferred ship mortgage,
quarterly payments of $800,000 plus interest at LIBOR plus 4.25% to 4.75%
(10.36% at March 31, 1997) with the remaining principal due May 2000..... $ 9,400 $ 12,600 $ 7,800

Term loan agreement, collateralized by a preferred ship mortgage, monthly
payments of $100,000 plus interest at LIBOR plus 2.00% (7.81% at March
31, 1997) with the remaining principal due October 2001.................. 5,600 5,750 5,000

Note payable, collateralized by land and buildings, monthly payments of
$46,000 plus interest at bank's prime rate (8.50% at March 31, 1997),
with the remaining principal due September 1999.......................... 4,171 4,675 --

Note payable, collateralized by furniture and equipment, quarterly
payments of $262,500 plus interest at LIBOR plus 2.25% (7.72% at March
31, 1997) with the remaining principal due November 2000................. 6,188 7,238 5,663

Notes payable to banks and others, collateralized by slot machines and
related equipment, monthly payments including interest ranging from 7.47%
to 7.94%................................................................. 21,376 31,877 27,054

Capital lease obligations, collateralized by furniture and equipment...... 7,703 12,171 5,096

Other long-term debt...................................................... 459 2,269 951
----------- ---------- -------------

Subtotal................................................................ 331,897 76,580 265,564
</TABLE>

F-47
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. LONG-TERM DEBT (CONTINUED)
<TABLE>
<S> <C> <C> <C>
Sunset Station

$110 million Sunset Station first mortgage construction/term loan
agreement, secured by substantially all of the assets of Sunset Station,
interest at a margin of 375 basis points above the Eurodollar Rate (9.37%
at March 31, 1997), due September 2000................................... 46,000 103,000
----------- ---------- -------------

Total long-term debt.................................................... 377,897 76,580 368,564

Current portion of long-term debt......................................... (18,807) (23,256) (14,195)
----------- ---------- -------------

Total long-term debt, less current portion.............................. $ 359,090 $ 53,324 $ 354,369
----------- ---------- -------------
----------- ---------- -------------
</TABLE>

The estimated fair value of OpCo's long-term debt at March 31, 1997 was the
same as the book value. Fair value was estimated based on the current rates
offered to OpCo for debt having the same remaining maturities.

Scheduled maturities of long-term debt are as follows (amounts in
thousands):

<TABLE>
<CAPTION>
MARCH 31,
----------
<S> <C>
1998.............................................................................. $ 18,807
1999.............................................................................. 12,948
2000.............................................................................. 11,141
2001.............................................................................. 333,373
2002.............................................................................. 1,288
Thereafter........................................................................ 340
----------
Total........................................................................... $ 377,897
----------
----------
</TABLE>

On July 5, 1995, STN obtained a $275 million reducing revolving credit
facility. On March 25, 1996, the STN amended and restated this bank facility,
providing for borrowings up to an aggregate principal amount of $400 million. On
March 21, 1997 and June 27, 1997, the STN obtained certain amendments to the
reducing revolving bank credit facility in order to enhance its borrowing
capacity (the "Bank Facility"). The Bank Facility is secured by substantially
all the assets of STN and OpCo. In addition, the Bank Facility is guaranteed by
STN and a subsidiary of OpCo. The Bank Facility matures on September 30, 2000
and reduces quarterly by varying amounts (including $8 million for the fiscal
quarter ending on June 30, 1997 and $10 million for each quarter ending
September 30, 1997, December 31, 1997 and March 31, 1998). Borrowings under the
Bank Facility bear interest at a margin above the bank's prime rate or LIBOR, as
selected by STN. The margin above such rates, and the fee on the unfunded
portions of the Bank Facility, will vary quarterly based on the combined
Borrower's, as defined, and STN's consolidated ratio of funded debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA"). The Bank
Facility contains certain financial and other covenants that apply to OpCo.
These covenants include a maximum funded debt to EBITDA ratio, limitations on
indebtedness, as well as limitations on capital expenditures, payments of
dividends and minimum consolidated net worth of STN.

In September 1996, Sunset Station entered into a Construction/Term Loan
Agreement (the "Sunset Loan Agreement") to finance the remaining development and
construction costs of Sunset Station. The Sunset Loan Agreement includes a first
mortgage term note in the amount of $110 million (the "Sunset Note") which is
secured by substantially all of the assets of Sunset Station, including a deed
of trust with

F-48
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. LONG-TERM DEBT (CONTINUED)
respect to the real property related to the Sunset Station operations. A portion
of the real property is subject to a lease between STN and Sunset Station. The
remainder is owned by Sunset Station. In addition, the Sunset Note is
collateralized by a security agreement as to all tangible and intangible
personal property including Sunset Station's rights under an operating lease for
certain furniture, fixtures and equipment to be used by Sunset Station. The
Sunset Loan Agreement contains certain financial covenants including a minimum
fixed charge coverage ratio and minimum net worth calculation, as well as
limitations on indebtedness, guarantees, dividends, stock redemptions, mergers,
acquisitions, sale of assets or sale of stock in STN subsidiaries and
limitations on capital expenditures. STN also entered into an operating lease
for certain furniture, fixtures and equipment with a cost of $40 million which
in turn was subleased to Sunset Station (see Note 7).

In addition, STN has provided a funding commitment to Sunset Station of up
to an additional $25 million pursuant to a supplemental loan agreement (the
"Supplemental Loan Agreement"). The Sunset Loan Agreement requires Sunset
Station to draw amounts under the Supplemental Loan Agreement in the event of
the failure of certain financial covenants under the Sunset Loan Agreement.
Loans under this funding commitment could be drawn down starting September 30,
1997 in an amount of up to $10 million during the first year after such date, up
to $10 million during the second year after such date and up to $5 million
during the third year after such date. The Supplemental Loan Agreement also
provides for an additional, separate funding commitment of up to $40 million in
connection with a purchase option for certain furniture, fixtures and equipment
under the Sunset Operating Lease (see Note 7). Sunset Station will pay interest
at a rate per annum equal to the three-month Eurodollar Rate, the interest being
solely in the form of commensurate additions to the principal of the
Supplemental Loans. The Supplemental Loan Agreement expires in September 2001.
The funding commitments under the Supplemental Loan Agreement are subject to
limitations imposed by the indentures governing STN's existing senior
subordinated notes and the Bank Facility. As of March 31, 1997 and September 30,
1997 (unaudited) no amounts have been borrowed under the Supplemental Loan
Agreement.

7. COMMITMENTS AND CONTINGENCIES

As indicated in Note 1, upon completion of the Distribution, OpCo will enter
into subleases with STN to lease real and personal property necessary to the
operation of the Casino Properties. It is anticipated that the subleases will
contain terms that are substantially similar to those described below between
STN and the existing lessor.

F-49
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
BOULDER STATION LEASE

STN entered into a ground lease for 27 acres of land on which Boulder
Station is located. STN leases this land from a trust pursuant to a long-term
ground lease. The trustee of this trust is Bank of America NT&SA, the
beneficiary of which is KB Enterprises, an affiliated company owned by Frank J.
Fertitta, Jr. and Victoria K. Fertitta (the "Related Lessor"), the parents of
Frank J. Fertitta III, Chairman of the Board and Chief Executive Officer of STN.
The lease has a term of 65 years with monthly payments of $125,000 through June
1998. In June 1998, and every ten years thereafter, the rent will be adjusted to
the product of the fair market value of the land and the greater of (i) the then
prevailing annual rate of return for comparably situated property or (ii) 8% per
year. The rent will be further adjusted in June 2003 and every ten years
thereafter by a cost of living factor. In no event will the rent for any period
be less than the immediately prior period. Pursuant to the ground lease, STN has
an option, exercisable at five-year intervals beginning in June 1998, to
purchase the land at fair market value. STN's leasehold interest in the property
is subject to a lien to secure borrowings under STN's Bank Facility.

TEXAS STATION LEASE

STN entered into a ground lease for 47 acres of land on which Texas Station
is located. STN leases this land from a trust pursuant to a long-term ground
lease. The trustee of this trust is Bank of America NT&SA, the beneficiary of
which is Texas Gambling Hall & Hotel, Inc. an affiliate company of the Related
Lessor. The lease has a term of 65 years with monthly rental payments of
$150,000 through July 2000. In July 2000, and every ten years thereafter, the
rent will be adjusted to the product of the fair market value of the land and
the greater of (i) the then prevailing annual rate of return being realized for
owners of comparable land in Clark County, Nevada or (ii) 8% per year. The rent
will be further adjusted by a cost of living factor after the first ten years
and every ten years thereafter. In no event will the rent for any period be less
than the immediate prior period. Pursuant to the ground lease, STN will have an
option, exercisable at five-year intervals beginning in May 2000, to purchase
the land at fair market value. STN's leasehold interest in the property is
subject to a lien to secure borrowings under STN's Bank Facility.

SUNSET STATION LEASES

In June 1994, STN entered into a lease agreement for approximately 47.5
acres of land in the Southeast area of Las Vegas on which Sunset Station is
located. The lease has a term of 65 years with monthly rental payments of
$120,000, adjusted on each subsequent five-year anniversary by a cost of living
factor. On the seventh anniversary of the lease, STN has an option to purchase
this land for $23.8 million. Additionally, on the seventh anniversary of the
lease, the lessor has an option to sell this land to STN for $21.8 million.

STN entered into an operating lease for furniture, fixtures and equipment
(the "Equipment") with a cost of $40 million, dated as of September 25, 1996
(the "Sunset Operating Lease") with First Security Trust Company of Nevada. The
Sunset Operating Lease expires in October 2000 and carries a lease rate of 225
basis points above the Eurodollar Rate. STN has entered into a sublease with
Sunset Station for the Equipment pursuant to an operating lease with financial
terms substantially similar to the Sunset Operating Lease. As of September 30,
1997, $35.7 million of equipment had been leased. In the event that Sunset
Station elects to purchase the Equipment, STN has provided a funding commitment
of up to the amount necessary for such purchase pursuant to the Supplemental
Loan Agreement (subject to the limitations on funding contained in the
Supplemental Loan Agreement) (See Note 6). In connection with

F-50
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
the Sunset Operating Lease, STN also entered into a Participation Agreement,
dated as of September 25, 1996 (the "Participation Agreement") with the trustee,
as lessor under the Sunset Operating Lease, and holders of beneficial interests
in the Lessor Trust (the "Holders"). Pursuant to the Participation Agreement,
the Holders advanced funds to the trustee for the purchase by the trustee of, or
to reimburse STN for, the purchase of the Equipment, which then will be leased
to STN, and in turn subleased to Sunset Station. Pursuant to the Participation
Agreement, STN also agreed to indemnify the Lessor and the Holders against
certain liabilities.

STATION CASINO ST. CHARLES

In September 1994, Station Casino St. Charles entered into an agreement for
property acquisitions with the City of St. Charles, Missouri, which allows for
the acquisition by STN of property within a designated 107-acre Redevelopment
Project Area, a portion of which is adjacent to Station Casino St. Charles. This
land is being acquired for the construction of a mixed-use development, which
may include retail space, a hotel, office space, convention space or
restaurants. The Company has a right to terminate the agreement if all related
acquisition costs exceed $13.7 million. As of March 31, 1997, OpCo has incurred
$3.4 million of acquisition costs which are included in property and equipment,
net in the accompanying combined balance sheets.

STATION CASINO KANSAS CITY LEASE

STN has invested in a joint venture, which owns the land on which Station
Casino Kansas City is located. At March 31, 1997 and September 30, 1997, $3.5
million related to this investment is included in other assets, net in the
accompanying combined balance sheets.

In April 1994, Station Casino Kansas City entered into an agreement with the
joint venture to lease this land. The agreement requires monthly payments of
$85,000 through March 31, 1997 and $90,000 through the remainder of the lease
term. The lease expires March 31, 2006, with an option to extend the lease for
up to eight renewal periods of ten years each, plus one additional seven-year
period. Commencing April 1, 1998 and every anniversary thereafter, the rent
shall be adjusted by a cost of living factor. In connection with the joint
venture agreement, STN received an option providing for the right to acquire the
joint venture partner's interest in this joint venture. STN has the option to
acquire this interest at any time after April 1, 2002 through April 1, 2011 for
$11.7 million, however, commencing April 1, 1998 the purchase price will be
adjusted by a cost of living factor of not more than 5% or less than 2% per
annum. At March 31, 1997 and September 30, 1997, $2.6 million paid by STN in
consideration for this option is included in other assets, net in the
accompanying combined balance sheets.

SOUTHERN FLORIDA

In October 1994, STN entered into an agreement to form a limited partnership
with the existing operator of a pari-mutuel facility in Southern Florida. In the
event the voters of Florida approve casino gaming by October 2000 and in the
event the pari-mutuel facility site is licensed by the state, STN will be
obligated to make capital contributions to the partnership totaling $35 million,
reduced by credits for amounts previously contributed to any Florida gaming
referendum campaign.

F-51
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OPERATING LEASES

STN leases several parcels of land and equipment used in operations at
Palace Station, Boulder Station, Texas Station, Sunset Station, Station Casino
St. Charles and Station Casino Kansas City. Leases on various parcels ranging
from 13 acres to 171 acres have terms expiring between March 2006 and July 2060.
Future minimum lease payments required under these operating leases and other
noncancellable operating leases are as follows for the years ending (amounts in
thousands):

<TABLE>
<CAPTION>
FUTURE MINIMUM LEASE PAYMENTS MARCH 31,
- ------------------------------------------------------------------------ ----------
<S> <C>
1998.................................................................... $ 6,423
1999.................................................................... 6,296
2000.................................................................... 5,932
2001.................................................................... 5,932
2002.................................................................... 5,932
Thereafter.............................................................. 280,479
----------
Total............................................................. $ 310,994
----------
----------
</TABLE>

Rent expense totaled approximately $5.4 million, $6.5 million, $4.9 million
for the years ended March 31, 1997, 1996 and 1995, respectively. Rents of $2.2
million and $2.1 million were capitalized in connection with the construction of
Station Casino Kansas City and Sunset Station for the fiscal years ended March
31, 1997 and 1996, respectively.

During fiscal 1995, STN sold approximately $13.0 million of equipment
related to the Casino Properties and leased it back under lease agreements
ranging from three to seven years. The transactions produced gains of
approximately $665,000, which have been deferred and are being amortized against
lease expense over the remaining lease terms in the accompanying combined
financial statements.

LEGAL MATTERS

STN is a party in legal matters arising in the normal course of business. In
the opinion of management, all pending legal matters are either adequately
covered by insurance or, if not insured, will not have a material adverse effect
on the financial position or the results of operations of OpCo as presented in
the accompanying combined financial statements.

8. RELATED PARTIES

STN has employed McNabb/McNabb/DeSoto/Salter & Co. ("MMDS") to provide
advertising and marketing research services. Certain stockholders of STN own a
50% interest in MMDS. During the fiscal years ended March 31, 1997, 1996 and
1995 STN paid MMDS $27.2 million, $17.4 million and $12.7 million respectively,
for advertising, market research and other costs related to the Casino
Properties. In management's opinion, these transactions were conducted with
terms as fair to OpCo as could have been obtained from unaffiliated companies.
In April 1997, STN purchased the assets of MMDS for approximately $0.8 million.

9. BENEFIT PLANS

As discussed in Note 1, upon completion of the Distribution, OpCo
anticipates establishing employee benefit plans similar to STN's current plans
described below.

F-52
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. BENEFIT PLANS (CONTINUED)
STOCK COMPENSATION PROGRAM

STN maintains a Stock Compensation Program (the "Program") which includes
(i) an Incentive Stock Option Plan for the grant of incentive stock options,
(ii) a Compensatory Stock Option Plan providing for the grant of non-qualified
stock options, and (iii) a Restricted Shares Plan providing for the grant of
restricted shares of common stock. Officers, key employees, directors (whether
employee directors or non-employee directors) and independent contractors or
agents of STN and its subsidiaries are eligible to participate in the program.
However, only employees of STN and its subsidiaries are eligible to receive
incentive stock options.

OpCo anticipates establishing its own stock option plan following the
Distribution. Each employee of OpCo on the day following the Distribution who
holds options issued pursuant to the Program noted above will receive an option
to purchase OpCo common stock in substitution for and cancellation of the STN
option. The number of OpCo shares to be acquired and the price of such option
will be determined pursuant to the following formula: (i) the number of shares
of OpCo common stock covered by the substitute option shall be equal to the
pre-Distribution number of shares of STN common stock covered by the STN option
multiplied by a fraction, the numerator of which is the pre-Distribution STN
Market Price and the denominator of which is the post-Distribution OpCo Market
Price (the OpCo Conversion Factor), and (ii) the exercise price under the
substituted option shall be equal to the pre-Distribution exercise price under
the STN option multiplied by a fraction, the numerator of which is the
post-Distribution OpCo Market Price and the denominator of which is the
pre-distribution STN Market Price. For this purpose, the "pre-Distribution STN
Market Price" means the average of the high and low prices of the STN common
stock on the New York Stock Exchange for each of the ten trading days prior to
the first day on which there is trading in STN common stock on a
post-Distribution basis and the "post-Distribution OpCo Market Price" means the
average of the high and low prices of OpCo common stock on the NASDAQ for each
of the ten trading days beginning on the first day on which there is trading in
OpCo common stock, including on a "when issued" basis.

401(K) PLANS

STN adopted a defined contribution 401(k) plan, which covers all employees
of OpCo who meet certain age and length of service requirements and allows an
employer contribution up to 25 percent of the first four percent of each
participating employee's compensation. Plan participants can elect to defer
before tax compensation through payroll deductions. These deferrals are
regulated under Section 401(k) of the Internal Revenue Code. Matching
contributions are included in the accompanying combined financial statements in
the amount of $442,000, $293,000, and $203,000 for the fiscal years ended March
31, 1997, 1996 and 1995, respectively.

OpCo anticipates adopting a defined contribution plan for employees
effective as of the day following the Distribution that will be substantially
identical to the STN plan noted above. STN will cause the assets and liabilities
attributable to the account balances of OpCo employees to be transferred from
the STN plan to the OpCo 401(k) plan.

10. EXECUTIVE COMPENSATION PLANS

STN has employment agreements with certain of its executive officers. These
contracts provide for, among other things, an annual base salary with annual
adjustments and an annual cash bonus equal to at least 5 percent of the
executive's base salary, and supplemental long-term disability and supplemental
life

F-53
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. EXECUTIVE COMPENSATION PLANS (CONTINUED)
insurance benefits in excess of STN's normal coverage for employees. STN elected
to self-insure with respect to the long-term disability benefits. In addition,
STN has adopted a Supplemental Executive Retirement Plan for its Chief Executive
Officer and a Supplemental Management Retirement Plan for certain key executives
as selected by the Human Resources Committee of STN's Board of Directors. Other
executive plans include a Deferred Compensation Plan and a Long-Term Stay-On
Performance Incentive Plan. The expenses related to these plans are included in
selling, general and administrative expense in the accompanying combined
statements of operations.

OpCo anticipates similar plans for its executive officers following the
Distribution that will be substantially identical to the STN plans above.

11. RESTRUCTURING CHARGE

In March 1997, STN introduced a plan designed to reduce costs and improve
efficiency of operations at the Casino Properties. This plan resulted in a
one-time charge to earnings in the fourth quarter of fiscal 1997 totaling
$2,016,000, primarily related to employee severance payments.

12. INCOME TAXES

The provision for income taxes for OpCo consists of the following (amounts
in thousands):

<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal........................................ 16,260 10,380 7,975
State.......................................... (1,257) 369 (1,247)
--------- --------- ---------
15,003 10,749 6,728
Deferred........................................... 2,118 10,847 (5,916)
--------- --------- ---------
Total income taxes......................... 17,121 21,596 812
--------- --------- ---------
--------- --------- ---------
</TABLE>

The income tax provision (benefit) differs from that computed at the Federal
statutory corporate tax rate as follows:

<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate................................. 35.0% 35.0% 35.0%
State income taxes, net of Federal benefit............. (2.4) 0.6 (79.5)
Meals and entertainment................................ 0.3 1.2 85.5
Other, net............................................. 0.9 (0.8) 10.8
--------- --------- ---------
Effective tax rate..................................... 33.8% 36.0% 51.8%
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-54
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

12. INCOME TAXES (CONTINUED)
The two effects of significant temporary differences representing net
deferred tax assets and liabilities are as follows (amounts in thousands):

<TABLE>
<CAPTION>
MARCH 31,
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Current:
Accrued vacation, bonuses and group insurance........... 2,981 2,119
Prepaid gaming taxes.................................... (1,341) (1,177)
Other................................................... 2,262 1,135
---------- ----------
Total current............................................. 3,902 2,077
Long-term:
Preopening and other costs, net of amortization......... 15,050 5,710
---------- ----------
Total deferred tax assets................................. 18,952 7,787
---------- ----------
Deferred tax liabilities:
Long-term:
Temporary differences related to property and
equipment............................................. (29,084) (15,950)
Other................................................... (149) --
---------- ----------
Total deferred tax liabilities...................... (29,233) (15,950)
---------- ----------
Net................................................. $ (10,281) $ (8,163)
---------- ----------
---------- ----------
</TABLE>

13. SUBSEQUENT EVENT

On January 16, 1997, Station Casino Kansas City's gaming license in Kansas
City was formally issued for its facility which is located in a man-made basin
filled with water piped in from the surface of the Missouri River. In reliance
on numerous approvals from the Missouri Gaming Commission specific to the
configuration and granted prior to the formal issuance of its gaming license,
Station Casino Kansas City built and opened the Station Casino Kansas City
facility. The license issued to Station Casino Kansas City and the resolutions
related thereto specifically acknowledge that the Missouri Gaming Commission had
reviewed and approved this configuration. On November 24, 1997, the Supreme
Court of Missouri, in a case challenging the gaming licenses issued to certain
competing operators of Station Casino St. Charles located in Maryland Heights,
Missouri, ruled that gaming may occur only in artificial spaces that are
contiguous to the surface stream of the Missouri and Mississippi Rivers. AKIN V.
MISSOURI GAMING COMMISSION, Case No. 79594, Missouri Supreme Court (November
1997). The case was remanded to the trial court for a factual determination as
to whether such competing facilities meet this standard. The Missouri Gaming
Commission may also review the validity of Station Casino Kansas City's current
configuration in connection with Station Casino Kansas City's relicensing
hearing scheduled to occur in January 1998.

Because of the uncertainties caused by the Missouri Supreme Court's
decision, and because OpCo is not subject to any claim with regard to this
matter at this time, Station Casino Kansas City cannot predict what effect the
Missouri Supreme Court ruling or Missouri Gaming Commission's actions at such
relicensing hearing will have on operations at Station Casino Kansas City. At
this time, based on discussions with Missouri legal counsel, management believes
that it has potentially meritorious defenses if

F-55
<PAGE>
STATION OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

13. SUBSEQUENT EVENT (CONTINUED)
a lawsuit or administrative action based on this ruling were to be brought. In
addition, based on its current understanding of the ruling, management believes
that if it were to be required to take remedial action with respect to Station
Casino Kansas City, such remediation could be completed at a cost that would not
have a material adverse effect on OpCo's financial condition. However,
management cannot provide any assurance as to whether the Station Casino Kansas
City facility would be found to comply with the guidelines described in the
Missouri Supreme Court ruling, whether it would be permitted to modify the
facility to comply with such standards or whether OpCo's legal defenses,
legislative avenues or other means available to permit the continued use of its
current configuration would succeed. Further, it is unclear, in the event of a
determination of non-compliance, what penalty or sanction, if any, including a
possible temporary or permanent closure, could be imposed on Station Casino
Kansas City. OpCo and Missouri legal counsel do not believe the court ruling
will have an adverse impact on the Station Casino St. Charles operations.

F-56
<PAGE>
EXHIBIT A

CERTAIN PROVISIONS OF THE NEVADA REVISED STATUTES
RIGHTS OF DISSENTING OWNERS

92A.300. DEFINITIONS.

As used in NRS 92A.300 to 92A.500, inclusive, unless the context otherwise
requires, the words and terms defined in NRS 92A.305 to 92A.335, inclusive, have
the meanings ascribed to them in those sections. (1995, ch. 586, Section 35, p.
2086.)

92A.305. "BENEFICIAL STOCKHOLDER" DEFINED.

"Beneficial stockholder" means a person who is a beneficial owner of shares
held in a voting trust or by a nominee as the stockholder of record. (1995, ch.
586, Section 36, p. 2087.)

92A.310. "CORPORATE ACTION" DEFINED.

"Corporate action" means the action of a domestic corporation. (1995, ch.
586, Section 37, p. 2087.)

92A.315. "DISSENTER" DEFINED.

"Dissenter" means a stockholder who is entitled to dissent from a domestic
corporation's actions under NRS 92A.380 and who exercises that right when and in
the manner required by NRS 92A.410 to 92A.480, inclusive. (1995, ch. 586,
Section 38, p. 2087.)

92A.320. "FAIR VALUE" DEFINED.

"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which he
objects, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable. (1995, ch. 586 Section
39, p.2087.)

92A.325. "STOCKHOLDER" DEFINED.

"Stockholder" means a stockholder of record or a beneficial stockholder of a
domestic corporation. (1995, ch. 586, Section 40, p. 2087.)

92A.330. "STOCKHOLDER OF RECORD" DEFINED.

"Stockholder of record" means the person in whose name shares are registered
in the records of a domestic corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee's certificate on file with the
domestic corporation. (1995, ch. 586, Section 41, p. 2087.)

92.335. "SUBJECT CORPORATION" DEFINED.

"Subject corporation" means the domestic corporation which is the issuer of
the shares held by a dissenter before the corporate action creating the
dissenter's rights becomes effective or the surviving or acquiring entity of
that issuer after the corporate action becomes effective. (1995, ch. 586,
Section 42, p. 2087.)

92A.340. COMPUTATION OF INTEREST.

Interest payable pursuant to NRS 92A.300 to 92A.500, inclusive, must be
computed from the effective date of the action until the date of payment, at the
average rate currently paid by the entity on its principal bank loans or, if it
has no bank loans, at a rate that is fair and equitable under all of the
circumstances. (1995, ch. 586, Section 43, p. 2087.)

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92A.350. RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP.

A partnership agreement of a domestic limited partnership or, unless
otherwise provided in the partnership agreement, an agreement of merger or
exchange, may provide that contractual rights with respect to the partnership
interest of a dissenting general or limited partner of a domestic limited
partnership are available for any class or group of partnership interests in
connection with any merger or exchange in which the domestic limited partnership
is a constituent entity. (1995, ch. 586, Section 47, p. 2088.)

92A.360. RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED-LIABILITY COMPANY.

The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity. (1995, ch. 586,
Section 48, p. 2088.)

92A.370. RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT CORPORATION.

1. Except as otherwise provided in subsection 2 and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic,
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.

2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1. (1995, ch. 586,
Section 46, p. 2088.)

92A.380. RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS AND TO
OBTAIN PAYMENT FOR SHARES.

1. Except as otherwise provided in NRS 92A.370 to 92A.390, a stockholder is
entitled to dissent from, and obtain payment of the fair value of his shares, in
the event of any of the following corporate actions:

(a) Consummation of a plan of merger to which the domestic corporation
is a party:

(1) If approval by the stockholders is required for the merger for
NRS 92A.120 to 92A.160, inclusive, or the articles of incorporation and
he is entitled to vote on the merger; or

(2) If the domestic corporation is a subsidiary and is merged with
its parent under NRS 92A.180.

(b) Consummation of a plan of exchange to which the domestic corporation
is a party as the corporation whose subject owner's interests will be
acquired, if he is entitled to vote on the plan.

(c) Any corporate action taken pursuant to a vote of the stockholders to
the event that the articles of incorporation, bylaws or a resolution of the
board of directors provides that a voting or nonvoting stockholders are
entitled to dissent and obtain payment for their shares.

2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to him
or the domestic corporation. (1995, ch. 586, Section 44, p. 2087.)

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92A.390. LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN CLASSES OR
SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.

1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:

(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or

(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:

(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:

(I) The surviving or acquiring entity; or

(II) Any other entity which, at the effective date of the plan of
merger or exchange, were either listed on a national securities
exchange, included in the national market system by the National
Association of Securities Dealers, Inc., or held of record by a least
2,000 holders of owner's interests of record; or

(2) A combination of cash and owner's interests of the kind described
in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).

2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130. (1995),
ch. 586, Section 45, p. 2088.)

92A.400. LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY TO
SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER.

1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject corporation
in writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.

2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:

(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and

(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote. (1995, ch. 586,
Section 49. p. 2089).

92A.410. NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.

1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.

2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430. (1995, ch. 586, Section 50, p. 2089; 1997, ch.
208, Section 78, p.730.)

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92A.420 PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES.

1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wisher to assert
dissenter's rights:

(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and

(b) Must not vote his shares in favor of the proposed action.

2. A stockholder who does not satisfy the requirements of subsection 1 is
not entitled to payment for his shares under this chapter. (1995, ch. 586,
Section 51, p. 2089.)

92A.430. DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDER ENTITLED TO ASSERT RIGHTS;
CONTENTS.

1. If a proposed corporate action creating dissenters' rights is authorized
at a stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to assert
those rights.

2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:

(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;

(b) Inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand for
payment is received;

(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's
rights certify whether or not he acquired beneficial ownership of the shares
before that date;

(d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days after the
date the notice is delivered; and

(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(1995), ch. 586, Section 52, p. 2089.)

92A.440. DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF RIGHTS OF
STOCKHOLDER.

1. A stockholder to whom a dissenter's notice is sent must:

(a) Demand payment;

(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and

2. The stockholder who demands payment and deposits his certificates, if
any, before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.

3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter. (1995), ch. 586, Section
53, p. 2090.)

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92A.450. UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER DEMAND FOR
PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER.

1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.

2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action. (1995, ch. 586 Section 54, p. 2090.)

92A.460. PAYMENT FOR SHARES: GENERAL REQUIREMENTS.

1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:

(a) Of the county where the corporation's registered office is located;
or

(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint properly.

2. The payment must be accompanied by:

(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement
of income for that year, a statement of changes in the stockholders' equity
for that year and the latest available interim financial statements, if any;

(b) A statement of the subject corporation's estimate of the fair value
of the shares;

(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and

92A.470. PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF DISSENTER'S
NOTICE.

1. A subject corporation may elect to withhold payment for a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.

2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall sent with its offer a statement of its estimate of the fair value of the
shares, an explanation of how he interest was calculated, and a statement of the
dissenters' right to demand payment pursuant to NRS 92A.480; (1995, ch. 586,
Section 56. p. 2091.)

92A.480. DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.

1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.

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2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
(1995, ch. 586, Section 57, p. 2091.)

92A.490. LEGAL PROCEEDING TO DETERMINE FAIR VALUE; DUTIES OF SUBJECT
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.

1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the
subject corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.

2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.

3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.

4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.

5. Each dissenter who is made a party to the proceeding is entitled to a
judgment;

(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject
corporation; or

(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment
pursuant to NRS 92A.470. (1995, ch. 586, 58, p. 2091.)

92A.500. LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS AND
FEES.

1. The court in a proceeding to determine fair value shall determine all of
the costs of the proceeding, including the reasonable compensation and expenses
of any appraisers appointed by the court. The court shall assess the costs
against the subject corporation, except that the court may assess costs against
all or some of the dissenters, in amounts the court finds equitable, to the
extend the court finds the dissenters acted arbitrarily, vexatiously or not in
good faith in demanding payment.

2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:

(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially comply with
the requirements of NRS 92A.300 to 92A.500, inclusive; or

(b) Against either the subject corporation or a dissenter in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith
with respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.

3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject

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corporation, the court may aware to those counsel reasonable fees to be paid out
of the amounts awarded to the dissenters who were benefited.

4. In a proceeding commended pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extend the court finds that such
parties did not act in good faith in instituting the proceeding.

5. This action does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115. (1995, ch. 586 Section 59, p. 2092.)

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Any questions or request for assistance may be directed to the Information
Agent at the telephone numbers set forth below. Requests for additional proxy
cards or copies of this Proxy Statement may be directed to the Information Agent
and such additional materials will be provided promptly at the Company's
expense. Stockholders may also contact their local broker, dealer, commercial
bank or trust company for assistance concerning the matters set forth herein.

The Information Agent is:
D.F. King & Co., Inc
77 Water Street
New York, New York 10005
(800) 549-6864 (Toll Free)

------------------------
<PAGE>
STATION CASINOS, INC.
2411 WEST SAHARA AVENUE, LAS VEGAS, NEVADA 89102

The undersigned hereby appoints FRANK J. FERTITTA III and SCOTT M. NIELSON,
and each of them, proxies each with full power of substitution, to vote all
stock of the undersigned at the special meeting of stockholders of Station
Casinos, Inc. (the "Company") to be held February , 1998 at a.m. local
time at Sunset Station Hotel & Casino, 1301 West Sunset Road, Henderson, Nevada
and/or at any adjournment of the special meeting, in the manner indicated below,
all in accordance with and as more fully described in the Notice of Special
Meeting and accompanying Proxy Statement for the meeting, receipt of which is
hereby acknowledged.

THE SHARES REPRESENTED BY THIS PROXY SHALL BE VOTED AS INDICATED BELOW:

(1) To approve proposed amendments to the Company's Amended and Restated
Articles of Incorporation to:

(a) increase the authorized shares of the Company to 360,000,000 shares
consisting of 300,000,000 shares of Common Stock and 60,000,000 shares of
Preferred Stock;

/ / FOR / / AGAINST / / ABSTAIN

(2) To vote in their discretion on such other business as may properly come
before the annual meeting or any adjournment thereof.

(CONTINUED ON REVERSE SIDE)
<PAGE>
PRELIMINARY COPY
THESE MATERIALS CONSTITUTE PRELIMINARY PROXY MATERIALS
FILED WITH RESPECT TO THE FORTHCOMING MEETING OF
STOCKHOLDERS. CERTAIN INFORMATION IS PRESENTED AS IT IS
EXPECTED TO EXIST WHEN (AND IF) DEFINITIVE PROXY
MATERIALS ARE MAILED TO STOCKHOLDERS AND WILL BE REVISED
TO REFLECT ACTUAL FACTS AT THAT TIME.

UNLESS AUTHORITY TO VOTE THEREFORE IS WITHHELD IN THIS PROXY CARD, IT IS THE
INTENTION OF THE PROXIES TO VOTE FOR THE PROPOSAL. IF ANY OTHER BUSINESS IS
PRESENTED, THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF
THE AFOREMENTIONED PROXIES.
DATE ________________________________
SIGNATURE(S) ________________________

PLEASE MARK, DATE AND SIGN AS YOUR
NAME APPEARS TO THE LEFT AND RETURN
IN THE ENCLOSED ENVELOPE. IF ACTING
AS EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, STATE YOUR FULL TITLE
AND AUTHORITY WHEN SIGNING. IF THE
SIGNER IS A CORPORATION, PLEASE SIGN
THE FULL CORPORATE NAME BY A DULY
AUTHORIZED OFFICER. IF SHARES ARE
HELD JOINTLY, EACH STOCKHOLDER NAMED
SHOULD SIGN.

PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR A SPECIAL MEETING--FEBRUARY ,
1998.
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PRE-PAID
ENVELOPE.