A Progress Report from MGAM

29 August 2002

Citing a need to keep investors informed, executives with Multimedia Games Inc. offered un update today regarding ongoing negotiations between the company and the federal government to reach an out-of-court settlement in the company's MegaNanza lawsuit.

Although neither side is at liberty to discuss the talks, MGAM's CEO Gordon Graves said many investor's were aware the talks were underway, which had started on Wednesday and were scheduled to conclude on Thursday until the judge handling the negotiations postponed the second day until Sept. 9.

In April, MGAM filed a suit seeking a declaration from the federal courts that its MegaNanza family of games, the company's most popular and most profitable suite of games, be classified as a Class II game.

The suit was filed after the National Indian Gaming Board issued an advisory opinion that MegaNanza is a Class III bingo game, which means that it can only be legally conducted on Indian lands if permitted under compacts between a state and a Native American tribe.

Multimedia Games had requested to have MegaNanza classified as Class II, which includes bingo and bingo-like games that can be legally played on Indian lands without state or local government approval.

As part of the suit, the company and its tribal partners received a preliminary injunction preventing the NIGC from taking further enforcement action them until the courts made a final ruling on the Class II status of MegaNanza.

The Judge in the case also ordered that the two sides try to work out a settlement in the interim.

Graves said he couldn't comment on the particulars of the talks, but he did say that the government has shown little give-and-take in the negotiating and isn't banking on a resolution quickly.

"They really have nothing to lose by challenging this," he said.

Graves said MegaNanza is a "bonanza-style" game. Bonanza-style games are popular at Indian reservations throughout the country, he said. The games involve balls being drawn before the cards are sold to players. That element of the interactive version, Graves said, made it no longer qualify as a bingo game in the eyes of the NIGC.

MGAM hasn't let the court battle stop it from rolling out its Reel-Time bingo game, which has caught on with many MegnaNanza players.

Graves said about 20 percent of the company's terminals at Indian gaming facilities are equipped with the Reel-Time version game and the company is working to increase that number this quarter as the game is refined.

After the first day of settlement talks between the two parties, the judge in the federal court for the Northern District of Oklahoma rescheduled the second day and recommended that the two parties continue talking.

Graves, though, gave no indication that any progress could be made prior to then, but it won't be from a lack of effort on his company's part.

"We will make every effort to find some compromise acceptable to all parties, but I am not overly optimistic," he said. "The outcome of these discussions and of the litigation generally is inherently unpredictable."