80R10676 YDB-F

By: Flores H.B. No. 3326

A BILL TO BE ENTITLED

AN ACT

relating to authorizing the operation of video lottery games by licensed horse and greyhound racetrack operators, to the operation of video lottery by Indian tribes, to the authority of the Texas Lottery Commission and the Texas Racing Commission, and to the conduct of gambling in this state; providing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 466.002, Government Code, is amended by amending Subdivisions (2) through (10) and adding Subdivisions (11) through (36) to read as follows:

(2) "Communication technology" means the methods used and the components employed to facilitate the transmission of information, including transmission and reception systems that transmit information through wire, cable, radio, microwave, light, optics, or computer data networks.

(3) "Director" means a [the] director employed by the executive director under Section 467.033 [of the division].

(4) "Disable," with respect to video lottery terminals, means the process that causes a video lottery terminal to cease functioning on issuance of a shutdown command from the video lottery central system.

(5) "Distribute," with respect to a video lottery terminal, an electronic computer component of a video lottery terminal, the cabinet in which a video lottery terminal is housed, video lottery equipment, or video lottery game software intended for use or play in this state, including on Indian lands in this state, means the sale, lease, marketing, offer, or other disposition of any of those items.

(6) [(3)] "Division" means the lottery division established by the commission under Chapter 467.

(7) "Electronic storage medium," with respect to video lottery, means the electronic medium on which the operation software for a game playable on a video lottery terminal is stored in the form of erasable programmable read only memory, data storage devices typically considered alterable but through software or hardware means have been rendered unalterable, compact disc-read only memory, flash random access memory, or other technology medium the commission approves for use in or with a video lottery terminal.

(8) [(4)] "Executive director" means the executive director of the commission.

(9) "Gaming agreement" means an agreement authorized under Subchapter K between this state and a federally recognized Indian tribe under which this state allows the tribe to conduct limited gaming activities authorized under this chapter or applicable federal law.

(10) "House-banked game" means a game of chance in which:

(A) the house plays as a participant;

(B) the house competes against all players, collects from all losers, and pays all winners; and

(C) the house has an opportunity to win.

(11) "Indian lands" means land on which video lottery games may be conducted by an Indian tribe under Section 47(f)(2) or (3), Article III, Texas Constitution.

(12) "Institutional investor" means:

(A) a state or federal government pension plan; or

(B) any of the following that meets the requirements of a "qualified institutional buyer" as defined in Rule 144A, Securities Act of 1933 (15 U.S.C. Sections 77a-77aa), and the rules and regulations adopted under that rule by the United States Securities and Exchange Commission:

(i) a bank as defined by Section 3(a)(6), Securities Exchange Act of 1934 (15 U.S.C. Sections 78a-78kk), and the rules and regulations adopted under that act by the United States Securities and Exchange Commission;

(ii) an insurance company as defined by Section 2(a)(17), Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.);

(iii) an investment company registered under Section 8, Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.);

(iv) an employee benefit plan or pension fund subject to the Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.), excluding an employee benefit plan or pension fund sponsored by a publicly traded corporation registered with the Securities and Exchange Commission;

(v) a group composed entirely of persons specified by this subdivision; or

(vi) any other person the commission recognizes as an institutional investor for reasons consistent with the policies expressed in this chapter.

(13) [(5)] "Lottery" means the state lottery established and operated in accordance with the Texas Constitution under this chapter and includes the operation of a state-controlled video lottery system [procedures operated by the state under this chapter through which prizes are awarded or distributed by chance among persons who have paid, or unconditionally agreed to pay, for a chance or other opportunity to receive a prize].

(14) [(6)] "Lottery game" means an activity conducted lawfully and in accordance with the Texas Constitution and this chapter that is controlled by this state as part of the lottery and through which prizes are awarded or distributed by chance to persons who have paid or unconditionally agreed to pay, or who otherwise participate in a game, for a chance or other opportunity to receive a prize [includes a lottery activity].

(15) [(7)] "Lottery operator" means a person selected under Section 466.014(b) to operate a lottery game.

(16) "Manufacture," with respect to a video lottery terminal, an electronic computer component of a video lottery terminal, the cabinet in which a video lottery terminal is housed, video lottery equipment, or video lottery game software intended for use or play in this state, including on Indian lands in this state, means to design, assemble, fabricate, produce, program, or make modifications to any of those items.

(17) "Net terminal income" means the total amount of money paid to play video lottery games less the value of all credits redeemed, including any progressive prizes and bonuses, by the players of the video lottery games. Promotional prizes unrelated to video lottery game wagers that are offered by a video lottery retailer or video lottery manager may not be deducted or otherwise considered credits redeemed for money by players for the purpose of determining net terminal income.

(18) "Pari-mutuel license holder" means a person licensed to conduct wagering on a greyhound race or a horse race under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

(19) "Person" means, for purposes of video lottery operations, any natural person, corporation, association, trust, partnership, limited partnership, joint venture, subsidiary, or other entity, regardless of its form, structure, or nature.

(20) [(8)] "Player" means a person who contributes any part of the consideration for a ticket or to play a video lottery game under this chapter.

(21) "Racetrack" means a racetrack as defined by Section 1.03(25), Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

(22) [(9)] "Sales agent" or "sales agency" means a person licensed under this chapter to sell tickets.

(23) "Slot machine" means a mechanical, electrical, or other type of device, contrivance, or machine not connected to the video lottery central system that plays or operates on insertion of a coin, currency, token, or similar object or on payment of any other consideration, and the play or operation of which, through the skill of the operator, by chance, or both, may deliver to the person playing or operating the machine, or entitle the person to receive, cash, premiums, merchandise, tokens, or any other thing of value, whether the payoff is made automatically from the machine or in any other manner. The term does not include any equipment, machine, technological aid, or other device used or authorized in connection with the play of bingo under Chapter 2001, Occupations Code.

(24) "Substantial interest holder" means any of the following that is not a bona fide lender, bank, or other authorized or licensed lending institution that holds a mortgage or other lien acquired in the ordinary course of business or a vendor of the applicant or license holder that is not otherwise a substantial business holder:

(A) a person who directly, indirectly, or beneficially owns any interest in a privately owned corporation, association, trust, partnership, limited partnership, joint venture, subsidiary, or other entity, regardless of its form, structure, or nature;

(B) a person who directly, indirectly, or beneficially owns 10 percent or more of any publicly owned corporation, association, trust, partnership, limited partnership, joint venture, subsidiary, or other entity, regardless of its form, structure, or nature;

(C) a person associated with an applicant or license holder who the commission determines has the power or authority to:

(i) control the activities of the applicant or license holder; or

(ii) elect or select the executive director, the managers, the partners, or a majority of the board of directors of the applicant or license holder; and

(D) any key personnel of a video lottery retailer or video lottery manager, including an executive director, officer, director, manager, member, partner, limited partner, executive, employee, or agent, who the commission determines has the power to exercise significant influence over decisions concerning any part of the applicant's or license holder's business operation.

(25) [(10)] "Ticket" means any tangible evidence issued to provide participation in a lottery game authorized by this chapter other than a video lottery game.

(26) "Video lottery central system" means the system of procedures and facilities operated and controlled by the commission that is designed to link together all video lottery terminals operated in this state and allows the commission to continuously monitor the activity of each video lottery terminal and to disable any video lottery terminal in this state.

(27) "Video lottery central system provider" means a person that, under a contract with the commission, provides the video lottery central system.

(28) "Video lottery equipment" means:

(A) a video lottery terminal;

(B) equipment, a component, or a contrivance used remotely or directly in connection with a video lottery terminal to:

(i) affect the reporting of gross revenue and other accounting information, including a device for weighing and counting money;

(ii) provide accounting, player tracking, bonuses, and in-house or wide-area prizes;

(iii) monitor video lottery terminal operations; and

(iv) provide for the connection of video lottery terminals to the video lottery central system; or

(C) any other communications technology or equipment necessary for the operation of a video lottery terminal.

(29) "Video lottery game" means an electromechanically or electronically simulated game displayed on a video lottery terminal the outcome of which is determined solely by chance based on a computer-generated random selection of winning combinations of symbols or numbers other than typical roulette, dice, or baccarat game themes associated with casino gambling, except that game themes displaying symbols that appear to roll on drums to simulate a classic casino slot machine or themes of other card games and keno may be used.

(30) "Video lottery manager" means a person who:

(A) is licensed by the commission under this chapter to manage a video lottery terminal establishment at a racetrack; or

(B) provides management services for a video lottery terminal establishment on Indian lands.

(31) "Video lottery retailer" means a racetrack or the operator of the premises of a pari-mutuel license holder at which a video lottery terminal establishment is located and that holds a video lottery retailer license under Subchapter K.

(32) "Video lottery system" has the meaning assigned to that term by Section 47(f), Article III, Texas Constitution.

(33) "Video lottery terminal" means an interactive electronic device that is capable of displaying video lottery games.

(34) "Video lottery terminal establishment" means premises at which the operation of video lottery terminals is authorized by the commission under this chapter in accordance with a license or a gaming agreement.

(35) "Video lottery terminal provider" means a person in the business of manufacturing or distributing video lottery terminals in this state.

(36) "Video lottery ticket" means the evidence issued by a video lottery terminal to reflect a credit balance from the play of a video lottery game.

SECTION 2. Section 466.003, Government Code, is amended by amending Subsection (b) and adding Subsection (c) to read as follows:

(b) Any [A] contract or authorized agreement between the division and a lottery operator, the video lottery central system provider, a video lottery terminal provider, or a manufacturer or distributor of video lottery games under Section 466.014(b) must contain a provision allowing the contract or authorized agreement to be terminated without penalty should the division be abolished unless another state agency is assigned to regulate all video lottery game activity as required by this chapter.

(c) Notwithstanding Subsection (a), if any gaming agreement that allows video lottery is in effect, the commission or another state agency designated by the legislature must regulate video lottery games as necessary to comply with a gaming agreement under this chapter.

SECTION 3. Section 466.004(a), Government Code, is amended to read as follows:

(a) A political subdivision of this state may not impose:

(1) a tax on the sale of a ticket;

(2) a tax on the payment of a prize under this chapter; [or]

(3) an ad valorem tax on tickets;

(4) a tax, fee, or other assessment on consideration paid to play a video lottery game; or

(5) a tax or fee for attendance or admission to a video lottery establishment or a racetrack at which a video lottery establishment is located unless specifically authorized by statute.

SECTION 4. Section 466.014, Government Code, is amended to read as follows:

Sec. 466.014. POWERS AND DUTIES OF COMMISSION AND EXECUTIVE DIRECTOR; CONTRACT AUTHORITY. (a) The commission and executive director have broad authority and shall exercise strict control and close supervision over [all] lottery games [conducted in this state] to promote and ensure integrity, security, honesty, and fairness in the operation and administration of the lottery.

(b) The executive director may contract with or employ a person to perform a function, activity, or service in connection with the operation of the lottery as prescribed by the executive director. A contract relating to the operation of video lottery must be consistent with Subchapter K. Except as provided by this subsection, a [A] person with whom the executive director contracts to operate a lottery game must be eligible for a sales agent license under Section 466.155. A person with whom the executive director contracts to provide the video lottery central system must be eligible under the same standards as those applicable to the registration or approval by the commission of a video lottery terminal provider in accordance with Subchapter K.

(c) The executive director may award a contract for lottery supplies, equipment, or services, including a contract under Subsection (b), pending the completion of any investigation and licensing, registration, or other approval authorized or required by this chapter. A contract awarded under this subsection must include a provision permitting the executive director to terminate the contract without penalty if the investigation reveals that the person to whom the contract is awarded would not be eligible for a sales agent license under Section 466.155 or with regard to video lottery does not satisfy the applicable requirements for licensing, registration, or other approval under Subchapter K.

SECTION 5. Section 466.015(b), Government Code, is amended to read as follows:

(b) The commission shall adopt rules to the extent they are not inconsistent with Chapters 551 and 552 governing the:

(1) security for the lottery and the commission, including the development of an internal security plan;

(2) apportionment of the total revenues from the sale of tickets and from all other sources in the amounts provided by this chapter;

(3) enforcement of prohibitions on the sale of tickets to or by an individual younger than 18 years of age or the sale of a video lottery game to or by an individual younger than 21 years of age; [and]

(4) enforcement of prohibitions on a person playing a lottery game by telephone; and

(5) enforcement of prohibitions provided by law on the sale of any purchase or play of a video lottery game.

SECTION 6. Section 466.017, Government Code, is amended to read as follows:

Sec. 466.017. AUDITS. (a) The commission [executive director] shall provide for a certified public accountant to conduct an independent audit of the commission's annual financial statements in accordance with generally accepted auditing standards that requires the accountant to express an opinion on the conformity of the financial statements with generally accepted accounting principles [for each fiscal year of all accounts and transactions of the lottery]. The certified public accountant may not have[, as determined by the executive director,] a significant financial interest in a sales agent, lottery vendor, [or] lottery operator, video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider. The certified public accountant shall present an audit report to the executive director, the commission, the governor, the comptroller, and the legislature not later than the 30th day after the submission date for the annual financial report required by the General Appropriations Act. [The report must contain recommendations to enhance the earnings capability of the lottery and improve the efficiency of lottery operations.] The state auditor may review the results of and working papers related to the audit.

(b) The records of a [Each] lottery operator, sales agent, video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider [operator's and sales agent's records] are subject to audit by the commission and the state auditor. For the purpose of carrying out this chapter, the executive director or state auditor may examine all books, records, papers, or other objects that the executive director or state auditor determines are necessary for conducting a complete examination under this chapter and may also examine under oath any officer, director, or employee of a lottery operator, [or] sales agent, video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider. The executive director or state auditor may conduct an examination at the principal office or any other office of the person subject to the audit [lottery operator or sales agent] or may require the person [lottery operator or sales agent] to produce the records at the office of the commission or state auditor. If a sales agent, video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider refuses to permit an examination or to answer any question authorized by this subsection, the executive director may summarily suspend the license or registration of the sales agent, video lottery manager, video lottery retailer, or video lottery terminal provider under Section 466.160 or Subchapter K until the examination is completed as required. Section 321.013(h) does not apply to an audit of a lottery operator, [or] sales agent, video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider.

SECTION 7. Section 466.018, Government Code, is amended to read as follows:

Sec. 466.018. INVESTIGATIONS. The attorney general, the district attorney for Travis County, or the district attorney, criminal district attorney, or county attorney performing the duties of district attorney for the county in which the violation or alleged violation occurred may investigate a violation or alleged violation of this chapter and of the penal laws of this state by the commission or its employees, a sales agent, a lottery vendor, [or] a lottery operator, a video lottery manager, a video lottery retailer, a video lottery terminal provider, or a video lottery central system provider.

SECTION 8. Sections 466.020(c), (d), and (e), Government Code, are amended to read as follows:

(c) A security officer or investigator employed by the department of security or a peace officer who is working in conjunction with the commission or the Department of Public Safety in the enforcement of this chapter may:

(1) [,] without a search warrant, [may] search and seize a lottery vending machine, lottery computer terminal, video lottery terminal, or other lottery or gaming equipment that is located on premises for which a person holds a sales agent, video lottery retailer, or video lottery manager license issued under this chapter; or

(2) seize a lottery vending machine, lottery computer terminal, video lottery terminal, or other lottery or gaming equipment that is being used or is in the possession of any person in violation of this chapter.

(d) The Department of Public Safety or any other state or local law enforcement agency in this state, at the commission's request and in accordance with an interagency agreement, shall perform a full criminal background investigation of a prospective deputy or investigator of the department of security. The commission shall reimburse the agency [Department of Public Safety] for the actual costs of an investigation.

(e) At least once every two years, the executive director shall employ an independent firm that is experienced in security, including computer security and systems security, to conduct a comprehensive study of all aspects of lottery security, including:

(1) lottery personnel security;

(2) sales agent security;

(3) lottery operator and vendor security;

(4) security against ticket counterfeiting and alteration and other means of fraudulent winning;

(5) security of lottery drawings;

(6) lottery computer, data communications, database, and systems security;

(7) lottery premises and warehouse security;

(8) security of distribution of tickets;

(9) security of validation and payment procedures;

(10) security involving unclaimed prizes;

(11) security aspects of each lottery game;

(12) security against the deliberate placement of winning tickets in lottery games that involve preprinted winning tickets by persons involved in the production, storage, transportation, or distribution of tickets; [and]

(13) security of video lottery retailers, video lottery managers, video lottery terminal providers, and video lottery central system providers; and

(14) other security aspects of lottery operations, including video lottery game operations.

SECTION 9. Section 466.022, Government Code, is amended by amending Subsection (b) and adding Subsections (c), (d), (e), and (f) to read as follows:

(b) In addition to commission records excepted from disclosure under Chapter 552, the following information is confidential and is exempt from disclosure:

(1) security plans and procedures of the commission designed to ensure the integrity and security of the operation of the lottery;

(2) information of a nature that is designed to ensure the integrity and security of the selection of winning tickets or numbers in the lottery, other than information describing the general procedures for selecting winning tickets or numbers; [and]

(3) the street address and telephone number of a prize winner, if the prize winner has not consented to the release of the information; and

(4) information relating to all system operations of video lottery games, including the operation of the video lottery system, security related to video lottery games, and commission plans and procedures intended to ensure the integrity and security of the operation of video lottery games.

(c) Information that is confidential under Subsection (b)(4) includes information and data that:

(1) are furnished to the commission under Subchapter K or that may be otherwise obtained by the commission from any source;

(2) pertain to an applicant's criminal record, antecedents, and background and are furnished to or obtained by the commission from any source, including information obtained by the commission under Section 411.108(d);

(3) are provided to the commission, a commission employee, or an investigator acting on behalf of the commission by a governmental agency or an informer or on the assurance that the information will be held in confidence and treated as confidential;

(4) are obtained by the commission from a video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider; or

(5) are prepared or obtained by an agent or employee of the commission relating to a license, registration, or renewal application, a finding of suitability, or any approval required under Subchapter K.

(d) Information that qualifies as confidential under Subsection (b)(4) may be disclosed in whole or in part only as necessary to administer this chapter or under a court order. The commission, subject to appropriate procedures, may disclose the information and data to an authorized agent of a political subdivision of this state, the United States, another state or a political subdivision of another state, a tribal law enforcement agency, or the government of a foreign country.

(e) For the annual report required under Section 466.016, the commission may disclose a compilation of statistical information that is otherwise confidential under Subsection (b)(4) if the compilation does not disclose the identity of an applicant, license or registration holder, or video lottery establishment.

(f) Notwithstanding any other provision of state law, the information provided under Subsection (d) or (e) may not otherwise be disclosed without specific commission authorization.

SECTION 10. Section 466.024, Government Code, is amended to read as follows:

Sec. 466.024. PROHIBITED GAMES. (a) The executive director, [or] a lottery operator, a video lottery manager, a video lottery retailer, a video lottery terminal provider, or a video lottery central system provider may not establish or operate a lottery game in which the winner is chosen on the basis of the outcome of a live sports event.

(b) The [commission shall adopt rules prohibiting the] operation of any game using a video lottery machine, slot [or] machine, or other gambling device that is not connected to the video lottery central system and regulated by this state as required by Section 47, Article III, Texas Constitution, and this chapter is prohibited.

(c) In this section, "sports[:

[(1)"Sports] event" means a football, basketball, baseball, or similar game, or a horse or dog race on which pari-mutuel wagering is allowed.

[(2) "Video lottery machine" or "machine" means any electronic video game machine that, upon insertion of cash, is available to play or simulate the play of a video game, including video poker, keno, and blackjack, using a video display and microprocessors in which the player may receive free games or credits that can be redeemed for cash, coins, or tokens, or that directly dispenses cash, coins, or tokens.]

SECTION 11. Section 466.025, Government Code, is amended to read as follows:

Sec. 466.025. REPORTS OF TICKETS SOLD, NET TERMINAL INCOME, AND PRIZES AWARDED. For each lottery game, other than a video lottery game, after the last date on which a prize may be claimed under Section 466.408(d), the director shall prepare a report that shows the total number of tickets sold and the number and amounts of prizes awarded in the game. The report must be available for public inspection. For video lottery games, the director shall prepare a weekly report that shows net terminal income for the preceding week.

SECTION 12. Section 466.103(a), Government Code, is amended to read as follows:

(a) Except as provided by Subsection (b), the executive director may not award a contract for the purchase or lease of facilities, goods, or services related to lottery operations to a person who:

(1) would be denied a license as a sales agent under Section 466.155; or

(2) with regard to video lottery equipment:

(A) is not a registered video lottery terminal provider if registration is required; or

(B) would be deemed unsuitable to be a video lottery terminal provider under Subchapter K.

SECTION 13. Section 466.151(b), Government Code, is amended to read as follows:

(b) The executive director may establish a provisional license or other classes of licenses necessary to regulate and administer the quantity and type of lottery games provided at each licensed location of a sales agent.

SECTION 14. Subchapter E, Chapter 466, Government Code, is amended by adding Section 466.206 to read as follows:

Sec. 466.206. CRIMINAL HISTORY INVESTIGATION FOR VIDEO LOTTERY. Except as otherwise provided by this section, Sections 466.020 and 466.201, and Subchapter K, a criminal history investigation of a video lottery retailer, video lottery manager, video lottery terminal provider, or video lottery central system provider is governed by commission rules adopted under Subchapter K, which shall consider a criminal history investigation conducted under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

SECTION 15. Section 466.252, Government Code, is amended to read as follows:

Sec. 466.252. PLAYER [PURCHASE OF TICKET] AGREEMENT TO ABIDE BY RULES AND INSTRUCTIONS. (a) By purchasing a ticket in a particular lottery game or participating as a player in a lottery game, a player agrees to abide by and be bound by the commission's rules and instructions, including the rules or instructions applicable to the particular lottery game involved. The player also acknowledges that the determination of whether the player is a valid winner is subject to:

(1) the commission's rules, instructions, and claims procedures, including those developed for the particular lottery game involved; [and]

(2) any validation tests established by the commission for the particular lottery game involved; and

(3) the limitations and other provisions prescribed by this chapter.

(b) If the lottery uses tickets, an abbreviated form of the rules or a reference to the rules may appear on the tickets.

SECTION 16. Section 466.3011, Government Code, is amended to read as follows:

Sec. 466.3011. VENUE. Venue is proper in Travis County or any county in which venue is proper under Chapter 13, Code of Criminal Procedure, for:

(1) an offense under this chapter;

(2) an offense under the Penal Code, if the accused:

(A) is a lottery operator, lottery vendor, sales agent, video lottery manager, video lottery retailer, video lottery terminal provider, video lottery central system provider, or employee of the division; and

(B) is alleged to have committed the offense while engaged in lottery activities, including video lottery activities; or

(3) an offense that involves property consisting of or including lottery tickets under Title 7 or 11, Penal Code.

SECTION 17. Subchapter G, Chapter 466, Government Code, is amended by adding Section 466.3031 to read as follows:

Sec. 466.3031. UNAUTHORIZED OPERATION, USE, OR POSSESSION OF VIDEO LOTTERY TERMINAL. (a) A person may not operate, use, or possess a video lottery terminal unless the operation, use, or possession is expressly authorized by this chapter or other law.

(b) Except for transport to or from a video lottery establishment and as provided by this chapter, a person commits an offense if the person operates, uses, or possesses any video lottery terminal that is not at all times connected to the video lottery central system or that does not generate revenue for this state, except funds retained by the commission to pay administrative costs. An offense under this subsection is a felony of the third degree.

(c) Notwithstanding Subsection (b), a video lottery retailer, video lottery manager, or registered or approved video lottery terminal provider may store or possess a video lottery terminal as authorized by the commission, and the commission may possess video lottery terminals for study and evaluation.

SECTION 18. Section 466.305(a), Government Code, is amended to read as follows:

(a) A sales agent, video lottery manager, or video lottery retailer, or an employee of a sales agent, video lottery manager, or video lottery retailer, commits an offense if the person intentionally or knowingly sells a ticket to another person or allows the person to play or conduct a game on a video lottery terminal by extending credit or lending money to the person to enable the person to purchase the ticket or play the game.

SECTION 19. The heading to Section 466.3051, Government Code, is amended to read as follows:

Sec. 466.3051. SALE [OF TICKET] TO OR PURCHASE OF LOTTERY TICKET BY PERSON YOUNGER THAN 18; PLAY OF VIDEO LOTTERY GAME BY PERSON YOUNGER THAN 21 [YEARS OF AGE].

SECTION 20. Section 466.3051, Government Code, is amended by adding Subsections (a-1) and (b-1) and amending Subsections (b) through (f) to read as follows:

(a-1) A video lottery manager, a video lottery retailer, or an employee of a video lottery manager or video lottery retailer commits an offense if the person intentionally or knowingly allows a person younger than 21 years of age to play a video lottery game.

(b) An individual who is younger than 18 years of age commits an offense if the individual:

(1) purchases a lottery ticket; or

(2) falsely represents the individual to be 18 years of age or older by displaying evidence of age that is false or fraudulent or misrepresents in any way the individual's age in order to purchase a lottery ticket.

(b-1) An individual who is younger than 21 years of age commits an offense if the individual:

(1) plays a video lottery game; or

(2) falsely represents the individual to be 21 years of age or older by displaying evidence of age that is false or fraudulent or misrepresents in any way the individual's age in order to play a video lottery game.

(c) A person 18 years of age or older may purchase a lottery ticket to give as a gift to another person, including an individual younger than 18 years of age.

(d) It is a defense to the application of Subsection (b) that the individual younger than 18 years of age is participating in an inspection or investigation on behalf of the commission or other appropriate governmental entity regarding compliance with this section. It is a defense to the application of Subsection (b-1) that the individual younger than 21 years of age is participating in an inspection or investigation on behalf of the commission or other appropriate governmental entity regarding compliance with this section.

(e) An offense under Subsection (a) or (a-1) is a Class C misdemeanor.

(f) An offense under Subsection (b) or (b-1) is punishable by a fine not to exceed $250.

SECTION 21. Section 466.306, Government Code, is amended to read as follows:

Sec. 466.306. FORGERY; ALTERATION OF TICKET. (a) A person commits an offense if the person intentionally or knowingly alters or forges a ticket or video lottery ticket.

(b) An offense under this section is a felony of the third degree unless it is shown on the trial of the offense that the prize alleged to be authorized by the ticket or video lottery ticket forged or altered is greater than $10,000, in which event the offense is a felony of the second degree.

SECTION 22. Section 466.309(a), Government Code, is amended to read as follows:

(a) A person commits an offense if the person intentionally or knowingly tampers with, damages, defaces, or renders inoperable any vending machine, electronic computer terminal, video lottery terminal or other video lottery equipment, or other mechanical device used in a lottery game.

SECTION 23. The heading to Section 466.317, Government Code, is amended to read as follows:

Sec. 466.317. PROHIBITION AGAINST SALE OF CERTAIN LOTTERY TICKETS OR OPERATION OF CERTAIN VIDEO LOTTERY SYSTEMS.

SECTION 24. Section 466.317, Government Code, is amended by adding Subsection (a-1) and amending Subsection (c) to read as follows:

(a-1) A person may not control or operate a video lottery system in this state except as provided by this chapter.

(c) A person commits an offense if the person violates this section. An offense under this section is a felony of the third degree [Class A misdemeanor].

SECTION 25. Section 466.355(a), Government Code, is amended to read as follows:

(a) The state lottery account is a special account in the general revenue fund. The account consists of all revenue received from the sale of tickets, license and application fees under this chapter, other than Subchapter K, and all money credited to the account from any other fund or source under law. Interest earned by the state lottery account shall be deposited in the unobligated portion of the general revenue fund.

SECTION 26. Subchapter H, Chapter 466, Government Code, is amended by adding Section 466.360 to read as follows:

Sec. 466.360. VIDEO LOTTERY TERMINAL REVENUE. Revenue generated from the operation of video lottery terminals is governed by Subchapter K and commission rules.

SECTION 27. Section 466.402, Government Code, is amended by adding Subsection (e) to read as follows:

(e) This section does not apply to the payment of prizes for video lottery games governed by Subchapter K.

SECTION 28. Chapter 466, Government Code, is amended by adding Subchapter K to read as follows: SUBCHAPTER K. VIDEO LOTTERY

Sec. 466.501. LEGISLATIVE FINDINGS AND DECLARATIONS. The legislature finds and declares the following:

(1) The purpose and intent of this subchapter is to carry out the intent of the voters as established by the approval of Section 47(f), Article III, Texas Constitution, to expand the revenue-generating ability of the state lottery by authorizing this state to operate a video lottery system consistent with public policy strictly limiting the expansion of gambling in this state.

(2) Except for the operation of video lottery terminals on certain Indian lands as defined by the Texas Constitution, the people of this state intend to allow only state-regulated video lottery games to be conducted in this state and only in locations at which pari-mutuel wagering is conducted at racetracks.

(3) The video lottery games operated at racetracks under this subchapter are regulated by this state in a manner that allows this state to continuously monitor all video lottery terminals and to disable any video lottery terminal for the protection of the public and this state.

(4) Through the video lottery system this state will monitor the network of video lottery terminals to ensure maximum security unique to state-regulated gambling. Except as may otherwise be required by federal law governing Indian lands, each operating video lottery terminal in this state will be connected to a video lottery central system.

(5) Limited gaming is intended to enhance live horse and greyhound racing, breeding programs, entertainment, and employment in tourism and agricultural industries of Texas and to assist this state's horse and greyhound racing industry, support programs intended to foster and promote horse and greyhound breeding, and improve the living and working conditions of personnel who work and reside in and around the stable and backside areas of racetracks.

(6) In authorizing only a state-regulated and state-operated video lottery central system and state-regulated video lottery terminals in limited locations and continuing the general prohibition on gambling in this state as a matter of public policy, this state is protecting the state's legitimate interests by restricting such activity. By limiting the operation of video lottery terminals to those connected to the state-regulated video lottery system and to certain lands and certain types of games, the legislature seeks to foster this state's legitimate sovereign interest in regulating the growth of gambling activities in this state.

(7) This subchapter is game-specific and may not be construed to allow the operation of any other form of gambling unless specifically allowed by this subchapter. This subchapter does not allow the operation of slot machines, dice games, roulette wheels, house-banked games, including house-banked card games, or games in which winners are determined by the outcome of a live sports contest that are expressly prohibited under other state law.

Sec. 466.502. CONSTRUCTION; APPLICABILITY OF OTHER LAWS. (a) This subchapter applies uniformly throughout this state and all political subdivisions of this state.

(b) To the extent of any inconsistency between Chapter 2003 and this subchapter or a commission rule governing video lottery terminals, this subchapter or the commission rule controls in all matters related to video lottery terminals.

(c) Video lottery equipment operated under commission authority and this subchapter is exempt from 15 U.S.C. Section 1172.

Sec. 466.505. AUTHORITY TO OPERATE VIDEO LOTTERY SYSTEM. (a) The commission may implement and operate a video lottery system and regulate the operation of video lottery terminals at racetracks in accordance with this subchapter and the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes). This subchapter supersedes any conflicting or inconsistent provision of the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes) or other state law.

(b) The commission may allow the operation of video lottery terminals pursuant to this subchapter at locations on Indian lands in accordance with an effective gaming agreement and in compliance with applicable federal law.

Sec. 466.506. VIDEO LOTTERY GAMES; STATE OWNERSHIP AND PROPRIETARY INTEREST. For purposes of this subchapter, this state may acquire a proprietary interest in video lottery game software through:

(1) ownership of the software; or

(2) an exclusive product license agreement with a provider in which the provider retains copyrighted ownership of the software but the license granted to this state is nontransferable and authorizes this state to operate the software program, solely for the state's own use, on the video lottery central system and video lottery terminals connected to the video lottery central system.

Sec. 466.507. STATE CONTROL OF VIDEO LOTTERY SYSTEM. (a) In accordance with Section 47(f), Article III, Texas Constitution, the commission shall control and regulate the video lottery system and the video lottery central system through which this state has the exclusive and unilateral ability to monitor activity of video lottery terminals and remotely disable video lottery terminals for the public safety, health, and welfare or the preservation of the integrity of the lottery and to prevent any financial loss to this state.

(b) This section does not affect or restrict the ability of a video lottery manager or video lottery retailer to monitor activity of video lottery terminals and to disable video lottery terminals in accordance with commission rules.

(c) The commission may disable a video lottery terminal if a video lottery retailer's or video lottery manager's license is revoked, surrendered, or summarily suspended under this subchapter and to prevent any financial loss to this state.

Sec. 466.510. VIDEO LOTTERY CENTRAL SYSTEM. (a) The commission shall establish or cause to be established a video lottery central system to link all video lottery terminals in the video lottery system. The video lottery central system must provide the auditing, security, and other information required by the commission.

(b) The commission shall provide to a registered video lottery terminal provider or an applicant applying for registration as a video lottery terminal provider the protocol documentation data necessary to enable the provider's or applicant's video lottery terminals to communicate with the commission's video lottery central system for transmission of auditing program information and for activation and disabling of video lottery terminals.

(c) The video lottery central system design may not limit or preclude potential providers from providing state-of-the-art, industry-standard video lottery terminals and associated equipment such as player tracking systems, accounting systems, progressive systems, and bonusing systems, except for providers that fail to meet registration or approval specifications established by the commission.

(d) The commission may contract with a video lottery central system provider to establish the video lottery central system.

Sec. 466.511. VIDEO LOTTERY TERMINAL PROVIDER: REGISTRATION OR APPROVAL REQUIRED. (a) A person may not manufacture or distribute video lottery equipment for use or play in this state unless the person is registered as a video lottery terminal provider or is otherwise approved by the commission to manufacture or distribute video lottery equipment in this state. A video lottery retailer may also hold a license as a video lottery terminal provider under this section.

(b) Unless suspended or revoked, the registration or approval expires on the date specified by the commission, which may not be later than the 10th anniversary of the date of the registration or approval. A person may renew an unexpired registration or approval by paying the required renewal fee and complying with the requirements of this subchapter and commission rule.

(c) To be eligible for registration or commission approval as required by this section, an applicant must satisfy all applicable requirements under this subchapter.

Sec. 466.512. VIDEO LOTTERY TERMINAL PROVIDER: APPLICATION; CHANGE IN INFORMATION. (a) The commission shall adopt rules governing the registration or approval of video lottery terminal providers and the information an applicant must provide to the commission. The rules must require the application and any other form or document submitted to the commission by or on behalf of the applicant to determine the applicant's qualification under this section to be sworn to or affirmed before an officer qualified to administer oaths.

(b) The applicant must demonstrate the ability to comply with all manufacturing, quality control, and operational restrictions imposed on authorized video lottery equipment, patented or otherwise restricted video lottery games, or other video lottery equipment that the applicant seeks to manufacture or distribute for use in this state. The registration or approval process must include an on-site review of the applicant's manufacturing equipment and process for each separate type of authorized video lottery equipment to ensure compliance with the requirements of this chapter and commission rules.

(c) Not later than the 30th day after the date of any change in the information submitted on or with the application form, the applicant shall notify the commission of the change, including a change that occurs after the registration or other commission approval has been granted.

(d) The applicant shall comply with all federal and state laws, local ordinances, and rules.

Sec. 466.513. VIDEO LOTTERY TERMINAL PROVIDER: APPLICATION FEE. (a) An applicant seeking registration or approval or renewal of registration or approval as a video lottery terminal provider must pay a nonrefundable application fee in the amount prescribed by commission rule that is sufficient to pay the costs to the commission of administering and licensing video lottery terminals.

(b) Application fees paid under this section shall be retained by the commission and may be used only to defray costs incurred in the administration and enforcement of this chapter relating to the operation of video lottery terminals.

Sec. 466.520. VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER LICENSE REQUIRED. (a) Except as provided by a gaming agreement, a person may not own or operate a video lottery terminal if the person does not satisfy the requirements of this subchapter and is not licensed by the commission to act as a video lottery retailer or video lottery manager.

(b) Unless suspended or revoked, a video lottery retailer license expires on the same date the retailer's racetrack or pari-mutuel license issued under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes) expires.

Sec. 466.521. VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER: APPLICATION AND QUALIFICATION. (a) An applicant for a video lottery retailer or video lottery manager license must:

(1) hold a valid racetrack or pari-mutuel license granted by the Texas Racing Commission under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes);

(2) have a valid and executed contract with a racetrack that satisfies the requirements of Subdivision (1) to act as a video lottery manager for the racetrack subject to licensing under this subchapter;

(3) demonstrate to the commission's satisfaction that the applicant seeks to act as a video lottery manager for a federally recognized Indian tribe that has entered into a gaming agreement with this state that is in effect and governs the regulation of video lottery terminals on Indian lands in this state;

(4) have had an application pending at the Texas Racing Commission for a racetrack or pari-mutuel license under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statues) on January 1, 2007; or

(5) have been determined by the Texas Racing Commission or its designee to be qualified to hold a racetrack or pari-mutuel license under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

(b) Each officer, partner, director, key employee, substantial interest holder, video lottery game operation employee, and owner of video lottery game operations must be eligible and maintain eligibility in accordance with this subchapter to be involved in video lottery games in this state.

(c) The commission shall adopt rules to implement this section.

(d) The commission shall issue a video lottery retailer or manager license to an applicant who meets the criteria established by the commission rules.

(e) The commission may not accept or consider an application under this section unless the applicant files with the application an estimate determined by the commission of the amount the retailer or manager would be required to allocate under Sections 466.593(a) through (c) in the first year of operation as a video lottery retailer.

Sec. 466.522. VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER: APPLICATION FEE. (a) An applicant for a video lottery retailer or video lottery manager license shall submit a nonrefundable application processing fee in the amount prescribed by commission rule that is sufficient and reasonable to pay the costs of determining the applicant's eligibility, not to exceed $5,000.

(b) An application may not be processed until the applicant pays the application fee. If the application fee is not received by the 30th day after the date the commission notifies the applicant of the amount of the fee, the application is considered withdrawn and may not be considered by the commission.

Sec. 466.525. VIDEO LOTTERY TERMINAL ESTABLISHMENT LICENSE: REQUIREMENTS; LOCATION. (a) An applicant for a video lottery terminal establishment license must ensure that the facility for the establishment will comply with all applicable building codes and rules of the commission. The rules adopted by the commission relating to facilities for video lottery establishments must relate solely to this state's interest in the operation of video lottery terminals.

(b) A video lottery terminal establishment shall provide office space for the commission sufficient for at least one commission employee.

(c) An applicant for a video lottery terminal establishment license or a license holder shall provide the information required by commission rule relating to the applicant's or license holder's video lottery terminal establishment and update the information at least annually.

(d) The commission may not issue a video lottery terminal establishment license to a racetrack if a property line of the licensed premises of the racetrack is located within one-half mile of the property line of a public school. This subsection does not apply to a racetrack that was located within one-half mile of a public school on the first day racing operations commenced at the racetrack.

(e) Notwithstanding Section 466.155, the commission may not deny, suspend, or revoke a license under this subchapter based on the fact that a video lottery terminal establishment or a proposed video lottery terminal establishment is a location for which a person holds a wine and beer retailer's permit, mixed beverage permit, mixed beverage late hours permit, private club registration permit, or private club late hours permit, issued under Chapter 25, 28, 29, 32, or 33, Alcoholic Beverage Code.

(f) A video lottery terminal establishment may be located only at the premises of a licensed racetrack or on Indian lands.

Sec. 466.526. LICENSE HOLDER AS SALES AGENT. The holder of a video lottery retailer or video lottery manager license may operate as a sales agent for lottery tickets in accordance with this chapter.

Sec. 466.527. LICENSE TERM; RENEWAL ELIGIBILITY. (a) Unless suspended or revoked, a license issued under this subchapter, other than a video lottery retailer license, expires on the date specified in the license, which may not be later than the 10th anniversary of the date of issuance.

(b) A video lottery retailer license is valid for the same term as a racetrack or pari-mutuel license and until suspended or revoked. The commission may charge an annual fee not to exceed $50,000 to the holder of a video lottery retailer license.

(c) To be eligible for renewal of a license, an applicant must satisfy all applicable licensing requirements under this subchapter.

Sec. 466.528. RULES FOR ADDITIONAL LICENSE QUALIFICATIONS. The commission by rule may establish other license qualifications the commission determines are in the public interest and consistent with the declared policy of this state.

Sec. 466.529. APPLICATION AS REQUEST FOR CHARACTER DETERMINATION. An application under this subchapter to receive or renew a license, registration, or approval or to be found suitable constitutes a request for a determination of the applicant's general character, integrity, and ability to participate or engage in or be associated with the operation of video lottery terminals.

Sec. 466.530. IMMUNITY FOR STATEMENT MADE IN PROCEEDING OR INVESTIGATION. Any written or oral statement made in the course of an official commission proceeding or investigative activities related to an application for commission licensing, registration, or other approval under this subchapter, by any member or agent or any witness testifying under oath that is relevant to the purpose of the proceeding is absolutely privileged and does not impose liability for defamation or constitute a ground for recovery in any civil action.

Sec. 466.531. SUITABILITY FINDING. To promote the integrity and security of the lottery, the commission in its discretion may require a suitability finding for any person doing business with or in relation to the operation of video lottery terminals who is not otherwise required to obtain a license, registration, or approval from the commission for the person's video lottery-related operations.

Sec. 466.532. SUMMARY SUSPENSION OF VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER LICENSE; TERMINAL DISABLED. (a) The commission may summarily suspend the license of a video lottery retailer or video lottery manager without notice or hearing if the commission finds the action is necessary to maintain the integrity, security, honesty, or fairness of the operation or administration of the lottery or to prevent financial loss to this state and:

(1) the license holder fails to deposit money received from video lottery terminal operations as required by this subchapter or commission rule;

(2) an event occurs that would render the license holder ineligible for a license under this subchapter;

(3) the license holder refuses to allow the commission, the commission's agents, or the state auditor, or their designees, to examine the license holder's books, records, papers, or other objects under Section 466.017; or

(4) the executive director learns the license holder failed to disclose information that would, if disclosed, render the video lottery retailer or video lottery manager ineligible for a license under this subchapter.

(b) A summary suspension under this section must comply with the notice and procedure requirements provided by Section 466.160.

(c) The commission may disable a video lottery terminal operated by a license holder under this subchapter at the time:

(1) a proceeding to summarily suspend the license is initiated;

(2) the commission discovers the license holder failed to deposit money received from video lottery terminal operations as required if the license is being summarily suspended under this section; or

(3) an act or omission occurs that, under commission rules, justifies the termination of video lottery terminal operations to:

(A) protect the integrity of the lottery or the public health, welfare, or safety; or

(B) prevent financial loss to this state.

(d) The commission shall immediately disable a video lottery terminal if necessary to protect the public health, welfare, or safety.

Sec. 466.533. LICENSING, REGISTRATION, SUITABILITY, AND REGULATORY APPROVAL AS REVOCABLE PERSONAL PRIVILEGES. (a) The purchaser or successor of a person who holds a license, registration, suitability, or other affirmative regulatory approval under this subchapter must independently qualify for a license, registration, suitability, or approval required by this subchapter.

(b) The following acts void the license, registration, suitability, or other regulatory approval of the holder unless approved in advance by the commission:

(1) the transfer, sale, or other disposition of an interest in the holder that results in a change in the identity of a substantial interest holder; or

(2) the sale of the assets of the holder, other than assets bought and sold in the ordinary course of business, or any interest in the assets, to any person not already determined to have met the applicable qualifications of this subchapter.

Sec. 466.535. CAPITAL INVESTMENTS AND IMPROVEMENT REQUIREMENTS FOR VIDEO LOTTERY TERMINAL ESTABLISHMENT. A video lottery retailer or video lottery manager shall provide all necessary capital investments and required improvements at a video lottery terminal establishment operated by the retailer or manager.

Sec. 466.536. VIDEO LOTTERY TERMINAL. The commission shall provide all video lottery retailers or video lottery managers with a list of registered video lottery terminal providers, video lottery games, and video lottery terminals authorized for operation under this subchapter.

Sec. 466.537. VIDEO LOTTERY TERMINAL: DISTRIBUTION AND COMMISSION APPROVAL. (a) A video lottery terminal provider may not distribute a video lottery terminal or other video lottery equipment for placement at a video lottery terminal establishment in this state unless the video lottery terminal has been approved by the commission.

(b) Only a video lottery terminal provider registered with or approved by the commission may apply for approval of a video lottery terminal or other video lottery equipment.

(c) Not later than the 10th day before the date of shipment to a location in this state, a video lottery terminal provider shall file a report with the commission itemizing all video lottery terminals and other video lottery equipment to be provided to a video lottery retailer or video lottery manager in the shipment.

Sec. 466.538. VIDEO LOTTERY TERMINAL: TESTING; REPORT. (a) A video lottery terminal provider shall submit two copies of terminal illustrations, schematics, block diagrams, circuit analysis, technical and operation manuals, and any other information requested by the commission for the purpose of analyzing and testing the video lottery terminal or other video lottery equipment.

(b) The commission may require a working model of a video lottery terminal to be provided to the commission unless the video lottery terminal provider provides a certification from an independent, commission-approved testing laboratory that the video lottery terminal is compatible with the state's video lottery system and functions as required by the commission.

Sec. 466.539. VIDEO LOTTERY TERMINAL: INSTALLATION; MODIFICATION REQUEST. (a) A video lottery terminal provider is responsible for the assembly and installation of all video lottery terminals and related video lottery equipment.

(b) A video lottery terminal provider or a video lottery retailer or video lottery manager may not change the assembly or operational functions of a video lottery terminal authorized by the commission for placement in this state unless a request for modification of an existing video lottery terminal prototype is approved by the commission. The request must contain:

(1) a detailed description of the type of change;

(2) a detailed description of the reasons for the change; and

(3) technical documentation of the change.

(c) A video lottery terminal approved by the commission for placement at a video lottery terminal establishment must conform to the specifications of the video lottery terminal prototype tested or approved by the commission.

Sec. 466.540. VIDEO LOTTERY TERMINAL REMOVAL. (a) If any video lottery terminal that has not been approved by the commission is distributed by a video lottery terminal provider or operated by a video lottery retailer or video lottery manager or if an approved video lottery terminal malfunctions, the commission shall require the terminal to be removed from use and play.

(b) The commission may order that an unapproved terminal be seized and destroyed.

(c) The commission may suspend or revoke the license of a video lottery retailer or video lottery manager or the registration of a video lottery terminal provider for the distribution, possession, or operation of an unauthorized video lottery terminal.

(d) A video lottery retailer or video lottery manager may retain on the premises of a video lottery establishment a number of machines that the retailer or manager determines is necessary for spare parts or repair purposes or as replacements. The retailer or manager must provide to the commission each month a list of the terminals retained under this subsection.

Sec. 466.541. VIDEO LOTTERY TERMINAL SPECIFICATIONS. (a) The commission shall adopt rules for approval of video lottery terminals, including requirements for video lottery game tickets, maximum and minimum payout, and maximum wagers.

(b) A commission-approved video lottery terminal must meet the following minimum specifications:

(1) the terminal must:

(A) operate through a player's insertion of a coin, currency, voucher, or token into the video lottery terminal that causes the video lottery terminal to display credits that entitle the player to select one or more symbols or numbers or cause the video lottery terminal to randomly select symbols or numbers;

(B) allow the player to win additional game play credits, coins, or tokens based on game rules that establish the random selection of winning combinations of symbols or numbers and the number of free play credits, coins, or tokens to be awarded for each winning combination; and

(C) allow the player at any time to clear all game play credits and receive a video lottery ticket or other representation of credits entitling the player to receive the cash value of those credits;

(2) a surge protector must be installed on the electrical power supply line to each video lottery terminal, a battery or equivalent power backup for the electronic meters must be capable of maintaining the accuracy of all accounting records and video lottery terminal status reports for a period of 180 days after power is disconnected from the video lottery terminal, and the power backup device must be in the compartment specified in Subdivision (4);

(3) the operation of each video lottery terminal may not be adversely affected by any static discharge or other electromagnetic interference;

(4) the main logic boards of all electronic storage mediums must be located in a separate compartment in or from the video lottery terminal that is locked and sealed by the commission;

(5) the instructions for play of each game must be displayed on the video lottery terminal face or screen, including a display detailing the credits awarded for the occurrence of each possible winning combination of numbers or symbols;

(6) communication equipment and devices must be installed to enable each video lottery terminal to communicate with the video lottery central system through the use of a communications protocol provided by the commission to each registered video lottery terminal provider, which must include information retrieval and programs to activate and disable the terminal; and

(7) a video lottery terminal may be operated only if connected to the video lottery central system, and play on the terminal may not be conducted unless the terminal is connected to the video lottery central system.

Sec. 466.542. VIDEO LOTTERY TERMINALS: HOURS OF OPERATION; COMMUNICATION; LOCATION. (a) Except as otherwise provided by the commission, the hours of operation for video lottery terminals are subject to restrictions only as provided by commission rules.

(b) The commission by rule may prescribe restrictions on the hours of video lottery terminal operations for purposes of accounting for and collecting revenue generated by video lottery terminal operations and performing other operational services on the video lottery system.

(c) Communication between the video lottery central system and each video lottery terminal must be continuous and on a real-time basis as prescribed by the commission.

(d) Except as provided by a gaming agreement or commission rule, placement or movement of video lottery terminals in a video lottery terminal establishment must be consistent with a video lottery terminal establishment floor plan filed with the commission.

Sec. 466.543. VIDEO LOTTERY TERMINAL: TRANSPORT; DISPOSITION OF OBSOLETE TERMINAL. (a) The transportation and movement of video lottery terminals into or within this state is prohibited, except as permitted by this subchapter and approved by the commission.

(b) An obsolete video lottery terminal or a video lottery terminal that is no longer in operation must be promptly reported to the commission.

Sec. 466.5455. TRAVEL AND INVESTIGATION COSTS. The commission shall pay the travel and investigative expenses incurred under this subchapter from money appropriated to the commission.

Sec. 466.546. CONSENT TO COMMISSION DETERMINATION. (a) An application for a license, registration, finding of suitability, or other approval under this subchapter constitutes a request to the commission for a decision on the applicant's general suitability, character, integrity, and ability to participate or engage in or be associated with the lottery in the manner or position sought.

(b) By filing an application with the commission, the applicant specifically consents to the commission's decision at the commission's election when the application, after filing, becomes moot for any reason other than death.

Sec. 466.547. ABSOLUTE AUTHORITY OF COMMISSION. To protect the integrity of the lottery or the public health, welfare, or safety, or to prevent financial loss to this state, the commission has full and absolute power and authority, subject to Chapter 2001, Government Code, to:

(1) deny any application or limit, condition, restrict, revoke, or suspend any license, registration, or finding of suitability or approval; and

(2) fine any person licensed, registered, found suitable, or approved for cause.

Sec. 466.548. INSTITUTIONAL INVESTOR. The commission shall adopt rules regarding a finding of suitability for an institutional investor in a person licensed under this subchapter.

Sec. 466.551. EFFECT OF DENIAL OF LICENSE OR REGISTRATION. (a) A person whose application for a license or registration has been denied may not have any interest in or association with a video lottery retailer or video lottery manager or any other business conducted in connection with video lottery without prior approval of the commission.

(b) Any contract between a person holding a license or registration and a person denied a license or registration must be terminated immediately on receipt of notice from the commission. If the person denied a license or registration has previously been granted a temporary license or registration, the temporary license or registration expires immediately on denial of the permanent license or registration.

(c) Except as otherwise authorized by the commission, a person denied a license or registration may not reapply for any license or registration before the second anniversary of the date of the denial.

Sec. 466.553. PRACTICE BY VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER. A video lottery retailer or video lottery manager must:

(1) be aware of patron conditions and prohibit play by visibly intoxicated patrons;

(2) comply with state alcoholic beverage control laws;

(3) at all times maintain sufficient change and cash in denominations accepted by video lottery terminals;

(4) promptly report all video lottery terminal malfunctions and down-time;

(5) install, post, and display prominently any material required by the commission;

(6) prohibit illegal gambling and any related paraphernalia;

(7) except as otherwise provided by this subchapter, at all times prohibit money lending or other extensions of credit at the video lottery terminal establishment;

(8) supervise employees and activities to ensure compliance with all commission rules and this subchapter;

(9) maintain continuous camera coverage of all aspects of video lottery game operations, including video lottery terminals; and

(10) maintain an entry log for each video lottery terminal on the premises of the video lottery terminal establishment and maintain and submit complete records on receipt of each video lottery terminal on the premises as determined by the commission.

Sec. 466.554. RACETRACK REQUIREMENTS. (a) A video lottery retailer at all times must hold a valid racetrack or pari-mutuel wagering license issued by the Texas Racing Commission.

(b) A video lottery retailer that meets the qualifications of Section 466.521(a)(1) or (5) is considered to meet the requirements of this section.

Sec. 466.556. PRIZE RULES. The commission shall adopt rules governing:

(1) the range of amounts a player may be charged to play each video lottery game; and

(2) the range of prizes and credits that may be awarded to the player of a video lottery game.

Sec. 466.557. VIDEO LOTTERY CENTRAL SYSTEM: COMMUNICATION TECHNOLOGY. The video lottery central system provider shall pay for the installation and operation of commission-approved communication technology to provide communication between each video lottery terminal and the video lottery central system.

Sec. 466.558. RESPONSIBILITY FOR VIDEO LOTTERY GAME OPERATIONS. (a) A video lottery retailer or a video lottery manager, if applicable, is responsible for the management of video lottery game operations, including:

(1) the validation and payment of prizes, determination of game themes, prizes, bonuses, progressives, number and placement of video lottery terminals, and individual pay out percentage settings; and

(2) the management of cashiers, food and beverage workers, floor workers, security personnel, the security system, building completion, janitorial services, landscaping design, and maintenance.

(b) Nothing in Subsection (a) limits the authority of the commission, the Department of Public Safety, or another law enforcement agency to administer and enforce this chapter as related to video lottery.

(c) In addition to other requirements under this chapter relating to video lottery, a video lottery retailer or a video lottery manager at all times shall:

(1) operate only video lottery terminals that are distributed by a registered video lottery terminal provider and provide a secure location for the placement, operation, and play of the video lottery terminals;

(2) prevent any person from tampering with or interfering with the operation of a video lottery terminal;

(3) ensure that communication technology from the video lottery central system to the video lottery terminals is connected at all times and prevent any person from tampering or interfering with the operation of the connection;

(4) ensure that video lottery terminals are in the sight and control of designated employees of the video lottery retailer or video lottery manager and in the sight of video cameras as required under this subchapter;

(5) ensure that video lottery terminals are placed and remain placed in the locations in the video lottery terminal establishment that are consistent with the retailer's or manager's floor plan;

(6) monitor video lottery terminals to prevent access to or play by persons who are under 21 years of age or who are visibly intoxicated;

(7) pay all credits won by a player on presentment of a valid winning video lottery game ticket;

(8) install, post, and display prominently at the licensed location redemption information and other informational or promotional materials as required by the commission;

(9) maintain general liability insurance coverage for the video lottery terminal establishment and all video lottery terminals in the amounts required by the commission;

(10) assume liability for money lost or stolen from any video lottery terminal; and

(11) annually submit an audited financial statement to the commission in accordance with generally accepted accounting principles.

Sec. 466.560. TECHNICAL STANDARDS FOR VIDEO LOTTERY EQUIPMENT. The commission by rule shall establish minimum technical standards for video lottery equipment that may be operated in this state.

Sec. 466.561. INCIDENT REPORTS. (a) A video lottery retailer or video lottery manager shall record all unusual occurrences related to gaming activity in a video lottery terminal establishment operated by the retailer or manager.

(b) A video lottery retailer or video lottery manager shall assign each material incident, without regard to materiality, a sequential number and, at a minimum, provide the following information in a permanent record prepared in accordance with commission rules to ensure the integrity of the record:

(1) the number assigned to the incident;

(2) the date and time of the incident;

(3) the nature of the incident;

(4) each person involved in the incident; and

(5) the name of the employee or other agent of the video lottery retailer or video lottery manager who investigated the incident.

Sec. 466.562. EXCLUSION OF PERSONS. (a) The commission shall compile a list of persons that a video lottery retailer or video lottery manager must bar from a video lottery terminal establishment based on a person's criminal history or association with criminal offenders or because the person poses a threat to the integrity of the lottery.

(b) A video lottery retailer or video lottery manager shall employ the retailer's or manager's best efforts to exclude such persons from entry into the establishment.

(c) A video lottery retailer or video lottery manager may exclude a person for any reason not related to the person's race, sex, national origin, physical disability, or religion.

(d) A person who believes the person may be playing video lottery games on a compulsive basis may request that the person's name be placed on the list compiled by the commission under Subsection (a).

(e) All video lottery game employees shall receive training in identifying players with a compulsive playing problem. Signs and other materials shall be readily available to direct compulsive players to agencies that offer appropriate counseling.

Sec. 466.563. REPORT ON LITIGATION. (a) A video lottery retailer or video lottery manager shall report to the commission any litigation relating to the retailer's or manager's video lottery terminal establishment, including a criminal proceeding, a proceeding involving an issue related to racing activities that impact video lottery operations, or a matter related to character or reputation relevant to a person's suitability under this subchapter.

(b) The report required under Subsection (a) must be filed not later than the fifth day after acquiring knowledge of the litigation.

Sec. 466.564. COMMISSION APPROVAL REQUIRED FOR PROCEDURES AND ACCOUNTING CONTROLS. (a) The commission's approval is required for all internal procedures and accounting controls of a video lottery retailer or video lottery manager.

(b) The commission by rule shall establish general accounting and auditing requirements and internal control standards for video lottery retailers and video lottery managers.

Sec. 466.566. VIDEO LOTTERY TERMINAL EVENTS. A video lottery retailer or video lottery manager shall keep a record of video lottery terminal events. The commission by rule shall determine what constitutes a video lottery terminal event for purposes of this section.

Sec. 466.567. EMPLOYEE REPORTING. (a) On or before the 15th day of each month, a video lottery retailer or video lottery manager shall submit to the commission an employee report for the video lottery terminal establishment operated by the retailer or manager. For each employee of the retailer or manager, the report must provide the employee's name, job title, date of birth, and social security number.

(b) The employee report is confidential and may not be disclosed except under commission order or in accordance with Section 466.022(d).

(c) The commission may conduct criminal history investigations for employees of video lottery retailers and video lottery managers.

(d) The commission may prohibit an employee from performing any act relating to video lottery terminals if the commission finds that an employee has:

(1) committed, attempted, or conspired to commit any act prohibited by this chapter;

(2) concealed or refused to disclose any material fact in any commission investigation;

(3) committed, attempted, or conspired to commit larceny or embezzlement;

(4) been convicted in any jurisdiction of an offense involving or relating to gambling;

(5) accepted employment in a position for which commission approval is required after commission approval was denied for a reason involving personal unsuitability or after failing to apply for a license or approval on commission request;

(6) been prohibited under color of governmental authority from being present on the premises of any gaming establishment or any establishment where pari-mutuel wagering is conducted for any reason relating to improper gambling activity or for any illegal act;

(7) wilfully defied any legislative investigative committee or other officially constituted body acting on behalf of the United States or any state, county, or municipality that sought to investigate alleged or potential crimes relating to gaming, corruption of public officials, or any organized criminal activities; or

(8) been convicted of any felony or any crime involving moral turpitude.

(e) The commission may prohibit an employee from performing any act relating to video lottery terminals based on a revocation or suspension of any gaming or wagering license, permit, or approval or for any other reason the commission finds appropriate, including a refusal by a regulatory authority to issue a license, permit, or other approval for the employee to engage in or be involved with the lottery or with regulated gaming or pari-mutuel wagering in any jurisdiction.

(f) In this section, "employee" includes any person connected directly with or compensated by an applicant or license holder as an agent, personal representative, consultant, or independent contractor for activities directly related to video lottery operations in this state.

Sec. 466.568. REPORT OF VIOLATIONS. A person who holds a license or registration under this subchapter shall immediately report a violation or suspected violation of this chapter or a rule adopted under this chapter by any license or registration holder, by an employee of a license or registration holder, or by any person on the premises of a video lottery terminal establishment, whether or not associated with the license or registration holder.

Sec. 466.569. SECURITY. (a) In addition to the security provisions applicable under Section 466.020, a video lottery retailer or video lottery manager shall comply with the following security procedures:

(1) all video lottery terminals must be continuously monitored through the use of a closed-circuit television system that records activity for a continuous 24-hour period and all video tapes or other media used to store video images shall be retained for at least 30 days and made available to the commission on request;

(2) access to video lottery terminal areas shall be restricted to persons who are at least 21 years of age;

(3) the video lottery retailer or video lottery manager must provide to the commission a security plan for the retailer or manager's video lottery operations that includes a floor plan of the area where video lottery terminals are to be operated showing video lottery terminal locations and security camera mount locations; and

(4) each license holder shall employ at least the minimum number of private security personnel the commission determines is necessary to provide for safe and approved operation of the video lottery terminal establishment and the safety and well-being of the players.

(b) Private security personnel must be present during all hours of operation at each video lottery terminal establishment.

(c) An agent or employee of the commission or the Department of Public Safety or other law enforcement personnel may be present at a video lottery terminal establishment at any time.

(d) The commission may adopt rules to impose additional surveillance and security requirements related to video lottery terminal establishments and the operation of video lottery terminals.

Sec. 466.570. VIDEO LOTTERY TERMINAL ESTABLISHMENT: COMMISSION RIGHT TO ENTER. The commission, the commission's representative, the Texas Racing Commission, or a representative of the Texas Racing Commission, after displaying appropriate identification and credentials, has the free and unrestricted right to enter the premises of a video lottery terminal establishment and to enter any other locations involved in operation or support of video lottery at all times to examine the systems and to inspect and copy the records of a video lottery retailer or video lottery manager pertaining to the operation of video lottery.

Sec. 466.587. INDEMNIFICATION REQUIREMENTS. A license or registration holder shall indemnify and hold harmless this state, the commission, and all officers and employees of this state and the commission from any and all claims which may be asserted against a license or registration holder, the commission, this state, and the members, officers, employees, and authorized agents of this state or the commission arising from the license or registration holder's participation in the video lottery system authorized under this subchapter.

Sec. 466.588. LIABILITY FOR CREDIT AWARDED OR DENIED; PLAYER DISPUTE. (a) This state and the commission are not liable for any video lottery terminal malfunction or error by a video lottery retailer, video lottery manager, or video lottery terminal provider that causes credit to be wrongfully awarded or denied to players.

(b) Any dispute arising between a player and a video lottery retailer or video lottery manager shall be resolved by the commission as follows:

(1) if the fair market value of the prize is less than $1,000, the dispute shall be resolved in accordance with the commission-approved written policies of the video lottery retailer or video lottery manager and without any relief available from the commission or this state; or

(2) if the fair market value of the prize is $1,000 or more, the dispute shall be resolved by the commission in the commission's sole discretion in accordance with commission rules.

(c) A court of this state does not have jurisdiction to review the decision of the commission resolving a dispute between a player and a video lottery retailer, video lottery manager, or video lottery terminal provider.

Sec. 466.589. STATE VIDEO LOTTERY ACCOUNT. (a) The commission shall deposit funds received under this subchapter to the state video lottery account. The state video lottery account is a special account in the general revenue fund. The account consists of all revenue received by this state from the operation of video lottery terminals.

(a-1) Except as provided by Subsection (b), all revenue received by this state from the operation of the video lottery system shall be distributed solely to reimburse the commission until the $5 million authorized under this subsection is repaid to the state lottery account. From funds previously appropriated to the commission for the state fiscal biennium ending August 31, 2009, and notwithstanding Section 466.355(b), the commission is authorized to expend an amount not to exceed $5 million from the state lottery account during that biennium to establish the video lottery system in accordance with this chapter. From revenue deposited in the state video lottery account during that biennium, the commission is hereby appropriated the amount necessary to reimburse the state lottery account for the total amount of funds expended to establish the video lottery system from the appropriation to the state lottery account, and the commission shall deposit that amount to the state lottery account. This subsection expires January 1, 2011.

(b) An amount not to exceed two percent of the net terminal income received by this state under Section 466.590 shall be allocated to the commission to defray expenses incurred in administering this chapter related to video lottery, including expenses incurred to operate the video lottery central system. All money allocated to the commission under this subsection may be retained by the commission to defray expenses of administering this chapter related to video lottery and shall be deposited in the state video lottery account.

Sec. 466.590. ALLOCATION OF NET TERMINAL INCOME; TRANSFER OF MONEY. (a) Net terminal income derived from the operation of video lottery games in this state is allocated as follows:

(1) a portion of the net terminal income generated in each calendar year shall be remitted to this state by the video lottery retailer or video lottery manager in an amount equal to 35 percent of the net terminal income for that year; and

(2) the remainder shall be retained by the video lottery retailer or video lottery manager.

(b) Net terminal income derived from the operation of video lottery terminals on Indian lands under a gaming agreement authorized under this subchapter shall be distributed as set forth in the gaming agreement, provided that the agreement must provide that this state shall receive no more than 10 percent of the net terminal income.

(c) Ten million dollars of the net terminal income received by this state under Subsections (a) and (b) shall annually in equal monthly installments be transferred to the Texas Racing Commission to be expended solely for the treatment of compulsive gamblers and the promotion of responsible gaming.

(d) One-quarter of one percent of the net terminal income received by this state under Subsections (a) and (b) shall be transferred to the Equine Research Program at the College of Veterinary Medicine at Texas A&M University for use in equine research under Subchapter F, Chapter 88, Education Code.

(d-1) Ten million dollars of the net terminal income received by this state under Subsections (a) and (b) shall annually in equal monthly installments be transferred to the criminal justice planning fund for use by the criminal justice division of the governor's office to be used to prosecute offenses under Chapter 47, Penal Code.

(d-2) Two percent of the net terminal income received by this state under Subsections (a) and (b) shall be used to fund the performance horse development fund, administered by the Texas Racing Commission to fund a broad spectrum of the horse industry outside the racing industry and to develop the agriculture industry in this state. Money from the fund is allocated annually as follows:

(1) 40 percent of the fund to American Quarter Horse Association sanctioned events;

(2) 20 percent to National Cutting Horse Association sanctioned events;

(3) 20 percent to American Paint Horse sanctioned events; and

(4) 20 percent to the Department of Agriculture to promote the agricultural industry in this state.

(d-3) The Texas Racing Commission may adopt rules to administer this section.

(e) The commission shall require a video lottery retailer or video lottery manager to establish a separate electronic funds transfer account for depositing money from video lottery terminal operations, making payments to the commission or its designee, and receiving payments from the commission or its designee.

(f) A video lottery retailer or video lottery manager may not make payments to the commission in cash. As authorized by the commission, a video lottery retailer or video lottery manager may make payments to the commission by cashier's check.

(g) The commission at least weekly shall transfer this state's share of net terminal income of a video lottery retailer or video lottery manager to the commission through the electronic transfer of the money.

(h) The commission by rule shall establish the procedures for:

(1) depositing money from video lottery terminal operations into electronic funds transfer accounts; and

(2) handling money from video lottery terminal operations.

(i) Unless otherwise directed by the commission, a video lottery retailer or a video lottery manager shall maintain in its account this state's share of the net terminal income from the operation of video lottery terminals, to be electronically transferred by the commission on dates established by the commission. On a license holder's failure to maintain this balance, the commission may disable all of a license holder's video lottery terminals until full payment of all amounts due is made. Interest shall accrue on any unpaid balance at a rate consistent with the amount charged under Section 111.060, Tax Code. The interest shall begin to accrue on the date payment is due to the commission.

(j) In the commission's sole discretion, rather than disable a license holder's video lottery terminals under Subsection (i), the commission may elect to impose a fine on a license holder in an amount determined by the commission not to exceed $250,000 for each violation. If the license holder fails to remedy the violation, including payment of any amounts assessed by or due to this state, within 30 days, the commission may disable the license holder's video lottery terminals or use any other means for collection as provided by the penalty chart established by the commission.

(k) A video lottery retailer or video lottery manager is solely responsible for resolving any income discrepancies between actual money collected and the net terminal income reported by the video lottery central system. Unless an accounting discrepancy is resolved in favor of the video lottery retailer or video lottery manager, the commission may not make any credit adjustments. Any accounting discrepancies which cannot otherwise be resolved shall be resolved in favor of the commission.

(l) A video lottery retailer and video lottery manager shall remit payment as directed by the commission if the electronic transfer of money is not operational or the commission notifies the license holder that other remittance is required. The license holder shall report this state's share of net terminal income, and remit the amount generated from the terminals during the reporting period.

Sec. 466.591. COMMISSION EXAMINATION OF FINANCIAL RECORDS. The commission may examine all accounts, bank accounts, financial statements, and records in the possession or control of a person licensed under this subchapter or in which the license holder has an interest. The license holder must authorize and direct all third parties in possession or in control of the accounts or records to allow examination of any of those accounts or records by the commission.

Sec. 466.592. FINANCIAL INFORMATION REQUIRED. (a) A video lottery retailer or video lottery manager shall furnish to the commission all information and bank authorizations required to facilitate the timely transfer of money to the commission.

(b) A video lottery retailer or video lottery manager must provide the commission advance notice of any proposed account changes in information and bank authorizations to assure the uninterrupted electronic transfer of money.

(c) The commission is not responsible for any interruption or delays in the transfer of money. The video lottery retailer or video lottery manager is responsible for any interruption or delay in the transfer of money.

Sec. 466.593. DEDUCTIONS FROM VIDEO LOTTERY PROCEEDS AT RACETRACKS. (a) The pari-mutuel license holder that owns or operates a racetrack at which video lottery games are conducted under this subchapter and the officially recognized horsemen's organization representing the horsemen at the racetrack or the state breed registry representing the greyhound breeders at the racetrack shall enter into a written agreement to allocate a percentage of net terminal income retained by the license holder to be used for purses, accredited Texas Bred Incentive programs, and administrative costs.

(b) Unless otherwise agreed to under Subsection (a) by the pari-mutuel license holder that owns or operates a horse racetrack at which video lottery games are conducted under this subchapter and the officially recognized horsemen's organization representing the horsemen at the racetrack, the license holder shall allocate a percentage determined by the Texas Racing Commission of the net terminal income generated from the operation of video lottery terminals at the racetrack to purses. The percentage must be sufficient to ensure the purses at the racetrack are nationally competitive and may not be less than 6.5 percent of the net terminal income generated from the operation of terminals at the racetrack.

(c) Unless otherwise agreed to under Subsection (a) by the pari-mutuel license holder that owns or operates a greyhound racetrack at which video lottery games are conducted under this subchapter and the state breed registry representing the greyhound breeders at the racetrack, the license holder shall allocate a percentage determined by the Texas Racing Commission of the net terminal income generated from the operation of video lottery terminals at the racetrack to purses. The percentage must be sufficient to ensure the purses at the racetrack are nationally competitive and may not be less than 6.5 percent of the net terminal income generated from the operation of terminals at the racetrack.

(d) The Texas Racing Commission shall adopt rules to administer this section. A matter considered by the commission under this section is a contested case under Chapter 2001, Government Code, and requires a public hearing.

(e) The state breed registry may allocate up to 50 percent of the amount received under Subsection (c) for Texas breeder awards.

Sec. 466.595. LIABILITY OF VIDEO LOTTERY RETAILER AND VIDEO LOTTERY MANAGER. (a) A video lottery retailer, video lottery manager, or both, are jointly and severally liable to the commission for the state's share of net terminal income.

(b) Net terminal income received by the video lottery retailer or video lottery manager is held in trust for the benefit of this state before delivery of the state's share to the commission or electronic transfer to the state treasury, and the video lottery retailer or video lottery manager, or both, are jointly and severally liable to the commission for the full amount of the money held in trust.

(c) If the video lottery retailer or video lottery manager is not an individual, each officer, director, or owner of the video lottery retailer or video lottery manager is personally liable to the commission for the full amount of the money held in trust, except that shareholders of a publicly held corporation shall be liable in an amount not to exceed the value of their equity investment.

Sec. 466.596. PRIZE PAYMENT AND REDEMPTION. (a) Payment of prizes is the sole and exclusive responsibility of the video lottery retailer or video lottery manager. A prize may not be paid by the commission or this state except as otherwise authorized.

(b) Nothing in this subchapter limits the ability of a video lottery retailer or video lottery manager to provide promotional prizes in addition to prize payouts regulated by the commission.

(c) A video lottery ticket must be redeemed not later than the 180th day following the date of issuance. If a claim is not made for prize money on or before the 180th day after the date on which the video lottery ticket was issued, the prize money becomes the property of the video lottery terminal establishment.

(d) The commission shall enact rules consistent with this section governing the use and redemption of prizes and credits recorded on electronic player account records, such as players' club cards and smart cards.

Sec. 466.597. REVOCATION OF LICENSE, REGISTRATION, OR OTHER REGULATORY APPROVAL. (a) The commission shall revoke or suspend a license, registration, or other regulatory approval issued under this subchapter if the holder of the license, registration, or approval at any time fails to meet the eligibility requirements set forth in this subchapter.

(b) Failure to timely remit revenue generated by video lottery terminals to the commission or any tax or other fee owed to this state as demonstrated by report from the applicable taxing authority or to timely file any report or information required under this subchapter as a condition of any license, registration, or other approval issued under this subchapter may be grounds for suspension or revocation, or both, of a license, registration, or other approval issued under this subchapter.

Sec. 466.598. HEARING FOR REVOCATION OR SUSPENSION OF REGISTRATION OR LICENSE. (a) Before the commission revokes or suspends a video lottery terminal provider's registration or video lottery retailer's or video lottery manager's license, or imposes monetary penalties for a violation of this subchapter, the commission shall provide written notification to the license or registration holder of the revocation, the period of suspension, or the monetary penalty. The notice shall include:

(1) the effective date of the revocation or the period of suspension or the amount of the monetary penalty, as applicable;

(2) each reason for the revocation, suspension, or penalty;

(3) an explanation of the evidence supporting the reasons;

(4) an opportunity to present the license or registration holder's position in response on or before the 15th day after the effective date of the revocation; and

(5) a statement explaining the person's right to an administrative hearing to determine whether the revocation, suspension, or penalty is warranted.

(b) The commission shall adopt rules to implement this section.

Sec. 466.601. LIMITED WAIVER OF SOVEREIGN IMMUNITY; NO LIABILITY OF STATE FOR ENFORCEMENT. (a) This state does not waive its sovereign immunity by negotiating gaming agreements with Indian tribes or other persons for the operation of video lottery terminals or other lottery games under this chapter. An actor or agent on behalf of this state does not have any authority to waive the state's sovereign immunity absent an express legislative grant of the authority. The only waiver of sovereign immunity relative to video lottery terminal operations is that expressly provided for in this section.

(b) With regard to video lottery terminal operations on Indian lands, this state consents to the jurisdiction of the District Court of the United States with jurisdiction in the county where the Indian lands are located, or if the federal court lacks jurisdiction, to the jurisdiction of a district court in Travis County, solely for the purpose of resolving disputes arising from a gaming agreement authorized under this subchapter for declaratory or injunctive relief or contract damages of $100,000 or more. Any disputes relating to damages or other awards valued at less than $100,000 shall be arbitrated under the rules of the American Arbitration Association, provided, however, that application of the rules may not be construed as a waiver of sovereign immunity.

(c) All financial obligations of the commission are payable solely out of the income, revenues, and receipts of the commission and are subject to statutory restrictions and appropriations.

(d) This state and the commission are not liable if performance by the commission is compromised or terminated by acts or omissions of the legislature or the state or federal judiciary.

(e) This state and the commission are not liable related to any enforcement of this chapter.

Sec. 466.602. ABSOLUTE PRIVILEGE OF REQUIRED COMMUNICATIONS AND DOCUMENTS. (a) Any communication, document, or record of a video lottery central system provider, video lottery terminal provider, video lottery retailer, or video lottery manager, an applicant, or a license or registration holder or holder of a regulatory approval that is made or transmitted to the commission or any of its employees to comply with any law, including a rule of the commission, to comply with a subpoena issued by the commission, or to assist the commission or its designee in the performance of their respective duties is absolutely privileged, does not impose liability for defamation, and is not a ground for recovery in any civil action.

(b) If a communication, document, or record provided under Subsection (a) contains any information that is privileged under state law, that privilege is not waived or lost because the communication, document, or record is disclosed to the commission or any of the commission's employees.

(c) The commission shall maintain all privileged information, communications, documents, and records in a secure place as determined in the commission's sole discretion that is accessible only to members of the commission and authorized commission employees.

Sec. 466.603. INTELLECTUAL PROPERTY RIGHTS OF COMMISSION. The legislature finds and declares that the commission has the right to establish ownership of intellectual property rights for all lottery products, including video lottery terminals and related video lottery equipment.

Sec. 466.604. MODEL GAMING AGREEMENT. (a) The governor shall execute, on behalf of this state, a gaming agreement with the Ysleta del Sur Pueblo Indian tribe, the Alabama-Coushatta Indian tribe, or the Kickapoo Traditional Tribe of Texas containing the terms set forth in Subsection (b), as a ministerial act, without preconditions, not later than the 30th day after the date the governor receives a request from the tribe, accompanied by or in the form of a duly enacted resolution of the tribe's governing body, to enter into the gaming agreement.

(b) A gaming agreement executed under Subsection (a) must be in the form and contain the provisions as follows: GAMING AGREEMENT GOVERNING VIDEO LOTTERY TERMINAL OPERATIONS Between the [Name of Tribe] and the STATE OF TEXAS

This agreement is made and entered into by and between the [Name of Tribe], a federally recognized Indian Tribe ("Tribe"), and the State of Texas ("State"), with respect to the operation of video lottery terminals (as defined by Section 466.002, Texas Government Code) on the Tribe's Indian lands (as defined by Chapter 466, Texas Government Code).

SECTION 1.0. TITLE.

Sec. 1.1. This document shall be referred to as "The [Name of Tribe] and State of Texas gaming agreement."

SECTION 2.0. PURPOSES AND OBJECTIVES.

Sec. 2.1. The terms of this agreement are designed and intended to:

(a) evidence the good will and cooperation of the Tribe and State in fostering a mutually respectful government-to-government relationship that will serve the mutual interests of the parties;

(b) develop and implement a means of regulating limited Class III gaming on the Tribe's Indian lands to ensure fair and honest operation in accordance with the applicable federal and state law, and, through that regulated limited Class III gaming, enable the Tribe to develop self-sufficiency, promote tribal economic development, and generate jobs and revenues to support the Tribe's government and governmental services and programs; and

(c) ensure fair operation of video lottery games and minimize the possibilities of corruption and infiltration by criminal influences; promote ethical practices in conjunction with that gaming, through the licensing and control of persons employed in, or providing goods and services to, the Tribe's video lottery operation and protecting against the presence or participation of persons whose criminal backgrounds, reputations, character, or associations make the persons unsuitable for participation in gaming, thereby maintaining a high level of integrity in government gaming.

SECTION 3.0. DEFINITIONS.

As used in this agreement, all terms have the meaning assigned by Section 466.002, Texas Government Code, unless otherwise specified:

Sec. 3.1. "Class III gaming" means the forms of Class III gaming defined in 25 U.S.C. Section 2703(8) and by regulations of the National Indian Gaming Commission.

Sec. 3.2. "Financial source" means any person providing financing, directly or indirectly, to the Tribe's video lottery terminal establishment or operation of video lottery terminals authorized under this gaming agreement.

Sec. 3.3. "Gaming activities" means the limited Class III gaming activities authorized under this gaming agreement.

Sec. 3.4. "Gaming employee" means any person who:

(a) operates, maintains, repairs, or assists in any gaming activities, or is in any way responsible for supervising the gaming activities or persons who conduct, operate, account for, or supervise the gaming activities;

(b) is in a category under applicable federal or tribal gaming law requiring licensing;

(c) is an employee of the Tribal Compliance Agency with access to confidential information; or

(d) is a person whose employment duties require or authorize access to areas of the video lottery terminal establishment that are not open to the public.

Sec. 3.5. "Gaming ordinance" means a tribal ordinance or resolution authorizing the conduct of Class III Gaming Activities on the Tribe's Indian lands and approved under IGRA or other applicable federal law.

Sec. 3.6. "IGRA" means the Indian Gaming Regulatory Act of 1988 (18 U.S.C. Sec. 1166 et seq. and 25 U.S.C. Sec. 2701 et seq.), any amendments to the act, and all regulations promulgated under the act.

Sec. 3.7. "Key employee" means any person employed by the Tribe as chief operating or executive officer, chief financial officer, chief of security, or manager of a video lottery terminal establishment or operations of video lottery terminals, or any other person who may directly influence the management of a video lottery terminal establishment or the operation of video lottery terminals.

Sec. 3.8. "NIGC" means the National Indian Gaming Commission.

Sec. 3.9. "Patron" means any person who is on the premises of a video lottery terminal establishment, for the purpose of playing a video lottery game authorized by this gaming agreement.

Sec. 3.10. "Principal" means, with respect to any entity, the entity's sole proprietor or any partner, trustee, beneficiary, or shareholder holding 10 percent or more of the entity's beneficial or controlling ownership, either directly or indirectly, or more than 10 percent of the voting stock of a publicly traded corporation, or any officer, director, principal management employee, or key employee of the entity.

Sec. 3.11. "Restoration Act" means the Ysleta del Sur Pueblo and Alabama and Coushatta Indian Tribes of Texas Restoration Act (25 U.S.C. Section 731 et seq. and 25 U.S.C. Section 1300g et seq.).

Sec. 3.12. "State" means the State of Texas or an authorized official or agency of the state.

Sec. 3.13. "Texas regulatory commission" means the state agency that regulates video lottery games in Texas under Chapter 466, Texas Government Code.

Sec. 3.14. "Transfer agreement" means a written agreement authorizing the transfer of video lottery terminal operating rights between the Tribe and another Indian tribe.

Sec. 3.15. "Transfer notice" means a written notice that the Tribe must provide to the Texas regulatory commission of the Tribe's intent to acquire or transfer video lottery terminal operating rights pursuant to a transfer agreement.

Sec. 3.16. "Tribal chairperson" means the person duly elected or selected under the Tribe's organic documents, customs, or traditions to serve as the primary spokesperson for the Tribe.

Sec. 3.17. "Tribal Compliance Agency" ("TCA") means the Tribal governmental agency that has the authority to carry out the Tribe's regulatory and oversight responsibilities under this gaming agreement. Unless and until otherwise designated by the Tribe, the TCA shall be the [Name of Tribe] Gaming Commission. A gaming employee may not be a member or employee of the TCA. The Tribe has the ultimate responsibility for ensuring that the TCA fulfills its responsibilities under this gaming agreement. The members of the TCA are subject to background investigations and shall be licensed to the extent required by any applicable Tribal or federal law and in accordance with this gaming agreement. The Tribe shall ensure that all TCA officers and agents are qualified for the position and receive ongoing training to obtain and maintain skills sufficient to carry out their responsibilities in accordance with industry standards.

Sec. 3.18. "Tribal law enforcement agency" means a police or security force established and maintained by the Tribe under the Tribe's powers of self-government to carry out law enforcement duties at or in connection with a video lottery terminal establishment.

Sec. 3.19. "Tribal gaming license" means any license issued by the TCA as required by and in compliance with this agreement.

Sec. 3.20. "Tribe" means [Name of Tribe], a federally recognized Indian tribe.

Sec. 3.21. "Video lottery terminal establishment" means any premises at which the operation of video lottery terminals is authorized under this gaming agreement.

SECTION 4.0. RECITALS.

Sec. 4.1. This agreement governs all operations of video lottery terminals as defined by Section 466.002, Texas Government Code, on the Tribe's Indian lands.

Sec. 4.2. A principal goal of Federal Indian policy is to promote tribal economic development and tribal self-sufficiency. The State and the Tribe find the goal to be consistent with applicable federal law, state public policy, and the public health, safety, and welfare to regulate video lottery terminals on Indian lands in accordance with this gaming agreement.

Sec. 4.3. The Tribe is a federally recognized Indian tribe possessing sovereign powers and rights of self-government. The Tribe's governing body has authorized the officials of the Tribe to enter into contracts and agreements of every description, including this gaming agreement, with the State.

Sec. 4.4. The Tribe exercises governmental authority within the [name of Reservation] (the "Reservation"), which for purposes of this gaming agreement means those lands within the current boundaries of the Reservation and any other Indian lands over which the Tribe exercises governmental authority.

Sec. 4.5. The State of Texas is a state of the United States of America possessing the sovereign powers and rights of a state. The State has a legitimate sovereign interest in regulating the growth of Class III gaming activities in Texas. Mindful of that interest, the State of Texas, pursuant to Chapter 466, Texas Government Code, authorized certain gaming agreements with Indian tribal governments in the State of Texas to permit the operation of video lottery terminals on Indian lands. It is the general policy of the State to prohibit commercial gambling throughout the state. The exceptions to this prohibition are limited under Texas law to specified types of gaming and to limited locations that meet specific criteria. Any gaming not expressly authorized is prohibited.

Sec. 4.6. The parties recognize that this agreement provides the Tribe substantial benefits that create a unique opportunity for the Tribe to operate video lottery terminals in an economic environment of limited competition from gaming on non-Indian lands in Texas, with the operation of video lottery games on non-Indian lands restricted to licensed racetracks in existence in 2007 or racetracks for which a license application was filed on or before January 1, 2007, in locations that provide the Tribe with a substantial exclusive territory for its video lottery terminal operations. The parties are mindful that this unique environment is of economic value to the Tribe. In consideration for the substantial rights enjoyed by the Tribe, and in further consideration for the State's willingness to enter into this gaming agreement and allow the Tribe the opportunity to operate video lottery terminals connected to the State's video lottery system, the Tribe has agreed to provide to the State, on a sovereign-to-sovereign basis, a portion of revenue generated by video lottery terminals on Indian lands and to collect and remit to the comptroller State sales and use taxes and State taxes on motor fuels, alcoholic beverages, cigarettes and tobacco products, and hotel occupancy generated at a video lottery terminal establishment. The requirement to collect and remit these State taxes does not apply to an item sold to or used or consumed by a Tribe member.

Sec. 4.7. The Tribe desires to offer the play of video lottery terminals, as a means of generating revenue for the support of tribal governmental programs, such as health care, housing, sewer and water projects, police, corrections, fire, judicial services, highway and bridge construction, general assistance for tribal elders, day care for the children, economic development, educational opportunities, and other typical and valuable governmental services and programs for tribal members.

Sec. 4.8. The State recognizes that the positive effects of this gaming agreement may extend beyond the Tribe's lands to the Tribe's neighbors and surrounding communities and will generally benefit all of Texas. These positive effects and benefits may include not only those described in Section 4.7, but also may include increased tourism and related economic development activities that, through the Tribe's revenue sharing with the State, will generate additional funds for state governmental programs.

Sec. 4.9. The Tribe and the State jointly wish to protect their citizens from any criminal involvement in the gaming operations regulated under this gaming agreement.

Sec. 4.10. Nothing in this agreement shall supplant the role or duties of the Texas Department of Public Safety under state law. The Texas Racing Commission and the Texas Comptroller of Public Accounts do not have any role in regulation or oversight of gaming activities conducted by a Tribe.

Sec. 4.11. The terms of this gaming agreement strictly define and limit the relationship of the parties. Nothing in this gaming agreement shall be construed to create or imply a joint venture, partnership, principal/agent, or any other relationship between the parties.

SECTION 5.0. CLASS III GAMING AUTHORIZED AND PERMITTED.

Sec. 5.1. The Tribe is hereby authorized and permitted to engage only in the Class III gaming activities expressly referred to in Section 6.0 and may not engage in Class III gaming that is not expressly authorized in that section. Nothing in this agreement shall be construed to allow Internet gaming.

SECTION 6.0. AUTHORIZATION OF VIDEO LOTTERY TERMINALS.

Sec. 6.1. Authorized and Permitted Class III Gaming. The Tribe is hereby authorized and permitted to operate the following Class III gaming under the terms and conditions set forth in this agreement.

Sec. 6.2. The Tribe and State agree that the Tribe is authorized to operate video lottery terminals only in accordance with this gaming agreement. However, nothing in this agreement limits any right of the Kickapoo Traditional Tribe of Texas to operate any game that is a Class II game under IGRA, and Class II games are not subject to the exclusivity payments required under this gaming agreement.

Sec. 6.2.1. Operation of Video Lottery Terminals. Video lottery terminals must be operated in connection with the video lottery system and at all times be connected through communication technology or other video lottery equipment controlled by the State to a State controlled and operated video lottery central system. The Tribe may enter into a management gaming agreement for a third party video lottery manager, or the Tribe may act as its own video lottery manager.

(a) Third Party Video Lottery Manager. If the Tribe enters into a management gaming agreement for a third party video lottery manager, the manager must be licensed under Subchapter K, Chapter 466, Texas Government Code, and all video lottery operations shall be subject to and in strict compliance with that subchapter. Any video lottery manager conducting business on Indian lands shall indemnify and hold harmless the State and the Texas regulatory commission and all officers and employees of both from any and all claims which may be asserted against a license holder, the commission, the State, and the members, officers, employees, and authorized agents of either, arising from the license holder's participation in the video lottery system authorized under the gaming agreement.

(b) Tribe as Video Lottery Manager. If the Tribe elects to manage video lottery terminal operations, then Sections 7.0 through 14.0 of this agreement govern the procurement and operation of the video lottery terminals on the Indian lands of the Tribe.

Sec. 6.3. In order to remain eligible to operate video lottery terminals under this gaming agreement, the Tribe must strictly comply with all requirements of the gaming agreement, timely file all reports required by this gaming agreement, and timely remit all payments to the State required under this gaming agreement or applicable state law, including the taxes collected as provided by Section 4.6.

Sec. 6.4. Regardless of ownership of video lottery terminals, the State owns all video lottery games.

SECTION 7.0. PROCUREMENT OF VIDEO LOTTERY TERMINALS.

Sec. 7.1. All video lottery terminals shall be procured only from a video lottery terminal provider registered with the Texas regulatory commission under Subchapter K, Chapter 466, Texas Government Code. The Tribe may not enter into, or continue to make payments pursuant to, any contract or agreement for the provision of video lottery equipment with any person who is not registered by the commission as a video lottery terminal provider under Subchapter K, Chapter 466, Texas Government Code. Any agreement between the Tribe and a video lottery terminal provider shall be deemed to include a provision for the agreement's termination without further liability on the part of the Tribe, except for the bona fide repayment of all outstanding sums, exclusive of interest, owed as of, or payment for services or materials received up to, the date of termination, on revocation or nonrenewal of the video lottery terminal provider's registration.

Sec. 7.2. The Texas regulatory commission shall provide the Tribe a list of registered video lottery terminal providers, commission approved video lottery games, and commission approved video lottery terminals. The Tribe may not operate a video lottery terminal that has not been authorized by the commission.

Sec. 7.3. The Tribe shall file with the Texas regulatory commission any order placed for video lottery terminals simultaneously with the submission of the order to a commission-approved video lottery terminal provider.

Sec. 7.4. The Tribe or the video lottery manager shall provide all necessary capital investments and required improvements at a video lottery terminal establishment.

SECTION 8.0. LICENSING.

Sec. 8.1. Gaming Ordinance and Regulations. All video lottery operations conducted under this agreement, at a minimum, shall comply with all terms and conditions of this gaming agreement, a Gaming Ordinance adopted by the Tribe and approved in accordance with this agreement and any applicable federal law, and with all rules, regulations, procedures, specifications, and standards adopted by the TCA. All licensing related to the operation of video lottery terminals shall be conditioned on an agreement by the license holder to indemnify and hold harmless the State and the Texas regulatory commission and all officers and employees of both from any and all claims which may be asserted against a license holder, the commission, the State and the members, officers, employees, and authorized agents of either arising from the license or registration holder's participation in the video lottery system authorized under this agreement.

Sec. 8.2. Tribal Ownership and Regulation of Gaming Operation. Except as otherwise provided by this agreement, the Tribe shall have the sole proprietary interest in the video lottery terminal establishment and video lottery terminals. This provision may not be construed to prevent the Tribe from granting security interests or other financial accommodations to secured parties, lenders or others, or to prevent the Tribe from entering into leases or financing agreements or a gaming management agreement with a video lottery manager.

Sec. 8.3. Government-to-Government Cooperation. The parties intend that the licensing process provided for in this gaming agreement shall involve joint cooperation between the TCA and the Texas regulatory commission, as described in this agreement.

Sec. 8.4. Video Lottery Terminal Establishment. (a) A video lottery terminal establishment authorized by this agreement shall be operated by a licensed video lottery manager or the Tribe and licensed by the TCA in conformity with the requirements of this gaming agreement, the Tribal Gaming Ordinance, and any applicable federal law. The license shall be reviewed and renewed, if appropriate, every two years. The Tribe shall promptly certify in writing to the Texas regulatory commission each time the license is renewed. The certification must be posted in a conspicuous and public place in the video lottery terminal establishment at all times.

(b) In order to protect the health and safety of all video lottery terminal establishment patrons, guests, and employees, all video lottery terminal establishments of the Tribe constructed after the effective date of this gaming agreement, and all expansions or modifications to a site facility for a video lottery terminal establishment in existence as of the effective date of this gaming agreement, shall meet or exceed the building and safety codes of the Tribe. As a condition for engaging in that construction, expansion, modification, or renovation, the Tribe shall amend the Tribe's existing building and safety codes if necessary, or enact such codes if there are none, so that the codes meet the standards of the building and safety codes of any county in which the video lottery terminal establishment is located, including all uniform fire, plumbing, electrical, mechanical, and related codes in effect on the date this agreement takes effect. Nothing in this agreement shall be deemed to confer jurisdiction on any county or the State with respect to any reference to such building and safety codes. Any construction, expansion, or modification must also comply with the federal Americans with Disabilities Act of 1990 (42 U.S.C. Sec. 12101 et seq.), as amended.

(c) The TCA shall issue a video lottery terminal establishment a certificate of occupancy prior to occupancy if it was not used for any lawful gaming prior to the effective date of this gaming agreement, or, if it was so used, within one year after the effective date. The certificate shall be reviewed for continuing compliance once every two years. Inspections by qualified building and safety experts shall be conducted under the direction of the TCA as the basis for issuing any certificate hereunder. The TCA shall determine and certify that, as to new construction or new use for gaming activities, the video lottery terminal establishment meets the Tribe's building and safety code, or, as to facilities or portions of facilities that were used for the Tribe's gaming before this gaming agreement, that the video lottery terminal establishment or portions of the establishment do not endanger the health or safety of occupants or the integrity of the video lottery system. The Tribe may not offer video lottery gaming in a video lottery terminal establishment that is constructed or maintained in a manner that endangers the health or safety of occupants or the integrity of the video lottery system.

(d) The State shall designate an agent or agents to be given reasonable notice of each inspection by the TCA's experts, and State agents may participate in any such inspection. The Tribe agrees to correct any video lottery terminal establishment condition noted in an inspection that does not meet the standards set forth in Subsections (b) and (c). The TCA and the State's designated agent or agents shall exchange any reports of an inspection within 10 days after completion of the report, and the reports shall be separately and simultaneously forwarded by both agencies to the Tribal chairperson. On certification by the TCA's experts that a video lottery terminal establishment meets applicable standards, the TCA shall forward the experts' certification to the State within 10 days of issuance. If the State's agent objects to that certification, the Tribe shall make a good faith effort to address the State's concerns, but if the State does not withdraw its objection, the matter will be resolved in accordance with the dispute resolution provisions of this gaming agreement.

Sec. 8.5. Suitability Standard Regarding Tribal Gaming Licenses. In reviewing an application for a tribal gaming license, and in addition to any standards set forth in the Tribal gaming ordinance, the TCA shall consider whether issuance of the license is inimical to public health, safety, or welfare, and whether issuance of the license will undermine public trust that the Tribe's operation of video lottery terminals, or tribal government gaming generally, is free from criminal and dishonest elements and would be conducted honestly. A license may not be issued unless, based on all information and documents submitted, the TCA is satisfied that the applicant, in addition to any other criteria in any applicable federal law is all of the following:

(a) a person of good character, honesty, and integrity;

(b) a person whose prior activities, criminal record (if any), reputation, habits, and associations do not pose a threat to the security and integrity of the lottery or to the public interest of the State or to the effective operation and control of the lottery, or create or enhance the dangers of unsuitable, unfair, or illegal practices, methods, or activities in the conduct of the lottery, or in the carrying on of the business and financial arrangements incidental to the conduct of the lottery; and

(c) a person who in all other respects is qualified to be licensed as provided in this gaming agreement, any applicable federal law, the Tribal Gaming Ordinance, and any other criteria adopted by the TCA or the Tribe. An applicant may not be found unsuitable solely on the ground that the applicant was an employee of a tribal gaming operation in Texas that was conducted before the effective date of this gaming agreement. Employment in an unauthorized gaming operation in Texas subsequent to the effective date of this agreement, however, shall impose a presumption of unsuitability.

Sec. 8.6. Gaming Employees. (a) Every gaming employee shall obtain, and thereafter maintain current, a valid tribal gaming license, which shall be subject to biennial renewal, provided that in accordance with Section 8.8.2, a person may be employed on a temporary or conditional basis pending completion of the licensing process.

(b) Without the concurrence of the Texas regulatory commission, the Tribe may not employ or continue to employ any person whose application to the commission for a registration, license, determination of suitability, or other regulatory approval, or for a renewal of a registration, license, determination of suitability, or other regulatory approval, has been denied or has expired without renewal.

Sec. 8.7. Financial Sources. Any person providing financing, directly or indirectly, to the Tribe's video lottery terminal establishment or operation of video lottery terminals must be licensed by the TCA before receipt of that financing, provided that any person who is providing financing at the time of the execution of this gaming agreement must be licensed by the TCA within 90 days of such execution. The TCA shall review licenses at least every two years for continuing compliance. In connection with the review, the TCA shall require the Financial Source to update all information provided in the previous application. Any agreement between the Tribe and a Financial Source is deemed to include a provision for its termination without further liability on the part of the Tribe, except for the bona fide repayment of all outstanding sums, exclusive of interest, owed as of the date of termination, on revocation or nonrenewal of the Financial Source's license by the TCA based on a determination of unsuitability by the Texas regulatory commission. The Tribe may not enter into, or continue to make payments pursuant to any contract or agreement for the provision of financing with any person whose application to the commission for a determination of suitability has been denied or has expired without renewal. A video lottery terminal provider who provides financing exclusively in connection with the sale or lease of video lottery equipment obtained from that video lottery terminal provider may be registered solely in accordance with the commission's registration procedures for video lottery terminal providers. The TCA may, in its discretion, exclude from the licensing requirements of this section, financing provided by:

(1) a federally regulated or state regulated bank, savings and loan, or other federally regulated or state regulated lending institution;

(2) any agency of the federal, state, or local government; or

(3) any investor who, alone or in conjunction with others, holds less than 10 percent of any outstanding indebtedness evidenced by bonds issued by the Tribe.

Sec. 8.8. Processing License Applications. Each applicant for a tribal gaming license shall submit the completed application on forms prescribed by the TCA and approved by the Texas regulatory commission, along with the required information and an application fee, to the TCA in accordance with the rules and regulations of that agency. The parties agree that for purposes of this agreement, the standards set forth under federal law with regard to information required for Tribal gaming operation applications shall govern. Accordingly, at a minimum, the TCA shall require submission and consideration of all information required under federal law, including 25 C.F.R. Section 556.4, for licensing primary management officials and key employees. For applicants who are business entities, the licensing provisions apply to the entity and:

(a) each officer and director;

(b) each principal management employee, including any chief executive officer, chief financial officer, chief operating officer, and general manager;

(c) each owner or partner, if an unincorporated business;

(d) each shareholder who owns more than 10 percent of the shares of the corporation, if a corporation; and

(e) each person or entity, other than a financial institution the TCA has determined does not require a license under the preceding section, that, alone or in combination with others, has provided financing in connection with any video lottery equipment or video lottery terminal establishment under this gaming agreement, if that person or entity provided more than five percent of:

(1) the start-up capital;

(2) the operating capital over a 12-month period; or

(3) a combination thereof.

For purposes of this section, if any commonality of the characteristics identified in Subsections (a)-(e) exist between any two or more entities, the entities may be deemed to be a single entity. Nothing herein precludes the Tribe or TCA from requiring more stringent licensing requirements.

Sec. 8.8.1. Background Investigations of Applicants. (a) The TCA shall conduct or cause to be conducted all necessary background investigations reasonably required to determine that the applicant is qualified for a tribal gaming license under the standards set forth in this gaming agreement, and to fulfill all requirements for licensing under any applicable federal law, the Tribal Gaming Ordinance, and this gaming agreement. The TCA may not issue any license other than a temporary license until a determination is made that the qualifications have been met.

(b) Instead of completing its own background investigation, and to the extent that doing so does not conflict with or violate any applicable federal law or the Tribal Gaming Ordinance, the TCA may contract with the Texas regulatory commission or an independent contractor approved by the commission for the conduct of background investigations. An applicant for a tribal gaming license must provide releases to the commission to make available to the TCA background information regarding the applicant. The commission shall cooperate in furnishing to the TCA that information, unless doing so would violate any agreement the commission has with a source of the information other than the applicant, or would impair or impede a criminal investigation, or unless the TCA cannot provide sufficient safeguards to assure the commission that the information will remain confidential.

Sec. 8.8.2. Temporary Licensing of Employees. Notwithstanding any contrary provision in this gaming agreement, the TCA may issue a temporary license and may impose specific conditions on the license pending completion of the applicant's background investigation as the TCA in its sole discretion shall determine, if:

(a) the applicant for a tribal gaming license has completed a license application in a manner satisfactory to the TCA; and

(b) the TCA has conducted a preliminary background investigation, and the investigation or other information held by the TCA does not indicate:

(1) that the applicant has a criminal history that could pose a threat to the security and integrity of the lottery or to the public interest of the State or the effective operation and control of the lottery, or create or enhance the dangers of unsuitable, unfair, or illegal practices, methods, or activities in the conduct of the lottery, or in the carrying on of the business and financial arrangements incidental thereto;

(2) other information in the applicant's background that would either disqualify the applicant from obtaining a license or cause a reasonable person to investigate further before issuing a license; or

(3) that the applicant is otherwise unsuitable for licensing.

(c) The TCA may require special fees to issue or maintain a temporary license.

(d) A temporary license shall remain in effect until suspended or revoked, or until a final determination is made on the application. At any time after issuance of a temporary license, the TCA may suspend or revoke the temporary license in accordance with Sections 8.9.1 or 8.9.5, and the Texas regulatory commission may request suspension or revocation in accordance with Section 8.9.

(e) For purposes of this agreement, the parties agree that the standards set forth in 25 C.F.R. Part 558 govern licensing and investigations required under the provisions of this agreement. Nothing in this agreement shall be construed to relieve the Tribe of any obligation under this agreement to comply with the standards set forth in 25 C.F.R. Part 558.

Sec. 8.9. Tribal Gaming License Issuance. (a) On completion of the necessary background investigation, the TCA may issue a tribal gaming license on a conditional or unconditional basis. Nothing herein shall create a property or other right of an applicant in an opportunity to be licensed, or in a license itself, both of which shall be considered to be privileges granted to the applicant in the sole discretion of the TCA subject to oversight by the Texas regulatory commission as provided herein. Any license, registration, suitability, qualification issued, or other regulatory approval granted pursuant to or in compliance with this gaming agreement is a revocable privilege, and a holder does not acquire any vested right therein or thereunder.

(b) State and Tribal courts shall have no jurisdiction to review decisions to deny, limit, or condition a license, registration, suitability, qualification, or request for approval unless the judicial review is sought on the ground that such a denial, limitation, or condition is proven by clear and convincing evidence to be based on a suspect classification such as race, color, religion, gender, or national origin, protected under the Equal Protection Clause of the United States Constitution.

Sec. 8.9.1. Denial, Suspension, or Revocation of Licenses. (a) The TCA may deny any application for a tribal gaming license and may revoke any license issued if the TCA determines the application is incomplete or deficient or if the applicant is determined to be unsuitable or otherwise unqualified for the gaming license. Pending consideration of revocation, the TCA may summarily suspend a license in accordance with Section 8.9.5. All rights to notice and hearing shall be governed by tribal law. The TCA shall notify the applicant in writing of the tribal law provisions and of the intent to suspend or revoke the license.

(b) On receipt of notice that the Texas regulatory commission has determined a person would be unsuitable for licensure in a video lottery terminal establishment or related to video lottery terminal operations subject to the jurisdiction of the commission, the TCA shall promptly revoke any license issued to the person.

Sec. 8.9.2. Renewal of Licenses; Extensions; Further Investigation. The term of a tribal gaming license may not exceed five years, and application for renewal of a license must be made before the license's expiration. An applicant for renewal of a license must provide updated material as requested, on the appropriate renewal forms, but, at the discretion of the TCA, may not be required to resubmit historical data previously submitted or that is otherwise available to the TCA. At the discretion of the TCA, an additional background investigation may be required at any time if the TCA determines the need for further information concerning the applicant's continuing suitability or eligibility for a license. Before renewing a license, the TCA shall deliver to the Texas regulatory commission copies of all information and documents received in connection with the application for renewal.

Sec. 8.9.3. Identification Cards. The TCA shall require all persons who are required to be licensed to wear, in plain view at all times while in the video lottery terminal establishment, identification badges issued by the TCA. Identification badges must include a photograph and an identification number that is adequate to enable TCA agents to readily identify the person and determine the validity and date of expiration of the license.

Sec. 8.9.4. Fees for Tribal Gaming License. The fees for all tribal gaming licenses shall be set by the TCA.

Sec. 8.9.5. Summary Suspension of Tribal Gaming License. The TCA may summarily suspend a tribal gaming license if the TCA determines that the continued licensing of the person or entity could constitute a threat to the public health or safety or may violate the TCA's licensing or other standards or any provision of applicable federal or state law or of this agreement. Any right to notice or hearing in regard to the suspension are governed by tribal law provided the law is not inconsistent with any provision of this agreement.

Sec. 8.9.6. State Certification Process. (a) On receipt of a completed tribal gaming license application and a determination by the TCA that it intends to issue the earlier of a temporary or permanent license, the TCA shall transmit to the Texas regulatory commission a notice of intent to license the applicant, together with all of the following:

(1) a copy of all tribal license application materials and information received by the TCA from the applicant;

(2) an original set of fingerprint cards;

(3) a current photograph; and

(4) except to the extent waived by the commission, the releases of information, waivers, and other completed and executed forms obtained by the TCA.

(b) Except for an applicant for licensing as a non-key gaming employee, the TCA shall require the applicant to file an application with the Texas regulatory commission, before issuance of a temporary or permanent tribal gaming license, for a determination of suitability for licensure under Subchapter K, Chapter 466, Texas Government Code. Investigation and disposition of that application is governed entirely by State law, and the commission shall determine whether the applicant would be found suitable for licensure in a video lottery terminal establishment or in relation to video lottery terminal operations at a video lottery terminal establishment subject to the commission's jurisdiction. Additional information may be required by the commission to assist in a background investigation, provided that the commission requirement is no greater than that which may be required of applicants for a video lottery retailer license in connection with video lottery operations at a video lottery terminal establishment under Subchapter K, Chapter 466, Texas Government Code. A determination of suitability is valid for the term of the tribal license held by the applicant, and the TCA shall require a license holder to apply for renewal of a determination of suitability at the time the license holder applies for renewal of a tribal gaming license. The commission and the TCA, together with tribal gaming agencies under other gaming agreements, shall cooperate in developing standard licensing forms for tribal gaming license applicants, on a statewide basis, that reduce or eliminate duplicative or excessive paperwork, and the forms and procedures must take into account the Tribe's requirements under any applicable federal law and the expense thereof.

(c) Background Investigations of Applicants. On receipt of completed license application information from the TCA, the Texas regulatory commission may conduct a background investigation pursuant to state law to determine whether the applicant would be suitable to be licensed for association with a video lottery terminal establishment or operation subject to the jurisdiction of the commission. If further investigation is required to supplement the investigation conducted by the TCA, the applicant will be required to pay an application fee charged by the commission in an amount that reimburses the commission for actual costs incurred, provided that in requesting any deposit, the commission shall take into consideration reports of the background investigation already conducted by the TCA and the NIGC, if any. Failure to pay the application fee or deposit may be grounds for denial of the application by the commission. The commission and TCA shall cooperate in sharing as much background information as possible to maximize investigative efficiency and thoroughness and to minimize investigative costs. On completion of the necessary background investigation or other verification of suitability, the commission shall issue a notice to the TCA certifying the State has determined that the applicant would be suitable or that the applicant would be unsuitable for licensure in a video lottery terminal establishment subject to the jurisdiction of the commission and, if unsuitable, stating the reasons for unsuitability.

(d) The Tribe, on a monthly basis, shall provide the Texas regulatory commission with the name, badge identification number, and job descriptions of all non-key gaming employees.

(e) The Tribe shall, at all times, have a list of key employees on file with the Texas regulatory commission and shall advise the commission of any change to the list not later than the 10th day following the date of the change.

(f) Before denying an application for a determination of suitability, the Texas regulatory commission shall notify the TCA and afford the Tribe an opportunity to be heard. The courts of the State and the Tribe shall have no jurisdiction to review decisions to deny, limit, or condition a license, registration, suitability, qualification, or request for approval unless the denial, limitation, or condition is proven by clear and convincing evidence to be based on a suspect classification such as race, color, religion, sex, or national origin, protected under the Equal Protection Clause of the United States Constitution. Under these circumstances, any requirement for tribal court exhaustion is hereby waived by the Tribe.

Sec. 8.9.7. State Assessment for Costs of Oversight. (a) The State shall make annually an assessment sufficient to compensate the State for actual costs of oversight of the operation of video lottery terminals pursuant to this gaming agreement.

(b) Annually, on or before August 1 beginning with the first such date following the implementation of video lottery operations under this gaming agreement, the State shall render to the TCA a statement of the total cost of oversight and any law enforcement for the preceding fiscal year ending July 31 together with proposed assessments for the forthcoming fiscal year based on the preceding fiscal year cost. In the first year of the effective date of this gaming agreement, however, the assessment must be prospective and based on a pro rata allocation of costs if this gaming agreement becomes operative in the course of a fiscal year and must be established following consultation with the TCA. On September 1, annually, the State, after receiving any objections to the proposed assessments and making such changes or adjustments as may be indicated, shall provide a written notice that assesses the Tribe for the costs of the oversight and any necessary law enforcement. Annually, the Tribe shall pay one-third of the assessment within 20 days of the receipt of the written notice and shall pay the remaining two-thirds of the assessment in two equal payments on January 1 and April 1. The payments must be deposited with the Texas regulatory commission in a video lottery account established solely for funds related to video lottery terminals operated by the Tribe.

(c) In the event that the total assessment paid by the Tribe during any fiscal year of the State exceeds the actual costs of the oversight and any necessary law enforcement during that fiscal year, the State shall adjust the assessment for the succeeding fiscal year in the amount necessary to offset such excess assessment. If the Tribe is aggrieved because of any failure by the State to make such an adjustment, any claim for such an adjustment must be presented in the appeal of the assessment as provided in Section 8.9.8.

Sec. 8.9.8. Procedure for Appeal of Assessments or Payments Made to the State. If the Tribe is aggrieved because of any assessment levied or payment made to the State as required by this gaming agreement, the Tribe, not later than the 30th day following the date provided for the payment, may appeal an assessment or payment to the Texas regulatory commission. If the Tribe is aggrieved by the commission's decision, it may invoke the dispute resolution provisions of this agreement provided that the Tribe must prove by clear and convincing evidence that any collection or assessment of payment to the State was inappropriate.

Sec. 8.9.9. Collection and Distribution of Revenue. (a) The Tribe shall establish separate electronic funds transfer accounts for the purposes of depositing money from video lottery terminal operations, making payments to the Texas regulatory commission, and receiving payments from the commission.

(b) The State's share of net terminal income of the Tribe's video lottery terminal operations shall be transferred to the Texas regulatory commission through the electronic transfer of funds daily by the commission. The commission shall establish the procedures for depositing money from video lottery terminal operations into electronic funds transfer accounts and the procedures for the handling of money from video lottery terminal operations. The State's share of net terminal income from video lottery terminal operations shall be held in trust for the State.

(c) Unless directed otherwise by the Texas regulatory commission, the Tribe shall maintain in its account the State's share of the net terminal income from the operation of video lottery terminals, to be electronically transferred by the commission. On the Tribe's failure to maintain this balance, the commission may disable all of the Tribe's video lottery terminals until full payment of all amounts due is made. Interest shall accrue on any unpaid balance at a rate consistent with the amount charged under Section 111.060, Texas Tax Code. The interest shall begin to accrue on the date payment is due to the commission. In the commission's sole discretion, rather than disable the Tribe's video lottery terminals, the commission may elect to impose contract penalties in an amount to be determined by the commission not to exceed $250,000 for each violation. If the Tribe fails to remedy the violation, including payment of any amounts due to the State, within 10 days, the commission may disable the Tribe's video lottery terminals or use any other means for collection agreed to by the Tribe instead of disabling the Tribe's video lottery terminals.

(d) The Tribe is solely responsible for resolving any income discrepancies between actual money collected and the net terminal income reported by the video lottery central system. Unless an accounting discrepancy is resolved in favor of the Tribe, the Texas regulatory commission may not make any credit adjustments. Any accounting discrepancies which cannot be resolved shall be resolved in favor of the commission.

(e) Tribes shall remit payment as directed by the Texas regulatory commission if the electronic transfer of funds is not operational or the commission notifies the Tribe that remittance by this method is required. The Tribe shall report the State's share of net terminal income, and remit the amount as generated from its terminals during the reporting period.

(f) The Tribe agrees to furnish to the Texas regulatory commission all information and bank authorizations required to facilitate the timely transfer of money to the commission. The Tribe agrees to provide the commission 30 days' advance notice of any proposed account changes in order to assure the uninterrupted electronic transfer of funds. However, in no event shall the commission be responsible for any interruption or delays in transferring of funds. Rather, the Tribe shall be responsible for any interruption or delay in transferring of funds.

SECTION 9.0. RULES AND REGULATIONS; MINIMUM REQUIREMENTS FOR OPERATIONS.

Sec. 9.1. Regulations. The Tribe shall promulgate any rules and regulations necessary to implement this gaming agreement, which at a minimum shall expressly include or incorporate by reference all requirements of this gaming agreement. Nothing in this gaming agreement shall be construed to affect the Tribe's right to amend its rules and regulations, provided that any such amendment shall be in conformity with this gaming agreement. The Texas regulatory commission may propose additional rules and regulations related to implementation of this gaming agreement to the TCA at any time, and the TCA shall give good faith consideration to such suggestions and shall notify the commission of its response or action with respect thereto.

Sec. 9.2. Compliance; Internal Control Standards. All video lottery operations shall comply with, and all video lottery games approved under the procedures set forth in this gaming agreement shall be operated in accordance with the requirements set forth in this gaming agreement and applicable state law. The parties agree that for purposes of this agreement, the standards set forth in 25 C.F.R. Part 542 shall govern minimum requirements for tribal internal control standards. Accordingly, the Tribe agrees that all tribal video lottery operations shall comply with tribal internal control standards that provide a level of control equal to or exceeding that provided by the standards set forth in 25 C.F.R. Part 542.

Sec. 9.3. Records. (a) In addition to other records required to be maintained herein, the Tribe shall maintain in permanent written or electronic form the following records related to implementation of this gaming agreement:

(1) a log recording all surveillance activities of the video lottery terminal establishment, including surveillance records kept in the normal course of operations and in accordance with industry standards; provided, notwithstanding anything to the contrary herein, surveillance records may, at the discretion of the Tribe, be destroyed if no incident has been reported within one year following the date the records were made;

(2) payout from the conduct of all video lottery games;

(3) maintenance logs for all video lottery gaming equipment used by the video lottery terminal establishment;

(4) security logs as kept in the normal course of conducting and maintaining security at the video lottery terminal establishment, which at a minimum must conform to industry practices for such reports;

(5) books and records on video lottery terminals, as described more particularly in Section 9.4, which shall be maintained in accordance with generally accepted accounting principles (GAAP) and the standards set forth in Section 9.4; and

(6) all documents generated in accordance with this gaming agreement.

(b) The Tribe shall make the records maintained under Subsection (a) of this section available for inspection by the Texas regulatory commission for not less than four years from the date the records are generated.

(c) The security logs required under Subsection (a) of this section must document any unusual or nonstandard activities, occurrences, or events at or related to the video lottery terminal establishment or in connection with the video lottery terminal operations. Each incident, without regard to materiality, shall be assigned a sequential number for each such report. At a minimum, the security logs shall consist of the following information, which shall be recorded in a reasonable fashion noting:

(1) the assigned number of the incident;

(2) the date of the incident;

(3) the time of the incident;

(4) the location of the incident;

(5) the nature of the incident;

(6) the identity, including identification information, of any persons involved in the incident and any known witnesses to the incident; and

(7) the Tribal compliance officer making the report and any other persons contributing to its preparation.

Sec. 9.4. ACCOUNTING.

Sec. 9.4.1. Accounting Records Required. The Tribe agrees with regard to any video lottery terminal operations, to keep accurate, complete, legible, and permanent records of all transactions pertaining to revenue for six years. If the Tribe keeps permanent records in a computerized or microfiche fashion, it shall provide the Texas regulatory commission, on request, with a detailed index to the microfiche or computer records that is indexed by date.

Sec. 9.4.2. Accounting Systems. The Tribe agrees with regard to all video lottery terminal operations, to keep general accounting records on a double entry system of accounting, maintaining detailed, supporting, and subsidiary records, including:

(a) detailed records that identify the revenues, expenses, assets, liabilities, and equity of the video lottery terminal establishment and operations;

(b) records required by the Tribe's Minimum Internal Control System;

(c) journal entries prepared by the Tribe and its independent accountant; and

(d) any other records that the TCA may require.

Sec. 9.4.3. Net Terminal Income and Expenses. The Tribe agrees with regard to all video lottery terminal operations, to create and maintain records sufficiently accurate to reflect the net terminal income and expenses of the video lottery terminal establishment and operation of video lottery terminals.

Sec. 9.4.4. Financial Statements. (a) The Tribe agrees to prepare financial statements covering all financial activities of the video lottery terminal establishment and operation of video lottery terminals for a business year. The statements required by this subsection must be presented on a comparative basis.

(b) If the Tribe changes its business year, it must prepare and submit audited or reviewed financial statements to the Texas regulatory commission covering the "stub" period from the end of the previous business year to the beginning of the new business year not later than 120 days after the end of the stub period or incorporate the financial results of the stub period in the statements for the new business year.

Sec. 9.5. Audits. The parties agree that for purposes of this agreement, the standards set forth in 25 C.F.R. Section 571.12 govern audits required under this agreement. The TCA shall ensure that an annual independent financial audit of the Tribe's conduct of video lottery games subject to this gaming agreement and of the video lottery terminal establishment is secured. The audit shall, at a minimum, examine revenues and expenses in connection with the operation of video lottery terminals in accordance with generally accepted auditing standards and shall include those matters necessary to verify the determination of net terminal income and the basis of the payments made to the State pursuant to this gaming agreement.

(a) The auditor selected by the TCA shall be a firm of known and demonstrable experience, expertise, and stature in conducting audits of this kind and scope and shall be approved by the Texas regulatory commission.

(b) The audit shall be concluded within five months following the close of each calendar year, provided that extensions may be requested by the Tribe and may not be refused by the State if the circumstances justifying the extension request are beyond the Tribe's control. An extension, however, may not extend the conclusion of an audit required by this gaming agreement to more than 12 months following the close of the relevant calendar year.

(c) The audit of the operation of video lottery terminals may be conducted as part of or in conjunction with the audit of the video lottery terminal establishment, but if so conducted shall be separately stated for the reporting purposes required herein.

(d) The audit shall conform to generally accepted auditing standards. As part of the audit report, the auditor shall certify to the TCA that, in the course of the audit, the auditor did not discover any matters within the scope of the audit which were determined or believed to be in violation of any provision of this gaming agreement. If the auditor discovers matters determined or believed to be in violation of any provision of this gaming agreement, the auditor shall immediately notify the Texas regulatory commission of the alleged violation and the basis for the auditor's conclusion.

(e) The Tribe shall assume all costs in connection with the audit.

(f) The audit report for the conduct of video lottery games shall be submitted to the Texas regulatory commission within 30 days of completion. The auditor's work papers concerning video lottery games shall be made available to the commission on request.

(g) Representatives of the Texas regulatory commission may, on request, meet with the auditors to discuss the work papers, the audit, or any matters in connection therewith; provided such discussions are limited to video lottery information and pursue legitimate state video lottery interests.

Sec. 9.6. Security. (a) All video lottery terminals shall be continuously monitored through the use of a closed circuit television system that records all activity for a continuous 24-hour period. All videotapes or other media used to store video images shall be retained for a period of at least 30 days.

(b) Access to video lottery terminal locations shall be restricted to persons legally entitled by age under State law to play video lottery games.

(c) The Tribe must submit for approval by the Texas regulatory commission a security plan and a floor plan of the area or areas where video lottery terminals are to be operated showing video lottery terminal locations and security camera mount locations. This commission approved security plan shall be subject to review by the commission which may require revision of the plan on a biennial basis.

(d) Security personnel shall be present during all hours of operation at each video lottery terminal establishment. The Tribe shall employ at least the number of security personnel the Texas regulatory commission determines is necessary to provide for safe and approved operation of the video lottery terminal establishment and the safety and well-being of the players.

(e) The communication technology used in connection with video lottery operations must meet accepted industry standards for security sufficient to minimize the possibility of any third party intercepting any data transmitted to or from the video lottery terminals.

Sec. 9.7. Exclusion of Persons. The Tribe's rules and regulations shall require at a minimum the exclusion of persons based on their prior conduct at the video lottery terminal establishment or who, because of their criminal history or association with criminal offenders, pose a threat to the integrity of the conduct of video lottery games or may be playing video lottery games compulsively.

(a) The TCA shall establish a list of the persons to be excluded from any video lottery terminal establishment under this provision.

(b) The Tribe shall employ its best efforts to exclude persons on such list from entry into its video lottery terminal establishment.

(c) Patrons who believe they may be playing video lottery games on a compulsive basis may request that their names be placed on the list. All gaming employees shall receive training on identifying players who have a problem with compulsive playing and shall be instructed to ask them to leave. Signs and other materials shall be readily available to direct such compulsive players to agencies where they may receive counseling. Notwithstanding any other provision of this agreement, the TCA's list of self-excluded persons shall not be open to public inspection.

(d) The Tribe or video lottery manager also may exclude any other person for any reason not related to that person's race, sex, national origin, physical disability, or religion.

Sec. 9.8. Sale of Alcoholic Beverages. The sale and service of alcoholic beverages in a video lottery terminal establishment shall be in compliance with state, federal, and tribal law in regard to the licensing and sale of such beverages.

Sec. 9.9. Age Restrictions. (a) No person under the age of 21 may be allowed to play video lottery games or be allowed to operate, or obtain a prize from or in connection with the operation of, any video lottery game, directly or indirectly. If during the term of this agreement, the State amends its law to allow play of video lottery terminals by persons under the age of 21, the Tribe may amend tribal law to reduce the lawful gaming age under this agreement to correspond to the lawful gaming age under state law.

(b) No person under the age of 21 may be employed as a gaming employee unless the employment would be allowed under state law.

(c) No person under the age of 21 may be employed in the service of alcoholic beverages at any video lottery terminal establishment, unless such employment would be allowed under state law.

Sec. 9.10. Destruction of Records. Books, records, and other materials documenting the operation of video lottery terminals may be destroyed only in accordance with rules and regulations adopted by the TCA, which at a minimum shall provide as follows:

(a) material that might be utilized in connection with a prize claim, including incident reports, surveillance records, statements, and the like, shall be maintained at least 180 days beyond the time which a claim can be made under this gaming agreement or, if a prize claim is made, beyond the final disposition of such claim; and

(b) except as otherwise provided in Section 9.3(a)(1), all books and records with respect to the operation of video lottery terminals or the operation of the video lottery terminal establishment, including all interim and final financial and audit reports and materials related thereto which have been generated in the ordinary course of business, shall be maintained for the minimum period of four years.

Sec. 9.11. Location. The Tribe may establish facilities for and operate video lottery terminals only on its Indian lands. The Tribe shall notify the Texas regulatory commission of any potential new video lottery terminal establishment following the effective date of this gaming agreement. Nothing herein shall be construed as expanding or otherwise altering the term "Indian lands," as that term is defined by Chapter 466, Texas Government Code.

Sec. 9.12. Placement and Movement of Video Lottery Terminals. Placement and movement of video lottery terminals within a video lottery terminal establishment must be consistent with a video lottery terminal floor plan approved by the Texas regulatory commission.

Sec. 9.13. Monitoring of Operation of Video Lottery Terminals. All terminals connected to the video lottery system will be continuously monitored by the Texas regulatory commission and disabled, when, in the commission's discretion, a problem arises threatening the public health, safety or welfare, or financial loss to the State, or jeopardizing the integrity of the video lottery. Circumstances justifying termination include malfunction of a video lottery terminal or any game displayed on a video lottery terminal, misuse of any video lottery terminal or video lottery game, or a material breach by the Tribe in the operating requirements or a material provision of this agreement.

Sec. 9.14. Wager Limitations. The TCA shall set the maximum wager authorized for any single play of a video lottery terminal consistent with any maximum wager set by rule of the Texas regulatory commission. During the term of this agreement, the wager limitation set forth in this section shall be automatically increased without the need to amend this agreement on each two-year anniversary of the effective date to an amount equal to the wager limitation multiplied by the CPI adjustment rate, rounded up to the next whole dollar.

Sec. 9.15. Prizes. (a) Payment of prizes shall be the sole and exclusive responsibility of the Tribe or video lottery manager. No prizes shall be paid by the Texas regulatory commission or the State except as otherwise authorized. Video lottery tickets shall be redeemable only for a period of 180 days following the date of issuance. If a claim is not made for prize money on or before the 180th day after the date on which the video lottery ticket was issued, the prize money shall be treated as net terminal income. The Tribe agrees to enact rules consistent with this provision and authorized by the commission, governing use and redemption of prizes and credits recorded on electronic player account records, such as players' club cards and smart cards.

(b) Nothing herein shall limit the ability of the Tribe or video lottery manager to provide promotional prizes, including wide area progressive networks, in addition to prize payouts regulated by the commission.

Sec. 9.16. Patron Disputes. (a) The State and the Texas regulatory commission shall not be liable for any video lottery terminal malfunction or error by the Tribe or video lottery manager that causes credit to be wrongfully awarded or denied to players. Any disputes arising between players and the Tribe or video lottery manager shall be resolved:

(1) if the fair market value of the prize is less than $1,000, in accordance with commission approved written policies of the TCA with no relief available from the commission or the State; or

(2) if the fair market value of the prize is $1,000 or more, by the commission in its sole discretion pursuant to rules established by the commission.

(b) No court of this state or of the Tribe shall have jurisdiction to review the decision of the commission resolving a dispute between players and the Tribe or a video lottery manager.

Sec. 9.17. Transfer of Gaming Device Operating Rights. During the term of this agreement, the Tribe may enter into a transfer agreement with one or more federally recognized Indian tribes with Indian lands in this state to acquire or transfer video lottery terminal operating rights on Indian lands. The Tribe's acquisition or transfer of video lottery terminal operating rights is subject to the following conditions:

(a) Gaming Agreement. Each Indian tribe that is a party to a transfer agreement must have a valid and effective gaming agreement with the State that contains a provision substantially similar to the provision herein permitting transfers of the Indian tribe's video lottery terminal operating rights.

(b) Forbearance Agreement. If the Tribe enters into a transfer agreement to transfer some or all of its video lottery terminal operating rights, the Tribe also shall execute a forbearance agreement with the State. The forbearance agreement shall include a waiver of all rights of the Tribe to put into play or operate the number of video lottery terminal operating rights transferred during the term of the transfer agreement.

(c) The Tribe must be operating video lottery terminals at least equal to its current video lottery terminal allocation before, or simultaneously with, the Tribe acquiring the right to operate additional video lottery terminals by a transfer agreement. The Tribe is not required to utilize any video lottery terminal operating rights it acquires, or to utilize them before acquiring additional video lottery terminal operating rights.

(d) The Tribe shall not at any time simultaneously acquire video lottery terminal operating rights and transfer video lottery terminal operating rights pursuant to transfer agreements.

Sec. 9.17.1. Transfer Agreements. The transfer of video lottery terminal operating rights may be made pursuant to a transfer agreement between two Indian tribes. A transfer agreement must include the following provisions:

(a) the number of video lottery terminal operating rights transferred and acquired;

(b) the duration of the transfer agreement;

(c) the consideration to be paid by the Indian tribe acquiring the video lottery terminal operating rights to the Indian tribe transferring the video lottery terminal operating rights and the method of payment;

(d) the dispute resolution and enforcement procedures, including a provision for the State to receive notice of any such proceedings; and

(e) a procedure to provide quarterly notice to the Texas regulatory commission of payments made and received, and to provide timely notice to the commission of disputes, revocation, amendment, and termination.

Sec. 9.17.2. Transfer Notice. At least 30 days before the execution of a transfer agreement the Tribe shall send to the Texas regulatory commission a transfer notice of intent to acquire or transfer video lottery terminal operating rights. The transfer notice shall include a copy of the proposed transfer agreement, the proposed forbearance agreement, and a copy of the tribal resolution authorizing the acquisition or transfer.

Sec. 9.17.3. Texas Regulatory Commission Denial of Transfer. (a) The Texas regulatory commission may deny a transfer as set forth in a transfer notice only if:

(1) the proposed transfer violates the conditions set forth in this agreement; or

(2) the proposed transfer agreement does not contain the minimum requirements listed in this agreement.

(b) The commission's denial of a proposed transfer must be in writing, must include the specific reasons for the denial (including copies of all documentation relied upon by the commission to the extent allowed by state law), and must be received by the Tribe within 60 days of the commission's receipt of the transfer notice. If the Tribe disputes the commission's denial of a proposed transfer, the Tribe shall have the right to have the dispute resolved pursuant to the dispute resolution process provided in Section 15.0 herein.

Sec. 9.17.4. Effective Date of Transfer. If the Tribe does not receive a notice of denial of the transfer from the Texas regulatory commission within the period specified in Section 9.17.3, the proposed transfer agreement shall become effective on the later of the 61st day following the commission's receipt of the transfer notice or the date set forth in the transfer agreement.

Sec. 9.17.5. Use of Brokers. The Tribe shall not contract with any person to act as a broker in connection with a transfer agreement. No person shall be paid a percentage fee or a commission as a result of a transfer agreement, nor shall any person receive a share of any financial interest in the transfer agreement or the proceeds generated by the transfer agreement. Any person acting as a broker in connection with a transfer agreement is providing gaming services.

Sec. 9.17.6. Revenue from Transfer Agreements. The Tribe agrees that all proceeds received by the Tribe as a transferor under a transfer agreement shall be used for the governmental purposes permitted under this agreement for revenue generated by video lottery terminal operations. The Tribe shall include the proceeds in an annual audit and shall make available to the State that portion of the audit addressing proceeds from transfer agreements.

Sec. 9.17.7. Agreed Upon Procedures Report. The Tribe agrees to provide to the Texas regulatory commission, either separately or with the other party to the transfer agreement, an agreed upon procedures report from an independent certified public accountant. The procedures to be examined and reported upon are whether payments made under the transfer agreement were made in the proper amount, made at the proper time, and deposited in an account of the Indian tribe transferring the video lottery terminal operating rights.

Sec. 9.17.8. State Payment. Proceeds received by the Tribe as a transferor under a transfer agreement from the transfer of video lottery terminal operating rights are not subject to any payment to the State under this agreement or otherwise.

Sec. 9.17.9. Access to Records Regarding Transfer Agreements. The Texas regulatory commission shall have access to all records of the Tribe directly relating to transfer agreements and forbearance agreements.

Sec. 9.18. Supervision of Patrons. The Tribe agrees to ensure that gaming employees, at all times, monitor video lottery terminals to prevent access to or play by persons who are under the age of 21 years or who are visibly intoxicated.

Sec. 9.19. Hours of Operation. The Tribe may establish by ordinance or regulation the permissible hours and days of operation of video lottery terminal operations; provided, however, that with respect to the sale of liquor, the Tribe agrees to adopt and comply with standards at least as restrictive as any applicable state liquor laws at all video lottery terminal establishments.

Sec. 9.20. Automatic Teller Machines. The Tribe agrees to adopt and comply with a Tribal ordinance establishing responsible restrictions on the provision of financial services at video lottery terminal establishments. At a minimum, the ordinance shall prohibit:

(a) locating an automatic teller machine ("ATM") adjacent to, or in proximity to, any video lottery terminal, however, an ATM may be installed in a video lottery terminal establishment, provided that the Tribe adopts and complies with an ordinance establishing standards no less restrictive than any state and federal law governing installation of ATMs within a gaming facility;

(b) locating in a video lottery terminal establishment an ATM that accepts electronic benefit transfer cards issued pursuant to a state or federal program that is intended to provide for needy families or individuals; and

(c) accepting checks or other noncash items issued pursuant to a state or federal program that is intended to provide for needy families or individuals.

Sec. 9.21. Advertising. Advertisements or promotions must comply with guidelines established by the TCA that are consistent with criteria established by the Texas regulatory commission.

Sec. 9.22. Remedies and Penalties for Unlawful Gaming. Operation or possession of any gaming devices not expressly authorized under this gaming agreement or Texas law (excluding any Class II gaming authorized under applicable federal law) shall be considered a material breach of the gaming agreement and justify termination of the agreement. Under those circumstances, the State may bring an action in state court and shall be entitled to an injunction prohibiting the continued operation of any unlawful gaming activity upon a showing by a preponderance of evidence that the breach has occurred. In any such proceeding, it is the finding of the legislature that irreparable injury and inadequate remedy at law shall be presumed once the State has demonstrated the violation has occurred. If the State does not seek an injunction for such a material breach of the gaming agreement, the Tribe agrees to pay a contract penalty of $10,000 per day for every day the violation or breach continues. If the breach or violation is not cured within 30 days, the State shall bring an action to enjoin the unlawful conduct and may disable all video lottery terminals operated by the Tribe or operated by a video lottery manager on the Indian lands of the Tribe.

SECTION 10.0. ENFORCEMENT OF GAMING AGREEMENT PROVISIONS.

Sec. 10.1. The Tribe and TCA shall be responsible for regulating activities pursuant to this gaming agreement. As part of its responsibilities, the Tribe shall:

(a) take reasonable measures to assure the physical safety of video lottery terminal establishment patrons and personnel, prevent illegal activity at the video lottery terminal establishment, and protect any rights of patrons under the Indian Civil Rights Act of 1968 (25 U.S.C. Sections 1301-1303);

(b) promptly notify appropriate law enforcement authorities of persons who may be involved in illegal acts in accordance with applicable tribal, federal, and state law;

(c) assure that the construction and maintenance of the video lottery terminal establishment meets or exceeds federal and Tribal standards for comparable buildings and minimum standards under this gaming agreement; and

(d) prepare adequate emergency access and preparedness plans to ensure the health and safety of all video lottery terminal establishment patrons. On finalization of the emergency access and preparedness plans, the TCA or the Tribe shall forward copies of the plans to the Texas regulatory commission.

Sec. 10.2. Members and employees of the TCA shall be licensed in accordance with the provisions of this agreement. All licenses for members and employees of the TCA shall be issued according to the same standards and terms applicable to video lottery terminal establishment employees. The TCA shall employ qualified compliance officers under the authority of the TCA. The compliance officers shall be independent of the video lottery terminal establishment, and shall be supervised by and accountable only to the TCA. A TCA compliance officer shall be available to the video lottery terminal establishment during all hours of operation on reasonable notice, and shall have immediate access to any and all areas of the video lottery terminal establishment for the purpose of ensuring compliance with the provisions of this gaming agreement. The TCA shall investigate any suspected or reported violation of this gaming agreement and shall require the correction of the violation. The TCA shall prepare and retain in its files a timely written report of each investigation and any action taken in response to the investigation, and shall forward copies of the report to the Texas regulatory commission within 15 days of the date of the filing. Any such violations shall be reported immediately to the TCA, and the TCA shall immediately forward the same to the commission. In addition, the TCA shall promptly report to the commission any such violations that it independently discovers.

Sec. 10.3. In order to develop and foster a positive and effective relationship in the enforcement of the provisions of this gaming agreement, representatives of the TCA and the Texas regulatory commission shall meet at least annually to review past practices and examine methods to improve the regulatory scheme created by this gaming agreement. The meetings shall take place at a location mutually agreed to by the TCA and the commission. The commission, before or during such meetings, shall disclose to the TCA any concerns, suspected activities, or pending matters reasonably believed to possibly constitute violations of this gaming agreement by any person, organization, or entity, if such disclosure will not compromise the interest sought to be protected.

Sec. 10.4. Financial Obligations of the Texas Regulatory Commission. Any financial obligation of the Texas regulatory commission or of the State, under this gaming agreement or arising from the operation of the video lottery on the Tribe's Indian lands, shall be payable solely out of the income, revenues, and receipts of the commission resulting from the operation of video lottery terminals on Indian lands of the Tribe.

Sec. 10.5. Penalties and Remedies for Noncompliance. (a) Failure to timely remit revenue generated by video lottery terminals to the Texas regulatory commission or any sales tax or other fee owed to the State or to timely file any report or information required under this gaming agreement or by applicable federal or state law shall constitute a material breach of this gaming agreement. After receiving at least 24 hours written notice from the commission and an additional 48 hours for the opportunity to remedy the breach or otherwise correct the violation, the Tribe shall be subject to contract penalties in the amount of $10,000 per day for the breach. If the breach is not cured within 30 days, the commission shall disable all video lottery terminals operated by the Tribe.

(b) If the Tribe is in material breach of this agreement and the Texas regulatory commission exercises its right to disable all video lottery terminals operated by the Tribe, the commission shall have the right to enter the premises of any video lottery terminal establishment on the Tribe's Indian lands and remove any video lottery games or other video lottery equipment owned by the State.

Sec. 10.6. No Liability of the State Related to Enforcement. The State and the Texas regulatory commission are not liable for any enforcement of the provisions of this gaming agreement.

SECTION 11.0. STATE MONITORING OF GAMING AGREEMENT.

Sec. 11.1. (a) The Texas regulatory commission shall, pursuant to the provisions of this gaming agreement, have the authority to monitor the conduct of video lottery games to ensure video lottery games are conducted in compliance with the provisions of this gaming agreement. In order to properly monitor the conduct of video lottery games, in addition to the State's operation and control of the central system and video lottery system, agents of the commission shall have reasonable access to all areas of the video lottery terminal establishment related to the conduct of video lottery games as provided herein:

(1) the commission shall have access to the video lottery terminal establishment only during the video lottery terminal establishment's normal operating hours; provided that to the extent such inspections are limited to areas of the video lottery terminal establishment where the public is normally allowed, commission agents may inspect the video lottery terminal establishment without giving prior notice to the Tribe;

(2) any suspected or claimed violations of this gaming agreement or of law shall be directed in writing to the TCA; commission agents may not interfere with the functioning of the video lottery terminal establishment unless the public safety, welfare, or financial loss to the State, or integrity of the state lottery so requires; and

(3) before entering any nonpublic area of the video lottery terminal establishment, commission agents must provide proper photographic identification to the TCA.

(b) A TCA agent shall accompany a commission agent in nonpublic areas of the video lottery terminal establishment. A one-hour notice by the commission to the TCA may be required to assure that a TCA officer is available to accompany commission agents at all times.

Sec. 11.2. Subject to the provisions herein, agents of the Texas regulatory commission shall have the right to review and copy documents or other records related to the operation of video lottery terminals. The review and copying of those records shall be during normal business hours or hours otherwise at the Tribe's discretion. However, the commission may not copy those portions of any records related to the Tribe's operation of video lottery terminals that contain business or marketing strategies or other proprietary and confidential information, including customer lists, business plans, marketing studies, and customer demographics or profiles. No records of the Tribe related to its conduct of video lottery games or copies thereof shall be released to the public by the State. All such records shall be deemed confidential records owned by the Tribe and are not subject to public disclosure by the State.

Sec. 11.3. At the completion of any commission inspection or investigation, the Texas regulatory commission shall forward a written report thereof to the TCA. The TCA shall be apprised on a timely basis of all pertinent, nonconfidential information regarding any violation of federal, or state laws, rules or regulations, or this gaming agreement. Nothing herein prevents the commission from contacting Tribal or federal law enforcement authorities concerning suspected criminal wrongdoing involving the TCA. The TCA may interview commission agents and inspectors upon reasonable notice and examine work papers in the same fashion that commission agents and inspectors may examine auditors' notes and make auditor inquiry unless providing such information to the TCA will compromise the interests sought to be protected.

Sec. 11.4. Nothing in this gaming agreement shall be deemed to authorize the State to regulate the Tribe's government, including the TCA, or to interfere in any way with the Tribe's selection of its governmental officers, including members of the TCA. The Texas regulatory commission and the Tribe, however, on request of the Tribe, shall jointly employ, at the Tribe's expense, an independent firm to perform on behalf of the commission the duties set forth in Sections 11.2 and 11.3.

SECTION 12.0. JURISDICTION.

Sec. 12.1. Except as expressly provided herein, this gaming agreement shall not alter tribal, federal, or state civil adjudicatory or criminal jurisdiction.

Sec. 12.2. The Tribe expressly consents to the State's jurisdiction to enforce the terms of this gaming agreement including any request for judicial injunctive relief to prohibit unlawful gaming activities.

SECTION 13.0. PUBLIC AND WORKPLACE HEALTH, SAFETY, AND LIABILITY.

Sec. 13.1. The Tribe will not conduct any gaming activity in a manner that endangers the public health, safety, or welfare.

Sec. 13.2. For the purposes of this gaming agreement, the Tribe agrees to:

(a) adopt and comply with standards at least as stringent as state public health standards for food and beverage handling at any video lottery terminal establishment. The Tribe will allow inspection of food and beverage services at any video lottery terminal establishment by state or county health inspectors, during normal hours of operation, to assess compliance with these standards, unless inspections are routinely made by an agency of the United States government to ensure compliance with equivalent standards of the United States Public Health Service. Nothing herein shall be construed as submission of the Tribe to the jurisdiction of those state or county health inspectors, but any alleged violations of the standards shall be treated as alleged violations of the gaming agreement;

(b) adopt and comply with standards at least as stringent as federal water quality and safe drinking water standards applicable in Texas at any video lottery terminal establishment. The Tribe will allow for inspection and testing of water quality at any video lottery terminal establishment by state or county health inspectors, as applicable, during normal hours of operation, to assess compliance with these standards, unless inspections and testing are made by an agency of the United States pursuant to, or by the Tribe under express authorization of, federal law, to ensure compliance with federal water quality and safe drinking water standards. Nothing herein shall be construed as submission of the Tribe to the jurisdiction of those state or county health inspectors, but any alleged violations of the standards shall be treated as alleged violations of this gaming agreement;

(c) comply with the building and safety standards set forth in Section 8.4 of this agreement;

(d) carry not less than $1 million in public liability insurance for patron claims. The Tribe herein provides reasonable assurance that such claims will be promptly and fairly adjudicated, and that legitimate claims will be paid; provided that nothing herein requires the Tribe to agree to liability for punitive damages or attorneys' fees. On or before the effective date of this gaming agreement or not less than 30 days before the commencement of operation of video lottery terminals under this gaming agreement, whichever is later, the Tribe shall adopt and make available to patrons a tort liability ordinance setting forth the terms and conditions, if any, under which the Tribe waives immunity to suit for money damages resulting from intentional or negligent injuries to person or property at the video lottery terminal establishment or in connection with the Tribe's operation of video lottery terminals. The tort liability ordinance shall include procedures for processing any claims for such money damages. Nothing in this section shall require the Tribe to waive its immunity to suit except to the extent of the policy limits set out in this subsection. Any insurance policy provided in compliance with the terms of this subsection shall provide that the policy provider shall not raise the Tribe's sovereign immunity as a defense or otherwise to avoid payment of a claim under this subsection;

(e) adopt and comply with standards at least as stringent as federal workplace and occupational health and safety standards at any video lottery terminal establishment. The Tribe will allow for inspection of video lottery terminal establishment workplaces by state inspectors, during normal hours of operation, to assess compliance with these standards, unless inspections are regularly made by an agency of the United States government to ensure compliance with federal workplace and occupational health and safety standards. Nothing herein shall be construed as submission of the Tribe to the jurisdiction of those state inspectors, but any alleged violations of the standards shall be treated as alleged violations of this gaming agreement;

(f) comply with tribal codes and any applicable federal law regarding public health and safety;

(g) adopt and comply with standards at least as stringent as federal laws and state laws forbidding employers generally from discriminating in the employment of persons to work for the Tribe in relation to its operation of video lottery terminals or in the video lottery terminal establishment on the basis of race, color, religion, national origin, gender, sexual orientation, age, or disability. However, nothing herein shall preclude the Tribe from giving a preference in employment to Indians, pursuant to a duly adopted tribal ordinance;

(h) adopt and comply with standards that are at least as stringent as state laws prohibiting a video lottery manager or any employee thereof from cashing any check drawn against a federal, state, county, or city fund, including social security, unemployment insurance, disability payments, or public assistance payments;

(i) adopt and comply with standards that are at least as stringent as state laws governing the extension of credit to, the cashing of checks for, and other financial transactions with patrons calculated to protect players from problem and pathological gambling; and

(j) adopt and comply with the provisions of the Bank Secrecy Act (31 U.S.C. Sections 5311-5314), as amended, and all reporting requirements of the Internal Revenue Service, insofar as such provisions and reporting requirements are applicable to gaming facilities.

Sec. 13.2.1. The Tribe agrees to adopt and, not later than 30 days after the effective date of this gaming agreement, make available on request the standards described in Sections 13.2(a)-(c) and (e)-(j) to which the Tribe is held with regard to operation of video lottery terminals. In the absence of a promulgated tribal standard in respect to a matter identified in those subsections, or the express adoption of an applicable federal statute or regulation instead of a tribal standard in respect to any such matter, an applicable state statute or regulation shall be deemed to have been adopted by the Tribe as the applicable standard.

Sec. 13.3. Participation in State Statutory Programs Related to Employment. (a) Instead of allowing the Tribe to participate in the state statutory workers' compensation system for employees of a video lottery terminal establishment or otherwise engaged in the operation of video lottery terminals, the Tribe may create and maintain a system that provides redress for employee work-related injuries through requiring insurance or self-insurance. The system must include a scope of coverage, availability of an independent medical examination, right to notice, hearings before an independent tribunal, a means of enforcement against the employer, and benefits comparable to those mandated for comparable employees under state law. Not later than the effective date of this gaming agreement, or 60 days before the commencement of video lottery terminal operations under this gaming agreement, the Tribe will advise the State of its election to participate in the statutory workers' compensation system or, alternatively, will forward to the State all relevant ordinances that have been adopted and all other documents establishing the system and demonstrating that the system is fully operational and compliant with the comparability standard set forth in this subsection. The parties agree that independent contractors doing business with the Tribe must comply with all state workers' compensation laws and obligations.

(b) The Tribe agrees to participate in the State's program for providing unemployment compensation benefits and unemployment compensation disability benefits with respect to employees of the video lottery terminal establishment, and the Tribe consents to the jurisdiction of the state agencies charged with the enforcement of that code and of the courts of the State for purposes of enforcement.

(c) As a matter of comity, with respect to persons employed at the video lottery terminal establishment in capacities otherwise related to the operation of video lottery terminals, other than members of the Tribe, the Tribe shall withhold all taxes due to the State as provided by Texas law, and shall forward the amounts as provided by State law.

Sec. 13.4. Emergency Service Accessibility. The Tribe shall make reasonable provisions for adequate emergency fire, medical, and related relief and disaster services for patrons and employees of the video lottery terminal establishment.

Sec. 13.5. The Tribe agrees to prohibit the intentional, knowing, or reckless possession of a firearm, illegal knife, club, explosive weapon, machine gun, firearm silencer, knuckles, armor-piercing ammunition, a chemical dispensing device, or a zip gun, as those terms are defined in Section 46.01, Texas Penal Code, at all times in the video lottery terminal establishment. The defenses that apply to the prohibition of possession of those weapons on the premises of a racetrack under Section 46.03, Texas Penal Code, shall also apply to the prohibition of possession of the weapons in video lottery terminal establishments. In addition, Tribal security or Tribal law enforcement personnel, shall be allowed to possess firearms and clubs at a video lottery terminal establishment as authorized by Tribal law.

Sec. 13.6. Tribal Law Enforcement Plan. The Tribe agrees to implement a written tribal law enforcement services plan that provides a comprehensive and effective means to address criminal and undesirable activity at the video lottery terminal establishment. The plan shall provide that sufficient tribal law enforcement resources are available 24 hours a day, seven days a week to protect the public health, safety, and welfare at the video lottery terminal establishment. To accommodate investigations and intelligence sharing, the Tribe will provide that a police officer holding a current Texas police officer standards and training certification is employed by the Tribe and assigned to handle video lottery terminal related matters when they arise. Intelligence liaisons will be established at the tribal police department or TCA and also at the Texas regulatory commission. There will be federal, tribal, and state cooperation in task force investigations. The commission's intelligence unit will gather, coordinate, centralize, and disseminate accurate and current intelligence information pertaining to criminal and undesirable activity that may threaten patrons, employees, and assets of a video lottery terminal establishment or the video lottery system. The State and the Tribe will coordinate the use of resources, authority, and personnel of the State and the Tribe for the shared goal of preventing and prosecuting criminal or undesirable activity by players, employees, or businesses in connection with tribal video lottery terminal operations.

Sec. 13.7. Annual Statement of Compliance Regarding Use of Revenue. The Tribe agrees to submit to the Texas regulatory commission an annual statement of compliance regarding the use of its share of revenue generated from video lottery terminal operations and a copy of a current tribal ordinance requiring that revenue generated from video lottery terminal operations be used exclusively for the establishment and improvement of governmental services and programs.

SECTION 14.0. EXCLUSIVITY AND FEES.

Sec. 14.1. The parties acknowledge and recognize that this gaming agreement provides the Tribe territorial exclusivity through the permitted operation of video lottery terminals without requiring construction or operation of a racetrack for live horse or dog racing. This territorial exclusivity and the additional benefits to the Tribe are of substantial benefit to the Tribe and, consistent with Federal Indian policy, provide special opportunities for tribal economic opportunity through gaming within the external boundaries of Texas. In consideration thereof, as long as the State does not after the effective date of this gaming agreement authorize a person to operate video lottery terminals or any additional form of gaming that would be considered a lottery or gift enterprise under Section 47(a), Article III, Texas Constitution, without the Tribe's written consent within the exclusive territory designated by this gaming agreement for the operation of video lottery games by the Tribe, the Tribe agrees to pay the fees described in this section.

(a) The Tribe covenants and agrees to pay to the State a fee derived from net terminal income calculated as set forth in Subsection (b). The fee shall be deducted from the daily deposit of funds into the State's account from the video lottery terminal operations prior to the State's transfer of funds back to the Tribe for such operations.

(b) The fee shall be 10 percent of all net terminal income received by the Tribe in a calendar year.

Sec. 14.2. Start-Up Assessment. On the effective date of this gaming agreement, the Tribe shall deposit with the Texas regulatory commission a Start-Up Assessment in the sum of $10,000. The purpose of the Start-Up Assessment shall be to assist the State in initiating its administrative and oversight responsibilities hereunder, and shall be a one-time payment to the State for such purposes.

Sec. 14.3. Nothing in this gaming agreement shall be deemed to authorize the State to impose any tax, fee, charge, or assessment on the Tribe or the video lottery terminal establishment except as expressly authorized pursuant to this gaming agreement under Sections 4.6 and 13.3(c). To the extent that the Tribe is required under federal law to report prizes awarded, the Tribe agrees to copy such reports to the Texas regulatory commission. Any state sales tax on the sale of goods and services to non-Indians at video lottery terminal establishments shall be conclusively presumed to be a direct tax on the retail consumer, pre-collected for the purpose of convenience and facility.

Sec. 14.4. In consideration for the covenants and agreements contained herein, the State agrees that it will not, during the term of this gaming agreement, allow the nontribal operation of any video lottery games or other gaming that would be considered a lottery or gift enterprise under Section 47(a), Article III, Texas Constitution, without the Tribe's written consent within ______ [limitation on state video lottery or other new lottery gaming in exclusive Indian video lottery territory]. The state recognizes the importance of this provision to the Tribe and agrees, in the event of a breach of this provision by the State, to require any nontribal entity that operates any such games within the prohibited territory to remit to the State not less than 50 percent of any revenue from those games. The State further agrees to remit that revenue at least quarterly to Eligible Tribes, as liquidated damages. For purposes of this part, "Eligible Tribes" shall mean those tribes that have entered into a gaming agreement with the State under Section 466.604, Texas Government Code, and are operating gaming pursuant to the gaming agreement within ______ [description of exclusive territory for tribal video lottery]. Such liquidated damages shall be allocated pro rata to the Eligible Tribes based on the number of video lottery terminals operated by each Eligible Tribe in the period when those revenues were generated.

SECTION 15.0. DISPUTE RESOLUTION.

Sec. 15.1. Voluntary Resolution; Reference to Other Means of Resolution. In recognition of the government-to-government relationship of the Tribe and the State, the parties shall make their best efforts to resolve disputes that occur under this gaming agreement by good faith negotiations whenever possible. Therefore, without prejudice to the right of either party to seek injunctive relief or specific relief provided in this agreement against the other when circumstances are deemed to require immediate relief, the parties hereby establish a threshold requirement that disputes between the Tribe and the State first be subjected to a process of meeting and conferring in good faith in order to foster a spirit of cooperation and efficiency in the administration and monitoring of performance and compliance by each other with the terms, provisions, and conditions of this gaming agreement, as follows:

(a) either party shall give the other, as soon as possible after the event giving rise to the concern, a written notice setting forth, with specificity, the issues to be resolved;

(b) the parties shall meet and confer in a good faith attempt to resolve the dispute through negotiation not later than 10 days after receipt of the notice, unless both parties agree in writing to an extension of time;

(c) if the dispute is not resolved to the satisfaction of the parties within 30 days after the first meeting, then either party may seek to have the dispute resolved by an arbitrator in accordance with this section; and

(d) disagreements that are not otherwise resolved by arbitration or other mutually acceptable means as provided herein may be resolved in the United States District Court with jurisdiction over the location or planned location of the Tribe's video lottery terminal establishment or, if the federal courts lack jurisdiction, in a state district court in Travis County. The disputes to be submitted to court action are limited to claims of breach or violation of this gaming agreement or failure to negotiate in good faith as required by the terms of this gaming agreement. The parties agree that, except in the case of imminent threat to the public health, safety, or welfare or the integrity of the lottery, reasonable efforts will be made to explore alternative dispute resolution avenues prior to resorting to judicial process.

Sec. 15.2. Arbitration Rules. Arbitration shall be conducted in accordance with the policies and procedures of the Commercial Arbitration Rules of the American Arbitration Association, provided that application of these rules shall not be construed to waive the State's sovereign immunity to an extent greater than otherwise authorized herein. Arbitration shall be held at such location as the parties may agree. Each side shall bear its own costs, attorneys' fees, and one-half the costs and expenses of the American Arbitration Association and the arbitrator, unless the arbitrator rules otherwise. Only one neutral arbitrator may be named, unless the Tribe or the State objects, in which case a panel of three arbitrators (one of whom is selected by each party) will be named. The decision of the arbitrator or arbitrators shall be in writing, shall give reasons for the decision, and shall be binding. Judgment on the award may be entered in any federal or state court having jurisdiction thereof.

Sec. 15.3. Limited Waiver of Sovereign Immunity. (a) In the event that a dispute is to be resolved in federal court or a state court of competent jurisdiction as provided in this section, the State and the Tribe expressly consent to be sued therein and waive any immunity therefrom that they may have provided that:

(1) the dispute is limited solely to issues arising under this gaming agreement;

(2) neither side makes any claim for monetary damages (that is, only injunctive, specific performance, including enforcement of a provision of this gaming agreement requiring payment of money to one or another of the parties, or declaratory relief is sought); and

(3) no person or entity other than the Tribe and the State is party to the action, unless failure to join a third party would deprive the court of jurisdiction, provided that nothing herein shall be construed to constitute a waiver of the sovereign immunity of either the Tribe or the State in respect to any such third party.

(b) In the event of intervention by any additional party into any such action without the consent of the Tribe and the State, the waivers of either the Tribe or the State provided for herein may be revoked, unless joinder is required to preserve the court's jurisdiction, provided that nothing herein shall be construed to constitute a waiver of the sovereign immunity of either the Tribe or the State in respect to any such third party.

(c) The waivers and consents provided for under this section shall extend to civil actions authorized by this gaming agreement, such as actions to compel arbitration, any arbitration proceeding herein, any action to confirm or enforce any judgment or arbitration award as provided herein, and any appellate proceedings emanating from a matter in which an immunity waiver has been granted. Except as stated herein or elsewhere in this gaming agreement, no other waivers or consents to be sued, either express or implied, are granted by either party.

(d) The State only waives sovereign immunity to the extent authorized by Section 466.601, Texas Government Code.

SECTION 16.0. CONSTRUCTION OF GAMING AGREEMENT; FEDERAL APPROVAL.

Sec. 16.1. Each provision, section, and subsection of this gaming agreement shall stand separate and independent of every other provision, section, or subsection. In the event that a federal district court or a state court of competent jurisdiction as provided in this agreement shall find any provision, section, or subsection of this gaming agreement to be invalid, the remaining provisions, sections, and subsections of this gaming agreement shall remain in full force and effect, unless the invalidated provision, section, or subsection is material. It is a material provision of this gaming agreement that Class III gaming be limited to that expressly authorized under this gaming agreement, and Subchapter K, Chapter 466, Texas Government Code. If any final and nonappealable judicial determination authorizes or requires the State to authorize that any Class III gaming be operated by the Tribe other than video lottery terminals connected to the video lottery system or to a government operated video lottery system structured identically to that expressly authorized under Subchapter K, Chapter 466, Texas Government Code, if so required by federal law, then this gaming agreement shall be null and void for all purposes.

Sec. 16.2. Each party hereto agrees to defend the validity of this gaming agreement and the legislation in which it is embodied.

Sec. 16.3. The parties shall cooperate in seeking approval of this gaming agreement from an appropriate federal agency if so required by federal law.

SECTION 17.0. NOTICES.

All notices required under this gaming agreement shall be given by certified mail, return receipt requested, commercial overnight courier service, or personal delivery, to the following persons:

Governor

Chair, State-Tribal Relations Committee

Attorney General

[Principal Chief, Governor or Chair]

[Name of Tribe]

[Address]

With copies to: _______________________

SECTION 18.0. DURATION, NEGOTIATION, AND TERMINATION.

Sec. 18.1. This gaming agreement shall become effective on the last date of the satisfaction of the following requirements:

(a) due execution on behalf of the Tribe, including obtaining all tribal resolutions and completing other tribal procedures as may be necessary to render the Tribe's execution effective including a final and nonappealable decision of a tribal court of competent jurisdiction that the Tribe's execution of this gaming agreement is effective and that all parts and provisions of the gaming agreement are enforceable by and against the Tribe as set forth herein;

(b) any federal regulatory approval required under federal law and, if so required, publication in the Federal Register or satisfaction of any other requirement of federal law; and

(c) payment of the Start-up Assessment provided for in Section 14.2 of this gaming agreement.

Sec. 18.2. This gaming agreement shall have an initial term of 10 years from the effective date, renewable for an additional 10 years; provided that the Tribe and the State, acting through its Governor, may renegotiate the terms of this gaming agreement after the initial term. The Tribe's noncompliance with any operational, reporting, or other requirements under this gaming agreement shall justify termination of operation of video lottery terminals on the Tribe's Indian lands. The Tribe shall be entitled to notice and a hearing on the compliance issue as set forth under Chapter 466, Texas Government Code, and accompanying rules of the Texas regulatory commission. If the Tribe does not remedy the noncompliance issue within 180 days of the termination or 60 days after a final decision of the commission that the Tribe is out of compliance, then this gaming agreement shall terminate without penalty against the commission or the State.

Sec. 18.3. This gaming agreement shall remain in full force and effect until the sooner of expiration of the term, termination as provided herein, or termination by mutual consent of the parties. In addition to the remedies set forth above, either party may bring an action in federal court, after providing a 60-day written notice of an opportunity to cure any alleged breach of this gaming agreement, for a declaration that the other party has materially breached this gaming agreement. On issuance of such a declaration, the complaining party may unilaterally terminate this gaming agreement on service of written notice on the other party. In the event a federal court determines that it lacks jurisdiction over such an action, the action may be brought in the district court for the county in which the Tribe's video lottery terminal establishment is located. The parties expressly waive their immunity to suit for purposes of an action under this subsection, subject to the qualifications stated herein. Nothing in this provision shall be construed to limit other remedies available to and contract penalties enforceable by the Texas regulatory commission, as expressly provided herein, in the event of the Tribe's material breach. The Tribe and the State recognize and agree that the narrow and enumerated provisions for such immediate remedies and enforcement by the State are necessary to protect the public health, safety, and welfare and the integrity of the video lottery.

SECTION 19.0. AMENDMENTS; RENEGOTIATIONS.

Sec. 19.1. The terms and conditions of this gaming agreement may be amended at any time by the mutual and written agreement of both parties.

Sec. 19.2. This gaming agreement is subject to renegotiation in the event the Tribe wishes to engage in forms of Class III gaming other than those games authorized herein and requests renegotiation for that purpose, provided that no such renegotiation may be sought for 24 months following the effective date of this gaming agreement.

SECTION 20.0. AUTHORITY TO EXECUTE.

This gaming agreement, as an enactment of the State Legislature, is deemed approved by the State. On valid execution by the Tribe and the Governor of the State, no further action by the State or any state official is necessary for this gaming agreement to take effect on any necessary approval by any federal agency as required by applicable federal law, including publication in the Federal Register, if required. The undersigned tribal official or officials represent that the official or officials are duly authorized and have the authority to execute this gaming agreement on behalf of the Tribe for whom the official or officials are signing. APPROVED: [Name of Tribe] _________________________Date:__________ [CHIEF EXECUTIVE OFFICER] State of Texas _________________________Date:__________ Governor of Texas

Sec. 466.605. NEGOTIATION FOR DIFFERENT GAMING AGREEMENT TERMS. (a) Nothing in this subchapter may be construed to limit the ability of a federally recognized Indian tribe to request that a gaming agreement be negotiated with this state on terms that are different from those set forth in the gaming agreement under Section 466.604, or the ability of this state to engage in negotiations and to reach agreement under any applicable federal law.

(b) In offering to enter into a gaming agreement with Indian tribes in this state under Section 466.604(b), and, except for assessments by this state as provided in that section of the amounts necessary to defray state costs of regulating activities as provided under the gaming agreement, nothing in this chapter may be construed to mean that:

(1) this state is imposing any tax, fee, charge, or other assessment on an Indian tribe or on any other person or entity authorized by an Indian tribe as a condition to engaging in a Class III activity; or

(2) this state is refusing to enter into gaming agreement negotiations based on the lack of authority of this state or a political subdivision of this state to impose the tax, fee, charge, or other assessment.

(c) If any federally recognized tribe with jurisdiction over Indian lands in this state requests that the governor enter into negotiations for a gaming agreement under federal law applicable to the tribe, including the Indian Gaming Regulatory Act (18 U.S.C. Section 1166 and 25 U.S.C. Section 2701 et seq.), on terms different than those prescribed in the gaming agreement in Section 466.604(b), the governor shall enter into those negotiations under the federal law applicable to the tribe and without preconditions and is authorized to reach agreement and execute the agreement on behalf of this state, provided that the gaming agreement does not expand the scope of gaming expressly authorized under this chapter and entitles the tribe only to operate video lottery terminals in strict compliance with state law, unless otherwise required by applicable federal law, and provided that the gaming agreement includes the following provisions:

(1) a provision prescribing that the tribe is authorized and allowed to engage only in the Class III gaming activities expressly referred to in the gaming agreement or authorized under Texas law and may not engage in Class III gaming that is not expressly authorized in the gaming agreement or under Texas law;

(2) a provision prescribing that any operation or possession by the tribe of any gaming devices not expressly authorized under the gaming agreement or other Texas law, excluding any Class II gaming authorized under applicable federal law, shall be considered a material breach of the gaming agreement and justify termination of the agreement and this state may bring an action in federal court or, in the event the federal court declines jurisdiction, in state court and shall be entitled to an injunction prohibiting the continued operation of any unlawful gaming activity on the tribal lands on a showing by a preponderance of evidence that the breach has occurred;

(3) a provision waiving state and tribal sovereign immunity for purposes of operation of video lottery terminals and enforcement of the gaming agreement, provided that this state may not waive sovereign immunity except to the extent expressly permitted under Section 466.601;

(4) a provision establishing minimum internal control standards at least as restrictive as those provided under this subchapter and any standards set forth under applicable federal law;

(5) a provision requiring any video lottery manager doing business on Indian lands to indemnify and hold harmless the commission, this state, and the members, officers, employees, and authorized agents of the commission and this state from any and all claims which may be asserted against a license or certificate holder, the commission, this state, or the employees arising from the license or certificate holder's participation in the video lottery system authorized under the gaming agreement;

(6) a provision requiring the tribe to pay all regulatory costs incurred by this state in relation to the operation of video lottery terminals on the Indian lands of the tribe to assure compliance with all federal and state law and all provisions of the agreement;

(7) a provision recognizing the substantial benefit of the exclusivity or other substantial benefits afforded to the tribe under the agreement and providing for the sharing of net terminal revenue between the tribe and this state as payment for the exclusivity or other substantial benefit;

(8) a provision establishing investigative and licensing standards at least as restrictive as those provided under this subchapter and under any applicable federal law;

(9) a provision requiring video lottery terminals and facilities operating the video lottery terminals authorized under the gaming agreement to be owned by the tribe;

(10) a provision requiring the video lottery games authorized by the gaming agreement to be licensed by the tribe in conformity with the requirements of the agreement, the Tribal Gaming Ordinance, and any applicable federal law every five years and the tribe shall review and renew the license, if appropriate, and provide to the commission verification that this requirement has been satisfied;

(11) a provision requiring the licensing of all video lottery employees and any person extending financing, directly or indirectly, to the tribe's video lottery operation before extending that financing, provided that any person who is extending financing at the time of the execution of the agreement must be licensed by the tribe not later than the 90th day after the date of execution, and the provision may allow the tribe, in its discretion, to exclude from the licensing requirements of this section financing provided by:

(A) a federally regulated or state-regulated bank, savings and loan, or other federally or state-regulated lending institution;

(B) any federal, state, or local government agency; or

(C) any investor who, alone or in conjunction with others, holds less than 10 percent of any outstanding indebtedness evidenced by bonds issued by the tribe;

(12) a provision allowing the commission, under the provisions of the gaming agreement, to monitor the conduct of video lottery games to ensure that the video lottery games are conducted in compliance with the provisions of the agreement, and granting the Department of Public Safety and agents of the commission reasonable access to all areas of the facility related to the conduct of video lottery games in order to properly monitor the conduct of video lottery games;

(13) a provision specifying jurisdiction of tribal, state, and federal courts with regard to matters arising from the gaming agreement or the operation of video lottery terminals, or both, as authorized by the agreement and consistent with Section 466.601;

(14) a provision requiring the tribe to adopt and comply with standards at least as stringent as state public health standards for food and beverage handling at any facilities where video lottery terminals are operated;

(15) a provision requiring the tribe to adopt and comply with standards at least as stringent as federal water quality and safe drinking water standards applicable in this state at any facilities where video lottery terminals are operated, and requiring the tribe to allow for inspection and testing of water quality by state or county health inspectors, as applicable, during normal hours of operation, to assess compliance with these standards, unless inspections and testing are made by an agency of the United States pursuant to or by the tribe under express authorization of federal law to ensure compliance with federal water quality and safe drinking water standards;

(16) a provision requiring the tribe to carry at least $5 million in public liability insurance for patron claims and providing reasonable assurance that the claims will be promptly and fairly adjudicated and that legitimate claims will be paid;

(17) a provision requiring the tribe to adopt and comply with standards at least as stringent as federal workplace and occupational health and safety standards for any facilities where video lottery terminals are operated, and requiring the tribe to allow for inspection of the workplaces by state inspectors during normal hours of operation to assess compliance with these standards, unless inspections are regularly made by an agency of the United States government to ensure compliance with federal workplace and occupational health and safety standards;

(18) a provision requiring the tribe to adopt and comply with standards at least as stringent as federal laws and state laws forbidding employers generally from discriminating in the employment of persons to work for the facility operating video lottery terminals on the basis of race, color, religion, national origin, gender, sexual orientation, age, or disability, provided that nothing in the provision precludes the tribe from giving a preference in employment to tribe members, pursuant to a duly adopted tribal ordinance;

(19) a provision requiring the tribe to adopt and comply with standards that are at least as stringent as state laws prohibiting the use of proceeds of a check issued as a payment under the financial assistance program under Chapter 31, Human Resources Code, or a food stamp coupon issued under the food stamp program administered under Chapter 33, Human Resources Code, for gaming or other wagering;

(20) a provision requiring the tribe to adopt and comply with standards at least as stringent as state laws governing the extension of credit to, the cashing of checks for, and other financial transactions with patrons calculated to protect players from problem and compulsive gambling;

(21) a provision requiring the tribe to participate in state statutory programs related to employment in video lottery terminal operations or instead of participation in this state workers' compensation system, allowing the tribe to create and maintain a system that provides redress for employee work-related injuries through requiring insurance or self-insurance that includes a scope of coverage, availability of an independent medical examination, right to notice, hearings before an independent tribunal, a means of enforcement against the employer, and benefits comparable to those mandated for comparable employees under state law;

(22) a provision requiring the tribe to make reasonable provisions for adequate emergency fire, medical, and related relief and disaster services for patrons and employees of the video lottery terminal operations;

(23) a provision:

(A) requiring the tribe to prohibit the intentional, knowing, or reckless possession of a firearm, illegal knife, club, explosive weapon, machine gun, firearm silencer, knuckles, armor-piercing ammunition, a chemical dispensing device, or a zip gun, as those terms are defined in Section 46.01, Penal Code, at all times in the video lottery terminal establishment;

(B) requiring the defenses that apply to the possession of weapons on the premises of a racetrack under Section 46.03, Penal Code, to apply to possession of the weapons in a video lottery terminal establishment; and

(C) requiring tribal security or tribal law enforcement personnel to be allowed to possess firearms and clubs at a video lottery terminal establishment as authorized by tribal law;

(24) a provision requiring the tribe to agree that on or before the effective date of the agreement, or not less than 90 days before the commencement of any project constructed to serve as the site of video lottery terminals, the tribe shall adopt an ordinance providing for the preparation, circulation, and consideration by the tribe of environmental impact reports concerning potential off-reservation environmental impacts of the construction to be commenced on or after the effective date of the agreement;

(25) a provision requiring the tribe to agree to establish separate electronic funds transfer accounts for the purposes of depositing money from video lottery terminal operations, making payments to the commission, and receiving payments from the commission, which must prohibit the tribe from making payments to the commission in cash, but as authorized by the commission may allow a tribe to make payments to the commission by cashier's check;

(26) a provision requiring the tribe to adopt and comply with the Bank Secrecy Act (31 U.S.C. Sections 5311-5314), as amended, and all reporting requirements of the Internal Revenue Service, insofar as the provisions and reporting requirements are applicable to gaming facilities; and

(27) a provision requiring the tribe to collect and remit to the comptroller state sales and use taxes and state taxes on motor fuels, alcoholic beverages, cigarettes and tobacco products, and hotel occupancy generated at a video lottery terminal establishment, other than on an item sold to or used or consumed by a tribe member.

(d) The legislature finds that, in any proceeding described by Subsection (c)(2), irreparable injury and inadequate remedy at law shall be presumed once this state has demonstrated that the violation has occurred. If this state does not seek an injunction for such a material breach of the gaming agreement, the tribe agrees to pay a contract penalty of $10,000 per day for every day the violation or breach continues. If the violation or breach is not cured within 10 days, this state may bring an action to enjoin the unlawful conduct.

Sec. 466.606. IMPLEMENTATION OF GAMING AGREEMENT. The governor shall execute any documents necessary to implement a gaming agreement authorized under this subchapter.

Sec. 466.607. INCORPORATION INTO STATE LAW. The model gaming agreement set out in Section 466.604(b) is hereby incorporated into state law, and the operation of video lottery terminals authorized under the agreement is expressly authorized as a matter of state law for any Indian tribe entering into the gaming agreement in accordance with this subchapter.

Sec. 466.608. REGULATORY MONEY RECEIVED UNDER GAMING AGREEMENT. All money received by the commission under a gaming agreement for regulatory costs incurred relative to tribal operations of video lottery terminals shall be deposited to the credit of the state video lottery account to defray expenses of the commission incurred in the oversight, compliance with, and enforcement of video lottery terminal operations conducted pursuant to a gaming agreement.

SECTION 29. Section 467.001, Government Code, is amended by amending Subdivision (9) and adding Subdivision (12) to read as follows:

(9) "Person that has a significant financial interest in the lottery" means:

(A) a person or a board member, officer, trustee, or general partner of a person that manufactures, distributes, sells, or produces lottery equipment, video lottery equipment, video lottery games, video lottery central systems, supplies, services, or advertising;

(B) an employee of a video lottery terminal provider, video lottery central system provider, or person that manufactures, distributes, sells, or produces lottery equipment, supplies, services, or advertising or video lottery equipment or games and that employee is directly involved in the manufacturing, distribution, selling, or production of lottery equipment, supplies, services, or advertising or video lottery equipment or games;

(C) a person or a board member, officer, trustee, or general partner of a person that has made a bid to operate the lottery in the preceding two years or that intends to make a bid to operate the lottery or an employee of the person if the employee is directly involved in making the bid; or

(D) a sales agent, video lottery retailer, video lottery manager, video lottery terminal provider, or video lottery central system provider.

(12) "Video lottery central system," "video lottery equipment," "video lottery game," "video lottery manager," "video lottery retailer," and "video lottery terminal provider" have the meanings assigned by Section 466.002.

SECTION 30. Section 467.031, Government Code, is amended to read as follows:

Sec. 467.031. DIVISIONS; DIRECTOR; CONTRACT. The commission shall establish separate divisions to oversee bingo and the state lottery. The commission shall employ a director to oversee video lottery and shall enter into an intra-agency agreement with the Texas Racing Commission for the Texas Racing Commission to be responsible for performing the inspections and regulatory functions specified in the agreement at racetracks on behalf of the Texas Lottery Commission.

SECTION 31. Section 467.035(a), Government Code, is amended to read as follows:

(a) The commission may not employ or continue to employ a person who owns a financial interest in:

(1) a bingo commercial lessor, bingo distributor, or bingo manufacturer; or

(2) a lottery sales agency, [or] a lottery operator, a video lottery retailer, a video lottery manager, a video lottery terminal provider, a video lottery central system provider, or a manufacturer of video lottery games.

SECTION 32. Section 467.108, Government Code, is amended to read as follows:

Sec. 467.108. REPRESENTATION BY FORMER OFFICER OR EMPLOYEE. (a) A former commission member, former executive director, or former director may not:

(1) [for compensation,] represent a person, either with or without compensation, [that has made or intends to make a bid to operate the lottery] before the commission before the fifth [second] anniversary of the date that the person's service in office or employment with the commission ceases;

(2) represent any person or receive compensation for services rendered on behalf of any person regarding a particular matter in which the former officer or employee participated during the period of service or employment with the commission, either through personal involvement or because the matter was within the scope of the officer's or employee's official responsibility; or

(3) [for compensation] communicate on behalf of any person, whether compensated or not compensated, directly with a member of the legislative branch to influence legislation on behalf of a person that has any [a significant financial] interest in the lottery, before the fifth [second] anniversary of the date that the person's service in office or employment with the commission ceases.

(b) A person commits an offense if the person violates this section. An offense under this section is a felony of the third degree [Class A misdemeanor].

SECTION 33. Section 411.108, Government Code, is amended by adding Subsection (d) to read as follows:

(d) The Texas Lottery Commission may obtain from the department, subject to an interagency agreement entered into under Section 466.020(d) or 466.206, criminal history record information maintained by the department that relates to any natural person, corporation, association, trust, partnership, limited partnership, joint venture, government, subsidiary, or other entity, regardless of its form, structure, or nature that the commission has the authority to investigate under Chapter 466 as related to the commission's operation and oversight of video lottery. Criminal history record information obtained by the commission under this subsection may be released or disclosed only as provided in Sections 466.022(d) and 466.206.

SECTION 34. Section 47.01(4), Penal Code, is amended to read as follows:

(4) "Gambling device" means any electronic, electromechanical, or mechanical contrivance not excluded under Paragraph (B) that for a consideration affords the player an opportunity to obtain anything of value, the award of which is determined solely or partially by chance, even though accompanied by some skill, whether or not the prize is automatically paid by the contrivance. The term:

(A) includes, but is not limited to, gambling device versions of bingo, keno, blackjack, lottery, roulette, video poker, slot machines, or similar electronic, electromechanical, or mechanical games, or facsimiles thereof, that operate by chance or partially so, that as a result of the play or operation of the game award credits or free games, and that record the number of free games or credits so awarded and the cancellation or removal of the free games or credits; and

(B) does not include any electronic, electromechanical, or mechanical contrivance designed, made, and adapted solely for bona fide amusement purposes if:

(i) the contrivance rewards the player exclusively with noncash merchandise prizes, toys, or novelties, or a representation of value redeemable for those items, that have a wholesale value available from a single play of the game or device of not more than 10 times the amount charged to play the game or device once or $5, whichever is less;

(ii) any merchandise or a representation of value received by a player may be exchanged only at the same business and business location at which the contrivance operated by the player is located and may not be exchanged for a gift certificate or similar conveyance that is redeemable at another business or business location; and

(iii) the contrivance or device does not resemble a slot machine or any other casino game.

SECTION 35. Section 47.06(e), Penal Code, is amended to read as follows:

(e) An offense under this section is a felony of the third degree [Class A misdemeanor].

SECTION 36. Section 47.09, Penal Code, is amended by adding Subsection (c) to read as follows:

(c) Subsection (a)(3) applies to a person manufacturing, distributing, possessing, or operating a gambling device with the authorization of the Texas Lottery Commission under Subchapter K, Chapter 466, Government Code.

SECTION 37. Chapter 47, Penal Code, is amended by adding Section 47.095 to read as follows:

Sec. 47.095. INTERSTATE OR FOREIGN COMMERCE DEFENSE. It is a defense to prosecution under this chapter that a person sells, leases, transports, possesses, stores, or manufactures a gambling device with the authorization of the Texas Lottery Commission under Subchapter K, Chapter 466, Government Code, for transportation in interstate or foreign commerce.

SECTION 38. (a) As soon as practicable after the constitutional amendment to authorize video lottery games by licensed racetrack operators and certain Indian tribes proposed by the 80th Legislature, Regular Session, 2007, is approved by the voters and becomes effective, the Texas Lottery Commission and the Texas Racing Commission shall adopt the rules necessary to implement video lottery in accordance with Subchapter K, Chapter 466, Government Code, as added by this Act.

(b) Before the proposed constitutional amendment is submitted to the voters, the Texas Lottery Commission may expend money from the commission's appropriation for the 2008-2009 state fiscal biennium for purposes of conducting pre-implementation activities to establish the state video lottery system in accordance with Subchapter K, Chapter 466, Government Code, as added by this Act. Notwithstanding Section 466.355, Government Code, the money authorized to be expended under this section may be withdrawn from the state lottery account and considered a part of the transfer of funds from the state lottery account authorized under Section 466.589, Government Code, as added by this Act, to fund the establishment of the state video lottery system.

SECTION 39. The change in law made by this Act applies only to an offense committed on or after the effective date of this Act. An offense committed before the effective date of this Act is covered by the law in effect when the offense was committed, and the former law is continued in effect for that purpose. For purposes of this section, an offense was committed before the effective date of this Act if any element of the offense was committed before that date.

SECTION 40. Sections 1 through 37 and 39 of this Act take effect on the date the amendment to Section 47, Article III, Texas Constitution, authorizing the operation of video lottery games by licensed racetrack operators and certain Indian tribes proposed by the 80th Legislature, Regular Session, 2007, becomes effective. Section 38 of this Act and this section take effect immediately if this Act receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, Section 38 of this Act and this section take effect September 1, 2007.