AWI Stipulation

17 July 2000



WHEREAS, the STATE GAMING CONTROL BOARD (BOARD), filed and served Disciplinary Complaint (Complaint) against AMERICAN WAGERING INC. (AWI), a Nevada gaming corporation, dba MEGASPORTS PTY. LTD (MEGASPORTS AUSTRALIA), alleging violations of the Nevada Gaming Control Act and Regulations of the Nevada Gaming Commission (Commission); and

WHEREAS, the B0ARD and AWI desire to settle said Complaint in an amicable and expeditious manner;

NOW, THEREFORE, it is hereby stipulated to by and between the BOARD and AWI, that the Complaint filed in NGC Case No. 99-27, shall be settled on the following terms and conditions as set forth within this settlement agreement:

1. AWI admits each and every factual allegation contained in Count 1 of the Complaint except as follows:

a. As it would relate to paragraph 2 incorporated by reference, AWI does not hold a nonrestricted gaming license in Nevada, rather AWI is a publicly traded company registered with the Commission.

b. With respect to the allegations contained in paragraph 18 of the Complaint, AWI neither admits nor denies that a MEGASPORTS AUSTRALIA employee indicated to the BOARD agent identified as James Lawrence that the money in his account could be sent anywhere.

2. AWI neither admits nor denies the allegations contained in Counts II-XIII of the Complaint. However, in the interest of amicable and expedient resolution of this case, AWI agrees to resolve Counts II-XIII without filing an answer or otherwise contesting the allegations in these Counts.

3. AWI shall pay a fine in the total amount of TEN THOUSAND DOLLARS ($10,000.00) on the date this settlement agreement is accepted by the Commission. In the event that AWI does not pay the total amount on the date that this matter is heard by the Commission, the Commission shall have the sole discretion to either deny the settlement, postpone the matter until a future meeting, or accept this settlement agreement with the added condition that interest on any unpaid portion of the fine amount shall accrue at nine and three-quarter percent (9 ¾%) per annum computed from the date payment is due until payment is made in full.

4. This settlement is made for the purposes of avoiding litigation and economizing resources. The BOARD and AWI acknowledge and agree that there is no evidence that the violations alleged in the Complaint were the result of any willful act or omission by AWI or its directors, officers or employees, except for that which has otherwise been identified in this agreement.

5. In order to settle this matter, AWI hereby agrees to completely divest any and all interests and rights whatsoever of its operation being conducted in Australia known as MEGASPORTS AUSTRALIA, a wholly owned subsidiary of AWI. AWI must be completely divested from MEGASPORTS AUSTRALIA no later than 180 days after the Commission's approval of the settlement agreement in NGC Case No. 99-27 or within any extension of that time period granted pursuant to paragraph 6, below.

6. If after the 180 days, AWI has not completely divested itself from MEGASPORTS AUSTRALIA, within three (3) business days of the expiration of the initial 180 day period, AWI may request the BOARD Chairman to extend the time for divestiture for a period of 60 days. Such requests must be made in writing, and any refusal to extend the time must also be in writing no later than 10 business days after the request for extension is made. The BOARD Chairman may not grant more than three (3) such extensions. If the BOARD Chairman does not grant the extension requested or if the allowed extensions by the BOARD Chairman have been exhausted, AW] may petition the Commission for an extension of time. The Petition for an Extension of Time by which to Complete Divestiture (Petition) must be filed and scheduled to be heard at the next regularly scheduled Commission meeting following the refusal of the BOARD Chairman to grant the requested extension or the expiration of the BOARD Chairman's allowed extension. The Petition must be filed with the Commission, and the hearing on the Petition must made during an open and public meeting, at which time the BOARD shall have the opportunity to present evidence either supporting or opposing AWI's Petition. An extension of time may be granted, only upon AWI providing a good faith showing, by clear and convincing evidence, that reasonable and ongoing efforts have been made to effectuate the divestiture. If the Petition is denied, AW] agrees to the imposition of the penalties contained within paragraph 9 of this settlement agreement.

7. The BOARD acknowledges that AWI has taken aggressive and prompt remedial measures to prevent the conduct alleged in the Complaint from recurring in the future. Such remedial measures are to continue during the interim period between the Comrnission's approval of the settlement agreement in NGC Case No. 99-27 and AWI's complete divestiture from MEGASPORTS AUSTRALIA.

8. The BOARD and AWI hereby stipulate and agree that AWI's Order of Registration shall be, and upon Commission approval will be, immediately conditioned as follows:

a. AWI shall provide the State Gaming Control Board (Board) with bimonthly reports related to the initial blocked Internet access to the MegaSports Australia site.

b. In addition to verification procedures utilized by MegaSports Australia employees in Australia, the AWI Director of Regulatory Compliance shall routinely and randomly audit the procedures utilized by the Australian employees for compliance with internal control procedures, and shall perform additional identification verification procedures if necessary.

c. AWI shall provide the Board with bimonthly reports of any denied account applications.

d. AWI shall provide the Board with notification of any active MegaSports Australia account determined, subsequent to opening, to have originated in the United States. Any such account shall be immediately closed and the wagers therein rescinded. AWI shall notify the Board within forty-eight (48) hours of detecting such account and shall provide written proof within forty-eight (48) hours after the account was closed.

e. AWI shall provide the Board with monthly account summaries, including information related to account activity, patron identification and account balances.

f AWI shall continue to work with Internet consultants in order to develop better technology to target Internet access origins, and shall further provide the Board with monthly reports related to such developments.

g. Should the complete divestiture fail to be completed within 180 days of the Nevada Gaming Commission's acceptance of the Settlement agreement in NGC Case No. 99-27, AWI shall immediately notify the Board and request an extension from the Board Chairman Or Commission pursuant to paragraph 6 of this settlement agreement. AWI shall provide the Board with monthly status reports related to their efforts to locate a new purchaser for MegaSports Australia.

9. In the event that AWI fails to completely divest itself from MEGASPORTS AUSTRALIA within the 180 day period, or at the end of any extension of time granted, as described in paragraph 6 of this settlement agreement, AWI agrees that MEGASPORTS AUSTRALIA will cease taking wagers and freeze all current wagering accounts within 24 hours pending a hearing before the Commission to discuss AWI's compliance with this settlement agreement. Said hearing shall be held o later than the next regularly scheduled meeting of the Commission. After hearing, the Commission may grant any extension of time the Commission deems appropriate or the Commission may order AWl to:

a. Shut down all operations of MEGASPORTS AUSTRALIA within 72 hours of the Commission's written determination that AWI has failed to act in good faith in attempting to divest itself of its interest in MEGASPORTS AUSTRALIA, except for purposes of informing holders how to receive refunds on their accounts.

b. Cause MEGASPORTS AUSTRALIA to pay back all monies owed on its wagering accounts within 30 days.

10. AWI hereby acknowledges and admits that if it fails to comply with any of the time frames or conditions as set forth in paragraphs 8 and 9 that each such failure may be deemed an unsuitable method of operation under Nevada Gaming Commission Regulation 5.011 and, as such, may be grounds for further disciplinary action and that such allegations may be considered by the Commission during any hearing held before the Commission pursuant to paragraphs 6 or 9, above.

11. AWI fully understands and voluntarily waives the right to a public hearing on the charges and allegations in the Complaint, the right to present and cross-examine witnesses, the right to a written decision on the merits of the Complaint which must contain findings of fact and a determination of the issues presented, and the right to obtain judicial review of the Commission's decision.

12. In consideration of the execution of this settlement agreement, AWI, for itself, its heirs, executors, administrators, successors, and assigns, hereby releases, remises, and forever discharges the State of Nevada, the Commission, the BOARD, the Nevada Attorney General, and each of their members, agents, and employees in their individual and representative capacities, from any and all manner of actions, causes of action, suits, debts, judgments, executions, claims, and demands whatsoever known or unknown, in law or equity, that AWI ever had, now has, may have, or claims to have against any and all of the persons or entities named in this paragraph, arising out of or by reason of this investigation, of the allegations in the Complaint filed in NGC Case No. 99-27, this disciplinary action, or any other matter related hereto.

13. In consideration of the execution of this settlement agreement, AWI hereby indemnities and holds harmless the State of Nevada, the Commission, the BOARD, the Nevada Attorney General, and each of their members, agents, and employees in their individual and representative capacities against any and all claims, suits and actions, brought against said persons by reason of the investigation of the allegations in the Complaint filed in NGC Case No. 99-27, this disciplinary action and all other matters relating thereto, and against any and all expenses, damages, charges and costs, including court costs and attorneys' fees which my be sustained by the persons and entities named in this paragraph as a result of said claims, suits and actions.

14. AWI enters into this settlement agreement freely and voluntarily and with the assistance of legal counsel. AWI affirms that this settlement is not the product of force, threats nor is influenced by any form of duress or coercion, and has executed this settlement agreement only after understanding the terms thereof. The BOARD and AWI acknowledge that the settlement agreement is the product of discussions between AM's legal counsel and the attorney for the BOARD.

15. AWI and the BOARD recognize and agree that the Commission has the sole and absolute discretion to determine whether to accept this settlement agreement. AWI and the BOARD hereby give any right they might have to challenge the impartiality of the Commission to hear the above entitled case on the matters embraced in the Complaint if the Commission determines in its sole and absolute discretion not to accept this settlement agreement. If this Settlement agreement is not accept by the Commission, it shall be withdrawn as null and void, and any admissions by the AWI that any violation of the Nevada Revised Statutes or Nevada Gaming Commission Regulations occurred, shall be withdrawn.

16. AWI and the BOARD agree and understand that this settlement agreement is intended to operate as full and final settlement of the Complaint filed in NGC Case No. 99-27. The parties further agree that any oral representations are superseded by this agreement and that only those terms contained in writing herein are effective.

17. AWI agrees and understands that although this settlement agreement, if approved by the Commission, will settle the Complaint filed in NGC Case No. 99-27, that the allegations contained in the Complaint and the terms of this settlement agreement may be considered by the BOARD, and/or the Commission, with regards to any and all applications by AWI that are currently pending before the BOARD or Commission,, or that are filed in the future with the BOARD.

18. AWI and the BOARD shall each bear their own costs incurred in this disciplinary action.

19. This settlement agreement shall become effective immediately upon approval by the Commission.

DATED this 12th day of July, 2000.



Counsel to AWI

Submitted by:
Attorney General

Deputy Attorney General
Gaming Division

IT IS SO ORDERED. DATED this ___ day of __________, 2000.

BY: Editors Note: not signed as of yet